Our DC- value stands at ARM. 20/share (WAC: 8. 9%). YES is a dominant F&B company, with -80% of revenue coming from beverages marketed predominantly under its iconic Yes’s brand, and the balance 20% from food products. It commands a market leadership of 38% in Malaysia and Singapore, and growing market share in Indonesia. Its key strengths lie in its higher concentration in mid-sized point of sales for better pricing power, where terms of sales are less demanding. Distribution coverage is a strong 90% of target market.
We forecast earnings to row by 28% from Airmail in FYI to Airmail, and rising by a robust 24% to Airmail in FYI, before reaching Airmail in FYI (3-year PEPS CARR: 24%). Having re-aligned its operations to leverage on its popular Asian still drinks (SAD), YES has put in place a solid strategy to accelerate growth and market share. Expansion is already underway in Malaysia where it plans to ramp up annual capacity – we estimate a 20%-30% boost to -200 million liters. Yes’s new PET production lines are expected to spearhead market share growth from first- mover advantages in pushing out a broader range of SAD.
Currently, SAD in PET is limited to few database variants. Upon completion in mid-FYI IF, YES will be able to tap into the undeserved PET sub-segment. YES is setting up a new SAD production plant in Indonesia, possibly by end-FYI. This would shorten supply chain time and cut logistic costs, while also demonstrating its commitment to this potentially huge consumer market. It has only launched five grass jelly-based SKU thus far, but the response has been overwhelming with volume growth of 20% in FYI 1. It has a portfolio of >10 SKU.
Balance sheet is solid with zero rowing and cash of Airmail (Essen/share) as at SPIFFY. Assuming FYI-OFF cape of Airmail is partly financed by debt, net gearing is still manageable at Our DIPS forecast with a 3%-4% yield p. A. Is premised on a dividend payout ratio of 50%- close to its historical payout of 55%. Valuation is attractive, at a 16% discount to peers’ average of xx and a wider 35% to closest competitor Fraser & Nave Bad (FAN Ms Equity, Hold). As it is, YES is trading at a discount to Colander Holdings (COLA Ms Equity, Buy), despite the formers larger market capitalization and higher PEPS growth.
Catalysts for re-rating and upside potential include:- 1) synergistic M within core industry and; 2) unlocking of value through divestment/development of untilled landmark. YES is very under- owned by the institutional funds (10 SSW. New PET lines a strategic first mover advantages Having re-aligned its operations to leverage on its popular SAD, YES has put in place a solid strategy to accelerate growth and market share. Expansion is already underway in Malaysia where it plans to ramp up annual capacity – we estimate a 200% boost to circa 200 million liliters
More importantly, VHPHs’sew PET production lines in Shah AlLamlant are expected to spearhead market share growth arising from a first-mover advantage in pushing out a broader range of ASSADCurrently, ASSADn PET is limited to few tea-based variants. Earnings from Indonesia more than tripled in FYI 1 on back of 20% sales volume growth The group recorded a 20% YOYOUales volume surge in FYI 1. In the same year, turnover from Indonesia more than tripled from RMAirmailn the preceding year to RMAirmailConsequently, earnings from Indonesia returned to the black with a pre-tax profit of RMI mil.
ASSADn PET format is an unundeservedarket Upon completion in mid-FYFYIthis plant will enable YHYESo tap into the unundeservedET sub-segment. Needless to say, one of the greatest benefits of PET bottles is the screw cap design which allows consumption at consumers’ discretion. In other Asian markets such as Taiwan and Hong Kong where demand for ASSADorms the bulk of the beverage industry, the apparent trend is ASSADackaging in PET bottles. Setback in 2009 due to cancellation of product lilicensesHYESas been growing its presence in Indonesia since as early as 2006.
It exports finished goods from its Malaysian plant at present. In 2009, the group suffered setback when 15 out of its 31 registered product lilicensesere cancelled by InIndonesianood and medicine authority (BPBOOMdue to compliance issues. AmMarchersdSadhBad YeYeiHipeSeenM) BhBadisputed legal suit ruled in fafavorfoffishccording to management, the cancellation arose as a consequence of a legal suit brought by PTOPThCharismanAntiePersuadeKIP) against the group’s wholly-owned subsidiary YHYESndonesia. KIP is a distributor ofpayoff’sroducts in Indonesia.
As at IQSPIFFYthe legal suit in relation to an alleged breach of an alleged agreement and an alleged distributor’s agreement has since been ruled in fafavorf YHYESTABLE 1 : TOP SELLING ASSADLFLAVORY COUNTRY (YHYESCountry Malaysia Source: Company website, AmMarchersxtensive range of ASSADeverages – 5 different categories The group offers five different categories of ASSADeverages – soSoyatea, cooling, JuJustasnd SoCherisho cater to the diverse consumer preferences (See Chart 6). Product range is extensive. For example, YHYes’sriginal soSoyaean milk is available n different flflavors corn, rose and black sesame. ‘CiCantinanoodles to underscore growth under food division Beverage businesses aside, YHYESlso produces food products namely noodles, canned food and sauces (See Chart 7).
Despite razor-thin margins and a highly competitive business environment for noodle food segment, the group had built a strong brand equity through the ‘CiCantinalabel. CiCantinarand commands a market share of approximately 13% in the instant noodle soup-base category in Malaysia. YHYes’sanned food comprises a selection of meat, seafood and vegetable products such as curry chicken and baked beans. Its sauces manufacturing arm is principally involved in production of soSoyaauce, tatuckchchilltomato and vinegar.
Soya bean milk – the preferred choice by consumers in Malaysia Soya bean milk is also the most popular flflavorn Malaysia, while chrysanthemum is the preferred choice in Singapore. Over in Indonesia, grass jelly holds the top spot, although we expect other flflavorsn the pipeline to perform equally well once they are launched (See Table 1). 4 FIFINANCIAL RISKS Robust 3-year earnings CACARRf 24% We forecast earnings to grow by 28% from RMAirmailn FYI 1 to RMAirmailafter djadjustingor seasonal factors due to festive sales in IQSPIFFYFirst quarter earnings are historically the strongest, accounting for 25%-30% of fuflayerarnings.
The group posted a net profit of RMAirmailor IQ. Our earnings forecast model reveals a 3-year earnings CACARRf 24%, underpinned by an expanded production capacity assumption. We expect the current ututilizationate of circa 78%-80% to dip once new PET lines come on board. To be conservative, we have only factored in slight margin improvement of 1 to 2ppotsrom operational efficiencies. The group is on track to conclude its rarationalizationxercise from plants to 3 by end-FYI 2KKo far, it has closed its manufacturing facility in KuSuckingSaKarakasnd is in the midst of consolidating its PeFettlingaJaylant into Shah AlLam
