Vinamilk Credit Lending Management

Credit Lending Management is considered one of the most difficult courses with a major in Finance and Banking in Hanoi University. The company I analyzed is Vinamilk (Công ty cổ phần sữa Việt Nam). I hope to get good scores Good luck

HANOI UNIVERSITY FACULTY OF MANAGEMENT AND TOURISM

VIETNAM DAIRY PRODUCTS JOINT STOCK COMPANY

CREDIT ANALYSIS AND LENDING

MANAGEMENT

Lecturer:

Tutor:

Đào Thị Thanh Bình Nguyễn Thị Minh Hằng

FALL 2022

TABLE OF CONTENTS

ACKNOWLEDGEMENT 1

ABSTRACT 2

I Introduction to Borrower – Vietnam Dairy Products Joint Stock Company 3

II Vinamilk Analysis 4

1 Expert System – 5Cs 4

1.1 Character 4

1.2 Capacity 5

Table 1: Capacity Ratio 6

1.3 Cash – Financial Performance of Vinamilk 6

 Liquidity Analysis 6

Table 2: Liquidity Ratio 6

 Efficiency analysis 7

Table 3: Efficiency Ratio 7

 Profitability analysis 9

Table 4: Profitability Ratio 9

 Leverage Ratio 10

Table 5: Leverage Ratio 11

1.4 Collateral 12

1.5 Condition 14

2 Risk Premium Analysis 14

Table 6: Probability of Repayment WITHOUT Recovery Rate 15

Table 7: Probability of Repayment WITH Recovery Rate 15

3 Econometric Analysis 16

Table 8: Discriminant Zone 16

Table 8: Vinamilk’s Altman Z score 17

III Conclusion and Decision for the Loan 18

REFERENCE 19

APPENDIX 20

ACKNOWLEDGEMENT

We would like to thank Dr Dao Thi Thanh Binh and Mrs Nguyen Thi Minh Hang for their time and excitement in providing us with feedback on this project We would like to use this time to express our sincere gratitude to our friends and coworkers for their commitment to helping us finish this project We are motivated to retain the knowledge we learn during the course by the outcome and practicality of the project

In current development and integration economics, corporations, medium and small

enterprises are important departments in the economy and society in Vietnam To continuously

strongly improve and widen scales, requires abundant resources and stable capital from banks

or financial institutions As a commercial bank, playing the blood economy, intermediary

bridge between excess capital and shortage of capital, the following report is going to present

a credit appraisal report of VINAMILK – Vietnam Dairy Products Joint Stock Company,

including the analysis of financial performance, five Cs of the company and others With the

purpose of answering the questions: Should the loan support for VINAMILK or not?

I Introduction to Borrower – Vietnam Dairy Products Joint Stock Company

Vietnam Dairy Products Joint Stock Company (Vinamilk) is consistently determined to be a premium brand in the food and beverage industry, with a large number of domestic and international customers who are served a variety of nutritional and health products Established

on August 20, 1976, Vinamilk is a well–known corporation focusing on milk, probiotics, yogurt, ice cream, soft drinks, coffee, and other products derived from milk Vinamilk has a system of factories not only in domestic but also in international nations Spreading from Thanh Hoa, Nghe An, Da Nang, Tuyen Quang, Ha Tinh, Lam Dong, Myanmar, Thai Lan, New Zealand, and 20 other countries, Vinamilk is increasingly becoming a solid brand name in the market To become a milk industrial leader, Vinamilk has concentrated on product quality and reputation, as well as customer satisfaction In the era of the "4.0" technology revolution, Vinamilk has been one of the listed firms paying attention to technology as well as international cooperation

