by FAYYADH JAAFAR / pic by MUHD AMIN NAHARUL

CONSUMER confidence is likely to remain elevated throughout the first half of 2022 (1H22) driven by gradual pick-up in economic activities, reopening of borders and ongoing efforts to increase the booster shot rate, said AmInvestment Bank Bhd in a research note yesterday.

The research outfit maintained an ‘Overweight’ recommendation on the consumer sector.

“With economic activities picking up and Covid-19 daily cases remaining low, we noticed optimism in consumers’ future spending as reflected in the Consumer Sentiment Index.

“The ongoing efforts to promote booster shots may offset fears of the new Covid-19 variant threat. The sector is ripe for transformation and growth with the large number of small-to-mid cap companies with expansionary potential, coupled with pivoting opportunities underpinned by changing consumer preferences,” said AmInvestment.

The ultra-low rate environment and cash assistance are expected to continue to support consumer spending.

“The interest rate environment is likely to remain accommodative in the near term. Our in-house view is that Bank Negara Malaysia will maintain the Overnight Policy Rate at 1.75% in 1H22, before a potential 25 basis points hike rate in 2H22.

The RM8.2 billion Bantuan Keluarga Malaysia cash assistance announced under Budget 2022 is 9% higher than 2021’s Bantuan Prihatin Rakyat, providing an additional boost to consumers’ purchasing power,” the bank stated.

Separately, the broad-based economic recovery is also set to reduce the unemployment rate to 4.2% in 2022 (from 4.6% in 2021).

It added that improving consumers’ mobility due to the relaxation of movement restrictions is set to benefit retailers which are currently seeing improving footfall in their outlets.

Google’s Community Mobility Data showed that Malaysia’s retail mobility is currently at an encouraging -3% of the pre-pandemic baseline. This means that retail activity has returned to 97% of pre-pandemic times.

Meanwhile, Mynews Holdings Bhd (fair value [FV] RM1.18) is seeing a normalisation of consumer spending pattern after its outlets reported a 24% sequential improvement in footfall in the fourth quarter of financial year (FY) 2021 (FY ending October),” said AmInvestment.

The company expects this trend to continue as its retail stores’ resume their normal operating hours.

Foreseeing further recovery within the retail space, Retail Group Malaysia is forecasting retail sales to improve by 6% in 2022, recovering from the impact of the pandemic.

“Riding on this theme, we have ‘Buy’ calls on Mr DIY Group Bhd (FV RM4.17) and Mynews,” the bank said.

The surge in commodity prices and transportation costs may take a financial toll on the sector’s earnings.

Notably, the prices of crude palm oil, robusta/arabica (coffee), wheat and sugar climbed 36%, 54%/61%%, 33% and 26%, respectively, year-to-date. Companies that could be more susceptible to this inflationary environment are Power Root (M) Sdn Bhd (coffee), Mynews (fresh food) and Nestlé (M) Bhd (its hedging strategy may limit the impact).

This could lead to average selling prices hikes by some industry players to offset the rising costs.

“Our top picks for the sector are Mr DIY, Guan Chong Bhd (GCB) (Buy, FV RM3.48) and Berjaya Food (BFood) (Buy, FV RM2.16).

“We like Mr DIY for the company’s profit-generating stores in a post-pandemic scenario, proactive management and the potential of the new ‘Mr DIY Express’ store format. Meanwhile, GCB offers a positive outlook as regional demand for chocolate recovers with borders reopening. BFood is attractive due to its revamped and leaner business model,” AmInvestment said.

Its strong online revenue contribution, closure of non-profitable stores, and a shift towards less operating expenditures intensive drive-through and ghost kitchen formats are expected to support the group’s earnings growth in FY22F.

“Any weakness in its share price is an opportunity to collect, in our view,” the research bank noted.

The new Covid-19 variant Omicron poses a threat of another round of lockdowns and border closures.

Meanwhile, the sustained increase in commodities prices and the inability of industry players to pass on the increase in cost are downside risks to earnings.