KUALA LUMPUR: Investors could take the opportunity to position themselves in consumer stocks given their share price weakness in the first quarter of this year and potential better performance in the next quarter.

According to Kenanga research, retailers that already experience seasonal weakness in the first three months of the year due to the end of the year-end festivities have been further impacted by lower footfall due to the Covid-19 putbreak and movement control order (MCO).

The Kuala Lumpur Consumer Index fell 26% over the year-to-date period to March 20 as compared to an 18% decline on the FBM KLCI.

"We believe that investors could use this opportunity to buy into 1QCY weakness (for retailers) as we are expecting better growth starting 2QCY20 (assuming no extension on MCO) from Hari Raya Aidilfitri, subsequent pent-up demand from the MCO and maiden benefits from the distribution of government stimulus package 2020," it said.

The research house added that the 2020 economic stimulus package and recent additional stimulus could help to boost local demand amid the current crisis. The bringing forward of the RM200 Bantuan Sara Hidup entitlement from May to March, and an additional RM150 to be paid in May will also help to stimulate demand.

Kenanga also noted that there is expected to be other measures announced periodically by the Prime Minister after the discussion with the affected parties during this outbreak.

However, the research house cautions that in the event the pandemic takes more than the next few months to resolve, there could lead to the Malaysian retail industry suffering from a negative growth rate for the entire year.

"The last time when the Malaysian retail industry recorded a negative growth rate was during the 1997-98 Asian Financial Crisis. In 1998, the market size of the Malaysian retail industry contracted by 20%," it said.

Kenanga has a neutral rating on the consumer sector as it believes the "safe haven status" of F&B counters is emphasised in these uncertain times due to their resilience and relatively protected earnings.

Its top sector pick is Padini with a target price of RM2.40. It also has outperform calls on Power Root with a target price of RM2.6, QL Resources with a target price of RM8.30 and F&N with a target price of RM35.20.

Among the "sin" stocks, it has upgraded to outperform Carlsberg with a target price of RM25.65 and Heineken with a target price of RM26.05. It kept its outperform call on BAT with a lower target price of RM15.50.