KUALA LUMPUR (July 9): The consumer sector is expected to outperform in the last few quarters of the year, supported by resilient domestic consumption and anticipation of pre-election goodies, Kenanga Research said.
"Taken together, we believe resilient domestic consumption trends, manageable inflationary pressures and the prospect of election-related positioning could support a gradual re-rating of the consumer sector," it said in a note on Thursday.
Accordingly, the house upgraded the consumer sector to 'overweight' from 'neutral', while it continues to favour defensive consumer names and value-oriented retailers.
Kenanga said while consumers adopt a more cautious behaviour, demand is still resilient for essentials, convenience and affordable indulgences compared to more discretionary categories.
“These trends point to ongoing down trading behaviour, with affordability and perceived value likely to remain key themes shaping consumer spending in the near term,” the house further said, noting that customers are more likely to favour consumer companies with “strong market positioning, operational efficiencies and the ability to maintain affordability despite ongoing cost pressures”.
Kenanga additionally noted that the nearing state elections would likely bolster the consumer sector through “expectations of cash aid and domestic consumption stimulus measures”.
It noted that during the past four elections, the Bursa Malaysia Consumer Product Index (KLCSU Index) has seen the average forward price-earnings ratio increase by 0.6 times in the six months before the elections.
" With Budget 2027 set to be tabled in October 2026 and potentially representing, in our view, the last federal budget before the next general election (which must be held by February 2028), we believe consumer sector valuations could see additional upside as investors increasingly position for domestic consumption-related themes.
"In addition, we believe the consumer sector could benefit from sector rotational play, particularly as investors rebalance exposure following the strong year-to-date performance of other sectors," it said.
Kenanga likes MR DIY for its market dominance, supplier bargaining power, cost appeal, and efficiency gains like automated inventory. It prefers QL for strong marine exports, FamilyMart's expansion and sales recovery, and growing poultry operations in Indonesia and Vietnam.
MR DIY shares were up two sen or 1.2% at RM1.67 at the time of writing on Thursday, valuing the group at RM15.8 billion, while QL slipped one sen or 0.3% to RM3.85, translating into a market capitalisation of RM14.1 billion.