PETALING JAYA: Nestle (M) Bhd
says it may see sequential improvement in consumer demand for its products next year aided by government initiatives aimed at raising disposable income.
The company, which has been affected by sustained inflation that has reduced consumers’ purchasing power, told analysts in its post-results briefing that it anticipates a gradual improvement in domestic demand by the first half of 2025 (1H25).
“Nestle has revealed that the recent decline in demand is attributed to sustained inflation which is eroding consumer purchasing power. Despite these challenges, it anticipates a gradual recovery towards the end of this year, with a return to growth in 1H25,” Kenanga Research stated in a report on the producer fast-moving consumer goods.
It said the recovery was expected to be supported by an improving economic environment, which it believed could be enhanced by government initiatives to increase disposable income, including a hike in civil servants’ salaries and the rise in the minimum wage to RM1,700.
Additionally, Nestle is seeing a reduction in consumer hesitancy toward international brands, the research house said.
Kenanga Research added Nestle, which sells products like Milo, has indicated that it sees no significant impact on its costs from the recent announcement on the hike in the minimum wage, which becomes effective Feb 2025, as it was already paying well above the minimum wage rate.
The research house said Nestle guided that the increase in excise duty on sugar-sweetened beverages to 90 sen per litre, up from 50 sen, would also have minimal impact.
This was mainly because all its powdered products already fall below the threshold of 33.3g of sugar per 100g, and 97% of its ready-to-drink products were under the 5g or 7g sugar limit.
“We expect consumer spending to remain soft until year-end but share a similar view with management that the financial year ending 2025 (FY25) should show sequential improvement.
“However, we feel that profit margins are likely to remain under pressure due to high commodity costs, particularly for cocoa and coffee, driven by supply concerns.
“Still, Nestle’s extensive range of staple-food products and the recently strengthening ringgit should help to ease cost pressures,” Kenanga Research said.
Meanwhile, Maybank Investment Bank Research (Maybank IB Research) said it was keeping its earnings estimates for Nestle.
“The company has undoubtedly faced heavy demand attrition in FY24 following the onset of external geopolitical tension, but this could have bottomed-out given signs of a month-on-month sales uptick in September.
“We expect this sales uptrend to follow through into the last quarter of 2024, with higher festive-led spending, along with positive effects from the upcoming civil service wage increase on Dec 1,” Maybank IB Research said.
