Etika International Holdings Ltd

Transcription

1 Results Update Neutral Current Price 5 December 2011 Fair Value Source: Bloomberg S$0.265 S$0.28 Angelia Phua angelia.phua@nracapital.com Historical Chart Source : Bloomberg Stock Statistics Market Cap S$141.7m 52-HI S$ LOW S$0.25 Avg Vol 243,063 Shares Outstanding 534.6m Free Float 168.1m Key Indicators ROE 13.5% ROA 4.6% P/BK 1.6x Gearing 1.7x Major Shareholders Healthy volume growth but selling prices trailing rising costs FY11 PATMI of RM28.8m is below our expectations due to higher than expected costs of sales. Excluding negative goodwill, 4QFY11 PATMI broke-even, making marginal gains, compared to profits of RM2.9m in 3QFY11 and RM17.5m in 4QFY10 due to steep rises in costs of raw materials as well as time lag between selling price hikes and rising raw material costs. Core business FY11 PATMI fell 72.2% YoY to RM18.4m, below our expectations of RM25.8m, due to weaker performances from all business units, particularly Dairies, which saw a 45.8% decline in PAT, and RM3.8m losses in Frozen Food. A final dividend of 0.7Scts per share has been declared. Export markets to drive growth at Dairies but selling price hike to trail behind rising costs. Strong exports demand to the regional markets will be the key driver to growth at Dairies. To support the growth, capacity expansion of up to 30% in Indonesia and Vietnam are underway and expected to contribute to the bottomline by FY13. However, the ability to pass on rising raw material cost to consumers remains a challenge due to price resistance faced in exports markets, particularly when the US dollar strengthens against the domestic currency of export markets, and as Etika continues to take leads on price hike from the top player in the Dairies industry in Malaysia. In view that soft commodity prices are likely to stay firm, we expect gross profit margins (GPM) to remain under pressure, although diversification efforts to higher-margin milk products such as fresh milk and ready-to drink products will mitigate impact. Other divisions. Packaging will continue to ride on growth in the Dairies. Frozen Food division caters to the upper niche market of the consumer food business. In the face of the global economic slowdown, changing consumer-spending behavior along with intense competition prevalent in the FMCG trading industry, the outlook for Frozen Food is expected to be subdued. But promising growth in higher-margin businesses, particularly in Bakery, will mitigate margin pressure. Nutrition will continue to face keen competition with the entry of US competitors into Australia and New Zealand as well as margin pressure arising from rising raw material costs. However, focus on new product offering will help to mitigate margin pressure. Valuation and Recommendation. Etika is expected to benefit from growing consumption of liquid-dairy products, particularly with the expansion of middle income class in Asia. However, the stubbornly high raw material costs as well as higher operating costs for the expansion of distribution network in existing and new export markets are expected to pressure GPM and the bottomline in the short to medium term. We are expecting core earnings to dip 1.6% (FY12F) followed by growth of 73% (FY13F), lifted by higher profits or turnaround of newly acquired businesses and capacity expansion. We value Dairies at PER of 18x (FY13), Packaging :PER of 5x (FY13), Nutrition :PER of 16x (FY13) and Beverage : PER of 10x (FY12). We raise our discount to valuation to 30% (previously 20%), to account for ongoing risk of GPM pressure, and revise our 12-month target price to 28.0Scts (previously 41.0 Scts). Neutral. Tan Family 52.19% page 1

