Still resilient

28 October 2014
Still resilient
Results Note
Nestle Malaysia’s 9M14 earnings came in within our and consensus
expectations. The good set of results was mainly underpinned by
stronger domestic demand and lower raw material costs. In light of
softer consumer spending, we believe that Nestle will remain resilient
as most of its products are regarded as household necessities.
Maintain ADD, with unchanged DDM-derived TP of RM72.05.
Results in line
Nestle’s 9M14 turnover rose 1.4% yoy to RM3.7bn due to solid domestic
demand for its confectionary, chilled dairy products and liquid drinks which
registered robust growth. However, exports moderated slightly due to
weaker demand from its affiliated companies which have invested in their
own local manufacturing facilities. Nestle's 9M14 earnings dipped 2% yoy,
dragged down by higher marketing and promotional expenses. Nestle’s
3Q14 sales dropped 8.9% qoq due to lower demand from its affiliated
companies. Despite so, the group registered stronger 26.7% qoq earnings
growth, underpinned by lower input costs and earlier timing of its
marketing activities in 2Q14 and 3Q14.
Nestle
NESZ MK
Sector: Consumer
RM68.00 @ 27 Oct 2014
ADD (maintain)
Upside 6.0%
Price Target: RM72.05
Previous Target: RM72.05
(RM)
70.00
65.00
60.00
55.00
50.00
45.00
Increasing capacity
Nestle's new manufacturing plant in Sri Muda, Shah Alam will double the
production capacity for its ready-to-drink products such as Milo and
Nescafe. Going forward, we believe that this would support the group’s
production and earnings as it targets for the new lines to start commercial
production by 1H15.
Maintain ADD with unchanged TP of RM72.05
With the results in line, we make no change to our earnings forecast and
maintain our ADD rating with an unchanged DDM-derived TP of RM72.05.
We like the stock given its: i) sturdy market position and strong brand
name; and ii) wide selection of products which are deemed as household
necessities. This stock offers 4% dividend yields.
Key risks to our view include: i) slower-than-expected consumer spending,
ii) a spike in raw material costs and iii) increased competition from other
F&B producers.
Earnings & Valuation Summary
FYE Dec
2012
Revenue (RMm)
4556.4
EBITDA (RMm)
758.6
Pretax profit (RMm)
637.7
Net profit (RMm)
505.4
EPS (sen)
215.5
PER (x)
31.4
Core net profit (RMm)
505.4
Core EPS (sen)
215.5
Core EPS growth (%)
18.3
Core PER (x)
31.4
Net DPS (sen)
210.0
Dividend Yield (%)
3.1
EV/EBITDA (x)
21.0
2013
4787.9
843.6
719.1
561.7
239.5
28.3
561.7
239.5
11.2
28.3
235.0
3.5
18.9
Chg in EPS (%)
Affin/Consensus (x)
2014E
5184.5
880.5
723.4
593.2
251.9
26.9
593.2
251.9
5.2
26.9
250.0
3.7
18.2
2015E
5591.3
964.2
812.6
650.1
274.9
24.6
650.1
274.9
9.1
24.6
265.0
3.9
16.6
2016E
6035.3
1040.0
891.5
713.2
300.3
22.5
713.2
300.3
9.2
22.5
280.0
4.1
15.3
0.0
1.0
0.0
1.0
0.0
1.0
40.00
35.00
Oct-11
Apr-12
Oct-12
Apr-13
Oct-13
Apr-14
Oct-14
Price Performance
Absolute
Rel to KLCI
1M
+2.4%
+3.5%
3M
+1.3%
+4.4%
12M
-0.3%
-0.5%
Stock Data
Issued shares (m)
234.5
Mkt cap (RMm)/(US$m)
15,946.0/4,866.3
Avg daily vol - 6mth (m)
0.0
52-wk range (RM)
63.50-69.50
Est free float
0.5%
BV per share (RM)
2.64
P/BV (x)
25.78
Net cash/ (debt) (RMm) (3Q14)
(339.5)
ROE (2014F)
73.0%
Derivatives
Nil
Shariah Compliant
YES
Key Shareholders
Nestle SA
Landsbanki Securities UK
EPF
72.6%
9.8%
9.3%
Source: Affin Hwang, Bloomberg
Research Team
(603) 2145 8158
[email protected]
(for further enquiries, please contact Kristine
Wong; (603) 2142 5815,
[email protected])
Source: Company, Affin Hwang estimates
