VINAMILK CORPORATION

Course : Principles of Corporate Finance Group Members

Code: FIN202 Đặng Gia Tân - SS171186

Class: MKT1810 Võ Trần Đan Thanh - SS170547

Lecturer: Vũ Tùng Linh Võ Thị Thúy Vy - SS170544

Case study: Stock Valuation and Vũ Thùy Trang - SS170463

Investment Analysis
Nguyễn Thị Tuyết Nga - SS170593

Phạm Ngọc Thanh Tú - SS171285

Table of Contents:

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I. Introduction:.........................................................................................................................3
II. Fundamental Analysis:.......................................................................................................4
1. Balance sheet:.................................................................................................................4
a. Property structure:..................................................................................................4
b. Capital structure:.....................................................................................................5
2. Income Statement:..........................................................................................................6
3. Cash Flow Analysis:.......................................................................................................7
4. Analyze Financial Ratios:..............................................................................................8
a. Liquidity Ratios:.......................................................................................................8
b. Efficiency Ratios:.....................................................................................................9
c. Leverage Ratios:.....................................................................................................10
d. Profitability Ratios:................................................................................................11
e. Dupont System:.......................................................................................................13
f. Market Value Ratios:.............................................................................................14
III. Valuation Method:...........................................................................................................15
IV. Investment Recommendation:........................................................................................17
V. Reference:...........................................................................................................................18

I. Introduction:

Vietnam Dairy Products Joint Stock Company, also known as VNM, is one of the leading
enterprises in the field of manufacturing and trading dairy products in Vietnam. VNM has

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had a development process full of ups and downs since its founding in 1976 until now, it has
become a symbol in Vietnam's food industry and has expanded its presence globally.

What's special about Vinamilk is the company's commitment to food quality and safety.
Vinamilk applies strict processes from raw material selection, and production to inspection
and packaging. This helps ensure that each Vinamilk branded product meets the highest
standards of quality and food safety.

In addition, Vinamilk also actively contributes to social and environmental activities. The
company regularly conducts social programs to provide support to the community, especially
in the fields of education and health. At the same time, Vinamilk also focuses on advanced
solutions and technology to minimize the impact of production activities on the environment.

Vinamilk is not only famous in the domestic market but also has a significant position in the
international market. Thanks to product quality and continuous innovation, Vinamilk
products have been consumed and loved in many countries around the world.

Vinamilk's vision does not stop at becoming a leading enterprise in the Vietnamese dairy
industry but also opens up opportunities to participate in other food industries and expand its
global presence. Vinamilk commits to continue investing in research and product
development, as well as promoting the sustainable development of Vietnam's food industry.

In short, Vinamilk is not only a leading enterprise in the field of milk production and trading
in Vietnam but also a symbol of development and innovation in the country's food industry.
Commitment to quality, food safety, and contribution to the community are core values that
Vinamilk always puts first in all of its business activities.

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 II. Fundamental Analysis:
1. Balance sheet:

a. Property structure:
The company's total assets over the years 2019-2021 gradually increased but decreased in
2022, specifically at the end of 2019 the company's total assets reached more than 44,000
billion VND, at the end of 2021 the company's total assets reached more than 53,000 billion
VND, an increase of nearly 9,000 billion VND. This proves that the company is expanding its
production and business scale. The above fluctuation in total assets is due to both short-term
assets and long-term assets having fluctuations, in which long-term assets increased more.
However, recording a sharp decline in 2022 shows that the company's financial situation is
facing many fluctuations.

Short-term assets account for a large proportion of the company's total assets and tend to
increase and decrease erratically. Specifically, at the end of 2019, short-term assets were
more than 24,000 billion VND, accounting for 55.31% of total assets. At the end of 2021,
short-term assets are more than 36,000 billion VND, accounting for 67.71% of total assets;
By the end of 2022, short-term assets will be more than 31,000 billion VND, accounting for
65.1% of total assets. Short-term assets fluctuate over the years mainly due to the company's
short-term financial investments.

