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Companynote

JuhaynaFoodIndustries
Consumer|Egypt

MENAresearch

Notashorttermbuy;downgradetoN

Neutral

Robustrevenuegrowthnotexpectedtofilterthroughtobottomline
in2012eduetosustainedmarginpressureandhigherinterest
charges,butpricingflexibilityisakeycatalyst

Targetprice(EGP)
Currentprice(EGP)
Potentialreturn

WearemorepositiveonJuhaynasmediumtermprospectsasits
profitabilityprofileisenhancedandintegrationplanscometofruition

Bloomberg
Reuters

DowngradetoNeutralfromOverweight;cutTP28%toEGP5.07/share

Mcap(EGPm)
Mcap(USDm)
Numberofshares(m)
Freefloat
Dailyvolume(USDm)
Foreignown.limit
Foreignownership

5.07
4.97
2.0%

JUFOEY
JUFO.CA

Doubledigittoplinegrowthtocontinue:WeexpectJuhaynasrevenueto
growahealthy22%yoyin2012e,boostedby(1)strongvolumegrowth
acrossallsegments,(2)theresumptionofexportstoLibya(Juhaynasmain
exportmarket,c6%oftopline),and(3)highersellingprices(up5%yoy
blended).WeremainpositiveaboutJuhaynaslongtermrevenueprospects
(201216eCAGRof19%),whichwillremainsupportedbyEgyptsfavorable
demographics,anacceleratedtrendofconversiontopackagedfromloose
dairyproducts,andproductinnovation(morethan50newSKUsin2011).

3,509
581
706
47%
0.4
N/A
N/A

Note:Allpricesasof14February2012

Priceperformance

Margincompressionandtoweringinterestchargestohinderbottomline
growthin2012e,buthighpricingflexibilityisakeycatalyst:Weexpect
Juhaynasbottomlinetogrowamarginal9%in2012easweforecastaflat
grossmargin,given(1)noexpectedreversalincommoditypricetrends,
(2)arawmilkpurchasepriceequivalentto2011sfixedatcEGP3/kgasper
biannuallyrenewablecontractswithmilkfarms(assumingapeakmilkprice
ofEGP3.25/kgwouldlowerourvaluation10%),and(3)additionalcostside
pressureduetoEGPdepreciation(withUSDdenominatedpurchases
representing25%30%oftotalCOGS).Furthermore,weexpectadditional
debtobtainedtofinanceaheftyCAPEXbill(expectedatEGP750min2012e
alone)andincreasedlendingratesonfloatingrateloans(whichmakeup
themajorityofJuhaynasdebt)topushthecompanysinterestexpenseup
c31%yoyin2012e.Higherthanexpectedproductpriceincreasesarea
keycatalyst,inourview,andhingeonJuhaynasmarkedabilitytopassraw
materialand/orforexrelatedcostincreasesontoconsumers.Each1%
increaseinblendedaveragesellingpriceraisesourvaluation3%.

6
5
4
3
2
J

F M A M J J
JUFOEY

A S O N D J
EGX30

WedowngradeJuhaynatoNfromOWandcutourTP28%toEGP5.07/share
(2%upside)onthebackoflowerlongtermgrossmarginassumptions(down
192bpsonaverage),higherCAPEXguidance(cEGP2bn4yearspending
program),andanincreasedcostofcapital(up227bps).Wearemorepositive
onJuhaynaafter2012easitsprofitabilityprofileisenhancedandintegration
benefitsarerealized.Thestockseemsfairlypricedatcurrentlevels,tradingata
2012eP/Eof13.4x,inlinewithglobalpeersP/EversusEPSgrowth.

2010
2011e
2012e
2013e
Keyindicators
CleanEPS(EGP)
CleanP/E

Source:Companydata,HC

0.30
16.7x

0.34
14.6x

0.37
13.4x

0.45
10.9x

15February2012

MaiNehad
Analyst
+20235357356
mai.nehad@hcsi.com

Pleaserefertoimportant
disclosuresandanalyst
certificationsonpages1516
ofthisreport.

JuhaynaFoodIndustries
Consumer|Egypt
15February2012

Doubledigittoplinegrowthtocontinue

WeexpectJuhaynasrevenuetogrowahealthy22%in2012e(inlinewithmanagement
guidanceofhighdoubledigitgrowth,similartothelevelachievedin9M11)andtogrow
ata4yearrevenueCAGRof19%thereafter,boostedby(1)strongvolumegrowthacross
allsegments,(2)theresumptionofexportstoLibya(Juhaynasmainexportmarket,c6%
oftopline)afterexportsplummeted35%yoyin9M11onthebackofturmoilinthe
country,and(3)highersellingprices.WeremainpositiveaboutJuhaynasmediumto
longtermrevenueprospects,whichwillremainsupportedbyEgyptsfavorable
demographics,anacceleratedtrendofconversiontopackagedfromloosedairyproducts,
andproductinnovation(morethan50newSKUsin2011).

