Consumer F&B counters trade higher ahead of increased demand from festive season, easing restrictions

TheEdge Tue, Apr 26, 2022 02:03pm - 2 months View Original

KUALA LUMPUR (April 26): Consumer food and beverage (F&B) counters trended higher at Tuesday’s (April 26) midday break, ahead of the Labour Day and Hari Raya Aidilfitri extended weekend.

At noon on Tuesday, the Bursa Malaysia Consumer Products Index (BCI) trended to a high of 586.83 points before retracing some gains to close at 586.14 points.

This comes as F&B groups such as Berjaya Food Bhd, Fraser & Neave Holdings Bhd (F&N) and Nestle (Malaysia) Bhd had seen their share prices gain by 14 sen (3.7%), 62 sen (2.9%), and 40 sen (0.3%), respectively.

Meanwhile, smaller cap F&B counters such as Power Root Bhd and Oriental Food Industries Bhd also saw gains of three sen (2%) and 2.5 sen (2.5%) respectively in their share prices as well.

Bursa Malaysia Bhd’s research division Bursa Digital Research (BDR) had on April 20 published a note which highlighted the consumer food and beverage sector, citing opportunities in the sector given its cheap valuation and potential for revenue and earnings growth from an improved outlook.

As at March 22, 58% of analysts had recommended “buy” on the consumer sector with 32% recommending “hold” and 11% recommending “sell”, according to BDR.

“Analysts are generally more positive towards the sector based on the view that the upcoming festivities and the pent-up demand from the easing restrictions would spur demand for consumer goods, translating to better topline and earnings,” BDR said while noting that analysts are cautious of the risk of margin pressure from elevated input costs resulting from the supply chain disruption worldwide.

BDR also wrote that it had compared consumer companies using the price-to-book (PB) ratio instead of the price-to-earnings (PE) ratio across a five-year period as the former eliminates the cyclicity of a company's earnings which may not give an accurate picture of the company’s overall trend.

“We constructed a PB band chart for the BCI, it has been trading at one standard deviation below its five-year price-to-book mean. This means that the sector is currently trading at an undemanding valuation relative to its five-year average valuation,” BDR observed.

On picks, BDR said it had selected six consumer food companies, which represented 88% of the weight of such companies within the BCI, namely Ajinomoto (Malaysia) Bhd, Dutch Lady Milk Industries Bhd, Guan Chong Bhd, Nestle, PPB Group Bhd and QL Resources Bhd.

The note also said that 67% of the six companies were trading near or below the five-year mean, while Guan Chong and Nestle are trading above the five-year mean.

As for the consumer beverage segment, BDR has selected five consumer beverage companies which comprise F&N, Power Root, Spritzer Bhd and brewers such as Carlsberg Brewery Malaysia Bhd and Heineken Malaysia Bhd.

The note added that four of the five companies are trading below the five-year mean except for Carlsberg, which is trading closer to the mean.

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