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KUALA LUMPUR: CGS-CIMB Securities expects the dimmer earnings prospects for the retail sectors are largely priced in for the second half of 2022 (2H2022), considering the weaker consumer spending moving forward.

In a research note today, it said the sector, excluding MR DIY Group, is trading at 15.2 times one-year forward price per earnings (P/E), which is below its 10-year mean 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 consumers downtrading given its market position as a ‘value retailer’ and Senheng, a potential beneficiary of Malaysia’s ongoing e-Rebate campaigns for electrical appliance purchases and rising trend of ‘Buy Now, Pay Later’ programmes.

“Higher-than-expected retail spending and lower-than-expected operating costs are key upside risks. Key downside risks include lacklustre consumer sentiment and a sharp rise in operating costs,” it said.

On the 2H2022 retail outlook, CGS-CIMB Securities said the Retail Group Malaysia (RGM) expected demand for essential goods and services to be stable while discretionary spending could be curtailed amidst weaker consumer purchasing power due to rising inflationary pressures, interest rate hikes and subsidy cuts.

Meanwhile, it said the labour shortage has hampered store expansion plans and limited operating hours.

“We think that sales demand for discretionary companies in 2H2022 could be dampened by intensifying competition and a slow recovery in foreign tourist arrivals.

“In addition, elevated raw material prices (higher input cost) and rising operating costs (due to the minimum wage hike and higher rent) could put further cost pressures on retailers, which could erode margins,” it said

As such, it added that RGM noticed more closures of retail outlets in Malaysia since early 2022.


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