Nestle (M) (NESZ MK)
Getting Out Of The Woods; U/G To BUY
(from Neutral)
| Target Price (Return): | MYR95.00 (+15%) |
| Price (Market Cap): | MYR82.32 (USD4,577m) |
| ESG score: | 3.4 (out of 4) |
| Avg Daily Turnover (MYR/USD) | 9.39m/2.20m |
Analyst
Soong Wei Siang
+603 2302 8130
soong.wei.siang@rhbgroup.com
Chart: Nestle (M) (NESZ MK) Price Performance
A line chart shows the stock price (Price Close) from July 2024 to July 2025, generally trending downwards from a high of around 116 to a low near 80, with a slight recovery towards the end of the period. A second line shows its performance relative to the FBM KLCI, which also shows a declining trend.
Share Performance (%)
| YTD | 1m | 3m | 6m | 12m | |
|---|---|---|---|---|---|
| Absolute | (17.7) | 8.5 | 2.9 | (9.5) | (32.4) |
| Relative | (11.5) | 6.8 | 0.7 | (7.4) | (27.4) |
| 52-wk Price low/high (MYR) | 62.2 – 122 | ||||
Key Highlights
- Upgrade to BUY from Neutral, TP rises to MYR95 from MYR77, 15% upside with 3% FY26F yield. Nestle (M)’s 1H25 results are above expectations as we expect its recovery to pick up ahead, spurred by margin expansion. This, together with the demand normalisation stemming from improving sentiment on its brands, leads us to believe that its prospects may have turned the corner. We upgrade our call to BUY, as we think its comeback is timely in view of the pick-up in investor appetite for defensive stocks amidst uncertain market conditions.
- 1HFY25 results are above expectations. NESZ’s 1H25 core net profit of MYR284m (-5% YoY) comprises 54-60% of our and Street full-year forecasts due to strong sales traction. We also expect a margin recovery ahead, on easing commodity prices. Post results, we raise FY25-27F earnings by 8%, 7%, 3% after imputing higher sales growth and GPM assumptions. We also revise our DCF risk assumptions to factor in the demand recovery. Correspondingly, our DCF-derived TP rises to MYR95 (inclusive of an 8% ESG premium), which implies 34x P/E FY26F, below the stock’s 5-year mean.
- Results review. YoY, 1H25 revenue grew 4% to MYR3.4bn, driven by robust export sales and a gradual domestic market recovery. 1H25 GPM slipped 1ppt to 30.4%, reflecting the persistent cost pressures from elevated commodity prices – but there are showing signs of easing, as evidenced by YoY improvement in 2Q25 GPM. With 1H25 opex rising in tandem with the topline, 1H25 core net profit slid 5% YoY to MYR284m. QoQ, 2Q25 revenue was 6% lower due to the softer seasonality, with 1Q25 boosted by the Lunar New Year and Aidil Fitri festival season. Correspondingly, core net profit fell 24% QoQ to MYR123m on lower GPM and an unfavourable swing in marketing expenses. A first DPS of 70 sen was declared (1H24: 70 sen).
- The worst could be over. We take comfort from the return of topline growth and believe it is sustainable, premised on NESZ’s effective marketing engagements to stimulate consumer spending and the normalising sentiment on Nestle brands. On top of that, the fall in key commodity prices including that of coffee, cocoa, wheat and sugar (Figures 2-5) should propel a margin recovery as early as 2H25, further aided by a stronger MYR. Meanwhile, consumption of staple food products should remain resilient, underpinned by wage growth and continuous fiscal support extended to the lower income groups. This, together with the group’s quality product offering and entrenched distribution channels, will provide earnings visibility – notwithstanding the challenging business environment and uncertain economic outlook.
- Risks to our recommendation include sharp spikes in commodity prices and a weaker-than-expected market share.
