Nestle Malaysia (Nestle)’s  FY13 results were well within  consensus and our  estimates.  Turnover  and  earnings  expanded  on  the  back  of  solid domestic  demand  and  favourable  raw  material  costs.  Management declared a  final  dividend of 175 sen per share.  Maintain NEUTRAL, with our FV unchanged at MYR67.00.

• In  line  with  forecasts.  Revenue  rose  5.1%  to  MYR4,787.9m  from MYR4,556.4m in FY12, and net profit expanded  11.2% to MYR561.7m from  MYR505.4m.  The  higher  topline  was  driven  by  domestic  sales , which registered  strong growth,  especially in  several product categories such as confectionery, liquid drinks and food & beverage (F&B). Exports moderated  slightly  due  to  lower  demand  from  affiliated  companies,  in particular  exports to  the  Philippines and Indonesia,  which have invested in  their  own  local  manufacturing  facilities.  The  stronger  sales  volume offset  the  higher  expenses,  lifting  the  group’s  PBT  and  earnings  by 12.8% and 11.2% y-o-y respectively. Compared with 4Q12, turnover and net  profit  in  4Q13  improved  by  3.5%  and  1%  y-o-y  due  to  continued investments in marketing and promotion activities .
• Margins  improve.  Nestle’s gross margin  widened to  35.5% from 34.1% in FY12, thanks to better sales and stable  commodity prices,  except  for milk powder,  which was considerably more expensive in  2H.  The effect of  the  weakening  MYR  vs  USD  in  2H  was  partially  mitigated  by  the group’s  forward  hedging  positions.  Meanwhile,  EBIT  margin  rose  to 15.3% from 14.4% in FY12 while PBT margin ticked up to 15% from 14% in FY12 due to favourable commodity prices and stronger revenue.
• Declares  175 sen final dividend.  The group proposed a  final dividend of 175 sen per share for the quarter, bringing its full-year DPS to 235 sen per share. The key risks include: i) weaker consumer spending, ii) higher raw  materials  cost,  and  iii)  increasing  competition  from  other  F&B producers and retailers’ house brands.
• Maintain  NEUTRAL.  We  leave  our  forecasts  unchanged.  Our  DCFbased  FV is  also  unchanged at  MYR67.00.  Maintain NEUTRAL  as  the stock  is  currently  trading  at  a  26x  forward  P/E,  in  line  with  its  3-year average P/E of 29x.

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Company Profile

Nestle Malaysia is primarily involved in the manufacturing of beverages, milk, confectionary and cooking aid s.

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Source: RHB