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Etika Blazing The Acquisition Trail
Corporate Digest | 30 July 2010
By: Aw Jie Sheng
Articles (52) Profile

Despite a backdrop of uncertainty over the pace of global economic recovery, Etika International has been blazing the acquisition trail. On 19 July, the condensed milk maker announced that it was acquiring Susu Lembu Asli (Johore) (SLAJ) and Susu Lembu Asli Marketing from Excel Corporate Solutions for a cash consideration of RM89.5m ($38.5m).

The targets are principally engaged in the manufacture and distribution of pasteurised milk and other beverages in Malaysia.

Etika’s CEO Dato Kamal Tan said, “This (acquisition) will serve as a strategic platform for Etika to gain a foothold into the larger ready-to-drink dairy segment, through a wider range of healthier product offerings under established brands which have gained wide market acceptance in Malaysia.”

SLAJ’s products are distributed under the brand names of “Goodday”, “Daily Fresh”, “Mr. Farmer“ and “Sky Fresh”. It also has a manufacturing facility with built-up area of 34,014 square feet located in Johor Bahru.

This is the second time this year that Etika has acquired another Malaysian company. In June, Etika made its move on Family Bakery for RM18.7m ($8m), as part of efforts to grow its bakery business.

Expanding Regional Footprint

Etika has not limited its shopping spree to just within the country, but has been busy expanding its regional footprint as well. In April, Etika announced the long awaited completion of the US$9m acquisition of Vietnamese dairy milk processor, the Tan Viet Xuan Joint Stock Company (TVX).

TVX, with its locally recognized Vixumilk brand, will provide Etika with a springboard to build an extensive distribution network in Vietnam. Eventually, Etika intends to progressively set up warehousing and distribution centers throughout Vietnam. Etika will be poised to tap into the rising per-capita milk consumption of Vietnam, in line with the country’s increasing affluence.

More recently, Etika has cast it eyes on another emerging market, Indonesia. Having acquired a distribution company there last September, Etika built on the momentum, announcing on 5 July that it would buy instant noodles makers PT Sentrafood Indonusa and PT Sentraboga Intiselera for Rp83.7t ($12.8m).

Saliently, the purchase will allow Etika access to the land bank and unutilised factory spaces of the two Indonesian companies. This will shorten the gestation period required for Etika to set up its condensed milk manufacturing facilities there, moving the group towards its long-term objective of localising production for distribution in Indonesia, thereby maintaining its competitiveness.

Both CIMB and NRA Capital had in May maintained their Buy calls on Etika’s stock, with target price $0.83 and $0.88 respectively. A re-rating is imminent considering that Etika’s latest acquisitions are expected to contribute positively to the group’s earnings for the financial year ending 31 March 2011. Moreover, the group has proposed a 1-for-1 bonus issue, to reflect the growth and expansion of the group’s business as well as encourage trading liquidity.

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