Vinamilk Seeks to Buy Second U.S. Dairy Company in Growth PushBy
Vietnam dairy producer bought Driftwood Dairy stake earlier
Dairy consumption in Vietnam low compared with its neighbors
Vietnam Dairy Products JSC, Southeast Asia’s biggest milk producer by market value, is in talks to buy another U.S. company as it accelerates acquisitions to expand globally and drive revenue.
The company, known as Vinamilk, expects the deal to close as early as next year, Chief Executive Officer Mai Kieu Lien said in an interview, declining to give the name of the target or the deal value. The dairy firm, which already has a stake in California-based Driftwood Dairy, may increase its mergers and acquisitions war chest as it strives to achieve annual revenue of $3 billion by the end of 2017, she said.
“U.S. is the most difficult market,” Lien said at her office in Ho Chi Minh City. “If we are accepted in the U.S. market, it will be a big advantage for us, helping us to penetrate into other markets and boost our growth.”
Vinamilk is casting for acquisitions overseas as Vietnam’s dairy market remains underdeveloped compared with neighboring countries. Dairy consumption per capita was 19 liters per year in 2015, compared with 51 liters in Malaysia and 34 liters in Thailand, according to Saigon Securities JSC. The market hasn’t expanded as rapidly as Vinamilk anticipated when it set the revenue goal a few years ago, Lien said.
The company is also looking for opportunities outside the U.S to achieve its sales target, Lien said. It set aside 4 trillion dong ($179.3 million) for M&A activities last year, but hasn’t used any of it, Lien said, adding that they can increase the amount if needed in the future.
“The goal of annual revenue of $3 billion will be very difficult to meet if we don’t boost M&A activities,” she said.
Lien forecasts average annual growth for Vietnam’s dairy industry to remain at about 7 percent to 9 percent in the next five years. Vinamilk is aiming for the growth of at least 10 percent a year, she said.
Outside of Vietnam and the U.S., Vinamilk has operations in New Zealand and Cambodia. It will build a new milk-powder factory in Vietnam next year and plans to expand production at its New Zealand factory, which is operating at full capacity, Lien said. Vinamilk, which was established in 1976 from the combination of three state-owned dairy factories, currently exports its products to 43 markets including Japan, Canada, the U.S. and Australia.
In the next five years, Vinamilk aims to increase its share of the powder-milk market at home to about 50 percent from 40 percent, and of the fresh-milk segment to about 60 percent from 53 percent, Lien said. It expects to keep its market share in condensed milk at about 80 percent.
To meet growing demand in an economy expected to expand at more than 6 percent this year, the company is also studying products in other markets that may be suitable for local customers, Lien said.
The shares of Vinamilk, the biggest company on the VN Index, have climbed 37 percent this year, compared with 14 percent for the benchmark. The stock was added to MSCI Inc.’s frontier-markets index last month and is expected to be included in the two Vietnam exchange-traded funds this month.
The dairy company in July received approval from the State Securities Commission to remove the 49 percent foreign ownership limit on its stocks. The State Capital Investment Corp., a government investment arm, currently still holds a 45.1 percent stake and hasn’t yet given specific timing for divestment.
The company, which had revenue of 40.223 trillion dong in 2015, expects to “reach and exceed” its earnings target this year, Lien said. After-tax profit rose 33 percent in the first six months of the year.