consumer sector 121210 oir

8/12/2019 Consumer Sector 121210 OIR

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NEUTRAL

(maintain)

Analysts

Lim Siyi (Lead) +65 6531 9824

[email protected]

Andy Wong +65 6531 9817

[email protected]

Relative total return 1m 3m 12m

Sector (%) 2 1 3

STI-adjusted (%) -1 -2 -13

Price performance chart

726

790

855

919

984

1048

Dec-11 Mar -12 Jun-12 Sep-12

2300

2540

2780

3020

3260

3500

FST CS FSST I

Sector Index Level Mar ket Index Level

`

Sources: Bloomberg, OIR estimates

Stock coverage ratings

BBRG Ticker PriceFair

ValueRating

SSG SP Equity 0.52 0.55 BUY

VIZ SP Equity 0.71 0.74 BUY

PETRA SP Equity 2.87 3.12 BUY

BREAD SP Equity 0.65 0.49 SELL

Bright start; quiet fizzle

The FTSE ST Consumer Services Index (FSTCS Index) started 2012 on

a bright note before succumbing to global economic concerns (along

with the Straits Times Index) in Apr. Although there was a subsequent

rally fueled in part by a spate of M&A activity on consumer-related

counters it failed to gather sufficient momentum and the FSTCS

Index could potentially finish in negative territory for the second

consecutive year.

Exposure to EM Asia consumer demand a winning strategy

While the broad sector index produced sputtering results, an

investment strategy focused on riding the wave of emerging Asia

consumer demand fared extremely well in 2012. Consumer-related

counters with exposure to emerging markets such as Indonesia, the

Philippines and Myanmar experienced sustained appreciation in their

stock price throughout the year. With a tepid economic outlook fordeveloped markets in 2013, EM Asia presents the best avenue for

consumer-related growth and we advocate a similar strategy of

selecting counters with such exposure in the coming year.

Favour regional exposure over domestic

Given the dynamics of Singapores economy, it remains vulnerable to

lingering global economic concerns. In addition, its resident population

lacks the size and ability to become a supportive factor for growth.

Therefore, we continue to favour the growing domestic consumption

of its regional peers. Our preferences within the region are Indonesia,

the Philippines, Thailand and Myanmar. The extension of cheap credit

and government spending on infrastructure projects and social

initiatives has produced results in these countries, and 2013 will

feature more of the same. In addition, armed with the comparatively

healthier balance sheets, these EM nations have the flexibility to

adopt more accommodative monetary policies, if needed, to support

such initiatives.

Recommendation: EM Asia consumer + defensive

Historically, the FSTCS Index has mostly trailed the Straits Times

Index in performance. Entering 2013, we expect that this trend will

continue and, as such, we maintain our NEUTRALoutlook on the

consumer sector. For EM Asia consumer exposure, our top picks are

Petra Foods[BUY; FV: S$3.12] and Viz Branz[BUY; FV:

S$0.74]. We also advocate a defensive allocation into Sheng Siong

Group[BUY; FV: S$0.55] for its resilience against economic

downturns and attractive dividend yield.

FAVOUR EM ALLOCATION Broad sector does not outperform

But exposure to EM Asia consumption

pays off

Maintain allocation; add defensive

CONSUMER SECTOR | NEUTRAL10 Dec 2012

Sector Update

Asia Pacific Equity ResearchSingapore | ConsumerSector

MICA(P)041/06/2012Please refer to important disclosures at the back of this document.


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OCBC Investment ResearchSingapore Equities

2

Table of Contents

Section A: 2012 in review 3

Section B: 2013 Outlook 8

Regional Viewsi. ASEAN-5 11ii. Myanmar 18iii. China 20

Section C: Recommendation & Sector Picks 22

Section D: Company Reports

i. Sheng Siong Group 24ii. Viz Branz 26iii. Petra Foods 28iv. BreadTalk Group 30

Section E: Disclaimer 32


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3

Section A: 2012 in review

Bright start; quiet fizzle2012 got off to a bright start for the FTSE ST Consumer Services Index(FSTCS Index) but the rallys momentum began fizzling out in May.Although a spate of M&A activity later in the year revitalised the sector,the consumer services index failed to return to its earlier heights and hassince retraced downwards. If investor sentiment deteriorates further onUS fiscal cliff concerns, the FSTCS Index could end the year in negative

territory for the second consecutive year (YTD: FSTCS Index +1.5%versus +17.4% for the Straits Times Index).

Exhibit 1: 2012 Index performance (Rebased = 100)

95

100

105

110

115

120

Dec-11

Jan-

12

Feb-

12

Mar

-12

Apr-1

2

May

-12

Jun-

12

Jul-1

2

Aug-

12

Sep-

12

Oct-

12

Nov-

12

FSTCS STI

Source: Bloomberg, OIR

Despite the sputtering performance of the consumer services index,companies exposed to consumer demand in emerging Asia marketsproved to be the outperformers within the sector. Encouraged by the

increasing promotion of domestic consumption within these markets andthe political progress in countries such as Myanmar, investors rushed toobtain exposure to these markets through counters such as SuperGroup[Non-rated], Food Empire[Non-rated] and Petra Foods

[BUY; FV: S$3.12].

Exhibit 2: 2012 selected performance (Rebased = 100)

0

100

200

300

FSTCS SUPER VIZ FEH

PETRA SSG THBEV


Rising costs in focus

At the company level, revenue growth for consumer-related firms wastepid, which is hardly surprising, given the uncertain macro-environment.

These companies also faced additional challenges from rising operatingexpenses particularly labour costs which increased pressures onoperating margins.


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4

The impact of recent government policies to reduce Singaporesdependence on foreign labour (by charging higher foreign-worker leviesand restricting employment numbers) was compounded by risinginflation (CPI +3.4% in 2012) and a tight labour market (unemploymentrate 1.9%1), resulting in a manpower shortage and higher wage costs. Asurvey by DP Information Group found that more than seven in ten smalland medium enterprises (SMEs) reported rising manpower costs as themain reason affecting their profitability2.

although cost management was effectiveDespite rising operating costs, consumer-related companies stillmanaged a respectable performance. Through a mix of cost-controlmeasures managing inventory more effectively, purchasing rawmaterials in bulk, and altering pay structures to make them morevariable the companies were able to reduce cost pressures, and insome cases even improve margins.

Retail sales soft but improving

Overall retail sales volume excluding the heavily weighted motorvehicle component rose 1.4% MoM in Sep (+3.9% YoY) to add to theprevious months marginal gains of 0.6% MoM (+2.8% YoY). Similarly,the value of retail sales (ex. Motor vehicles) for Sep rose 0.7% MoM

(+3.3% YoY), compared to a gain of 0.3% MoM in Aug (+2.3% YoY).Sales volume for telecommunication apparatus and computers providedthe strongest support with a 19.3% MoM gain while other segments suchas department store and supermarket sales volumes remained resilientwith MoM gains of 0.4% and 1.1%, respectively.

*Motor vehicles were excluded from our analysis due to the distortion

effect of the COE auction process on automobile sales, and invariably,

overall retail sales.

