COMPANY UPDATE
Monday, July 28, 2025
FBMKLCI: 1,533.76
Sector: Consumer
IS REPORT IS STRICTLY FOR INTERNAL CIRCULATION ONLY*
Nestlé (Malaysia) Berhad The Worst Is Over
Sales Momentum Expected to Continue in 2H
Nestlé delivered robust topline growth of 9.5% YoY in 2QFY25 (Figure 1), supported by solid performances across both domestic (+6.3% YoY to RM1.3bn) and export markets. The domestic market benefited from market share recovery from competitors, leading to strong volume growth in 2Q. Meanwhile, we gather that the group continues to hold leadership positions in key product categories such as Milo and Maggi. Besides, export sales surged 21.2% YoY to RM394.0mn, underscoring Nestlé Malaysia’s role as the Group’s largest Halal manufacturing hub. Management noted that the pickup in export momentum was primarily driven by higher volumes from its existing customers.
Looking ahead, we expect Nestlé’s growth momentum to continue in 2H, supported by the RM100 one-off government credit, improving consumer sentiment, and sustained export demand, especially from Asian countries. As such, we forecast 2HFY25 turnover to grow by 12.1% YoY to RM3.3bn, from RM2.9bn in 2HFY24.
Share Information
| Bloomberg Code | NESZ MK |
| Stock Code | 4707 |
| Listing | Main Market |
| Share Cap (mn) | 234.5 |
| Market Cap (RMmn) | 20,049.8 |
| 52-wk Hi/Lo (RM) | 122.8/61.8 |
| 12-mth Avg Daily Vol (‘000 shrs) | 99.2 |
| Estimated Free Float (%) | 25.3 |
| Beta | 0.8 |
| Major Shareholders (%) | |
| Nestle SA | 72.6 |
| EPF | 12.9 |
Figure 1: Nestlé’s 1H Sales Comparison (RM’mn)
| Period | Domestic | Export | Total | YoY Growth |
|---|---|---|---|---|
| 2QFY24 | 1198 | 325 | 1523 | – |
| 2QFY25 | 1274 | 394 | 1668 | +9.5% |
| 1HFY24 | 2620 | 686 | 3306 | – |
| 1HFY25 | 2649 | 787 | 3436 | +4.0% |
Source: Company, TA Securities
Figure 2: Historical Sales Breakdown (RM’mn)
| Period | Domestic | Export | Total |
|---|---|---|---|
| 1QFY24 | 1422 | 361 | 1783 |
| 2QFY24 | 1198 | 325 | 1523 |
| 3QFY24 | 1084 | 362 | 1446 |
| 4QFY24 | 1090 | 383 | 1473 |
| 1QFY25 | 1375 | 393 | 1768 |
| 2QFY25 | 1274 | 394 | 1668 |
Source: Company, TA Securities
Financial Indicators
| FY25 | FY26 | |
|---|---|---|
| Net debt/equity (%) | 167.5 | 150.8 |
| ROE (%) | 88.2 | 87.6 |
| ROA (%) | 12.8 | 13.0 |
| NTA/Share (RM) | 1.5 | 1.7 |
| Price/NTA (x) | 55.8 | 51.7 |
Share Performance (%)
| Price Change | NESTLE | FBM KLCI |
|---|---|---|
| 1 mth | 10.2 | 0.9 |
| 3 mth | 6.9 | 1.6 |
| 6 mth | (6.0) | (2.5) |
| 12 mth | (29.9) | (5.0) |
Gross Profit Margin Remains Resilient
Management highlighted that cocoa and coffee prices have surged by approximately 60-90% YoY. Despite these cost headwinds, Nestlé’s gross profit (GP) margin remained solid at 30.4% in 1HFY25. This was supported by earlier price adjustments made in 1H, strategic procurement strategies, improved operational efficiency, and a stronger Ringgit. Assuming input costs remain stable in 2H, we reckon minimal further adjustments as the group prioritises product affordability. Notably, several key commodity prices have shown a downward trend in 1HFY25 (Figure 3). Coupled with proactive cost control measures, we expect GP margin to improve by 0.7%-pts YoY to 31.0% in FY25.
Figure 3: Key Commodity Prices in 1HFY25
Notable prices observed in 1HFY25:
- Robusta (LHS): Peaked around 11,545 USD/Tonne, later trending to near 5,000 USD/Tonne.
- Cocoa (LHS): High of approximately 8,555 USD/Tonne.
- Arabica (RHS): Peaked at 319 USD/Lbs, later trending down towards 250 USD/Lbs.
