MCH – Pricing power will be the key strength – Update

• MCH recorded 19.0%/20.4% yoy growth in FY21 revenue/net profit (NP), achieving 105.7%/107.3% our full-year forecast.
• We expect MCH’s earning to grow 12.2%/11.4% yoy in FY22-23F.
• Reiterate ADD with a higher target price of VND157,200.

End FY21 with a juicy performance
MCH posted VND27,774bn in FY21 net revenue (+19.0% yoy), mainly driven by 18.8% yoy growth in seasoning and 27.3% yoy growth in convenient foods. In our view, impressive results were due to 1) increasing in consumer demand to stock-up staple products, and 2) increasing synergies with WCM (Wincommerce) in which sales of MCH’s products through WCM network growing 80% yoy (according to MCH). In addition, MCH’s gross margin (GM) was nearly flat at 42.5% in FY21 as increased proportion of premium products in product mix offset the higher material cost in convenient food segment. Thus, MCH’s NP increased impressively by 20.4% yoy to VND5,442bn, fulfilling 107.3% our full-year forecast.

We are more conservative about FY22F revenue growth
MCH sets a FY22F revenue target of VND34,000-40,000bn (21.0% – 42.4% yoy), which is quite ambitious in our view. We are more conservative about revenue growth as we believe the sale volume in the convenience food will not be higher than 2021 due to the removal of social distance order. Therefore, we expect MCH to achieve revenue of VND31,515bn in FY22F (7.3% lower than the company’s target) due to 1) expanding the premium product portfolio with higher selling prices, 2) increasing points of sale due to resonance with WCM’s store system, and 3) broaden the portfolio in soft drink with new flavors and format. All in all, we expect MCH will continue to provide revenue and NP growth of 13.5%/8.9% yoy and 12.2%/11.4% yoy in FY22-23F.

Gross profit margin slightly improved thanks to pricing power
In our view, the increase in global agricultural product due to the Russia-Ukraine conflict will directly affect MCH’s input material costs in convenient foods. However, we believe convenient food’s GPM will still be preserved thanks to the pricing power and premiumization capability. Besides, GPM of other segments will not be greatly affected by the increase in agricultural product prices. Thus, we raise GPM forecast by 0.5%/0.2% pts in FY22-23F as the impact of high materials input cost was lower – than – expect in FY21. Overall, net profit increase 6.7%/8.0% in FY22-23F compared to our previous forecast.

Reiterate ADD with a higher target price (TP) of VND157,200
We raise our TP following 1) a rolling over DCF valuation to FY22F, 2) increasing FY22-23F EPS by 6.7%/8.0%. Potential re-rating catalysts 1) higher–than–expected demand for convenience food and 2) lower-than-expected material input price. Downside risks include 1) longer-than-expected the Covid-19 pandemic and higher-than-expected material input price.

Please follow this link for the full report