KUALA LUMPUR: Nestle Malaysia Bhd is expected to see continued dampened sales from the negative sentiment due to the boycott and is unlikely to return to their baseline in the near future, according to Hong Leong Investment Bank Bhd (HLIB Research).
The research firm noted that Nestle's top line fell 18 per cent year-on-year (YoY) in the third quarter of 2024 (Q3 2024) on the back of deceleration in domestic sales, offsetting positive performance in the export front.
"Domestically, management attributed this to two main factors: namely, consumer hesitancy, which we reckon was due to the boycott effects on the back of the Israel-Gaza conflict, and muted consumer sentiment due to affordability constraints," it said in a note.
Meanwhile, cocoa, robusta, and arabica coffee beans prices have increased by 60 per cent, 45 per cent and 32 per cent year-to-date, respectively.
As guided previously, despite its hedging policy, HLIB Research said the group expects to see increased input cost inflation for coffee and cocoa in the second half of 2024 (2H24).
However, the strengthening ringgit should provide some cushion against these rising costs.
"Additionally, management also shared that the group has seen some sequential improvement in sales towards the end of the quarter.
"Nevertheless, we reckon that sales will remain dampened by the negative sentiment due to the boycott and unlikely to return to their baseline in the near future," it added.
Nestle however, will not be subjected to the sugar tax as all of its powder products are currently below the 33.3 g/100 g sugar threshold.
An 80 per cent increase in sugar tax to RM0.90/litre was announced during the 2025 Budget, which will take effect in January next year.
Meanwhile, 97 per cent of its ready-to-drink products are also below the 5g/7g sugar threshold.
HLIB Research added Nestle's compass remains unchanged with continual product innovation to drive consumption and grab market opportunity in the challenging environment.
"Nestle continues to drive product innovation with its 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," it said.
The firm maintained "Sell" on the stock with an unchanged target price of RM80.