ANALYSIS OF THE PERFORMANCE AND VALUATION OF THE VIETNAM DAIRY PRODUCTS JOINT STOCK COMPANY

Introduction

Despite the global economic downturn caused by the Covid-19 pandemic, Vietnam's dairy industry has shown remarkable resilience and growth potential Experts highlight that the country's per capita milk consumption remains low, indicating significant room for expansion Research from the Vietnam Feed Association (VFA) reveals that demand for raw fresh milk surged by approximately 61%, rising from 500 million liters in 2010 to 805 million liters in 2015 With a population growth rate of 1.2% annually and a GDP growth rate of 6-8% per year, alongside a 14.2% increase in per capita income, the Vietnamese dairy market is poised for continued growth This trend is further supported by a rising awareness of health and nutrition among the population, ensuring sustained demand for dairy products.

By 2020, the average milk consumption per person is expected to increase from 15 liters to 28 liters annually The dairy industry has seen significant growth, with numerous corporations entering and exiting the market Notable successes include TH True Milk, Dutch Lady, Nestle, and NutiFood Among these, one corporation has distinguished itself by ranking in the top 200 best revenue companies in the Asia Pacific, each generating over 1 billion in revenue.

2019 (Forbes Asia), is Vietnam Dairy Products Joint Stock Company (VNM) Developing for at least

40 years, Vinamilk increasingly asserted its position in the market Their price of shares and financial reports have been published in the official exchange market.

Vietnam Dairy Products Joint Stock Company (VNM), established on August 20, 1976, is a leading brand in the food and beverage industry, serving a diverse range of nutritious products to both domestic and international customers Specializing in milk, probiotics, yogurt, ice cream, soft drinks, and coffee, Vinamilk operates a network of factories across Vietnam and internationally, including locations in Myanmar, Thailand, New Zealand, and 20 other countries Recognized for its excellence, VNM has received numerous prestigious awards from the government and continues to invest in innovative technologies, advanced equipment, and the development of dairy farms, solidifying its position as a prominent brand in the market.

TIEU LUAN MOI download : skknchat@gmail.com

The mentorship provided by Boards of Directors and the Chief Executive Officer is crucial for achieving success in today's business landscape Le Thi Bang Tam has been the Chairwoman of Vinamilk for six years, leading a team that includes nine other members: Mai Kieu Lien, Michael Chye Hin Fah, and Lee Meng Tat, among others.

Le Thanh Liem, Do Le Hung, Dang Thi Thu Ha, Alain Xavier Cany, Nguyen Thi Tham,

Since 2015, Nguyen Ba Duong and Michael Chye Hin Fah have been key figures in the company, with insiders Ms Tam and Ms Lien holding significant shares Ms Lien possesses the largest stake at 0.26%, while the other insiders hold less than 0.05% The remainder of the capital is contributed by the State Capital Investment Corporation and other businesses.

(SCIC) was found to be 36%, whereas F&N Dairy Investments Pte Ltd accounted for 17.69%.

Evaluation of the performance and value of the company

Analysis of financial statement

Rati o Averag Averag Comm e e (5 e (5 nt

From 2016 to 2020, Vinamilk had witnessed some positive changes that affected the operation.

In this part, we will use trend analysis and comparative analysis over the ratios calculated in the previous part and access the effectiveness of the business. a Liquidity:

The current ratio is a crucial liquidity metric that assesses a company's capacity to meet short-term liabilities due within one year Between 2016 and 2019, VNM experienced a decline in its current ratio by 1.35, falling below the industry average This raises concerns about the efficiency of asset management, indicating a heightened risk of financial distress for investors and a diminished likelihood of fulfilling current debts and other obligations.

The quick ratio assesses a company's liquid assets in relation to its current liabilities, indicating its ability to cover short-term obligations A quick ratio above 1 suggests that a company can readily meet its current liabilities For example, VNM's quick ratio of 1.74 in 2020 shows it has $1.74 in liquid assets for every $1 of current liabilities However, this figure falls short of the industry average of 2.03, suggesting that VNM's operational efficiency in the dairy sector may not be as strong as its competitors.

TIEU LUAN MOI download : skknchat@gmail.com b Assets management: *Inventory turnover:

Inventory turnover indicates the speed at which a company sells its stock In 2020, Vinamilk's average inventory turnover ratio was 6.47, marginally surpassing the industry average of 6.43 This figure reflects robust sales performance, demonstrating a well-managed balance between maintaining sufficient inventory levels and minimizing the need for frequent reordering.

