Consumer Sector : New Anti-Profiteering Act is another small hurdle NEUTRAL

STOCK FOCUS OF THE DAY

Consumer Sector : New Anti-Profiteering Act is another small hurdle      NEUTRAL

The Domestic Trade, Cooperation and Consumerism Ministry released a new price control and anti-profiteering act (PCAP 2016) recently, which came into effect on 1 Jan 2017. This comes after the previous PCAP 2014 expired on 31 Dec 2016 after coming into effect on 2 Jan 2015. There are two primary differences between PCAP 2016 and the previous regulation it replaced. Firstly, there is no cessation date to the new regulation. Secondly, the new regulation narrowed its applicable ambit to food and beverage and household goods from all goods and services previously.

We initially assumed for PCAP to be lifted by mid-2017, with any sooner date a positive for the sector. Therefore, the open ended time frame is an unexpected hurdle to selected companies under our coverage. Based on the new regulation, we gather that Berjaya Food, Bison Consolidated and Cocoaland fall within the purview of the narrowed interpretation. We note that while the regulation is in no way eliminating any price increments, it forces companies to ensure that net profit margin before and after a price increase is unchanged. F&B and household goods companies are left with three interchangeable options including: i) replace old SKUs with new SKUs - the PCAP 2016 only applies to SKUs with a determinable net profit margin precedent but could induce unfamiliarity; ii) raise prices – requires company to have robust enterprise software but raises monitoring costs and iii) maintain prices – would result in deteriorating margins as overhead costs are higher. Despite PCAP 2016’s open ended timeframe and fluidity of the situation for companies to react and adopt, we expect the companies under our coverage to gradually adopt option 2. We make no changes to our forecasts given the marginal increase in monitoring costs. We maintain our NEUTRAL recommendation on the sector.

Others :

Plantation Sector : Palm oil inventory up marginally in December               NEUTRAL

ECONOMIC HIGHLIGHTS

Philippines : Growth remains resilient

China : Expect inflationary pressure to pick up in 2017

NEWS HIGHLIGHTS

Construction Sector : Muhibbah Engineering group secures RM438mil project in Qatar

Insurance Sector : Zurich Insurance Malaysia to boost investment-linked products with new rider