Consumer Sector Outlook: Persisting Weak Consumer Sentiment in Malaysia

The Consumer sector maintains a NEUTRAL rating as recovery in spending is expected to be uneven due to rising living costs. Key insights:

Persisting Weak Consumer Sentiment

Rising costs of goods and services post-pandemic, coupled with stagnant income growth, are expected to weigh on consumer confidence throughout 2025. Despite government initiatives like the wage hike (to RM1,700 in 2025), EPF Account 3, and increased cash transfers, broader spending recovery may remain limited.

Challenges in Margins: Elevated raw material prices (cocoa, coffee, sugar) and increased labor costs from higher wages and EPF contributions for foreign workers will likely pressure company margins.

Tourism Boost: Strong tourist receipts (+50.8% YoY in H1 2024) are a bright spot, benefiting the hospitality and F&B sectors. Projections for 36.5 million tourists in 2026 and RM147.1 billion receipts further underscore the sector’s potential.

Stock Recommendations:

• Top Picks:

• Mr DIY (BUY, TP: RM2.10): Significant growth potential with expansion into complementary brands.

• Spritzer (BUY, TP: RM3.54): Expected to benefit from higher demand driven by tourism.

• HOLD Recommendations: Padini, Power Root, and 99 Speed Mart.

• Downgrade: Nestle to UNDERWEIGHT due to consumer hesitancy and valuation concerns.

Conclusion

Investors are advised to stay selective, prioritizing companies with resilience to weak consumer sentiment and strong growth potential like Mr DIY and Spritzer. – AMBANK

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