THE outlook for Nestle Malaysia Bhd – Bursa Malaysia’s most expensive counter – will continue to be overshadowed by weakening sales from its hotel/restaurant/café (HORECA) channel following the re-imposition of the conditional movement control order (CMCO) on Oct 14.
To cushion this effect, the group has developed marketing strategies to divert consumer spend towards other in-home consumption channels in hopes to buffer the impact of weak domestic demand, according to Maybank IB Research.
“Nestle is aware that a full-recovery from its HORECA channel is unlikely until the pandemic is eradicated in Malaysia,” wrote analyst Jade Tam in s company update.
“Sales from its HORECA channel has softened once again since the re-enforcement of the CMCO.”
Although, year-end festivities historically translated to a boost in overall demand, the multinational has prudently increased its online marketing campaigns while directing its advertising and promotion efforts to encourage in-home activities as consumption patterns change amid the pandemic.
“E-commerce sales accounted for about 4% of group revenue as of end-3Q FY2020,” projected Tam.
All-in, Maybank IB Research reiterated its “sell” rating on Nestle with an unchanged discounted cash flow-derived target price RM103.40 on demanding valuations.
“Nestle will remain steadfast in its growth strategies to drive top line growth through strong pipeline of product innovations and targeted consumer engagements going forward,” added Maybank IB Research.
According to the research house, several risk factors affecting its earnings estimates, price target, and rating of Nestle include a spike in raw material prices, sharp appreciation of the US dollar against the ringgit (about 50% of its raw material requirements are denominated in the US$), export sales (which account for about 20% of total sales).
At 12.30pm, Nestle was unchanged at RM140.00 with 24,200 shares traded, thus valuing the company at RM32.83 bil.
