Viz Branz (VB) reported a decent 1Q13 performance with continued margin improvements. Although revenue declined slightly, PATMI grew 17.4% YoY to S$4.5m following favourable raw material costs and effective cost control measures. With the performance coming in within our expectations, our FY13 outlook for VB remains unchanged, and we retain our fair value estimate of S$0.74. While there is no update on further share purchases by Lam Soon, we reiterate our optimism that an eventual general offer will materialize in the near-term. Given the recent price correction of the counter – and a supportive price base of S$0.735 from Lam Soon’s partial stake purchase – we feel that an investment opportunity has presented itself. With a potential upside of nearly 10%, we upgrade VB to BUY.
Margin improvements in 1Q13
Despite a seasonal weak 1Q13, which saw a 1.5% YoY decline in revenue to S$41.1m, Viz Branz (VB) still managed to post a 19.4% YoY increase in operating profit to S$6.1m following favourable raw material costs during the quarter and effective cost control measures. The resultant PATMI grew 17.4% YoY to S$4.5m. In terms of margins, gross and operating saw a 5.7 ppt and 2.7 ppt YoY improvement to 36.7% and 15.0% respectively for 1Q13. VB’s results came in within our expectations, forming 22.1% and 25.8% of our top and bottom-line forecasts respectively.
FY13 outlook unchanged
Although the opening up of Myanmar has led to a gradual influx of foreign competitors – and has eroded some of VB’s market share in the instant coffee space – we view the dent in revenue growth to be manageable given VB’s leadership position in the country as well as its strong distribution channels. Furthermore, growth in its other key market of China has remained resilient with easy acceptance of ASP increases. Entering the seasonally strongest quarter of the financial year, we expect VB to record another strong showing with further margin improvements.
GO still likely
While there is no update since the sale of a partial stake to Lam Soon (~19.8% ownership), the potential acquisition is complementary to Lam Soon’s portfolio of offerings, and we remain optimistic that an eventual general offer is imminent in the near-term.
Upgrade to BUY
The price of VB corrected (-5.6%) following market disappointment over lack of an immediate GO previously. However, the fundamentals for VB remained unchanged in the medium-term, and we maintain our fair value estimate of S$0.74. Reiterating our assertion that Lam Soon will make an offer for the remaining shares, we upgrade VB to BUY.
Despite a seasonal weak 1Q13, which saw a 1.5% YoY decline in revenue to S$41.1m, Viz Branz (VB) still managed to post a 19.4% YoY increase in operating profit to S$6.1m following favourable raw material costs during the quarter and effective cost control measures. The resultant PATMI grew 17.4% YoY to S$4.5m. In terms of margins, gross and operating saw a 5.7 ppt and 2.7 ppt YoY improvement to 36.7% and 15.0% respectively for 1Q13. VB’s results came in within our expectations, forming 22.1% and 25.8% of our top and bottom-line forecasts respectively.
FY13 outlook unchanged
Although the opening up of Myanmar has led to a gradual influx of foreign competitors – and has eroded some of VB’s market share in the instant coffee space – we view the dent in revenue growth to be manageable given VB’s leadership position in the country as well as its strong distribution channels. Furthermore, growth in its other key market of China has remained resilient with easy acceptance of ASP increases. Entering the seasonally strongest quarter of the financial year, we expect VB to record another strong showing with further margin improvements.
GO still likely
While there is no update since the sale of a partial stake to Lam Soon (~19.8% ownership), the potential acquisition is complementary to Lam Soon’s portfolio of offerings, and we remain optimistic that an eventual general offer is imminent in the near-term.
Upgrade to BUY
The price of VB corrected (-5.6%) following market disappointment over lack of an immediate GO previously. However, the fundamentals for VB remained unchanged in the medium-term, and we maintain our fair value estimate of S$0.74. Reiterating our assertion that Lam Soon will make an offer for the remaining shares, we upgrade VB to BUY.
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