morning matters · 2013-08-28 · gradual rise4.1 u.s.: u.s. farm income for 2013 seen at record...

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28-Aug-2013

Morning Matters

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WHAT’S INSIDE

On The Platter

Berli Jucker (BJC TB; FVTHB31-Sell (from Neutral): Struggling to Find Its Footing

Following a visit to BJC’s Vietnam plant, we see headwinds until 2014,

namely: i) glass bottle demand shrinkage, ii) consumer products margin

pressures, iii) profitability issues, and iv) additional Vietnam capex. Only

the company’s aluminium cans business is improving, but it cannot offset

the weaker segments. Thus, we revise downwards BJC’s FY13F/14F

earnings by 16%/28% and cut TP by 40% to THB31.

MEDIA HIGHLIGHTS

Bank of Thailand eyes sovereign wealth fund

ADB poised to cut Thailand growth forecast

TUF postpones shrimp plant

Ceramics sector beats off Chinese rivals

Digital TV bidders 'can deal with network providers'

Egat vows to adopt Japan's coal-use policies

ECONOMIC HIGHLIGHTS

U.S.: Consumer Confidence Index in U.S. Increases to 81.5

Japan: Ito Backs Japan Sales-Tax Plan as Hamada Calls for Gradual Rise

U.S.: U.S. Farm Income for 2013 Seen at Record $120.6 Billion

E.U.: Merkel Blames SPD’s Schroeder for Letting Greece Into the Euro

Hungary: Hungary Cuts Benchmark Interest Rate More Than Forecast

Germany: German Business Confidence Rises to Highest in 16 Months

SET Intra-Day Graph

Source: Bloomberg

Key Market Indices (27 August 2013)

Value Chg % Chg % YTD

SET 1293.97 -35.21 -2.6% -7.0%

SET50 883.90 -19.57 -2.2% -6.5%

SET100 1937.48 -48.35 -2.4% -4.5%

Dow Jones 14776.13 -170.33 -1.1% 14.1%

S&P500 1630.48 -26.30 -1.6% 16.2%

Nasdaq 3578.52 -79.05 -2.2% 21.1%

FTSE 6440.97 -51.13 -0.8% 10.1%

FSSTI 3034.02 -50.39 -1.6% -2.6%

Hang Seng 21874.77 -130.55 -0.6% -3.5%

Nikkei 13259.46 -278.55 -2.1% 27.5%

KLCI 1701.24 -21.25 -1.2% 2.0%

SHANGHAI SE 2103.57 7.09 0.3% -7.6%

JCI 3967.84 -152.83 -3.7% -4.5%

SET 5-yr avg 2012 2013F

PE (x) 13.8 14.2 12.5

P/BV (x) 1.8 2.0 2.0

Yield (%) 4.1 3.4 3.6

Key Statistics

SET Value by investor Type: Daily

Buy (THBm) Sell (THBm) Net (THBm)

Institution 3,237.12 4,251.15 -1,014.03

Proprietary 6,618.16 6,520.15 98.01

Foreign 9,139.12 10,029.13 -890.01

Retail 18,693.44 16,887.42 1,806.03

SET Value by investor Type

MTD (THBm) YTD (THBm) Institution 15,009.27 74,907.23

Proprietary -5,453.29 -10,717.51

Foreign -37,322.58 -113,408.81

Retail 27,766.60 49,219.10

SET50 Index Future

Long Short Net MTD YTD

Institution 9,473 9,804 -331 7,462 19,705

Foreign 5,345 4,209 1,136 -4,612 -19,079

Local 13,534 14,339 -805 -2,850 -626

Foreign Fund Flows (USDm) Last MTD YTD YTD% -27.7 -1,179.0 -3,685.5 -273.1

See important disclosures at the end of this report 2

Media Highlights

Bank of Thailand eyes sovereign wealth fund

The Bank of Thailand is studying a plan to use its surplus foreign reserves to establish what would be called a New Opportunity Fund, aimed at increasing returns as a part of efforts to improve the central bank's balance sheet. Pongpen Ruengvirayudh, the central bank deputy governor overseeing monetary stability, said such a sovereign wealth fund, if established, would be managed by a separate organisation or even the central bank itself. The study will not take long, but the fund's size cannot yet be estimated. The purpose of setting up the fund would be to generate more investment returns in the long run with manageable risk. It would be just one of several measures to improve the Bank of Thailand's balance sheet after accumulating 531 billion baht in losses incurred mainly from foreign exchange stabilisation. Others include a gradual opening of capital accounts, a reduction in foreign reserves and allowing the baht to move more in line with market forces. As of Aug 16, Thailand's foreign reserves totalled US$172 billion with a net forward position of $23.6 billion. (Bangkok Post) ADB poised to cut Thailand growth forecast

The Asian Development Bank (ADB) may revise down its 2013 gross domestic product growth forecast for Thailand on the back of slower first-half economic data. The ADB had pegged Thai economic growth at 4.9% based on an assumption of 8% export growth, but this is expected to be pared down to between 4% and 4.3%. The new rate will be announced in October. The revised GDP growth is in line with the National Economic and Social Development Board's recent readjustment. The government think tank revised down its 2013 GDP growth forecast down to between 3.8% and 4.3% from 4.2% and 5.2% due to sluggish exports and decreasing household spending. Luxmon Attapich, senior country economist at the ADB's Thailand resident mission, said the bank now expects export growth will miss the 8% forecast. However, economic sentiment will improve in the second half supported by the government's 2-trillion-baht infrastructure investment bill, she said. (Bangkok Post) TUF postpones shrimp plant

