ed: JS / sa: JC, CW, CS 2019: Domestic plays favoured • Retain positive view on ASEAN consumer plays even as we face global uncertainties • Stable GDP growth for ASEAN-5 at 3-6.5%, play on elections in Thailand and Indonesia, and steady gross margins in 1H19 to underpin consumption • Project aggregate earnings growth of 12.6% in 2019F; valuations at -1SD of 5-year average • Stock picks: Favour stocks with these themes - domestic consumption plays, election beneficiaries, earnings growth 2019: Uncertain outlook but valuations relatively attractive; consumer sector should outperform. The optimism which started in early 2018 did not last, unfortunately. For consumer sector counters under our coverage, we are scaling down our earnings growth projection to 4.5% for 2018. For 2019, we expect the following factors to favour the consumer sector: (i) stable GDP growth for ASEAN-5 at 3-6.5%; (ii) gradual recovery in consumption, helped by lead up to elections in Thailand and Indonesia; and (iii) stable gross margins in 1H19 on back of benign commodity prices. Among the ASEAN countries we track, we are more positive on consumer plays in Indonesia and Thailand. Valuations attractive at -1SD below 5-year historical average. Along with the market, valuations of consumer stocks under our coverage have corrected. While outlook seems uncertain on the macro front led by trade war headwinds, currency volatilities, and mixed consumer sentiment within ASEAN, valuations for consumer stocks under our coverage are at -1 standard deviation below its 5-year historical average, which was last seen seven quarters ago in 1Q16. Stock picks: Domestic consumption, election beneficiaries, earnings growth. We advocate taking bets on companies that will benefit from domestic consumption, record a turnaround in earnings or higher earnings, and/or have stock specific catalysts. For exposure to Indonesia, we favour Indofood Sukses Makmur, Japfa Comfeed Tbk. Our proxies to Thailand are CP ALL, HomePro. For Singapore-listed counters, we like ThaiBev and Japfa Ltd for their core operations as well as exposure to Vietnam, and Koufu as a resilient, mainstream food service provider and small cap play STI : 3,012.88 KLCI : 1675.83 SET : 1560.03 JCI : 6221.01 PCOMP : 7680.6 Analyst Andy SIM, CFA +65 6682 3718 [email protected]Alfie YEO +65 6682 3717 [email protected]David Arie Hartono +62 2130034936 [email protected]Namida ARTISPONG +66 28577833 [email protected]King Yoong CHEAH +60 32604 3908 [email protected]Regional Research Team Indofood Sukses Makmur : Indofood Sukses Makmur is a Total Food Solutions company with operations spanning from the production of raw materials and their processing, to consumer products. Japfa Comfeed Indonesia : Japfa Comfeed Indonesia : Japfa Comfeed is a leading industrialised and vertically integrated producer of poultry, beef, aquaculture and consumer food products in Indonesia. The group is the second largest poultry feed and DOC (Day-Old-Chicks) producer in Indonesia. Japfa Ltd : Japfa Ltd : Japfa Ltd is a leading industrialised and vertically integrated producer of multiple animal proteins, dairy and consumer food products in Indonesia, Vietnam, Myanmar, India and China. Thai Beverage Public Company : ThaiBev is a F&B company with exposure in alcoholic, non-alcoholic food and beverages. Koufu Group Limited : Koufu is a leading foodcourt and coffee shop operator in Singapore with a presence in Macau. It also has other foodservice formats including tea kiosks, full service and quick service restaurants. CP ALL : The Company's main business is the operation of convenience store retail outlets under the trademark of "7-Eleven" in Thailand. Home Products Center : Operates a retail chain under “Home Pro”. It sells a complete line of products for renovation, decoration, and repair of homes and buildings. DBS Group Research . Equity 4 Jan 2019 Regional Industry Focus ASEAN Consumer: Food for Thought Refer to important disclosures at the end of this report STOCK PICKS 12-mth Price Mkt Cap Target Price Performance (%) LCY US$m LCY 3 mth 12 mth Rating Rp Rp Indofood Sukses 7,475 4,564 10,000 26.7 (1.0) BUY Japfa Comfeed 2,210 1,802 2,600 10.8 63.7 BUY S$ S$ Japfa Ltd 0.73 986 0.89 15.0 44.6 BUY Thai Beverage 0.59 10,858 0.87 (15.7) (35.5) BUY Koufu Group 0.62 250 0.80 (3.2) N.A BUY Bt Bt CP ALL 70.50 19,651 83.00 1.8 (8.4) BUY Home Products 14.90 6,080 17.50 (2.0) 16.4 BUY Source: DBSVI, DBS Bank, DBSVTH, Bloomberg Finance L.P. Closing price as of 3 Jan 2019 Page 1
113
Embed
Regional Industry Focus ASEAN Consumer: Food for Thought products in Indonesia, Vietnam, Myanmar, India and China. Thai Beverage Public Company : ThaiBev is a F&B company with exposure
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
ed: JS / sa: JC, CW, CS
2019: Domestic plays favoured • Retain positive view on ASEAN consumer plays even
as we face global uncertainties
• Stable GDP growth for ASEAN-5 at 3-6.5%, play onelections in Thailand and Indonesia, and steady grossmargins in 1H19 to underpin consumption
• Project aggregate earnings growth of 12.6% in 2019F;valuations at -1SD of 5-year average
• Stock picks: Favour stocks with these themes -domestic consumption plays, election beneficiaries,earnings growth
2019: Uncertain outlook but valuations relatively attractive; consumer sector should outperform. The optimism which started in early 2018 did not last, unfortunately. For consumer sector counters under our coverage, we are scaling down our earnings growth projection to 4.5% for 2018. For 2019, we expect the following factors to favour the consumer sector: (i) stable GDP growth for ASEAN-5 at 3-6.5%; (ii) gradual recovery in consumption, helped by lead up to elections in Thailand and Indonesia; and (iii) stable gross margins in 1H19 on back of benign commodity prices. Among the ASEAN countries we track, we are more positive on consumer plays in Indonesia and Thailand.
Valuations attractive at -1SD below 5-year historical average. Along with the market, valuations of consumer stocks under our coverage have corrected. While outlook seems uncertain on the macro front led by trade war headwinds, currency volatilities, and mixed consumer sentiment within ASEAN, valuations for consumer stocks under our coverage are at -1 standard deviation below its 5-year historical average, which was last seen seven quarters ago in 1Q16.
Stock picks: Domestic consumption, election beneficiaries, earnings growth. We advocate taking bets on companies that will benefit from domestic consumption, record a turnaround in earnings or higher earnings, and/or have stock specific catalysts. For exposure to Indonesia, we favour Indofood Sukses Makmur, Japfa Comfeed Tbk. Our proxies to Thailand are CP ALL, HomePro. For Singapore-listed counters, we like ThaiBev and Japfa Ltd for their core operations as well as exposure to Vietnam, and Koufu as a resilient, mainstream food service provider and small cap play
STI : 3,012.88 KLCI : 1675.83 SET : 1560.03 JCI : 6221.01 PCOMP : 7680.6 Analyst Andy SIM, CFA +65 6682 3718 [email protected]
Indofood Sukses Makmur : Indofood Sukses Makmur is a Total Food Solutions company with operations spanning from the production of raw materials and their processing, to consumer products.
Japfa Comfeed Indonesia : Japfa Comfeed Indonesia : Japfa Comfeed is a leading industrialised and vertically integrated producer of poultry, beef, aquaculture and consumer food products in Indonesia. The group is the second largest poultry feed and DOC (Day-Old-Chicks) producer in Indonesia.
Japfa Ltd : Japfa Ltd : Japfa Ltd is a leading industrialised and vertically integrated producer of multiple animal proteins, dairy and consumer food products in Indonesia, Vietnam, Myanmar, India and China.
Thai Beverage Public Company : ThaiBev is a F&B company with exposure in alcoholic, non-alcoholic food and beverages.
Koufu Group Limited : Koufu is a leading foodcourt and coffee shop operator in Singapore with a presence in Macau. It also has other foodservice formats including tea kiosks, full service and quick service restaurants.
CP ALL : The Company's main business is the operation of convenience store retail outlets under the trademark of "7-Eleven" in Thailand.
Home Products Center : Operates a retail chain under “Home Pro”. It sells a complete line of products for renovation, decoration, and repair of homes and buildings.
DBS Group Research . Equity 4 Jan 2019
Regional Industry Focus
ASEAN Consumer: Food for ThoughtRefer to important disclosures at the end of this report
CP ALL 70.50 19,651 83.00 1.8 (8.4) BUY Home Products
14.90 6,080 17.50 (2.0) 16.4 BUY
Source: DBSVI, DBS Bank, DBSVTH, Bloomberg Finance L.P. Closing price as of 3 Jan 2019
Page 1
Regional Industry Focus
ASEAN Consumer: Food for Thought – 2019 Outlook
Page 2
Table of Contents
Overview: 2019 Outlook – Seek defensive traits 3
Regional and Country 12-month forward PE 12
Performance Review and Regional Benchmarks 13
DBS ASEAN Consumer Stock Universe Performance 14
Same-store-sales-growth charts 15
Country briefings • Singapore 20 • Malaysia 22 • Thailand 25 • Indonesia 28 • Philippines 33
Macro Charts/ Data • GDP 38 • Inflation 39 • Forex 40 • Input costs 41
Peer comparison 43
Company Guides 46 58 72 81 93
• Japfa Comfeed Indonesia• Japfa Ltd• Koufu Group Limited• Thai Beverage Public• CP ALL• Home Products Center 101
Page 2
Regional Industry Focus
ASEAN Consumer: Food for Thought – 2019 Outlook
Page 3
Overview: 2019 Outlook – Domestic focused plays
ASEAN5 Consumer staples sector indices ASEAN5 Consumer discretionary sector indices
Source: ThomsonReuters, DBS Bank Source: ThomsonReuters, DBS Bank
2018 review: Buffeted by macro headwinds. The optimism which started in early 2018 did not last unfortunately. The performance of consumer indices across the region were largely down, in line with their respective markets, largely on the macro headwinds, coupled with currency depreciation (against USD), downward adjustments in earnings forecasts, etc. For counters within the consumer sector under our coverage, we have scaled down our earnings growth projections to 4.5% for 2018, driven by contraction in earnings from Singapore and Malaysia listed counters. Nonetheless, this is an improvement from -1.1% contraction in earnings seen in FY17. Recap of 3Q18 performance: fairly mixed. As of Dec-18, earnings report cards for the quarter ending Sep was fairly mixed, with about 6 in 10 companies under our ASEAN coverage reporting results that were within or above expectations. Those that disappointed arose from higher-than-expected operating expenses (such as startup and admin costs e.g. Jumbo and Sheng Siong in Singapore) or slower than expected sales growth. 2019: Uncertain outlook but valuations relatively attractive; consumer sector should outperform. For 2019, we expect the following key factors to support the consumer sector: (i) stable GDP growth for ASEAN-5 at 3-6.5%; (ii) gradual recovery in consumption, helped by lead up to elections for Thailand and Indonesia; (iii) stable gross margins in 1H19 on back of benign
commodity prices. Among the ASEAN countries we follow, we are more positive on consumer plays in Indonesia and Thailand, particularly at the start of 2019. Valuations at -1SD over 5-year historical average. Along with the market, valuations of consumer counters under our coverage have corrected. While on a long-term basis (since 2007), the current valuation of c.24x forward PE is still at +0.5 standard deviation against the historical average, it is skewed by the slump seen during the Global Financial Crisis. While the outlook seems uncertain on the macro front buffeted by trade war headwinds, currency volatility, and mixed consumer sentiment within ASEAN, the current valuation for the consumer sector based on consumer counters under our coverage is at -1 standard deviation below its 5-year historical average, a level not seen since seven quarters ago in 1Q16. Stock picks: Domestic consumption, election beneficiaries, earnings growth. We advocate taking bets on companies that will benefit from domestic consumption, record a turnaround in earnings or higher earnings, and/or have stock specific catalysts. Amongst the countries, we prefer Thailand and Indonesia. For exposure to Indonesia, we favour Indofood Sukses Makmur, Japfa Comfeed Tbk. Our proxies to Thailand are CP ALL, HomePro. For Singapore-listed counters, we like ThaiBev and Japfa Ltd for their core operations as well as exposure to Vietnam, and Koufu as a resilient, mainstream food service provider and small cap play.
Page 3
Regional Industry Focus
ASEAN Consumer: Food for Thought – 2019 Outlook
Page 4
3Q18 earnings review
FY18E forecasts impacted by uncertainties seen in 2H18. We had expected 2018 to be better vis-à-vis 2017 on the back of improving sentiment leading to stronger earnings growth profile. The year started well but macro uncertainties and currency volatility in 2H18 led to sharp downward revisions to our forecasts. We now expect 2018 to post just 4.5% profit growth over FY17, down from c.11% growth expected as at mid-year. In Singapore, the underperformers were largely from food retailers (Jumbo, BreadTalk, Koufu) arising from higher than expected operating costs, while Sheng Siong was impacted from start-up costs at its new stores. ThaiBev had a bad year on the back of slow domestic consumption, though we believe the worst is over and 1QFY19 should register y-o-y growth. In Thailand, 3Q18 results of companies under our coverage were a mixed bag. For food companies, core operations were helped by recovery of swine prices in Thailand and Vietnam (Charoen Pokphand Food), successful price negotiations and lower tuna raw material prices (for Thai Union). For Thai retailers under our coverage, all companies including CP ALL (CPALL), Home Products Center (HMPRO), Berli Jucker (BJC), and COM7 (COM7) posted positive earnings growth, except for Beauty Community (BEAUTY) delivering a decline in net profit. For hospitality/food-related operators, Minor International (MINT) recorded negative earnings growth, dragged by a jump in interest expenses related to NH Hotel acquisition, and its food unit which recorded negative same-store-sales growth
(SSSG) in all of its (MINT’s) operating hubs (Thailand: -4.4% SSSG). Meanwhile, higher revenue growth from new hotel openings and positive total system sales growth (TSSG), as well as a lower effective tax rate drove CENTEL’s net earnings. For Philippines, the stronger 1H18 did not follow through to 3Q18’s topline performance, as faster-than-expected inflation eroded disposable income gains from personal income tax cuts early in the year. Particularly hit were food manufacturers, i.e. Century Pacific Foods (CNPF; +10.1% vs 1H18: 20.5%) and Universal Robina Corp (URC; -1.5% vs 1H18: 5.9%), where demand failed to sustain in 3Q18. However, companies catering to higher income segments were less impacted as consumers were less sensitive to inflation, such as Emperador (EMP) and Robinson Retail Holdings Incorporated (RRHI). Meanwhile, despite a lower-income consumer base, PureGold Price Club (PGOLD)’s 3Q18 topline (+15.5%) did better than 1H18 (+13.1%), largely attributable to higher average basket sizes. Price increases for selected categories have arrested declines at the EBIT and net income level, albeit in varying degrees, for some consumer counters. The 3Q18 results proved that 9M18 has been particularly decent for EMP, with double-digit margin expansion buoyed by the performance of its international operations. Meanwhile, higher operating expenses (attributable to manpower and rental costs) wiped out PGOLD’s profits at the EBIT level, while lower supplier support contracted RRHI’s gross/EBIT margins across its business formats.
3Q18 consumer earnings FY18F net profit growth revised down
Source: DBS Bank Source: DBS Bank’s estimates
Page 4
Regional Industry Focus
ASEAN Consumer: Food for Thought – 2019 Outlook
Page 5
In Indonesia, demand recovery is taking place at a gradual pace. For staples, revenue growth has been improving in a consistent manner in the past two quarters supported by regional elections and government’s populism. The growth was mostly from volume increase as there had been very minimum adjustments made to selling price YTD. Retailers posted weak revenue in 2Q18 but there were signs of improvements in 3Q18. Animal protein companies (Charoen Pokphand Indonesia Tbk and Japfa Comfeed Tbk) posted strong 3Q18
results on the back of resilient day-old-chicks (DOC) and broiler prices. Malaysia. Corporate results announced in November were largely within expectations. Padini stood out with disappointing earnings, mainly dragged by moderated topline growth, weaker gross margin which declined from 43% in 3QCY17 to 40% in 3QFY18 in the absence of reversal of inventories written off, coupled with higher product cost and poorer sales mix, and 9% increase in selling and distribution expenses.
Outlook and Key Themes for 2019 Focus on domestic consumption. This year, we still like the ASEAN consumer sector for its structural growth and amid macro uncertainties, as we believe this sector is seen to be a safe harbour. The following should continue to underpin the fundamentals of the sector: (i) stable GDP growth for ASEAN-5, at 3% - 6.5%; (ii) gradual recovery in consumption, helped by lead up to elections in Thailand and Indonesia; and (iii) stable gross margins in 1Q/2Q19 on back of benign commodity prices, with potential downside risk in 2H19. Key risks to watch are US rate hikes which could bring volatility to regional currencies. We are currently projecting consumer companies under our coverage to record earnings growth of 12.6% as a whole. Our preferred countries in ASEAN for the consumer sector are Indonesia and Thailand. Our regional equity strategist, Ms Joanne Goh believes there is upside risk for the ASEAN region as major pressure points could turn favourable. Quoting from DBS 2019-20 Outlook report published on 3 December 2018,
she stated that “the potential topping of the USD, bottoming oil price, pause in interest rate hikes, and peaking of US bond yields, could see prices skewed to the upside, and that ASEAN markets are typically sensitive to such factors. Common investment themes in the region include government spending, resilient domestic demand, and how companies can benefit from the ASEAN Economic Community (AEC). Thailand and Indonesia will hold elections in the first half of next year and domestic sentiments can be positive...” Stock picks: We advocate taking bets on companies that will benefit from domestic consumption, record a turnaround in earnings or higher earnings, and/or have stock specific catalysts. For exposure to Indonesia, we favour Indofood Sukses Makmur, Japfa Comfeed Tbk. Our proxies to Thailand are CP ALL, HomePro. For Singapore-listed counters, we like ThaiBev and Japfa Ltd for their core operations as well as exposure to Vietnam, and Koufu as a resilient, mainstream food service provider.
Key themes: DBS economists’ GDP forecasts for 2018E to 2020F
1) Macro economic outlook GDP outlook: ASEAN growth still on track. So far, as noted in our economists’ outlook report, 2018 has turned out to be relatively in line with their projections and that “global growth is on course for a tad above 3.5%, despite concerns about trade and pockets of geopolitical instability”. Project positive 2019 earnings growth for consumer companies. As per the table above, our economists are projecting positive and stable GDP growth for the various countries at about 3% to 6.5%. At the lower end of the range is Singapore, which is projected to deliver 3% growth, a tad below 2018E’s 3.4% on global uncertainties and being a trade dependent economy. Despite concerns of inflation, Philippines
is projected to deliver GDP growth of 6.5% in 2019F. Other countries such as Thailand, Indonesia and Malaysia are still projected to deliver growth of 3.8%, 4.5% and 5.2%, respectively, relatively similar to 2018. 2019: Better earnings growth. Transcending to our forecasts for companies under our coverage, we are projecting an aggregate 12.6% net profit growth, driven by topline increase of 7.9%. Delving deeper, while it seems significantly stronger, this partly stems from a relatively weak base in 2018. For 2019, we are still expecting some margin expansion from a benign commodity price environment. The downside risk is potential currency weakness which could negate this.
Net profit growth by country (FY14 - FY19F)
Source: DBS Bank estimates
2) Leverage on election boost, stimulus packages Play on elections in Thailand and Indonesia. We are excited on the pending elections in Thailand and Indonesia, particularly for the consumer sector. Thailand is expected to hold its General Election on 24 Feb 2019, while Indonesia’s Presidential Election will be held on 17 April 2019. The lead up to these should bode well for the stocks in the consumer sector.
Thailand – Feb 2019. In Thailand, we expect the general election to be a catalyst for consumer companies. The economy generally improves prior to any general election, as money tends to be injected into the economic system while the election will also boost investor confidence. However, domestic
spending before the general election may not benefit private consumption and economic growth significantly.
There are a few stimulus packages lined up before the general election. The major scheme is the welfare card policy for 14.5m low-income earners, whereby Bt330/month will be given to each household for electricity/water payments (Dec 2018 to Sept 2019) and a one-time (Dec 2018) Bt500 cash handout/person. Aid packages will also be given for rubber plantation and oil palm owners.
