KDC – Coming back to confectionary business – Update

• KDC posted VND7,444bn (+24.4% yoy) in 9M21 top line and VND458bn (+197% yoy) in bottom, fulfilling 100% our FY21F’s forecast.
• KDC launched the new brand “KIDO’s Bakery” and a F&B chain stores – Chuk Chuk – in 3Q21, marking its official comeback in confectionery.
• Reiterate ADD rating with higher TP of VND69,800, following an upward revision of 7.5% in P/E valuation and 7.2% in DCF valuation.

Modest 3Q21 earnings growth due to lower gross margin

KDC’s 3Q21 revenue increased 10.4% yoy to VND2,556bn thanks to 9.0% yoy edible oil revenue growth and 14.8% yoy food revenue growth while gross margin (GM) decreased 3.5% pts yoy to 19.2% in 3Q21 due to the rise of input material prices. In 3Q21, KDC’s effective tax rate lowered to 12.7% from 21.6% of 3Q20. Meanwhile minority interest/net profit after tax ratio decreased by 5.0% pts yoy to 8.6% thanks to the merge with KDF as at end-FY20. Thus, 3Q21 net profit increased positively 9.8% yoy to VND114bn. For 9M21, KDC’s top line and bottom line grew 24.4%/197.0% yoy to reach VND7,444bn and VND458bn, fulfilling 100% our FY21F’s forecast.

Primed for a comeback in confectionary and F&B retail space

On 19 Oct, KDC officially launched “KIDO’s Bakery” brand which provide bakery products in its network of 450,000 points of sale. Additionally, KDC set up its own coffee and milk tea brand Chuk Chuk chain stores with the goal of opening 200/1000 stores in FY23/25F. In FY22-23F, we expect KIDO’s bakery will contribute 2.3%/2.6% to KDC’s revenue and 4.0%/4.4% to KDC’s gross profit.

Change in FY22/23F earnings forecasts

We raise KDC’s revenue forecast in FY22/23F by 11.0%/13.4% vs. previous report mainly thanks to a better-than-expected performance of edible oil after restructuring. We also reduce GM assumption in FY22/23F by 2.0% pts/1.3% pts to reflect high pressure on the hike of material price. We also increase SG&A forecast by 8.5%/7.9% and reduce minority interest/NPAT by 6%/6% in FY22/23F to reflect KDC’s strategy and the success in restructuring KDC group. As the results, KDC’s net profit in FY22/23F increased by 1.3%/19.2%.

Reiterate ADD rating with higher TP of VND69,800

We raise our 1-year TP by 7.4% to VND69,800 following an upward revision of 7.5% in P/E valuation and 7.2% in DCF valuation. Upside risks include 1) faster-than-expected M&As process, 2) successful joint venture with Vinamilk, KDC’s bakery and Chuk Chuk chain store. Downside risks are 1) slower-than-expected M&A process, 2) lower-than-expected growth in KDC’s business and 3) higher-than-expected COGS and SG&A.

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