Group 4 - Assignment

Master of Business Management Intake 8

CORPORATE FINANCE AND BUSINESS PLANNING

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Group 4: Hoang Minh Hang Dang Thi Phuong Chi Nguyen Hai Anh Vu Trung Duc Vu Thi Hang Ho Le Na Pham Anh Thu Duong Ngoc Cuong

Hanoi, 31 March 2010

Corporate Finance and Business Planning – Vietnam Dairy Products Joint Stock Company

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TABLE OF CONTENT

1. INTRODUCTION .........................................................................................................................2 1.1 Company description.......................................................................................................... 2 1.2 Strategies ............................................................................................................................... 4

2. UNDERLYING MARKET ...............................................................................................................7 2.1 Economic environment....................................................................................................... 7 2.2 Vietnam Dairy Market Overview ....................................................................................... 7

3. PORTER AND SWOT ANALYSIS ................................................................................................11 3.1 PORTER analysis................................................................................................................... 11 3.2 SWOT analysis ...................................................................................................................... 15

4. ORGANIZATION OF VINAMILK...............................................................................................17 5. FINANCIAL MODELLING .........................................................................................................18

5.1 Sales analysis and forecast............................................................................................... 18 5.2 Cost of Good Sold.............................................................................................................. 23 5.3 Operating expenses .......................................................................................................... 25 5.4 Capex and Distribution...................................................................................................... 26 5.5 Working capital................................................................................................................... 31 5.6 Short term investment........................................................................................................ 33 5.7 Funding position.................................................................................................................. 34 5.8 Balance sheet ..................................................................................................................... 35 5.9 Income statement.............................................................................................................. 38 5.10 Cashflow statement........................................................................................................... 39

6. FINANCIAL ANALYSIS .............................................................................................................40 6.1 Return ratios......................................................................................................................... 40 6.2 Repayment capacity ........................................................................................................ 41 6.3 Liquidity ratios...................................................................................................................... 42 6.4 Profitability ratios................................................................................................................. 42

7. RISK ASSESSMENT ....................................................................................................................43 7.1 Worse case .......................................................................................................................... 43 7.2 Best case.............................................................................................................................. 47 7.3 Risk assessment ................................................................................................................... 50

8. VALUATION..............................................................................................................................51 8.1 Approach ............................................................................................................................ 51 8.2 DCF ....................................................................................................................................... 51 8.3 Price Multiples Method...................................................................................................... 54

9. REFERENCE...............................................................................................................................55


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More than 200 products

FOUR MAIN GROUPS

1. INTRODUCTION

1.1 Company description

Overview Vinamilk was established in 1976 and privatized in 2003 and is now the leading producer of dairy products in Vietnam based on sales volume and revenue. Vinamilk markets the majority of the products under “Vinamilk” brand, which has been designated as both a famous Vinamilk Brand and one of the Top 100 Strongest Brands by the Vietnamese Ministry of Industry and Trade in 2006. Vinamilk has also been voted the top brand in the “Top Ten High-quality Vietnamese Goods” for each year among 1995 to 2007.Having listed on the HCM Stock Exchange in late 2005, Vinamilk is currently among the largest market capitalized companies on Vietnam’s stock market accounting for 7% of the overall market capitalization. Vinamilk’s product mix covers more than 200 products divided into fore main groups including dairy, juice, coffee and mineral water. Dairy is the dominant product group generating almost 98% of total revenues. The company’s dairy products range from core dairy products such as liquid and powdered milk, to value-added dairy products such as condensed milk, drinking and spoon yoghurt, ice cream, and cheese. Vinamilk offers one of the largest dairy portfolios in Vietnam, across a wide selection of products, and packaging sizes. Since commencing operation, Vinamilk has built the largest distribution network in Vietnam, taking advantages of both traditional distribution and modern trade channels. Vinamilk has 250,000 distributors and 140,000 points of sales (“POS”). This network gives Vinamilk national coverage across all 64 provinces of Vietnam. Those sale chain and POS outlets are extensively supported by Vinamilk including

Vinamilk is currently among the largest market capitalized companies on Vietnam’s stock market accounting for 7% of the overall market capitalization - Top 100 Strongest Brands by the Vietnamese Ministry of Industry and Trade - Top Ten High-quality Vietnamese Goods


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the supply of branded refrigeration equipment to keep its perishable products fresh, particularly in rural areas and smaller shops. Recently, Vinamilk has also started investing in domestic cattle farm in order to boost liquid milk supply. Vinamilk has been operating four farms in Vietnam, and just opened a VND100B farm in northern Vietnam with a herd of 3,000 heads. By doing that, Vinamilk also shows their desires to stimulate the development of an agricultural dairy supply industry in Vietnam. Since domestic market is considered as the company’s main market in its long-term development plan, Vinamilk’s majority of revenues from domestic market (up to 85-90% of total sales) and the balance exported to countries such as Australia, Cambodia, Iraq, the Philippines and the United States. The key export products are powered milk and condensed milk. As at 31 December 2009, the Company has 4 subsidiaries:

Vietnam Diary Cow One Member Limited Company Milk production 100%

Lamson Diary Products Joint Stock Company Milk production 55%

International Real Estate One Member LTd., Co Real estate trading 100%

Victory – Vietnam Property Joint Stock Company Real estate trading 100%

Victory – Vietnam Property Joint Stock Company is a wholly owned subsidiary of International Real Estate One Member Limited Company, which is a wholly owned subsidiary of the Company Vision Vinamilk will become the leading Vietnamese brand on nutrition and health products for human life. Mission Vinamilk commits to bring to communities the best-quality nutrition products that convey its respectability, love and responsibilities for the people, life and society.

Subsidiaries Principal activities Ownership


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Core values

Respectability: Self-respecting, equality and dedication to the growth of the company are what Vinamilk really appreciate at Vinamilk. Will: Dare to think, to do, to take responsibilities and to overcome challenges to realize the committed Targets Openness: Constructive and straight communication is the base for Vinamilk’s team to become more united and stronger.

Harmony of interests: Inters of Vinamilk are also the interests of its employees, partners, investors and society. Efficiency: Vinamilk always focus on added-values in all works and activities of investing and operating. Creativity: Vinamilk always highly appreciate the passion, unique discovery and innovative solutions.

1.2 Strategies

• The company’s ultimate goal is to maximize the values to shareholders and to pursuit strategy for business Vinamilk and developing a system of powerful brands to satisfy the demand and consumption trends of Vietnamese consumers;

• Developing “”Vinamilk" to the most reliable and trusted brand on nutrition

products by application of scientific researches on specific demand of Vietnamese on nutrition in order to launch the best products to Vietnamese consumers;

• Making more investment into expanding its market of healthy beverage

products through the core brand of VFresh to meet the increasing demands for healthy and natural beverage;

• Strengthening its distribution quality and network to expand its market

segment in the market where Vinamilk’s segment is not high, especially in rural area and small towns;

• Making comprehensive investments into developing a strong brand, new

range of products and upgrading quality of distribution network of cold


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products (spoon z, ice-cream, UHT milk) to turn this range of products into the key contributor to the company’s sales volumes and profits;

• Exploring the power and developing reliability of “Vinamilk” brand as the

most reliable and trusted brand to the Vietnamese and in order to account for at least 35% of powered milk market share in the next 2 years;

• Developing comprehensively the portfolio of dairy products, targeting

various consumers and expanding value-added products in order to increase the company’s profitability;

• Continuing improvement of the supply network management capacity;

• Keeping expansion and development of a stable, active and effective

distribution network; and

• Developing materials sources to ensure a stable fresh milk supply with high quality and competitive prices.

Strategy in 2010 – 2012 and plan for the year of 2010 Basis of the plan: World economy:

• Milk volume grows strongly, expected at 2% - 3% per annum on average. • Demand on drinking milk is still growing strongly in the emerging markets

• Yoghurt is still steadily growing in all markets.

• Condensed milk in trend is declining because it is substituted by liquid milk

and ice cream which have longer shelf-life.

• There is a significant growth in powder milk, especially in the South Asia.

• According to the recent survey, 80% of the South Asia population has habit to drink milk frequently: Thailand (23 liters/year) and China (25 liters/year).


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Vietnam economic outlook:

• The annual consumption per capita of Vietnam is approximately 14 liters • The government continues to develop the dairy industry

• Targets for the year 2010: GDP growth rate is 6.5%, the growth rate of

industry production is 10%

• Challenges facing the dairy industry: food stuff hygiene, quality of dairy products, the control on milk price, supply of raw fresh milk is still small while dairy industry is developing in the unfavorable climate conditions and land for cow farms is limited.

Strategy for 2010 – 2012

• Domestic market: liquid milk, spoon yoghurt, and powdered milk continue to grow strongly, condensed milk increases slightly. Export: maintaining the current markets and looking for new markets;

• Looking for prestigious partners from overseas and in the regions where it

has strong supply chain in raw milk in order to secure a stable supply; maximizing the local supply through support to the farmers.

