Nestle (Malaysia) Berhad Q3 2025 Quarterly Report

 

Annoucement Date: 28 Oct 2025

NESTLE (MALAYSIA) BERHAD (4707)
Q3 2025	QUARTERLY REPORT FOR THE QUARTER ENDED 30 SEP 2025

https://www.malaysiastock.biz/GetReport.aspx?file=2025/10/28/4707%20-%201322393504828.pdf&name=09KLSEreporting2025%20-%20Final.pdf

Discussion and Commentary

The interim report for Nestlé (Malaysia) Berhad reflects a robust financial performance driven by strong top-line growth and effective operational efficiency.

1. Strong Operational and Sales Momentum

• Revenue Drivers: The 9.4% increase in revenue for the nine months was attributed to growth in both domestic demand and a double-digit expansion in export sales. This highlights the sustained consumer trust in its brands and the successful positioning of the Group as a major Halal manufacturing and innovation hub.

• Profitability Management: Despite potential headwinds, the operating profit and PBT grew at a similar pace to revenue (9.4% and 10.4%, respectively). Management noted this was achieved through topline improvement, disciplined cost management, and operational efficiency.

• Segment Performance: The core Food & Beverages segment, which accounts for 80% of total sales, and the "Others" segment both contributed positively to the growth.

2. Excellent Cash Management and Debt Reduction

• Working Capital Efficiency: The most significant improvement is the massive swing in the Movement in working capital from a negative cash outflow in 2024 to a large cash inflow in 2025. This is crucial, as it shows the Group is efficiently converting sales into cash, leading to a 147.8% increase in Net Cash from Operating Activities.

• Liquidity and Deleveraging: The strong operating cash flow allowed the Group to execute a major deleveraging strategy, resulting in a substantial net repayment of RM280 million in borrowings. This reduced the current loans and borrowings by 64.5% since the beginning of the year, strengthening the balance sheet and reducing financial risk.

3. Increased Shareholder Value

• Dividends: In line with the commitment to shareholder value, the Board declared a higher second interim dividend of 60 sen per share (2024: 35 sen per share). The total proposed/declared dividend for the 9-month period is 130.00 sen per share (2024: 105.00 sen).

• Equity Strength: The significant increase in retained earnings, despite the high dividend payout, confirms the sustainability of the Group's profit generation.

4. Future Outlook and Risk

• Prospects: The Group reconfirms its guidance and remains committed to delivering sustainable value through innovation, operational excellence, and consumer-centric strategies.

• Tax Rate: A point for monitoring is the higher effective tax rate (28.2% for 9M 2025, compared to the 24.0% statutory rate), mainly due to an underprovision for prior year tax expenses.

• Material Litigation: The Group is involved in a material litigation case (Nestlé Products Sdn. Bhd. vs. Mad Labs Sdn. Bhd.) with significant claims and counterclaims. While damages are still being assessed and the company's solicitors are optimistic about their appeal, the outcome remains a financial contingency. The Board currently believes no provision is necessary

"Very low-growth firms often have high PEs" seems counterintuitive at first, but it can be true under specific conditions.

The statement that "very low-growth firms often have high PEs" seems counterintuitive at first, but it can be true under specific conditions. Let's break down the mechanics and rationale behind this phenomenon.

The Core Principle: The P/E Ratio is a Function of Multiple Factors

The standard Gordon Growth Model (a simplified dividend discount model) helps explain this:
P = D / (r - g)
Where:

• P = Price

• D = Dividend

• r = Required Rate of Return (discount rate)

• g = Perpetual Growth Rate

Since Earnings (E) and Dividends (D) are linked by the payout ratio (p), we can reframe this for the P/E ratio:
P/E = p / (r - g)

This shows that the P/E ratio is inversely related to the spread between the discount rate (r) and the growth rate (g). A high P/E can result not only from high *g*, but also from a very low (r - g) spread.

