KUALA LUMPUR: Nestlé (Malaysia) Bhd, a traditionally resilient stock, has seen its year-to-date (YTD) share price plunge 32.08 per cent, falling below RM100.
Despite the decline, analysts note that its valuation remains significantly higher than industry peers.
Tradeview Capital fund manager Neoh Jia Man told Business Times that despite the stock falling more than 45 per cent over the past year, it is still trading at 32.8 times the financial year 2025 (FY25) consensus earnings, well above the industry average of 15.0 times.
"That said, the company has historically commanded a valuation premium due to its strong brand equity and market leadership.
"The current multiple reflects a more than 13 per cent discount from its 10-year historical average price-to-earnings ratio (P/E)," he said.
Neoh stated that in addition to ongoing geopolitical issues, rising commodity costs, especially for coffee beans and cocoa, have pressured margins, as the company has faced challenges in fully passing on these cost increases.
"Additionally, weaker consumer purchasing power has led to increased downtrading, impacting demand for its premium-priced products.
"These are among the other factors driving its share price underperformance aside from the boycott over conflict in Gaza," he added.
He mentioned that a re-rating of Nestlé Malaysia's share price would likely depend on the company showing a consistent recovery in organic growth.
Neoh also noted that a reduction in the consumer boycott linked to the Gaza conflict and a potential drop in input commodity costs could offer additional upside.
"Overall, Nestlé Malaysia's fundamentals remain solid. However, long-term headwinds such as shifting consumer preferences toward healthier alternatives and intensifying competition from new challenger brands—enabled by lower market entry barriers through e-commerce—pose risks that warrant close monitoring," he adds.
Nestlé Malaysia started the year at RM99.94 but has since dropped to RM64.82.
Other consumer products and services stocks also saw year-to-date declines, with Dutch Lady Milk Industries Bhd falling 7 per cent from RM30.72 to RM28.50 and Fraser & Neave Holdings Bhd dropping 14 per cent from RM28.18 to RM24.04.
Meanwhile, Farm Fresh Bhd slipped 6 per cent from RM1.83 to RM1.72, while Starbucks' operator, Berjaya Food Bhd, declined 10 per cent from 34.5 sen to 31 sen.
CIMB Securities expects consumer companies to report strong sales in the first half of 2025, driven by festive demand and increased income growth.
However, the firm anticipates that consumer spending will weaken in the second half, leading to lower half-on-half earnings in the second half of 2025.
