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CENTURY PACIFIC FOOD, INC.

This report is published for educational purposes only by students competing in the
CFA Institute Research Challenge.
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RECOMMENDATION TICKER SYMBOL USD1.00: CLOSING PRICE TARGET PRICE UPSIDE

BUY CNPF:PM
(Bloomberg)
PHP49.78
as of 29 Nov 2016
PHP17.10
as of 29 Nov 2016
PHP22.91 34.00%

the ASEAN, consumer confidence is higher than ever, driving

NOURISHING BOUNTIFUL
OPPORTUNITIES
We initialize coverage on Century Pacific Food, Inc. (CNPF)
with a BUY rating based on a twelve-month target price of
PHP22.91 using the Discounted Free Cash Flow to Equity
Method (DCFE). This presents an upside of 34.00% from its
closing price of PHP17.10 on November 29, 2016. The growth
gained by CNPF is associated with emerging health and well-
ness trends and enthusiastic macroeconomic fundamentals
fortifying earnings, both current and forecasted. With the
broadening market reach of the company and its employed
brand building initiatives, CNPF’s potential to cater the coun-
try’s rising working population strengthens the group’s cre-
dence towards the reassuring future of the company.
Enter Premiumization. In search for brand heritage and lux-
urious experience at the right price, the earning middle class
has pushed a shift in the consumption of more exciting, spe-
cial products that signify their movement one income tier high-
er, without too much of additional costs. CNPF’s portfolio of
premium brands Is expected to greatly benefit from the rise of
the aspirational, driving strong growth beyond 2016.
Enthusiastic Macroeconomic Fundamentals. In spite of
the global economic slack, the Philippines ranks first with
the largest GDP growth of 6.9% surpassing peer countries in
the Asia-Pacific. Projected to be one of the top economies in
companies such as CNPF to shell out more products to feed
to the consumption-driven workforce.
Expanding Market Reach. Additional distribution channels to
unpenetrated areas in Visayas, Mindanao and other parts of
Luzon are expected to improve the presence of CNPF’s prod-
ucts across the country. Widening its market scope allows the
company to attain forecasted increase in revenues and build
reliance on its products. The establishment of its coconut busi-
ness opens up more opportunities for growth in high-demand
areas globally.
Emerging Health and Wellness Trends. Influenced by the
increasing want to look and feel good, the growing health
consciousness of consumers and their optimism towards a
healthier diet result to increase in demand for organic, healthy,
and convenient products.
COMPANY OVERVIEW
Century Pacific Food, Inc. (CNPF) is the Philippine’s largest
canned food company. Beginning its operations back in 1978
as a pioneering tuna canning facility engaged in processing and
exporting tuna, tagged back then as Century Canning Corpo-
ration (CCC), the company eventually developed into expand-
ing its distributions locally. Incorporated on October 25, 2013,
CNPF is classified under the industrial sector of the Philippine
Stock Exchange (PSE), under the subsector of Food, Bever-
age and Tobacco. The company has established reputation

Table 1. Market Profile, 2016 Figure 1. Share Price Movement Table 2. Target Price Breakdown
8000 18
Closing Price (PHP) 17.10
Component Value (PHP) Weight
52-Week Price Range (PHP) 9.81 - 18.60 7500 13.5
Marine 6.73 29.35%
Shares Outstanding (in Billions) 3.541
Meat 5.99 26.14%
CNPF
PSEi

7000 9
Market Cap (in PHP Billions) 61.260
Marine Exports 1.71 7.47%
Dividend Yield 0.39% 6500 4.5
Milk 4.65 20.30%
P/E 23.27x
6000 0 Coconut 3.83 16.73%
Free Float 20.00%
Target Price 22.91 100%
0 4

