Nestlé’s 2019 results came in line with both our and the street’s expectations. Core net profit was up 4.4% yoy to RM678.7m, underpinned by robust domestic sales growth coupled with better operating efficiencies. In view of a weaker macro outlook, we trim our 2020-21E earnings by 3-5%. Post revision, we lower our DCF-derived TP to RM136.00 (from RM137.00). Maintain HOLD.

2019: Within Expectations

Nestle posted a revenue of RM5.52bn for 2019, on par with the previous year. Adjusting for its chilled dairy business divestment, which was disposed in January 2019, revenue grew +1.6 yoy, on the back of robust domestic sales growth of +4.7% yoy whilst partially dampened by subdued export demand. Meanwhile, EBIT margin remained firm at 16.6% (+0.1ppt) on better cost control in spite of unfavourable forex and commodity price movements. Overall, 2019 core net profit of RM678.7m (+4.4% yoy) was within both our and consensus expectations, accounting for 99% and 98% of respective fullyear forecasts.

Continued Innovation and Cost Control to Drive Performance

A final DPS of 140sen was declared for the quarter, bringing full-year DPS to 280sen – unchanged from 2018. Moving into 2020, we foresee some headwinds in the form of forex and commodity price volatility on top of softer consumer sentiment, exacerbated by Covid-19. That said, we remain comforted by the management’s commitment to focus on driving growth momentum through new product launches while concurrently upholding its margins through better cost control.

Maintain HOLD

We trim our 2020-21E forecasts by 3-5%, in view of a softer consumer sentiment. In tandem, our DCF-derived TP is revised lower to RM136.00 (from RM137.00). Maintain HOLD. Upside/downside risks: (i) less/more competitive environment in the F&B space; (ii) sharp decline/increase in raw-material costs; and (iii) better-/lower-than-expected reception of new products.

Source: Affin Hwang Research - 26 Feb 2020