Company Quarterly Earnings Update – VNM VN – 2021 Q1

Summary of the 2021 Q1 results of Vinamilk JSC (VNM VN)

Q1/2021 results: Highlights

  • Consolidated revenue for Q1/2021 decreased by 6.8% y/y, mainly due to a Q1/2020 largely unaffected by Covid-19.
  • While revenue growth was negative, rising ingredient price (whole milk powder – WMP and skim milk powder – SMP) from the last quarter of 2020 shrunk the company’s Gross Margin (from 46.7% of Q1/2020 down to 43.6%). However, significant reduction in selling and administrative expenses were a big contributing factor, which helped maintaining the decline in profit at a similar pace as revenue (Q1/2021 net profit -6.8% y/y).

Outlook: Milk powder price will hurt FY2021 performance, steady recovery expected afterwards

  • Global milk powder prices have soared over the past few months (17% to 34% YTD, varies by products). From our latest conversation with VNM, this uptrend was resulted from a combination of several factors, including: (1) A higher than usual demand from Chinese market; and (2) Higher feed costs due to higher price of commodities. Although VNM is able to hedge part of this risk by placing order 3-6 months in advance, we still believe that this increase in ingredient price will negatively affect VNM’s gross margin for this year, as 25% of the company’s cost of goods sold are from imported milk powder.
  • Despite revising down our estimates for FY2021, we believe in the measures taken by the company’s management in reducing the impact of rising milk powder price (lowering SG&A expenses, hedging ingredient prices, rising selling price). Furthermore, we maintain a more optimistic view for the global dairy market afterwards, as feed price and consequently milk powder price will decline. Therefore, VNM’s gross margin will improve back.

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