SECTOR FOCUS OF THE DAY
Consumer Sector : Needles in a haystack of pessimism NEUTRAL
While valuations are trading below historical standards, they fairly reflect unconvincing earnings outlook growth of 10.7% (refer Exhibit 5). Remain NEUTRAL on the consumer sector. Risk factors such as a weakening MYR, competition and soft consumer sentiment have either largely diminished or reached a bottom. However, the impending outlook remains weighed by a tepid recovery in the aforementioned risk factors. Instead, we look at laggard plays as our TOP PICKS for the sector that we think has bottomed out:
i) Berjaya Food (BUY, FV: RM1.77) for i) its attractive growth off a low base, offering a 3-year earnings CAGR of 22%; ii) innovative, yet resilient Starbucks brand; and iii) rationalisation of non-performing stores have positioned KRR Malaysia to see 2 consecutive quarters of positive SSSG. Valuations are pegged to a P/E of 25x, reflecting a 20% premium to its historical valuations.
ii) Bonia (BUY, FV: RM0.75) is attractive for: i) its Braun Buffel brand commanding a regional appeal – with Indonesia supplementing growth; ii) closure of its underperforming consignment stores to alleviate FY18F earnings growth; and iii) attractive valuation, which currently trades at a forward P/E of 12.5x, below its 5-year historical average P/E of 14.5x.
We also highlight two scenarios that may carve out opportunities within the consumer sector over the next 12 months: i) a strengthening MYR and ii) a slump in commodities prices. Berjaya Food and Padini are beneficiaries of a stronger MYR. Meanwhile, OldTown and Cocoaland are largest beneficiaries of cheaper commodities prices.
STOCKS ON RADAR
Choo Bee Metal Ind., Bonia Corp., Malton, Dutaland
ECONOMIC HIGHLIGHT
Malaysia : Is outside labour force gaining traction?
NEWS HIGHLIGHTS
GST : ‘2017 collection could exceed RM42b target’
Kerjaya Prospek : Bags RM291m condominium job in Bangsar South
Salcon : To replace pipes for Air Selangor
T7 Global : Clinches two contracts, Australian investment strikes oil
DISCLAIMER:
The information and opinions in this report were prepared by AmInvestment Bank Bhd. The investments discussed or recommended in this report may not be suitable for all investors. This report has been prepared for information purposes only and is not an offer to sell or a solicitation to buy any securities. The directors and employees of AmInvestment Bank Bhd. Bhd may from time to time have a position in or with the securities mentioned herein. Members of the AmBank Group Bhd and their affiliates may provide services to any company and affiliates of such companies whose securities are mentioned herein. The information herein was obtained or derived from sources that we believe are reliable, but while all reasonable care has been taken to ensure that stated facts are accurate and opinions fair and reasonable, we do not represent that it is accurate or complete and it should not be relied upon as such. No liability can be accepted for any loss that may arise from the use of this report. All opinions and estimates included in this report constitute our judgment as of this date and are subject to change without notice.
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