SET-listed Thai Union Frozen Products Plc (TUF) has slashed this year's capital expenditure and its revenue forecast as its key shrimp business faces challenges in the second half. The world's largest tuna company has downgraded its revenue projection from US$4 billion to $3.8 billion after disappointing second-quarter results. Planned capital expenditure was also cut from 6 billion baht to 4-4.5 billion as an expansion of shrimp capacity has now been stalled, said deputy general manager Wai Yat Paco Lee. The company has decided to allocate partial shrimp production to the underused Samut Sakhon factory of Pakfood Plc, of which TUF owns 75%. A new shrimp factory was planned to be completed by mid-2014 to replace the old one that was damaged by fire last year, Mr Lee told a briefing at the Stock Exchange of Thailand yesterday. (Bangkok Post) Ceramics sector beats off Chinese rivals

Thailand's ceramics industry is expected to grow by 10% this year, up from 8.7% last year, to more than 40 billion baht as it survives competition from cheaper Chinese imported products. Chinese ceramics are competing in a different market from Thai products, said Somnuk Sirisoonthorn, president of the Thai Ceramics Society. In 2012, the industry grew by 8.7% in value. With growth of 10%, the value of the domestic market will reach 40 billion baht this year, with another 25 million baht coming from exports, he said. The Thai Industrial Standards Institute's standard on ceramic products will next year restrict tile imports pending an approval process. That will give Thai producers a temporary advantage in the market, said Mr Somnuk. However, domestic producers have shouldered higher costs due to the increased minimum wage and the price of liquefied petroleum gas (LPG), while the fluctuating baht threatens exports. (Bangkok Post)

Digital TV bidders 'can deal with network providers'

Qualifying bidders in the auction of 24 licences for commercial digital terrestrial TV will be allowed to deal directly with each network provider before the auction begins, the head of the regulator's broadcasting panel said yesterday. Natee Sukonrat, chairman of the broadcasting committee at the National Broadcasting and Telecommunications Commission (NBTC), said that if the number of qualifying bidders exceeded the number of available multiplexers, the winners paying the highest prices in the auction would have the privilege of choosing multiplexers and channel numbers first. All state-run network providers the Royal -Thai Army, MCOT, the Public Relations Department and Thai Public Broadcasting Service (Thai PBS) - will propose their pricing plans for network-leasing fees for both standard and high-definition services to the NBTC's office by mid-September. The qualifying bidders will be informed about those rates 30 days before the auction begins. (The Nation) Egat vows to adopt Japan's coal-use policies

THE ELECTRICITY Generating Authority of Thailand plans to adopt for its four new coal-fired power plants techniques deployed effectively in Japan, to assure the Thai public of minimum environmental impacts. Each of the four new plants will produce 800 megawatts of power. According to Rangsan Athamanolap, Egat's assistant governor for corporate social affairs, coal will remain a major fuel for generating electricity, given its low price that will translate into affordable power for all. More coal-fired power plants would also ensure energy security, given that natural gas - a depleting resource - now accounts for 70 per cent of the fuel generating the Kingdom's electricity. Tatree Riewcharoen, head of Egat's corporate communications division, said many existing power plants were in |need of replacement. A coal-fuelled plant's life cycle is 30 years, compared with 40 years for nuclear and 25 years for natural gas. (The Nation)


Economic Highlights

U.S.: Consumer Confidence Index in U.S. Increases to 81.5

Consumer confidence unexpectedly improved in August as Americans grew more optimistic about employment opportunities and the outlook for the economy. The Conference Board’s index of sentiment advanced to 81.5 from a revised 81 the prior month that was stronger than initially estimated, the New York-based private research group said today. The median forecast in a Bloomberg survey of economists was 79. Another report showed home prices appreciated in June at the second-fastest pace in seven years. Higher property values and stock-market returns are boosting income expectations that will help sustain consumer spending. Well-to-do households accounted for the pickup in sentiment this month, showing bigger job and wage gains are needed for a broader expansion that benefits all income groups. (Bloomberg) Japan: Ito Backs Japan Sales-Tax Plan as Hamada Calls for Gradual Rise

Tokyo University Professor Takatoshi Ito said Japan’s sales tax should be increased as planned as a panel of economists and financial experts considering the levy split on the issue. “Economic indicators show the economy isn’t in a bad state and raising the sales tax wouldn’t slow the economy or the bid to end deflation,” Ito, a former finance ministry official, told reporters today after the meeting in Tokyo. Not proceeding in line with the plan could lead to falling stocks, a stronger yen and a spike in bond yields, Ito wrote in a statement submitted to the panel. Ito was among five of the nine people on today’s panel to agree with the plan to increase the tax to 8 percent in April from the current 5 percent, Economy Minister Akira Amari told reporters after the meeting. Abe adviser Koichi Hamada was one of three panel members to call for an incremental rise by 1 percentage point a year, according to Amari. (Bloomberg)

U.S.: U.S. Farm Income for 2013 Seen at Record $120.6 Billion

Record harvests for U.S. corn and soybeans will reduce 2013 farm income from a previous estimate as the bumper crops lower prices, the U.S. Agriculture Department said today. While the agency projected less farm income than it forecast earlier this year, it still expects the figure to top the previous record of $118 billion in 2011. Net farm income in 2013 will be $120.6 billion, down 5.9 percent from a February forecast of $128.2 billion. The new forecast is up 6 percent from a revised estimate of $113.8 billion for 2012, the USDA said in a report on its website. The USDA figures released today tell a “very, very good story, and a very positive story for much of U.S. agriculture,” Patrick Westhoff, director of the Food and Agricultural Policy Research Institute at the University of Missouri, said in a telephone interview. (Bloomberg) E.U.: Merkel Blames SPD’s Schroeder for Letting Greece Into the Euro

