Etika International Holdings Ltd

Transcription

1 1QFY13 Results Update 14 February 2013 Outperform Current Price Fair Value Stock Statistics S$0.415 S$0.475 Market cap S$253.8m 52-low S$ high S$0.505 Avg daily vol 1,720,764 No. of share 611.7mil Free float 30.5% Key Indicators ROE 13F 14.2% ROA 13F 4.2% P/BK* 2.33x Gearing* 1.68x *As at 31 Dec 2012 Major Shareholders Tan Brothers 30.10% Tee Yih Jia Food Mfg 12.26% Source: Bloomberg Historical Chart Angelia Phua (+65) A firmer gross profit margin in FY13 Improved 1QFY13 PATMI due to easing raw material costs and lower tax rate. 1QFY13 PATMI of RM8.6m grew 59.5% YoY and 29.1% QoQ on the back of revenue growth of 4.7% YoY and 9.1% QoQ to RM258.2m. The stronger performance was largely the result of better sales from the Trading and Frozen Food and Others Divisions, namely the beverage and noodle businesses. Revenue from Dairies, the key revenue contributor, however, dipped in 1QFY13, dragged by weaker sales volume and selling prices of the exports market due to intense competition particularly to the African market. Growing revenue and a reduction in key raw material costs, mainly skimmed milk powder, buttermilk power, whey milk powder and sugar resulted in an improvement in gross profit margin (GPM) by 2.4% points YoY and 0.2% points QoQ to 22.5% in 1QFY13. A lower tax rate of 21.9% (1QFY12 : 23.9%; 4QFY12 :27.9%) as a result of reversal of deferred tax asset of the loss-making noodle subsidiary PT Sentrafood Indonusa (PTSI) further lifted the bottomline. 1QFY13 PATMI of RM8.6m amounted to 27.6% of our FY13 PATMI estimate of RM31.2 and is marginally above our expectations. In view of lower than expected effective tax rate and abating losses at PTSI, we revised our FY13 PATMI forecast 12% higher. Expect firmer GPM at Dairies in FY13; strong growth opportunities in China. Dairies will remain the key contributor and growth driver for Etika, underpinned by strong export demand from the regional markets whilst the domestic market continues to provide a relatively steady source of revenue. A recent investment by Tee Yih Jia Food Manufacturing, which has a strong presence in China, now offers Etika a new potential export destination with tremendous growth opportunities. The expected commercial production at the sweetened condensed milk (SCM) plant in Surabaya in March 2013 will provide about 15% additional capacity and support the regional export drive in FY13 while the commercial production of new UHT products in Malaysia in Dec 2012, which marks Etika s entry into the larger UHT market in Malaysia (compared to the SCM market), will provide additional source of revenue, also in FY13. In view of relatively stable key raw material prices in the near-term and the introduction of new highermargin milk products, GPM at Dairies are expected to hold firm in FY13 despite keen competition in the export market. Benefitting from economies of scale and restructuring. At Trading and Frozen Foods, scaling-up efforts at the Bakery operations and the closure of a loss-making FMCG unit will lift the bottomline. The opening of the first outlet of Texas Chicken fastfood restaurant in Klang Valley has received overwhelming response and scaling-up efforts will enable the Group to achieve profitability, expected in FY14. Currently, plans are underway to open three additional outlets, also in the Klang Valley. The outlook for Nutrition remains subdued with intense competition from US products and weaker consumer sentiment in Australia and New Zealand. However, encouraging demand for dairy and juice products from the new UHT Aseptic bottling plant in New Zealand from the domestic market as well as export markets in China and Japan will help to lift the division s bottomline. Others will benefit from growing profitability of the packaging operations, which will pace strong growth at Dairies, while improving sales at PTSI will contain losses and turnaround the division, expected by FY14. Valuation and Recommendation. Etika will benefit from growing economies of scale in the long term and a firmer GPM ensuing from stabilising raw material prices in the near term. We maintain our overall GPM but lower the effective tax rates in view of abating losses from PTSI. We also maintain our view that scaling-up efforts will be reflected in 2QFY13 results onwards and are expecting strong core earnings growth of 60% (FY13F) (previously +42%) lifted by capacity expansion for SCM in Indonesia, improving margins at Trading & Frozen Food, commercial production at the UHT Aseptic bottling plant in New Zealand and reduced losses at PTSI, followed by growth of 34%, as previously, from scaling-up efforts. We raise our valuation on Dairies to PER of 20x (FY14F) (previously PER of 17x (FY13F)) which is still conservative relative to industry PER of about 23x (FY14F), and value Frozen Foods at PER : 7x (FY14F) (previously PER : 7x (FY13F), Nutrition :PER of 13x (FY14F) (previously PER : 14x (FY13F). In view of improved liquidity, we reduce our discount to valuation to 10% from 30% and raised the target price to 47.5Scts (previously 25 Scts). Maintain Outperform.

