Positive outlook for essential goods business

PETALING JAYA: The government will likely continue its cash aid programme in the upcoming Budget 2024 to help ease the burden of the lower-income group, particularly the Bottom-40 (B40) segment.

This is expected to lift the general demand for essential food and beverage (F&B) products in the country, and as such, should benefit companies in the essential goods business, according to TA Research.

“Based on our observation of companies and stocks under our coverage, we learn that the impact of cash assistance programmes predominantly favours essential goods providers and manufacturers, with a notable focus on the F&B and retail industries,” the brokerage said.

“Against the backdrop of escalating cost and food inflation, we believe that the government’s cash assistance programme is poised to stimulate heightened demand for essential F&B products, particularly among the economically disadvantaged B40 demographic,” it added.

In its report, TA Research noted that burgeoning domestic consumption of essential goods would precipitate a ripple effect within the retail sector.

“Retail establishments play a pivotal role as primary conduits for low-cost essential items. As the demand for such commodities escalates, retail players are set to get a corresponding surge in sales and revenue, thereby contributing significantly to overall economic growth,” it said.

“These findings underscore the symbiotic relationship between essential goods providers, particularly in the F&B sector, and the retail industry. Both sectors stand to gain from the government’s cash assistance initiatives,” it added.

At company-level, among the beneficiaries would be retailer Aeon Co (M) Bhd and dairy producer Farm Fresh Bhd.

TA Research recommended a “buy” call on both counters, with a target price of RM1.57 for Aeon and RM1.53 for Farm Fresh.

“While we applaud the cash aid initiatives and expect it to continue in the upcoming budget due this October, we feel that the government should refine and scrutinise the recipients as according to the needs,” TA Research said.

It pointed out that cash assistance was not a long-term solution to underlying social inequality problems in the country.

“While the programme is primarily aimed at addressing basic needs, it is important to note that consumer behaviour is complex, and the choices individuals make are influenced by various factors,” the brokerage said.

It noted that one intriguing trend that might emerge was the growth in consumption of brewery and tobacco products among the beneficiaries.

Although alcohol and cigarettes were not necessity items, TA Research deduced that this uptick in consumption could be backed by the evolving lifestyles of the programme’s recipients.

“This phenomenon underscored the multifaceted nature of economic decision-making and how it can be influenced by broader social and economic changes,” it said.

“The government should prioritise initiatives aimed at elevating the income potential for B40 households, as this can not only enhance their well-being, but also boost overall productivity, ultimately contributing to the nation’s economic growth and stability,” it said of Budget 2024.