This document provides an analysis of Vinamilk, a leading dairy company in Vietnam, using the free cash flow to firm valuation method. It summarizes Vinamilk's financial performance from 2007-2011, noting steady revenue growth over 26% annually and equity increasing nearly 3 times from 2008-2011. The analysis also reviews Vietnam's economic conditions, the dairy industry and market trends, Vinamilk's products/brands, management, distribution network, and competition in the market. Vinamilk has the largest market share in fresh milk, yogurt, and condensed milk in Vietnam.

1. JOHN VON NEUMANN INSTITUTE
VALUING VINAMILK BY FCFF METHOD
Hoang Hai Nguyen – nguyen.hoang@jvn.edu.vn
Nguyen Thi Ngoc Ha
HCM City, 6th February, 2012

2. Fundamental & Technical Analysis
Valuing VINAMILK company – a company among the top 10 market capital
listing (both HOSE and HNX) using the Free Cash Flow to the Firm method.
1) Economic analysis:
a. GDP growth rates: In 2011, GDP growth achieve: 5.89% [1].
b. Inflation: increased 18.13% in 2011
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Input
material’s prices are increased.
c. Interest rates:
- VND Interest rates brings back to max 14%/year by commercial banks.
Expectation, in 2012, the rate is lower to 10%/year, by requires to
inflation control of the government.
- Lending rate is slowly down from the end of September: Lending rate for
agriculture and export area at 17-19%/year; Lending rate for other area at
17-21%/year.
- With USD, Interest rates keep stable 2%/year, lending rate for all long,
short, middle term at 6–8%/year [2].
d. Energy prices:
- Gasoline price at 20.800 VNĐ/litre A92 of 2011 and will increase by
unstable situation at Mid East (where provided oil the most of the world).
- Power price increased about 10-15% by required of market, the
government will restrict to subsidize. Maximum rate is 15.6% by requires
to inflation control of the government.
2) Industrial:
a. Growth rates: In 2011, Milk area growth achieve 15.8% with 2010 [3].
b. Trends: Continue growth in next 10.
- According to data on 01/10/2011 of the General Statistics Office,
the total dairy herd of the country in 2010 increased 11.31% compared to
2

3. Fundamental & Technical Analysis
2009, from 115,518 to 128,583 (13,065 additional). Compared with
2009, total production of raw milk production in 2010 increased 10.23%
increases 28,472 tons from 278,190 tons in 2009 to 306,662 in 2010.
- The amount of raw milk only reached about 22% of milk consumption in
Vietnam, Vietnam must import the rest, mostly is milk powder
reconstituted to meet the demands of milk 86 million Vietnamese people
with the consumption of about 14 kg / person / year.
- Milk consumption rate in Vietnam is relatively low compared to the
average of the world. Such as, consumption in Thailand at about
23kg/person/year, at developed countries are much higher. Forecast for
milk consumption in Vietnam from now to 2013 about 15% / year and
total milk consumption in Vietnam in2013 will reach about 2 billion litres
[3].
c. Foreign competition: Milk consumption market share [5].
Fresh
Yoghurt
milk
Vinamilk
53%
80%
Dutch Lady
30%
20%
Hanoi Milk and
17%
domestic label
Import
0%
0%
Total
100% 100%
Condensed
milk
75%
Powder
and other
30%
16%
Overall market
share
39%
24%
0%
15%
54%
100%
22%
100%
25%
0%
100%
- Fresh milk will begin to face competition from the Food Corporation TH
Milk:
In
cooperation with Bank
Stock investment,
project
"Dairy
of North
Asia Commercial
farming and milk
Joint
processing on
industrial scale "with a total investment about $1.2 billion.
- As above, first step is $ 350 million, is the largest project in the field
of agricultural high-tech applications first in Nghe An and over the
country. TH Dairy Factory was built on a total area of 22 hectare will be
3

