Mamee-Double Decker - FY07 results above estimates

Mamee-Double Decker - FY07 results above estimates (Results Note)
Price: RM2.05
Target Price: RM2.20
Recommendation: HOLD


· Mamee-Double Decker's (Mamee) 12MFY07 net profit of RM14.0m was above expectations, coming in 15% above our forecast. The negative impact of rising commodities prices, while large enough to cause a 33% YoY decline in 12MFY07 EBIT, was less severe than we had anticipated.

· Competition eating into local sales. YoY, FY07 net profit declined by 40% despite a 3% increase in revenue from higher export sales. Domestic sales however decreased due to heightened competition from both local players and cheap imports such as Indonesia's 'Sedap'. FY07 pretax profit decreased by 33% in line with the reduction in EBIT because of escalating raw materials costs (palm oil, flour).

· Escalating raw materials costs mitigated by lower marketing expenditure. YoY, 4QFY07 net profit improved marginally by 2% corresponding to a 2% increase in 4QFY07 revenue, driven by the higher retail price of instant noodles. Pretax profit increased by 29% due to lower advertising and promotions expenditure offsetting higher input costs.

· Decline in beverage and exports QOQ. 4QFY07 net profit was 3% lower QoQ, as the 10% decrease in 4QFY07 revenue, caused by decrease in beverage and export sales, was partially mitigated by lower taxation, with 4QFY07 effective tax rate 4% lower QoQ due to the timing of tax claims.

· Maintaining FY08 and FY09 earnings estimates. Expect prevailing market conditions to remain tough for the foreseeable future with the rising trend of commodities prices to continue and with new foreign entrants continuing to steal market share.

· Maintain HOLD recommendation and target price of RM2.20 based on lower PER of 12x (at 1x discount to industry average FY08 PER of 13x) applied to FY08 FD EPS of 22.3 sen. We are lowering target PER to bring it in line with the lower average FY08 PERs of Mamee's local peers. Prospective FY08 dividend yield of 8% adds some interest.


KENANGA INVESTMENT BANK BERHAD (15678-H)

Research Department