Frontier Markets: Vietnam's Vinamilk a Buy
BAC SON, VIETNAM - JULY 13: Local woman on her bicycle along a rice field on July 13, 2014 in Bac Son, Vietnam. People in Bac Son still use a bicycle as their communal transportation.

In an article I wrote on this website on July 22 titled, “Vietnam Continues On A Path To Liberalization;” I briefly mentioned Vinamilk in the context that the government would allow foreign investors to own 100% of the company. Now, due to recent positive developments with respect to the company, formally Viet Nam Daily Products Joint Stock Company(HOSE:VNM), here I present my thesis on why I think this company would be a very good long term investment.

The company began 40 years ago as a state-owned enterprise under the name Southern Dairy – Coffee Company. Along the way, it purchased three other private dairies and became a monopoly, as in those days capitalism and private enterprises were nonexistent. However, as Vietnam became increasingly more market-friendly and the Ho Chi Minh stock exchange opened its doors, Vinamilk began listing 55% of its stock, with the other 45% owned by the government.

Financial institutions such as Deutsche Bank, Dragon Capital, and Fraser and Neave from Singapore purchased large chunks of the stock, essentially shutting out the retail investor. But with the government now allowing 100% of the stock to be owned by foreign investors, it has become very attractive to retail investors.

The company has, under the guidance of its current president Mai Kieu Lien, expanded its footprint not only in Southeast Asia by building a plant in Cambodia, but also in New Zealand where another plant is in the works, perhaps as an alternative to Fonterra. Lien’s aggressive expansion plan also includes global acquisitions such as the recent purchase of California-based Driftwood Dairy. Vinamilk currently exports products to Japan, Canada, and Australia. Company shares are up about 37% YTD, way ahead of the benchmark index (VINDEX:IND) which is up about 15% YTD.

Finally, even though the Vietnamese government still owns around 45% of the stock, they will at some point have to divest themselves of it and I predict that will happen very soon. The only fly in the ointment as I see it, is that if TPP passes it will allow co-ops such as New Zealand’s Fonterra and Canada’s Saputo to enter Vietnam and steal market share away from Vinamilk. But I’m confident Lien has accounted for that possibility and is prepared to make the necessary adjustments. Vinamilk in my opinion, is still a strong buy.

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Peter Kohli is the CEO of emerging market specialist DMS Funds.

 

This column does not necessarily reflect the opinion of the editorial board or Frontera and its owners
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