On Tuesday, HSBC updated its stance on Monde Nissin Corp (MONDE:PM), raising the price target to PHP10.30 from the previous PHP9.40, while keeping a Hold rating on the stock. The adjustment comes in the wake of Monde Nissin's performance, which saw the company's shares increase by 25% year-to-date, outpacing the Philippine Composite Index's gain of 2% over the same period.
The analyst from HSBC highlighted Monde Nissin's strong position in the Philippine market, which has been a significant factor in its recent stock performance. However, the firm also pointed to challenges in the company's meat alternative division that continue to persist.
Despite the improved margin outlook that has contributed to the stock's outperformance, there are concerns that these margin tailwinds might diminish as input costs, such as palm oil, begin to rise, coupled with heightened competition within the Philippine consumer sector.
In light of these factors, HSBC has revised its earnings per share (EPS) estimates for Monde Nissin downward by 0.9% for 2024 and 3.5% for 2025. These adjustments reflect an anticipated increase in advertising and promotional spend and a projection for slower revenue growth in the coming years.
Monde Nissin's current valuation stands at a 24 times 2024 estimated price-to-earnings (PE) multiple, which is notably higher than the 16 to 20 times PE multiples of its packaged food peers. According to HSBC, the market has already factored in the positive developments regarding Monde Nissin's margin recovery.
Consequently, while the Hold rating remains unchanged, the price target has been increased following the roll-forward of the base year to 2024 estimates and the introduction of 2026 estimates. Further details on the valuation and key risks that could affect the stock's performance are outlined on page 3 of the HSBC report.
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