MASAN GROUP (MSN)
COMPANY UPDATE
CONSUMER GOODS SEGMENT KEEPS ON EXPANDING ORGANICALLY AND THROUGH M&A
April 2013
ADDITIONAL SALES FROM NUI PHAO MINE THIS YEAR
MSN [HSX]
Target price*
HOLD
104,000VND
INVESTMENT FOCUS
As per SOTP method on our own assumptions, the target price for MSN share is VND 104,000 on
a fully diluted basis (778 mil shares), representing a 16.1% discount compared to the market price
on 26 Mar, and VND 116,000 based on current basic share count (687 mil shares). This target
STOCK INFORMATION
price is based on our conservative viewpoint and does not include the potential growth of
Price (Mar26th, 2013)
VND
124,000
Discount/Premium**
%
-16.1%
BilVND
85,222
Outstanding shares
Mil shares
687.3
holding a huge cash reserve at the moment (VND 9,000 bil) and we expect further action to add
Free - float
Mil shares
76.8
more value to the Group. In view of being a fast growing company with various potential
BilVND
85.229
opportunities ahead, strong management team and good capability of raising funds, we maintain
%
11.71
recommendation HOLD for long term investment. However, we suppose that the current market
Avg. vol. (30 days)
shares
73,848
price already reflects investors’ positive expectation towards good progress concerning Nui Phao
Industry
Consumer goods
Market cap
Enterprise value
Performance (30 days)
Proconco and Vinh Hao Company which may be supported strongly by the MSN Group in the
future if Masan acquires a controlling interest, especially in Vinh Hao. Besides, the Group is still
Mine and Vinh Hao M&A activity this year and short term upside may be limited.
** Difference between market price and target price
Masan Group completed the year 2012 with impressive sales growth, successful M&A
integration and overall strong performance from Masan Consumer, tempered by unfavorable
financial results from associate Techcombank due to challenging macro environment.
Nui Phao Mine, which will go into operation this April, will start generating sales for the
PRICE AND VOLUME
140,000
1,000,000
120,000
800,000
100,000
600,000
80,000
400,000
60,000
200,000
40,000
-
Group, which will push total sales forward to an estimated VND 14,766 bil. Net income may
fluctuate around VND 3,395 bil on accounting basis and VND 4,279 bil on proforma basis.
In an ambition to diversify its product categories, after buying stakes in Vinacafe and
Proconco in 2012, Masan Consumer has purchased 24.9% in Vinh Hao this year and has
03/27/2012
04/25/2012
05/25/2012
06/22/2012
07/20/2012
08/17/2012
09/17/2012
10/15/2012
11/12/2012
12/10/2012
01/09/2013
02/06/2013
03/13/2013
made an offer to acquire 100% of the company.
Kohlberg, Kravis & Roberts, one of the world’s largest private equity firms, invested another
US$200 million in Masan Consumer in Jan 2013, more than doubling its total investment to
US$359 million in less than 2 years. This is the largest private equity deal in Vietnam, and
indicates the confidence that international players are placing on Masan Consumer.
