Nestle Malaysia rides demand recovery, secures higher earnings forecasts

KUALA LUMPUR: Nestle (Malaysia) Bhd is expected to sustain earnings growth in the fourth quarter of 2026, supported by resilient demand and improving cost efficiencies, says CIMB Securities Sdn Bhd.

Analyst Walter Aw Lik Hsin said improving cost efficiencies and operating leverage should help cushion higher input costs, although earnings could moderate quarter-on-quarter due to a higher cost base.

He said government cash assistance under the 2027 Budget, particularly Sumbangan Asas Rahmah and Sumbangan Tunai Rahmah, should support household purchasing power and demand for Nestle Malaysia's products.

"We also expect the continuation of cash assistance and higher minimum wages to lift disposable income, particularly among lower- to middle-income households, providing a favourable demand backdrop for Nestle Malaysia's products into financial year 2027 (FY27)," he said in a note.

Aw said the company's third-quarter performance reflected improving domestic demand as boycott-related pressures eased, contributions from new product launches and resilient export sales, particularly Malaysia-made halal products.

Revenue rose 5.3 per cent year-on-year to RM1.9 billion in the third quarter of 2026, while core net profit increased 64.7 per cent to RM206 million after adjusting for one-off items, mainly a RM7.9 million net foreign exchange loss.

For the first nine months of 2026, revenue grew 6.7 per cent year-on-year, while core net profit rose 32.4 per cent to RM555 million, outpacing sales growth on improved margins and operating leverage.

Nestle Malaysia declared an interim dividend of 80 sen a share, bringing its total dividend per share for the nine-month period to RM1.60, equivalent to a 67 per cent payout ratio.

Aw said margin resilience should continue despite higher commodity prices in the second half of 2026, as prices of key inputs such as cocoa, coffee and sugar remained below their 2025 peaks.

"We expect near-term cost pressure to be manageable, mitigated by better cost control, economies of scale, inventory buffers from forward purchases, and Nestle's global sourcing network.

"These should help cushion input cost volatility amid ongoing geopolitical tensions and El Nino–related supply risks into the first half of 2027," he said.

The company is also expected to optimise its sales mix through new product launches and a greater focus on higher-margin categories, while stronger domestic volumes should support operating leverage.

Although selective price increases remain an option to offset higher costs, Aw said Nestle Malaysia was likely to prioritise affordability.

CIMB Securities nevertheless expects gross profit margin to moderate to 32.5 per cent in 2027 and 32.6 per cent in 2028, from 33.1 per cent in 2026, reflecting a higher average input cost environment.

Following the stronger-than-expected nine-month results, the firm raised the company's earnings per share forecasts for 2026 to 2028 by between 8.1 per cent and 17.2 per cent.

CIMB Securities kept its "Buy" call with a higher target price of RM118 from RM115, citing Nestle Malaysia's established brand portfolio, defensive earnings profile and exposure to essential consumption.

Hong Leong Investment Bank also kept its "Buy" call on the stock but lowered the target price to RM121 from RM135, based on the dividend discount model (DDM), with a weighted average cost of capital of 6.8 per cent and terminal growth rate of 3.5 per cent

Its analyst Jonathan Ooi said the revision reflects an increase in the risk-free rate to 4.0 per cent from 3.0 per cent, in line with the 10-year Malaysian Government Securities (MGS) yield, which more than offsets the earnings upgrade.