2 Key Financial Data (RM m, FYE Sep) A 2013F 2014F Sales , ,181.7 Gross Profit Net Profit EPS (cents) EPS growth (%) 4.7 (58.9) (18.8) PER (x) NAV/share (cents) DPS (cents) Dividend Yield (%) Results comparison 1QFY2013 Results Profit & Loss (RMm) YoY QoQ Year end: 30 Sep 1QFY13 1QFY12 % Chg 1QFY13 4QFY12 % Chg Revenue % % Cost of Sales (200.2) (197.2) 1.5% (200.2) (183.9) 8.9% Gross Profit % % Negative goodwill - - nm - - nm Operating Expenses (41.0) (37.0) 10.7% (41.0) (37.7) 8.7% Administrative expenses (12.5) (11.7) 6.1% (12.5) (11.5) 8.0% Selling & Marketing expenses (16.4) (13.1) 25.6% (16.4) (16.9) -2.6% Warehouse and distribution expenses (12.8) (12.5) 2.3% (12.8) (5.9) 119.0% Research & development expenses (0.8) (0.5) 44.2% (0.8) (0.6) 35.9% Other operating expenses (net) % 1.5 (2.9) nm Operating Profit % % Finance Costs (6.7) (5.6) 19.3% (6.7) (6.7) -0.4% Pre-tax Profit % % Income tax (2.3) (1.6) 37.2% (2.3) (2.3) -2.1% Minority interest % % Net Profit % % Source: Company, NRA Capital page 2

3 Profit & Loss YE 30 September (RMm) 2010A 2011A 2012A 2013F 2014F Revenue , ,181.7 Cost of Sales (503.5) (699.1) (780.2) (842.9) (937.0) Gross Profit Operating Income Negative goodwill Administrative expenses (32.3) (52.9) (46.0) (44.7) (44.7) Selling & Marketing exp. (28.7) (44.1) (59.3) (64.0) (71.1) Warehouse & distribution exp (23.9) (33.3) (38.8) (37.7) (39.0) Research & Development exp (1.0) (1.7) (2.3) (2.5) (2.8) Other operating expenses (2.8) (8.3) (6.4) (6.2) (6.2) Operating Profit Net interest (8.2) (20.6) (25.6) (25.8) (26.6) Exceptional Items Profits from Associated Co Pre-tax Profit Income tax (13.7) (5.6) (9.4) (9.5) (12.1) Minority Interests Net Profit page 3

4 Balance Sheet YE 30 September (RMm) 2010A 2011A 2012A 2013F 2014F 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 4

5 Cash Flow YE 30 September (RMm) Cash flow from Operating activities 2010A 2011A 2012A 2013F 2014F Pre-tax profits Adjustments Operating cash flow before working capital Changes in working capital (72.8) (33.6) 20.1 (11.8) (4.5) Tax paid & others (13.6) (20.9) (16.1) (15.5) (12.1) Net cash generated from operations Cash flow from investing activities Acquisition of subsi., net of cash (27.5) (103.4) Property, plant & equipment (22.6) (40.6) (72.0) (48.8) (49.4) Others (0.4) 1.5 (0.0) Net cash from investing activities (49.9) (144.5) (83.8) (47.2) (49.4) Cash flow from financing activities Loans (13.7) Net proceeds from issue of new shares Dividends paid (19.1) (22.5) (15.7) (11.3) (14.8) Others (7.3) (17.9) (23.1) (29.7) (29.8) Net cash from financing activities (11.4) (58.3) Net change in cash 4.7 (28.8) (4.3) Cash balance at beginning of year (3.1) Other adjustments (2.8) (0.1) (0.4) Cash balance at end of year (net of OD & adjms) 25.3 (3.1) page 5

6 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 6