Mamee-Double Decker Bhd
(May 4, RM3.14)
Outperform at RM3.12 with target price of RM3.63: We like Mamee due to: (1) its good track record and competence to develop food products as well as branding the products; (2) net cash position of RM84 million (56 sen per share); (3) high dividend payout policy; (4) strong presence in Australia and with Coles, Australia’s second-largest retailer is knocking on their doors; and (5) a beverage segment — comprising yogurt drink, Nutrigen, and soft drinks — is making its present felt.
Our fair value of RM3.63 was derived based on 34.9 sen FY11 earnings per share (EPS) and a price-earnings ratio (PER) of 10.4 times which is 23.8% premium.
Mamee, which was established in 1971, has successfully developed a brand name in the area of instant noodles, snacks and confectionery. Seventy per cent of their products are sold locally with 30% exported to more than 80 countries.
Australia is their main export market, contributing 18% of its total export revenue. Replacing “Pringles” with “Mr Potato” chip snacks in the shelves of Woolsworth chain of supermarkets, which is Australia’s biggest food retailer, gave Mamee a big boost. Competitive pricing and strong quality were the main drivers.
Mamee’s invasion into Australia did not stop at “Mr Potato”. Its flagship product “Monster Noodle” snacks is now sold in Australia’s schools, clearly endorsing the quality of its products.
Its noodles segment Mamee Instant Noodle (MIN) account for between 22% and 25% of its total revenue, capturing a large market share from its main competitor Maggi Mee.
MIN currently enjoys 14% market share in the noodle segment market, which is valued around RM800 million to RM900 million according to World Instant Noodles Association (WINA).
With 10 new snacks and noodles expected to roll out in 2010, Mamee plans to spend a total of RM35 million or 8.5% of FY09 revenue on advertising and promotion. This should boost their top line to about 10% FY11.
Mamee’s continuous success could be attributed to: (1) its ability to introduce new products continuously in niche areas where the company has a distinct brand recognition; (2) expand export sales with selected niche products and assist distributors to achieve higher sales targets; (3) good cost management via hedging of raw material prices, bulk buying, cash payment discount and better production scheduling; and (4) expanding their business through acquisition of food-related companies with existing brands and leverage on its manufacturing expertise and distribution channels to grow total revenue.
Mamee is still locally dependent as 70% of their sales are domestic driven with the strategy to increase overseas contribution to about 50%. Currently, it has a production plant in Myanmar to produce products for the Myanmar market. It sees vast potential in Thailand, Indonesia and Cambodia especially with their Monster Snack products. — Inter-Pacific Research, May 4
This article appeared in The Edge Financial Daily, May 5, 2010.