VNM_FOLLOW_TP 87,000_Upside 12%_Prospects for recovery_BSC_Vietnam company update

VALUATION PERSPECTIVES

BSC recommends FOLLOW for VNM at 87,000 VND/share, equivalent to an upside of 12% compared to the price on 14/12/2022 with DCF and P/E methods with a weighting of 50% - 50%.

BUSINESS RESULTS FORECAST

BSC expects VNM's Net Revenue and Profit before Tax in 2022 to reach VND 60,727 billion (-0.3%YoY) and VND 8,836 billion (-16%YoY), equivalent to EPS = VND 3.765 and PE FW = 20.6 times respectively.

Expectations for 2023: Net Revenue and Profit before Tax are estimated at VND 61,883 billion (+1.9%YoY) and VND 10,354 billion (+17.8%YoY), respectively, equivalent to EPS FW 2023 = VND 4,411, P/E FW = 17.6 times. The driving force for profit growth mainly comes from an improved gross profit margin from 40.6% (2022E) to 43.6% (2023F) thanks to the increase in milk prices from Q2/2022 and the expectation of a decline in raw material prices in 2023.

INVESTMENT PERSPECTIVES

• The strength from the leading dairy enterprise (~60% market share) – owning the largest cattle herd nationwide helps VNM ensure stable production and business activities and healthy financial capacity.
• Gross profit margin in 2023 is supported by 2.9 percentage points over the same period in 2022 thanks to (1) The increase in selling price from 1%-2% over the same period and (2) Material prices with signals of going down to the level of early 2021.

RISK

• Fluctuations in raw material prices affect profit margins;
• Losing market share due to facing fierce competition with competitors in the industry.

BUSINESS UPDATES

Although domestic demand in Q3/22 gradually recovered after efforts to restructure distribution channels in Q2/22, helping revenue increase by +10%QoQ – equivalent to the same period in 2021, but profit after tax still declined by -22%YoY due to (1) gross profit margin decreased by 3.4 basis points due to an increase in output price of ~5% YoY, which was not enough to offset the increase in input material prices which are estimated to increase from 20%-25%YoY and (2) the impact of financial expenses increased by +125%YoY – equivalent to 3.4% Profit after tax due to an increase in capital expenditure of +72.6%YoY and a financial operating loss of +6.43 times over the same period.