TUESDAY, 01 DECEMBER 2015

Universal Robina Corporation:

FY16 core earnings in line with COL;

management cautious on FY16

FY16 core earnings in line with expectation. URC booked Php4.2Bil in core earnings in
4QFY15, higher by 18.3% y/y. This brought FY15 core earnings to Php16.4Bil, higher by 15.1%
y/y. Results were in line with COL estimates, accounting for 99.9% of our forecast. 4QFY15
revenues grew by 17.2% to Php27.1Bil, bringing FY15 revenues to Php109.1Bil, higher by
18.1 y/y and in line with estimates. Domestic branded sales grew by only 7.4% in 4QFY15 on
continued competition in coffee and weak sales in El Nio-affected areas. International sales
growth was also muted at only ~7% (ex-Griffins) due to foreign exchange volatility and as the
macro environment remained weak. Nonetheless, EBIT margins still improved by 50 bps to
16.0% in 4QFY15 on higher scale and lower input prices.
Management cautious on FY16; EBIT guidance lower than estimates. Management is
cautious on FY16 due to sustained competition in coffee, the impact of El Nio on domestic
demand, weak macro in Thailand and Indonesia. Management expects sales growth of 8% to
9% in FY16, slightly slower than our forecast of 9.8% and significantly lower the than consensus
estimate of 12.8% growth rate. Further, because EBIT margins are expected to remain flat
in FY16, EBIT is expected to range between Php18.5Bil and Php19Bil, 4-6% lower than our
forecast and 6-9% lower than consensus.
Maintain HOLD rating. We are maintaining our HOLD rating on URC with a FV estimate of
Php209/sh. Although we like URC in the long run for its strategic position in the domestic and
ASEAN branded foods segment, the company is facing difficulties on many fronts. The domestic
space remains challenging due intense competition in coffee and softer demand due to El
Nio. Meanwhile, a weak macro environment continues to hamper growth in the international
segment. At current prices, URC is trading at 30X FY16E P/E, which may be difficult to justify
given managements cautious guidance of only 8-9% sales growth and flattish margins for next
year, which is below expectations.
FORECAST SUMMARY
Year to September 30 (Php Mil)
Revenues
% change y/y
Operating Income
% change y/y
Operating Margin (%)
Core Profits
% change y/y
Core Profit Margin (%)
Net Income
% change y/y
Net Profit Margin (%)
EPS
% change y/y

RELATIVE VALUE
P/E(X)
P/BV(X)
ROE(%)
Dividend Yield (%)
Source: URC, COL est imat es

2012
71,204
6.0
7,810
13.0
11.0
8,377
17.6
11.8
7,763
66.8
10.9
3.70
63.7

2013
80,995
13.8
10,279
31.6
12.7
11,263
34.4
13.9
10,045
29.4
12.4
4.60
24.3

2014
92,376
14.1
14,119
37.4
15.3
14,214
26.2
15.4
11,559
15.1
12.5
5.30
15.2

2015E
111,577
20.8
17,580
24.5
15.8
16,382
15.2
14.7
12,944
12.0
11.6
5.93
12.0

2016E
122,478
9.8
19,730
12.2
16.1
18,749
14.5
15.3
14,866
14.9
12.1
6.81
14.9

55.2
9.2
16.8
0.9

43.9
8.7
19.8
1.2

38.1
7.9
20.7
1.5

34.0
7.2
21.1
1.7

29.6
6.5
21.9
1.9

SHARE DATA

HOLD

Rating
Ticker
Fair Value (Php)
Current Price
Upside (%)

URC
209.00
193.80
7.84

SHARE PRICE MOVEMENT

120
110
100
90
80
70
1-Sep-15

1-Oct-15

1-Nov-15
URC

1-Dec-15

PSEi

ABSOLUTE PERFORMANCE

URC
PSEi

1M
-3.39
-1.73

3M
0.94
-1.24

YTD
-0.43
-3.04

MARKET DATA
Market Cap
Outstanding Shares
52 Wk Range
3Mo Ave Daily T/O

422,775.07Mil
2,181.50Mil
173.00 - 234.00
397.14Mil

Jed Frederick Pilarca

jed.pilarca@colfinancial.com

PHILIPPINE EQUITY RESEARCH

FY16 core earnings in line with expectations

URC booked Php4.2Bil in core earnings in 4QFY15, higher by 18.3% y/y. This brought FY15 core
earnings to Php16.4Bil, higher by 15.1% y/y. Results were in line with COL estimates, accounting for
99.9% of our forecast. 4QFY15 revenues grew by 17.2% to Php27.1Bil, bringing FY15 revenues to
Php109.1Bil, higher by 18.1 y/y and in line with estimates. Domestic branded sales grew by only 7.4%
in 4QFY15 on continued competition in coffee and weak sales in El Nio-affected areas. International
sales growth was also muted at only ~7% (ex-Griffins) due to foreign exchange volatility and as the
macro environment remained weak. Nonetheless, EBIT margins still improved by 50 bps to 16.0% in
4QFY15 on higher scale and lower input prices.
Net income grew slower by 4.8% to Php3.2Bil in 4QFY15 and by 9.7% to Php12.7Bil in FY15 due to
higher finance costs, forex losses and equitized losses from joint ventures. Full year net income was
in line with COL and consensus at 97.9% and 95.9% of estimates, respectively.
Exhibit 1: Results Summary
in PhpMil

