FINANCIAL REPORT FOR VINAMILK

FINANCIAL REPORT FOR VINAMILK COURSE TITLE OF ASSESSMENT CLASS STUDENTS' NAME : Financial Analysis and Accounting : Group Assessment : LBM#01HN : Nguyen Hong Hanh Ngo Ngoc Tram Tran Nam Phuong Bui Thanh Xuan Phan Ba Hung TABLE OF CONTENTS: I II III IV V VI VII VIII IX Introduction ………………………………………………………………………… Strategy and Outlook ……………………………………………………………… Industry, Economic Outlook and Competition ………………………………… Key Risks and Opportunities …………………………………………………… Accounting and Financial Analysis ……………………………………………… Liquidity ratios …………………………………………………………… Efficiency ratios …………………………………………………………… Profitability ratios ………………………………………………………… Gearing ratios …………………………………………………………… Investment ratios ………………………………………………………… Sensitivity ratios ………………………………………………………… Review and evaluate corporate governance …………………………………… Conclusion and Recommendations ……………………………………………… References ………………………………………………………………………… Appendices ………………………………………………………………………… Company : VINAMILK Stock Exchange: HOSE - VNM Sector/Sub-sector: CONSUMERS/MILK PRODUCTS Market capitalization: 159,672 Billion VND Share price as of : 75300 VND ( Cut off 17/3/2022 ) Share price in years : 148700 VND /2018 - 75300 VND /2023 FTSE 100 share price as of: 7410 ( Cut off 17/3/2022 ) Recommendation : HOLD Report’s date : 17/03/2023 I Introduction Vietnam Dairy Products JSC (Vinamilk/ VNM) is the biggest company ruling the dairy products industry in Vietnam The Company has their prestige in processing, production, and exporting dairy-based products, including milk, yogurt, ice-cream, and condensed milk VNM has provided packaging, logistics services, and technical support to farming and breeding process In the milestone of 45 years of development, VNM has stepped into the top 200 companies with the best revenue of over billion Asia Pacific (Best over a billion), which is published by Forbes Asia The Company has not only become the leading dairy company in Vietnam since 2021, but also secures its position on the international map by reaching top 40 world dairy producers with the highest turnovers (The UK-based Plimsoll Publishing Ltd) Vinamilk has been listed on the Ho Chi Minh Stock Exchange (HOSE) since 2006 and grown to become the largest listed F&B on the HOSE, with a market capitalization of over $ 8.5 billion Vinamilk nowadays expands from small factories at the beginning to 46 subordinate units, including headquarter, 16 factories, branches, warehouses, 14 dairy farms, and subsidiaries and affiliates in Vietnam and over the world Moreover, with the new ownership strategy since 2016 without foreign ownership limit, the largest free float (up to $ billion) for foreign investors, and three major shareholders, investors are considering grants in Vinamilk According to Stowe et al., “The valuation of a particular company is a task within the context of the portfolio management process” Therefore, this report will analyze and evaluate VNM’s performance, and provide recommendations to potential investors, which starts by studying the company's strategy and industry II Strategy and Outlook VNM’s target is to become a world-grade brand in the food and beverage industry, where people put all their trust in nutrient and health products Therefore, the company focuses mainly on sustainable development, improvements and innovation, to achieve the goal Sustainable strategy is based on five perspectives, which are human nutrition, environment and energy, local economic development, employee, and community development Improvements and innovation strategy is not only about production technology, but also product categories to meet the leading international quality standards and demands of each target customer group VNM tries to increase shareholder value by providing a new business strategy of applying sustainable agricultural technology to Vietnam’s largest integrated dairy farming system, and expanding to new markets through M&A, JV, or venture capital activities VNM’s share price has changed during the time period of 2019 - 2023 (Figure 1) The share price significantly dropped in 2020, then strongly grew during 2021, and decreased in 2022 These changes could be explained by several reasons, which relates to the price of imported raw materials, historical business results, poor growth momentum aspects, along with the lingering effects of COVID-19 pandemic However, since the middle of the year 2022, the share price is slightly increasing, hence the expectations of VNM’s investors have increased and the chosen strategy allows increasing shareholder value Figure 1: “VNM’s history share price, 02/2019 - 02/2023” (source: CafeF, 2023) III