Review

• Nestle (Malaysia) Berhad FY16 results came in below ours and consensus estimates at 78% and 87% of full-year forecast respectively.

• Excluding exceptional items like forex gains and derivatives of RM44.1mn, adjusted net profit recorded a slight increase by 0.8% YoY for FY16 to RM593.0mn attributable to i) higher revenue, ii) overall supply chain efficiencies, iii) favourable commodity prices and iv) strengthen market share position through reinvestment for Marketing and Trade promotions.

• QoQ, the phasing of marketing activity in preparation of 2017 Chinese New Year has resulted in higher marketing expenses which caused the net adjusted profit for 4QFY16 to decline by 69.2% to RM49.4mn.

• Nestle declared a final dividend of 130 sen/share equivalent to the same quarter in the previous year.

Impact

• Earnings are adjusted slightly higher for FY17 and FY18 by 0.9% and 0.8% respectively after inputting the FY16 results in our model. Note that there will be an analyst briefing later today.

Outlook

• Management guided that Nestle will continue the ‘Fuel The Growth’ strategy which focuses on supply chain efficiency improvement and reinvestment of costs savings into sustainable growth plans. We remain positive on this strategy as it allows reduce the group’s dependency on CAPEX.

Valuation

• We maintain our TP at RM88.16/share based on DDM valuation with a maintain BUY call. Downside risk to our call are i) weaker consumer sentiment, ii) higher than expected costs increase and iii) intense competition from other F&B products.

Source: TA Research - 1 Mar 2017