South East Asia Industry Focus
ASEAN Consumer: Food for Thought
Issue #09/16 Refer to important disclosures at the end of this report
DBS Group Research . Equity 9 December 2016
STI : 2,958.86 Peering through an ice-frosted glass KLCI : 1,619.12 2016 projected to close strong, unlike 2015 SET : 1,510.24 Earnings outlook for 2017: more cautious on higher JCI : 5,148.91 expectations PCOMP : 6,781.20 Rising commodity prices could present downside earnings risks, from 2Q17 onwards
Stock picks: still sticking to visible earnings, domestic Analyst drivers, growth and specific catalysts Andy SIM CFA +65 6682 3718 [email protected] 2016 to close nicely. Recent 3Q16 results showed an uptick in
earnings disappointment from 2Q16, though insignificant. Alfie YEO +65 6682 3717 Going into 4Q16, we project the earnings momentum to [email protected] remain steady; and aggregate profit growth for FY16F will end at c.12%, accelerating from the 2% seen for FY15. The King Yoong CHEAH +60 32604 3908 [email protected] growth drivers continued to be Thailand, Indonesia and Philippines companies. That said, the pace of gross margin Namida ARTISPONG +66 2657 7833 improvement has somewhat slowed in 3Q16, in line with our [email protected] earlier expectations, as positive effects of low raw material Tiesha PUTRI +62 21 3003 4931 prices wear off. [email protected]
More cautious on 2017 projections. Our bottom-up Reuben Mark ANGELES projections show an aggregate net profit growth of 12% for our regional consumer coverage. But, unlike a year back when
we were more optimistic for 2016 after a dismal 2015, we are STOCKS PICKS now more cautious. For one, expectations are higher vis-a-vis a 12-mth Performance (%) year back. Secondly, we see higher level of uncertainties on Price Mkt Cap Target the macro front in the year ahead – pace of Fed hikes, US Price trade policies, etc, that could affect fund flows. Valuations for LCY US$m Local 3 mth 12 mth Rating ASEAN consumer sector are still around +1SD above average Thai Beverage 0.86 15,202 1.09 (11.8) 26.5 BUY despite recent correction. Public Company Watch out for margins, earnings downside but ASEAN CP ALL 60.25 15,197 75.00 (0.4) 40.1 BUY companies remain cash rich. Raw material prices are on the Indofood Sukses 7,875 5,204 9,900 (7.6) 53.7 BUY rise. We continue to keep an eye on margins and believe this Makmur could present downside risks on profits if top line fails to pick up as expected. That said, consumer companies under our Sheng Siong 1.01 1,072 1.19 (4.7) 18.1 BUY coverage largely remain in net cash or are lowly geared. This Group Ltd provides inorganic growth opportunities and could be an Robinsons Retail 74.00 2,065 92.00 (5.1) 7.3 BUY added catalyst. Holdings Stock picks: domestic plays, resilient and specific catalysts. In Source: Bloomberg Finance L.P., DBS Bank, DBS Vickers, First Metro light of the current outlook, we would stick to counters relying Securities on domestic drivers and resilient growth. Sheng Siong is still a Closing price as of 7 Dec 2016 pick given resilient earnings. We like CPALL for its strong growth profile driven domestically, while ThaiBev is preferred for its dominant position and potential restructuring story through FNN. We still like Indofood Sukses Makmur given its decent valuation, growth, and potential for its sum-of-parts discount to narrow with the divestment of China Minzhong. We include Robinson Retail Holdings, projecting an improvement in earnings and margins in FY17F.
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South East Asia Industry Focus
ASEAN Consumer: Food for Thought
Table of Contents
Overview: Peering through an ice-frosted beer glass 3
Regional and Country 12-month forward PE 14
Performance Review and Regional Benchmarks 15
DBS ASEAN Consumer Stock Universe Performance 17
Same-store-sales-growth charts 18
Country briefings Singapore 23 Malaysia 26 Thailand 30 Indonesia 33 Philippines 36
Macro Charts/ Data GDP 41 Inflation 42 Forex 43 Input costs 44
PE & PB trading band charts 46
Peer comparison 56
Company Guides Thai Beverage Pcl 59 CP ALL Pcl 71 Indofood Sukses Makmur 78 Sheng Siong Group 86 Robinson Retail Holdings 93
Appendix 102
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South East Asia Industry Focus ASEAN Consumer: Food for Thought
Overview: 2017 Outlook – Peering through an ice-frosted beer glass
2016 review – “hopeful servings” turned out better than Fed hikes, US trade policies, etc, that could affect fund flows. expected. Looking back at 2016, the year has seen a much Valuation for the ASEAN consumer sector is still around +1SD better outcome than in 2015. Our recurring theme in 2015 above average despite the recent correction. was cautiousness, premised on overly high expectations. We transited into this year by being “Hopeful for better 2016 Raw material prices are on the rise. We continue to keep an servings”, calling for more “risk-on” trades in the later part of eye on margins and believe this could present downside risks the year. We started by being positive on Philippines in the lead on profits if top line fails to pick up as expected. That said, up to the Presidential election, but sought to “stay close to the consumer companies under our coverage largely remain in net exit given the uncertainties thereafter”. We also stated our cash or are lowly geared. This provides inorganic growth opportunities and could be an added catalyst. preference for Thailand and Indonesia on the back of their stimulus package. Both were the outperformers within the To surmise, our regional consumer outlook for 2017 is akin to region. peering through an ice-frosted beer glass, just taken out from
the freezer. It looks opaque at this juncture. We need the 2017 outlook: peering through an ice-frosted beer glass. room temperature to thaw off the frost for a clearer outlook. Compared to 2016, we are not as optimistic at this stage. Thus, our strategy is still to stick to companies with resilient While our bottom-up projections show an aggregate net profit earnings, rely on domestic demand and specific potential growth of 12% for our coverage, expectations are now higher catalysts. vis-a-vis a year back. In addition, we see higher level of uncertainties on the macro front in the year ahead – pace of
Figure 1: DBS Food for Thought series in 2015; summary and key points Issue # Date Title Key points 09/16 9-Dec-16 2017 Outlook: Peering through Uncertainties prevail and outlook is akin to be gazing from a frosted beer glass. Look an ice-frosted beer glass out for margin contractions while valuations are still high vs historical standards. Stick to domestic and defensive plays in view of nationalistic trend. Potential catalysts are M&A. 08/16 4-Oct-16 Good but servings getting rich Performance of consumer companies good thus far, but valuations getting rich at
+1SD above average. Earnings surprise came from margin expansion; and one should look out for moderating margins going forward, particularly in 4Q16 or 1Q17. 07/16 25-May-16 Positive start to 1Q; steady 1Q earnings in line, with more robust 2016 earnings projections. Picks are staple plays plays that remain resilient on back of our views of higher volatility.
06/16 24-Mar-16 Servings are on course Projecting 10% growth for 2016 and expect an improved sentiment, following from
cautiously optimistic stance for 2016. 05/15 26-Nov-15 Hopeful for better 2016 Cautiously optimistic for 2016; more conservative with safer picks in early part and servings moved on to more risk-on trades in the later part of year on confirmation of higher GDP growth. 04/15 25-Sep-15 Watch your diet Reality did bite, share prices came off; earnings cuts; less cautious but not time to go all out as sentiment remains soft. 03/15 23-Jul-15 Reality bites Macro factors, softer sentiment seen flowing down to earnings to upcoming 2QCY15 earnings season; expected reality to bite; stocks moderated but not time to bottom-fish. 02/15 25-May-15 Moderate your appetite Witnessed high percentage of earnings disappointment; macro data, consumer sentiment and currency volatility point to further earnings cuts. 01/15 20-Mar-15 Stability in Staples ASEAN consumer stocks look pricey on valuations; potential risks are stronger USD, higher opex; go for staples. Source: DBS Bank
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South East Asia Industry Focus
ASEAN Consumer: Food for Thought
3Q16 earnings review Companies in Thailand, Indonesia and Philippines saw no significant variances in their earnings performance. The main Some uptick in disappointments compared to 2Q16. With the rise in earnings disappointment came mainly from Malaysia good showing in 1H16 from the results reported back in companies. This arose from higher-than-expected operating August, it seems that expectations were raised back then. In costs for OldTown and QL Resources, while the effects of the 3Q results season, there has been some uptick in higher-priced imported inventories affected Padini and MSM. disappointments. Overall, about half of our regional coverage results came in within our expectations, while 28% were Over in Singapore, the key misses were from ThaiBev, Delfi and below expectations. The remaining 22% of companies Super. Disappointment in ThaiBev is likely to be temporary, in reported above-expected results. our view, given the higher accruals from staff bonuses and higher market expenses. This came about from a shift in its This compares to 2Q16, which was a good quarter where we financial year-end. For Delfi, while gross margins surprised us, saw 85% of our coverage coming in within and above our sales growth was lacklustre particularly given its weak 2H15. expectations. To recap, the positive earnings came about from This could suggest that consumption and sentiment have yet to Thailand, Indonesia and Philippines, mainly due to a surprise in fully pick up. Meanwhile, Super’s earnings were dragged by margins. Arising from the good showing back then (from 2Q16 lower gross margins and input costs primarily on higher coffee results), expectations for a stronger FY16F growth was raised prices. as well. For Thailand, most companies under our coverage reported stronger earnings growth, except for Thai Union (TU) due to a Figure 2: 3Q16 consumer earnings “misses” crept up drop in gross margins. Otherwise, Thai retailers delivered double-digit profit growth arising from outlet and margin 100% expansions. Of note, CPALL reported a robust same-store-sales 12% 16% 18% 90% 22% growth (SSSG) of 4.4%, thanks to its successful stamp 25% 27% 24% 80% campaign.
70% In Indonesia, we have compared combined 2Q16 and 3Q16 60% 47% 41% 53% versus the same period last year, given the shift in Lebaran into 50% Above 50% 50% 2Q in 2016 from 3Q in 2015. In aggregate, total revenue grew 50% Inline 61% by 9%. This was, but a marginal acceleration from the growth 40% Below rate of 7% y-o-y registered in 1Q16. Of note, margins 30% expanded as staple companies continued to enjoy lower raw 20% 41% 38% 35% materials, while retailers benefitted from improved operating 25% 28% 10% 23% efficiencies and lower discounts. 15% 0% 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 Philippines consumer companies posted slower q-o-q sales growth, but this did not come as a surprise given the expected
post-election slowdown. Retailers, Robinson Retail Holdings Source: DBS Bank (RRHI) and Puregold Price Club (PGOLD) managed to sustain
momentum from 2Q16. The underperformer was Universal
Robina Corp (URC) which faced competition in its domestic
business, while its overseas performance was affected by
product recall in Vietnam.
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South East Asia Industry Focus ASEAN Consumer: Food for Thought
Figure 3: Aggregate change in net profit forecasts (by country) post 3QCY16 results announcements
FY16F FY17F
-20.0% -15.0% -10.0% -5.0% 0.0% 5.0% 10.0% Huge revision in FY16 largely due to ThaiBev's change in financial -17.3% year to Sep, from Dec, hence on 9-month basis. FY17 revision arose S ingapore -4.9% from ThaiBev, Delfi and FNN.
-6.5% Revisions driven by MSM and QL resources. In general, our Malaysia M a laysia -8.5% consumer coverage saw earnings revision down.
4.0% Changes arising from upward revision in CPF. Thailand 4.3%
-0.5% P hilippines Minor adjustments, FY17F largely from Puregold Price Club -1.0%
-0.6% Indonesia Marginal adjustments to INDF. -2.1%
Source: DBS Bank
Figure 4: FY16F net profit growth revised down Figure 5: FY17F earnings growth up but due to ThaiBev
20.0% 2017F growth projections raised largely 20.0% 2016F growth dipped post 3Q16 largely due to a lower base in 2016 arising from due to change in FYE for ThaiBev ThaiBev shortened FY. Else, net profit growth would be c.12%, similar to 16.3% 16.1% projections in Sep-16. 15.0% 15.0% 13.3% 13.1% 13.0% 13.2% 12.8% 12.8% 12.6% 11.9% 11.6% 11.0% 10.6% 10.6% 10.5% 9.4% 10.0% 10.0% 8.7% 8.7% 8.8% 8.6% 7.9% 8.2% 8.3% 6.4%
5.0% 5.0%
0.0% 0.0% Post Pre-2Q15 Post- Post- Post- Post- Post- Post- Post-4Q15 (Mar- Post-1Q16 (May- Post-2Q16 (Sep- Post-3Q16 (Nov- 1Q15 (Jul-15) 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 16) 16) 16) 16) (May-15) (Aug-15) (Nov-15) (Mar-16)(May-16) (Sep-16) (Nov-16) FY17F revenue gwth over FY16F (%) FY17F net profit gwth over FY16F (%) FY16F revenue gwth over FY15F (%) FY16F net profit gwth over FY15F (%)
Source: DBS Bank estimates Source: DBS Bank estimates
Not much changes to FY16F growth forecasts. 2016 should close with good headline growth. Going into 4Q16, we project the earnings momentum to remain steady from 3Q16, despite the current ongoing uncertainties. We project the aggregate profit growth for FY16F to end at c.12%, down from the 16.1% we projected a quarter ago. This downward revision is in part due to the change in ThaiBev’s financial year-end to September, from December, for FY16. Hence, FY16 reported results are just for a 9-month period, instead of 12 months. Otherwise, there were no significant changes to our forecasts for FY16F.
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South East Asia Industry Focus
ASEAN Consumer: Food for Thought
Outlook and Key Themes for 2017 One serving at a time. Looking at our Food for Thought series 2017: Gazing from a frosted beer glass. Moving on to 2017, since early 2015 (listed on Figure 1, page3), it seems to us that we see more headwinds. Several events are at play – policies of we may have reached full circle. We started off by advocating a US President-elect after taking office, Germany and France’s cautious stance in early 2015 (and for the most part of 2015), election, pace of rate hikes (by US Fed), etc. This would likely moving on to being cautiously optimistic and hopeful for 2016. put the markets on the edge, in our view. Drawing a parallel, This is particularly so given a lacklustre performance the year having a firm prognosis of the full year’s outlook seems akin to before and subdued expectations (seen in 2015). Indeed, 2016 be peering through an ice-frosted beer glass at this juncture. turned out to be better than expected. We are now more back to a more cautious footing given the outlook. A clearer outlook could arise as time unfolds, similar to the frost thinning out. Prior to that, we would stick to a strategy of staying with companies that rely on domestic demand, strong market positions and possible growth catalysts from acquisitions.
Key themes:
Figure 6: DBS economists’ GDP forecasts for 2016 and 2017 2012 2013 2014 2015 2016F 2017F Singapore 3.4 4.4 2.9 2.0 1.2 1.3 Malaysia 5.6 4.7 6.0 5.0 4.2 4.5 Thailand 7.3 2.8 0.9 2.8 3.2 3.4 Indonesia 6 5.6 5.0 4.8 5.1 5.3 Philippines 6.7 7.1 6.1 5.9 6.7 6.4
US 2.2 1.5 2.4 2.6 1.7 2.7 Japan 1.7 1.4 0.0 0.6 0.8 0.8 Eurozone -0.7 -0.3 0.9 1.9 1.6 1.6 China 7.7 7.7 7.4 6.9 6.5 6.5
*Note: Shaded cells equate to lower GDP growth compared to previous year Source: DBS Bank estimates
1) Macro economic outlook – more of the same GDP outlook: more of the same. To encapsulate 2017 GDP Figure 7: DBS - 2017 GDP growth similar as 2016 outlook, it seems to us that it will be rather similar to 2016. GDP yoy% Unlike a year ago, where we expected GDP growth to pick up 8.0 from a year of deceleration in 2015, the outlook for 2017 7.0 seems rather similar, save for Singapore and Malaysia. PH 6.0 2017: Positive profit growth, but downside risks remains. On a 5.0 ID MY bottom-up basis, we are currently projecting FY17F to maintain 4.0 its positive trajectory and post an aggregate earnings growth 3.0 TH of 16% y-o-y. While this looks higher than FY16F, it is due to a lower base arising from ThaiBev’s change in FYE. Excluding 2.0 SG that effect, projected profit growth for 2017 would be about 1.0
12% instead. 0.0 2012 2014 1Q16 3Q16F 1Q17F 3Q17F -1.0
Source: DBS Bank estimates
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South East Asia Industry Focus ASEAN Consumer: Food for Thought
TIP countries the main drivers for growth. Among our ASEAN5 Figure 8: Country aggregate net profit growth – FY14 - FY17F countries (Singapore, Malaysia, Thailand, Indonesia and Philippines), the latter three (TIP – Thailand, Indonesia, Ne t profit growth (%) yoy
Philippines) are still projected to be more robust driven by 60% FY14 country-specific factors. 50% FY15 FY16F 40% On a country basis, Thailand consumer companies are still FY17F projected to post the strongest growth among the consumer 30% FY18F companies we cover within the region. While there could be 20% some headwinds in 4Q16, and spilling over to 1Q17, on the back of the mourning period following the passing of King 10%
Bhumibol, we believe this should be temporary. 0% Singapore Malaysia Thailand Philippines Indonesia Aggregate Total In Indonesia, the slower increase in minimum wage growth of -10% 9% (vs 12% each in both 2015 and 2016), coupled with a -20% *Note: Singapore net profit growth skewed by change in Thaibev's lower energy subsidy, could put a dent on consumers’ FYE to Sep, from Dec. Hence, FY16 is based on 9-months. Excluding -30% ThaiBev, net profit growth for Singapore is 8.2% and 7.6% for purchasing power. This could, however, be mitigated by higher FY16F and FY17F, respectively. commodity prices and the execution/ fiscal spending on infrastructure projects. We note that both these industries Source: DBS Bank estimates collectively account for 40% of total employment (33% and 7% respectively).
We expect fundamentals to remain strong in the Philippines, though risks of higher commodity prices and government policies are potential headwinds. That said, consumer confidence remains high, and higher infrastructure spending could help feed through towards consumption.
2) Watch for margin compression in 2017
The above said on continued profit growth, there could be quarter (i.e. ending June 2016). There could be some downside risks to our profit forecasts, pending macro events seasonality given the lull period, such as post-festive (e.g. coupled with commodity price movements. Consumer Lebaran in Indonesia), but we believe the feat achieved in companies, particularly F&B, have benefitted from benign raw 2Q16 may be hard to replicate. material prices over the past two years. In 2016, a key driver of growth has been from margin expansion, particularly due to Several raw material prices such as sugar, coffee, palm oil and the benign raw material environment. That could pose milk powder have increased year-to-date, after reaching its downside risks as we have recently witnessed some uptick in respective low points in 2015, except for cocoa (among the key selected prices, as indicated in our earlier issue in September raw commodities we tracked). 2016. For instance, sugar is up by 27% in 2016 even after the recent We believe gross margins could have peaked in 2Q16. Tracking correction. At one point, sugar price was up by over 50%. In margins for quarter ending September 2016, this has addition, prices of palm oil, milk powder and coffee are up by moderated down to 26.6%, from 27.8% in the previous c.34%, 31% and 10% YTD respectively as at time of writing.
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ASEAN Consumer: Food for Thought
Gross margins could have peaked in 2Q16 Sugar : up 26% YTD, 69% from lows in Aug’15
Raw Sugar-ISA Daily Price c/lb 29.0% 30 27.9% 28.0% 27.1% 26.9% 25 27.0% 26.6% 26.6% 26.9% 26.0% 25.3% 26.6% 20 26.1% 26.3% 25.0% 25.5% +69% +26% 15 24.0% 10 23.0%
22.0% 5
21.0% 0 20.0% Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16
Aggregate Gross Margins (%)
Source: Companies, DBS Bank estimates Source: ThomsonReuters, DBSBank
CPO: up by 34% YTD Milk Powder: up by 31% YTD
Crude Palm Oil FOB MY P1 U$/Tonne CME-Milk Non Fat Dry Grade A Spot 1400 2.5
1200 2.0 1000 1.5 800
600 1.0
400 0.5 200
0 0.0 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15
Source: ThomsonReuters, DBS Bank Source: ThomsonReuters, DBS Bank
Coffee: +10% YTD even after recent correction Cocoa: benefitting from bumper corp (-26% YTD)
C offee-Brazilian (NY) Cents/lb Cocoa-ICCO Daily Price US$/MT 300 4000
3500 250 3000 200 2500
150 2000
1500 100 1000 50 500
0 0 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15
Source: ThomsonReuters, DBS Bank Source: ThomsonReuters, DBS Bank
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South East Asia Industry Focus ASEAN Consumer: Food for Thought
Oil price recovered from lows, +38% YTD PET low but could be increase as oil price recovers
Crude Oil WTI Cushing U$/BBL PET(Fibre Grade)A/P SpotCFR NEA $/MT $140 $1,800 $1,600 $120 $1,400 $100 $1,200
$80 $1,000 $800 $60 $600 $40 $400 $20 $200
$0 $0 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15
Source: ThomsonReuters, DBS Bank Source: ThomsonReuters, DBS Bank
Packaging materials could also be at risk as oil prices increase. increases, in our view. This could further crimp on margins for At this juncture, aluminium and PET (polyethylene food manufacturers should companies be unable to pass on terephthalate) remains around multi-year low, but as crude oil costs. The upside risk to this view is that demand increases at a prices have rebounded off their low, the risk of higher prices faster pace.
3) Watch for currency movements
Figure 9: Regional currencies have weakened by 2-6% since 8 Nov 2016
Source: Thomson Reuters, DBS Bank
Currency volatility risks a déjà vu. Following from a volatile upcoming Fed meeting in mid-December, followed by four 4Q15, regional currencies strengthened in 1H16. But volatility increases in 2017. has resumed again and now regional currencies have given back their gains and more. Since the US elections, regional The combination of potentially weaker regional currencies currencies have weakened by about 2-6% while expectations coupled with higher raw material prices could have a larger have risen to almost a certainty for a December rate hike by impact to companies’ bottom lines, compared to our the US Fed. Our Chief Economist is expecting a hike in the prognosis last year for 2016. In addition, the weaker regional
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South East Asia Industry Focus
ASEAN Consumer: Food for Thought
currencies could lead to imported inflation, thus dampening consumer sentiment. That leaves upside for companies to leverage on their balances to pursue inorganic growth. We scanned through our coverage 4) M&A – look for potential accretive acquisitions and noted that 13 companies are in a net cash position while Consumer companies under our coverage within the region 10 have a net gearing ratio of less than 0.4x in FY16. Amongst remains flooded with cash or are relatively lowly geared. those in net cash, FNN stands out with US$638m as of FYE Among the companies we follow, those consumer companies September 2016, while Indofood CBP is projected to have a in Singapore and Philippines are by large thinly geared or in net cash hoard of US$450m. cash positions.
Figure 10: Companies with net cash 12-mth Net cash (US$ m) Share Target % up/ Cash Mkt cap price price down (FY16) (US$ m) (LCY) (LCY) side Recom 2015 2016F 2017F /Mkt Cap Fraser and Neave Ltd 2,139 2.10 2.36 13% HOLD 607 638 694 30% Indofood Cbp Sukses Makmur Tbk PT 7,698 8875 9800 10% HOLD 358 450 530 6% Kalbe Farma Tbk PT 5,317 1525 2000 31% BUY 168 210 257 4% Jollibee Foods Corp 4,749 219.0 214.00 -2% HOLD 49 132 212 3% Robinsons Retail Holdings Inc 2,095 75.0 92.00 23% BUY 140 124 192 6% ACCEPT Super Group Ltd 993 1.265 1.30 3% OFFER 89 112 123 11% Matahari Department Store Tbk PT 3,136 14450 20300 40% HOLD 62 109 171 3% Puregold Price Club Inc 2,175 39.0 49.50 27% BUY 14 102 174 5% Sheng Siong Group Ltd 1,075 1.015 1.19 17% BUY 89 46 40 4% Oldtown Bhd* 191 1.88 2.15 15% BUY 35 43 51 23% Jumbo 285 0.63 0.77 22% BUY 42 42 48 15% Padini Holdings Bhd 374 2.53 2.95 16% HOLD 47 41 57 11% Delfi Ltd 1,055 2.45 2.16 -12% HOLD 45 5 5 0%
*FYE Mar16/ 17/ 18 respectively Source: DBS Bank estimates, Bloomberg Finance L.P.(prices as of 5 Dec 2016)
Figure 11: Companies with low gearing <0.4x (FY16F) 12-mth Mkt cap Share price Target % up/ (US$ m) (LCY) price (LCY) downside Recom 2015 2016F 2017F FULLY Unilever Indonesia Tbk PT 23,963 42225 30700 -27% VALUED 0.22 0.28 0.38 Thai Beverage PCL 14,950 0.845 1.09 29% BUY 0.33 0.32 0.22 Universal Robina Corp 7,589 170.7 218.00 28% BUY 0.06 0.11 0.04 Indofood Sukses Makmur Tbk PT 4,914 7525 9900 32% BUY 0.31 0.23 0.21 Myora Ind 2,619 1575 1600 2% HOLD 0.41 0.31 0.20 Emperador Inc 2,357 7.25 6.90 -5% HOLD Net Cash 0.05 Net Cash QL Resources Bhd* 1,229 4.38 4.60 5% HOLD 0.32 0.30 0.27 Century Pacific Food Inc 1,221 17.1 18.50 8% BUY 0.15 0.27 0.15 FULLY MSM Malaysia Holdings Bhd 759 4.8 3.00 -38% VALUED 0.14 0.19 0.30 FULLY Matahari Putra Tbk PT 680 1700 1140 -33% VALUED 0.09 0.01 Net Cash
*FYE Mar16/ 17/ 18 respectively Source: DBS Bank estimates, Bloomberg Finance L.P.(prices as of 5 Dec 2016)
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South East Asia Industry Focus ASEAN Consumer: Food for Thought
Strategy/Stock picks currency volatility could present de-rating as seen back in Review of September picks – not going well. After a good 2015. performance for our picks up to October 2016, their latest performance has been lacklustre, partly on the avoidance of Regional valuation near +1 SD despite recent correction emerging markets. In addition, we believe the correction could (x) also arise from profit taking. Our picks returned an average 35 negative return of 7.9% in the period from 3 October to 5 +2sd: 32.5x December 2016. This has partially negated the performance 30 YTD from previous picks. 25 +1sd: 26.1x
20 CPALL largely held on to its share price despite the regional Avg: 19.8x correction, due to a strong set of 3Q16 results. INDF was the 15 -1sd: 13.5x worst hit, down by almost 18% on concerns on the weak IDR, 10 while ThaiBev corrected arising from concerns on consumption -2sd: 7.2x due to the mourning period. 5 0 Regional valuations near +1 SD above average 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Despite recent correction in the emerging markets over the past couple of months, valuations remain close to +1SD above Source: DBS Bank estimates historical average. While the region has been preferred for its secular growth, particularly with the rising affluence and urbanisation, disappointments in near-term growth and/or
Figure 12: DBS ASEAN Food for Thought stock picks' performance DBS Food for Thought Date Issue # From To Stocks Return (ex. Dividends) Good but servings getting rich 20161003 20161207 CP All PCL -1.6% #08/16 – 4 Oct 2016 Oldtown Bhd -6.0% Sheng Siong Group Ltd -6.0% Thai Beverage PCL -11.8% Indofood Sukses Makmur Tbk PT -13.9% Avg -7.9%
Positive start to 1Q; steady plays 20160525 20160928 Oldtown Bhd 44.3% #07/16 – 25 May 2016 Courts Asia Ltd 32.3% Indofood Sukses Makmur Tbk PT 31.1% CP All PCL 25.9% Sheng Siong Group Ltd 25.3% Avg 31.8%
Servings are on course 20160321 20160520 Thai Beverage PCL 23.6% #06/16 – 24 Mar 2016 Minor International PCL 10.3% Courts Asia Ltd 4.8% Matahari Department Store Tbk PT 0.3% Oldtown Bhd -7.3% Avg 6.4%
Hopeful for better 2016 servings 20151125 20160321 Matahari Department Store Tbk PT 7.5% #05/15 – 26 Nov 2015 Thai Beverage PCL 5.8% Universal Robina Corp 4.4% Minor International PCL 2.9% Sheng Siong Group Ltd 1.2% Avg 4.4% Source: DBS Bank, ThomsonReuters
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Stock picks: Same ole, same ole: Look for earnings growth/ costs. CPALL plans to roll out at least 700 stores p.a. and has a visibility, domestic consumption, acquisition catalyst. In light of target to reach 12,000 stores in the next three years (from the volatile and opaque outlook, we maintain our stance on 9,252 outlets as at end-3Q16). We believe this aggressive sticking to the ole’ theme. While the US economy is expected outlet expansion plan is achievable as it uses the small-sized to pick up in its growth pace and interest rate hikes in CVS store format. December, uncertainties will still surround the pace of hikes come 2017. This could swing the regional currencies. In Meanwhile, we expect higher margins, stemming from addition, with a more inward-looking US, companies that rely economies of scale from a larger network and strong growth in on staple domestic consumption are likely to remain more ready-to-eat food, health and beauty products, and drinks at resilient. its cafes which yield relatively higher margins given the shift in consumer lifestyle towards convenience. MAKRO’s recovery Thai Beverage Pcl [THBEV SP; BUY, TP: S$1.09]. On hindsight, would be another earnings kicker in 2017. we should not have added this back into our top pick in September. Nonetheless, with the recent correction, we are Indofood Sukses Makmur [INDF IJ; BUY, TP: Rp9,700]. INDF IJ even more convicted on our recommendation. While there remains one of our top picks as we believe the company offers have been concerns on the impact on consumption arising better value, and as a proxy to its 80.5% subsidiary, Indofood from the mourning period in Thailand, we believe this is ICBP Sukses (ICBP). Despite signs of high commodity prices, we temporary. We believe its resilience and ongoing expect ICBP to still see margin expansion for the upcoming transformation into a regional beverage player will aid in quarters. The company trades at 14.9x 17F PE and a 31% further re-rating the counter. discount to its SOP valuation with market share dominance and strong pricing power of its key noodle segment. Furthermore, In its pursuit of top management’s 2020Vision, we believe a the conclusion of its partial divestment of its stake in China large part would be achieved via acquisitions and through its Minzhong Food Corporation (CMFC) should serve as a positive restructuring of shareholding in FNN. We see FNN as the catalyst and help to narrow INDF’s discount to SOTP valuation. vehicle for ThaiBev’s regional acquisition strategy; and estimate that both collectively have sufficient firepower to undertake Sheng Siong [SSG SP, S$1.01, BUY, TP: S$1.19] We like acquisitions to the value of around S$4bn. The increasing talks Sheng Siong for its earnings growth traction, efficient of potential stakes in Vinamilk and Saigon Beer Company in operations, strong ROE, defensive earnings qualities, Vietnam have set the stage for this, and the group will be key dividend yield and net cash balance sheet. Although store contenders, in our view. closures are expected for FY17F, we see continued margin expansion through 1) direct sourcing from suppliers which CP ALL [CPALL TB; BUY, TP: THB75). We still prefer domestic include farmlands in Malaysia; 2) higher sales of house plays over export plays, on the back of the continued recovery brands, which currently constitute less than 10% of in domestic consumption amid rising external uncertainties. turnover; 3) higher fresh mix from the displacement of wet CPALL remains our top pick, given its strong growth outlook, markets in Singapore; 4) more bulk handling as it expands underpinned by improvements in its core operations and and adds another 45,000 sqft of warehouse space at its margins. CPALL’s operations are resilient, as food products are Mandai distribution centre. The stock has a dividend yield of its major revenue source while consumers tend to spend on c.4%. small-ticket items amid weak consumer sentiment. Robinson Retail Holdings [RRHI PM; BUY, TP: P92.0]. We add Additionally, we expect its 2H16 SSSG to remain strong given RRHI as one of our key picks in the region. We believe the its successful stamp campaign while an aggressive branch recent sell off in the counter does not reflect the group’s expansion to reach 12,000 stores in the next three years was strong fundamentals and improving earnings profile in also announced. We see the aggressive expansion as a positive FY17F/18F. RRHI has closed a number of non-performing development as it could reflect easing concerns over the issue stores, and with that behind, we expect margins to improve of market saturation. We reiterate our BUY call on CPALL with due to the absence of costs stemming from the closures. In a TP of Bt75.0, based on DCF valuation (WACC 10.4%, addition, valuations are at -1SD below its 5-year historical terminal growth rate 2%). average. Its balance sheet is strong with a net cash position, allowing it to undertake acquisitions when opportune. We Strong earnings growth outlook should be supported by its have recently upgraded the counter to BUY, from HOLD, on 2 aggressive outlet expansion plan, wider product margins, and December 2016. improvement in operational efficiency which will lower logistic
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South East Asia Industry Focus ASEAN Consumer: Food for Thought
Stock picks FYE Mkt Price Target EPS Company Cap (S$) Price % PE (x) P/B (x) Div Yld Growth (US$m) 7-Dec (S$) Upside Rcmd 16F 17F 16F 17F 16F 17F 16F 17F Thai Beverage Sep 15,202 0.860 1.09 27% BUY 28.6x 19.1x 4.5x 4.1x 2.8% 3.2% (29%) 50%
CP ALL Dec 15,197 60.25 75.00 24% BUY 33.4x 26.9x 12.5x 11.0x 2.1% 2.6% 19% 24%
Indofood Sukses Makmur Dec 5,204 7,875 9,900 26% BUY 17.6x 15.3x 2.4x 2.2x 2.8% 3.3% 32% 15%
Sheng Siong Dec 1,072 1.010 1.19 17% BUY 23.6x 21.3x 6.1x 6.0x 3.9% 4.4% 13% 11%
Robinsons Retail Holdings Dec 2,065 74.00 92.00 24% BUY 18.3x 16.0x 2.0x 1.8x 0.9% 1.0% 14% 15%
Source: DBS Bank, DBS Vickers * FY17 & 18 estimate
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South East Asia Industry Focus
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Regional and Country 12-month forward PE (stocks under DBS coverage) DBS Regional Coverage PE band Singapore coverage: PE band
(x) (x) 35 35 +2sd: 32.5x +2sd: 29.8x 30 30
25 +1sd: 26.1x 25 +1sd: 24.7x
20 20 Avg: 19.8x Avg: 19.6x
15 15 -1sd: 14.5x -1sd: 13.5x 10 10 -2sd: 9.4x -2sd: 7.2x 5 5
0 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Source: DBS Bank Source: DBS Bank
Malaysia coverage: PE band Thailand coverage: PE band
(x) (x) 24 45
+2sd: 23.3x 40 22 +2sd: 37.4x 35 20 +1sd: 20.4x 30 +1sd: 29x 18 25 Avg: 17.5x 16 20 Avg: 20.6x 15 -1sd: 14.5x 14 -1sd: 12.2x 10
12 -2sd: 11.6x 5 -2sd: 3.9x 10 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Source: DBS Bank Source: DBS Bank
Indonesia coverage: PE band Philippines coverage: PE band
(x) (x) 45 40 +2sd: 42.5x +2sd: 36.4x 40 35 35 +1sd: 34.5x 30 +1sd: 28.2x 30 Avg: 26.5x 25 25 Avg: 20x 20 20 -1sd: 18.4x 15 15 -1sd: 11.8x 10 -2sd: 10.4x 10
5 5 -2sd: 3.6x 0 0 2009 2010 2011 2012 2013 2014 2015 2016 2010 2011 2012 2013 2014 2015 2016
Source: DBS Bank Source: DBS Bank
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South East Asia Industry Focus ASEAN Consumer: Food for Thought
Performance Review and Regional Benchmarks
Asia consumer indices led by Thailand, Singapore, Indonesia Cautious market outlook. We see possibilities of Fed hikes, US staples. Asia consumer has been dominated by Singapore, trade policies, etc, affecting fund flows. Valuation for the Thailand and Indonesia markets this year with staples leading ASEAN consumer sector is still around +1SD above average discretionary stocks. Focus has shifted these three markets as despite the recent correction. There may be earnings risks North Asian markets slow. Singapore was undervalued from weaker regional currencies led by imminent rate hikes compared to its ASEAN peers, Thailand’s corporate earnings and higher raw material prices. From a valuation versus were encouraging, while the market was bullish on Indonesia earnings perspective, we are cautious on the market’s for growth. performance in 2017.
