SHARE DATAUniversal Robina Corporation:FY16 core earnings in line with COL; management cautious on FY16

FY16 core earnings in line with expectation. URC booked Php4.2Bil in core earnings in 4QFY15, higher by 18.3% y/y. This brought FY15 core earnings to Php16.4Bil, higher by 15.1% y/y. Results were in line with COL estimates, accounting for 99.9% of our forecast. 4QFY15 revenues grew by 17.2% to Php27.1Bil, bringing FY15 revenues to Php109.1Bil, higher by 18.1 y/y and in line with estimates. Domestic branded sales grew by only 7.4% in 4QFY15 on continued competition in coffee and weak sales in El Nio-affected areas. International sales growth was also muted at only ~7% (ex-Griffins) due to foreign exchange volatility and as the macro environment remained weak. Nonetheless, EBIT margins still improved by 50 bps to 16.0% in 4QFY15 on higher scale and lower input prices.

Management cautious on FY16; EBIT guidance lower than estimates. Management is cautious on FY16 due to sustained competition in coffee, the impact of El Nio on domestic demand, weak macro in Thailand and Indonesia. Management expects sales growth of 8% to 9% in FY16, slightly slower than our forecast of 9.8% and significantly lower the than consensus estimate of 12.8% growth rate. Further, because EBIT margins are expected to remain flat in FY16, EBIT is expected to range between Php18.5Bil and Php19Bil, 4-6% lower than our forecast and 6-9% lower than consensus.

Maintain HOLD rating. We are maintaining our HOLD rating on URC with a FV estimate of Php209/sh. Although we like URC in the long run for its strategic position in the domestic and ASEAN branded foods segment, the company is facing difficulties on many fronts. The domestic space remains challenging due intense competition in coffee and softer demand due to El Nio. Meanwhile, a weak macro environment continues to hamper growth in the international segment. At current prices, URC is trading at 30X FY16E P/E, which may be difficult to justify given managements cautious guidance of only 8-9% sales growth and flattish margins for next year, which is below expectations.

Rating HOLDTicker URCFair Value (Php) 209.00Current Price 193.80Upside (%) 7.84

Jed Frederick Pilarcajed.pilarca@colfinancial.com

Year to September 30 (Php Mil) 2012 2013 2014 2015E 2016ERevenues 71,204 80,995 92,376 111,577 122,478 % change y/y 6.0 13.8 14.1 20.8 9.8Operating Income 7,810 10,279 14,119 17,580 19,730 % change y/y 13.0 31.6 37.4 24.5 12.2 Operating Margin (%) 11.0 12.7 15.3 15.8 16.1Core Profits 8,377 11,263 14,214 16,382 18,749 % change y/y 17.6 34.4 26.2 15.2 14.5 Core Profit Margin (%) 11.8 13.9 15.4 14.7 15.3Net Income 7,763 10,045 11,559 12,944 14,866 % change y/y 66.8 29.4 15.1 12.0 14.9 Net Profit Margin (%) 10.9 12.4 12.5 11.6 12.1EPS 3.70 4.60 5.30 5.93 6.81 % change y/y 63.7 24.3 15.2 12.0 14.9

RELATIVE VALUEP/E(X) 55.2 43.9 38.1 34.0 29.6P/BV(X) 9.2 8.7 7.9 7.2 6.5ROE(%) 16.8 19.8 20.7 21.1 21.9Dividend Yield (%) 0.9 1.2 1.5 1.7 1.9Source: URC, COL est imates

FORECAST SUMMARY

TUESDAY, 01 DECEMBER 2015

ABSOLUTE PERFORMANCE

MARKET DATA

1M 3M YTDURC -3.39 0.94 -0.43PSEi -1.73 -1.24 -3.04

Market Cap 422,775.07MilOutstanding Shares 2,181.50Mil52 Wk Range 173.00 - 234.003Mo Ave Daily T/O 397.14Mil

SHARE PRICE MOVEMENT

70

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120

1-Sep-15 1-Oct-15 1-Nov-15 1-Dec-15

URC PSEi

P H I L I P P I N E E Q U I T Y R E S E A R C H

TUESDAY, 01 DECEMBER 2015 page 2URC I EARNINGS ANALYSIS

FY16 core earnings in line with expectations

URC booked Php4.2Bil in core earnings in 4QFY15, higher by 18.3% y/y. This brought FY15 core earnings to Php16.4Bil, higher by 15.1% y/y. Results were in line with COL estimates, accounting for 99.9% of our forecast. 4QFY15 revenues grew by 17.2% to Php27.1Bil, bringing FY15 revenues to Php109.1Bil, higher by 18.1 y/y and in line with estimates. Domestic branded sales grew by only 7.4% in 4QFY15 on continued competition in coffee and weak sales in El Nio-affected areas. International sales growth was also muted at only ~7% (ex-Griffins) due to foreign exchange volatility and as the macro environment remained weak. Nonetheless, EBIT margins still improved by 50 bps to 16.0% in 4QFY15 on higher scale and lower input prices.

