We maintain our NEUTRAL stance on the consumer sector following the introduction of EPF Akaun Fleksibel. Looking back, upon the introduction of the last Employees Provident Fund (EPF) withdrawal scheme in Apr 2022, sales of retailers spiked but tapered off fairly quickly, while monthly auto sales were muted. We believe the boost to sales of retailers will be more subdued this time around compared to what we saw during Apr 2022. This is because even if we assume full participation in Akaun Fleksibel, the total withdrawals during the first year are estimated at only RM25b, vs. RM44.6b previously. All in, we make no changes to our earnings forecasts or stock ratings. With minimal cutback on daily essentials particularly food items despite high inflation, we anticipate more stable earnings from consumer staples players vs. those of the consumer discretionary sector. Our top picks remain F&N (OP; TP: RM33.80) and MRDIY (OP; TP: RM1.95).

Restructuring of EPF members’ accounts. Effective 11 May, 2024, the EPF will restructure its accounts for all members under age 55 into three categories: Akaun Persaraan (previously known as Account 1), Akaun Sejahtera (previously known as Account 2), and Akaun Fleksibel (or Account 3). The new Akaun Fleksibel allows flexible withdrawals at any time for any purpose, with a minimum withdrawal of RM50.

From 11 May to 31 August, 2024, members will have a one-time option to transfer funds from Akaun Sejahtera to Akaun Fleksibel. Those opting in will allocate their savings as follows:- 75% to Akaun Persaraan, 15% to Akaun Sejahtera, and 10% to Akaun Fleksibel, based on a minimum Akaun Sejahtera threshold balance of RM3,000 (refer to exhibit 1 & 2). Members who do not opt in will start with zero balance in Akaun Fleksibel. For members over 55, on the other hand, savings in all three accounts will be merged into Akaun 55, and new contributions will be credited to Akaun Emas.

No impact on the EPF’s portfolio, dividend for Account Fleksibel could differ in future. According to a statement by EPF CEO Amad Zulqarnain Onn, reported by Bernama, the introduction of the new Akaun Fleksibel will not affect the EPF’s overall portfolio. Initially, dividends across all accounts will be uniform, but future variations may occur as liquid assets typically yield lower interest rates and dividends. If all EPF members choose to opt in, it's projected that RM57b could be transferred to Akaun Fleksibel, with about RM25b expected to be withdrawn in the first year, followed by annual withdrawals of RM4b to RM5b. This compares with RM44.6b withdrawals under the previous withdrawal scheme in Apr 2022 (see Exhibit 3 for total withdrawals under other EPF withdrawal schemes).

Minimal impact expected on consumer discretionary and automotive sectors. The initial three EPF withdrawal schemes— i-Lestari, i-Sinar, and i-Citra—were implemented to address urgent cash flow needs during Malaysia's movement control orders and the economic downturn caused by the pandemic, making them incomparable to later schemes. The subsequent Pengeluaran Khas scheme in April 2022, allowing withdrawals of up to RM10k, is a more apt comparison as it occurred during the economic recovery phase post-pandemic. This scheme attracted 6.6m applications and facilitated the withdrawal of RM44.6b. Major consumer discretionary firms like PADINI, AEON, PARKSON, and METROJAYA experienced a significant sales boost in 2QCY22 following this scheme (refer to exhibit 4). However, sales declined markedly in subsequent quarters, indicating that the impact was short-lived. Meanwhile, monthly vehicle sales did not rise but actually fell in Apr and May 2022 after the introduction of the withdrawal scheme (see Exhibit 6).

Assuming a blue-sky scenario where every EPF member opts into Akaun Fleksibel and withdraws RM25b in the first year, the economic impact would still only be about half of that seen with Pengeluaran Khas. Considering the average EPF savings as of 31 December 2023—RM1.7k for B40 and RM28k for M40—the projected transfers to Akaun Fleksibel would range between RM1k and RM3k (refer to exhibit 5). Therefore, the launch of Akaun Fleksibel is unlikely to significantly affect consumer discretionary sectors, including the automotive industry, which showed stable sales and backlog figures (200k-250k units) during the special withdrawal period of April-May 2022 (refer to exhibit 6). Overall, we are of the view that contributors will allocate funds from Akaun Fleksibel prudently, with minimal expenditure on high-ticket items.

Maintained stocks valuations: Our earnings forecasts, valuation methodology, target prices, and ratings remain unchanged for the consumer sector portfolio. We still favour the consumer staples players rather than the consumer discretionary names. F&N (OP, TP: RM33.80) and MRDIY (OP, TP: RM1.95) remained our top pick for the sector. Note that, our valuation basis of 22x for consumer staples companies was aligned with the sector's average historical forward PER. Meanwhile, our PER valuation for department store and apparel companies remains at 12x, reflecting a 20% discount from the sector's average historical forward PER of 15x to reflect the eroded spending power of their target customers, i.e. the M40 group. For PWROOT, on the other hand, its valuation basis stayed at 13x, at a discount to the average historical forward PER of 22x for the food and beverage to reflect the company less extensive product range vs. its peers.

Our valuation basis, TP and recommendation for consumer stocks are summarised in Exhibit 7.

Source: Kenanga Research - 26 Apr 2024