We reckon that the retail sales growth for next year should
be more moderate as compared to the strong growth in 2012 given a slower
economy across the board. This is in line with our in-house economic forecasts
where we are anticipating lower private spending growth of 6.9% for 2013 as compared
to the stronger growth of 8.1% for 2012. We are also cautious on the regional players
as the slowdown of their retail operations
in the other regions, especially in China and Vietnam, will likely drag
down the performance of these regional retailers. As such, we are downgrading
our OVERWEIGHT call on the Consumer Retail sector to NEUTRAL. We have MARKET
PERFORM call on the big market capitalisation stocks such as AEON (TP: RM10.70)
and PARKSON (TP: RM4.86) while our OUTPERFORM calls are on the smaller cap stocks like AMWAY (M) (TP:
RM11.68) and ENGKAH (TP: RM4.02).
Pretty good 2012 but
anticipating a slower 2013. We anticipate the retail sales growth to
moderate next year as consumers remain cautious amid the slowing economy. This
is in line with our in-house economic forecasts where we are anticipating la
ower private spending growth of 6.9% for 2013 as compared to the stronger
growth of 8.1% for 2012. Nevertheless, this year remains a good year for
retailers as shown in the consumer sentiment index, where 1Q and 2Q readings
grew 5.6% and 6.5% YoY respectively. Furthermore, the Malaysian Retailer-Chains
Association (“MRCA”) has also revised its revenue growth projection for this year
higher from 5% to 6%, moving in sync with the retail sales growth projection of
6% by the Malaysian Retailers Association (“MRA”).
Challenging times
ahead for regional players. Regional retail sales are expected to ease further
across many markets due to the slowing economies worldwide, which has caused consumers
to cut down on some discretionary spending, especially in China and Vietnam. There
was a decrease in consumption demand and retail turnover in Vietnam while China
has registered slower growth in its retail sales YoY in recent quarters. Moving
in sync with the trend, the two regional operations of Parkson have also been
affected. Due to this, we recently downgraded Parkson to a MARKET PERFORM call
with a lower TP of RM4.86.
Leveraging on
property management services for higher margin. Suburban areas hae seen
developers building shopping centres in these areas such as Setia City Mall, Nu
Sentral and Paradigm Mall. Such shopping malls have been a success to cater to
the population in the surrounding neighborhoods. Taking the cue, AEON and
Parkson have also been targeting the smaller towns to build its own shopping
centres. For example, AEON (MP; TP: RM10.70) has three developments in the
pipeline separately in Sungai Petani, Bukit Mertajam and Kulai to cater to the
untapped market of the populations in these areas ranging from 160k to 450k. These
new shopping centres will add the group’s total outlets to more than 21 in
Malaysia. Parkson (MP; TP: RM4.86) has also adopted a similar business model
and had opened its first self-owned mall called KL Festival City last year. It had recently also bought a land in Melaka
for the future development of a shopping mall.
Organic growth. Meanwhile, MDTCC (Ministry of Domestic Trade,
Co-operatives and Consumerism) expects direct selling to grow to RM10b worth by
2015. On a straight-line basis, this
will translate to an estimated 10% growth for this year from RM6.5b in FY10,
which is higher than our more conservative projection of a 6.2% sales growth in
FY12 for AMWAY (M) (OP; TP: RM11.65), in line with the retail sales growth. We
reckon that the 10% organic growth will be partially contributed by a
conservative 2% growth per annum in the number of valid direct selling licenses
approved in Malaysia (refer to chart on next page).
Source: Kenanga
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