February 11, 2014

RFM's 2013 net income up 18% YoY

In a press statement, RFM Corp (RFM) said its 2013 net income grew 18% YoY to P805m. Earnings growth was primarily driven by improved margins on lower commodity costs and other cost management measures that matched the benefits from strong consumer spending particularly on beverage drinks and milk as well as market share gains in the pasta business.

RFM's Fiesta pasta brand now accounts for 35% of the market from 29% a year earlier. These developments compensated for the 6% YoY drop in revenues partly due to the absence of any contribution from Swift meat business which the company sold in late 2012.

Our Take: RFM appears to be a promising consumer play given its expanding market shares, strong brands and improving margins. Its acquisition of Royal pasta, the country's second biggest pasta brand, can bring its market share in this segment to 50%. This should provide a boost to revenue growth amid tight competition and the high base already set by its other products, particularly in the ice cream segment.

RFM said it is gunning for a 20% rise in revenues this year. Barring any sudden spikes in commodity prices, achieving the revenue guidance should enable the company to sustain its strong earnings growth given its gains in improving margins. The only remaining concern would be the thin liquidity of its shares. – WealthSec