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1、24,20,16,12,Stock data,869.5,Deutsche BankMarkets Research,RatingHoldGlobal Emerging MarketsBrazil,CompanyBRF-Brasil FoodsSA,Date14 August 2012Forecast Change,Food,Price at 13 Aug 2012(USD)Target price,14.5315.00,ReutersBRFS.N,BloombergBRFS US,Exchange TickerNYSBRFS,52-week range,21.46-13.70,Domesti
2、c market woes to complicatethings in 2H12(maintain Hold)Short-term earnings risk still skewed to the downside;stay on the sidelinesWe updated our BRF model to reflect disappointing 2Q12 results and the mostrecent sharp increase in feed costs in Brazil;which combined with achallenging economic outloo
3、k and added marketing expenses related to newproduct launches(meant to fill the gap left by the recent asset divestiture/brand suspension),should put additional pressure on margins in 2H12 andbeyond.The net impact of these changes was a 17%downward revision to our,Jose YordanResearch Analyst(+1)212
4、250-Rebeca Sanchez SarmientoResearch Associate(+1)212 250-Key changes,12-month price target(from$18/ADS to$15/ADS,or R$29/local share).Considering the limited upside implied in our new target,and our view that,Target price,18.00 to 15.00,-16.7%,earnings risk remains skewed to the downside,we maintai
5、n a Hold rating.2Q12 results fell short of already-bearish expectationsFor about two months,BRFs management had been warning of flat marginson a sequential basis(when the normal progression is for 2Q margins to riseversus 1Q);therefore,last nights announcement of a QoQ EBITDA margindecline of 40bps(
6、or 10bps as the company defines it)and a YoY decline of,Price/price relative,340bps should be characterized as a miss by the Street(EPS also fell short ofour estimates)and lead to further downgrades to consensus expectations.,88/10,2/11,8/11,2/12,Revision reflects 2Q12,higher costs/leverage,lower do
7、mestic volumes,new FXOur present revision reflects the 2Q12 shortfall as well as higher costs(mostlyfeed,but also marketing,labor and financial expenses),all of which shouldhave a negative impact that should only be partially offset by a weaker BRL.In our view,BRFS remains overvalued and vulnerable
8、in the short term,BRF-Brasil Foods SBOVESPA(Rebased)Performance(%)AbsoluteBOVESPA,1m4.68.8,3m-16.3-0.5,12m-21.710.6,BRF is currently trading at 11.3x 12-month estimated EBITDA,well above ourtarget multiple of 8.2x(see page 3 for derivation);thus,we expect the stock to,fall moderately in the short te
9、rm and recover some time in 1H13.Downsiderisks are:stalling global demand,a stronger BRL,higher trade barriers and/orfeed costs and disease(avian flu,H1N1,BSE).Upside risks include strength indomestic/global demand,a weaker BRL and lower trade barriers/feed costs.Forecasts And Ratios,Market cap(USDm
10、)Shares outstanding(m)ADR ratioFree float(%)Volume(13 Aug 2012),12,633.51.01002,276,300,Year End Dec 31Revenue(BRLm)EBITDA(BRLm)EBITDA margin(%)EBIT(BRLm)Net Income(BRLm)EPS(BRL)%ChangeP/E(x)EV/EBITDA(x)DPS(BRL)Dividend yield(%),2011A25,7062,70210.51,8231,3671.570.0%19.711.90.581.9,2012E28,2542,5309