Revenuegrowthimpressedinatoughyear

100%

Revenuegrew23%yoyin9M11,boostedbylocaldairy(+21%yoy),yogurt
(+60%yoy),andjuicesales(+13%yoy)and startofcommercialagriculture

Revenue(RHS)

4Q10

4Q09

3Q11

3Q10

3Q09

2Q11

2Q10

2Q09

1Q11

21% 20%

Plainmilk

Flavored Spoonable Drinkable


milk
yogurt
yogurt

Juhayna'smarketshare

Yoygrowth(LHS)

Source:Juhayna,HC

Source:Juhayna,HC

Fasterpaceofconversiontopackagedyogurt

thantopackagedmilk

Juice
pure

9M11

2010

9M11

0%
1Q10

5%

28% 30%

0%

10%

100

61%

2010

6%

20%

76%
57% 56%

9M11

9%

1Q09

20%
11% 15%

300

73% 68% 76% 72%

79% 80%

2010

15%

25%

4Q11e

EGPm

21%

400

40%

30%

24%

500

72% 70%

60%

9M11

29%

39%

43% 44%

2010

600

35%

9M11

40%

2010

700

24%

27% 32% 24% 28%

9M11

38%

200

80%

45%

2010

800

onpriceincreasesandsomemarketsharegains

Juice
nectar

Otherplayers

100%

100%

90%

90%

80%

40%

44%

70%

56%

12%

15%

15%

89%

89%

88%

85%

85%

2007

2008

2009

2010

9M11

70%

62%

60%
50%

50%

40%
60%

56%

20%

40%
30%

47%

44%

20%

38%

10%

10%

0%

0%
2007

2008

2009

Looseyogurt

2010
Packagedyogurt

Source:Juhayna,HC

11%

80%
53%

60%

30%

11%

9M11

Loosemilk

Packagedmilk

Source:Juhayna,HC

JuhaynaFoodIndustries
Consumer|Egypt
15February2012

Sturdygrowthtocontinueacrossallsegments
6,000
5,000

EGPm

4,000
3,000
2,000
1,000

208
184
669

18
264
262
918

20
287
364

39
384
402

23
61
523

19
44
440
596

28
91
596

34
96
679

41
102
775

withyogurttodeliverthehighestgrowth
50%

50
109
883

40%
35%
28%

30%

2,010

24%

25%

1,576

1,236

969

21%
17%

20%

22%

20%
15%

15%

760

1,897
1,394 1,627
907 1,037 1,163

2,207

2,564

10%

6%

5%
0%

Dairy

2007 2008 2009 2010 2011e 2012e 2013e 2014e 2015e 2016e
Dairy

47%

45%

Yogurt

Juice

Concentrates

Juice

RevenueCAGR(200810)

Agriculture

Source:Juhayna,HC

Yogurt

Concentrates Agriculture(1)
RevenueCAGR(201116e)

Source:Juhayna,HC
Note:(1)Commercialagriculturalproductionbeganin1Q11

Marginpressurelikelyto persistin2012eas inputcostsremainhigh

Thecostofrawmilk(Juhaynasmaininput,c60%ofCOGS,90%sourcedexternally)
increasedc18%yoyin2011onthebackofsignificantanimalfeedcostinflation(seethe
chartsonthefollowingpage)andheightenedlocalunrest.Thepriceofrawmilk
purchasedfromfarmsincreasedtoanaverageofEGP3.25/kgin3Q11fromcEGP3.0/kgin
MayandaveragedcEGP3.1/kgin2011comparedwithcEGP2.6/kgin2010,accordingto
management.

15%

44.6%

39.3%

39.9%

32.3%

25%

36.7%

38.7%
38.1%
35.0%
26.1%
23.8%

20%

30%

31.9%

47.7%

35%
33.7%
35.4%
34.2%

25%

33.7%
38.0%
34.5%

30%

38.0%
41.4%
37.6%

35%

36.8%

40%

45%
40%

acrossallsegments
45%

9M11grossmargincompressed 388bps onescalatingrawmaterialcosts

38.2%
34.3%

50%

44.3%

Grossmarginsdeterioratedsignificantlyin9M11

20%
15%

10%

10%

5%

5%
2007
2008
2009
2010
2011e

4Q09
4Q10
4Q11e

3Q09
3Q10
3Q11

2Q09
2Q10
2Q11

1Q09
1Q10
1Q11

0%
0%
Dairy

Yogurt

Grossmargin(9M10)

Source:Juhayna,HC

Juice

Concentrates

Grossmargin(9M11)

Source:Juhayna,HC

JuhaynaFoodIndustries
Consumer|Egypt
15February2012

Soybeanprices

250

400

200

350

300

Jan12

Jan11

Sep10

May10

Jan10

Sep09

May09

Jan09

Sep08

May08

Up17%yoy
in2011over
2010average

Jan08

Jan12

Sep11

May11

Jan11

Sep10

May10

Jan10

Sep09

May09

Jan09

200
Sep08

50
May08

250

Jan08

100

Sep11

Up44%yoy
in2011over
2010average

150

May11

USD/MT

USD/MT

Cornprices

Soybeanspot

Kansascorngultenmealfeed

Source:Bloomberg,HC

Source:Bloomberg,HC

Corrugatedpaperprices(1)

Powderedmilkprices(1)

5,000

160

4,500
4,000

120

USD/MT

USD/MT

140

Up19% yoy
in2011over
2010average

100

3,500
3,000

Up11% yoy
in2011over
2010average

2,500
2,000

80

1,500

Source:Bloomberg,HC
Note:(1)Juhaynascorrugatedpaperpackagingcostisbasedonan
annuallyrenewableagreementwithTetraPak;packagingmakesupc25%
oftotalCOGS

Jan12

Sep11

May11

Jan11

Sep10

May10

Jan10

Sep09

May09

Jan09

Sep08

Jan08

Jan12

Sep11

May11

Jan11

Sep10

May10

Jan10

Sep09

May09

Jan09

Sep08

May08

Jan08

Germancorrugatedpaperindex

May08

1,000

60

Milkpowder(26%butterfat)

