[Update] MSN: Transforming for growth

BUY

Target price: VND 84,100

Upside: 13%

What’s new?

• F&B business is transforming to grow.
• We expect branded meat to be a game changer.
• Soft tungsten price and strict copper export regulation make the resources business less attractive.

F&B business is transforming to grow. Energy drinks and bottled water should continue to be MSN’s key growth drivers as (1) it adapts to meet consumer demand, and (2) it provides new product innovations consistently (e.g., new formats, new segments, and new flavors). Premiumization of its fish sauce and noodle products appears to be a viable solution to maintain growth in these relatively mature segments.

Branded meat – an expected game changer. The meat business is posting 20% MoM growth supported strongly by (1) MSN’s wide and increasing point of sale network and (2) high rates of adoption by consumers. Although ASF presents a short-term headwind, we think it also highlights the need for scale in pork production; MSN should emerge as a longer-term winner as a result.

We shift to a negative view on Masan Resources. Tungsten pricing remains under pressure due to weak demand from China, and strict regulations on copper are another drag. MSN’s attempts to improve this business through acquisition to move up the value chain are a positive sign, but it is likely to take evidence (and time) to change our minds.

Yuanta vs consensus. We think the wide disparity of 2019E forecasts will tighten as analysts update their numbers for MSN’s weak 3Q19 operations and a large one-off gain. However, we appear to be more conservative than the Street looking forward, as our earnings forecasts for 2020E are 4% below and for 2021 are 9% below the BBG consensus.

We reiterate BUY but reduce our target price to VND 84,100, for expected 12-m TSR of 13.2%. Although MSN recorded poor performance in 3Q19 and we are negative on MSR, we still want to be in the stock given the attractive beverage and branded meat stories. We believe the market has over-reacted to a weak quarter and think the shares offer value here. We thus reiterate our BUY call on MSN.

Please access the link for our complete report: MSN_CompanyUpdate_3Q19

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