Regional benchmark consumer indices’ valuation and performance Benchmark Indices Index PE (Act) PE (Yr 1) Div Yield 1m 3m 6m 12m QTD % YTD % MSCI Consumer Staples MSCI THAILAND/CON STPL 25.48 25.74 1.98 (3.14) (1.86) 13.01 38.80 (3.60) 51.64 MSCI SINGAPORE/CON STPL 19.58 16.77 1.88 13.15 16.34 7.77 23.35 16.04 25.32 MSCI INDONESIA/CON STPL 25.04 26.03 2.17 (4.69) (6.33) (3.44) 19.33 (5.15) 18.22 MSCI AC AS xJ/CON STPL 22.60 22.18 1.91 (4.83) (10.49) (9.28) (0.99) (8.73) (1.18) M SCI CHINA /CO N ST PL 22.70 23.12 1.93 3.62 (1.91) 2.06 (6.55) 3.25 (2.96) MSCI EM ASIA/CONSUM STAP 23.94 23.31 1.88 (5.57) (11.67) (10.12) (2.97) (9.77) (3.10) MSCI MALAYSIA/CON STPL 20.45 23.79 2.29 (1.65) (4.57) (2.13) (1.49) (4.73) (3.64) MSCI PHILIPPINES/CON STP 24.78 24.27 1.86 (2.37) (7.14) (16.34) (8.65) (5.05) (9.14)
MSCI Consumer Discretionary MSCI INDONESIA/CONS DIS 22.11 19.78 2.35 (5.05) (10.21) (0.74) 7.81 (8.96) 11.84 MSCI SINGAPORE/CONS DIS 29.41 25.91 3.70 3.73 6.56 12.20 8.79 8.19 11.63 MSCI THAILAND/CONS DIS 22.35 28.78 2.04 1.62 (2.91) (5.28) 2.78 (3.53) 4.59 MSCI AC AS xJ/CONS DIS 16.48 15.20 1.84 (3.13) (7.40) 2.58 (0.66) (5.87) 0.67 MSCI MALAYSIA/CONS DIS 22.40 18.95 1.54 (1.75) (2.57) (3.64) 0.92 (1.22) 0.41 MSCI EM ASIA/CONSUM DISC 15.26 14.08 1.53 (5.15) (10.62) (0.52) (4.61) (8.63) (3.13) MSCI PHILIPPINE/CONS DIS 41.75 35.98 0.89 (9.72) (15.79) (12.97) 0.97 (15.79) (5.02) M SCI CHINA /CO NS DIS 30.46 21.21 0.85 (1.50) (3.58) 10.38 (8.69) (2.61) (5.06) Source: Bloomberg Finance L.P., DBS Bank (as of 6 December 2016)
Regional benchmark consumer indices’ performance YTD
Source: Bloomberg Finance L.P., DBS Bank (as of 6 December 2016)
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South East Asia Industry Focus
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Regional benchmark consumer indices’ performance from 23 Sep 2016 to 6 Dec 2016
Source: Bloomberg Finance L.P., DBS Bank (as of 6 December 2016)
Stock picks’ performance since 3 Oct 2016 to 7 Dec 2016
0.0
-1.6
-5.0
-6.0 -6.0
-10.0
-11.8
-15.0 -13.9 CP All PCL Oldtown Bhd Sheng Siong Group Thai Beverage PCL Indofood Sukses Ltd Makmur Tbk PT
Source: ThomsonReuters, DBS Bank (as of 7 Dec 2016)
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South East Asia Industry Focus ASEAN Consumer: Food for Thought
DBS ASEAN Consumer Stock Universe Performance DBS Asean Stock Univ erse YTD mkt 12-mth cap Target weighted Company Rat ing Price1m3m6m12mYTD %av g return
Thai Beverage PCL BUY 1.09 -8.9% -17.6% 16.9% 24.5% 28.7% 3.0% Dairy F arm International Holdings Ltd BUY 7.18 2.0% 9.0% 22.5% 25.4% 23.7% 1.6% F raser and Neav e Ltd HOLD 2.36 0.5% -0.5% 7.9% -3.2% 2.8% 0.0% Delfi Ltd HOLD 2.16 0.0% -4.3% -16.0% 6.6% 21.5% 0.1% Super Group Ltd ACCEPT THE OFFER 1.30 39.6% 64.9% 25.1% 47.7% 55.2% 0.4% JUMBO Group Ltd BUY 0.77 5.8% 0.0% 41.1% na 47.1% 0.1% Sheng Siong Group Ltd BUY 1.19 -5.6% -1.0% 20.2% 18.8% 24.9% 0.2% Del Monte Pacific Ltd HOLD 0.37 -4.3% -4.3% 8.1% 15.5% -8.5% 0.0% Katrina Group Ltd BUY 0.43 -21.4% -30.2% -35.3% 0.0% Courts Asia Ltd BUY 0.50 0.0% 13.9% 40.6% 18.4% 20.0% 0.0% Singapore return 5.4%
British American Tobacco Malaysia Bhd HOLD 50.20 -6.7% -8.9% -18.5% -20.8% -17.4% -0.3% QL Resources Bhd HOLD 4.60 -0.9% 0.9% 2.8% 3.3% 3.3% 0.0% MSM Malaysia Holdings Bhd FULLY VALUED 3.00 -1.8% -1.6% 2.3% 0.2% 1.7% 0.0% Padini Holdings Bhd HOLD 2.95 -10.3% -1.9% 25.8% 38.4% 44.2% 0.1% Oldtown Bhd BUY 2.15 -7.0% -2.2% 25.1% 35.9% 25.4% 0.0% Malay sia return -0.2%
CP All PCL BUY 75.00 -2.4% 14.8% 30.3% 47.0% 56.5% 5.8% Charoen Pokphand Foods PCL BUY 40.00 -7.9% 8.3% 33.6% 51.6% 63.9% 2.8% Minor International PCL BUY 50.00 -4.5% -9.3% 1.4% 2.1% 1.0% 0.0% Thai Union Group PCL BUY 25.00 0.0% -5.0% 0.0% 13.7% 22.9% 0.4% Home Product Center PCL HOLD 10.00 -1.0% 2.5% 34.2% 54.5% 53.3% 1.4% Taokaenoi Food & Marketing PCL BUY 32.00 -1.9% 35.5% 161.4% na 216.0% 1.5% Central Plaza Hotel PCL BUY 47.00 1.3% -6.0% -7.1% -17.8% -8.5% -0.1% Thailand return 12.0%
Universal Robina Corp BUY 218.00 -5.4% -13.0% -15.0% -5.1% -7.1% -0.4% Jollibee Foods Corp HOLD 214.00 -13.5% -15.9% -6.5% 4.7% -3.3% -0.1% Emperador Inc HOLD 6.90 -3.3% -3.5% -3.7% -19.4% -17.4% -0.3% Robinsons Retail Holdings Inc BUY 92.00 -8.6% -13.9% 3.1% 8.9% 18.4% 0.3% Puregold Price Club Inc BUY 49.50 -10.9% -20.2% 2.5% 13.9% 12.3% 0.2% Century Pacific Food Inc BUY 18.50 4.8% 2.9% 38.2% 54.4% 56.5% 0.5% Philippines return 0.2%
Kalbe Farma Tbk PT BUY 2,000 -9.2% -5.9% 21.0% 27.3% 20.5% 0.8% Unilever Indonesia Tbk PT FULLY VALUED 30,700 -6.7% -8.7% -5.5% 18.1% 13.8% 2.2% Indofood CBP Sukses Makmur Tbk PT HOLD 9,800 -7.6% 0.6% 13.3% 45.4% 30.8% 1.6% Matahari Putra Prima Tbk PT FULLY VALUED 1,140 -5.2% -6.2% 3.0% -1.1% -5.9% 0.0% Indofood Sukses Makmur Tbk PT BUY 9,900 -6.1% -2.7% 12.5% 59.6% 55.7% 2.0% Matahari Department Store Tbk PT HOLD 20,300 -12.0% -26.3% -14.1% -3.8% -11.7% -0.3% Mitra Adiperkasa Tbk PT BUY 6,200 -1.4% 10.6% 11.3% 22.1% 39.0% 0.2% Mayora Indah Tbk PT HOLD 1,600 5.3% -2.4% 32.0% 53.4% 33.8% 0.6% Indonesia return 7.1% Asean cov erage return 24.6% Source: Thomson Reuters, DBS Bank, DBS Vickers (as of 7 Dec 2016)
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South East Asia Industry Focus
ASEAN Consumer: Food for Thought
SAME-STORE-SALES-GROWTH CHARTS
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South East Asia Industry Focus ASEAN Consumer: Food for Thought
SSSG charts
BIG C Sheng Siong
Sheng Siong
6.0%
-4.0%
Source: Company, DBS Bank Source: Company, DBS Bank Puregold CP All
CP ALL Puregold Puregold + S&R S&R 20.0% 40%
-7% -5.0%
Source: Company, DBS Bank Source: Company, DBS Bank Robinson’s Retail Holdings Matahari Department Store
20% Robinsons Retail Holdings RRHI - Supermarket Matahari Department Store
RRHI - Department RRHI - DIY 30.0% RRHI - Convenience store RRHI - Drug Store RRHI - Specialty Store
0.0% -10% 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 Source: Company, DBS Bank Source: Company, DBS Bank
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South East Asia Industry Focus
ASEAN Consumer: Food for Thought
SSSG charts
MK Restaurants and Yayoi Courts Singapore & Malaysia
hvs hvs MK Restaurants Yayoi Courts Asia Singapore Courts Asia Malaysia
40.0% 28.0%
-20.0%
-28.0% 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17
Source: Company, DBS Bank Source: Company, DBS Bank
Mitra Adiperkasa 7-Eleven Malaysia
7 Eleven Malaysia Mitra Adiperkasa 6.0% 14.0%
0.0% 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 -8.0% 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16
Source: Company, DBS Bank Source: Company, DBS Bank
Parkson Retail Asia Robinson’s Department Store Pcl 40% Robinson Department Store Pcl
12.0%
PRA Myanmar PRA Vietnam
PRA Indonesia PRA Malaysia
0.0%
-30% -12.0%
Source: Company, DBS Bank Source: Company, DBS Bank
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South East Asia Industry Focus ASEAN Consumer: Food for Thought
SSSG charts
Centel Minor International foodhubs Hvshvs CENTEL MINT foodhubs (TH, CN, AU, SG)
15.0% 10.0%
-4.0% -4.0%
Source: Company, DBS Bank Source: Company, DBS Bank
Homepro hvs Homepro
8.0%
-8.0% 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16
Source: Company, DBS Bank
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South East Asia Industry Focus
ASEAN Consumer: Food for Thought
COUNTRY BRIEFINGS
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South East Asia Industry Focus ASEAN Consumer: Food for Thought
Singapore – Improvement to be backed by regional recovery (Alfie YEO)
Latest developments Area of focus Details/Comments September retail September retail sales (ex motor vehicles) declined 1.9% y-o-y led by departmental stores, apparel and footwear, furniture sales and household equipment, recreational goods, watches and jewellery, computer & telecommunications equipment and optical goods and books. Including motor vehicle sales, (+20.4% y-o-y) retail sales grew +2% y-o-y. F&B services index rose 3.5% led by fast food and dining outlets. Grocery retail performance was varied, with 2.9% y-o-y growth for minimarts and convenience stores but -4.1% y-o-y growth for supermarkets. Employment/wage 3Q16 resident unemployment (SA) has dipped to 2.9%, but MAS forecasts employment growth to remain weak. Wage data growth (y-o-y) in 3Q16 fell to 3.4% (-0.5ppt from 3.9% in 2Q16). The nominal median monthly income for full-time employed residents was S$4,056 per month in June 2016, based on the latest report released by MOM. Industry news Amazon is entering the Prime delivery service and Fresh grocery service e-commerce segment in Singapore next year. It is reportedly hiring new people and purchasing assets including refrigerated trucks. It will be the second large-scale pure play e-commerce grocery retailer in Singapore after Redmart (owned by Alibaba’s Lazada) if formed. Three brick-and- mortar grocery retail incumbents (Dairy Farm, NTUC Fairprice and Sheng Siong) which dominate about 90% of Singapore supermarkets have their own online channels as well. Source: DBS Bank
Earnings Outlook Growth driven by exposure outside of Singapore. 2017 consumer sentiment, GDP largely positive. We are projecting Singapore Consumer sector (for stocks Regional consumer sentiment is largely on the uptrend in under our coverage) to post earnings growth of 8.6% y- 2016 with the exception of Thailand and will likely o-y in FY17F, driven mainly by companies’ exposure and continue for 2017. Philippines’ consumer confidence has growth outside of Singapore. This is underpinned largely been strong on the back of the presidential election year. by expectations of a continued pick-up in consumer Malaysia’s consumer confidence has seen gradual sentiment in regional economies, such as Thailand and recovery post-GST implementation in 2015. Consumption Indonesia. We expect domestic demand in Singapore to consumer confidence has also recovered in 2016 for remain relatively lacklustre on the back of subdued GDP Indonesia. Meanwhile, domestic demand has remained growth and macro uncertainties. lacklustre in Thailand. We also expect most ASEAN economies’ GDP growth to accelerate into 2017 on the Based on 3Q16 results posted by Singapore-listed back of better regional consumption. Malaysia, Thailand consumer companies (as at time of writing), performance and Indonesia’s GDP growth is expected to accelerate has been generally robust arising from gross margin from 2016, while Singapore’s GDP growth is expected to expansion. As per our earlier expectations, we are seeing be largely flat. Philippines’ GDP is expected to decelerate. companies enjoy the benefits of lower raw material prices. But this is due to a high base from the election year. For instance, Fraser and Neave (FNN) and Delfi have benefitted from lower sugar and milk powder prices GDP expected to accelerate in most of ASEAN which reached a low in 2015. That said, top-line growth Markets 2016F 2017F Note was largely lacklustre on the back of uncertain consumer Singapore 1.2 1.3 Flat sentiment across the region. Malaysia 4.2 4.5 Accelerate Thailand 3.3 3.5 Accelerate Acquisitions could further boost earnings. Potential Indonesia 5.1 5.3 Accelerate acquisitions could provide a boost to growth. Several Philippines 6.6 6.3 Decelerate companies have available cash and debt resources to Source: DBS Bank undertake acquisitions. For instance, the majority of companies under our coverage - FNN, Delfi, Super, Jumbo and Sheng Siong - are in net cash positions while Thai Beverage (ThaiBev)’s gearing has reverted to c.0.2x net debt/equity. We believe M&A and/or inorganic growth opportunities for these companies to leverage on their strong balance sheets could provide a catalyst for the sector.
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South East Asia Industry Focus
ASEAN Consumer: Food for Thought
Valuation & Stock Picks
Focus on growth, value, and earnings. Our picks for We see ThaiBev in a transformational mode to morph into 2016 are centred around growth, earnings resilience and a regional player. We believe its earnings momentum, value. Stocks with the strongest fundamentals and with coupled with its ongoing transformation into a regional earnings resilience and growth continue to be ThaiBev beverage player, will aid in further re-rating the counter. and Sheng Siong. Both Jumbo and Courts are offering In addition, a key catalyst could arise from the corporate regional growth at compelling valuations. restructuring of its associate, FNN coupled with potential acquisitions (leveraging on its net cash position) to expand Top picks into the Indochina region. In our view, this would provide Stocks Rating Strategy a further boost to earnings and stock price re-rating. ThaiBev BUY Growth and potential restructuring Sheng Siong BUY Defensive, earnings resilience, yield Sheng Siong (SSG SP, S$1.01, BUY, 12-mth TP: We like Sheng Siong for its earnings growth Courts BUY Regional growth, value play S$1.19) traction, efficient operations, strong ROE, defensive Jumbo BUY Growth in China, JVs in new markets earnings qualities, dividend yield and net cash balance Source: DBS Bank sheet. Although store closures are expected for FY17F, we
see continued margin expansion through 1) direct Sector valuation is Valuations slightly above average. sourcing from suppliers which include farmlands in currently at about 22x PE, which is +0.5SD above its 10- Malaysia; 2) higher sales of house brands, which currently year historical average. This has tapered off marginally, constitute less than 10% of turnover; 3) higher fresh mix particularly with the recent uncertainty in regional from the displacement of wet markets in Singapore; 4) markets and slower-than-expected improvement in top more bulk handling as it expands and adds another line year-to-date. That said, there is potential for re-rating 45,000 sqft of warehouse space at its Mandai distribution should top-line growth in 2017 come in stronger than centre. The stock has a dividend yield of c.4%. expected and/or accretive acquisitions be made by specific companies. Jumbo (JUMBO SP, S$0.66, BUY, 12-mth TP: S$0.77) We like Jumbo for its rapid growth in China, close to 30% Singapore consumer PE trading band ROE in FY16F, relatively higher margin than peers, cash
generative business, and strong net cash balance. We see
no signs of margin pressure as crab costs vs revenue per
head remains consistent. While Jumbo is growing rapidly
in China, new JVs and franchise partnerships in other
parts of Asia will help add to earnings growth going
forward.
Courts Asia (COURTS SP, S$0.45, BUY, 12-mth TP: Courts is an earnings recovery and value play. S$0.50) We expect earnings to recover on the back of better cost
management and margins. We forecast top line to remain
robust driven by accelerating GDP growth, store Source: Bloomberg Finance L.P., DBS Bank expansion and consumer sentiment recovery in Malaysia and Indonesia. Focus on bundled value-added services ThaiBev (THBEV SP, S$0.90, BUY, 12-mth TP: S$1.09) We like ThaiBev for its exposure in Thailand, resilient and and cost management will help improve margins and dominant Spirits operations, providing the bulk of the reduce operating expenses. Valuation is compelling at 9x group's cashflow. In addition, Beer operations should FY17F PE (near -1SD of its forward PE valuation) and 0.7x continue to retain its market share gains after the P/BV. The stock also offers a dividend yield of close to 4%. rebranding of Chang Beer. With the rebranding and increase in brand awareness, this puts management in a better position to manage its margins.
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South East Asia Industry Focus ASEAN Consumer: Food for Thought
Risks
Higher margin compression from rising raw material expecting some margin compression. That said, in the prices, absence of pick-up in consumer sentiment. event of spikes in raw material prices and further Our central theme to earnings growth for the sector in weakening of regional currencies against the US dollar, general is stronger regional top line on consumption this may erode margins more than expected, particularly recovery and pick-up in sentiment, such as in Indonesia so if the expected pick-up in sentiment does not and Thailand. At the same time, we expect margins to materialise. take a back seat in 2017, compared to 2016. We are already cognisant of rising raw material prices and are
Singapore retail sales (ex motor vehicles) Singapore grocery retail sales
Source: Thomson Reuters Datastream, DBS Bank Source: Thomson Reuters Datastream, DBS Bank Singapore F&B retail sales Singapore real wages
Source: Thomson Reuters Datastream, DBS Bank Source: Thomson Reuters Datastream, DBS Bank
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South East Asia Industry Focus
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Malaysia – Gradual and fragile recovery (CHEAH King Yoong )
Latest developments Area of focus Details/ Comments IPO QSR Brands (M) Holdings Sdn Bhd, which operates KFC and Pizza Hut restaurants in Southeast Asia, has selected a number of banks to arrange a Malaysian initial public offering next year that could raise about US$500m. QSR Brands chose Citigroup Inc, Credit Suisse Group AG and Malayan Banking to lead the offering. The company, which is backed by CVC Capital Partners and Malaysia's largest pension fund, also selected CIMB Group Holdings and RHB Bank to work on the share sale. IPI Malaysia's industrial production index (IPI) grew 4.9% y-o-y in August, driven by positive growth in all three major indices. The Department of Statistics Malaysia said the manufacturing sector output expanded further by 4.6% in August after increasing 3.3% in July.
CPI The inflationary pressure in Malaysia is seen stabilising as the country's consumer price index (CPI) increased at the same pace of 1.5% y-o-y in September 2016. In August, Malaysia's CPI also grew by 1.5% y-o-y. The Department of Statistics today said Malaysia's September CPI rose by 1.5% to 115.3 from 113.6 in the same month last year.
Source: DBS Bank
Fragile recovery. More than six quarters have passed since Table 2: Household debt-to-GDP (%) stayed high GST was implemented in April last year. While we observe % to GDP that its impact is gradually fading with a recovery in 100 86.1 86.8 89.1 89.1 consumer spending and visits to shopping malls, we noted 90 80.5 76.1 80 72.4 72.3 that the recovery has been slow, uneven and fragile. We 69.1 66.3 70 63.6 60.4 believe that the slower-than-expected recovery in consumer 60 spending was dragged by (1) slowing economic growth 50 40 momentum, (2) concerns over job prospects, (3) ringgit 30 volatility, (4) high household debt, and (5) higher cost of 20 10 living contributed by removal of subsidies by the 0 16 government. ‐ 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Jul Source: Department of Statistics, MIER Table 1: Unemployment rate has been inching up, though still low % CSI declined q-o-q, private consumption growth moderated. Unemployed persons (rhs) Unemployment rate (lhs) '000 4.0 600 Our observation is supported by the recent statistics released 3.5 by the Malaysian Institute of Economic Research (MIER). 500 Since hitting a record low of 64 points in December 2015, 3.0 400 the Consumer Sentiment Index (CSI) has gradually recovered 2.5 to 79 points in June before dropping to 74 points (-5 points 2.0 300 q-o-q) in September. The CSI remains well below the 1.5 200 threshold level of optimism of 100. Besides that, private 1.0 100 consumption growth (as a component of GDP) also 0.5 moderated in 3Q. 0.0 0 13 14 15 16 13 13 13 14 14 14 15 15 15 16 16 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Jul Jul Jul Jul Jan Jan Jan Jan Oct Oct Oct Apr Apr Apr Apr Source: Department of Statistics
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Table 3: Recent policy developments that could raise cost of living
Effective date Items Quantum of adjus tment % c ha nge
29-J un-15 Cigarettes - excis e duty hike +R M0.30/pack of 20 2.2 15-Oct-15 S elected toll charges (18 intracity highways ) - Avg 40 4-Nov-15 Cigarettes - excis e duty hike +R M3.20/pack of 20 23.2 2-Dec-15 KTM railway charges +4 s en/km 36.4 2-Dec-15 LRT and Monorail charges - Avg 10 1-Mar-16 R emoval of flour s ubs idy +R M8.25/pack of 25kg 24.4 Varies depending on alcohol content and 1-Mar-16 Alcohol Between -10 & +10 litre charge 1-J ul-16 Minimum wage hike +R M100 to R M1,000/mth for P enins ula 11.1 15-J ul-16 N a tura l ga s ta riffs re vis ion for non-powe r s e c tor +R M1 .5 2 /MMB tu 6.0 1-Nov-16 R etail pump price adjus tment +15 s en/litre 7.0 - 8.6 Cooking oil (various bottled packaging, except 1-Nov-16 R eportedly between R M1.40/kg - R M1.82/kg 42.4 - 61.9 per kg 1kg polybag) Source: Various, DBS Bank
2017 budget – mildly positive but not a significant booster. Consumer spending recovery – more gradual than Given the continued sluggish consumer sentiment, the anticipated. While we remain cautiously optimistic that government has resorted to support consumer spending In consumer spending will continue along its recovery path Budget 2017 by proposing stimulus measures such as (1) moving to 2017, supported by (1) government stimulus, (2) raising BR1M cash handouts to low-income earners, and (2) hike in minimum wage in July, and (3) fading effect of GST, providing special assistance of RM500 to all public servants, we remain concerned that the slower-than-expected with a special payment of RM250 to government retirees. recovery (as indicated by CSI) could be the ongoing theme As a whole, we believe that this Budget will be mildly for next year. positive for the consumer sector as the initiatives outlined will help to offset the impact of rising cost of living, but do Election goodies? Something hopeful. One theme to watch not serve as a significant catalyst for the sector. for in 2017 will be the potential election goodies next year. The government is poised to hold a general election (GE) No announcements for sin tax hikes… but guessing game latest by May 2018 and the market is anticipating that the continues. As expected, there was no announcement on election will take place in 2017, with some even expecting it excise duty hikes for breweries and tobacco companies in as early as 1Q 2017. Nevertheless, Dato' Sri Najib Tun Budget 2017. Nevertheless, we advise investors to exercise Razak, the Prime Minister of Malaysia, has dampened such caution as we do not rule out a post-budget excise duty expectations recently by stating that he was in no hurry to hike in the coming months. call for a vote given the current lack of "feel-good factors" among Malaysians. As such, we are not surprised if the government announces additional stimulus measures next year to create feel-good factors prior to an election.
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Malaysia consumer sentiment index Malaysia private consumption growth 140 130 120
110
100
90 80
70
60
50 40 Jun-98 Apr-00 Feb-02 Dec-03 Oct-05 Aug-07 Jun-09 Apr-11 Feb-13 Dec-14
Consumer Sentiment Index: Malaysia
Source: MIER, Bloomberg Finance L.P. Source: Thomson Reuters Datastream
Malaysia food beverage and tobacco retail sales Malaysia retail trade index
Source: Source: Thomson Reuters Datastream Source: Thomson Reuters Datastream
were mainly caused by (1) higher-than-expected operating Table 4: 3QCY16 results summary table cost (OldTown, Sasbadi and QL), where the former was dragged by a higher minimum wage implemented since Financial vs DBS vs cons ens us Call Previous Revis ed July, and (2) more expensive imported inventories due to a Company quarters es timates es timates Change Call Call weak ringgit (Padini and MSM).
BAT 3QFY 16 Inline Inline ▲ Fully V Hold MSM Malays ia 3QFY 16 Below Below ▼ Hold F ully V Earnings outlook expected to remain sluggish. The Oldtown 2QFY17 Below Below Buy Buy underwhelming 3QCY16 results have reaffirmed our Padini 1QFY 17 Below Below ▼ Buy Hold cautious stance on the sector, where earnings prospects Petronas Dagangan 3QFY 16 Inline Inline Hold Hold going forward are expected to remain weak due to (1) S as badi Holdings 4QFY 16 Below Below Buy Buy continued slow recovery in consumer spending, (2) QL Res ources 2QFY17 Below Below Hold Hold weakening ringgit that will inflate the cost of imported Source: DBS Bank materials, (3) higher minimum wage effective from July 2016 to add on to the cost pressure, and (4) an increasingly 3QCY16 results review – not so appetising. The recently competitive operating environment and weak consumer concluded 3QCY16 results did not excite, with consumer market may restrict companies’ ability to pass on the rising stocks under our coverage reporting more misses while cost. none exceeded expectations. The disappointing earnings
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Margin compression – key drag on earnings. In fact, we expect margin compression to be the key earnings downside Table 5: Selective raw material costs (sugar and coffee powder) risk going forward for consumer stocks under our coverage.
The potential victims include Padini and MSM, with the Raw sugar price USD/lb Arabia coffee bean price USD/lb former sourcing about 70% of its products from China, 30 200 denominated in RMB, and the remainder mainly in USD. As 180 such, the ringgit’s persistent weakness against both 25 160 currencies could continue to increase Padini’s inventory cost 20 140 and put downward pressure on its margins in the coming 120 quarters. We are also concerned that the recent hike in 15 100 80 MSM’s selling price is not sufficient to cover the higher 10 60 production cost due to the significant increase in its USD- 5 40 denominated raw sugar costs. 20 0 0 May May Jul Sep Nov Mar Jul Sep Nov Jan Mar Jan ‐ ‐ ‐ ‐ 16 15 ‐ ‐ ‐ ‐ 16 15 ‐ ‐ 16 15 ‐ ‐ 16 15 16 OldTown and BAT – actively addressing margin compression 15 16 15 challenges. Meanwhile, we believe that potential margin compression for OldTown’s FMCG operations, arising from Source: Bloomberg Finance L.P. potentially higher cost of raw materials, is largely mitigated in the near term as the group has locked in contract prices Meanwhile, BAT has resorted to addressing margin for its coffee powder over the next seven months. There will compression issues by closing its manufacturing factory be an uptick in its non-dairy creamer cost in November, along Jalan Universiti, Petaling Jaya in stages up to 2HFY17 which constitutes about 40% of its cost of goods sold, but and has turned to sourcing tobacco products for the management will seek to mitigate this through domestic market from other British American Tobacco improvement in cost efficiency. On a positive note, the Group’s factories in the region. higher export sales have enabled the group to benefit from ringgit weakness against USD and RMB.
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Thailand – Temporary hiccup in 4Q16 from mourning period (Namida Artispong)
Latest developments Area of focus Details/ Comments Economic data Consumer sentiment in October dropped for the first time in four months as consumers were concerned about recovery in the domestic economy and low prices of crops, especially rice. Company data CPF announced the acquisition of a 100% stake in Bellisio Parent, the third largest producer and distributor of single- serve frozen entrees in the US and a leading player in Canada for US$1.1m (Bt38.2bn). Economic data The cabinet approved a Bt17.5bn budget for 74,655 Village Funds across the country representing Bt250,000 for each Village Fund for local development to boost the rural economy. To qualify for funding from the budget, each Village Fund must propose projects to committees in each district before these are forwarded to Deputy Prime Minister Somkid Jatusripitak and Prime Minister Gen Prayut Chan-o-cha for final approval. Projects that will be financed by the new budget must be able to strengthen and benefit communities, and include road repairs, renovation of schools and construction of silos for farm products. Economic data The cabinet approved an increase in the daily minimum wage by Bt5, Bt8, and Bt10 in 69 provinces. The new wages will be effective from 1 January 2017.