Affin Hwang Investment Bank Bhd (14389-U)
(Formerly known as HwangDBS Investment Bank Bhd)
Page 1 of 3
28 October 2014
Fig 1: Results Comparison
FYE Dec (RMm)
3Q14
QoQ
% chg
YoY
% chg
9M14
1,157.3
(8.9)
(4.2)
3,700.2
YoY
% chg
1.4
(960.61)
196.7
17.0
(13.4)
22.6
4.4ppt
(6.4)
8.4
2.0ppt
(3099.8)
600.3
1.8
(0.9)
16.2
-0.4ppt
Int expense
Int and other inc
Associates
Exceptional items
Pretax
Tax
Tax rate (%)
MI
Net profit
(7.2)
0.2
0.1
0.0
189.8
(39.7)
20.9
0.0
150.1
23.1
(50.1)
84.8
0.0
22.4
8.7
-2.7ppt
0.0
26.7
29.5
(81.7)
8.9
0.0
7.1
(2.4)
-2.0ppt
0.0
9.9
(19.6)
2.7
0.2
33.5
(16.6)
(32.5)
0.0
(1.8)
(1.3)
0.1ppt
0.0
(2.0)
EPS (sen)
Core net profit
64.0
150.1
26.7
26.7
9.9
9.9
Revenue
Op costs
EBIT
EBIT margin (%)
0.0
583.7
(131.6)
22.5
0.0
452.1
192.8
452.1
Comment
9M14 revenue higher due to stronger
domestic demand for its products.
3Q14 fell 9% qoq due to lower demand from
its affiliated companies.
9M14 EBIT margins contract slightly yoy due
to higher operating costs.
3Q14 EBIT margins expanded on the back
of lower raw material costs and a drop in
A&P expenses from a high-base 2Q14.
9M14 net profit came within our and
consensus expectations at 76% of the fullyear forecasts respectively.
(2.0)
(2.0)
Source: Affin Hwang, Company data
Affin Hwang Investment Bank Bhd (14389-U)
(Formerly known as HwangDBS Investment Bank Bhd)
Page 2 of 3
28 October 2014
Equity Rating Structure and Definitions
BUY
Total return is expected to exceed +15% over a 12-month period
TRADING BUY (TR Total return is expected to exceed +15% over a 3-month period due to short-term positive development, but fundamentals are not strong enough to warrant a
BUY)
Buy call. This is to cater to investors who are willing to take on higher risks
ADD
Total return is expected to be between 0% to +15% over a 12-month period
REDUCE
Total return is expected to be between 0% to -15% over a 12-month period
TRADING SELL
(TR SELL)
Total return is expected to exceed -15% over a 3-month period due to short-term negative development, but fundamentals are strong enough to avoid a Sell
call. This is to cater to investors who are willing to take on higher risks
SELL
Total return is expected to be below -15% over a 12-month period
NOT RATED
Affin Investment Bank does not provide research coverage or rating for this company. Report is intended as information only and not as a recommendation
OVERWEIGHT
Industry, as defined by the analyst’s coverage universe, is expected to outperform the KLCI benchmark over the next 12 months
NEUTRAL
Industry, as defined by the analyst’s coverage universe, is expected to perform inline with the KLCI benchmark over the next 12 months
UNDERWEIGHT
Industry, as defined by the analyst’s coverage universe is expected to under-perform the KLCI benchmark over the next 12 months
This report is intended for information purposes only and has been prepared by Affin Hwang Investment Bank Berhad (14389-U) (formerly known as HwangDBS Investment Bank
Berhad) (“the Company”) based on sources believed to be reliable. However, such sources have not been independently verified by the Company, and as such the Company does
not give any guarantee, representation or warranty (express or implied) as to the adequacy, accuracy, reliability or completeness of the information and/or opinion provided or
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(formerly known as HwangDBS Investment Bank Berhad)
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Affin Hwang Investment Bank Bhd (14389-U)
(Formerly known as HwangDBS Investment Bank Bhd)
Page 3 of 3