‘CONSUMER STOCKS TO PERFORM BETTER IN Q3’
Retail Group Malaysia expects 6.1pc and 4.3pc sales growth in last 2 quarters
ANALYST expects better reporting results by consumer stocks in the third quarter of this year with a final sprint in the last two months of the year.
Kenanga Investment Bank Research said with the implementation of the Sales and Services Tax (SST) from September 1, there would be a slight revision in pricing.
The new mechanism largely affects retailers with direct relationship with local manufacturers and high import content, while the others would only experience a knee-jerk reaction.
The firm said this was in line with the Retail Group Malaysia’s (RGM) targeted sales growth of 6.1 per cent in the third quarter.
RGM expects sales growth of 4.3 per cent in the fourth quarter after taking into account the end of the zero-rated Goods and Services Tax (GST) holiday and the implementation of SST.
Kenanga Research said in the second quarter, 12 out of 16 stocks under its coverage had hit their mark. They were Aeon Co (M) Bhd, Carlsberg Brewery Malaysia Bhd, Spritzer Bhd, Dutch Lady Milk Industries Bhd, Heineken Malaysia Bhd, Fraser & Neave Holdings Bhd, Mynews Holdings Bhd, Nestle (Malaysia) Bhd, Padini Holdings Bhd, Power Root Bhd, QL Resources Bhd and 7-Eleven Malaysia Holdings Bhd.
The other four stocks came in below expectations. They were Amway (Malaysia) Holdings Bhd, British American Tobacco (Malaysia) Bhd, Hai-O Enterprise Bhd and Parkson Holdings Bhd.
Most retailers posted stronger operational sales, buoyed by the combination of zero-rated GST holiday and Hari Raya festive season.
Kenanga Research maintained its “neutral” view on the consumer sector.
“Top-line expectations may be held back by a retracement in consumer spending as domestic currency does not appear to be strengthening. Prices for large cap food and beverage stocks appear to be flatlining,” it said.
The firm said there might be room for earnings to expand in lieu of higher margins secured by better commodity price trends.
Retailers with high import content may see a dampening impact from sales taxes, lower forex exposure against last year could potentially offset the higher tax function in their respective price models.
Kenanga Research maintained its “underweight” rating on the sin sub-sector.
It said while brewers resolved to raise product prices, reflective of the sales tax rate, consumers could be paying higher prices from additional service tax with purchases and consumption in food outlets.
“This could result in either lower overall demand for beverages or a skewed towards more offtrade purchases, which command lower margins,” it said.
Tobacco players will continue to see mounting pressure from the difficulty in adjusting prices to levels more favourable to consumers.
“Illegal tobacco products could potentially see further expansion from the widening price gap against the legal brands.
“While government channels appear to be working towards more aggressive enforcement to clamp down on the illicit market, its effectiveness may pose a question mark,” said Kenanga Research.
It added that while sin stocks may still command fair dividend yields of around four per cent, the potential capital downside may raise caution to yield-seeking investors.