Economic data In November, South Korea resumed imports of Thai chicken after a 12-year-long ban which was imposed when there was an avian influenza outbreak in Thailand in 2004. Economic data The cabinet has approved to double the tax break for domestic tourists to Bt30,000 for travel spending this year. The tax reduction will be for actual spending of up to Bt30,000 per person on tour services and hotel accommodations for domestic trips. Source: DBS Vickers
3Q16 results review. Despite an absence of government’s booked Bt33m extraordinary expenses (write-off of some stimulus measures in the quarter, most of the companies fixed assets from a major renovation of its five-star hotel in under our coverage reported stronger earnings growth y-o-y, Maldives). except for Thai Union (TU). TU’s core operations were weaker than our expectations, arising from a drop in gross Thailand: 3Q16 earnings results review margins as its profitability was under pressure from high Stocks Results Note tuna and salmon raw material prices. Another big food Favourable livestock selling prices, low cost of raw materials, continuous recovery of shrimp player, Charoen Pokphand Foods (CPF) saw its core earnings CPF In line business in Thailand, and successful effort to quadrupling y-o-y, fuelled by favourable livestock selling control costs. prices, low cost of raw materials, continuous recovery of Reported earnings were slightly above shrimp business in Thailand following several years of being expectations but this was due to one-off items Slightly which were reflected in low effective tax rate affected by the Early Mortality Syndrome (EMS) disease, and TU above and SG&A-to-sales ratio. Nevertheless, core successful efforts to control costs. operations were weaker than our estimates, arising from a drop in gross margins. Thai retailers- CPALL and HMPRO also delivered robust Decent performance of owned hotels in double-digit earnings growth from outlet expansion and MINT In line Thailand and Oaks in Australia, strong food healthier EBIT margins. HMPRO posted a slightly negative (- business in Thailand and China hubs. Rising hotel RevPar, food outlet expansion, and 0.6%) same-store-sales-growth (SSSG) due to heavy rain in CENTEL In line lower interest expenses. the quarter while CPALL reported strong SSSG (+4.4%) Slightly Strong operations of both convenience store CPALL thanks to its successful stamp campaign. above (CVS) and cash-and-carry businesses (MAKRO). HMPRO In line Outlet expansion and higher EBIT margin. For food/hospitality operators, their earnings were in line with single-digit y-o-y growth. Minor International (MINT)’s Source: DBS Vickers
earnings during the quarter was driven by a solid
performance of owned hotels in Thailand and Oaks in
Australia, robust food business in Thailand and China, and
incremental earnings from the acquired Tivoli hotels and
increase in stakes in two hotels in Zambia. Meanwhile, rising
hotel RevPar, food outlet expansion, and lower interest
expenses helped Central Plaza (CENTEL)’s earnings to grow. CENTEL’s earnings would have been better but the company
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The outlook and what to look out for. Thailand’s 3Q16 GDP Meanwhile, the government is also considering the old growth came in at 3.2% and was 3.3% for the first nine shopping spree scheme by offering tax breaks worth up to months. In 3Q16, GDP growth was supported by public Bt15,000 during the year-end holidays this year. This spending, strong tourism sector, and rising private measure is similar to tax breaks initiated last year which also consumption. The key highlight was the agricultural sector offered tax breaks worth up to Bt15,000 per person in the that saw growth rebounding to 0.9% y-o-y after seven last seven days of 2015. However, this time the period consecutive quarters of decline. should be longer, from two weeks to one month. The Finance Ministry expects the measure to boost 2016 annual Looking ahead, Thailand may face temporary headwinds in GDP growth from 3.3% projected earlier to 3.4% as tax 4Q16 and this may spill over to 1Q17 arising from the breaks last year successfully add 0.2ppt to 2015 GDP mourning period following the passing of beloved King growth. Bhumibol Adulyadej and the crackdown of zero-dollar tours.
Nevertheless, we still believe in the resilience of the Thai In 2017, the Finance Ministry and Central bank have tourism industry over the long term and believe the zero- forecast Thailand’s economy to expand by 3.2%-3.4%. dollar tour ban will benefit Thai tourism as a whole due to Government spending (infrastructure investment and the improvement in quality of Chinese tourists. stimulus package), strong tourism, improving exports, and Thailand tourism will depend not only on the number of the end of car debt from the first car buyer scheme will be foreign tourist arrivals but also the quality of their spending the key boosters for economic growth. per head. However, the mourning period which has led to some banquet postponements and cancellations (hotel- The five-year ownership lock-up period for cars that were related activities at conventions) and dampened domestic bought under the first car policy is scheduled to expire in consumption as most of Thais are not in any mood to spend late 2016. With the absence of auto loan debt, domestic after the sad incident. consumption should strengthen and household purchasing power should get a lift in 2017. Note that the first car buyer The impact could be negative on 4Q16 earnings for some policy has pushed up Thailand’s household debt from food/hospitality operators under our coverage such as MINT 71.5% in 2012 to 80% currently. and CENTEL. To put this in context, the government has asked Thai citizens to refrain from big celebrations/parties for Thailand’s Consumer sector (stocks that are under our only 30 days. Hence, we believe that the impact on their coverage) is estimated to deliver earnings growth of 19% in hotel operations would be only temporary. Meanwhile, we FY17F, driven by i) improving consumer spending, ii) their do not expect both operators to suffer any impact from the own business strategies; and iii) upside potential from M&A crackdown of zero-dollar tours as target customers are for some of the companies. Management of most different. companies have been proactive and adopted strategies To make up for the expectation of the slowing domestic which aim to sustain their long-term growth. consumption, the government has launched a stimulus scheme and is considering several others. Recently, the Companies will be focusing more on increasing operational cabinet approved a Bt12.8bn package to help low-income efficiency to minimise costs. Hence, their earnings should earners boost consumption by distributing cash to 5.4m of still expand on higher profitability despite probability of slow those who are jobless, and earning less than Bt100k a year. revenue growth. Additionally, several companies have Specifically, those earning Bt30,000 a year or less will receive started to diversify their business portfolios to support Bt3,000 per person while those earning Bt30,000-100,000 a longer-term growth. M&A would present further upside to year will receive Bt1,500 per person. Note that eligible earnings for some of the companies under our coverage. recipients must register with the Finance Ministry. This Acquisitions have always been one of the key pillars of funding will be from the government’s 2017 fiscal budget. growth for Minor International (MINT), Thai Union (TU), and Charoen Pokphand Foods (CPF) while we may also see a Additionally, the cabinet has approved to cut visa fees on new food brand for Central Plaza (CENTEL). arrival temporarily from Bt2,000 to Bt1,000 and waive visa fees from Bt1,000 for foreign tourists from 19 nations including China, Bhutan, India, Taiwan, and Saudi Arabia.
Multiple-entry, long-term visas for up to 10 years were also approved, up from one year for 14 nations including
Norway, Denmark, the Netherlands, Sweden, France, and
Italy. This measure will be implemented from 1 December
2016 to 28 February 2017.
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Stock pick: CPALL (BUY, THB75). Investors may have Meanwhile, we expect higher margins, stemming from concerns on the impact of the mourning period on economies of scale from a larger network and strong consumer confidence. However, we believe the growth in ready-to-eat food, health and beauty products, consumption slowdown would only be temporary (in 4Q16 and drinks at its cafes which yield relatively higher margins to early 2017) and solid fundamentals of the companies given the shift in consumer lifestyle towards convenience. should not be eroded. During this slower consumption Additionally, MAKRO’s recovery would be another earnings phase, sales of consumer staples (convenience store and kicker in 2017. groceries) should be more buoyant than discretionary items (clothing, home products, shopping mall visits). CPALL will be issuing perpetual debentures worth c.Bt10bn with cost of debt of c.5% and a subscription period from CPALL remains our top pick, given its sustainable earnings 24-29 November to refinance the existing debts. The key growth momentum. Strong earnings growth outlook should feature of the perpetual debenture is the rights for early be supported by its aggressive outlet expansion plan, wider redemption after five years. The perpetual debenture would product margins, and improvement in operational efficiency be classified as equity and would strengthen its balance which will lower logistic costs. CPALL plans to roll out at sheet (we expect its net debt-to-equity ratio to fall from 3.8x least 700 stores p.a. and has a target to reach 12,000 stores at end-3Q16 to 2.5x at end-FY17F). Interest expenses on the in the next three years (from 9,252 outlets as at end 3Q16). perpetual debenture will not be booked in P&L statements, We believe this aggressive outlet expansion plan is but instead flow from retained earnings in the balance achievable as it uses the small-sized CVS store format. sheet. However, this should have only a minimal impact on its ability to pay dividends.
Thailand consumer confidence index Thailand retail sales growth
Source: Thomson Reuters Datastream Source: Thomson Reuters Datastream
Thailand tourist arrivals (000’s) Thailand private consumption (Food) growth
Source: Thomson Reuters Datastream Source: Thomson Reuters Datastream
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Indonesia – On the path of gradual recovery (Tiesha Putri)
Latest developments Area of focus Details/ Comments GDP and inflation 3Q16 GDP came in line with our expectation at 5.02% y-o-y with household consumption growing steadily by 5% y-o- data y. The highlight was on the discretionary household consumption which eased further to 4.3% y-o-y. Consumers were still holding back discretionary spending, particularly for big-ticket items, as seen in weak retailers’ SSSG and vehicle purchases. Headline inflation remained low but accelerated to 3.6% in November 2016 (vs. 3.3% in October 2016). Moderate increase In 2017, more regions will comply with Government Regulation No.78/2015, which sets out a formula that determines in 2017 minimum minimum wage based on inflation and GDP growth rate. As a result, there will only be a modest increase of 9% in wage average minimum wage as compared to a 12% increase each in 2015 and 2016. While this should bode well for labour-intensive industries, including retailers, this also means less boost to consumption. Consumer Consumer Confidence Index (CCI) rebounded to 116.8 in October 2016, higher than its five-year mean of 114 and is Confidence Index also the highest level in the past one year. Low- to middle-class consumers turned more upbeat in October 2016, while upper-middle and upper-class consumers reported only a slight m-o-m increase in confidence index. Weakening Rupiah Rupiah reversed its appreciation trend in November 2016 and now hovers at Rp13,500/US dollar. Rupiah depreciation poses downside risk to consumer companies, particularly staples, as around half of their raw materials are linked to the US dollar. Source: DBS Vickers
3Q16 review: demand environment improved moderately. A Recall that in the past, regional minimum wages were shift in Lebaran seasonality from 3Q in 2015 to 2Q in 2016 decided by the government and labour union with cost of distorted quarterly revenue and net profit growth, living survey as a benchmark. Labour-intensive companies, particularly among retailers. To eliminate this impact, we including retailers, are set to benefit from this moderate focus on consumer companies’ 2Q16+3Q16 revenue and wage inflation. However, this could also mean less boost on net profit growth. On the top line, aggregate revenue grew consumers’ purchasing power next year. 9% y-o-y in 2Q16-3Q16. Demand environment improved but remained soft as the companies only saw a moderate Recovery momentum to continue in 2017. Given the revenue growth acceleration from 7% y-o-y booked in moderate minimum wage increase next year, trend of 1Q16. commodity price and the execution of infrastructure projects are two things to keep an eye on. It is worth noting that 2Q16+3Q16 net profit grew by a strong 19% y-o-y (vs. -1% 33% and 7% of the workforce are employed in the y-o-y in 1Q16). Consumer staple companies benefitted from agriculture and construction sector respectively. Hence, low soft commodity prices while some retailers saw their rising soft commodity prices and infrastructure spending margins expanding due to improved operating efficiency would help to spur household consumption and sustain and less discounting. 3Q16 EBIT margins of staple consumption recovery momentum next year. companies remained higher y-o-y but looking at the sequential trend, the margins had come off peak as raw Consumer confidence and inflation trend have remained material inflation has picked up. favourable. On the fiscal side, despite lower energy subsidy allocation, the government continues to ramp up Moderate increase in 2017 minimum wage. More regions infrastructure spending with budget being raised by 22% y- will comply with the minimum wage formula stipulated by o-y for 2017. We expect consumption recovery momentum Government Regulation No. 78/2015 next year. The to continue in 2017 although still at a gradual pace. implication is a slower minimum wage increase in 2017 compared to that in the past years as the regulation pegs minimum wage growth to inflation and GDP growth rate. On average, the minimum wage in 34 provinces will rise by only 9% in 2017 vs. 12% increase each in 2015 and 2016.
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Average minimum wage trend Employment by sector 2.50 25% 2.08 19% 2.00 1.91 20% 16% 1.69 Others 1.51 23% 1.50 15% 1.30 12% 12% Agriculture 33% 9% 1.00 10%
0.50 5% Trade 23% Mining - 0% Industrial 13% 1% 2013 2014 2015 2016 2017
Avg. minimum wage, Rp mn (LHS) Growth y-o-y (RHS) Construction 7% Source: Central Bureau of Statistics Source: Central Bureau of Statistics
3Q16 results review 1Q16 2Q16 2Q16+3Q16 3Q15 2Q16 3Q16 q-o-q y-o-y 9M15 9M16 y-o-y Comment y-o-y y-o-y y-o-y Revenue ICBP 7,545 9,253 8,296 -10% 10% 24,096 26,471 10% 12% 8% 9% INDF 14,929 17,568 15,782 -10% 6% 47,564 49,866 4% 10% 0% 2% LPPF 2,892 3,318 2,343 -29% -19% 6,813 7,522 32% 15% 44% 9% MPPA 3,593 3,736 3,393 -9% -6% 10,448 10,394 2% -2% 7% 0% MYOR 3,151 4,595 - 10,691 35% 13% -36% MAPI 3,299 3,494 3,629 4% 10% 9,401 10,290 9% 7% 11% 11% UNV R 8,745 10,757 9,356 -13% 7% 27,547 30,101 10% 6% 15% 11% Aggregate* 26,074 30,557 27,017 -12% 4% 78,304 94,055 11% 7% 14% 9% F&B* 16,290 20,010 17,652 -12% 8% 51,642 56,573 10% 9% 11% 10% Retailers 9,784 10,547 9,365 -11% -4% 26,662 28,206 12% 5% 18% 6%
Net profit ICBP 706 1,034 853 -18% 21% 2,444 2,832 14% 19% 10% 15% In line INDF (47) 1,145 1,009 -12% n/a 1,684 3,240 29% 25% 33% 165% In line LPPF 736 913 453 -50% -38% 1,384 1,610 79% 32% 97% 14% In line MPPA 70 102 53 -48% -24% 246 33 -112% -251% 9% -5% Below MYOR 276 268 - 869 18% -16% -55% Not yet reported MAPI 1 31 74 139% 5313% 27 120 78% 25% 126% 596% Above UNV R 1,253 1,728 1,452 -16% 16% 4,183 4,751 13% -1% 29% 23% Above Aggregate* 2,766 3,809 2,886 -24% 4% 8,284 9,937 17% -1% 34% 19% F&B* 1,958 2,763 2,305 -17% 18% 6,627 7,583 13% 5% 21% 20% Retailers 808 1,047 580 -45% -28% 1,657 1,763 39% -51% 83% 18% *excluding INDF and MYOR Source: Companies, DBS Vickers
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Indonesia consumer confidence index Indonesia 3-month price expectations
Source: Thomson Reuters Datastream Source: Thomson Reuters Datastream Indonesia food, beverage and tobacco retail sales Indonesia 2 & 4-wheeler sales (y-o-y change %)
2-wheeler sales dropped 5% y-o-y in Oct (a smaller decline vs Jun-Aug), while 4-wheeler registered 4% growth
Source: Thomson Reuters Datastream Source: Indonesia 2W association (AISI)
Watch out for cost inflation as rupiah depreciates and raw market share, which should translate to a better flexibility to material prices pick up. Weakening rupiah poses downside pass on higher raw material costs to consumers. For this risk to earnings, particularly for staple companies, as around reason, we maintain Indofood Sukses Makmur (INDF IJ) as half of their raw materials are linked to the US dollar. our top pick. The company trades at 14.9x 17F PE and 31% Furthermore, key soft commodity prices such as skim milk discount to its SOP valuation with market share dominance powder, CPO, sugar and coffee have continued to rise and strong pricing power of its key noodle segment. quarter-to-date. This affirms our view that consumer staples’ margins will likely continue to normalise in the coming As for retailers, some names (LPPF and MAPI) now trade at quarter. Upside risk to our view would be if demand significant discounts to their historical mean multiples. While recovers faster than our expectation, hence any cost demand for staples have generally improved, recent pressures could be immediately passed on to consumers datapoints suggest that consumers are still holding back through price increases. discretionary spending. We advise investors to focus on company-specific positive drivers. We like MAPI among Stock picks. The valuation discount between retailers and retailers due to the ongoing store rationalisation and staples has widened to 52% vs. its five-year historical reduction in discounting activity which should continue to average of 5% premium. Consumer staple stocks trading at drive profitability improvement in the coming quarters. lofty valuations may be at risk as soft commodity prices start to creep up. We prefer cheaper names with dominant
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Philippines – Fundamentals are intact but not without risks (Mark ANGELES)
Latest developments Area of focus Details/ Comments Overseas Remittances from overseas Filipinos jumped by 6.7% in September to US$2.38bn, the highest monthly amount recorded Foreign for the year. Remittances growth in September was slower compared to August's 16.3% due to base effects. Year-to-date Remittances cash remittances amounted to US$20.02bn, up 4.8% y-o-y. We see OF remittances to further strengthen as the holiday (September-16) season approaches and with payment of back wages from laid off Filipino workers in Saudi Arabia. We do not think the level of growth reported in August and September can be sustained in 2017 – due to layoffs in Saudi Arabia and slowing deployment of Filipino workers overseas. GDP (3Q16) 3Q16 GDP grew by 7.1%, ahead of consensus estimates of 6.7% and faster than 3Q15’s 6.3%. For 9M16, the industry sector (+8.2%) outpaced the growth in the services sector (+7.6%), showing the country’s transition to an investment- driven economy. Moving forward, the Philippine economy should remain robust supported by resilient domestic consumption and increasing investments. Inflation November inflation accelerated by 2.5% y-o-y (October 2016: 2.3%), faster than the market estimate of 2.2% and above (November-16) BSP’s target range of 1.6-2.4% for the month. Food CPI was at 3.3% y-o-y amid slower annual increments from the food index in NCR. We still expect upward pressure to persist on food index as the prices of selected food items (i.e. Christmas- related products) are expected to increase ahead of the holiday season. Also, the depreciation of the Philippine peso could further increase prices in some products, mainly those that source raw materials abroad. Source: DBS Bank, Bangko Sentral ng Pilipinas (BSP)
Review Meanwhile, URC continues to underperform as toughening Negative performance but our picks still performed well. competition and softening demand continue to challenge its Year-to-date (as of 5 December 2016, Philippine consumer domestic businesses. Overseas performance also remained stocks within our coverage dropped by 1.3% (market weak after URC Vietnam was forced to do product recalls weighted) outperforming the PSEi’s (benchmark index), on its C2 iced tea and Rong Do (Red Dragon) brands. which fell by 2.5%. In the 2H16, we have seen an acceleration of foreign fund outflows stemming from the For EMP, 3Q16 revenues were down due to lower domestic weakening of Philippine peso, uncertainties surrounding volume sales, forex translation, and the Russian Standard government policies, and mixed corporate earnings results. Vodka (RSV) exit (i.e. the agreement with Roust, Inc. for the Our picks bucked the trend, CNPF (+55.6%), RRHI (+19.1%) distributorship ended in FY15). EMP’s domestic sales volume and PGOLD (+12.7%), still yielding solid returns. However, was affected by stricter implementation of liquor sale EMP (-19.0%), URC (-7.5%) and JFC (-2.8%) restrictions and tough competitive environment. underperformed versus the PSEi index after reporting lacklustre earnings. On margins, a mixed basket for counters within our coverage – not short of surprises. Retailers PGOLD and RRHI 3Q16 results review: Mixed basket. 3Q16 sales growth was saw their GP margins expand while EBIT margins remained slower q-o-q, coming as no surprise since a post-election stable. CNPF also continued to see improvement in its GP slowdown was expected. Consumer staples remained and EBIT margins as cost trends remained favourable. As for robust, while we saw some weakness in discretionary items. EMP, margins were up y-o-y due to the exclusion of its RSV Retailers, PGOLD and RRHI managed to sustain momentum business. However, we saw margin contractions q-o-q on from 2Q, as they kept their 3Q16 SSSG above normalised weaker volumes and lower currency translations. levels of 2-4%, at 4.9% and 4.7% respectively. Also, CNPF’s Meanwhile, JFC recorded stable GP margin but reported branded business remained strong in 3Q16 as it recorded a lower EBIT margin which is attributable to higher double-digit volume growth due to resilient demand. administrative costs. For URC, margins were compressed due to downside pressures from competition and the As for JFC, its domestic business continues to provide solid regulatory issues in Vietnam. support to its growth with 3Q16 domestic SSSG estimated to be in the high single digits. However, 3Q performance was dragged by the surge in its operating expenses driven by increases in headcount and IT-related expenses.
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OF remittances Household consumption (% y-o-y) 8% 35.0 7% 30.0 25.0 6% 20.0 5% 15.0 4% 10.0 3%
5.0 2%
0.0 1% -5.0 0% -10.0 2006 2007 2009 2011 2013 2014 2016 Jan-13May-13Sep-13 Jan-14May-14Sep-14 Jan-15May-15Sep-15 Jan-16May-16Sep-16 $ growth P growth Household Consumption (y-o-y)
Source: CEIC, BSP, DBS Bank Source: CEIC, PSA
3Q16 results review 1Q16 2Q16 2Q16+3Q16 1Q15 2Q15 3Q15 1Q16 2Q16 3Q16 q-o-q y-o-y 9M15 9M16 y-o-y Comment y-o-y y-o-y y-o-y Revenue CNPF 5,237 6,071 5,877 6,397 6,608 7,959 20% 35% 17,185 20,964 22.0% 22.2% 9% 22% EMP 8,895 9,427 10,796 8,967 9,391 9,523 1% -12% 29,118 27,881 -4.2% 0.8% 0% -6% JFC 23,003 24,853 25,052 26,102 28,323 27,816 -2% 11% 72,908 82,241 12.8% 13.5% 14% 12% PGOLD 20,689 22,454 24,191 24,761 26,296 27,680 5% 14% 67,334 78,737 16.9% 19.7% 17% 16% RRHI 19,715 21,639 21,935 22,696 25,638 25,479 -1% 16% 63,289 73,813 16.6% 15.1% 18% 17% URC 28,693 26,298 27,108 28,551 26,835 26,268 -2% -3% 82,100 81,654 -0.5% -0.5% 2% -1% Aggregate 106,232 110,742 114,959 117,474 123,091 124,725 1% 8% 331,934 365,290 10% 11% 11% 10% F&B 65,828 66,649 68,833 70,017 71,157 71,566 1% 4% 201,311 212,740 6% 6% 7% 5% Retailers 40,404 44,093 46,126 47,457 51,934 53,159 2% 15% 130,623 152,550 17% 17% 18% 16%
Net profit CNPF 438 497 561 636 725 798 10% 42% 1,496 2,159 44% 45% 46% 44% Above EMP 1,401 1,860 1,442 1,405 2,034 1,483 -27% 3% 4,703 4,922 5% 0% 9% 7% In line JFC 1,188 1,412 1,258 1,398 1,656 1,335 -19% 6% 3,858 4,389 14% 18% 17% 12% In line PGOLD 1,054 952 1,196 1,154 1,113 1,378 24% 15% 3,202 3,645 14% 9% 17% 16% In line RRHI 781 1,082 1,109 785 1,238 1,278 3% 15% 2,972 3,301 11% 1% 14% 15% In line URC 3,205 3,104 2,857 3,535 3,757 3,210 -15% 12% 9,166 10,502 15% 10% 21% 17% Below Aggregate 8,067 8,907 8,423 8,913 10,523 9,482 -10% 13% 25,397 28,918 14% 10% 18% 15% F&B 6,232 6,873 6,118 6,974 8,172 6,826 -16% 12% 19,223 21,972 14% 12% 19% 15% Retailers 1,835 2,034 2,305 1,939 2,351 2,656 13% 15% 6,174 6,946 13% 6% 16% 15%
Source: Companies, DBS Bank .
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FY17 Outlook this is an area where there could be negative surprises. Strong fundamentals are clouded by rising cost of raw Despite having said these, our base case still assumes stable materials and government policy risks (domestic and operating margins for FY17F as we also take into account international) proactive cost-control measures of consumer stocks under our coverage. Fundamentals remain supportive of demand. We expect sales growth to normalise in FY17F as the election-related Another key area to be mindful of is the boost wears off. However, following the strong/solid top-line benefits/consequences of government policies. This is an growth in 9M16 (+10%), we believe there are supportive area where we lack visibility – given the uncertainties of the factors that can help fill some of the gap. Supportive factors current administration and on Trump’s policies. On the local such as: front, there is an abundance of proposals that can lead to 1.) higher infrastructure spending – positive for consumption changes in consumption patterns in the Philippines. trends as the higher spending in infrastructure feeds through consumption; Proposal such as; 1.) income tax reforms – will lead to higher disposable income, but have little or no impact on low wage 2.) consumer confidence at cloud nine – the latest Consumer earners, unless there are cash transfers, and 2.) higher excise Expectations Survey shows that consumer confidence for the tax on petroleum products – is inflationary and have next quarter and 12 months are at their highest level since negative wealth effect on households. We highlighted these 1Q17; two on the premise of the likelihood of being passed and impact to household wealth. Meanwhile, impact of other 3.) manageable inflation – DBS forecasts higher inflation rate proposals such as the expansion of value-added tax, of 2.7% in FY17F – from 1.7% FY16F – at manageable restructuring of excise tax on sugary drinks, etc should be levels. We do not see a significant rise in food inflation as more concentrated within their respective industries. prices of rice are likely to be dampened due the lifting of import limits. Rice accounts for 8.9% of the Philippine Regarding Trump’s stance on global trade and immigration, consumer price index basket; we see limited consequence on OF remittances, exports, and factory jobs in the Philippines. Our concern is focused more 4.) rising household disposable income – underpinned by on the Business Process Outsourcing (BPO) sector, which strong overall strength of the Philippine economy, wage provides jobs for 1.3m Filipino workers. BPO workers are growth (especially government employees), business process well compensated and tend to have a higher propensity to outsourcing (BPO) sector, and resilient remittances; and, spend. Should Trump make true on his words to bring back jobs to the US, the Philippines’ BPO sector could suffer. We 5) socialist tilt – we see a proliferation of socialist think returning factory jobs to the US will be difficult and programmes under Duterte’s administration. Programmes tedious due to the value of physical assets (factories). But for such as free medicine for the poor and increases in pension, BPO offices, the cost of physical assets is much lower as will lead to higher spending power, especially for the lower- offices are leased – making it easier to relocate back to the income group. US. We estimate 80-90% of BPO offices in the Philippines are US companies. However, while outlook for top-line growth is constructive, translation to higher earnings growth is less certain, clouded Stock picks by rising costs of raw materials and/or expenses borne from Going into 2017, fundamentals will remain strong, tighter competition. The weakness of the Philippine peso underpinning consumer demand. However, there is no puts pressure and complicates things for companies that shortage in risks clouding our earnings outlook. Having said import raw materials/inventories (JFC, URC, EMP, CNPF, these, we are cautious and would like to be on the defensive PGOLD, and RRHI). While these companies can pass on some stance. We prefer counters with visible and resilient earnings. of the cost to their consumers, there will still be a negative Consumer staples over consumer discretionary. They benefit impact on gross margins. first from the growth in disposable income, resilient to negative wealth effect on households, and not in the radar Increased A&P spending and the potential for higher of policy makers. Our picks are CNPF, RRHI, and PGOLD. manpower costs are key areas to watch next year. We see They currently trade at a discount to Philippine consumer speedier growth in A&P spending for brand building and as glamour names and are less affected by foreign fund a response to competition. Based on our conversations with outflows (given the little or no weight in the MSCI PH IMI management of companies under our coverage, they expect index. limited impact form the end of contractualisation. We think
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Philippines consumer confidence index Philippines food retail price
Source: Thomson Reuters Datastream Source: Thomson Reuters Datastream
Philippines beverage and tobacco retail price
Source: Thomson Reuters Datastream
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MACRO CHARTS / DATA
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Macro – Economic Charts
Economic growth forecast & commentary Singapore GDP
GDP Growth (%) 2015 2016F 2017F Singapore 2.0 1.2 1.3 Malaysia 5.0 4.2 4.5 Thailand 2.8 3.2 3.4 Indonesia 4.8 5.1 5.3 Philippines 5.8 6.7 6.4 Source: DBS Bank
Growth may have bottomed out but the improvement ahead is expected to be modest and gradual.
Source: Thomson Reuters Datastream, DBS Bank
Malaysia GDP Thailand GDP
Growth has picked up, but expect slow growth on concerns regarding While consumption is stronger, returning to 4% GDP growth will the health of the economy. Domestic demand and private consumption remain a struggle. Private consumption growth has improved, but has helped to drive economic expansion of over 4% this year. private investment remains a drag. Source: Thomson Reuters Datastream, DBS Bank Source: Thomson Reuters Datastream, DBS Bank Indonesia GDP Philippines GDP
GDP is accelerating on stronger investment growth. Consumption GDP growth will remain strong in 2017 though slower than this year growth is stable at 5% although sustained fall in discretionary spending on strong consumption led by favourable demographics and is a concern for near term outlook.. investment growth led by the government’s infrastructure push. Source: Thomson Reuters Datastream, DBS Bank Source: Thomson Reuters Datastream, DBS Bank
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Inflation forecasts & commentary Singapore
CPI Inflation (%) 2015 2016F 2017F Singapore -0.5 -0.5 0.9 Malaysia 2.1 2.0 2.2 Thailand -0.9 0.2 1.5 Indonesia 6.4 3.6 4.5 Philippines 1.4 1.7 2.7 Source: DBS Bank
Gradual upward trend in CPI Inflation will likely continue on the back of low base, barring downside to global oil prices.
Source: Thomson Reuters Datastream, DBS Bank Malaysia Thailand
We believe inflation has bottomed out and will start rising the coming Core inflation continues to grow at 0.8% trend, far below the 2% quarters. Demand pull inflationary pressure and fading base effect from pace. The Bank of Thailand (BOT) is more comfortable with CPI low energy prices could mean higher inflation in 2017. inflation circa 2.5%, which is likely to be seen in 2018.
Source: Thomson Reuters Datastream, DBS Bank Source: Thomson Reuters Datastream, DBS Bank Indonesia Philippines
Upward trend in headline inflation is likely to persist. Expect CPI inflation is expected to be higher on higher crude oil prices. housing/utilities, transport and food to lift headline inflation to over 4% There is upside risks to our projection on anticipated weakening of next year. the Peso and uncertainties over food supply.
Source: Thomson Reuters Datastream, DBS Bank Source: Thomson Reuters Datastream, DBS Bank
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Forex forecasts & commentary USD/SGD
Exchange Rates, eop 2 Dec 3Q17F 4Q17F Singapore 1.419 1.46 1.48 Malaysia 4.45 4.67 4.78 Thailand 35.601 36.6 36.8 Indonesia 13,520 13,697 13,876 Philippines 49.598 50.7 51.1
Source: DBS Bank
We expect USD/SGD to test the upside of its 1.33-1.44 (two year) range in 2017.
Source: Thomson Reuters Datastream, DBS Bank USD/MYR USD/THB
USD/MYR is one of the most volatile currencies in Asia x Japan. Bank The THB was notably more resilient compared to its Southeast Asian Negara will introduce market development measures by end 2016/early peers. We see USD/THB staying in the upper half of its ascending 2017 to restore stability. price channel.
Source: Thomson Reuters Datastream, DBS Bank Source: Thomson Reuters Datastream, DBS Bank
USD/IDR USD/PHP
We expect USD/IDR to resume its uptrend after a year of correction. Policymakers view the higher USD/PHP aligned with the global/regional USD trends. Budget Secretary Benjamin Diokno said Source: Thomson Reuters Datastream, DBS Bank he won’t lose sleep over it rising to 50.
