7 Instant Beverage Players Right Here In Asia

Even in the age of Starbucks and the Nespresso Machine, instant beverages still do have a place in our lives, especially so in Asia. Just 3x simple steps of opening the packet, pouring hot water and stirring the mixture and ta-dah, its there’s a good start to the morning right there.

And with Value Invest Asia’s recent posts on the Singapore listed Super Group Ltd and Food Empire Ltd, we felt that it was appropriate to introduce their peers to you! And today we have not 1, not 2, but 7 (one for each day of the week) listed instant beverage players right here in Asia!

Without further ado, let’s start off with undoubtedly the most well-known player in our list:

1. Nestle (Malaysia) Bhd – Bursa Malaysia

Nestle SA is the Swiss food and beverage giant with CHF88.8 billion in revenue (2014) and a market capitalisation of ~US$230 billion (2016). As one of the leading food company in the world, Nestle SA sells products from Powdered and Liquid Beverages, to Nutrition and Health related products and even to Pet care items!

Without saying much, it is highly likely that most of us would know of the parent company. However not many of us might know of the existence of the parent company’s 72.6% ownership of their listed subsidiary – Nestle (Malaysia) Bhd (NESZ:MK). And with 2014 revenue of RM4.8 billion (US$1.17 billion) and consistent net margin of > 10% over the past 5 years, Nestle Malaysia definitely held their own. Rather than showing you the numbers, it might be more relata-ble if we were to show you what they sell.

Here’s a list of some of Nestle (Malaysia) products:

Milk: Nan, Omega Plus
Cereal: Corn flakes, Honey Stars, Koko Krunch, Cheerios
Beverage: Basically Milo is all you need to know here.
Coffee: Nescafe, Dolce Gusto
Confectionery: Think Maggi
Chocolate: Have a break, have a Kit-Kat
Others: Ice cream, yougurt

There’s no avoiding Nestle products; in terms of geographical awareness, you could say that they are the most well-known player in Asia. Oh, did we also mention that Nestle Malaysia with a dividend payout ratio of close to 100% net profit was the highest among the 7.

2. Oldtown Bhd – Bursa Malaysia

If you are not already aware, not only does Oldtown Bhd produce their famous white coffee, they are also the operator and franchiser of the Oldtown chain of cafes! And just from their Vision Statement alone, “To be Asia Pacific’s leading white coffee brand” you could see the emphasis given to white coffee.

Oldtown has a slightly different operating model compared to being just an instant beverage player. If you just looked into their Chairman’s Statement, you would be able to find out that more than half of their FY2015 revenue – specifically 55% of RM398 million came from their cafe chain operations which included operations like:

• Directly operated cafe outlets (100% and partially) – 93 fully owned and 17 partially owned
• Franchised and licensed outlets – 119 franchised and 16 licensed
• Food processing

In just 10 years, their cafe business grew to a total of 245 outlets (owned and franchised) in Malaysia, Singapore, Indonesia and even China! But in any case, Malaysia still contributed ~91% of cafe operations hence from their cafe segment, they can still be considered to be concentrated on the Malaysian F&B retail industry.

However Oldtown has plans to break out of Asia and this was done in June 2015 with their first licensed outlet opened for business in Melbourne, Australia through a Master license Agreement. I guess we have to give it some time before seeing if this format works beyond Asia! At the same time, with Oldtown setting up their central kitchen operations through a 51% stake in April Eight (China) Limited, they look like they are getting serious in their China expansion.

And if you are interested, here’s a look at their core segments’ FY2015 OPM:

• Operation of Cafe : 11.96%
• Manufacturing of beverages: 21.33%

Power Root Bhd – Bursa Malaysia

The manufacturer of the Alicafe and Ah Huat line of products, Power Root is has close to a third of their beverage sales sold international with the Middle East region their largest target market. Fun Fact: They also produced the herbal energy drink “Tongkat Ali”!

