GRUPO BACHOCO, S.A.B. DE C.V. Highlights of Company Visit and Plant Tour BUY. September 27, 2013

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1 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 GRUPO BACHOCO, S.A.B. DE C.V. Highlights of Company Visit and Plant Tour September 27, 2013 Visit reinforced positive view of the company. We visited with top management at their headquarters in Celaya, Guanajuato and the visit reinforced our positive view of the company. We discussed a number of topics and toured local production facilities which we elaborate below. As a result we maintain our estimates and reiterate our BUY rating and MP55.00 YE 2013 price target. Biggest potential impact of fiscal reform is elimination of special fiscal regime. Bachoco presently benefits from a special regime that taxes the industry at 21% (vs. the 30% generalized corporate rate). While Bachoco and others are lobbying against it on an industry wide basis, it is difficult at this point to estimate the outcome. Worse-case scenario is that Bachoco s tax rate will rise to 30%, though likely the increase will be phased on a multi-year basis. Another potential effect is the limitation of deductions on employee benefits, to a 47% maximum deductibility (from 100% at present) which the company could mitigate by reducing benefits. No effect from elimination of fiscal consolidation. Bachoco does not use fiscal consolidation. In terms of the effect of reduced disposable income on middle class consumers, the potential impact would likely be minor as eggs and chicken products are price inelastic. As far as the effect of the elimination of accelerated depreciation on new investment, Bachoco presently does not benefit as this advantage is not available due to their special regime. Effect of hurricanes is relatively mild. No farms or production facilities were affected by hurricanes Manuel and Ingrid, though deliveries for a couple of days were hampered in many places. However, they do not expect the effect will alter the 3Q performance. One major advantage that Bachoco has is its geographic diversification of farms and production facilities which mitigates environmental risks (weather, earthquake, avian flu, etc). Stock performance BUY Ticker BACHOCOB Target Price Last Price $ Expected Return 29.2% 2013E Div. Yield 1.3% Total Return 30.5% LTM Price Range $ / $45.45 Market Cap. (m.n.) 25,542 Shares Outstanding (m.n) 600 Source: Bloomberg Bachoco IPC CONTINUED OPERATING INDICATORS E 2014E 2015E Sales 27,738 39,348 41,867 45,277 47,157 EBITDA 716 3,482 4,438 4,061 4,258 Net Profit 128 2,161 3,173 2,685 2,880 EPS $ 0.21 $ 3.60 $ 5.29 $ 4.48 $ 4.80 Net Debt (1,157) (2,397) (5,933) (7,181) (8,866) Sales Growth 12% 42% 6.4% 8% 4% EBITDA Growth (77%) 386% 27% (8%) 5% EBITDA Margin 2.6% 8.8% 10.6% 9.0% 9.0% Net Debt / EBITDA (1.6x) (0.7x) (1.3x) (1.8x) (2.1x) MULTIPLES E 2014E 2015E EV / EBITDA 36.0x 7.0x 4.7x 4.9x 4.2x P/E 210.3x 12.4x 8.5x 10.0x 9.3x FCF Yield (4.0%) 1.3% 10.9% 5.7% 6.9% Dividend Yield 1.1% 1.1% 1.3% 1.5% 1.6% P/BV 1.7x 1.4x 1.2x 1.1x 1.0x Source: Company data, Actinver. 1 Gustavo Teran, CFA gteran@actinver.com.mx +52 (55) x 1193 Toe Matsumura tmatsumura@actinver.com.mx +52 (55) x1841 Eduardo Fonseca Fons efonseca@actinver.com.mx +52 (55) x 4122 Actinver Corporate Headquarters 1200 Guillermo González Camarena Floor 5, Santa Fé México, D.F

2 3Q results will be substantially lower YoY due to difficult comparison. We validated our 16% projected 3Q13 YoY decline in net income and EPS. The year earlier period included an unusually strong gross profit margin of 15.7% for the period, typically the weakest of the four seasons (we are estimating a reduction to 14.6% in 3Q13). On a QoQ basis, we are projecting a 62% reduction in EPS as the second quarter included a very strong 23.8% margin even after a MP 300 million inventory avian-flu related write-off due to the price increases in chicken and eggs caused by the same. Projecting a reduced gross margin for 2014 and We also validated our reduced margin projection for Our 2013 gross margin