YEE LEE CORP BHD - 15 July 2016
By UOBKayHian Research
Buy (maintained)
Target price: RM2.70
UOBKAYHIAN Research has maintained its “buy” rating on Yee Lee Corp Bhd and a target price of RM2.70, based on a blended 12 times 2017 forecast price-to-earnings (PE) for the trading segment and Spritzer’s earnings contribution, and 8 times 2017 forecast PE for the manufacturing segment.
Yee Lee’s trading division would be the largest earnings contributor in 2016.
The research house said despite the soft consumer sentiment, Yee Lee was largely on track to achieve its 2016 net profit forecast of RM44mil, up 33% year-on-year (y-o-y).
Yee Lee has kept to its guidance of achieving RM250mil sales in 2016.
UOBKayHian said although there could be an upside to the RM250mil target due to progressive improvement in the coverage of general trade channels, overall softness in consumer sentiment in the near term created uncertainty in the growth quantum.
“We note that should revenue stay flat, this would imply that actual sales volume would have eased y-o-y as the Red Bull drinks had an 8%-10% price hike recently.
“The volume drop, which is mitigated by the price hike, does not have a material impact on Yee Lee’s bottom line, but it could erode its margins if the volume drop persists,” said UOBKayHian.
Aside from that, the management shared that there was no obvious threat from F&N’s new energy drink, Ranger. And despite F&N’s strategy to lower its prices, UOBKayHian believed it wasn’t easy for a new brand to compete with Red Bull. Red Bull now has about 55% share of the local energy drinks market.
Yee Lee plans to invest RM10mil to RM11mil (excluding land costs) on its two warehouses in the east coast.
“We understand that Yee Lee will relocate its warehouses in Pahang and Kelantan to the company’s own lands, which are more strategically located,” it said, adding that the new warehouses would be two to three times larger than the present space.
It also has a planned capital expenditure of RM10mil to upgrade both its two-colour printing machines to four-colour machines. This will increase its productivity here by 20%.
On the foreign front, its Vietnam business has good long-term potential, given the country’s large population. Vietnam operations only made up about 25% of Yee Lee aerosol can sales now.
Meanwhile, Yee Lee’s 32%-owned subsidiary Spritzer is expected to deliver decent sales growth in the fouth quarter of 2016, bringing full-year revenue growth to 10%-12% driven by the El-Nino impact, which had triggered more bottled-water consumption.

While Spritzer’s advertising and promotions (A&P) budget was likely to rise from between 5% and 7% to 8% of revenue, UOBKayHian said Spritzer’s FY17 earnings would not be impacted by the A&P cost should its revenue from Malaysia’s business continued to grow at 10% to 12% and margins were sustained.