Consumer sector’s top-lines to be robust, bottom-line still challenging
KUCHING: The consumer sector’s top-lines are expected to be robust as Malaysia moves into the endemic stage, but analysts note that companies’ bottomline are still challenging given the global supply chain issues.
The research arm of Kenanga Investment Bank Bhd (Kenanga Research) reiterated its ‘neutral’ stance on the consumer sector as margins will still be challenging going in 2022.
“Top-lines are expected to be robust if not be er as the nation moves into the endemic stage starting this month with operating hours back to the pre-pandemic stage for certain business activities, benefi ing retailers especially,” Kenanga Research said.
“The endemic phase will see travel restrictions phased out (including those from overseas) boosting further the hotel, restaurant and cafe (HORECA) channels.
“Demand ahead looks likely to be supported by incoming festivities boosting sales with food and beverage producers will be up towards full utilisation.
“However, bo om-line are still challenging given the global supply chain issues – leading to volatile input prices and freight charges.”
According to Kenanga Research, inflationary pressure is also rearing its ugly head as commodities demand outstrips supply coupled with geo-political risks arising from the Russia-Ukraine war.
“The unfavorable ringgit is also a challenge as most of the stocks in our consumer stocks universe are domestic players relying on imported supply of raw materials and commodities.”
While the research arm observed that some producers have started to pass on these rising inputs costs to consumers, the large consumer staple producers are still understandably cautious in doing so.
“Given these risks, we reiterate ‘neutral’ for the sector but there are some undervalued large cap stocks in our stock coverage universe such as Aeon Co. (M) Bhd (Aeon), Fraser & Neave Holdings Bhd, Padini Holdings Bhd (Padini), and British American Tobacco (Malaysia) Bhd.”
Kenanga Research’s top picks for this round are Aeon and Padini, benefiting from full opening of the economy, margins looking solid as both are not affected by volatile raw materials prices, financial muscle to absorb rising costs and laggard position (Aeon).