• Top Picks: Mr DIY Group, Farm Fresh, Focus Point and Guan Chong. We expect consumer spending to remain anchored by a robust employment market and continuous government aid for lower-income groups (via cash handouts and subsidies). However, consumer sentiment may stay subdued, dragged by elevated inflationary pressures - income levels take time to catch up to the increase in living costs. This would compel inflation-weary consumers to stretch their money by downtrading, be more price-sensitive and seek better value, thereby capping overall discretionary spending.
• Things could improve in 2025F. There should be an uplift in disposable income in 2025F, thanks to the wage hikes in both the public and private sectors. Civil servants will receive salary increments of 4-8% effective Dec 2024, while the monthly minimum wage will rise from MYR1,500 to MYR1,700 (+13%) starting Feb 2025. In addition, the upsized cash handouts (+30%, to MYR13bn) for 2025F should support consumers in keeping up with the cost of living. The positive momentum of tourist arrivals, too, is a boon for the sector - particularly for the consumer retail companies - whilst the jump in CPO prices should boost consumer spending in rural areas. Meanwhile, for the consumer companies, the relatively stronger MYR as well as more favourable and stable commodity prices should help protect their profit margins. That said, the inflationary impact that may arise from targeted petrol subsidy rationalisation remains to be seen, and we await further clarity on the mechanism.
• Top Picks. We prefer companies that benefit from solid demand - which grants them pricing power to mitigate rising operating costs brought about by the higher minimum wage. MR DIY Group will be a major proxy to capture the increase in consumer spending, as the beneficiaries of the abovementioned sector tailwinds fall well within its customer groups. We like Farm Fresh, premised on its relentless topline growth - which, in turn, is underpinned by new product launches and multiple expansion plans. Farm Fresh's margin growth should be sustained on easing input costs and more favourable FX rates. We highlight Focus Point, for its sector-leading growth in the eyewear business - driven by a rising number of people with myopia, a surge in corporate customer sales and effective marketing strategies. This counter is trading at an attractive single-digit P/E and offers a dividend yield of >5%, backed by healthy cash flow and a sturdy balance sheet. We also remain upbeat on Guan Chong's stellar earnings outlook from 4Q24F onwards, supported by forward sales at favourable ratios and normalised production volumes. Its current P/E of 6-7x is a compelling level for Asia's largest cocoa grinding player, supported by its robust earnings growth.
• Downside risks to our sector weighting include more-inflationary-than-expected subsidy rationalisation measures, and a slowdown in the global economy.

Source: RHB Research - 22 Jan 2025