February 14, 2012

Viz Branz

OCBC on 14 Feb 2012


Viz Branz (VB) reported an impressive set of 1H12 results: revenue grew S$8.4m or 10.1% YoY to S$91.2m while its bottom line climbed 28.1% to S$9.8m. Its key market - China, which contributed 54.7% of overall revenue, was the main driver behind this stellar growth. Management also declared an interim dividend per share of 1 cent per share, bringing the total interim dividends declared so far to 1.3 cents (0.8 cents previously). We expect VB’s strong performance to continue into 2H12 as China maintains its spot as VB’s key target market. Furthermore, management has successfully demonstrated its ability in controlling costs effectively despite fluctuating raw material prices. Maintain HOLD but with a higher fair value estimate of S$0.37 (S$0.33 previously).

Record sales in 1H12. Viz Branz (VB) reported that its 1H12 revenue grew S$8.4m or 10.1% YoY to S$91.2m following increases in sales across all three of its business segments (instant beverages +8% to S$77.5m; Flexible packaging +22% to S$6.1m; Snack food & others +25% to S$7.6m). On the cost front, despite experiencing upward pressure on its raw material prices, VB managed to improve its gross profit margin from 31.7% (FY11) to 33% through the use of effective inventory control procedures. Its 1H12 revenue accounted for 52.5% of our FY12 estimates – in line with our expectations – but its bottom-line exceeded our 1H projections by 17.3% to come in at an impressive S$9.8m. Management also declared an interim dividend per share of 1 cent per share, bringing the total interim dividends declared so far to 1.3 cents (0.8 cents previously in 1H11).

Expect 2H12 to perform as well. In terms of geographical revenue contribution, China solidified its role as VB’s key driver of growth, increasing 23% YoY to S$49.9m, which provided 54.7% of 1H12’s revenue. We believe the significant bump (vs. FY11 contribution of 50%) represents the success of VB’s marketing efforts and higher penetration rate in the mainland. Coupled with the traditional increases in promotional and advertising spending during the second half of the financial year, and the loosening of China’s monetary policy, which reduces the odds of a sharp contraction in consumer spending, we maintain our optimism for its China prospects over 2H12.

Maintain HOLD but with higher fair value. With this encouraging backdrop and management’s proven ability in effectively controlling costs amidst fluctuating raw material prices, we raise our FY12 revenue forecasts by 4% to S$181m, which improved our bottom-line projections by S$3.2m to S$15.4m. We maintain our HOLD rating on VB but revise our fair value estimate to S$0.37 (S$0.33 previously). 

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