May 8, 2012 ... Being an integral part of ThaiBev enables OISHI to gain competitive advantages
over its peers, while the popularity of its Japanese franchises ...
May 8, 2012
THAILAND EQUITY Investment Research Daily
Initiate report Chalie Kueyen +662 200 2084
[email protected]
Oishi Group Solid footing with strong growth profile
BUY Fair Value
THB 143
Price
THB116
Food OISHI is a subsidiary of ThaiBev operates in two main business segments; Japanese food franchise and non-alcoholic beverages with a well recognized brand “OISHI”. The sale contribution for beverages : food are 55:45, or 75%:25% for net profit contribution. Stock Statistics Bloomberg Ticker Share Capital (m) Market Cap (THBm) 52 week H│L Price (THB) 3mth Avg Vol (‘000) YTD Returns Beta (x)
OISHI TB 187.5 728.1 120.00 59.5 121.4 86.8 0.58
Major Shareholders (%) ThaiBev UOBKH Mr.Tan Passakornatee
89.3% 4.6% 1.8%
Share Performance (%) Month Absolute 1m 29.1 3m 58.1 6m 92.5 12m 20.9
Relative 32.1 43.0 53.7 4.1
6-month Share Price Performance
We initiate coverage on OISHI with a Buy rating and a TP of THB143 (PER of 21x or PEG of 0.8x) given its sustainable high-growth prospects that are underpinned by a forward net profit growth of 25%. Being an integral part of ThaiBev enables OISHI to gain competitive advantages over its peers, while the popularity of its Japanese franchises under the OISHI brand, i.e. Shabushi, Oishi Ramen, etc., could help secure its long-term high-growth profile in the food segment. Industry with good prospects. OISHI operates in an industry with a solid growth outlook and 5-year historical CAGR of 23% for its green tea water business, which almost matches the growth trend of its restaurant franchise. Thanks to its cost advantage, the company is expected to maintain its 60% market share leadership. Solid foundation with strong growth profile. Being an integral part of ThaiBev puts OISHI in a better market position and enables it to enjoy competitive advantages in several areas, including: (i) a complete supply chain, from raw material sourcing and packaging production, and (ii) a strong distribution channel that is heading towards the direction of multi channels – modern trade, traditional stores and restaurants. Thus, supply chain advantages should enable OISHI to achieve lower COSG (relative to its peers) by 10-15%. We expect this to help boost OISHI’s core value in the long run. Mild recovery in 1Q12, acceleration from 2Q12 onwards. OISHI’s plants (for green tea water production and food catering) at Nava-Nakorn were seriously damaged by last year’s flooding. Around 75% of production resumed in Feb-March 2012, while another 25% will be restored in 3Q12. Thus, we expect mild earnings recovery in 1Q12 with a forecasted net profit of THB270m, while strong recovery is expected in 2Q12 with a forecasted net profit of THB400m. Forward 3-year CAGR NP of 25% and ROE of nearly 40% with minimal debt. Key growth drivers will come from 4 areas: (i) continuous solid industry growth of 25%, (ii) margin expansion by 25-30% driven by the change in green tea production technology from “hot-filled” to “cold aseptic filled” or CAF, (iii) capacity expansion by 30% on the back of CAF line expansion from 30m bottles/month to 60m bottles/month, and (iv) aggressive expansion for franchised restaurants by 40 stores in FY12 (vs. +25 stores in FY11). Buy rating with TP of THB143 (PER 21x , PEG 0.8x). Although OISHI’s share price has rallied strongly by 54% (which outperformed the SET Index 30%), the potential upside return is still attractive with a strong turnaround of earnings and high growth expected in the long run. We assign a PEG (of 3-yr forward earnings) of 0.8x or PER of 21x, which is in the same range in terms of historical valuation and industry average. Taking into account all these factors, we arrive at a fair value of THB143 for OISHI. FYE Dec (THBm)
FY10
FY11
FY12f
FY13f
FY14f
Revenue Net Profit % chg y-o-y Consensus EPS (Bt) DPS (Bt) Dividend yield (%) ROE (%) ROA (%) PER (x) BV/share (Bt) P/BV (x) EV/ EBITDA (x)
8,733 975 30%
9,501 808 -17%
11,971 1,278 58%
14,964 1,576 23%
18,705 2,054 30%
n.a.
n.a.
n.a.
n.a.
n.a.
