KUALA LUMPUR: CGS-CIMB Securities expects the weaker earnings outlook for the retail sectors to be largely priced in for the second half of 2022 (2H2022), given lower consumer spending going forward.
In a research note today, he said the sector, excluding MR DIY Group, is trading at 15.2 times the futures price per earnings (P/E) over one year, this which is below its 10-year average of 19.7 times due to distortion during the COVID-19 Period.
“Nevertheless, we see opportunities in the sector. In our coverage universe, we like Bonia for its strong earnings growth profile and attractive dividends, Mr DIY as it is a key beneficiary of lower consumer prices given its market position as a “retailer of value” and Senheng, a potential beneficiary of e-Discount campaigns for electrical appliance purchases and the growing trend of “Buy now, pay later” programs.
“Higher-than-expected retail spending and lower-than-expected operating costs are the main upside risks. Key downside risks include lackluster consumer sentiment and a sharp rise in operating costs,” he said.
Regarding the retail outlook for 2H2022, CGS-CIMB Securities said Retail Group Malaysia (RGM) expects demand for essential goods and services to be stable while discretionary spending may be reduced in a context of weaker consumer purchasing power due to rising inflationary pressures, interest rate hikes and subsidies. cuts.
Meanwhile, he said labor shortages had hampered store expansion plans and limited opening hours.
“We believe sales demand for discretionary businesses in 2H2022 may be dampened by increased competition and a slow recovery in foreign tourist arrivals.
“In addition, high commodity prices (higher input costs) and rising operating costs (due to higher minimum wages and rising rents) could put further pressure on the costs of retailers, which could erode margins,” he said.
As such, he added that RGM had noticed more outlet closures in Malaysia since the start of 2022.