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VNM – Solid performance in 3Q20 – Update

Company Note 17/11/2020    263


  • In 9M20, VNM’s revenue and net profit edged up 7.4% yoy and 6.4% yoy, making up 72.9% and 76% of our full-year forecast.
  • Our TP is raised to VND119,000. We downgrade our rating from Add to Hold as steady earnings growth in FY20/21F appears to have been priced in.

Market price

Target price

Dividend yield



VND 107,400

VND 119,000




9M20 in line with our expectation

VNM’s net revenue increased 8.9% yoy to VND15,563bn in 3Q20, of which revenue from domestic business rose 8.9% yoy, higher than the 4.2% yoy growth seen in 3Q19. In our view, the better domestic result was thanks to 1) the consolidation with GTN from end-FY19 (contributed 6% to domestic sale) and 2) 1.5% yoy organic growth of existing business driven by 1-2% sales volume rise, especially in Probi line of probiotic products. Overall, in 9M20, with GTN’s contribution, VNM’s net revenue enjoyed a 7.4% yoy growth (while net revenue excluding GTN only edged up 2.3% yoy) and its net profit rose 6.4% yoy, respectively fulfilling 72.9% and 76% of our full-year forecasts.

Gross margin slightly edged down due to GTN’s consolidation

In 9M20, GTN’s gross margin reached 28.3%, up 13% pts from 15.3% in 9M19 thanks to the initial results from VNM’s restructuring efforts. However, GTN’s current GM is still lower than other segments’ GM of VNM by 18-32% pts, thus pushing VNM’s GM in 9M20 down 0.8% pts yoy to 46.5%. We expect GTN’s consolidation to reduce VNM’s gross margin slightly in FY20F to 47.1% before improving in FY21F to 47.4% by higher GTN’s GM of 35% (+5% pts yoy).

GTN showed significant improvement in net profit after consolidating with VNM

After joining the VNM family, GTN’s net profit expanded rapidly in 9M20 by 923% yoy to VND72.7bn (10 times higher than the same period) mostly thanks to better SG&A cost control. In 2021, management aims to invest in a dairy farm with 4,000 milk cows in Moc Chau and a new factory (detailed information has not been disclosed yet). Notably, VNM intends to list Moc Chau Milk on Unlisted Public Company Market (Upcom) in 1Q21.

FY20-21F results look solid on the back of stable dairy demand

We maintain FY20/21F revenue growth forecast of 10.2% yoy/6.9% yoy respectively to VND62,042bn and VND66,330bn to reflect our expectation of steady dairy demand in both the domestic and export markets. As a result, VNM’s net profit is estimated to rise by 10.6% yoy/8.9% yoy in FY20/21F.

Downgrade from Add to Hold with higher TP of VND119,000

Our higher TP is derived from an equal weighting of the DCF model rolled forward to FY21F (with WACC 11.8%, COE 12.5% and LTG 5.0%) and target P/E of 21.6x applied on FY21 EPS. We downgrade our rating from Add to Hold as expected earnings growth in FY20/21F appears to have been priced in. Re-rating catalysts include 1) stronger-than-expected growth of domestic dairy consumption and 2) higher-than-expected demand in the Middle East and China. Downside risks include 1) longer-than-expected Covid-19 pandemic and 2) higher–than-expected material milk prices.

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