VIETNAM I EQUITY RESEARCH

Initiation of Coverage
HOSE sticker: VNM | Including 5-year forecasts for 2012-2016 16/04/2012

VINAMILK BUY
CURRENT PRICE

91,000
VINAMILK has been around for 30 years and is now leading the dairy industry in TARGET PRICE 110,000
Vietnam with more than 40% market shares and a production capacity far beyond LAST T.PRICE 93,100
that of other competitors. VNMs processing plants and almost 178,000 retailers are
scattered throughout the country at convenient locations, which helps distributing STOCK STATISTICS
perishable milk products to end-consumers in a timely fashion. Almost half of Bloomberg Ticker VNM VN Equity
Outstanding shares (m) 555.8
domestic raw milk supply goes to VNMs factories, giving the Company immense
Market Cap (VNDbn) 50,855
power over product pricing. VNM offers a diverse product selection along with 52W Price range 96-61.3
affordable prices, which explains its total domination on some segments such as 3M Average Volume 86,666
condensed milk (~85% market shares) and yogurt (~90% market shares). Last but Beta 0.83
not least, the Company is highly valued for its experienced management team, Foreign ownership (%) 49%
especially madam Mai Kieu Lien. Source: Bloomberg

2011 was an important breakthrough for VNM, as the Company brought home its MAJOR SHAREHOLDERS
long-awaited 1 billion dollar revenue. The 2006-2011 periods were considered the SCIC 45.04%
golden era for VNM: revenue was expanding at 28.2% CAGR while gross profit was F&N Dairy Investments Ltd 9.53%
growing quickly at 33.3% CAGR; yet, the most impressive development was the Dragon Capital 7.38%
44.9% CAGR of net profit. The Company finances its capital structure mostly by
equity, thus liquidity has never been an issue for VNM.
SHARE PERFORMANCE (%)
VINAMILK plans for revenue of USD3billion dollars by 2017, which is both Absolute Relative
Month
ambitious and achievable in our opinions. Rapid urbanization in Vietnam and its (VNDm) (%)
improving living condition will be the impetus for dairy demands. VNM will invest 1M (0.5) -1%
VND10,000bn to ramp up its capacity from 677,150 (2010) to 1.6 million tonnes 3M 10.5 13%
(2016) among other things. Within our forecasting periods (2011-2016), we expect 6M 5.7 7%
revenue to grow by 26% CAGR (compared to 28.2% of the 2006-11 periods). 12M 29.6 48%
However, PAT will only grow by 17.6% CAGR (vs. 44.9% of the last period).
VOLUME CLOSE
SBS recommends BUY with 12M target price of VND110,000/share. At the current 110
100
price of VND91,000/share, out 12M target price suggests a nice return of at least
90
20.9%. We raised our target price due to higher profit projection. 80
70
Company Financial Summary year-end December
60
(VNDbn) 2009 2010 2011 *2012F *2013F 50
Revenue 10,614 15,753 21,627 28,222 36,529 40

Net profit 2,376 3,616 4,218 5,068 6,146 30

20
% change YoY 90.0% 52.2% 16.6% 20.1% 21.3%
10
EPS (VND) 6,764 10,297 7,587 9,119 11,058
BV (VND) 18,380 22,678 22,441 28,641 34,590
DPS (VND) 3,000 4,000 4,000 3,000 n/a
Div. yield 4.3% 4.7% 4.6% 3.3% n/a
ROA 28.0% 33.6% 27.1% 26.3% 26.2%
Le Trung Hieu
ROE 35.8% 44.0% 32.9% 31.1% 31.2%
hieu.lt@sbsc.com.vn
P/E (x) 10.30 8.24 11.40 10.03 8.27 Luong Thi Thao, CFA
P/BV (x) 3.79 3.74 3.85 3.19 2.65 thao.lt@sbsc.com.vn
Source: VNM, (*) SBS estimates

1| See Disclaimers at the end of the report

2 | See Disclaimers at the end of the report
 GLOSSARY

The Company VINAMILK, its subsidiaries, and its affiliated companies as a whole

INVESTMENT THESIS

Potential of the Roughly 54% (2010) of Vietnams population is under 30 year-old, and this demographic group is more inclined
dairy industry in to consume dairy products. Rapid urbanization (~3%) in Vietnam and its improving living standard (GDP per
Vietnam capita grew by 13.5% CAGR during the 2006-2011 periods) will also be the impetus for dairy demands.
According to the master plan for the dairy industry in Vietnam, the total milk production will be 1.9 billion liters
by 2015, which will also bring the average annual milk consumption from the current 15 liters to 21 liters per
person.

Competitive Being around for 30 years, VINAMILK really understands the Vietnamese sense of taste. VNM is the market
Advantages leader with more than 40% dairy market shares and a production capacity far beyond that of other
competitors. VNM has its processing plants and almost 178,000 retailers scattered throughout the country at
convenient locations, which is a huge advantage considering milk is highly perishable product. VNM has access
to 50% of total domestic raw milk supply, giving the Company immense control over ex-farm prices. VINAMILK
stands among the most affordable brands on the shelves today while maintaining its domination on some
product segments such as condensed milk (~85% market shares) and yogurt (~90% market share). The
Company finances its capital structure mostly by equity, thus liquidity has never been an issue for VNM.
The Company is highly valued for its experienced management, especially madam Mai Kieu Lien, for she is the
inspiration and the visionary behind all of VNMs development. She is going to accompany VNM for at least
another 5-year term. The management team does show exceptional transparency compared to most domestic
companies, which is a big investment incentive.

Growth outlook VINAMILK has laid out an ambitious plan for the 2012-2016 periods, in which the Company will achieve
revenue of USD3billion by 2017. Production capacity will double to 1.6 million tonnes per year by 2016. These
numbers may sound ambitious but also feasible. Within our forecasting periods (2011-2016), we have
estimated revenue to grow by 26% CAGR and PAT to grow by 17.6% CAGR. Our projections for 2012 revenue
and PAT stand at VND28,222bn and VND5,068bn respectively, which will then grow, also in that order, to
VND68,793bn and VND9,476bn by 2016.

Privilege of a Being one of the big cap companies, VNM has outperformed the VNIndex over the last 12 months with a rough
Blue-chip stock 25% gain (versus approx. 6.5% for the VNIndex). The Company enjoys a fairly stable liquidity of 68,000 shares
per day over the last 6-month period.

3 | See Disclaimers at the end of the report

 VALUATION

Valuation We used the FCFF method as the centrepiece of our evaluation on VNM, with an overall weight of 70%. The
Method other supplemental method was P/E comparison (30% weight). The FCFF method gave VNM a rough value of
VND106.799/share. Our calculation was based on the following assumptions: an average risk-free rate (Rf) of
11%, a Beta of 0.83x (Bloomberg), a market premium of 10%, and an average cost of debt (Rd) of 8%. We have
estimated the cost of equity (Re) to be 19.32%, and subsequently the WACC of VNM to be 16.98%. The
perpetual growth rate is roughly 8%/year after 2016.

SUMMARY OF THE FCFF METHOD

(VND bn) 2012 2013 2014 2015 2016
FCFF 285.4 4,029.5 4,368.5 6,611.4 8,196.2
WACC 16.98%
PV of individual cash flows 244 2,945 2,729 3,530 3,741
PV of 5-year cash flows (2012 - 2016) 13,189
Growth rate (g) 8%
PV of perpetual cash flows 44,990
Present value of the Company 58,179
- Net liabilities -1,195
Present value of Equity 59,374
Number of shares (by year end) 555,940,315
Share price (VND) 106,799 Source: SBS

Sensitivity P/E GROWTH & WACC

Analysis P/E 2012 2013 2014 2015 2016 WACC \ g 7.0% 8.0% 9.0%
15.48% 117,558 130,623 147,719
11 102,010 123,706 145,617 168,627 190,750 15.98% 110,307 121,673 136,295
12 111,127 134,761 158,630 183,697 207,797 16.48% 103,832 113,791 126,413
13 120,243 145,816 171,644 198,766 224,843 16.98% 98,017 106,799 117,781
14 129,359 156,871 184,657 213,836 241,889 17.48% 92,767 100,555 110,179
15 138,475 167,926 197,670 228,905 258,936 17.98% 88,005 94,947 103,435
18.48% 83,667 89,884 97,412
Source: SBS

Relative There is no suitable domestic company for the P/E comparison test, thus we have chosen 5 regional companies
Comparison with similar business for such task. VINAMILK is relatively cheaper (P/E) than these regional companies given
its profitability (ROE) and EPS growth. In the long run, VNM should be able to align with these companies.
However, considering the outlook (12 months) of the Vietnam stock market (the VNIndex is trading at P/E of
11.2x as of April 13th 2012), we felt more comfortable with a conservative P/E of 13x. Thus, the relative
comparison method values VNM at VND120,243/share.
Location Market Cap. P/E ROE EPS
(USD m) current growth
1 UNI-PRESIDENT ENTERPRISES CO Taiwan 6,242.9 19.5 13.2% -0.7%
2 CHINA MENGNIU DAIRY CO Hong Kong 5,281.4 20.8 15.0% 16.8%
3 INDOFOOD SUKSES MAKMUR TBK P Indonesia 4,495.4 13.6 17.0% -27.1%
4 NESTLE (MALAYSIA) BERHAD Malaysia 4,277.5 28.8 72.8% 21.1%
5 MEGMILK SNOW BRAND CO LTD Japan 1,306.4 11.3 9.3% -22.7%
Average 4,320.7 18.8 25.5% 6.2%
VINAMILK Vietnam 2,439.7 11.8 41.3% 13.1%
Source: Bloomberg, SBS

4 | See Disclaimers at the end of the report

 Combining the two methods with the predefined weights, we came up with a fair value of VND110,000/share
for the Company, which is about 18% higher than our last target price of VND93,100/share (11th Jan 2011)
BUY since we used only simple P/E comparison method to value VNM at that time. At the current price of
VND91,000/share, our new 12M target price suggests a nice return of 20.9%. Therefore, we recommend BUY.