• Investment in fixed assets: VINAMILK focus on the following project groups

1. Projects started in previous years: Beverage factory, Phu My Hung,

office building, upgrading Tien Son factory to Mega standard 2. Office buildings in Hanoi and other branches: Mega factory in Binh

Duong: 2011 / 2012. Powdered milk factory Dielac 2: 2010/2013

3. Upgrading Saigonmilk factory, Thong Nhat factory, and upgrading to maximize capacity of factories in Nghe An, Bình Chanh, Can Tho

4. Developing cow farms in the Central and North of Vietnam

5. Developing distribution network for cool/frozen products:

warehouses, cool trucks

6. Overseas investment to secure raw material


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2. UNDERLYING MARKET

2.1 Economic environment

At the end of the year 2008, economists and financial institutions gave different forecasts on Vietnam’s 2009 GDP, from only 0.3% (as per The Economist) to 5.5% (as per World Bank). Major economic indicators in the first quarter of 2009 showed pessimistic future picture of the economy. Facing with such shortcomings, the Government made strong decision when launching the first stimulus package with total value of US$8 billion to finance local enterprises. The package provided subsidy interest rate of 4.0% for each loan. In fact, this program helped the economy to obtain remarkable results. According to General Statistics Office of Vietnam, the economic growth rate in 2009 reached 5.32% which is lower than that of 6.18% in 2008, but exceeds most of optimistic forecast for the year. This rate is still a rather high level in comparison with that of global and regional economies. It should also be noticed that GDP of the third and fourth quarter increase to 6.04% and 6.90% respectively, which are higher than those of 2008. Besides, CPI in 2009 increases by 6.88%, the lowest rate during the last 6 years. Those above mentioned optimistic signals of the economy have positive effects on the whole economy, in general, and on the diary product industry, in particular.

2.2 Vietnam Dairy Market Overview

Dairy sales and consumption Vietnam dairy industry has witnessed the strong growing trend in revenues during 2000-2008 period, namely the national sales tripled to US$1.15bn in 2008 compared with that of US$0.36bn in 2003. The high growth rate in revenue is relative to consumption volumes.


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Dairy consumption per capital in Vietnam has grown from 9.0 kg in 2003 to 11.6kg in 2008. However, it is well below peers in the region such as Indonesia (14.4 kg); Thailand (38.3 kg) and Philippines (14.4 kg). In terms of consumption allocation, it is believed that dairy consumption is overwhelmingly concentrated in wealthier urban population. Although dairy there is dramatical improvement in storage facility and distribution network, only 10% of the population, principally the middle class and wealthier urban in Ho Chi Minh City and Hanoi, consume 78% of the total dairy products sold in Vietnam according to Vietnam- Belgium Dairy Project. Only 22 % of consumption is attributable to the remaining 90% of Vietnam population.

It is projected by the Government that the urban population will increase from 27% in 2009 to 45% in 2020; hence the long term growth potential for milk consumption is feasible. There is a relationship between strong domestic consumption and GDP per capital growth


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With the low national consumption base, young population, change in drinking habit and strong economic growth outlook, it is estimated that consumption volume will reach 14.6 kg per capital by 2013 driving the total consumption to 1.32mn tones by 2013 from 1.0mn tones in 2008.

Supply and retail prices Vietnamese consumers currently have to pay some of highest milk prices in the world at an average price of USD1.3 per liter, primarily due to the cost of imported milk powder as Vietnam’s fresh milk production only meet less than 22% local consumption demand.

Source: Vietnam- Belgium Dairy Project


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As of end 2008, Vietnam had only 108,000 heads of cattle. In an effort to increase domestic production, the department of livestock production under the Ministry of Agriculture and Rural Development plans to in-place to achieve a cattle population of 200,000 heads by 2010 and 350,000 head in 2015. By 2020, the aim is for a national self-sufficient rate of 38% which equivalent to about 1bn tones.

Competition The Vietnamese dairy market is largely driven by 2 main players, dominated by VINAMILK (37%) market shares as of end 2008 and Dutch Lady (32%). VINAMILK hold a dominant position across most sectors including cup yoghurt, UHT liquid milk and sweet condensed milk.


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3. PORTER AND SWOT ANALYSIS

3.1 PORTER analysis

Supplier Among five forces including: suppliers, new entrants, buyers and substitute products, suppliers should be considered as the most competitive factor of VINAMILK. VINAMILK has a diversified supplier domestic and oversea network. As described in the market overview, Vietnamese dairy industry depends much on imported milk powder over the long term and will continue this dependence in the future. The raw materials comprise mainly of fresh milk, milk powder and sugar.


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Major dairy exporters by Volume- Source: www.moit.gov.vn

VINAMILK’s suppliers are located in different regions including Argentina, Australia, Belarus, US, EU, New Zealand etc, leading to the lower of supplier concentration. Over the years, VINAMILK has built and been maintaining the good business relationship foreign suppliers. Among them, Fonterra, who makes up one third of the world trading volume and a world leading multinational corporation in milk and in dairy product export, is the biggest milk powder supplier. Being partners of such company, VINAMILK can improve the quality of the products thanks to high quality input. Given the low reliance on supplier and long term business relationship, VINAMILK does not have any concern on sources of raw materials.

Name of Supplier Product(s) Supplied

Fonterra (SEA) Pte Ltd� Milk powder

Hoogwegt International BV Milk powder

Perstima Binh Duong, Tins

Tetra Pak Indochina Carton packaging and packaging machines

Domestic farms Fresh milk

VINAMILK do not sign long-term contracts with any suppliers of milk material, milk powder, sugar or any other materials. The supplier contracts normally last for a year. They find the sources through tenders after VINAMILK have worked out our needs for manufacture of the next financial year. This policy will significantly reduce switching costs in changing suppliers.


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It seems that relying too much on foreign suppliers and imported activities may arise some risks. Therefore, VINAMILK started finding the way to catch with domestic suppliers. Applying encouraging policies based on Vietnamese Government policies, VINAMILK initiated its cow-breeding program in 2006 in order to outsource fresh milk domestically. VINAMILK provide local farms with the finances and the technology, thus maintaining a strong and stable fresh milk sources. The company also provides additional assistance for suppliers in remote areas in the form of transportation fee allowances. VINAMILK is also willing to provide finance support to suppliers if there is increase in world price of milk. Together with proactive support from the Government and VINAMILK desire to develop the domestic fresh milk supply, the dependence on foreign suppliers will be gradually reduced. Strategic combination high quality and huge supply from powder milk foreign supplier; and improvement of domestic fresh milk sources will make VINAMILK maintain the dominant roles in Vietnam dairy market and gain the big advantages over the competitors. Threats of substitutes For milk industry in general speaking, traditional dietary habits are the 1st threat of substitute should be mentioned. The increasing popularity of Soya milk presents a threat to dairy products. These kinds of substitutes bring benefits from reducing cholesterol, improving bone health and aiding in relaxation. Soy milk consumption has increase by a 4.2% CARG over the last three years alone. According to some recent reports and research, the global sale of soy milk presents a threat to dairy products. VINAMILK also has to pay attention to build up the products that focus much on healthy. For VINAMILK in position as a domestic company, imported/foreign powdered milk/brands are considered the important substitute. Account for 86% of that particular segment as the Vietnamese consumer believes foreign names offer better nutritional characteristics (particularly for infant formula) despite that foreign product price is two or three times as much as domestic product. At the moment, Vietnam's domestic dairy industry is effectively an oligopoly with VINAMILK and Dutch Lady holding a major market share in all segments other than powder milk. However, both companies will face challenges as Vietnam's proceeds with its commitment to greater access and potential future tariffs following accession to WTO.


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The schedule for lowered tariffs on imported dairy products as described as follow:

Product Current Import Taxes

WTO limits by 2012

Whey (Milk Plasma) 20-30% 10%

Cream 50% 20%

Milk Powder (Used as Material Inputs) 10% <20%

Manufactured Products 22% <30% This is one of the factors that may affect to the stability of current dairy pricing in Vietnam. If foreign players are efficient enough to enter and complete in the same price range as VINAMILK , their brand name and financial clout could help them to win market share, as they currently do with infant milk formula, despite retails prices of two to three times more than the domestic equivalent product. Moreover, the end consumers could be easy in changing the used dairy product, thus switching costs is very low. Therefore, VINAMILK will spend much more on R&D to get competitive idea by understanding customer’s behavior. New entrants There are some reasons for the difficulty of new entrants. First of all, economy of scale is high. High fix asset costs, big initial investment. Other smaller player has struggled to enter also expand due to limited financial resources and a focus on building up their brands. The second entrant barrier is brand identity. VINAMILK has gained a strong position in Vietnamese customers. Based on characteristic of the foods market, it is not easy to get an acknowledgement from consumers. VINAMILK provides customer with high quality, nutritious and delicious products for your health. Currently VINAMILK brand is leading the market, with 4 main product groups: Condensed milk, Dielac, V-fresh and VINAMILK Café, offering more than 200 dairy products. VINAMILK specialize in producing internationally recognized quality standards across all our products and aim at satisfying its customers’ needs perfectly every time. On the other hand, quality control standard is also very important in this sector. On the market of dairy, the quality control standards play a vital role in activities. There are many mandatory standards controlled by the authority agencies and all the participants have to follow tightly. To name as an example, the significant effect from the crisis of melamine- infected milk in China and have caused negative impacts on the purchasing power of the consumers. Another factor is tight existing company’s relationship leading to a difficulty to enter a market for a new one.


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Buyer power According to the Ministry of Industry and Trade, average milk consumption by Vietnamese per capita is currently about 11.6kg/ year, and expected to rise to 14.6 kg by 2010. However, only about 10% of the population, principally the middle class and wealthier urban dwellers in Ho Chi Minh City and Hanoi that consume 78% of the total dairy products sold in Vietnam. Only 22% of consumption is attributable to the remaining 90% of Vietnam’s population. An oligopoly with VINAMILK and Dutch Lady holding majority shares lead to the lower of buyer's power. There no many choices for customer for the dairy products. VINAMILK seems like the sole company which supplies the domestic dairy products with high quality and competitive prices. Thus, customer power in bargaining is very low, nearly equal zero. One of the important characteristic of dairy industry is the inelasticity of demand. The high growth in revenue relative to consumption implies substantial demand inelasticity for dairy products because end consumers have historically generally absorbed price increases in Vietnam. By making research on the forces, we can get an overview of the VINAMILK competitiveness. General development strategies have been implemented and VINAMILK Board of Director has made best effort in setting up a professional governance system and procedures to adapt and maintain its competitiveness.

