VNM – A glimpse of hope for a better 2022 – Update

• VNM’s FY21 revenue increased 2.2% yoy, while its net profit plunged 5.1% yoy as increasing raw milk price dented gross profit margin.
• We forecast VNM’s NP to grow 3.5%/7.3% yoy in FY22-23F.
• Reiterate ADD but lower TP to VND110,000, following a 8.7%/11.5% downward revision of FY22/23F EPS..

Gross profit margin narrowed by raw milk price surge
In 4Q21, domestic revenue grew 7.4% yoy on 2% yoy increase in average selling price (ASP) and 5.4% yoy sale volume growth, per our estimates. Overseas market revenue grew impressively 21.6% yoy on the back of 1) export revenue grew 23.2% yoy mainly thanks to the Middle East market, and 2) overseas subsidiaries’ revenue rose 29.8% yoy on the back of Angkor Milk’s efficient distribution operation. However, 4Q21 gross margin narrowed down significantly by 3.6% pts yoy due to increasing whole milk powder prices. 4Q21 selling expenses dropped 5.0% yoy as VNM control expenses to preserve its net profit margin, thus NP increased 0.5% yoy in 4Q21, higher than that of decreasing 4.9% seen in 3Q21. Overall, FY21 net revenue increased 2.2% yoy, while its net profit plunged 5.1% yoy fulfilling 92.9% of our forecast.

We revise downward FY22-23F forecasts by 8.7%/11.5%
We lower our FY22-23F domestic revenue forecast by 3.1%/3.1% to reflect a slower-than-expected consumer demand recovery. Besides, we cut GPM FY21/22F forecast by 1.5%/2.0% pts to reflect 15.0%/20.0% increase in milk powder price assumption and 2%/1% yoy in sugar price due to the anti-dumping tax. Thus, we expect VNM’s revenue and NP to grow 6.3%/6.5% yoy and 3.6%/7.6% yoy in FY22-23F, respectively, lower than our previous forecast.

Is VNM still attractive after a year of moving sideways?
In our view, the stock price will keep bearing with high milk powder price pressure in short term. However, we believe VNM is suitable for the long term thanks to 1) stable business performance, 2) healthy balance sheet and 3) stable dividend yield. Besides, we expect milk demand to increase by 6% yoy in 2022F. Therefore, we expect VNM with leading position in the dairy industry will ride on the recovery of consumer demand after the pandemic. Thus, we reiterate Add rating.

Reiterate ADD with lower TP of VND110,000
Our TP is derived from an equal weighting of the 10-year DCF model with 8.7%/11.5% decrease in FY22-23F EPS and target P/E of 21.8x applied on FY22F EPS. Re-rating catalysts is stronger-than-expected growth of domestic dairy consumption. Downside risks include 1) longer-than-expected Covid-19 pandemic and 2) higher–than-expected whole milk powder prices

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