Vietnam Dairy Products Joint Stock Company
Transcript of Vietnam Dairy Products Joint Stock Company
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03 December 2014
Asia Pacific/Vietnam
Equity Research
Food Producers
Vietnam Dairy Products Joint Stock Company (VNM.HM / VNM VN)
INITIATION
High quality at a bargain price
■ Initiate coverage with OUTPERFORM and target price of D130,000 (31%
potential upside). Vinamilk enjoys a dominant position in the dairy business in
Vietnam (48% market share), driven by a strong brand image, extensive
distribution network and an excellent management team. Its continued
investment in supply chain and branding are key differentiators.
■ Dominant player in a growth market. Vietnam Dairy Products Joint Stock
Company (Vinamilk) is the dominant player in the growing dairy market in
Vietnam (5Y CAGR of 20% over 2008-13). The country's per capita income
of US$1,890 p.a. is among the lowest in Asia, and with 42% of the
population below the age of 25, there is huge growth potential. It also lags
some regional peers on per capita milk consumption (18 kg), vs Myanmar
(30 kg), Thailand (28 kg), China (23 kg) and South Korea (55 kg).
■ Margin upswing and earnings recovery key catalysts. International milk
powder prices (65-70% of raw material cost) are down 53% YTD, and with a
weak near-term price outlook, margins are likely to rise by 176 bp in 4Q. VNM
has underperformed the benchmark by 27% on lower earnings in 9M14, which
is now behind us. Rising margins, new capacity in Cambodia and a likely
recovery in exports should drive a three-year (2014-17E) EPS CAGR of 15%.
■ Attractive valuations. Our DCF-based target price is D130,000; 31%
potential upside (implied 13.6x 2015E EV/EBITDA). The 10.2x 2015E multiple
signifies 38% regional/9% historical discount. Given superior EBITDA margins
(23% vs 17% regional), low capex and attractive yield (3.8%), valuations are
compelling. Key risks: (1) continued government regulation on pricing, (2)
prolonged issues with exports and (3) intensifying competition.
Share price performance
80
100
120
140
6000080000
100000120000140000
Price (LHS) Rebased Rel (RHS)
The price relative chart measures performance against the
VIETNAM INDEX which closed at 569.43 on 02/12/14
On 02/12/14 the spot exchange rate was D21370./US$1
Performance over 1M 3M 12M Absolute (%) -5.2 -11.2 -15.3 — Relative (%) -0.0 -0.0 -27.3 —
Financial and valuation metrics
Year 12/13A 12/14E 12/15E 12/16E Revenue (D bn) 30,948.6 34,491.0 38,786.4 43,877.0 EBITDA (D bn) 8,336.2 7,776.7 8,960.8 9,906.6 EBIT (D bn) 7,549.8 6,836.3 8,050.9 9,029.2 Net profit (D bn) 6,534.1 5,846.9 6,850.2 7,784.0 EPS (CS adj.) (D) 6,533.3 5,846.1 6,849.3 7,782.9 Change from previous EPS (%) n.a. Consensus EPS (D) n.a. 5,787 6,878 7,665 EPS growth (%) 12.3 -10.5 17.2 13.6 P/E (x) 15.2 17.0 14.5 12.8 Dividend yield (%) 4.0 3.2 3.8 4.3 EV/EBITDA (x) 11.2 11.9 10.2 9.0 P/B (x) 5.7 4.8 4.2 3.7 ROE (%) 39.6 30.7 31.0 30.6 Net debt/equity (%) Net cash Net cash Net cash Net cash
Source: Company data, Thomson Reuters, Credit Suisse estimates.
Rating OUTPERFORM* Price (02 Dec 14, D) 99,500 Target price (D) 130,000¹ Upside/downside (%) 30.7 Mkt cap (D bn) 99,511.9 (US$4.7 bn) Enterprise value (D bn) 92,695 Number of shares (mn) 1,000.12 Free float (%) 44.0 52-week price range 125,000-99,000.0 ADTO - 6M (US$ mn) 0.85
*Stock ratings are relative to the coverage universe in each
analyst's or each team's respective sector.
¹Target price is for 12 months.
Research Analysts
Farhan Rizvi, CFA
65 6212 3036
03 December 2014
Vietnam Dairy Products Joint Stock Company (VNM.HM / VNM VN) 2
Focus charts Figure 1: Market dominance with balanced revenue mix… Figure 2: …due to high market shares across segments
0
9,000
18,000
27,000
36,000
45,000
2010 2011 2012 2013 2014E 2015E 2016E 2017E
Liquid Milk Powdered Milk Condensed Milk Yogurt Others
Domestic revenue mix (VND bn)
0%
20%
40%
60%
80%
100%
2010 2011 2012 2013 2014E 2015E 2016E 2017E
Liquid milk Powder milk Yogurt Condensed milk
Domestic market shares trend
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
Figure 3: Int'l powder prices have fallen 53% YTD… Figure 4: …and should drive margins higher in 2015
2,000
2,600
3,200
3,800
4,400
5,000
5,600
6,200
Nov-
10
Mar
-11
Jul-1
1
Nov-
11
Mar
-12
Jul-1
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Nov-
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Mar
-13
Jul-1
3
Nov-
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Mar
-14
Jul-1
4
Nov-
14
NZ milk powder prices (USD/MT)
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
2010 2011 2012 2013 2014E 2015E 2016E 2017E
GP margins EBITDA margins
Source: Bloomberg Source: Company data, Credit Suisse estimates
Figure 5: Low per capita milk consumption offers long-
term growth opportunities
Figure 6: Valuations are attractive (38% regional discount)
despite high margins and decent EBITDA growth outlook
1217
1823
28
30
5155
57
6569
0.0
12.0
24.0
36.0
48.0
60.0
72.0
0
8,000
16,000
24,000
32,000
40,000
48,000
Indo
nesi
a
Phi
lippi
nes
Vie
tnam
Chi
na
Thai
land
Mya
nmar
Mal
aysi
a
Sou
th K
orea
Bra
zil
New
Zea
land
Indi
a
GDP per capita (US$) Milk consumption/capita - kg (RHS)
0.0
5.0
10.0
15.0
20.0
25.0
30.0
(5.0)
0.0
5.0
10.0
15.0
20.0
25.0
30.0
Chi
na M
oder
n
Vin
amill
k
Chi
na M
engn
iu
Eng
ro F
oods
Dut
ch L
ady
Bhd
Nes
tle B
hd
Nes
tle In
dia
EV/EBITDA (x) EBITDA growth (%) - LHS
Source: FAO, Canadian Dairy Centre, World Bank, CS estimates Source: Bloomberg, Credit Suisse estimates (2015E)
03 December 2014
Vietnam Dairy Products Joint Stock Company (VNM.HM / VNM VN) 3
High quality at a bargain price We initiate coverage on Vinamilk (VNM), the largest dairy company in Vietnam, with an
OUTPERFORM rating and a target price of D130,000. Vinamilk enjoys a dominant
position in the dairy business in Vietnam (48% market share), driven by a strong brand
image, extensive distribution network and an excellent management team The company
focuses on an aggressive growth strategy, driven by major capacity expansions worth D13
tn (US$600 mn) over 2012-16, the bulk of which already came on line in 2013.
Dominant player in a growth market
Vinamilk remains the dominant player (48% market share) of the growing dairy market in
Vietnam, which posted a five-year (2008-13) CAGR of 20%. Given that Vietnam's per
capita income of US$1,890 p.a. is among the lowest in Asia, and with 42% of the
population below the age of 25, we note that there is vast potential for demand growth. An
improving macroeconomic environment (low CPI and rising GDP growth of 5.8% in 2015E
(Asian Development Bank estimates) should also support demand growth. Despite strong
momentum in the past five years, Vietnam continues to lag in Asia, with per capita milk
consumption of 18 kg compared to South Korea (55 kg), Myanmar (30 kg), Thailand (28
kg), China (23 kg). Independent studies, such as Business Monitor, have forecast an 8%
increase in food expenditure (which we see as conservative) in the country led by
improving income levels and consumer appetite for branded products. We expect dairy
volumes to grow 5-6% annually over the medium to long term.
Margins on the rise, earnings to rebound sharply
After five years of robust growth (22% EPS CAGR over 2008-13), VNM saw pressure on
volumes and margins, particularly on account of issues with exports to Iraq and
government intervention to regulate milk powder prices in June. As a result, exports fell
38% in 9M14, while a 14% decline in milk powder prices in June drove earnings down
14% YoY to D4,338 bn. We believe the worst is behind us, with low international milk
powder prices (-53% YTD) likely to drive a margin upswing from 4Q14. Management has
indicated plans to sign long-term purchase contracts, which should boost margins in 2015
and negate the impact of the decline in sales price. Moreover, the new capacity in
Cambodia (2Q15) and gradual improvement in Iraq should boost export volumes in 2015.
We expect earnings to rebound sharply with a three-year 2014-17 CAGR of 15%.
Competition concerns are overplayed
Competitive pressures have intensified, particularly in the liquid milk segment domestically,
with aggressive growth strategy by TH Milk and extensive marketing by Friesland Campina
(FCV). However, we believe competitive concerns are overplayed as there are significant
barriers for new players, given the large amount of capex required to build critical mass,
such as the development of in-house farms in the case of TH Milk. Moreover, VNM's strong
brand positioning, extensive distribution network and superior financial muscle provides it an
advantage over new entrants, helping to increase market share in liquid milk to 51% (Dec-
13: 49%). Aggressive marketing spend by both FCV (~60-70% rise) and VNM (~50%)
outlines the strength and commitment of the top players to defend their turf.
Attractive valuations
Our DCF-based target price is D130,000, a 31% potential upside (implied 2015E EV/EBITDA
of 13.6x). The stock trades at an attractive 2015E EV/EBITDA of 10.2x (38% regional/ 9%
historical discount). Given superior EBITDA margins (23% vs 17% regional average), low
capex and attractive yield (3.8%), valuations appear compelling. VNM has also
underperformed the benchmark HOSE by 27% over 12M, making this a good entry point.
Key risks are: (1) continued government regulation on product pricing, (2) further
deterioration in operating conditions in export markets and (3) macro slowdown and intense
competition.
