NESTLE (M) BHD (4707) NESTLE

Business Summary:

Nestle (Malaysia) Berhad, through its subsidiaries, engages in the manufacture, marketing, and sale of food products in Malaysia. The company's products include ice-creams, drinks, liquid milk and juices, instant coffee and chocolate confectionery products, instant noodles, culinary products, cereals, yogurt and related products. It also offers sweetened condensed milk, and powdered milk and drinks. The company's brand names include MILO, NESCAFE, MAGGI, NESPRAY, and KIT KAT. Nestle (Malaysia) also exports its products primarily to South East Asian and Middle East countries. The company was founded in 1912 and is headquartered in Petaling Jaya, Malaysia. Nestle (Malaysia) Berhad is a subsidiary of Nestle S.A.

Beverages

MILO - relaunched of PROTOMALT to enhance the beverage’s nutritional profile, the launched of 3in1 Mocha and 3in1 Light. MILO launched a new public service campaign, the “Grow with Sports”. The year saw MILO recording an all time high in terms of market share, which reflects the continued confidence and support for the brand that is a household name.

Nescafe - the brand introduced new variants of the easy-mix instant coffee - NESCAFÉ 2in1 for consumers who prefer coffee without sugar and Nescafé Light Roast for those seeking a milder, smoother cup of coffee. The premium NESCAFÉ GOLD brand re-launch of the improved NESCAFÉ 3in1, added to the brand’s aroma of success.

Food

MAGGI continued to grow from strength to strength and remains a market leader in the noodles, tomato ketchup, chilli sauce and stocks categories, and has managed to withstand strong competition in the form of imports from other ASEAN countries.

Milks

In line with the focus on Nutrition, Health and Wellness, innovation and renovation activities were carried out, which resulted in the launch of products with added benefits such as NESTLÉ
OMEGA PLUS with ACTICOL (helps reduce cholesterol), NESVITA Cereal with reduced sugar, NESVITA 3in1 and NESTUM Oats.

Chilled Dairy

The Chilled Dairy Business Unit achieved strong growth in both the Yogurt and Yogurt Drink categories, aided by new product launches. The marketing campaign for Bliss Low Fat Yogurt Drink helped to nurture stronger consumer awareness and pushed the category to achieve strong double digit growth. The launch of the Bliss Light Yogurt Drink, along with the introduction of new variants such as the Yogurt Drink with 0% fat & 0% cholesterol, further amplified the category’s market share.

Ice Cream

NESTLÉ Ice Cream had another good year during the period under review, maintaining its market leadership. As a result of product innovation in the cone range, DRUMSTICK INFERNO and DRUMSTICK KIT KAT were launched, achieving double digit growth and establishing DRUMSTICK as the fastest growing brand in the ice cream portfolio. Similar strides were made in the Take Home range with the launch of LA CREMERIA 800ml which offers consumers a view of the appetising rosettes and generous sauce through its transparent lid.

Chocolate & Confectionery

Strong volume growth was recorded for both the major brands - KIT KAT and SMARTIES - in the domestic market as well as in the export markets. In the case of KIT KAT, this was achieved via core equity building communications as well as packaging renovation. In addition to this, the introduction of the KIT KAT BITES format in Thailand also proved to be very successful, adding to the growth volume for the category. SMARTIES, meanwhile, generated strong sales during the year, boosted by innovative ideas including an on pack character programme, which was
supported by a 360 degree award-winning campaign.

Nutrition

Infant Nutrition launched NESTLÉ Rice Porridge in mid 2006, the first dry savoury food for babies in Malaysia. The quick and easy to prepare meal - which is rich in texture and fortified with 15 vitamins and minerals essential for growth and development - was well received by mothers. NESLAC 1+ and 3+ Growing Up Milk was re-launched during the period under review, boasting a brand new look aimed at further strengthening the brand’s presence in the premium segment.

The launch of NUTREN UNTUK DIABETIK 900g and NUTREN BALANCE Cereal Bar provided a healthy and tasty nutritional option for consumers seeking to manage their blood sugar levels. In the Performance Nutrition segment meanwhile, ongoing renovation to deliver products that meet the needs of individuals with active lifestyles, resulted in the introduction of POWERBAR TRIPLE THREAT bar – boasting the same performance as the POWERBAR but tasting like a cereal bar. The brand continued to support major sporting events in Malaysia, and provided a much needed energy boost to national athletes under the Malaysian Sports Council programme.

Food Services

To expand the out-of-home channel further, new emphasis was placed on the new product offerings and an increased presence for beverages with machine placements in the Office Coffee Service (OCS) channel.

Among the new entrants for the year were mixes and sauces such as MAGGI Nasi Goreng Cina, Nasi Goreng Kampung, Seafood Imperial Sauce, Curry Chicken Paste, Sambal Tumis Paste, Perencah Ayam Goreng, and customised salsa sauce for McDonald’s. New beverages introduced include Kiwi Fruit, Mixed Fruit and NESCAFÉ Latte. In line with the Group’s move towards Nutrition, Health and Wellness, the sugar content in most of the beverages has been reduced, while maintaining their taste and quality.

Financial Performance:

Year 2002 2003 2004 2005 2006 Average

ROE 43.15 40.43 48.81 49.74 47.26 45.88 > 10 (strong)

ROA 13.05 11.95 17.33 19.68 18.11 16.02 > 10

Total Liabilities : Equity = 55.44 : 44.56

D/E Ratio = 0.2

P/E Ratio = 22

DY = 3.9%

Average Revenue Growth Rate = 7.2%

Average Earnings Growth Rate = 8.5%

Supporting Value:

1. NTA per share (as at 30/9/07) = RM2.50

2. The EPF department increase the share holding.

3. Strong efficiency of the management level. (can also refer to the increasing ROE)

4. Strong cash flow with RM46million on hand.

Investment Risk:

1. The increasing cost of raw material.

2. The rising competition of local players like Power Root, Mamee, Super........

Conclusion:

Nestle is a company that have a strong market penetration in Malaysia market. It achieved a great ROE for the past 10 year with an average of 40%. It shows a efficient management team. These is a challeging year for Nestle with the high inflation and cost of raw material. For the recent price, it is overvalued. I recommend to put it into watchlist. (Try to check-out the rising competitor - Natbio, which is the owner of power root. It achieve a strong growth, especially the Alicafe, Pearl, and the new oligo coco)