Company Quarterly Earnings Update – VNM VN – 2018 Q4

Summary of the 2018 results of Vinamilk JSC (VNM VN) 

2018 results: highlights
  • Overall revenue was up by 3.0% yoy. While VNM’s domestic dairy sales declined by 1.6% yoy due to stiff competition, foreign businesses (Driftwood & Ankor) and exports increased by 7.9% and by 2.3% respectively.
  • Fiercer competition forced VNM to increase its selling expenses to 23.3% of revenue, up from 22.6% in 2017, putting pressure on its bottom line. The company’s net profit declined slightly by 0.7%.
  • The financial position remained solid: cash accounted for 27.0% of total assets, and the leverage was low (D/E and D/A of 0.05x and of 0.03x respectively).
  • Up until now, VNM has paid dividends of VND2,667/share for the FY2018. We forecast that VNM will pay further dividends of VND1,480/share until its AGM, which takes place on 19th April 2019.
Outlook
  • Vietnam’s dairy market is growing rapidly, but we expect momentum to start slowing in coming years. Euromonitor forecasts Vietnam’s dairy market to grow by a CAGR of 4.8% in the 2018-2023 period.
  • VNM’s sales are expected to increase by a CAGR of 5.1% during the same period, mainly as a result of high marketing expenses. Its net profit is forecasted to rise at a similar rate.
  • The market price for milk powder has been increasing since the end of 2018 as a result of unfavorable weather conditions in New-Zealand. However, VNM’s gross margin is unlikely to be affected much as it locked in half of its expected raw material imports at the end of 2018, when prices were lower.
Recommendation

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