www.mbs.com.vn Giải pháp kinh doanh chuyên biệt
FPT CORPORATION (FPT)
Initiation Proving level of a blue-chip
■ A leader in Vietnam’s software outsourcing and solution, generating revenue in both
foreign market (Japan, EU, USA, other emerging countries, etc) and domestic one.
The company is scaling up its IT human resources to grab more opportunities of
sustainable global market as well as of recovering domestic one.
■ The third in Vietnam’s telecom market in terms of market share. FPT has
determined in upgrading Vietnam’s internet technology from xDSL to FTTx from
2014. Aggressive investment costs have dragged the bottom line, but now they
nearly come to an end.
■ The divestment of FPT Retail and Trading, the segment with humble growth outlook
especially the Trading, will free the whole FPT’s performance.
■ Action: Initiating coverage of FPT with a BUY rating and a 12-month price target of VND 50,000.
Financial indicators
VNDbn 2014 2015 2016F 2017F* 2018F*
Revenue 32,645 37,927 34,678 18,863 21,432
of which
Technology 7,040 8,630 9,421 10,952 12,678
Telecom & Digital content
4,728 5,567 6,440 7,227 8,016
Distribution & Retail 22,731 25,637 20,463 - -
Education 590 586 633 684 738
PBT 2,459 2,851 2,657 2,652 3,058
Diluted EPS (VND) 3,707 3,947 3,467 3,392 3,977
Growth (%) 1.5% 6.5% -12.2% n/a 17.2%
PE 10.6 12.0 12.3 10.5
ROE (%) 21.6% 23.4% 19.2% 16.9% 17.9%
*2017&18 assuming to finish divesting from Retail & Trading, but not including extraordinary profit
from the divestment. (Source: FPT, MBS Research)
Investment thesis
We are initiating coverage of FPT Corporation (FPT) with a BUY rating and a price target of
VND 50,000 (20% upside) based on these following:
Setting a sprat to catch a mackerel. After the divestment of FPT Retail and
Distribution, which we expect to complete some-when between 2016 and 2017, FPT is a
two-armed beast, sprawling its tentacles in the Techno (32% contribution to the PBT) and
the Telecom (37%). We expect these two arms to help FPT post a 17% CAGR on PBT from
core business per annum, tripling its best performance in the previous years.
Software now takes the main steer and Hardware can no more be a drag. The
proportion between Software and Hardware revenue in Techno segment was 79%/10% as
of 2015 (this used to be 51%/20% in 2010), implying much minor effect of ‘boring’
Hardware into the whole Techno. And thanks to (1) Vietnam’s competitive cost advantage
in outsourcing services; and (2) the recovery in domestic market as well as the expansion
into other emerging ones of solution sub-segment, FPT’s Software is expected to
continuously enjoy its fruitful outlook, of 22% CAGR during 2016-2020. We notice an
aggressive plan in scaling up FPT’s number of IT engineers, which is the key catalyst for
the Software to sustainably grow.
22nd August, 2016
Rating BUY
Price target (VND) 50,000
Upside 20%
Cash dividend 10.0%
Dividend yield 2.6%
Stock dividend 0.0%
Stock data
Current price (VND) 41,500
Outstanding shares 459,344,308
Market cap (Bil. VND) 19,614
52-week average volume 1,933,670
52-week price range 36,100 – 46,400
% foreign owned 49%
% FOL 0%
12 month stock chart
Contact
Nguyen Thach Thao
Senior Analyst
T: +84 907 655 495
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2 FPT Corporation (FPT)
22/08/2016
Aggressive investment period in Telecom seems coming to an end, signaling a
turning point in profit. The final costs for fiberization in Hanoi and HCMC may finish
being allocated in July 2016; while those in tier-2 cities (equal to only one-third of in Hanoi
and HCMC) are expected to end in 2H2018. Thus, PBT margin will correspondingly recover.
We expect Telecom & Digital content PBT to grow at a CAGR of 14% in the next five years.
The cheapest blue-chip. We expect EPS from core business after the divestment to be
approximately VND3,700 in 2017-2018, implying a P/E ratio of 11.2x at the current price,
much lower than the current P/E of VN-Index of 15.0x. It does make sense in case FPT
continues growing at a ‘boring’ rate; however, considering FPT’s higher potential growth
outlook, its stock deserves a re-pricing.
Key Risks:
Divestment fulfillment risk: The failure of the divestment may turn FPT to its old story of
disappointing performance.
