Developing a taste for dairy
Appetite for powdered milk and yoghurt
We are POSITIVE on Vietnam’s dairy sector. We expect it to maintain high-growth momentum due to a growing customer base, low milk consumption per capita, rising disposable income and increasing health awareness among consumers. Distribution networks are expanding and dairy producers are launching aggressive advertising campaigns.
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The dairy sector, valued at VND21,275 billion (USD1.1 billion) in 2008, is among the fastest-growing in Vietnam’s non-discretionary consumer sector, with a CAGR of 14.6% over the last eight years. We estimate the value of the sector will rise 9.5% per annum during 2010-13, while volume should increase at a 7% CAGR for the next four years.
(84 8) 3520-2050 - Ext: 8125
(84 8) 3520-2050 - Ext: 8158
We see growth potential in powdered milk and yoghurt. Powdered milk, which makes up 13% of Vietnam’s dairy market, was the most attractive sub-sector during 200309, posting double-digit CAGR of 10.7% in volume and 16.6% in value. Powderedmilk producers benefit from their ability to pass on rising imported-material costs to end consumers. We expect the sub-sector to continue to offer strong growth potential. Euromonitor has projected CAGR of 14.43% in value for the sub-sector in 2010-13. Yoghurt meanwhile accounts for 15% of the dairy market’s value and includes health-conscious target consumers. The yoghurt sub-sector’s value grew 12.6% in 2009, and consumers seemed relatively insensitive to price rises. The CAGR in terms of value for the yoghurt sector could remain as high as 11.8% in 2010-13.
The sector faces supply and demand imbalances as domestic herds can only meet about 20% of total nationwide demand. Heavy dependence on foreign markets for input materials creates a risk of margin compression due to fluctuating prices of imported dairy products. Strong brand loyalty towards larger producers and the low price elasticity of demand for milk products help mitigate this risk. We think multinational and domestic players will face tougher competition due to rising consumer power and a broader range of substitutes. Dairy producers are under pressure to improve their product mix as milk consumers become wealthier and more health conscious. We expect limited changes in the competitive structure within each sub-sector due to rising competition among existing players and relatively high barriers to entry. The dairy market is dominated by leading domestic company Vinamilk and Dutch Lady Vietnam, a subsidiary of FrieslandCampina. Each company holds around 37-39% of the total market size.
We initiate coverage on Vinamilk (HOSE:VNM), Vietnam’s largest listed dairy producer, with a BUY rating, given the robust demand for dairy products, coupled with the company’s strong market position and planned capacity expansion. Our blended valuation approach yields a price target of VND104,000 (USD5.45), a 20.2% premium to the closing price of VND86,500 (USD4.53) and provides an expected total return of 23.1% over the next 12 months. Our price target implies 15.5x FY10E PER and 15.7x FY11E PER, which is slightly higher than other domestic food and beverage (F&B) companies, but below that of regional dairy peers.
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Developing A Taste For Dairy
High growth momentum
The dairy sector is among the fastest-growing industries in Vietnam’s non-discretionary consumer sector, with a CAGR of 12.8% between 2004 and 2009. We expect it to maintain high-growth momentum due to a growing customer base, rising disposable income and increasing brand awareness among consumers. Distribution networks are expanding and dairy producers are launching aggressive...