KDN: PP 10744/04/2010

21 April 2010

Analyst Briefing

Mamee-Double Decker (M) Bhd

Yummy story so far This was the first time Mamee-Double Decker (Mamee) organised a briefing for analysts and fund managers. This indicated that Mamees management is more transparent now and is more investor-friendly. A dividend policy of distributing a minimum of 50% of group net profits to shareholders was announced recently. It is to be paid on a semiannual basis, as has been the Groups practice hitherto.
STOCK INFO Price (20 Apr 10) Issued shares (mil) Par Value (RM) Market cap. (RMm) Price over NA 52-wk price Range Beta (against KLCI) RM3.08 151.28 1.00 465.94 2.0x RM1.17 RM3.14 0.68

Not Rated Target Price (TP): RM3.30

KLCI Bursa / Bloomberg Board / Sector Syariah Compliant

1,335.90 5282 / MAMEE MK Main / Consumer Yes

Major Shareholders Pang Family 63.0%

Management guidance for FY10 topline and 3-mth Avg Daily Vol 0.15m bottomline growth is at double-digit and high single-digit respectively. Assuming a growth 3-mth Avg Daily Value RM0.46m rate of 7.5%, the EPS for FY10 is estimated at 31.1 sen. We believe that a PER valuation of 10.5x is fair for Mamee. The 10.5x PER is at par with its historical and peers average and this also coincides with a 30% discount to our consumer sectors average of 15x (due to Mamees small capitalisation and lower liquidity). This will derive a Target Price of RM3.30. Adding up the dividend yield of 5% (50% of the net profit), the total return is about 12%. A successful brand. Established in 1971 and listed on Bursa Malaysia in 1992, Mamee is a valuable small-cap company involved in the Food & Beverages (F&B) manufacturing business. Mamees remarkable household brand names are Mamee Monster, Mister Potato and Double Decker. The company was also one of the winners of Malaysias Most Valuable Brands in 2008 and Putra Brand Awards in 2009. This has reaffirmed companys brand recognition and leading position in the domestic F&B market. Quantitative wise, Mamee registered a good track record with 10-year revenue CAGR of about 8% and an average ROE of 10.5% within the same period. Snacks the largest revenue contributors. Mamee manufactures and distributes over 50 products, ranging from snack, instant noodle, beverage, cultured milk and confectioneries (refer Graph A). Snacks contributed about 56.7% of the total group sales in FY09, of which 53% was attributed to Mister Potato, followed by Mamee Monster 28% and others 19%. Instant noodles, beverages and cultured milk accounted 23%, 13% and 7% respectively. Expanding export contribution. Mamee generated about 30% of its sales from the export markets which cover more than 80 countries across all continents. Australia, being the largest and fastest growing export market, contributed 18% of the total export sales in FY09, followed by Singapore 9%, Russia 7%, Hong Kong 7% and Netherland 6%. The management is targeting to boost its exports contribution to 40% and 50% in 3 and 5 years respectively. Appointment of new or additional distributors and more marketing support from Mamee are among the plans to expand its export presence. Capitalising on Mamee Monster brand name. As one of the growth strategies, the management indicated their intention to capitalise on the well-recognised Mamee Monster icon by introducing wider products under Mamee Monster brand name. Currently, Mamee Monster snacks noodles is the market leader locally and it is the only snack noodle product in Australia which is approved by the health authorities to be sold in Australian schools. In addition, Mister Potato has also overtaken Pringles for the chips segment in Malaysia, commanding about 45% of the market share. This has proven Mamees ability to create and grow its own brand name.

KINDLY REFER TO THE LAST PAGE OF THIS PUBLICATION FOR IMPORTANT DISCLOSURES

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Products

Sales Breakdown

Revenue 5-year CAGR

Domestic : Export

Local Market Share

Remarks Mamee Monster snack is the only snacks noodles product in Australia. Followed by Pringles 41% local market share. Up from 12% in 2008. -

70% : 30% Snacks & Confectionery* 57% 8.7% (Mamee Monster) 40% : 60% (Mister Potato) Instant Noodles Beverages Cultured Milk 23% 13% 7% 8.7% 4.3% 10.0% 70% : 30% ~ 100% local ~ 100% local

Market Leader (Mamee Monster) 45% (Mister Potato) 14% -

Sources: Company, MIDFR *Confectioneries segment contributed only 0.4% of the total sales.

