KEY INVESTMENT HIGHLIGHTS

• One of the most challenging periods may be over

• New capacity for Maggi and plant-based products

• May take time to develop the market for the plant-based products

• Pushing on with new product launches that have been withheld in 1HFY20

• Maintain NEUTRAL stance with an unchanged TP of RM143.90

One of the most challenging periods may be over. We come back from Nestlé (M)’s analyst briefing feeling more optimistic on its outlook. We opine that 1HFY20 may be one of its most challenging periods and expect gradual recovery ahead. This can be supported by the rebound in activities from its out of home segment, which was negatively affected during the movement control order (MCO). Notably, the others segment had swung into a loss during the first half due to lower revenue. We believe that the segment should pick up again as the hotel, restaurant and café (HORECA) segment started to allow dining in.

New capacity for Maggi and plant-based products. Updating on the RM280m capex allocated to upgrade its current capacity for Maggi products, management guided that the production capacity will be able meet demand for the next 10 years. The new capacity will include Maggi noodles and other Maggi culinary products. On top of that, the new high technology line in Shah Alam will be for plant-based products. The plant will be one of the two in Asia, with the other one based in China to serve the market there. The plant-based product capacity will be targeted for the local and Southeast Asia region for both consumer and business segments. Contribution from this new product category may take time to build and is expected to be grow to a more significant number in the next five years. This is to capture the trend of consumers from developed markets that substitute plantbased protein for meat protein.

May take time to develop the market for the plant-based products. While we are excited that Nestlé will be manufacturing its new range of products in Malaysia, we believe that it may take time for the company to develop the market. This may include a lot of marketing and promotional activities to educate consumers at the initial stage. On the other hand, the pricing point and the taste of the products will have to be adjusted for this region as we understand that many plant-based proteins are priced at a premium compared to the equivalent of the meat-based proteins. As a developing market, consumers may be more price sensitive so the product positioning of the new products may have to cater more specifically to the local market. As such, we believe that it may take time for consume to accept and switch to plant-based proteins

Source: MIDF Research - 27 Aug 2020