China Minzhong (Maybank KE)

Will 29% Be The End?

GIC passed the baton to Indofood.

stake in China Minzhong last Friday through a marriage trade at a price

of SGD1.12. This confirms our view of two weeks ago that Indofood will

not be satisfied with only 15% control of Minzhong. We view this

transaction positively. Maintain BUY with target price unchanged at

SGD1.36, pegged to 5x PER.Indofood bought the entire GIC’s

Share overhang fades.

shares in China Minzhong in Dec 2012, there were still two big pre-IPO

investors, namely CMIA and GIC, holding an aggregate amount of

126m shares. The transaction drastically reduced this holding to only

32m shares for CMIA alone. Post the transaction, Indofood will hold

29% of China Minzhong, followed by Templeton (11%) and CMIA (5%).After Olympus Capital placed out its 57m

Wish for a more successful marriage this time around.

not the first time that the Salim Group (the parent company of Indofood)

acquires a Chinese company. It acquired six Chinese consumer goods

companies in 2004-2006. Some of those acquisitions turned out to be

unsuccessful. But this time around, Indofood adopted a more cautious

way in our view by acquiring only 29% of the target company in the first

step rather than taking over majority holdings. In addition, compared

with the previous acquisitions that we mentioned above, China

Minzhong is a much bigger company and we believe that Indofood’s

investment in Minzhong is also much bigger than its previous deals.

Thus we believe Indofood will treat it more seriously this time.In fact this is

Indofood’s eagerness to secure raw material supply.

increased its share holding from 15% to 29% only two weeks after the

placement, which shows its eagerness to secure raw material supply

from China Minzhong. The potential revenue which Indofood can bring

to Minzhong could be substantial.Indofood

29% control may still not be the end.

holding to 29%, we think it might still not be the end if Indofood wants to

have an absolute control. We maintain our BUY rating and target price

unchanged at SGD1.36.Although Indofood increased its

China Minzhong – Summary Earnings Table

FYE June (CNY m) FY2011 FY2012 FY2013F FY2014F FY2015F

Revenue 1929.2 2568.8 3344.0 3641.9 4068.8

EBITDA 769.6 904.0 1155.0 1269.7 1404.4

Recurring Net Profit 566.7 681.6 810.8 894.2 1031.8

Recurring Basic EPS (fen) 86.5 103.7 123.1 135.5 156.2

EPS Growth (%) 29.1 19.9 18.7 10.1 15.3

PER (x) 5.90 4.92 4.14 3.76 3.27

EV/EBITDA (x) 4.56 4.31 2.92 2.41 1.62

P/BV (x) 1.15 1.14 0.81 0.58 0.49

Net gearing 5.7% 15.3% 0.7% -4.9% -15.8%

ROE (%) 21.8% 21.0% 19.2% 16.9% 16.5%

ROA (%) 16.7% 14.9% 14.4% 13.9% 13.8%

Consensus Net Profit (CNY m) n.a n.a 758.6 822.2 1007.0

Source: Company, Maybank KE estimates