Company Overview
Masan Group operates in the branded food and beverage sector and in the animal protein value chain. Other businesses include mining and a significant holding in a bank
Consumer growth starts to materialize
Key Summary
- We update MSN with a BUY rating with 50% upside. The 20% upward revision in our TP is driven by an improved F&B outlook, revaluation of associate companies and higher metal prices.
- 2018F PER seems high at 25.6x, but is supported by a strong earnings outlook. We forecast an EPS CAGR of 34% during 2019-2020 driven by robust core business growth and deleveraging.
- Proceeds from MSN's potential sale of treasury shares (up to 110 million shares) will accelerate the deleveraging process and, hence, bottom line growth.
- Masan Consumer Holding (MCH) spearheaded a strong bounce-back in MSN’s NPAT-MI in Q1 2018 (+244% YoY), followed by associate companies and Masan Resources (MSR).
- We raise our 2018 NPAT-MI forecast for MSN by 4% to VND3.9tn (USD173mn, +81% vs normalized 2017 NPAT-MI) mainly due to the outperformance of MCH and MSR.
- Upside catalysts: successful launches in new F&B growth pillars, such as beer and processed meat, and a further recovery in pig prices, which will support Masan Nutri-Science (MNS).
- Downside catalysts: MCH losing growth momentum and a retreat in metal prices.
Strong sell-out growth shows MCH’s shift to a brand building model is working. MCH’s reported revenue soared 78% in Q1 2018 vs Q1 2017, when it was hurt by distributor de-stocking. More importantly, MCH’s sell-out, which represents end-consumer offtake, jumped 47% YoY in Q1 2018, fueled by intensified Masan marketing and product launchings, especially in the premium segment. Meanwhile, EBIT margin expanded dramatically owing to (1) a surge in high-margin seasoning sales and (2) a contraction in SG&A/revenue % on reduced trade promotion expenses. For 2018, we project MCH’s revenue and EBIT will jump by 26% and 71%, respectively, vs 2017.
MSR thrives on selling price tailwinds. MSR’s revenue ratcheted up 26% while its EBIT stepped up 47% YoY in Q1 2018, primarily due to escalating selling prices. Recovering demand in the oil & gas and manufacturing sectors, the shutdown/suspension of high-cost mines and rising costs in China due to stricter environmental standards are bolstering tungsten prices.
MNS still weighed on by the pig oversupply crisis, but recent pick-up in pig prices is a positive sign. MNS’s revenue and EBIT plummeted 40% and 69% YoY, respectively, in Q1 2018 as (1) pig feed plunged 50% YoY and 22% QoQ due to shrinking farming activity amid low pig prices and (2) poultry feed nosedived 38% YoY as Masan stayed away from price wars. Since early April 2018, livestock pig prices have bounced from USD1.3-USD1.4/kg to USD1.6-USD1.8/kg, well above the average industry production cost of around USD1.5/kg. Supply has been gradually scaled down, and if pig prices could at least sustain this level, it would bode well for pig feed demand in late 2018 and 2019. For 2018, we project MNS’s revenue will slide 9% while EBIT will drop 39% YoY. Margins are poised to dwindle due to input cost hikes and a larger sales contribution from the value segment.
To see the full analysis report. Please contact to my email: Hong.nguyen@vcsc.com
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