KUALA LUMPUR: HLIB Research displayed a surprising lack of exuberance and issued a hold call with a target price of RM85.73 on Nestle (Malaysia) Bhd as the firm is of the opinion that the successful consumer company is fully valued at the current price.
The incongruence of its call aside, HLIB Research listed numerous data that indicate Nestle is on a trajectory to further organic growth in 2017.
"Nestle anticipates half of revenue growth in FY17 will be driven by new product launches, in particular, the launch of new varieties of KitKat chocolates.
"We share the management’s optimism on its new KitKat products, given its lion's share in Malaysia’s chocolate product market which market share has grown from 14.4 per cent in 2013 to 16.8 per cent in 2016, overtaking Cadbury as Malaysia’s most popular chocolate," HLIB Research said in its report.
The firm also cited a Nielsen report which said that a majority of Malaysian consumers prefer new and innovative products from brands that are familiar to them.
HLIB Research also highlighted the fact that Nestle Malaysia's Kit Kat confectionary store in Mid Valley, which allows consumers to customize KitKat chocolate bars with up to 10,000 combinations, is a successful marketing base for the company.
The report noted that the buzz generated by the store and custom made KitKats via social media posts are expected to have an influential effect.
"We believe the group will carry out its Fuel, Innovate, Transform (FIT) strategy by continuing to innovate its product brands, and enhance efficiencies in its factories and supply chain processes. In doing so, Nestle aims to mitigate higher input costs going forward, particularly from milk powder and sugar," HLIB Research said of Nestle's prospects going forward.
The company insight note said investors should have Nestle in their portfolio on, "the back of its defensive nature and as a proxy to Malaysia's recovery in consumption growth".