4. Fundamental & Technical Analysis
a modern factory in Southeast Asia with modern advanced technology,
Tetra Pak - Sweden, production capacity is expected to reach capacity of
500 tons / days in 2012 and reached 500 million liters / year in 2017.
Dairy products are the first to use 100% of fresh milk from clean and
high TH Milk farm system promises to provide abundant sources of raw
milk to
consumers
instead
of milk
powder, enough to
reach demand Vietnam's milk in the future. Mr. Tran Bao Minh - General
Director of JSC TH Milk Food, said the company strives ahead to
2012 the market will supply about 50% of the total milk production in the
country today. Within 7 years the company's fresh milk will be more
than 3-4 times the current amount of milk in the country. (Source
from TH Milk).
- Condensed milk: Market share stability, along with Dutch Lady, VNM
up large proportion of the domestic market.
- Continue take the competition from powder milk: follow psychology
prefer foreign
milk
powder remained strong in
the
minds of
the
Vietnamese. In supermarkets, powder milk exhibited about 70%
foreign pavilions with the milk powder has penetrated into Vietnam a
long time: Abott, Mead Johnson, Nestlé ...
3) Company analysis:
a. Management team: Vinamilk is managed by a team of enthusiastic
and experienced in the industry. Chairman Mai Kieu Lien has 30 years'
experience in the dairy industry company and hold a key role in the process
of growth
and
development of
the company until
today.
Members
of other senior managers average 25 years' experience in the field of
production, distribution and sale of dairy products. We also have a team
of strong centralized management turn be better equipped to support senior
4

5. Fundamental & Technical Analysis
management and to add youth and enthusiasm to the development of the
Company.
b. Patents:
VNM
implementation
of
cooperation
with
research
institutes, scientists in the country, using the patents of VN scientists.
Restoring factory Dielac formula is a proof.
c. Products and market share: [5] Approximately 200 items of milk and
other dairy products, divided into four main types of milk.
- Fresh: VNM's 53% market share.
- Yoghurt: PAN accounted for 80% market share.
- Evaporated milk: PAN accounted for 75% market share.
- Powder: PAN accounted for 25% market share.
d. Marketing: Using the 4P mix marketing strategies to achieve key marketing
target
market includes:
Product,
price, place, trade promotion or
communication.
 PLACE:
- Head
Office in
Ho
Chi Minh, 3
branches are
in Hanoi, Da Nang, CanTho. Vinamilk has domestic
system includes 250 distributors
and 140,000 retail
located
distribution
locations the
64/64provinces. System cabinets and freezer, cold cars are also being
invested to expand to meet growing demand of fresh milk and
yoghurt group.
- Expanding the domestic market to consumers through two formation:
+ Tradition: retail distribution to consumers.
+ Modern: Metro Supermarkets and consumers.
- Export Markets: The Company is always looking to expand the
market and exported to other countries in the region and the world to
maintain and develop export sales (exported over 15 countries).
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6. Fundamental & Technical Analysis
 PRICE:
- The price is a concern mainly because this is the competition and
encouraging consumer product selection decisions.
- The company focuses on reducing raw material inputs imported from
abroad. Product prices will be adjusted in accordance with the income
of workers.
 PRODUCT:
- Diversification of dairy products (yogurt, milk, condensed milk, milk
powder) in accordance with consumer objects (children, adults,
pregnant women).
 PROMOTION:
- Promote products widely to consumers through the mass media:
television, magazines, internet, poster ...
- The company has the strategic marketing of products to suit each
time, each region and age.
- Implement programs to try the product in public places: supermarkets,
schools ...
- In addition to trading companies also interested in social activities and
charity.
 PEOPLE:
- Besides the traditional 4P marketing mix to include other 1P is equally
important that the listing has and continues to promote the company
that is human.
e. Sales: Main business activity:
- Production and sales of canned milk, milk powder, nutrition powder,
bread, milk, soy milk, soft drinks and other dairy products;
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7. Fundamental & Technical Analysis
- Trading in food technology, equipment and spare parts, supplies,
chemicals and materials.
- Trading in food technology, equipment and spare parts, supplies,
chemicals and materials [3].
f. Brand
name:
Nielsen - media
companies and leading information,
providing information on the indicators measured media, market and
Singapore's Campaign magazine has
ranked in
the Top
10 strongest
consumer brand in Vietnam South with strong brands in each sector for
2010.Accordingly, CAN 9 and ranked number one in the soft drink
industry [7].
4) Financial statements remark[6]
No.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
Basic financial information
2007
BALANCE SHEET (billion VND)
Charter capital
1752
Total assets
5,425
Total debt
1,073
Equity
4,224
Long-term Debt
32
Net asset value/ 1 share (BV)
24,101
REPORT LOSS/ GAIN (billion VND)
Revenue
6,675
EBIT
955
Net Income
963
DIVIDENDS (VND)
EPS
5,607
Dividend
2,900
RATIOS (%)
LNTT/DT
14%
LNST/VCSH
23%
Debt/VCSH
28%
ROE
28%
ROA
21%
2008
2009
2010
2011
1752
5,967
1,301
4,666
22
26,619
3,512
8,482
1,991
6,491
12
18,378
3,530
10,754
2,804
7,950
0
22,556
3,708
15,564
3,152
12,412
0
20,750
8,381
1,371
1,249
10,856
2,732
2,381
16,173
4,231
3,595
22,264
4,932
4,166
7,132
2,900
6,769
3,000
6,683
4,000
7,623
3,291
16%
26.77%
28%
28%
22%
25%
36.68%
31%
42.43%
33.17%
26%
45.22%
35%
49.79%
37.54%
22.15%
33.56%
25%
40.92%
31.76%
 Growth:
7