RISKS TO OUR VALUATION

Shortage of raw The current immensity of dairy production requires VNM to outsource most of its materials (making up 60-70%
material of COGS), since domestic sources can only supply up to 25%. Such dependence on foreign powdered milk may
expose VNM to excessive forex risks (the Company has not yet recorded any forex loss so far) along with the
inability to effectively attune its selling price. We could definitely see the huge jump in prices of importing milk
in 2010, and VINAMILK could certainly not raise its selling price by the same extent.

OCEANIA REGION: (AVERAGE) FOB SPOT PRICE OF POWDERED MILK

2007 2008 2009 2010 2011 4M/2012 CAGR 2007-11
Whole powdered milk 4,167 3,913 2,436 3,460 3,878 3,557 -3.1%
% growth 90.6% -6.1% -37.8% 42.1% 12.1% -8.3%
Skim powdered milk 4,316 3,330 2,280 3,123 3,660 3,323 -5.1%
% growth 95.3% -22.9% -31.5% 37.0% 17.2% -9.2%
Source: Bloomberg

Growing The competition with high-end foreign brand names such as Abbott, Mead Johnson, Dutch Lady, etc. will only
competitions get worse. At the same time, more domestic companies are also putting their names to the challenge. One of
the prominent cases was TH True Milk, a domestic company who has already invested USD350m in almost
45,000 dairy cows.
A few years back, the melamine scandal has left an unhealable scar on the dairy industry. As consumers get
more conscious about their dairy choices, product quality and brand image are apparently becoming more
important. High-end consumers in Vietnam tend to favour foreign brand names over domestic ones, and that is
a challenge VNM will need to face in order to win over those market shares.

Regulations Given the influence of VINAMILK on the dairy market, the Government may put a constraint on its ability to
raise selling price, considering its impacts on the scorching inflation. However, we have seen signs of
decelerating inflation recently, thus this concern may be put to rest after all.

Management The prodigious influence of madam Mai Kieu Lien also casts a shadow over the Company as she approaches her
Transition retiring age (she is now 59). Her withdrawal from the front may cause serious impact to the Company.
However, the next 5 years are still in clear view with madam Lien engineering the whole capacity & market
expansion. Nevertheless, the subsequent pressure of finding a capable successor is truly overwhelming.

5 | See Disclaimers at the end of the report

 THE CORE BUSINESS
THE VIETNAM DAIRY INDUSTRY

Overview The dairy industry in Vietnam has been suffering from shortages of fresh material, and more than 75% of raw
ingredients are imported. Also, a substantial amount of produced fresh milk is not delivered to big processers,
but is rather consumed in local markets. Currently, Vietnam can produce roughly 350,000 tonnes of fresh milk,
satisfying only 20% of its internal demand. The country hopes to self-produce 660,000 tonnes of fresh milk by
2015, serving around 35% of total demand.

VIETNAM: DAIRY STATISTICS

2006 2007 2008 2009 2010 2011E CAGR
Numbers of dairy cow 113,215 98,659 107,983 115,518 128,572 145,455 5.1%
Produced Fresh Milk (tonnes) 215,953 234,438 262,160 278,190 306,662 345,608 9.9%
Source: The Ministry of Industry and Trade

Poor infrastructure and obsolete technology are also hindrances on the fragmented local farming, thus the
current husbandry is still expensively inefficient, and hence the yields and quality of these perishable raw
materials tends to be inferior to those of other countries. Being the market leader, VINAMILK gains access to
almost 50% of the local raw supply, and thus can really benefit for controlling the ex-farm prices. Apparently,
milk processors such as VNM and TH Milk are making huge investments in dairy farming.

VIETNAM: MASTER PLAN FOR DAIRY INDUSTRY

2010 2015F 2020F 2025F CAGR 10-15
Fresh milk production: Total (million liters) 1,300 1,900 2,600 3,400 7.9%
Fresh milk production: Domestic (million liters) 307 660 1,000 1,400 16.6%
Fresh milk production: Self-sufficiency (%) 24% 35% 38% 41%
Source: The Ministry of Industry and Trade (June, 2010)

Consumption Milk was once sold exclusively for the children; however, things have changed as the general public is more
Behaviors informed about the benefits of dairy consumption. The young adult consumers are catching more attention of
milk producers, and thus more products will be pushed toward this direction. The traditional consumers of milk
products usually live in big cities, earn higher incomes, and have more education about the benefits of milk
than those living in the countryside. However, it seems today that more advertisements and distribution
efforts are being made toward the rural areas of the country, in order to raise the awareness of dairy products
as well as potential demands.

VIETNAM: POPULATION BY GEOGRAPHY

(thousand people) 2006 2007 2008 2009 *2010 CAGR
Urban area 23,046 23,747 24,674 25,466 26,224 3.3%
Rural area 60,267 60,474 60,449 60,559 60,703 0.2%
Total 83,313 84,221 85,122 86,025 86,928 1.1%
Rural area/total 72.3% 71.8% 71.0% 70.4% 69.8%
Source: General Office for population family planning
*these are preliminary statistics for 2010

6 | See Disclaimers at the end of the report

Growth Dairy consumption in Vietnam increased significantly during the 2000-2009 periods, from 8.1 liters to 15.2
Potential liters per person every year, signifying an average growth of 7.2% CAGR. However, fresh milk consumption in
Vietnam is still much lower than that in regional countries. An average Vietnamese person consumes 15 liters
of milk per year, while the figures are 23 liters in Thailand and 25 liters in China.

VIETNAM: MASTER PLAN FOR DAIRY INDSUTRY (cont.)

(liters/person) 2000 2010 2015 2020 2025 CAGR 10-15 CAGR 15-20
Dairy consumption 8 15 21 27 34 6.7% 5.2%
Source: The Ministry of Industry and Trade (June, 2010)

Vietnam is the 13th populated country in the world with an average growth rate of 1.1% CAGR (2006-2010
periods). Vietnam is also a very young country with roughly 54.1% (2010) of total population under 30 years
old (source: General Office for population family planning), and their maturations will be the fueling force
behind dairy consumption. This demographic group is generally more receptive to Western cultures, and hence
they are more inclined to consume dairy products. Rapid urbanization (more than 3%), along with improving
living standard and growing health awareness will also be the impetus for dairy demands.

VIETNAM: INCOME PER CAPITA

2006 2007 2008 2009 2010 2011 CAGR
GDP per capita (USD) 724.0 835.1 1,047.9 1,068.3 1,173.5 1,361.6 13.5%
GDP per capita, PPP (USD) 2,364.1 2,607.5 2,799.9 2,944.7 3,143.0 3,354.8 7.3%
Source: International Monetary Fund, estimate after 2007

VINAMILK AND ITS DAIRY BUSINESS

VNM preserves most of its potency on the dairy frontier, while giving some attentions to other segments such
as fruit juice, beer, etc. VNM relies mostly on domestic consumptions (generating more than 85% of revenue),
while earning extras from international markets including the USA, Australia, Canada, Russia, the Middle East,
Cambodia, Laos, and Philippines. Specifically, in 2011, the Company made over USD140m (+67.4% yoy) on
exports alone, contributing to 12.8% of total revenue. The Company will continue enlarging its exportation this
year while exploiting domestic resources.

Market Position VINAMILK currently stands among the 68 largest dairy companies in the world. The Company dominates the
dairy industry in Vietnam with more than 40% market shares based on sale volume, in which some sub-
segments have almost absolute domination such as condensed milk (~85% market shares) and yogurt (~90%
market share).

Distribution & The Company truly benefits from its nationally dispersed distribution system, since domestic sales make up the
Marketing majority of revenue. Despite its constant expansion of traditional distribution channels, the Company still
strategy focuses on modern distribution channels for their enlarging contributions to the total value of FMCG (roughly
13%). According to VNM, the contribution of rural areas to the total value of FMCG was 46% at the end of
2010; thus potential demand from the rural areas is still prominent.

