Viet Nam Dairy Products Vinamilk JSC (HOSE: VNM)

Date: 11/10/2024
Sector: Industry Consumer Staples / Food, Beverage & Tobacco / Food Products
USD/VND: 24,815.00
Closing price: 67,700 VND / share
Target price: 81,000 VND
Recommendation: BUY (29,15% Upside)

EXECUTIVE SUMMARY
Based on the viewpoint of an individual investor, we issue a BUY recommendation for
VNM stock with one-year target price of 81,000 VND/share (VNDirect 31/07/2024)
representing a 19,64% (1) Upside potential from current level of VND 67,700. Our
recommendation based on the below investment thesis:

VINABEEF SUPER PROJECT

This project is invested by Vinamilk and its subsidiary - Vietnam Livestock Corporation
(Vilico) in cooperation with Sojitz Group (Japan). The scale of cooperation in each
phase is expected to be up to 500 million USD (equivalent to nearly 12,500 billion VND).
The first phase of the project has an investment capital of nearly 3,000 billion VND.
According to the latest update of DSC Securities, the Vinabeef Tam Dao complex has
tested 20 batches and achieved positive results. The official product is expected to be
launched in the market in the fourth quarter of 2024 and can bring Vinamilk revenue of
up to 2,550 billion VND per year.

EXPANDING PRODUCTION

The Hung Yen Milk Factory project - the fourth largest factory in Vinamilk's chain of
factories in the North - with a capacity of 400 million liters of milk per year have been in
process of construction since June-July 2024 and is expected to complete the first
phase from the fourth quarter of 2025. The project can increase the total capacity of
Vinamilk's factories by about 40% to nearly 1.2 billion liters of milk per year.

At the same time, Vinamilk has completed and put into operation Phase 1 of the Lao -
Jagro Dairy Farm Complex Project in Xieng Khuang Province, Laos with a total scale of
24,000 cows. This project has also completed Organic certification according to
EU/NOP standards (Europe and America). Milk output in the first phase reached 44,000
tons/year. In the second phase of the project, it is expected to expand the farm to
15,000 - 20,000 hectares with a scale of raising 100,000 cows.

THE RETURN OF FOREIGN INVESTMENT

Vinamilk (VNM) is considered a pillar stock in the Vietnamese stock market and it is not
limited by foreign ownership. Therefore, with the prospect of market promotion in 2025-
2026 (as Prime Minister Pham Minh Chinh said), VNM is likely to be one of the most
sought-after stocks. Another reason is also because in VN30 - companies with the
highest capitalization and liquidity, with a P/E of 15.73, lower than the average P/E of
the entire dairy industry of 20.61, this may indicate that Vinamilk's stock is undervalued.
This is an opportunity to buy at a cheap price.

(billion VND) 2019 2020 2021 2022 2023 2024F 2025F

Net revenue 56.318 59.636 60.919 59.956 60.368 62.058 64.164
Gross profit 26.572 27.668 26.278 23.897 24.544 26.572 27.668
Gross profit margin 47,18% 46,40% 43,14% 39,86% 40.7% 42.0% 42.4%
Net operating profits 12.797 13.539 12.727 10.491 10.903 11.783 12.280
Net income 10.554 11.235 10.632 8.577 9.019 9,705 10,174
ROE 39,72% 37,75% 32,72% 27,06% 28,84% 27.5% 28.2%
EPS (VND) 5.478 4.770 4.517 3.632 3.796 4.746 4.670

(Source: Company data, ASB Research, SSI Research)

(1) 81,000−67,700
Upside potential = = 19,64%
67,700

Figure 1: VNM Overview

Market capital (bn) 141,489.98

Share outstanding 2,089,955,44
5
52-Week High (VND) 73,500
52-Week Low (VND) 61,400
Beta 0.77
Current Share Price (VND) 67,700
12 Month Target Price (VND) 81,000
P/E 14.61
BVPS 18,344
(Source: SSI Research, Vietstock, VNDirect Research)

Figure 2: Ownership by type of investor (2023)

(Source: Annual Report 2023 Vinamilk)

BUSINESS OVERVIEW
Established in 1976 under the General Department of Food Industry, Vinamilk, formerly
known as Southern Milk and Coffee Company, is the largest dairy enterprise in
Vietnam, accounting for more than 40% of the total revenue value of its industry with
more than 250 products and 200,000 sales point in its distribution system present
everywhere across the country. Now having 15 farms and 16 factories, Vinamilk is
exporting to 60 countries and having its brand value worth 3 billion USD (Brand
Finance). In the first six-month period of 2024, the company’s revenue was VND 30,790
billion with 5,6% year-over-year (YoY) and its Net Profit After Tax at VND 4,903 billion
with 18,6% YoY.

