"Queen of Pangasius" swims upstream

Vinh Hoan JSC recorded VND 2,222 billion in revenue in the first quarter of 2023, a drop of 32% from a year earlier. The increase in interest expenses had a substantial impact on the company's after-tax profit which was VND 226 billion, down more than half from the same period last year.

Sudden reversal

Export revenue cooled down when the market faced challenges in the second half of 2022 due to persistent inflation and a high inventory of retailers, severely affecting export activities. Previously, 2022 was a successful year of seafood exporters like Vinh Hoan, which reported a sharp increase in revenue and profit thanks to pent-up demand in the US market.

The year 2022 is considered the most sublimated year of the pangasius industry with export value reaching a record when increasing 63% to $2.4 billion. Pangasius exports won big, helping Vinh Hoan's VHC stock also increase strongly and set a historic peak at VND 107,000. However, entering 2023, the market moved in opposite directions and dropped sharply.

According to VNDirect's estimate, the total net profit in the first quarter of the industry insiders fell by 74% over the same period. VHC's market price decreased by 47%, capitalization also lost about VND 9,300 billion from the peak. Right after the first quarter business results were not very effective, Vinh Hoan continuously received resignation letters from 3 senior leaders. This move has caused concern for many shareholders.

Difficult but unavoidable situation for seafood enterprises. Because, according to the Vietnam Association of Seafood Exporters and Producers (VASEP), in the first five months of this year, Vietnam's seafood exports reached about $3.5 billion, down nearly 30% over the same period last year. Exported seafood products all decreased by 13-34%.

Major export markets such as the US and China both recorded record declines, down 50% and 26% respectively. According to VASEP, the difficulties of the seafood industry come from the economic recession, global inflation, and difficulties in domestic production and processing, plus great competitive pressure from Ecuador, India, and Indonesia...

Most companies expect 2023 revenue to exceed 2022. They also expect profits to drop significantly this year. Businesses expect gross profit to fall even though inflation may keep product prices high. Vinh Hoan's boss predicted inflation and an economic slump will lower purchasing power and raise production prices in 2023. Vinh Hoan's major product, pangasius, has drawbacks despite being affordable.

The May seafood export surge revealed that the market has many chances to recover. Due to cooling inflation, reduced inventory, and year-end demand, VNDirect expects US seafood consumption to improve in the second half of 2023. Vietnam's seafood exports to the US will rise 40–50% in the second half of the year. Despite opening up following the pandemic, Vietnam's primary exports like pangasius and shrimp to China dropped drastically. Vietnam exported 23 billion USD of seafood to China. With the Zero Covid regulation lifted, China might be a market for Vietnamese seafood.

Deputy Minister of Industry and Trade Nguyen Sinh Nhat Tan said: “Vietnam's seafood will have to compete with the two biggest rivals, Ecuador and India. With other seafood products such as sea fish, shrimp, squid, and octopus..., Vietnam also faces competition from exporters from other countries. Ms. Nguyen Thi Thu Sac, Chairwoman of VASEP, said that the seafood demand of the markets may continue to decline in the third quarter of 2023 instead of recovering from the second quarter as previously forecast.

Struggling to get out of trouble

Vinh Hoan's leaders also predicted 2023-2024 pangasius fillet revenue problems at the 2023 General Meeting of Shareholders. The company's primary markets, Europe and the US have consistent prices. Vinh Hoan's customers haven't fully refilled their inventory in the first quarter of 2023 due to high cold storage prices and US macroeconomic volatility. Businesses expect US hoarding to continue into the fourth quarter. In the medium term, Vinh Hoan will also focus on the Chinese market, diversify its product portfolio, process salmon fillets, and develop additional luxury seafood items.

Vinh Hoan is a sustainable seafood company. The corporation owns five seafood-related subsidiaries: pangasius seed manufacturing, aqua feed, gelatin, collagen, and a fertilizer company. The company also invests in artificial shrimp meat production... Vinh Hoan's 2023 business plan projected VND 11,500 billion in revenue, down 13.1% from 2022, and VND 1,000 billion in profit after tax, down 49.4%.

Management expects low worldwide fish fillet demand and rising feed prices to hurt profitability in 2023–2024. The Company plans to invest 1,000 billion VND in an additional gelatin production line and renovating the factory at Vinh Hoan Collagen Company, fruit processing plants, Feedone aqua feed factory, farming areas, and new investments and renovations of factories in Vinh Phuoc, Thanh Binh, Vinh Hoan, and Sa Giang.

The expansion of the production line of the collagen and gelatin factory will be completed by the end of 2023, helping to increase the capacity of collagen and gelatin product groups by 50%. In addition, Vinh Hoan plans to put into operation TNG Food Factory, specializing in processing fruit products, in the second half of this year with a revenue target of VND 350 billion and a gross profit margin of 15%.

Vinh Hoan plans to stop raising selling prices and improve product quality to improve competitiveness. Recently, the Company has also expanded its portfolio of value-added products to meet the culinary tastes of consumers, such as 15 lines of breaded and marinated fish products. However, the Company still expects that pangasius demand will recover from the fourth quarter as inventories decrease, and demand for fish imports will improve when the Western holiday approaches.

VDSC Securities Company expects Vinh Hoan to struggle owing to falling selling price and consumption volume. Inflation increases pangasius demand, making it difficult for prices and output to drop significantly. The collagen and gelatin segment helped the pangasius segment during its difficult years since there is no raw material excess like in 2018–2019, therefore raw material prices and selling prices do not drop quickly.