VINAMILK: DISTRIBUTION SYSTEM

2008 2009 2010 2011 CAGR 08-11
Numbers of distributor - - - 232 -
Numbers of retailer 125,000 135,000 140,000 178,000 12.5%
Source: VNM

7 | See Disclaimers at the end of the report

Business The privileges of size and experience: VNM has been watching over the Vietnamese dairy market for almost
advantages 30 years and has thus understood what makes people tick. The Company is able to capture a wide market
range with its abundant number of products. The mere size of VNM (in terms of assets and capacity) is the
foremost factor that differentiates itself from other competitors.
Control over domestic supplies of raw material: More than half of the domestic supply of raw milk (~370
tonnes/day) is processed in VNMs factories. Such immense influence still gives the Company more power over
pricing compared to other competitors in Vietnam. Out of all milk products on the shelves today, VINAMILK
stood among the most affordable ones.
Good management: The CEO, madam Mai Kieu Lien, has been doing a great job building up the Company, and
shareholders trust her visions completely. She was nominated as one of the 50 most powerful businesswomen
in Asia by Forbes. The good news is, at the 2012 AGM, she was re-elected to be the CEO for another 5-year
term, putting an end to the anxiety that she may retire soon.

VINAMILK: PRODUCTION CAPACITY

Overview The Company has greatly improved its production capacity since the acquisitions of Lam Son Milk JSC and F&N
Vietnam Ltd. By year-end 2010, VNM has 9 operational milk facilities, with a total production of 677,150
tonnes/year. On average, VNM utilizes 70%-100% of its plants, which is usually dependent on climate changes.

Developments SUMMARY OF NEW FACTORIES

Dairy Location Investment Operation Capacity
Factory by 2016 Date
Da Nang Da Nang VND421bn 2Q/2012 70mn liter/year (fresh milk)
24mn liter/year (yogurt)
Vietnam Ben Cat, VND2,349bn 1M/2013 400mn liter/year (liquid milk) - 1st phase
Binh Duong 2017 (2nd phase) 800mn liter/year total - 2nd phase
Dielac 2 Thuan An, VND1,906bn 4M/2013 54,000 tonnes/year (powdered milk)
Binh Duong
Source: VNM

VNM is waiting for a few investments to bear fruit: (i) The Da Nang factory will be ready by Q2/2012, (ii) the
Vietnam fairy factory in Binh Duong and the Dielac 2 factory should be operational by 2013. The Company has
projected that, by 2016, its current capacity of liquid milk will be double, while that of yogurt and powdered
milk will increase by 30% and 125% respectively. The total annual capacity will then be 1.6 million tonnes.

Material supply VNM expects to multiply its herd to 30,000 dairy cows by 2020 and will thereby self-supply 100,000 tonnes of
fresh milk per year. As of 31st December 2010, the Company had 5 farms in Tuyen Quang, Nghe An, Binh Dinh,
Lam Dong, and Lam Son, with a total of 5,667 cows. The number of pregnant cows and calves imported during
2010 was 2,240 (mostly from Australia and New Zealand). By the end of 2011, the total number of dairy cow
has risen to 6,721 (+18% yoy), supplying roughly 12.5 million liters of fresh milk (+52% yoy). In 2011, VINAMILK
purchased a total of 144 thousand tonnes of fresh milk (+11% yoy) from domestic sources.
The Company has expanded its raw material source to New Zealand via the NZD12.5m investment in Miraka
(equivalent to 19.3% equity), whose factories can process 210 million liters of fresh milk and produce up to
32,000 tonnes of powdered milk per year. These factories have been operating since August 2011 with 80%
plant capacity. VNM already signed its first import contract with Miraka for 4,000 tonnes of powdered milk.

8 | See Disclaimers at the end of the report

 VINAMILK: DOMESTIC SUPPLY OF RAW MILK
(tonnes) 2007 2008 2009 2010 2011
Total domestic supply 234,438 262,160 278,190 306,662 -
Total domestic supply to VINAMILK 104,526 119,369 124,900 133,322 143,987
% over total domestic supply 44.6% 45.5% 44.9% 41.3% -
VINAMILKS own supply (million liters) - - 7 8.3 12.5
Source: VNM, Dairy Vietnam, SBS estimate

VINAMILK: PRODUCTS STRUCTURE

Overview Normally, more than 80% of revenue VINAMILK: BREAKDOWN OF REVENUE

belongs to liquid, powdered, and 100% 2.9% 3.0% 3.4% 3.1%
Others
90% 10.7% 12.0% 14.1% 15.2%
condensed milk segments. Most
consumers will recognize Vinamilk, Dielac, 80%
Yogurt
and Ridielac as the three dominant brand 70% 35.7% 29.0% 25.3% 21.9%
names of VNM within the liquid and 60%
50% Condensed
powdered milk segments. The Company 27.7%
26.3% Milk
captures most of the condensed milk 40% 24.2% 29.0%
segment with its long-established 30% Powdered
Milk
Longevity (Ong Tho) and the fairly younger 20%
26.6% 27.0% 30.9% 32.2%
Northern Star (Ngoi Sao Phuong Nam). 10% Liquid Milk
Meanwhile, Vfresh is a popular brand 0%
name for soymilk and various fruit juices. 2007 2008 2009 2010

(VND bn) 2006 2007 2008 2009 2010 CAGR

Drinking milk 3,660 3,320 4,597 6,068 9,434 26.7%
Liquid Milk 1,469 1,736 2,216 3,276 5,078 36.4%
Powdered Milk 2,191 1,584 2,381 2,792 4,356 18.7%
Other Milk Products 2,586 3,218 3,612 4,545 6,319 25.0%
Condensed Milk 1,690 2,332 2,381 2,690 3,443 19.5%
Yogurt 634 698 985 1,494 2,391 39.4%
Others (ice-cream, cheese, fruit juice) 262 188 246 361 485 16.6%
Total revenue 6,246 6,538 8,209 10,614 15,753 26.0%
Source: VNM

According to EMI (2011), the total sale value of drinking milk products in Vietnam reached VND10,700.2bn in
2010, in which VNM held almost 41% market shares; following closely behind is FrieslandCampina Vietnam Co
Ltd and its widely known Dutch Lady with roughly 23.5% market shares. In terms of brand name market shares,
Vinamilk still stands firm at the highest position with 25.5% market shares, and right below is Dutch Lady with
18.5% shares. Also according to EMI, total sales of drinking milk in Vietnam grew by 15.8% CAGR during the
2006-2010 periods, while VINAMILK was treading at 26.7% CAGR (accounting only for drinking milk).

VIETNAM DRINKING MILK PRODUCTS: COMPANY MARKET SHARES

% retail value 2006 2007 2008 2009 2010
Vietnam Dairy Products JSC (Vinamilk) 27.3 30.1 33.5 38.7 40.9
FrieslandCampina Vietnam Co Ltd - - - 25.2 23.5
Nestl Vietnam Ltd 7.1 7.3 7.4 7.2 7.4
Hanoi Milk JSC 2.6 2.7 3.2 3.4 3.5
Mead Johnson Nutrition (Vietnam) Co Ltd 2.9 3.1 3.2 3.2 3.2
Others 60.1 56.8 52.7 22.3 21.5
Total 100 100 100 100 100
Source: Euromonitor International, 2011

9 | See Disclaimers at the end of the report

Liquid milk There are 3 main products: (i) the fresh/pasteurized milk, (ii) UHT milk, and (iii) drinking yogurt. In 2010, this
group generated VND5,077.6bn in sales (+55% yoy), making up almost 1/3 of total revenue. In just 8 years,
contribution of this group on total revenue has increased remarkably from 18.9% (2003) to 32.2% (2010). For
2011, we have estimated revenue of VND7,616.4bn (+50% yoy), equivalent to 35.2% of total revenue.
VINAMILK has been placing liquid milk at the center of its development, which is depicted by the strong 39.0%
CAGR we have estimated for the 2006-2011 periods.
Ever since the VNMs entry to the pasteurized milk market in July 2010, this segment is no longer considered
the domain of only small players. The pasteurized milk may not last as long as the traditional UHT milk, yet its
nutritional elements are better preserved and its delicious buttery taste is more appealing. The rising
consumer awareness of pasteurized milk will help pushing sale for this group.
Competitions are particularly harsh within this segment. VINAMILK has to face Dutch Lady, its lifelong rival,
along with other well-known domestic brands, namely TH True Milk, Hanoimilk, Long Thanh, Moc Chau, and a
few other imported brands. However, VNM does have certain advantages, including (1) a well-established
brand name, (2) secure controls over domestic supplies of raw milk (roughly 50%), (3) widely dispersed
distribution channels which help bringing products to the end consumer in a timely fashion, (4) a system of
modern processing plants throughout Vietnam which help minimizing transportation cost. The Company is
holding at least 45% market shares.