Page 6
Regional Industry Focus
ASEAN Consumer: Food for Thought – 2019 Outlook
Page 7
Additional consumption stimuli are Shop for Nation campaign which allows a tax allowance of up to Bt15,000 for spending on tyres, books/e-books, and OTOP (One Tambon [sub-district] One Product) products, as well as 5% VAT refund scheme for spending up to Bt20,000 during Feb 1-15, 2019.
In Indonesia, several Government stimulus packages such as (i) increasing the number of recipients under the National Health Insurance, (ii) increasing the number of recipients under the Family Hope Program (Program Keluarga Harapan), (iii) Non Cash Food Aid programs, and (iv) various village funds. This stimulus will help to boost the overall consumer spending in FY19F, especially in rural areas.
Upcoming Elections in Thailand and Indonesia Country Date Remarks Thailand 24 Feb-
19* Thailand has lifted its ban on political activity after four years of military rule.
Indonesia Apr-19 Presidential Election; current incumbent President Joko Widodo will be running against Prabowo Subianto
*Note: tentative Source: Media report, DBS Bank
While investors may be concerned that any unforeseen and unexpected outcome may create volatility, we believe there are opportunities in the lead up to these events.
3) Margin has improved in 2018, to remain elevated at leastin 1H19
Back in late 2017, we had opined that as we entered into 2018, gross margins for consumer companies should improve on the back of benign raw material and commodity prices. As can be seen up to 3Q18, this has been panning out as expected. In 2019, we expect this trend to continue at least for 1H19 given still relatively benign prices, though positives could be partially negated by weakening regional currencies. In addition, companies have been relatively reluctant to raise prices too aggressively on the back of uncertain consumer demand and competition.
Packaging materials may come off on recent oil price weakness – potential upside to margins. Packaging materials couldprovide some additional buffer to margins for foodmanufacturing companies on the back of the recent oil priceweakness. While starting the year strong, oil price has lost itsluster in recent months and is down by c.23% in 2018 as itWTI hovers around US$46 per barrel (at time of writing). Thatsaid, this benefit could be delayed and seen later as majority ofthe companies we follow tend to lock in their purchases on aforward basis.
DBS: Margins should stay healthy in 1H19 Sugar: down 15% from Jan-Dec 2018
Source: Companies, DBS estimates Source: ThomsonReuters, DBS Bank
Page 7
Regional Industry Focus
ASEAN Consumer: Food for Thought – 2019 Outlook
Page 8
CPO price: down 27% from Jan-Dec 2018 Milk Powder: up 38% from Jan-Dec 2018
Coffee: -18% from Jan-Dec 2018 Cocoa: +16% from Jan-Dec 2018
Source: ThomsonReuters, DBS Bank Source: ThomsonReuters, DBS Bank
Oil price tumbled -23% from Jan-Dec 2018 PET tracking oil price
Source: ThomsonReuters, DBS Bank Source: ThomsonReuters, DBS Bank
Source: ThomsonReuters, DBS Bank Source: ThomsonReuters, DBS Bank
Page 8
Regional Industry Focus
ASEAN Consumer: Food for Thought – 2019 Outlook
Page 9
Aluminium: -22% from Jan-Dec 2018 Tin: -3% from Jan-Dec 2018
Source: ThomsonReuters, DBS Bank Source: ThomsonReuters, DBS Bank
Page 9
Regional Industry Focus
ASEAN Consumer: Food for Thought – 2019 Outlook
Page 10
Strategy/ Stock picks Valuations at -1SD of 5-year historical average; Thailand, Indonesia preferred. Along with the market, valuations of consumer counters under our coverage have corrected. While on a long-term basis (since 2007), the current valuation at c.24x forward PE is still at +0.5 standard deviation against thehistorical average, it is skewed by the slump seen during theGlobal Financial Crisis. On a 5-year horizon, the sectorvaluation under our coverage are at -1 standard deviationbelow its 5-year historical average, which was last seen sevenquarters ago in 1Q16.
Domestic consumption, election beneficiaries, earnings growth. We advocate taking bets on companies that will benefit from domestic consumption, record a turnaround in earnings or higher earnings, and/or have stock specific catalysts. For exposure to Indonesia, we favour Indofood Sukses Makmur, Japfa Comfeed Tbk. Our proxies to Thailand are CP ALL, HomePro. For Singapore-listed counters, we like ThaiBev and Japfa Ltd for their core operations as well as exposure to Vietnam, and Koufu as a resilient, mainstream food service provider and small cap play.
Regional valuation has corrected to +0.5 SD On 5-year historical horizon, valuation is at -1SD
Source: DBS Bank estimates Source: DBS Bank estimates
Stock picks
Indofood Sukses Makmur [INDF IJ, BUY, TP: Rp10,000]. We like INDF IJ for its exposure to its Branded Consumer food business (through 80%-owned Indofood CBP) and its attractive valuations. INDF’s share price has fallen c.10% in 2018 (as of 18 Dec), underperforming the JCI by 5% due to concerns over its weak Agribusiness performance and exposure to foreign currency debt (35% of total debt) amid a weak rupiah environment. The stock currently trades at a deep discount of 38% to its sum-of-parts (SOP) valuation and we think the current valuation has priced in most of these concerns.
Our plantation sector analyst expects CPO price to average RM2,560/MT in 2019, higher than the YTD average price of RM2,325/MT, with the successful implementation of Indonesia’s biodiesel mandate as a key catalyst. A better outlook for CPO prices should pave way for the SOP discount to narrow in the future. INDF now trades at c.13x FY19F PE, which is below -1SD of its 5-year historical average.
Japfa Comfeed Tbk [JPFA IJ, BUY, TP: Rp 2,600]. We like JPFA in view of its (i) attractive valuation which is currently at a discount compared to the industry; (ii) strong Day-Old-Chicks (DOC) and broiler prices to support margins in the face of higher cost of raw materials (potentially higher corn price and weakening of IDR against USD); and, (iii) falling soybean meal price which should alleviate concerns over margin pressure.
JPFA is still trading at attractive valuations of 6.2x FY19F EV/EBITDA and 9.8x FY19F PE – which is at a discount vs. the industry’s 15x FY19F PE. Given that JPFA’s earnings CAGR is expected to be 37.5% over FY17-20F (which is higher vs Charoen Pokphand Indonesia (CPIN)’s 19.8%), we believe that JPFA should trade at a valuation that is closer to CPIN.
Japfa Ltd [JAP SP, BUY, TP: S$0.89]. We like Japfa Ltd, Japfa Comfeed’s parent company, as a value play given its valuation discount to its subsidiary, and industry peers. On top of that, we expect the recovery at its Vietnam swine operations to continue and drive profit growth. We forecast FY18E profit to
Page 10
Regional Industry Focus
ASEAN Consumer: Food for Thought – 2019 Outlook
Page 11
post a strong turnaround to reach US$86.3m (vs US$1.3m in FY17), and further reaching US$92.6m in FY19F (+6%). Our FY19F earnings are c.12% below consensus, likely due to more conservative estimates from its business segments (ex-Animal Protein Indonesia). There is potential upside revisions to earnings if these operations perform better than expected. The counter is currently trading at 5.3x EV/EBITDA and 10.5x FY19F PE, which is still below peers’ average.
Thai Beverage Pcl [THBEV SP; BUY, TP: S$0.87]. The share price underperformed in 2018, and we believe negatives are priced in. The slow consumption in Thailand is temporary and we should see improvements ahead, driven by: (i) the lead up to the expected elections on 24 Feb 2019, and possibly the King’s coronation thereafter; and (ii) anticipated recovery in farm income which has recently turned to record positive growth.
In addition, we believe weak headline growth figures seen in FY18 has passed, and ThaiBev will show a return to growth in 1Q19 (quarter to Dec-2018), on the back of a low base effect, coupled with improved optimism from better consumer offtake in the lead up to elections. The counter now trades at c.15.7x FY19F core earnings, which is near to -2SD of its 5-year historical average forward PE. While management has trimmed its DPS on the back of its gearing, they have still committed to pay out at least 50% of profits, and this implies a gross yield of c.3.5% on our FY19F earnings.
Home Products Pcl [HMPRO TB; BUY, TP: THB17.50]. HMPRO is one of our top picks and has several positive catalysts working in its favour: i) improving domestic spending mood, ii) positive momentum on SSSG next year, and iii) healthyearnings growth of 16% in FY19F from stronger gross profitmargins and cost benefits from a larger operating scale.HMPRO deserves to trade at a premium as it continues to
dominate the home and garden specialist retailing segment in Thailand. This has been made possible by its strong business strategy execution in investment by striking a fine balance between growth and risk, coupled with its ability to anticipate and adjust to customers’ lifestyle changes. HMPRO has been expanding into a new store format which is more profitable and is also widening its customer base.
CP ALL [CPALL TB; BUY, TP: Bt83.00]. We believe the bad news is already priced-in. CPALL’s cash-and-carry business will still be pressured by the opening of new stores overseas, which are still loss making. However, we expect its convenience store business to benefit the most from upcoming elections and still be miles ahead of its competitors and continue to do well with positive SSSG, with new products and services to cater to customers’ changing needs. The strong operations of CVS would lead to solid earnings growth (FY19F earnings growth forecast of 14% y-o-y) for the whole group. CPALL is now trading at 26x forward PE, slightly lower than its historical average level of 28x.
Koufu Ltd [KOUFU SP; BUY, TP: S$0.80]. We like the counter for its defensive attributes. While FY18E is expected to post a slight decline in earnings, arising from start-up costs, we expect FY19F earnings to recover, and FY20-21F earnings to hold steady as revenue growth is offset by higher costs. Revenue growth to be led by new foodcourts in Singapore and Macau, but higher operating costs and depreciation would partially offset the increase in revenue. Longer term drivers include the setting up of an integrated facility aimed at delivering economies of scale, and overseas growth from Macau. The counter offers a dividend yield of c.3.8% based on 50% payout ratio in FY19F, and provides upside catalyst if the Board raises its payout on the back of its strong cashflow and balance sheet.
Stock picks
Source: DBS Bank, DBS Vickers, DBSVI
Mkt Price 12-mth
Cap (LCY) Target %
Company (US$m) 31-Dec Price Upside Rcmd 19F 20F 19F 20F 19F 20F 19F 20F 18E 19F 19F 20F
Regional and Country 12-month forward PE (stocks under DBS coverage)
DBS Regional Coverage PE band Singapore coverage: PE band
Source: DBS Bank Source: DBS Bank Malaysia coverage: PE band Thailand coverage: PE band
Source: DBS Bank Source: DBS Bank Indonesia coverage: PE band Philippines coverage: PE band
Source: DBS Bank Source: DBS Bank
Page 12
Regional Industry Focus
ASEAN Consumer: Food for Thought – 2019 Outlook
Page 13
Performance Review and Regional Benchmarks
Asia consumer indices largely down in 2018 due to mixed earnings and macro uncertainties. 2018 has generally been negative for ASEAN consumer stocks, with most consumer indices posting negative returns, largely marred by the trade war. With earnings from stocks under our coverage generally mixed along with macro uncertainties, most ASEAN consumer indices have traded in negative territory.
Cautiously optimistic outlook. On the consumer demand side, Thailand and Indonesia should see a boost to consumption such as pre-election stimulus. However, we are also mindful of cost and margin pressures on earnings growth. Inflationary pressures on labour, raw material costs, higher costs in expansion initiatives are likely earnings dampeners ahead. Resolution on the trade war will also impact the performances of indices.
Regional benchmark consumer indices’ valuation and performance
Source: Thomson Reuters Datastream, DBS Bank (as of 31 December 2018)
Unilever Indonesia Tbk PT HOLD 44,500 15.6% 11.5% -4.1% -12.0% -2.0%Indofood CBP Sukses Makmur Tbk PT BUY 10,200 21.2% 20.2% 27.8% 16.2% 0.9%Indofood Sukses Makmur Tbk PT BUY 10,000 27.2% 15.4% 3.8% -2.3% -0.1%Matahari Department Store Tbk PT BUY 10,200 28.3% -18.1% -47.3% -47.3% -0.4%Mitra Adiperkasa Tbk PT BUY 960 -0.6% -6.4% 2.9% 28.0% 0.2%Mayora Indah Tbk PT HOLD 2,000 4.8% -8.7% -11.2% 23.6% 0.6%Matahari Putra Prima Tbk PT HOLD 380 3.3% -25.0% -66.5% -70.4% 0.0%Japfa Comfeed Indonesia Tbk PT BUY 2,600 6.3% -1.3% 49.3% 58.4% 0.7%Charoen Pokphand Indonesia Tbk PT HOLD 5,200 30.2% 40.3% 109.4% 116.3% 6.4%
Indonesia return 6.3%A sean cov erage return 0.1%
Page 14
Regional Industry Focus
ASEAN Consumer: Food for Thought – 2019 Outlook
Page 15
SAME-STORE-SALES-GROWTH CHARTS
Page 15
Regional Industry Focus
ASEAN Consumer: Food for Thought – 2019 Outlook
Page 16
SSSG charts
BIG C Sheng Siong
Source: Company, DBS Bank Source: Company, DBS Bank
Puregold CP All
Source: Company, DBS Bank Source: Company, DBS Bank
Robinson’s Retail Holdings Matahari Department Store
Source: Company, DBS Bank Source: Company, DBS Bank
Page 16
Regional Industry Focus
ASEAN Consumer: Food for Thought – 2019 Outlook
Page 17
SSSG charts
MK Restaurants and Yayoi Courts Singapore & Malaysia hvs hvs
Source: Company, DBS Bank Source: Company, DBS Bank
Mitra Adiperkasa 7-Eleven Malaysia
Source: Company, DBS Bank Source: Company, DBS Bank
Homepro Robinson’s Department Store Pcl Hvs
hvs
Source: Company, DBS Bank Source: Company, DBS Bank
Page 17
Regional Industry Focus
ASEAN Consumer: Food for Thought – 2019 Outlook
Page 18
SSSG charts
Centel Minor International foodhubs Hvs
hvs
Source: Company, DBS Bank Source: Company, DBS Bank
Page 18
Regional Industry Focus
ASEAN Consumer: Food for Thought – 2019 Outlook
Page 19
COUNTRY BRIEFINGS
Page 19
Regional Industry Focus
ASEAN Consumer: Food for Thought – 2019 Outlook
Page 20
Singapore – More positive outlook (Alfie YEO)
Latest developments Area of focus Details/Comments
Singapore
retail sales
Singapore retail sales in recent months is seeing a shift in retail spending from consumer staples into more discretionary
categories. For consumer staples, supermarket sales have generally been lackluster throughout 2018. In contrast, Food &
Beverage Services have been doing relatively better in recent months, particularly restaurants and fast food outlets. A more
notable trend is that discretionary items including Apparel & Footwear, Medical Goods & Toiletries, Furniture and
Household Equipment, Recreational Goods, and Watches & Jewelry have seen a pick-up. Reasons can be attributed to a
more buoyant economy and stronger tourist arrivals.
Industry news There were sweeping developments in the ride hailing app market in Singapore in 2018. Two incumbents Grab and Uber
announced their merger in March. Both were subsequently fined S$13m by The Competition and Consumer Commission
of Singapore (CCCS) in September for lessening competition. In late November and early December, Indonesian ride hailing
app Go-Jek launched its service in Singapore. After entering Vietnam and Thailand in mid-2018, Singapore is its fourth
market. Singapore-based concierge app Honestbee, also opened its cashless supermarket in Pasir Panjang in 2018.
Source: DBS Bank
Earnings Outlook
2019 GDP to benefit from 2018 spillover. Our Singapore economist raised Singapore’s 2018E GDP forecast to 3.4% (from 3% previously) and 2019F’s GDP to 3% (from 2.7%) in October, following a sequential uptick in Singapore’s 3Q18 GDP. While the looming trade war points to potential dark clouds ahead, our economist notes that Singapore’s economy has remained sanguine.
Singapore F&B and Retail Services stand out amid uncertainties. Singapore retail sales over the past few months have seen a shift in retail spending from consumer staples into more discretionary categories. Food & Beverage Services have been doing relatively better in recent months, particularly restaurants and fast food outlets. A notable trend is that discretionary items such as Apparel & Footwear, Medical Goods & Toiletries, Furniture and Household Equipment, Recreational Goods, and even Watches & Jewellery have seen a y-o-y pick-up in terms of retail sales. This coincides with arecent survey by Singstats on the services businessexpectations, indicating that these categories (F&B, RetailServices) are expecting better prospects in the next six months(from Oct 2018) to Mar 2019.
Slower growth in some ASEAN countries, but not a slowdown. Our economics team currently projects ASEAN-6 ex Singapore’s GDP to grow by 4.2-6.6% in 2019. In particular, key emerging markets such as Vietnam, Philippines and Indonesia are expected to see an uptick in GDP growth from 2018’s rate. We note that Thailand and Indonesia are expected to hold their general elections in 2019, which should see their economies benefitting from domestic consumption ahead of the polls. Over the longer term, our economist postulates that the ASEAN region could benefit from trade diversion arising from the current US-China tension.
FY19F earnings growth uptick from recovery in weak demand, costs. Based on our coverage of the Singapore downstream consumer sector, we are projecting that earnings will decline by c.4% in FY18E, largely on the back of weaker earnings from ThaiBev. In addition, several companies under our coverage have reported higher operating costs, largely related to expansion initiatives into the UK, China, Hong Kong, Macau, Taiwan, and ASEAN in 2018. While revenues should be largely satisfactory, earnings would be dampened by initial start-up losses.
Barring a significant weakening in consumer sentiment, we believe operating margins could rise as start-up costs contract. We are currently projecting earnings growth for our downstream consumer coverage to be c.14% in FY19F, driven mainly by a rebound from ThaiBev’s soft FY18 earnings in the lead up to the Thai elections, and ramp up from new outlets opened in the past year (Sheng Siong, Jumbo).
Risks
Spillover effects of trade war uncertainty affecting consumer sentiment. While ASEAN countries may benefit from trade diversion over the medium term, a global slowdown would impact consumer sentiment. Singapore’s YTD-Sep 2018 gross margins have improved over 2017, benefitting from more favourable raw material prices. We expect margins to remain healthy but should regional currencies continue to weaken vs US dollar, this could have an impact on costs, particularly imported raw materials. Lastly, a longer-than-expected breakeven of start-ups among those companies expanding overseas may also dampen earnings in 2019F.
Page 20
Regional Industry Focus
ASEAN Consumer: Food for Thought – 2019 Outlook
Page 21
Valuation & Stock Picks
Valuation attractive, currently below 5-year historical average. The sector valuation (based on stocks under our coverage) is currently at 21.7x PE, which is below its historical 13-year average of 23x. We believe with the headwinds facedby more cyclical sectors, the consumer sector’s defensive traitswill be sought after. To ride out the uncertainties in theimmediate term, we favour stocks with more resilient earnings,strong cashflows/balance sheets and/or attractive valuations.
Sheng Siong (BUY, TP: S$1.24). We maintain our BUY recommendation for Sheng Siong with TP of S$1.24 as we continue to see growth driven by more new stores after already opening eight new stores since 4Q17, improving efficiencies and margins from better sales mix, and warehouse expansion that will kick in from FY19F. The near-term outlook for new HDB supermarkets remains robust with five outlets up for tender in the next six months. Dividend yield is decent at 3-3.5% with potential for a higher payout.
Thai Beverage (BUY, TP: S$0.87). We maintain our view that we are near or at the bottom of its operational performance, which should pick up in FY19. This is on the back of the expected Thailand elections on 24 Feb and King’s coronation possibly thereafter later in 2019. ThaiBev recently issued Bt77bn of debentures to refinance existing bank loans, and the fixing of coupon rates should allay investors' concerns on the group’s exposure in light of the rising interest rate environment. Extraction of synergies from its Sabeco acquisition are medium-term growth drivers.
Koufu Group (BUY, TP: S$0.80). We maintain our BUY rating for Koufu with a TP of S$0.80. We expect FY19F earnings to recover after declining slightly in FY18, and expect FY20-21F earnings to hold steady as revenue growth is offset by higher costs. Revenue growth is expected to be led by new food courts in Singapore and Macau, but higher operating costs and depreciation would partially offset the increase in revenue. Longer-term drivers include the setting up of an integrated facility aimed at delivering economies of scale, and overseas growth from Macau. Dividend yield is attractive at close to 4%.
