Nissin Monde Corp's Initial Public Offering

May 10, 20216 min read

By Jerilyn Camila, William Clemente, Dawn Deazeta, Janelle Maluping & Anthony Bugaoan

[DISCLAIMER: This analysis is only for the sake of academic discussion and purposes for UP Investment Club. As the title suggests, this is only an analysis of Monde Nissin Corporation's impending public offering. Please do not use this as a basis in investing for Monde Nissin's stocks.]

INTRODUCTION

Monde Nissin Corporation is a global food and beverage company based in the Philippines, handling various product lines such as instant noodles, biscuits, packaged baked goods, culinary aids, and alternative meat products under the iconic and market-leading brands namely Lucky Me!, Nissin, Voice, Bingo, Monde, Dutch Mill, and Mama Sita’s. According to Nielsen, the sales of instant noodles, biscuits, yogurt drinks, and oyster sauce accounted for 68%, 30.5%, 73.2%, and 56% of retail sales market share in the Philippines, respectively.

Despite the pandemic, the company’s sales went up by 3.8% to P67.94 billion in 2020 from P65.45 billion in 2019. The sales growth was driven by the 5% increase in sales of noodles and beverages in the Asia-Pacific region, which counterbalanced the 1% decrease in sales of meat alternatives. This led to a higher net income of P8.07 billion in 2020 from P6.649 billion in 2019, resulting in a 21.3% overall increase.

The product lines of Monde Nissin have proved itself to become popular among its consumers. Thus, there is an assurance for its prospective investors regarding the quality of returns that it would give to its consumers.

As Monde Nissin Corporation continues to show a steady growth in both market share and revenues, it has finally filed for an initial public offering at P63 billion last March 4. Bloomberg reports that it is the country’s largest IPO to date.

MAIN ANALYSIS VS. DIRECT COMPETITORS

This section indicates the key financial ratios of Monde Nissin with its direct competitors, Universal Robina and Century Pacific. Both of these competitors have reached the international markets as well.

Universal Robina Corporation (URC), one of the largest food product manufacturer in the Philippines, operates a diversified range of food-related businesses which includes manufacture and distribution of of branded consumer foods, production of hogs and poultry, manufacture of animal feeds and veterinary products, flour milling, and sugar milling and refining. The company holds an established presence in the ASEAN and has expanded its reach to the Oceania region.

Century Pacific Food, Inc. (CNPF) is primarily engaged in the production of canned goods, and dairy products and mixes which hold an established leading market position. It’s portfolio consists of well-recognized and trusted brands such as Century Tuna, 555, Blue Bay, Fresca, Argentina, Swift, Wow, Lucky Seven, Angel, Birch Tree, Kaffe de Oro, and Home Pride. The company exports its products to international markets to cater to the Filipino communities living abroad. Furthermore, the company operates a private label original equipment manufacturer segment which focuses on tuna and coconut products.

Table 1. Average financial ratio comparisons from 2018-2020

Note: Due to lack of available information for the 2020 Q4, these ratios were based on URC’s 9-month financial statements in 2020.

OPERATIONAL EFFICIENCY

Due to the increase in demand for easy-to-use snacks, Monde Nissin, URC and CNPF showed a steady increase in both asset and inventory turnover ratios. An asset turnover ratio indicates a company’s ability to use its assets to generate revenue, while inventory turnover ratio indicates a company’s ability to efficiently stock and replenish its goods. True to the report of increase in demand of Monde Nissin products, its inventory turnover ratio averaged at 6.68 which is a strong indicator of efficiency compared to its direct competitors. Meanwhile, it is evident that CNPF is the most efficient in utilizing its assets, reporting an average of 1.15. Despite this, Monde Nissin is almost at par with its other competitor, URC, in terms of its asset turnover ratio especially in 2019.

PROFITABILITY

From 2018 to 2020, Monde Nissin Philippines was able to maintain an average of 9% net profit margin, higher than URC and CNPF. Going forward, the increasing profit margin trend since 2018 can signal a possible further improvement in the future profitability of the company. To further assess the profitability of the Monde Nissin Philippines in comparison to its peers, return on asset and return on equity can provide insight on how efficient the company is utilizing its asset and equity. An assessment of the average ROE of the three subjects can lead to the conclusion that Monde Nissin was the most profitable of the three.

