PETALING JAYA: Consumer companies with a necessities-oriented product mix are expected to fare better amid disruptions from the Middle East conflict.
While consumer sentiment is expected to have bottomed out towards the end of 2025 following clarity on US tariff action and introduction of the Budi95 petrol subsidy programme, RHB Research cautioned that momentum could now be halted by the rising consumer concerns on inflationary pressures and income or job outlook as the consequences of geopolitical tensions.
“Earlier on, we were expecting rising tourist arrivals on the back of the Visit Malaysia 2026 (VM2026) campaign to create positive spillover effects to the broader economy.
“That said, the traction could now slow, as price-sensitive tourists may change their plans due to higher costs.
“We also note the recent announcement on the extension of the VM2026 campaign until the end of 2027,” the research house said in a report yesterday.
RHB Research added that the government’s pledge to maintain fuel subsidies should contain inflationary pressures – but the scenario of a prolonged Middle East conflict could cast doubt on the commitment.
As such, the research house foresees more cautious spending behaviour ahead, with consumers to prioritise daily essentials and stretch their ringgit via bargain-hunting and downtrading.
“This will pose downside risks to consumer retail and discretionary companies, and we expect the players to be more aggressive with promotional efforts and cost optimisation initiatives to mitigate the challenges,” RHB Research said.
The research house highlighted that the 2025 base is low, as overall consumer sentiment was soft during that period, dampened by the repercussions of the United States’ reciprocal tariff policy and uncertainties over fuel subsidies.
Rakuten Trade head of equity sales Vincent Lau expects consumer companies to face a marginal earnings impact of about 2% to 3%, likely reflected in the second and third quarters of 2026, before recovering by the third quarter.
Lau does not expect the Middle East conflict to be prolonged, noting that upcoming US midterm elections could drive de-escalation.
“Rising costs have already affected companies such as Nestle (M) Bhd
and Farm Fresh Bhd, but the overall impact remains manageable.
“While cost pressures persist, government support measures are helping to cushion the effect.
“There may be more shrinkflation, but this is likely to be temporary.
“So far, there are no signs of large-scale retrenchments or mass layoffs, which indicate that cost pressures are still manageable,” he told StarBiz.
On cost inflation, RHB Research said to a large extent, companies under its coverage have not seen significant cost increases thus far.
The sharp spikes in fuel prices did not translate to higher transportation costs thanks to the Subsidised Diesel Control System fleet subsidy programme.
“Typically, diesel costs for transportation use account for about 1% to 2% of cost of goods sold for the companies.
“Companies consuming diesel for industrial or farming purposes (under our coverage: Farm Fresh, QL Resources Bhd and Power Root Bhd) are excluded from the subsidy programme, hence paying market prices, but that is not a major cost component,” the research house said.
Meanwhile, the rise in freight rates will incur higher costs to a varying extent for companies that import the bulk of their goods or raw materials, including MR DIY Group (M) Bhd, Eco-Shop Marketing Bhd, Nestle, poultry players and breweries.
The research house said the impact may not be overly significant for the retailers as they mainly use intra-Asia shipping routes and consider freight costs as a minor percentage of total costs.
It added that the impact should be greater for food producers that import from beyond Asia.
