Monde Nissin Corporation (MONDE), the Philippine market leader in instant noodles, sweet biscuits, and savory biscuits, plans to offer primary shares of 3.6 billion shares during its upcoming Initial Public Offering (IPO), with an overallotment option of 540 million shares.

The company’s offer period will run from 24 May until 28 May. MONDE will be available to be traded upon its listing under the Philippine Stock Exchange (PSE) on 7 June.

Industry Leader

Monde Nissin leads the Philippine market for instant noodles with a 68.7% market share in 2020, down from 70.3% in 2016. Euromonitor projects the instant noodle category to grow at a 6.8% CAGR from 2020 through 2025. The average Filipino spends less on instant noodles than his Asian neighbors, at $7.60/capita, versus $11.1 in Indonesia and $9.0 in Thailand, indicating potential for increased consumption.

Markets for sweet and savory biscuits in the PH are expected to grow at compounded annual growth rates (CAGRs) of 5.8% and 6.1%, respectively, from 2020 to 2025E. The firm is the market leader in both categories, though its lead is only slight in the fragmented sweet biscuit industry.

On the other hand, Quorn is the UK market leader for meat alternatives, an industry that achieved an estimated $8 billion in sales in 2020. Sales are estimated to reach $11 billion to $50 billion by 2025, according to OC&C. Using the growth of milk alternative products as an analogy, Barclays estimated that alternative meat could reach up to a 10% market share of the global meat industry. Quorn’s UK market share was 28% in 2020 (it also owns Cauldron, which held a 5% share), while its US market share was around 5%.

USE OF IPO PROCEEDS

Over 60% of the IPO proceeds will be used to service debt. About 28.66% of proceeds will be directed to the redemption of the convertible notes issued to Arran Investment Pte. Ltd worth P7.26 billion in 2019.

Moreover, roughly 34.55% of proceeds will go towards repaying the group’s various subsidiaries’ loans from commercial banks. The remaining 36.79% of proceeds will go toward capex to expand capacity for both APAC BCF and Quorn.

Major projects include the completion of MONDE’s Malvar, Batangas facility and its new healthy noodle line (using “high-speed airflow” tech to reduce palm oil use) in Thailand — its 2nd healthy noodle line following the 1st in the PH.

PROFITABILITY

The company was able to return impressive 2020 results amid the pandemic and despite seeing a +28% year-on-year (y/y) in impairment losses. Based on its prospectus, the rise in impairment losses was anchored from the lower-than-expected fermentation capacity and higher opex of its Meat Alternative new forming production line.

Nonetheless, Monde Nissin Corp. (MNC)’s bottomline showed a year-on-year growth of +21% y/y to P8.07 billion from P6.65 billion a year prior. This was the case after seeing its FY2020 net sales grew by +4% y/y to P67.95 billion, coupled with lower raw material costs and overhead expenses across its segments — leading to margin expansion.

Revenue Breakdown

Its Asia Pacific (APAC) Branded Food & Beverage (BFB) business takes the lion’s share of MONDE’s topline, contributing 77% on average. Further break down of this segment, shows that its flagship noodle brand, Lucky Me! makes up 48% on average.

Followed by the Biscuits category (Skyflakes, Fita, etc.) at 32%, and about 20% came from Other Businesses (MY San Grahams, Mama Sita’s, and Dutch Mill). Meanwhile, its Meat Alternative Business takes the remaining 33% with majority of the sales derived from the UK and US markets.

For the rest of our forecast period, we don’t expect any dramatic shift in the current revenue mix of MONDE but we expect its Meat Alternative business to register growth post-pandemic, capitalizing on the rise in health consciousness of the public and resulting from successful partnership with QSRs.

Financial Analysis

The increase in the equity base of MONDE is expected to drag down its Return on Equity (ROE) during its public debut. Nonetheless, it should normalize in the coming years. Likewise, EPS and Profit Margins are projected to expand on the back of improved bottomline and efficient cost management arising from the use of its high-speed air flow technology in its production lines.

Since a chunk of its IPO proceeds will be used to deleverage, its Asset-to-Equity (A/E) ratios then are forecasted to fall — in the assumption that no long-term additional debt obligation will be taken in by MONDE. Historically, MONDE has been paying cash dividends with varying amounts. Hence, the high variation across its historical dividend yields. This year, MONDE declared a P1.19/sh cash dividend last 31 Mar, payable this coming 31 Dec.

Summary of Analysis

Pros

  • Market leader in various categories in the PH (instant noodles, biscuits, culinary aids, and yogurt milk)
  • Room for growth in the underpenetrated alternative meat market, locally and globally;
  • Better asset efficiency than competitors

Cons

  • Highly leveraged
  • Quite expensive than the index and the industry

Recommendation

MONDE is estimated to offer a dividend yield of 8.11%, given its offer price of P13.50 per share. At this price, the company has relatively attractive Price-Earnings (P/E) ratio compared to its competitors, but still relatively quite expensive compared to the PSE index and the industry.

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