8. Fundamental & Technical Analysis
- Despite the difficulties caused by economic crisis, business activities
of VNM in 4 years are very positive. Revenue growth always reaches
over 26% a year. Particularly in 2010, 2011 VNM growth reached
49%, 37.6% respectively and is the highest growth since its
establishment. The above results have been a part from rapidly
increasing trend of milk products in recent years along with the
increasing amount of product sold. Even the cause is unknown; the
maintaining of the high growth rate is remarkable for large-scale
enterprises as Vinamilk.
- Thanks to good business results, the policy of paying only part of the
profits, and the rest will be reinvested to make equity faster. As of
2011 the equity of VNM was nearly three times higher than in 2008.
In issue 10.7 million shares to strategic shareholders in early 2011,
VNM collected 1.276 billion surpluses the company to increase cash
flow for expansion of production in the near future.
- In 2011, business activity of VNM still maintained good growth after
very successful 2010. Specifically, net income, profit from operations,
profit after tax increased by 54.83%, 38.73% and 35.22% respectively.
EPS in 2011 reached 8,767 per share (before the stock split).
- In the last 3 years, ROE targets of VNM are very high and tend to
increase. But in 2011 this indicator can be slowed by increasing equity
from capital surplus after issuing shares to strategic shareholders.
 Solvency assessment:
- Thanks to the strong financial resources, VNM limit the use of
financial leverage for business activities. Coefficient of short-term
solvency, fast payment and instant payment at the end of quarter
3/2011 is very high and significantly improved compared to previous
8

9. Fundamental & Technical Analysis
years. At the time 09.30.2011 these indicators respectively at 3.39;
2.08; 1.21 shows that there is no risk in short pay of VNM.
- But it also shows that VNM is not good at using financial resources
for development activities in business. If the financial leverage is used
better, growth of this business can be even higher.
 Assess profitability
- About the Indicators of profitability of VNM showed that the business
is very efficient. The target of profit margin, net profit margin, ROA,
ROE in the first 9 months reached 31.20%, 20.29%, 25.30% and
32.57% respectively. From 2008 to 2010, the business performance of
the VNM tends to increase over the years reflected the steady increase
of the criteria mentioned above. This shows that the PAN was right in
the business strategy to focus the main product instead of expanding
into other business areas.
5) Valuation model: FCFF
 The basic assumptions about the future macroeconomic:
- The base rate of VND is currently 14% and will be reduced by 13% in
the quarter I/2012 and then continued to decrease to 9% in late 2012
(quoting from HSBC forecasts).
- Inflation in 2012 will be at 10.5% per year and average inflation of the
period 2010 - 2015 was 8% per year. (Quoting from WB forecast).
 FCFF valuation model
- Calculate the WACC
Liabilities
Shareholder's equity
Firm value
2011
3,152 (billion VNĐ)
12,412 (billion VNĐ)
15,564 (billion VNĐ)
Debt/Total Asset (Wd)
Rdebt
Tax (t)
Equity/Total Asset (We)
Requity
0.202519
0.08
0.15
0.797481
0.14
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10. Fundamental & Technical Analysis
WACC = Wd. Rd. (1 − t) + We. Re = 0. 1254 = 12,54%
- Determine the cash flow: Suppose VNM profit growth will be 15% in
2011-2015 and then it will decrease and stablize at 5% in 2020 .
16
14
12
10
8
g (%)
6
4
2
0
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
20112016 2017 2018 2019 2020
2015
The growth rate of profits
15%
13%
11%
9%
7%
5%
The rate of depreciation
3%
3%
3%
3%
3%
3%
The growthrate of depreciation
30%
20%
20%
20%
20%
20%
- Calculate the FCFF:
=
. (1 − ) + Depreciation − Capital expenditure
−Demand for VLĐ
10