The company's long-term assets at the end of 2019 were more than 19,000 billion VND,
accounting for 44.69% of total assets. Long-term assets at the end of 2022 were nearly 17,000
billion VND, accounting for 34.9% of total assets.

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As a business in food consumption, Vinamilk should be working to push inventory to avoid
the damaging quality loss that makes it difficult to compete with rivals in the market.

b. Capital structure:
We can see that the company's capital structure mainly comes from equity. The amount of
debt is not too large and is still well-controlled. The company's liability is stable at 20% for
all 4 years and in particular, this debt is mainly current assets. This will cause net working
capital to be affected. A low NWC means that the company has little cash and assets that are
easily converted into cash to meet short-term financial obligations such as repaying debt,
paying off debt due, or paying employees. This can lead to difficulties in paying these
obligations and create financial pressure. Low NWC can cause difficulties in day-to-day
business management and lead to too much focus on finding funding instead of growing and
promoting the core business. When a company is regularly unable to meet its short-term
financial obligations, this can negatively impact its reputation with business partners,
suppliers, and investors.

The company's equity is always above 60%, which creates financial stability. This means that
the company does not have to pay interest on heavily debt capital, helping to reduce financial
pressure in the event of business difficulties or unstable markets. Vinamilk has high Equity
and little debt capital, so the risks related to not being able to repay debt or being under
financial pressure are not as high as compared to using a lot of debt capital. What helps
Vinamilk is to help maintain control of the company in the hands of current shareholders
without having to share much of the profits or management rights with debt capital sources or
other shareholders. Vinamilk has high equity capital which has a positive meaning in
maintaining financial stability and control of the company.

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 2. Income Statement:

Looking at the analysis of the company's business results, we see that net revenue in 2022
compared to 2019 increased by nearly 5,000 billion VND. This is not a high number for
Vinamilk, but it is understandable because the economic situation in the country as well as in
the world is still difficult because it is still affected by the crisis as well as the Covid-19
pandemic. COGS has a great impact on the company's production and business results. In
2022 compared to 2019, COGS has increased by more than 7,000 billion VND. The increase
in COGS is due to reasons from the business side such as less production and decreased
revenue. Financial revenue in 2022 increased slightly compared to 2019. In addition to
COGS, selling costs also accounted for a high proportion of total revenue. Only about 14-
18% of Vinamilk's revenue is calculated by net income. This is worrying and the company
needs to find solutions to reduce COGS. Financial costs continue to increase rapidly,
reducing business profits, while financial revenue increases insignificantly. Therefore,
businesses need to make reasonable adjustments between the use of loan capital and equity
capital, and at the same time, businesses also need to take measures to increase financial
revenue in the following periods.

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 3. Cash Flow Analysis:

The cash flow statement reflects the cash inflow and outflow of production and business
activities, investment activities, and financial activities. Net cash flow from business
activities in 2020 compared to 2019 decreased by more than 500 billion VND, and in 2021
increased by more than 200 billion VND compared to 2020. In 2022, it decreased by more
than 50 billion compared to 2021. Cash flow increased or decreased but did not fluctuate a
lot, all 4 years recorded positive cash flow. This proves that cash flow from business
activities has improved over the years and increased the most in 2019. Positive net cash flow
for all 4 years shows that business activities create an increase in cash for the business.
Positive net cash flow from business activities will maintain the operation of the business,

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which is the basis for the business to survive and develop. By 2021, net cash flow from
business activities will increase, meaning there is development in business activities, showing
that the company is favorable in selling products. Business activities are the main activities in
an enterprise, so it is necessary to create positive net cash flow for the enterprise to be able to
survive. Net cash flow from investing activities is positive, proving that the company has
collected loan interest, dividends, and distributed profits. Positive net cash flows from
financing activities are the channel that creates cash capital growth that depends on the
capital providers. This money creation channel shows that the scale of mobilized capital as
well as the legal responsibility of businesses to capital providers is increasing.

