HLIB: Consumer spending to boost Nestle shares

KUALA LUMPUR: Investors should have Nestle (Malaysia) Bhd in their portfolio on the back of its defensive nature and as a proxy to Malaysia’s recovery in consumption growth, said Hong Leong Investment Bank Bhd (HLIB).

HLIB expects Nestle Malaysia, the local unit of the Swiss food and beverage giant, to continue riding on the improving consumer sentiment domestically.

“The government’s RM5,000 cash handouts to 95,000 Felda settlers and BR1M (1Malaysia People’s Aid Scheme) payments in August are expected to stimulate consumer spending.

“However, rising cost of key commodities may raise input costs in the future as a portion of the group’s hedges rolls over,” said the firm after reviewing Nestle’s second quarter results.

Nestle Malaysia reported a sixmonth net profit of RM392.5 million that accounted for 55 and 59 per cent of HLIB and consensus full-year forecasts, respectively.

HLIB said the results were within expectations, given that the first half of the year historically accounted for between 55 and 60 per cent of Nestle Malaysia’s full-year earnings.

Second quarter revenue grew 3.8 per cent year-on-year to RM1.28 billion.

However, net profit eased 14.2 per cent to RM162.1 million due to higher cost of key commodities.

Year-to-date revenue was 4.1 per cent higher at RM2.66 billion.