Berli Jucker

Berli Jucker Plc (BJC)

 

Investment thesis

We believe BJC’s strong earnings growth in 2H15 has already been priced in with the recent share-price rally. BJC currently trades on core PERs of 28.7x FY15 and 25.9x FY16. Although its multiples are still in line with peer average, its growth profile is much lower (three-year EPS CAGR of 8.3% versus peer average of 18.3%). Moreover, we expect its EPS growth will enter a decelerating trend from FY16, while that of its consumer peers are improving. However, we think it is too early to take profit on the stock as we expect robust earnings growth performance in 4Q15 should continue to support the share price. Our HOLD rating stands.

Strong earnings growth period is passing

Since 2Q15, cheaper raw material and energy costs have played a major role in fueling BJC’s earnings growth. Its core earnings rose 22% YoY in 2Q15, while the windfall from a change in the design of Chang Beer bottles accelerated that growth further to 27% YoY in 3Q15. This growth momentum should continue into 4Q15 as these factors will continue to play out. However, the growth is likely to decelerate to single digit next year as we don’t expect raw material and energy costs to go lower. The volume growth in its Packaging business should be limited due to its full utilization rate, while a recovery in its Consumer business would fail to offer much help as it contributes only around 20% to the bottom line.

Long-term growth would come from CLMV

In the past five years, BJC has focused on expanding its businesses in CLMV countries. The proportion of international sales rose from only 4.6% in 2009 to 20.1% for 9M15. But, profit contribution has still been small given that the major input comes from its distribution business, which has a very slim margin. In our view, profit contribution should be more considerable after success in expanding its retail business in the CLMV sub-region. 

Update on retail business in sub-region

Management said the acquisition of Metro Vietnam (MV) by TCC (BJC’s parent company) should be completed in late 4Q15 to early 1Q16. TCC, will then hire BJC to manage MV. If BJC finds successfully turns around MV (which should take at least a couple years) and wants to own it, BJC has an option to buy MV from TCC at the TCC’s total costs.

BJC plans to accelerate its rollout rate of B’s Marts, its CVS chain in Vietnam. Currently, there are 106 B’s Mart shops in Ho Chi Minh City and BJC targets to have 120 outlets by YE15 and 200 stores by YE16. After that, it would open 100 new outlets a year. If the firm can achieve the target, B’s Mart should start to report black ink in next couple years.

BJC is a franchisor of M-Point Mart (MPM), the largest CVS chain in Laos. MPM currently has 22 stores and aims to open 50 new outlets next year. Note that BJC is without ownership in MPM due to regulation, but it plans to have some stake in MPM once regulations change after AEC.