HLIB Research: Consumer spending to remain subdued

PETALING JAYA: Consumer spending is expected to remain subdued despite the increase in disposable income from BR1M payments, the hike in minimum wage and a cut in mandatory EPF contributions.

HLIB Research said all these factors were being offset as companies had started passing costs to consumers.

It noted that four out of the six consumer stocks under its coverage had come in under expectations due to poor consumer sentiment domestically, the weak ringgit (which affected input costs) and higher operating costs from the hike in minimum wage that began since July 1, 2016.

“Over the past three years, companies have been mostly (absorbing) higher costs from the weaker ringgit (higher raw material costs) and higher labour costs from the minimum wage hike in July 2016 as evidenced in (their) core net profit narrowing year-on-year.

“With the relaxation of the Anti-Profiteering and Price Act in 2017, we expect companies to continue gradually pass on costs to consumers going forward, which we have already seen occurring in 2017 so far,” it said in a report. It maintained its neutral stance on the sector.

“Less than favourable near-term earnings outlook aside, we reckon that consumer stocks are already trading at historical highs.

“In the absence of near-term earnings recovery in sight, we believe it is unlikely for the sector to be re-rated anytime soon,” it said. The research house added that it did not have any top picks in the sector as consumer stocks were already trading at rich valuations.