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Almarai
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Margins and Infant Milk lead to Overweight
3Q09 net income growth was 24% with gross margins increasing by 380bps to 45%, due largely to savings on raw material costs. In addition, with potential synergies from the HADCO acquisition and our initial inclusion of cautious numbers on the Infant Milk investment, we increase our estimates and PT to SR200 and upgrade to Overweight.
• Good margins – more to come, along with Infant Milk drive upgrade to Overweight: In addition to the better than expected margins in 3Q09, we expect further margin support via synergies from the 35 sq. km. of land included in the HADCO acquisition. Coupled with this, we have included for the first time cautious numbers for the Infant Milk investment into our model. This results in our 2010e and 2011e EPS estimates increasing by 6.7% and 8.4% respectively.
• Solid 3Q09 numbers: 3Q09 revenues came in at SR1,547mn, an increase of 11.4% YoY (SR1,389mn in 3Q08). Sales growth was largely driven by robust performance in Fruit Juice (23% increase in YoY sales for 3Q09) and Cheese and Butter (11% increase in YoY sales for 3Q09).
• Profit gains due to lower raw material costs: Gross profits for 3Q09 came in at SR698mn (up 21.8% YoY vs. SR573mn in 3Q08). This increase was repeated at the Net income level where 3Q09 came in at SR363mn (up 23.8% YoY vs. SR294mn in 3Q08). Due to lower costs, gross margins increased by 380bps to 45% with net margins up by 230bps YoY to 23.5%
• Good entry point ahead of potentially lucrative 12-18months: Since our initiation in May 2009 as a Neutral, Almarai shares have averaged SR156 with our most recent PT at SR163. With the integration of the HADCO and Beyti deals as well as start of production at the new bakery and infant milk plants, we believe the coming 12-18 months are set to herald a new phase in the growth of Almarai into a leading food company resulting in our upgrade to Overweight. Based on our new PT, our implied 2010e P/E is 16x falling to 11x by 2012e.
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All data at market close |
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