Further price increases not ruled out

Maybank IB Research said staple food prices are expected to remain elevated in 2024.

PETALING JAYA: Maybank Investment Bank Research (Maybank IB Research) says consumers should consider adopting mindful spending habits as weak sentiment could prevail throughout 2024.

It said consumers could be forced to prioritise essential spending over discretionary ones, given elevated staple food and beverage (F&B) costs and rising household expenditure.

“Staple food prices are expected to remain elevated in 2024 and we do not discount further price increases as operating challenges persist, in the form of higher labour and utility costs, and raw material price fluctuation for the domestic food manufacturers,” the research house said in a report.

With this, consumers’ wallet share may inevitably shift towards basic food necessities and away from other discretionary spending in 2024, it added.

Data from the Statistics Department showed that the historical expenditure allocation pattern for an average Malaysian consumer mostly comprises housing, utilities, water and gas, F&B, restaurants and accommodation, and transport.

On whether the retail spending slowdown will continue, Maybank IB Research said: “Without any significant catalyst to boost spending amid ongoing cost inflationary pressures, the consumer retail public-listed companies under our coverage may post slower sales volume growth in 2024.

“This is with the exception of MR DIY Group (M) Bhd and Padini Holdings Bhd, which may be somewhat shielded from the brunt of a spending pullback due to their mass market appeal and affordable products.”

The research house also cautioned that adverse impact to consumption habits may exacerbate as and when new taxes are implemented in 2024.

“The cumulative effect from an increase in the sales and service tax to 8% from 6% previously, the possibility of water tariff hikes, rollbacks in petrol/diesel subsidies, and the recent introduction of the low-value goods tax effective Jan 1, 2024 will only put added pressure on overall consumer disposable income,” it added.

Maybank IB Research, which remains “neutral” on the sector, said its top “buy” pick was Farm Fresh Bhd with a target price of RM1.65.

This is on expectations for strong top line growth on resilient product demand along with margin expansion from a steep decline in Farm Fresh’s whole milk powder average selling prices.

The risks for the local consumer sector include weak consumer sentiment and adverse impact to household disposable income may impair sales volume and profitability of individual consumer staple and discretionary stocks.

In addition, regulatory developments in the form of excise taxes or price controls also pose a risk to earnings, the research house noted.

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