Since 2011, Power Root has almost doubled their Revenue from RM185 million to RM383 million in 2015 and more than tripled its profit after tax from RM12 million to RM46 million. However from the grand scheme of things, RM46 million translates to just US$11 million and 2015 included an extra month of earnings due to a change in their FY end.

At a glance, it might seem that the operations are still decent. However, when we delve deeper with a breakdown of segment contributions, the bulk of the recent yoy increase in revenue of RM78 million (2015 Rev RM383 million – 2014 Rev RM307 million) came from property development which they only went into a year ago. Power Root’s FMCG business only contributed RM20 million out of the RM78 million. On the plus side, the property development sector and their instant beverage business still had increased revenues.

But when it comes to the bottom line, things do not look that bright for their beverage operations. Keep in mind that FY2015 included an extra month of operations.

• FY2015 Group Profit After Tax (PAT): RM46 million (from beverage and property)
• FY2014 Group PAT: RM40 million (from beverage only)
• FY2014 Beverage PAT: RM32 million
• FY2014 Property PAT: RM14 million

This meant that without the contribution from their property segment, Power Root might have reported a lower Group Profit After Tax. So on hindsight, it looked like their diversification into their property development – 1st Avenue referred to a 3 acre piece of land at Pasir Gudang, Johor Bahru consisting of 64 shop lots was the right move!

On a separate note, they have a very catchy Ah Huat White Coffee Song.

Food Empire Holdings Ltd – SGX

With  85% of FY2014 Revenue from Russia, Ukraine, Kazakhstan & CIS (Eastern European region), it isn’t surprising if Food Empire’s products do not ring any bells for us in Asia. But over there, it is a totally different story. MacCoffee – The Group’s flagship product has been consistently ranked as the leading 3-in-1 instant coffee brand in Food Empire’s core markets of Russia, Ukraine and Kazakhstan.

However saying that FY2014 was not a great year was an understatement. As Food Empire has traditionally relied upon natural hedging, they were badly hit by the substantial currency depreciation of their 2 major markets – Russia Ruble (55% of Fy2014 Rev) and Ukraine Hryvnia (11% of FY2014 Rev).  And the company wasn’t kidding when they mentioned challenging conditions. Net income for Equity Holders went from a positive 12 million in FY2013 to a negative US$14 million in just a span of 1 year. On the bright side, Revenue only fell by US$13 million or 5%, so at least they have that going for them.

This might be why Food Empire is on the look out to diversify their income stream beyond the CIS region. From their recent results, they appeared to have made some headway into Southeast Asia with beverage sales in this region which accounted for over 50% of the growth for FY2014.  And with newly operational non-dairy creamer and snack factory as well as plans to set up a packing plant and processing centre in Malaysia, things are starting to look pretty serious.

However, with that being said, Food Empire mentioned in their Annual Report that M&A might not be a key priority until the situation normalises in Russia and Ukraine. So we might be expecting smaller type of bolt-ons rather than a big foray into another entity-type of events.

More on Food Empire over HERE!

Super Group Ltd – SGX

Among the 7 players in our list, Super Group Ltd might be one of the largest instant beverage pure play within Asia. With its 2 integrated segments, or as Super likes to call them – their twin engine of growth, Super has sales in China, Indonesia, Malaysia, Myanmar, Philippines, Singapore, Taiwan, Thailand and Vietnam. With that being said, Super’s homeground is still with 71.8% of FY2015 Revenue coming from this region. Interestingly, Super seems to have a strategy of going into emerging countries early and it seemed to be working in places like Thailand and Myanmar

What’s interesting is how their 2 integrated segments come together.

• Branded Consumer (67% of FY2015 Revenue): Primarily Coffee (77% of BC rev) & Cereal
• Food Ingredients (33% of FY2015 Revenue): Primarily Non-Dairy Creamer and Soluble Coffee Powder

Being integrated means these 2 segments are operationally linked = 1 segment (upstream) helping your other segment (downstream) operations. In this case, FI is the raw material needed to produce their BC products. If things pan out, one should be able to profit from both upstream and downstream operations and this is essentially the low-down on how the Super of today makes their money.

