Minimum wage to have mixed impact on consumer sector: Kenanga Research

KUALA LUMPUR: Kenanga Research has highlighted that a potential increase in the minimum wage could have mixed effects on the consumer sector. The research firm estimates that an RM100 increase in minimum wages could result in a 0.1% to 2.7% reduction in earnings for consumer-facing businesses. However, Kenanga Research believes household incomes might help offset the impact of increased wages.

The firm noted that the impact of the minimum wage hike would differ across various sectors within the consumer industry. Labour-intensive companies are expected to face more significant cost pressures due to the wage increase, while these businesses may also benefit from potentially higher consumer spending.

Kenanga Research emphasized that consumer spending has a buffer, but it faces headwinds. The firm suggests that targeted fiscal assistance, such as Sumbangan Asas Rahmah and Sumbanfan Tunai Rahmah, along with potentially higher wages, could help support household purchasing power. Nonetheless, companies are entering a less favorable cost environment as labor, electricity, freight, and selected input costs rise.

Price-sensitive consumers may also limit companies' ability to pass on higher costs to customers, putting additional pressure on margins.

Another potential headwind for the sector is the possibility of a 25-basis-point hike in the overnight policy rate (OPR) in the first quarter of 2027, according to Kenanga Research. Historically, consumer sentiment and share prices have weakened following two of the three previous OPR hiking cycles.

Kenanga Research currently rates the sector as Overweight, acknowledging that many concerns have become more apparent in valuations following recent share price weakness. The firm believes that companies that can capture resilient consumption without significant cost pressures should be better positioned for success. Kenanga Research recommends QL Resources Bhd as its top pick within the sector, with an "outperform" rating and a target price of RM4.40.