REVENUE OF MAJOR MILK PRODUCT

CAGR 2006 - 2011
VND bn Liquid Milk 39.0%
8,000
Powdered Milk 21.3%
7,000 Condensed Milk 20.6%
6,000
5,000 The 2011 figures were based on
SBSs preliminary estimates. Others
4,000 are actual numbers disclosed by
3,000 VNM.

2,000
1,000
-
Liquid Milk Powdered Milk Condensed Milk
2006 2007 2008 2009 2010 2011E
Source: VNM

Powdered milk The basic consumers of this segment are mostly infants, children, expectant & breast-feeding mothers, and the
and nutrient elderly. Powdered milk was used to be the biggest cash cow for VNM, generating as much as 40.6% of revenue
powder (2003); however the current situation has pulled this segment down to the second place with a rough
contribution of 27.7% (2010). By year end 2010, this group has generated VND4,356bn (+56% yoy) in revenue,
which may have possibly rolled over to VND5,750bn by year-end 2011 (+32% yoy) according to our estimate.
Competitions among domestic and foreign brand names have been going on for years, and the result has not
turned out well for the home players. The majority of powdered milk segment belong to foreign companies
such as FrieslandCampina, Mead Johnson, Abbott, etc. Nevertheless, Vinamilk still dominates the lower-end
segment with its Dielac and Ridielac products, whose prices are significantly lower than that of the foreign
brands. VNM is holding a rough market share of 20%.

10 | See Disclaimers at the end of the report

Condensed milk This segment ranks third in terms of revenue generation with a contribution of roughly 21.9% in 2010,
equivalent to VND3,443bn (+28% yoy). Condensed milk was the first product VINAMILK ever produced and has
always been the most dedicated revenue generator. However, the significance of this segment has been
lessened over the years as the powdered & liquid milk radiate their proliferation. In 2011, we estimated that
this group made VND4,304bn in sales, equivalent to 25% of total revenue.
VINAMILK controls 85% of the condensed milk industry, and no other companies can stand facing such
intimidation perhaps except for Dutch Lady - the other giant of the condensed milk duopoly. Condensed milk is
usually served as the base ingredient in various foods and beverages such as coffee, ice cream, fruit shakes,
cake, etc., and thus consumptions should be steady for years to come. However, domestic growth potential is
not as high in this segment as it may be in others, which is why the contribution of condensed milk on revenue
will deteriorate over time. Nevertheless, condensed milk has been well received by the international markets,
and this segment may derive more growth thusly.

Yogurt VINAMILK is well known for its spoon yogurt, which comes in various tasty flavours and reasonable prices. The
segment made up approximately 15.2% of total revenue in 2010, or an absolute VND2,391bn (+60% yoy). We
have estimated revenue of VND4,289bn for 2011 (+38% yoy). The contribution of yogurt on total revenue has
certainly become much more significant over the years, from just 7.6% in 2003 to around 15.3% in 2011.
In the past, yogurt was either homemade or manufactured in small factories, and VNM was the first large
company to change that perception. Since then, VNM has been the leader of this segment, and it is easy to
notice its influence on the shelves today. VNM pretty much enjoys uncontested domination with market shares
of almost 90%. Yet, the battles are still unsettled between the Company and other competitors such as
International Dairy JSC (Bavi milk), KIDO, and other imported products.
The benefit of yogurt, such as good bacteria probiotics, animal protein, and other common nutrients found in
dairy food, has become general knowledge among other health & beauty concepts. Hence, health-conscious
people, especially women, have made yogurt consumption their daily routine, and the numbers are growing.

Other Products The major products of this segment include soy milk, 100% natural fruit juice, and fruit juice blended with milk.
However, it has not always been that way. In the past, the Company also had its coffee Moment and its 50%
shares in SABMiller beer. Recently, VNM has transferred its entire shares in SABMiller to SABMiller Asia (2009)
and its whole coffee production to Trung Nguyen (2010). Thus, the Company is now focusing exclusively on
cold beverage with its Vfresh products.
In 2010, these products brought back VND485bn (+34.3% yoy), making up only 3.1% of total revenue which
was fairly small compared to other segments. We have estimated the 2011 revenue to be around VND657bn
(+35.6%), equivalent to 3.0% of total sales.

11 | See Disclaimers at the end of the report

 VINAMILK: INVESTMENT ACTIVITIES & FINANCIAL POSITION

Having on hand a large amount of cash has induced VNM to engage in many financial investments, mostly in
the form of bank deposits, investments in affiliated companies, and securities trading.

INVESTMENT ACTIVITIES
(VND m) 2007 2008 2009 2010 2011
Investment portfolio: Overall 1,055,503 944,659 2,916,732 3,234,058 1,582,747
Short term Investments 654,485 374,002 2,314,254 2,092,260 736,033
Bond 15,410 2,405 3,240 100,000 250,000
Non-listed stocks 147,158 82,284 82,284 82,284
Listed stocks 33,071 87,537 24,994 24,994
Provision for losses (175) (122,996) (86,507) (70,658) (79,244)
Bank Deposits (<1 year) 5,400 106,396 2,227,700 1,955,640 440,000
Loans to affiliated companies 197,397 207,968 - - 18,000
Long term Investments 401,018 570,657 602,479 1,141,798 846,714
Bond 5,645 3,240 200,000 600,000 350,000
Listed stocks 277,933 223,520 206,996 206,996
INVESTMENT ACTIVITIES (cont.)
Non-listed stocks 36,632 20,062 - -
Investment fund 106,350 106,350 106,350 106,350
Provision for losses (96,405) (108,580) (142,351)
Bank Deposits (over 1 year) 50,000 - - - -
Other 269,241 122,800 122,800 122,800 120,300
Source: VNM, SBS

The contribution of financial activities has been really beneficial to VNM ever since 2007, except for 2008 when
the stock market plummeted and the Company had to set aside massive provision for losses of almost
VND123bn (which resulted in a financial loss of VND6.8bn in 2008).

OVERALL FINANCIAL POSITIONS

3,500

3,000
2008 2009 2010 2011
2,500

2,000

1,500

1,000

500

(500)

Cash & Cash Bank Deposits Bond investment Stock investment Provision for Others
Equivalent losses
Source: VNM

12 | See Disclaimers at the end of the report

 VNM has been reducing the size of its short term stock portfolio from VND180.2bn (in 2008) to VND107.3bn by
2011. As a safer investment instrument, bonds started to have more weights on the portfolio. The year of 2011
was considered the bottom of the stock market crash, and thus we can expect lesser provisions for losses in
later years. Supposedly, the Company will focus exclusively on their dairy business.

FINANCIAL INCOMES
400
2007 2008 2009 2010 2011
350

300

250

200

150

100

50

-
Interest incomes Stock porfolio Forex gain Others

Source: VNM

In 2011, the Company took advantage of its sizable cash and the high interest rates to pocket a hefty amount
of VND369bn, making up 85.1% of total financial income (VND434bn). Despite the fact that VINAMILK might
get into huge forex losses for importing raw material and machinery every year, its earnings from exportation
(USD140m in 2011) would be more than enough to offset those losses. Thus, the appreciation of USD against
the VND will be favourable to the Company.

FINANCIAL EXPENSES
180
2007 2008 2009 2010 2011
160
140
120
100
80
60
40
20
-
(20)

Interest expenses Stock trading Forex loss Others

losses/provision
Source: VNM

13 | See Disclaimers at the end of the report

 FINANCIAL ANALYSIS
VINAMILK: HISTORICAL PERFORMANCE

Assessments on The golden era of development: During the 2006-2011 periods, revenue was moving forward at 28.2% CAGR
the top line and while gross profit was growing quickly at 33.3% CAGR, yet the most impressive development was the 44.9%
gross profits CAGR of net profit. The Company was able to manage its gross profit margin (GPM) well enough to peak at
36.5% by 2009 (from 25.1% in 2006).
VINAMILK participated in a price stabilizing program as inflation took over the scarce income, thus the
Company was committed not to put much pressure on dairy consumer. As a result, COGS has outgrown
revenue over the last two years, and hence the GPM has contracted to 30.5% by the end of 2011. Furthermore,
the increasing weight of exportation (with much lower GPM) on total revenue will drag the overall GPM down
even more.

REVENUE & GROSS PROFIT

25,000 36.5% 40.0% CAGR 2006 - 2011
VND bn
32.8% Revenue 28.2%
31.6% 30.5% 35.0% Gross Profit 33.3%
20,000
26.0% 30.0%
25.1%
22.4% 23.0% Annual Growth
15,000 25.0%
19.5% Revenue Gross
20.0% Profit
14.7% 15.2%
10,000 2007 4.7% 8.6%
10.6% 15.0%
2008 25.6% 52.7%
10.0% 2009 29.3% 49.3%
5,000
5.0% 2010 48.4% 33.4%
2011 37.3% 27.3%
- 0.0%
2006 2007 2008 2009 2010 2011
Revenue Gross Profit % Net Profit margin % Gross Profit margin
Source: VNM

The year of 2011 was an important development breakthrough for VNM, as the Company brought home its
long-awaited one billion dollar revenue. Specifically, sales in 2011 accumulated to VND21,627.4bn (+37.3%
yoy), which was unfortunately worn away by the faster-growing COGS of VND15,039.3bn (+42.2%).

