Another loser against the tide, Nestle's net profit falls short

The impact of the boycott has been slow to subside. The results announced by Nestle (NESTLE, 4707, Main Board Consumer Stock) on Thursday (25th) were poor, net profit was severely cut, and the stock price also plummeted by more than 4% today.

After Nestlé announced its results, all major brokerage firms released analysis reports, saying that the current performance was seriously below expectations; many investment banks lowered the target price and rating of the stock as a result.

According to yesterday's performance report, Nestlé blamed this poor performance on “reflecting poor consumer sentiment in the current environment”; however, many brokerage firms pointed out that this was an impact caused by the wave of “anti-Israeli and pro-Palestinian” boycotts.

Research analysts at CIMB said, “The decline in revenue in the next quarter was due to boycotts in the local consumer market.”

An analyst at Hong Leong Investment Bank said, “We believe that since the conflict between Israel and Palestine is still intense and there is no sign of easing, it will take some time for sales to return to normal.”

Galaxy International Securities's statement is rather vague. “We believe Nestlé has been impacted by changes in consumer preferences for local brands.”

According to the results announced yesterday, Nestlé's revenue for the second quarter of this year fell 13% year on year to RM1.5 billion23.26 million; net profit also fell sharply by 48.27% to RM93.6 million.

This allowed the local consumer stock leader's profit performance in the first half of the year to only about 38% of market expectations.

On the other hand, although sales are still sluggish, it seems that Nestlé is still coping with rising costs with price increases.

CIMB pointed out that since July, Nestlé has raised the prices of some products by 5 to 6%, “but the higher selling price is still not enough to fully offset the high cost.”

MIDF research also believes that with the launch of the Chinese government's targeted diesel subsidy policy, Nestlé Malaysia needs to keep the price increase option to offset the challenge of high operating costs.

In the second quarter and first half of fiscal year 2024, Nestlé experienced a backlash from the “Tingba” consumer group. Not only did it not meet investment banks' and market forecasts for the whole year, but various investment banks downgraded their ratings and lowered their target prices one after another.

China's Hong Leong Investment Bank research directly cut Nestlé's target price to RM101 and downgraded the rating to “sell”; MIDF research also gave a similar rating.

Investment suggestions given by most other investment banks, including Kennag Investment Bank, CIMB, and Galaxy International, are also conservative in “keeping” or “neutral.”

Nestle will hold an analyst briefing today (26th). It is expected that the reasons for poor performance will be further explained and future performance guidelines will be given. Da Securities indicated that it will review ratings and target prices after attending the debriefing session.