Source: Bloomberg
PERFORMANCE
Absolute
1M
3M
11.71%
22.77%
5.98%
6.61%
0.32%
-0.71%
Vs VN- index
Analyst
Phuong Le
(84 8) 3 914 6888
ledangphuong@baoviet.com.vn
12M
Year end 31 Dec
Revenue
EBIT
EBITDA
Net income
Pro-forma net income
EPS
Pro-forma EPS
EPS growth
Pro-forma EPS growth
P/E
Pro-forma P/E
P/S
Dividend yield
Enterprise value
EV/EBITDA
P/B
ROE
Debt/Equity
Bil VND
Bil VND
Bil VND
Bil VND
Bil VND
VND
VND
%
%
x
x
x
x
Bil VND
x
x
%
%
2010
5,586
2,577
3,084
2,283
1,483
4,431
3,011
26.4
24.9
10.79
0.000
42,411
13.8
3.5
30%
0.8
2011
7,057
3,216
3,358
1,973
2,553
3,829
3,764
-14%
25%
30.6
24.0
8.54
0.000
50,520
15.0
3.9
16%
0.8
2012
10,389
2,822
3,170
1,302
1,988
2,156
2,804
-51%
-26%
54.3
36.4
7.74
0.000
86,727
27.4
5.2
14%
1.4
Source: Company data
Please see important disclosure and analyst certification at the end of this report
FY 2012 BUSINESS RESULT
Table 1: Business result
Q412
Value
FY 2012
yoy growth
Value
yoy growth
Net revenue
bil VND
3,654
30%
10,389
47%
Gross profit
bil VND
1530
22%
4,212
38%
%
42%
-3%
41%
-2%
bil VND
330
-63%
1,302
-34%
%
9%
Gross margin
Net income to MSN shareholders
Net margin
13%
Source: Company data, BVSC
Masan Group completed the year 2012 with impressive sales growth, successful M&A integration and
overall strong performance from Masan Consumer, tempered by unfavorable financial results from
associate Techcombank in a challenging macro environment.
Impressive sales growth.
Total sales from Masan Consumer (the only sales for Masan Group at the moment) increased sharply by 47% in
2012, thanks to the consolidated sales from Vinacafe and strong growth in the instant noodle segment. Masan
maintained its leading position in sauce segment, with approximately VND 3600bil from fish sauce and VND 850
bil from soya sauce. Masan is successful with two main brands- Chinsu for premium market and Nam Ngu for
mass market. Masan Consumer also managed to successfully move customers from mass market brand Nam Ngu
to mid-market brand Chin Su-Nam Ngu.
As mentioned in our previous report, the company has successfully gained a stronger position in 2012 in a very
competitive instant noodle market which has over 50 producers and hundreds of brands. Acecook is still the biggest
player but its share has shrunk from 53% to 38% recently, while Masan’s share has increased to 22%. Kokomi, a
new brand from Masan in end-2011, was aimed at mass market and has become popular among the users in just
one year. Omachi noodle for premium market is also expanding fast at over 35% growth. Instant noodles brought
in approximately VND3,400bil for the company and recorded an impressive growth of over 65%. The strong
growth in market share in the competitive instant noodles segment is evidence of Masan’s strong branding,
distribution and execution capabilities.
Sales from Vinacafe was up by 33.4%, reaching VND2,114bil in the whole year. It is noticeable that the last
quarter could get a growth of 56%, thanks to being able to access the distribution network of Masan, which has
176,000 points of sales, and due to the launch of new brands Wake up Saigon and Wake up Weasel, which are
aimed at different segments of consumers.
Masan Group (MSN)
2
12,000 Figure 1: Sales structure through years (VND bil)
10,000
From Vinacafe
8,000
Chilli sauce
6,000
Instant noodles
Soya sauce
4,000
Fish sauce
2,000
0
2,009
2,010
2,011
2,012
Source: BVSC estimates
Operation Efficiency remains. While sales are growing strongly, Masan Consumer is successful in maintaining
high gross margins for the whole company, which is consistent with our expectations. The highest margin belongs
to the sauce products (estimated at 50%), Noodles rank second with 32~35% margin while coffee comes third
(25%~30%). Meanwhile Masan has focused on expanding sales from noodles and instant coffee.
The new plant of Vinacafe will be put into operation soon in 1H 2013, which will help reduce the import of instant
black coffee powder (main material for instant 3-in-1 coffee) from 50% to 20% and raise the export of finished
product from 7% to around 14% of total sales this year. Due to this, gross margins of Vinacafe can be improved
from 28% to over 30%.
Financial income and expense
Cash, bank deposit and other investment in the consolidated FS of Masan Group was VND 7,559 bil at the end of
2012, still high but much lower than the high level cash status of 10,700 bil at the end of 2011. This, together with
lower deposit rates (14% early the year and down now), pushing down financial income by 31.8% to VND 808 bil.
