Briefing Note | Thursday, 27 August 2020

Nestlé (Malaysia) Berhad Maintain NEUTRAL

(4707 | NESZ MK) Consumer Products & Services | Food & Beverages

Plant-based protein is the in thing Unchanged Target Price: RM143.90

KEY INVESTMENT HIGHLIGHTS
 One of the most challenging periods may be over
RETURN STATISTICS
 New capacity for Maggi and plant-based products
 May take time to develop the market for the plant-based Price @ 26th August 2020 (RM) 139.20
products
 Pushing on with new product launches that have been Expected share price return (%) +3.4
withheld in 1HFY20
Expected dividend yield (%) +2.0
 Maintain NEUTRAL stance with an unchanged TP of
RM143.90
Expected total return (%) +5.4

One of the most challenging periods may be over. We come SHARE PRICE CHART
back from Nestlé (M)’s analyst briefing feeling more optimistic on its
outlook. We opine that 1HFY20 may be one of its most challenging
periods and expect gradual recovery ahead. This can be supported by
the rebound in activities from its out of home segment, which was
negatively affected during the movement control order (MCO).
Notably, the others segment had swung into a loss during the first half
due to lower revenue. We believe that the segment should pick up
again as the hotel, restaurant and café (HORECA) segment started to
allow dining in.
New capacity for Maggi and plant-based products. Updating on Share price performance (%) Absolute Relative
the RM280m capex allocated to upgrade its current capacity for Maggi 1 month 0.5 2.7
products, management guided that the production capacity will be 3 months 0.6 -5.2
able meet demand for the next 10 years. The new capacity will include
12 months -5.6 -2.3
Maggi noodles and other Maggi culinary products. On top of that, the
new high technology line in Shah Alam will be for plant-based KEY STATISTICS
products. The plant will be one of the two in Asia, with the other one FBM KLCI 1,549.58
based in China to serve the market there. The plant-based product Syariah compliant Yes
capacity will be targeted for the local and Southeast Asia region for
Issue shares (m) 234.50
both consumer and business segments. Contribution from this new
Estimated free float (%) 18.70
product category may take time to build and is expected to be grow to
Market Capitalisation (RM’m) 32,994.15
a more significant number in the next five years. This is to capture the
trend of consumers from developed markets that substitute plant- 52-wk price range RM120 - RM149.9
based protein for meat protein. Beta vs FBM KLCI (x) 0.50

May take time to develop the market for the plant-based Monthly velocity (%) 11.02

products. While we are excited that Nestlé will be manufacturing its Monthly volatility (%) 4.23
new range of products in Malaysia, we believe that it may take time 3-mth average daily volume (m) 0.07
for the company to develop the market. This may include a lot of 3-mth average daily value (RM’m) 9.68
marketing and promotional activities to educate consumers at the Top Shareholders (%)
initial stage. On the other hand, the pricing point and the taste of the Nestlé SA 72.61
products will have to be adjusted for this region as we understand
EPF 7.91
that many plant-based proteins are priced at a premium compared to
Skim Amanah Saham Bumiputera 2.04
the equivalent of the meat-based proteins. As a developing market,
consumers may be more price sensitive so the product positioning of ANALYST
the new products may have to cater more specifically to the local Ng BEI SHAN
ng.bs@midf.com.my
market. As such, we believe that it may take time for consume to
03 -2173 8461
accept and switch to plant-based proteins.
Nestle (Malaysia) Berhad

Thursday, August 27, 2020

Pushing on with new product launches that have been withheld in 1HFY20. Due to the MCO, a number of its
products launches have been delayed and will be executed in 2HFY20, which is expected to drive sales. With the relaxation
in movement, the company expects to engage with physically with consumers within the allowed standard operating
procedures such as having on-ground samplings. Among some of the new products are Milo Fibre, Starbucks range,
Nescafé Gold Origins, Nescafé Iced Cappuccino, Nestlé Omega Plus Dark Chocolate and new Maggi Goreng flavours. It will
also continue to grow its digital channels, which spiked during the MCO period.
Maintain NEUTRAL stance with an unchanged TP of RM143.90. We opine that Nestlé will continue to deliver robust
earnings in the near future and positive growth in the long-term as it continues to future proof itself by adopting new
strategies to stay in touch with consumers evidently so with the pandemic. That said, we are keeping our DDM-derived
valuation and earnings unchanged. We maintain our NEUTRAL recommendation on the stock as valuations remain rich.
Upside risk to the stock include higher and sooner than expected contribution from its capex investment. Downside risks
include prolonged pessimistic consumer sentiment and spike in raw material prices.

INVESTMENT STATISTICS

Financial year ending 31st December

2018 2019 2020E 2021F 2022F
(in RM’m, unless otherwise stated)

Revenue 5,519.0 5,518.1 5,452.8 5,561.8 5,673.1

Cost of sales (3,381.4) (3,444.6) (3,435.2) (3,448.3) (3,443.5)

Gross profit 2,137.7 2,073.5 2,017.5 2,113.5 2,229.5

PBT 875.9 875.7 845.2 889.9 958.7

PAT 658.9 672.9 659.2 694.1 747.8

Normalised PAT 648.4 672.9 659.2 694.1 747.8

EPS (sen) 274.0 287.0 281.1 296.0 318.9

Normalised EPS (sen) 276.5 287.0 281.1 296.0 318.9

Net Dividend (sen) 280.0 280.0 282.0 296.0 319.0

Gross profit margin (%) 38.7 37.6 37.0 38.0 39.3

PBT margin (%) 15.9 15.9 15.5 16.0 16.9

Normalised PAT margin (%) 11.7 12.2 12.1 12.5 13.2

Normalised EPS growth (%) 2.1 3.8 253.8 5.3 7.7

Dividend yield (%) 2.0 2.0 2.0 2.1 2.2

PER (x) 51.4 49.5 50.5 48.0 44.5

Source: Company, MIDFR
Nestle (Malaysia) Berhad

Thursday, August 27, 2020

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BUY Total return is expected to be >10% over the next 12 months.

Stock price is expected to rise by >10% within 3-months after a Trading Buy rating has been
TRADING BUY
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