Based on the Department of Statistics Malaysia, retail trade for Mar 2023 rose +17.7% year-on-year to RM58.7 billion, marking the 12th consecutive month of double-digit expansion, said MIDF Research (MIDF) in a recent report.
Notably, both non-specialized stores, as well as specialised stores for food and beverages and tobacco, saw a notable double-digit increase during the month.
Similarly, retail trade for Mar 2023 showed positive growth of 0.9% month-on-month as compared to -2.4% month-on-month in Feb 2023.
Nonetheless, the MIER’s Consumer sentiment index (CSI) decreased from 105.3 points in quarter four 2022 to 99.2 points in quarter one calendar year 2023.
This was due to weaker job and income prospects, as well as concerns about rising inflation. Despite these considerations, consumer spending plans remained unchanged.
Moving forward, MIDF’s economists are optimistic that retail trade will remain positive in 2023 in their latest report: Economic Review: Mar 2023 Distributive Trade.
“As such, we believe that the retail trade for essential items with competitive pricing will stay positive ahead,” said MIDF.
MIDF reckons that retailers such as Aeon Co and Padini are expected to benefit from the upward trend in retail sales in 2023. Nevertheless, an uptick in the movement of local and international tourists could boost sales for convenience stores such as family mart under QL Resources.
Normalised Average CPO and Wheat Price for Food Producers
In May 2023, the average prices of crude palm oil and Wheat continued to decline on a yearly basis. The reduced crude palm oil price can be ascribed to the lifting of Indonesia’s export ban in mid-May, as well as the normalisation of Malaysia’s Palm Oil inventories.
Meanwhile, the declined wheat price was driven by the expectation of higher global production and subdued demand, despite uncertainties surrounding the Black Sea Grain Initiative.
Conversely, the average price of raw sugar remained on an upward trajectory in May 2023, owing primarily to increased demand following the reopening of various countries, as well as lower global production in the near term due to unfavourable weather conditions in major exporting countries.
On a monthly basis, all commodities followed a similar trajectory, with crude palm oil price and Wheat experienced a decline in May 2023 while average price of raw sugar continued to rise.
“Overall, we saw that the average prices of crude palm oil and wheat have returned to pre-Russia Ukraine conflict levels (2021), which benefits food producers such as Hup Seng Industries and Nestle Malaysia,” said MIDF.
The normalisation of prices can reduce the cost of raw materials and offset the higher labour and energy costs, hence supporting the margin. Although the price of raw sugar remains high, MIDF believes the impact on food producers is manageable given that sugar consumption is relatively low compared to wheat and crude palm oil.
“Also, we reckon that the various price hikes implemented in calendar year 2022 are adequate to offset the increased in labor and energy cost and may not be reintroduced in the near term,” said MIDF.
Mixed commodities price trend for beverage producers
The average costs of key raw materials for beverage manufacturers in May 2023 move in different directions on a yearly basis but remained high in contrast to pre-Russia Ukraine conflict levels in 2021. On a yearly basis, the average price for Arabica declined the most, followed by PET resin due to lower brent crude oil.
Conversely, the average price for Robusta increased largely due to lower global production caused by off-cycle periods, extreme weather, and high production costs, as well as higher global demand.
The increase in the average price for white sugar was due to higher raw sugar price, increased labour costs, and energy costs, all of which increased the cost of refined sugar. On a monthly basis, the average price for pet resin, Arabica and white sugar decreased in May 2023 while Robusta prices expanded.
“Overall, we have observed a favourable trend with all raw materials for beverage firms that we track have declining from their 2-year peak in May 2023, while still maintaining elevated levels compared to 2021. This will result in lower potential lower raw material prices, which could benefit companies like Fraser & Neave Holdings and Spritzer,” said MIDF.
Increased Prices for Chicken and Eggs in April 2023
In April 2023, the average prices for chicken and chicken eggs were higher compared to April 2022. This can be attributed to the higher demand for chicken and chicken eggs during the Ramadan and Hari Raya Aidilfitri celebration.
On a monthly basis, the average price of chicken eggs showed a downward trend, with Grade B eggs experiencing the largest drop, followed by Grade A eggs, and Grade C eggs.
However, the price of chicken increased slightly. In short, the average prices for chicken and chicken eggs remained elevated compared to the previous year and 2021.
This can be attributed to the imposition of retail price ceilings, and higher input costs that incur downward pressure on profit margins, leading some producers to reduce their production.
Lower Average Corn and Soybean Prices in May 2023
The prices of raw materials used in livestock feed, specifically corn and soybean, posted a downward trend in May 2023. These prices have now returned to the levels observed before the Russia-Ukraine war in 2021.
The lower average corn price can be attributed to the anticipation of ample supplies from major exporters such as Brazil, Argentina, and the United States, which outweighed the weaker supplies from Ukraine.
The reduced average price of soybean meal was primarily due to the expectation of an increase in Argentina’s soybean production and increased supply from the United States and Brazil. Likewise, both corn and soybean meal continued to decline on a monthly basis in May 2023.
Overall, the main raw materials for livestock feed have returned to 2021 levels due to the expected increase in global production, which is likely to result in lower prices for corn and soybean meal.
This suggests a decrease in the cost of chicken feed ahead. Additionally, the government subsidies for chicken egg production, which are in place until 30th June 2023, along with the lower feed costs, are expected to support profit margins despite the ongoing price ceiling for chicken and eggs. As a result, QL Resources and Leong Hup International are expected to benefit from these favourable conditions.
Weakening MYR against USD in May 2023
In May 2023, the average exchange rate was USD1.00 : RM4.52, indicates a depreciation of the Malaysian Ringgit (MYR) against the US Dollar (USD) as compared to April 2023 and May 2022.
Given that food and beverages and poultry manufacturers typically purchase their raw materials in USD, the depreciation of the MYR is anticipated to raise input costs. Nevertheless, export-focused companies such as Asia File and Rhong Khen International, are anticipated to gain from the stronger USD as most of their sales are received in USD.
Retain POSITIVE on the consumer sector
“Overall, we are positive about the outlook for the consumer sector underpinned by a defensive play due to the resilient demand for staple-related products, solid domestic consumption ahead, supported by a stable labour market, robust retail trade, and increased tourism activities,” said MIDF.
Then there is the solid profit margins for food and beverages producers, driven by falling raw material prices and previous price hikes, offsetting other cost pressures. Lastly is the normalised commodity prices for livestock feed, which is likely to alleviate elevated input costs for poultry players.
“Our top picks continue to be consumer staple-related companies that exhibit resilient demand, such as QL Resources, F&N, and AEON,” said MIDF.
MIDF favours QL Resources, which is supported by consistent demand for marine and livestocks products. They also like F&N because the company is likely to benefit from the rising demand for ready-to-drink beverages, which is being fueled by an increase in tourist traffic.
As for AEON, MIDF believes that general merchandise stores and supermarkets will benefit from the strong domestic demand and an increase in tourist arrivals.
