KUALA LUMPUR (Jan 16): Although the ceasefire deal to end the war in Gaza is viewed as positive for Nestlé (Malaysia) Bhd (KL:NESTLE) and Berjaya Food Bhd (KL:BJFOOD), analysts caution that earnings recovery may take time due to shifting consumer sentiment, competition from local brands, and rising costs.
The two consumer companies have seen their business affected by sustained boycotts of their products in protest against Israel's actions in the Palestinian enclave in the past 15 months, which resulted in the death of more than 46,000 Palestinians, caused a humanitarian catastrophe, and laid waste to most of Gaza’s infrastructure.
It was announced on Wednesday that Israel and Hamas have agreed to pause the fighting.
Hong Leong Investment Bank analyst Syifaa’ Mahsuri Ismail noted that while the ceasefire might ease the boycotts, business recovery remains uncertain due to intensified competition from the rapidly growing local options.
“Sentiment towards the companies’ brands is still dampened. The timeline for financial recovery will depend heavily on shifts in consumer sentiment and market dynamics,” Syifaa’ Mahsuri told The Edge.
Commenting on the brand competition, BIMB Securities’ director of research Mohd Redza Abdul Rahman noted that homegrown coffeehouse chain Zus Coffee, operated by Zuspresso (M) Sdn Bhd, has aggressively expanded its store network. The brand has also drawn customers with its competitive pricing and attractive loyalty programme, he said.
He said the chances of recovery are very challenging, especially for Berjaya Food, which is heavily reliant on the Starbucks coffee chain for most of its revenue. The company also operates the Kenny Rogers Roasters chain and Paris Baguette bakery cafe brand in Malaysia.
"In contrast, McDonald’s has a better chance of a comeback due to the lack of sizable competitors in the market with better product offerings. Besides, McDonalds too has a good loyalty programme,” said Mohd Redza.
Private investor and seasoned market watcher Ian Yoong concurred: “Broad sentiment regarding the conflict will take longer for many consumers to shift their attitudes towards certain brands. However, for Nestlé, it may take nine to 18 months for customers [boycotting its products] to return, as most Malaysians still rely on its brands such as Maggi, Nescafé and Milo".
Earnings to recover quarter-on-quarter
A local bank analyst observed that the companies could see quarter-on-quarter earnings improvement, supported by increased consumer spending from the minimum wage hike, higher civil servant salaries, and adjustments to the service tax.
"Returning to their peak earnings may take time, as sales may not recover quickly amid the prolonged customer boycott of brands linked to Israel, which has significantly impacted their revenue streams. Another concern is rising costs," said the analyst, who declined to be named.
Nestlé Malaysia's net profit dropped 36.12% year-on-year to RM85.14 million for the third quarter ended Sept 30, 2024 from RM93.6 million. Meanwhile, Berjaya Food reported a net loss of RM33.68 million for its first quarter ended Sept 30, 2024 against a net profit of RM19.03 million a year earlier.
Berjaya Foods saw a 43% decline in its share price in 2024, while Nestlé Malaysia dropped 15%.
Since the start of this year, Nestlé Malaysia’s share price has depreciated by over 7%, closing at RM92.48 on Thursday. Meanwhile, Berjaya Food, controlled by tycoon and Berjaya Group founder Tan Sri Vincent Tan, saw its share price rise over 12% year-to-date to close at 39.5 sen.
Of the 13 analysts covering Nestlé Malaysia, three have issued a "buy" rating, five have a "hold" rating, and five have a "sell" rating.
Of the four analysts tracking Berjaya Food, three have issued a "sell" rating, while one has a "buy" rating.