Consumer spending to remain flat this year: Research house

PETALING JAYA: AffinHwang Capital Research said it believes consumer spending will likely remain flat this year, with a slow recovery possible in the second half of the year, as private consumption remains resilient.
In a note yesterday, AffinHwang Capital said 2016 ended with sentiment indices remaining weak for both the consumer and retailer, adding inflation has spiked in January 2017.
“Overall we estimate it (the inflation) to be higher than in 2016. While we feel that consumer spending will take longer to recover, we are comforted that macroeconomic indicators such as private consumption still shows resilience and our economist believes the ringgit will strengthen in 2017,” it added.
Inflation spiked to 3.2% year-on-year in January 2017, compared with 1.8% y-o-y in December 2016, mainly due to higher transport costs, food prices and education.
Thus, the research house said the retail sector remains challenging, whereas the food and beverage (F&B) segment will likely be hit by higher raw material prices.
“Illegal cigarettes remain a key problem for the tobacco market, but 2H17 may show a margin expansion for BAT as cost savings may come into play from sourcing cigarettes regionally.
“We are generally still positive on the brewery sector as they seem to be more resilient to downturns and we like Heineken and Carlsberg, for their dividend yields, with the first being our top pick,” it noted, adding it recommends investors to focus on companies with defensive characteristics and attractive dividend yields.
The research house said 2016 sector net profit was down 16% year-on-year, due to weak consumer sentiment which affected volumes and higher raw materials as well as operating expenditure.
For Q4’16, it said both MIER and Nielsen consumer sentiment index dropped further to 69.8 and 84 respectively, both below the 100-point threshold.
According to Nielsen, Malaysian consumers are among the least confident in Asia Pacific and low levels of confidence will probably result in consumer spending being flat at most in the next six months.
“Currently, Retail Group Malaysia forecasts 5% y-o-y growth in 2017 (versus 3% y-o-y in 2016E and 1.4% y-o-y in 2015), but we gather the forecasts are being reviewed and will likely see a downward adjustment,” it said.
AffinHwang Capital maintained its “neutral” call on the sector and recommend stocks with solid track record and high yields, citing Heineken as its top pick.