During our recent Consumer Day, we featured four companies comprising BONIA (Not Rated), INNATURE (Not Rated), SDS (ADD; TP: RM1.15), and QL (MP: TP: RM6.00). We see three common themes in them namely: (i) sustained domestic spending fueling expansion, (ii) China’s reopening, and (iii) the courting of younger generation consumers. The companies are unanimous in their views that the local consumer demand will sustain, setting a conducive environment for business expansion, thanks to a stable job market, healthy balance sheet of the M40 group, while various government assistance initiatives especially subsidies on petrol and food items will help mitigate the erosion on the spending power of the B40 group amidst high inflation. They also see opportunities in China’s reopening with the return of Chinese tourists that will drive additional sales for BONIA and INNATURE while QL will enjoy higher exports to China. SDS is seen benefitting from the easing supply-chain disruptions, resulting in lower input and logistics costs. BONIA strives to grow its brand’s appeal to the new younger generations by constantly refreshing its product designs, and via collaborations with high-fashion celebrities and icons, while INNATURE counts on a strategy that is best summarized in its slogan of “Effective, Ethical, Vegan. We reiterate our OVERWEIGHT call on the consumer sector.

Sustained domestic spending. Retailers BONIA, INNATURE and SDS have benefitted from robust consumer spending during the recent festivities i.e. Christmas, year-end sale and Chinese New Year. This trend is likely to sustain into 2QCY23 buoyed by the coming Hari Raya shopping, and beyond, driven by a stable job market, and healthy balance sheet of the M40 group. Meanwhile, various government assistance initiatives especially subsidies on petrol and food items will help mitigate the erosion on the spending power of the B40 group amidst high inflation.

Expansion. To ride on the sustained consumer demand, the retailers have laid out expansion plans as follows: BONIA will add another seven new boutique stores in FY23; INNATURE will open seven new stores locally (predominantly in tourist spots and airports) and another seven in Indochina; and SDS is adding another 10 new 1-tonne trucks to its existing fleet of 269 to increase distribution frequencies and expand coverage to remote areas all over Peninsular Malaysia. QL will increase the number of its convenience stores with its primary focus being in suburbs (where rentals are cheaper and workers are more readily available).

China’s reopening. The return of Chinese tourists will drive additional sales for BONIA and INNATURE. Prior to the pandemic, international tourists contributed to about 10-15% of their total sales. Similarly, on the heels of China’s reopening, QL will enjoy higher marine exports to China which contributed 20% to its total marine revenue in 2019. Meanwhile, SDS will benefit from the easing supply-chain disruptions, resulting in lower input and logistics costs.

Courting the younger generation. BONIA strives to grow its brand’s appeal to the younger generation by constantly refreshing its product designs, and via collaborations with high-fashion celebrities and icons. Meanwhile, INNATURE counts on a strategy that is best summarized in its slogan of “Effective, Ethical, Vegan.

We reiterate our OVERWEIGHT call on the consumer sector.

Source: Kenanga Research - 27 Jan 2023