KUALA LUMPUR (Oct 8): Consumer outlook has become less straightforward, as a potential wage hike and continued government aid for consumer spending may not translate as cleanly into earnings, according to Kenanga Research.
Household purchasing power should remain supported by targeted fiscal assistance and potentially higher wages, with essential and lower-ticket consumption likely to continue faring better than discretionary categories.
"At the same time, however, companies face a less favourable cost environment from labour, electricity, freight and selected raw materials, while consumers remain value conscious. This creates a more challenging earnings equation, in which companies may need to raise prices to protect margins while consumers remain sensitive to price increases," Kenanga said in a note on Thursday.
The research house maintained its 'overweight' call on the consumer sector, citing defensive demand, manageable cost exposure, and supportive valuations following recent share price weakness.
According to the research house, the upcoming Budget 2027 is expected to remain "rakyat-friendly", with higher allocations for targeted cash aid such as Sumbangan Asas Rahmah (Sara) and Sumbangan Tunai Rahmah (STR) supporting household purchasing power — particularly benefitting essential goods and value-oriented retailers.
However, the impact of a potential minimum-wage increase presents a wider dynamic. While higher minimum wages raise costs for labour-intensive companies, they could also increase disposable income and improve consumers' ability to absorb selective price increases.
Based on Kenanga's sensitivity analysis, every RM100 increase in the minimum wage could reduce earnings by approximately 0.1% to 2.7% across its coverage.
99 Speed Mart Retail Holdings Bhd (KL:99SMART), Nestle (Malaysia) Bhd (KL:NESTLE), and Padini Holdings Bhd (KL:PADINI) are expected to be relatively insulated, whereas AEON Co (M) Bhd (KL:AEON) is more exposed with an estimated 2.74% earnings impact per RM100 hike.
Meanwhile, MR DIY Group (M) Bhd (KL:MRDIY) previously recorded a 1% to 2% addition in revenue following the previous minimum wage hike, highlighting potential demand offsets from stronger household incomes.
On input costs, commodity trends remain mixed with a reduction in prices of 17% and 11% year-to-date for coffee and cocoa, which benefits food and beverage companies like Nestlé (M) Bhd (KL:NESTLE).
Be that as it may, corn and soybean saw a price increase of 14% and 24% year-to-date amid tighter supply conditions, causing higher feed costs for poultry players like QL Resources Bhd (KL:QL), while elevated freight and electricity costs add further operating pressure.
Kenanga has named Fraser & Neave Holdings Bhd (KL:F&N), MR DIY, Nestle (M) and QL Resources, all of which it maintained 'outperform' ratings on.
That said, QL Resources remains the research house’s top pick for the sector, supported by consistent export demand for marine products, continued expansion of its FamilyMart store network, and growing poultry operations in Indonesia and Vietnam.
"In this environment, we favour companies with defensive demand, manageable cost exposure and better earnings visibility," Kenanga said.