Review

• Nestlé (Malaysia) Berhad (Nestlé)’s 2QFY24 results came in below expectations. The deviation was mainly attributed to lower-than-expected margin resulting from high operating expenses and cost of sales.

• Excluding all exceptional items, 2QFY24 core net profit declined by 56.1% YoY to RM80.1mn, on the back of a 13.0% drop in revenue to RM1.5bn.

• Cumulatively, 1HFY24 core earnings plummeted by 26.0% YoY to RM288.8mn, constituting 37% of both ours and consensus’ full-year estimates. 1HFY4 revenue declined by 8.0% YoY to RM3.3bn.

• The weaker results were due to subdued consumer sentiments and cautious spending during the Chinese New Year and Hari Raya festive seasons. This decline was exacerbated by a high base effect, as 1HFY23 had achieved a historically high revenue figure.

• The group has declared a first interim dividend of 70.0sen/share for the quarter under review (2QFY23: 70.0sen/share).

Impact

• No changes to our earnings forecast, pending an analyst briefing today to provide more guidance on the outlook for 2HFY24.

Outlook

• Management continues to uphold its cautious outlook for 2HFY24, anticipating a recovery by the latest in 1HFY25. Going forward, Nestlé will effectively monitor its costs to ensure they are appropriately reflected in the final pricing of its products.

Valuation

• We are currently reviewing our target price of RM136.90/share and Hold recommendation, pending further updates from today's analyst briefing.

Source: TA Research - 26 Jul 2024