Singapore retail sales (ex motor vehicles) Singapore grocery retail sales
Source: Thomson Reuters Datastream, DBS Bank Source: Thomson Reuters Datastream, DBS Bank Singapore F&B retail sales Singapore real wages
Source: Thomson Reuters Datastream, DBS Bank Source: Thomson Reuters Datastream, DBS Bank
Page 21
Regional Industry Focus
ASEAN Consumer: Food for Thought – 2019 Outlook
Page 22
Malaysia – Moderating consumer growth (CHEAH King Yoong)
Latest developments Area of focus Details/ Comments
Retail sales
(forecast)
Retail Group Malaysia has raised its 2018 growth forecast for Malaysia's retail sales to 4.4% from 4.1% after taking
into consideration the industry's better performance in the third quarter and expectations of moderate growth for the
fourth quarter.
Retail sales
(reported)
Retail Group Malaysia stated that Malaysia retail industry achieved an encouraging y-o-y growth rate of 6.7% in
3QCY18. This latest quarterly result was above market expectation. Members of Malaysia Retail Association (MRA)
had projected that 3QCY18 would record 6.1% growth.
GDP Malaysia’s real GDP growth moderated further to 4.4% y-o-y in 3Q18 versus 4.5% in 2Q18 and 6.2% in the same
quarter of the previous year. On the demand side, growth was largely supported by private consumption (+9.0% y-o-
y), private investment (+6.9%) and public consumption (+5.2%). However, public investments contracted 5.5% y-o-y
which also marks the fourth consecutive quarter of decline.
Source: AllianceDBS
Sentiments soften, amid from a high base. After surging to 132.9 points in 2Q18, the highest reading in 20 years, the recent MIER consumer sentiment index (CSI) for 3Q18 contracted by 25.4 points q-o-q to 107.5points.
Table 1 : Private consumption growth and CSI
Source: Department of Statistics, MIER
The sharp decline was largely expected as we have forewarned that the CSI would moderate from its 20-year high once the post-GE14 euphoria dissipates, given that the survey was done right after GE14 with hopes riding high on the new administration. Despite the sharp contraction, the index is still above the 100-point threshold of optimism, indicating still positive but more selective consumption pattern going forward.
Improved consumer sentiment was reflected in the recent 3Q18 GDP announcement where private consumption growth accelerated to 9.0% y-o-y in 3Q18 (2Q18: +8.0%). Furthermore, private consumption grew steadily at 2.5% on a seasonally adjusted (SA) q-o-q basis (2Q18: +3.0%), above the 2015-2017 average SA q-o-q growth of 1.5%.
Expect consumption growth to moderate in 2019. In line with the CSI, we expect the consumption growth to be strong in 2H18 before moderating in 2019. This is because we observed that many consumers have taken advantage of the tax holiday (Jun-Aug 2018) to engage in big-ticket purchases such as motor vehicles and household appliances prior to the implementation of the sales and service tax (SST).
We believe the bulk of these big ticket purchases are likely to involve personal financing such as hire purchase and/or instalment loans, which could limit their propensity to consume going forward, in view of the more leveraged household balance sheet. Furthermore, the implementation of SST in September would also weigh on consumption growth going forward.
Budget 2019- supportive but not a significant catalyst. In Budget 2019, the government has resorted to improve the livelihood of Malaysians, particularly among the B40, by proposing measures such as (1) raising the minimum wage to RM1,100 from RM1,050 initially – starting January 2019, and (2) targeted petrol and electricity subsidies. Overall, we believethat this Budget will be mildly positive for the consumer sectoras the initiatives outlined will help to offset the impact of risingcost of living, but does not serve as a significant catalyst for thesector.
Among the consumer stocks under our coverage universe, British American Tobacco (HOLD, TP: RM35.60) could be the beneficiary of Budget 2019 as the government has reiterated its commitment to clamp down on smuggling activities. The government is aiming to regain at least RM1bn in lost revenue due to illicit trades.
Page 22
Regional Industry Focus
ASEAN Consumer: Food for Thought – 2019 Outlook
Page 23
3QCY18 results- not particularly appetising. The 3QCY18 corporate results announced in November were largely within expectations. However, Padini reported disappointing earnings dragged by (1) moderated topline growth, (2) gross margin declining from 43% in 3QCY17 to 40% in 3QFY18 in the absence of the reversal of inventories written off, coupled with higher product cost and poorer sales mix, and (3) 9% increase in selling and distribution expenses.
Cost pressure could be a concern. On the other hand, we highlight that cost pressures have increased led by (1) labour shortage issues and rising labour costs due to a higher minimum wage threshold, (2) weakening ringgit vs USD leading to more costly imported products, and (3) higher cost of production with the authorities expected to float the RON95 price in 2Q19, and the implementation of digital tax. These could exert downward pressures on companies’ profit margins, particularly in an increasingly competitive operating environment, coupled with expectations of moderating consumption in 2019 that may restrict companies’ ability to pass on any cost increase.
At present, the Bursa Malaysian Consumer Product Index (BMCPI) is trading at a forward PE of 22x, which is around +2SD of its historical mean. After the unexciting 3QCY18results reported by the stocks under our coverage, we do notsee room for significant earnings upgrades going forward. Assuch, we believe that valuation for the market is rich atpresent.
Table 2 : Indices’ performances on a YTD basis
Source: Bloomberg Finance L.P.
Table 3 : PE band chart of consumer index
Source: Bloomberg Finance L.P.
Maintain our Neutral stance on Malaysia consumer sector. We are maintaining our Neutral stance on the sector’s prospects, given that (1) we expect consumption growth to moderate in 2019, (2) we believe that the BMCPI has largely priced in the vastly improved consumer sentiments in view of its rich valuation, and (3) rising cost pressures.
3.4% 1.3%
-3.5%-6.5%
-13.8%
-23.0% -25.8%-29.3%
-48.1%-60%
-50%
-40%
-30%
-20%
-10%
0%
10%
Finan
ce
Cons
umer
Prod
ucts
Indus
trial
Prod
uctio
n
KLCI
Plant
ation
Tech
nolog
y
Prop
erty
Small
Cap
Cons
tructi
on
YTD Growth
Mean:17.7x
+1 S.D:21.2x
-1 S.D:14.2x
+2SD:24.7x
-2 SD:10.7x
5
10
15
20
25
30 FBM Consumer Product's forward P/E
Page 23
Regional Industry Focus
ASEAN Consumer: Food for Thought – 2019 Outlook
Page 24
Malaysia consumer sentiment index Malaysia private consumption growth
Thailand – Positive momentum kicking in (Namida Artispong)
Latest developments Area of focus Details/ Comments
Political data The Deputy Prime Minister announced that the general election is likely to be held in Feb 2019.
Economic data Donations to political parties are now tax deductible to encourage people to support the role of political parties in a
democracy of up to Bt10,000 and juristic entities up to Bt50,000.
Economic data The rate-setting Committee is expected to lift Thailand’s policy rate by 25bps at the meeting on Feb 6, 2019 to 1.75%.
Economic data The visa-on-arrival (VOA) fee waiver scheme was given to 21 nationalities including the Chinese, starting on 15 Nov and
will continue until 13 Jan.
Economic data Finance Ministry is proposing 5% VAT refund scheme for spending up to Bt20,000 during Feb 1-15 to the cabinet. Economic data Rubber Authority of Thailand (RAOT) is considering granting Bt1,800 per rai, not exceeding 15 rai each, to help farmers
offset the cost of living.
Economic data The tax allowance for shopping of up to Bt15,000 is between 15 Dec 2018 and 15 Jan 2019. However, the products
will cover only tyres, books, and community-based products (OTOP).
Company data MINT completed a tender offer for shares in the NH Hotel Group in Oct and now holds a 94.1% stake in the NH Hotel
Group at a total investment of EUR2.3bn or Bt87.4bn.
Company data BJC acquired 50.2% of White Group for Bt1.6bn in Nov. The mandatory tender offer is triggered for the remaining
49.8% of total number of WG shares at Bt180/share (implying an offer value of Bt1.6bn).
Source: DBS Vickers 3Q18 results review. Earnings results of the companies under our coverage in 3Q18 were a mixed bag. For food companies, core operations of Charoen Pokphand Food (CPF) improved significantly y-o-y, thanks to a recovery of swine prices in Thailand and Vietnam, supporting robust core earnings growth in the quarter. Meanwhile, operational environment was also more favourable for Thai Union (TU) as gross margin started to expand in 3Q18 following several quarters of decline, thanks to successful price negotiations and lower tuna raw material prices. Taokaenoi Food & Marketing (TKN)’s earnings results were a disappointment. Despite gross margin expansion and lower effective tax rate, its core earnings growth came in flat due to a spike in SG&A. For Thai retailers under our coverage, all companies including CP ALL (CPALL), Home Products Center (HMPRO), Berli Jucker (BJC), and COM7 (COM7) posted positive earnings growth, except for Beauty Community (BEAUTY) who delivered a decline in net profit. Lower gross margin from the convenient store business and higher SG&A to sales from MAKRO operations pressured CPALL’s bottom line to grow at only low-single-digit pace while HMPRO’s 3Q18 earnings growth continued to outpace revenue growth, thanks to higher EBIT margin and lower interest expense as a result of lower cost of debt from earlier refinancing activities. BJC’s earnings growth was saved by higher revenue and a plunge in effective tax rate from the company’s tax restructuring while COM7’s bottom line growth was robust, thanks to strong sales and margin expansion. BEAUTY was the only retailer that delivered a decline in net profit due to weak sales and gross profit contraction.
For hospitality/food-related operators in Thailand, Minor International (MINT) recorded negative earnings growth, dragged by a jump in interest expenses related to NH Hotel acquisition and its food unit in which negative SSSG was seen in all of its operating hubs (Thailand; -4.4% SSSG). Meanwhile, higher revenue growth from new hotel openings and positive TSSG, as well as, lower effective tax rate drove CENTEL’s net earnings. Thailand: 3Q18 earnings results review
Stocks Results Note
CPF Above Sales growth and lower SG&A to sales were the main reasons for a hike in core earnings y-o-y.
TU Above Core earnings were above our and market expectations due to higher-than-expected gross margin.
MINT Below
A decline in core profit y-o-y was due to lower margins at its time-share, food, and retail trading businesses, as well as a jump in interest expenses (+61.4%) related to NH Hotel acquisition.
Slow earnings growth was mainly driven by higher revenue.
HMPRO In-line Despite slow revenue growth, earnings grew 16% y-o-y, thanks to fatter gross margin and lower interest expense.
BEAUTY Below The y-o-y decline in earnings was due to weak sales and gross profit margin contraction.
Source: DBS Vickers
Page 25
Regional Industry Focus
ASEAN Consumer: Food for Thought – 2019 Outlook
Page 26
Stocks Results Note
BJC In-line
The y-o-y earnings growth was mainly supported by higher revenue and a plunge in effective tax rate from the company’s tax restructuring. However, operating profit decreased slightly.
TKN Below A spike in SG&A to sales and one-time penalty expense were the reasons for a decline in earnings.
COM7 Above Strong sales and margin expansion were key earnings drivers y-o-y
Source: DBS Vickers
Outlook. We expect the general election in Feb (subject to changes) to be another driver for consumer companies in Thailand in 2019. The economy generally improves prior to any general election, as money tends to be injected into the economic system while the election will also boost investor confidence. However, domestic spending before the general election may not benefit private consumption and economic growth significantly.
There are a few stimulus packages lined up before the general election. The major scheme is welfare card policy for 14.5m low-income earners, whereby Bt330/month will be given to each household for electricity/water payments (Dec 2018 to Sept 2019) and a one-time (Dec 2018) Bt500 cash handout/person. Aid package will also be given for rubber plantation and oil palm owners.
Additional consumption stimuli that are Shop for Nation campaign (from 15 Dec 2018 to 15 Jan 2019) which allows a tax allowance of up to Bt15,000 for spending on tyres, books/e-books, and OTOP products, as well as, 5% VAT refund scheme for spending up to Bt20,000 during Feb 1-15, 2019.
Overall, the economists expect economic growth in 2019 to be more domestic demand-led rather than export-led as seen in 2018. The Central Bank forecasts Thailand to register GDP growth of 4.2% in 2019. This should be supported by improving private consumption and government spending. However, the intensifying international trade row, low farm product prices, and high household debt remain the risks.
In the Consumer space, we prefer the commerce sector, on which we have an Overweight rating while we rate food and hospitality/food-related sectors as Neutral. We believe the commerce sector should benefit the most from the upcoming general election and coronation which would be another supporter of an economic recovery this year. Given expected improving domestic consumption, we expect the commerce sector’s double-digit earnings growth in FY19F to be driven by both revenue and operating margin expansion.
Domestic demand-led growth should boost SSSG into positive territory while retailers are expected to continue to accelerate store expansions. In terms of margin expansion, positive SSSG would raise operating leverage and companies’ specific factors
will be key drivers. Improvement in operating margins should be driven more by gross margin expansion arising from a shift in product mix towards high-margin products and companies’ efforts to increase the sales proportion of house brands.
For upstream and midstream food operators in Thailand like CPF and TU, we expect 2019 to be a year of recovery. We expect to see i) stronger domestic meat prices from demand/supply rationalisation, ii) sustainable swine price recovery in Vietnam, iii) less volatility of tuna raw material prices, and iv) companies to continue partially passing on high costs to customers. These should translate in margin improvement.
Domestic swine prices are expected to maintain positive momentum as the impact of supply rationalisation has already started to filter through. Similar positive trend should also be seen for broiler prices in Thailand next year, as Brazil’s supply cut and exports to new markets like China starts to take effect. Meanwhile, swine prices in Vietnam continued to rise and stand at above VND51,000/kg currently (vs VND41,332/kg in 9M18). This was thanks to more balanced demand and supply dynamics. As the production cycle of swine is 1-1.5 years, we expect swine prices in Vietnam to remain healthy at least for 1H19.
For seafood business, we believe the volatility of tuna raw material prices is less. Selling price adjustments were made successfully and tuna raw material prices are more stable now. This should enable TU to manage its cost of goods sold or inventory cost more effectively. Therefore, we expect to see y-o-y gross margin expansion in 2019 for seafood operators.
The risk remains for hospitality/food related companies stemming from slower-than-expected recovery of Chinese tourists. The capsizing of the boat in Phuket triggered the drop in Chinese tourists since July 2018 and has negatively impacted hotel operators, resulting in a drop in the average occupancy rate. This may further result in Thai hotel operators struggling to raise their average room rates amid expanding supply. As the Chinese account for almost 30% of Thailand’s total tourism receipts, the government is doing as much as it can to lure back the Chinese tourists.
Recently, the visa-on-arrival (VOA) fee waiver scheme was given to 21 nationalities including the Chinese, starting on 15 Nov 2018 and will continue until 13 Jan 2019. However, we believe the incentive may not draw Chinese tourists in the short-term as VOA fee is not the main concern for the Chinese but rather the issues involve safety and security. In our view, the decline in Chinese tourist arrivals this time is an issue of emotional insecurity from the Chinese which is very different from previous incidents which stemmed from domestic political turmoil or natural disasters. Therefore, the assurances of safety and security in Thailand from local authorities would be the better way to draw the Chinese back. For casual dining
Page 26
Regional Industry Focus
ASEAN Consumer: Food for Thought – 2019 Outlook
Page 27
restaurants, these should get tailwinds from government stimulus, albeit there is intense competition.
Exchange movements has an impact on companies with overseas operations. The impact is more from the translation effect as the export content of companies under our coverage is quite low (5% of sales for CPF and less than 10% for TU). A strong appreciation of the Thai Baht had negatively impacted margins of TU, MINT, and CPF in 2018. However, we do not expect to see a strong appreciation of Thai Baht this year and thus currency risks should be limited.
Stock picks: HMPRO (BUY, TP: Bt17.50). HMPRO is one of our top picks and has several positive catalysts working in its favour: i) improving domestic spending mood, ii) positive momentum on SSSG this year, and iii) healthy earnings growth of 16% in FY19F from stronger gross profit margin and cost benefits from a larger operating scale. HMPRO deserves to trade at a premium as it continues to dominate the home and garden specialist retailing segment in Thailand. This has been made
possible by its strong business strategy execution in investment by striking a fine balance between growth and risk, coupled with its ability to anticipate and adjust to customers’ lifestyle changes. HMPRO has been expanding into a new store format which is more profitable and widening its customer base.
CPALL (BUY, TP: Bt83.00). We believe the bad news is already priced in. CPALL’s cash-and-carry business will still be pressured by the opening of new stores overseas, which will still contribute losses to the group. However, we expect its convenience store business to benefit the most from upcoming elections and still be miles ahead of its competitors and continue to do well with positive SSSG, with new products and services to cater to customers’ changing needs. The strong operations of CVS would lead to solid earnings growth (FY19F earnings growth forecast of 14% y-o-y) for the whole group. CPALL is now trading at 26x forward PE, slightly lower than its historical average level of 28x.
Thailand consumer confidence index Thailand retail sales growth (y-o-y %)
3Q18 review: sign of improvement in staples and retailers; strong results in animal protein. Demand recovery is taking place at a gradual pace. For staples, revenue growth has improved in the past two quarters supported by regional elections and government’s populism. The growth was mostly from volume increase as there was very minimal adjustments made to selling prices YTD. Retailers posted weak revenue in 2Q18 but started to show signs of improvement in 3Q18.
As for animal protein, both Japfa Comfeed (JPFA) and Charoen Pokphand (CPIN) posted a very strong 3Q18 results on the back of resilient DOC and broiler prices. In 3Q18, DOC price stood at Rp5,755/chick (+37.3% y-o-y) and broiler price was up by 12.8% y-o-y to Rp19,116/kg. The undersupply of DOC resulted in DOC prices being resilient. Both of the companies posted strong y-o-y earnings growth thanks to lower soybean meal price environment which resulted in margin expansion.
Revenue and net income performance (y-o-y)
Revenue 3Q17 4Q17 1Q18 2Q18 3Q18 Indofood CBP Sukses Makmur 8.1% 3.4% 4.5% 6.4% 11.7% Indofood Sukses Makmur 10.7% 1.6% -1.1% 3.1% 7.3% Matahari Department Store -22.7% 4.3% 5.9% 1.8% 2.9% Mitra Adiperkasa 9.4% 19.8% 19.3% 16.9% 18.9%
Indonesia DOC (Rp/chick) and broiler (Rp/kg) price Indonesia GDP breakdown
Source: Pinsar Source: SEKI Bank of Indonesia
Commodity prices
Source: DBSVI Our stance on the sector in FY19F. We view that the sector’s outlook should turn brighter this year, albeit at a gradual pace. There are several Government stimulus packages in place: (i) to increase the number of recipients under the National Health Insurance, (ii) to increase the number of recipients under the Family Hope Programs (Program Keluarga Harapan), (iii) Non Cash Food Aid programs, and (iv) Village Funds. These should help to boost overall consumer spending in FY19F, especially in rural areas.
While we expect top-line growth will continue to improve in 1Q19 supported by presidential election campaign, we see downside risk stemming from weaker Rupiah and lagged effect of higher commodity prices which could pressure overall margins in FY19F.
Forecast 8%/12% revenue growth for consumer staples/retail sub-sectors. Consumer sentiment is expected to gradually recover in FY19F – we estimate aggregate revenue growth of 8% y-o-y, largely driven by higher volume growth and slight increase in ASP. For the consumer staples sub-sector, we have seen that the revenue growth has improved consistently in the past two quarters supported by Regional Elections and Government populism. The growth was mostly from volume increases as there were very minimum adjustments made to selling prices YTD. Retailers catering to the middle to low income segment may reap the most benefits from the Presidential Election. We estimate an aggregate revenue growth of 12% y-o-y for retail sub-sector.
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
-
5,000
10,000
15,000
20,000
25,000
Jan 14 May 14 Sep 14 Jan 15 May 15 Sep 15 Jan 16 May 16 Sep 16 Jan 17 May 17 Sep 17 Jan 18 May 18 Sep 18
Limited room for margin expansion. With our house view that Rupiah will weaken further to Rp15,900 in FY19F. We also note that costs of materials like wheat, skim milk powder and packaging price have been on the rise since 2Q18. Therefore, raw material cost inflation would negatively impacted margins of consumer staples in 4Q18 and 2019 if the trend persists. In addition, we have yet to see a significant adjustment in ASP as companies are still on wait-and-see mode.
