BAF – Solid expansion into meat processing value chain – Update

• BAF’s FY22 net revenue and net profit (NP) decreased 32.5%/9.2% yoy, respectively, fulfilled 121%/85.2% our full-year forecasts.
• We expect moderate earnings growth over FY23-24F due to higher gross margin (GM) from 3F (Feed-Farm-Food) segment.
• Reiterate Add with lower TP of VND27,200.

FY22 results below our expectation
FY22 revenue decreased 32.5% yoy, of which, an 72.5% yoy increase of 3F (Feed-Farm-Food) revenue has partially offset the 40.7% yoy slump of revenue from agricultural trading. 3F sales fell short of our forecast as 1) revenue from traditional channel (account for 55% 3F revenue) was 22.5% lower than our estimate due to weak meat demand and swine price, and 2) BAF lowered the selling price in modern channel to attract consumers. Besides, GM of 3F segment expanded 2.2% pts yoy in FY22 while selling expenses increased strongly by 360.0% yoy due to the expansion of farm and distribution system. Thus, BAF’s net profit declined 9.2% yoy in FY22, 15% lower than our expectation.

More expansion in 3F segment
In 2023F, the company plans to build three new farms in Binh Phuoc and Nghe An (with total capacity of 11,250 piglets and 120,000 porkers), raising total herd by 65.5% yoy. BAF also aims to expand its distribution system with Siba Food supermarket and Meat shop from current to 72/600 stores (+20%/100% yoy) in 2023F. We expect BAF’s sales volume to increase 26.0%/13.0% yoy in FY23-24F. Meanwhile selling price is projected to rise 1.0%/1.0% yoy in FY23-24F as we believe that BAF is still in the stage of expanding its market share, thus the company will maintain a preferential price policy to attract consumers. In conclusion, we forecast 3F revenue to enjoy 34.1%/19.9% yoy increase in FY23-24F.

We expect swine price to improve in 2023F
For 2023F, swine price is expected to increase 5.0% yoy thanks to 1) the recovery of eat-out demand, and 2) supply from famers decline. We believe animal feed cost would cool down gradually from 2023F. Therefore, we forecast 3F segment to enjoy 3.3% pts/0.6% pts yoy increase in FY23-24F gross margin. As the results, BAF’s net profit is projected to improve 4.6%/8.2% yoy in FY23-24F.

Reiterate Add with lower TP of VND27,200
We reiterate Add rating for BAF with lower TP of VND27,200. Our valuation is based on equal weighting combination of 10-year DCF valuation and EV/EBITDA multiple. Potential re-rating catalysts include 1) higher–than–expected meat demand, and 2) higher–than–expected swine price. Downside risks include 1) lower-than-expected meat consumption in Vietnam, 2) slower-than-expected expansion of Siba Food stores, and 3) the prices of key animal food rising faster than expected.

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