Mamee-Double Decker Bhd
(July 23, RM3.70)
Initiating coverage with buy recommendation at RM3.70 with target price of RM4: Mamee Double-Decker (Mamee) is one of the leading manufacturers and marketers of snacks, instant noodles and beverages, with 80% of its group revenue coming from snacks and instant noodles. Mamee has been able to defend its leadership in the snacks market because most of its brands are themselves market leaders. The dominant brand in Mamee’s snacks division is Mister Potato, which toppled previous leader Pringles (from Procter & Gamble) for pole position when it snared 45% of the potato crisps market. The company’s concerted efforts to create brand awareness via aggressive advertising and promotions will continue to drive sales.

Other than a strong presence in Malaysia, Mamee is also growing overseas. In Myanmar, it is one of the leading instant noodle brands behind “Mama” and “Yum Yum” noodles. In France, Mamee commands the largest market share in instant noodles at 35%.

Mamee has a wide network of distribution channels covering the major retail chains as well as distributors who serve single retail outlets throughout Malaysia. The group also exports to more than 80 countries. Its top export markets are Australia, Singapore, Russia, Hong Kong and The Netherlands. Australian sales contribute close to 20% of its total revenue. Mamee is targeting to grow the contribution of its export segment to 50% from 31% currently. The company plans to focus on the five top export markets by increasing the number of distributors from two to five per country. Mamee also plans to allocate more advertising expenses to these export markets.

Mamee has net cash of RM45.7 million and is well supported by a healthy net operating cash flow of RM20 million to RM30 million a year. The group has a 50% dividend payout policy, which translates into a dividend yield of 4.4% based on our FY2010 dividend forecasts.

Given the recent rally in the share price, upside to our target price of RM4, based on the PER of 11 times over FY2011 EPS, is rather limited. Nonetheless, given the current strong sentiment on consumer stocks, we initiate on Mamee with a buy. — OSK Investment Research


This article appeared in The Edge Financial Daily, July 26, 2010.