S&P assigns Nutifood preliminary 'B' long-term credit rating

A customer browses a Nutifood's milk formula product. Standard & Poor’s (S&P) has assigned Nutifood preliminary ‘B’ long-term isuer credit rating with stable outlook. - Photo news.zing.vn

Its rating was based on the expectation that Nutifood would successfully issue the proposed US-dollar senior unsecured notes and use the proceeds of the bond to repay debt of about US$115 million to fund product development, upgrade and expansion of production facilities, the global rating company said.

Nutifood has a small scale and market share in Viet Nam’s dairy market with 8 per cent market share, far behind the biggest player Vietnam Dairy Products JSC (Vinamilk) with 40 per cent and FrieslndCampina Vietnam Co Ltd with 17 per cent market share, according to Euromonitor.

Nutifood’s small scale will constrain the company’s earnings predictability for at least the next three years. S&P expect earnings before interest, taxes, depreciation and amortisation (EBITDA) to average VND1.7 trillion ($73 million) between 2019 and 2021. Vinamilk’s EBITDA is nearly eight times that of Nutiood.

The company, however, has a well-established brand in the niche segment of specialty milk with its ‘GrowPlus+’ brand increasing to become the second-largest brand in the milk formula segment with nearly 14 per cent of market share.

S&P expects it to remain focused on its core dairy business, which will still account for more than 90 per cent of its net revenue over the next two years.

The proposed note issuance will ensure liquidity for the next 24 months but also expose Nutifood to foreign currency fluctuations, given its revenues are substantially denominated in Vietnamese dong, S&P said.

Competition in Viet Nam’s dairy market will likely stay high, especially after the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) removed import tariffs on dairy products from New Zealand, Singapore and Japan.

However, the stable outlook reflects S&P’s expectation that Nutifood will largely preserve its market share in the Vietnamese dairy industry over the next 24 months with its significant brand equity as the company continues to expand its operations.