1 4

1 4

0 5

0 5

1 5

1 5

0 6

0 6

5/ 6
16
09 /201

12 /201

03 /201

06 /201

09 /201

12 /201

03 /201

06 /201

09 /201

02 /201
20

EPS (in PHP) 0.61

0
/3

/3

/3

/3

/3

/3

/3

/3

/3

/3

/0
06

Source: Bloomberg Source: Bloomberg Source: Team Estimates

1
in the market with their marine and meat segments, notching
market-leader positions with familiar consumer brands such
as Century Tuna and Argentina corned beef.
President and CEO, Christopher Po, spearheads Century Pa-
cific Food, Inc., alongside EVP and COO, Teodoro Po, and
CFO, Oscar Pobre, equipped with meaningful experience and
their respective fields of expertise. The ownership structure
of the company is dominated mainly by the Po Family with
69%. 21% of CNPF’s ownership rights is offered to the public
through PSE while GIC Private Limited possesses 10% of the
total ownership of the company (Figure 2).
The corporation presently operates six manufacturing facilities
in the Philippines in four core-business segments: Marine (in-
cluding marine exports arm), Meat, Milk, and Coconut.
BUSINESS SEGMENTS
Marine. Engaged in the processing and manufacturing of fish,
bulk of the Marine revenue is attributable to the sales of Cen-
tury Tuna and 555 Sardines whose raw materials are primari-
ly sourced from domestic and international fishing operators.
Currently, CNPF is producing 54% (Figure 3) of the total pro-
duction of canned and processed fish and essentially holds
84% of the total market share in canned tuna (Figure 4). Manu-
facturing plants for the Marine segment include one in General
Santos City with a size of 52,626 squared meters specializing
in tuna and two focusing in sardines located at Zamboanga
and Cavite with sizes of 38,000 and 2,500 squared meters,
respectively. This segment represents 38% percent of the
company revenues for the first three quarters of 2016 (Table 3)
and challenges the company to maintain its healthy operating
margins in the coming years or so.
Meat. CNPF leads the canned meat production market as well
with a thriving share of 37% (Figure 5). The company’s Meat
segment also flourishes in the canned meat segments market
boasting a 46% share in corned meat (Figure 6) and a 34%
share in luncheon meat (Figure 7). This division utilizes import-
ed raw materials from the United States, Brazil, and Argentina
and are processed in its manufacturing facility in Laguna. 28%
of the company revenues for the first three quarters of 2016 is
attributable to the Meat segment (Table 3).
Figure 2. Ownership Structure
GIC Private Equity Public Po Family
10%
P F
CN
21%
Lib
wn
to
gs
69%
un
Yo
s r
he
Ot
Source: Company Data Source: Company Data
Milk. Snow Mountain Dairy Corporation (SMDC), a whol-
ly owned subsidiary of CNPF, focuses on the production of
canned milk in liquid and powdered brands at its manufac-
turing facility in Taguig City, Metro Manila. The Milk segment,
represented by its well-known brands such as Angel and Birch
Tree in the dairy market, is expected to be the main drivers of
growth for the following years supported by product innova-
tion and heavy marketing and advertising strategies. As of the
first nine months of 2016, 11% of the company revenues is
associated with the Diary segment.
Marine Exports. Recognized as the leading tuna export for pri-
vately labeled tuna, the exports segment of the company has
been a constant source of revenue since its inception. Majority
of the segment’s revenue is derived from the sales to original
equipment manufacturers (OEM) and branded tuna, which are
manufactured in its General Santos City plant. Over the years,
CNPF has established close ties with international partners in
the production of private label and branded products for sale
in the international markets which has greatly supported the
business segment in terms of revenue generation. 13% of the
company revenues for the first nine months of 2016 is gener-
ated by the Exports segment (Table 3).
Coconut. Century Pacific Agricultural Ventures, Inc. (CPAVI),
a newly acquired subsidiary, is primarily engaged in the oper-
ation of an integrated coconut facility in General Santos City
producing organic-certified and conventional coconut prod-
ucts for both export and domestic markets. The company’s
recent endeavor of forming its own Coconut segment gives it
more opportunities to follow health and wellness trends which
are becoming prevalent both locally and globally. CNPF is at
an advantage in delivering demand in coconut products to de-
veloped economies such as US, Europe and the Middle East
because of its abundant supply of coconut in the Philippines.
For the first nine months of 2016, the Coconut segment has
generated 10% of the total company revenues (Table 3).
Figure 3. Canned and Processed Figure 4. Canned Tuna Market Share
Fish Production
54%
84%
PF
CN
19%
ld
Go
ty
er
13%
15%
O
CD
14%
0% 15% 30% 45% 60%
0% 22.5% 45% 67.5% 90%
Source: Company Data
2
 CDO-Foodsphere, Inc., while key players in the milk segment
INDUSTRY OVERVIEW include Alaska Milk Corporation and Nestle Philippines.

