universal robina corp. - credit suisse

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CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS BEYOND INFORMATION®

Client-Driven Solutions, Insights, and Access

14 March 2013

Asia Pacific/Philippines

Equity Research

Beverage / Food Products

Universal Robina Corp.

(URC.PS / URC PM) INITIATION

Home sweet home

■ Initiating coverage on URC with an OUTPERFORM rating and a P130 target price, with 33% potential upside. The most exciting aspect of URC’s growth story has returned home to the Philippines where we expect domestic branded operations to generate 55% of top-line growth going

forward versus 31% previously.

■ Business model has evolved to match the consumption resurrection. Operationally and financially, URC is a superior company to what it was in the past. This should be evident not only in the accelerated earnings growth, but also in free cash flow growing 2x earnings and cash returned to shareholders potentially surprising to the upside – net cash is 4% of market cap. The risk-reward ratio has dramatically improved and it is one of the most appealing for

branded food companies in NJA.

■ Consensus estimates are too low. We believe that the market is underestimating the strength of the consumption resurgence in the Philippines and the impact it can have on demand growth for the low-ASP, high-velocity food products that form the core of URC’s product portfolio. Our 12% above-consensus estimates reflect three years of superior PCE

growth versus the region, market share gains by URC and widening margins.

■ Staples in the Philippines are cheap. The 17% premium to the overall market is the lowest among NJA, ASEAN, GEM, developed markets or the global average. With consumption resurgence, an improved earnings visibility, positive earnings revisions over the past six months and declining costs of capital, a further re-rating looks imminent, in our view. URC is the best story to leverage off this, and we expect the stock to re-rate to a conservative 40% premium to the overall market, implying a value of P130/share. This is supported by our DCF-based valuation of P138/share. Risks include macroeconomic, commodity and forex risks.

Share price performance

80

130

180

20

40

60

80

100

Mar-11 Jul-11 Nov-11 Mar-12 Jul-12 Nov-12

Price (LHS) Rebased Rel (RHS)

The price relative chart measures performance against the

PHILIPPINE SE COMPOSITE INDEX which closed at 6776.56

on 13/03/13

On 13/03/13 the spot exchange rate was P40.59/US$1

Performance Over 1M 3M 12M Absolute (%) 8.3 23.7 63.5 Relative (%) 3.4 6.7 28.1

Financial and valuation metrics

Year 9/12A 9/13E 9/14E 9/15E Revenue (P mn) 71,201.7 83,877.3 94,712.2 106,288.8 EBITDA (P mn) 11,219.6 13,199.0 16,062.7 18,710.3 EBIT (P mn) 7,800.5 9,377.3 11,784.7 13,919.7 Net profit (P mn) 7,735.7 8,314.1 10,210.4 11,935.4 EPS (CS adj.) (P) 3.69 3.97 4.87 5.69 Change from previous EPS (%) n.a. Consensus EPS (P) n.a. 3.83 4.34 4.69 EPS growth (%) 64.2 7.5 22.8 16.9 P/E (x) 26.4 24.6 20.0 17.1 Dividend yield (%) 1.9 2.4 3.2 4.0 EV/EBITDA (x) 18.5 14.7 12.0 10.3 P/B (x) 4.4 4.1 3.8 3.6 ROE (%) 17.7 17.2 19.7 21.5 Net debt/equity (%) 13.4 net cash net cash net cash

Source: Company data, Thomson Reuters, Credit Suisse estimates.

Rating OUTPERFORM* Price (13 Mar 13, P) 97.50 Target price (P) 130.00¹ Upside/downside (%) 33.3 Mkt cap (P mn) 200,996 (US$ 4,952) Enterprise value (P mn) 194,049 Number of shares (mn) 2,061.50 Free float (%) 37.3 52-week price range 98.2 - 57.8 ADTO - 6M (US$ mn) 3.7

*Stock ratings are relative to the coverage universe in each

analyst's or each team's respective sector.

¹Target price is for 12 months.

Research Analysts

Karim P. Salamatian, CFA

852 2101 7996

[email protected]

Rebecca Kwee

852 2101 7951

[email protected]

Research Assistant

Aldo Torres, CFA

14 March 2013


(URC.PS / URC PM) 2

Focus charts Figure 1: Once upon a time, the PH consumption story

was lacklustre against its peers… 2007 to 2011 annual private consumption exp. growth

Figure 2: …but times have changed and the frog has

turned into the prince 2011 to 2014f annual private consumption exp. growth

9.26

7.98

6.57

4.99

4.21 4.173.49

2.632.03

1.40

CH IND MY INDO HK SG PH KR TH TW

8.43

6.56

5.475.21

4.40

3.392.85 2.85

2.30

1.49

CH IND MY PH INDO TH KR HK TW SG

Avg. = 4.30

Source: National Statistics Offices Source: Credit Suisse estimates

Figure 3: Low ASP, high velocity food categories will

benefit first and show higher rates of growth…

Figure 4: …which is where URC has its biggest exposure

% of domestic branded consumer food sales

7%

4%

8%7%

15%

-7%

5% 5%

9%

5%

8% 8%

12%

7%6%

8%

2006-2012 CAGR

2012-2016E CAGR

Snacks 27%

Biscuits 9%

Confect.

13%RTD Tea

12%

Coffee 21%

Grocery

14%

Packaging 5%

BCFG PH FY13E Revenue: PHP 42.2bn

or 50% of total sales

Source: Euromonitor Source: Credit Suisse estimates *BCFG=Branded Consumer Food Group

Figure 5: Cannot find other staples that trade lower

relative to the market… Consumer staples 12M fwd P/E relative to the overall market

Figure 6: …and positive surprises at URC will lead to the

relative multiple widening to 1.4x or 27x Credit Suisse estimates vs. consensus

0.83

x

1.17

x

1.22

x

1.22

x

1.26

x

1.30

x

1.31

x

1.35

x

1.37

x

1.41

x 1.60

x

1.66

x

1.79

x 2.03

x 2.28

x

5%4% 3% 3%

6%

10%12% 12%13%

25%

30%

21%

Revenue EBITDA EBIT EPS

F2013E F2014E F2015E

Source: Credit Suisse estimates Source: IBES, Credit Suisse estimates

14 March 2013


(URC.PS / URC PM) 3

Home sweet home The most exciting aspect of URC’s growth story has returned home to the Philippines.

With a resurgence in consumption trends domestically, the catalysts to earnings growth

now reside where the company has a dominant market share, 60 years of operating

experience, the broadest distribution network and excess capacity. Home is where

operating and financial risks are the lowest, growth is more visible and incremental

earnings are the greatest. This shift back home warrants a higher valuation.

Consumption resurrection

What was once a lacklustre domestic consumption story that grew at ~60% of its regional

peers has now transformed into a vibrant, above-peers’ consumption growth story. We

expect private consumption expenditure (PCE) growth over the next two years to be the

fourth-highest in NJA and to grow 20% faster than the regional average. This is a

structural change driven by record-high consumer confidence, historically high wealth

growth that will likely further accelerate, low household debt, record high remittances, new

direct and indirect BPO job creation, rising urbanisation (not just in Metro Manila) and low

food inflation. The right pieces are in place for a multi-year structural improvement in

domestic consumption. The propensity to spend by Filipinos is on the rise and sustainable.

URC’s portfolio is in the ‘sweet spot’

Over the next four years, stronger underlying demand growth should lead to 300-400 bp

annual improvement in growth across URC’s key domestic categories. Rising category

growth coupled with continued market share gains is expected to lead to acceleration in

overall branded revenue growth from 12% pa over the past four years to 16% p.a. over the

next four. Domestic branded consumer goods are expected to contribute 52% of revenue

growth from FY12 through FY16. Growth at home has reinvigorated the story.

Strengthened business model

Operationally and financially, URC’s business model should more appealing than it was in

the past. URC is a branded consumer goods company on the verge of accelerating top-

line growth and moderating input costs, which combined should lead to three years of

strong earnings growth, unseen in the past decade. The long-term shareholder value will

be driven by brand value growth. On a recurring basis (excluding investment gains/losses)

forward EPS growth of 24% p.a. will be dramatically outpaced by free cash flow growth of

53% p.a. We conservatively expect cash returned to shareholders to grow moderately

faster at 28% annually, but with FY13E net cash on the balance sheet equal to 3.5% of

market cap, upside surprise potential exists.

Staples in the Philippines are cheap

Relative valuation to the market for consumer staples in the Philippines is the cheapest in

NJA. The 17% premium to the overall market is low considering the consumption

resurgence, positive consensus revisions on the back of improved earnings visibility and

declining costs of capital (debt and equity). The Philippines is the only market in NJA

where there have been positive earnings revisions to both 2013 and 2014 consensus

expectations over the past six months. Staples in GEM, NJA and ASEAN trade at

premiums of 35%, 66% and 37%, respectively. Based on recent precedents in ASEAN,

relative valuations of staples expand faster than improvements in consumer confidence

after 1yr of a resurgence – Philippines is at that juncture and rerating is likely to continue.

URC is the best way to benefit from the rerating in Philippine staples, in our view, because

compared to ten similarly sized branded food companies regionally, it trades at the lowest

premium valuation despite having superior forward earnings growth and stronger ROE

expansion, and consensus expectations are too low, which should lead to strong positive

revisions. We believe URC’s relative 12-month forward P/E premium will widen from 24%

to 40%, which implies a PE multiple of 27x, which we use for our target price of Ps130.

Growth catalysts have

returned to URC’s home

market where operating

prowess is the strongest

What was once a lacklustre

domestic consumption story

regionally, is now expected

to grow 20% ahead of peer

markets going forward

The resurgence in

consumption, coupled with

low income levels, sets the

stage for higher growth in

low-ASP, high velocity food

products

The most alluring aspect of

URC’s forward growth is

that both free cash flow and

dividend growth are stronger

than earnings growth and

ROIC is on the rise

Among all NJA, GEM and

developed markets, the 17%

premium valuation for

consumer staples relative to

the overall market in the

Philippines is the lowest

14 March 2013


(URC.PS / URC PM) 4

Universal Robina Corp. URC.PS / URC PM Price (13 Mar 13): P97.50, Rating: OUTPERFORM, Target Price: P130.00, Analyst: Karim Salamatian

Target price scenario

Scenario TP %Up/Dwn Assumptions

Upside 167.00 71.28 Raw material prices -8% in 2014, higher than expected growth in snackfoods segment of 15%

Central Case 130.00 33.33 Raw material prices -4.7% in 2014, healthy beverage sales growth of 28%

Downside 78.00 (20.00) Raw material prices flat YoY, lower than expected 2014 beverage sales growth of 15%

Key earnings drivers 9/12A 9/13E 9/14E 9/15E

Average ASP growth 0% 1% -1% 1% BCFG volume growth n.a. 14% 11% 10% BCFG domestic market share 43% 47% 50% 53% Raw materials basket YoY change -3% -1% -5% 0% BCFG intl revenue growth 5% 22% 19% 16%

Income statement (P mn) 9/12A 9/13E 9/14E 9/15E

Sales revenue 71,202 83,877 94,712 106,289 Cost of goods sold 52,731 61,273 67,949 75,520 SG&A 10,671 13,227 14,978 16,849 Other operating exp./(inc.) (3,419) (3,822) (4,278) (4,791) EBITDA 11,220 13,199 16,063 18,710 Depreciation & amortisation 3,419 3,822 4,278 4,791 EBIT 7,801 9,377 11,785 13,920 Net interest expense/(inc.) (546.7) (143.4) (222.2) (120.8) Non-operating inc./(exp.) — — — — Associates/JV 31.2 30.0 30.0 30.0 Recurring PBT 8,378 9,551 12,037 14,071 Exceptionals/extraordinaries 768.9 250.8 — — Taxes 989 980 1,204 1,407 Profit after tax 8,158 8,821 10,833 12,663 Other after tax income — — — — Minority interests 422.2 507.2 622.9 728.1 Preferred dividends — — — — Reported net profit 7,736 8,314 10,210 11,935 Analyst adjustments — — — — Net profit (Credit Suisse) 7,736 8,314 10,210 11,935

Cash flow (P mn) 9/12A 9/13E 9/14E 9/15E

EBIT 7,801 9,377 11,785 13,920 Net interest 422.9 143.4 222.2 120.8 Tax paid (899) (980) (1,204) (1,407) Working capital 2,178 (1,378) (801) (761) Other cash & non-cash items 3,444 3,822 4,278 4,791 Operating cash flow 12,947 10,984 14,280 16,663 Capex (5,129) (6,150) (6,150) (7,000) Free cash flow to the firm 7,818 4,834 8,130 9,663 Disposals of fixed assets — — — — Acquisitions (9,177) — — — Divestments 3,673 15,129 — — Associate investments — — — — Other investment/(outflows) 25.0 30.0 30.0 30.0 Investing cash flow (10,608) 9,009 (6,120) (6,970) Equity raised 7,345 — — — Dividends paid (3,917) (4,895) (6,500) (8,231) Net borrowings (5,010) (13,240) — — Other financing cash flow — — — — Financing cash flow (1,582) (18,135) (6,500) (8,231) Total cash flow 756 1,858 1,660 1,462 Adjustments — — — — Net change in cash 756 1,858 1,660 1,462

