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The defensives performed. No major surprises in the 1Q09 results in
the Consumer Sector. F&B manufacturers generally turned in another
solid quarter of net profit growth. After a difficult quarter, we believe the
worst is over for retailers and mixed players who now look poised for a
recovery in 4Q09, especially if the rebound in GDP proves to be
stronger than initially expected. Remain selectively Overweight.
The worst is over. Key indicators suggest consumer confidence and
hence, consumption bottomed in 1Q09. Although the worse-thanexpected
6.2% GDP contraction in 1Q09 pushed back expectations of
an earnings recovery in the broader economy, we believe the defensive
qualities of the Consumer Sector mean that sector earnings are very
close to, if not already at, a floor.
Manufacturers reaped solid gains. F&B manufacturers were standout
performers in 1Q09, generating net profit growth of 5-157% YoY vs. an
average of -24% for the sector as a whole. We attribute this mainly to
lower input costs coupled with the carrying-over of higher selling prices
from end-2008. We expect earnings growth to remain resilient through
2009-10 for most F&B manufacturers.
But retailers/integrated players not so lucky. As expected, 1Q09 net
profit growth for retailers and integrated players was significantly
affected by the slowdown in the economy and the reversion of
consumer expenditure to basic necessities over non-essentials.
Nevertheless, two of our stock picks, KFC and AEON Co, registered
creditable net profit growth. More importantly, all signs point to a
recovery by year-end that could well be stronger than initially expected.
Selectively Overweight. Our picks in the Consumer sector offer either
steady double-digit growth or consistently high dividends. AEON Co,
KFC Holdings and QL Resources are all on track to achieve doubledigit
annual growth over 2009-11. We also like JT International and
Guinness for their high dividend yields of 8-12%, and their defensive