Nestle seen focusing on boosting e-commerce

Launch of new products another priority for food producer

PETALING JAYA: Nestle Malaysia Bhd is expected to focus heavily on capturing a higher volume of e-commerce sales during the period of the Covid-19 pandemic.

Maybank Investment Bank (IB) Research said this would be aside from its focus on its pipeline of new product launches.

The research house lowered its FY20, FY21 and FY22 earnings estimates by 6%, 5% and 5% respectively on expectations of prolonged weakness in domestic sales and tapering exports with the Covid-19 expected to drag global demand in the near term.

It noted that raw material costs such as for cocoa had also continued to trend upwards.

It raised its FY20 capex assumption to Rm280mil from Rm158mil previously, as Nestle plans to expand its Maggi noodles factory and also invest in a production line for a new undisclosed product category.

Nestle’s performance for the first quarter had come in below the research house’s expectations mainly due to softer domestic sales owing to the impact of the movement control order (MCO).

For the quarter ended March 31, 2020 (Q1’20), Nestle’s revenue had dipped by 1.3% to Rm1.43bil from Rm1.45bil a year ago. Its net profit fell by 20.8% to Rm186.31mil from Rm235.22mil a year ago.

The research house maintained its “sell” call on the counter, with a lower target price of RM102.50.

It said revenue for the quarter had fallen on the back of weaker domestic sales from a shorter ramp up to Chinese New Year and the two-week impact of the MCO, especially for its dine-in F&B businesses.

“Softer domestic sales were however mitigated by strong export sales, which were up 9% year-on-year,” it said.

The research house noted that the group’s revenue was split at a ratio of about 80:20 between domestic and export sales.

On Tuesday, Nestle said it had allocated the highest capital expenditure in six years of Rm280mil in 2020 to support the future production capacity of Maggi noodles, product innovation as well as adding a new high technology production line in Shah Alam.

Its CEO Juan Aranols said the group foresees continued growth in the Maggi noodles category, and as such is looking to increase its current factory capacity for the next ten years.

“Without investments in the Maggi noodles category, we may reach maximum capacity not too far away from today.

“The investment in this category is to push the ten-year horizon for the Maggi noodles brand,” he said during the media briefing.

As of 2019, Maggi has hit over Rm1bil in sales, joining the “billionaire brands” for Nestle Malaysia. A new high technology production line in Shah Alam would also allow the group to enter into new high growth categories with great future potential.

Given Nestle’s mounting capex in 2020, Aranols said he expected revenue growth to be “significant” after it expands capacity for Maggi and add the new high-tech production line, to keep the successful growth story going moving forward.

“Softer domestic sales were however mitigated by strong export sales, which were up 9% year-on-year.” Maybank IB