11、.01,6331,3231.52-20.5%19.412.90.511.7,2013E30,6683,08510.12,1771,8782.16-19.4%13.610.80.531.8,2014E33,5154,29912.83,2882,4452.81-5.6%10.57.70.762.6,BOVESPAExchange rate(BRL/USD,59,1232.03,Source:Deutsche Bank estimates,company data_Deutsche Bank Securities Inc.All prices are those current at the end
12、 of the previous trading session unless otherwise indicated.Prices are sourcedfrom local exchanges via Reuters,Bloomberg and other vendors.Data is sourced from Deutsche Bank and subjectcompanies.Deutsche Bank does and seeks to do business with companies covered in its research reports.Thus,investors
13、 should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.Investors should consider this report as only a single factor in making their investment decision.DISCLOSURES ANDANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1.MICA(P)072/04/2012.,0,0,0,
14、0,0,4,14 August 2012FoodBRF-Brasil Foods SA,Model updated:14 August 2012,Fiscal year end 31-Dec,2009,2010,2011,2012E,2013E,2014E,Running the numbers,Financial Summary,Latin AmericaBrazilFoodBRF-Brasil Foods SA,DB EPS(BRL)Reported EPS(BRL)DPS(BRL)BVPS(BRL)Valuation MetricsPrice/Sales(x),0.270.400.372
15、2.250.5,0.920.920.1815.650.9,1.571.570.5816.161.0,1.521.520.5116.840.9,2.162.160.5317.580.8,2.812.810.7617.580.8,Reuters:BRFS.NHoldPrice(13 Aug 12)Target Price52 Week rangeMarket Cap(m),Bloomberg:BRFS USUSD 14.53USD 15.00USD 13.70-21.46EURm 10,228,P/E(DB)(x)P/E(Reported)(x)P/BV(x)FCF yield(%)Dividen
16、d yield(%)EV/SalesEV/EBITDAEV/EBIT,72.348.51.00.71.90.816.3105.4,26.326.31.87.30.71.110.816.9,19.719.72.30.21.91.311.917.7,19.419.41.8nm1.71.212.920.0,13.613.61.71.01.81.110.815.3,10.510.51.74.72.61.07.710.1,USDm 12,633,Income Statement(BRLm),Company ProfileBRF-Brasil Foods SA is one of the largest
17、Latin Americanfood companies and one of the worlds largest meatprocessors,exporting to over 110 countries.The companyresulted from the merger of Sadia and Perdigao.Itsproduct mix has over 3,000 items(SKUs),including poultryand pork meats(both in natural and processed products),as well as beef,margar
18、ine and dairy products.Brasil Foodsowns several industrial units throughout Brazil(includingmeat plants,soybean crushing plants and dairy-processed,SalesEBITDAEBITPre-tax profitNet incomeCash Flow(BRLm)Cash flow from operationsNet CapexFree cash flow,20,937992153741234767-69374,22,6812,3211,4801,001
19、8042,244-6981,546,25,7062,7021,8231,5221,3671,183-1,12557,28,2542,5301,6331,5761,3231,029-1,860-830,30,6683,0852,1772,3571,8782,019-1,762257,33,5154,2993,2883,1722,4452,973-1,7581,215,and dessert product units).,Equity raised/(bought back),5,290,Price Performance24201612,Dividends paidNet inc/(dec)i
20、n borrowingsOther investing/financing cash flowsNet cash flowChange in working capitalBalance Sheet(BRLm)Cash and cash equivalents,-116-4,859-2851046554,244,-153-1,853-441-901593,343,-502392-551-604-6302,740,-4401,391-466-345-8702,394,-1,203-519-188-1,653-443741,-657-56580-418741,8Aug 10,Feb 11,Aug