Exhibit 3a: Retail sales value (% change MoM) & selected categories

-20.0

-10.0

0.0

10.0

20.0

Jan

12/D

ec11

Feb

12/J

an12

Mar

12/F

eb12

Apr

12/M

ar12

May

12/

Apr1

2

Ju

n12

/May

12

Jul

12/

Jun

12

A

ug12/

Jul1

2

Se

p12

/Aug

12

-5.0

0.0

5.0

Department stores Supermarkets Motor vehicles

Watches & jew ellery Telecommunications apparatus & computers Medical goods & toiletries

Total w/o MV (RHS)

Sources: Department of Statistics Singapore, OIR

1Seasonally adjusted overall unemployment rate, Sep 2012, Ministry of Manpower2SMEs Embrace Productivity to Counter Rising Costs, DP Information Group, 26 Nov 2012,


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5

Exhibit 3b: Retail sales volume (% change MoM) & selected categories

-20.0

-10.0

0.0

10.0

20.0

30.0

Jan 12/ Dec 11 Feb 12/ Jan 12 Mar 12/ Feb 12 Apr 12/ Mar 12 May 12/ Apr 12 Jun 12/ May 12 Jul 12/ Jun 12 Aug 12/ Jul 12 Sep 12/ Aug 12

-5.0

0.0

5.0

Department stores Supermarkets Motor vehicles

Watches & jew ellery Telecommunications apparatus & computers Medical goods & toiletries

Total w/o MV (RHS)


Trend perking upThe decent Sep retail sales figures have somewhat halted the downwardtrend exhibited in both the MoM and YoY figures. Although retail sales for3QCY2012 still remain soft given the small improvement in MoM figures,the pace of MoM declines for segments that are more sensitive toeconomic conditions have slowed since May (which, coincidentally, wasthe worst performing month for the year). While retail sales for big-ticketitems such as watches and jewellery remain affected by the uncertaineconomic outlook, retail sales in other segments such as departmentstore spending, wearing apparel and footwear are recovering slowly andcould receive a boost in the seasonally stronger 4QCY2012.

But challenges to F&B services remain

Despite deriving some positives from the 3QCY2012 retail sales figures,the outlook for the Food & Beverage (F&B) services sector is less obvious.Sales volume and value both fell MoM in Sep 2012, by 0.8% and 1.1%,respectively, reversing marginal improvements recorded in Aug. Inparticular, the restaurant segment remains weak after a third straightmonth of declines in both sales volume and value while fast food outletsand other eating places continue to exhibit mixed signals. Thisdisconnect between the outlook for overall retail sales and F&B servicesseem to come from a trade-off in discretionary consumer spending, i.e.purchasing versus eating out. In our view, as the economic environmentis still uncertain, consumers may not have the luxury of doing bothactivities, and have to allocate their resources accordingly whilstmaintaining some semblance of prudence.


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6

Exhibit 4a: F&B services value (% change MoM)

-10.0

-5.0

0.0

5.0

10.0


-5.0

0.0

5.0

10.0

Re staurants Fas t food outle ts Food catere rs Other eating places Total (RHS)


Exhibit 4b: F&B services volume (% change MoM)

-10.0

-5.0

0.0

5.0

10.0

15.0


-5.0

0.0

5.0

10.0

Res taurants Fas t food outlets Food cater ers Othe r eating places Total (RHS)



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7

Our sector coverage performanceWithin the sector, our coverage includes Sheng Siong Group[BUY; FV:S$0.55], Viz Branz[BUY; FV: S$0.74], BreadTalk Group[SELL; FV:S$0.49] and Petra Foods[BUY; FV: S$3.12].

Exhibit 5: YTD performance of coverage (Rebased = 100)

50

100

150

200

250

Dec-11

Feb-12

Apr-12

Jun-12

Aug-12 Oct-1

2

BREAD VIZ PETRA SSG


Sheng Siong stable

Given its defensive qualities a strong balance sheet and a naturalresilience to economic downturns as well as its commitment to pay out90% of its net profit as dividends, Sheng Siong Group proved to be themost stable in terms of equity performance. Its 9MFY12 operationalresults met our expectations and those of the street, so it was notsurprising to see resilient interest from investors throughout the year.

Viz Branz speculation beneficiaryOur top performer was Viz Branz, which was the subject of takeover

speculation for almost the entire year. A partial share sale to Lam Soonadded fuel to the fire and the counter hit all-time highs. On a YTD basis,the counter doubled in value, compared to the overall sectors flattishperformance.

Petra Foods EM Asia darlingAs mentioned earlier, investors rewarded counters with strong exposureto emerging Asia consumer demand. Petra was a deserved recipient ofthis interest, with its sizeable market share in Indonesia and thePhilippines.

BreadTalk slow to igniteStill in the midst of its expansion phase, the counter continued to

experience margin pressures. Without support from its profitablerestaurant segment, BreadTalk would have recorded some declines in itsoverall business. Despite our cautious stance and downgrade of thecounter, it managed to play catch-up at the end of the year to show amodest YTD appreciation.


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8

Section B: 2013 outlook

Singapore outlook

Insipid growth a repeat of 2012Similar to 2012s forecast, the Ministry of Trade and Industry (MTI) hasplaced Singapores 2013 growth in the 1-3% range (FY2012 growthexpected at 1.5%), citing persisting weaknesses in the global economy.Meanwhile, the International Monetary Fund (IMF) has cut its growth

outlook for most economies further in its most recent World EconomicOutlook. It now forecasts that advanced economies such as the UnitedStates and developed Eurozone countries (e.g. Germany, France) willexpand by just 1.5% in 2013, compared to its earlier projection of 1.8%growth3. The IMF also lowered its overall growth estimate for 2013 foremerging-market and developing economies to 5.6%, from 5.8%previously.

Exhibit 6: Selected IMF 2013 Projections

Year over Year (%)

ProjectionsDifference fromJul 2012 WEO

2010 2011 2012 2013 2012 2013

World Output 5.1 3.8 3.3 3.6 0.2 0.3

Advanced Economies 3 1.6 1.3 1.5 0.1 0.3

United States 2.4 1.8 2.2 2.1 0.1 0.1

Euro Area 2 1.4 0.4 0.2 0.1 0.5

EM Economies 7.4 6.2 5.3 5.6 0.3 0.2

China 10.4 9.2 7.8 8.2 0.2 0.2

India 10.1 6.8 4.9 6 1.3 0.6

ASEAN-5 7 4.5 5.4 5.8 0 0.3

Source: IMF World Economic Outlook Oct 2012

ASEAN-5 includes Indonesia, the Philippines, Thailand, Vietnam and Malaysia

Given that the macro-economic uncertainty has not dissipated and that

the global economy is expected to maintain its sluggish pace of recovery,there seems to be little cheer in store for the coming year.

Tourism loses its appealIn its outlook, the MTI has highlighted transport engineering and theconstruction sector as potential support pillars for the economy in 2013.Surprisingly, tourism which was included in the previous years outlook has been omitted from mention. Although international arrivals and

tourism receipts have grown YoY (according to the latest available1H2012 figures from the Singapore Tourism Board), we suspect concernsover a possible slowdown in the coming months could have weighed onthe overall projections. For instance, 2Q2012 saw a 5.2% QoQ decline inoverall tourism receipts to S$5.5b, partly due to a 19.7% QoQ (-7% YoY)

decline in sightseeing and entertainment (including gaming) receipts toS$1.19b. In fact, other than expenditure on items such as airfares,transportation, medical and education, all the main tourism components(i.e. shopping, accommodation, and F&B) also saw QoQ declines inexpenditure.

3IMF, World Economic Outlook October 2012, Page 2


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9

Exhibit 7: QoQ declines in SG tourism expenditure

0

500

1,000

1,500

S h o p p i n g A c c o mmo d a t i o n F o o d & B e v e r ag e S i g h t s e e i n g &

E n t e r t a i n m e n t

( i n c l u d i n g G a m i n g )

O t h e r T R

C o m p o n e n t s

(S$m)

2Q12 1Q12

Source: STBOther TR components include expenditure on airfares, port taxes, local transportation, business,medical, education and transit visitors.

We believe that this decline in tourism expenditure can be attributed inpart to the decreasing appeal of Singapores two Integrated Resorts(IRs), which have seen revenue taper off since the initial euphoria whenthey opened, as the global situation remains lethargic. For instance,Genting Singapore saw 3Q12 revenue fall 34% YoY, with the majority of

the slide due to a reduction in gaming revenue. Therefore, we reverseour previous view that the IRs would prove to be supportive andacknowledge that further, significant drop-offs are possible if theeconomic downturn worsens and becomes detrimental to travelsentiment.

But employment remains tightThe employment situation in Singapore remains tight with

unemployment currently at 1.9% (as at Sep 2012). This is a continuedimprovement from the recent high of 3% in 2009. The tight labourmarket has pushed up wages in Singapore (even after factoring ininflation).

