KUALA LUMPUR (Sept 27): Kenanga Research has downgraded its rating on the consumer sector to "neutral" from "overweight" and said part of the M40 income group may be cut off from subsidised fuel upon the introduction of targeted fuel subsidy; hence, reducing their spending power.

In a sector update on Wednesday, the research house said that prompted it to turn cautious on mid-market retailers.

Kenanga said the government will unveil targeted fuel subsidies during the tabling of Budget 2024 in Parliament on Oct 13, 2023, to replace the existing blanket fuel subsidy, likely to be effective from Jan 1, 2024.

It said this shift is motivated by the unsustainable financial burden of the existing setup, where a considerable 35% of the RM77.3 billion subsidy in 2022 was utilised for fuel subsidies that benefited the wealthier T20 group substantially.

“However, we continue to stay positive on consumer staples players as their target customers, i.e. the B40 group, will still fully enjoy subsidised fuel without erosion to their spending power.

“Consumer staples players will also enjoy a respite from easing prices of some soft commodities, ushering in margins recovery.

“Our sector top picks are Dutch Lady Milk Industries Bhd (OP [outperform]; TP [target price]: RM27.00), Fraser & Neave Holdings Bhd (OP; TP: RM28.45) and MR DIY Group (M) Bhd (OP; TP: RM1.67),” it said.