KUCHING: Nestle (Malaysia) Bhd (Nestle) is eyeing greater profitability ahead as it plans a capital expenditure (capex) of RM200 million for a new plant and production expansion in its existing facilities.
The company had guided that the capex would go towards the new plant in Shah Alam to commence operations in the first half of 2014 and expand its Kit Kat production capacity at its existing plant in Chembong; the overall plant utilisation rate was now at 85 per cent.
Maybank Investment Bank Bhd (Maybank IB) yesterday pointed out that Nestle’s confectionery was the smallest but fastest growing product segment, having contributed to 5.7 per cent of group revenue in the first quarter of 2013 (1Q13) as compared to 4.4 per cent in financial year 2012 (FY12) and 3.8 per cent in FY11.
“Conversely, the Milk, Nutrition and Ice cream segment was the slowest growing division in 1Q13, and made up 25.9 per cent of the group’s revenue (FY12: 27.6 per cent; FY11: 29.4 per cent).
“Post Nestle’s analyst briefing, we raise our FY13 capex-to-sales ratio assumption to 4.2 per cent from 3.5 per cent,” it noted.
The investment bank kept its FY13 to FY15 tax rate assumption at 21 per cent, as the group would continue to enjoy tax incentives for its capex on halal products.
It added that there was minimal impact from the capex to its earnings forecasts which were maintained at RM610.7 million and RM671.4 million for FY14 and FY15 respectively.
“Raw material prices are trending down, except for the price of milk solids, which has risen due to the severe drought in New Zealand.
“There are no planned price hikes for Nestle products this year and we are keeping our full-year earnings before interest, tax, depreciation and amortisation margin assumption at 16.4 per cent, on expectation that margins will come down after 1Q as maintenance and advertising and promotion costs tend to be skewed towards the year end.”
Maybank IB maintained its target price of RM58.60 per share which implied 22.5 times 2014 price earnings ratio.