HO CHI MINH CITY -- Vietnam Dairy Product, also known as Vinamilk, is set to officially enter Myanmar in 2019 to meet increasing demand for its products, said a source close to the company this week.
The company is exploring the possibility of setting up a factory in the country as one of a number of options, in what could be its second foray into other markets in the Association of Southeast Asian Nations. It currently operates a plant in Cambodia, and is in discussions regarding a joint venture in Indonesia.
To further boost its foreign expansion plans, the dairy group is also preparing an entry into the Chinese market this year. A draft version of the protocol that allows Vietnamese dairy products to be officially exported to China has been prepared by Chinese authorities and is expected to be signed in April 2019.
This is expected to pave the way for Vinamilk to enter China, a market with a population of 1.4 billion people. Singaporean conglomerate Jardine C&C, which holds an 11% stake in Vinamilk, is likely to help distribute the latter's products via its Dairy Farm retailing chain in China.
The source declined to give details of the Myanmar factory but said the company would work with a local partner, understood to be Synchro World, which has acted as its distributor since Vinamilk products were first introduced to Myanmar in 2016 to test the market.
The Myanmar market offers huge potential to dairy companies, as the milk consumption of its more than 55 million population is low compared to other markets in the region. Annual milk consumption is 10 liters per capita, far behind Singapore’s 45 liters and Malaysia’s 60 liters.
Myanmar is one of Vinamilk's strategic foreign markets as it seeks to make up for the loss of the Iraq market, which once accounted for 60% of its overseas sales. In 2017, Vinamilk reported a drop in exports for the first time in 20 years due to political fluctuations in the Middle East. Overseas net revenue was 7.4 trillion dong ($312 million) in 2017, down 4.2% from the previous year.
Vinamilk's management had to alter its overseas sales and expansion strategy. "The company will move to intensive cooperation with distribution partners in new key markets, from traditional exports, and gradually building producing facilities in the potential markets, such as in Myanmar," Vinamilk chief executive Mai Kieu Lien told shareholders in 2018.
She added that the company had set aside funds estimated at $750 million for M&A activity, building new facilities and developing cattle farms between 2017 and 2021.
Rong Viet Securities said Vinamilk's Myanmar factory moves should help the company to settle in that market, utilizing local partners who understand the behavior of local consumers and own distribution networks, and boost its overseas sales.
In March 2017, Vinamilk completed its takeover of Cambodia's Angkor Dairy Products, buying the 49% stake held by BPC Trading Co., a distributor and strategic partner, with a total investment of around $23 million. Angkor Dairy Products, or Angkormilk, which has a 27,000 sq m factory with annual output of 19 million liters and 64 million yogurt jars, posted a 65% rise in revenue in 2017 to $20 million and expect a further revenue rise of 146% for 2018.
In 2018, Vinamilk invested roughly $19.7 million in a 51% stake in Lao Jagro Development Xiengkhouang Co., a company that runs cattle farms in Laos, including a beef-dairy farm run on Japanese technology, to export products to ASEAN countries. $38.7 million is the total value of the project.
Vinamilk reportedly earned 52.8 trillion dong in revenue in 2018, an increase of 2% year-on-year, lower than the target of 55.5 trillion dong, marking a significant slowdown in its decadelong growth trajectory. Analysts said the declines were due to a change in consumption trends, with Vietnamese switching to high-nutrient and other health beverages.
The expansion of its overseas markets to increase export turnover is one of the three main growth goals for Vinamilk by 2020, BIDV Securities JSC said in its latest report. The company will focus on the Philippines, Cambodia, Myanmar, Indonesia and China, where dairy consumption is still low compared to other markets.
Vinamilk shares were trading at 136,300 dong on Friday morning, up 1.8% on the week.