Exhibit 8a: Qtrly avg wages since 1995 Exhibit 8b: % Change in total wages

2,000

3,000

4,000

5,000

1Q95

3Q97

1Q00

3Q02

1Q05

3Q07

1Q10

3Q12

S$

-2

0

2

4

6

8

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Source: Department of Statistics Singapore Source: Ministry of Manpower

Historically, average monthly earnings tend to spike in the first and lastquarters of the year due to the pay-out of year-end/annual bonuses and taper off slightly in the middle two quarters. Fortunately, even withthe lukewarm macro-economic environment, there has not been a wage

decline similar to that seen during the 2001/02 dot-com bust or the 2009financial crisis. We are optimistic that the stability in wages will translateinto greater domestic consumption.


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10

Alterations to cost structureAs mentioned earlier, restrictions on foreign labour and rising wagepressures have increased the burden of operating expenses oncompanies. This downward pressure should persist into 2013, and withrevenue growth likely to be challenging, consumer-related companies willhave to reinforce cost-cutting initiatives and continue to tighten spendingto help sustain bottom-line growth.

Slowly improving retail sales

As mentioned earlier, we see retail sales in Singapore slowly improvingdespite still-soft figures. We remain optimistic that with highemployment and wage stability retail spending will continue to pick upand ultimately spur growth within the services producing industries inSingapore. We maintain our previous assertion that retail sales will notdeteriorate to the low of 2009, and we are projecting mid to high single-digit YoY increases in spending for 2013.


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11

Regional views

i. ASEAN 5

Exhibit 9a: IMF 2013 Projections

Year over Year (%)

Projections

2010 2011 2012 2013

ASEAN-5 7 4.5 5.4 5.8

China 10.4 9.2 7.8 8.2

India 10.1 6.8 4.9 6

Indonesia 6.2 6.5 6 6.3

Philippines 7.6 3.9 4.8 4.8

Malaysia 7.2 5.1 4.4 4.7

Vietnam 6.8 5.9 5.1 5.9

Thailand 7.8 0.1 5.6 6

Myanmar 5.3 5.5 6.5 6.3

Singapore 14.8 4.9 2.1 2.9

Source: IMF World Economic Outlook Oct 2012

The lessons learnt from the Asian Financial Crisis back in the late 1990shave taught Asian economies the importance of maintaining balanced

budgets and shoring up their balance sheets. This fiscal prudence hasresulted in a healthy position where the respective Central Banks canexercise accommodative monetary policies in an effort to stimulate theeconomy at times of stress.

Given the weakness and slowdown in exports, we see more EMeconomies extending cheap credit or spending directly on infrastructure

projects and social initiatives such as building schools to provide jobs andto improve their citizens well-being. By encouraging domestic activity,the respective governments enrich their citizens via new jobs andincreases in discretionary income.

Exhibit 9b: Asian equity index performance (Rebased = 100)

80

100

120

140

Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12

PCOMP JCI STI KLCISET SHCOMP VN



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12

Indonesia stellar growth to continueWith a burgeoning middle class and growing GDP per capita, Indonesiastands out as a giant within the ASEAN 5. The country has emergedpretty much unscathed from the macro-economic uncertainty, and ourprevious forecast of sustained consumption growth in 2012 has beenproven correct.

The IMF has projected that Indonesias economy will expand by over 6%this year (faster than other Asean countries such as Malaysia andThailand at ~5% each)4, aided by infrastructure spending and increases

in minimum wages. With domestic demand resilient, the economy isprojected to grow a further 6.3% in 2013. The base beneficiaries of thissustained level of spending will be consumer staples-related companies,followed by those in the discretionary spending category. Some of these

beneficiaries include automobiles, where sales have touched recordlevels, and modern retail such as personal care, telecommunications andelectronics.

Exhibit 11: % of average income per capita on non-food expenditure

30

40

50

60

1999 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

(%)

Source: Badan Pusat Statistik (Central Bureau of Statistics Indonesia)


Exhibit 10: Growth in minimum wage (IDR 000s)

400

600

800

1,000

1,200

2004 2005 2006 2007 2008 2009 2010 2011 2012Source: CEIC, OIR


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13

In addition, Indonesias insulation from global woes has also led to anincrease of foreign direct investment (FDI) into the country, which willfurther support the growth outlook for 2013 and beyond. For instance, in1H2012, FDI into Indonesia grew 30.3% on an annual basis to US$11.9b.We expect the government to continue its efforts to attract more FDI.Indonesia also has the worlds largest work force, and with its improvinginfrastructure, the countrys outlook is bright.

Exhibit 12: Quarterly foreign investments (US$m)

0

2,000

4,000

6,000

8,000

1Q05

3Q05

1Q06

3Q06

1Q07

3Q07

1Q08

3Q08

1Q09

3Q09

1Q10

3Q10

1Q11

3Q11

1Q12

3Q12

Source: CEIC, OIR

Philippines darling of South-East AsiaNo longer the sick man of Asia, the Philippines equity market has beenone of the top performing markets globally in 2012 (Philippines StockExchange PSEi Index +32.5% YTD). Its attractiveness has stemmedfrom an increase in government spending on infrastructure projects andsocial initiatives, as well as strong domestic demand. Coupled with animproving export situation (exports rose by more than 22% YoY in Sep

2012) and the elevation of its credit rating by Standard & Poors (to onelevel below investment grade), the Philippines has been able to attractmore FDI to supplement its growth.

Exhibit 13: Approved foreign direct investment (PHP'000s)

0

50,000

100,000

150,000

1Q96

2Q97

3Q98

4Q99

1Q01

2Q02

3Q03

4Q04

1Q06

2Q07

3Q08

4Q09

1Q11

2Q12

Source: CEIC, OIR


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14

Exhibit 14: Non-agricultural minimum daily wage (PHP)

250

300

350

400

Jan-94

Jan-96

Jan-98

Jan-00

Jan-02

Jan-04

Jan-06

Jan-08

Jan-10

Jan-12

0

150

300

450

600

Real (LHS) Nominal (RHS)

Source: CEIC, OIR

Confident of its ability to sustain growth factors moving into 2013, thegovernment recently set high growth targets for both 2013 and 2014 (6-7% for 2013 and 6.5-7.5% for 2014). It has set a record infrastructurebudget of more than US$9b in 2013 to be spent on major upgrades ofairports and access roads in order to maintain and attract a high level of

foreign investment. Strong remittances are also expected to continue,which will support domestic consumer spending.

Exhibit 15: Total income & expenditure (all income classes)

0

2,000

4,000

1991 1994 1997 2000 2003 2006 2009

(PHPb)

70.0%

80.0%

90.0%

Overall total Income (LHS)Overall total expenditure (LHS)% expenditure (RHS)

Source: CEIC, OIR


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15

Thailand environment remains conduciveThe success of the recovery and rebuilding process following thedevastating floods has accelerated Thailands growth in 2012. Its equitybarometer, the SET50 Index, is also one of the top performing equityindices in the world so far (+30.2% YTD).

Exhibit 16a: Average monthly wages Exhibit 16b: Value of total investments approved

6,000

8,000

10,000

12,000

Jan

-01

Jan

-02

Jan

-03

Jan

-04

Jan

-05

Jan

-06

Jan

-07

Jan

-08

Jan

-09

Jan

-10

Jan

-11

Jan

-12

(THB)

0

150,000

300,000

Jan

-94

Jan

-96

Jan

-98

Jan

-00

Jan

-02

Jan

-04

Jan

-06

Jan

-08

Jan

-10

Jan

-12

(THBm)

Source: CEIC, OIR Source: CEIC, OIR

Entering 2013, the outlook remains positive for Thailand. Its low interestrate environment should remain conducive for growth while businessconfidence in Thailand has also improved significantly in the past fewmonths. In addition, growing income prospects from increasing farmoutput (related to government subsidies) and higher wages (surveyshave projected higher salary increases in 2013 of ~6% versus 5.7% in2012) should translate into greater domestic consumption.

