• Overview. On yearly basis, Nestlé’s top and bottom-line rose by 13% and 28% to RM1.38bn and RM134.5m supported by stronger domestic sales growth of 15.8% as its F&B business segments grew 8.4% during the quarter. The Out-Of-Home (OOH) channels, performed better than expected in opposition to early lockdown in 1Q21, whilst export business increased by low-single digit i.e. 3% taking a toll from operational restriction (operated at 60% capacity).

• Key highlights. On qoq performance, pretax and net profit were slightly lower during the quarter due to higher sales during the CNY period as well as slight impact from higher commodity prices.

• Against estimates: Inline. 1H21’s earnings were broadly inline with our/consensus estimates at 46% and 50%. Higher associates contribution of RM0.6m and lower cumulative tax expense of RM87m helped bottom-line to grow by 6.1%, based on our estimate.

• Dividend. A 1st interim dividend of 70sen was declared and we are maintaining our FY21 dividend forecast at 280sen, translating into yield of 2.1%.

• Outlook. We continue to remain positive on Nestle given the progress of local vaccination which will lead to the flexibility in HORECA operation (people completing two jabs are allowed to dine-in). As reopening of others economic sectors progress, this would have substantial impact on its Out-Of-Home (OOH) demand.

• Our call. Maintain BUY call with DDM-derived TP of RM154.20 based on WACC of 5.9% as we expect sales would further pick up in 2H21 as the economic recovery gathers momentum.

Source: BIMB Securities Research - 25 Aug 2021