German Chancellor Angela Merkel sought to pin the blame for the euro-region’s debt turmoil on her Social Democratic predecessor, Gerhard Schroeder, saying he should never have let Greece into the single currency area. Merkel, addressing a campaign rally in the northern German town of Rendsburg yesterday, said the debt crisis that emerged in Greece in late 2009 and dominated her second term had been “brewing for many years” going back to the euro’s inception. “For example, Greece shouldn’t have been allowed into the euro” at the time of its admission in 2001, Merkel told a crowd of about 1,000 supporters. “Chancellor Schroeder accepted Greece in and weakened the Stability Pact and both decisions were fundamentally wrong, and one of the starting points for our current troubles.” Merkel, by apportioning blame for the havoc caused across the 17-nation euro region on her SPD predecessor, may be seeking to deflect attacks on her crisis policy leveled by Peer Steinbrueck, her Social Democratic challenger in the Sept. 22 federal elections. (Bloomberg)

Hungary: Hungary Cuts Benchmark Interest Rate More Than Forecast

Hungary’s central bank cut interest rates more than economists forecast as policy makers took advantage of the resilience of local assets before the U.S. Federal Reserve scales back bond buying. The forint weakened. The Magyar Nemzeti Bank lowered the two-week deposit rate to a record-low 3.8 percent from 4 percent after 12 months of quarter-point cuts. Sixteen of 22 economists in a Bloomberg survey forecast a reduction to 3.9 percent, while none forecast a cut of 20 basis points. Policy makers are fine-tuning monetary policy with rates at a record low, seeking to fortify a recovery from last year’s recession while safeguarding financial stability and the attractiveness of local assets as the Fed considers when to start paring stimulus. Hungary’s growth and inflation outlook justify further monetary easing while global risks warrant policy caution, rate-setters said in today’s statement. (Bloomberg)

Germany: German Business Confidence Rises to Highest in 16 Months

German business confidence rose to the highest level in 16 months in August, beating forecasts and indicating that the recovery in Europe’s largest economy is gathering pace. A measure of construction activity fell. The Ifo business climate index, based on a survey of 7,000 executives, climbed to 107.5 from 106.2 in July, the Munich-based institute said today. That’s the highest since April 2012. Economists predicted an increase to 107, according to the median of 42 forecasts in a Bloomberg News survey. German gross domestic product expanded 0.7 percent in the second quarter, rebounding from a colder-than-usual winter that curbed output and helping the 17-nation euro area emerge from its longest-ever recession. The nation’s growth was led by private consumption and included the first increase in plant and machinery investment since 2011, signaling the recovery may be sustained. (Bloomberg)


Outperform

Current Target Upside/

Rec. Price Price Downside PE (x) Yield (%) Remarks

(Bt) (Bt) (%) 2013F 2013F

ADVANC Buy 244.00 319.00 30.7 19.2 5.2

AOT Buy 164.50 222.00 35.0 21.8 1.8

BTS Trading Buy 7.90 10.20 29.1 36.4 6.8

INTUCH Trading Buy 77.00 104.00 35.1 16.3 5.6 .

PTT Buy 318.00 388.00 22.0 8.1 4.3

PTTGC Buy 67.75 82.10 21.2 9.1 5.0

Underperform

Current Target Upside/

Rec. Price Price Downside PE (x) Yield (%) Remarks

(Bt) (Bt) (%) 2013F 2013F

AP Neutral 5.40 6.30 14.0 6.2 3.5

KTB Buy 17.50 28.30 61.7 8.1 4.3

TCAP Neutral 31.50 41.00 30.2 4.1 4.2

TISCO Sell 36.00 41.00 13.9 6.7 7.1

Rank Symbol Rank Symbol27-Aug 26-Aug 23-Aug 22-Aug 21-Aug 27-Aug 26-Aug 23-Aug 22-Aug 21-Aug

