Affin IB Research maintains Reduce on Nestle, raises target price

Affin IB Research maintains Reduce on Nestle, raises target price
Business & Markets 2013
Written by theedgemalaysia.com
Friday, 05 July 2013 08:38

KUALA LUMPUR (July 5): Affin IB Research has maintained its Reduce rating on Nestle (M) Bhd at RM69 with a higher target price of RM67.05 (from RM62.20) and said it was positive on Nestle’s move for the reasonable price increase.

It said that on June 5, Nestle’s MD mentioned that the group will raise the prices of its dairy products by between 4% to 8% in the middle of this year, as the global dairy price has increased significantly.

“We confirmed this with management yesterday and gathered that Nestle is set to increase prices of its: 1) mainstream milk; 2) adult milk; 3) infant milk formula and 4) infant cereals products soon,” the research house said in a note Friday.

“While we do not know the exact quantum of price increase yet, we are building in an average +5% price increase for all its milk products. Given that the demand for its products, deemed as a household staples, are inelastic, our FY13-15 net profit forecast is lifted by +2.7% to +5.7%,” it said.

Affin IB Research said all in, it liked Nestlé for: 1) its proven track record in strong brand and cost management; 2) resilient demand for its products, and; 3) generous dividend payouts (>95%).