RFM Corp.

, RFM [PSE]
First Metro Rating Last Price Intrinsic Value Consider Buy Consider Sell Industry Sector
Buy 1.69 2.42 1.69 2.42 Food and Beverage Manufacturing Food

RFM Profits Rising milk and beverage are breaking even this year
RFM eyes net income of PHP750m this from projected losses of PHP60m and PHP200m
RFM year, 15%-20% better than the full year net in 2010, respectively.
Rebuilds Brands; income last year; expected within the range of
Sees Net Profits PHP625m to PHP650m, per company disclosure
Repackaged in smaller sachets and foil pouches
priced below PHP10.00/60 grams, RFM’s corned
Growing to to us in our recent visit.
beef will reverse dwindling sales from 09’s high
PHP750m Key bottomline drivers are the traditional of 9m kgs as it makes inroads into the low-end
flagship product flour and the ice cream brand market. The strategy aims to cut in half last
Selecta, bolstered by wider gross profit margins year’s projected PHP135m losses. Swift hotdogs
By: C.S. Ulang
Analyst (GPM) projected at 32% and 50%, respectively, will remain competitively priced at Php120/kg. or
this year. These two made up two thirds of Php40 below Purefoods. Meat products, processed
RFM’s PHP6.3bn topline in 9mo2010. and canned, make up 16% of RFM’s topline or
Report updated on PHP1bn in 9mo2010. Meat sales volume had
With a market share of 68%, Selecta has
Jan. 25, 2011 weakened since 09’s high of 9m kgs. to just 15%
become the market leader on stepped-up
of that in 9mo2010 amid rising fixed cost.
marketing, costing the bulk of RFM’s PHP1bn
selling expenses last year. Sales volume We estimate flour to make PHP957mn this year in
Stock Data growth could run 30% in 2011 and 2012. operating income, up from PHP787m we expect for
Price (Php) 1.69 2010 versus our forecast for ice cream which is
Outstanding Shares (mn) 3,160 Flour is a margin management business, PHP740m for 2011. Combined, operating income
Book Value/Share (Php) 1.72 according to RFM Investor Relations Head of ice cream and flour for 2011 could be double
Price/Book (X) 0.98 Ramon Lopez, explaining why it has been a that of last year’s 9mo2010 worth PHP927m or
key bottomline kicker despite a historically flat PHP1.7bn for 2011.
topline growth.
Fundamental Indicators Debt to equity ratio improved to 0.67:1 in 9mo2010
in mn Php FY09A FY10E FY11E Demand for an intermediate input product like vs. 0.74:1 a year ago. Interest expenses were
Sales 8,333 9,314 10,893 flour has been stable despite several hikes of PHP88m on net operating cash generation of
selling prices last year for a 25-kg bag that PHP450m in the same period.
Net Profits 364 722 821
stretched GPM to 28-30%. Flour benefitted
EPS Php 0.12 0.23 0.26 RFM a Buy. We rate RFM a buy. PE is a low 6X
from rising wheat prices, up 30% to $780/
PER (x) 11.79 7.43 6.55 2011 earnings based on our forecast and 7X PE
ton yoy & translating to a local selling price
Source: Bloomberg Estimates based on consensus. It also trades at a discount
of PHP750/25 kg. bag this year, up PHP100
to our DCF value estimate of PHP2.42/shr. Our
vs. last year. Further rounds of price hikes are
estimates are preliminary and will reflect further
Table 1. likely, based on company view.
guidance on company strategies as soon as
RFM Valuation in mn PHP
Breakeven Year. Loss-making businesses disclosed to us.
PV of Free Cash Flow 5,886,106
Table 2.
Terminal Value 2,872,829
RFM Earnings Estimates 2008 2009 2010E 2011E 2012E
Gross Value 8,758,935 in mn PHP
Less: Net Debt 1,100,000 Flour 468.00 680.00 784.60 975.67 1,140.12
Value of Equity 7,658,935 Selecta 241.84 235.80 477.80 740.26 1,309.45
Outstanding shares 3,160,404 Meat and Beverage (223.00) (329.50) (377.55) (334.86) (67.47)
DCF Value/Shr. 2.42 Total operating income 486.84 586.30 884.85 1,381.06 2,382.10
Eliminations (72.39) (168.00) (30.00) (30.00) (30.00)
Interest expenses (106.58) (137.01) (34.00) (63.45) (76.14)
Income taxes 69.884 (124.10) (144.00) (405.32) (705.63)
Net income 245.08 365.56 676.85 882.29 1,570.33
Source: FMIC-IAG Estimates & Company Guidance
RFM Corp., RFM [PSE]
2009 Sales Php Mn Mkt Cap Php Mn Industry Sector
Php 8,333 Php5,404 Food & Beverage Mfg. Food, Bev. Tobacco

