vietnam primer - vn
TRANSCRIPT
VIETNAM PRIMER
1
Primer by Michel Tosto, Institutional Sales+84 90 805 7002, [email protected]
Company summaries by VinaSecurities Research Team+848 3827 8278, [email protected]
August 2009
VinaSecuritiesSunWah Tower, 5F 115 Nguyen Hue, District 1, Ho Chi Minh City, Vietnam T: +848 3827 8278 F: +848 3827 8368 E: [email protected] W: www.vinasecurities.com Bloomberg: VNSC <GO>
Institutional SalesRob Hughes, Head of Brokerage Michel Tosto, Institutional Sales T: +848 3827 8278 F: +848 3827 8368 E: [email protected]
Retail Sales Vu Dinh Tam, Head of Retail Hoang Thanh Le, Retail Sales & Trading T: +844 3936 6436 F: +844 3936 6430 E: [email protected]
Equity ResearchAdrian Cundy, Head of Research - Conglomerates Bui Cam Van, Analyst - Consumers Dinh Thi Thuy Duong, Analyst - Energy & Transportation Doan Thi Van Anh, Analyst - Basic Materials Ho Hong Hai, Analyst - Financials T: +848 3827 8278 F: +848 3827 8368 E: [email protected]
Corporate FinanceNgo Ha Linh, Equity Capital Markets Hoang Vu Binh, Debt Capital Markets T: +848 3827 8278 F: +848 3827 8368 E: [email protected]
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3
ADB Asia Development Bank CIA Central Intelligence Agency (USA) GSO General Statistic Office (of Vietnam) IFC International Finance Corporation IMF International Monetary Fund MOF Ministry of Finance (of Vietnam) MPI Ministry of Planning and Investments (of Vietnam) SBV State Bank of Vietnam S&P Standard and Poor’s WTO World Trade Organisation
Organisations
Abbreviations�
BTA Bilateral Trade Agreement FCY Foreign Currency FDI Foreign Direct Investments GDP Gross Domestic Product LCY Local Currency LT Long-Term NDF Non-Deliverable Forward VGB Vietnam Government Bonds YOY Year on year
Terms
4
5
Hunt MacnguyenChairman and CEO
Vietnam has been the second-fastest growing economy in Asia for the past ten years, second only to China, and has now entered the ranks of middle-income countries with a GDP per capita soaring from USD375 in 1999 to USD1,040 in 2008. Vietnam’s cities are bright and bustling. Its workforce is young, literate, and eager to work. Private consumption forms the bedrock of the economy at 65% of GDP, while investments, supported by a high rate of domestic savings and foreign capital inflows, along with rapidly developing international trade, constitute the bulk of economic growth. Everything is in place for Vietnam to enjoy a multi-year economic boom – one you do not want to miss if you’re not already here. Established in April 2007 with offices in Hanoi and Ho Chi Minh City, VinaSecurities is a premier investment bank fully licensed to operate as a broker-dealer in Vietnam. As a member of the VinaCapital Group, the largest investment management company in Vietnam with over USD1.7 billion in assets under management, VinaSecurities is well capitalized and able to leverage on a strong network of relationships to present the best of Vietnam to our distinguished clients. Continuous investments in our people and technologies keep us at the leading edge, enabling us to provide the highest standard in research, brokerage, and corporate finance services. In line with our commitment to bring you the best that Vietnam has to offer, we are pleased to present this Vietnam Primer. It contains essential information to make informed decisions about Vietnam’s fundamental drivers – its people, heritage, economy, equities and fixed income markets, listed companies and technical details to quickly gain exposure to Vietnam’s wealth of opportunities.
Yours Sincerely,
Foreword�
6
1. Executive Summary 8
2. EconomicConfluence 12
2.1. Asia’s second-fastest-growing economy 12
2.2. Changing economic structure 14
2.3. Industrialisation and trade lead growth 16
2.4. Soaring foreign investments 19
2.5. Good fiscal position 23
2.6. Government committed to reforms 26
2.7. Favourable Demographics 27
3. Stock Market 32
3.1. Two bourses, one system 32
3.2. Rapid ascension to stardom 33
3.3. Dramatically improved market conditions 34
3.4. Market composition 36
3.5. Foreign investment regulations 37
3.6. Taxation 37
4. Fixed Income Market 40
4.1. Heavily skewed towards government bonds 40
4.2. Quickly developing market 41
4.3. Policy development 43
4.4. High yields 44
4.5. Foreign investment regulations 46
4.6. Taxation 46
Contents�
7
5. How to invest in Vietnam 50
5.1. Opening an account 50
5.2. Market mechanics 51
5.3. Capital flows 54
5.4. Taxes 54
5.5. Foreign ownership limits (FOL) 55
5.6. Other important notes for shareholders 56
5.7. Banks offering custodial services in Vietnam 57
6. Country Fundamentals 60
6.1. Geography 60
6.2. Brief History 61
6.3. People 62
6.4. Political landscape 62
6.5. Legal System 66
7. Company Fact Sheets 70
Basic Material
7.1. PetroVietnam Fertilizer & Chemical 70
7.2. Dong Phu Rubber 72
7.3. Tay Ninh Rubber 74
Consumer Goods
7.4. An Giang Fisheries 76
7.5. Minh Phu Seafood 78
7.6. Tuong An Vegetable Oil 80
7.7. Vinh Hoan Corp 82
7.8. Viet Nam Dairy Products 84
7.9.. PetroVietnam General Services 86
7.10. Phu Nhuan Jewelry 88
Financials
7.11. Asia Commercial Bank 90
7.12. Bao Viet Securities 92
7.13. Tan Tao Investment Industry 94
7.14. PetroVietnam Finance 96
7.15. PetroVietnam Insurance 98
7.16. Saigon Securities 100
7.17. Sai Gon Thuong Tin Commercial Bank 102
7.18. Bank for Foreign Trade of Vietnam 104
7.19. Vietnam National Reinsurance 106
7.20. Imexpharm Pharmaceutical 108
Healthcare
7.21. Binh Minh Plastic 110
Industrials
7.22. Hoa Phat Group 1127.23. Tien Phong Plastic 114
7.24. Petroleum Technical Services 116
7.25. PetroVietnam Transportation 118
7.26. Refrigeration Electrical Engineering 120
7.27. Song Da Urban & Industrial Zone Dev. 122
7.28. Vietnam Container Shipping 124
7.29. Vietnam Tanker 126
Oil and Gas
7.30. PetroVietnam Drilling and Well Services 128
Telecommunications
7.31. FPT Corp 130
Utilities
7.32. Pha Lai Thermal Power 132
7.33. Vinh Son - Song Hinh Hydropower 134
8
Executive�Summary1.0
Booming investments, solid consumption and rising exports are behind Vietnam’s phenomenal growth. In the past 10 years, Vietnam has been the region’s second fastest growing economy. Real GDP growth has exceeded 7.5% per year on average and per capita income has grown at an outstanding pace of 11.2% per year. The economy has proven resilient to shocks and negative impacts from SARS, avian influenza, natural disasters, high commodity prices, rampant inflation, and anti-dumping suits. Nationwide, income per capita rose from US$375 in 1999 to US$1,040 in 2008 and Vietnam has now entered the ranks of middle income countries. A new Asian tiger is on the prowl.
Vietnam’s cities are bright and bustling and the countryside, where much of the country’s population of 87 million people still live, seem hardly less developed than that of officially much wealthier Thailand. A country once on the brink of famine, Vietnam has transformed itself into one of the largest exporters of farm products. Collectivisation has been scrapped, farmers now work their own land and agricultural prices were liberalised. Rural population growth is peaking while urban centers are taking off while the share of agricultural output in the nation’s GDP has declined from 46.3% to 21% between 1988 and 2008.
Already the poster-child of the Washington consensus (free markets, free trade, and so on), Vietnam has progressed well along the path to achieving the Millennium Development Goals – the UN’s anti-poverty roadmap. Population growth has eased to an average of 1.1% over the past decade from 2.3% in the 1980s as reliance on informal social insurance mechanisms declines, and poverty has been slashed.
Accounting for 65% of GDP, private consumption is the pillar of the domestic economy, but investments and trade receipts are the real growth drivers. High levels of domestic savings, phenomenal foreign capital inflows and growing overseas remittances are driving rapid growth in investments, which now account for 41.6% of GDP from 27% in 1995, the world’s second highest rate after Singapore.
Aside from investment inflows, soaring export earnings are another primary growth driver for Vietnam, reaching 77% of GDP in 2008. Principal manufactured exports include garments, footwear, electronic components, and wooden furniture products, reflecting the comparative advantage of Vietnam’s low-cost labour force. While access to external markets has improved with formal trade relations and Vietnam has become the de facto “+1” in multinational investors’ “China+1” strategy, the supply response of Vietnam-based enterprises has been enabled by domestic reforms that have facilitated the private sector and strengthened the investment climate.
Asia’s second-fastest growing economy
Shooting out of poverty
On track to prosperity
Solid domestic foundation
Increasingly integrated with the
world economy
9
The share of the state sector in manufacturing activity has declined from 52% in 1995 to under 35% in 2006 – a trend largely attributable to the emergence of a vibrant private sector. Although the state sector retains a key role in sectors of strategic importance, the playing field has been substantially levelled for private domestic and foreign companies alike.
Including off-balance sheet items, Vietnam’s budgetary position is based on a comparatively high revenue collection of more than USD21 bn, or 20% of GDP, which compares very well against many neighbouring economies. The fiscal deficit has recently increased to 5.8% of GDP due to the government’s stimulus measures, but total debt remains at a manageable level of 39% of GDP. Prudent and responsive policy measures will be key to ongoing macroeconomic stability.
Political control is vested in the Communist Party of Vietnam which has proved increasingly responsive and accessible. There has been significant progress in public financial management and the entire 2005 budget was disclosed to the public for the first time. The National Assembly is now responsible for the approval of the budget, including allocations to lower levels of government, and has become considerably participatory of late.
An exceptionally favourable demographic profile underpins optimism about Vietnam’s prospects in consumption, investment demand, and as a value-added export base. A young and eager workforce, stable growth and high levels of literacy all ensure that Vietnam will reap the benefits of a substantial demographic dividend. Combined with the Vietnamese peoples’ innate entrepreneurialism, Vietnam’s growth prospects are highly favourable.
Until recently, Vietnam was virtually a cash economy without formal access to consumer credit and, while growth has been astronomical, only 10% of the population is estimated to have a bank account today. The introduction of accessible, formal credit mechanisms and financial products in general is just starting and the sector has much growth potential.
Although young, the nine year old Ho Chi Minh City stock exchange’s index has outperformed the MSCI Emerging Markets and the MSCI Asia ex-Japan indexed since the beginning of 2005. The investment universe now comprises nearly 400 individual stocks and liquidity has improved dramatically. With a backlog of major state-owned enterprises and growing number of private companies set to list within the next three years, Vietnam’s stock markets will increase in depth, liquidity, and accessibility to foreign investors.
In�the�past�10�years,�Vietnam�has�been�the�region’s�second�fastest�growing�economy.
Rising importance of the private sector
Reasonablefiscaldeficitand
debt burden
Political fortitude underwrites socio-economic stability
Poised to reap a demographic
dividend
Financial sector development a catalyst for consumption
Stock market meteoric rise
10
11
Economic�Confluence
2.0
12
Vietnam has been the region’s second fastest growing economy in Asia for the past ten years. Real GDP has grown at a whopping average of 7.5% per year and per capita income by an outstanding 11.2% per year. Although not without some growing pains, Vietnam’s economy has proved resilient to external shocks and the negative impacts of SARS, avian influenza, natural calamities, high commodity prices, rampant inflation, and trade disputes in newly developing export markets.
Booming investments, solid consumption and rising exports are driving Vietnam’s phenomenal growth. In little more than a decade, Vietnam has emerged as the second-fastest growing economy in Asia. The government is streamlining legislation and implementing reforms that will open the economy to further trade and investment and, with a population base that is one of Asia’s youngest and most literate, Vietnam is well positioned to enjoy many years of sustainable growth.
China Vietnam India Malaysia Indonesia Thailand
Asia’s�second-fastest-growing�economy�2.1
Economic�Confluence2.0
Wealth more than doubled in 10 years...GDP per capita (USD) Vietnam
...yet a lot more to goGDP per capita (USD, ‘08) Regional
Vietnam the fastest growing economy in Asia after China10-year average GDP growth and max-min indicators (1999-2008) - Regional
6.5% 5.6%9.4% 7.5% 5.3% 4.8%
4%
8%
12%
0%
Source: IMF
Source: IMF
Source: IMF
13
National income per capita rose from US$375 in 1999 to US$1,040 in 2008 and Vietnam has now entered the ranks of middle-income countries. GDP per capita is now slightly above that of India. When taking into account the understated contribution of the informal sector, it’s not difficult to believe that Vietnam is new Asian tiger.
While growth has been accelerating in the years since the Asian financial crisis in 1997 and the dotcom bubble of 2001, it slowed sharply as the economy overheated at the beginning of 2008 and the global economy entered a crisis in the third quarter of the same year. In response to high inflation and a large and growing trade deficit, the government implemented a series of fiscal and monetary tightening measures that were effective in stabilizing the Vietnamese Dong, cutting the trade deficit, and slowing inflation. Reserve requirements were raised from 5% to 11% and the State Bank of Vietnam (SBV) increased the policy base rate to 14%. Inflation has now moderated and the reserve ratio and base rate have returned to pre-crisis levels and below.
... and affected the trade balance... Trade deficit (USD bn)
Monetary easing led inflation...Monetary indicators
Source: CEIC, Dr. Pham Do Chi - 2009 est.
... pressuring the currency to depreciate...12MO forward NDF vs actual rate (USD/VND)
... prompting the gov’t to reactMonetary tightning (%)
Source: Bloomberg%
%
%
%
%
%
%
%
%
Source: IMF, MOF for 2009 targets
Source: SBV
12month forward NDF Interbank spot rate Base rate Reserve Ratio
CPI (yoy %)M2 (yoy %)
14
As these measures were taking hold, however, the global economic crisis hit. Vietnam being dependent on investments and exports for growth, it is quite sensitive to external shocks. That being said, according to VinaCapital’s chief economist, Dr. Pham Do Chi, the country should grow at a rate of 4-5% in 2009, due in part to solid private consumption as the bedrock of Vietnam’s economic growth, moderate foreign capital inflows, and a low-value added export base. Exports are estimated to contract by only 10% in 2009 as most exports are low value added goods and commodities related. Nevertheless, the current slump will most likely be viewed historically as a small bump in the road to growth.
Twenty years of reform has had a profound impact on the structure of Vietnam’s economy. The industrial sector is now the key driver of growth pulling up labour productivity along the way. At the same time, the economy is becoming more investment intensive and integrating rapidly with the global economy.
From a largely agrarian economy in the 1970s, agriculture’s share of GDP has halved since 1991 and now comprises only 20% of GDP. A rise in industrial activity has transformed the profile of the economy which now accounts for more than 40% of GDP, having grown at a 10% annual rate over the past decade accounting for much of the real growth over the same period. The service sector, on the other hand, has been stable and now makes up 38% of the overall economy.
Industrialisation driving GDP growth
Changing�economic�structure�enabling�growth
2.2
High GDP growthGDP and growth Source: IMF, Dr. Pham Do Chi - 2009 est.
GDP (USD bn) Real GDP growth (%)
15
Booming investments and soaring exports don’t happen by miracle. A key factor in Vietnam’s transformation, and behind much of the transformation that irrevocably changed the structure of the economy, is the rise of the private sector (both local and foreign), which makes up 71.5% of all labour and 60% of all investments in the economy. This is a reflection not only of the rapid increase in their numbers, thanks to ongoing reforms, but also their superior efficiency, especially when compared to those of SOEs.
Anyone who has travelled in Vietnam would say how everywhere and anywhere one might look, it is as if every house doubles as a shop, and every street corner becomes an impromptu restaurant, barbershop or a motorcycle repair shop. The entrepreneurial spirit runs deep in Vietnamese culture and has become symbolic of their aspirations for wealth and well-being. As the real estate tycoon who was the first to buy a USD 1.3 million Rolls Royce Phantom would say, it’s more than just for the looks, but also to show the world Vietnam is no longer an impoverish nation.
Rise of the private sector
Private sector is the largest employer... Contribution to labour force (%)
... and leading investmentsInvestment by Ownership (%)
Industry is driving growth...GDP by sector (%)
Agriculture Industry SevicesAgriculture Industry Sevices
Source: ADB
... and job creation Employment by sector (%)
Source: GSO
Source: GSO, MPI Source: GSO
2000 2006 State Private FDI
16
While private consumption forms the basis of Vietnam’s economy at 64% of GDP and will remain important as a growth driver, its relative importance has been diminishing. Investments, fuelled by high saving growth, skyrocketing FDI and growing remittances, are a key driver of economic growth.
Vietnam is second only to Singapore when comparing the ratio of investments to GDP, and well ahead of economies like Qatar, China and India. Investments now account for 42% of the economy, a target that the government had set for 2010 and reached in 2008.
Vietnam is one of the most open economies in the world with a ratio of imports and exports to GDP reaching 170% in 2008. While this might be startling for a country that used to be closed to the outside world, it is not so surprising when you look at the entrepreneurial spirit of this essentially trading nation. Vietnam’s strategic location between India, Southeast Asia and China, easy access, highly literate and hard-working labour force, favourable export-oriented investments and government policies stressing global economic integration have all contributed to the meteoric rise of exports, which now comprise 75% of GDP, up 35 percentage points over the past decade.
One of the most open economies
Industrialisation�and�trade�lead�growth�2.3
Growth is investment led...GDP components (%)
... thanks to high domestic savingsDomestic savings (% of GDP)
%
%
%
%
%
%
%
One of the most investment intensive economies in the worldInvestments as % of GDP - Regional
34
36
38
40
42
44
46
Singapore Vietnam Qatar CapeVerde Guyana China Lesotho India Bulgaria
0%
20%
40%
60%
80%
100%
1991 1993 1995 1997 1999 2001 2003 2005 20070%
5%
10%
15%
20%
25%
30%
35%
1991 1993 1995 1997 1999 2001 2003 2005 2007
Source: ADB Source: GSO
XM C I G
Source: : CIA World Factbook 2009
17
A large portion of imports are linked to exports. Vietnam exports crude oil, but imports all its refined petroleum as it has historically lacked refining capabilities. The country’s first refinery went online this year and has the capacity to refine two thirds of Vietnam’s oil needs. We can expect the trade of oil to come down drastically from this point on and a second refinery is planned. Vietnam also exports large quantities of garments for which fabrics are imported; exports footwear for which rubber is sourced locally and the rest imported; imports all the machinery needed for its manufacturing sector, machinery without which there would be no exports; and fertiliser help grow all the commodities Vietnam has become famous for. Electronics, vehicles and the like are indeed for local consumption however.
Fisheries, rubber, rice and coffee form 41% of all exports (excluding oil exports) and made Vietnam a key player in global commodities. That’s not all bad in a world where commodity prices are poised to stay high by historical standards. Non-commodities based exports such as garments, footwear, electronics and some wood products (furniture) comprise the other 59% of total exports, but are of relatively low added value, something the government wants to address. However, the low reliance on high-value exports is helping Vietnam get through the global economic crisis. While demand for its goods has weakened, it hasn’t collapsed as in several other Asian countries. On the whole, we roughly estimate Vietnam’s exports to be down 10% for 2009. That being said, Vietnam definitely wants to move up the value chain and actively seeks FDI that can help it achieve this goal. The USD1.0 billion Intel factory is a significant move in that direction.
Sources: Bloomberg
Export Import
Growing reliance on exports, linked to importsExports & imports, as % of GDP
0
20
40
60
80
100 %
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Low value added goods top the list of exportsTop export products (USD bn)
1998 1999 2000 2001 2002 2003 2004 2005 2006
%
%
%
%
%
9876543210
Source: : GSO
Crude Oil Fishery ProductsGarments Footwear RubberElectronics RiceWood Products Coffee
18
Since the signing of the US Bilateral Trade Agreement (BTA) in 2001, exports to the US have surged and now account for 21% of all exports. Trade with Japan, which also signed a similar agreement, increased substantially and now accounts for 13% of total exports. Other important trading partners include Australia, China, Germany, Singapore, Malaysia, Korea, Indonesia, and Thailand.
Accession to the WTO in January 2007 has been a catalyst for trade and FDI as multinational enterprises seek to exploit Vietnam’s advantages as a low cost, strategically situated export hub. Intel started work on a USD1 billion assembling factory near Ho Chi Minh City, Microsoft outsources digital animation and modelling to Vietnam, and Nike is considering a footwear research and development center in Vietnam. These examples show that Vietnam is starting to move up the value curve and that higher value exports are not so distant in the future.
Most imports are related to the production of exportsTop import products (USD bn)
1998 2000 2002 2004 2006
Source: GSO
Refined Oil Iron & Steel Machinery for TelecomTextile Fabrics Electronics Fertilizers Motocycles Machinery for TextileFibers, SpunMotocycles: Unassembled
USA and Japan exports soar with BTAs...Major export markets (USD bn)
... and are now Vietnam’s top marketsMajor export markets (%)
Source: IMFSource: IMF
0
2
4
6
8
10
1214
1998 2000 2002 2004 2006 2008United States Japan Australia ChinaGermany Singapore
United States Japan Australia ChinaGermany Singapore
0%
5%
10%
15%
20%
25%
1998 2000 2002 2004 2006 2008
6
5
4
3
2
1
0
19
Vietnam is in an envious position when it comes to attracting FDI. Since opening its market to foreign investments in the late 80’s, Vietnam has received an impressive amount of FDI inflows for its size. A government friendly to foreign investment, a young and vibrant workforce, low wages and increasing productivity have all contributed to making Vietnam a key destination for foreign companies looking to outsource to or expand in Asia.
In 2008 alone, Vietnam approved over USD60 billion worth of foreign investments, while disbursements stood at an outstanding USD11.5 billion. The Ministry of Planning and Investment (MPI) has set the FDI target for 2009 at USD 30 billion, almost half the figure of 2008. A world economic crisis, increasingly competitive regional countries and Vietnam’s own bottlenecks explain the lower target. Considering the current state of the world’s economy, USD30 billion is still a substantial figure, and a 45% increase compared to 2007.
There’s a lag between approved and disbursed FDI as some projects never get off the ground while others find ways to reduce their project capital during the construction of their factory or project. The gap has been increasing of late as the government has been approving high profile mega projects, such as deep-sea ports or mammoth steel mills, which implementation usually take many years, and which may lag considering the current economic climate.
Firms that have drawn-up a “China +1” strategy often make Vietnam the “plus-one”. Some countries, such as Japan even go to the length of officially pronouncing Vietnam as their preferred destination for FDI after China. Vietnam was the only Southeast Asian nation listed in the top 10 investment destinations of multinational companies in 2008 and 2009 in a survey by the UN Conference on Trade and Development. Intel is building a USD1.0 billion factory near Ho Chi Minh City while Foxconn, Posco, Formosa and Berjaya have all announced multi-billion dollars projects in Vietnam.
2.4 Soaring�foreign�investments
Outpacing the region
Skyrocketing FDI Net FDI (USD bn)
200
400
600
800
1,000
1,200
1,400
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
60
50
40
30
20
10
0
Source: GSO, ADB
Approved FDI (lhs) Disbursed FDI (lhs) Number of project (rhs)
20
Vietnam has consistently outperformed its competing Asian nations in attracting FDI, with the difference increasing sharply from 2007. Political stability, a government committed to market reforms, proximity to China, strong work ethic and high productivity growth, albeit from a low base, keep Vietnam on top of the list of countries in which foreign firms are looking to expand their operations in Asia.
Developed Asian economies account for the major part of FDI inflows with countries like Taiwan, South Korea, Japan and Singapore in the driving seat. Geographic proximity is an important factor explaining this trend.
Benefitingfrom maturing
tigers
More FDI than its neighboursNet FDI as % of GDP - Regional
Asian tigers are Vietnam’s most important direct investors1988-2007 cumulative FDI by country
Hong Kong 6%
Malaysia 5%
Netherlands 5%
USA 4%
France 4%
Singapore 9%
South Korea 12%
Taiwan 13%
Japan 10%
BVI 8%
Others 24%
Source: GSO, rounded
Vietnam MalaysiaThailand IndiaChina
9.3
3.7
1.4
3.2
- 1.4-2
0
2
4
6
8
10
1995 1998 2001 2004 2007
%
%
%
%
%
%
%
Source: ADB
21
It is interesting to note that India and China are literally absent from the picture. China has admittedly started to invest more in Vietnam, especially as labour costs are skyrocketing at home, but investments remain very low for now. India, on the other hand, is largely absent. Arguably, with plenty of low cost labour and a fledging local economy, there’s little need for these countries to expand in countries like Vietnam.
Even more striking, foreign invested enterprises contribute more to the state budget than any other economic entity in Vietnam, even state-owned enterprises, although arguably, a large part of this contribution comes from the oil and gas sector.
The significance of FDI to the economic growth of Vietnam has steadily increased over the years. While the Vietnamese private sector accounts for more than 50% of all employment, FDI has doubled their contribution to 21% from 2000 to 2006 and probably higher today.
Manufacturing, the bulk of Vietnam’s FDIFDI by sector - 1988-2007
Private sector provides more jobs...Contribution to labour force (%)
...and FDI pays more taxContribution to state budget (%)
The vast majority of FDI is by far directed to the manufacturing sector which accounts for over 53% of all FDI from 1988 to 2007 according to data from the GSO. Industrial parks in and around centers such as Ho Chi Minh City and Hanoi are full of light and heavy industries producing anything from shoes and clothing to steel and paints.
Made in Vietnam
FDIs are key to Vietnam’s rapid growth
51
38
1018
3944
State Private FDI
59
28 29
50
1222
State Private FDI
Transport & Communications 5%
Minning & Quarrying 4%
Hotel & Tourism 8%
Construction 7%
Agriculture & Forestry 3%
Others 6%
Manufacturing 53% Real estate 14%
Source: GSO, MPI, roundedSource: GSO, MPI, rounded
2000 2006 2000 2006
Source: GSO, rounded
22
Lately, FDI have become more diversified, with the real estate and tourism sector taking more importance. We’ve also seen more investments in heavy industries thanks to the likes of Posco and their multi-billion dollar steel mill.
FDI should continue to drive Vietnam to higher growth rates, thanks not only to investments, but also the improved productivity that results from technological spillovers.
As a matter of fact, foreign companies are key players in a variety of high-technology industries such as oil and gas, vehicles, and consumer appliances.
Foreign holdings in key sectorsPercent of Capital Controlled %
Exploitation of crude oil 100
Manufacture of motor vehicles 68
Manufacture of motorcycles 66
Air conditioner 98
Washing machine 98
Fridge 94
Textile 40
2008 sees FDI in heavy industries leading the wayFDI by sector - 2008
Source: GSO.
Source: GSO, MPI
23
Most of the government revenue comes from corporate taxes, which represent 62% of all revenues. Personal taxes, on the other hand, are almost insignificant. The share of SOE-derived revenue has diminished substantially while that of private sector, mostly foreign, has increased substantially over the years. This underlines the growing importance of the private sector, both local and foreign, to the state budget.
The average deficit as a percentage of GDP has stood at 2.25% during the 1996 to 2006 period. Compared to its neighbours, Vietnam did well. However, the fiscal deficit has increased substantially since 2007 as the country streamlined (reduced) its various taxes, and slightly increased spending in areas such as price subsidies to help farmers. Corporate taxes, the bulk of Vietnam’s fiscal revenue, were lowered to 25% against 28% in a bid to increase its competitiveness within the region and help the private sector. The 2009 fiscal deficit is expected to amount to around 9% of GDP as the government presses on with a USD1.0 billion stimulus package to soften the effect of the global economic crisis. It’s a choice the government of Vietnam has made. Yet, GDP should grow at 4-5% for the year.
Including off-balance sheet items, Vietnam’s budgetary position is based on a relatively high revenue collection of more than USD21 billion, or 20% of GDP, which compares very well against many of its Asian neighbours.
