Nestle's 1QFY13 results were within our and consensus expectations. We deem the results in line as 1Q typically makes up >30% of our full year numbers. Revenue and net profit increased by 5.4% and 16.6% y-o-y respectively, mainly attributed to: i) strong domestic and export demand, and ii) lower raw materials costs due to softer commodity prices. Maintain NEUTRAL, with MYR61.38 FV.

¨      Within expectations. Revenue and earnings expanded by 5.4% and 16.6% y-o-y to MYR1.2bn and MYR184.4m respectively. The healthy top-line growth was underpinned by both domestic and export demand. Several product categories such as confectionery, liquid drinks, coffee and chilled dairy recorded strong double-digit growth in the domestic market, thanks to continuous investments in marketing and promotional activities. Besides that, demand from the export markets recovered in 1QFY13 from the slower sales in 4Q last year. Q-o-q, revenue and earnings grew by 11.6% and 85.4% respectively due to higher domestic and export sales coupled with lower operating expenses.

¨      Margins lifted by lower raw material cost. Nestle’s gross profit margin trended higher by 3.4% y-o-y to 36.5%, supported by easing commodity prices. This reaffirms our earlier view that food and beverage (F&B) players will likely benefit from the lower raw material prices. The Group’s stronger brand power, a result of higher investments in marketing and promotional campaigns, further lifted its revenue, and it recorded a better EBIT margin of 20.1% vs 18.3% in 1QFY12. Likewise, its PBT margin improved by 2% y-o-y to 19.8% this quarter. 

¨      Maintain NEUTRAL. With the results in line, we are leaving our forecasts unchanged. The Group will be building a new manufacturing plant on its recently-acquired land next to the Nestle Shah Alam Manufacturing Complex in the near term to support its growth. Maintain NEUTRAL with our FV at MYR61.38, based on a FCF valuation.

Source: RHB