Business as usual. The company's 1HFY12 revenue and earnings gained 9.5% and 13.5% y-o-y to RM2,313.7m and RM278.6m respectively. The stronger performance was mainly driven by: i) higher domestic sales due to better turnover especially in confectionery, Nestle liquid drinks, chilled dairy and ice cream which recorded a stellar double digit growth, and ii) stronger export sales with encouraging growth despite an economic slowdown in the export markets. By segment, sales from the food and beverages (F&B) segment was up by 10.1% y-o-y while those of other segments inched up by 6.8% y-o-y. On a q-o-q basis, revenue and net profit climbed 1.3% and 23.8% respectively.

Healthy margins. Gross margin and EBIT margin improved by 20bps and 10bps y-o-y respectively due to: i) a decent revenue growth and better absorption of fixed costs, and ii) lower input costs amid stable commodity prices. The better EBIT margin from the F&B segment (15.5% vs 15.3% y-o-y) helped to offset the drop in the EBIT margin from the other segments (16.4% vs 16.1% y-o-y). Although marketing expenses were higher in conjunction with Nestle Malaysia's 100 years' celebration, stronger sales had more than offset the marketing investment costs.

Maintain NEUTRAL. Given the stable results, we are leaving our FY12 and FY13 estimates unchanged. FV is bumped up to RM61.38 as we apply a higher terminal growth of 3% based on a FCF valuation. Maintain Neutral.

Source: OSK