FPHB: Consumer Sector Navigates Mixed 2Q25, Eyes Budget 2026 for Potential Boost

The Malaysian consumer products sector delivered a mixed performance in the second quarter of 2025, with overall results largely aligning with expectations despite varied individual company outcomes. While some firms demonstrated resilience, broader consumer sentiment remained subdued, reflecting ongoing economic pressures.

Performance Review

Out of the fourteen stocks under coverage, six met expectations, six disappointed, and two notably outperformed. Nestle (M) surprised on the upside, driven by an encouraging recovery in sales supported by improved brand sentiment. Similarly, 99 Speed Mart posted robust topline growth, attributed to stronger consumer purchasing power, particularly benefiting from the higher minimum wage.

Conversely, consumer discretionary players experienced a quarter-on-quarter weakening in sales, partly due to the earlier timing of Aidil Fitri festivities. Overall consumer sentiment remained subdued amid inflationary pressures and concerns over slower economic growth stemming from US tariff actions. This led to cautious and selective consumer spending, with a clear prioritization of daily essential items. Poultry players faced margin compression following the government’s reduction and eventual discontinuation of egg subsidies.

Future Outlook and Catalysts

Looking ahead, consumer sentiment is anticipated to bottom out, buoyed by several impending factors. Clarity on the US tariff situation, a potential Overnight Policy Rate (OPR) cut, and a strengthening Malaysian Ringgit (MYR) are expected to improve confidence. Furthermore, government stimulus packages announced in July, including MYR100 MyKasih credit, lower RON95 petrol prices, and additional public holidays, are poised to uplift sentiment.

The upcoming Budget 2026 is expected to be more consumer-friendly, with increased fiscal support measures likely to alleviate cost-of-living pressures for lower-income groups. This is anticipated to particularly benefit consumer staples companies. Easing commodity prices, coupled with a stronger MYR in the second half of 2025, are also expected to translate into lower input costs for food manufacturers like Nestle (M), QL Resources, Leong Hup International, and Power Root. However, potential higher excise duties on “unhealthy” consumables could impact specific industry players.

Risks and Recommendation

Despite the cautious optimism, key downside risks to the sector outlook include a significant slowdown in economic growth and a sharp surge in commodity prices. The investment bank maintains a Neutral rating on the overall consumer products sector. Top picks include Mr DIY Group, Guan Chong, Mynews, Farm Price, and Focus Point.