Exhibit 17: Overall business sentiment index

30

40

50

60

Jan-

08

May-

08

Sep-

08

Jan-

09

May-

09

Sep-

09

Jan-

10

May-

10

Sep-

10

Jan-

11

May-

11

Sep-

11

Jan-

12

May-

12

Sep-

12

Source: CEIC, OIR


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16

Malaysia lingering election concernsGrowth in Malaysia is expected to moderate to 4.4% in 2012 (from 5.1%in 2011) following anaemic global growth5. However, much of thesupport came from domestic-led growth, which helped to offset the drop-off from external-related sectors. In addition, increasing governmentinfrastructure spending and various growth initiatives (e.g. IskandarMalaysia in Johor) that are part of the Economic TransformationProgramme provided further investment impetus.

Exhibit 18: Average monthly household expenditure

0 500 1,000 1,500 2,000 2,500

1994

1999

2005

2010

(MYR)

Source: CEIC, OIR

Nonetheless, there are some jitters over the impending elections thathave to be called by April 2013. The pre-election posturing amongst thetwo main political alliances is likely to remain a distraction for now,although most market participants have priced in an outcome of noregime change.

Exhibit 19a: Unemployment rate (%) Exhibit 19b: Mean household income

2.50

3.00

3.50

4.00

4.50

Jan-09 Nov-09 Sep-10 Jul-11 May-12

0

1

2

3

4

5

1997 1999 2002 2004 2007 2009

(MYR'000s)

Source: CEIC, OIR Source: CEIC, OIR

Once the election cycle has ended and in all likelihood the BarisanNasional is returned to power we can expect private investment tocontinue and wage growth to persist on the back of greater job creation.



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17

Vietnam challenges aheadThe IMF-projected growth rate in 2012 of 5.1% is close to our estimatesat end-2011 of less than 6% growth4. However, compared to its regionalpeers, Vietnam continues to face a tougher set of issues. AlthoughVietnam has been successful so far in lowering its fiscal deficit, improvingits balance of payments and broadly stabilising its exchange rate throughits monetary policy, there remain key downsides high inflation, lowreserves and vulnerability to capital outflows. While demand for itsexports has been resilient, government policies remain the main risk for

its growth. Furthermore, if the government lowers interest rates tooquickly, it could unsettle the foreign exchange market.

Challenges notwithstanding, business confidence has still improvedsignificantly over the past six months. On the domestic front, retail salesand consumer spending are still on the uptrend while businesses arefactoring in double-digit salary growth in 2013. If this increase in wagesdoes materialise, we can expect to see a corresponding rise in consumerspending.


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18

ii. Myanmar

Gradual lifting of economic sanctionsSince embarking on major political and economic reformation in 2011,Myanmar has been embraced by the global community. The adoption ofoutward-looking policies has seen foreign participation in the economyincrease via private investments and assistance from supranationalagencies. The government has also proposed a five-year developmentplan to achieve a 7.7% annual GDP growth, a GDP per capita increase of

1.7x by 2015, and a shift away from agriculture towards the industrialsector as the main contributor to GDP. With the progress, economicsanctions put in place previously have started to unwind gradually.

Well-positioned between India and ChinaBordering both India and China, Myanmar will benefit greatly fromjostling between the two giants. The competition to include Myanmarwithin their respective spheres of influence will result in the offering offavourable investment packages and industrial expertise to develop itsvarious sectors and infrastructure. This increased importance on the geo-

political front will allow Myanmar to receive the support it needs as itaddresses sorely needed infrastructure requirements.

Exhibit 20a: Foreign Direct Investment (US$m) Exhibit 20b: Myanmar's borders

0

2,000

4,000

6,000

8,000

10,000

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Jan-

10

Jan-

11

Jan-

12

(US$m)

Source: CEIC, OIR Source: Google Maps

Untapped consumer marketOn a more pragmatic note, there is still a lot to be done before Myanmarcan achieve the growth targets it has set. In addition, the transition fromagriculture towards the industrial sector may take a while, given the

availability of other low-cost regions such as Bangladesh.


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19

Exhibit 21: Average monthly household expenditure

0

20,000

40,000

60,000

80,000

100,000

1989 1997 2001 2005 2006

(Kyat)

56%

60%

64%

68%

72%

76%

Hous ehold Expe nditure F&B Expe nditur e

% F&B/Expenditure (RHS)

Source: CEIC, OIR

Nonetheless, with a population of more than 60m, Myanmar offers animmense, untapped consumer market. Companies that already have anestablished presence in Myanmar have experienced encouraging growthand this trend will likely persist. Although official data is scarce,preliminary sources indicate a high proportion of F&B expenditure in

average monthly household spending. In addition, if Myanmar is able tosort out the repatriation of funds into the country in the near term,remittances from its sizeable overseas work force could help to fueldomestic consumption much like the Philippines.


20/32


20

iii. China

Higher growth in 2013

Given that Europe is Chinas largest trading partner, 2012 has been arelatively difficult period for China, although its economy started to turnhigher from the middle of the year. The initial growth forecasts of >8%have proved to be over-optimistic, due mainly to weakness in exportdemand, but 2012 growth is now expected to come in at around 7.8%,

supported by public investment in infrastructure projects.

Exhibit 22: China GDP growth

6

9

12

15

2005 2006 2007 2008 2009 2010 2011 2012E 2013E

(%)

Source: Bloomberg, IMF

While China has recently seen a leadership change, no significantchanges to its economic policies are expected. Goals set up in the 12thfive-year plan should continue unabated, and the transitioning towards adomestic consumption-driven growth model will remain the key aim.

That said, we expect China to maintain its prudent monetary policy(liquidity management with relatively unchanged interest rateenvironment) in concert with a supportive fiscal policy (via sustainedinfrastructure investment and wage gains). The IMF projects Chinas

2013 growth to come in at 8.2%6.

Exhibit 23: YoY % growth in retail sales

5

10

15

20

25

Jan-06 Oct-

06Jul-0

7Apr-

08Jan-

09 Oct-09

Jul-10

Apr-11

Jan-12 Oct-

12

(%)

Source: CEIC, OIR



21/32


21

Overcapacity issues balance out inflationary pressuresAlthough Chinas PMI expanded for the first time in 13 months apromising sign, especially given seasonal weaknesses much of theimprovement came on the back of increasing household spending.Industries such as steel and machinery are still plagued by overcapacityissues and excess inventory levels. While it will take some time beforethe overcapacity issues moderate, inflationary pressures should ease inthe meantime.

Exhibit 24: Monthly % change CPI

-4

0

4

8

12

Jan-06 Oct-

06Jul-0

7Apr-

08Jan-

09 Oct-09

Jul-10Apr-

11Jan-

12 Oct-12

(%C

hg)

Source: CEIC, OIR


22/32


22

Section C: Recommendation & Sector Picks

Exhibit 25: Historical STI & FSTCS Index performance (Rebased = 100)

40

90

140

Aug-9

9

Aug-0

0

Aug-0

1

Aug-0

2

Aug-0

3

Aug-0

4

Aug-0

5

Aug-0

6

Aug-0

7

Aug-0

8

Aug-0

9

Aug-1

0

Aug-1

1

Aug-1

2

FSTCS STI

Source: Bloomberg

Maintain NEUTRALHistorically, the FSTCS Index has mostly trailed the Straits Times Indexin performance. The consumer sector is also often overlooked in favourof the oil & gas or property sectors, which tend to consist of larger, more

stable corporations. Entering 2013, we expect that this trend willcontinue and, as such, we maintain our NEUTRALoutlook on theconsumer sector.

Favour regional exposure over domesticGiven the dynamics of Singapores economy, it remains vulnerable tolingering global economic concerns. In addition, its resident populationlacks the size and ability to become a supportive factor for growth.Therefore, we continue to favour the growing domestic consumption of

its regional peers. Our preferences within the region are Indonesia, thePhilippines, Thailand and Myanmar. The extension of cheap credit andgovernment spending on infrastructure projects and social initiatives hasproduced results in these countries, and 2013 will feature more of the

same. In addition, armed with the comparatively healthier balancesheets, these EM nations have the flexibility to adopt moreaccommodative monetary policies, if needed, to support such initiatives.