Balance sheet (P mn) 9/12A 9/13E 9/14E 9/15E

Cash & cash equivalents 5,346 6,947 7,985 8,719 Current receivables 7,461 8,829 9,866 10,958 Inventories 9,759 11,141 12,134 13,249 Other current assets 17,121 2,045 2,101 2,159 Current assets 39,688 28,962 32,085 35,084 Property, plant & equip. 27,919 30,247 32,119 34,328 Investments — — — — Intangibles 1,274 1,274 1,274 1,274 Other non-current assets 1,107 1,107 1,107 1,107 Total assets 69,987 61,590 66,585 71,794 Accounts payable 7,587 9,011 10,295 11,800 Short-term debt 8,589 — — — Current provisions — — — — Other current liabilities 3,893 2,231 2,231 2,231 Current liabilities 20,068 11,242 12,526 14,031 Long-term debt 2,990 — — — Non-current provisions — — — — Other non-current liab. 312.4 312.4 312.4 312.4 Total liabilities 23,371 11,554 12,839 14,343 Shareholders' equity 46,580 49,999 53,710 57,414 Minority interests 36.6 36.6 36.6 36.6 Total liabilities & equity 69,987 61,590 66,585 71,794

Per share data 9/12A 9/13E 9/14E 9/15E

Shares (wtd avg.) (mn) 2,097 2,097 2,097 2,097 EPS (Credit Suisse) (P) 3.69 3.97 4.87 5.69 DPS (P) 1.87 2.33 3.10 3.93 BVPS (P) 22.2 23.8 25.6 27.4 Operating CFPS (P) 6.18 5.24 6.81 7.95

Key ratios and valuation

9/12A 9/13E 9/14E 9/15E

Growth(%) Sales revenue 6.0 17.8 12.9 12.2 EBIT 13.2 20.2 25.7 18.1 Net profit 66.9 7.5 22.8 16.9 EPS 64.2 7.5 22.8 16.9 Margins (%) EBITDA 15.8 15.7 17.0 17.6 EBIT 11.0 11.2 12.4 13.1 Pre-tax profit 11.8 11.4 12.7 13.2 Net profit 10.9 9.9 10.8 11.2 Valuation metrics (x) P/E 26.4 24.6 20.0 17.1 P/B 4.39 4.09 3.81 3.56 Dividend yield (%) 1.92 2.39 3.18 4.03 P/CF 15.8 18.6 14.3 12.3 EV/sales 2.91 2.31 2.04 1.81 EV/EBITDA 18.5 14.7 12.0 10.3 EV/EBIT 26.6 20.7 16.4 13.8 ROE analysis (%) ROE 17.7 17.2 19.7 21.5 ROIC 14.0 17.6 23.9 26.5 Asset turnover (x) 1.02 1.36 1.42 1.48 Interest burden (x) 1.07 1.02 1.02 1.01 Tax burden (x) 0.89 0.90 0.90 0.90 Financial leverage (x) 1.50 1.23 1.24 1.25 Credit ratios Net debt/equity (%) 13.4 (13.9) (14.9) (15.2) Net debt/EBITDA (x) 0.56 (0.53) (0.50) (0.47) Interest cover (x) (14) (65) (53) (115)

Source: Company data, Thomson Reuters, Credit Suisse estimates.

0

5

10

15

20

25

30

2008 2009 2010 2011 2012 2013

12MF P/E multiple

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

2008 2009 2010 2011 2012 2013

12MF P/B multiple

Source: IBES

14 M

arc

h 2

01

3

Un

ivers

al R

ob

ina C

orp

.

(UR

C.P

S / U

RC

PM

) 5

Figure 7: Comparable valuation—regional branded food company peers

Price Market Avg

Absolute

Performance

Relative

Performance EPS growth P/E EV/EBITDA DvD Yld ROE P/BV FCF Yld ROIC

NetDebt/

Equity

Regional Peers Ticker CS Local Target Upside cap daily t/o (%) (%) (%) (x) (x) (%) (%) (x) (%) (%) (%)

Rtg Local (%) (USDm) YTD 12m YTD 12m T+1 T+2 T+3 T+1 T+2 T+3 T+1 T+2 T+1

GREATER CHINA

Want Want China Holdings Ltd. 0151.HK N HKD 11.48 12.00 5 19,576 20.9 7 32 8 25 20 18 17 29.4 24.9 21.3 19.7 16.9 2.4 37.1 10.9 2.8 49.3 (28.2)

Tingyi 0322.HK O HKD 21.05 27.00 28 15,178 16.1 (2) (10) (2) (17) 42 22 22 23.8 19.5 16.0 10.7 8.5 2.7 23.8 5.7 3.6 19.8 15.5

Uni-President Enterprises 1216.TW N TWD 59.60 50.80 (15) 9,772 15.6 12 51 8 50 8 7 7 21.6 20.2 19.0 93.4 90.1 2.3 15.3 3.3 2.3 1.7 31.9

China Mengniu Dairy 2319.HK O HKD 21.45 27.00 26 4,925 15.4 (3) 1 (2) (6) 46 19 n.a. 14.4 12.1 10.4 6.1 5.1 2.8 15.3 2.2 3.6 25.6 (34.6)

KOREA

Orion KR 001800.KS NR KRW 1,090,000 n.a. n.a. 5,929 16.3 (1) 39 (1) 40 26 25 10 30.5 24.3 22.0 15.0 9.3 1.3 18.0 5.1 0.0 n.a. n.a.

LOTTE CONFEC 004990.KS NR KRW 1,796,000 n.a. n.a. 2,326 2.3 10 6 10 6 8 16 n.a. 19.4 16.7 n.a. 9.3 8.5 1.3 5.0 0.9 n.a. n.a. n.a.

Hite Jinro 000080.KS U KRW 34,000 25,000 (26) 2,153 6.6 12 42 12 42 23 9 n.a. 17.4 16.0 n.a. 9.4 8.9 4.4 8.9 1.6 2.7 6.8 84.2

Nongshim 004370.KS U KRW 287,500 210,000 (27) 1,594 7.5 6 21 6 21 (7) 11 11 17.3 15.7 14.1 9.6 8.8 1.4 6.2 1.1 0.3 6.6 (32.4)

THAILAND

Charoen Pokphand Foods Public CPF.BK O THB 33.50 45.50 36 8,769 31.7 (1) (9) (14) (47) 27 39 21 13.0 9.4 7.8 11.0 8.5 4.5 17.0 2.2 (2.2) 9.2 105.9

Thai Union Frozen Products PCL TUF.BK O THB 66.00 80.00 21 2,561 7.6 (8) 5 (22) (32) 25 24 25 12.6 10.2 8.1 10.3 8.6 4.0 16.0 1.8 10.7 10.7 69.8

SINGAPORE

Super Group Sg SPGP.SI NR SGD 3.80 n.a. n.a. 1,701 1.8 17 109 13 98 15 13 21 23.2 20.4 16.9 17.3 15.1 2.7 21.5 4.7 7.8 n.a. n.a.

INDONESIA

Indofood CBP ICBP.JK O IDR 8950 8100 (9) 5,385 2.7 15 69 3 48 17 12 14 20.5 18.3 16.1 12.6 11.4 2.1 19.8 4.1 4.6 36.5 (49.6)

Sari Roti ROTI.JK NR IDR 6800 n.a. n.a. 710 0.3 (1) 94 (13) 73 29 36 33 34.0 25.6 n.a. 22.2 16.7 2.3 27.1 8.3 n.a. n.a. n.a.

INDIA

Godrej Consumer Products Ltd GOCP.BO O INR 791.15 790.00 (0) 4,973 2.7 10 80 11 69 (4) 34 21 38.6 28.8 23.7 26.5 20.5 0.6 21.1 8.1 2.3 16.5 33.9

United Spirits Ltd. UNSP.BO O INR 1961 2400 22 4,738 103.2 0 254 1 244 77 85 32 72.3 39.0 29.5 24.0 21.6 0.3 6.7 4.9 (0.8) 6.4 162.7

Dabur India DABU.BO U INR 133.20 129.00 (3) 4,288 2.7 3 30 4 20 17 20 17 30.7 25.5 21.9 23.3 19.9 1.4 35.8 11.0 5.1 37.4 (6.9)

Marico Ltd MRCO.BO O INR 217.70 230.00 6 2,592 1.2 (1) 36 (0) 26 24 30 19 33.7 26.0 21.8 22.5 19.0 0.4 20.9 7.1 1.9 16.3 33.8

Emami Ltd EMAM.BO O INR 594.65 710.00 19 1,662 1.3 (1) 53 0 43 24 26 22 27.9 22.2 18.2 25.7 20.2 1.4 36.6 10.2 2.8 41.9 (25.2)

PHILIPPINES Consumer

Puregold Price Club, Inc PGOLD.PS NR PHP 39.50 n.a. n.a. 3,438 3.1 20 85 3 48 29 19 24 27.7 23.3 18.8 20.5 17.1 1.8 15.5 3.5 n.a. n.a. n.a.

Jollibee JFC.PS NR PHP 122.70 n.a. n.a. 3,162 1.9 20 19 4 (17) 14 18 36 30.7 26.1 19.2 13.9 11.7 1.8 19.1 5.5 n.a. n.a. n.a.

NJA Average 6 50 1 37 23 24 21 26.9 21.2 17.9 20.1 17.3 2.1 19.3 5.1 3.0 20.3 25.8

Universal Robina Corp. URC.PS O PHP 97.50 130.00 33 4,952 3.7 16 65 (0) 29 26 27 17 24.6 20.0 17.1 15.7 12.9 2.4 16.6 4.1 2.4 19.6 (13.9)

Relative to average 1,001bp 1,004bp -168bp -550bp 3 pp 2 pp (4 pp) -9% -6% -4% -22% -26% 29bp -227bp -20% -59bp -63bp -3,152bp

**URC EPS growth estimates are recurring

Source: Company data, I/B/E/S, Credit Suisse estimates

14 March 2013


(URC.PS / URC PM) 6

Consumption resurrection The domestic consumption resurgence in the Philippines is only two years new, and what

was once regarded as a lacklustre domestic consumption story relative to the rest of NJA,

has evolved into one where we believe consumption growth will rank as the fourth-highest

in NJA over the coming two years. Structural underpinnings are in place to drive at least

three years of superior consumption growth relative to the rest of NJA.

Once upon a time…

Once upon a time, pre-2011 to be exact, private consumption expenditure (PCE) growth in

the Philippines was 60-90% of what was elsewhere in Asia (Figure 8). The slower growth

was all the evidence needed to support the view that upside contribution to GDP from the

domestic economy was capped and structural improvements to boost consumption were

not apparent.

Additionally, the volatility in domestic consumption growth from 2007 to 2010 was the

second-lowest behind Indonesia which again led investors and other market observers to

conclude that the potential for consumption acceleration was limited, or, quite simply, that

the consumption story was not all that exciting to entice more investment (Figure 9).

Figure 8: PH domestic consumption growth could not

historically match that of its regional peers’… PH PCE growth relative to NJA average

Figure 9: …and investors considered higher growth rates

in China, Indonesia, India and even Malaysia as more

appealing Average PCE YoY growth from 2007 to 2010

0.4x

0.5x

0.6x

0.7x

0.8x

0.9x

1.0x

2007 2008 2009 2010

9.26

7.98

6.57

4.99

4.21 4.173.49

2.632.03

1.40


Source: CEIC Source: CEIC

Most, if not all, wondered where the upside would come from because since 1998, more

than 70% of Philippine’s GDP has been sourced from domestic consumption (Figure 10).

This is the highest in NJA and among the highest globally. Over the past 14 years,

Philippines’ domestic consumption-to-GDP ratio has been 1.4x higher than that of its

regional peers. China, Indonesia, Thailand and even Malaysia garnered more attention

because with domestic consumption contributing only 35-55% of GDP, the potential to

reach developed market levels or even that of the Philippines yielded much higher

expectations of forward growth (Figure 11). More dramatic consumption growth in the

Philippines would only be fuelled by stronger GDP growth, whereas in many other Asian

economies the argument could be made that even with moderating GDP growth domestic

consumption would gain share within the economy.

Consumption resurgence

has just begun and

structural drivers exist to

make it last

Domestic consumption

trends used to be 60% of

elsewhere in the region …

… but volatility was low

Domestic consumption-to-

GDP of 74% is the highest

almost anywhere. Upside

potential seemed weak

14 March 2013


(URC.PS / URC PM) 7

Even compared to the US, which is a consumption-led economy, the Philippines’ domestic

consumption contribution to GDP was nearly 1.4x higher. Therefore, the upside was less

exciting than the rest of the region where the average is 51%, China being the lowest at

only 35%.

