• Overview. Nestlé’s 1QFY22 revenue increased to RM1.7bn (+15.5% qoq, +16.9% yoy) owing to the higher contribution of domestic (+14.9%) and export sales (+25.3%). Net profit increased to RM205.2m (+83% qoq, +17.1% yoy) due to strong sales coupled with lower Covid-19 related expenses, mitigating the higher commodity prices and prosperity tax. Overall, the profit margin improves to 12.1% (+4.5 ppts qoq).

• Against estimates: Inline. 1QFY22 net profit of RM205.2m making up 39%/36% of our/consensus full-year forecast. We deem this inline as 1Q is a seasonally stronger quarter.

• Dividend. No dividend was declared for the quarter under review. We estimate a total FY22 DPS of 220 sen, translating into a dividend yield of 1.6%.

• Outlook. Malaysia's economic reopening and move to the endemic phase are expected to improve Nestle's revenue growth. However, ongoing supply chain disruptions compounded by the Russia-Ukraine war are impacting food commodity prices, especially wheat, barley and sunflower oils. These contribute to widespread global inflation. Moving forward, we believe Nestle may not be able to fully pass on the increase in prices to consumers to avoid stifling consumption demand thus impacting its margins.

• Our call. We make no changes to our forecast at this juncture. Maintain BUY with DDM-derived TP of RM152.50 based on WACC of 5.9%. We like Nestlé due to its solid long-term prospect underpinned by its leadership position through its ready-to-drink line-up coupled with its ability to reap the exponential plant-based products growth.

Source: BIMB Securities Research - 27 Apr 2022