• Prime Minister Datuk Seri Ismail Sabri Yaakob yesterday announced that the government has given the nod for a special Employees Provident Fund (EPF) withdrawal of RM10,000. Further details will be announced by the Ministry of Finance later.

• The withdrawal would affect the sector positively as additional liquidity will likely trickle down, spurring demand for consumer goods and provide further support to consumer spending in the near term.

• Nevertheless, the impact is likely to be softer compared to previous withdrawals. Given the gradual pick-up in economic activities, the number of contributors that is still struggling economically from the pandemic may have been reduced while others might avoid further unnecessary withdrawal from their retirement savings. Besides, after several withdrawals in the past two years, consumers may need some time to replenish their savings. Hence there would not be as many contributors making withdrawals this time round.

• According to the retirement fund, RM101bil of EPF savings, involving 7.3mil EPF contributors, was withdrawn from the previous three EPF withdrawal schemes, i.e. iCitra, i-Sinar, and i-Lestari, since the Covid-19 pandemic hit the country.

• We maintain our OVERWEIGHT recommendation on the sector. The sector revenue predominantly depends on domestic demand; hence it would be relatively shielded from the impact of geopolitical conflicts. The ongoing pick-up in economic activities would continue to benefit the sector. Our top picks are MR D.I.Y. (BUY, fair value RM4.45) and Guan Chong (BUY, FV RM3.40). We also have a BUY call on Berjaya Food (FV RM3.30).

• Key risks: Rising input and logistics costs, which pressure the sector’s margin, pose a downside risk to earnings. However, we gather that most companies are taking several measures to offset the impact, such as gradually increasing prices of products, locking in raw material prices for a much longer period, and increasing the volume of materials purchased while negotiating with suppliers for lower prices.

Source: AmInvest Research - 17 Mar 2022