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Why Low-Growth Firms Can Command High P/E Multiples

1. The "Stable Cash Flow" or "Bond Proxy" Effect

   • Low Risk (Low 'r'): Very low-growth firms are often mature, defensive businesses in non-cyclical industries (e.g., utilities, consumer staples, certain REITs). They have predictable, non-discretionary demand.

   • Implied Discount Rate: Because their cash flows are stable and less risky, the market assigns them a lower discount rate (r). In the formula P/E = p / (r - g), if r is very low, the denominator (r - g) remains small even if g is low, supporting a higher P/E.

   • Analogy: These stocks are treated like long-duration bonds. When interest rates fall, the value of stable, long-duration cash flows rises. A high P/E in this context reflects a low equity risk premium.

2. High and Sustainable Dividend Yield (The "Income Stock")

   • Payout Ratio (p): These firms typically have limited reinvestment opportunities (low growth). Therefore, they return a large portion of earnings to shareholders as dividends, resulting in a high payout ratio (p). In our formula, a high p directly increases the justified P/E.

   • Yield Support: Investors bid up the price to capture the attractive, reliable dividend yield. This price appreciation pushes the P/E higher. The high P/E is not a bet on future earnings growth but a reflection of current income attractiveness in a low-interest-rate environment. If the dividend yield is 5% and 10-year bonds yield 3%, the stock becomes compelling despite no growth.

3. The "Maturity" and "Fade" Assumption

   • For a high-growth firm, a high P/E embeds expectations of sustained high growth. Any stumble in growth (a "growth scare") leads to a severe P/E contraction (derating).

   • For a 0-2% growth utility, there is no growth to disappoint. The market already assumes perpetual low growth. The risk of a negative growth surprise is minimal, so the multiple is less volatile and can sustain at a higher level than the simplistic "growth vs. P/E" heuristic would suggest.

4. Accounting and Cyclicality Factors

   • Low Point in the Cycle: Sometimes, a firm's trailing earnings (the 'E' in P/E) are temporarily depressed due to a cyclical trough or a one-time charge. If the market prices the company based on normalized future earnings, the trailing P/E will appear artificially high, even though the business is stable. This is a "P/E illusion."

   • Asset-Intensive Businesses: Some low-growth firms (e.g., industrial, telecom) have large depreciation charges that reduce accounting earnings (E) but do not impact cash flow. The Price-to-Cash-Flow multiple might be more normal, while the P/E looks high.

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Important Caveats and Nuances

• This is not a universal rule. Many low-growth firms trade at low P/Es (e.g., legacy automotive, some banks). The high P/E scenario applies to a specific subset: low-growth plus low-risk plus high payout.

• Interest Rate Sensitivity: This phenomenon is most pronounced in low-interest-rate environments. When risk-free rates (like the 10-year Treasury yield) are low, the relative appeal of these "bond proxies" is high, inflating their P/Es. When interest rates rise sharply, these stocks are often the hardest hit because their low (r - g) spread widens, causing their justified P/E to contract dramatically. 2022 was a perfect example of this.

• The Growth Trap: A firm with a 5% growth rate but high volatility and risk might trade at a lower P/E than a firm with 2% growth but extreme stability. Risk (r) is just as important as growth (g).

Real-World Examples (Hypothetical & Historical)

1. Utility Company (XLU): Grows at ~2-3% per year. Often trades at a P/E of 18-22x, higher than the market average, because its earnings are government-regulated, demand is inelastic, and it pays a ~4% dividend. It's a classic "widows-and-orphans" stock.

2. Consumer Staples (KO, PG): Historically traded at premium P/Es (25x+) despite low growth, due to global brand stability, pricing power, and reliable dividends.

3. Tobacco (PM, MO): A stark example. Facing long-term volume decline (negative growth), these companies often traded at high P/Es because they generated enormous, predictable cash flows and paid very high dividends, making them attractive income vehicles.

