At the end of Q1 2022, all of Vietnam’s listed dairy companies reported positive business results. However, analysts said that these enterprises still face many challenges this year when the input costs are still on the rise.
Most of Vietnam’s dairy companies’ business plans for 2022 are set lower than in previous years. For example, Vietnam Dairy Products Joint Stock Company (Vinamilk) has just approved the business plan for 2022 with a revenue target of 64,070 billion VND and pre-tax profit of 12,000 billion VND, up 5% and down 7%, respectively, compared to 2021.
In 2022, the International Dairy Products Joint Stock Company (IDP) set a modest target with revenue increasing 14% to 5,500 billion VND. The profit target after-tax decreased by 45% to 452 billion VND.
Experts from Rong Viet Securities Company (VDSC) said that Vietnam's dairy companies would record lower profit margins in 2022 due to increased costs.
Along with gross margin, cost-push inflation means the uptrend in raw milk prices will continue in 2022 and the first half of 2023. That puts pressure on the gross profit margin of Vietnamese dairy companies towards the end of the year when raw milk accounts for the largest proportion of total production materials of dairy manufacturers with over 60% but has a reserve period of less than one year.
Tensions between Russia and Ukraine are also increasing energy prices. There is also the need for food reserves in Europe, causing feed prices to rise. In addition, global beef farms, especially in Europe and Australia, are raising more cows for meat instead of milk, leading to a decrease in the number of dairy herds.
In particular, the announcement of the Chinese Government on the health benefits of consuming dairy products against the harmful effects of the COVID-19 pandemic has supported the unceasing growth of milk consumption in China. All these factors could create a wave of rising raw milk prices globally.
Sugar price is also a factor causing input costs to skyrocket, pulling the gross profit margin of dairy producers down over time. In 2022, the global sugar supply is expected to decrease due to hot and dry season conditions.
Due to tax policies to limit imported sugar, the sugar price in Vietnam is becoming increasingly expensive. VDSC expects that the profit margin of Vietnam’s dairy companies will face a double impact due to the increase in raw sugar and raw milk prices.
VDSC also believes that, for net profit margin, the risks of both falling oil output and global supply chain disruption resulting in logistics costs remain high. There will be heavier pressure from increasing logistics costs for dairy companies that distribute products through domestic and foreign channels, such as Vinamilk or IDP. These companies have to pay other fees related to overseas shipping, such as container costs or exchange rate fluctuations.
Explaining how dairy businesses were all profitable in the first quarter of 2022, analysts said that the positive result was because companies adjusted business plans and profits for 2022 to be lower than the plan for 2021.
The market report of Kantar Worldpanel indicates that dairy products are one of the sectors with sustainable growth during the COVID-19 pandemic outbreak in Vietnam. According to Kantar Worldpanel, there is still plenty of room for Vietnam's dairy industry to develop in the future.
Currently, Vietnam’s dairy enterprises are focusing on improving core competencies such as investing in upgrading production capacity, distribution systems, and cowherds, thereby easing the pressure of input costs and helping to improve business efficiency.
Vinamilk also shares the same view about the potential of the dairy industry in Vietnam. General Director Mai Kieu Lien of Vinamilk said that Vietnam's dairy industry still has a lot of growth potential. When the economy develops, GDP increases and the demand for milk will also increase.
In addition, on average, 1 million children are born each year in Vietnam. They are the largest milk consumers in the first years of their lives. Vietnam's population also tends to grow, increasing the number of potential customers for the dairy industry.
In the medium - long term, the dairy industry still has a lot of room to exploit when the per capita consumption is still quite far from other countries in the region. In Vietnam, milk consumption is 23.2 kg per person per year, which is low compared to 31.7 kg in Thailand and 43.7 kg in Korea.
Euromonitor said that 13 million of Vietnam's population will be over the age of 65 by 2030. Their purchasing power is forecast to grow the fastest of all age groups, with an average of 5% per year in the period 2018-2030. Combined with the increasing interest in caring for and protecting the health of this group of people, this will be a significant growth engine for the dairy industry.
In addition, the trend of consuming nutritious foods in general, including other products such as nut milk, fruit juice, etc., recorded positive growth.
Compiled by VietnamCredit