Figure 10: PH consumption-to-GDP more than 70% since

1998…

PH domestic consumption-to-GDP, absolute and relative to NJA

Figure 11: …which is the highest in NJA by more than

1.4x

Regional domestic consumption-to-GDP

1.20x

1.22x

1.24x

1.26x

1.28x

1.30x

1.32x

1.34x

1.36x

1.38x

1.40x

1.42x

69%

70%

71%

72%

73%

74%

75%

76%

98 99 00 01 02 03 04 05 06 07 08 09 10 11 12

PH Domestic Consumption-to-GDP PH rel. to NJA (rhs)

74%

70%

64%

62%

60%

60%

57%

57%

57%

55%

54%

53%

50%

46%

39%

35%


Against such a backdrop, it was no surprise that before 2011 domestic consumer stocks

traded at a 12mf P/E relative to the overall market of only 0.83x and EPS growth was

forecast to be less than 10% annually.

…that story has been replaced with a new one

The inflection point for domestic consumption came in 2011 following a ten-year high GDP

growth of 7.6% in 2010. In 2011 nominal wage growth was on par with the regional

average, real wage growth not only turned positive after declining for three consecutive

years but exceeded the rest of the region, FDI doubled to US$1.3 bn, CPI fell below that of

the region and unemployment reached an eight-year low of 6.4%. These trends

strengthened further into 2012 (Figure 12).

Domestic consumption-to-

GDP in NJA averages 51%

with China being lowest at

35%

No wonder consumer stocks

traded at 0.83x relative to

the overall market

Things have changed since

2011, and domestic

consumption trends have

gained momentum

14 March 2013


(URC.PS / URC PM) 8

Figure 12: 2011 was the year when nominal and real wage growth surpassed and CPI

moderated to below regional peers

-0.50

0.00

0.50

1.00

1.50

2.00

2.50

3.00

2007 2008 2009 2010 2011 2012

PCE Growth rel. NJA

Real Wage Growth rel. NJA

CPI rel. NJA

Domestic consumption inflection point

Source: CEIC

This all led to PCE growth of 6.3% YoY, which was not only the fourth-highest in NJA, but

1.2x the regional average. 2011 and 2012 were the first years since 2007 that PCE growth

in Philippines exceeded that of NJA (Figure 13). The same can nearly be said for PCE

growth relative to ASEAN peers because in 2009 the relative outperformance was

primarily a function of the global financial crisis pressurising consumption in export-

dependent ASEAN economies such as Thailand and Singapore rather than structural

improvement in the Philippines’ growth. We believe 2011 and 2012 highlight the structural

improvements in overall economic and consumption growth on their own merits.

Figure 13: 2011 marked Philippines’ structural growth outperformance relative to peers PCE growth YoY

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2007 2008 2009 2010 2011 2012

Rel. to NJA Rel. to ASEAN

Source: CEIC

The new story has legs

We do not believe the consumption resurgence in the Philippines has run its course. Over

the next two years, we expect PCE growth to be the fourth-highest in NJA and the second-

highest in ASEAN. Essentially, this means that the previously lacklustre consumption,

For two years now private

consumption expenditure

growth has exceeded the

regional average

This is a multiple-year

structural story that has not

run its course

14 March 2013


(URC.PS / URC PM) 9

which grew at only 60-90% that of its peers pre-2011, should grow ~20% and 30% ahead

of NJA and ASEAN peers, respectively (Figure 14 to Figure 17). Given the strong

consumption base and structural improvements, consumption volatility should remain one

of the lowest in the region, thus providing solid earnings visibility for the consumer stocks.

Figure 14: Once a lacklustre consumption story… Average PCE growth 2007 to 2010

Figure 15: …that grew at a fraction of the rate of peers… PH PCE growth relative to NJA average

9.26

7.98

6.57

4.99

4.21 4.173.49

2.632.03

1.40


0.4x

0.5x

0.6x

0.7x

0.8x

0.9x

1.0x

2007 2008 2009 2010


Figure 16: …evolved into one of the strongest

consumption stories in the region… Average PCE growth 2013-14

Figure 17: …that can sustain growth in excess of peers’ PH PCE growth relative to NJA and ASEAN averages

8.43

6.56

5.475.21

4.40

3.392.85 2.85

2.30

1.49

CH IND MY PH INDO TH KR HK TW SG

Avg. = 4.30

0.55

0.65

0.75

0.85

0.95

1.05

1.15

1.25

1.35

1.45

2010 2011 2012 2013f 2014f

Rel. to NJA Rel. to ASEAN

Source: Credit Suisse estimates Source: CEIC, Credit Suisse estimates

Structural underpinnings

We are confident that the consumption resurgence in the Philippines can be sustained

because of several structural improvements in the economy and with the consumer. As we

mentioned earlier, because of the already high weighting of domestic consumption in

GDP, accelerated growth in consumption will be led and sustained by a stronger overall

economic climate. We do not believe that you can have the former without the latter. Over

the next two years, we expect the ratio of domestic consumption-to-GDP to remain

constant at 74%.

Stronger overall economic

climate is pushing

consumption trends rather

than share gains of GDP

14 March 2013


(URC.PS / URC PM) 10

(1) Consumer confidence and optimism are both near record highs. With rising real

incomes, housing affordability continuing to improve, remittances reaching record

highs of nearly US$2 bn per month and unemployment near lows of 7%, it is no

surprise that consumers are feeling confident and optimistic (Figure 18, Figure 19).

This should lead to stronger growth in both discretionary and staples purchases. Given

the low GDP/capita of the country (US$2,275), we believe staples spending will be the

bigger beneficiary.

Figure 18: Consumer confidence near record highs… Consumer Expectations Diffusion Index

Figure 19: …Filipinos among the most optimistic in Asia Nielsen’s 4Q12 Consumer Confidence Survey

3Q04 2Q05 1Q06 4Q06 3Q07 2Q08 1Q09 4Q09 3Q10 2Q11 1Q12 4Q12

Rank Country Index

1 India 121

2 Philippines 119

3 Indonesia 117

4 Thailand 115

5 United Arab Emirates 113

6 Saudi Arabia 112

7 Brazil 111

8 China 108

9 Malaysia 103

10 Norway 102

Source: National Statistics Office Source: AC Nielsen

(2) Wealth growth among the highest for 12 years and disproportionately high

relative to incomes. Based on the Credit Suisse Research Institute Global Wealth

Report 2012, net wealth per adult in the Philippines has increased 9.5% annually since

2000, which ranks fifth among all APAC countries (Figure 20). In absolute terms, net

wealth per adult of US$8,152 ranks fourth in ASEAN or third if we exclude Singapore.

Surprisingly, the ratio of wealth per adult-to-income is the second highest behind

China (Figure 21). We believe the wealth story in the Philippines is very positive for

long-term consumption growth because wealth growth should accelerate due to strong

performance of the equity market (financial assets represent 49% of net wealth),

higher property prices and renewed business/infrastructure investment.

Staples/basic needs will be

the biggest beneficiaries of

record-high consumer

confidence

Wealth dynamics in the

Philippines have been

ignored, but provide a

strong foundation for higher

consumption

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14 March 2013



Figure 20: Wealth growth has been among the strongest,

and poised to grow even faster going forward 2000-12 net wealth per adult CAGR

Figure 21: Filipinos are disproportionately wealthy

relative to income levels Net wealth per adult / GDP per capita

13.0%

11.3%

11.0%

10.5%

9.5%

9.4%

8.7%

8.6%

8.0%

7.1%

6.4%

6.3%

3.0%

-0.2%

Indonesia

China

Laos

Malaysia

Philippines

Thailand

Vietnam

NJA

Cambondia

Singapore

Korea

India

APAC

HK

3.9

3.6 3.63.3 3.2

3.0 3.0 3.02.7 2.7

2.1

1.3

Source: Credit Suisse Global Wealth Report 2012 Source: Credit Suisse Global Wealth Report 2012

(3) Consumer debt ratios have been declining, allowing for stronger consumption

upon re-leveraging. Over the past 12 years, household debt has grown at half the

rate of net wealth, thus leading to a decline in the debt-to-net wealth rate from 6.7% in

2000 to 2.6% in 2012. While rising consumer leverage stressed many developing

economies up to and during the Global Financial Crisis, Filipinos utilised credit less

due to weaker consumer confidence and prohibitive borrowing rates for both secured

and unsecured credit. High interest rates were largely a function of domestic banks’

unwillingness to lend.

To put this in perspective, Philippines has the second-lowest household debt-to-net

wealth level (Figure 22), but unlike Indonesia, which has the lowest, leverage in the

Philippines has been declining over the past 12- and five-year periods.

Figure 22: Household balance sheets carry among the

lowest debt in the region

Figure 23: Pent-up savings plus greater accessibility to

credit should drive consumption higher

2.4% 2.6% 3.1%3.8%

14.1% 15.2%17.7%

29.1%

35.6%

-20%

-10%

0%

10%

20%

30%

40%

INDO PH CH IN MY TH SG HK KR

HHOLD Debt-to-Net Wealth

Chg. in HHOLD Debt-to-Net Wealth ('00-'12)

300

350

400

450

500

550

600

650

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12

Total Consumer Credit (Pbn; rhs) Consumer Credit YoY (lhs)

Nominal Consumption YoY (lhs)

Source: CEIC, Credit Suisse Global Wealth Report 2012 Source: CEIC

However, in the past two years, consumer credit growth has accelerated to 16%

annually with auto and mortgage lending growing 17% and 18%, respectively. Credit

card borrowing has been on the rise at ~12% annually during the same period. Banks

Rising consumer credit on

the back of lower rates and

improved confidence to fuel

higher consumption

Household debt ratios

among the lowest in the

region

Consumer credit expected

to grow 20% annually

14 March 2013



are now more committed to growing their consumer loan books with a broader array of

products to sell and more affordable borrowing rates. Consumer credit only represents

18% of bank loan books today, and our Philippine bank analyst, Alvin Tan, expects

consumer loan growth of 20% annually. Filipinos are more confident, and have more

borrowing products to choose from and at lower rates. This will drive higher borrowing

and consumption for a number of years (Figure 23).

It is far too early to sound the alarm bells about consumer credit quality. System-wide

NPLs are down to 2% and it is only ~4% for consumer credit. Household debt

accounts for only 7% of household income and debt servicing costs are less than

1.5% of personal income. In neighbouring ASEAN countries, household debt-to-

personal income exceeds 20%. Savings rates are also relatively high at 15% of

household income. We believe pent-up savings plus re-leveraging of the consumer will

be integral catalysts to stronger consumption for at least the next three years.

(4) Remittances at record highs. Overseas Filipinos’ inward remittances now account

for 8.5% of GDP at ~US$2 bn per month (Figure 24). Over the past five years, the

remittance CAGR has exceeded GDP growth by 550 bp. A healthier global economy

and a modest recovery in developed markets should help sustain the faster growth in

remittances versus domestic GDP.

We believe remittance growth directly fuels consumption growth with a multiplier effect

through the economy. We also anticipate more of the remittance income will flow

through to investment activities (financial and non-financial assets) which provides

sustainability to the wealth and consumption dynamics we discussed above.

Figure 24: Remittance volume is now nearly US$2 bn per month

0

5,000

10,000

15,000

20,000

25,000

0%

2%

4%

6%

8%

10%

12%

1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011

Remittances (USDmn; rhs)

Remittances (% of GDP; lhs)

Source: CEIC

(5) Creation of higher-paying, growing and urbanised jobs. The Philippines has

several structural advantages for a thriving Business Process Outsourcing (BPO)

industry, such as the third-highest annual pool of new graduates (450,000 per year)

and IT technical students in Asia, an English-speaking workforce and costs per full-

time employee for voice BPO on par with those of Delhi, India. Over the past five

years, the BPO industry has grown 28% p.a. to US$11 bn today or 9% of GDP. Over

the next five years, the forecast growth rate is 18% p.a. and that the industry can

reach US$25 bn in size or 10% of GDP (Figure 25).

Naturally, the emergence of an industry in such a short period of time will drive new

job creation—job creation at wages that are often above the minimum wage level that

can accommodate the supply of young graduate Filipinos and that can slow the flow of

No credit quality or systemic

default risk

Inward remittances

continued to grow nearly 2x

the rate of GDP

Inward remittances directly

fuel consumption and food

spending

Third highest annual pool of

graduates in NJA are now

finding higher paying jobs

domestically

BPO jobs expected to nearly

double in the next three

years

14 March 2013



outbound Filipino workers. Young Filipinos now have more options at home to earn

attractive incomes in a growing industry. The BPO industry has created 700,000 direct

jobs in the Philippines, and it is projected this will rise to 1.3 mn by 2016. Interestingly,

2% of the nation’s workforce is contributing 9% of GDP. The emergence of the BPO

industry has been hugely positive for labour productivity in the Philippines.

The indirect jobs created from the BPO industry in retail, food service, transportation

and IT are likely multiple times higher than direct job creation. These jobs do not have

the same impact on total labour productivity, but they are nonetheless important jobs

in the economy that can absorb the young workforce and possibly stem the flow of

outbound Filipino workers.

Figure 25: BPO is a key growth engine for the economy through direct and indirect job

creation

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

0

5

10

15

20

25

2004 2005 2006 2007 2008 2009 2010 2011 2016E

BPO Revenues (US$bn; lhs) BPO Employees (rhs)

Source: BPAP, Credit Suisse estimates

Another interesting aspect of the BPO revolution in the Philippines is that it is driving

urbanisation rates higher and especially in the Tier 2 cities such as Metro Cebu and

Davao. The Philippines has an urbanisation rate of 50%, which is higher than in

Thailand, India, Indonesia, Vietnam, Pakistan and Bangladesh (Figure 26). The Credit

Suisse Research Institute estimates that by 2050, urbanisation will reach 69% and that

51 mn new urban consumers will be created (Figure 27).