Exchange rate risk: The company exposes to the devaluation of JPY, USD and EUR,
especially the JPY given high proportion of Japan market in FPT’s software revenue. We were
told that the company has no GBP revenue; thus, there is minor risk from the Brexit.
3 FPT Corporation (FPT)
22/08/2016
WHY CAN A BLUECHIP TRADE AT THIS LOW PRICE?
Figure 1: FPT’s financial performance vs. FPT’ stock price
performance
(Source: FPT, MBS Research)
Looking at FPT’s historical P/E level which has been consistently below 10x over years, there
should be a bunch of surprises for such a top blue-chip, especially if one compares with the
average P/E level of 12x to 15x of VN-Index in the recent four years. But, everything happens
for a reason and as looking at FPT’s bottom line performance in the same period, it is hardly for
FPT’s fans to blame the market. 6.5% EPS growth posting in 2015 was FPT’s best performance,
lower than even deposit rates.
We, now, are not here to complain more about FPT but to tell a trust in its future brighter
outlook – 17% growth on core business per annum, which is tripling its historical best
performance and is attributable to two main forces namely Technology and Telecom. Noting
that FPT Retail and Trading is planned to be divested for no more be consolidated into the
parent’s results. FPT currently expects the divestment to fulfill in Q4/2016.
A brighter outlook deserves such a higher P/E level and FPT’s investors can dream of a P/E of
over 12x for sure.
TECHNOLOGY: SWITCHING FROM HARD TO SOFT AND LIFE
MAY BECOME SOFTER
What has driven the growth down?
Figure 2: FPT’s Technology performance
(Source: FPT, MBS Research)
2,872
3,820
3,499 3,652 3,707 3,947
3,762 33.0%
-8.4%
4.4%
1.5%
6.5%
-4.7%
-20%
-10%
0%
10%
20%
30%
40%
0
1,000
2,000
3,000
4,000
5,000
2010 2011 2012 2013 2014 2015 H1/2016
FPT's EPS performance (2010-6M2016)
EPS (bonus-adjusted, VND) EPS growth
8.6
5.1 5.3
7.0
9.2
10.4 10.8
0.0
2.0
4.0
6.0
8.0
10.0
12.0
2010 2011 2012 2013 2014 2015 H1/2016
FPT's P/e level (2010-current)
P/E level
0
2,000
4,000
6,000
8,000
10,000
2010 2011 2012 2013 2014 2015
VN
Dbn
FPT's Techno revenue performance
IT services System integration Software
CAGR 16.1% CAGR 0.4% CAGR 29.3%
0
200
400
600
800
1,000
2010 2011 2012 2013 2014 2015
VN
Dbn
FPT's Techno PBT performance
IT services System integration Software
CAGR -21.5% CAGR 9.4% CAGR 13.8%
CAGR 4.4% CAGR 14.7%
4 FPT Corporation (FPT)
22/08/2016
In fact, Technology segment, one of FPT’s proud, did not bring fair cash compared to its well-
known brand name. 2010-2015 CAGR on revenue was 14.7% and that on PBT was much more
humble at 4.4%. So, whether this segment is not as delicious as it sounds or something else
happened? We broke down the Techno and here is the answer.
FPT’s Technology includes three parts, namely Software, System integration (Hardware) and IT
services, with the two formers are the dominant growth drivers. Software has been the best
performer, posting a CAGR of 29.3% on revenue and 13.8% on PBT while the loser was
Hardware, with the figures of 0.4% and negative 21.5% respectively. Thus, it can be concluded
that Hardware’s poor results combined with its large proportion did drag the final figure of the
whole Techno segment, regardless how well Software has done.
Figure 3: IT expenditure in Vietnam
(Source: IDC, MBS Research)
This, however, is consistent with International Data Corporation (IDC)‘s expectations of a shift
from hardware to software. And along with this shifting, Software has gradually taken the main
steer in FPT’s Techno boat. In details, as of the end of 2015, Software made up 79% in total
Techno PBT while that of Hardware was only 10%. These figures used to be balance at 51%
and 40% respectively five years ago.
Figure 4: Changes in FPT’s Technology breakdown
(Source: FPT, MBS Research)
Given Hardware’s current proportion, we expect its negative effect to be minor in the whole
Techno segment; and correspondingly, we foresee a more attractive growth that this segment
can register in the future, driven by the new captain namely Software.
Software: Is it still attractive?
The next question is whether Software still enjoys fruitful outlook.