21、11,Feb 12,Property,plant&equipmentGoodwill,8,8740,9,0670,9,7980,10,8900,11,9910,11,9910,BRF-Brasil Foods SAMargin Trends16128,BOVESPA(Rebased),Other assetsTotal assetsDebtOther liabilitiesTotal liabilitiesTotal shareholders equityNet debt,15,26628,3849,0566,33215,38812,9964,812,15,34227,7527,2036,91
22、214,11513,6373,860,17,44629,9838,0547,82015,87414,1105,314,18,83832,1239,4168,01917,43414,6897,021,19,68632,4188,4928,59317,08515,3347,751,19,68632,4188,4928,59317,08515,3347,751,Key Company Metrics,0,09,10,11,12E,13E,14E,Sales growth(%)DB EPS growth(%),-5.4na,8.3243.6,13.370.5,9.9-3.2,8.541.9,9.330
23、.2,EBITDA MarginGrowth&Profitability151050,EBIT Margin,201510,Payout ratio(%)EBITDA Margin(%)EBIT Margin(%)ROE(%)Net debt/equity(%)Net interest cover(x),92.54.70.72.737.00.1,19.110.26.56.028.34.7,36.710.57.19.937.77.4,33.29.05.89.247.85.1,24.710.17.112.650.54.3,26.912.89.816.050.57.0,-5,5,DuPont Ana
24、lysis,-10,0,EBIT margin(%),0.7,6.5,7.1,5.8,7.1,9.8,09,10,11,12E,13E,14E,x Asset turnover(x),0.8,0.8,0.9,0.9,1.0,1.0,x Financial cost ratio(x),-9.2,0.8,0.9,0.8,0.8,0.9,Solvency605040302010,Sales growth(LHS),ROE(RHS),8642,x Tax and other effects(x)=ROA(post tax)(%)x Financial leverage(x)=ROE(%)annual
25、growth(%)x NTA/share(avg)(x)=Reported EPSannual growth(%),-0.20.93.02.7na15.00.40na,0.72.92.16.0126.515.30.92130.8,0.94.72.19.963.415.91.5770.1,1.04.32.29.2-6.616.51.52-3.1,1.15.82.212.636.217.22.1641.9,0.97.52.116.027.417.62.8130.2,0,0,Source:Company data,Deutsche Bank estimates,09,10,11,12E,13E,14
26、E,Net debt/equity(LHS)Jose Yordan+1 212 250-5528Page 2,Net interest cover(RHS),Deutsche Bank Securities Inc.,14 August 2012FoodBRF-Brasil Foods SAInvestment thesisOutlookWe rate Brasil Foods(formed in 2009 from the merger of Sadia and Perdigo,and nowone of the worlds largest animal protein companies
27、)Hold.The companys exportbusiness has recovered somewhat from a weak BRL(although revenue growth remainsbelow normalized rates),but the uncertainty in the domestic market introduced by therecent asset swap with Marfrig(and the multi-year suspension of some of BRFs brandsin accordance with the July 2
28、011 antitrust ruling),combined with a significantdeterioration in the raw material cost outlook,should continue to put pressure onmargins in the short to medium term.We continue to like the companys long-termfundamentals,but in our view the stocks risk-reward profile is not yet attractive.ValuationO
29、ur price target assumes a justified multiple of 8.2x applied to our estimated EBITDA forthe 12-month period starting a year from now to derive our target.We derive this targetmultiple by first defining a justified multiple assuming no discounts,using a two-stagemodel that takes into account the comp
30、anys expected free cash flow growth(9.6%inthe first 10 years,and 3.2%in perpetuity),tax rate(of 23.3%),ROIC(10.2%average instage one and 13.6%in perpetuity)and WACC(8.9%).By applying these metrics wearrive at a justified multiple of 9.1x estimated EBITDA for BRFS.We then apply a 10%discount to this
