INVESTMENT HIGHLIGHTS

• 2QFY18 earnings grew by +2.9%yoy to RM166.2m, in-line with our expectation

• Sales interrupted by the move to a new warehouse

• Nevertheless, profit margins remain stable

• Maintain NEUTRAL stance with an unchanged target price of RM132.32

Met our and consensus expectations. Nestlé (Malaysia) Berhad’s (Nestlé) 2QFY18 earnings rose by +2.9%yoy to RM166.2m, whilst the 1HFY18 earnings rose by +1.3yoy to RM397.4m. The cumulative earnings met our and consensus expectations, accounting for 57.2% and 55.4% of full year FY18 earnings forecasts respectively. Historically, the first half of the financial year contributed approximately 60.0% of full year earnings for the past three financial years.

Sales interrupted by the move to a new warehouse. Nestlé’s 2QFY18 revenue grew by +2.0%yoy to RM1.3b. This is the slowest growth since 2QFY15 which recorded a reduction in revenue of - 10.0%yoy when GST was implemented. The slowdown in revenue growth was mainly attributable to the move of its National Distribution Centre (NDC) from Bukit Raja, Klang to AXIS Mega Distribution Centre near Westport from 1st June 2018. This resulted in one month delay in sales completion from June 2018 (Q2) to July 2018 (Q3).

Nevertheless, profit margins remain stable. 2QFY18’s net profit margin remains resilient at 12.7%. This was mainly attributable to the stabilising prices of agricultural commodities such as sugar and palm oil. In addition, Nestle also recorded slightly lower effective tax rate of 22.5% in 2QFY18 in comparison to 23.8% in the previous year corresponding quarter.

Interim dividend declared of RM0.70 per share. The first interim dividend of RM0.70 per share was declared in respect of FY18 which will be paid on 27th September 2018.

Impact to earnings. No change to our earnings estimates at this juncture.

Source: MIDF Research - 15 Aug 2018