Deutsche Bank Markets Research Global Emerging Markets Consumer Periodical Latam Consumer Monthly Date 6 October 2016 Sector holding eerily steady, in light of looming political risks (October 2016) Sector was relatively stable in September... ________________________________________________________________________________________________________________ Deutsche Bank Securities Inc. Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 057/04/2016. Jose Yordan Research Analyst (+1) 212 250-5528 jose.yordan@db.com Marcel Moraes Research Analyst (+55) 11 2113-5976 marcel.moraes@db.com Katina Metzidakis Research Associate (+1) 212 250-2009 katina.metzidakis@db.com Latam consumer stocks moved mostly sideways in September: all subsectors declined by 0.4% to 1.4% in USD terms. Only 48% of our covered stocks showed positive returns (vs. 52% the prior month), although 61% outperformed their respective indices (vs. 39% in August). The only double-digit outperformer was MGLU3, and AMAR3 was the only big underperformer. Year to date, only 35% of our covered stocks have outperformed: with retailers overall over 23% ahead of their index on average and HPC, Beverages and Food all trailing (the latter by 39%). ...but political uncertainty keeps us on sidelines (stay selective and watch FX) With potential for continued USD strength (impacting most Latam blue chips) and the outcome of the upcoming US Presidential election still uncertain, we remain selective in Staples (buy BIMBOA.MX, AKOb.N, IMI.CN, CBD, VCO and protein names) but continue to monitor blue chips for any signs of overselling. Walmex Mexico comp sales still running below trend Walmex sales again fell short of market expectations in September, with SSS growth of 6.1% in Mexico still below DBe (7.5%) and Infosel consensus (7.0%). September’s calendar was neutral in terms of weekend days, but because the month ended on a Friday the headline number was somewhat higher than the 5-week comparable sales growth (4.4%). For Central America, SSS grew 5.2%, and the 5-week comp sales grew 3.6% (for the same reason). Thus, we were not surprised with the stock’s slightly negative reaction to the sales release. SICOBE: Brazil beverage production still pointing to weak consumer According to SICOBE, September beer production remained flat (year-on-year), while soft drinks fell 8.2% after rising only once in the past 20 months. For beer, comparisons are set stay difficult in October (but less so); while for soft drinks they should remain easy (i.e., lapping year-on-year declines) for the next six months. We continue to highlight that beer production likely outpaced sales again in 3Q16, potentially extending what we see as an industry channel-stuffing condition (which given Ambev’s high percentage of direct distribution would pertain more to the other three competitors). SECEX protein export data still showing slowly improving trends September SECEX data showed pork export volume growing almost 40% while beef volumes fell only 3.1%. Pork price declines (2.2% in USD terms) continued despite normalized comps (post the 2014 PED outbreak in the US), potentially validating the view of JBS management that the U.S. is now the world’s low-cost producer of pork. Beef prices fell again (8.1%) yoy in USD terms and also decreased 1.7% sequentially (but keep in mind the 7.4% spike in August). Finally, poultry volumes increased 6.1% (on softer comps), while price trends continued to improve (down 0.7% sequentially but up 3.5% yoy, the first such increase in over 20 months). Distributed on: 06/10/2016 21:06:34 GMT 6 October 2016 Consumer Latam Consumer Monthly Page 2 Deutsche Bank Securities Inc. Table Of Contents DB Related Research—September ...................................... 6 Latin America: Reiterating Buy on JBS, comments on Coca-Cola Femsa acquisition of Vonpar .......................................................................................... 6 Global: updates on Indian consumer, Coca-Cola European Partners, Coca-Cola consolidation activity in Japan ........................................................................... 6 DB LatAm Consumer Coverage Summaries ....................... 7 Global Peer Valuation Tables ............................................. 12 Historical Valuation Multiples............................................ 24 LatAm Food stocks .....................................................................................