PETALING JAYA: The consumer sector appears to be going through a prolonged period of rather compressed valuations compared with its historical means.
Various factors have been cited for the cause of this situation and how it could play out in the near future, ranging from cautious household spending and margin pressures, to the growing number of listed consumer companies competing for investor funds.
CGS International (CGSI) Research said the sector’s share of Malaysia’s total listed market capitalisation had fallen from about 16% previously to 12%, implying capital rotation and the risk of further valuation de-rating as new initial public offerings compete with incumbent companies for funds.
The research house noted that the number of constituents in the FTSE Bursa Malaysia Consumer Products and Services Index increased from 163 in 2023 to 178 as at July 2026, while their combined market capitalisation remained broadly range-bound at between RM250bil and RM275bil.
Between September 2024 and June 2026, nine stocks were added to the index, but its market capitalisation declined by only about 1%, according to CGSI Research.
Over the same period, the research house noted the one-year forward price to earnings multiples of Nestle (Malaysia) Bhd, QL Resources Bhd
and MR DIY Group (M) Bhd contracted by an average of around 11%.
CGSI Research said this is evidence that investors were trimming positions in incumbent companies to finance investments in newer listings such as 99 Speed Mart Retail Holdings Bhd, Eco-Shop Marketing Bhd and Empire Premium Food Bhd.
Commenting on the compressed valuations in the sector, Tradeview Research senior analyst Tan Jia Hui said the increase in consumer listings was not the main explanation for the sector’s widespread reduced valuations, although it had affected smaller companies offering investors relatively similar propositions.
“Nestle got cheaper mostly because of its own margin and earnings pressure, not because of new listings.”
“The ‘too many listings’ point does hold, but mainly for the smaller, similar-looking companies that no longer command a premium,” she told StarBiz.
Tan said the larger drag on the overall sector was cautious consumer spending amid cost-of-living pressures, which had left the consumer index near its 2020 levels.
She said the more demanding market environment would make it harder for companies seeking a listing or additional capital to command high valuations, as investors were likely to reserve premium ratings for businesses with clearly differentiated propositions.
“I would expect a split market going forward, with strong, steady names holding up better than weaker or trendier ones,” Tan said.
She identified Oriental Food Industries Holdings Bhd (OFI) and Power Root Bhd as possible re-rating candidates, as their valuations did not fully reflect their earnings recovery potential after their respective core profits fell by around 41% and 48% in the financial year 2026 (FY26).
Tan said the investment case for the two companies rested partly on a normalisation in export markets and undemanding valuations, with OFI trading at about 8.4 times earnings compared with almost 15 times for Apollo Food Holdings Bhd.
However, she cautioned against treating foreign exchange movements as a potential catalyst, noting that the stronger ringgit had already weighed on the exporters’ earnings in FY26 and could remain a risk if the currency appreciated further towards the end of 2026.
For Power Root, Tan said the anticipated recovery in its Middle East business was being driven more by the appointment of a new distributor in Saudi Arabia than the use of alternative distribution routes.
“Prevailing ‘hold’ recommendations also suggested part of the recovery had already been factored into its share price.”
In contrast, Tan expected fully valued companies such as 99 Speed Mart, Empire Premium Food and Oriental Kopi Holdings Bhd to retain their premium ratings, supported by their scale and relatively steady domestic demand.
Meanwhile, BIMB Research analyst Sabariah Akhair similarly did not regard the growing supply of listed consumer stocks as the principal cause of the sector’s lower valuations.
She said valuation compression was driven primarily by moderating consumer spending, rising costs and doubts over whether companies could protect their profit margins, all of which had made investors more selective in recent years.
While Nestle remained fundamentally strong and possessed established brands and pricing power, Sabariah said investors were placing considerably more weight on earnings visibility and margin resilience than they did several years ago.
The expansion of the investable consumer universe nevertheless had made the sector more competitive for capital, she said, as investors could now choose among businesses offering different combinations of growth, defensive qualities and exposure to domestic consumption.
“Investors now have access to a broader range of consumer-related investment opportunities, including companies such as Farm Fresh, MR DIY and QL Resources, which offer different growth, defensive and consumption-driven characteristics,” Sabariah told StarBiz.
As liquidity is distributed across a larger group of companies, Sabariah said individual stocks would find it increasingly difficult to sustain exceptionally high valuation premiums unless they delivered strong earnings growth and possessed clear competitive advantages.
She said consumer companies could still attract interest when listing or raising funds, but their valuations would increasingly be determined by business quality, growth visibility, pricing power and execution rather than consumer sector exposure alone.
“We expect valuation dispersion within the sector to widen, with companies that can successfully defend margins, manage costs and adapt to increasingly value-conscious consumer behaviour likely to command stronger investor interest,” Sabariah said.
Meanwhile, CGSI Research maintained its “overweight” call on the consumer discretionary sector but remained cautious about premium-valued stocks, as proposed listings such as KK Mart and Big Caring could further enlarge the investable universe and divert liquidity from incumbents.
CGSI Research’s preferred large-cap consumer stock is MR DIY, which it rates an “add” with a target price of RM2.11 per share.
The stock trades at 18 times forecast calendar year 2027 earnings, representing a substantial discount to larger consumer staples trading above 30 times.
CGSI Research said potential re-rating catalysts for the sector included stronger- than-expected same-store sales growth, further Sumbangan Asas Rahmah cash aid disbursements and tourism arrivals and receipts exceeding Visit Malaysia 2026 targets.
However, it identified logistics or manufacturing disruptions that could result in stock shortages and lost sales, together with higher operating costs caused by fuel supply disruptions, as the sector’s main potential downside risks.
