Professional Documents
Culture Documents
2011-2012 - VNM
2011-2012 - VNM
(1)
Business Description
Vinamilk was established in 1976 under the name Southern Coffee-Dairy Company. It was officially
converted into a joint stock company in 2003, when its name was changed to Vietnam Dairy Products Joint
Stock Company. In 2006, Vinamilk was listed on Hochiminh City Stock Exchange (HOSE), since then, its
major shareholder has been State Capital Investment Corporation (SCIC) with approximately 47.3% (2010)
of the Company’s ownership. Other major shareholders of Vinamilk include F&N Dairy Investment with
10.0% of number of shares and Dragon Capital Fund with 7.7% of ownership.
Figure 1: Segment contribution in
Vinamilk’s revenue 2010 Vinamilk has the leading position in Vietnam dairy market with diversified product portfolio, in which
milk products are core contributors
5% Product categories:
15% Liquid milk: Liquid milk is Vinamilk’s biggest and key segment, which contributes 35% of total
35% sales. The segment grew 54% year over year (yoy) in 2010, when Vinamilk introduced pasteurized
milk, using centrifugal technology, the most advanced milk technology in the world, to remove
bacteria.
20%
Condensed milk: Condensed milk is Vinamilk’s well known traditional products, including
“Longevity” and “Southern Star”. Although this category is on maturing stage, the Company
achieved a sales increased 27% yoy in 2010.
25%
Powder milk: Powder milk is sold both domestically and overseas, amounting to 20% of total
liquid milk condensed milk revenue. Its sales in 2010 jumped 49% yoy.
powder milk yoghurt
others Yoghurt: Yoghurt is a strong brand, having a high competitive advantage. The product line has
grown 59% yoy in 2010.
Other categories: Ice-creams, cheeses, cereal, and healthy beverages contribute to 5% of total
Source: Vinamilk
sales.
With its success in running business, Vinamilk has gained a lot of honorable awards. In 2010, Vinamilk
became the first and sole Vietnamese enterprise to be on the list of “Asia 200 Best under a Billion” or top-
performing 200 firms with sales of under USD1 billion (Forbes Asia Magazine). The Company has been
continuously elected to be on Top five private businesses of Vietnam for two consecutive years. Other prizes
that Vinamilk has won include Top ten high-quality Vietnamese goods 2010, Top ten brands in Vietnam
Source: Vinamilk 2010, and Top 50 biggest tax-paying enterprises 2010 in Vietnam.
Vinamilk’s vision is to be the fastest growing sustainable business in dairy and food industry by
building a long-term competitive advantage for its product portfolio across the scale. The Company is
implementing an ambitious plan in Cambodia to significantly enhance capacity by establishing the largest
cow farm in South East Asia. With this project, the number of milk cows is expected to increase to 100,000
by the year 2015. By 2017, Vinamilk expects to reach net sales of USD3 billion and to become one of the top
50 largest dairy products companies in the world.
2
CFA Institute Research Challenge 11.11.2011
A relatively low but gradually increasing dairy consumption per capita: At only 13.2 kg/year in 2009,
and 14.8 kg/year in 2010, Vietnam had a much lower level of milk consumption than other countries in the
region and in the world (Appendix 2). However, it has always been on an increasing trend with CAGR of
19.19% during 2000-2009 and is expected to reach 20kg/year by 2020 as a target in the Ministry of Trade-
issued Government Decision No. 22 (Figure 3). This fact also reflects an increased awareness of the health
benefits of dairy products among Vietnamese consumers.
Potential demand from rural consumers: Dairy consumption is now concentrated in big cities – Hanoi and
Figure 4: Vietnamese dairy product Ho Chi Minh City, where only 10% of the nation’s population accounts for 78% of dairy consumption in the
market sales (USD million) whole country. Therefore, the remaining rural population is a potentially substantial source of demand in the
near future for dairy producers. Recently, Vietnamese dairy producers have focused more on this potential
980 1039 market. Vinamilk’s rural market share has increased more than 50% after one and a half year focusing on this
877
665 698 area. Its sales in rural area have grown by 70% in 2010 yoy. By the end of 2011, rural market will have
contributed up to 50% total revenue of Nutifood, another domestic dairy producer.
