2q by yaofenjin


									                                                                                                                  2000 Second Quarter Results
                           Scott Kolb (212) 484 5222
                             July 25, 2000                                                                                                                                HOLD

                           Maseca’s 2Q00 operating results were somewhat in line with our estimates, but weaker in profitability terms.
                           Volumes fell about 5.5%, and sales prices were 8.4% lower as well, leading to a consolidated sales decline of 13.5%,
                           while we expected a decline of 12.0%. The lower sales prices reflect lower corn costs, and translate to COGS as well,
                           as this line dropped 19.7% for the quarter. (As we warned last quarterly, with a bountiful crop of corn being reported
                           in many areas of the world, we are not sure that prices will be recovering much this year). Gross profit therefore rose
                           by 7.3%. Operating expenses were 3.2% lower than last year, due to the closing of the Chalco plant. However, due to
                           lower volumes and sales prices, as a percentage of sales, these expenses rose 2 full pp. We would not expect much
                           improvement in this number, as freer competition will also impact these expenses negatively. We are not as sure as we
                           had been about Maseca’s growth prospects for the rest of the year, and think now that margins will not reach company
                           targets of perhaps 12%. The lack of conversion to corn flour is troubling, and does not seem to be reversing itself in
                           any way. Our expectation for year end multiples is from current levels of 5.8x to 5.2x. Thereafter, comparisons
                           become a bit more difficult upon which to grow from a margin standpoint, although volumes could certainly help.
                           Maseca indicated that it is expecting volumes to be flat for the year, indicating very slight growth in 2H00. What the
                           industry really needs is an upturn in corn prices, which is not foreseeable in the near future. The valuation, which we
                           had seen as cheap previously, appears fair to us now, so we rate the stock as a HOLD.

July 25, 2000 Price :            Ps 4.25                                       Price/Book:                   0.8x                         P/E on June T12                      10.7x
52 Week Range:                   Ps 6.41 To 3.87                               ROE                          7.1%                          P/NCE T12                             6.1x
Shares Outstanding:              918.4 Million                                 ROA                          7.5%                          P/EBITDA T12                          5.3x
Market Capitalization:           US$ 416.5 million                             Enterprise Value: US$ 454.4 million                        EV/EBITDA T12                         5.8x
INCOME STATEMENT (thousands of constant pesos as of June 30, 2000)
                          1H99       Margin       1H00        Margin                           Change           2Q99          Margin          2Q00          Margin        Change
Net Sales               2,573,105      100.0% 2,353,263        100.0%                             -8.5%       1,326,667        100.0%       1,147,218        100.0%         -13.5%
Cost of Goods Sold      2,013,782       78.3% 1,687,485         71.7%                            -16.2%       1,021,757         77.0%         820,136         71.5%         -19.7%
Gross Profit              559,323       21.7%     665,778       28.3%                             19.0%         304,910         23.0%         327,081         28.5%           7.3%
Operating Expenses                   420,971           16.4%       418,546           17.8%          -0.6%       218,566           16.5%       211,668          18.5%           -3.2%
Operating Profit                     138,352            5.4%       247,232           10.5%          78.7%        86,344            6.5%       115,413          10.1%          33.7%
Integral Cost of Financing            (82,315)          -3.2%        (9,872)         -0.4%         -88.0%       (26,207)          -2.0%        (3,500)          -0.3%         -86.6%
  Interest Expense                     35,441            1.4%         8,038           0.3%         -77.3%        12,444            0.9%         5,840            0.5%         -53.1%
  Interest Income                      59,539            2.3%        34,791           1.5%         -41.6%        30,242            2.3%        19,492            1.7%         -35.5%
  Foreign Exchange Loss               (46,488)          -1.8%        (2,866)         -0.1%         -93.8%        (5,440)          -0.4%           450            0.0%           #N/A
  Monetary Loss                       (11,729)          -0.5%        19,747           0.8%           #N/A        (2,968)          -0.2%         9,701            0.8%           #N/A
Other Financial Expenses              15,580            0.6%          (650)           0.0%          #N/A          8,476            0.6%           558           0.0%          -93.4%
Pretax Income                        205,087            8.0%       257,754           11.0%         25.7%        104,074            7.8%       118,355          10.3%           13.7%
Taxes                                 15,748            0.6%        79,158            3.4%        402.7%        (13,545)          -1.0%        35,505           3.1%            #N/A
Non-Cons. Subsidiaries                     0            0.0%             0            0.0%           #N/A             0            0.0%             0            0.0%           #N/A
Extraordinary Items (gains)                0            0.0%             0            0.0%           #N/A             0            0.0%             0            0.0%           #N/A
Minority Interest                      8,203            0.3%         7,733            0.3%          -5.7%         4,163            0.3%         3,551            0.3%         -14.7%
Net Income                           181,136            7.0%       170,863            7.3%          -5.7%       113,457            8.6%        79,299            6.9%         -30.1%
Earnings Per Share                     0.197                         0.186                                        0.124                         0.086
EBITDA                               264,598           10.3%       371,483           15.8%          40.4%       149,891           11.3%       177,819          15.5%          18.6%
EBITDA Per Share                       0.288                         0.404                                        0.163                         0.194

