YEO HIAP SENG (M) BHD
(YHS MK, YHMS.KL)
21 May 2012
Tantalising Asian still drinks to power growth
Low Soo Fang email@example.com +603 2036 2292
Price Fair Value 52-week High/Low Key Changes Fair value EPS YE to Dec Revenue (RMmil) Core net profit (RMmil) EPS (Sen) EPS growth (%) Consensus EPS (Sen) DPS (Sen) PE (x) EV/EBITDA (x) Div yield (%) ROE (%) Net Gearing (%) Stock and Financial Data Shares Outstanding (million) Market Cap (RMmil) Book value (RM/share) P/BV (x) ROE (%) Net Gearing (%) Major Shareholders 152.7 470.3 1.73 1.7 9.6 Net cash YHS (Sg) Pte Ltd (60.8%) YHS (M'sia) Bhd (0.6%) 38.6 n/a 3mth 35.8 34.3 6mth 72.4 64.6 1,684
Rationale for report: Initiation Coverage
RM3.08 RM3.90 RM3.13/RM1.65
Initiation Initiation FY11 533.4 21.4 14.0 248.5 n/a 12.0 22.0 11.2 2.9 9.6 Net cash FY12F 553.0 27.3 17.9 27.5 n/a 12.0 17.2 7.2 2.9 10.0 4.2 FY13F FY14F
We initiate coverage on Yeo Hiap Seng Bhd (YHS) with a fair value of RM3.90/share based on a PE of 17.5x FY13F EPS. Our valuation is at ~1SD above its mean of 15x, given that the group is embarking on a new era of higher growth from market share gains and geographical expansion into Indonesia. Our DCF-value stands at RM4.20/share (WACC: 8.9%). YHS is a dominant F&B company, with ~80% of revenue coming from beverages marketed predominantly under its iconic Yeo’s brand, and the balance 20% from food products. It commands a market leadership of 38% in Malaysia and Singapore, and growing market share in Indonesia. Its key strengths lie in its higher concentration in mid-sized point of sales for better pricing power, where terms of sales are less demanding. Distribution coverage is a strong 90% of target market. We forecast earnings to grow by 28% from RM21mil in FY11 to RM27mil, and rising by a robust 24% to RM34mil in FY13F, before reaching RM40mil in FY14F (3-year EPS CAGR: 24%). Having re-aligned its operations to leverage on its popular Asian still drinks (ASD), YHS has put in place a solid strategy to accelerate growth and market share. Expansion is already underway in Malaysia where it plans to ramp up annual capacity – we estimate a 20%-30% boost to ~200 million litres. YHS’s new PET production lines are expected to spearhead market share growth from first-mover advantages in pushing out a broader range of ASD. Currently, ASD in PET is limited to few teabased variants. Upon completion in mid-FY13F, YHS will be able to tap into the underserved PET sub-segment. YHS is setting up a new ASD production plant in Indonesia, possibly by end-FY13F. This would shorten supply chain time and cut logistic costs, while also demonstrating its commitment to this potentially huge consumer market. It has only launched five grass jelly-based SKUs thus far, but the response has been overwhelming with volume growth of 20% in FY11. It has a portfolio of >10 SKUs. Balance sheet is solid with zero borrowing and cash of RM25mil (16sen/share) as at 1QFY12. Assuming FY12F-14F capex of RM200mil is partly financed by debt, net gearing is still manageable at 5%-6%. Our DPS forecast with a 3%-4% yield p.a. is premised on a dividend payout ratio of 50%– close to its historical payout of 55%. Valuation is attractive, at a 16% discount to peers’ average of 20x and a wider 35% to closest competitor Fraser & Neave Bhd (FNH Mk Equity, Hold). As it is, YHS is trading at a discount to Cocoaland Holdings (COLA Mk Equity, Buy), despite the former’s larger market capitalisation and higher EPS growth. Catalysts for re-rating and upside potential include:- 1) synergistic M&A within core F&B industry and; 2) unlocking of value through divestment/development of unutilised landbank. YHS is very under-owned by the institutional funds (10 SKUs.
New PET lines a strategic first mover advantages
Having re-aligned its operations to leverage on its popular ASD, YHS has put in place a solid strategy to accelerate growth and...
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