Source:Bloomberg,HC
Note:(1)Powderedmilkrepresentsc20%oftotalmilkusedandmakesup
c60%ofyogurtcontent

NewrawmilkpricingformulafixespurchasepriceatcEGP3.1/kgfor2012e

Toreducemarginssusceptibilitytovolatilityinrawmilkpurchaseprices(withonlyc8%
10%ofrawmilkrequirementssourcedinternallyfrom40%ownedassociateMilkys),
managementhasstartedsigninglongtermcontracts(withsome70farms)tofixrawmilk
purchasepricesbiannually,basedonanewrawmilkpricingformulathatvarieswith
animalfeed(mainlycornandsoy)prices,whichshouldhelpreducebutnoteliminate
marginvariability,inourview.Basedonthenewrawmilkpricingprotocol,Juhaynas
contractedrawmilkpurchasepriceisfixedatcEGP3.1/kgfor2012e,inlinewiththe2011
average,asanimalfeedpricesareexpectedtoremainalmostunchanged.Assuminga
2012erawmilkpurchasepriceofEGP3.25/kg(equivalentto3Q11speaklevels)would
diluteJuhaynasaggregategrossmargin316bpsandlowerourvaluation10%.

JuhaynaFoodIndustries
Consumer|Egypt
15February2012

Nosignofeasinginanimalfeedprices
1,350

1,400
1,231

1,208

1,200

1,200

USDcents/bushel

1,200
1,000
800
637

651

598

600

565

620

400
200

2011(1)

2012e
Forwardcornprice

2013e

2014e

2015e

Forwardsoybeanprice

Source:Bloomberg,HC
Note:(1)Spotprices

SomeriskfromEGPdepreciation

Juhaynaislikelytoexperienceadditionalcostsidepressurein2012eonthebackof
furtherEGPdepreciation,withUSDdenominatedpurchasescomprising25%30%ofthe
companyscostbase.

butamarginsurpriseislikelygivenJuhaynaspricingflexibility

WeseelimitedrisktoJuhaynasmarginsfromcurrencydepreciationgiventhecompanys
abilitytofullypassrawmaterialand/orforexrelatedcostincreasesontoconsumers
throughpriceincreases,evenitifbearsthemforthefirstfewmonths.Forexample,the
companydidnotrecapturethe15%rawmilkcostincreasethatoccurredinMayuntil
June(whenitraisedtheretailpriceofits1litermilkcartontoEGP7.25)andlaterin
November(whenitraisedthepriceofitslowend0.5kgBekheromilkpackage5%).The
companyalsomanagedtoraiseitsyogurtsellingpricesc10%andjuiceprices8%in2011
andintendstoraisesellingpricesfurtherin2012e.

JuhaynaFoodIndustries
Consumer|Egypt
15February2012

Estimatedyoyincreaseinaveragesellingpricebysegment
12%
10%
10%

9%

8%

9%

9%

6%

7%

6%

6%
6%
4%

6%

6%

6%

6%

3%

3%

3%

3%

2%

2%

2%

2%

2013e

2014e

2015e
Juice

2016e

6%

3%
3%

2%
0%
0%
2010

9M11

2011e

2012e

Dairy

Yogurt

Source:Juhayna,HC

Expectingflatgrossmarginin2012e

WeconservativelyexpectJuhaynasgrossmargintoremainflatin2012egiventhatno
reversalisexpectedincommoditypricetrendsandrawmilkpurchasepricesarefixedat
levelsequivalenttothoseof2011.However,managementisguidingtowardaslight
improvementingrossmarginfrom2011,whichwebelievecouldhappenif(1)global
commoditypricessoften(pricesweredown14%yoyforsoyand6%yoyforpowdered
milkbutwereup3%yoyforcorninJanuary2012)and/or(2)higherthanexpectedprice
increasestakeplace,especiallyforthecompanyshigherendproductswithmorepricing
flexibility,suchasitsPurejuiceandcreamproducts.

Backwardintegrationtoenhancemarginsinthe
mediumterm

withdairytoremainthehighestcontributorto
EBITDA

40%

22
17

1,200

EGPm

1,000

22.8%

20.3%

15%

19.8%

19.8%

20%

21.9%

We conservatively expect
Juhayna'sEBITDAmarginto
returnto2010'slevelsby2016e
asintegrationplanscometo
fruition
21.0%

25%

37.6%

36.0%

35.4%

35.0%

30%

35.0%

35%

36.8%

1,400

800
600

10%

400

5%

200

0%

5
95
95

1
77
95

196

236

2011e

2012e

2013e

EBITDAmargin
2014e

Source:Juhayna,HC

2015e

2009
2016e

Dairy

2010

2011e

2012e

Yogurt

Juice

245

470
359

275

212

164

237

208
Grossmargin

10
11
127

8
9
106
129

12
14
148

15
15
175

18
16
207

286

349

2013e

2014e

Concentrates

429

2015e

524

2016e

Agriculture

Source:Juhayna,HC

JuhaynaFoodIndustries
Consumer|Egypt
15February2012

Interestcosthiketosqueezenetmargins in201213e

WeexpectJuhaynasinterestexpensetorisec31%yoyin2012eas(1)banklending
ratesincrease,inlinewiththecentralbankcorridor,withthemajorityofthecompanys
debtinfloatingrateloansand(2)thecompanysdebtbalancegrowstoEGP907mwith
theadditionoftheEGP300m,11.5%creditfacilityreceivedin4Q11forthereconstruction
ofitsyogurtfactory.

