Berli Jucker Plc

Berli Jucker Plc (BJC)

Investment thesis: We view BJC as a good play on strong consumption growth in Indo-China. However, the recent rally in anticipation of the stock being added to the SET50 means that upside to our YE12 target price is now only 2%. Its current PERs of 18.9x for FY11 and 16.7x for FY12 appear too high, given an expected 3-year earnings CAGR of 12%. Although potential M&As would boost earnings growth from our current forecast, they might also entail stock dilution. We have, therefore, downgraded our rating to HOLD from BUY.
Slippage from flooding: Although none of BJC’s factories or warehouses was directly affected and all are operating, demand for products—particularly for glass bottles and aluminum cans—has been disrupted because many of its customers’ premises were inundated. Management said some clients might not be able to restart their factories until early next year. As such, the firm’s 4Q11 profit should post a sharp fall, both YoY and QoQ. However, the impact of the flooding on BJC’s earnings appears to be softer than we previously expected. Management guided that consolidated profit was dampened by only around Bt50m in October. As such, in order to align with company guidance, we have upgraded our FY11 earnings forecast 6% to Bt1.95bn.
New capacity on-track: Management reaffirmed that the new aluminum can factory (a 50:50 JV with Ball Corporation) in Vietnam will start-up as scheduled in May 2012. This plant will increase BJC's total can capacity by 30% and the JV should rank third in terms of market share in that country. The utilization rate is expected to be above 90% at start-up, as the JV has already pre-marketed by importing aluminum cans from BJC facilities in Thailand.

More M&As underway: Indo-China remains BJC’s priority target for expansion. The firm currently has distributor and production facilities for glass bottles, tissue paper and aluminum cans (under construction) in southern Vietnam. The next step is to acquire distributors in northern Vietnam and Myanmar. Then it may either build or acquire factories to produce products for which demand is substantial. Based on its current financial position, BJC appears to have Bt4-5bn to spend on M&As before its net gearing would rise above a comfortable level of 1.0x.