REVENUE STRUCTURE: DOMESTIC SALES VS. EXPORT

100% 55.0% CAGR 2006 - 2011
19.8%
10.4% 14.8% 11.3% 10.5% 12.8% Domestic Sales 28.2%

80%
45.0% Export 33.3%
37.5%
34.4%
32.4% 32.0%
35.0% Annual growth
60% 25.3% 27.1%
Domestic Export
29.2% 25.0%
27.3% Sales
40% 23.4% 2007 25.4% -62.6%
19.7% 19.8% 15.0%
16.5% 2008 42.5% 196.4%
20% 2009 55.7% 5.4%
5.0%
80.2% 89.6% 85.2% 88.7% 89.5% 87.2% 2010 37.3% -6.5%
0% -5.0% 2011 24.6% 67.8%
2006 2007 2008 2009 2010 2011
Domestic sales Export % GPM Domestic sales % GPM Export
Source: VNM

14 | See Disclaimers at the end of the report

Extraordinary In 2009, the Company received VND139.6bn in financial income for transferring its 50% ownership in SABMiller
incomes & their Vietnam to SABMiller Asia who now owns 100% of this used-to-be-a-joint-venture. In 2011, net financial gain
significances was 46.9% higher than that of 2010, mostly due to the increment on interest incomes (from VND196.9bn to
VND368.9bn, +87.4% yoy) which was somewhat expected. The total amount of cash equivalent and short-term
investment has already piled up to VND2,811.5bn (+99% yoy) by third quarter, indicating a huge potential on
interest incomes. By year end, this figure has turn into VND3,181.3bn (+46.1% yoy).

FINANCIAL PROFITS AND OTHER INCOME

800 VND bn CAGR 2006 - 2011
Financial gain 76.9%
600 Other income 34.8%

400 The above figures are derived

from the assumption that we
200 exclude the huge capital gain of
stock investment in 2007, and
- the abnormal income in 2010
Financial gain/loss Other income
2006 2007 2008 2009 2010 2011
Source: VNM

Other incomes of 2011 appeared to be significantly lower than that of 2010 (-61% yoy), which stemmed from
the fact that the Company received an abnormal gain (approx. VND353bn) in 2010 for transferring its instant
coffee factory to Trung Nguyen; otherwise the yearly difference would be -7.3%.

Interpretation As mentioned above, VNM could not pass most of the cost upsurge onto consumers, and as a result the
of deteriorating Company had to cut expenses elsewhere, which was why the weights of both selling expense and
expenses administration expense on revenue have been deteriorating over the years.
In 2011, selling expense and G&A expense grew by 25.9% and 18.4% respectively (compared to 15.5% and
32.5% in 2010), yet their weights on revenue have dropped to, in that order, 8.4% and 2.1% (compared to the
previous 9.1% and 2.5%).

SELLING & ADMINISTRATION EXPENSES ADVERTISEMENT & TRADE MARKETING EXPENSES

15% 13.8% 13.2% 12.8% 10%
11.7% 7.9%
8%
9.1%
10% 8.4% 5.3%
6% 4.8%
3.8%
4% 3.2%
5% 3.1% 3.6%
2.8% 2.5% 2.1% 4.1% 4.3%
1.8% 3.5%
2% 3.1%
0% 1.9%
0%
2006 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011
Selling expense/revenue G&A expense/revenue Advertisement/revenue Trade Marketing/revenue

Source: VNM, SBS

VINAMILK has been on very good terms with its distributors and retailers, which can be easily perceived by the
generous sale promotion expenses made every year; in 2011, the Company spent almost VND831.9bn on its
trade marketing activities, equivalent to 3.8% of total revenue. On the other hand, the weight of advertisement
expense on total revenue is contracting over times (from 4.1% in 2007 to 1.9% in 2011); obviously, VNM has
been very efficient with its marketing scheme while maintaining exceptional revenue growth. In 2011, the
Company spent VND400.2bn (-17.4% yoy) on advertisement as compared to the previous VND484.7bn.

15 | See Disclaimers at the end of the report

The profitability PROFITS MOVEMENT
CAGR 2006 2011
of VINAMILK 6,000 VND bn
PAT 44.9%
EBIT 49.7%
4,000 EBIDTDA 48.0%

Annual Growth
2,000
PAT EBIT EBITDA
2007 46.0% 44.1% 42.7%
- 2008 29.8% 43.5% 42.2%
2009 90.0% 99.2% 93.7%
PAT EBIT EBITDA
2010 52.2% 55.6% 54.1%
2006 2007 2008 2009 2010 2011
2011 16.6% 17.1% 17.4%
Source: VNM

60% 55.7%
The Company achieved its highest
net profit margin during the 2009- 50% 43.4% 43.3%
2010 periods mostly due the 40% 33.3%
climax of GPM and contributions 28.7% 29.4% 39.5%
30%
of extraordinary incomes. In 2011, 32.2% 32.0%
the Company recorded a lesser 20%
23.0%
gain of 16.6% yoy on PAT, as 18.4% 17.6%
10%
compared to the 52.2% yoy of the
year before. If we exclude the 0%
abnormal income in 2010, net 2006 2007 2008 2009 2010 2011
ROAE ROAA EBIT/Equity EBIT/Asset
profit would have grown by
almost 29% yoy.

Capital Over the last 5 years, the Company has continuously increased its chartered capital and extended its capital
Structure structure. Equity has grown on average by 36.2%/year, which was slightly higher than the expansion rate of
Analysis assets in the same periods (34%). VINAMILK has never relied much on liabilities to build up its capital structure,
which is illustrated by the consistently low leverage, and thus liquidity as well as solvency has never been a
problem to the Company especially during the harsh period of high interest-bearing loans. Both current and
quick ratios have gone up to 3.6 and 2.4 respective (2011), which are already beyond the safety point; a cash
ratio of 1.5 (2011) should be able to cover all short-term liquidity concern.

ASSESSMENT ON LEVERAGE EXTENT

VND bn The borrowing hike in 2010
3,000 31.6% 31.0% 35%
stemmed from the fact that
27.3% 30%
2,500 24.9% VNM took out 5 loans
24.2%
21.5% 25% (USD30m) in a foreign bank
2,000
24.0% 20% to settle its obligation with a
23.7%
1,500 21.3% foreign supplier. In 2011, the
19.8% 19.3% 15%
17.7% Company has completely
1,000
10% paid off all above loans.
500 5%
- 0%
2006 2007 2008 2009 2010 2011
T. Liabilities T. Borrowing Liabilities/Equity Liabilities/Asset
Source: VNM

16 | See Disclaimers at the end of the report

 The capital structure of VINAMILK went through major re-modification. In May 2011, VNM successfully issued
10.7 million new shares at an average price of VND129.4/share (+32% higher than the prevailing market price),
resulting in a capital surplus of VND1,277bn and maxing out rooms for foreign investors (49%). Also during the
first half of 2011, the Company issued more than 7 million shares to employees under its Employee Stock
Ownership Plan (ESOP) for 2010 and 2011. By the end of 2011, the Company issued bonus shares to existing
shareholders with a 2:1 ratio, bringing its current chartered capital to VND5,561bn.

QUICK GLANCE AT CAPITAL STRUCTURE

18,000 CAGR 2006 2011
VND bn
16,000 Equity 36.2%
Chartered Capital 28.5%
14,000
Total Asset 34.0%
12,000
10,000 Annual Growth
8,000 Equity Chartered Total
Capital Assets
6,000
2007 57.6% 10.2% 50.7%
4,000 2008 10.3% 0.0% 10.0%
2,000 2009 39.4% 100.4% 42.2%
2010 23.9% 0.5% 27.0%
-
2011 55.9% 57.5% 44.6%
Equity Chartered Capital Total Assets
2006 2007 2008 2009 2010 2011
Source: VNM

17 | See Disclaimers at the end of the report

 VINAMILKS OWN PROJECTION & DEVELOPMENT OUTLOOK

Overall The Company will continue streaming its investments toward capacity expansion, products R&D, and
Projection distribution development to assure its brand image not only within Vietnam but also all over the world. VNM
has envisioned being among the top 50 largest dairy companies by 2017 with revenue of 3 billion dollars, and
not a single shareholder at the 2012 AGM showed even a slight frown of doubt.

