Periodic/Sector reports
Consumer: Discounted, But Not Yet Compelling
Highlights
- Consumer stocks historically outperform the FBMKLCI around elections, led by retailers, with momentum often persisting after polling day.
- Input costs remain contained despite conflict risks, with lower soft commodities costs offsetting higher packaging and logistics costs.
- Maintain MARKET WEIGHT. Discounted valuations support resilience, but uncertainties cap upside. Top picks for the sector: 99SM, MRDIY and F&N.
Analysis
- An election haven. Consumer companies appear to have held up relatively well around the past five election periods, with outperformance more evident versus the FBMKLCI than on an absolute basis. These selected companies were picked out of virtue of being listed since the 11th General Election (2004) (refer overleaf). Retailers were the clear standout pre-election, averaging +8.4% relative performance, likely reflecting expectations of stronger consumer spending from pre-election handouts and feel-good measures. Staples and sin stocks also outperformed, but to a lesser extent. Interestingly, the post-election trend remained supportive, with staples (+6.1%), retailers (+5.7%) and sin stocks (+4.4%) still outperforming on average. This suggests that election-related consumer momentum does not necessarily fade immediately after polling day, while the broader market tends to soften post-election.
- Commodities prices remain contained despite conflict scares. The weakening of soft commodity prices in late-25 arrived at an ideal time for consumer companies, as year-end re-hedging and strategic inventory levels should largely shield them from the recent Middle East conflict uncertainties. Latest key input costs remain below pre-conflict levels, notably, coffee
(-17.6%), cocoa (-30.6) and sugar (-13.0%). Consequently, barring a spike in plastic packaging cost and elevated logistics cost, the overall input cost environment remains relatively neutral. Stocking out of key materials appears specific to Farm Fresh, with it being the exception rather than the rule.
Highlights
- Consumer stocks historically outperform the FBMKLCI around elections, led by retailers, with momentum often persisting after polling day.
- Input costs remain contained despite conflict risks, with lower soft commodities costs offsetting higher packaging and logistics costs.
- Maintain MARKET WEIGHT. Discounted valuations support resilience, but uncertainties cap upside. Top picks for the sector: 99SM, MRDIY and F&N.
Analysis
- An election haven. Consumer companies appear to have held up relatively well around the past five election periods, with outperformance more evident versus the FBMKLCI than on an absolute basis. These selected companies were picked out of virtue of being listed since the 11th General Election (2004) (refer overleaf). Retailers were the clear standout pre-election, averaging +8.4% relative performance, likely reflecting expectations of stronger consumer spending from pre-election handouts and feel-good measures. Staples and sin stocks also outperformed, but to a lesser extent. Interestingly, the post-election trend remained supportive, with staples (+6.1%), retailers (+5.7%) and sin stocks (+4.4%) still outperforming on average. This suggests that election-related consumer momentum does not necessarily fade immediately after polling day, while the broader market tends to soften post-election.
- Commodities prices remain contained despite conflict scares. The weakening of soft commodity prices in late-25 arrived at an ideal time for consumer companies, as year-end re-hedging and strategic inventory levels should largely shield them from the recent Middle East conflict uncertainties. Latest key input costs remain below pre-conflict levels, notably, coffee
(-17.6%), cocoa (-30.6) and sugar (-13.0%). Consequently, barring a spike in plastic packaging cost and elevated logistics cost, the overall input cost environment remains relatively neutral. Stocking out of key materials appears specific to Farm Fresh, with it being the exception rather than the rule.
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