Premier Marketing

Premier Marketing Plc (PM)

PM is a great defensive stock with good earnings and dividend growth,
fuelled by the strong growth in the snack market where its “Taro” fish
snack holds a 75.1% share. Growth will also be facilitated by expansion
of its distribution channels to match growing urbanization and steady
addition of new product items for distribution. We initiate coverage of
PM as a BUY with a target price of Bt14.

Without doubt, a safe haven. PM’s revenues come from two major sources:
distribution (73%) and consumer product manufacturing (27%). This is an ideal
combination: distributor for outstandingly popular consumer products that it
manufactures. PM is enjoying higher operating leverage, with revenue and profit rising
but fixed costs stable, after passing breakeven in 2010. Its average net profit growth in
the prior three years (2010-2012) was 22%. We estimate 2013 earnings growth of 20%
YoY with EPS of Bt0.81, 14.5x current PER, and DPS of Bt0.40, 3.4% dividend yield.
Nationwide distribution and plans to explore AEC markets. PM distributes
consumer products via three channels: modern trade outlets (50% of distribution
revenue), traditional trade outlets and its “cash” vans that load up with goods and sell
on the spot. PM has achieved a good deal of its success via its work to obtain the most
prominent shelves to display its products, with the high popularity of its “Taro” snack
helping expand its exposure in modern trade channels. PM aims at becoming a
consumer product distributor throughout ASEAN as well as acting as a sales agent to
distribute products from other countries in ASEAN in Thailand. The market should
expect to be titillated by a regular release of new expansion plans.
Strong margins. We expect PM to maintain a gross margin of ~27.5% in 2013-2015,
based on a greater utilization of its distribution networks and manufacturing plants
that will boost economies of scale. Net margin is estimated at ~10.7%, far better than
the 5-7% for other consumer product distributors.
Valuation, recommendation and risks. We initiate coverage of PM by tagging it as
a Buy, valuing it using as a benchmark 2013 PER for the Food & Beverage sector of
16.8x, which gives a fair value for PM of Bt14. Though most of its revenues come from
distribution, its share was put in the Food & Beverage sector rather than Commerce,
where we note that average PER is a much higher 38.5x. There is some risk from
competition heating up and pressuring marketing and pricing in modern trade outlets,
but we do not see this as a serious risk. Other concerns are higher raw material and oil
prices and non-renewal of sales agent agreements by its customers.