NESTLE (4707) - Nestle (Malaysia) - Softer performance
Target RM74.94 (Stock Rating: HOLD)
Nestle’s FY14 net profit was below our and consensus expectations, at 73% of our forecast. The weaker-than-expected results were due to the weak 4Q sales, depreciation of the RM against the US$ at the end of the year and higher A&P spending. The slight improvement in FY14 topline was driven by domestic sales but the bottomline was dragged by the higher raw material and A&P costs in 1H. Given the lower-than-expected FY14 results, we cut our FY15-16 EPS forecasts by 7-11%. Our DCF-based target price is reduced accordingly. We downgrade the stock from Add to Hold. Nestle declared a final single-tier DPS of 175 sen, bringing total FY14 DPS to 235 sen. We prefer QL Resources.
Weaker FY14 net profit
Nestle’s FY14 revenue rose by a slight 0.4% but net profit inched down 2% yoy. The slightly stronger topline was driven by solid domestic sales, which offset the weak performance of the export business. In the domestic market, Nestle’s confectionery, liquid drinks and ice cream segments registered solid sales growth. In spite of the better topline growth yoy, FY14 net profit was lower yoy, mainly due to the higher raw material price in 1H and A&P costs (to boost sales). While the prices of commodities started to ease in 3Q, this was offset by the depreciation of the RM against the US$. We also believe that Nestle’s FY14 topline was negatively affected by the East Coast floods in Dec 2014 and the later timing of the Chinese New Year festival in 2015 (18 Feb) compared to 2014 (31 Jan). The higher operating costs caused EBITDA margin to drop 0.2% pt yoy in FY14.
4Q performance softer yoy
In comparison to 4QFY13, 4QFY14 revenue dropped 2.6% and net profit declined 2.1%. The weaker topline was negatively affected by the slower domestic and exports sales in 4QFY14. Apart from weaker consumer spending, we believe that the lower domestic sales were partially attributed to the East Coast floods and the later timing of the Chinese New Year festival in 2015, as mentioned above. Exports to affiliated companies showed some improvement qoq but declined yoy. In spite of the lower sales and higher cost of good sold (COGS) due to the appreciation of the US$ against the RM, 4QFY14 net profit declined yoy by a lesser degree than topline, thanks to internal cost savings and the lower effective tax rate.
Source: CIMB Daybreak - 24 February 2015
Target RM74.94 (Stock Rating: HOLD)
Nestle’s FY14 net profit was below our and consensus expectations, at 73% of our forecast. The weaker-than-expected results were due to the weak 4Q sales, depreciation of the RM against the US$ at the end of the year and higher A&P spending. The slight improvement in FY14 topline was driven by domestic sales but the bottomline was dragged by the higher raw material and A&P costs in 1H. Given the lower-than-expected FY14 results, we cut our FY15-16 EPS forecasts by 7-11%. Our DCF-based target price is reduced accordingly. We downgrade the stock from Add to Hold. Nestle declared a final single-tier DPS of 175 sen, bringing total FY14 DPS to 235 sen. We prefer QL Resources.
Weaker FY14 net profit
Nestle’s FY14 revenue rose by a slight 0.4% but net profit inched down 2% yoy. The slightly stronger topline was driven by solid domestic sales, which offset the weak performance of the export business. In the domestic market, Nestle’s confectionery, liquid drinks and ice cream segments registered solid sales growth. In spite of the better topline growth yoy, FY14 net profit was lower yoy, mainly due to the higher raw material price in 1H and A&P costs (to boost sales). While the prices of commodities started to ease in 3Q, this was offset by the depreciation of the RM against the US$. We also believe that Nestle’s FY14 topline was negatively affected by the East Coast floods in Dec 2014 and the later timing of the Chinese New Year festival in 2015 (18 Feb) compared to 2014 (31 Jan). The higher operating costs caused EBITDA margin to drop 0.2% pt yoy in FY14.
4Q performance softer yoy
In comparison to 4QFY13, 4QFY14 revenue dropped 2.6% and net profit declined 2.1%. The weaker topline was negatively affected by the slower domestic and exports sales in 4QFY14. Apart from weaker consumer spending, we believe that the lower domestic sales were partially attributed to the East Coast floods and the later timing of the Chinese New Year festival in 2015, as mentioned above. Exports to affiliated companies showed some improvement qoq but declined yoy. In spite of the lower sales and higher cost of good sold (COGS) due to the appreciation of the US$ against the RM, 4QFY14 net profit declined yoy by a lesser degree than topline, thanks to internal cost savings and the lower effective tax rate.
Source: CIMB Daybreak - 24 February 2015