2.5 Good�fiscal�position
Constant level of revenue to GDP... Revenue (% of GDP)
... and much higher than its peersRevenue as % of GDP - Regional
Even progression of revenues... Revenue (USD bn)
...private sector contributes more than SOEContribution to state budget (%)
Source: MOF MOF, GSO, rounded
2005 2006 2007 2008
5
0
10
15
20
25
Comsumption TaxCorporate Income Tax
Import & Export Duties Natural Resources TaxIndividual Income Tax
Real Estate Tax
Capital revenueNon-Tax Revenues China
ThailandPhilippines
Indonesia India
Vietnam
0%
5%
10%
15%
20%
25%
30%
2005 2006 2007 2008
Source: MOF
1997 1999 2001 2003 2005 2007
5
0
15
10
20
25
30%
%
%
%
%
%
%
Source: ADB
20002006
24
Arguably, Vietnam can afford a larger deficit as it is at the lower end of the spectrum in terms of debt to GDP ratio in the region. As of 2008, public debt was still manageable at slightly less than 40% of GDP and external debt is at slightly less than 30% of GDP.
Nevertheless, the debt seems manageable, as the proportion of debt service to the budget has been gradually diminishing, even after taking into account the 2008 budget deficit.
... mainly due to reduction in taxesRevenues & expenses as % of GDP
Source: ADB
15
17
19
21
23
25
27
29
1997 1999 2001 2003 2005 2007
RevenuesExpenditure
Public debt is still manageable...Public debt (2008, % of GDP) - Regional
... and external debt is benignExternal debt / GDP (%)
Source: CIA – World Factbook, 2008
Current account is deteriorating...Current account as % of GDP
...while reserves are accumulating Overall balance % of GDP
Growing deficit...Fiscal deficit as % of GDP - Regional
1997 1999 2001 2003 2005 2007
Thailand
ChinaPhilippines Malaysia
India�
Viet�Nam
Source: ADB
-8
-6
-4
-2
0
2
4 %
%
%
%
%
%
%
%
Source: MOF%
%
%
%
%
%
%
%
%
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Source: ADB
-30
3
6
9
12
15%
%
%
%
%
%%
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Source: ADB
-5
0
-5
-10
%
%
%
%
%
%
%
%
%
%
%
25
Vietnam’s rating has been improving over the years, until the growing trade and fiscal deficit put a dent in its outlook with S&P keeping its BB+ rating, but changing the outlook to negative from stable.
Sovereign Ratings Agency Rating Outlook
S&P BB negative
Moody's Ba3 negative
Fitch BB- negative
Source: ADB – Asian Bonds Online
S&P long-term LCY and FCY ratings, historical changes
Updates LT LCY Rating / Outlook
LT FCY Rating / Outlook
May. 03, 2008 BB+/Negative BB/Negative
Jun. 12, 2007 BB+/Stable BB/StableSep. 07, 2006 BB+/Stable BB/StableNov. 03, 2005 BB/Positive BB-/Positive
Nov. 01, 2005 BB/Positive BB-/Positive
Oct. 18, 2005 BB/Positive BB-/Positive
May. 28, 2002 BB/Stable BB-/StableSource: ADB – Asian Bonds Online
Debt service is under controlExternal debt metrics
External debt service / Export goods and services (%) External debt service / Budget revenue (%)
Source: MOF
20040
1
2
3
4
5
6
2005 2006 2007 2008
%
%
%
%
%
%
%
26
In 1986, Vietnam launched its Doi Moi policy to open the economy and help the country achieve prosperity. State subsidies have been cut, price controls have been lifted, private enterprise has been permitted, State enterprises are gradually being privatised, foreign investment policies have been adopted, and several international treaties have been ratified.
It is interesting to note that some of the most significant reforms were the result of negotiations to enter bilateral treaties. The negotiations for the US Bilateral Trade Agreement (BTA) that came in effect in 2001 formed the basis of the 2000 Foreign Investment Law, and the World Trade Organisation (WTO) negotiations pushed the promulgation of the 2006 Investment and Enterprise Laws, which for the first time incorporates WTO related concepts such as Most Favoured Nation and National Treatment. The introduction of modern Investment Laws and Enterprise Laws has also allowed extraordinary levels of Foreign Direct Investments (FDI) to enter Vietnam and help create a vigorous private sector.
2.6 Government�committed�to�reforms
Timeline of important economic events
1986-1989Initiation of Doi Moi
Reforms targeting macroeconomic stabilization, move away from central planning and opening up to FDI (albeit timid) and trade. 1987 – Land policy reforms transfers land use rights from SOEs to farmers, boosting agri-cultural prosperity
1989-1993Accelerated Reforms
Macro reforms like price liberalization (for most products), reduction on monetary and credit expansion, major devaluation of currency and reduction of SOEs.1989 – First Foreign Investment Law
1994-1997Institutional Reforms
Reforms in areas of public administration, legislation, public expenditures, business envi-ronment, taxes, and many other areas.1994 – US embargo lifter1995 – Joins ASEAN; starts process to accede the WTO
1997-1999Asian Crisis
Exports and FDI decline significantly, but GDP growth remains positive thanks to domestic demand.1998 – Joins APEC
1999-2007Rise of Vietnam
Solid GDP growth propels Vietnam to economic stardom and places it the second best performing country in the world after China.2000 – Ho Chi Minh City stock market makes its debut2000 – New Foreign Investment and Enterprise Law adopted, significantly improving on previous laws results in meteoric rise of FDI in Vietnam2001 – US Bilateral Trade Agreement ratified2001 – 5 year SOE reform plan with IMF/WB adopted2001 – Communist Party reaffirms commitment to economic reforms2001 – Constitution formalizes equal treatment for the private sector2006 – Anti-Corruption law made effective2006 – Socio-Economic Development Plan for 2006-2010 adopted2006 – New Investment Law and Enterprise Law adopted, and allowing foreigners to invest in any sector except those explicitly restricted, and treating local and foreign companies on the same standing2007 – Vietnam becomes the 150th member of the WTO
2008-PresentGlobal Economic Crisis
Exports and FDI decline significantly, but GDP growth remains positive thanks to cheap exports and domestic demand2009 – First 100% foreign own full banking license granted
27
Much of the growth optimism for Vietnam, be it consumption, investment demand or Vietnam’s rise as an export base, is underpinned by its exceedingly favourable demographic profile. A young and eager population rapidly joining the workforce, stabilizing demographic growth and high levels of literacy all contribute to ensure that Vietnam will reap the benefits of a substantial demographic dividend that will continue to drive consumption and investments for years to come.
The 15th most populous country in the world, Vietnam’s population stands at 87 million and is already larger than that of neighbouring Thailand (66m) and Malaysia (26m). Trends show that Vietnam will continue to be one of the most populous countries in South East Asia, and will even surpass Japan by 2038 and Russia by 2050.
2.7 Favourable�Demographics
Vietnam has an enviable mix of moderating population growth coupled with acceleration in the number of people reaching active working age. This ensures there is plenty of skilled labour to join the myriads of foreign and local companies that make Vietnam their playground.
A young population entering the workforce
and spurring consumption
Advantageous population basePopulation (mn) - selected countries
0
50
100
150
200
250
Indonesia Brazil Pakistan Russia Japan Philippines Vietnam Thailand S.Korea Malaysia
Source: CIA – World Factbook, 2009 estimates
Vietnam to overtake Japan and Russia in the next 40 yearsPopulation trend - selected countries (mn)
0
20
40
60
80
100
120
140
160
180
200
1950 1970 1990 2010 2030 2050ePhilippin aRussi Vietnam Japan Thailand Korea Malaysia
Source: US Census Bureau, International Database
28
Rising incomes and consumerism
Population growth has eased to an average of 1.08% over the past decade from 2.26% in the 1980s as the country has became increasingly prosperous and the social security burden is shifting away from the family . No wonder life-insurance companies are doing so well.
Population by age group - 1996 (%)
Stable socio-economic foundation
While Vietnam enjoys stable demographics, its ethnic composition also favours social stability. Close to 80% of the population adheres to a mixture of Animism and Buddhism (though officially they follow no religion) and ethnic minorities comprise only 14% of the population. Furthermore, the collective struggle for independence through the centuries creates a strong, proud, nationalistic bond.
Selected socio-economic indicatorsIndia China Vietnam Malaysia Indonesia
Total literacy % 61.0 90.9 90.3 88.7 90.4 Female literacy % 47.8 86.5 86.9 85.4 86.8 Infant mortality /1000 30.2 25.3 22.9 15.9 30.0 Life expectancy years 69.9 73.5 71.6 73.3 70.8
Source: CIA Factbook
11.612.3
12.110.2
9.48.4
7.97
4.93.4
2.52.4
2.32.1
11.5
0.9
0-45-9
10-1415-1920-2425-2930-3435-3940-4445-4950-5455-5960-6465-6970-7475-79
8 0+
Population by age group - 2025 (%)Population by age group - 2015 (%)
Source: US Census Bureau, International Database
Population by age group - 2006 (%)
0-45-9
10-1415-1920-2425-2930-3435-3940-4445-4950-5455-5960-6465-6970-7475-79
80+
8.28.7
10.110.8
10.58.8
8.17.3
6.85.9
4.12.8
1.91.9
1.51.21.2
%%%% % % % %
29
Vietnam’s GDP per capita has grown at a strong 11.2% CAGR over the past decade and has risen faster than many of its Asian peers, also surpassing India. In US dollar terms, income per capita rose from US$375 in 1999 to a 2008 level of US$1,040 and Vietnam has now officially entered the ranks of middle-income countries.
Increasing wealth and stable population growth has enabled rising disposable incomes that has fuelled the consumption boom evident today. Retail Sales, jumped to a growth rate of 35% yoy in early 2008 due to an expanding monetary supply, but came back down to 25% as the global economic crisis continues. That being said, a growth rate of 25% yoy during a crisis is quite impressive and demonstrates the resilience of the Vietnamese economy. Vehicle sales, as a highly elastic good, have been more volatile. Year on year sales were up 200% in 2008, but shrank as Vietnam’s own credit crunch occurred as the government was fighting inflation.
Source: IMF
With a low GDP per capita, Vietnam still has a lot of potentialGDP per capita (USD, 2008) - Regional
01,0002,0003,0004,0005,0006,0007,0008,0009,000
Malaysia Thailand China Indonesia Vietnam India
Retail sales are resilient albeit the crisis...Retail sales (yoy%)
Source: Bloomberg, GSO
2007 2008 2009
... while vehicle sales came down sharplyVehicle sales (yoy%)
Source: Bloomberg, GSO
2007 2008 2009
Moderating population growth…Population gowth (%)
…leads to rising individual wealthGDP per capita (USD) and growth Source: IMF
0%
5%
10%
15%
20%
25%
0
200
400
600
800
1,000
1,200
1999 20032001 20052000 20042002 2006 2007 2008
Source: CIA – World Factbook
195050 58 66 74 82 90 98 14 22 30 38 46
200606
4.0 %3.5 %3.0 %2.5 %2.0 %1.5 %1.0 %0.5 %0.0 %
30
31
3.0Stock Market
32
Vietnam has two stock exchanges: the Ho Chi Minh City Stock Exchange (HOSE) and the Hanoi Stock Exchange (HNX). Both are state-owned companies managed under the Ministry of Finance, but plans to privatise the two are in the works with no known timelines.
The HOSE was established first in 2000.The exchange initially had only five listed companies. By the end of 2005, only 40 companies had been listed and turnover remained relatively low. The number of listed companies, of which most were privatised state-owned enterprises (SOEs), quickly rose and so did its market capitalisation as some high profile names were listed. For many observers, this is when the stock market really began. The HOSE is today the largest and most liquid stock market in Vietnam. Its index is called the Vietnam Index (Reuters: .VNI, Bloomberg: VNINDEX, http://www.hsx.vn).
The HNX was established mid-2005. It had a rather unclear mandate in the beginning, but now specialises in small caps companies, bonds, OTC companies, and will later be the home for derivatives trading while the HOSE will continue to be the main bourse for most mid-cap and large cap stocks. The HNX is already the main bourse for bonds, with only a handful left trading on the HOSE. Its index is called the HNX Index (Reuters: .HNXI, Bloomberg: VHINDEX, http://www.hnx.vn).
The transfer of small caps from HOSE to HNX and large caps from HNX to HOSE has just started in June 2009. The OTC exchange made its debut on June 24 2009 and initially included 10 stocks, with more to be added over time.
3.0Two�bourses,�one�system� 3.1
Stock�Market
* Market capitalisation weighted averages Sources: Bloomberg, HOSE, HNX
2005 2006 2007 2008 July 2009
Number of Stocks 40 183 249 338 367
HOSE 34 100 138 170 162
HNX 6 83 111 168 205
Market Cap (USD mn) 588 13,774 31,556 13,010 24,100
HOSE … … 22,760 9,687 19,115
HNX … … 8,795 3,323 4,985
Avg. Daily Turnover (USD mn) 0.78 10.10 70.77 42.42 73.91
HOSE 0.72 9.09 54.81 29.08 47.91
HNX 0.07 1.00 15.96 13.34 26
Index Performance* % 20% 147% 26% -66% 32%
HOSE 29% 144% 23% -66% 36%
HNX -4% 152% 34% -68% 36%
PE* … … 31 12 17
HOSE … … 28 13 18
HNX … … 38 9 14
Key Vietnam Stock Market Metrics
33
Apart from having different daily trading band restrictions, and that the HOSE has an opening and closing session while the HNX has only a continuous order matching session, placing orders on one bourse or the other is seamless. The Ministry of Finance has set the maximum foreign ownership limit of any listed company to 49%, and 30% for banks. Please see our section on market mechanics within this primer for more details on this.
In 2006, the HOSE became the best performing stock market in the world, accruing an outstanding 147%, albeit on the back of a 50% local credit growth.
Moreover, the Vietnam Index (VNI) has clearly outperformed the MSCI emerging market index since January 2005, even after taking into account the deep correction that occurred in 2008 as a result of a mix of high inflation, drastically tightened local liquidity, and the global economic crisis.
3.2 Rapid�ascension�to�stardom�
Clear outperformerVNINDEX - Relative performance
Jan/2005 Jan/2006 Jan/2007 Jan/2008 Jun/2009
100200
300
400
500
100
0 0
200
VNINDEX (lhs) MSCI AXJ (lhs)MSCI EM (lhs) Value (USD mn) (rhs)
Source: Bloomberg
34
Since the avalanche of new listings in 2006, propelled in part by the ongoing effort to privatise SOEs, the stock market has grown quite spectacularly. The number of listed stocks has increased by 8 times from 2005 to July 2009, while market capitalisation jumped by 40 times over the same period, and that’s even after taking into account the major correction suffered on the Vietnam stock markets due to domestic missteps and the global financial crisis. Liquidity has also dramatically improved with turnover volume soaring by a factor of 65 times, and turnover value by 90 times in the same period.
As is characteristic of young capital markets, the bulk of market turnover come from retail investors. There isn’t any publicly available data on the proportion of retail investors and institutional investors to total trading value, but market participants generally accept the view that most foreign trades are made by institutions and most local trades are made by individuals. Vietnam doesn’t have a pension fund and mutual fund industry. Local institutions include banks and insurance companies, who are the bond market main players. Foreign investors usually focus on liquid large cap companies and explain why their traded value is constantly higher than their trading volume as percentage of total trades.
Dramatically�improved�market�conditions
3.3
Increasing depth...Market depth
…and liquidityDaily volume and value
Source: Bloomberg, VinaSecurities Source: HOSE, HNX
Market Cap (USD bn) (lhs) Number of Stocks (rhs) Avg Value /day (USD mn) (lhs) Avg Volume/day (mn shares) (rhs)
Local players gaining importance…Foreign participation
…yet foreigners are here to stayForeign turnover volume (million shares)
% of total Volume % of total Value
Source: HOSE, HNX
Source: HOSE, HNX, 2009is annualised as of July
a
35
Notwithstanding that, there is little doubt that the Vietnamese stock markets will continue to soar in terms of market capitalisation and liquidity as most large state-owned enterprises are expected list in between 2009 and 2011. For example, Bao Viet Holdings and Vietcombank listed on July 1st 2009, respectively adding USD1.6bn and USD4bn to the total market capitalisation, which increased from USD18bn to USD24bn as a result, and may mean Vietnam has surpassed Pakistan in terms of market cap as a percentage of GDP today.
Mkt
Cap
as a
% of
GDP
GDP per Capita
The proportion of foreign participation in the market declined in 2008 and 2009, but that’s only because the local market has been growing faster. In effect, the number of shares traded by foreigners has actually increased steadily ever since the stock market has opened.
Although Vietnam’s capital market grew at an incredible pace over the past few years, it remains relatively young in comparison to its neighbours. Market Cap as a percentage of GDP was at the end of 2008 the lowest in the region. When comparing Market Cap as a % of GDP to GDP per capita, Vietnam is also at the lower spectrum.
Source: Bloomberg, IMF, as of year-end 2008
Smallest market capitalisation as % of GDP, yet its larger SOEs have not privatised Market capitalisation as a % of GDP - Regional
0%
20%
40%
60%
80%
100%
120%
140%
Singapore Malaysia India China Thailand Philippines Indonesia Pakistan Vietnam
Source: Bloomberg, IMF, as of year-end 2008
Vietnam on the path to market growthMarket development - Regional
60%
50%
40%
30%
20%
10%
0%
0 500 1000 1500
India
Philippines
PakistanVietnam
Thailand
ChinaThailand
2000 2500 3000 3500 4000 4500
36
Due to the plunging stock market and unfavourable economic conditions, many IPOs have been delayed indefinitely by the government. An updated schedule has not been issued and it is unclear at this time if IPOs planned for 2010 will also be delayed. If not, we could have a substantial amount of IPOs coming to market at the same time. As to when the privatisation program will resume, the answer probably lies somewhere between the urgency to privatise SOEs before their markets liberalise under the WTO accession roadmap, i.e. between 2010 and 2014, and the pressure to sell state assets at reasonable prices. Interests in resuming the program have been felt when the VNINDEX reached the 500-600 level.
The Vietnam stock market composition is weighted towards financials which account for more than 50% of the combined market cap.
Market�composition 3.4
Selected upcoming listings and IPOs
English Name Action Sector Announced Timing
Likely Size (USD mn)
Likely Float (%)
Float Value
(USD )mn)
MH Bank Listing Bank TBA 600 0.2 120
Eximbank Listing Bank TBA
VP Bank Listing Bank TBA
ViB Bank Listing Bank TBA
Incombank Listing Bank TBA 1500 0.2 300
BIDV Listing Bank TBA 2000 0.2 400
Habubank Listing Bank TBA
Agribank Listing Bank TBA
Military Bank Listing Bank TBA
Techcombank Listing Bank TBA
Sabeco Listing Brewery TBA
Habeco Listing Brewery TBA
Mobifone IPO Telecom TBA 4300 0.2 860
Viettel IPO Telecom 2009-10 1000 0.2 200
Vinaphone IPO Telecom 2009-10 3500 0.2 700
EVN Telecom IPO Telecom 2009
Vietnam Airlines IPO Airline 2009
Source: VinaSecurities
Market dominated by financialsMarket structure by ICB sector
Financial
Industrial
Consumer Good
Basic Materials
Utilities
Consumer Services
Oil & Gas
Telecom
Health Care
Technology 0.6%1.5%2.8%3.4%
3.7%4.4%6.9%
13.0%13.4%
50.2%
Source: Bloomberg, as of July 1st, 2009
0% 10% 20% 30% 40% 50% 60%
37
The distortion is largely caused by three banks, ACB, STB and VCB that together account for over 28% of the total market cap. When taking into account that foreign ownership is full for these three banks, tracking the index can be tricky.
The stock market is also characterised by few large cap and a long tail of small caps. As of July 1st, there were 60 companies with a market cap of USD50 million and above, 40 companies with a market cap above USD90 million, and 20 companies with a market cap above USD210 million, representing respectively 87%, 80% and 71% of total market cap.
Other than the limits on FX transactions, there are no exchange controls on selling and buying Vietnam stocks. As long as investors pay their legal obligation to the state (taxes), there are no restrictions on the repatriation of funds. Various disclosure rules apply when buying and selling stocks in companies in which the investor is a member of the board or is an executive, or when holding more than 5% of the total outstanding shares. Foreign ownership is restricted to 49% for all non-bank enterprises, and 30% for banks. Investors do need to open a trading account with a local broker, a custodian account with a bank, local or foreign, incorporated in Vietnam, and open a depository account with the Vietnam Depository Department. All these formalities are a bit cumbersome, but once completed, there are no other restrictions or paperwork to complete other than those in relation to disclosure rules.
Foreign�investment�regulations3.5
Institutional investors pay a 0.1% withholding tax on the value of any stock or investment certificate they sell. There are no capital gains or remittance tax. Dividends are also tax-free.
Individuals don’t pay any taxes on securities transactions, capital gains or dividends. On January 2009, the National Assembly passed a new personal income tax law that imposes a tax regime to individuals comparable to that of institutional investors. However, as of July 2009, the application of the law has been postponed indefinitely.
Taxation3.6
Long trail of micro-caps with a few large firmsMarket structure by market cap
Market Cap (USD bn) (lhs) # of Stocks (rhs)
Source: Bloomberg, as of July 1st, 2009318
23 8 11
38
4.0
39
4.0Fixed Income�Market
40
Vietnam’s money market is dominated by Vietnam Government Bonds (VGB) and Vietnam Development Bank (VDB) bonds, a non-profit state bank with a mandate to reduce poverty and hunger and assist in the development of exports. Municipal and corporate bonds comprise 4% and 7% of total outstanding bonds as of May 27, 2009, respectively. Government bonds are issued in maturities of 2, 3, 5, 10 and 15 years, with the 5-year bond being the most abundant and liquid. According to Bloomberg, 96% of all outstanding bonds were VND denominated, with the remaining being USD denominated, as of June 2009.
Bonds are sold through various sales channels. However, there has been a recent shift towards auctions and underwriting, away from retailing and private placements. Once issued, all bonds are listed on the HNX. There are no fixed schedules for bond issuance. The state Treasury (which organises the bond issuance for the government) announces at the end of each quarter a broad plan of issuance, including total amount to raise, number of likely auctions and a tentative schedule. That being said, a Dutch-style auction (uniform price) is typically conducted every fortnight. Notices are sent 2-4 days beforehand and only institutional investors or enterprises holding bond-bidding certificates may participate. Bond bidders are required to indicate the tendering volume and yield bid and deposit up to 10 percent of their bid value. Treasury always has an undisclosed target ceiling. If yield bids are higher than the ceiling, the auction has failed. Winners are notified within one day.
4.0Heavily�skewed�towards�government�bonds�
4.1
Fixed�Income�Market
Dominated by government bonds...Bonds by issuer type
...with most maturing in the next 3 yearsBonds by maturity (USD bn)Source: Bloomberg,
as of May 27, 2009
VDB 30%State 59%
Munis 4%
Corp 7%
Source: Bloomberg, as of May 27, 2009
2009 2011 2013 2015 2017 2019
2.5
2.0
1.5
1.0
0.5
0
41
Since the government took steps to reform the debt market in 2006, depth and liquidity have dramatically improved. The ratio of market capitalisation to GDP tripled from 2004 to 2008 and average daily turnover increased one-hundredfold during the same period, averaging USD 45 million in 2008. Bond issuances have been reduced severely during 2008 as high interest rates (base rate was 14%) made it unattractive for the government to issue any bonds beyond its immediate needs. Several “non-essential” government projects were slashed as a result.
As of May 27, 2009, only 4%, or 355 million USD, of the value of all outstanding bonds were municipal bonds. Most municipal bonds are issued by Vietnam’s three major cities (Ho Chi Minh City, Hanoi, and Dong Nai), in issues of 5, 10, 15 year maturities with limited disclosure. Smaller provincial authorities are unlikely to issue bonds under present circumstances as specific MOF approval is required. Municipal bonds are also subject to quotas on issuing amounts and interest rates. Sub-national authorities are not permitted to issue bonds in foreign currency.
Municipal bonds
As of May 27, 2009, four corporate bonds were traded on the stock market with a total value of USD 760mn, or 7% of total outstanding bonds in Vietnam. Most corporate bonds are issued as private placements. Issuances of corporate bonds have doubled since the introduction of new laws in 2006 regulating private placements. Almost all bond purchases are by institutions, particularly insurance companies. The secondary market for those bonds is small and illiquid and dominated by a few players. The underdevelopment of the corporate bond market is partially due to the lack of awareness among corporations of this instrument as a source of financing. With equity valuations sky-high in 2007, it was virtually impossible to convince companies to finance their development by issuing debt securities instead of new shares. Vietnam’s credit crunch in 2008 then caused interest rates to spike and made it difficult for companies to borrow. With interest rates back to pre-crisis levels, and stock market valuations at more reasonable levels, we expect more Vietnamese companies will turn toward the debt markets for their financing needs.
Corporate bonds
There are no derivatives, no project revenue bonds (bonds supported by the revenues of the project being financed and without recourse to the sponsoring authority) and no securitization of revenue flows from existing assets has taken place to support the finance of new assets as there are currently no laws in Vietnam governing securitization. Other hurdles to the development of alternative debt markets are aplenty. The State Budget Law does not allow sub-national governments to pledge specific taxes, user fees, or project revenue streams to bondholders. It also stipulates that money generated from municipal bond issuances must be deposited in the State Treasury on nil–interest terms.
Otherfixedincomeinstruments
4.2 Quickly�developing�market�
42
Notwithstanding its swift development, Vietnam’s debt market remains embryonic relative to its regional peers. The ratio of outstanding bonds to GDP was estimated at 16.35% as of September 2008, well below the regional average.
In addition to being a small market, the Vietnam bond market suffers from liquidity issues that can be attributed to structural factors, which include:
Too many small outstanding bond issues fragment the market and depress liquidity in the secondary market. As of May 27, 2009, there were 500 government bonds outstanding, all listed on the HNX, with a few remnants on the HOSE to be phased out. Trades can be made by order matching on the trading floor, or through negotiation, in which case it is still required to be matched by a licensed Vietnamese broker and registered at the HNX. The vast majority of trades are made through direct negotiation.
A fragmented market
4.3
Increasing depth...Outstanding Bonds (USD bn)
...and liquidityAvg daily trading value (USD mn)
Source: ADB, IMF Source: HOSE, HNX
USD bn (lhs) % of GDP (rhs)
Relatively smaller market than peersSize of debt market as % to GDP
Source: ADB Asia bond online, IMF, data as of September 2008, rounded
43
4.3 Policy�development�The government has given the go ahead to the Viet Nam Shipbuilding Industry Group (VINASHIN) to issue VND3 trillion (USD171.6 million) of local bonds and, for the first time, international bonds worth USD400 million to raise capital for its core projects. This is welcome news as it creates a precedent for other SOEs and perhaps large private companies.
International corporate bonds
The Prime Minister has ordered the Ministry of Finance, Ministry of Planning and Investment, and the State Bank to work together in managing and allocating the planned USD8 billion economic stimulus package. USD1 bn will be allocated to subsidize 4% of company loans and enhance small business lending access. Most of this stimulus package was supposed to be financed by the issuance of new bonds. However, as we speak, all bond issuance failed as the yield investors bid was higher than that of the ceiling yield the government was prepared to pay.
USD8 billion stimulus package
The MOF plans to develop a primary dealer system for government bonds where the latter would commit to buying a minimum volume to distribute to investors and enhance liquidity in the primary market. In terms of issuance, the MOF will shift towards issuing bigger lots and lengthen the maturity profile in a bid to enhance liquidity in the secondary market. Also important, the MOF intends to establish an independent credit rating agency for the rating of all bonds. Moreover, the corporate bond issue roadmap is expected to be released in 2010 to help create a more attractive investment channel for both foreign and domestic investors. All of these plans should considerably help the depth and liquidity of the market and demonstrates the government’s openness and intentions to make the debt markets more efficient.
MOF led market developments
Bond traders plan to set up a Vietnam Bond Trade Association. The Bank for Investment and Development of Vietnam (BIDV) and the IFC will play a major role in the operation of the association and ensure that it operates according to transparent and international standards.
Bond Trade Association
Auction prices lower than those in the secondary market are interfering with secondary market trading. Nobody likes to pay a premium price to market price. This has considerably hampered the issuance of new bonds by the government. As of June 2009, over 14 bond auctions have failed to attract winning bids since the beginning of the year.