Software is comprised of Software outsourcing (70-80% in revenue) and Software solution. Of
which, while outsourcing witnessed consistent growth of over 30% over years, solution growths
were flat and only strongly rebounded last year.
573
642
728
823
925
1,270
1,289
1,285
1,209
1,211
0 500 1,000 1,500 2,000 2,500
2014
2015
2016
2017
2018
IT expenditure in Vietnam (USDmn)
Software and IT services Hardware
33%
57%
10%
61%
29%
10%
FPT's Techno revenue breakdown The outer ring: 2015 The inner ring: 2010
Software System integration IT services
51% 40%
9%
79%
10%
11%
FPT's Techno PBT breakdown The outer ring: 2015 The inner ring: 2010
Software System integration IT services
5 FPT Corporation (FPT)
22/08/2016
Software outsourcing is a contract, hiring an IT company to add up one or many functions to an
already-complete software; and cost is the main criteria for one to choose a suitable partner.
According to A.T.Kearney report in 2015, Vietnam was the most financially attractive, scoring
3.30 compared to other outsourcing countries, which implies an inevitable advantage of
Vietnamese outsourcers in general and FPT in specific in this segment.
Figure 5: Outsourcing analysis
(Source: A.T.Kearney, FPT, MBS Research)
About Japan market, FPT’s current biggest clients, besides offering competitive service fees,
another key point to overcoming Indian and Chinese rivals is being able to fluently communicate
in Japanese. And the ’10,000 BrSE program’, to train 10,000 bridge software engineers who are
competent in both IT and Japanese language skills, is FPT’s strategy to win over this market.
Table 1: Criteria for choosing outsourcers in Japan
Outsourcers ranking in Japan Vietnam China India Korea
Cost ◎
Japanese Language Skills ◎
IT Experiences ◎ ◎
Number of software engineers ◎ ◎
Access to Japan ◎ ◎
◎- excellent; - good; - not good
(Source: JETA, FPT, MBS Research)
On top of these factors, we also note that according to Gartner’s estimates, IT outsourcing
spending in Japan was roughly USD92.7bn in 2015, and is expected to be around USD98.6bn by
2019, equivalent to a CAGR of 2%. Despite acknowledging the slowing down of Japan market,
we still see substantial room for FPT’s growth due to low base effect given its relatively small
market share, of 0.2% there.
1,300
1,736
2,154
2,928
4,130
2,359
33.5%
24.1%
35.9%
41.1%
37.1%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
2011 2012 2013 2014 2015 6M2016
FPT Software Outsourcing Revenue (VNDbn)
Software outsourcing revenue Growth y-o-y
45%
27%
16%
12%
FPT’s software outsourcing revenue breakdown in 2015
Japan The U.S. Europe Asia Pacific
3.14
2.26
2.72
2.67
3.15
3.01
3.06
1.81
2.99
3.20
2.28
3.30
2.35
0.49
2.73
3.30
0.94
2.74
2.21
3.11
0.00 2.00 4.00 6.00 8.00
India
China
Malaysia
Mexico
Indonesia
Thailand
Philippines
Brazil
Bulgaria
Egypt
Poland
Vietnam
Chile
US
Lithuanua
Sri Lanka
Germany
Romania
United Arab Emirates
Jordan
Outsourcers ranking in 2015
Financial attractiveness People skills and availability Business environment
6 FPT Corporation (FPT)
22/08/2016
Software solution is a contract, hiring an IT company to actualize a software idea, from A to Z;
thus, high technology should be a key catalyst to select a partner. This revenue of FPT is largely
domestic-driven and has been under pressure both from the decline in government and
domestic private companies IT spending. For domestic private companies, they cut or delayed
some new projects as they are still recovering from the earlier economic crisis. These led to flat
performance in solution revenue as discussed briefly above.
Figure 6: Solution analysis
(Source: FPT, MBS Research)
In 2015, in order to diversify geographic risks, FPT determined to strongly expand its solution
products to other emerging markets, such as Laos, Cambodia, Myanmar, Bangladesh,
Philippines, etc. Since then, the company has signed sizable contracts overseas, including a
USD10mn contract in Cambodia, two contracts in Bangladesh worth USD33.6mn and USD9.1mn
respectively and the most recent, a USD50mn contract in Malaysia. The executing timeline of
these contracts are in between 18 months and five years, based on their sizes. And as projects
have not come to completion phase, none of their value was already recorded into FPT’s
revenue.
