Vinamilk's pre-tax profit likely to drop for 2nd year in a row

Vietnam’s leading dairy company Vinamilk estimates its profit before tax this year will drop 7% year-on-year to VND12 trillion ($525 million), after a 1% decrease in 2021.

If Vinamilk could not surpass this projection, this year will be its second year of negative profit growth.

The company’s pre-tax profit has stagnated in the range of $525-568 million during the past five years. Its gross profit margin plunged to 43.1% in 2021, from 46.4% in 2020 and 47.3% in 2016-2019.

Limited growth capacity made the Ho Chi Minh Stock Exchange-listed Vinamilk (VNM) no longer the first choice of many foreign investors. VNM consistently witnessed a net sell in 2021, at nearly $289 million.

In the latest ETFs trading session, foreign investors continued to net sell $6.5 million of VNM shares. ETFs sold off nearly 3.6 million shares.

This move dragged the stock to VND76,000 ($3.32) per share on March 18, down more than 10% from the beginning of 2022 and losing 27% of its value since 2021.

Hence, its market value decreased to less than $7 billion, a drop of 40% from its high in 2018. VNM has fallen out of the top 10 largest Vietnamese companies by market capitalisation.

Vinamilk’s sales revenue in 2021 reached $2.67 billion, a slight increase of 1% year-on-year, while net profit and earnings per share were $555 million and $0.2 respectively, both down 1% from 2020.

It is noteworthy that Vinamilk only achieved 98%, 94%, and 95% of its 2021 revenue, profit before tax, and profit after tax targets, respectively.

In 2022, Vinamilk plans to expand its market share by 0.5% to 56%, and total revenue is expected to rise nearly 5% to $2.8 billion.

According to SSI, Vietnam’s leading brokerage company, Vinamilk will have less “room” to develop in the next few years due to a downtrend in consumption. “It is also unlikely to have its market share expanded; the firm has been a prominent dairy corporation in Vietnam for many years.”

Vietcombank Securities (VCBS) said the cost of raw materials such as whole milk powder, skimmed milk powder, and sugar will continue rising in the next few years, negatively affecting Vinamilk’s profit.

“As a growth engine, Vinamilk may rely on milk exports to various markets, including Western European countries and China. However, milk exports to China may become more challenging in 2022 as this country plans to grow its herd of cows to provide milk to the domestic market. Moreover, China will continue to tighten import and export conditions due to the impact of Covid-19.”

In addition, VCBS noted, Western Europe is a stringent market in terms of standards and quality, and Asian dairy companies have long struggled to penetrate. “Therefore, it will be difficult for Vinamilk to succeed shortly.”

“Instead, Vinamilk’s expansion into beef will potentially boost its double-digit growth from 2023 onwards. Estimated revenue from this business is expected to reach $87.5 million in the first two years.”

Analysts said that with minimal advancements in its business plan, it will be difficult for the company to return to its glory days.

Another Vietnamese dairy major, IDP, projected a 45% decline in pre-tax profit in 2022 to VND570 billion (nearly $25 million). In a release, company leaders said that the pandemic continues to deeply affect business activities and income of the majority of people.

Milk has seen a decrease in demand, with consumption dropping 7% last year. Moreover, protein alternatives such as nut milks have received more attention as people become more aware of the environment, health and diet.

"This requires the dairy industry to continue diversifying products such as switching to plant-based beverages."

IDP recorded VND4,827 billion ($211 million) in revenue and $45.6 million in pre-tax profit in 2021, up 26% and two times higher year-on-year, respectively.

Particularly in the fourth quarter, gross profit margin reached nearly 45%. This is a record high for the enterprise and higher than major competitors such as Vinamilk (about 43.1%) and Moc Chau Milk (nearly 32%).