Earning The year of 2011 was not exactly ideal for business all around, especially for the food & beverage industry, and
Projection inflation (almost 18.6% yoy) was eating up most of the disposable income that could have otherwise flown into
dairy consumption. Milk and other staple foods were under strict governmental supervision in order to keep
inflation at bay, and VNM was committed not to raise its selling prices; however, upon 2012, the Company has
already raised prices once in January (by 5-7%). There is still room to grow for the rest of this year.

VINAMILK: 5 YEAR PROJECTION ON EARNINGS

(VND bn) 2012 2013 2014 2015 2016 CAGR
Total Revenue 26,480 31,780 38,130 45,760 54,900 20.0%
Before-tax Profit 5,625 6,355 7,180 8,115 9,170 13.0%
After-tax Profit 4,690 5,230 5,720 6,180 6,870 10.0%
Source: VNM

CAPEX plan Last year, the Company planned to invest VND8,730bn in capacity expansion and office renovation. However,
VNM has revised its plan this year and decided to add another VND1,545bn to its CAPEX plan for the 2012-
2016 periods, bringing the total estimated investment to VND10,275bn.

VINAMILK: CAPEX PLAN (2012-2016)

(VND bn) Total Previous Disbursement Disbursement
investment disbursement plan (2012) plan (2013-2016)
TOTAL 10,275 2,572 4,537 3,166

VINAMILK 7,916 2,489 3,707 1,720

Vietnam Dairy Factory (Binh Duong) 2,349 415 1,651 283
Dielac II factory 1,906 569 958 379
Da Nang factory 421 204 176 40
Others 3240 1300 922 1018

LAMSONMILK LTD. 253 47 181 25

VIETNAM DIARY COW LTD. 2,006 36 646 1,323
INTERNATIONAL REAL ESTATE LTD 100 0 2 98
Source: VNM

18 | See Disclaimers at the end of the report

 FORECASTS
INITIAL ASSUMPTION

VNM will continue focusing on its core business, in which milk and other dairy related products will make up
the majority of revenue of profits.
VNM will carry out its capacity expansion plan for the 2012-2016 periods accordingly. No other large
investment in fixed asset will occur within this reviewing period. Therefore, the total investment for the 2011-
2016 periods will be around VND10,000bn (10%).
Operations of new processing plant will be on schedule.
We have not accounted for any disastrous event such as fire damage, natural catastrophe, food hygiene
scandal, etc. that may impact severely to the operation of the Company.
Our profit forecasts include neither reversals of provision for losses nor proceeds from stock trading.

FORECAST: REVENUE
We have separated revenue of VINAMILK into 5 main categories for the purpose of sales projection, namely
liquid milk, powdered milk, condensed milk, and other dairy products (ice-cream, fruit juice, cheese, etc.). Our
forecasting period (FP) is from 2011 to 2016.

Liquid Milk Production capacity will soon be doubled upon operations of the Da Nang milk factory and the Vietnam Dairy
Factory in Binh Duong, especially the latter is supposed to be the largest and most advanced fully-automatic
dairy processing plant in Indochina.
We expect average selling prices (ASP) of this segment to pace at +5%-7% per year, and thus its respective
revenue will grow at 30.5% CAGR (2011-2016 periods) which is much lower than the previous 39% CAGR
(2006-2011 periods). The majority of sales come from this segment (36%-45%), and its overall weight is just
getting larger every year. We assume a rough revenue contribution ratio of 39.5% within our FP.

Powdered Milk As the Dielac 2 factory comes into play, the capacity of powdered milk will increase tremendously (from
18,000 tonnes to 72,000 tonnes per year). The spray drying capacity will increase 4.5 times and the production
of powdered mixture will be 125% higher. The Company has certain competitive edges on this segment;
although VINAMILKs product quality is on par with that of foreign brand name, its selling price is much lower
(some products are only half as much). Furthermore, dairy consumers are directing their purchases more
toward domestic brand names since foreign products are getting out of their price range.
Besides the above advantages on domestic front, the Company will pursue higher export value. Thus, we
considered revenue growth of 28.9% CAGR for the 2011-2016 periods (as compared to the 21.3% CAGR within
the 2006-2011 periods). Overall, this segment will constitute roughly 28% of total revenue within our FP.

Condensed Milk The Company has purposely left this segment out of the expansion plan, because its capacity has not yet been
maxed out and the stagnant demand growth does not provide as much economic incentives compared to that
of other segments. However, exportation has been the alternate route for this segment (especially after the
recent flood in Thailand).
We suppose this segment can grow as fast as 26% in 2012 and much slower in later years, averaging at a
13.1% CAGR within the 2011-2016 periods, which is far inferior to the 20.6% CAGR of the 2006-2011 periods.
Thus, this group will compose 15% of total revenue within our FP.

Yogurt The addition of new processing plant will add another 30% on top of the current capacity. We expect this
segment to comprise 14.2% of total revenue within our FP. We have adjusted its respective growth from the
previous 39.1% CAGR (2006-2011 periods) down to 22.9% CAGR (2011-2016 periods) as growing competitions
stir up the air, because nobody wants to miss out such a high-margin segment. Since VINAMILK holds the
majority of market share (~ 90%), its growth should be close to that of the industry.

19 | See Disclaimers at the end of the report

Other Products The Company will maintain its advertisement focus on other products such as Vfresh fruit juice & soymilk,
cheese, and ice-cream. Contribution of this segment to total sales is not as significant as others, despite the
unused capacity. We assume a growth rate of 28.3% CAGR in our FP, which is higher than the 20.2% CAGR of
the last period (2006-2011).

The final Based on above estimates, revenue growth within our forecasting period boils down to 26% CAGR. Revenue
picture will thereby reach VND68,794bn by 2016, of which export will make up 14.5% to 16.5% of the total figure
while marching at 32.6% CAGR (which is far greater than the 16.7% CAGR of 2006-2011). Domestic sales will
pace slower at 25% CAGR as compared to the 30.4% CAGR of the last period.
This year, the Company only targets revenue of VND26,480bn (+22.4% yoy) and a PAT of VND4,690bn (+11.2%
yoy), which seemed to be a little cautious (as compared to our forecast). Despite the low season, within the
first two months of 2012 VNM has already grown its revenue by 30% yoy which were then translated into a
22% yoy growth on pre-tax profit, said Mrs Mai Kieu Lien during the AGM. We expect the Company to reach
revenue of VND28,222bn (+30.5% yoy) by year end 2012, which is 6.6% higher than the VNMs target.

FORECAST: GROSS PROFIT

We derive the overall gross profit based on the individual gross profits margin of domestic sale and export,
which we have estimated for the forecasting period.
Exports vs. Initially, we used the export GPM of 2011, which was around 19.8%, as a caliber to gauge that of 2012. Then,
Domestic sales we figure this ratio should move toward 20% as VINAMILK establishes a stronger brand name on the
international frontier. The downward trend on domestic GPM was obvious in 2011 (from 34.5% in Q1/2011 to
31% by Q3/2011 and to 30.4% by Q4/2011). However, we expect the current domestic GPM to steady around
32% for 2012, which is similar to that of 2011, and to gradually fade toward 30%.
We based our assumption on several supportive factors, including an early boost on selling price from 5% to
7%, positive movements of inputting material (within the first 3 months of 2012, prices of powdered whole
milk and powdered skim milk contracted by 8% to 9% as compared to the end of 2011), the USD/VND
stabilization, and the retracting inflation. In later years, additions of new processing plants will jack up
depreciation expenses, thus lowering the overall GPM. Furthermore, we suspect that VNM may willingly accept
lower GPMs to sustain its revenue growth and market share, especially amid the growing competition.

Overall gross The current GPM may dwindle slightly to 30.2% by the end of 2012 as compared to the 30.5% of 2011. As
profit margin domestic sales slowly lose profit traction and exports (whose GPM is inferior to that of domestic sales) play a
bigger role in revenue structure, the overall GPM may withdraw little by little to 28.4% by 2016.

FORECAST: REMAINING P&L ITEMS

Selling and G&A Based on the current development plan of VNM, we suspect that both of these items may outgrow revenue by
Expenses a small margin; however, their weights on revenue will align with the historical figures.
The inception of new processing plants will definitely incur higher G&A expenses, and thus we have anticipated
a 31.2% CAGR on this item for the 2011-2016 periods, which is more or less indifferent from that of the 2006-
2011 periods. The weight of G&A expense on revenue will thereby hinge around an average 2.4% (as compared
to 2.1% in 2011).
The ambitious revenue plan would require intensive upkeeps, and thus the Company really needs to step up its
advertisement and trade marketing expenses in order to make those sales. VNM has a reputation for how
much it usually spends on advertisement, and we are convinced that selling expense will increase rapidly,
specifically by 28.7% CAGR. The magnitude of selling expense on revenue may climb from 8.4% in 2011 to 9.3%
in 2016, averaging at a reasonable 9% during the 2011-2016 periods (as compared to other double-digit figures
in the past).