Local commercial banks buy nearly 50% of issuances, focusing on terms of five years or less and tend to buy and hold. Insurance companies are also substantial buyers, focusing on the longer term bonds of 10-15 years and also tend to buy and hold. It is not uncommon for insurance companies, both local and foreign, to have over half of their total investment portfolios in government bonds. Other institutional investors include the Social Security Fund, non-bank finance companies, securities firms, and more recently investment funds.
Interference
44
4.4 High�yields
The high volatility shown in the 5Y VGB is due to a spike in yields as investors sold everything they could before Armageddon. The catastrophe many expected was a steep 50% devaluation of the local currency from 17,500 to 22-25,000 VND/USD as supported by the 12mo forward NDF. This scenario came about as observers were concerned with Vietnam’s high levels of inflation (23% year on year average for 2008) and high trade deficit that came with a spur of consumption fuelled by a 50% credit growth in 2007. The government reacted by increasing benchmark interest rates from 8% to 14% and by mandating local banks to purchase T-bills. The tactic worked, lending subsided, liquidity restraints deflated assets bubbles (property, stock market), and the global credit crisis helped commodity prices and inflation to moderate. Benchmark interest rates have since been lowered to 7% and VGB yields came back down to slightly above 9%.
While depth and liquidity isn’t great, Vietnamese bonds do tend to offer higher yields than most other Asian markets – Indonesia being the only exception.
Higher yields underlines risk premiumYields - Regional- 2Y Avg, Min, Max and Current Yields
avg 10.90% 11.13% 7.54% 3.80% 3.63% 3.45% 1.97%
Vietnam MalaysiaIndia SingaporeIndonesia ChinaThailand
7.19% 8.47% 5.13% 2.06% 2.67% 1.78% 1.03%min
20.53% 20.06% 9.50% 5.74% 4.34% 4.27% 3.08%max
9.25% 9.80% 6.42% 2.82% 3.68% 2.36% 1.18%current
Source: Bloomberg, 5Y government bond, as of May 27, 2009
20%
15%
10%
5%
0%
Stable yield, except when on the verge of a currency crisis5Y VGB Yield Source: Bloomberg
06 01 0107 08 09 10 11 12 02 03 04 05 0706 08 09 10 11 12 02 03 04 052008 20092007
20 %
15 %
10%
5 %
45
Other risks in trading Vietnamese bonds include currency volatility, inflationary pressures and semi-closed accounts. Vietnam’s exchange rate policy is a hybrid; permitted to trade freely within increasingly widening trading bands around a target rate set daily by the central bank. Investors FX needs aren’t always met as local banks, including foreign ones, have limited USD supply and that the SBV doesn’t always answer calls for USD liquidity.
To the credit of the government, measures implemented in response to significant macroeconomic challenges in 2008 were effective in stabilizing the Vietnamese Dong, cutting the trade deficit, and slowing inflation. As these measures were taking hold, the global economic outlook worsened in the fall of 2008. As a result, many economists predict growth to slow to around 4-5% if current trends continue.
12 months forward NDF were all pricing these factors in12mo forward NDF vs actual rate (USD/VND)
Rapid growth in money supply leads to inflationMonetary indicators
12month forward NDF Actual Rate
Source: Bloomberg
15,000
17,000
19,000
21,000
23,000
25,000
01 02 03 04 05 06 07 08 09 10 11 12 01 02 03 04 052008 2009
Source: CEIC
M2 (yoy%) Prime rate (%)CPI (yoy%)
2002 2003 2004 2005 2006 2007 2008
46
Other than the limits on FX transactions, there are no other exchange controls on selling and buying Vietnam bonds. As long as investors pay their legal obligation to the state (taxes), there are no restrictions on the repatriation of funds. Foreign investors require no local regulatory approvals to invest in the debt market and there are currently no limitations on foreign ownership. Investors do need to open a trading account with a local broker, a custodian account with a bank, local or foreign, incorporated in Vietnam, and open a depository account with the Vietnam Depository Department. All these formalities are a bit cumbersome, but once completed, there are no other restrictions or paperwork to complete.
Institutional investors pay a 0.1% withholding tax on interest earned on each coupon payment date, on principal and interest at maturity, and on the value of sales proceeds (when selling only). There are no capital gains or remittance taxes.
Individual investors don’t pay any taxes on bond transactions, interests or principal. On January 2009, the National Assembly passed a new personal income tax law that imposes a tax regime to individuals comparable to that of institutional investors. However, as of July 2009, the application of the law has been postponed indefinitely.
4.5 Foreign�investment�regulations
4.6 Taxation
47
48
5.0
49
5.0How�to invest�in Vietnam
50
The relationship with the custodian is crucial. Not only will they open a capital contribution account, a cash account and a depository account, but they will also liaise with authorities to register the investor and obtain the investor’s trading code. Registration is usually quite straightforward as long as all documents are provided. In addition to traditional custodial services, custodians offer cash management and reporting services (to relevant authorities). They also take care of paying taxes on behalf of the investor.
The custodian
It is also necessary to open an account with a validly licensed broker in Vietnam. The broker receives and executes all trades and reports to the investor’s custodian at the end of each day for settlement. Brokers, unless also acting as custodian, are not involved in the settlement process which limits operational risks for investors.
The broker
Due to current regulations, any legal entity can open only one depository account with a custodian and one trading account with a broker. It is not permissible to have more than one custodian and/or one broker per legal entity. Note that Vietnam has no regards as to who the beneficial owner is and that the restriction is limited to each legal entity. It is entirely possible for a fund manager who manages two funds to appoint a different broker for each fund, as long as each fund is a different legal entity, and yet to use the same (or different) custodian for convenience.
One broker/ custodian rule
Foreign brokers incorporated under foreign laws are allowed to have two custodial accounts (one for principle trading and one for clients) linked to one securities trading code (STC) only. This means that the current limitation that bans the buying and selling of the same stock within the same day applies to both accounts combined. However, the two accounts are able to trade between each other. Such trades are conducted on the custodial system, not through the market.
Special rule for foreign securities companies
Locally licensed fund managers are permitted to have more than one custody account: one for proprietary trading and one for each fund under their management. If the fund manager also provides portfolio management services, the fund manager must open two custody accounts, one for local clients and the other for foreign clients. For their foreign clients’ portfolios, the fund manager must apply for a securities trading code (STC).
Special rule for local fund managers
To start trading in Vietnam, investors must establish relationships with a custodian and a broker. While many brokers offer custodian services, the vast majority of foreign investors prefer to work with one of the four international banks with full operations in Vietnam. Local institutions also increasingly use local banks, and sometimes foreign banks, as their custodian. Banks offering full custodial services are detailed at the end of this chapter.
5.1 Opening�an�account
5.0 How�to�invest�in�Vietnam
51
5.2 Market�Mechanics
BasicsStock exchanges (abbr.)
Ho Chi Minh Stock Exchange (HOSE)
Hanoi Stock Exchange (HNX)
Further information Reuters: .VNIBloomberg: VNINDEXhttp://www.hsx.vn
Reuters: .HNXIBloomberg: VHINDEXhttp://www.hnx.vn
Currency of trade Vietnam Dong (VND)
Trading days Monday – Friday
Holidays • January 1st – New Year• Jan-Feb – Vietnamese (Chinese) New Year (last day of the last lunar month to the
third day of the first lunar month inclusively)• April – King Hung Commemorations (10th day of the 3rd lunar month)• April 30 – Liberation Day• May 1 – Labour Day• September 2 – National Holiday
Boards • One main board only (HOSE) • Main board (HNX)• OTC board (UpCom)
Trading hours HOSE: Equities (no bonds on HOSE)Session 1: 08:30-9:00 (Periodic OM)Session 2: 09:00-10:15 (Cont. OM)Session 3: 10:15-10:30 (Periodic OM)Session 4: 10:30-11:00 (Put-Trough) Sessions 1-2-3 are for order matching (OM). Matching in session 1 and 3 is done at the end of each session (periodic) while Session 2 matching is continuous throughout the session and follows the PTQ priority principle (more details on this further).
A Put-Through (PT) is the act of directly matching an order with another market participant, aka block dealing. On the HOSE, any order of 20,000 shares or more must be matched through PT, either by finding your own counterparty, or asking your broker to help through their network or by posting an EOI on the main board. In any cases, all PT transactions need to be matched in the exchange system.
HNX: Equities & BondsSession 1: 08:30 – 11:00(Continuous OM and PT)
UpCom: Equities & BondsSession 1: 10:00 – 11:30 Session 2: 13:30 – 15:00 (Continuous OM and PT)
HNX only has one session where matching is conducted by order matching (OM) or put-through (PT) both for equities and bonds. A Put-Trough (PT) is optional if trading at least 5,000 shares or 1,000 bonds. Order matching (OM) is mandatory for smaller trades.
UpCom has two sessions where trades are matched through OM or PT. On the first day of a newly listed stock, only OM orders are accepted.
52
Foreign ownership limit (FOL)
Equities: 49% of listed shares; 30% for banks; Bonds: No FOL published daily by Bloomberg, HOSE and HNX
Price Units / Ticks / aka Quote unit
Price unit / tick if current price is (VND):
Equities Bonds
OM PT OM/PT
HOSE HNX UpCom All Exch All Exch
≤ 49,900 100vnd 100vnd 100vnd None None
50,000 to <100,000 500vnd 100vnd 100vnd None None
≥ 100,000 1,000vnd 100vnd 100vnd None None
Board lot
(does not apply to PT transactions)
HOSEEquities:�10�shares,�none�for�PT
HNXEquities: 100 shares, none for PTBonds: 100 bonds, none for PT
UpComEquities & Bonds: No board lot, but a min. of 10 shares must be traded
Order types & validity
(does not apply to PT transactions)
HOSELO: Limit order, valid the entire dayATO: Market order valid in 1st session only, priority over LOATC: Market order valid in 3rd session only, priority over LO
HNXLO: Limit order, valid the entire day
UpComLO: Limit order, valid the entire day
Amending and cancel-ling orders
(does not apply to PT transactions)
HOSESession 1: Cannot cancel any orders. Unmatched portion of any ATO orders are automatically cancelled at the end Session 2: Unmatched part of any orders can be cancelled at any timeSession 3: Can only cancel limit orders that were placed in previous sessionsSession 4: N/A – does not apply to PT
HNXSession 1: Unmatched part of any orders can be cancelled at any time.
UpComAll sessions: Unmatched part of any orders can be cancelled at any time.
Matching principle
(does not apply to PT transactions)
HOSELO�bids�at�higher�or�equal�prices�to�asks�prices�are�matched�against�each�other�following�the�PTQ�principle.�Partial�fills�are�possible.
See section on “order matching and price determination” for details about how ATO and ATC orders are matched.
HNXLO bids at higher or equal prices to asks prices are matched against each other following the PTQ principle. Partial fills are possible.
UpComLO orders of the same price and volume are matched. Orders cannot be partially filled.
Matching priority
(does not apply to PT transactions)
All exchanges#1 – Price priority: priority to highest price bids or lowest asks.#2 – Time priority: for orders at same price, priority to orders that came in first.#3 – Quantity priority: for orders at same price and time, priority is given to orders with the highest quantity of shares.
53
Settlement HOSEEquities: T+3 days, if transacting over 100,000 shares, T+1(money/stocks received on settlement day can only be used the day after)
HNXEquities:�T+3�days,�if�transacting�over�100,000�shares,�choice�of�T+1,2�or�3Bonds:�T+3,�if�transacting�over�100,000�bonds,�choice�of�T+1,2�or�3
UpComEquities & Bonds: T+3
Face value Equities: 10,000vnd – Bonds: 100,000vnd
Odd-lots Odd lots may be kept, sold in a PT transaction, or sold to your broker.
Other restrictions Funding / Short Selling: Investors must have sufficient funds in their VND account if buying, or securities if selling (e.g. short selling is not permitted). If investors have a pending FX transaction into VND, your custodian may take this into account when verifying for funding requirements.
Same day Buy / Sell: It is not possible for an entity to buy and sell the same shares on the same day.
Securities borrowing or lending: Not permitted.
Trading unlisted OTC securities
Unlisted OTC transactions are based on the exchange of physical script and are effected by signing a sales purchase agreement (SPA) with the counter party. Transactions in the unlisted OTC sphere aren’t reported to any centralized exchange or trading system. Price information can be obtained by talking to those who see OTC transactions being done (brokers). A few websites also collate the information provided by various brokers (http://www.sanotc.com). Volume information is very hard to obtain. For in-depth details on the unlisted OTC market operations, please ask for our Guide to Vietnam Market Mechanics.
Restrictions on insider trading
Shareholders that are also members of the board of management or board of controllers, a director, general director, deputy director or chief accountant of a newly listed company must undertake to hold 100% of the shares they own for a period of six (6) months from the date of listing and 50% of this amount for the following six (6) months, excluding any shares held by individuals acting as repre-sentative of the State.
54
Institutional investors pay a 0.1% withholding tax on interest earned on each payment date of a bond coupon, on principal and interest at maturity, and on the value of sales proceeds (when selling only) of both bonds, stocks and investment certificates. There are no capital gains or remittance taxes. Dividends are also free of tax.
Individual investors don’t pay any taxes on trading activities. No capital gains tax, no sales tax, no stamp duty, no remittance tax, and no tax on stock dividend, coupon or principle (for bonds). On January 2009, the National Assembly passed a new personal income tax law that imposes a tax regime to individuals comparable to that of institutional investors. However, as of July 2009, the application of the law has been postponed indefinitely.
5.4 Taxes
5.3 Capital�flows�
Foreign investors are entitled to purchase securities in Vietnam provided the source of funds is legal, such as:
1. Foreign currency remitted from abroad into Vietnam in accordance with current provisions on foreign exchange control;
2. Distributed profits of from direct investment activities in Vietnam;
3. Receipts of foreign investors from the transfer, liquidation, dissolution of their direct investment activities in Vietnam in accordance with provisions of applicable laws;
4. Salaries, bonuses and other legal income of foreign individuals in Vietnam in accordance with provisions of applicable laws;
5. Other sources if accepted by the State Bank.
Source of capital
There are no explicit capital controls in Vietnam providing funds have been legally obtained and all obligations to the state discharged. However, availability of foreign currencies is not guaranteed. There are no FX restrictions and quota and FX forwards are allowed for genuine underlying transactions. The SBV fixes the USD/VND target rate on a daily basis and the inter-bank market is permitted to trade within a ± 5% band of the target rate.
Capital control
After having fulfilled their tax obligations to the State, foreign investors are entitled to purchase foreign currency at authorized banks to remit overseas. Custodian banks usually take care of this for their clients.
Remittances
55
Subject to the exceptions listed below, foreign investors are permitted to make capital contributions and purchase shares in Vietnamese enterprises without restrictions as to ownership. Particularities also apply to sectors as per WTO commitments.
The FOL for unlisted securities varies as per WTO commitments. In general, the FOL is 30%, but varies with the sector. For banks, investors should note that to buy even a single share of an OTC bank, it is imperative to secure the approval of the State Bank of Vietnam (SBV). In practice, such approval has so far only been granted to foreign banks who also pledged to act as a strategic investor. There are no FOL for unlisted bonds.
FOL for unlisted securities
Foreigners are allowed to buy up to 30% of state-owned enterprises (SOE) through an IPO unless otherwise restricted. If an SOE is privatised by other means, the FOL will be determined by the government when appropriate. It’s important to note that once an IPO is completed, the stock is traded on the OTC for a certain time before it lists. This can be anywhere from three months to two years.
FOL for IPOs
The parent company of that organisation or any other member company that is within the same parent company with that organisation;
• Any person or an institution that manages the parent company or has the authority to appoint the executive officer in the parent company of that organisation;
• Any member company or subsidiary of that organisation;
• Any executive officer, member of the Board of Controllers or person/an organisation having the authority to appoint the executive officer of that organisation;
• Any shareholder or group of shareholders holding 10% or more of total common shares of that organisation;
• Spouse, parent, adoptive parent, children, adopted children, and brothers and sisters (and spouses of these persons) of any executive officer, member of the Board of Controllers, or shareholder holding 10% or more of the total common shares of that organisation;
• Spouse, parent, adoptive parent, children, adopted children, and brothers and sisters (and spouses of these persons) of that individual;
• An individual authorized to represent such persons referred to in paragraphs (1), (2), (3), (4), (5), (6), and (7) above, with respect to their authorisers and related persons of those authorisers and authorised persons.
Related persons as it applies to banks’
FOL include
The FOL for listed securities on either the HOSE or the HNX is 49% of total listed shares. However, the total FOL for banks is 30% of total listed shares with a maximum of 5% for any single investor, 10% for any one banking investor, and 15% for any strategic investor (banks). A 20% stake requires the approval of the Prime Minster. FOL for banks include related persons (see further within this chapter for more details). There are no FOL for listed bonds. FOL is published daily by Bloomberg.
FOL for listed securities
5.5 Foreign�ownership�limits�(FOL)
56
5.6 Other�important�notes�for�investorsDisclosure is required for any transactions that change the ownership of an investor to above or below 5%, as well as above or below 25%, of the total listed outstanding shares of any listed company. If an investor already owns over 5%, any sell/purchase executed in a single day equal to or above 1% of listed outstanding shares must be disclosed. There are no disclosure requirements for listed or OTC bonds. As for OTC shares of unlisted companies, disclosure vary with the sector and according to Vietnam’s WTO service commitments.
Disclosure
Vietnam’s WTO service commitments are Vietnam’s specific agreements toward WTO members with respect to gradually opening local markets. Different sectors are scheduled to open to foreign participation at different times (years) and in some cases only gradually. Generally speaking, manufacturing isn’t restricted except for particular goods such as oil & gas, automobile, beer and fertilizers. Note that local regulations in practice may narrow down the framework set by Vietnam’s WTO service commitments from time to time.
WTO
Rules on whether an investor is entitled to a board seat after it has acquired a significant portion of a company’s outstanding shares are entirely subject to the particular company’s charter. In general, with a stake of at least 10%, investors are entitled to nominate one (1) person, but this does not imply that person will be accepted. Note that board member nominations are held every 5 years (unless the company’s charter sets out another term of office) by annual shareholder meeting, unless a vacancy becomes available beforehand, or the number of members is increased by decision ratified at an annual shareholder meeting.
Board seats
If foreign investors desire to become strategic investors of Vietnamese enterprises, they must demonstrate the financial and technical capacity to support the latter to develop and improve management, as well as transfer modern technologies on a long term basis.
Strategic investors
57
235 Dong Khoi, District 1, HCMC T: +848 3829 2288 Ext: 269 F: +848 3822 7380
Securities services Direct: +848 3520 3269 [email protected]
HSBC
37 Ton Duc Thang, District 1, HCMC T: +848 3829 8335 F: +848 3829 8426
Relationship Manager Direct: +844 3946 8145 [email protected]
Standard Chartered Bank
17 Ngo Quyen, 1st Floor, Hanoi T: +844 3825 1950, ext 466 F: +844 3936 1247
Securities Services Direct: +844 3825 1950 ext 466 [email protected]
Citibank
12-14 Nam Ky Khoi Nghia, District 1, HCMC T: +848 3821 8812 F: +848 3821 8813
Depository & Custody Direct: +848 3821 8812 ext 110 [email protected]
Bank for Investment and Development of Vietnam (BIDV)
14F, 65 Le Loi Blvd, District 1, HCMC T: +848 3829 9000 ext 309
Domestic Custody Services [email protected]
Deutsche Bank
5.7 Banks�offering�custodial�services�in�Vietnam
58
59
6.0Country�Fundamentals
60
6.1 Geography
Land Area (km2) - selected countries
Source: CIA – World Factbook
200,000
250,000
300,000
350,000
400,000
Japan Germany Malaysia Vietnam Poland Italy Philippines
Vietnam is a Southeast Asian country sharing land borders with Cambodia (1,228km) and Laos (2,130km) to the west, and China (1,281km) to the north. It is bordered by with the Gulf of Thailand to the south, the Gulf of Tonkin to the north-east, and the South China Sea to the east, totalling 3,444 km of coastline.
Extending 1,650 km from north to south, the country is only 50km across at its narrowest point. The terrain is characterised by low, flat deltas in the south and north, highlands in the centre and mountains in the far north.
Vietnam is culturally and economically characterised by its shape and can be analysed today according to three distinct regions. The north is characterised by Hanoi, the political capital, an increasingly industrial region near the border with China, and an important port in Hai Phong. The centre is often referred to as the cultural hub of Vietnam, with arts, handicraft and music from the region being popular throughout the country. It is also becoming an important transhipment base for international shipping routes, more so when the East-West highway is eventually completed. Danang, Vietnam’s third city, is also becoming an industrial area of note to foreign investors. The south is dominated by Ho Chi Minh City, the country’s largest city and major economic and manufacturing center. The Mekong delta is home to the largest farming activity in Vietnam.
Vietnam is comparable in land area to Malaysia, slightly larger than Italy and Philippines, and slightly smaller than Japan and Germany.
6.0 Country�Fundamentals
HANOIHaiphong
VinhLAOS
CHINA
Gulf ofTonkin
THAILAND
Hue
HainanDao
DaNang
Quy Nhon
Nha TrangCam Ranh
Ho Chi MinhCity
Dao PhuQuoc
(CHINA)
Con Dao
CanTho
HongGai
Lao CaiFan Si Pan
Gulf ofThailand
SouthChina
Sea
Mekong
Mekong
CAMBODIA
Long Xuyen
61
The area of present day Vietnam emerged as ethnically distinct around 200 BC, although from 111 BC to 939 AD it was under Chinese rule. This period saw the establishment of considerable Chinese cultural influence and it is today an integral part of Vietnamese culture, profoundly influencing its language, art, philosophy and other aspects of its society. Local uprisings during the decline of the T’ang dynasty led to the restoration of Vietnamese independence in 939 AD. By the early 11th century, the country was unified, and although Chinese and Mongol armies made incursions, the Vietnamese were able to push them back while extending their influence south into the Mekong Delta.
Internal feuds between rival families led Vietnam to be divided in the early 17th century and reunified only in 1802 when Nguyen Anh took power with the assistance of a French missionary. France invaded in 1858 and by 1893 occupied all of Vietnam, Cambodia and Laos. The resistance to French rule developed steadily during the 1920s and 1930s. In 1941 Ho Chi Minh returned to Vietnam after 30 years of exile and founded the Viet Minh.
In March 1945, the Japanese ousted the French civil and military authorities and encouraged Emperor Bao Dai to proclaim Vietnam’s independence under Japanese protection. Following the Japanese surrender to the Allies shortly thereafter, Bao Dai abdicated in favour of Ho Chi Minh who became the first President of the Viet Minh provisional government of the Democratic Republic of Vietnam (DRV). In the south, the Viet Minh influence was weaker and in September 1945, British and French troops re-established control over Cochinchine and opened negotiations with the DRV. In December 1946, open warfare broke out between Viet Minh forces and the French. Fighting continued until 1954, when the French suffered a convincing defeat at Dien Bien Phu. They surrendered to the Viet Minh on May 7, 1954, the day before the opening of the Geneva Conference on Indochina that arranged a cease-fire between communist and non-communist forces, and established a military demarcation zone at the 17th parallel. The southern part of the country was proclaimed the Republic of Vietnam under Ngo Dinh Diem. By August 1955, all French forces had left Vietnam.
Elections to reunify the country in 1956 were never held and pro-Communist forces based in the south began, with DRV support, to organize guerrilla warfare against the Diem government. In 1960, the National Liberation Front of South Vietnam (NLF) was formed to attack South Vietnamese government-held positions. The decline of security in the countryside led South Vietnam to formally request direct military assistance from the USA. The growing strength and increased military activity of the NLF and North Vietnamese troops resulted in the Vietnamese government becoming reliant on US military assistance which expanded rapidly from 1965 and peaked in 1968. In January 1969, peace talks began in Paris between representatives of the DRV, the US, the NLF and South Vietnam. In the same year, the US gradually began to withdraw its troops in response to growing domestic and foreign pressure. In January 1973, a peace agreement was reached, allowing for a cease-fire, exchange of prisoners, and withdrawal of all foreign troops. The country was reunited and the Socialist Republic of Vietnam was declared in 1976. It has since then remained a one-party communist state.
6.2 Brief�History
62
Originating in what is today southern China and northern Vietnam, the Vietnamese people pushed southward over 2000 years ago to occupy the entire eastern coast of the Indochinese Peninsula. Notwithstanding the various incursions of foreign forces into its present day territory, Vietnam has maintained the unique features of a highly integrated culture. Ethnic Vietnamese, or Kinh, constitute approximately 86% of Vietnam’s population. The remaining 14% is divided between 54 other ethnic groups concentrated in the country’s hills and mountains to the north and in the central highlands. Vietnamese is the official language of the country. It is a tonal language with influences from Thai, Khmer, and Chinese.
Years of domination by the Chinese has deeply influenced Vietnamese culture, its language, art, philosophy and other aspects of its society. Disciplined Confucian philosophy regarding work ethics, emphasis on education and closely knitted family values are in fact very similar to that of other Asian tigers such as Japan, Korea, Singapore, Taiwan and Hong Kong. The Vietnamese are known for their entrepreneurial spirit and openness to new ideas which help them to quickly absorb new ideas and technologies.
Years of French influence can also be felt in the culture; from its adaptation of French baguette to its romanised written language after a French missionary found a way in the early 20th century to write the language using various accents to simulate its six tones.
The Socialist Republic of Vietnam exists today as a one-party communist state governed by the Communist Party of Vietnam (CPV) and is one of the most politically stable countries in Southeast Asia. Vietnam’s social, economical and political institutions are closely knit together, which in turn helps cement views and foster social and political stability. The current political system of Vietnam, as per the 1992 Constitution and 2001 amendments, is composed of the following main institutions:
• Communist Party of Vietnam, including the General Secretary of the Party;
• National Assembly, including the President;• Government, Prime Minister, Ministries and ministry-equivalent
State bodies;• People’s Councils and Committees in all 64 provinces and
autonomous cities.• People’s Courts (Supreme and Regional);• People’s Procuracy (Supreme and Regional);
6.3 People
6.4 Political�landscape
63
System Single party - Communist
Supreme representative body National Assembly
Legislature Unicameral
Term of office 5 years
Last elections 20 May 2007
Head of State President
Head of Government Prime Minister
Source: Ministry of Foreign Affairs (MOF)
The role of the CPV, acknowledged in the 1992 Constitution, is to act “as the leading force of the State and the society”. Doing so, the CPV transcend through much of Vietnam’s political system and social institutions.
While the 1992 Constitution stipulates that the CPV is subject to the rule of law and is not permitted to interfere in the day-to-day running of the Government, the Party’s various committees are tasked with the setup of Party cells within every part of Vietnam’s political system. The relevant Party committees are tasked to set up bodies within the state’s leading agencies, e.g. the National Assembly and the People’s Councils. The role of these bodies is to:
“(…) lead and make other members of the organization implement the guidelines and policies of the Party, increase the influence of the Party, improve the close relationship between the Party and the people, realize the Party’s resolution on organization and personnel management and decide matters of organization and personnel management in line with the duties assigned by the Politburo”. (MOF)
In addition, the Party committees place Party boards within most political institutions, including the Government, Ministries, Courts, Inspection Agencies, and the likes. The role of these boards is to:
“(…) make other members of the bodies understand and implement the Party’s guidelines and policies; give advice on operation, duties, organization, and personnel management; make decision within their competence, and to observe the implementation of the Party’s guidelines and policies”. (MOF)
The National Congress of the Communist Party of Vietnam convenes every 5 years to outline the overall direction of the country and formalize policies for the future. The National Congress elects the Central Committee, which elects the Politburo. The top four positions in the Politburo are held by the Party General Secretary, the General Minister of Public Security, the State President, and the Prime Minister. The highest position in the Party is that of the General Secretary. The Party Secretariat, which consists of eight Politburo members, oversees day-to-day policy implementation.
Aside from the Communist Party, the most powerful institutions within the Vietnamese government are the executive agencies created by the 1992 constitution, namely the offices of the president and the prime minister.
The Communist Party of Vietnam
Key political indicators
64
* All levels means at ward, district, city and provincial levels.
** The people elect the national assembly and their representative at the People’s Council of all levels.
Elections allow the people to vote for their candidate of choice at the National Assembly, and at the People’s Councils of each level of government (ward, district, city and province).
