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Building, Building Materials, Retail
ÃÛ¶¹ÊÓƵ Research sees Southeast Asia’s home improvement market as a proxy for the region’s growth potential but forecasts differing growth trajectories for each country. Read our article to learn more about what’s ahead for the market.
ASEAN home improvement: positive top-down, selective bottom-up
As we look ahead to 2023, we think a medium-term supply push and structurally rising incomes could unlock ASEAN's home improvement spending, which is below the APAC average. Listed retailers are taking the lead in expansion and attaining above-industry growth; they are consolidating market share at the expense of traditional mom-and-pop stores. We forecast industry EPS to rise to 16% pa in 2023-24E, a disconnect to PE valuations currently around 1-2SD below their five-year averages.
All attractive markets, but countries on different growth paths
The US$38bn ASEAN home improvement market approximated the region's above average 7% nominal GDP growth in 2016-19, but listed retailers attained 21% growth due to share gains from traditional stores. We think the Philippines is most attractive — its US$22 per capita spend may over time catch up with the APAC average (US$120) — as four large retailers hold 51% market share and may increase stock levels (the Philippine average is 20sqm of stock per 1,000 people versus APAC's 60sqm). Indonesia is similar but market share is fragmented; Malaysia has below-average demand but improving supply; Thailand is more mature but could consolidate.
Near-term reopening benefits may trump inflation headwinds
We forecast 8% unit growth and 4% SSSG in 2023E-24E. Our strategists and economists expect the post-COVID reopening process to boost consumer confidence, favouring discretionary spending in areas such as home improvement. Our base case is that ASEAN inflation is unlikely to be as extreme as in Europe and the US. Collaborating with ÃÛ¶¹ÊÓƵ property analysts, we sense a cautious residential real estate outlook but our findings suggest home improvement is less cyclical.
Are ASEAN home improvement markets ripe for multi-year growth?
Yes. Most ASEAN markets' per capita spending lags that of APAC peers. Supply is below average in the Philippines and Indonesia, and a retailer-driven push is attempting to unlock demand. Malaysia's demand remains below average but it was quicker to expand supply. Thailand is a mature market, but we think there is some room for consolidation. Modern retailers are attaining higher-than-nominal-GDP growth due to share gains from traditional stores. Near-term, we expect economic reopenings to boost consumer confidence and eclipse inflation headwinds.