We expect software solution to perceive such amazing growth in the coming years, driven by
(1) the continuous rebound of domestic market (this market witnessed a substantial recovery in
2015 with growth of 92% y-o-y); and (2) the new support from projects in emerging markets.
Human resource – key catalyst for future growth
Main input material of technology, especially software, is human resource, which makes up 70%
in software’s cost of goods sold. To sustain a ~ 20-30% growth per year, FPT aims to raise its
number of engineers up to 30,000 engineers as of 2020 from the current figure of 10,000,
equivalent to 25% growth per annum.
Figure 7: Numbers of IT engineers (historical vs. planning)
(Source: FPT, MBS Research)
581 604 665 653
1,098
311
4.0% 10.1%
-1.8%
68.1%
-6.6%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
70%
80%
0
200
400
600
800
1,000
1,200
2011 2012 2013 2014 2015 6M2016
FPT Software Solution Revenue
(VNDbn)
Software solution revenue Growth y-o-y
581 604 483
388
743
- - 182 265
355
0
200
400
600
800
1,000
1,200
2011 2012 2013 2014 2015
FPT Software Solution Revenue breakdown (VNDbn)
Vietnam Emerging markets
6,500 8,528 10,000
30,000
0
10,000
20,000
30,000
40,000
2013 2014 2015 2016P 2017P 2018P 2019P 2020P
Numbers of engineers
CAGR 25%
7 FPT Corporation (FPT)
22/08/2016
FPT University can be one of the primary supplies, meeting approximately 20-40% of the
demand per year. In 2016, total new admissions of FPT University is planned at 2,000 students,
with 50% of them applies for IT majors. However, the unmet demand is still significant and we
expect FPT to give up some software margins in the near term to grow the business more
aggressively. Software PBT margin dropped from a level of 19-21% in 2012-2013 to 14% in
2014-2015; of which, outsourcing PBT margin came down from 21-22% to 15-18% in the same
period.
TELECOM: LESS FIBERIZATION COSTS DRAGGING THE
BOTTOM LINE
Good growth on top-line …
FPT holds 22% market shares in telecom industry, after the two state-owned companies namely
VNPT (52%) and Viettel (25%). The company witnessed consistently growth in its number of
active subscribers, which was 25% annually.
Figure 8: FPT Telecom shares and growth
(Source: VNTA, FPT, MBS Research)
According to VNTA, Vietnam’s internet subscribers reached 7.7 million as of 2015. However, it
should be noted that this figure may include also the ‘inactive subscribers’; for example, FPT’s
inactive registrars make up around 80%. By assuming that this inactive proportion is similar for
other telecom companies, we estimate Vietnam’s real internet penetration per household was
23.6% as of 2015.
The government orientates this figure to achieve 40% in 2020, equivalent to 13% growth per
annum in number of subscribers (assuming Vietnam’s population to grow 2%/year). In our
view, Vietnam is likely to surpass this target given (1) new technology in internet namely FTTx
pushes outputs; and (2) Vietnam’s internet fee for households is attracting at USD110-120 per
year, equivalent to only 5-6% of its GDP per capita while this figure at other developing
countries is 30% (based on Vietnam Internet Association’s data).
… but stuck in PBT. Whether it ends soon?
Fiber optic swap had been executed since 2010 but only expand more aggressively in 2014, in
all big competitors VNPT, Viettel and FPT Telecom.
For FPT, the first fiber optic swap was applied for subscribers in Hanoi and Hochiminh City
starting in April 2014 and ending in June 2015. The costs relating to last-mile cable and modem
are allocated in 12 months accordingly and planned to end in July 2016.
Then, FPT’s second fiber optic swap began in September 2015, in five tier-2 cities including Hai
Phong, Da Nang, Binh Duong, Dong Nai and Can Tho. Given the timeline of the first project, we
expect this second one to end in the late half of 2017 and its final costs to be allocated one year
after.
52%
25%
22%
1%
Shares in terms of xDSL & FTTx
headline subscribers
VNPT Viettel FPT Others 0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
2012 2013 2014 2015
Number of FPT's active subscribers
CAGR 25.1%
8 FPT Corporation (FPT)
22/08/2016
Figure 9: FPT Telecom analysis
(Source: FPT, MBS Research)
According to FPT, fiber costs in tier-2 cities are expected to be around one-third of that in Hanoi
and HCMC due to smaller scale and less number of accounts to be swapped. Thus, PBT margin
during the second fiberization project would be higher than during the first one.
