Integrated manufacturer and distributor Yee Lee Corporation Bhd is the new distributor for Red Bull’s range of energy drinks in Malaysia.
According to Bursa Malaysia filing yesterday, Yee Lee Corp said its wholly owned subsidiary, Yee Lee Marketing Sdn Bhd, has been appointed as the exclusive distributor by Allexcel Trading Sdn Bhd to distribute and sell Red Bull Gold, Red Bull Less Sugar and Red Bull Bottle energy drinks for a five-year period commencing August 1 this year.
This distribution partnership agreement between Yee Lee Marketing and Allexcel also stipulated that the agreement shall automatically be renewed for further periods of two years upon each anniversary unless terminated by either party with a written notice of at least three months prior to the expiry date of the initial term or subsequent terms.
Yee Lee Corp further noted that the distribution of the Modern Trade Channels will commence on August 1 this year while that of General Trade Channels will take off on October 1.
“The agreement is expected to contribute positively to future profits, earnings per share and net assets per share of Yee Lee Corp commencing from financial year 2016,” the company said in its Bursa Malaysia filing.
On March 27, F&N Holdings announced that its wholly owned subsidiary F&N Beverages Marketing Sdn Bhd had entered into a transition agreement with Allexcel in which both parties have agreed not to renew the term of their principal agreement on the exclusive marketing, distribution and sale of Red Bull energy drinks in Malaysia upon the expiring of their contract on March 31 this year.
This follows the failure of both parties to reach an agreement on the changes in commercial terms, noted F&N Holdings in its Bursa Malaysia filing back then. During the transition period commencing from April 1 to September 30 this year, F&N Beverages would hand over to Allexcel the exclusive marketing, distribution and sale of Red Bull energy drinks in Malaysia in phases,
Yee Lee began its core business as an edible oil repacker in Malaysia in 1968. Today, Yee Lee’s group of companies are involved in various sectors such as manufacturing, marketing and distribution of fast moving consumer products, plantation and eco-tourism.
Its products include food, bottled water, oral care, household cleaners and industrial products. Additionally, the company also manufactures corrugated cartons and aerosol cans for a wide range of customers.
Analyst’s Views
UOB Kay Hian Malaysia Research: The research house’s channel checks suggest that F&N’s Red Bull energy drinks’ sales have grown to RM250 million per annum with RM25 million-RM30 million pre-tax profit previously.
While it is too early to gauge the financial impact on Yee Lee Corp, this distributorship can hypothetically lift the company’s net profit to RM47 million, assuming a pre-tax profit of RM25 million from the Red Bull contract and 6% organic growth its existing business. “However, we note that the full impact from this contract can only be seen in 2017 as Yee Lee Corp might incur infrastructure costs during the initial stages,” observed UOB Kay Hian Research.
According to the research house, Yee Lee Corp is currently trading at 8.3x forward PE (price-to-earnings ratio), assuming a RM47 million forward net profit. The current share price provides 21%-46% upside, assuming a PE multiple of 10-12x.
At 10.47am, Yee Lee was down 3 sen at RM2.11 with 1,822,700 shares traded.