DBS analysts still positive on Asean consumer outlook in 2019

JANUARY 07, 2019 - 3:42 PM

SOUTH-EAST Asia’s consumer sector could be underpinned by stable regional growth in 2019, despite uncertainty over the previous year’s earnings, according to a report from DBS analysts.

Indonesia and Thailand, which are expected to head to the polls this year, were picked as more positive markets where domestic consumption could pick up on election sweeteners.

The analysts cut their earnings estimates for 2018 on a slump in the second half of the year, but added that “we still like the Asean consumer sector for its structural growth and amid macro uncertainties, as we believe this sector is seen to be a safe harbour”.

They cited a projected gross domestic product increase of between 3 per cent and 6.5 per cent for the Asean-5 economies of Singapore, Thailand, Indonesia, Malaysia and the Philippines, as well as stable gross margins in the first half of 2019 from “benign commodity prices”.


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But regional currency volatility, which dampened consumer stocks last year, persist as a key risk from United States interest rate hikes.

Still, the DBS analysts wrote: “We are excited on the pending elections in Thailand and Indonesia . . .  The lead-up to these should bode well for the stocks in the consumer sector.”

The Thai general election, which could come in February, is expected to give a lift to consumption in the form of cash transfers to low-income earners. Other measures cited by the analysts include spending-linked tax allowance and refund schemes.

Economists expect Thailand’s growth drivers to switch from exports to domestic demand, while the DBS team prefers the commerce sector and rates food and hospitality industries as neutral on challenges such as a slower-than-expected recovery in Chinese tourism.

Meanwhile, Indonesia - slated to vote for a president in April - will see increasing numbers of beneficiaries for programmes such as national health insurance and food aid.

“This stimulus will help to boost the overall consumer spending in FY2019F, especially in rural areas,” the DBS team wrote.

Retailers that target low- and middle-income householders are expected to benefit the most from election goodies, with the retail sub-sector expected to report revenue growth of 12 per cent, against 8 per cent for consumer staples.

But potential fuel price hikes after the election could put a crimp on the sector’s second-half performance, which would lead earnings growth to ease to 11 per cent in 2019, from an estimated 18 per cent in 2018.

While the analysts more than halved their earnings growth projections for 2018, from 11 per cent to 4.5 per cent, they still anticipate growth of 12.6 per cent for stocks under coverage in 2019.

“We advocate taking bets on companies that will benefit from domestic consumption, record a turnaround in earnings or higher earnings, and/or have stock-specific catalysts,” they wrote.