Vinamilk is the dominant
player in the dairy business
in Vietnam with a 48%
market share; F&N Group, a
leading regional consumer
name, is a strategic
shareholder
Vietnam has one of the
lowest per capita milk
consumption, well behind
Asian peers such as
Thailand, India and Pakistan
Margins are on a rising
trend due to lower milk
powder prices, and together
with robust demand growth
will drive 2014-17E CAGR
of 15%
Competitive pressures have
intensified but VNM has key
competition advantages in
terms of supply chain,
distribution and financial
position
DCF valuation yields a TP of
D130,000, implying 31%
potential upside and 13.6x
2015E EV/EBITDA
03 December 2014
Vietnam Dairy Products Joint Stock Company (VNM.HM / VNM VN) 4
Vietnam Dairy Products Joint Stock Company VNM.HM / VNM VN Price (02 Dec 14): D99,500, Rating: OUTPERFORM, Target Price: D130,000, Analyst: Farhan Rizvi
Target price scenario
Scenario TP %Up/Dwn Assumptions Upside 185,000.00 85.93 Peak EV/EBITDA multiple of 20x Central Case 130,000.00 30.65 FCFF–Target EV/EBITDA of 13.6x Downside 58,000.00 (41.71) 3-year trough EV/EBITDA multiple of 5.6x
Key earnings drivers 12/13A 12/14E 12/15E 12/16E
Liquid milk rev (D bn) 10,797 13,107 14,941 16,867 Powder milk rev (D bn) 5,300 4,981 5,557 6,379 Advertising & prom (D bn) 1,828 2,770 3,363 3,826 Gross margin (%) 36.1 34.6 36.3 36.1
Income statement (D bn) 12/13A 12/14E 12/15E 12/16E
Sales revenue 30,949 34,491 38,786 43,877 Cost of goods sold 19,766 22,573 24,702 28,025 SG&A 3,888 5,272 6,247 7,066 Other operating exp./(inc.) (1,041) (1,131) (1,124) (1,120) EBITDA 8,336 7,777 8,961 9,907 Depreciation & amortisation 786.4 940.3 909.9 877.5 EBIT 7,550 6,836 8,051 9,029 Net interest expense/(inc.) (416.6) (484.0) (571.8) (693.5) Non-operating inc./(exp.) — — — — Associates/JV 43.9 52.7 63.3 79.1 Recurring PBT 8,010 7,373 8,686 9,802 Exceptionals/extraordinaries — — — — Taxes 1,476 1,519 1,824 2,000 Profit after tax 6,534 5,854 6,862 7,802 Other after tax income — — — — Minority interests (0.0) 7.4 11.7 18.3 Preferred dividends — — — — Reported net profit 6,534 5,847 6,850 7,784 Analyst adjustments — — — — Net profit (Credit Suisse) 6,534 5,847 6,850 7,784
Cash flow (D bn) 12/13A 12/14E 12/15E 12/16E
EBIT 7,550 6,836 8,051 9,029 Net interest (416.6) (484.0) (571.8) (693.5) Tax paid 1,476 1,519 1,824 2,000 Working capital (2,830) (203) (1,098) (887) Other cash & non-cash items (2,524) 1,726 358 363 Operating cash flow 3,255 9,394 8,563 9,812 Capex (1,385) (2,734) (1,919) (1,598) Free cash flow to the firm 1,870 6,659 6,644 8,214 Disposals of fixed assets — — — — Acquisitions (66.7) (28.5) (31.3) (17.2) Divestments — — — — Associate investments — — — — Other investment/(outflows) (513.2) 30.8 28.2 (79.1) Investing cash flow (1,965) (2,732) (1,923) (1,694) Equity raised — 390.9 — — Dividends paid (2,250) (4,001) (3,215) (3,767) Net borrowings 362.6 (9.3) (137.8) (137.0) Other financing cash flow 1,113 17 19 30 Financing cash flow (775) (3,602) (3,334) (3,875) Total cash flow 515 3,060 3,307 4,243 Adjustments — — — — Net change in cash 515 3,060 3,307 4,243
Balance sheet (D bn) 12/13A 12/14E 12/15E 12/16E
Cash & cash equivalents 6,913 7,170 8,588 10,812 Current receivables 2,330 2,468 2,879 3,254 Inventories 3,217 3,803 4,264 4,837 Other current assets 558.4 682.1 746.6 762.9 Current assets 13,019 14,124 16,477 19,667 Property, plant & equip. 7,849 7,668 7,625 11,491 Investments 434.1 462.5 493.8 511.1 Intangibles 705.9 675.2 647.0 726.0 Other non-current assets 867 2,842 3,894 749 Total assets 22,875 25,772 29,138 33,144 Accounts payable 1,968 2,165 2,369 2,687 Short-term debt 178.9 143.0 139.5 65.6 Current provisions 956 1,043 1,115 1,187 Other current liabilities 1,853 1,429 1,542 1,745 Current liabilities 4,956 4,779 5,166 5,684 Long-term debt 184.1 210.8 76.5 13.3 Non-current provisions 160.6 170.5 178.0 189.7 Other non-current liab. 5.9 5.9 5.9 5.9 Total liabilities 5,307 5,166 5,426 5,893 Shareholders' equity 17,545 20,575 23,670 27,190 Minority interests 22.9 30.2 42.0 60.2 Total liabilities & equity 22,875 25,772 29,138 33,144
Per share data 12/13A 12/14E 12/15E 12/16E
Shares (wtd avg.) (mn) 1,000 1,000 1,000 1,000 EPS (Credit Suisse) (D) 6,533 5,846 6,849 7,783 DPS (D) 4,000 3,215 3,767 4,281 BVPS (D) 17,543 20,573 23,667 27,187 Operating CFPS (D) 3,254 9,392 8,562 9,811
Key ratios and valuation 12/13A 12/14E 12/15E 12/16E
Growth (%) Sales revenue 16.5 11.4 12.5 13.1 EBIT 16.3 (9.4) 17.8 12.2 Net profit 12.3 (10.5) 17.2 13.6 EPS 12.3 (10.5) 17.2 13.6 Margins (%) EBITDA 26.9 22.5 23.1 22.6 EBIT 24.4 19.8 20.8 20.6 Pre-tax profit 25.9 21.4 22.4 22.3 Net profit 21.1 17.0 17.7 17.7 Valuation metrics (x) P/E 15.2 17.0 14.5 12.8 P/B 5.67 4.84 4.20 3.66 Dividend yield (%) 4.02 3.23 3.79 4.30 P/CF 30.6 10.6 11.6 10.1 EV/sales 3.00 2.69 2.35 2.02 EV/EBITDA 11.2 11.9 10.2 9.0 EV/EBIT 12.3 13.6 11.3 9.8 ROE analysis (%) ROE 39.6 30.7 31.0 30.6 ROIC 57.7 43.8 43.7 45.1 Asset turnover (x) 1.35 1.34 1.33 1.32 Interest burden (x) 1.06 1.08 1.08 1.09 Tax burden (x) 0.82 0.79 0.79 0.80 Financial leverage (x) 1.30 1.25 1.23 1.22 Credit ratios Net debt/equity (%) (37.3) (33.1) (35.3) (39.4) Net debt/EBITDA (x) (0.79) (0.88) (0.93) (1.08) Interest cover (x) (18.1) (14.1) (14.1) (13.0)
Source: Company data, Thomson Reuters, Credit Suisse estimates.
0
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15
20
25
2009 2010 2011 2012 2013 2014
12MF P/E multiple
0
1
2
3
4
5
6
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2009 2010 2011 2012 2013 2014
12MF P/B multiple
Source: IBES
0
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ec
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Vie
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m D
airy
Pro
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cts
Jo
int S
toc
k C
om
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ny
(VN
M.H
M / V
NM
VN
) 5
Regional consumer valuations Figure 7: We use dairy companies, food processors and agricultural businesses as the appropriate benchmark for Vinamilk
Reuters Name of Company Price US$mn P/E (x) EV/EBITDA (x) ROE (%) P/B (x) FCF yield (%) ROIC (%) Margins (%)
Rating Local Target Mkt cap T+1 T+2 T+1 T+2 T+1 T+1 T+1 T+1 Gross EBITDA
China
0151.HK Want Want China Holdings Ltd. N 10.2 12.0 17,323 25.8 21.8 16.8 14.4 31.3 8.1 4.2 52.6 40.6 24.1
0322.HK Tingyi N 18.3 21.5 13,239 26.8 22.5 9.3 8.4 15.6 4.2 2.4 14.9 31.5 13.9
0288.HK WH Group O 4.4 6.9 8,274 9.2 10.0 7.4 5.9 23.9 1.6 - - - -
2319.HK China Mengniu Dairy N 30.3 35.0 7,652 24.4 20.9 14.6 12.6 11.8 2.9 (1.1) 8.7 32.4 7.1
1117.HK China Modern Dairy Holdings U 2.4 3.3 1,469 9.7 9.3 8.9 9.1 13.5 1.3 0.5 11.0 35.9 31.3
1431.HK YuanShengTai Dairy Farm O 0.8 2.8 413 5.3 4.2 1.4 1.0 10.9 0.6 (36.4) 14.3 47.0 45.4
Indonesia
UNVR.JK Unilever Indonesia U 31,275 21,500 19,453 44.9 41.0 31.2 28.6 126.0 56.5 1.9 94.7 49.3 22.2
INDF.JK Indofood Sukses Makmur O 6,675 8,100 4,778 17.6 15.1 6.1 5.2 14.5 2.6 (5.1) 14.2 28.8 17.0
ICBP.JK Indofood CBP O 11,400 11,800 5,419 24.2 20.3 14.2 11.8 19.3 4.7 1.4 22.7 26.6 14.1
AALI.JK PT Astra Agro Lestari Tbk O 23,200 28,000 2,978 14.2 13.0 10.2 9.5 22.1 3.1 3.5 19.5 31.0 22.8
BUMI.SI Bumitama Agri Limited O 1.0 1.4 1,360 13.7 11.1 9.7 7.8 18.3 2.5 2.2 13.4 42.4 39.4
LSIP.JK PT London Sumatra Indonesia O 1,910 2,300 1,062 14.1 12.2 7.5 6.6 12.8 1.8 2.4 16.0 34.5 32.0
IFAR.SI Indofood Agri Resources Ltd U 0.7 0.7 823 12.8 11.5 4.7 4.2 5.4 0.7 (4.6) 5.9 25.3 21.4
Korea
051900.KS LG Household & Healthcare O 633,000 720,000 8,871 29.2 23.1 16.5 13.9 19.9 5.8 3.0 17.4 55.0 14.2
001800.KS Orion Corp. O 996,000 1,140,000 5,340 34.9 29.0 14.7 13.9 13.2 4.6 2.2 10.1 45.4 18.8
Thailand
CPF.BK Charoen Pokphand Foods O 28.3 35.0 6,659 22.2 14.4 12.8 10.8 8.1 1.8 7.7 4.8 13.5 7.0
TUF.BK Thai Union Frozen Products O 88.5 95.0 3,214 19.1 15.8 13.2 11.3 13.3 2.6 7.0 8.9 17.8 9.2
TBEV.SI Thai Beverage N 0.7 0.7 12,926 19.5 17.5 17.2 15.9 20.4 4.0 5.2 12.3 29.5 17.7
India
HLL.BO Hindustan Unilever Ltd N 804.8 800.0 28,171 43.0 36.1 32.9 28.0 104.2 44.8 3.2 1,072.2 47.6 17.0
NEST.BO Nestlé India U 6,190 5,500 9,657 49.6 43.3 29.1 25.8 49.1 24.4 2.9 46.2 53.6 20.9
DABU.BO Dabur India N 242.5 237.0 6,892 39.2 33.1 32.0 27.5 33.2 13.0 2.4 47.6 52.1 16.7
Malaysia
SIME.KL Sime Darby N 9.6 9.0 16,982 21.4 18.1 12.5 10.8 8.2 1.8 7.3 7.4 13.5 12.3
GENT.KL Genting Berhad O 9.5 10.6 10,340 18.9 17.6 4.8 4.4 6.7 1.3 (6.5) 7.5 36.2 36.2
IOIB.KL IOI Corporation U 4.8 4.1 9,117 25.4 22.0 18.2 16.0 20.1 5.1 2.4 13.1 16.6 16.5
KLKK.KL Kuala Lumpur Kepong U 22.3 20.0 6,965 23.5 19.9 15.5 13.4 12.4 2.9 6.0 9.7 16.9 16.4
Philippines
URC.PS Universal Robina Corp. R 196.1 9,551 39.5 33.6 24.7 21.0 19.8 7.8 1.2 23.9 30.3 18.3
EMP.PS Emperador Inc. U 10.9 9.0 3,637 28.0 26.9 18.4 17.6 17.0 4.8 3.6 48.9 35.0 26.7
Pakistan
ENFL.KA Engro Foods - - - 764 78.3 41.1 19.8 15.2 4.0 7.1 (6.5) 3.5 22.0 10.5
Vietnam
VNM.HM Vina Milk O 99,500 130,000 4,676 17.0 14.5 11.9 10.2 30.9 4.8 3.8 43.8 36.3 23.2
MSN.HM Masan Group O 80,500 106,000 2,785 16.3 12.7 8.1 6.3 18.4 3.0 14.4 11.3 46.0 30.9
Market cap weighted average 29.2 25.1 18.8 16.4 19.6 14.7 2.6 20.5 34.3 17.7
* ROIC excludes Hindustan Unilever which is an outlier. Source: Reuters, Bloomberg, Company data, Credit Suisse estimates
03 December 2014
Vietnam Dairy Products Joint Stock Company (VNM.HM / VNM VN) 6
Dominant player in a growth market Vinamilk remains the dominant player (48% market share, according to Euromonitor) in
the growing dairy market in Vietnam, having grown at a five-year (2008-13) CAGR of 20%.
Given Vietnam's per capita income of US$1,890 p.a. is amongst the lowest in Asia, and
with 42% of the population under the age of 25, we note there is vast potential for demand
growth. An improving macroeconomic environment reflected by low CPI (3.3% in October
2014) and rising GDP growth of 5.8% in 2015E (ADB estimates) should also support
demand growth. Despite strong momentum in the past five years, Vietnam remains well
behind regional/developing market peers, with per capita milk consumption of 18 kg p.a.,
compared with Pakistan (159 kg), India (69 kg) and Thailand (28 kg). Independent studies,
such as Business Monitor, have forecast an 8% increase in food expenditure (which we
see as conservative), led by improving income levels and consumer appetite for
quality/branded products. We expect dairy volumes to grow 5-6% annually over the
medium to long term.