Indirect job creation is likely

even higher than that of

BPOs

The BPO industry is driving

urbanisation rates higher

and the emergence of

stronger Tier 2 and 3 cities

14 March 2013



Figure 26: Rising urbanisation driving consumption

trends % of population urbanised

Figure 27: The Philippines is expected to more than

double its urban population Change in urban population 2012 to 2050

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

KR MY PH CH INDO PK TH VN IND BD

2012 2050E

478

343

124

82 7851

3619 15

-1

IND CH PK INDO BD PH VN TH MY KR

Source: CEIC Source: Credit Suisse Research Institute

Doubling of the number of urban consumers will have a profound impact on

consumption trends, discretionary spending and demand for services. Metro Manila

accounts for 23% of the nation’s urban population, but we expect this to decline due to

the emergence of the Tier 2 and 3 cities. Urbanisation in Metro Cebu, Davao, Metro

Clark and Louzon should take place at faster rates. Job creation and spending growth

in these cities should occur at a faster rate, too, as a result. In the BPO industry, costs

in Tier 2 and 3 cities can be as much as 30% cheaper than in Metro Manila. Metro

Manila accounts for 83% of the nation’s BPO workforce—this will likely decline.

(6) Lower food prices. We do not believe there will be a food inflation shock in 2013 or

even 2014 because food producer prices are on a decline, the PHP has been strong

and new supply in food retailing should further bring food prices lower.

Food accounts for 43% of household expenditures in the Philippines and food CPI can

have the largest impact on both basic needs and discretionary consumption patterns.

Over the past 12 months food CPI has moderated from 6%+ to less than 3%. As a net

food importing nation, the 6.3% appreciation in the PHP over the past year can be

seen in lower food PPI. Food PPI actually turned negative in January for the first time

since February 2010.

Widening of the spread between food CPI and food PPI should lead to lower selling

prices for food in wet markets and modern format retail (Figure 28). Food retailers in

the Philippines are competing for traffic as they build new stores/formats, penetrate

and consolidate in rural locations. Therefore, we believe they will pass on higher

margins potentially to the consumers via lower prices. The food retail industry should

remain competitive for quite some time, so we are confident that a sustained decline in

food PPI will lead to lower food CPI.

Urban consumers expected

to increase faster in Metro

Cebu, Davao and Clark

Food PPI prices are on the

decline

Moderating food inflation will

have a large impact on

consumption because it

represents 43% of

household spending

Food retailers will pass

margin savings on to

consumers via lower prices

14 March 2013



Figure 28: Widening of food CPI – food PPI spread will bring down food prices

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

Food CPI - Food PPI (YoY %) Food CPI Rolling 6mos (%)

Food PPI Rolling 6mos (%)

Source: CEIC

Soft commodity prices are declining in 2013 and 2014. For 2013, we expect soy and

corn prices to decline 7% and 12%, respectively. We then expect larger declines in

2014 for soy, corn and wheat of 11%, 15% and 12%, respectively. Our long-term price

assumptions for soy, corn and wheat are 24%, 29% and 27% lower than current spot

prices, respectively. This supports our view that for the next several years, the risk of

food inflation shock in the Philippines is low. This is positive for the long-term pick-up

in consumption growth.

Rice represents 9% of the CPI basket in the Philippines, and we forecast flat rice

prices regionally over the next two years in large part to the rice subsidy programme in

Thailand. Therefore, we do not believe rice price shocks are a risk to inflation and/or

consumption acceleration.

Long-term price

assumptions for key soft

commodities are 25-30%

lower than current spot

prices

Rice prices to stay flat – not

push food CPI higher

14 March 2013



URC’s portfolio in the ‘sweet spot’ Consumption resurgence to drive caloric intake

higher

The consumption resurgence in the Philippines should benefit food spending/demand the

most and accelerated rates of growth are likely to be evident across many categories. All

of the consumption drivers we discussed in the previous section should have a direct

impact on food consumption. Volume acceleration in high velocity or basic need foods will

be an important driver of scale and margins.

This is very important for URC because the product categories they operate in are low

ASP, high velocity and spontaneous purchase goods that are widely distributed through

both traditional and non-traditional trade. Its product portfolio has heavy exposure to the

categories and ingredients we believe Filipinos will consume more of on a per capita basis

in the future.

From our APAC: Consumption S Curve report in August 2012, we found that basic food

products start to see saturation and declining per capita rates of consumption growth at

GDP/capital levels of US$4,000 to US$5,000. With a GDP/capital level of US$2,275 and

unlikely to exceed US$4,000 for another ten years, we believe consumption growth rates

for food and beverages can be 5-15% p.a. depending on the category.

The caloric intake in the Philippines resides below the curve relative to the rest of the

world. Therefore, as incomes grow at a faster rate and underlying consumption trends are

stronger, caloric intake growth will exceed income growth because of the ‘catch-up’ effect.

Lower food inflation should also help this trend. From Figure 29, we can see that the

Philippines is right at the start of the sweet spot of the curve for caloric intake.

Figure 29: Caloric intake will catch up quickly with renewed consumer confidence and

propensity to consume

China

IndiaIndonesia

Korea

Malaysia

PhilippinesThailand

Brazil

Czech RepublicMexicoPolandRussia

South Africa

Turkey Hungary

Egypt

ArgentinaJapan

AustraliaUnited Kingdom

United States

Germany

FranceItaly Canada

R² = 0.5362

2,000

2,200

2,400

2,600

2,800

3,000

3,200

3,400

3,600

3,800

4,000

0 10,000 20,000 30,000 40,000 50,000 60,000

Cal

orie

s (K

cal/C

apita

/day

)

GDP per capita Source: FAOSTAT, IMF, World Bank, Credit Suisse estimates

Filipinos consume a disproportionately high amount of calories through animal proteins

(primarily pork meat) relative to other Asian and emerging market peers. Therefore, we

believe non-meat categories will grow at a faster rate. These include vegetable oils,

wheat-based carbohydrates, milk, eggs, alcoholic beverages (beer, wine and spirits),

stimulants (coffee and tea) and poultry.

Low ASP, high velocity food

items should benefit first

and most from the

consumption resurgence

These are the categories

where URC is most

dominant

Consumption for

staples/basic needs for the

Philippines is at the steepest

point in the curve

Food and beverage

categories can sustain

5-15% annual growth rates

Non-meat categories will

grow faster than animal

proteins

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14 March 2013



Accelerated top-line growth at home

We believe URC’s product portfolio is well positioned to capitalise on the accelerated

consumption and caloric intake story. Higher rates of growth should be evident in their

domestic operations for the next three years at least.

As we mentioned above, URC’s product portfolio is exposed to low-ASP, high velocity

items that are distributed through both traditional and non-traditional trade. The broad

appeal and accessibility of their products put them in a ‘sweet spot’ within the consumption

resurgence picture in the Philippines (Figure 30 and Figure 31).

Figure 30: Domestic branded goods now represent 50% of

sales…

Figure 31: …and well represented by several categories

that will see higher rates of growth

BCFG PH

50%BCFG Intl

29%

Agro-

Industrial

Group

10%

Commodity

Foods

Group 11%

FY13E Revenue: PHP 84 bn

Snacks 27%

Biscuits 9%

Confect.

13%RTD Tea

12%

Coffee 21%

Grocery

14%

Packaging 5%

BCFG PH FY13E Revenue: PHP 42.2bn

or 50% of total sales

Source: Credit Suisse estimates **BCFG=Branded Consumer Food

Group


Group

88% of URC’s domestic branded foods portfolio is exposed to categories where we

believe growth rates will accelerate over the coming four years (Figure 32 and Figure 33).

The main exception is RTD Tea, but a forward growth rate of 12% is the highest of any

product category and only indicates moderation from an unsustainably high growth rate of

15% previously. 12% category growth for RTD Tea is quite impressive in its own right.

In aggregate, underlying consumption growth of URC’s key categories is expected to

accelerate from 5% p.a. historically to 8% p.a. going forward.

50% of revenues come from

domestic branded foods

Growth rates for URC’s key

product categories are

accelerating

14 March 2013



Figure 32: Category size for URC’s key products P bn

Figure 33: Portfolio product category growth rates

accelerating going forward

24.637.7

54.024.3

30.4

37.5

15.9

24.7

34.0

14.8

21.7

29.2

5.0

11.4

18.0

16.4

10.9

14.0

0.1

0.1

0.1

2006 2012 2016E

Canned

Instant Coffee

RTD Tea

Instant Noodles

Biscuits & Cookies

Confectionary

Snacks

Total = 101

Total = 137

Total = 187

7%

4%

8%7%

15%

-7%

5% 5%

9%

5%

8% 8%

12%

7%6%

8%

2006-2012 CAGR

2012-2016E CAGR

Source: Euromonitor, Credit Suisse estimates Source: Euromonitor, Credit Suisse estimates

As a result of accelerated growth in URC’s key product categories, we expect top-line

growth in the domestic branded food group to accelerate from 11% p.a. over the past five

years to 16% p.a. over the next four years. In 2012 it became evident that the top-line

growth story of URC was shifting back to the Philippines where 71% of revenue is derived

and now with a positive delta in growth rates. The new domestic appeal for the story has

positive implications on how the company is valued and execution risk. The company’s

dominant market position in the Philippines is an excellent way to capitalise on the

accelerated growth rates going forward.

Market share gains on top of stronger category

growth

We expect URC to further increase market share in its key categories to further compound

the accelerated growth in underlying demand (Figure 34). Not only categories where URC

does not have leadership share, but even dominant positions in snacks, confectionary,

cookies and RTD tea are expected to experience share gains over the next three years.

The latter is interesting because URC already has a 75% share in RTD tea, which as seen

above, is a category expected to grow 12% p.a., but share gains continue at the expense

of MNCs such as Nestle. Nestle has seen its market share decrease to essentially zero.

URC’s strong pricing proposition and flavour innovation deserve most of the credit.

With 40% excess capacity utilisation in domestic operations, volume growth can be

accommodated for the next two years. We expect the company to start investing more in

the domestic manufacturing network starting 2H13 because with the renewed growth in

the Philippines, it will want to stay ahead of the capacity curve. This is the right decision;

therefore, we should not have to worry about capacity bottlenecks like it experienced in

Thailand and Vietnam over the past three years.

With market share rising and brand values expanding, the rise in intrinsic value of the URC

franchise in the Philippines can drive materially higher shareholder value. As we

mentioned earlier, with growth catalysts returning home to the Philippines, URC is best

positioned to compete and gain share due to its 60 years of operating experience, broad

distribution, strong brand equity and scale advantages.

Aggregate market share to

increase by 14 p.p. over the

next four years

Declining risks of capacity

bottlenecks

Intrinsic value will be

enhanced by rising brand

values

14 March 2013



Figure 34: URC’s market share is on the rise led by beverages, snacks and confectionary

0%

10%

20%

30%

40%

50%

60%

FY12A FY13E FY14E FY15E FY16E

Coffee '16E share 54% (+34p.p.)

Aggregate '16E share 57% (+14p.p. vs '12)

Snacks '16E share 43% (+1p.p.)

Grocery '16E share 28.8% (+0.2p.p.)

RTD Tea '16E share 81% (+6p.p.)

Confectionary '16E share 36% (+2p.p.)

Biscuits '16E share 16.2% (+0.2p.p.)

Source: Company data, Euromonitor, Credit Suisse estimates

14 March 2013



Strengthened business model URC is a branded consumer goods company on the verge of accelerating top-line growth

and moderating input costs, which combined should lead to three years of strong earnings

growth, unseen in the past decade. The long-term shareholder value will be driven by

brand value growth, and with the consumption resurgence in the Philippines, the

company’s strong domestic brand is the primary driver. Earnings visibility and volatility are

enhanced not only because of the stronger underlying consumption and rising margins,

but also because the company divested 97% of its investment portfolio in January 2013.

On a recurring basis (excluding investment gains/losses) forward EPS growth of 24% p.a.

should be dramatically outpaced by free cash flow growth of 53% p.a. We conservatively

expect cash returned to shareholders to grow moderately faster at 28% p.a., but with net

cash on the balance sheet equal to 3% of market cap at the end of FY13, there is plenty of

room for higher cash distribution or even a special dividend.

Operationally and financially, URC’s business model should be more appealing going

forward than it was in the past.

Diversified portfolio poised for margin expansion

URC operates in three business segments—branded consumer food, agro-industrial (farm

and feed production), and commodity foods (sugar and flour milling). The company’s

diversified business model allows it to reap the benefits of a steady revenue stream (from

its packaged food business) with opportunities for growth and margin expansion from

market share gains, positive mix and favourable commodity prices.

We forecast FY13 revenue will grow 18% due to accelerating momentum in Branded

Consumer Food Group (BCFG) Philippines, continued strong performance from BCFG

International, and a significant rebound in sugar volumes and selling prices. We expect

BCFG to be the key revenue and earnings driver, contributing 79% of sales and 60% of

EBIT in 2013.