The above key drivers have resulted in the continuous growth of Vietnamese dairy product market sales. The
2005 2006 2007 2008 2009
sales rose at CAGR of 11.8%, from USD665 million in 2005 to USD1,039 million in 2009 (Figure 4); and it
is forecasted to rise at about 20-25% from 2010 to 2015, relatively high in comparison with other countries in
Source: Dairy Vietnam the world.
programs supporting the dairy industry in the long term with the objective of enhancing the national capacity
to meet 34% and 38% of domestic milk material demand by 2015 and 2020, respectively. This development
Total number of cows (heads) will help processors reduce the dependence on imported ingredients.
Total milk productions (tons)
Price Trend
Sources: Dairy Vietnam & MARD A “converse” trend against the world and a low customer’s bargaining power: According to the Ministry
of Industry and Trade, in October 2011, in spite of a relatively sharp decrease in powder milk’s imported
input price in the world, prices of milk products (powder milk and liquid milk) in Vietnam market still had an
upward trend and is now about 20-25% higher than other countries in the region. According to Vietnam
Chamber of Commerce and Industry, there have been 16 occasions of increase in milk price in the last three
years at the scale of 3-10% each time. It’s the necessity of milk and the lack of close substitutes that make
consumers hesitantly accept the high milk price. In another word, Vietnamese consumers have a low
bargaining power in determining milk price.
The chance for domestic powder milk products: Given that the CPI level jumped 23.02% in the first eight
Figure 6: Vinamilk’s total revenue and months of 2011, in which food prices increased 34%, and that imported powder milk’s price is often two to
net profit
three times higher than domestic producers’, a proportion of consumers are switching to domestic brands,
1000 25 such as, Vinamilk and Nutifood.
800 20
600 15 COMPETITIVE POSITIONING
400 10 Vinamilk is the market leader in Vietnam dairy industry. The Company holds 39% of the market share
200 5 nationwide. Vinamilk’s total revenue and net profit have been increased significantly in 2006-2010, at CAGR
0 0
of 26.0% and 49.1%, respectively. In 2011, the revenue is estimated to be more than VND20,000 billion,
which is an increase of about 24% compared to the previous year.
2006 2007 2008 2009 2010
Competitive Advantages
Total revenue (USD million)
A market-leading company brand name: After 35 years since establishment, Vinamilk has become one of
Net profit (USD million)
the most well-known brands among milk consumers in Vietnam. The Company has always been selected by
Net profit margin (%)
consumers to be on the Top ten high-quality Vietnamese goods for many years.
Source: Vinamilk
3
CFA Institute Research Challenge 11.11.2011
A diverse product range: Vinamilk produces more than 200 products for domestic sales and for export. It
has a product mix ranging from dairy products to ice-creams, cheese, and healthy beverages. Vinamilk’s
goods serve a variety of customer groups, from children, teenagers, adults, pregnant women, to elder people.
An extensive sales and distribution network: Vinamilk’s sales and distribution network, which is one of
the largest networks in Vietnam, includes 220 distributors and over 140,000 outlets all over the country.
A reliable supply chain control: Vinamilk keeps very close relationships with suppliers to ensure high-
quality milk by locating factories near farms of milk cows. Currently, the Company is purchasing 50-60% of
domestic raw milk. Moreover, Vinamilk has developed its own sources of supply; its plan of reaching
100,000 cows by 2015 should help the Company control 40-50% of milk input by then.
Figure 7: Liquid milk market share Application of modern technology in milk processing and producing: The Company has signed
agreements with some leading companies in the world for R&D support. Vinamilk’s production lines are
44%
equipped with modern technology from Germany, Italia, and Switzerland; it takes advantage of a system
Vinamilk called Enterprise Resource Planning (ERP) powered by Oracle to manage inventory and minimize spoilage
others
loss.
An experienced and dedicated management team: Most of Vinamilk’s Board members have been devoting
to the Company for more than 20 years.
56%
Competitive Evaluation by Segment
Sources: MIT & Vinamilk Among Vinamilk’s portfolio, liquid milk, powder milk, condensed milk, and yoghurt are four core products.