Industry, Economic Outlook and Competition According to the Development Plan of Vietnam's dairy processing industry to 2020, with a vision to 2025, the domestic production of fresh milk is expected to reach 1.4 billion liters, meeting 40% of the demand in 2025 In the future, consumers in urban areas will increasingly prefer mid- and high-end products (organic milk) Consumer habits of Vietnamese people have changed in recent years, such as the trend of eating out and consuming nut milk It is not difficult to see the variety of new plantbased milk lines on milk shelves at major supermarkets in Vietnam The increase in popularity for dairy alternatives has many sources, such as a decrease in belief in the miracle of cow's milk, an increasing interest in animals, or the dangerous environmental situation of production of traditional milk It is forecasted that milk consumption will continue to increase in the coming years, due to the increase in people's income and the development of modern sales chains Demand for high-value dairy products is also expected to increase sharply due to the young population and growing number of middle-class people in urban areas According to Kantar's Vietnam Brand Footprint 2022 Report, Vinamilk maintains its leading position in the top 10 most selected dairy products and milk substitutes Particularly in the liquid milk market, Vinamilk holds a market share of about 40%, according to a report by VnDirect Friesland Campina Vietnam ranked 2nd in the market, accounting for about 18% of the market share Nestle Vietnam, Vinasoy and TH food are also considered to be main competitors of VNM, who have around 10% of the market Facing many big competitors and the general difficulties of the market, what advantages and challenges does VNM have? IV Key Risks and Opportunities: Inflation, tensions between Russia and Ukraine, the need for food reserves in Europe, China's tightening of control over Covid-19, disruption to the global supply chain are objective factors that cause material prices to rise Besides, high cost of raw materials and logistics has led to a narrower gross profit margin for dairy enterprises over the past time From the beginning of 2022, Vinamilk continuously increased the price of its product lines from 4% to 10% to compensate for the increased input costs Moreover, economic development, improved quality of life make consumers more and more conscious about food and health Consumers are actively choosing plant-based protein products over animals The shift from a large enterprise with an advantage in animal milk, with hundreds of thousands of cows and hundreds of millions of dollars in factory systems - to plant-based milk takes time and costs a lot Vinamilk is facing a series of pressures from both supply and demand, requiring rapid adaptation and changes to catch up with the market In contrast, VNM has many advantages to compete with its competitors, such as Nationwide Distribution Channel, familiar trademark, modern technology to maintain the hygiene and quality outfits products and increase the favorability of the brand, strong marketing and several subsidiaries Based on these factors, VNM has great opportunities to face with its challenges The chance from rapid urbanization and demand from China helps to increase the demand for products and various other dairy products, and accelerate their plan to expand globally Besides, VNM can take advantages of the goverment’s policies to support industries that boost the nation’s economy, and the global demand of Sports Nutrition to come up with business strategies and see a boom in business In short, despite facing many difficulties from the general economy and strong growth of competitors, VNM needs to maximize available benefits to maintain its position in the market V Accounting and Financial analysis Liquidity ratios Liquidity refers to a company's capacity to generate cash to fulfill its business responsibilities to pay liabilities Liquidity indicators determine a company's ability to settle its short-term financial commitments (Loughran, 2011) Current ratio: Current Assets / Current Liabilities The current ratio (also known as the working capital ratio) compares the total value of a company's liquid assets (equivalent to cash, receivables and short-term investments combined) to its short-term liabilities The ideal range for the goal is 120–170% In order to keep the business running, it needs current assets, which are often depleted within a year Short-term liabilities are also defined by their short duration, typically less than a year As a result, current assets should be equal to or greater than these liabilities