Berli Jucker (BJC TB) 27 August 2013 See important disclosures at the end of this report 1 Berli Jucker (BJC TB) Sell (from Neutral) Consumer Cyclical - Distribution & Wholesale Target Price: THB31.0 Market Cap: USD1,992m Price: THB40.0 Struggling to Find Its Footing Macro Risks Growth Value Source: Bloomberg Avg Turnover (THB/USD) 172m/5.57m Cons. Upside (%) 23.8 Upside (%) -15.0 52-wk Price low/high (THB) 40.0 - 91.0 Free float (%) 25 Shareholders (%) TCC Holding 70.1 DBS Vickers (Singapore) 4.9 Thai NVDR 2.5 Shariah compliant Chalie Kueyen 66 2862 9745 License No.4975 [email protected]Source: Company data, RHB estimates Following a visit to BJC’s Vietnam plant, we see headwinds until 2014, namely: i) glass bottle demand shrinkage, ii) consumer products margin pressures, iii) profitability issues, and iv) additional Vietnam capex. Only the company’s aluminium cans business is improving, but it cannot offset the weaker segments. Thus, we revise downwards BJC’s FY13F/14F earnings by 16%/28% and cut TP by 40% to THB31. Shrinking demand for glass bottles from related companies. BJC’s core glass bottle business (~30% of revenue) is under pressure, following shrinking demand shrinkage from related companies Thai Beverage (THBEV SP, NR), Sermsuk (SSC TB, NR) and Oishi (OISHI TB, NEUTRAL, TP: THB130) on rising competition & lower volume and from outsider customer; Thai Theparos (SAUCE TB, NR). SSC’s Est Cola’s market share has been falling with the aggressive return of Pepsi (after a 6-month lull), which has hurt glass bottle demand, while Oishi’s Green Tea has been unable to gain popularity, contributing zero volume to BJC in since June. Thus, capacity utilisation (CAPU) has fallen continuously to 80-85% in 2Q13 (<80% in July) from 95% in 1Q13. Potentially losing a key customer. After gaining a 20% market share in the energy drink segment, Carabao Daeng (BJC’s key customer is building its own glass bottle plant for internal use and for OEM purposes. The plant, whose capacity is equal to BJC’s, is set to begin operations in 2014, which could result in BJC losing a key client and seeing a glass bottle oversupply in the market going forward. Negligible earnings contribution from Vietnam. BJC has invested ~THB2-3bn to expand aggressively its Vietnam businesses on: i) an aluminium can plant (BJC holds 27%), and ii) acquiring two distributors and a convenience store (CVS) chain. Only the plant has broken even (vs. loss THB60m in FY12), while two distributors report negligible profits at the current and going forward on sluggish consumer demand and high interest expense, and CVS will breakeven in FY15 after it expands to >200 stores (from 40 currently) and increase daily sales per store by 40% to THB22,000. 65 85 105 125 145 165 185 34 44 54 64 74 84 94 Berli Jucker (BJC TB) Price Close Relative to Stock Exchange of Thailand Index (RHS) 10 20 30 40 50 60 70 Aug-12 Oct-12 Dec-12 Feb-13 Apr-13 Jul-13 Vol m Forecasts and Valuations Dec-10 Dec-11 Dec-12 Dec-13F Dec-14F Total turnover (THBm) 26,082 31,235 37,429 42,195 48,015 Reported net profit (THBm) 1,905 2,178 2,415 2,438 2,861 Recurring net profit (THBm) 1,905 2,178 2,415 2,438 2,861 Recurring net profit growth (%) 51.0 14.3 10.9 1.0 17.3 Core EPS (THB) 1.20 1.37 1.52 1.54 1.80 Core P/E (x) 33.3 29.2 26.3 26.1 22.2 Return on average equity (%) 17.5 18.2 18.4 16.9 17.9 P/B (x) 5.57 5.06 4.63 4.20 3.77 P/CF (x) 11.3 14.7 15.2 9.6 11.3 EV/EBITDA (x) 18.6 17.4 19.0 17.4 15.6 Net debt to equity (%) 53.0 63.9 68.5 67.1 65.0 Our vs consensus EPS (%) (19.6) (19.9)
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Berli Jucker (BJC TB) 27 August 2013
See important disclosures at the end of this report 1
Return on average equity (%) 17.5 18.2 18.4 16.9 17.9
Net debt to equity (%) 53.0 63.9 68.5 67.1 65.0
Recurrent cash flow per share 3.55 2.73 2.64 4.15 3.53
Berli Jucker (BJC TB) 27 August 2013
See important disclosures at the end of this report 10
SWOT Analysis
Market leader in glass bottling and aluminium cans
Has its own distribution and logistics network nationwide
Largest market share in several consumer products, eg tissue paper, snacks.
Highly volatile economic situation in Vietnam could result in operational fluctuations
Owns the largest distribution network and logistic network in Vietnam, where consumer production remain low
Has an aluminium can and grass bottle plant in Vietnam
Business in Vietnam is in the early stage; hence, business volume remains low with negligible net profit contribution currently
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Source: Company data, RHB estimates Source: Company data, RHB estimates
Company Profile Berli Jucker (BJC)’s three business lines are packaging products (glass bottles and aluminium cans), consumer products (tissue paper and snacks), and technical and healthcare products. It is an integral part of Thai Beverage’s operations.
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Berli Jucker (BJC TB) 27 August 2013
See important disclosures at the end of this report 11
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Buy Neutral Sell Trading Buy Take Profit Not Rated
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Date Recommendation Target Price Price
2013-05-20 Neutral 57.0 65.0
2013-04-02 Buy 57.0 72.8
2012-08-01 Buy 50.0 40.0
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RHB Guide to Investment Ratings Buy: Share price may exceed 10% over the next 12 months Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain Neutral: Share price may fall within the range of +/- 10% over the next 12 months Take Profit: Target price has been attained. Look to accumulate at lower levels Sell: Share price may fall by more than 10% over the next 12 months Not Rated: Stock is not within regular research coverage Disclosure & Disclaimer All research is based on material compiled from data considered to be reliable at the time of writing, but RHB does not make any representation or warranty, express or implied, as to its accuracy, completeness or correctness. No part of this report is to be construed as an offer or solicitation of an offer to transact any securities or financial instruments whether referred to herein or otherwise. This report is general in nature and has been prepared for information purposes only. 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*** CIMBI was voluntarily delisted from the Stock Exchange of Thailand effectively on September 25, 2012.