31、multiple(to reach 8.2x)to account for the relatively high risksassociated with commodity food companies like Brasil Foods.RisksDownside risks include stalling global demand,a strong BRL,the erection of additionaltrade barriers by countries that currently trade with Brazil,and any significant increas
32、ein feed costs.Animal protein companies are also exposed to the risk of disease(avianflu,H1N1,BSE),which can cause confidence crises among consumers and significantlycurtail demand or lead to costly product recalls).Company-specific risks includeincreased competition from local or global players and
33、 potential liabilities from ongoinglitigation.Upside risks include a stronger-than-expected recovery in global demand,aweak BRL(which would lead to higher margins than we currently project,everythingelse equal)and lower trade barriers and feed costs.,Deutsche Bank Securities Inc.,Page 3,14 August 20
34、12FoodBRF-Brasil Foods SA2Q12 Earnings Review,Brasil Foods reported 2Q12 results last night that were moderately below ourexpectations(and are summarized in Figure 1 below).Although net sales of R$6,842million was 1.3%above our forecast(due to stronger than anticipated volumes on theexport side),una
35、djusted EBITDA of R$515 was 5.3%lower than our already-bearishestimates(with margins missing by 52 basis points)as a result of 1)weaker-than-expected domestic sales(especially the foodservice segment that suffered from a weakeconomic environment)and 2)higher-than-expected feed costs(both corn and so
36、ybeanmeal)and SG&A expenses stemming from the asset swap/brand suspension(morespecifically,the 168 product launches as part of a strategy to replace the revenues lostin the swap transaction and related brand suspension).While some of the additionalcosts that led to the shortfall should prove to be t
37、emporary,we are particularlyconcerned about the outlook for feed costs over the next 12 months.Figure 1:Brasil Foods1Q12 Earnings Summary,EBITDA and EPS fell short ofalready-low expectations,2Q12A,2Q12E,2Q12 A/E(%),2Q11A,YoY(%),Operating Data,Total Sales Volume(000 tons)Domestic Market VolumesExport
38、 Market VolumesDairy VolumesFoodservice VolumesAvg.Price/ton(R$)Domestic Market Avg Price/ton(R$)Export Market Avg Price/ton(R$)Dairy Avg Price/ton(R$)Foodservice Avg Price/ton(R$)Total Net SalesDomestic Market SalesExport Market SalesDairy SalesFoodservice Sales,1,621644641281554,221.54,6094,3992,4
39、986,4186,8432,9682,820702353,1,558665573257634,3384,5364,6972,5706,1956,7583,0162,693660389,4.1%-3.1%11.8%9.5%-12.5%-2.7%1.6%-6.3%-2.8%3.6%1.3%-1.6%4.7%6.4%-9.3%,1,548640574273614,0654,3384,4442,3555,2956,2932,7762,551643323,4.7%0.6%11.7%2.9%-9.8%3.8%6.3%-1.0%6.1%21.2%8.7%6.9%10.5%9.2%9.3%,Profit&Lo
40、ss(R$million),Total Net RevenueGross ProfitGross margin(%)Operating Profit(EBIT)EBIT margin(%)Unadj.EBITDAEBITDA margin(%)Net IncomeNet margin(%)EPS(R$/share),6,8421,48921.8%2754.0%5157.5%60.1%0.01,6,7581,48722.0%3114.6%5448.1%550.8%0.06,1.3%0.2%(24)bp-11.4%(57)bp-5.3%(52)bp-88.4%(72)bp-88.5%,6,2941