Post-election, possible risk on fuel price hike could hamper consumption in latter part of year. While we believe the campaign will help to lift private consumption, we see risk of government raising the price of premium fuel post election, which could hamper the consumption recovery momentum in 2019. Retailers’ earnings are more prone to fuel price hike (for the middle class) and Rupiah depreciation (for upper-middle segment), hence we expect earnings growth to slow to 11% in FY19F from 18% in FY18F
Animal protein: supply and demand conditions are favourable in FY19F. The tide is turning for the Indonesia poultry industry, as it recovers from oversupply conditions which had negatively impacted poultry players’ profitability in the past. In 2018, the ASP of DOCs and broilers remained very strong due to the undersupply of DOC in the market and we expect the situation to persist in 2019.
In FY19F, we estimate that poultry companies under our coverage would be able to maintain 10% revenue growth momentum from potentially higher demand for chicken in rural areas, and we assume that the ASP of DOCs and broilers would stabilise. We believe that consumer spending will also be supported by higher wages, and more stable electricity and fuel prices in 1H19. Besides that, the presidential election in April 2019 should also boost consumption, particularly in rural areas.
Stock picks Indofood Sukses Makmur (BUY, TP Rp10,000). INDF’s share price has fallen 14% YTD, underperforming the JCI index due to concerns over its poor agribusiness performance and exposure to foreign currency debt (35% of total debt) amid a weak rupiah environment. It now trades at a deep discount of 42% to its sum-of-parts (SOP) valuation.
Our plantation sector analyst expects CPO price to average RM2,560/MT in 2019, higher than the YTD average price of RM2,325/MT, with the successful implementation of Indonesia’s biodiesel mandate as a key catalyst. A better outlook for CPO prices should pave way for the SOP discount to narrow in the future.
Top pick in Indonesia animal protein space: Japfa Comfeed (BUY, TP Rp2,600). We maintain our BUY call on JPFA, in view of:
- Attractive valuation which is currently at a discount compared to the industry
- Favourable ASP of DOCs and broilers to support growth
- Improvement in demand for chicken per capita, which will boost earnings for JPFA
- Limited impact on gross margin despite higher corn price volatility given JPFA higher corn silo capacity (which enables the company to hold more inventory)
We gather that JPFA is still trading at an attractive valuation of 6.3x FY19F EV/EBITDA – which is at a discount vs. the industry’s 9.4x FY19F EV/EBITDA. We believe with the poultry industry's positive outlook on the back of stable DOC and broiler prices in FY19F, JPFA should be well placed for further growth. Although we assume a softer EBITDA margin of 13.4% for FY19F, it is still an improvement over the 7-12% recorded during FY13-17.
Indonesia consumer confidence index Indonesia 3-month price expectations
Indonesia food, beverage and tobacco retail sales Indonesia 2 & 4-wheeler sales (y-o-y change %)
Source: Thomson Reuters Datastream Source: Indonesia 2W association (AISI)
Page 32
Regional Industry Focus
ASEAN Consumer: Food for Thought – 2019 Outlook
Page 33
Philippines – Margin pressure to continue (Mark ANGELES)
Latest developments Area of focus Details/ Comments
GDP While decent and still ahead of most of its peers, PH’s 3Q18 GDP print disappointed consensus expectations (est. 6.3%),
coming in at 6.1% (3Q17: 7.2%). Growth from the demand side was largely brought about by government expenditure
(+5.9ppts to 14.3%) and capital formation (+6.4% to 16.7%), while the widening trade gap (-6ppts to -5%) proved to
be a major headwind to economic performance. Dampened household spending (-0.2ppts to 5.4%) conversely dragged
total demand, due in part to negative consumer sentiment and years’ high inflation. Meanwhile, the deceleration in
industries (-1.8ppts to 6.5%) and services (-0.4ppts to 6.9%) sectors was not able to lift national output figures, which
was further impaired by contraction in agricultural produce (-3ppts to -0.4%). With 9M18 GDP growth standing at
6.4%, growth of at least 7.0% in 4Q18 (4Q1 7: 6.5%) is now required to meet the lower band of the government’s
6.5% to 7.5% target for FY18. For 4Q18, cyclical boost in domestic demand may provide economic tailwinds, albeit
inflation, trade tensions, and tightening monetary policy may set back overall growth.
Consumer
Confidence
Following eight consecutive quarters of positive reading, consumer confidence index (CI) reversed to negative territory in
3Q18 at -7.1%. In 4Q18, CI further declined to -22.5% as pessimists continued to outnumber optimists, largely on
account of inflation, higher household expenditures, low income and no increase in income, and unemployment. In
general, sentiment declined across all three indicators (economy, household finances, and household income) and even
across income groups, as consumers expect inflation and interest rates to rise and the Peso to depreciate in the year
ahead. More households increased savings in view of future expenditures, resulting in the average debt-to-income ratio
declining to 24.3% (from 43.4%).
Government
spending
Government expenditures expanded by 14.3% (3Q17: 8.3%) – fastest pace in almost three years – having already
disbursed 94% of its programmed disbursements for FY18. We expect the government to sustain its spending
momentum given its first cash-based national budget of P3,757bn for FY19, wherein P1tr is allocated in capital spending.
To augment financing, the government is looking to borrow P1.2tr in 2019 (+33.9% vs 2018), with a 75-25 borrowing
ratio between domestic and foreign creditors. The government set a budget deficit cap of 3.2% of GDP (from 3.0% in
2018) amid its massive infrastructure overhaul.
Inflation
Headline inflation slowed down to 6.0% (est. 6.3%) in Nov-18, largely on the back of food inflation deceleration (which
slashed 0.5ppts off its headline figure). This brought year-to-date average to 5.2% – still above the BSP’s 2% to 4%
inflation target. While we welcome the marked slowdown in headline figures, we prefer to watch closely the movements
in core inflation which further increased m-o-m by 0.2ppts to 5.1%. This should send the signal that underlying price
pressures (sans volatile items in the CPI basket such as food and energy) are yet to show signs of deceleration. We expect
the BSP to proactively increase policy rates by another 25bps in its upcoming Monetary Board meeting. Despite the
expectation of two more hikes (+50bps) in 2019, our DBS in-house economist estimates inflation to hit 4.7% next year.
The government’s expansionary fiscal stance should keep domestic demand strong, neutralising some of the downside.
Local currency
valuation
Unfavourable local currency valuations have hit raw material costs of consumer companies as the Philippine peso slid to
US$1:P54.33 (-8.8%) YTD in early Oct-18. As for the Philippine Peso (PHP), DBS expects the currency to further weaken
but to a lesser extent at US$1:P55 (-3.8% vs est. end-2018 fx rate at US$1:P53) as the central bank still needs to catch
up to have competitive real rates among peers.
Overseas
Filipino
Remittances
Personal/cash remittances from Overseas Filipinos (OF) rose by only 2.4%/2.5% to US$23.7bn/US$2.2bn in 9M18, below
the BSP’s target of 4% growth y-o-y. The BSP attributed declines in recent months to lower remittances figures from
Saudi Arabia, Qatar, Kuwait, and United Arab Emirates (UAE), where over 4,000 OF workers were repatriated in early
2018. Possible catch-up of OF remittances in FY19F may provide tailwinds to consumer demand moving into 2020.
Source: Philippine Statistics Authority (PSA), Bangko Sentral ng Pilipinas (BSP), First Metro Securities, DBS Bank
Page 33
Regional Industry Focus
ASEAN Consumer: Food for Thought – 2019 Outlook
Page 34
Better than most, but challenged nonetheless. As of 7 December, Philippine consumer stocks under our coverage (ex-San Miguel Pure Foods declined by 4.5% YTD (market-weighted) albeit outperformed the PSEi (benchmark index), which was down by 12.8% YTD. Individually, our picks early in the year (from 1 Jan 1 to 31 Jul) – i.e. JFC (+7.4%), URC (-5.9%), and PGOLD (-2.4%) – and post-rebalancing (from 31 Jul to 7 Dec) – i.e. FB (+21.4%) – fared well against the index but were challenged nonetheless. This was amid faster-than-expected inflation, higher operating costs, Peso depreciation, low consumer demand, and weak consumer confidence. 3Q18 results: A slow quarter for consumer names. Topline performance in 3Q18 was not able to follow through a stronger 1H18, as faster-than-expected inflation eroded disposable income gains from personal income tax cuts early in the year. Particularly hit were food manufacturers, i.e. CNPF (+10.1% vs 1H18: 20.5%) and URC (-1.5% vs 1H18: 5.9%), which failed to sustain demand in 3Q18. Consumers traded down to staple food manufacturers in the likes of FB (+12.8% vs 1H18: 13.6%), as well as foodservice giant JFC (+21.7% vs 1H18: 21.3%), which cater to low- to lower middle-income households. An exemption was EMP (+16.6% vs 1H18: 7.8%), as its international segment fared well due in part to Peso depreciation and because high middle- to high-income households were less sensitive to inflation vis-à-vis the general masses. RRHI’s consumer base are likewise less sensitive to inflation, as reflected by healthy 3Q18 topline performance (+13.2% vs 1H18: 13.0%) and blended SSSG (+6.6% YTD). Meanwhile, despite lower-income consumer base, PGOLD’s blended topline for 3Q18 (+15.5%) did better than 1H18 (+13.1%) however mainly on higher average basket sizes. Price increases for selected items arrested declines on the EBIT and net income level, albeit in varying degrees, for consumer counters. 3Q18 proved that 2018 was so far a particularly good year for EMP, where double-digit margin expansion was buoyed by the performance of its international operations. Meanwhile, higher operating expenses (attributable to manpower and rental costs) wiped out PGOLD’s profits at the EBIT level, while lower supplier support contracted RRHI’s gross/EBIT margins across its business formats. For URC and FB, increased commodity prices (particularly for sugar and livestock, respectively) allowed for some margin gains. URC was however negatively affected by higher A&P, labour, and financing costs, erasing some of its profits, while FB fared better upon the strategic consolidation of its higher margin beer business. JFC likewise consolidated Smashburger into its financials, but operating losses of the US subsidiary proved detrimental to margins. Meanwhile, for CNPF, margins
were sequentially pressured by higher prices of key raw materials, packaging, and financing costs. Consumer companies’ sales growth trend
Source: Thomson Reuters, First Metro Securities Consumer companies’ EBIT margin trend
Source: Thomson Reuters, First Metro Securities Results Review
Net Income 4Q17 1Q18 2Q18 3Q18 CommentCNPF -32% 4% 9% 7%EMP -32% 6% 34% 11% In lineJFC 13% 17% 15% 26% AheadFB -1% -6% 17% 9% AheadPGOLD 3% 12% 37% 9% In lineRRHI -3% 22% 10% 0% In lineURC -14% -12% -35% 2% BelowAggregate -9% 2% 8% 9%F&B -13% -1% 4% 10%Reta ile rs 1% 16% 23% 5%
Page 34
Regional Industry Focus
ASEAN Consumer: Food for Thought – 2019 Outlook
Page 35
FY19F Outlook – Unexciting year ahead. Lacklustre sector earnings expected in FY19F. Our cautious outlook on the Philippines consumer sector hinges on weak consumer sentiment, which has declined, amid years of high inflation. Despite recent slowdown in headline inflation, core trends (sans volatile food and energy items) indicate still elevated price levels overall. Note that FY19F comes without additional disposable income from personal income tax cuts (as opposed to early FY18), making high consumer demand from the first half of FY18 tough to beat. The government’s thrust to increase imports of food items that fall short of domestic supply may arrest further supply-side price increases, however sustained weakness of the Peso may still erode margins for importing companies. Higher labour costs and volatile oil prices will exert cost pressure, while regulatory risk is a concern amid proposals to hike excise taxes for tobacco items and alcoholic beverages. Margins to remain challenged. We see margins further deteriorating, if not at least sustained, in FY19F due to a slew of factors as follows: 1) increased labour expenses – recently approved wage hikes (13 out of 17 regions) should lead to contracting margins y-o-y for counters with operations across the country; 2) potential logistics disruption –the potential phasing out of 15 year-old trucks (if this measure is pushed through) would further increase costs on top of an already volatile oil market; 2) elevated A&P spend – due to competition; 3) higher borrowing costs – amid rising rates; businesses may become selective on expansion activities as funding is not as cheap as before; 4) Peso to further weaken – should sustain pressures for importing companies, albeit to a lesser extent vis-à-vis 2018 (DBSF: US$1:P55 by end-FY19F); and 5) changes in accounting standards for leases – should increase depreciation and interest expenses, as well as skew gearing ratios, upon recognition of on-balance sheet liabilities pertaining to operating leases.
Risks to our call are: 1) lower-than-expected inflation – we acknowledge marked decline in recent headline inflation figures, albeit we prefer to watch movements in the core inflation (indicative of demand-side inflation). DBS expects FY19F inflation to be 4.7% but the realisation of BSP’s estimates at 3.5% is a welcome development for both consumers and businesses alike; 2) infrastructure spend gaining traction – should ease logistics cost pressures and unlock efficiency gains for the economy as a whole; 3) election boost to kick in – the midterm elections should marginally boost some counters (but to a lesser extent than national elections); 4) catch-up of OF remittances and BPO revenues following a slow 2018 – should provide boost in disposable incomes and, consequently, demand; and 5) recovery of consumer sentiment to positive territory – is hoped for, but less likely. Stock pick (Sell) Universal Robina Corp. (URC:PM FULLY VALUED TP 106.00) – We reduced our FY18E/19F earnings by 16%/19%, to reflect the persistent weakness in URC’s domestic branded consumer foods (BCF) business and the risk of lower margins. We are of the view that URC’s valuation premium (currently trading at 27.6x FY18F PE) is difficult to justify and unlikely to be sustained given URC’s challenging and lacklustre earnings prospects (-1.1% 2-year earnings CAGR). Our earnings forecasts are lower than consensus as we expect a gradual decline in EBIT margins. This is reflective of higher contribution from international BCF business, elevated A&P spend and manpower cost (on increase in minimum wages), rising input costs, weak local currency, and the adverse impact of the excise tax on sugar-sweetened beverages (SSB). Nonetheless, potential catalysts remain: 1) better-than-expected recovery in Vietnam; 2) more pronounced improvements in profitability from the integration of Griffin’s and Snack Brands Australia (SBA); 3) lower input cost; 4) stable currency markets; 5) gains in domestic market share; 6) production innovation and successful launch of new products; and 7) significant improvement in international BCF segment’s margins.
Page 35
Regional Industry Focus
ASEAN Consumer: Food for Thought – 2019 Outlook
Page 36
Overseas Filipino Remittances Headline vs Core Inflation (2012=100)
Source: Thomson Reuters, Bangko Sentral ng Pilipinas, First Metro Securities
Source: CEIC, Philippine Statistics Authority, Bangko Sentral ng Pilipinas, First Metro Securities
Consumer Confidence Index (CI) Household Final Consumption Expenditure (2000=100)
Source: Thomson Reuters, Bangko Sentral ng Piliipinas
Source: Thomson Reuters, Philippine Statistics Authority, First Metro Securities
Expect moderate economic growth momentum on the back of trade headwinds, tighter global liquidity conditions and more US Fed hikes.
Source: Thomson Reuters Datastream, DBS Bank
Malaysia GDP Thailand GDP
Growth could potentially fall short of expectations on a challenging external environment, uncertainties on oil related revenue flows, and risks of cut backs in government spending.
2019 is likely to be a more challenging year. From 4.1% y-o-y GDP growth projected in 2018E, growth is likely to moderate to 3.8% in 2019.
Source: Thomson Reuters Datastream, DBS Bank Source: Thomson Reuters Datastream, DBS Bank
Indonesia GDP Philippines GDP
We think growth might pick up to 5.2% in 2019 supported mainly by election-transitory boost to consumption, but may slide back to 5.1% in 2020 in the face of stronger external headwinds.
We expect real GDP growth to pick up to 6.5% in 2019 and moderate slightly to 6.4% in 2020 as global trade trends weaken.
Source: Thomson Reuters Datastream, DBS Bank Source: Thomson Reuters Datastream, DBS Bank
Page 38
Regional Industry Focus
ASEAN Consumer: Food for Thought – 2019 Outlook
Page 39
Inflation forecasts & commentary Singapore
Source: DBS Bank
CPI Inflation (%) 2017 2018E 2019F 2020F
Singapore 0.6 0.7 1.8 1.5
Malaysia 3.8 1.1 2.5 1.6
Thailand 0.7 1.1 1.4 1.5
Indonesia 3.8 3.2 3.8 3.6
Philippines 2.9 5.3 4.7 3.8
Inflationary pressure should remain manageable. Low base effect due to declines in car prices arising from the supply glut in the secondary car market is expected to push inflation up in 2019F. Source: Thomson Reuters Datastream, DBS Bank
Malaysia Thailand
We expect inflation to rise to 2.5% in 2019, on the back of a low base this year (1.1%).
Inflation is near peak and is likely to trend lower in rest of this year and early next year. With global oil prices down more than 30% from year’s highs and THB outperformance, imported inflationary risks are subdued.
Source: Thomson Reuters Datastream, DBS Bank Source: Thomson Reuters Datastream, DBS Bank Indonesia Philippines
We think inflation might inch towards 4% in 2019 and ease back to 3.6% in 2020 barring further supply side disruption. The government might need to adjust domestic retail fuel price to catch up with the economical price even if oil price eases to US$60/bbl.
The prospects of lower oil prices on average this year would soften inflation. We estimate inflation will ease, but would stay above BSP’s target range of 4.7% in 2018 and ease to 3.8% in 2020.
Source: Thomson Reuters Datastream, DBS Bank Source: Thomson Reuters Datastream, DBS Bank
Page 39
Regional Industry Focus
ASEAN Consumer: Food for Thought – 2019 Outlook
Page 40
Forex forecasts & commentary USD/SGD
Source: DBS Bank
Exchange Rates, eop 2017 2018E 2019F 2020F
Singapore 1.34 1.40 1.42 1.38
Malaysia 4.06 4.20 4.25 4.15
Thailand 32.6 33.0 33.5 32.5
Indonesia 13,496 14,800 15,600 15,200
Philippines 49.9 53.0 55.0 54.0
Source: Thomson Reuters Datastream, DBS Bank
USD/MYR
USD/THB
Source: Thomson Reuters Datastream, DBS Bank Source: Thomson Reuters Datastream, DBS Bank
USD/IDR
USD/PHP
Source: Thomson Reuters Datastream, DBS Bank Source: Thomson Reuters Datastream, DBS Bank
Page 40
Regional Industry Focus
ASEAN Consumer: Food for Thought – 2019 Outlook
Page 41
Input costs – Favourable commodity price environment Input prices generally mixed. The prices of some commodities have come off their 2018 highs, while some have bounced off the 2018 lows. Sugar, Coffee, Cocoa, Milk, Barley and Wheat are off recent lows, while Palm Oil, Rice, Aluminium and Tin have corrected from the highs this year. Nonetheless, many of these commodities are priced nowhere close to recent years’ peak and remain favourable on a mid-term basis.
Expect stable/mixed margin outlook. With input prices generally mixed, we expect input costs and margins to be relatively stable over the longer term. Most companies would have put in place hedging policies, which should help to keep margins stable going forward at least for the first half of 2019.