Therefore, for consumer counters with a diversified geographical revenuestream, we like Viz Branz [BUY; FV: S$0.74] and Petra Foods [BUY; FV:S$3.12]. We like Viz Branz for its exposure to high growth markets such

as China and Myanmar, and Petra Foods for its dominant market shareand position in Indonesia and the Philippines.

Within the domestic space, we favour Sheng Siong Group [BUY; FV:S$0.55] for its defensive qualities against economic downturns andunhindered top-line growth prospects. Armed with an attractive dividendpolicy, SSG provides investors with a stable return proposition as well.

Our least favoured pick remains BreadTalk Group [SELL; FV: S$0.49].As it is still in its expansion stage, the group continues to experiencemargin pressures and will not be able to reward investors with attractivedividends. While the counter will in time achieve its expansion targetof having China account for 50% of its top line, we believe that there are

more appealing investment choices available at the moment.


23/32


23

Coverage highlights

Sheng Siong Group: Strong growth ahead

We upgrade Sheng Siong Groups (SSG) FY13/14 revenue growth to10% (previously 5% and 3%, respectively) on the back of full-yearcontributions from the eight new stores opened in FY12. The absence offurther price competition amongst the Big 3 supermarket chains andlingering doubts over the macro-environment will also provide support

for this defensive counter. In addition, we anticipate a continuation ofthe 90% net profit dividend payout policy, which will further enhance itsattractiveness in FY13 and beyond. Maintain BUY at an unchanged fairvalue estimate of S$0.55.

Viz Branz: Another step forward

Viz Branzs (VB) former CEO has unreservedly withdrawn all his previousallegations of impropriety about a series of payments involving thecompany. We view this development as a positive event that coincides

with the possibility of a general offer (GO) by Lam Soon Cannery. Takentogether, the resolution of an outstanding family dispute and theabsence of a dividend declaration for FY12 suggest that preparations arebeing made for an impending offer. While the counter has fluctuated in

recent trading, we urge investors to keep the faith and reiterate ourstance that a GO will materialise. In addition, the investment case for VBremains sound with its strong fundamentals and FY13 growth projections.We maintain BUYwith an unchanged fair value estimate of S$0.74.

Petra Foods: Pickup in 2013

Since our initiation report on Petra Foods, the counter has appreciated by7.5% to continue on its amazing ascension in 2012 (YTD: +55%). Ourvaluation of Petra pegged at 24x 12-month forward PE is at a

premium to its global peers but the desire of investors to gain exposureto emerging Asia consumer demand clearly vindicates it. For 2013, weproject a modest top-line growth of 3.8%, mainly on the back of theBranded Consumer division, while we also anticipate marginimprovements from the 7.6% in FY11 to ~9% by FY13F. We remainsanguine over Petras growth prospects in the coming year, and in lightof Petras recent appreciation, we raise our multiple to 25x 12-monthforward PE (approaching one standard deviation above its six-yearaverage forward PE. This increases our fair value to S$3.12 from S$2.98previously. Maintain BUY.

BreadTalk Group: Take profit now

Despite experiencing a sharp fall in May this year, BreadTalk Groups(BTG) share price managed to recover gradually, and is now poised toend the year with a modest gain (YTD: +20.5%). While BTGs revenuegrew alongside store expansion, the performance came at the expense ofoperating margins. With this trend likely to persist into FY13 and theabsence of an offsetting, attractive dividend we see no catalyst for thegroup and urge investors to take profit at current levels. Reinforcing ourovervalued assertion, BTG is also currently trading at close to onestandard deviation above its six-year average forward rolling PE of 11.4x.We reiterate our SELLcall for BTG at an unchanged fair value estimate

of S$0.49.


24/32

Double-digit growth to continue

We upgrade Sheng Siong Groups (SSG) FY13/14 revenue growth to

10% (previously 5% and 3% respectively). Full-year contributions

from the eight new stores opened in FY12 representing an increaseof 14% in gross retail space justify this adjustment. Furthermore,

SSGs strategy of opening stores in under-represented areas (i.e.

those with a growing or sizeable resident population) has allowed the

group to benefit from the build-up in pent-up consumer demand. This

is demonstrated by the success of its Geylang and Bukit Batok stores,

which broke-even only after a month of operations.

Macro-environment remains conducive

Being a counter with defensive qualities, lingering macro uncertainty

will continue to prove supportive for the segment as consumers

exercise prudence in dining habits.

Threat of price competition diminished

With rising operating expenses (due mainly to wage pressures), we

deem the re-occurrence of price competition amongst the Big 3

supermarket chains to be remote. It is not in the interest of the Big 3

to cut into their margins further by waging an unnecessary price war.

Instead, it is likely that a tacit agreement to maintain status quo

exists amongst the Big 3.

90% dividend payout policy likely to remain

FY12 will the last year SSG commits to paying out 90% of its PAT as

dividends. However, in our opinion and earnings projections, SSG

should have no difficulties if it chooses to persist on its 90% PAT

dividend payout commitment. Its cash balances have remained above

S$100m since 3Q11 despite a significant increase in its store network,

increasing inventory requirements, and no borrowings, which clearly

signify that store expansion is unhindered.

Maintain BUY

While SSG will experience a seasonally weaker 4Q12, it is still on

track to finish the year out strongly. As we roll our projections

forward, we maintain our BUYrating at an unchanged fair value

estimate of $0.55.

STRONG GROWTH AHEAD More stores to come

Price competition won't return

Maintain BUY

10 Dec 2012Company Update

SHENG SIONG GRP |BUY

Asia Pacific Equity ResearchSingapore | Food & Staples Retailing

BUY (maintain)Fair value S$0.55

add: 12m dividend forecast S$0.03

versus: Current price S$0.52

12m total return forecast 11%

Analysts

Lim Siyi (Lead) +65 6531 9824

[email protected]

Andy Wong +65 6531 9817

[email protected]

Key information

Market cap. (m) S$719 /

USD589

Avg daily turnover (m) S$1 /

USD1

Avg daily vol. (m) 14.1

52-wk range (S$) 0.375 - 0.53

Free float (%) 28.4

Shares o/s. (m) 1,383.5

Exchange SGX

BBRG ticker SSG SP

Reuters ticker SHEN.SI

ISIN code OV8

GICS Sector Consumer Staples

GICS IndustryFood & Staples

Retailing

Top shareholderSS Holdings -

32.4%


Company (%) 7 9 na

STI-adjusted (%) 5 6 na


0.40

0.44

0.48

0.52

0.56

0.60

Jun-12 Sep-12 Dec-12

2700

3000

3300

3600

3900

4200

Fair Value SSG SP FSSTI

Shar e Pr ice (S$) Index Level

`


Industry-relative metrics

0th 25th 50th 75th 100th

PB

PE

ROE

Beta

Mkt Cap

Company Indust r y Aver age

Percent i le

Note: Industry universe defined as companies under identical GICS classificationlisted in the same exchange.Sources: Bloomberg, OIR estimates

Key financial highlights

Year ended 31 Dec (S$m) FY10 FY11 FY12F FY13F

Revenue 628.4 578.4 635.0 698.5

Cost of sales -491.7 -450.6 -496.0 -543.5

Gross profit margin (%) 21.8 22.1 21.9 22.2

Net profit 42.6 27.3 42.6 37.1

EPS (SG cents) 3.2 2.0 3.1 2.7

Cons. EPS (S cts) na na 2.4 2.7

Adj. Net profit margin (%) 5.3 4.7 6.7 5.3

NTA per share (SG cents) 4.8 10.7 11.0 11.3

ROE (%) 48.0 25.7 28.3 24.0

Dividend yield (%) 0.0 3.4 5.3 4.6

Please refer to important disclosures at the back of this document. MICA (P) 035/06/2012

