RESEARCH & INVESTMENT ADVISORY

VIETNAM DAIRY PRODUCT JSC

VNM - HOSE

COMPANY UPDATE

ADVISORYTADVISOR 02/06/2011

1Q11 BUSINESS UPDATE

Update on 1Q11 business result Impressive YoY growth of both revenue (39.6%) and net profit (23.1%): High and sustainable contribution of core business (90.8%) to profit. End of 1Q11, the company has completed 22% and 28% of its 2011 revenue and profit target, respectively New room for foreign investors: 10.7 million addtional shares issued through private placement to 5 foreign investors at an average price of VND 129,359/share. New room (6,986,969 shares) for foreign investors

Minh Ton Research Analyst minhtnn@ssi.com.vn

VNM Price & Trading volume

Source: Reuters

Investment opinion: The fundamental of VNMs business operation remains in good status with main driven revenue and profit growth from solid demand growth. Debt/Equity ratio is at safe level (9.12%). Investors could buy in at current price (VND 102,000/share) and start to take profit when it closes to the 2011 target price (VND 114,907/share) Finaicial summary
Financial (VND) Sales (b) EBITDA (b) EBIT (b) Pretax profit (b) Net profit (b) EPS Dividend per share BVPS Net debt (b) 2008 8,209 1,557 1,398 1,371 1,250 7,132 3,000 13,556 (128) 2009 10,614 2,963 2,738 2,731 2,376 6,763 3,000 18,897 (400) 2010 15,753 4,529 4,259 4,251 3,615 10,239 4,000 22,674 304 2011(E) 20,567 5,157 5,157 5,150 4,376 12,293 3,000 n.a n.a 2011/2010(%) 31% 14% 21% 21% 21% 20% Revenue Earnings EPS Total Equity Total Assets Dividend Rate 2010A
15,845 3,615 10,239 7,964 10,773

Financial summary

2011E
20,567 4,376 12,293

30%

30%

unental of VNMs business operation remains in good status with m driven revenue and profit growth from solid demand growth. Debt/Equity ratio is at safe level (9.12%). Investors could buy in at current price (VND 102,000/share) and start to take profit when it closes to the 2011 target price (VND 114,907/share)
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Bn VND Revenue COGS Gross profit SG&A Other expenses Depreciation & interest expense Extraordinary items Pretax profit Taxation Net profits Comments on earnings results in 1Q11

1Q11
4,535 3,026 1,509 432 13 94 75 1,186 180 1,006

1Q10
3,250 2,110 1,140 315 2 64 58 968 151 818

YoY (%)
40% 43% 32% 37% 656%

4Q10
4,140 2,868 1,272 596 84

QoQ (%)
10% 6% 19% -28% -85%

% target
22%

29% 23% 19% 23%

99 839 108 731

-24% 41% 66% 38% 28% 28%

Overall, the fundamental of Vinamilk in 1Q11 is still positive with net revenue of VND 4,535 bn (+39.6% YoY) and net profit of VND 1,006 bn (+23.1%). The company has increased its retail price for its powdered milk of ~6% in Jan 2011 and in 1Q11, VNM still enjoys the solid dairy demand growth, which strongly supported for the companys business performance in 1Q11 In Mar 11, VNM announced its 2nd time increase for milk material in 2011 with new price at VND 11,300 12,000/kg (~4 - 12.5% higher). This makes the gross profit margin in 1Q11 was at lower level of 33.28% compared to the level in 1Q10 (35.07%). Besides that, financial income in 1Q11 rose 46% YoY due to an increase of bond interest (+VND 17bn) and deposit interest (+VND 12bn) End of 1Q11, the company has completed 22% and 28% of its 2011 revenue and profit target, respectively, building a strong ground that the company could fully achieve its target in 2011. Other corporate events/developments & Comment on the impact 10.7 million addtional shares issued through private placement: On May 27 , 2011, VNM stated that the company successfully sold its 10,7 million shares to 5 investors through private placement. Starting price was at 120,000 VND/share. All the shares were bought by foreign investors with an average price at ~129,359 VND/share. These shares will be locked up to 1 year. New room for foreign investors: After issuing ESOP 2011 and 10,7 million shares for strategic partners. VNMs chartered capital will be up to 3,708 bn VND (or 370.835.640 shares). These shares are expected to be listed on HOSE in June 2011 and VNM will open its remaining 3% for foreign investors. Currently, foreign investors own 164,022,494 shares (45.99%). As a result, room for foreign investors will increase by 6,986,969 shares (370.835.640 x 49% - 164.002.494 - 10.700.000) Investment opinion Financial (VND) Sales (b) EBITDA (b) EBIT (b) Pretax profit (b) Net profit (b) EPS 2008
8,209 1,557 1,398 1,371 1,250 7,132
th