Forecasts and Valuation
| Dec-23 | Dec-24 | Dec-25F | Dec-26F | Dec-27F | |
|---|---|---|---|---|---|
| Total turnover (MYRm) | 7,051 | 6,225 | 6,723 | 7,059 | 7,341 |
| Recurring net profit (MYRm) | 750 | 452 | 565 | 656 | 682 |
| Recurring net profit growth (%) | 21.0 | (39.8) | 25.0 | 16.1 | 4.0 |
| Recurring P/E (x) | 25.72 | 42.72 | 34.17 | 29.42 | 28.29 |
| P/B (x) | 28.6 | 35.3 | 34.9 | 34.5 | 34.1 |
| P/CF (x) | 15.13 | 34.62 | 22.12 | 19.30 | 18.32 |
| Dividend Yield (%) | 3.3 | 2.2 | 2.9 | 3.4 | 3.5 |
| EV/EBITDA (x) | 17.40 | 24.38 | 19.20 | 17.01 | 16.34 |
| Return on average equity (%) | 101.4 | 68.0 | 102.7 | 117.9 | 121.2 |
| Net debt to equity (%) | 105.0 | 199.7 | 209.9 | 213.8 | 222.0 |
Overall ESG Score: 3.4 (out of 4)
E Score: 3.0 (GOOD)
S Score: 3.7 (EXCELLENT)
G Score: 3.7 (EXCELLENT)
Please refer to the ESG analysis on the next page
Emissions And ESG
Trend analysis
NESZ’s emissions decreased YoY in 2024, largely thanks to the ongoing operation of its biomass boiler and a series of targeted efficiency improvements across its operations.
| Emissions (tCO2e) | Dec-22 | Dec-23 | Dec-24 | Dec-25 |
|---|---|---|---|---|
| Scope 1 | 59,920 | 52,073 | 42,186 | na |
| Scope 2 | na | 662 | 1,961 | na |
| Scope 3 | 10,913 | 20,515 | 16,208 | na |
| Total emissions | 70,833 | 73,250 | 60,355 | na |
Latest ESG-Related Developments
NESZ has progressed ahead of its commitment to reduce 50% of total emissions by 2030. It remains actively engaged in reforestation efforts through Project RELead, having >2m trees planted as of 2024 vs its target of 3m trees by 2025. It has also provided employment opportunities to 386 young professionals, while training and engaging nearly 25,000 youths through various initiatives.
ESG Unbundled
Overall ESG Score: 3.4 (out of 4)
Last Updated: 31 May 2025
E Score: 3.0 (GOOD)
NESZ has been able to achieve key milestones, as it works towards long-term targets: Achieving plastic neutrality by 2025, reducing GHG emissions by at least 50% from its 2018 baseline by 2030, and ensuring that 95% of its plastic packaging is designed for recycling by 2025.
S Score: 3.7 (EXCELLENT)
NESZ continues to champion healthier lifestyles by introducing innovative products, further expanding its portfolio of products certified with the Ministry of Health’s Healthier Choice Logo (HCL). As of 2024, 49 of its products or 25% of its entire product range are HCL-certified.
G Score: 3.7 (EXCELLENT)
A comprehensive governance framework ensures transparency, accountability and trust across its operations and value chain, from sourcing raw materials to delivering products to consumers.
ESG Rating History
Chart: ESG Rating History
A bar chart showing a consistent ESG rating of 3.3 from Jul-23 to Jul-25.
Financial Exhibits
Company Profile
Nestle (M) markets and sells powdered milk and drinks, liquid milk and juices, instant coffee, and instant noodles. The company also manufactures and provides packaging for culinary and chocolate-based food products and trades flavouring ingredients.
Key drivers
- Buoyant consumer sentiment;
- Market share gain.
Key risks
- Sharp rise in production costs;
- Intense competition.
Financial summary (MYR)
| Dec-23 | Dec-24 | Dec-25F | Dec-26F | Dec-27F | |
|---|---|---|---|---|---|
| Recurring EPS | 3.20 | 1.93 | 2.41 | 2.80 | 2.91 |
| DPS | 2.68 | 1.79 | 2.39 | 2.77 | 2.88 |
| BVPS | 2.88 | 2.33 | 2.36 | 2.39 | 2.42 |
| Return on average equity (%) | 101.4 | 68.0 | 102.7 | 117.9 | 121.2 |
Valuation metrics
| Dec-23 | Dec-24 | Dec-25F | Dec-26F | Dec-27F | |
|---|---|---|---|---|---|
| Recurring P/E (x) | 25.72 | 42.72 | 34.17 | 29.42 | 28.29 |
| P/B (x) | 28.6 | 35.3 | 34.9 | 34.5 | 34.1 |
| FCF Yield (%) | 4.8 | 1.4 | 3.0 | 3.6 | 3.9 |
| Dividend Yield (%) | 3.3 | 2.2 | 2.9 | 3.4 | 3.5 |
