PETALING JAYA: Prospects of a sustained recovery is giving renewed hope for the consumer sector.
This is following the successful ramp up in the vaccination progress, which includes a larger proportion of dependents/teenagers and booster shots.
The government spending in the recent Budget 2022 also lends support to consumption and retaining jobs, which would underpin the sector’s fundamentals going into the financial year 2022, said RHB Research.
The research house sees more opportunities in the small-to-medium cap space to ride on the wave of the recovery theme.
It expects sequential improvements in earnings for the fourth quarter of 2021, as broader reopening of the economy materialises with the lockdown restrictions being lifted since August and further complemented by year-end festivities.
The dine-in green light, interstate travel, longer operating hours and higher workforce capacity according to the vaccination status all point to a pick-up in foot traffic and better sales performance from revenge spending, RHB Research said in its latest report.
Its intermittent ground checks since phase two of the National Recovery Plan also suggest that there has been a relatively palpable pick-up in consumer confidence after coming out one of, if not, the longest drawn-out lockdown the nation has ever seen.
“This is a positive sign,” the research house noted. The key catalysts for the consumer sector is the reopening of international borders to stimulate tourist-dependent businesses.
An economic recovery would also be essential in generating more jobs and income to spur consumer spending. However, the downside risks include a stronger-than-expected mutating virus which would impact the successful containment of Covid-19, weak consumer sentiment and slower-than-expected economic recovery.
“Any ensuing lockdowns following a major outbreak should be more targeted so that it is less disruptive,” added the research house.
RHB Research favours MR DIY Group (M) Bhd for its gravity-defying growth, driven by outlet expansion and an effective business model. The research house’s cyclical pick is MyNews Holdings Bhd as the group looks forward to footfall normalisation driving a broader-based recovery, in addition to the aggressive expansion of its newly-launched CU brand.
Berjaya Food Bhd is also a preferred recovery proxy, simultaneously offering investors stability in the event of a re-imposed lockdown owing to its alternative sales channels.
RHB Research sees Guan Chong Bhd as a recovery play, given its strong earnings trajectory at below sector average valuation.
New ventures into the Ivory Coast and Europe should be future earnings drivers for the world’s fourth-largest cocoa grinder, it added.
Of the 15 companies under its radar, five companies, namely, NTPM Holdings Bhd, Guan Chong, Nestle (M) Bhd, Carlsberg Brewery Bhd and Berjaya Food reported results that were in line with expectations for the third-quarter 2021 earnings.
Only Power Root Bhd, Heineken Malaysia Bhd and British American Tobacco Bhd’s earnings surprised on the upside, while the remaining companies reported earnings that fell short of expectations.
RHB Research added that the target price and earnings revisions, particularly for the financial year 2021, were mostly negative as the impact of the lockdown was worse-than-expected with Leong Hup International Bhd, Aeon Co (M) Bhd and Padini Holdings Bhd dipping into the red.
Source: https://www.thestar.com.my/business/business-news/2021/12/29/recovery-play-to-buoy-earnings