MAMEE: A household brand name

MAMEE-DOUBLE Decker (RM3.23) is aiming for a double-digit topline increase for its F&B business under a multi-pronged growth strategy. The stock is trading at reasonable forward price-to-earnings (P/E) of roughly 10 times at the current share price — and offers a fairly attractive net yield estimated at 5%.

Its underlying business — the manufacturing of instant noodles, snacks, beverages and cultured milk — is relatively resilient and generates steady cashflow. As such, the company is well able to leverage on its strong balance sheet to support future expansion plans — and maintain a dividend payout of not less than 50% of annual net profit. Mamee is sitting on net cash totalling RM66.5 million or equivalent of 46 sen per share at end-March 2010.

A homegrown F&B with household brand names
Mamee, which was established in 1971 as a manufacturer of dry noodles and instant vermicelli, has grown steadily into one of the country's leading F&B players.

The company has created and built some of the most enduring brands over the past four decades, including the Mamee instant noodles, Mamee Monster, Double Decker and Mister Potato. It holds dominant positions in the domestic instant noodles and snacks market segments — and has also expanded its footprint overseas. Exports — to over 80 countries — currently account for roughly 30% of total sales.

Aims to double sales over next five years
Mamee intends to sustain a double-digit pace of growth for sales going forward. This includes growing both domestic operations as well as export markets.

To this end, it has started the year on a strong note. Sales in 1Q10 were up 26% year-on-year (y-o-y) to RM115.4 million while net profit grew 14% on the year to RM12 million. We expect growth in the next few quarters to remain relatively robust, underpinned by key new product launches and increased consumption during the FIFA World Cup and Hari Raya festive celebration in 2Q-3Q10.

Mamee recently expanded its snacks range to include Mister Potato Rice Crisps, which is touted as the healthier alternative to conventional snacks. Another key launch was the Mi Goreng Indonesia in April 2010. To ensure taste authenticity, this particular instant noodle is currently manufactured under contract in Indonesia.

Steady pipeline of new products

A steady pipeline of new products is one of the cornerstones of the company's growth strategy. We expect Mamee's in-house R&D team to maintain focus on its key markets, especially the snacks segment, which has registered well above industry average growth over the past few years.

Industry statistics estimate Mamee's share of the snacks market at over 31%. The segment currently accounts for about 60% of the company's total sales. It is also the second-largest selling brand for instant noodles in the country, with a market share estimated at roughly 14%.

The company plans to spend close to 10% of sales each year on A&P for brand building and promoting consumer awareness in new products.

Expanding distribution network
At the same time, Mamee is strengthening and expanding its distribution network. This includes stepping up incentives for its 150 distributors and wholesalers in order to gain further market share. It is also exploring a more direct distribution channel — moving vans, to tap underserved suburban and rural areas.

Capital expenditure is estimated at about RM30 million per annum for the next two-three years. This would include three new Mister Potato production lines, the first of which is slated for commissioning in July 2010, to cater to the strong growth and positive consumer response to the Rice Crisps. The company is sanguine that the MSG-free product will do equally well in export markets.

Targeting bigger export market
Export is another key thrust to support future growth, given the limitations of our country's relatively small population. In this aspect, Mamee has had fairly good success. For instance, it is currently among the three biggest selling brands of instant noodles in Myanmar, where the company has a manufacturing facility that caters solely for that market.

As mentioned above, it currently exports to over 80 countries, including key markets like Australia, Singapore, Hong Kong, Russia and the Netherlands. The company had recently strengthened its marketing team with the aim of expanding exports to generate at least 50% of sales within the next few years. Some of the key target markets will include the Asean region and the Middle East, a potentially huge market for the company's halal products.

Reasonable valuations and good yields
We forecast net profit to grow by about 9% this year to roughly RM47.4 million or 32.5 sen per share. That implies its shares are now trading at reasonable forward P/E of about 10 times — compared to the broader market average and its prospective growth.

Plus, shareholders are expected to earn a net yield of 5% based on Mamee's minimum dividend payout policy of 50% of annual earnings. Net tangible assets stood at RM1.57 per share at end-March 2010.

Note: This report is brought to you by Asia Analytica Sdn Bhd, a licensed investment adviser. Please exercise your own judgment or seek professional advice for your specific investment needs. We are not responsible for your investment decisions. Our shareholders, directors and employees may have positions in any of the stocks mentioned.