4. Analyze Financial Ratios:

a. Liquidity Ratios:

Liquidity ratios are financial indicators used to evaluate a business's ability to repay debt.
These ratios provide information about how easily assets can be converted into cash or
quickly convertible assets.

The current ratio in 2020 is 2.09 times, in 2021 it is 2.12 times, in 2022 it is 2.06 times, in all
years higher than the industry average. So in 2020, for every 1 dong of short-term debt, there
are 2.09 dong of short-term assets. In 2021, for every 1 dong of short-term debt, there is 2.12
dong of short-term assets. In 2022, for every 1 dong of short-term debt, there are 2.06 dong
short-term assets, this shows that the company's current solvency is guaranteed at a good
level.

In 2019, the quick ratio is 1.37 times, in 2020 the quick ratio is 1.74 times, in 2021 the quick
ratio is 1.72 times, in 2022 the quick ratio is 1.7 times. That shows that the company's
solvency is very high, always greater than the industry average. Quick ratio is a financial
ratio used to evaluate a business's ability to pay short-term debt with assets that are easily
converted into cash. A high quick ratio shows that the business can pay short-term debt
without having to sell fixed assets or need to mobilize money from other sources. This creates
trust on the part of suppliers and other stakeholders. When there is an emergency or

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unpredictable situation (such as an accident or financial crisis), a high quick ratio can help a
business avoid being unable to pay its short-term debts. It represents the level of financial
security. Businesses will have greater financial flexibility to face difficult situations. In
general, in the past 4 years, the company's quick ratio has been greater than 1, so the
company has very good solvency. It is necessary to maintain the situation to not let this ratio
drop below 1. It will not be good for the company's ability to pay company payments.

b. Efficiency Ratios:

Vinamilk's inventory turnover: tends to increase slightly in the period from 2019 to 2022. In
2019, this ratio was 5.97, by 2022 it has increased to 6.51. Increasing the inventory turnover
ratio helps minimize the amount of cash "frozen" in inventory. This creates financial
flexibility, allowing Vinamilk to use cash to invest in other activities or to pay off short-term
debt. Inventories tend to decrease in price over time. When inventory is turned over quickly,
a company can minimize the risk of devaluation of old or invalid inventory. At the same time,
when inventory is sold quickly, Vinamilk can optimize gross profit by avoiding costs
associated with holding and managing long-term inventory. Day's sales in inventory
decreased from 61.14 to 56.05. This shows that the company's efficiency in inventory
management during this period is very good.

Account receivable turnover decreased from 16.21 in 2019 to 12.94 in 2022. Account
receivable turnover ratio is an important financial indicator, it shows the frequency with
which a business collects money from its customers over a period of time. It is an important
index to evaluate the financial management and receivable risk management of a business.
Reductions in ART often result from customers paying more slowly. This could suggest that
there are delays or difficulties in collecting payments from customers, which could lead to
cash flow problems. This can negatively affect a business's profits. The need to continue to

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manage and monitor lingering accounts receivable and record bad debt can be costly to a
business's time and resources. Low ART may affect Vinamilk's cash flow. When cash is tied
up in accounts receivable, a business may have difficulty paying other financial obligations.

Meanwhile, Day's outstanding sales have shown signs of increasing steadily over the past 4
years. Day's Sales Outstanding (DSO), also known as days to cash, is a financial metric used
to measure the time it takes a business to collect cash after making a sale or providing a
service.

