Vitasoy's share price has plunged 23% in 7 days. Is it a Bargain?

Company Background

Sourced from oh360.com.hk

Established in 1940 by the late Dr. Kwee-seong Lo in Hong Kong, Vitasoy International Holdings Limited (HKEX: 345) is a leading manufacturer and distributor of plant-based food and beverages.

Currently, Vitasoy has manufacturing operations in Hong Kong, Mainland China, Australia and Singapore. Its products are available in about 40 markets worldwide. Other than their flagship Vitasoy brand, the company also distributes a variety of teas, juices, tofu under 2 main brands: VITA and Unicurd as seen below.

Sourced from https://www.vitasoy.com/our-products/

Financial Highlights

As of 24Jun2019 | Sourced from ShareInvestor’s WebPro

In our financial analysis, we will go with its Profit and Loss across 10 years since Vitasoy has been listed for more than a decade.

From the chart above, Vitasoy’s revenue (blue bar) and profits attributable to shareholders (green bar) have both increased steadily over a long 10 years. The earnings margin is also pretty stable, hovering close to 8% in the same period.

Here’s a breakdown of the figures: its sales revenue grew around 250% from HK$3.01 billion in FY2010 to HK$7.52 billion in FY2019. Net profits attributable to shareholders increased in tandem, up approximately 267% from HK$260 million in FY2010 to HK$696 billion in FY2019.

As of 24Jun2019 | Sourced from ShareInvestor’s WebPro

Looking at the chart above, we can deduce that Vitasoy’s management team has done a good job with the cashflow too. Cash generated from operating activities is on a solid uptrend and not excessively eroded by cash used in financing and investing activities.

Following which, Vitasoy also built up a huge cash hoard over the years where its cash and cash equivalents expanded from HK$263.3 million in Mar 2010 to HK$1,005.03 million in Mar 2019.

As of 24Jun2019 | Sourced from ShareInvestor’s WebPro

Zooming into its financial ratios, we can see that Vitasoy generated a Return on Equity (ROE) of 21.9% in the latest financial year - March 2019. It has also maintained a good ROE of above 18% for the past decade.

In general, a ROE of 15% and above is considered good and signals that the management team is efficient in utilizing the shareholders’ equity to product profits.

Ownership

As of 24Jun2019 | Sourced from ShareInvestor’s WebPro

The ownership of Vitasoy seems to be spread evenly with no major shareholder behind the scenes. That said, if you look closely, you will see many substantial shareholders with the surname “LO”.

This is no surprise given that Vitasoy was founded by the late Dr. Lo Kwee Seong and had pretty much stayed a family business for many decades. In fact, the number one shareholder – K.S. Lo Foundation is a charitable trust where Mr. Winston Yau-lai Lo, Ms. Yvonne Mo-ling Lo and Mr. Peter Tak-shing Lo are trustees of the fund held by The Bank of East Asia (Nominees) Limited.

Mr. Winston Lo is the executive chairman of Vitasoy while Ms. Yvonne and Mr. Peter Lo are both non-executive directors of the company.

Analyst Consensus Estimates

As of 24Jun2019 | Sourced from ShareInvestor’s WebPro

Employing the Analyst Consensus Tool, we can see that Vitasoy International is covered by 6 analysts and the average consensus recommendation comes up to be “Overweight” based on a consensus rating* of 1.67.

*The Consensus Rating is calculated based on the average of all recommendations using the following scale:

Buy: 1 Overweight: 1.5 Hold: 2 Underweight: 2.5 Sell: 3

Following that, their mean target price is HK$41.40, which translates to a 12.2% upside based on its share price of HK$36.9 at the time of writing.

As of 24Jun2019 | Sourced from ShareInvestor’s WebPro

Analyst coverage of Vitasoy is generally positive over the past 2 years as we see no “Sell or Underweight” ratings based on the chart above. The target price line (brown in colour) is also on the climb from HK$16.50 in June 2017 to HK$41.40 recently.

There is also an uptick of the number of ratings in the recent months compared to the two drop-offs in analyst ratings as the reports are not updated over the past 6 months.

Happy investing!

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