MARKET CAP: USD 589M AVG DAILY TURNOVER: USD 1M


25/32

OCBC Investment Research

Singapore Equities

Company financial highlights


Income statement


Revenue 628.4 578.4 635.0 698.5

Cost of sales -491.7 -450.6 -496.0 -543.5

Distribution costs -4.4 -4.1 -4.1 -4.9

Administrative expenses -98.3 -91.6 -98.2 -110.4

Net other operating income 14.6 2.1 13.9 4.2

Operating profit 48.7 34.3 50.6 44.0

Net finance income 0.0 -0.1 0.7 0.7

Profit before tax 48.7 34.2 51.4 44.7

Income tax expense -6.1 -7.0 -8.8 -7.6

Net profit 42.6 27.3 42.6 37.1

Balance sheet

As at 31 Dec (S$m) FY10 FY11 FY12F FY13F

Bank and cash balances 85.9 122.1 133.8 142.9

Property, plant, and equipment 58.3 72.1 76.6 77.0

Other assets 31.1 47.0 32.5 35.8

Total assets 175.3 241.2 242.9 255.6

Debt 22.3 0.0 0.0 0.0

Current liabilities ex. debt 88.6 91.8 89.7 98.6

Non-current liabilities ex. debt 0.6 1.1 0.6 0.7

Total liabilities 111.5 92.9 90.3 99.3

Shareholders equity 63.9 148.3 152.6 156.3

Total equity and liabilities 175.3 241.2 242.9 255.6

Cash flow statementYear ended 31 Dec (S$m) FY10 FY11 FY12F FY13F

Op profit before working cap. chg. 43.2 40.4 56.6 50.1

Working cap, taxes and int -9.2 -12.3 -6.7 -2.4

Net cash from operations 34.0 28.1 49.9 47.7

Purchase of PP&E -38.4 -23.6 -6.5 -6.5

Other investing flows 31.1 -19.9 0.0 0.0

Investing cash flow -7.3 -43.5 -6.5 -6.5

Financing cash flow 20.1 51.6 -32.4 -32.8

Net cash flow 46.8 36.2 11.0 8.4

Cash at beginning of year 39.1 85.9 122.1 133.0

Cash at end of year 85.9 122.1 133.8 142.9

Key rates & ratios FY10 FY11 FY12F FY13F

EPS (SG cents) 3.2 2.0 3.1 2.7


Gross profit margin (%) 21.8 22.1 21.9 22.2

Adj. Operating profit margin (%) 6.3 5.9 8.0 6.3

Adj. Net profit margin (%) 5.3 4.7 6.7 5.3

PER (x) 16.4 26.4 16.9 19.4

Price/NTA (x) 10.9 4.9 4.7 4.6

Dividend yield (%) 0.0 3.4 5.3 4.6

ROE (%) 48.0 25.7 28.3 24.0

Debt/equity (x) net cash net cash net cash net cash

Sources: Company, OIR forecasts


26/32

Non-issue for VB

In a surprise development, Viz Branz (VB) announced that its

appointed auditors, Ernst & Young (EY), will not express an audit

opinion for its recently concluded FY12 financial statements. The basisfor this disclaimer of opinion stems from earlier allegations of

impropriety over a series of payments involving the company made by

VBs former CEO and current top shareholder, Mr. Chng Khoon Peng,

which have since been unreservedly withdrawn. After reviewing the

auditors note and speaking with management, we deem this

development to be a non-issue for VB.

Lack of access to CAD investigations, if any, cited as cause

EY cites the lack of access to the earlier complaints lodged with the

Commercial Affairs Department (CAD) as one of the reasons for this

disclaimer. In addition, EY stated they were unable to perform audit

procedures to ascertain the nature of transactions alleged to have

been irregular, and if the transactions were properly recorded and

presented.

But CAD investigations did not even commence

From our understanding and confirmed with management

investigations into the allegations were not even initiated by the CAD

nor was there any indication that it was in the process. Furthermore,

the allegations were about irregular payments to the CEO and not

fraudulent revenue/profit recognition procedures.

Audit reaction a bit of an overkill

Since its establishment in 1988, this is the first instance where a

disclaimer has been issued. Management stands by their FY12

financial statements and stressed that the figures present a true and

fair view of the company as at end-FY12. VB operations will continue

unhindered in the meantime.

Focus still on GO; maintain BUY

While this development may cause some short-term weakness in VBs

share price, we stand by our assertion that an impending GO is likely.

A possible dip in the counter should open up buying opportunities for

investors. We maintain our BUYrating with an unchanged fair value

of S$0.74.

DISCLAIMER NOT A CONCERN Perplexing development

Allegations withdrawn; no CAD

investigations

VB may see sell-offs; buy on dips


VIZ BRANZ LIMITED |BUY

Asia Pacific Equity ResearchSingapore | Consumer Staples





Analysts

Lim Siyi (Lead) +65 6531 9824

[email protected]

Andy Wong +65 6531 9817

[email protected]

Key information


USD205

Avg daily turnover (m) S$0.5 /

USD0.4


52-wk range (S$) 0.315 - 0.75

Free float (%) 14.7

Shares o/s. (m) 354.9

Exchange SGX

BBRG ticker VIZ SP

Reuters ticker VIZB.SI

ISIN code L5J

GICS Sector Consumer StaplesGICS Industry Food Products

Top shareholderChng Khoon Peng -

38.3%


Company (%) 6 1 128

STI-adjusted (%) 4 -2 112


0.30

0.42

0.53

0.65

0.77

0.89

Jan-12 Apr -12 Jul -12 Oct-12

2500

3520

4540

5560

6580

7600

Fair Value VIZ SP FSSTI

Shar e Pr ice (S$) Index Level

`




PB

PE

ROE

Beta

Mkt Cap


Percent i le

Note: Industry universe defined as companies under identical GICS classification listed in

the same exchange.Sources: Bloomberg, OIR estimates


Year Ended 30 Jun (S$m) FY11 FY12 FY13F FY14F

Revenue 165.7 172.7 186.1 201.3

Gross Profit 52.5 59.0 61.4 66.4

Net Profit 12.2 17.9 18.5 19.8

Net Earnings Growth (% YoY) -27.8 83.9 -1.5 7.0

EPS (SG cents) 3.3 4.8 4.9 5.3


PER (x) 21.5 14.8 14.3 13.3

NAV per share (SG cents) 26.4 26.7 28.3 31.1

ROE (%) 13.2 18.8 18.4 17.9

Dividend Yield (%) 3.5 4.7 3.5 3.5


MARKET CAP: USD 205M AVG DAILY TURNOVER: USD 0.4M


27/32


Singapore Equities



Income statement

Year Ended 30 Jun (S$m) FY11 FY12 FY13F FY14F

Revenue 165.7 172.7 186.1 201.3

Cost of Sales -113.2 -113.8 -124.7 -134.9

Gross Profit 52.5 59.0 61.4 66.4

Operating expenses -34.8 -34.1 -35.2 -38.3

EBITDA 21.5 28.3 29.9 32.0

Depreciation & Amortisation -3.3 -3.1 -3.1 -3.2

EBIT 18.2 25.2 26.8 28.8

Net Interest & Other Costs -0.4 0.0 -0.4 -0.5

Income Tax Expense -5.6 -7.3 -7.9 -8.5

Net Profit 12.2 17.9 18.5 19.8

Balance sheet

As at 30 Jun (S$m) FY11 FY12 FY13F FY14F

Cash 33.7 39.8 46.5 52.6

Inventories & Other Assets 36.9 50.6 40.6 43.9

Accounts Receivables 28.3 22.4 37.2 40.3

Fixed & Intangible Assets 45.6 42.9 41.8 40.6

Total Assets 144.6 155.6 166.1 177.4

Debt 23.9 33.1 31.4 29.9

Accounts Payable 26.5 26.0 31.3 33.3

Total Liabilities 50.4 59.1 62.8 63.2

Shareholders Equity 94.2 96.5 103.3 114.2

Total Liabilities and Equity 144.6 155.6 166.1 177.4

Cash flow statementYear Ended 30 Jun (S$m) FY11 FY12 FY13F FY14F

Operating Profit 19.2 29.4 29.7 31.8

Working Capital Changes 6.2 1.5 -14.6 -3.6

Net Interest & Taxes -6.3 -5.2 -8.1 -8.8

Net Cash from Operations 19.1 25.8 7.0 19.4

Purchase of PPE -1.8 -1.9 -2.0 -2.0

Investing Cash Flow -1.7 -0.6 -2.0 -2.0

Financing Cash Flow -10.3 -19.2 1.7 -11.2

Net Cash Flow 7.1 6.1 6.7 6.1




Net Earnings Growth (% YoY) -27.8 83.9 -1.5 7.0

EPS (SG cents) 3.3 4.8 4.9 5.3

PER (x) 21.5 14.8 14.3 13.3

NAV per share (SG cents) 26.4 26.7 28.3 31.1

Price/NAV (x) 2.7 2.6 2.5 2.3

EV/EBITDA (x) 9.3 6.6 6.5 5.9

Dividend Yield (%) 3.5 4.7 3.5 3.5

ROIC (%) 10.5 14.0 14.0 14.1

ROE (%) 13.2 18.8 18.4 17.9

ROA (%) 8.4 11.5 11.1 11.2



28/32

Continued ascension justifies premium

Since our initiation report on Petra Foods, the counter has appreciated

by 7.5% to continue on its amazing ascension in 2012 (YTD: +55%).

