PETALING JAYA: Consumer companies will likely see mixed fortunes this year, with those in the staple-food segment expected to remain resilient, while those in the discretionary segment expected to see muted performance through 2024.
According to MIDF Research, the prospects for consumer staples will continue to be underpinned by steady demand and solid domestic out-of-home consumption, thanks to the extreme hot weather, rising incomes, improved job market prospects, and recovery in tourism.
It noted that the stabilisation of prices for wheat, skimmed milk powder, whole milk powder, crude palm oil, sugar, corn and soybean meal will benefit certain biscuit, dairy and livestock-related players.
In its report on the consumer sector yesterday, the research house pointed out that sustained demand for livestock-related products in Indonesia on the heels of the Aidil Fitri celebrations would support prices and benefit poultry players operating in Indonesia.
However, MIDF Research conceded that it remained cautious about rising inflationary pressure in 2024, along with concerns regarding a global economic slowdown, partly fuelled by escalating geopolitical tensions.
“These factors could impact consumer discretionary income, leading to weakened consumer sentiment for non-essential purchases and a preference for cheaper products,” it said.
In addition, the research house said the persistent rise in certain raw material input costs such as cocoa, as well as Arabica and Robusta coffee beans, would likely continue compressing margins for chocolate and cocoa-related food and beverage manufacturers.
Given the conflicting trends, MIDF Research maintained its “neutral” outlook on the consumer sector.
It noted that data from the Statistics Department for February 2024 had shown sustained retail-trade growth with consistent out-of-home food and beverage consumption, while discretionary spending remained muted.
“Looking ahead, we remain sanguine about the positive retail trade growth for food and beverage and tobacco in 2024,” MIDF Research said.
“This is mainly supported by resilient out-of-home food and beverage consumption, driven by a domestic inclination towards such expenditure, resurgence in tourism and heightened demand during extreme weather conditions, steady job market prospects and rising incomes, as well as various government cash assistance and targeted subsidies expected to further bolster spending on essential food items,” it added.
However, it said, price-sensitive consumers were expected to exercise greater caution in their spending on discretionary and consumer durable goods in 2024, primarily due to the escalating cost of living over the year, driven by various fiscal policy changes such as a higher service tax and targeted fuel subsidies.
Further, continuous margin compression for cocoa and coffee-related food and beverage products could potentially prompt certain companies to raise prices to partially offset increased costs, MIDF Research said, noting full pass-through was unlikely due to limited room and the need to sustain product demand.
Citing strong fundamentals, MIDF Research said its top pick for the consumer sector is Fraser & Neave Holdings Bhd (F&N).
“We continue to favour F&N as the company is expected to benefit from the rising demand for ready-to-drink beverages, driven by increasing tourist traffic and hot weather conditions,” it explained.
“Additionally, we like F&N’s expansion into upstream dairy farming, as it positions the company to tap into the underserved fresh milk market, reduce reliance on imported milk and subsequently lower costs,” it added.