DSO, or Days Sales Outstanding, indicates the number of days it takes a company to collect payment after a sale, reflecting the efficiency of its collection department and its ability to maintain customer satisfaction VNM's DSO is notably higher than the industry average, highlighting potential areas for improvement in its receivables management.

To optimize business operations, it is crucial for companies to recover outstanding debts promptly, as delayed payments can hinder financial recovery after sales A well-structured operational management system can facilitate this process, ensuring that the company maintains a healthy cash flow and enhances overall efficiency.

The fixed asset ratio plays a crucial role in assessing depreciation, with a higher fixed asset turnover ratio signifying efficient utilization of fixed asset investments to drive sales From 2016 to 2019, VNM's fixed asset turnover ratio was slightly below the peer average; however, it experienced a rebound in 2020, approaching the average of its peers.

The asset turnover ratio is a key metric that indicates how effectively a company utilizes its assets to generate revenue relative to its industry peers Although there has been a decline over the past four years, Vinamilk continues to maintain an average asset turnover ratio above the industry standard of 1.27 Additionally, an important aspect of financial analysis is debt management, specifically the total debt to total assets ratio.

The total debt to total asset ratio serves as an indicator of a company's financial stability Although Vinamilk's ratio has been rising since 2016, it remains below the average of its peers, suggesting that investing in Vinamilk carries less risk compared to other firms.

Interest accrued reflects a company's capacity to fulfill its debt obligations based on current income By calculating the ratio of EBIT to total loan costs, investors can assess the firm's ability to service its debts, indicating a sound investment opportunity Even amidst a declining trend, the company's effective operational management suggests potential for sustained growth Additionally, evaluating the operating profit margin provides insights into profitability and overall financial health.

The operating profit margin, calculated by dividing operating income by total revenue, indicates how effectively a company generates profit per sale after accounting for variable costs, excluding interest and taxes (EBIT) In the case of Vinamilk (VNM), the operating profit margin experienced a slight decline of 1.05 from 2016 to 2020 However, with an average margin of 20.94% in the dairy industry in 2020, Vinamilk remains a strong player in optimizing its operations and maximizing profitability.

Calculating the profit margin reveals the percentage of profit generated per dollar of sales, with Vinamilk reporting a notable 19% profit margin in 2020, surpassing the industry average of 17.54% This indicates that Vinamilk earned a net income of $0.19 for every dollar sold, reflecting efficient business management and lower accounting costs due to its higher operating margin.

The Return on Assets (ROA) ratio measures how effectively a company utilizes its assets to generate revenue, calculated by dividing net income by total assets A higher ROA indicates greater efficiency in converting investments into net income Despite a slight decline over five years, the firm's ROA remains competitive when compared to the industry average of 0.27.

Investing.com report in 2020, Vinamilk’s ROA can still be considered as high rate and earned more money on less investment.

The Break-Even Point (BEP) formula incorporates non-operating income, such as dividends from stock holdings, providing a broader perspective for comparing firms within the same industry Investors often prioritize BEP over Operating Income when assessing companies Despite a lower profit generation from its assets, Vinamilk presents a promising investment opportunity, with a BEP of 32.33%, surpassing the industry average of 29.19% by 3.14%.

Return on Equity (ROE) is a key indicator of a corporation's profitability in relation to stockholders' equity, calculated by dividing net income by shareholders' equity To effectively assess ROE, it is best to compare it with the industry average, which stands at 28.88% Notably, VNM's ROE exceeds this average by 8.27%, indicating strong performance A typical ROE is considered to be 10% or less than the industry average, making VNM's higher ratio a positive sign of its financial health.

The price earnings ratio (P/E ratio) is a key metric used to evaluate how many times the earnings per share (EPS) are reflected in the current market price of a stock This ratio is calculated by dividing the market price of an ordinary share by its EPS As illustrated in figure 3, VNM emerges as a promising company, as a high P/E ratio typically indicates growth potential However, it is important to note that late 2019 saw a decline in P/E ratios, largely attributed to the impact of the Covid-19 pandemic.

In the four-year from 2016 to 2020, there had been a massive fluctuation in the dairy industry.

Valuation

2.1.Free cash flow and the growth rate of free cash flow

With the formula to calculate the free cash flow:

FCF = (EBIT(1-T) + Depreciation and amortization) - (Capital expenditures + Change in NOWC)

We come up with the results for Vinamilk company as below.

Change in net operating working capital

Based on the free cash flow data from the past five years, we can now calculate the growth rate of the free cash flow, which serves as the initial step in estimating the firm's overall value.

