Oct 13, 2017 12:08:28

Halal – An Earnings Boost Strategy

Over the next two decades, the global Muslim population is expected to rise to almost twice of that of the non-Muslim population. Such growth would trigger the vast development of the halal market. We found that companies, which implement halal practices as part of their strategy, are delivering robust earnings growth with high respective ROAEs, asset turnover, and EBIT margins. Our Top Picks are Bangkok Dusit Medical, BIMB, Mengniu, Indofood CBP, and Malee.

  • Robust Muslim population growth boost halal market. According to Pew Research Centre’s Forum on Religion & Public Life (Pew Study), the global Muslim population is expected to rise to about twice of that of the non Muslim population over the next two decades. We see this demographic growth triggering the vast development of halal products. Based on the International Monetary Fund (IMF), the average projected growth of the Organisation of Islamic Cooperation’s (OIC) GDP between 2015-2021 is expected at 4.2% pa, faster than the rest of the world’s GDP growth’s 3.6% pa.
  • Huge market with tremendous potential. According to the State Of The Global Islamic Economy Report 2016/17 developed and produced by Thomson Reuters, global Muslims spent over USD1.9trn across industries in 2015. This figure is estimated to grow to USD3trn in 2021 (7.9% CAGR). The largest halal products consumption is halal food, which accounted for 62% of the halal market in 2015. Globally, the Muslim population spent a total of USD1.2trn on food & beverage (F&B), while halal-certified F&B products sales were estimated at merely USD415bn as at 2015. This means that there is an ample room for halal certified F&B products to grow, at least to be equal with global Muslim spending figures. Furthermore, Thomson Reuters estimates Muslim spending on F&B to reach USD1.9trn by 2021, a CAGR of 9% from 2015.
  • Delivered robust earnings. Our Halal Thematic report consists of companies in the RHB regional universe – included in the respective countries’ securities’ shariah compliant list or Dow Jones Islamic Index – that implement halal practices on some of their products or services. Having the halal certificate is part of these companies’ respective strategies to boost revenue and expand market base. In our universe, we found 13 companies implementing the halal standards, sectors which include banking & finance, F&B, personal care products, hospital, and logistics. In FY18F, these companies are estimated to deliver robust earnings with c.17.4% ROAE and c.25% YoY earnings growth, in average. In terms of productivity, asset turnover is estimated to average at 1.12x with a 13% EBIT margin.
  • Top Picks. Our Top Picks are Bangkok Dusit Medical, BIMB, China Mengniu Dairy (Mengniu), Indofood CBP (Indofood), and Malee. Among the companies in our Halal Thematic coverage, Malee offers the highest ROAE and asset turnover, while Matahari Department Stores (Matahari) provides the highest EBIT margin. (Andrey Wijaya)