QNS - Obstacles in the short term, stable outlook for the long term
We believe 2020 will be the bottom for QNS’s profit due to the Covid-19’s impact and unfavorable weather for sugarcane. Despite that, QNS is already dominant in the branded soy milk segment. Hence potential still remains in the huge unbranded soy milk segment, premiumization trends (organic and sugar-light milk) as well as exports. For the sugar segment, while ATIGA allows QNS to freely import raw sugar to make RE sugar, it also increases pressure from imported RS sugar. Along with volatile sugarcane volume, we have a neutral view for the sugar business.
Giving the healthy operating cash flow in the context of no significant CAPEX, we expect QNS to maintain a cash dividend rate of at least 25%, equivalent to a 70% payout ratio in the coming years. At the current market price, QNS’s cash dividend yield is 11%. We use two valuation methods: FCFF and sum-of-the-parts to separately valuate each segment of the company. Our target price for the next 12 months is VND 33,000/share with a cash dividend of VND 2,500/share. Expected upside from May 18th’s closing price is 51%. We have a BUY recommendation on QNS
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