Period Formula The growth rate of the FCFs

As the results, the average growth rate of free cash flows for four periods will be:

Vinamilk's free cash flow (FCF) growth rate has shown significant fluctuations over the past five years, with a notable decrease of 49.44% from 2016 to 2018, followed by a sharp increase of 21.01% in 2018-2019 However, the subsequent period saw a decline of 32.32% in FCF growth Despite these inconsistencies, the average FCF across four periods remains positive, indicating that the company generates sufficient cash to support its investments in fixed assets and working capital Given Vinamilk's strong brand recognition, we project a robust growth rate of 27.86% from 2021 to 2023, stabilizing thereafter at an average of 3.49%.

2.2.Weighted Average Cost of Capital and value of the firm

In the first quarter of 2021, Vinamilk's financial report revealed that the company has issued a total of 2,089,955,445 common stocks to enhance its capital structure, achieving a market value of 20.899 billion VND, with a cost of common equity at 10.31%.

Vinamilk's total debt amounts to 14,785,358,443,807 VND, with a debt cost of 5.165% and a tax rate of 20% This results in a capital structure comprising approximately 44% debt and 56% common equity Consequently, the Weighted Average Cost of Capital can be calculated based on these figures.

With the results of the WACC calculated above, we will perform the calculation of the company's value below.

High growth phase with a growth rate of 27.86%

FCF 8,950,166 11,443,682 14,631,892 18,708,338 million VND million VND million VND million VND

Present value 10,636,381 13,599,677 17,388,547 Total = of FCF million VND million VND million VND 41,624,606 million VND

Terminal value of the firm in 2023 472,225,832 million VND

Present value of Terminal value of firm 379,170,043 million VND

Value of firm 420,794,649 million VND

The intrinsic value of Vinamilk's stock can be assessed using the corporate valuation model approach After accounting for bank loans and stock issues, the calculated value of the company's shares amounts to 406,009,291 million VND, with the intrinsic value per share standing at 194,267 VND This value significantly exceeds the market price of 108,800 VND recorded on December 31, 2020.

Investors should consider this an excellent opportunity to purchase shares of Vinamilk, as the estimated intrinsic value of the stock stands at VND 194,267, significantly surpassing its current market value of VND 108,800.

TIEU LUAN MOI download : skknchat@gmail.com taken as of 31/12/2020) Besides, with the slogan of sustainable development as a spearhead set by Vinamilk, the company's future brings a relatively positive outlook.

Furthermore, in the next 2021, Vinamilk plans to focus on investment to expand the scale. Specifically, the project of high-tech dairy farm combined with ecotourism in Moc Chau-Son

Vinamilk's initiative to import over 2,000 purebred dairy cows from the US aims to enhance production and quality To optimize future projects, financial managers should consider increasing equity financing rather than relying on bank loans Given the company's existing dual sources of domestic and foreign loans, high interest expenses can be mitigated through equity growth This strategy not only reduces costs but also boosts the return on equity, ultimately benefiting shareholders and aligning with the company's financial objectives.

Conclusion

Vinamilk stands out as the leading company in Vietnam's dairy industry, boasting a strong intrinsic and market value The company is dedicated to diversifying its product range and enhancing brand value Despite its success, Vinamilk faces challenging decisions and must navigate potential risks To ensure sustainable growth, the company should focus on cost reduction and emphasize product value to build customer trust.

Abbott (2016) Annual report Abbott 2016 Retrieved from https://www.abbottinvestor.com/static-files/2b48c3bd-ac20-480d-a657-094cd9a6943f

Abbott (2020) Annual report Abbott Retrieved from https://www.annualreports.com/HostedData/ AnnualReports/PDF/NYSE_ABT_2020.pdf

CafeF (edited 2020) Công ty Cổ phần Sữ a Việt Nam (HOSE) Retrieved from http://s.cafef.vn/hose/VNM-cong-ty-co-phan-sua-viet-nam.chn

Damodaran (edited 2021, January 8) Country default spreads and risk premiums Retrieved from http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/ctryprem.html

FrieslandCapina (2016) Annual report FrieslandCapina 2016 Retrieved from https://www.frieslandcampina.com/uploads/2020/03/FrieslandCampina-Annual-

FrieslandCapina (2020) Annual report FrieslandCapina 2020 Retrieved from https://www.frieslandcampina.com/uploads/2021/03/FrieslandCampina-Annual-Report-2020.pdf

Investing.com (n.d) Vietnam Dairy Products JSC (VNM) Retrieved from https://www.investing.com/equities/vietnam-dairy-products-jsc