Conclusion

Your statement is astute. A high P/E on a low-growth firm is not a paradox but a signal that the market is valuing the firm primarily for the quality and safety of its cash flows and its income distribution, not for growth. It reflects a low discount rate (r) and a high payout ratio (p), rather than a high growth rate (g).

Key takeaway: The P/E ratio alone is meaningless. It must be interpreted through the lens of growth expectations, risk profile, dividend policy, and the prevailing interest rate environment. A high P/E on a low-growth stock is often a sign of a low-risk "bond-like" equity, not an overvaluation error by the market.

Valuing Nestle Malaysia like an equity bond of Warren Buffett

Very low-growth firms (<5%) often have high PEs due to stable cash flows or dividend yields.

Let's look at Nestle.  It has very stable cash flows and also dividend yields.  We can value it like an equity bond of Buffett.

Its PBT profit in FY 2024 was RM 2.36 per share
Today, its share price is RM 114.10 per share
Its business is projected to grow at a slow pace of 2.4% per year.

The share price is the bond, the PBT is the bond interest payment. 

Thus, at RM 114.10 per share, the equity bond of Nestle is paying a bond yield of  = RM 2.36/ RM 114.10 = 2.07%.

FD fixed interest rate (risk free) today is 3.5% to 4%.

=====

The price of Nestle went down to its lowest in March 2025 at RM 64.

At RM 64, this equity bond (Nestle) was paying a Bond Yield of RM 2.36/RM64 = 3.93%.

=====

Lesson: 

When you buy a great company with a great margin of safety, the lower the price you pay, the higher the potential returns. 

Always invert. Always invest. Be greedy when others are fearful. Be fearful when others are greedy. Shut out the noise. Focus on the business, the numbers and think independently.

NESTLE MALAYSIA at a glance

 

NESTLE at a glance

 

Nestle Malaysia

 Revenue, PBT, EPS and share price.

Nestle

 

Nestle’s FY18 earnings to grow at steady pace

Nestle’s FY18 earnings to grow at steady pace
February 26, 2018, Monday


KUCHING: Nestle (Malaysia) Bhd’s (Nestle) financial year 2018 (FY18) earnings are projected to grow at a steady pace, while analysts are optimistic on the group’s short to medium term outlook.

Following Nestle’s fourth quarter of 2017 (4Q17) results’ briefing, the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) expected a higher revenue growth for FY18 driven by a more aggressive advertising and promotional (A&P) expenses.

“Due to the recent stabilising commodity prices and strengthening ringgit, more spending is expected to be channelled to A&P activities to boost customer purchase,” it said.

MIDF Research also expected that the A&P expenses for FY18 will be significantly higher than FY17. As per Nestle’s filing on Bursa Malaysia, the group recorded a profit after tax and minority interest of RM645.8 million for the 12 months ended December 31, 2017.

“In addition, effective tax rate is expected to be sustained at 21 per cent going forward as most tax incentives such as the Halal tax incentives had been fully claimed.”

All in, the research arm expected that earnings will remain at a steady state of growth in FY18.

Meanwhile, the research arm of Kenanga Investment Bank Bhd (Kenanga Research) highlighted that the brand equity for the Nestle product portfolio continues to be the largest asset for the group.

“This is demonstrated by the group’s ability to register sales growth despite bleak consumer sentiment indicators,” it said.

With the turnaround potentially insight, Kenanga Research believed Nestle would be well positioned to enjoy a head start in growth trajectory ahead of their competitors, especially as a market leader in food and beverage (F&B) products.

The research arm also believed that investors may have already bought into the stock in anticipation of the better outlook ahead.

However, with the surge in buying interest in the stock, dividend yields are currently less attractive at 2.4 per cent and 2.9 per cent for FY18 and FY19, respectively. This was down from circa three per cent previously.


http://www.theborneopost.com/2018/02/26/nestles-fy18-earnings-to-grow-at-steady-pace/

MSCI GLOBAL SMALL CAP and GLOBAL STANDARD INDEXES November 30, 2017.

