20160829-辉立证券-Sappe_FY16_net_profit_seen_improvement_on_overseas_sales_15页_1mb

SAPPE Summary

Core Content

SAPPE is a Thai-based beverage and snack manufacturing company that has evolved from a snack producer to a beverage-focused business since 1998. It has a diverse product range, including functional beverages, fruit juices, functional powders, and RTD products. The company has a global distribution network, operating in over 60 countries.

Main Points

Financial Performance

• 2QFY16 Results: SAPPE reported a 21.7% year-on-year increase in net profit to Bt150.7mn, driven by a 3.1% sales growth to Bt824.7mn and a 4.4% increase in gross margin to 46.4%.
• FY16 Earnings Outlook: The company is expected to see robust growth in FY16 earnings, with net profit projected to rise by 26.7% to Bt380.9mn and sales to increase by 12.7% to Bt2,832.3mn.
• Profit Margins: Net profit margin is expected to increase to 13.45% in FY16, reflecting improved cost control and production efficiency.
• Dividend Yield: The dividend yield is projected to rise to 2.0% in FY16 from 1.3% in FY15, indicating better shareholder returns.
• Valuation: The target price for FY17 is set at Bt28.25, based on a P/E ratio of 20x and an EPS of Bt1.41. This is lower than the current market price, leading to a downgrade to 'SELL'.

Strategic Moves

• Coconut Factory Investment: SAPPE invested Bt140mn for a 40% stake in Coconut Factory (CCF), a leading producer and distributor of coconut juice. The plan is to increase its stake to 60% by 2020.
• New Product Launches: SAPPE plans to launch new coconut-based products in late 2016, aiming to generate Bt500mn in sales over the next five years.
• Cost Reduction Program: Implemented in 2015, the program includes capacity expansion, reduced plastic packaging, and centralized production at Klong 13, which improved production efficiency and reduced logistics costs.

Sales Recovery

• China and Indonesia: Sales in China and Indonesia have shown signs of recovery. The company has addressed product imitation issues and expanded its distributor network in China. In Indonesia, economic recovery is expected to boost sales.
• Geographic Sales: Domestic sales accounted for 40.4% of total sales in FY15, while overseas sales contributed 59.6%, with a significant portion coming from China and Indonesia.

Key Financials

• Sales: Expected to grow to Bt2,832.3mn in FY16, with a projected increase of 12.7%.
• Net Profit: Projected to increase to Bt380.9mn in FY16, a 26.7% rise from FY15.
• EPS: Expected to rise to Bt1.26 in 1HFY16 and Bt1.41 in FY17.
• P/E Ratio: Adjusted P/E ratio is 25.2 in FY16 and expected to drop to 22.5 in FY17.
• P/B Ratio: Adjusted P/B ratio is 4.4 in FY16 and expected to decrease to 4.0 in FY17.

Risk Factors

• Competitive Risk: SAPPE faces competition from other beverage and snack companies.
• Exchange Rate Risk: Fluctuations in currency exchange rates may affect profitability.
• New Product Development Risk: There is a risk associated with the development and market acceptance of new products.

Corporate Governance

• IOD Survey: The Thai Institute of Directors Association (IOD) conducted a corporate governance survey, which was disclosed in accordance with regulations. The survey results are based on public information and are not an internal evaluation.
• Anti-Corruption Indicators: SAPPE is listed in the Level 5 (Extended) and Level 4 (Certified) categories of anti-corruption indicators, reflecting its commitment to ethical practices.

Key Information

Shareholding and Market Cap

• Major Shareholders: As of 5 April 2016, the top three shareholders were Piyajit Ruckariyapong (18.0%), Adisuk Ruckariyapong (17.2%), and Anuparb Ruckariyapong (15.4%).
• Market Cap: As of 29 August 2016, the market cap was Bt9,582mn or USD277mn.
• Closing Price: Bt31.75 as of 29 August 2016.

Valuation Ratios

• P/E (X): Adjusted P/E ratio is 25.2 in FY16 and expected to drop to 22.5 in FY17.
• P/B (X): Adjusted P/B ratio is 4.4 in FY16 and expected to decrease to 4.0 in FY17.
• Dividend Yield (%): Expected to increase to 2.0% in FY16.

Peer Comparison

• SAPPE TB: Market cap of Bt9,582mn, P/E of 31.8, P/B of 5.6, Dividend Yield of 1.3%.
• TIPCO Foods PCL: Market cap of Bt7,721mn, P/E of 7.0, P/B of 2.2, Dividend Yield of 3.0%.
• Ichitan Group PCL: Market cap of Bt15,990mn, P/E of 19.5, P/B of 2.7, Dividend Yield of 4.1%.

Conclusion

SAPPE has shown strong financial performance in 2QFY16, with increased sales and net profit, driven by improved overseas sales and effective cost control. The company's strategic investment in Coconut Factory is expected to support long-term earnings growth. However, the stock has been downgraded to 'SELL' due to overvaluation, with a target price of Bt28.25. The company faces risks from competition, exchange rates, and new product development, but its diverse product range and global distribution network provide a solid foundation for future growth.