KUALA LUMPUR (April 30): Shares of Nestlé (Malaysia) Bhd (Nestlé Malaysia) rose to its highest in eight months after reporting results that came in slightly ahead of expectations, though analysts flagged sales pressure ahead for the food-and-drink company.
Nestlé Malaysia rose nearly 2% to RM129.30, its highest since August 2023. The stock was trading at RM128.80, still up 1.5% or RM1.91, at 10am, after 16,700 shares changed hands. The gains also helped lift Bursa Malaysia Consumer Index and the country’s benchmark index FBM KLCI.
Consumers may further tighten their purse strings amid rising cost of living and the government’s planned subsidy rollback, even for the locally-listed unit of the Swiss food-and-beverage conglomerate that sells consumer staples, analysts cautioned.
A recently announced increase in prices for certain products “could exacerbate downtrading by consumers,” Kenanga Investment Bank said. “Certain products like cereal, milk and evaporated milk could be more vulnerable than the others, given their low brand equity.”
Net profit for the three months ended March 31, 2024 was RM195.51 million, accounting for about 28% of full-year consensus estimates, but was down 0.8% when compared to the same quarter a year earlier, amid lower domestic sales and higher marketing expenses.
Kenanga has the sole “sell” call out of 13 research houses covering the stock. The broad majority, however, are cautious with 10 “hold” recommendations, while only two have the stock on “buy” ratings. The consensus 12-month target price is RM129.08, according to Bloomberg.
Nestlé Malaysia shares have gained close to 10% so far this year, as investors seek refuge in consumer staple companies to weather tough times ahead. The government is set to implement a slew of measures, ranging from trimming subsidies for fuel to imposing new taxes on luxury goods this year.
Prices of key commodity cocoa have surged 155% year-to-date, while coffee beans have gained 44%, prompting Nestlé Malaysia to raise prices for at least 20 products to protect margin.
Still, “we think that this price hike, ranging from 5%-10%, may not be able to fully absorb the entire cost from the surge in cocoa, as well as coffee prices,” said Affin Hwang Investment Bank. “We think that Nestlé (Malaysia) may likely see weaker margins” in the second half, worsened by a weak ringgit, the house flagged.
Further, Nestlé Malaysia’s bottomline may also face pressure from expanded and higher service tax on transportation and warehouse, on top of the fuel subsidy rationalisation, which all raise operational expenses, said MIDF Amanah Investment Bank.
On its part, Nestlé Malaysia said 2024 is shaping to be a rather challenging year, with pressure on short-term growth derived from the lingering effect of inflation and foreign exchange volatility on Malaysians’ purchasing power, as well as heightened competition.