Comprehensive Analysis of Malaysia’s Consumer Sector

Broker: UOB Kay Hian

Date: December 6, 2024

Overview of Malaysia’s Consumer Sector

The consumer sector in Malaysia is currently navigating a complex landscape, marked by mixed signals. The recent hike in the minimum wage is offset by increased consumer spending, providing a mixed outlook for the sector. Despite the rise in commodity prices, margins remain intact for now. The sector is projected to see earnings growth of 4.6% in 2024 and 8.9% in 2025. Valuations are near the lower end of the five-year mean, suggesting a MARKET WEIGHT stance on the sector. Key recommendations include F&N and Mr DIY as top picks.

99 Speedmart (99SM)

99 Speedmart has recently been included in the KLCI Index, ranking as the 26th largest company by market capitalization at RM20.6 billion. This marks a significant rise of 49% since its IPO on September 9, with an initial market capitalization of RM13.8 billion. Historically, similar inclusions have led to a rerating of companies, and 99SM is expected to experience a rerating to a forward PE of 36.5x. The company could see its share price increase to RM3.12 from the current target price of RM2.60, based on Mr DIY’s historical PE mean. Analysts have observed this trend with peers like Nestle and QL Resources.

British American Tobacco (BAT)

BAT reported strong performance with a 14.5% year-on-year increase in revenue for 3Q24, surpassing expectations by 87.4%. The company’s strategic positioning and market adaptability continue to contribute to its robust performance. BAT is recommended as a HOLD with a target price of RM6.93, reflecting its stable but competitive market positioning.

Carlsberg

Carlsberg has shown a commendable performance with a 19.8% year-on-year increase in revenue for 3Q24. The company remains a BUY with a target price of RM25.10. Its strategic initiatives and brand strength in the beverage market underscore its continued growth potential.

Farm Fresh

Farm Fresh stands out with a significant 114.8% year-on-year increase in revenue for 3Q24, driven by acquisitions and new product launches. Despite its growth, the company faces steep competition and has a lofty valuation, leading to a SELL recommendation with a target price of RM1.25.

Fraser & Neave Holdings (F&N)

F&N reported a decline in performance with a 35.2% year-on-year decrease in revenue for 3Q24, attributed to frontloaded advertising and promotion spending. However, this is expected to reverse in the coming quarters. The company remains a top pick with a BUY recommendation and a target price of RM36.30, supported by its strong brand presence and strategic initiatives.

Heineken Malaysia

Heineken continues to perform well with a 12.0% year-on-year increase in revenue for 3Q24. The company is recommended as a BUY with a target price of RM29.20, leveraging its strong market position and brand equity in the alcoholic beverage sector.

Mr DIY

Mr DIY, although experiencing a 1.6% year-on-year decline in revenue for 3Q24, remains a top pick in the sector. The company is recommended as a BUY with a target price of RM2.35, driven by its appeal to the lower middle-income segment and strategic expansion plans.

MyNews

MyNews showed a significant improvement with a 150.0% quarter-on-quarter increase in revenue for 3Q24. Despite challenges, the company maintains a HOLD recommendation with a target price of RM0.52, reflecting its steady market presence.

Nestle Malaysia

Nestle experienced a 49.2% year-on-year decline in revenue for 3Q24, impacting overall sector performance. However, its strong brand and market positioning suggest potential for recovery. The company is recommended as a HOLD with a target price of RM114.00.

QL Resources

QL Resources reported a 4.6% year-on-year increase in revenue for 3Q24, supported by higher poultry-related sales. The company maintains a HOLD recommendation with a target price of RM4.80, reflecting its stable market position and growth prospects.

Conclusion

The Malaysian consumer sector presents a balanced outlook with both opportunities and challenges. While the minimum wage hike poses cost pressures, increased consumer spending and strategic initiatives by key players offer growth potential. Investors are advised to maintain a MARKET WEIGHT stance, with F&N and Mr DIY as top picks, while exercising caution with Farm Fresh due to its competitive pressures and high valuation.