BUSINESS MODEL

Although Vinamilk has been investing in developing a domestic dairy farm system to
reduce its dependence on imported raw materials, domestic fresh milk production
capacity is still insufficient to meet its entire raw material needs, especially for
processed dairy products.

SUPERIOR MARKET SHARE

The "Brand Footprint" report published by Kantar in July 2024 shows that Vinamilk
holds the No. 1 position in the milk and dairy products industry for the 12th consecutive
year.

Vinamilk is the market leader with a diverse product portfolio, high revenue and profit,
while TH True Milk and Nutifood both have different development strategies focusing on
product quality and niche markets.
With the competitive advantage of Vinamilk owning a high-quality herd of cows from
dairy farms and a potential land fund from its subsidiary Vilico, along with the Japanese-
standard beef cattle breeding and processing techniques of Sojitz Group, Vinamilk is
currently present in over 60 countries and is the leading enterprise accounting for about
55-60% of the export market share of the Vietnamese dairy industry to date.

Figure 3: Dairy market share 2022

CORPORATE STRATEGY

In 2024, there are several strategies to expand exports, invest in organic and special
nutritional products, use 4.0 technology, and develop sustainably.

Innovation and Sustainable Development

Applying technology to production through investing in a system of machinery operating

based on automation solutions so that the factory can control all activities taking place
in the factory, monitor and control quality continuously. At the same time, Vinamilk
constantly improves products to promote growth such as launching the Vinamilk Green
Farm - a product that Vinamilk applies dual vacuum technology to.

Expand Production and Product Lines

With its main dairy consumer product lines, the company launched 03 new products in
Q2/2024 including Ông Thọ condensed milk 1-liter box with lid, high protein nut milk and
fresh milk with coconut flavor to meet consumer demand.

Continuing to maintain the operation of existing factories and building Vinamilk's largest
super factory project in Hung Yen is expected to bring in a profit of 300-600 billion VND
in the first year of operation. In addition, the Vinabeef project will be launched in the last
three months of the year, expected to achieve revenue of 1,000-1,500 billion VND in the
first year.

Strong Marketing Activities

Following the big success of the Marketing campaign to re-identify the new brand in the
second quarter of 2023, Vinamilk's net revenue increased by 1.8% year-on-year and
9.2% quarter-on-quarter. Of which, domestic revenue increased by 2.6% year-on-year
and 11.3% quarter-on-quarter.

In June, VNM introduced new packaging for Probi drinking yogurt and eating yogurt in
July 2024.

CURRENT OVERVIEW OF THE INDUSTRY

MACRO ENVIRONMENT

Promoting the Roadmap to Upgrade the Market

In 2024, Vietnam aims to upgrade its stock market to an emerging market to attract
foreign investment. This roadmap includes the following main steps: institutional reform,
improving information transparency, and perfecting market infrastructure. The
government will strengthen the legal framework for listed enterprises, creating favorable
conditions for leading companies such as Vinamilk, Vingroup, and Vietcombank to
participate in the international market.

In addition, strengthening cooperation with large investment funds and international

financial institutions is very important. Tax incentives, financial support, and investor
rights protection policies will also be applied to encourage investment in leading
enterprises.

Trade and Investment Policy

Vietnam will continue to implement signed free trade agreements, such as EVFTA (EU-
Vietnam Free Trade Agreement) and RCEP (Regional Comprehensive Economic
Partnership Agreement), to create export opportunities for domestic enterprises.

In addition, policies to support domestic enterprises to improve competitiveness,

develop technology, and expand markets, and tax incentives, especially in strategic
areas such as agriculture, food processing, and high technology, have created
conditions for sustainable development for many enterprises, including Vinamilk.
(Vietnam Investment Law 2020, Decree 31/2021/ND-CP)

DAIRY INDUSTRY OVERVIEW

Slowing growth

In the period 2022 - 2023, the Vietnamese dairy industry recorded a slowdown in growth
compared to the previous period, due to the impact of macroeconomic factors such as
inflation, economic recession, and exchange rate fluctuations. Although the fourth
quarter of 2023 saw an improvement, the growth rate of revenue and gross profit was
still 0 compared to the same period last year. The first 2 quarters of 2024 have not yet
shown clear signs of recovery.

