KUCHING: Multi-level marketing (MLM) players could emerge victorious in an inflationary business environment, despite it being a condition that could exhibit pressure on the consumer sector to raise price and control cost especially with the implementation of the goods and services tax (GST) and subsidy rationalisation.
The research arm of Kenanga Investment Bank Bhd (Kenanga Research) in a report said higher costs could potentially benefit MLM companies such as Amway (Malaysia) Holdings Bhd, Hai-O Enterprise Bhd and Zhulian Corporation Bhd due to higher prices of goods sold and more participation from the low-middle income group into the business.
The research firm’s analyst Lawrence Yeo said among the roses of the thorns is Zhulian Corporation Bhd which Kenanga Research favours for its double digit earnings growth of 11 per cent to 15 per cent against its competitors of nine per cent.
Kenanga Research observed that the implementation of the GST is not going to have a deep impact on the earnings of the company as it has diversified into regional markets with expansion plans for Thailand and Indonesia staying on track.
“We anticipate the MLM segment to deliver decent earnings growth in addition to high dividend yields of more than five per cent.
“Our top selection is Zhulian Corporation. “Besides, we are also positive on Hai-O Enterprise and Asia Brands Bhd.
“On a less upbeat note, we are neutral on AEON Co (M) Bhd, Amway, Padini Holdings Bhd, Parkson Holdings Bhd,” said Yeo.
Besides being neutral on AEON Co, Amway, Padini and Parkson, the research firm is also less optimistic on Nestle (Malaysia) Bhd, Oldtown Bhd an QL Resources Bhd. Given a challenging operating enviroment ahead, Kenanga Research expects the cost of imports and raw materials to go up arising from the implementation of the GST and subsidy rationalisation by the government in the near future.
In addition, the research firm observed that increases in prices for energy items could also have a spill-over effect on the companies’ turnover as consumers have less purchasing power to buy goods and services.
Meanwhile, for the tobacco sector, it noted that the operating environment remains challenging owing to more stringent regulations by the government to curb smoking, gradual shrinkage of the legal market volumes, and high incidents of illicit trade which reduces the market share of the legal market.
For the brewery sector, Kenanga Research said the near term prospects remains unexciting although there could be no excise duty hike for brewers in the upcoming budget and the proposed implementation of the GST.
It further said that the sector could experience less than estimated growth figure due to sluggish growth on the Malt Liqour market and high valuations on the company’s share price and less attractive dividend yields.
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