Weak consumer sentiment could prevail throughout 2024 as consumers are forced to prioritise essential spending over discretionary ones, given elevated stapled F&B costs and rising household expenditure says Maybank IB. The house picks Farm Fresh as its top pick with expectation for strong topline growth on resilient product demand along with margin expansion from a steep decline in its whole milk powder ASPs.
Food staples are in the driver’s seat
According to data from the Department of Statistics Malaysia, historical expenditure allocation pattern for an average Malaysian consumer mostly comprise of housing, utilities, water, and gas, food and beverage, restaurants and accommodation, and transport. Stapled food prices are expected to remain elevated in 2024 and the house does not discount further price increases as operating challenges persist, in the form of higher labour and utility costs, and raw material price fluctuation for the domestic food manufacturers. With this, consumers’ wallet share may inevitably shift towards basic food necessities (i.e. NESZ, QLG, FFB, LHIB) and away from the other discretionary spending in 2024.
Retail spending slowdown to continue?
Retail sales growth YoY has been gradually declining since its peak of +38% YoY in Jul 2022 to between 5% to 6% YoY from May 2023 onwards. Without any significant catalyst to boost spending amid ongoing cost inflationary pressures, the consumer retail PLCs under our coverage may post slower sales volume growth in 2024, with the exception of MR DIY and PAD which may be somewhat shielded from the brunt of a spending pullback due to their mass market appeal and affordable products.
Potential increases in household expenditure
Maybank IB cautions that adverse impact to consumption habits may exacerbate as and when new taxes are implemented in 2024. The cumulative effect from an increase in sales and service tax to 8% (from 6% previously), possibility of water tariff hikes, rollbacks in petrol/diesel subsidies, and the recent introduction of the low-value goods tax effective 1 Jan 2024 will only put added pressure on overall consumer disposable income.
