Monde Nissin's IPO has top funds ditching blue chip stocks

[MANILA] Food giant Monde Nissin's record-breaking entry into the Philippine stock market is driving a shakeup that's impacting everything from the nation's consumer sector to holdings of some of the biggest money managers.

Investors say the 48.6 billion peso (S$1.35 billion) initial share offering - the biggest ever debut in the South-east Asian country - is pushing them to reallocate funds from existing consumer-staples holdings and even sell blue-chip stocks from other sectors to pay for a slice of the iconic snack brand that debuts June 1. Average volume on the benchmark stock index is up nearly one-third since the March 4 IPO filing compared with the start of the year.

Overseas heavyweights including Singapore state investment fund GIC and Hong Kong insurer AIA Group have also taken stakes in the Quorn maker, which has won favour for its prospects in the fast-growing global market for alternatives to meat. The company's dominant position in the Philippines for basic foods like noodles has added to its allure because of the strong revenue stream it provides during economic downturns.

The blockbuster share sale is providing a rare bright spot for a market that until last week was the most unloved in the world. Monde is attracting foreign investors even as they exit the broader market as the Philippines struggles with one of Asia's largest Covid-19 outbreaks.

"The switch started as early as when the IPO was approved and it's partly driving the market weakness and foreign fund withdrawals," said Gerard Abad, chief investment officer at AB Capital & Investment in Manila. Mr Abad said Monde will be his largest investment in the consumer sector.

The Philippine Stock Exchange Index is down 6.5 per cent this year, having pared much of its losses recently on expectations that pandemic-linked restrictions will ease.

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'TRIM AND SHIFT'

"It makes sense too for investors to trim and shift money to Monde," said Fritz Ocampo, chief investment officer at BDO Unibank. "Monde has strong brands, market leadership and growth."

Mr Ocampo, who helps manage about one trillion pesos of investments, said there was selling in Monde competitors such as Universal Robina and San Miguel Food and Beverage, as well as large stocks that are part of the Ayala, SM Investments and Gokongwei groups.

He also noted that a reduction in MSCI's weighting for the Philippines market to 0.4 per cent from 0.65 per cent had played a big part in recent declines, which Monde exacerbated.

KEY METRICS

At its 13.50 peso per share IPO price, Monde is valued at 242.6 billion peso. This would make it the 14th biggest company by this measure on the 30-member Philippine Stock Exchange Index. Given its market capitalisation, potential trading liquidity and dominant presence in the nation's consumer sector, the stock is a candidate for inclusion in the benchmark, analysts say.

The company's Quorn meat-alternatives operations accounted for 22 per cent of Monde's 2020 revenue. It gets more than 94 per cent of its non-meat alternative sales from the Philippines, where its Lucky Me! noodles have 68 per cent market share.

While the company's return-on-equity (ROE) is attractive, some investors are balking at the company's estimated price-to-earnings (P/E) ratios.

WEIGHING VALUE

Monde's ROE stood at 31.3 per cent last year, compared with Universal Robina's 11.8 per cent and San Miguel Food's 13.9 per cent.

At its IPO price and estimated 2021 earnings, AP Securities analyst Andrei Soriano pegs Monde's P/E at 27.1 times, versus 25.6 times at Universal Robina. He recommends buying the stock below 13.20 pesos a share.

"Monde is in non-discretionary consumption that itself makes it an interesting play," said Robert Ramos, who helps manage 130 billion pesos as head of trust and investments group at Rizal Commercial Banking. "I like the sector. I like the name. But I would look to buy at a more attractive price."

BLOOMBERG

READ MORE: Monde Nissin attracts GIC, Fidelity to 48.6b peso IPO: sources