NESTLE: Strong Sales Momentum and Margin Recovery Drive Upgraded Outlook

Investment bank TA SECURITIES has reiterated a “BUY” recommendation, adjusting its target price following a robust financial performance and an improved future outlook for the company. The bank cited strong sales momentum, anticipated margin recovery, and strategic initiatives as key drivers for its positive revision.

Performance Review

The company demonstrated significant growth in the third quarter of fiscal year 2025 (3Q FY25), with quarterly revenue surging 21.9% year-on-year to RM1.8 billion. This impressive performance was fueled by double-digit growth in both domestic and export markets. Domestic sales benefited from volume expansion, heightened demand, and the disbursement of government cash aid. Export sales growth was attributed to higher volumes and strategic pricing adjustments.

However, the gross profit (GP) margin softened to 29.5% in 3Q FY25 (down from 31.3% in 3Q FY24) due to elevated input costs, particularly for cocoa and coffee. Furthermore, nine-month FY25 (9M FY25) core earnings saw only a marginal 0.6% year-on-year growth, impacted by a one-off RM14.4 million underprovision of prior-year tax expenses in 3Q FY25, which is expected to normalize in 4Q.

Future Outlook and Strategic Drivers

TA SECURITIES expects the sales momentum to remain solid in 4Q, bolstered by ongoing initiatives to recapture market share and sustained export demand. Consumers are also anticipated to fully utilize the remaining government cash aid, providing an additional uplift to volume growth. Crucially, the moderation in key commodity prices is projected to drive a significant improvement in GP margin to 31.7% in FY26, benefiting from the company’s hedging policies and procurement strategies’ time-lag effect.

The bank also noted that the company is well-positioned to sustain commendable growth, aided by the one-off government cash assistance and stringent cost controls. Sales assumptions for FY25-FY27 were adjusted upward by 4.3% to 4.7%, reflecting a stronger-than-expected recovery and robust festive sales into 1Q FY26, further supported by an additional RM100 cash aid in February 2026. Consequently, earnings forecasts for FY25-FY27 have been revised upward by 3.2% to 3.8%.

Recommendation and Target Price

Based on its revised earnings and dividend assumptions, TA SECURITIES has upgraded its target price to RM125.90 per share (from RM102.80 previously), derived from a Dividend Discount Model (DDM) valuation, and reiterated its “BUY” recommendation.