Political structure of Vietnam
People
NationalAssembly
People’s Council
at all levels
People’s Committees at
all levelsPresident
StandingCommittee
of the NationalAssembly
StandingCommittee
of the NationalAssembly
Chief Procurator,
Supreme People’s
Procuracy
Government, Deputy Prime
Ministers, Ministers
PrimmeMinister
**
*
*
65
The National Assembly is the sole organ with constitutional and legislative rights. Its role is to legislate, decide on the fundamental policies and direction of the country, and to carry out its role as the supreme supervisor of all activities of the State. In practice, Vietnam’s legislative, executive and judiciary functions partially overlap. Once seen as little more than a rubber stamp, the National Assembly has become more vocal and assertive in exercising its authority over lawmaking, particularly in recent years. However, the National Assembly is still subject to Communist Party direction as about 80% of the deputies in the National Assembly are Communist Party members. The members of the National Assembly are elected directly by the people in limited elections, hold office for a term of five years and meet at least twice a year at the convocation of its Standing Committee. The National Assembly also decides matters of War, Peace, state of Emergency, and ratifies or revokes any international treaties that Vietnam has signed or adhered to.
The Standing Committee of the National Assembly is in session for the remainder of the year. As well as certain other powers, the Standing Committee issues ordinances and presents draft laws to the National Assembly.
The President is Vietnam’s Head of State and Commander in Chief of the Armed Forces. He also represent’s Vietnam in domestic and foreign affairs. The President is elected by the National Assembly and his term of office matches that of the National Assembly.
The National Assembly, the Standing Committee
and the President
The Government is the executive organ of the National Assembly and the supreme state administrative agency of Vietnam. The Prime Minister heads a cabinet composed of deputy prime ministers, ministries and commissions. Together, they form what we call a Government. The Prime Minister is accountable to the National Assembly, the Standing Committee and the President. The Prime Minister is elected or dismissed by the National Assembly at the President’s request. The Deputy Prime Ministers and Heads of ministerial-level agencies are approved by the National Assembly at the Prime Minister’s request.
Ministries and other state bodies of note to financial investors in Vietnam include:
• The State Bank of Vietnam considers applications for licences in the banking and finance sector and exercises credit and foreign exchange control relating to investment activities
• The Ministry of Finance determines policies on investment support and investment incentives, in particular on tax incentives applicable to investment, and receives applications for foreign invested insurance providers
• The State Securities Commission of Vietnam, overseen by the Ministry of Finance, considers applications for licences in the securities sector (such as securities companies and fund management companies) and supervises the stock exchanges
When dealing in private equity, additional ministries may be involved depending on the sector in which the investment is made.
The Government
The People’s Council is the local organ of State Power. It represents the will, aspirations, and mastery of the people. It is elected by the local people and is accountable to them and to the superior State organs (Standing Committee of the National Assembly).
People’s councils and committees
66
Vietnam’s legal framework and system is based on the Civil Law system that does not recognize the principle of precedence.
Vietnam’s body of laws is built on various documents that support each other. At the top, the Constitution guides the principles on which laws are construed. Laws are proposed by various political instances, put into writing by the relevant ministries (sometimes more than one, which adds to the complexity), and submitted to the National Assembly. It is normal for clarifying decrees to be issued to supplement the relevant Law and guide the implementation. Circulars are issued to clarify decrees and official letters, usually from the Prime Minister’s office, are issued to clarify any remaining matters.
Of note to foreign investors is the Investment Law of 2006 which regulates how investors, both local and foreign, can invest in companies established under Vietnamese laws, whether foreign or locally owned. The Enterprise Law of 2006 is more important to private equity as it describes the functioning of companies, voting rights, and other statutory requirements.
6.5 Legal�System
Domestic policy: focus on reforms
Recent economic woes (rampaging inflation in 2008 and a drop in GDP growth in 2009) did raise some concern regarding the government’s commitment to ongoing market reforms. That being said, a reversal in policy is highly unlikely. Support for reforms remains strong within the CPV while short term reforms will probably be geared towards maintaining socio-economic stability. When the dust settles, 2008 will increasingly feel like a bump in the road towards prosperity for this promising country.
Diplomatic relations with the US were normalised in 1995 following the visit to the country by then President Clinton and the lifting of the US trade embargo in 1994. US support was instrumental in Vietnam’s temporary appointment to the UN Security Council on January 1st 2008 which raised Vietnam’s profile in world affairs.
Vietnam has an explicit policy of trying to be friends with everybody. Doing so, Vietnam seeks to secure investments and technical help from advanced economies while opening foreign markets to Vietnamese products.
In the long term, with its large military force, expanding population and rapid economic development, it is quite possible that Vietnam’s influence will become a more dominant in the Southeast Asian region. However, this new found influence will probably be used to ensure that ASEAN one day functions properly as a single unified market than anything else. There is also talk that Vietnamese soldiers could be assigned to UN peace-keeping missions.
Foreign policy: everyone’s friend
67
The 1992 Constitution (as amended in 2001) includes certain guarantees and principles for foreign investors. It provides that:
• Private sector entities may engage in business and production and may establish enterprises without restriction as to size and scope;
• All business enterprises are equal before the law. The legal ownership of capital and assets are protected by the State. Enterprises of all economic sectors are permitted to enter into joint ventures or co-operate with local or foreign individuals and organizations;
• The lawful assets of individuals and organisations will not be nationalised. However, the State may purchase or requisition assets with compensation, when necessary, on account of national interests, defence and security;
• The State encourages foreign organisations and individuals to invest funds and technology in Vietnam in conformity with Vietnamese law and international law and practices. Business enterprises with foreign invested capital may not be subject to nationalisation;
• Citizens enjoy freedom of enterprise as determined by the law and the right of ownership with regard to lawful income, savings, housing, chattels, means of production, funds and other possessions in enterprises or other economic organisations. The State protects the citizen’s right of lawful ownership and inheritance.
A number of the above guarantees and principles are subject to more specific guidance (and in practice, restrictions) provided by Vietnamese law. In addition, the law stipulates that as long as foreign investors pay their tax obligations, they are allowed to repatriate profits and investment capital abroad should they liquidate. Note however that bankruptcy laws are rudimentary at best. To date, there have been no cases of expropriation of foreign assets by the State.
Constitutional protection of foreign
investments
The Supreme People’s Court of Vietnam is the highest court and also the Court of Appeal. It functions under the authority of the National Assembly. Judges are appointed for five year terms. Provincial Municipal Courts are lower level courts, report directly to the central government in Hanoi and deal with a wide range of matters. Local Courts or People’s Courts deal with legal issues at the district levels, report to provincial or municipal governments, and mainly deal with matters related to labour or civil disputes.
While Vietnam has modern laws on the surface, with most laws having been rewritten between 2002 and 2006, the main challenge comes from the interpretation of these laws in court and the enforcement of rulings. As a result both local and foreign firms prefer to resort to arbitration or other non-judicial means as Vietnam’s legal system remains underdeveloped.
Courts and enforcement of rulings
68
69
Company Fact�Sheets
7.0
70
PetroVietnam Fertilizer & Chemical
Trading & Liquidity 20Days 100Days 180Days Volume (Reg, Trading) 1,073,741 880,950 692,825 VND Val. (Reg. Trading, bn) 49.5 34.7 27.7 Percent of market (%) 1.6 2.2 2.5
Shares Outstanding (mn) FY07A FY08A Current Wgt. Avg Issued Shares 380.0 379.6 379.0 Fully Dilluted Shares 380.0 379.6 379.0 Foreign Owned (% / Limit) 74.1mn 19.6% 49.0%
Market Values VND (bn) USD (mn) EUR (mn) Market Cap 16,714 939.0 664.7 Net Debt (936) (52.6) (0.0) Minori ties & Others (1,352) (76.0) (53.8) Enterprise Value 14,426 810.4 573.7
Corperate Actions Ex-Date Amt/(ratio) Fiscal YearCash Dividend 14-Apr-09 500 FY08Cash Dividend 16-Dec-08 500 FY08Cash Dividend 10-Oct-08 1,000 FY08Cash Dividend 21-Apr-08 1,000 FY07
Per Share (VND) FY06A FY07A FY08A Trail 12M FY09E* FY10E* EPS n.a. 3,499 3,645 3,481 3,177 3,848 BVPS n.a. 11,519 12,442 n.a. 14,097 15,876 DPS n.a. n.a. 2,487 n.a. 1,300 2,000 CFPS n.a. n.a. 2,101 3,782 n.a n.a FCFPS n.a. n.a. 1,794 n.a n.a n.a* Bloomberg Consensus Estimates
Key Valuations FY07A Avg +/- 1 s.d. FY08A Avg +/- 1 s.d. FY09E* FY10E* P/E (x) n.a. n.a. 9.7 9.7 / 9.6 13.3 11.0 P/B (x) n.a. n.a. 3.7 4.5 / 3 3.0 2.7 Dividend Yield (%) n.a. n.a. 3.3 5.2 / 1.4 32.6 21.2 P/CFPS (x) n.a. n.a. 25.3 25.8 / 24.9 n.a. n.a. FCF Yield (%) n.a. n.a. n.a. n.a. n.a. n.a.
Growth FY06A FY07A FY08A FY09E* FY10E* Revenues 20.2% 23.9% 71.3% n.a. n.a. EBITDA 17.4% -100.0% n.a. n.a. n.a. EBIT 42.6% 37.7% 0.0% n.a. n.a. Net Income 46.7% 14.5% 4.1% n.a. n.a. EPS n.a. n.a. 4.2% -12.8% 21.1% BVPS n.a. n.a. 8.0% 13.3% 12.6%* Bloomberg Conscencus Estimates
Growth Indicators FY06A FY07A FY08A Fixed Assets/Assoc -26.2% -18.5% -31.7% Debt -43.6% -100.0% n.a. Financial Investments 100.3% -18.4% 741.5% Other LT Assets 13128.2% 2774.2% -17.4%
Profitability FY06A FY07A FY08A Gross Margin (%) 36.9 39.2 28.6 EBITDA Margin (%) 61.1 0.0 36.2 EBIT Margin (%) 30.1 33.5 19.6 Pre-Tax Margin (%) 38.1 35.2 23.2 Net Margin (%) 38.1 35.2 21.4
Solvency & Liquidity FY06A FY07A FY08A Acid Test Ratio 26.94 n.a. 4.60 Current Ratio 2.53 1.79 5.85
LT Debt/Capital 18.7% 0.0% 0.1%
Net Debt/Equity 5.8% 45.1% 19.8%
LT Debt/Fixed Assets 26.2% 0.0% 0.2%
Total Liab/Total Assets 30.1% 23.7% 8.7%
Management Company Data
Chairman Nguyen Xuan Thang Head OfficeOffice 3rd Floor, 2Bis-4-6
Le Thanh Ton, District 1, HCM city
CEO Phan Dinh Duc CFO/ Chief Accontant Pham Thanh Vinh Website www.dpm.vn IR Contact Phan Dang Nam Telephone +84838256258
Major ShareholdersW Shares Insider Holdings SharesPVN 233.2 mn Nguyen Xuan Thang 35,000BIDV 14 mn Phan Dinh Duc 3,000
Market OutlookUrea demand in 2009 and onwards is estimated at 1.7 million tonnes per year. The two principal domestic suppliers, PVFCCo and Ha Bac Nitrogen and Chemicals Company (HANICHEMCO), were able to supply 749,000 tonnes and 181,000 tonnes in 2008 respectively, with the balance filled by imported fertilizers. The country’s domestic production is set to increase with HANICHEMCO expanding their coal-based urea production line to 500,000 tonnes per year. PetroVietnam is also building a gas-based granular urea plant with a capacity of 800,000 tonnes per year in Ca Mau province. There will also be two new coal-based urea plants in the northern provinces of Ninh Binh and Thanh Hoa. The domestic market will become much more competitive after these projects are completed and commissioned.
Company HistoryPVFCCo fertilizer plant, commissioned in September 2004, is located in Phu My I industrial zone, Tan Binh commune, Ba Ria – Vung Tau province. The total capital investment to build the plant was USD397mn. PVFCCo manufactures 740,000 tonnes of prilled urea per year with ammonia and urea technologies licensed by Haldor Topsoe and Snamprogetti, respectively. Since 2006, the company has been importing fertilizers, raising the company’s supply capacity to 1.0 million tonnes per year, meeting 60% of the country’s demand.
Company Description and Principal ActivitiesPetrovietnam Fertilizer and Chemicals Corporation (PVFCCo) trades on the Ho Chi Minh City Stock Exchange and as at July 1st 2009 is the seventh largest company by market-cap in Vietnam. The company primarily engages in prilled urea manufacturing (74% of 2008 revenue), and fertilizer and basic chemicals importing (23% of 2008 revenue). Their core revenue and gross profit amounts reached VND 6,500bn and VND 1,900bn, respectively. They have also traded their byproducts such as liquid ammonia, and surplus electricity generation, which together account for an additional 3% of revenue. They have also added fertilizer bags and will soon add carbon dioxide to their product lines. DPM’s manufacturing capacity is able to satisfy 40% of the country’s demand for urea.
Ticker Share Price - VND
DPM 42,400Close/Volume Chart
Relative Performance
S&P Vietnam 10 Ho Chi Minh Stock Index
MSCI AC Asia Index DPM
01 Jul 09
VND Mn Shares
01 Jul 09
71
Profit & Loss (VND bn) FY06A FY07A FY08A Revenue 3,050.8 3,779.0 6,475.4 EBITDA 1,864.5 0.0 2,345.9 EBIT 919.8 1,267.0 1,266.5 Interest & Fx Exp (249.9) (85.4) (31.0) Non Op Inc (Loss) 491.7 148.1 265.4 Pre-Tax 1,161.5 1,329.7 1,500.9 Taxes (0.2) (0.2) (115.6) Minorities & Pref’s 0.0 0.0 (1.4) Net Income to Common 1,161.3 1,329.5 1,383.9
Balance Sheet (VNDbn) FY06A FY07A FY08A Cash & Equiv. 1,718.0 1,972.4 942.7 ST Investments & Mkt. Sec 900.0 0.0 0.0 Receivables 6.9 59.5 510.2 Inventories 248.1 400.7 1,111.3 Other Curr Assets 426.7 35.0 128.2 Net Fixed Assets 3,274.6 2,676.7 1,682.7 Construction in Progress 42.7 27.2 163.6 Invest. in Assoc. 0.0 0.0 0.0 Financial Investments 29.9 24.4 205.5 Other L.T. Assets 18.9 542.6 448.0 Payables (63.8) 0.0 (204.9) Other Curr Liab. (491.6) (1,361.3) (229.7) ST Debt (579.6) 0.0 (4.0) LT Debt (869.5) 0.0 (3.1) Other LT Liab (1.0) (0.1) (9.2) Net Assets 4,660.2 4,377.2 4,741.4 Minorities 0.0 0.0 22.0 Book Capital 2,571.2 3,800.0 3,800.0 Ret. Earnings 2,089.0 577.2 919.4 Total Liab. & Equity 6,665.8 5,738.5 5,192.4
Working Capital Analysis FY06A FY07A FY08A Days Receivable 0.8 5.7 28.8 Days Inventory 47.0 63.6 87.7 Days Payable 12.1 0.0 16.2 Cash Operating Cycle 58.3 57.9 75.1
Derived Cash Flow (VNDbn)* FY06A FY07A FY08A EBIT 919.8 1,267.0 1,266.5 Depreciation & Amort 944.8 (1,267.0) 1,079.4 Chgs in Working Cap (343.8) 992.4 (2,181.2) Operating Cash Flow 1,520.7 992.4 164.7 Net Interest, Fx & Taxes (250.1) (85.6) (146.6) Fixed Asset Capex (57.6) 0.0 (116.5) Investments (15.0) 5.5 (181.1) Non Op Inc (Loss) 491.7 148.1 265.4 Other Non Cash Adj. 265.0 358.6 (450.5) Dividends Paid 0.0 (944.3) (572.1) Change in Paid in Capital (578.1) 1,228.8 0.0 Change in Net Debt (1,122.2) (1,449.1) 7.2 Net Cash Flow 254.4 254.4 (1,029.6)* Calculated from Balance Sheet & P&L
DuPont Analysis FY06A FY07A FY08A EBIT / Sales 0.30 0.34 0.20 Sales/Total Assets 0.46 0.66 1.25 less Net Int./Assets 0.04 0.01 0.05 Pre-Tax ROA (%) 17.4% 23.2% 28.9% Assets/Equity 1.43 1.31 1.10 Pre-Tax ROE (%) 24.9% 30.4% 31.7% 1-Tax rate 1.00 1.00 0.92 ROE (%) 24.9% 30.4% 29.2%
Miscelleaneous FY06A FY07A Current Altman Z Score n.m. n.m. 9.1 Asset Growth (%) 28.4% -13.9% -9.5% Capex/Sales (%) 1.9% 0.0% 1.8% Earnings Retention (%) n.a. n.a. 31.8%
Management Strategy and GoalsFounded as a state-owned company, PVFCCo has retained their mandate to provide sufficient urea for agricultural production and meeting market demand. PVFCCo also intends to focus on sustainable development and affirm its market leading position. The Board of Directors has approved the continued operation of the factory to safely produce 750,000 tons of urea and import 250,000 tons of fertilizers and chemicals to supply domestic and international markets. Investment projects to diversify PVFCCo’s fertilizers and chemical products will be sourced and the distribution network and production system improved to minimize costs and maximize profit. Their long-term development goals include targeting to become the leading supplier of fertilizers in the domestic market with 50-60% market share for urea demand, 30% for DAP, 20% for SA and 50% for imported fertilizers and to become one of the five leading companies in the field of chemical production and trading. They are also seeking to become the main supplier of basic chemical products to the domestic petrochemical industry.
Investment PlansThe company is carrying out a project that when completed will collect and recycle carbon dioxide to make 60,000 more tonnes of urea. They are also in the final stages of a project to build an NPK plant that is designed to consume up to 100,000 tonnes of urea from the Phu My plant each year. The company has mentioned two other large overseas projects; a DAP plant in Morocco and a urea plant in Russia, for which they are currently searching for partners, sourcing consultants and conducting feasibility studies.
Key Success FactorsA number of factors that translate into business success for DPM. Firstly, the plant’s location in the Mekong delta as the main rice growing area of Vietnam. Secondly, DPM is the only domestic urea producer in the region. Thirdly, DPM receives subsidised natural gas prices and lastly, its ammonia and urea technologies for prilled urea are internationally competitive.
Key Risk FactorsAs imported urea and fertilizer prices depend upon fluctuating natural gas prices, DPM is exposed to considerable risk. The gas price subsidy will be phased out and eventually scrapped and lastly, the domestic market will become tougher as domestic supply capacity increases to outweigh domestic demand.
Basic Materials / Speciality Chemicals
Revenues by Product, 2008
Manufactured Urea74.0%
72
Dong Phu Rubber
Trading & Liquidity 20Days 100Days 180Days Volume (Reg, Trading) 139,187 84,097 67,125 VND Val. (Reg. Trading, bn) 6.9 3.4 2.6 Percent of market (%) 0.2 0.2 0.2
Shares Outstanding (mn) FY07A FY08A Current Wgt. Avg Issued Shares 40.3 40.0 40.0 Fully Dilluted Shares 40.3 40.0 40.0 Foreign Owned (% / Limit) 6.9mm 17.2% of 49.0%
Market Values VND (bn) USD (mn) EUR (mn) Market Cap 1,792 100.7 72.4 Net Debt (68) (3.8) (0.0) Minorities & Others (54) (3.1) (2.2) Enterprise Value 1,669 93.8 67.5
Corperate Actions Ex-Date Amt/(ratio) Fiscal YearCash Dividend 8-Dec-08 2,000 FY08Cash Dividend 14-May-08 1,500 FY08Cash Dividend 12-Feb-08 1,500 FY07
Per Share (VND) FY06A FY07A FY08A Trail 12M FY09E* FY10E* EPS n.a. 5,756 5,851 5,497 3,255 3,204 BVPS n.a. 16,703 17,021 n.a. 17,300 18,203 DPS n.a. n.a. 4,995 n.a. n.a. n.a. CFPS n.a. 3,676 2,005 n.a. n.a. n.a. FCFPS n.a. 2,797 371 n.a. n.a. n.a.* Bloomberg Consensus Estimates
Key Valuations FY07A Avg +/- 1 s.d. FY08A Avg +/- 1 s.d. FY09E* FYE* P/E (x) n.a. n.a. 5.2 5.2 / 5.1 13.1 13.3 P/B (x) 4.7 4.9 / 4.5 3.1 4.1 / 2.2 2.5 2.3 Dividend Yield (%) n.a. n.a. 6.4 10.5 / 2.2 n.a. n.a. P/CFPS (x) n.a. n.a. n.a. n.a. n.a. n.a. FCF Yield (%) n.a. n.a. n.a. n.a. n.a. n.a.
Growth FY06A FY07A FY08A FY09E* FY10E* Revenues n.a. 16.9% 3.6% n.a. n.a. EBITDA n.a. 19.2% 4.6% n.a. n.a. EBIT n.a. 20.0% -9.5% n.a. n.a. Net Income n.a. 51.4% 0.9% n.a. n.a. EPS n.a. n.a. 1.7% -44.4% -1.6% BVPS n.a. n.a. 1.9% 1.6% 5.2%* Bloomberg Conscencus Estimates
Growth Indicators FY06A FY07A FY08A FY08A Fixed Assets/Assoc n.a. 51.2% 10.1% Debt n.a. -45.3% 61.8% Financial Investments n.a. n.a. -10.0% Other LT Assets n.a. -84.1% 100.5%
Profitability FY06A FY07A FY08A FY08A FY08A Gross Margin (%) 39.0 36.3 34.6 EBITDA Margin (%) 30.4 31.0 31.3 EBIT Margin (%) 30.1 30.9 27.0 Pre-Tax Margin (%) 35.4 33.1 0.0 Net Margin (%) 25.5 33.0 32.1
Solvency & Liquidity FY06A FY07A FY08A FY08A Acid Test Ratio 45.24 66.82 10.98 Current Ratio 0.39 1.00 0.79 LT Debt/Capital 21.8% 6.0% 5.6% Net Debt/Equity 12.1% 22.6% -10.6% LT Debt/Fixed Assets 34.5% 7.7% 7.5% Total Liab/Total Assets 72.1% 41.1% 34.6%
Management Company Data
Chairman Nguyen Thanh Hai Head OfficeThuan Phu commune, Dong
Phu District, Binh Phuoc province
CEO Nguyen Thanh Hai CFO/ Chief Accontant Nguyen Thanh Binh Website http://doruco.com.vn/ IR Contact Nguyen Thanh Hai Telephone +846513819786
Major Shareholders Shares Insider Holdings SharesVietnam Rubber Group 24 mn
Market OutlookAccording to FAO, more than 60% of natural rubber is used for tyres. Therefore, automakers are major customers behind changes in natural rubber demand. Due to the ongoing global financial crisis, automakers have experienced declining sales and consequently natural rubber exporters around the world have suffered plunging demand and prices. Thailand and Malaysia, two of the world’s major natural rubber exporters, have implemented output cuts to bolster export prices.
China consumes the most natural rubber and imports enough to represent the export market. It is projected that demand from China will grow 5.1% annually to reach nearly 1.6 million tonnes by 2010.
Company HistoryDPR started as a rubber plantation for the Michelin Company, France in 1927. It was incorporated in 1981, equitized in 2006, and listed on the HOSE in late 2007.
Company Description & Principal ActivitiesDPR is primarily involved in the plantation, processing, and exporting of rubber. Their total plantation area is more than 10,000 hectares, about 79% of which is harvestable. The company has two processing plants with a combined capacity of 20,000 tonnes of latex per year each. In 2008, the productivity of the plantation reached 2.22 tonnes of latex per hectare, which was the second highest among all subsidiaries of the Vietnam Rubber Group. DPR has been exporting to European countries such as France, Belgium, the Netherlands, UK, Korea, and Australia. DPR is the largest listed natural rubber planta-tion company by market capitalization followed by TRC.
Ticker Share Price - VND
DPR 42,600Close/Volume Chart
Relative Performance
S&P Vietnam 10 Ho Chi Minh Stock Index
MSCI AC Asia Index DPR
01 Jul 09
VND Mn Shares
01 Jul 09
73
Profit & Loss (VND bn) FY06A FY07A FY08A Revenue 602.1 703.8 728.8 EBITDA 183.0 218.1 228.0 EBIT 181.0 217.2 196.5 Interest & Fx Exp (3.7) (8.8) 2.0 Non Op Inc (Loss) 35.6 24.3 35.6 Pre-Tax 212.9 232.7 234.0 Taxes (59.6) (0.7) 0.0 Minorities & Pref’s 0.0 0.0 0.0 Net Income to Common 153.3 232.0 234.0
Balance Sheet (VNDbn) FY06A FY07A FY08A Cash & Equiv. 182.3 219.3 38.8 ST Investments & Mkt. Sec 170.1 122.6 140.2 Receivables 33.8 45.9 14.3 Inventories 45.8 34.4 60.0 Other Curr Assets 658.2 25.1 19.9 Net Fixed Assets 232.9 427.2 411.8 Construction in Progress 65.9 90.8 95.5 Invest. in Assoc. 50.4 10.0 73.8 Financial Investments 0.0 118.3 106.5 Other L.T. Assets 252.2 40.0 80.3 Payables (4.0) (3.3) (3.5) Other Curr Liab. (1,090.0) (392.5) (243.8) ST Debt (22.4) (28.4) (72.9) LT Debt (103.1) (40.1) (38.1) Other LT Liab (0.6) (1.1) (2.0) Net Assets 471.7 668.1 680.8 Minorities 0.0 0.0 0.0 Book Capital 400.0 400.0 400.0 Ret. Earnings 71.7 268.1 280.8 Total Liab. & Equity 1,691.7 1,133.6 1,041.1
Working Capital Analysis FY06A FY07A FY08A Days Receivable 20.5 23.8 7.1 Days Inventory 45.5 28.0 45.9 Days Payable 4.0 2.7 2.7 Cash Operating Cycle 29.1 6.9 41.5
Derived Cash Flow (VNDbn)* FY06A FY07A FY08A EBIT n.a. 217.2 196.5 Depreciation & Amort n.a. 0.9 31.5 Chgs in Working Cap n.a. (65.7) (137.2) Operating Cash Flow n.a. 152.3 90.8 Net Interest, Fx & Taxes n.a. (9.4) 2.0 Fixed Asset Capex n.a. (35.4) (65.4) Investments n.a. (77.8) (52.0) Non Op Inc (Loss) n.a. 24.3 35.6 Other Non Cash Adj. n.a. 239.8 (233.8) Dividends Paid n.a. (199.8) (0.0) Change in Paid in Capital n.a. 0.0 0.0 Change in Net Debt n.a. (56.9) 42.4 Net Cash Flow n.a. 37.0 (180.5)* Calculated from Balance Sheet & P&L
DuPont Analysis FY06A FY07A FY08A EBIT / Sales 0.30 0.31 0.27 Sales/Total Assets 0.36 0.62 0.70 less Net Int./Assets 0.02 0.01 (0.19) Pre-Tax ROA (%) 12.6% 20.5% 22.5% Assets/Equity 3.59 1.70 1.53 Pre-Tax ROE (%) 45.1% 34.8% 34.4% 1-Tax rate 0.72 1.00 1.00 ROE (%) 32.5% 34.7% 34.4%
Miscelleaneous FY06A FY07A Current Altman Z Score n.m. n.m. n.a. Asset Growth (%) 62.5% -33.0% -8.2% Capex/Sales (%) n.m. 5.0% 9.0% Earnings Retention (%) n.a. n.a. 14.6%
Management Strategy and GoalsDPR executives have indicated that they are looking for and will seize any promising opportunities to expand the company’s plantation area. They will also focus on research for sustained development such as enhancing intensive farming techniques to increase the productivity of the existing area, and constructing an optimum plantation area-recycling schedule. DPR is accumulating financial resources for their planned projects to ensure the outlined progress schedule will be achieved.
