To appreciate the investment potential in Vietnam, it helps to know that one of the country’s most successful publicly traded companies makes products that have yet to catch on with the majority of Vietnam’s nearly 100 million consumers. The company is one of Southeast Asia’s largest dairy producers: Vinamilk.
Many Vietnamese consumers have yet to embrace milk products as a source of nutrition and an indispensable food for children — filling body’s need for protein far better than beef, black beans, peanuts, or wheat. Vietnam’s dairy exports say one glass of milk daily will make a child grow one-sixth of an inch more per year, which would add up to two or three inches by adulthood.
It’s not going to take long for more Vietnamese consumers to appreciate this open secret and acquire the income to afford more dairy products. As they do, Vinamilk is poised to extend what has already been explosive growth. Its sales quadrupled since 2007, and profits are up 51% per year in that period. Return on equity has exceeded 40% each of the past three years. And that’s despite a dismal economy that has held consumers back from spending.
There’s a lot of room for growth. Vietnam currently consumes the equivalent of about four gallons of milk a year per person, a little more than half the consumption in China and Thailand — and less than 5% of Scandinavian consumption.
Vinamilk dominates the market of dairy products — with 98% market share of yogurt and 80% condensed milk — and sells just over half the fresh milk purchased in Vietnam. The company also sells fruit juice and purified water. Revenue is projected to triple to $3 billion within five years.
Although dairy products are still being discovered in Vietnam, the Vinamilk (VNM) investment opportunity is already well known. VNM shares are relatively expensive by Vietnamese standards. Yet even after a 45% return to shareholders over the past year, this growth company still has a P/E ratio below 14 as well as 3% dividends and a bright future.