KUALA LUMPUR (Sept 6): Consumer staples sectors, specifically food and beverage (F&B) players, may offer more defensive investment opportunities with potential margin improvement due to easing food commodity prices, said Kenanga Research.

Notwithstanding that, the research house anticipates a steady uptick in consumer spending post the conclusion of the recent six state elections and extending into the fourth quarter of the year, bolstered by the government's accelerated implementation of policy initiatives.

“Additionally, the traditional year-end festive and shopping season is likely to provide a boost to market sentiment. Our outlook is further supported by a stable job market and indications that inflation has reached its peak,” said Kenanga in a note on Wednesday.

The research house said it favours Dutch Lady Milk Industries Bhd (‘outperform’, target price [TP]: RM27) due to its resilient top line underpinned by steady demand for staple food items despite an uncertain global economic outlook, the upside potential of its margins given the softening food commodity prices,  and its strong brand recognition and increasing awareness of the nutritional value of dairy products.

Kenanga also likes Fraser & Neave Holdings Bhd (F&N) (‘outperform', TP: RM28.45) for a robust demand rebound for its products amid economies reopening and border relaxation, notably in beverages and ready-to-drink categories, as well as a resurgence in export sales.

At the time of writing on Wednesday, Bursa Malaysia Consumer Products & Services Index rose 3.21 points or 0.58% to 560.23.

Dutch Lady’s share price was unchanged at RM22.50, translating into a market capitalisation of RM1.44 billion.

F&N has risen over 18% year-to-date. The counter was last traded at RM25.50, with a market value of RM9.35 billion.

Conversely, the consumer discretionary sector (departmental store operators and apparel retailers) may face challenges stemming from a targeted fuel subsidy, which could reduce the spending capacity of its key customers, such as the M40 group.

“On the retail side, we foresee a potential consumer shift toward more cost-effective products, especially if inflationary pressures continue. This trend could notably benefit Padini Holdings Bhd ('outperform', TP: RM5.65), which has been actively expanding its value-for-money product range,” said Kenanga.

Padini inched up 0.51% to RM3.95, giving it a market value of RM2.6 billion.

In May, Deputy Finance Minister I Datuk Seri Ahmad Maslan said the framework for the implementation of targeted subsidies is 75% complete. He did not rule out the possibility that the framework would be announced during the tabling of Budget 2024 this year.