& COMPETITIVE POSITIONING Threat of Substitutes

PHILIPPINE ECONOMY OUTLOOK
Rapid growth amidst a challenging global
economic environment.
During the previous years, the Philippines is resilient despite
the slowdown in the global economy. According to World
Bank, the Philippines is currently the top growing country in
the East Asia and the Pacific region, outperforming its neigh-
boring countries like Vietnam, China, Indonesia and Malaysia
for the first half of 2016. Growing to 6.9% from 5.5%, this
surge is predominantly effects of increase in competitive labor
force and household expenditures.
Rising Working Population.
The current population of the Philippines is around 102,900,000
as of November 2016. 63% of this bulk is considered to be the
country’s working population. According to Worldometers, the
average age of Filipinos this year will be at 24.4 years, which
means majority of the population will be in the age where they
are eligble and fit to work, translating to earned income and in-
creased spending. The food and beverage sectors will certain-
ly reap benefits from this event due to the considerable share
of food in the total family expenditures (Figure 8).
FOOD INDUSTRY OVERVIEW
The food industry is primarily driven by consumer expenditure.
For the past years, it has buoyed following income increases
across the working population. Since bulk of the consumer’s
wallet is allotted to food, an increase in buying power is be-
lieved to have a positive effect on the industry.
PORTER’S FIVE FORCES MODEL OF
THE INDUSTRY (FIGURE 9)
Competitive Rivalry
Normally in a food industry, competition will always be pres-
ent regardless of the type of food you are engaged in man-
ufacturing. With this, Competitive Rivalry poses the greatest
threat among industry players. CNPF’s main competitors
in the canned food segment are SMC’s Purefoods-Hormel,
Bearing in mind that there are numerous players in the food
industry, the presence of substitutes is always prevailing, even
absolute. Assessing the country’s demand for food, CNPF’s
products which are canned food are most likely be affected by
effects of substitution. The company mitigates this impact with
their wide array of products offered in the market, alongside
effective marketing and branding strategies.
Bargaining Power of Consumers
Consumers have and will always have a say on what produc-
ers should produce and sellers should sell. The pressure of
the consumers’ demand for higher quality products at a more
affordable price poses a moderate threat to CNPF as the com-
pany’s brand building initiatives to garner customer loyalty
strengthens the company from this. Undeniably, the compa-
ny basically has the power to dictate the price on the market
of their well-established brands, being the consumer brand of
choice and leader in such.
Bargaining Power of Suppliers
Since CNPF is comprised of many segments, the bargaining
power of CNPF to suppliers is potent since any supplier would
be enticed to be affiliated with CNPF, considering the benefits
it comes with in terms of product advertising and market. With
this, the company can easily put up strategies for cost reduc-
tion and supply maintenance.
Threat of New Entrants
Considering the current competition in the food industry, new
entrants are likely to have a hard time establishing a position
in the market. The market is strictly regulated by laws and pro-
visions and requires certain certifications to verify the safety
of the consumers. CNPF is well-known in the Philippines and
embodies a large portion of the canned food market, repre-
sented by flagship brands such as Century Tuna and Argentina
corned beef. Because of this, the threat of new entrants has a
minimal, if not insignificant, effect on the company.

Table 3. 9M16 CNPF Figure 5. Canned Meat Production Figure 6. Corned Meat Market Share
Revenue Breakdown

