Malee Group PCL (MALEE): 3QFY17 profit seen weak y-y but better q-q October 27, 2017 712

3QFY17 profit expected to drop y-y but improve q-q: We forecast MALEE’s 3QFY17 net profit will come in at Bt95mn, down 41.1%y-y but up 54.7%q-q. In y-y terms, the decline is based on an expectation that total revenue will fall 6.4%y-y due to (i) intense competition, (ii) a partial recovery in domestic purchasing power, and (iii) lower capacity utilization for CMG export sales of coconut drinks. In q-q terms, the profit rise is due mainly to (i) the absence of efforts to dry stock at trade stores in the previous quarter which should lead to a 21%q-q increase in total sales, (ii) a boost from advertising and sales promotion activities, (iii) a good response in CMG coffee products following the launch of new SKUs, and (iv) a persistent growth in Branded export sales. GMP is projected to drop y-o-y but slightly improve q-q.

Rating lowered to ‘NEUTRAL’ with FY18 target price of Bt47.00/share: We’ve cut our rating on MALEE shares to ‘NEUTRAL’ but revised up the target price to Bt47/share after we changed our valuation methodology to a PEG ratio of 0.9x (implying 29x P/E) from previously a P/E multiple of 25x. In our view, the share price is not too expensive because the stock has bottomed out. We forecast annual average profit growth of 32.5% over the period FY18-19, helped by the full capacity utilizationincoconutwaterproductionandcontinuedgrowthinBrandedexport sales.

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