Premier Marketing

Premier Marketing Plc (PM)

2Q13F net profit to soften QoQ to Bt102mn. We estimate 2Q13 net profit at
Bt102mn, -19% QoQ but +28% YoY. Sales are expected to reach Bt981mn -2.9%QoQ but
+9.5% YoY, the QoQ slip not unexpected, since 2Q is generally a low season, with high
season in 4Q and 1Q. SG&A expenses in 2Q are highest from marketing and employee
expenses; we expect 2Q13F SG&A expenses to take ~15.1% of total sales, compared to
1Q13’s at 12.7%. This will lower 2Q13F net margin to 10.4% from 12.4% in 1Q13.
Although a portion of its food production involves tuna for OEM, it is not materially
affected by the fluctuations in tuna prices since it charges cost plus, meaning its OEM
clients shoulder the cost of tuna.
Strong performance continues. PM’s revenues come from two major sources:
distribution (73%) and consumer product manufacturing (27%). This is an ideal
combination: it distributes its own outstandingly popular consumer products. We
expect PM to maintain a gross margin of ~27.5% in 2013-2015, based on a greater
utilization of its distribution network 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. 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 and DPS of Bt0.40, while 2014 EPS is expected to be Bt0.94 with DPS of 0.47.
Taro is still the hero. Taro fish snack continues to rule over the market with a huge
share of ~75%. PM plans to increase the flavor varieties of “Taro” fish snack by the end
of 2013 to maintain its market share. For distribution channels, PM also plans to
increase its merchandise partners in 2H13. The acquisition of MAKRO by CPALL will be
slightly negative for suppliers and distributors like PM because the larger the client, the
heftier its bargaining power. However, its continuing popularity gives Taro an edge in
bargaining.
Valuation and recommendation. We recommend Buy, giving a fair value for PM of
Bt14, based on 15x PER in 2014. Though most of its revenues come from distribution, it
trades in the Food & Beverage sector rather than Commerce, where average PER is a
much higher 25x. We also expect an interim dividend of ~Bt0.18.