THE INFLUENCE OF MACRO FACTORS ON VNM

DEMAND OUTLOOK: Increased Consumer Demand

Demand for milk and dairy products is forecast to gradually recover from Q2 2024 as
the GDP growth outlook for Q2 2024 is 6.9% year-on-year, from 5.9% year-on-year in
Q1 2024.

Domestic consumption has grown significantly at 5.8% year-on-year and the Dairy
industry has returned to growth trajectory.

Figure 4: Vietnam Macro

(Source: Annual Report 2023 Vinamilk)

SUPPLY OUTLOOK: Dependence on Raw Materials

Vinamilk still depends on imported raw materials for about 50-70%, especially for
products such as whole milk powder (WMP) and Anhydrous Milk Fat (AMF), from major
international markets such as New Zealand, the US, and Australia. This dependence
makes the company vulnerable to fluctuations in raw material prices and international
markets, which can affect its revenue and profits.

It is forecasted in 2024 that raw milk powder prices will not increase sharply due to
abundant supply as China - the world's largest milk powder importer - is currently
planning to continue reducing whole milk powder (WMP) imports by 27% after a 3%
decrease in 2023, while total global milk powder output in this year is expected to
increase by 1.5% compared to the previous year. However, geopolitical instability and
armed conflicts in the world, along with natural disasters, may cause unexpected
fluctuations in milk powder prices.

Despite the above factors, Vinamilk has also fixed prices and stockpiled raw materials
until the fourth quarter of 2024, so price fluctuations are not expected to have an impact
on business results this year. If milk powder prices are lower, we expect that gross profit
margins will improve and reach 42.4% in 2024.

Figure 4: Raw material cost structure

(Estimated based on Annual Reports 2023 and the types of products the company has)

Whole Milk Powder Skim Milk Powder

Anhydrous Milk Fat Others

30% 30%

15%
25%

Figure 5: Whole Milk Powder (WMP) and Skimmed Milk Powder (SMP) Prices
(USD/MT)

(Source: Global Dairy Trade, Trade Data Monitor, ABS Research)

Figure 6: China's imported WMP output (thousand tons)

(Source: Global Dairy Trade, Trade Data Monitor, ABS Research)

Figure 7: Business Result

70,000 48.00%
60,000 46.00%
50,000
44.00%
40,000
42.00%
30,000
40.00%
20,000
10,000 38.00%
- 36.00%

2019 2020 2021 2022 2023

Net sales Net profit after tax Gross Profit Margin

(Source: Annual Report 2023 Vinamilk)

Figure 8: Correlation Between WMP Price and VNM's Profit After Tax

12,000
10,000
8,000
6,000
4,000
2,000
0
2019 2020 2021 2022 2023

Whole Milk Powder Average Prices

Net profit after tax
(Source: Annual Report 2023 Vinamilk, Global Dairy Trade)
FINANCIAL ANALYSIS
INCOME STATEMENT

Revenue and Cost of Goods Sold

VNM’s revenue reached its peak in 2021 then decreased slightly and has been
remaining almost the same in 2022 and 2023 with the compound annual growth rate
(CAGR) of 1,76% (2) throughout the whole period.
1 1
(2) Ending value Number of years 60,478 4
CAGR = ( ) −1 = ( ) −1 = 1,76%
Beginning value 56,400

This was because in 2021, during the COVID-19 pandemic, there was an increased
demand for essential goods, including dairy products, due to stockpiling and health-
conscious consumption. Vinamilk, being a leading dairy company, benefited from this
surge in demand, both domestically and through exports.

However, after the initial pandemic period, global supply chain disruptions led to rising
costs of raw materials such as packaging, and transportation. These supply chain
constraints affected profitability and growth prospects, contributing to the revenue
stagnation in 2022 and 2023.

At the same time, as the world has recovered from the pandemic, consumer behavior
shifted. Stockpiling decreased, and spending patterns normalized. That was one of the
reasons why the revenue of the company went back to relatively equal to the amount
before the pandemic happened in 2022 and then stayed unchanged the year after that.

Despite the struggles mentioned above, throughout 2023, sales in general increased
and reached over more than VND 60,000 billion, pretty much staying the same as the
previous year.

Big thanks to the huge investment in Marketing and Advertising, the dairy giant spent
VND1,329 billion on advertising and market research costs and VND 9,005 billion on
promotional services, display, product introduction and sales support costs; up nearly
9% and 4% respectively compared to 2022.

After introducing new packaging for liquid milk products in the third quarter of 2023,
Vinamilk launched a series of marketing campaigns in the fourth quarter to spread the
new brand identity. This new change has strongly boosted sales to the domestic market
which is a key driver to the revenue of the company, accounted for 84%.

