CIMB Research expects consumer spending patterns to remain value-driven.
PETALING JAYA: The consumer sector will likely experience a more subdued performance for the second half of this year (2H25), weighed by the absence of major festivities, weaker consumer sentiment amid global uncertainties, persistent inflationary pressures, and subsidy rationalisation plans, analysts say.
Against this backdrop, consumer spending is likely to skew further toward essentials, benefitting companies with strong exposure to staple-driven retail formats such as 99 Speed Mart Retail Holdings Bhd
, Aeon Co (M) Bhd and MR DIY Group (M) Bhd, as well as manufacturers of staples such as Nestlé (M) Bhd, Fraser & Neave Holdings Bhd, QL Resources Bhd and Farm Fresh Bhd.
CIMB Research said in a note to clients, conversely, discretionary-focused retailers are likely to face greater headwinds, not only from softer consumer sentiment, but also from margin compression due to the expansion of the sales and service tax (SST) to cover more goods and services.
“Overall, we expect consumer spending patterns to remain value-driven, anchored around daily necessities rather than discretionary items, reinforcing our view that staples and mass-market retailers will continue to outperform in the current environment,” the research house said.
According to the Malaysia Retail Industry Report for September prepared by Retail Group Malaysia (RGM), the country’s retail sales contracted by 3% year-on-year (y-o-y) in the second quarter of this year (2Q25), underperforming earlier projections of 1% growth.
For 3Q25, RGM forecasts retail sales growth of 2.6% year-on-year (y-o-y), mixed across sub-sectors, although performance is expected to be uneven across the nine retail sub-sectors.
Four sub-sectors are forecast to record positive y-o-y growth, while five are expected to contract.
It noted growth will be led by mini-marts, convenience stores and cooperatives (up 9.3% y-o-y ), supported by consumer downtrading trends and government cash handouts.
The fashion and fashion accessories segment (up 5.7% y-o-y ) is also expected to expand, largely on the low-base effect following the spending pullback in 3Q24 as Hari Raya festivities occurred earlier this year.
Beyond 3Q25, RGM is now projecting Malaysia’s retail sector to grow by 3.5% y-o-y in 4Q25.
On the cost front, retailers are facing multiple headwinds from the electricity tariff revision that took effect July 1, mandatory Employees Provident Fund (EPF) contributions for all foreign workers from Oct 1 onwards, the minimum wage hike that took effect Feb 1 and extended to smaller firms starting from Aug 1, and the expansion of the SST from July 1 to cover a wider range of goods and services, including leasing.
CIMB Research, which reiterated its “neutral” call on the consumer sector, said: “In our view, this fairly reflects softer consumer sentiment, muted growth prospects and elevated cost pressures, particularly for discretionary retailers.
“That said, valuations remain supported by inelastic demand for staple goods, government initiatives such as cash handouts, the impact of minimum wage hikes and the introduction of EPF Account 3.
“We continue to advocate positioning towards defensive, mass-market players that benefit from downtrading and resilient demand,” CIMB Research said.
Its top picks remained 99 Speedmart, Farm Fresh and Padini Holdings Bhd.
