Fall in exports
According to the Vietnam Association of Seafood Exporters and Producers (VASEP), seafood exports will fall from positive growth at a high rate of 34% to 46% to a negative growth of around 9% with a deep drop in all categories. In January this year, seafood exports decreased by 31%, reaching at about USD 600 mln. In this, pangasius decreased by 50%, shrimp decreased by 46%, and tuna decreased by 32%. Exports to major markets also dropped sharply, in which exports to the US decreased by 56%, to Hong Kong by 55%, and to the European markets by 35%.
The latest statistics from VASEP show a reverse trend to the favorable factors seen in 2022. Market experts at the Rong Viet Securities Company (VDSC), said that in 2022 the US market saw the highest export value in Vietnam's pangasius industry at around USD 2.4 bln, which is up by nearly 63%. The main reason for this high volume was the high demand in the US market after the Covid-19 pandemic ended and partly because of shortage of whitefish supply caused by the Russia-Ukraine ongoing war conflict. Nonetheless, the seafood industry faced many challenges in the second half of 2022, as persistent inflation and high retail inventories weighed heavily on export companies.
The export price to the US market has halved now while this is the market receiving the highest discounts of all markets. Since the export price to the US is the reference price for other markets, the decline in the selling price to the US is also putting pressure on the overall selling price of the whole industry. The proof lies in the bleak export volume in the last months of 2022 and early 2023. The most obvious consequence was evidenced by a leading enterprise in the industry, namely, the Vinh Hoan Joint Stock Company (VHC). The company suffered a severe revenue decline in the fourth quarter of 2022, and this situation is expected to continue in the first half of 2023.
However, the pangasius industry in Vietnam is still very hopeful of the Chinese market as demand is expected to increase in 2023 after China's economy officially reopens. In the last three years, even when other markets were recovering, the demand in the Chinese market had weakened. But according to VDSC, although China officially reopened at the beginning of 2023, Vietnam's pangasius exports to the Chinese market have so far not improved significantly.
The reason is that demand has not yet fully recovered, which can be attributed to the impact of falling Chinese incomes and the slow recovery of restaurant services. Hence the delay for orders could be as long as three months or even six months for Chinese people to adjust to the new normal, as well as for food services to fully reopen.
Negative growth
Despite the positive impact of China's reopening after the pandemic lockdown, the profit of most pangasius enterprises will grow negatively in 2023. This is because according to SSI Research, China is a price sensitive market, and the average selling price is always about 40% lower than the average selling price to the US market. While seafood enterprises are expecting revenue from the Chinese market to partially offset the decline from the US and EU markets, there does not seem to be enough opportunity to recover the profits of enterprises in the first half of 2023. The profit forecast of pangasius companies is expected to decrease in 2023.
Take the example of the case of VHC. After a gloomy fourth quarter of 2022, the company's January financial report continued to record a sharp decrease in revenue, although the Chinese market increased by only 22%. Specifically, export revenue reached VND 462 bln, down by 45%, because the US market decreased by 65%, and the European Union market decreased by 28%. This is the third consecutive month that VHC export revenue growth has been negative, and it is the lowest level since February 2021. The rest of the businesses are also not bright with a forecast that the gross profit margin will decrease further in 2023.
This depressed forecast is further compounded by factors such as interest rate is expected to remain high for the whole year and rising financial costs will continue to affect net profit margins, especially for companies with high leverage as in the case of I.D.I International Development & Investment Corporation (IDI). At the end of 2022, IDI liabilities increased by 7% to VND 4,749 bln. The majority of loans and debts from banks, including short-term loans and leases increased by 6% to VND 3,877 bln and long-term finance leases decreased by 34% to VND193 bln.
In this situation of the two enterprises, it seems clear that the reopening of the Chinese market can only bring profit to some pangasius enterprises that have already established export channels to China. However, this development will have the effect of mitigating the significant decline in the business performance of exporters to the high level recorded in the same period, rather than bringing industry stocks into a new boom cycle. There is even an opinion that seafood stocks are at risk because current trading is at relatively high valuation.
