KUCHING: Analysts have mixed opinions on how the consumer segment will fare in 2019.
In a report, MIDF Amanah Investment Bank Bhd (MIDF Research) expects the consumer segment to face an unfavourable market situation in the short-term due to the newly proposed sugar tax of RM0.40 per litre on ready-to-drink (RTD) beverages that contain sugar exceeding 5.0 grams per 100ml.
“This will translate into a possible price increase of between RM0.10 to RM0.60 for 250ml to 1.5L drinks should the cost is fully past down to consumers. This translates between +8.30 to +17.6 per cent in retail price increment.
“Hence, the imposition of the new tax is a negative development for F&B manufacturers that has a sizeable portfolio of ready-to-drink beverages. We understand that 80 to 90 per cent of ready-to-drink beverages in the market are subjected to this tax.
“The increase in retail pricing for this RTD beverages could potentially have negative impact on sales volume in the immediate term. Over time, we expect that F&B manufacturers to respond either through sourcing alternative substitute to sugar or reformulation of products’ recipe,” said the research arm.
Additionally, MIDF Research also belives that the segment will be facing stiff competition from the online marketplace as retailers under their coverage have experienced negative same store-sales growth (SSSG) despite the recent tax holiday period.
“Based on the survey done by the Department of Statistics for December 2018, retailers expected that the competition in the retail market will heighten in the next six months.
“Moreover, the aggressive promotions during online sales festivals such as 11.11 have suppressed retail prices of fashion category even further,” commented the research arm.
Conversely, AmInvestment Bank Bhd (AmInvestment Bank) expects consumer sentiment to remain healthy thanks to the recent consumer-friendly initiatives put forth by the federal government that have contained the problem of rising cost of living and effectively put more money back into the pockets of consumer.
These initiatives include the substitution of the goods and services tax (GST) with the sales and services tax (SST), reintroduction of petrol subsidy, capping of the electricity tariff and introduction of public transport subsidies.
“The improved consumer sentiment is manifested in the uptick in the Consumer Sentiment Index as measured by the Malaysian Institute of Economic Research (MIER), where the index has recovered beyond the 100-point confidence threshold after 3 years of a low sentiment trend.
“We believe the positive trend in consumer sentiment will be sustained as consumers become more confident of the government with expectations of a more rakyat-centric government policies, better governance and transparency,” explained the bank.
“We project private consumption to grow at 6.5 per cent year over year (y-o-y). This is on the back of a healthy labour market as well as stable inflation,” it added.
MIDF Research adds that sector is also on a stronger footing to face headwinds going forward as agriculture commodities have been on a downward trend.
Year-to-date (YTD), the prices of the most used raw materials in F&B manufacturing such as palm oil and coffee beans have fallen between -10 to -30 per cent – largely benefiting local F&B manufacturers like Nestle (Malaysia) Bhd and F&N Holdings Bhd.
“This resulted in gross profit margin expansion as seen in their latest quarterly earnings result. We expect the trend to continue, thus, keeping the operating costs at bay for the next one year.
“On top of the savings generated from cheaper raw materials, we view that big F&B players also stand to gain from the operating efficiency efforts they had undergone in the past two years. This includes increasing the level of automation and putting on a leaner operating structure.
MIDF Research maintains its neutral outlook while AmInvestment Bank maintains its overweight call on the sector.
Source: Borneo Post Online