Despite the lack of stronger catalysts to spur consumer consumption, our Overweight call for the consumer sector remains unchanged. We expect resilient consumer spending towards consumer staples and non-discretionary, driven by increase in household income of B40 group and a normalized economic growth outlook resulting from the interest rate rally previously. Notably, the IMF projects the global economic growth at 2.9% against Malaysia’s economic growth estimate of 4-5% by MoF (compared to TA Research's 5%), indicating a return to pre-pandemic levels. Moreover, with personal spending historically contributing about 60% to Malaysia's total real GDP, we anticipate moderate growth in 2024, aligned with the broader economic expansion.

Our View

We are mildly positive on Budget 2024 for the consumer sector with a feel of relief that target subsidy rationalization only affects diesel usage, while ensuring that logistic operators will continue to benefit from diesel subsidies to mitigate inflation pressure. Moreover, the increase in the STR payout and lucrative incentives for civil servants will help alleviate the impact of rising living costs. These measures aimed at enhancing the household income of the B40 demographic, including the provision of new essential job roles and upskill training, are positive. That said, our disappointment stems from the absence of a new wage structure, particularly the progressive wage model, which we believe could structurally enhance the income of the B40 demographic and stimulate private expenditure within the consumer sector. As for the SST increment, we are neutral as we do not anticipate any major impact, considering any potential disruption as short-term with a subsequent recovery in consumer spending. As such, we anticipate consumer staples and low-ticket retailers, specifically AEON (Buy, TP: 1.57) and PADINI (Buy, TP: RM4.70), to be the primary beneficiaries.

Food and Beverage (F&B) – The government has announced the full upliftment of price controls on poultry goods due to normalised supply and demand. We view this adjustment positively as LHI (Under Review) and QL (Buy, TP: RM6.70) could potentially benefit from the policy. We have put our call on LHI under review due to the recent strength in its share performance, pending further insights and clarity from LHI's management in a meeting tomorrow. On the other hand, the excise duty on sugary drinks (contains >5 grams of sugar or sugar-based sweeteners) has increased to 50sen/litre as a mean to promote healthy diet. We are neutral on this change, believing that sugar-sweetened beverage manufacturers, namely F&N (Buy, TP: RM29.70) and NESTLE (Buy, TP: RM151.30), will likely pass on the cost to consumers by raising selling prices. Meanwhile, FFB (Buy, TP: RM1.53) stands to benefit from the "buy more locally made goods" campaign, as it is the sole local dairy brand in Malaysia.

Breweries, Tobacco – No changes to breweries' excise duty. However, a new excise duty of 5% + RM27/kg will be imposed on chewing tobacco. This could negatively impact BAT's (Not Rated) net margin, though it's worth noting that chewing tobacco is a niche product uncommon among young generations.

Recommendation

Despite some disappointment regarding the absence of a new wage model and stronger catalysts to boost consumer consumption, we maintain Overweight on the Consumer sector. We believe that several key measures will contribute to resilient consumer spending towards consumer staples and non-discretionary, driven by improving disposable income and a normalized economic growth outlook from the interest rate rally previously. Notably, the IMF forecasts global economic growth at 2.9%, with the Asia Pacific region expected to grow at 4.2% in 2024, aligning with Malaysia's economic growth estimate of 4-5% by the Ministry of Finance (compared to TA Research's forecast of 5%). This return to pre-pandemic levels is promising. Moreover, personal spending historically accounts for c.60% of total real GDP in Malaysia, which should see moderate growth in 2024, in line with the overall economic expansion.

Source: TA Research - 18 Oct 2023