MSN: 2Q Results — Bad news is priced in

Target price: 93,000

Upside: 18%

Event catalyst:

• MCH: 2Q19 sales +6.6% YoY.
• MSR: 2Q19 sales of VND1.5 tn  (-14%  YoY).
• MML grew slightly, by only 0.7%, in 1H19.

Masan Consumer (MCH) delivered 6.6% YoY growth in 2Q19 sales. Beverages continued to be a leading growth driver, with 26% growth in sales for 1H19 driven by increased distribution coverage and new product formats (e.g. Compact cherry flavor). That said, slow growth of other products, coupled with low profit margin (due to increased raw fish sauce prices and the adjusted pricing policy for noodles) resulted in a 1% decline in operating profit in 1H19. For 2H19, management expects a better outlook with (1) double-digit growth in sales backed by new product innovations and the recovery of food products, along with (2) improved profit margin due to more efficient marketing and sales expenses.

Masan Resources (MSR) posted net revenue of  VND1.5 tn  in  2Q19 (-14%  YoY). MSR was mainly affected by (1) lower copper volume due to lower head grades and (2) lower selling prices for tungsten. Soft market conditions also dover gross margin compression of 12 ppt (i.e., GM decreased from 36% in 2Q18 to 24% in 2Q19). Management believes that low tungsten prices are causing many Chinese producers to post losses, and thus the situation should not last long.

Masan MEATLife (MML) grew by only 0.7% in 1H19. MML (i.e., the former Masan Nutri-Science) saw double digit growth of poultry and aqua feed sales, but this was offset by a 17% decrease in pig feed sales. For 2H19, management believes pig feed consumption should recover as large-scale farms are ramping up volumes. As for MEATDeli, the business recorded c. VND 50 bn in 1H19, sales and thus is still a limited contributor to MML-wide revenues.The company guides for revenues of VND 500-1000 bn for FY19.

Despite the revenue decline, MSN’s profit for 1H19 increased by 20% YoY which was mainly attributable to reducted interest expenses (of c. VND 500 bn). With VND 1.8 tn PAT in 1H19, MSN has only fulfilled 36% its FY19 guidance. However, management remains confident about their ability to reach this year’s NPAT target.

Our view: We believe the poorer-than-consensus 2Q19 results is already priced into MSN’s valuation following the 16% share price decline since late June. We see this as an attractive entry opportunity and reiterate our Buy recommendation.

Please access the link for our complete report: MSN AM Takeaways_Attractive entry opportunity

Analyst: Quang Vo, quang.vo@yuanta.com.vn