Investment PlansDPR co-established a joint-stock company with a 40% interest to execute the plantation of 10,000 hectares of rubber trees in Cambodia. They planted 72 hectares in 2008 and targeted to plant 1,300 and 2,000 hectares in 2009 and 2010, respectively. Dong Phu – Dak Nong Rubber JSC, with 90% of chartered capital financed by DPR, was established to develop a 4,100 hectares plantation in Cu Jut commune, Dak Nong province. They have planted rubber on 15% of the total area and planned to complete an additional 12% in 2009. They also have investments in BOT projects to build the highways from Dong Xoai provincial town to Phuoc Long, Binh Phuoc province, and from Tan Lap, Binh Phuoc province to Cong Xanh three-way intersection in Binh Duong, province. The company has been paid dividends from the toll fee collection from these two projects.
DPR invested in 40% of the chartered capital in Dong Phu Rubber Technology JSC, which will specialize in the manufacture of latex pillows and mattresses using DPR latex. The construction has completed. The first batch of products is anticipated to be available for export in 2009.
DPR also has a 51% interest in North Dong Phu Industrial Zone JSC, which is expected to come into operation mid 2009, and investments in several of VRG’s joint stock subsidiaries and projects.
Key Success FactorsThe company is active in expanding the total plantation area and DPR’s personnel are highly experienced in rubber plantation development and management.
Key Risk FactorsNatural rubber is an exported commodity and Vietnam’s volumes, although growing rapidly, are still small compared to Thailand, Malaysia and Indonesia. Vietnam is therefore a price taker in international markets. The weather also plays an important role in plantation productivity.
Basic Materials / Commodity Chemicals
Revenues by Product, 2008
Latex31.6%
74
Trading & Liquidity 20Days 100Days 180Days Volume (Reg, Trading) 124,726 95,847 82,775 VND Val. (Reg. Trading, bn) 6.4 3.6 3.0 Percent of market (%) 0.2 0.2 0.3
Shares Outstanding (mn) FY07A FY08A Current Wgt. Avg Issued Shares n.a. 30.0 30.0 Fully Dilluted Shares n.a. 30.0 30.0 Foreign Owned (% / Limit) 7.4mn 24.6% 49.0%
Market Values VND (bn) USD (mn) EUR (mn) Market Cap 1,344 75.5 53.9 Net Debt (119) (6.7) (0.0) Minorities & Others 48 2.7 1.9 Enterprise Value 1,272 71.5 51.0
Tay Ninh Rubber Ticker Share Price - VND
TRC 43,900
Relative Performance
Corperate Actions Ex-Date Amt/(ratio) Fiscal YearFinal 12-Mar-09 500 FY09Interim 2-Dec-08 2,500 FY08Final 11-Apr-08 1,500 FY08Interim 23-Nov-07 1,500 FY07
Per Share (VND) FY06A FY07A FY08A Trail 12M FY09E* FY10E* EPS n.a. n.a. 6,607 6,759 7,645 n.a. BVPS n.a. 15,679 16,816 n.a. n.a. n.a. DPS n.a. 1,500 4,000 n.a. n.a. n.a. CFPS n.a. n.a. 1,411 n.a. n.a. n.a. FCFPS n.a. n.a. 93 n.a. n.a. n.a.* Bloomberg Consensus Estimates
Key Valuations FY07A Avg +/- 1 s.d. FY08A Avg +/- 1 s.d. FY09E* FY10E* P/E (x) n.a. n.a. 7.9 9.2 / 6.6 5.7 n.a. P/B (x) 8.7 9.8 / 7.6 3.9 5.3 / 2.4 n.a. n.a. Dividend Yield (%) 1.3 1.4 / 1.2 6.3 10.8 / 1.7 n.a. n.a. P/CFPS (x) n.a. n.a. n.a. n.a. n.a. n.a. FCF Yield (%) n.a. n.a. n.a. n.a. n.a. n.a.
Growth FY06A FY07A FY08A FY09E* FY10E* Revenues n.a. n.a. 11.6% n.a. n.a. EBITDA n.a. n.a. -4.5% n.a. n.a. EBIT n.a. n.a. -4.0% n.a. n.a. Net Income n.a. n.a. 11.7% n.a. n.a. EPS n.a. n.a. n.a. 15.7% n.a. BVPS n.a. n.a. 7.3% n.a. n.a.
* Bloomberg Conscencus Estimates
Growth Indicators FY06A FY07A FY08A Fixed Assets/Assoc n.a. n.a. 3.2% Debt n.a. n.a. -25.3% Financial Investments n.a. n.a. 16.9% Other LT Assets n.a. n.a. -9.7%
Profitability FY06A FY07A FY08A Gross Margin (%) n.a. 40.9 37.6 EBITDA Margin (%) n.a. 37.3 31.9 EBIT Margin (%) n.a. 33.2 28.6 Pre-Tax Margin (%) n.a. 36.1 36.1 Net Margin (%) n.a. 36.1 36.1
Solvency & Liquidity FY06A FY07A FY08A Acid Test Ratio n.a. 180.51 115.49 Current Ratio n.a. 1.21 1.52 LT Debt/Capital n.a. 8.4% 5.3% Net Debt/Equity n.a. 52.5% 22.0%
LT Debt/Fixed Assets n.a. 12.7% 8.5%
Total Liab/Total Assets n.a. 42.4% 23.6%
Management Company Data
Chairman Trinh Van Vinh Head OfficeHiep Thanh commune,
Go Dau district, Tay Ninh province
CEO Trinh Van Vinh CFO/ Chief Accontant Vuong Thi Rang Website http://taniruco.com/ IR Contact Truong Van Minh Telephone +84663853606
Company Description & Principal ActivitiesSouthern-based TRC’s production include planting, harvesting, processing, and export-ing natural rubber, manufacturing steel tanks, importing and exporting wood products, and cultivating rubber seedlings. They are also involved in fuel and materials trading, and residential, industrial, and electrical construction contracting. TRC is the second largest listed natural rubber plantation company by market capitalization, preceded by DPR and followed by HRC. Their current plantation production area is 5900 hectares.
Market OutlookAccording to the FAO, more than 60% of natural rubber production is used for tyres. Automotive sales are therefore the primary determinant of changes in demand for natural rubber which, due the ongoing global recession, has impacted rubber demand and pricing. Thailand and Malaysia, two world major natural rubber exporters, have consequently implemented output cuts to bolster export prices while China’s import demand is sufficient to represent the export market. It is projected that demand from China will grow 5.1% annually to reach nearly 1.6 million tonnes by 2010.
Company HistoryTRC was established as a French rubber plantation. It was nationalized in 1945 and named as the Tay Ninh State Rubber Farm. In 1981, the farm was incorporated as the Tay Ninh Rubber Company and was listed on the HOSE in July 2007 following several further transformations and equitisation in 2006.
Ticker Share Price - VND
TRC 43,900Close/Volume Chart
Relative Performance
S&P Vietnam 10 Ho Chi Minh Stock Index
MSCI AC Asia Index TRC
Major Shareholders Shares Insider Holdings SharesVietnam Rubber Group 18 mnSCIC 0.047 mn
01 Jul 09
Mn SharesVND
01 Jul 09
75
Profit & Loss (VND bn) FY06A FY07A FY08A Revenue 0.0 491.9 549.1 EBITDA 0.0 183.6 175.4 EBIT 0.0 163.4 156.9 Interest & Fx Exp 0.0 (4.4) 1.2 Non Op Inc (Loss) 0.0 18.4 40.2 Pre-Tax 0.0 177.4 198.2 Taxes 0.0 (0.0) 0.0 Minorities & Pref's 0.0 0.0 0.0 Net Income to Common 0.0 177.4 198.2
Balance Sheet (VNDbn) FY06A FY07A FY08A Cash & Equiv. 0.0 299.7 150.1 ST Investments & Mkt. Sec 0.0 18.0 8.7 Receivables 0.0 34.1 7.8 Inventories 0.0 19.3 27.2 Other Curr Assets 0.0 16.0 16.0 Net Fixed Assets 0.0 266.5 256.4 Construction in Progress 0.0 41.9 60.5 Invest. in Assoc. 0.0 0.0 1.4 Financial Investments 0.0 86.2 100.7 Other L.T. Assets 0.0 35.5 32.1 Payables 0.0 (1.7) (1.3) Other Curr Liab. 0.0 (291.5) (113.4) ST Debt 0.0 (13.3) (12.4) LT Debt 0.0 (39.3) (26.9) Other LT Liab 0.0 (1.1) (2.2) Net Assets 0.0 470.4 504.5 Minorities 0.0 0.0 0.0 Book Capital 0.0 300.0 300.0 Ret. Earnings 0.0 170.4 204.5 Total Liab. & Equity 0.0 817.2 660.7
Working Capital Analysis FY06A FY07A FY08A Days Receivable n.a. 25.3 5.2 Days Inventory n.a. 24.2 29.0 Days Payable n.a. 2.1 1.4 Cash Operating Cycle n.a. 1.0 25.2
Derived Cash Flow (VNDbn)* FY06A FY07A FY08A EBIT n.a. 163.4 156.9 Depreciation & Amort n.a. 20.1 18.5 Chgs in Working Cap n.a. 223.7 (159.9) Operating Cash Flow n.a. 407.2 15.5 Net Interest, Fx & Taxes n.a. (4.4) 1.2 Fixed Asset Capex n.a. (23.0) (39.5) Investments n.a. (86.2) (15.9) Non Op Inc (Loss) n.a. 18.4 40.2 Other Non Cash Adj. n.a. (216.6) 16.4 Dividends Paid n.a. (148.4) (154.2) Change in Paid in Capital n.a. 300.0 0.0 Change in Net Debt n.a. 52.6 (13.3) Net Cash Flow n.a. 299.7 (149.6)* Calculated from Balance Sheet & P&L
DuPont Analysis FY06A FY07A FY08A EBIT / Sales n.a. 0.33 0.29 Sales/Total Assets n.a. 0.60 0.83 less Net Int./Assets n.a. 0.02 0.06 Pre-Tax ROA (%) n.a. 21.7% 30.0% Assets/Equity n.a. 1.74 1.31 Pre-Tax ROE (%) n.a. 37.7% 39.3% 1-Tax rate n.a. 1.00 1.00 ROE (%) n.a. 37.7% 39.3%
Miscelleaneous FY06A FY07A Current Altman Z Score n.m. n.m. n.a. Asset Growth (%) n.m. n.a. -19.2% Capex/Sales (%) n.m. 4.7% 7.2% Earnings Retention (%) n.a. n.a. 39.5%
Basic Materials / Commodity Chemicals
Profit & Loss (VND bn) FY06A FY07A FY08A Revenue 0.0 491.9 549.1 EBITDA 0.0 183.6 175.4 EBIT 0.0 163.4 156.9 Interest & Fx Exp 0.0 (4.4) 1.2 Non Op Inc (Loss) 0.0 18.4 40.2 Pre-Tax 0.0 177.4 198.2 Taxes 0.0 (0.0) 0.0 Minorities & Pref's 0.0 0.0 0.0 Net Income to Common 0.0 177.4 198.2
Balance Sheet (VNDbn) FY06A FY07A FY08A Cash & Equiv. 0.0 299.7 150.1 ST Investments & Mkt. Sec 0.0 18.0 8.7 Receivables 0.0 34.1 7.8 Inventories 0.0 19.3 27.2 Other Curr Assets 0.0 16.0 16.0 Net Fixed Assets 0.0 266.5 256.4 Construction in Progress 0.0 41.9 60.5 Invest. in Assoc. 0.0 0.0 1.4 Financial Investments 0.0 86.2 100.7 Other L.T. Assets 0.0 35.5 32.1 Payables 0.0 (1.7) (1.3) Other Curr Liab. 0.0 (291.5) (113.4) ST Debt 0.0 (13.3) (12.4) LT Debt 0.0 (39.3) (26.9) Other LT Liab 0.0 (1.1) (2.2) Net Assets 0.0 470.4 504.5 Minorities 0.0 0.0 0.0 Book Capital 0.0 300.0 300.0 Ret. Earnings 0.0 170.4 204.5 Total Liab. & Equity 0.0 817.2 660.7
Working Capital Analysis FY06A FY07A FY08A Days Receivable n.a. 25.3 5.2 Days Inventory n.a. 24.2 29.0 Days Payable n.a. 2.1 1.4 Cash Operating Cycle n.a. 1.0 25.2
Derived Cash Flow (VNDbn)* FY06A FY07A FY08A EBIT n.a. 163.4 156.9 Depreciation & Amort n.a. 20.1 18.5 Chgs in Working Cap n.a. 223.7 (159.9) Operating Cash Flow n.a. 407.2 15.5 Net Interest, Fx & Taxes n.a. (4.4) 1.2 Fixed Asset Capex n.a. (23.0) (39.5) Investments n.a. (86.2) (15.9) Non Op Inc (Loss) n.a. 18.4 40.2 Other Non Cash Adj. n.a. (216.6) 16.4 Dividends Paid n.a. (148.4) (154.2) Change in Paid in Capital n.a. 300.0 0.0 Change in Net Debt n.a. 52.6 (13.3) Net Cash Flow n.a. 299.7 (149.6)* Calculated from Balance Sheet & P&L
DuPont Analysis FY06A FY07A FY08A EBIT / Sales n.a. 0.33 0.29 Sales/Total Assets n.a. 0.60 0.83 less Net Int./Assets n.a. 0.02 0.06 Pre-Tax ROA (%) n.a. 21.7% 30.0% Assets/Equity n.a. 1.74 1.31 Pre-Tax ROE (%) n.a. 37.7% 39.3% 1-Tax rate n.a. 1.00 1.00 ROE (%) n.a. 37.7% 39.3%
Management Strategy and GoalsTRC’s strategies and goals include ensuring sustained development, increase plantation areas, developing new markets, and developing value-added rubber latex processing to reduce the volume of raw latex rubber exported.
Investment PlansTRC are planning to install eight centrifugal rubber processing machines in 2009 and expand skim latex beating equipment and building structure that houses the equipment (this line was 76% overloaded last year). They will also explore the investment opportunity in a rubber company in Phu Tho province and develop the Hiep thanh Industrial zone. TRC is also seeking approval to invest US$3.2 million into a medical glove production line in the Exported Medical Gloves Company based in Long Thanh Industrial Zone. If successful, this production line will require 6,000 tonnes of TRC latex per year.
Key Success FactorsTRC exported latex will be used to produce products other than tyres as such the demand for their product will not be affected by the downturn in the automotive sector. TRC’s personnel are experienced in the rubber plantation business.
Key Risk FactorsNatural rubber is an exported commodity, which although is growing rapidly in volume remains at only a fraction of the volumes from Thailand, Malaysia and Indonesia. Vietnam is therefore a price taker. Weather also plays an important role in plantation productivity.
Basic Materials / Commodity Chemicals
Revenues by Source, 2008
76
An Giang Fisheries
Trading & Liquidity 20Days 100Days 180Days Volume (Reg, Trading) 288,250 154,383 96,549 VND Val. (Reg. Trading, bn) 7.5 3.4 2.1 Percent of market (%) 0.2 0.2 0.2
Shares Outstanding (mn) FY07A FY08A Current Wgt. Avg Issued Shares 10.9 12.9 12.9 Fully Dilluted Shares 10.9 12.9 12.9 Foreign Owned (% / Limit) 1.7mn 13.1% 49.0%
Market Values VND (bn) USD (mn) EUR (mn) Market Cap 296 16.6 11.8 Net Debt 477 26.8 0.0 Minorities & Others (22) (1.2) (0.9) Enterprise Value 751 42.2 29.9
Corperate Actions Ex-Date Amt/(ratio) Fiscal YearCash Dividend 29-Dec-08 600 FY08Cash Dividend 2-Jan-08 1,200 FY08Bonus 8-Jun-07 1/5 FY07Cash Dividend 31-Jan-07 500 FY06Cash Dividend 13-Nov-06 500 FY06Rights Issue 2-Aug-06 1/5 FY06
Per Share (VND) FY06A FY07A FY08A Trail 12M FY09E* FY10E* EPS 6,861 3,477 1,143 1,124 908 n.a. BVPS 44,216 48,350 48,273 n.a. n.a. n.a. DPS 1,004 432 1,592 0 n.a. n.a. CFPS (6,427) (2,722) (7,769) (12,961) n.a. n.a. FCFPS (22,096) (18,128) (19,380) (24,777) n.a. n.a.* Bloomberg Consensus Estimates
Key Valuations FY07A Avg +/- 1 s.d. FY08A Avg +/- 1 s.d. FY09E* FY10E* P/E (x) 17.0 18.7 / 15.3 16.2 16.3 / 16.1 24.1 n.a. P/B (x) 2.6 3.3 / 2 0.6 0.8 / 0.3 n.a. n.a. Dividend Yield (%) 1.0 1.5 / 0.6 4.9 6.7 / 3.1 n.a. n.a. P/CFPS (x) n.a. n.a. n.a. 5.2 n.a. n.a. FCF Yield (%) n.a. n.a. n.a. n.a. n.a. n.a.
Growth FY06A FY07A FY08A FY09E* FY10E* Revenues 51.5% 3.6% 68.7% n.a. n.a. EBITDA 51.2% 6.0% 18.3% n.a. n.a. EBIT 67.6% -15.8% -5.6% n.a. n.a. Net Income 108.5% -18.4% -61.3% n.a. n.a. EPS n.a. -49.3% -67.1% -20.6% n.a. BVPS 153.8% 9.3% -0.2% n.a. n.a.* Bloomberg Consensus Estimates
Growth Indicators FY06A FY07A FY08A Fixed Assets/Assoc 93.1% 74.2% 67.9% Debt 33.6% 42.7% 223.7% Financial Investments -97.4% 130075.0% 20.7% Other LT Assets 475.1% 263.7% -56.9%
Profitability FY06A FY07A FY08A Gross Margin (%) 12.1 13.2 15.3 EBITDA Margin (%) 5.4 5.5 3.8 EBIT Margin (%) 4.3 3.5 1.9 Pre-Tax Margin (%) 4.3 3.5 0.8 Net Margin (%) 3.9 3.1 0.7
Solvency & Liquidity FY06A FY07A FY08A Acid Test Ratio 0.51 0.31 0.19 Current Ratio 1.62 1.47 0.89 LT Debt/Capital 0.3% 0.0% 7.2% Net Debt/Equity -33.7% -24.0% -81.8% LT Debt/Fixed Assets 0.5% 0.0% 8.8% Total Liab/Total Assets 35.9% 26.4% 52.5%
Management Company Data
Chairman Ngo Phuoc Hau Head Office1234 Tran Hung Dao, Long
Xuyen City,
CEO Ngo Phuoc Hau An Giang Provice CFO/ Chief Accountant Vo Thanh Thong Website www.agifish.com.vn IR Contact Vo Thanh Thong Telephone +84763857782
Major Shareholders Shares Insider Holdings Shares State 8.19% Ngo Phuoc Hau 1.17%PXP Vietnam Asset Management 5.84% Duong Ngoc Minh 21.60%
Nguyen Dinh Huan 0.91%Phu Thanh Dang 0.78%
Market OutlookTra-fish (Pangasius) export revenues reached US$1.45bn in FY08 and are expected to decline to USD1.3bn in FY09 due to weaker demand and credit constraints as a result of the global economic recession. The Russian market, accounting for 12% of Pangasius exports by value in 2008, reopened to selected Vietnamese companies in June 2009 after temporarily closing in December 2008, boosting the expected full year export revenues higher than the previously forecast USD1.0bn.
Company HistoryAgifish was established as a state-owned company in 1985 in An Giang province in the Mekong Delta. It was converted to a joint stock company in 2001 and listed on the Ho Chi Minh City Stock Exchange in April 2002.
Company Description and Principle ActivitiesAGF is engaged in Tra-fish processing and exporting to world markets and also processes value added Tra-fish products for both domestic and foreign markets. AGF has three factories with a total processing capacity of 450 tonnes of raw fish input per day. Not owning any farming areas directly, AGF has established the Agifish Pure Pangasius Union (APPU) comprising 32 members owning a combined 130 hectares of farming area who are contracted to supply AGF with up to 180 tonnes of safe, hygienic Tra-fish per day, equivalent to 60% to 70% of current production demand. AGF has also commenced operations on a five tonne per day line producing frozen battered Tra-fish in 2008. AGF‘s exports peaked at USD88.6mn in 2008 (46,370 tonnes of fish fillet equivalent), becoming the country’s fourth largest Tra-fish exporter.
Ticker Share Price - VND
AGF 21,900
Close/Volume Chart
Relative Performance
S&P Vietnam 10 Ho Chi Minh Stock Index
MSCI AC Asia Index AGF
01 Jul 09
Mn SharesVND
01 Jul 09
77
Profit & Loss (VND bn) FY06A FY07A FY08A Revenue 1,190.9 1,233.7 2,081.1 EBITDA 63.9 67.7 80.1 EBIT 50.7 42.7 40.3 Interest & Fx Exp (4.4) (12.0) (26.7) Non Op Inc (Loss) 4.4 12.4 3.6 Pre-Tax 50.7 43.0 17.1 Taxes (4.1) (5.0) (2.1) Minorities & Pref’s 0.0 0.0 (0.4) Net Income to Common 46.6 38.0 14.7
Balance Sheet (VNDbn) FY06A FY07A FY08A Cash & Equiv. 13.0 13.7 20.1 ST Investments & Mkt. Sec 24.5 22.8 30.5 Receivables 135.8 112.8 272.8 Inventories 96.6 176.3 265.3 Other Curr Assets 5.0 34.7 53.1 Net Fixed Assets 87.7 229.8 439.6 Construction in Progress 96.6 91.2 87.9 Invest. in Assoc. 0.0 0.0 11.6 Financial Investments 0.1 130.2 157.1 Other L.T. Assets 9.0 32.7 14.1 Payables (25.3) (43.7) (107.0) Other Curr Liab. (28.0) (15.1) (74.3) ST Debt (113.2) (163.0) (481.4) LT Debt (1.0) 0.0 (46.3) Other LT Liab (0.4) (0.7) (0.8) Net Assets 300.3 621.7 642.3 Minorities 0.0 0.0 21.5 Book Capital 203.6 514.1 514.1 Ret. Earnings 96.7 107.6 106.7 Total Liab. & Equity 468.3 844.2 1,352.0
Working Capital Analysis FY06A FY07A FY08A Days Receivable 41.6 33.4 47.8 Days Inventory 33.7 60.1 54.9 Days Payable 8.8 14.9 22.2 Cash Operating Cycle 0.9 41.6 29.2
Derived Cash Flow (VNDbn)* FY06A FY07A FY08A EBIT 50.7 42.7 40.3 Depreciation & Amort 13.2 25.0 39.8 Chgs in Working Cap (80.5) (80.9) (144.9) Operating Cash Flow (16.6) (13.2) (64.8) Net Interest, Fx & Taxes (8.4) (17.0) (28.8) Fixed Asset Capex (106.4) (168.4) (149.3) Investments 3.8 (130.1) (38.5) Non Op Inc (Loss) 4.4 12.4 3.6 Other Non Cash Adj. (61.7) (21.7) (69.3) Dividends Paid (4.7) (20.5) (11.2) Change in Paid in Capital 161.8 310.5 0.0 Change in Net Debt 28.7 48.8 364.7 Net Cash Flow 0.7 0.7 6.4 * Calculated from Balance Sheet & P&L
DuPont Analysis FY06A FY07A FY08A EBIT / Sales 0.04 0.03 0.02 Sales/Total Assets 2.54 1.46 1.54 less Net Int./Assets 0.00 0.00 (0.02) Pre-Tax ROA (%) 10.8% 5.1% 1.3% Assets/Equity 1.56 1.36 2.11 Pre-Tax ROE (%) 16.9% 6.9% 2.7% 1-Tax rate 0.92 0.88 0.88 ROE (%) 15.5% 6.1% 2.3%
Miscelleaneous FY06A FY07A Current Altman Z Score n.m. n.m. 2.1 Asset Growth (%) -65.4% 80.3% 60.2% Capex/Sales (%) 8.9% 13.7% 7.2% Earnings Retention (%) 85.4% 87.6% -39.3%
Management Strategy and GoalsFollowing Agifish’ suspension from the Russia market in December 2008, management worked to developed additional markets, particularly in the US, motivated by the US Department of Commerce decision to lower the antidumping tax imposed on Agifish to from more than 47% to 0.52% on 17 March 2009. Additionally, the company will focus on selling value added products to Europe, South America, and Australia, and simultaneously target domestic sales of VND140bn, up 62% from VND86.1bn in 2008. The company has also streamlined its management board, cutting the number of directors to five from the previous number of 11 persons with shareholder agreement in April 2009 in order to be more efficient in strategic planning and decision-making.
Investment PlansDue to a foreseeable shortage of raw fish supply in 2009 AGF plans to invest VN270bn into the APPU, of which VND240bn will be used for fish feed supplies and the remaining amount for other facilities needed for farming processes. No further construction projects are in place in 2009.
Key Success FactorsAGF has modern facilities and a stable source of supply through the APPU, which ensures a high quality product and stable production. AGF’s value added products have also gained a dominant position in the local market, which promises long-term growth potential despite the current lower sales level, accounting for only 4.3% of total revenue in FY08 due to increased exports, from an average of under 8%. AGF has always sought improvements to meet diversified customer demand. Its new powder soaking and automatic frying production line will support its value added sales to high-end markets.
Key Risk FactorsThe company is currently sourcing up to 40% of raw Tra-fish from external suppliers, raising food safety and quality control concerns. Despite its cooperation with the APPU, the company is susceptible to input price fluctuations due to a lack of complete control over the supply source. Sales of value added products in the local market have tremendous growth potential but will take time to develop due to traditionally fresh eating habits as opposed to ready-made foods. Exports to high-end markets is a challenge and requires the company to maintain a high level of organizational competence due to more stringent food enforcement standards in importing countries that could continue increasing operating expenses.
Consumer Goods / Food Producers
Export Markets by Value, 2008
78
Minh Phu Seafood
Trading & Liquidity 20Days 100Days 180Days Volume (Reg, Trading) 205,862 150,073 119,900 VND Val. (Reg. Trading, bn) 4.8 2.6 1.9 Percent of market (%) 0.2 0.2 0.2
Shares Outstanding (mn) FY07A FY08A Current Wgt. Avg Issued Shares 62.6 70.0 70.0 Fully Dilluted Shares 62.6 70.0 70.0 Foreign Owned (% / Limit) 6.4mn 9.2% 49.0%
Market Values VND (bn) USD (mn) EUR (mn) Market Cap 1,631 91.6 64.9 Net Debt 805 45.2 0.0 Minorities & Others (32) (1.8) (1.3) Enterprise Value 2,404 135.1 95.6
Corperate Actions Ex-Date Amt/(ratio) Fiscal YearCash Dividend 26-Mar-08 1,500 FY07Stock Dividend 4-Jun-07 1/10 FY07
Per Share (VND) FY06A FY07A FY08A Trail 12M FY09E* FY10E* EPS 1,168 3,033 (596) 442 709 n.a. BVPS 10,386 15,571 13,432 n.a. n.a. n.a. DPS n.a. 16 1,547 n.a. n.a. n.a. CFPS 4,422 (2,484) 5,131 (1,437) n.a. n.a. FCFPS 3,814 (7,412) 3,900 (2,874) n.a. n.a.* Bloomberg Consensus Estimates
Key Valuations FY07A Avg +/- 1 s.d. FY08A Avg +/- 1 s.d. FY09E* FY10E* P/E (x) 36.2 45.4 / 27 343.5 343.7 / 343.4 31.7 n.a. P/B (x) 4.6 5.3 / 3.8 1.3 1.9 / 0.8 n.a. n.a. Dividend Yield (%) n.a. n.a. 10.3 12.8 / 7.8 n.a. n.a. P/CFPS (x) n.a. n.a. n.a. n.a. n.a. n.a. FCF Yield (%) n.a. n.a. (44.8) n.a. n.a. n.a.