Vinamilk’s cost structure primarily includes (1) Raw materials which are often
imported so are likely vulnerable to exchange rate fluctuations; (2) Production costs
(energy, labor), are under influence of macro factors such as inflations, Government’s
policy, etc.

As it can be seen, Vinamilk’s costs of goods sold continued to grow rapidly until it
reached its highest point during the whole period at 36 billion VND in 2022 then
decreased tediously by 0,6% in 2023, finally, went up slightly then remained constant in
the last 2 years of the period.

The cost of the whole milk powder and skim milk powder – two of the three most
important materials – reached their peak at April 2022 then gradually went down in
October 2023. After that, they have been stable til now. The fluctuations of these main
materials of VNM led to a decrease in the gross profit although the revenue didn’t
reduce. The company might need to consider cutting operating expenses or negotiating
better COGS terms.

Figure 9: Revenue by Region 2023

(Source: Annual Report 2023 Vinamilk)

Figure 10: Revenue of Vinamilk and its Peers

70,000
60,000
50,000
40,000
30,000
20,000
10,000
-
2019 2020 2021 2022 2023

Peer Average VNM

(Source: Annual Report 2023 Vinamilk, SSI Research)
Figure 11: Whole Milk Powder (WMP)

(Source: Global Dairy Trade)

Figure 12: Skim Milk Powder (SMP)

(Source: Global Dairy Trade)

Gross Profit Structure and Net Profit Margin

VNM gross profit margin literally slumped by 7.32% (from 47,18% to 39,86%) from
2019 to 2022 and only increased by 0.8% at the end of the period in 2023. This was due
to several reasons, including the inflationary pressures leading to the input costs such
as energy costs, logistics, labor, and other production-related expenses became more
expensive, pushing up Vinamilk’s costs of production.

Besides, another key driver to this fall of gross profit margin was because of Vinamilk’s
investments in expanding production capacity (Hung Yen Milk factory and the Lao -
Jagro Dairy Farm Complex Project in Xieng Khuang Province), digital transformation,
and entering new business ventures (Vinabeef), which temporarily impacted
profitability.
As opposed to the rising of cost of goods sold, the net profit margin of Vinamilk
declined sharply by 4.43% from 2019 to 2022 then experienced a small recovery at the
end of the period. This came mainly from the inflationary pressures, investments in
expanding production and entering new market, along with logistical issues as
mentioned above.

Figure 13: Cost of goods sold, Revenue, and Gross profit of Vinamilk

140,000
120,000
100,000
80,000 56,400 59,722 61,012 60,074 60,478
60,000
40,000 26,572 27,668 26,278 23,897 24,544

20,000
29,745 31,967 34,640 36,059 35,824
-

2019 2020 2021 2022 2023

COGS Gross Profit Revenue

(Source: Annual Report Vinamilk, SSI Research)

Figure 14: Revenue, Gross profit and Gross profit margins (2023)

70,000 48.00%

60,000 46.00%
50,000
44.00%
40,000
42.00%
30,000
40.00%
20,000

10,000 38.00%

- 36.00%
2019 2020 2021 2022 2023

Net sales Gross Profit Gross Profit Margin

(Source: Annual Report 2023 Vinamilk, SSI Research)

Figure 15: Net Profit Margin of Vinamilk and its Peers

20.00%
18.00%
16.00%
14.00%
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
2019 2020 2021 2022 2023

Peer Median VNM

(Source: Annual Report Vinamilk, SSI Research)

Profitability Ratio

In 2021, Vinamilk’s ROE reached its peak, aligning closely with its peers since Vinamilk
likely benefited from favorable market conditions, including growing in demand for dairy
products due to pandemic-related pantry stocking.

However, after 2021, ROE of the company started to decline, diverging from the upward
trend of the peer median. This decline indicated challenges in maintaining profitability
relative to equity, which could be linked to several factors such as the increase in input
costs, investments in expanding the business and competitive pressures.

As for competition from both domestic and international brands, Vinamilk may have
faced challenges in passing on costs to consumers. The peer median’s consistent
performance could indicate that competitors managed to better navigate market
challenges, maintain profitability, and control costs more effectively during the same
period.