2 Key Financial Data RMm YE 30 Sep FY09 FY10 FY11 FY12F FY13F Sales ,083.8 Gross Profit Net Profit EPS (RM cents) EPS growth (%) PER (x) DPS (RM cents) Div Yield (%) Result Review 4QFY11 losses of RM3.9m was dragged down by goodwill adjustment of RM4.0 arising from the acquisition of PT Sentrafood Indonusa (PTSI) and PT Sentraboga Intiselera, an instant noodle business. Excluding negative goodwill, 4QFY11 PATMI broke-even, making marginal gains, compared to profits of RM2.9m in 3QFY11 and RM17.5m in 4QFY10. Despite revenue growth of 28.8% YoY and 10.1% QoQ to RM236.9m, the bottomline was dragged down due to time lag between selling price hikes and steep increases in costs of raw materials, including milk powder, palm oil, flour and particularly sugar following the withdrawal of sugar subsidy by the Malaysian government, which resulted in a 37.5% YoY and 16.7% QoQ rise in costs of sales. Accordingly, gross profits inched up 0.2% YoY but fell 12.6% QoQ to RM42.7m while GPM fell 5.2% points YoY and 4.7% points QoQ to 18% in 4QFY11. One-off fees further dragged down 4QFY11 profits. Operating profits were further dragged down by the inclusion of one-off fee of RM8m associated with a RM368m syndicated loan facility used to fund business expansion and acquisitions and one-off RM5m costs relating to fair value expenses of the share options granted to management staff. Soft FY11 performance largely due to weakness in Dairies and losses in Frozen Foods. Excluding negative goodwill, FY11 PATMI fell 72.2% YoY to RM18.4m, below our expectations of RM25.8m, due to weaker performance from all business units, particularly Dairies. Despite volume growth in both domestic and exports markets, PAT at Dairies fell 45.8% to RM29.7m due to time lag between increases of 21% in raw material costs and selling price hike of 15% during the year. PAT at Packaging fell 11.5% to RM6.0m largely due to a 20% reduction in external sales revenue as more resources were dedicated to support the growing Dairies business. Others (Nutrition and Beverage) suffered a 16.6% decline in PAT to RM5.1m largely due to keen competition arising from a significant influx of US nutritional products in the Australian market, one of the two key markets of Nutrition. Further dragging down the bottomline was losses of RM3.8m from Frozen Foods due to losses from PTSI and the FMCG distribution business which continued to face intense competition. page 2

3 Gearing inched higher with expansion. As at 30 Sep 2011, gearing inched higher to 1.68x from 1.6x at 30 June 2011 due to higher utilisation of trade facilities which grew in tandem with growing sales of the core businesses, as well as financing facilities utilised for acquiring new businesses in Malaysia and Indonesia. Management declared a final dividend of 0.7 Scts per share in FY11 (FY10 : 1.25 Scts per share). Including an interim dividend of 0.5Scts per share (FY11) (FY10 : 1.0 Scts per share), total dividend amounted to 1.2Scts in FY11 (FY10 : 2.25 Scts per share). 4QFY2011 Results Profit & Loss (RMm) YoY QoQ YoY Year end: 30 Sep 4QFY11 4QFY10 % Chg 4QFY11 3QFY11 % Chg FY11 FY10 % Chg Revenue % % % Cost of Sales (194.2) (141.2) 37.5% (194.2) (166.3) 16.7% (699.1) (503.5) 38.8% Gross Profit % % % Negative goodwill (4.0) - nm (4.0) - nm nm Operating Expenses (37.9) (21.7) 75.2% (37.9) (38.5) -1.5% (136.2) (86.4) 57.6% Administrative exp (17.2) (5.6) 207.2% (17.2) (17.3) -0.6% (52.9) (32.3) 63.8% Selling & Marketing exp (12.1) (7.4) 62.9% (12.1) (10.8) 12.3% (44.1) (28.7) 53.8% Warehouse & distri exp (7.2) (2.7) 170.6% (7.2) (9.9) -27.8% (33.3) (23.9) 39.2% Research & dev exp (0.4) (0.2) 84.5% (0.4) (0.5) -12.3% (1.7) (1.0) 59.6% Other operating expenses (net) (1.1) (5.8) -81.0% (1.1) (0.1) % (4.2) (0.5) 807.3% Operating Profit % % % Finance Costs (6.4) (2.0) 220.7% (6.4) (6.8) -6.8% (20.6) (8.2) 150.5% - Pre-tax Profit (5.6) % (5.6) 3.6 nm % Income tax 1.6 (1.6) nm 1.6 (0.8) nm (5.6) (13.7) -59.2% Minority interest % % % Net Profit (3.9) 17.5 nm (3.9) 2.9 nm % page 3

