aaa report public
DESCRIPTION
AAA An Phat reportTRANSCRIPT
Name No of share Percentage
Tam Son Investment SJC 3,000,000 30.30%
FC Limited 1,050,000 10.61%
Pham Anh Duong 907,500 9.17%
Nguyen Thi Tien 701,100 7.08%
Thang Long FI JSC 540,000 5.45%
Beira Limited 200,000 2.02%
Domestic corporates
54%
Domestic individuals
41%
Foreigners5%
3/2007
4/2007
Chartered Capital (VND)
12/2007
5/2009
33 bn
60 bn
66 bn
99 bn
Products: Bags Pellet Machines Recycled line process
An Phat
Structure
Factory no. 1
Factory no. 2
Factory no. 3
Yen Bai Factory
Bags, pellets and machines Caco3
HIGHLIGHTS
• Plastic industry, especially plastic bags field is rich of potential due to the development of international and domestic retailing industry.
• Self-destroyed plastic products have great opportunity in the future when people are more aware of environment.
• AAA has high gross margin thanks to plastic recycling technology which helps to reduce COGS.
• AAA has successfully built up trade mark and faith with foreign customers in EU and US.
• An Phat has a clear and reasonable development strategy as well as being profitable and low valuation
• Competition from foreign and domestic
company due to attractive of margin.
• The plastic recycling technology of AAA
is not too complicated and it can be
copied by other competitors.
• AAA still does not pay much attention to
potential domestic industry.
RISK ASSESSMENT
RECOMENDATION
• Short-term investment
• Entry – Exit: VND 45,000 – 60,000
86% 80% 80%
8% 17% 17%6% 2% 2%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2008 2009 Q1 - 2010
Sales breakdown
Other
Pellets
Bags
93% 94% 94%
2% 4% 4%
5% 2% 2%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2008 2009 Q1 - 2010
NPAT breakdown
Other
Pellets
Bags
Since the beginning, bags and pellets
have been AAA’s main source of
revenue.
Bags occupied 80% revenue of AAA
but accounted for 94% of NPAT.
Other sources of revenue:
• Selling machines and transferring recycle
technology.
• Caco3 (since 2011)
Self – destroyed bags
Shopping bags
Garbage bags
Products are mostly exported to EU, US and
Asia countries (EU - 80%, Asia – 20%, US –
5%)
High margin in recycling >>> Self –
manufactured materials with cost lower than
imported materials. Cost of recycled material
is only half of imported material.
Self – destroyed bags have great potential in
the future when people show more awareness
of environment.
BAGS PELLETS
• Used to manufacture plastic products
• Unlike other plastic company, AAA can produce
pellets from recycles. This can provide about
20% of An Phat production, help to reduce cost.
• AAA pellets are mostly utilized to bags
production and partly sell out.
Recycled pellets
Material price is fixed at the time of signing contract. So, exchange rate and
commodity price fluctuation risk is eliminated
One of AAA’s advantage (as the Board said) is AAA can purchase at a price
discount 10% in compared with other Vietnamese companies due to long
relationship with suppliers and big quantity of invoices.
There three kinds of material:
• Recycled materials: are HDPE, LDPE, LLDPE collected at waste purchasing stores in
Northern Vietnam. Supply capacity of these stores is 700 ton/month (much more
higher than AAA need of less than 20 ton/month)
• Virgin pellets: are used to produce high quality bags like shopping bags, food bags
and medical bags… These pellets are imported directly from
Singapore, Thailand, Korea…
• Regenerated pellets: are import from Korean companies who have closed
relationship with AAA. Theses pellets are purchased at a price of 2/3 virgin pellets
10–15%
85-90%
COGS86.9%
Selling5.0%
Administration
4.5%
Interest3.6%
Total expenses structure
Material89.1%
Labour2.6%
Depreciation
4.4%
Other3.9%
COGS structure
Caco3 4.64%
Pellets 61.50%
Recycled pellets (self-produce) 15.46%
Recycled pellets (buy) 18.40%
Total 100.00%
Materials account for 90% COGS, proportion of materials is as followed:
Capacity of each factory
Factory1
Factory2
Factory3
Bags: 700 ton/m
Bags: 800 ton/m
Recycled Pellet: 400 ton/m
Bags: 700 ton/m
Export – 80% Domestic – 20%
EU71%
US4%
ASIA20%
Other5%
Export region 2009 Main export countries (value percentage)
1 Singapore 19.71%
2 Czech 15.39%
3 Germany 13.75%
4 Frank 11.22%
5 England 7.06%
6 UK 5.38%
7 Italy 4.44%
8 Greek 4.02%
9 US 3.55%
10 Gambia 3.49%
Export customers are used to be big distributors.
AAA is highly appreciated for its “green”
technology as well as reasonable price and quality
of product.