Although COVID-19's outbreak caused the entire global economy to decline, the dairy industry

in Vietnam even grew and was little harmed Dairy industry experts stated that while Vietnam currently has a low per capital milk consumption, the dairy business is still seen as having potential in the future The demand for raw, fresh milk surged by roughly 61%, from 500 million liters in 2010 to 805 million liters in 2015, according to data from the Vietnam Feed Association (VFA) Vietnam is a large nation with a population growth rate of 1.2% annually, and the dairy industry there has a lot of potential The GDP is expected to expand by 6–8% a year, and per capita income is expected to rise by 14.2% annually, which combined with the trend of improving the health and stature of the Vietnamese people will increase demand for products Milk always has a high growth rate Each Vietnamese person consumed roughly 15 liters of milk annually in 2010, on average The amount of milk consumed annually per person

is expected to nearly treble to 28 liters by 2020 Numerous businesses and organizations have come and gone as the dairy sector has grown in recent years; some of them, including TH True Milk, Dutch Lady, Nestle, Nuti-Food, and others, have enjoyed notable success Vietnam Dairy Products Joint Stock Company, which was named one of the top 200 best revenue-generating listed companies in Asia Pacific in 2019 (Forbes Asia), is focused on this project (VNM) Vinamilk has been growing for at least 40 years and has progressively consolidated its position

in the market

The first problem affecting Vinamilk's operations is the rural population's high percentage of low-income residents Lower income individuals will limit the consumption of the nation's output, which will lower profits and sales revenue for the corporation if the economy's growth slows down in the upcoming term

Additionally, lowering dairy product duties will provide beneficial circumstances for imported dairy products The company's operations are impacted by exchange rate swings because it imports 50% of its raw materials and generates 30% of its income from exports Finally, Viet Nam's WTO membership will make it possible for international businesses to enter the domestic market As a result, the industry's enterprises will face more competition

To reach its market leader position in the Vietnam market, VNM keeps customer loyalty and performs effective competitive strategies Milk sector is where customer loyalty might change

if the firm is satisfied with its current position and has no new innovations

II VINAMILK Analysis

1 Expert System – 5Cs

1.1.Character

First of all, Vinamilk from the beginning has determined that this is the unit that plays a pivotal role in the production and supply of fresh cow's milk raw materials to supply to processing factories with the head of Mrs Mai Kieu Lien The company's activities are quite diverse, including: dairy farming; mixed farming and animal husbandry; production of animal, poultry and aquatic feed; wholesale agricultural, forest products raw materials and live animals; agents (cow semen, veterinary drugs, animal feed, .) Initially, the farm had a total herd of about 1,400 dairy cows with a total workforce of 92 people Up to now, the company's charter capital has reached 1,550 billion VND with the total number of employees up to 480 people

The encouraging maturity of the corporation after 8 years of efforts to carry out the mission is expressed through various achievements Top 10 Vietnamese high quality product by the Association of Vietnamese High Quality Products (1995-2020), Vinamilk is ranked number one in Forbes Vietnam's "Top 50 Most Valuable Brands" (2016-2020) Besides, there are many international achievements, such as the Top 200 Asia's Best Over A Billion (Forbes Magazine, 2019), the Top 10 World's Most Valuable Dairy Brands, the Top 3 World's Most Potential Dairy Brands, and the Top 5 World's Strongest Food Brands (Brand Finance’s Annual Report

2020 (United Kingdom))

Currently, all dairy barn systems are invested in and built by the Vinamilk company according

to the world's most modern technology, making the best quality of products and the highest quantity of products and services Therefore, Vinamilk profit goes toward the benefit of the customer, that means they always bring belief to the consumer In order to master modern technology and equipment, the company pays great attention to training and developing human resources Every year, about 10 students with good/excellent university entrance exam results are selected and sent by the Company to train in the Russian Federation on dairy farming Based on the importance of investing in human resources as a key factor, Vinamilk company has the prospect of effectively implementing the proposed long-term investment strategies Additionally, in accordance with the State Securities Commission's rules, Vinamilk consistently releases complete financial statements as a business that was listed on the Ho Chi Minh Stock Exchange in 2006 Finally, all of this raises Vinamilk's value and establishes it as

a trustworthy company

1.2.Capacity

Capacity is the ability to repay the loan with interest as per the predetermined schedule (Here 'capacity’ refers to financial capacity to repay the loan Capacity is different from legal capacity, which refers to capacity or eligibility to enter into a loan contract.) Capacity depends

on two factors The first factor is the borrower's financial position that should be stable The second is the borrower must be able to generate sufficient net income to service the loan repayment

