A fruitful event. Kenanga Research hosted c.40 analysts and fund managers to its Corporate Day held at The Royale Chulan Kuala Lumpur on 21st January 2016. Our event was themed “Retail Recovery”, where we touched on the impact of GST towards consumer sentiment that has been further inflicted by the persistent depreciation of our Ringgit. During the Corporate Day, we were graced with the participation of five established companies such as PAVREIT, YOCB, SEM, BJAUTO and BJFOOD. Spokespersons from these corporates enlightened the audience from the investment community with insights of business updates, key investment merits as well as earnings prospects and outlook following the struggle against weak consumer sentiment in these recent times. In addition, we were also proud to have Nielsen Malaysia, a leading market research consultant, to shed light of their research findings on the overall health consumer market and how recent trends had brought about changes to consumer behaviour.

In the morning session, we kick-started our event with a presentation by Mr. Philip Ho, Chief Executive Officer of PAVREIT. Mr. Ho commenced by providing a refresher of PAVREIT’s existing properties before touching base on the performance of the company’s latest quarterly results. He also highlighted on pertinent information with regards to the tenancy status of PAVREIT’s two flagship properties, namely the Pavilion Mall and the Pavilion Tower. All in all, we came away from the Corporate Day feeling assured and confident of PAVREIT’s earnings growth potential with the strategies in place. We maintain our OUTPERFORM rating on PAVREIT with unchanged TP of RM1.68.

Next up, Mr. Jon Tan, Chief Financial Officer of YOCB gave a brief overview on his company and illustrated on the company’s milestones in its home linen, bedding accessories and homeware trading business. Besides, he also gave us insights and brief introduction on the overall home linen industry as well as the prospects of the industry moving forward.

Continuing the session, we had Mr. Gary Brown, who is the Chief Executive Officer of SEM. Mr. Brown reviewed SEM’s latest quarterly results where GST resulted in a decline in average sales per store despite the increase in its store base. He also shared with us SEM’s store rollout plan and strategy to increase consumer store traffic by implementing new services available at its stores.

For a change of pace, we had Nielsen Malaysia presenting its thoughts as a market research consultant, contrary to ideas shared by our other corporate speakers. Mr. Jon-Paul Best, Director of Consumer Insights for Financial Services represented the firm, highlighting on their research findings on how recent macroeconomic environments had affected consumer confidence. With the Malaysian Institute of Economic Research’s Consumer Sentiment Index recording a 10-year low of 78 points, Nielsen revealed that their studies showed the passiveness in Malaysians with 9 in 10 Malaysians believing that the country is in a state of recession, while 2 out of 10 Malaysians feel optimistic that the country’s economy would imminently recover. Nielsen also shed some light that purchasing levels of F&B and non-F&B products were actually fairly consistent before and after GST implementation, discounting a noticeable rise during January to March 2015 (pre-GST) and a sharp decline in April 2015 as it was implemented.

Moving on to the afternoon session, Dato’ Francis Lee Kok Chuan, Director from BJAUTO and Chief Executive Officer of BJFOOD took the floor as the representative of the two subsidiaries of the Berjaya Group. Dato’ Francis started with a brief overview on BJAUTO’s business - the sole distributor and retailer for Mazda vehicles in Malaysia and Philippines. Besides sharing its growth strategy for FY2016-2017, Dato’ Francis also shared the mitigation steps in dealing with the prevailing issue of adverse currency fluctuations, which is currently corroding into the automotive players’ margins. We take comfort from the management’s outlook guidance and made no changes to our earnings estimates for BJAUTO. After concluding the session, Dato Francis briefed us through the three core brands under BJFOOD, namely Kenny Rogers Roasters, Starbucks and Jolliebean. The investment community was updated with the latest operation of each brand, the strategy moving forward as well as the expansion plan in detail. Dato Francis has also provided more clarity on the exciting plans to venture into FMCG market with Starbucks Ready-To-Drink products.

Post-conference, we prefer to take a conservative stance on a quick recovery in consumer sentiments as well as the retail sales. Most of the companies that participated were cautious and pragmatic in looking forward to FY16 while more optimistic on the turnaround in sentiment starting 2H16. The fragile consumer sentiment or confidence remained the biggest challenge for retailers approaching 2016 with no positive catalyst or stimulants in sight at the moment to boost sentiment. The festive and holiday season starting 4Q15 to 1Q16 might provide a lift to the retail sales compared to the preceding quarters but we think that the sales growth on yearly basis might still be declining or flattish at best, considering the slump in consumer sentiments between the years. Thus, we stick to our earlier expectation that sentiment will recover 6-9 months post-GST implementation. In a nutshell, we think it will not be the best time to look at the retail sector just yet and the 2H16 performance will be a better testament on whether the local consumer will recover from their low confidence level.

Source: Kenanga Research - 22 Jan 2016