KUCHING: Beverage tycoons CI Holdings Bhd (CI Holdings) and American-based PepsiCo Inc (PepsiCo) inked an exclusive bottling agreement which renews the franchise bottling rights of CI Holding’s Permanis Sdn Bhd (Permanis) for an unprecedented 10 years.
STRENGTHENING BONDS: The relationship between the group and PepsiCo has gone from strength to strength on the back of Permanis introducing three PepsiCo brands, namely Tropicana Twister, 7-Up Revive and Mountain Dew over the past three years.
According to CIMB Investment Bank Bhd (CIMB Investment) in its latest research report, this signalled a positive move as previous agreements between the two companies were renewed every five years.
The agreement between the two companies had been extended for 10 years until June 30, 2020, continuing a relationship that went all the way back to 1973. The franchise bottling rights were held by Permanis which is CI Holdings’ wholly-owned manufacturing unit and was responsible for marketing PepsiCo’s beverages in Malaysia.
CIMB Investment noted that the extension of the agreement demonstrated PepsiCo’s confidence in Permanis as a long-term strategic partner, allaying concerns over a repeat of the contract breakdown between Fraser & Neave Holdings Bhd (F&N) and The Coca-Cola Company (TCCM).
Based on this, the research house affirmed that the relationship between the group and PepsiCo had gone from strength to strength, on the back of Permanis introducing three PepsiCo brands, namely Tropicana Twister, 7-Up Revive and Mountain Dew over the past three years.
It continued to add that CI Holdings generated 80 per cent of its revenue from the PepsiCo brands. In recent years, it has poured much of its capital expenditure into expanding the sales of PepsiCo products.
Currently, Permanis is installing a new RM45 million production line at its Bangi facility to accommodate the phenomenal demand for Tropicana, which is Malaysia’s biggest fruit juice brand with a 35 per cent market share. Its competitors include Malaysia Milk’s Marigold of 30 per cent and F&N’s Fruit Tree and Sunkist, both holding 13 per cent.
Unlike F&N and TCCM whose soft drinks and fruit juices overlap, CI Holdings and PepsiCo have a complementary relationship. PepsiCo’s product line-up does not have products similar to CIH’s in-house products. Other PepsiCo brands marketed by Permanis include Pepsi, Lipton Tea, Mirinda, Sting, Gatorade and Evervess.
In other news, CI Holdings announced earlier last month its proposed purchase of land and warehouse in a Bangi industrial estate for RM29.5 million, which would be funded by internal funds and bank borrowings.
According to the research report, the acquisition was necessary because the current warehouse measuring 200,000 square feet was bursting at the seams due to the company’s swift growth in recent years.
Based on its current performance, CIMB Investment forecasted a net profit of RM35 million or an increase of 67 per cent year-on-year for CI Holdings, with much of the earnings growth coming from Tropicana fruit juices and Lipton Tea variants.
It was also looking at a dividend per share for the financial year of 2010 of 10 sen, which would give a decent yield of 3.5 per cent. Based on this, the research firm pegged a target price for CI Holdings at RM3.28 per share.