Source: Company, TA Securities
More Marketing Campaigns in 2H
Operating expenses rose 4.0% YoY to RM649.4mn in 1HFY25, mainly attributed to higher marketing investments. These included festive campaign spending, promotional activities for new product launches (i.e., KitKat Dark made with Borneo cocoa, Maggi flavouring products), as well as broader brand-building initiatives.
Moving into 2H, management guided that advertising expenses will remain elevated due to: i) heightened promotional efforts tied to Milo’s 75th anniversary celebrations, and ii) additional product launches for the remainder of the year. We view these initiatives as supportive of topline growth, with the potential to strengthen brand equity, enhance customer loyalty, and reinforce Nestlé’s market leadership.
Impact & Valuation
Impact
We raise our FY25/26/27F earnings forecasts by 7.6%/6.8%/5.3%, respectively, following higher sales assumptions of 5.3% across FY25-27F.
Valuation
Post earnings adjustments, we raise our TP to RM102.80/share (previously: RM100.80/share), based on DDM valuation (k: 6.3%, g: 3.0%). Maintained BUY.
Table 1: Valuation Method
| DDM Valuation | |
|---|---|
| Rf | 3.8% |
| Rm | 10.0% |
| Beta | 0.4 |
| Discount Rate | 6.3% |
| Total NPV (RM mn) | 22,949.5 |
| Share Outstanding (mn share) | 234.5 |
| DDM/share | 97.90 |
| ESG Premium: +5% | 4.90 |
| DDM/share | 102.80 |
Earnings Summary
PROFIT & LOSS (FYE Dec 31, RM’mn)
| FY23 | FY24 | FY25E | FY26F | FY27F | |
|---|---|---|---|---|---|
| Revenue | 7,050.9 | 6,224.7 | 6,713.0 | 6,847.2 | 6,984.2 |
| EBITDA | 1,150.5 | 830.4 | 963.2 | 1,027.0 | 1,095.7 |
| EBIT | 939.3 | 609.0 | 730.8 | 798.0 | 865.5 |
| Reported PBT | 879.1 | 544.4 | 666.9 | 705.4 | 763.7 |
| Reported Net Profit | 659.9 | 415.6 | 503.5 | 532.6 | 580.4 |
| Exceptional Items | (123.3) | 8.9 | |||
| Adj. Net Profit | 783.1 | 406.7 | 503.5 | 532.6 | 580.4 |
| EPS (sen) | 281.4 | 177.2 | 214.7 | 227.1 | 247.5 |
| Adj. EPS (sen) | 334.0 | 173.4 | 214.7 | 227.1 | 247.5 |
| PER (x) | 25.6 | 49.3 | 39.8 | 37.6 | 34.5 |
| DPS (%) | 268.0 | 179.0 | 195.0 | 215.0 | 235.0 |
| Div. Yield (%) | 3.1 | 2.1 | 2.3 | 2.5 | 2.7 |
BALANCE SHEET (FYE Dec 31, RM’mn)
| FY23 | FY24 | FY25E | FY26F | FY27F | |
|---|---|---|---|---|---|
| PPE | 1,987.2 | 2,067.7 | 2,035.3 | 2,046.3 | 2,056.1 |
| Goodwill | 234.4 | 234.4 | 234.4 | 234.4 | 234.4 |
| Inv (Asso. + subsidiary) | 6.0 | 5.3 | 6.1 | 6.8 | 7.6 |
| Deferred tax asset | 26.8 | 12.0 | 12.0 | 12.0 | 12.0 |
| Others | 8.9 | 9.6 | 9.6 | 9.6 | 9.6 |
| Non Current Assets | 2,263.2 | 2,328.9 | 2,297.3 | 2,309.0 | 2,319.6 |
| Inventories | 831.4 | 831.3 | 1,011.5 | 1,031.8 | 1,052.4 |
| Receivables | 463.0 | 433.6 | 459.8 | 469.0 | 478.4 |
| Cash | 11.0 | 11.2 | 9.9 | 12.0 | 16.4 |
| Others | 0.6 | 44.6 | 44.6 | 44.6 | 44.6 |
| Current Assets | 1,306.0 | 1,320.8 | 1,525.8 | 1,557.4 | 1,591.8 |
| Total Assets | 3,569.2 | 3,649.7 | 3,823.1 | 3,866.4 | 3,911.4 |
| Borrowings | 300.0 | 300.0 | 300.0 | 300.0 | 300.0 |
| Non Current Liabilities | 756.4 | 684.6 | 684.6 | 684.6 | 684.6 |
| Borrowings | 419.8 | 804.7 | 754.7 | 734.7 | 714.7 |
| Payables | 1,671.6 | 1,570.1 | 1,747.2 | 1,782.2 | 1,817.8 |
| Current liabilities | 2,137.9 | 2,417.6 | 2,544.7 | 2,559.7 | 2,575.3 |
| Total liabilities | 2,894.3 | 3,102.2 | 3,229.3 | 3,244.3 | 3,259.9 |
| Share capital | 267.5 | 267.5 | 267.5 | 267.5 | 267.5 |
| Reserves | 407.4 | 280.0 | 326.3 | 354.6 | 384.0 |
| Total Equities | 674.9 | 547.5 | 593.8 | 622.1 | 651.5 |
