[Update] MSN – Short-term headwinds are priced in

Target price: VND 93,000

Upside: 10.3%

Event catalyst:

• Negative newsflow on fish sauce is a short-term sentiment drag.
• ASF might constrain MSN’s short-term performance, but we see longer-term benefits for large pork producers.
• Copper concentrate export ban weighs on MSR’s performance.

Negative impact from media buzz on fish sauce is temporary. The latest draft of standards for producing fish sauces has created strong and mostly negative media buzz for industrial sauces. In our view, this event is highly unlikely to meaningfully impact MSN’s business performance, and we also appreciate the company’s proactive product innovation efforts.

But ASF is a real threat in the short run. The hit to animal feed volumes and consumer concerns about pork cause us to downgrade our forecasts for both animal feed and MEATDeli for FY19E. However, MSN has proven its ability to block the disease from reaching its pigs, which underlines our view that large and modern pork producers should benefit from consolidation longer-term.

Ban on copper concentrate exports to weigh on MSR’s results. We see little likelihood for a solution to this issue any time soon. As such, we revise down the resources segment’s growth rate from 20% to 10% during FY19E-20E. We also use lower assumption for gross margin of 55% (instead of 60% as before)..

Our view: Short-term headwinds from African Swine Fever (ASF), negative media chatter on fish sauce, and restrictions on concentrated metal exports trigger us to revise down our earnings forecasts by 16-17% for MSN in FY19-20E. As a result, we cut our fair value-based target price by 9.4% to VND 93,000. We believe the negative catalysts are more than discounted in the stock’s valuation here. Moreover, we remain positive on the longer-term outlook. We thus maintain our BUY recommendation on MSN with 12.3% expected total shareholder returns over the next 12 months.

Please access the link for our complete report: Masan — Short term headwinds are in the price

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