Sao Ta Foods (FMC): Take advantage of large inventory and increased demand for refined shrimp

Take advantage of large inventories and increased demand for refined goods

According to recent reports from the board of directors of Sao Ta Foods (stock code FMC - HoSE), the global shrimp market has passed its peak harvest season, yet the supply of finished shrimp remains abundant, largely due to prior inventory accumulation. This has resulted in low shrimp prices, which benefit consumers but harm farmers and could negatively impact the shrimp supply chain in the future.

In recent months, the global decrease in shrimp prices has inflicted substantial losses on shrimp farmers in major producing countries like Ecuador and India. Many farmers in these countries have reduced their stocking levels and farm areas.

Notably, Sao Ta Foods' leadership points out that while the inventories of some key competitors in the Vietnamese shrimp industry, such as Ecuador and India, remain relatively high, these inventories primarily consist of pre-processed goods.

While the inventories in Ecuador and India remain relatively high, these inventories primarily consist of pre-processed goods

Typically, during the holiday season, consumers prefer refined shrimp products over semi-processed or lower-grade alternatives. Vietnamese shrimp exporters have a competitive edge in the refined shrimp product category. Therefore, Vietnam's deeply processed shrimp goods are poised for a strong performance in the fourth quarter of 2023.

Data reveals that by the end of the second quarter of 2023, Sao Ta Foods had amassed over 1,285 billion VND in inventory, marking a 38.3% increase compared to the beginning of the year and a 37.2% rise over the average cost price in the first two quarters of the year. This is a departure from Sao Ta Foods' usual practice of maintaining inventory levels below the cost price each quarter. Given the outlook of demand recovery and the context of low input shrimp prices, Sao Ta Foods appears to have seized the opportunity to build up inventory reserves in preparation for the year-end period.

Profit in 2023 is expected to be at least 90% of the 2022 figure

In light of a 10% to 20% decrease in shrimp prices across all types, Sao Ta Foods anticipates that its 2023 profits will reach "at least 90%" of its 2022 earnings.

After a period of decline in the first half of this year, Sao Ta Foods' export activities have markedly improved in recent months. In July 2023, the company's finished shrimp consumption exceeded 1,900 tons, generating sales of $21.3 million—a 19% increase in consumption volume and equivalent sales compared to the same period in 2022. This positive trend continued into August 2023 when Sao Ta Foods reported sales of $22.4 million, marking the highest sales level in the past 19 months and becoming the third-highest revenue month in the company's history.

The leadership of Sao Ta Foods expects this favorable trend to persist in the upcoming months. Based on existing contracts (as of early September 2023), the company foresees a mere 10% decrease in sales during the last months of this year compared to the same period in 2022. In contrast, the overall Vietnamese shrimp export industry may experience a decline of up to 15%. Sao Ta Foods' primary shrimp export markets include the US, EU, and Japan, which are also crucial markets for Vietnam's seafood industry.

According to data from the US National Oceanic and Atmospheric Administration (NOAA), US shrimp imports recovered in August 2023, marking the first positive sign in 13 months. This suggests optimism about shrimp consumption in the final months of the year. The Vietnam Association of Seafood Exporters and Producers (VASEP) has also made optimistic forecasts for seafood orders from the US in November and December.

Currently, the board of directors at Sao Ta Foods maintains a cautious outlook, projecting that the company's 2023 profit will reach "at least 90%" of the 2022 figure, given the substantial drop in shrimp prices (ranging from 10% to 20%, depending on shrimp size). In 2022, Sao Ta Foods achieved a consolidated after-tax profit of 321 billion VND. This year, the company has set a revenue target of 5,900 billion VND and a pre-tax profit goal of 400 billion VND.

Compiled by Thuy Linh