The value retail segment is expected to remain the standout performer within the consumer discretionary sector as cost-conscious households continue prioritising affordable everyday purchases, according to CGS International.
The research house said resilient retail spending, supported by government assistance programmes and fuel subsidies, should continue to benefit discount retailers such as MR D.I.Y. Group (M) Bhd, 99 Speed Mart Retail Holdings Bhd, Eco-Shop, and MyNews Holdings Bhd.
CGS maintained its Overweight recommendation on the consumer discretionary sector, citing sustained demand for value-for-money products amid a challenging cost environment.
Consumers Continue Trading Down
Latest retail trade data from the Department of Statistics Malaysia (DOSM) showed that retail sales at non-specialised stores increased 8.2% year-on-year and 2.7% month-on-month in May 2026 to RM28 billion.
Meanwhile, retail sales of household equipment at specialised stores rose a more modest 3.4% year-on-year and 2.1% month-on-month to RM8 billion.
CGS said the figures suggest Malaysian consumers remain highly price-conscious and continue to favour retailers offering competitive pricing on essential goods.
The research house believes government support measures, including the Sumbangan Asas Rahmah (SARA) cash assistance programme, the continued RON95 fuel subsidy, and the BUDI Diesel subsidy, will provide additional support for household spending, particularly among lower- and middle-income consumers.
Second Quarter Earnings Likely Under Pressure
Despite resilient consumer demand, CGS expects the sector’s second-quarter 2026 earnings season to be relatively subdued when companies report results in August.
The weaker performance is expected to stem mainly from higher input costs, particularly polyethylene terephthalate (PET) resin, following disruptions to global petrochemical supply chains caused by Middle East geopolitical tensions earlier this year.
The research house noted that many consumer companies were initially unable to pass on these higher costs immediately to consumers, resulting in temporary pressure on profit margins.
However, diesel costs are not expected to materially affect earnings, based on management feedback obtained through CGS’ industry channel checks.
Recovery Expected in Third Quarter
Looking ahead, CGS expects earnings to recover in the third quarter of 2026 as raw material costs normalise following the stabilisation of global oil prices.
The research house also expects price increases implemented during the previous quarter to begin flowing through fully, supporting improved profit margins and stronger earnings growth.
Among listed consumer stocks, CGS continues to favour MR D.I.Y. as its preferred investment, citing the company’s strong positioning to benefit from ongoing consumer “downtrading” as households seek lower-cost alternatives.
While the research house continues to see long-term potential in the value retail segment, it maintained a Reduce recommendation on 99 Speed Mart due to valuation concerns following its strong share price performance.
It also reiterated a Reduce call on Seng Fong Holdings Bhd (SEM), citing weaker earnings momentum and limited near-term earnings visibility.
Government Support Remains Key Catalyst
CGS said continued growth in same-store sales, further SARA cash assistance and stronger-than-expected tourist arrivals under the Visit Malaysia 2026 campaign could provide additional upside for the consumer sector.
However, risks remain from potential supply chain disruptions that could result in inventory shortages and lost sales, as well as higher operating costs if geopolitical tensions trigger renewed fuel supply disruptions.
Overall, the research house expects value-oriented retailers to remain well positioned as Malaysian consumers continue balancing spending with affordability amid an uncertain global economic environment.
