A REPORT ABOUT THE PERFORMANCE AND VALUATION OF VIETNAM DAIRY PRODUCTS JOINT STOCK COMPANY

Being the enterprise that consecutively leads the dairy products market with diverse products for the national economic life in recent years, Vinamilk has made outstanding growth steps,

HANOI UNIVERSITY FALCUTY OF MANAGEMENT AND TOURISM

A REPORT ABOUT THE PERFORMANCE AND VALUATION OF VIETNAM DAIRY PRODUCTS

JOINT STOCK COMPANY

Lecturer: Mr Nguyễn Xuân Trường Tutor: Ms Nguyễn Thị Vân Anh Group: 01

Students: Viêm Thị Anh – 1904040010

Đào Thị Dung – 1904040022Phạm Ngọc Huyền – 1904010044Trần Ngọc Mai – 1904040075Nguyễn Thị Thảo Vân - 1904040125

Tutorial Class: 02 Tutorial Time: Monday afternoon, 14h30 – 16h10 Subject: Financial Management

Date: May 7th, 2021.

TABLE OF CONTENTS

EXECUTIVE SUMMARY iv

1 Introduction 1

1.1 General information 1

1.2 Main business activities 1

1.3 General stock information 2

2 Main Body 2

2.1 Financial Statement Analysis 2

a) Financial Statement Information 2

b) Financial Ratios 3

c) Trend Analysis 4

d) Comparative Analysis 6

e) Dupont Analysis 7

f) Strengths and Weaknesses of Vinamilk 7

2.2 Valuation 8

2.2.1 Firm Valuation 8

2.2.2 Intrinsic Value of Stock 9

2.2.3 Recommendation 9

3 Conclusion 9

REFERENCES 11

APPENDIX A 13

APPENDIX B 14

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TABLE OF TABLES

Table 1: Brief financial statement of Vinamilk as at 31 Dec 2020 3

Table 2: Financial Ratios of VNM over the period 2016-2020 5

Table 3: Financial ratios of Vinamilk in comparison with the dairy industry in 2020 6

Table 4: Calculation of Vinamilk ROE using Dupont equation (2016-2020) 7

Table 5: Expected free cash flow for the 12-year period from 2020 to 2032 8

EXECUTIVE SUMMARY

Vietnam Dairy Products Joint Stock Company (Vinamilk) is the most dominant

manufacturer and trader of milk, dairy products as well as related equipment in

Vietnam Being the enterprise that consecutively leads the dairy products market

with diverse products for the national economic life in recent years, Vinamilk has

made outstanding growth steps, contributing positively to the development of the

dairy product industry In the Vietnamese market, Vinamilk always maintains its

position as the best dairy brand and is normally chosen by Vietnamese

consumers to purchase for 8 continuous years To obtain these achievements, the

company has had effective plans that are directly related to the financial firm and

financial market Firm performance is distinctly illustrated in its financial

statements especially through intrinsic value of stock Therefore, the following

study is conducted based on these findings about Vinamilk’s financial

information in order to analyze its performance by indicating ratio analysis and

estimate the value of this company through using many financial tools and

models learned in the Financial Management subject As a result, we have shown

the advantages and drawbacks of the financial firm situation Some

recommendations are simultaneously given in this paper with the hope to decide

the correct stock price of its firm for investors.

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1 Introduction

1.1 General information

“Vietnam Dairy Products Joint Stock Company” is abbreviated to “Vinamilk”,known as the leading enterprise in the dairy processing industry, currently accounting for75% of the market share of milk in Viet Nam Vinamilk was founded in 1976 as a State-owned enterprise and later formally modified into a joint-stock company in November

2003 In addition, Vinamilk has been enumerated on the Ho Chi Minh Stock Exchange(HOSE) since January 2006 along with the trading code, VNM Vinamilk is headquartered

in District 7, Ho Chi Minh City with numerous branches and factories covering 64provinces and cities in Viet Nam

1.2 Main business activities

Vinamilk is the best dairy product manufacturer in Viet Nam with a large number ofrevenue and outputs in the market Vinamilk is trusted by a lot of consumers in the marketbecause it does not only provide the advanced products but also ensure the nutritional value

of products Vinamilk’s product portfolio includes: essential products are milk andpowdered milk, yogurt, drink, ice cream, cheese and other products of milk The outputs areprovided by Vinamilk with an impressive list of products, flavors and packaging which areproduced with advanced technology and high quality of farms in Viet Nam There are morethan 200 types of products launched to the market by Vinamilk and conformed to the strictregulation of processing Moreover, Vinamilk is also the leading enterprise in the dairyindustry which has domestically a large-scale product distribution network with 183distributors and nearly 94,000 points of sale in specialized stores of Viet Nam Despitebeing a well-known brand in Viet Nam, Vinamilk is constantly developing its qualityproducts so as to export to many strict markets such as European & the US

