Nestlé (Malaysia) Berhad is no doubt one of the most profitable listed company in Malaysia. If you have invested in Nestlé 10 years ago, you would probably enjoyed a capital gain of 2780% due to its appreciation in market value from RM5.6 to the current price of RM149.00. This is excluding the extremely rewarding dividends paid out to investors which will be further explain below.

On 25th April 2019, the VIC team and graduates attended Nestlé 35th Annual General Meeting (AGM) held in Hilton Hotel Kuala Lumpur. These are our key takeaways on Nestlé (M) Berhad from attending its AGM. 

Nestlé (Malaysia) Berhad listed on Bursa since 1989 manufactures and sells food and beverage products in Malaysia and internationally. The company offers ice-cream, powdered milk and drinks, liquid milk and juices, instant coffee and other beverages, chocolate confectionery products, instant noodles, culinary products, cereals, yogurt, and related products. It also provides dairy and food, ready-to-drink, maternal and child nutrition, healthcare nutrition, and out-of-home products. The company offers its products primarily under the MILO, NESCAFÉ, MAGGI, KIT KAT, NESTUM, NESTLÉ CRUNCH, NESTLÉ ICE CREAM, NESTLÉ OMEGA PLUS, NESTLÉ EVERYDAY, NESTLÉ JUST MILK, NESTLÉ NUTRITION, NESPRESSO, NESTLÉ PROFESSIONAL, And NESTLÉ HEALTH SCIENCE brands. The company was founded in 1912 and is headquartered in Petaling Jaya, Malaysia. Nestlé (Malaysia) Berhad is a subsidiary of Nestlé S.A.

Figure 1: Up close with Nestle (M) Berhad Chairman Tan Sri Dato' Seri Syed Anwar Jamalullail .
Figure 1: Up close with Nestle (M) Berhad Chairman
Tan Sri Dato’ Seri Syed Anwar Jamalullail.
Figure 2: VIC team and graduates with Nestle AGM door gift pack.
Figure 3: Nestle brands with its latest products samples at the AGM foyer area.
Figure 4: Juan Aranols, CEO of Nestle (M) Berhad addressing shareholders at the AGM.

1. Nestlé Malaysia maintain its record breaking streak despite fluctuating consumer confidence

Throughout the years consumer confidence has experienced multiple peaks and dips as shown in figure 5.

Figure 5: Malaysia past 4 years consumer confidence index

Nestlé Malaysia Berhad revenue and net profit after tax has as always maintain its record breaking streak to achieve new highs for the past 10 years. Revenue of RM 5.519 billion in 2018 from RM 3.877 billion in 2008 and net profit after tax of RM 659 million in 2018 from RM341 million in 2008.

Figure 6: Nestlé (M) Berhad past 10 years revenue and profit.

Not only does Nestlé (M) Berhad revenue and profits achieve new heights, even its cash flow from operations and free cash flow has achieved stellar performance for the past 10 years as a whole. Cash flow from operations delivered record breaking amount of RM 1.097 billion and free cash flow achieved new height of RM 940 million for financial year ended December 2018.

Figure 7: Nestlé (M) Bhd past 10 years cash flow performance.

2. Nestlé further enhances its portfolio of products

Nestlé (M) Berhad have a strong portfolio comprising some of the biggest brands in the food and beverage industry, which have become household names in Malaysia. Synonymous with high quality, they offer a wide range of healthier, tastier products for consumers of all ages. These are achieved by successful product innovations and renovations were fundamental to Nestlé solid business performance in 2018 and to stay relevant in this fast-changing world. This was led by our MAGGI noodles range, contributed by the launch of the MAGGI PEDAS GILER variants, which catered to Malaysians’ love of spicy food, earning recognition as ‘Malaysia’s Favourite Spicy Noodle’.

Figure 8: Innovation and renovation Nestlé products.
Figure 9: Innovation and renovation Nestlé products.

The MILO Less Sugar, with 25% less sugar, was launched in 2018. Consumers continue to enjoy the familiar taste of MILO and benefit from its nourishing energy, packed with essential nutrients. Other key product launches in the year included the CERELAC NUTRIBITES and new ice cream variants such as the all-new Oreo range and Nestlé Yogurt and Lychee ice cream.

