Biscuit Plant, Meat Alternative And Flavored Foods Will Transform Business

Key Takeaways

• Monde Nissin's expansion and premiumization strategies are poised to boost revenue and market share, supporting strong brands and product lines globally.
  
• Operational improvements and currency risk management can enhance profitability and stabilize earnings, despite challenges in the Meat Alternative segment.
  
• Challenges in the Meat Alternative segment and supply constraints, along with foreign exchange risk, may hinder Monde Nissin's revenue growth and profitability.

Catalysts

An investment holding company, manufactures and sells food products and beverages in the Philippines, Thailand, New Zealand, Singapore, the United Kingdom, and internationally.

• Monde Nissin is expanding its biscuit business with plans to build a new plant, which addresses current supply constraints and supports strong brands like Grahams and SkyFlakes. This expansion is expected to increase sales capacity, potentially driving revenue growth.
  
• Improvements in operational efficiencies, such as cost-saving measures and supply network optimizations, are part of the Meat Alternative segment’s Transform to Win Together program. These efforts aim to improve margins and profitability over the next few years.
  
• The launch of new flavors and the premiumization of product lines, such as the Chicken Kalamansi and Beef Kalamansi instant noodles, are expected to drive incremental growth and market share in the APAC Branded Food & Beverage segment, potentially boosting revenue.
  
• Monde Nissin's strategy of stockpiling U.S. dollars to manage currency risk is likely to lead to positive FX gains, supporting net income growth in volatile currency environments.
  
• The Meat Alternative segment, despite current challenges, has started a turnaround program that aims to stabilize sales and achieve positive core EBITDA by 2025 and significant earnings growth by 2027. Successful execution can lead to substantial earnings improvement.

Monde Nissin Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Monde Nissin's revenue will grow by 4.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 0.5% today to 13.6% in 3 years time.
• Analysts expect earnings to reach ₱13.0 billion (and earnings per share of ₱0.72) by about April 2028, up from ₱445.8 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 19.3x on those 2028 earnings, down from 302.3x today. This future PE is greater than the current PE for the PH Food industry at 10.8x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.85%, as per the Simply Wall St company report.

Monde Nissin Future Earnings Per Share Growth

Risks

• The Meat Alternative segment of Monde Nissin is facing significant challenges with a 9.3% year-on-year decline for the full year, which could negatively impact overall revenue growth and profitability.
  
• An impairment charge of ₱6.9 billion for the Meat Alternative investment indicates significant market and performance troubles, impacting reported net income negatively and raising questions about the viability of this segment.
  
• The company is facing supply constraints in the biscuit segment, which may limit future sales growth and volume increases, impacting revenue potential.
  
• The foodservice performance was below expectations, with a decline in Q4, which could lead to challenges in meeting revenue targets in the future.
  
• The dependency on the U.S. dollar for raw material costs introduces foreign exchange risk, which could affect cost of goods sold and net margins, particularly if the peso depreciates.

Valuation

• The analysts have a consensus price target of ₱10.275 for Monde Nissin based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₱13.3, and the most bearish reporting a price target of just ₱6.5.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₱95.8 billion, earnings will come to ₱13.0 billion, and it would be trading on a PE ratio of 19.3x, assuming you use a discount rate of 10.8%.
  
• Given the current share price of ₱7.5, the analyst price target of ₱10.28 is 27.0% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.