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MALEE Summary Report: Rating Upgrade to BUY

Core Information

• Company: MALEE, a leading manufacturer of fruit juice and canned fruit, with a range of other products like corn milk and drinking water.
• Industry: Food and beverage manufacturing, particularly in the fruit juice and canned fruit segments.
• Market Listing: Listed on the SET (Stock Exchange of Thailand) in March 1992.
• Key Products:
  • Canned fruit: Malee, First Choice, Chao Suan, Malee Food Service.
  • Fruit juice: Malee, Malee Healthy Plus, Malee Veggies, Malee Juice Mix.
  • Corn milk: Malee I-Corn.
  • Drinking water: Malee.
  • Contract manufacturing: Products for Coca Cola, S&P Restaurants, Angry Birds, Fuji, Birdy, Nescafe, Vita Coco, Zico, and others.
• Share Price: THB30.25
• Target Price: THB44.00 (down from THB47.00)
• Rating: Upgraded from Sell to Buy

Key Financial Indicators (2014)

• ROE (%): 31.6
• Net Debt/Cash: 110
• NTA per share (Bt): 9.35
• Interest Coverage (x): 46.9

Earnings Overview

• 3-year CAGR: 21%
• PEG Ratio: 0.28x (very strong value proposition)
• Upside to Target Price: 45.5%
• Prospective Yield: 5.4%
• ETR (Effective Tax Rate): 51%
• Valuation at Target Price: 10.7x 2014PE
• Dividend Yield: 3.7%
• DPR (Dividend Payout Ratio): 40%

Earnings Revision

Performance Analysis

• 52-week High/Low: THB75.5 / THB25.0
• 1-month Performance (%): -4.8
• 3-month Performance (%): -44.4
• 6-month Performance (%): -55.2
• 1-year Performance (%): -26.2
• YTD Performance (%): -47.1

Market Share and Brand Position

• Brand Malee:
  • Expected to increase market share to 27% by YE13, up from 25% in 2012.
  • Competes with Tipco, which has a 43% market share.
  • Positioned as a premium brand in the fruit juice market, with a focus on health and high juice content.
  • Launched Malee Healthi Plus in the refreshment segment in August 2013, available in 7-Eleven stores, aiming to capture market share from green tea and carbonates.

Business Segments

Branded Business (Malee)

• Growth: Double-digit growth in 1H13.
• Sales Participation: 45% branded, 55% CM in 2013 (vs 40/60 in 2012).
• Goal: Achieve a 50/50 split between branded and CM.

Contract Manufacturing (CM) Business

• Growth Potential: Very promising.
• Key Customers: Coca Cola, S&P Restaurants, Fuji, Birdy, Nescafe, Vita Coco, Zico, and others.
• Capacity Expansion: Increased capacity by 100 million liters in 2013, expandable by 30 million liters with minimal investment.
• New Products: Plans to launch 2-3 new products per year.

Notes on Earnings and Performance

• 2012 Earnings: Strong due to windfall gains from the 2011 flooding.
• 2013 Earnings: Normalized, with a 32% YoY drop due to higher fixed costs and A&P expenses.
• 2013 Net Profit: THB175m, down from 2012's THB646m.
• 2013 EPS: THB1.25, down from 2012's THB4.61.
• Selling Expense Ratio: Increased to 13.5% in 1H13 from 10.4% in 1H12, but this is based on normalized sales.
• Admin Expense Ratio: 5.5% in 1H13, down from 13.6% in 1H12.

Capacity Utilization and Growth Outlook

• BBC (Boxed, Bottled, Canned Beverage) Capacity: 193 million liters in 2012, now 100 million liters more.
• Capacity Utilization (2013): Estimated at 58%.
• 2014 Growth Assumptions:
  • BBC Utilization: Expected to rise to 70%.
  • Revenue Growth: 53% from domestic MALEE and CM, and 46% from exports.
  • Ex-factory Price: Expected to increase by THB2 per unit from THB25.
• Weighted Gross Margin: Expected to improve by 25.4% compared to 2012, still lower than 2011's 29%.

Peer Comparison

Conclusion

MALEE is a leading manufacturer in the fruit juice and canned fruit market in Thailand, with a diversified product portfolio and contract manufacturing capabilities. The rating upgrade to Buy is based on a Gordon Growth Model with a 12-month price target of THB44, reflecting a strong growth outlook and value proposition.

Despite revised earnings due to normalization from 2012's abnormal performance, the company is still expected to deliver a 21% 3-year CAGR, with a PEG ratio of 0.28x. The 2013 net profit is 32% lower than 2012 but 86% higher than 2011, indicating improved market position and brand visibility.

MALEE is also expanding its capacity and targeting growth in the refreshment segment, aiming to capture market share from green tea and carbonates. The brand momentum and strategic product launches are expected to enhance its market position and increase profitability.

Overall, the company is in a strong position to capitalize on market growth, with a dividend yield of 5.4% and good valuation metrics.