Premier Marketing

Premier Marketing Plc (PM)
Action and recommendation
- Initiate coverage with Bt13.00 fair price. We initiate coverage on PM with an “Outperform” rating and a 2013 fair value of Bt13.00, 17.5x PER and 5.3x PBV. We like PM as a small company in a highly competitive market but which can produce better profitability than its larger competitors. PM is trading at a 2013 PER of 12.1x, which is attractive compared with its expected EPS growth of 21% CAGR over the next 3 years. Moreover, as 73% of revenue comes from its distribution service, we think PM can be rerated to trade at a higher PER level as the nature of its biggest business means it could be classified under the commerce sector, which trades at a much higher PER level than the food sector. Also, a decision that must be made by 2014 on its treasury shares will provide a trading catalyst for the stock.
Key investment points:
- Small but high profitability. PM is not only the leader in the fish snack industry with its “Taro” brand, which has a 76% market share, but is a distributor for many other consumer products. With access to over 30,000 outlets in both modern trade and traditional trade storefronts and its abilities to deliver products on time as well as provide better care compared with big distributors, it has been steadily adding new clients. We also found that PM is the most profitable distributor in the consumer product business with a higher net profit margin than BJC (consumer supply chain business), Loxley Trading, and DKSH even though its sales size is the smallest. 
- Rising consumption and number of retail outlets opens door for growth. We believe PM’s core source of revenue, the distribution business, will benefit from the rising trend of strong consumer spending and the aggressive branch expansions being undertaken by retailers in Thailand in every format (hypermarket, supermarket, convenient store and department store). Given the increase in sales channels and outlets, sale volumes are highly likely to rise.
- 2013-15 EPS expected to grow by 18%, 29% and 17%. After impressive 42% YoY growth in 2012, we expect PM’s net profit will improve further by 18%, 29% and 17% in 2013-15, respectively, or a CAGR of 18%. In addition to the expected sales growth of 13%, 13% and 12% in those years on the back of rising sales of its own products and increasing contributions from existing trade partners as well as the addition of new trade partners, an improvement in profit margin from 10.5% in 2012 to 12.1% in 2015 due to more production efficiency and economies of scale will boost its growth potential. Its treasury share reserve (51.8 mn [email protected] avg. cost) will add more exciting news to its cash flow and balance sheet whether PM decides to write them off or resell them in the market. Our current assumption assumes all the shares will be written off in 2014.
- Ready to capture opportunities from the AEC. PM is looking at the possibility of distributing its products in other ASEAN countries. Negotiations with prospective partners are underway and it expects the talks to be concluded this year. We believe PM also has a good opportunity to become a distributor for ASEAN consumer product companies looking to enter the Thai market in the near future. Thanks to its solid balance sheet with D/E and interest-bearing D/E ratios of just 0.52x and 0.02x in 2012, we see it as ready to capture this opportunity. 
Risk
- Higher fuel price; reduction of net trade partner; raw material price and fx volatility
Price catalysts
- Announcement of new investment plan