KUALA LUMPUR: The consumer sector is anticipated to see an increase in margins due to reduced raw material costs and higher consumer spending, bolstered by withdrawals from Employees Provident Fund (EPF) Account 3, according to Hong Leong Investment Bank (HLIB).

Additional factors contributing to this positive sentiment include a stable macroeconomic environment, steady employment rates, increased retail spending, and salary hikes for civil servants.

Hong Leong Investment Bank (HLIB) is optimistic about the consumer sector, expecting margin growth from lower raw material prices and increased consumer spending from Employees Provident Fund (EPF) Account 3 withdrawals.

Other factors contributing to the positive outlook include a civil servant pay hike and a stable macroeconomic environment with steady employment and rising retail spending.

The research house said this aligns with BMI's forecast that Malaysia's household spending will grow by 5.0 per cent year-over-year in 2024 to RM903.8 billion as economic growth persists and consumption levels normalise. 

This would bring spending back to pre-Covid growth levels seen between 2015 and 2019, said HLIB.

According to the research house, with the exception of cocoa and coffee beans, the prices of key commodities continue to chart downward trends.

"For the remainder of CY24, we opine that commodity prices will hold up at the current levels with limited upside from the dim global demand. 

"Overall, this would benefit F&B players with the potential for margin recovery, especially after the rounds of price hikes implemented in the past three years," added the research house.

The government announcements of the EPF Account 3 and civil servant pay hike (effective Dec. 24) should both serve as disposable income boosters, said HLIB.

Having exited the pandemic for over two years, it is possible that this round of expected EPF withdrawals could see a higher proportion used for discretionary spending as opposed to necessities. 

Given the highly liquid nature of Akaun Fleksibel, there is a possibility that consumer spending patterns may turn structurally higher (at the expense of retirement savings). 

"We believe that mid-to-higher-end F&B as well as retail operators who provide discretionary goods and services would benefit most," said HLIB. 

"All in all, we turn more positive on the consumer sector. With this, we are upgrading our sector rating from neutral to overweight. 

"Our top picks are Aeon (BUY, TP RM1.82), FocusP (BUY, TP RM1.14), and QL Resources (BUY, TP RM8.18), all of which have strong valuations and earnings potential supported by expansion plans and solid brand positions," added HLIB.

https://www.nst.com.my/business/corporate/2024/07/1072469/hlib-research-upgrades-consumer-sector-overwight-neutral