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Saturday, June 22, 2024

On a plateau

By Trieu Duong

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Rice exports have soared by both volume and value in the year to date, but prices of rice exporters’ shares have barely improved.

Positive outlook

On June 9, 2023, rough rice futures prices reached 19.42 points and remained above 19 points until June 12. Rice futures have consistently shot up to new record highs, surpassing the peak reached in 2020 and marking the highest level since 2008.

Rice futures have surged by 13% since the beginning of June, the fastest pace seen in recent years. This has driven up global rice prices as countries have continued to replenish their rice buffer stocks due to economic and political uncertainties, as well as the ongoing Russia-Ukraine military conflict.

Vietnam has benefited from this upward trend. Data from the Ministry of Agriculture and Rural Development shows that the country exported around one million tons valued at US$489 million in May. Compared to the same period last year, Vietnam’s total shipment volume in the year up to May had increased by 40.8% in volume and 49% in value, reaching 3.9 million tons and US$2.02 billion, respectively. This represents the sharpest year-on-year increase since 2013. The average export price for rice in the first five months stood at US$517 per ton, a 5.8% increase compared to the same period in 2022.

According to the Vietnam Food Association, Vietnam’s rice prices remain higher than those of Thailand and India. In early June, Vietnam’s 5% broken rice was quoted at US$498 per ton, while Thai and Indian rice were sold at US$492 and US$453 per ton, respectively. Due to its recognized quality, Vietnam’s 25% broken rice was priced at US$478 per ton, US$10 and US$50 higher than Thai and Indian rice, establishing its own brand across various market segments.

In addition to the rising prices, Vietnam’s rice exports have benefited from the lower output of its competitors. India is expected to maintain restrictions on broken rice exports and a 20% duty on various other types throughout 2023.

Thailand’s Kasikorn Research Center has warned of a tighter rice supply as the country’s production may decline by 6% to around 25.1-25.6 million tons due to hot weather caused by the El Nino phenomenon.

Climate change has continued to impact rice supplies in many countries, resulting in storms in the Philippines and drought in China. This year, drought is expected to hinder China’s agricultural output, potentially reducing rice production by three million tons compared to 2022, totaling 145.5 million tons. However, this presents an opportunity for rice exporters, including Vietnam.

Vietnamese rice exporters are urged to follow market trends, adjust their production based on market signals, and diversify their export markets through trade promotion programs. The aim is to increase the presence of Vietnamese rice and rice-based products in direct distribution channels, targeting a 60% market share. One-fourth of the exported rice will carry the Vietnam rice brand.

Moving sideways

Despite these advantages, prices of rice exporters’ shares have barely improved.

Shares of Loc Troi Group JSC (LTG), a leading company in the production and trading of plant protection chemicals, seeds, and rice exports, have been slowly improving. LTG shares advanced in late March and April, followed by losses in May.

The main cause of this fluctuation is the company’s loss of over VND80 billion in the first quarter of the year, compared to a profit of VND183 billion during the same period in 2022. This marked the steepest loss since the company’s establishment. The company’s leadership attributed the loss to a three-fold increase in loan interest payments.

Vietnam Southern Food Corporation faced a similar situation. Despite a 59% surge in revenue during the first quarter, rising expenses ate into the company’s profit, leading to a loss of VND7.2 billion. The company also posted a loss of VND5.6 billion in the first quarter of 2022.

Similarly, Trung An Hi-Tech Farming JSC (ticker: TAR) reported a 9% year-on-year decrease in its first-quarter profit, amounting to VND8 billion, due to a 59% increase in interest expenses. Vietnam National Seed Group JSC (HOSE: NSC) saw its first-quarter profit dipping by half compared to the same period last year, reaching VND35 billion.

Despite the positive prospects for Vietnam’s rice exports in 2023 and the high prices of Vietnamese rice in the global market, these mentioned companies have yet to show substantial improvement in their business performance. As a result, their share prices have remained stagnant despite an overall upward market trend.

However, some companies have experienced significant improvements. An Giang Agriculture and Foods Import-Export JSC (UpCom: AFX) reported a five-fold increase in profit compared to the same period last year, reaching VND5 billion. Following the State’s divestment, the company has actively restructured its operations and investment activities, expanded into new markets, and ventured into other sectors. AFX has planned to raise US$30 million from foreign investors to supplement capital for its future development strategy.

The company has also applied to move to the Hochiminh Stock Exchange, which has helped attract cash flow to its stock, resulting in increased trading volume and value in recent sessions. Despite this, the current price is still below VND10,000 per share, significantly lower than its peak of VND18,000 per share in 2021 when the State Capital Investment Corporation offloaded its stake in the company. Additionally, investors have expressed concern over the company’s substantial ownership of land.

Meanwhile, The Pan Group JSC (HOSE: PAN) recorded a net profit of over VND40 billion in the first quarter of the year, a 48% decrease compared to the same period in 2022. The year-on-year decline was mainly due to the extraordinary income from the transfer of its factory, which amounted to nearly VND74 billion in the first quarter of 2022.

If this income is excluded, the company’s first-quarter profit would have significantly increased. However, the company’s share price has not improved much.

Considering the positive outlook for Vietnam’s rice exports this year and the high prices of Vietnamese rice in the global market, it is expected that the mentioned companies will perform better in the near future, especially as the pressure caused by high interest expenses eases. Therefore, it is believed that rice stocks are accumulating momentum and attracting speculators who are awaiting a bigger market wave.

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