KUALA LUMPUR (Oct 24): Malaysia’s consumer sector is on track for substantial growth, driven by consumer-centric measures from Budget 2025 that are set to uplift household income and stimulate spending across key retail segments, said MIDF Research.

“Budget 2025 is strategically designed to support consumer spending,” MIDF flagged, noting the 30% increase in cash handouts through the Sumbangan Tunai Rahmah programme, raising the allocation to RM13 billion. The cash handouts are aimed to “augment household income, effectively mitigate inflationary pressures, and encourage sustained spending on essential goods — items that typically exhibit inelastic demand during economic downturns”.

Additionally, the minimum wage rise starting February 2025 will further boost the purchasing power of low-income households.

MIDF noted that "the combination of increased cash handouts and wage hikes will drive consumer spending, especially in the discretionary and essential goods categories".

The rise in civil servant salaries, which comes into effect in December 2024, is expected to amplify these positive effects, particularly during the festive season.

The delay in the rationalisation of RON95 subsidies until mid-2025 has eased concerns about potential fuel price hikes, ensuring price stability for approximately 85% of Malaysians, bolstering consumer confidence, and encouraging spending on non-essential items.

Retailers like Padini Holdings Bhd (KL:PADINI) and AEON Co (M) Bhd (KL:AEON) stand to gain from this renewed sentiment, with demand for discretionary goods expected to rise as consumers feel less financially constrained.

Meanwhile, essential goods will remain exempted from the government’s expansion of the sales and service tax, ensuring that staple goods retain their affordability for consumers.

Despite the increase in excise duty on sugary drinks by 40 sen per litre, many manufacturers have already reformulated their products to fall below the sugar content thresholds for taxation, reducing the potential impact on earnings.

Overall, analysts have maintained a positive stance for the consumer sector thanks to stable economic conditions, favourable government policies, and increased consumer spending.

MIDF has maintained Fraser & Neave Holdings Bhd (KL:F&N) and AEON as its top picks for the consumer sector with both companies rated “buy”, driven by the growing trend of out-of-home consumption. The research house has a target price of RM37 for F&N and RM1.48 for AEON.

However, analysts have downgraded QL Resources Bhd (KL:QL) to “neutral” from “buy” previously, with a target price of RM4.83. The recent rally in its share price suggests that much of the good news have already been priced in, leading to a more tempered outlook.

Meanwhile, MIDF noted that the retail sector is showing resilience, with data from the Department of Statistics Malaysia indicating a 6% year-on-year growth in retail trade for August 2023, reaching RM64.1 billion. The upward trajectory of the sector was also visible month-on-month, with a 1% increase from July to August 2024.

This growth was largely fuelled by “the expansion of non-specialised stores, along with strong performance in the food, beverage, and tobacco sectors, underscoring the ongoing trend of out-of-home consumption”, said MIDF.

At the time of writing, QL Resources shares fell one sen or 0.2% to RM4.76, valuing the group at RM17.4 billion, while F&N shares gained two sen or 0.1% to RM31.22, with a market capitalisation of RM11.5 billion.

AEON shares rose one sen or 0.7% at RM1.49, translating into a market capitalisation of RM2.1 billion.