Customers include
manufacturers and companies
like Proconco, Vinabran
(wrapping bags) and
Vietcombank, BIDV (gift bags)
Keen competition from
other plastic companies on
price.
Strong growth in the past due to increase in production.
Sale of machines and technology transferring, unusual activity
High gross margin in compared with other companies in plastic industry
Tax incentive
Higher NOP margin due to higher revenue growth than that of expenses
The second and the third factory operated
(in VND million) 2007A 2008A 2009A 2010E
Net Revenue 108,537 248,333 384,533 600,641
% y-o-y Growth N/A 129% 55% 56%
Cost of Good Sold 85,892 196,355 300,936 474,507
Gross Profit 22,645 51,978 83,598 126,135
Gross margin 21% 21% 22% 21%
Operating Expense 5,418 14,687 28,239 42,045
% of Revenue 7.10% 6.70% 6.50% 5.50%Selling expenses
3,549 8,194 15,549 24,026 Administration expenses
1,869 6,492 12,690 18,019
Net Operating Profit 17,227 37,292 55,359 84,090
% of Revenue 25% 29% 29% 31%
Financial Income 230 1,110 3,465 6,006
Financial Expense (49) (2,422) (3,866) (2,523)
Other Income 109 53 562 25,000
EBIT 17,516 36,033 55,521 112,574
EBIT margin 16% 15% 14% 19%
Interest Expense (1,109) (13,159) (17,141) (22,704)
EBT 16,407 22,875 38,380 89,869
Tax 0 0 657 7,190
Net Income 16,407 22,875 37,723 82,680
Net margin (%) 15.12% 9.21% 9.81% 13.77%
Remarkable increase in current assets due to high revenue growth
Decrease in 2010 year end as a result of lower investment demand when CaCo3 factory is completed
Interest incentive of 2% for mid-term loans, used to finance hotel project in Lao Cai province
Completion of the second factory
Issuance of VND 54 bn convertible bond
(in VND million) 2007A 2008A 2009A 2010E
Current Assets 100,277 143,554 182,826 306,851
Cash and cash equivalents 8,974 3,681 37,822 82,978
Account receivables 42,686 90,093 84,576 120,128
Inventory 35,276 39,978 48,690 85,411
Other Current Assets 13,342 9,802 11,738 18,334
Fixed Assets 53,233 127,778 253,025 246,325
TOTAL ASSETS 153,510 271,331 435,851 553,177
Current Liabilities 51,029 148,484 186,955 118,965
Short term debt and borrowings - 138,017 143,428 72,077
Account Payable 13,184 8,259 33,047 36,032
Other current liabilities 37,845 2,209 10,480 10,856
Long Term Liabilities 26,453 20,453 127,289 127,289
Long Term Debt 26,453 20,389 127,189 127,189
Unemployment reserve - 64 100 100
OWNER EQUITY 76,029 102,394 121,608 306,923
Charter Capital (Common Stock) 60,000 66,000 66,000 99,000
Additional Paid-in Capital - 18,000 18,000 107,100
Retained Earnings 16,146 19,091 37,723 92,334
Other resources and funds -117 -697 -115 8,488
TOTAL CAPITAL 153,510 271,331 435,851 553,177
(1)An Phat allies with an Japanese partner to set up a plastic recycling factory in which AnPhat will provide a package of technology transfer and human resource. Accordingly, thefactory’s plastic materials (after being recycled) will be sold to An Phat at discount price(20% lower than market price), which may enable An Phat to economize about USD 1million p.a. The factory will be likely put into operation in 2011.
(2)CaCo3 plant is expected to start operation in Oct 2010 and generate revenue from2011. The output of the plant will not only be partially sold but internally utilized asadditives as well. It is expected to generate turnover of VND 11 -13 billion.
(3)The hotel project in Yen Bai has a good location at the centre of Yen Bai town. Thisproject is appreciated for its potentials because there are no high-end hotel (3 stars andabove) in Yen Bai up to now. In addition, the implementation of this project will help AnPhat to build up good relation with provincial leaders. Estimated investment is VND 100bn in which VND 30 bn is AAA’s capital and the rest is loan from BIDV bank. The project isin designing stage and expected to start in 2012.
Plastic companies on 2009 performance
BMP TTP TPC MCP AAA
Total asset 824 537 363 202 436
Shareholder equity 677 459 327 123 122
Chartered capital 348 150 205 82 66
Net revenue 1,143 1,045 409 198 385
Gross profit 337 118 89 34 84
NPAT 249 83 63 12 38
ROA 30% 15% 17% 6% 9%
ROE 37% 18% 19% 10% 31%
Gross margin 29% 11% 22% 17% 22%
NPAT/Net revenue 22% 8% 15% 6% 10%
D/E 0.22 0.17 0.11 0.64 2.57
Plastic companies on 2010 valuation
High ROE but rather low ROA…
…due to high leverage
Good gross margin, especially in bags industry
Attractive earnings and quite low valuation
BMP TTP TPC MCP AAA
Price (20/08/2010) 50,000 33,900 12,000 13,000 50,300
EPS 2010 6,902 4,533 1,739 1663 8,350
P/E 2010 7.24 7.48 6.90 7.82 6.02
STRENGHTS WEEKNESSES
Trademark and prestige
High margin
Good financial health
Discounted material price
“Green” technology
Bright and reasonable development strategy
Not pay attention to domestic market.
