INVESTMENT HIGHLIGHTS

• FY18 earnings grew by +2.1%yoy to RM648.4m, within ours but lagged consensus expectations

• Revenue rose by +4.9%yoy driven by strong domestic and export sales

• Despite the higher marketing and tax expense incurred, profit margins remain resilient due to favourable raw material costs

• Maintain NEUTRAL stance with a revised target price of RM146.20

Met our but lagged consensus expectations. Nestlé (Malaysia) Berhad’s (Nestlé) 4QFY18 earnings declined by -2.0%yoy to RM123.8m. After the exclusion of exceptional items as a result of the divestment of Chilled Dairy business and foreign exchange losses, its full year FY18 earnings rose modestly by +2.1%yoy to RM648.4m. The cumulative earnings met ours but lagged consensus expectations, accounting for 97.7% and 93.1% of full year FY18 earnings forecast respectively.

Commendable revenue growth recorded for FY18. Nestlé’s FY18 revenue grew by +4.9%yoy to RM5.5b. Historically, revenue grew by approximately +4.0%yoy for the past three years. Successful product innovations have led to strong domestic and export performance. For instance, MAGGI Noodles range saw strong growth in FY18 as a result of the ‘Pedas Giler’ variety. Such innovation has helped the brand to defend its market share amidst intense competition in the F&B segment.

Favourable raw material costs contributed to better earnings. FY18’s profit before tax (PBT) margin remains resilient at 15.9%. This was mainly attributable to the lower prices of major raw materials such as sugar and palm oil during the year. Cost savings from these mitigated the higher marketing and promotional expenses and higher tax expense incurred.

Final dividend declared of RM1.40 per share. A final dividend of RM1.40 per share was declared. This brings the cumulative dividend in respect of FY18 to RM2.80 per share (FY17: RM2.75 per share) which represents approximately 100% dividend payout ratio.

Source: MIDF Research - 27 Feb 2019