The Consumer sector\u2019s performance year-to-date (YTD) can be described as being mixed at best. Only MONDE and CNPF are outperforming YTD while the rest lag the market, most notably URC.<\/p>\n\n\n\n
While the prices of select commodities (e.g. wheat) have eased, some remain elevated like coffee and cocoa. Also, inflation (specifically food inflation) has yet to more convincingly go lower to allow for a stronger and sustained recovery of consumer sentiment.<\/p>\n\n\n\n
Hopes for a rate cut (which could also help boost consumer sentiment) remain but the timing is uncertain. Thus, we are still waiting for topline to pick up and for operating leverage (margins) to kick-in \u2013 our key angles for the sector this year.<\/p>\n\n\n\n
Foreign investor interest in the sector appears to be low and it appears that they need more convincing about the sector\u2019s prospect this year. As per a recent S&P Global report, consumer activity in ASEAN will moderate in 2024, after brisk growth last year, as confidence remains weak and tight monetary policy starts to bite.<\/p>\n\n\n\n
Nonetheless, the ratings agency believes that the region will remain the fastest-expanding consumer market in the world, thanks to its underlying growth momentum. High underlying economic growth and supportive labor markets will
prevent a sharp slowdown in consumer activity.<\/p>\n\n\n\n
Based on the ASEAN Factor Model by Bloomberg for Southeast Asis, Consumer stocks are viewed more as low-momentum plays (sector accounts for ~38% of the low momentum basket). In contrast, Financials contribute 1\/3 of the region\u2019s high momentum stocks as large market cap and higher liquidity make them the go-to sector for institutional and foreign investors. Industrials and Real Estate come next at close to 20% of the momentum basket.<\/p>\n\n\n\n
While we like the Consumer sector (rated as O\/W), its momentum may not pick up until there\u2019s better visibility on the near term catalysts. Thus, we would be more selective for now. We like both MONDE and CNPF, but both have outperformed massively already YTD leaving limited upside potential from their current levels.<\/p>\n\n\n\n
JFC lags behind and offers decent upside but we need more convincing with the international operations which weighed down on its results for last year. It does stand out though as having the highest operating leverage among the consumer names. <\/p>\n\n\n\n
Then we have URC which comes out as the better choice given the stock\u2019s significant underperformance YTD vs. huge upside potential (over 40% based on consensus target). Our view is that most of the disappointment have been priced in already as reflected not just in the weak share price but also in terms of earnings downgrades by analysts and net foreign selling on the stock. <\/p>\n\n\n\n
We highlight margin improvement and its attractive valuation. While most of the consumer names should benefit from the operating leverage angle, URC has more ground to cover given it\u2019s a much bigger laggard YTD.<\/p>\n\n\n\n