• Maintain HOLD (TP: RM134.20). Nestle’s FY23 Net Profit of RM659.9mn (+6.4% YoY) was slightly below our expectations, mainly due to higherthan-expected effective tax rate. Nevertheless, the PBT level of RM879.1mn was in line with our full-year forecast at 95.4%, but trailed consensus at only 93.4%. An interim dividend of 128sen was declared, bringing YTD DPS to 268sen for FY23 (versus FY22: 262sen) and translating into a DY of 2.2%. Nestle’s 4QFY23 revenue increased marginally by +2.3% YoY to RM1.7bn, driven by strong domestic sales which offset the slight correction in export sales due to the high baseline in FY22. Net Profit jumped by +11.5% to RM148.1mn, mainly due to a lower effective tax rate of 16.2% (-11.4 ppts YoY) in the absence of the prosperity tax. Moving forward, we remain cautious on cost pressures due to expected elevated commodity prices coupled with the weakening Ringgit currency. We maintain a HOLD call on Nestle, with an unchanged TP of RM134.20 based on the DDM methodology (WACC: 6.6% and TG: 2%), implying a 40x PER for FY24F.

• Key highlights. On a QoQ basis, Nestle's 4QFY23 revenue and PBT dropped by -4.9% and -11.8% respectively, primarily due to lower sales and higher overall operating expenses. However, PAT jumped by 10.8% QoQ mainly due to a lower effective tax rate. As for YTD performance, Nestle’s FY24 revenue and net profit increased to RM7bn (+5.8% YoY) and RM659.9mn (+6.4%) respectively. Domestic sales remained a key contributor despite weaknesses in export sales, which decreased from a high base of last year.

• Earnings Revision. No change at this juncture.

• Outlook. Looking ahead, we anticipate steady sales growth in staple food items, coupled with Nestle's continuous innovation in product development. However, we remain cautious on cost pressures that could impact margins, stemming from expected elevated prices of major commodities (such as raw sugar, cocoa, and coffee beans) along with the weakness in Ringgit against the USD currency exchange rates.

Source: BIMB Securities Research - 28 Feb 2024