1 KBANK 283.0 80.7 161.8 (714.5) (1,192.1) 1 BAY (440.0) 98.9 (319.7) 551.0 (131.9)

2 BANPU 64.1 (31.0) 138.1 126.4 113.3 2 SCC (321.3) (303.1) (516.9) (49.3) (160.5)

3 BBL 42.1 (166.6) (12.1) (412.4) (169.9) 3 CPALL (173.8) (72.7) (143.8) (91.8) 174.4

4 BTS 27.2 27.4 23.1 15.6 113.7 4 PTT (151.6) 47.7 27.5 68.3 (400.4)

5 CPN 22.0 (12.0) 4.2 (3.7) (65.5) 5 PTTGC (141.0) (16.0) (76.9) 150.6 (106.5)

6 LPN 21.5 (0.1) 62.7 (79.1) (48.2) 6 SCB (106.9) (24.2) (58.8) (377.6) (388.5)

7 SCP 16.9 10.2 2.3 0.9 (1.5) 7 KTB (98.2) (27.6) (67.0) (23.2) (62.2)

8 EGCO 16.5 (1.1) 12.3 2.6 3.9 8 ADVANC (83.8) 24.1 (63.6) (145.9) (193.3)

9 JAS 16.0 (128.1) 33.2 24.4 9.3 9 CPF (79.4) (9.1) 6.9 108.9 (88.7)

10 MAJOR 14.2 17.8 12.3 4.6 (7.9) 10 AOT (55.6) (85.3) 31.5 (163.9) (39.0)

11 PTTEP 13.6 (95.9) 427.5 (3.7) (108.7) 11 BEC (41.9) (20.3) (10.7) 20.0 (50.9)

12 TOP 13.5 (12.6) (12.2) 114.0 (80.9) 12 HMPRO (35.0) (7.5) (23.1) (4.5) (6.3)

13 IVL 13.2 21.5 (21.1) (14.9) (7.9) 13 DTAC (30.0) (34.5) (137.7) (60.4) (74.7)

14 TCAP 10.7 12.9 (44.7) 28.0 2.2 14 STEC (28.6) (10.3) 0.1 43.7 20.2

15 CENTEL 10.0 (7.3) 0.4 (5.2) (2.6) 15 GLOW (20.8) 4.5 (17.1) (40.6) (23.6)

16 BIGC 9.7 12.0 28.9 13.8 35.5 16 BGH (18.9) 12.8 (17.6) 61.4 (76.0)

17 TTCL 8.0 2.6 5.8 0.6 5.2 17 TRUE (18.5) (154.2) 351.2 (6.0) (15.1)

18 BCP 7.3 8.9 9.6 (3.0) (1.7) 18 MINT (18.2) (5.0) 0.5 58.8 (76.6)

19 TUF 7.2 (2.6) (5.1) (8.5) (54.3) 19 NOBLE (16.1) (4.9) (2.1) 7.4 (4.4)

20 AEONTS 7.1 (0.2) (1.5) (0.8) (0.4) 20 BLA (15.7) (1.8) (8.0) (6.8) (1.0)

% No.of Shars

Symbol BUY SELL Total NET Turnover Symbol In Hand

1 BAY 347.7 787.6 1,135.3 (440.0) 46.1 1 TISCO-P 0.02 0.03 66.2

2 KBANK 427.7 144.7 572.4 283.0 22.1 2 BBL 576.3 1,908.8 30.2

3 SCC 59.1 380.4 439.5 (321.3) 32.4 3 KBANK 630.4 2,393.3 26.3

4 BBL 231.1 189.1 420.2 42.1 40.9 4 INTUCH 735.7 3,206.4 23.0

5 INTUCH 206.9 204.0 410.9 2.9 8.7 5 SPALI 380.7 1,716.6 22.2

6 TRUE 137.8 156.3 294.0 (18.5) 8.1 6 E-W1 74.6 347.0 21.5

7 PTTEP 153.3 139.7 293.1 13.6 13.3 7 GOLD-W1 74.2 392.1 18.9

8 PTT 65.5 217.1 282.6 (151.6) 14.5 8 NMG-W3 302.0 1,647.7 18.3

9 AOT 95.2 150.8 246.1 (55.6) 18.0 9 LH 1,823.0 10,025.9 18.2

10 ADVANC 76.4 160.2 236.7 (83.8) 8.4 10 THRE 637.5 3,512.5 0.0

11 SCB 64.1 171.1 235.2 (106.9) 8.4 11 LPN 249.0 1,475.7 16.9

12 PTTGC 41.7 182.7 224.4 (141.0) 24.4 12 TWFP 1.6 9.5 16.7

13 KTB 53.7 152.0 205.7 (98.2) 7.6 13 DTAC 370.3 2,367.8 15.6

14 CPALL 15.8 189.5 205.3 (173.8) 6.9 14 TCAP 198.2 1,277.8 15.5

15 BANPU 122.5 58.4 180.9 64.1 9.7 15 AP 424.4 2,859.9 14.8

16 CPN 86.2 64.2 150.5 22.0 10.7 16 THIP 1.2 8.0 14.5

17 LH 71.1 72.7 143.8 (1.7) 31.4 17 BAY 863.7 6,074.1 14.2

18 BGH 60.4 79.2 139.6 (18.9) 20.4 18 LALIN 114.1 825.0 13.8

19 CPF 29.6 109.0 138.7 (79.4) 22.6 19 PRANDA 54.6 406.7 13.4

20 DTAC 36.7 66.6 103.3 (30.0) 16.0 20 GBX 139.2 1,089.1 12.8

Source: SET,RHB OSK

Top 20 Net SellNVDR Net Sell Value (Bt mn)

NVDR Daily Trading by Stock

Top 20 Net BuyNVDR Net Buy Value (Bt mn)

Capital Shares

Paid Up Capital % of Paid Up

--------------NVDR Most Active Values (Bt m)--------------- -----------NVDR Outstanding Share (m shares)-----------

Berli Jucker (BJC TB) 27 August 2013


Berli Jucker (BJC TB) Sell (from Neutral) Consumer Cyclical - Distribution & Wholesale Target Price: THB31.0

Market Cap: USD1,992m Price: THB40.0

Struggling to Find Its Footing

Macro

3.00

Risks

3.00

Growth

1.00

Value

1.00

Source: Bloomberg

Avg Turnover (THB/USD) 172m/5.57m

Cons. Upside (%) 23.8

Upside (%) -15.0

52-wk Price low/high (THB) 40.0 - 91.0

Free float (%) 25

Shareholders (%)

TCC Holding 70.1

DBS Vickers (Singapore) 4.9

Thai NVDR 2.5

Shariah compliant

Chalie Kueyen 66 2862 9745

License No.4975

[email protected]

Source: Company data, RHB estimates

Following a visit to BJC’s Vietnam plant, we see headwinds until 2014,

namely: i) glass bottle demand shrinkage, ii) consumer products margin

pressures, iii) profitability issues, and iv) additional Vietnam capex.

Only the company’s aluminium cans business is improving, but it

cannot offset the weaker segments. Thus, we revise downwards BJC’s

FY13F/14F earnings by 16%/28% and cut TP by 40% to THB31.