Segment Share 37% 46%

PF

PF

Marine 38%
CN

CN

30% 18%
Meat 28%
s

O
od

CD
fo
re

Milk 11%
Pu

13% 15%
O

ds
CD

Tuna OEM 13%

fo
re
Pu

20% 11%
Coconut OEM 10%
rs

e
rid
he

np
Ot

Su

0% 10% 20% 30% 40% 0% 12.5% 25% 37.5% 50%

Total 100%
Source: Company Data Source: Company Data Source: Company Data

3
COMPETITIVE POSITIONING (TABLE 4)
The food industry competition is mainly driven by price, health
benefits, product variety, market presence, and product ad-
vertising. Pitted against the likes of San Miguel Purefoods
Company, Inc. and CDO Foodsphere, Inc., a thorough anal-
ysis of we rank CNPF first among them with a total score of
15. Purefoods garnered a total of 12 points while CDO earned
11 points. Armed with etsbalished consumer brands partnered
with experience in brand-building, the group is confident that
CNPF can maintain the prominent position the company has
been always known for.
Variety of Product Portfolio
The food industry is constantly pressured by shifting prefer-
ences across consumer groups. In this environment, compa-
nies create product portfolios that cater to different consumer
groups to obtain more attractive positioning in the industry.
CNPF’s portfolio of established consumer brands that span
across almost all consumer groups ensure its place in the in-
dustry. CNPF currently has a portfolio of 387 SKUs compos-
ing of 44 Milk, 14 Branded Exports, 90 Meat and 239 Marine
products (Figure 10).
Market Presence and Strength Distribution Networks
Availability of products to the ultimate consumer is key in con-
verting demand opportunities into real value. Consumers who
are convinced to buy the product, and have the capability to
do so must have easy access to the channels that deliver these
products—this determines the success of a brand. Currently,
CNPF has 652,000 points of sale locally, equivalent to 60%
of all the points of sale in the Philippines. With the extensive
market distribution and strategy, CNPF can easily distribute its
product on the untapped areas of the Philippines which can
be a driver for potential growth. Also, partnerships with mass
outlets in both domestic and foreign markets give CNPF an
edge in groceries and retail stores.
Product Advertising and Brand Recognition
Advertising and promotional strategies have been the focus of
CNPF’s brand-building initiatives. Unswerving marketing ac-
tivities have been integrated into the product life cycles that re-
sult to highly recognized brands nationally, which in turn earns
the company brand loyalty and high churn. The company’s
Figure 7. Luncheon Meat
Market Share
5 - Highest; 1 - Lowest 100%
34%
PF
CN
75%
15%
g
in
al
50%
M
9%
O
CD
25%
0% 10% 20% 30% 40%
0%
Source: Company Data Source: PSA
aggressive grooming of its brands is believed to have led the
market-leader statuses of its core-branded segments (Marine
and Meat).
Pricing
Product prices dictate a significant role in customer’s decision
making process of purchasing a commodity. If a product is
priced higher than usual, it will probably cause a decrease in
market share since consumers will patronize other products
of the same quality but at a lower price. On the other hand,
if a product is priced lower than usual, it will affect the reve-
nue generating ability of a company which may possibly result
to an operating loss. Since part of CNPF’s strategy is to offer
products for all classes in the society, pricing of products is not
a major problem. CNPF has a wide range of products to offer
to the mass market as well as the mass affluent.
Health Benefits
Health benefits derived from the consumption of a product are
probably one of the factors which consumers decide before
purchasing a product. Since the current trend of the genera-
tion today is inclined towards a healthier lifestyle, people are
seeking for products that can help them achieve a healthier
and fitter body. CNPF is well-known for their products that
are made to cater these needs. With strategic marketing and
advertising campaigns, such as Century Tuna Superbods to
promote a healthier lifestyle and nutrition, CNPF is evidently
seen investing heavily on promoting a healthier lifestyle for the
people which attributed to the success of CNPF in the tuna
industry.
INVESTMENT SUMMARY
The team issues a BUY recommendation on Century Pacific
Food, Inc. (CNPF) with a target price of PHP22.91, a 34.00%
upside from current price level of using a Discounted Free
Cash Flow to Equity (DCFE) Analysis. This recommendation is
supported by following:
PREMIUMIZATION: THE KEY TO
BOUNTIFUL OPPORTUNITIES
Rapid wealth creation in the Philippines has bridged the gap
between simple and necessary commodity goods to more
Figure 8. Breakdown of Figure 9. Porter’s Five Forces
Family Expenditures, 2014 Model of the Industry