Besides, Vinamilk is known as a remarkable trader in the market about technology,equipment and materials for producing food Vinamilk has built 13 factories and 13 farmswhich applied advanced technologies in breeding and managed following Europeanstandards With a lot of experiences in food operation factories, Vinamilk confidentlyprepares the quality production process and supplies to the raw material market

Furthermore, one of the main business activities of Vinamilk is house trading, realestate and transaction intermediation in real estate Vinamilk is a reliable selection in theservices of warehouse and delivery products as well as transportation

1.3 General stock information

In the market share and production capacity, Vinamilk has the admirable position by dint of possessing the system of mega factories with the huge distribution networks In spite of the impacts

of the pandemic, Vinamilk also has continuously achieved more market share with the certain plans

of its company The company’s market share maintained at 61% at the end of 2019 The total charter capital of Vinamilk is 17,416,878 million VND until 2020 and the par value of common stock is 10,000 VND The number of outstanding shares is 2,089,955,445 The market price of Vinamilk’s stock is 108,900 VND as of December 2020.

2 Main Body

2.1 Financial Statement Analysis

a) Financial Statement Information

In fact, financial statements are essential because it consists of all significant financial

information of a company, identifying the strengths and weaknesses of the firm by creating the relationship between the balance sheet and income statement and reflecting the financial position of that firm From that, we can calculate financial ratios, and stakeholders can based on that information to evaluate and make suitable economic decisions on their own.

Some financial accounts which is used to calculate financial ratios and evaluate thestrengths and weaknesses of Vinamilk in 2020 is shown in the table as below:

Table 1: Brief financial statement of Vinamilk as at 31 Dec 2020 (million dong)

b) Financial Ratios Liquidity Ratio

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Liquidity, including current ratio and quick ratio, reflects the power of Vinamilk tofulfill its short-term obligations using assets that are most readily converted into cash.

The current ratio is the ratio of current assets to current liabilities point out thecompany’s ability to respond to its current liabilities with its current assets As calculatedshown in Table 2, the current ratio of Vinamilk is around 1.74, showing that Vinamilk hasthe ability to cover its short-term liabilities by its short-term assets

The quick ratio is the ratio of current assets less inventory to current liabilities pointout the company's ability to respond to current liabilities with its most liquid assets Asshown in Table 2, the quick ratio 2020 of Vinamilk is nearly 2.08, it is a quite good numberfor Vinamilk

Asset Management Ratio

Asset management measures how the firm uses its assets efficiently There are threetypes of asset management ratio: Inventory turnover, day sales outstanding (DSO), Fixedassets turnover (FA turnover) and Total assets turnover (TA turnover)

Inventory turnover measures the flow of goods in the form of inventory over a year.The higher the inventory turnover, the business will sell fast, which means if the inventorytime is lower, the business will sell slowly and more inventory Vinamilk's inventories in

2020 is 12.17 proved that Vinamilk is selling faster and having less inventory

Days sales outstanding measures how fast or slow charge is when using credit salesmethods (commercial credit) The DSO of vinamilk in 2020 is 31.82, tending to increase Itcan cause serious cash flow problems

FA turnover and TA turnover of Vinamilk in 2020 are 4.31 and 1.23 It can be seenthat asset turnover is higher than 1 so this equivalent with the sales of Vinamilk Company isgreater than the total asset and the enterprise's ability to manage assets increases,inventories flow quickly, accounts receivable are receivable faster, which is very convenientfor the company's business

Debt Management Ratio

In corporate finance, the degree to which debt is used to finance a company'soperations is known as financial leverage Financial leverage has two aspects: Increasesprofits or Increases risks for the company So, debt management is just as important as assetmanagement

The debt to total asset ratio, commonly known as the debt ratio, measures how wellthe company uses its debt to its assets We can see the debt ratio of Vinamilk in 2020 stay atthe level of 0.30

TIE measures a company's ability to pay interest The company's ability to pay interest is high or low, depending on its profitability and its use of debt Times interest earned of Vinamilk in

2020 is 94.14 It can be seen that Vinamilk's ability to pay interest is quite large.