Source: Thomson Reuters Datastream, DBS Bank
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Input costs – Watch out for higher commodity prices
Generally higher commodity prices. Commodity prices Margins may compress. We are likely to see some form of within our tracking universe have generally been on the margin compression, possibly from 2Q17 onwards, given uptrend this year on supply factors. Sugar, in particular, rose the higher raw material prices seen in 2016. Although to 2012 levels on lower-than-expected production in cane companies have hedging policies, the hedging levels would crushing from Brazil due to rain. Poor weather and yields have increased in relation to higher commodity prices. have affected palm oil production, while coffee prices rose Furthermore, companies should already have de-stocked on poor weather in Brazil. Prices for packaging materials some of their lower priced inventories. There is risk of such as PET and tin were also generally higher. margin compression assuming there is no relief from ASP increase or other factors. Sugar Coffee
Source: Thomson Reuters Datastream, DBS Bank Source: Thomson Reuters Datastream, DBS Bank Cocoa Palm Oil
Source: Thomson Reuters Datastream, DBS Bank Source: Thomson Reuters Datastream, DBS Bank Milk Rice - Thailand
Source: Thomson Reuters Datastream, DBS Bank Source: Thomson Reuters Datastream, DBS Bank
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South East Asia Industry Focus ASEAN Consumer: Food for Thought
Barley Wheat
Source: Thomson Reuters Datastream, DBS Bank Source: Thomson Reuters Datastream, DBS Bank
PET Aluminium
Source: Thomson Reuters Datastream, DBS Bank Source: Thomson Reuters Datastream, DBS Bank
Tin WTI
Source: Thomson Reuters Datastream, DBS Bank
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PE & PB TRADING BAND CHARTS
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South East Asia Industry Focus ASEAN Consumer: Food for Thought
PE & PB trading band charts
Thai Beverage Public Company Forward PE Band (x) Thai Beverage Public Company PB Band (x)
Dairy Farm Forward PE Band (x) Dairy Farm PB Band (x)
F & N Forward PE Band (x) F & N PB Band (x)
Delfi Ltd Forward PE Band (x) Delfi Ltd PB Band (x)
Source: Company, DBS Bank
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Super Group Ltd Forward PE Band (x) Super Group Ltd PB Band (x)
Sheng Siong Group Ltd Forward PE Band (x) Sheng Siong Group Ltd PB Band (x)
Del Monte Pacific Forward PE Band (x) Del Monte Pacific PB Band (x)
30.0 (x)
25.0
20.0
+2sd: 15.9x 15.0 +1sd: 13.9x Avg: 11.9x 10.0 ‐1sd: 9.8x ‐2sd: 7.8x 5.0
0.0 Feb/15 May/15 Aug/15 Nov/15 Feb/16 May/16 Aug/16 Nov/16
Courts Asia Forward PE Band (x) Courts Asia PB Band (x)
Source: Company, DBS Bank
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South East Asia Industry Focus ASEAN Consumer: Food for Thought
Jumbo Group Forward PE Band (x) Jumbo Group PB Band (x)
Katrina Group Forward PE Band (x) Katrina Group PB Band (x)
British American Tobacco Forward PE Band (x) British American Tobacco PB Band (x)
QL Resources Forward PE Band (x) QL Resources PB Band (x)
Source: Company, DBS Bank
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MSM Malaysia Holdings Forward PE Band (x) MSM Malaysia Holdings PB Band (x)
Padini Holdings Forward PE Band (x) Padini Holdings PB Band (x)
OldTown Berhad Forward PE Band (x) OldTown Berhad PB Band (x)
CP ALL Forward PE Band (x) CP ALL PB Band (x) (x)
42.6
37.6 +2sd: 38.7x
32.6 +1sd: 32.5x
27.6 Avg: 26.4x 22.6 ‐1sd: 20.2x 17.6 ‐2sd: 14x 12.6 Oct-12 Oct-13 Oct-14 Oct-15 Oct-16 Source: Company, DBS Bank
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South East Asia Industry Focus ASEAN Consumer: Food for Thought
Charoen Pokphand Foods Forward PE Band (x) Charoen Pokphand Foods PB Band (x)
200.0 (x)
150.0
+2sd: 109.4x 100.0 +1sd: 80.7x
50.0 Avg: 52x
‐1sd: 23.2x
0.0 May-14 Nov-14 May-15 Nov-15 May-16 Nov-16
Minor International Forward PE Band (x) Minor International PB Band (x)
Thai Union Group Forward PE Band (x) Thai Union Group PB Band (x)
Home Products Center Forward PE Band (x) Home Products Center PB Band (x)
Source: Company, DBS Bank
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Central Plaza Hotel Forward PE Band (x) Central Plaza Hotel PB Band (x)
60.0 (x)(x)
50.0
+2sd: 43.1x 40.0 +1sd: 34.1x 30.0 Avg: 25.1x 20.0 ‐1sd: 16.1x 10.0 ‐2sd: 7.1x
0.0 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16
Universal Robina Corp Forward PE Band (x) Universal Robina Corp PB Band (x)
Jollibee Foods Corp. Forward PE Band (x) Jollibee Foods Corp. PB Band (x)
Emperador Inc Forward PE Band (x) Emperador Inc PB Band (x)
Source: Company, DBS Bank
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South East Asia Industry Focus ASEAN Consumer: Food for Thought
Robinsons Retail Holdings Forward PE Band (x) Robinsons Retail Holdings PB Band (x)
Puregold Price Club Forward PE Band (x) Puregold Price Club PB Band (x)
Century Pacific Food Inc Forward PE Band (x) Century Pacific Food Inc PB Band (x)
Unilever Indonesia Forward PE Band (x) Unilever Indonesia PB Band (x)
Source: Company, DBS Bank
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Kalbe Farma Forward PE Band (x) Kalbe Farma PB Band (x)
Indofood Sukses Makmur Forward PE Band (x) Indofood Sukses Makmur PB Band (x)
Indofood CBP Sukses Makmur Forward PE Band (x) Indofood CBP Sukses Makmur PB Band (x)
Matahari Putra Prima Forward PE Band (x) Matahari Putra Prima PB Band (x)
Source: Company, DBS Bank
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South East Asia Industry Focus ASEAN Consumer: Food for Thought
Mitra Adiperkasa Forward PE Band (x) Mitra Adiperkasa PB Band (x)
200.0 (x)
150.0
+2sd: 114.4x 100.0 +1sd: 80.2x
50.0 Avg: 46.1x
‐1sd: 11.9x 0.0 ‐2sd: ‐22.3x -50.0 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16
Source: Company, DBS Bank
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Peer Comparison
Regional retailer peer comparison 12-mth Market Operating Net Target Cap P/BV P/Sales ROE Margin Margin Company Rat ing price (US$m) Px Last PE (Act) PE (Yr 1) PE(Yr 2) (x) (x) (%) (%) (%) South East Asia Retailers Dairy Farm International Holdings Ltd BUY 7.18 9,857 7.12 23.0x 22.4x 20.8x 6.4x 0.9x 30% 3.7% 3.9% CP All PCL BUY 75.00 15,130 60.00 39.4x 33.2x 26.8x 12.4x 1.2x 40% 6.4% 3.7% Kalbe Farma Tbk PT BUY 2,000 5,530 1,570 37.2x 32.9x 27.3x 6.1x 3.8x 20% 15.4% 11.5% Big C Supercenter PCL FULLY VALUED 210.00 4,933 213 25.5x 22.2x 19.5x 3.4x 1.4x 16% 8.2% 6.3% Siam Makro PCL Not rated N/A 4,750 35.25 32.4x 32.1x 27.6x 12.0x 1.0x 38% 4.5% 3.5% Minor International PCL BUY 50.00 4,550 36.75 34.8x 29.6x 24.8x 4.2x 3.1x 21% 13.4% 14.4% Matahari Department Store Tbk PT HOLD 20,300.00 3,223 14,700 24.1x 20.1x 17.7x 24.6x 4.3x 122% 14.9% 12.0% Home Product Center PCL HOLD 10.00 3,766 10.20 36.9x 33.0x 28.0x 6.3x 2.2x 21% 9.1% 6.7% Robinsons Retail Holdings Inc BUY 92.00 2,066 73.00 23.6x 20.8x 18.3x 2.2x 1.0x 11% 5.3% 4.7% Puregold Price Club Inc BUY 49.50 2,147 38.50 21.4x 19.0x 17.1x 2.5x 0.9x 14% 7.1% 4.9% Sumber Alfaria Trijaya Tbk PT Not rated N/A 1,623 525 38.8x 37.4x 27.2x 4.4x 0.4x 10% 2.4% 0.9% Matahari Putra Prima Tbk PT FULLY VALUED 1,140.00 687 1,700 50.0x 46.3x 34.2x 3.1x 0.6x 7% 2.1% 1.3% Central Plaza Hotel PCL BUY 47.00 1,516 40 30.4x 27.5x 23.6x 5.1x 2.7x 20% 14.8% 9.8% Philippine Seven Corp Not rated N/A 1,292 140 56.5x NaN NaN 14.2x 2.3x 24% 6.6% 4.5% Ace Hardware Indonesia Tbk PT Not rated N/A 1,111 870 22.2x 24.5x 22.2x 5.2x 3.1x 22% 16.2% 12.4% Siam Global House PCL Not rated N/A 1,726 16.80 45.1x 41.8x 35.1x 4.0x 3.5x 6% 7.4% 5.2% Sheng Siong Group Ltd BUY 1.19 1,069 1.02 26.7x 23.6x 21.3x 6.1x 1.9x 26% 8.2% 7.9% Mitra Adiperkasa Tbk PT BUY 6,200 646 5,175 nm 44.9x 28.5x 2.7x 0.6x 6% 5.7% 1.4% Parkson Holdings Bhd Not rated N/A 155 0.63 NULL 17.5x 11.5x 0.3x 0.2x -4% -1.2% -2.5% Hero Supermarket Tbk PT Not rated N/A 389 1,250 NULL NaN NaN 1.0x 0.4x -3% -0.5% -0.6% 7 Eleven Malaysia Holdings Bhd Not rated N/A 419 1.65 34.2x 28.8x 27.5x 9.5x 0.9x 36% 4.0% 3.1% Ramayana Lestari Sentosa Tbk PT Not rated N/A 618 1,170 20.4x 20.6x 18.1x 2.4x 1.4x 10% 4.5% 6.1% Hour Glass Ltd Not rated N/A 333 0.67 9.7x NaN NaN 1.1x 0.7x 12% 8.5% 7.4% Parkson Retail Asia Ltd Not rated N/A 57 0.12 NULL NaN NaN 0.5x 0.2x 19% 23.8% 7.8% Padini Holdings Bhd HOLD 2.95 377 2.53 20.7x 12.1x 10.7x 3.7x 1.3x 32% 14.3% 10.6% Modern Internasional Tbk PT Not rated N/A 41 120 NULL NaN NaN 0.5x 0.6x -5% 6.7% -4.8% Midi Utama Indonesia Tbk PT Not rated N/A 174 810 12.7x NaN NaN 3.0x 0.3x 19% 4.5% 2.0% Courts Asia Ltd BUY 0.50 163 0.45 14.3x 11.7x 9.1x 0.8x 0.3x 7% 6.7% 2.6% Electronic City Indonesia Tbk PT Not rated N/A 55 550 69.2x NaN NaN 0.4x 0.4x 2% 2.2% 1.9% Challenger Technologies Ltd Not rated N/A 113 0.47 9.5x NaN NaN 2.1x 0.5x 24% 5.7% 5.2% F J Benjamin Holdings Ltd Not rated N/A 21 0.05 NULL NaN NaN 0.5x 0.1x -37% -7.9% -9.1% EpiCentre Holdings Ltd Not rated N/A 10 0.10 NULL NaN NaN 12.1x 0.1x -748% -3.2% -3.5% Regional average 22.8x 27.4x 22.6x 5.1x 1.3x -6% 6.9% 4.4%
Source: Thomson Reuters, DBS Bank, DBS Vickers
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South East Asia Industry Focus ASEAN Consumer: Food for Thought
Regional F&B peer comparison 12-mth Market Operating Net Target Cap P/BV P/Sales ROE Margin Margin Company Rating price (US$m) Px Last PE (Act) PE (Yr 1) PE(Yr 2) (x) (x) (%) (%) (%) South East Asia F &B Unilever Indonesia Tbk PT FULLY VALUED 30,700 23,966 41,800 54.5x 54.7x 52.0x 65.9x 8.1x 121% 20.2% 14.9% Thai Beverage PCL BUY 1.09 15,199 0.85 20.5x 28.6x 19.1x 4.5x 3.9x 16% 14.0% 13.6% Universal Robina Corp BUY 218.00 7,497 169.00 29.7x 25.1x 23.8x 5.1x 3.2x 21% 15.3% 12.6% Indofood CBP Sukses Makmur Tbk PT HOLD 9,800 7,624 8,700 33.8x 27.7x 25.7x 5.9x 2.9x 21% 13.5% 10.5% J ollibee F oods Corp HOLD 214.00 4,747 208.00 48.7x 37.4x 31.6x 6.8x 2.1x 19% 6.6% 5.5% Charoen Pokphand Foods PCL BUY 40.00 6,358 29.25 156.8x 16.9x 15.3x 1.5x 0.5x 10% 5.6% 2.8% Indofood Sukses Makmur Tbk PT BUY 9,900 4,948 7,500 22.2x 16.8x 14.5x 2.3x 1.0x 13% 11.8% 5.8% Nestle Malaysia Bhd Not rated N/A 4,013 76.10 26.6x 25.9x 24.3x 23.9x 3.6x 83% 15.7% 12.2% Emperador Inc HOLD 6.90 2,350 7.25 16.7x 16.9x 16.5x 2.1x 2.6x 13% 20.5% 15.4% Fraser and Neave Ltd HOLD 2.36 2,127 2.09 43.9x 27.8x 32.8x 1.1x 1.5x 4% 6.5% 5.5% Thai Union Group PCL BUY 25.00 2,773 20.70 18.6x 18.2x 14.6x 1.9x 0.7x 11% 5.3% 4.0% Mayora Indah Tbk PT HOLD 1,600 2,646 1,575 28.9x 27.9x 24.6x 5.9x 2.1x 21% 11.7% 7.6% Delfi Ltd HOLD 2.16 981 2.35 63.9x 32.7x 27.2x 5.0x 2.4x 14% 11.9% 7.4% MK Restaurant Group PCL Not rated N/A 1,535 59.75 26.7x 26.5x 24.6x 4.2x 3.6x 14% 14.4% 12.8% QL Resources Bhd HOLD 4.60 1,238 4.38 29.9x 28.5x 25.9x 3.4x 1.9x 13% 9.4% 6.7% Heineken Malaysia Bhd Not rated N/A 1,121 16.50 19.2x 14.9x 17.7x 17.3x 2.7x 57% 16.9% 12.2% Carlsberg Brewery Malaysia Bhd Not rated N/A 963 13.90 18.3x 18.4x 17.2x 15.0x 2.6x 64% 16.5% 13.0% Super Group Ltd ACCEPT THE OF 1.30 996 1.28 29.1x 29.2x 29.2x 2.6x 2.9x 9% 12.8% 9.8% MSM Malaysia Holdings Bhd FULLY VALUED 3.00 764 4.80 12.0x 25.5x 26.9x 1.7x 1.4x 7% 7.7% 5.5% Century Pacific Food Inc BUY 18.50 1,212 16.90 31.1x 22.3x 19.7x 4.8x 1.8x 24% 10.9% 8.1% Taokaenoi Food & Marketing PCL BUY 32.00 1,017 26.25 70.7x 48.3x 31.8x 16.9x 7.9x 38% 20.1% 16.3% Thai President Foods PCL Not rated N/A 1,011 200.00 16.6x NaN NaN 2.4x 2.9x 14% 16.5% 16.5% Dutch Lady Milk Industries Bhd Not rated N/A 802 55.74 24.5x 23.7x 21.8x 22.7x 3.5x 90% 18.8% 14.1% President Bakery PCL Not rated N/A 796 63.00 19.5x NaN NaN 5.0x 3.7x 24% 19.1% 17.8% Thai Vegetable Oil PCL Not rated N/A 936 41.25 13.2x 12.8x 14.8x 4.1x 1.2x 25% 7.4% 7.2% Nippon Indosari Corpindo Tbk PT Not rated N/A 573 1,520 27.3x 27.1x 22.5x 5.8x 3.2x 23% 20.9% 12.4% Del Monte Pacific Ltd HOLD 0.37 458 0.36 nm 8.9x 12.5x 1.5x 0.2x 18% 7.1% 2.3% JUMBO Group Ltd BUY 0.77 289 0.63 39.7x 22.8x 19.1x 6.3x 3.0x 25% 14.1% 11.3% Oishi Group PCL Not rated N/A 695 132.00 21.9x NaN NaN 5.4x 1.8x 18% 6.3% 5.5% Khon Kaen Sugar Industry PCL Not rated N/A 542 4.38 56.4x 24.0x 16.6x 1.4x 1.1x 6% 10.0% 4.3% BreadTalk Group Ltd Not rated N/A 220 1.11 38.2x 26.7x 18.6x 2.5x 0.5x 6% 4.1% 1.2% President Rice Products PCL Not rated N/A 236 56.25 13.4x NaN NaN 2.2x 6.4x 16% 8.9% 44.6% Power Root Bhd Not rated N/A 143 2.09 18.1x NaN NaN 2.6x 1.7x 18% 11.8% 11.8% Japan Foods Holding Ltd Not rated N/A 52 0.42 18.1x NaN NaN 2.3x 1.1x 12% 6.5% 6.0% Katrina Group Ltd BUY 0.43 36 0.23 11.1x 10.4x 9.3x 3.5x 0.8x 24% 9.2% 5.9% Oldtown Bhd BUY 2.15 192 1.88 17.3x 15.4x 14.7x 2.3x 2.2x 15% 17.9% 13.2% Regional average 31.4x 24.7x 22.2x 7.4x 2.6x 26% 12.4% 10.5%
Source: Thomson Reuters, DBS Bank, DBS Vickers
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South East Asia Industry Focus
ASEAN Consumer: Food for Thought
COMPANY GUIDES
Page 58
Singapore Company Guide Thai Beverage Public Company
Version 5 | Bloomberg: THBEV SP | Reuters: TBEV.SI Refer to important disclosures at the end of this report
DBS Group Research . Equity 23 Nov 2016
BUY Identifying scenarios to unlock value Last Traded Price ( 22 Nov 2016): S$0.87 (STI : 2,822.20) Long-term BUY, TP: S$1.09. We see ThaiBev being in a Price Target 12-mth: S$1.09 (26% upside) transformational mode to morph into a regional player. While investors may be deterred with uncertainty surrounding the Potential Catalyst: Acquisitions, restructuring extent and impact from mourning period in Thailand, we believe Where we differ: Below, probably due to adjustment of FYE to Sep its resilience and its ongoing transformation into a regional Analyst Andy SIM CFA +65 6682 3718 [email protected] beverage player will aid in further re-rating of the counter. We would advocate accumulating on pullbacks.
What’s New Acquisition, restructuring and earnings accretion to be a re- • Reiterate positive view of transformation into a rating catalyst. We see FNN as the vehicle for ThaiBev’s regional regional beverage player acquisition strategy. We estimate that ThaiBev/ FNN collectively • Restructuring unlikely to take “asset swap” route have sufficient firepower to undertake acquisitions to the value of around S$4bn. On the back of this, we expect FNN to • Accretive acquisition a key catalyst, along with undertake equity fund raising, thereby allowing ThaiBev to raise restructuring; group has ample firepower its stake in FNN. In a scenario (pg 4), assuming a S$3bn • Mourning period impact likely to be limited acquisition by FNN, we estimate an EPS accretion of 16-35%
and 8-10% for FNN and ThaiBev respectively (through a mix of cash, debt and rights issue at a multiple of 20-25x). The Price Relative increasing talks of potential stakes in Vinamilk and Saigon Beer Company in Vietnam sets the stage for this, and the group will be key contenders, in our view.
Spirits, Beer growth and NAB turnaround a key driver of stock price. In our deep dive analysis, we found that EPS growth is a key trait for stock price re-rating. Its current Spirits operations *Note: Financial year end changed to Sep, from FY16. FY16 period and dominant position in Thailand should provide a stable is based on 9 months, from 1 Jan 2016 to 30 Sep 2016. earnings base, while a further gain in market share for beer and Forecasts and Valuation turnaround in Non-Alcoholic Beverage will further boost FY Dec/ Sep (Bt m) 2015A *2016A *2017F *2018F growth. With the passing of Thailand’s beloved King Bhumibol Revenue 172,049 139,153 202,542 212,442 EBITDA 36,496 27,801 40,475 43,849 and the mourning period, we believe the impact on ThaiBev Pre-tax Profit 30,972 22,679 34,949 38,227 could be temporary. Through the interactive Trefis model, we Net Profit 26,463 18,920 28,344 30,982 showcase our estimates allowing for variations to our Net Pft (Pre Ex.) 26,463 18,920 28,344 30,982 Net Pft Gth (Pre-ex) (%) 22.0 (28.5) 49.8 9.3 assumptions (link: Trefis model). EPS (S cts) 4.23 3.03 4.53 4.96 EPS Pre Ex. (S cts) 4.23 3.03 4.53 4.96 Valuation: EPS Gth Pre Ex (%) 22 (29) 50 9 Diluted EPS (S cts) 4.23 3.03 4.53 4.96 Our TP of S$1.09 is based on sum-of-parts valuation, derived Net DPS (S cts) 2.45 2.41 2.73 2.89 via discounted cashflows of its core operations, and imputing BV Per Share (S cts) 18.5 19.2 21.0 23.1 fair values for its stakes in F&N and FCL. PE (X) 20.5 28.6 19.1 17.5 PE Pre Ex. (X) 20.5 28.6 19.1 17.5 P/Cash Flow (X) 24.1 29.3 18.6 17.5 Key Risks to Our View: EV/EBITDA (X) 16.0 21.0 14.2 12.9 Further excise tax hikes. Further increase in excise duties Net Div Yield (%) 2.8 2.8 3.2 3.3 without a commensurate increase in ASP. P/Book Value (X) 4.7 4.5 4.1 3.8 At A Glance Net Debt/Equity (X) 0.3 0.3 0.2 0.1 Issued Capital (m shrs) 25,110 ROAE (%) 24.4 16.0 22.5 22.5 Mkt. Cap (S$m/US$m) 21,720 / 15,267 Earnings Rev (%): 0 0 Major Shareholders (%) Consensus EPS (S cts): 4.36 4.73 Other Broker Recs: B: 8 S: 1 H: 1 Siriwana Company Limited 45.3 MM Group Limited 20.6 Source of all data on this page: Company, DBS Bank, Bloomberg Capital Group Companies Inc 5.3 Finance L.P Free Float (%) 28.8 3m Avg. Daily Val (US$m) 12.9 ICB Industry : Consumer Goods / Beverages
ASIAN INSIGHTS VICKERS SECURITIES ed: TH / sa: PY Company Guide
Thai Beverage Public Company
WHAT’S NEW Identifying scenarios to unlock value
Reiterate BUY; seeking LT growth through regional Vinamilk and Sabeco acquisitions sought after. With the transformation. We reiterate our long-term BUY on ThaiBev privatisation drive, the Vietnamese government is looking as we believe the group will be able to deliver growth to sell stakes in several companies such as Vinamilk, Saigon through its vision to be a regional beverage player. In our Beer Company (Sabeco) and Hanoi Beer Company in-depth analysis on the drivers of the share price, we (Habeco). We believe this should provide opportunities for noted that ThaiBev’s positive trait is the defensive and ThaiBev/FNN to act as a consortium to bid for these assets. resilient operations, providing outperformance in a If successful, we believe this should mark another milestone declining market. However, the key to share price re-rating for ThaiBev to further diversify its revenue and earnings is earnings per share (EPS)/net profit growth as evidenced outside of Thailand, since its acquisition of FNN back in by its performance in the past couple of years, since 2012. 2012
Stable, defensive growth, cash generative. We like ThaiBev Reiterate BUY, TP: S$1.09. We reiterate our BUY on for its resilient and dominant Spirits operations, providing ThaiBev as we believe in its long-term potential. We expect majority cashflow for the group. In addition, the Beer its core operations to remain resilient, and the recent operations should continue to retain its market share gains pullback on concerns of consumption being affected by the post the rebranding of Chang Beer. With the rebranding mourning period could be temporary, in our view. Based and increase in brand awareness, this puts management in on our sensitivity analysis, we believe the impact is limited a better position to manage its margins. (Thai Beverage Public Company: Sensitivity analysis, dated 17 Oct 2016). One could vary the sales volume and margin A key catalyst for ThaiBev is its regional expansion vision assumptions to test the impact on EPS through the and strategy, to which we believe the market is not interactive Trefis model through this link. providing sufficient credit. Since the dividend-in-specie of FCL by FNN, the market has been expecting the FY16 results review restructuring of ThaiBev’s shareholdings in these two In the recently announced FY16 results, Thai Beverage entities by way of an “asset swap” with TCC Assets Public Company (ThaiBev) reported a 29% y-o-y drop in (controlled by ThaiBev’s Chairman). However, the headline net profit to THB18.9bn on revenue of purported “swap” exercise imagined by the market is likely THB139.2bn (-19%) compared to THB172bn (FY15). The to result in earnings dilution for ThaiBev. decline was mainly due to the change in its financial year end to September from December and, hence FY16 figures FNN to be the investment vehicle. We believe ThaiBev will are based on nine months instead of 12 months. be using FNN as the regional expansion vehicle (for businesses not relating to spirits). Through the undertaking Comparing results based on a like-for-like 9-month period, of an acquisition by FNN, we expect to see ThaiBev/TCC ThaiBev would have reported a 15% y-o-y revenue growth, Assets leverage on the opportunity to restructure its and a 7% drop in net profit compared to 9M15. The drop holdings, with the eventual outcome of ThaiBev emerging was mainly due to an absence of one-off disposal gain as the majority shareholder. recognised by its associate, F&N, arising from the disposal of Myanmar Brewery Limited (gain of THB3.8bn). Excluding the Sufficient firepower for acquisitions. Between ThaiBev and gain, we estimate net profit would have increased by 13.9% FNN, we estimate it has sufficient firepower to undertake instead. acquisitions of up to around S$4bn, and possibly higher, in value. Based on an assumed scenario of S$3bn, we Our recent results note dated 21 November 2016, can be estimate that the eventual EPS accretion would be 16- accessed via the link Thai Beverage Public Company: 35%, and 8-10% respectively, for FNN and ThaiBev Impacted by higher opex. (assuming acquisition PE of 20-25x, with mix of cash, debt and equity). Our assumptions and scenario are shown in later sections.
ASIAN INSIGHTS VICKERS SECURITIES Company Guide Thai Beverage Public Company
Scenarios to unlock value: How we expect ThaiBev to grow Key question: regionally and restructure its holdings in FNN Question: The market expectations of an asset swap, In the following section, we discuss the key catalyst for would result in earnings dilutive impact, and thus, not ThaiBev and how we expect its acquisition strategy will tie beneficial for ThaiBev? in with the restructuring of its shareholding in FNN, while at the same time be accretive to earnings. Answer: We had originally thought that post the dividend- in-specie of Frasers Centrepoint Limited (FCL), an “asset Restructuring play comes along with M&A. We expect to swap” would be the next step. We think this is not the see ThaiBev leveraging on its Singapore-listed associate case now, and we explain our reasoning as follows: company, Fraser and Neave Ltd (FNN) to seek inorganic growth for the Group. Along with this, we believe ThaiBev “Asset swap” theory explained. Post the FCL dividend-in- will take the opportunity to restructure, increase and specie, ThaiBev and TCC Assets each holds approximately consolidate its holdings in FNN. This could surprise the 28.5% and 59.5% stakes, separately in each of FNN and market as the general market expectation was for FCL. The general idea was that ThaiBev would “swap” its divestment of its stake in FCL and increase in its stake in stake in FCL to TCC Assets, and in return, gain a higher FNN, which is deemed to be earnings dilutive. stake in FNN. This would streamline operations and result in ThaiBev being the main and largest shareholder of FNN (an F&B company), while divesting its stake in FCL which is a property company, and deemed as non-core for ThaiBev.
Current shareholdings in FCL and FNN
Current Shareholding in FCL Current Shareholding in FNN
~66% ~66% Public Public
28.5% 12% 28.5% 12% 59.5% 59.5%
Property F&B Market Cap = S$4.28bn (@1.49/share) Market Cap = S$3.06bn (@2.13/share) Total shares = c.2.88bn shares Total shares = c.1.44bn shares
Source: Company, DBS Bank
Purported “asset swap” of shareholding in FCL and FNN
Public Public
28.5% + 40% = 12% 28.5% 0% 12% 68.5%
59.5% + 28.5% 59.5% - 40% 88% 19.5% Property F&B Based on S$1.23bn, equates to c.40% stake in FNN ThaiBev’s 28.5% in FCL worth ~S$1.23bn at current market price
Source: Company, DBS Bank
ASIAN INSIGHTS VICKERS SECURITIES Company Guide
Thai Beverage Public Company
FNN forecasts and valuation FCL forecasts and valuation FNN FCL Share price (S$) 2.13 Share price (S$) 1.49 Share outstanding (m shares) 1,446 Share outstanding (m shares) 2,900 Market cap (S$ m) 3,080 Market cap (S$ m) 4,321
FY17 FY18 FY17 FY18 Net profit (S$m) 96 101 Net profit (S$m) 392 434 BV (S$/share) 1.62 1.65 BV (S$/share) 2.39 2.45 P/B (x) 1.31 1.29 P/B (x) 0.62 0.61 P/E (x) 32.0 30.5 P/E (x) 11.0 10.0
Source: Bloomberg Finance L.P. (as of 1 Nov 2016), Source: Bloomberg Finance L.P. (as of 1 Nov 2016), DBS Bank estimates DBS Bank estimates
We do not think the “swap” will happen now. We believe Question: Would a restructuring still take place, and why is the focus has been incorrect on thinking that a “swap” it taking so long? We believe a restructuring of its could happen. Our argument is as follows: shareholding is contingent on any potential acquisition. In our view, ThaiBev should be relying on FNN for its regional 1. Earnings dilutive for ThaiBev. An outright “swap” of ambition to expand outside of Thailand. This would aid in shareholdings in FNN and FCL (assuming at current delivering growth for the group, and at the same time, market price) is likely to result in earnings dilution for enable an option for increasing its stake in FNN. ThaiBev, and thus may not make sense financially. Given current valuation, we estimate that ThaiBev could Answer: Awaiting acquisition by FNN. We believe FNN is see about 6% dilution to its net profit. FNN is trading at likely to be used as the investment vehicle for the group’s 32x and 1.3x PE and P/BV (FY17F) while FCL’s valuation regional expansion plans. We expect to see FNN undertake is at 11x and 0.6x PE and P/BV respectively. significant earnings-accretive acquisitions to pursue growth, and to “claw” back earnings loss from the 2. An interested party transaction. Given that TCC Assets divestment of its stake in Myanmar Brewery Limited. Based still holds the majority of FNN’s shares, and to effect the on our estimates, we believe FNN has the capacity to “swap” this would be considered and interested party deliver acquisitions of up to about S$4bn, via a mix of cash, transaction (IPT). We believe this puts the vote onto debt and equity. minority shareholders of ThaiBev, which, in our view, has a certain risk level of not being able to obtain Opportunity to restructure on back of acquisitions. Our approval from shareholders. view is that restructuring and the potential increase of ThaiBev’s shareholding in FNN will be done via equity fund 3. Operationally, ThaiBev and FNN are already raising on the back of any mega-acquisitions undertaken. collaborating. Since the acquisition of FNN, the two entities have collaborated on operational matters and Scenario assuming S$3bn acquisition at 20-25x PE. streamlined its strategies. For instance, FNN has Assuming FNN undertakes an acquisition amounting to launched Oishi ready-to-drink (RTD) range of teas in S$3bn, the acquisition will be funded via a mixture of debt, Malaysia and Singapore, while ThaiBev launched internal cash and equity raising given the transaction size 100Plus in Thailand. Furthermore, the alignment of relative to itself. FNN's current market capitalisation is only ThaiBev’s products together with the secondment of about S$3bn, with a total equity value of S$2.6bn. Based senior management from both entities to head each on our scenario assumptions, the profit accretion to unit is also a testament to the operational relationship. ThaiBev could range from 8-10% on our FY17F estimates. We made the following assumptions in our scenario: Hence, we believe the market should not be worried arising from such an exercise that could potentially be dilutive for a) Transaction value of S$3bn, assuming an acquisition ThaiBev. PE multiple of 20-25x b) Funding – mix of cash, debt and equity. The funding is assumed to be via mix of FNN’s internal cash, debt and equity fund raising, as follows:
ASIAN INSIGHTS VICKERS SECURITIES Company Guide Thai Beverage Public Company
Assumed acquisition value and funding mix Scenario analysis on assumed rights issue by FNN Comments Share price (S$) 2.10 Assumed FNN share price Transaction value Assumed Estimated if rights price at Est. TERP (S$) 1.88 (S$m) 3,000 acquisition S$1.50 via: % of total Rights share Cash 600 20% Internal resources Discount to price # of rt shares New share Debt 1,100 37% Assume 3% interest share price (S$/share) (m) base (m) Equity 1,300 43% Rights issue 5% 2.00 650 2,097 3,000 100% 10% 1.90 684 2,131 Source: DBS Bank estimates 14% 1.80 722 2,169 19% 1.70 765 2,212 c) Rights issue, with ThaiBev underwriting the offering. 24% 1.60 813 2,260 Equity fund raising via rights issue, assuming 3-for-5 29% 1.50 867 2,314 rights at c.30% discount to assumed S$2.10 price and 33% 1.40 929 2,376 Source: DBS Bank estimates c.20% discount to Theoretical Ex-Rights Price (TERP). We also assume that TCC Assets will waive its rights d) ThaiBev to leverage on its balance sheet and entitlement, while ThaiBev will underwrite the issue, undertake loans to fund FNN’s rights issue. Since its up to 90% of total outstanding share post-rights issue. acquisition of its FNN stake in 2012 and bringing its This is to maintain the minimum float requirements. gearing to 1.2x then, ThaiBev has successfully deleverage and its net gearing stands at 0.3x only.