Our valuation of Petra previously pegged at 24x 12-month forwardPE is at a premium to its global peers but the desire of investors to

gain exposure to emerging Asia consumer demand clearly vindicates

it.

Top-line pickup in FY13

For 2013, we project a modest top-line growth of 3.8%, mainly on the

back of the Branded Consumer division. Consumption growth in its

key markets of Indonesia and the Philippines should fuel the Branded

Consumer division, and we expect revenue growth to come in at 10%.

While this figure is partially offset by weaknesses in the Cocoa

Ingredients division and we have factored in a conservative 1.8%

revenue decline we agree with managements assessment that the

headwinds could dissipate by end-FY13.

Margin improvementsSince the lows of 2008, Petras EBITDA margin has remained fair

stable. This stability can be attributed to the groups dual-engine

growth model, which allows one division to pick up the slack of the

other in times of operational difficulties. For instance, the recent woes

surrounding the Cocoa Ingredients division led to the lowest

segmental EBITDA margin in more than three years. However, the

stellar performance of the Branded Consumer division via a

combination of higher-margin product mix, ASP increases and

favourable raw material costs helped to offset the decline. We

anticipate an easing of the yield pressure in the Cocoa Ingredients

division in the comng months, and we expect margins to improve

from the 7.6% in FY11 to ~9% by FY13F. That said, we predict

bottom-line growth in FY13F of 5.8%.

Increase multiple to 25xWe remain sanguine over Petras growth prospects in the coming

year, and in light of Petras recent appreciation, we raise our multiple

to 25x 12-month forward PE (approaching one standard deviation

above its six-year average forward PE). This increases our fair value

to S$3.12 from S$2.98 previously. Maintain BUY.

PICKUP IN 2013 Premium justified

Revenue growth with margin

improvement in FY13

Fair value raised

10 Dec 2012Company Report

PETRA FOODS |BUY

Asia Pacific Equity ResearchSingapore | Consumer Staples





Analysts

Lim Siyi (Lead) +65 6531 9824

[email protected]

Andy Wong +65 6531 9817

[email protected]

Key information

Market cap. (m) S$1,754 /

USD1,436

Avg daily turnover (m) S$1 /

USD1


52-wk range (S$) 1.7 - 2.87

Free float (%) 39.2


Exchange SGX

BBRG ticker PETRA SP

Reuters ticker PEFO.SI

ISIN code P34


GICS IndustryPackaged Foods &

Meats

Top shareholderBerlian Enterprises -

50.5%


Company (%) 9 20 70

STI-adjusted (%) 6 16 54


1.62

2.02

2.41

2.81

3.20

3.60


2300

2920

3540

4160

4780

5400

Fair Value PETRA SP FSSTI

Shar e Pr i ce (S$) Index Level

`




PB

PE

ROE

Beta

Mkt Cap


Percent i le

Note: Industry universe defined as companies under identical GICS classification listed inthe developed Asia exchanges.Sources: Bloomberg, OIR estimates


Year ended 31 Dec (US$m) FY10 FY11 FY12F FY13F

Revenue 1,566.0 1,702.2 1,493.4 1,550.1

EBITDA 108.4 129.6 131.4 139.7

Depreciation & amortization 23.7 24.3 26.9 29.7

PATMI 44.5 60.6 59.0 62.4

EPS (SG cents) 9.4 12.1 11.8 12.5

Cons. EPS (S cts) na na 9.2 10

EBITDA margin (%) 6.9 7.6 8.8 9.0

Net profit margin (%) 2.8 3.6 4.0 4.0

Dividend yield (%) 1.1 1.5 1.6 1.5

ROA (%) 4.6 5.8 5.2 5.2


MARKET CAP: USD 1.44B AVG DAILY TURNOVER: USD 1M


29/32


Singapore Equities



Income statement

Year ended 31 Dec (US$m) FY10 FY11 FY12F FY13F

Revenue 1,566.0 1,702.2 1,493.4 1,550.1

EBITDA 108.4 129.6 131.4 139.7

Depreciation & amortization 23.7 24.3 26.9 29.7

EBIT 84.8 105.3 104.5 110.1

Net interest -25.9 -27.4 -26.9 -27.9

Associates and exceptional items 0.3 0.4 0.0 0.0

Profit before tax 58.5 78.7 77.7 82.2

Income tax expense -14.0 -18.2 -18.6 -19.7

Minority interests 0.0 -0.1 0.0 0.0

PATMI 44.5 60.6 59.0 62.4

Balance sheet

As at 31 Dec (US$m) FY10 FY11 FY12F FY13F

Bank and cash balances 42.8 19.1 110.8 75.0

Property, plant, and equipment 255.6 280.4 307.3 297.1

Inventories 491.4 477.9 537.6 558.1

Other assets 264.1 269.9 262.9 272.0

Total assets 1,053.8 1,047.2 1,218.6 1,202.1

Debt 549.1 521.1 642.1 587.0

Lliabilities excluding debt 210.6 229.2 209.3 210.5

Total liabilities 759.7 750.3 851.5 797.5

Shareholders equity 294.1 296.9 367.1 404.6

Total equity and liabilities 1,053.8 1,047.2 1,218.6 1,202.1

Cash flow statementYear ended 31 Dec (US$m) FY10 FY11 FY12F FY13F

Op profit before working cap. chg. 112.1 125.1 131.4 139.7

Working cap, taxes and int -169.3 -23.3 -87.1 -47.2

Net cash from operations -57.2 101.7 44.4 92.5

Purchase of PP&E -13.5 -52.4 -55.0 -20.0

Other investing flows -12.8 1.0 0.0 0.0

Investing cash flow -26.3 -51.3 -55.0 -20.0

Financing cash flow 101.4 -40.9 70.1 -108.4

Net cash flow & adjustments 24.4 -23.7 91.8 -35.9




EPS (SG cents) 9.4 12.1 11.8 12.5


EBITDA margin (%) 6.9 7.6 8.8 9.0

Net profit margin (%) 2.8 3.6 4.0 4.0

PER (x) 28.3 22.1 22.7 21.4

Price/NTA (x) 6.0 6.5 5.1 4.5

ROA (%) 4.6 5.8 5.2 5.2

ROE (%) 17.7 20.5 17.8 16.2

Dividend yield (%) 1.1 1.5 1.6 1.5

Net gearing (%) 175.9 173.7 149.2 131.2



30/32

Time to reap the gains

Despite experiencing a sharp fall in May this year, BreadTalk Groups

(BTG) share price managed to recover gradually, and is now poised to

end the year with a modest gain (YTD: +20.5%). While BTGs

revenue grew alongside store expansion, the performance came at

the expense of operating margins. With this trend likely to persist into

FY13, we see no catalyst for the group and urge investors to take

profit at current levels.

Margin pressure to continue

BTGs main goal is to achieve an overseas revenue contribution of

more than 50%, and by our projection, this target will not materialise

in the near term. That said, its operating and net profit margins have

continued to suffer declines for the past two years, and look set to

make it three in a row for FY12. In addition, even the traditional

stability of its gross profit margin has been eroded as cost-saving

initiatives reach their limits.

