Nestle's 9MFY12 results were within consensus and our forecasts as revenue and net  profit  expanded  by  8.9%  and  15.3%  y-o-y  to  RM3,456.6m  and  RM405.9m respectively. The good results were backed by improving domestic consumption, which  mitigated  the  softer  export  growth.  Meanwhile,  gross  profit  and  EBIT margins improved on better cost control and healthy revenue. Maintain NEUTRAL, with unchanged RM61.38 FV.  
 
Steady  as  she  goes.  Nestle's  9MFY12  earnings  made  up  81.3% and  80.4%  of consensus and our full-year estimates. Although it has achieved more than 75% of our full year estimate, we deem the results in line as 4Q  is normally a weaker quarter. The group's top-  and  bottom-lines  climbed  8.9%  and  15.3%  y-o-y  respectively  on  stronger domestic  demand  as  the  Malaysian  economy  remained  stable.  Active  marketing  and promotional activities in conjunction with Nestle's 100th-year  anniversary  in  Malaysia lifted  demand,  thus  boosting  domestic  sales.  However,  export  growth  showed  signs  of weakening after a robust 2011 performance. By segment,  turnover and operating profit in  the  food  and  beverages  (F&B)  segment  went  up  by  8.9%  and  13.3%  y-o-y  while revenue and profit from other segments climbed 8.8% and 20.9% respectively. Vis-''-vis the  preceding  quarter,  revenue  was  marginally  lower  by  0.6%  but  earnings  were  5.6% higher due to lower operating expenses.
 
Better  margins.  Meanwhile, gross  margin  continued  to improve  -  by  130bps  -  spurred by stable raw material prices and internal cost savings initiatives. Similarly, EBIT margin rose  80bps  to  15.6%,  with  that  in  both  the  F&B  and  other  segments  strengthening,  up 60bps and 160bps respectively y-o-y. Going forward, we expect margins to normalise as more investments in marketing are recognised in 4Q. 
 
Maintain  NEUTRAL.  We  are  leaving  our  FY12  and  FY13  estimates  untouched  given that  the  results  were  in  line.  Maintain  NEUTRAL,  with  RM61.38  FV,  based  on  a  FCF valuation.

 Source: OSK