{"id":324690,"date":"2023-08-31T12:12:47","date_gmt":"2023-08-31T04:12:47","guid":{"rendered":"https:\/\/www.pinoyinvestor.com\/smartinvestor\/?p=324690"},"modified":"2023-08-31T12:12:49","modified_gmt":"2023-08-31T04:12:49","slug":"stock-in-focus-universal-robina-corp-urc-31-aug-2023-by-ap-securities","status":"publish","type":"post","link":"https:\/\/www.pinoyinvestor.com\/smartinvestor\/stock-in-focus-universal-robina-corp-urc-31-aug-2023-by-ap-securities\/","title":{"rendered":"Stock in Focus: Universal Robina Corp. (URC) – 31 Aug 2023 by AP Securities"},"content":{"rendered":"\n

Summary of Broker’s Recommendation<\/h2>\n\n\n\n
Stock Code<\/strong><\/td>URC<\/td><\/tr>
Company Name<\/strong><\/td>Universal Robina Corp.<\/td><\/tr>
Broker<\/strong><\/td>AP Securities<\/td><\/tr>
Opinion Issued on<\/strong><\/td>31 Aug 2023<\/td><\/tr>
Recommendation<\/strong><\/td>Buy<\/td><\/tr>
1-Year Target Price<\/strong><\/td>PHP 166.42<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n

Revenue outlook cloudy, but market forecasts an unwarranted storm. When it comes to URC’s topline, while we acknowledge that growth remains challenged due to the downside to domestic consumption, as well as slowing GDP in URC\u2019s foreign markets, prospects are still not nearly bad enough to deserve the extremely low P\/E. We maintain our BUY recommendation on URC with a Target Price of P166.42 per share.<\/p>\n\n\n\n

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Analysis and Opinion<\/h2>\n\n\n\n

Thrift-store valuations<\/strong><\/p>\n\n\n\n

Valuations for URC are now at bargain territory. The stock is currently trading at more than 2-standard deviations below its historical P\/E at 18.4x, below even its pandemic low-point of 19.9x. While we are of the view that consumption still has room to slow down in Q3, at this point the market is taking things too far and is essentially reflecting another black swan event in URC\u2019s price. Despite headwinds in topline growth, we note that URC is still capable of managing its costs in order to keep profits within expectations, something which should further render the huge discount in P\/E unwarranted.<\/p>\n\n\n\n

Commodities still hot, but operating costs to remain under control<\/strong><\/p>\n\n\n\n

For the latter half of the year, we expect growth in operating costs to remain manageable. On the utilities side, the company should get reprieve in the form of lower power expenses domestically, as power generation charges have slipped by 16.6% from their high in March, and 3.2% MoM. While the PH government has already implemented wage hikes, we note that for the past 3 years now, URC has been focused on downsizing and increasing the productivity of its workforce, and we don\u2019t expect this year to be any different. This should therefore insulate URC against the hit of higher labor costs in the PH business. <\/p>\n\n\n\n

Effects of El Nino continue to linger<\/strong><\/p>\n\n\n\n

It\u2019s in the commodities side however where things get tricky, as prices for both potato (+8.7%) and robusta coffee beans (+27.3%) continue to accelerate. With the effects of El Nino expected to be felt in Vietnam\u2019s robusta harvest until 1Q 2024, prices of the latter will likely continue to move up. Nevertheless, one positive to note is that growth in the producer price index (PPI) for food manufacturers has been on a steady downtrend, with the latest results even showing some slight MoM decline. <\/p>\n\n\n\n

At the very least, this is a good omen for Q3 margins as this would indicate that manufacturers such as URC are not feeling the need to jack up selling prices in order to defend profit levels. With wheat and palm oil prices still benign, along with the positive factors we cited with regard to overhead, this raises the likelihood that URC would be able to generate adequate cost savings to cushion slowing revenue growth.<\/p>\n\n\n\n

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Check how many brokers recommend this stock<\/h2>\n\n\n\n
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All Stock Rankings<\/a><\/blockquote>