AmInvestment Bank has maintained its “overweight” rating on the consumer sector, as consumer sentiment is expected to remain healthy on the back of recent consumer-friendly initiatives by the government. It said in a report that recent initiatives such as the reintroduction of petrol subsidy, capping of the electricity tariff and introduction of public transport subsidies, have contained the problem of rising cost of living and effectively put more money back into the pockets of consumers.
“The substitution of the Goods and Services Tax (GST) with the Sales and Services Tax (SST) is a net positive to consumers as the SST has a narrower scope compared with the GST,” it said.
According to the Malaysian Institute of Economic Research, the Consumer Sentiment Index has recovered beyond the 100-point confidence threshold after three years of a low sentiment trend.
AmInvestment Bank believes that the positive trend in consumer sentiment will be sustained as consumers become more confident of the government with expectations of more rakyat-centric government policies, better governance and transparency.
It expects private consumption to grow at 6.5% year-on-year on the back of a healthy labour market and stable inflation.
While the food and beverage sub-sector does not typically benefit from greater disposable income, AmInvestment Bank has identified Berjaya Food Bhd (BFood), Mynews Holdings Bhd and Power Root Bhd as the top picks for the sector.
It said that BFood is a beneficiary as improved consumer sentiment will drive discretionary spending while Mynews will be an indirect beneficiary of the public transportation subsidy.
“We reckon that this measure will boost foot traffic surrounding the train stations. Mynews currently operates more than 30 stores in the MRT, LRT and monorail stations,” it added.
Meanwhile, Power Root will be a potential beneficiary as it is a producer of staple products. It will also benefit from a stronger US dollar as around 50% of its sales are in exports.
Downside risks that may prompt it to review its call for the sector are weakening of the ringgit against the US dollar (its 2019 assumption average is RM4.12) and sluggish improvement to economic fundamentals, which could lead to a de-rating of the sector.
“A sluggish recovery in economic fundamentals such as high operational costs and a weak ringgit may not see consumers fully benefitting from savings tied to the SST reintroduction and consumer-friendly measures, thereby dampening the recovery in consumer sentiment,” it said.