Tight cost control stands company in good stead
Consumer products stalwart Nestlé (M) Bhd remains a company to watch this year due to the stable earnings growth it offers investors. With its established portfolio of brands, including long-time favourites Milo and Maggi, and its ability to pass on costs to consumers, the company's earnings are expected to remain resilient.
Going forward, Nestlé's export segment is another potential area of excitement for the company. In November 2008, the company opened a new RM75 million non-dairy creamer plant to cater for exports to countries like Indonesia, the Philippines, Turkey and Russia. Nestlé Malaysia is the biggest exporter among Nestlé operations in the region. As at end-September 2008, exports accounted for 22.9% of overall revenue for the group.
However, what makes Nestlé stand apart from its peers is its ability to keep a tight rein on costs, according to analysts. Good cost control becomes even more important in a market where consumer sentiment has hit rock bottom and raw material cost has soared.
In fact, it was Nestlé's ability to hedge raw material prices that helped the company achieve sterling results in 1H2008, according to reports. As at end-September 2008, the company was in a net cash position — net cash generation from operating activities increased year on year to RM370.8 million from RM247.7 million.
Bloomberg data shows target prices for Nestlé range from RM28 to RM29.50. The stock has been trading at around RM27 over the last three months.
For FY2007, Nestlé paid out its highest net dividend ever — 113.81 sen a share or 13.8% more than in FY2006. Historically, its average dividend yields have been about 5%.
For FY2008, Nestlé has already paid out a gross special dividend and interim dividend of 61.19 and 50 sen a share respectively. Analysts are expecting the company's dividend yields to average 6.5% for FY2009.
