Food & Beverage – Sweet after sour

• We expect F&B sector to rebound in 2022F thanks to customer behavior’s changing.
• Global food prices slightly decrease in 2022F, thus easing gross margin (GPM) pressure for food producers.
• Our top picks for the F&B sector are VNM, MCH, KDC, and QNS.

The material cost pressure will gradually decrease from FY22F

According to World Bank, global grain prices are expected to slightly decrease in 2022F but remain at a high level. In our view, food producers like VNM, MCH, and KDC could benefit from this and improve GPM in 2022F on lower material prices. Meanwhile, sugar producers are likely key winners on the back of higher domestic sugar price thanks to 1) global sugar price will keep increasing in 2022F and 2) anti-dumping tax and investigations of smuggled sugar will reduce competitive pressure on domestic sugar price.

We expect F&B sector to rebound in 2022F

We observe customer behaviour’s changing include 1) a shift in spending towards fresh and packaged foods, 2) increasing demand for luxury consumer goods, and 3) a preferring for shopping online at home and supermarkets. Thus, we believe that this new consumption trend will become a growth engine for F&B businesses. In our view, companies with wide distribution systems, and diverse product portfolios can quickly catch up with consumer spending trends and recover from 2022F.

F&B companies under our coverage will record positive growth in 2022F

We expect F&B businesses under our coverage to record revenue growth of 8.2% yoy in 2022F, in which KDC and QNS will have the most impressive growth. We project QNS’s revenue to increase 14.1% yoy thanks to 1) 35.0% yoy increase in sugar revenue and 2) 9.5% yoy increase in soymilk revenue. Meanwhile, KDC is expected to enjoy a 17.0% yoy growth in FY22F revenue thanks to 26.0% yoy increase in food products and 2) 15.0% yoy rise in edible oil.

Stock picks: We prefer VNM, MCH, KDC and QNS

We prefer companies with leading positions in the industry, wide distribution systems, and diverse product portfolios, which can quickly catch up with consumer spending trends. VNM, MCH, KDC and QNS are our stock picks based on the above criteria. Investment risks include: 1) another arising variant leading to disruptions in the supply chain, distribution, and transportation of goods and 2) higher-than-expected input material costs, putting pressure on F&B companies’ GPM.

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