BALANCE SHEET (thousands of constant pesos as of June 30, 2000)                                               FINANCIAL ANALYSIS              Jun-99        Jun-00
                            Jun-99   % of T.A.    Jun-00     % of T.A.                                        Current Ratio                        7.6x           6.5x
Total Assets               6,960,878    100.0% 6,230,194        100.0%                                        Short Term Debt to Total Debt      15.2%        100.0%
 Cash & Equivalents          294,884      4.2%      17,338        0.3%                                        Foreign Liab. to Total Liab.       45.7%           3.8%
 Other Current Assets      2,119,929     30.5% 1,935,525         31.1%                                        Net Debt to Total Equity            7.2%           0.2%
 Long Term                    15,106      0.2%      16,769        0.3%                                        Total Liab. to Total Equity        23.1%          25.1%
 Fixed (Net)               4,259,200     61.2% 3,936,803         63.2%                                                                         1H99          1H00
 Deferred                     16,792      0.2%      75,999        1.2%                                   A/R Turnover (days)                        49             43
 Other                       254,967      3.7%     247,760        4.0%                                   Inventory Turnover (days)                 101             56
Total Liabilities          1,305,551     18.8% 1,250,809         20.1%                                   A/P Turnover (days)                          5            11
 Short Term Debt             106,986      1.5%      24,890        0.4%                                   WC net of debt to Sales                   43%            36%
 Other Current Liabilities   208,801      3.0%     275,114        4.4%                                   Interest Coverage Ratio                   9.1x          50.5x
 Long Term Debt              595,824      8.6%            0       0.0%                                   Total Debt to annualized EBITDA           1.3x           0.0x
 Other Liabilities           393,940      5.7%     950,805       15.3%                                  ENTERPRISE VALUE (EV) = Mkt cap. + Net Debt + Minority Int.
Shareholders Equity        5,655,327     81.2% 4,979,385         79.9%                                     NCE = Net income + Monetary Loss + Fx Loss + Depreciation
Minority Interest            436,432      6.3%     347,728        5.6%                           ROA=T12m Op Profit to Avg. Assets; ROE=T12m Net Profit to Avg. Equity

The information contained herein has been obtained from sources that we believe to be reliable, but we make no representation as to its accuracy or completeness. Neither CASA DE BOLSA
BANORTE, S.A. DE C.V. nor AFIN SECURITIES INTERNATIONAL accepts any liability for any losses arising from any use of this report or its contents.
                                                                                                                  2000 Second Quarter Results

