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Viz Branz Limited: Continued margin improvement
 
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Viz Branz Limited: Continued margin improvement

By Lim Siyi
Thu, 7 Feb 2013, 09:43:04 SGT

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 saw operating profit and PATMI rise by 6.7% YoY to S$13.6m and 4.0% YoY to S$10.1m respectively. VB’s management also declared an interim dividend of 1 S cents, which was similar to last year’s interim payout. With the performance coming in within our expectations, our 2H13 forecasts remains unchanged, and we retain our fair value estimate of S$0.74. While the lack of progress on a GO will disappoint investors, we reiterate our view that a deal is likely to materialize. Maintain BUY.

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 cash balance are some of the signs that negotiations are ongoing between the relevant parties. In our view, the delay is largely due to the rather delicate nature of the relations between the relevant parties.

Price is holding up; maintain BUY
VB’s price has been relatively stable thus far, and we expect to see it continue holding up well. Keeping our fair value of S$0.74 unchanged, we maintain BUY on VB.

 
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