RM16bil STR, Sara allocation set to boost household spending, retail sector – RHB Research

KUALA LUMPUR: The Malaysian government's recent decision to allocate RM16 billion towards Sumbangan Tunai Rahmah (STR) and Sumbangan Asas Rahmah (Sara), coupled with the personal income tax measure in the 2027 Budget, is anticipated to bolster household spending and aid retail sector earnings, especially for essential goods and value retailers.

RHB Research analysts Soong Wei Siang and Aidil Puzi highlighted these points in their latest equity research report. Despite the recurring financial support per household remaining relatively constant in the 2027 Budget, the increased focus on Sara is predicted to redirect more consumer spending towards essential goods. They explained that while the regular assistance per household remains unchanged, a larger Sara allocation will direct more spending towards eligible essentials.

Moreover, the broader Sara program, along with one-off festive assistance, is expected to further stimulate purchases. Higher wages from June 2027 will also contribute to increased disposable income. The research report anticipates that these measures will enhance the sector's earnings growth outlook, with essentials and value retailers benefiting more due to their predominantly lower to middle-income customer base.

From a sector perspective, the consumer sector is expected to remain relatively defensive amidst market uncertainties, supported by its domestic-centered earnings base and ongoing government assistance to stimulate spending. Looking ahead to the 2027 financial year forecast, a robust labor market, wage growth, and sustained fiscal support are expected to bolster consumption.

RHB Research believes that cash assistance and tax relief will help maintain household purchasing power, although rising living costs may keep consumers selective. This scenario is likely to favor spending on essentials and value purchases, aligning with the research report's preference for staples and discounters. In terms of specific stock picks, the report suggests that participating chains like 99 Speed Mart Retail Holdings Bhd, Eco-Shop Marketing Bhd, and Mr DIY Group (M) Bhd could see increased sales through their existing stores, which may help absorb fixed costs and mitigate wage pressures.