4 Profit & Loss YE 30 September (RMm) 2009A 2010A 2011A 2012F 2013F Revenue ,083.8 Cost of Sales (447.8) (503.5) (699.1) (802.2) (879.3) Gross Profit Operating Income Negative goodwill Administrative expenses (30.2) (32.3) (52.9) (49.2) (48.8) Selling & Marketing exp. (24.7) (28.7) (44.1) (49.4) (54.3) Warehouse & distribution exp (22.0) (23.9) (33.3) (35.4) (37.0) Research & Development exp (1.0) (1.0) (1.7) (1.9) (2.1) Other operating expenses (2.9) (2.8) (8.3) (3.3) (3.3) Operating Profit Net interest (7.4) (8.2) (20.6) (26.0) (24.5) Exceptional Items Profits from Associated Co Pre-tax Profit Income tax (9.8) (13.7) (5.6) (5.6) (9.9) Minority Interests (0.0) (0.0) (0.0) Net Profit page 4

5 Balance Sheet YE 30 September (RMm) 2009A 2010A 2011A 2012F 2013F Cash & Fixed Deposit Trade Receivables Inventory Other current assets Current Assets Property, Plant and Equipment Others Non-current Assets Bank Borrowings Bank OD Trade Payable Others Current Liabilities Bank Borrowings Others Non-current Liabilities Shareholder's Equity page 5

6 Cash Flow YE 30 September (RMm) Cash flow from Operating activities 2009A 2010A 2011A 2012F 2013F Pre-tax profits Adjustments Operating cash flow before working capital Changes in working capital 24.0 (72.8) (33.2) (1.5) (21.6) Tax paid & others (8.6) (13.6) (20.3) (5.6) (9.9) Net cash generated from operations Cash flow from investing activities Acquisition of subsi., net of cash (1.3) (27.5) (103.4) (1.0) (0.0) Property, plant & equipment (36.0) (22.6) (30.8) (39.3) (24.3) Others (0.3) Net cash from investing activities (36.8) (49.9) (134.4) (38.2) (22.7) Cash flow from financing activities Loans (31.4) (1.2) Others (24.8) (26.5) (37.1) (38.2) (37.1) Net cash from financing activities (56.3) (27.0) (38.3) Net change in cash (30.1) 2.2 (1.7) Cash balance at beginning of year (4.7) (2.1) Other adjustments 0.4 (2.8) (0.6) Cash balance at end of year (net of OD & adjms) (4.7) (2.1) (4.3) page 6

7 NRA Capital Pte. Ltd ( NRA Capital ) has received compensation for this valuation report. This publication is confidential and general in nature. It was prepared from data which NRA Capital believes to be reliable, and does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. No representation, express or implied, is made with respect to the accuracy, completeness or reliability of the information or opinions in this publication. Accordingly, neither we nor any of our affiliates nor persons related to us accept any liability whatsoever for any direct, indirect, special or consequential damages or economic loss that may arise from the use of information or opinions in this publication. Opinions expressed are subject to change without notice. NRA Capital and its related companies, their associates, directors, connected parties and/or employees may own or have positions in any securities mentioned herein or any securities related thereto and may from time to time add or dispose of or may be materially interested in any such securities. NRA Capital and its related companies may from time to time perform advisory, investment or other services for, or solicit such advisory, investment or other services from any entity mentioned in this report. The research professionals who were involved in the preparing of this material may participate in the solicitation of such business. In reviewing these materials, you should be aware that any or all of the foregoing, among other things, may give rise to real or potential conflicts of interest. Additional information is, subject to the duties of confidentiality, available on request. You acknowledge that the price of securities traded on the Singapore Exchange Securities Trading Limited ("SGX-ST") are subject to investment risks, can and does fluctuate, and any individual security may experience upwards or downwards movements, and may even become valueless. There is an inherent risk that losses may be incurred rather than profit made as a result of buying and selling securities traded on the SGX- ST. You are aware of the risk of exchange rate fluctuations which can cause a loss of the principal invested. You also acknowledge that these are risks that you are prepared to accept. You understand that you should make the decision to invest only after due and careful consideration. You agree that you will not make any orders in reliance on any representation/advice, view, opinion or other statement made by NRA Capital, and you will not hold NRA Capital either directly or indirectly liable for any loss suffered by you in the event you do so rely on them. You understand that you should seek independent professional advice if you are uncertain of or have not understood any aspect of this risk disclosure statement or the nature and risks involved in trading of securities on the SGX-ST. page 7