A rich history with excellent leadership from the CEO
Vinamilk has a rich history dating back nearly 40 years when the company was founded as
Southern Coffee-Dairy Company, with two condensed milk factories. The company has
come a long way since those humble beginnings, and now boasts of a production capacity
of 1.5 mn tonnes supported by 13 factories spread across Vietnam. It has a 19.3% stake
in Miraka (a dairy company in New Zealand since 2010), a JV in Cambodia (Angkor Dairy)
and a subsidiary in California (Driftwood). The company has a strong footprint in all key
dairy segments—liquid milk, milk powder, condensed, yoghurt and sour drinks—with
market leadership in all those segments except milk powder. It is one of the premier blue
chip names at the local bourse (listed since 2006) with a market cap of US$4.7 bn (second
largest by market cap at HOSE). The remarkable growth and success story of the
company to a large extent can be attributed to CEO Mai Kieu Lien, who has been at the
company's helm for the past 20 years, and has driven most of the expansion and
acquisition initiatives undertaken by VNM. Ms Lien's contribution to the success of
Vinamilk was acknowledged by Forbes, which named her amongst the 50 most powerful
businesswomen in Asia (the only Vietnamese) for two years running in 2012 and 2013.
The core management team of the CEO and seven executive directors in charge of Sales,
Marketing, R&D, Finance, etc., have a sound education and business background, most of
whom have grown with the company for the past two decades.
Figure 8: Vinamilk's corporate holding structure
Vinamilk
Vietnam
Dairy Cow
Ltd (100%)
Thong Nhat
Than Hoa
(96%)
Driftwood
Dairy USA
(70%)
Angkor Dairy – JV
Cambodia (51%)
Lam Son
Dairy
(100%)
Miraka Limited (New
Zealand (19%)Asia Saigon
Food (15%)
Source: Company data
Vinamilk has a rich history
dating back nearly 40
years, and has grown
tremendously over the past
two decades led by a
dynamic CEO, Ms Mai
Kieu Lien—named among
50 most prominent
businesswomen in Asia by
Forbes in 2012 and 2013
03 December 2014
Vietnam Dairy Products Joint Stock Company (VNM.HM / VNM VN) 7
Strong footprint across all major segments
The key factor behind the dominant franchise position of Vinamilk is its strong market
positioning across all key business segments—namely (1) liquid, (2) powder milk, (3)
condensed milk, (4) and yoghurt and sour drinks—with market leadership in all segments
except powder milk. According to Euromonitor and management representation, Vinamilk
has around 48% market share in the overall dairy business in the country, with liquid milk
(51%), powder milk (25%), condensed milk (75%), and yoghurt and sour drinks (88%).
Figure 9: Vinamilk has strong brand positioning across the four key segments
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
2010 2011 2012 2013 2014E 2015E 2016E 2017E
Liquid Milk Powdered Milk Condensed Milk Yogurt Others
Domestic revenue mix (VND bn)
Source: Company data, Credit Suisse estimates
Figure 10: Product-wise breakup of revenue, market growth and market share assumptions
2014E 2015E 2016E 2017E 3Y CAGR Market growth Assumptions of MC market share
D bn
Liquid milk 13,107 14,941 16,867 19,226 13.5% 13% From 51% currently to 52.5% by 2017E
Powder milk 4,981 5,557 6,379 7,322 13.6% 12-15% 25-27%
Condensed milk 4,404 4,711 5,097 5,442 7.2% 5-6% 75-78%
Yoghurt and sour milk drinks 5,772 6,553 7,510 8,606 14.1% 13-14% 88-90%
Beverages and others 1,143 1,315 1,512 1,739 14.8% 14-15% 3%
International 5,084 5,709 6,512 7,303 12.7% n.a. n.a.
Total revenue of VNM 34,491 38,786 43,877 49,638 12.8%
Source: Euromonitor, company data, Credit Suisse estimates
Enjoys a dominant
franchise position across
all key dairy segments
03 December 2014
Vietnam Dairy Products Joint Stock Company (VNM.HM / VNM VN) 8
Figure 11: VNM has a wide product suite… Figure 12: …across key dairy segments
Source: Company presentation Source: Company Presentation
Liquid milk: Strong leadership position with substantial market share gains
Liquid milk is the largest revenue contributor to the company (45% domestically), and
based on Euromonitor and company data, the largest segment in the dairy business in
Vietnam, with an approximate market size of D26,000 bn (US$1.2 bn). UHT and flavoured
milk drinks dominate the liquid milk market (~90% share), with pasteurised and
reconstituted milk accounting for approximately 10% of the market. Two key reasons for
the preference for UHT milk are: (1) longer shelf life and (2) high refrigeration costs for the
transportation of pasteurised milk. Liquid milk has been a key focus area and growth driver
for Vinamilk over the past five years (revenue CAGR of 36% over 2009-13, according to
CS estimates), with the company increasing its market share to 51% from 30% in 2008.
FCV, the biggest competitor for Vinamilk in this segment, has lost significant market share,
with its market share falling to 26-28% (2013) from ~38% in 2008. Gross margins in this
segment remain healthy at 34-35%, and are significantly higher than 20-25% in other
developing countries in Asia such as India, Pakistan and Bangladesh. This segment has
historically seen volumes grow at 8-9% annually, and we expect a 5-6% volume growth
over the next five years, with VNM growing in line with the market.
Figure 13: Liquid milk is the key revenue driver for VNM… Figure 14: …with healthy margins of 34-35%
0
4,000
8,000
12,000
16,000
20,000
2009 2010 2011 2012 2013 2014E 2015E 2016E 2017E
35% CAGR (2009-13)
Liquid milk revenues (VND bn)
16% CAGR(2013-17)
23.0%
26.0%
29.0%
32.0%
35.0%
38.0%
2010 2011 2012 2013 2014E 2015E 2016E 2017E
Liquid milk gross margins
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
Liquid milk is the single
largest contributor to
domestic revenues at
~45%
03 December 2014
Vietnam Dairy Products Joint Stock Company (VNM.HM / VNM VN) 9
Competition intensifying but VNM expected to maintain its dominant position
Competition has intensified significantly in this segment, led by aggressive marketing by
FCV to regain lost share (60-70% increase in marketing expenditure in 2014) and
emergence of TH Milk as a niche player in the urban area, focusing solely on liquid milk
from its in-house dairy farm, with a herd size of approximately 30,000-35000 cows.
Despite these challenges, VNM has managed to hold its own and marginally increase its
share to approximately 51% (49% as of December 2013). This has, however, come at the
expense of a sharp rise in advertising expenditure (40% jump in selling and distribution
expenses in 9M14), which is likely to remain on the higher side in 2015 as well. We expect
Vinamilk to maintain its dominant position in this segment due to a superior distribution
network, higher penetration into the rural segment in the backdrop of lower raw material
prices (powder milk prices down 53% YTD), and the capacity to maintain a high marketing
outlay. Moreover, high capex requirements for organic growth via in-house farming limits
the growth potential for both TH Milk and entrants such as Hoang Anh Gia Lai (HAGL)
Group, which has plans to develop in-house farming and has signed a milk and meat
supply agreement with Nutifood (biggest meat processor in Vietnam).
Figure 15: VNM's liquid milk market share has risen
despite intense competition…
Figure 16: …and is expected to hover around 51-52% over
the medium term
Vinamilk51%
FCV26%
TH Milk7%
Others16%
Liquid milk market shares (2014E)
25%
30%
35%
40%
45%
50%
55%
2008 2009 2010 2011 2012 2013 2014E 2015E 2016E 2017E
Source: Company data, Euromonitor, Credit Suisse estimates Source: Company data, Credit Suisse estimates
Powder milk: Most lucrative segment, but dominated by multinational players
Powder milk is the third largest revenue contributor to VNM domestically (17%), though it
remains a less dominant player in the domestic market focused largely on the low- to mid-
end segment as the market is dominated by multinationals such as Abbott, Mead Johnson,
FCV and Nestlé. Given that approximately 90% of the powder milk market is concentrated in
the infant/baby segment, there is a high preference for well-known multinational brands as
they are viewed as higher-quality products. Market share also tends to be very sticky, with
high consumer loyalty. Prior to 2013, Mead Johnson and Fonterra used to dominate this
segment with ~80% market share; however, ever since Fonterra's wide scale recall in
August 2013 on account of traces of bacteria found during testing, Vinamilk and FCV have
gained market share. Powder milk is the most lucrative segment as far as margins are
concerned, with multinationals estimated to earn margins of around 55-60%. Since VNM is
focused predominantly in the lower end segment, its product is priced at a 40-50% discount
to the multinational brands, resulting in lower, yet attractive, domestic margins of 43-45%.
Market leader in liquid milk
with a rising market share
(51%) despite intensifying
competition
Niche player in the mid- to
low-end segment as the
high-end market is
dominated by big
multinational brands
03 December 2014
Vietnam Dairy Products Joint Stock Company (VNM.HM / VNM VN) 10
Figure 17: Powder revenues expected to recover in 2015
after taking a hit due to 14% price reduction in 2014
Figure 18: VNM is a less dominant player in powder milk
due to customer preference for multinationals (2014E)
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
2009 2010 2011 2012 2013 2014E 2015E 2016E 2017E
Powder milk domestic revenues (VND bn)
30% CAGR (2009-13)
14% CAGR (2014-17)
Abbott30%
FCV18%
Mead Johnson15%
Vinamilk25%
Others12%
Powder milk market shares
Source: Company data, Credit Suisse estimates Source: Company data, Euromonitor, Credit Suisse estimates
(powder milk market share is based on value)
Figure 19: Margins expected to rise in 2015 due to sharp reduction in raw material cost
28.0%
32.0%
36.0%
40.0%
44.0%
48.0%
2008 2009 2010 2011 2012 2013 2014E 2015E 2016E 2017E
Powder milk gross margins
Source: Company data, Credit Suisse estimates
Exports are an important part of the powder milk business and powder milk exports have
historically accounted for 85-90% of total exports. 2014, though, has been a tough year as
the main export market, Iraq, witnessed volatile political conditions resulting in 60-70%
drop in volumes from 2Q14. Gross margins on exports are approximately half of those
domestically; however, with ~40% revenue CAGR over 2010-13, gross margins have been
an important contributor to earnings growth in the past.
03 December 2014
Vietnam Dairy Products Joint Stock Company (VNM.HM / VNM VN) 11
Figure 20: Export revenues fell sharply due to deterioration of security conditions in key
market, Iraq, but should recover in 2015 due to diversification to new markets
17.5%
18.3%
19.1%
19.9%
20.7%
21.5%
0
700
1,400
2,100
2,800
3,500
4,200
2008 2009 2010 2011 2012 2013 2014E 2015E 2016E
Powder exports (LHS) Export margins
Powder milk exports (VND bn) and gross margins
Source: Company data, Credit Suisse estimates
Lower international powder prices have negated impact of govt. price capping
Lower international powder prices (-53% YTD) have largely negated the impact of recent
price capping by the government. According to a directive issued on 1 June 2014, prices of
all infant and baby formula milk (under six years of age) have been capped for one year,
resulting in 13-30% decline in powder milk prices across the industry. According to
management, Vinamilk had to reduce its product prices by approximately 14% to implement
the government directive, resulting in margin compression in 2Q14. That said, weak powder
prices have helped to partially negate this impact with an uptick in margins in 3Q14. Going
forward, management plans to sign longer forward contracts to secure supplies and take
advantage of the weak international prices, which should boost margins in 2015.
