MML – Steady results but valuation looks fair – Update

• Growth momentum extended in 2Q21 with 45.3% yoy/730.4% yoy in top line and bottom line, respectively.
• 1H21 revenue surged 42.1% yoy to VND10,231bn while net profit (NP) recorded VND290bn, fulfilling 52.3% of our FY21F forecast.
• We downgrade our rating from Add to Hold with higher TP of VND81,400 as earnings growth outlook in FY21/22F appears to have been priced in.

1H21 results: in line with our expectation
In 2Q21, MML posted VND5,528bn of revenue (+45.3% yoy), mainly driven by 38.7% yoy growth of pork and new contribution of poultry. Animal feed revenue increased 38.7% yoy thanks to the recovery of sales volume from all products. Meanwhile, gross margin (GM) contracted by 5.2% pts yoy due to material price hike in animal feed segment. The decline was offset by 6,502.9% yoy increase in net other income. Thus, MML’s 2Q21 net profit rose 730.4% yoy. For 1H21, net revenue surged 42.1% yoy, while NP reached VND290bn from negative VND13bn in 1H20, fulfilling 52.3% of our full-year forecast.

Increasing demand support the meat revenue in short term
We believe the nationwide social distancing has lifted the demand of using packaged meat products as consumers rushed into supermarkets or online shopping while most of wet markets have been closed. Additionally, MML is among a few food producers that have ability to maintain the stability of supply chain, from farm to point of sales. The company‘s two processing factories locate in Long An and Ha Nam, far away from the epidemic centre. In 2Q21, MML launched new products under “MEATDeli Premium” and “MEATChoice” with higher selling prices and more eye-catching packaging to keep up with the growing demand for packaged meat.

We forecast MML to achieve net profit CAGR of 29.1% in FY21-23F
Due to the higher-than-expect prices of input material for animal feed in 1H21, we lower animal feed’s GM by 1.5% pts/0.8% pts in FY21-22F. We upgrade FY21-22F NP forecast by 29.1%/12.2% given the decrease in minority interest by 69.5%/63.1% as we forecast 3F Viet to record a loss in FY21F. Overall, we expect MML’s net profit CAGR of 29.1% in FY21-23F thanks to the recovery of pig feed from FY21F and an increase in utilization capacity of the meat factory.

Downgrade to Hold with higher TP of VND81,400
We revise up our TP to VND81,400 following a 29.1%/12.2% FY21-22 EPS upgrade and a rollover to average FY21-22F EBITDA with higher EV/EBITDA target of 15.0x. As recent share price rally has already factored the strong outlook, we downgrade our rating from Add to Hold. A re-rating catalyst is the fast expansion of retail network. Downside risks include 1) the prices of key animal feed inputs rising faster than expected and 2) higher-than expected live hog price.

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