KUCHING: Analysts are cautiously optimistic that Malaysia’s food and beverage (F&B) and retail players will be resilient against economic challenges.
According to the research arm of Kenanga Investment Bank Bhd (Kenanga Research) in its consumer sector update, this stems from a stable job outlook, potential further rate cut by Bank Negara Malaysia (BNM) and in anticipation of supportive government policies from the upcoming Budget 2020.
“Moving forward, we expect our F&B and retail counters to be cushioned by the resilient consumer sentiment, premised on sticky demand for our consumer staples, evidenced by minimal negative impact to sales amid passive government policies such as the sales and service tax (SST) and sugar tax, stable job conditions, potential lower interest rate environment with our inhouse forecast putting a 75 per cent probability of another rate cut by 25 bps to 2.75 per cent in November, and expectations for a consumer friendly Budget 2020,” Kenanga Research said.
Despite that, the research arm also noted that the weak ringgit is a headwind on discretionary spending.
Kenanga Research highlighted that 2020 could be a better year for F&B players and retailers with the launch of Visit Malaysia 2020.
“The Tourism, Arts and Culture Ministry is working towards achieving the target of 30 million tourist arrivals that will generate around RM100 billion in income under the Visit Malaysia 2020 campaign. Note that, Malaysia already registered 13.4 million visitor arrivals in the first half of current year 2019 (1HCY19), up 4.9 per cent year on year (y-o-y).
“The top 10 source markets for arrivals were Singapore (5.4 million), Indonesia (1.9 million), China (1.6 million), Thailand (one million), Brunei (0.6 million), India (0.4 million), South Korea (0.3 million), the Philippines (0.2 million), Vietnam (0.2 million) and Japan (0.2 million).”
The research arm also highlighted that the Government has allocated RM1 billion through the Tourism Infrastructure Fund, which is available up to Dec 31, 2020 or until depleted.
“The fund is available to all tourism infrastructure projects such as projects that contribute to the development of the tourism industry and not just limited to hotel, convention centre, facilities related to education, medical or agro-tourism. Retailers could tap into the fund to build around their existing infrastructure to cater for tourism activities, which may increase footfalls into their stores or malls.”
Kenanga Research observed that retailers usually fare the worst in the third quarter of 2019 (3Q19) due to the absence of festivities that typically spur consumer spending. However, the research arm believed that investors could use this opportunity to buy into 3Q weakness while expecting better growth in 4Q19 from year-end and Christmas festive season sales, as well as upcoming Visit Malaysia 2020.
“This is in line with the Retail Group Malaysia’s (RGM) targeted sales growth for 3QCY19 at 3.2 per cent, which is the lower than the whole year targeted sales growth of 4.4 per cent, as well as lower than 4QCY19 targeted sales growth of 5.8 per cent. On-going Pakatan Harapan (PH) government measures to lessen the financial burden of Bottom 40 per cent (B40) group such as the Bantuan Sara Hidup (BSH), minimum wages and targeted fuel subsidies are expected to continue supporting consumer spending on basic necessity items, which in turn will benefit affordable apparel retailers (Padini Holdings Bhd) and supermarket or department stores operator (Aeon Co. (M) Bhd).
“We also expect more goodies in the upcoming budget 2020 for the B40 group.”