Vinamilk difficult situation – VnExpress Business

“Honey, have VNM shares been bought, have they fallen so far down?”, a middle-aged investor asked Hoang Tung, a securities firm broker in Hanoi.

Tung’s customers are pursuing a safe investment strategy, targeting only businesses on VN30, so Vinamilk (VNM) is one option. In the 2016-2018 period, VNM is the “goose that lays golden eggs” in the portfolio with a proportion that sometimes reaches almost 70%. However, recently these investors lost their patience.

After peaking in early April 2018, VNM plummeted along with a general decline. The stock is recovering in the same direction as the VN-Index since mid-2020, but in early 2021 it has started to diverge, “alone”.

Survey results owned by VnExpress with 4,000 investors also pointing out that VNM is the stock that will make them lose the second most money in 2021 (after HPG Hoa Phat).

Although many securities companies continue to provide positive recommendations, VNM continues to fall. Closing yesterday’s session, VNM stood at 76,100 dong, down nearly half from its peak in early 2018. The dairy industry “giant”‘s capitalization narrowed to over 159,000 billion dong, leaving the top 10 global market caps behind. floor.

Guest Tung tried three times to find the base but failed. These investors not only suffer losses, but also suffer opportunity costs, because the market is buoyant, and many other groups increase over time.

Why has VNM gone unnoticed even though the market price has fallen by 50% over the last two years, the valuation is interesting? The stock market reflects investors’ expectations for the business, and the decline in VNM is no accident, according to the head of the consulting department at a securities firm in Hanoi. In particular, the pressure on growth is gradually becoming an increasingly difficult problem to solve. This problem occurs from both sides, including market and operational efficiency issues.

Regarding the market, in terms of market share and scale of operations, Vinamilk’s current position is still outstanding. The total market share by volume accounts for more than 60%, many industries dominate the rest. However, it is the high base rate and broad product spectrum that makes it difficult to gain more market share of Vinamilk, according to a Viet Capital Securities Company (VCSC) assessment.

During the 5 year period from 2017 to 2021, Vinamilk’s market share is still increasing, but only at the single digit threshold. Meanwhile, the growth rate of revenue and profit tends to slow down. Total revenue by the end of 2021 will reach more than VND 61 trillion, an increase of more than 19% compared to 2016 but far from the target of VND 80,000 billion set in the first year of the plan.

On the other hand, the income growth rate of dairy companies in the lower group far exceeds this figure.

Dairy International after two years of “changing owners” recorded an increase in revenue from time to time. TH Milk Company (TH True Milk) revenue also increased from VND 3,700 billion in 2017 to more than VND 5,500 billion in 2020, according to a separate financial report. With VPMilk, revenue in the period 2017-2018 was only around the threshold of 30 billion VND, but increased to 140-150 billion VND in two years 2019-2020. The low background rate, central strategy makes this group’s growth rate somewhat more impressive.

In addition to stories about market share, competitive pressure or raw material prices also affect Vinamilk’s business performance.

In its annual report, Vinamilk said it faces many challenges related to the scarcity of raw materials and input materials, rising prices of animal feed products, and rising transportation costs. ..

Animal feed prices rose 30-40% last year and show no signs of slowing down in 2022. Rising import prices lead to rising domestic prices, with forage sources having to compete fiercely on price 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.

As a result, in the last three years, Vinamilk’s gross profit margin fell from 49% to 42.5%. While selling and administrative expenses are still increasing, the net profit margin has narrowed to less than 20% from the end of 2020.

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%.

The company also offers a range of solutions to growth problems, from accelerating research and development of new products, to meeting comprehensive nutritional needs, to encouraging the application of technology in sustainable food agriculture. The dairy industry “giant” also said it would take advantage of business opportunities in new markets through M&A, joint ventures or venture investments.

However, analysts are still cautious. “In the next 2-3 years, Vinamilk does not have much room to grow, although it has been actively expanding its export market to countries in the region,” the VCBS analysis team assessed. New strategies such as expansion into the beef segment are expected to contribute to operating results until 2023.

In general, these factors make it difficult for Hoang Tung to respond to requests from his customers.

The fall in stock prices makes VNM’s valuation more attractive than other companies of the same size in the region. Tung also thinks that the stock is unlikely to fall any further. With a business as basic as Vinamilk, it also makes sense to have a medium-long term vision.

However, an attractive valuation does not mean the stock will go up immediately. In terms of business prospects, VNM’s ability to immediately “float” is not an easy thing. Investing in stocks that move sideways when the market has a lot of opportunities is not something he wants to suggest. “Between good and interesting, I still have to choose which option can be profitable,” said Tung.

Minh Son

at Blogtuan.info – Source: vnexpress.net – Read the original article here