Nestle: Resilient Topline Growth

It is encouraging that NESZ’s sales momentum remained resilient in the midst of weaker consumer sentiment in 3Q22, says Maybank

Nestle: Resilient Topline Growth
Nestle Malaysia results beat expectations

Nestle Malaysia or NESZ’s 3Q22 results beat expectations predominantly due to its outperformance in sales, showing resilience in topline growth.

"Going forward, we expect product demand to improve further as the group prepares for better consumer spending towards the year-end which could partially offset higher input costs.

"Hence, our FY22-FY24E earnings estimates are lifted by 11%-14%. Rolling forward our valuation base year to FY23, we derive a higher DCF-based TP of MYR120.30 (+19%; WACC: 6.3%, LT growth: 2.5%)," says Maybank.

Nestle Surpassed expectations

Excluding forex loss and inventory write offs & provisions of MYR52m, NESZ’s 3Q22 core net profit of MYR164m (+11% YoY, -11% QoQ) brought 9M22 core net profit to MYR555m (+21% YoY). The latter accounted for 83%/85% of our/consensus full-year earnings estimates. The beat was mainly driven by an outperformance in sales.

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Topline growth YoY & QoQ marred by high input cost

3Q22 revenue grew 17% YoY driven by strong domestic and export sales growth of 14% YoY and 30% YoY respectively. This was attributed to continued out-of-home demand recovery and a general improvement in economic activity globally.

EBIT however fell 26% YoY (EBIT margin: - 5.5ppts YoY) due to higher raw material costs and unfavourable currency exchange. On a QoQ basis, revenue grew 3% QoQ mainly from robust export sales contribution.

FY22-FY24E earnings estimates lifted by 11%-14%

Factoring in the good set of results, our FY22E/FY23E/FY24E earnings estimates are raised by 11%/13%/14%. It is encouraging that NESZ’s sales momentum remained resilient in the midst of weaker consumer sentiment in 3Q22.

Sequential earnings should remain on positive trajectory as consumer spending picks up during the year-end festive season.

Risk statement

There are several risk factors for our earnings estimates, price target, and rating for Nestle (Malaysia). A spike in raw material prices may impact earnings for Nestle (Malaysia).

Additionally, sharp appreciation of USD against MYR will also affect its earnings, for about 50% of its raw material requirements are denominated in USD. Its export sales, which account for about 20% of total sales, should however provide some natural hedge.