Analysts Notes

August 8, 2011

Analysts Notes: Universal Robina Corp. (URC)

Decline in reported income due to escalated commodity
prices and mark-to-market losses. URC management expects a 7% decline in core earnings on the back of heightened prices of sugar, flour and wheat. In addition to this are
mark-to-market losses from some of its financial assets.
However, with commodity prices having started to collapse,
the company is optimistic that it would be able to deliver
better margins after 2011. URC has also increased prices of
its good by 6 to 7 percent this year, which should help mitigate the rising costs of raw materials.
Figure 1. S&P World Commodity Softs Index (12 months)

Figure 2. Financial Assets at Fair Value (as of FY 2010))

Source: URC financial statements

BCFG International: the next growth story. BCFG (Branded
Consumer Foods group) International is said to be the next
big growth driver in URC. With presence in emerging economies such as Vietnam and Thailand (its 2 biggest overseas
markets), the company is optimistic that it would be able to
reach buoyant growth in sales as the markets are still young
and previously untapped. Current percentage of international sales to total sales is around 35 to 40% of total sales
(in dollar terms) and the company is targeting 50-50 share
(i.e. 50% for both BCFG Intl. and BCFG-Phil.). Other ASEAN
markets include Indonesia and China but these 2, especially
Indonesian operations, are rather underperforming since
market dynamics are different.
Figure 3. BCFG International Performance2003 to 2010

Source: Bloomberg
Retirement of HFT investments in Jan-2012 should provide
for less volatility in bottom-line. Recall that URC had experienced severe slumps in bottom-line due to mark-to-market
losses in its HFT investments. These investments consist of
private bonds (65%) and equity securities (33%) denominated in USD. (The company had previously acquired the
said assets due to excess funds from its floating bonds
issuance back in 2005.) According to URC IR, the board will
be deciding whether to terminate the investments by January 2012. We think that this should be the more logical step
so as to have a cleaner balance sheet.

Source: URC Investor Presentation

Analyst: Ghia Yuson (gyuson@firstmetrosec.com.ph)

Analysts Notes
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Figure 4. URC vs Regional Peers

Source: Bloomberg

Figure 5. URC Monthly Net Foreign Transactions YTD

Source: Technistock

August 8, 2011

Analysts Notes
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August 8, 2011

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