FPT announces to continue the fiberization process in all 63 cities/provinces considering (1) as
mentioned above, fiberization is the motivation for the recent recovery of internet subscribers;
and (2) competitors depend on each other’s plan – Viettel and VNPT do not intend to stop the
process here. However, we expect the capex for coming swaps to be minor given their much
smaller swapped accounts compared to those at previous big cities.
EARNINGS MODEL AND VALUATION
A 20% CAGR on Technology PBT during 2016-2020 …
- Software outsourcing: revenue to grow at 24% p.a., attributable to 19% growth per year
of the IT engineer number.
- Software solution: performance may be unstable at the beginning but we expect revenue in
long-term to grow at 10% annualized.
- System integration (hardware): we expect revenue from this segment to decline 5% per
annum going onwards.
- IT services: increasing humbly at 5%/year.
Figure 10: MBS’s forecasts for the period of 2016-2020
(Source: MBS Research)
- PBT margin of Outsourcing may continuously decline to 13% in the long run due to
employment attracting activity. However, for the whole Technology, we expect to see some
703,394 , 50%
281,357 , 20%
422,036 , 30%
FPT's subscriber breakdown by geography
HN & HCMC Tier-2 cities Others
23.4% 25.1% 25.5%
21.5%
16.8%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
2011 2012 2013 2014 2015 2016F 2017F 2018F 2019F
PBT margin
Whole year
fiber effect
- H1: fiber
costs in Hanoi and HCMC
- H2: in tier-2
3,944
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
2015 2016F 2017F 2018F 2019F 2020F
Technology revenue (VNDbn)
IT services System integration Software 6M2016 (Techno)
CAGR 5.0%
CAGR 22.3% CAGR -5.0%
358
0
300
600
900
1,200
1,500
1,800
2,100
2,400
0
300
600
900
1,200
1,500
1,800
2,100
2,400
2015 2016F 2017F 2018F 2019F 2020F
Technology PBT (VNDbn)
IT services System integration Software 6M2016 (Techno)
CAGR 22.7% CAGR -5.0%
CAGR 5.0%
Fiber optic
swap in Hanoi
and HCMC
(April 2014)
H2: finish fiber
costs in tier-2
cities
9 FPT Corporation (FPT)
22/08/2016
improvement in PBT margin, to around 11-12% somehow, given the switch from Hardware
(lower margin) to Software (higher margin).
- For 2016, we forecast Technology to post a revenue of VND9,421 billion (+9.2%) and a
PBT of VND962 billion (+3.9%) due to some solution projects have not come to completion
phase.
… and a 14% CAGR on Telecom & Digital content PBT
- Active subscribers: to increase 13% per annum, similar to the industry.
- ARPU: we expect this item to slightly decline 2-3% annually as the company expands to
poorer provinces onwards.
Figure 11: MBS’s forecasts for the period of 2016-2020
(Source: MBS Research)
- PBT margin: this year 2016 should witness a recovery in PBT margin unless there is 1.5%
provision on telecom revenue for the Public Telecom Fund. Because of that, we estimate
this segment’s PBT margin at 13-14% in 2016, before gradually recovering up to 15-16% in
the long-term along with the fiberization process fulfillment.
- For 2016, we expect Telecom’s revenue and PBT at VND6,440 billion (+15.7%) and
VND997 billion (-4.3%) due to negative effect of provision for Public Telecom Fund starting
this year.
The foreseen divestment of FPT Retail and Trading
FPT plans to fulfill the divestment of FPT Retail and Trading in Q4/2016. In our view, this
divestment is a plus for FPT considering that (1) the retail industry is facing heightened
competition from strong players, especially Mobile World (MWG), the sector leader; and (2)
while in the distribution sector, FPT no longer stands at the monopolistic distributor of Apple in
Vietnam, which strongly affected its selling activities. In sum, we expect this segment to post a
CAGR on PBT of only 2.3% per annum.
