Viz Branz

Kim Eng on 11 Apr 2013

Pioneer of instant beverages. Established in 1988, Viz Branz specialises in the manufacture and export of fast moving consumer goods (FMCG.) Today, the Group owns four plants which manufactures over 40 product lines of coffee, cereal beverages, and snacks. From 2007 to 2012, Viz Branz has achieved steady sales and net earnings CAGR of 3.8% and 11.7% respectively.

Founder ousted by son. However, the founding family’s prolonged dispute has largely overshadowed Viz Branz’s stride, in a twist that had sparked speculations of a price war between father and son or even a 3rd party buyout. Founder Chng Khoon Peng and son Ben Chng Beng Beng’s relationship soured in 2010 after son allegedly ousted his father from the Executive Chairman Position

Seizing the opportunity to become substantial shareholders. Lam Soon Cannery, a distributor of Viz Branz products, seized this golden opportunity and purchased a 20.1% block at SGD0.735/share from Chng Beng Beng in October 2012. We think Viz Branz’s extensive distribution channels in China could prove of value to Lam Soon, who may be looking (1) to expand its product offerings, (2) to grow a distribution network in China, and (3) secure rest of the distributorship contracts in SE Asia from Viz Branz.

Key beneficiary of growing middle class in China. Viz Branz is a key beneficiary of a rapidly growing consumer consumption trend in China by the expanding middle class, which now accounts for 54% and 85% of its sales and operating profit in 2012. In 1H13, Viz Branz did experience a 3.2% YoY drop in China, but was aided by lower raw material costs and more favourable blend in product mix to support its gross margins overall.

Valuations could be richer. Helmed with a healthy balance sheet, and strong growth potential, Viz Branz is currently trading at 13X PER, which is still 30% below its counterparts in Singapore who holds a forward P/E of 19X. We think the company could re-rate as earnings momentum improves or Lam Soon Cannery makes a further move to increase their shareholdings.