Shrinking demand for glass bottles from related companies. BJC’s

core glass bottle business (~30% of revenue) is under pressure,

following shrinking demand shrinkage from related companies Thai

Beverage (THBEV SP, NR), Sermsuk (SSC TB, NR) and Oishi (OISHI

TB, NEUTRAL, TP: THB130) on rising competition & lower volume and

from outsider customer; Thai Theparos (SAUCE TB, NR). SSC’s Est

Cola’s market share has been falling with the aggressive return of Pepsi

(after a 6-month lull), which has hurt glass bottle demand, while Oishi’s

Green Tea has been unable to gain popularity, contributing zero volume

to BJC in since June. Thus, capacity utilisation (CAPU) has fallen

continuously to 80-85% in 2Q13 (<80% in July) from 95% in 1Q13.

Potentially losing a key customer. After gaining a 20% market share in

the energy drink segment, Carabao Daeng (BJC’s key customer is

building its own glass bottle plant for internal use and for OEM purposes.

The plant, whose capacity is equal to BJC’s, is set to begin operations in

2014, which could result in BJC losing a key client and seeing a glass

bottle oversupply in the market going forward.

Negligible earnings contribution from Vietnam. BJC has invested

~THB2-3bn to expand aggressively its Vietnam businesses on: i) an

aluminium can plant (BJC holds 27%), and ii) acquiring two distributors

and a convenience store (CVS) chain. Only the plant has broken even

(vs. loss THB60m in FY12), while two distributors report negligible profits

at the current and going forward on sluggish consumer demand and high

interest expense, and CVS will breakeven in FY15 after it expands to

>200 stores (from 40 currently) and increase daily sales per store by

40% to THB22,000.

65

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145

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185

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54

64

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84

94

Berli Jucker (BJC TB)Price Close Relative to Stock Exchange of Thailand Index (RHS)

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Forecasts and Valuations Dec-10 Dec-11 Dec-12 Dec-13F Dec-14F

Total turnover (THBm) 26,082 31,235 37,429 42,195 48,015

Reported net profit (THBm) 1,905 2,178 2,415 2,438 2,861

Recurring net profit (THBm) 1,905 2,178 2,415 2,438 2,861

Recurring net profit growth (%) 51.0 14.3 10.9 1.0 17.3

Core EPS (THB) 1.20 1.37 1.52 1.54 1.80

Core P/E (x) 33.3 29.2 26.3 26.1 22.2

Return on average equity (%) 17.5 18.2 18.4 16.9 17.9

P/B (x) 5.57 5.06 4.63 4.20 3.77

P/CF (x) 11.3 14.7 15.2 9.6 11.3

EV/EBITDA (x) 18.6 17.4 19.0 17.4 15.6

Net debt to equity (%) 53.0 63.9 68.5 67.1 65.0

Our vs consensus EPS (%) (19.6) (19.9)



BJC’s Headwinds

Shrinking demand for glass bottles from related companies

BJC’s glass bottle core business (~30% of revenue) is under pressure on shrinking

demand from related companies and external customers. In terms of the former, the

company provides glass bottles for THBEV’s alcohol business, will fully supply glass

bottles for SSC’s Est Cola and provides returnable bottles for Oishi’s Green Tea. Due

to a highly competitive market and some market share loss in 2Q13, orders from

SSC and Oishi have declined dramatically, and are expected to continue declining in

3Q13. However, declining orders from THBEV was due to seasonality.

Lower orders from external customers: SAUCE and Carabao Daeng

In terms of BJC’s external customers, SAUCE has reduced orders, following its

decision to change its food containers to plastic bottles from glass ones. As SAUCE

is one of BJC’s key customers, an order reduction will affect the outlook of the latter’s

operations. Furthermore, Carabao Daeng is now setting up its own glass bottle plant

that will have a capacity of 300 tons per day. The latter’s capacity expansion turns us

more cautious on the industry’s outlook, given that this new plant’s capacity is equal

to that of BJC’s. Thus, the company’s CAPU has now been falling continuously to 80-

85% in 2Q13 (<80% in July) from 95% in 1Q13.

Negligible contribution from Vietnam for the next two years

BJC has expanded its Vietnam consumer supply chain and CVS aggressively.

However, given the tough market conditions there, net profit contributions from the

consumer supply chain (BJC holds 65%) and its aluminium can plant (BJC holds a

27% stake) will be negligible, at around 3-4% of BJC’s combined net profit, while the

convenience store chain will run at a loss until 2015. Downgrade earnings

Regarding BJC’s THB1.2bn 1H13 earnings, this included forex gains of around

THB100m. If you strip out this item, the company would have posted a net profit of

THB1.1bn, or flat growth. In anticipation of better sales value for the healthcare

business, but lower sales growth for the packaging business and flat sales growth for

the consumer sector in 2H, we are lowering our FY13 sales forecast to 14% (from

20%) and applying 14%/22% growth for FY14F-15F, while cutting gross profit margin

(GPM) by 40bps to 24.1% from FY13-15. Thus, we revise downwards BJC’s net

profit by 16%/28% in FY13/14.