Liquid Milk – Vinamilk – The Dominating Player (Figure 7)
In 2010, Vinamilk has the biggest market share of more than 44%. However, the firm’s competitors are
heavily investing in the segment. Dutch Lady, the second dominating producer in liquid milk segment in
Figure 8: Powder milk market share
Vietnam, has just invested USD40 million to build the most modern factory in South East Asia. This factory
10% includes a liquid milk and yoghurt plant and another powder milk plant. TH Milk, a new brand in liquid milk,
5% 20%
Vinamilk
has invested heavily in dairy farms, processing factories and logistic channels with the intention to provide
customers with 100% fresh milk. We expect in the near future, TH Milk will be Vinamilk’s main rival in the
foreign liquid milk market. Despite facing great competition from Dutch Lady, and recently, TH Milk, Vinamilk can
companies
Nutifood maintain the competitive advantages in this segment. What is more, Vinamilk 100% liquid milk meets
international standards, including ISO 9001:2008, and HCCP (Hazard Analysis and Critical Control Points).
others It is expected that this segment will grow at CAGR of about 25% for the whole industry during the next five
years.
65%
Sources: MIT & Vinamilk Powder Milk – The Fierce Competition from Imported Products (Figure 8)
The most intense competition takes place in this segment, which is predicted to grow at 30% in 2012-2016.
The powder milk market is currently dominated by foreign producers, which currently accounts for more than
65% of total market share. In 2010, Vinamilk held 20% of powder milk market share and its major
Figure 9: Condensed milk market
share
competitors are Abott, Mead Johnson, Dutch Lady and Nutifood. In order to gain more market share in this
segment, Vinamilk is focusing more on marketing and R&D activities. Until now, Vinamilk has successfully
20%
applied nutritional development in many of its products, including Dielac Powder Milk (Dielac Alpha, Dielac
Mama, and Ridielac). Especially, in 2011, Vinamilk has signed an agreement with three leading European
Vinamilk partners, namely DSM Group and Lonza Group of Switzerland and the Denmark-based Hansen group, for a
Dutch Lady program to study and apply nutrition science to the development of special nutritional products for
Vietnamese children. Moreover, this segment is supported by a national campaign “Vietnamese buys
Vietnamese goods”.
80%
Sources: MIT & Vinamilk Condensed Milk – A Maturing Segment (Figure 9)
The consumption of condensed milk is mainly from low income rural areas. In general, Vinamilk and Dutch
Lady dominate this segment, with market share of 80% and 20%, respectively. The competition in this
Figure 10: Yoghurt market share segment is relatively low and this segment is starting to mature. We, however, forecast this division to grow
Spoon yoghurt Drink yoghurt at CAGR of about 15% in 2012-2016 as a result of condensed milk’s sales growth in rural areas and in export
10% markets.
26
% Yoghurt – The Threat from New Entrants (Figure 10)
This is a potentially high-growing segment with a few participants, including Bavi milk (IDP), Kido (Kinh
Do), Moc Chau and Yakult (from Japan). Among these, Vinamilk controls 90% market share of spoon
yoghurt and 26% market share of fermented drink yoghurt, with revenue growth of both product lines was
74
more than 50% per year in 2010. Currently, to compete with Vinamilk, Kido targets high-end customers and
90% % children; and Yakult focuses on fermented drink yoghurt while starting to offer the market with spoon
Vinamilk others
yoghurt. Besides, attracted by the high growth of this market, about 30-40% in 2012-2016, some new
entrants, such as, Yogood, Casei and Betagen (from Thailand), have threatened the dominating positions of
existing players. Competition in this market is expected to intensify in the future; however, it is still at the
growing stage and opportunities are available for every company.
Investment Summary
We initiate a HOLD recommendation for Vinamilk share with a year-end target price of VND144,000,
offering a 4.40% upside from the current stock price of VND138,000 on November 11th, 2011
Firstly, there is an increasing trend in stock price overtime. Despite a deep fall of nearly 40% in stock
price during 2008 due to the global financial crisis that negatively affected Vietnam stock market, the overall
trend of growth has been observed from 2009 to current 2011. In 2011 particularly, Vinamilk experienced a
dramatic rise of more than 40% in stock price from VND87,000 in January to VND127,000 in October;
moreover, Vinamilk stock markedly outperforms VN-index which has been declining throughout the year.
The key for Vinamilk success is increasing milk consumption in domestic market. Thanks to continuous
growth in disposable income of about 10% per annum and increasing awareness of healthy benefits from
using dairy products, dairy consumption per capita has been increasing at annual rate of about 10% during
2007-2011 period and is expected to rise at 20-25% through this decade.
