Consumer stocks face challenges

Friday September 7, 2012

By SHARIDAN M. ALI
sharidan@thestar.com.my

GST and subsidiy review looms

PETALING JAYA: Consumer sector stocks will face challenges following the 13th general election despite having done well year-to-date as the implementation of Goods and Services Tax and resumption of subsidy rationalisation looms.

Alliance Research analyst Ian Wan advises investors to be more cautious as the sector would be facing more challenges regardless of the outcome of the election.

“If the existing Government remains in power post-election, we foresee the Government to implement Goods and Services Tax (GST), resume its subsidies rationalisation programme and raise the electricity tariff to close its budget deficit in 2013. Furthermore, de-rating of the sector could happen post-election as domestic investors return to higher beta plays.

“On the other hand, if the opposition party wins the election, we foresee near term market sell down amid uncertainty over existing Government policies, leadership change in government-linked companies and government-linked investment companies, and status of existing mega projects,” the brokerage said in an update report.

From left: SME Association president Teh Kee Sin, Exim Bank Malaysia product development department assistant vice-president Zulkipli Md Yunos, Mizanur, Star Publications (M) Bhd chief financial officer Ragesh Rajendran and Bursa Malaysia head issuer for ACE Market Hanita Othman having a panel discussion to shortlist the participants for SOBA.

The report saw the consumer sector being downgraded to “neutral” from “overweight”.

“All these could dampen the economy, including domestic consumption, in the near term. Both of these scenarios will adversely affect consumer disposable income and dampen consumer sentiment, at least in the near term,” it added.

In anticipation of Budget 2013, which will be announced on Sept 28, the research house did not expect the Government to announce any excise duty hike for both of the sin sectors tobacco and brewery industries.

“Instead, we expect the Government to maintain (if not improve) a feel good' factor in the run up to the general election by, among others, containing cost of living,” it said.

On the performance of the sector so far this year, Alliance Research said it had outperformed FTSE Bursa Malaysia KL Composite Index by 4.2 percentage points in the first eight months, registering one of the best performances over the past 10 years.

“We believe the strong year-to-date performance was mainly due to record-low interest rate environment, risk-aversion by domestic investors and numerous pro-spending policies implemented by the Federal Government throughout the year,” it said.

However, the brokerage said with regards to the recently announced first half-year results, 54% of 28 consumer stocks that were widely followed by investors missed consensus estimates, of which food and beverages stocks made up the most of it.

On the flip side, a consumer sector analyst with OSK Research toldStarBiz that she was still upbeat on the sector, going forward.

“We are still overweight on the sector due to its defensive and low-beta nature, decent dividend yield and resilient performance.

“Going into 2013, there are some concerns on the slowdown of the economy but consumer stocks are still one the safest bets, as demand will still be there where people will still have to buy groceries and other stuff,” she said.

In an earlier report last month, OSK Research said that in recent years, consumer companies in the emerging markets had been consolidating to strengthen their presence and improve operating efficiencies.

“Of late, the cash-rich companies from developed nations are on the lookout for opportunities to venture into new markets, especially in the emerging countries.

“We believe there will be more consolidation or mergers and acquisitions in the consumer sector,” it said.