Changes in TCC and ThaiBev shareholding post our scenario of rights issue by FNN
~66% ~66%
Increase stake through 28.5% rights issue 51% 59.5% 37%
28.5% 28.5% 59.5% 59.5%
Note: Assuming TCC abstains from subscribing to its rights issue, while ThaiBev underwrites up to 51% shareholding of the enlarged shares outstanding. Given that TCC and ThaiBev are related parties, a General Offer will not be triggered. Source: DBS Bank
ASIAN INSIGHTS VICKERS SECURITIES Company Guide
Thai Beverage Public Company
DBS estimated FY17F net profit and proforma profits with assumed acquisition and related fund raising Proforma Proforma Current Based on 20x Based on 25x estimates PE PE FY17F FY17F FY17F Comments FNN (S$m) PAT 96 246 216 Post acquisition Less: additional interest (38) (38) Assume 3% interest and lower interest income (factoring in tax) 208 178
Current shares (m) 1,447 1,447 1,447 Rights shares (m) - 867 867 Assume 5-for-3 rights, at 30% discount to S$2.10, equating to TERP of S$1.88/share New share base (m) - 2,314 2,314 EPS (Scts) 6.6 9.0 7.7 Proforma based on expanded share base FNN EPS accretion (%) - 35% 16% Accretion to FNN's EPS of 16-35%
Profit accretion for 125 98 Assume incremental profit for ThaiBev with acquisition and stake ThaiBev (S$m) increase to 88% in FNN (from 28.5%) and additional interest costs to fund rights issue of FNN in THB (m) 3,115 2,455 THB (based on fx at THB25/SGD) ThaiBev net profit 30,830 30,830 DBS estimate of ThaiBev's FY17F profit estimates (THB m) Accretion to ThaiBev 10% 8% Estimated accretion to ThaiBev
Source: DBS Bank’ estimates
Earnings uplift for ThaiBev. In our scenario, we estimate that there will be a net profit accretion to ThaiBev ranging from 8-10% for ThaiBev, while for FNN, the EPS accretion would be between 16-35%, assuming an acquisition PE of 20-25x.
ASIAN INSIGHTS VICKERS SECURITIES Company Guide Thai Beverage Public Company
Appendix 1: 1. ThaiBev is well regarded as a staple and defensive counter, outperforming in a weak market and A look at ThaiBev's listed history – what drives its share underperforming in a economic recovery price? We looked at ThaiBev’s share price performance 2. EPS growth is well sought after, and corresponds with since its listing in 2006 and compared it against several share price re-rating. factors. We arrived at the following conclusions:
Observation 1: ThaiBev is regarded as a resilient and defensive counter
ThaiBev vs FTSE Consumer Goods Index ThaiBev vs SET Food & Beverages Index 30 May 2006 = 1.0 Index Fwd EPS (THB) T haiBev vs SET Food & Bev Index 6.0 1.40 1.4 30 May 2006 = 1.0 1.20 1.2 5.0 D
1.00 1.0 4.0 C
0.80 0.8 3.0 0.60 0.6 2.0 0.40 0.4 A B 1.0 0.20 0.2
0.0 0.00 0.0 May-06 May-08 May-10 May-12 May-14 May-16 May-06 May-08 May-10 May-12 May-14 May-16
ThaiBev vs FTSE ST Cons Gds 12-mth fwd EPS ThaiBev vs SET Food & Bev Index Source: Thomson Reuters, DBS Bank Source: Thomson Reuters, DBS Bank
Being listed on the Singapore Exchange, but with operations trends followed EPS closely. The correlation of 0.98 also primarily from Thailand, we explored the counter’s relative confirms our beliefs. In our opinion, this suggests that the performance against FTSE ST Consumer Goods Index re-rating of ThaiBev's share price is highly dependent on the (FTSECG) in Singapore and SET Food and Beverages Index growth of its bottom line. (SETF&B) since 30 May 2006. ThaiBev’s share price vs 12-month forward EPS
Performance against FTSE ST Consumer Goods Index. 1.40 Comparing against FTSE ST Consumer Goods Index, we 1.20 noticed two primary observations marked by A and B in the chart above. Referencing to point A, we noticed that 1.00
ThaiBev had significantly outperformed the index up to end- 0.80 2008 as the Global Financial Crisis unfolded, even though 0.60 forward EPS showed no upward revision or growth. Subsequently, it gradually lost its outperformance from end- 0.40 2008 to mid-2009. Thereafter, in early 2012, its share price 0.20 began to outperform the FTSECG along with EPS growth. 0.00
Performance against SET Food & Beverages Index. Looking THAI BEVERAGE PUBLIC THAI BEVERAGE PUBLIC - 12MTH FORWARD EPS at ThaiBev’s share price performance against SETF&B Index, ThaiBev outperformed within a short span of time as the GFC unfolded in late 2008. Thereafter, it steadily lost its Source: ThomsonReuters, DBS Bank lustre and trailed the SETF&B Index over the next four years till mid-2012. We believe this could have arisen due to its Conclusion: Outperformance in a weak market, but EPS steady, but low growth, profits. Interestingly, the counter growth the key to share price re-rating. Based on our has staged a comeback since mid-2012 and has regained its observations, ThaiBev’s stable and defensive traits are performance against the SETF&B Index. preferred, but only in a weak market, given its resilient operations. However, the market seems to want more. For Share price movements reflect EPS projections. We also continued re-rating and performance, EPS growth is sought plotted ThaiBev’s share price against its 12-month forward after. EPS and correlation between both. We note that share price
ASIAN INSIGHTS VICKERS SECURITIES Company Guide
Thai Beverage Public Company
Sprits vol gwth (%) CRITICAL DATA POINTS TO WATCH
Critical Factors: Spirits as the main earnings driver. ThaiBev derives earnings mainly from four key divisions – Spirits, Beer, Non-alcoholic beverages and Food. The Spirits division is the largest revenue contributor, accounting for 55% (as of FY16) of the group’s revenue. Earnings from Spirits division are particularly sensitive to excise tax – this accounts for 52.7% of Spirits’ revenue. Consumption of spirits has held up despite the weak consumer sentiment in Thailand, due to the wide range of brands that cater to the wide spectrum of *FY16 drop in volume due to 9-month period, vs 12-month for FY15. Like-for-like comparison shows a 2.3% increase. consumers – from low to high income. Spirits ASP gwth (%) Building upon Chang’s popularity. Revenues from Beer division contributed 32% of the group’s revenue in FY16. Excise tax is also the largest cost component, accounting for 58.9% of the group’s revenue. Input cost accounts for 15.9% of Beer revenue and is affected by the prices of raw materials such as barley, rice, tin and glass bottles. Chang Beer was re-launched in August 2015 with the streamlining of its sub-brands into just Chang Classic and repackaged into emerald green bottles, from amber. The re-launch has been has well-received and its beer market share has jumped to c.40%, up from 30%. This has led to the re-rating of the counter in 2016. Beer vol gwth (%)
Alcohol sale restrictions. Alcohol sales have been subjected to restrictions in Thailand. Most recently, laws regarding banning the sale of alcoholic products in proximity to education institutions have been discussed in Thailand. Given that the alcoholic businesses – Spirits and Beer - contribute c.87% of the group’s revenue, any decline in sales revenue by the alcoholic divisions will be significantly felt by the group.
Turnaround in its Non-Alcoholic Beverage. Revenues from non- alcoholic beverages made up almost 9% of group revenue in FY16. Beer ASP gwth (%) The business unit is incurring operating losses due to its high SG&A expenses as it is focused on building brand awareness and gaining market share. With the launch of 100Plus in Thailand through a collaboration with F&N, it could take time for the brand to be built up. We project NAB's business segment to remain in the red till FY18F, but progressively with smaller losses.
Driving growth through associates’ acquisition. We believe the group is poised to leverage on its associate, FNN, to deliver on acquisition to expand regionally. On the back of that, and with an Non-Alc Bev rev gwth (%) equity fund raising, it will provide ThaiBev an opportunity to consolidate its shareholding. Assuming a reasonable acquisition valuation (of 20-25x), this should be earnings accretive for both FNN and ThaiBev, and drive re-rating for the counter.
Source: Company, DBS Bank
ASIAN INSIGHTS VICKERS SECURITIES Company Guide Thai Beverage Public Company
Leverage & Asset Turnover (x) Balance Sheet: Gearing has improved since acquisition of F&N’s stake. The group’s net gearing has improved significantly, and is projected to further reduce to 0.22 (by end-FY17F) from the high of 1.2x immediately following its 28.5% stake acquisition in F&N. Going forward, its healthy balance sheet will put it in a good position for inorganic growth opportunities within the region.
Share Price Drivers: Changes in excise taxes. More than 50% of the group’s revenue goes into excise duties. A change in excise tax would impact on the Capital Expenditure share price, and depending on whether the group is able to pass on the increase costs to consumers, share price could be positively or negatively affected.
Corporate restructuring. There has been constant talk of the eventual consolidation of F&N as a subsidiary, coupled with a monetisation of its stake in Frasers Centrepoint Limited. In our view, these tie in with the group’s announced “Vision 2020” Strategic Roadmap, in which one of the targets is to increase NAB's revenue contribution to over 50%. ROE (%) Turnaround in NAB. We project NAB to continue in the current investment mode in the foreseeable future. However, in the event that NAB turns around faster than expected, it could provide a catalyst to share price, underlining management’s ability to create value for the group.
Key Risks: Prolonged slump in consumer sentiment. A prolonged slump in the Thai economy could impact consumption, and hence our forecasts. Vice-versa, a pickup in economic activity could offer upside potential. Forward PE Band (x)
Political situation in Thailand. A change or deterioration of the uncertain political situation in Thailand could have an adverse impact on the broader economy and private consumption.
Further excise tax hikes. Further increases in excise duties without a commensurate increase in ASP.
Company Background ThaiBev is a leading beverage producer in Thailand, with business segments spanning across spirits, beer, non-alcoholic beverages PB Band (x) and food. Its key brands are Sangsom, Hong Thong and Chang. It has 28.5% associate stakes in both Singapore-listed F&N and Frasers Centrepoint Limited.
Source: Company, DBS Bank
ASIAN INSIGHTS VICKERS SECURITIES Company Guide
Thai Beverage Public Company
Key Assumptions FY Dec / Sep * 2014A 2015A *2016A *2017F *2018F
Sprits vol gwth (%) (0.3) 1.20 (26.3) 1.00 1.00 Spirits ASP gwth (%) 5.00 0.20 (1.8) 2.00 2.00 Beer vol gwth (%) (2.4) 17.5 (0.3) 5.00 5.00 Beer ASP gwth (%) 9.50 4.20 3.30 3.00 3.00 Non-Alc Bev rev gwth (%) (7.3) 4.50 (19.4) 40.0 5.00
Segmental Breakdown FY Dec / Sep * 2014A 2015A *2016A *2017F *2018F
Revenues (Btm) Spirits 104,592 105,991 76,649 110,647 113,988 Beer 35,193 43,112 44,397 66,688 72,123 Non-Alcoholic Bev. 15,775 16,488 13,290 18,606 19,536 Food 6,602 6,578 4,993 6,857 7,063 Others (122) (120) (176) (256) (269) Total 162,040 172,049 139,153 202,542 212,442 Operating profit (Btm) Spirits 25,278 25,191 18,081 26,334 27,129 Beer 334 1,290 3,060 6,669 7,934 Non-Alcoholic Bev. (2,336) (3,461) (1,811) (1,302) (391) Food 36.0 52.0 37.0 103 106 Others 68.0 120 16.0 16.0 16.0 Total 23,380 23,192 19,383 31,819 34,794 Operating profit Margins Spirits 24.2 23.8 23.6 23.8 23.8 Beer 0.9 3.0 6.9 10.0 11.0 Non-Alcoholic Bev. (14.8) (21.0) (13.6) (7.0) (2.0) Food 0.5 0.8 0.7 1.5 1.5 Others (55.7) (100.0) (9.1) (6.2) (6.0) Total 14.4 13.5 13.9 15.7 16.4
Income Statement (Btm) FY Dec / Sep * 2014A 2015A *2016A *2017F *2018F
Revenue 162,040 172,049 139,153 202,542 212,442 Cost of Goods Sold (114,710) (121,830) (97,591) (139,126) (144,507) Gross Profit 47,330 50,219 41,562 63,416 67,935 Other Opng (Exp)/Inc (23,886) (26,839) (22,130) (31,597) (33,141) Operating Profit 23,443 23,380 19,433 31,819 34,794 Other Non Opg (Exp)/Inc 600 1,162 648 648 648 Associates & JV Inc 3,389 7,774 3,375 3,496 3,729 Net Interest (Exp)/Inc (1,447) (1,344) (776) (1,013) (944) Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0 Pre-tax Profit 25,984 30,972 22,679 34,949 38,227 Tax (4,552) (4,508) (3,643) (6,605) (7,245) Includes one-off gains from Minority Interest 261 (0.3) (117) 0.0 0.0 associate FNN from the divestment of stake in Preference Dividend 0.0 0.0 0.0 0.0 0.0 Myanmar Brewery Limited Net Profit 21,694 26,463 18,920 28,344 30,982 (THB3.8bn). Net Profit before Except. 21,694 26,463 18,920 28,344 30,982 EBITDA 31,427 36,496 27,801 40,475 43,849 Growth Revenue Gth (%) 4.0 6.2 (19.1) 45.6 4.9 Based on a 9-month period. EBITDA Gth (%) 23.3 16.1 (23.8) 45.6 8.3 Like-for-like comparison Opg Profit Gth (%) 10.3 (0.3) (16.9) 63.7 9.3 would have shown a 14% Net Profit Gth (Pre-ex) (%) 13.4 22.0 (28.5) 49.8 9.3 increase in net profit, before Margins & Ratio disposal gain. Gross Margins (%) 29.2 29.2 29.9 31.3 32.0 Opg Profit Margin (%) 14.5 13.6 14.0 15.7 16.4 Net Profit Margin (%) 13.4 15.4 13.6 14.0 14.6 ROAE (%) 22.2 24.4 16.0 22.5 22.5 ROA (%) 12.2 15.0 10.2 14.7 15.3 ROCE (%) 11.8 12.3 9.6 14.6 15.3 Div Payout Ratio (%) 70.6 57.9 79.6 60.2 58.4 Net Interest Cover (x) 16.2 17.4 25.1 31.4 36.9 Source: Company, DBS Bank
ASIAN INSIGHTS VICKERS SECURITIES Company Guide Thai Beverage Public Company
Quarterly / Interim Income Statement (Btm) FY Dec 3Q2015 4Q2015 1Q2016 2Q2016 3Q2016
Revenue 36,472 50,880 55,175 45,450 38,528 Cost of Goods Sold (25,851) (36,780) (38,956) (31,761) (26,874) Gross Profit 10,621 14,100 16,219 13,689 11,654 Other Oper. (Exp)/Inc (6,241) (7,584) (6,863) (7,328) (7,939) Operating Profit 4,380 6,516 9,356 6,361 3,715 Other Non Opg (Exp)/Inc 169 271 143 201 303 Associates & JV Inc 4,565 728 1,115 692 1,568 Net Interest (Exp)/Inc (325) (328) (275) (229) (271) Exceptional Gain/(Loss) 0.0 0.0 0.0 31.4 (31.4) Pre-tax Profit 8,789 7,188 10,340 7,056 5,283 Tax (802) (1,192) (1,745) (1,169) (729) Minority Interest 8.99 34.0 (34.6) (81.8) (0.3) Net Profit 7,996 6,030 8,560 5,806 4,554 Net profit bef Except. 7,996 6,030 8,560 5,774 4,585 EBITDA 9,114 7,516 10,615 7,254 5,586
Growth Revenue Gth (%) (6.5) 39.5 8.4 (17.6) (15.2) EBITDA Gth (%) 25.3 (17.5) 41.2 (31.7) (23.0) Opg Profit Gth (%) (13.7) 48.8 43.6 (32.0) (41.6) Net Profit Gth (Pre-ex) (%) 36.4 (24.6) 42.0 (32.5) (20.6) Margins Gross Margins (%) 29.1 27.7 29.4 30.1 30.2 Opg Profit Margins (%) 12.0 12.8 17.0 14.0 9.6 Net Profit Margins (%) 21.9 11.9 15.5 12.8 11.8
Balance Sheet (Btm) FY Dec / Sep * 2014A 2015A *2016A *2017F *2018F
Net Fixed Assets 46,251 46,921 47,871 47,915 47,793 Invts in Associates & JVs 67,614 75,737 78,463 79,758 81,287 Other LT Assets 11,054 11,231 11,216 11,159 11,102 Cash & ST Invts 2,230 3,494 5,063 9,764 15,307 Inventory 35,084 35,204 38,145 40,568 42,140 Debtors 3,668 3,906 2,588 4,606 4,831 Other Current Assets 6,085 5,523 4,307 4,307 4,307 Total Assets 171,987 182,017 187,653 198,078 206,767
ST Debt 21,947 17,374 18,996 18,996 18,996 Creditor 4,803 4,851 4,532 3,799 3,946 Other Current Liab 9,286 10,865 9,290 14,179 14,819 LT Debt 26,555 24,883 25,089 20,089 15,089 Other LT Liabilities 4,720 4,778 6,033 6,033 6,033 Shareholder’s Equity 101,263 115,885 120,070 131,339 144,242 Minority Interests 3,414 3,380 3,642 3,642 3,642 Total Cap. & Liab. 171,987 182,017 187,653 198,078 206,767
Non-Cash Wkg. Capital 30,749 28,918 31,218 31,503 32,514 Net Cash/(Debt) (46,272) (38,763) (39,022) (29,321) (18,778) Debtors Turn (avg days) 8.5 8.0 8.5 6.5 8.1 Creditors Turn (avg days) 16.5 15.0 18.4 11.3 10.1 Inventory Turn (avg days) 115.3 109.0 143.6 106.7 107.9 Asset Turnover (x) 0.9 1.0 0.8 1.1 1.0 Current Ratio (x) 1.3 1.5 1.5 1.6 1.8 Quick Ratio (x) 0.2 0.2 0.2 0.4 0.5 Net Debt/Equity (X) 0.4 0.3 0.3 0.2 0.1 Net Debt/Equity ex MI (X) 0.5 0.3 0.3 0.2 0.1 Capex to Debt (%) 9.4 9.3 6.4 11.5 13.2 Z-Score (X) 7.0 7.5 7.0 7.7 8.2
Source: Company, DBS Bank
ASIAN INSIGHTS VICKERS SECURITIES Company Guide
Thai Beverage Public Company
Cash Flow Statement (Btm) FY Dec / Sep * 2014A 2015A *2016A *2017F *2018F
Pre-Tax Profit 25,984 30,972 22,679 34,949 38,227 Dep. & Amort. 4,038 4,452 3,295 4,515 4,681 Tax Paid (4,884) (5,003) (2,267) (1,716) (6,605) Assoc. & JV Inc/(loss) (3,389) (7,774) (3,375) (3,496) (3,729) Chg in Wkg.Cap. 1,135 (1,236) (1,750) (5,174) (1,650) Other Operating CF 1,524 1,074 (92.4) 0.0 0.0 Net Operating CF 24,409 22,486 18,490 29,078 30,924 Capital Exp.(net) (4,570) (3,946) (2,822) (4,500) (4,500) Other Invts.(net) 6.50 0.0 0.0 0.0 0.0 Invts in Assoc. & JV 0.0 0.0 0.0 0.0 0.0 Div from Assoc & JV 6,903 2,276 2,356 2,200 2,200 Other Investing CF 268 1,552 20.0 0.0 0.0 Net Investing CF 2,607 (118) (446) (2,300) (2,300) Div Paid (11,359) (15,378) (16,670) (17,075) (18,079) Chg in Gross Debt (17,202) (3,728) 2,009 (5,000) (5,000) Capital Issues 0.0 0.0 0.0 0.0 0.0 Other Financing CF (1,259) (1,378) (942) 0.0 0.0 Net Financing CF (29,820) (20,484) (15,603) (22,075) (23,079) Currency Adjustments (65.0) (622) (870) 0.0 0.0 Chg in Cash (2,869) 1,262 1,571 4,703 5,545 Opg CFPS (S cts) 3.72 3.79 3.24 5.48 5.21 Free CFPS (S cts) 3.17 2.97 2.51 3.93 4.23 Source: Company, DBS Bank
Target Price & Ratings History
Source: DBS Bank Analyst: Andy SIM CFA
ASIAN INSIGHTS VICKERS SECURITIES Thailan d Company Guide CP ALL
Version 4 | Bloomberg: CPALL TB | Reuters: CPALL.BK Refer to important disclossures at the end of this report
DBS Group Research . Equity 31 Aug 2016
BUY Persistent strength Last Traded Price: Bt61.25 (SET : 1,546.13) Price Target 12-mth: Bt75.00 (22% upside) (Prev Bt60.00)) Favourable long-term outlook. We remain positive on CPALL Potential Catalyst: Healthy SSSG, aggressive store expansion given its strong growth outlook, underpinned by improvements Analyst in core operations and margins, and deleveraging. CPALL’s Namida ARTISPONG +66 2657 7833 [email protected] operations are expected to be resiilient, as food products are its major revenue source while consumers tend to spend on small- What’s New ticket items when consumption sloows down. CPALL offers a decent ROE of 40.2% in FY16F. 2H16 SSSG to remain strong given its successful
stamp campaign Driven by aggressive expansion plan. Despite the slow domestic More aggressive branch expansion to reach 12,000 economic recovery, CPALL continues to aggressively expand the stores in the next three years number of outlets. It plans to roll out at least 700 stores p.a. and has a target to reach 12,000 stores in the next three years. The
Maintain positive view on CPALL new stores are likely to be on a staandalone basis, with more than half in provincial regions to capture the growing demand. As we roll over our valuation window to FY17F, As at end-2Q16, CPALL has a total of 9,252 outlets nationwide, our TP rises to Bt75.0 with 44.5% in Bangkok and surburban areas and the remaining in provincial regions. We expect CPALL’s same-store-sales- growth (SSSG) to be resilient, as c.71% of its product mix is Price Relative generated from staple food products.
Expanding margins. Despite pressures for its cash-and-carry business, consolidated CPALL’s grross margin is projected to still expand by 0.2ppt to 22% in FY16F, thanks to economies of scale from a larger network and increasing contribution from higher-margin products such as ready-to-eat meals and health
and beauty items. Additionally, CPALL will benefit from the decline in utilities expenses and a smaller cost burden from acquiring MAKRO in FY13. As CPALL has completed its loan Forecasts and Valuation FY Dec (Bt m) 2014A 2015A 2016F 20117F refinancing by issuing debentures to replace high-cost bank Revenue 357,766 391,817 436,663 492,038 loans, there will be less expenses ffrom advisory fees, refinancing EBITDA 26,802 32,554 35,880 41,077 fees, and hedging fees on USD brridging loans. Pre-tax Profit 12,589 16,884 19,963 25,017 Net Profit 10,200 13,682 16,219 20,094 Net Pft (Pre Ex.) 9,823 13,687 16,219 20,094 Valuation: Net Pft Gth (Pre-ex) (%) (10.7) 39.3 18.5 23.9 Our TP of Bt75 is based on DCF valuation (WACC 10.4%, EPS (Bt) 1.13 1.52 1.80 2..24 terminal growth rate 2%). EPS Pre Ex. (Bt) 1.09 1.52 1.80 2..24 EPS Gth Pre Ex (%) (11) 39 19 24 Diluted EPS (Bt) 1.13 1.52 1.80 2..24 Key Risks to Our View: Net DPS (Bt) 0.82 1.07 1.26 1..57 Key risks are (i) delays in store expansion, (ii) weaker-than- BV Per Share (Bt) 3.43 4.16 4.82 5..49 expected consumer confidence, and iii) intense competition. PE (X) 54.2 40.2 33.9 27.4
PE Pre Ex. (X) 56.0 40.2 33.9 27.4 At A Glance P/Cash Flow (X) 20.9 17.5 17.9 16.1 Issued Capital (m shrs)) 8,983 EV/EBITDA (X) 26.9 22.2 20.0 17.4 Mkt. Cap (Btm/US$m) 550,215 / 15,916 Net Div Yield (%) 1.3 1.7 2.1 2.6 P/Book Value (X) 17.9 14.7 12.7 11.2 Major Shareholders (%) Net Debt/Equity (X) 4.7 4.0 3.4 3.0 C.P. Merchandising (%) 30.5 ROAE (%) 34.3 40.2 40.2 43.4 Charoen Pokphand Group (%) 10.2 Earnings Rev (%): 0 0 Thai NDVR (%) 4.8 Consensus EPS (Bt): 1.80 2..16 Free Float (%) 58.3 Other Broker Recs: B: 24 S: 1 H: 3 3m Avg. Daily Val (US$m) 38.4 Source of all data on this page: Company, DBS Vickers, Bloomberg ICB Industry : Consumer Services / Food & Drug Retailers Finance L.P
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CP ALL
WHAT’S NEW Favourable long-term outlook. Despite strong competition in the cash-and-carry business, we expect the positive Reiterate positive view on CPALL momentum to continue for CPALL in view of its dominance in the CVS market, continuous branch expansion, strong growth CVS’ SSSG to remain strong in 2H16. Thailand’s economic outlook from margin expansion and lower interest expense, recovery has been slow, but we expect the recovery to gain and decent ROE. traction as farm income has improved given the alleviated drought impact and a rise in agricultural prices such as Maintain BUY. As we roll over our valuation window to rubber, palms, fruits, sugar, etc. On top of the improving FY17F, our TP rises to Bt75. We reiterate our BUY call on domestic consumption spending, CPALL’s marketing activities CPALL. (its stamp campaign runs from 26 July to 25 Nov) will provide another big boost to the SSSG of its convenient store business (CVS). So far, this year’s stamp campaign has done CPALL: CVS quarterly SSSG better than last year’s. Management has maintained its CVS’ 6.0% 5.0% SSSG of 3-5% in 2016 (vs our assumption of 3%).
4.0% 2.6% 1.6% More aggressive branch expansion milestone. CPALL plans to 2.0% 1.1% 1.2% open c.700 CVS stores in 2016 and has target to reach 0.5% 0.3% 10,000 stores by 2018. In 1H16, CPALL opened 420 outlets 0.0% 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 and its network stood at 9,252 stores as at end-2Q16. -1.1% Recently, its management has set a new milestone of 12,000 -2.0% -3.6% stores in the next three years. We see this as a positive -4.5% -4.0% development as it reflects easing concerns over the market saturation point issue. Management has seen no signs of -6.0% slowing down in store expansion and believes that opportunities still exist even in Bangkok from the upcoming Source: Company, DBS Vickers new mass transit lines. Additionally, as it uses the small-sized CVS store format, we believe its aggressive outlet expansion is achievable. Expect wider margins. We expect strong growth in ready-to- eat food, health and beauty products, and drinks at its cafe corner which yield relatively higher margins, to continue given the tilt in consumer lifestyles towards convenience. Meanwhile, SG&A to sales may climb on the back of CVS’s marketing activities but this would be offset by an increase in other income from higher partner participation in promotion campaigns.
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Same-sttore-sales (%) CRITICAL DATA POINTS TO WATCH
Earnings Drivers: Aggressive outlet expansion. As at end 2Q16, CPALL has a total of 9,252 outlets nationwide, with 44.5% in Bangkok and surburban areas, and the remaining in provincial regions. Despite the slow domestic economy recovery, CPALL will continue to aggressively expand its network. It targets to add at least 700 outlets p.a. and has a milestone to reach 12,000 stores in the next three years. Of the total additional 700 stores p.a., 90% of the new stores would be on a standalone basis while another 10% will be at PTT gas Spending per ticket (Bt) stations. Furthermore, more than half of new outlets woulld be in provincial areas as there is ample potential demand with much higher population per store compared to Bangkok.
SSSG in positivee territory. Amid weak consumption pressure, Thai consumers are now more cautious and are spending on smaller-ticket items and making more frequent shopping trips. This trend is favouraable for convenience stores and mini-supermarkets formats. CPALL has been delivering positive SSSG, outperforming other rettailers who have mostly registered negative growth. As c.71% of its Customers/store/day product mix is generated from food (ready-to-eat meals, processed foods, bakery, snacks, beverages, etc.) which is a staple, we expect CPALL’s operations and SSSG to be resilient. We estimate CPALL to deliver SSSG of 3% in FY16F, an improvement from 0.9% in FY15.
Solid gross margin. We expect econnomies of scale from outlet expansion and larger contribution from higher-margin products to support CPALL’s margins. With a larger network, CPALL will be leveraging iits Neew Stores high bargaining power on supply contracts. The group willl continue to add high-margin product lines like ready-to-eat meals and from the health and beauty category which yielld higher margins than other products.
Lower financing expenses. Although CPALL has launched aggressive promotion campaigns amid weak consumption, an increase in other income should more than offset rising SG&A to total sales. Meanwhile, electricity charges which account for 10% of its SG&A expenses were lower due to the decline in oil prices. Additionally, the Total stoores at year end expenses related to the acquisition of MAKRO such as financial management fees and forex costs should also decline. CPALL completed its loan refinancing in 2Q15 by issuing debentures to replace high-cost bank loans.
Source: Companyy, DBS Vickers
ASIAN INSIGHTS VICKERS SECURITIES
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CP ALL
Leverage & AAsset Turnover (x) Balance Sheet: Expect gearing to decline. Following the MAKRO acquisition, CPALL’s net gearing surged to 4.9x in FY13. Nonetheless, its net gearing dropped to 4.2x as at end 2Q16, thanks to the nature of its business – being cash generative and providing good levels of free cash flow. CPALL targets to lower its net debt to equity ratio to 2.5x in FY17F.
Share Price Drivers: Resilient SSSG. Despite weak domestic economy, CPALL’s SSSG momentum is expected to remain positive, thanks to its leading position in the convenient store market and attractive products Capitall Expenditure and sales promotions. Consumers tend to spend on small-ticket items and making more frequent shopping trips which are favourable for convenience stores and mini-supermarkets formats. Going forward, domestic consumption should improve slowly, supported by the government’s stimulus packages and public infrastructure spending.
Keye Risks: Weak consumer confidence. CPALL’s business may suffer if consumer confidence (as measured by the Consumer Confidence Index) in Thailand weakens because of an ROE (%) economic slowdown or domestic political unrest. In any case, CPALL tends to adjust its product mix in response to changing economic conditions.
Unfavourable weather conditions. Customer traffic at CPALL’s stores are mostly walk-ins. Unfavourable weather conditioons could deter such customers. CPALL normally registers softer sales during the rainy season.
Company Backkground Forwarrd PE Band (x) CP ALL PCL was established in 1988 and is a flagship company of Charoen Pokphand Group’s marketing and distribution business. It is the leading operator of convenience store chains (7-Eleven) in Thailand with the highest market share. Additionally, it also operates other related businesses such as bill payment collection service, manufacturing and sales of frozen foods and bakery, etc.
