Nestlé to Gain Momentum in Q1 on Improving Consumer Sentiment
There could still be light at the end of the tunnel for Nestlé (Malaysia) Bhd as it gathers momentum in the first quarter of 2025 (Q1 2025) supported by improving consumer sentiment.
The company's full-year net profit for the financial year 2024 (FY24) missed analysts' estimates but during its briefing with analysts, Nestlé said it saw an uptick in local sales, as reflected in the 1.8 per cent quarter-on-quarter increase in revenue in Q4 2024.
CIMB Securities Sdn Bhd said the increase in local sales took place despite the quarter being a "seasonally slower sales" quarter compared with Q3 2024.
However, Q4 2024 gross profit margins dipped 4.6 per cent year-on-year (YoY) to 26.7 per cent, attributed to an increase in commodity costs and a less-profitable sales mix due to increased consumer downtrading activity.
"Nestlé is confident of a return to growth in FY25F with efforts to continue strengthening its market leadership across categories and a continuous focus on product innovation. The company aims to continue to launch more new products, with a focus on expanding its product portfolio to cater to a wider range of consumers," said the firm.
The firm said Nestlé also noted signs of improvement in sales, particularly in Q1 2025, which it attributes to improved consumer sentiment and the gradual easing of the impact of boycott activities associated with the Israel-Palestine war.
"In Q1 2025, we understand that Nestlé has recorded improvement in sales volume across a wide range of product categories, according to internal company data."
CIMB Securities maintained a 'Hold' rating on the stock with a lower target price (TP) of RM92.
Meanwhile, Maybank Investment Bank Bhd (Maybank IB) said Nestlé's FY24 core net profit of RM435 million accounted for only 84 per cent of the firm's' and consensus' full-year earnings estimates.
"The earnings disappointment was largely from lower-than-expected gross profit margins from higher input costs.
"FY24 revenue of RM6.2 billion was, however, in line at 100 per cent of our full-year revenue estimate," it said in a note.
The firm cut its FY25 and FY26 earnings estimates for Nestlé by 35 per cent and 29 per cent, respectively, after imputing lower gross profit margins of 29 per cent and 30 per cent.
"With the Gaza war ceasefire, we believe that Nestlé's sales volume may see gradual recovery in Q1 2025 but it might not be sufficient to offset its higher production costs.
"Nestlé may attempt to raise product prices to defend margins in FY25 but we believe its ability to fully pass on costs to consumers will be hindered by consumer affordability and their sensitivities to product price increases," it added.
Maybank IB downgraded Nestlé to 'Hold' with a lower TP of RM96.70.
Meanwhile, CGS International Securities Malaysia believes that the worst is over for Nestlé and currently builds on a four per cent YoY increase in domestic revenue in FY25.
"Management during the conference call noted that through Q4 2024 there were signs of improving consumer sentiment and this has gathered momentum into Q1 2025.
"It noted that ice cream sales were its canary in the coal mine, and there has been a shift towards premium products in recent months. It also feels that the easing of hostilities in the Middle East will help ease the impact of the boycott which impacted 2024 revenues," it said.
It said Nestlé raised prices for its coffee and cocoa products in Q4 2024, which should aid gross profit margins in the coming quarters.
The firm tweaked downwards its earnings estimates for the company by 1.6 per cent each year for FY25 and FY26 after factoring in the company's FY24 performance.
CGS International reiterated its 'Reduce' call on the stock with an unchanged TP of RM78.
$NESTLE / 4707 (NESTLE (MALAYSIA) BERHAD)
Extracted from The New Straits Times