estimate of 17% is the strongest since 2010 boosted by price increases related to the avian flu, as well as reduced raw material costs (mainly corn). For 2014 and 2015 we are estimating the margin at 15% both years. Corn prices are under control with positive harvest outlooks for both Mexico and the US. Biggest risk to projection is gross profit margin. We recognize that this is the biggest risk to our projection and the margin tends to run in cycles. By 2015, at 15%, it will be the fourth year of robust margin (10.7% in 2011 followed by 15.2%/17%/15%/15%), compared to a two year good cycle that ended in 2011 (17%/21%/10.7%) and it followed a three year strong cycle that ended in 2008 (28%/22%/21%/13%). But this is the main reason that Bachoco s valuation typically is well below food industry sector valuations. Our EV/2013 EBITDA valuation is at only 4.7x, compared to an average of 7.8x for Mexican peers and 8.2x for international peers. Bachoco is open to future expansion in the US and South America. With its unusually strong balance sheet (historically very conservative with low leverage), Bachoco is open to acquisitions in the US and even in Central/South America. After its successful acquisition of OK Foods in November 2011 (for USD 95 million, 4x EV/EBITDA) we expect Bachoco to look more towards the US market for additional opportunities but only at very attractive valuations. The US operation presently accounts for 20% of revenues. In South America, were Bachoco presently has no presence, the company has held discussions with local players and would consider transactions in Colombia, Peru, Chile, though we believe Bachoco will tread carefully given its conservative philosophy. Market share, volume update. In Mexico Bachoco has a 35% share of the poultry market (with next two players far behind: Pilgrims at 13%, Tyson s at 11%). In the Mexico egg market, Bachoco is second with 6-7% of the market, next to San Juan with a 12-13% share. In the US, Bachoco now has a 2% participation in the poultry market after two acquisitions. The Mexican poultry industry is growing at 2-3% per year, whereas the egg segment grows at a slower 1%, with Bachoco typically growing 1% or 2% ahead of the industry. Plant tour reveals Bachoco s high standards and impresive productivity. In our plan visit, we were very impressed with the high level of automation, hygiene, quality controls and management. The plant in Celaya mostly distributes to the central and southern regions of Mexico and proceses about 1.6 million chickens per (CONTINUED) 2

3 week, which represent over 3K tons of chicken. In terms of number of chickens, this is not the company s largest plant, but in terms of weight, it represents close to 30% of the company s production. In total, in Mexico, the company processes about 10 million chickens per week. The processes in the plant are highly automated, with state of the art machinery. The company renovates all of its machinery frequently, to have the most modern technology for chicken processing. Reiterate BUY rating with MP price target. Our price target is based on a DCF valuation with main assumptions being 7% WACC, 5% risk free rate, adjusted beta of 0.35 and 0.5% perpetuity. 3

4 INDUSTRIAS BACHOCO, S.A.B. DE C.V. (Figures in Millions of Pesos) INCOME STATEMENT E 2014E 2015E E 2014E 2015E Sales 27,738 39,348 41,867 45,277 47,157 12% 42% 6% 8% 4% Cost of Sales (24,817) (33,358) (34,767) (38,485) (40,083) 27% 34% 4% 11% 4% Gross Profit 2,921 5,990 7,100 6,791 7,073 (44%) 105% 19% (4%) 4% Gross Margin 10.5% 15.2% 17.0% 15.0% 15.0% General Expenses (2,980) (3,371) (3,392) (3,708) (3,819) 9% 13% 1% 9% 3% Profit Before Other Income and Expenses (60) 2,619 3,708 3,084 3,254 (102%) (4,496%) 42% (17%) 6% Margin (0.2%) 6.7% 8.9% 6.8% 6.9% Other Income and Expenses (18) (29) (86%) 66% (676%) (29%) (1%) Operating Profit (77) 2,592 3,877 3,204 3,373 (103%) (3,453%) 50% (17%) 5% Operating Margin (0.3%) 6.6% 9.3% 7.1% 7.2% Depreciation and Amortization (775) (900) (695) (978) (1,003) 16% 16% (23%) 41% 3% EBITDA 716 3,482 4,438 