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ASEAN Consumer Market Summary

Core Content

ASEAN, with a combined population of 600 million, is poised for significant economic growth due to its young and dynamic workforce. The region is expected to benefit from the ASEAN Economic Community (AEC) 2015, which aims to create a single market and production base, thereby boosting trade and foreign direct investment (FDI). This integration is anticipated to drive consumption growth and create opportunities for consumer companies.

Main Points

• Demographics: ASEAN is one of the youngest regions globally, with a median age of 27.2 in 2012. By 2020, this is expected to rise slightly to 31, while other developed regions face aging populations.
• Economic Growth: Despite contributing only 3% of the world GDP, ASEAN's economic potential is significant, with a growing population and rising urbanisation rates.
• Urbanisation: Only 45% of ASEAN's population lives in urban areas, much lower than the 78% in the developed world. This is expected to change, creating new consumption patterns.
• AEC 2015: The AEC 2015 is a key driver for economic integration, which will increase trade and FDI. Over 80% of the AEC Scorecard has been implemented, showing progress.
• Challenges: Rising cost pressures, particularly in labor and USD-denominated commodities, pose a challenge. Companies with strong pricing power or targeting low-to-middle-income consumers are expected to perform better.
• Stock Picks: Maybank KE has identified several companies as top picks, focusing on those with strong growth potential and strategic positioning in the evolving market.

Key Markets

• VIP Markets: Vietnam, Indonesia, and the Philippines are highlighted as the most promising due to their large, young populations and potential for growth.
• Singapore: Considered a wild card beneficiary due to its established regional presence and experience in competing on a regional scale.
• Other Markets: While less developed, they are expected to benefit from AEC 2015 as well, especially in terms of M&A and economies of scale.

Stock Selection

Our Lucky 8

Investment Thesis

• Vinamilk: The biggest and most well-known dairy brand in Vietnam, poised to capture the growing dairy market.
• Matahari Putra: Largest hypermarket chain in Indonesia, expected to benefit from the shift to modern trade.
• Ramayana: Dominant low-end department store in Indonesia, likely to benefit from wage increases.
• Indofood: Leading consumer food company in Indonesia, expected to benefit from long-term growth trends.
• Universal Robina: Regional expansion has been successful, positioning it as a potential pan-ASEAN leader.
• Robinsons Retail: Leading multi-format retailer in the Philippines, benefiting from rising disposable incomes.
• OSIM: Pan-Asian lifestyle retailer with strong brand equity, expected to benefit from rising discretionary income.
• BreadTalk: Singapore-based F&B player with growing regional presence, also a prime acquisition target.

Key Risks

• Vinamilk: 70% of raw materials are imported, exposing it to forex and commodity price fluctuations.
• Matahari Putra: Potential new entrants may intensify competition in the price-sensitive segment.
• Ramayana: Growth may be impacted by the proximity of Eid holidays to school holidays.
• Indofood: Demand for noodles is maturing, leading to demanding valuations.
• Universal Robina: May face competition from rising regional players.
• Robinsons Retail: Heightened competition among retailers, especially in the grocery segment.
• OSIM: Economic slowdown could reduce discretionary spending.
• BreadTalk: Rising competition in China, where 32% of its revenue comes from.

Conclusion

ASEAN's demographic and economic trends are set to create a strong foundation for consumer companies. The AEC 2015 will enhance trade and FDI, leading to increased economies of scale and M&A activities. Companies with strong pricing power and those targeting low-to-middle-income consumers are expected to benefit the most. The "Lucky 8" list highlights key players with growth potential and strategic advantages in the evolving ASEAN market.