58% 5 3 1 1 4
0 3.5 7 10.5 14
Food Others
Competitive Rivalry
Bargaining Power of Consumer
Bargaining Power of Suppiler
Threat of New Entrants
Threat of Subsitutes
42%
Source: Team Estimates
4
fine, premium products, as those offered by CNPF. With years
of building desire among consumers, the company is expected
to reap rewards off its established premium brands in the ma-
MILK: NEXT TOP-BRAND TO BUILD
Focusing nowadays on mass market, the Milk segment of
rine and meat sector, particularly to the ever-wealthier middle
CNPF is optimistically in the position to provide further growth
class segment that is expected to shift from low-end protein
for the company. The formulation of Birch Tree Fortified, a
products to more luxurious tuna, and to some extent, beef.
cheaper alternative to Birch Tree Full Cream Milk, is focally
We have confidence in CNPF’s affordable premium products
promoted to families with limited budget and together with
and their capability to win over wallet share despite an influx
the significant share of children in the country’s population
of other premium goods in the market. With per capita GDP
which considers milk a normal good, exposes great potential
and consumer spending figures on the rise, premiumization is
increase in revenues. Also, the recent marketing strategies
expected to add more value in the long-term for CNPF.
employed by this segment successfully exceeded expected
demand for its commodities. The group is convinced this is
DIVERSE PRODUCTS CATERING TO A an indicator of an upcoming surge in the appetite for this seg-
BROAD CONSUMER BASE ment’s products and is positive about the potential growth the
The company’s familiar identity catering to a broad customer
Milk segment has in store for the company.
base and various tastes and needs indicates stronger market
presence compared to other competitive brands. We forecast
consistent, if not increasing, revenue growth with the company
COCONUT PRODUCTS OPEN DOORS FOR ROBUST
capturing a larger share in consumers’ food expenditure due
GLOBAL DEMAND
The market of coconut products across the globe, especially
to the company’s multi-brand, multi-product portfolio. The rise
where coconut is atypical, is consistently rocketing and CN-
in revenues is also expected with multiple varieties of products
PF’s acquisition of Century Pacific Agricultural Ventures, Inc.
providing CNPF the agility towards unexpected consumption
(CPAVI) makes the company available to supplemental growth.
pattern changes and eliminating the risk of substitution alto-
The Philippines being one of the top coconut producing coun-
gether. We believe these abilities gained from the company’s
tries in the world (Figure 11) due to its geographical advantage
ultimate strength of miscellany is still expected to be a major
of having coconut readily available and the growing global
contributor of growth for the years to come.
demand for coconut products are expected to yield attractive
margins for the segment and improve margins for the com-
GROWING OPTIMISM TOWARDS pany as a whole. Moreover, with its recent experimentations
HEALTH, WELLNESS, AND ORGANIC TRENDS on coconut flour and coconut milk, the company also aims to
Established with health-conscious product categories, the
fill existing but unserved demands on organic products and
surging preference for healthier food choices influencing con-
healthier alternatives relative to the redefinition of food culture
sumer spending currently and anticipated to increase further
and optimism of consumers towards a healthier diet.
for the coming years holds favor for the company. Brands un-
der CNPF recognized as being the healthier option, perceiv-
ably the better pick among others, help maintain the compa-
POSSIBLE INVESTMENT RISKS
Investors should be mindful of the market risks CNPF encoun-
ny’s position as being the consumers’ brand of choice and
ters in the course of its business such as unfavorable demo-
pose opportunities for challenged segments to solidify their
graphics shift and uprising of industry challengers. Tightening
shares in their respective markets. We also expect growth in
of food safety regulations also exposes the company to regu-
sales from marketing strategies banking on the health and
latory risk while the weakening of the Philippine Peso makes it
wellness trend as the company capitalizes on exhibiting their
vulnerable to foreign exchange rate risk. Shareholders should
products’ positive effects on healthiness and fitness on adver-
also be aware of the operational risks the company is put in
tisements. The group is utterly confident that the company’s
jeopardy of such as pressure on input prices in the commodity
growth is rest assured considering the consumers’ flourishing
interest on health and wellness.

