Disclaimer: This publication constitutes information disclosed to the public and believed to be reliable but its accuracy and completeness are not guaranteed. All opinions, suggestions, or projections are for informational purposes only and shall not be construed as an inducement for the sale or purchase of securities. Amendments to this publication may be made without prior notice. Investors are urged to exercise caution in making a decision to invest in any securities. COMPANY RESEARCH | Company Update 1 July 15, 2016 OUTPERFORM Malee Group (MALEE TB) Share Price: Bt58.00 Target Price: Bt73.00 (+26%) Growing through Coco Channel 2Q16 net profit should grow 43% yoy supported by 24% revenue growth and 3-year high EBIT margin of 9% Revise up FY16F-17F earnings by 12-15% following improving outlook of coconut water export, Philippine JV, and operating profit margin on better cost control and economies of scale OUTPERFORM, raise TP to Bt73/sh (from Bt46/sh) based on FY17F PE of 20x. Current share price trades at 20% discount to peers’ 2Q16 earnings to hit 3-year high MALEE is expected to report Bt116m net profit for 2Q16 (+43% yoy, +6% qoq) on the back of 24% sales growth driven by the strong Malee brand and coconut water exports (+70% yoy). Domestic sales should grow 5% yoy because of a low base amid slow recovery of domestic demand and fierce competition. 2Q16 operating profit margin should hit a 3-year high of 9% due to better cost-efficiency and smaller marketing expenses. MALEE’s capacity utilizati on rose to 58% in 2Q16 from 55% last year. Contribution from the Philippine JV remains minimal due to the delayed launch of RTD coffee products at convenience stores. We remain bullish on 2H16 as strong exports would help to offset seasonally slower domestic sales in 3Q16. Raise FY16F/17F earnings by 12%/15% on brighter export outlook We revised up sales growth for FY15-18F to 22% CAGR from 17% premised on stronger export revenues. We expect coconut water export (c.70% of MALEE’s exports) to grow by 25% CAGR in that period, in line with the global coconut water market (according to Technavio market research), as consumers are increasingly health conscious. Many eateries in the US and UK have started offering coconut water as a mainstream drink on the menu. We also cut SG&A/Sales to 24% from 25-26% after reflecting lower marketing expenses and better cost efficiency. We remain convinced that MALEE’s plans to boost exports to neighboring Asian markets (+c.100% ytd) will help address the slow domestic market, while the Philippine JV is a medium-term growth catalyst. These would support 25% earnings growth (CAGR) to Bt610m (Bt4.35/sh) by 2018. Buy for 25% earnings growth (3-year CAGR) and 3% dividend yield We maintain an OUTPERFORM call for MALEE with a higher TP of Bt73 (from Bt46), pegged to 20x FY17F PE. There is hidden value in its overseas growth market, and it is trading at a substantial discount to the F&B sector PE valuation of 24x. The delayed sugar tax is good news for beverage producers. Financial Summary (Btm) Year to Dec 2014 2015 2016F 2017F 2018F Sales (Btm) 4,771 5,428 6,571 8,104 9,974 Growth (%) (6.2) 13.8 21.0 23.3 23.1 EBITDA (Btm) 499 539 651 760 901 Growth (%) 2.9 8.0 20.7 16.8 18.4 Normalized profit (Btm) 303 314 424 509 610 Growth (%) 9.8 3.7 35.0 20.0 19.9 Net profit (Btm) 306 331 424 509 610 Normalized EPS (Bt) 2.16 2.24 3.03 3.63 4.35 Growth (%) 42.8 3.7 35.0 20.0 19.9 PE (x) 12.7 12.7 19.2 16.0 13.3 DPS (Bt) 1.11 1.20 1.51 1.82 2.18 Yield (%) 4.0 4.2 2.6 3.1 3.8 BVPS (Bt) 7.2 8.9 10.4 12.3 14.4 P/BV (x) 3.81 3.19 5.56 4.73 4.02 Sunthorn THONGTHIP 662 - 659 7000 ext 5009 [email protected]Key Data 12-mth high/low (Bt) 58.25 / 26.25 Market capital (Btm/US$m) 8,050.0 / 229.1 3m avg. turnover (Btm/US$m) 36 / 1 Free float (%) 30.1 Issued shares (m shares) 140 Major shareholders: - ABICO HOLDINGS PCL 25.5 - JUNGRUNGREANGKIT KAM 16.4 - THAI NVDR CO LTD 9.4 Share Price Performance YTD 1Mth 3Mth 12Mth Absolute (%) 101.8 17.3 60.8 74.2 Relative to index (%) 87.4 14.3 54.5 75.1 Krungsri Securities vs Market Positive Neutral Negative Market Recommend 5 0 0 Krungsri Market % +/- Target Price (Bt) 72.0 50.3 43.1 ’16 Net Profit (Btm) 424 419 1.2 ’17 Net Profit (Btm) 509 496 2.6 Krungsri's earnings revision 2016F 2017F Earnings revision (%) 12.0 15.0 Source: Bloomberg, Krungsri Securities
