KUALA LUMPUR, Nov 13 — AmInvestment Bank maintained its “underweight” recommendation on Nestle (Malaysia) Bhd with an unchanged fair value of RM111.09 based on a discounted cash flow valuation.
As the company is trading at a hefty 45.4 times its financial year 2020 (FY20) forecast price-earnings ratio, the stock is fully valued, it said.
“Nevertheless, we like Nestle for its established presence, positioning as the market leader in the fast-moving consumer goods space and efforts to streamline its operations, which should translate into improved operating profit margins.
“We believe that Nestle’s growth will be buoyed by the completion of its Chembong plant in Negeri Sembilan, which will expand the capacity for its Milo products.
“With higher capacity, we expect earnings before interest, tax, depreciation and amortisation margins to remain decent as the group achieves better economies of scale,” the investment bank said in a note today.
AmInvestment anticipated the global food giant’s FY19 and FY20 forecast earnings before interest and tax margins to be 17.2 per cent and 17.6 per cent respectively, supported by operational savings from the streamlining of the group’s supply chain and commissioning of its Chembong plant in FY20 (forecast).
Meanwhile, Kenanga Research maintained its “underperform” call on the company with an unchanged target price of RM128.
“The persistently steep valuation is largely attributed to the defensive quality of its business model and positioning as one of the very few large-cap food and beverage stocks, as well as being a component stock in the FTSE Bursa Malaysia KLCI, warranting above-mean valuations for now.
“Risks to our call include stronger-than-expected sales, more favourable commodity prices, and lower-than-expected operating costs,” it said.
Nestle Malaysia’s net profit rose 8.2 per cent to RM148.99 million for the third quarter ended September 30, 2019 from RM137.69 million a year ago, on strong profit margins.
At 2.57pm, shares of Nestle rose by 60 sen to RM145.90 with 20,100 shares traded. — Bernama