4,061 4,258 (77%) 386% 27% (8%) 5% EBITDA Margin 2.6% 8.8% 10.6% 9.0% 9.0% Financial Gain % 1% (16%) (17%) 16% Financial Cost (102) (123) (105) (12%) 20% (15%) (118%) 249% Pre-Tax Profit 101 2,745 4,006 3,419 3,667 (96%) 2,612% 46% (15%) 7% Taxes and Profit Sharing 29 (583) (833) (734) (787) (106%) (2,103%) 43% (12%) 7% Tax and Profit Sharing Rate (28.8%) 21.3% 20.8% 21.5% 21.5% Profit from Continuing Operations 130 2,162 3,173 2,685 2,880 (93%) 1,559% 47% (15%) 7% Discontinued Operations 0 (3) N.A. N.A. N.A. N.A. N.A. Net Profit Before Minorities 130 2,159 3,173 2,685 2,880 (93%) 1,556% 47% (15%) 7% Minority Interest (3) N.A. N.A. N.A. N.A. N.A. Net Profit 128 2,161 3,173 2,685 2,880 (94%) 1,592% 47% (15%) 7% N of Shares (0%) 0% 0% 0% 0% EPS MP 0.21 MP 3.60 MP 5.29 MP 4.48 MP 4.80 (94%) 1,592% 47% (15%) 7% BALANCE SHEET E 2014E 2015E E 2014E 2015E TOTAL ASSETS 23,390 27,649 27,157 28,986 30,719 10% 18% (2%) 7% 6% Current Assets 11,862 14,089 12,973 14,239 15,536 15% 19% (8%) 10% 9% Cash and Temporary Investments 3,036 5,138 5,200 5,800 6,600 (27%) 69% 1% 12% 14% Long Term Assets 11,528 13,560 14,184 14,747 15,183 6% 18% 5% 4% 3% Property, Plant & Equipment 11,032 11,509 12,027 12,409 12,666 4% 4% 5% 3% 2% LT Biological Assets ,010 1,070 N.A. N.A. 1% 6% 6% Intangible Assets % 0% 0% 0% 0% Other Long Term Assets ,026 1,146 N.A. N.A. 12% 13% 12% TOTAL LIABILITIES 7,195 8,925 5,405 4,948 4,241 49% 24% (39%) (8%) (14%) Current Liabilities 4,450 4,801 1,515 1, % 8% (68%) (27%) (67%) Long Term Liabilities 415 4,123 3,890 3,849 3,883 (18%) 893% (6%) (1%) 1% TOTAL DEBT 1,879 2,741 (733) (1,381) (2,266) 190% 46% (127%) 88% 64% NET DEBT (1,157) (2,397) (5,933) (7,181) (8,866) (67%) 107% 148% 21% 23% TOTAL CAPITAL 16,194 18,724 21,752 24,038 26,478 (1%) 16% 16% 11% 10% Shareholder's Equity 16,140 18,665 21,676 23,953 26,385 (1%) 16% 16% 11% 10% Minority Interest % 11% 28% 11% 10% CASH FLOW STATEMENT E 2014E 2015E E 2014E 2015E PRE-TAX PROFIT 101 2,743 4,007 3,419 3,667 (96%) 2,607% 46% (15%) 7% Investment Activity Related Items % (7%) (0%) 37% (1%) Depreciation and Amortization ,003 12% 5% (15%) 41% 3% Gain (Loss) on Sale of P, P & E (96%) 2,112% 165% (13%) 0% Financing Activities (62) (109) 248% (65%) (30%) (199%) 75% Pre-Tax Cash Flow 1,920 3,560 4,426 4,352 4,548 (52%) 85% 24% (2%) 4% Working Capital Changes (948) (1,738) 358 (613) (603) 55% 83% (121%) (271%) (2%) Cash Flow from Operations (2,123) 1,822 4,783 3,739 3, % (186%) 162% (22%) 6% Cash Flow from Investment (2,123) (346) (1,866) (2,876) (2,776) 416% (84%) 439% 54% (3%) CAPEX (662) (836) (777) (1,300) (1,200) 18% 26% (7%) 67% (8%) Sale of P, P & E (84) N.A. N.A. N.A. N.A. N.A. Other Items (108) 257 (1,207) (1,609) (1,609) 83% (338%) (569%) 33% 0% Cash Flow from Financing (2,855) (242%) (32%) (556%) (115%) (54%) Dividends Paid (300) (300) (355) (400) (440) N.A. N.A. N.A. N.A. N.A. Interests Paid 0 (90) (63) N.A. N.A. (30%) (199%) 75% Other Items ,035 1,411 1,411 (124%) 7,964% 742% N.A. N.A. Net Incr. (Decr.) in Cash and T.I. (1,141) 2, (173%) (284%) (97%) 869% 33% Net Cash and T.I. Beginning of Period 4,177 3,036 5,138 5,200 5,800 64% (27%) 69% 1% 12% Net Cash and T.I. End of Period 3,036 5,138 5,200 5,800 6,600 (27%) 69% 1% 12% 14% Source: Actinver 4

5 Analyst Certification for the following Analysts: Pablo Adolfo Riveroll Sanchez Jaime Ascencio Federico Robinson Gustavo Terán Martin Lara Michel Gálvez Ramón Ortiz Roberto Galván The analyst(s) responsible for this report, certifies(y) that the opinion(s) on any of the securities or issuers mentioned in this document, as well as any views or forecasts expressed herein accurately reflect their personal view(s). No part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this document. Any of the business units of Grupo Actinver or its affiliates may seek to do business with any company discussed in this research document. Any past or potential future compensation received by Grupo Actinver or any of its affiliates from any issuer mentioned in this report has not had and will not have any effect our analysts