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July 15, 2016 OUTPERFORM Malee Group Ratio analysis Gross margin (%) 31.3 33.3 31.5 SGA ... (Monde Nissin) will give MALEE access to distribution channels to penetrate the Bt200bn
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Disclaimer: This publication constitutes information disclosed to the public and believed to be reliable but its accuracy and completeness are not guaranteed. All opinions,
suggestions, or projections are for informational purposes only and shall not be construed as an inducement for the sale or purchase of securities. Amendments to this publication may be made without prior notice. Investors are urged to exercise caution in making a decision to invest in any securities.
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July 15, 2016 OUTPERFORM
Malee Group (MALEE TB)
Share Price: Bt58.00 Target Price: Bt73.00 (+26%)
Growing through Coco Channel 2Q16 net profit should grow 43% yoy supported by 24% revenue
growth and 3-year high EBIT margin of 9%
Revise up FY16F-17F earnings by 12-15% following improving
outlook of coconut water export, Philippine JV, and operating
profit margin on better cost control and economies of scale
OUTPERFORM, raise TP to Bt73/sh (from Bt46/sh) based on
FY17F PE of 20x. Current share price trades at 20% discount to
peers’ 2Q16 earnings to hit 3-year high MALEE is expected to report Bt116m net profit for 2Q16 (+43% yoy, +6% qoq) on the back of 24% sales growth driven by the strong Malee brand and coconut water exports (+70% yoy). Domestic sales should grow 5% yoy because of a low base amid slow recovery of domestic demand and fierce competition. 2Q16 operating profit margin should hit a 3-year high of 9% due to better cost-efficiency and smaller marketing expenses. MALEE’s capacity utilization rose to 58% in 2Q16 from 55% last year. Contribution from the Philippine JV remains minimal due to the delayed launch of RTD coffee products at convenience stores. We remain bullish on 2H16 as strong exports would help to offset seasonally slower domestic sales in 3Q16. Raise FY16F/17F earnings by 12%/15% on brighter export outlook We revised up sales growth for FY15-18F to 22% CAGR from 17% premised on stronger export revenues. We expect coconut water export (c.70% of MALEE’s exports) to grow by 25% CAGR in that period, in line with the global coconut water market (according to Technavio market research), as consumers are increasingly health conscious. Many eateries in the US and UK have started offering coconut water as a mainstream drink on the menu. We also cut SG&A/Sales to 24% from 25-26% after reflecting lower marketing expenses and better cost efficiency. We remain convinced that MALEE’s plans to boost exports to neighboring Asian markets (+c.100% ytd) will help address the slow domestic market, while the Philippine JV is a medium-term growth catalyst. These would support 25% earnings growth (CAGR) to Bt610m (Bt4.35/sh) by 2018. Buy for 25% earnings growth (3-year CAGR) and 3% dividend yield We maintain an OUTPERFORM call for MALEE with a higher TP of Bt73 (from Bt46), pegged to 20x FY17F PE. There is hidden value in its overseas growth market, and it is trading at a substantial discount to the F&B sector PE valuation of 24x. The delayed sugar tax is good news for beverage producers.
