Ichitan Group

Ichitan Group Plc (ICHI)

- 1Q14 net profit was reported at B202.4m, rising 14.9%yoy; B40.3m Fx
gain was booked in 1Q13. Excluding extraordinary items, 1Q14
normalized grew by 48.7%yoy. Because the abnormally cold weather in
January - February affected drink business nationwide, ICHI's sales
volume fell by 8.3%yoy to B1,497m (versus 10.5%yoy decrease in
OISHI's income from drink business). Also, selling and administrative
increased by 15.6%yoy due to ICHI's aggressive sales promotion
programs, thus raising SG&A/Sales from 16% in 1Q13 to 20.3% in
1Q14. However, gross margin improved from 26.5% in 1Q13 to 36.5%
in 1Q14 because ICHI could reduce original equipment manufacturing
(OEM) with higher cost per unit. ICHI's 1Q14 normalized profit margin
was 13.5%, better than OISHI's (drink business) 1Q14 normalized profit
margin of 5.8%. In terms of financial structure, ICHI's net gearing
dropped to B0.99; its debt burden softened thanks to a capital increase.
- Acquires Bireley's to expand product lines and business
According to the company meeting, ICHI has approved to invest
B1,780m on the following items: 1) acquisition of trademark rights and
juice recipe under Bireley's in 16 countries (Thailand, Cambodia, South
Korea, Canada, Myanmar, the Philippines, Malaysia, Singapore, US,
China, India, Hong Kong, Bangladesh, Indonesia, Taiwan and Vietnam)
from Sunny Herbs International Beverage Co. Ltd. (SUNNY), totaling
B240m; 2) investment on a 76-rai land in Rojana Industrial Park
(Ayutthaya), totaling B244.9m; and 3) construction of a new factory and
installation of machines and equipment (an assembly line can produce
200 million bottles/year), totaling B1,295.1m; this will be the second
factory after the first factory reaches 100% of its capacity. Investment
on Bireley's would expand ICHI's product lines (over 90% of ICHI's
income is from green tea and herbal drink businesses) into juice
business in order to diversify risk and focus more on juice-drinking
customers. According to MALEE’s information (56-1 report), vegetable
and fruit juice market was worth about B12bn (307.66 million liter) in
2013. Bireley's is included in a 'economical and super-economical juice'
(containing under 25% of natural juice) market that was worth B5.3bn
(191.5 million liter) or 44% of total juice market.
- Forecast under revision. Waiting for clarity
We are currently revising ICHI's earnings forecast to reflect the
aforementioned investment. Preliminarily, ICHI's current factory would
be able to produce the new product under the trademark “Bireley's”
within 2014.