VNM Update – BUY

VIETNAM DAIRY PRODUCTS JSC (VNM VN)

The company reported a 5% YoY slide in EAT, contrary to our expectation, largely driven by a narrower gross margin in 3Q2024. We revised down our earnings projections for 2024-2025 by 3% and 2% respectively compared to the prior update. Revise down 2025 target price to VND82,000/shr. Reiterate a BUY recommendation.

VNM announced a 5.1% YoY drop in EAT, in contrast with a growth stream in two previous quarters, on flat net revenue in 3Q2024. On a cumulative basis, net revenue and EAT climbed by 3.5% YoY and 9.6% YoY, to VND46,306bn and VND7,306bn, respectively in 9M2024.

Overseas revenue brightened the results with an upturn of 9.4% YoY in 3Q and 15.7% in 9M, accounting for 19% of sales of finished goods. In which, direct exports rose by 10.3% YoY and overseas subsidiaries (i.e AngkorMilk and Driftwood) rose by 8.5% YoY in 3Q, following irregular growth in 2Q2024, when consumers in export markets heightened stockpiling of goods amid escalation of geopolitical tensions, and VNM gained shares from competitors who left these markets for concerns of risks. The company’s sales support for partners persisted in fostering sales.

Domestic revenue, accounting for the majority (81%) of the company’s sales of finished goods, contracted by 3.7% in 3Q and flat in 9M, explained by a vague rebound in consumer spending and some impacts from Yagi typhoon in the north, the company noted. Although the modern trade and online channels kept performing well, it was unable to offset the weak performance of the traditional channel, which contributed most to domestic revenue. VNM targets to keep employing omni-channel strategy to boost sales.

Gross margin reduced to 41.2% in 3Q2024, retreating slightly from 41.9% in 3Q2023 and visibly from 42.4% in 2Q2024, due to a YoY squeeze in margins of other products & services (beyond finished goods) and a QoQ decrease in sales volume, especially in overseas markets. However, for 9M2024, the overall gross margin still strengthened to 41.9% (9M2023: 40.5%) given favorable milk material prices, driving the EAT growth despite the SG&A expenses to net revenue ratio inflating slightly to 24.4% (9M2023: 24.1%). 

We project VNM’s net revenue and EAT at VND62,753bn (+3.9% YoY) and VND9,851bn (+9.2% YoY) in 2024, 3% lower than the prior update. For 2025, the respective growth is projected at 5.3% YoY and 6.4% YoY. Our target price for VNM by the end of 2025 is VND82,000/shr, 5% lower than the prior update, equivalent to a total return of 30.9%.