Nestle’s strategies garner positive sentiments
Disputes between US, North Korea heat up
Fundamental outlook
THE US economy showed sluggish inflation as disputes between US and North Korea heat up. China recorded steady growth pace with strong trade surplus. UK manufacturing and trade deficit worsened after the initiation of the Brexit.
US producer prices contracted at minus 0.1 per cent in in July, its lowest in five months. Excluding food and energy, core prices declined to its nine-month lowest at minus 0.1 per cent.
US weekly claims on jobless benefits ended August 5, was at 244,000. Consumer prices and core prices both rose 0.1 per cent in July, missing forecast.
Global stock markets tensed after North Korea threatened to launch missile attack on a military base situated in the Guam islands. US President Donald Trump’s government expressed fury and rebuked the threat with a serious warning of retaliation against North Korea.
China’s consumer prices rose 1.4 per cent in July on a yearly basis, the lowest in three months. Producer prices grew at a good pace by 5.5 per cent. China’s trade surplus stayed high at US$46.7 billion in July.
Japanese bank’s lending remained at 3.3 per cent in July on a yearly. Current account surplus grew 1.52 trillion yen, higher than the previous month.
Japan’s core machinery orders slid 1.9 per cent in June, against positive expections. Producer prices grew 2.6 per cent, the best recorded since December 2014.
UK Housing Price Index rose 0.4 per cent in July against a revised minus 0.9 per cent in June. British manufacturing production was flat in June but still better than the previous month. Trade deficit for June widened to 12.7 billion pounds, the worst recorded in three months.
Technical forecast
US dollar/Japanese yen dropped to 109 as traders seek a safe haven in the yen currency. This week, we expect the trend to be weak if tension persists in the dispute between US and North Korea. The market might move to the 108 area before bargain-hunting emerges. Topside resistance lies at 110.30 area.
Euro/US dollar showed buying interest beneath the 1.17 level. The trend rebounded on Friday as the dollar weakened. This week, we foresee the market might create a double-top formation at the 1.19 area and subsequently, begin to fizzle. Pick short trades with risk control in case of a decline.
British pound/US dollar was supported at 1.2950 after the market rebounded from this level on Friday. There could be a sideways trend as sentiments remain mixed. It could also move from 1.2950 to 1.3150 range. However, beware of dropping below 1.2950 support as it may dive lower to 1.2750.
Disclaimer: This article is written for general information only. No liability by the writer, publisher or any third party involved in the distribution of this work. Dar Wong is a registered fund manager in Singapore with 27 years of global trading experiences. You may reach him at dar@ pwforex.com
While poor consumer sentiment may be the direct threat to the spending habits of the generic consumers, the speaker attributed the indirect shift in demand towards the evolving trends and habits which divert consumer away from conventional products.
KUALA LUMPUR: Nestle (Malaysia) Bhd’s (Nestle) constant efforts in developing products to cater to evolving consumer appetite has been viewed positively by analysts as the group is strongly positioned to leverage on a recovery from targeting the right avenues.
Following a recent talk by Nestle, the research arm of Kenanga Investment Bank Bhd (Kenanga Research) came away feeling more assured by the group’s strategies.
It said, “While poor consumer sentiment may be the direct threat to the spending habits of the generic consumers, the speaker attributed the indirect shift in demand towards the evolving trends and habits which divert consumer away from conventional products.
“Among which could be the emerging popularity of food trucks and themed cafés, increasing availability of convenience goods and adoption of more health-conscious eating habits.”
Aside from that, the research team pointed out that Nestle had utilised e-commerce platforms to boost its presence online as well as to improve its distributions.
“Commencing since 2015, Nestle had explored utilising e-commerce portals, such as Lazada and 11th Street, as a new and effective way to enable convenient access to group products by consumers.
“Currently with a large following, this allows the group to tap into large multi-brand campaigns to motivate larger purchase vol-
Kenanga Research
umes from consumers at a lower average price.
“We believe the benefits further extend to serve as a cheaper marketing platform to introduce new product variants given the high utilisation of these channels,” Kenanga Research said.
Nestle had also introduced better value to consumers with product ‘premiumisation’.
“While high prices are known to negatively affect purchase decisions, there may be adverse opinions as premium-priced products justified by better quality could be well received as well. On this approach, premium products for their improved nutritional values and flavours catering to niche tastes could be favoured editions to the group’s product portfolio,” the research team opined.
“We feel reassured with the group’s position as the market leader for food and beverages (F&B) to be maintained. The group’s strategy to emphasise on product innovation sits well with the current market landscape where demand can be driven by global fads, regulatory changes and shifts in festive seasons, particularly within the country.
“We believe the introduction of premium products could also better position the group to ride against the constant volatility in commodity prices without resorting to price increases with their higher margin levels.
“Further, with strong innovation capabilities, the group could cater to more niche customers that have not been tapped by market players,” Kenanga Research opined.
It maintained a ‘market perform’ rating on the stock. It said, “We maintain our earnings estimates as we had accounted for the group’s growth potential to be suppressed by the prevailing softness in consumer sentiment, which has lingered below ‘optimistic’ levels since September 2014.
“However, we do not discount the possibility for a re-rating from a sooner-than-expected recovery in statistical readings.”