Overview. Nestlé’s 3QFY21 revenue jump to RM1.4bn (+4.3% qoq, +3.6% yoy) driven by steady demand growth in both local (+3.4%) and export markets (+4.5%). Its F&B business segment improved by 5% partly due to lifting of EMCO enforcement. Apart from that, EBITDA margin is now at 18.5% (+1.7ppt qoq, +2.4ppt yoy) inline with higher sales growth registered and better net opex to sales ratio of 16% achieved during the period (2QFY21; 18%, 3QFY20; 20%).

Against estimates: Inline. 9MFY21’s earnings of RM457.7m, accounted 67% and 74% of our/consensus full-year forecast. We deem our forecast within expectations, as we are imputing greater earnings performance in 4Q as we enter endemic phase.

Dividend. A DPS of 70 sen was declared, which will go “ex” on 24 Nov 2021 (3Q20: 70 sen/share).

Outlook. We remain optimistic of Nestlé’s near-term prospect given Malaysia is entering endemic phase, which would revive consumer spending and assist in normalizing the HORECA operation. Additionally, we reiterate that the pandemic has opened up awareness and opportunity for flexitarian diet to be a way of life. We view its latest plant-based Harvest Gourmet and Dairy Free MILO and NESCAFÉ drinks to be well-received in the market especially among millennials.

Earnings revision. Since Nestlé generates annual profit of well above RM100m, we revised down our FY22F earnings estimates by 15% to factor in the special one-off “prosperity taxes” of 33% announced by the government during last week’s Budget 2022.

Our call. We are rolling forward our valuation base year and maintain BUY with newly DDM-derived TP of RM154.30 (previously RM154.20) based on WACC of 6.1%. Nestlé has an excellent track record and solid long-term prospects underpinned by leadership position in its MILO, MAGGI and NESCAFÉ brand and a projected exponential plant-based revolution growth.

Source: BIMB Securities Research - 3 Nov 2021