Figure 2: VNM’s Current ratio (times) from 2018 to 2022 The above figure shows how VNM current assets to current liabilities ratios changed in a period of years 2018-2022 The numbers indicate that the Current assets number roughly doubled the Current liabilities in 2018 and 2019, recorded as 1.93 for both years Meanwhile, when Covid-19 striked in 2020, the Current assets ratio witnessed a sharp increase to 2.09 In the middle of the pandemic, VNM managed to keep their Current ratio steady between 2.21 and 2.07 for the next consecutive years VNM is able to maintain their productivity for having efficient strategies during the pandemic It is reported that VNM was able to ship 10 containers of premium nut milk and condensed milk to China despite their strict policies of pandemic regulations (Vinamilk, 2020) This event is a noteworthy achievement in 2020 as it opened new opportunities in the dairy business Moreover, in the third quarter of 2021, Vinamilk also exported its first shipment to the Philippines through Del Monte Vinamilk Dairy Philippines Inc., a joint venture, marking a significant step towards exporting to this promising market Moreover, Vinamilk has invested in research and development in key markets like the Middle East and Africa, introducing specialized products, such as Date-flavored infant cereal Quick ratio = (Current assets - Inventory)/Current liabilities This ratio is called ‘quick ratio’ or ‘acid test’, as it shows how fast these assets can be converted into cash With regards to the cash ratio, a low value indicates possible short-term funding instability, while a high figure indicates that too much capital is being tied up in the business Hence, a target range of 09 and 1.0 is legit between financial security and effective utilization of capital (Schmidlin, 2014) Figure 3: VNM’s quick ratio from 2018 to 2022 While the safe zone for quick ratio is between 0.9 to 1.0, VNM surpasses the standard and successfully maintains their quick ratio from 1.37 to 1.7 throughout 2018 to 2022 The result is outstanding, showing VNM's advantage in solving short-term debts or any unexpected financial crisis ROCE Return on Capital Employed: EBIT / (Current Assets - Current Liabilities) Return on capital employed (ROCE) is a financial metric used to evaluate a company's ability to generate profits from the capital it employs It is calculated by subtracting cash and cash equivalents from non-current assets and working capital (i.e., net working capital), and is a measure of the efficiency of a company's capital investments The capital employed figure represents the amount of capital required by a company to carry out its operations (Schmidlin, 2014) ROCE (%) VNM IDP HNM 2022 31 64 33 2021 37 100 22 2020 42 148 2019 45 2213 -14 2018 47 -22 (VietStock, 2023) According to the table above, the dairy food industry obviously experienced volatility during and after the pandemic High ratios indicate higher earnings generated from their company's capital International Dairy Products Jsc and Hanoimilk are much smaller companies compared to Vinamilk, and their financial statuses are not secured in the industry IDP witnessed a sharp fall due to the decline of demand from Vietnamese market Meanwhile HNM ROCE ratio increases noticeably from 8% to 33% during 2020-2022 As HNM shows potential in investment growth, their business still underlies problems regarding lack of competition advantage and lack of sufficient capital management Efficiency ratios The use of assets ratios are financial metrics used to evaluate the efficiency of asset management in a company These ratios assess both non-current and current assets and are an important measure of a company's operational efficiency Total asset turnover: Sales/total assets "The asset turnover ratios are financial metrics that provide insights into the efficiency of a company's asset utilization These ratios compare a company's total assets to its sales revenue and help to evaluate the company's ability to generate revenue from its investments Typically expressed in monetary terms, asset turnover ratios show how much sales revenue is earned per dollar invested in assets." Figure 4: VNM’s total asset turnover from 2018 to 2022 The figure show that after year impacted by covid-19, Vinamilk is recovered and improved Inventory turnover: Cost of Sales / Inventory "It is important to approach a decline in inventory turnover with caution due to the potential risks associated with increased capital commitment and asset impairment The inventory days ratio, which can be calculated by dividing 360 by the inventory turnover figure, indicates the average number of days that