Figure 1: Net profit forecast change and TP revised downwards

Previous Current

2013F 2014F 2015F 2013F 2014F 2015F

Assumption

Sales growth 20% 20% 24.5% 13.6% 13.8% 21.6%

- Packaging 20% 20% 20% 12% 12% 20%

- Consumer 20% 20% 20% 15% 15% 20%

- Health care 20% 20% 25% 15% 15% 20%

- International 20% 20% 40% 20% 20% 30%

Gross profit margin 24.45% 24.6% 24.7% 24.1% 24.1% 24.1%

SG&A to sales 10.6% 10.8% 10.8% 10.6% 10.8% 10.8%

Net profit (THB m) 3,112 4,034 5,040 2,483 2,861 3,838

EPS (THB) 1.96 2.5 3.2 1.68 1.93 2.42

Fair price (THB) 57 31




De-rating PE, cutting TP by 45% to THB31

Our view is that BJC is facing headwinds in the short- to medium-term and that a

turnaround may take some time, as several of its businesses, ie glass bottles and

Vietnam operation, are being challenged by factors beyond its control. To cope with

declining orders from key clients, BJC needs to find new orders and new clients to

offset the slower sections. Thus, we will wait and see what the company’s strategy

will be to counter such a challenge. As we view that BJC’s core business turnaround

has to wait until 2014 or 2015 and that unexciting earnings are expected in the near-

term, we are reducing the company’s valuation premium. We are assigning a P/E of

16.0x (from 25.0x) to revalue BJC’s TP to THB31 (from THB57.00).

Heavy Vietnam Investments

BJC has invested a lot of resources and effort to expand its business in Indochina,

ahead of the Asean Economic Community (AEC) integration, which will become

effective in 2016. In Vietnam in particular, the company has expanded aggressively in

three business lines: i) an aluminium can plant, ii) a consumer product distribution

network, and iii) a CVS chain. Currently, international sales account for 17% of BJC’s

1H13 sales revenue (FY12: 12%), but, as yet, no profit contribution. Of that sales

revenue total, Vietnam accounts for 70% of BJC’s overseas business.

TBC-Ball turns a profit, but bottomline contribution insignificant

TBC-Ball (an aluminium can manufacturer that services the likes of Carlsberg and

Coca Cola) is BJC’s first business in Vietnam and only started its commercial run in

2Q12. Currently, this plant runs at a breakeven point (vs a net loss of around

THB60mn in FY12) and the company expects it to turn profitable in 2H13. However,

we do not expect a significant net profit contribution, as BJC’s equity interest in this

plant is only 26.8%. Given that its aluminium can plant in Thailand (which is twice the

size of the Vietnam one) contributes net profits of around THB500-550m annually,

the Vietnam aluminium plant should contribute annual earnings of around THB70m,

or about 3% of BJC’s average net profit.

Figure 2: International sales and percentage of total sales Figure 3: International sales breakdown by country (1H13)

Source: RHB estimates Source: RHB estimates

Focused consumer business

After acquiring Thai-An in Hanoi, its second distribution network business (after Thai

Corp), BJC is able to fulfil its distribution network strategy of being in two major cities

and/or areas (one each in Northern and Southern Vietnam). Currently, the company

is moving into the CVS chain segment, by setting its own brand B’Smart brand in Ho

Chi Minh City.

1,039

2,147

3,913

4,452

3,513

4.8%8.4%

12.8% 11.9%

16.9%

0.0%

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4.0%

6.0%

8.0%

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18.0%

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500

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1,500

2,000

2,500

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4,000

4,500

5,000

2009 2010 2011 2012 1H13

International sales (THBm)

% of total sales

THBm

Vietnam, 69%Malaysia , 14%

Myanmar, 4%

Singapore , 3%Others ,

10%



Figure 4: Investments in Vietnam

Year of

investment

Company name % holding Investment cost

(THBm)

Type of business

2009 TBC-Ball

26.8% na Aluminium can plant with capacity 850m cans/yr (half that of

Thailand’s capacity)

2010 Thai Corp 75% ~1,000 Consumer distributor and dealers - covering Ho Chi Minh City

2013 Thai An 65% 990 Consumer distributor and dealers - covering Hanoi

2013 Ichiban 75% 140 Manufacturing and distribution of tofu/bean curd and related products


90% of its consumer business relies on traditional trade

The consumer supply chain and retail business in Vietnam is still underdeveloped, as

regulations are not yet open to foreign-ownership. For all retailer types, foreign entities

can open only one store and are not allowed to undertake any expansion.

Furthermore, non-Vietnamese citizens are only allowed to set-up a business with a

maximum stake of 50%. Thus, the consumer business is still heavily reliant on

traditional trade distribution channels, which account for 90% of the country’s total

trade volume, according to BJC.

Figure 5: Target growth for consumer supply chain nationwide in Vietnam

Unit: THBm 2012 2013 2014 2015 2016 2017

Food 484 1,422 1,776 2,323 3,128 4,172

Non-food 2,439 3,174 3,744 5,050 5,960 7,414

Total 2,923 4,597 5,520 7,373 9,087 11,586

Distribution outlet 125,000 165,000 190,000 215,000 230,000 250,000

ROE 15% 12% 15% 18% 20% 25%


Remark : Sales are converedt from VND to THB at a rate of VND10,000:THB14.5

Aggressively expanding CVS

Vietnam’s retail sector is currently alike to Thailand’s around 10-15 years ago, in

terms of regulations and consumption behaviour. Given that the regulatory

environment has yet to be liberalised in Vietnam, BJC has formed joint-ventures

(JVs) with local partners and expanded its distribution network aggressively ahead of

anticipated market liberalisation in 2016 after the AEC comes into place. Currently,

both Thai-An and Thai Corp have a combined distribution network of around 130,000

outlets nationwide, with total sales contributions of around THB3.0bn. BJC expects

this distribution network to reach 230,000 outlets, with sales value of around

THB9.0bn in 2016, implying CAGR of around 28%.