Table 4. Level of Figure 10. Stock Keeping Units Figure 11. Top Coconut
Competitiveness Producing Countries, 2016
Marine Meat Milk & Mixes Branded Exports

CNPF PF CDO 400

14 20

44
Price 3 2 3 15
300
90
Health Benefits 3 2 2
Product Variety 3 3 2 200 10 19.5 18.3
Market Presence 2 2 2
239 11.93
100 5
Product Advertising 3 3 2
2.82
Total 14 12 11 0
0
Indonesia Philippines India Brazil

Source: Team Estimates 5 - Highest; 1 - Lowest Source: Company Data Source: Perfect Insider in Million Metric Tons

5
markets and adverse reception on new coconut products. An
elaborate discussion of the risks, mitigation factors and their
impacts on value are discussed in the Investment Risks sec-
tion.
VALUATION
Using the Discounted Free Cash Flow to Equity Method
(DCFE), we arrived at a target price of P22.91 (34% upside)
per CNPF share. Given basic tenets in corporate valuation, the
said model, compared to other valuation models, is the more
direct way to compute for share value since the free cash flows
computed are expected in the long term to approximate the
actual cash given to shareholders. CNPF, likewise, maintains
a generally stable leverage, supporting our contention that the
FCFE model is appropriate for the purposes of this valuation.
CNPF’s segments were valued individually before being
pooled into a sole share price. A major contribution to com-
pany value is the expected growth of its milk and coconut
business, driven by possible increase in market share for milk
and the perceived growth potential of the recently introduced
coconut business. Stable demand for its established brands in
the marine and meat segment as well as continued support for
its tuna exports in key countries (Appendix 3) also contributes
to the anticipated increase in company value.
The individual values of CNPF’s segments were combined to
arrive at a sole share price of P22.92 per CNPF share (Figure
12).
REVENUES
The established segments – marine and meat – comprise the
biggest share in the total company revenues, combining to a
forecasted 61%, on the average, of CNPF’s revenue. The milk
and coconut segments are expected to widen over the fore-
casted horizon while tuna exports account for a stable share in
revenues, averaging a 14% share.
MARINE
The marine segment, which features Century Tuna and 555
Sardines as its most established brands, serves as the compa-
ny’s biggest segment averaging to a forecasted 34% share in
revenues (Figure 13). As the industry leader for years, revenues
Figure 12. Target Price Breakdown
22.5
3.83
Coconut
4.65 Milk
15 Marine Exports
1.71 Meat
Marine
5.99
7.5
6.73
Source: Team Estimates
6
are still expected to increase following CNPF’s plan to extend
its distribution channels in Visayas and Mindanao. Increased
sales in volume is also expected resulting from brand-build-
ing initiatives focusing on the health-conscious positioning of
the brands. The segment revenue will primarily be driven by
vigorous consumer spending with benefits derived from pre-
miumization, combining for a high single digit CAGR of 8.2%.
MEAT
CNPF’s meat segment, which includes Argentina as its flagship
brand, is also considered a market leader in the corned meat,
luncheon meat, and vienna sausage businesses, however
being less dominant than the marine segment. However, this
allows the segment for more growth potential acquired from
increased market share backed by established branding and
affordability. Higher revenues are expected to result from the
growing Philippine household consumption, particularly the
growing middle class segment opting for more protein-food.
Premiumization is also believed to support the introduction
of the acquired brand Swift into the premium market. These
growth indicators push the segments revenue to achieve a
forecasted CAGR of 9.2%.
MARINE EXPORTS
CNPF’s marine export, which delivers private label tuna and
OEM tuna to several countries around the globe, is the com-
pany’s export arm primarily dependent on global demand
and supply forces. Following the recovery in 2016, revenues
forward are projected to grow mostly due to consistent pref-
erence of foreign markets to the less pricey Philippine tuna.
Despite the challenge brought about by bigger market players,
volume of exported tuna is still forecasted to increase follow-
ing rising demand in the EU, US, and various parts of East
Asia. Forecasts for the years beyond 2017 are expected to sta-
bilize following near-optimistic projections of tuna supply in the
Pacific seas and unthreatening market prices.
MILK
The milk segment, which has Birch Tree and Angel in its brand
portfolio, is seen as one of the main sources of increased com-
pany revenues along with the coconut segment due to the
market opportunities available to its milk business. More active
investments in marketing and advertising, as well as promo-
tional strategies, are expected to raise public awareness on
Figure 13. Average Market Share over
Forecasted Horizon
13%
12% 34%
Marine
Meat
Marine Exports
Milk
14% Coconut
27%
Source: Team Estimates
its brands, consequently resulting to higher sales volumes and
increased market share, especially to untapped areas in rural
Luzon, Visayas, and Mindanao. Product innovation is loom-
ing in the horizon given highly competitive market, with the
segment being the most flexible in terms of possible product
varieties to be introduced. This, along with sustained expected
demand for products in this price tier, are projected to back up
its double-digit growth with a CAGR of 15.2%.
COCONUT
CNPF’s recently acquired coconut segment, with efforts fo-
cused on the distribution of input coconut water abroad and
the sale of various coconut water by-products such as coco-
nut oil to several other countries, also present a strong posi-
tive double-digit growth following its first-time contribution to
revenues in 2016. Increasing market presence is observable
supported by the completion of plant expansions commenced
in 2015 and the anticipated introduction of coconut flour and
other coconut products to the Philippine market. It is believed
that the segment under the brand-building mogul that is CNPF
is in perfect position to capture untouched commercial coco-
nut milk segment locally. With these, rapid growth is expected
come 2018.
EXPENSES
Costs of sales and operating expenses, except for marketing
and advertising expenses, are forecasted as a percentage of
revenues guided by appropriate company disclosures and ex-
pectations (Appendix 1).
CAPITAL EXPENDITURES
According to the publicly available information of the com-
pany, together with their guidance, the company intends to
spend PHP650 million of minimum maintenance CAPEX every
year, funded both internally and externally (Appendix 4).
tain its leadership positions in its marine and meat segments
while continuing to diversify its product portfolio by pushing its
milk and coconut segments.
Moreover, the company’s products are staple goods that con-
stitute an average Filipino’s market basket. Not to mention, its
ever-growing market presence in its established brands, and
the continuous introduction of successful private labels. The
company’s active positioning in its industry sector justifies the
terminal growth of CNPF.
With the GDP forecasted to grow by 6.9% on average, con-
sumer spending by 12%, and the anticipated move towards
premiumization, we have supreme confidence that not only
its core branded segments (marine and meat), but also its
emerging segments (milk and coconut), can sustain long term
growth.
We believe that this rate still has a lot of upside potential as the
company’s historical growth outpaces the historical growth of
PSEi. (Appendix 5).
COST OF EQUITY
The cost of equity is used to discount the computed free cash
flows to the equity since this rate reasonably measures the
appropriate rate that the stockholders expect to obtain. We
computed an overall base cost of equity amounting to 8.20%
using the Capital Asset Pricing Model (CAPM) (Table 5).
The beta used in the valuation was derived using the
Bloomberg beta function. We extracted the company’s raw
beta of 0.67 and assumed that this beta will move towards the
market average over time. An average market return of 9.54%
and a risk-free rate of 4.54% were used based on Bloomberg
guidance.

TERMINAL GROWTH
A 3.00% terminal growth rate was applied in the valuation.
This terminal growth rate is justified based on the assumption
that the company, as the country’s market leader in a number
product segments, top tuna exporter, and an established con-
sumer brand, will have consistent and steady growth in the fu-
ture. This is also supported by the company’s efforts to main-
Certain adjustments to the computed cost of equity were ap-
plied in order to factor in different risks associated to the dif-
ferent segments of the company, as well as of the company
as a whole. We used the computed cost of equity for the core
business segments of marine and meat since both are seg-
ments with which CNPF is, currently, the market leader, and
thus, have relatively more secure positions the industry. The

Table 5. Sensitivity Analysis

COST OF EQUITY
5.22% 6.22% 7.22% 8.22% 9.22% 10.22% 11.22%
5.00% 531.25 95.67 51.97 35.41 26.70 21.33 17.70
REVENUE GROWTH

