Based on the DOSM, retail trade for Sep 2023 increased by +5.9%yoy to RM61.1b. F&B and tobacco stores experienced its 18th consecutive double-digit growth in Sept 2023, indicating robust out-of-home consumption for F&B and tobacco products. Non-specialised sales recorded a robust yet normalizing retail trade growth of +8.9%yoy. On a monthly basis, retail trade continued its upward trajectory in Sep 2023, with a +0.9%mom increase, albeit at a softer pace.
In view of these indicators, MIDF notes FY24 outlook for consumer staples, underpinned by its defensive nature, a solid domestic consumption outlook, supported by various cash handouts in Budget 2024, better job market prospects, and higher tourist arrivals (leisure and business), and slightly better outlook for poultry players ahead, driven by the expectation of lower chicken feed input costs, coupled with the improving operating environment in Malaysia and Indonesia.
However, the house is cautious about the volatility in certain global commodity prices (sugar, coffee, and cocoa) will likely to persist in the near term. This could more than outweigh the drop in other key commodities (such as wheat and CPO), thus exerting inflationary pressure on the margins of F&B manufacturers in the near term. Besides, it also expect sluggish demand for consumer discretionary in 2024, primarily due to growing inflationary pressures, fears of a future global recession, persistently high interest rates in the US, and normalised OPR in Malaysia. These factors are expected to erode household discretionary expenditure, leading to tighter spending on durable items. Hence, it downgrades its consumer sector recommendation to NEUTRAL (from POSITIVE) primarily due to the cautious outlook.
Among the top stock picks include consumer staples that exhibit resilient demand, such as QL Resources and Fraser & Neave Holdings (BUY, TP: RM33.50). MIDF says it liked QL due to the sustained demand for marine and livestock products. Additionally, it favours the company’s strategic move to explore new markets by providing in-flight hot food to
MAS Awana. While this venture is currently in the pilot phase, the house is optimisitc about QL’s ability to capitalize on its central kitchen and potentially to lead to an expansion of the company’s revenue.
Meanwhile, MIDF says it likes F&N because the company is likely to benefit from the rising demand for RTD beverages, driven by increasing tourist traffic. The house said it appreciates F&N’s initiative to continue growing via recently integrated Sri Nona, followed by Cocoaland and the upcoming integrated dairy farm that could ensure the self-sufficiency of dairy and potentially expand the revenue base.
