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1、84.9,%,1,400.00,1,000.00,-,-,Philippines,Initiating coverageBuyShare price:PHP242.40Target price:PHP315.00Lovell SarrealLovell_Sarrealmaybank-(632)849 8841Stock InformationDescription:PF is engaged in the manufacturing anddistribution of commercial feeds,poultry and fresh meats(collectively known as
2、 agro-industrial),and value-addedproducts such as hotdogs,hams,dairy,ice cream and coffee.PF is also engaged in flour milling.Ticker:PF PM/PF.PS,17 January 2013San Miguel Pure FoodsMeat,Milling Initiate at BUYA leading food company in the Philippines.We are initiatingcoverage at BUY and a target pri
3、ce of PHP315/sh,implying 30%upside.San Miguel Purefoods(PF)is the parent company for the foodbusinesses of conglomerate San Miguel Corp(SMC).It is one of thebiggest food companies in the country with estimated revenues ofPHP98b last year,providing a broad range of products for householdsand institut
4、ional customers.Backed by strong brands,it is the leader incommercial feeds,poultry and fresh meatsall together classified asagro-industrialas well as flour milling.Meanwhile its value-addedproducts(hotdogs,corned beef,nuggets,dairy,etc)are either numberone or among the leading contenders in their r
5、espective categories.Set for healthy sustainable growth.We believe PF can capture anincreasing portion of consumer spending that is expected to growrobustly on the back of a young and expanding population base and6.4%GDP growth.In the process PF can sustain strong growth as itexpands the agro-indust
6、rial business,accelerates sales growth fromvalue-added meats and as it starts to enjoy economies of scale from,Shares Issued(m):Market Cap(PHP m):Market Cap(USD m):3-mth Avg Daily Value(USDm):PSEI:Free float(%):Major Shareholders:SAN MIGUEL CORPKey IndicatorsROE(%)Net debt(PHPm):NTA/shr(PHP):Interes
7、t cover(x):Historical Chart3,000.002,600.002,200.001,800.00,16740,4819960.26,047.5215.112.17,305.1142.210.2PF PM,emerging businesses such as ice cream and coffee.Strategic initiatives aimed at revenue,cost issues.PF isundertaking various initiatives to achieve robust growth.We believe themost import
8、ant is the move toward a branded and stable-pricedbusiness model to help insulate revenues from volatile commodityprices.Other initiatives include outsourcing and the asset-light model tospeed expansion,free up funds for strategic investments,increase costsavings and deliver better product quality.R
9、aw material substitution hasbeen successfully used to manage costs in feeds production andcompletion of a new grain terminal by 2014 should materially lowerfreight costs in flour milling and feeds production.Strong earnings rebound starting 2013F.We forecast net profit tocommon shareholders to go up
10、 28%to PHP3.52b this year.Thisincludes equity earnings from a 5.2%stake in Manila Electric Company(MER-HOLD)of PHP919m this year.Excluding this,adjusted earningsare expected to jump 37.6%to PHP2.6b.Our PHP315/sh target price isbased on 15x adjusted 2013F earnings at par with our 2013F PERtarget for
11、Charoen Pokphand Foods(CPF TB-BUY)on a stand-alonebasis(excluding the value of investments)plus the cost of PFs MERinvestment.Our target price is at a 35%discount to PHP475/sh usingour DCF-based fair valuation plus the cost of PFs MER investment.San Miguel Pure Foods Summary Earnings Table,600.00200
12、.00Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13Source:BloombergPerformance:52-week High/LowPHP1,010.00/PHP240.00,YE 31 Dec(PHPm)RevenueEBITDANet Profit to CommonEPS(PHP)EPS growth(%)DPS(PHP),2009A75,0436,3422,59718.393,264.2,2010A79,2707,8283,84623.0825.5,2011A89,5918,2623,20319.21(16.7)3.00,201
13、2F98,0417,4132,75016.50(14.1)4.80,2013F108,8068,8903,52221.1328.14.80,1-mth,3-mth,6-mth,1-yr,YTD,PEREV/EBITDA(x),13.26.5,10.55.9,12.67.6,14.78.9,11.57.4,Absolute(%)Relative(%),0.2(5.8),(73.1)(85.1),(74.5)(88.6),(69.7)(101.8),(0.7)(3.9),Div Yield(%)ROE,0.018.6,0.022.4,1.215.7,2.012.1,2.014.1,Consensu
14、s Net Profit(PHPm),N/A,N/A,N/A,N/A,N/A,Source:Company,Maybank ATR Kim Eng estimatesSEE APPENDIX I FOR IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONS,San Miguel Pure FoodsSan Miguel Pure Foods:Meat,Milling Initiate atBuyInitiating coverage with BUY rating based on PHP315/sh TP.Weare initiating cove
15、rage on San Miguel Pure Foods Company Inc(PF)with a BUY rating and target price(TP)of PHP315/sh.This is at a35%discount to our PHP475 valuation using our DCF estimate ofPFs core business plus the cost of PFs 5.2%stake in the ManilaElectric Company(MER-HOLD).ValuationsTP at 15x adjusted 2013 profit p
16、lus cost of MER stake.Our TP isbased on 15x adjusted 2013F earnings plus the value of PFs 5.2%stake in MER that cost PHP16b or PHP78/sh using PFs 166.67moutstanding shares.The 15x PER would align PF with our 2013target valuation for Charoen Pokphand Foods Co Ltd(CPF TB BUY)excluding its investments.