products remain in a company's stock In order to maintain capital efficiency and profitability, it is recommended that inventory days be kept as low as possible while still ensuring that the company's ability to deliver is not compromised." Inventory turnover (times) 2022 2021 2020 2019 2018 6,51 5,11 6,52 5,97 5,06 Average inventory period: 365/Inventory turnover Average inventory period (days) 2022 2021 2020 2019 2018 56,05 71,37 56,01 61,14 72,16 Accounts Receivable Turnover: Sales / Trade Accounts Receivable "The account receivable turnover ratio is frequently expressed in terms of the average number of days outstanding before the firms are able to collect the cash." "The interpretation of modifications in the accounts receivable turnover and average collection period ratios depends on a firm's credit policies Many companies use credit terms to spur sales, such as offering customers the option to delay payments on certain purchases until a later date This can lead to a decrease in accounts receivable turnover and an increase in the average number of days receivables are outstanding However, changes in these ratios should not be seen as a cause for concern if the incremental revenue generated from the additional sales surpasses the cost of carrying accounts receivable for a longer duration." Accounts Receivable Turnover (times) 2022 2021 2020 9,79 10,45 11,47 2019 2018 12,47 11,13 Accounts Payable Turnover: Cost of Sales / Trade Accounts Payable "A company's accounts payable turnover ratio provides insight into how quickly they settle payments for the purchases of inventory and raw materials that they make on credit This is particularly relevant for manufacturing or retail firms, where a significant amount of inventory purchases on credit is typical Although companies often not reveal the precise amount of such purchases, determining the ratio is a straightforward process." Accounts Payable Turnover (times) 2022 2021 2020 2019 2018 7,89 7,67 9,19 7,65 6,64 Average payment period: (Accounts payable / sales) x 365 Average payment period (times) 2022 2021 2020 2019 2018 27,78 27,03 21,26 25,16 29,17 2019 61,14 2018 72,16 Inventory days: 365/Inventory turnover Inventory days 2022 56,05 2021 71,37 2020 56,01 Working Capital Turnover: Net profit/(current assets - current liabilities) Working Capital Turnover (times) 2022 2021 2020 2019 2018 0,65 0,67 0,88 1,25 1,20 Fixed Asset Turnover: Fixed assets/total assets Fixed Asset Turnover (times) 2022 2021 2020 2019 2018 0,25 0,24 0,29 0,33 0,36 Profitability: " Profitability is a crucial factor for investors, creditors, employees, suppliers, and customers to evaluate the effectiveness of a firm's management in utilizing the capital invested in generating returns It provides an insight into the firm's ongoing viability, making profitability analysis a critical tool in assessing the efficacy of the firm's strategy implementation." Return on Assets ratio: Earnings before Taxes / Total Assets * 100 This profitability indicator helps to determine how the company generates its earning and how to compare with its competitors Figure Since 2018, VNM has had a slightly - decreased trend in both ROA and ROE aspects, from 31,8% to 21,6% for ROA, and 19,4% to 12,1% for ROE Because ROA is computed by earnings before taxes (or net income) over total assets, hence, the higher rate of return, the more effective the firm coverts its invested money to net income Even these figures are declined due to the rising cost of raw materials and transportation during COVID period, they are higher than the dairy industry’s average, which is 13,6% Gross profit margin: ((Sales - Cost of Sales) / Sales) * 100 "gross profit" is a measure that indicates how much money a business would generate if it did not have any additional expenses, such as office rent, salaries, and so on Ratio of profit margin: Earnings before Taxes / Sales * 100 Profit margin is the measure of a business, product, service’s profitability, which is expressed as a percentage The higher the number, the more profit the business makes relative to its costs Figure The percentage of gross profit margin and the ratio of profit margin remained constant since 2018, around 47% and 22,7%, respectively From 2020 to the last fiscal year, gross profit margin and the ratio of profit margin decreased to 39,9% and 17,5%, respectively These changes could be explained by the impact of COVID-19 on product consumption As such, the profitability ratios are important indicators of the ability to monetize the services while maintaining a lean outfit at the same time Gearing ratios Return on equity (ROE) measures the profit earned for each