Sugar Coffee
Source: Thomson Reuters Datastream, DBS Bank Source: Thomson Reuters Datastream, DBS Bank
Cocoa Palm Oil
Source: Thomson Reuters Datastream, DBS Bank Source: Thomson Reuters Datastream, DBS Bank
Milk Rice - Thailand
Source: Thomson Reuters Datastream, DBS Bank Source: Thomson Reuters Datastream, DBS Bank
Page 41
Regional Industry Focus
ASEAN Consumer: Food for Thought – 2019 Outlook
Page 42
Barley Wheat
Source: Thomson Reuters Datastream, DBS Bank Source: Thomson Reuters Datastream, DBS Bank
PET Aluminium
Source: Thomson Reuters Datastream, DBS Bank Source: Thomson Reuters Datastream, DBS Bank
Tin WTI
Source: Thomson Reuters Datastream, DBS Bank Source: Thomson Reuters Datastream, DBS Bank
Page 42
Regional Industry Focus
ASEAN Consumer: Food for Thought – 2019 Outlook
Page 43
Peer Comparison Regional retailer peer comparison
Source: Thomson Reuters, DBS Bank, DBS Vickers, AllianceDBS, First Metro Securities (3 January 2019)
Company
Market Cap
(US$m) Px Last PE (A ct ) PE (Yr 1) PE(Yr 2)P/BV (x )
P/Sales (x )
ROE (%)
Operat ing Margin
(%)
Net Margin
(%)
Div idend Y ield (%)
NetGearing
(x )
South East A sia RetailersCP All PCL 19,553 70.25 30.3x 26.5x 23.6x 6.3x 1.1x 25% 6.4% 4.3% 1.9% 1.10
Earnings were driven by higher ASP, and lower rawmaterial costs
FY18F/19F earnings raised by 26%/13%; TP lifted by8% to Rp2,600
Maintain BUY call
Price Relative
Forecasts and Valuation FY Dec (Rpbn) 2017A 2018F 2019F 2020F Revenue 29,603 32,979 36,514 40,464 EBITDA 2,942 4,684 4,947 5,188 Pre-tax Profit 1,741 3,218 3,460 3,642 Net Profit 997 2,289 2,461 2,590 Net Pft (Pre Ex.) 997 2,289 2,461 2,590 Net Pft Gth (Pre-ex) (%) (51.7) 129.5 7.5 5.3 EPS (Rp) 87.4 201 216 227 EPS Pre Ex. (Rp) 87.4 201 216 227 EPS Gth Pre Ex (%) (52) 130 8 5 Diluted EPS (Rp) 87.4 201 216 227 Net DPS (Rp) 49.9 17.5 40.1 43.1 BV Per Share (Rp) 807 991 1,166 1,350 PE (X) 22.9 10.0 9.3 8.8 PE Pre Ex. (X) 22.9 10.0 9.3 8.8 P/Cash Flow (X) 29.6 10.7 8.5 8.2 EV/EBITDA (X) 9.5 6.0 5.7 5.3 Net Div Yield (%) 2.5 0.9 2.0 2.2 P/Book Value (X) 2.5 2.0 1.7 1.5 Net Debt/Equity (X) 0.5 0.4 0.3 0.2 ROAE (%) 11.0 22.3 20.0 18.0 Earnings Rev (%): 26 13 (2) Consensus EPS (Rp): 182 208 218 Other Broker Recs: B: 16 S: 0 H: 1
Source of all data on this page: Company, DBSVI, Bloomberg Finance L.P
Boosted by resilient prices in 3Q
Valuation stays attractive given its strong profit growth. We maintain our BUY call with a higher TP of Rp2,600/share on Japfa Comfeed (JPFA), in view of (i) its attractive valuation, (ii) stable DOC and broiler prices, and (iii) falling soybean mealprices. We gather that JPFA is still trading at attractivevaluations of 6.2x FY19F EV/EBITDA and 9.8x FY19F PE –which is at a discount vs. the industry’s 15x FY19F PE. Giventhat JPFA’s earnings CAGR is expected to be 37.5% overFY17-20F (which is higher vs CPIN’s 19.8%), we believe thatJPFA should trade at a valuation level that is closer level toCPIN’s.
FY18F/19F earnings raised by 26%/13%. JPFA booked a 3Q18 net profit of Rp563.8bn (+56% y-o-y; -16% q-o-q) – well ahead of our expectations on the back of higher-than- expected ASP and lower-than-expected raw material cost due to the stocking of inventory which will last for the rest of FY18F. The strong 3Q18 results prompted us to adjust our raw material cost assumptions (for soybean meal price), thus lifting overall margins for this year and the next. As a result, our GPM rises to 22%/21.3% in FY18F/F19F (vs our previous assumption of 18.7%/19% in FY18F/19, respectively).
3Q18 earnings trump our estimate. JPFA’s 3Q18 earnings of Rp563.8bn (+56% y-o-y; -16% q-o-q) bring 9M18 earnings to Rp1.6tr (+97% y-o-y). This represents 92.1% of our FY18 estimate. The strong results were primarily driven by higher DOC and broiler ASPs which could offset higher costs of raw materials, such as corn (as the second harvest, which usually happens in October or November, will be delayed into next year due to uncertain weather conditions).
Valuation: We reiterate our BUY call with a higher TP of Rp2,600/share, Our TP for JPFA is based on their historical mean EV/EBITDA between FY14-18 of 7.0x. Our TP also implies 12.1x FY19F PE. Key Risks to Our View: Higher-than-expected raw material cost (corn and soybean meal) will have an impact on JPFA’s margins. Government intervention on DOC and broiler prices could pose downside risks. At A Glance
Issued Capital (m shrs) 11,727 Mkt. Cap (Rpbn/US$m) 23,453 / 1,542 Major Shareholders (%) Japfa Ltd 51.0 KKR Jade 12.0
Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Consumer Goods / Food Producers 1.5
DBS Group Research . Equity 31 Oct 2018
Indonesia Company Guide
Japfa Comfeed Indonesia Version 16 | Bloomberg: JPFA IJ | Reuters: JPFA.JK Refer to important disclosures at the end of this report
26
46
66
86
106
126
146
166
186
206
267.3
767.3
1,267.3
1,767.3
2,267.3
Oct-14 Oct-15 Oct-16 Oct-17 Oct-18
Relative IndexRp
Japfa Comfeed Indonesia (LHS) Relative JCI (RHS)
Page 46
Company Guide
Japfa Comfeed Indonesia
WHAT’S NEW
Boosted by resilient prices
3Q18 results ahead of our expectation... Japfa Comfeed (JPFA) booked 3Q18 earnings of Rp563.8bn (+56% y-o-y; -16% q-o-q) – bringing 9M18 earnings to Rp1.6tr (+97% y-o-y). This represents 92.1% of our FY18 estimate. The sterling earnings growth was driven by sales surging by 14% y-o-y to Rp8.6tr (-2% q-o-q) due to resilient DOC and broiler ASPs in 3Q.
The strong results were primarily driven by higher DOC and broiler ASPs which could offset higher costs of raw materials, such as corn (as the second harvest, which usually happens in October or November, will be delayed into next year due to uncertain weather conditions).
…thanks to strong DOC and broiler ASPs in 3Q18. In 3Q18,DOC revenue increased by 38.7% y-o-y to Rp1.5tr (+10.9% q-o-q) on the back of strong ASP in 3Q (up by +31.5% y-o-y to Rp6,700/chick). The resilient ASP of DOC was driven by the shortage of DOC in the market. Despite the strong growth of broiler ASP in 3Q by +12.9% y-o-y to Rp19k/kg, broiler revenue only grew by +1.7% y-o-y to Rp3.1tr (-14.2% q-o-q) – we think this was due to softer demand in 3Q. As a result,DOC EBIT margin improved significantly to 28% in 3Q18 (vs 12.6% in 3Q17, and 22.9% in 2Q18).
Feed margin under pressure on the back of higher cost of raw materials. In 3Q18, feed revenue grew by Rp4.9tr (+9.4% y-o-y; +5.0% q-o-q) on the back of higher ASP in 3Q – as the company passed on some of the cost of rawmaterials, in our view. As of end-3Q18, the average domestic corn price reportedly increased to Rp4,073/kg (+4.5% q-o-q) due to lower corn production in Indonesia, as the second harvest is being delayed due to uncertain weather conditions. As a result, feed EBIT margin was slightly under pressure and retreated to 10.4% in 3Q18 (vs 10.2% in 3Q17; 13.4% in 2Q18).
Higher inventory days: As of September 2018, JPFA’s inventory days increased to 113 days (from 102 days in June 2018) on the back of stocking of raw materials (like corn and soybean meal). JPFA currently has decent stock levels of soybean meal and corn which could last for the rest of FY18F. The company had anticipated that corn price will move higher gradually in the next few months.
Outlook
The undersupply of DOC to remain in FY19F. In our view, since 2017, the GPS import quota has been in a downtrend, which we think would result in an even tighter supply of DOC going forward. Thus, we believe that in FY19F, we will see a more balanced supply and demand which will help stabilise the ASPs of DOC and broiler. If we look at the DOC ASP in
3Q, we opine that the ASP is too high and we do not expect the price of DOC to stay at Rp6,723/chick. Note that the price of feed will probably will increase (to pass on the potentially higher raw material costs) and broiler price has softened to Rp19,634/kg in 3Q (vs Rp20,450 in 2Q). If the price remains at the current level, we think that the farmers will see lower margins for broiler. Thus, we view that the price of DOC will hover between Rp5,800 and Rp6,000 per chick going forward.
FY18F/19F earnings raised by 26%/13%. JPFA’s 3Q18 earnings of Rp563.8bn (+56% y-o-y; -16% q-o-q) trump our expectation on the back of higher-than-expected ASP and lower-than-expected raw material costs due to the stocking of inventory which will last for the rest of FY18F. The strong 3Q18 results prompted us to adjust our raw material cost assumptions (for soybean meal price), thus lifting overall margins for this year and the next. As a result, our GPM rises to 22%/21.3% in FY18F/F19F (vs our previous assumption of 18.7%/19% in FY18F/19, respectively).
What is next? Poultry demand in Indonesia is on a structurally positive trajectory given its relatively young population, a growing middle class, and the role of chicken as a major protein source in a predominantly Muslim society. With consumption per capita relatively low in Indonesia (10.1 kg per capita in 2017), we believe that there should be potential upside in terms of higher chicken consumption per capita if GDP growth heads higher (especially in outside Java areas, due to the income disparity between Java and outside Java areas).
JPFA: Valuation remains attractive given its strong earnings growth. We maintain our BUY call on JPFA, in view of:
- Attractive valuation which is currently trading at a discount compared to the industry’s
- Strong DOC and broiler prices to support margins in the face of higher cost of raw materials (potentially higher corn price and weakening of IDR against USD)
- Falling soybean meal price would alleviate concerns over margin pressure
We gather that JPFA is still trading at attractive valuations of 6.2x FY19F EV/EBITDA and 9.8x FY19F PE – which is at a discount vs. the industry’s 15x FY19F PE. Given that JPFA’s earnings CAGR is expected to be 37.5% over FY17-20F (which is higher vs CPIN’s 19.8%), we believe that JPFA should trade at a valuation level that is closer level to CPIN’s.
Cost of raw materials In our estimation, corn and soybean meal account for c.60-65% of JPFA’s poultry feed raw material costs.
As of end-1Q18, the average domestic corn price declined to Rp3,555/kg (-15.8% y-o-y) due to higher corn production in Indonesia which increased its supply. However, we do not expect corn prices to drop further as the big harvest season is almost over. In our model, we assume a corn price of Rp4,165/kg for FY18F.
On the other hand, declining domestic corn prices will be partly offset by soybean meal prices that have increased by 13.9% YTD due to a prolonged drought in Argentina. We estimate a higher soybean meal price for FY18E and this will have some impact on poultry players in 2H18.
Our sensitivity analysis shows that for every 5% drop in corn or soybean meal price, JPFA’s gross margin will improve by 0.1%.
Less impact from rupiah weakness. Since the import ban on corn and feed wheat, the company has had to use local corn. The import ban has also reduced JPFA’s operational risks against USD fluctuation. It still imports 100% of its soybean meal requirement.
Based on our sensitivity analysis, every 5% drop in the USD/IDR rate would reduce its gross margin by 0.4%.
Appendix 1: A look at Company's listed history – what drives its share price?
DOC price is critical for share price movement
Source: Bloomberg Finance L.P., company, DBSVI
Broiler price reflects demand
We believe broiler price is a good indicator of demand for chicken. Our study shows that JPFA’s share price tends to increase when broiler price is on the uptrend, and vice versa.
We expect broiler price to increase to Rp17,352/kg in FY18 from Rp16,846/kg in FY17. We believe the higher broiler ASP y-o-y will support JPFA’s share price.
Poultry feed production volume affects share price
Source: Bloomberg Finance L.P., company, DBSVI
Poultry feed volume as earnings and share price driver Although feed price increases do not bode well for JPFA’s share price, volume growth does. However, the economic downtrend since mid-2013 has offset gains from high 2014 poultry feed production. In 2015, its production volume dropped back to 2013 levels. Combined with an economic slowdown, this led to a big drop in JPFA’s share price.
In 2016, production volume began to increase back to 2014 levels. Combined with an economic recovery, this has resulted
in a share price uptrend. As we expect poultry feed production to increase by c.7% this year, we think that its share price retracement fails to reflect its intrinsic value.
Positive broiler ASP should be supportive of share price
Gap between poultry feed production volume and share price
Page 51
Company Guide
Japfa Comfeed Indonesia
Balance Sheet:
Lower capital spending. Between FY11 and FY16, JPFA expanded its poultry feed capacity by c.50% while utilisation rate declined (from 75% to 61%). We expect its expansion plans to accelerate in FY18F, having halted most of them in FY16 (due to industry overcapacity in DOC breeding nationwide). However, given the normalisation of the group’s margins in FY17, JPFA’s ROA eased to 4.9% from 11.3% in FY16 before recovering to 6.9% in FY18F.
Low leverage. As of end-December 2017, its total borrowings rose to Rp6.1tr from Rp5.8tr in September 2017 due to higher long-term bank borrowings. We expect net gearing to inch up to 51% by end-FY18F from 45% in FY17 due to higher capex. As at end-March 2017, JPFA had US$194.5m bonds due in 2018, but they have been called and refinanced through the recent issuance of US$250m bonds (BB- rating by S&P and Fitch) as well as additional Rp1tr re-tap bonds.
Share Price Drivers:
Improved demand outside Java. In our view, chicken consumption in Java is already huge. GDP improvement outside Java will be the next catalyst for higher chicken consumption in Indonesia.
Key Risks:
Disease outbreaks. Anything affecting livestock at the group’s poultry farms would have a material effect on the group’s business and financial status. While the group has implemented strict biosecurity measures to reduce risks, there are no guarantees that JPFA would be immune. An outbreak (such as bird flu) would likely have an adverse impact on demand.
Change in government regulations. Licensing, change in raw material import policy (as demonstrated by the corn import restriction in Aug 2015) and price/volume controls across various jurisdictions may adversely affect JPFA’s profitability. The group is also exposed to volatile movements in raw material costs and currencies across its key markets.
Company Background
The group was established in 1971 under Java Pelletizing Factory as a copra pellet producer. Following its listing in Jakarta and Surabaya stock exchanges in 1989 and the acquisition of four poultry feed producers in 1990, its name was changed to Japfa Comfeed Indonesia (JPFA IJ). The group is now run by the second generation of the Santosa family. Under them, the group has transformed into one of the largest and most integrated poultry companies in Indonesia.
Note : Share price and Target price are adjusted for corporate actions.
1
23
4
56
1154
1354
1554
1754
1954
2154
2354
Oct-17 Dec-17 Feb-18 Apr-18 Jun-18 Aug-18
Rp
Page 55
Company Guide
Japfa Comfeed Indonesia
DBSVI recommendations are based an Absolute Total Return* Rating system, defined as follows:
STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)
BUY (>15% total return over the next 12 months for small caps, >10% for large caps)
HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)
FULLY VALUED (negative total return i.e. > -10% over the next 12 months)
SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)
Share price appreciation + dividends
Completed Date: 31 Oct 2018 17:58:06 (WIB) Dissemination Date: 31 Oct 2018 19:17:08 (WIB)
Sources for all charts and tables are DBSVI unless otherwise specified.
GENERAL DISCLOSURE/DISCLAIMER
This report is prepared by PT DBS Vickers Sekuritas Indonesia (''DBSVI''). This report is solely intended for the clients of DBS Bank Ltd, its respective
connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form
or by any means or (ii) redistributed without the prior written consent of PT DBS Vickers Sekuritas Indonesia (''DBSVI'').
The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS
Bank Ltd, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively,
the “DBS Group”) have not conducted due diligence on any of the companies, verified any information or sources or taken into account any other
factors which we may consider to be relevant or appropriate in preparing the research. Accordingly, we do not make any representation or
warranty as to the accuracy, completeness or correctness of the research set out in this report. Opinions expressed are subject to change without
notice. This research is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific
investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees
only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial
advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit)
arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not
to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons
associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group, may have
positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and
other banking services for these companies.
Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can
be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments.
The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed, it may
not contain all material information concerning the company (or companies) referred to in this report and the DBS Group is under no obligation to
update the information in this report.
This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned
schedule or frequency for updating research publication relating to any issuer.
The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and
assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on
which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual
results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED
UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that:
(a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and
(b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk
assessments stated therein.
Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets.
Page 56
Company Guide
Japfa Comfeed Indonesia
Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies)
mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the
commodity referred to in this report.
DBSVUSA, a US-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public
offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage
in market-making.
ANALYST CERTIFICATION
The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the
companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her
compensation was, is, or will be, directly or indirectly, related to specific recommendations or views expressed in the report. The research analyst
(s) primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate1 does not serve as an officer of
the issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of the
real estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty of the entity who is responsible for the
management of the issuer or the new listing applicant) and the research analyst(s) primarily responsible for the content of this research report or
his associate does not have financial interests2 in relation to an issuer or a new listing applicant that the analyst reviews. DBS Group has
procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of
research reports. The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment
banking function of the DBS Group and procedures are in place to ensure that confidential information held by either the research or investment
banking function is handled appropriately. There is no direct link of DBS Group's compensation to any specific investment banking function of
the DBS Group.
COMPANY-SPECIFIC / REGULATORY DISCLOSURES 1. DBS Bank Ltd, DBS HK, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS'') or their subsidiaries and/or other affiliates do not have a
proprietary position in the securities recommended in this report as of 30 Sep 2018.
2. Neither DBS Bank Ltd nor DBS HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research Report.
Compensation for investment banking services:
3. DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a
manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to obtain further
information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document
should contact DBSVUSA exclusively.
Disclosure of previous investment recommendation produced:
4. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates may have published other
investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12
months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published by
DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates in the preceding 12 months.
1 An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person accustomed or obliged to act in accordance with the directions or instructions of the analyst.
2 Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an issuer or a new listing applicant, or financial accommodation arrangement between the issuer or the new listing applicant and the firm or analysis. This term does not include commercial lending conducted at arm's length, or investments in any collective investment scheme other than an issuer or new listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant.
Source of all data on this page: Company, DBSVI, DBS Bank, Bloomberg Finance L.P.
Stable outlook, remains attractive
FY18F/19F EBITDA raised by 10%/6.5%. We adjust our forecast for Japfa Limited (JAP) on the back of (i) strong JPFA performance, (ii) higher USD/IDR assumption, (iii) higher EBITDA loss on consumer food division, and (iv) potential losses from FX and biological assets. With our new revised USD/IDR assumption, JAP's revenue would decline by 2.9%/3.7% in FY18F/FY19F respectively. Our GPM for JAP is revised to 22.1%/21.8% for FY18F/19F – taking into consideration a lower assumption of lower soybean meal price. We project a higher core net profit of US$106m (ex. FX/ fair value). However, our headline net profit is revised to US$86.3m (vs US$86.7m in our previous assumption) in FY18F as we factor in the potential losses from FX and biological assets.
3Q18 results are ahead our expectation – thanks to Indonesia operations. JAP reported 3Q18 headline net earnings of US$14.3m (up from US$3m in 3Q17). This brought 9M18 reported earnings to US$60.5m. Core PATMI without forex came in at US$96.3m which is well ahead of our estimate of US$86.7m. The strong performance was driven by (i) higher EBITDA contribution from Japfa Comfeed (JPFA) of US$259.3m in 9M18 (+59.2% y-o-y), (ii) EBITDA turnaround from Animal Protein Other (APO) to US$29.7m (vs loss of US$18.7m in 9M17), and (iii) China dairy division which improved the EBITDA in 9M18 by 13.2% y-o-y to US$76.3m in 9M18.
Maintain BUY with higher TP of S$0.89. JAP is currently trading at 8.7x FY19F PE and <5x EV/EBITDA, at a discount vs regional average valuation and subsidiary company, JPFA. While the share price has jumped by c.7% since our reinstatement last week, we believe the current valuation remains attractive given (i) our view that the undersupply of DOC will remain, and thevolatility of DOC and broiler should be minimal next year, (ii) itsVietnam operations continue to improve, and (iii) China dairydivision to continue benefitting from milk yield improvement.
