Consumer:High yielders and growth picks on offer
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 earnings.
