KL Consumer index fell 8% in 2020, to the lowest level seen in 4 years. The FCMG sub sector which has been known as defensive was not spared as the Covid-19 spread fast and affected the restaurant industry. This resulted in weaker demand particularly its Out-of-home channels. The retailers were also affected as borders were closed and shopping malls are forced to impose strict SOPs which led to an abrupt drop in footfall. Nonetheless, the gov ernment had introduced many financials assistance via i-Lestari/ i-Sinar withdrawal, BPR, and 6-months loan moratorium, to improve further people’s disposable income in order to revive consumer spending. In our view, the government’s pledge and commitment to support business recovery through various stimulus packages introduction i.e. Wage Subsidy Programme (WSP), Prihatin Rakyat Economic Stimulus Package and the National Economic Recovery Plan, so far has been effective in reducing the impact of the recession on employment. This is solidified by the MIER surveys, as business condition index (BSI) has shown an im provement of 115.4 pts (+29.1 pts, qoq) in 4Q20.
We revise upward Nestlé’s earnings by 11%/16% for FY21 and FY22. We also increased Dutch Lady’s forecast by 34%/39% as we assume that their HORECA channels demand to improve further due to i) relaxing MCO,CMCO measures taking place ii) surplus dis posable income stemming from I - Sinar withdrawal and iii) better cost efficiency ahead due to stable raw material prices.
We argue that the market has already factored in short-term earnings risk and believe these stocks deserve a rerating on positive vaccination rollout. We upgrade Nestle and Dutch Lady to Buy (from HOLD) with newly DDM and DCF-derived TP of RM154.20 (from RM144.20) based on (WACC of 5.9%) and RM49.60 (from RM34.50) based on (WACC of 7.0%). This implies FY21F/FY22F PE of 53x/47x and 38x/35x.
We upgrade Overweight (from Neutral) on the Consumer sector as we believe the sector outlook will continue to improve in 2021. We see no reason for the FCMG and retail companies to underperform moving forward as we feel consumers have ad justed to the new norms of shopping experience coupled with recovery in the econ omy.
Source: BIMB Securities Research - 18 Mar 2021
Created by kltrader | Aug 12, 2024
Created by kltrader | Aug 12, 2024
Created by kltrader | Aug 09, 2024
Created by kltrader | Aug 09, 2024