In terms of geographical segments, we forecast URC will derive 71% of sales and 78% of

EBIT domestically in 2013, and international revenues will be driven by its two largest

foreign markets, Vietnam and Thailand.

Figure 35: URC's FY13E revenue by segment % of total revenue

Figure 36: URC’s FY13 revenue by region % of total revenue

BCFG PH

50%BCFG Intl

29%

Agro-

Industrial

Group

10%

Commodity

Foods

Group 11%


Philippines

71%

Vietnam

13%

Thailand

10%

Other 6%



Group


Group

Domestic brand value

growth is the key driver of

long-term shareholder

returns

Cash flow growth, 2x higher

than earnings growth, could

lead to positive cash

distribution surprises

Branded food business

complemented by modest

upstream operations

Revenue growth expected

to accelerate to 18% YoY in

F13 from 6% in F12

Domestic margins are

superior to international

14 March 2013



Figure 37: FY13E EBIT by segment % of total EBIT

Figure 38: FY13E EBIT by region % of total EBIT

BCFG PH

38%

BCFG Intl

22%Agro-

Industrial

Group 5%

Commodity

Foods

Group 35%

FY13E EBIT: PHP 9.3 bn

Philippines

78%

Vietnam

11%

Thailand

10%

Other 1%

FY13E EBIT: PHP 9.3 bn


Group


Group

Strong momentum in BCFG to drive top-line growth

Over the next four years, we expect the revenue CAGR to be 14% versus 11% historically.

The most dramatic acceleration in top-line growth should come from the domestic branded

foods business (Figure 39). These rates are primarily driven by accelerated growth in

URC’s domestic and international branded consumer foods group (BCFG) as the firm

continues to gain market share in key segments.

Figure 39: Accelerated revenue growth in branded foods operations Revenue growth by segment YoY

FY13E FY14E FY15E FY16E 4Y CAGR

BCFG PH 16.9% 13.6% 13.7% 16.4% 15.1%

BCFG VN 23.5% 20.5% 20.6% 20.6% 21.3%

BCFG TH 25.7% 11.5% 12.5% 12.4% 15.4%

BCFG Other 13.1% 27.2% 12.2% 11.5% 15.8%

BCFG 18.7% 15.5% 14.6% 16.2% 16.2%

Farm 26.1% 12.2% 0.8% 0.8% 9.5%

Agro-Industrial Group 8.8% 2.5% 0.4% 5.8% 4.3%

Flour -4.8% -0.5% 1.0% 0.0% -1.6%

Sugar 49.8% 6.0% -6.0% 6.0% 15.6%

Commodity Foods Group 19.9% 3.2% 3.1% 3.6% 7.2%

Total revenue growth 17.8% 12.9% 12.2% 14.3% 14.3%

Source: Credit Suisse estimates

URC’s domestic BCFG business consists of three segments—snackfoods (51% of FY13E

sales), beverages (34%) and grocery products (15%). The Philippines’ snackfoods market

size is estimated to be P75 bn in 2013 and three-year forward CAGR of 9%. We expect

URC to hold its dominant position in the category by maintaining its aggregate snackfoods

market share of 31-32% in the next three years.

As URC’s products are usually priced at a 20-30% discount to its competitors, we do not

see much room for increased pricing power and forecast ASPs to grow in line or slightly

above input cost inflation (2-4% p.a.). Therefore, the key driver of domestic snackfoods

growth for the company should be above-industry volume growth of 5% p.a. in the next

three years. We believe this is realistic as URC’s new snackfood products continue to

perform well in the Philippines.

Stronger underlying demand

and continued share gains

are driving higher domestic

branded foods revenue

growth

Snacks category to grow at

9% p.a.

Volume growth potential is

greater than ASP

14 March 2013



URC’s strong domestic beverage business is a key reason for accelerated sales growth in

the BCFG segment. While the company already has a dominant 75% share in the

domestic RTD Tea market (valued at P7.5 bn in 2013), it is quickly catching up in the

much bigger instant coffee category (P34.7 bn in 2013). FY12 sales growth for beverages

was 56% YoY, largely due to better-than-expected coffee sales.

The Philippines instant coffee industry is still on a structural uptrend, projected to see a

three-year forward CAGR of 9.5%, but recent sales performance and management

optimism lead us to believe that URC can outperform the segment and grow its market

share from 20% in 2012 to 44% in 2015 through volume growth of 30% p.a.Figure 40 and

Figure 41 show that our forecasts for total beverage sales growth of 40% in 2013 and 28%

in 2014 are critical to strong domestic BCFG momentum.

Figure 40: Above-category growth most pronounced in

the domestic beverage segment 3Y fwd. sales CAGR, URC vs overall domestic industry

Figure 41: Accelerated beverage growth key driver of

16.4% domestic BCFG revenue growth in FY13 % of domestic BCFG revenue (values in P bn)

7.1%9.3%

7.6%7.4%

26.0%

8.4%

Snackfoods Beverage Grocery

Industry URC

51% 47% 44%

35%39%

43%14%

13%

13%

FY13E FY14E FY15E

Snackfoods Beverage Grocery

40.2 bn

45.7 bn

52 bn

Source: Credit Suisse estimates Source: Credit Suisse estimates

URC’s international BCFG business is another key revenue driver. With 80% of

international sales from Vietnam and Thailand, we believe the company is well positioned

to gain from the structural consumption growth stories in both the countries (Figure 42).

URC has the second-highest market share in the large RTD Tea market in Vietnam

(valued at P52 bn in 2013), where the industry will likely see 14% growth p.a. for the next

three years. We forecast volume growth in Vietnam will be in line with the industry, and

ASPs will rise at 8% p.a. due to high inflation in Vietnam, leading to top-line growth of 21%

p.a. from FY13-16.

With regards to Thailand, URC has the leading biscuits and wafers market share (23%

and 24%, respectively), and we expect room for further market share gains as a result of

steady ASP increases and above-industry volume growth rates as the company launches

new products and expands capacity by 20% in the near term. Thailand YoY growth should

accelerate in the next three quarters due to lower base comparisons last year.

Figure 42: URC to see continued market share gains in Vietnam and Thailand % market share (FY12A is reported)


VN beverage market share (value) 36.0% 37.6% 39.3% 41.8% 44.9%

VN beverage market share

(volume) 38.0% 38.0% 37.3% 37.3% 37.3%

TH biscuits market share (value) 23.0% 25.9% 26.0% 26.6% 27.7%

TH biscuits market share (volume) 25.0% 28.6% 30.0% 31.4% 32.9%

Source: Company data, Credit Suisse estimates

Domestic coffee growth

could continue to surprise to

the upside

Coffee consumption in the

Philippines presents some

strong growth

characteristics

Well positioned to capitalise

on the strong domestic

consumption story in

Vietnam

Thailand revenue growth to

accelerate through the

balance of FY13

14 March 2013



URC’s agro-industrial group (AIG) represents 9% of FY13E revenues, and is largely a

factor of live hog, live poultry and feed (we estimate 50% corn and 50% soy) selling prices

that are regulated by the government. We forecast volume growth will be limited to 5-10%

p.a. as both the farm and feed markets are highly fragmented and competitive, with URC

holding roughly a 2% aggregate market share.

The deterioration of corn and soy prices from FY13-15 (-10% p.a. on average) should

drive lower feed revenues, but we expect the rebound in farm revenues (26% YoY in

FY13) due to rising meat prices to offset the feed decline and lead to overall AIG revenue

growth of around 3% p.a. in the next three years. Lower feed prices will drive margins

higher in the farming operations.

Similarly, we expect the company’s commodity foods business to grow at 3.4% p.a. from

FY13-16 as improved sugar selling prices offset declining flour prices. As with AIG, volume

growth in the flour and sugar segments should be limited as the government imposes

allocation constraints on flour millers. With the exception of FY13 (40% sugar volume

growth due to acquired sugar mill and recovery from last year), we forecast flat volume

growth for both businesses, leading to single digit top-line growth in the segment.

Margins to expand amid a better raw material price

environment We forecast URC’s EBIT will grow 20% in FY13 and at a four-year forward CAGR of

22.6% as a more favourable raw material price environment sets in for the next two years

(Figure 43).

Figure 43: EBIT growth higher than that of sales … EBIT growth by segment YoY

FY13E FY14E FY15E FY16E 4Y CAGR

BCFG PH 19.5% 40.6% 20.4% 36.8% 29.0%

BCFG VN 42.5% 70.8% 40.4% 35.1% 46.6%

BCFG TH 24.1% 13.5% 12.8% 10.9% 15.2%

BCFG Other 0.6% 77.6% 29.1% 20.6% 29.2%

BCFG 23.9% 42.9% 24.4% 33.2% 30.9%

Farm 171.1% 51.1% 18.6% -10.2% 44.5%

Agro-Industrial Group 13.6% -16.1% 49.4% 21.4% 14.7%

Flour -26.9% 23.1% 8.8% 17.0% -1.0%

Sugar 50.1% -6.4% -4.0% 4.2% 11.1%

Commodity Foods Group 15.3% 2.1% -0.4% 8.2% 6.1%

Total EBIT growth 20.2% 25.7% 18.1% 26.7% 22.6%


This, in addition to increased efficiencies, should drive overall EBIT margin expansion of

350 bp from FY12 to FY16 (Figure 44).

Figure 44: … leading to expanding EBIT margins EBIT margins (%) by segment


BCFG PH 8.3% 8.5% 10.5% 11.1% 13.0%

BCFG VN 8.9% 10.2% 14.5% 16.9% 18.9%

BCFG TH 10.1% 9.9% 10.1% 10.1% 10.0%

BCFG Other 1.7% 1.5% 2.1% 2.4% 2.6%

BCFG 8.1% 8.4% 10.4% 11.3% 13.0%

Farm 2.1% 4.6% 6.2% 7.3% 6.5%

Feed 9.0% 7.4% 1.9% 6.4% 10.6%

Agro-Industrial Group 5.5% 5.7% 4.7% 7.0% 8.0%

Flour 31.1% 23.9% 29.5% 27.2% 31.8%

Sugar 45.6% 45.7% 40.4% 39.6% 38.9%

Commodity Foods Group 37.7% 36.2% 35.8% 34.6% 36.2%

Overall EBIT margin 11.0% 11.2% 12.4% 13.1% 14.5%

Source: Company data, Credit Suisse estimates **EBIT margins include corporate allocations

9% of revenue exposed to

farming operations

Moderating input costs for

feed can drive higher farm

margins

Modest growth for sugar

and flour operations

Improved scenario of EBIT

growing ahead of sales

14 March 2013



In the BCFG International segment, we expect Vietnam and Thailand 2013 EBIT growth to

be higher than that in the Philippines due to higher pricing power abroad, leading to

segment 3Y forward EBIT CAGR of 33% p.a. Recently, URC saw strong growth

momentum from Indonesia (37% sales YoY in 1Q FY13), and we project the country to

break even on an EBIT basis in FY14 and then US$2 mn positive contribution in FY15.

Our COGS in the BCFG segment are driven by 60% raw material costs, 20% overhead (in

line with country CPI inflation), 10% labour (in line with country nominal wage growth), and

10% transportation costs. While CPI and labour inflation should be in the mid-to-high

single-digit range in the next three years, key input prices (corn, flour, cooking oil, potato)

are all projected to decrease from FY13 to FY15 (Figure 45). We project cost of goods

sold for BCFG will increase only 16% and 12%, respectively (vs. 19% and 15% revenue

growth). On the other hand, we forecast an increase in advertising and promotion

expenses for the BCFG business from 7% of sales in 2012 to 8% as the company focuses

on new product launches, but increased efficiencies should be enough to offset any

potential decrease in operating margins.

Figure 45: Historical and forecast commodity selling prices % YoY

FY 11A FY12A FY13E FY14E FY15E FY16E

Hog -1.5% -2.9% 5.0% 2.0% -4.0% -4.0%

Broiler -4.5% -1.0% 5.0% 2.0% -4.0% -4.0%

Corn 8.4% 5.3% -4.0% -23.0% -6.0% 10.0%

Soy (F/X adjusted) 30.8% 0.6% -5.8% -14.6% -5.9% 2.9%

Flour n.a. n.a. -4.8% -0.5% -1.0% 0.0%

Sugar 10.2% -18.6% 7.0% 6.0% 6.0% 6.0%

Source: CEIC, Credit Suisse estimates

Margins in URC’s agro-industrial and commodity food groups are largely a factor of input

price fluctuations, and we believe favourable prices can lead to EBIT margin expansion of

2.5 p.p. from FY12 to FY16. In the farm business, we believe margins can expand around

2 p.p. p.a. in the short term due to an increasingly favourable meat price environment and

declining animal feed prices until 2015, when meat prices start to moderately decline.

URC’s commodity foods group has the highest profitability among the three business

segments—while the segment contributes only 11% of FY13 revenues. CFG EBIT will be

35% of total FY13 EBIT, implying FY13 EBIT margins of 36.2%. Sugar EBIT margins

should remain resilient at 39-40% after FY13E as we forecast selling prices will remain

steady, while falling wheat prices and an appreciating PHP (as URC generally purchases

wheat from abroad) will defend flour margins even as flour selling prices are projected to

decline marginally during FY13-16. We also add an extra 100 bp a year to margins due to

increased scale.

