Company Info
My Analysis
Research House
Accounting Ratio
My notes based on 2010 quarter 4 report (number in '000):-
- In the fourth quarter of 2010, the Group registered a turnover of RM 963.9 million, 1.4% higher than the same period last year
- From a domestic sales perspective, the Group drove operating efficiencies in the value chain to reduce cost and improve freshness of products in the market place. The resulting destocking in some categories of products at distributor warehouses had an adverse one time impact on sales
- Exports performance continued with good momentum, leveraging the manufacturing capacity of coffee and coffee creamers
- The sharp increase in prices of the major commodities consumed by the Group impacted the gross profit margin. The average price of cocoa powder in 2010 rose to more than double of previous year's average price, whilst skimmed milk powder was higher by about 20%
- The combination of higher investments in brand building activities, the timing of some fixed overhead expenses (as announced in the previous quarter's review) and the increase in commodity costs resulted in a lower profit margin for the quarter
- For the year ended 31 December 2010, the Group posted a turnover of RM4.0 billion, 7.5% higher than the same period last year. This good performance was in line with the positive developments in both the local and global economies
- With the improvement of the Malaysian economy, most of the domestic product categories continued to perform well. This was quite evident for Nestle Liquid Drinks and Chilled Dairy which achieved a double digit growth. From a channel perspective, both retail and out of home sales enjoyed good growth
- The Group's decision to invest over the past three years in manufacturing capacity is paying off. With these investments, new production lines for soluble coffee and coffee creamers have allowed the Export business to expand and capture strong demand overseas. In particular the exports to Southeast Asia countries have positively contributed to the robust double digit growth of the export business
- During the year, the Group remained focused on managing unfavourable trends in input cost. In 2010, the average price of cocoa powder more than doubled of previous year while skimmed milk powder was higher by 20%. The Group's improvement initiatives including Nestle Continuous Excellence (NCE) with a focus on zero waste and streamlining of operations as well as the stronger Ringgit provided some relief against the sharp increase in commodity costs
-For the year under review, the Group continued to invest in its brands to maintain its leadership and gain market shares. The "MILO with Protomalt" as well as the "MILO Play More Learn More" campaigns have further strengthened the MILO brand image among consumers. NESCAFÉ CLASSIC and NESCAFÉ 3in1 re-launched new improved products with strong media support which resulted in market share gain. Despite strong investment in brand building activities, our operational expenses were well below budget
- From a bottom line perspective, the profit before tax stood at RM465.7 million, a 5.8% increase versus previous year translating in a slight margin reduction of 20bps
- The Halal tax incentives related to the substantial capital investments of the last three years helped reduce the effective tax rate. Against the same period last year, the net profit increased by 11.3% to RM391.4 million reflecting a 30bps margin improvement
- The Group's turnover at RM963.9 million contracted by 2.7% versus the previous quarter
- This was mainly due to the strengthening of the Ringgit against the US Dollar which negatively impacted export sales and the Group's initiative for operational efficiencies in the value chain to reduce cost and improve freshness of products in the market place. The resulting destocking in some categories of products at distributor warehouses had an adverse one time impact on sales
- As indicated in the previous quarter review, and consistent with prior years, more brand building activities were initiated in the last quarter and higher fixed expenses were incurred due to timing. The high operating expenses resulted in lower profit margin before tax
- Estimate next 4Q eps after 2010 Q4 result announced = 1.6691*0.8 = 1.3353, estimate PE on current price 45.1 = 32.54(DPS 1.65)
- Estimate next 4Q eps after 2010 Q3 result announced = 0.4827*4 = 1.9308, estimate highest/lowest PE = 23.05/20.99 (DPS 1.5)
- Estimate next 4Q eps after 2010 Q2 result announced = 0.4271*4*1.1 = 1.8792, estimate highest/lowest PE = 23.15/20.22 (DPS 1.5)
- Estimate next 4Q eps after 2010 Q1 result announced = 1.56+0.1491+0.0357 = 1.7448(0.1491 from adjustment between 2009 Q1 eps and 2010 Q1 eps, 0.0357 from QbQ improvement adjustment), estimate highest/lowest PE = 23.21/18.52 (DPS 1.5)
- Estimate next 4Q eps after 2009 Q4 result announced = 1.56(around 4% from 1.5002), estimate highest/lowest PE = 22.12/20.54 (DPS 1.5)
- Estimate next 4Q eps after 2009 Q3 result announced = 1.4537, estimate highest/lowest PE = 23.06/21.12 (DPS 1.3)
- Estimate next 4Q eps after 2009 Q2 result announced = 1.4537, estimate highest/lowest PE = 23.65/21.78 (DPS 1.3)
- Estimate next 4Q eps after 2009 Q1 result announced = 1.5264, estimate highest/lowest PE = 21.42/17.82 (DPS 1.3)
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| Market Capital (Capital Size) | 10,575,950,000 (Very Large) |
| Par Value | RM 1.00 |
My Analysis
| Forecast P/E now | (45.1-1.65)/1.3353 = 32.54 (High) |
| Target Price | 26.71+1.65 = 28.36 (PE 20.0, EPS 1.3353, DPS 1.65) |
| Decision | NOT BUY unless cocoa price decrease |
| Comment | Revenue decreased 2.7% and is second consecutive quarter decreasing but higher than preceding year corresponding quarter 1.4%, eps decreased 65.3% and lower than preceding year correspnding quarter 54.5%, free cash flow increasing but positive net cash flow decreased, low liquidity ratio, high gearing ratio, all accounting periods are good, strong Ringgit, cocoa powder and skimmed milk powder price increasing |
| First Support Price | 43.0 |