No attractive dividends

To fuel this expansion, dividend payments will remain a non-priority

for the group. Given the reinvestment requirements, we project an

unattractive dividend payout of ~25% of PATMI for FY13 onwards,

similar to the average of 26% from FY06 to FY10. Although FY11 saw

a higher payout of ~36% (and potentially FY12 could, too), in our

view, it was more to reward long-suffering investors than the start of

a sustainable payout trend.

Overvalued; maintain SELL

BTG is also currently trading at close to one standard deviation aboveits six-year average forward rolling PE of 11.4x. Given the absence of

catalysts in the near term and weakening demand for its bakery and

food court operations, BTGs valuation is expensive in our view. We

reiterate our SELLcall for BTG at an unchanged fair value estimate of

S$0.49.

TAKE PROFIT NOW Margin pressure to continue

No attractive dividends to offset

Overvalued; lock in gains


BREADTALK GROUP |SELL

Asia Pacific Equity ResearchSingapore | Food & Staples Retailing

SELL (maintain)Fair value S$0.49



12m total return forecast -22%

Analysts

Lim Siyi (Lead) +65 6531 9824

[email protected]

Andy Wong +65 6531 9817

[email protected]

Key information


USD148

Avg daily turnover (m) S$0.1 /

USD0.1


52-wk range (S$) 0.46 - 0.645

Free float (%) 41.7


Exchange SGX

BBRG ticker Bread SP

Reuters ticker Bread.SI

ISIN code 5DA


GICS IndustryFood & Staples

Retailing

Top shareholder Quek TM - 34.1%


Company (%) 8 17 24

STI-adjusted (%) 5 14 9


0.43

0.48

0.54

0.59

0.64

0.70


2100

2380

2660

2940

3220

3500

Fair Value Bread SP FSSTI

Shar e Pr i ce (S$) Index Level

`




PB

PE

ROE

Beta

Mkt Cap


Percent i le

Note: Industry universe defined as companies under identical GICS classification

listed in the same exchange.Sources: Bloomberg, OIR estimates



Revenue 302.9 365.9 447.2 516.8

Gross Profit 165.2 200.1 239.2 273.9

Net operating expenses -148.7 -183.1 -221.4 -256.3

PATMI 11.3 11.6 11.4 11.4

EPS (SG cents) 4.0 4.1 4.1 4.0


EBITDA Growth (% YoY) 16.4 -1.7 -2.6 -5.0

Net Profit Growth (% YoY) -4.1 5.3 2.7 -5.8

ROE (%) 17.4 15.8 14.0 12.8

Dividend Yield (%) 1.6 2.3 2.3 1.6

Please refer to important disclosures at the back of this document. MICA (P)038/06/2012

MARKET CAP: USD 148M AVG DAILY TURNOVER: USD 0.1M


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Singapore Equities



Income statement


Revenue 302.9 365.9 447.2 516.8

Gross Profit 165.2 200.1 239.2 273.9

Net operating expenses -148.7 -183.1 -221.4 -256.3

EBIT 16.6 17.0 17.9 17.6

Net Interest 0.0 0.0 -0.4 0.0

Associates & JVs 0.2 0.1 0.4 0.5

Pre-tax Proft 16.7 17.1 17.9 18.1

Income Tax Expense -5.5 -5.4 -5.8 -6.7

Minority Interest -0.1 0.2 0.7 0.0

PATMI 11.3 11.6 11.4 11.4

Balance sheet

As at 31 Dec (S$m) FY10 FY11 FY12F FY13F

Cash 71.1 87.1 113.8 117.2

Inventories 6.1 7.4 8.9 10.3

Accounts Receivables 26.3 49.5 36.2 41.4

Fixed & Intangible Assets 82.4 98.1 109.7 122.8

Total Assets 204.2 262.3 294.7 317.8

Debt 19.1 39.4 60.4 62.0

Accounts Payable 60.8 74.0 91.7 105.9

Total Liabilities 129.1 176.8 201.4 217.3

Shareholders Equity 75.1 85.5 93.3 100.5

Total Liabilities and Equity 204.2 262.3 294.7 317.8

Cash flow statementYear ended 31 Dec (S$m) FY10 FY11 FY12F FY13F

Operating Profit 37.9 43.3 36.9 35.2

Working Capital Changes 5.9 10.6 21.1 7.7

Net Cash from Operations 39.7 49.0 46.6 36.1

Purchase of PPE -30.8 -37.2 -30.0 -30.0

Purchase of Intangible Asset -0.5 -0.6 -0.2 -0.2

Investing Cash Flow -27.8 -49.9 -35.3 -29.2

Financing Cash Flow 0.8 16.8 15.5 -3.6

Net Cash Flow 12.7 15.9 26.7 3.4




Gross Profit Growth (% YoY) 23.2 21.1 19.6 14.5

Operating Profit Growth (% YoY) 1.9 2.6 5.3 -1.8

EBITDA Growth (% YoY) 16.4 -1.7 -2.6 -5.0

Net Profit Growth (% YoY) -4.1 5.3 2.7 -5.8

EPS (SG cents) 4.0 4.1 4.1 4.0

PER (x) 16.1 15.6 15.9 16.0

Dividend Yield (%) 1.6 2.3 2.3 1.6

ROIC (%) 10.0 7.5 5.4 5.4

ROE (%) 17.4 15.8 14.0 12.8

ROA (%) 5.9 5.0 4.3 3.7



32/32


SHAREHOLDING DECLARATION:

The analyst/analysts who wrote this report holdNILshares in the above security.

DISCLAIMER FOR RESEARCH REPORT

This report is solely for information and general circulation only and may not be published, circulated, reproduced or distributed inwhole or in part to any other person without our written consent. This report should not be construed as an offer or solicitation forthe subscription, purchase or sale of the securities mentioned herein. Whilst we have taken all reasonable care to ensure that theinformation contained in this publication is not untrue or misleading at the time of publication, we cannot guarantee its accuracy orcompleteness, and you should not act on it without first independently verifying its contents. Any opinion or estimate contained inthis report is subject to change without notice. We have not given any consideration to and we have not made any investigation ofthe investment objectives, financial situation or particular needs of the recipient or any class of persons, and accordingly, nowarranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result ofthe recipient or any class of persons acting on such information or opinion or estimate. You may wish to seek advice from afinancial adviser regarding the suitability of the securities mentioned herein, taking into consideration your investment objectives,financial situation or particular needs, before making a commitment to invest in the securities. OCBC Investment Research Pte Ltd,OCBC Securities Pte Ltd and their respective connected and associated corporations together with their respective directors andofficers may have or take positions in the securities mentioned in this report and may also perform or seek to perform broking andother investment or securities related services for the corporations whose securities are mentioned in this report as well as otherparties generally.

Privileged / confidential information may be contained in this document. If you are not the addressee indicated in this document (orresponsible for delivery of this message to such person), you may not copy or deliver this message to anyone. Opinions,conclusions and other information in this document that do not relate to the official business of OCBC Investment Research PteLtd, OCBC Securities Pte Ltd and their respective connected and associated corporations shall not be understood as neither givennor endorsed.

RATINGS AND RECOMMENDATIONS:

- OCBC Investment Researchs (OIR) technical comments and recommendations are short-term and trading oriented.

- OIRs fundamental views and ratings (Buy, Hold, Sell) are medium-term calls within a 12-month investment horizon.- As a guide, OIRs BUY rating indicates a total return in excess of 10% given the current price; a HOLD trading indicates totalreturns within +/-10% range; a SELL rating indicates total returns less than -10%.- For companies with less than S$150m market capitalization, OIRs BUY rating indicates a total return in excess of 30%; a HOLDtrading indicates total returns within a +/-30% range; a SELL rating indicates total returns less than -30%.

Co.Reg.no.: 198301152E

Carmen LeeHead of Research

For OCBC Investment Research Pte Ltd

consumer sector 121210 oir

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