Rising optimism in the market may buoy the consumer sector in the coming quarters, though rising unemployment and overall economic toll from Covid-19 still remain causes for concern, say RHB in an August 28 note. RHB analyst Juliana Cai is maintaining “neutral” on the consumer cyclical and non-cyclical sector, preferring defensive staples with some exposure to recovery play. 

“Although we have started to see more optimism in the market as regional economies bottomed out in 2Q2020, the economic toll and rise in unemployment resulting from Covid-19 are likely to persist into 2H2020- 2021. This should pose continued challenges to overall consumption. We expect a full recovery only in 2022,” says Cai. 

Thai Beverage is RHB’s top pick for the sector, which also includes Food Empire, Kimly, Sheng Siong, Dairy Farm, Delfi, Japan Foods, Genting Singapore and Jumbo Group. “We believe Thaibev’s spirits segment (approximately 80% of EBIT) has demonstrated fairly resilient sales and earnings in its 3QFY2020 (Sep) results. Given that the bulk of its spirits product range is consumed at home, sales were largely unaffected by during the lockdown and temporary ban of alcohol sales,” notes Cai.

Cai is recommending “buy” on ThaiBev with a target price of 72 cents. 

“We note that Thailand has relaxed its restriction measures, lifted night curfews, with most people returning back to the office for work. We believe the company stands to benefit from the resumption of activities as sales for beer, non-alcohol beverage and restaurant segments should pick up from here on.”

With ongoing travel restrictions and rising unemployment in many markets worldwide, Cai notes that the hospitality sector, along with retail and transport, have been badly hit. Tourist-dependent operations will take longer to recover, she adds. 

“Although consumer confidence in the region has bottomed, with most nations relaxing national lockdowns and seeing a gradual resumption of activities, job insecurities, economic uncertainties and, high household debt will continue to weigh down on 2021 consumer sentiment and spending,” she says.

Cai expects consumer staples to be least affected by Covid-19. “With many people still working from home, players catering to home consumption should continue to show resilient results. We like Sheng Siong, a staple grocery retailer, which has benefitted from the lockdown and showed tremendous earnings growth in 2Q2020. That said, the market may have priced in a large part of this resilient performance as the stock has significantly outperformed the market YTD.”

“We now prefer F&B producers like Thaibev and Food Empire which have strong market share in their respective product segments, fairly resilient earnings and still trading at discounts to their peers and historical mean.”

As at 2.09pm, shares in ThaiBev are trading 0.5 cents higher, or 0.82% up, at 61.5 cents, while shares in Food Empire are trading at 3.5 cents higher, or 5.8% up, at 63.5 cents.