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Summary of MALEE TB (Malee Sampran) Analysis

Core Content

MALEE TB is a Thailand-based company in the Consumer Staples sector, with a current share price of THB41.50 and a target price of THB47.00, representing a 13% upside. The company is currently rated BUY and is expected to benefit from the return of consumer confidence. The market capitalization is THB5.8B, and the free float is 52.5%. The company has a free float-adjusted market cap of THB178M and an average daily trading volume of USD0.6M.

Main Points

• Improved Consumer Confidence: The return of consumer confidence has driven a significant uptick in MALEE's sales volume and is expected to continue into the second half of 2014. This is attributed to the post-coup economic stability and the upcoming FIFA World Cup in Brazil (June–July 2014), which is expected to boost sales of fruit juice in Thailand due to in-home viewing habits.
• CMG Contracts: MALEE has signed three new contract manufacturing (CMG) deals, increasing its total CMG customers to 15. These contracts are expected to drive volume growth and improve margins, with the potential to bring utilization rates closer to 80% by the end of 3Q14. The company is also aiming for seven more CMG contracts in 2014.
• Growth Strategy: MALEE's growth strategy includes two main components: brand growth and CMG expansion. The brand is positioned as a premium product in the fruit juice market, aiming for a 33% market share. The CMG business is expected to provide both volume and margin benefits due to better pricing and R&D capabilities.
• Financial Performance: MALEE's 2Q14 performance was better than 1Q14, with improved domestic and export sales and margin expansion. The EBITDA and core net profit are expected to grow significantly over the next few years, with core net profit forecasted to reach THB901.7M by FY16E.
• Valuation: Based on the Gordon Growth Model, MALEE's fair value is THB47.00, with an average ROE of 42.2%, a perpetuity growth rate of 3%, and a cost of equity of 11.7%. MALEE is currently undervalued compared to its local peers, with a core P/E ratio of 11.5x for FY14 and 8.6x for FY15, significantly lower than the 27.4–29.3x for other green tea producers like OISHI and ICHI.
• Earnings Growth: MALEE is expected to deliver a 47% CAGR in earnings over the next three years, outperforming its peers. This is supported by improved EBITDA margins, operating efficiency, and utilization rates.
• Dividend Yield: MALEE has a high dividend yield of 8.6% for FY16E, indicating strong dividend sustainability and attractive returns for investors.
• Balance Sheet and Cash Flow: The company has improved liquidity with a current ratio of 1.4x by FY16E. Free cash flow is expected to increase, and debt levels are projected to decrease, leading to a lower net debt/equity ratio of 5.9% in FY16E.

Key Information

• Revenue Growth: Expected to increase significantly, from THB6,157.2M in FY12A to THB9,476.7M in FY16E.
• EBITDA Growth: From THB850.6M in FY12A to THB1,233.1M in FY16E, with EBITDA margins improving from 13.8% to 13.0%.
• Net Profit Growth: From THB549.1M in FY12A to THB901.7M in FY16E, with a core net profit growth rate of 18.9% in FY16E.
• Valuation Ratios:
  • Core P/E: 11.5x (FY14E), 8.6x (FY15E)
  • P/BV: 5.7x (FY12A), 2.7x (FY16E)
  • EV/EBITDA: 9.5x (FY12A), 4.8x (FY16E)
• Utilization Rate: Currently in the high 50s, with the expectation of reaching 80% by the end of 3Q14.
• CMG Products: Includes ready-to-drink coffee, green tea, coconut water, and other non-alcoholic, non-carbonated beverages.

Outlook and Strategy

• 2Q14 Performance: Improved from 1Q14 due to better domestic sales, export performance, and less dumping by the leading player.
• World Cup Campaign: MALEE is launching a campaign to promote fruit juice as a sleep-friendly beverage during the World Cup, leveraging nutritional science and consumer behavior.
• CMG Expansion: The company is reconfiguring its plant to meet new customer standards and is expected to sign seven more CMG contracts in 2014.
• Strategic Positioning: MALEE aims to dominate the premium fruit juice segment with a 25–26% market share and expand its CMG business to drive volume and margin growth.

Conclusion

MALEE is undervalued relative to its local peers and is expected to benefit from improved consumer confidence, CMG expansion, and strategic marketing during the World Cup. The BUY rating is maintained due to the high growth potential in earnings and improved financial performance. Investors are advised to consider the dividend yield and low valuation multiples as attractive factors.