Kenanga Research has maintained its OVERWEIGHT stance on Malaysia’s consumer sector, expecting targeted fiscal support under Budget 2027 to sustain household spending, although rising labour, electricity, freight and raw material costs could make the earnings outlook less straightforward.
The research house said household purchasing power should remain supported by measures such as Sumbangan Asas Rahmah (SARA) and Sumbangan Tunai Rahmah (STR), with essential and value-oriented retailers likely to benefit more than discretionary businesses.
However, companies face a tougher balancing act as consumers remain price sensitive even as operating costs rise.
“Companies may need to raise prices to protect margins while consumers remain sensitive to price increases,” Kenanga said.
A potential increase in the minimum wage could also have mixed implications. While higher wages would increase costs for labour-intensive companies, they could simultaneously raise disposable incomes and support consumer spending.
Kenanga estimated that every RM100 increase in the minimum wage could reduce earnings by about 0.1% to 2.7% across its consumer coverage.
99 Speed Mart, Nestlé Malaysia and Padini are relatively insulated from higher wage costs, while AEON is more exposed. MR DIY, meanwhile, previously recorded an estimated 1% to 2% increase in revenue following the last minimum-wage adjustment, highlighting the potential offset from stronger household purchasing power.
Kenanga has not incorporated any further wage increase into its forecasts given uncertainty over the timing, mechanism and quantum.
Consumer spending has also remained uneven. Citing Retail Group Malaysia, Kenanga noted that retail sales grew 2.5% year-on-year in 2QCY26, slowing from 3.7% in the first quarter and below an earlier forecast of 4.8%.
First-half retail sales growth stood at 3.1%, with consumers making fewer shopping trips, comparing prices more closely and increasingly opting for discounts, generic brands and lower-priced alternatives.
Retail Group Malaysia nevertheless maintained its 3.8% retail sales growth forecast for 2026, with growth expected at 4.7% in the third quarter and 3.9% in the fourth.
Kenanga also expects Bank Negara Malaysia to normalise the Overnight Policy Rate by 25 basis points to 3.00% in 1QCY27, reversing the July 2025 “insurance” cut. While it does not expect this to mark the start of a tightening cycle, higher borrowing costs could weigh on discretionary and big-ticket purchases.
Cost pressures are meanwhile becoming more mixed. Coffee bean prices have fallen 17% year-to-date and cocoa prices are down 11%, providing some relief for food and beverage companies such as Nestlé.
However, corn and soybean prices have risen 14% and 24%, respectively, potentially increasing feed costs for poultry players such as QL Resources. Higher oil prices, freight costs, electricity charges and wages could add further pressure.
Kenanga maintained its earnings forecasts for the sector but cut several target prices following valuation revisions.
It lowered Fraser & Neave Holdings Bhd’s target price to RM28.95 from RM34.45, MR DIY Group Bhd to RM1.60 from RM1.90, Nestlé Malaysia to RM103.90 from RM106, and QL Resources to RM4.40 from RM4.50. Ratings were unchanged.
The research house named QL Resources as its top sector pick, citing resilient export demand for marine products, expansion of its FamilyMart convenience store network and growth of its poultry operations in Indonesia and Vietnam.
Kenanga said the extent of additional household assistance in Budget 2027 will be an important catalyst, with larger SARA or STR allocations potentially providing a stronger buffer against higher costs and interest rates.
