Best Local Brokerage House. Brokers Poll 2011, 2012 & Review. March 17, Topline Securities, Pakistan

Transcription

1 Best Local Brokerage House Brokers Poll 2011, 2012 & 2013 PAKISTAN CONSUMER SECTOR 2013 Review March 17, 2014 Topline Securities, Pakistan

2 Table of Contents Consumer sector growth intact in Dairy producers: Slowdown in Pakistan consumer stocks performance in Consumerism booming in Pakistan Consumption highest in the region Consumer stocks: Key numbers

3 Consumer sector growth intact in 2013 Despite some signs of slowdown, our broader sample of consumer firms showed stable tbl sales and profitability growth in Sales revenues of Pakistan listed consumer stocks has increased by 12.2% vs. 13.5% growth in Sales growth in 2013 was, however, slower than 5-year ( ) CAGR of 16.6% and 7-year ( ) CAGR of 15.4%. Gross margins in 2013, nevertheless, slightly improved to 28.5% vs. 28.2% in Bottom-line profitability increased by 19.5% in 2013 vs. 21% in This profitability growth is in line with 5-year ( ) profit CAGR of 17.2% and 7-year ( ) CAGR of 15%. In 2013, net profits margins increased by 51bps to 8.3%. For performance evaluation, we have selected a diversified sample of 28 consumer firms with aggregate market capitalization of Rs1.2tn (US$12.0bn), 18% of total market cap of KSE. Our sample includes food, beverages, pharmaceuticals, tobacco, footwear and personal care producers. Due to distribution issues with EFOODS, we have excluded it from our 2013 analysis. Including EFOODS, sales grew 10% in 2013 (15.7% in 2012) while profits rose by 10.5% in 2013 (29.4% in 2012). Consumer Stocks: Gross & Net Margins 30% 20% 27% 28% 29% 10% 7.3% 7.8% 8.3% 0% Rs bn Net Margins Source: Company Accounts Gross Margins 3

4 Dairy producers: Slowdown in 2013 Dairy producers remained in trouble in 2013 due to distribution ib ti issues, especially EFOODS, and overall consumer shift towards UHT (Ultra-High-Temperature) substitutes. EFOODS was the major disappointment as its sales dropped by 5.6% to Rs37.9bn in 2013 while profits fell by 66.5% to Rs870mn. Gross margins dipped by 4.1pps to 21.6% while net margins trimmed by 4.2pps to 2.3%. NESTLE (dairy segment contributes 79% in its total revenue) sales growth also remained limited to 9% to Rs86.2bn in 2013 while profits remained stagnant at Rs5.9bn. Gross margins slightly improved by 80bps to 28% while net margins trimmed by 60bps to 6.8%. During 2013, cumulative sales of two dairy producers increased by 4.1% to Rs124bn while profits declined by 20.4% to Rs6.7bn. Cumulative Sales & Gross Margins % 26.0% % % 26% 24% Cumulative Profits & Net Margins 10 71% 7.1% 8% 8 5.8% 5.4% 6% 6 4% 4 2 2% 0 22% 0 0% Rs bn Rs bn Sales (LHS) Gross Margins (RHS) Profits (LHS) Source: Company Accounts Source: Company Accounts 2013 Net Margins (RHS) 4

5 Pakistan consumer stocks performance in 2013 Consumer stocks gained 86% in 2013 vs KSE100 index return of 49%. In 2012 as well, these consumer stocks outperformed KSE100 index by 28%, posting return of 80%. Within our sample of consumer stocks, PAKT, WYETH, HUML, SEARL, MUREB and SRVI were the star performers with gains of 777%, 372%, 320%, 295%, 233% and 224%, respectively. Market float/volume of consumer stocks is low in Pakistan. During 2013, average daily turnover in these stocks was US$4.9mn compared to average daily turnover of US$74.8mn at KSE. EFOODS was the most traded stock in the sample with US$3.5mn average daily turnover in Due to consistently high growth outlook and limited availability of scrips, our sample companies are trading at 2014E PE of 34.5x. However, if we exclude outliers (NESTLE, EFOODS & PAKT), 2014E PE is at 21.9x. In terms of price to sales, these sample companies are trading at 2014E PS of 2.7x. However, if we exclude outliers (NESTLE, EFOODS & PAKT), 2014E PS is at 1.9x. 5