Mộc Châu Milk (2016) Annual report 2016 MC Milk Retrieved from https://www.mcmilk.com.vn/wp-content/uploads/2020/06/M%E1%BB%99c-Ch

%C3%A2u-Milk_BCTC-ki%E1%BB%83m-to%C3%A1n-n%C4%83m-2017_K

Mộc Châu Milk (2020) Annual report 2020 Mộc Châu Milk Retrieved from https://mcmilk.com.vn/wp-content/uploads/2021/02/MCM_B%C3%A1o-c

Vinamilk đặt mục tiêu doanh thu năm 2021 vượt 62.000 tỷ đồng, thể hiện sự quyết tâm và chiến lược phát triển bền vững của công ty trong ngành sữa Mục tiêu này không chỉ khẳng định vị thế của Vinamilk trên thị trường mà còn phản ánh tiềm năng tăng trưởng mạnh mẽ trong tương lai.

Scribd (n.d) SWOT Analysis of Vinamilk Retrieved from https://www.scribd.com/document/139364902/SWOT-analysis-of-Vinamilk

Trading Economics (n.d.) Vietnam Government Bond 10Y Retrieved from https://tradingeconomics.com/vietnam/government-bond-yield

Vinamilk (edited 2020) Development history Retrieved from https://www.vinamilk.com.vn/en/development-history/

Vinamilk (2016-2020) Annual report Retrieved from https://www.vinamilk.com.vn/en/annual-reports/

Vinamilk (2016-2020) Financial statements Retrieved from https://www.vinamilk.com.vn/en/investor-relations/financial-reports

Vinasoy (2016) Báo cáo thường niên Vinasoy 2016 Retrieved from http://images1.cafef.vn/Images/ Uploaded/DuLieuDownload/2016/QNS_16CN_BCTC_MK T.pdf

Vinasoy (2020) Báo cáo thường niên Vinasoy 2020 Retrieved from http://qns.com.vn/storages/shareholders/files/qns-cong-bo-bao-cao-thuong-nien-nam- 2019-1584931247-15849317691.pdf

APPENDIX A: Calculation for industry average ratio

Ratio (5-year average) Indust ry

Total debt to total assets 33.00% 33.40% 48.80% 15.00%

* Other relevant data for the industry average are from Investing.com – a website of security companies.

APPENDIX B: Calculation of DuPont Equation

ROE = Profit margin x Total assets turnover x Equity multiplier

Industry average 2020 = 28.88% (taken from Investing.com – a website of security companies)

APPENDIX C: Calculations for the firm’s valuation section

• Beta of the stock (β) = 0.90 (taken from CAFEF – a security firms’ website)

• Risk free rate (r F ) = 2.92% (Vietnamese government bond yield – 10-year maturity)

• Risk Premium (r M – r F ) = 8.21% (from Damodaran’s equity risk premium estimate of

• Because VNM raise debt only by borrowing from banks

2 Weights of Debt and Equity

• Market value of common equity = 33,647,122,229,822 VND (From VNM financial statement 2020)

• Book value of debt = 14,785,358,443,807 VND (From VNM financial statement 2020)

[FCF = (EBIT(1-T) + Depreciation) – (Capital expenditures + ∆NOWC)]

Vinamilk is projected to achieve a remarkable growth rate of 27.86% from 2021 to 2023, after which the growth is expected to stabilize as the company enters a more mature phase.

FCF 8,950,166 11,443,682 14,631,892 18,708,338 million VND million VND million VND million VND

FCF million VND million VND million VND

• Total present value of FCFF in high growth phase = 41,624,606 million VND

• Growth rate in Stable Phase (g) = 3.49% (Average growth rate of 5-year)

• Present value of Terminal value of firm

Value of firm = 379,170,043 million + 41,624,606 million = 420,794,649 million VND.

6 Intrinsic value of the stock:

Vcommon stocks = V firm – V debt – Vpreferred stocks = 420,794,649,902,524 VND - 14,785,358,443,807 VND = 406,009,291,458,717 VND

Tiêu đề	Analysis Of The Performance And Valuation Of The Vietnam Dairy Products Joint Stock Company
Tác giả	Nguyễn Hà Linh, Nguyễn Thị Bích, Chu Thị Thùy Dung, Trần Quế Anh, Lê Hoàng Long
Người hướng dẫn	Ms Nguyen Thi Van Anh
Trường học	Hanoi University
Chuyên ngành	Financial Management
Thể loại	Report
Năm xuất bản	2021
Thành phố	Hanoi

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