It added the B40 group which continues to benefit from various financial assistance programmes, especially direct cash handouts, will continue to prop up consumer spending.
In a sectoral update today, the research house said that a relatively stable economy and a healthy job market, coupled with a strong M40 household balance sheet, are also helping to keep consumer spending up.
Kenanga focused on retailers, expecting sales to be sustained throughout 2023 following a 33.3% year-on-year (y-o-y) increase in 2022.
Its top sector picks, with the “outperform” call, were Aeon Co (M) Bhd and Padini Holdings Bhd, with a target price of RM1.80 and RM6.66 respectively.
“This (retail spending) is achieved following a strong 13.7% y-o-y growth in the fourth quarter of the 2022 financial year (Q4 FY2022) as accommodative policies and healthy M40 household balance sheet mitigated a 25 basis-point hike in OPR (overnight policy rate) in early November,” it said.
“With local retail sales having recovered to pre-pandemic levels, Retail Group Malaysia projects the local retail sales to only grow 3.5% this year from a significantly higher base in 2022.
“Nonetheless, it still sees a strong 9.2% y-o-y growth in Q1 2022 (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 and Padini,” its report said.
The tobacco industry
Meanwhile, the research house said the outlook for tobacco producers and brewers is looking cloudier.
Most companies under Kenanga’s coverage foresee this year to be challenging as the tobacco market expects rising inflation and volatile input costs to dampen sales volume.
“Furthermore, the recently announced regulations on tobacco and vapour products seem mixed for British American Tobacco (M) Bhd,” it said.
Kenanga has placed a “market perform” rating on the tobacco producer with a target price of RM12.
“On one hand, the regulation on vapour products brings about a more level playing field between the two competing tobacco products. On the other hand, the large existing base of small sellers could feed into the illicit market once regulations are put in place.
“Furthermore, the ‘generational endgame’ bill could signal the government’s intention to sunset the industry.”
Nonetheless, Kenanga believes consumer spending as a whole will remain robust as income tax cuts and cash handouts provide some level of support.