4.00% 99.40 53.96 36.74 27.69 22.11 18.33 15.61

3.50% 71.43 44.60 32.19 25.05 20.42 17.17 14.77
3.00% 56.05 38.14 28.72 22.92 19.00 16.16 14.03
2.50% 46.31 33.41 25.98 21.16 17.79 15.30 13.37
2.00% 39.60 29.80 23.77 19.69 16.74 14.52 12.79
1.00% 30.94 24.66 20.41 17.35 15.04 13.24 11.79
Source: Team Estimates

7
adjusted discount rates for the milk and coconut segments are
8.25% and 8.30% respectively. Additional adjustments were
factored in to these segments as they face certain risks that
the other two segments do not. Thusly, the milk and coconut
segments are implied to be riskier ventures than the other core
brand segments (Appendix 6).
FINANCIAL ANALYSIS
COMPANY INITIATIVES AND ECONOMY REWARD
REVENUE GROWTH
With strong GDP per capita and bolstered consumer spending, we
anticipates double-digit growth in revenues with forecasted recurring
income CAGR expected at 10.02%, mostly driven by continued suc-
cess of CNPF in its branded segments. The marine and meat seg-
ments are expected to sustain strong single-digit growth (on average
8.5% and 9.3%, respectively) being market leaders in their product
segments. Meanwhile, double-digit revenue growth is forecasted
from the milk and coconut segments for the next periods following
major brand-building initiatives in the former (14.7% on average), and
first-time contributions of the latter (26.3% on average).
STABLE MARGINS SIGNIFY HEALTHY OPERATIONS
Taking advantage of favorable input prices and streamlined opera-
tions, CNPF’s improving margins from 2015 (Operating margin: 27%;
Net income margin: 9%) evidence efficiency in operations, with ex-
pectations optimistic at it following an upward trend in both operating
margin (to average 29% from 2016 to 2021) and net income margin
(to average 12% from 2016 to 2021).
ENHANCING MANUFACTURING EFFICIENCY
Supported by stable maintenance cost allotment and in-
creasing capital expenditures (PHP1.1B for 2016 compared to
PHP500M in 2015) for manufacturing facilities, we believe that
CNPF is enhancing its operating efficiency and will continu-
ously have improvements on its manufacturing process over
the years to maximize its generation of revenue.
DEBT AND LIQUIDITY RATIOS
Looking at CNPF’s forecasted liquidity ratios nearly at 2x and
1x for current and quick ratios, respectively, strength would be
seen in its capability to internally finance new business proj-
ects in the future. With stable cash positions over the years, we
Figure 14. Risk Matrix
MR2
HIGH
Impact
MEDIUM
OR3
LOW
LOW
Probability
Source: Team Estimates
are confident of CNPF’s leverage using internally generated
funds, and subsequently, its attractiveness as an entity to take
up additional debt in the future.
CNPF’S PH SEGMENTS PEAKING
CNPF’s branding initiatives on its locally sold product lines is expect-
ed to reap rewards for the company come 2017 onwards, as shown
by the general increase in total segment revenues of its meat and
milk segments as per these segments active release of new offer-
ings (i.e. Bacon Norte, Birch Tree Fortified, among others). Also, the
development of new coconut products in the Philippine market to be
pioneered by CNPF around 2018 is expected to further support the
segments very optimistic growth at 18.83% 5-year Revenue CAGR
beginning 2016. In totals, CNPF’s legacy in building brands that suc-
ceed locally indicates its ability to deliver the demands of the Philip-
pine consumer market.
INVESTMENT RISKS (FIGURE 14)
MARKET RISK | UNFAVORABLE DEMOGRAPHICS
SHIFT (MR1)
The norm towards catering to a wide audience was to focus on price.
However, perceptions of value are now broadening to encompass
additional factors. While it is strongly believed that CNPF will benefit
from anticipated shift in customer dynamics (towards premiumiza-
tion), uncertainty on whether this will hold is a risk to take in all cus-
tomer goods companies, as this is mostly unprecedented. CNPF’s
highly diversified portfolio of consumer brands ensure a capture of a
portion of the market regardless of the demographics shift. Also, as
industry leader in its core brand segments, CNPF is in perfect posi-
tion to steer the market by educating consumers towards loyalty to
its brands.
MARKET RISK | ADVERSITY FROM ANTI-PRO-
CESSED FOOD ADVOCATES (MR2)
Following millennial trends such as veganism and organic living, more
consumers are expressing concerns over processed products and
the health risks that go alongside them. As people get more informed
of these risks in processed food, CNPF’s entire line of products may
be threatened. However, we believe that the company’s early estab-
lishment of its position towards healthier and more balanced diet-ori-
ented options for consumers protects the company from this risk.
MR1 OR1
OR2 FR1
RR1
MEDIUM HIGH
8
 TABLE 6. KEY FINANCIAL RATIOS