5.18 3.2 3.5% 36% 20% 17.4 14.3 6.31 12.00
4.30 2.15 3.1% 28% 14% 16.3 15.5 4.53 10.77
6.80 3.40 3.0% 38% 18% 16.5 17.9 6.26 12.04
8.38 4.19 3.7% 39% 19% 13.4 21.5 5.21 10.20
10.93 5.46 4.9% 40% 21% 10.2 27.4 4.09 9.35
OSK Research | See important disclosures at the end of this report
1
OSK Research May 8, 2012
Company profile – Solid foundation OISHI is an integral part of the ThaiBev group that operates in the non-alcoholic sector both domestically and internationally. ThaiBev acquired OISHI from founder “Mr Tan Passakornatee” in Jan 2006 at a price of THB32.5 per share. Currently, ThaiBev owns a 89% stake in OISHI and plans to hive off its stake to achieve a share free float level of at least 15% that qualifies OISHI for inclusion into the SET50 Index calculation. Figure 1: Major shareholder (as of Mar-12)
ThaiBev
Share holding (mn shares) 167.4
% holding
UOBKH
8.7
4.6%
Mr.Tan Passakornatee
3.5
1.8%
Others
8.4
4.3%
89.3%
Source : OISHI, OSK research
OISHI operates in two main business segments; Japanese food franchise and non-alcoholic beverages with a well recognized brand “OISHI”. The sales contribution ratio for beverages: food stands at 55%:45%, while that of net profit stands at 75%:25%. Figure 1: Sales breakdown (2009-2011)
Figure 2: Net profit breakdown (2009-2011)
Food 25% Beverage 55%
Food 45% Beverage 75%
Source : OISHI, OSK research
Source : OISHI, OSK research
Figure 3: Gross profit margin
Figure 4: Net profit margin
40%
35%
35% 30%
16%
14%
14%
25%
12%
25%
10%
20%
8%
15%
6%
10%
4%
5%
2%
0%
5%
0%
Food Source : OISHI, OSK research
Beverage
Food
Beverage
Source : OISHI, OSK research
See i mpor t ant di scl osur es at t he end of t hi s publ i cat i on
OSK Resear ch 2
OSK Research May 8, 2012
Strong brand for food restaurant franchise The company has the complete range of services for operating a Japanese restaurant chain, from frozen food production to food delivery to food catering. Its growth strategy is based on the following: (i) Aggressive store expansion that focuses on high value brands such as “Shabushi” (ii) Expanding home delivery service (iii) Expanding outlets to provinces Figure 5: Food restaurant franchise and its sales contribution No. of branch
% sales
2011
breakdown
Price/meal (THB) Shabushi
299
56
52%
Oishi Express
450
16
28%
Oishi Ramen
170
34
15%
Oishi Grand
699
1
Kazokutei
200
7
Oishi Delivery
120
5
Nikuya
n.a.
5%
2
Total
120
Source : OISHI, OSK research
Food
2014F
2013F
2012F
2011
2010
2009
2008
ThaiBev acquired OISHI
2007
20.0 18.0 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 -
2006
Sales breakdown (THB bn)
Figure 6: OISHI’s Sales breakdown (5-yr CAGR of 23%) – sustainable over the next
Beverage
Source: Company data, OSK research
Figure 7: Net profit contribution by segment
NP by segment (THB mn
2,500 2,000 1,500
ThaiBev acquired OISHI
1,000 500
Food
2014F
2013F
2012F
2011
2010
2009
2008
2007
2006
-
Beverage
Source: Company data, OSK research
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OSK Resear ch 3
OSK Research May 8, 2012
Outlook – Market leader in industry with good prospects The historical 5-year CAGR of green tea water has been very solid at 23%, which almost matches the growth trend of OISHI’s restaurant franchise. Thanks to its cost advantage, the company will be able to maintain its market leadership with a 60% share of the green tea water market.
Figure 8: : OISHI’s 5-year beverage sales CAGR of 23% will be sustainable 16.6
Beverage sales : THB bn
18.0 16.0 14.0 12.0
13.3
ThaiBev acquired OISHI
10.6
10.0
7.7
8.0 6.0 4.0 2.0
3.1 1.9
3.8 2.4
2006
2007
5.0
6.0
3.1
3.7
2008
2009
4.6
8.5
10.6 8.4
6.8 5.4
2010
Mkt size
2011
2012F
2013F
2014F
Oishi
Source: Company data, OSK research
Competition from “Ichitan” will not impact OISHI much Although OISHI is being challenged by a new green tea brand “Ichitan” that was introduced by Mr Tan Passakornatee (the ex-founder of OISHI), we believe this will not hurt OISHI’s profitability in a substantial way. We reckon that OISHI enjoys several competitive advantages over its peers on several fronts, including: (i) a complete supply chain, including sourcing for raw materials and packaging production (ii) a strong distribution channel through ThaiBev in modern trade and traditional stores (iii) potential expansion of product line through co-development with Sermsuk (iv) opening new distribution channels via the restaurant segment under Sermsuk A market leader There are only a few players in the green tea water sector, with OISHI commanding a 60% market share and the balance being divided among other players. After the “Ichitan” brand was introduced in mid-2011, the market share of OISHI has remained steady while others have experienced dwindling market shares. Thanks to its cost advantage, we expect OISHI to maintain its market share over the long run. . Figure 9: Key players in the green tea water Lipton 10%
Others 2%
Puriku 12%
Ichitan 16% OISHI 60% Source: Company data, OSK research
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OSK Resear ch 4
OSK Research May 8, 2012
Mild recovery in 1Q12, acceleration from 2Q12 onwards OISHI’s plants (for green tea water production and food catering) at Nava-Nakorn were seriously damaged by the severe floods that hit last year. Around 75% of production resumed in Feb-March 2012, while another 25% will be restored in 3Q12. Thus, we expect mild earnings recovery in 1Q12 with a forecasted net profit of THB270m, while strong recovery is expected in 2Q12 with a forecasted net profit of THB400m.