17、Undemanding valuation even at TP.We believe our target price isundemanding considering it is at a 35%discount to the sum of ourDCF-based fair value estimate of PHP397/sh and the cost of PFsstake in MER.In obtaining the cost of equity in our 10-year DCFestimate,we assumed a risk-free rate of 4.75%,be
18、ta of 1 and anequity risk premium of 5%.We used an effective weighted averagecost of capital after tax of 9.44%that factors in the companys capitalstructure,costs of debt after tax,minority interests and preferredshares.Our assumption of a 15x PER is lower than most peercompanies in the region,as sh
19、own in Figure 2,lower than theregional average and with other Philippine consumer companies.Figure 1.DCF assumptions summaryWeighted Average Cost of Capital After Tax,17 January 2013,Terminal growth rateRisk-free rateEquity BetaEquity Risk PremiumCost of EquityCost of DebtAfter-tax cost debtStatutor
20、y Tax RateCost of preferredsEffective WACCATSource:Maybank ATR Kim Eng estimates,3.0%4.75%1.05.0%11.0%6.3%4.4%30.0%8.0%9.44%Page 2 of 29,San Miguel Pure FoodsFigure 2.Comparative peer valuation,Ticker,Revenues(USDm),Net Income(USDm),Market Cap(USDm),PER(x),Philippines,Universal Robina CorpRFM Corp,U
21、RC PMRFM PM,1,981306,20817,4,679386,22.518.4,Indonesia,PT Indofood Sukses Makmur TbkPT Charoen Pokphand Indonesia TbkPT Japfa Comfeed Indonesia Tbk,INDF IJCPIN IJJPFA IJ,5,6242,5522,054,396351122,5,5616,0801,383,14.017.111.0,Thailand,Charoen Pokphand Foods Co Ltd,CPF TB,12,961,498,8,840,17.0,Average
22、Source:Bloomberg,Maybank ATR Kim Eng estimatesFigure 3.Philippine consumer companies valuation,16.7,Ticker,Revenues(USDm),Net Income(USDm),Market Cap(USDm),PER(x),Jollibee Foods CorpPepsi-Cola Products PhilsRFM CorpUniversal Robina Corp,JFC PMPIP PMRFM PMURC PM,2,0345393061,981,1022617208,2,73358338
23、64,679,26.822.618.422.5,Average,22.6,Source:Bloomberg,Maybank ATR Kim Eng estimatesForecastsFaster revenue growth this year.From our estimate of 9.4%growth to PHP98b in 2012,we forecast consolidated net revenuesto rise 11%to PHP108.8b this year.Stronger demand for PFproducts will be helped by initia
24、tives in the various businesssegments while the company continues to benefit from growingconsumer spending.A bonus is that mid-term elections will be heldin 2013 and consumer spending usually grows faster-than-normal atsuch times.We estimate agro-industrial revenue to have gone up 10.6%toPHP63.0b in
25、 2012 and we forecast it to grow 10.8%to PHP69.8bthis year coming mainly from poultry and fresh meats as thecompany continues to gain market share from small players andincreases sales from stable-priced outlets.Value-added meats revenues are estimated to have grown 16.4%toPHP14.1b in 2012 and expec
26、ted to go up 15%to PHP16.2b thisyear from only 4.9%in 2011,driven by new product launches.Through strategic investments in new lines,such as those forchicken nuggets,and tolling arrangements,the capacity constraintissues which impaired growth until 2011 have been resolved.,17 January 2013,Page 3 of
27、29,San Miguel Pure FoodsOther revenues are estimated to have declined 0.5%to PHP12.1bin 2012 but are expected to go up 9.2%to PHP13.2b this year.Developing branded businesses,such as ready-mix coffee and icecream,as well as food services are expected to continue postingdouble-digit growth this year.