Vinamilk has the ability to maintain its high organic growth. Firstly, being the leader in domestic dairy
industry, Vinamilk experienced high sales growth from 26-49% during the last three years and total sales are
forecasted to increase at an annual rate of 27.6% until 2015. Secondly, although EPS is expected to decrease
in 2011 and 2012 due to recent announcement of 50% stock dividend, it will increase by nearly 27% per
annum from the year 2013. Furthermore, Vinamilk is in a healthy financial condition with low level of
liquidity risk and steadily high amounts of CFO. In the future, we expect the Company will keep a minimal
Long-term Debt/Equity ratio of 0.11, which is an average level for dairy firms in Asia.
The price target of Vinamilk using discount methods and multiples analysis is VND144,000, a 4.40%
return from the stock price of VND138,000 on November 11th, 2011. Under discount methods, our
adjusted levered equity beta for target capital structure is 0.79; subsequently, the cost of equity capital and
WACC are 16.50% and 16.00%, respectively. The resulting prices using discount models range from
VND102,662 to VND151,923. On the other hand, in multiples analysis, six regional peers are selected, of
which four peers with similar capital structure are used to average multiples and the remaining two peers are
for contrasting purposes (Appendix 18). Accordingly, the price target using P/E, P/B, EV/EBITDA and
EV/EBIT multiples varies from VND64,527 to VND184,437. Thus, from these outputs, we conclude with a
median price of VND144,000 for Vinamilk share. Overall, we offer a HOLD recommendation.
Finally, some of the main risks that Vinamilk is confronting come from sanitation and quality control,
fluctuations in imported input prices, and intense competition in domestic market. First, ensuring
product quality through an effective ERP system and R&D in nutrition science will be critical to the strategic
management of Vinamilk. And, continuous investment in its own supply sources also helps the Company
reduce its current reliance on imported input and maintain its leading position. Last but not least, Vinamilk
will be facing strong competition in the future, especially from TH Milk.
5
CFA Institute Research Challenge 11.11.2011
Figure 11: Vinamilk’s share price and news flow in the last two years
Source: chart.vietstock.vn
Table 1: Valuation
Assumptions for DDM Discount Methods
Equity Beta (unlevered) 0.73 Dividend discount model (DDM)
Target D/E 0.11 DDM is our first choice as a method of valuation because Vinamilk is one of the companies that have
Risk premium 9.50% consistently committed to stable-payout-ratio dividend policy and no changes are expected regarding this
Effective tax rate 18.00% matter in the future.
Equity Beta (levered) 0.78
Risk-free rate 9.20% The Company’s current market beta is 0.60 but due to long prediction period and the fact that 2011 is an
Cost of equity capital 16.50% unusually volatile year for Vietnam’s economy we opt to use the adjusted beta of 0.73. After adjusting for
Payout Ratio target capital structure with Long-term Debt/ Equity ratio of 0.11, our levered beta is 0.78. Assuming a risk-
(2011 – 2015)
45.00%
free rate of 9.20% (10 year T-bond rate, adjusted for default risk) and market risk premium of 9.50% results
Dividend growth rate Exponential
(2016 – 2025) decay in 16.50% cost of equity capital with CAPM.
Dividend growth rate 4.50%
(After 2025)
The key driver of this valuation is the high projected sales growth at CAGR of 27.6% between 2011 and
10 year T-bond yield 12.50%
2015. Taking into consideration the recent figures of 25.5% to 48.6% in the last three years, this is a sound
CDS Spread 466bps
number. Moreover, the Company’s ability to sustain high profit margin and dividend payout ratio will also
Liquidity factor in
30% play a critical role. According to our estimation, Vinamilk is expected to maintain a gross margin and net
CDS Spread
margin of approximately 32% and 19.7% respectively while distributing 45% of its earnings as dividends
Sources: Bloomberg, Asian Bonds Online, each year.
CMA, & HANU estimates
Consequently, the outcome is an intrinsic value of VND102,662 with mid-year adjustment.
Table 2: Owing to the nature of DDM, our price target is exposed to variation of assumptions consisting of (i) the
Assumptions for FCFF pressure from input cost and fierce competition which will dampen sales and reduce dividends, (ii) the
Cost of equity capital 16.50% difficulty in balancing substantial capital expenditure and a high payout ratio, and (iii) the instability of the
Cost of debt capital 14.50% economy which could significant undermine the correctness of our forecasts.
