Nestle (Malaysia) Bhd sees strong demand for its brands in Malaysia and it has strong plans in place to continue generating sustainable and profitable growth.
KUALA LUMPUR: Kenanga research has maintained its market perform rating on Nestle (Malaysia) Bhd but lowered its target price to RM137 from RM138.50 following the incorporation of its FY18 audited numbers.
The consumer giant's 1Q19 net profit of RM235.2mil was 2% higher year-on-year and broadly within expectations, said Kenanga.
"Although this makes up 31%/32% of respective full-year estimates, we had expected c.36% contribution from the first quarter due to seasonal strength.
"We believe the deviation was due to untimely recognition of expenses (i.e. sales and marketing)," it said.
3M19 revenue of RM1.5bil grew 2% y-o-y, probably due to strong product portfolio for domestic and export markets, it added.
Operating profit jumped 6% from better supply chain management and effective marketing while effective tax rate grew close to the normal rate at 24.8% following a lapse of tax incentives.
On a quarter-on-quarter basis, 1Q19 sales grew 8% and operating profit soared 69% due to the Chinese New Year festivities.
Core net profit for the quarter surged 106% from the immediate preceding quarter due to the the previous highly skewed tax payment at an effective tax rate of 31.2%.
"The stable production costs as per the results could indicate the effectiveness of the group’s hedging policies," said Kenanga.
The group/s national distribution centre and dispoal of its chilled dairy business could also moean leaner operating expenses going forward.
"Proceeds from the disposal to fund the consolidation of the group’s Milo plant could benefit the group in the longer term, enabling better economies of scale, production capabilities and innovation for the flagship brand."
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