Cost, policy challenges key for consumer sector

PETALING JAYA: A re-rating of the consumer sector will hinge on a more evident pick-up in real consumer spending and better earnings visibility, especially among large-cap players.

With Budget 2026 set to be tabled on Friday, consumer-related measures are likely to remain a key focus, said Kenanga Research.

It said any announcements that boost disposable income, particularly for the lower-and middle-income segments, could provide incremental tailwinds for mass-market spending.

While cost challenges and policy changes remain key areas to watch, the research unit believes these headwinds will be partially offset by continued fiscal support, including Sumbangan Tunai Rahmah and Sumbangan Asas Rahmah (Sara).

A stronger ringgit and selective resilience in categories such as food and beverage (F&B) can also offset any challenges.

This could potentially benefit F&B players such as Fraser & Neave Holdings Bhd and Nestle (M) Bhd.

Kenanga Research retains its “neutral” stance on the consumer sector.

Its top stock picks are MR DIY Group (M) Bhd and AEON Co (M) Bhd.

It likes MR DIY for its dominant position in Malaysia’s home improvement market, its size that translates to a strong bargaining position versus its suppliers, and economies of scale.

This is on top of the group’s continued efforts to improve operational efficiency such as the introduction of an automated inventory system.

For AEON, its ongoing mall refurbishments drive sustained occupancy rates and favourable rental renewals for its property management services division.

The expansion of its private-label offerings enhances retail margins and caters to cost-conscious consumers seeking more affordable alternatives, and its digital initiatives, such as self-checkout, reduces costs.

The RON95 subsidy impact is unlikely to materially shift demand or spending patterns with about RM10 a month in additional disposable income.

Even on a stretched assumption that 16 million motorists benefit and channel the full RM18 monthly savings into consumption, the total boost to spending would be roughly RM290mil, which would be about 0.3% of total annual private consumption annually.

While small, this could still marginally benefit retail spending and buoy names such as MR DIY, AEON and Padini Holdings Bhd, Kenanga Research said.

For the Sara RM100 one-off cash aid, value-focused retailers are the most direct beneficiaries including 99 Speed Mart Retail Holdings Bhd, Eco-Shop Marketing Bhd and MR DIY, which position them to capture increased footfall and transaction volumes.

The RM100 aid is restricted to essential items, but the uplift is equivalent to roughly 4% of monthly disposable income for B40 households.

It may still lead to spillover spending into discretionary categories as households reallocate existing budgets, potentially benefiting mass-market names such as AEON and Padini, Kenanga Research added.