Figure 21: Lower powder prices have helped drive margin improvement in 2014
30.0%
32.0%
34.0%
36.0%
38.0%
40.0%
42.0%
1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14
Gross margins - Domestic Gross margins
Domestic and overall margins trend
Source: Company data, Credit Suisse estimates
International powder milk
prices have crashed (-53%
YTD), helping to negate
the impact of price capping
by the government
03 December 2014
Vietnam Dairy Products Joint Stock Company (VNM.HM / VNM VN) 12
Condensed milk: A mature product but an important earnings driver nonetheless
The oldest product in VNM's current mix, condensed milk, is predominantly used by coffee
and confectioneries in Vietnam, and accounts for a healthy market size of D5,500-5,800
bn (US$250-270 mn). Vinamilk dominates the domestic market with a 75% market share
(Euromonitor and company estimates) with two known brands. The main competitor is
FCV (Dutch Lady) with an 18% market share followed by a few niche players. It was
historically VNM's top-selling product; however, it has been taken over by liquid milk and
powder milk over the past decade. It still constitutes 13-14% of total revenue with decent
margins of 30-32%, though demand growth remains weak (3%) as the product has
reached maturity stage. The rural belt of the country and low-end consumers in urban
areas remain the target market. It also constitutes 8-10% of total exports, predominantly to
Cambodia, Laos and the Philippines. We expect demand growth to remain weak at 3-4%,
with the new 19 mn tonne capacity in Cambodia (likely to be operational in 2Q15)
expected to boost both margins and sales volumes next year.
Figure 22: Revenue growth and margins have been
steady, given limited demand growth
Figure 23: VNM comfortably dominates the condensed
milk market in Vietnam (2014E)
25.0%
28.0%
31.0%
34.0%
37.0%
40.0%
0
1,000
2,000
3,000
4,000
5,000
6,000
2010 2011 2012 2013 2014E 2015E 2016E 2017E
Revenue (VND bn) Gross Margins
Condense milk revenues and margins trend
Vinamilk75%
FCV18%
Others7%
Condense milk market share
Source: Company data, Credit Suisse estimates Source: Company data, Euromonitor, Credit Suisse estimates
Yoghurt and sour milk drinks: Fastest growing segment over the past three years
Yoghurt and sour milk drinks is the fastest growing segment in Vinamilk's product profile
(2009-13 revenue CAGR of 37%: CS estimates). Vinamilk dominates the branded yoghurt
market, with around 88% market share. The product line includes natural, flavoured and
drinking yoghurt, with the spoonable yoghurt as the most popular variant. The segment
constitutes approximately 16-17% of domestic revenues with high margins of around 43-
44%. Vinamilk has clear advantage over peers due to its greater geographical reach (nine
yoghurt factories across the country) and the most extensive distribution channel (225,000
retailers and 250 distributors), which is critical for products such as yoghurt, due to their
limited shelf life. The rising urbanisation and income levels along with increasing customer
preferences towards healthy products such as branded yoghurts makes this a key growth
segment for the company. We estimate yoghurt demand to grow at a five-year CAGR of
6%, with Vinamilk expected to maintain its market share of 88-90%.
Market dominance in
condensed milk to
continue but demand
growth has slowed
considerably
Fastest growing segment
for VNM over the past
three years, yoghurt and
sour milk offers
tremendous growth
potential
03 December 2014
Vietnam Dairy Products Joint Stock Company (VNM.HM / VNM VN) 13
Figure 24: Yoghurt has been the fastest growing segment
over the past five years…
Figure 25: …with VNM a clear leader due to superior
distribution network countrywide (2014E)
0
1,500
3,000
4,500
6,000
7,500
9,000
2009 2010 2011 2012 2013 2014E 2015E 2016E 2017E
37% CAGR (2009-13)
14% CAGR (20013-17)
Yogurt and sour milk revenues (VND bn)
VNM88%
FCV8%
Others4%
Yogurt and sour milk market shares
Source: Company data, Credit Suisse estimates Source: Company data, Euromonitor, Credit Suisse estimates
Beverages and other products: Huge potential but a very long-term story
The beverages and other products segment constitutes 4% of domestic sales, and
includes fruit juices, soya milk, ice-cream and cheese. This segment has historically not
been a key focus area for the company, as it has concentrated more on the higher-volume
liquid milk, powder milk and condensed milk segments. Having clearly established itself as
the market leader across the dairy chain, the company now plans to focus more on
beverages, cheese and ice-cream, and aggressively launched new products this year,
including fresh cheese, seven new flavours for ice-cream, and one new flavour for cheese.
Figure 26: VNM launched new flavours in ice-cream and a few cheese variants in 2014
Source: VNM company presentation
The company plans to focus more on juices and healthy drinks as part of its growth
strategy in beverages, which appears reasonable considering the huge barriers to entry in
carbonated beverages, and also aligns well with its broader vision and mission statement
"to become a world grade brand in food and beverage industry where people put all their
trust in nutrient and health products." We remain conservative on the growth opportunities
03 December 2014
Vietnam Dairy Products Joint Stock Company (VNM.HM / VNM VN) 14
for VNM in this segment, and expect revenues to grow at a three-year (2014-17E) CAGR
of 15%.
Figure 27: Beverages remains a very long-term story, in our view
0.0%
6.0%
12.0%
18.0%
24.0%
30.0%
36.0%
0
300
600
900
1,200
1,500
1,800
2009 2010 2011 2012 2013 2014E 2015E 2016E 2017E
Revenue (LHS) Margins
Beverages and other products revnues (VND bn) and margins
Source: Company data, Credit Suisse estimates
Dairy farm: Plans to expand capacity with 30,000 herds over four new farms
Vinamilk also runs a small dairy farm (herd size of ~9,500 cattle), which satisfies a very
small portion of the company's raw material requirement. The company, however, plans to
expand its farming capacity and is in the process of investing in four new farms (three in
the north and one in the south), with a target herd size of 30,000. As local supply accounts
for only 30% of the total milk demand, more and more companies are looking to set up
dairy farms. However, the lack of grass in Vietnam and huge capex outlay are major
challenges for dairy farming. Though VNM has limited constraints on the financial front
given its high free cash flow generation, we expect the pace of farm expansion to be slow,
considering the company's conservative capex plan for the next two years.
Macros on improving trend
Vietnam's macroeconomic stability has continued for a third year, with the latest N-14 CPI
(3.3%) printing at a six-year low. International financial institutions such as the IMF, World
Bank and ADB expect GDP growth to touch 5.8% in 2015-16E after an average of 5.7% in
the past five years. With high double digit CPI behind us and a contained inflation outlook
(ADB estimates 6.2%/6.6% in 2014/15E), we believe domestic demand themes should
remain in the limelight in lieu of better purchasing power. On the external account, a trade
surplus of US$2 bn in 11M14 has been led by export growth (+14%; US$137 bn) outpacing
imports (+13%; US$135 bn). Recently, the central bank has taken a number of important
steps to spur economic activity, including a controlled 1.0% devaluation of the dong vs the
greenback, and a 50 bp cut in the policy rate (to 6.5%) after 200 bp of easing in 2013. The
biggest risk in our view is that Vietnam's open economy (as measured by trade-to-GDP) and
linkage with global economic conditions can hold direct implications for growth.
Macroeconomic
environment has stabilised
with low inflation and rising
GDP growth
03 December 2014
Vietnam Dairy Products Joint Stock Company (VNM.HM / VNM VN) 15
Figure 28: GDP growth set to tick higher Figure 29: CPI has eased off from the worst of pressures
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
2007A 2008A 2009A 2010A 2011A 2012A 2013A 2014E 2015E
GDP growth (%)
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
2007A 2008A 2009A 2010A 2011A 2012A 2013A 2014E 2015E
Source: ADB, World Bank Source: ADB, World Bank
Low per capita consumption signifies long-term
growth potential
Vietnam's per capita income has been growing at a steady 10-12% rate, and stood at
US$1,890 in 2013 (as per World Bank). In a recent development, the government has
announced an increase in minimum wages by 15% next year, well in excess of annual CPI
(5-6%). Independent studies by Euromonitor estimate that spending on food and
consumption is a fraction of this (US$244), and one of the lowest in the region, signalling
huge potential to grow (the study indicates 8.4% CAGR over 2014-17E). From a sample of
14 countries in Asia, Business Monitor International (BMI) has also noted that Vietnam
ranks amongst the poorest on a metric of food consumption.
Figure 30: Per capita food consumption poised to grow in
high single digits
Figure 31: Vietnam has one of the lowest ranking on BMI's
metric of per capita food consumption
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
0
50
100
150
200
250
300
350
2011A 2012A 2013A 2014E 2015E 2016E 2017E
Per capita food consumption (US$) LHS % growth
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
11.0
Indi
a
Pak
ista
n
Vie
tnam
Phi
lippi
nes
Chi
na
Tha
iland
Indo
nesi
a
Mal
aysi
a
Aus
tral
ia
Sin
gapo
re
Sou
th K
orea
Hon
g K
ong
Japa
n
Tai
wan
Source: Business Monitor International Source: Business Monitor International
Per capita food
consumption of US$244,
one of the lowest in the
region, is set to grow at
8.4% over 2014-17E
03 December 2014
Vietnam Dairy Products Joint Stock Company (VNM.HM / VNM VN) 16
Per capita milk consumption lower than most regional peers and globally as well
In line with the overall consumption trend, milk consumption per capita in Vietnam (18kg)
is also lower than most regional peers such as Myanmar (30 kg), Thailand (28 kg), China
(23 kg), South Korea (55 kg), India (69 kg) and Malaysia (51 kg). We believe improving
macro fundamentals and low per capita consumption levels signify significant growth
potential, with consumption (nominal terms) likely to grow in low double digits (10-12%)
over the medium term. Attractive demographics (42% of the population below the age of
25) further support our positive view on consumption growth. Recent government
initiatives to encourage milk consumption to boost the average height of the population,
which has fallen over the past few decades, should also support milk consumption over
the medium to long term.
Figure 32: Vietnam has a low per capita consumption
compared to most of the regional peers
Figure 33: …with tremendous growth opportunity due to
excellent demographics (2013)
1217
1823
28
30
5155
57
6569
0.0
12.0
24.0
36.0
48.0
60.0
72.0
0
8,000
16,000
24,000
32,000
40,000
48,000
Indo
nesi
a
Phi
lippi
nes
Vie
tnam
Chi
na
Tha
iland
Mya
nmar
Mal
aysi
a
Sou
th K
orea
Bra
zil
New
Zea
land
Indi
a
GDP per capita (US$) Milk consumption/capita - kg (RHS)
(0-14)24%
(15-24)18%
(25-44)31%
(45-54)14%
(55-64)7%
65 & above6%
Population demographics
Source: FAO, World Bank, Credit Suisse estimates Source: CIA World Factbook
Per capita milk
consumption of 18 kg is
also one of the lowest in
Asia, as well as globally
03 December 2014
Vietnam Dairy Products Joint Stock Company (VNM.HM / VNM VN) 17
Margins on the rise, earnings to rebound sharply After five years of robust growth (22% EPS CAGR over 2008-13), VNM witnessed
pressure on volumes and margins, particularly on account of issues with exports to Iraq
(due to the security situation) and government intervention to regulate powder milk prices
in June. As a result, export revenues fell 38% in 9M14, while 13-14% decline in powder
milk prices in June drove earnings down 14% YoY to D4,338 bn. We believe the worst is
behind us, with low international powder milk prices (~65-70% of total raw material cost)
likely to drive a sharp margin upswing from 4Q14. Management has indicated plans to
sign long-term powder milk purchase contracts at current prices, which should boost
margins in 2015 and negate the impact of the decline in powder milk selling prices
domestically. Moreover, new capacity additions in Cambodia (2Q15) and a gradual
improvement in Iraq should boost export volumes in 2H15. Thus, we expect earnings to
rebound sharply with a three-year 2014-17 CAGR of 15%.
Steep fall in powder milk prices to boost margins
International powder milk prices have crashed to four-year lows of US$2,400/tonne due to
a combination of excess supply, higher inventories and weaker demand from China.
Average realised prices are down 30-35% YoY with a bleak outlook for prices near term,
due to weak demand from China and supply additions from New Zealand and Europe.
This bodes well for VNM, as imported milk powder constitutes approximately 65-70% of
the raw material cost for the company. We have already seen domestic margins stay flat in
3Q14 despite the impact of the 14% decline in sales price for milk powder on account of a
government decree issued in June. Given the lag in impact due to around 3-6 months of
forward purchasing pattern, we expect a 100-120 bp rise in margins in 4Q. Going forward,
VNM's plans to source forward contracts for one year should keep margins upbeat across
the product range, in our view, particularly for powder milk and liquid milk. We estimate
domestic margins to average 36.3% in 2015 as against 34.6% in 2014E.
