Nestle registered 4Q22 core PAT of RM144.1m (+16% QoQ; +25% YoY) which brought FY22’s sum to RM660.2m (+15% YoY). This is within our and consensus full year forecasts, making up 102% and 103%, respectively. Overall sales remain upbeat with improvement by +12% YoY/ +16% YTD to RM6.7bn aided by positive growth from domestic and export sales, which chalked in 11%/18% YoY growth respectively. Management reiterates that the volatile economic environment is expected to persist due to continued inflationary pressure and uncertainties in commodity and currency prices. On a high note, the group is steadfast in capturing the recovery by leveraging all opportunities to increase the reach of its products. Maintain HOLD with unchanged TP of RM121.60.

Within estimates. Nestle registered 4Q22 core PAT of RM144.1m (+16% QoQ; +25% YoY) which brought FY22’s sum to RM660.2m (+15% YoY). This is within our and consensus full year forecasts, making up 102% and 103%, respectively. FY22 core PAT figure was arrived at after adjusting for RM40.0m forex loss.

Dividend. Declared DPS of 122 sen going ex on 18 April 2023 (4Q21: 102 sen). FY22 DPS: 262 sen (FY21: 242 sen).

QoQ. Top line skidded -2% to RM1.6bn due to lower sales in F&B segment. GP margin expanded by 3.6ppt which we reckon was due to the price hike implemented. Encouragingly, this also signalled a bounce from the last quarter’s lowest GP margin recorded. Subsequently, bottom line registered a +16% improvement to RM144.1m.

YoY/YTD. Sales remain upbeat with improvement by +12% YoY/ +16% YTD to RM6.7bn aided by positive growth from domestic and export sales, which chalked in 11%/18% YoY growth respectively. This was thanks to the group effective demand generation efforts and the normalisation of post-pandemic economic activities. Core PAT registered growth of +19% YoY/ +15% YTD to RM660.2m. Higher sales, prudent cost management and reduced Covid-19 expenses helped to mitigate the impact of higher commodity prices, unfavourable forex and higher effective tax rate of 27.8% (vs FY21 24.2%) from the impact of prosperity tax.

Outlook. Despite the recent price correction, management foresees commodity prices to stay elevated in the 1H23 and expect progressive improvement in the later part of the year. Management reiterates that the volatile economic environment is expected to persist due to continued inflationary pressure and uncertainties in commodity and currency prices. The group is steadfast in capturing the recovery by leveraging all opportunities to increase the reach of its core products while continuing to lead in product innovation. Nestle continues to drive awareness on the benefits of plant based diets with its Harvest Gourmet range. Some of the new product launches this quarter include the Maggi Nutri-licious noodles, Maggi margination recipes, Nescafe Gold Cappuccino Ice Cream. We understand the group’s Nestle Professional business has fully recovered from the pandemic as Malaysians continue to travel and spent on hospitality segment.

Forecast. Unchanged.

Maintain HOLD with unchanged TP of RM121.60 based on DDM (r: 6.6%, TG: 3.5%) valuation. While valuation is expensive at 47.9x FY23 PE in comparison to its holding co (Switzerland) at 21.6x and sister-co (Nigeria) 19.8x, we opine Nestle’s current risk reward profile to be fair coupled with its status as a key consumer staple.

Source: Hong Leong Investment Bank Research - 22 Feb 2023