3.2 SWOT analysis

Strengths Weakness

• A market leading dairy brand name, which dominates sales in this high-growth channel

• A diverse product range and a large export division

• A familiar trademark to domestics’ clients • A great customer understanding and

satisfaction as welll as knowledge of the local market with marketing strength

• Strong distribution presence which spreads nationwide, from urban to rural, coastal to mountainous area.

• Modern production lines to ensure the quality and hygiene

• Technical support from other firms to improve administration.

• Competition from international investors is intense with the government actively encouraging investment to boost output

• VINAMILK distribution

infrastructure reduces sales opportunities for perishable, high-value fresh dairy products

• The low-income majority rural

population also restricts the audience size of fresh dairy


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Opportunities Threats

• In urban centers, processed dairy products represent a high-value, high-margin channel

• Even dairy consumption at the mass-market level is experiencing high single-digit growth annually

• Experience in the emerging Vietnamese market should increase the chance of success when exporting to other emerging South East Asian markets

• A second stock exchange listing should lift capital available for investment in expansion

• VINAMILK considers itself disadvantaged by the strength of international brand names such as Dutch Lady, Nestle, and F&N and their prevalence will only increase going forwards

• Rising commodity costs threaten profitability, particularly with regard to mass-market primary products, a Q1/08 net profit decline already reflects this trend

• Joining WTO, the import tax for dairy product will be reduced. It will provide a great opportunity for imported milk products

• VINAMILK is facing with unstable export market. Annually, more than 90% of VINAMILK’s export turnover is from Iraq where is political and economic situation is unsteady.

• Currency risks is also a big concern with VINAMILK; in which approximately 50% of raw material inputs are imported

• Ongoing and upcoming projects with the requirement of the long-term nature may be affected by the success or failure.


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4. ORGANIZATION OF VINAMILK

As at 31 December 2009 the Group had 4,670 employees (31/12/2008: 4,532 employees) and By December 2008, HTE has 7 main Unit in three office location: the headquarter office in Hanoi and two branch office in DaNang & HoChiMinh City. The existing organization chart is below:


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5. FINANCIAL MODELLING

5.1 Sales analysis and forecast

2008 was another golden year of VINAMILK when it continued achieving remarkable growth rate trend since 2003. In 2008, VINAMILK’s growth rate was 25.5% in comparison with that of the same period in the previous year, higher than the average growth rate of 22.1% during the period 2003-2007. Overall domestic market made up 85-90% of sales with the balance exported. VINAMILK’s main exported products are milk powder and sweet condensed milk. Its principal export markets are the Middle East, Philippines and neighboring Cambodia and Laos. The increase of sales is mainly thanks to the significant contribution of consumption volumes. With the current capacity of 504 thousand tons/ year and the productivity reaches nearly 70%, VINAMILK ranks number 1 in dairy market in terms of designed capacity. In addition, VINAMILK focused expanding distribution network with 125,000 outlets nationwide. More investments were made to cold and cool stores and freeze vehicles to meet the growth of yoghurt products. In 2008, VINAMILK also purchased over 7,000 cold &cool stores and more than 300 small vans for distribution system. Remarkably increase in consumption volume also resulted from the reliable quality of products. 2008 witnessed the difficulties from the scandal of melamine-infected milk in China, however, it was the opportunity for VINAMILK to further develop its business Thanks to valuable resources, strict input material selection, the advanced and innovative production technology and equipment in combination with a team of expertise, VINAMILK’s products are consistently complied with Vietnamese and International standards. All the above-mentioned were contributed to the increase in consumption volumes of VINAMILK in 2008.


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The biggest change in sales proportion in 2008 was powdered milk- infant cereals with the increase from 24% in 2007 to 29% in 2008 while sales proportion of liquid milk and yoghurt products have experienced a slightly increase from 26.5% to 27.1% and from 12% to 13% respectively. At the same time, there was a decrease in sales proportion of condensed milk from 36% down to 29%. In 2009, VINAMILK achieved highest growth rate over the past few years of 29.3% thanks to 22% increase in consumption volumes. The average prices of VINAMILK’s products were kept unchanged for almost one year from Nov 2008 to Nov 2009. The prices have been increased by 6% only when input materials and import expenses sharply increased in Dec 2009. Breakdown of sales and market shares are shown as below:

Source: VinaSecurities research

VINAMILK is expected not to maintain the high growth rate as it did in 2008 (26%) and in 2009 (29%), which is considered as threshold. We expect a sustainable growth rate of 18% assuming that there will be an increase of 8% in average price and 10% in VINAMILK’s capacity. Our assumption also takes into account the milk consumption and demand of Vietnam market and national distribution networks of VINAMILK, one of its the huge competitive advantages as well as Government policies to encourage the manufacturers in addressing nutrition imbalance. For the whole year 2008, VINAMILK decided to increase price once by 5% and not until at the end of 2009, did the company increase 6% due to the higher input materials. Hence, we forecast that price will be increase once per year at 8% annually to cover for inflation. With strong brand and dominant threshold in domestic market, it is reasonably believed that there is further room for them to expand, hence we estimate that the company will increase its capacity by an average of 10% per year during 2010-2014 period.


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2008 (A) 2009 (A) 2010 (E) 2011 (E) 2012 (E) 2013 (E) 2014 (E)

Revenues from UHT Milk & Drinking Yoghurt

2,271,133

3,040,756

3,776,619

4,690,560

5,825,676

7,235,490

8,986,478

y-o-y 27.1% 28.1% 29.7% 31.2% 32.7% 34.2% 35.5%

Revenues from Cup Yoghurt

1,089,473

1,731,391

2,150,388

2,670,782

3,317,111

4,119,852

5,116,856

y-o-y 13.0% 16.0% 16.9% 17.8% 18.6% 19.5% 20.2%

Revenues from Powdered milk

2,430,363

3,181,431

3,779,540

4,490,094

5,334,232

6,337,067

7,528,436

y-o-y 29.0% 29.4% 29.7% 29.9% 30.0% 29.9% 29.8% Revenues from Condensed Milk

2,430,363

2,607,908

2,738,303

2,875,219

3,018,979

3,169,928

3,328,425

y-o-y 29.0% 24.1% 21.5% 19.2% 17.0% 15.0% 13.2% Revenues from F&B & by Product

159,231

259,709

272,694

286,329

300,645

315,678

331,461

y-o-y 1.9% 2.4% 2.1% 1.9% 1.7% 1.5% 1.3%

Total Revenue 8,380,563

10,821,195

12,717,544

15,012,984

17,796,643

21,178,015

25,291,656

y-o-y 26% 29% 18% 18% 19% 19% 19%

In terms of revenue structure, UHT Milk & Yoghurts and Powder Milk products will continue dominating VINAMILK total revenues while the contribution of Condensed Milk will dramatically reduce from 2009-2014.


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26.5%

12.0%

24.0%

36.0%

1.5%

27.1%

13.0%

29.0%

29.0%

1.9%

28.1%

16.0%

29.4%

24.1%

2.4%

29.7%

16.9%

29.7%

21.5%

2.1%

31.2%

17.8%

29.9%

19.2%

1.9%

32.7%

18.6%

30.0%

17.0%

1.7%

34.2%

19.5%

29.9%

15.0%

1.5%

35.5%

20.2%

29.8%

13.2%

1.3%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2007 2008 2009 2010 2011 2012 2013 2014

Revenues from F&B & by ProductRevenues from Condensed MilkRevenues from Powdered milkRevenues from Cup YoghurtRevenues from UHT Milk & Drinking Yoghurt

Revenues of Liquid milk including UTH milk and a small portion of drinking yoghurt out of total revenues surged from 20% in 2007 to 27.1% in 2008. Since there is no sale breakdown in audited financial statement of 2009, we estimate that it has increased to 28.1% in 2009. It is one of the strong products of VINAMILK. The product consists of full cream milk, low fat, skim milks and drinking yoghurt for the balance. According to Vinasecurities research, the market share of VINAMILK Liquid milk was about 40% in 2007 and forecasted to gain 44% in 2008. It is expected that the proportion of Liquid milk in VINAMILK’s total revenues will gradually increase from 29.7% to 35.5% during 2010-2014 with the 15% increase in consumption volumes. The 2nd biggest element of total sales is the Powder milk segment include baby, infant and elderly formula’s as well as a recently launched dietary/ weight management powdered dietary supplements. However, VINAMILK is not a dominant player in this segment, but foreign and imported brands. Despite costing two to three times as much as domestic products, imported/ foreign powder milk brand accounts for 86% of market shares since Vietnamese consumers believe that those imported ones offer high quality and nutritional products. In 2007, market share of VINAMILK’s powder milk was 13.8% only. Since it is high margin business, VINAMILK is targeting a 35% market share in powder milk by end of 2010 by participating in media education campaigns in cooperation with Government National Nutrition Institute. It is believed that USD50M School Milk Program will create milk drinking habits for the younger generation which could push the total sales of VINAMILK increased. Accordingly, powder milk segment is estimated to account for about 30% of VINAMILK total sales from 2009-2014. With the proactive investment in facilities and distribution network, cup yoghurt has been VINAMILK’s fastest growth business and will only lag behind liquid and powder milk segments. As illustrated in the above market share chart, VINAMILK’s cup yoghurt dominates the market with 90% of market shares. Going forward, the market share for this segment will not change much since it is not the focus and expertise of Dutch Lady, the main competitor of VINAMILK. Sales of yoghurt are


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concentrated in urban centers given the availability of cold storage facilities. Since the second tier cities and rural areas develop, it is forecasted sales of yoghurt could double in 2012 and account for more than 20% of total revenues. The consumption volume will achieve a stable growth rate of 10% y-o-y. Condensed milk is the most popular and traditional product along with long history of VINAMILK since establishment. VINAMILK’s 80% market share in the sweetened-condensed milk should continue as Dutch Lady does not intend to expand this business while other small players have just entered the market and still have minor market shares. Historically this segment used to be the key revenue contributor.. However, condensed milk is gradually replaced by liquid and powder milk recently. We forecast that this segment will remain stable growth rate of 5% y-o-y thanks to increased price and no change in volume taking into account of strong demand from rural area but will contract over time as dietary habits and economic growth drive consumption towards liquid milk. The F&B segment primarily includes fresh juices, soya milk products and coffee. To date, F&B only accounts for more than 2% of total revenues. Currently, VINAMILK has been building a healthy drink factory which will begin commercial operation in 2011 and be fully operational the following year. Given that the juice and coffee market are very competitive, we suspect that profits are quite low. Consequently the growth rate of this segment is forecasted at 1 digit going forward.