compensation. However, as for any other employee of Grupo Actinver and its affiliates, our analysts compensation is affected by the overall profitability of Grupo Actinver and its affiliates. Guide to our Rating Methodology Total Expected Return on any security under coverage includes dividends and/or other forms of wealth distribution expected to be implemented by the issuers, in addition to the expected stock price appreciation or depreciation over the next twelve months based on our analysts price targets. Analysts uses a wide variety of methods to calculate price targets that, among others, include Discounted Cash Flow models, models based on expected risk-adjusted multiples, Sum-of-Parts valuation techniques, break-up scenarios and relative valuation models. Changes in our price targets and/or our recommendations. Companies under coverage are under constant surveillance and as a result of such surveillance our analysts update their models resulting in potential changes to their price targets. Changes in general business conditions potentially affecting either the cost of capital and/or growth prospects of all companies under coverage, or a given industry, or a group of industries are typical triggers for revisions to our price targets and/or recommendations. Other micro- and macroeconomic events could materially affect the overall prospects of an individual company under coverage and, as a result, such event-driven factors could lead to changes in our price targets and/or recommendation of the company affected. Even if our overall expectations for a given company under coverage have not materially changed, our recommendations are subject to revision if the stock price has changed significantly, as it will affect total expected return. Terms such as "price targets, our price targets, total expected return, analyst's price targets or any other similar phrase are used in this document as complementary to our recommendation or as a condition that could change in our point of view and, according to article 188 of Securities Market Act, do not imply in any way that Actinver, its agents, or its related companies are in any form providing assurance or guarantee, nor assuming any responsibility for the risks associated with any investment in the discussed securities. Recommendations for companies, both in the Índice de Precios y Cotizaciones (IPyC) Index and also not belonging to the index. For stocks, we have three possible recommendations: a) BUY, b) HOLD or c) SELL. A stock classified as BUY is expected to yield returns at least 5% above than that of the IPyC Index. Stocks rated as HOLD are expected to yield returns similar to the IPyC Index, within a range of +5/-5%. Many of the companies within this range are often times solid companies which have reached their potential in a short amount of time and should still be considered as a good investment. Stocks rated as SELL are expected to yield returns below 5% of the IPyC Index. Rating Distribution as of June 8, 2012 All Companies in the BMV BUY: 71% HOLD: 23% SELL: 6% 5

6 Disclaimer Research Pablo Adolfo Riveroll Sánchez Managing Director of Research and Risk x5800 Jaime Ascencio Economy & Markets x5032 Federico Robinson Conglomerates, Industrial & Mining x4127 Gustavo Terán Food, Beverages & Retail x1193 Martín Lara Telecoms, Media & Financials x5033 Ramón Ortiz Concessions, Construction & Real Estate x5034 Michel Gálvez Fixed Income Analysis (52) Roberto Galván Technical Analysis (52) x5039 Investment Strategy Ernesto O Farrill Head, Investment Strategy (52) eofarril@actinver.com.mx Sales & Trading Gerardo Román Head of Trading (52) groman@actinver.com.mx Julie Roberts US Institutional Sales (210) jroberts@actinversecurities.com María Antonia Gutiérrez US Institutional Sales (52) agutierrez@actinver.com.mx Tulio Chávez Institutional Sales (52) mchavez@actinver.com.mx José María Celorio Institutional Sales (52) jcelorio@actinver.com.mx Romina Amador US Institutional Sales (52) ramador@actinver.com.mx Luis Javier Basurto Institutional Sales (52) lbasurto@actinver.com.mx 6