ANALYSIS OF THE PERFORMANCE AND VALUATION OF THE VIETNAM DAIRY PRODUCTS JOINT STOCK COMPANY

HANOI UNIVERSITY
FACULTY OF MANAGEMENT AND TOURISM

FINANCIAL MANAGEMENT
ANALYSIS OF THE PERFORMANCE AND VALUATION

OF THE VIETNAM DAIRY PRODUCTS JOINT STOCK
COMPANY

Tutor: Ms Nguyen Thi Van Anh
Group:
Nguyễn Hà Linh
Nguyễn Thị Bích
Chu Thị Thùy Dung
Trần Quế Anh
Lê Hoàng Long
Content pages:

Date: 07 May 2021.

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Executive summary
This report is presented for the purpose of analyzing and evaluating the performance of
Vietnam Dairy Products Joint Stock Company (VNM). To achieve this purpose, we
have conducted research on company fundamentals and its relationship with financial
markets, finding strengths and weaknesses on the basis of newspaper analysis. financial
statements. Then, predictions about the future and direction of the company, which are
outlined in the recommendations below. Besides, the company's activities are also
explored in detail. Finally, the report concludes with company valuations and useful

recommendations for investors and financial managers. In general, by analyzing the
data, it turns out that the shares of both companies are overvalued, so stakeholders
should sell the shares.

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TABLE OF CONTENTS
Executive summary............................................................................................................................. i
I. Introduction..................................................................................................................................... 1
II. Evaluation of the performance and value of the company ................................................ 2
1. Analysis of financial statement................................................................................................... 2
1.1. Financial ratio calculation.......................................................................................................... 2
1.2. Ratio trend analysis..................................................................................................................... 3
a. Liquidity.......................................................................................................................................... 3
b. Assets management........................................................................................................................ 5
c. Debt management........................................................................................................................... 7
d. Profitability..................................................................................................................................... 8
e. Market value.................................................................................................................................. 11
1.3. Dupont calculation and performance..................................................................................... 12
1.4. Strengths and weaknesses of Vinamilk.................................................................................. 14
1.4.1. Strengths................................................................................................................................. 14
1.4.2. Weaknesses............................................................................................................................. 14
1.4.3. Recommendation................................................................................................................... 15
2. Valuation........................................................................................................................................ 15
2.1. Free cash flow and the growth rate of free cash flow .......................................................... 17
2.2. Weighted Average Cost of Capital and value of the firm .................................................... 17
2.3. Recommendation....................................................................................................................... 17

III. Conclusion.................................................................................................................................. 18
REFERENCES................................................................................................................................. 19
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APPENDICES.................................................................................................................................. 21
APPENDIX A: Calculation for industry average ratio................................................................. 21
APPENDIX B: Calculation of DuPont Equation.......................................................................... 22
APPENDIX C: Calculations for the firm’s valuation section.............................................. 23

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I.

Introduction

Due to the breakout of Covid19, the entire economy in the whole world to go down, but in Vietnam, the
dairy industry even develops and is not significantly affected. Experts in the dairy industry said that in
the future, the dairy industry is still considered a potential because the consumption of milk per capita
in Vietnam is still low. According to Vietnam Feed Association – VFA research, demand for raw fresh
milk increased by about 61%, from 500 million liters (2010) to 805 million liters (2015). As a populous
country with a high population growth rate of 1.2% per year, the dairy market in Vietnam has great
potential. The GDP growth rate of 6-8% / year, per capita income increasing 14.2% / year, combined
with the trend of improving the health and stature of the Vietnamese people makes the demand for
products. Milk always keeps a high growth rate. In 2010, on average, each Vietnamese consumed about

15 liters of milk/year. It is forecasted that by 2020, this figure will nearly double to 28 liters of
milk/year/person. During the development of the dairy industry in recent years, many corporations and
companies have jumped in and out, some of them have had considerable successes such as TH True
Milk, Dutch Lady, Nestle, NutiFood, and so on. However, the corporation is focused on this project,
which was honored in the top 200 of best revenue listed companies of over 1 billion the Asia Pacific in
2019 (Forbes Asia), is Vietnam Dairy Products Joint Stock Company (VNM). Developing for at least
40 years, Vinamilk increasingly asserted its position in the market. Their price of shares and financial
reports have been published in the official exchange market.

