KUALA LUMPUR (Dec 19): There is noticeable shift towards local fast-moving consumer goods amid prolonged boycott of international brands following the Israel-Gaza conflict, according to Hong Leong Investment Bank (HLIB).

"Brands like Farm Fresh (Choco Malt and Cream Hauz ice cream) and Gardenia’s NuMee instant noodles are gaining traction as consumers prioritise domestic options.

Meanwhile, it noted that café chains, including ZUS Coffee, HWC Coffee, Kenangan Coffee, Richiamo Coffee, and the soon-to-launch Luckin Coffee, are thriving, appealing to a younger, and more conscious demographic.

"This dual trend highlights both the vulnerabilities of international brands linked (perceived or otherwise) to geopolitical controversies and the growing resilience and innovation within Malaysia’s domestic consumer market," it said.

Overall, HLIB said Malaysia’s consumer sector is set for strong growth in 2025, supported by consumer-centric policies, rising tourism, and shifting consumer trends.

The country’s gross domestic product is forecasted to grow between 4.5% and 5.5% in 2025, fuelled by stronger-than-expected consumption and sustained investment flows.

Retail sales remained resilient in September 2024, increasing by 5.5% year-on-year (y-o-y) to RM64.4 billion, primarily driven by food and beverage, tobacco, and non-specialised retail stores.

This growth can be attributed to surging tourist arrivals, with 20.6 million international tourists recorded in the first 10 months of 2024, surpassing the total for 2023 (20.1 million).

To boost consumer confidence and stimulate spending, the Malaysian government introduced expansionary policies including a minimum wage increase, civil servants pay hike, and EPF Account 3 withdrawals.

“We reckon that these measures would be beneficial in stabilising prices and encouraging spending,” the research house noted.

HLIB stated that its top picks for the sector, with “buy” ratings, include Aeon Co (M) Bhd (KL:AEON) (target price [TP]: RM1.82), Focus Dynamics Group Bhd (KL:FOCUS) (TP: RM1.14), and 99 Speed Mart Retail Holdings Bhd (KL:99SMART) (TP: RM2.98), given their strong earnings potential and brand equities.

"With no resolution in sight for the Israel-Gaza conflict, the prolonged boycott of over a year has significantly impacted the earnings of targeted companies," said the research house.

HLIB said among the hardest hit are Nestlé (Malaysia) Bhd (KL:NESTLE) ("sell", TP: RM80.00) and Berjaya Food Bhd (KL:BJFOOD) ("sell", TP: 25 sen), both of which have seen substantial declines in revenue.

It noted that Nestlé’s third quarter of financial year 2024 (3QFY2024) results reported a sales contraction of 5% quarter-on-quarter (q-o-q) and 18% y-o-y to RM1.4 billion.

Similarly, Berjaya Food’s 1QFY2025 earnings continued to trend downward, with revenue falling 5% q-o-q and 55% y-o-y to RM124.2 million.

"The challenging geopolitical landscape suggests that the outlook for these companies remains bleak, with further headwinds anticipated," it added.