• MSCI Small Cap Indexes List of Additions/Deletions

MSCI MALAYSIA INDEX

Additions
ECO WORLD INTERNATIONAL
GEORGE KENT
HENGYUAN REFINING CO
PETRON MALAYSIA


 Deletions
 CB INDUSTRIAL PRODUCT
JAYA TIASA HOLDINGS
JCY INTERNATIONAL
MEDIA PRIMA
PRESTARIANG
TROPICANA CORPORATION
TUNE PROTECT GROUP

https://www.msci.com/eqb/gimi/smallcap/MSCI_Nov17_SCPublicList.pdf

• MSCI Global Standard Indexes List of Additions/Deletions

MSCI MALAYSIA INDEX

Additions
NESTLE (MALAYSIA)
PRESS METAL ALUMINIUM
SP SETIA

Deletions
None

https://www.msci.com/eqb/gimi/stdindex/MSCI_Nov17_STPublicList.pdf

https://www.msci.com/index-review

Nestle Malaysia 21.8.2017

Nestle
21.8.2017

INCOME STATEMENT
Millions
Year …. T4Q
Revenues …. 5,168
PBT …. 770
PAT …. 620
EPS (RM) …. 2.6445
No of shr (m) …. 235.0

PBT Marg …. 14.90%
NP Marg …. 12.00%


--------------------------


Nestle
21.8.2017

INCOME STATEMENT
Millions
Year …. 2016 …. 2015 …. 2014 …. 2013 …. 2012
Revenues …. 5,064 …. 4,838 …. 4,809 …. 4,788 …. 4,556
GrProf …. 1,997 …. 1,865 …. 1,700 …. 1,698 …. 1,553
EBIT …. 807 …. 795 …. 727 …. 737 …. 652
Int Exp …. 34 …. 34 …. 26 …. 22 …. 20
PBT …. 766 …. 727 …. 701 …. 719 …. 638
Tax …. 129 …. 137 …. 151 …. 157 …. 132
PAT …. 637 …. 591 …. 550 …. 562 …. 505
EPS (Dil) …. 2.72 …. 2.52 …. 2.35 …. 2.40 …. 2.16
No of shr (Dil) …. 235 …. 235 …. 235 …. 235 …. 235



GP Marg …. 39.44% …. 38.55% …. 35.35% …. 35.46% …. 34.09%
PBT Marg …. 15.13% …. 15.03% …. 14.58% …. 15.02% …. 14.00%
NP Marg …. 12.58% …. 12.22% …. 11.44% …. 11.74% …. 11.08%
EBIT/Int …. 23.74 …. 23.38 …. 27.96 …. 33.50 …. 32.60



BALANCE SHEET
Millions
Year …. 2016 …. 2015 …. 2014 …. 2013 …. 2012
CA …. 1,030 …. 1,015 …. 893 …. 930 …. 841
NCA …. 1,558 …. 1,473 …. 1,410 …. 1,159 …. 1,064
TA …. 2,588 …. 2,488 …. 2,303 …. 2,089 …. 1,905

CL …. 1,577 …. 1,525 …. 1,306 …. 1,072 …. 929
NCL …. 364 …. 255 …. 220 …. 200 …. 225
TL …. 1,941 …. 1,780 …. 1,526 …. 1,272 …. 1,154
Eq …. 647 …. 709 …. 777 …. 816 …. 751
TL+Eq …. 2,588 …. 2,488 …. 2,303 …. 2,089 …. 1,905



Cash …. 24 …. 14 …. 16 …. 15 …. 35
ST Debt …. 184 …. 356 …. 84 …. 86 …. 4
LT Debt …. 93 …. 96 …. 90 …. 92 …. 95
Total Debt …. 277 …. 452 …. 174 …. 178 …. 99