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5.2 Cost of Good Sold

2008 (A) 2009 (A) 2010 (E) 2011 (E) 2012 (E) 2013 (E) 2014 (E)

Raw materials

3,604,700

4,311,178

5,066,686

5,981,192 7,090,206 8,437,348 10,076,228 y-o-y 29% 20% 18% 18% 19% 19% 19%

% of COGS 64% 64% 63% 63% 63% 63% 63%

Packaging

1,198,000

1,414,605

1,683,380

2,003,222 2,383,834 2,836,763 3,375,748

y-o-y 13% 18% 19% 19% 19% 19% 19% % of COGS 21% 21% 20% 21.1% 21% 21% 21%

Other

661,000

808,346

921,514

1,068,957 1,261,369 1,488,415 1,741,446 y-o-y -25% 22% 14% 16% 18% 18% 17%

% of COGS 12% 12% 12% 11% 11% 11% 11%

Depreciation

147,269

202,086

323,809

430,199 527,751 614,545 721,074

y-o-y 41% 37% 60% 33% 23% 16% 17%

% of COGS 3% 4% 4% 5% 5% 5% 5%

Total

5,610,969

6,736,215

7,995,390

9,483,570 11,263,160 13,377,072 15,914,496

y-o-y 16% 20% 19% 19% 19% 19% 19% Cost of good sold of VINAMILK was composed of 4 elements: raw materials, packaging, other and depreciation.


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Raw material The main raw material of VINAMILK is powder milk which is primarily imported from Australia and the Netherlands. In terms of, powdered milk accounts for approx 75% of production and locally sourced fresh liquid milk for the balance. We estimate that powdered milk imports account for 60-64% of VINAMILK’s costs of goods sold. As mentioned in Supplier section of Porter analysis, VINAMILK has gained a good relationship with foreign suppliers. The biggest supplier of VINAMILK in milk powder is Fonterra, who makes up one third of the world trading volume, is a world leading multinational corporation in milk and in dairy product export. This advantage help VINAMILK obtain the bargaining power in raw material purchase. Hence, VINAMILK has been able to overcome pricing volatility and partly pass the cost to consumers more effectively. Two other elements driving the company’s COGS are inventory management and raw material purchase prices. Practically, VINAMILK signs the purchase contracts on yearly basis to cover the production volume and pricing of each contract can be negotiable when there is a material adverse change in the market. This practice allows VINAMILK to manage the inventory and pricing level, hence margins in a rising price market will be preserved. Package Packaging costs are estimated to significantly account for 21% of year 2009's COGS. VINAMILK has two main packaging operations, Tetra Pak lines for dairy and Tin canning lines for powdered and condensed milk product range. VINAMILK has signed a long-term agreement with Tetra Pak Vietnam for packing while the Tin canning line is owned by company. VINAMILK upgraded their Tin can lines in 2008, to accommodate a thinner type of tin can in an effort to reduce costs. Our forecasts suggest that packaging will constitute about 19% -20% of COGS on a forward basis. Other We expect that other expense will remain of 11%-12% of total COGS. Depreciation Refer to Depreciation calculation


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5.3 Operating expenses

2008 (A) 2009 (A) 2010 (E) 2011 (E) 2012 (E) 2013 (E) 2014 (E)

Selling expenses

1,052,308

1,245,476

1,420,804

1,618,400 1,831,275

2,075,445 2,354,653

y-o-y 8% 18% 14% 14% 13% 13% 13%

% of sales 12.8% 11.7% 11.4% 11.0% 10.5% 10.0% 9.5%

GA expenses

297,804

292,942

373,896

514,945 662,747

830,178 991,433

y-o-y 46% -2% 26% 38% 29% 25% 19%

% of sales 3.6% 2.8% 3.0% 3.5% 3.8% 4.0% 4.0% Majority of selling expenses come from advertising and promotion campaign to enhance VINAMILK’s brand in the market. In 2006, selling expenses over sales was around 18%. However, there is a downtrend in selling expenses over sales ratio recently by 12.8% and 11.7% in 2008 and 2009 respectively. It is expected that the ratio will continue decreasing to approx 9-10% from 2010 to 2014 given that no significant advertising program is necessary for VINAMILK, a dominate player in the market. G& A expense in 2009 was a little bit lower compared with that of 2008, possibly due to the enhanced operation management. We, however, still forecast that it will continue increasing in lines with company’s expansion and the ratio of G&A to sales will gradually increase at 3-4%.


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5.4 Capex and Distribution

Our assumption As per VINAMILK announcement, VINAMILK identified 2,100 VND bn for expansion CAPEX on 03 projects in the upcoming years with the disbursement as described in below table: Million VND

Project 2008 (A) 2009 (A) 2010 (E) 2011 (E) 2012 (E) 2013 (E) 2014 (E)

1. Construction in progress (WIP)

Phu My Hung office 458,000 228,000

Health Drink Factory 295,000 97,000

Mega Factory 430,000 563,500

Total 356,868 650,140 1,183,000 888,500 750,649 889,832 1,058,901

2. New purchase of Tangible FA 81,123 92,264 122,711 163,206 217,064 288,695 383,964

y-o-y 14% 33% 33% 33% 33% 33%

3. New purchase of Intangible FA 8,353 2,923 3,499 4,199 5,039 6,047 7,256

y-o-y 20% 20% 20% 20% 20%

Total Capital Expenditure 446,344 745,327 1,309,210 1,055,905 972,752 1,184,574 1,450,121


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Due to limitation on access to details of each project, an assumption is made that the expansion CAPEX will be distributed to WIP of each type of fixed assets with same ratio as it was in 2008. Besides, other CAPEX, so-called new purchases for tangible and intangible fixed asset will increase annually by 33% and 20%, respectively. The expansion CAPEX and other CAPEX for the years 2012 and 2013 will be assumed as 5% of last year net revenue which is reasonable and roughly same level of CAPEX/net revenue ratio of previous years. Fixed assets include 5 elements: Building, machinery, livestock, motor vehicles and office equipment. Per reviewing the historical proportion of each element, we find that they are relatively constant for years. We assume that the value of WIP will be allocated based on that proportion of year 2009:

Project 2008 (A) 2009 (A) 2010 (E) 2011 (E) 2012 (E) 2013 (E) 2014 (E)

Building & Structure 19% 19% 19% 15% 18% 17% 17%

Machinery & Equipment 67% 65% 63% 65% 62% 61% 60%

Livestock 1% 1% 2% 2% 2% 2% 3%

Motor vehicles 10% 11% 12% 13% 13% 14% 15%

Office equipment 3% 4% 4% 5% 5% 5% 6%

100% 100%

100% 100% 100% 100% 100%


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Fixed assets

2008(A) 2009 (A) 2010 (E) 2011(E) 2012(E) 2013 (A) 2014(E)

Tangible fixed assets

Cost 2,618,638 3,135,507 3,908,358 5,026,955 6,356,781 7,393,298 8,663,743

y-o-y 33% 20% 25% 29% 26% 16% 17%

Accumulated depreciation -1,089,452 -1,299,925 -1,644,069 -2,104,033 -2,670,959 -3,335,226 -4,119,550

y-o-y 16% 19% 26% 28% 27% 25% 24%

Intangible fixed assets

Cost 79,416 82,339 85,838 90,038 95,077 101,123 108,380

y-o-y 105% 4% 4% 5% 6% 6% 7%

Accumulated amortization -28,548 -43,098 -53,503 -57,044 -61,290 -66,385 -72,499

y-o-y 58% 51% 24% 7% 7% 8% 9%

Construction in progress 356,868 650,140 1,183,000 885,154 747,822 886,481 1,054,913

y-o-y -41% 82% 82% -25% -16% 19% 19%


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Intangible fixed assets Intangible fixed assets include Land used right and software. Land used right was stopped to amortize from 2004 and was re-evaluate in 2008. In 2007 and 2008, VNM invested a big amount of money (approx. 37 VND bn) for new software and invested 2.9 VND bn in 2009 for upgrade and maintenance. Therefore, the assumption is made that VNM’s expense on upgrade and maintenance software will increase at rate of 20% from 2009. Amortization period of software is identified as 3 years.

Intangible fixed assets 2008A 2009A 2010E 2011E 2012E 2013E 2014E

Land use right

Cost 35,751 35,751 35,751 35,751 35,751 35,751 35,751

Amortization 0 0 0 0 0 0 0


Re-evaluation 15,851

Software

Cost 43,665 46,588 50,087 54,287 59,326 65,372 72,629

Amortization -10,492 -14,550 -10,405 -3,541 -4,246 -5,095 -6,114


New purchase 24,794 2,923 3,499 4,199 5,039 6,047 7,256

Net 26,725 15,098 8,192 8,851 9,644 10,596 11,738


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Depreciation expense Depreciation period for each type of fixed assets is identified as follows:

Fixed assets Depreciation period

Building & Structure 40 Years Machinery & Equipment 10 Years Live stocks 6 Years Motor & Vehicle 10 Years Office equipment 8 Years Software 3 Years

Because of the lack of information, we assume that depreciation of building, machinery and equipment, livestock and motor vehicles (in production purpose) will be allocated to COGS. And depreciation & amortization expense from office equipment and software will be allocated to G&A expenses.

