In a briefing with Nestle recently, investment house MIDF noted some salient highlights including on the group’s resilient domestic demand which grew 10.8%yoy in 1HFY23, reaching RM2.91b however it also noted on the export sales for 1HFY23 dropping by partly due to the high base in 1HFY22 following the reopening of economies and borders across most countries.
Going forward, the group anticipates domestic sales to remain resilient as domestic consumption continues to be robust, including the out-of-home segment. Potential selling price hike amid continuously rising prices. Despite the overall improvement in raw material costs for FY23F compared to FY22, as most global commodities have dropped from their peak prices, management remains cautious about the potential of continued upward pressure on raw material costs next year. This caution arises due to rising concerns about the lower supply of certain commodities resulting from the terminated Black Sea grain deal and extreme weather conditions, which could introduce uncertainty to commodity prices in the future. Hence, the management does not rule out the possibility of raising selling prices for certain product categories.
Expect additional contributions from recently acquired Wyeth Nutrition Malaysia next quarter ahead. Nestle highlighted that it did not include the revenue and earnings contribution from Wyeth Nutrition Malaysia in the 2QFY23 results as the acquisition was completed on 30 June 2023. However, moving forward, MIDF expects the inclusion of the additional revenue contribution in the upcoming quarter. Recall that, in FY22, Wyeth Nutrition reported a revenue of RM203.5m (equivalent to 3.1% of Nestle’s FY22 revenue) and a net profit of RM16.9m (approximately 2.72% of Nestle’s FY22 net income).
On thise sense MIDF maintains a NEUTRAL call on the stock with an unchanged TP of RM139.50. Going forward, the house expects topline to remain stable, supported by the solid domestic spending prospect, as well as the normalisation
in most commodities that could support FY23’s earnings. However, it is cautious that the finance cost could increase due
to the rising interest rate environment, given that Nestle has a net gearing of 1.3x in FY23F.