Growth FY06A FY07A FY08A FY09E* FY10E* Revenues 32.6% 74.3% 22.0% n.a. n.a. EBITDA 30.7% 125.5% 10.8% n.a. n.a. EBIT 33.7% 128.1% 7.1% n.a. n.a. Net Income 41.2% 146.2% -122.0% n.a. n.a. EPS n.a. 159.6% -119.7% -219.0% n.a. BVPS n.a. 49.9% -13.7% n.a. n.a.* Bloomberg Consensus Estimates
Growth Indicators FY06A FY07A FY08A Fixed Assets/Assoc 328.6% 240.2% -26.1% Debt -19.3% 269.0% 16.8% Financial Investments 28.7% 933.4% -4.9% Other LT Assets 924.5% 43.6% 176.9%
Profitability FY06A FY07A FY08A Gross Margin (%) 10.7 13.5 15.8 EBITDA Margin (%) 7.9 10.2 9.3 EBIT Margin (%) 7.2 9.4 8.3 Pre-Tax Margin (%) 6.5 9.0 (1.1) Net Margin (%) 5.7 8.0 (1.5)
Solvency & Liquidity FY06A FY07A FY08A Acid Test Ratio 1.59 0.41 1.63 Current Ratio 2.58 1.68 1.40 LT Debt/Capital 3.0% 19.5% 21.3% Net Debt/Equity -33.6% -87.0% -109.3% LT Debt/Fixed Assets 15.8% 51.1% 69.3% Total Liab/Total Assets 32.5% 48.0% 56.4%
Management Company Data
Chairman Le Van Quang Head OfficeIndustrial Zone, Ward 8,
Ca mau City
CEO Le Van Quang CFO/ Chief Accontant Luu Minh Trung Website www.minhphu.com IR Contact Nguyen Xuan Toan Telephone +84783838262
Major Shareholders Shares Insider Holdings SharesVietnam Investment Fund 4.68% Chu Thi Binh 17,475,010
VIF II (Vietnam Investment Fund II limited)
5.00% Le Van Quang 15,661,000
Chu Van An 1,109,400Le Thi Diu Minh 6,600,000
Le Van Diep 1,965,445
Company Description & Principle ActivitiesShrimp farming and processing are MPC’s core business. The company has established a vertically integrated production line including shrimp breeding to ensure high input quality. They have also invested in R&D and farmed White Leg shrimp, accounting for 20% of the total export volume in 2008. MPC owns a 150ha farming area supplying around 10% of its input demand. MPC is one of four Vietnamese seafood exporters exempted from the US’ anti-dumping tax and is also engaged in real estate developments.
Market OutlookShrimp are Vietnam’s top-earning seafood export with revenues reaching USD1.6bn in 2008, up from USD1.5bn in 2007, and accounting for 35% of total seafood exports. The US and Japan are the largest consumers of Vietnam’s tiger prawns although Vietnam has now begun farming the White Leg shrimp (Penaeus vannamei) variety in efforts to improve competiveness.
Company HistoryFounded in 1992 as a small private enterprise located in Ca Mau Province, dealing with trading and processing seafood to supply to the local exporters, MPC has had several capital raisings and expanded its business to become a direct seafood exporter. Converted to a Joint Stock Company in May 2006, MPC was listed on the HNX in December 2006 and transferred to the HOSE in December 2007. MPC has seven subsidiaries including MSeafood established in the US for distribution in this market. It has become the country’s third largest seafood exporter and the leader in shrimp exports in 2008, earning USD156mn (13,878 tonnes), equivalent to 10% of the country’s total shrimp export value
Ticker Share Price - VND
MPC 22,500
Close/Volume Chart
Relative Performance
S&P Vietnam 10 Ho Chi Minh Stock Index
MSCI AC Asia Index MPC
01 Jul 09
Mn SharesVND
01 Jul 09
79
Profit & Loss (VND bn) FY06A FY07A FY08A Revenue 1,352.5 2,357.5 2,876.4 EBITDA 106.6 240.3 266.3 EBIT 97.6 222.6 238.5 Interest & Fx Exp (15.6) (47.3) (147.6) Non Op Inc (Loss) 6.4 35.6 (122.7) Pre-Tax 88.4 211.0 (31.8) Taxes (10.3) (17.8) (6.3) Minorities & Pref’s (1.1) (3.5) (3.6) Net Income to Common 77.1 189.8 (41.7)
Balance Sheet (VNDbn) FY06A FY07A FY08A Cash & Equiv. 31.1 16.3 99.7 ST Investments & Mkt. Sec 0.0 192.8 222.5 Receivables 640.0 875.1 448.5 Inventories 140.1 260.2 717.6 Other Curr Assets 51.5 51.3 152.3 Net Fixed Assets 76.2 191.7 267.1 Construction in Progress 57.1 230.0 36.2 Invest. in Assoc. 0.0 32.0 32.0 Financial Investments 24.5 253.4 240.9 Other L.T. Assets 12.6 18.1 50.1 Payables (19.5) (39.4) (61.2) Other Curr Liab. (54.8) (13.4) (86.5) ST Debt (240.4) (749.1) (916.8) LT Debt (21.0) (215.6) (210.2) Other LT Liab 0.0 0.0 (3.9) Net Assets 697.4 1,103.3 988.2 Minorities 12.0 13.3 47.9 Book Capital 600.0 877.9 877.9 Ret. Earnings 85.5 212.1 62.4 Total Liab. & Equity 1,033.2 2,120.8 2,266.9
Working Capital Analysis FY06A FY07A FY08A Days Receivable 172.7 135.5 56.9 Days Inventory 42.3 46.5 108.2 Days Payable 5.9 7.0 9.2 Cash Operating Cycle (124.4) (81.9) 60.5
Derived Cash Flow (VNDbn)* FY06A FY07A FY08A EBIT 97.6 222.6 238.5 Depreciation & Amort 8.9 17.6 27.8 Chgs in Working Cap (369.9) (376.5) (36.8) Operating Cash Flow (263.3) (136.3) 229.5 Net Interest, Fx & Taxes (25.9) (65.0) (153.9) Fixed Asset Capex (40.1) (308.4) (86.2) Investments (5.5) (260.9) 12.4 Non Op Inc (Loss) 6.4 35.6 (122.7) Other Non Cash Adj. (43.0) (152.8) 42.0 Dividends Paid (1.0) (108.3) (0.0) Change in Paid in Capital 420.0 277.9 0.0 Change in Net Debt (62.5) 703.3 162.3 Net Cash Flow (14.9) (14.9) 83.4 * Calculated from Balance Sheet & P&L
DuPont Analysis FY06A FY07A FY08A EBIT / Sales 0.07 0.09 0.08 Sales/Total Assets 1.31 1.11 1.27 less Net Int./Assets (0.01) (0.01) (0.12) Pre-Tax ROA (%) 8.6% 10.0% -1.4% Assets/Equity 1.48 1.92 2.29 Pre-Tax ROE (%) 12.7% 19.1% -3.2% 1-Tax rate 0.88 0.92 1.20 ROE (%) 11.2% 17.5% -3.9%
Miscelleaneous FY06A FY07A Current Altman Z Score n.m. n.m. 2.7 Asset Growth (%) -54.4% 105.3% 6.9% Capex/Sales (%) 3.0% 13.1% 3.0% Earnings Retention (%) n.a. 99.5% 359.6%
Management Strategy and Goals.MPC aims to achieve high quality food safety certification to sustain its foothold in the established markets and further expand to other areas, and to continue to be a leading shrimp exporter. MPC will enforce hygiene and food safety requirements throughout its production processes and gradually complete its integration process to ensure consistently high quality products. Simultaneously, the company will further improve its value added products to strengthen its competiveness in high-end markets including the US, Japan and Korea.
Investment PlansThe company plans to double its production capacity to 30,000 TPA by investing in a new 15,000 TPA shrimp-processing factory in Hau Giang province, which is scheduled for completion in late 2010. The capital required is estimated to be USD20mn with 55% from external borrowing.
Key Success FactorsMPC has been granted ACC Certification by The Accreditation Committee of the Aquaculture Certification Council Inc., allowing access to US supermarkets. MPC has strived to meet the stringent quality requirements in its target markets and management also maintains several active market research and business development projects to strengthen its penetration in international markets.
Key Risk FactorsShrimp farming is inherently vulnerable to aquatic disease and environmental pollutants thus requiring a stringent and consistent quality control process. Rising feed costs also impact margins and discourage farming production as Vietnam imports a significant portion of feed product and is susceptive to commodity price volatilities. The US is currently MPC’s major market and receivables from this market are expected to rise which may cause difficulties in working capital and an increased exposure to rising interest rates.
Consumer Goods / Food Producers
Revenues by Market, 2008
80
Tuong An Vegetable Oil
Trading & Liquidity 20Days 100Days 180Days Volume (Reg, Trading) 259,712 236,828 188,768 VND Val. (Reg. Trading, bn) 10.1 6.7 5.3 Percent of market (%) 0.3 0.4 0.5
Shares Outstanding (mn) FY07A FY08A Current Wgt. Avg Issued Shares 19.0 19.0 19.0 Fully Dilluted Shares 19.0 19.0 19.0 Foreign Owned (% / Limit) 3.3mn 17.4% 49.0%
Market Values VND (bn) USD (mn) EUR (mn) Market Cap 647 36.4 25.7 Net Debt 21 1.2 0.0 Minorities & Others (42) (2.4) (1.7) Enterprise Value 626 35.2 24.9
Corperate Actions Ex-Date Amt/(ratio) Fiscal YearCash Dividend 20-May-08 500 FY08Cash Dividend 12-Mar-08 1,500 FY07Cash Dividend 28-Mar-07 1,200 FY06
Per Share (VND) FY06A FY07A FY08A Trail 12M FY09E* FY10E* EPS 2,407 6,623 624 (1,598) 1,385 n.a. BVPS 13,915 19,043 16,294 n.a. n.a. n.a. DPS 1,200 1,200 2,000 n.a. n.a. n.a. CFPS 4,298 11,520 (12,478) n.a. n.a. n.a. FCFPS 1,497 6,333 (15,536) n.a. n.a. n.a.* Bloomberg Consensus Estimates
Key Valuations FY07A Avg +/- 1 s.d. FY08A Avg +/- 1 s.d. FY09E* FY10E* P/E (x) 23.8 28.4 / 19.2 11.6 11.8 / 11.3 23.8 n.a. P/B (x) 7.3 10.1 / 4.5 4.4 16.8 n.a. n.a. Dividend Yield (%) 1.3 1.8 / 0.8 4.0 1.9 n.a. n.a. P/CFPS (x) n.a. n.a. n.a. 7.1 n.a. n.a. FCF Yield (%) n.a. n.a. n.a. n.a. n.a. n.a.
Growth FY06A FY07A FY08A FY09E* FY10E* Revenues n.a. 68.5% 15.9% n.a. n.a. EBITDA n.a. 320.3% -79.4% n.a. n.a. EBIT n.a. 793.5% -98.5% n.a. n.a. Net Income n.a. 175.1% -90.6% n.a. n.a. EPS n.a. 175.2% -90.6% 122.0% n.a. BVPS n.a. 36.9% -14.4% n.a. n.a.* Bloomberg Consensus Estimates
Growth Indicators FY06A FY07A FY08A Fixed Assets/Assoc n.a. 61.3% 13.2% Debt n.a. 225.0% -1.9% Financial Investments n.a. -98.5% -18.8% Other LT Assets n.a. -33.9% 198.0%
Profitability FY06A FY07A FY08A Gross Margin (%) 8.8 8.3 5.2 EBITDA Margin (%) 1.5 3.9 0.7 EBIT Margin (%) 0.6 3.4 0.0 Pre-Tax Margin (%) 0.0 0.0 0.5 Net Margin (%) 3.0 4.9 0.4
Solvency & Liquidity FY06A FY07A FY08A Acid Test Ratio 0.61 1.15 0.34 Current Ratio 1.01 1.45 1.25
LT Debt/Capital 12.0% 28.6% 25.3%
Net Debt/Equity 31.6% 72.2% -6.9%
LT Debt/Fixed Assets 22.7% 45.8% 30.7%
Total Liab/Total Assets 51.8% 56.8% 55.0%
Management Company Data Chairman Doan Tan Nghiep Head Office 48/5 Phan Huy Ich, Ward 15 CEO Ha Binh Son Tan Binh District, Hochiwwminh city CFO/ Chief Accontant Vu Duc Thinh Website www.tuongan.com.vn IR Contact Nguyen Khac Hanh Telephone +84838153972
Major Shareholders Shares Insider Holdings Shares State 51% Management 160,000 Lion Global Investor 2.73%
SGAM Vietnam Opportunities Fund
3.74%
Vegetable Oil Extract JSC 0.87%Deutsche Bank London 1.33%Tongyang Trust Fund 1.84%
Indochina Capital Vietnam Holdings
1.84%
Company Description & Principle ActivitiesTuong An primarily focuses on edible vegetable oil processing and distribution. As the largest processor of bottled vegetable oil, Tuong An is proud of its diversified product range including 11 brands ranging from cooking oil, high quality oil, infant and elderly nutritional oils, and solid fats including margarine and shortening. The company is headquartered in HCMC, with two factories in the north and south having an annual throughput capacity of 9,000 tonnes and 243,000 tonnes respectively.
Market OutlookVietnam’s per capita consumption of vegetable oil was estimated at 6.7kg in FY08, amounting to only 35% of the global average of 18.8kg and half of the recommended intake for Vietnamese consumers. Vegetable oil production and consumption has grown by a CAGR of 6.7% in the past five years from 410,000 tonnes in FY03 to 581,000 tonnes in FY08. The sector is estimated to grow strongly given its current low rate of consumption, weakening palm oil input prices, and broader economic recovery that is expected to pick up towards the end of FY09. Local production capacity has also increased substantially to 1.1 million tonnes in anticipation of increasing demand for vegetable oil.
Company HistoryTuong An Vegetable Oil Company (TAC) is Vietnam’s second largest processor of edible vegetable oil. Founded more than 30 years ago, TAC was nationalized in 1975, converted to a joint stock company in 2004, and subsequently listed on the HOSE in December 2006.
Ticker Share Price - VND
TAC 33,000
Close/Volume Chart
Relative Performance
S&P Vietnam 10 Ho Chi Minh Stock Index
MSCI AC Asia Index TAC
01 Jul 09
Mn SharesVND
01 Jul 09
81
Profit & Loss (VND bn) FY06A FY07A FY08A Revenue 1,515.5 2,554.2 2,959.7 EBITDA 23.4 98.5 20.3 EBIT 9.7 86.8 1.3 Interest & Fx Exp (3.7) 5.3 (42.8) Non Op Inc (Loss) 39.7 33.6 55.9 Pre-Tax 0.0 0.0 14.3 Taxes 0.0 0.0 (2.5) Minorities & Pref’s 0.0 0.0 0.0 Net Income to Common 45.7 125.7 11.8
Balance Sheet (VNDbn) FY06A FY07A FY08A Cash & Equiv. 115.3 364.2 80.1 ST Investments & Mkt. Sec 0.0 0.0 0.0 Receivables 22.4 23.5 24.7 Inventories 115.1 151.9 269.5 Other Curr Assets 10.3 61.8 31.3 Net Fixed Assets 73.1 65.6 135.3 Construction in Progress 66.7 159.7 119.7 Invest. in Assoc. 0.0 0.0 0.0 Financial Investments 132.0 2.0 1.6 Other L.T. Assets 12.6 8.3 24.8 Payables (188.0) (316.2) (238.1) Other Curr Liab. (63.4) (55.9) (38.0) ST Debt 0.0 0.0 (23.1) LT Debt (31.8) (103.3) (78.2) Other LT Liab (0.1) (0.2) (0.3) Net Assets 264.1 361.4 309.3 Minorities 0.0 0.0 0.0 Book Capital 189.8 189.8 189.8 Ret. Earnings 74.3 171.6 119.5 Total Liab. & Equity 547.4 837.1 687.0
Working Capital Analysis FY06A FY07A FY08A Days Receivable 5.4 3.4 3.0 Days Inventory 30.4 23.7 35.1 Days Payable 49.7 49.3 31.0 Cash Operating Cycle 74.7 69.6 63.0
Derived Cash Flow (VNDbn)* FY06A FY07A FY08A EBIT n.a. 86.8 1.3 Depreciation & Amort n.a. 11.6 19.0 Chgs in Working Cap n.a. 31.4 (184.3) Operating Cash Flow n.a. 129.9 (164.1) Net Interest, Fx & Taxes n.a. 5.3 (45.3) Fixed Asset Capex n.a. (98.4) (58.1) Investments n.a. 130.0 0.4 Non Op Inc (Loss) n.a. 33.6 55.9 Other Non Cash Adj. n.a. 15.1 (71.0) Dividends Paid n.a. (38.0) 0.0 Change in Paid in Capital n.a. 0.0 0.0 Change in Net Debt n.a. 71.5 (2.0) Net Cash Flow n.a. 249.0 (284.1)* Calculated from Balance Sheet & P&L
DuPont Analysis FY06A FY07A FY08A EBIT / Sales 0.01 0.03 0.00 Sales/Total Assets 2.77 3.05 4.31 less Net Int./Assets (0.02) (0.10) 0.02 Pre-Tax ROA (%) 0.0% 0.0% 2.1% Assets/Equity 2.07 2.32 2.22 Pre-Tax ROE (%) 0.0% 0.0% 4.6% 1-Tax rate n.a. n.a. 0.83 ROE (%) n.a. n.a. 3.8%
Miscelleaneous FY06A FY07A Current Altman Z Score n.m. n.m. 5.3 Asset Growth (%) -20.3% 52.9% -17.9% Capex/Sales (%) n.m. 3.9% 2.0% Earnings Retention (%) 50.2% 81.9% -220.5%
Management Strategy and GoalsTuong An intends to focus on the retail bottled segment, subordinating industrial sales, with aggressive promotional campaigns, brand awareness enhancement, new product development, and reinforcement of its penetration to increasingly wealthy provincial towns in western and central Vietnam in addition to its traditional markets in urban cities in the south and southeast. The company is also eyeing export opportunities in neighboring Cambodia. Tuong An has over 116 distribution agents throughout the country and aims to sustain its current 23% domestic market share.
Investment PlansTuong An has completed its major capex cycle with a recently constructed VND278bn Phu My Factory in late FY08, tripling its production capacity to 252,000 from 72,000 tonnes per year. We therefore expect capex to moderate in the near term. The company also plans to invest in a bottling line valued at VND12bn in FY09E.
Key Success FactorsStrong brand equity, an experienced managerial team and a well-established distribution network with a deep understanding of the local market are Tuong An’s key strengths. Recent aggressive promotional campaigns have also enhanced and widened brand awareness throughout the country. Tuong An will also save input costs and leverage economies of scale with the implementation of new production lines.
Key Risk FactorsTAC imports nearly all of its raw materials, primarily Palm Olein and soyabean oil, which it processes domestically into edible vegetable oils and other end-use products. In addition to having to purchase raw material through its controlling parent company, Vocarimex, the company is exposed to rising costs on a weaker local currency, as well as generally rising input prices on agricultural commodities. The sector has become highly concentrated and competitive. Major players have entered Vietnam and gained a foothold in the industrial sales market, including Calofic and GoldenHope, who will not ignore the retail segment for much longer.
Consumer Goods / Food Products
Revenues by Product Group, 2008
and
82
Vinh Hoan Corp
Trading & Liquidity 20Days 100Days 180Days Volume (Reg, Trading) 48,146 23,917 22,685 VND Val. (Reg. Trading, bn) 1.6 0.7 0.6 Percent of market (%) 0.1 0.0 0.1
Shares Outstanding (mn) FY07A FY08A Current Wgt. Avg Issued Shares 21.3 30.0 30.0 Fully Dilluted Shares 21.3 30.0 30.0 Foreign Owned (% / Limit) 4.1mn 13.7% 49.0%
Market Values VND (bn) USD (mn) EUR (mn) Market Cap 894 50.2 35.5 Net Debt 656 36.9 0.0 Minorities & Others 9 0.5 0.4 Enterprise Value 1,560 87.6 62.0
Corperate Actions Ex-Date Amt/(ratio) Fiscal YearCash Dividend 2-Dec-08 1,200 FY08Cash Dividend 7-May-08 500 FY08Cash Dividend 28-Feb-08 1,000 FY07
Per Share (VND) FY06A FY07A FY08A Trail 12M FY09E* FY10E* EPS n.a. 4,525 2,668 3,401 2,536 n.a. BVPS n.a. 13,136 13,064 n.a. n.a. n.a. DPS n.a. 1,000 1,700 0 n.a. n.a. CFPS n.a. (300) (6,037) (3,421) n.a. n.a. FCFPS n.a. (9,160) (14,393) (12,456) n.a. n.a.* Bloomberg Consensus Estimates
Key Valuations FY07A Avg +/- 1 s.d. FY08A Avg +/- 1 s.d. FY09E* FY10E* P/E (x) n.a. n.a. 6.2 6.2 / 6.1 11.2 n.a. P/B (x) 3.7 3.8 / 3.7 1.9 2.5 / 1.4 n.a. n.a. Dividend Yield (%) n.a. n.a. 7.0 10.5 / 3.5 n.a. n.a. P/CFPS (x) n.a. n.a. n.a. n.a. n.a. n.a. FCF Yield (%) n.a. n.a. (79.7) n.a. n.a. n.a.
Growth FY06A FY07A FY08A FY09E* FY10E* Revenues 199.1% -6.0% 71.3% n.a. n.a. EBITDA 540.6% 6.0% 57.2% n.a. n.a. EBIT 1326.2% 8.6% 45.6% n.a. n.a. Net Income 18597.9% 22.3% -16.8% n.a. n.a. EPS n.a. n.a. -41.0% -4.9% n.a. BVPS n.a. n.a. -0.6% n.a. n.a.* Bloomberg Consensus Estimates
Growth Indicators FY06A FY07A FY08A Fixed Assets/Assoc 64.1% 293.7% 70.9% Debt -24.7% 113.6% 328.4% Financial Investments 0.0% -99.9% 0.0% Other LT Assets 98.4% 746.9% 378.7%
Profitability FY06A FY07A FY08A Gross Margin (%) 9.8 12.9 11.8 EBITDA Margin (%) 7.3 8.2 7.6 EBIT Margin (%) 6.5 7.5 6.4 Pre-Tax Margin (%) 5.8 7.8 3.5 Net Margin (%) 5.2 6.7 3.3
Solvency & Liquidity FY06A FY07A FY08A Acid Test Ratio 0.24 0.26 0.22 Current Ratio 1.21 1.39 1.07 LT Debt/Capital 13.4% 14.7% 51.1% Net Debt/Equity -60.4% -34.8% -167.6% LT Debt/Fixed Assets 19.5% 20.6% 42.5% Total Liab/Total Assets 54.4% 39.5% 65.8%
Management Company Data
Chairman Truong Thi Le Khanh Head OfficeNational Road 30, Ward 11,
Cao Lanh City
CEO Truong Thi Le Khanh Dong Thap Province, Vietnam CFO/ Chief Accontant Nguyen Thi Kim Dao Website www.vinhhoan.com.vn IR Contact Tran Thi Kim Loan Telephone +84673891166
Major Shareholders Shares Insider Holdings SharesForeigners 13.73% Truong Thi Le Khanh 59.88%
Company Description & Principle ActivitiesVinh Hoan is a Vietnam-based aquaculture company engaged in the export of frozen Tra-fish fillets and value added products and by-products such as fish-oil and bone-powder. The company was ranked as the third largest Pangasius exporter and fourth largest seafood exporter in 2008 with foreign revenues of USD0.1bn, accounting for 6% of Vietnam’s total Pangasius export. The US is the company’s largest export market, followed by Europe and the company also engages in feed processing, trading fish vaccines, and third-party exporting.
Market OutlookVietnam is the sixth largest seafood exporting country in the world with exports valued at US$4.5bn in 2008, up from US$3.8bn in 2007, with access to 125 foreign markets. Vietnam farmed 1.65mn tonnes of Tra-fish (Pangasius) in FY08, equivalent to 0.64mn tonnes of fillets, which accounted for US$1.45bn or 32.1% of total export value in 2008, increasing by 48% in value and 66% in volume compared to 2007.
Company HistoryVinh Hoan was founded as a private company in 1997 and is located in Dong Thap Province in the Mekong Delta. It was listed on the HOSE in December 2007. Vinh Hoan currently owns three Tra-fish factories with a total processing capacity of 560 tonnes of raw fish input per day. It also owns 136.5 ha of farming area, providing 34% of the company’s product requirement for raw material inputs.
Ticker Share Price - VND
VHC 28,400
Close/Volume Chart
Relative Performance
S&P Vietnam 10 Ho Chi Minh Stock Index
MSCI AC Asia Index VHC
01 Jul 09
Mn SharesVND
01 Jul 09
83
Profit & Loss (VND bn) FY06A FY07A FY08A Revenue 1,516.2 1,425.4 2,442.4 EBITDA 110.6 117.3 184.4 EBIT 98.5 106.9 155.7 Interest & Fx Exp (7.8) 0.9 (85.1) Non Op Inc (Loss) (3.1) 3.4 14.1 Pre-Tax 87.5 111.2 84.7 Taxes (8.9) (15.2) (2.4) Minorities & Pref’s 0.0 0.2 (2.2) Net Income to Common 78.6 96.1 80.0
Balance Sheet (VNDbn) FY06A FY07A FY08A Cash & Equiv. 9.2 20.9 20.8 ST Investments & Mkt. Sec 0.0 0.0 0.4 Receivables 92.3 174.9 272.6 Inventories 35.8 92.4 333.8 Other Curr Assets 14.2 92.3 70.0 Net Fixed Assets 58.1 95.8 486.2 Construction in Progress 16.2 196.4 13.1 Invest. in Assoc. 0.0 0.0 0.0 Financial Investments 9.7 0.0 0.0 Other L.T. Assets 0.4 3.8 18.2 Payables (38.8) (81.3) (96.8) Other Curr Liab. (15.5) (27.7) (24.9) ST Debt (59.6) (98.0) (465.2) LT Debt (14.5) (60.2) (212.3) Other LT Liab 0.0 (0.4) (0.7) Net Assets 107.5 409.0 415.3 Minorities 0.0 14.9 23.4 Book Capital 17.3 300.0 300.0 Ret. Earnings 90.2 94.1 91.9 Total Liab. & Equity 235.8 676.5 1,215.2
Working Capital Analysis FY06A FY07A FY08A Days Receivable 22.2 44.8 40.7 Days Inventory 9.6 27.1 56.6 Days Payable 10.4 23.9 16.4 Cash Operating Cycle (2.3) 6.3 32.2
Derived Cash Flow (VNDbn)* FY06A FY07A FY08A EBIT 98.5 106.9 155.7 Depreciation & Amort 12.2 10.4 28.7 Chgs in Working Cap (47.1) (162.5) (304.2) Operating Cash Flow 63.5 (45.2) (119.8) Net Interest, Fx & Taxes (16.8) (14.4) (87.5) Fixed Asset Capex (41.9) (188.3) (250.7) Investments 0.0 9.6 0.0 Non Op Inc (Loss) (3.1) 3.4 14.1 Other Non Cash Adj. 34.2 (39.3) (38.8) Dividends Paid 0.0 (80.9) (36.8) Change in Paid in Capital 0.0 282.7 0.0 Change in Net Debt (24.3) 84.1 519.4 Net Cash Flow 11.7 11.7 (0.1)* Calculated from Balance Sheet & P&L
DuPont Analysis FY06A FY07A FY08A EBIT / Sales 0.06 0.08 0.06 Sales/Total Assets 6.43 2.11 2.01 less Net Int./Assets (0.05) 0.01 (0.06) Pre-Tax ROA (%) 37.1% 16.4% 7.0% Assets/Equity 2.19 1.65 2.93 Pre-Tax ROE (%) 81.5% 27.2% 20.4% 1-Tax rate 0.90 0.86 0.97 ROE (%) 73.2% 23.5% 19.8%
Miscelleaneous FY06A FY07A Current Altman Z Score n.m. n.m. 3.0 Asset Growth (%) -80.6% 186.9% 79.6% Capex/Sales (%) 2.8% 13.2% 10.3% Earnings Retention (%) n.a. n.a. -1.1%
Management Strategy and GoalsVinh Hoan plans to secure the traditional US market and expand in Europe by focusing on the lucrative German and UK markets. It is targeting 5% to 10% of total revenues to be derived from the hugely potential Russian market in 2009. To achieve this goal the company is committed to ensure food safety standards and high quality products, enhance its vertically integrated production with world-standard quality and stable supply sources to achieve a 40% self-supply rate of raw fish in 2009 and 70% onwards.