Assumingac130bpsincreaseinlendingratesin2012e
140

100%

Juhaynasnetincomeandnetmargin(1)
1,000

14.4%

900
80%

60%

600

38%

20%

100

Interestexpense(LHS)

4%

145

2%

0.2%
40
3

0%
2007

Cleannetincome(LHS)

Netinterestexpense/EBIT(RHS)

Source:Juhayna,HC

210

241 261

2016e

2015e

2014e

2013e

2012e

2011e

2010

2009

2008

2007

0%

6%

321

3.8%

200

5%

20

300

2016e

9%

10%
8%

2015e

13%

16% 15%

593

2014e

40

19%

2013e

18%

14%
12%

10.7%

420

400

2010

60

9.5% 9.7%

500

2009

40%

10.6%

9.2%

2008

46%

EGPm

EGPm

11.3%

700

100
80

12.6% 808

800

2012e

73%

2011e

120

16%

Cleannetmargin(RHS)

Source:Juhayna,HC
Note:(1)Bothexcludenonrecurringitems

HeftyCAPEXbillstrainsvaluation

Juhaynaisplanninga4yearspendingprogramworthcEGP2bn,ofwhichEGP750mis
expectedtobespentthisyearon(1)partialreconstructionofthecompanysdamaged
yogurtplantatanestimatedinvestmentcostofEGP320m(constructionbeganin4Q11,
withthefactoryexpectedtobeoperationalbyearly2013e),(2)theestablishmentof
dairyfarmsandorchardsatatotalinvestmentcostofEGP600m,(3)therenewalofits
truckfleet(thecompanyplanstoadd100120newtrucksin2012eafteritdoubledits
fleetto813vansin2011),(4)6newdistributioncenters(ontopofitsexisting21),and
(5)maintenanceCAPEX.

JuhaynaFoodIndustries
Consumer|Egypt
15February2012

CAPEXtopeakin2012e

45%

700

40%

751

800

8x

NewCAPEXassumptions

EGPm

15%

600

4.1x
527

5x

611

593

4x

475

2.5x

3x
192 1.1x 1.1x
0.7x
37 0.4x
0.1x

200

0%

6x

750

182
0.5x

0.1x

Source:Juhayna,HC

Netdebt(LHS)

1x

2016e

2015e

2014e

2013e

2012e

2011e

2010

2007

CAPEX/sales(RHS)

2x

0x
2009

161

5%

7x

800

400

2016e

2015e

2014e

2013e

2012e

2011e

2010

326

367

434
158

156

145

150

288

230
2009

2008

2007

OldCAPEXassumptions

20%

10%

967

2008

609

570
156

290
326

EGPm

200

9x

1,164

1,000

25%

300

10x

9.1x

1,200

30%

400

100

1,400

35%

600
500

Companytostayinanetdebtpositionuntil2016e

Netdebt/EBITDA(RHS)

Source:Juhayna,HC

Progressonbackwardintegrationprojectthroughdairyfarmingandorchards

Farms

Totalarea:18,500feddans
TotalCAPEX:EGP600m
Rationale:Verticalintegrationandmarginexpansion(300bpsuponcompletion)
Timeframe:45years(completionexpectedby201516)

Dairyfarm

Area:8,500feddans
CAPEX:cEGP300m
Rationale:Tosupply40%50%ofrawmilkneeds
Progress:Designphaseiscomplete;constructionwillbegin
inearly2012e;firstbatchofmilkingcows(3,600cows)tobe
receivedbytheendof2012e;herdtoreachc12,000milking
cowsbytheendof2015e

Orchardandcattlefeedfarm
Area:10,000feddans
CAPEX:cEGP300m
Rationale:Tosupply40%50%offruit(orange,mango,and
guava)needsandcattlefeed
Progress:2,500feddansalreadyupandrunning;commercial
agriculturebegangeneratingrevenuein1Q11(currently
sellingsoy,corn,andalfalfa;secondplotoflandtobe
receivedfromthegovernmentsoon

Source:HC,Juhayna

Cutnetincomeforecasts26%toreflectlowermarginexpectations
andhigherinterestanddepreciationcharges

Weraiseour201115erevenueforecasts3%onaveragetoreflect(1)higheryogurtsales
afterfactoryreconstructionandarapidtrendofconversiontopackagedyogurtand(2)a
4%annualincreaseinJuhaynasblendedaveragesellingprice.WelowerourEBITDA
forecasts5%onaverageasweadoptamoreconservativeoutlookonmarginsuntilwe
see(1)aclearreversalinthemargindeteriorationtrendand/or(2)fasterthanexpected
realizationofintegrationbenefits.Wecutnetincomeawider26%onaveragedueto
higherinterest(up63%)anddepreciation(up48%)costsasthecompanytakesonmore
debttofinanceexpansionprojects.

