Cost inflationary challenges
Maintain SELL with an unchanged TP of MYR101.20
Consumer consumption is expected to improve in FY22 in absence of pandemic-led operational disruption and better consumer mobility. However, margins will continue to be suppressed if commodity prices remain elevated and no product price hikes are made. We keep our earnings estimates, SELL call and DCF-TP of MYR101.20 (WACC: 6.3%, LT growth: 2.5%).
Domestic and export sales improved YoY
During NESZ’s results briefing, management shared that 4Q21 group revenue growth of 7% YoY was due to higher sales in various domestic F&B categories (eg. ice cream, coffee and Maggi) and increased export
sales (+5% YoY) from improved demand as its export-partners’ economies reopened.
Broad-based commodity price increases
Group margins have come under pressure in FY21 given elevated commodity prices and this could remain the case in FY22. Most of NESZ’s main cost components (eg. coffee, milk, palm oil, freight/logistics) have
risen. Hence, the group may push through selected product price adjustments in FY22. COVID-19 related expenses (FY21: MYR93m) are expected to be significantly lower going forward as the group transitions
to home self-testing versus on-site testing previously.
Focusing on new product launches
NESZ plans to accelerate new product launches and conduct larger scale marketing engagements for its core brands to drive topline growth in FY22. Product demand is anticipated to be stronger as the group
experiences improving domestic out-of-home consumption and ongoing increases in export sales (FY21: 20% of group revenue). E-commerce sales contribution has also grown to c.5% of NESZ’s group revenue
currently. In line with management’s guidance, we lift FY22 capex assumption to MYR268m (from MYR173m previously)