Leading dairies are expected to lose more than 7% of profits under pressure from input material prices, animal feed and transportation costs.
This year, Vietnam Dairy Products Joint Stock Company (Vinamilk – VNM) is expected to achieve a total revenue of more than 64,000 billion dong and pre-tax profit of about 12,000 billion dong. While the revenue target increased by almost 5% compared to last year, profit is expected to return more than 7%. If it does not exceed the set plan, this year is the second time in a row that Vinamilk’s profit has grown negatively.
Since surpassing pre-tax profit of VND 10,000 billion in 2016, Vinamilk has not maintained its strong growth performance as in the previous period. In 2018, the company’s profit declined but at a slight rate of almost 1.5%, mainly due to the rapid increase in cost of goods. In the next two years, Vinamilk’s business results increased slowly. Last year, total consolidated revenue exceeded 60,000 billion dong for the first time, but profit before tax fell 4.4% for the same reason as in the previous period.
The company’s annual report shows that Vinamilk faces many difficulties and challenges related to scarcity of raw materials and inputs, rising prices of animal feed products, and freight rates.
In general, animal feed prices last year rose by 30-40% and have not shown any signs of decreasing in 2022. The increase in import prices has led to an increase in the domestic market, where forage sources have to compete fiercely in terms of raw materials, prices and supply. In addition, domestic shipping costs increased by about 20%, international shipments increased by about 500%, contributing to the high cost of raw milk production.
The activity of procuring Vinamilk raw milk from livestock households in several areas has experienced problems due to prolonged social distancing. The price of animal feed has increased, some types are not available, so changes in the diet of cattle greatly affect household farming, so many farmers are forced to change jobs.
In the long term, Vinamilk wants to achieve revenue of VND86,200 billion and profit before tax of VND16 trillion by 2026. The compound growth rate (CAGR) of revenue in the period 2022-2026 is expected to reach 7.2%.
To complete the plan, the company first accelerates research and development of new products, aims to meet comprehensive nutritional needs, and promote the application of technology for sustainable agriculture.
The “big guys” from the dairy industry also take advantage of business opportunities in new markets through M&A activities, joint ventures, or venture capital. At the same time, the company is also continuing to strengthen traditional export markets and is looking for opportunities to shift investment to local production.
Last year, the direct export market recorded a net income of VND1,800 billion, up 17% YoY. The company also developed two new markets in America and Asia, bringing the total number of export markets to 57 countries and regions with a cumulative total export value of more than $2.6 billion.
A recent report from Vietcombank Securities (VCBS) said that in the next 2-3 years, VNM does not have much room for growth, although the company has been actively expanding its export market to countries in the region. New strategies such as expansion to other regions are expected to make a major contribution to the company’s business results in 2023-2024.
Beef production is assessed by VCBS as the most potential growth segment for Vinamilk from 2023-2024. New business segments can achieve double-digit growth once they are officially operational. Revenue from beef in the first year of operation can reach 2,000 billion VND. In the near future this year, Vinamlik will import beef from Japan for sale.