Closing prices are as of 17-May-2021 May 18, 2021 Aggressive Plans to Boost Profitability Food & Personal Care Unity Foods Limited REP 300 We initiate coverage on Unity Foods Limited (UNITY) with a Dec’21 target price of PKR 54.4/share, representing an upside of 41.7% from last day’s closing. Our investment case is hinged upon: Transformation from an edible oil company to a complete staple food company Aggressive expansion plans in the company’s edible oil refinery, chemical refinery, fractionation plant and flour mill Continued focus to augment market share in the high margin consumer packs segment, and Investment in a fractionation plant, chemical refinery, shortening and margarine plant as well as diversification in the production of soap products. With that said, Unity is now the 2nd largest listed consumer company in Pakistan in terms of sales. At current levels, Unity is trading at the cheapest price to sales ratio in the listed food sector while its forward PE ratio (FY22F / FY23F of 8.1x / 6.6x) also appears enticing. Therefore, we recommend ‘BUY’. Edible Oil (Vanaspati) to complete staple food company With the aggressive mind set of management and robust expansion plans, the company has taken little time to achieve major milestones and managed to set strong footprints in the edible oil and flour market of Pakistan (by acquiring 69% of shares in Sunridge foods). Furthermore, company has obtained approval from its shareholders to make further equity investment of up to PKR 461mn to acquire remaining 31% of shareholding in the Sunridge, which will make Sunridge a wholly owned subsidiary of the company. After witnessing significant success in edible oil and flour business, the management is considering entry into the rice business through acquisition or by setting up new rice mill in Pakistan. This transaction will take Unity a step closer to becoming a complete staples food company. The company intends to diversify its business further by setting up a new soap factory and start business of pulses or other food related products. We believe the diversification strategy will increase earnings outlook of the company and also act as a trigger for the stock price of the company. Triple Digit Growth in Profitability That said, we expect Unity to continue posting massive growth in profitability going forward due to the fact that the company enjoys a strong customer base, experienced management, concrete liquidity position, state of the art machinery, alongside its upcoming expansion in refinery, fractionation plant, soap, wheat and rice. We expect profitability of the company to grow at 3-yr CAGR of 201%. Exhibit: 01 Valuation Snapshot FY20A FY21E FY22F FY23F EPS PKR 0.2 3.8 4.7 5.9 DPS PKR - 0.5 1.0 1.0 Dividend Yield % - 1.4 2.6 2.6 P/E x 51.7 10.1 8.1 6.6 P/B x 1.0 2.8 2.2 1.7 Source (s): Company Financials, AHL Research BUY 54.4 38.4 41.7 Shares (mn) 994 250 3M 6M 12M 12.5 67.9 219.3 21.0 21.8 22.9 38.4 38.4 38.4 25.3 22.4 10.3 Source: Bloomberg Analyst: www.arifhabibltd.com UAN: +92 21 111 245 111, Ext: 255 38,152 - Directors, Chief Executive Officer and their Spouse Price Performance Major Shareholders Relative Performance Avg. Volume (mn) High Price - PKR Low Price - PKR Return (%) Market Cap. (PKR mn) E: [email protected]Arsalan Hanif F:+92 21 3242 0742 D:+92 21 3246 2589 UNITY PA Upside (%) Current Price Target Price (Dec'21) Recommendation Market Cap. (USD mn) 20% 60% 100% 140% 180% 220% 260% 300% 340% May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 Feb-21 Mar-21 Apr-21 May-21 UNITY KSE100 T op 25 Listed Companies C orporate Finance House of the Year: 2020 Best Domestic Equity House Best Equity Research Analyst: 2020
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Closing prices are as of 17-May-2021
May 18, 2021
Aggressive Plans to Boost Profitability
Food & Personal Care Unity Foods Limited REP 300
We initiate coverage on Unity Foods Limited (UNITY) with a Dec’21 target price of PKR 54.4/share, representing an upside of 41.7% from last day’s closing. Our
investment case is hinged upon:
Transformation from an edible oil company to a complete staple food
company
Aggressive expansion plans in the company’s edible oil refinery, chemical
refinery, fractionation plant and flour mill
Continued focus to augment market share in the high margin consumer packs
segment, and
Investment in a fractionation plant, chemical refinery, shortening and
margarine plant as well as diversification in the production of soap products.
With that said, Unity is now the 2nd largest listed consumer company in Pakistan in
terms of sales. At current levels, Unity is trading at the cheapest price to sales ratio
in the listed food sector while its forward PE ratio (FY22F / FY23F of 8.1x / 6.6x) also
appears enticing. Therefore, we recommend ‘BUY’.
