• Overview. On yoy basis, 4Q20 posted a slight improvement in earnings by 1% to RM132.5m supported by revenue increase of 3.1%. We believe the improvement was attributed to higher spending trend for month of Christmas festival. Its out-of-Home (OOH) channels received a 6% growth during the quarter which operated under the RMCO/eased environment.

• Key highlights. To stay ahead of the game, Nestlé had invested RM280m to upgrade Shah Alam Factory solely for Plant based-meal solutions last year. The new plant will be officially launch in April 2021, offering new plant-based products to cater for local and exports market. The range of products could be the same as China market to meet Asian taste bud comprising burgers, sausages, nuggets and mince, in our view.

• Against estimates: Inline. Nestlé’s FY20 earnings were inline with our full year expectation, but below consensus estimates making up 100% and 89% respectively. The earnings improvement was primarily due to absence of strict MCO implementation in 2H20 and better HORECA business environment prospects. Its F&B sales grew by 2.3% for the year thanks to the aggressive sales execution via various campaign.

• Dividend. A DPS of 92 sen was declared, which will go “ex” on 20 April 2021 (4Q19: 140 sen/share). For FY20, Nestlé paid a total DPS of 232 sen, which is lower compared to the FY19’s total dividend payout of 98% of net profit.

• Outlook. We are positive on the fundamental growth from the new capacity of its new plant. The new facility is expected to tap the newest products segment, which will deliver the taste and texture of beef with the environmental and nutritional benefits offered by plant-based proteins. As at now, only QSR Company via its KFC brand had streamlined plant-based burger namely zero chicken burger in Malaysia. No adjustment was made to earnings forecast, although it is likely situation has been improved.

• Our call. Our earnings and recommendations are currently being reviewed pending changes to our assumptions. We will also incorporate updates from the upcoming results briefing in a soon-to-be-published report.

Source: BIMB Securities Research - 24 Feb 2021