Maintain SELL with unchanged TP of MYR101.20
NESZ’s 1Q22 results were within our expectations. We expect sales
momentum to continue in FY22 as consumer mobility increases and
consumers and business alike adjust to post-pandemic spending habits
and routines. That said, raw material cost pressures remain a key
challenge in FY22 and we do not discount the possibility of product price
hikes to maintain operational margins going forward. We keep our
earnings estimates, SELL call and DCF-TP of MYR101.20 (WACC: 6.3%, LT
growth: 2.5%) unchanged.
Met expectations
1Q22 core net profit of MYR207m (+18% YoY, +71% QoQ) came in within
expectations at 31%/37% of our/consensus full-year earnings estimates.
Note that 1Q is historically a seasonally stronger quarter, accounting for
c.33% of full-year earnings. No dividends were declared this quarter, as
expected.
Strong domestic and export sales recovery
NESZ’s revenue grew 17% YoY on the back of robust domestic and export
sales growth of 15% YoY and 25% YoY respectively. Domestic sales were
mainly driven by relaxed movement restrictions and Chinese New Year
celebrations which led to improved performance in both its core F&B and
out-of-home segments (eg. HORECA). 1Q22 pre-tax profit also increased
by 31% YoY given lower COVID-19 related expenses. The impact of Cukai
Makmur led to 1Q22’s higher effective tax rate of 29% (+8.4ppts YoY).
No change in earnings estimates
Our FY22 earnings growth projection is on track at 15% YoY in light of
strong sales momentum post-pandemic. We believe NESZ will focus
heavily on driving sales through new product launches in FY22 in order to
partially offset raw material cost pressures and lower supply availability
(Eg. wheat, barley, sunflower oils) led by the Russia-Ukraine war. Given
that the side effects of new COVID-19 variants are less severe, we also
expect the group to incur lower COVID-19 related expenses in FY22
(FY21: MYR93m).