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VNM Update – BUY
16/08/2024 - 1:30:52 CHVIETNAM DAIRY PRODUCTS JSC (VNM VN)
A recovery in gross margin continued to bolster the company’s earnings growth while a better-than-expected jump in exports refreshed revenue growth in 2Q2024. We slightly revised up our projection for 2024 profit by 2% compared to the prior update and move target price to 2025 at VND86,800/share, with a BUY recommendation.
VNM announced EAT growth of 21% YoY on a better-than-expected net revenue growth rate of 9.6% YoY in 2Q2024. On a cumulative basis, the net revenue and EAT rose by 5.7% YoY and 18.6% YoY in 1H2024, respectively.
Domestic revenue, which accounted for the majority (80%) of the company’s sales of finished goods, climbed by 1.9% YoY in 1H2024 (including 3.7% YoY in 2Q), in line with the industry’s better performance (whose drop narrowed to -1.8% YoY in 2Q2024, from -2.8% YoY in 1Q2024 and -4% YoY in 4Q2023, according to VNM’s notes). This was accompanied by a 1.7% increase in the company’s market share in 1H2024, driven by the drinking yogurt, plant-based milk, elder powdered milk and condensed milk segments.
Overseas revenue grew by 18.7% YoY in 1H2024, accounting for 20% of sales of finished goods. In which, direct exports were in the limelight for surging by 21.7% YoY and overseas subsidiaries (i.e AngkorMilk in Cambodia and Driftwood in the US) delivered 15.6% YoY growth. The direct exports’ impressive performance was attributed to stockpiling of goods from consumers in export markets amid escalation of geopolitical tensions, particularly in the Middle East, and VNM gaining shares from competitors who left these markets for concerns of risks.
Gross margin strengthened as expected, to 42.2% (1H2023: 39.7%), driving the company’s EAT growth in 1H2024, despite the SG&A expenses to net revenue ratio inflating to 24.4% (1H2023: 23.9%).
We project VNM’s net revenue and EAT at VND63,478bn (+5.2% YoY) and VND10,105bn (+12.0% YoY) in 2024, about 2% higher compared to the prior update. For 2025, the respective growth is projected at 4.3% YoY and 6.0% YoY. Our target price for VNM by the end of 2025 is VND86,800/shr, equivalent to a total return of 22.9%.