Investment PlansVinh Hoan plans to expand its farming area to 186.5ha in 2009 to ensure 40% raw Tra-catfish input supply for its own production. They will also double their Tra-feed factory capacity to 140,000 tonnes per year to cater for their farming requirements and for market sale, which is due to be operational by the end of 2009. The total capital required for these projects is VND25bn and VND20bn, respectively.
Key Success FactorsVinh Hoan has access to a stable and plentiful supply of raw materials, given the well developed fish farming industry in the Mekong Delta and vertical integration of it’s Tra-fish farming business. To ensure long term access to high end markets, Vinh Hoan has invested intensively in quality control and achieved AQUAGAP accreditation granted by Switzerland’s IMO, becoming one of a very few Vietnamese seafood suppliers gaining access to supermarket chains in developed countries.
Key Risk FactorsThe company is currently sourcing up to 60% raw Tra-fish from external suppliers, raising food safety and quality concerns. Rising awareness and more stringent food enforcement standards in importing countries could continue increasing operating expenses and will require the company to maintain a high level or organizational competence. Concerns of a narrowing US market if the Farm Bill is passed would hurt Vinh Hoan’s revenue for a period of time while it seeks expansion in other markets. Due to a heavy reliance on working capital borrowing, net margins will be sensitive to rising interest rates and falling export prices due to intensified competition.
Consumer Goods / Food Producers
Revenues by Product Group, 2008
84
Viet Nam Dairy Products (Vinamilk)
Trading & Liquidity 20Days 100Days 180Days Volume (Reg, Trading) 169,702 128,750 137,485 VND Val. (Reg. Trading, bn) 16.4 11.4 11.7 Percent of market (%) 0.5 0.7 1.1
Shares Outstanding (mn) FY07A FY08A Current Wgt. Avg Issued Shares 174.6 175.3 175.3 Fully Dilluted Shares 174.6 175.3 175.3 Foreign Owned (% / Limit) 84.4mn 48.2% 49.0%
Market Values VND (bn) USD (mn) EUR (mn) Market Cap 16,739 940.4 667.0 Net Debt (378) (21.3) (0.0) Minorities & Others (1,234) (69.3) (49.2) Enterprise Value 15,126 849.8 602.7
Corperate Actions Ex-Date Amt/(Ratio) Fiscal YearCash Dividend 26-Nov-08 1,900 FY08Cash Dividend 18-Aug-08 1,000 FY08Cash Dividend 17-Apr-08 1,000 FY07Cash Dividend 27-Jun-07 1,900 FY07Cash Dividend 31-Jan-07 955 FY06Rights Issue 31-Jan-07 1/20 FY07
Per Share (VND) FY06A FY07A FY08A Trail 12M FY09E* FY10E* EPS 3,964 5,587 7,132 n.a. 8,340 8,078 BVPS 16,449 24,623 27,168 n.a. 31,266 35,932 DPS 1,748 3,082 3,884 n.a. 3,124 3,319 CFPS 3,400 2,398 7,760 n.a. n.a. n.a. FCFPS (262) (1,862) 5,221 n.a. n.a. n.a.* Bloomberg Consencus Estimates
Key Valuations FY07A Avg +/- 1 s.d. FY08A Avg +/- 1 s.d. FY09E* FY10E* P/E (x) 35.6 39 / 32.1 15.5 16.2 / 14.8 11.0 11.4 P/B (x) 8.3 9.4 / 7.3 3.9 4.7 / 3.1 2.9 2.6 Dividend Yield (%) 1.4 1.7 / 1.1 2.4 3.6 / 1.2 29.4 27.7 P/CFPS (x) 33.4 43.4 / 23.5 26.9 40.5 / 13.3 n.a. n.a. FCF Yield (%) (2.8) -0.7 / -4.8 n.a. n.a. n.a. n.a.
Growth FY06A FY07A FY08A FY09E* FY10E* Revenues 10.8% 4.7% 25.6% n.a. n.a. EBITDA n.a. 3.2% 101.6% n.a. n.a. EBIT 4.8% -1.6% 117.2% n.a. n.a. Net Income 9.0% 46.0% 29.8% n.a. n.a. EPS 8.8% 41.0% 27.7% 16.9% -3.1% BVPS 21.6% 49.7% 10.3% 15.1% 14.9%* Bloomberg Conscencus Estimates
Growth Indicators FY06A FY07A FY08A Fixed Assets/Assoc 59.6% 43.0% 14.9% Debt 24.2% 18.4% 171.0% Financial Investments -51.2% 10.8% 69.2% Other LT Assets -18.4% 83.0% 25.0%
Profitability FY06A FY07A FY08A Gross Margin (%) 25.1 26.0 31.6 EBITDA Margin (%) 10.5 10.4 16.6 EBIT Margin (%) 8.9 8.4 14.5 Pre-Tax Margin (%) 10.6 14.6 16.7 Net Margin (%) 10.6 14.7 15.2
Solvency & Liquidity FY06A FY07A FY08A Acid Test Ratio 0.36 0.19 0.69 Current Ratio 2.42 3.16 3.10 LT Debt/Capital 3.2% 2.6% 3.0% Net Debt/Equity 1.9% -0.1% 0.1% LT Debt/Fixed Assets 8.1% 7.0% 7.5% Total Liab/Total Assets 23.9% 19.8% 19.3%
Management Company Data
Chairman Mai Kieu Lien Head Office184-188 Nguyen Dinh Chieu
Street, District 3
CEO Mai Kieu Lien Hochiminh City CFO/ Chief Accontant Ngo Thi Thu Trang Website www.vinamilk.com.vn IR Contact Tran Chi Son Telephone +84839300358
Major Shareholders Shares Insider Holdings SharesStates 47.64% Mai Kieu Lien 0.097%Dragon Capital’s Funds 8.46% Ngo Thi ThuTrang 0.045%F&N Dairy Investment 10.08% Nguyen Thi Nhu Hang 0.038%
Company Description & Principle ActivitiesVietnam Dairy Products JSC (Vinamilk) is engaged in the food manufacturing sector. The company manufactures and distributes dairy products, including liquid, condensed and powdered milk, nutritional supplements, infant formulas and related products, coffee, and non-alcoholic drinks. Its minor activities include packaging, logistics and warehousing services, as well as the trading of industrial supplies and machinery. The company is developing a head office property development project through a subsidiary and has recently acquired another company engaged in fresh milk production and cattle husbandry, currently farming a total of 2,400 head.
Market OutlookVietnam’s dairy consumption rate of only 11.6 kg per capita in 2008 contrasts with 38kg in Thailand, 20.9 kg in China and a world average consumption rate of 103kg per capita. It is estimated that 10% of the population, principally urban dwellers, consume 78% of total dairy products in the country, driving industry growth by a CAGR of 3.2% in volume and over 25% in revenue per year during the past five years. Increasing rates of urbanization and income growth provide tremendous organic growth potential in both the short and long term.
Company HistoryThe company was founded as the Southern Dairy-Coffee Company as a subsidiary of the General Food Directorate in 1976 with six factories in operation. Becoming the Vietnam Dairy Company in 1992, the company began to focus exclusively on dairy products. Vietnam Dairy Products became a joint stock company (JSC) in 2003 and listed on the HOSE in January 2006.
Ticker Share Price - VND
VNM 92,000
Close/Volume Chart
Relative Performance
S&P Vietnam 10 Ho Chi Minh Stock Index
MSCI AC Asia Index VNM
01 Jul 09
Mn SharesVND
01 Jul 09
85
Profit & Loss (VND bn) FY06A FY07A FY08A Revenue 6,245.6 6,538.0 8,209.0 EBITDA 656.9 677.6 1,366.1 EBIT 555.7 546.9 1,187.6 Interest & Fx Exp (42.3) (17.6) (28.2) Non Op Inc (Loss) 149.4 426.1 211.9 Pre-Tax 662.8 955.4 1,371.3 Taxes (2.9) 8.0 (122.6) Minorities & Pref’s 0.0 0.1 1.4 Net Income to Common 659.9 963.4 1,250.1
Balance Sheet (VNDbn) FY06A FY07A FY08A Cash & Equiv. 156.9 117.8 338.7 ST Investments & Mkt. Sec 306.7 654.5 374.0 Receivables 393.9 505.2 530.1 Inventories 965.8 1,675.2 1,775.3 Other Curr Assets 173.0 225.0 169.5 Net Fixed Assets 755.0 1,030.9 1,580.8 Construction in Progress 316.2 598.3 356.9 Invest. in Assoc. 122.7 78.2 23.7 Financial Investments 292.1 323.6 547.4 Other L.T. Assets 118.3 216.4 270.5 Payables (436.9) (621.4) (492.6) Other Curr Liab. (299.6) (302.0) (291.7) ST Debt (17.9) (10.0) (188.2) LT Debt (86.3) (113.4) (146.0) Other LT Liab (21.5) (26.5) (35.9) Net Assets 2,738.4 4,351.9 4,812.5 Minorities 0.0 36.0 50.6 Book Capital 1,644.2 2,817.7 2,817.7 Ret. Earnings 1,094.2 1,498.2 1,944.2 Total Liab. & Equity 3,600.5 5,425.1 5,967.0
Working Capital Analysis FY06A FY07A FY08A Days Receivable 23.0 28.2 23.6 Days Inventory 75.4 126.4 115.5 Days Payable 34.1 46.9 32.0 Cash Operating Cycle 86.4 145.1 124.0
Derived Cash Flow (VNDbn)* FY06A FY07A FY08A EBIT 555.7 546.9 1,187.6 Depreciation & Amort 101.2 130.8 178.4 Chgs in Working Cap 1,181.3 (685.7) (208.6) Operating Cash Flow 1,838.2 (8.1) 1,157.4 Net Interest, Fx & Taxes (45.2) (9.6) (150.9) Fixed Asset Capex (609.5) (744.0) (445.1) Investments 183.6 13.0 (169.4) Non Op Inc (Loss) 149.4 426.1 211.9 Other Non Cash Adj. (1,037.7) (228.5) (88.7) Dividends Paid (538.2) (680.7) (505.5) Change in Paid in Capital 0.0 1,173.5 0.0 Change in Net Debt 20.3 19.2 210.9 Net Cash Flow (39.1) (39.1) 220.8 * Calculated from Balance Sheet & P&L
DuPont Analysis FY06A FY07A FY08A EBIT / Sales 0.09 0.08 0.14 Sales/Total Assets 1.73 1.21 1.38 less Net Int./Assets 0.03 0.08 0.03 Pre-Tax ROA (%) 18.4% 17.6% 23.0% Assets/Equity 1.31 1.25 1.24 Pre-Tax ROE (%) 24.2% 22.0% 28.5% 1-Tax rate 1.00 1.01 0.91 ROE (%) 24.1% 22.1% 25.9%
Miscelleaneous FY06A FY07A Current Altman Z Score n.m. n.m. 10.5 Asset Growth (%) -39.7% 50.7% 10.0% Capex/Sales (%) 9.8% 11.4% 5.4% Earnings Retention (%) 55.9% 44.8% 45.5%
Management Strategy and GoalsProduction capacity was 504,000 tonnes per year in FY08 and Vinamilk intends to continue to raise production capacity by between 5% to 10% per year as dairy food consumption increases. Vinamilk will also focus on strengthening its distribution network in 2009 particularly in the cold products segments. They are also investing heavily in product innovation and marketing campaigns to develop new products suitable with more sophisticated consumer tastes and to expand its powder milk market share to 20% from 15% in FY08. Vinamilk currently has 220 distributors and 140,000 points of sale throughout the country. Vinamilk plans to progressively enhance domestic raw milk supplies by providing seed capital and technical support to independent dairy farms in exchange for long term off-take agreements.
Investment PlansCapital expenditure is budgeted at VND1,208bn for FY09, of which half is slated for new projects in FY09 and the balance in FY10. The capex to sales ratio has been historically consistent at 10%. The company also issued 386,840 shares in June 2009 (0.23% capital increase) as part of their 2009 employee share bonus scheme and Vinamilk will begin construction of its new head office property development in HCMC with a total capital requirement of VND386bn, of which VND158bn has been disbursed in 2008 and is scheduled for completion in 4QFY10. Cash flow generation is significant and there are no plans to increase long-term leverage. Vinamilk’s Singapore listing plans were postponed in FY08 due to unfavorable market conditions.
Key Success FactorsVinamilk continues to sustain its best-known brands in Vietnam, maintaining brand dominance with a wide product range, intensive marketing campaigns, and a nationwide distribution network provides a stable 37% market share. Vinamilk has diversified into yoghurts, fruit juices, coffee, specialized infant formulas, adult and elderly supplements and body weight control powders. They are also consistently investing in R&D and launching new products with plans to expand into the health drink sector, although recently disposed of their stake in the SAB Miller brewing joint venture to focus on core businesses and fully exploit the growth potential in the dairy industry.
Key Risk FactorsVinamilk imports almost all of its raw material product, primarily powdered milk and juice concentrate which it recombines domestically into liquid milk and other end-use products. As such, the company is exposed to rising costs on a weaker currency, as well as generally rising commodities input prices. Vietnam’s retail dairy market is highly competitive particularly in the powdered milk sector where foreign invested enterprises and brands control 80% of that market. Major players to have entered Vietnam more recently include F&N, Nestle, and Meiji Milk although no single company matches Vinamilk in product breadth.
Consumer Goods / Food Producers
Revenues by Product Group, 2008
86
PetroVietnam General Services
Trading & Liquidity 20Days 100Days 180Days Volume (Reg, Trading) 493,525 301,798 213,145 VND Val. (Reg. Trading, bn) 11.9 5.9 4.0 Percent of market (%) 0.4 0.4 0.4
Shares Outstanding (mn) FY07A FY08A Current Wgt. Avg Issued Shares 26.5 48.3 48.0 Fully Dilluted Shares 26.5 48.3 48.0 Foreign Owned (% / Limit) 4.6mn 9.6% 49.0%
Market Values VND (bn) USD (mn) EUR (mn) Market Cap 961 54.0 38.2 Net Debt 685 38.5 0.0 Minorities & Others 102 5.7 4.1 Enterprise Value 1,748 98.2 69.5
Corperate Actions Ex-Date Amt/(ratio) Fiscal YearCash Dividend 6-May-09 1,000 FY08Cash Dividend 8-May-08 600 FY07Rights Issue 29-Oct-07 8/9 FY07
Per Share (VND) FY06A FY07A FY08A Trail 12M FY09E* FY10E* EPS n.a. 1,965 1,828 1,420 1,617 n.a. BVPS n.a. 11,216 12,090 n.a. n.a. n.a. DPS n.a. n.a. 608 n.a. n.a. n.a. CFPS n.a. (22,016) (3,129) n.a. n.a. n.a. FCFPS n.a. (24,697) (4,316) n.a. n.a. n.a.* Bloomberg Consensus Estimates
Key Valuations FY07A Avg +/- 1 s.d. FY08A Avg +/- 1 s.d. FY09E* FY10E* P/E (x) n.a. n.a. 10.0 10 / 9.9 11.8 n.a. P/B (x) 7.4 9.9 / 5 1.8 2.6 / 1.1 n.a. n.a. Dividend Yield (%) n.a. n.a. 3.3 4.2 / 2.5 n.a. n.a. P/CFPS (x) n.a. n.a. n.a. n.a. n.a. n.a. FCF Yield (%) n.a. n.a. n.a. n.a. n.a. n.a.
Growth FY06A FY07A FY08A FY09E* FY10E* Revenues 45.2% 264.3% 96.1% n.a. n.a. EBITDA 13.1% 372.9% 164.4% n.a. n.a. EBIT -13.8% 1021.6% 204.9% n.a. n.a. Net Income 15.4% 777.1% 69.5% n.a. n.a. EPS n.a. n.a. -7.0% -11.6% n.a. BVPS n.a. n.a. 7.8% n.a. n.a.* Bloomberg Consensus Estimates
Growth Indicators FY06A FY07A FY08A Fixed Assets/Assoc 359.4% -2.8% 26.5% Debt -45.6% 22115.4% 60.2% Financial Investments -50.6% 49.8% 117.7% Other LT Assets -98.5% 150.4% -21.5%
Profitability FY06A FY07A FY08A Gross Margin (%) 10.0 7.4 7.3 EBITDA Margin (%) 1.9 2.5 3.4 EBIT Margin (%) 0.7 2.0 3.2 Pre-Tax Margin (%) 1.1 1.9 0.0 Net Margin (%) 0.8 1.9 1.7
Solvency & Liquidity FY06A FY07A FY08A Acid Test Ratio 1.31 0.08 0.89 Current Ratio 0.94 1.25 0.97 LT Debt/Capital 0.4% 0.2% 1.8% Net Debt/Equity 6.4% -81.3% -118.7% LT Debt/Fixed Assets 0.5% 0.4% 3.5% Total Liab/Total Assets 53.5% 54.0% 63.6%
Management Company Data Chairman Tran Cong Tao Head Office 12 AB Thanh Da Str., Ward 27,
CEO Nguyen Huu ThanhVBinh Thanh Distr, Ho Chi
Minh City
CFO/ Chief Accontant Dao Van Dai Websitehttp://www.petrosetco.
com.vn
IR Contact Dao Van Dai Telephone +84835566186
Major Shareholders Shares Insider Holdings SharesState 50.16% Management 700,000
Company Description and Principle ActivitiesPET is engaged in three business lines including general trading, oil and gas services and LPG cylinder manufacturing. The company is the official distributor of Nokia handsets and laptop computers including Dell, Acer, Lenovo and HP through its eight branch outlets and more than 1,000 distribution agents throughout the country. It also trades imported fertilizer and agricultural products. Under oil and gas services, PET provides offshore and onshore services at construction sites and provides living, maintenance, labour, and security services and real estate developments.
Market OutlookVietnam’s demographic profile and positive economic outlook offers strong growth potential for the key high-tech and energy sectors targeted by PET. A recent survey by ACNielsen revealed that 25% of Vietnamese consumers would spend their spare cash purchasing new technological devices, ranking Vietnam tenth in the world ahead of Japan, which provides an opportunity for PET to develop its high-tech distribution business. In oil and gas, Vietnam has begun investing in oil refineries, including associated sectors and related services. The annual growth rate in LPG consumption has been around 10% for the past five years and, given increasing safety awareness and the infeasibility of piped gas for residential use, the demand for LPG cylinders will remain high.
Company HistoryPetrosetco (PetroVietnam General Services Joint Stock Corporation) was founded in 1980 as the PetroVietnam Service and Tourism Company. It later acquired related PeteroVietnam Group divisions, established new business subsidiaries, and diversified its operations before equitising in 2005 and listing on the Ho Chi Minh City Stock Exchange in August 2007. PET ranked 116th among the top 500 largest companies in Vietnam in 2008 according to a VNR Club 500 survey, up from 449th in 2007, and currently operates through its eight subsidiaries.
Ticker Share Price - VND
PET 19,000
Close/Volume Chart
Relative Performance
S&P Vietnam 10 Ho Chi Minh Stock Index
MSCI AC Asia Index PET
01 Jul 09
Mn SharesVND
01 Jul 09
87
Profit & Loss (VND bn) FY06A FY07A FY08A Revenue 739.8 2,695.3 5,286.4 EBITDA 14.2 67.2 177.6 EBIT 4.9 55.2 168.3 Interest & Fx Exp (1.3) (15.8) (89.5) Non Op Inc (Loss) 4.6 12.8 9.5 Pre-Tax 8.3 52.3 0.0 Taxes (2.4) (0.2) 0.0 Minorities & Pref’s 0.0 0.0 0.0 Net Income to Common 5.9 52.1 88.3
Balance Sheet (VNDbn) FY06A FY07A FY08A Cash & Equiv. 19.0 38.7 77.6 ST Investments & Mkt. Sec 180.0 16.5 5.0 Receivables 41.1 234.5 272.2 Inventories 43.3 501.9 623.4 Other Curr Assets 35.7 144.6 315.7 Net Fixed Assets 223.3 203.7 200.1 Construction in Progress 4.8 31.3 92.5 Invest. in Assoc. 13.7 0.0 4.6 Financial Investments 1.0 1.4 3.1 Other L.T. Assets 1.7 4.3 3.4 Payables (14.5) (476.1) (87.5) Other Curr Liab. (284.5) 319.1 (161.9) ST Debt (1.0) (477.8) (756.9) LT Debt (1.2) (1.0) (10.3) Other LT Liab (0.2) (0.0) (0.2) Net Assets 262.2 541.1 580.9 Minorities 0.0 0.0 0.0 Book Capital 255.3 482.6 490.7 Ret. Earnings 6.9 58.6 90.2 Total Liab. & Equity 563.6 1,176.9 1,597.7
Working Capital Analysis FY06A FY07A FY08A Days Receivable 20.3 31.7 18.8 Days Inventory 23.8 73.4 46.4 Days Payable 7.9 69.6 6.5 Cash Operating Cycle 11.4 111.2 34.1
Derived Cash Flow (VNDbn)* FY06A FY07A FY08A EBIT 4.9 55.2 168.3 Depreciation & Amort 9.3 12.0 9.2 Chgs in Working Cap (330.7) (902.9) (237.9) Operating Cash Flow (316.5) (835.7) (60.4) Net Interest, Fx & Taxes (3.6) (15.9) (89.5) Fixed Asset Capex (83.7) (71.1) (57.3) Investments (12.7) 13.2 (6.3) Non Op Inc (Loss) 4.6 12.8 9.5 Other Non Cash Adj. 400.5 241.8 (53.6) Dividends Paid 0.0 (29.4) (0.0) Change in Paid in Capital 33.0 227.3 8.1 Change in Net Debt (1.8) 476.6 288.4 Net Cash Flow 19.7 19.7 39.0 * Calculated from Balance Sheet & P&L
DuPont Analysis FY06A FY07A FY08A EBIT / Sales 0.01 0.02 0.03 Sales/Total Assets 1.31 2.29 3.31 less Net Int./Assets 0.01 (0.00) (0.11) Pre-Tax ROA (%) 1.5% 4.4% 0.0% Assets/Equity 2.15 2.17 2.75 Pre-Tax ROE (%) 3.2% 9.7% 0.0% 1-Tax rate 0.72 1.00 n.a. ROE (%) 2.3% 9.6% n.a.
Miscelleaneous FY06A FY07A Current Altman Z Score n.m. n.m. 4.2 Asset Growth (%) -64.7% 108.8% 35.8% Capex/Sales (%) 11.3% 2.6% 1.1% Earnings Retention (%) n.a. n.a. 66.8%
Management Strategy and GoalsPET targets to become the leading distributor of mobile telephone handsets and laptops in Vietnam and will further expand into rural areas. Laptop sales are a key target with an estimated growth potential of 30% per year. PET will also provide services to PetroVietnam’s ongoing projects, particularly residential and real estate services catering to the Dung Quat refinery and economic zone.
Investment PlanDue to the broader economic downturn, PET will focus on its traditional businesses in 2009. The capex plan this year will moderate to VND80bn, of which VND50bn towards an ethanol project, and VND30bn for feasibility and architectural planning for the 2.1ha Thanh Da Real Estate development project. The company also plans to increase chartered capital to VND555bn from the current VND255.3bn by the end of the current year by issuing an additional six million shares. The capital raising is estimated to meet 30% of the company’s investment requirements for 2010 onwards with the remaining portion to be funded by external borrowings.
Key Success FactorsAn extensive national distribution network including both rural and urban areas has been a key success factor critical to PET’s hold on a 40% share of the distribution of Nokia handsets and in becoming their official distributor. As a member of PetroVietnam group and with a large land bank of over 34,000m2 in prime locations, PET also has exploitable advantages in real estate related services and in securing participation in oil and petrochemical projects.
Key Risk FactorsBusiness diversification will be a challenge due to their heavy involvement in real estate projects in the near term and raising sufficient capital will also be a major task. Overreliance on borrowing will also lead to more exposure to rising interest rates. Despite their intensive distribution coverage, the company will face increasing competition when foreign entrants are also permitted to establish wholly owned subsidiaries.
Consumer Services / Travel & Tourism
Revenues by Business Line, 2008
88
Market OutlookVietnam ranks among the world’s top ten countries in spending on gold, more than 95% of which is imported, with an estimated 77.5 tonnes brought into the country in 2007 and 115 tonnes in 2008. Gold and jewellery trading is a lucrative enterprise in Vietnam as the precious metal is often used as currency in real estate transactions and for wealth preservation. Underpinned by a young population, strong economic growth, and rising disposable incomes the demand for luxury products will also drive the long-term demand for fine jewellery.
Company HistoryFounded in 1988 as a small jewellery trading store belonging to the Phu Nhuan District People’s Committee, PNJ was rebranded as the Phu Nhuan Jewellery Company and converted to a Joint Stock Company in January 2004 before listing on the Ho Chi Minh City Stock Exchange in May 2008.
Company Description and Principle ActivitiesPNJ manufactures jewellery, and trades in gemstones and gold through its extensive network of 89 stores and more than 3,000 distributors throughout the country. In addition to boosting export sales to major customers in the U.S, Denmark and Germany, PNJ also aims to diversify its customer base to new markets including Australia, France and Middle East. PNJ is also diversifying into other business lines including retail LPG and fuel distribution, LPG cylinder production, investments in properties, and seafood processing and supply for the domestic market.
Phu Nhuan Jewelry Ticker Share Price - VND
PNJ 69,500
Close/Volume Chart
Relative Performance
S&P Vietnam 10 Ho Chi Minh Stock Index
MSCI AC Asia Index PNJ
Trading & Liquidity 20Days 100Days 180Days Volume (Reg, Trading) 351,188 218,709 218,709 VND Val. (Reg. Trading, bn) 28.3 14.6 14.6 Percent of market (%) 0.9 0.9 1.3
Shares Outstanding (mn) FY07A FY08A Current Wgt. Avg Issued Shares 2.1 30.0 30.0 Fully Dilluted Shares 2.1 30.0 30.0 Foreign Owned (% / Limit) 5.8mn 19.4% 49.0%
Market Values VND (bn) USD (mn) EUR (mn) Market Cap 2,085 117.1 84.3 Net Debt (97) (5.4) (0.0) Minorities & Others 99 5.6 4.0 Enterprise Value 2,087 117.2 84.3
Corperate Actions Ex-Date Amt/(ratio) Fiscal YearCash Dividend 7-Apr-09 400 FY08
Key Valuations FY07A Avg +/- 1 s.d. FY08A Avg +/- 1 s.d. FY09E* FY10E* P/E (x) n.a. n.a. n.a. n.a. n.a. n.a. P/B (x) n.a. n.a. n.a. n.a. n.a. n.a. Dividend Yield (%) n.a. n.a. n.a. n.a. n.a. n.a. P/CFPS (x) n.a. n.a. n.a. n.a. n.a. n.a. FCF Yield (%) n.a. n.a. n.a. n.a. n.a. n.a.
Growth Indicators FY06A FY07A FY08A Fixed Assets/Assoc n.a. n.a. 498.8% Debt n.a. n.a. 54.7% Financial Investments n.a. n.a. 11.5% Other LT Assets n.a. n.a. 18.3%
Profitability FY06A FY07A FY08A Gross Margin (%) n.a. 8.5 8.4 EBITDA Margin (%) n.a. 3.7 3.9 EBIT Margin (%) n.a. 3.3 3.0 Pre-Tax Margin (%) n.a. 5.5 4.0 Net Margin (%) n.a. 4.8 3.0
Solvency & Liquidity FY06A FY07A FY08A Acid Test Ratio n.a. 2.81 8.10 Current Ratio n.a. 1.89 1.15 LT Debt/Capital n.a. 6.5% 7.6% Net Debt/Equity n.a. -17.2% 8.1% LT Debt/Fixed Assets n.a. 130.4% 23.6% Total Liab/Total Assets n.a. 30.5% 42.7%
Management Company Data
Chairman Cao Thi Ngoc Dung Head Office170 Phan Dang Luu, ward 3,
Phu Nhuan District, HCMC
CEO Cao Thi Ngoc Dung
CFO/ Chief Accontant Dang Thi Lai Website http://www.pnj.com.vn IR Contact Nguyen Thi Cuc Telephone +848 3995 1703
Major Shareholders Shares Insider’s Holdings SharesVietnam Azalea Fund (VAF) 6.67% Cao Thi Ngoc Dung 6.39%VOF Investment Ltd (VOF) 4.00%Vietnam Investment Ltd (VIL) 4.15%Asia Value Investment Ltd(AVIL) 3.67%
Per Share (VND) FY06A FY07A FY08A Trail 12M FY09E* FY10E* EPS n.a. 54,650 4,185 4,185 n.a. n.a. BVPS n.a. n.a. 30,452 n.a. n.a. n.a. DPS n.a. 7,119 4,328 n.a. n.a. n.a. CFPS n.a. (64,794) 12,064 12,064 n.a. n.a. FCFPS n.a. (73,443) 2,037 2,037 n.a. n.a.* Bloomberg Consensus Estimates
Growth FY06A FY07A FY08A FY09E* FY10E* Revenues n.a. n.a. 75.6% n.a. n.a. EBITDA n.a. n.a. 85.0% n.a. n.a. EBIT n.a. n.a. 61.0% n.a. n.a. Net Income n.a. n.a. 9.8% n.a. n.a. EPS n.a. n.a. -92.3% n.a. n.a. BVPS n.a. n.a. n.a. n.a. n.a.* Bloomberg Consensus Estimates
23 Mar 09
Mn SharesVND
01 Jul 09
89
Consumer Services / Apparel Retailers
Management Strategy and GoalGold trading remains PNJ’s core business and the company will develop their PNJ brand to become a leading bullion and jewellery brand. PNJ will merge their two existing factories into a fully equipped modern facility to enable production of world-class products and further expand its export markets. In addition, the company will restart its motorcycle trading business in 2010 in anticipation of a broader economic recovery at that time.
