Period    4Q12/FY12

Actual vs. Expectations  The full year FY12 net profit (NP) of RM505.4m was in line with expectations, making up 101.3% and 104.9% of the street's FY12E NP of RM499m and our RM482m respectively.

Dividends   A final single tier dividend of 155 sen was declared for the quarter, bringing the total for FY12 to 210 sen. This payout was 10.5% and 16.7% higher than our estimate and the previous FY11 dividend, translating into a dividend yield of 3.6%.

Key Result Highlights  QoQ,  sales was pretty much flattish while the NP was down by 21.9% to RM99.5m, as expected. This is because of the higher investment in marketing and promotion activities, which are usually spent in the 4Q. 

 YoY, the 4Q12 revenue registered a marginal growth of 2.5%. This was mainly driven by domestic sales, which helped to mitigate the decline in export sales due to a slower demand. Nevertheless, the NP grew substantially by 32.2% YoY despite the higher marketing expenses spent in conjunction with Nestle Malaysia's 100-year celebration. The NP margin improved by 2.0ppt due mainly to the easing commodities prices, lower financing cost and lower tax bracket from reinvestment allowance claimed. 

 For the YTD, Nestle's NP breached the RM500m level and recorded a double-digit growth of 18.3% YoY backed by a 7.3% growth in sales. Despite a slowdown in export sales, the domestic demand was strong given the marketing and promotion activities carried out in conjunction with Nestle Malaysia's 100-year celebration. Together with a stable input cost and internal cost savings initiatives under the umbrella of Nestle Continuous Excellence program, the FY12 NP grew strongly with a 1.0ppt margin expansion. 

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

 The key launches of the year included the new NESCAFE 3in1 Brown and Creamy, MILO mixes variances, MAGGI MI Goreng with two flavours and two new NESTUM 3in1 products, all of which were well received by the market and contributed positively to the group.

Change to Forecasts  After some fine-tuning, we are tweaking our FY13-14E NP higher by 7.4% and 11.8% from RM507m-RM527m to RM544m-RM589m.

Rating    Maintain OUTPERFORM

Valuation   We have revised our TP on Nestle upward to RM73.30 (from RM72.10 previously) based on a PER valuation of 31.6x (from 33.4x) over FY13 EPS of 232.1 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.  

Source: Kenanga