Consumer sector reality check

THAT Malaysian consumers are feeling inflationary pressures despite headline numbers that show otherwise is hardly a moot point these days.

The bigger question is: What is the impact going to be on listed companies in this sector?

The question is even more relevant when dealing with consumer stocks that continue to enjoy toppish valuations on Bursa Malaysia.

Take the case of 99 Speed Mart Retail Holdings Bhd, which undoubtedly holds the position as the top-rated consumer stock on the local exchange. Its appeal lies not only in its defensive, value-oriented proposition, but also as a key beneficiary of the government’s Sumbangan Asas Rahmah (Sara) initiative.

Currently, about 81% of the group’s network of more than 3,000 stores participate in the Sara programme, versus 37% for Eco-Shop Marketing Bhd and 15% for MR DIY Group (M) Bhd.

Since its listing in 2024, 99 Speed Mart has delivered strong earnings growth over the last seven quarters it has reported.

No wonder 99 Speed Mart, which listed at RM1.65 at 37 times historical earnings, now trades at RM3.65, at 45 times historical earnings.

But even for this superstar stock, the cautionary inflation concern is rearing its ugly head.

The company says in its latest quarterly filing that it “remains mindful of the challenging operating environment, with softer consumer demand amid an evolving global landscape, changing economic conditions, inflationary pressures and cautious spending sentiment”.

But it remains a fact that companies like 99 Speed Mart continue to be favoured as beneficiaries of the downtrading theme.

Another one is Eco-Shop, whose fixed-price, value-for-money model also positions it as a prime beneficiary of tighter wallets among consumers.

Inflationary pressures are acute in categories that account for a large share of the household budget – housing, furniture and household goods, and food.

AmInvestment Bank Research notes the cost of everyday essentials has run well ahead of reported headline inflation. “Headline CPI masks the actual squeeze,” the research house notes.

According to Fortress Capital Asset Management chief executive officer Thomas Yong, it is not so much that the consumer sector is heading for a valuation correction, but that it has already been undergoing one for some time and may yet persist.

Evidently, the Bursa Consumer Products and Services Index paints a dreary picture, having delivered negative returns over three years. The sector’s share of Bursa’s total market capitalisation has contracted even as there have been new consumer listings added to the index.

“Forward multiples for several sector bellwethers have compressed over the past 18 months or so. This is not a sudden reckoning; it is a slow grind that reflects capital rotation toward higher-growth structural themes,” he tells StarBiz 7.

Padini Holdings Bhd’s valuation has come under pressure over the past 18 months with analysts lowering their forecast earnings for the group.

The mid-market and lower-priced fashion retailer does seem to be feeling the heat. For the nine-month period ended March 31, 2026, its net profit fell 17% year-on-year. The company did caution that the retail business “remains challenging due to the deterioration of purchasing power arising from the rising cost, trade tensions and rising inflation and interest rates”.

A similar pattern can be seen in Bonia Corp Bhd, with revisions to its earnings estimates even more volatile.

Its forward earnings per share expectations over the past 18 months were sharply reduced from around 15 sen to about six to eight sen, going by Bloomberg data.

“The question is who deserves a premium in such an environment,” says Tradeview Capital chief investment officer Nixon Wong.

Cash transfers such as Sara may provide a floor for spending on consumer staples, particularly among lower-income households.

But while such support can sustain purchases of essential goods, it is unlikely to provide a catalyst for broader discretionary spending.

That said, Oriental Kopi Holdings Bhd seems to have remained on a roll since its listing in 2025, continuing to deliver growth while earnings expectations have continued to rise.

The group has four “buy” calls and one “hold” and “sell” call, respectively. Apex Securities, which has called a “hold” on the stock, says it remains cautious on near-term earnings execution, as softer operating leverage and ongoing margin normalisation continue to offset strong topline momentum.

“We believe rising operating costs, increasing competitive intensity and expansion-related dilution may continue to weigh on profitability in the near term”, the research house says.

Empire Premium Food Bhd, which came to the market with a bang, has also come under scrutiny as growth at its existing outlets slows despite continued strong headline revenue growth.

Its same-store sales growth (SSSG) declined from 12.2% in the financial year ended March 31, 2023 (FY23) to 9.8% in FY24 and 5.5% in FY25.

Rather than a single, pronounced correction, Yong observes there is a “re-sorting within the consumer sector”, where companies delivering genuine SSSG, operating leverage and exposure to the right consumer segments continue to command premium valuations.

“Those without clear earnings growth or competitive moats are being de-rated. Stock selection has become the primary driver of returns in this space, not sector allocation,” he says.

But the bigger concern is that the full extent of the pressure on Malaysian consumers has not yet shown up in companies’ earnings.

One such area is the rapid growth of buy now, pay later (BNPL) financing. While the expansion of BNPL has helped support near-term consumption, it also effectively brings future spending forward, potentially leaving households with less disposable income to spend later.

At the same time, the shrinking of the average basket size is becoming more widespread with consumers visiting outlets more frequently but spending less per trip. Several listed retailers have reported consistent 2% to 3% year-on-year declines in average basket size even as transaction counts rise.

This may remain earnings-accretive for high-volume, low-fixed-cost operators that can absorb the extra footfall efficiently. However, for businesses with higher fixed-costs – such as full-service restaurants, department stores and larger-format retailers – smaller average basket sizes could become increasingly problematic.

But the shift in consumer behaviour may go beyond conventional downtrading, as purchasing may be becoming more strictly necessity-driven.

“Consumers are re-evaluating entire categories rather than simply switching brands: subscription cancellations, deferred home furnishing and delayed electronics upgrades are becoming more common,” Yong says.

The tricky part is such behavioural changes are harder to track in real time and will increasingly surface as softness in discretionary segments.

“The risk is that some models still rely on pre-2024 spending elasticities that may no longer hold,” he warns.