Company Quarterly Earnings Update – VNM VN – Q2 2022

Summary of the Q2/2022 results of Vinamilk JSC (VNM VN)

H1/2022 Results: Highlights

Net revenue remained flat at VND28,808bn, due to a combination of factors: (1) a 1.2% drop in the domestic market to VND24,129bn, accounting for 83.8% of total revenue, because of the dairy industry’s 4.0% y/y decline in urban areas, and (2) a 4.5% y/y increase in international market sales to VND4,679bn, mostly stemming from (i) Angkor milk and Driftwood (+24.7% y/y).

Despite the company’s flexible and drastic efforts in strategy: (1) materials hedging, (2) an est.5.5% increase in the average selling price, and (3) a 18.4% decline in advertising and market research costs, the sharp hike in input raw materials along with higher promotional costs for distributors and an increase in transportation expenses resulted in a 19.6% y/y drop in net profit to VND VND4,348bn

Outlook 2022-2023

For 2022: Revenue is expected to grow faster in H2/2022 bringing an 11.0% growth in 2022F to VND56,623bn thanks to (1) a strong rebound in the F&B industry, out-of-home channels (café, restaurants, bakeries) as well as a recovery of the school milk program compared to last year’s low base during the social distancing and lockdown periods, (2) quick expansion of the “Giacmosuaviet” retail system nationwide (+16.7% y/y to 700 stores in 2022), (3) higher ASP vs last year, and (4) higher export orders due to a cooling of freight costs. As for net profit, the H2/2022 gross margin is expected to improve following the downtrend of SMP and WMP (-23.4% and -21.8%, respectively, from Q2/2022). Overall, VNM’s average input milk costs for 2022 are projected to rise by 20-22% y/y over the 15.0% projected previously. Meanwhile, VNM raised the ASP by an est.5.5% to lessen the impact on profit margins. As a result, the forecast net profit is revised down slightly by 2.9% to VND10,610bn (+0.7% y/y).

For 2023: we retain our net revenue forecast of VND71,605bn (+5.9% y/y). The gross margin is expected to recover to 43.0% driven by (1) lower input milk prices due to a cooling of tensions in Ukraine along with easing in cow feeds and freight costs, (2) a higher contribution of export markets with greater profitability, (3) a higher contribution of new Super Nut products with a greater profit margin, and (4) an improved gross margin of Moc Chau milk (VNM’s indirect subsidiary) thanks to VNM’s restructuring. Overall, we maintain our bottom line forecast of VND12,025bn (+13.4% y/y).

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