Valuation: Our TP is based on sum-of-parts valuation. Our target price, after incorporating a 15% holding company discount, is S$0.89 (which implies 12.6x FY19F PE).
Key Risks to Our View: JAP's share price is driven by DOC, broiler, and swine prices as well as China raw milk price movements and the USD/IDR exchange rate.
At A Glance Issued Capital (m shrs) 1,847 Mkt. Cap (S$m/US$m) 1,256 / 912 Major Shareholders (%) Rangi Management Limited 50.3 Morze International Limited 15.3 Tasburgh Ltd 6.8
Free Float (%) 27.5 3m Avg. Daily Val (US$m) 0.77 ICB Industry : Consumer Goods / Food Producers
DBS Group Research . Equity
2 Nov 2018
Singapore Company Guide
Japfa Ltd Version 15 | Bloomberg: JAP SP | Reuters: JAPF.SI Refer to important disclosures at the end of this report
35
55
75
95
115
135
155
175
195
215
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
1.1
1.2
Oct-14 Oct-15 Oct-16 Oct-17 Oct-18
Relative IndexS$
Japfa Ltd (LHS) Relative STI (RHS)
Page 58
Company Guide
Japfa Ltd
WHAT’S NEW
Indonesia and Vietnam divisions drove the good performance in 3Q
3Q18 earnings ahead of our estimate. Japfa Limited's (JAP) reported 3Q18 earnings came in at US$14.3m (up from US$3m in 3Q17). This brought 9M18 reported earnings to US$60.5m. Core PATMI without forex came in at US$96.3m which is well ahead of our estimate of US$86.7m. The strong performance was driven by (i) higher EBITDA contribution from Japfa Comfeed (JPFA) of US$259.3m in 9M18 (+59.2% y-o-y), (ii) EBITDA turnaround from Animal Protein Other(APO) to US$29.7m (vs loss of US$18.7m in 9M17), and (iii)China dairy division which improved the EBITDA in 9M18 by13.2% y-o-y to US$76.3m in 9M18.
Japfa Comfeed's (JPFA) contribution remained strong. The strong results were primarily driven by higher DOC and broiler ASPs which offset higher costs of raw materials, such as corn (as the second harvest, which usually happens in October or November, will be delayed to next year due to uncertain weather conditions). In 3Q18, DOC revenue increased by 38.7% y-o-y to Rp1.5tr (+10.9% q-o-q) on the back of strong ASP in 3Q (up by 31.5% y-o-y to Rp6,700/chick). The resilient ASP of DOC was driven by the shortage of DOC in the market. Despite the strong growth of broiler ASP in 3Q of 12.9% y-o-y to Rp19,000/kg, broiler revenue only grew by 1.7% y-o-y to Rp3.1tr (-14.2% q-o-q) – we think this was due to softer demand in 3Q. As a result, DOC EBIT margin improved significantly to 28% in 3Q18 (vs 12.6% in 3Q17, and 22.9% in 2Q18).
APO improved, thanks to recovery in Vietnam division. APO outside Indonesia contributed 3Q18 EBITDA of US$14.4m (vs loss of US$4.7m in 3Q17). The group attributed the improved performance mainly due to its Vietnam operations. In Vietnam, revenue increased by 29.4% y-o-y to US$153.8m driven by higher sales volume for poultry feed, and DOC, as well as higher ASP for DOC and swine fattening in 3Q18. With the strong recovery of swine prices, Vietnam recorded an operating profit of US$13.5m. However, the better Vietnam performance was muted by the operating losses in Myanmar and India. In Myanmar, the division recorded an operating loss of US$1.7m due to higher local corn price and the company was unable to pass on the higher production costs in an increasingly competitive environment.
Dairy milking continued to rise. In 3Q18, raw milk production in China rose 10.4% y-o-y to 126.5m kg in 3Q18 backed by a higher number of milkable cows and the contribution from Farm 7 (which started fully milking in March 2018). Dairy milk yield slightly improve to 38.1kg/head/day in 3Q18 (vs 37.4kg/head/day in 3Q17). Despite a relatively flat raw milk price environment in 3Q18, the division managed to post a revenue of US$101.9m (+20.5% y-o-y) on the back of better volume which could offset the flattish raw milk prices. The group expects raw milk prices to remain flattish in the near term, but it will be mitigated by operational efficiency and better yields.
EBITDA remained negative in 3Q18, as expected. The consumer food segment's EBITDA contribution remained negative at US$2.7m in 3Q18 due to (i) lower ASP of ambient food products due to increase market competition, (ii) inability to pass on the increased production costs arising from higher chicken raw material prices, and (iii) continued investment in advertising and promotion to maintain market share.
Outlook
FY18F/19F EBITDA raised by 10%/6.5%. Adjusting for JPFA's strong results in 9M18, we made changes to JPFA’s gross margin (to take into consideration the lower soybean meal price) which resulted in a higher GPM and EBITDA margin. The changes are:
- JAP revenue declined by -2.9%/-3.7% in FY18F/FY19Frespectively. As we maintained our revenue for JPFA, butwe revised our USD/IDR assumption toRp15,150/Rp15,675 in FY18F/FY19F respectively. As aresult, our revenue forecasts were lowered due to FXtranslation.
- We raised our GPM for JAP to 22.1%/21.8% inFY18F/19F – to take into consideration our adjustment inJPFA's GPM on the back of our assumption of lowersoybean meal price.
- As a result, JPFA's EBITDA contribution to JAP is alsoimproved by 17.3%/7.7% in FY18F/FY19F respectively.
- Furthermore, we also assume a higher EBITDA marginloss from the consumer product division as we view that(i) competition will remain fierce, (ii) inability to pass onthe higher cost of raw materials from higher chickenprice, and (iii) continued investment in advertising.
- We also factor in the potential loss from FX andbiological assets. As a result, our net profit slightlydeclined to US$86.3m (vs US$86.7m in our previousassumption) in FY18F.
Page 59
Company Guide
Japfa Ltd
Valuation
TP adjusted to S$0.89; BUY rating reiterated. We employed SOP valuation based on EV/EBITDA multiple on each segment. Based on our forecast revisions, our TP was lifted to S$0.89 –
mainly to account for higher contribution from JPFA. We reiterate our BUY call for 32% upside to our revised TP. We believe the stock is trading at an attractive value given the (i) strong Indonesia performance, and (ii) Vietnam operation turnaround.
Animal Protein (ex.JPFA) 247.8 44.6 5.6 20% discount to JPFA valuationDairy 792.1 107.3 7.4 Based on 10% discount to regional EV/EBITDA FY19F valuationConsumer Food (64.8) (8.1) 8.0 20% discount to Indonesia consumer names
975.0 143.91,994.3
Le ss : 0.7Net debt (FY19F) (852.0) Based on DBSV estimate JPFA Comfeed net debt (Rp bn) 4,319.2 JPFA Comfeed net debt (US$m) 275.5
Net debt, ex JPFA Comfeed (576.4)Equity value (APO, Dairy, CF) 398.6Equity value JPFA Comfeed 1,019.3 DBSVI's TP of Rp15675/shareHold co discount ` (212.7) 15% holdco discountJAPFA Equity value (US$ m) 1,205.2JAPFA Equity value (S$ m) 1,651.1 1.37TP (S$) $0.89
Share outstanding (m shares) 1,845.6
Page 61
Company Guide
Japfa Ltd
CRITICAL DATA POINTS TO WATCH
Critical Factors DOC and broiler price stability. Hampered by oversupply in FY14-15, Indonesia DOC and broiler prices declined significantly which resulted in weak earnings growth at that time. As the government started to control the supply of DOC in FY17 – it resulted in more stable price conditions and earnings. In FY18F, we foresee stronger DOC and broiler prices due to lack of DOC in the market given that the Indonesian government has imposed an AGP ban.
Cost of raw materials. In our estimates, corn and soybean meal account for c.60-65% of JPFA’s poultry feed raw material costs. As of 2Q18, the average domestic corn price declined to Rp3,961/kg (-7.8% y-o-y) due to higher corn production in Indonesia which increased supply. However, we do not expect corn prices to drop further as the big harvest season is almost over. In our model, we assume corn price of Rp4,165/kg for FY18F.
Swine price movement. The decline in swine price last year was due to the sharp reduction in China's import of swine from Vietnam. This was mainly due to the Chinese government's concerns over the quality of Vietnam swine. The situation has resulted in a decrease in swine export volume and impacted the domestic swine price in FY17 (which fell below VND30,000/kg). The weak swine price resulted in a lower earnings growth for the animal protein other (APO) division in FY17.
Pause in the China dairy expansion. Following the completion of its seventh farm in China last year and second farm in Indonesia this year, JAP will pause its farm expansion in China. Therefore, we believe growth in sales volume will only come from improving milk yields in the near future. However, some volume growth might still be seen as Farm 7 is still running at only half of its milking capacity.
Brand rejuvenation of consumer food division is the future growth catalyst. The group intends to expand its manufacturing and processing capacities in Indonesia and Vietnam, as it seeks to expand the reputation and market reach of its brands, including Real Good for UHT milk and So Good, So Nice and Best Chicken for processed meats.
Average Milkable Cow (heads)
Milk Yield (kg/head/day)
China raw milk price (US$/kg)
Indonesia DOC price (Rp/chick)
Indonesia Broiler Price (Rp/kg)
Source: Company, DBSVI, DBS Bank
3842042564
51077
61292
73551
0.0
10612.3
21224.6
31836.9
42449.2
53061.5
63673.8
2016A 2017A 2018F 2019F 2020F
37 38.4 39.5 39.5 39.5
0.0
8.1
16.1
24.2
32.2
40.3
2016A 2017A 2018F 2019F 2020F
0.550.5
0.450.42 0.42
0.00
0.11
0.23
0.34
0.45
0.56
2016A 2017A 2018F 2019F 2020F
5369 5204
5750 5800 5850
0.0
1181.7
2363.4
3545.1
4726.8
5908.5
2016A 2017A 2018F 2019F 2020F
17140 16831
18824 18800 18800
0.0
3802.4
7604.9
11407.3
15209.8
19012.2
2016A 2017A 2018F 2019F 2020F
Page 62
Company Guide
Japfa Ltd
Appendix 1: A look at Company's listed history – what drives its share price? Share price is moving along with broiler price in Indonesia
Source: Bloomberg Finance L.P., Company, DBSVI
Broiler price reflects demand We believe broiler price is a good indicator of demand for chicken. Our study shows that JPFA’s share price tends to increase when broiler price is on the uptrend, and vice versa.
We expect broiler price to increase to Rp17,352/kg in FY18 from Rp16,846/kg in FY17. We believe the higher broiler ASP y-o-y will support share price.
Share price is moving along with swine price in Vietnam
Source: Bloomberg Finance L.P., Company, DBSVI
-
0.20
0.40
0.60
0.80
1.00
1.20
0
10,000
20,000
30,000
40,000
50,000
60,000
Sep-
14Oc
t-14
Nov-
14De
c-14
Jan-
15Fe
b-15
Mar
-15
Apr-1
5M
ay-1
5Ju
n-15
Jul-1
5Au
g-15
Sep-
15Oc
t-15
Nov-
15De
c-15
Jan-
16Fe
b-16
Mar
-16
Apr-1
6M
ay-1
6Ju
n-16
Jul-1
6Au
g-16
Sep-
16Oc
t-16
Nov-
16De
c-16
Jan-
17Fe
b-17
Mar
-17
Apr-1
7M
ay-1
7Ju
n-17
Jul-1
7Au
g-17
Sep-
17Oc
t-17
Nov-
17De
c-17
Jan-
18Fe
b-18
Mar
-18
Apr-1
8M
ay-1
8Ju
n-18
Swine price (VND) Share price (SGD)
0.00
0.20
0.40
0.60
0.80
1.00
1.20
-
5,000
10,000
15,000
20,000
25,000
Sep-
14
Nov-
14
Jan-
15
Mar
-15
May
-15
Jul-1
5
Sep-
15
Nov-
15
Jan-
16
Mar
-16
May
-16
Jul-1
6
Sep-
16
Nov-
16
Jan-
17
Mar
-17
May
-17
Jul-1
7
Sep-
17
Nov-
17
Jan-
18
Mar
-18
May
-18
Jul-1
8
Broiler price (IDR) Share price (SGD)
Page 63
Company Guide
Japfa Ltd
Swine price – main contributor to Animal Protein Others
Swine prices have been declining even since China stopped importing swine from Vietnam in late 2016. As the main contributor to animal protein others (APO) segment, the Vietnam swine operation has been incurring losses due to the weak swine price. The swine price in Vietnam has increased continuously from early 2018 – as of June 2018, the swine price was at VND47,635/kg. At this price, we believe that the farmers are already profitable (breakeven cost at VND40,000-42,000/kg). The improvement in the price of swine was due to the decrease in supply since last year. According to Vietnam Department of Livestock, the swine supply had shrunk by 5.8% y-o-y in FY17.
When we see an improvement in swine price, the same goes for JAP's share price.
Page 64
Company Guide
Japfa Ltd
Balance Sheet: JAP's net debt-to-total equity ratio came in at 1.0x as at end of December 2017 and is forecast to settle at 1.2x by the end of FY18F. The higher debt-to-total equity ratio jumped in FY18F due to a new 3-year syndication loan of US$253m with bullet repayment at maturity. The debt was taken to finance a minority buyout in its dairy segment. We forecast net operating cash flow to be negative in FY18F.
Share Price Drivers: DOC oversupply issues. The Indonesian poultry industry is dominated by a few players, which collectively control more than 75% of the market. Over-investment and/or miscalculated demand often lead to depressed DOC and broiler prices on top of an already volatile market. Changes in prices would have an instant impact on JAP's profitability – even with cuts in parent stock (PS) numbers. Rupiah movements. The group’s USD bonds have created translation FX losses in JAP's subsidiary, JPFA, together with the Rupiah’s depreciation YTD. Hence, Rupiah movements would impact reported earnings.
Key Risks: Outbreak of diseases. Outbreak of diseases affecting livestock would have a material effect on the group's business and financial status. Currency movements. JAP's earnings face a risk of currency depreciation on the IDR, CNY, and VND against USD as Indonesia, China, and Vietnam are its largest markets. JAP's major revenue streams are denominated in local currency, while its debt and interest expenses are denominated in USD. Intense competition. Excess capacity and intense competition in Indonesia may continue to result in DOC oversupply and slower-than-expected price growth. Movements in raw material costs and currencies. JAP is exposed to volatile movements in raw material costs and currencies. For example, weakness in Rupiah and consumer purchasing power led to delays in passing on raw material costs. Changes in regulations. Changes in government regulations/licensing/price or volume controls may adversely affect JAP's
Company Background Japfa Ltd (JAP) is a leading industrialised and vertically integrated producer of multiple animal proteins, dairy and consumer food products in Indonesia (second largest), Vietnam, Myanmar, India and China. The group is involved in production of animal feeds, poultry breeding, poultry commercial farms, beef cattle feedlots, swine breeding, swine commercial farms, dairy farms as well as frozen and ambient temperature consumer food products.
Leverage & Asset Turnover (x)
Capital Expenditure
ROE (%)
Forward PE Band (x)
PB Band (x)
Source: Company, DBSVI, DBS Bank
1.1
1.1
1.1
1.2
1.2
1.2
1.2
1.2
1.3
1.3
1.3
0.00
0.20
0.40
0.60
0.80
1.00
2016A 2017A 2018F 2019F 2020F
Gross Debt to Equity (LHS) Asset Turnover (RHS)
0.0
50.0
100.0
150.0
200.0
250.0
300.0
2016A 2017A 2018F 2019F 2020F
Capital Expenditure (-)
US$m
0.0%
5.0%
10.0%
15.0%
20.0%
2016A 2017A 2018F 2019F 2020F
Avg: 11.7x
+1sd: 21.2x
+2sd: 30.8x
-1sd: 2.2x
-6.6
3.4
13.4
23.4
33.4
43.4
Oct-14 Oct-15 Oct-16 Oct-17 Oct-18
(x)
Avg: 1.26x
+1sd: 1.62x
+2sd: 1.99x
-1sd: 0.9x
-2sd: 0.53x0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
2.2
2.4
Oct-14 Oct-15 Oct-16 Oct-17 Oct-18
(x)
Page 65
Company Guide
Japfa Ltd
Key Assumptions
FY Dec 2016A 2017A 2018F 2019F 2020F
Average Milkable Cow
38,420 42,564 51,077 61,292 73,551 Milk Yield (kg/head/day) 37.0 38.4 39.5 39.5 39.5 China raw milk price
Non-Cash Wkg. Capital 597 348 620 651 698 Net Cash/(Debt) (504) (709) (912) (852) (782) Debtors Turn (avg days) 17.7 19.5 19.8 18.9 18.7 Creditors Turn (avg days) 44.9 67.0 67.7 40.6 40.1 Inventory Turn (avg days) 97.6 93.0 98.9 94.3 93.3 Asset Turnover (x) 1.3 1.2 1.2 1.2 1.2 Current Ratio (x) 1.9 1.3 1.9 2.0 2.0 Quick Ratio (x) 0.8 0.4 0.7 0.7 0.7 Net Debt/Equity (X) 0.5 0.7 0.8 0.6 0.5 Net Debt/Equity ex MI (X) 0.8 1.0 1.2 1.0 0.8 Capex to Debt (%) 31.0 22.4 16.7 17.0 18.0 Z-Score (X) 2.5 2.0 2.0 2.3 2.5
Source: Company, DBSVI, DBS Bank
Page 68
Company Guide
Japfa Ltd
Cash Flow Statement (US$m)
FY Dec 2016A 2017A 2018F 2019F 2020F
Pre-Tax Profit 255 108 223 235 253 Dep. & Amort. 84.8 97.7 107 120 133 Tax Paid (56.9) (51.3) (19.7) (62.3) (65.9) Assoc. & JV Inc/(loss) 0.37 0.13 0.0 0.0 0.0 Chg in Wkg.Cap. 0.0 0.0 (315) (35.0) (51.4) Other Operating CF 80.1 (13.6) 0.0 0.0 0.0 Net Operating CF 363 140 (4.9) 258 268 Capital Exp.(net) (260) (212) (200) (200) (200) Other Invts.(net) 0.0 0.0 0.0 0.0 0.0 Invts in Assoc. & JV 94.5 2.16 2.20 2.20 2.20 Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0 Other Investing CF (9.6) (27.4) 0.0 0.0 0.0 Net Investing CF (175) (237) (198) (198) (198) Div Paid (6.5) (12.5) 0.0 0.0 0.0 Chg in Gross Debt 0.0 5.24 250 (20.0) (60.0) Capital Issues 0.0 0.0 0.0 0.0 0.0 Other Financing CF 6.94 5.45 0.0 0.0 0.0 Net Financing CF 0.47 (1.8) 250 (20.0) (60.0) Currency Adjustments 0.0 (3.1) 0.0 0.0 0.0 Chg in Cash 188 (101) 47.3 40.1 10.3 Opg CFPS (S cts) 28.3 10.9 23.1 21.8 23.8 Free CFPS (S cts) 8.03 (5.5) (15.3) 4.32 5.08
Source: Company, DBSVI, DBS Bank
Target Price & Ratings History
Source: DBSVI, DBS Bank Analyst: David Arie Hartono
Andy SIM, CFA
S.No.Date of Report
Closing Price
12-mth Target Price
Rat ing
1: 25 Oct 18 0.68 0.86 BUY
Note : Share price and Target price are adjusted for corporate actions.
1
0.42
0.47
0.52
0.57
0.62
0.67
0.72
0.77
Oct-17 Dec-17 Feb-18 Apr-18 Jun-18 Aug-18 Oct-18
S$
Page 69
Company Guide
Japfa Ltd
DBSVI, DBS Bank, recommendations are based an Absolute Total Return* Rating system, defined as follows:
STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)
BUY (>15% total return over the next 12 months for small caps, >10% for large caps)
HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)
FULLY VALUED (negative total return i.e. > -10% over the next 12 months)
SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)
Share price appreciation + dividends
Completed Date: 2 Nov 2018 09:17:10 (SGT) Dissemination Date: 2 Nov 2018 09:36:06 (SGT)
Sources for all charts and tables are DBSVI, DBS Bank, unless otherwise specified.