Figure 34: International powder milk prices have crashed
due to weak demand from China and excess supply
Figure 35: Margins should rise sharply in 2015 amid sharp
decline in imported powder cost
2,000
2,600
3,200
3,800
4,400
5,000
5,600
6,200
Nov
-10
Mar
-11
Jul-1
1
Nov
-11
Mar
-12
Jul-1
2
Nov
-12
Mar
-13
Jul-1
3
Nov
-13
Mar
-14
Jul-1
4
Nov
-14
NZ milk powder prices (USD/MT)
32.8%
30.5%
34.2%
36.1%
34.6%
36.3%
36.1%
36.0%
28.0%
30.0%
32.0%
34.0%
36.0%
38.0%
2010 2011 2012 2013 2014E 2015E 2016E 2017E
Gross margins trend
Source: Bloomberg Source: Company data, Credit Suisse estimates
Steep fall in powder milk
prices to help margins rise
to 36% in 2015E
03 December 2014
Vietnam Dairy Products Joint Stock Company (VNM.HM / VNM VN) 18
Export revenues have bottomed, likely to recover in
2015
One of the key challenges for the company in 2014 was a sharp decline in export
revenues on account of the volatile political situation in Iraq. International revenues
(excluding Driftwood) fell 38% in 9M14 as the company suspended the majority of its sales
contracts and tightened credit to Iraq (the key export market). Powder milk exports to Iraq
constituted an estimated 55-60% of total exports in 2013 (US$110-125 mn), reflecting the
importance of this region. While we do not expect much recovery in volumes in 4Q, recent
success in the ongoing military operation by the Iraq government bodes well for stability in
central and northern Iraq next year. In addition, the new plant in Cambodia (another
important export market) will come into operation in 2Q15, adding 19 mn litres of liquid
milk and 80 mn cans of condensed milk, thereby boosting export sales from 2H15. We,
therefore, expect exports to recover starting next year and reach D3,803 bn by 2016
(2014E: D2,634 bn). The company has already started focusing on new export markets in
Africa, Cuba and South America, which should support export recovery next year and
drive growth momentum into 2016.
Modest growth in revenues from Driftwood
Driftwood (VNM's subsidiary in the US) posted steady numbers in 9M (revenues of D1,977
bn). Given the lack of information on the prior-year revenues and earnings as the company
only started consolidating numbers in 2014, it is difficult to ascertain the growth trend.
Going forward, we have estimated 4% annual revenue growth in USD terms. Net margins
should improve in the future as the company has successfully replaced some of the more
expensive debt in the current year.
Figure 36: Exports suffered from the deteriorating
security condition but should recover in 2015
Figure 37: Driftwood likely to provide steady growth in
revenues with minimal earnings contribution
16.0%
17.0%
18.0%
19.0%
20.0%
21.0%
22.0%
0
900
1,800
2,700
3,600
4,500
2009 2010 2011 2012 2013 2014E 2015E 2016E
Export Revenues (LHS) Margins
Export revenues (VND bn) and margins
-
20
40
60
80
100
120
140
0
500
1,000
1,500
2,000
2,500
3,000
2014E 2015E 2016E 2017E 2018E
Revenues (LHS) Net profit
Driftwood revenues and net profit (VND bn)
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
Earnings to rebound sharply in 2015, 3Y CAGR of 15%
After a tough 2014 (9M earnings down 14% to D4,338 bn), we expect a sharp rebound in
earnings (+16% YoY) next year. Our optimism is driven by rising margins due to lower raw
material cost, stable-to-expanding market share across key segments (liquid milk, powder
milk, condensed milk and yoghurt) and recovery in export volumes. We expect overall
dairy market volumes to grow at an annual rate of 5-6% over the next three years with
VNM growing slightly ahead of the market due to likely gains in market share for powder
milk amid more aggressive penetration into semi urban and rural areas in the backdrop of
lower input prices. This should drive a domestic revenue CAGR of 13% over 2015-17E.
Export revenues are
expected to recover next
year with emergence of
new markets
Earnings to rebound
sharply in 2015 (three-year
CAGR of 15%)
03 December 2014
Vietnam Dairy Products Joint Stock Company (VNM.HM / VNM VN) 19
Moreover, higher export volumes to Cambodia due to additional capacities, recovery in
sales volumes to Iraq and rising sales to newer markets such as Africa and South America
are likely to boost export revenues over the medium term. This should propel a three-year
earnings CAGR of 15% over 2014-17E with gross margins rising to 36.3% in 2015E
(2014E: 34.6%) and stabilising to 36.1% and 36% thereafter.
Figure 38: Earnings to rebound sharply in 2015 Figure 39: EBITDA and margins to trend higher as well
0
2,000
4,000
6,000
8,000
10,000
2010 2011 2012 2013 2014E 2015E 2016E 2017E
15% EPS CAGR
22% EPS CAGR
Earnings (VND bn)
18.0%
20.0%
22.0%
24.0%
26.0%
28.0%
0
2,000
4,000
6,000
8,000
10,000
12,000
2010 2011 2012 2013 2014E 2015E 2016E 2017E
EBITDA (LHS) EBITDA margins
EBITDA (VND bn) & margins trend
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
03 December 2014
Vietnam Dairy Products Joint Stock Company (VNM.HM / VNM VN) 20
Competition concerns are overplayed Competitive pressures have intensified, particularly in the liquid milk segment domestically,
with aggressive growth strategy by TH Milk and extensive marketing by FCV. However, we
believe competitive concerns are overplayed, as there are significant barriers to entry for
new players, given the large amount of capex required to build critical mass, including the
development of in-house farms to support milk production in the case of TH Milk.
Moreover, VNM's strong brand positioning, extensive distribution network and superior
financial muscle provide it a clear advantage over new entrants, helping it to maintain its
51% market share in liquid milk. Aggressive marketing spend by both FCV (60-70%
increase) and VNM (+40%) outlines the strength of the top players, which is likely to make
it difficult for new entrants to make any significant inroads. The top players continue to
dominate in terms of brand power, reflected by recent brand surveys. According to the
Brand Footprint Study 2014, released by the Kantar World Panel (a global leader in
consumer knowledge and insights), Vinamilk was the top brand in urban Vietnam ahead of
the likes of Unilever, Nestlé, FCV and Masan. Moreover, it was the third top brand in rural
Vietnam. In terms of food companies, it was the No. 1 brand in urban Vietnam, with two of
its other condensed milk brands—Ngoi Sao Phuong Nam (No. 5) and Ong Tho (No. 8)—
also in the top 10. In terms of the rural belt, Vinamilk was classified as No. 8, with its Ong
Tho brand rated as No. 10.
Figure 40: Vinamilk is the No. 1 brand in urban Vietnam…
Manufacturers Rank 2013 Rank 2012 Consumer research
points Penetration (%) Frequency
Vinamilk 1 1 74,588,671 97.5 32.1
Unilever 2 2 57,443,108 99.6 24.2
Masan 3 3 33,263,962 95.6 14.6
Vina Acecook 4 4 24,584,054 89.7 11.5
Friesland Campina 5 5 22,725,385 76.9 12.4
Nestlé 6 8 20,387,689 84.7 10.1
PepsiCo 7 7 20,072,390 75.2 11.2
P&G 8 6 19,647,224 91.6 9.0
Ajinomoto 9 9 13,354,107 84.9 6.6
Calofic 10 11 12,899,866 79.6 6.8
Source: Kantar World Panel (Brand Footprint Study 2014)
Figure 41: …and No 3 in rural Vietnam
Manufacturers Rank 2013 Rank 2012 Consumer research
points Penetration (%) Frequency
Unilever 1 1 407,009,306 99.8 25.2
Masan 2 2 297,556,856 97.8 18.8
Vinamilk 3 3 212,873,299 81.7 16.1
Vina Acecook 4 4 142,707,986 80.9 10.9
Asia Foods 5 6 113,258,816 72.9 9.6
Calofic 6 9 95,686,739 79.9 7.4
Ajinomoto 7 7 95,280,533 78.5 7.5
P&G 8 5 94,751,331 86.1 6.8
Liwayway 9 8 76,933,265 41.7 11.4
Friesland Campina 10 10 76,620,923 55.7 8.5
Source: Kantar World Panel (Brand Footprint Study 2014)
Competition has intensified
with aggressive initiatives
by FCV and TH Milk,
particularly in the liquid
milk segment…
…but VNM remains the
dominant brand with No. 1
ranking in urban and No. 3
in the rural belt
03 December 2014
Vietnam Dairy Products Joint Stock Company (VNM.HM / VNM VN) 21
Figure 42: Amongst the top food brands in both urban and rural Vietnam
Top 4 urban cities Rural
Manufacturers Rank 2013 Consumer Research
points
Rank 2013 Manufacturers Consumer Research
points
Vinamilk 1 26,799,253 1 Nam Ngu (Masan) 164,489,399
Nam Ngu (Masan) 2 15,624,358 2 Gau Do 106,914,873
Hao Hao 3 14,848,383 3 Hao Hao 89,770,041
Tuong An 4 11,531,901 4 Oishi 77,739,205
Ngoi Sao (Vinamilk) 5 10,707,308 5 Ajinomoto 70,943,740
Ajinomoto 6 10,541,437 6 A One 62,326,011
Oishi 7 9,852,926 7 Kokomi (Masan) 61,957,026
Ong Tho (Vinamilk) 8 9,165,368 8 Vinamilk 53,862,025
Gau Do 9 8,862,462 9 Tam Thai Tu (Masan) 50,185,127
Tam Thai Tu (Masan) 10 8,320,757 10 Ong Tho (Vinamilk) 36,574,778
Source: Kantar World Panel (Brand Footprint Study 2014)
Market dominance to continue due to economies of
scale and significant entry barriers
Despite the rising competition, particularly in liquid milk (not a new phenomenon), we
expect Vinamilk to maintain its dominant market position due to advantages of economies
of scale, an extensive distribution channel and significant barriers to entry for new entrants
due to high capex requirements. Despite rising competition from TH Milk, which
specialises in liquid milk derived from in-house farms with a herd size of 30,000-35000
cows and more aggressive marketing strategy by main competitor Dutch Lady (which has
raised advertising expenditure by 60-70%), Vinamilk has been able to raise its liquid milk
market share to 51% (December 2013: 49%). We expect the company's market share to
remain stable going forward, though competition will stay intense at least in the near term,
given the entry of new players albeit in niche markets and reported acquisition of Dalat
Milk (a small local player) by TH Milk. We rule out any major competitive challenges from
the decision by Hoang Anh Gia Lai (HAGL) group to develop in-house farming (target herd
size of 116,000 cattle) and its milk supply deal with Nutifood, as the project requires
substantial capex and our recent meeting with the company also suggests that it will focus
more on meat supply (the strategic focus area of Nutifood).
Figure 43: VNM likely to maintain dominant market share across its product range
0%
20%
40%
60%
80%
100%
2010 2011 2012 2013 2014E 2015E 2016E 2017E
Liquid milk Powder milk Yogurt Condensed milk
Domestic market shares trend
Source: Company data, Euromonitor, Credit Suisse estimates (Powder milk share is based on volumes)
Economies of scale, an
extensive distribution
channel and high capex to
ensure continued market
dominance
Steady growth in market
share expected across
segments
03 December 2014
Vietnam Dairy Products Joint Stock Company (VNM.HM / VNM VN) 22
Rising advertising outlay to support brand position
Distribution and marketing expenditure rose sharply over 9M14 (+40%), largely in
response to more aggressive marketing by FCV and more intense competition from TH
Milk in urban cities. This has pushed the promotion and advertising expense-to-sales ratio
to ~7.7% (5.9% in 2013). Management has clearly outlined plans to keep advertising
expenditure on the higher side to counter competitive intensity, and we expect advertising
expense to grow at a three-year CAGR of 18% over 2014-17. This strategy will ensure the
Vinamilk brand continues to remain at the forefront, helping to fend off major competitors.
Given its superior financial muscle, wider distribution network and better supply chain,
VNM should be able to maintain its leading market share in the liquid milk and yoghurt
segments. Vietnamese corporate law also caps the tax deductibility of advertising
expenditure to 15% of total deductible expenses, which will make it even harder for
smaller players to sustain high advertising outlay, given added burden on cash flows due
to higher tax outlay.