FY13-16E earnings CAGR of 22%

Our revenue and margin forecasts lead to reported EPS growth of 7%, 23%, 17% and

27% from FY13 to FY16, respectively.

However, excluding the impact on earnings from fluctuations in the investment portfolio,

forecast EPS growth is 27% YoY in both FY13 and FY16. Earnings should be much less

volatile going forward than they were in the past because the company sold off 97% of its

investment portfolio in January 2013 with proceeds mainly to pay off debt. With ~US$50

mn of cash remaining to pay off most of debt, earnings growth should be more stable.

Key assumptions

We lay out key assumptions in our model in the following table.

Expect Indonesia to be EBIT

profitable in FY15

Declining soft commodity

prices set the stage for more

visible margin expansion in

coming years

Recurring EPS growth of

27% YoY in both FY13 and

FY14

14 March 2013



Figure 46: Key model assumptions for FY13-16E

FY13E FY14E FY15E FY16E

Market share

PH Snackfoods 31.3% 31.0% 30.9% 31.6%

PH Beverage 38.2% 44.6% 50.5% 58.5%

VN Beverage 37.6% 39.3% 41.8% 44.9%

TH Biscuits 25.9% 26.0% 26.6% 27.7%

ASP growth PH packaged foods (excl. coffee) 0.6% -1.2% 1.3% 3.8%

PH Coffee 0.6% -1.2% 1.3% 3.8%

Vietnam packaged foods 5.0% 7.0% 8.0% 10.0%

Thailand packaged foods 3.8% 0.4% 2.0% 3.7%

Hog/Poultry 5.0% 2.0% -4.0% -4.0%

Feed -4.6% -15.8% -5.2% 4.7%

Flour -4.8% -0.5% -1.0% 0.0%

Sugar 7.0% 6.0% 6.0% 6.0%

Volume growth PH packaged foods (excl. coffee) 5.5% 5.9% 6.4% 6.3%

PH Coffee 63.8% 39.9% 28.4% 26.8%

Vietnam packaged foods 17.6% 12.6% 11.7% 9.7%

Thailand packaged foods 19.1% 9.1% 9.2% 9.3%

Hog/Poultry 20.0% 10.0% 5.0% 5.0%

Feed -5.0% 5.0% 5.0% 10.0%

Flour 0.0% 0.0% 0.0% 0.0%

Sugar 40.0% 0.0% 0.0% 0.0%


Cash stockpile – look for more returns to

shareholders

The cash flow profile of URC has improved dramatically, and with the investment portfolio

being sold down and cash flowing to the balance sheet, the financial risk is the lowest in

10 years.

Excluding fluctuations in the investment portfolio, gross free cash flow historically

averaged 27% of EBITDA. Going forward, we expect this to average 47% (Figure 47). Our

free cash flow forecasts include incremental capex over the next three years for new

projects outside of the core business that includes investment in Myanmar, sugar ethanol

capacity and the biomass project. The surge of cash generation can be used for

acquisitions and/or increased distributions to shareholders. We believe the latter is one of

the key points of appeal of the URC story going forward.

Cash generation to rise to

47% of EBITDA

14 March 2013



Figure 47: URC free cash flow generation reaching new heights – can lead to positive

surprises of cash returned to shareholders P mn

-35%

-15%

5%

25%

45%

65%

85%

-2,500

-500

1,500

3,500

5,500

7,500

9,500

11,500

13,500

FY07 FY08 FY09 FY10 FY11 FY12 FY13E FY14E FY15E FY16E

Gross FCF (lhs) Gross FCF to EBITDA (rhs)

Hist. avg: 26.6%


URC is trading at FY13E FCF yield of 2.4% which is in line with its regional peers, but FCF

growth going forward at URC is higher than that of the peer group.

In terms of FY13E net cash-to-market capitalisation for regional branded food & beverage

companies, URC ranks #9 at 3.5% and is one of the only two ASEAN companies in the

Top 10 (Figure 48). We are confident in the company’s capital allocation decisions, and

given the 60% ownership by JG Summit Group, dividend to shareholders is always

something management will consider. Dividend income in the Philippines for corporates is

not taxed.

Figure 48: URC’s net cash balance to market cap ranks among the highest among NJA

branded consumer staples

Company Symbol CS

Rating

Market Cap.

(USD mn)

2013E

Net Cash/Mkt. Cap.

Wuliangye 000858.SZ O 14,825 39.8%

Nongshim 004370.KS U 1,594 31.3%

Luzhou Laojiao 000568.SZ O 6,930 16.5%

China Mengniu 2319.HK O 5,017 15.8%

Moutai 600519.SS N 30,436 13.4%

Indofood CBP ICBP.JK O 5,385 12.3%

Shanxi Xinghuacun Fen Wine 600809.SS O 5,614 5.8%

Universal Robina URC.PS O 4,925 3.5%

Tenfu 6868.HK N 693 2.7%

NJA Average -11.7%


FCF yield comparable to

peers, but FCF growth is far

superior

URC is one of only two

branded ASEAN food

companies in the Top 10

with a 3.5% of market cap

as net cash

14 March 2013



Staples in the Philippines are cheap The relative 12-month forward P/E premium of 17% for consumer staples in the

Philippines versus the overall market is lower than Asian peers, global emerging markets,

developed markets and all countries combined. With renewed consumption growth,

improved earnings visibility, upward earnings revisions, declining costs of capital and

rising ROEs, inexpensive consumer staples stocks in the Philippines are unlikely to last, in

our view. We expect a continued re-rating of Philippine consumer staples stocks relative to

the overall market.

We do not believe URC is expensive because one thing we have seen in recent years

across ASEAN in particular is that consumer staple stocks within a resurging domestic

consumption market accompanied with positive earnings surprises and revisions can

sustain large (50-100%) premium multiples relative to the overall market. We believe URC

offers the best opportunity for investors to capitalise on a re-rating in the Philippines and

trades at a mere 24% premium to the overall market which is the lowest of ten similarly

sized branded food companies across the region.

The global debate—inexpensive or expensive?

The debate carries on whether consumer staple stocks are inexpensive or expensive in

both emerging and developed markets. What is the right price to pay for stable staples that

should yield over time superior earnings visibility, rising ROEs and ROICs, free cash flows

and higher payout ratios to shareholders? Over the past 12 years, empirical data show

that investors believe consumer staple stocks are worth a premium to the overall market.

Therefore, the question has become more about how much premium?

MSCI Developed Market and MSCI All Country consumer staples are trading at 22% and

30% 12-month forward P/E premiums (Figure 49), respectively, to the overall market.

Emerging market consumer staples are trading at larger premiums due to higher top-line

and earnings growth rates. GEM, NJA and ASEAN (ex. Singapore) consumer staple

stocks are trading at 35%, 66% and 37% 12-month forward premiums (Figure 50),

respectively, to the overall market. We exclude Singapore from the ASEAN average

because of its heavy weighting of commodity companies rather than branded goods

companies. Including Singapore, the ASEAN average would still be a healthy premium of

26% to the overall market, which is higher than in the Philippines.

Consumer staple stocks in

the Philippines relative to

the market are the cheapest

against Asian peers, GEM

and developed markets

Consumption resurgence,

positive earnings revisions

and lower costs of capital

will fuel a further re-rating

We add Philippines to the

global debate of whether

consumer staple stocks are

cheap or expensive. We

think the answer is – cheap

NJA and ASEAN consumer

staples trade at 66% and

37% premiums to market

14 March 2013



Figure 49: Relative valuations of staples have widened to

reflect lower costs of capital and improved earnings

visibility Consumer staples 12mf P/E relative to overall market

Figure 50: Emerging market consumer staples trade at

wider premium valuations Consumer staples 12mf P/E relative to overall market

0.8

0.9

1.0

1.1

1.2

1.3

1.4

1.5

1.6

Dec-

01

Jun-0

2D

ec-

02

Jun-0

3D

ec-

03

Jun-0

4D

ec-

04

Jun-0

5D

ec-

05

Jun-0

6D

ec-

06

Jun-0

7D

ec-

07

Jun-0

8D

ec-

08

Jun-0

9D

ec-

09

Jun-1

0D

ec-

10

Jun-1

1D

ec-

11

Jun-1

2D

ec-

12

MSCI Developed Markets

MSCI All Country

22%

30%

0.8

1.0

1.2

1.4

1.6

1.8

2.0

Dec-

01

Jun-0

2D

ec-

02

Jun-0

3D

ec-

03

Jun-0

4D

ec-

04

Jun-0

5D

ec-

05

Jun-0

6D

ec-

06

Jun-0

7D

ec-

07

Jun-0

8D

ec-

08

Jun-0

9D

ec-

09

Jun-1

0D

ec-

10

Jun-1

1D

ec-

11

Jun-1

2D

ec-

12

MSCI GEM MSCI NJA

ASEAN ex. SG

37%

66%

35%

Source: Factset Source: Factset

Across the globe, consumer staple stocks relative to the overall market are trading at

higher multiples today than historical averages (Figure 51). Rising equity risk premiums

coupled with lower risk-free rates in developed markets coupled with low Beta consumer

staple stocks has led to re-ratings, and in emerging markets, the inverse is true. Consumer

staple stocks in emerging markets have higher betas, often above 1; therefore, declining

equity risk premiums coupled with lower risk free rates have led to even more dramatic

multiple expansion in absolute and relative terms.

Figure 51: Premium for consumer staples globally has widened in the past decade Consumer staples 12mf P/E relative valuation to overall market

Current 12mf

P/E

Current rel.

to market

10Y historical

average

Relative to 10Y

average

12M

change

24M

change

MSCI China 21.6x 2.28 1.39 65% 12% 74%

MSCI Korea 13.8x 1.60 1.41 13% 11% 23%

MSCI Taiwan 20.3x 1.41 1.35 4% 11% -6%

MSCI Indonesia 19.0x 1.31 1.31 1% -1% 9%

MSCI India 27.5x 2.03 1.49 37% 22% 32%

MSCI Malaysia 16.9x 1.22 1.10 11% 8% 12%

MSCI Singapore 11.6x 0.83 1.10 -24% -18% -25%

MSCI Thailand 22.2x 1.79 1.25 43% 13% 39%

MSCI Philippines 23.0x 1.17 1.08 8% 41% 24%

MSCI All Country 12.9x 1.30 1.19 10% 3% 12%

MSCI Developed Markets 13.1x 1.22 1.16 5% 0% 9%

MSCI GEM 10.6x 1.35 1.39 -3% -24% -10%

MSCI NJA 18.8x 1.66 1.27 30% 13% 32%

MSCI ASEAN 18.5x 1.26 1.17 8% 7% 12%

ASEAN ex. Singapore 20.3x 1.37 1.18 16% 13% 21%

Source: Factset

Among the Asian countries (except for Singapore, which is heavily weighted with

commodity-based consumer staple stocks) and relative to all major regions, the

Philippines consumer staples sector trades at the lowest premium relative to the overall

market (Figure 52). The rerating in the Philippines has been the highest over the past 12

months, but this is not the case over the past 24 months. In the past two years, China,

India and Thailand consumer stocks have re-rated more versus the overall market.

Stable staples have re-rated

due to lower costs of equity

in emerging markets and

better earnings in developed

markets

Premium for staples in the

Philippines is the lowest at

only 17%

14 March 2013



Thailand’s re-rating is reasonable, given the resurgence in domestic consumption;

however, China and India are more a function of limited options of structural stories in

consumer discretionary. ROE expansion can justify the re-ratings in India, Thailand and

the Philippines, but not so much in China.

Figure 52: PH consumer staple stocks have the lowest relative multiple 12mf P/E relative valuation to overall market

0.83x

1.17x 1.22x 1.22x 1.26x 1.30x 1.31x 1.35x 1.37x 1.41x

1.60x 1.66x1.79x

2.03x

2.28x


Philippine consumer staples will continue to re-rate

The relative valuation discount for Philippine consumer staple stocks is unlikely to last for

three key reasons:

(7) Consumption resurgence. As we discussed in the first section, what was once a

lacklustre domestic consumption story where PCE growth lagged regional peers’ has

transitioned into one of the more exciting consumption stories where forward growth

will exceed regional peers’. Consumer staple stocks, such as URC, do not need to

migrate out of the Philippines in pursuit of higher growth; they can now find it at home.

Thailand is a fantastic recent example of this. Up until mid-2010, Thai consumers had

a low propensity to spend. This was primarily due to the domestic instability since the

coup in late 2006. Once domestic stability surfaced and was seen to be sustainable

(with the dominant election victory of the Pheu Thai Party in mid-2011), the propensity

to spend has increased. In conjunction, consumer companies have decided to

capitalise on the domestic consumption story by broadening their business models, re-

leveraging the balance sheet to build national, and even regional, business models.

Rising consumer confidence and stronger earnings growth drove the rerating in 12-

month forward P/E multiple from 1.3x in May 2010 to 1.79x today. The multiple re-

rating even persevered through the floods of 2011.

