'Hold' call maintained on Nestle

KUALA LUMPUR: Nestle (Malaysia) Bhd may continue to encounter challenges due to the uncertainty stemming from fluctuations in commodity and energy prices, compounded by a depreciating currency, according to Hong Leong Investment Bank Bhd (HLIB).

HLIB said the forthcoming subsidy rationalisation, coupled with the recent increase in sales and service taxes (SST) and introduction of the High-Value Goods Tax (tentatively delayed), could further burden consumer expenditure.

"Management reiterates that the volatile economic environment is expected to persist due to continued uncertainties in commodity and currency prices. 

"On a high note, the group is steadfast in capturing the recovery by increasing the reach of its products," it said in a note.

Nestle's registered satisfactory results with a top-line of RM1.8 billion, which translated to a net profit of RM212.4 million.

HLIB said this was in line with its expectations at 24 per cent, but above consensus at 28 per cent of full year forecasts, respectively.

It said Nestle's quarter-on-quarter (QoQ) top line was boosted by the CNY festive season restocking activities. 

"Year-on-year (YoY) sales registered a slight decline of 3 per cent dragged by domestic sales, which we reckon could be due to the ongoing boycott due to the Israel-Gaza conflict.

"Reiterate Hold on Nestle with an unchanged target price of RM122.50," it added.

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