Figure 6: Number of CVS and target growth


Aggressively expanding its convenience store chain

BJC targets its consumer supply chain to grow in tandem with the expansion of its

CVS chain, which it intends to expand under the B’Smart brand. B’Smart is currently

running at 2,500 stock keeping units (sku) per store. Under a 3-year plan, the number

of stores will expand to 150 stores in FY14, and 300 stores in FY15, servicing around

3,500 sku per store.

Risk And Opportunity In Vietnam

Tough time in Vietnam

In our view, although the consumer product penetration in Vietnam remains low, it is

not an easy market to operate in and there are a lot of challenges going forward.

Currently, the consumer business is facing heavy pressure from the country’s

economic slowdown, which has seen rising high inflation of around 7-7.5% in 1H13,

high interest rates (the policy rate is around 7%) and financial issues. Thus, BJC’s

consumer supply chain posted negative sales growth in FY13 and bottomline losses

due to rising interest costs.

CVS are expected to breakeven in FY15

B’Smart is operating 41 stores, with daily sales of THB18,000 per store. To run at

breakeven, the chain needs to expand to more than 200 stores and increase daily

sales by 40%.

Figure 7: B’Smart current performance and target in 2015

Present Target in 2015

No. of store 41 300

Daily sales/store (THB) 18,000 22,000

Sales/ticket 34 40

Gross margin 14.8% 20.5%

Assortment 2,500sku >3,500sku


CVS business is not easy in Vietnam

Although there are only a few players in the market, the competition among the

existing players is still tough. Basically, most of the convenience store players focus

their business in Ho Chi Minh City only. Market leader Shop & Go operates 77 stores

and has been in this sector for more than eight years, while Circle K from Japan is the

second largest with 50 stores.

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2012 2013 2014 2015 2016 2017



Figure 8: Key players in CVS in Vietnam

No. of branch No. of year experience

Shop & Go 77 8

Circle K 50 5

B’Smart (BJC) 41 0.1

Ministop 17 3

Source: Company data

Cash flow needs

Another key factor that challenges B’Smart and BJC’s consumer supply chain is cash

flow management. During the start-up period, we believe that internal cash flow from

these business units will not be enough to fund expansion strategies. Hence, at this

level, BJC needs to provide financial support before the businesses can breakeven.

BJC’s Vietnam CVS – B’Smart

Figure 9: B’Smart – flagship store Figure 10: BJC’s CVS head Figure 11: Key B’Smart competitor

Source: RHBRI Source: RHBRI Source: RHBRI

Figure 12: B’Smart store layout Figure 13: B’Smart store layout Figure 14: B’Smart store layout

Source: RHBRI Source: RHBRI Source: RHB estimates





Figure 18: B’Smart store layout Figure 19: B’Smart store layout Figure 20: B’Smart store layout Figure 21: B’Smart store layout

Source: RHBRI Source: RHBRI Source: RHBRI Source: RHBRI





Financial Exhibits



Profit & Loss (THBm) Dec-10 Dec-11 Dec-12 Dec-13F Dec-14F

Total turnover 26,082 31,235 37,429 42,195 48,015

Cost of sales (18,940) (23,454) (28,402) (32,019) (36,435)

Gross profit 7,142 7,781 9,027 10,177 11,580

Gen & admin expenses (4,392) (4,826) (6,116) (6,830) (7,645)

Operating profit 2,750 2,954 2,911 3,346 3,935

Operating EBITDA 4,166 4,735 4,554 5,121 5,851

Depreciation of fixed assets (1,416) (1,781) (1,643) (1,774) (1,916)

Operating EBIT 2,750 2,954 2,911 3,346 3,935

Net income from investments 62 46 66 85 120

Other recurring income 234 444 539 450 504

Interest expense (227) (366) (503) (584) (658)

Exchange gains 43 30 87 50 50

Pre-tax profit 2,863 3,108 3,100 3,348 3,951

Taxation (668) (693) (605) (670) (790)

Minority interests (289) (238) (80) (240) (300)

Profit after tax & minorities 1,905 2,178 2,415 2,438 2,861

Reported net profit 1,905 2,178 2,415 2,438 2,861

Recurring net profit 1,905 2,178 2,415 2,438 2,861

Cash flow (THBm) Dec-10 Dec-11 Dec-12 Dec-13F Dec-14F

Operating profit 2,750 2,954 2,911 3,346 3,935

Depreciation & amortisation 1,416 1,781 1,643 1,774 1,916

Change in working capital 728 (192) 421 1,411 (353)

Other operating cash flow 302 913 378 (25) (29)

Operating cash flow 5,196 5,456 5,353 6,506 5,469

Interest paid (227) (366) (503) (584) (658)

Tax paid 668 (762) (660) 670 790

Cash flow from operations 5,637 4,328 4,190 6,592 5,602

Capex (3,923) (3,841) (3,808) (4,000) (3,500)

Other investing cash flow (64) 468 (84) - -

Cash flow from investing activities (3,987) (3,373) (3,892) (4,000) (3,500)

Dividends paid (809) (1,000) (1,223) (1,087) (1,097)

Increase in debt 1,021 2,321 2,080 25 1,000

Other financing cash flow (255) (432) (352) (584) (658)

Cash flow from financing activities (43) 889 505 (1,645) (755)

Cash at beginning of period 841 1,224 1,828 2,015 1,707

Total cash generated 1,607 1,844 804 947 1,347

Forex effects (87) (66) (85) (84) (83)

