CIMB upgrades F&B sector to neutral, downgrades tobacco

by **Cals** Fri 24 Jan 2014, 16:28

Business & Markets 2014

Written by Jonathan Gan of theedgemalaysia.com

Friday, 24 January 2014 10:47

KUALA LUMPUR (Jan 24): CIMB Research has upgraded their F&B sector to “neutral” from underweight on the back of resilient earnings and inexpensive valuations.

In a note Jan 23, the research house said it had also placed a downgrade on the tobacco sector due to weak-industrial volumes and slower consumer spending.

The research house said that F&B firms earnings would stay resilient due to food being a deemed necessity, low raw material prices and earnings supported by expansion plans.

“While consumer spending is expected to be weaker we believe F&B firms earnings would stay resilient as their products are deemed necessities, raw material prices remain low and earnings will be supported by expansion plans,” said CIMB Research's Terence Wong.

The research house has maintained a neutral rating on breweries but has downgraded the tobacco sector to “underweight”. It opines that the recent drastic price hike of cigarettes would place increased pressure on the weak industrial volume.

“The drastic price hike of RM1.50/ pack will definitely put more pressure on the already weak-industry volume. This would be made worse by slower consumer spending and the potential aggressive expenses to be incurred to maintain market share,” adds Wong

In response the research house has upgraded both Nestle Bhd & F&N Holdings Bhd “neutral” from reduce while maintaining an “add” rating on QL Resources.

The research house has downgraded both British American Tobacco and JT International Berhad to “reduce” from neutral.