Inventories …. 455 …. 414 …. 429 …. 409 …. 411
AR …. 453 …. 498 …. 395 …. 506 …. 395
AP …. 1,091 …. 921 …. 778 …. 695 …. 689

CA-CL …. (547) …. (510) …. (413) …. (142) …. (88)

TD/Eq …. 42.8% …. 63.8% …. 22.4% …. 21.8% …. 13.2%
TD/TA …. 10.7% …. 18.2% …. 7.6% …. 8.5% …. 5.2%
TL/TA …. 75.0% …. 71.5% …. 66.3% …. 60.9% …. 60.6%

CR …. 0.65 …. 0.67 …. 0.68 …. 0.87 …. 0.91
QR …. 0.36 …. 0.39 …. 0.36 …. 0.49 …. 0.46



CE …. 1,035 …. 977 …. 1,013 …. 1,032 …. 1,011

Average of 2 years
CE (Avg) …. 1,006 …. 995 …. 1,023 …. 1,022 ….
TA (Avg) …. 2,538 …. 2,396 …. 2,196 …. 1,997 ….
Eq (Avg) …. 678 …. 743 …. 797 …. 784 ….






CASH FLOW STATEMENT
Thousands
Year …. 2016 …. 2015 …. 2014 …. 2013 …. 2012
Net Inc …. 766,494 …. 727,711 …. 701,187 …. 719,054 …. 637,668
D&A …. 133,193 …. 125,845 …. 112,210 …. 108,971 …. 101,601
FFO …. 768,931 …. 728,371 …. 688,397 …. 658,848 …. 629,553
CWC …. 121,459 …. (10,411) …. 144,388 …. (11,230) …. 179,897
NetOCF …. 890,390 …. 717,960 …. 832,785 …. 647,618 …. 809,450

Capex …. (123,136) …. (193,249) …. (361,008) …. (212,217) …. (158,442)

FCF …. 767,254 …. 526,776 …. 471,777 …. 435,401 …. 651,008
Dividends …. (633,150) …. (715,225) …. (551,075) …. (504,175) …. (422,100)
RE …. 133,344 …. 12,486 …. 150,112 …. 214,879 …. 215,568
Owner's Cash …. 776,551 …. 660,307 …. 452,389 …. 615,808 …. 580,827
FFO less Capex …. 645,795 …. 535,122 …. 327,389 …. 446,631 …. 471,111


NetOCF/Net Inc …. 116.2% …. 98.7% …. 118.8% …. 90.1% …. 126.9%
FCF/Net Inc …. 100.1% …. 72.4% …. 67.3% …. 60.6% …. 102.1%
Capex/Net Inc …. 16.1% …. 26.6% …. 51.5% …. 29.5% …. 24.8%
Capex/NetOCF …. 13.8% …. 26.9% …. 43.3% …. 32.8% …. 19.6%
Capex/D&A …. 92.4% …. 153.6% …. 321.7% …. 194.7% …. 155.9%
DPO ratio …. 82.6% …. 98.3% …. 78.6% …. 70.1% …. 66.2%



VALUATION
Year …. 2016 …. 2015 …. 2014 …. 2013 …. 2012
Share Price RM …. 78.20 …. 73.40 …. 68.50 …. 68.00 …. 62.84
Market cap (m) …. 18,377 …. 17,249 …. 16,098 …. 15,980 …. 14,767

ROCE …. 80.2% …. 79.9% …. 71.1% …. 72.1% ….
ROA …. 25.1% …. 24.7% …. 25.0% …. 28.1% ….
ROE …. 94.0% …. 79.5% …. 69.1% …. 71.7% ….

