Masan’s (MSN) dazzling nine-month figures
Masan’s (MSN) dazzling nine-month figures
One of Vietnam’s largest private conglomerates, Masan Group, has reported outstanding nine-month performance, leveraging its premiumisation and beverage strategy to double and triple the fast-moving consumer goods growth rate in the forthcoming years.
Accordingly, the company’s core nine-month net profit after tax (NPAT) post minority interest (Post-MI) reached VND2.307 trillion ($100.3 million), up 90.2 per cent against the VND1.213 trillion ($52.7 million) one year ago. This came as its core NPAT Post-MI margin increased to 8.7 per cent during the period, compared to the 4.4 per cent last year.
Masan Group delivered VND26.630 trillion ($1.16 billion) in net revenue for this nine-month period, down 3 per cent compared to the corresponding period in 2017, which was VND27.451 trillion ($1.19 billion), mainly due to the impact of the pig price crisis on one of its member units Masan Nutri-Science’s (MNS) top-line.
Excluding MNS, the group’s consolidated net revenue would have grown by 29 per cent on-year during the period.
Pig farmers have finally re-invested to increase their pig population after regaining confidence as prices have stabilised at approximately VND45,000-VND50,000 ($1.96-2.17) per kilogramme in the past two quarters. The company’s management, therefore, expects a 10 per cent growth in the commercial feed market for the 2019 fiscal year, starting from the first quarter of 2019.
MNS’ pig feed revenue grew by 1.3 per cent in the third quarter of 2018, compared to the previous quarter. Based on the latest forecasts for this year’s fourth quarter, pig feed revenue is expected to grow by 2-5 per cent on-quarter.
Masan Group will trim down interest expenses by approximately VND1 trillion ($43.5 million) per year, starting from the fourth quarter of this year. Gross debt to earnings before interest, depreciation, and amortisation (EBITDA) is expected to decrease to 2.5x by the end of 2018 as a result of the planned pay down of over VND11 trillion ($478 million) in debt in the fourth quarter of this year. The group’s deleveraging is part of its effort achieve a credit rating on par with Vietnam’s long-term sovereign credit rating of BB- within the next 12 months.
Innovation across the board
One of Masan Group’s member units, Masan Consumer Holdings (MCH), sustained its growth momentum above 20 per cent during the nine-month period supported by “premiumisation” (premium brand optimisation) and successful innovations.
In the food portfolio, these innovations led to 36.1 per cent growth on-year in seasonings and more than 50 per cent growth in the premium portfolio.
Besides, 32 per cent growth in convenience foods was driven by premium products growing by more than 60 per cent, as the Omachi cup innovation has achieved three-fold run rate revenue since its launch five quarters ago.
As for the beverage portfolio, the 38 per cent growth in the beverage portfolio was anchored by the strong performance and growing brand power of performance-enhancer drink Wake-up 247.
Beverage points of sales had grown from 75,000 last year to 130,000 as of the third quarter of 2018.
The instant coffee portfolio registered a 17 per cent growth compared to the third quarter of 2017, mainly driven by the rebound of the Vinacafé brand. Vinacafé delivered 25 per cent top-line growth on-year as MCH has revitalised premium heritage brands.
Focus will be on upgrading the coffee research and development (R&D) platform, as sustaining growth above 15 per cent going forward will require breakthrough innovations.
Meanwhile, the group is making the first steps into the beer segment with the introduction of White Lion brand. The company’s management realised that cross-selling beer with current food and beverage distribution platform would not be the correct operating model. Thus, MCH has set up a separate beer distribution platform led by a dedicated sales force with significant beer-specific experience. The management expects to ramp-up the sales force to 150-200 by mid-2019.
Despite its full potential, the processed meat segment performed under the management’s annual forecast due to the lack of innovation and technology capabilities.
The partnership with Korean partner Jinju provides MCH world-class innovation and new product development capabilities. The first co-products are set to be launched in the fourth quarter of this year, while the innovation pipeline for 2019 is being solidified.
Another member unit, Masan Resources (MSR), generated $30 million of free cash flow during the period and is expected to deliver $55-60 million of free cash flow for the full year, a 30 per cent jump on-year.
In the nine-month period, MSR completed the acquisition of H.C Starck’s 49 per cent stake in Masan Tungsten (formerly known as Nui-Phao-H.C Starck Tungsten Chemicals Manufacturing).
“Masan Resources’ acquisition of the high-tech tungsten chemical plant is a strategic step to generate strong cash flows across commodity cycles. We aim to double the plant’s capacity to further consolidate our ex-China tungsten market share,” said Nguyen Dang Quang, chairman and CEO of Masan Group.
MSR is positioned as an integrated Ex-China tungsten chemical champion and is building capacity to double its mid-stream tungsten market share. In addition, MSR continues to explore strategic opportunities with downstream tungsten players to deliver on its shareholder value creation plans.
Global tungsten prices have softened in the third quarter of 2018 due to seasonality factors in Europe and the on-going US-China trade tensions. However, the tungsten concentrate market continues to remain tight and only a limited supply is available globally.
With the recent shutdown of an Ex-China tungsten mine, the company’s management forecast tungsten prices to trade up to $300 per MTU level in the fourth quarter of 2018. The management therefore envisages boosting tungsten chemicals capacity to 12,000 MTU in 2019 from the current 7,500 MTU.
Recently, the pig feed segment, which is managed by MNS, had the largest impact on the group’s revenue. There was a slight improvement in sales in the third quarter of 2018, but the management expects there are still two quarters away from full recovery.
As the number of small- and medium-d farmers have reduced significantly during the market crisis, the MNS management team will focus on penetrating large-scale farmers and will launch an innovative solution to target these customers in the fourth quarter of this year.
The management will also shift its operating model back to brand building and productivity-led innovation. MNS expects to launch its first fresh meat products in the last quarter of this year. The company is finalising its route to market model and working with a third party supply chain logistics partner for a year-end launch.
“However, not all has gone according to plan. Masan Nutri-Science is still recovering from the pig price crisis. We have started selling pig livestock with great results, but this will cease in 2019 as we begin to fully process our pig supply into branded meat products for consumers,” CEO Quang said.
50 per cent jump in profit
Masan Group and its largest shareholder SK Group will set up a Strategic Cooperation Committee in the fourth quarter of this year which will be responsible to implement operational synergy and explore additional partnership opportunities across Masan Group’s business units.
The management expects consolidated fourth-quarter net revenue to grow by 15 per cent compared to the same period in 2017 and its NPAT Post-MI to touch VND4.7-4.8 trillion ($204.4-208.7 million), representing over 50 per cent growth compared to last year.
“We continue to execute our medium-term growth plan. Masan Consumer’s premiumisation and beverage strategy is showing sustainable traction, positioning us to grow 2-3 times faster than Vietnam’s fast-moving consumer goods (FMCG) market over the next few years,” said CEO Quang. “We look forward to closing the year on a strong note and crystallising our foundations to deliver double-digit growth in 2019 and beyond.”
