• Maintain Neutral and target price of Rp12,300, still based on 14x CY12 P/E, in line
with our market P/E target. Mayora’s better-than-expected results in 4Q10 could be
short-lived, in our assessment, as 4Q10 margins were boosted by: 1) a larger portion
of higher-margin products and lower-cost inventory; and 2) maximum efficiency from
high factory utilisation rates. Higher costs of inputs, depleting low-cost inventories as
well as a normalisation of its product mix should bring down its margins sharply in
1Q11. On the brighter side, demand remains buoyant and gradual price increases
have been introduced. We fined-tune our FY11-12 earnings forecasts by -0.2% to
+1% to account for lower G&A expense but higher debt. We may like Mayora’s
growth prospects but it would have to weather near-term margin squeezes before its
share-price rally can be sustained, in our opinion.
• 2010 boosted by seasonality and efficiencies. Higher-margin sales, typical of 4Q
which is characterised by festive spending, lower-cost inputs and efficiencies
converged to boost Mayora’s 4Q10 gross margins to 24.4%, its best quarter in the
with our market P/E target. Mayora’s better-than-expected results in 4Q10 could be
short-lived, in our assessment, as 4Q10 margins were boosted by: 1) a larger portion
of higher-margin products and lower-cost inventory; and 2) maximum efficiency from
high factory utilisation rates. Higher costs of inputs, depleting low-cost inventories as
well as a normalisation of its product mix should bring down its margins sharply in
1Q11. On the brighter side, demand remains buoyant and gradual price increases
have been introduced. We fined-tune our FY11-12 earnings forecasts by -0.2% to
+1% to account for lower G&A expense but higher debt. We may like Mayora’s
growth prospects but it would have to weather near-term margin squeezes before its
share-price rally can be sustained, in our opinion.
• 2010 boosted by seasonality and efficiencies. Higher-margin sales, typical of 4Q
which is characterised by festive spending, lower-cost inputs and efficiencies
converged to boost Mayora’s 4Q10 gross margins to 24.4%, its best quarter in the
year despite surging commodity prices since mid-2010. Further boosted by
surprisingly low G&A though offset by higher selling expenses, FY10 core profit was
17% ahead of our forecast and 12% ahead of consensus.
• 1Q11 margins could be hit, given the spiralling prices of key raw materials and a
strengthening rupiah. Our assessment has in fact been concurred by management.
Although gradual price increases and additional capacity (allowing for more
aggressive volume growth) point to a potential margin recovery in 2H, FY11 margins
would still take a hit compared with last year, we believe.
2010 review
A remarkable year. 2010 revenue grew 51% yoy while core profit grew 32% yoy.
Gross margins were largely flat at 23.6% yoy, with 4Q10 being the best quarter with a
24.4% margin, despite commodity price surges since mid-2010. A larger portion of
higher-margin sales and increased efficiency at its factories (lowering overhead costs)
were the main reasons. Furthermore, G&A expense as a percentage of revenue was
down 120bp, offsetting substantial increases in selling costs, at 11% of revenue, as
Mayora ramped up its advertising spending to boost sales.
A remarkable year. 2010 revenue grew 51% yoy while core profit grew 32% yoy.
Gross margins were largely flat at 23.6% yoy, with 4Q10 being the best quarter with a
24.4% margin, despite commodity price surges since mid-2010. A larger portion of
higher-margin sales and increased efficiency at its factories (lowering overhead costs)
were the main reasons. Furthermore, G&A expense as a percentage of revenue was
down 120bp, offsetting substantial increases in selling costs, at 11% of revenue, as
Mayora ramped up its advertising spending to boost sales.
Our discussions with management recently confirmed our view that the strong 4Q10
margins were seasonal and likely to be short-lived. 4Q10 margins were better than
anticipated due to:
1) A boost from higher-end cookies. Mayora had sold more premium cookie
products, which yield better margins, lifting its gross margins in 4Q10, partially offsetting
cost inflation.
2) Inventory seasonality, which provided a cushion. Apart from its sales mix and
lower overhead costs, 4Q10 gross margins held up with the help of Mayora’s large
finished-goods inventory from previous quarters, which is not unusual for consumer
companies. Consumer companies generally build up inventories in the quarters
preceding the annual Muslim holiday, Idul Fitri, in anticipation of higher sales. Mayora’s
finished-goods inventory as at end-3Q10 was 66% higher than the year before. This
extra inventory provided a cushion in 4Q10, when it actually produced less than it sold.
margins were seasonal and likely to be short-lived. 4Q10 margins were better than
anticipated due to:
1) A boost from higher-end cookies. Mayora had sold more premium cookie
products, which yield better margins, lifting its gross margins in 4Q10, partially offsetting
cost inflation.
2) Inventory seasonality, which provided a cushion. Apart from its sales mix and
lower overhead costs, 4Q10 gross margins held up with the help of Mayora’s large
finished-goods inventory from previous quarters, which is not unusual for consumer
companies. Consumer companies generally build up inventories in the quarters
preceding the annual Muslim holiday, Idul Fitri, in anticipation of higher sales. Mayora’s
finished-goods inventory as at end-3Q10 was 66% higher than the year before. This
extra inventory provided a cushion in 4Q10, when it actually produced less than it sold.
analysis by CIMB
Changing product mix: extracting higher profits from coffee. Last year,
coffee/cacao processing generated Rp3.8tr (+74% yoy) or 52% of revenue, exceeding
food processing. For the past 10 years, this segment’s sales have been growing by
30% CAGR, dwarfing the 20% for food processing. Such remarkable growth has been
made possible by aggressive capex. Mayora has been doubling its coffee/cacao
capacity every three years or so. Gross margins here are also higher by some 270bp at
26.2%. Apart from export sales, we believe Mayora’s Torabika line of coffee will
continue to power its growth.
coffee/cacao processing generated Rp3.8tr (+74% yoy) or 52% of revenue, exceeding
food processing. For the past 10 years, this segment’s sales have been growing by
30% CAGR, dwarfing the 20% for food processing. Such remarkable growth has been
made possible by aggressive capex. Mayora has been doubling its coffee/cacao
capacity every three years or so. Gross margins here are also higher by some 270bp at
26.2%. Apart from export sales, we believe Mayora’s Torabika line of coffee will
continue to power its growth.
Gearing up for expansion. Gross gearing in 4Q10 went up 6% pts to 66% as Mayora
added Rp375bn debt to construct two new biscuit and candy factories. Construction is
expected to complete in 1-1.5 years, increasing capacity by 30%. Mayora plans to
spend Rp2tr over the next three years on capex from a combination of bank loans and
internal cash.
added Rp375bn debt to construct two new biscuit and candy factories. Construction is
expected to complete in 1-1.5 years, increasing capacity by 30%. Mayora plans to
spend Rp2tr over the next three years on capex from a combination of bank loans and
internal cash.