Figure 16: ROE of VNM and its peers

45.00%
40.00%
35.00%
30.00%
25.00%
20.00%
15.00%
10.00%
5.00%
0.00%
2019 2020 2021 2022 2023

Peer Median VNM

(Source: SSI Research)

BALANCE SHEET
(trillion VND)

Time Period Total Assets Total Liabilities Shareholders'

Equity

6/2019 40,18 11,25 28,93

12/2019 44,69 14,96 29,73

6/2020 49,59 17,24 32,35

12/2020 48,43 14,78 33,64

6/2021 53,04 18,67 34,37

12/2021 53,33 17,48 35,85

Total Assets

There is a general upward trend in total assets, peaking at approximately 53.8 trillion in
June 2022, followed by a slight decline and then a steady recovery, reaching around
52.7 trillion by December 2023.

This increase in total assets suggests an expansion in the company’s resources,

investments, or acquisitions over time, which is a positive sign of growth.

Total Liabilities

The total liabilities show a general upward trend until June 2021, reaching 18.7 trillion,
followed by fluctuations but a gradual decrease, ending at around 17.6 trillion in
December 2023.

This indicates that while the company has taken on some debt or obligations over time,
it may also be actively managing these debts to reduce its liabilities.
Shareholders' Equity

Shareholders' equity generally increased, starting from 28.93 trillion in June 2019 and
peaking at 36.82 trillion in June 2022. However, a notable dip is observed at the end of
2022, where equity dropped to 32.82 trillion before rebounding to 36.66 trillion in June
2023.

This indicates that the company's ability to generate retained earnings and possibly
grow through issuing additional shares, reflecting a positive outlook for shareholder
value, as equity has consistently grown over time.

(trillion VND)

Time Current Current Inventory Current Quick

Period Assets Liabilities Ratio Ratio

6/2019 22,08 10,81 5,54 2.04 0.76

12/2019 24,72 14,44 4,98 1.71 0.66

6/2020 30,07 16,68 5,69 1.80 0.74

12/2020 29,66 14,21 4,90 2.08 0.73

6/2021 35,04 18,12 6,87 1.93 0.80

12/2021 36,10 17,06 6,82 2.12 0.80

6/2022 36,87 16,64 7,11 2.21 0.83

12/2022 31,56 15,30 5,56 2.06 0.73

 6/2023 33,40 13,74 6,31 2.43 0.85

12/2023 35,93 17,13 6,16 2.10 0.78

Current Ratio Trend

The Current Ratio has fluctuated between 1.71 and 2.43 over the period from 2019 to
2023.

There's a general upward trend, indicating improving short-term liquidity.

The lowest point was 1.71 in December 2019, while the highest was 2.43 in June 2023.

The most recent figure (December 2023) shows a ratio of 2.10, which is relatively
strong.

The current ratio has generally remained above 2.0, indicating a strong short-term
liquidity position. However, there have been fluctuations, with a slight decline in the
middle of the period.

Quick Ratio Trend

The Quick Ratio has ranged from 0.66 to 0.85 during the same period.

Similar to the Current Ratio, there's a general upward trend, suggesting improved
immediate liquidity.

The lowest point was 0.66 in December 2019, coinciding with the lowest Current Ratio.

The highest Quick Ratio was 0.85 in June 2023, again matching the peak of the Current
Ratio.

The quick ratio, which excludes inventory from current assets, has also shown
fluctuations but generally remained above 0.7. This suggests a reasonable level of
liquidity even without considering inventory.

Comparative Analysis

Both ratios show similar patterns, indicating consistent improvement in the company's
liquidity position.
The gap between the Current Ratio and Quick Ratio remains relatively stable,
suggesting a consistent proportion of inventory in current assets.

Period Inventory Short-term Receivables

12/2023 6,165,935,294,543 6,529,705,184,034

6/2023 6,319,892,419,521 6,142,392,930,802

12/2022 5,560,169,453,504 6,100,402,870,854

6/2022 7,111,593,809,810 6,040,009,761,668

12/2021 6,820,486,391,670 5,822,028,742,791

6/2021 6,876,983,730,958 6,370,305,908,925

12/2020 4,952,848,688,011 5,187,253,172,150

6/2020 5,709,730,898,950 5,674,690,836,392

12/2019 4,996,114,799,978 4,503,154,728,959

6/2019 5,558,042,713,939 5,391,295,160,818

Inventory

The inventory value shows a slight upward trend from 2019 to 2023, indicating an
expansion in the company's operations.

There's a seasonal pattern, with inventory values typically higher in mid-year (June)
compared to year-end (December).

The highest inventory value was in June 2022 (about 7.11 trillion VND) and the lowest
in December 2020 (about 4.95 trillion VND).
From 2021 to 2023, inventory levels have been more stable, fluctuating between 6-7
trillion VND.

