Vinamilk lowering 2020 revenue expectations

The dairy industry appears increasingly susceptible to the booms and busts of the economy.

Accordingly, the Board of Management (BoM) at Vinamilk has lowered the company's consolidated revenue growth rate target to 8 per cent on-year in 2020 – a slight reduction from the 10 per cent of 2019.

The revision was sparked by the BoM's increasing cautiousness in the domestic market as higher unemployment rates can impede demand for milk, according to KIS Securities. Besides, the longer-than-expected school break also made things worse in Vinamilk’s school milk earnings.

Board of management at Vinamilk – the largest dairy firm in Vietnam – is lowering expectations for 2020’s revenue growth.

Vinamilk targets to maintain its operating expenses at around 25-26 per cent of the total revenue. To combat the slowdown, Vinamilk is adopting marketing strategies focusing on healthy products beneficial to the human body, such as yoghurt and milk powder.

2019 recap

Vietnam’s dairy product consumption recovered strongly, rising 7 per cent on-year in the four biggest cities and 15.5 per cent on-year in rural areas, according to Kantar World Panel.

VNDIRECT noted the recovery begun after domestic dairy producers started to provide a variety of products as well as adopt effective marketing strategies.

Vinamilk, as the market leader, launched 19 products, the most remarkable ones being Organic Gold, a brand for organic infant formula and drinking milk, and the premium Yoko Gold infant formula, with all materials imported from Japan.

As a result, last year’s domestic revenue increased by 6.3 per cent on-year (versus 2.7 per cent on-year in 2018) to VND47.555 billion ($2.1 million), accounting for 84.4 per cent of the total revenue.

On the other hand, Vinamilk’s exports have accelerated as traditional markets recovered, such as the encouraging performance in the Middle Eastern markets.

Vinamilk is currently applying for an export permit to China

With the recovery of this market, Vinamilk’s exports bounced back 14.8 per cent on-year in 2019, rising to VND5.175 billion ($225,000) after a weak growth of 2.3 per cent on-year in 2018. Export turnover contributed 9.2 per cent to 2019 net revenue.

It is noted that the checking process for China-bound official export permit is underway due to the large size of Vinamilk’s factories and milk farm system.

Last year, Vinamilk snapped up a majority of GTNFoods – the parent firm of Moc Chau Milk, Vinatea, Ladofoods. The strategic tie-up deal is expected to boost Vinamilk’s revenue as well as beef up its market presence.

However, the move did not have time to make an impact on Vinamilk’s profit and loss in the last quarter of 2019. Furthermore, the increased rate of corporate income tax (CIT) has curbed Vinamilk’s net profit growth. Notably, last year’s tax rate stood at 17.5 per cent, which was higher than that of 2018 since there was no longer tax incentive period. Such a tax policy created a strong pressure on the firm’s earnings: after-tax profit in 2019 gained slightly (3.4 per cent) to reach VND10.554 billion ($458,870).