11. Fundamental & Technical Analysis
Stage I
2011
4,932
4,192
366
EBIT
EBIT.(1-t)
Depreciation
Demand for
working capital
0
Capital expenditure 3,166
FCFF
1392.2
Stage II
2016
EBIT
9747.49
EBIT.(1-t)
8,285
Depreciation
1,254
Demand for
working capital
0
Capital expenditure 4,143
FCFF
5397.08
2012
5,672
4,821
476
2013
6,523
5,544
619
2014
7,501
6,376
804
2015
8,626
7,332
1,045
0
3,375
1922.10
0
3,604
2559.00
0
3,825
3354.43
0
4,033
4344.82
2017
10819.72
9,197
1,505
2018
11793.49
10,024
1,806
2019
12619.03
10,726
2,168
2020
13249.99
11,262
2,601
0
4,598
6103.66
0
5,012
6818.57
0
5,363
7530.69
0
5,631
8232.37
- Determine the present value of the company based on 2-stage FCFF
model:
Year
FCFF
2011 1392.2
2012 1922.11
2013 2559.00
Stage I
2014 3354.43
2015 4344.82
Total PVI
2016 5397.08
2017 6103.66
2018 6818.568
Stage II
2019 7530.691
2020 8232.366
Total PVII
n
(1+WACC) 1/[(1+WACC)^n] PV
1
2
3
4
5
1.125418
1.125418
1.125418
1.125418
1.125418
0.888558
0.789535
0.701548
0.623366
0.553897
6
7
8
9
10
1.125418
1.125418
1.125418
1.125418
1.125418
0.492170
0.437321
0.388585
0.345281
0.306802
1237.05
1517.57
1795.27
2091.04
2406.58
9047.51
2656.28
2669.26
2649.60
2600.21
2525.71
13101.06
11

12. Fundamental & Technical Analysis
 Stage III: with the stably profitable growth rate 5%
- In 2021:
∗ (1 + 0.05) =8643.984 (
=
=
(
∗
)
(
)
)
=35163.66 (
)
- Value of the company at the present:
=
+
+
= 57312.23 (
)
- In 2011, the amount of VNM shares is: 556,000,000 shares.
The value of share of VNM is:
=
=
.
(
,
,
)
=103079.56
/ ℎ
6) Valuing result and comparison with market price and Recommendation
With Vietnam's GDP will continue to grow in the long time, the demand of the
Vietnamese milk is increasing. Therefore, Domestic market of VNM will still
continue to increase in the future. On the other hand, VNM has focused on dairy
exports to foreign markets. In 2011, export revenues of VNM 170 million USD,
and will continue to rise this year. VNM shares is so very interesting in the present
time.
At 06/02/2012, in the market, the price of VNM is 87,000 VND/share. While, by
FCFF valuation model, the price of VNM is 103,079.56 VND/share in 2011.
Therefore, we recommend for buying VNM stock.
REFERENCES:
[1] Economic – social Statement, 12/2011, General Statistics Office.
12

13. Fundamental & Technical Analysis
[2] Report of “updating improved stocks”, 22/11/2011, made by RVS.
[3] The Index of Industrial Production, 10/2011, made by Ministry of Industry
and Trade
[4] Report for VNM, 03/01/2011, made by FPTS.
[5] Report for VNM, ngày 15/12/2011, made by ABS.
[6] VNM’s annual report in 2007-2011, made by Vinamilk.
[7] http://www.vietnambranding.com
[8] Beta coefficients of the industry in Vietnam, 31/03/2011
[9] Document of Shareholders meeting in 2011, made by Vinamilk.
***** THE END *****
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