• Overview. Nestlé’s 4QFY21 revenue increased to RM1.4bn (+1.9% qoq, +7.1% yoy) owing to the higher contribution of domestic (+6.0%) and export sales (+10.8%). Its F&B business segment improved 6.4% and remain as core driver to its top-line during the quarter, whilst Out-of-Home (OOH) channels demand was still behind pre-covid levels. Additionally, EBITDA margin dropped to 13.8% (-4.7ppt qoq, - 2.1ppt yoy) inline with lower net opex to sales ratio of 17% achieved during the period (4QFY20; 20%) on increased of commodity prices.

• Against estimates: Below. FY21 net profit was below, making up 84%/94% of our/consensus full year forecast. PAT increased slightly to RM569.8m (+3.1% yoy) backed by better HORECA environment operation and marketing spend efficiencies.

• Dividend. A final DPS of 102sen was declared, bringing total DPS declared to-date of 242sen (FY20: 232sen/share) translating to DY of 1.8% which will go “ex” on 18 Apr 2021.

• Outlook. Since we achieved high vaccination rate for total and adults population c. 79% and 98%, we are expecting zero lockdown in near-mid-term and Nestle is expected to see recovery in consumer spending ahead. Nevertheless, given volatile raw-mat prices, we tweaked our FY22/FY23/FY24 earnings forecast lower by 18%/27%/25% to RM521.6m/ RM616.9m/ RM710.6m respectively. As Nestlé generates annual profit of well above RM100m, we has factor in the special one-off “prosperity taxes” of 33% announced by the government in Budget 2022.

• Our call. We are rolling forward our valuation base year and maintain BUY with newly DDM-derived TP of RM152.50 (previously RM154.30) based on WACC of 5.9%. Nestlé has a solid long-term prospects underpinned by leadership position through its ready-to-drinks line up and able reap the exponential plant-based products growth.

Source: BIMB Securities Research - 23 Feb 2022