Macquarie Equities Research (MQ Research) hosted Retail Group Malaysia (RGM) to get a sense of consumers’ spending patterns in recent quarters and in 2020. Despite a challenging year ahead, RGM’s Managing Director, Mr Tan Hai Hsin, is optimistic that the retail sales growth will accelerate by 4.6% this year (vs 3.7% 2019), boosted by the B40 consumers and Visit Malaysia 2020. Genting Malaysia, among others, could potentially benefit from Visit Malaysia 2020.

Conclusion

• MQ Research recently met with RGM Managing Director Mr Tan Hai Hsin to get a sense of consumers’ spending patterns in recent quarters and looking ahead to 2020. Despite the challenging outlook, Mr Tan believes the government initiatives in regard to B40 consumers and Visit Malaysia 2020 will support an acceleration in retail sales growth to 4.6% YoY in 2020 from 3.7% in 2019. Specifically, the personal care and food & beverage (F&B) sub-segments are likely to be leading performers, while the grocery and fashion sub-segments’ outlook remain challenging.

Impact

• 2020 could be better. RGM projects 2020 retail sales growth of 4.6% y-y (vs 2019E: +3.7%; 9M19: 3.6%). This is supported by the several government initiatives (Fig 1) and rising budget allocations for Visit Malaysia 2020 and healthcare tourism. Visit Malaysia 2020 should benefit F&B retailers, hotel and recreational park operators like Genting Malaysia. But Mr Tan is cautious about weak consumer sentiment which fell 9ppt QoQ to 84pts in 3Q19.

• Who does better/worse? Generally, supermarket and hypermarket as well as department stores performed poorly in 9M19. This was due to the shifting preference from large-store format to niche and smaller grocery, or specialty stores in neighbourhood. F&B and personal care are the leading performers in 9M19, driven by self-concept and conspicuous consumption behaviour. There were 135 new brands from 23 countries that entered the Malaysia market, primarily in the F&B segment (70%).

• Tenant’s market. On average, rental rates were year to year lower due to oversupply of shopping mall space in 2019. With a further 3.78m sq.ft. (2% of existing shopping mall net lettable area) entering the marketing in 2020, rental reversion is likely to remain subdued in 2020. Developers and mall operators are also providing rental subsidies to retailers for up to 10 years. This is positive for retailers with good brand name e.g. Padini.

Outlook

With an expected improvement in consumer sentiment from a consumer-friendly Budget 2020 and higher suburban and rural incomes from higher CPO prices (Fig 2), MQ Research remains positive on consumer staples and retailers that target the B40 segment. Amongst MQ Research’s coverage, MQ Research remains positive on MyNews on its ready-to-eat (RTE) initiatives despite having some hurdles in the short term but whose long-term earnings trajectory remains promising vs regional peers.