Will Monde Nissin deliver gains for traders soon? Analysts weigh in

After Monde Nissin's massive P48.6-billion ($1-billion) initial public offering (IPO) and listing on the Philippine Stock Exchange (PSE) on Tuesday, June 1, investors and traders are now asking: When will we see gains?

Shares of Monde Nissin went only as high as P13.56 apiece from the IPO price of P13.50, then closed at P13.48, lower by 0.15%.

While the price action was quite tight and hovered just around the IPO price, it was Tuesday's most actively traded stock with a value of P3.2 billion.

Analysts said that while the snacks maker has a good track record, double-digit gains will be unlikely in the short term. 

Brokerage firms also noted that the economy remaining in recession and pandemic lockdowns hindering people's movement will have to be considered.

Financials

Monde Nissin was able to grow its net income by 21% to P8.1 billion in 2020, on the back of higher net sales as well as lower material and overhead costs amid the pandemic.

Monde Nissin is the leader in the instant noodles business in the Philippine market. The average Filipino spends $7.60 per capita, according to figures from Regina Capital.

In 2020, noodles had the biggest share of sales in its Asia-Pacific business at 50%, followed by biscuits with a 30% share.

Prospects, target price

While Monde Nissin will likely attract investors because of its name recall, financials, and products, seeing gains by buying its stocks may be quite tricky.

Philstocks told its clients to "limit your position" as "historical data shows that the share price of the top five biggest IPOs in the Philippines declined by an average of 1.19% on debut."

The top five biggest IPOs also provided little returns in their first week, and negative returns in their first year in the market.

Philstocks, however, still saw upsides. Claire Alviar, research analyst of Philstocks, said they are forecasting Monde Nissin's bottom line to grow by 6.05%, while revenues or the top line would grow by 3.55% in 2021 "amid the expectation of laxer restrictions in the second half." She added, "In line with this, we see a potential upside of 16.40% to P15.70."

Alviar also noted that the company has given dividends twice a year since 2018, with a three-year average dividend payout ratio of 117.1%.

Monde Nissin is also valued at P242 billion, which makes it a potential candidate to join the 30-member PSE index (PSEi).

"It does have a huge market cap and currently meets the free float level requirement. We'll have to see moving forward if it will be actively traded by investors. If so, then it could [join the PSEi]," said Japhet Tantiangco of Philstocks.

Meanwhile, Regina Capital highlighted that Monde Nissin has room for growth, particularly in the alternative meat market, both locally and globally. Monde Nissin's Quorn has a 5% market share in alternative meat in the United States.

It is also the market leader in various categories in the Philippines, particularly in instant noodles, sweet biscuits, and savory biscuits, which are expected to grow at compounded annual growth rates (CAGRs) of 6.8%, 5.8%, and 6.1%, from 2020 through 2025, respectively.

"Profitability growth is expected to continue post-IPO, as the group implements cost-saving technologies in its production plants," Regina Capital said.

"Monde is estimated to offer a dividend yield of 8.81%, given the offer price of P13.50 per share. Furthermore, at this price, the company has relatively attractive P/E (price to earnings ratio) compared to its competitors."

Regina Capital noted that while reimposed lockdowns remain a threat, Monde Nissin's asset turnover "won't be significantly affected as it was able to successfully weather out the harsh effects" of the pandemic.

Regina Capital also told investors that the company is highly leveraged and the IPO price is quite expensive in comparison to the index and the industry.

With all the figures, is it time to buy the stock?

Generally, analysts are advising investors and traders to take caution or wait for a more attractive price.

Philstocks told investors to subscribe and has set the target price of Monde Nissin at P15.70.

Robert Ramos of Rizal Commercial Banking Corporation told Bloomberg: "I like the sector. I like the name. But I would look to buy at a more attractive price." 

Nicky Franco, research chief of Abacus Securities, tweeted the investment house's analysis, telling investors to "wait for the share price at lower levels before coming in."

Abacus Securities valued Monde Nissin at P14.90 per share, representing a 10% upside from the IPO price of P13.50.

"This isn't exciting and we believe the risks to our forecasts and valuations are tilted to the downside especially if Quorn continues to lose market share."

Arnel Pepito, co-founder of Stocks-Ed, also said investors should look for lower levels. Although pricey valuation wise, "good fundamentals and positive future prospects can justify its premium."

"I would definitely look for a lower price level to position my buying entry due to both local and global volatile market condition.The company is also subject to the overall economic environment. So we are expecting to see lower stock price in the coming days, but we are also expecting as well Monde Nissin to stabilize in the short term," Pepito said.

Going healthy

COL Financial noted that Monde Nissin doubling its capital expenditures to P26.5 billion over the next three years will help the company meet strong demand by growing the capacity of its alternative meat business.

"Additional investments in the meat alternative business are crucial in addressing the problems that hurt the performance of the segment during the past few years. From 2017 to 2020, revenues of Monde's meat alternative business only grew by a CAGR of 5%. This is despite the robust growth of the meat alternative market in the United Kingdom," COL Financial said in a research note.

Quorn has a dominant position in alternative chicken in the United Kingdom, growing by a three-year CAGR of 24%, while beef and chicken grew 20% and 21%, respectively.

Quorn is also the only scale produce of alternative meat using mycoprotein, which is made from a naturally occurring fungi.

"There are high barriers to entry in this space given the significant amount of research and development needed and scale required to produce mycoprotein. Other main competitors use soy, wheat, or vegetable proteins. Compared to other protein producing systems, Quorn claims its production of protein is more efficient and is shown to give rise to a net gain in protein produced."

Quorn is also investing in additional research to improve the taste and texture of its products.

Meanwhile, COL Financial said Monde Nissin's move to give the noodles business a facelift will likely draw in gains.

Monde Nissin is adopting high-speed airflow technology which will reduce the oil content of its Lucky Me! noodles by as much as 70%.

"This is expected to help accelerate the growth of the category by improving consumer perception on instant noodles," COL Financial said. – Rappler.com

Ralf Rivas

A sociologist by heart, a journalist by profession. Ralf is Rappler's business reporter, covering macroeconomy, government finance, companies, and agriculture.

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