While there are several advantages at play...
The preliminary results of the US anti-dumping tax review offer promising prospects for Vietnam's pangasius export industry in 2024. The tax rate has seen a substantial 94% reduction compared to the previous year, enhancing the competitiveness of Vietnamese pangasius products in the US market. In September 2023, the US Department of Commerce released the preliminary results of the 19th administrative review (POR 19) for Vietnamese frozen pangasius fillets exported to the US market from August 1, 2021, to July 31, 2022. Consequently, the majority of Vietnamese businesses are poised to benefit from a significantly reduced anti-dumping tax of USD 0.14 per kilogram.
Furthermore, in 2024, it is anticipated that the Federal Reserve will implement six interest rate cuts to stimulate robust business and trade activities. Despite a slightly higher-than-expected increase in US inflation at 3.4% in December 2023, with a 0.3% rise from the previous month, the Fed has not deviated from its planned course. Another positive indicator is the US Personal Consumption Expenditure Index (PCE), signaling improvements in consumption within the country.
Of notable significance is the anticipated loss of competitive advantage for Russian pollock (considered a substitute for pangasius in the Western market) in 2024. The imposition of sanctions by the US and Europe, including export taxes, will impact Russian pollock. The EU declared a 13.7% tax rate on all pollock fillet products from Russia and third countries originating from Russia starting from the beginning of 2024. Additionally, the US, since the end of December 2023, has imposed a ban on importing seafood products processed in a third country but originating from Russia. This is expected to have a substantial impact on supply in Alaska, where 35% of seafood production relies on Russian pollock processed in China. Furthermore, other pollock exporters are also confronted with new tax rates that are 4-7% higher than the previous year.
... but the picture has many dark colors
Vĩnh Hoàn Joint Stock Company (VHC), a key player in the pangasius processing and export sector, faces a challenging scenario on the stock market. In 2023, VHC reported a net revenue of VND 10,039 billion, representing a 24% decline. The revenue from its primary segment, pangasius, witnessed a substantial drop of 26%. The decline in revenue triggered a significant downturn in profits, with VHC's after-tax profit for 2023 standing at nearly VND 950 billion, down nearly 53%. Reports indicate that the proportion of revenue exported to the US market in 2023 decreased by 11%, constituting 30% of the total revenue. Meanwhile, the proportions of revenue exported to China and Europe each increased by 2%.
The data underscores that weak demand in the US market is a primary factor contributing to VHC's poor business performance compared to previous years. Even as the market entered the peak season at the end of the year, VHC's business results proved disappointing. For instance, in the fourth quarter of 2023, VHC's gross profit margin saw a significant contraction of 11.1 percentage points, attributed to a 31% decrease in the average selling price of pangasius. The notable decline in the average selling price, despite an increase in output due to high inventory, compelled VHC to adopt lower prices to stimulate sales volume.
Therefore, the fourth quarter of 2023 marks the 5th consecutive quarter of negative profit growth for the company over the same period. Despite positive signs in VHC's main consumer market, the US, businesses are unable to capitalize due to low selling prices. In December 2023, the average selling price to the US reached USD 2.5 per kilogram, representing a 16% decline, and USD 2.1 per kilogram, continuing the downward trend since August 2022. Analysts suggest that, based on previous cycles, the average selling price typically takes 1.5-2 years to reach the bottom and approximately 4 years to complete the cycle. Therefore, it is anticipated that the average selling price of pangasius may only start to rise again as early as the second half of 2024, marking 2 years from the peak to the bottom.
VHC is now confronted with a new challenge – the increase in shipping rates, which may exert pressure on seafood exports in the short term. According to the Vietnam Association of Seafood Exporters and Producers (VASEP), since the beginning of 2024, numerous shipping lines have announced a hike in freight rates to the US and Europe, key export markets for Vietnam. This development poses potential new challenges for seafood export companies in the current year. The persistence or escalation of tensions in the Red Sea region could lead to a short to medium-term increase in shipping costs, potentially impacting the profits of export companies like VHC.
When a prominent enterprise like VHC encounters challenges, smaller companies such as Nam Viet Joint Stock Company (ANV) and I.D.I Multinational Investment and Development Joint Stock Company (IDI) face even greater pressures. For instance, IDI's net revenue and gross profit in 2023 amounted to VND 7,221 billion (a 9% decline) and VND 88 billion (an 84% decrease), respectively. Within this, revenue from the pangasius segment saw a 19% reduction. Apart from market-related factors, the unexpected performance of IDI's business results was also influenced by financial costs, witnessing a 34% surge to VND 412 billion, with interest expenses constituting VND 362 billion.
