TA Securities maintains Sell on Nestle, raises target price to RM66.91

Business & Markets 2013
Written by Charlotte Chong of the edgedaily.com
Monday, 06 May 2013 14:55
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KUALA LUMPUR (May 6): TA Research has maintained its Sell rating on
NESTLE (M) BHD [] at RM62.44 with a higher target price of RM66.91
(from RM62.11), on the back of Nestle’s increased capex to over
RM200 million.
TA Research said in its note today that albeit the positive outlook in
terms of earnings growth and return on equity, dividend payout had
been reduced to 94%-96% previously to consider for the increased
capex and the yield on the stock is only expected to range between
3.6% to 5.2% in FY13-FY16.
It said Nestle held its analysts’ briefing last Friday following the
announcement of its 1QFY13 set of results.
TA Research some of the key takeaways and adjustments made to its
forecast following the briefing:
1) Domestic revenue grew by 6.9% year-on-year, meanwhile export revenue showed some recovery;
2) Revenue adjusted upwards in tandem with increasing capex for new capacities;
3) Earnings before interest and taxes (EBIT) margin grew by 1.8ppt year-on-year;
4) EBIT margin expected to grow by 1.3ppt in FY13 on the back of stronger sales, easing commodity prices and cost saving
initiatives.
“We do expect it to continue stride to market its products aggressively, the resilient demand for its product, improving
economic climate within the Asia region and most of all the new capacities in Shah Alam,” said TA Research.
TA Research has adjusted the earnings upwards by 1.4%/5.4%/11.0% for FY13/FY14/FY15 respectively.
“We have also maintained our effective tax rate at 23% for the next four years to consider for the tax benefit expected
from its halal hub investments.”
Nestle Malaysia had announced that its net profit for first quarter to end-March 2013 was RM184.42 million – a 16.6%
higher than RM158.08 million posted in the first quarter of previous financial year.
Its revenue was also up at RM1.23 billion, from RM1.16 billion.