Generally, Vietnam Dairy Products Joint Stock Company (VNM) is consistently determined to be a
grade brand in the food and beverage industry with a large number of domestic and international
customers who are served a variety of nutrient and health products. Established on August 20, 1976,
VNM is a well–known corporation focusing on milk, probiotics, yogurt, ice cream, soft drinks, coffee,
and other products derived from milk. Vinamilk has a system of factories not only in domestic but also
in international nations. Spreading from Thanh Hoa, Nghe an, Da Nang, Tuyen Quang, Ha Tinh, Lam
Dong to Myanmar, Thai Lan, New Zealand, and 20 other countries, Vinamilk is increasingly becoming
a solid brand name in the market. Moreover, VNM was awarded many noble medals by the
Government and besides, this corporation also expands to invest in activities such as the inauguration
of the dairy farm, construction of many new technologies, installed advanced equipment and modern
machines in all of its factories.
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To achieve today's successes, the mentorship of Boards of Directors and the Chief executive
officer is indispensable. Chairwoman of Vinamilk currently is Le Thi Bang Tam with 6 years
in this position, with 9 other members: Mai Kieu Lien, Michael Chye Hin Fah, Lee Meng Tat,
Le Thanh Liem, Do Le Hung, Dang Thi Thu Ha, Alain Xavier Cany, Nguyen Thi Tham,
Nguyen Ba Duong, and Michael Chye Hin Fah since 2015. Ms. Tam and Ms. Lien are insiders

while the others are outsiders, and Ms.Lien has had the most number of shares, 0.26% when
the others have had the number of shares smaller than 0.05%. The rest of the capital
contribution belongs to the State and other businesses: State Capital Investment Corporation
(SCIC) was found to be 36%, whereas F&N Dairy Investments Pte Ltd accounted for 17.69%.
AI.

Evaluation of the performance and value of the company

1. Analysis of financial statement

1.1.Financial ratio calculation

Ratio

Liquidity
Current

Quick
Asset Management
Inventory
turnover
Days sales
outstanding
(DSO)
Fixed assets
turnover
Total assets
turnover
Debt Management
Total debt to

total assets


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Times interest
earned (TIE)
Profitability
Operating
profit margin
Profit margin
Return on total
assets (ROA)
Basic earning
power (BEP)
Return on
common equity
(ROE)
Market Value
Price/earnings
(P/E)
Market/book
(M/B)

1.2.Ratio trend analysis
From 2016 to 2020, Vinamilk had witnessed some positive changes that affected the operation. In this
part, we will use trend analysis and comparative analysis over the ratios calculated in the previous part
and access the effectiveness of the business.
a. Liquidity:

*Current:

3
Very good

Good
Good
Good
Very good
Good

Poor
Good


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The current ratio is a liquidity ratio that measures a company's ability to pay short-term obligations or
those due within one year. It can be clearly seen that from the year 2016-2019, the current ratio for
VNM was decreasing by 1.35. At the same time, the company had a lower current ratio compared to the
industry average, this fact makes us question whether the management was using its assets efficiently
since this number represents a higher risk of distress for the investors and the lower probability to
satisfy its current debt and other payables.

*Quick:

The quick ratio measures the dollar amount of liquid assets available against the dollar amount
of current liabilities of a company. We can understand that a company that has a quick ratio
higher than 1 can instantly get rid of its current liabilities. For instance, a quick ratio of 1.74 of

VNM in 2020 indicates that the company has $1.74 of liquid assets available to cover each $1
of its current liabilities. Though compared to the average of the industry which equals 2.03
calculated in the previous part, it seems like the company had not operated as productively as
other firms in the dairy industry.

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b. Assets management:
*Inventory turnover:

Inventory turnover measures how fast the company sells its inventory. By the end of 2020, the
average inventory turnover ratio of Vinamilk was 6.47 which is slightly higher than the
industry average - 6.43. This number implies that the company had strong sales which was
illustrated by an image of a balanced scale between having enough in-stock product and not
having to reorder too frequently.
*Days sales outstanding:

DSO is measured to show how many sales a company has made over a specific period of time. It
suggests how efficient the company's collection department is and the extent to which the company is
maintaining customer satisfaction. VNM's DSO is easily seen to be above the average of its
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peers, which means it takes a long time for the company to recover money after sales.
However, for business operations, it is most beneficial for the company to recover outstanding

debts as quickly as possible. So, it can be observed that there appears to be a good operational
management system.
*Fixed assets turnover:

The fixed asset ratio is used as a component to deplete depreciation. A higher fixed asset
turnover ratio indicates that a company has effectively used investments in fixed assets to
generate sales. Compared to the peer average, VNM had slightly lower from 2016 to 2019 but
then rose again to reach near the average peer in 2020.
*Total assets turnover:

