NESTLE: Retailer Reports Strong FY25 Performance, Maintains Neutral Outlook

A leading regional retailer concluded its financial year 2025 with robust performance, reporting core net profit that met market expectations. The company demonstrated significant revenue growth driven by strategic store expansion and enhanced operational efficiencies, though its target price has been slightly adjusted downwards with a maintained “Neutral” recommendation from RHB Investment Bank.

Performance Review

The retailer’s core net profit for FY25 reached MYR614 million, marking a 20% year-on-year increase and aligning closely with 98% of both the investment bank’s and consensus forecasts. This strong showing was supported by a 15% surge in FY25 revenue, totaling MYR11.4 billion. Key drivers included the addition of 259 net new stores, representing a 9% expansion, and a healthy same-store sales growth (SSSG) of 7.8%, partly boosted by government initiatives like Sumbangan Asas Rahmah (SARA).

Gross profit margin (GPM) expanded by 0.3 percentage points to 11.4% for FY25, attributed to the rising scale of its network and sales. However, the fourth quarter of FY25 saw a 2% quarter-on-quarter dip in net profit to MYR157 million, primarily due to provisions made for staff bonuses and an increase in the effective tax rate. Operating expenses largely kept pace with topline growth throughout the year.

Analyst’s View and Valuation

Following the results, RHB Investment Bank made minor adjustments to its earnings forecasts and introduced FY28 projections. The bank maintains a “Neutral” recommendation for the stock, with a revised target price of MYR4.02, slightly down from MYR4.06. This revised target price implies a 46x FY26F P/E multiple. The bank notes that while the company holds a strategic market position to capitalize on consumer spending and government support, the positives may already be factored into the stock’s current valuation.

Future Outlook

The outlook for the retailer remains positive, particularly with the anticipated increase in budget allocation for the SARA initiative in 2026. With over 2,000 outlets activated for SARA, the company is well-positioned to benefit from rising disposable incomes among lower-income groups and the broader trend of consumers downtrading amidst inflationary pressures. Its extensive store network and strong consumer preference for mini-markets further solidify its market position.

Management’s strategies include diversifying sourcing options to enhance product offerings, developing a bulk sales platform, and expanding beyond Malaysia, which are expected to sustain earnings growth over the longer term. Potential downside risks to the recommendation include reputational or brand risks and unfavorable changes to the SARA initiative.