3 drivers for Vitasoy's 16% earnings jump

Sales soared in Hong Kong.

According to Maybank Kim Eng, Vitasoy reported a solid set of 1HFY3/13 results yesterday. Sales rose 10% YoY to HKD2.1b while net profit increased by 16% YoY to HKD173m.

Here's more from Maybank Kim Eng:

EBIT margins came off 20bps YoY to 12.0% on flat GPM of 47%. Nonetheless, EBITDA rose 16% YoY as extra depreciation associated with its new plants was booked.

Key positives are: i) sales at the HK unit rose 9% YoY despite the maturity of the market, thanks to well-received new product launches and a successful brand revamp to attract young customers; ii) EBIT from China rose 30% YoY on the back of 17% YoY sales growth, supported by its new Foshan production plant and increased market coverage; and iii) satisfactory sales and earnings improvements at its North America and Singapore units.

The key negative was EBIT at its Australia and New Zealand units, which fell 10% YoY on flat top-line growth, affected by weak currencies, capacity constraints and disruptions to production while its plant was upgraded.

However, management indicated that growth in this business resumed in September following the completion of its plant upgrade.

Due to resolved production bottleneck in China, China division now accounts for 33%/ 32% of sales/segment profit, respectively; we see positive rerating catalyst in sight. Street’s current earnings projection of 11%/15% YoY net profit growth for FYMar-13/14E looks too conservative to us.