Malaysia’s consumer sector is projected to maintain its strength throughout 2023, buoyed by robust domestic demand and advancements in supply chain efficiency, according to a December 2022 report from Hong Leong Investment Bank (HLIB) Research. The investment firm highlighted that declining commodity prices and the stabilization of profit margins, following significant price hikes in 2021 and 2022, will provide support. However, the sector continues to face headwinds including inflation, diminishing real wages, and concerns over a potential recession. HLIB Research has maintained a “neutral” rating on the consumer sector.
Several positive factors underpin the outlook. Improvements in supply chains have simplified restocking processes.
Commodity prices, which surged sharply in 2021 and 2022, are now trending lower. Margin stabilization is also taking effect. HLIB Research noted that businesses capable of adapting swiftly and providing greater convenience to customers are likely to capture a larger share of consumer spending.
“The consumer sector will continue to grow well due to strong domestic demand and supply chain enhancements,” the firm stated in its report. “Businesses can change course and offering customers greater ease will be more successful in capturing the ringgit spent.”
Top Stock Picks: Berjaya Food and Focus Point
HLIB Research identified Berjaya Food Bhd as a top pick, issuing a “buy” call with a target price of RM1.31 per share, based on the financial year 2023’s price-to-earnings ratio. The company operates Starbucks and Kenny Rogers Roasters in Malaysia. The research firm noted that Starbucks continues to expand through new store openings and ongoing promotions, while Kenny Rogers Roasters has adopted a leaner concept.
These strategies are expected to help Berjaya Food maintain its profitability. Another top pick is Focus Point Holdings Bhd, which received a “buy” call with a target price of RM1.51 per share, based on a 14-times price-to-earnings ratio.
HLIB Research stated that management will focus on growing the optical and food and beverage segments, which form the company’s two pillars of growth. “The new corporate F&B clients are to start coming on-stream in early FY23, which could boost the group’s earnings significantly,” the firm said.
Earnings Performance and Ongoing Pressures
Consumer sector earnings for the third quarter of 2022 were uneven, HLIB Research reported. The benefits of economic reopening were partially offset by inflationary pressures and rising interest rates. Year-over-year improvement was largely attributed to a low base effect from inefficient business operations in fiscal 2021. Profit margins remain under strain due to increased input prices for raw materials, higher minimum wages, and an increase in the power tariff surcharge.
“Increased input prices, such as those for raw materials, and higher minimum wages and an increase in the power tariff surcharge continues to exert pressure on the industry’s profit margins,” the research firm noted.
Consumer Trends and Business Adaptations
HLIB Research observed several consumer trends, with companies employing diverse strategies to boost their share of consumer spending by enhancing customer convenience. These include smaller store formats and targeted expansion plans.
Examples include Mr. DIY Express opening smaller stores in upper urban and rural communities; Berjaya Food prioritizing 50% of its total planned new stores for outlet expansion; 7-Eleven Malaysia Holdings Bhd incorporating cafe concepts into its convenience stores; QL Resources Bhd introducing Family Mart Mini Smart Kiosk vending machines; Focus Point expanding through Komugi street shop locations; SDS Group Bhd growing via partnerships with major retailers; and Farm Fresh entering the direct-to-consumer market with Jomcha milk tea outlets.
These adaptations reflect a broader shift in the consumer landscape as companies seek new ways to reach customers and compete for spending in a challenging economic environment. The sector’s resilience will depend on how effectively businesses navigate inflation, rising costs, and shifting consumer sentiment.
