KUALA LUMPUR: Nestle (M) Bhd
is likely to find support from export sales which are anticipated to rise, according to Kenanga Research.
Its revenue had seen a decrease of some 13% year-on-year in the second quarter due to a decline in domestic sales.
The research house said a recent briefing by Nestle’s management revealed that it had been experiencing down-trading by consumers as they switched to cheaper brands or the lower-end of its product range.
This trend had been across all its products, the research house noted.
“This showed that sustained elevated inflation is eroding consumer purchasing power.
“As such, Nestle will go with the pricing strategy of its parent Nestle SA, that is to go slow on price hikes as consumers turn more cost-conscious,” Kenanga Research said.
The company had raised selling prices of its best sellers, including Milo, Nescafe and Maggi tomato ketchup by 5% to 6% from July to mitigate the rising cost of raw materials including cocoa and coffee beans.
Given the situation, the research house remained cautious on Nestle’s outlook and anticipates the challenging conditions to persist through the third quarter.
“A gradual improvement is expected towards the end of the year and a return to growth by the first half of 2025,” it pointed out.
“Its key products such as cereal, milk and evaporated milk may be particularly vulnerable due to their lower brand equity,” the research house said.
Kenanga Resarch also noted that the gross profit margins of Nestle Malaysia are likely to remain under pressure due to elevated prices of key commodities such as cocoa and coffee beans as supply shortages persisted.Nevertheless, it noted that the company’s extensive range of staple food products could help it cushion the impact of the developments.
Meanwhile, TA Research said the impact of rising raw material prices is currently manageable due to the hedging policy of the management.
Should raw material costs continue to fluctuate, the group will implement necessary proactive measures to mitigate the impact, according to the research house.