Depreciation expense (to be allocated to COGS) from 2008A 2009A 2010E 2011E 2012E 2013E 2014E

Building & Structure -9,182 -25,716 -18,296 -18,412 -28,529 -32,344 -36,897 Machinery & Equipment -107,226 -141,519 -247,885 -328,751 -392,059 -448,415 -516,357 Livestock -2,921 -2,674 -10,322 -16,375 -22,503 -30,064 -39,973 Motor vehicles -13,389 -23,732 -47,306 -66,662 -84,659 -103,722 -127,847 -132,718 -193,641 -323,809 -430,199 -527,751 -614,545 -721,074

Depreciation and amortization expense (allocated to G&A expenses) 2008A 2009A 2010E 2011E 2012E 2013E 2014E

Office equipment -15,544 -16,832 -20,335 -29,765 -39,176 -49,721 -63,250 Software -10,492 -14,550 -10,405 -3,541 -4,246 -5,095 -6,114

-26,036 -31,382 -30,740 -33,306 -43,422 -54,816 -69,364 Total Depreciation and amortization -158,754 -225,023 -354,549 -463,504 -571,173 -669,362 -790,438


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5.5 Working capital

2008A 2009A 2010E 2011E 2012E 2013E 2014E

Accounts Receivable 530,149

513,346 660,549 809,200 1,046,443

1,487,149

Increase/(Decrease) from Prev. Period 24,915 -16,803 147,203 148,651 237,243 240,334 200,373 Y-o-Y 4.9% -3.2% 28.7% 22.5% 29.3% 23.0% 15.6%

% of Net sales 6.5% 4.8% 5.3% 5.5% 6.0% 6.2% 6.0%

Days Outstanding of Accounts Receivable

23.2

17.4

19.1 19.8 21.6

22.3 21.6

Inventory 1,789,646

1,321,271 1,552,816 1,833,090 2,172,975

2,585,842

3,088,118

Increase/(Decrease) from Prev. Period 108,146 -468,375 231,545 280,274 339,886 412,866 502,277 Expected Growth rate (based on CARG of Net sales) 6% -26% 18% 18% 19% 19% 19%

% of COGS 31.9% 19.6% 19.4% 19.3% 19.3% 19.3% 19.4%

Days Outstanding of Inventory 115 71 70 70 69 70 70

Accounts Payable & Accrued Expenses 492,556

789,867 928,286 1,095,836 1,299,023 1,545,838

1,846,103

Increase/(Decrease) from Prev. Period -128,820 297,311 138,419 167,550 203,187 246,815 300,265 Expected Growth rate (based on CARG of Net sales) 18% 18% 19% 19% 19% Growth rate -21% 60% 18% 18% 19% 19% 19%

% of COGS 8.8% 11.7% 12.0% 11.0% 11.0% 11.0% 11.0% Days Outstanding of Accounts Payable 32 42 43 40 40 40 40 Cash conversion cycle 106 46 46 50 51 52 52


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Working capital requirement -261,881 782,489 -240,329 -261,374 -373,942 -406,385 -402,385 VINAMILK’s main debtors are supermarkets hence account receivable is expected to be stable at 5% to 6.5% of net sales. Inventory mostly includes finished goods (40%) and material (33%). We forecast growth of inventory and account payable are based on growth of sales. Debtor, stock, creditor outstanding days and cash conversion cycle are illustrated in below chart:

-

20.0

40.0

60.0

80.0

100.0

120.0

140.0

2007 2008 2009 2010 2011 2012 2013 2014

Account Receivable

Inventory

Account Payable

Cash Conversion Cycle

Since VINAMILK is a cash rich customer with well-managed cash conversion cycle, it is estimated that working capital requirement is negative from 2010-2014.


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5.6 Short term investment

2008(A) 2009 (A) 2010 (E) 2011(E) 2012(E) 2013 (A) 2014(E)

Short- term investment Million VND

Short- term investment cost 496,998 2,400,760 2,400,760 2,400,760 2,400,760 2,400,760 2,400,760

Provision for short term investment -122,996 -86,507 -120,038 -120,038 -120,038 -120,038 -120,038

% of short-term investment at cost 25% 4% 5% 5% 5% 5% 5% Short-term investments include short-term deposit, investment in shares of listed and unlisted companies. We noted that short-term investment increased sharply in 2009 due to high term deposit at bank of VND 2,227,700 million (mostly in term of 6 months or 12 months). We forecast that deposit would be used to finance fixed asset and long-term investment. According to Shareholder meeting's Minutes 2009, in coming years, VINAMILK will continue to focus on key business. Short term investment will stay at moderate level. Investment in listed and unlisted share is about VND 150,000 million. We forecast provision rate would be 5% of total short-term investment.


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5.7 Funding position

Being a cash-rich company and short cash conversion cycle, the total borrowings of VINAMILK are quite small. Total debt to total equity ratio in 2009 was 1.85%. As we believe in cash generation capacity of VINAMILK, it is estimated that this ratio will increase about 2%pa from 2010 to 2014. In addition, long term borrowings will be higher during this period given that the company has been implementing some projects.

There was a remarkable increase in contribution capital thanks to new share issuance in October 2009. 175,624,990 shares were issued at the face value of 10,000VND per shares. As a result, the contributed capital was recorded at VND3, 512,653mn. Our assumption is that the contributed capital will be kept unchanged in the next five years.


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5.8 Balance sheet

Please refer to excel file for details Unit: VNDmn

2008(A) 2009 (A) 2010 (E) 2011(E) 2012(E) 2013 (A) 2014(E) ASSETS

Current assets 3,187,605 5,069,157 5,834,153 7,310,935 8,970,731 11,126,324 13,798,181

Cash and cash equivalents 338,654 426,135 830,176 1,851,164 2,902,192 4,366,782 6,290,019

Short- term investment 374,002 2,314,253 2,280,722 2,280,722 2,280,722 2,280,722 2,280,722

Short- term investment 496,998 2,400,760 2,400,760 2,400,760 2,400,760 2,400,760 2,400,760

Provision for short term investment -122,996 -86,507 -120,038 -120,038 -120,038 -120,038 -120,038

Accounts receivable 646,385 728,634 897,597 1,075,921 1,348,202 1,630,467 1,881,833

Accounts receivable - trade 530,149 513,346 660,549 809,200 1,046,443 1,286,776 1,487,149

Prepayments to suppliers 75,460 139,363 165,414 196,202 233,019 276,753 329,249

Other receivables 40,923 76,588 76,588 76,588 76,588 76,588 76,588

Provision for doubtful debts -147 -663 -4,954 -6,069 -7,848 -9,651 -11,154

Inventories 1,775,342 1,311,765 1,537,288 1,814,759 2,151,245 2,559,983 3,057,237

Inventories 1,789,646 1,321,271 1,552,816 1,833,090 2,172,975 2,585,842 3,088,118

Provision for inventories -14,304 -9,506 -15,528 -18,331 -21,730 -25,858 -30,881

Other current assets 53,222 288,370 288,370 288,370 288,370 288,370 288,370


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Non-current assets 2,779,354 3,412,879 4,793,341 5,793,489 7,074,188 8,479,700 10,198,168

Longterm receivable 475 8,822 8,822 8,822 8,822 8,822 8,822

Fixed assets 1,936,923 2,524,964 3,479,624 3,841,069 4,467,431 4,979,292 5,634,987

Tangible fixed assets 1,529,187 1,835,583 2,264,289 2,922,922 3,685,822 4,058,072 4,544,193

Cost 2,618,638 3,135,507 3,908,358 5,026,955 6,356,781 7,393,298 8,663,743

Accumulated depreciation -1,089,451 -1,299,924 -1,644,069 -2,104,033 -2,670,959 -3,335,226 -4,119,550

Intangible fixed assets 50,868 39,241 32,335 32,994 33,787 34,739 35,881

Cost 79,416 82,339 85,838 90,038 95,077 101,123 108,380

Accumulated amortisation -28,548 -43,098 -53,503 -57,044 -61,290 -66,385 -72,499

Construction in progress 356,868 650,140 1,183,000 885,154 747,822 886,481 1,054,913

Real estate investment 27,489 27,489 27,489 27,489 27,489 27,489 27,489

Long-term investments 570,657 602,479 903,719 1,355,578 1,897,809 2,656,932 3,719,705

Other long-term assets 243,810 249,125 373,688 560,531 672,638 807,165 807,165

TOTAL ASSETS 5,966,959 8,482,036 10,627,494 13,104,425 16,044,919 19,606,024 23,996,349


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RESOURCES Liabilities 1,154,432 1,808,931 1,988,676 2,190,888 2,435,160 2,731,720 3,093,375 Current liabilities 972,502 1,552,606 1,695,688 1,867,148 2,074,970 2,327,397 2,634,588

Short-term borrowings 188,222 13,283 17,945 21,856 26,491 32,103 39,029 Accounts payable – trade 492,556 789,867 928,286 1,095,836 1,299,023 1,545,838 1,846,103 Other 291,724 749,456 749,456 749,456 749,456 749,456 749,456

Long-term borrowings and liabilities 181,930 256,325 292,988 323,740 360,190 404,323 458,787 Long-term borrowings 22,418 104,455 141,118 171,870 208,320 252,453 306,917 Long-term payable-trade 93,612 116,940 116,940 116,940 116,940 116,940 116,940 Other 65,900 34,930 34,930 34,930 34,930 34,930 34,930