And also with plans to expand both its “twin engines” in to the EMEA region – Eastern Europe, the Middle East and Africa, Super has no intentions of just being an Asia-centric company. And the first of many steps had already began in 2015 when Super went into a JV with a Russian individual to distribute tea and coffee beverages under the brand name “Golden Eagle”. Most recently in their 4Q2015 presentation, it was highlighted that they had started to dip their toes in places like Dubai, Palestine, Bangladesh and also the Gulf Cooperation Council.

FRead out more about Super Group Ltd’s business right HERE!

Mayora Indah Tbk PT – IDX

Ever seen those little Kopiko coffee candies?

Yep, those are by Mayora Indah. And other than being in the candy business, Mayora Indah is also one of the market leaders in the Indonesia consumer food segment with FY2014 rev of ~US$1 billion (as of Feb 2016 Exchange rate).

Their 6 key divisions are:

• Biscuits:
• Candies:
• Wafer:
• Chocolate
• Coffee
• Healthy Food

And with close to 56% of FY2014 Rev in their Food processing operating segment, it seemed to imply that instant coffee under their Processing of coffee powder, instant coffee and cocoa beans occupied less than half of their overall operations.

However with a 57% drop in net profit yoy in 2014, looks like competition in the Indonesian consumer scene is pretty competitive even for a rather significant player like Mayora Indah. In their annual report, raw material prices and market share competition were stated as the key reasons behind this substantial drop from 2013-2014.

Just for knowledge, the major shareholder of Mayora Indah as at FY2014 was PT Unita Branindo (owned by the Atmadja family) with a 32.93% stake in the company.

Universal Robina Corp – PSE

Introducing Universal Robina Corp, with a market capitalisation of US$9.61 billion and FY2014 revenue PHP417 billion (US$2 billion as of Feb 2016 Exchange rate) of  the largest among the seven instant beverage players highlighted in our list. From the size difference, it is quite clear that Universal Robina – one of the largest branded foods companies in the Philippines, does more than just instant beverages with their range of products spanning from snacks, candies, chocolates, biscuits, RTD Tea, Coffee and even to instant noodles. And whats interesting is that they are the market leaders in quite a few of their categories i.e. 84% market share in the Philippines RTD market, 38% in Snacks and 50% in Cup Noodles.

With a quick study of their segmental breakdown, we would appreciate the degree of operations Universal Robina is involved in:

• Branded Consumer (Whatever we mentioned earlier from snacks to instant noodles): 83% of FY2014 Rev
• Agro-Industrial (Feeds & farms): 9% of FY2014 Rev
• Commodity Food (Sugar & flour): 8% of FY2014 Rev

With over 70% of their total revenue coming from Philippines over the past 3 years, they might be worth a look if you are interested in the Philippines consumer scene.

Additionally, with their recent US$608 million acquisition of New Zealand’s biggest snack-food producer – Griffin’s Foods in 2014, Universal Robina appeared to be on track with their aim to be a regional consumer company.

However when it comes to instant beverages, especially instant coffee, Universal Robina are in the #2 spot with a market share of 27%. The leader with a 70% share might be a well known international F&B player that we are familiar with.

And To Place Things In Context, here’s how the 7 stack up against each other!

 

Cover photo credit: Pixabay
Other photo credit: Respective Annual Reports

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We will only provide you with information relevant to value investing. You can unsubscribe at any time. Your contact details will be safeguarded The information provided is for general information purposes only and is not intended to be any investment or financial advice. All views and opinions articulated in the article were expressed in Mun Hong’s personal capacity and do not in any way represent those of his employer and other related entities.

Disclosure: Mun Hong is a shareholder of Super Group Limited.

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