Analyzing both ROE and ROA, Monde Nissin, the company with the highest ROE among the three companies, can be observed to have a high Debt to Equity ratio- 2.67x versus the 0.79x and 0.78x of URC and CNPF, respectively. This high d/e ratio implies that the company has a smaller equity base on which to divide income which led to a higher ROE.

This leads to the conclusion that ROA can be a better metric to use in comparing the profitability of these companies. ROA reflects how well of the company maximizes their assets based on its total assets while ROE compares it to the total equity of the company, which can lead to quite exorbitant returns. Based on this consideration, Century Pacific Corporation, with a ROA of 9.09% can be deemed as the most profitable of the three companies. Monde Nissin’s 22% average ROE was pushed to that level due to the high levels of debt incurred by the company. A peek at its ROA, 6%, highlights the fact that it’s efficiency is only similar to that of URC’s.

LIQUIDITY AND SOLVENCY

Knowing a company’s liquidity ratios indicate their ability to pay short-term liabilities, while solvency ratios shows a company’s ability to pay long-term liabilities. In 2018 and 2019, Monde Nissin Philippines has been aggressive by financing their company through debts. This is indicated with their high debt-to-equity ratios. It can be inferred that the company has managed to mitigate this risk by showing a lower debt-to-equity ratio in 2020. However, this particular decrease in the debt-to-equity ratio can be possibly attributed to creditors demanding Monde Nissin to pay its debts due to the economic downturn due to particular events that occurred in 2020 such as the Taal Volcano eruption and the onset of COVID-19.

Comparing it to URC and CNPF, URC’s debt-to-equity ratio seemed less affected than Monde Nissin. It can be attributed to URC as a larger and more stable corporation than Monde Nissin. Meanwhile, CNPF’s debt-to-equity ratio increased. It can be assumed that CNPF decided to use loans in order to fund its operations in 2020. As a result, CNPF’s net profit margin tripled during the same year.

INTERPRETATION

Compared to its competitors, Monde Nissin’s profitability ratios are generally at par with that of its direct competitors. In terms of liquidity and solvency, it is evident that these three companies showed different approaches in handling the country’s economic downturn. Nevertheless, it can be seen that Monde Nissin is generally competitive and at par with that of its competitors, even promising higher returns as high as 32.43%.

GENERAL SUMMARY

The investment sector has been waiting for Monde Nissin Corporation to make its IPO since 2015. Thus, the announcement that Monde Nissin Corporation gained public attention not only in the country but also internationally because it is said to be the first billion-dollar initial public offering (IPO) in the Philippines. They will raise 63 billion pesos ($1.3 billion) through an IPO that is intended for funding capital expenditure, redemption of the Arran Convertible Note, repayment of loans to commercial banks, and for general corporate purposes.

However, according to the US Bank, one should think twice before investing in a company the public is hyped about. Usually, when shares are newly issued through initial public offerings, an oversubscription happens, wherein the demand exceeds the supply.

A company deals with an oversubscribed IPO by either increasing the price of shares, offering more stocks to sell, or a mix of both. By doing so, the company may be able to raise their equity. Based on Monde Nissin Corporation’s preliminary prospectus, they have a high return on equity (ROE) with 31.30%. A high ROE means that the company is efficient in managing its equity. Although, if Monde Nissin Corp. decides to increase the price of their shares or offer more stocks due to high demand, their equity will increase while their ROE may decline if their net income remains the same or decreases.

Monde Nissin Corporation is also considered highly leveraged since it has a relatively high debt-to-equity ratio compared to companies within the same market. This means that it might be risky to invest in it.

Some investment professionals recommend waiting for the lock-up period for IPOs to end before investing. An IPO lock-up period refrains principal stockholders from selling their shares for a one-year period after listing. The purpose of a lock-up period is to maintain liquidity and retain market stability. Waiting for the lock-up period to expire will give investors insights on whether the company is worth investing in or not.

Appendix

Nissin Monde Corp's Initial Public Offering

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