Tipco Foods Public Company Limited, a company listed on the Stock Exchange of Thailand (SET), was selected for the study to determine its company market value relative to selected industry peers. Tipco Foods and selected peers in the food and beverage sector Sales revenue and growth rate. For these purposes, a company listed on the Stock Exchange of Thailand (SET) is selected, while relatively more methods are used for valuation.
BUSINESS DESCRIPTION
Subsidiary and Associated Companies
Tipco F&B Company Limited is engaged in the manufacturing and distribution of ready-to-drink beverage products. Tipco Foods Public Co., Ltd. – as Tipco's main activity is the production and export of canned pineapple, pineapple juice concentrate and canned mixed fruit under the brand name “Tipco”. Tipco's Squeeze Juice Bar also serves as a sales market for other company products such as TIPCO fruit juice and Homsuwan pineapple.
Revenue Structure
We expect continued growth in the RTD sector for many more years to come due to higher demand for healthy beverages, which is the company's main target. For canned pineapple, pineapple juice and concentrate, it will take at least a few years for contract farming to become effective and for the company to get the beneficial results. 100% orange juice: squeezed from quality oranges, comes with orange flesh and non-concentrated.100% fruit juice100% vegetable juice: mixed vegetable and fruit juice Super.
Key Success Factor
Although the ready-to-drink market remains highly competitive, TIPCO F&B Co., Ltd. will development and introduction of new products aimed at expanding the customer base and securing target customers. The company has also taken steps to expand its fruit and vegetable juice customer base in various Asian countries, namely South Korea, Indonesia and the Philippines.
MACRO-ECONOMIC ANALYSIS
Thailand GDP Trend
Consumers Concern
Opportunities for Thailand’s Future Growth
- Greater Regional Integration and Openness (AEC)
- A Bigger Middle-income Class, Especially in China PR
While SMEs can also benefit from Thailand's participation in the AEC, many are likely to feel threatened by the AEC's provisions requiring Thailand to open its market to increasing foreign competition. The Tourist Development Agency, Ministry of Tourism and Sports has shown the growing number of tourists increased by 23.5%, compared to an increase of 7.0%. In particular, the number of tourists from East Asia (62.8% of total inbound tourists) increased by 55.6%, with an increase in the number of tourists from China, Malaysia, Hong Kong and Taiwan.
Tourism is expected to bring in 2.2 trillion THB in revenue this year, tourism ministry Kobkarn Wattanavrangkul said.
INDUSTRY TREND AND COMPETITION
- Agro & Food Industry Groups
- Canned Fruits & Mixed Fruits
- Consumer Goods Groups
- Fruit Juice
- Mineral Water
- Competition Analysis
- Major Competitors
- Future Direction
According to Marketeer magazine (2015), Marketeer for ready-to-drink fruit juice is valued at 12.5 billion baht in 2015. Premium market was worth 4.8 billion baht with market growth of 2%, this category can be further divided into UHT fruit juice which is worth 4.05 billion baht with growth of 2% and pasteurized fruit juice which is worth 0.47 billion baht with growth - 3%. Although the growth slowed down in 2014, the total market share for fruit juice increased by 500 million baht in 2015 and seems to be still moving upwards due to the healthy booming trend.
Furthermore, there has been a high influx of the new fruit juice brands from both domestic and international markets. The growth of ready-to-drink fruit juice has always been very high, in some years the growth was higher than 10%, which was the result of higher consumption. But in 2014, lower consumption from higher household debt had a direct effect on the value of ready-to-drink fruit juice.
Vegetable and Fruit Juice Business: In this business sector it is further divided into 4 groups which include. Ready-to-drink juice (100% natural fruit juice and 25% fruit juice) - artificial fruit juice (25% natural fruit juice mixed with artificial flavors and sugar). These market dominants are very active in running marketing campaigns to increase their market share, so it is difficult for the fruit juice market to compete with this market.
In 2014, the market for 100% fruit juice is expected to grow at around 4% per year, mineral water by 10% and bottled tea unchanged, depending on the variable impact of domestic factors, especially local politics.
INVESTMENT SUMMARY
Major Capital Investment in Mineral Water Business (Aura) within 2-3 Years
Relative Valuation
- Price/Earnings Ratio (P/E): Target price 40.20-47.65 Baht per share
- Price/Book value (P/BV): Target price 15.04-33.62 Baht per share
The former takes the sum of EPS in the previous 4 consecutive quarters of TIPCO multiplied by an average trailing 4 quarter EPS of industry peers from 4 companies. For the latter, the same formula is used, but 3 past and 1 predicted (so-called 'forward') EPS must be used. Another validation of this method used for TIPCO is that one of the trailing EPS is negative.
EV/EBITDA represents not only the real value of the company, but also the ability of the management and the competence of the corporation to create value by removing fixed assets and tax out of valuation. We found that TIPCO's EV/EBITDA is relatively low at 5.57 and 7.67 times forward and trailing valuation. This results in a high valuation share price as multiples of industry peers account for high EV/EBITDA on average.
Again, the calculation is similar to P/E, but more complicated in finding the value of the enterprise from its equation of EV = Market value of equity + Book value of debt - Cash and cash equivalents. First we use trailing and forward EV and calculate an average EV/EBITDA of peers. We estimate TIPCO's trailing and forward EV by multiplying its EBITDA by other EV/EBITDAs.