6 Pakistan consumer stocks performance in 2013 Ticker Company Name 2013 Return PAKT Pakistan Tobacco Company 777% WYETH Wyeth Pakistan 372% HUMNL Hum Network 320% SEARL Searle Pakistan 295% IBLHL IBL HealthCare 238% MUREB Murree Brewery Company 233% SRVI Service Industries 224% GLPL Gillette Pakistan 185% HINOON Highnoon Lab. 166% MFFL Mitchell's Fruit Farms 141% BATA Bata Pakistan 124% UPFL Unilever Pakistan Foods 121% GLAXO GlaxoSmithKline Pakistan 121% SAPL Sanofi Aventis Pakistan 108% FEROZ Ferozesons Lab 106% SHEZ Shezan International 104% RMPL Rafhan Maize Products Co. 103% NATF National Foods 101% PKGS Packages 82% ABOT Abbott Laboratories Pakistan 76% NESTLE Nestle Pakistan 70% ISIL Ismail Industries 56% TREET Treet Corporation 53% THALL Thal Limited 45% COLG Colgate Palmolive Pakistan 11% EFOODS Engro Foods 6% NOPK Noon Pakistan 15% Quice Quice Foods 22% Source: KSE, Topline Research 6

7 Consumerism booming in Pakistan Pkit Pakistan ranks 26 th in terms of PPP GDP (US$491bn) in the world and ranks 6 th most populous country in the world with 55% of 184mn population below 25 years of age. Population growth is one of the highest in the region. Reasonable population base and its above-average growth fuel consumerism and provide an ideal ground for FMCGstogrow. Pakistan ranks 4th in Developing Asia after China, India and Indonesia in absolute middle-class population. (ADB). Per capita income has reached US$1,368 at the end of FY13 showing 10 year ( ) CAGR of 8.9%. Increasing literacy rate and inclination of women to work is scaling up from poor to the middle class. Rising remittances is another reason of massive growth in consumption which is increasing purchasing power and living standards, especially in rural areas. In last 5 years ( ), remittances into Pakistan grew at 16.6% CAGR in US Dollar terms. Higher agricultural production, commodity support prices and income support programs have also provided the pushintheshape p ofhigher demand in rural areas. Regional Middle classcomparison % 75 52% 40% 50 20% 23% 25 Rs Mn 75% 50% 25% 0% Regional Population Comparison % 3.0% % 2.0% % 1.1% % 1.0% 0 0.0% Middle class (LHS) Source: ADB, AfDB Percentage of total (RHS) Population (LHS) Source: World Bank Growth (RHS) 7

8 Consumption highest in the region Pakistan has always provided d huge opportunities to consumer firms due to its large customer base, rising i purchasing power and huge untapped market. Pakistan s household consumption is highest in the region; at 82.5% of GDP. Compared to the region, the same ratio stands at 60.2% for India, 76.8% for Bangladesh, 63.3% for Vietnam, 47.4% for Nigeria and 48.9% for Malaysia. Population is shifting from rural to urban areas (urbanization). Currently 37% of population is in the urban areas (35% in 2008). In addition to this, consistent decreasing family-size is increasing spending capacity. In 2012, average family-size was 6.4 persons which has reduced from 6.8 persons in Media explosion and changing consumption patterns are also lending their due hands in consumer firms' boom. Today, consumers are more inclined towards branded products highlighted g in the advertisements. Increasing awareness about hygiene is bringing growth in the packed food market. Growing consumerism is evident by recent survey conducted by Nielsen Global which tracks consumer confidence in 56 countries. The trend in Pakistan is also confirmed from the higher import of consumer goods, opening of new malls/restaurants and influx of several global brands. Regional Consumption Comparison Consumption to GDP (LHS) 100% Consumption per capita (RHS) 4,000 75% 50% 2,000 25% 0% 0 US$ Source: World Bank 8