Target D/E 0.11
Effective tax rate 18.00% Discounted cash flow (DCF)
WACC 16.00% In addition, we also apply DCF method to our valuation. Like DDM, sales growth and profitability continue
FCFF growth rate Exponential
decay
to be the main catalysts and lead to improving CFO, despite increased investments in net working capital.
(2016 – 2025)
FCFF growth rate With regards to its expansion plan for the period 2011 - 2013, Vinamilk is expected to commit a significant
(after 2025) 4.50% amount to capital expenditure as illustrated by our forecasts in the pro forma statement of cash flows
(Appendix 10). Historically, the source of long-term debt capital for the Company has been borrowings from
Sources: Bloomberg & HANU estimates
6
CFA Institute Research Challenge 11.11.2011
Table 3: domestic banks at a margin above average 1-year term deposit rates. Therefore, we estimate the cost of debt
Assumptions for FCFE for Vinamilk to be 14.50% in the foreseeable future.
Cost of equity capital 16.50%
FCFE growth rate Exponential The results from DCF valuation are VND151,923 for FCFF and VND144,068 for FCFE . Due to their similar
(2016 – 2025) decay
FCFE growth rate nature, DCF inherits both the strengths and weaknesses of DDM. On the one hand, it sheds light on the true
4.50%
(after 2025) intrinsic value of the firm’s equity. On the other hand, it’s highly sensitive to changes in assumptions (D/E
ratio, Effective Tax Rate, Cost of equity, Cost of debt, etc.).
Sources: Bloomberg & HANU estimates
To remedy part of the problems outline above and account for the historical share price volatility (about
Table 4: 20%), sensitivity analyses are conducted to determine share price at various level of constant growth rate and
Method Valuation cost of equity for DDM and both versions of DCF (Appendix 15, 16, and 17).
DDM VND102,662
FCFF VND151,923 Multiples analysis
FCFE VND144,068 Additionally, price and enterprise value multiples are used to offer an alternative perspective on Vinamilk.
Six regional players are selected, of which the first four are used to average multiples Vinamilk and the other
Source: HANU estimates two are only for comparison and contrast purposes due to substantial differences in capital structure
(Appendix 18).
Table 5: The price multiples give conflicting signals. P/B appears to demonstrate the opposite at higher than average
Multiples Vinamilk Industry level, whereas P/E indicates a relatively cheap price at lower than average level. Subsequently, two markedly
P/E 13.60x 17.46x different estimates of Vinamilk share price are computed, VND184,437 using P/E and VND64,527 using P/B
P/B 4.73x 2.12x with the median measures acting as proxies for industry benchmarks. Given the outstanding performance of
EV/ EBITDA 10.70x 8.85x Vinamilk as demonstrated by its ROA and ROE ratios in 2010, respectively 2.9x and 2.3x industry averages,
EV/ EBIT 11.69x 16.80x our “Discount methods” price targets of VND102,662 to VND151,923 appear to be reasonable, lying
EBITDA Margin 23.07% 10.23% between the two extremes above. Moreover, in the future, we expect Vinamilk to continue to acquire fast
growth rates in sales and maintain high margins, which further enhances the stock price upside potential.
Sources: Bloomberg & HANU estimates
The analyses of enterprise value multiples further cement this argument. Despite having twice as high
EBITDA Margin in comparison to the industry, its EV/ EBIT are just nearly two thirds of the respective
Table 6:
benchmark. Conversely, EV/EBITDA Margin was higher than industry number. Using medians for industry
Multiples Valuation
figures and book value as estimates of market value for Debt and Cash produces a range of VND97,255 to
VND175,647 for Vinamilk share price.
P/E VND184,437
P/B VND64,527 The robustness of this model, however, is somewhat hindered by the fact that Vietnam’s dairy industry has
EV/ EBITDA VND97,255 exhibited some unique characteristics compared to others in Asia, in both milk consumption and product
EV/ EBIT VND175,647 prices as highlighted in our industry analysis. The differences in competitive positioning of each company
also raise questions on the reliability of comparison. For instance, the China dairy market has three major
Source: HANU estimates companies, namely Bright Food Group, China Mengniu Dairy Co Ltd and Yili Group, totaling to 38.80% of
market share in 2009, which was roughly Vinamilk’s share in Vietnam market in the same year.