FCF/Revenues …. 15.2% …. 10.9% …. 9.8% …. 9.1% …. 14.3%

FCF/Mkt Cap …. 4.2% …. 3.1% …. 2.9% …. 2.7% …. 4.4%
DY …. 3.4% …. 4.1% …. 3.4% …. 3.2% …. 2.9%

Mkt. cap/Equity (P/B) …. 28.40 …. 24.33 …. 20.72 …. 19.58 …. 19.66
Mkt. cap/Net Inc (PE) …. 28.85 …. 29.19 …. 29.27 …. 28.43 …. 29.24



Today's Price RM …. 84.58
Shares (m) …. 235.000
Market cap (m) today …. 19,876

Mkt. cap/Equity (P/B) …. 30.72
Mkt. cap/Net Inc (PE) …. 32.05

Nestle Quarterly Report History Qtr Financial Revenue … PBT  … PAT … PBT  … No Quarter (RM,000) … (RM,000) … (RM,000) … Margin … 2 30-Jun-17 1,283,630 … 212,542 162,070 … 16.6% … 1 31-Mar-17 1,371,882 … 290,740 230,431 … 21.2% … 4 31-Dec-16 1,249,882 … 81,493 66,942 … 6.5% … 3 30-Sep-16 1,262,997 … 185,247 160,712 … 14.7% … 2 30-Jun-16 1,237,165 … 223,897 188,797 … 18.1% … 1 31-Mar-16 1,313,462 … 275,858 220,677 … 21.0% … 4 31-Dec-15 1,198,942 … 118,677 99,789 … 9.9% … 3 30-Sep-15 1,218,385 … 205,225 179,161 … 16.8% … 2 30-Jun-15 1,142,901 … 159,556 123,903 … 14.0% … 1 31-Mar-15 1,277,729 … 244,252 187,878 … 19.1% … 4 31-Dec-14 1,108,762 … 117,496 98,304 … 10.6% … 3 30-Sep-14 1,157,295 … 189,820 150,075 … 16.4% … No. Financial ttm-Rev … ttm-PBT  … ttm-PAT … ttm-PBT  Qtr. Quarter (RM,000) … (RM,000) … (RM,000) … Margin 2 31-Dec-17 5,168,391 … 770,022 … 620,155 … 14.9% 1 31-Dec-17 5,121,926 … 781,377 … 646,882 … 15.3% 4 31-Dec-16 5,063,506 … 766,495 … 637,128 … 15.1% 3 31-Dec-16 5,012,566 … 803,679 … 669,975 … 16.0% 2 31-Dec-16 4,967,954 … 823,657 … 688,424 … 16.6% 1 31-Dec-16 4,873,690 … 759,316 … 623,530 … 15.6% 4 31-Dec-15 4,837,957 … 727,710 … 590,731 … 15.0% 3 31-Dec-15 4,747,777 … 726,529 … 589,246 … 15.3% 2 31-Dec-15 4,686,687 … 711,124 … 560,160 … 15.2% 1 31-Dec-15 … … … 4 31-Dec-14 … … … 3 31-Dec-14 … … … Qtr Financial EPS  … DPS … NTA … ttm-EPS … ttm-DPS No Quarter (Cent) … (Cent) … (RM) … (Cent) … (Cent) 2 30-Jun-17 69.11 … 70 … 3.04 … 264.45 … 270 1 31-Mar-17 98.26 … 0 … 3.68 … 275.85 … 270 4 31-Dec-16 28.55 … 130 … 2.76 … 271.7 … 270 3 30-Sep-16 68.53 … 70 … 3.18 … 285.7 … 270 2 30-Jun-16 80.51 … 70 … 3.08 … 293.57 … 265 1 31-Mar-16 94.11 … 0 … 3.6 … 265.9 … 260 4 31-Dec-15 42.55 … 130 … 3.02 … 251.91 … 260 3 30-Sep-15 76.4 … 65 … 3.45 … 251.28 … 305 2 30-Jun-15 52.84 … 65 … 2.95 … 238.88 … 240 1 31-Mar-15 80.12 … 0 … 4.11 … #REF! … 4 31-Dec-14 41.92 … 175 … 3.31 … #REF! … 3 30-Sep-14 64 … 0 … 3.07 … #REF! …