JuhaynaFoodIndustries
Consumer|Egypt
15February2012

Estimaterevisions(EGPm)

Revenue

Grossprofit
Grossmargin

EBITDA
EBITDAmargin

Netincome
Netmargin

Newestimates

Oldestimates

2011e

2012e

2013e

2014e

2015e

2011e

2012e

2013e

2014e

2015e

2,263

792
35.0%

448
19.8%

241
10.6%

2,761

965
35.0%

548
19.8%

261
9.5%

3,311

1,171
35.4%

672
20.3%

321
9.7%

3,943

1,419
36.0%

828
21.0%

420
10.7%

4,701

1,730
36.8%

1,030
21.9%

593
12.6%

2,259

842
37.3%

493
21.8%

299
13.2%

2,701

1,006
37.3%

586
21.7%

359
13.3%

3,209

1,201
37.4%

703
21.9%

465
14.5%

3,814

1,437
37.7%

850
22.3%

602
15.8%

4,533

1,726
38.1%

1,034
22.8%

776
17.1%

Source:HC

HCversusconsensusestimates(EGPm)

Revenue
EBITDA
EBITDAmargin
Netincome(clean)
Netmargin

2011e

2012e

2013e

HC

Consensus

%dev.

HC

Consensus

%dev.

HC

Consensus

%dev.

2,263
448
19.8%
241
10.6%

2,291
449
19.6%
232
10.1%

1%
0%

4%

2,761
548
19.8%
261
9.5%

2,688
525
19.5%
269
10.0%

3%
4%

3%

3,311
672
20.3%
321
9.7%

3,117
662
21.2%
364
11.7%

6%
2%

12%

Source:Bloomberg,HC

JuhaynaFoodIndustries
Consumer|Egypt
15February2012

Valuation

WedowngradeJuhaynatoNeutralfromOverweightandcutourTP28%to
EGP5.07/share(whichoffers2%upsidetothecurrentmarketprice)onthebackoflower
marginassumptionsandhigherCAPEXguidance.WeraiseourWACC212bpsto15.2%as
weincreaseourriskfreerateto12.6%,inlinewithaftertax1yearTbillrates,andraise
ouraftertaxcostofdebt100bpstoreflecthigherbanklendingrates.Weapplyamarket
riskpremiumof7.5%.

Juhaynavaluationsummary(EGPm)

2012e

2013e

2014e

2015e

2016e

EBITDA
Taxes
Appropriations
Changeinworkingcapital
CAPEX
Freecashflows(FCFs)
WACC
Terminalgrowthrate
PresentvalueofFCFs
Terminalvalue
Presentvalueofterminalvalue
Enterprisevalue
Excesscash(1)
Debt(1)
Netdebt
Investments(1)
Totalequityvalue
Numberofshares(m)
Totalvalue/share(EGP)

548
(37)
(18)
(74)
(751)
(333)
15.2%
3.5%
(294)
6,745
3,381
3,760
618
842
223
42
3,578
706
5.07

672
(46)
(22)
(86)
(609)
(92)

(70)

828
(60)
(29)
(88)
(434)
217

144

1,030
(85)
(42)
(93)
(367)
443

256

1,279
(116)
(57)
(98)
(326)
684

343

Source:HC
Note:(1)Asof30September2011

SensitivityofJuhaynasvaluationtoWACCandterminalgrowthrate(EGP/share)
WACC

Terminal
growth
rate

1.5%
2.5%
3.5%
4.5%
5.5%

13.2%

14.2%

15.2%

16.2%

17.2%

5.46
5.93
6.53
7.21
8.10

4.86
5.25
5.73
6.27
6.95

4.36
4.68
5.07
5.50
6.03

3.92
4.19
4.51
4.86
5.29

3.54
3.77
4.04
4.33
4.68

Source:HC

10

JuhaynaFoodIndustries
Consumer|Egypt
15February2012

Thestockiscurrentlytradingata2012eP/Eof13.4x,inlinewithpeersP/EversusEPS

growth.However,thestockistradingata13%discounttoglobalpeersonEV/EBITDA

versusEBITDAgrowth,whichisnowunwarrantedgivenJuhaynasgrowingdebtlevel(in
linewiththeaverageleverageofinternationaldairypeers).Weexpectthecompanyto
generateaFCFyieldof9%in2012eand3%in2013eonthebackofitsincreasedCAPEX.

201113eEPSCAGRversus2012eP/E

201113eEBITDACAGRversus2012eEV/EBITDA

18x

14x
ChinaM.Dairy
Saputo
Danone

2012eP/E

14x

13x
IMYI
Almarai

Juhayna
DeanFoods

12x

Glanbia

10x

Almarai

12x
2012eEV/EBITDA

Nestle
Switzerland

16x

11x
10x

Saputo

IMYI

9x
Glanbia

8x
7x

VietnamDairy

Nestle
Switzerland
Danone

Juhayna
VietnamDairy

ChinaM.Dairy

DeanFoods

6x

8x
6x
0%

5%

DairyCrest

5x

DairyCrest
10%

15%

20%

25%

4x

30%

201113eEPSCAGR

0%

5%

Source:Bloomberg,HC

Source:Bloomberg,HC

Averageleveragecomparedwithglobalpeers

FCFandFCFyield

10%
15%
20%
25%
201113eEBITDACAGR

30%

35%

4%

1%

5%

3%

0%

(92)

5%

5%

(440)

9%

10%

(333)
2016e

2015e

2014e

15%
2013e

13%

15%
10%

6%

(162)

2008

DeanFoods

Almarai

DairyCrest

217 13%
43

25%
20%

19%

145

FCF(LHS)

Source:Bloomberg,HC

443

2012e

EGPm

2.2x

Danone

Juhayna

Emmi

1.8x

GoodmanFielder

3x

Nestle(Switzerland)

2x

Saputo

1x

Nestle(Malaysia)

0x

0.8x 1.1x
Peer average=1.2x
0.7x
0.4x 0.5x
2.1x 0.5x
VietnamDairy

1x

1.6x

Glanbia

2x

2.4x

684

2011e

2.8x

3x

ChinaM.Dairy

Netdebt/EBITDA(2012e)