Meanwhile, financial expense slightly went down by 11.2% although debt increased from VND 9,442 bil to VND
14,730 bil (if we exclude promissory notes which are likely to convert to equity, the numbers are VND 6,586 bil
and VND 11,584 bil). Most of the debt is on long term basis. The Group has debt in US dollars with lower interest
rate of 8~10% to serve for constructing the Nui Phao Mine. The interest of this loan is still capitalized, until the
mine goes into operation. In the year, MSN issued VND 2,200 bil bond at interest rate of 15% per year, with a call
option of MSN shares.
Reported gross debt/equity ratio was up from 0.59 at year end 2011 to 1.06 at end of 2012, which is still a safe
financial leverage. Some of this was from convertible instruments in MSN with equity-like characteristics, so it has
been included in fully diluted equity for our sum-of-parts valuation. Also, MSN has USD 450 mil in cash and cash
equivalents across the group, so net debt to equity is much lower. The financial leverage is therefore much less than
the reported gross debt-to-equity number would indicate. Moreover, debt for Nui Phao Mine has already been
taken, and it will start generating revenues from 2013 onwards, which will further reduce leverage.
Masan Group (MSN)
3
Figure 3: Debt/equity in 2011 and 2012
Figure 2: Debt structure in 2012
(debt includes instruments likely to convert to equity)
15%
11%
17%
8%
14,730
2012
13,928
20%
29%
9,442
2011
Short term loan in VND
Long term loan in VND
Long term loan in USD
Promissory notes
Bonds and convertible bonds
Guaranteed bonds
0
15,876
10,000
20,000
Debt
30,000
Equity
Source: Company data, BVSC estimates
Income from Associates and Joint Venture Companies
Last year Masan Consumer acquired 40% of Proconco from Prudential Assurance Private Limited and PCA
International Funds SPC. The deal costed around US$96mil. Proconco is one of the biggest animal feed producers
in Vietnam, specializing in pig, poultry, fish and shrimp feed. The company holds 11% share of the animal feed
market in Vietnam, ranking second after CP Group with 16% market share. In our view, this is the first step only.
With strategic stake from Masan Consumer, in the future, Proconco could not only produce animal feed but could
take part in other segments of the production value chain, from producing animal feed to distributing packaged pig
meat to the end users, with high-quality meat-based products conforming to international standards.
Masan Group’s banking affiliate Techcombank generated VND 1,018 bil pre-tax profit in 2012, equal to only onefourth of its number in 2011. MSN holds an effective 30.44% economic interest in the bank, which is a noncontrolling financial investment. So the proportionate share of profits from this investment figures as “income
from associates” and translates to VND235bil. Besides, MSN recorded an income from its holding at Proconco
through Masan Consumer of around VND 83bil for the last two months of the year. However, the total reported
income from associates and joint ventures was negative (VND -288bil) due to the amortization amount of goodwill
deducted (VND 606 bil per year).
2011
2012
Income from Associates
969
318
Techcombank
969
235
0
83
-576
-606
393
-288
Proconco
Amortization of goodwill
Net income from Associates
Source: BVSC
Masan Group (MSN)
4
Net profit slump
Net reported accounting profit was down by 19% to VND 2018 bil (pre-minority interest) and by 34% to VND
1,302 bil (post-minority interest) despite the sales growth of 47% and stable gross margin. On a pro-forma basis,
net profits were down 10% to VND2,781bil (pre-minority interest) and 22% down to VND1,988 bil (post-minority
interest). The main reason is the weak performance of Masan’s affiliate Techcombank in the year, due to
conservative provision of bad debt, making the net income from associates a negative number of VND 288 bil (see
the above table).
Masan Consumer is offering to buy 100% of Vinh Hao Mineral Water JSC.
After buying 24.9% of Vinh Hao JSC from Gemadept JSC (GMD), Masan Consumer has made an offer to buy the
remaining (75.1%) at the price of VND85,000 per share (while the OTC price is around VND 60,000~65,000 per
share). At such that price, we suppose Masan Consumer can surely raise its holding to over 50% within the year to
acquire a controlling stake,and effectively implement strategy to boost revenues and create value.
