Stock Name: NESTLE
Company Name: NESTLE (M) BHD
Research House: OSK
Nestle (M) Bhd
(April 25, RM48.18)
Maintain neutral at RM45.30 with revised target price of RM47.43 (from RM47.90): Nestle's 1QFY11 revenue and net profit came in at RM1.18 billion (+16.1% year-on-year) and RM152.7 million (+10% y-o-y). While its current quarter's earnings represent 36.4% of our full-year forecast and 34.7% of consensus estimates, we deem this in line as we see Nestle registering softer sales and bottom line growth in the next few quarters in view of spiralling raw material prices and as restocking sales normalise. In the previous financial year, Nestle reduced the stocks of some product categories at its distributors' warehouses to cut costs and ensure the freshness of its products.
The better results y-o-y were mainly attributed to the domestic market (+15.9% to RM912 million). Customers bought more in the current quarter after stock levels were reduced previously and new products such as Nestea in the retail channel and Milo Sejuk were introduced towards end-1QFY11. Apart from the strong domestic demand, export sales grew 16.8% to RM273 million driven, by Southeast Asia countries and the company's additional capacity for soluble coffee and coffee creamer installed in the past two years. Against 4QFY10, revenue surged 22.9% while net profit soared more than 250% due to the restocking effect in the current quarter and the high operating expenses incurred in 4Q.
Despite rising raw material prices, gross profit margin improved 0.8 percentage points (ppts) to 34.3%, thanks to the favourable product mix, the increase in selling price for selected products, and the stronger ringgit against the US dollar. However, earnings before interest and taxes dipped 0.7 ppts y-o-y to 16.5% on higher operating costs, which offset the improvement in gross profit margin. This, coupled with the higher effective tax rate, led to net profit margin narrowing by 0.7 ppts to 12.9% y-o-y. To mitigate the high raw material prices, the group will implement another round of price increases on selected coffee and Milo products.
We maintain our FY11 and FY12 earnings forecasts at RM419.3 million and RM443.1 million respectively. Our fair value remains unchanged at RM47.43. ' OSK Research, April 25
This article appeared in The Edge Financial Daily, April 26, 2011.
Company Name: NESTLE (M) BHD
Research House: OSK
Nestle (M) Bhd
(April 25, RM48.18)
Maintain neutral at RM45.30 with revised target price of RM47.43 (from RM47.90): Nestle's 1QFY11 revenue and net profit came in at RM1.18 billion (+16.1% year-on-year) and RM152.7 million (+10% y-o-y). While its current quarter's earnings represent 36.4% of our full-year forecast and 34.7% of consensus estimates, we deem this in line as we see Nestle registering softer sales and bottom line growth in the next few quarters in view of spiralling raw material prices and as restocking sales normalise. In the previous financial year, Nestle reduced the stocks of some product categories at its distributors' warehouses to cut costs and ensure the freshness of its products.
The better results y-o-y were mainly attributed to the domestic market (+15.9% to RM912 million). Customers bought more in the current quarter after stock levels were reduced previously and new products such as Nestea in the retail channel and Milo Sejuk were introduced towards end-1QFY11. Apart from the strong domestic demand, export sales grew 16.8% to RM273 million driven, by Southeast Asia countries and the company's additional capacity for soluble coffee and coffee creamer installed in the past two years. Against 4QFY10, revenue surged 22.9% while net profit soared more than 250% due to the restocking effect in the current quarter and the high operating expenses incurred in 4Q.
Despite rising raw material prices, gross profit margin improved 0.8 percentage points (ppts) to 34.3%, thanks to the favourable product mix, the increase in selling price for selected products, and the stronger ringgit against the US dollar. However, earnings before interest and taxes dipped 0.7 ppts y-o-y to 16.5% on higher operating costs, which offset the improvement in gross profit margin. This, coupled with the higher effective tax rate, led to net profit margin narrowing by 0.7 ppts to 12.9% y-o-y. To mitigate the high raw material prices, the group will implement another round of price increases on selected coffee and Milo products.
We maintain our FY11 and FY12 earnings forecasts at RM419.3 million and RM443.1 million respectively. Our fair value remains unchanged at RM47.43. ' OSK Research, April 25
This article appeared in The Edge Financial Daily, April 26, 2011.
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