Established in 1912, Nestle (Malaysia) Bhd remains as one of Malaysia’s leading fast moving consumer goods (FMCG) companies with a market capitalisation of RM 34.1 billion as of 26 March 2019. Recently, it had released its Annual Report 2018. Thus, in this article, I’ll cover its latest financial results and its valuation at the current stock price of RM 145.50 per share presently. Hence, here are 12 things to know about Nestle Malaysia before you invest.

  • Breakdown of Revenue 2018
    In 2018, Nestle Malaysia has recorded RM 5.52 billion in group revenue and from which, its sales breakdown is as follows:


No.

Segment
Revenue 2018(RM Million)Revenue 2018(%)
1Food & Beverage4,42780.2%
2Globally Managed Businesses1,09219.8%
Total Revenue5,519100.0%

Source: Nestle Malaysia’s Annual Reports

  • Segment 1: Food & Beverage (F&B)
    This segment is involved in manufacturing and sales of a wide range of F&B products under brands such as MILO, MAGGI, Kit Kat, Nestum and so on and so forth. It has achieved CAGR of 4.1% and 8.8% in revenues and operating profits over the last 10 years. Revenues had grown from RM 3.08 billion in 2009 to RM 4.43 billion in 2018. This led to a growth in its operating profits, up from RM 350.4 million in 2009 to RM 744.9 million in 2018.


Source: Nestle Malaysia’s Annual Reports

  • Segment 2: Global Managed Businesses (GMB)
    This segment derives income from 4 subdivisions which include:

    – Nestle Nutrition: Milk Powders for Babies and Toddlers.
    – NESPRESSO: Coffee Machines and Capsules (started since 2016)
    – Nestle Professional: F&B products to F&B operators.
    – Nestle Health Science: Innovative Products for the Healthcare Industry.

    Overall, the GMB segment has achieved CAGR of 5.8% and 4.0% for its revenues and operating profits. Its revenues increased from RM 660.3 million in 2009 to RM 1.09 billion in 2018. It has contributed to growth in operating profits from RM 118.9 million in 2009 to RM 169.9 million in 2018.


Source: Nestle Malaysia’s Annual Reports

  • Profitability
    Nestle Malaysia has achieved CAGR of 4.6% and 7.2% in group revenue and shareholders’ earnings over the last 10 years. Revenue has grown from RM 3.74 billion in 2009 to RM 5.52 billion in 2018. This had contributed higher shareholders’ earnings, up from RM 351.8 million in 2009 to RM 658.9 million in 2018. It is contributed by revenue growth from the two segments as discussed above.



Source: Nestle Malaysia’s Annual Reports


  • Cash Flows Management
    From 2009 to 2018, Nestle Malaysia has brought in as much as RM 7.22 billion in cash flows from operations. Out of which, it has spent:

    – RM 1.85 billion in capital expenditures.
    – RM 344.3 million in repayments of net long-term debts.
    – RM 5.16 billion in dividend payments to its existing shareholders.


    Thus, Nestle Malaysia is a cash-cow and has chosen to pay out the bulk of its cash flows received to reward its shareholders in the form of dividends.



Source: Nestle Malaysia’s Annual Reports


  • Balance Sheet Strength
    As at 31 December 2018, Nestle Malaysia has reported having a total of RM 410.9 million in non-current liabilities and as much as RM 654.3 million in shareholders’ equity. Thus, its gearing ratio is 62.8%. From a closer view, Nestle Malaysia spent RM 39.5 million in net finance costs in 2018, which is a fraction of its operating cash flows of RM 1.0 billion in that year. Thus, despite highly geared, Nestle Malaysia has a healthy balance sheet as it is capable of servicing its debts.


  • Who Owns Nestle Malaysia?
    As at 28 February 2019, Nestle S.A. remains as the biggest shareholder of Nestle Malaysia with 72.61% shareholdings. Meanwhile, the second largest shareholder is the Employees Provident Fund (EPF) Board as it owns 7.39% shareholdings of Nestle Malaysia. Combined, they hold a total of 80% shareholdings in Nestle Malaysia presently. The remaining 20% are predominantly held by reputable financial institutions such as:

    – State Street Bank & Trust Company: 0.63%
    – Vanguard Total International Stock Index Fund: 0.40%
    – Citibank New York (Norges Bank 14): 0.37%
    – Vanguard Emerging Markets Stock Index Fund: 0.36%
    – GIC Private Limited for Government of Singapore (C): 0.24%


  • Growth Initiative 1: Nestle Distribution Centre (NDC)
    Nestle Malaysia has launched its new state-of-the-art NDC, 515,000 sq. ft. high-density warehouse space which is designed to store up to 20% more products despite a reduction of 20% in the storage area as compared to its previous distribution centre in early 2018. This is one of the main initiatives to boost efficiency and reducing costs to Nestle Malaysia into the future.


  • Growth Initiative 2: MILO Manufacturing Centre
    On 9 October 2018, Nestle Malaysia has announced that it is expanding its MILO factory in Chembong, Negeri Sembilan. Nestle Malaysia would be investing RM 100.0 million into this project and once completed, the plant would be the biggest MILO Manufacturing Centre in the world.


  • P/E Ratio
    Presently, Nestle Malaysia is trading at RM 145.50 per share. In 2018, it made RM 2.81 in earnings per share (EPS). Hence, its P/E Ratio is 51.78, close to its highest in 10 years.


  • P/B Ratio
    In 2018, Nestle Malaysia has net assets of RM 2.79 per share. Hence, it has a current P/B Ratio of 52.15, close to its highest in 10 years.


  • Dividend Yields
    First, I discovered that Nestle Malaysia has a long-term track record for increasing dividend payments consistently over the past 10 years. It has increased its dividends per share (DPS), up from RM 1.50 in 2009 to RM 2.80 in 2018.



Source: Nestle Malaysia’s Annual Reports


At the current stock price of RM 145.50 a share, its dividend yield is 1.92% a year. It is the lowest in 10 years.


VIA’s Verdict

Undeniably, Nestle Malaysia has built an impressive track record of consistently growing its sales, profits, and dividend payouts to its shareholders over the past 10 years. It has caused a consistent increase in its stock price during the period.

Source: Google Finance

In terms of valuation, Nestle Malaysia is trading at its highest P/E Ratio and P/B Ratio and its lowest dividend yield. So, the question is: ‘Would you invest in the company at RM 145.50 a share today?’

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