VinhHảo’s revenue and net profit are estimated at around VND 380 bil and VND 20 bil in 2012. With 2012 EPS
of VND2,500, the offering price is on PE basis of 34x, which may seem expensive, but can be understood by
looking at the revenue multiple and considering the strategic nature of this investment. If Masan can acquire the
controlling interest, we believe Vinh Hao can soon gain a bigger market share of the bottled water segment thanks
to the reputation of Vinh Hao brand name supported by the strong and wide distribution network and impressive
advertising strategy of Masan Group.
Vinh Hao was the first local mineral water trademark in Vietnam, with French investment. Since 1930, Vinh Hao
mineral water products have been consumed and exported to the countries of Indochina and to France. This
trademark currently accounts for less than 10% of the bottled water market share in Vietnam. Its major rivals are
now Aquafina (Pepsi), La Vie (a joint venture between Perrier Vittel – France ,65 percent stake), under Nestle
Group and Long An Vietnam general Trading Co and Dasani (Coca-Cola).
Figure 4: Revenue structure in 2012 (estimated)
Figure 5: Gross and net margin of Masan Consumer through years
50%
43%
45%
21%
43%
41%
40%
39%
35%
30%
35%
27%
25%
1%
20%
33%
6%
32%
31%
22%
22%
17%
15%
10%
5%
0%
Fish sauce
Instant noodles
From Vinacafe
Soya sauce
Chilli sauce
2008
2009
Gross margin
2010
2011
2012
Net margin
(Source: BVSC estimates)
Masan Group (MSN)
5
FY2013 FORECAST
Table 2: BVSC forecast
BVSC forecast
2013
Revenue from Masan Consumer
Bil VND
12,382
Revenue from Masan Resources
Bil VND
2,384
Total revenue
Bil VND
14,766
Net income from Masan Consumer
Bil VND
3,316
Net income from Masan Resources
Bil VND
511
Net income from Techcombank
Bil VND
0
Net financial income
Bil VND
500
Minority interest
Bil VND
932
Net income to MSN's shareholders
Bil VND
3,395
Net income (pro forma)
Bil VND
4,279
(Source:BVSC forecast)
Nui Phao Mine, which will go into operation this April, will start generating sales for the Group, which
will push total sales forward to an estimated VND 14,766 bil. Net income may fluctuate around VND
3,395 bil on accounting basis and VND 4,279 bil on proforma basis.
Revenue and net income from Masan Consumer are forecasted to beVND 12,400 bil (+19.4% yoy) and
VND 3,194bil (on accounting basis) and VND 3,313bil on proforma basis (after adding back amortization
from VCF), up by 62% compared to the previous year. We assume types of sauces segment remain stable
while instant noodle records a growth of 16% instead of over 65% in 2012. With the penetration into the
mass noodle market, Masan could gain an impressive growth in 2012. For this year, we suppose Masan
will continue its strategy to strengthen market share in the mass market and grow further in the premium
market, with new flavors added into the product, aiming at benefiting the users’ health. Vinacafe is
expected to grow 33% this year. Besides, we suppose that the company can consolidate sales from
VinhHao company, expected to be VND 420 bil this year.Gross margin and operating margin on a whole
Group basis may remain the same.
Nui Phao Mine will go into operation this April and may generate sales of VND 2,384 bil this year. This
figure is based on an operation of 30% capacity (our estimates) and commodity prices in March
2013.Masan already has offtake contracts with buyers of fluorspar and bismuth. For tungsten, they are still
negotiating with potential partners. In 2014 and 2015, sales generated is expected at VND 7000 bil per
year, with EBITDA margin of 55%. We highly appreciate the effort of the Group to put the more-than-ten
year old project into operation as scheduled. The group has successfully reduced risks on the project by
effectively raising capital, deploying a world-class management team and achieving progress on
compensation and resettlement. The actual commencement of production will be a certain evidence of the
potential efficiency of the project.
Gross margin of Masan Consumer is expected to be around 38% and net margin around 27.6%. Net
income from Proconco may bring about VND 320 bil to MSC.