PB Band (x)
Source: Companyy, DBS Vickers
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CP ALL
Key Assumptions FY Dec 2013A 2014A 2015A 2016F 2017F Same-store-sales (%) 5.70 (2.6) 0.90 3.00 5.00 Spending per ticket (Bt) 62.0 63.0 63.0 64.3 65.6 Customers/store/day 1,294 1,252 1,261 1,267 1,274 New Stores 607 698 705 700 700 Total stores at year end 7,429 8,127 8,832 9,532 10,232
Income Statement (Btm) FY Dec 2013A 2014A 2015A 2016F 2017F Revenue 272,286 357,766 391,817 436,663 492,038 Cost of Goods Sold (210,657) (281,443) (306,519) (340,760) (383,087) Gross Profit 61,629 76,323 85,299 95,903 108,952 Other Opng (Exp)/Inc (46,549) (55,830) (60,030) (67,961) (76,582) Operating Profit 15,079 20,493 25,269 27,942 32,369 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 Associates & JV Inc 0.0 0.0 0.0 0.0 0.0 Net Interest (Exp)/Inc (1,736) (8,281) (8,381) (7,979) (7,352) Exceptional Gain/(Loss) (498) 377 (4.2) 0.0 0.0 Pre-tax Profit 12,845 12,589 16,884 19,963 25,017 Tax (2,255) (2,270) (3,066) (3,593) (4,753) Minority Interest (88.0) (119) (135) (151) (170) Preference Dividend 0.0 0.0 0.0 0.0 0.0 Net Profit 10,503 10,200 13,682 16,219 20,094 Net Profit before Except. 11,001 9,823 13,687 16,219 20,094 EBITDA 19,780 26,802 32,554 35,880 41,077 Growth Revenue Gth (%) 44.3 31.4 9.5 11.4 12.7 EBITDA Gth (%) 19.2 35.5 21.5 10.2 14.5 Opg Profit Gth (%) 14.1 35.9 23.3 10.6 15.8 Net Profit Gth (Pre-ex) (%) (0.1) (10.7) 39.3 18.5 23.9 Margins & Ratio Gross Margins (%) 22.6 21.3 21.8 22.0 22.1 Opg Profit Margin (%) 5.5 5.7 6.4 6.4 6.6 Net Profit Margin (%) 3.9 2.9 3.5 3.7 4.1 ROAE (%) 37.6 34.3 40.2 40.2 43.4 ROA (%) 5.6 3.2 4.2 4.9 5.9 ROCE (%) 9.2 6.8 8.2 9.1 10.6 Div Payout Ratio (%) 73.6 72.1 70.0 70.0 70.0 Net Interest Cover (x) 8.7 2.5 3.0 3.5 4.4 Source: Company, DBS Vickers
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CP ALL
Quarterly / Interim Income Statement (Btm) FY Dec 2Q2015 3Q2015 4Q2015 1Q2016 2Q2016
Revenue 97,292 96,364 102,608 104,969 109,998 Cost of Goods Sold (76,135) (75,068) (80,191) (82,253) (86,035) Gross Profit 21,158 21,296 22,417 22,716 23,962 Other Oper. (Exp)/Inc (15,121) (15,276) (15,710) (15,707) (16,877) Operating Profit 6,037 6,020 6,707 7,009 7,086 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 Associates & JV Inc 0.0 0.0 0.0 0.0 0.0 Net Interest (Exp)/Inc (2,116) (2,031) (2,035) (2,009) (2,048) Exceptional Gain/(Loss) (36.1) 25.5 25.7 58.6 7.69 Pre-tax Profit 3,884 4,015 4,697 5,059 5,046 Tax (716) (718) (790) (960) (817) Minority Interest (29.0) (38.6) (30.2) (34.5) (32.6) Net Profit 3,140 3,258 3,877 4,065 4,196 Net profit bef Except. 3,176 3,232 3,851 4,006 4,188 EBITDA 7,828 7,906 8,410 8,949 9,025
Growth Revenue Gth (%) 1.8 (1.0) 6.5 2.3 4.8 EBITDA Gth (%) (4.7) 1.0 6.4 6.4 0.9 Opg Profit Gth (%) (7.2) (0.3) 11.4 4.5 1.1 Net Profit Gth (Pre-ex) (%) (7.4) 1.8 19.1 4.0 4.5 Margins Gross Margins (%) 21.7 22.1 21.8 21.6 21.8 Opg Profit Margins (%) 6.2 6.2 6.5 6.7 6.4 Net Profit Margins (%) 3.2 3.4 3.8 3.9 3.8
Balance Sheet (Btm) FY Dec 2013A 2014A 2015A 2016F 2017F
Net Fixed Assets 71,273 80,201 89,447 98,168 106,053 Invts in Associates & JVs 0.0 0.0 0.0 0.0 0.0 Other LT Assets 178,773 181,525 182,663 182,678 182,697 Cash & ST Invts 25,682 33,436 22,921 19,253 11,114 Inventory 19,916 22,167 25,072 28,383 31,982 Debtors 848 910 854 1,365 1,538 Other Current Assets 7,516 8,170 8,126 8,939 9,832 Total Assets 304,008 326,410 329,083 338,785 343,216
ST Debt 135,171 19,701 23,803 23,995 23,117 Creditor 54,734 59,312 62,624 71,812 80,732 Other Current Liab 10,893 13,002 14,705 16,119 17,671 LT Debt 50,166 178,779 165,684 158,570 147,335 Other LT Liabilities 20,074 20,558 20,593 20,593 20,593 Shareholder’s Equity 28,747 30,782 37,349 43,327 49,355 Minority Interests 4,223 4,276 4,326 4,370 4,413 Total Cap. & Liab. 304,008 326,410 329,083 338,785 343,216
Non-Cash Wkg. Capital (37,347) (41,066) (43,276) (49,245) (55,051) Net Cash/(Debt) (159,654) (165,044) (166,566) (163,312) (159,338) Debtors Turn (avg days) 0.9 0.9 0.8 0.9 1.1 Creditors Turn (avg days) 77.4 75.6 74.4 73.7 74.4 Inventory Turn (avg days) 25.8 27.9 28.8 29.3 29.4 Asset Turnover (x) 1.4 1.1 1.2 1.3 1.4 Current Ratio (x) 0.3 0.7 0.6 0.5 0.4 Quick Ratio (x) 0.1 0.4 0.2 0.2 0.1 Net Debt/Equity (X) 4.8 4.7 4.0 3.4 3.0 Net Debt/Equity ex MI (X) 5.6 5.4 4.5 3.8 3.2 Capex to Debt (%) 6.1 8.1 9.3 9.0 9.7 Z-Score (X) 1.6 2.2 2.3 2.5 2.6 Source: Company, DBS Vickers
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CP ALL
Cash Flow Statement (Btm) FY Dec 2013A 2014A 2015A 2016F 2017F
Pre-Tax Profit 12,845 12,589 16,884 19,963 25,017 Dep. & Amort. 4,700 6,310 7,285 7,9398,708 Tax Paid (2,255) (2,270) (3,066) (3,592) (4,752)) Assoc. & JV Inc/(loss) 0.0 0.0 0.0 0.0 0.0 Chg in Wkg.Cap. 8,675 3,850 5,065 2,2322,715 Other Operating CF 0.0 0.0 0.0 0.0 0.0 Net Operating CF 21,624 26,371 31,419 30,705 34,119 Capital Exp.(net) (11,272) (16,019) (17,549) (16,450) (16,450)) Other Invts.(net) (180,136) (182) (68.3) 0.0 0.0 Invts in Assoc. & JV 0.0 0.0 0.0 0.0 0.0 Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0 Other Investing CF (1.0) 242 208 212 216 Net Investing CF (191,410) (15,958) (17,409) (16,238) (16,234)) Div Paid (8,084) (8,085) (7,186) (11,353) (14,066)) Chg in Gross Debt 181,000 12,798 (9,177) (6,921) (12,113)) Capital Issues 0.0 0.0 0.0 0.0 0.0 Other Financing CF (1,739) (7,543) (8,416) 0.0 0.0 Net Financing CF 171,177 (2,830) (24,780) (18,275) (26,179)) Currency Adjustments 155 (10.6) 83.9 0.0 0.0 Chg in Cash 1,546 7,572 (10,686) (3,808) (8,294)) Opg CFPS (Bt) 1.44 2.51 2.93 3.17 3.49 Free CFPS (Bt) 1.15 1.15 1.54 1.59 1.97 Source: Company, DBS Vickers
Target Price & Ratings History
Source: DBS Vickers Analyst: Namida ARTISPONG
Corporate Governance CG Rating 2015
Anti-corruption Progress Indicator Declared Certified
Corporate Governance CG Rating Score Range Number of Logo Description 90-100 Excellent 80-89 Very Good 70-79 Good 60-69 Satisfactory 50-59 Pass <50 No logo given N/A
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Page 77 Indonesia Company Guide Indofood Sukses Makmur
Version 7 | Bloomberg: INDF IJ | Reuters: INDF.JK Refer to important disclosures at the end of this report
DBS Group Research . Equity 31 Oct 2016
BUY Poised for re-rating Last Traded Price ( 31 Oct 2016): Rp8,500 (JCI : 5,422.50) Price Target 12-mth: Rp9,900 (16% upside) (Prev Rp9,700) BUY on attractive valuation. We believe Indofood Sukses Makmur (INDF) offers better value for investors looking to play Potential Catalyst: Stronger pick-up in domestic consumption and on Indofood CBP (ICBP)’s earnings momentum. Based on our recovery in CPO price calculation, the company now trades at a 26% discount to its SOTP valuation vs. an average discount of 14% in the past five Where we differ: Broadly in line with consensus years. We expect ICBP’s growth momentum to remain strong in
4Q16 given a favorable base in 4Q15 and an improving demand Analyst Tiesha PUTRI +6221 30034931 [email protected] environment. Nonetheless, ICBP now trades at a high multiple, Andy SIM CFA +65 6682 3718 [email protected] suggesting that majority of the good news could already be in the price. INDF on the other hand offers a cheaper entry to invest in ICBP, trading at 17x FY17F PE (+0.5SD above 5-year What’s New mean) vs. ICBP at 28x FY17F PE (+1.7SD above 5-year mean). 3Q16 core profit in line; a good quarter for CBP Independent shareholders’ approval on CMFC divestment and Agribusiness obtained. INDF’s shares have been trading at a deep discount to Independent shareholders have approved its SOTP valuation in the past three years, which may be mainly divestment of China Minzhong Food Corporation attributable to the company’s venture into the cultivation Maintain BUY with slightly higher TP of Rp9,900 business through the acquisition of China Minzhong Food Corporation (CMFC) in 2013. INDF is currently in the process of divesting its majority ownership in CMFC to Marvellous Glory Price Relative Holdings Ltd., an SPV controlled by Anthoni Salim. Approval from independent shareholders of INDF and First Pacific Company has been recently obtained and divestment is expected to conclude before 31 December 2016. INDF will maintain minority ownership in CMFC post transaction (29.9%). We believe this positive development will help to narrow INDF’s current discount to SOTP valuation.
3Q16 core profit in line. INDF’s 3Q16 core profit was in line with our expectations, growing by 49% y-o-y. Consumer Branded Forecasts and Valuation Products continued to deliver a solid performance as it benefited FY Dec (Rp m) 2015A 2016F 2017F 2018F from cheaper raw materials and an improving demand Revenue 64,062 67,329 72,179 78,621 environment. The strong growth was also supported by a solid EBITDA 10,391 10,607 11,717 13,137 recovery in agribusiness, which for the first time in the past Pre-tax Profit 4,962 6,875 7,762 8,885 Net Profit 2,968 3,927 4,529 5,034 eight quarters booked positive growth on the back of higher Net Pft (Pre Ex.) 2,968 3,927 4,529 5,034 crude palm oil (CPO) and palm kernel (PK) volumes, and ASP. Net Pft Gth (Pre-ex) (%) (24.7) 32.3 15.3 11.1 EPS (Rp) 338 447 516 573 Valuation: EPS Pre Ex. (Rp) 338 447 516 573 We raised our SOTP-based TP to Rp9,900 (implying 19x FY17F EPS Gth Pre Ex (%) (25) 32 15 11 PE) to factor in higher DCF-based TP of INDF’s agribusiness. Diluted EPS (Rp) 338 447 516 573 ICBP and agribusiness contributes 84% and 9% to our Net DPS (Rp) 169 224 258 287 valuation respectively before a holding discount of 15%. BV Per Share (Rp) 3,106 3,329 3,587 3,874 PE (X) 25.1 19.0 16.5 14.8 PE Pre Ex. (X) 25.1 19.0 16.5 14.8 Key Risks to Our View: P/Cash Flow (X) 17.7 10.6 8.8 8.3 Volatile commodity prices. Fluctuations in commodity prices EV/EBITDA (X) 10.0 9.6 8.8 7.9 could swing costs, and consequently, margins. Net Div Yield (%) 2.0 2.6 3.0 3.4
P/Book Value (X) 2.7 2.6 2.4 2.2 Net Debt/Equity (X) 0.3 0.2 0.2 0.2 At A Glance Issued Capital (m shrs) 8,780 ROAE (%) 10.9 13.4 14.4 14.8 Mkt. Cap (Rpbn/US$m) 74,634 / 5,711 Earnings Rev (%): 2 (5) 6 Major Shareholders (%) Consensus EPS (Rp): 453 509 594 Other Broker Recs: B: 24 S: 0 H: 1 CAB Holding (%) 51.5 Free Float (%) 48.5 Source of all data on this page: Company, DBS Vickers, Bloomberg 3m Avg. Daily Val (US$m) 6.8 Finance L.P ICB Industry : Consumer Goods / Food Producers
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Indofood Sukses Makmur
WHAT’S NEW On a more positive note, CBP recorded an improvement in 3Q16 core profit in line; a good quarter for CBP and volume growth across all segments, indicating an improving Agribusiness demand environment in 3Q16. Headline net profit boosted by FX gain and better-than- Bogasari’s margin shrank sequentially on lower ASP. expected performance of associates. INDF’s 3Q16 headline Bogasari’s revenue declined slightly by 1.2% y-o-y in 3Q16 as net profit of Rp1.01tr. exceeded our estimate. Note that the company lowered its flour selling price by 3%-4% in INDF booked a net loss of Rp57bn in 3Q15. The strong August. Sales volume still grew by a decent 2.3% y-o-y in quarterly net profit was boosted by higher profit from 3Q16 albeit slower compared to the previous two quarters. associates (Rp7bn profit in 3Q16 vs. c. Rp100bn losses a year Bogasari’s EBIT margin shrank to 8.06% in 3Q16 from 8.59% ago) and Rp210bn FX gain. The former came from a strong in 2Q16 after the company cut prices by 5%-7% (cumulative) performance in sugar and ethanol business in the Philippines in March and August. which turned profitable in 3Q16. 9M16 headline net profit Strong sequential recovery in Agribusiness. In 3Q16, surged 92% y-o-y to Rp3.24tr, forming 84% of our FY16 agribusiness segment posted positive y-o-y growth for the forecast (81% of consensus), but core profit was in line at first time in two years. 3Q16 EBIT was Rp425bn (+10% y-o-y Rp2.98tr (+9% y-o-y) in 9M16, representing 77% of our and +47% q-o-q). The strong sequential growth was mainly FY16 forecast (75% of consensus). driven by higher CPO and PK volumes, and ASP. Another strong quarter for Consumer Branded Products TP revised up slightly; maintain BUY. We revised up our SOTP- (CBP). CBP segment recorded another strong quarter with based TP slightly to Rp9,900 from Rp9,700 previously to 3Q16 EBIT growing 33% y-o-y to Rp1.16tr. Revenue rose 7% factor in a higher DCF-based TP for INDF’s agribusiness. We y-o-y in 3Q16 mainly due to higher sales volume. 3Q16 EBIT also revised our FY16/FY17/FY18 net profit forecasts by 2%/- margin still expanded y-o-y but fell slightly on q-o-q basis to 5%/6% respectively mainly due to changes in our CPO price 14.4% from 15.8% in 2Q16 as ICBP raised expenditure on assumptions. advertising and promotion activities. We expect CBP margin to moderate starting in 4Q16 as input cost tailwinds dissipate.
Quarterly / Interim Income Statement (Rpbn) FY Dec 3Q2015 2Q2016 3Q2016 % chg yoy % chg qoq
Revenue 14,929 17,568 15,782 5.7 (10.2) Cost of Goods Sold (11,015) (12,383) (11,020) 0.0 (11.0) Gross Profit 3,915 5,186 4,762 21.6 (8.2) Other Oper. (Exp)/Inc (2,341) (3,051) (2,844) 21.5 (6.8) Operating Profit 1,574 2,135 1,918 21.9 (10.2) Other Non Opg (Exp)/Inc (1,125) 0.0 0.0 nm nm Associates & JV Inc (109) (116) 7.40 nm nm Net Interest (Exp)/Inc (286) (161) (56.8) 80.1 64.7 Exceptional Gain/(Loss) 29.9 82.6 86.2 188.5 4.5 Pre-tax Profit 83.6 1,941 1,955 2,237.9 0.7 Tax (97.0) (547) (613) 531.5 12.0 Minority Interest (34.0) (249) (333) (882.0) 34.1 Net Profit (47.3) 1,146 1,009 nm (11.9) Net profit bef Except. (77.2) 1,063 923 nm (13.2) EBITDA 2,227 3,391 3,917 75.9 15.5
Margins (%) Gross Margins 26.2 29.5 30.2 Opg Profit Margins 10.5 12.2 12.2 Net Profit Margins (0.3) 6.5 6.4
Source of all data: Company, DBS Vickers, DBS Bank
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Sum-of-the-parts (SOTP) valuation EV INDF's effective adj, to INDF's Adj. EV per share Entity Remarks shareholding ownership (Rp) (Rp bn)
ICBP 80.5% 86,248 9,823 DBS target price; 29x FY17F EPS Bogasari 100.0% 12,814 1,459 6x FY17F EV/EBITDA Indofood Agri Resources 62.8% 9,639 1,098 DBS target price; DCF-based Distribution 100.0% 2,276 259 6x FY17F EV/EBITDA CMFC 29.9% 732 83 Offer price for majority stake Net cash (debt) (9,569) (1,090) Holding company discount (15%) (15,321) (1,745) Target price 86,820 9,900 Implied PE 17F (x) 19.2 Source: DBS Vickers, DBS Bank
INDF’s SOTP valuation discount trend in the past five years 50% 40% 30% 20% 10% 0% -10% -14% -20% -26% -30% -40% -50% Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16
Premium (discount) to RNAV Avg. Premium (discount) to RNAV
Source: Bloomberg Finance L.P., DBS Vickers, DBS Bank
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Indofood Sukses Makmur
Revenue Trend and Forecasts CRITICAL DATA POINTS TO WATCH 80,000 16%
70,000 14% Earnings Drivers: 60,000 12% Consumer Branded Products (CBP) segment is the primary 50,000 10% earnings driver. In 2015, Indofood’s CBP segment contributed 40,000 8% more than 50% of INDF’s EBIT. Agribusiness and Bogasari 30,000 6% contributed 20% and 18% respectively. Growth in the CBP 20,000 4% segment is predominantly driven by the noodle business which 10,000 2% generated c.90% of ICBP’s earnings in FY15. Also, noodles are 0 - 2013A 2014A 2015A 2016F 2017F considered a cheap substitute to rice for many Indonesians, Revenue (Rp bn) Growth y-o-y (RHS) which is why noodle sales are relatively resilient even in a slow economy. Net Profit Trend and Forecasts 5,000 70% 4,500 60% Wheat price and rupiah strength. Bogasari produces wheat 4,000 50% flour, of which 30% is used by ICBP, 65% is sold to SMEs, and 3,500 40% the rest to retail consumers. Bogasari imports its entire wheat 3,000 30% 2,500 20% requirements, which means it is susceptible to fluctuations in 2,000 10% global wheat prices and the strength of the rupiah. It adjusts 1,500 - average selling price according to its costs, which eventually 1,000 (10%) 500 (20%) affects ICBP’s margins. The sharp depreciation of the rupiah in 0 (30%) 2013-14 had reduced EBIT margins at the CBP segment by 2013A 2014A 2015A 2016F 2017F about 300bps to 10.2% in 2014 from 13.1% in 2012. Net profit (Rp bn) Growth y-o-y (RHS)
Margin Trend and Forecasts CPO price and output. The Agribusiness segment, under 14.0%
62.8%-owned subsidiary Indofood Agri Resources (IFAR SP), is 12.0% involved in both upstream and downstream operations. Our 10.0% plantation analyst expects a flattish CPO price in FY17F, but 8.0% sales volume recovery should help to boost Agribusiness’ 6.0% performance next year with EBIT projected to grow 19% y-o-y 4.0% in FY17F after staying flat y-o-y in FY16F. The Agribusiness 2.0% segment contributed 20% and 15% of Indofood’s FY15 and - 9M16 EBIT respectively. 2013A 2014A 2015A 2016F 2017F
EBIT margin Net margin Recovery in the domestic economy. We are expecting a gradual recovery in consumption going into 2017. This, coupled with CBOT Wheat Price (USD/bushel) favourable soft commodity prices and stabilising rupiah should 800 750 support INDF’s earnings growth, particularly for its CBP and 700 Bogasari segments. As for the latter, around 65% of Bogasari’s 650 600 wheat flour is sold to SMEs. Improving domestic consumer 550 demand would eventually lead to more business expansion by 500 450 SMEs and higher demand for wheat flour. 400 350 300 Competition in FMCG industry. Indonesia’s rising consumerism Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 has attracted a number of new local and foreign players to the CBOT wheat (USD/bu.) Quarterly avg. price Fast Moving Consumer Goods (FMCG) industry. Rising competition would dent INDF’s pricing power and top-line CPO Price (MYR/MT) growth for its consumer goods products. In the event of rising 3,000 2,900 input costs, weak competitive position would result in INDF not 2,800 being able to pass through the rising costs, hence a drag on 2,700 2,600 earnings. 2,500 2,400 2,300 2,200 2,100 2,000 Jan-15 Jul-15 Jan-16 Jul-16
CPO (MYR/MT) Quarterly avg. price
Source: Company, DBS Vickers, DBS Bank
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Indofood Sukses Makmur
Leverage & Asset Turnover (x) Balance Sheet: Cash-rich; ready for attractive ventures. Indofood Sukses Makmur had Rp11tn cash as at end-Sep 2016. This puts the company in a comfortable position to take on acquisitions or joint ventures that are in line with its vision of being a Total Food Company.
Healthy debt ratio. Indofood had a debt-equity ratio of 0.6x as at end-Sep 2016, which is reasonable. After the planned partial divestment of CMFC, we expect the proceeds to be used to pare down outstanding debts, and reduce the debt-equity ratio to 0.2x by end-2016. Capital Expenditure
Share Price Drivers: INDF is exposed to fluctuations in wheat as well as crude palm oil (CPO) prices. An increase in wheat price (as well as a weaker rupiah) would translate into higher wheat flour price, which will consequently reduce margins for ICBP’s noodle segment (assuming no adjustment to noodle ASP). Overall, that would hurt INDF as ICBP’s noodle segment accounts for c.40% of INDF’s operating profit. Similarly, weak CPO prices will hurt the Agribusiness segment, and consequently, INDF. These could pressure INDF’s share price. ROE (%)
Key Risks: Volatile commodity prices. Fluctuations in commodity prices could swing costs, and consequently, margins.
Suppressed CPO price. Persistently low CPO prices could hurt Agribusiness’ revenues and earnings.
Company Background Indofood Sukses Makmur (INDF) is the largest instant noodle Forward PE Band (x) and wheat flour manufacturer in Indonesia, has the largest market share in the cooking oil market, and is also involved in oil palm cultivation (through subsidiary, Indofood Agri Resources), and other branded food products, including snack food, food seasoning, specialty and nutrition food, and dairy products.
PB Band (x)
Source: Company, DBS Vickers, DBS Bank
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Indofood Sukses Makmur
Segmental Breakdown FY Dec 2014A 2015A 2016F 2017F 2018F
Revenues (Rpbn) Consumer Branded 29,921 31,736 34,848 37,688 41,138 Bogasari 19,926 19,177 18,381 19,124 19,896 Agribusiness 14,947 13,803 14,766 16,081 17,635 Distribution 4,865 4,978 5,065 5,430 6,583 Others include Others (6,064) (5,632) (5,731) (6,144) (6,631) Cultivation and Process Total 63,594 64,062 67,329 72,179 78,621 Food and elimination. Operating Profit (Rpbn) Consumer Branded 3,096 3,856 4,714 5,183 5,654 Bogasari 1,457 1,341 1,581 1,626 1,592 Agribusiness 2,235 1,506 1,486 1,762 2,396 Distribution 197 172 187 201 244 Others 532 533 0.0 0.0 0.0 Total 7,517 7,410 7,971 8,774 9,888 Operating Profit Margins Consumer Branded 10.3 12.2 13.5 13.8 13.7 Bogasari 7.3 7.0 8.6 8.5 8.0 Agribusiness 15.0 10.9 10.1 11.0 13.6 Distribution 4.0 3.5 3.7 3.7 3.7 Others (8.8) (9.5) 0.0 0.0 0.0 Total 11.8 11.6 11.8 12.2 12.6
Income Statement (Rpbn) FY Dec 2014A 2015A 2016F 2017F 2018F Revenue 63,595 64,062 67,329 72,179 78,621 Cost of Goods Sold (46,545) (46,804) (49,285) (52,835) (57,550) Gross Profit 17,050 17,258 18,044 19,344 21,070 Other Opng (Exp)/Inc (9,730) (9,895) (10,074) (10,570) (11,182) Operating Profit 7,320 7,363 7,971 8,774 9,888 Other Non Opg (Exp)/Inc (51.1) (1,132) 0.0 0.0 0.0 Associates & JV Inc (119) (334) (162) (162) (162) Net Interest (Exp)/Inc (809) (935) (935) (850) (842) Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0 Pre-tax Profit 6,340 4,962 6,875 7,762 8,885 Tax (1,856) (1,730) (1,994) (2,251) (2,577) Minority Interest (543) (264) (954) (982) (1,275) Preference Dividend 0.0 0.0 0.0 0.0 0.0 Net Profit 3,942 2,968 3,927 4,529 5,034 Net Profit before Except. 3,942 2,968 3,927 4,529 5,034 EBITDA 10,286 10,391 10,607 11,717 13,137 Growth Revenue Gth (%) 14.3 0.7 5.1 7.2 8.9 EBITDA Gth (%) 17.9 1.0 2.1 10.5 12.1 Opg Profit Gth (%) 19.8 0.6 8.3 10.1 12.7 Net Profit Gth (Pre-ex) (%) 57.4 (24.7) 32.3 15.3 11.1 Margins & Ratio Gross Margins (%) 26.8 26.9 26.8 26.8 26.8 Opg Profit Margin (%) 11.5 11.5 11.8 12.2 12.6 Net Profit Margin (%) 6.2 4.6 5.8 6.3 6.4 ROAE (%) 15.7 10.9 13.4 14.4 14.8 ROA (%) 4.6 3.2 4.3 4.8 5.1 ROCE (%) 7.0 6.2 7.4 7.8 8.4 Div Payout Ratio (%) 50.0 50.0 50.0 50.0 50.0 Net Interest Cover (x) 9.0 7.9 8.5 10.3 11.7 Source: Company, DBS Vickers, DBS Bank
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Quarterly / Interim Income Statement (Rpbn) FY Dec 3Q2015 4Q2015 1Q2016 2Q2016 3Q2016
Revenue 14,929 16,498 16,516 17,568 15,782 Cost of Goods Sold (11,015) (12,107) (11,902) (12,383) (11,020) Gross Profit 3,915 4,391 4,614 5,186 4,762 Other Oper. (Exp)/Inc (2,341) (2,453) (2,735) (3,051) (2,844) Operating Profit 1,574 1,938 1,879 2,135 1,918 Other Non Opg (Exp)/Inc (1,125) 710 0.0 0.0 0.0 Associates & JV Inc (109) (50.6) (78.4) (116) 7.40 Net Interest (Exp)/Inc (286) (258) (69.8) (161) (56.8) Exceptional Gain/(Loss) 29.9 55.7 101 82.6 86.2 Pre-tax Profit 83.6 2,395 1,832 1,941 1,955 Tax (97.0) (793) (468) (547) (613) Minority Interest (34.0) (318) (278) (249) (333) Net Profit (47.3) 1,284 1,086 1,146 1,009 Net profit bef Except. (77.2) 1,229 985 1,063 923 EBITDA 2,227 2,539 2,487 3,391 3,917
Growth Revenue Gth (%) (15.2) 10.5 0.1 6.4 (10.2) EBITDA Gth (%) (16.6) 14.0 (2.0) 36.3 15.5 Opg Profit Gth (%) (25.1) 23.1 (3.1) 13.6 (10.2) Net Profit Gth (Pre-ex) (%) nm nm (19.9) 7.9 (13.2) Margins Gross Margins (%) 26.2 26.6 27.9 29.5 30.2 Opg Profit Margins (%) 10.5 11.7 11.4 12.2 12.2 Net Profit Margins (%) (0.3) 7.8 6.6 6.5 6.4
Balance Sheet (Rpbn) FY Dec 2014A 2015A 2016F 2017F 2018F
Net Fixed Assets 30,575 34,184 33,634 36,691 39,442 Invts in Associates & JVs 0.0 0.0 0.0 0.0 0.0 Other LT Assets 14,488 14,831 14,669 14,507 14,345 Cash & ST Invts 14,823 14,167 13,272 13,466 13,923 Inventory 8,446 7,627 8,463 9,072 9,882 Debtors 4,358 5,117 5,350 5,303 5,776 Other Current Assets 13,386 15,906 15,906 15,906 15,906 Total Assets 86,077 91,832 91,293 94,945 99,275
ST Debt 10,096 10,712 10,712 10,712 10,712 Creditor 5,093 5,174 5,632 6,038 6,577 Other Current Liab 7,470 9,222 9,222 9,222 9,222 LT Debt 16,838 16,894 12,980 12,980 12,980 Other LT Liabilities 6,306 6,708 6,708 6,708 6,708 Shareholder’s Equity 25,104 27,269 29,233 31,497 34,014 Minority Interests 15,170 15,852 16,806 17,788 19,063 Total Cap. & Liab. 86,077 91,832 91,293 94,945 99,275
Non-Cash Wkg. Capital 13,628 14,254 14,865 15,022 15,766 Net Cash/(Debt) (12,110) (13,439) (10,420) (10,226) (9,768) Debtors Turn (avg days) 25.0 29.2 29.0 26.8 26.8 Creditors Turn (avg days) 42.7 43.1 44.1 44.2 44.2 Inventory Turn (avg days) 70.7 63.6 66.2 66.4 66.4 Asset Turnover (x) 0.7 0.7 0.7 0.8 0.8 Current Ratio (x) 1.8 1.7 1.7 1.7 1.7 Quick Ratio (x) 0.8 0.8 0.7 0.7 0.7 Net Debt/Equity (X) 0.3 0.3 0.2 0.2 0.2 Net Debt/Equity ex MI (X) 0.5 0.5 0.4 0.3 0.3 Capex to Debt (%) 17.5 12.8 25.3 25.3 25.3 Z-Score (X) 2.7 2.5 2.7 2.8 2.8 Source: Company, DBS Vickers, DBS Bank
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Indofood Sukses Makmur
Cash Flow Statement (Rpbn) FY Dec 2014A 2015A 2016F 2017F 2018F
Pre-Tax Profit 6,340 4,962 6,875 7,762 8,885 Dep. & Amort. 2,467 2,448 2,637 2,943 3,249 Tax Paid (1,856) (1,730) (1,994) (2,251) (2,577) Assoc. & JV Inc/(loss) 119 334 162 162 162 Chg in Wkg.Cap. (6,078) (501) (610) (157) (744) Other Operating CF 8,277 (1,299) 0.0 0.0 0.0 Net Operating CF 9,269 4,214 7,069 8,458 8,974 Capital Exp.(net) (4,707) (3,525) (6,000) (6,000) (6,000) Other Invts.(net) (3,937) 396 0.0 0.0 0.0 Invts in Assoc. & JV (461) (2,050) 3,914 0.0 0.0 Div from Assoc & JV 0.0 346 0.0 0.0 0.0 Other Investing CF (1,058) (833) 0.0 0.0 0.0 Net Investing CF (10,163) (5,666) (2,086) (6,000) (6,000) Div Paid (1,247) (1,932) (1,964) (2,265) (2,517) Chg in Gross Debt 3,109 2,162 (3,914) 0.0 0.0 Capital Issues 0.0 0.0 0.0 0.0 0.0 Other Financing CF (460) (371) 0.0 0.0 0.0 Net Financing CF 1,403 (141) (5,878) (2,265) (2,517) Currency Adjustments 130 515 0.0 0.0 0.0 Chg in Cash 639 (1,078) (895) 194 458 Opg CFPS (Rp) 1,748 537 875 981 1,107 Free CFPS (Rp) 520 78.5 122 280 339 Source: Company, DBS Vickers, DBS Bank
Target Price & Ratings History
Source: DBS Vickers, DBS Bank Analyst: Tiesha PUTRI Andy SIM CFA
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Page 85 Singapore Company Guide Sheng Siong Group
Version 7 | Bloomberg: SSG SP | Reuters: SHEN.SI Refer to important disclosures at the end of this report
DBS Group Research . Equity 27 Oct 2016
BUY Earnings growth continues Last Traded Price ( 26 Oct 2016): S$1.07 (STI : 2,828.57) Price Target 12-mth: S$1.19 (11% upside) (Prev S$1.18) Maintain BUY, more positive on margins. We maintain our BUY recommendation on Sheng Siong as 3Q16 results continued to Potential Catalyst: New stores Where we differ: In line show earnings growth momentum. We like Sheng Siong for its earnings growth traction, efficient operations, strong ROE, and Analyst Alfie YEO +65 6682 3717 [email protected] net cash balance sheet. We had previously taken a view that Andy SIM CFA +65 6682 3718 [email protected] gross margin of 26% that was reported in 2Q16 would be
sustainable. This was validated in the current set of results. What’s New Earnings have proved to be resilient despite a difficult operating 3Q16 results in line driven by new stores and environment. We continue to favour the stock for its defensive margin expansion earnings qualities and dividend yield of c.4%. Maintain BUY for For two quarters in a row (2Q16-3Q16), gross 15% upside including dividends. margin has hit 26%, an all time high Expect gross margins to expand over the coming Decent 3Q16. Sheng Siong turned in a decent set of results. quarters Gross margins had expanded over last year, while sales were Maintain BUY with S$1.19 TP driven by new stores. Same store sales growth (SSSG) was negative y-o-y largely due to the renovation at its Loyang store. SSSG would have been positive had the Loyang store been in Price Relative operation. Growth was also achieved against a challenging macro environment where Singapore retail sales for supermarkets have been sluggish and sales during the festive Chinese Seventh Month was not as robust. We see gross margins sustaining at 26% in the following quarters through direct sourcing of fresh products especially vegetables from
farms regionally, house brands, more bulk purchasing and Forecasts and Valuation higher mix of fresh food. We hence expect gross margins to FY Dec (S$ m) 2015A 2016F 2017F 2018F expand on a y-o-y basis in the next two quarters. Revenue 764 809 816 869 EBITDA 70.6 81.7 89.0 95.1 Pre-tax Profit 67.7 78.0 86.0 87.9 Valuation: Net Profit 56.8 64.3 71.4 72.9 Our target price for Sheng Siong is S$1.19 based on 25x FY17F Net Pft (Pre Ex.) 56.8 64.3 71.4 72.9 PE. The valuation is pegged at +1SD of its historical mean since Net Pft Gth (Pre-ex) (%) 20.8 13.2 10.9 2.1 EPS (S cts) 3.78 4.28 4.75 4.85 listing and below regional peers' average of 27x PE. EPS Pre Ex. (S cts) 3.78 4.28 4.75 4.85 EPS Gth Pre Ex (%) 21 13 11 2 Key Risks to Our View: Diluted EPS (S cts) 3.78 4.28 4.75 4.85 Store openings, price competition. Revenue growth will be led Net DPS (S cts) 3.50 3.96 4.40 4.49 by new store openings. Excessive discounts and promotions in BV Per Share (S cts) 16.2 16.6 16.9 17.3 PE (X) 28.3 25.0 22.5 22.1 the market by competitors will ultimately result in lower PE Pre Ex. (X) 28.3 25.0 22.5 22.1 margins. P/Cash Flow (X) 21.9 19.2 18.3 17.4
EV/EBITDA (X) 21.0 18.9 17.4 16.2 Net Div Yield (%) 3.3 3.7 4.1 4.2 At A Glance Issued Capital (m shrs) 1,504 P/Book Value (X) 6.6 6.5 6.3 6.2 Net Debt/Equity (X) CASH CASH CASH CASH Mkt. Cap (S$m/US$m) 1,609 / 1,157 ROAE (%) 23.6 26.1 28.4 28.4 Major Shareholders (%) SS Holdings 29.85 Earnin gs Rev (%): (2) 0 0 Consensus EPS (S cts): 4.20 4.60 4.80 Lim Family 33.99 Other Broker Recs: B: 7 S: 0 H: 2 Source of all data on this page: Company, DBS Bank, Bloomberg Free Float (%) 36.16 Finance L.P 3m Avg. Daily Val (US$m) 2.0 ICB Industry : Consumer Services / Food & Drug Retailers
ASIAN INSIGHTS VICKERS SECURITIES Page 86 ed: JS / sa:JC, PY Company Guide
Sheng Siong Group
WHAT’S NEW was maintained despite seasonal promotions for the Seventh Results review Month festive sales. Opex was 5% higher y-o-y amounting to S$35.6m, mainly due to higher staff costs on higher 3Q16 earnings in line, led by new stores and higher margins. headcount for new stores and bonus provisions. Net profit came in at S$15.7m (+8.2% y-o-y), in line with expectations. Revenue was S$202.4m (+1.2%), led by new Expect margin expansion to continue in the coming quarters. store sales while gross profit margin was sustained at c.26% For two quarters in a row, gross margin has hit 26%, an all vs 2Q16. Operating cost-to-sales ratio was stable at 17.6% q- time high. We expect this level to be sustainable for the next o-q but expanded by 0.7 ppts y-o-y. two quarters at least, as drivers for higher margins remain intact. We see more scope for 1) direct sourcing which Revenue driven by new stores. Revenue growth of 1.2% y-o-y includes from farmlands in Malaysia; 2) higher sales of house was largely driven by new stores. While new stores achieved brands, which currently constitute less than 10% of turnover; revenue growth of 5.3% y-o-y, SSSG contracted by 1.15%. 3) higher fresh mix from the displacement of wet markets in The quarter saw poor festive sales during the Chinese Singapore; 4) more bulk handling as it expands and adds Seventh Month and in September as well. In particular, retail another 45,000 square feet of warehouse space at its Mandai sales for supermarkets in Singapore were down 4.7% y-o-y in distribution centre. Sheng Siong opened a store at Junction 9 August. Sheng Siong’s Loyang Point store, which was closed during the quarter and is expected to open its Kunming store for renovations in 2Q16, contributed c.3% decline in sales. in 2017. The store is expected to reopen in 1Q17. Had the Loyang store not been shut for renovation, SSSG would have been Maintain BUY, TP S$1.19. We leave our earnings estimates 1.8% assuming a flat performance for the Loyang outlet. largely unchanged and our TP based on 25x FY17F earnings is Sales efficiency remained decent at S$1,862 per square foot S$1.19. We like Sheng Siong for its earnings growth traction, (psf) (annualised), above its 1Q13-3Q16’s quarterly average of efficient operations, strong ROE, net cash balance sheet, S$1,800 psf. defensive earnings qualities and dividend yield of c.4%. Maintain BUY for 15% upside, taking into account FY18F Gross margins stayed high. Gross margins were stable at dividend yield of 4.2%. c.26% from 2Q16, sustaining at an all time quarterly high level. This was mainly due to supplier rebates given for volume, display and bulk handling. The high gross margin
Quarterly / Interim Income Statement (S$m) FY Dec 3Q2015 2Q2016 3Q2016 % chg yoy % chg qoq
Revenue 200 189 202 1.2 7.2 Cost of Goods Sold (151) (139) (150) (0.9) 7.5 Gross Profit 48.7 49.4 52.5 7.8 6.3 Other Oper. (Exp)/Inc (33.8) (33.3) (35.6) 5.3 6.9 Operating Profit 14.8 16.0 16.9 13.6 5.2 Other Non Opg (Exp)/Inc 2.78 2.14 2.21 (20.4) 3.4 Associates & JV Inc 0.0 0.0 0.0 nm nm Net Interest (Exp)/Inc 0.34 0.20 0.02 (94.4) (90.7) Exceptional Gain/(Loss) 0.0 0.0 0.0 nm nm Pre-tax Profit 18.0 18.4 19.1 6.3 3.9 Tax (3.5) (3.2) (3.4) (1.6) 6.8 Minority Interest 0.0 0.0 0.0 nm nm Net Profit 14.5 15.2 15.7 8.2 3.3 Net profit bef Except. 14.5 15.2 15.7 8.2 3.3 EBITDA 21.0 22.1 22.8 8.8 3.3
Margins (%) Gross Margins 24.3 26.1 25.9 Opg Profit Margins 7.4 8.5 8.3 Net Profit Margins 7.2 8.0 7.7
Source of all data: Company, DBS Bank
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Page 87 Company Guide
Sheng Siong Group
Rev per sqft CRITICAL DATA POINTS TO WATCH
Earnings Drivers: Store expansion. Sheng Siong currently operates 43 stores (including Loyang Point which is under renovation). Compared to the other local operators, it has scope to expand its store network, particularly in areas such as Serangoon, Hougang and Seng Kang where it has a low presence. Management targets to ultimately operate 50 stores islandwide. In the past six years, 0- 8 stores were opened annually, largely a function of supply of HDB shop space available for tender and Sheng Siong’s ability Operation Area (sqft) to win the tenders. Sheng Siong mainly operates in HDB estates.
