NESTLE (4707) - Nestle (Malaysia) - Remain optimistic
Target RM74.94 (Stock Rating: HOLD)
During today’s analyst briefing, management remained optimistic on its earnings performance going forward, despite the weak consumer spending environment. While 2Q sales could be soft after the strong pre-GST sales in 1Q, the management thinks that sales in 2H will be good. It does not plan to reduce A&P spending, as the company believes that the branding investment, which helped the group to gain market share in the past, is crucial for long-term growth. We maintain our earnings forecasts and Hold recommendation on Nestle. Despite its strong fundamentals, we think that the company is fairly valued for now. We prefer QL Resources, which is our top pick in the sector.
What Happened
We attended Nestle’s 1QFY15 results briefing today, which was hosted by the country Finance and Control Executive Director Martin Kruegel. Approximately 30 fund managers and analysts attended the briefing. The key takeaways were: 1) half of the domestic sales growth in 1Q was driven by higher pricing, while the other half was driven by stronger sales volume, 2) export sales are expected to stabilise in 2015, 3) Nestle expects sales to be softer in 2Q, after the strong pre-GST sales in 1Q, and 4) lower raw material prices should continue to benefit Nestle in 2015.
What We Think
There were no major surprises from the briefing. We expect 2015 to be a softer year, given the slower consumer spending due to the implementation of goods and services tax (GST). The negative impact from slower consumer spending was not reflected in 1Q, as consumers rushed to carry out pre-GST shopping. We expect more apparent impact to be seen in 2Q. Nonetheless, the impact is likely to be short lived and sales should recover in 2H, as consumers adapt to the higher living costs. We expect the lower raw material prices to continue to buffer the impact of the stronger US$ against the RM.
What You Should Do
We advise investors to stay on the sidelines. We expect consumer spending to be weak in 2015 but Nestle should be able to sail through the tough period, given its large market share and strong brand name. Its decent dividend yield of >3% and strong fundamentals should help to support its share price.
Source: CIMB Daybreak - 23 April 2015
Target RM74.94 (Stock Rating: HOLD)
During today’s analyst briefing, management remained optimistic on its earnings performance going forward, despite the weak consumer spending environment. While 2Q sales could be soft after the strong pre-GST sales in 1Q, the management thinks that sales in 2H will be good. It does not plan to reduce A&P spending, as the company believes that the branding investment, which helped the group to gain market share in the past, is crucial for long-term growth. We maintain our earnings forecasts and Hold recommendation on Nestle. Despite its strong fundamentals, we think that the company is fairly valued for now. We prefer QL Resources, which is our top pick in the sector.
What Happened
We attended Nestle’s 1QFY15 results briefing today, which was hosted by the country Finance and Control Executive Director Martin Kruegel. Approximately 30 fund managers and analysts attended the briefing. The key takeaways were: 1) half of the domestic sales growth in 1Q was driven by higher pricing, while the other half was driven by stronger sales volume, 2) export sales are expected to stabilise in 2015, 3) Nestle expects sales to be softer in 2Q, after the strong pre-GST sales in 1Q, and 4) lower raw material prices should continue to benefit Nestle in 2015.
What We Think
There were no major surprises from the briefing. We expect 2015 to be a softer year, given the slower consumer spending due to the implementation of goods and services tax (GST). The negative impact from slower consumer spending was not reflected in 1Q, as consumers rushed to carry out pre-GST shopping. We expect more apparent impact to be seen in 2Q. Nonetheless, the impact is likely to be short lived and sales should recover in 2H, as consumers adapt to the higher living costs. We expect the lower raw material prices to continue to buffer the impact of the stronger US$ against the RM.
What You Should Do
We advise investors to stay on the sidelines. We expect consumer spending to be weak in 2015 but Nestle should be able to sail through the tough period, given its large market share and strong brand name. Its decent dividend yield of >3% and strong fundamentals should help to support its share price.
Source: CIMB Daybreak - 23 April 2015