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The asset turnover ratio can be measured by a metric that can show the investor how
efficiently which company uses its assets to produce revenue compared to other firms in the
same industry. Despite the decline in the four-year period, we found that Vinamilk still tries to
maintain the average ratio above the industry which is 1.27.
c. Debt management:
*Total debt to total assets:

Total debt to total asset is a ratio used to visualize how financially stable a company is.
Despite the fact this ratio of VNM has been increasing from 2016 but the company still
manages to keep it under the peer average. So, we can conclude that investing in Vinamilk is
not as risky as in other firms.
*Times interest earned:

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Interest accrued is used to show a firm's ability to meet its debt obligations based on its present
income. By dividing EBIT by the total cost of the loan, we can be sure that the company can
afford to pay off its debts and it is worthwhile for investors to continue pouring money into the
business. Despite a given down-slope graph, we can see that the company is effectively
managing its operations for sustained growth.
d. Profitability:
*Operating profit margin:

By dividing operating income over total revenue, this metric expresses how the company
generates its profit on a per-sale basis after considering variable costs except any interest or
taxes (EBIT). In the VNM case, the operating profit margin had slightly fallen off from 2016
to 2020 by 1.05. Though, using the average in the dairy industry in 2020 (20.94%), Vinamilk
can still be considered as a strong firm in maximizing its operations and reap profit.

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*Profit margin:

By calculating the profit margin, we can compute the percentage figure that indicates how many
cents of profit the business has generated for each dollar of sale. In Vinamilk’s case in 2020, the

business announced that it had a 19% profit margin (higher than industry average - 17.54%)
during the last quarter and it means that it had a net income of $0.19 for each dollar of sales
generated. And since a higher operating margin is preferred meaning lower accounting costs,

Vinamilk seems to manage the business efficiently.
*Return on assets:

This ratio indicates the effectiveness of using assets to generate revenues. Since it is computed
by net income over total assets, generally, the higher rate of return, the more effective the firm
converts the money it invests into net income. Even though there was a small decline over the
five-year period, compared to the average ROA of the industry, which is 0.27, according to
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Investing.com report in 2020, Vinamilk’s ROA can still be considered as high rate and
earned more money on less investment.
*Basic earning power:

As it is relatively close to Operating Income, BEP formula includes non-operating income (such as
dividends paid on the stock a company holds) so the metric can show a wider view and more accurate
comparison between the firms in the same industry. So, for investors, they tend to look at BEP over
Operating Income while comparing the companies. Despite the lower extraction from
the asset to generate profit over the time, Vinamilk’s BEP can be considered as a potential
investment since its BEP is 3.14% higher than its peers’ average which is 29.19%.

*Return on equity:

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ROE is used to measure the profitability of a corporation in relation to stockholders’ equity. By
using the result calculated by dividing net income by shareholders' equity. The best practice to use ROE
is to compare the number with the industry average which is 28.88% and it can be clearly seen that
VNM’s ROE is higher than the industry averages up to 8.27%. A normal ROE could be 10% or less
than the industry average so the disparity between these ratios is acceptable.

e. Market value:

*Price/ Earnings

By using price earnings ratios (P/E ratio), we can measure how many times the earnings per
share (EPS) have been covered by the current market price of an ordinary share. It is computed
by dividing the current market price of an ordinary share by earnings per share. Through figure
3, we can conclude that VNM is a potential company since a company with a high P/E ratio
are often considered to be growth stocks. Though in the late 2019, we witnessed a fall in P/E
which can be explained by the existence of the Covid-19 Pandemic.

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*Market/ Book

In the four-year from 2016 to 2020, there had been a massive fluctuation in the dairy industry.
We understand that a book-to-market ratio below 1 means that investors are willing to pay
more for a company than its net assets are worth. The company’s manager can see this as
a good sign since this could show that the company has healthy future profit projections and
investors are expected to pay for that future possibility.
1.3.Dupont calculation and performance

Specifically, we have the Dupont equation, which shown the return on equity rate can be estimated
through the profit margin, total asset turnover, and the equity multiplier. Moreover, it also presents the
relationships between asset management, debt management, and profitability ratios.