Figure 12: FPT’s structure in 2015
(Source: FPT, MBS Research)
3,178
0
2,000
4,000
6,000
8,000
10,000
12,000
0
2,000
4,000
6,000
8,000
10,000
12,000
2015 2016F 2017F 2018F 2019F 2020F
Telecom revenue (VNDbn)
Digital content Telecom 6M2016 (Telecom)
CAGR 10.3% CAGR 10.0%
533
0
300
600
900
1,200
1,500
1,800
2,100
0
300
600
900
1,200
1,500
1,800
2015 2016F 2017F 2018F 2019F 2020F
Telecom PBT (VNDbn)
Digital content Telecom 6M2016 (Telecom)
CAGR 14.8%
CAGR 10.0%
8,630 ; 21%
5,567 ; 13%
25,637 ; 61%
(1,908); -5% Revenue (VNDbn)
Technology Telecommunication Distribution & Retail Others
926 ; 32%
1,041 ; 37%
729 ; 26%
155 ; 5% PBT (VNDbn)
Technology Telecommunication Distribution & Retail Others
10 FPT Corporation (FPT)
22/08/2016
Our guts feeling is that FPT may sell higher than 50% for no more being consolidated FPT Retail
and Trading into the parent company. In details, we assume FPT to sell 60% of the stake and
the deal can be closed during 2017. After the divestment, Technology and Telecom will almost
equally drive FPT’s final performance.
In total, we expect PBT from core business to grow at a CAGR of 17% per annum
after the divestment of FPT Retail and Trading, tripling its best record in the
previous period of 2010-2015 of 6.5%. For 2016 (before divestment), we forecast
the company to earn an EPS of VN3,500.
Table 2: Forecast income statement and balance sheet (before divestment)
Income statement (VNDbn)
2013 2014 2015 2016F
Balance sheet (VNDbn)
2013 2014 2015 2016F
Revenue 27,028 32,645 37,927 34,678
Current assets 12,908 16,964 18,959 20,665
Growth (%) 9.9% 20.8% 16.3% -8.6%
Cash & cash equivalents 2,751 4,336 3,585 4,069
COGS 21,489 26,371 30,466 27,829
S-T investment 1,443 1,441 2,617 2,618
Gross profit 5,539 6,273 7,494 6,848
Receivable 3,418 3,710 4,195 4,750
Growth (%) 18.1% 13.3% 19.5% -8.6%
Inventory 3,329 5,096 5,268 5,718
Margin (%) 20.5% 19.2% 19.7% 19.7%
Other current assets
1,967
2,381
3,294
3,510
Selling expenses 1,357 1,703 2,227 2,034
Long – term assets 4,662 5,694 7,087 8,104
G&A expenses 1,847 2,183 2,332 2,130
L-T investments 707 797 728 764
EBIT 2,336 2,387 2,935 2,684
Net fixed Assets 2,803 3,536 4,698 5,680
Growth (%) 4.7% 2.2% 22.9% -8.6%
Other L-T assets 1,152 1,362 1,661 1,661
Margin (%) 8.6% 7.3% 7.7% 7.7%
Total assets 17,571 22,658 26,046 28,769
Financial profit 115 14 -168 -112
Total liabilities 9,317 13,401 15,863 16,761
Other profit 107 111 84 86
S-T liabilities 9,069 13,057 14,968 15,927
Profit before tax 2,516 2,459 2,851 2,657
L-T liabilities 248 344 896 834
Growth (%) 4.5% -2.2% 15.9% -6.8%
Owners’ equity 7,209 7,913 8,581 9,891
Margin (%) 9.3% 7.5% 7.5% 7.7%
Total liabilities & equity
17,571 22,658 26,046 28,769
Net profit 1,608 1,632 1,931 1,769
Growth (%) 4.4% 1.5% 18.3% -8.4%
Margin (%) 5.9% 5.0% 5.1% 5.1%
EPS (VND/share) 3,652 3,707 3,947 3,467
Growth (%) 4.4% 1.5% 6.5% -12.2%
(Source: MBS Research)
Table 3: Forecast income statement and balance sheet (after divestment)
Income statement (Bil. VND)
2015 2016F 2017F* 2018F*
Segmentation analysis (Bil. VND)
2015 2016F 2017F* 2018F*
Revenue 37,927 34,678 18,863 21,432
Revenue 37,927 34,678 18,863 21,432
Growth (%) 16.3% -8.6% n/a 13.6%
Technology 8,630 9,421 10,952 12,678