Implied cash at end of period 2,361 3,001 2,547 2,879 2,971



Financial Exhibits



Balance Sheet (THBm) Dec-10 Dec-11 Dec-12 Dec-13F Dec-14F

Total cash and equivalents 1,224 1,828 2,015 1,707 1,757

Inventories 4,466 5,124 6,864 7,173 8,163

Accounts receivable 5,769 7,126 7,998 8,017 9,123

Other current assets 234 232 95 185 275

Total current assets 11,692 14,310 16,972 17,082 19,318

Total investments 412 416 432 420 420

Tangible fixed assets 12,460 14,143 16,583 18,708 20,833

Total other assets 3,113 4,110 4,273 4,506 5,080

Total non-current assets 15,985 18,669 21,288 23,634 26,333

Total assets 27,677 32,979 38,260 40,717 45,650

Short-term debt 4,111 3,198 4,828 4,075 3,457

Accounts payable 4,179 5,638 7,052 5,123 5,830

Other current liabilities 1,279 338 347 1,899 2,961

Total current liabilities 9,568 9,174 12,227 11,097 12,247

Total long-term debt 3,965 7,912 8,344 9,844 11,644

Other liabilities 1,210 1,363 1,406 1,585 1,238

Total non-current liabilities 5,175 9,275 9,750 11,429 12,882

Total liabilities 14,743 18,449 21,976 22,526 25,130

Share capital 1,588 1,588 1,588 1,588 1,588

Retained earnings reserve 6,653 7,673 8,810 10,362 12,079

Other reserves 3,174 3,282 3,330 3,174 3,174

Shareholders' equity 11,415 12,543 13,728 15,124 16,840

Minority interests 1,520 1,987 2,556 3,067 3,680

Total equity 12,934 14,530 16,284 18,191 20,521

Total liabilities & equity 27,677 32,979 38,260 40,717 45,650

Key Ratios (THB) Dec-10 Dec-11 Dec-12 Dec-13F Dec-14F

Revenue growth (%) 14.4 19.8 19.8 12.7 13.8

Operating profit growth (%) 69.5 7.4 (1.5) 14.9 17.6

Net profit growth (%) 51.0 14.3 10.9 1.0 17.3

EPS growth (%) 51.0 14.3 10.9 1.0 17.3

Bv per share growth (%) 10.3 9.9 9.4 10.2 11.4

Operating margin (%) 10.5 9.5 7.8 7.9 8.2

Net profit margin (%) 7.3 7.0 6.5 5.8 6.0

Return on average assets (%) 7.5 7.2 6.8 6.2 6.6

Return on average equity (%) 17.5 18.2 18.4 16.9 17.9

Net debt to equity (%) 53.0 63.9 68.5 67.1 65.0

Recurrent cash flow per share 3.55 2.73 2.64 4.15 3.53



SWOT Analysis

Market leader in glass bottling and aluminium cans

Has its own distribution and logistics network nationwide

Largest market share in several consumer products, eg tissue paper, snacks.

Highly volatile economic situation in Vietnam could result in operational fluctuations

Owns the largest distribution network and logistic network in Vietnam, where consumer production remain low

Has an aluminium can and grass bottle plant in Vietnam

Business in Vietnam is in the early stage; hence, business volume remains low with negligible net profit contribution currently

.

Source: Company data, RHB estimates Source: Company data, RHB estimates

Company Profile Berli Jucker (BJC)’s three business lines are packaging products (glass bottles and aluminium cans), consumer products (tissue paper and snacks), and technical and healthcare products. It is an integral part of Thai Beverage’s operations.

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P/B (x) (lhs) Return on average equity (rhs)



Recommendation Chart

Source: RHB estimates, Bloomberg

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Recommendations & Target Price

Buy Neutral Sell Trading Buy Take Profit Not Rated

Source: RHB estimates, Bloomberg

Date Recommendation Target Price Price

2013-05-20 Neutral 57.0 65.0

2013-04-02 Buy 57.0 72.8

2012-08-01 Buy 50.0 40.0

12

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*** CIMBI was voluntarily delisted from the Stock Exchange of Thailand effectively on September 25, 2012.

IOD (IOD Disclaimer)

การเปิดเผลผลการส ารวจของสมาคมส่งเสริมสถาบันกรรมการบรษิัทไทย (IOD) ในเรื่องการก ากับดูแลกิจการ (Corporate Governance) นี้เป็นการด าเนินการตามนโยบายของส านักงานคณะกรรมการก ากับหลักทรัพย์และตลาดหลักทรัพย์ โดยการส ารวจของ IOD เป็นการส ารวจและประเมินจากข้อมูลของบรษัทจดทะเบียนในตลาดหลักทรัพย์แห่งประเทศไทยและตลาดหลกัทรัพย์เอ็มเอไอ ที่มีการเปิดเผยต่อสาธารณะและเป็นข้อมูลที่ผูล้งทุนทั่วไปสามารถเข้าถงึได้ ดังนั้นผลส ารวจดังกล่าวจึงเป็นการน าเสนอในมุมมองของบุคคลภายนอกโดยไม่ได้เป็นการประเมินการปฏิบัติและมิได้มีการใช้ข้อมูลภายในในการประเมิน

อนึ่ง ผลการส ารวจดังกล่าว เป็นผลการส ารวจ ณ วนัที่ปรากฎในรายงานการก ากับดแูละกิจการบริษัทจดทะเบียนไทยเท่านั้น ดังนั้นผลการส ารวจจึงอาจเปลี่ยนแปลงได้ภายหลังวันดังกล่าว ทัง้นี้บริษัทหลักทรัพย์ อาร์เอสบี โอเอส เค จ ากัด (มหาชน) มิได้ยืนยันหรือรับรองถึงความถูกต้องของผลการส ารวจดงักล่าวแต่อย่างใด

morning matters · 2013-08-28 · gradual rise4.1 u.s.: u.s. farm income for 2013 seen at record...

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