dollar invested in a company’s stock When compared to the equity ratio, gearing views large accounts payables to be beneficial because these represent credit that is not subject to interest A gearing of 10–20% should be deemed appropriate from a risk/return perspective because at that level there is neither a stockpile of cash nor carelessness of financial stability Numbers between 20 and 50 percent can likewise be considered to be in the acceptable range Yet, starting at a gearing level of 70% and going higher, the financial stability of a company becomes increasingly important If the value increases above 100%, then a capital increase or a considerable debt reduction should be taken into consideration, as in that situation the net financial debt would be more than the shareholders' equity ROE = Profit margin x Total asset turnover x Equity = Net income/Earnings Gearing - ROE % VNM IDP 2022 15,03% 52% 2021 26,38% 78% 2020 22,24% 133% 2019 19,26% -116% 2018 4,86% 57% Investment ratios EPS = net income/ outstanding shares “The earnings per share ratio shows the portion of a company’s profit allocated to each outstanding share of common stock Earnings per share serve as an indicator of a company’s profitability” EPS (vnd) 2022 2021 2020 3.632 4.517 4.770 2019 5.478 2018 5.295 From 2018 to 2022, the EPS decreased from 5.295 to 3.632 vnd, which makes VNM less attractive to investors and leads to the stock price stagnant or even drive it down P/E = Price/ earning per share P/B = Price/ book value Both P/E and P/B ratios are relative valuation metrics that help to understand the company's financial health compared to its peers and the industry Figure The P/B ratio has declined since 2018, which could be a signal to investors that a stock may be undervalued Besides, P/E ratio stays around 16,5% - 17,8%, hence investors are able to expect a stable growth rate in the future Sensitivity ratio Z-Score formula Z-Score = 1.2A + 1.4B + 3.3C + 0.6D + 1.0E A = Working capital/Total assets B = Retained earnings/Total assets C = Earnings before interest & tax/Total assets D = Market value of equity/Total liabilities E = Sales/Total assets The Altman Z-Score model was originally developed to estimate the likelihood of corporate bankruptcy within a period of two years A score below the threshold of 1.8 is indicative of an elevated probability of bankruptcy, whereas a score above 3.0 is suggestive of a low probability of insolvency Therefore, the Altman Z-Score can serve as a useful tool for evaluating a company's financial soundness and its vulnerability to bankruptcy The Z-score of VNM in 2022 is around 3.58, which indicates that VNM is excluded from the bankruptcy-endangered zone F-Score The Piotroski’s F-score, which is used to evaluate the strength of a firm’s financial position, ranges from zero to nine, with nine being the best value stocks and zero being the worst These nine ratios are explained as follows: - Profitability criteria includes: + Return on assets is positive (1 point) + Positive operating cash flow in the current year (1 point) + Higher return on assets (ROA) in the current year compared to the ROA in the previous year (1 point) + Cash flow from operations is greater than net income (1 point) - Leverage, Liquidity and Source of Funds criteria include: + Lower ratio of long-term debt in the current year compared to value in the previous year (1 point) + Higher current ratio this year compared to the previous year (1 point) + No new shares were issued in the last year (1 point) - Operating Efficiency criteria includes: + A higher gross margin compared to the previous year (1 point) + A higher asset turnover ratio compared to the previous year (1 point) By calculating from the balance sheet, income statement and cash flow statement, in 2022, VNM has a positive net income of 8,577,575,319,708, a positive ROA (0.18), operating cash flow of 8.827.273.176.516, indicating that the operating cash flow is higher than the net income Besides, the long-term debt in 2022 is lower than the value in 2021, and no new shares were issued in 2021 However, the current ratio and gross margin in 2022 are lower than the figures in 2021 For every criteria that is met, the company is given one point, if it is not met then no points are awarded Therefore, VNM got out of for F-score in 2022, which is an average value proposition going into 2023, indicates that the company has strong and improving financials VI Review and evaluate corporate governance Le Thi Bang Tam, Chairwoman of Vinamilk's Board of Directors, emphasizes the importance of corporate governance in the company's long-term strategy and growth Over the