A dairy farm of Việt Nam Dairy Products Joint Stock Company (Vinamilk) in Long Khánh Commune, Bến Cầu District in the southern province of Tây Ninh. Vinamilk plans revenue up by 5.5 per cent and profit equivalent to the performance of 2022, at VNĐ10.5 trillion (US$446.9 million). VNA/VNS Photo

HÀ NỘI - Dairy producers will see gross profit margin recover in 2023, as pressure from raw material costs eases.

Analysts believe that milk powder prices will cool down in 2023 due to reduced import demand from China and global demand for milk may weaken in the short term. Therefore, dairy producers will see gross margin recover in 2023, when the pressure from raw material costs eases.

According to VNDIRECT Securities Joint Stock Company (VNDIRECT), the gross profit margin of dairy businesses is likely to improve in 2023 because the price 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 per cent year-on-year and 32.1 per cent lower than the peak in March 2022.

Milk powder prices are forecast to continue to decline in 2023 due to reduced import 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 Products Joint Stock Company (Vinamilk or VNM) plans revenue up by 5.5 per cent and profit equivalent to the performance of 2022, at VNĐ10.5 trillion (US$446.9 million). Vinamilk's 2023 Annual General Meeting of Shareholders will be held on April 25, 2023.

In the meeting with shareholders in February 2023, Vinamilk's management board was not too optimistic about the recovery of milk consumption demand because consumers are tightening spending.

Regarding input material expenditure, global milk powder prices are expected to decline in 2023, the reopening of China will not have much impact on this trend. Vinamilk has finalised the input milk powder price for the first half of 2023.

According to VNDIRECT, most labour-intensive industries are facing many challenges, leading to rising unemployment and forcing consumers to tighten their spending. This company estimates that consumption in Việt Nam will be strongly affected in the first 6 months of 2023 and gradually recover its growth momentum from the third quarter of 2023.

According to Vinamilk, most Vietnamese consumers do not consider milk as an essential nutritional product. Therefore, demand for dairy products will weaken as consumers tighten their spending habits.

Vinamilk expects milk consumption to grow below 5 per cent over the same period in 2023.

Besides, Vinamilk is facing increasing competitive pressure in most product lines, especially in the powdered milk segment. In 2022, VNDIRECT said, Vinamilk had not launched any notable new products while promotional activities were reduced. Vinamik was still in the process of restructuring the brand and renewing the packaging and flavours. The restructuring of the sales channel in 2022 may continue to affect sales in the first half of 2023.

Analysts expect Vinamilk to maintain a flat market share in 2023-2024, with domestic consumption increasing while average selling price remains unchanged in 2023 and slightly up in 2024.

In addition, VNDIRECT said that Vinamilk's export revenue will increase year-on-year in 2023, as milk consumption demand in the Middle East and China markets will recover. However, the Chinese market has not yet contributed a large proportion to export revenue, only about 5 per cent. Therefore, this event will not significantly affect Vinamilk's export revenue growth.

According to Rabobank, one of the world's leading banks in agricultural finance, China's milk powder import volume in the first quarter of 2023 is expected to decrease compared to the first quarter of 2022 due to accumulated inventories in the past year. Global milk demand is likely to weaken in the short term as many economies are facing inflation. Therefore, the price of whole milk powder - the raw material for milk production - may continue to decrease compared to 2022.

At the same time, according to VNDIRECT, global sugar prices have recently increased as the outlook for sugar supply is affected by adverse weather conditions in India (heavy rain), and Brazilian sugarcane producers are expected to continue to prioritise more ethanol production in the 2023-2024 crop year.

This factor may partly affect Vinamilk's gross profit margin as the company also imports sugar from foreign markets for production besides using sugar from Vietsugar - a subsidiary of Vinamilk.

However, VNDIRECT still believes that the price of whole milk powder will continue to decrease and the business will record an increase in gross profit margin in 2023. VNS