Recovery in sales volume to propel Nestle

The Star

28-07-2025

PETALING JAYA: Nestle (M) Bhd is poised for a stronger second half of 2025 (2H25), underpinned by easing raw material prices, stable margins and a steady recovery in sales volume, following a challenging year marked by cost pressures and boycott-related disruptions.
According to Maybank Investment Bank (IB) Research, Nestle's sales volume has shown progressive recovery in 1H25 and this remains its key focus in 2H25.
The research house raised its 2025 to 2027 earnings forecasts by up to 22%, citing 'a clearer route to recovery in relation to its brand image and cost pressures from raw materials.'
Maybank IB Research said that Nestle's second-quarter revenue rose 10% year-on-year (y-o-y), driven by price hikes and systematic sales volume recovery.
It added that 'the group is on a stronger footing to enhance market competitiveness and rebuild market share across its product categories'.
Meanwhile, CGS International Research remained cautious, citing stretched valuations.
'We believe valuations are rich at 35.8 times 2025 price-earnings ratio with a 2.4% 2025 dividend yield,' the research house said, maintaining a 'reduce' call with a target price of RM78.
It acknowledged a volume recovery in 2Q25 following the easing of boycotts and noted that 'export revenue growth was helped by growing demand for halal products in both existing and new markets'.
It added that management saw stability in margins supported by 'ongoing hedging efforts, and recent easing in cocoa and coffee prices'.
Hong Leong Investment Bank (HLIB) Research pointed to a mixed outlook, with operational efforts offsetting persistent external challenges.
'The group continues to navigate rising commodity costs through a steadfast focus on operational efficiency, cost savings initiatives, and greater digitalisation,' it said.
Despite selective price increases, HLIB Research cautioned that 'the ongoing boycott against Western-affiliated brands continued to dampen demand' and is unlikely to fully revert soon.
Nonetheless, the the research house highlighted that product innovation remained a bright spot, with launches such as Nescafe Coffee Concentrate and Kit Kat 3-in-1 reinforcing the group's pivot toward health-focused and convenience-led offerings.
HLIB Research reiterated its 'hold' rating with an unchanged target price of RM80.
CIMB Research also held a steady view, with no changes to its forecasts or 'hold' rating.
It noted that 'Nestle does not intend to implement major selling price adjustments, opting instead to focus on maintaining affordability in view of the current subdued consumer spending environment.'
The research house underscored Nestle's long-term growth strategy centred on innovation, including the 'world's first drinkable KitKat' as aligned with global priorities.
'Gross profit margins are expected to remain stable in 2H25,' it added, citing digitalisation and efficiency initiatives as cushions against cost pressures.
TA Research struck an optimistic tone, raising its earnings forecasts by up to 7.6% and its target price to RM102.80.
It attributed the gains to higher sales assumptions and robust brand investments.
'Operating expenses rose 4% y-o-y mainly attributed to higher marketing investments,' the research house noted, pointing to promotional campaigns tied to new launches and Milo's 75th anniversary.
It said the efforts are supportive of top line growth, with the potential to strengthen brand equity, enhance customer loyalty, and reinforce Nestle's market leadership.