Friday, July 19, 2013

Singapore Discovery Series: Yeo Hiap Seng (CS)

Singapore Discovery Series: Yeo Hiap Seng
Property development mostly done; back to F&B

● We met with YHS’ management for an update on the company. YHS operates in two segments: F&B and property development, and has c.S$400 mn in cash + investments (with little debt). It has c.S$90 mn (fair value) of investment properties in Hong Kong/ Malaysia.

● Property income (S$54 mn in 2012) was historically driven by YHS’ 'monetizing' land bank in Singapore. Management said that property business is the realm of its principal shareholder and that the company may not re-invest in the space. The company did not say that it would develop any of its Malaysian holdings near term.

● YHS sells its own brands (Yeo's, H-Two-O) of packaged drinks and is the distributor and bottler for Pepsico in SG and distributed brands such as Red Bull and Evian. While gross profits for F&B have grown from S$125 mn to S$146 mn over three years, net profits have been flat (S$5 mn) due to higher costs (competitive pressure).

● YHS hopes to improve efficiency through reorganisation of its manufacturing locations (in MY and CN). The company said it is also expanding in Indonesia and Cambodia and hopes to increase its top line from S$400 mn in 2012 to S$1 bn in a few years.

Company meet
YHS operates in two principal segments: (1) Food and Beverages and (2) Property Development. As at 31 March 2013, the group had S$132 mn of cash and equivalents and S$277 mn of “available-for-sale” financial assets which also contributed to income. With total borrowings of about S$18 mn, the group is in a net cash position. YHS has c.S$90 mn of investment properties which are carried at fair value—estimated annually by independent valuers.

Property business—past its peak
YHS generated S$164 mn of revenue and S$54 mn in net profits from its property business in 2012; both numbers are at 8-year highs. This is unlikely to be sustained, management said. The property business was largely driven by YHS 'monetizing' its land holdings (erstwhile factories), which seems to be largely completed. Management said that property development will remain the realm of their principal shareholder—the Far East group. Proceeds from any future property development (on residual land available) will likely be reinvested into the F&B business. While YHS has some land holdings in Malaysia, the company said these may not be close to being monetized in the near term.

F&B: Cost pressure
YHS sells the “Yeo's”, “H-Tow-O” and “Pink Dolphin” brands of packaged drinks and is the bottler and distributor for Pepsico and has distribution partnerships with brands such as Evian, Red Bull and Volvic. Pepsico (and its subsidiary) has a preferential right to acquire shares in YHS should the holding of FEO (and its subsidiary) fall below 51%.

Gross margins for the F&B business have remained stable at c.36% over the last three years. Gross margins have increased from S$125 mn in 2010 to S$146 mn in 2012. Net profits, however, have not grown and were at S$5 mn in 2012 (S$4.3 mn in 2010), management said. While detailed segmental splits are unavailable, total selling, advertising and administrative expenses have increased from S$115 mn in 2010 to S$145 mn in 2013. We understand from the company that c.50% of F&B revenue is derived from Malaysia (SG: c.29%, China: c.10%). In the 1Q13 results release, YHS has suggested the F&B division’s margins are likely to be squeezed by competitive pressures.

Focus on efficiency, Indonesia and Cambodia
Management wants to focus on operating efficiency and production processes to enhance F&B profitability. A reorganisation of five manufacturing locations in Malaysia, expansion of capacities (S$40 mn PET plant at Shah Alam, S$10 mn on a can line in SG) are planned. YHS’ Guangzhou facility has been re-zoned and has consequently been leased out by the company, while the Shanghai plant was shut at end of 2012; with facilities moving to Sanshui, Foshan. YHS has had serious staff attrition in China—affecting business.

Management hopes to grow presence in Indonesia and Cambodia; and has already acquired land outside Jakarta while they may sell through a distributor in Cambodia. Management feels that the Indonesian taste profile is similar to that in Malaysia, and they hope to leverage existing products to increase sales in the country. Management hopes to reach S$1 bn in sales from the current S$400 mn in the F&B business. Management suggested the major shareholder is open to strategic partnerships with global firms—but these should be those that can take YHS to the ‘next level’.

Source/Extract/Excerpts/来源/转贴/摘录: Credit Suisse
Publish date: 17/07/13

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