GENERAL DISCLOSURE/DISCLAIMER
This report is prepared by PT DBS Vickers Sekuritas Indonesia (''DBSVI''), DBS Bank Ltd. This report is solely intended for the clients of DBS Bank
Ltd, its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or
duplicated in any form or by any means or (ii) redistributed without the prior written consent of PT DBS Vickers Sekuritas Indonesia (''DBSVI''), DBS
Bank Ltd.
The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS
Bank Ltd, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively,
the “DBS Group”) have not conducted due diligence on any of the companies, verified any information or sources or taken into account any other
factors which we may consider to be relevant or appropriate in preparing the research. Accordingly, we do not make any representation or
warranty as to the accuracy, completeness or correctness of the research set out in this report. Opinions expressed are subject to change without
notice. This research is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific
investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees
only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial
advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit)
arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not
to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons
associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group, may have
positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and
other banking services for these companies.
Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can
be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments.
The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed, it may
not contain all material information concerning the company (or companies) referred to in this report and the DBS Group is under no obligation to
update the information in this report.
This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned
schedule or frequency for updating research publication relating to any issuer.
The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and
assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on
which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual
results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED
UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that:
(a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and
(b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk
assessments stated therein.
Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets.
Page 70
Company Guide
Japfa Ltd
Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies)
mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the
commodity referred to in this report.
DBSVUSA, a US-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public
offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage
in market-making.
ANALYST CERTIFICATION
The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the
companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her
compensation was, is, or will be, directly or indirectly, related to specific recommendations or views expressed in the report. The research analyst (s)
primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate1 does not serve as an officer of the
issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of the real
estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty of the entity who is responsible for the
management of the issuer or the new listing applicant) and the research analyst(s) primarily responsible for the content of this research report or
his associate does not have financial interests2 in relation to an issuer or a new listing applicant that the analyst reviews. DBS Group has
procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of
research reports. The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment
banking function of the DBS Group and procedures are in place to ensure that confidential information held by either the research or investment
banking function is handled appropriately. There is no direct link of DBS Group's compensation to any specific investment banking function of the
DBS Group.
COMPANY-SPECIFIC / REGULATORY DISCLOSURES
1. DBS Bank Ltd, DBS HK, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS'') or their subsidiaries and/or other affiliates do not have a
proprietary position in the securities recommended in this report as of 30 Sep 2018.
2. Neither DBS Bank Ltd nor DBS HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research Report.
Compensation for investment banking services:
3. DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a
manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to obtain further
information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document
should contact DBSVUSA exclusively.
Disclosure of previous investment recommendation produced:
4. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates may have published other
investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12
months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published by
DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates in the preceding 12 months.
1 An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person accustomed or obliged to act in accordance with the directions or instructions of the analyst.
2 Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an issuer or a new listing applicant, or financial accommodation arrangement between the issuer or the new listing applicant and the firm or analysis. This term does not include commercial lending conducted at arm's length, or investments in any collective investment scheme other than an issuer or new listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant.
Page 71
ed: JS/ sa: DT, CW, CS
BUY Last Traded Price ( 9 Nov 2018): S$0.63 (STI : 3,077.97)
DBS Bank recommendations are based an Absolute Total Return* Rating system, defined as follows:
STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)
BUY (>15% total return over the next 12 months for small caps, >10% for large caps)
HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)
FULLY VALUED (negative total return i.e. > -10% over the next 12 months)
SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)
Share price appreciation + dividends
Completed Date: 12 Nov 2018 09:16:10 (SGT) Dissemination Date: 12 Nov 2018 10:18:47 (SGT)
Sources for all charts and tables are DBS Bank unless otherwise specified.
GENERAL DISCLOSURE/DISCLAIMER
This report is prepared by DBS Bank Ltd. This report is solely intended for the clients of DBS Bank Ltd, its respective connected and associated
corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii)
redistributed without the prior written consent of DBS Bank Ltd.
The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS
Bank Ltd, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively,
the “DBS Group”) have not conducted due diligence on any of the companies, verified any information or sources or taken into account any other
factors which we may consider to be relevant or appropriate in preparing the research. Accordingly, we do not make any representation or
warranty as to the accuracy, completeness or correctness of the research set out in this report. Opinions expressed are subject to change without
notice. This research is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific
investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees
only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial
advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit)
arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not
to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons
associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group, may have
positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and
other banking services for these companies.
Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can
be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments.
The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed, it may
not contain all material information concerning the company (or companies) referred to in this report and the DBS Group is under no obligation to
update the information in this report.
This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned
schedule or frequency for updating research publication relating to any issuer.
The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and
assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on
which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual
results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED
UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that:
(a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and
(b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk
assessments stated therein.
Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets.
Page 79
Company Guide
Koufu Group Ltd
Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies)
mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the
commodity referred to in this report.
DBSVUSA, a US-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public
offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage
in market-making.
ANALYST CERTIFICATION
The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the
companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her
compensation was, is, or will be, directly or indirectly, related to specific recommendations or views expressed in the report. The research analyst
(s) primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate1 does not serve as an officer of
the issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of the
real estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty of the entity who is responsible for the
management of the issuer or the new listing applicant) and the research analyst(s) primarily responsible for the content of this research report or
his associate does not have financial interests2 in relation to an issuer or a new listing applicant that the analyst reviews. DBS Group has
procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of
research reports. The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment
banking function of the DBS Group and procedures are in place to ensure that confidential information held by either the research or investment
banking function is handled appropriately. There is no direct link of DBS Group's compensation to any specific investment banking function of
the DBS Group.
COMPANY-SPECIFIC / REGULATORY DISCLOSURES
1. DBS Bank Ltd, DBS HK, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS'') or their subsidiaries and/or other affiliates do not have aproprietary position in the securities recommended in this report as of 31 Oct 2018.
2. Neither DBS Bank Ltd nor DBS HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research Report.
Compensation for investment banking services:
3. DBS Bank Ltd, DBS HK, DBSVS their subsidiaries and/or other affiliates of DBSVUSA have received compensation, within the past 12 monthsfor investment banking services from Koufu Group Ltd as of 31 Oct 2018.
4. DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have managed or co-managed a public offering ofsecurities for Koufu Group Ltd in the past 12 months, as of 31 Oct 2018.
5. DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as amanager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to obtain furtherinformation, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this documentshould contact DBSVUSA exclusively.
Disclosure of previous investment recommendation produced:
6. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates may have published otherinvestment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12 months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published by DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates in the preceding 12 months.
1 An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person accustomed or obliged to act in accordance with the directions or instructions of the analyst.
2 Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an issuer or a new listing applicant, or financial accommodation arrangement between the issuer or the new listing applicant and the firm or analysis. This term does not include commercial lending conducted at arm's length, or investments in any collective investment scheme other than an issuer or new listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant.
Page 80
ed: JS/ sa: MA, CW, CS
BUY Last Traded Price ( 26 Nov 2018): S$0.67 (STI : 3,093.38)
Net Operating CF 18,490 29,575 22,282 25,736 30,366
Capital Exp.(net) (2,822) (5,351) (5,267) (6,500) (6,500)
Other Invts.(net) 0.0 3.66 (186,938) 0.0 0.0
Invts in Assoc. & JV 0.0 0.0 0.0 0.0 0.0
Div from Assoc & JV 2,356 2,273 2,661 2,200 2,200
Other Investing CF 20.0 21.0 (2,554) 0.0 0.0
Net Investing CF (446) (3,053) (192,098) (4,300) (4,300)
Div Paid (16,670) (15,162) (16,134) (12,556) (13,811)
Chg in Gross Debt 2,009 (5,615) 192,347 (7,000) (20,000)
Capital Issues 0.0 0.0 0.0 0.0 0.0
Other Financing CF (942) (791) 5,871 0.0 0.0
Net Financing CF (15,603) (21,568) 182,083 (19,556) (33,811)
Currency Adjustments (870) (81.6) 335 0.0 0.0
Chg in Cash 1,571 4,872 12,603 1,880 (7,746)
Opg CFPS (S cts) 3.35 4.81 3.59 5.09 5.40
Free CFPS (S cts) 2.59 4.01 2.82 3.18 3.95
Source: Company, DBS Bank
Target Price & Ratings History
Source: DBS Bank
Analyst: Andy SIM, CFA
Alfie YEO
Page 90
Result
Thai Beverage Public Company
DBS Bank recommendations are based an Absolute Total Return* Rating system, defined as follows:
STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)
BUY (>15% total return over the next 12 months for small caps, >10% for large caps)
HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)
FULLY VALUED (negative total return i.e. > -10% over the next 12 months)
SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)
Share price appreciation + dividends
Completed Date: 27 Nov 2018 08:27:43 (SGT) Dissemination Date: 27 Nov 2018 08:57:59 (SGT)
Sources for all charts and tables are DBS Bank unless otherwise specified.
GENERAL DISCLOSURE/DISCLAIMER
This report is prepared by DBS Bank Ltd. This report is solely intended for the clients of DBS Bank Ltd, its respective connected and associated
corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii)
redistributed without the prior written consent of DBS Bank Ltd.
The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS
Bank Ltd, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively,
the “DBS Group”) have not conducted due diligence on any of the companies, verified any information or sources or taken into account any other
factors which we may consider to be relevant or appropriate in preparing the research. Accordingly, we do not make any representation or
warranty as to the accuracy, completeness or correctness of the research set out in this report. Opinions expressed are subject to change without
notice. This research is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific
investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees
only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial
advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit)
arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not
to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons
associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group, may have
positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and
other banking services for these companies.
Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can
be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments.
The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed, it may
not contain all material information concerning the company (or companies) referred to in this report and the DBS Group is under no obligation to
update the information in this report.
This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned
schedule or frequency for updating research publication relating to any issuer.
The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and
assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on
which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual
results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED
UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that:
(a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and
(b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk
assessments stated therein.
Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets.
Page 91
Result
Thai Beverage Public Company
Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies)
mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the
commodity referred to in this report.
DBSVUSA, a US-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public
offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage
in market-making.
ANALYST CERTIFICATION
The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the
companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her
compensation was, is, or will be, directly or indirectly, related to specific recommendations or views expressed in the report. The research analyst
(s) primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate1 does not serve as an officer of
the issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of the
real estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty of the entity who is responsible for the
management of the issuer or the new listing applicant) and the research analyst(s) primarily responsible for the content of this research report or
his associate does not have financial interests2 in relation to an issuer or a new listing applicant that the analyst reviews. DBS Group has
procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of
research reports. The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment
banking function of the DBS Group and procedures are in place to ensure that confidential information held by either the research or investment
banking function is handled appropriately. There is no direct link of DBS Group's compensation to any specific investment banking function of
the DBS Group.
COMPANY-SPECIFIC / REGULATORY DISCLOSURES
1. DBS Bank Ltd, DBS HK, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS'') or their subsidiaries and/or other affiliates have a proprietary
position in Thai Beverage Public Company recommended in this report as of 31 Oct 2018
2. Neither DBS Bank Ltd nor DBS HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research Report.
Compensation for investment banking services:
3. DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a
manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to obtain
further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this
document should contact DBSVUSA exclusively.
Disclosure of previous investment recommendation produced:
4. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates may have published other
investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12
months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published
by DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates in the preceding 12
months.
Directorship/trustee interests:
5. Olivier Lim Tse Ghow, a member of DBS Group Holdings Board of Directors, is a Advisor of Frasers Property Ltd as of 30 Sep 2018.
1 An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person accustomed or obliged to act in accordance with the directions or instructions of the analyst.
2 Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an issuer or a new listing applicant, or financial accommodation arrangement between the issuer or the new listing applicant and the firm or analysis. This term does not include commercial lending conducted at arm's length, or investments in any collective investment scheme other than an issuer or new listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant.
Page 92
ed: KK/ sa: CW, CS
BUY Last Traded Price ( 30 Nov 2018): Bt68.25 (SET : 1,641.80)
Forecasts and Valuation FY Dec (Btm) 2017A 2018F 2019F 2020F
Revenue 471,069 510,005 558,871 609,831 EBITDA 40,788 41,955 46,448 51,109 Pre-tax Profit 23,506 25,036 29,255 33,736 Net Profit 19,908 20,863 23,806 26,789 Net Pft (Pre Ex.) 19,908 20,863 23,806 26,789 Net Pft Gth (Pre-ex) (%) 19.9 4.8 14.1 12.5 EPS (Bt) 2.22 2.32 2.65 2.98 EPS Pre Ex. (Bt) 2.22 2.32 2.65 2.98 EPS Gth Pre Ex (%) 20 5 14 13 Diluted EPS (Bt) 2.22 2.32 2.65 2.98 Net DPS (Bt) 1.00 1.16 1.32 1.49 BV Per Share (Bt) 8.38 9.75 11.1 12.6 PE (X) 30.8 29.4 25.8 22.9 PE Pre Ex. (X) 30.8 29.4 25.8 22.9 P/Cash Flow (X) 13.3 15.7 15.0 13.7 EV/EBITDA (X) 18.5 17.7 15.8 14.1 Net Div Yield (%) 1.5 1.7 1.9 2.2 P/Book Value (X) 8.1 7.0 6.2 5.4 Net Debt/Equity (X) 1.7 1.4 1.1 0.9 ROAE (%) 30.5 25.6 25.4 25.2 Earnings Rev (%): 0 0 0 Consensus EPS (Bt): 2.40 2.77 3.19 Other Broker Recs: B: 23 S: 1 H: 7
Source of all data on this page: Company, DBSVTH, Bloomberg Finance L.P
Prime beneficiary of upcoming general election Maintain BUY call. We believe CPALL’s slow earnings growth momentum, pressured by its cash-and-carry business, is already priced in. It is now trading at 26x forward PE, slightly lower than its historical average level of 28x.
Short term pains, long term gains. Although CPALL’s earnings
growth has been pressured from the overseas expansion of its
cash-and-carry business, its consolidating earnings growth
should start gaining traction more clearly in FY19F as 7-Eleven’s
gross margin is likely to start expanding y-o-y once again due to
the same base for a cigarette excise tax hike. Meanwhile, same
stores sale growth (SSSG) should be healthy, due to the
upcoming general election at the beginning of next year.
Additionally, the company will try to restore its service income
growth by adding new services. Lately, CPALL was designated
as, i) the banking agent for the Government Savings Bank,
offering money deposits/withdrawals to customers, ii) a
representative for value added tax (VAT) refund service at its
three branches in Bangkok and, iii) offering delivery services
within 24 hours to customers such as owners of small medium
enterprises (SMEs), e-commerce and start-ups. While its
contribution is still insignificant, this service should pave the way
for higher growth in its service income.
Where we differ? Our FY19F/20F earnings forecasts are lower
than market consensus due to lower gross margin assumptions.
Potential catalysts. Recovery of domestic consumption from the
upcoming general election.
Valuation:
Our TP is based on DCF valuation (WACC 10%, terminal
growth rate 3%).
Key Risks to Our View:
Key risks are (i) delays in store expansion, (ii) weaker-than-
Net Operating CF 37,939 46,156 38,959 40,854 44,927
Capital Exp.(net) (19,010) (17,921) (16,450) (16,450) (16,450)
Other Invts.(net) 27.4 0.0 0.0 0.0 0.0
Invts in Assoc. & JV 0.0 0.0 0.0 0.0 0.0
Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0
Other Investing CF 188 (2,459) (2,508) (2,558) (2,609)
Net Investing CF (18,794) (20,380) (18,958) (19,008) (19,059)
Div Paid (8,085) (8,983) (9,414) (10,742) (12,088)
Chg in Gross Debt (779) (22,459) 4,097 (20,283) (15,938)
Capital Issues 0.0 0.0 0.0 0.0 0.0
Other Financing CF 1,631 1,322 0.0 0.0 0.0
Net Financing CF (7,233) (30,120) (5,317) (31,025) (28,026)
Currency Adjustments 12.5 (221) 0.0 0.0 0.0
Chg in Cash 11,925 (4,564) 14,684 (9,178) (2,158)
Opg CFPS (Bt) 3.33 3.70 4.22 3.99 4.40
Free CFPS (Bt) 2.11 3.14 2.50 2.72 3.17
Source: Company, DBSVTH
Target Price & Ratings History
Source: DBSVTH
Analyst: Namida ARTISPONG
THAI-CAC Certified
Corporate Governance CG Rating (as of Oct 2017)
THAI-CAC is Companies participating in Thailand's Private Sector Collective Action Coalition Against Corruption programme (Thai CAC) under Thai Institute of Directors (as of May 2018) are categorised into:
Score Description
Declared Companies that have declared their intention to join CAC
Certified Companies certified by CAC.
Corporate Governance CG Rating is based on Thai Institute of
Directors (IOD)’s annual assessment of corporate governance
practices of listed companies. The assessment covers 235 criteria
in five categories including board responsibilities (35% weighting),
disclosure and transparency (20%), role of stakeholders (20%),
equitable treatment of shareholders (10%) and rights of
shareholders (15%). The IOD then assigns numbers of logos to
each company based on their scoring as follows:
Score Range Number of Logo Description
90-100 Excellent
80-89 Very Good
70-79 Good
60-69 Satisfactory
50-59 Pass
<50 No logo given N/A
S.No.Date of
Report
Closing
Price
12-mth
Target
Price
Rat ing
1: 26 Jan 18 80.25 95.00 BUY
2: 23 Feb 18 84.00 95.00 BUY
3: 29 Mar 18 87.25 95.00 BUY
4: 17 Apr 18 83.25 95.00 BUY
5: 02 May 18 88.00 95.00 BUY
6: 14 May 18 86.50 95.00 BUY
7: 05 Jul 18 76.50 95.00 BUY
8: 10 Aug 18 71.25 89.00 BUY
9: 26 Oct 18 63.75 83.00 BUY
10: 14 Nov 18 69.75 83.00 BUY
11: 16 Nov 18 69.25 83.00 BUY
Note : Share price and Target price are adjusted for corporate actions.
1
23 4 5
6
7
8
9
10
11
59.85
64.85
69.85
74.85
79.85
84.85
89.85
Dec-17 Feb-18 Apr-18 Jun-18 Aug-18 Oct-18
Bt
Page 98
Company Guide
CP ALL
DBSVTH recommendations are based an Absolute Total Return* Rating system, defined as follows:
STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)
BUY (>15% total return over the next 12 months for small caps, >10% for large caps)
HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)
FULLY VALUED (negative total return i.e. > -10% over the next 12 months)
SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)
Share price appreciation + dividends
Completed Date: 3 Dec 2018 11:31:24 (THA) Dissemination Date: 13 Dec 2018 06:46:36 (THA)
Sources for all charts and tables are DBSVTH unless otherwise specified.
GENERAL DISCLOSURE/DISCLAIMER
This report is prepared by DBS Vickers Securities (Thailand) Co Ltd (''DBSVTH''). This report is solely intended for the clients of DBS Bank Ltd, its
respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in
any form or by any means or (ii) redistributed without the prior written consent of DBS Vickers Securities (Thailand) Co Ltd (''DBSVTH'').
The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS
Bank Ltd, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively,
the “DBS Group”) have not conducted due diligence on any of the companies, verified any information or sources or taken into account any other
factors which we may consider to be relevant or appropriate in preparing the research. Accordingly, we do not make any representation or
warranty as to the accuracy, completeness or correctness of the research set out in this report. Opinions expressed are subject to change without
notice. This research is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific
investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees
only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial
advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit)
arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not
to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons
associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group, may have
positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and
other banking services for these companies.
Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can
be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments.
The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed, it may
not contain all material information concerning the company (or companies) referred to in this report and the DBS Group is under no obligation to
update the information in this report.
This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned
schedule or frequency for updating research publication relating to any issuer.
The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and
assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on
which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual
results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED
UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that:
(a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and
(b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk
assessments stated therein.
Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets.
Page 99
Company Guide
CP ALL
Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies)
mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the
commodity referred to in this report.
DBSVUSA, a US-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public
offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage
in market-making.
