We maintain our NEUTRAL rating on Consumer sector as we think recovery in consumer spending could be patchy due to rising cost-of-living. While higher minimum wage, civil servant wage hike, introduction of EPF Account 3 and government cash transfer will increase disposable income, soft consumer sentiment could persist throughout 2025 due to rising cost-of-living. With elevated raw material prices and higher labour cost, we expect companies will start to pass on the cost to protect margins in 2025. We maintain the recommendations for Mr DIY (BUY), Spritzer (BUY), Padini (HOLD) and Power Root (HOLD), while downgraded Nestle (from Hold to UNDERWEIGHT). We also initiated a HOLD recommendation on 99 SpeedMart. Our top picks are Mr DIY (BUY, TP: RM2.10) and Spritzer (BUY, TP: RM3.54), as Mr DIY still has ample room for growth and is venturing into complementary brands to increase their total addressable market while Spritzer is expected to benefit from tourist-driven demand for mineral water.

• Soft consumer sentiment to persist due to rising cost-of-living. According to Retail Group Malaysia (based on its retail industry report for November 2024), rising cost-of-living is one of the key challenges facing the retail industry. Post covid pandemic, the cost-of-living issue has worsened as income increment could not keep up with the rising price of goods and services. While announcement of multiple measures by Malaysian government such as introducing Employees Provident Fund's Flexible Account (EPF Account 3) to allow withdrawal to meet members' short-term financial needs, raising minimum wage from RM1,500 to RM1,700 in February 2025, hiking civil servant wage by up to 15% by January 2026 and increasing government cash transfer are positive to low income earners and civil servants, the broader consumer base is still grappling with the high cost-of-living. Hence, we think the weakness in consumer sentiment is likely to persist.
• Elevated raw material prices and rising labour cost to compress margins. Key commodity prices such as cocoa, coffee (Arabica and Robusta) and sugar have stayed elevated. Apart from elevated raw material prices, the increase in minimum wage by 13% to RM1,700 from RM1,500 and mandatory EPF contributions for all foreign workers will translate into higher labour cost. We expect prolonged elevated raw material prices and rising labour cost will eventually lead to margin compression for companies.
• Positively, strong tourist receipt will drive private consumption. According to Malaysian Tourism Promotion Board (MTPB), tourist receipts for the period from January to June 2024 grew by 50.8% YoY to RM45.4 bil and exceeded the same period in 2019 by 9%, which was mainly attributable to higher per capita expenditure. Ministry of Tourism, Art and Culture expects to welcome 36.5 mil tourists and generate RM147.1 bil in receipts for Visit Malaysia Year 2026. The target tourist receipt in 2026 is 71% higher than that of 2019. We believe the strong tourist receipt will benefit hospitality segment as well as food and beverage sector.
• Stay selective, prefer companies that are more insulated from soft consumer sentiment. Weak consumer sentiment is likely to persist in 2025 and consumers are likely to be more cautious on spending. Within the Consumer sector, we prefer Mr DIY, which still has ample room for growth and is venturing into complementary brands to expand its total addressable market and Spritzer, which is expected to benefit from tourist-driven demand for mineral water. We also initiated coverage on 99 Speed Mart with a HOLD recommendation while maintaining HOLD recommendations on both Padini and Power Root. We downgraded Nestle to UNDERWEIGHT from Hold as we believe the consumer hesitancy towards the brand will continue and rich valuation.

Source: AmInvest Research - 13 Dec 2024