=
=

Profit Margin
TA Turnover
Equity Multiplier
ROA
ROE

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In terms of Dupont, based on the data obtained from the table above, most of Vinamilk's
indices have tended to decrease over the past 5 years. However, the Equity Multiplier index
has always shown signs of increasing over 5 years, with a fluctuation between 1.3 and 1.5.
First, for the company, Profit Margin, Return on Equity, and Return on Assets indexes are all
lower after 5 years, proves that Vinamilk cannot make more profits. Which is a bad sign for
the company, and they need to improve these metrics to attract more investors for future
projects. In addition, Total Assets Turnover has also decreased in the past 5 years, meaning
that the company has lower liquidity and increased liquidity risk each year. These may lead to
a narrowing number of investors that take risks, and the company will find it tough to raise
capital in the future if this situation continues. In contrast, the Equity Multiplier ratio tends to
increase gradually over the past 5 years, proving that Vinamilk's loan amount has been
increased year by year. However, since Vinamilk is the principal supplier of dairy products,

this loan could be intended to expand the market of the company's products (ex: beyond
Vietnam's borders). Then, it could be a good sign of large-scale expansion, accompanied by
the growth potential of the company - this can consider as a good sign for the company.
Second, when comparing Vinamilk's Dupont indices with the dairy industry average, all indices
included Profit Margin, Return on Equity, Return on Assets, and Vinamilk's Total Assets Turnover are
higher than the industry average. It is not difficult to understand why Vinamilk, despite its gradual
decrease in profit margins over the years, is still higher than the dairy industry in general. With the best
milk quality in Vietnam, nationwide coverage, along the largest scale of milk production in the country,
and modern milk production lines, Vinamilk has successfully become the company with the most
market share in the dairy industry. Vinamilk's product consumption is always at the top and generates
the highest revenue in the industry. Besides, Vinamilk's development strategy is one of the factors that
help the company always maintain net income at the leading position of the industry. Intending to
become one of the 30 largest dairy companies in the world, Vinamilk always makes its products more
plentiful and diversified. As a result, the company can expand its market and increase its revenue,
making it more profitable than its peers.

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1.4.Strengths and weaknesses of Vinamilk
1.4.1. Strengths
A long history and a solid foundation are the first and foremost thing that has helped Vinamilk
become a leader in the Vietnamese dairy industry. With products that are completely qualified
and competitive with a wide range of existing products on the market, over 30 years of
operation, Vinamilk has certainly become a recognized brand and received the trust of
domestic customers. Furthermore, the company has achieved great customer satisfaction along
with a clear understanding of the local market.
Another noteworthy factor that has truly solidified Vinamilk's leading position is that it has

established a top-notch, extensive nationwide distribution system that has been increasingly
expanded over time. The distribution network is not only the core of a long-term strategy but
also a prerequisite for the success of a commodity manufacturer. It allows Vinamilk to bring
its key products to consumers extremely quickly and effectively. More specifically, today the
company has about 1500 distributors, more than 90000 stores nationwide.
Along with solid distribution, to try to do well, Vinamilk always focuses on investing in
modern equipment and factories. Therefore, a series of modern factories are present in
Vietnam to help reduce transportation costs and the system of advanced equipment helps to
confirm that the output product meets international standards.
Finally, another aspect that needs to be emphasized in Vinamilk's strength is the cooperation
and loyalty with domestic and foreign suppliers that allows the company to own stable and
affordable raw materials. Up to now, about 60% of total cow's milk produced in Vietnam is
consumed by Vinamilk.
1.4.2. Weaknesses
Vietnam is a developing country, so most of its people will have low income, this is the first
weakness affecting Vinamilk's operations. If the economic growth slows down in the coming
time due to factors such as epidemics, people will tend to limit consumption of domestic
products. This makes profits and sales of the company likely to decline sharply.

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Furthermore, as a leading company in the industry, Vinamilk always faces higher demand than
other companies in the same industry, so the company needs to look for reputable suppliers
who can supply a stable quantity and quality. Therefore, the import of milk is inevitable. On
the other hand, due to the high price of foreign milk materials, Vinamilk is subject to import
duties and transportation and storage costs, so high costs lead to high costs, making Vinamilk's
products less competitive in the market.

