Nestle Malaysia reported a core PATAMI of RM208.4m for 3MFY23, after subtracting a one-off item of RM11.3m. MIDF said the earnings were in line with and the consensus full-year FY23 projection, which accounted for 27.9% of ours and 29.3% of streets’. It also noted that as expected, no dividend was declared during the quarter as the group typically only proposes dividends during Q2, Q3, and Q4.
The group’s 1QFY23 top line increased by +8.8%yoy to RM1.84b due to the higher domestic and export sales. Operating profit declined by -7%yoy to RM277.1m during the quarter due to higher commodity prices and other operating expenses. Note that the price of commodities began to escalate in 2QFY22. The core PATAMI increased slightly by +0.6%yoy to RM208.4m thanks to the higher revenue that offset the higher costs.
The group reported a stronger revenue of RM1.84b in 1QFY23 as compared to RM1.64b in 4QFY22 mainly supported by stronger Chinese New Year sales. The core PATAMI increased by +38.6%qoq to RM208.4m. This was mainly supported by the higher revenue and lower operating expenses, which more than offset the increased cost of sales.
Its f&B division’s revenue increased +9.4%yoy to RM1.53b in 1QFY23 due to a favourable post-pandemic trajectory. Likewise, the other division increased by +5.9%yoy to RM311.3m due to improving Out-of-Home business under Nestlé Professional, reflecting post-pandemic upswing. Despite greater revenue, operating profit for the F&B and other divisions fell by -6.7%yoy/- 8.8%yoy to RM242.9m/RM34.5m during the quarter. This was mostly caused by rising operating costs and commodity prices.
Based on the latest results, the house maintains NEUTRAL call on the stock with an unchanged TP of RM139.50. Given that earnings came in within estimation, MIDF makes no changes to earnings projection for FY23-25F. Target price of RM139.50 is based on DDM valuation with a 3.5% growth rate and a WACC of 7.0%.
Moving forward, MIDF believes that top-line growth will remain steady, thanks to its staple nature and continuous product innovation. On the other side, it is also concerned that Nestle’s FY23F 1.3x total debt-to-equity ratio could increase its finance cost in the current rising interest rates environment.
