Nestle (Malaysia) Bhd
(Oct 29, RM43.80)
Maintain buy at RM43.60 with target price of RM45: Results for 9MFY10 outperformed, with Nestle’s 10% share price gain since our upgrade on Aug 30, nearly double the main index’s gain during the same period.
We tentatively raise our earnings a further 6% to 8% for FY10/12 and discounted cash flow (DCF)-based target price (TP) by 3% to RM45 (from RM43.86) as we await its analysts’ briefing for further details. We maintain our “buy” call as we foresee further upside to its earnings and TP.
The RM113 millon 3QFY10 net profit (+42% YoY; +13% QoQ) was above expectations at 28% of our and consensus’ full-year forecasts. Its RM132 million pretax profit was 25% higher year-on-year (y-o-y) before the impact of tax incentives boosted its net profit growth further.
Revenue growth of 12% y-o-y was a reflection of the generally better economy locally and regionally.
The RM352 million 9MFY10 recurring net profit (+33% y-o-y) was above our and market expectations at 88% of 2010 full-year forecasts. Revenue growth of 10% y-o-y and earnings before interest, taxes, depreciation and amortisation (Ebitda) margin expansion of 1.4 percentage points y-o-y led to the strong earnings growth.
Business-wise, resilient third party sales (+5.5% y-o-y) were complemented by bountiful sales to its parent (+28.2% y-o-y) which in turn drove capacity utilisation higher and thus contributed to better profit margins.
We raise FY10/12 earnings on better revenue growth, which in turn translates into better Ebitda margins via better capacity utilisation. We also lower effective tax rates to 15% to 20% from our previous 24% assumption. Its analysts’ briefing should shed more light on its prospects.
While trading illiquidity would deter many prospective investors the potential earnings, and therefore dividend upside, would likely keep Nestle firmly focused as the consumer sector bellwether.
Our DCF valuation assumes 7.8% weighted average cost of capital (WACC), 1% terminal growth and FY13/19 sales growth tapering off to 6.2% to 2.6% per year. — Maybank IB, Oct 29
This article appeared in The Edge Financial Daily, November 1, 2010.
No comments:
Post a Comment