Short-term Receivables

Generally show an increasing trend over the years, reflecting growth in the company's
sales.

The value of short-term receivables increased from about 4.5 trillion VND at the end of
2019 to over 6.5 trillion VND by the end of 2023.

Unlike inventory, there's no clear seasonal pattern.

The growth rate of receivables seems to have slowed in recent years (2021-2023)
compared to 2019-2020.

Comparison between Inventory and Short-term Receivables

Inventory values are typically higher than short-term receivables, suggesting the
company may be maintaining relatively large inventory levels.
The gap between these two metrics has been narrowing in recent years, especially from
2022 onwards.

Compare VNM vs the Industry

Name VNM Industry

Quick Ratio 1.963611 1.0947

Current Ratio 2.423684 1.71688

Total Debt to Equity 20.8091% 88.13617%

Inventory Turnover 5.613186 4.30851

(Source: Investing.com)

Quick Ratio (VNM: 1.96 vs. Industry: 1.09)

VNM has a higher quick ratio than the industry average, which indicates that the
company has a stronger ability to cover its short-term liabilities with its most liquid
assets (cash, marketable securities, and receivables). A higher quick ratio suggests
better liquidity management.
Current Ratio (VNM: 2.42 vs. Industry: 1.72)

VNM's current ratio is also significantly higher than the industry average.

This means the company is in a good position to cover its short-term obligations with its
current assets (which include inventory). A current ratio above 1 is generally favorable,
but too high a value can indicate excess inventory or inefficient asset utilization.

Inventory Turnover (VNM: 5.61 vs. Industry: 4.31)

VNM turns over its inventory more frequently than the industry average.

This indicates that the company is selling its products at a faster rate, which is generally
positive for cash flow and reduces the risk of obsolescence. A higher turnover ratio is
typically a sign of good inventory management.

VNM's Total Debt to Equity (20.81%) is significantly lower than the industry average
(88.14%). This indicates that VNM is less leveraged compared to its peers, meaning it
relies less on debt financing. A lower debt-to-equity ratio suggests less financial risk and
greater financial stability, but it can also indicate that the company might not be taking
advantage of debt to finance growth.

CASH FLOW STATEMENT

Cash flow from Operating activities

2019 2020 2021 2022 2023

CASH FLOWS FROM

OPERATING
ACTIVITIES

Profit before tax 12,795,709 13,518,536 12,992,335 10,495,353 10,967,899

Adjustments for

Depreciation and
1,948,072 2,208,866 2,121,337 2,095,450 2,054,586
amortization

Amortization of goodwill 67,951 608,148 245,540 245,540 245,540

Allowances and
7,322 49,503 33,466 (4,572) 26,862
provisions

Exchange (gains)/losses 6,458 637 (1,658) 3,223 7,448

arising from revaluation
of monetary items
denominated of foreign
currencies

Gain on revaluation of
- 300,636 -
investment in associate

Losses on disposals/
43,964 43,139 73,844 88,472 65,791
written off fixed assets

Dividends, interest
income and gain from (1,210,689
(728,161) (1,177,792) (1,106,041) (1,543,397)
other investment )
activities

Share of (profit)/loss in
associates, joint venture 5,716 (3,882) 45,044 24,475 80,631
interest expense

Interest expense 108,824 143,818 88,799 166,039 354,095

Income from waiver of

- - (70,747) - -
borrowing

Operating profit before

changes in working 14,255,869 15,090,339 14,351,819 11,903,472 12,259,457
capital

Change in receivables 373,595 (714,955) (516,851) (288,077) (244,987)

Change in inventories 401,955 (270,075) (2,260,681) 851,263 (1,021,313)

Change in payable and

(399,803) (212,798) (1,484,048 (386,032) (443,378)
other liabilities

Change in prepaid
16,409 23,641 116 (73,120) 7,868
expenses

Change in trading
(4,480) 23,488 - - -
securities

Interest paid (227,917) (212,769) (98,340) (141,304) (302,707)

Income tax paid (2,033,592) (2,286,331) (2,356,598) 1,975,289 (1,564,073)

Other payments for (1,063,638

(972,149) (1,236,907) (1,171,541) (803,441)
operating activities )
 Net cash flows
11,409,928 10,180,169 9,431,974 8,827,273 7,887,423
operating activities

The cash flow from operating activities of Vinamilk from 2019 to 2023 presents a
trend of steady decline, reflecting challenges in maintaining strong operational cash
generation. In 2019, the company recorded 11,409,928 million VND in net cash flows
from operating activities, but this steadily decreased to 7,887,423 million VND by 2023.
One key factor behind this drop is the decline in profit before tax, which peaked at
13,518,536 million VND in 2020 but fell sharply in 2022 and 2023. Despite a slight
recovery in 2023, profitability levels remained significantly lower than in 2020, affecting
the overall cash flow generation. Increased expenses, particularly in depreciation,
goodwill amortization, and interest payments, also contributed to the tightening of
operating cash flow.

