Foreseeing the saturation of the local dairy market, Singapore-based Arisaig Asia Consumer Fund has decided to divest its entire capital from Vinamilk (HSX: VNM) after more than a decade of investment.
|Arisaig Asia Consumer Fund earned an average of 20 per cent of annual profit on its investment in Vinamilk in the past 11 years |
Arisaig Asia Consumer Fund's decision has shocked the Vietnamese securities market because the fund reported an annual profit rate of 20 per cent from the local dairy giant during the past 11 years. As of the end of last year, Arisaig Asia Consumer Fund held 28.8 million VNM stocks worth more than VND3.3 trillion ($143.5 million).
Through observing consumption trends in China – a market with many similarities to the local market – in recent years, the investment fund reassessed its expectations for the growth of the Vietnamese dairy sector. It showed that the market with a 100-million population is getting closer to the saturation point.
The fund stated that although Vinamilk has performed well in diminishing threats stemming from competitors such as Abbott, Coca-Cola, and Danone, its strategic alterations are not enough to recover the snail-paced growth in the liquid milk and formula milk for babies categories.
The market has seen signs of saturation for a few years now. According to a report by AC Nielsen, milk consumption in 2019’s second quarter grew by 2.1-3.9 per cent, a slight rally against the downturn in the previous six quarters (since the fourth quarter of 2017).
Moreover, increasing expenses for material supply have been a burden for local dairy producers. According to Global Dairy Trade, the price of skimmed milk powder spiked by 30 per cent and full cream milk powder by 4 per cent against the year prior. To maintain the profit margin, Vinamilk, TH True Milk, and Dutch Lady all raised prices by 1-5 per cent.
Assessing prospects for 2020, SSI forecast the local dairy sector would keep growing at a single-digit rate. Currently, spending on fast-moving consumer goods has slowed down because the essential needs are met. As a result, consumers will increase expenses on higher demands and non-essential items.