COGS 30,466 27,829
Software 5,228 6,536 8,133 9,917
Gross profit 7,494 6,848
Outsourcing 4,130 5,780 7,301 9,002
Growth (%) 19.7% 19.7%
Solution 1,098 756 831 915
Margin (%) 19.5% -8.6%
Informatics system 2,530 2,100 1,995 1,895
Selling expenses 2,227 2,034
IT services 873 786 825 866
G&A expenses 2,332 2,130
Telecommunication 5,567 6,440 7,227 8,016
EBIT 2,935 2,684 2,440 2,720
Telecom 5,192 5,997 6,740 7,481
Growth (%) 22.9% -8.6% n/a 11.5%
Digital content 375 443 487 535
Margin (%) 7.7% 7.7% 12.9% 12.7%
Distribution & Retail 25,637 20,463 - -
Financial profit*** -168 -112
Distribution 17,795 11,100 - -
Other profit 84 86
Retail 7,842 9,363 - -
Profit before tax 2,851 2,657 2,652 3,058
Others (1,908) (1,647) 684 738
Growth (%) 15.9% -6.8% n/a 15.3%
Education 586 633 684 738
Margin (%) 7.5% 7.7% 14.1% 14.3%
Investment, (2,494) (2,280) - -
11 FPT Corporation (FPT)
22/08/2016
including elimination **
Net profit 1,931 1,769 1,731 2,030
Profit before tax 2,851 2,657 2,652 3,058
Growth (%) 18.3% -8.4% n/a 17.2%
Technology 926 962 1,204 1,432
Margin (%) 5.1% 5.1% 9.2% 9.5%
Software 732 824 1,064 1,288
EPS (VND/share) 3,947 3,467 3,392 3,977
Outsourcing 634 809 1,022 1,215
Growth (%) 6.5% -12.2% n/a 17.2%
Solution 98 15 42 73
Informatics system 88 42 40 38
IT services 106 95 100 105
Telecommunication 1,041 997 1,253 1,416
Telecom 874 800 1,037 1,178
Digital content 167 197 217 238
Distribution & Retail 729 548 - -
Distribution 549 333 - -
Retail 180 215 - -
Others 155 151 195 210
Education 167 180 195 210
Investment, including elimination **
(12) (29) - -
(Source: MBS Research)
* Assuming FPT to complete divestment FPT Retail & Trading.
**We do not have enough data to forecast this item after divestment.
*** For 2017, we do not include a likely extraordinary profit from selling FPT Retail & Trading.
VALUATION
Before divestment
Discounted cash flow methodology
We use discounted cash flow methodology hereby FCF to valuate the ticker FPT. Target price is
VND39,345, 5% lower than current price on 15 August 2016 of VND41,600 per share.
Assumptions are as follows:
Forecast period starts from 2016 to 2020 before going into stable period.
WACC is 9.8%. WACC is relatively low due to low cost of debts along with low rate of
preferential corporate income tax of 14%.
Terminal growth rate of 3% due to assumed stable business activities.
Table 4: FCF Valuation method
VNDbn 2016F 2017F 2018F 2019F 2020F
FCF 305 278 1,310 1,511 1,718
WACC 9.8%
Forecast Year 0.67 1.67 2.67 3.67 4.67
Discount factor 0.94 0.86 0.78 0.71 10.51
PV of FCF 287 238 1,022 1,074 18,056
Total PV of FCFF 6,960 Discount factor
PV of Terminal value 7,841 Beta 0.68
Enterprise value 20,676 Risk – free rate 6.34%
(+) Cash & S-T investments 6,202 Cost of equity 12.7%
(-) Short and long – term debts -8,806 Cost of debt 3.3%
Equity value (VNDbn) 18,073 WACC 9.8%
Outstanding shares (Mil. shares) 459.3
Price per share (VND) 39,345
(Source: MBS Research)
12 FPT Corporation (FPT)
22/08/2016
Sum of the parts
We choose our target relative P/E for each of FPT’s business segments based on the median
figures of its regional peers in the three main segments, namely telecom, software & IT
services, and IT distribution & retail.
