KUALA LUMPUR (Oct 10): RHB Research said while uncertainties over subsidy and the potential reintroduction of the goods and services tax (GST) in the upcoming Budget 2025 may dampen consumer sentiment, stable employment and government cash aid are expected to offset these concerns.

“It should be a consumer-friendly budget — one that contains measures such as cash handouts, bonuses for civil servants, and income tax relief, to lend support to consumption,” said the research firm in a note on Thursday.

RHB said its top picks include MR DIY Group (M) Bhd (KL:MRDIY) — a prime beneficiary of an increase in civil servants’ salaries.

It also noted the group’s robust outlet expansion plans, and excitement over its new KKV retail chain venture.

Meanwhile, RHB said it looks forward to more details on the implementation of the petrol subsidy rationalisation, and whether the government is planning to reintroduce the GST. 

It also said that with the last increases taking place in 2014 and 2016, the possibility of excise duty hikes for cigarettes and beer cannot be ruled out. 

On the other hand, it noted that Health Minister Datuk Seri Dr Dzulkefly Ahmad recently revealed more plans to reduce sugar consumption in Malaysia.

“...this could mean a rate hike for existing products that the sugar tax may be applied on, and the widening of scope to cover more products.”

RHB said such a move can impact Power Root Bhd (KL:PWROOT)(kept at “neutral”, with a target price (TP) of RM1.51), while Farm Fresh Bhd (KL:FFB)(“buy”; TP: RM1.88), and  Nestlé (M) Bhd (KL:NESTLE) (“neutral”; TP: RM119.00).

The house’s other consumer top picks include Guan Chong Bhd (KL:GCB), due to its strong profitability and margin growth; and Focus Point Holdings Bhd (KL:FOCUSP), which shows consistent growth and an attractive valuation. 

Nonetheless, it said the strengthening of the ringgit benefits the sector by improving consumer sentiment, and reducing input costs for food manufacturers. 

Leong Hup International Bhd (KL:LHI), Farm Fresh, MR DIY Group, and Nestlé (M) are likely to benefit the most due to their high levels of imported content, the house said. 

In contrast, RHB said Power Root could face challenges due to its significant export exposure. 

Shares of MR DIY rose three sen or 1.4% to RM2.20 on Thursday morning, valuing it at RM20.8 billion, while Farm Fresh was unchanged at RM1.80, with a market capitalisation of RM3.37 billion. 

Nestle shares were unchanged at RM105, valuing it at RM24.6 billion, and Power Root fell one sen or 0.7% to RM1.43, with a market capitalisation of RM660.9 million.

Guan Chong shares gained eight sen or 28% at RM2.93, translating into a market capitalisation of RM3.44 billion, while Focus Point shares were unchanged at 76 sen, valuing it at RM351 million.