KUALA LUMPUR: Nestle (Malaysia) Bhd's long-term growth capabilities are intact as it commits itself to future capacity expansion with the highest capex allocation in years, says Affin Hwang Capital Research.
According to the research house, Nestle is set to allocate RM280mil in capex, its highest in six years.
This will help to underscore the group's comfortable lead in the packaged food industry, where it has about 9% market share in the domestic market.
"Given the scale and its established brand equity, we believe Nestle is well equipped to ride through economic downturns and continue to capture long-term consumption growth opportunities," said Affin Hwang.
The research house expects a gradual improvement for Nestle's earnings in 2H20 as host hotel, restaurant and cafe channels will gradually operate at near optimum capacity in addition to a strong pipeline of new product launches.
However, there will be a negative impact to earnings in 1H20 owing to the lockdown disruptions.
"Overall, we estimate bottom-line earnings to decline by -12.6% for 2020, followed by a modest recovery of c.5% in 2021E," it said.
Affin Hwang kept its "hold" rating on Nestle and earnings forecasts with an unchanged target price of RM134.