Viz Branz Limited transfer of 15% stake

VIZ BRANZ LIMITED - fair value estimate of S$0.33

Company Background
The Company was incorporated in Singapore on 9 March 1994 under the name of Gold Roast Overseas Investment Pte Ltd. It changed its name to Gold Roast Holdings Pte Ltd on 9 May 1995. On 20 April 2000, it changed its name to Viz Branz Pte Ltd. On 22 June 2002, in connection with its listing on the Singapore Exchange, it converted to a public limited company and assumed its present name. The Group's principal businesses are the production and distribution of a range of instant beverages comprising mainly cereal mix, coffee mix and tea mix. It also producess and distributes snack food. In addition, it provides flexible packaging printing services to third parties. Instant beverages comprise the bulk of its business activities. The Group's products are sold mainly in three primary markets, namely the PRC, South-East Asia (comprising Singapore, Malaysia, Thailand, Indonesia and the Philippines) and Indochina (comprising Myanmar, Cambodia, Vietnam and Laos). The Group's products are also exported to Japan, USA, Canada, Russia, Lebanon, Egypt, Iran, Taiwan etc. Headquartered in Singapore, the Group has manufacturing plants in the PRC, Vietnam, Myanmar and Singapore.

Boost from key market – Myanmar
Following the recent positive political developments and improving sentiment in
Myanmar, VB is likely to receive a significant boost in revenue and profit contributions from the market. Once economic and trade sanctions on the country are lifted eventually, Myanmar will become an attractive growth proposition for foreign investors as it attempts to catch up with the global economy. Having already built up a strong brand name and loyal customer base due to its first mover advantage, we can expect sales of its tea and cereal instant beverages to increase in the near-term with a corresponding increase in the spending ability of the Burmese.

Attention on transfer of 15% stake
Following the settlement agreement between Viz Branz’s (VB) former and current CEO (father-son relationship), attention has been on the impending transfer of a 15% stake from the latter to the former, which will trigger a mandatory general offer if an exemption is not obtained from the Securities Industry Council. This focus has been a catalyst for its share price of late despite the lack of further updates from the company since mid-Dec.

Maintain HOLD at higher fair value
Incorporating the above into our assumptions, we raised our FY12 revenue growth projections by 3% from S$169m to S$174m, which improved our bottom line by S$1.2m to S$12.2m. In addition, with an expected slowdown in inflationary pressures in 2012, cost pressures arising from raw materials like sugar and coffee should ease and benefit VB’s operating profit margins further. With its improving prospects in 2012 and potential price support resulting from the attention on the possibility of a general offer, we maintain our HOLD rating on VB with a slightly higher fair value estimate of S$0.33.