Strong Feb-18 data affirmed a sustainable momentum into 2018
Notably, sales of luxury products (jewellery, watches and valuable gifts) rose 21% YoY in the first two months.
Food & Beverages Services increased 4.9% YoY in Feb-18, but fell 4.5% for the first two months. This is in contrast with Food retailers, which recorded sales growth of 61.2% in Feb-18 and 14.3% in the first two months. This could imply a potential change in consumer preference to dine-in.
Slower than expected Beer demand in Thailand
Historically, the road to recovery post-excise tax hike takes about 4 months (see Figure 17). However, domestic beer sales continue to slide in Feb-18 – the 5th month since Sep-17. We are still hopeful of a recovery in domestic beer demand on the back of a low 2017 base and as the excise tax effect subside. The March and April (Songkran) sales will paint a better picture on consumer sentiment. Notwithstanding that, we also expect the 2018 FIFA World Cup to kick up beer sales in both Thailand and Vietnam by c.10% this year.
FNN, a proxy to Vinamilk’s strong growth and market dominance
Strong demand for Dairies should bolster the slowdown in non-alcoholic beverages (NAB). The strong demand for milk in Vietnam should support the FNN’s Dairies profitability.
Vinamilk posted revenue of VND51.135trn (USD2.24bn) and earnings of VND10.278trn (USD0.45bn) in 2017. It aims to increase its total revenue by 8.5% and its earnings by 4.6% in 2018. Vinamilk also plans to raise its market share in Vietnam by 1% each year, reaching at least 60% in the next five years. Its current market share is 58%, up 2% from 2017.
FNN currently has c.19.95% stake in Vinamilk and intends to further accumulate its interest in Vinamilk. However, it may face competition from Jardine C&C, whom has acquired c.10% interest in Vinamilk and has one representative on Vinamilk’s board. On a brighter note, the strategic partnership between Vinamilk and Jardine Matheson Group could accelerate Vinamilk’s plan to boost its export sales.
Worth noting that Vinamilk will issue preferential shares to existing shareholders at the ratio of 5:1, which would increase its chartered capital by 20% to VND17.415trn.
Expect upcoming elections to underpin consumer confidence, particularly in Malaysia
Consumer could be adopting a wait-and-see attitude on retail spending. The start of official election campaign (which could include government cash handout) would spur consumer spending. Post-election, consumer spending could improve further with stimulus spending and consumers releasing pent-up demand.
The Malaysia government has disbursed the first of three parts of the cash handout (under BR1M programme) in Feb-18, aimed at increasing household spending for lower income households. The next payouts are scheduled for June and in August. The government paid a total amount of RM6.8bn for BR1M last year.
On top of BR1M disbursements, the Prime Minister Najib’s generous pre-election budget of RM280bn has also set aside a one-time RM1,500 payments to 1.6 million civil servants, income tax relief and aid to rural communities.
Maintain Overweight on Consumer Sector. Brighter regional economy outlook would lift job and wage growth, thus fuelling consumer spending.
North Asia and ASEAN Retail Landscape at a Glance