MCH – Leading the pack – Initiation

• MCH is one of the key consumer companies in Vietnam with wide-range product portfolio.
• We expect MCH’s FY21F/22F earnings to grow 12.2% yoy/11.9% yoy thanks to product portfolio upgrade and deeper penetration into the soft drink category.
• We initiate coverage on MCH with an ADD rating and TP of VND146,800.

Leading Vietnam’s consumer industry with a diverse product portfolio
Masan Consumer is a subsidiary of Masan Corp (MSN VN) and a dominant company in many food and beverage segments. MCH set footprint in almost all FMCG’s segments: convenient foods (instant noodles, instant porridge), Seasoning (soy sauce, fish sauce, chili sauce), processed meat (pasteurized sausage, pork balls), soft drink, coffee and grains, home and personal care with well-known brands. According to Kantar Worldpanel in 2020, 98% of Vietnamese households have used at least one Masan Consumer’s product.

Well-positioned to ride on the premiumization trend
Demand for premium products has been rising strongly in Vietnam thanks to a rapidly growing of middle class, higher income, and health awareness. MCH already has a strong position in the premium line with Omachi noodle cup and Omachi Business cup. Over its FY21-23F period, MCH plans to further develop the full-meal solution concept by increasing its focus on its premium cup packaging (vs. pouch), developing new product lines (such as clear noodle soup), and increasing the meat content in each product.

Net profit achieve double-digit growth in FY21-23F
We expect MCH’s revenue to grow 12.6%/9.7%/9.8% yoy in FY21-23F driven by 1) 17.2%/9.6%/10.8% yoy increase in convenience food’s revenue, 2) 9.4%/7.9%/7.1% yoy increase in seasoning revenue and 3) 11.2%/11.3%/15.0% yoy increase in soft drink revenue. We project net profit to achieve double-digit growth by 12.2%/11.9%/12.2% yoy in FY21-23F thanks to 1) lower SG&A expenses as the merger with VCM will help MCH save on selling costs and 2) gross margin (GM) improve by 0.1%/0.3% pts in FY22/23F after narrowing 0.4% pts in FY21F due to the product mix change.

Initiate coverage with Add rating and target price of VND146,800
MCH is traded at 18.9 TTM P/E, which is 6.9% discount to its peer average. Our target price for MCH is based on an equal combination of 10-year DCF valuation and target FY22F P/E of 19.5x. Potential re-rating catalysts 1) higher – than – expect demand for convenience food due to the impact of social distancing orders and 2) lower – than – expect material input price. Downside risks include: 1) longer – than – expect the Covid-19 pandemic and 2) higher – than – expect material input price.
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