Bimb Research Highlights

Author: kltrader   |   Latest post: Mon, 14 Jun 2021, 6:12 PM


Nestle (Malaysia) - Plant-based food – planting for the future

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Plant-based food – planting for the future

  • Nestlé’s aggressive expansion into plant-based meals will add another earnings stream potential as the company embarks on the next normal, i.e. the food revolution.
  • A seismic shift into healthier meat substitutes is growing based on recent statistics, in our observation, bringing the flexitarian practice to the mainstream in next decade. This shift signals potential upside for Nestlé’s prospects.
  • We believe Nestlé is able to make plant-based food locally relevant and tailored to the local taste bud.
  • We maintain our BUY call on Nestlé with unchanged DDM-derived TP RM154.20 based on WACC of 5.9%. Our TP implies 16% upside. We estimate Nestlé’s earnings to grow by 3-year CAGR of 15.2%.

Plant-based ready to take off - Harvest Gourmet

Nestle is investing big on the meatless revolution, as the future for food is predicted to change, Under its Harvest Gourmet brand, Nestlé has successfully launched 5 plant-based foods namely SENSATIONAL Burger patty, Schnitzel, Chargrilled pieces, Ground mince and Stir Fry Mice in 8th April 2021. We think this is just a beginning, as we foresee there is more plant-based products in the pipeline waiting to be release in local and international shelves, in sync with Nestlé S.A. footstep.

Exciting prospect in store

In addition to the plant-based, Nestlé’s prospect remains exciting in the next several years given its strategy to boost In-Home channels by offering multi packages of its beverages segments i.e. Starbuck coffee to people working from home. In contrast, as national Covid-19 immunization program progresses, we expect it’s Out-home channels/HORECA demand to start picking up when MCO/CMCO/RMCO eases. We also anticipate its E-commerce segment to continue improving given consumers have now have an alternative options to purchase via Shoppe, GrabSupermarket and Pandamart platform.

Reiterate BUY with unchanged TP at RM154.20

We maintain our earnings estimates and reiterate our BUY call on Nestlé with an unchanged DDM-derived TP of RM154.20 based on WACC of 5.9%. Our TP implies PE of 53.3x where this is equivalent to +1SD to its 5 year forward PE. We project 3-year Nestlé’s earnings forecast to grow by a robust 15.2% CAGR. Our strong recommendation is based on its sturdy earnings track record aided by entrance of new earnings cycle – plant-based meals beginning to contribute. We believe the company’s share price offers upside and deserves to trade higher given its EPS has been growing from strength-to-strength from RM1.25 in 2007 to RM2.36 in FY20.

Source: BIMB Securities Research - 3 May 2021

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Labels: NESTLE

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