Figure 10: OISHI’s green tea water capacity Size
Current capacity mn bottles/month
Nava Nakorn Factory 350ml,500ml
30
On plan to double capacity
Line 2
360ml
4.6
Line 3
1000ml
4.8
Effected by floods, production resumption in Mar12
Line 4
500ml
4.6
Tetra Pak
1000ml
3.9
Tetra Pak 1
250ml
10.1
Tetra Pak 2
250ml
10.1
Tetra Pak 3
250ml
10.1
Line 5
500ml
7.5
Line 6
500ml
Col Aseptic Fill (CAF) Pet bottle
UHT box Effected by floods, Production resumption in 3Q12
Amata Factory Pet bottle
Grand total
7.5 93.2
Source: Company data, OSK research
Bright long-term earnings growth outlook OISHI’s long-term earnings growth will be driven by two key factors: Margin expansion: change in technology for producing green tea from hot-filled to CAF Capacity expansion: expansion of the CAF and UHT lines Figure 11: Green tea water - cost of product
Raw material and processing cost Packaging and label
% to total cost 30%
Remark Centralize sourcing with ThaiBev group
30%
Produced under ThaiBev’s subsidiary
Distributor
10%
Using ThaiBev’s channel
Marketing & promotion
20%
Source: Company data, OSK research
(1) New technology brings COGS down by THB2–THB3/bottle The transition of green tea drink production technology from the hot-filled system to one based on cold aseptic filled (CAF) has resulted in the cost of production declining by THB2-THB3/bottle (for 500ml-size bottles). Since packaging cost represents 30% of total production cost, this cost saving should boost the margin from 30% to 34%. However, we assume that half of the cost saving will be passed on to customers through a price cut.
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OSK Resear ch 5
OSK Research May 8, 2012
(2) Capacity expansion OISHI is on track to double its production capacity of green tea under the CAF line and thus, enabling the company to boost its sales and margin for this segment in FY13.
(3) Aggressive plan for Japanese franchise restaurant, adding 40 outlets in FY12 OISHI is aggressively expanding its new Japanese restaurant franchise in FY12 with 40-50 new outlets targeted in FY12 (vs +20 outlets per year in the past), alongside the expansion in department stores and retail stores nationwide. The aggressive store expansion will be geared toward high value brands such as “Shabushi” and “Oishi Ramen” that have gained popularity very quickly. As Shabushi provides buffet dinners at the affordable price of THB299, OISHI plans to hike the price of products for this franchise and this would ensure continuing solid sales contribution from the food segment. Note that we expect food sales to grow at 25% p.a. in FY12 and FY13.
