Rock solid. The world’s economy appears stormy as the Eurozone struggles with mounting debts and China is seeing softer domestic demand and slowing export growth. Although the weaker global economic outlook for 2013 might weigh on consumer sentiment and corporate earnings, we expect Malaysia’s consumer sector to outperform the market due to the inelastic demand for basic necessities. Malaysia’s economic prospects for 2013 seem bright with GDP expected to grow by 4.9% (MIER forecast) on the back of strong domestic consumption, boosted by stellar y-o-y growth in private and public consumption as well as investment outlays. Moving forward, we believe consumer spending will remain resilient, buoyed by steadily increasing household income as well as a low unemployment of 3%. Companies that rely on domestic demand are likely to deliver healthy top- and bottom-line results next year.
Sizeable middle-income group will support retail. Malaysia’s stable economic growth since the 1990s has lifted a large number of the population out of poverty, which in turn fuelled the demand for consumer staples. The recent implementation of the minimum wage policy for the private sector, which complements the National Transformation Policy to drive Malaysia towards a high-income nation by 2020, will also help bolster household disposable income. We expect the generous cash handouts to low-income households, personal tax rate reduction, and the special bonuses and incentives for the military forces and civil servants in the 2013 Budget to have some spillover effect on the overall consumer sector. Collectively, these should boost the disposable income of Malaysians, which will in turn spur consumption although it might not be enough to prop up purchases of big-ticket items.
Stable commodity prices buoy F&B sector. As demand for basic necessities is usually stable and inelastic, the performance of F&B companies depends largely on commodity prices and manufacturing costs. Raw material costs soared in 2010, biting into the margins of F&B players. Although prices for food commodities are still high, they have either stabilised or fallen from the peak on concerns that the European debt crisis will crimp demand. As spending on F&B comprises the largest component of monthly household expenditure in Malaysia, we expect demand for food to remain stable regardless of economic conditions.
Maintain OVERWEIGHT. We remain optimistic on the overall consumer sector as we believe that consumer spending will remain strong given the rising monthly household income backed by low unemployment rate and the implementation of the minimum wage policy. Consumption had been solid even during periods of slower real GDP growth and weaker consumer sentiment. Our top pick, QL Resources (BUY, FV: RM4.05), which is involved in basic food industry, still experienced resilient demand for its products during economic downturns. The company’s expansion into ASEAN countries with growing populations such as Indonesia and Vietnam is opennng up vast market opportunities, which bodes well for its long-term growth.
Sizeable middle-income group will support retail. Malaysia’s stable economic growth since the 1990s has lifted a large number of the population out of poverty, which in turn fuelled the demand for consumer staples. The recent implementation of the minimum wage policy for the private sector, which complements the National Transformation Policy to drive Malaysia towards a high-income nation by 2020, will also help bolster household disposable income. We expect the generous cash handouts to low-income households, personal tax rate reduction, and the special bonuses and incentives for the military forces and civil servants in the 2013 Budget to have some spillover effect on the overall consumer sector. Collectively, these should boost the disposable income of Malaysians, which will in turn spur consumption although it might not be enough to prop up purchases of big-ticket items.
Stable commodity prices buoy F&B sector. As demand for basic necessities is usually stable and inelastic, the performance of F&B companies depends largely on commodity prices and manufacturing costs. Raw material costs soared in 2010, biting into the margins of F&B players. Although prices for food commodities are still high, they have either stabilised or fallen from the peak on concerns that the European debt crisis will crimp demand. As spending on F&B comprises the largest component of monthly household expenditure in Malaysia, we expect demand for food to remain stable regardless of economic conditions.
Maintain OVERWEIGHT. We remain optimistic on the overall consumer sector as we believe that consumer spending will remain strong given the rising monthly household income backed by low unemployment rate and the implementation of the minimum wage policy. Consumption had been solid even during periods of slower real GDP growth and weaker consumer sentiment. Our top pick, QL Resources (BUY, FV: RM4.05), which is involved in basic food industry, still experienced resilient demand for its products during economic downturns. The company’s expansion into ASEAN countries with growing populations such as Indonesia and Vietnam is opennng up vast market opportunities, which bodes well for its long-term growth.
Source: OSK
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