To analyze whether the borrower’s financial position is stable, lenders often seek financial data from the customer In the case of personal loans, borrowers are often required to give details

of income and expenditure, and the net surplus available for repayment The lender also finds details of the existing assets and liabilities of the borrower Assets may consist of property, investment in stocks, managed funds and/or term deposits Liabilities may consist of outstanding balances on loans and credit cards

Lenders typically want audited financial statements and predicted cash flow in the case of businesses to assess the borrower's financial health or creditworthiness The lender takes into account both the risks and profits of the new initiative that the company is proposing The main source from which repayment is anticipated to occur is capacity At the outset, it's crucial to evaluate the main sources of debt payback

To analysis the ability to repay loan of Vinamilk, lenders often consider DIT ratio

Debt – to – Gross income = Total Debt

Revenue

Table 1: Capacity Ratio

From the table, the lender can see that the debt-to-equity ratio decreases slightly from 2019 to

2020 After that, this ratio showed an upward trend between 2020 and 2021 This ratio has been less than 50% for all three years; the total debt of the company is less than the revenue from sales of goods and services So lenders can conclude that this accounts for only a small portion

of the company's total revenue, so the company is less likely to have bad debt On the other hand, the company is financing its operations mainly from the owner's capital contribution and from the accumulated after-tax profit over the years This shows that the enterprise can be financially independent and does not need to borrow too much, thus reducing the financial pressure on the business and minimizing interest and expense, thereby improving business results

Moreover, Vinamilk is also considered a company with strong financial health and a leading company in the milk market in Vietnam Vinamilk is also among the top 30 enterprises with the largest capitalization index in Vietnam Not only being successful in Viet Nam, Vinamilk

is also very successful abroad, with milk exports to more than 40 countries around the world Vinamilk's financial strength and reputation are indisputable, so lending to this company has very little risk

1.3.Cash – Financial Performance of Vinamilk

 Liquidity Analysis

Table 2: Liquidity Ratio

Liquidity indicators reflect the ability of the business to pay off short-term loans Generally, Vinamilk’s Current Ratio and Quick Ratio is higher than 1 times (which is considered as benchmark), which has remained stable and safe over the years Beside, the growth of current assets over current liability is uptrend, expressing Vinamilk's ability of controlling leverage

relatively well, increased by 2.1 times compared to the previous year The acid test ratio evaluates a company's capacity to settle its immediate obligations without having to sell inventory or seek out additional funding, which has benchmark equal 1, meaning be normal quick ratio Acid test ratio of Vinamilk is almost higher than 1, even rising up 1.74 times in

2020 and adjusted slightly at 1.72 times in 2021, that means Vinamilk has 1.72 (VND) of liquid assets available to cover each 1 (VND) of current liabilities Looking at the graph, we can easily see the trend line of Vinamilk's liquidity ratio during the recent 3 years

Finally, it can be concluded that Vinamilk has comparatively sound financial standing and the acceptable capacity to repay short-term loans, as a result, the first criterion of Vinamilk's financial performance supports this decision to take out a short-term loan

 Efficiency analysis

The average collection period 29 days 32 days 35 days

Days Accounts Payable Outstanding 150 days 170 days 170 days

Table 3: Efficiency Ratio

We stated earlier that one of the characteristics of a financially sound business is that it is run efficiently To measure efficiency, financial analysts calculate the efficiency ratios The efficiency ratios measure how efficiently the business has employed its assets These ratios are based on the relationship between the level of activity (represented by sales or the cost of goods sold) and the levels of various assets The important efficiency ratios are:

 The inventory turnover ratio

 The average collection period

The inventory turnover ratio

The inventory turnover ratio shows the efficiency of management of inventory The ratio of net sales to inventory is called the inventory turnover ratio

Inventory turnover ratio = Net Sale

Inventory

For Vinamilk company, the inventory turnover was:

