We remain positive on the consumer staples industry, as we expect consumer spending to improve, driven by higher disposable income following the upward revision in wages for both private and public sectors. This is underpinned by the inelastic demand for essential consumer products. Additionally, resilient economic growth, improved labour market conditions, and higher tourist arrivals are expected to further support consumption. While there has been an uptick in commodity prices recently, we believe that a stable ringgit in 1H 2025 will act as a buffer to mitigate the negative impact. We reiterate our Overweight call on the consumer sector, with CCK and Focus Point as our preferred picks.

• 3Q Results recap. While rising cost of living continues to remain challenging among Malaysian consumers, spending on staple goods remained resilient, as evident in the YoY revenue growth (average +10.5%) among consumer staple companies under our coverage. The improved performance was primarily driven by enhanced operational efficiency, fuelled by higher sales volume and supported by lower raw material costs.
• Improved consumption for staples. We expect consumer spending to improve in CY2025, driven by the revised minimum wage of RM1,700/month (up from RM1,500/month) and salary hikes for civil servants. This should benefit F&B-related companies and retailers. However, we expect the stronger consumption will primarily benefit consumer staple players rather than those in the discretionary segment, as the higher cost of living would lead consumers scaling back on discretionary spending.
• CCK and Focus Point as our preferred pick. We maintain our Overweight call on the Consumer sector, as we expect growth to be driven by strong domestic demand, particularly for consumer staple products. Additionally, the strengthening of the ringgit should help offset the slight uptick in commodity prices. For 2025, we prefer companies that are more dependent on domestic consumption. As such, our preferred picks are CCK and Focus Point, both of which are likely to see a boost in sales volume, driven by higher consumer disposable income.
• Tourist receipts to further drive consumption. According to data from Tourism Malaysia, Malaysia's tourism industry saw a 26.1% growth YoY from Jan to Nov, with 22.5m tourist arrivals. Meanwhile, tourist receipts grew by 50.8% YoY to RM45.4bn from Jan to June. With Malaysia officially assuming the chair of Asean in 2025 and the launch of Visit Malaysia 2026, Tourism Malaysia aims to attract 35.6m international tourists, targeting a tourism revenue of RM147.1bn. We believe this increase in tourist receipts will bode well for the F&B related players and hospitality players.
• Expect margins to remain stable. Although several soft commodity prices have risen recently, we believe that a stable ringgit vis-à-vis USD on a YoY basis in 1H 2025 will help offset the impact. Additionally, improved production efficiency alongside top-line growth should mitigate the effects of the revision in minimum wage. Furthermore, we do not expect the higher wage cost to significantly affect the consumer companies under our coverage, as most of these companies already paying salaries above the minimum wage. We anticipate that poultry industry margins to remain stable moving forward, supported by lower feed costs and the continuation of egg subsidy. We expect corn and soybean prices to remain low, given the ample global supply. While the government has yet to announce when the egg subsidy will be removed, we believe that the short-term impact, should the subsidy be removed, will be minimal. On the other hand, we believe the absence of subsidy intervention would be beneficial for the industry, as it should drive the market toward an equilibrium pricing based on supply and demand forces. 403.8 450.3
• Potential downside risks. Increased uncertainty driven by geopolitical tensions, subdued consumer spending due to inflationary pressures, a weaker ringgit against the USD and sharp increase in commodity prices. 0200400600800 100012001400160018002000

Source: PublicInvest Research - 3 Jan 2025