VNM — Express note — Another Beneficiary of Government Policy

• Vietnam’s domestic raw milk supply decreased in 2015-2025 as farmers actively reduced herd sizes or ceased livestock farming altogether. This downturn has been due to (1) increased competition from imported raw milk, and (2) COVID-driven supply chain disruptions. A series of government policy initiatives aims to reverse this trend.

Domestic supply is set to dominate from 2030. The Vietnam Institute of Strategy and Policy for Industry and Trade (VIOIT), which sits within the Ministry of Industry and Trade (MoIT), aims to raise the ratio of domestic fresh milk to 53–56% of the total market by 2030 and 62–65% by 2045 (up from the current level of c.38%). VIOIT has proposed 4 key initiatives:

• Expanding the domestic dairy herd to 650,000–700,000 cows by 2030 c.330,000 cows currently, which only fulfills 66% of the target 500,000 dairy cows by end-2025.
• Increasing milk consumption by developing school nutrition programs to improve children’s access to nutrition as well as to ensure dairy output.
• Establishing clear and transparent technical standards to differentiate fresh milk from reconstituted milk products. This is intended to ensure transparency for consumers as well as clarifying compliance requirements for both producers and regulators.

Requiring dairy producers to establish/associate with domestic raw milk farms and to ensure that a minimum proportion of fresh milk is sourced locally.

Our view:

• VNM should be among the key contributors to the target national dairy herd CAGR of 14% in 2025-30E, in our view. Notably, VNM increased its self-managed dairy herd by +4.9% CAGR in 2020-24, far ahead of the +0.4% CAGR growth of the national herd in 2020–2025. As such, VNM’s dairy herd of 140,000 cows represents c.39% of the national herd scale.
• Official announcements of incentive policies for dairy companies/ households should be positive for VNM and the dairy industry in general. Although a long-term strategy has not yet been formally approved, we believe that future support measures related to taxation, credit, and land use are likely to be highly beneficial for the key players, including VNM.

We remain cautiously optimistic and reiterate our BUY recommendation. We like VNM for its high (6.2%) dividend yield and efforts to “renew” itself.

Valuation de-rating is overdone. VNM’s position as Vietnam’s largest dairy company suggests that the high-growth era is over, but we think this is fully discounted in the valuations: The stock’s 16.1x TTM P/E multiple is 1 standard deviation below its 10-year average of 21.4x.

Please see our initiation published in June and our 2Q25 results update published in August for further details of our view.

VNM – Express note – Long-term strategic goal to benefit VNM