(TIỂU LUẬN) 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 – 1904040022 Phạm Ngọc Huyền – 1904010044 Trần Ngọc Mai – 1904040075 Nguyễn 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

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.

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 for 75% 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 64 provinces and cities in Viet Nam

1.2. Main business activities

Vinamilk is the best dairy product manufacturer in Viet Nam with a large number of revenue and outputs in the market Vinamilk is trusted by a lot of consumers in the market because 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 and powdered milk, yogurt, drink, ice cream, cheese and other products of milk The outputs are provided by Vinamilk with an impressive list of products, flavors and packaging which are produced with advanced technology and high quality of farms in Viet Nam There are more than 200 types of products launched to the market by Vinamilk and conformed to the strict regulation of processing Moreover, Vinamilk is also the leading enterprise in the dairy industry which has domestically a large-scale product distribution network with 183 distributors and nearly 94,000 points of sale in specialized stores of Viet Nam Despite being a well-known brand in Viet Nam, Vinamilk is constantly developing its quality products 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 farms which applied advanced technologies in breeding and managed following European standards With a lot of experiences in food operation factories, Vinamilk confidently prepares the quality production process and supplies to the raw material market

Furthermore, one of the main business activities of Vinamilk is house trading, real estate and transaction intermediation in real estate Vinamilk is a reliable selection in the services 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 the strengths and weaknesses of Vinamilk in 2020 is shown in the table as below:

Balance Sheet

Income Statement

Ratio

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

b) Financial Ratios

Liquidity Ratio

Liquidity, including current ratio and quick ratio, reflects the power of Vinamilk to fulfill 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 the company’s ability to respond to its current liabilities with its current assets As calculated shown in Table 2, the current ratio of Vinamilk is around 1.74, showing that Vinamilk has the 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 point out the company's ability to respond to current liabilities with its most liquid assets As shown

in Table 2, the quick ratio 2020 of Vinamilk is nearly 2.08, it is a quite good number for Vinamilk

Asset Management Ratio

Asset management measures how the firm uses its assets efficiently There are three types of asset management ratio: Inventory turnover, day sales outstanding (DSO), Fixed assets 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 inventory time 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 sales methods (commercial credit) The DSO of vinamilk in 2020 is 31.82, tending to increase It can cause serious cash flow problems

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

Debt Management Ratio

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

The debt to total asset ratio, commonly known as the debt ratio, measures how well the company uses its debt to its assets We can see the debt ratio of Vinamilk in 2020 stay at the 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 indicator reflecting the efficiency of the entire investment, production, consumption and technical solutions, economic management at the enterprise

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

By profit margin ratio, the return on revenue ratio is 18% in 2020, which means that for 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 that one 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 common shareholders 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 of earnings per share A low P/E ratio means the higher the company's return on a share, or lower 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 same industry or in the same industry economy In general, Vinamilk's P / E ratio in 2020 (22.80) is relatively high

c) Trend Analysis

Inventory

DSO 22.44 33.15 32.78 29.27 31.82

FA turnover

1

416.3 2

231.2 0

118.5

Operating

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

It can be seen that solvency coefficients from 2016 to 2020 are larger than 1, proving that short-term assets, short-term investments are able to offset the debts when incurred Thus, this created crucial advantage in raising capital for business activities further as increased credibility for suppliers of the corporate

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

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

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 only benefit when the profits generated are greater than the interest paid for the use of debt The greater the EBIT than the interest, the more likely it is to secure the payments of interest from the guaranteed profit The TIE ratio over the years tend to decrease shown lower ability to pay interest

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 Vinamilk fluctuates over the time period from 2016 to 2020 It is due to the change in the firm’s activities over year, but it still quite high in the whole

d) Comparative Analysis

Table 3: Financial ratios of Vinamilk in comparison with the dairy industry in 2020 (%).

e) Dupont Analysis

2016 2017 2018 2019 2020

ROE 0.4179 0.4305 0.3885 0.3550 0.3339

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

Despite fluctuations, the returns on Vinamilk’s equity is generally showing a downward trend in 2016-2020 Looking at the details, the percentage of ROE started at 41.79% in 2016 and then increased slightly at 43.05% in 2017 However, the percentage of ROE following DuPont gradually decreased from 2017 to 2020 In 2018, the ROE index was 38.85%; by 2019, the percentage of the dupont equation had dropped to 35.50% and then reached its lowest level in 2020 at 33.39% The variation of return on equity followed DuPont 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 trustworthy brand name in domestic market Up to now, Vinamilk has 12 factories during which there are two biggest factories in Asia and all factories are supplied high-technology with international criteria in manufacturing process Therefore, Vinamilk can take the advantage both 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’s burden to the consumer and also get more profit generated from sales

Lastly, VNM invests mainly in both fresh and processed dairy products, to create many choices for consumers Recently, Vinamilk added more products like probeauty yogurt, 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 the changing 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 and Dutch Lady in powder milk

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