4x

700
600
500
400
300
200
100

(100)
(200)
(300)
(400)
(500)

2010

4.3x

2009

5x

FCFyield(RHS)

Source:HC

11

JuhaynaFoodIndustries
Consumer|Egypt
15February2012

Outcomeofmonopolisticpracticeslawsuit isaloomingconcern

ThestockhasbeenheavilysoldoffsinceNovembertradingbelowitsIPOpricefrom14
November2011to30January2012andhittingahistoriclowofEGP3.69/shareon22
Novemberfollowingthereferraltothegeneralprosecutorofamonopolisticpractices
caseinwhichJuhayna,Beyti,andEnjoyareaccusedofcolludingtofixthepurchaseprice
ofrawmilkfromfarmers.UnderEgyptsantitrustlaw,acompanycanbefined
EGP100,000EGP300m(thelatterrepresentingc9%ofJuhaynascurrentmarketcapor
96%ofits2012ecashbalance)ifchargedwithmonopolisticpractices.

JuhaynassharepriceperformanceversusEGX30
50%

42%

38%

40%

27%

30%
20%

14%

10%
0%
10%

8%

10%
20%
30%

15%

18%
24%
SinceIPO(June2010)
EGX30

Sincemarketreopened(23March2011)
Juhayna

Recoveryfrommarketlow(28December2011)

Juhayna'sperformancerelativetoEGX30

Source:Bloomberg,HC

Risks

Upsiderisksinclude(1)fasterthanexpectedmarginrecoveryduetosofteninginglobal
commodityprices,(2)higherthanexpectedpriceincreasesacrossproductcategories,
(3)acceleratedmarginbenefitsfromverticalintegration,(4)lowerthanexpectedinterest
charges,and(5)afavorableoutcomeinthedairymonopolycase.

Downsiderisksinclude(1)asharperthanexpectedimpactonmarginsfromcurrency
depreciationand/orrawmaterialcostinflation,(2)lessflexibilitytoraiseprices,
(3)delayedmarginbenefitsfromverticalintegration,(4)slowerthanexpected
conversiontopackagedproducts,(5)amoreadversethanexpectedimpactof
competitionintheshorttomediumterm,and(6)anunfavorableoutcomeinthedairy
monopolycase.

12

JuhaynaFoodIndustries
Consumer|Egypt
15February2012

Juhaynafinancialstatementsandratios
EGPm
Incomestatement
Sales
Growth
COGS
Grossprofit
Grossmargin
SG&Aexpenses
Exportsubsidies
EBITDA
EBITDAmargin
Growth
Depreciation
Otherexpenses
Otherrevenue
Associateincome
EBIT
EBITmargin
Interestincome
Interestexpense
Netinterestexpense
FXgains(losses)
EBT
Taxes
Netincomebeforeminorities
Minorityinterest
Reportednetincome
Extraordinaryloss(1)
Netincomeafterextraordinaryloss

2010

2011e

2012e

2013e

2014e

2015e

2016e

1,861
18%
(1,152)
709
38.1%
(293)
14
429
23.1%
9%
(126)
(167)
176
3
315
16.9%
29
(86)
(57)
(2)
255
(28)
228
(0)
228

228

2,263
22%
(1,471)
792
35.0%
(352)
9
448
19.8%
4%
(139)
(14)
19
4
317
14.0%
48
(90)
(42)
(3)
272
(31)
241
(0)
241
(38)
203

2,761
22%
(1,796)
965
35.0%
(430)
13
548
19.8%
22%
(183)
(18)
18
4
369
13.4%
48
(118)
(70)

299
(37)
261
(0)
261

261

3,311
20%
(2,141)
1,171
35.4%
(514)
15
672
20.3%
23%
(242)
(19)
22
4
438
13.2%
47
(119)
(71)

366
(46)
321
(0)
321

321

3,943
19%
(2,524)
1,419
36.0%
(608)
18
828
21.0%
23%
(273)
(21)
26
5
566
14.4%
25
(110)
(86)

481
(60)
420
(0)
420

420

4,701
19%
(2,971)
1,730
36.8%
(721)
20
1,030
21.9%
24%
(299)
(22)
31
5
745
15.9%
25
(93)
(68)

678
(85)
593
(0)
593

593

5,616
19%
(3,504)
2,112
37.6%
(856)
23
1,279
22.8%
24%
(322)
(24)
37
6
976
17.4%
25
(77)
(52)

924
(116)
809
(0)
808

808

241
10.6%
14%

261
9.5%
9%

321
9.7%
23%

420
10.7%
31%

593
12.6%
41%

808
14.4%
36%

587
440
58
241
1,325
97
1,469
43
1,609
2,934

314
503
66
240
1,123
97
2,036
48
2,181
3,304

164
570
77
246
1,056
97
2,404
52
2,553
3,609

170
637
89
253
1,149
97
2,565
57
2,719
3,868

170
707
104
262
1,242
97
2,633
62
2,792
4,035

356
780
121
272
1,529
97
2,637
68
2,802
4,331

486
117
107
709
293
81
374
1,083
1,851

403
125
97
625
503
82
585
1,210
2,094

441
135
86
662
473
82
555
1,217
2,392

440
148
324
913
340
83
423
1,336
2,531

409
167
412
988
236
84
320
1,308
2,727

376
192
522
1,090
161
85
246
1,336
2,994

Cleannetincome(2)
Netmargin
Growth

210
11.3%
45%

Balancesheet
Cashandequivalents
Inventory
Receivables
Othercurrentassets
Totalcurrentassets
Goodwill
Netfixedassets
Othernoncurrentassets
Totalnoncurrentassets
Totalassets

