M’sia economic growth augurs well for company

DESPITE the current volatility, economies like Malaysia’s should see growth in the long term and this would augur well for Nestle, said the head of research at a local brokerage firm.  

He said, however, consumption this year was likely to be lower than last year’s and this could impact Nestle’s profit margins.  

One factor that may help improve sales at Nestle is the expected return of 200,000 to 225,000 foreign workers to Malaysia in the 4th quarter of 2002 and the 1st quarter this year.  

However, any negative impact on sales is expected to be moderated over time.  

“We expect volume growth to be driven by these factors. Adding in the inevitable price increase of 4% to 5% for some of the major products, revenue is expected to grow by 7% to 8% over financial years 2003 to 2005,” he said. 

He cautioned that Nestle’s strategy of producing value-added products with higher price tags might suffer in the short term, citing the SARS as a major reason that would dent consumer spending.  

On the other hand, he sees the introduction of value-added products to be a major contributing factor to Nestle profits in the long term, given that consumers are becoming more discerning and knowledgeable.  

“Look at the US market where product differentiation plays a major role in the retail sector. We are heading into that direction,” he said. 

Another analyst from Mayban Securities viewed the increase in exports to the Asean region as part of Nestle’s plans to become more efficient.  

She said Nestle’s switch to compete in high-end consumer products would result in higher premiums for the company.  

She commented that Nestle’s plans to bring in high-quality coffee beans from Columbia and segmentation of coffee products were strategies to counter competitors’ moves in the last two years when European coffee brands had managed to penetrate the market.  

She expects Nestle to increase prices if margins were hurt by the increase in raw material prices. Nestle’s strategy to include nutritional value in its products would go down well with consumers, she noted, as they were becoming more health conscious.  

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