Retail and Commodity, Encouraging Outlook For 2023

The Department of Statistics Malaysia (“DOSM”) reported that retail trade for Feb 2023 remained at double-digit growth for the 11th consecutive month, which expanded +19.2%yoy to RM58.2b. On a positive note, the retail trade overall held steady during the month despite a higher OPR of 2.75% in Feb 2023 compared to 1.75% in Feb 2022. Nevertheless, on a monthly basis, the retail sales reversed the uptrend by declining -2.4%mom in February as opposed to Jan 2023 (+0.2%mom) and Dec 202 (+1.2%mom).

MIDF said it is positive for the retail trade to stay upward in 2023, which is in line with its in-house economists’ view in their recent report. It said this was due to several factors, including OPR remaining below the pre-pandemic level (3.00-3.25% range), easing inflationary pressures, a stronger labour market (Unemployment rate: 3.5%), various assistance and incentives for B40 and M40 income groups in Budget 2023 to support household consumption and a pick-up in tourism activities, both leisure and business-related, that further boost retail trade spending.

The house picks Aeon Co (BUY, TP: RM1.90) and Padini (BUY, TP: RM4.40) to benefit from the rebounding sector.

Lower Commodity Prices for F&B Producers in Mar 2023.
In the same report, DOSM reported the average price of key raw materials for food producers namely CPO and wheat was generally on a downward trajectory over the previous 12 months. In particular, the average price for CPO and Wheat decreased on a yearly basis in March 2023. However, the average price for raw sugar continued upward trend in Mar 2023. This was primarily brought on by increased refinery demand following China’s reopening as well as worries over drastically reduced crop estimates in the major exporting nations because of the extreme weather. On a monthly basis, the average wheat price for March 2023 reversed the increase in February 2023. Meanwhile, the average price of raw sugar and CPO continued upward movement over the month.

The rising raw sugar price was caused by rising demand associated with a bad weather outlook, which reduced the global sugar supply. Meanwhile, the average price of CPO increased in March 2023 due to poor production output in Malaysia, as well as Indonesia’s prolonged export ban.

In a nutshell, the recent decline in the average price of wheat and CPO could benefit food manufacturers such as Hup Seng Industries (BUY, TP: RM0.88) and Nestle Malaysia (NEUTRAL, TP: RM139.50). On the other hand, higher raw sugar costs are projected to be manageable by food producers due to relatively low sugar consumption compared to wheat and CPO, as well as numerous pricing modifications adopted in the previous year that are expected to offset the cost increase.

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