2015 2016F 2017F 2018F 2019F 2020F 2021F

PROFITABILITY RATIOS
Gross Profit Margin 27% 27% 28% 29% 28% 29% 29%
Operating Profit Margin 12% 13% 15% 15% 16% 17% 17%
Net Profit Margin 8% 9% 10% 11% 11% 12% 12%
Return on Equity 23% 23% 25% 25% 25% 28% 33%
Return on Assets 14% 15% 17% 18% 18% 20% 22%
Revenue Growth 14% 20% 11% 9% 10% 10% 10%
Net Income Growth 21% 34% 24% 14% 13% 15% 15%
LIQUIDITY RATIOS
Current Ratio 2.62 2.47 2.33 2.40 2.37 2.18 2.08
Quick Ratio 1.07 0.99 0.96 1.08 1.11 0.97 0.91
Cash Ratio 0.18 0.12 0.12 0.25 0.31 0.19 0.15
DEBT RATIOS
Debt to Equity 62% 55% 40% 40% 41% 45% 49%
Net Debt to Equity 18% 2% -7% 4% 4% 4% 4%
Debt Ratio 38% 36% 29% 28% 29% 31% 33%
Assets to Equity 1.62 1.55 1.40 1.40 1.41 1.45 1.49
TURNOVER RATIOS
Receivable Turnover 7.58 7.16 7.02 7.05 7.20 7.48 7.77
Fixed Asset Turnover 10.24 8.26 8.27 8.53 8.75 9.00 9.28
Inventory Turnover 3.08 3.39 3.24 3.33 3.44 3.59 3.77
Payables Turnover 4.30 5.06 4.53 4.40 4.35 4.35 4.39
Asset Turnover 5.92 4.30 4.47 4.68 4.89 5.15 5.43
Receivable Collection Days 48.15 51.01 52.01 51.75 50.72 48.82 46.95
Inventory Processing Days 118.49 107.77 112.75 109.47 106.00 101.54 96.91
Payables Payment Period 84.85 72.19 80.61 82.99 83.85 83.83 83.10
Cash Conversion Cycle 81.79 86.59 84.14 78.23 72.88 66.53 60.76
EARNINGS PER SHARE 0.58 0.77 0.96 1.09 1.22 1.40 1.61
DIVIDENDS PER SHARE 0.13 0.20 0.29 0.33 0.37 0.42 0.48

Source: Team Estimates

OPERATIONAL RISK | PRESSURE ON INPUT PRICES OPERATIONAL RISK | BRAND FAILURES (OR3)
IN THE COMMODITY MARKETS (OR1) The inherent risk in having to actively develop new brands is the un-
Consumer products companies have experienced volatile input pric- certainty on consumer reception of the brand. Failures in are not to
es over the past few periods due to the upward pressure placed by be counted out especially since CNPF’s 2018 plans include introduc-
global demand-supply factors on the commodity markets, particular- tions of coconut products to the market. Despite this, we are con-
ly to agricultural commodity prices. However, as the industry leader fident that the expertise of CNPF in developing brands will greatly
in its core branded segments, CNPF hedges this risk by investing in reduce the impact of this risk in the future. It is also important to note
its brands to further increase brand equity, and, in turn, have more that the undelivered demand for innovative coconut by-products lo-
autonomy to pass these costs to the consumers without losses in cally support the success of future brands by CNPF.
volume.
FOREIGN EXCHANGE RATE RISK | WEAKENING OF
OPERATIONAL RISK | LOGISTICAL DELAYS (OR2) THE PHILIPPINE PESO (FR1)
With far-flung plants and manufacturing facilities, coupled with for- Since for the most part CNPF’s inputs are imported and paid for in
eign suppliers of input products, CNPF’s inbound and outbound lo- USD, PH Peso depreciation can have material effects to the charges
gistics is at risk of delays and delivery failures which could take-up per unit of output. Further aggravating this risk are the consistent rev-
more costs. Additional costs (or losses) in the future could have ma- enues derived from export sales. To mitigate this risk, CNPF engages
terial adverse effects on company operations as a whole. To minimize in hedging of input inventory prices to take advantage of favorable
this risk, CNPF has developed clearly laid out systems for logistics exchange rates when possible, and turning much attention to local
and implements smart network plans across its plants and facilities. sales than export transactions.

9
REGULATORY RISK | FOOD SAFETY REGULATIONS TIGHTEN (RR1)
Ongoing advocacies of the Food and Drugs Authority with the Department of Health towards more stringent food processing regulations to
foster safety in consumption is expected to push manufacturing companies such as CNPF to at most revise food processing systems, partic-
ularly in canning and packaging. That being said, it is believed that CNPF’s operations is not so much as threatened as its current systems are
perceived to be conforming to international standards.

10