Edible Oil (Vanaspati) to complete staple food company
With the aggressive mind set of management and robust expansion plans, the company
has taken little time to achieve major milestones and managed to set strong footprints in
the edible oil and flour market of Pakistan (by acquiring 69% of shares in Sunridge foods).
Furthermore, company has obtained approval from its shareholders to make further
equity investment of up to PKR 461mn to acquire remaining 31% of shareholding in the
Sunridge, which will make Sunridge a wholly owned subsidiary of the company. After
witnessing significant success in edible oil and flour business, the management is
considering entry into the rice business through acquisition or by setting up new rice mill
in Pakistan. This transaction will take Unity a step closer to becoming a complete staples
food company. The company intends to diversify its business further by setting up a new
soap factory and start business of pulses or other food related products. We believe the
diversification strategy will increase earnings outlook of the company and also act as a
trigger for the stock price of the company.
Triple Digit Growth in Profitability
That said, we expect Unity to continue posting massive growth in profitability going
forward due to the fact that the company enjoys a strong customer base, experienced
management, concrete liquidity position, state of the art machinery, alongside its
upcoming expansion in refinery, fractionation plant, soap, wheat and rice. We expect
profitability of the company to grow at 3-yr CAGR of 201%.
Exhibit: 01 Valuation Snapshot
FY20A FY21E FY22F FY23F
EPS PKR 0.2 3.8 4.7 5.9
DPS PKR - 0.5 1.0 1.0
Dividend Yield % - 1.4 2.6 2.6
P/E x 51.7 10.1 8.1 6.6
P/B x 1.0 2.8 2.2 1.7
Source (s): Company Financials, AHL Research
BUY
54.4
38.4
41.7
Shares (mn) 994
250
3M 6M 12M
12.5 67.9 219.3
21.0 21.8 22.9
38.4 38.4 38.4
25.3 22.4 10.3
Source: Bloomberg
Analyst:
www.arifhabibltd.com
UAN: +92 21 111 245 111, Ext: 255
38,152
- Directors, Chief Executive Officer and their Spouse
Total Assets 18,943 42,706 48,377 53,107 58,275 Net Profit Margin % 0.7 5.5 5.7 6.5 6.6
Source (s): Company Financials, AHL Research
Unity Foods Limited Page 13
Unity Foods –Food & Personal Care
Disclaimer Analyst Certification: The research analyst(s) is (are) principally responsible for preparation of this report. The views expressed in this research report accurately reflect the personal
views of the analyst(s) about the subject security (ies) or sector (or economy), and no part of the compensation of the research analyst(s) was, is, or will be directly or indirectly
related to the specific recommendations and views expressed by research analyst(s) in this report. In addition, we currently do not have any interest (financial or otherwise) in the
subject security (ies). Furthermore, compensation of the Analyst(s) is not determined nor based on any other service(s) that AHL is offering. Analyst(s) are not subject to the
supervision or control of any employee of AHL’s non-research departments, and no personal engaged in providing non-research services have any influence or control over the
compensatory evaluation of the Analyst(s).
Equity Research Ratings
Arif Habib Limited (AHL) uses three rating categories, depending upon return form current market price, with Target period a s December 2021 for Target Price. In addition, return
excludes all type of taxes. For more details, kindly refer the following table;
Rating Description
BUY Upside* of subject security(ies) is more than +10% from last closing of market price(s)
HOLD Upside* of subject security(ies) is between -10% and +10% from last closing of market price(s)
SELL Upside* of subject security(ies) is less than -10% from last closing of market price(s) * Upside for Power Generation Companies (Ex. KEL) is upside plus dividend yield.
Equity Valuation Methodology
AHL Research uses the following valuation technique(s) to arrive at the period end target prices;
Discounted Cash Flow (DCF)
Dividend Discounted Model (DDM)
Sum of the Parts (SoTP)
Justified Price to Book (JPTB)
Reserved Base Valuation (RBV)
Risks
The following risks may potentially impact our valuations of subject security (ies);
Market risk
Interest Rate Risk
Exchange Rate (Currency) Risk
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security. This publication is intended only for distribution to the clients of the Company who are assumed to be reasonably sophisticated investors that understand the risks involved
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accuracy and objectivity, AHL does not represent that it is accurate or complete and it should not be relied on as such. In particular, the report takes no account of the investment
objectives, financial situation and particular needs of investors. The information given in this document is as of the date of this report and there can be no assurance that future
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