Looking for the profitability of the industry leader in the dairy industry – Vinamilk

DNHN - Steady growth is typically accompanied by a positive, low-volatility cash flow from operations that is sufficient to fund investments, pay dividends and service debt, and is generated sustainably from operating profit. core operations...

Cash flow from operating activities, measured in correlation with profit after tax, is a well-known criterion for assessing the quality of profit from business activities. business operations of the organization. This index reflects the internal business's ability to generate revenue as well as the company's financial health.

The cash flow of a business can vary based on its industry and stage of development. In general, companies with consistent growth have positive, low-volatility cash flows from operations that are sufficient to finance investments, pay dividends, and leverage debt and are generated sustainably by the profitability of their core business and stable working capital turnover. At that time, the ratio of cash flow from business activities to profit after taxes will remain relatively constant over the years, demonstrating the high quality of the company's profits, as it indicates that 1 dong of real profit will be realized. There is one cash return. This ratio has been consistently high at Vietnam Dairy Products Joint Stock Company (Vinamilk, HOSE: VNM) over the past decade.

Ten-year determinants of Vinamilk's ability to maintain a stable cash flow ratio from business activities/profit after taxes

 In the past decade, Vietnam's dairy market has experienced numerous fluctuations. The global economic recession and high inflation have had a direct impact on the demand for dairy products among consumers. Consumption patterns are becoming increasingly diverse. During that time, these external fluctuations also hurt the dairy industry, but a few large companies still maintained stable revenue. In addition to efforts to promote competitive advantage, this is partially due to trade credit adjustments that are flexible and sales policies that are reasonable.

Many raw milk products will experience record price increases in 2022, with some groups increasing by 100 percent. In addition, the price of transportation, animal feed, and fertilizer rose, which drove up production expenses. Nonetheless, Vinamilk was able to sustain a high level of stable Cash Flow from operating activities/profit after taxes. In addition, this index is the second highest in 2022 and the highest since the COVID-19 pandemic.

To effectively manage the ratio of cash flow from business activities to after-tax profit, businesses must strictly control revenues and expenses in sales, service provision, purchase of goods, and inputs. from there, optimizing cash flow and ensuring cash flow stability. In light of fluctuations in the price of imported materials, such as in 2022, Vinamilk's management stated that the company has reviewed its entire distribution system to plan sales and bring raw materials and finished goods to market. Sales at the appropriate level and product quality consistency are required.

Taking advantage of the business's abundant cash flow, the company actively invests in expanding its raw milk supply to better manage input costs. VNM is completing a system of dairy farms with raw material self-sufficiency that meets international standards. Currently, VNM owns fifteen dairy farms in Vietnam and Laos, as well as sixteen modern domestic and international dairy factories.

As of March 31, 2023, the consolidated net cash balance represented over 24% of total assets. At 14%, the debt-to-total-asset ratio is more optimal than it was at 10% at the end of the prior year to maximize leverage in operations and capital turnover.

Prospects for 2023

In the decade from 2013 to 2022, VNM's gross profit margin averaged over 43% per year, ranking it second among dairy industry public companies. In addition, VNM's return on assets (ROA) ratio has reached approximately 27 %/year over the past ten years, the highest level among other businesses in the dairy industry listed on the stock exchange. Return on equity (ROE) also maintained an annual average of 36%, outperforming many other businesses in Vietnam operating in the same industry.

Bao Viet Securities (BVS) statistics indicate that VNM's ROA and ROE rates for 2022 were 26% and 17%, respectively, when compared to other F&B companies around the world. This result is better than many well-known F&B giants, including Meji (Japan), Morinaga (Japan), Lotte (Korea), Option (Korea), and Mengniu Dairy (China).

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VNM begins implementing its next five-year strategy in 2022. Ms. Mai Kieu Lien admitted candidly, "Since last year, we've begun implementing the 5-year strategy by identifying the scope and issues that need to be addressed before 2023." All production export, domestic sales, international sales, research and development, and personnel blocks. In my opinion, all results are positive, and we can have confidence in VNM's future."

To achieve the revenue target of VND 63,380 billion and the profit after tax target of VND 8,622 billion by 2023 in a business environment fraught with many obstacles and challenges, VNM is determined to transform to overcome the shadow of its past successes. Here, realize the new era's full potential.

Beginning in 2023, Vinamilk has developed and implemented plans to generate momentum for growth. Faced with intense competition in the powdered and liquid milk industries, the company is examining all of its major product lines to ensure their continued viability. Superior quality in comparison to rivals, while simultaneously enhancing the introduction of new products, communication, and product promotion.

Mid-April, VNM signed a strategic partnership with six of the world's foremost nutrition groups to apply nutritional scientific advances to infant formula product lines that meet or approach international standards. Breast milk is pure gold.

According to CEO Mai Kieu Lien, speaking at the 2023 Annual Shareholders' Meeting, the second and third quarters will be seasonal for all products, and VNM will concentrate on optimizing revenue and profit in these two quarters. This is also the time when prices for raw materials are stable. Ms. Lien reported that the company has fixed the price of imported milk powder through August 2023.

According to Global Dairy Trade, the prices of whole milk, skim milk powder, and anhydrous fat have decreased by almost 40 percent from their mid-2022 peak to the equivalent of 2021 as of April.

According to VNDirect Securities, the price of whole milk powder is anticipated to decrease by 5% in 2023, which will be the primary factor in VNM's gross profit margin increasing by 0.9 percentage points to nearly 41% this year.

VNM has also signed 100 million dollar export contracts and will continue to promote exports in the second half of the year. In 2023, the Board of Directors expects the total value of signed export contracts to reach 220 million US dollars.

VNM and Sojitz of Japan began construction on the Vinabeef Tam Dao beef production and processing complex in March. The total value of the cooperation agreement is up to USD 500 million. On an area of 75,6 hectares, the complex consists of two primary subdivisions: a 10,000-head beef farm and a cool beef processing factory with a capacity of 30,000 heads/year (10,000 tonnes of products). It is anticipated that the project will go into operation in 2024, producing Vinabeef-branded beef processed using Japanese technology.

Thien Huong