Total asset turnover ratio decreased slightly while the fixed asset turnover ratio increased
sharply over all 4 years. The total asset turnover ratio is a financial ratio that measures the
amount of sales or revenue a business generates relative to its total assets. A decrease in the
total asset turnover ratio may mean that Vinamilk is not using its assets effectively to
generate sales or revenue. If the company does not make the most of its assets to generate
sales or revenue, gross profit may also decrease. This also shows that Vinamilk is facing
bigger problems in the way the company operates. Fixed asset turnover ratio provides
information about the ability to use fixed assets to generate sales. When this ratio increases,
this can provide some benefits to the business, showing that the company is using its fixed
assets more effectively to generate sales. This can mean more efficient use of resources to
generate profits.

c. Leverage Ratios:

Leverage ratios are financial ratios used to evaluate the level of debt utilization in a business
or organization. They provide information about the level of financial risk associated with the
use of debt in business operations.

From the D/E, DT and equity multiplier indices, we can see that the proportion of debt in the
company's total assets is quite low and is showing signs of decreasing. These indexes of

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Vinamilk are always lower than 1, and lower than the industry average. This is a positive sign
about the company's financial situation. It shows that the company does not depend too much
on debt to maintain business operations and can expand and invest on its own without being
under heavy debt pressure. However, it should be noted that high debt levels can also be an
opportunity. Sometimes, a company can use debt advantageously to take advantage of
investment opportunities or generate higher profits. A company's debt ratio should be
considered within the specific context of each company and industry to evaluate its financial
health comprehensively.

Next, let's look at times interest earned and cash coverage ratios. These two ratios represent
the number of times the company can pay interest. We can see that from 2019 to 2022 there
is a decrease in both times interest earned and cash coverage ratios. This is often a sign of
financial instability. It shows that the company is having difficulty controlling and generating
enough profits to meet interest payments and other financial obligations. This increases the
risk of financial risks and reduces stability in business operations.

d. Profitability Ratios:

Profitability ratios are financial ratios used to evaluate a business's ability to generate profits
from its operations. They provide important information about a business's profit
performance. These ratios are commonly used to evaluate the financial performance of a
company and allow investors, banks, and other stakeholders to evaluate the profitability of
the business. In general, these indicators are quite stable but still low.

First, let's analyze the company's gross profit margin. Gross profit margin is an important
financial indicator used to evaluate the gross profit performance of a business. It shows the
percentage of profit a business earns after deducting the cost of raw materials and direct costs
involved in producing or providing services. We can see that gross profit margin remains at a
low level. This can be due to increased production costs, increased costs associated with

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manufacturing products or providing services, decreased gross profits, and increased raw
material supply prices. This could affect your ability to invest, pay dividends, or carry out
business expansion plans. Low gross margins can limit a company's ability to invest in
research and development, expand its business, or engage in new opportunities. This can
increase financial risk when the company experiences fluctuations in sales or production
costs. The company may have difficulty paying debt and managing its financial situation in
an unstable situation.

Operating profit margin is similar, stable but kept much lower than the industry average. This
shows that Vinamilk's operating costs are not well controlled. At the same time, it also shows
that the company has difficulty reaching the market or has to reduce production due to
fluctuations in demand, which can lead to a decrease in operating profit margins. This will
make the company less attractive to investors.

Net profit margin shows signs of slight increase and decrease. Through calculating the
correlation between profit after tax and net revenue of the company, it can be seen that
compared to the revenue that Vinamilk earns from its production and business activities, the
remaining profit after tax accounts for a very large proportion. small. The reason for this is
that the COGS is high plus many other costs such as management costs and sales costs.
However, even though it accounts for a small proportion, over the 3 years from 2019 to 2021,
it can be seen that the business has made progress in its operations in keeping profits from
decreasing.

The company's ROA and ROE are not showing positivity as they continuously decreased
during the analysis period. A decrease in ROA may indicate that Vinamilk is using its assets
inefficiently to generate profits. A falling ROE could imply that Vinamilk is not generating a
large enough profit based on its equity.

In short, with the company's business scale, the profit level that Vinamilk has is not high, the
company needs to have policies and plans to improve its financial management and use of
financial resources. company more effectively to earn higher profits.

e. Dupont System:

Dupont analytics is a method that helps analyze factors that affect a company's profitability.