The verdict
Ultimately, to synthesize the results of the two modes, we use the median of the produced numbers and arrive
at a year-end target price of VND144,000. This is a 4.40% return from the share price on November 11th,
2011 (VND138,000). Taking into account all the uncertainties with regards to the two valuation models and
historical volatility of Vinamilk share price, we propose a price range of 20%, which is equivalent to an upper
bound of VND173,000 and a lower bound of VND115,000. As a result, we offer a HOLD recommendation.
7
CFA Institute Research Challenge 11.11.2011
Figure 13: Vinamilk’s EBITDA The overall increasing trend of EBITDA margin and EPS
margin EBITDA margin has increased in recent years as a result of the improving gross profit margin, which was
24% 23% driven by the economies of scale and ERP application. In 2010, EBITDA margin was about 23% and this
23%
figure was much better than those of the major peers in Asia region with the average EBITDA margin of
17% approximately 12.14% (Appendix 18). In our forecast, EBITDA margin will be stable at about 23% in the
11% 12% next five years (Figure 13).
In addition, EPS enjoyed a remarkable growth from VND3,653 (2008) to VND10,251 (2010). In 2011, the
Company issued 5% additional stock and 50% stock dividend, which makes EPS decrease in 2011 and 2012.
However, EPS is forecasted to grow at the rate of 27% from 2013 onwards (Appendix 5).
8
CFA Institute Research Challenge 11.11.2011
2010, advised by Ernst & Young Vietnam, the Company improved its risk management system in all
activities, goals, and important programs to bring more value to shareholders and gain the trust of customers.
Besides, Vinamilk continues to communicate effectively with investors through its annual shareholders’
meetings and investor relations function.
Vinamilk has consistently engaged in corporate social responsibilities (CSR). The Company has
cooperated with the Ministry of Education and Training to set up a scholarship foundation named “Vinamilk
– Nurturing Vietnamese Young Talents”, and co-founded Vietnam Development Milk Fund with Vietnam
Children Support Fund, among other programs (Appendix 7).
Investment Risks
Operational Risks
Food safety and nutrition control
Dairy products can directly affect consumers’ health, especially children’s. The drug residue (following
treatment of cows), and the toxic substances like melamine and other toxins produced by bacteria might be
harmful to consumers. Therefore, ensuring high product quality is crucial for the strategic management of
every producer in this intensely competitive environment, and safety control is required in every stage of
production from acquiring of raw material, storing, processing and packaging to distributing and retailing.
Hanoimilk Joint Stock Company, for instance, fell victim to the “Melamine Storm” originated from China.
The Company, then, suffered a financial loss of VND40 billion and even more severe loss of consumers’
belief although the Ministry of Health did make a formal apology for its misleading melamine testing result
of Hanoimilk products afterwards. Despite the fact that Vinamilk was not affected by the melamine scandal,
the firm will have to pay a great deal of attention to prevent even the smallest mistakes in quality control,
Figure 17: Raw milk price volatility in
which can significantly damage the Company’s long-built reputation.
2010 (USD/ton)
May
Jan
Sep
Oct
Dec
Mar
Apr
Jun
Jul
Aug
Nov
intense. The forecasted profitability of Vietnamese market will undoubtedly be a motive for multinational
Australia skim milk dairy companies to enter, especially in powder milk and yoghurt segments, where customers’ demands are
Australia fat milk
growing and profit margins are larger at about 30-40%. In the market of liquid milk, although Vinamilk is
Europe skim milk
now the dominant player, it is getting riskier with the aggressive strategic moves from Dutch Lady and the
entrance and popularization of TH Milk. We anticipate in the near future, TH Milk will be Vinamilk’s main
Europe fat milk
rival in the liquid milk market.
Source: USDA
Financial Risks
Foreign exchange risk
Because Vinamilk still relies on imported inputs, the depreciation of VND should reduce the Company’s
profit margin. Since the beginning of 2010, depreciation pressure on VND has increased. By November 2011,
VND/USD has declined 12.4% compared to January 2010’s figure, and it is expected to depreciate further
(Appendix 6). In order to manage this risk, Vinamilk has held sufficient foreign currency to hedge the foreign
exchange risk from imported materials and other international projects that require foreign currency
payments. At the end of the third quarter 2011, the Company accumulates USD17 million.