Net income grew slower by 4.8% to Php3.2Bil in 4QFY15 and by 9.7% to Php12.7Bil in FY15 due to higher finance costs, forex losses and equitized losses from joint ventures. Full year net income was in line with COL and consensus at 97.9% and 95.9% of estimates, respectively.

Exhibit 1: Results Summary

Source: URC, COL estimates, Bloomberg

Domestic slowdown persists

The domestic branded segment continued to be challenged during the quarter with sales of Php14.5Bil in 4QFY15, higher by 7.4% y/y. Competition in the coffee category remained intense. According to URC, the increasing prevalence twin packs for coffee with lower selling price per gram has been diluting the entire categorys value. Twin packs are now being offered by all three big coffee players: URC, Mayora Indah and Nestl. Sales have also been weak in Visayas and Mindanao due to the impact of El Nio. These regions account for 20% of domestic branded sales. Segment EBIT margins improved 170 bps for both 4QFY15 and for FY15 to 18.7% and 18.2%, respectively.

International facing headwinds from FX and weak macro

In peso terms, international branded sales grew by 7%, excluding Griffins, and by 42%, including Griffins. Weakness in local currencies against the peso affected Indonesia, Vietnam and Griffins sales. Additionally, the macroeconomic environment remained weak, particularly in Thailand and Indonesia. Only Vietnam appears to be improving with sales growth accelerating to 13% in 4Q from 9% in 3Q. According to URC, sales of energy drinks (+50%) and larger size of ready-to-drink tea (+35%) have been strong in Vietnam.

COL Consensus

Revenue 23,137 27,108 17.2 92,376 109,051 18.1 97.7 97.1Operating Income 3,595 4,345 20.9 14,119 17,404 23.3 99.0 97.4

Operating Margin (%) 15.5 16.0 0.5 15.3 16.0 0.7 - -Core Earnings 3,523 4,169 18.3 14,214 16,364 15.1 99.9 -

Core Margin (%) 15.2 15.4 0.2 15.4 15.0 -0.4 - -Net Income 3,006 3,151 4.8 11,559 12,678 9.7 97.9 95.9

Net Margin (%) 13.0 11.6 -1.4 12.5 11.6 -0.9 - -

FY15 %Change % of Forecast4QFY14 4QFY15 %Change FY14in PhpMil

P H I L I P P I N E E Q U I T Y R E S E A R C H

TUESDAY, 01 DECEMBER 2015 page 3URC I EARNINGS ANALYSIS

Exhibit 2: International branded sales growth

Source: URC

Management cautious on FY16; EBIT guidance lower than estimates

Management is cautious on FY16 due to sustained competition in coffee, the impact of El Nio on domestic demand, weak macro in Thailand and Indonesia. Management expects sales growth of 8% to 9% in FY16, slightly slower than our forecast of 9.8% and significantly lower the than consensus estimate of 12.8% growth rate. Further, because EBIT margins are expected to remain flat in FY16, EBIT is expected to range between Php18.5Bil and Php19Bil, 4-6% lower than our forecast and 6-9% lower than consensus.

Maintain HOLD rating

We are maintaining our HOLD rating on URC with a FV estimate of Php209/sh. Although we like URC in the long run for its strategic position in the domestic and ASEAN branded foods segment, the company is facing difficulties on many fronts. The domestic space remains challenging due intense competition in coffee and softer demand due to El Nio. Meanwhile, a weak macro environment continues to hamper growth in the international segment. At current prices, URC is trading at 30X FY16E P/E, which may be difficult to justify given managements cautious guidance of only 8-9% sales growth and flattish margins for next year, which is below expectations.

in Php in local currencyVietnam 8% 13%Thailand 10% 10%New Zealand -4% 2%Indonesia 24% 35%

P H I L I P P I N E E Q U I T Y R E S E A R C H

TUESDAY, 01 DECEMBER 2015 page 4URC I EARNINGS ANALYSIS

Investment Rating Definitions

Stocks that have a BUY rating have attractive fundamentals and valuations, based on our analysis. We expect the share price

to outperform the market in the next six to twelve months.

Stocks that have a HOLD rating have either 1.) attractive fundamentals but expensive

valuations; 2.) attractive valuations but near term earnings outlook might be poor or vulnerable to numerous risks. Given the

said factors, the share price of the stock may perform merely inline or underperform the market in the next six to twelve months.

We dislike both the valuations and fundamentals of stocks with a SELL rating.

We expect the share price to underperform in the next six to twelve months.

Securities recommended, offered or sold by COL Financial Group, Inc.are subject to investment risks, including the possible loss of the principal amount invested. Although information has been obtained from and is based upon sources we believe to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute the judgment of COLs Equity Research Department as of the date of the report and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a security. COL Financial ans/or its employees not involved in the preparation of this report may have investments in securities or derivatives of securities of securities of the companies mentioned in this report, and may trade them in ways different from those discussed in this report.

Important Disclaimers

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