Maybank Sees Favorable Long-Term Outlook for Retail Sector from Minimum Wages Hike

With the Move Forward Party (MFP) sweeping Sunday’s election with over 14 million popular votes and the prospect of a more left-leaning political landscape in Thailand, Maybank Securities on Wednesday reviewed the effects of one of the MFP’s key campaign promises, the minimum wage increase, on the stock market.

Maybank Securities (Thailand) (MST) continues to hold a positive view on Thailand’s retail sector, believing that a potential minimum wage hike after the election will have a net positive effect on the sector, as higher expenses will be largely offset by increased consumption driven by greater purchasing power. Same-store sales growth (SSSG) is also showing a strong upward trend. An optimistic scenario would include the promised reductions on power bills. Maybank named CPALL as its top pick (BUY, TP THB79) due to the company’s promising growth prospects brought out by the revival of consumer spending.

During campaigning, the Move Forward party has pledged to raise the daily minimum wage to THB450 from an average THB337 now, with yearly revisions. Maybank stated that if the policy is implemented in 2024 and there is no change in sales, it is anticipated that retailing companies’ earnings will be impacted ; CPALL by 11.0-13.1%, BJC by 7.8-9.0%, HMPRO by 2.2-2.6%, and GLOBAL by 2.2-2.6%. 

However, the brokerage believes that consumption will increase alongside higher purchasing power as a result of wages hike, thereby easing the impact on the retail sector, and will also be bolstered by additional stimulus packages that are set to be launched in the near future.

Maybank found that the increase in the minimum wage from April 2012 (40%) in seven provinces to January 2013 (26%) in another 70 provinces had a beneficial effect on the retail industry. Profit margins increased by 10-60 bps in 2013 compared to 2011 thanks to strong SSSG which more than compensated rising costs. During the years 2011-2013, retail stocks saw gains of over 40%.