Strategic Risk
In recent years, Vinamilk has unsuccessfully expanded its operation to other nondairy markets, such as, beer
and instant coffee, which have never been their strengths. By March 2009, Vinamilk had sold 50% ownership
of its beer joint-venture back to SABMiller Asia after only two years of operation. In 2010, five years after
establishment, it had to sell Café Moment to Trung Nguyen Coffee. Currently, Vinamilk is investing in its
new Vfresh soft drinks and a lot of uncertainty about this product line’s future is waiting ahead.
9
CFA Institute Research Challenge 11.11.2011
Appendices
Appendix 1
Vietnamese’s annual disposable income (USD million) - Source: Euromonitor International
80000
60000
40000
20000
0
2007 2008 2009 2010 2011
Appendix 2
Milk consumption per capita in 2009 (kg/ year) - Source: APHCA
176
92 96
62 66
29
13.2
Appendix 3.
Retail price for liquid milk 2010 (USD per litre) – Sources: Euromonitor & Jaccar Equity Research
1.7
1.6
1.5
1.4 1.4
1.3 1.3
1.2 1.2 1.2 1.2 1.2
1.1 1.1 1.1 1.1
1.0 1.0 1.0 1.0
0.9 0.9
0.8 0.8 0.8
0.6
0.5
Chile
Canada
UK
Turkey
Brazil
China
USA
Russia
Mexico
Hungaria
Portugal
Germany
Australia
Czech
Austria
Belgium
India
Indonesia
Netherland
Poland
Vietnam VNM
Swenden
Switzerland
Ireland
Vietnam Avg
New Zealand
South Korea
10
CFA Institute Research Challenge 11.11.2011
Appendix 4
Vinamilk’s ratios – Sources: Vinamilk & HANU estimates
Appendix 5
Vinamilk’s EPS (VND) - Sources: Vinamilk & HANU estimates
21,000
18,000
15,000
12,000
9,000
6,000
3,000
0
Appendix 6
VND per USD from January 2010 to November 2011 - Source: XE
(6)
Excluding non-interest bearing debt
11
CFA Institute Research Challenge 11.11.2011
Appendix 7
Vinamilk’s corporate social responsibilities – Source: Annual report 2010
Appendix 8
Balance sheet (VND million) – Sources: Vinamilk & HANU estimates
12
CFA Institute Research Challenge 11.11.2011
Appendix 9
Income statement (VND million) – Sources: Vinamilk & HANU estimates
Appendix 10
Statement of cash flow (VND million) – Sources: Vinamilk & HANU estimates
Items 2009 2010 2011E 2012E 2013E 2014E 2015E
Net Income 2,375,693 3,616,186 3,985,588 5,123,613 6,544,402 8,308,572 10,494,113
Depreciation and Amortization 234,078 290,131 402,692 526,940 681,722 874,324 1,112,867
Provisions/ (Reversals of provision) 62,020 (3,795) 51,765 64,700 65,303 99,785 120,875
Losses/ (Gains) from non-operating
(160,382) (376,241) (23,751) (29,680) (37,256) (46,860) (58,971)
activities
Cash flow before changes in
2,511,409 3,526,281 4,416,294 5,685,573 7,254,171 9,235,821 11,668,884
working capital
Decrease/ (increase) in Inventories 453,952 (1,110,497) (897,775) (928,920) (1,159,728) (1,440,016) (1,783,962)
Decrease/ (increase) in Receivables (133,718) (322,146) (640,271) (497,428) (626,782) (778,076) (963,819)
Decrease/ (increase) in Prepayments 10,276 (14,275) (18,230) (44,134) (55,100) (68,417) (84,758)
Increase/ (decrease) in Payables 454,584 455,517 732,473 788,815 985,298 1,243,524 1,539,766
Net other operating cash flows (130,917) (243,466) (1,414,212) 297,196 85,939 533,813 565,687
Cash flow from operation 3,165,586 2,291,414 2,178,279 5,301,102 6,483,798 8,726,649 10,941,798
Net change in Cash 87,538 (162,662) 208,026 136,048 156,669 210,600 258,501
Beginning Cash balance 338,654 426,135 263,472 471,499 607,546 764,215 974,815
Other adjustments (57) (1) - - - - -
Ending Cash balance 426,135 263,472 471,499 607,546 764,215 974,815 1,233,316
13
CFA Institute Research Challenge 11.11.2011
Appendix 11
DDM – Source: HANU estimates
Appendix 12
FCFF model – Source: HANU estimates
14
CFA Institute Research Challenge 11.11.2011
Appendix 13
FCFE model – Source: HANU estimates
Appendix 14