ANALYST CERTIFICATION
The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the
companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her
compensation was, is, or will be, directly or indirectly, related to specific recommendations or views expressed in the report. The research analyst
(s) primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate1 does not serve as an officer of
the issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of the
real estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty of the entity who is responsible for the
management of the issuer or the new listing applicant) and the research analyst(s) primarily responsible for the content of this research report or
his associate does not have financial interests2 in relation to an issuer or a new listing applicant that the analyst reviews. DBS Group has
procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of
research reports. The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment
banking function of the DBS Group and procedures are in place to ensure that confidential information held by either the research or investment
banking function is handled appropriately. There is no direct link of DBS Group's compensation to any specific investment banking function of
the DBS Group.
COMPANY-SPECIFIC / REGULATORY DISCLOSURES
1. DBS Bank Ltd, DBS HK, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS'') or their subsidiaries and/or other affiliates have a
proprietary position in CP ALL recommended in this report as of 31 Oct 2018
2. Neither DBS Bank Ltd nor DBS HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research
Report.
Compensation for investment banking services:
3. DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of
securities as a manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons
wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any
security discussed in this document should contact DBSVUSA exclusively.
Disclosure of previous investment recommendation produced:
4. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates may have published
other investment recommendations in respect of the same securities / instruments recommended in this research report during the
preceding 12 months. Please contact the primary analyst listed in the first page of this report to view previous investment
recommendations published by DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other
affiliates in the preceding 12 months.
1 An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person accustomed or obliged to act in accordance with the directions or instructions of the analyst.
2 Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an issuer or a new listing applicant, or financial accommodation arrangement between the issuer or the new listing applicant and the firm or analysis. This term does not include commercial lending conducted at arm's length, or investments in any collective investment scheme other than an issuer or new listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant.
Source of all data on this page: Company, DBSVTH, Bloomberg Finance L.P
Strong business strategy execution
Maintain BUY. We maintain our positive view on the stock due
to, i) improving domestic spending mood, which will support
same store sales growth (SSSG) and help accelerate store
expansion, ii) increasing operational efficiency, iii) its ability to
anticipate and adjust to lifestyle changes and, iv) healthy FY19F
profit growth of 14%. Home Products Center (HMPRO)
deserves to trade at a premium as it continues to dominate the
home and garden specialist retailing segment in Thailand
FY19F earnings to be driven by sales and profitability. We
expect stronger sales to boost HMPRO’s earnings in FY19F.
Accelerating sales growth should be driven by improving
domestic consumption which will be reflected as healthier
SSSG, and accelerating store expansion. Higher operating
efficiency and larger sales mix of house brands will continue to
strengthen its profitability.
Strong business strategy execution. HMPRO continues to dominate the home and garden specialist retailing segment in Thailand, due to its strong business strategy execution in investment that strikes a fine balance between growth and risk, coupled with its ability to anticipate and adjust to customers’ lifestyle changes. HMPRO has been expanding into a new store format (HomePro S) which is more profitable and widening its customer base.
Potential catalysts. Recovery of domestic consumption from the
upcoming general election.
Valuation:
Our DCF-based TP is based on WACC 8%, terminal growth
rate 3%.
Key Risks to Our View:
Key risks are (i) delays in store expansion, (ii) weaker-than-
Capital Exp.(net) (5,143) (2,880) (6,150) (5,150) (5,150)
Other Invts.(net) 0.0 0.0 0.0 0.0 0.0
Invts in Assoc. & JV 0.0 0.0 0.0 0.0 0.0
Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0
Other Investing CF 0.0 0.0 0.0 0.0 0.0
Net Investing CF (5,143) (2,880) (6,150) (5,150) (5,150)
Div Paid (3,550) (3,683) (4,254) (4,864) (5,420)
Chg in Gross Debt (2,498) 1,812 (295) 437 514
Capital Issues 0.0 0.0 0.0 0.0 0.0
Other Financing CF 4,996 (3,625) 590 (874) (1,029)
Net Financing CF (1,052) (5,495) (3,959) (5,301) (5,935)
Currency Adjustments 0.0 0.0 0.0 0.0 0.0
Chg in Cash 1,023 (1,216) (1,008) (27.2) 511
Opg CFPS (Bt) 0.55 0.59 0.68 0.77 0.85
Free CFPS (Bt) 0.16 0.33 0.22 0.40 0.49
Source: Company, DBSVTH
Target Price & Ratings History
Source: DBSVTH
Analyst: Namida ARTISPONG
THAI-CAC Certified
Corporate Governance CG Rating (as of Oct 2017)
THAI-CAC is Companies participating in Thailand's Private Sector Collective Action Coalition Against Corruption programme (Thai CAC) under Thai Institute of Directors (as of May 2018) are categorised into:
Score Description
Declared Companies that have declared their intention to join CAC
Certified Companies certified by CAC.
Corporate Governance CG Rating is based on Thai Institute of
Directors (IOD)’s annual assessment of corporate governance
practices of listed companies. The assessment covers 235 criteria
in five categories including board responsibilities (35% weighting),
disclosure and transparency (20%), role of stakeholders (20%),
equitable treatment of shareholders (10%) and rights of
shareholders (15%). The IOD then assigns numbers of logos to
each company based on their scoring as follows:
Score Range Number of Logo Description
90-100 Excellent
80-89 Very Good
70-79 Good
60-69 Satisfactory
50-59 Pass
<50 No logo given N/A
S.No.Date of
Report
Closing
Price
12-mth
Target
Price
Rat ing
1: 13 Dec 17 12.20 15.00 BUY
2: 25 Jan 18 14.50 17.50 BUY
3: 28 Feb 18 14.40 17.50 BUY
4: 12 Apr 18 14.40 17.50 BUY
5: 24 Apr 18 14.70 17.50 BUY
6: 05 Jul 18 14.00 17.50 BUY
7: 06 Aug 18 14.20 17.50 BUY
8: 26 Sep 18 15.80 17.50 BUY
9: 31 Oct 18 14.90 17.50 BUY
Note : Share price and Target price are adjusted for corporate actions.
1
2
3
45
6
7
8
9
11.59
12.59
13.59
14.59
15.59
16.59
Dec-17 Feb-18 Apr-18 Jun-18 Aug-18 Oct-18
Bt
Page 106
Company Guide
Home Products Center
DBSVTH recommendations are based an Absolute Total Return* Rating system, defined as follows:
STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)
BUY (>15% total return over the next 12 months for small caps, >10% for large caps)
HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)
FULLY VALUED (negative total return i.e. > -10% over the next 12 months)
SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)
Share price appreciation + dividends
Completed Date: 3 Dec 2018 11:41:32 (THA) Dissemination Date: 13 Dec 2018 06:50:32 (THA)
Sources for all charts and tables are DBSVTH unless otherwise specified.
GENERAL DISCLOSURE/DISCLAIMER
This report is prepared by DBS Vickers Securities (Thailand) Co Ltd (''DBSVTH''). This report is solely intended for the clients of DBS Bank Ltd, its
respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in
any form or by any means or (ii) redistributed without the prior written consent of DBS Vickers Securities (Thailand) Co Ltd (''DBSVTH'').
The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS
Bank Ltd, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively,
the “DBS Group”) have not conducted due diligence on any of the companies, verified any information or sources or taken into account any other
factors which we may consider to be relevant or appropriate in preparing the research. Accordingly, we do not make any representation or
warranty as to the accuracy, completeness or correctness of the research set out in this report. Opinions expressed are subject to change without
notice. This research is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific
investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees
only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial
advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit)
arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not
to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons
associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group, may have
positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and
other banking services for these companies.
Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can
be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments.
The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed, it may
not contain all material information concerning the company (or companies) referred to in this report and the DBS Group is under no obligation to
update the information in this report.
This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned
schedule or frequency for updating research publication relating to any issuer.
The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and
assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on
which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual
results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED
UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that:
(a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and
(b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk
assessments stated therein.
Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets.
Page 107
Company Guide
Home Products Center
Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies)
mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the
commodity referred to in this report.
DBSVUSA, a US-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public
offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage
in market-making.
ANALYST CERTIFICATION
The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the
companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her
compensation was, is, or will be, directly or indirectly, related to specific recommendations or views expressed in the report. The research analyst
(s) primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate1 does not serve as an officer of
the issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of the
real estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty of the entity who is responsible for the
management of the issuer or the new listing applicant) and the research analyst(s) primarily responsible for the content of this research report or
his associate does not have financial interests2 in relation to an issuer or a new listing applicant that the analyst reviews. DBS Group has
procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of
research reports. The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment
banking function of the DBS Group and procedures are in place to ensure that confidential information held by either the research or investment
banking function is handled appropriately. There is no direct link of DBS Group's compensation to any specific investment banking function of
the DBS Group.
COMPANY-SPECIFIC / REGULATORY DISCLOSURES
1. DBS Bank Ltd, DBS HK, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS'') or their subsidiaries and/or other affiliates have a
proprietary position in Home Products Center recommended in this report as of 31 Oct 2018
2. Neither DBS Bank Ltd nor DBS HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research
Report.
Compensation for investment banking services:
3. DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of
securities as a manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons
wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any
security discussed in this document should contact DBSVUSA exclusively.
Disclosure of previous investment recommendation produced:
4. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates may have published
other investment recommendations in respect of the same securities / instruments recommended in this research report during the
preceding 12 months. Please contact the primary analyst listed in the first page of this report to view previous investment
recommendations published by DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other
affiliates in the preceding 12 months.
1 An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person accustomed or obliged to act in accordance with the directions or instructions of the analyst.
2 Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an issuer or a new listing applicant, or financial accommodation arrangement between the issuer or the new listing applicant and the firm or analysis. This term does not include commercial lending conducted at arm's length, or investments in any collective investment scheme other than an issuer or new listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant.
Page 108
Regional Industry Focus
ASEAN Consumer: Food for Thought – 2019 Outlook
Page 47
DBS Bank, DBSVI, DBSVTH, AllianceDBS recommendations are based an Absolute Total Return* Rating system, defined as follows:
STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)
BUY (>15% total return over the next 12 months for small caps, >10% for large caps)
HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)
FULLY VALUED (negative total return i.e. > -10% over the next 12 months)
SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)
Share price appreciation + dividends Completed Date: 4 Jan 2019 12:08:29 (SGT) Dissemination Date: 4 Jan 2019 15:18:14 (SGT)
Sources for all charts and tables are DBS Bank, DBSVI, DBSVTH, AllianceDBS unless otherwise specified.
GENERAL DISCLOSURE/DISCLAIMER
This report is prepared by DBS Bank Ltd, PT DBS Vickers Sekuritas Indonesia (''DBSVI''), DBS Vickers Securities (Thailand) Co Ltd (''DBSVTH''),
AllianceDBS Research Sdn Bhd (''AllianceDBS''). This report is solely intended for the clients of DBS Bank Ltd, its respective connected and
associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means
or (ii) redistributed without the prior written consent of DBS Bank, DBSVI, DBSVTH, AllianceDBS.
The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS
Bank Ltd, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively,
the “DBS Group”) have not conducted due diligence on any of the companies, verified any information or sources or taken into account any other
factors which we may consider to be relevant or appropriate in preparing the research. Accordingly, we do not make any representation or
warranty as to the accuracy, completeness or correctness of the research set out in this report. Opinions expressed are subject to change without
notice. This research is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific
investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees
only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial
advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit)
arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not
to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons
associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group, may have
positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and
other banking services for these companies.
Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can
be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments.
The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed, it may
not contain all material information concerning the company (or companies) referred to in this report and the DBS Group is under no obligation to
update the information in this report.
This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned
schedule or frequency for updating research publication relating to any issuer.
The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and
assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on
which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual
results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED
UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that:
(a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and
(b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk
assessments stated therein.
Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets.
Page 109
Regional Industry Focus
ASEAN Consumer: Food for Thought – 2019 Outlook
Page 48
Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies)
mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the
commodity referred to in this report.
DBSVUSA, a US-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public
offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage
in market-making.
ANALYST CERTIFICATION
The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the
companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her
compensation was, is, or will be, directly or indirectly, related to specific recommendations or views expressed in the report. The research analyst (s)
primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate1 does not serve as an officer of the
issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of the real
estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty of the entity who is responsible for the
management of the issuer or the new listing applicant) and the research analyst(s) primarily responsible for the content of this research report or
his associate does not have financial interests2 in relation to an issuer or a new listing applicant that the analyst reviews. DBS Group has
procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of
research reports. The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment
banking function of the DBS Group and procedures are in place to ensure that confidential information held by either the research or investment
banking function is handled appropriately. There is no direct link of DBS Group's compensation to any specific investment banking function of the
DBS Group.
COMPANY-SPECIFIC / REGULATORY DISCLOSURES
1. DBS Bank Ltd, DBS HK, DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”) or their subsidiaries and/or other affiliates have
proprietary positions in Thai Beverage Public Company, Sheng Siong Group, CP ALL, Charoen Pokphand Foods, Minor International,
Home Products Center, Matahari Department Store, recommended in this report as of 30 Nov 2018.
2. Neither DBS Bank Ltd nor DBS HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research
Report.
Compensation for investment banking services:
3. DBS Bank Ltd, DBS HK, DBSVS their subsidiaries and/or other affiliates of DBSVUSA have received compensation, within the past 12
months for investment banking services from Koufu Group Ltd as of 30 Nov 2018
4. DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have managed or co-managed a public offering
of securities for Koufu Group Ltd in the past 12 months, as of 30 Nov 2018
5. DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of
securities as a manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons
wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any
security discussed in this document should contact DBSVUSA exclusively.
1 An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of
which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person accustomed or obliged to act in accordance with the directions or instructions of the analyst.
2 Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an issuer or a new listing applicant, or financial accommodation arrangement between the issuer or the new listing applicant and the firm or analysis. This term does not include commercial lending conducted at arm's length, or investments in any collective investment scheme other than an issuer or new listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant.
Page 110
Regional Industry Focus
ASEAN Consumer: Food for Thought – 2019 Outlook
Page 49
Disclosure of previous investment recommendation produced:
6. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates may have published
other investment recommendations in respect of the same securities / instruments recommended in this research report during the
preceding 12 months. Please contact the primary analyst listed in the first page of this report to view previous investment
recommendations published by DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other
affiliates in the preceding 12 months.
RESTRICTIONS ON DISTRIBUTION
General This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.
Australia This report is being distributed in Australia by DBS Bank Ltd, DBSVS or DBSV HK. DBS Bank Ltd holds Australian Financial Services Licence no. 475946. DBSVS and DBSV HK are exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act 2001 (“CA”) in respect of financial services provided to the recipients. Both DBS Bank Ltd and DBSVS are regulated by the Monetary Authority of Singapore under the laws of Singapore, and DBSV HK is regulated by the Hong Kong Securities and Futures Commission under the laws of Hong Kong, which differ from Australian laws. Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.
Hong Kong This report has been prepared by an entity(ies) which is not licensed by the Hong Kong Securities and Futures Commission to carry on the regulated activity of advising on securities pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong). This report is being distributed in Hong Kong and is attributable to DBS Bank (Hong Kong) Limited, a registered institution registered with the Hong Kong Securities and Futures Commission to carry on the regulated activity of advising on securities pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong).
This report has been prepared by a person(s) who is not licensed by the Hong Kong Securities and Futures Commission to carry on the regulated activity of advising on securities in Hong Kong pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong). This report is being distributed in Hong Kong and is attributable to DBS Bank (Hong Kong) Limited, a registered institution registered with the Hong Kong Securities and Futures Commission to carry on the regulated activity of advising on securities pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong).
For any query regarding the materials herein, please contact Carol Wu (Reg No. AH8283) at [email protected]
Indonesia This report is being distributed in Indonesia by PT DBS Vickers Sekuritas Indonesia.
Malaysia This report is distributed in Malaysia by AllianceDBS Research Sdn Bhd ("ADBSR"). Recipients of this report, received from ADBSR are to contact the undersigned at 603-2604 3333 in respect of any matters arising from or in connection with this report. In addition to the General Disclosure/Disclaimer found at the preceding page, recipients of this report are advised that ADBSR (the preparer of this report), its holding company Alliance Investment Bank Berhad, their respective connected and associated corporations, affiliates, their directors, officers, employees, agents and parties related or associated with any of them may have positions in, and may effect transactions in the securities mentioned herein and may also perform or seek to perform broking, investment banking/corporate advisory and other services for the subject companies. They may also have received compensation and/or seek to obtain compensation for broking, investment banking/corporate advisory and other services from the subject companies.
Wong Ming Tek, Executive Director, ADBSR
Page 111
Regional Industry Focus
ASEAN Consumer: Food for Thought – 2019 Outlook
Page 50
Singapore This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn No. 198600294G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 6327 2288 for matters arising from, or in connection with the report.
Thailand This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd.
United Kingdom
This report is produced by DBS Bank Ltd which is regulated by the Monetary Authority of Singapore. This report is disseminated in the United Kingdom by DBS Vickers Securities (UK) Ltd, ("DBSVUK"). DBSVUK is authorised and regulated by the Financial Conduct Authority in the United Kingdom. In respect of the United Kingdom, this report is solely intended for the clients of DBSVUK, its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBSVUK. This communication is directed at persons having professional experience in matters relating to investments. Any investment activity following from this communication will only be engaged in with such persons. Persons who do not have professional experience in matters relating to investments should not rely on this communication.
Dubai International Financial Centre
This research report is being distributed by DBS Bank Ltd., (DIFC Branch) having its office at units 608 - 610, 6th Floor, Gate Precinct Building 5, PO Box 506538, DIFC, Dubai, United Arab Emirates. DBS Bank Ltd., (DIFC Branch) is regulated by The Dubai Financial Services Authority. This research report is intended only for professional clients (as defined in the DFSA rulebook) and no other person may act upon it.
United Arab Emirates
This report is provided by DBS Bank Ltd (Company Regn. No. 196800306E) which is an Exempt Financial Adviser as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. This report is for information purposes only and should not be relied upon or acted on by the recipient or considered as a solicitation or inducement to buy or sell any financial product. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situation, or needs of individual clients. You should contact your relationship manager or investment adviser if you need advice on the merits of buying, selling or holding a particular investment. You should note that the information in this report may be out of date and it is not represented or warranted to be accurate, timely or complete. This report or any portion thereof may not be reprinted, sold or redistributed without our written consent.
United States This report was prepared by DBS Bank Ltd, PT DBS Vickers Sekuritas Indonesia (''DBSVI''), DBS Vickers Securities (Thailand) Co Ltd (''DBSVTH''), AllianceDBS Research Sdn Bhd (''AllianceDBS''). DBSVUSA did not participate in its preparation. The research analyst(s) named on this report are not registered as research analysts with FINRA and are not associated persons of DBSVUSA. The research analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation, communications with a subject company, public appearances and trading securities held by a research analyst. This report is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. This report may only be distributed to Major U.S. Institutional Investors (as defined in SEC Rule 15a-6) and to such other institutional investors and qualified persons as DBSVUSA may authorize. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBSVUSA directly and not its affiliate.
Other jurisdictions
In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.
Page 112
Regional Industry Focus
ASEAN Consumer: Food for Thought – 2019 Outlook
Page 51
DBS Regional Research Offices
HONG KONG DBS (Hong Kong) Ltd Contact: Carol Wu 11th Floor The Center 99 Queen’s Road Central Central, Hong Kong Tel: 852 3668 4181 Fax: 852 2521 1812 e-mail: [email protected]
MALAYSIA AllianceDBS Research Sdn Bhd Contact: Wong Ming Tek (128540 U) 19th Floor, Menara Multi-Purpose, Capital Square, 8 Jalan Munshi Abdullah 50100 Kuala Lumpur, Malaysia. Tel.: 603 2604 3333 Fax: 603 2604 3921 e-mail: [email protected]
SINGAPORE DBS Bank Ltd Contact: Janice Chua 12 Marina Boulevard, Marina Bay Financial Centre Tower 3 Singapore 018982 Tel: 65 6878 8888 Fax: 65 65353 418 e-mail: [email protected] Company Regn. No. 196800306E
INDONESIA PT DBS Vickers Sekuritas (Indonesia) Contact: Maynard Priajaya Arif DBS Bank Tower Ciputra World 1, 32/F Jl. Prof. Dr. Satrio Kav. 3-5 Jakarta 12940, Indonesia Tel: 62 21 3003 4900 Fax: 6221 3003 4943 e-mail: [email protected]