The target price then takes the estimated EV (both trailing and forward) less cash and cash equivalents, and is then added to the book value of the debt using the value at the end of September 2014 (Q3/2015).
FINANCIAL STATEMENT ANALYSIS: COMMON SIZE AND TREND ANALYSIS
Tipco Foods PCL and the Peers in the Industry
Highlights in the Finanical Statements Analysis: Common Size and Trend
- Sales Performance of TIPCO and MALEE
- Performance in Profitability of TIPCO and MALEE
- Assets, Liabilities and Equity of TIPCO and MALEE
- Assets Utilisation and Productivity of TIPCO and MALEE .1 MALEE still gained higher productivity even though
- Financial Risk Ratios of TIPCO and MALEE
- Investment Performance Perspectives of TIPCO and MALEE The final outcomes of business operating performance. MALEE has been
Clearly, we can see from the charts below that MALEE achieved higher operating profit and net profit of 8.7% and 6.4% respectively in the past year. In the main working capital components, TIPCO has receivables, inventories of 8.8% and 17% respectively against 26.2%. The set of charts below show changes in assets, liabilities and equity in both companies over 2010-2014.
However, over the past 5 years, both companies have been increasing total assets by 2.8% and 4.4% for TIPCO and MALEE respectively (CAGR) and we expect to see their continued growth as the economy recovers. Indeed, falling sales have adversely affected usage in this asset class, as we see in the line chart above that MALEE has been affected more than TIPCO. Both companies' payable collection period was comparable, although TIPCO slightly outperformed its competitor in 2014 with 41 days of collection period compared to MALEE's 51 days.
TIPCO's both ratios have declined every year since 2010 and currently stand at 0.98 and 0.51 for current and quick ratio respectively. TIPCO's continuous underperformance creates higher long-term financial risks as the insolvency ratios in appendix 10 show that TIPCO still has the highest financial risk as it compiles the lowest interest coverage ratio or time interest earned (TIE) of 0.82, which is constantly decreasing from 4.14 in. 2010. Both TIPCO and MALEE decreased in their ratio of liabilities to total equity.
Using Earnings Before Interest and Taxes (EBIT) vs. Average Total Assets and Total Equity, we found that TIPCO's ROA and ROE were 1.17% and 2.46% respectively at year-end 2014, indicating its fall compared to the previous year.
INVESTMENT RISKS AND DOWNSIDE POSSIBILITIES ANALYSIS
- Risks in Higher Operating Costs
- Risks in Higher Financial Costs
- Risks in Labour Shortage That Causes Disruption in Production and Lower Productivity
- Risks in Losing Market Share
Without proper working capital management, the company will run out of cash and thus require short-term borrowing at a higher financial cost. Regarding the rise in interest rates, even though the global economy is still fragile, there are signs of recovery in many countries, such as the US. A rise in interest rates following the example of the US will certainly lead to higher financial costs as the company is expected to maintain a large amount of debt for a few more years.
As the company is involved in the labor intensive industry, while urbanization effects and the mushroom retail business demotivate local labor to work in manufacturing. Machinery replacement will mitigate this risk in the long term, but then a large investment for the purchase and installation of machinery is required. As pineapple struggles with sales and profits, it would be doubtful for management to be committed to the long-term involvement in this business.
This is not only direct competition in the supply of beverage products, but also related companies both upstream such as the supply of agricultural products and downstream such as logistics. The liberalization of labour, technology and knowledge transfer at lower costs will reshape the competitive arena in industry. Loss of market share may be due to greater bargaining power of large retailers.
The use of product shelf space becomes very competitive and it is up to the company's management to ensure that the products offered meet the market demand as well as to maintain strong relationships with those retail operators.
CONCLUSION
Therefore, the study should consider other methods in evaluation, such as discounted cash flow (DCF), where the intrinsic value of the company itself is more exposed and analyzed.
World Bank (2015), Thailand Economic Data, [website], retrieved November 15 from http://data.worldbank.org/country/thailand. TIPCO Foods PCL (2013), TIPCO ANNUAL REPORT, [website], retrieved October 15 from http://www.56-1.com/reports/TIPCO/TIPCO_13AR_en.pdf TIPCO Investor Information (2014), TIPCO INFORMATION FOR INVESTORS, [ Website]. Travel and Tourism (2015), THE AUTHORITY ON WORLD TRAVEL AND TOURISM, [Website], retrieved 15 November from.
APPENDICES
Board of Directors
All members of the Board of Directors serve as members of the Corporate Governance Subcommittee. Phicharn Sluckpetch was appointed as Corporate Secretary on March 25, 2004 as per Board Resolution. The company appointed an individual with appropriate qualifications and experience to take over the duties of corporate secretary.
Knowledge of legal principles and requirements relating to the company and the SEC. - Good interpersonal and communication skills. Oversees the activities related to the meetings of the Board of Directors, the Audit Committee and the Nomination and Remuneration Subcommittee, including the shareholders' meeting. Monitor information disclosure and reporting in accordance with the law, relevant regulations and the principle of good corporate governance.
34; Stock Exchange of Thailand", hereby refers to the Stock Exchange of Thailand in its role as an entity holding securities at 2/. The list of shareholders appears in both Thai and English, subject to Free Float since 20/03/2015.