EQUITY 4,761,913 6,673,105 8,638,818 10,913,537 13,609,759 16,874,304 20,902,974 Equity 4,665,715 6,455,474 7,953,160 9,686,279 11,740,544 14,227,816 17,297,279

Contributed capital 1,752,757 3,512,653 3,512,653 3,512,653 3,512,653 3,512,653 3,512,653 Share premium 1,064,948 0 0 0 0 0 0 Retained profits (included

reserves) 1,848,010 2,942,821 4,440,507 6,173,626 8,227,891 10,715,163 13,784,626 Welfare and bonus fund 146,812 217,631 685,658 1,227,258 1,869,215 2,646,488 3,605,695 TOTAL RESOURCES 5,966,959 8,482,036 10,627,494 13,104,425 16,044,919 19,606,024 23,996,349


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5.9 Income statement VND m 2008(A) 2009 (A) 2010 (E) 2011(E) 2012(E) 2013 (A) 2014(E)

Total revenue 8,380,563 10,821,195 12,717,544 15,012,984 17,796,643 21,178,015 25,291,656 Less sales deductions -171,581 -206,371 -254,351 -300,260 -355,933 -423,560 -505,833

Net sales

8,208,982

10,614,824 12,463,194 14,712,724 17,440,711 20,754,454 24,785,823

Cost of sales -5,610,969 -6,736,215 -7,995,390 -9,483,570 -11,263,160 -13,377,072 -15,914,496

Gross profit

2,598,013

3,878,609

4,467,804

5,229,154

6,177,551

7,377,383

8,871,327 Selling expenses -1,052,308 -1,245,476 -1,420,804 -1,618,400 -1,831,275 -2,075,445 -2,354,653 General and administration expenses -297,804 -292,763 -373,896 -514,945 -662,747 -830,178 -991,433

Financial income

190,860

439,936 495,672 563,451 644,785 758,654 918,070 Financial expenses -197,621 -184,828 -184,828 -184,828 -184,828 -184,828 -184,828

Net operating profit

1,241,140

2,595,478 2,983,948 3,474,432 4,143,487 5,045,585 6,258,483

Results of other activities

130,173

136,232 136,232 136,232 136,232 136,232 136,232

Profit before tax 1,371,313 2,731,710 3,120,180 3,610,664 4,279,719 5,181,817 6,394,715 % of net sales 16.7% 25.7% 25.0% 24.5% 24.5% 25.0% 25.8% Tax rate 25% 25% 25% 25% 25% 25%

CIT expense -161,874 -355,290 -780,045 -902,666 -1,069,930 -1,295,454 -1,598,679 Corporate income tax – deferred 39,259 0 0 0 0 0 0 Net profit after tax 1,248,698 2,376,420 2,340,135 2,707,998 3,209,789 3,886,363 4,796,036

% of net sales 15.2% 22.4% 18.8% 18.4% 18.4% 18.7% 19.3%


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5.10 Cashflow statement VND m 2008(A) 2009 (A) 2010 (E) 2011(E) 2012(E) 2013 (A) 2014(E)

Total profit before tax

1,371,313

2,731,710

3,120,180

3,610,664

4,279,719

5,181,817

6,394,715 Depreciation of Fixed Assets Expenses 178,430 234,078 354,550 463,504 571,173 669,362 790,438 Provision for short term investment loss 124,892 62,020 43,844 3,918 5,178 5,931 6,526 Of which: Corp Income tax -161,874 -355,290 -780,045 -902,666 -1,069,930 -1,295,454 -1,598,679

Net profit from Operating activities before changes in current capital 1,669,727 2,738,970 2,738,529 3,175,420 3,786,140 4,561,655 5,593,000 Increase, Decrease Account Receivable 13,354 -68,042 -147,203 -148,651 -237,243 -240,334 -200,373 Increase, Decrease Investory -112,069 453,953 -231,545 -280,274 -339,886 -412,866 -502,277 Increase, Decrease Account Payable -105,919 392,537 138,419 167,550 203,187 246,815 300,265 Increase, Decrease Prepaid Expenses -17,077 10,276 -26,051 -30,788 -36,817 -43,734 -52,496

Net cashflow provided by operating activities 1,269,759 3,096,503 2,472,150 2,883,257 3,375,380 4,111,536 5,138,119 Cash flows from Investing activities

Purchase and construction of Fixed assets and other long term assets -445,062 -654,817 -1,309,210 -824,950 -1,197,534 -1,181,222 -1,446,133

Cash payments to capital contribution investment -134,152 -2,450 -425,802 -638,703 -654,337 -893,651 -1,062,773 Net Cash provided by Investing activities -531,785 -2,476,274 -1,735,012 -1,463,653 -1,851,871 -2,074,874 -2,508,906 Cash flows from Financing activities

Proceeds from issue of shares, capital constribution 0 3,646 0 0 0 0 0 Short , long term loan received 173,547 3,320 41,325 34,662 41,085 49,745 61,389 Dividends and Profit paid -680,733 -351,281 -374,422 -433,280 -513,566 -621,818 -767,366

Net Cash provided by Financing activities -517,149 -532,691 -333,096 -398,617 -472,481 -572,073 -705,977

Net Cash and Cash equivalents during the period 220,825 87,538 404,041 1,020,987 1,051,028 1,464,590 1,923,237

Cash and cash equivalents at beginning of year 117,819 338,654 426,135 830,176 1,851,164 2,902,192 4,366,782

Effect of exchange rate changes on cash and cash equivalents 10 -57 0 0 0 0 0

Cash and Cash equivalents at end of year 338,654 426,135 830,176 1,851,164 2,902,192 4,366,782 6,290,019


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6. FINANCIAL ANALYSIS

6.1 Return ratios

Thanks to amazing growth rate of sales at 26% and 29% in 2008 and 2009 respectively, VINAMILK’s return ratios were quite good. ROE and ROCE are expected to gradually improved from 2010-2014 given the high growth rate of sales and net profit after tax. As VINAMILK was listed in Stock exchange in 2005, corporate tax is exempted for VINAMILK for the first 3 years. By end of 2008, VINAMILK had to start paying corporate tax income, leading to ROIC were lower. 2008(A) 2009 (A) 2010 (E) 2011 (E) 2012 (E) 2013 (E) 2014 (E) Return on capital employed (ROCE) 32.10% 68.75% 59.84% 61.65% 62.14% 66.18% 71.71%

EBITA 1,241,140 2,595,478 2,983,948 3,474,432 4,143,487 5,045,585 6,258,483 Capital employed 3,866,094 3,775,496 4,986,222 5,635,912 6,667,855 7,623,903 8,727,953

Return on invested capital (ROIC) 32.10% 51.56% 44.88% 46.24% 46.61% 49.64% 53.78%

NOPLAT = EBITA after taxes 1,241,140 1,946,609 2,237,961 2,605,824 3,107,615 3,784,189 4,693,862 Invested capital = Capital

employed 3,866,094 3,775,496 4,986,222 5,635,912 6,667,855 7,623,903 8,727,953 Return on equity (ROE) 71.24% 67.65% 66.62% 77.09% 91.38% 110.64% 136.54%

Net current profit 1,248,698 2,376,420 2,340,135 2,707,998 3,209,789 3,886,363 4,796,036 Equity 1,752,757 3,512,653 3,512,653 3,512,653 3,512,653 3,512,653 3,512,653

In terms of leverage effect, as ROE > ROIC, we can say that VINAMILK has gained the positive leverage effect. In other words, value is created to the shareholders due to NFD.


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6.2 Repayment capacity 2008(A) 2009 (A) 2010 (E) 2011(E) 2012(E) 2013 (A) 2014(E)

Fixed Charges Cover 3.21 3.80 3.44 3.62 3.87 4.12 4.35 Net Current Cash Flow 1,248,698 2,376,420 2,340,135 2,707,998 3,209,789 3,886,363 4,796,036 Net financial charge (excl. goodwill) 388,481 624,764 680,500 748,279 829,613 943,482 1,102,898

Senior Interest Cover 3.65 4.53 4.91 5.26 5.68 6.06 6.39 EBITDA 1,419,570 2,829,556 3,338,498 3,937,936 4,714,659 5,714,946 7,048,921 Financial result 388,481 624,764 680,500 748,279 829,613 943,482 1,102,898

Outstanding to Value Cover 0.15 0.04 0.05 0.05 0.05 0.05 0.05 Net financial debt (NFD) 210,640 117,738 159,063 193,726 234,811 284,556 345,946 EBITDA 1,419,570 2,829,556 3,338,498 3,937,936 4,714,659 5,714,946 7,048,921

[EBITDA - Capex] / Interests 2.51 3.48 2.98 4.16 4.24 4.81 5.08 [EBITDA - Capex] 974,508 2,174,739 2,029,288 3,112,987 3,517,125 4,533,724 5,602,788

EBITDA 1,419,570 2,829,556 3,338,498 3,937,936 4,714,659 5,714,946 7,048,921 Capex 445,062 654,817 1,309,210 824,950 1,197,534 1,181,222 1,446,133

Net financial charge (excl. goodwill) 388,481 624,764 680,500 748,279 829,613 943,482 1,102,898 NFD / [EBITDA - Capex] 0.22 0.05 0.08 0.06 0.07 0.06 0.06

Net financial debt 210,640 117,738 159,063 193,726 234,811 284,556 345,946 [EBITDA - Capex] 974,508 2,174,739 2,029,288 3,112,987 3,517,125 4,533,724 5,602,788

We do not realize any concern on interest and principal repayment capacity of VINAMILK. Net current cashflow is 3.5-4.5 times to net interest expense. Thanks to sales increase, EBITDA is forecasted to improve during 2010-2014 with average growth rate around 20-21%. Accordingly, fixed charge cover and senior interest cover are more than required at 2.0x and 3.0x respectively, which reflect the feasible capacity to pay the interest expense of VINAMILK. In terms of repayment term, outstanding to value cover ratio is quite low, which reflect good financial position of VINAMILK. More conservatively, we evaluate the interest and principal repayment capacity of VINAMILK by taking capex amount out of EBITDA. Even if so, those ratios are still at good level.


