Consumer stocks are top performers
Nestle, F&N and Dutch Lady hit new highs
PETALING JAYA: Stock illiquidity and rising market uncertainties are seen as reasons behind the unexpected strong showing of several foreign-controlled food and beverage (F&B) stocks, which have continued to record new highs.
The multinational corporations – Nestle (M) Bhd, Dutch Lady Milk Industries Bhd and Fraser & Neave Holdings Bhd (F&N), have seen their share prices skyrocketing in recent times amid the bearish sentiment of analysts and the generally lacklustre FBM KLCI’s performance over the past few weeks.
The strong share price performance has raised concerns whether the stocks have increased beyond their “real intrinsic value”.
Fund managers pointed out to StarBiz that the stocks’ uptrend was not significantly backed by improvements in fundamentals, but rather due to the prevailing market conditions.
Nestle and Dutch Lady were the top-two gainers on Bursa Malaysia yesterday, while F&N came in fourth after Ajinomoto (M) Bhd.
Ajinomoto, which went up by 7% yesterday to RM24.30, was close to its all-time high of RM24.64 in August last year.
Fortress Capital chief executive officer Thomas Yong attributed the strong share price increase of Nestle, Dutch Lady and F&N to heightened market volatility.
“Market volatility has increased since the beginning of February 2018 amid concerns of a faster-than-expected pace of monetary tightening by the US Federal Reserve. In view of the uncertainty and volatility, equity investors are reducing risk by switching into defensive stocks.
“Also, with a low free float and trading liquidity, these defensive stocks are moving up fast as investors load up the stocks,” he said.
Meanwhile, Areca Capital chief executive officer and fund manager Danny Wong described the counters’ stock movements as “surprising”.
“There is no reason for the stocks to surge in price as we have seen in recent times. Perhaps the fact that they are illiquid in nature could be the cause of the uptrend.
“However, the steep share price increase of Nestle, Dutch Lady and F&N has made the counters overvalued and beyond the reach of ordinary retail investors,” he told StarBiz.
Packaged food manufacturer Nestle, which has a price-to-earnings (PE) ratio of 57.55 times, had risen by nearly 53% since the beginning of the year to RM157.40 yesterday. Foreign funds have been picking up shares of the company in recent weeks.
Nestle’s bottom line improved by 1.4% year-on-year in financial year 2017 (FY17).
A quick check on Bloomberg indi- cated that seven analysts have “hold” calls on Nestle, while four others recommend a “sell”. However, none of the research houses have issued a “buy” call on the stock.
Dutch Lady and F&N have also experienced higher share prices even though the companies recorded declining net profits in FY17.
Dutch Lady, which was up by 22% year-to-date at RM71.14, posted a 21% fall in FY17’s bottom line on the back of higher global dairy prices and the weaker ringgit. Only two research firms cover Dutch Lady and both have issued “sell” calls.
As for beverage company F&N, its share price had gone up by nearly 15% since early this year to RM32.90 yesterday, although its net profit fell 16% in FY17. Bloomberg figures showed that two research firms have “buy” calls on the company, while four others recommend a “hold”.
Dutch Lady and F&N have PEs of 38.65 times and 39.85 times, respectively.
Moving forward, Yong expected the three F&B stocks to benefit from the rising consumer sentiment in Malaysia and lower imported raw material costs due to the strong ringgit.
“However, the valuations are getting expensive and earnings are required to grow at a faster rate for the share prices to sustain. “As long as the ringgit stays firm and consumer sentiment continues to stay healthy, these companies should continue to do well,” he said.