Figure 44: Advertising and promotion expense expected to remain high in the face of
rising competition
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
0
800
1,600
2,400
3,200
4,000
4,800
2009 2010 2011 2012 2013 2014E 2015E 2016E 2017E
Advertising & promotion exp (LHS) % of revenue
Trend of adversting exp (VND bn) as % of revenue
Source: Company data, Credit Suisse estimates
Extensive distribution channel offers competitive
advantage
Vinamilk enjoys one of the most extensive distribution networks in Vietnam, with a network
of 266 distributors and 225,000 retailers country wide. This generates bulk of the domestic
revenue (>90%), with the remainder through modern trade of 600 supermarkets. The firm
has extensively grown its distribution network to 225,000 retailers (12% CAGR over the
past five years), and plans to continue to grow further to increase market share,
particularly as it tries to penetrate more in semi urban and rural areas of the country. The
extensive distribution network offers the company a competitive advantage over peers to
grow beyond urban areas, which have become more competitive and offer limited growth
opportunity over the longer term. Another factor that works positively for the company with
regards to tapping the semi urban and rural areas is the large number of factories spread
across the country, which significantly reduces transportation costs. The factories at
Thanh Hao and Danang have strengthened Vinamilk's position in central Vietnam, as
none of the competitors have any major presence there.
Advertising expenditure
will continue to remain
elevated to counter
competition
Most extensive distribution
network a key competitive
advantage
03 December 2014
Vietnam Dairy Products Joint Stock Company (VNM.HM / VNM VN) 23
Figure 45: VNM has the most extensive distribution
network among local dairy processors…
Figure 46: …with 90% of revenues generated by general
trade route of distributors and retailers (2014)
-
50,000
100,000
150,000
200,000
250,000
2008 2009 2010 2011 2012 2013
VNM's retail network accross Vietnam
5 year (2008-13) CAGR of 12%
General trade (Distributors &
retailers)90%
Modern trade10%
Revenue contribution by distribution channel
Source: Company data, Credit Suisse estimates Source: Company data
Major capex out of the way, muted outlay over the
next two years
Vinamilk embarked on a major expansion plan in 2011, with a targeted outlay of D12,996
bn to substantially increase the production capacity from 0.7 mn tonnes in 2011 to around
1.5 mn tonnes in 2013. The two major expansions undertaken during this period included:
(1) 400 mn litres liquid milk plant in the Binh Duong province at a cost of US$110 mn and
(2) 54k tonnes Dielac 2 powder milk factory in Binh Duong at the cost of US$100 mn.
Approximately D9.8 tn (75%) of the capex has already been spent with another D3,200 bn
targeted to be incurred in 2015-16. VNM had earlier announced plans to further enhance
its liquid milk production capacity to 1.2 mn litres (800 mn currently) by 2017; however, we
rule out any major investment in the next 1-2 years considering the low utilisation levels
(58% estimated) post the 0.4 mn tonnes addition last year and 5-6% annual demand
growth outlook. The low capex requirement is expected to keep FCFE at elevated levels
over the next two years, and we estimate FCFE of D4.8 tn and D6.3 tn, respectively, in
2015 and 2016, as against D3.0 tn in 2014E.
Figure 47: Strategic capex plan (~75% of the strategic capex has been completed)
Strategic capex outlay
All figures D bn Plan (2012-16) Until 2013 2014E 2015-16E
Vinamilk 8,580 6,391 948 1,241
Vietnam Dairy Cow Co 1,281 431 412 438
Lam Son Milk 790 223 480 87
Driftwood 151 150
Miraka 33 33
Cambodia JV (Angkor) 222 0 222
Thong Nhat Than Hoa 1,600 0 393 1,207
Cow farm (Lam Dong) 341 0 120 221
Total 12,996 7,228 2,575 3,194
Source: Company presentation
Capex outlay to remain
muted over the next two
years
03 December 2014
Vietnam Dairy Products Joint Stock Company (VNM.HM / VNM VN) 24
Figure 48: Dielac 2 powder milk plant was set up at a cost
of US$100 mn
Figure 49: Tetra Pak filling machines at new liquid milk
factory is its most advanced plant build to date
Source: Company presentation Source: Tetra Pak
According to Managing Director of Tetra Pak Vietnam, Mr Bert Jan Post, "The new Milk
Factory set up in Binh Duong is by far the most advanced plant in automation and
integration that Tetra Pak has ever built."
03 December 2014
Vietnam Dairy Products Joint Stock Company (VNM.HM / VNM VN) 25
Attractive valuations Vinamilk trades at an attractive 2015E EV/EBITDA of 10.2x (38% regional/ 9% historical
discount). Given superior EBITDA margins (23% vs 17% regional average), low capex and
an attractive dividend yield of 3.8%, valuations appear compelling, in our view.
Initiate with OUTPERFORM
We initiative coverage on Vinamilk (VNM), the largest dairy company in Vietnam, with an
OUTPERFORM rating and a target price of D130,000. Vinamilk enjoys a dominant
position in the Vietnam dairy business (48% market share), driven by a strong brand
image, extensive distribution network and an excellent management team. The company
focuses on an aggressive growth strategy, driven by major capacity expansions worth D13
tn (US$600 mn) over 2012-16E, the bulk of which already came online in 2013.
DCF-based target price of D130,000, 2015E implied EV/EBITDA of 13.6x
Our DCF-based target price is D130,000—a 31% potential upside with an implied 2015E
EV/EBITDA of 13.6x. Vinamilk currently trades at 2015E EV/EBITDA of 10.2x (38% regional
discount and 9% historical average). Given its superior EBITDA margins (23% vs 17%
regional average), low capex requirements and attractive dividend yield of 3.8%, valuations
are compelling, in our view. The stock has underperformed the benchmark HOSE by 27%
over the past 12 months, which makes it a good entry point, in our opinion. We believe
concerns on profitability and margins amid rising competition are overplayed, and expect
earnings to rebound sharply rising by 16% in 2015E (11% decline in 2014E).
Figure 50: Vinamilk's DCF-based target price calculation
D bn Dec-14 Dec-15 Dec-16 Dec-17 Dec-18 Dec-19 Dec-20 Dec-21 Dec-22 Dec-23 Dec-24
Net income 5,854 6,862 7,802 8,905 10,105 11,376 12,725 14,296 15,934 17,781 19,849
Depreciation 940 910 877 1,093 1,031 1,030 1,281 1,298 1,441 1,518 1,692
Interest (1-tax) 80 74 76 79 83 89 96 103 111 119 128
Change in working capital (979) (538) (361) (499) (398) (541) (610) (678) (761) (854) (959)
Capex (2,749) (1,938) (1,708) (1,768) (1,768) (2,143) (2,873) (3,635) (3,220) (3,638) (3,908)
FCFF 3,147 5,370 6,687 7,810 9,052 9,812 10,619 11,384 13,505 14,925 16,802
PV of FCFF 3,108 4,752 5,300 5,547 5,760 5,594 5,423 5,209 5,536 5,482 5,528
Enterprise value 123,281
Net cash and equivalents 6,787
Equity value 130,068
Number of shares (D mn) 1,000
Equity value per share (D) 130,000
Source: Credit Suisse estimates
Figure 51: Sensitivity of WACC and terminal growth to target price
D/share
WACC (%)
9.6 10.6 11.6 12.6 13.6
(Term
inal
gro
wth
) u
sed
in V
NM
3.0% 148,000 125,000 108,000 95,000 85,000
4.0% 168,000 139,000 118,000 102,000 90,000
5.0% 196,000 157,000 130,000 111,000 97,000
6.0% 239,000 183,000 147,000 122,000 105,000
7.0% 317,000 223,000 171,000 138,000 115,000
Source: Credit Suisse estimates
DCF based target price of
D130,000 implies 2015E
EV/EBITDA of 13.6x
03 December 2014
Vietnam Dairy Products Joint Stock Company (VNM.HM / VNM VN) 26
One of the lowest EV/EBITDA multiple despite high EBITDA margins
Vinamilk trades at a 2015E EV/EBITDA of 10.2x, one of the lowest in the region, despite
high EBITDA margins of 23%. While earnings are expected to decline 9% in 2014, primarily
on account of weakness in exports, outlook for 2015 remains positive, given rising margins
and stable-to-growing market share (5-6% volume growth). Moreover, exports are expected
to rebound on account of recovery in volumes to Iraq, and higher volumes to Cambodia and
newer markets in Africa and South America. Thus, we expect earnings to rise by 16% in
2015 and grow at three-year CAGR of 15% over 2014-17.
Figure 52: Valuations remain attractive with 9% historical
discount on EV/EBITDA (x)
Figure 53: …and 23% discount to historical average price
to book (x)
0.0
3.0
6.0
9.0
12.0
15.0
18.0
Nov
-09
May
-10
Nov
-10
May
-11
Nov
-11
May
-12
Nov
-12
May
-13
Nov
-13
May
-14
Nov
-14
3 year Mean EV/EBITDA= 11.1x
EV/EBITDA (x)
Target EV/EBITDA = 13.6x
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
Nov
-09
May
-10
Nov
-10
May
-11
Nov
-11
May
-12
Nov
-12
May
-13
Nov
-13
May
-14
Nov
-14
Mean P/B = 6.8x
Target P/B = 6.1x
P/B (x)
Source: Bloomberg, company data, Credit Suisse estimates Source: Bloomberg, company data, Credit Suisse estimates
Figure 54: Attractive valuations (38% regional discount) despite high margins and decent
EBITDA growth outlook (2015E)
0.0
4.0
8.0
12.0
16.0
20.0
24.0
28.0
-5.0
0.0
5.0
10.0
15.0
20.0
25.0
30.0
Chi
na M
oder
n
Vin
amill
k
Chi
na M
engn
iu
Eng
ro F
oods
Dut
ch L
ady
Bhd
Nes
tle B
hd
Nes
tle In
dia
EV/EBITDA (x) EBITDA growth (%) - LHS
Source: Bloomberg, Credit Suisse estimates
03 December 2014
Vietnam Dairy Products Joint Stock Company (VNM.HM / VNM VN) 27
Vinamilk implied EV/EBITDA is at 15% discount to Masan
Credit Suisse has also initiated coverage on Masan Group with a target EV/EBITDA
multiple of 16.0x versus implied 13.6x multiple for Vinamilk. The reasons for a higher
target multiple for Masan are its superior margins and higher EPS CAGR for the consumer
business.
Figure 55: Masan Group enjoys higher margins and EPS CAGR than VNM
2014-17E CAGRs Three-year average
Sales EPS GP margin EBITDA margin
Masan Consumer 17.8% 23.5% 43.2% 24.8%
Vina Milk 12.8% 14.8% 35.7% 22.7%
Source: Credit Suisse estimates
03 December 2014
Vietnam Dairy Products Joint Stock Company (VNM.HM / VNM VN) 28
Investment risks Macros (GDP, inflation and interest rates)
Vietnam's economic growth is slowly recovering ,with GDP forecast to grow by 6% in
2014/15E (as per ADB), which is still shy of 8%+ levels seen prior to 2007. Slower-than-
expected growth will filter down into food consumption levels, and with the consumer
business forming 74% of revenues, this can be put at risk in terms of volume growth.
Decline in consumer confidence levels can also scale down purchasing power. Inflation
has moderated significantly, and is forecasted to remain sub 6%. However, a spike without
a corresponding increase in disposable incomes can clip purchasing power and compel
consumers to look for cheaper alternatives. To mitigate this, significant pricing power
enjoyed owing to high market shares can account for better pass-through abilities.
Rising competition and margin pressure
Vinamilk enjoys market dominance in the dairy business (48% overall market share).
While the company is fairly well positioned with strong management, an extensive
distribution network and strong financial position, competition has intensified substantially.
Rising competition could put pressure on volume growth and margins as new entrants
may be ready to operate at minimal margins to gain market share.
Volatility in powder prices
International milk powder prices are down 53% YTD and have remained volatile over the
past three years. While the near-term outlook for powder milk pricing remains weak,
significant volatility cannot be ruled out, particularly if demand from China picks up, and
some of the non-profitable capacities in New Zealand and Europe close down. This could
put pressure on cost and margins, as imported powder milk constitutes 65-70% of total
raw material cost. According to our estimates, every 5% increase in powder milk prices
impacts VNM's overall margins by 40-45 bp.
Government regulation on product prices
The Vietnamese government is actively involved in the regulation of powder milk prices,
particularly those relating to infant formula reflected by the price decree announced in June,
whereby manufacturers were forced to reduce prices by 13-30% across the product range.
