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Author: savemalaysia   |   Latest post: Sat, 28 Nov 2020, 8:57 PM


Earnings visibility for consumer players seen

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PETALING JAYA: UOB Kay Hian Research sees high earnings visibility for consumer players like NESTLE MALAYSIA BHD and QL RESOURCES BHD on the Covid-19 pandemic possibly continuing into 2021 despite containment measures.

BRITISH AMERICAN TOBACCO (M) BHD (BAT) is also seen as a bright spot in the sector and is the research house’s top pick.

“We continue to like the tobacco and fast-moving consumer goods (FMCG) segments as consumption patterns are either home-bound or in isolation.

“Going forward, we like BAT as it fully implements its cost-rationalisation exercise, while the impending regulation on vaping and e-cigarettes could be a catalyst, ” said UOB Kay Hian.

Meanwhile, resilient demand and largely unrestricted sales channels for Nestle Malaysia’s and QL’s products entail low downside risk.

Nestle Malaysia’s sauces and health sciences products will bode well for home-bound consumption patterns, though reduced activity and availability may lower confectionery and beverage products.

In QL’s case, a surge in egg demand has offset the lower demand for poultry, while demand for its surimi (fish paste) products remain resilient.

“QL’s 175 of 185 strong Family Mart convenience stores continue to operate throughout the movement control order (MCO).

“A sheer drop in foot traffic is likely to result in a negative impact to Family Mart.

“Despite that, the overall impact to QL’s high earnings base is likely to be insignificant, ” said UOB Kay Hian.

As for breweries CARLSBERG BREWERY MALAYSIA BHD and HEINEKEN MALAYSIA BHD, the risk stems from a likely extended limitation of entertainment outlets’ operations.

According to UOB Kay Hian, communal and out of home-based consumption patterns could mean that the likes of FRASER & NEAVE HOLDINGS BHD (F&N), Heineken and Carlsberg will face sustained headwinds should a vaccine for Covid-19 not be found.

The research house noted that heavily curtailed tourism in Thailand and a shift to home-bound consumption could largely restrict hawker activity, lowering demand for F&N products.

Thailand contributes close to 70% of F&N’s operational earnings.

“Heading into the results season for the first half of 2020, we expect potential knee-jerk selling to the unprecedented decline in earnings. However, as our base case assumes for Covid-19 to be contained by end-2020, valuations based on financial year 2021 appear undemanding, ” said UOB Kay Hian, which has maintained an “overweight” call on the consumer sector.


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