Changes in working capital had a considerable impact on Vinamilk’s cash flow.

Fluctuations in receivables and inventories indicated challenges in inventory
management and cash collection. In 2020, Vinamilk faced a notable outflow in
receivables (714,955 million VND), which likely strained liquidity. Similarly, large swings
in inventory values, particularly the sharp increase in 2023 (1,021,313 million VND),
reflect volatility in demand or supply chain adjustments. However, payables in 2023
improved significantly, suggesting efforts to optimize payment terms, but this was not
enough to offset the overall decline in operating cash flow.

Cash flow from Investing activities

2019 2020 2021 2022 2023

CASH FLOW
FROM
INVESTING
ACTIVITIES

Payments for
additions to
fixed assets
(2,158,249) (1,264,816) (1,531,025) (1,456,914) (1,579,637)
and other
long-term
assets

Collections on
disposals of fixed
assets and 114,089 150,342 133,905 137,126 104,881
construction in
progress
 Payments for term
(3,215,379) (4,881,270) (3,514,466) - (2,856,303)
deposits

Receipt from term

3,634,715
deposits

Receipts from
2,598 31,566 150 -
collecting loans

Payments for
investments in - (8) (23,228) (43,175) (35,769)
other entities

Investments in
1,513 21,632 1,337 - 10,570
other entities

Receipts of
interest and 665,791 1,140,546 1,000,079 1,201,020 1,367,711
dividends

Net cash outflow

from business (2,158,238) - - - -
acquisition

Net cash flows

investing (6,747,874) (4,802,010) (3,933,248) 3,472,771 (2,988,548)
activities

From 2019 to 2023, Vinamilk's cash flows from investing activities show substantial
outflows, reflecting the company’s heavy investment in projects aimed at expanding its
operational capacity and modernizing infrastructure. These include significant
payments for additions to fixed assets, which peaked at (2,158,249) million VND in
2019 and remained consistent in the following years. This pattern is indicative of large-
scale investments in new factories, equipment upgrades, and dairy farm expansions.
For instance, Vinamilk's projects like the "mega-dairy farm" in Laos and ongoing
investments in high-tech dairy farms across Vietnam required significant capital to
support infrastructure development. These strategic projects are essential for securing
long-term growth but contributed to the company's consistent negative cash flow from
investing activities.

One key aspect that influenced Vinamilk’s investment cash flows was its management
of term deposits, which played a crucial role in optimizing liquidity. In 2019, the
company made substantial payments for term deposits totaling (3,215,379) million VND,
locking up capital in short-term investments. This trend continued in 2020 and 2023,
with notable outflows of - 4,881,270 million VND and (2,856,303) million VND,
respectively. However, 2022 marked a significant shift, with receipts from term deposits
of 3,634,715 million VND, leading to positive net cash flows from investing activities for
the year (3,472,771) million VND. This suggests that Vinamilk periodically reallocates
excess liquidity to term deposits during times of surplus and withdraws it as needed for
operational or project funding. Such practices ensure the company maintains financial
flexibility while pursuing its long-term investment goals.

In addition to fixed assets and term deposits, Vinamilk also made smaller but consistent
investments in other entities during the period, reflecting its strategy of diversification
and expansion into new ventures. The company’s receipts of interest and dividends,
which reached 1,367,711 million VND in 2023, highlight returns from these investments.
However, the ongoing capital expenditures for projects like expanding production lines
and entering new markets, as well as investments in joint ventures like its overseas
projects, ensured that overall net cash flows from investing activities remained negative
in most years, except for 2022. Moving forward, the balance between large capital
projects and efficient cash management will be critical for Vinamilk to sustain its
ambitious growth initiatives without straining its cash reserves.

