KUALA LUMPUR: The growth momentum of consumer spending may cool down in financial year 2023 (FY23) due to the absence of spending boosters by the government.
RHB Research said although consumer spending was likely to remain largely resilient in FY23 underpinned by stable employment markets and economic growth, the absence of Employees Provident Fund withdrawals, loan moratoriums, low interest rates as well as high commodity prices and pent-up demand might have an effect.
"Externally, a deep global economic slowdown is a major risk, whereas internally, regulatory or policy changes such as the re-introduction of the Goods and Services Tax and subsidy rationalisation will have material knock-on effects on consumer spending," said its analysts Soong Wei Siang and Raja Nur Aqilah Nur Ali.
Out of 13 consumer companies under RHB's coverage which had reported third quarter (Q3) results, six outperformed, four were within expectations and three disappointed.
By and large, most of the positive surprises were driven by more robust-than expected consumer spending, notwithstanding the softer seasonality in Q3 2022, benefitting consumer discretionary firms.
"In addition, we saw both the two poultry companies under our coverage, QL Resources and Leong Hup International, booking stronger-than-expected earnings, partially due to government subsidies given as a result of ceiling price enforcement," they said.
On revenue, all companies recorded strong year-on-year (YoY) recoveries as Q3 2021 was a low base.
They noted quite a few consumer retail players recorded sales declines sequentially, which was not surprising in view of the exceptionally strong Q2 2022 and the seasonally weaker Q3 2022 on the lack of festivities.
"Consumer staples or food producers have continued to see cost pressures crimping margins, on the back of elevated commodity prices and compounded by unfavourable FX rate."
The firm expects Mr DIY Group Bhd's earnings to rebound on the margin recovery, while it also liked its robust expansion plan and entrenched network to capture consumer spending.
It said Guan Chong Bhd's current valuation was attractive, with earnings expected to inflect from FY23 onwards, primarily on progressive contributions from its Ivory Coast venture.
"Heineken Malaysia is our preferred pick in the brewery space, due to its cheaper valuation and market leadership in Malaysia," said RHB.
The firm maintained "Neutral" on the consumer products sector.