Wednesday 19 December 2012

Nestle (Malaysia) - More to go…


Due to the challenging market ahead, we continue to hold to our strong conviction stance on defensive and yield stocks such as Nestle. Generally, big cap consumer stocks are still trading at their respective +3SD of their 5-year average PER. As Nestle is currently trading at PERs of 32.9x FY11A, 31.1x FY12E and 29.6x FY13E respectively, we believe the stock valuation is still undemanding at this juncture as it is still below the +3SD of the mean at 33.4x. Coupled with the share price recent correction, we believe a Buy-on-Weakness strategy is hence appropriate on Nestle at this juncture as it still has relatively good dividend yields and fundamentals. Thus, we are reiterating our OUTPERFORM call on the stock  with an unchanged TP of RM72.10 based on 33.4x PER of its FY13E EPS.       

Breaching RM500m soon. Over the years, Nestle has consistently improved its NP and bringing it to new levels without fail. The company so far has registered a good 5-year CAGR in its NP of 11.5% as of 2011. We expect it to trigger the new NP level of RM500m next year buoyed by just a conservative revenue growth of 7.7% YoY. Its share price has also reached the all-time high at RM70.20 this year, arriving at a new record high PER of 34.1x. Despite the recent correction in Nov12 to the RM59.00 level due to the weaker market condition, the share price has since rebounded back to the RM63.00 level. Despite the ebb and flow of the market, even during when commodities prices were high to its disadvantage, the company has never disappointed its shareholders. This strong track record coupled with its continuous comprehensive effort in cost control leads us to continue to believe in the stock’s further positive growth ahead. 

Top pick for the quarter. Heading into 2013, we expect small to mediumsized companies to possible face a negative impact from the implementation of the minimum wage policy (effective Jan 2013). In this respect, we reckon that companies such as Nestle would have a better scale of operation to minimise the impact. As a result, we have picked Nestle as our Top pick for the first quarter of 2013.      

Decent dividend yield.  On top on that, we expect the company to pay out RM2.00 in dividend for FY13, which translates into a still decent NDY of 3.1%. Meanwhile, we are maintaining our FY12 and FY13 net profit forecasts at RM482.1m and RM507.1m respectively.

Maintain OUTPERFORM. We have upgraded the stock rating back to an OUTPERFORM on 5 Dec 2012. Since then, the stock has appreciated 4.9%. Currently, Nestle is trading at PERs of 32.9x FY11A, 31.1x FY12E and 29.6x FY13E respectively. Generally, big cap consumer stocks are still trading at their respective +3SD of their 5-year average PER. As Nestle is currently trading at PERs of 32.9x FY11A, 31.1x FY12E and 29.6x FY13E respectively, we believe the stock valuation is still undemanding at this juncture as it is still below the +3SD of the mean at 33.4x. Thus, we are reiterating our OUTPERFORM call with an unchanged TP of RM72.10 based on 33.4x PER over its FY13E EPS.   

Source: Kenanga

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