PETALING JAYA: Improving liquidity will continue to support the bullish consumer sector sentiment and provide valuation rerating, according to RHB Research.
It raised its valuations for Nestle (M) Bhd, 99 Speed Mart Retail Holdings Bhd and Farm Fresh Bhd based on their promising growth outlook to continue garnering investor interest.
It also expected a sequential pick-up in fourth quarter 2025 (4Q25) sales, while earnings should be driven by favourable year-end seasonal factors.
Most of the companies under its coverage could deliver healthy year-on-year net profit growth, to reflect resilient private consumption on the back of stable employment and economic growth.
Its top picks for the sector are Nestle, Farm Fresh, Eco-Shop Marketing Bhd, AEON Co (M) Bhd and MyNews Holdings Bhd. The research house maintained its “buy” call on Nestle with a higher target price (TP) of RM135 from RM120 a share, 16% upside with about 3% financial year 2026 (FY26) yield.
It retained its “buy” call on Farm Fresh with a new TP of RM3.26 from RM3.03 a share, 17% upside with about 1% FY26 (March) yield.
It cut its call on 99 Speed Mart to “neutral” from “buy” with a new TP of RM4.06 from RM3.56 a share, 5% upside with about 2% FY26 yield.
The shares of Nestle, Farm Fresh and 99 Speed Mart closed at RM116, RM2.80 and RM3.85 respectively yesterday. It retained its “overweight” stance on the sector.
The downside risks to its outlook include weaker-than-expected consumer sentiment, a major slowdown in the domestic economy, and a sharp surge in commodity prices
It said the sector would continue to provide a defensive shelter by offering earnings visibility amidst market volatilities, led by their domestic-centric earnings bases and resilient consumption.
The rising prominence of the Sumbangan Asas Rahmah initiative as a fiscal support tool should direct more spending to the sector, whilst the inclusive petrol subsidy rationalisation approach has removed a major overhang and cooled down inflationary risks.
The stronger ringgit, healthy wage growth and the Visit Malaysia Year 2026 campaign are other sector catalysts, according to the research house.
The easing commodity price trends and ringgit strength should translate to lower input costs for food manufacturers, going forward.
The recent announcement of the Sales & Service Tax (SST) rate for rental services being decreased to 6% from 8% is a relief for consumer retail companies.
It said the main beneficiaries of the Government’s fiscal policy will continue to be favoured by investors, including 99 Speed Mart and Nestle.
Farm Fresh’s robust growth momentum and expansion headroom in regional markets should keep investors excited.
A few quality consumer retail players, Eco-Shop Marketing, Mr DIY Group (M) Bhd, AEON and Focus Point Holdings Bhd are trading at more reasonable or undemanding valuations.
This is compelling, as RHB believes discretionary spending could pick up in tandem with the improving consumer sentiment ahead.
It adds that Mynews and two brewery stocks are the sector proxies under its coverage to capitalize on the VMY2026 theme.