07/23/2015
Asia / Consumer Goods
ASEAN consumer companies could turn in disappointing June quarter results as macroeconomic factors bite.
We believe reality will bite in the upcoming results reporting season for the quarter ending June, as the macroeconomic headwinds flow down to consumer companies’ operating results. In fact, the pain started to show in the previous earnings season, where across our coverage, we witnessed more than one-third of our ASEAN consumer coverage report results that were below our expectations.
We have been lowering our net profit forecasts progressively since the beginning of the year, and have shaved about six percentage points off our 2015 growth projections. From a bottoms-up aggregated basis, we have further lowered our fiscal year 2015 profit growth forecasts by 2.8 percentage points to just 12.3%, from 15.1% (in May) and 18.4% (in February). Despite this, we still see downside risks on one-third of our coverage across the region. Factors that could lead to further downward revisions are slower topline growth, currency impact and margin contraction.
At this juncture, we do not expect a significant pick-up in the second half of 2015 as consumer sentiment remains subdued, and regional currencies continue to have downside bias against the US dollar, along with GDP growth. Consumer sector indices have retreated by between minus 3% and minus 25% from May until July, but we believe it is still not time to bottom fish.
As we foresee further earnings downgrade, we advise investors to be selective in this sector. Our strategy is to look for stocks with cheaper valuation vis-à-vis historical average and those with stock-specific catalysts. On the flipside, we would avoid discretionary and/or high-valuation counters. We like Dairy Farm, Indofood Sukses Makmur, and Del Monte Pacific for their subdued valuations. We would avoid Unilever Indonesia given its high valuation.
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