Plenty of cash with no borrowing. Mamee has RM45.7m net cash or 30.2 sen per share as at 31 Dec 09 with negligible borrowing. Including short term investments, the net cash is estimated at about 56 sen per share. In addition Mamee has 5.3m treasury share in its account (about 3.5% of the total share capital) currently, which is equivalent to RM16m or 10.6 sen per share. The solid balance sheet is supported by the good earnings quality with healthy net operating cash flow ranging from RM20 to RM30m per year. Taking into account Mamees net cash position, we believe that there is no issue if the company were to leverage for expansion. Dividend policy of 50% net profit. A dividend policy of distributing a minimum of 50% of group net profits to shareholders was announced recently. The dividend is to be paid on a semi-annual basis, as has been the Groups practice hitherto. Management indicated that the dividend policy is within the groups financial capability given its highly cash-generative business in the food and beverage sector. Note also, on 16 Apr 10, Mamee declared a final and special tax exempt dividend totaled 7 sen (5 sen +2 sen) per share for FY09 with ex-date and payable date on 27 May and 25 June respectively. Based on management earnings guidance, we anticipate a dividend yield of about 5% for FY10. Venture into plantation business. Mamees has entered into 60:40 JV to develop 10,000ha (Phase I: 2k ha; Phase II: 3k ha; and Phase III: 5k ha) of oil palm plantation development in Central Kalimantan, Indonesia in June 2008. Management indicated that the rationale is to hedge the groups vegetable oil needs for food production (current usage of about 5k MT per year; increasing to 10-15k MT per year in 5 years) and build another recurring income stream. However, management do not expect significant contribution in the near to mid-term horizon. Total return of about 12%. Management guidance for FY10 topline and bottomline growth is at double-digit and high single-digit respectively. Assuming a growth rate of 7.5%, the EPS for FY10 is estimated at 31.1 sen. We believe that a PER valuation of 10.5x is fair for Mamee. The 10.5x PER is at par with its historical and peers average and this is also coinciding with a 30% discount to our consumer sectors average of 15x (due to Mamees small capitalisation and lower liquidity). This will derive a Target Price of RM3.30. Adding up the dividend yield of 5% (50% of the net profit), the total return is about 12%.

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Table A: PEERS COMPARISON Last Price @ 20 Apr 2.91 1.42 1.54 1.14 1.45 Market Cap (RM mil) 232.8 187.4 184.8 109.1 87.0 Latest FY Revenue 175.3 133.1 213.4 184.3 118.4 Latest FY Net profit 20.9 19.7 26.9 16.0 9.8 Latest FY Net Margin 11.9% 14.8% 12.6% 8.7% 8.2% 11.3% 3.08 465.9 411.5 43.6 10.6% Net Debt to Equity -22.7% -14.5% -29.8% 78.0% 1.6%

Company Apollo Food Cocoaland Hup Seng Industries London Biscuits Oriental Food Average Mamee

Hist. PER 11.1 8.7 13.8 5.6 8.9 9.6 11.0

Hist. Div Yield 5.2% 4.0% 3.5% 2.6% 1.8% 3.4% 3.5%

-20.3%

DAILY PRICE CHART

Zulkifli Hamzah Belford Chang [email protected] 03-2173 8392

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MANAGEMENT TEAM

Source: Company

Graph A: MAMEE PRODUCTS RANGE

Source: Company

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Table B: FINANCIAL HIGHLIGHTS

Source: Company

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MIDF RESEARCH is part of MIDF Amanah Investment Bank Berhad (23878 - X).
(Bank Pelaburan) (A Participating Organisation of Bursa Malaysia Securities Berhad)

DISCLOSURES AND DISCLAIMER

This report has been prepared by MIDF AMANAH INVESTMENT BANK BERHAD (23878-X). It is for distribution only under such circumstances as may be permitted by applicable law. Readers should be fully aware that this report is for information purposes only. The opinions contained in this report are based on information obtained or derived from sources that we believe are reliable. MIDF AMANAH INVESTMENT BANK BERHAD makes no representation or warranty, expressed or implied, as to the accuracy, completeness or reliability of the information contained therein and it should not be relied upon as such. This report is not, and should not be construed as, an offer to buy or sell any securities or other financial instruments. The analysis contained herein is based on numerous assumptions. Different assumptions could result in materially different results. All opinions and estimates are subject to change without notice. The research analysts will initiate, update and cease coverage solely at the discretion of MIDF AMANAH INVESTMENT BANK BERHAD. The directors, employees and representatives of MIDF AMANAH INVESTMENT BANK BERHAD may have interest in any of the securities mentioned and may benefit from the information herein. Members of the MIDF Group and their affiliates may provide services to any company and affiliates of such companies whose securities are mentioned herein This document may not be reproduced, distributed or published in any form or for any purpose.

MIDF AMANAH INVESTMENT BANK : GUIDE TO RECOMMENDATIONS STOCK RECOMMENDATIONS BUY TRADING BUY NEUTRAL SELL TRADING SELL Total return is expected to be >15% over the next 12 months. Stock price is expected to rise by >15% within 3-months after a Trading Buy rating has been assigned due to positive newsflow. Total return is expected to be between -15% and +15% over the next 12 months. Total return is expected to be <15% over the next 12 months. Stock price is expected to fall by >15% within 3-months after a Trading Sell rating has been assigned due to negative newsflow.

SECTOR RECOMMENDATIONS POSITIVE NEUTRAL NEGATIVE The sector is expected to outperform the overall market over the next 12 months. The sector is to perform in line with the overall market over the next 12 months. The sector is expected to underperform the overall market over the next 12 months.