Its quarterly profit plummeted to RM41.1 million from RM148.1 million a year earlier, as the Malaysian unit of the world’s biggest food company grappled with lower sales and higher input costs.
For the full year, net profit fell 37% to RM415.62 million from RM659.87 million in FY2023, the lowest in 14 years.
Nestle Malaysia, a subsidiary of Switzerland-based Nestle SA, is known for its popular food and beverage products such as Milo, Maggi and Nescafe, the staple of generations of Malaysians.
In its bourse filing, the group attributed the Q4 revenue and profit drop to a contraction in domestic sales, which was impacted by “consumer hesitancy and consumer confidence”.
RHB Research downgraded the stock to “sell” from “neutral”, with a lower target price (TP) of RM77 from RM103 previously, a 14% downside.
“We turn cautious on Nestle as the lofty valuation is unwarranted with the earnings profile and demand stickiness looking less robust than expected,” it said in a note.
It noted that FY2024 revenue dipped 12% to RM6.2 billion, primarily dragged by a 16% contraction in domestic sales whilst export sales delivered a robust growth of 5%.
The research house was “negatively surprised” by the magnitude of margin erosion as the company has been reticent to share details of its hedging policies.
“We expect consumers to remain price sensitive and spend cautiously as they try to stretch their ringgit under the high cost-of-living environment.
“This could continue to encourage consumer downtrading to more value-for-money options and undermine the loyalty or stickiness to Nestle’s more established brand of products,” RHB said.
Impact of boycott
Hong Leong Investment Bank (HLIB) has maintained its “sell” call on the stock with a lower target price of RM78. It also cut Nestle’s FY2025 and FY2026 earnings forecasts by 28%.
“Challenges persist, with commodity price volatility and geopolitical tensions weighing on demand, though Nestle continues to expand its product portfolio,” it said.
Nestle’s declining sales are not only due to poor consumer sentiment. HLIB alluded to the boycott of the company’s products by a segment of the Malaysian population.
“The ongoing boycott sentiment and cost pressures will continue to weigh on its profitability,” it noted.
HLIB forecast that sales normalisation will take time because of the ongoing Israel-Gaza conflict.
Nestle has been in Malaysia since 1912 and operates 12 manufacturing plants employing over 6,000 Malaysians.
Its shares fell 48 sen or 0.5% yesterday to RM88, valuing the group at RM20.64 billion. It has fallen 12% year-to-date and 27.6% over the past one year.