28/02/2024 12:52 PM

KUALA LUMPUR, Feb 28 (Bernama) -- Nestle (M) Bhd shares were up at midmorning after the food and beverage company reported a higher net profit of RM659.87 million for the financial year ended Dec 31, 2023 (FY2023) against RM620.33 million in the previous year. 

At 11.01 am, its shares increased RM1.10 sen to RM122.60 with 22,800 shares traded. 

In a filing with Bursa Malaysia yesterday, Nestle said its revenue also rose by 5.8 per cent to RM7.05 billion from RM6.66 billion previously, driven by higher domestic sales fuelled by resilent consumer demand.

For the fourth quarter, Nestle’s net profit increased to RM148.10 million from RM132.85 million a year earlier while revenue was slightly higher at RM1.69 billion compared with RM1.65 billion previously.

In a note today, Hong Leong Investment Bank Bhd (HLIB) said Nestle would continue to face challenges with the uncertainty from volatility in commodity and energy prices coupled with a weakening currency.

“Additionally, it's worth noting that the forthcoming subsidy rationalisation, along with the anticipated increase in the sales and service tax and introduction of the high-value goods tax, may add additional strain on consumer spending.

“The group is steadfast in capturing the demand by leveraging on opportunities to increase the reach of its core products while continuing to lead in product innovation,” it added. 

Hence, HLIB maintains a “hold” call with an unchanged target price (TP) of RM122.50 per share. 

Meanwhile, Kenanga Investment Bank Bhd said Nestle's FY2023 results met the forecast but disappointed the market, as the company’s FY2023 missed the consensus estimate.

“We remain cautious on the company’s outlook. The absence of a significant recovery in margins suggests that it is still struggling to pass on higher input costs.

“Despite absorbing the higher input costs (by not significantly raising prices), there is still a risk that its customers may down trade, i.e. switch to cheaper alternatives, amid sustained high inflation.

“Certain products, like cereal, milk and evaporated milk, could be more vulnerable than the others given their low brand equity,” it said. 

Nonetheless, Kenanga Investment Bank said it takes comfort in Nestle’s wide range and variety of staple food products, which could cushion the impact of any downtrading by customers.

“We cut the FY2024 net profit forecast by three per cent, having adjusted our assumptions on operating margin and finance cost. We also introduce our FY2025 numbers.

“However, we maintain an 'underperform' call on the company with a TP of RM115.00 per share,” it said. 


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