Minh Phu — VietEcon

Yesterday, we talked a little about Minh Phu (MPC), one of the largest (if not largest) shrimp producers in Vietnam. They have about a 20% share, or did in 2018. It looks like it will be about the same this year or a bit more. That is despite a slightly worsening market for shrimp prices (and volumes). In the first half of 2019, prices fell again (2.4% yoy compared to 1H2018), although were up 2.3% versus 2H2018.

Revenues for the company have been all over the place, as you can see in the chart on the right. In fact, I am a bit worried that the figures for 2016 are incorrect, but they come straight from the horse’s mouth, as it were. What we can see is that generally revenues are trending up, but also more importantly, the gross profit is increasingly somewhat steadily.

SOURCE: COMPANY DATA, VIETECON.COM CALCULATIONS

That’s resulted in a much improved return on equity, which was negative in 2015 (the company had a net loss of VND19bn) to 22% in 2018. That’s a gigantic jump. At the same time, leverage is falling, as net debt fell from VND5.5tr to VND4.1tr in the same period.

As operations improve, the company has attractive interest from investors abroad. As I talked about yesterday, the company recently received a cash infusion from Mitsui, a large Japanese trading company. Minh Phu sold it 60m shares at a price of VND50,630 for a total of VND3.0 trillion, or $132m. That’s 30% of the company. The current market cap is VND7 trillion, or just over $300m. Unfortunately, this is still a fairly small cap stock, so many big investors can’t really invest in it. The reasoning is this: if you have $300m in assets to invest in Vietnam, you probably don’t want to put even one-twentieth of your fund in a stock that trades less than $500,000 a day. With 5% of your assets, you would need to buy $15m worth of stock, which would take more than 15 days to buy, and potentially more than that to sell, especially if things don’t work out and shares were falling.

However, MPC isn’t too far off from the lower end of market cap for stocks in the VNM ETF. A few stocks (NT2 VN, TCH VN) are just slightly bigger than MPC. The company could be a candidate for inclusions if the stock continues to rise.

Tomorrow I am going to look at valuation and what could drive the stock higher.