Operating Results
Results for 2Q00 were in line with our expectations, perhaps a little worse. Volumes dropped 5.5%, and reflect a capacity utilization
rate of only about 63.5% of total installed capacity (69.3% taking out the Chalco plant). Prices continued their downward spiral, and
were 8.4% below last year’s revenue per ton, discounting product mix changes. With a solid supply of corn in the world, we would
be surprised if the pricing situation got immediately better. In the conference call, Maseca did say that it was concerned about
domestic corn prices in Mexico, and how world harvests, particularly those in the US were causing downward pressure on these
prices. In falling corn price environments, corn inventory prices are not fully reflected in product sales prices, constraining margins.
Additionally, with stable or rising tortilla prices, there is little incentive for tortilleros to convert to the Maseca method. The reverse
would be true in rising corn price environments. COGS as a percentage of sales dropped significantly compared to 2Q99, due
primarily to the aforementioned lower corn prices. Gross profit per ton rose 13.3% compared to last year, although it was up just
1.0% compared to 1Q00. The company is no longer assuring us that volumes will recover and that margin improvement will
continue. We think this is a fairly significant statement, given that in the past, Maseca has constantly championed growth, and now
stands more conservatively on the issue. Given the pricing environment currently existent, we see the comparative base margin,
beginning in 4Q99, as presenting somewhat of an obstacle to profit growth should volumes not begin to grow more robustly. In our
preliminary projections, we have our gross margin at 28.3% for full year 2000, and operating margin at 10.5%, compared to 24.4%
and 7.5% respectively last year.

Operating expenses fell 3.2% due to the closing of the Chalco plant. As a percentage of sales (18.5%), this is the highest level
recorded in our 6 years of tracking the company. It digs into operating margins significantly, and is the result of lower sales due to
lower volumes and prices.

Financing Activities

Maseca continues to enjoy balance sheet strength, although cash levels were well below those posted last year. This and an increase
in accounts receivable are both the result of a US$ 60 million loan by Maseca to its parent Gruma. Gruma paid debt, and Maseca
says it makes more money under these terms than at prevailing market rates (about 200 bp according to management). Gruma now
owns 83% of Maseca, so float has been reduced to 17%, further reducing liquidity. The company has no long-term debt, and we
don’t see any problems with liquidity. Total leverage was reasonably stable as a percentage of equity. Maseca registered net interest
income rather than expense, further evidence of balance sheet health. Overall, financing benefits came in at Ps 3.5 million in 2Q00,
significantly worse than the Ps 26.2 million benefit last year. This is mainly due to FX and monetary variations. The closure of 4
plants has lowered active capacity to 2.15 million tons, down from 2.4 million tons at the end of last year. The company reported Ps
7.9 million of investment during the second quarter, mainly in efforts aimed at increasing productivity at corn flour plants and the
acquiring of computer and transportation equipment.
On the operating line, it appears that Maseca had a strong quarter in 2Q00. But upon closer investigation most of it was due to the
comparison base being so low, rather than to a return to robust growth and healthy pricing. Lower corn prices helped margins return
to reasonable levels (higher than 2Q99), but they were lower than the last two quarters. Maseca is less confident it will continue this
trend of operating growth, and so are we. We would like to see healthier volume performance than that which we have seen thus far
(down 1.1% on an accumulated basis). We think we are getting a clearer big picture now, and it is not particularly optimistic. On an
EV/EBITDA basis, Maseca has gotten cheaper, and the multiple stands at 5.8x. Our preliminary EV/EBITDA multiple for the
company is 5.2x for 2000 (adjusted upwards from our previous estimate given our interpretation of events in the industry and in corn
markets). Although this may appear inexpensive, we feel the company is fairly valued. We feel compelled to drop Maseca to a

                                                                                                                                     Scott Kolb: skolb@cbbanorte.com.mx

                                                                                                                                     Scott Kolb skolb@cbbanorte.com.mx
The information contained herein has been obtained from sources that we believe to be reliable, but we make no representation as to its accuracy or completeness. Neither CASA DE BOLSA
BANORTE, S.A. DE C.V. nor AFIN SECURITIES INTERNATIONAL accepts any liability for any losses arising from any use of this report or its contents.

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