years, Vinamilk has developed a strong corporate governance framework that aligns with international best practices This framework strengthens accountability for both the Board and management, instilling trust among stakeholders in the market, and promoting the longterm interests of the company's shareholders Vinamilk’s Principles: THE BOARD OF DIRECTORS’ RESPONSIBILITIES Vinamilk's commitment to establishing high standards of governance was a deliberate and thorough process In 2017, the company became one of the first listed companies in Vietnam to establish an audit committee under the Board of Directors, a widely used oversight mechanism in other parts of the world but still uncommon in Vietnam The new audit committee, now chaired by an independent director, has the power, resources, and independent status to effectively support the Board of Directors in fulfilling its oversight function The primary responsibility of the Audit Committee is to review significant financial reporting issues and judgments to ensure the integrity of Vinamilk's financial statements, internal control and internal audit systems, and compliance with laws relating to the company's business activities, associated transactions, related party transactions, or transactions that may give rise to conflicts of interest The Audit Committee also considers and selects independent auditors for Vinamilk and its subsidiaries, as well as reviews the scope and results of external audits D SHAREHOLDERS’ RIGHTS PRINCIPLE 9: ESTABLISHING A FRAMEWORK FOR EFFECTIVE EXERCISE OF SHAREHOLDERS’ RIGHTS Implement a fair and consistent dividend policy: - Every year, the BOD holds an effective Annual General Meeting of Shareholders - All documents related to the AGM (including minutes and resolutions of the AGM), not only in 2021 but also from previous years are kept on Vinamilk’s website in both Vietnamese and English for shareholders’ easy access at: https://www.vinamilk.com.vn/vi/dai-hoi-dong-co-dong - - Vinamilk’s dividend policy is approved by the AGM based on the Company’s business results in the year Normally, Vinamilk shall pay dividends to shareholders in 03 (three) installments during the year The Company has made advance payments for dividends with a total amount of VND 6,061 billion The remaining dividend of 2021 will be decided by the AGM 2022 The first advance payment of 2021: VND 1,500/share, made on September 30, 2021 The second advance payment of 2021: VND 1,400/share, made on February 25, 2021 Dividend for the financial year 2020: The total dividend of the financial year 2020 approved by the AGM 2020 is VND 7,871 billion, equivalent to 71% of the Company’s consolidated net profit after tax (in 2019 the total dividend was VND 7,836 billion, equivalent to 74% of the Company’s consolidated net profit after tax) STAKEHOLDER RELATIONS PRINCIPLE 10: BUILDING EFFECTIVE STAKEHOLDER ENGAGEMENT Vinamilk has implemented policies to effectively manage related-party transactions, and in the most recent year, no transactions were found to conflict with the company's interests Furthermore, the company has strictly enforced its anti-corruption and anti-bribery policies Figure Results: Vinamilk has taken deliberate and thorough steps to establish high standards of corporate governance In fact, it was one of the first listed companies in Vietnam to set up an audit committee under the Board of Directors in early 2017, which is a popular oversight mechanism in the rest of the world but still rare in Vietnam The audit committee is now chaired by an independent director, who has the power, resources, and independent status to effectively support the Board of Directors in fulfilling its oversight function Vinamilk also has independent directors comprising one-third of the total members, which is a rare practice among Vietnam’s 700 listed firms These independent outside directors bring relevant industry expertise and insight and act in the company’s best interest, free from conflicts that can compromise their judgment Celebrating its 45th year of establishment in 2021, Vinamilk has not only become the leading nutrition company in Vietnam but also established a solid position as a Vietnamese national brand in the global dairy industry The Company has achieved the 36th rank among the world’s top 50 dairy companies in terms of revenue ASSESSMENT OF THE BOARD OF DIRECTORS’ AND ITS COMMITTEES’ PERFORMANCE In 2021, the operation of Vinamilk’s BOD was affected by the impacts of the Covid-19 pandemic However, the BOD still carried out activities effectively and appropriately in accordance with the Company’s Charter, the Regulations on Corporate Governance, and the BOD