KUALA LUMPUR: Incentives announced earlier under 2020 Budget and the recent RM20 billion economic stimulus will help sustain spending on essential goods, analysts said.
Hence, they expect consumer companies notably staple names such as Family Mart owner QL Resources Bhd and Ajinomoto (Malaysia) Bhd to be able to weather the Covid-19 storm in particular.
Analysts at Affin Hwang Capital acknowledged that 2020 would be challenging for consumer companies amid the outbreak of Covid-19, which looks likely to stretch beyond the first quarter of 2020.
The unexpected change in government is also contributing to market volatility over the near term.
However, they do not expect any drastic changes to the cash assistance and broad-based incentives announced earlier under the 2020 Budget and the RM20 billion stimulus.
“As such, consumption spending should be sustained particularly among the lower income group who have a higher marginal propensity to spend,” Affin Hwang said in a report today.
In tandem with its 2020 gross domestic product (GDP) growth downgrade to 4.0 per cent (from 4.5 per cent), Affin Hwang lowered the overall sector earnings forecast by nine percentage points in the recent results season.
“Post-revision, we project overall sector earnings per share to recover by 4.4 per cent year-on-year (yoy) for 2020, subsequent to the 6.5 per cent yoy contraction in 2019.”
The firm expects 2020 growth to be led mainly by large-cap staples such as Nestle (Malaysia) Bhd and QL Resources in addition to MSM Malaysia Holdings Bhd turning around to a core profit in 2020.
Affin Hwang maintained its “neutral” rating for the consumer sector.
Meanwhile, Public Investment Bank Bhd (PublicInvest) said several consumer stocks under its coverage continued to deliver muted performances for the current cycle.
The likes of Three-A Resources Bhd and Yee Lee Corporation Bhd, it said, had reported weaker yoy earnings despite exceeding its earnings estimate, mainly attributable to lower sales volume recorded and margin compressions.
“QL’s and Magni-Tech Industries Bhd’s earnings were in-line with our estimates. QL continues to show strong growth underpinned by higher contributions from its surimi-based products as well as stronger contribution from its poultry operations regionally and the Family Mart business.”
As for Magni-Tech, PublicInvest believes it continued to benefit from the ongoing US-China trade war as higher orders were received from its single major customer.
“DKSH Holdings (Malaysia) Bhd’s earnings exceeded our expectations, meanwhile, due to lower-than-expected operating cost as well as contributions from Auric Pacific (M) Sdn Bhd,” it said.
PublicInvest maintained its “neutral” stance on the sector.