The parallels between the Philippines and Thailand are striking, in our view. Relative

valuations for consumer staples broke away from the consumer confidence trend in

mid-2011 (Figure 53:) in Thailand. However, in the Philippines this has yet to happen

(Figure 54), and we believe it is on the horizon as earnings revisions continue to be

positive and underlying consumer demand strengthens.

Stronger underlying demand

support further re-rating

Thailand’s re-rating has

been more profound than

the Philippines

14 March 2013



Figure 53: Relative valuations in Thailand moved ahead of

consumer sentiment 1Y into the resurgence…

Figure 54: …while this inflection is still on the horizon for

the Philippines

0.90

1.00

1.10

1.20

1.30

1.40

1.50

May-

10

Jul-1

0

Sep-1

0

Nov-

10

Jan-1

1

Mar-

11

May-

11

Jul-1

1

Sep-1

1

Nov-

11

Jan-1

2

Mar-

12

May-

12

Jul-1

2

Sep-1

2

Nov-

12

Jan-1

3

Consumer Confidence Index

Consumer Staples Relative PE

Thai Floods

0.5

0.7

0.9

1.1

1.3

1.5

1.7

1.9

2.1

2.3

2.5

Mar-

11

May-

11

Jul-1

1

Sep-1

1

Nov-

11

Jan-1

2

Mar-

12

May-

12

Jul-1

2

Sep-1

2

Nov-

12

Consumer Confidence Index

Consumer Staples Relative PE

Source: CEIC, Factset Source: CEIC, Factset

(8) Better quality earnings and improved visibility. With stronger underlying demand

comes superior earnings quality and visibility. 80% of URC’s business is branded, and

as we mentioned earlier, the underlying demand growth for its key product categories

is expected to accelerate over the next four years. This should fuel upward earnings

revisions for the domestic business (71% of total 2013E revenue or 47% for domestic

branded foods alone).

Positive earnings revisions for consumer staple stocks in the Philippines over the past

six months have well outpaced those of NJA and ASEAN (Figure 55). Earnings

momentum in the Philippines clearly stands out from the rest because this is the only

market where earnings revisions over the past six months for both 2013 and 2014

have been positive. Even Thailand has seen negative earnings revisions.

Figure 55: PH consumer staples have by far a superior earnings revision momentum Change in consensus estimates over the past six months

11%

-6%

-10%

-6%

23%

-3%-5%

-4%

Philippines NJA ASEAN Thailand

2013E 2014E

Source: I/B/E/S, Credit Suisse estimates

Accelerated earnings growth

supports further re-rating

Philippines is the only

market in NJA where there

have been positive earnings

revisions over the past six

months

14 March 2013



Positive earnings surprises and earnings revisions should put further upward pressure

on the consumer staples relative valuation in the Philippines and the gap relative to

other markets should narrow.

(9) Declining costs of capital. Costs of capital for Philippine consumer staple stocks are

declining and this is pushing both absolute and relative valuations higher. The re-

rating thus far is partially due to this, and we believe there is further room for

valuations to expand on the back of this phenomenon.

Both interest rates and costs of equity are at 15-year lows (Figure 56). Low rates will

persist as the government attempts to moderate an appreciating PHP that threatens

the BPO industry and devalues remittances. Low risk of an inflation shock, as we

discussed earlier, allows the BSP (central bank) to remain dovish in its interest rate

policies.

Figure 56: Debt costs and the risk-free rate are at all-time lows

-

5

10

15

20

25

30

35

40

91 Day T-Bills 10yr Gov't Bonds

Source: Bloomberg, Datastream

Globally, cost of equity for consumer staples companies has fallen to ten-year lows

and this is a key reason why relative 12-month forward P/E valuations are now 30%

higher at 1.3x versus the overall market (Figure 57).

Lower costs of debt and

equity capital support further

re-rating

Declining costs of equity for

staples is a global

phenomenon

14 March 2013



Figure 57: US consumer staples’ cost of equity

4.0

5.0

6.0

7.0

8.0

9.0

10.0

11.0

12.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Source: Bloomberg, Datastream

For Philippines consumer staples, cost of equity is now down to ~6.5%, which is the

lowest since 1998 and ~200 bp below the five-year average (Figure 58).

Figure 58: Cost of equity for consumer staples at record

lows CAPM = Rf + Beta (Equity Risk Premium)

Figure 59: Relative multiples have been pushed higher by

declining costs of equity

2%

4%

6%

8%

10%

12%

14%

Jul-08 Jul-09 Jul-10 Jul-11 Jul-12

Average = 8.5%

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

1.1

1.2

1.34%

5%

6%

7%

8%

9%

10%

11%

12%

13%

14%

Jul-08 Jul-09 Jul-10 Jul-11 Jul-12

Consumer Staples Cost of Equity(inverse; lhs)

Consumer Staples rel PE to Market(rhs)

Source: Bloomberg Source: Bloomberg, Datastream

URC to further re-rate to a 40% premium to market

URC’s shares have re-rated relative to the market by 27% over the past 12 months to

1.24x, which is moderately above the 17% premium the consumer staples sector trades

at. The relative multiple is 2 standard deviations above the five-year average (Figure 60),

but more relevant is the average since the beginning of 2011 when the domestic

consumption resurgence began (Figure 61). In this case, the relative valuation is only 1.5

standard deviations above the historical average.

URC’s share price has re-

rated but not overly so

14 March 2013



Figure 60: URC re-rating over the past five years… 12mf PE relative to overall market

Figure 61: …but the more relevant period is since the

beginning of January and re-rating has been less 12mf PE relative to overall market

0.20

0.40

0.60

0.80

1.00

1.20

1.40

2-Jan-08 2-Jan-09 2-Jan-10 2-Jan-11 2-Jan-12 2-Jan-13

Avg.

+2 STDEV

+1 STDEV

0.40

0.50

0.60

0.70

0.80

0.90

1.00

1.10

1.20

1.30

1.40

3-Jan-11 3-May-11 3-Sep-11 3-Jan-12 3-May-12 3-Sep-12 3-Jan-13

Avg.

+2 STDEV

+1 STDEV

Source: Datastream Source: Datastream

We believe URC deserves to trade at a 40% premium to the overall market which is in line

with ASEAN and GEM peers but below the NJA average. This implies a 27x P/E multiple.

URC presents the best consumer staples opportunity to leverage further re-rating in the

sector, in our view, because consensus earnings estimates remain too low as the market

is not fully factoring in the strength of the domestic demand story, market share gains,

moderating raw material costs, high growth in Indonesia and strong 2H13 recovery in

Thailand.

Our EPS estimates are 4%, 12% and 21% ahead of consensus in FY13, FY14 and FY15,

respectively (Figure 62). Our FY14 margins could prove conservative if higher ASPs from

new products and mix benefits are actually positive. The market is factoring in only 15%

annual EPS growth over the next three years, whereas we expect 22%.

Positive earnings revisions have not begun in earnest yet for URC like they have in the

rest of the sector.

Figure 62: Above consensus estimates due to stronger market share and margin performance March YE; P bn

2013E 2014E 2015E

CS I/B/E/S CS vs

I/B/E/S

CS I/B/E/S CS vs

I/B/E/S

CS I/B/E/S CS vs

I/B/E/S

Revenue 83,877 80,106 5% 94,712 89,746 6% 106,289 94,324 13%

EBITDA 13,199 12,718 4% 16,063 14,500 11% 18,710 14,920 25%

EBIT 9,377 9,030 4% 11,785 10,507 12% 13,920 10,700 30%

Pre-tax income 9,551 9,541 0% 12,037 10,866 11% 14,071 11,507 22%

Net income 8,314 8,516 -2% 10,210 9,483 8% 11,935 10,226 17%

EPS 3.97 3.83 4% 4.87 4.34 12% 5.69 4.69 21%

EBITDA margin 15.7% 15.9% -14bps 17.0% 16.2% 80bps 17.6% 15.8% 179bps

EBIT margin 11.2% 11.3% -09bps 12.4% 11.7% 74bps 13.1% 11.3% 175bps

ROE 16.6% 17.0% -37bps 19.0% 17.9% 111bps 20.8% 18.0% 279bps

DPS 2.33 1.88 24% 3.10 2.12 46% 3.93 2.58 52%

Pay-out Ratio 59% 49% 979bps 64% 49% 1,481bps 69% 55% 1,395bps

Source: I/B/E/S, Credit Suisse estimates

URC presents the best

opportunity to capitalise on

further re-rating of consumer

staples

Expect consensus EPS

estimates to move higher

through 2013

14 March 2013



Compared to direct peers – a 40% premium is justified

Relative to a group of ten similarly sized Asian branded food companies, URC trades at

the smallest 12-month forward P/E premium to the market despite having higher forward

earnings growth, higher ROE expansion over the next three years and positive earnings

revisions (Figure 63). The peer group average premium valuation to the market is 105%,

so a 40% premium could even be deemed conservative, in our view.

We acknowledge that if URC produces positive earnings surprises through the rest of

FY13 that the relative valuation could swing much more dramatically to premiums in

excess of 40%. We have seen this with many of the regional branded food companies.

Figure 63: URC compares favourably to branded food companies in the region–supporting our rerating thesis

Company Universal

Robina

Uni-

Pres. Orion ICBP

China

Mengniu

United

Spirits

Lotte

Conf.

Hite

Jinro

Super

Group Nongshim

Peer

Group

Avg

URC vs

Peer

Group

Symbol URC.PS 1216 001800 ICBP 2319 UNSP 004990 000080 SPGP 004370

CS rating O N NR O O O NR U NR U

Current price (LCY) 97.50 58.90 1,092k 8,950 21.85 1,961 1,796k 34,850 3.85 291,500

Target price (LCY) 130.00 50.80 na 8,100 22.08 2,400 na 25,000 na 210,000

Upside (%) 33% -14% na -9% 1% 22% na -28% na -28%

Market cap (US$ mn) 4,952 9,662 5,951 5,383 5,017 4,738 2,331 2,211 1,723 1,619

Abs. Performance: YTD 16% 11% -1% 15% -1% 0% 10% 15% 19% 7%

Abs. Performance: 12m 70% 47% 51% 66% 1% 291% 6% 44% 119% 21%

Rel. Performance: YTD 0% 7% 0% 2% 1% 1% 10% 15% 15% 8%

Rel. Performance: 12m 33% 47% 51% 43% -3% 277% 6% 44% 108% 21%

Relative 12mf P/E 1.24 1.45 3.37 1.33 1.47 2.91 2.18 2.04 1.61 2.00 2.04 -38.8%

P/E

12mf 22.3x 21.1x 29.1x 20.0x 14.2x 39.9x 18.8x 17.5x 22.9x 17.2x 22.3x 0.5%

CFY 21.9x 20.9x 28.5x 19.8x 13.9x 38.6x 18.5x 17.4x 22.6x 17.1x 21.9x 0.4%

CNFY 21.6x 20.8x 28.0x 19.6x 13.7x 37.6x 18.3x 17.3x 22.4x 16.9x 21.6x 0.2%

EPS growth

CFY 7% 8% 26% 17% 46% 77% 8% 23% 15% -7% 24% 3%

NFY 23% 7% 25% 12% 19% 85% 16% 9% 13% 11% 22% 1%

3yr Fwd 16% 7% 20% 14% 27% 63% 16% 22% 17% 5% 21% 3%

ROE

CFY 16.6% 15.3% 18.0% 19.8% 15.3% 6.7% 5.0% 8.9% 21.5% 6.2% 13.0% 366bps

NFY 19.0% 15.2% 19.0% 19.8% 16.7% 8.2% 5.7% 9.5% 22.0% 6.5% 13.6% 540bps

3yr Fwd Change (bps) 418 -4 357 8 65 60 187 539 282 -1 166 256bps

6M EPS revisions

2013E 1.2% 2.5% 0.3% -0.1% -15.6% -13.0% -16.5% -11.4% 21.5% -6.6% -4% 6%

2014E 0.7% 5.9% 2.2% 4.5% -12.5% 29.0% -24.7% 0.4% 21.6% -3.6% 3% -2%

Source: Company data, Credit Suisse estimates, I/B/E/S estimates for Not Rated stocks

Initiating coverage with a P130 12-month target price

URC’s shares are trading at 24.7x 2013E EPS and 16x 2013E EBITDA, which are 9% and

22% discounts, respectively, to what we consider the regional peer group of branded food

companies. Excluding cash on the balance sheet, URC is trading at 24x 2013E EPS.

As we mentioned earlier, we believe a relative premium to the overall market of 40% is

justified due to the superior earnings story, earnings visibility, less volatility after selling

down the investment portfolio and high probability of more profound positive earnings

revisions. Therefore, with an overall market target multiple of 19x, this implies a target

multiple of 27x for URC. This implies less than 10% multiple expansion over the next 12

months.

Compared to similar-sized

branded food companies in

the region support further

re-rating for URC

URC multiples are at a

discount to regional peers

Target price is based on 27x

P/E or a 40% premium to

the market

14 March 2013



If earnings performance surprises to the upside, the relative P/E multiple versus the overall

market could potentially get closer to the NJA average of 1.7x or even 1.8x such as in

Thailand. A key point to consider and based on recent regional market precedents, a

resurgence in the domestic consumption story can fuel sustained re-ratings in both

earnings expectations and multiples because stable staples are not a common commodity

for investors across NJA.

