Viz Branz

OCBC on 8 May 2012

Viz Branz (VB) reported another set of impressive results yesterday. Although 3Q12 revenue fell marginally by S$0.2m (-0.4% YoY) to S$43.0m, its gross profit margin improved by 2.3 percentage points to 34% while operating profit rose S$1.9m (+38.3% YoY) on the back of a sharp reduction in operating expenses, which caused its 3Q12 net profit to jump 50.9% YoY to S$4.6m. Going forward, we expect a continued reduction in VB’s operating expenses as the benefits from economies of scale and scope in its operations become more apparent. Coupled with the persistence of weak raw material prices (i.e. coffee and sugar), we are anticipating a record net profit year for VB in FY12. With this encouraging set of results and adjustment to its cost structure and potential growth market in Myanmar, we adjust our FY12 and FY13 cost estimates for VB accordingly, which resulted in an increase to our discounted cash-flow-to-equity valuation to S$0.52 from S$0.37 previously. Maintain HOLD.

Another stellar set of results
Although Viz Branz’s (VB) 3Q12 revenue fell marginally by S$0.2m (-0.4% YoY) to S$43.0m, its gross profit margin improved by 2.3 percentage points to 34% following an easing of raw material prices and better inventory control while operating profit rose S$1.9m (+38.3% YoY) on the back of a reduction in operating expenses (namely administrative, distribution and selling costs). As a result, 3Q12 net profit jumped 50.9% YoY to S$4.6m. On a YTD basis (9M12), its revenue climbed 6.5% YoY to S$134m (forming 74% of our initial FY12 estimates), and its bottom-line gained 34.6% YoY to S$14.3m (93% of initial FY12 estimates).

Adjustments to cost structure going forward
We deem the reduction in administrative, distribution and selling costs as a representation of increased efficiencies in VB’s operations, derived from economies of scale and scope. As VB’s financial performance continues to achieve record numbers, which validates the success of its marketing efforts and acceptance of its products into its target markets, we can expect operating expenses to continue coming off as well.

Potential growth market – Myanmar
VB is already an established brand name in Myanmar with a loyal customer base given its foray into the country several years ago, and is currently the market leader in the cereal segment with a management estimated 30% market share. When economic and trade sanctions on the country get lifted eventually, VB is well placed to benefit from Myanmar’s growth and increase in domestic consumption.

Maintain HOLD at higher FV
With this encouraging set of results and adjustment to its cost structure, we adjust our cost estimates for VB going forward. We lowered our operating expenses by 9.4% and 7.5% for FY12F and FY13F respectively whilst leaving our revenue and gross profit projections unchanged. This raised our net profit by 14% and 18% respectively for FY12F and FY13F (record levels for VB), which caused our discounted cash-flow-to-equity valuation to increase to S$0.52 (S$0.37 previously). Maintain HOLD.