For businesses, the ultimate goal is profit Profit is a general financial indicatorreflecting the efficiency of the entire investment, production, consumption and technicalsolutions, economic management at the enterprise

Operating profit margin measures the ratio of earnings before interest and tax to itssales Operating profit margin of Vinamilk in 2020 is 0.22 reflecting the performance of thecompany

By profit margin ratio, the return on revenue ratio is 18% in 2020, which means thatfor every 100 VND of revenue, 18 VND of net profit will be generated

By basic earning power (BEP), the base return is 27% in 2020, which means thatone coin spent will yield 27 VND of profit

By return on total assets, 100 VND in assets by 2020 will generate 23 VND of net

profit

By return on common equity, for every 100 VND of capital spent by commonshareholders in 2020, 33 VND of net profit will be generated

Market Value Ratio

Market value brings in the stock price and helps investors think about the firm Price

to earnings ratio is the relationship between the current price of a security and the ratio ofearnings per share A low P/E ratio means the higher the company's return on a share, orlower the stock's market value

To see if Vinamilk's P / E ratio in 2020 is high or low, investors need to consider P /

E of many years ago, or compare P / E of this company with other companies in the sameindustry or in the same industry economy In general, Vinamilk's P / E ratio in 2020 (22.80)

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Asset Management

We can see that Vinamilk's inventories from 2016 to 2020 are getting higher from 10.38 to 12.17 It proves that Vinamilk is growing more and more, selling faster and having less inventory Asset turnover of Vinamilk from 2016-2020 is higher than 1 so this equivalent with the sales of Vinamilk Company is greater than the total asset Therefore, Vinamilk is using its assets efficiently However, this tends to decrease during 5 years together with the increase in Day’s sales in receivable so that this company may have some troubles in the quantity of sale or the increasing in investors combined with the remain stable in sales.

Debt Management

In debt ratio, creditors often want the company to have a low debt ratio so that the

company can better repay the debt In contrast, shareholders often want a high debt ratio

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because the use of financial leverage increases profitability for shareholders However, if

you want to know whether the debt ratio is high or low, you need to compare it with the

debt ratio of the industry average The debt ratios over the years tend to stabilize at the

level of below 35%

In TIE, the use of debt generates profits for the company, but shareholders onlybenefit when the profits generated are greater than the interest paid for the use of debt Thegreater the EBIT than the interest, the more likely it is to secure the payments of interestfrom the guaranteed profit The TIE ratio over the years tend to decrease shown lowerability to pay interest

Profitability

We can see that the operating profit margin and profit margin over 5 years to stabilize at the

level of below 22% and 18% In 2016, the base return was 37%, which means that one coin spent would yield 37 VND of profit In 2017-2020, one coin of assets spent brings 35-31-28-27 VND of profit It can be seen that Vinamilk's underlying profitability declines due to the decline in net profit from operating activities and decline in revenue In addition, the return on equity and the return on assets of Vinamilk have also decreased over time.

Market Value

As shown in the table above, it can be clearly seen that the P/E of Vinamilkfluctuates over the time period from 2016 to 2020 It is due to the change in the firm’sactivities over year, but it still quite high in the whole

d) Comparative Analysis

Despite fluctuations, the returns on Vinamilk’s equity is generally showing adownward trend in 2016-2020 Looking at the details, the percentage of ROE started at41.79% in 2016 and then increased slightly at 43.05% in 2017 However, the percentage ofROE following DuPont gradually decreased from 2017 to 2020 In 2018, the ROE indexwas 38.85%; by 2019, the percentage of the dupont equation had dropped to 35.50% andthen reached its lowest level in 2020 at 33.39% The variation of return on equity followedDuPont depends on three factors: profit margin, total asset turnover and equity multiplier.Therefore, the decrease in ROE’s Vinamilk is due to net profit margin decreasing gradually,asset turnover did not improve and gradually increased financial leverage.

f) Strengths and Weaknesses of Vinamilk

Strengths

Firstly, Vinamilk is the leading enterprise in Vietnam dairy industry, is the trustworthybrand name in domestic market Up to now, Vinamilk has 12 factories during which thereare two biggest factories in Asia and all factories are supplied high-technology withinternational criteria in manufacturing process Therefore, Vinamilk can take the advantageboth in high volume and quality’s products against other competitors

Secondly, VNM has wide marketing channel, retailers and supply their products to the supermarket throughout Vietnam, so Vinamilk products can be easy to approach to the users.

Thirdly, VNM has a good strategy to manage the expenditure to share the price’sburden to the consumer and also get more profit generated from sales

Lastly, VNM invests mainly in both fresh and processed dairy products, to createmany choices for consumers Recently, Vinamilk added more products like probeautyyogurt, soya milk, Dielac formula powder milk and so on to make products satisfy the needs

of all people

Weaknesses

First, the imported dairy material constituted quite 70% so it is suffering from thechanging in price of global dairy products Second, the strict competition with TH Milk,Dutch Lady in liquid milk, strongly competes with Mead Johnson, Abbott, Nestle andDutch Lady in powder milk

Recommended strategy for Vinamilk

Vinamilk should concentrate on rural markets and markets in newly developing urban

areas while continuing to expand the domestic sector By encompassing all of the storage and delivery networks, we can better manage our entire network and increase the delivery