(June 9): By and large, the latest first quarter earnings of companies in the consumer sector were disappointing. While most saw their revenue grow year-on-year, the topline largely contracted quarter-on-quarter, indicating a slowdown in sales, such as Padini Holdings Bhd, Bonia Corp Bhd, Berjaya Food Bhd and Senheng New Retail Bhd.

Some bucked the trend, such as beverage manufacturer Power Root Bhd — which saw higher profit and revenue y-o-y and q-o-q due to lower advertising and promotion spending — and Aeon Co (M) Bhd and Parkson Holdings Bhd, which benefited from higher festivities spending. Nestle (M) Bhd, which is in consumer staples, also did well.

Besides normalising demand, Fortress Capital Asset Management chief executive officer Thomas Yong said consumer companies have been affected by rising labour, energy, rental and raw material costs, resulting in a margin squeeze.

And these costs are largely sticky and might continue to affect the companies in the near term, Yong said.

Hence, in terms of stocks to look out for, Yong prefers those that can pass on the rising costs to consumers. Investors should also look for companies that could potentially benefit from down trading and tourism.

Similarly, AHAM Capital likes companies that are able to cater to the consumer down-trading theme such as Aeon Co (M) Bhd, Padini Holdings Bhd and QL Resources Bhd, which it believes stand to benefit from consumers' shift to more cost-conscious spending patterns.

“The share prices of consumer stocks have been undergoing a correction phase for the past two quarters now. However, if this persists, it could present an opportunity to re-evaluate the sector and potentially identify undervalued companies that have long-term potential,” the firm added.

Analysts are also expecting an easing in commodity prices that could provide relief for consumer companies.

"According to our sector update, we have observed a drop in commodity prices from its peak, with some even returning to 2021 levels. This suggests a potential decline in raw material costs ahead. Additionally, considering that most F&B producers implemented several price hikes last year to offset rising costs, we believe that the impact of the increase in other input costs should be manageable. Therefore, we anticipate that profit margins will at least be sustained, if not improved, in the near future," said MIDF's Ng.

RHB Research Institute analyst Soong Wei Siang, likewise, prefers consumer companies that can benefit from more cost-conscious spending, such as MR DIY Group (M) Bhd, due to its value-for-money proposition and competitive pricing to capture consumer spending on the back of elevated inflationary pressures.

He also likes Power Root Bhd as he believes the group's earnings growth should be driven by positive sales traction in both domestic and export markets, underpinned by strong brand equity and quality product offerings, which gives it the flexibility to adjust its selling prices.