KUALA LUMPUR: OSK Research is keeping its Overweight recommendation on the food and beverage sector with its Top Buys being CI Holdings (BUY, fair value: RM3.66) and QL Resources (BUY, FV: RM4.65).

It said in a research note on Wednesday, June 23 that the government?s Performance Management and Delivery Unit (Pemandu) has proposed an aggressive reduction in subsidies in Malaysia.

If implemented, the proposed hike in flour prices is unlikely to make a significant impact on food companies, which are not entitled to these subsidies in the first place, although its removal will certainly affect end users.

?Although a hike in sugar price may slightly impact the companies under our coverage, we believe the food and beverage companies would have strategies in place to mitigate the increase, such as by altering their ingredient ratios or re-sizing their packaging to boost sales, to minimize the impact on their bottom lines,? it said.

OSK Research said as such, it maintains its Overweight on the sector with its Top Buys being CI Holdings (BUY, FV: RM3.66) and QL Resources (BUY, FV: RM4.65).

If sugar and flour subsidies are removed as proposed by the Performance Management and Delivery Unit (Pemandu), sugar price will go up by 20 sen per kg and increase every six months up to 2012 for a total of RM1 increase per kg.

Flour price will increase by 20 sen per kg, and increase by another 25 sen per kg in 2011 for a total of 45 sen increase per kg.