Viz Branz’s 3Q13 results was in-line with expectations with a decline in revenue offset by continued margin improvements due to the favourable raw material cost environment. While we lowered our FY13 projections to account for the seasonally weaker 4Q13, we expect margin improvements to persist and VB should remain on track to record a better FY13 performance in terms of PATMI growth. In addition, its growth prospects in its key China market remain decent. We leave our fair value estimate unchanged at S$0.74 and keep our BUY rating on the counter. In terms of the likelihood of a GO, we remain steadfast in our assertion that it will materialize, albeit at a later date and with a potentially different acquirer.
Sustained competition continues to hurt
As expected, Viz Branz reported a 0.6% YoY decline in 3Q13 revenue to S$42.8m due to sustained competitive pressures in its Indochina market, particularly Myanmar. Nonetheless, favourable raw material costs and management’s continued emphasis on cost management saw gross profit and operating margins increase by 5.5ppt and 1.5ppt to 39.5% and 17.4% respectively from a year ago. As a result, 3Q13’s PATMI grew 5.7% YoY to S$4.6m.
Slide limited to coffee products; others remain resilient
The slide in revenue came mainly from the ongoing competition in Myanmar’s coffee segment. Management had previously highlighted attempts to arrest the slide via more aggressive promotional activities but positive results have yet to follow. Fortunately, VB’s other product mainstays of cereal and tea remained resilient due to their relatively stronger branding.
Weak 4Q ahead but margin improvements to offset
The third straight quarter of revenue declines force us to reduce our FY13 revenue projections as we enter the seasonally weakest 4Q. However, the lower raw material cost environment has more than offset this decline, and VB has actually seen an improvement in operating figures (9M13 operating and PATMI +7.4% YoY and +4.1% YoY to S$21.0m and S$14.2m respectively).
Maintain BUY
Even after adjusting our FY13/14 forecasts, our fair value estimate remains unchanged at S$0.74 and we maintain BUY on the counter. As for the likelihood of a GO, we remain steadfast in our assertion that it will materialize, albeit at a later date and with a potentially different acquirer. The lack of progress in negotiations amongst the three main shareholders has led us to re-consider the dynamics of their relationship. Nonetheless, an exit by either party – and subsequent share sale to the remaining shareholder(s) – will trigger a GO as it will cross the 30% threshold.
As expected, Viz Branz reported a 0.6% YoY decline in 3Q13 revenue to S$42.8m due to sustained competitive pressures in its Indochina market, particularly Myanmar. Nonetheless, favourable raw material costs and management’s continued emphasis on cost management saw gross profit and operating margins increase by 5.5ppt and 1.5ppt to 39.5% and 17.4% respectively from a year ago. As a result, 3Q13’s PATMI grew 5.7% YoY to S$4.6m.
Slide limited to coffee products; others remain resilient
The slide in revenue came mainly from the ongoing competition in Myanmar’s coffee segment. Management had previously highlighted attempts to arrest the slide via more aggressive promotional activities but positive results have yet to follow. Fortunately, VB’s other product mainstays of cereal and tea remained resilient due to their relatively stronger branding.
Weak 4Q ahead but margin improvements to offset
The third straight quarter of revenue declines force us to reduce our FY13 revenue projections as we enter the seasonally weakest 4Q. However, the lower raw material cost environment has more than offset this decline, and VB has actually seen an improvement in operating figures (9M13 operating and PATMI +7.4% YoY and +4.1% YoY to S$21.0m and S$14.2m respectively).
Maintain BUY
Even after adjusting our FY13/14 forecasts, our fair value estimate remains unchanged at S$0.74 and we maintain BUY on the counter. As for the likelihood of a GO, we remain steadfast in our assertion that it will materialize, albeit at a later date and with a potentially different acquirer. The lack of progress in negotiations amongst the three main shareholders has led us to re-consider the dynamics of their relationship. Nonetheless, an exit by either party – and subsequent share sale to the remaining shareholder(s) – will trigger a GO as it will cross the 30% threshold.
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