The average collection period

This ratio shows the efficiency in collection of receivables A business that is efficient in debt collection will face fewer liquidity problems The average collection period is the ratio

of receivables to average sales per day The average collection period is calculated by the

following formula: Average Collection Period = Receivables

Average sales per day

For Vinamilk, the average collection period was

Account Receivable Turnover

The Account Receivable Turnover of Vinamilk decreased slightly from 2.3x to 1.9x from 2019

to 2021 This index is generally quite good, its downtrend is not a good sign because the receivables turnover ratio is higher each month/quarter/year Thus, it is confirmed that the debts and receivables have been effective This means that Vinamilk is not in a positive financial position in 2021

Account Payable Turnover

The Account Payable Turnover of Vinamilk rose strongly from 2019 to 2021 (3.9x to 7.1x) This index is generally quite high That proves the financial health of this company is quite good The reason is that the higher the payables turnover ratio, the better the debt payment ability of the business and the strong financial position of the business

Day Inventory Held

Day Inventory Held of Vinamilk was an average number, but it had an upward trend between

2019 to 2021 Because this metric shows the length of time a company's cash is stuck in liquidity because of unsold inventory This data is higher because the company may want to keep inventory high to achieve high order fulfillment rates, for example because the company predicts strong sales for the coming year

Days Accounts Payable Outstanding

This number is an upward tendency from 2019 to 2021 An increase in this index may indicate that Vinamilk is using available cash for short-term investments and increasing working capital and free cash flow (FCF)

 Profitability analysis

Profit after tax/ Revenue 19% 19% 17% Profit after tax/ Equity (ROE) 38% 35% 31% Profit after tax/ Total Assets (ROA) 26% 24% 21% Operating profit/ Net revenue 23% 23% 21%

Table 4: Profitability Ratio

The year 2021 witnessed negative impacts from the COVID pandemic on Vinamilk However, through efforts to expand the business and control costs, the Company’s profit margins remained high regardless of the modest year-over-year decrease

 Return on Assets (ROA)

This ratio demonstrates how well assets are used to produce income Since it is calculated by dividing net income by total assets, in general, the greater the rate of return, the more successfully the company turns its investments into net income Vinamilk's ROA may still be regarded as a high rate and produced more money on less investment even though there was a

slight reduction over the five-year period compared to the industry average ROA, which is 0.27, according to Investing.com research in 2021

 Return on Equity (ROE)

ROE is a metric used to assess a company's profitability in relation to stockholder equity By using the result calculated by dividing net income by shareholders' equity The best way to use ROE is to compare the statistic to the industry average, which is 28.88% It is obvious that VINAMILK's ROE exceeds industry averages by up to 8.27% The difference between these percentages is acceptable because a typical ROE may be 10% or less than the industry standard

 Operating profit performance

By dividing operating income over total revenue, this metric expresses how the company generates its profit on a per-sale basis after considering variable costs except any interest or taxes (EBIT) In the VINAMILK case, the operating profit margin had slightly fallen off from

2019 to 2021 by 1.03 Though, using the average in the dairy industry in 2021 (20.94%), Vinamilk can still be considered as a strong firm in maximizing its operations and profit

 Revenue growth

In the context that the Vietnam economy began to show signs of recovery after the pandemic,

in the first quarter of 2022 (“1Q2022”), Vinamilk’s consolidated net revenue continued the uptrend at 5.2% YoY growth, reaching VND 13,878 billion and completed 21.3% of the annual guidance (VND 64,070 billion) According to the General Statistics Office (GSO), total retail sales of goods and consumer services in 1Q2022 increased by 4.4% YoY Vietnam is currently one of the six countries with the highest COVID-19 vaccination rate in the world

Net cash balance as of 30 September 2021 was VND 12,686 billion, equivalent to 24% of total assets Total capital expenditure in 9M2021 was more than VND 1 trillion For the whole group, Vinamilk is operating a network of 17 local and overseas factories, 15 dairy farms with

a total herd of cows reaching nearly 160,000

 Leverage Ratio

 Liabilities to asset ratio

Controlling the financial situation of the business is an extremely important issue of the business The tool that owners prefer to use is the ratio of total debt to total assets A company's debt-to-assets ratio is one of the groups of debt ratios or leverage ratios included in a financial