Vinamilk was also impacted by the move, taking a 13-14% hit on product pricing as a result.
While this decree is currently valid for one year, the government may decide to continue the
current price freeze beyond the original period. Moreover, active government involvement in
price control poses risk to other dairy products, such as liquid milk, as well.
Succession of the CEO and Chairwoman
One of the key reasons behind the success story of Vinamilk has been the role of its CEO
and Chairwoman, Ms Mai Kieu Lien, who has been at the helm for two decades and has
driven most of its expansion and acquisition initiatives. She is widely regarded as one of the
top executives in Vietnam and has been voted amongst the top 50 businesswomen in Asia
by Forbes (2012 and 2013). While Ms Lien is expected to continue in her current role in the
foreseeable future, there remains a succession risk over the long term.
Political risks
While the domestic market enjoys political stability, some of the export markets of Vietnam
particularly in the Middle East—such as Iraq—have witnessed significant deterioration in
their political and security situation, resulting in a sharp decline in business. Exports were
down 38% in 9M14, with sales to Iraq down 70% over the past two quarters. Further
deterioration of political conditions in Iraq or changes in political and security environment
in other markets in Africa and East Asia (Cambodia, Laos) would have a negative impact
on revenues and earnings of VNM.
03 December 2014
Vietnam Dairy Products Joint Stock Company (VNM.HM / VNM VN) 29
Financial summary Figure 56: Vinamilk—profit and loss
D bn, unless stated otherwise 2010A 2011A 2012A 2013A 2014E 2015E 2016E 2017E 2018E
Net revenue 15,753 21,627 26,562 30,949 34,491 38,786 43,877 49,638 55,679
% growth 37.3% 22.8% 16.5% 11.4% 12.5% 13.1% 13.1% 12.2%
Cost of sales 10,579 15,039 17,485 19,766 22,573 24,702 28,025 31,790 35,608
Gross profit 5,174 6,588 4,210 4,999 8,500 12,397 14,316 15,212 15,945
Distribution and marketing 1,438 1,812 2,346 3,276 4,503 5,360 6,070 6,843 7,720
General and admin expenses 388 459 525 611 769 887 995 1,117 1,246
EBITDA 4,246 4,969 7,029 8,336 7,777 8,961 9,907 11,250 12,430
% growth 17.0% 41.5% 18.6% -6.7% 15.2% 10.6% 13.6% 10.5%
Depreciation and amortisation 290 415 535 786 940 910 877 1,093 1,031
EBIT 3,956 4,554 6,493 7,550 6,836 8,051 9,029 10,157 11,399
Net financial (income)/expenses (295) (434) (424) (417) (484) (572) (693) (879) (1,118)
Net other (income)/expenses (609) (237) (287) (255) (191) (214) (243) (269) (294)
Share of profit/(loss) associates 0 9 -13 -44 -53 -63 -79 -95 -114
Profit before tax 4,251 4,979 6,930 8,010 7,373 8,686 9,802 11,131 12,631
Reported profit after tax 3,615 4,218 5,819 6,534 5,854 6,862 7,802 8,905 10,105
% growth 16.7% 38.0% 12.3% -10.4% 17.2% 13.7% 14.1% 13.5%
Attributable to:
Minority interest (1) - - (0) 7 12 18 25 37
Equity holders 3,616 4,218 5,819 6,534 5,847 6,850 7,784 8,880 10,068
CS recurring EPS (D) 3,616 4,218 5,819 6,533 5,846 6,849 7,783 8,879 10,066
% growth 17.2% 16.6% 38.0% 12.3% -10.5% 17.2% 13.6% 14.1% 13.4%
Margins
Gross 32.8% 30.5% 34.2% 36.1% 34.6% 36.3% 36.1% 36.0% 36.0%
EBITDA 27.0% 23.0% 26.5% 26.9% 22.5% 23.1% 22.6% 22.7% 22.3%
Net profit 23.0% 19.5% 21.9% 21.1% 17.0% 17.7% 17.8% 17.9% 18.1%
Source: Company data, Credit Suisse estimates
03 December 2014
Vietnam Dairy Products Joint Stock Company (VNM.HM / VNM VN) 30
Figure 57: Vinamilk—balance sheet
D bn 2010A 2011A 2012A 2013A 2014E 2015E 2016E 2017E 2018E
Cash and equivalents 263 3,157 1,252 2,746 1,003 2,121 3,045 3,363 4,342
Short-term investments 2,092 736 3,909 4,167 6,167 6,467 7,767 10,267 12,767
Accounts receivables 587 1,141 1,266 1,895 1,984 2,338 2,645 2,992 3,356
Inventories 2,351 3,272 3,473 3,217 3,803 4,264 4,837 5,487 6,244
Other current assets 626 1,161 1,210 994 1,165 1,288 1,373 1,553 1,738
Current assets 5,920 9,468 11,111 13,019 14,124 16,477 19,667 23,662 28,448
Deferred taxation and costs 161 106 149 286 286 286 286 286 286
Fixed assets 3,255 4,789 7,789 8,387 10,181 11,190 11,911 12,585 13,320
LT investments 315 306 315 434 463 494 511 529 548
Other LT assets 1,122 914 335 749 718 690 769 738 711
Long-term assets 4,853 6,115 8,587 9,856 11,648 12,661 13,477 14,139 14,865
TOTAL ASSETS 10,773 15,583 19,698 22,875 25,772 29,138 33,144 37,801 43,313
Trade and other payables 1,089 1,831 2,248 1,968 2,165 2,369 2,687 3,048 3,610
Borrowings 568 0 0 179 143 139 66 1 1
Others 988 1,116 1,897 2,809 2,471 2,657 2,932 3,235 3,569
Current liabilities 2,645 2,947 4,145 4,956 4,779 5,166 5,684 6,284 7,179
LT borrowings and liabilities 164 159 60 351 387 260 209 220 232
Share capital 3,531 5,561 8,340 8,340 10,007 10,007 10,007 10,007 10,007
Share premium and reserves 2,525 2,739 1,955 3,056 1,779 1,779 1,779 1,779 1,779
Retained earnings 1,909 4,177 5,199 6,150 8,789 11,883 15,404 19,425 23,993
Total shareholder equity 7,964 12,477 15,493 17,545 20,575 23,670 27,190 31,211 35,780
Minority interests 0 0 0 23 30 42 60 85 122
Total equity and liabilities 10,773 15,583 19,698 22,875 25,772 29,138 33,144 37,801 43,313
Source: Company data, Credit Suisse estimates
Figure 58: Vinamilk—cash flow statement
D bn 2010A 2011A 2012A 2013A 2014E 2015E 2016E 2017E 2018E
Profit after tax 3,615 4,218 5,819 6,534 5,854 6,862 7,802 8,905 10,105
Non-cash expenses 290 415 535 786 940 910 877 1,093 1,031
Changes in working capital (862) (1,132) 679 368 (979) (538) (361) (499) (398)
Income tax and others (118) 6 46 123 0 0 0 0 0
Others (2,150) 173 (3,386) (3,321) 775 (560) (526) (615) (667)
Operating cash flow 775 3,679 3,694 4,490 6,591 6,674 7,793 8,884 10,071
Fixed assets (1,060) (1,948) (3,535) (1,385) (2,734) (1,919) (1,598) (1,768) (1,766)
LT investments (396) (74) (6) (397) (15) (19) (110) (0) (3)
Other LT assets 0 0 0 0 0 0 0 0 0
Investing cash flow (275) 345 534 (183) 17 16 14 13 11
Borrowings (1,730) (1,676) (3,008) (1,965) (2,732) (1,923) (1,694) (1,755) (1,757)
Share capital and surplus (12) 0 0 363 (9) (138) (137) (67) (1)
Dividends 18 3,306 2,776 (1) 391 0 0 0 0
Other financing cash flow (1,054) (1,484) (1,500) (2,250) (4,001) (3,215) (3,767) (4,282) (4,884)
Financing cash flow 1,066 (1,634) (789) 1,113 17 19 30 38 51
Net cash flow 18 188 487 (775) (3,602) (3,334) (3,875) (4,311) (4,834)
Source: Company data, Credit Suisse estimates
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Vietnam Dairy Products Joint Stock Company (VNM.HM / VNM VN) 31
Figure 59: Vinamilk—key ratios
2010A 2011A 2012A 2013A 2014E 2015E 2016E 2017E 2018E
Recurring EPS (D) 3,616 4,218 5,819 6,533 5,846 6,849 7,783 8,879 10,066
% growth 17.2% 16.6% 38.0% 12.3% -10.5% 17.2% 13.6% 14.1% 13.4%
EBITDA (D bn) 4,246 4,969 7,029 8,336 7,777 8,961 9,907 11,250 12,430
% growth 56.7% 17.0% 41.5% 18.6% -6.7% 15.2% 10.6% 13.6% 10.5%
P/E (x) on recurring EPS 27.4 23.5 17.0 15.2 16.9 14.5 12.7 11.1 9.8
BVPS 7,963 12,476 15,491 17,566 20,603 23,709 27,247 31,292 35,897
P/B (x) 12.4 7.9 6.4 5.6 4.8 4.2 3.6 3.2 2.8
CFO/sh 775 15,611 13,755 16,756 18,297 20,929 24,531 28,523 32,709
P/CFO (x) 127.7 26.9 26.8 22.1 15.0 14.8 12.7 11.1 9.8
Sales/sh 15,751 21,625 26,558 30,945 34,486 38,781 43,871 49,631 55,672
P/S (x) 6.3 4.6 3.7 3.2 2.9 2.6 2.3 2.0 1.8
Average ROE (%) 50.0% 41.3% 41.6% 39.5% 30.6% 30.9% 30.5% 30.3% 30.0%
Average ROA (%) 37.6% 32.0% 33.0% 30.7% 24.1% 25.0% 25.1% 25.1% 24.9%
ROIC (%) 54.5% 44.9% 52.8% 56.0% 39.5% 41.6% 43.7% 46.2% 48.8%
Net debt-to-equity Net cash Net cash Net cash Net cash Net cash Net cash Net cash Net cash Net cash
Financial leverage (x) 135.3% 156.0% 196.0% 200.0% 183.0% 169.0% 157.0% 148.0% 120.0%
FCF yield (%) -0.29% 1.75% 0.16% 3.14% 3.90% 4.80% 6.26% 7.19% 8.39%
Source: Company data, Credit Suisse estimates
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Vietnam Dairy Products Joint Stock Company (VNM.HM / VNM VN) 32
Appendix Company overview
Vinamilk is Vietnam's largest dairy company with an overall market share of 48%. The
company operates in all key dairy segments including liquid milk, milk powder, condensed
milk, yoghurts & sour drinks, ice-cream, cheese, etc. The company was established in
1976 as the state-owned Southern Coffee-Dairy Company, to nationalise and take over
the operations of three previously private dairy factories in South Vietnam: Thong Nhat
(belonging to a Chinese company), Truong Thọ (formerly owned by Friesland Foods, best
known for its production of condensed milk that was widely distributed across the south),
and Dielac (Nestlé). It was then renamed United Enterprises of Milk Coffee Cookies and
Candies I in 1978 and finally Vietnam Dairy Company was established in 1993. In 2003,
the company legally changed its name to Vietnam Dairy Products Joint Stock Company
(Vinamilk) and was subsequently listed at the Ho Chi Minh Stock Exchange (HOSE) in
2006. It is currently the second-largest company listed on the HOSE with a market
capitalisation of US$4.6 bn. Vinamilk currently operates 13 factories and a dairy farm
domestically through three major subsidiaries and also owns an international subsidiary
Driftwood Dairy (70% stake) in the US, a 51% JV stake in Cambodia (Angkor Dairy),
strategic investment in Miraka Limited New Zealand (19%) and Asia Saigon Foods (15%).
