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The trend of liquid milk in Vietnam – The foothold of 100% fresh cow's milk enterprises is increasing

• The liquid milk market includes 3 types: UHT fresh milk, HTST fresh milk, reconstituted milk. People in developed countries mainly consume fresh cow's milk instead of reconstituted milk, which is common in poor/developing countries.
• In Vietnam – a developing country, we have noticed an increasing trend in the consumption of fresh cow's milk products when consumers are increasingly strict with the origin of production materials and product quality, believing that reconstituted milk products have gone through many stages of processing, so the nutritional content decreases. Milk producers have therefore shifted to producing more fresh milk.
• In terms of dairy stocks on our watch list – Vinamilk (HSX: VNM), the company is not out of the trend of shifting from reconstituted milk to fresh milk from cows with GreenFarm products, 100% Organic..., with the increase in the number of cows over the years. However, VNM's gross margin still depends heavily on the development of raw milk powder, because the amount of fresh milk ingredients from self-operated farms contributing to VNM's production structure is not high.
• In addition, the use of both self-exploited cow's milk and cow's milk imported from farmers makes the risk of liquid milk quality uneven, implying that it is difficult to create a competitive advantage in terms of taste and origin of milk in the consumer insights in our view. This has contributed to the decline in the market share of VNM liquid milk in recent years.
• In the coming years, VNM will continue to make efforts to increase the source of fresh milk from cows as a way to regain the lost market share in the liquid milk segment. We recommend investors to closely monitor the development progress of this milk source as this is a prerequisite for the Company's growth prospects in the medium term.