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Saturday, May 22, 2010

WHY MAMEE DOUBLE DECKER IS STILL UNDERVALUED?

I've recommended Mamee on 25 July 2009 and those who bought it would have laughing all the way to the bank.Today, I'm recommending you guys to relook Mamee due to its attractive valuation.

There are several reasons for its further upside:
  1. At RM 3.00 per share,Mamee is selling at RM 454 mil. It's earning about RM  44 mil net. Current P/E is around 10.3x...In the Edge Weekly on 3 May 2010, the Board of Directors of Mamee-Double Decker (M) Berhad said that Management has set a vision for the Group to achieve RM1 billion revenue in five years' time. This target would be achievable through the implementation of various growth strategies which was with full support of the Group's staffs, including enhancing our distribution channel locally and overseas, developing and launching new products, as well as undertaking marketing efforts to build our brands. Mamee also aimed to outperform in 2010. If this is true, the 1Q2010 financial result will be very excellent! Assuming the RM 1bil revenue is achieved after 5 years, the net profit is about RM 110 mil (assume 11% industry net profit margin). Applying conservative P/E of 10x, the company would worth about RM 1,100 mil in the next five years, indicating a conservative compounded rate of return of 15% pa. Put it at simple term, if you buy MAMEE at RM 3.00 today, it will worth about RM 7.20 per share in the next 5 years.  
  2. The Board of Directors announced that a dividend policy of distributing a minimum of 50% of group net profits to shareholders. Mamee has became a dividend stock which is still growing organically. Dividend yield is about 5% at current price. Mamee has about 56 cents net cash as at 31 Dec 2009.Net operating cash flow ranging from RM20 to RM30m per year.So, no issue to expand the operation or pays dividend
  3. Pang family owns abut 63% of the company. They eat their own cooking.
  4. To hedge the group’s vegetable oil needs for food production, Mamee’s has entered into 60:40 JV to develop 10,000ha (Phase I: 2k ha; Phase II: 3k ha; and Phase III: 5k ha) of oil palm plantation development in Central Kalimantan, Indonesia in June 2008. This is also another source of recurring income for Mamee after 5 years.
  5. Mamee generated about 30% of its sales from the export markets which cover more than 80 countries across all continents. Australia, being the largest and fastest growing export market, contributed 18% of the total export sales in FY09, followed by Singapore 9%, Russia 7%, Hong Kong 7% and Netherland 6%. The management is targeting to boost its exports contribution to 40% and 50% in 3 and 5 years’ respectively. Appointment of new or additional distributors and more marketing support from Mamee are among the plans to expand its export presence.
To sum it up, you're buying Mamee for long term low risk investment which promised 5% growing dividend yield and 15% compounded return on share price

1 comment:

  1. Mamee experienced a good growth in earnings for the last 4 years (not so much of the top line revenue growth though) and its price has risen from RM1.20 to RM3.00, giving a handsome annual total return to investors of more than 30%. The market has given a generous PER of about 10 for Mamee which it rightfully deserves. If I am not mistaken, this PER is the historical highest. The question is can the annual profit growth of 20%+ be sustainable over the next few years, and how much upside in valuation the market can give it? Over reactions to good earnings in the past few years may cause the regression to its mean in the future.

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