1.4.3. Recommendation
Looking at Vinamilk's weaknesses, we can suggest that the company should issue additional
shares to maintain cash flow, they should also use more debt, both short and long term. As a
result of the Covid-19 pandemic, interest rates have been greatly reduced, almost nothing
compared to before, which will also help to cut down on "double taxation" and generate more
cash flow. maintain business activities. The company could drastically cut costs by shutting
down bulky, underperforming factories, replaced by new factories with innovation and
technology that would make employees' work more productive, also increase the budget for
salaries. With these improvements, along with a stable cash flow, the company will expand
production and increase output to meet the needs of the people.
2. Valuation
2.1.Free cash flow and the growth rate of free cash flow
With the formula to calculate the free cash flow:
FCF = (EBIT(1-T) + Depreciation and amortization) - (Capital expenditures + Change in NOWC)

We come up with the results for Vinamilk company as below.
2020
EBIT
Tax
Depreciation
Capex

20%

Change in net operating
working capital
Free cash flows
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(Million VND measuring)
From the free cash flow of five years as above, we now can show the growth rate of the free
cash flow as the first part of estimated the value of the firm.
Period
2016
2017
2018
2019

- 2017
– 2018
– 2019
- 2020

As the results, the average growth rate of free cash flows for four periods will be:
Average growth rate = [(27.86%) + (-21.58%) + (20.01%) + (-12.31%)] /4 = 3.49%
As the chart above showed, the growth rate of free cash flows of Vinamilk company
experienced a great decrease from 2016 to 2018, specifically 49.44%. After that, the company
moved upward sharply in the period 2018 – 2019 at 21.01%. However, in the previous period,
the growth rate of FCF fell significantly with a decline of 32.32%. It clear that Vinamilk has
had an uneven growth rate in FCF in the last 5 years. Nevertheless, the average of the free
cash flows for the four periods of the company is a positive level of FCF, which indicates that
the firm is generating more than enough cash to finance its current investment in fixed assets
and working capital. With such high brand recognition today, we assume that Vinamilk will
grow at a high rate of 27.86% in the first phase from 2021 to 2023; then, the growth rate was
stable at 3.49% (according to the average growth rate we calculated above).
2.2.Weighted Average Cost of Capital and value of the firm
Regarding capital structure, according to the financial report of Vinamilk at the first three

months of 2021, the company continues to issue only common stocks (2.089.955.445 stocks
outstanding) to raise capital with its market value of 20.899 billion VND, and the cost of
common equity is 10.31%.
Besides, we have the total debt of this company is 14,785,358,443,807 VND, with the cost of
debt is 5.165% and the tax rate is 20%. As a result, Vinamilk has approximately 44% debt and
56% common equity. Based on these data above, the Weighted Average Cost of Capital is:
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=

(1−

)+

+

= 44% ∗ 5.165%(1 − 20%) + 56% ∗ 10.31% + 0 = 7.59%
With the results of the WACC calculated above, we will perform the calculation of the
company's value below.
WACC = 7.59%
High growth phase with a growth rate of 27.86%
Year
FCF

Present value
of FCF

Stable growth phase with g = 3.49%
Terminal value of the firm in 2023
Present value of Terminal value of firm
Value of firm
Value of a share
In general, the intrinsic value of the stock can be estimated through the corporate valuation
model approach. Since Vinamilk only raised capital from bank loans and stock issues, so we
have calculated the value of the company's shares as 406,009,291 million VND after
subtracting the debt. In addition, the intrinsic value of Vinamilk shares is 194,267 VND,
higher than the market price of 108,800 VND at the end of 31 December 2020.
2.3.Recommendation
For investors, this is a great opportunity to buy Vinamilk's shares. As estimated above, the intrinsic
value of the stock is VND 194,267, much higher than its market value of VND 108,800 (value

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taken as of 31/12/2020). Besides, with the slogan of sustainable development as a spearhead
set by Vinamilk, the company's future brings a relatively positive outlook.
Furthermore, in the next 2021, Vinamilk plans to focus on investment to expand the scale.
Specifically, the project of high-tech dairy farm combined with ecotourism in Moc Chau-Son
La, or the project to welcome more than 2,000 purebred dairy cows from the US to Vinamilk's
farms to increase production and improve quality. Therefore, some advice for Vinamilk's
financial managers is that, for future projects, the company should mobilize more equity
instead of borrowing from banks. Since Vinamilk always has two sources of domestic and
foreign loans, the interest expense of the company will be relatively large, so the increase in
equity will help the company reduce a part of costs and at the same time. also makes the rate of
return increase and decrease the equity ratio, the return on equity will also increase, enriching

the pockets of shareholders following the target that all companies aim to.
BI.

Conclusion

All in all, Vinamilk is considering the leading company in the dairy industry in Vietnam. It has
a high intrinsic value of shares as well as high market value because Vinamilk is striving to
build a variety of products and promote it to enhance the value of the brand. So far, the
company is doing very well but still cannot avoid making difficult choices even when
everything is calculated and evaluated. Therefore, the entity needs to limit the potential risk by
reducing costs, focusing more on the value of the item to build customer confidence, and then
creating a sustainable development firm.

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