Vietnam’s consumer-driven companies are having excellent 2011 despite a dark economy.
“With a booming population, rising educational levels and the upward trend of income growth expected to continue, Vietnam’s consumer market should continue to flourish,” said B. Alexander Frank, an investment consultant in Hanoi.
Rising consumer goods purchases reflect the rise in people’s living standards
Vietnam was a consumer market full of opportunity, but understanding the market and local partners was critical to consumer success, said Richard Burrage, managing director of market research company Cimigo.
AA Corporation, an interior decorator, said it was expecting to achieve net profit growth greater than 100 per cent this year, while leading hotpot restaurant-chain operator Golden Gate and laptop distributor Digiworld delivered net profit growth of 99 and 71 per cent in the third quarter of 2011.
Asia Chemical Corporation, a chemical distribution company in southern Vietnam, achieved net profit growth of 54 per cent and Traphaco, a pharmaceutical company in the north, achieved net profit growth of 36 per cent at ending of September 2011. MobileWorld, which is typically among the fastest growing companies in the industry, has already more than doubled its stores from 80 in 2010 to 168 currently.
The strong growth of these consumer driven companies is a surprise as 2011 was seen as a tough year for enterprises in Vietnam, with tight credit lines and high interest rates. Chris Freund, managing partner of Vietnam-focused private equity firm Mekong Capital, said that the main factor of these companies doing well was strong leadership and management.
“MobileWorld has a very strong and robust management team and a powerful corporate culture, which enable it to open around 10 stores per month, which is faster than any retailer in the history of Vietnam,” Freund told VIR.
For Golden Gate, Freund added that the company had built its management team into the most well managed restaurant operators in Vietnam. It recently launched restaurant concept SumoBBQ, which is a huge success. Chemical distributor An Giang Plant Protection, is also going places.
“Mekong Capital is very excited about the future of this company,” said Freund, adding that thanks to strong growth of these consumer-driven companies this year, the third quarter of 2011 was successful for Mekong Capital.
Mekong Capital was also making reasonable progress towards exits of remaining companies of Mekong Enterprise Fund (MEF) as the fund’s timeline ends. MEF II’s investee companies performed well in terms of net profit in 2011, achieving weighted average net profit growth of 51 per cent, according to Mekong Capital statistics.
While Vietnam Azalea Fund’s (VAF) non-real estate companies performed well with net profit growth rates averaging around 31 per cent, VAF’s performance was dragged down by two real estate companies, Nam Long and Intresco.
Freund said: “While Nam Long and Intresco were well managed and had low debt levels, they are negatively impacted by the difficulties in raising capital and the high interest rates in Vietnam at the present time. But we are confident that both companies will survive ultimately be successful when the market recovers.”
“I think the situation is most risky for real estate companies that have high amounts of leverage and must pay high interest rates on those loans, the amount of interest expenses for some companies is unsustainable,” he said.
Despite a challenging environment, Mekong Capital expected its investee companies would continue to perform well in the fourth quarter. MobileWorld and Vietnam Australia International School are turning heads.