9 Consumer stocks: Key numbers Year Share M. Cap 2013 Avg CAGR 2013A 2014E Business Rs mn end Pi Price (Rs.) (Rs mn) Daily Vol. US$ Sales Profit PE PS PE PS NESTLE Nestle Pak Dairy & Juices Dec 8, ,344 18,688 20% 30% PAKT Pak Tobacco Tobacco Dec ,804 45,989 10% 4% EFOODS Engro Foods Dairy & Ice cream Dec ,372 3,528,660 36% 70%* COLG Col gate Palmolive Pak Personal Care Jun 1,603 76,877 6,660 23% 19% RMPL Rafhan Maize Products Starch, Glucose, Gluten Dec 7,651 70,668 11,206 17% 13% UPFL Unilever Pak Foods Food products Dec 902 9,025 55, ,360 18% 24% GLAXO GlaxoSmithKline Pak Pharma, Consumer healthcare Dec , ,663 13% 11% ABOT Abbott Laboratories Pak Pharma, Nutrition, Diagnosis Dec ,124 61,182 19% 24% PKGS Packages Paper & Board, Equity in Nestle Jan , ,698 4% 201%** NATF National Foods Food products Jun ,643 47,255 23% 34% BATA Bata Pak Footwear & Tire Dec 2,902 21,935 8,463 20% 21% MUREB Murree Brewery Alchoholic/ Non Alchoholic Beverages Jun ,145 52,699 20% 30% THALL Thal Limited Engineering, Equity in Metro/Makro Jun ,830 65,075 11% 17% SEARL Searle Pak Pharma, Nutrition Jun 158 9,702 95,717 20% 30% ISIL Ismail Industries Candies, Chocol ates Jun 176 8, % 28% GLPL Gillette Pak Blades, Razors, Personal/ Jan 400 7,680 1,773 17% 122% HUMNL Hum Network Media Jan 91 6,367 16,901 20% 11% SAPL Sanofi Aventi s Pak Pharmaceutical Dec 659 6,360 1,863 15% 52% TREET Treet Corporation Shaving Blade Jun 123 6, ,599 24% 56% WYETH Wyeth Pak Pharmaceutical Nov 4,188 5,953 30,987 6% 25% SRVI Service Industries Footwear & Tire Dec 488 5,865 35,883 18% 15% MFFL Mitchell's Fruit Farms Farm & Confectionery product Sep 697 5,489 7,586 15% 74% SHEZ Shezan International Beverages, Syrups Jun 741 5,381 12,426 18% 9% FEROZ Ferozesons Lab Pharmaceutical Jan 163 4,917 23,102 16% 14% HINOON Highnoon Lab. Pharmaceutical & Allied Jan ,644 22,820 13% 24% IBLHL IBL HealthCare Pharmaceutical Jan 88 2,024 15,306 0% 45% Quice Quice Foods Syrup, Squash & Jams Jan ,178 31% 39% NOPK Noon Pak Dairy, Juices & Food Jun % NM NM Total Weighted Average 1,173,153 17% 17% Total excluding outliers*** 16% 17% Source: Company Accounts, KSE, Topline Research Prices as on Mar 12, 2014 *3 Year CAGR, **2 Year CAGR 2013 ***(EFOODS, NESTLE, PAKT) 9

10 CONTACT US Mr. Mohammed Sohail CEO Dir : Cell: sohail@topline.com.pk Zeeshan Afzal Analyst Consumer Sector Dir : Zeeshan.afzal@topline.com.pk Corporate Office: Corporate Office: 306, Continental Trade Center, Block 8, Main Clifton, Karachi, Pakistan. Phone Fax