Nestle  Malaysia  (NESZ)’s  9M13  earnings  were  in  line  with  consensus and  our  expectations.  Sales  and  net profit  rose  5.6%  and  13.6%  y-o-y respectively, mainly spurred by stable domestic demand and favourable raw  material  cost.  Maintain  NEUTRAL,  with  our  FV  unchanged  at MYR67.00.

• Results in line.  Nestle’s  9M13  earnings  made up 83.6% and 84.6% of our  and  consensus’  full-year  estimates  respectively.  We  deem  the results  as  in line as 4Q is  a  seasonally weaker quarter.  Revenue  grew 5.6%  y-o-y  to  MYR3,649.6m  from  MYR3,456.6m,  while  earnings  rose 13.6%  y-o-y  to  MYR461.2m  from  MYR405.9m.  Domestic  sales  were encouraging  as  several  product  categories,  eg  confectionery,  liquid drinks  and  food  &  beverage  (F&B)  recorded  robust  growth.  Export demand,  however,  slowed  due  to  lower  demand  from  its  affiliate companies.  This  dampened  the  earnings  growth  of  some  product categories  amid a  weaker  macroeconomic environment.  Revenue from the group’s F&B division ticked up 5.1% y-o-y while other divisions’ sales grew  8%  y-o-y,  while  operating  profit  at  its  F&B  and  other  segments improved  by  9.5%  and  23.7%  y-o-y  respectively.  Vis-à-vis  3Q12,  the group’s  top-  and bottomlines  rose  5.7% and 7.3% respectively, spurred by robust sales recorded at its Family Day Bonanza event.
• Better margins.  Nestle’s GPM  widened to 35.7% from 33.5% y-o-y due to  favourable commodity  prices  -  except  milk powder  prices -  as well as higher turnover. The effect of the weakening MYR vs the USD in 3Q was partially mitigated by  the group’s  forward hedging positions.  Meanwhile, group EBIT and PBT margins ticked up 1ppt and 1.1%ppt y-o-y, also due to favourable commodity prices and better turnover.
• Risk.  The key risks include: i) weaker consumer spending,  ii)  higher raw material cost,  and iii)  increasing  competition from other F&B producers and retailers’ house brands.
• Still  NEUTRAL.  As Nestle’s results are within estimates, we leave our forecasts  unchanged.  The  stock,  whose  DCF-based  FV  remains  at MYR67.00, is currently trading at a  29x forward P/E, which is on par with its 3-year average trading P/E of 29x. Maintain NEUTRAL.

Financial Exhibits

SWOT Analysis

Company Profile
NESTLE is primarily involved in the manufacturing of beverages, milk, confectionery and cooking aids.

Recommendation Chart

Source: RHB