KUALA LUMPUR (Dec 11): Malaysia’s consumer companies will likely report strong earnings growth over the next three quarters largely driven by festive spending, CIMB Securities flagged on Wednesday.

Festivities should bolster sales in the fourth quarter of 2024 while margins are likely to be boosted by higher operating leverage, more profitable sales mix and cost control efforts, CIMB Securities said in a note. Higher minimum wage and civil servant salaries will also boost spending power, it noted.

“We expect this strong momentum to carry into” the first half of 2025 as consumers spend more ahead of the festivities, CIMB Securities said. Further, some companies will also benefit from stronger ringgit in the coming quarters, the research house flagged.

Bursa Malaysia Consumer Product and Services Index has erased the sharp gains in the first half of 2024 and is down about 1% year-to-date amid heightened concerns over rising cost of living due to a slew of policy measures that includes new taxes and subsidy rationalisation.

Further, only three out of 14 companies covered by CIMB Securities outperformed consensus during the recently concluded earnings reporting season while six underperformed and the rest were in line with expectations.

Overall, the September-end quarter was “weak”, the house said.

For strategy in the consumer space, CIMB Securities recommends a more defensive stance heading into 2025, focusing on retailing or manufacturing staple goods that are beneficiaries of consumers opting to buy cheaper products.

“This is premised on demand for staple goods being more inelastic in nature, while consumers are expected to continue to be more value-driven and prioritise more affordable options,” the house said.

CIMB Securities has a mix of "buy" and "hold" calls for the stocks, with Farm Fresh Bhd (KL:FFB), Mr DIY Group (M) Bhd (KL:MRDIY), and Aeon Co (M) Bhd (KL:AEON) as top picks for the sector.

A stronger ringgit will lower feed costs in the coming quarters for companies like Farm Fresh while reducing import costs for Mr DIY, CIMB Securities added.