Cash flow from Financing activities

2019 2020 2021 2022 2023

CASH FLOWS
FROM
FINANCING
ACTIVITIES

Payments for
repurchase of
treasury shares
- (14,364) - - -
from non-
controlling
interest

Payments for
repurchase of (1,159) - - - -
treasury shares

Proceeds from
sales of treasury - - 60,119 - -
shares

Proceeds from
additional shares
issued by a
- - 39,201 - -
subsidiary to
non-controlling
interest
Proceeds from
capital
contributed by
127,768 - 218,540 338,100 489,787
non-controlling
interest to a
subsidiary

Capital refund to
a non-controlling
interest of a - - - - (142,548)
dissolved
subsidiary

Proceeds from
10,426,775 7,769,145 9,596,960 6,257,530 11,788,416
borrowings

Payments to
(10,789,019
settle loan (6,233,112) (5,753,602) (7,551,460) (8,276,832)
)
principals

Payments of
(7,836,250) (7,927,712) (7,523,560) (8,046,328) (8,046,328)
dividends

Payments of
dividends of
subsidiaries to - - (97,197) (120,571) (105,267)
non-controlling
interest

Net cash flows

(12,360,289
financing (3,515,978) (5,926,534) (5,257,397) (4,292,773)
)
activities

Net cash flows

during the 1,146,075 (548,374) 241,327 (60,244) 606,101
period

Cash and cash

equivalents at
1,522,610 2,665,194 2,111,242 2,348,551 2,299,943
the beginning
of the period

Effect of
exchange rate
fluctuations on (1,895) (1,530) (2,270) (1,729) (673)
cash and cash
equivalents
 Currency
translation (1,594) (4,046) (1,748) (13,365) (6,655)
differences

Cash and cash

equivalents at
2,665,194 2,111,242 2,348,551 2,299,943 2,912,027
the end of
period

Regarding cash flows from financing activities for the years 2019 to 2023, highlighting
key transactions such as borrowings, dividend payments, treasury share repurchases,
and contributions from non-controlling interests. Starting with 2019, the company shows
significant proceeds from borrowings, amounting to 10.43 million, which helped offset
large outflows from payments of loan principals and dividends. Overall, the financing
activities resulted in a negative cash flow of 3.52 million for the year, signaling that more
cash was leaving the business than being generated from financing activities.

In 2020, the company saw reduced borrowing proceeds, with borrowings totaling 7.77
million. The payments to settle loan principals and dividends continued to be substantial
at 5.75 million and 7.93 million, respectively, contributing to a larger negative net cash
flow from financing activities of 5.93 million. The same pattern was observed in 2021,
with borrowings increasing slightly to 9.60 million but still not enough to offset the
increased outflows for loan settlements and dividends. The net cash flow for 2021 stood
at negative 5.26 million. By 2023, financing activities resulted in an even greater cash
outflow of 12.36 million. The rise in borrowing proceeds (11.78 million) was
counterbalanced by steep increases in payments for loan settlements (10.79 million)
and dividends (8.05 million). Additionally, the company experienced smaller, negative
adjustments from treasury share repurchases and refunds to non-controlling interests.
These factors contributed to the highest negative cash flow from financing over the five-
year period, signaling increasing financial obligations.

Overall, Vinamilk's business situation is still at a good level. The business activity index
remains high. The company uses capital sources well for business investment, showing
that the company is operating effectively and capital sources are used at a stable level.
However the company needs to focus on business operations to make the index go up.

The Relationship between Cash flows

Figure 17: Vinamilk's cash flow during the year 2019 to 2023
(Source: Annual Report Vinamilk)

The relationship between Vinamilk's operating cash flow, investment and financing
fluctuates unevenly from 2019 to 2023. Over this period,the operating cash flows
consistently trended downward. Despite the drop, the cash inflows from operating
activities remained positive, ensuring that Vinamilk maintained a stable cash base to
cover its investments and financial obligations.

In terms of investment activities, during the period from 2019-2021 has increasingly
returned to the negative axis over the years. In the first years when expanding
investment activities, not only Vinamilk but almost all other companies also had to go
through the first phase of investment, making that activity always in a state of
uncertainty. loss status. However, by 2022, it has clearly shown that investment
activities have been truly effective with growth increasing to more than 8,729 billion
VND compared to the same period before, surpassing business activities in 2022. In
this year, The company has cut back on financial activities to finance investment
activities, so cash flow in the year has increased again compared to 2021, a good
direction for businesses when they know how to control 3 activities need to maintain
that number.

Although the net cash flows from operating, financing, and investing activities exhibit
significant volatility, they still indicate positive signs for the development of Vinamilk.
This is primarily due to the effective management of these three cash sources, which
complement each other year after year. Particularly following the pandemic, Vinamilk
has gradually regained control over its market operations. This demonstrates Vinamilk's
continuous efforts and determination to develop and establish itself as a leading
technology group in Vietnam.