Race to control Vietnam’s biggest dairy heats up

Thailand’s M&A king seeks control of Vietnam’s largest dairy, Vinamilk, attracted by sound market fundamentals such as a large consumer base and its solid competitive strengths

Thailand’s beer-to-property tycoon Charoen Sirivadhanabhakdi has been upping his stake in Vietnamese giant Vinamilk, a development that mirrors foreign companies' rising interest in Vietnam’s dairy sector. Sirivadhanabhakdi already controls Vietnam’s largest brewer Sabeco.

Various factors are behind the upswing in foreign interest in Vietnam's dairy sector. Many analysts suggest a recent trade agreement is an important factor. The newly-implemented Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), under which import tariffs on dairy products from New Zealand, Singapore and Japan were cut to zero, has unleashed fierce competitive forces in Vietnam’s dairy sector.

The trade agreement is between Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam; and its full implementation will create a trading bloc boasting some 495 million consumers and representing 13.5% of global GDP.

Demand factors are playing their part. Rising incomes in Asia have led to a wider adoption of a Western-style diet, so much so that sectors like dairy and meat are booming. Vinamilk, Vietnam’s largest dairy firm, now enjoys the lion’s share of the home market, which boasts 95 million consumers. The company has various foreign stakeholders, still a rare occurrence within Vietnam’s corporate structure.

With a 36% stake, Vietnam’s sovereign wealth fund SCIC (State Capital Investment Corporation) holds the largest share in Vinamilk, while foreign investors own well over 50%. Singapore-based F&N, backed by Sirivadhanabhakdi's TCC Group, holds a 20% stake, forming the second-largest stakeholder, followed by Singapore-listed Jardine Cycle & Carriage (JC&C) with almost 11%.

JC&C is part of Hong Kong-based Jardine Matheson, one of Asia’s biggest conglomerates, which has interests in luxury hotels, motor vehicles, property, food retailing, transport financial services and agribusiness.

After initially purchasing a stake in 2005, F&N, the darling of the Ho Chi Minh City Stock Exchange, has continually increased its holdings of Vinamilk stocks, indicating that the Thai tycoon has a desire to wield increasing power within Vinamilk. His actions tell the story. Whenever possible, F&N has registered to buy more Vinamilk stocks in order to help Sirivadhanabhakdi - commonly referred to as Thailand’s M&A (mergers and acquisitions) king - gain some advantage in the race to hold the largest stake in Vietnam’s biggest dairy firm.

Nguyen Duy Hung, chairman of Hanoi-based Saigon Securities Inc. (SSI), says Vinamilk’s ownership structure, which encompasses many holders, has helped the dairy giant to operate for its own sake instead of investors’ sake. Such a structure bodes well for the commercial integrity of the enterprise and its long-term prospects. That also explains why this blue chip company has magnetized long-term investors rather than short-term ones seeking a quick return.

An SSI research report says, “We think that when a new foreign fund enters Vietnam, Vinamilk will be one of the first choices.”

Vietnam has in recent years attempted to offload state-controlled companies to private and foreign investors. Therefore, sovereign wealth fund SCIC is slowly divesting from companies in the country, including big names such as Vinamilk. Vietnamese stocks, particularly in blue chip companies like the dairy firm, have generated strong interest offshore. Indeed, that particular company grabbed investor attention in July 2016 when it formally allowed foreign investors to hold more than half its shares and potentially all of them.

Market observers cite Vinamilk as one of the best Vietnamese stocks to invest in during 2019. Billionaire Sirivadhanabhakdi  is aware Vinamilk will have to face fiercer competition from such foreign peers as Abbott, Friesland Campina, Mead Johnson, Nestle and Fonterra, not to mention American giant Coca Cola.

In a move that surprised some analysts, on April 16, Coca Cola Vietnam unveiled three brand new UHT milk products, representing the first project under the strategic alliance between Coca-Cola and New Zealand-based Fonterra in Southeast Asia. Fonterra has provided dairy products to Vietnamese consumers since the 1980s, but something like “Coca-Cola milk” still sounds quite strange in Vietnam where the brand is associated with soft drinks. Meanwhile, Japanese Asahi Group has joined forces with NutiFood, a Vietnamese food and nutrition company, to create a joint venture that will provide Japanese nutrition products to Vietnamese customers.

Late in 2017, beer-to-property tycoon Sirivadhanabhakdi paid almost US$5 billion to buy more than half of Sabeco, Vietnam’s largest beer brewer. In the first quarter of 2019, Sabeco became 100% foreign-owned, whose CEO, Bennett Neo, is also in charge at F&N. Bennett has extensive experience in the beer, oil and gas, marine and supply chain industries, undoubtedly key plus points for Sirivadhanabhakdi  and the durability of his Vietnam-based businesses.

The billionaire has ambitious plans to conquer the Vietnamese market across different businesses and never makes any secret of his empire-building ways. Late in 2015, his TCC Group bought the Vietnamese arm of German retailer Metro for US$711 million, facilitating Metro’s exit from Vietnam. TCC also owns 65% of Vietnam’s multi-business Phu Thai Group and a 65% stake in the five-star hotel Melia Hanoi.

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Date

26 Apr 2019

Channel

Capital Markets

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