An un-enticing offer; BUY for long-term prospects. The general offer by Chng Beng Beng (CBB) for Viz Branz values the stock at 15x current year EPS and 13x P/E on ex-cash basis, by our estimates. Compared to transaction multiples in the consumer sector, the offer is not enticing. Using a DCF valuation methodology, we value the stock at SGD1.00 based on SGD308m for the operating business and net cash of SGD46m. Applying the lower end of the EV/EBITDA range of 10-20x in consumer M&A deals, Viz Branz is worth SGD326m or SGD0.92/share. CBB's offer is thus some 15-18% below fair value, in our view. Viz's stock price has risen to SGD0.80, 3% above the offer price, due to sustained buying from Lam Soon Cannery, which currently owns 20% of the stock. We take a similar view that the stock is under-valued given its established brands and robust growth prospects, and would remain vested rather than tender into the latest offer.

Chng Beng Beng makes general offer for Viz Branz. CBB has made a SGD 0.78 per share cash offer to buy out the rest of the company after purchasing a 38.25% stake from his father Chng Khoon Peng at the same price, raising his personal stake from 20% to 58.2%. The offer price represents a 9% premium to its pre-offer price, and, by our estimates, values the company at 15.4x current year EPS. This transaction brings to closure a long-standing dispute between the two parties over their respective shareholdings.

Home-grown instant beverage manufacturer. Viz Branz specialises in the manufacture and sales of instant beverages, gourmet coffee, non-dairy creamer and snack foods, with manufacturing operations in Singapore, China, Myanmar, Thailand and Vietnam. Its products are sold under various brands such as Gold Roast, BenCafe, Myanmar Royal Tea, Café 21 and CappaRoma. Through continuous brand-building efforts and sustained investment in A&P, Viz Branz has cultivated a leadership position for its Gold Roast instant cereal products in the coastal provinces of Guangdong, Fujian, Zhejiang and Hainan. Sales in China, primarily driven by cereal sales, currently contributed over 50% of sales but 85% of operating profits. In Southeast Asia, where sales are primarily driven by its instant coffee products, margins are more volatile and lower, being susceptible to coffee bean price fluctuations.

Source: OSK