Based on DOSM, retail trade continued to rise by +5%yoy to RM62.4b. Non-specialised, F&B and Tobacco, Household and equipment, and other stores recorded growth (both year-on-year and month-on-month basis), mainly attributed to the
year-end holiday and festive season celebrations that boosted spending on retail products. Cumulatively, retail trade growth normalized to an organic growth of +9%yoy to RM720b in FY23 as opposed to a double digit growth of +23.9%yoy to RM661b in FY22. This shows the resilient retail trade in Malaysia, with organic growth despite higher base effects and rising inflationary pressures
Moving forward, MIDF said it remains optimistic about the 2024 outlook for consumer staples, underpinned by its inelastic demand due to the defensive nature, a solid domestic consumption outlook supported by continuous positive retail trade for staples, better job market prospects, and higher tourist arrivals, and better margin for poultry players ahead, driven by the expectation of lower chicken feed input costs.
On the flip side, the house said it expects certain raw material input costs to remain high due to the rising prices of cocoa, sugar, Arabica, Robusta, and PET resin. This is largely due to extreme weather conditions in major producing countries tightening global supplies. The house also anticipate sluggish demand for consumer discretionary items in 2024, primarily due to possible inflationary pressures. This is expected not only to weaken consumer sentiment on durable items but could also potentially increase the operating costs of companies in Malaysia (due to cost pass-through from other service providers or suppliers).
Hence, MIDF will maintain a NEUTRAL stance on the consumer sector primarily due to the cautious outlook. It prefers consumer staples with steady demand as top picks and likes QL Resources (BUY, TP: RM6.50) due to the sustained demand for marine and livestock products. Additionally, we favor the company’s strategic move to enter new markets by providing in-flight hot food to MAS Awana. This allows QL to capitalize on its central kitchen and potentially lead to an expansion of the company’s revenue. Meanwhile, MIDF says it likes Fraser & Neave Holdings (BUY, TP: RM33.50) because the company is likely to benefit from the rising demand for RTD beverages, driven by increasing tourist traffic and the hot weather (at least in 1H24).
It also 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.