4QFY14

4QFY15

%Change

Revenue
Operating Income
Operating Margin (%)
Core Earnings
Core Margin (%)
Net Income
Net Margin (%)

23,137
3,595
15.5
3,523
15.2
3,006
13.0

27,108
4,345
16.0
4,169
15.4
3,151
11.6

17.2
20.9
0.5
18.3
0.2
4.8
-1.4

FY14

FY15

92,376 109,051
14,119 17,404
15.3
16.0
14,214 16,364
15.4
15.0
11,559 12,678
12.5
11.6

%Change
18.1
23.3
0.7
15.1
-0.4
9.7
-0.9

% of Forecast
COL
Consensus
97.7
97.1
99.0
97.4
99.9
97.9
95.9
-

Source: URC, COL estimates, Bloomberg

Domestic slowdown persists

The domestic branded segment continued to be challenged during the quarter with sales of Php14.5Bil
in 4QFY15, higher by 7.4% y/y. Competition in the coffee category remained intense. According to
URC, the increasing prevalence twin packs for coffee with lower selling price per gram has been
diluting the entire categorys value. Twin packs are now being offered by all three big coffee players:
URC, Mayora Indah and Nestl. Sales have also been weak in Visayas and Mindanao due to the
impact of El Nio. These regions account for 20% of domestic branded sales. Segment EBIT margins
improved 170 bps for both 4QFY15 and for FY15 to 18.7% and 18.2%, respectively.

International facing headwinds from FX and weak macro

In peso terms, international branded sales grew by 7%, excluding Griffins, and by 42%, including
Griffins. Weakness in local currencies against the peso affected Indonesia, Vietnam and Griffins
sales. Additionally, the macroeconomic environment remained weak, particularly in Thailand and
Indonesia. Only Vietnam appears to be improving with sales growth accelerating to 13% in 4Q from
9% in 3Q. According to URC, sales of energy drinks (+50%) and larger size of ready-to-drink tea
(+35%) have been strong in Vietnam.

TUESDAY, 01 DECEMBER 2015

URC

EARNINGS ANALYSIS

page 2

PHILIPPINE EQUITY RESEARCH

Exhibit 2: International branded sales growth

Vietnam
Thailand
New Zealand
Indonesia

in Php in local currency

8%
13%
10%
10%
-4%
2%
24%
35%

Source: URC

Management cautious on FY16; EBIT guidance lower than estimates

Management is cautious on FY16 due to sustained competition in coffee, the impact of El Nio on
domestic demand, weak macro in Thailand and Indonesia. Management expects sales growth of 8%
to 9% in FY16, slightly slower than our forecast of 9.8% and significantly lower the than consensus
estimate of 12.8% growth rate. Further, because EBIT margins are expected to remain flat in FY16,
EBIT is expected to range between Php18.5Bil and Php19Bil, 4-6% lower than our forecast and 6-9%
lower than consensus.

Maintain HOLD rating

We are maintaining our HOLD rating on URC with a FV estimate of Php209/sh. Although we like
URC in the long run for its strategic position in the domestic and ASEAN branded foods segment, the
company is facing difficulties on many fronts. The domestic space remains challenging due intense
competition in coffee and softer demand due to El Nio. Meanwhile, a weak macro environment
continues to hamper growth in the international segment. At current prices, URC is trading at 30X
FY16E P/E, which may be difficult to justify given managements cautious guidance of only 8-9%
sales growth and flattish margins for next year, which is below expectations.

TUESDAY, 01 DECEMBER 2015

URC

EARNINGS ANALYSIS

page 3

PHILIPPINE EQUITY RESEARCH

Investment Rating Definitions

BUY

HOLD

SELL

Stocks that have a BUY rating have attractive

fundamentals and valuations, based on
our analysis. We expect the share price
to outperform the market in the next six to
twelve months.

Stocks that have a HOLD rating have either

1.) attractive fundamentals but expensive
valuations; 2.) attractive valuations but
near term earnings outlook might be poor
or vulnerable to numerous risks. Given the
said factors, the share price of the stock may
perform merely inline or underperform the
market in the next six to twelve months.

We dislike both the valuations and

fundamentals of stocks with a SELL rating.
We expect the share price to underperform in
the next six to twelve months.

Important Disclaimers
Securities recommended, offered or sold by COL Financial Group, Inc.are subject to investment risks, including the possible loss of the principal amount
invested. Although information has been obtained from and is based upon sources we believe to be reliable, we do not guarantee its accuracy and it may
be incomplete or condensed. All opinions and estimates constitute the judgment of COLs Equity Research Department as of the date of the report and are
subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a
security. COL Financial ans/or its employees not involved in the preparation of this report may have investments in securities or derivatives of securities of
securities of the companies mentioned in this report, and may trade them in ways different from those discussed in this report.

2401-B East Tower, Philippine Stock Exchange Centre, Exchange Road, Ortigas Center, Pasig City, 1605 Philippines
Tel: +632 636-5411

TUESDAY, 01 DECEMBER 2015

URC

Fax: +632 635-4632

EARNINGS ANALYSIS

Website: http://www.colfinancial.com

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