Table 5: Sum-of-the-parts Valuation method
VND in billion
Net income 2016E
Relative P/E
Absolute P/E
Equity Value
FPT's Ownership
Valuation
Technology group 935 1.3 15.0 14,025 100% 14,025
Telecommunication 953 1.0 12.0 11,454 45.6% 5,223
Distribution & Retail 443 0.8 10.1 4,493 100% 4,493
Education 169 1.0 12.0 2,026 100% 2,026
Total 25,766
Outstanding shares (million shares) 459.3
Value per share 56,093
(Source: MBS Research)
Table 6: Comparables
Company name Country
Market Cap
LTM P/E
LTM P/B
LTM Relative P/E
ROA ROE 3Y Avg sales
growth
Telecom
(USDmn)
(%)
Jasmine Intl Public Co Ltd Thailand 875 12.1 2.3 0.6 5.6 20.1 10.5
Kazakhtelecom Kazakhstan 344 4.3 0.3 0.9 18.1 25.2 3.0
China Telecom Corp Ltd-H China 35,563 11.5 0.8 1.1 3.4 6.8 5.5
Maxis Bhd Malaysia 10,395 23.1 9.9 1.3 10.3 41.8 (1.3)
Median
5,635 11.8 1.5 1.0 7.9 22.7 4.2
Average
11,794 12.7 3.3 1.0 9.3 23.5 4.4
Software & IT services
Eclerx Services Ltd India 909 16.8 5.6 1.2 32.6 40.3 26.3
Sinosoft Technology Group Lt China 567 23.4 4.2 2.3 17.6 19.7 24.4
Niit Technologies Ltd India 515 12.4 2.2 0.5 13.2 19.0 9.9
Shenzhen Das Intellitech-A China 1,385 50.4 3.6 1.3 4.6 7.9 27.9 Kingdee International
Software Hong Kong 922 51.8 1.9 5.2 n/a 4.1 n/a
Wangsu Science & Technolog-A
China 8,018 50.0 8.4 1.0 20.0 23.3 55.0
Median
916 36.7 3.9 1.3 17.6 19.3 26.3
Average
2,053 34.1 4.3 1.9 17.6 19.0 28.7
Distribution & Retail
PET Vietnam 51 6.7 0.8 0.5 11.6 3.2 2.0
MWG Vietnam 850 12.1 4.6 1.2 15.0 54.2 51.7
Median
513 12.1 4.6 1.2 15.0 54.2 51.7
Average
513 12.1 4.6 1.2 15.0 54.2 51.7
FPT CORP Vietnam 834 10.0 2.1 0.7 7.9 21.4 15.7
(Source: Bloomberg)
After divestment
Sum of the parts
We still apply this method for FPT after the divestment as this method reflects the whole value
of the company. In case the divestment happens, FPT will receive an amount of cash proceeds
equivalent to the sold stake.
13 FPT Corporation (FPT)
22/08/2016
Comparables using P/E ratio methodology
As mentioned, FPT historically traded at an unattractive P/E ratio due to its boring growth. Now,
considering its more fruitful outlook after divestment, we believe FPT deserve a higher level of
P/E.
Table 7: P/E ratio methodology valuation
Sector Market Cap (USDmn)
LTM P/E
LTM P/B
LTM Relative
P/E
ROA (%)
ROE (%)
3Y Avg sales growth (%)
Telecom 5,635 11.8 1.5 1.0 7.9 22.7 4.2
Software & IT services 916 36.7 3.9 1.3 17.6 19.3 26.3
Distribution & Retail 513 12.1 4.6 1.2 15.0 54.2 51.7
AVERAGE 2,334 19.3 2.7 1.0 12.9 23.6 19.1
FPT’s average EPS from core business in 2017-2018F (VND)
3,684
Average P/E of Vn-index in 2012-2015 12.6
Target P/E (=relative P/E * P/E of Vn-index) 13.0
Price target per share (VND) 47,906
Valuation summary
Table 8: Valuation summary
Method Weighted Result
Before divestment
FCF 25% 39,345
Sum of the parts 25% 56,093
After divestment
Sum of the parts 25% 56,093
P/E 25% 47,906
AVERAGE 100% 50,000
Combining all methods, we valuate FPT at VND50,000 per share, equivalent to an upside of
20%.
14 FPT Corporation (FPT)
22/08/2016
Contact
Research: Pham Thien Quang
Email: [email protected]
Tel: +84 988 906 163
Institutional Sales: Truong Hoa Minh
Email: [email protected]
Tel: +84 938 207 357
Research: Nguyen Thach Thao
Email: [email protected]
Tel: +84 907 655 495
STOCK RATING: The recommendation is based on the difference between the 12-month target price and the current price:
Rating When [(target price – current price) + dividend]/current price
BUY >=20%
OUTPERFORM From 10% to 20%
HOLD From -10% to +10%
UNDERPERFORM From -20% to -10%
SELL <= -20%
DISCLAIMER: Copyrights. MBS 2014, ALL RIGHTS RESERVED. Authors have based this document on information from sources they
believe to be reliable but which they have not independently verified. The views expressed in this report are those of the authors and not
necessarily related, by any sense, to those of MBS. Neither any information nor comments were written for advertising purposes or
recommendation to buy / sell any securities. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, on
any form or by any means, electronic, mechanical, photocopying recording, or otherwise, without the prior written permission of MBS.
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