PETALING JAYA: The consumer sector is expected to remain resilient through the third quarter of financial year 2026 (3Q26), supported by steady household spending, stable employment and continued government assistance.
However, challenges remain as elevated input costs continue to pressure margins.
Against this backdrop, MBSB Research said investors should remain selective to maximise returns.
The research house said it continues to favour defensive and value-oriented consumer names despite an encouraging domestic consumption backdrop.
“We continue to hold a ‘positive’ view on the consumer sector, although we advocate a more selective and defensive positioning heading into 3Q26,” it said.
MBSB Research noted that resilient domestic consumption remained underpinned by stable labour market conditions, manageable inflation, continued government assistance through Sumbangan Tunai Rahmah and Sumbangan Asas Rahmah, wage support and consumers’ value-seeking behaviour.
It cautioned that margin risks have yet to disappear despite some improvement in commodity costs during June.
“We remain watchful of margin pressure, as several key inputs remain elevated on a year-on-year (y-o-y) basis despite sequential easing in June 2026, particularly polyethylene terephthalate (PET) resin, crude palm oil (CPO), wheat and feed-related inputs,” it said.
Retail spending continues to provide a supportive backdrop. Malaysia’s retail trade expanded 7.2% y-o-y and 1.3% month-on-month in May after seasonal normalisation in April.
Growth was led by non-specialised stores, followed by food, beverages and tobacco, reflecting sustained demand for essential goods while discretionary spending remained more selective.
For the first five months of 2026, retail trade rose 6.9% y-o-y, with broad-based gains across non-specialised stores, food and beverage retailers, specialised retailers and household equipment outlets.
MBSB Research said staples-linked retailers are likely to remain better positioned as consumers continue prioritising essential purchases.
It expects bottled water, poultry and protein producers, as well as essential retailers to demonstrate greater resilience, given their defensive demand characteristics and pricing flexibility.
“Overall, we recommend positioning around value, essentials and defensive volume growth,” it said.
Its preferred stocks are 99 Speed Mart Retail Holdings Bhd
, MR DIY Group (M) Bhd, Leong Hup International Bhd and Life Water Bhd.
The brokerage views 99 Speed Mart as the clearest beneficiary of consumers trading down to essentials, while MR DIY continues to benefit from affordable household spending, procurement scale and sourcing from China.
Leong Hup offers defensive exposure to affordable protein, while Life Water is supported by essential beverage demand, higher average selling prices and seasonal demand from the dry season and tourism.
Should consumer confidence improve, MBSB Research believes more cyclical retailers could outperform.
It noted these higher-beta beneficiaries would include Aeon Co (M) Bhd and Padini Holdings Bhd. It also highlighted supportive macroeconomic conditions, pointing to Malaysia’s stable unemployment rate at 3% in May, while headline inflation accelerated modestly to 1.9% in April from 1.7% previously.
Core inflation eased to 2%, suggesting underlying price pressures remain manageable even as supply-side risks linked to energy, logistics, utilities and food inputs warrant close monitoring.
Commodity prices presented a mixed picture during June.
Wheat, sugar, coffee, CPO and PET resin generally eased from the previous month, offering some near-term relief.
Nevertheless, several key inputs remained higher than a year earlier, meaning food and beverage manufacturers could continue facing cost pressures.
MBSB Research said feed costs have also moderated sequentially, benefiting integrated poultry producers such as Leong Hup and QL Resources Bhd, although higher soybean meal and corn prices remain margin watchpoints.
The stronger ringgit against the US dollar compared with a year ago should continue cushioning import costs for US dollar- denominated commodities, although its recent weakening against both the US dollar and Chinese yuan could reduce some of the earlier cost advantages for import- dependent retailers, particularly MR DIY and manufacturers reliant on China-sourced products.
Meanwhile, an analyst told StarBiz that the consumer sector’s outlook remains optimistic as household spending remains supported by stable employment, easing inflation and targeted government assistance.
“This should help sustain demand for essential goods even if discretionary purchases remain measured,” he pointed out.
