Period    3Q12/9M12

 The 9M12 net profit (NP) of RM405.9m was in line with expectations, making up 81.3% and 84.2% of the street's FY12E NP of RM499m and our RM482m respectively.

 The 9M contribution was relatively higher than 75% because more investments in marketing activities (and thus expenses) are usually spent in the 4Q. 

Dividends   No dividend was declared for the quarter.

 QoQ,  the NP improved 5.6% to RM127.3m despite a marginal dip of 0.6% in revenue. Profit margins were higher QoQ due to lower operating expenses. 

 YoY, the 3Q12 revenue increased 7.7% despite the slowing export sales. This was mainly due to the robust double-digit domestic sales growth in confectionery, liquid drinks, chilled dairy and ice-cream products, which were mainly driven by its effective consumer marketing to take full benefit of the strong domestic economy. Despite the higher marketing expenses spent in conjunction with Nestle Malaysia's 100-year celebration, 3Q12 NP still jumped 19.7% YoY as stronger sales in the quarter more than offset the higher marketing expenses. 

 On the overall, the investment spent on marketing this year saw positive feedbacks and resulted in a higher product demand from consumers. As a result, 9M12 revenue grew positively by 8.9% despite the slowdown seen in export sales, which has a strong growth in 2011. Coupled with stable input cost and internal cost savings initiatives under the umbrella of Nestle Continuous Excellence program, 9M12 NP grew strongly at a mid teens rate with a 0.6ppt margin expansion. 

Outlook   We continue to see potential sales growth opportunities for the company driven by the company's product innovation and marketing investment as well as its role on the global stage as the Halal Centre of Excellence for Nestle Global.  

 Recently, the group launched the new MAGGI MI Goreng with 2 flavours and 2 new NESTUM 3in1 products, which were well received by the market.

 Maintaining our FY12-13E NP of RM482m-RM507m.

Rating  Downgraded to MARKET PERFORM from OUTPERFORM (see overleaf for details).

Valuation   We have revised our TP on Nestle upward to RM72.10 (from RM67.50 previously) based on a PER valuation of 33.4x over FY13 EPS of 216.2 sen (see overleaf for details).

Risks   More challenges ahead as there are a number of uncertainties that are affecting the global economic growth and driving the volatility in commodity prices.