| EV/EBITDA (x) | 17.40 | 24.38 | 19.20 | 17.01 | 16.34 |
| EV/EBIT (x) | 21.31 | 33.49 | 24.82 | 21.59 | 20.82 |
Income statement (MYRm)
| Dec-23 | Dec-24 | Dec-25F | Dec-26F | Dec-27F | |
|---|---|---|---|---|---|
| Total turnover | 7,051 | 6,225 | 6,723 | 7,059 | 7,341 |
| Gross profit | 2,231 | 1,885 | 2,151 | 2,329 | 2,423 |
| EBITDA | 1,150 | 837 | 1,066 | 1,205 | 1,258 |
| Depreciation and amortisation | (211) | (228) | (241) | (256) | (271) |
| Operating profit | 939 | 609 | 824 | 950 | 988 |
| Net interest | (61) | (64) | (81) | (86) | (90) |
| Pre-tax profit | 879 | 544 | 743 | 863 | 898 |
| Taxation | (219) | (129) | (178) | (207) | (215) |
| Reported net profit | 660 | 415 | 565 | 656 | 682 |
| Recurring net profit | 750 | 452 | 565 | 656 | 682 |
Results At a Glance
Figure 1: Results summary
| FYE Dec (MYRm) | 2Q24 | 1Q25 | 2Q25 | QoQ (%) | YoY (%) | 1H24 | 1H25 | YoY (%) | Comments |
|---|---|---|---|---|---|---|---|---|---|
| Revenue | 1,523.3 | 1,768.2 | 1,668.4 | (5.6) | 9.5 | 3,305.8 | 3,436.7 | 4.0 | 2Q25 is the first quarter with positive growth since 4Q23; driven by an improvement in both its domestic and export markets. |
| Gross profit | 443.7 | 547.3 | 496.3 | (9.3) | 11.9 | 1,036.0 | 1,043.6 | 0.7 | |
| Gross margin (%) | 29.1 | 31.0 | 29.7 | (1.2) | 0.6 | 31.3 | 30.4 | (1.0) | Cost pressures start to ease. |
| EBIT | 126.0 | 229.5 | 164.7 | (28.3) | 30.7 | 399.4 | 394.2 | (1.3) | |
| EBIT Margin (%) | 8.3 | 13.0 | 9.9 | (3.1) | 1.6 | 12.1 | 11.5 | (0.6) | |
| Core Profit | 93.6 | 161.3 | 123.0 | (23.8) | 31.4 | 300.1 | 284.3 | (5.3) | At 54%-60% of the forecasts |
| Net Margin (%) | 6.1 | 9.1 | 7.4 | (1.8) | 1.2 | 9.1 | 8.3 | (0.8) | First DPS of 70 sen was declared (1H24: 70 sen) |
Figure 2: Trend of cocoa prices
A line chart shows USD/MT prices from June 2023 to June 2025, rising dramatically from ~3000 to a peak of ~11000 before declining.
Figure 3: Trend of wheat prices
A line chart shows USD/BU prices from July 2023 to Jan 2025, fluctuating between 550 and 750, with a general downward trend.
Figure 4: Trend of coffee prices
A line chart shows USD/Lbs prices from May 2023 to May 2025, fluctuating mainly between 150 and 250, with a peak around 250.
Figure 5: Trend of sugar prices
A line chart shows USD Cents/LB prices from July 2020 to July 2024, trending upwards from ~12 to a peak near 28, then declining.
Recommendation Chart
Chart: Recommendations & Target Price vs Price Close
A line chart showing Nestle’s stock price from Jul-20 to Jan-25. The price trended down from ~140 to ~130, then sharply fell from mid-2023 to a low around 80 in late 2024, followed by a slight recovery.
| Date | Recommendation | Target Price | Price |
|---|---|---|---|
| 2025-04-29 | Neutral | 77 | 84 |
| 2025-02-26 | Sell | 77 | 88 |
| 2024-10-25 | Neutral | 103 | 100 |
| 2024-07-26 | Neutral | 119 | 116 |
| 2024-02-28 | Neutral | 131 | 124 |
| 2023-10-26 | Neutral | 134 | 125 |
| 2023-07-27 | Neutral | 141 | 132 |
| 2023-04-25 | Neutral | 141 | 137 |
| 2023-02-21 | Neutral | 141 | 135 |
| 2022-10-26 | Neutral | 141 | 133 |
| 2022-04-26 | Neutral | 141 | 133 |
| 2022-02-22 | Neutral | 138 | 136 |
| 2021-11-02 | Neutral | 138 | 135 |
| 2021-10-13 | Neutral | 138 | 134 |
| 2021-08-24 | Neutral | 128 | 134 |
Disclosures and Disclaimers
RHB Guide to Investment Ratings
Buy: Share price may exceed 10% over the next 12 months
Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain
Neutral: Share price may fall within the range of +/- 10% over the next 12 months
Take Profit: Target price has been attained. Look to accumulate at lower levels
Sell: Share price may fall by more than 10% over the next 12 months
Not Rated: Stock is not within regular research coverage
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