KUALA LUMPUR, Aug 13 ― Kenanga Research has maintained an “outperform” call on Nestle (Malaysia) Bhd with an unchanged target price of RM76.10.
In a note today, Kenanga said that Nestle remained an attractive laggard play in the consumer food and beverage sub-sector with year-to-date performance of negative 0.4 per cent, despite its stable growth history and decent dividend yield.
Nestle's pre-tax profit fell to RM155.05 million for the second quarter ended June 30, 2014 from RM174.18 million recorded in the same quarter last year.
It also noted that Nestle's financial year 2014 estimate (FY14E) expected earnings growth of 12.4 per cent was the second highest among its peers, next to QL Resources.
The research house expected Nestle's margins to improve in the second half of 2014 (2H14) towards the three-year average operating margin of 14.5 per cent.
“We believe the impending Goods and Services Tax could provide a near-term sales boost in 4Q14-1Q15.
“Based on our study of previous consumption tax hikes, consumers tend to bulk-buy in the six to nine months prior to the tax hike,” it said.
Meanwhile, Hong Leong Investment Bank (HLIB) Research maintained its “hold” call on Nestle with a target price of RM67.16.
“It is driven by its strong brand name with market leader status under its leading brands, sustainable earnings with strong dividend payout and low maintenance capital expenditure requirements,” HLIB said.
Maybank Investment Bank Research maintained a “hold” call on Nestle with an unchanged target price of RM67.70.
The research house said the 1H14 was slower than normal due to higher marketing expenses and commodity prices.
“Management has since put through price increases to counter rising raw material costs and some raw material prices have since softened,” Maybank added.
The research house added that price increases should however allow Nestle to play catch-up in second half of this year. ― Bernama