Techcombank is forecasted to experience another unfavorable year and we assume the bank may generate
VND 1,920 bil of net profit this year. However, net income from this affiliate bank estimated for the
Group is 0 due to the amortization expense (instead of a negative VND 341bil in 2012).
Masan Group (MSN)
6
Key strengths – strong management and execution capabilities
Masan group is one of the premier private listed companies in Vietnam. The group’s management team headed by
CEO Madhur Maini is able to effectively manage risk, raise capital, execute transformational M&A, hire worldclass management talent, and has been able to collaborate with reputed international partners.
Kohlberg, Kravis & Roberts, one of the world’s largest private equity firms, invested another US$200 million in
Masan Consumer in Jan 2013, more than doubling its total investment to US$359 million in less than 2 years. This
is the largest private equity deal in Vietnam, and indicates the confidence that international players are placing on
Masan group.
Also, the group has delivered on successful integration of Vinacafe, which it acquired in end-2011. Vinacafe’s
sales have jumped sharply due to accessing Masan’s distribution network, while margins and profits have also
grown. Vinacafe has also launched new brands to cater to various segments.
INVESTMENT RECOMMENDATION
Valuation
Masan Consumer
P/E
Equity value
(VNDbil)
70,680
Masan Resources
NPV
Techcombank
P/B
Method
77.30%
Masan's equity
value (VND bil)
54,635
19,557
80%
15,645
18,089
31%
5,607
Holding ratio
Total
75,889
Cash
4,000
Payment for Nuiphao
(1,600)
Total equity value
79,890
Number of shares (mil)
Share price (VND)
Number of shares (mil)
Share price (VND)
687
116,289
778
103,486
As per our own assumption on SOTP method, the target price for MSN share is VND 104,000 on a fully diluted
basis (778 mil shares), representing a 16.1% discount compared to the market price on 26/3. This target price is
based on our conservative viewpoint and does not include the potential growth of Proconco and Vinh Hao
Company which may be supported strongly by the MSN Group in the future if Masan acquires a controlling
interest. Besides, The Group is still holding a huge cash reserve at the moment (VND 9,000 bil) and we expect
further action to add more value to the Group. In view of a fast growing company with various potential
opportunities ahead, strong management team and good capability of raising funds, we maintain recommendation
HOLD for long term investment. However, we suppose current market price already reflected investors’ positive
expectation towards good progress concerning Nui Phao Mine,Vinh Hao M&A this year and short term upside may
be limited
Masan Group (MSN)
7
MSN FINANCIALINFORMATION
Shareholder’s structure
BVSC recommadation
Sell
Hold
Buy
21.60%
78.40%
Foreign
1
2
Shareholder’s
Update date
Target price
Recommendation
Company update
31/3/2013
VND104,000
HOLD
Masan Group Corp.
Company update
31/7/2012
VND96,065
HOLD
Company update
20/3/2012
VND80,000
SELL
Company update
20/12/2011
VND 82,300
HOLD
Profit and loss statement
VND in millions
2011A
2012A
Revenues
5,586,287
7,056,849
10,389,415
Gross profit
2,391,670
3,059,015
EBITDA
3,084,349
104,599
EBIT
Earnings before tax
Income tax expense
Minorities
Stakes
Proportion
Update
250,421,247
36.4%
1/4/2013
Hoa Huong Duong Co.
