KUALA LUMPUR: The introduction of Employee Provident Fund's (EPF) Account 3, pick-up in tourist arrivals and the impending increase in civil servants is expected to support consumer spending in the coming quarters.
Uncertainty over inflation impact on subsidy rationalisation however remains a cloud over the consumer products sector.
RHB Investment Bank Bhd's (RHB Research)has a neutral call on the sector. It said consumer products'stocks' results for the first quarter of 2024 (Q1 2024) met expectations due to robust topline growth and improved profit margin.
The firm said the introduction of Account 3, or EPF Akaun Fleksibel, and pay raises for civil servants were effective measures to support consumer spending.
In addition, the pickup in tourist arrivals should benefit the consumer retail players.
"With Q1 24 capturing the festive demand of the Lunar New Year and Aidil Fitri, all companies under our coverage, except Nestle, recorded robust year-on-year topline growth. Quarter-on-quarter momentum was also largely positive particularly for the consumer discretionary players, lifted by the favourable seasonality," the firm said.
"On the flip side, the uncertainty on inflationary impact of subsidy rationalisation will remain a key concern for the sector," it said in a note.
RHB Research said general feedback from corporates was that consumer sentiment remained subdued given heightened inflationary pressures.
This continued to give rise to downtrading behaviour as price sensitive consumers constantly sought or hunted for value.
"The key concerns of corporations include the upcoming implementation of subsidy rationalisation for petrol, foreign exchange risks, commodity market movements and geopolitical risks," it said.
RHB Research's top picks are Mr DIY Group (M) Bhd, Focus Point Holdings Bhd, DXN Holdings Bhd and Mynews Holdings Bhd.
It said Mr DIY Group is a prime beneficiary to capitalise on EPF's flexible withdrawal scheme and salary hikes of civil servants given its entrenched network of stores and value-for-money product offerings.
"We highlight Focus Point Holdings Bhd for its industry-leading growth underpinned by effective marketing initiatives and rising myopic population.
"DXN Holdings' valuation is undemanding considering the steady earnings growth whilst dividend yield is attractive at six per cent.
We also like Mynews Holdings as we believe the robust growth of the Mynews brand and anticipated turnaround of the brand could trigger a valuation rerating."