KUALA LUMPUR (April 6): Kenanga Investment Bank Research has maintained its “overweight” rating on the consumer sector with a focus on retailers and said it expects consumer spending to stay resilient in the absence of any immediate plan by the government to rationalise subsidies or reintroduce the goods and services tax, while the B40 group continues to benefit from various financial assistance programmes, especially direct cash handouts.

In a sector update on Thursday (April 6), the research house said that also helping are a relatively stable economy and a healthy job market, coupled with a strong household balance sheet of the M40 group.

Kenanga said it expects retail sales to sustain throughout 2023 following a 33.3% year-on-year (y-o-y) increase in 2022.

“This is achieved following a strong 4QCY2022 (+13.7% y-o-y) as accommodative policies and the healthy balance sheet of the M40 mitigated a 25bps hike in OPR in early November.

“With the local retail sales having recovered to pre-pandemic levels, Retail Group Malaysia (RGM) projects the local retail sales to only grow 3.5% in 2023 from a significantly higher base in 2022.

“Nonetheless, it still sees strong y-o-y growth of 9.2% in 1QCY2022 (before tapering off). Specifically, department stores are projected to achieve a higher growth of 15.8% during the same period which augurs well for AEON Co (M) Bhd and Padini Holdings Bhd.

“Our sector top picks are AEON (outperform; TP [target price]: RM1.80), Padini (outperform; TP: RM6.00) and QL Resources Bhd (outperform: TP: RM6.66),” it said.

Meanwhile, the research house said the outlook for tobacco producers and brewers is looking cloudier.

“Most companies under our coverage foresee 2023 to be challenging as they expect rising inflation and volatile input costs to dampen sales volumes.

“Furthermore, the recently announced regulations on tobacco and vapour products seem mixed for British American Tobacco (M) Bhd (market perform; TP: RM12),” it said.