PETALING JAYA: Analysts are maintaining their “overweight” stance on the consumer sector and view the current weakness as an opportunity to accumulate selected quality names.
Affin Hwang Investment Bank Research (Affin Hwang IB) said while consumers may become more selective in their spending, it expects essential consumption to remain resilient as households continue to prioritise daily necessities.
“We continue to prefer staples, food and beverage manufacturers, and value-orientated retailers with resilient demand and stronger pricing power,” it told clients in a report.
Similarly, an analyst told StarBiz that the consumer sector remains one of the more defensive sectors, as people still need to buy necessities even in tough times.
“But stock selection here is extremely important,” he noted.
Affin Hwang IB said it could turn “neutral” on the sector if there was a further escalation of the US-Iran war, and if the government delays or scales back fiscal measures to support consumption.
Additionally, subsidy removals, the introduction of new taxes, and the easing of US tariffs could stimulate other sectors, potentially resulting in a flow of funds away from the consumer sector, the research house pointed out.
It said first quarter of financial year 2026 (1Q26) sector revenue grew 6% year-on-year (y-o-y), while core earnings rose 2% y-o-y.
“Overall, the results were mostly within expectations, with Aeon Co
(M) Bhd and QL Resources Bhd beating our forecasts, while Farm Fresh Bhd and PPB Group Bhd came in below estimates.”
According to the research house, the 1Q26 demand was supported by double festivities, with Chinese New Year and Hari Raya demand recognised in the quarter, but it expects 2Q26 sales momentum to be more muted due to the absence of major festivities and given post-festive normalisation.
Affin Hwang said while investors appear concerned that higher living costs could weigh on sales and margins, its base case scenario is that the impact remains manageable at this stage.
This is supported by continued fuel subsidies, contained food inflation, stable raw material price trends and the ringgit appreciation, which should help cushion imported cost pressures.
“Packaging cost pressure and fertiliser cost concerns could lead to selective price adjustments in packaged food and beverage and fresh produce, but it does not expect a broad-based surge in food prices for now,” the research house pointed out.
Furthermore, Affin Hwang IB said the consumer index has been the second-worst performing sector year-to-date, likely reflecting concerns over rising living cost pressures, higher operating expenses such as electricity and sales and services tax on rent, and expectations of softer sales growth.
“However, we believe the sell-down looks overdone, as our base case is for cost pressures to remain manageable rather than severe.”
The research house added that with the index now trading below its historical valuation averages, it sees the current weakness as an opportunity to accumulate selected quality names, particularly staples and value-orientated retailers with resilient demand.
It also noted that current food input cost trends remain manageable, with most key raw material prices appearing stable rather than surging.
While higher fertiliser costs remain a watch point, given the typical lag between fertiliser prices and crop prices, Bloomberg consensus forecasts do not point to a broad-based food commodity shock at this stage, it said.
“Corn, sugar and coffee prices are expected to remain relatively firm, while rice, palm oil and selected oilseed prices appear more contained, suggesting that future food input cost trends remain mixed rather than uniformly,” it added.
Among the research house’s top buys are 99 Speed Mart Retail Holdings Bhd and Farm Fresh.