28、Meanwhile revenue from flour millingis estimated to have gone up 6.1%to PHP8.86b last year and weforecast it to rise 8.2%to PHP9.6b in 2013 as higher average sellingprices partly mitigate rising input costs and with higher volume fromvalue-added products such as mixes as well as stable sales volumef
29、rom traditional flour products.Operating earnings to rebound in 2013F.We estimate operatingearnings to have reached PHP5.1b in 2012,16.9%lower YoYmainly because of lower margins for the agro-industrial business.For 2013,we forecast operating income to rebound 24%toPHP6.32b,to be helped by an expecte
30、d improvement in theavailability of cassava and other lower-cost raw material substitutes,thus improving costs for agro-industrial.Operating margin to rise to historical range in 2013F.Operatingmargin is expected to improve to 5.8%from our estimate of 5.2%in2012 but still lower then the 7.4%in 2010
31、and 6.9%in 2011.Thisalso factors lower operating margin of 16.2%for flour milling fromour estimate of 19.1%last year due to higher wheat prices,its majorraw material.However,we have seen wheat futures correctingstarting November 2012 and we expect PFs flour milling margins tostart recovering in 2H13
32、 after using up higher-cost inventory.Earnings to rebound in 2013F from estimated decline in 2012.We estimate net profit to common shareholders to have fallen 14%to PHP2.75b in 2012 but we forecast it to rebound 28%toPHP3.52b this year.This will include equity in net income from PFs5.2%stake in MER,
33、amounting to PHP859m and PHP919mrespectively.Excluding MERs contribution,adjusted net profit tocommon shareholders would have contracted 36%to PHP1.9b lastyear but forecast to jump 37.6%to PHP2.6b this year.9M12 earning results summary9M12 earnings on track to meet our full-year estimate.PFdisclosed
34、 9M12 net income to common shareholders of PHP2.056b,down 12.3%YoY,and accounting for 75%of our full-year estimateof PHP2.75b.In 2011,9M accounted for 73%of full-year earnings.Net revenues grew 7.9%to PHP69.3b or 71%of our full-yearestimate of PHP98b.In 2011,9M revenues accounted for 72%ofthe full-y
35、ear revenues.Sharp earnings recovery in 3Q12 after falling in 1H12.3Q12revenues grew 9.2%,faster than the 1H12 growth of 7.2%whileoperating income grew 12%,rebounding from the 38%decline in1H12.3Q12 net income to common shareholders grew 47%toPHP932m.Even excluding about PHP90m in non-recurring inco
36、me,earnings are still up 33%YoY,coming from a 34%decline in 1H12.,17 January 2013,Page 4 of 29,San Miguel Pure Foods3Q12 recovery led by agro-industrial,PFs biggest businesssegment.The big improvement came from the agro-industrialbusiness segment(feeds,fresh meats and poultry),the main culpritfor th
37、e poor performance in 1H12.Agro-industrial accounted for66%of PFs net revenues in 9M12.Its operating income jumped85%YoY to PHP622m in 3Q12,recovering from the 75%decline in1H12.In 1H12,notwithstanding higher revenues,operating incomeof agro-industrial fell because of higher costs and lower margin.O
38、nereason was the scarcity of cassava which is used as partialsubstitute for higher-cost corn in feeds.A second reason was lowerhog prices,particularly in 1Q12.In 3Q12,sales remained healthy,with higher average selling prices and volume.The cassavaproblem was partly mitigated by the use of imported t
39、apioca residuewhich also cost less than corn.Flour margins jumped in 3Q12.Margin of the flour millingbusiness improved in 3Q12.We believe that 3Q12 operating marginof 26%(from 20.8%in 1H12)is not sustainable given higher globalwheat prices.For this reason,we have imputed lower operatingmargin in our
