Review

• Nestlé (Malaysia) Berhad’s (Nestlé) FY23 core earnings of RM783.1mn met our expectations at 102% but beat consensus full-year estimates at 110%, respectively.

• YoY, For FY23, its revenue rose 5.8% to RM7.1bn, chiefly driven by higher domestic sales during year-end. Core PBT increased 9.8% to RM1.0bn while core net profit hiked 16.3% YoY to RM783.1mn, thanks to the effective internal cost controls which mitigated the impact of higher commodity cost, and unfavourable exchange rates (Effective tax rate - 2.9pts to 24.9% in FY23).

• QoQ, 4QFY23 revenue dropped 4.9% to RM1.7bn while PBT stood at RM176.7mn, reflecting a 26.3% QoQ decline. The decrease was mainly attributed to higher OPEX and the recognition of impairment losses for some assets in this quarter.

• The group declared a final dividend of 128.0sen/share (4QFY22: 122.0sen/share), bringing YTD total dividend to 268.0sen/share (FY22: 262.0sen/share) higher than the previous corresponding quarter.

Impact

• No change to our earnings, pending guidance at analyst briefing today.

Outlook

• Moving forward, we expect Nestlé to improve it GP margin back to prepandemic levels (around 34% whereas latest GP margin in 4QFY24 stood at 32.1%) attribute to the easing in raw materials price and effective cost measures.

Valuation

• Upgrade to Hold with unchanged target price of RM132.60/share based on DDM valuation (k: 6.4%; g: 3.0%) due to the recent weakening in share price.

Source: TA Research - 28 Feb 2024