PETALING JAYA: Nestle (M) Bhd
’s resurgence is viewed as sustainable, underpinned by its marketing engagement efforts, the fall in commodity prices, a stronger ringgit, and the higher budget allocation by the government for income measures.
RHB Research said growing market liquidity and sustained interest in the sector as a defensive shelter should drive a further valuation rerating for Nestle.
This is following its “solid share price rally in 2025”.
“Hence, we upgrade our valuation, as we believe consumer stocks that offer earnings visibility – supported by resilient consumption and a domestic-centric earnings base – will continue to be favoured by investors to avoid prevailing external risks,” the research house said in a report yesterday.
RHB Research said Nestle’s outlook is premised on its effective marketing engagement efforts to stimulate consumer spending and normalise sentiment on its varied brands.
Moreover, the decline in key commodity prices including that of cocoa, wheat, milk powder and sugar, should propel its margin recovery, further bolstered by a stronger ringgit.
“The higher budget allocation for the Sumbangan Asas Rahmah or Sara initiative bodes well for Nestle, in light of its entrenched market shares and brand equity, as well as its extensible range of staple product offerings.
“Overall consumption of staple food products should remain resilient, underpinned by wage growth and stable employment markets.
“This, together with Nestle’s quality product offerings and entrenched distribution channels, should provide earnings visibility – notwithstanding the global economic challenges,” the research house said.
RHB Research said the downside risks, however, are sharp spikes in commodity prices and weaker-than-expected market shares of its brands.
RHB Research maintained a “buy” call on Nestle with a higher target price of RM135 from RM120.
The research house said it raised its discounted cash flow-derived target price after revising the risk assumptions to reflect the above mentioned valuation rerating drivers.
RHB Research said its target price, which includes an 8% environmental, social and governance premium, implies 46 times financial year 2026 price-to-earnings ratio, or plus one standard deviation from the stock’s five-year mean.
This is justified by its robust earnings growth outlook and positive investor sentiment on the consumer sector.