3. Generation of long- term shareholders value

Over the last 10 years, Nestlé (M) Berhad has successfully delivered on average above 50% return on equity (ROE) towards its shareholders. This means that every RM 1 invested in the business will yield investors a return of 50 cents which is considered as a very good investment to be held especially for the long term due to its consistency to deliver such stellar performance.

Figure 10: Nestlé (M) Berhad past 10 years return on equity (ROE).

Furthermore, if you as an investor of Nestlé (M) Berhad held it shares since 2008 till 2018, would have enjoyed another powerful returns from the business. This is its ever growing annual dividend pay-outs. Ordinary dividend per share has grown from RM1.30 back in 2008 to RM4.15 as at 2018 which is a whooping growth of 220% in 10 years period!

Perhaps it is one of the many reasons why so many shareholders are willing to hold on to its shares and remain confident towards its business regardless of any market volatilities.

Figure 11: Nestlé (M) Berhad dividend track record.

4. Driving growth on multiple fronts

In a key milestone, Nestlé (M) Berhad ramped up operations with the launch of new state-of-the-art Nestlé Distribution Centre (NDC) in 2018. Spanning 515,000 sq. ft, the all-new NDC is now Nestlé’s largest distribution centre in Asia. Promoting resource optimisation, the facility boasts a high density warehouse space which can store up to 20% more products despite a 20% reduction in storage area compared to the previous distribution centre. This densification is made possible with the introduction of a new storage and retrieval system. From an environmental perspective, it is noteworthy that the building is fully utilising energy efficient LED lighting. With its larger capacity and high-tech features, the NDC will facilitate the expansion of Nestlé business, allowing Nestlé to meet growing consumer demand and accelerate growth moving forward.

Figure 12: Nestlé (M) Berhad new state-of-the-art Nestlé Distribution Centre (NDC) located in Selangor.

Besides growing in the physical space, Nestlé has been tapping into the vast potential of e-Commerce; Nestlé registered steady growth and strengthened their presence in this arena in collaboration with Rurutiki, Nestlé’s main e-Commerce business partner. Through this partnership, Nestlé was able to ramp up operations and manpower support to ensure the timely fulfilment of all e-Commerce orders. The successful efforts in e-Commerce were further leveraged through partnerships with popular online sales platforms, including Shopee and Lazada, Nestlé worked to ensure superior visibility, driving traffic to our Nestlé flagship stores on both platforms.

Figure 13: SHOPEE SUPER BRAND DAY: Pioneering to Bring New Experiences to our Consumers.
Figure 14: Nestle e-commerce 2018 results.

The management of Nestle (M) Berhad shared their on-going and future growth strategies and execution for the business which is in line with the expected highest capital expenditure (CAPEX) investment in 5 years.

Figure 15: Past and expected CAPEX of Nestle (M) Berhad.

5. Biggest Halal producer in the Nestlé world

Nestlé  (M) Berhad being the biggest Halal producer in the Nestlé world, exporting over RM1 billion halal products from 8 factories to over 50 countries worldwide. It has implemented Halal practices since the early 1970s in Nestlé Malaysia manufacturing sites. Besides that, Malaysia is the Global Halal Centre of Excellence for the Nestlé Group, providing support and technical advice to other Nestlé companies & stakeholders across the globe. To date they have successfully trained and mentored over 490 SMEs involving more than 690 participants, a joint effort with the Halal Industry Development Corporation & SME-Corp since 2009.

Figure 16: MILO pack with Halal certification.

At the point of writing this article, Nestle (M) Berhad command a market capitalization of RM 34.92 billion or RM 149.00 per share. At this current price level, is it a good investment to invest in the company that produces our daily favourite food and drinks? Always ensure to do your own due diligence and risk assessment before investing.

Disclaimer: All facts and opinions presented are for educational purposes only. This is not a recommendation to buy or to sell. The author involved in the writing of this message has no vested interest in the companies. Please consult a professional for expert financial or other assistance or legal advice.

This article was written by Team VIC
Team VIC is formed by experienced and well-trained individuals from Value Investing College (VIC). The team has been consistently studying the latest stocks market trend in order to focus on educating the layman on investment principles and techniques.

No Comments

Be the first to comment on this article!


Write a comment

Submit

Related articles

Would The Share Price Tell You Anything About A Business?

Understand the things behind a business because price doesn't determine the real value of...

Budget 2020: Driving Growth and Equitable Outcomes Towards Shared Prosperity

What are the 5 major sectors with significant impacts arising from Malaysia Budget 2020?