724
280
63
236
1,303
97
1,289
39
1,425
2,728

Shorttermloans
Payables
Othercurrentliabilities
Totalcurrentliabilities
Longtermdebt
Otherlongtermliabilities
Totalnoncurrentliabilities
Totalliabilities
Shareholderequity(3)

377
108
138
623
384
77
461
1,084
1,644

Source:Juhayna,HC
Note:(1)Extraordinarylossduetoyogurtfactoryfireincident;representsdifferencebetweenbookvalueofdamagesandrecoveredamountnetoftax
(2)Excludesnonrecurringitems(3)IssuedandpaidincapitalreducedtoEGP706mafteradjustmentfortreasurystockcancellation

13

JuhaynaFoodIndustries
Consumer|Egypt
15February2012

Juhaynafinancialstatementsandratios(continued)
EGPm

2010

2011e

2012e

2013e

2014e

2015e

2016e

Cashflowstatement
Netincomebeforeminorities
Noncashitemsandothers
Changeinworkingcapital
Operatingcashflows
CAPEX
Otherinvestments
Investingcashflows
Proceedsfromcapitalincrease
Changeindebt
Dividendspaid
Other
Financingcashflows
Changeincash

Keypriceratios
EV/EBITDA
CleanP/E
P/B(1)
Dividendyield
FCFyield

Keyfinancialratios
Netdebt/equity
Netdebt/EBITDA
(1)
ROAA
(1)
ROAE

228
217
(71)
374
(288)
58
(230)
999
(273)
(26)
(187)
513
657

8.3x
16.7x
2.3x
0%
1%

0.0x
0.1x
9%
21%

241
216
(236)
221
(326)
6
(320)

17

(56)
(39)
(137)

8.3x
14.6x
2.0x
0%
5%

0.1x
0.4x
9%
15%

261
310
(74)
498
(751)
1
(750)

128

(148)
(20)
(273)

7.5x
13.4x
1.8x
0%
9%

0.3x
1.1x
9%
14%

321
357
(86)
592
(609)
1
(609)

(141)
(134)
(150)

6.3x
10.9x
1.5x
0%
3%

0.3x
1.1x
10%
15%

420
380
(88)
712
(434)
1
(433)

(133)

(140)
(273)
6

5.0x
8.3x
1.4x
7%
6%

0.3x
0.7x
12%
18%

593
389
(93)
888
(367)
1
(366)

(136)
(252)
(134)
(522)
0

3.9x
5.9x
1.3x
10%
13%

0.2x
0.5x
15%
23%

809
396
(98)
1,107
(326)
1
(325)

(107)
(356)
(134)
(596)
186

2.9x
4.3x
1.2x
14%
19%

0.1x
0.1x
20%
29%

Source:Juhayna,HC
Note:(1)Adjustedfornonrecurringitemsandintangibles

14

JuhaynaFoodIndustries
Consumer|Egypt
15February2012

Disclaimer

HCBrokerage,whichisanaffiliateofHCSecurities&Investment(referredtohereinasHC)afullfledgedinvestmentbankprovidinginvestmentbanking,
assetmanagement,securitiesbrokerage,research,andcustodyservicesisexclusivelyresponsibleforthecontentofthisreport.Theinformationusedto
producethisdocumentisbasedonsourcesthatHCbelievestobereliableandaccurate.Thisinformationhasnotbeenindependentlyverifiedandmaybe
condensedorincomplete.HCdoesnotmakeanyguarantee,representation,orwarrantyandacceptsnoresponsibilityorliabilityfortheaccuracyand
completenessofsuchinformation.Expressionofopinioncontainedhereinisbasedoncertainassumptionsandtheuseofspecificfinancialtechniquesthat
reflectthepersonalopinionoftheauthorsofthecommentaryandissubjecttochangewithoutnotice.

TheinformationinthesematerialsreflectsHCsequityratingonaparticularstock.HC,itsaffiliates,and/ortheiremployeesmaypublishorotherwiseexpress
otherviewpointsortradingstrategiesthatmayconflictwiththeviewsincludedinthisreport.PleasebeawarethatHCand/oritsaffiliates,andthe
investmentfundsandmanagedaccountstheymanage,maytakepositionscontrarytotheincludedequityrating.

Thismaterialisforinformationalpurposesonlyandisnotanoffertosellorthesolicitationofanoffertobuy.Ratingsandgeneralguidancearenotpersonal
recommendationsforanyparticularinvestororclientanddonottakeintoaccountthefinancial,investment,orotherobjectivesorneedsof,andmaynotbe
suitablefor,anyparticularinvestororclient.Investorsandclientsshouldconsiderthisonlyasinglefactorinmakingtheirinvestmentdecision,whiletaking
intoaccountthecurrentmarketenvironment.Foreigncurrencydenominatedsecuritiesaresubjecttofluctuationsinexchangerates,whichcouldhavean
adverseeffectonthevalueorpriceof,orincomederivedfrom,theinvestment.InvestorsinsecuritiessuchasADRs,thevaluesofwhichareinfluencedby
foreigncurrencies,effectivelyassumecurrencyrisk.NeitherHCnoranyofficeroremployeeofHCacceptsliabilityforanydirect,indirect,orconsequential
damagesorlossesarisingfromanyuseofthisreportoritscontents.

