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This article first appeared in The Edge Financial Daily on January 22, 2019

RHB Research said its top picks among consumer stocks are Mynews Holdings Bhd, AEON Co (M) Bhd and Power Root Bhd.

“We like Mynews for its growth potential, driven by outlet expansion and the rollout of its fresh food products in its stores following the completion of its central kitchen — which should improve ticket size and footfall,” it said.

Mynews’ net profit rose 14.81% to RM6.07 million for its fourth quarter ended Oct 31, 2018, from RM5.29 million a year ago, on the back of higher revenue as outlets number continued to expand. Revenue increased 20.95% to RM109.34 million from RM90.4 million.

Its outlet count rose to 436 as at the end of the quarter from 356 a year ago.

As for AEON, RHB Research said: “We like AEON as we believe it is in a good position to capitalise on the resilient consumer spending that we anticipate, given its network of stores throughout Malaysia and its strong brand equity.”

RHB Research’s liking for Power Root is based on its expectation that the food and beverage stock’s earnings will recover from the low base in the year ended March 31, 2018 (FY18), underpinned by lower raw material costs, favourable foreign exchange and moderation in advertising and promotion expenses.

For the first half of FY19, Power Root’s core profit after tax and minority interests rose 6% to RM14.8 million. The earnings were dragged down by higher effective taxes and certain adjustments to foreign exchange gains.

The company’s 1HFY19 sales of RM176.5 million were 18% lower year-on-year (y-o-y), mainly due to weaker domestic performance, which could be due to the rationalisation of the group’s distribution network.

AmInvestReasearch also likes Power Root for its cheap valuation and better earnings prospects from stronger US dollar against the ringgit.

“As producers of staple products, Power Root will be a potential beneficiary of improved consumer spending. Presently, the company is undervalued, trading at 12 times P/E compared with OldTown which previously traded at an average of 15 times forward price to earnings ratio.

“Power Root will also benefit from a stronger US dollar as around 50% of its sales are in exports,” said the research house, giving a “buy” call with a target price of RM1.65 for the counter.

Another stock pick by AmInvest Research is Berjaya Food Bhd for which it has issued a “buy” call with a fair value of RM2.01. The research house said Berjaya Food is a beneficiary as the uplift in consumer sentiment will drive the discretionary spending thus boost the demand of its products.

Berjaya Food, which runs Starbucks and Kenny Rogers chains in Malaysia, saw its net profit grow 21% y-o-y in its second quarter ended Oct 31, 2018 (2QFY19) to RM7.03 million — the highest quarterly profit since 3QFY16 — driven by higher same-store-sales growth from its Starbucks cafes, and the opening of new outlets.

Mynews is also among the top picks of AmInvest, which has given the stock a “buy” call and a fair value of RM1.66 per share.

“We believe Mynews will be an indirect beneficiary of the public transportation subsidy. We reckon that this measure will boost foot traffic surrounding the train stations. Mynews currently operates more than 30 stores in the mass rapid transit, light rail transit and monorail stations,” said AmInvest.

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