| Second Support Price | 42.0 |
| Risk Rating | HIGH |
Research House
| OSK Target Price | 47.43 (2011-02-25) |
| CIMB Target Price | 38.7 (2011-03-02) |
Accounting Ratio
| Return on Equity | 63.81% |
| Dividend Yield | 3.66% |
| Profit Margin | 4.67% |
| Tax Rate | 12.77% |
| Asset Turnover | 2.2637 |
| Net Asset Value Per Share | 2.62 |
| Net Tangible Asset per share | 2.36 |
| Price/Net Tangible Asset Per Share | 19.19 |
| Cash Per Share | 0.21 |
| Liquidity Current Ratio | 1.0873 |
| Liquidity Quick Ratio | 0.5595 |
| Liquidity Cash Ratio | 0.0675 |
| Gearing Debt to Equity Ratio | 1.9 |
| Gearing Debt to Asset Ratio | 0.6552 |
| Working capital per thousand Ringgit sale | 1.6% |
| Days to sell the inventory | 39 |
| Days to collect the receivables | 32 |
| Days to pay the payables | 64 |
My notes based on 2010 quarter 4 report (number in '000):-
- In the fourth quarter of 2010, the Group registered a turnover of RM 963.9 million, 1.4% higher than the same period last year
- From a domestic sales perspective, the Group drove operating efficiencies in the value chain to reduce cost and improve freshness of products in the market place. The resulting destocking in some categories of products at distributor warehouses had an adverse one time impact on sales
- Exports performance continued with good momentum, leveraging the manufacturing capacity of coffee and coffee creamers
- The sharp increase in prices of the major commodities consumed by the Group impacted the gross profit margin. The average price of cocoa powder in 2010 rose to more than double of previous year's average price, whilst skimmed milk powder was higher by about 20%
- The combination of higher investments in brand building activities, the timing of some fixed overhead expenses (as announced in the previous quarter's review) and the increase in commodity costs resulted in a lower profit margin for the quarter
- For the year ended 31 December 2010, the Group posted a turnover of RM4.0 billion, 7.5% higher than the same period last year. This good performance was in line with the positive developments in both the local and global economies
- With the improvement of the Malaysian economy, most of the domestic product categories continued to perform well. This was quite evident for Nestle Liquid Drinks and Chilled Dairy which achieved a double digit growth. From a channel perspective, both retail and out of home sales enjoyed good growth
- The Group's decision to invest over the past three years in manufacturing capacity is paying off. With these investments, new production lines for soluble coffee and coffee creamers have allowed the Export business to expand and capture strong demand overseas. In particular the exports to Southeast Asia countries have positively contributed to the robust double digit growth of the export business
- During the year, the Group remained focused on managing unfavourable trends in input cost. In 2010, the average price of cocoa powder more than doubled of previous year while skimmed milk powder was higher by 20%. The Group's improvement initiatives including Nestle Continuous Excellence (NCE) with a focus on zero waste and streamlining of operations as well as the stronger Ringgit provided some relief against the sharp increase in commodity costs
-For the year under review, the Group continued to invest in its brands to maintain its leadership and gain market shares. The "MILO with Protomalt" as well as the "MILO Play More Learn More" campaigns have further strengthened the MILO brand image among consumers. NESCAFÉ CLASSIC and NESCAFÉ 3in1 re-launched new improved products with strong media support which resulted in market share gain. Despite strong investment in brand building activities, our operational expenses were well below budget
- From a bottom line perspective, the profit before tax stood at RM465.7 million, a 5.8% increase versus previous year translating in a slight margin reduction of 20bps
- The Halal tax incentives related to the substantial capital investments of the last three years helped reduce the effective tax rate. Against the same period last year, the net profit increased by 11.3% to RM391.4 million reflecting a 30bps margin improvement
- The Group's turnover at RM963.9 million contracted by 2.7% versus the previous quarter
- This was mainly due to the strengthening of the Ringgit against the US Dollar which negatively impacted export sales and the Group's initiative for operational efficiencies in the value chain to reduce cost and improve freshness of products in the market place. The resulting destocking in some categories of products at distributor warehouses had an adverse one time impact on sales
- As indicated in the previous quarter review, and consistent with prior years, more brand building activities were initiated in the last quarter and higher fixed expenses were incurred due to timing. The high operating expenses resulted in lower profit margin before tax
- Estimate next 4Q eps after 2010 Q4 result announced = 1.6691*0.8 = 1.3353, estimate PE on current price 45.1 = 32.54(DPS 1.65)
- Estimate next 4Q eps after 2010 Q3 result announced = 0.4827*4 = 1.9308, estimate highest/lowest PE = 23.05/20.99 (DPS 1.5)
- Estimate next 4Q eps after 2010 Q2 result announced = 0.4271*4*1.1 = 1.8792, estimate highest/lowest PE = 23.15/20.22 (DPS 1.5)
- Estimate next 4Q eps after 2010 Q1 result announced = 1.56+0.1491+0.0357 = 1.7448(0.1491 from adjustment between 2009 Q1 eps and 2010 Q1 eps, 0.0357 from QbQ improvement adjustment), estimate highest/lowest PE = 23.21/18.52 (DPS 1.5)
- Estimate next 4Q eps after 2009 Q4 result announced = 1.56(around 4% from 1.5002), estimate highest/lowest PE = 22.12/20.54 (DPS 1.5)
- Estimate next 4Q eps after 2009 Q3 result announced = 1.4537, estimate highest/lowest PE = 23.06/21.12 (DPS 1.3)
- Estimate next 4Q eps after 2009 Q2 result announced = 1.4537, estimate highest/lowest PE = 23.65/21.78 (DPS 1.3)
- Estimate next 4Q eps after 2009 Q1 result announced = 1.5264, estimate highest/lowest PE = 21.42/17.82 (DPS 1.3)
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