Copyright

Nopartorexcerptofthisresearchreportscontentmayberedistributed,reproduced,orconveyedinanyform,writtenororal,toanythirdpartywithout
priorwrittenconsentofthefirm.TheinformationwithinthisresearchreportmustnotbedisclosedtoanyotherpersonuntilHChasmadeitsinformation
publiclyavailable.

Issuerofreport:

HCBrokerage
BuildingF15B224,SmartVillage
KM28CairoAlexandriaDesertRoad
6October12577,Egypt
Telephone:+20235357666
Fax:+20235357665
Website:www.hcsi.com

IMPORTANTDISCLOSURES

Analystcertification:

I,MaiNehad,certifythattheviewsexpressedinthisdocumentaccuratelyreflectmypersonalviewsaboutthesubjectsecuritiesandcompanies.Ialsocertify
thatIdonotholdabeneficialinterestinthesecuritiestraded.

Analystdisclosures:

Theanalystoramemberoftheanalystshouseholddoesnothaveafinancialinterestinthesecuritiesofthesubjectcompany(including,without
limitation,anyoption,right,warrant,future,longorshortposition).

Theanalystoramemberoftheanalystshouseholddoesnotserveasanofficer,director,oradvisoryboardmemberofthesubjectcompany.

TheanalystscompensationisnotbaseduponHCsinvestmentbankingrevenueandisalsonotfromthesubjectcompanyinthepast12months.

15

JuhaynaFoodIndustries
Consumer|Egypt
15February2012

HCdisclosures:

Companyname:JuhaynaFoodIndustries

Disclosure:None

1.
2.
3.
4.

HCoritsaffiliatesotherthanAlFuttaimHCSecuritiesbeneficiallyown1%ormoreofanyclassofcommonequitysecuritiesofthesubject
company.
HCoritsaffiliatesotherthanAlFuttaimHCSecuritieshavemanagedorcomanagedapublicofferingofsecuritiesforthesubjectcompanyinthe
past12months.
HCoritsaffiliatesotherthanAlFuttaimHCSecuritieshavereceivedcompensationforinvestmentbankingservicesfromthesubjectcompanyin
thepast12months.
HCoritsaffiliatesotherthanAlFuttaimHCSecuritiesexpecttoreceiveorintendtoseekcompensationforinvestmentbankingservicesfromthe
subjectcompanyinthenext3months.
HChasreceivedcompensationforproductsorservicesotherthaninvestmentbankingservicesfromthesubjectcompanyinthepast12months.
Thesubjectcompanycurrentlyis,orduringthe12monthperiodprecedingthedateofdistributionofthisresearchreportwas,aclientofHC.
HCmakesamarketinthesubjectcompanyssecuritiesatthetimethisreportwaspublished.

5.
6.
7.

TheHCratingsystemconsistsof3separateratings:Overweight,Neutral,andUnderweight.

Theappropriateratingisdeterminedbasedontheestimatedtotalreturnofthestockoveraforward12monthperiod,includingbothshareappreciation
andanticipateddividends.

Overweightratedstocksincludeapublished12monthtargetprice.Thetargetpricerepresentstheanalystsbestestimateofthemarketpriceina12
monthperiod.HCcautionsthattargetpricesarebasedonassumptionsrelatedtothecompany,industry,andinvestorclimate.Assuch,targetprices
remainhighlysubjective.

Thedefinitionofeachratingisasfollows:

Overweight(OW):Estimatedtotalpotentialreturngreaterthanorequalto20%
Neutral(N):Estimatedtotalpotentialreturngreaterthanorequalto0%andlessthan20%
Underweight(UW):Estimatedtotalpotentialreturnlessthan0%
NR:NotRated
SP:Suspended

StocksratedOverweightarerequiredtohaveapublished12monthtargetprice,whileitisnotrequiredonstocksratedNeutralandUnderweight.

DistributionofHCratings
Rating

Count

Percent

Percentprovidedinvestmentbankingservicesinpast12months

Overweight(OW)
Neutral(N)
Underweight(UW)

36
29
7

50.00
40.28
9.72

0.00
0.00
0.00

AllHCemployeesanditsassociatepersons,includingtheanalyst(s)responsibleforpreparingthisresearchreport,maybeeligibletoreceivenonproductor
servicespecificmonetarybonuscompensationthatisbaseduponvariousfactors,includingtotalrevenuesofHCanditsaffiliates,aswellasaportionofthe
proceedsfromabroadpoolofinvestmentvehiclesconsistingofcomponentsofthecompensationgeneratedbydirectors,analysts,oremployeesandmay
affecttransactionsinandhavelongorshortpositionsinthesecurities(optionsorwarrantswithrespectthereto)mentionedherein.

Althoughthestatementsoffactinthisreporthavebeenobtainedfromandarebaseduponrecognizedstatisticalservices,issuerreportsor
communications,orothersourcesthatHCbelievestobereliable,wecannotguaranteetheiraccuracy.

Allopinionsandestimatesincludedconstitutetheanalystsjudgmentasofthedateofthisreportandaresubjecttochangewithoutnotice.HCmayaffect
transactionsasagentinthesecuritiesmentionedherein.

Thisreportisofferedforinformationpurposesonlyanddoesnotconstituteanofferorsolicitationtobuyorsellanysecuritiesdiscussedhereininany
jurisdictionwheresuchwouldbeprohibited.

Additionalinformationavailableuponrequest.

16