Brokers’ take: Vinamilk to benefit if Vietnam is upgraded to emerging market

MAYBANK upgraded Vietnamese dairy company Vinamilk to “buy” given its stable earnings outlook and position to benefit from foreign inflows when Vietnam is upgraded to Emerging Market status by FTSE. This is a move Maybank Securities said will likely happen in 2023.

Analysts noted 2023 will be a favourable year for defensive stocks such as Vinamilk, whom they see as a “cash cow” with its more than 5 per cent dividend yield and good liquidity without a foreign ownership limit.

Even though global milk prices recently fell by about 30 per cent, they believed the company’s gross profit margin will likely bottom out in the fourth quarter of this year and expand next year. This comes on the back of softening input prices and expectations that the US dollar to Vietnamese dong exchange rate would ease in 2023, which would reduce upward pressure on imported inputs, said Maybank on Monday (Dec 19).

The research house further projected net profit after tax and minority interest for the milk-products producer to grow 10 per cent year on year in FY2023 on sales and gross margin improvement from the low base in FY2022.

Additionally, Vinamilk’s top line is expected to recover 4.3 per cent year on year, thanks to improvements in both domestic and international markets.

Given its current trading price of 77,600 dong, this represents a 17 times premium against the company’s estimated FY2023 price-to-earnings (PE) ratio, which is similar to its three-year mean forward PE ratio. Compared to its regional peers, however, Maybank noted that the company was trading at a 22 per cent discount, all while offering “superior returns of more than double the peer average in terms of net margin and return on assets”.

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The brokerage hence revised its 12-month target on the group to 88,000 dong. It is bullish on the expectation that Vietnam would get upgraded to Emerging Market status by FTSE by the second half of next year, which in turn drives inflow momentum that is set to benefit Vinamilk.