20 | See Disclaimers at the end of the report

Financial Although stock portfolio may not incur much provision this year like it did in 2011, we still expect a 27.9%
Income reduction on net financial income this year due to the slimier inflow. VNM will definitely pour a large amount
of cash onto project development, and thus leaving a smaller cash base for bank deposit. Also, the ongoing cap
on bank deposit rate will surely limit further the extent of interest income.
However, the Company will improve its cash base in later years, and thus we assume, on average, financial
income will contribute around 6.13% of pretax profit.

Corporate tax A few subsidiaries will max out their tax advantages by 2012 and by 2014, and thus the overall CIT should be
adjusted accordingly. We assume the tax rate to increase sequentially from 15.3% (2011) to almost 16.6% by
year-end 2012 and to roughly 23% by 2016.

After-tax profit All in all, a combination of diminishing gross profit, enlarging expenses, and higher taxes results in slower
growth on the bottom line: 17.6% CAGR (2011-2016) versus 44.9% CAGR (2006-2011). As gross profit margin
starts shrinking so does net profit margin (from 19.5% by 2011 to 13.8% by 2016). We expect VNM to achieve a
PAT of 5,068bn (+20.1% yoy) by year end 2012, which is 8.1% higher than its own target.

SUMMARY OF 5-YEAR PROJECTION: PROFIT AND LOSS

(VND bn) 2011 2012F 2013F 2014F 2015F 2016F CAGR 11-16
Total Revenue 21,627 28,222 36,529 46,958 58,130 68,794 26.0%
Gross Profit 6,588 8,532 10,871 13,756 16,753 19,503 24.2%
% gross profit margin 30.5% 30.2% 29.8% 29.3% 28.8% 28.4%
Selling expense 1,812 2,427 3,215 4,226 5,348 6,398 28.7%
G&A expense 459 621 840 1,127 1,453 1,789 31.2%
Profits from operation 4,317 5,484 6,816 8,403 9,952 11,317 21.3%
Before-tax Profit 4,979 6,078 7,468 9,081 10,741 12,308 19.8%
After-tax Profit 4,218 5,068 6,146 7,235 8,378 9,477 17.6%
% net profit margin 19.5% 18.0% 16.8% 15.4% 14.4% 13.8%
Source: VNM, SBS estimates after 2011

SUMMARY OF 5-YEAR PROJECTION: BALANCE SHEET

(VND bn) 2011 2012F 2013F 2014F 2015F 2016F CAGR 11-16
TOTAL ASSETS 15,583 19,238 23,474 27,709 32,406 37,698 19.3%
Current Asset 9,468 10,888 13,526 16,562 21,450 27,044 23.4%
Cash & cash equivalent 3,157 844 1,070 920 1,911 2,300
Short-term Investment 736 2,706 3,251 4,189 6,187 9,720
Long-term Asset 6,115 8,350 9,947 11,147 10,956 10,654 11.7%
Fixed Asset 3,750 7,189 8,631 9,690 9,321 8,788
Long-term Investment 847 945 1,052 1,171 1,367 1,615

TOTAL LIABILITIES 2,759 2,918 3,785 3,660 3,513 3,518 5.0%

Current Liabilities 2,600 2,759 3,626 3,501 3,355 3,359 5.3%
Short-term borrowing - - - - - -
Long-term Liabilities 159 159 159 159 159 159
Long-term borrowing - - - - - -

EQUITY 12,824 16,320 19,689 24,048 28,892 34,181 21.7%

Owner's equity 12,477 15,923 19,230 23,517 28,278 33,471 21.8%
Share Capital 5,561 5,562 5,562 5,562 5,562 5,562
Retained Earning 4,177 7,119 9,812 13,376 17,299 21,545
Other reserve 346 397 459 531 615 709 15.4%
Source: VNM, SBS estimates after 2011

21 | See Disclaimers at the end of the report

 COMPANY OVERVIEW

The Company was established in 1976, but only upon its equitization in 2003 did the Company change its name
to Viet Nam Dairy Products Joint Stock Company (with an initial chartered capital of VND1,250bn). Originally,
VINAMILK was only producing condensed milk and coffee, and with time comes its expansion to other
segments. VNM has been the leading dairy company for years and will remain so for years to come. The
Company was quoted as VNM on the HOSE in 2006, and is now the leading dairy manufacturer in Vietnam. The
companys chartered capital rose to VND3,531bn by December 2010 and to VND5,561bn by the end of 2011,
right after the issuance of 185 million bonus shares to existing shareholders.

CHARTERED CAPITAL SHAREHOLDER STRUCTURE

6,000 VND bn 5,560

5,000 SCIC
5.97%
4,000 3,512 3,512
Foreign Investors
3,000 2011 45.04%

1,753 1,753 48.99% Other Domestic

2,000 1,590
Investors
1,000

-
2006 2007 2008 2009 2010 2011

INCREMENT OF CHARTERED CAPITAL (2011)

Description of share issuance Number of shares Subsequent chartered capital
(VND bn)
Employee Stock Ownership Plan 2010 3,498,520 3,565,706,400
Issuance of new shares 2011 10,700,000 3,672,706,400
Employee Stock Ownership Plan 2011 3,554,910 3,708,255,500
Bonus shares to existing shareholders (ratio 2:1) 185,289,204 5,561,147,540
Source: VNM

By year end 2011, the Company had a total of 556m outstanding shares, and all of its room for foreign
ownership has been completely filled (49%). The State Capital Investment Corporation (SCIC) in VINAMILK has
reduced its holding from 47.3% (2010) to 45.04% (2011). Other major shareholders include F&N Dairy
Investment (9.5%) and Dragon Capitals investment funds (7.3%).

22 | See Disclaimers at the end of the report

BOARDS OF DIRECTORS AS SHAREHOLDERS (16th April 2012)
Names Position Holding (shares) Holding (%)
Ms. Mai Kieu Lien Chairwoman & General Director 1,510,320 0.27%
Ms. Ngo Thi Thu Trang Member & CFO 443,055 0.08%
Mr. Le Anh Minh Member 35,175 0.04%
Mr. Le Song Lai Member - -
Mr. Wang Eng Chin Member - -
Source: Cafef

SUBSIDIARIES & AFFILIATED COMPANIES (2011)

Company Business VINAMILKs Chartered Capital
Stakes (VNDbn)
Subsidiary
Vietnam Dairy Cow SMLLC Dairy livestock 100.00% 840
Lam Son Dairy SMLLC Dairy products & soft drinks 100.00% 80
International Real Estate Investment SMLLC Real estate 100.00% 160
Dielac Milk SMLLC Dairy products 100.00% 146
Associated company
Asia Saigon Food Ingredients JSC Crme powder for food 15.79% 114
Miraka LTD Dairy products 19.30% (VND173bn) 55 (NZD m)
Source: VNM, SBS

CURRENT VINAMILKS 9 FACTORIES (2011)

Entities Location Investment (VNDbn)
Truong Tho Dairy Factory Thu Duc district, Ho Chi Minh city 291
Thong Nhat Dairy Factory Thu Duc district, Ho Chi Minh city 168.6
Dielac Dairy Factory Bien Hoa city, Dong Nai Province 140.5
Binh Dinh Dairy Factory Quy Nhon, Binh Dinh Province 51.8
Nghe An Dairy Factory Cua Lo town, Nghe An 62.9
Sai Gon Dairy Factory District 2, Ho Chi Minh city 195.2
Can Tho Dairy Factory Binh Thuy District, Can Tho city 72.4
Tien Son Dairy Factory Tien Du District, Bac Ninh Province 380
Vietnam Beverage factory Ben Cat District, Binh Duong Province 300
TOTAL 1,662.4
Source: VNM