Financial Summary (Btm) Year to Dec 2014 2015 2016F 2017F 2018F
Why we upgraded target price We are maintaining an OUTPERFORM rating for MALEE despite raising TP to Bt73 (from Bt46), pegged to 20x FY17F PE. We upgraded the TP for the following reasons: 1) 2Q16 earnings should hit a 3-year high We are more positive on MALEE after the 2Q16 earnings preview. It is expected to report strong 2Q16 earnings of Bt116m (+43% yoy, +6% qoq) on the back of 24% sales growth driven by the strong Malee brand and coconut water exports (+70% yoy). Export of Malee brand products should register c.100% growth driven by strong demand from neighboring Asian markets. Coconut water exports should grow more than 50% yoy as demand from the US (which accounts for over 50% of MALEE’s portfolio), Europe and Australia remain robust. RTD coffee exports to the Philippine JV remain minimal due to the delayed launch of RTD coffee products at convenience stores. Domestic sales should grow 5% yoy because of a low base amid the slow recovery of domestic demand and fierce competition. SG&A/Sales is in line with guidance at less than 25%. MALEE’s capacity utilization rose to 58% in 2Q16 from 55% last year. We remain bullish on 2H16 as strong exports would help to offset seasonally slower domestic sales in 3Q16.
Source: Company data, Bloomberg, Krungsri Securities
2) Strong soft drink exports to drive 22% top-line growth (CAGR) We revised up sales growth for FY15-18F to 22% CAGR from 17%, premised on stronger export revenues. We expect coconut water exports (c.70% of MALEE’s exports) to grow by 25% CAGR in that period, in line with the global coconut water market (according to Technavio market research) as consumers get increasingly health conscious. Coconut water is now the most popular alternative to carbonated drinks, juices and nectars which contain high sugar and fat content. People are opting for coconut water as a natural energy drink as it is free from artificial flavors, sweeteners, preservatives, additives, and gluten, and replenishes body fluids much better than sports drinks. Other benefits of coconut water include reducing blood pressure, weight reduction, smoother skin, and easy digestion. Many eateries in the US and UK have started offering coconut water as a mainstream drink on the menu. Coconut water sales in convenience stores are also expected to outpace sales of milk and other beverages. We remain convinced plans to boost exports to neighboring Asian markets (+c.100% ytd) will help address the slow domestic market, while the Philippine JV is a medium-term growth catalyst.
Company Update | MALEE
Krungsri Securities Research
3
July 15, 2016
US: Coconut water sales (Top brands, US$m) US: Estimates size of coconut water market
Source: Euromonitor Source: Technavio’s market research
3) Operating profit margin to hit 3-year high in FY16F with rising utilization rate This would be supported by better economies of scale and cost control. MALEE’s utilization rose to 58% in 2Q16 and should exceed 60% in FY18F from 55% last year. We also cut SG&A/Sales ratio to 24% from 25-26% after reflecting lower marketing expenses and better cost efficiency. MALEE derives higher net margins from contract manufacturing because there is no marketing expenses.
Sales by category Gross margin, EBIT margin and Net profit margin (%)
Source: Company data Source: Company data
4) Philippine JV to support long-term growth The JV with a leading food manufacturer in the Philippines (Monde Nissin) will give MALEE access to distribution channels to penetrate the Bt200bn Philippine beverage market. There is growth potential in RTD coffee products in the Philippines which has a market size of Bt200m, or only 2% of the RTD coffee market in Thailand. After launching the products at convenience stores in July this year, we expect RTD coffee sales to surge as they would be widely available to consumers. The JV - Monde Malee - has been promoting the RTD coffee under “Kratos” brand on TV to reach its target consumers since April. RTD coffee is mostly consumed by call-center workers as an alternative to energy drinks to stay alert. The JV also plans to launch a new product in 4Q16. We have revised up the JV’s sales by 2-3 fold for FY17F-18F.
Company Update | MALEE
Krungsri Securities Research
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July 15, 2016
Thailand: Coffee market (Bt m) Philippines: Coffee market (Bt m)
Source: Company data Source: Company data
Philippines: The call-center capital of the world with a
US$25bn industry employing 1.3 million people
Philippines: KRATOS Coffee advertisement
Source: Nikkei Asian Review Source: Kratos Strong Coffee Facebook
Philippines: 2nd largest population in ASEAN Philippines: Beverage Market (Bt m)
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