• Revenues are up 17.3% QoQ and 38% YoY, supported by a strong demand in confectionery foods. Revenues were 54% of our FY forecast, better than expectation as usually 1H only makes up 45% of FY revenue due to the seasonality.
• Gross margins are maintained since the first quarter, reaching the 23% level. As a result, gross profits grew in line with revenue, up 12.5% QoQ and 42.1% YoY. We might see pressure on gross margins in the coming quarters due to the increasing prices of palm oil and wheat flour, both making up 14% of COGS.
• Operating expenses jumped 56.7% QoQ. This might be reflecting the more aggressive advertisement that the company is trying to do, but we are trying to get more confirmation from the company. The supernormal jump in selling expenses are beyond our expectations. Opex/sales ratio went up from 10.4% to 13.8% in 2Q10, causing operating margin to squeeze from 12.5% to 9.1%. Operating profits were down 15% QoQ but still up 25% YoY compared to last year’s number, making up 43% of our FY forecasts.
• Net profits were down 21.7% QoQ but up 29% YoY, making up 42% of our FY expectations. This is weaker than what we expected due to the sudden jump in selling expenses.
• Conclusion: Mayora’s growth in terms of revenue is still very compelling. However the higher than expected selling expenses need further investigation. The stock is trading at 12.7x 2011CL earnings, returning 24.2% ROE. The stock price has exceeded our target price expectations for the year. We are currently revising our earnings and target price expectation.
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