OPPOTUNITIES THREATS
Development of international and domestic
retailing industry.
Garbage recycling industry is encouraged in
many nations.
Competition from Vietnamese and foreign
companies (Chinese) for the fact that:
o AAA technology of recycling is not so
complicated and “can’t be copied”.
o Price discount can also be captured by other
Asian competitors.
In coming time, AAA will increase chartered capital to VND 120 bn through
stock dividend.
Mr. Pham Anh Duong announced to buy VND 50 bn convertible bonds from
Beira Limited and committed not convert; AAA will buy back these bonds
at expire date.
Forecasted Profit & Loss
Growth on price and enhancement of productivity
Average of historical margin
Expire of tax incentive
Income from Caco3 factory
(in VND million) 2010E 2011F 2012F 2013F 2014F
Net Revenue 600,641 720,770 864,9231,037,9081,245,490
% y-o-y Growth 56% 20% 20% 20% 20%
Cost of Good Sold 474,507 569,408 683,290 819,947 983,937
Gross Profit 126,135 151,362 181,634 217,961 261,553
Gross margin 21% 21% 21% 21% 21%
Operating Expense 42,045 50,454 60,545 72,654 87,184
% of Revenue 5.50% 5.50% 5.50% 5.50% 5.50%Selling expenses
24,026 28,831 34,597 41,516 49,820 Administration expenses
18,019 21,623 25,948 31,137 37,365
Net Operating Profit 84,090 100,908 121,089 145,307 174,369
% of Revenue 31% 31% 31% 31% 31%
Financial Income 6,006 7,208 8,649 10,379 12,455
Financial Expense (2,523) (3,027) (3,546) (4,152) (4,982)
Other Income 25,000 11,693 12,319 11,651 12,214
EBIT 112,574 116,781 138,511 163,185 194,055
EBIT margin 19% 16% 16% 16% 16%
Interest Expense (22,704) (27,245) (31,916) (37,365) (44,838)
EBT 89,869 89,536 106,596 125,820 149,218
Tax 7,190 7,784 11,313 17,125 27,401
Net Income 82,680 81,752 95,283 108,695 121,817
Net margin (%) 13.77% 11.34% 11.02% 10.47% 9.78%
Forecasted Balance Sheet
Long term growth rate
Perpetuity
5 years cash flow 229,325,913,420
WACC 18.0%
Long term growth rate 4.0%
Perpetuity 440,341,529,432
Company value 669,667,442,852
- Liabilities 199,365,495,280
+ Cash and cash equivalent 82,977,927,282
Net Liabilities 116,387,567,998
Equity value 553,279,874,854
Current shares 9,900,000
Share price 55,887
(in VND million) 2010E 2011F 2012F 2013F 2014F
Current Assets 306,851 402,337 523,706 639,328 779,598
Cash and cash equivalents 82,978 123,634 177,197 209,038 245,876
Account receivables 120,128 151,362 190,283 238,719 298,918
Inventory 85,411 105,340 129,825 159,890 196,787
Other Current Assets 18,334 22,001 26,401 31,681 38,018
Fixed Assets 246,325 226,876 207,426 187,976 168,527
TOTAL ASSETS 553,177 629,212 731,132 827,304 948,125
Current Liabilities 118,965 130,505 154,348 163,928 184,983
Short term debt and borrowings 72,077 74,239 76,466 78,760 81,123
Account Payable 36,032 43,239 59,603 65,350 79,655
Other current liabilities 10,856 13,027 18,279 19,818 24,205
Long Term Liabilities 127,289 129,832 132,427 135,074 137,773
Long Term Debt 127,189 129,733 132,327 134,974 137,673
Unemployment reserve 100 100 100 100 100
OWNER EQUITY 306,923 368,875 444,357 528,302 625,369
Charter Capital (Common Stock) 99,000 99,000 99,000 99,000 99,000
Additional Paid-in Capital 107,100 107,100 107,100 107,100 107,100
Retained Earnings 92,334 146,111 212,066 285,141 370,026
Other resources and funds 8,488 16,663 26,192 37,061 49,243
TOTAL CAPITAL 553,177 629,212 731,132 827,304 948,125
3.00% 4.00% 5.00%
16.00% 64,821 69,168 74,307
17.00% 58,427 61,997 66,163
18.00% 52,922 55,887 59,308
18.50% 50,447 53,160 56,275
19.00% 48,135 50,623 53,465
20.00% 43,940 46,045 48,430