Gross margin expansion through better sales mix. The gross margin for fresh products is estimated to be >30%, and close to 20% for non-fresh grocery items. Sheng Siong’s product mix stands at approximately 40% fresh vs 60% non-fresh. We see headroom for sales mix to improve to 50% for each as it skews its store offerings more towards fresh products.
Mandai Distribution Centre to expand. The Mandai Distribution Centre allows Sheng Siong to perform direct sourcing and bulk Number of stores handling. This effectively drives down input costs, resulting in cost savings and better margins. We estimate that the facility is currently running at only 90% of capacity and a new warehouse adjacent to the current one is expected to start construction in FY17F. It will be able to secure more suppliers and products to trade through the distribution centre to effectively enjoy more bulk handling and higher supplier rebates. Margins are expected to trend up as utilisation increases towards full capacity.
SSSG (%) Margin expansion through direct sourcing. Sheng Siong is 6.0% increasingly sourcing directly from suppliers such as farms 5.0% instead of from middlemen. The company has the resources to 4.0% Weak demand conditions, place large orders, which is welcomed by producers. store 3.0% Affected by SG50 renovations promotion and 2.0% Generating more same-store-sales growth (SSSG) to increase discounting 1.0% revenue. Sheng Siong has been able to maintain positive SSSG since 4Q13 (excluding 4Q15, 1Q16) through longer operating 0.0% hours and renovation of older stores, offering the correct -1.0% products and effective marketing. 3Q16’s SSSG has been -2.0% affected partly due to the renovation of the Loyang store. The -3.0% 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 SSSG would have been positive had Loyang store performed similar to previous year and was not shut for renovation. Gross margins (%) Maintaining positive SSSG will support earnings growth. 26.5 26.0
Kunming store in China to open in 2017. E-commerce remains 25.5 an ongoing initiative. Its first store in Kunming (40,000 square 25.0 feet) is expected to commence operations in 2017. Downside 24.5 for the JV is limited to US$6m paid-up capital which is sufficient 24.0 to open 2-3 new stores. 23.5
23.0
22.5 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 Source: Company, DBS Bank
ASIAN INSIGHTS VICKERS SECURITIES
Page 88 Company Guide
Sheng Siong Group
Leverage & Asset Turnover (x) Balance Sheet:
Net cash of over S$45m or c.3 Scts per share. The excess cash allows for strategic store acquisitions if suitable real estate arises for it to expand its store presence in the future. The business generates positive working capital. Inventory is purchased on credit, and quickly turned into cash. Over the past seven years, the business has generated between S$20-75m of operating cash flow each year. Dividend payout is attractive at 90%. We expect this to be maintained as long as there is no significant requirement for cash funding. Capital Expenditure
Share Price Drivers:
Strong earnings growth performance. Sheng Siong’s financial performance has consistently met our expectations, delivering earnings growth (4-year CAGR of 20.4% since FY11) through a combination of margin expansion, store growth and SSSG. It is this consistency, together with strong dividend payout of 90% and yield of 4%, that has led to the stock's re-rating from 20x to 22x FY17F PE currently. We believe continued delivery of consistent performance and profit growth will support a strong share price. ROE (%)
China to be a wildcard. We believe Sheng Siong’s JV in China is a wildcard. If operations prove to be successful, in time to come, China can provide an alternate source of growth. There is scope for the number of stores to increase should Sheng Siong’s business model work. Downside remains limited to US$6m for now should the JV fail.
Key Risks: Forward PE Band (x) Revenue growth limited by store openings. Store expansion in Singapore is largely dependent on the supply of new supermarket retail space released by HDB and its ability to secure the tenders.
Excessive discounts and promotions may erode margins. Heavier discounts and promotions vis-a-vis competitors would drive sales revenue, but this could be gained at the expense of margins.
Company Background PB Band (x)
Sheng Siong is the third largest supermarket operator in Singapore, behind NTUC Fairprice and Dairy Farm International.
Source: Company, DBS Bank
ASIAN INSIGHTS VICKERS SECURITIES
Page 89 Company Guide
Sheng Siong Group
Key Assumptions FY Dec 2014A 2015A 2016F 2017F 2018F Rev per sqft 1,815 1,892 1,877 1,800 1,700 Operation Area (sqft) 404,000 431,000 450,000 480,000 510,000 Number of stores 34.0 39.0 42.0 45.0 48.0
Segmental Breakdown FY Dec 2014A 2015A 2016F 2017F 2018F
Revenues (S$m) Singapore 726 764 809 816 869
Total 726 764 809 816 869 Operating profit (S$m) Singapore 52.2 57.2 66.7 73.9 79.0
Total 52.2 57.2 66.7 73.9 79.0 Operating profit Margins Singapore 7.2 7.5 8.2 9.1 9.1
Total 7.2 7.5 8.2 9.1 9.1
Income Statement (S$m) FY Dec 2014A 2015A 2016F 2017F 2018F Revenue 726 764 809 816 869 Cost of Goods Sold (550) (576) (602) (604) (643) Gross Profit 176 189 207 212 226 Other Opng (Exp)/Inc (124) (132) (141) (138) (147) Operating Profit 52.2 57.2 66.7 73.9 79.0 Other Non Opg (Exp)/Inc 3.80 9.26 10.8 11.4 8.40 Associates & JV Inc 0.0 0.0 0.0 0.0 0.0 Net Interest (Exp)/Inc 1.19 1.22 0.59 0.65 0.57 Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0 Pre-tax Profit 57.1 67.7 78.0 86.0 87.9 Tax (10.2) (10.9) (13.7) (14.6) (15.0) Minority Interest 0.0 0.0 0.0 0.0 (0.1) Preference Dividend 0.0 0.0 0.0 0.0 0.0 Net Profit 47.0 56.8 64.3 71.4 72.9 Net Profit before Except. 47.0 56.8 64.3 71.4 72.9 EBITDA 63.0 70.6 81.7 89.0 95.1 Growth Revenue Gth (%) 5.6 5.3 5.8 0.9 6.5 EBITDA Gth (%) 21.9 12.1 15.6 9.0 6.8 Opg Profit Gth (%) 25.3 9.7 16.5 10.8 6.9 Net Profit Gth (Pre-ex) (%) 20.8 20.8 13.2 10.9 2.1 Margins & Ratio Gross Margins (%) 24.2 24.7 25.6 26.0 26.0 Opg Profit Margin (%) 7.2 7.5 8.2 9.1 9.1 Net Profit Margin (%) 6.5 7.4 7.9 8.7 8.4 ROAE (%) 24.3 23.6 26.1 28.4 28.4 ROA (%) 15.8 15.9 17.2 18.6 18.5 ROCE (%) 22.0 19.8 22.1 24.2 25.3 Div Payout Ratio (%) 92.1 92.7 92.7 92.7 92.7 Net Interest Cover (x) NM NM NM NM NM Source: Company, DBS Bank
ASIAN INSIGHTS VICKERS SECURITIES
Page 90 Company Guide
Sheng Siong Group
Quarterly / Interim Income Statement (S$m) FY Dec 3Q2015 4Q2015 1Q2016 2Q2016 3Q2016
Revenue 200 187 209 189 202 Cost of Goods Sold (151) (140) (158) (139) (150) Gross Profit 48.7 46.7 51.0 49.4 52.5 Other Oper. (Exp)/Inc (33.8) (32.5) (35.4) (33.3) (35.6) Operating Profit 14.8 14.2 15.6 16.0 16.9 Other Non Opg (Exp)/Inc 2.78 1.95 3.82 2.14 2.21 Associates & JV Inc 0.0 0.0 0.0 0.0 0.0 Net Interest (Exp)/Inc 0.34 0.31 0.34 0.20 0.02 Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0 Pre-tax Profit 18.0 16.5 19.8 18.4 19.1 Tax (3.5) (1.9) (3.4) (3.2) (3.4) Minority Interest 0.0 0.0 0.0 0.0 0.0 Net Profit 14.5 14.6 16.4 15.2 15.7 Net profit bef Except. 14.5 14.6 16.4 15.2 15.7 EBITDA 21.0 19.8 23.0 22.1 22.8
Growth Revenue Gth (%) 11.7 (6.4) 11.5 (9.5) 7.2 EBITDA Gth (%) 9.5 (5.8) 16.6 (4.0) 3.3 Opg Profit Gth (%) 9.2 (4.1) 9.9 2.5 5.2 Net Profit Gth (Pre-ex) (%) 6.2 0.9 12.4 (7.6) 3.3 Margins Gross Margins (%) 24.3 25.0 24.5 26.1 25.9 Opg Profit Margins (%) 7.4 7.6 7.5 8.5 8.3 Net Profit Margins (%) 7.2 7.8 7.9 8.0 7.7
Balance Sheet (S$m) FY Dec 2014A 2015A 2016F 2017F 2018F
Net Fixed Assets 161 178 248 263 261 Invts in Associates & JVs 0.0 0.0 0.0 0.0 0.0 Other LT Assets 0.0 0.0 0.0 0.0 0.0 Cash & ST Invts 130 126 65.3 56.8 67.4 Inventory 43.1 52.5 54.8 54.9 58.5 Debtors 10.8 11.8 12.3 12.3 13.1 Other Current Assets 0.0 0.0 0.0 0.0 0.0 Total Assets 345 368 380 387 400
ST Debt 0.0 0.0 0.0 0.0 0.0 Creditor 95.9 109 115 116 124 Other Current Liab 10.7 12.7 13.7 14.6 15.0 LT Debt 0.0 0.0 0.0 0.0 0.0 Other LT Liabilities 2.20 2.24 2.24 2.24 2.24 Shareholder’s Equity 236 244 249 254 259 Minority Interests 0.0 0.0 0.0 0.0 0.10 Total Cap. & Liab. 345 368 380 387 400
Non-Cash Wkg. Capital (52.7) (57.1) (61.8) (63.4) (66.9) Net Cash/(Debt) 130 126 65.3 56.8 67.4 Debtors Turn (avg days) 5.8 5.4 5.4 5.5 5.3 Creditors Turn (avg days) 62.3 66.4 69.6 71.6 69.8 Inventory Turn (avg days) 30.0 31.0 33.4 34.0 33.0 Asset Turnover (x) 2.4 2.1 2.2 2.1 2.2 Current Ratio (x) 1.7 1.6 1.0 0.9 1.0 Quick Ratio (x) 1.3 1.1 0.6 0.5 0.6 Net Debt/Equity (X) CASH CASH CASH CASH CASH Net Debt/Equity ex MI (X) CASH CASH CASH CASH CASH Capex to Debt (%) N/A N/A N/A N/A N/A Z-Score (X) 11.8 10.7 10.2 10.0 9.8 Source: Company, DBS Bank
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Page 91 Company Guide
Sheng Siong Group
Cash Flow Statement (S$m) FY Dec 2014A 2015A 2016F 2017F 2018F
Pre-Tax Profit 57.1 67.7 78.0 86.0 87.9 Dep. & Amort. 10.9 13.4 15.0 15.2 16.1 Tax Paid (7.5) (10.7) (12.7) (13.7) (14.6) Assoc. & JV Inc/(loss) 0.0 0.0 0.0 0.0 0.0 Chg in Wkg.Cap. 11.5 2.54 3.52 0.77 3.16 Other Operating CF (0.3) 0.52 0.0 0.0 0.0 Net Operating CF 71.7 73.5 83.9 88.1 92.6 Capital Exp.(net) (80.8) (30.4) (85.0) (30.5) (14.5) Other Invts.(net) 0.0 0.0 0.0 0.0 0.0 Invts in Assoc. & JV 0.0 0.0 0.0 0.0 0.0 Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0 Other Investing CF 0.92 1.22 0.0 0.0 0.0 Net Investing CF (79.9) (29.2) (85.0) (30.5) (14.5) Div Paid (40.1) (48.9) (59.6) (66.1) (67.5) Chg in Gross Debt 0.0 0.0 0.0 0.0 0.0 Capital Issues 79.0 0.0 0.0 0.0 0.0 Other Financing CF 0.0 0.0 0.0 0.0 0.0 Net Financing CF 38.9 (48.9) (59.6) (66.1) (67.5) Currency Adjustments 0.0 0.04 0.0 0.0 0.0 Chg in Cash 30.8 (4.5) (60.7) (8.5) 10.6 Opg CFPS (S cts) 4.00 4.72 5.35 5.81 5.95 Free CFPS (S cts) (0.6) 2.86 (0.1) 3.83 5.19 Source: Company, DBS Bank
Target Price & Ratings History
Source: DBS Bank Analyst: Alfie YEO Andy SIM CFA
ASIAN INSIGHTS VICKERS SECURITIES
Page 92 Regional Company Guide
Robinsons Retail Holdings Version 3 | Bloomberg: RRHI PM | Reuters: RRHI.PS Refer to important disclosures at the end of this report
DBS Group Research . Equity 2 Dec 2016
BUY Valuation is ripe for accumulation (Upgrade from HOLD) Upgrade to BUY, TP raised to P92.00, as we rollover our valuation Last Traded Price ( 1 Dec 2016): P75.40 (PCOMP : 6,864.87) base to FY17F. We believe the recent sell-off in Robinsons Retail Price Target 12-mth: P92.00 (22% upside) (Prev P88.00) Holdings (RRHI)’s share price does not reflect the company’s strong
Potential Catalyst: Faster store rollout, M&A, and margin recovery fundamentals and improving earnings profile in FY17F/FY18F. Where we differ: FY17/18F earnings are above consensus estimates RRHI’s growth prospects remain bright, underpinned by positive industry data (i.e. favourable demographics, rising disposable Analyst income, low inflation backdrop, and underpenetrated modern Regional Research Team [email protected] retail industry). At 18x FY17F PE, the counter is trading below -1SD of its mean What’s New valuation, which is a good level to accumulate the stock. No surprises here. RRHI’s reported net profit rose 15% y-o-y to • 3Q16 earnings rose 15% - in line with ours, but P1.3bn in 3Q16. This brings 9M16 net profit to P3.3bn or 67% of ahead of consensus our full-year forecast – which is in line with ours but ahead of • Improving earnings and margins outlook in FY17F- consensus expectations. Revenues grew 16% y-o-y driven by 18F consolidated same-store-sales growth (SSSG) of 4.7% in 3Q16 and contribution from new stores. The slowdown in SSSG q-o-q is • Upgrade to BUY, TP raised to P92.00 within our expectations as the boost from election-related spending fades. 9M16 consolidated SSSG remains robust at 7.5% Price Relative y-o-y. Margins have held steady for the third consecutive quarter – P Relative Index
95.0 in line with our expectations. Performance across RRHI’s retail 203 85.0 formats except Ministop, continued to be strong in 3Q16 – 183
75.0 163 underpinned by higher basket size and/or transaction count.
143 65.0 Earnings and margin outlook better in FY17F/FY18F. RRHI has 123 55.0 closed a significant number of non-performing stores, which had 103
45.0 83 an adverse impact on the company’s margins. The affected Nov-13 Nov-14 Nov-15 Nov-16 segments were the Department, Convenience, and Specialty stores. Robinsons Retail Holdings (LHS) Relative PCOMP (RHS) With the bulk of the closures of non-performing stores already Forecasts and Valuation behind us, we expect RRHI’s earnings to reaccelerate to FY Dec (P m) 2015F 2016F 2017F 2018F 13.6%/14.6% in FY17F/FY18 as margins expand in the absence of Revenue 90,883 104,418 118,313 134,116 EBITDA 6,712 7,690 8,791 10,038 cost pressures stemming from the closure of non-performing Pre-tax Profit 5,848 6,697 7,609 8,723 stores. Net Profit 4,342 4,925 5,595 6,413 Net Pft (Pre Ex.) 4,342 4,925 5,595 6,413 EPS (P) 3.13 3.56 4.04 4.63 Valuation: EPS Pre Ex. (P) 3.13 3.56 4.04 4.63 BUY, TP at P92.00, based on SOTP valuation methodology. Our TP EPS Gth (%) 22 13 14 15 has an implied FY17F/18F PE of 23x/20x. EPS Gth Pre Ex (%) 22 13 14 15 Diluted EPS (P) 3.13 3.56 4.04 4.63 Key Risks to Our View: Net DPS (P) 0.53 0.60 0.68 0.78 Key risks to our forecast are: 1) competition intensifying more than BV Per Share (P) 31.4 34.4 37.7 41.6 PE (X) 24.1 21.2 18.7 16.3 so far assumed; 2) fewer number of new store rollouts; and 3) PE Pre Ex. (X) 24.1 21.2 18.7 16.3 more closures of non-performing stores. P/Cash Flow (X) 23.5 29.9 13.4 11.7 At A Glance EV/EBITDA (X) 14.8 13.1 11.1 9.3 Issued Capital (m shrs) 1,385 Net Div Yield (%) 0.7 0.8 0.9 1.0 Mkt. Cap (Pm/US$m) 104,429 / 2,099 P/Book Value (X) 2.4 2.2 2.0 1.8 Net Debt/Equity (X) CASH CASH CASH CASH Major Shareholders (%) ROAE (%) 10.4 10.8 11.2 11.7 JE Holdings Sdn Bhd 35.0 Gokongwei Lance Yu 7.7 Earnings Rev (%): 0 0 0 Consensus EPS (P): 3.4 3.9 4.3 Free Float (%) 45.7 Other Broker Recs: B: 11 S: 1 H: 3 3m Avg. Daily Val (US$m) 1.6
ICB Industry : Consumer Services / General Retailers Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P.
ed: JS / sa: MR / CW
Company Guide
Robinsons Retail Holdings
WHAT’S NEW No surprises here
3Q16 net profit rose 15% y-o-y, in line. RRHI reported net Growth and margin improvement can be attributed to profit of P1.3bn, +15% y-o-y. This brings 9M16 net profit to acquisition of The Generics Pharmacy (TGP) and strong SSSG P3.3bn or 67% of our full-year forecast – which is in line with of 7.4% y-o-y, driven by higher basket size. Total store count ours but ahead of consensus expectations. Revenues grew was 395 (excluding TGP) as end-9M16, with net store 16% y-o-y, driven by consolidated same-store-sales growth addition of 28 stores year-to-date. (SSSG) of 4.7% in 3Q16 and contribution from new stores. Specialty stores – 3Q16 revenues increased by 29.5% y-o-y The slowdown in SSSG q-o-q is within our expectations as the and SSSG was robust at 11.8% y-o-y, driven by strong sales boost from election-related fades. 9M16 consolidated SSSG from the appliance and toy segment and consolidation of remains robust at 7.5% y-o-y. Margins have been stable for Savers. Gross margins for the quarter improved by 119bps as the third consecutive quarter – in line with our expectations. margins expanded across all segments (except fast fashion). Performance across RRHI’s retail formats except Ministop, Excluding the contribution from Savers, revenue growth was continued to be strong in 3Q16 – underpinned by higher still strong at 20%-25% y-o-y in 3Q16. As at end-9M16, basket size and/or transaction count. store count was 297 stores, with net store addition of nine Supermarkets – 3Q16 SSSG improved 4.3% from 4.1% in the year-to-date. same quarter a year ago, driven by solid growth in basket size and transaction count. Revenues for the quarter were up Outlook 10.4% y-o-y and gross margins higher by 16bps. As at end- Prospects still bright post elections despite regulatory 9M16, RRHI operated 131 supermarkets nationwide, with a risks. We expect SSSGs to normalise in the upcoming quarter net store addition of seven stores year-to-date. as the effects of election-related spending wears off. Industry backdrop continues to be favourable (i.e., rising household Department stores – 3Q16 revenues increased by 4.6% y-o-y disposable income, low inflation backdrop, and robust on the back of 2.0% SSSG - driven mainly from higher economic/construction activity). Key risks are changes in transaction count. Gross margins declined by 41bps for the consumption patterns due to stricter implementation of quarter, still due to fast fashion markdowns (response to cigarette and liquor sales restrictions, and new tax proposals competitors’ aggressive sales promotions). New stores that may curb demand. opened in Cebu and Davao have been slow to ramp up. Net store addition is one store year-to-date to its store network of Improving earnings and margin outlook in FY17F/FY18F. 42 as at end of Sep-16. RRHI has closed down a significant number of non- performing stores, which had an adverse impact on the DIY stores – Due to higher basket size and increase in company’s margins. The affected segments were Department, transaction count (underpinned by strong residential Convenience, and Specialty stores. With the bulk of the construction activities), 3Q16 SSSG remain solid at 5.1% y-o- closures of non-performing stores already behind us, we y. Revenues for the quarter were up 11.2% y-o-y and gross expect RRHI’s earnings growth momentum to reaccelerate to margins expanded by 64bps from the same period last year – 13.6%/14.6% in FY17F/FY18 as margins expand in the as the degree of drag from Robinson Builder was lesser. The absence of cost pressures stemming from the closure of non- store count as at end-9M16 at 175, with net store addition of performing stores. nine year-to-date. Convenience stores – Weakness continued as 3Q16 system- Valuation wide sales and revenues from the segment declined by 1.2% We upgrade RRHI to y-o-y on flattish SSSG (-0.1% y-o-y). Stricter implementation Upgrade to BUY, TP lifted to P92.00. BUY from HOLD as we rollover our valuation base to FY17F. of cigarette and liquor sales restrictions have taken a toll on Our TP is based on SOTP valuation and implies 23x/20x Mini Stop’s sales. Nevertheless, we take consolation that FY17F/18F PE – undemanding compared to historical closure of non-performing stores has peaked – this should valuations. We have raised our WACC to 10.4% from 10.2% result in improvement of EBIT margins moving forward. As at to take into account higher equity risk premium assumption. end-9M16, store network was 500, with net store closures of 19 stores year-to-date
Drugstores – Performance continued to be robust (+63.7% y- o-y in 3Q16 with gross margin expansion of 1.62bps).
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Company Guide Robinsons Retail Holdings
Quarterly / Interim Income Statement (Pm) FY Dec 3Q2015 2Q2016 3Q2016 % chg yoy % chg qoq
Revenue 21,935 25,638 25,479 16.2 (0.6) Cost of Goods Sold (17,184) (20,051) (19,904) 15.8 (0.7) Gross Profit 4,752 5,587 5,575 17.3 (0.2) Other Oper. (Exp)/Inc (3,614) (4,192) (4,235) 17.2 1.0 Operating Profit 1,137 1,396 1,340 17.8 (4.0) Other Non Opg (Exp)/Inc 52.5 98.1 146 177.8 48.7 Associates & JV Inc 129 27.2 33.7 (74.0) 23.6 Net Interest (Exp)/Inc 192 176 197 2.5 12.1 Exceptional Gain/(Loss) 0.0 0.0 0.0 nm nm Pre-tax Profit 1,511 1,697 1,716 13.6 1.2 Tax (348) (365) (354) 1.9 (2.8) Minority Interest (54.0) (93.8) (83.3) (54.3) (11.1) Net Profit 1,109 1,238 1,278 15.3 3.3 Net profit bef Except. 1,109 1,238 1,278 15.3 3.3 EBITDA 1,730 2,022 2,006 16.0 (0.8)
Margins (%) Gross Margins 21.7 21.8 21.9 Opg Profit Margins 5.2 5.4 5.3 Net Profit Margins 5.1 4.8 5.0
Source of all data: Company, DBS Bank
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Company Guide
Robinsons Retail Holdings
GFA CRITICAL DATA POINTS TO WATCH (GFA sq m) 1,400,000 14.0% Earnings Drivers: 1,200,000 12.0% Growth via organic GFA expansion and margin expansion. Due to the higher number of non-performing stores that 1,000,000 10.0%
were closed in FY15 (48 stores closed), RRHI’s store network 800,000 8.0% grew by only 179 stores, representing to 9.7% increase in 600,000 6.0% gross floor area (GFA) in FY15. This resulted in slower revenue growth (from 19.5% y-o-y in FY14 to 13% y-o-y in FY15), 400,000 4.0%
and operating margins contracted by 4bps in FY15. In FY16, 200,000 2.0% RRHI continued to close down non-performing stores but to 0 0.0% lesser extent relative to FY15. As a result, margins appear to FY14 FY15 FY16F FY17F FY18F have stabilised. Moving to FY17F/FY18F, we expect fewer GFA y-o-y growth
store closures and GFA to expand 9.5%/8.5%. These should translate to faster revenue growth and steady/improving Same-store-sales growth operating margins. 20.0%
Consumer confidence is key. RRHI reported robust SSSG of 15.0% 4.7% y-o-y in 3Q16 – underpinned by still strong consumer 10.0% confidence post-elections. We do not think the strong SSSG
figures reported in 9M16 (+7.5% y-o-y) can be sustained in 5.0% FY17F. SSSGs should normalise to 3%-4% as the boost from election-related spending wears off. Consumer confidence 0.0% 9M12 1Q13 9M13 1Q14 9M14 1Q15 9M15 1Q16 9M17 will be key post-election. Given the high approval rating of President Duterte amid controversial war on drugs and anti- -5.0% western comments, we see no reason for consumer -10.0% Consolidated Results Supermarket Department Store confidence to deteriorate in the near-to-medium term. DIY Store Convenience Store Drug Store Furthermore, the stronger GDP post-election (+7.1% y-o-y; Specialty Store 3Q16) should underpin higher consumer confidence. Against
this backdrop, RRHI is best positioned to benefit given its Source: Company, DBS Bank broad and countrywide exposure in the Philippine modern retail space.
