Viz Branz continue margin improvement

Revenue falls on increased competition but margin improvement continues
Ongoing competitive pressures in Myanmar caused Viz Branz (VB) to report a 5.6% YoY decline in 1H13 revenue to S$86.1m. However, favourable raw material costs and a reduction in administrative expenses – brought about by a stronger Singapore dollar – saw operating margin increase by 1.8ppt YoY to 15.7% and operating profit rise by 6.7% YoY to S$13.6m. As a result, 1H13 PATMI came in higher (+4.0% YoY) to S$10.1m. VB’s management also declared an interim dividend of 1 S cents, which was similar to last year’s interim payout.

Management to address revenue slide
With Myanmar opening up, it is not surprising to see VB’s revenue decline with the gradual influx of other foreign competitors. While the decline has been largely confined to its coffee instant beverage – leaving its other product mainstays of cereal and tea largely intact – management has ramped up expenditure on promotional activities and is hopeful that the slide will be addressed in the coming quarters.

Lack of GO progress a disappointment but stance unchanged
Admittedly, with much of the investor focus on the counter related to the possibility of a general offer, the lack of progress on this front has been disappointing. Nonetheless, we believe that a resolution is likely. The lack of a declared final dividend for FY12 and the increase in its

Viz Branz another step forward

Fair value S$0.74


Allegations dropped
Viz Branz (VB) announced on Friday that former CEO and current top shareholder Chng Khoon Peng has unreservedly dropped all his earlier allegations of impropriety over a series of payments involving the company that prompted him to lodge a complaint with the Commercial Affairs Department (CAD) in Mar 2012. Mr Chng will now withdraw his complaints with the CAD and will no longer pursue them further. He acknowledges that he has "no further basis nor concerns for his allegations" after being provided with explanations and supporting documents by VB.

Another distraction wrapped up
The withdrawal of the complaint concludes another chapter (the last, it is hoped) of the feud between Mr Chng and his son, VB’s current CEO. Previously, the two had a long-running dispute over a 15% stake in the company, which was ultimately resolved in favour of the elder Mr Chng.

All eyes on GO
We deem this latest development as a positive event that coincides with the possibility of a general offer by Lam Soon Cannery Pte Ltd, which now has an estimated

Viz Branz indication of interest signed

Fair value S$0.74


Progress on share sale
In an update to its share sale announcement back in July, Viz Branz (VB) announced yesterday that its substantial shareholder and one of the potential interest parties had entered into a non-binding indicative preliminary letter of indication of interest (LOII) to facilitate the advancement of further discussions. While the LOII is non-definitive and is generally non-binding, we view the update as a positive development in a potential share sale as it shows significant progress.

Bonus share issue on hold
Back in late May, VB had proposed a one-for-one bonus share issue in an effort to boost the liquidity of its shares and broaden the shareholder base for the company. However, following this share sale update, VB will place this plan on hold to prevent any possible complications should a share sale eventually materialize.

Upside limited
Since our recommendation upgrade last week (28 Aug), VB’s share price as appreciated by

Viz Branz growth in China to continue

FY12 ends strongly as expected
As expected, Viz Branz (VB) reported a strong set of FY12 results, which met our FY top and bottom-line forecasts by -5% and 3% respectively. Its revenue rose 4.3% YoY to S$172.7m following increases in demand across all business segments while declines in raw material costs and operating expenses over the course of the year aided significant margin improvements (gross profit margins +2.4ppt to 34.1%; operating profit margins +3.6ppt to 14.6%). As a result, PATMI climbed higher by 47.6% YoY to S$17m. Management has yet to declare a final dividend but dividends declared thus far totaled 3.3 S cents, which is already greater than last year’s 2.5 S cents.

Growth in key market to continue
Revenue by geographical segment saw strong growth of 12% YoY in China to S$93.6m, which helped to offset declines of 3.2% YoY in South-East Asia and Indochina and 12% YoY in other export markets. While there has been talk of a slowdown in domestic consumption in Asian markets, we draw strength in the relative affordability of VB’s products and demand stability exhibited during the previous downturn, and leave our revenue projections of between 8-9% over the next three years unchanged.

Margins to remain stable
Robusta coffee bean prices – a main component for VB – have crept up slowly as consumers (especially those in Europe) switch away from the more expensive Arabica beans. However, a strong spike in

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