At 27x our 2014E EPS estimate of P4.87, the fair value of URC is P130/share 12 months

out.

Our 12-month target price is well supported by our DCF value of P138.10/share (Figure

64). Our discounted cash flow (DCF) is based on a WACC of 8.6%, long-term free cash

flow growth of 6.6% annually and a terminal EV/EBITDA multiple of 12.2x.

Positive earnings revisions

could push the relative

valuation to the market even

further

DCF value suggests a 49%

12mf P/E premium to the

market, which is not

unimaginable

14 M

arc

h 2

01

3

Un

ivers

al R

ob

ina C

orp

.

(UR

C.P

S / U

RC

PM

) 3

6

Figure 64: URC – DCF model

(mn Ps) Steady State . . . CAGR

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2032 2033

Revenue 83,877 94,712 106,289 121,465 128,752 136,478 144,666 149,006 153,476 158,081 162,823 212,447 218,821

EBITDA 13,199 16,063 18,710 23,008 24,463 25,931 27,487 26,821 27,626 28,455 29,308 38,241 39,388 3.7%

EBITDA Margin 15.7% 17.0% 17.6% 18.9% 19.0% 19.0% 19.0% 18.0% 18.0% 18.0% 18.0% 18.0% 18.0%

EBIT 9,377 11,785 13,920 17,641 19,568 21,021 22,565 22,168 23,204 24,232 25,257 34,970 36,155

EBIT Margin 11.2% 12.4% 13.1% 14.5% 15.2% 15.4% 15.6% 14.9% 15.1% 15.3% 15.5% 16.5% 16.5%

Less: Adjusted Taxes (938) (1,178) (1,392) (1,764) (2,348) (2,523) (2,708) (2,660) (2,785) (2,908) (3,031) (4,196) (4,339)

NOPLAT 8,440 10,606 12,528 15,877 17,220 18,499 19,857 19,508 20,420 21,324 22,226 . . . 30,774 31,816 4.5%

Working Capital (1,378) (801) (761) (1,382) (500) (500) (500) 0 0 0 0 0 0

Depreciation 3,822 4,278 4,791 5,367 4,895 4,909 4,922 4,653 4,422 4,223 4,051 3,271 3,233

Capex (6,150) (6,150) (7,000) (6,000) (5,000) (5,000) (5,000) (3,000) (3,000) (3,000) (3,000) (3,000) (3,000)

FCF 4,733 7,933 9,558 13,862 16,615 17,908 19,279 21,161 21,841 22,547 23,277 . . . 31,044 32,049 6.6%

Revenue Growth 6.0% Revenue Growth 3.0%

EBITDA Margin 19.0% EBITDA Margin 18.0% PV of Cash Flows 187,017

Depreciation Rate 14.0% Depreciation Rate 14.0% PV of Terminal Value 95,564

Capex (5,000) Capex (3,000) Net Cash/(Net Debt) 6,947

Working Capital (500) Working Capital 0

Tax Rate 12.0% Tax Rate 12.0% Equity Value 289,529

Shares O/S 2,097

Cost of Equity Growth 2.0%

LT Equity Weight 80% WACC-g 6.6% Equity Value per Share 138.10

Risk Free Rate 4.5% Terminal Value 491,728

Equity Risk Premium 5.0% Implied EBITDA Multiple 12.2x

Beta 1.02

Cost of Equity 9.6%

Cost of Debt

LT Debt Weight 20.0%

Cost of Debt 5.5%

Tax Rate 12.0%

After-tax Cost of Debt 4.8%

Weighted Average Cost of Capital (WACC) 8.6%

Weighted Average Cost of Capital Terminal Value

1 Year Forward DCF

Forecast Stage 1

Stage 1 Steady State


14 March 2013



Investment risks The company’s business involves a number of risks, some of which are listed below:

Macroeconomic risks

As 78% of URC’s revenues come from Philippines, its business is significantly influenced

by the economic, political and social environment in the country. Our model assumes that

domestic private consumption in the Philippines will grow at 9% p.a. for the next two years,

while CPI inflation will increase at 3-4% per year. Any adverse change in Philippines’

economic condition would affect consumer sentiment, purchasing power and spending

patterns and have a negative impact on consumer demand for URC’s products and lead to

downside risks in our revenue and earnings estimates.

Commodity price risks

URC’s production operations depend upon obtaining adequate supplies of raw materials

on a timely basis. Moreover, its profitability depends on the prices of raw materials as they

affect both input costs and selling prices. Its Branded Consumer Food business depends

on raw materials such as corn, flour, sugar, cocoa, coffee, potatoes and PET resin.

Earnings in the Agro-Industrial Group are driven by hog, broiler, corn and soy prices.

Lastly, earnings in the Commodity Foods Group are driven heavily by flour and sugar

prices. Any significant fluctuation of such materials may result in a corresponding

fluctuation in our earnings estimates, leading to both upside and downside risks.

Foreign currency exchange risks

The Company has significant foreign currency exchange risks as 22% of its revenues are

from abroad (primarily Vietnam and Thailand) and major raw materials such as soy,

wheat, tapioca and breeding stocks are imported from countries and regions such as

China, North America and Europe. As URC’s reporting currency is the Philippines Peso,

any significant change in the USD, EUR, RMB, VND or THB is likely to change the

company’s cost and revenue structures, leading to both upside and downside risks to our

earnings estimates.

14 March 2013



Companies Mentioned (Price as of 13-Mar-2013)

Charoen Pokphand Foods Public (CPF.BK, Bt34.25) China Mengniu Dairy (2319.HK, HK$21.45) Dabur India (DABU.BO, Rs134.05) Emami Ltd (EMAM.BO, Rs596.35) Godrej Consumer Products Ltd (GOCP.BO, Rs769.2) Hite Jinro (000080.KS, W34,000) Indofood CBP (ICBP.JK, Rp8,950) Jollibee (JFC.PS, P124.0) LOTTE CONFEC (004990.KS, W1,796,000) Luzhou Laojiao (000568.SZ, Rmb30.74) Marico Ltd (MRCO.BO, Rs216.7) Moutai (600519.SS, Rmb183.83) Nippon Indosari (ROTI.JK, Rp6,800) Nongshim (004370.KS, W287,500) Orion KR (001800.KS, W1,090,000) Puregold Price Club, Inc (PGOLD.PS, P39.5) Shanxi Xinghuacun Fen Wine (600809.SS, Rmb41.33) Super Group Sg (SPGP.SI, S$3.8) Tenfu (6868.HK, HK$4.38) Thai Union Frozen Products PCL (TUF.BK, Bt64.75) Tingyi (0322.HK, HK$21.05) Uni-President Enterprises (1216.TW, NT$59.6) United Spirits Ltd. (UNSP.BO, Rs1958.8) Universal Robina Corp. (URC.PS, P97.5, OUTPERFORM, TP P130.0) Want Want China Holdings Ltd. (0151.HK, HK$11.48) Wuliangye (000858.SZ, Rmb24.34)

Disclosure Appendix

Important Global Disclosures

I, Karim P. Salamatian, CFA, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities

As of December 10, 2012 Analysts’ stock rating are defined as follows:

Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark*over the next 12 months.

Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months.

Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months.

*Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as E uropean ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and non -Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; Australia, New Zealand are, and prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, 12-month rolling yield is incorporated in the absolute total return calculation and a 15% and a 7.5% threshold replace the 10-15% level in the Outperform and Underperform stock rating definitions, respect ively. The 15% and 7.5% thresholds replace the +10-15% and -10-15% levels in the Neutral stock rating definition, respectively. Prior to 10th December 2012, Japanese ratings were based on a stock’s total return relative to the average total return of the relevant country or regional benchmark.

Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances.

Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.

Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation:

Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months.

Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months.

Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months.

*An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors.

14 March 2013



Credit Suisse's distribution of stock ratings (and banking clients) is:

Global Ratings Distribution

Rating Versus universe (%) Of which banking clients (%)

Outperform/Buy* 43% (54% banking clients)

Neutral/Hold* 38% (47% banking clients)

Underperform/Sell* 16% (40% banking clients)

Restricted 3%

*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, an d Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis . (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors.

Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein.

Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research and analytics/disclaimer/managing_conflicts_disclaimer.html

Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties.

Price Target: (12 months) for Universal Robina Corp. (URC.PS)

Method: Our target price of P130 for Universal Robina Corp. (URC) is derived by applying a 27x multiple to our FY14 EPS (earnings per share) forecast of P4.87.

Risk: Risks that may impede our P130 target price for Universal Robina Corp. include: fluctuations in commodity prices which drive both selling prices and input prices, and domestic and international revenue growth surprising on the downside; macroeconomic risks, as 78% or its revenues come from the Philippines; and foreign currency exchange risks, as major raw materials are imported.

Please refer to the firm's disclosure website at www.credit-suisse.com/researchdisclosures for the definitions of abbreviations typically used in the target price method and risk sections.

See the Companies Mentioned section for full company names

The subject company (URC.PS, 0322.HK, 1216.TW, 000080.KS, TUF.BK, ICBP.JK, UNSP.BO, DABU.BO, EMAM.BO, 000568.SZ, 6868.HK) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse.

Credit Suisse provided investment banking services to the subject company (URC.PS, 1216.TW, ICBP.JK, 000568.SZ, 6868.HK) within the past 12 months.

Credit Suisse has managed or co-managed a public offering of securities for the subject company (URC.PS, 1216.TW) within the past 12 months.

Credit Suisse has received investment banking related compensation from the subject company (URC.PS, 1216.TW, ICBP.JK, 000568.SZ, 6868.HK) within the past 12 months

Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (URC.PS, 0151.HK, 0322.HK, 1216.TW, 000080.KS, 004370.KS, TUF.BK, ICBP.JK, UNSP.BO, DABU.BO, EMAM.BO, 000568.SZ, 2319.HK, 6868.HK) within the next 3 months.

As of the end of the preceding month, Credit Suisse beneficially own 1% or more of a class of common equity securities of (UNSP.BO).

Important Regional Disclosures

Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report.

The analyst(s) involved in the preparation of this report have not visited the material operations of the subject company (URC.PS, 0151.HK, 0322.HK, 1216.TW, 000080.KS, 004370.KS, CPF.BK, TUF.BK, ICBP.JK, GOCP.BO, UNSP.BO, DABU.BO, MRCO.BO, EMAM.BO, PGOLD.PS, 000858.SZ, 000568.SZ, 2319.HK, 600519.SS, 600809.SS) within the past 12 months

Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares.

Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report.

For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit http://www.csfb.com/legal_terms/canada_research_policy.shtml.

As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report.

14 March 2013



Principal is not guaranteed in the case of equities because equity prices are variable.

Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that.

For Thai listed companies mentioned in this report, the independent 2012 Corporate Governance Report survey results published by the Thai Institute of Directors Association are being disclosed pursuant to the policy of the Office of the Securities and Exchange Commission: Charoen Pokphand Foods Public (Very Good) , Thai Union Frozen Products PCL (Very Good)

To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.

Credit Suisse (Hong Kong) Limited ...................................................................................................... Karim P. Salamatian, CFA ; Rebecca Kwee

Important MSCI Disclosures

The MSCI sourced information is the exclusive property of Morgan Stanley Capital International Inc. (MSCI). Without prior written permission of MSCI, this information and any other MSCI intellectual property may not be reproduced, re-disseminated or used to create and financial products, including any indices. This information is provided on an "as is" basis. The user assumes the entire risk of any use made of this information. MSCI, its affiliates and any third party involved in, or related to, computing or compiling the information hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any of this information. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any third party involved in, or related to, computing or compiling the information have any liability for any damages of any kind. MSCI, Morgan Stanley Capital International and the MSCI indexes are services marks of MSCI and its affiliates.

The Global Industry Classification Standard (GICS) was developed by and is the exclusive property of Morgan Stanley Capital International Inc. and Standard & Poor’s. GICS is a service mark of MSCI and S&P and has been licensed for use by Credit Suisse.

For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at www.credit-suisse.com/researchdisclosures or call +1 (877) 291-2683.

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References in this report to Credit Suisse include all of the subsidiaries and affiliates of Credit Suisse operating under its investment banking division. For more information on our structure, please use the following link: https://www.credit-suisse.com/who_we_are/en/.This report may contain material that is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would subject Credit Suisse AG or its affiliates ("CS") to any registration or licensing requirement within such jurisdiction. All material presented in this report, unless specifically indicated otherwise, is under copyright to CS. 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The investments and services contained or referred to in this report may not be suitable for you and it is recommended that you consult an independent investment advisor if you are in doubt about such investments or investment services. Nothing in this report constitutes investment, legal, accounting or tax advice, or a representation that any investment or strategy is suitable or appropriate to your individual circumstances, or otherwise constitutes a personal recommendation to you. CS does not advise on the tax consequences of investments and you are advised to contact an independent tax adviser. Please note in particular that the bases and levels of taxation may change. Information and opinions presented in this report have been obtained or derived from sources believed by CS to be reliable, but CS makes no representation as to their accuracy or completeness. 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