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August 26 2016

Disclaimer: the opinions expressed herein are that of Viet Capital Securities and not of VietnamAdvisors. This is NOT a solicitation to buy or sell securities.


Earnings exceed forecast with solid growth across businesses

MSN H1 2016 revenue and NPAT-MI grew 84% and 184%, respectively, vs H1 2015 with the latter running ahead of our expectation, as H1 2016 revenue has achieved 45% of our full-year forecast while NPAT-MI has fulfilled 54% of our full-year forecast. This is because Masan Resources achieved much better margins than we projected, while the other segments are tracking in line with our forecast.

We are likely to revise up our NPAT-MI forecast and valuation. However, we do not expect the change in valuation to be material, given Masan Resources’ small contribution of 7% to our NAV-based valuation of MSN. We reiterate our BUY recommendation on MSN.

Impressive growth in animal feed, mining and Techcombank underpinned NPAT-MI 184% growth. We note that Masan Nutri-Science was only consolidated for two months in H1 2015. Notwithstanding that, even on a like-for-like basis, Masan Nutri-Science exhibited robust NPAT growth of 38%. Meanwhile, commercial production of the value-added processing JV and much improved cost efficiency helped Masan Resources deliver a 49% EBITDA growth, while Techcombank’s NPAT jumped 58% on the back of strong net fee and commission income as well as income from other activities.


Masan Consumer bounced back in Q2 2016 to help F&B segment achieve 7.9% revenue growth in H1.


– Seasonings sales grew 16% in Q2 2016 vs Q2 2015 after dropping 11% in Q1 2016 vs Q1 2015, driven mainly by an earlier Tet in Q1 2016 and Q2 2015’s low base. According to MSN, the company plans to launch its first seasonings brand in Thailand during Q3 2016 as part of its partnership with Singha, which may provide additional growth. Customer reviews have been positive during the market testing period, which has run for over two months according to management.

– Sales of convenience foods retreated as Masan Consumer encountered a double challenge in the instant noodle market: a saturating market and fierce competition. We have been arguing that to revive growth in this segment, Masan Consumer needs to succeed in launching new products, which is easier said than done given that there is already a wide variety of products in the market, leaving tight space for new innovations. Masan’s strategies to counter this include premiumization of product portfolio, expansion into adjacent categories and a distribution push into rural areas.

– Beverages & Others exhibited robust growth primarily thanks to 10% top line growth at Vinacafe Bien Hoa (HSX: VCF) and the consolidation of Quang Ninh Mineral Water, which was acquired by Masan Consumer in November 2015. Regarding VCF, revenue growth was aided by the strong growth in the energy drink WakeUp247, and to a smaller extent, the launch of the new coffee capsule product called Café De Nam, which is available at 600 coffee shops currently.

– Beer sales ramped up rapidly from a low base as Masan Brewery solidified its penetration in the Mekong Delta as well as the southeast region of Vietnam. In the second half of 2016, Masan Brewery plans to launch a premium variant of Su Tu Trang, which only has a mass market product currently.

– Despite top line growth, F&B segment’s EBITDA remained almost the same vs the same period last year as Masan Consumer shored up marketing expenses across its product categories.

Masan Nutri-Science achieved 38.1% NPAT growth with improved margins thanks to pig feed.


On a like-for-like basis, Masan Nutri-Science’s revenue climbed 14% in H1 2016 vs H1 2015 on the back of a 24% volume growth offset by an ASP reduction in line with market trends. This impressive volume growth was driven by Masan Nutri-Science’s investment in branding, particularly with its Bio-zeem range of products, through mostly television commercials and organizing seminars. We understand that revenue from local farmers and small households in the total revenue mix is widening, understandably so given that these aforementioned marketing tools work better on them rather than larger-scale, industrialized farming customers. Volume growth was especially strong in pig feed, which jumped 58.2% vs H1 2015 to account for 63.2% of total sales volume in H1 2016 from 49.6% in H1 2015. Aside from improved branding and favorable input costs that helped bolster margins across feed types, a greater revenue contribution from pig feed also underpinned blended margins as pig feed’s GPM is typically 2-3 percentage points higher than that of other types of feed. Masan Nutri-Science’s NPAT margin broadened by 1.65 percentage points in H1 2016.

Masan Resources posted a better-than-expected 50.2% EBITDA margin while revenue came in in line with our expectation.


Revenue growth was supported by a 13.5% improvement in production volume (tungsten equivalent units) and commercial sales of the value-added processing JV. Amid weak commodity prices, the fact that EBITDA margin enhanced to 50.2% surprised us. We attribute this to 1) improved efficiency at the mine thanks to management’s initiatives to improve the recovery rate as well as the output grade, which led to higher volume and ASP, respectively, 2) lower labor costs as Masan Resources increased its localization of staff and 3) reclassification of some costs in accordance with new accounting guidelines. H1 2016 EBITDA margin far beats our projected EBITDA margin of 26% for Masan Resources in 2016. We will likely revise upward our margin projections for Masan Resources in the next update.

Techcombank’s NPAT jumped 58% in H1 2016 vs H1 2015. This is owing to a 17% increase in net interest income and 40% growth in net fee and commission income. We will have more detailed comments in the coming update after we take a closer look into the bank’s financial statements.

VCSC Rating and Valuation Methodology

Absolute, long term (fundamental) rating: The recommendation is based on implied total return for the stock defined as (target price – current price)/current price + dividend yield, and is not related to market performance.


Unless otherwise specified, these performance parameters only reflect capital appreciation and are set with a 12-month horizon. Future price volatility may cause temporary mismatch between upside/downside for a stock based on market price and the formal recommendation, thus these performance parameters should be interpreted flexibly.

Risks: Past performance is not necessarily indicative of future results. Foreign currency rates of exchange may adversely affect the value, price or income of any security or related instrument mentioned in this report. For investment advice, trade execution or other enquiries, clients should contact their local sales representative.


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