Regulations With the motto of focusing on efficiency and maximizing best practices, the entire BOD and all relevant Committees carried out duties through the following activities in 2021: 2022 goals: 2022 guidance (VND billion) (VND billion) TOTAL SALE REVENUE: 64,070 billion VND EBIT: 10,000 billion VND V Conclusion and Recommendations VNM invests in the local equity market of Viet Nam, the number mentioned above 10% per annum over coming years VNM’s shares are trading at a 2022 P/E of 20.7x and which are relatively cheap compared to regional peer valuations of 25x We believe these multiples are justifiable given a relatively unattractive single digit long-term growth forecast (2019-2024F net profit CAGR of 6.7%) We trim our 12-month target price for VNM to VND109,000, based on a lower 2022 EPS and target P/E of 22x and using DCF methodology, with a 50% weighting used to derive these metrics We expect net sales to drop 5.3% and parent company NPAT 2023 to drop 2.8% to VND61,263 Billion (+2.2% Equity) and VND9,445 Billion (+10.9% Equity) , due to: Reduces forecast for domestic net sales growth (including MCM) to 1% CK (old level: 3% CK) with the new assumption that the company will not increase selling prices as the application of sales remains high in the second half of the year the begin of the year However, we believe that domestic sales will still grow positively in 2023 thanks to the distribution system structure and multi-product packaging upgrade For the overseas market, we cautiously forecast growth at 8.4% CK (old level: 9.4% CK) as the export segment still faces many expressions despite the recent cooling of the USD Reduced forecast of consolidated profit margin to 41.3% in 2023 (old level: 43.3%) as the company confirmed that input materials used in 6M2023 still cost more than 6M2022 Accordingly, profit margin will improve significantly from Q3/2023 Overall, we expect VNM's profit margin to expand by 1.4 percentage points from 39.9% in 2022 After years of sharply cutting marketing and sales expenses, we expect VNM to increase this cost again in 2023 The aim is to maintain market share Besides, we expect the digital transformation plan (target 20-30% of human resources) will help the electric transport company save operating costs in the long run Accordingly, we expect SG&A expenses in 2023 to increase slightly by 2.4% of shares Upside surprises: Higher-than-expected sales growth and lower-than-expected rawmaterial prices would be an event outside the expectations of our call Further privatization of VNM would likely be seen as a positive sentiment regarding the share price Downside risks: Lower-than-estimated sales growth; higher-than-expected raw-material prices Vietnam as an investment opportunity has not been cyclically favorable Long term holder will be compensated adequately for the risk, but investor looking for “time the market” may want to wait until of Q2 2023 at the earliest We accordingly maintain our MARKET PERFORM rating for the stock VII References Loughran, M (2011) Financial Accounting For Dummies Indianapolis, Indiana: y Wiley Publishing, Inc Schmidlin, N (2014) The Art of Company Valuation and Financial Statement Analysis: A Value Investor’s Guide with Real-life Case Studies Croydon, Great Britain: John Wiley & Sons Ltd Rist, M and Pizzica, A (2015) Financial Ratios for Executives: How to Assess Company Strength, Fix Problems, and Make Better Decisions New York, New York: Apress JSc, V.D.P (2023) Consolidated financial statements for the year ended 31 December 2022 rep KPMG Available at: https://www.vinamilk.com.vn/static/uploads/documents/bctc/1677574021_BCTC_SOA T_XET_N2022_-_HOP_NHAT_EN.pdf (Accessed: 2023) JSc, V.D.P (2022) Consolidated financial statements for the year ended 31 December 2021 rep KPMG Available at: https://www.vinamilk.com.vn/static/uploads/documents/bctc/1646046854_Consol_3 1.12_.2021_-_EN_.pdf (Accessed: 2023) JSc, V.D.P (2021) Consolidated financial statements for the year ended 31 December 2021 rep KPMG Available at: https://www.vinamilk.com.vn/static/uploads/documents/bctc/1614600464_BCTC_Ho p_Nhat_31.12_.20_-_EN-FN_.pdf (Accessed: 2023) JSc, V.D.P (2020) Consolidated financial statements for the year ended 31 December 2021 rep KPMG Available at: https://www.vinamilk.com.vn/static/uploads/documents/bctc/1588397927_Báo_cáo_ tài_chính_h p_nhấất_Q4-2019-EN_đã_sốt_xet.pdf ợ (Accessed: 2023) JSc, V.D.P (2019) Consolidated financial statements for the year ended 31 December 2021 rep KPMG Available at: https://www.vinamilk.com.vn/static/uploads/documents/bctc/1588396370_Báo_cáo_ tài_chính_h ợp_nhấất_Q1_-2018 en.pdf (Accessed: 2023) VIII Appendices