Malaysia Retail Report Q1 2013

The Malaysian Retail Report examines the long-term potential of the local consumer market, but flagsshort-term concerns about the impact on Malaysia's economic outlook of negative wealth effects.The report examines how best to maximise returns in the Malaysian retail market while minimisinginvestment risk, and also explores the impact of a hard landing in the Chinese economy on the Malaysianconsumer as well as on the ability of producers and exporters to realise returns in the short term.The report also analyses the growth and risk management strategies being employed by the leadingplayers in the Malaysian retail sector, as they seek to maximise the growth opportunities offered by thelocal market.

Malaysia comes third (out of seven) in BMI's Asia retail risk/reward ratings, although it outperformsslightly for risk.

Among all retail categories, Mass Grocery Retail (MGR) will be the outperformer through to 2017 ingrowth terms, with sales forecast to increase by 40.1% between 2013 and 2017, from US$15.06bn toUS$21.11bn as a growing affluent middle- and upper-income consumer base embraces the concept.In the competitive arena, BMI sees upside potential in the potential easing of hypermarket regulations.Over the last quarter, BMI has revised the following forecasts/views:

We continue to expect the consensus estimate on Malaysia's real GDP growth for this year - whichpresently stands at 4.1% - to move closer to our core view for a more subdued growth rate of 3.3%. Thedisappointing reading of China's purchasing managers' index has reinforced our core view for a hardlanding in the Chinese economy, which in turn, compels us to maintain a bearish outlook on Malaysianexports.

Households are expected to cut back aggressively on spending over the coming months as new loanguidelines implemented by Bank Negara Malaysia (BNM) to tighten consumer lending in January 2012come into effect. Our view that property prices in Malaysia could cool in 2013 also suggests that negativewealth effects could weigh on private consumption growth over the coming quarters. Growth in consumergoods imports slowed for the fourth consecutive month, from 33.1% y-o-y in September 2011 to 19.9%in December 2011, and growth in outstanding credit card balances has also remained on a steadydowntrend since January 2011. We expect this trend to continue.