KUALA LUMPUR: Malaysia's fast-moving consumer goods (FMCG) sector has been resilient so far this year, weathering economic pressures like inflation and shifts in consumer confidence.
According to market insiders, demand for FMCG products remains strong, fuelled by a growing middle class, rising urbanisation and shifting consumer lifestyles.
"FMCG products are essential, high-turnover items with low profit margins that consumers purchase frequently for daily use or consumption," noted one industry insider.
However, the insider cautioned that challenges may persist due to the current volatile commodity prices and softened demand, adding uncertainty to the industry's outlook.
Major FMCG players in Malaysia include Nestle (Malaysia) Bhd, Dutch Lady Milk Industries Bhd (DLMI), Unilever Malaysia, F&N Holdings Bhd, Coca-Cola Malaysia, Mamee-Double Decker (M) Bhd, Procter & Gamble Malaysia and Yeo Hiap Seng Malaysia.
Nestle Malaysia, a research house said, is steadfast in capturing demand despite a fall in its latest financial results.
Hong Leong Investment Bank Bhd (HLIB) said sales will take time to normalise for Nestle Malaysia considering the still intense Israel-Gaza conflict that is unfortunately seeing no signs of abating.
"The group is steadfast in capturing demand by leveraging on opportunities to increase the reach of its core products while continuing to lead in product innovation. It recently added Nescafé Gold to its range of ready-to-drink products with very positive market acceptance.
"It has also introduced the Maggi Syiok range of premium noodles, launched the Kit Kat Beverages Mix drink, and introduced a limited edition Kit Kat Candy Crush," HLIB said.
Nestle Malaysia's net profit slipped 36.1 per cent to RM85.41 million in the third quarter 2024 (3Q24) from RM133.70 million the same quarter last year. Its revenue fell 18.4 per cent to RM1.44 billion from RM1.77 billion.
According to Nestle Malaysia, the decline was chiefly attributed to the reduction in domestic sales, which is impacted by consumer hesitancy amid cautious spending and affordability concerns.
HLIB maintained its "Sell" call on the company and reduced its target price to RM80.00 from RM101.00.
"Nestle trades at a relatively high valuation level of 49.6 times FY24 price to earnings (PE) in comparison to its holding company in Switzerland, which now seems harder to justify in view of its earnings decline.
"Additionally, we reckon the boycott sentiment coupled with the cost pressures will continue to put a strain on its earnings moving forward," said HLIB.
MIDF Research noted that normalisation of major input ingredient prices such as sugar, milk, and wheat will help offset the continuously rising costs of cocoa, arabica and robusta. This could provide some relief to Nestle Malaysia's margins moving forward.
"While FY24 is expected to remain challenging, we are optimistic that Nestle Malaysia's sequential earnings in FY25 may benefit from increased spending momentum, spurred by recent cash handouts announced in 2025 Budget, the Employees Provident Fund (EPF) Account 3, civil servant salary hikes and improved margins from a stronger ringgit," it said.
It was reported that Nestle Malaysia chief executive officer Juan Aranols expects a progressive normalisation of the factors determining the challenging consumer environment in 2024.
"We reiterate our earlier guidance regarding a gradual improvement of conditions and a return to healthy growth by the first half of 2025. We remain confident in our fundamental strengths as the leading FMCG player across the multiple categories where we compete.
"On this solid foundation, we continue to build trust in our brands through our responsible corporate actions and by offering Malaysians the best range of great-tasting Halal products that meet their health, nutrition, and lifestyle expectations under the brands they trust," he said.
Meanwhile, DLMI expects the business landscape in Malaysia to continue to face challenges in the second half of 2024 due to a range of domestic and international uncertainties.
It noted that these include fluctuating foreign exchange rates, variable commodity prices and potential shifts in regulatory frameworks.
The company said in its second quarter (2Q) results that although the prices of global dairy raw materials have reached a point of stability, they remain historically high and are trending upwards in the second half of the year.
Ongoing geopolitical tensions are causing further fluctuations in raw material prices, which could lead to increasing costs for other commodities, the company said.
DLMI added that the volatility of the ringgit, alongside these global and local uncertainties, as well as regulatory updates and changes to the tax system, such as the increase in sales and service tax rates, present further challenges that may lead to escalated input costs in the near future.
"The outlook for DLMI remains cautiously optimistic due to the strength of our brands and the increasing need for and recognition of the goodness and nutritional value of milk among Malaysians," it said.