40、 2013 forecast.On the value-added meats,revenuesgrew 8.8%in 3Q12,slower than the 16%rise in 1H12,whileoperating income grew 11.8%,slower than the 26%rise in 1H12.Weakness in other areas offset by strong agro-industrial in3Q12.The combined dairy,coffee and international operations justbroke even in 3
41、Q12 after posting PHP300m operating income lastyear.This is attributed to higher investment in advertising andpromotions because of new product launches and should eventuallyresult in higher sales.At the same time,the international operationswhich accounted for 2%of revenues in 2011,faces rough oper
42、atingenvironment,particularly in Vietnam.These are lumped as Others inPFs business segment,accounting for 12%of total net revenues in9M12.But the shortfall in Others was made up by the strongperformance of agro-industrialFigure 4.Pork wholesale pricesWholesale prices(PHP/kg),120.00115.00110.00105.00
43、100.0095.0090.00,2011,2012,Jan,Feb,Mar,Apr,May,Jun,Source:Bureau of Agricultural Statistics,17 January 2013,Page 5 of 29,-,-,San Miguel Pure FoodsFigure 5.Interim results summary,9M11(PHPm),9M12(PHPm),Change(%),3Q11(PHPm),3Q12(PHPm),Change(%),RevenuesAgro-industrialValue-added meatsMillingOthersOper
44、ating costsOperating profitNet interest income(expense)Equity earnings in associates(MER)OthersPretax incomeIncome taxMinority interestNet incomePreferred dividendsNet income to common,64,28641,7357,9106,1548,486(39,312)4,254(24)100(110)4,220(1,165)(110)2,945(690)2,255,69,35445,6878,9806,3378,350(43
45、,487)3,274(304)7102813,961(1,005)02,957(900)2,057,7.99.513.53.0(1.6)10.6(23.0)1,151.1608.7na(6.1)(13.7)na0.430.4(8.8),21,97614,0863,0062,1082,777(20,281)1,256(19)100(0)1,336(374)(28)934(390)544,24,00415,7613,2702,2172,757(21,747)1,412(103)2021601,671(443)41,232(300)932,9.211.98.85.2(0.7)7.212.4428.0
46、102.2na25.118.5na31.8(23.1)71.2,Margins:,Gross profit(%)Operating profit(%)Net profit(%),18.36.63.5,17.44.73.0,16.95.72.5,19.35.93.9,Source:San Miguel Pure Foods,Maybank ATR Kim Eng estimatesFigure 6.Financial snapshot,2009(PHPm),2010(PHPm),2011(PHPm),2012F(PHPm),2013F(PHPm),RevenuesAgro-industrialV
47、alue-added meatsMillingOthersOperating costsOperating profitNet interest income(expense)Equity earnings in associates(MER)OthersPretax incomeIncome taxMinority interestNet incomePreferred dividendsNet income to commonAdjusted earnings(ex MER),75,04349,06911,2347,4827,258(70,405)4,638(682)-(114)3,842
48、(1,184)(62)2,5972,5972,597,79,27052,30011,5347,1558,281(73,368)5,902(254)-655,713(1,654)(213)3,8463,8463,846,89,59156,98212,1038,35412,152(83,449)6,142(137)270(317)5,958(1,744)(111)4,103(900)3,2032,932,98,04162,99614,0868,86312,096(92,941)5,101(383)859(72)5,504(1,425)(129)3,950(1,200)2,7501,891,109,
49、71969,82316,19310,49813,205(103,396)6,323(472)919(100)6,670(1,764)(199)4,708(1,200)3,5082,588,Growth:,Revenues(%)Operating profit(%)Net income to common(%)Adjusted earnings(%),5.6151.73,264.23,264.2,5.627.348.148.1,13.04.1(16.7)(23.8),9.4(17.0)(14.1)(35.5),11.924.027.636.9,Margins:,Operating profit(
50、%)Net income to common(%)Adjusted earnings(%),6.23.53.5,7.44.94.9,6.93.63.3,5.22.81.9,5.83.22.4,Source:San Miguel Pure Foods,Maybank ATR Kim Eng estimates,17 January 2013,Page 6 of 29,San Miguel Pure FoodsBrief backgroundPF is among the biggest food companies in the Philippines.PFis the parent compa