23 | See Disclaimers at the end of the report

 12-MONTH PERFORMANCE OF VNM & THE VNINDEX

VNINDEX VNM

40%

30%

20%

10%

0%

-10%

-20%

-30%

Source: Bloomberg, SBS

BALANCE SHEET (VND bn) YEARLY RATIOS

2009 2010 2011 2009 2010 2011
Assets 8,482.0 10,773.0 15,582.7 Growth rate
Current assets 5,069.2 5,919.8 9,467.7 Revenue growth rate 29.3% 48.4% 37.3%
Long-term assets 3,412.9 4,853.2 6,115.0 Gross profit growth rate 49.3% 33.4% 27.3%
Fixed assets 2,525.0 3,428.6 5,044.8 Net profit growth rate 90.0% 52.2% 16.6%
Long-term investments 602.5 1,141.8 846.7 Total asset growth rate 42.2% 27.0% 44.6%
Resources 8,482.0 10,773.0 15,582.7 Equity growth rate 38.4% 23.4% 56.7%
Liabilities 1,808.9 2,549.2 2,759.1 Profitability ratios
Current liabilities 1,552.6 2,385.6 2,600.2 Gross profit margin 36.5% 32.8% 30.5%
Long-term borrowings and liabilities 256.3 163.6 158.9 EBIT margin - - 23.1%
Equities 6,637.7 8,223.8 12,823.6 Profit before tax margin 25.7% 27.0% 23.0%
Owner's equity 6,455.5 7,964.4 12,477.2 Net profit margin 22.4% 23.0% 19.5%
Contributed capital 3,512.7 3,530.7 5,561.1 ROA 28.0% 33.6% 27.1%
Capital surplus 1,277.0 ROE 36.8% 45.4% 33.8%
Retained profits/(accumulated losses) 892.3 1,909.0 4,177.4 Dupont Analysis
Net profit margin(1) 22.4% 23.0% 19.5%
INCOME STATEMENT (VND bn) Asset turnover (2) 125.1% 146.2% 138.8%
2009 2010 2011 Equity multiplier (3) 131.4% 135.3% 124.9%
Net sales 10,613.8 15,752.9 21,627.4 ROE = (1)x(2)x(3) 36.8% 45.4% 33.8%
COGS 6,735.1 10,579.2 15,039.3 Management ratios
Gross profit /(loss) 3,878.7 5,173.7 6,588.1 Receivable outstanding days 17.7 13.6 19.3
Financial income 439.9 448.3 671.4 Inventory outstanding days 71.1 81.1 79.4
Financial expense 184.8 153.2 246.4 Payable outstanding days 1.6 1.1 2.8
Interest expense 13.9 Asset turnover 1.3 1.5 1.4
Selling expenses 1,245.5 1,438.2 1,811.9 Long-term asset turnover 3.1 3.2 3.5
G&A expenses 292.9 388.1 459.4 Fix asset turnover 4.2 4.6 4.3
Net operating profit /(loss) 2,595.4 3,642.4 4,741.8 Liquidity ratios
Other income 143.0 983.0 323.1 Current ratio 3.3 2.5 3.6
Other expenses 7.1 374.2 85.9 Quick ratio 2.4 1.5 2.4
Profit /(loss) before tax 2,731.4 4,251.2 4,979.0 Cash ratio 0.3 0.1 1.2
Corporate income tax 361.5 645.1 778.6 Capital Structure
Profit after tax 2,376.1 3,615.5 4,218.2 Total debt/Total Equity 28.0% 32.0% 22.1%
Net profit/(accumulated losses) 2,375.7 3,616.2 4,218.2 Total debt/Total Asset 21.3% 23.7% 17.7%
Total asset/Total Equity 131.4% 135.3% 124.9%

24 | See Disclaimers at the end of the report

CASHFLOW STATEMENT (VND bn) YEARLY RATIOS (cont.)
2009 2010 2011 Index per share 2009 2010 2011
Cash flows from operating activities PE 10.20 8.96 9.91
Profit/(loss) before tax 2,731.4 4,251.2 4,979.0 PBV 5.01 4.08 4.10
Depreciation and amortisation 234.1 290.1 414.6 PS 2.28 2.06 1.93
Allowances and provisions 62.0 (3.8) 46.2 EPS (VND per share) 9,024 10,268 9,279
Profits/(losses) from investing activities (23.1) (609.1) (460.8) Revenue/share (VND/share) 40,315 44,731 47,575
Operating profit before changes in WC 2,739.0 3,892.0 5,000.5 Book value (VND/share) 18,378 22,558 22,436
CF from operating activities 3,096.5 2,018.8 2,411.2
Cash flows from investing activities
Receipt/payments for additions to assets (654.8) (1,432.3) (1,767.2)
Receipt/payments for investments entities (2.5) (188.3)
CF from investing activities (2,476.3) (993.1) 6.0
Cash flows from financing activities
Proceeds from equity issued 3.6 18.1 1,454.5
Proceeds from long-term borrowings 3.3 967.1 624.8
CF from financing activities (532.7) (1,188.4) 126.2
Net CF during the period 87.5 (162.7) 2,543.4
Cash at the beginning 338.7 426.1 613.5
Cash at the end 426.1 263.5 3,156.5

BALANCE SHEET (VND bn) QUARTERLY RATIOS

QI-11 QII-11 QIII-11 QIV-11 QII-11 QIII-11 QIV-11
Assets 12,280.5 14,699.4 14,335.9 15,582.7 Growth rate
Current assets 7,327.5 9,519.9 8,979.1 9,467.7 Revenue growth rate (YoY) 36.1% 29.9% 43.9%
Long-term assets 4,953.0 5,179.5 5,356.8 6,115.0 Gross profit growth rate (YoY) 25% 20% 34%
Fixed assets 3,544.6 3,855.8 4,269.9 5,044.8 Net profit growth rate (YoY) 19% -7% 43%
Long-term investments 1,122.4 1,100.5 859.2 846.7 Profitability ratio
Resources 12,280.5 14,699.4 14,335.9 15,582.7 Gross margin 31.4% 29.4% 28.5%
Liabilities 3,180.4 3,114.9 2,507.8 2,759.1 EBIT margin 24.1% 22.1% 20.5%
Current liabilities 2,985.7 2,970.9 2,361.2 2,600.2 Net profit margin 20.4% 18.7% 17.4%
Long-term liabilities 194.7 144.0 146.6 158.9 ROA (4Q) 33.4% 30.0% 29.7%
Equities 9,100.1 11,584.5 11,828.1 12,823.6 ROE (4Q) 44.9% 39.3% 38.1%
Equity 8,905.2 11,323.2 11,539.8 12,477.2 Management ratio
Contributed capital 3,565.7 3,708.3 3,708.3 5,561.1 Receivable outstanding days 16 16 17
Capital surplus 1,277.0 1,277.0 1,277.0 Inventory outstanding days 100 79 70
Retained profits 2,667.3 3,500.0 3,572.2 4,177.4 Payable outstanding days 1 3 2
Liquidity ratio
INCOME STATEMENT (VND bn) Current ratio 2.3 1.8 1.9
QI-11 QII-11 QIII-11 QIV-11 Quick ratio 1.8 2.3 2.4
Total Revenue 4,629.4 5,537.9 5,812.7 6,090.5 Cash ratio 0.1 0.8 1.2
Net sales 4,535.4 5,420.4 5,696.5 5,975.1 Capital Structure
COGS 3,026.0 3,718.5 4,023.5 4,271.2 Total debt/Total equity 27.5% 21.7% 22.1%
Gross profit /(loss) 1,509.4 1,701.9 1,673.0 1,703.9 Total debt/total asset 21.2% 17.5% 17.7%
Financial income 132.8 194.8 169.2 174.6 Total asset/total equity 129.8% 124.2% 124.9%
Financial expense 99.5 82.4 22.9 41.7 Index per share
Interest expense PE 8.3 8.5 9.0
Selling expenses 342.4 418.8 504.5 546.1 EPS (VND per share) 11109 10768 10199
G&A expenses 89.3 113.8 119.6 136.7
Net operating profit 1,111.0 1,281.6 1,195.2 1,154.0
Other income 87.6 67.5 76.2 91.7
Other expenses 12.5 40.9 13.4 19.0
Profit /(loss) before tax 1,186.1 1,308.2 1,258.0 1,226.7
Corporate income tax 180.8 207.7 201.4 188.7
Profit after tax 1,006.5 1,107.2 1,062.5 1,042.0

25 | See Disclaimers at the end of the report

Disclaimers
Report tracking

Reports issued Date Recommendation 12M target price at Market price at issuing
issuing date (diluted) date (diluted)
Company Note 01/11/2011 TAKE PROFIT 93,100 84,700

SBS Research Guide to Investment Ratings

Buy: Share price may exceed 15% over the next 12 months
Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain
Neutral: Share price may fall within the range of +/- 15% over the next 12 months
Take Profit: Target price has been attained. Look to accumulate at lower levels
Sell: Share price may fall by more than 15% over the next 12 months
Not Rated (NR): Stock is not within regular research coverage

The information and statements contained herein, including any expression of opinion, are based upon sources believed to be reliable but their
accuracy, completeness, and correctness are not guaranteed. Expressions of opinion herein were arrived at after due and careful consideration and
they were based upon the best information then known to us, and in our opinion are fair and reasonable in the circumstances prevailing at the time.
Expressions of opinion contained herein are subject to change without notice. This document is not and should not be construed as, an offer or the
solicitation of an offer to buy or sell any securities. SBS and other related companies and/or their officers, directors and employees may have positions
and may have affect transactions in securities of companies mentioned herein and may also perform or seek to perform investment banking services
for these companies. No person is authorized to give any information or to make any representation not contained in this document and any
information or representation not contained in this document must not be relied upon as having been authorized by or on behalf of SBS. This
document is private circulation only and is not for publication in the press or elsewhere. SBS accepts no liabilities whatsoever for any direct or
consequential loss arising from any use of this document or its contents. The use of any information, statements forecasts and projection contained
herein shall be at the sole discretion and risk of the users. This document is confidential and is intended solely for the use of its recipient. Any
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26 | See Disclaimers at the end of the report