Real reasons for decline
VNM started 2019 at a reference price of VND 120,000/share. With a flourishing stock market in the first months of the year, VNM was pushed up to VND 150,000/share in the session on February 26. After this peak, VNM entered a downward adjustment and traded at VND 120-130,000/share since March until now. The reasons for the decline of VNM stock are the unexpected business results of enterprises and the net selling of foreign investors. In the net selling trend by foreign investors, VNM was always among the most sold stocks. For example, in the session on November 12, foreign investors net sold VND 180 bn in the market, in which the net selling value of VNM alone was upto VND 173 bn. On November 18, foreign investors net sold VND 80 bn of only VNM stock.
Although VNM is seeing a downtrend since February 26, the market has never recorded a floor loss (7%). The strongest session was on February 28 with a decline of 4.47%. This proves that the 2.63% drop in the trading session on December 2 is normal and may not be attributed to rumor mongering. Moreover, with stocks such as VNM with huge capital, each decline in the session “evaporates” trillions of dong, which is not an abnormal phenomenon, seeing the headlines of many articles.
Profit not upto expectation
According to the financial report for the third quarter of 2019, VNM net revenue reached VND 14,290 bn (up 4%), and net profit reached VND 2,680 bn (up 4.5%), in which domestic revenue increased 4.5% (VND 11,630 bn). This can be considered a "step back" for VNM, because the domestic market is still the main market with an expected growth rate of 5-7%. In fact, if impact of increase in average selling price and revenue from the school milk program is excluded (recorded since the fourth quarter of 2018), VNM domestic output has not increased over the same period.
Notably, VNM domestic gross profit margin in the dairy segment in the third quarter decreased to 47.7%, lower than 48.8% in the third quarter of the previous year and 49.3% in the second quarter. The reason affecting the profit margin is the increase in raw material cost. In addition, it still has to import milk powder from abroad, causing VNM production costs in general or raw material costs in particular to be affected by fluctuations in international milk prices.
In the period 2014-2016, the decrease in price of imported milk helped the production cost to remain stable and without many fluctuations. However, in the coming years, global milk supply growth will be slower than demand, making milk powder price more expensive. According to the Ministry of Industry and Trade, the price of whole milk powder will increase to USD 3,200-3,400/ton, and the price of skimmed milk powder to USD 2,400-2,550/ton. In the future, VNM will face risks in production when milk powder price fluctuates.
VNM has problems with growth
Although VNM raised the selling price to compensate for the increase in price of raw material, the cost still exceeded the increase of 1-3% compared to the average selling price. The fact that the price of milk material in the second half of 2019 is higher than the first half of the year, makes VNM gross profit margin in the fourth quarter of 2019 continue to decrease compared to the third quarter, and the price of raw materials is forecast to continue to increase, which will affect VNM profit margin in 2020.
To solve these problems, VNM has many solutions to exploit a wider demand from consumers, with the ultimate goal to increase sales such as: expand distribution channels; continuously produce new products; strengthen cooperation with special customers such as businesses, hospitals, restaurants and hotels; and also expand the overseas market. However, the above solutions have not been able to pull VNM back into the growth cycle due to difficulties that this enterprise is currently facing. Especially, in terms of the cash on hand flow of the company, the company is still "shy" in its investment decisions to revive the double-digit growth momentum as in the past.
By the end of the third quarter, VNM total assets increased by 7% over the same period to more than VND 40,000 bn, of which, noticeable short-term deposits increased by more than VND 1,500 bn to VND 9,795 bn. With total amount of cash equivalents and deposits of more than VND 10,800 bn, VNM is one of those enterprises with the largest amount of cash on the stock market.
According to Saigon Securities Incorporation (SSI), in addition to the unfavorable factors, VNM is also facing challenges such as changing consumer habits. In recent years a number of new trends have emerged, with consumers eating out or consuming far more nut milk. In the retail market too, revenue through modern trading channels has increased rapidly, which currently accounts for only 10% of VNM total revenue. In supermarkets, convenient stores, mini supermarkets or via e-commerce, VNM products are facing a tight competition with a large number of domestic and foreign brands.
