Published November 28, 2008

Cerebos strikes all the right notes

By SIOW LI SEN
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MAYBE they were there for the free lunch, but thinly traded Cerebos' results presentation on Wednesday was packed with analysts.

Altogether 17 analysts - 12 last year - were there, according to the management.

Having 17 analysts cover a stock is not so unusual for a large company, but Cerebos is hardly in the big league and, more to the point, most don't bother when it's low liquidity.

Cerebos' average daily volume is about 70,000 shares. Its low volume is partly due to parent Suntory holding some 83 per cent of the shares.

So why the interest, especially when it gets regularly criticised for its unexciting performance?

Perhaps after the last few years of giddy growth, followed by the turmoil of the past 10 months which has seen high-profile companies slash profits, a boring company such as Cerebos which manages to post higher sales and decent earnings is seen as a pretty good story.

The fact that it continued to pay out 25 cents dividend - its fifth year of doing so - giving a yield of about 11 per cent, cannot hurt either.

And the presentation didn't disappoint. In these troubled times, it was refreshing to hear management talk confidently of expansion, staying the course in investment, instead of cutting costs.

Chief executive and president Eiji Koike said Cerebos works on three-year plans; it is not managed on a quarterly basis.

Still, with the global economy mired, and CEO firings not uncommon, Mr Koike's jest 'This is my 12th year as CEO, yesterday the board had a meeting and did not ask me to resign' seemed to hit the right mood.

The serious message though was that despite this being the worst situation in a 100 years, Cerebos was well placed to continue expanding.

He said the confidence came from having navigated the Asian financial crisis, the 9/11 terrorist attack, Sars and avian flu which saw Cerebos steadily increased sales and profits.

Its latest net profit of $81 million on a turnover of $825 million, up from $68 million on a turnover of $551 million five years ago, is decent but hardly spectacular.

He pointed out that it takes a long time to build up a market.

For instance, Cerebos has been losing money in China since 2000. Last year, it had an operating loss of $10 million while sales rose 20 per cent to $19 million.

'Size of sales is too small. If sales become double, it would be much easier,' he said.

China is a long-term strategy for the company. He cited how Cerebos launched Brand's in Thailand in the 1970s but it only took off in the 1990s.

Today Thailand is Cerebos' biggest market, its operating profit contributing 45 per cent to total group turnover.

Last year, sales surged 28 per cent, with 30 per cent in the fourth quarter amid the country's intensifying political troubles.

Mr Koike reckons that once consumers take to a product, their loyalty does not waver easily. This is very critical, especially when you realise that Cerebos' selling price of Brand's, its main product, is the same, at $3 a bottle, across all markets.

Mr Koike has now set a target of $1 billion sales for 2010. It's the second time he's doing so. He also held out the possibility of making acquisitions, especially in Australia.

Back in 2000, he thought it would take the company five years to reach $1 billion. Whether he gets derailed again by the global crisis is anybody's guess.

Again he cites Cerebos' Thai operations as an inspiration. The current chief executive is Lackana Leelayouthayotin who joined in 1988. The other staff have also been there just as long and all understand how the company works. The message is consistent, simple but effective, he said.

Hopefully, the story next year will be just as pleasant.