41、,56124.8%4637.4%68810.9%4987.9%0.57,8.7%-4.6%(303)bp-40.5%(333)bp-25.2%(341)bp-98.7%(782)bp-98.7%,Balance Sheet(R$million),Cash&EquivalentsShort Term DebtLong Term DebtNet Debt,2,7483,4116,2126,875,1,8543,7774,9796,903,48.3%-9.7%24.8%-0.4%,3,8342,5894,9503,704,-28.3%31.8%25.5%85.6%,Profit&Loss(US$mi
42、llion),Net RevenueGross ProfitGross margin(%)Operating Profit(EBIT)EBIT margin(%)EBITDAEBITDA margin(%)Net IncomeNet margin(%)EPS(US$/ADS),3,40574121.8%1474.3%2667.8%60.2%$0.01,3,36374022.0%1554.6%2718.1%270.8%$0.03,1.3%0.2%(24)bp-5.2%(29)bp-1.8%(24)bp-79.6%(65)bp-79.7%,4,02699824.8%2967.4%44010.9%3
43、197.9%$0.37,-15.4%-25.8%(303)bp-50.5%(305)bp-39.6%(313)bp-98.2%(775)bp-98.2%,Source:Deutsche Bank estimates and company reports,Page 4,Deutsche Bank Securities Inc.,Jan-10,Jan-05,Jun-05,Jun-10,Jul-02,Jul-07,Feb-07,Feb-12,Jul-12,Dec-02,Dec-07,Aug-09,Aug-04,Sep-06,May-03,May-08,Nov-05,Sep-11,Oct-03,Oc
44、t-08,Mar-09,Mar-04,Apr-06,Nov-10,Apr-11,Jan-05,Jun-05,Jan-10,Jun-10,Jul-02,Jul-07,Aug-04,Sep-06,Dec-02,Feb-07,Aug-09,Sep-11,Dec-07,May-03,Nov-05,May-08,Nov-10,Feb-12,Oct-03,Oct-08,Apr-06,Mar-04,Mar-09,Apr-11,Jul-12,14 August 2012FoodBRF-Brasil Foods SAEstimate revision reflectschallenging cost envir
45、onmentBelow in Figure 2,we summarize the present estimate changes for Brasil Foods.Whilewe essentially left our top-line projections unchanged,we sharply lowered our marginassumptions for 2012 and 2013,and to a lesser extent for 2014.Figure 2:BRF Brasil Foods Summary of Estimate Changes,BRF-BRASIL F
46、OODS SA,2012E Old,2012E New%Chg.,2013E Old,2013E New%Chg.,2014E Old,2014E New%Chg.,RevenueEBITEBITDA,28,0642,2093,106,28,2541,6332,530,1%-26%-19%,30,8492,9803,875,30,6682,1773,085,-1%-27%-20%,34,0153,7314,730,33,5153,2884,299,-1%-12%-9%,EBITDA Mg,11.1%,9.0%-212 b.p.,12.6%,10.1%-250 b.p.,13.9%,12.8%-
47、108 b.p.,Net InterestTaxesNet ProfitEPS(excl GW Amort)Capital ExpendituresNet Cash/(Debt)Revenue,US$EBIT,US$EBITDA,US$Adj EBITDA,US$Net Interest,US$Taxes,US$Net Profit,US$EPADS US$CAPEX,US$Net Cash/(Debt)US$,-2733031,6651.91-1,886-6,29315,227.11,198.41,685.5451.3-148.0164.3903.11.04-1,023.1-3,312.3,
48、-3202391,3231.52-1,860-7,02114,597.1843.51,306.9438.9-165.5123.4683.80.79-960.7-3,600.7,17%-21%-20%-20%-1%12%-4%-30%-22%-3%12%-25%-24%-24%-6%9%,-4186102,3292.68-1,796-6,50116,452.81,589.32,066.7531.7-222.9325.41,242.31.43-957.8-3,514.0,-5124651,8782.16-1,762-7,75115,931.21,131.11,602.8517.6-266.0241
49、.5975.61.12-915.2-4,079.3,23%NM-19%-19%-2%19%-3%-29%-22%-3%19%0%-21%-21%-4%16%,-3787562,5912.98-1,758-6,50118,141.21,990.12,522.6531.7-201.8403.41,381.61.59-937.8-3,514.0,-4677132,4452.81-1,758-7,75117,410.31,708.02,233.5517.6-242.5370.41,270.11.46-913.4-4,079.3,23%NM-6%-6%0%19%-4%-14%-11%-3%20%0%-8
50、%-8%-3%16%,ADS Price Target(12-month),18.00,15.00,-17%,FX Assumption(EOP),1.90,1.95,-3%,1.85,1.90,-3%,1.95,1.95,0%,Source:Deutsche Bank estimates,As deteriorating drought conditions in the US and Russia wreak havoc on the globalagricultural complex,grain prices have been soaring in recent weeks.Desp
