Maybank Investment Bank (Maybank IB) has maintained their positive rating on the consumer sector as they believe worries over a prolonged weak consumer sentiment may see some reprieve once the increase in disposable income from EPF account 3 and the salary increase for civil service ease overall cost inflationary pressures on consumers.
Expecting consumer goods to continue rising
Year-to date certain F&B manufacturers (i.e. NESZ, HEIM and CAB) have partially passed on additional costs to consumers through product ASP hikes by varying degrees (est. at least 5%) citing ongoing cost pressures from raw materials (cocoa, coffee, wheat, etc.) and the weakening USD/MYR currency.
Maybank IB does not discount the possibility for further price hikes across both consumer staples and discretionary products as profitability continues to be strained by elevated production and store operating costs, coupled with expectations for cautious consumer spending in 2024.
Financial support measures have been announced
A potential uplift in consumer disposable income may occur in light of recent announcements on national financial support measures.
Firstly, the introduction of EPF account 3 (accessible from 11 May onwards) will allow for 10% of consumers’ monthly EPF contributions to be withdrawn at any date. With this, the circulated flow of consumer expenditure could be immediate although the magnitude of spending may be gradual, and mostly concentrated on daily necessities within housing, utilities, and food and beverage categories.
Maybank IB believes that a larger positive impact to disposable income will arise from the Government’s proposal to increase civil service’ salaries by >13% (to come into effect on 1 Dec 2024).
Who are the consumer sector beneficiaries?
The consumer sector as a whole should experience a higher sales flow through as a result of any improvements to disposable income.
Maybank IB cited that their top BUY picks for the consumer sector are: (i) AEON (AEON MK, TP: MYR1.74) for its undemanding valuation of 11x FY24E PER and resilient earnings from its property management services, with potential increases in retail sales growth as and when consumer sentiment improves, and (ii) MRDIY (MRDIY MK, TP: MYR2.40) on its product affordability and mass market appeal.