2009
10,614 2,963 2,738 2,731 2,376 6,763

2010
15,753 4,529 4,259 4,251 3,615 10,239

2011(E)
20,567 5,157 5,157 5,150 4,376 12,293

2011/2010(%)
31% 14% 21% 21% 21% 20%

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Financial (VND) Dividend per share BVPS Net debt (b)

2008
3,000 13,556 (128)

2009
3,000 18,897 (400)

2010
4,000 22,674 304

2011(E)
3,000 n.a n.a

2011/2010(%)

The fundamental of VNMs business operation remains in good status with main driven revenue and profit growth from solid demand growth. Debt/Equity ratio is at safe level (9.12%). Investors could buy in at current price (VND 102,000/share) and start to take profit when it closes to the 2011 target price (VND 114,907/share) Valuation PE Price 8 96,764 8.5 102,812 9 108,860 9.5 114,907 10 120,955

Company background : VNM was officially established in 1992 on the back of an enterprise having six production units. In 2006, VNM was listed on HOSE and quickly became one of the leading stocks on the exchange. Up to now, VNM has three branches, ten plants, four subsidiaries, one joint venture and two associates distribution system spreading over the nation. On the stock exchange, VNM has always been among the largest capitalization companies, affecting each movement of the market at large. Business lines VNM is the leading dairy company in Vietnam with around 135,000 sales point a whole country. VNM has 6 production groups, however the main production groups which contribute more than 90% of total sales which are drinking milk (37-40% of total sales), powdered milk (24-27% of total sales), condensed milk (20-24% of total sales) and yoghurt and cheese (~20% of total sales). The other 2 production. Sales break down 2009

Sales break down 2010

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Source: VNM, SSI summarize VNM has no significant rival in yoghurt and condensed milk segment (which cover more than 80% of market share) Market share of VNM for drinking milk is over 50% and the main competitor for VNM is Dutch Lady. Overall, VNM remained the leader in the local market with more than 50% of market share. Subsidairy/Join-venture One member limited liability Vietnam Milk Cow company One member limited liability International Property company One member limited liability Chien Thang Property company Lam Son Dairy JSC A Chau Saigon Food Material JSC % ownership of VNM 100% 100% 100% 100% 20%

Source: VNM, SSI summarize Management and Strategy: Mangement team has been active in the industry for a long time. The CEO, Ms. Mai Kieu Lien, has an experienment of more than 33 years in FMCG industry. Strength and weaknesses: Strength: Economies of scale as the market leader; Popular brand name with customers; Human resources: aggressive and experienced; High information transparency; Long-term relationship with local and foreign suppliers; A diverse product range; focus on core business. Weakness: Strongly dependent on imported dairy material; product quality risk

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DISCLAIMER
The information, statements, forecasts and projections contained herein, including any expression of opinion, are based upon sources believed to be reliable but their accuracy completeness or correctness are not guaranteed. Expressions of opinion herein were arrived at after due and careful consideration and they were based upon the best information then known to us and in our opinion are fair and reasonable in the circumstances prevailing at the time. Expressions of opinion contained herein are subject to change without notice. This document is not and should not be construed as, an offer or the solicitation of an offer to buy or sell any securities. SSI and other companies in the SSI and/or their officers, directors and employees may have positions and may affect transactions in securities of companies mentioned herein and may also perform or seek to perform investment banking services for these companies. This document is for private circulation only and is not for publication in the press or elsewhere. SSI accepts no liability whatsoever for any direct or consequential loss arising from any use of this document or its content. The use of any information, statements forecasts and projections contained herein shall be at the sole discretion and risk of the user.

CONTACT INFORMATION
Bich Pham, CFA Phuong Hoang Minh Ton Managing Director Director of Equity Research Research Analyst bichpn@ssi.com.vn phuonghv@ssi.com.vn minhtnn@ssi.com.vn

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