Valuation Buy with TP at THB143 (PER 21x, PEG 0.8x) We assume a top-line growth of 25% for both FY12 and FY13, which is slightly below OISHI’s guidance of 27%, with food revenue expected to grow by 29% and beverages by 25%. Applying a GPM of 14% and NPM of 4.5% for food and a GPM of 32% and NPM of 13.5% for beverages (which is below the 3-year historical level of 14%), normalized earnings for FY12 and FY13 would come to THB1.27bn and THB1.57bn respectively, with the respective EPS at THB6.8 and THB8.4. In view of the solid long-term prospects for the company and industry alike, we assign a PEG of 0.8x or PER of 21x in valuing the company. Thus, we arrive at a fair value of THB143 for OISHI. . Figure 12: Key figure and assumption THB mn
2009
2010
2011F
2012F
2013F
2014F
Food
46%
45%
44%
44%
44%
44%
Beverage
54%
55%
56%
56%
56%
56%
Sales breakdown (%)
Sales growth
19.7%
28.9%
3.4%
26.0%
25.0%
25.0%
Food
21.4%
24.1%
1.1%
26.0%
25.0%
25.0%
Beverage
19.7%
28.9%
3.4%
26.0%
25.0%
25.0% 18,705
Sales breakdown
7,128
9,187
9,501
11,971
14,964
Food
3,298
4,093
4,136
5,211
6,514
8,143
Beverage
3,830
5,127
5,365
6,760
8,450
10,562
GPM by value
2,420
2,833
2,943
3,891
4,863
6,079
Food
1,034
1,167
1,216
1,676
2,095
2,619
Beverage
1,386
1,666
1,726
2,175
2,719
3,399
GPM by %
34.0%
30.8%
31.0%
32.5%
32.5%
32.5%
Food
14.5%
12.7%
12.8%
14.0%
14.0%
14.0%
Beverage
36.2%
32.5%
32.2%
32.2%
32.2%
32.2%
Source : OISHI, OSK research
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OSK Resear ch 6
OSK Research May 8, 2012
Figure 13: Valuation - peer comparison Mkt cap THB bn
3-yr EPS growth
Forward PE (x)
Forward PBV (x)
Forward ROE (%)
D/E (x)
Div (THB/sh)
Div yield (%)
HTC
2.3
40%
42
1.8
6.50%
0.8
0.18
1.5
TIPCO
4.1
19%
10.6
2
21%
1.6
0.3
4.1
MALEE
4.4
28
16
8.1
39%
3.1
-
-
S&P
11.0
25%
18.2
7.5
24%
0.6
3.5
3.2
OISHI
21.1
35%
16
6.3
38%
0.9
3
2.8
MINT
58.1
22%
15
3.6
16
1.7
0.3
2.1
Source : OSK research
EARNINGS FORECAST
FYE Dec (THBm) Turnover EBITDA PBT Net Profit EPS (Bt) DPS (Bt)
FY10 8,733 1,085 1,071 975 5.2 3.2
FY11 9,501 1,434 834 808 4.3 2.1
FY12f 11,971 1,327 1,274 1,278 6.8 3.4
FY13f 14,964 1,827 1,594 1,576 8.4 4.2
FY14f 18,705 2,188 1,843 2,054 11.0 5.5
Margin EBITDA (%) PBT (%) Net Profit (%)
16.4% 12.3% 11.2%
14.0% 8.8% 8.5%
15.3% 10.6% 10.7%
14.6% 10.7% 10.5%
12.8% 9.9% 11.0%
ROE (%) ROA (%)
38.9% 20.4%
28.9% 14.1%
40.8% 18.3%
42.5% 19.3%
44.7% 21.0%
Balance Sheet Fixed Assets Current Assets Total Assets Current Liabilities Net Current Assets LT Liabilities Shareholders Funds Net Gearing (%)
3,284 1,499 4,783 1,474 25 627 2,682 0.11
3,468 2,251 5,719 2,748 (497) 66 2,905 0.39
4,394 2,604 6,998 2,828 (224) 600 3,364 0.28
5,358 2,815 8,173 3,135 (320) 800 4,045 0.31
6,276 3,494 9,769 3,668 (175) 900 5,154 0.24
1,071 483 (256) 1,201 (1,383) (182)
834 1,420 (917) 1,296 (1,530) (234)
1,274 1,120 (593) 1,708 (1,500) 208
1,594 567 (252) 1,771 (1,500) 271
1,843 612 (393) 2,113 (1,500) 613
Cash Flow PBT Other Operating Cash Chg in Working Capital Operating Cashflow CAPEX FCF
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OSK Resear ch 7
OSK Research May 8, 2012
OSK Research Guide to Investment Ratings Buy: Share price may exceed 10% over the next 12 months Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain Neutral: Share price may fall within the range of +/- 10% over the next 12 months Take Profit: Target price has been attained. Look to accumulate at lower levels Sell: Share price may fall by more than 10% over the next 12 months Not Rated (NR): Stock is not within regular research coverage All research is based on material compiled from data considered to be reliable at the time of writing. However, information and opinions expressed will be subject to change at short notice, and no part of this report is to be construed as an offer or solicitation of an offer to transact any securities or financial instruments whether referred to herein or otherwise. We do not accept any liability directly or indirectly that may arise from investment decision-making based on this report. The company, its directors, officers, employees and/or connected persons may periodically hold an interest and/or underwriting commitments in the securities mentioned. Distribution in Singapore This research report produced by OSK Research Sdn Bhd is distributed in Singapore only to “Institutional Investors”, “Expert Investors” or “Accredited Investors” as defined in the Securities and Futures Act, CAP. 289 of Singapore. If you are not an “Institutional Investor”, “Expert Investor” or “Accredited Investor”, this research report is not intended for you and you should disregard this research report in its entirety. In respect of any matters arising from, or in connection with, this research report, you are to contact our Singapore Office, DMG & Partners Securities Pte Ltd (“DMG”). All Rights Reserved. No part of this publication may be used or re-produced without expressed permission from OSK Research. th
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OSK Resear ch 8