HLIB: Consumer sector outlook positive on margin gains, stronger Ringgit

New Straits Times

16-07-2025

KUALA LUMPUR: Malaysia's consumer sector is expected to maintain its positive momentum, supported by potential margin improvements from lower raw material costs and a stronger ringgit.
Hong Leong Investment Bank Bhd (HLIB) said in a recent note that the sector continues to draw strength from a stable macroeconomic environment, underpinned by a robust labour market, fiscal support measures and resilient retail spending.
Seasonal factors in the second half of 2025, alongside a continued rebound in tourism, are also expected to lift demand, while attractive valuations provide an added cushion for investors.
The research house highlighted that the sector recorded a solid performance in the first quarter of 2025 (1Q25), bolstered by elevated festive spending as Chinese New Year and Hari Raya celebrations coincided during the period.
It added that earnings across its coverage universe largely met expectations, with eight companies performing in line.
These include 99 Speedmart, Aeon, DKSH, Focus Point, Mr DIY, Nestle, Panasonic and QL Resources.
HLIB said only two companies posted weaker-than-expected results, with Berjaya Food continuing to be affected by the consumer boycott of Starbucks and Oriental Kopi experiencing softer-than-expected sales traction.
"This reinforces our view that domestic consumption fundamentals remain robust, and retail-exposed counters are capturing the benefits of seasonal demand and sustained spending momentum," it said.
Meanwhile, HLIB said commodity price trends have broadly stabilised, with key inputs such as sugar, wheat, coffee, and palm oil trending lower.
It noted that this supports margin recovery for food and beverage (F&B) players.
"The potential for operating leverage is significant, especially for companies that undertook pricing actions over the last two years," it said.
Additionally, HLIB also said that a stronger ringgit would benefit consumer staples, as most raw material costs are denominated in US dollars.
It added that the improving currency trend provides a buffer against input cost volatility and could enhance import cost efficiency for staples and retailers.
On the impact of the expanded sales and service tax (SST), HLIB said retailers with a significant presence in shopping malls may face moderate effects.
However, the firm believes the impact will be manageable, as rental accounts for a small portion of expenses, recent price adjustments offer a buffer against the added rental tax, and key staples like rice, vegetables, flour, poultry, and sugar remain SST-exempt, helping to limit consumer price pressures and sustain sales volume.
Overall, HLIB has maintained an "Overweight" call on the consumer segment, adding that the Budget 2026 tailwind and tourism uplift are key catalysts.
The firm's top picks are 99 Speedmart, Aeon and Focus Point, given their earnings, backed by their expansion plans and brand equities.