MIDF Research maintained a positive rating on the consumer sector.
PETALING JAYA: The consumer sector is a clear winner of Budget 2025, which has comprehensive measures strategically positioned to bolster household income and sustain consumer spending, says MIDF Research.
The key initiatives include an increase in cash assistance through the Sumbangan Tunai Rahmah (STR) programme, a hike in the minimum wage to RM1,700 starting February 2025 and targeted subsidies for RON95 petrol to ensure price stability for about 85% of Malaysians.
“Overall, we remain optimistic for the consumer sector,” MIDF Research said in a report yesterday.
Some of the key supporting factors include a stable labour market that continues to drive domestic consumption, sustained growth in consumer spending, buoyed by favourable private consumption and gross domestic product growth, the research house added.
In addition to strong domestic consumption bolstered by various incentives introduced in Budget 2025, food and beverage producers are forecast to see improved margins based on declining global commodity prices and a stronger ringgit, the research house added.
MIDF Research maintained a positive rating on the sector, with Fraser & Neave Holdings Bhd
(F&N) as one of its top buy picks at a target price of RM37 per share.
“F&N is well positioned to capitalise on the growing trend of out-of-home consumption, with its strategic entry into integrated dairy farming expected to diversify and enhance its revenue streams,” the research house said.
However, it downgraded QL Resources Bhd to a “neutral” from a “buy”, while maintaining the stock’s target price at RM4.83.
“The recent rally in its share price indicates that the positives have mostly been priced in,” MIDF Research added.
Elaborating on Budget 2025 measures, the research house said a pivotal aspect of the new budget is the notable increase in STR allocations, with funds raised by 30%, to RM13bil.
The substantial increase aims to provide critical financial assistance to lower-income households, particularly the B40 demographic, which has been disproportionately affected by rising living costs.
The enhanced cash handouts are anticipated to significantly augment household income, effectively mitigating inflationary pressures and encouraging sustained spending on essential goods – items that typically exhibit inelastic demand during economic downturns.
MIDF Research said: “Companies like QL Resources and F&N, known for their production of essential consumer products, are well positioned to capitalise on this trend.
“Moreover, the spillover effects of increased disposable income are expected to bolster demand for mid-tier retailers.
“Mid-tier brands, such as Padini Holdings Bhd, which cater to price-conscious consumers seeking quality goods at affordable prices, will likely witness heightened foot traffic and sales volumes, the research house added.
“The cash assistance will play a pivotal role in invigorating both segments of the consumer market, enhancing overall performance.
“Also, the increase in the minimum wage will see retailers catering to the mass market stand to gain from the increased financial flexibility that consumers will enjoy for non-essential purchases.
“This encompasses a wide range of products, including clothing, home furnishings, and other discretionary items.
“The anticipated rise in demand for such non-essential goods, combined with already stable demand for essential items, paints a decidedly positive outlook for the retail sector, particularly within the discretionary segment.
“For producers of consumer staples such as Nestle (M) Bhd, Leong Hup International Bhd and QL Resources, the wage hike is anticipated to have minimal impact due to high levels of automation and the relatively low contribution of labour costs to their total operating expenses.
“Another key factor is the delay in RON95 subsidy rationalisation, which is expected to lift consumer sentiment.
“The postponement of RON95 subsidy rationalisation to mid-2025 is anticipated to alleviate consumer concerns regarding potential fuel price hikes that were initially expected to take effect by late 2024.
“Previously, uncertainties surrounding RON95 subsidy cuts, first mentioned in Budget 2024, had led to a slowdown in consumer spending.
On the sugar tax increase, MIDF Research said, “The impact on costs for beverage companies due to the rise in the excise duty on sugary drinks remains limited.”
“Since the initial levy, beverage manufacturers such as Nestle Malaysia and F&N have undertaken significant product reformulations across most of their ready-to-drink products to ensure compliance with the sugar tax threshold.
“This proactive approach has allowed them to mitigate the tax impact and align their products with evolving consumer preferences for healthier options,” said MIDF Research.
