Viz Branz

Kim Eng on 14 June 2012

Background: Established in 1988, Viz Branz manufactures and distributes over 35 brands of instant beverage and cereal mixes, as well as fruit juices and snack foods, to China and Southeast Asia. It also provides contract manufacturing for private label and packaging printing services to third parties. The company currently has four production plants in Singapore, China, Myanmar and Vietnam.

Why are we highlighting this stock? Coffee maker Viz Branz has been under the heat from a longstanding father-and-son conflict between CEO and ex-CEO. Nonetheless, the group has still managed to produce solid financial results: its 9MJun12 net profit of SGD14.3m surpassed its performance in FYJun11 by 17.2% YoY.

Key market focus. The group completed its purchase of Goldwaves Food (GFS) in Shanghai for SGD550k in Jan 2012. GFS’s operations include roasting coffee, as well as packing and distributing coffee powder, sugar and other beverages. This acquisition further highlights the group’s focus on its key market. As of 9MJun12, China constitutes more than 50% of its sales.

Improving cost control. Viz Branz had previously struggled with raw material prices that are largely subjected to fluctuations of the USD, RMB, and CHF against the SGD. However, the group’s efforts in managing procurement, cost reduction, and inventory control, as well as passing on costs to customers, have worked out well. Its success is reflected in the improvement of its 9M12 margins and positive operating cash flows.

1-for-1 Bonus issue. The company announced a proposed 1-for-1 bonus share issue on 25 May. The existing share capital of company comprises 361.1m (including 6.1m treasury shares) that will effectively be doubled after the new bonus shares are issued. This move will improve liquidity and trading volume as the current free float is only 19%. The bonus issue is still awaiting the approvals of SGX and shareholders at the EGM.

Attractive dividends. As the smallest coffee-maker listed on SGX, the group has already declared a 3.3cent interim dividend for 1HJun12, which implies a 6% yield, as opposed to 2.8% of its peers.