| Liabilities and Equities | 3,569.2 | 3,649.7 | 3,823.1 | 3,866.4 | 3,911.4 |
CASH FLOW (FYE Dec 31, RM’mn)
| FY23 | FY24 | FY25E | FY26F | FY27F | |
|---|---|---|---|---|---|
| PBT | 879.1 | 544.4 | 666.9 | 705.4 | 763.7 |
| CFO | 1,276.2 | 557.6 | 705.9 | 766.3 | 815.5 |
| CFI | (501.5) | (295.2) | (200.0) | (240.0) | (240.0) |
| CFF | (604.7) | (497.1) | (507.3) | (524.2) | (571.1) |
| Net change in cash | 170.0 | (234.7) | (1.4) | 2.1 | 4.4 |
FINANCIAL RATIOS (FYE Dec 31)
| FY23 | FY24 | FY25E | FY26F | FY27F | |
|---|---|---|---|---|---|
| P/NTA (x) | 45.5 | 64.0 | 55.8 | 51.7 | 48.1 |
| ROE (%) | 120.4 | 66.5 | 88.2 | 87.6 | 91.1 |
| ROA (%) | 21.7 | 10.9 | 13.1 | 13.7 | 14.8 |
| Net Gearing (x) | 1.1 | 2.0 | 1.8 | 1.6 | 1.5 |
| EBIT Margin (%) | 13.3 | 9.8 | 10.9 | 11.7 | 12.4 |
| Net Margin (%) | 11.1 | 6.5 | 7.5 | 7.8 | 8.3 |
| Revenue Growth (%) | 5.8 | (11.7) | 7.8 | 2.0 | 2.0 |
| EBIT Growth (%) | 4.0 | (35.2) | 20.0 | 9.2 | 8.5 |
| Net Profit Growth (%) | 16.3 | (48.1) | 23.8 | 5.8 | 9.0 |
Recommendation Guidelines
Sector Recommendation Guideline
- OVERWEIGHT: The total return of the sector, as per our coverage universe, exceeds 12%.
- NEUTRAL: The total return of the sector, as per our coverage universe, is within the range of 7% to 12%.
- UNDERWEIGHT: The total return of the sector, as per our coverage universe, is lower than 7%.
Stock Recommendation Guideline
- BUY: Total return of the stock exceeds 12%.
- HOLD: Total return of the stock is within the range of 7% to 12%.
- SELL: Total return of the stock is lower than 7%.
Total Return of the stock includes expected share price appreciation, adjustment for ESG rating and gross dividend. Gross dividend is excluded from total return if dividend discount model valuation is used to avoid double counting.
ESG Scoring & Guideline
| Environmental | Social | Governance | Average | |
|---|---|---|---|---|
| Scoring | ★★★★★ | ★★★★★ | ★★★★★ | ★★★★★ |
| Remark | High conviction in driving energy savings, water stewardship, waste and GHG reduction. It has established Nestlé Responsible Sourcing Standard to minimise carbon footprint and create sustainable supply of raw material. Committed to purchasing sustainable cocoa, coffee, RSPO palm oil and others. | Scored highly in community enrichment programmes and has extensive training with emphasis on safety. Leader in driving innovations for healthier food options. | The board is well represented by 57% independent directors and has decent gender diversity. Nestlé has a dividend policy of 95%. |
| Rating | Effect on Target Price |
|---|---|
| ★★★★★ (≥80%) | +5% premium to target price |
| ★★★★ (60-79%) | +3% premium to target price |
| ★★★ (40-59%) | No changes to target price |
| ★★ (20-39%) | -3% discount to target price |
| ★ (<20%) | -5% discount to target price |
Disclaimer
The information in this report has been obtained from sources believed to be reliable. Its accuracy and/ or completeness is not guaranteed and opinions are subject to change without notice. This report is for information only and not to be construed as a solicitation for contracts. We accept no liability for any direct or indirect loss arising from the use of this document. We, our associates, directors, employees may have an interest in the securities and/or companies mentioned herein.
As of Monday, July 28, 2025, the analyst, Liew Yi Jiet, who prepared this report, has interest in the following securities covered in this report: (a) nil