Sales forecast (VND million) – Sources: Vinamilk & HANU estimates
15
CFA Institute Research Challenge 11.11.2011
Appendix 15
DDM sensitivity analysis (VND) – Source: HANU estimates
Appendix 16
FCFF sensitivity analysis (VND) – Source: HANU estimates
Appendix 17
FCFE sensitivity analysis (VND) – Source: HANU estimates
16
CFA Institute Research Challenge 11.11.2011
Appendix 18
Peer evaluation – Sources: Bloomberg & HANU estimates
Long
Price Market Cap P/E P/E P/B ROA ROE EBITDA -term
COMPANIES’ NAMES EV/EBITDA EV/EBIT
(USD) ( USD million) 2011E 2012E 2011E 2010 2010 Margin D/E
2010
Yashili International Holdings Ltd 0.17 593.32 9.99 8.94 0.94 2.20 2.55 14.99% 20.06% 22.42% -
China Mengniu Dairy Co Ltd 3.34 5,896.05 22.52 17.92 3.29 13.34 19.77 7.88% 13.50% 6.97% 0.02
Fraser & Neave Holdings Bhd 5.59 2,014.46 20.93 19.54 3.55 11.62 13.82 24.27% 45.01% 13.49% 0.08
Maeil Dairy Industry Co Ltd 9.85 131.87 13.99 9.25 0.50 6.07 21.95 4.24% 8.37% 5.67% 0.09
Bright Dairy & Food Co Ltd 1.46 1,524.36 39.31 32.32 3.86 22.81 45.12 3.85% 8.76% 4.98% 0.24
Nestle Malaysia Bhd 15.94 3,738.43 25.23 23.79 18.11 19.57 22.83 22.42% 66.31% 14.63% 0.53
Average 4.74 2158.93 16.86 13.92 2.07 8.31 14.52 12.84% 21.73% 12.14% 0.05
Median 4.47 1,303.89 17.46 13.59 2.12 8.85 16.80 11.43% 16.78% 10.23% 0.05
Maximum 3.34 5896.05 22.52 17.92 3.29 13.34 19.77 14.99% 20.06% 22.42% 0.02
Minimum 0.17 593.32 9.99 8.94 0.94 2.20 2.55 7.88% 13.50% 6.97% -
Vietnam Dairy Products JSC 6.85 2,541.12 13.60 10.75 4.73 10.70 11.69 37.56% 50.16% 23.07% -
Appendix 19
Vinamilk’s product categories – Source: Vinamilk
liquid
milk
powder
cereal
milk
condensed
cheese VINAMILK
milk
ice-
yoghurt
creams
Vfresh
17
CFA Institute Research Challenge 11.11.2011
Disclosures:
Ownership and material conflicts of interest:
The HANU(s), or a member of their household, of this report [holds/does not hold] a financial interest in the securities of this Company.
The HANU(s), or a member of their household, of this report [knows/does not know] of the existence of any conflicts of interest that might bias the content
or publication of this report. [The conflict of interest is…]
Receipt of compensation:
Compensation of the HANU(s) of this report is not based on investment banking revenue.
Position as a officer or director:
The HANU(s), or a member of their household, does [not] serves as an officer, director or advisory Board member of the subject Company.
Market making:
The HANU(s) does [not] act as a market maker in the subject Company’s securities.
Ratings guide:
Banks rate companies as either a BUY, HOLD or SELL. A BUY rating is given when the security is expected to deliver absolute returns of 15% or greater
over the next twelve month period, and recommends that investors take a position above the security’s weight in the S&P 500, or any other relevant index.
A SELL rating is given when the security is expected to deliver negative returns over the next twelve months, while a HOLD rating implies flat returns over
the next twelve months.
Disclaimer:
The information set forth herein has been obtained or derived from sources generally available to the public and believed by the HANU(s) to be reliable, but
the HANU(s) does not make any representation or warranty, express or implied, as to its accuracy or completeness. The information is not intended to be
used as the basis of any investment decisions by any person or entity. This information does not constitute investment advice, nor is it an offer or a
solicitation of an offer to buy or sell any security. This report should not be considered to be a recommendation by any individual affiliated with [Society
Name], CFA Institute or the CFA Institute Research Challenge with regard to this Company’s stock.
18