Nestle to record strong 3Q, but weaker 4Q sales

KUCHING: Nestle (Malaysia) Bhd (Nestle) is expected to record a strong third quarter of financial year 2018 (3QFY18), but a weaker 4QFY18 sales growth.

The research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) expected strong sales growth in the 3QFY18 to be driven by the strong tax-holiday spending fuelled by positive consumer sentiment.

“As a consequence of a strong consumer sentiment and pre-sales and services tax (SST) spending, we expect that sales growth to reach at least 10 per cent year on year (y-o-y) growth,” MIDF Research said.

“For the record, 95 per cent of Nestl?’s product assortment was charged the standard tax rate of six per cent under the goods and services tax (GST).

“Thereafter, we anticipate sales growth to be subdued in the 4QFY18 due to the temporary transition in spending after the end of tax-holiday period.”

The delay in sales recognition due to Nestle’s warehouse relocation is also expected to drive the group’s strong sales growth for 3QFY18.

MIDF Research recalled that Nestle’s first half of FY18 (1HFY18) revenue grew modestly by 3.1 per centyoy to RM2.7 billion which is lower than the four per cent to five per cent y-o-y growth for the past three financial years.

“This was mainly due to the delay in sales completion attributable to the relocation to a new National Distribution Centre (NDC) near Westport.

“Based on management guidance, we estimated RM21.5 million to RM23.7 million worth of 2QFY18 sales was delayed and set to be completed and recognised in 3QFY18.”

All in, the research arm forecasted the group’s 2HFY18 to continue to grow, albeit at a slower pace.

Meanwhile, MIDF Research gathered from management that the group has hedged its raw material requirement until the end of the financial year.

Hence, the research arm expected that the current gross profit margin of approximately 38.5 per cent to be sustained in 2HFY18.

“In addition, the impact of the proposed policy by the new government to increase minimal wages on staff costs is expected to be minimal as most of Nestl?’s workforce is being paid higher than the current minimum wages.”

Over a longer- term outlook, MIDF Research believed that Nestle’s earnings growth will remain stable as prices of the group’s products will not be significantly different under the new SST.