KDC – Time to shine ─ Initiation

• KDC is holding the largest market share of ice cream industry and stays at second position of market share in edible oil industry in 2020.
• We expect KDC’s FY21F/22F earnings to grow 123% yoy/18.9% yoy thanks to a further penetration into edible oil and ice cream businesses.
• Initiate coverage with ADD rating and TP of VND65,000.

Buy the leader

KDC is a horizontally integrated brand owner which owns 30% market share of edible oil and 43.5% market share of ice cream industry as at end-2020. As the company targets to increase its stake in Tuong An Vegetable Oil JSC (TAC) and Vietnam Vegetable Oils Industry Corporation (VOC) in the near future, we expect KDC’s market share to expand to 36% after M&As. Thus, revenue of edible oil is expected to grow at 8.9% CAGR over FY21F-24F, contributing about 80% to KDC’s total revenue.

Reunion with KDF to catch the recovery of frozen food industry

By end-FY20, KIDO Frozen Foods JSC (KDF) was merged with KDC to optimize SG&A expenses and leverage on KDC‘s distribution network. We expect revenue of ice cream and frozen food to grow 15% in FY21F and then achieve a FY22-24F CAGR of 12% following the recovery of demand post-pandemic.

Add more sweetness in FY21F

KIDO has returned with confectionery business since 3Q20 after selling this segment to Mondelez in 2015. We believe confectionery segment will be a growth engine for KDC’s revenue and NP in the next period due to 1) 22 years of experience, 2) good value chain to support confectionery segment and 3) a wide distribution network. For FY21F, we project mooncake revenue to reach VND420bn, up 110% yoy, then grow at a CAGR of 17.2% in FY22-24F period.

Stage is set for growth

We expect KDC’s FY21F/22F revenue to grow 12.3%/9.9% yoy , driven by 1) 15%/12% yoy growth of ice cream, 2) 8.9%/8.9% yoy growth of edible oil and 3) 110%/20.7%% yoy growth of confectionery. We expect FY21F/22F net profit to surge 123%/18.9% yoy to VND457bn/VND543bn thanks to subdued SG&A expenses and lower minorities interest.

Initiate coverage with ADD rating and TP of VND65,000

Our target price for KDC is based on an equal combination of 10-year DCF valuation and target FY21F P/E of 30.0x. Upside risks include 1) faster-thanexpected M&A process and 2) the success of joint venture with Vinamilk. Downside risks are 1) slower-than-expected M&A process, 2) lower-thanexpected growth in KDC’s business, and 3) higher-than-expected COGS and SG&A.

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