KUALA LUMPUR: Nestlé (M) Bhd’s near-term earnings outlook remains steady despite ongoing geopolitical tensions in the Middle East, with analysts noting that operational resilience and easing input costs are helping to cushion potential risks.
In recent briefings, CGS International Securities Malaysia Sdn Bhd said the company’s management remains confident that its diversified supply chain, easing cocoa and coffee prices and contingency measures will limit the impact of the conflict on earnings.
According to management, Nestlé’s geographically diverse supplier base is expected to reduce exposure to supply-side disruptions.
The firm said that while lower cocoa and coffee prices, together with a stronger ringgit, are likely to offset higher fuel, logistics and other raw material costs through at least the second and third quarters of financial year 2026 (FY26).
However, Nestlé cautioned that if hostilities persist and cost pressures extend beyond the third quarter, price adjustments may be necessary.
It also highlighted ongoing efforts to strengthen sustainability in its packaging, including increased use of recycled plastics and alternative materials, as well as diversification of resin sourcing to reduce supply risks.
The company added that prolonged high fertiliser prices could potentially pressure agricultural production into FY27.
Despite these challenges, CGS Internationl said that Nestlé’s broad product portfolio across different price segments continues to support revenue resilience even if consumers reduce discretionary spending.
The research firm, however, trimmed its FY26 and FY27 core net profit forecasts by 1.6 per cent and 6.2 per cent, respectively, citing higher raw material and logistics costs.
It maintained a “Reduce” rating on Nestlé, with an unchanged target price of RM92, pointing to elevated valuations at 35.6 times FY27 earnings as a key concern.
CGS International also highlighted a shift in investor preference towards cyclical large-cap names as energy-related disruptions ease.
A projected 2.5 per cent FY26 dividend yield was described as insufficient to provide meaningful downside support.
Hong Leong Investment Bank (HLIB Research) took a more constructive stance, highlighting Nestlé’s operational resilience amid geopolitical uncertainty.
It noted that about 20 per cent of raw materials transiting affected regions have been rerouted through alternative supply channels, while inventory levels have been deliberately increased to cover the next two quarters.
The research firm is also maintaining its “no price hike” stance for Q2–Q3, relying instead on efficiency gains to manage cost pressures.
HLIB Research added that easing cocoa and coffee prices are helping offset higher costs elsewhere in the supply chain, preserving gross margins.
On strategy, Nestlé is entering a lower capital expenditure phase, with spending expected to be roughly half of its previous RM1 billion three-year investment cycle.
Future investments will focus on maintenance, automation and digitalisation, alongside product innovation such as Nescafé coffee concentrates and Maggi air-fryer solutions.
HLIB Research maintained its “Buy” recommendation with an unchanged target price of RM135, citing attractive valuations.