KUALA LUMPUR (Sept 28): Shares of Nestle (M) Bhd, which recovered after falling below RM128 late last week for the first time since March 2020, strengthened further on Wednesday (Sept 28) to close at RM130.70.
The counter had closed at RM127.70 on Friday (Sept 23), before recovering slightly to RM127.80 on Monday (Sept 26), and then jumping to RM130 on Tuesday (Sept 27).
Prior to Friday last week, Nestle last traded below RM128 on March 24, 2020, during the onset of the Covid-19 pandemic in the country.
But after declining to RM127.87 that day, the stock recovered quickly to close at RM128.82 the following day.
Eight analysts have issued a “Hold” or “Neutral” call on Nestle since the end of July this year, Bloomberg data showed. Another four have made a “Sell”, “Underperform” or “Reduce” recommendation, while no analyst had issued a “Buy” call.
Kenanga Investment Bank Bhd is among research houses that saw Nestle as “Underperforming”, and its target price for the stock is RM119.75.
In a note on the consumer sector issued on Wednesday, Kenanga said mid-market retailers would be the big winners amid rising prices and subdued expectations for employment and finances.
Kenanga’s analysts Ahmad Ramzani Ramli and Tan Jia Hui reasoned that mid-market retailers hold advantage, as their customer base is skewed towards the M40 group, whose spending power is less impacted by the high inflation, given a healthy household balance sheet.
They explained that the bullish view on mid-market retailers was because consumers are rekindling shopping-in-person. Besides that, they said mid-market retailers have been able to pass on higher costs and maintain margins.
Ahmad Ramzani and Tan have issued an “Overweight” rating for the consumer sector as a whole. The analysts cautioned that food and beverage (F&B) producers faced renewed economic challenges such as elevated input and logistics costs arising from inflationary pressure, adding however that these producers are likely to sustain their sales.
“Although commodities’ prices have gradually softened in the last few months, global indicators showed a reversed trend well into 2023, posing risks to earnings, indicating that pre-pandemic level margins are still a long way off, especially for the F&B producers,” they said.
Ahmad Ramzani and Tan added that F&B producers have little room to hike prices, as their customer base is skewed towards the B40 group that is harder hit by the high inflation.
Their top picks in the sector are Aeon Co (M) Bhd (target price: RM1.95) and Padini Holdings Bhd (target price: RM4.10), highlighting Aeon’s store expansions in the financial years 2022 to 2023 (FY22-23), as well as Padini’s strong net cash position.