Business Description

Vitasoy International Holdings Ltd. is engaged in manufacture and sale of food and beverages. The Company operates in five segments: Hong Kong and Macau, Mainland China, Australia and New Zealand, North America, and Singapore. The Hong Kong and Macau business mainly represents the manufacture and sale of soymilk, tea, water, juice and tofu in Hong Kong, Macau and overseas and the operating of tuck shops and catering businesses. The Mainland China business mainly represents the manufacture and sale of soymilk, tea and juice in Mainland China. The Australia and New Zealand business mainly represents the manufacture and sale of soymilk and rice milk in Australia and New Zealand. The North America business mainly represents the manufacture and sale of tofu, pasta, imported soymilk, imported juice and imported tea in North America. The Singapore business mainly represents the manufacture and sale of soy related products in Singapore and overseas.

Segment Breakdown

As on March 2014, the Company's turnover comprised of 48% Soya Milk, 9% Tofu, 22% tea, 4% Distilled Water, 4% Dairy Milk, 3% Juice, 6% Lunch Box & Snacks.

Geographic Breakdown

As on March 2014, the Company's turnover comprised of 42% HK & Macau, 34% China, 11% North America, 11% Australia & NZ & 2% Singapore.

Positives

• Long History of Operations

• Market leader in Soya & Tea segment in HK 

• Company growth supported by rising health awarness which is changing consumer habits, preferences & consumption patterns

• Acquisition target for bigger players like HUL, Nestle etc

• With Melamin Milk Scandal in China in 2008, Soya milk saw huge interest specially from HK service provider

• Well know for product innovation & Quality

• People in China switching from traditional Soya Milk Powder to Soya Milk Liquid

• 2014 Margin were compressed because of increased expenses in expansion & brand building

• International expansion with possibility of being an Acquisition target

•Raw Material & labour around 42% of revenues so Gross Margins expected to be aronud 48% on average

• Strong numbers with good growth

Negatives

• B2C business could be very competitive

• Bigger players has competitive advantage because of higher spending power

• US operations running at below expected profit level

• Economic slowdown could result in slower growth

• Customers not sticky so can easily switch brands

• Margins are affected because of volatility in Soyabean, Sugar & Energy Prices

Industry Overview

• Vitasoy has nearly 75% market share in HK in soymilk and nearly 50% market share in ready-to-drink lemon tea market

• Chinese dairy market to be around RMB 220bn of which 10% could be for Soya Milk which is 22bn RMB or around

• In 2003 Japan, Korea, Taiwan had per capital Soya consumption of around 2kg, 4kg & 5kg compared to 1kg in China

• In China V V Group has over 70% Market Share in Soya Milk. V V group primarily sell through Soya Milk Powder.

Competitors

• Yeo Soymilk in PRC, VV Group (600300 CH) - China's largest Soy Milk Producer

Earnings Growth Drivers

• Increased penetration in China

• Expansion in International Boundaries

• Profitability of US operations

• People switching to Soya Milk for Health Reason

• Increasing product offering

Valuations

Looks expensive right now but it might be a good buy when the stock price declines.