Premier Marketing

Premier Marketing Plc (PM)

Action and recommendation

- Reiterate Outperform rating with a 2013 fair value of Bt13.00. We expect PM will report another set of good quarterly results in 1Q13 on the back of strong domestic consumption. Its ability to maintain high profitability and the new lower corporate tax rate of 20% in 2013, down from 23% last year, will drive PM’s 2013 earnings. Despite the share price rally of 15% since we initiated coverage last month, the stock is still trading at an attractive 2013 PER of just 13.9x compared with our expectation of 21% CAGR EPS growth over the next 3 years, providing 26% upside to our fair value. We thus maintain our Outperform rating.
Key investment points:
- Q1 2013 earnings to grow by 17% YoY. We expect PM will report nice 1Q13 earnings of Bt125mn, up 17% and 5% QoQ. With normal operating growth being supported by consumers’ growing preference for healthy snacks, we expect PM’s revenue in 1Q13 will increase by 12% YoY. Also, its gross margin should improve to 27.5% from 26.0% in 1Q12 due to better operating efficiency and improved cost controls, however an increase in SG&A to sales will offset the positive impact. EBIT margin is thus expected to stay at the same level of 1Q12. Tax savings from the lower corporate tax (from 23% to 20%) will push 1Q13 earnings growth of 17% to be higher than sales growth.
- Slight improvement seen on QoQ basis. Due to seasonal factors, we see PM’s 1Q13 revenue falling by 5% QoQ. Gross margin should stay at the same level as in 4Q12 since we expect there was no big change in product mix or production costs. However, seasonally low selling expenses in 1Q13 should reduce SG&A to sales to 13.5% in 1Q13 from 15.3% in 4Q12, while lower interest expense and the lower corporate tax rate should boost its bottom line by 5% QoQ despite the expected 5% drop in revenue.
- Maintain our 2013-15 EPS growth of 21% per year. Thanks to the nice developments so far, we maintain our 2013-15 earnings growth forecasts for PM at 18%, 19% and 17% respectively. However, due to our assumption that it will write off all treasury stock (51.8 mn [email protected] avg. cost) in 2014, EPS growth will outpace net profit growth with gains of 18%, 29% and 17% over the same timeframe. However, should the company choose to resell these shares in the market to raise cash for any big investment or an M&A, EPS growth in 2014 will return to the same level as net profit growth.
- M&A is possible. Management revealed it is keen to do an M&A but the investment must be related to PM’s existing businesses and PM should have management control. We think there is a possibility the target company will be a consumer product brand that can help boost PM’s portfolio of own brand products. Although PM did not reveal any details about a possible deal, either in terms of its size or timeframe, investment money is not a concern as it has a sufficient level of working capital and the option to resell the repurchased shares.
Price catalysts
- Announcement of a new investment plan.