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QNS - Expecting the sugar industry headwinds will gradually pass

Q2-FY25: Challenging dynamics in the sugar industry overshadowed strong growth in soy milk
• QNS’s Q2-2025 performance fell 11% below our expectation, with net revenue of VND2,956 bn (+4.8% YoY) and NPAT-MI of VND546 bn (-20.9% YoY). This was primarily driven by negative impacts in the sugar segment, with a decline in production volume (-5.3% YoY) and selling prices (-4.9% YoY). Subdued demand (influenced by Decree 70), coupled with intense competition from smuggled sugar and a robust 2023/24 and 2024/25 sugarcane harvest, has led to high inventories and underperformance across most sugar mills.
• A bright spot was the soy milk segment, which saw a 2.7% YoY volume increase despite challenges in the FMCG sector due to Decree 70, particularly in the key general trade (GT) channel. Growth was supported by expanded market share in premium soy milk and health-oriented nut milk. However, this was insufficient to offset the significant decline in the sugar segment’s contribution to QNS’s overall results.
FY25 Outlook: Anticipated improvement in sugar supply-demand dynamics by year-end
• Sugar consumption is expected to gradually improve toward year-end, with production volume projected to decline slightly by -2.8% YoY and sugar prices bottoming out at VND18,000-18,200/kg as supply-demand stabilizes. Challenges such as demand stagnation from Decree 70, high mill inventories, lax control over smuggled sugar, and corn syrup are expected to ease following strategic efforts by sugar mills and government initiatives throughout Q2.
• However, with sugar consumption saturated over recent years (+3-4% YoY) and rising competition both domestically and internationally, sugar prices are unlikely to recover in the medium term, remaining at VND18,000-18,200/kg (-10-11% YoY). Meanwhile, QNS must maintain high sugarcane purchase prices under the industry protection program, leading to a notable YoY decline in sugar segment revenue and profit.
• The expansion of market share in the milk segment will be a key pillar to offset sugar industry challenges, with projected consumption volume growth of 8.7% YoY.
• We forecast QNS’s Q3-2025 performance to improve QoQ as sugar supply-demand balances out, with net revenue of VND2,943 bn (flat QoQ, +8.0% YoY) and NPAT-MI of VND553 bn (+41.1% QoQ, -19.9% YoY).
• For full-year 2025, we project QNS’s net revenue at VND10,524 bn (+2.7% YoY), with net profit/EPS at VND2,035 bn (-14.4% YoY) and VND5,536, respectively.
Outlook & Recommendation
QNS is expanding sugarcane cultivation to gain market share from smaller mills and smuggled sugar, while its soy milk segment (Vinasoy, >85% market share) faces saturation (3-8% YoY growth).
We value QNS using a 60:40 SoTP and DCF blend, reflecting sugar price uncertainties, with a one-year target price of VND 54,300/share (including cash dividends) (2025 P/E 9.2x). We recommend ACCUMULATE based on the August 25th, 2025, closing price.
QNS’s strong dividend policy (>55% of net profit) offers a 6.5-11.0% annual yield, exceeding bank deposit rates (4.0-5.0%). It suits investors seeking stable, dividend-focused returns above 6.0% annually