RFM is a leading food and beverage company which started out in the flour First Metro Rating Last Price Transparency and Governance Competitive Edge
milling business in 1957 and since then has grown into a highly diversified Buy Php1.69 Pass Wide
food company with products such as spaghetti, poultry, processed and 2.21 1.84 Annual Price High Php
canned meat & snack food. 1.74 1.70 Low
2010 2011

PRICE VOLATILITY

1.70 52 week High/Low Php

2.21-0.50

Since IPO High/Low Php

4.50-0.20
50
Relative Strentgh Index
to PSEi

41.78 Trading Volume Mn

Growth Rates 2007 2008 2009 2010 Ytd Jan 24, 2010 STOCK PERFORMANCE
2009 2008 2007 35.29 (62.37) 132.69 216.00 -2.84 Total Return %
Revenue % 10.27 23.88 (0.72) 23.76 (46.29) 63.33 43.00 -6.24 +/- Market
Operating Income % 217.37 (35.51) (3.27) 0 6.40 2.85 n.a. 0.48 Dividend Yield %
Earnings/share % 50.65 4.05 13.85 1,585 1,651 790 1,769 5,400 Market Cap Php Mn
Book Value/Share % 3.93 21.62 37.76
Stock Total Return % 132.69 (62.37) 35.29 2006 2007 2008 2009 9mo2010 FINANCIALS
+/- Market 63.33 (46.29) 23.76 6,095 11,209.9 7,551 8,333 6,256 Revenues Php Mn
265 257 166 526 702 Operating Income Php Mn
205 232 242 364 524 Net Income Php Mn
0.07 0.07 0.08 0.12 0.17 Earnings per Share
Profitability Analysis Current 5 Yr Average Ind. 0 0 50 50 0 Dividends Php Mn
T12mo ROE % 11.45 9.56 27.73 3,110 2,393 3,160 3,160 3,160 Shares Mn
Return on Assets % 6.72 5.41 11.29 1.43 1.97 1.55 1.61 1.72 Book Value per Share
Operating Margin % 7.21 6.26 12.53 9,444 10,148 9,221 8,926 9,264 Assets Php Mn
Net Margin % 6.41 4.21 10.69 4,466 4,735 4,901 5,094 5,575 Total Equity Php Mn

2006 2007 2008 2009 9mo2010 PROFITABILITY

Financial Position Sep2010 Dec-31-09 2.24 2.37 2.50 4.02 14.76 Return on Assets %
Php Mn Php Mn 4.74 5.05 5.02 7.29 9.40 Return on Equity %
Cash & Cash Equivalents 43 485 3.34 3.81 3.21 4.37 6.41 Net Margin %
Receivables 1,318 1,216
Other Current Assets 1,181 1,054
Property and Equipment 2,840 2,538
Other Long-term Assets 5,196 4,896 2006 2007 2008 2009 9mo2010 FINANCIAL HEALTH
Total Long-term Assets 320 300 4,056 4,333 3,081 2,948 2,501 Current Liab.
Total Assets 9,264 8,927 829 832 978 653 1,188 Long-term Debt
Current Liabilities 2,501 2,948
Long-term Borrowing 958 657 2006 2007 2008 2009 9mo2010 VALUATION
Total Liabilities 3,689 3,828 7.85 10.64 2.43 4.83 11.24 Price/T12moEPS
Total Equity 5,575 5,099 10.64 2.43 4.82 11.24 0.61 Price/T12moSales/shr.
0.35 0.16 0.35 0.97 0.97 Price/Book

Quarterly Results Local Peers
Revenue Php Mn Dec.-09 Mar-10 Jun-10 Sept.-10 Name Mkt. Cap Trailing 12M P/E ROE
Most Recent Period 2,538 1,970 2,295 2,011 US$mn Rev $mn
SMB 9,500 1,300 30.47 65.61
Valuation Analysis Current
Ind. Mkt. Prior Year Period 1,977 1,810 2,055 1,931
URC 1,600 1,200 9.21 22.02
Price /T12moEPS 11.24 15.3 13.74 PIP 196 362 13.45 11.85
EV/T12moEBITDA n.a. 5.25 n.a. Revenue Growth % Dec.-09 Mar.-10 Jun-10 Sept.-10
Price/T12moCash Flow 12.25 13.97 7.48 Most Recent Period 28.3 8.84 11.68 4.14
Dividend Yield % 0.46 3.92 2.53 Prior Year Period n.a. 23.21 21.74 (14.06) Top Common Stockholders In 000 % to Total OS
Shares Capital Stock
Price/Book 0.98 5.54 2.28 Name
Price/ T12mo Sales/shr. 0.61 2.30 2..35 Earnings Per Share Php Dec.-09 Mar.-10 Jun-10 Sept.-10 Horizon Realty. 647 20%
Most Recent Period 0.0261 0.004 0.08 0.0400 Triple Eight Holdings 536 17%
Prior Year Period 0.0263 (0.006) 0.049 0.0470 BJS Dev.’t 311 10%
Renaissance 202 6%
Others 1,464 52%
Total 3,160 100.00%

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