• Overview. Revenue increased 1.0% yoy and 5.8% yoy to RM1,449m on strong CNY sales. Nestle saw its In-Home products i.e. F&B segments grew by 5% yoy, supported by momentum across most brands. We deem that a robust sales during CNY, due to aggressive marketing and promotional activities contributed to the revenue growth.

• Key highlights. Nestle strong sales amid challenging conditions is well expected, as we had expected that extra household income stems from i-Sinar withdrawal and relaxing CMCO/RMCO environment provide better consumer spending. During the quarter, Nestle introduced a new range of paste products such as Maggi Sambal Tumis.

• Against estimates: Inline. Nestlé’s 1Q21 net profit rose 32.2% qoq to RM175m, which is inline with our expectation, i.e. making up 26% of our FY21 forecast. Net profit margin remains stable at 12% yoy, due to higher sales recorded coupled with lower tax of RM175m, down 25% from 1QFY20. Further, lower effective tax rate at 21% was recorded for the quarter compared to 24% in 1Q20.

• Dividend. As expected, no dividend was declared for the quarter under review. We estimate a total DPS of 280 sen for FY21 vs 236 sen paid for FY20.

• Outlook. According to the company, this year’s capex allocation is RM300m and on par with FY20’s capex. Its financial position remains strong with low gearing which stood at 0.2x, plus a strong interest coverage ratio at 31x in 1QFY21. We are positive on the company’s outlook given the vaccination rollout from end-Feb, and possible herd immunity developing, as economic recovery is expected to sustain ahead. The plant-based food reception could come in at a slow pace as it needs time to gather momentum. However, the collaboration with Restaurant-chains like KyoChon could boost its demand. We make no changes to our forecast.

• Our call. Maintain BUY call with DDM-derived TP of RM154.20 based on WACC of 5.9%.

Source: BIMB Securities Research - 27 Apr 2021