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The Dupont formula for ROE is:

ROE = NetProfitMargin × AssetTurnover × EquityMultiplier

Net profit margin measures a company's profitability from sales after deducting expenses.

Asset turnover measures a company's efficiency in using assets to generate revenue.

Equity multiplier measures the extent to which shareholder equity and debt are used to
generate profits.

ROE shows a company's profitability based on shareholder equity. Diminishing ROE can
indicate that the company is having difficulty generating a return on its capital.

ROA measures a company's ability to generate profits from its total assets. Decreasing ROA
can indicate that the company is having difficulty using assets effectively to generate profits.

Based on the Dupont analysis, several methods can be proposed to improve the company's
financial performance.

● Increase Net Profit Margin:

Optimize production processes and reduce unnecessary costs to increase net profits.
Invest in research and development to create more profitable products or services.
Enhance cost management processes and monitor revenues and expenses carefully.

● Increase Asset Turnover:

Improve production processes and eliminate unnecessary activities to optimize asset

utilization.
Increase capacity utilization of existing assets through maintaining and upgrading equipment
and infrastructure.
Increase market reach and increase sales to increase revenue and generate higher returns on
assets.

● Increase Equity Multiplier:

Increase shareholder contributions through increasing capital contributions or mobilizing

capital from different sources.
Manage debt carefully to optimize the use of financial resources and reduce the risk of bad
debt.

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 f. Market Value Ratios:

Looking at market value ratios, we can hardly see optimism in the development trend of
Ratios. A company's EPS is continuously falling, which means that profits per share are
decreasing over time and can have many consequences and symbolize problems in a
company's business. This is a sign of the company's unstable financial situation. This could
cause concern for shareholders and investors, especially if the decline is sudden or prolonged.
Decreasing EPS can reduce a company's ability to pay dividends to shareholders. Investors
often evaluate stock prices based on their ability to generate future profits, and a drop in EPS
can lower the stock price. Low EPS can make a company less attractive to investors and
funding sources, especially when compared to other companies in the same industry. At the
same time, it can create greater financial pressure on the company, especially if the company
has a lot of debt. In short, falling EPS can symbolize poor financial performance and
exposure to financial risk.

EPS dropped sharply but P/E only decreased slightly, showing that the market's expectations
for Vinamilk have not been lost. However, having a P/E that is too high is not beneficial. A
high P/E represents a company's low profitability and return on investment in shares. A high
P/E can symbolize market expectations and interest in a particular company or industry.
However, investors need to carefully consider and evaluate risks before investing in stocks
with high P/E.

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III. Valuation Method:

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Vinamilk is one of the leading dairy companies in Vietnam with impressive revenue and
profits. According to the presented financial report, in the next 5 years from 2023-2027,
Vinamilk's revenue and pre-tax profit are expected to grow steadily at 15-20% per year. This
reflects the strong development potential of the dairy industry in the domestic and foreign
markets as Vietnam's economy is developing. In addition, Vinamilk has strengths in brand
and product quality, contributing to building consumer trust, and thereby ensuring sustainable
competitive advantages for businesses.

When applying the DCF valuation method, assumptions about revenue and profit growth
rates in the forecast period as well as long-term growth rates are all reasonable and accurately
reflect Vinamilk's business trends. in the past. Taking the weighted average capital cost
WACC of 11.3% is also consistent with the risk level of the dairy industry in Vietnam.

When calculating enterprise value, the DCF method separates the value of cash flows in the
forecast period and the value of cash flows in the following period. The company value is
determined to be 176,2 trillion VND, reflecting Vinamilk's potential for sustainable profit
growth in the future.

When compared with the market price, the stock price of 81,996 VND valued using the DCF
method is also within a reasonable range compared to the actual transaction price. This shows
that applying the DCF method brings valuation results consistent with Vinamilk's actual
situation.