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6.3 Liquidity ratios Historic and forecasted liquidity ratios of VINAMILK are above the required levels (higher than 1.0x for current ratio and 0.7x for acid ratio. Those figures illustrates that it is easy for VINAMILK to liquidate the current asset to cover to current liabilities. 2008(A) 2009 (A) 2010 (E) 2011 (E) 2012 (E) 2013 (E) 2014 (E) Current Ratio 3.28 3.26 3.44 3.92 4.32 4.78 5.24

Current asset 3,187,605 5,069,157 5,834,153 7,310,935 8,970,731 11,126,324 13,798,181 Current Liability 972,502 1,552,606 1,695,688 1,867,148 2,074,970 2,327,397 2,634,588

Acid Ratio 1.45 2.42 2.53 2.94 3.29 3.68 4.08 Current asset excluding

inventories 1,412,263 3,757,392 4,296,865 5,496,176 6,819,486 8,566,341 10,740,944 Current Liability 972,502 1,552,606 1,695,688 1,867,148 2,074,970 2,327,397 2,634,588

6.4 Profitability ratios

2008(A) 2009 (A) 2010 (E) 2011 (E) 2012 (E) 2013 (E) 2014 (E) Gross profit margin 31.65% 36.54% 35.85% 35.54% 35.42% 35.55% 35.79%

Gross profit margin 2,598,013 3,878,609 4,467,804 5,229,154 6,177,551 7,377,383 8,871,327 Sales 8,208,982 10,614,824 12,463,194 14,712,724 17,440,711 20,754,454 24,785,823

EBITDA margin 17.29% 26.66% 26.79% 26.77% 27.03% 27.54% 28.44% EBITDA 1,419,570 2,829,556 3,338,498 3,937,936 4,714,659 5,714,946 7,048,921 Sales 8,208,982 10,614,824 12,463,194 14,712,724 17,440,711 20,754,454 24,785,823

Operating profit margin 15.12% 24.45% 23.94% 23.62% 23.76% 24.31% 25.25% Operating profit margin 1,241,140 2,595,478 2,983,948 3,474,432 4,143,487 5,045,585 6,258,483 Sales 8,208,982 10,614,824 12,463,194 14,712,724 17,440,711 20,754,454 24,785,823

Net profit margin 15.21% 22.39% 18.78% 18.41% 18.40% 18.73% 19.35% Net profit margin 1,248,698 2,376,420 2,340,135 2,707,998 3,209,789 3,886,363 4,796,036 Sales 8,208,982 10,614,824 12,463,194 14,712,724 17,440,711 20,754,454 24,785,823


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Profitability ratios are on increasing trend based on the assumption of sales growth rate at 18% y-o- and effective management. Looking into those ratios, we can foresee the sound business performance and high profit returned of VINAMILK in the next 5 years.

7. RISK ASSESSMENT

7.1 Worse case

For the worse case, we assume that the consumption volumes of VINAMILK’s products will reduce due to the competition in city area while VINAMILK can not expand business to rural areas. In addition, there are more and more foreigner brand products imported to the market given that the tax imposed on dairy product is reduced as WTO entry commitment. Taking into those elements, we forecast that the total revenues of VINAMILK will increase by 8% per year during 2010-2012 in stead of 18% in the base case. However, the revenues rate will be enhanced from 2013 at 10% given that advertising and promotion campaign will be carried out to gain the high growth rate. COGS is assumed to increased by 10% y-o-y taking into account of inflation rate and price fluctuation of raw materials. Accordingly, the income statement and cashflow are shown as below:


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Income statement

2009 (A) 2010 (E) 2011 (E) 2012 (E) 2013 (E) 2014 (E) Total revenue 10,821,195 11,686,891 12,621,842 13,631,589 14,994,748 16,494,223 Less sales deductions -206,371 -254,351 -300,260 -355,933 -423,560 -505,833

Net sales

10,614,824

11,432,540

12,321,582

13,275,656

14,571,188

15,988,390

Cost of sales -6,736,215 -7,409,837 -8,150,820 -8,965,902 -9,862,492 -10,848,742

Gross profit

3,878,609

4,022,703

4,170,762

4,309,754

4,708,695

5,139,648 Selling expenses -1,245,476 -1,420,804 -1,618,400 -1,831,275 -2,075,445 -2,354,653 General and administration

expenses -292,763 -373,896 -514,945 -662,747 -830,178 -991,433

Financial income

439,936 495,672 563,451 644,785 758,654 918,070 Financial expenses -184,828 -184,828 -184,828 -184,828 -184,828 -184,828


2,595,478 2,538,847 2,416,040 2,275,690 2,376,898 2,526,804


136,232 136,232 136,232 136,232 136,232 136,232

Profit before tax 2,731,710 2,675,079 2,552,272 2,411,922 2,513,130 2,663,036 % of net sales 25.7% 23.4% 20.7% 18.2% 17.2% 16.7% Tax rate 25% 25% 25% 25% 25% 25%

CIT expense -355,290 -668,770 -638,068 -602,980 -628,282 -665,759 Corporate income tax – deferred 0 0 0 0 0 0 Net profit after tax 2,376,420 2,006,309 1,914,204 1,808,941 1,884,847 1,997,277

% of net sales 22.4% 17.5% 15.5% 13.6% 12.9% 12.5%


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Cashflow statement

VNDmn 2009 (A) 2010 (E) 2011 (E) 2012 (E) 2013 (E) 2014 (E)


2,731,710

2,675,079

2,552,272

2,411,922

2,513,130

2,663,036 Depreciation of Fixed Assets

Expenses 234,078 354,550 463,504 571,173 669,362 790,438 Provision for short term investment

loss 62,020 43,844 3,918 5,178 5,931 6,526 Of which: Corporate Income tax -355,290 -668,770 -638,068 -602,980 -628,282 -665,759

Net profit from Operating activities before changes in current capital 2,738,970 2,404,704 2,381,626 2,385,292 2,560,140 2,794,240

Increase, Decrease Account Receivable -68,042 -147,203 -148,651 -237,243 -240,334 -200,373

Increase, Decrease Investory 453,953 -231,545 -280,274 -339,886 -412,866 -502,277 Increase, Decrease Account

Payable 392,537 138,419 167,550 203,187 246,815 300,265 Increase, Decrease Prepaid

Expenses 10,276 -26,051 -30,788 -36,817 -43,734 -52,496 Net cashflow provided by operating activities 3,096,503 2,138,325 2,089,463 1,974,533 2,110,021 2,339,360 Cash flows from Investing activities

Purchase and construction of Fixed assets and other long term assets -654,817 -1,309,210 -824,950 -1,197,534 -1,181,222 -1,446,133

Cash payments to capital contribution investment -2,450 -425,802 -638,703 -654,337 -893,651 -1,062,773 Net Cash provided by Investing activities -2,476,274 -1,735,012 -1,463,653 -1,851,871 -2,074,874 -2,508,906


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Cash flows from Financing activities Proceeds from issue of shares,

capital constribution 3,646 0 0 0 0 0 Short , long term loan received 3,320 41,325 34,662 41,085 49,745 61,389 Dividends and Profit paid -351,281 -321,009 -306,273 -289,431 -301,576 -319,564

Net Cash provided by Financing activities -532,691 -279,684 -271,610 -248,345 -251,830 -258,175 Net Cash and Cash equivalents during the period 87,538 123,628 354,200 -125,684 -216,682 -427,721 Cash and cash equivalents at beginning of year 338,654 426,135 549,763 903,963 778,280 561,597

Effect of exchange rate changes on cash and cash equivalents -57 0 0 0 0 0 Cash and Cash equivalents at end of year 426,135 549,763 903,963 778,280 561,597 133,876 As the result, the company still achieves positive net profit and cash and cash equivalents at the end of the year. However, the cash is no longer much surplus as illustrated in the base case.


