A dairy farm of Vietnam Dairy Products Joint Stock Company (Vinamilk) in Long Khanh commune, Ben Cau district in the southern province of Tay Ninh. (Photo: VNA) Analysts believe that milk powder prices will cool down in 2023 due to reducedimport demand from China and global demand for milk may weaken in the shortterm. Therefore, dairy producers will see gross margin recover in 2023, whenthe pressure from raw material costs eases.
According to VNDIRECT Securities Joint Stock Company (VNDIRECT), the grossprofit margin of dairy businesses is likely to improve in 2023 because theprice of milk powder - the raw material for milk production - has cooled down.As of March 21, 2023, the price of milk powder has decreased by 29.8%year-on-year and 32.1% lower than the peak in March 2022.
Milk powder prices are forecast to continue to decline in 2023 due to reducedimport demand from China and weak global demand for milk in the short term,while milk powder production will increase in 2023.
The dairy industry is facing both advantages and challenges. Therefore,businesses are not confident in setting high growth targets.
As a leading enterprise in the dairy industry, recently, Vietnam Dairy ProductsJoint Stock Company (Vinamilk or VNM) plans revenue up by 5.5% and profitequivalent to the performance of 2022, at 10.5 trillion VND (446.9 million USD).Vinamilk's 2023 Annual General Meeting of Shareholders will be held on April25, 2023.
In the meeting with shareholders in February 2023, Vinamilk's management boardwas not too optimistic about the recovery of milk consumption demand becauseconsumers are tightening spending.
Regarding input material expenditure, global milk powder prices are expected todecline in 2023, the reopening of China will not have much impact on thistrend. Vinamilk has finalised the input milk powder price for the first half of2023.
According to VNDIRECT, most labour-intensive industries are facing manychallenges, leading to rising unemployment and forcing consumers to tightentheir spending. This company estimates that consumption in Vietnam will bestrongly affected in the first 6 months of 2023 and gradually recover itsgrowth momentum from the third quarter of 2023.
According to Vinamilk, most Vietnamese consumers do not consider milk as anessential nutritional product. Therefore, demand for dairy products will weakenas consumers tighten their spending habits.
Vinamilk expects milk consumption to grow below 5% over the same period in2023.
Besides, Vinamilk is facing increasing competitive pressure in most productlines, especially in the powdered milk segment. In 2022, VNDIRECT said,Vinamilk had not launched any notable new products while promotional activitieswere reduced. Vinamik was still in the process of restructuring the brand andrenewing the packaging and flavours. The restructuring of the sales channel in2022 may continue to affect sales in the first half of 2023.
Analysts expect Vinamilk to maintain a flat market share in 2023-2024, with domesticconsumption increasing while average selling price remains unchanged in 2023and slightly up in 2024.
In addition, VNDIRECT said that Vinamilk's export revenue will increaseyear-on-year in 2023, as milk consumption demand in the Middle East and Chinamarkets will recover. However, the Chinese market has not yet contributed alarge proportion to export revenue, only about 5%. Therefore, this event willnot significantly affect Vinamilk's export revenue growth.
According to Rabobank, one of the world's leading banks in agriculturalfinance, China's milk powder import volume in the first quarter of 2023 isexpected to decrease compared to the first quarter of 2022 due to accumulatedinventories in the past year. Global milk demand is likely to weaken in theshort term as many economies are facing inflation. Therefore, the price ofwhole milk powder - the raw material for milk production - may continue todecrease compared to 2022.
At the same time, according to VNDIRECT, global sugar prices have recentlyincreased as the outlook for sugar supply is affected by adverse weatherconditions in India (heavy rain), and Brazilian sugarcane producers areexpected to continue to prioritise more ethanol production in the 2023-2024crop year.
This factor may partly affect Vinamilk's gross profit margin as the companyalso imports sugar from foreign markets for production besides using sugar fromVietsugar - a subsidiary of Vinamilk.
However, VNDIRECT still believes that the price of whole milk powder willcontinue to decrease and the business will record an increase in gross profitmargin in 2023./.
VNA