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However, when evaluating, it is necessary to note several factors that can affect the valuation
results such as macroeconomic fluctuations, competition in the dairy industry, and input
material costs…

In summary, financial statements and DCF valuation method bring reasonable results,
accurately reflecting Vinamilk's growth potential. However, it is necessary to regularly
update assumptions so that valuation calculations always accurately reflect the actual
business situation of the enterprise.

IV. Investment Recommendation:

Vinamilk is one of the leading companies in the dairy industry in the Vietnamese market,
especially in recent years the business has recorded impressive growth in revenue and profits.
However, the current macroeconomic situation is facing many difficulties and challenges.
Inflation is rising, the average CPI in the first 6 months of 2022 reached 3.18%, the highest in
the past 30 years. This puts great pressure on businesses' input costs, especially raw material
prices have increased sharply. Vinamilk depends heavily on importing raw materials from
abroad, while the Vietnamese Dong's continuous depreciation compared to the USD will
cause production costs to increase significantly.

Besides, the risk of global economic recession is huge, GDP growth in all countries is
slowing down compared to initial forecasts, and even many large economies are at risk of
falling into recession. This will directly affect people's consumption needs, including milk
consumption needs. At the same time, the risk of decline in export demand is also a challenge
for Vinamilk's foreign currency revenue in the near future.

DCF analysis results show that the valuation of VNM shares is at a reasonable level, but the
current unstable economic environment makes it difficult to ensure high growth assumptions.
In that context, we recommend not making short-term investments in VNM shares at present,
but waiting for market developments, inflation, and the global economy to stabilize before
considering investing. private. At the same time, it is also necessary to closely monitor
Vinamilk's quarterly financial statements to assess the impact of the economic environment
on business activities as well as the business results of the enterprise.

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V. References:
a. www.vinamilk.com.vn. (n.d.). Vinamilk. [online]. Retrieved from:
https://www.vinamilk.com.vn/vi/quan-he-co-dong/bao-cao-tai-chinh. (Accessed 2
Nov. 2023).
b. templatemo (n.d.). VNM.VN DCF Valuation | Vietnam Dairy Products JSC
(VNM.VN). [online] valueinvesting.io. Retrieved from:
https://valueinvesting.io/VNM.VN/valuation/dcf-growth-exit-5y (Accessed 2 Nov.
2023).
c. www.stockbiz.vn. (n.d.). VNM | Tổng quan | Thông tin tổng quan về doanh nghiệp.
[online]. Retrieved from: https://www.stockbiz.vn/Stocks/VNM/Overview.aspx
(Accessed 3 Nov. 2023).
d. www.stockbiz.vn. (n.d.). Tổng quan về ngành | Dữ liệu index ngành, chỉ số tài chính
ngành. [online]. Retrieved from: https://www.stockbiz.vn/IndustryOverview.aspx?
Code=3570. (Accessed 3 Nov. 2023).
e. www.stockbiz.vn. (n.d.). Tổng quan về ngành | Dữ liệu index ngành, chỉ số tài chính
ngành. [online] Retrieved from: https://www.stockbiz.vn/IndustryOverview.aspx?
Code=3000 (Accessed Nov. 2023).
f. CafeF.vn. (n.d.). VNM : Công ty Cổ phần Sữa Việt Nam | Tin tức và dữ liệu doanh
nghiệp. [online]. Retrieved from: https://s.cafef.vn/hose/VNM-cong-ty-co-phan-sua-
viet-nam.chn. (Accessed 5 Nov. 2023).
g. VietstockFinance (2022). VNM: CTCP Sữa Việt Nam - VINAMILK |
VietstockFinance. [online]. VietstockFinance. Retrieved from:
https://finance.vietstock.vn/VNM-ctcp-sua-viet-nam.htm. (Accessed 5 Nov. 2023).

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