Acquisition and expansion into other retail formats. RRHI continues to be on a lookout for value-enhancing acquisitions and opportunities to expand its retail format. So far, only one acquisition in 2016 has been announced (51% of The Generics Pharmacy). We see RRHI announcing at least one acquisition in FY17F. RRHI has a large war chest that is more than enough to fund a large and high-profile M&A. Our FY17F-18F earnings do not take into account any acquisitions.
Industry backdrop is conducive for growth. Low penetration of modern retail (24% overall and 29% grocery based on Euromonitor data as of end-2015); rising household disposable income (6.2% CAGR in FY00-16)– which is underpinned by jobs growth, low inflation, and increase in compensation of government employees moving forward; and favourable demographics, are factors supporting store expansion in the Philippine modern retail space. We think uterte’s administration will focus more resources in Visayas
and Mindanao. These are areas where modern retail is very much underpenetrated and where RRHI has significant exposure relative to its competitors.
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Company Guide Robinsons Retail Holdings
Leverage & Asset Turnover (x) Balance Sheet: 1.7 Inundated with cash. RRHI has been in a net cash position 0.14 1.7 since IPO. Even with its aggressive expansion plans, capex can 0.12 be funded with internally generated cash. Cash conversion 0.10 1.6
0.08 cycle has turned positive as at 9M16 due to consolidation of 1.6 TGP and inventory buildup ahead of the holiday season. 0.06 1.5 0.04 1.5 Share Price Drivers: 0.02 Operating margin turnaround. RRHI’s operating margins had 0.00 1.4 compressed in FY15 due to the high number of non- 2014A 2015F 2016F 2017F 2018F Gross Debt to Equity (LHS) Asset Turnover (RHS) performing stores closed and new stores still ramping up. However, we expect closures of non-performing store to Capital Expenditure Pm taper off in FY17F and FY18F. Operating margins appear to 3,800.0 have stabilised during 1Q-3Q16. Having said this, we project 3,700.0 3,600.0 operating margins to gradually improve in FY17F and FY18F. 3,500.0 3,400.0 3,300.0 Valuation to catch up. The counter has performed well this 3,200.0 3,100.0 year (+19.3% year-to-date) fuelled by expectations of robust 3,000.0 2,900.0 same-store metrics. Despite this, there is still headroom for 2,800.0 further upside. RRHI is trading at 18x FY1&F PE, which is 2,700.0 2014A 2015F 2016F 2017F 2018F undemanding relative to historical valuation. Capital Expenditure (-)
ROE (%)
Key Risks: Expansion constraints plus competition. Availability of space 10.0% (right size and location), rent cost, and securing business 8.0% permits (especially in areas where local retailers have deep 6.0% roots within the community) are critical factors to the success of RRHI’s expansion plans. The current level of competition, 4.0% stemming from big-chain players and local mom-and-pop 2.0% retailers, pose extra challenges to RRHI expansion plans. 0.0% Closure of non-performing stores erodes margins. There is 2014A 2015F 2016F 2017F 2018F the possibility of more store closures in FY17F, especially in RRHI’s weaker segments - department stores, convenience Forward PE Band (x) (x) stores, and specialty stores. Significant markdowns and 30.2 closing costs are detrimental to margins. 28.2 +2sd: 27.2x Liquor and cigarette consumption restrictions are likely to be 26.2 +1sd: 24.6x imposed under the Duterte administration. We see limited 24.2 impact to RRHI’s supermarkets. However, sales may 22.2 Avg: 22.1x 20.2 deteriorate at its convenience store segment. Liquor and ‐1sd: 19.6x 18.2 cigarettea accounted for 12%-13% for Ministop sales in ‐2sd: 17.1x 16.2 FY15. 14.2 Nov-13 Nov-14 Nov-15 Nov-16 Company Background Robinsons Retail Group (RRHI) is a holding company which is PB Band (x) (x) involved in and solely focused on retailing. The company 3.4 3.2 operates retail outlets in various channels such as 3.0 +2sd: 2.91x supermarkets, department stores, DIY outlets, convenience 2.8 stores, drugstores, and specialty stores. 2.6 +1sd: 2.66x 2.4 Avg: 2.41x
2.2 ‐1sd: 2.16x 2.0 ‐2sd: 1.92x 1.8
1.6 Nov-13 Nov-14 Nov-15 Nov-16 Source: Company, DBS Bank
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Company Guide
Robinsons Retail Holdings
Key Assumptions FY Dec 2014A 2015F 2016F 2017F 2018F
Supermarket 15.2% 8.2% 10.0% 9.0% 8.5% Department Stores 8.2% 3.2% 10.0% 9.0% 8.0% DIY 45.5% 4.2% 9.0% 8.0% 7.0% CVS 14.6% 11.5% 0.0% 5.0% 4.7% Drugstores 19.0% 14.7% 15.0% 13.0% 11.5% Speciallty Stores 23.6% 45.1% 15.0% 13.0% 11.5%
Segmental Breakdown FY Dec 2014A 2015F 2016F 2017F 2018F Assumes no increase in
GFA – based on Revenues (P m) management guidance. Supermarket 39,198.5 43,238.7 48,578.7 54,777.6 61,947.3 RRHI will not roll out Department Store 13,738.4 14,906.0 16,685.6 18,814.8 21,022.3 new Ministop stores Hardware 8,521.2 9,871.8 11,657.1 13,277.8 14,984.6 unless franchised Convenience Store 4,615.5 5,493.0 5,932.5 6,470.0 7,054.9 Drug Store 7,060.7 8,069.5 9,368.7 10,940.6 12,889.6 Specialty Stores 7,889.1 10,358.6 12,194.9 14,032.7 16,217.6 Adjustments (622.3) (1,055.1) - - - Total 80,401 90,883 104,418 118,313 134,116 EBIT (P m) Supermarket 2,128.55 2,380.22 2,709.11 3,082.79 3,542.70 Department Store 881.02 919.10 1,047.23 1,196.85 1,358.46 Hardware 781.26 747.73 894.61 1,035.23 1,183.29 Convenience Store 85.43 6.11 77.26 126.94 163.40 Drug Store 274.67 311.48 373.14 445.74 536.48 Specialty Stores 342.64 373.54 452.49 533.83 632.11 Adjustments (6.12) (9.34) - - - Total 4,487 4,729 5,554 6,421 7,416 EBIT Margins (%) Supermarket 5.4% 5.5% 5.6% 5.6% 5.7% Department Store 6.4% 6.2% 6.3% 6.4% 6.5% Hardware 9.2% 7.6% 7.7% 7.8% 7.9% Convenience Store 1.9% 0.1% 1.3% 2.0% 2.3% Drug Store 3.9% 3.9% 4.0% 4.1% 4.2% Specialty Stores 4.3% 3.6% 3.7% 3.8% 3.9% Adjustments Total 5.6% 5.2% 5.3% 5.4% 5.5%
Source: Company, DBS Bank
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Company Guide Robinsons Retail Holdings
Income Statement (P m) FY Dec 2014A 2015F 2016F 2017F 2018F
Revenue 80,401 90,883 104,418 118,313 134,116 Cost of Goods Sold (62,972) (71,134) (81,744) (92,418) (104,563) Gross Profit 17,429 19,749 22,674 25,895 29,553 Other Opng (Exp)/Inc (12,942) (15,020) (17,120) (19,474) (22,137) Operating Profit 4,487 4,729 5,554 6,421 7,416 Other Non Opg (Exp)/Inc 53 295 295 295 295 Associates & JV Inc 57 40 44 49 54 Net Interest (Exp)/Inc 622 784 804 843 956 Exceptional Gain/(Loss) 0 0 0 0 0 Pre-tax Profit 5,219 5,848 6,697 7,609 8,723 Tax (1,286) (1,271) (1,540) (1,750) (2,006) Minority Interest (373) (235) (232) (264) (302) Preference Dividend 0 0 0 0 0 Net Profit 3,561 4,342 4,925 5,595 6,413 Net Profit before Except. 3,561 4,342 4,925 5,595 6,413 EBITDA 5,877 6,712 7,690 8,791 10,038 Growth Revenue Gth (%) 19.5 13.0 14.9 13.3 13.4 EBITDA Gth (%) 11.2 14.2 14.6 14.3 14.2 Opg Profit Gth (%) 10.4 5.4 17.4 15.6 15.5 Net Profit Gth (Pre-ex) (%) 29.7 21.9 13.4 13.6 14.6 Margins & Ratio Gross Margins (%) 21.7 21.7 21.7 21.9 22.0 Opg Profit Margin (%) 5.6 5.2 5.3 5.4 5.5 Net Profit Margin (%) 4.4 4.8 4.7 4.7 4.8 ROAE (%) 9.4 10.4 10.8 11.2 11.7 Margins are set to recover ROA (%) 6.5 7.1 7.4 7.8 8.1 as cost pressures stemming from closure of ROCE (%) 8.3 8.0 8.3 8.8 9.3 non-performing stores Div Payout Ratio (%) 15.8 16.8 16.8 16.8 16.8 wane Net Interest Cover (x) NM NM NM NM NM Source: Company, DBS Bank
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Company Guide
Robinsons Retail Holdings
Quarterly / Interim Income Statement (P m) FY Dec 3Q2015 4Q2015 1Q2016 2Q2016 3Q2016
Revenue 21,935 27,593 22,696 25,638 25,479 Cost of Goods Sold (17,184) (21,612) (17,891) (20,051) (19,904) Gross Profit 4,752 5,982 4,805 5,587 5,575 Other Oper. (Exp)/Inc (3,614) (4,355) (3,901) (4,192) (4,235) Operating Profit 1,137 1,627 904 1,396 1,340 Other Non Opg (Exp)/Inc 53 156 (45) 98 146 Associates & JV Inc 129 (115) 26 27 34 Net Interest (Exp)/Inc 192 194 187 176 197 Exceptional Gain/(Loss) 0 0 0 0 0 Pre-tax Profit 1,511 1,862 1,073 1,697 1,716 Tax (348) (401) (239) (365) (354) Minority Interest (54) (92) (49) (94) (83) Net Profit 1,109 1,369 785 1,238 1,278 Net profit bef Except. 1,109 1,369 785 1,238 1,278 EBITDA 1,730 2,111 1,329 2,022 2,006
Growth Revenue Gth (%) 1.4 25.8 (17.7) 13.0 (0.6) EBITDA Gth (%) 5.3 22.1 (37.1) 52.1 (0.8) Opg Profit Gth (%) (3.2) 43.1 (44.4) 54.4 (4.0) Net Profit Gth (Pre-ex) (%) 2.5 23.5 (42.7) 57.8 3.3 Margins Gross Margins (%) 21.7 21.7 21.2 21.8 21.9 Opg Profit Margins (%) 5.2 5.9 4.0 5.4 5.3 Net Profit Margins (%) 5.1 5.0 3.5 4.8 5.0
Balance Sheet (P m) FY Dec 2014A 2015F 2016F 2017F 2018F
Net Fixed Assets 9,657 11,149 12,779 14,276 15,624 Invts in Associates & JVs 520 3,425 3,469 3,518 3,572 Other LT Assets 23,606 26,783 26,783 26,783 26,783 Cash & ST Invts 11,823 9,764 9,010 12,349 16,566 Inventory 8,993 10,576 12,168 13,758 15,569 Debtors 1,529 1,774 2,665 3,020 3,423 Other Current Assets 1,367 1,688 1,688 1,688 1,688 Total Assets 57,496 65,160 68,563 75,392 83,225
ST Debt 56 2,845 2,845 2,845 2,845 Creditor 14,139 14,796 13,015 14,716 16,653 Other Current Liab 828 885 1,738 1,947 2,204 LT Debt 56 0 0 0 0 Other LT Liabilities 1,180 1,129 1,129 1,129 1,129 War chest – can be Shareholder’s Equity 39,648 43,524 47,622 52,278 57,616 easily liquidated Minority Interests 1,589 1,982 2,214 2,477 2,779 Total Cap. & Liab. 57,496 65,160 68,563 75,392 83,225
Non-Cash Wkg. Capital (3,077) (1,643) 1,768 1,803 1,824 Net Cash/(Debt) 11,711 6,920 6,165 9,504 13,721 Debtors Turn (avg days) 6.0 6.6 7.8 8.8 8.8 Creditors Turn (avg days) 77.5 76.0 63.5 56.0 56.0 Inventory Turn (avg days) 47.4 51.4 51.9 52.3 52.3 Asset Turnover (x) 1.5 1.5 1.6 1.6 1.7 Current Ratio (x) 1.6 1.3 1.5 1.6 1.7 Quick Ratio (x) 0.9 0.6 0.7 0.8 0.9 Net Debt/Equity (X) CASH CASH CASH CASH CASH Net Debt/Equity ex MI (X) CASH CASH CASH CASH CASH Capex to Debt (%) 3,337.0 109.3 120.4 123.8 127.2 Z-Score (X) 6.0 5.2 5.6 5.5 5.3 Source: Company, DBS Bank
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Company Guide Robinsons Retail Holdings
Cash Flow Statement (P m) FY Dec 2014A 2015F 2016F 2017F 2018F
Pre-Tax Profit 5,219 5,848 6,697 7,608 8,721 Dep. & Amort. 1,280 1,647 1,797 2,025 2,271 Tax Paid (1,385) (1,268) (688) (1,540) (1,750) Assoc. & JV Inc/(loss) (57) (40) (44) (49) (54) Chg in Wkg.Cap. (502) (1,366) (4,264) (244) (277) Other Operating CF (172) (372) 0 0 0 Net Operating CF 4,384 4,449 3,498 7,800 8,912 Capital Exp.(net) (3,727) (3,109) (3,426) (3,523) (3,619) Other Invts.(net) (17,704) (1,359) 0 0 0 Invts in Assoc. & JV (462) (4,144) 0 0 0 Div from Assoc & JV 0 84 0 0 0 Capex can be funded Other Investing CF (3,072) 1,694 0 0 0 by internally generated cashflow Net Investing CF (24,965) (6,835) (3,426) (3,523) (3,619) Div Paid (561) (729) (826) (939) (1,076) Chg in Gross Debt (396) 2,733 0 0 0 Capital Issues 1,301 0 0 0 0 Other Financing CF 79 167 0 0 0 Net Financing CF 422 2,172 (826) (939) (1,076) Currency Adjustments 0 0 0 0 0 Chg in Cash (20,159) (213) (754) 3,339 4,217 Opg CFPS (P) 3.5 4.2 5.6 5.8 6.6 Free CFPS (P) 0.5 1.0 0.1 3.1 3.8 Source: Company, DBS Bank
Target Price & Ratings History
P 89.15 Closing Target S.No. Date Rating 84.15 1 Price Price 1 27 May 16 78.40 88.00 HOLD 79.15 2 2 26 Aug 16 81.80 88.00 HOLD
74.15
69.15
64.15
59.15
54.15 Nov-15 Mar-16 Jul-16 Nov-16
Note: Share price and Target price are adjusted for corporate actions.
Source: DBS Bank Analyst: Regional Research Team
Page 9
South East Asia Industry Focus ASEAN Consumer: Food for Thought
ASEAN Consumer List
Bloomberg Code Acronyms Company Description EMP PM Equity EMP Emperador Manufactures and trades brandy, wine, and other similar alcoholic beverage products. FNN SP Equity FNN F & N F&N is a food and beverage company with interests in printing and publishing. It manufactures, markets and distributes dairy and non-alcoholic products in the region. HMPRO TB Equity HMPRO Home Product Center Home Product Center Public Company Limited is a retailer of building materials and home improvement products. ICBP IJ Equity Indofood CBP Indofood CBP Sukses Indofood CBP Sukses Makmur is a 80.5%-subsidiary Makmur of Indofood Sukses Makmur PT (INDF IJ). It is the Consumer Branded Products arm of INDF with noodles as its biggest revenue and profit contributor. Domestically, ICBP with its flagship brand Indomie captures the largest market share for instant noodles with 72%. Other segments of the company include: dairy, snack food, food seasoning, beverage, and nutritional food. INDF IJ Equity Indofood Indofood Sukses Makmur Indofood Sukses Makmur is the largest instant noodle and wheat flour manufacturer in Indonesia, has the highest market share in cooking oil and is also engaged in oil palm plantation (through its subsidiary, Indofood Agri Resources), and other branded food products including snack food, food seasoning, specialty and nutrition food, as well as dairy products. JFC PM Equity Jollibee Jollibee Foods Corp Owns, franchises and manages a network of fast food restaurants under the trade names Jollibee, Chowking, Greenwich, Red Ribbon, and Mang Inasal. KLBF IJ EQUITY Kalbe Kalbe Farma KLBF is one of the leading pharmaceutical companies in Indonesia. The company offers prescription and non-prescription drugs as well as nutritional and consumer health products. In addition, the company has distribution and logistics operations under PT Enseval. KTG SP Equity Katrina Katrina Group Katrina is an F&B Restaurant brand owner and operator in Singapore and China. Operates nine different F&B brands and concepts including Bali Thai, Streats, Rennthai, Bayang, Muchos, So Pho, Indobox, Hutoang and Honguo, serving mainly Indonesian, Chinese, Mexican and Vietnamese cuisines. LPPF IJ Equity LPPF Matahari Department Store PT Matahari Department Store Tbk operates a retail business that carries several types of products including clothes, accessories, bags, shoes, cosmetics, and household appliances.
Source: DBS Bank, Bloomberg Finance L.P.
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South East Asia Industry Focus
ASEAN Consumer: Food for Thought
ASEAN Consumer List
Bloomberg Code Acronyms Company Description MYOR IJ Equity MYOR Mayora Indah Mayora manufactures candies and cookies. The company markets its products under the Roma, Kis, Kopiko, Danisa, Beng Beng, Astor, Torabika Duo, Energen and Suklat brand names. Its subsidiaries process food, coffee powder, instant coffee and cocoa beans. MINT TB Equity MINT Minor International Minor International (MINT) is the leading hospitality and leisure business operator in Thailand. It is also the leader in Thailand's food & beverage industry with strong brand recognition. MAPI IJ Equity MAPI Mitra Adiperkasa Mitra Adiperkasa (MAPI) operates department stores and specialty stores, selling a broad range of goods including sporting apparel, clothing, food, and other merchandise. Its stores mainly cater to the middle- high/high-income segment and to date, it carries more than 140 brands and operates more than 1,800 stores nationwide, making it Indonesia’s largest retail store operator. MSM MK Equity MSM MSM Malaysia Holdings MSM is a major sugar producer in Malaysia with an annual capacity of over 1.1m tonnes. It produces, markets and sells refined sugar products. OTB MK Equity OldTown OldTown Berhad OldTown is a regional cafe chain operator (F&B) and an established beverage manufacturer (FMCG) based in Malaysia. As at FY15, the group derived 55% of its revenue from F&B and 45% from FMCG. PAD MK Equity Padini Padini Holdings Padini is a 43-year-old Malaysia-based fashion retailer offering clothing, accessories and shoes for women, men and children under the brands of Padini, Vincci, Seed, Miki, Padini Authentic, P&Co, PDI, etc. As of June 2015, the group operated 117 outlets in Malaysia and is the largest fashion retailer in terms of number of stores. PETRA SP Equity PETRA Petra Foods Petra Foods manufactures, markets and distributes confectionery products. Petra has a broad brand portfolio that extends across multiple product categories and different price points. Key markets are Indonesia, the Philippines, Singapore and Malaysia. Its brands command over 50% market share in Indonesia. PGOLD PM Equity PGOLD Puregold Price Club Puregold Price Club, Inc. operates as a retailer in the hypermarket, supermarket, discounter, and membership shopping format in the Philippines.
Source: DBS Bank, Bloomberg Finance L.P.
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South East Asia Industry Focus ASEAN Consumer: Food for Thought
ASEAN Consumer List
Bloomberg Code Acronyms Company Description QLG MK Equity QL QL Resources QL has three core businesses which are integrated livestock farming/ILF (chicken eggs, broilers, day-old chicks, feed), marine product manufacturing/MPM (surimi, surimi-based products, frozen food) and palm oil activities/POA (palm oil plantation, milling). RRHI PM Equity RRHI Robinsons Retail Holdings Robinsons Retail Holdings, Inc. operates as a retail company in the Philippines. Supermarkets, Department Stores, Hardware Stores, Convenience Stores, Drug Stores, and Specialty Stores are its main businesses. SSG SP Equity SSG Sheng Siong Group Sheng Siong is the third largest supermarket operator in Singapore, behind NTUC Fairprice and Dairy Farm International. SUPER SP Equity Super Super Group Ltd Super Group Ltd (Super) is a manufacturer, distributor and brand-owner of instant beverages and convenience food products. THBEV SP Equity THBEV Thai Beverage Public THBEV is a leading beverage producer in Thailand, with business segments spanning across spirits, beer, non-alcoholic beverages and food. Its key brands are Sangsom, Hong Thong and Chang. TU TB Equity TU Thai Union Frozen Products Thai Union Frozen Products Public Company Limited produces and exports frozen and canned seafood products including frozen tuna loin, shrimp and cephalopod. The company also produces canned pet foods from by-products of its seafood process. Additionally, the company also produces fish snacks and canned tuna which are marketed locally. UNVR IJ Equity UNVR Unilever Indonesia Unilever Indonesia manufactures soaps, detergents, margarine, oil and dairy-based foods, tea-based beverages, ice cream, and personal care products. URC PM Equity Universal Robina Universal Robina Corp Market leader in branded consumer foods. Also involved in hog and poultry farming, animal feeds, corn products, and animal health products.
Source: DBS Bank, Bloomberg Finance L.P.
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South East Asia Industry Focus
ASEAN Consumer: Food for Thought
DBS Bank recommendations are based an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return i.e. > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame) Share price appreciation + dividends
Completed Date: 9 Dec 2016 07:15: 20 (SGT) Dissemination Date: 9 Dec 2016 08:01:25 (SGT)
GENERAL DISCLOSURE/DISCLAIMER BY FIRST METRO SECURITIES All information contained herein is obtained by First Metro Securities from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, the information is provided “as is” without warranty of any kind and First Metro Securities, in particular, makes no representation or warranty, express or implied, as to the accuracy, timeliness, completeness, merchantability, or fitness for any particular purpose of any such information. Under no circumstances shall First Metro Securities or its directors, officers, analysts, and other duly authorized representatives (“Affiliated Persons”) ,or its Parent Company and the latter’s Affiliated Persons have any liability to any person or entity for any loss or damage in whole or in part caused by, resulting from, or relating to, any error (negligent or otherwise) or other circumstance or contingency within or outside the control of First Metro Securities. The information contained herein is, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell, or hold any securities. This document, and any opinion contained herein, must be weighed solely as one factor in any investment decision made by or on behalf of any user of the information contained herein, and each such user must accordingly make his/her own study and evaluation of each security and of each issuer that it may consider purchasing, selling, or holding.
ANALYST CERTIFICATION BY FIRST METRO SECURITIES The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report. As of 9 Dec 2016 the analyst and his / her spouse and/or relatives who are financially dependent on the analyst, do not hold interests of more than 1% in the securities recommended in this report (“interest” includes direct or indirect ownership of securities, directorships and trustee positions).
GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Bank Ltd. This report is solely intended for the clients of DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd, its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBS Bank Ltd.
The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the “DBS Group”)) do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies.
Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it may not contain all material information concerning the company (or companies) referred to in this report and the DBS Group is under no obligation to update the information in this report.
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ASEAN Consumer: Food for Thought
DBS Bank recommendations are based an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return i.e. > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame) Share price appreciation + dividends
Completed Date: 8 Dec 2016 19:11:00 Dissemination Date: 8 Dec 2016 19:50:27
GENERAL DISCLOSURE/DISCLAIMER BY FIRST METRO SEC All information contained herein is obtained by First Metro Securities from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, the information is provided “as is” without warranty of any kind and First Metro Securities, in particular, makes no representation or warranty, express or implied, as to the accuracy, timeliness, completeness, merchantability, or fitness for any particular purpose of any such information. Under no circumstances shall First Metro Securities or its directors, officers, analysts, and other duly authorized representatives (“Affiliated Persons”) ,or its Parent Company and the latter’s Affiliated Persons have any liability to any person or entity for any loss or damage in whole or in part caused by, resulting from, or relating to, any error (negligent or otherwise) or other circumstance or contingency within or outside the control of First Metro Securities. The information contained herein is, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell, or hold any securities. This document, and any opinion contained herein, must be weighed solely as one factor in any investment decision made by or on behalf of any user of the information contained herein, and each such user must accordingly make his/her own study and evaluation of each security and of each issuer that it may consider purchasing, selling, or holding.
ANALYST CERTIFICATION BY FIRST METRO SEC The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report. As of 24 Mar 2016 the analyst and his / her spouse and/or relatives who are financially dependent on the analyst, do not hold interests of more than 1% in the securities recommended in this report (“interest” includes direct or indirect ownership of securities, directorships and trustee positions).
GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Bank Ltd. This report is solely intended for the clients of DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd, its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBS Bank Ltd.
The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the “DBS Group”)) do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies.
Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it may not contain all material information concerning the company (or companies) referred to in this report and the DBS Group is under no obligation to update the information in this report.
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South East Asia Industry Focus
ASEAN Consumer: Food for Thought
DBS Bank recommendations are based an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return i.e. > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame) Share price appreciation + dividends
Completed Date: 8 Dec 2016 19:11:00 Dissemination Date: 8 Dec 2016 19:58:32
GENERAL DISCLOSURE/DISCLAIMER BY FIRST METRO SEC All information contained herein is obtained by First Metro Securities from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, the information is provided “as is” without warranty of any kind and First Metro Securities, in particular, makes no representation or warranty, express or implied, as to the accuracy, timeliness, completeness, merchantability, or fitness for any particular purpose of any such information. Under no circumstances shall First Metro Securities or its directors, officers, analysts, and other duly authorized representatives (“Affiliated Persons”) ,or its Parent Company and the latter’s Affiliated Persons have any liability to any person or entity for any loss or damage in whole or in part caused by, resulting from, or relating to, any error (negligent or otherwise) or other circumstance or contingency within or outside the control of First Metro Securities. The information contained herein is, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell, or hold any securities. This document, and any opinion contained herein, must be weighed solely as one factor in any investment decision made by or on behalf of any user of the information contained herein, and each such user must accordingly make his/her own study and evaluation of each security and of each issuer that it may consider purchasing, selling, or holding.
ANALYST CERTIFICATION BY FIRST METRO SEC The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report. As of 24 Mar 2016 the analyst and his / her spouse and/or relatives who are financially dependent on the analyst, do not hold interests of more than 1% in the securities recommended in this report (“interest” includes direct or indirect ownership of securities, directorships and trustee positions).
GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Bank Ltd. This report is solely intended for the clients of DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd, its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBS Bank Ltd.
The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the “DBS Group”)) do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies.
Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it may not contain all material information concerning the company (or companies) referred to in this report and the DBS Group is under no obligation to update the information in this report.
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South East Asia Industry Focus ASEAN Consumer: Food for Thought
This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned schedule or frequency for updating research publication relating to any issuer.
The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that:
(a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and (b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments stated therein.
Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets.
Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report.
DBS Vickers Securities (USA) Inc ("DBSVUSA")"), a U.S.-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage in market-making.
ANALYST CERTIFICATION The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in the report. The DBS Group has procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of research reports. As of 9 Dec 2016, the analyst(s) and his/her spouse and/or relatives who are financially dependent on the analyst(s), do not hold interests in the securities recommended in this report (“interest” includes direct or indirect ownership of securities). The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment banking function of the DBS Group and procedures are in place to ensure that confidential information held by either the research or investment banking function is handled appropriately.
COMPANY-SPECIFIC / REGULATORY DISCLOSURES 1. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates have proprietary positions in Thai Beverage Public Company, CP ALL, Sheng Siong Group, Minor International, Charoen Pokphand Foods, Home Products Center, FJ Benjamin Holdingsrecommended in this report as of 31 Oct 2016 2. DBS Bank Ltd does not market make in equity securities of the issuer(s) or company(ies) mentioned in this Research Report. 3. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates have a net long position exceeding 0.5% of the total issued share capital in FJ Benjamin Holdings, recommended in this report as of 31 Oct 2016. 4. Bank Ltd., DBSVS, DBSVUSA, their subsidiaries and/or other affiliates beneficially own a total of 1% of any class of common equity securities of FJ Benjamin Holdings as of 31 Oct 2016. 5. DBS Bank Ltd., DBSVS, DBSVUSA, their subsidiaries and/or other affiliates beneficially own a total of 5% of any class of common equity securities FJ Benjamin Holdings as of 31 Aug 2016.
Compensation for investment banking services: 3. DBS Bank Ltd., DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have received compensation, within the past 12 months for investment banking services from Courts Asia as of 31 Oct 2016.
4. DBS Bank Ltd., DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have managed or co-managed a public offering of securities for Courts Asia in the past 12 months, as of 31 Oct 2016.
5. DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively.
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South East Asia Industry Focus
ASEAN Consumer: Food for Thought
Disclosure of previous investment recommendation produced: 6. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates may have published other investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12 months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published by DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates in the preceding 12 months.
RESTRICTIONS ON DISTRIBUTION General This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.
Australia This report is being distributed in Australia by DBS Bank Ltd. (“DBS”) or DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”), both of which are exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act 2001 (“CA”) in respect of financial services provided to the recipients. Both DBS and DBSVS are regulated by the Monetary Authority of Singapore under the laws of Singapore, which differ from Australian laws. Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.
Hong Kong This report is being distributed in Hong Kong by or on behalf of, and is attributable to DBS Vickers (Hong Kong) Limited which is licensed and regulated by the Hong Kong Securities and Futures Commission and/or by DBS Bank (Hong Kong) Limited which is regulated by the Hong Kong Monetary Authority and the Securities and Futures Commission. Where this publication relates to a research report, unless otherwise stated in the research report(s), DBS Bank (Hong Kong) Limited is not the issuer of the research report(s). This publication including any research report(s) is/are distributed on the express understanding that, whilst the information contained within is believed to be reliable, the information has not been independently verified by DBS Bank (Hong Kong) Limited. This report is intended for distribution in Hong Kong only to professional investors (as defined in the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) and any rules promulgated thereunder.)
For any query regarding the materials herein, please contact Paul Yong (CE. No. ASE988) at [email protected].
Indonesia This report is being distributed in Indonesia by PT DBS Vickers Securities Indonesia.
Malaysia This report is distributed in Malaysia by AllianceDBS Research Sdn Bhd ("ADBSR"). Recipients of this report, received from ADBSR are to contact the undersigned at 603-2604 3333 in respect of any matters arising from or in connection with this report. In addition to the General Disclosure/Disclaimer found at the preceding page, recipients of this report are advised that ADBSR (the preparer of this report), its holding company Alliance Investment Bank Berhad, their respective connected and associated corporations, affiliates, their directors, officers, employees, agents and parties related or associated with any of them may have positions in, and may effect transactions in the securities mentioned herein and may also perform or seek to perform broking, investment banking/corporate advisory and other services for the subject companies. They may also have received compensation and/or seek to obtain compensation for broking, investment banking/corporate advisory and other services from the subject companies.
Wong Ming Tek, Executive Director, ADBSR
Singapore This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn No. 198600294G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 6327 2288 for matters arising from, or in connection with the report.
Thailand This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd. Research reports distributed are only intended for institutional clients only and no other person may act upon it.
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