This article first appeared in The Edge Malaysia Weekly on March 9, 2020 - March 15, 2020

FOR most of the first two months of this year, Bursa Malaysia’s consumer products and services sector underperformed the FBM KLCI, an underperformer itself. In contrast, the sector outperformed the benchmark index for most of last year.

Certainly, the retail segment of the Consumer Products and Services Index has been hit hard by the Covid-19 outbreak spreading across the world.

Nevertheless, analysts expect the disruption to the retail segment from the novel coronavirus to be brief, and predict its recovery to be quicker than that of other segments when the epidemic ends.

“The ripple effects of Covid-19 will be felt by the Malaysian retail mall, retail, automotive and residential property sectors. Fear of infection from crowded public places and public transport is keeping consumers at home, thus exacerbating the generally subdued sentiment following the announcement of Malaysia’s unimpressive 4Q2019 GDP numbers. On a brighter note, these sectors are anticipated to rebound faster than those that have been directly affected,” says RAM Ratings in its Feb 26 report.

“Footfall at popular retail malls is expected to decline in the short term with some diverted to less crowded complexes. Retail sales growth is envisaged to decline in 1H2020 (1H2019: +4.2%) amid generally weaker consumption, particularly discretionary spending (for example, electronics and apparel). The impact on non-discretionary household spending is seen to be limited as consumers adapt their shopping patterns, for example, making fewer shopping trips and buying larger quantities each time or purchasing more items online, even those with traditionally low online penetration, such as fresh food. As the situation normalises, however, consumer spending is likely to rebound in 2H2020 due to deferred spending from the earlier part of the year.”

Channel checks confirm that footfall in malls has dropped noticeably. An executive director at a listed company that owns a mall in Peninsular Malaysia says, “Footfall is dropping, something encountered industry-wide. For neighbourhood malls, the general average footfall drop is about 20% year on year. This is for February. Retail shops and malls were generally not impacted much by Covid-19 in January as there was the Chinese New Year spending buffer, coupled with the fact that shoppers were spooked by the outbreak only towards the end of January. So, the negative impact was felt more in February.”

Which stocks will benefit from stimulus package?

Moving forward, analysts and industry observers are expecting consumption to get a boost from the RM20 billion stimulus package announced last Thursday.

In terms of the measures, Kenanga Research expects a positive impact on the market from a growth in consumption through the voluntary reduction in employees’ minimum EPF contribution from 11% to 7%. This is for the period of April 1 to Dec 31, 2020.

“This would potentially release up to RM10 billion worth of private consumption or about 0.6% of GDP, by our estimate. Not only that, the payment of Bantuan Sara Hidup (BSH) recipients’ RM200 entitlement will be brought forward from May to March in addition to an extra RM150 that will be paid in May, of which RM50 will be via e-tunai. This will encourage more transactions at electronic points of sale, benefiting e-gateway providers, such as GHL Systems and Revenue Group,” says the research house in a Feb 28 report.

Other beneficiaries in the consumer products and services space are likely to be Padini Holdings Bhd, Power Root Bhd, Spritzer Bhd, British American Tobacco (M) Bhd, Carlsberg Brewery Malaysia Bhd and Heineken Malaysia Bhd.

MIDF Research opines that the measures announced last Thursday are targeted primarily at protecting the disposable income of those in the B40 and M40 groups. “We view that the early and additional payout of BSH, for instance, is timely as it would spur spending, especially during the Ramadan and Hari Raya period. We expect spending on staple food to remain elevated during the festivities. This will benefit F&B producers, such as Nestlé (M) Bhd, F&N Holdings Bhd and Leong Hup International Bhd,” the research house says in a Feb 28 report.

AmResearch also believes the one-off and temporary monthly payments will be broadly positive, cushioning the negative impact on retail spending during the Covid-19 outbreak. “We expect it to spur consumer spending, especially on staple products. This is slightly positive for Nestlé, Padini, Leong Hup, Berjaya Food Bhd and Power Root,” it says in a Feb 28 report.

It was also announced last Thursday that the government will provide a tax deduction of up to RM300,000 on renovation and refurbishment cost for private sector investments. “The tax deduction on renovation and refurbishment cost will be positive for companies like Berjaya Food and Mynews Holdings Bhd, which are aggressively renovating and opening new stores. We believe the tax deduction will slightly cushion the expected lower store patronage during the Covid-19 outbreak.”

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