99,817,804
14.5%
1/4/2013
BI Private Equity
50,011,218
6.3%
1/4/2013
Cash flow statement
2010A
Depreciation and Amortisation
Others
3
VND in millions
2010A
2011A
2012A
Change in working capital
200,657
(134,627)
711,722
4,212,046
Cash flow from operations
1,337,002
1,440,446
2,577,737
3,358,417
3,169,922
Capex
142,120
347,873
2,979,750
3,216,297
2,746,121
2,868,572
116,904
372,564
525,549
Dividends paid
131,933
2,406
2,023
Free cash flow
1,205,069
1,438,040
2,575,714
2,822,049
Equity raised/ (repaid)
1,057,621
5,329,180
3,118,640
2,543,116
Debt raised/ (repaid)
3,322,805
5,215,862
8,776,254
0
0
0
Net cash flow
2,286,646
6,139,789
(3,854,876)
Beginning cash
1,123,616
3,394,575
9,573,593
Ending cash
3,394,575
9,573,593
5,718,717
%
2010A
2011A
2012A
EBITDA margin
55.2%
47.6%
30.5%
346,178
522,859
715,238
2,283,039
1,973,149
1,302,329
4,431
3,829
1,895
2010A
2011A
2012A
1,123,616
3,394,575
9,573,593
Accounts receivable
282,936
314,209
903,317
Operating margin
46.1%
35.1%
25.7%
Inventories
199,466
290,200
612,845
Net profit margin
40.9%
28.0%
12.5%
Short-term investment
776,000
490,000
1,222,500
ROAA
16.2%
7.2%
3.6%
2,441,831
4,626,838
12,541,434
ROAE
29.7%
14.9%
8.7%
605,360
8,261,999
11,287,505
Sales growth
41.1%
26.3%
47.2%
3,919,827
8,099,909
9,321,085
274.7%
4.5%
-11.3%
Net income
EPS
Balance sheet
VND in millions
Cash and cash equivalents
Current assets
Net fixed assets
Long-term investments
Others
Ratio analysis
Net profit growth
50,076
140,792
145,490
33.0%
26.3%
10.4%
Total assets
7,017,094
21,129,538
33,572,619
EPS growth
416.3%
-13.6%
-50.5%
Liabilities
Total asset growth
1,947,555
8,981,050
12,017,587
Short-term loans
687,260
1,124,674
2,032,397
Payables
267,168
443,583
422,772
Others
Sales per share growth
201.1%
58.9%
15.4%
Interest coverage (x)
10.75
7.25
8.12
Net debt to total asset
0.43
0.36
0.49
256,509
1,656,660
1,170,614
Net debt to equity
0.85
0.76
1.36
1,209,759
3,224,917
3,625,783
Sales/assets
0.26
0.21
0.27
Long-term debt
734,723
5,000,560
7,409,781
Capex/sales
Other liabilities
1,895
755,573
982,023
Total liabilities
1,947,555
8,981,050
Shareholders' equity
4,762,088
Minorities' interests
307,451
Total current liabilities
Masan Group (MSN)
0.02
0.02
0.03
Basic EPS (VND)
4,431
3,829
1,895
12,017,587
EBITDA per share (VND)
5,079
5,168
3,801
10,623,685
15,875,652
DPS (VND)
1,524,803
5,679,380
BVPS (VND)
-
-
-
20,618
30,810
20,265
8
ANALYST CERTIFICATION
I, Le Dang Phuong, hereby certify that all of the views expressed in this report accurately reflect my personal views about the subject company or companies
and its or their securities. I also certify that no part of my compensation was, is or will be, directly or indirectly, relat ed to the specific recommendations or
views expressed in this report.
GENERAL DISCLAIMER
The report is not done by requirement of any institution or individual. Investors should use information, analysis, comment i n the report as a reference source
before making own investment decision. The report is for the purpose of providing information and does not intend to advice readers to buy, sell any
securities. Investors should refer to other sources of consultancy before making investment decision.
The information contained in this report is verified carefully, BVSC takes no responsibility with regard to the accuracy or completeness of any information
contained here. Viewpoint and analysis in the report can be changed without notification.
The report is a property of BVSC and under copyright protection. Infringement of copy, change and reprint of the report without permission of BVSC is
illegal. BVSC owns the copyright on the report.
BAO VIET SECURITIES COMPANY – RESEARCH DEPARTMENT
Head office
Ho Chi Minh Branch
8 Le Thai To, HoanKiemDist, Hanoi
233 Dong Khoi, Dist.1,Ho Chi Minh City
Tel: (844) 3 928 8080
Tel: (848) 3 914 6888
Fax: (844) 3 928 9888
Fax: (848) 3 914 7999
Masan Group (MSN)
9