TH Milk to conduct IPO for business expansion

The private TH Group that has made a huge investment in dairy farming and fresh milk processing is planning to list its member in the next three years on Vietnam’s or Singapore’s stock market, Thai Huong, founder of the group said in a recent interview.

TH Milk accounts for the largest dairy market share in Vietnam. TH Group targets $1 billion in revenue from its dairy business before TH Milk’s IPO. Proceeds from the IPO will be used to invest in developing the domestic market and expanding business in Russia in the future.

Launched in October 2009, TH Milk quickly made an impression on the Vietnamese dairy market with the strategy "True milk". The group accepted to make a large initial investment in building the feed mill, raising the herd of dairy cows, producing dairy products and establishing the distribution and retail system in the market.

The investment in building the largest dairy plant in Southeast Asia has helped TH Milk to grow rapidly. In 2015, TH Milk became the corporation owning the largest dairy cow in Vietnam with a total of 45,000 cows on an 8,100-hectare farm in Nghia Dan district, Nghe An province.

At present, TH Milk is developing some farms in Ha Giang, Phu Yen and Soc Trang provinces, aiming to reach the size of 137,000 dairy cows at the end of the year 2020.

To operate the business system in the dairy sector, three companies were established. TH Milk Food develops dairy farms and supplies raw materials. TH Milk produces dairy products while TH Food Chain is responsible for distribution of products.

The activities of these three companies create a closed production chain for TH Group’s milk products to be available in the market. In addition to traditional distribution channels, TH Group also establishes its own retail systems with up to 200 stores across the country.

Big investments are challenging Huong’s ambition in the dairy sector. However, in the interview, Huong said that the group still has enough resources to develop its domestic dairy business and has no intention of seeking financial support at the moment.

According to a source, in addition to shareholders’ capital sources, the group also receives loans from BIDV and Vietnam Development Bank (VDB), Nghe An branch and Maritime Bank.

TH Milk also received investment consultancy from Bac A Commercial Joint stock Bank, where Huong is the General Manager. The bank used to be a shareholder, holding a 7 per cent stake in TH Food Milk as reported in 2014.

Moreover, TH Milk is backed by the Israeli government with a $100 million investment package. While TH Milk Food has the largest chartered capital of VND3.8 trillion ($167 million), the remaining two companies have the charter capital of a few hundred billion of Vietnam dong.

However, these companies’ current financial results are not optimistic. By the end of 2016, the accumulated losses of these three companies added up to a few hundred million dollars. TH Food Chain, the distributor of TH dairy products recorded a loss of over VND1 trillion ($44 million) in 2016 only.

Apparently, the IPO plan in the next few years will solve the financial problem for the group’s ambition to expand dairy business both domestically and abroad.

In Russia, TH Group is implementing a dairy complex and many other food projects with a total budget of $2.7 billion in 10 years, divided into three phases. Phase 1 was implemented in Moscow with a $500-million investment and the first farm was opened in January this year. In addition, a dairy farm in Kaluga is under construction.

To raise funds for projects in Russia, recently, TH Group has signed a cooperation agreement with Russian Direct Investment Fund (RDIF). The two parties will jointly invest in the group's projects in Moscow and Kaluga with an estimated investment of $633 million.

According to the group’s introduction, the production complex in Russia will replicate the model in Vietnam, including a feed mill, livestock farm, processing and distribution areas, and a chain of retail stores nationwide. The products will be supplied to the Russian market, which is in short supply.

Furthermore, China and other countries in Southeast Asia are also on the list of major markets that TH Milk wishes to conquer in the future.

Despite ambition to expand business abroad, TH Group’s founder still emphasized in the development of TH Milk is the domestic market with the goal of gradually changing consumer demand in the country to use fresh dairy products.

According to a report by AC Nielsen, TH Group disclosed that in 2016 it held about 40 percent of the dairy market share in Vietnam and it aims to reach 50 percent in 2020.