May 08, 2015

URC’s results weighed by unrealized forex losses, higher financing charges

URC 2Q15 net income dropped 3% YoY to P3.2b from P3.3b previously as finance costs and FX losses dragged results. EBIT for the second quarter however, was up 21% YoY on the back of a 25% increase in revenues. This was driven primarily still by its branded consumer foods group (BCFG) which posted strong sales (+25%) and EBIT (+35%) growth on sustained robust operations in both the Philippine and overseas. The non-branded group however posted an 11% drop in 2Q15 EBIT despite a 23% sales hike as the Agro-Industrial business suffered from lower hog prices.

Our take: URC’s 1H15 reported net income of P6.42b already accounts for 47.2% of our full year forecasts with its 1H15 EBIT of P8.85b tracking 50.3% of our full-year forecasts. While our estimates already imputed the higher financing charges arising from the debt used to acquire Griffins, we have yet to factor in the forex losses. At any rate, we believe that URC’s growth trajectory remains intact.

While there is a risk for input prices to rebound, the company expects this to be cushioned by gains arising from better logistical operations. The higher marketing expenses (already factored into our estimates) to beef up new businesses and products should also be accompanied by growing sales as these new ventures ramp up operations. Thus we maintain our Buy rating on URC with a TP of P244 which translates to a 2016 P/E of 30X. – WealthSec