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7.2 Best case

For the best case, we assume that VINAMILK can maintain the growth rate of revenues as that in 2008 and 2009 at 25% thanks to increase in production capacity and dominant role in Vietnam dairy market. In order to boost the sales, COGS are also estimated to increase 25% pa due to raw materials stock, inflation impacted. Income Statement

VNDmn 2009 (A) 2010 (E) 2011 (E) 2012 (E) 2013 (E) 2014 (E) Total revenue 10,821,195 13,526,494 16,908,117 21,135,146 26,418,933 33,023,666 Less sales deductions -206,371 -254,351 -300,260 -355,933 -423,560 -505,833

Net sales

10,614,824

13,272,143

16,607,858

20,779,214

25,995,373

32,517,833

Cost of sales -6,736,215 -8,420,269 -10,525,336 -13,156,670 -16,445,837 -20,557,297

Gross profit

3,878,609

4,851,874

6,082,522

7,622,544

9,549,535

11,960,537 Selling expenses -1,245,476 -1,420,804 -1,618,400 -1,831,275 -2,075,445 -2,354,653 General and administration

expenses -292,763 -373,896 -514,945 -662,747 -830,178 -991,433

Financial income

439,936 495,672 563,451 644,785 758,654 918,070 Financial expenses -184,828 -184,828 -184,828 -184,828 -184,828 -184,828


2,595,478 3,368,018 4,327,799 5,588,479 7,217,738 9,347,692


136,232 136,232 136,232 136,232 136,232 136,232


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Profit before tax 2,731,710 3,504,250 4,464,031 5,724,711 7,353,970 9,483,924 % of net sales 25.7% 26.4% 26.9% 27.6% 28.3% 29.2% Tax rate 25% 25% 25% 25% 25% 25%

CIT expense -355,290 -876,063 -1,116,008 -1,431,178 -1,838,492 -2,370,981 Corporate income tax – deferred 0 0 0 0 0 0

Net profit after tax 2,376,420 2,628,188 3,348,023 4,293,534 5,515,477 7,112,943 % of net sales 22.4% 19.8% 20.2% 20.7% 21.2% 21.9%

Cashflow statement

VNDmn 2009 (A) 2010 (E) 2011 (E) 2012 (E) 2013 (E) 2014 (E)


2,731,710

3,504,250

4,464,031

5,724,711

7,353,970

9,483,924 Depreciation of Fixed Assets Expenses 234,078 354,550 463,504 571,173 669,362 790,438 Provision for short term investment loss 62,020 43,844 3,918 5,178 5,931 6,526 Of which: Interest Expenses -355,290 -876,063 -1,116,008 -1,431,178 -1,838,492 -2,370,981

Net profit from Operating activities before changes in current capital 2,738,970 3,026,582 3,815,445 4,869,884 6,190,770 7,909,907

Increase, Decrease Account Receivable -68,042 -147,203 -148,651 -237,243 -240,334 -200,373

Increase, Decrease Investory 453,953 -231,545 -280,274 -339,886 -412,866 -502,277 Increase, Decrease Account Payable 392,537 138,419 167,550 203,187 246,815 300,265 Increase, Decrease Prepaid Expenses 10,276 -26,051 -30,788 -36,817 -43,734 -52,496

Net cashflow provided by operating activities 3,096,503 2,760,203 3,523,283 4,459,125 5,740,651 7,455,026


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Cash flows from Investing activities Purchase and construction of Fixed

assets and other long term assets -654,817 -1,309,210 -824,950 -1,197,534 -1,181,222 -1,446,133 Cash payments to capital contribution

investment -2,450 -425,802 -638,703 -654,337 -893,651 -1,062,773 Net Cash provided by Investing activities -2,476,274 -1,735,012 -1,463,653 -1,851,871 -2,074,874 -2,508,906 Cash flows from Financing activities

Proceeds from issue of shares, capital constribution 3,646 0 0 0 0 0

Short , long term loan received 3,320 41,325 34,662 41,085 49,745 61,389 Dividends and Profit paid -351,281 -420,510 -535,684 -686,965 -882,476 -1,138,071

Net Cash provided by Financing activities -532,691 -379,185 -501,021 -645,880 -832,731 -1,076,682 Net Cash and Cash equivalents during the period 87,538 646,006 1,558,609 1,961,374 2,833,047 3,869,439 Cash and cash equivalents at beginning of year 338,654 426,135 1,072,141 2,630,749 4,592,123 7,425,170

Effect of exchange rate changes on cash and cash equivalents -57 0 0 0 0 0 Cash and Cash equivalents at end of year 426,135 1,072,141 2,630,749 4,592,123 7,425,170 11,294,609


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7.3 Risk assessment Risk assessment is approached by comparing some financial ratio of VINAMILK in 3 cases: base case, worse case and best case as mentioned in the previous section.

Sales compared

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

2009 (A) 2010(E) 2011(E) 2012(E) 2013(E) 2014(E)

Base caseWorse caseBest case

EBITDA compared

0

2,000

4,000

6,000

8,000

10,000

12,000

2009 (A) 2010(E) 2011(E) 2012(E) 2013(E) 2014(E)


Net Profit compared

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2009 (A) 2010(E) 2011(E) 2012(E) 2013(E) 2014(E)


ROE compared

0.00%

50.00%

100.00%

150.00%

200.00%

250.00%

2009 (A) 2010(E) 2011(E) 2012(E) 2013(E) 2014(E)


ROCE compared

0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

120.00%

2009 (A) 2010(E) 2011(E) 2012(E) 2013(E) 2014(E)


ROIC compared

0.00%

10.00%20.00%

30.00%

40.00%50.00%

60.00%

70.00%80.00%

90.00%

2009 (A) 2010(E) 2011(E) 2012(E) 2013(E) 2014(E)



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8. VALUATION

8.1 Approach

Our valuation applied for VINAMILK was based on a joint assessment of Discounted Cash Flow and target P/E and P/B ratio’s as well as. We derived a target price of VND97,787 per share, which is based on the numeric average of our three estimates at year 2009. This is a quite good investment for an expected profit of 15.7%

Component Weighted Price DCF target price 40% 89,290 35,716

P/E (adjusted EPS) 17.0x 30% 115,010 34,503 P/B 5.0x 30% 91,893 27,568

Target price 97,787 Current price @ 30 Mar 2010 84,500

Expected return 15.7%

8.2 DCF

DCF on VINAMILK is run using a derived a 13.1% WACC for the company, assuming the company finances itself solely using equity in the future. Our assumptions are detailed below. Beta calculation To determine a Beta for VINAMILK we ran weekly price observations vs. the HCM Index VINAMILK’s from the beginning of 2007 to date. We prefer weekly price observations given the high daily price correlation between index stocks and the HCM Index. Our resulting Beta was 0.9, which we consider reasonable for a defensive consumer goods stock.

Beta

VN_Index Returns VINAMILK

1.00 0.90


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WACC calculation Cost of Equity CAPM Beta 0.90 Risk-free rate RFR 11.50% Market risk premium MRP 3.00% Cost of equity Ke =RFR + (beta * MRP) 14.2%

Cost of debt Kd current interest rate for company's new loan 12.0%

Target capital structure Weight of equity Wd = current total equity / total resource 79% Weight of debt We = current total liability / total resource 21% 100% VINAMILK has no prefered stock. Tax Rate t 25% Weighted average cost of capital WACC =we*Ke + Wd*Kd*(1-t) 13.1%

Risk free rate is extracted from 5 year government bond rate. (http://www.bond.hnx.com) Our resulting DCF valuations came in at a range of VND90,000 to VND104,888 per share on a forward basis, which is broadly in-line with the target price ranges. Please refer the detail calculation in excel file attached


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Free Cash Flow 2009 2010 2011 2012 2013 2014 Terminal

Operating profit 2,340,370 2,673,104 3,095,809

3,683,529

4,471,759

5,525,241

NOPAT 1,755,278 2,004,828 2,321,857

2,762,647

3,353,819

4,143,931

Depreciation 234,078 354,550 463,504

571,173

669,362

790,438

Capex 745,327 1,309,210 1,055,905

972,752

1,184,574

1,450,121 Working capital requirement 782,489 -240,329 -261,374 -373,942 -406,385 -402,385

Free Cash Flow (Firm) 2,026,518 809,839 1,468,082 1,987,126 2,432,222 3,081,863 46,002,505

NPV @ WACC = 13.7% 716,030 1,147,665

1,373,481

1,486,390

1,665,234 24,856,704

Sum of Future PV 31,245,505 30,529,475 29,381,810

Net Financial Debt 117,738 159,063 193,726

234,811

284,556

345,946

Equity Value 31,363,243

Equity / Share (mn VND) 89,290


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8.3 Price Multiples Method

Our forecasts suggest that VINAMILK will see a rolling average EPS CAGR of 20% from year 2010 to 2014. We selected a target P/E of 17.0x which reflects the average of our estimated CAGR in VINAMILK’s reported earnings for coming years. P/E 2009 2010 2011 2012 2013 2014

Earning after tax 2,376,420 2,340,135 2,707,998 3,209,789

3,886,363

4,796,036

EPS (VND) 6,765 6,662 7,709 9,138 11,064

13,654

Target P/E (company) 17.0x

Price (VND) 115,010 For our target P/B multiple we looked at VINAMILK’s trading history, as the company has been listed since early 2005. VINAMILK has traded at market miums on a P/B basis since listing. We have observed that VINAMILK has traded at an average P/B of 5.0x. As such, we are comfortable with a target P/B of 5.0x for VINAMILK. P/B multiples suggest a fair value range of VND88,000 to 100,000 per share for VINAMILK. P/B 2009 2010 2011 2012 2013 2014

Book Value (Million VND) 6,455,474 7,953,160 9,686,279 11,740,544

14,227,816 17,297,279

Number of share 351,249,980 351,265,300 351,265,300 351,265,300

351,265,300 351,265,300

Book value per share 18,379 22,641 27,575

33,424

40,504 49,243 P/B 5.0x Price (thousand VND) 91,893


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9. REFERENCE

1. Website of VINAMILK at http://www.Vinamilk.com.vn/

2. VINAMILK’s annual report 2007 and 2008

3. Website of Ho Chi Minh Security Stock Exchange at http://www.hsx.com

4. Website of Hanoi Security Stock Exchange at http://www.hnx.com

5. Website of Ministry of Agricultural and Rural Development at http://www.agroviet.gov.vn

6. Website of Ministry of Industry and Trade at http://www.moit.gov.vn

7. Website of General Statistics Office of Vietnam at http://www.gso.gov.vn

8. Report of Vietnam-Belgium Dairy Product issued by International Agricultural Products Consultant Company 2007

9. Vietnam Food and Drink Report Q3-2009 issued by Business Monitor International dated May 2009

10. Report of Vietnam Dairy Products (VINAMILK) issued by VinaSecurities dated 14 Oct 2009

11. Prof. Jottrand, 2009, Lecture Notes of Corporate Finance and Business Planning, University of Lebre De Bruxelles


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Documents

Group 4 - Assignment