Figure 60: Vinamilk's corporate holding structure
Vinamilk
Vietnam
Dairy Cow
Ltd (100%)
Thong Nhat
Than Hoa
(96%)
Driftwood
Dairy USA
(70%)
Angkor Dairy – JV
Cambodia (51%)
Lam Son
Dairy
(100%)
Miraka Limited (New
Zealand (19%)
Asia Saigon
Food (15%)
Source: Company data
Management profiles
Ms. Mai Kieu Lien: Chairwoman & CEO
Ms Mai Kieu Lien is the Chairwoman and CEO of Vinamilk. She joined the company as an
engineer in charge of condensed milk production and rose through the ranks to become
CEO in 1992. She was elected as the Chairwoman for Board of Management (BoM) in
2003. Ms Mai has been key to the success story of VNM over the past two decades
having driven most of the expansion and acquisition initiatives. Her contribution to the
success of Vinamilk was acknowledged by Forbes, which named her amongst the 50 most
powerful businesswomen in Asia (the only Vietnamese) for two years running in 2012 and
2013. She holds a BSC from Moscow University of Meat & Milk Processing Technology,
Russia and a Certificate of Leningrad economic management from University of Economy,
Russia. Ms Lien has been Chairwoman of the Vietnam dairy association since 2010 and is
also a board member of Miraka Limited New Zealand.
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Vietnam Dairy Products Joint Stock Company (VNM.HM / VNM VN) 33
Mr Mai Hoai Anh: Executive Director Sales
Mr Mai Haoi Anh joined Vinamilk in 1996 and was appointed Executive Director Sales in
May 2012. Mr Anh has worked extensively in the export and import departments at VNM.
He holds an economics degree from Ho Chi Minh University and an MBA from Bolton
University (UK).
Ms. Nguyen Thi Nhu Hang: Executive Director Dairy Development
Ms Hang first joined Vinamilk in 1981 working in the consumption department till 2001.
She subsequently moved as Director of Logistics and then Deputy General Director (in
charge of technical project department). Ms Hang has also been involved in managing and
developing the dairy farms business as well as customer services. She currently serves as
a Director on the board of Vietnam Dairy Cow One Member Co Ltd and Thong Nhat Thanh
Hoa Dairy Cow Ltd.
Ms. Nguyen Thi Thanh Hoa: Executive Director Production and R&D
Ms Hoa joined the company as a process engineer in 1983 and rose through the ranks to
become Executive Director in charge of supply chain, planning, imports and exports and
customer services in 2009. Ms Hoa was rotated to the position of Executive Director
Production and R&D in Sept 2013. She holds a bachelor’s degree in meat processing
technology from Moscow National General University.
Mr Nguyen Quoc Khanh : Executive Director Supply Chain
Mr Khanh joined the company in 1988 in the checking department and became manager
of production of Thong Nhat Factory (1996) and then Director of Can Tho Dairy Factory in
2004. He was appointed Executive Director Production and R&D in 2009 and was later
rotated to Executive Director Supply Chain in 2013. Mr Khanh graduated from Ho Chi
Minh Polytechnic University in 1987 majoring in chemical technique and foods. He also
holds a Bachelor of Business Administration from Ho Chi Minh city University of
Economics and a Bachelor of English from Ho Chi Minh University.
03 December 2014
Vietnam Dairy Products Joint Stock Company (VNM.HM / VNM VN) 34
Country-wide coverage provides competitive
advantage
Figure 61: Vinamilk has a total of 13 factories well spread out across Vietnam; these
provide a key competitive advantage
Source: Company presentation
Extensive distribution network
Figure 62: Distribution network is superior to peers; it is among the top three consumer
companies in Vietnam
Source: Company presentation
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Vietnam Dairy Products Joint Stock Company (VNM.HM / VNM VN) 35
Focused marketing, sales and R&D
Figure 63: Experienced marketing, sales and R&D teams, with key members having a
long history of working together
Source: Company presentation
Figure 64: One of the most modern production facilities
Source: Company presentation
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Vietnam Dairy Products Joint Stock Company (VNM.HM / VNM VN) 36
Continued investment in R&D with new product
launches
Figure 65: New product launches for liquid milk in 2014 Figure 66: New launches for powder milk & yoghurt in
2014
Source: Company presentation Source: Company presentation
03 December 2014
Vietnam Dairy Products Joint Stock Company (VNM.HM / VNM VN) 37
Companies Mentioned (Price as of 02-Dec-2014)
Abbott Laboratories (ABT.N, $45.22) Bumitama Agri Limited (BUMI.SI, S$1.02) Charoen Pokphand Foods Public (CPF.BK, Bt28.25) China Mengniu Dairy (2319.HK, HK$30.3) China Modern Dairy Holdings Ltd (1117.HK, HK$2.36) Dabur India (DABU.BO, Rs242.5) Dutch Lady Milk (DBMS.KL, RM45.34) Emperador Inc. (EMP.PS, P10.86) Engro Foods (ENFL.KA, PRs105.71) Fonterra (FSF.NZ, NZ$6.02) Genting Berhad (GENT.KL, RM9.45) Hindustan Unilever Ltd (HLL.BO, Rs804.8) IOI Corporation (IOIB.KL, RM4.83) Indofood Agri Resources Ltd (IFAR.SI, S$0.74) Indofood CBP (ICBP.JK, Rp11,400) Indofood Sukses Makmur (INDF.JK, Rp6,675) Kuala Lumpur Kepong (KLKK.KL, RM22.32) LG Household & Healthcare (051900.KS, W633,000) Masan Group (MSN.HM, D80500.0) Mead Johnson Nutrition Co. (MJN.N, $102.87) Nestlé India (NEST.BO, Rs6189.75) Nestlé MY (NESM.KL, RM68.6) Orion Corp. (001800.KS, W996,000) PT Astra Agro Lestari Tbk (AALI.JK, Rp23,200) PT London Sumatra Indonesia (LSIP.JK, Rp1,910) Sime Darby (SIME.KL, RM9.58) Thai Beverage (TBEV.SI, S$0.68) Thai Union Frozen Products PCL (TUF.BK, Bt88.5) Tingyi (0322.HK, HK$18.32) Unilever Indonesia (UNVR.JK, Rp31,275) Universal Robina Corp. (URC.PS, P196.1) Vietnam Dairy Products Joint Stock Company (VNM.HM, D99500.0, OUTPERFORM, TP D130000.0) WH Group Limited (0288.HK, HK$4.38) Want Want China Holdings Ltd. (0151.HK, HK$10.18) YuanShengTai Dairy Farm (1431.HK, HK$0.82)
Disclosure Appendix
Important Global Disclosures
I, Farhan Rizvi, CFA, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.
The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities
As of December 10, 2012 Analysts’ stock rating are defined as follows:
Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark*over the next 12 months.
Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months.
Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months.
*Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Can adian as well as European ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and non -Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchm ark; prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiv eness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, 12-month rolling yield is incorporated in the absolute total return calculation and a 15% and a 7.5% threshold replace the 10-15% level in the Outperform and Underperform stock rating definitions, respectively. The 15% and 7.5% thresholds replace the +10-15% and -10-15% levels in the Neutral stock rating definition, respectively. Prior to 10th December 2012, Japanese ratings were based on a stock’s total return relative to the average total return of the relevant country or regional benchmark.
Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances.
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Vietnam Dairy Products Joint Stock Company (VNM.HM / VNM VN) 38
Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.
Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation:
Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months.
Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months.
Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months.
*An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may co ver multiple sectors.
Credit Suisse's distribution of stock ratings (and banking clients) is:
Global Ratings Distribution
Rating Versus universe (%) Of which banking clients (%)
Outperform/Buy* 46% (54% banking clients)
Neutral/Hold* 38% (50% banking clients)
Underperform/Sell* 14% (44% banking clients)
Restricted 2%
*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, an d Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refe r to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdin gs, and other individual factors.
Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein.
Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research-and-analytics/disclaimer/managing_conflicts_disclaimer.html
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Price Target: (12 months) for Vietnam Dairy Products Joint Stock Company (VNM.HM)
Method: We have valued Vinamilk on the FCFF methodology with cost of equity of 12.0%, Kd of 6% and WACC of 11.6%. Our FCF-based based target price arrives at D130,000, implying a 2015E EV/EBITDA of 13.6x.
Risk: Key risks to our target price of D130,000 for Vinamilk include: (1) continued government regulation on product pricing, (2) further deterioration in operating conditions in export markets and (3) macro slowdown and more intense competition in the domestic market.
Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures for the definitions of abbreviations typically used in the target price method and risk sections.
See the Companies Mentioned section for full company names
The subject company (VNM.HM, URC.PS, LSIP.JK, KLKK.KL, TBEV.SI, UNVR.JK, 1431.HK, IOIB.KL, 001800.KS, HLL.BO, TUF.BK, INDF.JK, ICBP.JK, 051900.KS, EMP.PS, AALI.JK, IFAR.SI, NEST.BO, 0322.HK, MSN.HM) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse.
Credit Suisse provided investment banking services to the subject company (URC.PS, LSIP.JK, UNVR.JK, 1431.HK, HLL.BO, INDF.JK, ICBP.JK, IFAR.SI, NEST.BO, MSN.HM) within the past 12 months.
Credit Suisse provided non-investment banking services to the subject company (001800.KS) within the past 12 months
Credit Suisse has managed or co-managed a public offering of securities for the subject company (NEST.BO) within the past 12 months.
Credit Suisse has received investment banking related compensation from the subject company (URC.PS, LSIP.JK, UNVR.JK, 1431.HK, HLL.BO, INDF.JK, ICBP.JK, IFAR.SI, NEST.BO, MSN.HM) within the past 12 months
Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (VNM.HM, URC.PS, LSIP.JK, KLKK.KL, TBEV.SI, UNVR.JK, 1431.HK, IOIB.KL, HLL.BO, BUMI.SI, TUF.BK, DABU.BO, INDF.JK, 0288.HK, ICBP.JK, 051900.KS, 0151.HK, EMP.PS, AALI.JK, IFAR.SI, NEST.BO, 0322.HK, MSN.HM) within the next 3 months.
Credit Suisse has received compensation for products and services other than investment banking services from the subject company (001800.KS) within the past 12 months
Credit Suisse may have interest in (SIME.KL, GENT.KL, KLKK.KL, IOIB.KL)
03 December 2014
Vietnam Dairy Products Joint Stock Company (VNM.HM / VNM VN) 39
As of the end of the preceding month, Credit Suisse beneficially own 1% or more of a class of common equity securities of (MSN.HM).
Credit Suisse has a material conflict of interest with the subject company (051900.KS) . Credit Suisse is acting as exclusive financial advisor to LG Household & Health Care Ltd. for the acquisition of Everlife Co., Ltd. from CLSA Sunrise Capital, L.P.
For other important disclosures concerning companies featured in this report, including price charts, please visit the website at https://rave.credit-suisse.com/disclosures or call +1 (877) 291-2683.
Important Regional Disclosures
Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report.
The analyst(s) involved in the preparation of this report have not visited the material operations of the subject company (VNM.HM, SIME.KL, URC.PS, LSIP.JK, GENT.KL, KLKK.KL, TBEV.SI, UNVR.JK, 1431.HK, IOIB.KL, 1117.HK, 001800.KS, HLL.BO, BUMI.SI, TUF.BK, DABU.BO, INDF.JK, 0288.HK, ICBP.JK, CPF.BK, 051900.KS, 2319.HK, 0151.HK, EMP.PS, AALI.JK, IFAR.SI, NEST.BO, 0322.HK, MSN.HM) within the past 12 months
Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares.
Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report.
For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit http://www.csfb.com/legal_terms/canada_research_policy.shtml.
Credit Suisse has acted as lead manager or syndicate member in a public offering of securities for the subject company (URC.PS, 1431.HK, NEST.BO) within the past 3 years.
As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report.
Principal is not guaranteed in the case of equities because equity prices are variable.
Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that.
For Thai listed companies mentioned in this report, the independent 2014 Corporate Governance Report survey results published by the Thai Institute of Directors Association are being disclosed pursuant to the policy of the Office of the Securities and Exchange Commission: Thai Beverage () , Thai Union Frozen Products PCL (Good) , Charoen Pokphand Foods Public (Very Good)
To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.
Credit Suisse AG, Singapore Branch ........................................................................................................................................... Farhan Rizvi, CFA
For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at https://rave.credit-suisse.com/disclosures or call +1 (877) 291-2683.
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Vietnam Dairy Products Joint Stock Company (VNM.HM / VNM VN) 40
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Investment principal on bonds can be eroded depending on sale price or market price. In addition, there are bonds on which investment principal can be eroded due to changes in redemption amounts. Care is required when investing in such instruments. When you purchase non-listed Japanese fixed income securities (Japanese government bonds, Japanese municipal bonds, Japanese government guaranteed bonds, Japanese corporate bonds) from CS as a seller, you will be requested to pay the purchase price only.
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