Investment PlanPNJ plans to expand its distribution network in four major cities throughout the country including Ho Chi Minh City, Hanoi, Danang and Can Tho, and consolidate its stores within higher profile shopping malls and business centres to enhance brand awareness. PNJ’s capex plan totals VND125.4bn in FY09, including investments in Dong A Real Estate joint venture company (VND50bn), machinery and equipment (VND6.8bn), Saigon Fuel Co. (VND12bn) and the remaining amount allocated to store construction and refurbishment.
Key Success FactorsPNJ is the country’s leading mass-production jeweller with a fashionable and diverse product range targeting different customer segments. They also possess an active management team with intensive experience and strong business relationships open to opportunities.
Key Risk FactorsPNJ imports nearly all of its raw gold materials, thus is exposed to rising import costs on a weaker domestic currency as well as generally fluctuating global gold prices. Additionally, a business diversification strategy will require extra effort from management to cope with a challenging and more competitive business environment not only from local players but also qualified international companies entering Vietnam following WTO accession.
Revenues by Business Line, 2008 Profit & Loss (VND bn) FY06A FY07A FY08A Revenue n.a. 2,379.6 4,178.8 EBITDA n.a. 87.0 160.9 EBIT n.a. 77.5 124.8 Interest & Fx Exp n.a. (23.7) (47.2) Non Op Inc (Loss) n.a. 76.8 88.9 Pre-Tax n.a. 130.6 166.5 Taxes n.a. (15.5) (34.6) Minorities & Pref’s n.a. (0.6) (6.3) Net Income to Common n.a. 114.4 125.6
Balance Sheet (VNDbn) FY06A FY07A FY08A Cash & Equiv. n.a. 180.5 617.5 ST Investments & Mkt. Sec n.a. 16.9 23.0 Receivables n.a. 18.8 27.3 Inventories n.a. 504.3 68.3 Other Curr Assets n.a. 180.7 50.2 Net Fixed Assets n.a. 49.3 286.4 Construction in Progress n.a. 1.8 25.1 Invest. in Assoc. n.a. 1.0 0.0 Financial Investments n.a. 382.7 426.7 Other L.T. Assets n.a. 134.0 158.6 Payables n.a. (64.2) (76.3) Other Curr Liab. n.a. (31.8) (95.6) ST Debt n.a. (284.9) (470.2) LT Debt n.a. (66.5) (73.4) Other LT Liab n.a. (1.7) (3.3) Net Assets n.a. 1,020.8 964.3 Minorities n.a. 30.0 50.8 Book Capital n.a. 825.0 825.0 Ret. Earnings n.a. 165.9 88.6 Total Liab. & Equity n.a. 1,469.8 1,686.1
Working Capital Analysis FY06A FY07A FY08A Days Receivable n.a. 2.9 2.4 Days Inventory n.a. 84.5 6.5 Days Payable n.a. 10.8 7.3 Cash Operating Cycle n.a. 92.4 11.4
Derived Cash Flow (VNDbn)* FY06A FY07A FY08A EBIT n.a. 77.5 124.8 Depreciation & Amort n.a. 9.4 36.1 Chgs in Working Cap n.a. (607.8) 634.0 Operating Cash Flow n.a. (520.9) 794.9 Net Interest, Fx & Taxes n.a. (39.3) (81.9) Fixed Asset Capex n.a. (18.1) (300.8) Investments n.a. (383.7) (43.0) Non Op Inc (Loss) n.a. 76.8 88.9 Other Non Cash Adj. n.a. 483.1 (54.2) Dividends Paid n.a. 129.8 (159.1) Change in Paid in Capital n.a. 0.0 0.0 Change in Net Debt n.a. 351.4 192.2 Net Cash Flow n.a. 180.5 437.0 * Calculated from Balance Sheet & P&L
DuPont Analysis FY06A FY07A FY08A EBIT / Sales n.a. 0.03 0.03 Sales/Total Assets n.a. 1.62 2.48 less Net Int./Assets n.a. 0.04 0.02 Pre-Tax ROA (%) n.a. 8.9% 9.9% Assets/Equity n.a. 1.44 1.75 Pre-Tax ROE (%) n.a. 12.8% 17.3% 1-Tax rate n.a. 0.88 0.79 ROE (%) n.a. 11.3% 13.7%
Miscelleaneous FY06A FY07A Current Altman Z Score n.m. n.m. n.a. Asset Growth (%) n.a. n.a. 14.5% Capex/Sales (%) n.m. 0.8% 7.2% Earnings Retention (%) n.a. 87.0% -3.4%.
90
Trading & Liquidity 20Days 100Days 180Days Volume (Reg, Trading) 5,631,160 3,423,074 2,409,789 VND Val. (Reg. Trading, bn) 289.1 143.9 95.4 Percent of market (%) 9.3 9.0 8.6
Shares Outstanding (mn) FY07A FY08A Current Wgt. Avg Issued Shares 420.0 567.8 635.6 Fully Dilluted Shares 420.0 752.0 752.0 Foreign Owned (% / Limit) 311.4mn 30.0% of 30.0%
Market Values VND (bn) USD (mn) EUR (mn) Market Cap 31,143 1,749.4 1,244.1
Corperate Actions Ex-Date Amt/(ratio) Fiscal YearCash Dividend 11-Jun-09 900 FY09Cash Dividend 17-Mar-09 880 FY08Bonus 4-Dec-08 11/30 FY08Cash Dividend 13-Nov-08 1,830 FY08Stock Dividend 11-Sep-08 11/20 FY08
Per Share (VND) FY06A FY07A FY08A Trail 12M FY09E* FY10E* EPS 1,644 4,190 3,894 n.a. 2,945 2,770 BVPS 5,511 11,679 12,285 n.a. n.a. n.a. DPS n.a. n.a. 2,710 n.a. n.a. n.a. Gross OPPS 2,278 5,064 4,510 * Bloomberg Consensus Estimates
Key Valuations FY07A Avg +/- 1 s.d. FY08A Avg +/- 1 s.d. FY09E* FY10E* P/E (x) 14.6 15.8 / 13.4 9.6 10.4 / 8.8 16.6 17.7 P/B (x) 8.1 11.5 / 4.7 2.8 3.5 / 2 n.a. n.a. Dividend Yield (%) n.a. n.a. 6.2 2.8 n.a. n.a. P/Gross Op Profit (x) 5.0 5.9 / 4.1 1.8 6.9 n.a. n.a.
Op Profit Yield (%) 20.5 20.6 / 20.5 62.2 62.4 / 62 n.a. n.a.
Growth (P&L) FY06A FY07A FY08A FY09E* FY10E* Revenues 82.1% 153.8% 40.3% n.a. n.a. Net Interest 59.6% 59.8% 108.1% n.a. n.a. Commissions 52.6% 82.8% 123.6% n.a. n.a. Net Income 69.0% 248.1% 25.6% n.a. n.a. EPS 68.9% 248.2% -26.5% -24.4% -5.9% BVPS 28.9% 278.3% -48.6% n.a. n.a.
Growth (Bal. Sheet) FY06A FY07A FY08A Deposits 47.1% 88.1% 16.2% Loans 81.4% 87.0% 9.5% Financial Investments 150.0% 81.5% 71.6% Other LT Assets 325.4% 128.8% 82.3%
Profitability FY06A FY07A FY08A Revenues/Assets 3% 4% 4% Net Interest/Assets 2% 2% 3% Cost/Income ratio 39% 27% 38% Gross Op Margin 61% 73% 62% Net Margin 42% 58% 52%
Solvency & Liquidity FY06A FY07A FY08A Liquid Assets/Deposits -13.1% -18.2% -17.8% Trading Sec./Deposits -2.2% -0.6% -0.4% Loans/Deposits -57.9% -57.5% -54.2% NPL's 1.0% 0.1% 0.9% CAR 16.2% 10.9% 12.6%
Management Company Data Chairman Tran Xuan Gia Head Office 442 Nguyen Thi Minh Khai CEO Ly Xuan Hai District 3, HCMC CFO/ Chief Accontant Nguyen Van Hoa Website www.acb.com.vn IR Contact Nguyen Thanh Toai Telephone +84839290999
Major Shareholders Shares Insider Holdings SharesConnaught Investors Ltd 46.1 mn Tran Mong Hung n.a
Dragon Financial Holdings 43.2 mn Nguyen Duc Kien n.a
Standard Chartered Bank 55.6 mn Ly Xuan Hai n.a
Asia Commercial Bank
Close/Volume Chart
Relative Performance
S&P Vietnam 10 Ho Chi Minh Stock Index
MSCI AC Asia Index ACB
Market OutlookVietnam is one of the most un-banked markets in the world with an estimated penetration rate of less than 10%. There is thus significant potential for consumer lending, mortgages, and cards of which many commercial banks have focused on consumer lending as a key sector in 2009 due to the government’s 4% interest subsidy program. Loosening credit policies however flags concerns over loan quality and risk management. Interest margins appear thin due to tough competition and the recovery of other investment alternatives such as equity investments and gold trading.
Company HistoryAsia Commercial Bank (ACB) was established in 1993 and listed on the Ho Chi Minh City Stock Exchange in 2006. ACB is a leading retail bank in Vietnam considered to have the widest range of services and most advanced technological capability. Headquartered in Ho Chi Minh City, the Bank has two wholly owned subsidiaries operating in securities and asset management.
Company Description and Principal ActivitiesACB is the largest Joint Stock Bank by assets and is generally regarded as the best-managed domestic bank. In addition to banking, ACB has a real estate development division, through ACB Real, a securities business through ACB Securities as well as asset management activities and a gold trading subsidiary. Standard Chartered maintains a 15% stake as strategic shareholder. The bank’s main activities include taking deposits and making loans to retail and corporate customers in VND, gold and foreign currencies. Other services include payment services, treasury services, foreign exchange trading and gold trading, credit card and debit card issuance services. Finally, ACB has an in-the-money convertible bond that should be treated as a common stock equivalent for EPS calculations.
Ticker Share Price - VND
ACB 49,000
01 Jul 09
Mn SharesVND
01 Jul 09
91
Profit & Loss (VND bn) FY06A FY07A FY08A Net Interest Income 820.6 1,311.1 2,728.3 Commission Income 148.3 271.2 606.5 Trading Income 167.6 500.1 648.8 Other income 53.7 938.4 255.9 Total Revenues 1,190.2 3,020.8 4,239.5 Provissions (40.6) (89.4) (88.0) Operating Costs (462.4) (804.7) (1,590.9) Pre-Tax Inocme 687.2 2,126.8 2,560.6 Taxes (181.6) (366.8) (349.9) Net Income 505.5 1,760.0 2,210.7
Balance Sheet (VNDbn) FY06A FY07A FY08A Cash & SBV Deposits 3,847.8 10,071.6 11,429.8 Loans 17,014.4 31,810.9 34,832.7 Provisions (56.2) (134.5) (228.6) Trading Securities 641.3 313.9 264.7 Investment Securities 4,228.6 9,132.8 24,441.5 Net Fixed Assets 591.6 554.7 789.0
Invest. in Assoc. 131.0 195.4 205.1
Financial Investments 312.5 764.5 973.0 Other LT Assets 1,537.5 3,517.5 6,411.0 Net Interbank 13,151.9 22,170.9 16,286.0 Deposits (29,394.7) (55,283.1) (64,216.9) Certificates (5,861.4) (11,688.8) (16,755.8) Other LT Liab (4,447.7) (5,167.9) (6,665.0) Net Assets 1,696.5 6,257.8 7,766.5 Capital 1,100.0 2,630.1 6,355.8 Reserves 187.7 2,192.0 713.6 Minorities 42.5 0.0 0.0 Retained Earnings 366.2 1,435.8 697.1 Total Liab. & Equity 44,650.2 85,391.7 105,306.1
Revenue Analysis FY06A FY07A FY08A
Interest/Revenues 68.9% 43.4% 64.4% Commission/Revenues 12.5% 9.0% 14.3% Trading/Revenues 14.1% 16.6% 15.3% Provission/Revenues 3.4% 3.0% 2.1%
Credit Quality FY06A FY07A FY08A NPL's 176.3 26.6 308.7 Special Mention 13.0 71.0 398.9 Overdue Loans 189.3 97.5 707.6 Overdure Loans/Loans 1.04% 0.08% 0.89% Specific Provisisons 5.9 4.8 21.9 General Provissions 50.3 129.7 206.7 Total Provissions 56.2 134.5 228.6 General Provisons/Loans 0.30% 0.41% 0.59% Specific Provisons/Loans 0.07% 0.03% 0.02% Spec. Prov./Total Provisions 10.6% 3.6% 9.6% Provision Charge/Loans 0.32% 0.35% 0.26% NPL Covergae 31.9% 506.4% 74.1%
Off BS & Contigencies 1,366.0 3,899.0 1,726.9
Off BS & Contigencies/Assets 3.10% 4.60% 1.63%
DuPont Analysis FY06A FY07A FY08A
PreTax/Revenues 0.58 0.70 0.60 Revenues/Assets 0.03 0.04 0.04 Pre-Tax ROA 0.02 0.02 0.02 Assets/Equity 26.32 13.65 13.56 1 - Tax Rate 0.74 0.83 0.86 Year End ROE (%) 29.8% 28.1% 28.5% ROE (Avg Equity) 46.8% 53.8% 36.5%
Loan Book, 2008
Management Strategy and GoalsPrincipal objectives in 2009 are to maintain a high but sustainable growth rate given Vietnam’s slowing GDP growth and to enhance risk monitoring and control, which is the cornerstone of any bank. In order to achieve high profitability, the bank is also focusing on maintaining an optimal financial structure and has used convertible bonds as a source of funding. In human resources, the bank will continue training and instilling a distinct corporate culture throughout the company.
Recent NewsACB has recently received approval to trade on the Dubai Gold Exchange in accordance with its strategy to gain direct access foreign commodities markets. ACB has also been licensed by the State Securities Commission to raise a closed-end fund (ACBGF1) valued at around VND200-300 billion. Financially, the bank disclosed that it has achieved pre-tax profit above VND900bn for the first five months of 2009, being 33.3% of its full year guidance. Assets have grown 42% YTD and loan growth is 47% YTD.
Key Success FactorsThe country’s low banking penetration will be the medium to long-term growth driver. Manage this growth sustainably however, especially in new areas such as cards and consumer banking will be a challenge and this is where the expertise and knowledge that its strategic partner Standard Chartered, with many years in emerging markets, will become invaluable. Longer term, we some industry consolidation is inevitable. By size comparison with other countries, Vietnam is saturated with banking institutions. Such rationalisation would be beneficial to the sector in terms of better pricing power and increasing profitability, given significant savings that in-market bank mergers bring.
Key Risk FactorsThe main challenges for ACB are to achieve healthy growth in its balance sheet and at the same time control loan quality and achieve sound profitability. Intensified competition from both local and foreign banks and the depressed economic outlook are the key obstacles to meeting their ambitious objectives.
Financials / Banks
Miscelleaneous FY06A FY07A FY08A Altman Z Score n.m. n.m. n.a. Asset Growth (%) n.a 91.2% 23.3% Provision Growth (%) n.a 139.4% 69.9% Earnings Retention (%) n.m. n.m. n.m.
92
Bao Viet Securities
Trading & Liquidity 20Days 100Days 180Days Volume (Reg, Trading) 698,750 694,585 455,413 VND Val. (Reg. Trading, bn) 40.1 26.6 16.6 Percent of market (%) 1.3 1.7 1.5
Shares Outstanding (mn) FY07A FY08A Current Wgt. Avg Issued Shares 40.7 45.0 45.0 Fully Dilluted Shares 40.7 45.0 45.0 Foreign Owned (% / Limit) 5.2mn 11.7% 49.0%
Market Values VND (bn) USD (mn) EUR (mn) Market Cap 2,389,500 134.2 95.0
Corperate Actions Ex-Date Amt/(Ratio) Fiscal YearCash Dividend 13-May-08 500 FY07Cash Dividend 21-Jan-08 1,000 FY07Rights Issue 14-Dec-07 2/1 FY07Cash Dividend 6-Sep-07 371 FY07Cash Dividend 2-Mar-07 371 FY06
Per Share (VND) FY06A FY07A FY08A Trail 12M FY09E* FY10E* EPS 1,258 5,277 (10,053) (10,600) 625 n.a. BVPS 10,418 13,423 23,724 n.a. n.a. n.a. DPS 371 1,871 0 n.a. n.a. n.a. GOPS n.a. 5,850 (10,038) n.a. n.a. n.a. Rev/Share n.a. 9,835 4,749 n.a. n.a. n.a.* Bloomberg Consensus Estimates
Key Valuations FY07A Avg +/- 1 s.d. FY08A Avg +/- 1 s.d. FY09E* FY10E* P/Revenues (x) 18.4 20 / 16.8 7.6 11.1 / 4.2 n.a. n.a. P/E (x) 33.7 36.7 / 30.8 22.9 n.a. 81.4 n.a. P/B (x) 11.9 13.9 / 9.9 3.4 1.4 n.a. n.a. Dividend Yield (%) 0.4 0.5 / 0.2 4.1 4.1 n.a. n.a. P/GOPS (x) 16.6 20.2 / 13 14.0 24 / 3.9 n.a. n.a.
Growth FY06A FY07A FY08A FY09E* FY10E* Revenues n.a. 333.9% -46.6% n.a. n.a. Commission n.a. 665.3% -77.7% n.a. n.a. Advisory n.a. 146.5% 121.1% n.a. n.a. Net Income n.a. 321.6% -310.8% n.a. n.a. EPS n.a. 319.5% -290.5% -106.2% n.a. BVPS n.a. 28.8% 76.7% n.a. n.a.* Bloomberg Consensus Estimates
Growth Indicators FY06A FY07A FY08A Trading Securities n.a. 665.3% -77.7% Debt n.a. 9713.2% -90.7% Financial Investments n.a. 32.2% 28.8% Equity n.a. 43.3% 76.7%
Profitability FY06A FY07A FY08A Rev/Assets (%) 7.1 22.1 14.7 (Rev-Trading)/Assets (%) 5.6 14.2 12.5 Operating Margin (%) 68.3 59.5 n.m. Pre-Tax Margin (%) 68.4 59.5 n.m. Net Margin (%) 55.2 53.7 n.m.
Solvency & Liquidity FY06A FY07A FY08A ST Invetsments/Assets 31.3 26.0 38.3 LT Debt/Capital - - - Debt/Equity 0.2 15.0 0.8 Equity/Total Assets 32.4 33.3 73.2
Management Company Data
Chairman Nguyen Thi Phuc Lam Head Office94 Ba Trieu, Hoan Kiem,
Ha Noi
CEO Nguyen Quang Vinh CFO/ Chief Accontant Bui Quang Ky Website www.bvsc.com.vn IR Contact Nguyen Quang Vinh Telephone +8449433016
Major Shareholders Shares Insider Holdings SharesBao Viet Holdings 27.1 mn Nguyen Thi Phuc Lam 50,000
Nguyen Quang Vinh 22,000
Market OutlookThe recovery of the equity market in 2009 has fuelled growth in key business areas including brokerage, investment banking and proprietary trading. With more than 100 licensed brokers participated in the industry, competition remains fierce as new players are striving to gain a stronger foothold based on advanced technological systems, product innovation, and better customer services. Securities companies remain heavily reliant on proprietary trading as key source of income, which is a risky approach to sustainable growth.
Company History Bao Viet Securities was established in 1999 as a subsidiary to Bao Viet Insurance Group with chartered capital of VND43 bn. The company then grew quickly to become one of the top five securities companies in Vietnam with more than 30,000 trading accounts at the end of 2008. BVS was transformed into a joint stock company in 2005 and listed on the HaSTC in December 2006.
Company Description & Principal ActivitiesBao Viet Securities is one of the largest brokerage houses in Vietnam providing a full range of services including institutional & retail brokerage, advisory & underwriting, proprietary trading, and fund management. BVS held 18% of the market share in foreign brokerage in 2008 due to its strong foreign customer base.
Ticker Share Price - VND
BVS 50,900
Close/Volume Chart
Relative Performance
S&P Vietnam 10 Ho Chi Minh Stock Index
MSCI AC Asia Index BVS
01 Jul 09
Mn SharesVND
01 Jul 09
93
Profit & Loss (VND bn) FY06A FY07A FY08A Commissions 56.2 214.0 87.8 Prop. Trading 18.7 143.5 32.0
Advisory, Underwritting & Other Income
17.2 42.5 93.9
Total Revenues 92.2 400.0 213.7 Operating Costs (29.2) (162.1) (665.4) Others (0.0) (0.0) (0.0) Pre-Tax 63.0 237.9 (451.7) Taxes (12.1) (23.3) (0.7) Net Income to Common 50.9 214.6 (452.4)
Balance Sheet (VNDbn) FY06A FY07A FY08A Cash & Client Cash in Trust 677.0 876.2 409.5 ST Investments & Mkt. Sec 408.0 471.3 558.1 Receivables 80.0 178.5 102.0 Other Curr Assets 5.2 42.1 19.4 Total Loans 0.0 0.0 0.0 Long Term Invest. & Others 0.0 0.0 0.0 Net Fixed Assets 2.7 6.2 13.0 Other LT Assets & Defered Charges 128.7 238.4 355.9 ShortTerm Borrowings (0.9) (90.6) (8.4) Other ShortTerm Liab (726.3) (1,076.0) (362.5) Long Term Debt 0.0 0.0 0.0 Other Long Term Liab (147.7) 0.0 0.0 Net Assets 426.7 646.1 1,086.9 Preferred Equity 0.0 0.0 0.0 Minority Interest 0.0 0.0 0.0 Paid in Capital 370.3 370.3 1,332.6 Retained Earnings 51.2 233.7 (265.0) Total Liab. & Equity 1,301.6 1,812.7 1,457.9
Revenue Analysis FY06A FY07A FY08ACommission/Revenue 61.0 53.5 41.1 Trading/Revenue 20.3 35.9 15.0 Advissory, Underwritting/Revenues 18.7 10.6 44.0
Proprietary Trading Assets FY06A FY07A FY08A Prop Book - Listed Equity (%) 52.1% 74.6% 60.6% Prop Book - OTC Equity (%) 44.5% 25.3% 31.2% Prop Book - Bonds (%) 3.4% 0.1% 8.2%
DuPont Analysis FY06A FY07A FY08A Op Profit / Revenues 0.68 0.59 (2.11) Revenues/Total Assets 0.07 0.22 0.15 less Net Int./Assets 0.00 0.00 0.00 Pre-Tax ROA (%) 4.8% 13.1% -31.0% Assets/Equity 3.52 4.90 1.09 Pre-Tax ROE (%) 17.0% 64.3% -33.9% 1-Tax rate 0.81 0.90 1.00 Year End ROE (%) 13.7% 58.0% -33.9%
Miscelleaneous FY06A FY07A Current Asset Growth (%) n.a. 39.3% -19.6% Earnings Retention (%) n.a. 64.5% 100.0%
Other Metrics FY06A FY07A FY08A Revenue less Trading (VND bn) 73.4 256.5 181.7 Growth (%) n.a. 249.3 (29.2) Op Profit 63.0 237.9 (451.7) Growth (%) n.a. 277.7 (289.9) Cost/Income 31.7 40.5 311.4 Growth (%) n.a. 27.9 668.4 Investments/Assets (%) 41.2 39.2 62.7 Investments/Capital (%) 144.9 191.7 68.6
Long Term Investments/ Capital (%)
34.7 64.4 26.7
* Calculated from Balance Sheet P&L
Management Strategy and GoalsBVS’s management aims to attract institutional investors through various marketing campaigns, enhanced customer services and quality research products. The company will also continue to leverage its strong relationship with SOEs and private companies to grow their underwriting and advisory business. Additionally, management has paid special attention to the development of advanced technology in brokerage trading systems and customer services to improve service quality and customer satisfaction.
Recent NewsIn the first quarter of 2009, BVS reported a marginal pre-tax profit of VND3.69 billion after suffering a significant loss of VND451.7 billion in 2008, mainly due to a heavy provision for investment losses. The company however expects a positive contribution from proprietary trading as the recent strong market rally may allow the reversal of provisions for investment losses.
Key Success FactorsStock ownership in Vietnam is still low and retail trading will pick up once the market improves as it has been recently. With a dominant position and a large capital base, BVS is going to be able to weather the storm better and longer than some of the smaller and less well capitalized competitors when times are bad. A move towards more technologically advanced company will help it to counter some of the new entrants targeting sophisticated, well educated middle-class customers. Also, in the medium—long term, we believe there will be a consolidation in the sector with many weak securities companies being taken over or ceasing operations. This should bode well for large, remaining players such as BVS.
Key Risk FactorsVietnam is still a frontier market but already foreign financial institutions such as Morgan Stanley and JP Morgan have established operations. With almost 100 securities companies in Vietnam, many are lowering brokerage and advisory fees to gain market share. BVS will therefore face increasing competition from both local and overseas players. Large proprietary trading books also expose BVS to potential asset write-downs due to the stock market slump as seen in 2008.
Revenues by Source, 2008
Financials / Investment Services
94
Tan Tao Investment Industry
Trading & Liquidity 20Days 100Days 180Days Volume (Reg, Trading) 504,441 737,850 530,438 VND Val. (Reg. Trading, bn) 19.8 19.3 13.1 Percent of market (%) 0.7 1.2 1.2
Shares Outstanding (mn) FY07A FY08A Current Wgt. Avg Issued Shares 143.6 196.3 203.8 Fully Dilluted Shares 143.6 196.3 203.8 Foreign Owned (% / Limit) 72.7mn 35.7% 49.0%
Market Values VND (bn) USD (mn) EUR (mn) Market Cap 7,337 412.2 291.8 Net Debt n.a. n.a. n.a. Minorities & Others n.a. n.a. n.a. Enterprise Value 7,746 435.2 308.1
Corperate Actions Ex-Date Amt/(ratio) Fiscal YearStock Dividend 1-Oct-08 1/7 FY08Stock Dividend 30-Jan-08 1/7 FY08Rights Issue 21-Jun-07 1/6 FY07Stock Dividend 2-Mar-07 1/5 FY07
Per Share (VND) FY06A FY07A FY08A Trail 12M FY09E* FY10E* EPS 1,355 2,558 1,511 1,225 1,407 n.a. BVPS 4,622 18,058 23,320 n.a. n.a. n.a. DPS 455 n.a. n.a. n.a. n.a. n.a. CFPS 1,798 3,399 n.a. n.a. n.a. n.a. FCFPS 1,490 (1,121) n.a. n.a. n.a. n.a.* Bloomberg Consensus Estimates
Key Valuations FY07A Avg +/- 1 s.d. FY08A Avg +/- 1 s.d. FY09E* FY10E* P/E (x) 29.3 30.6 / 28.1 17.6 20.1 / 15 24.3 n.a. P/B (x) 6.8 8.7 / 4.8 1.8 2.5 / 1.1 n.a. n.a. Dividend Yield (%) n.a. n.a. n.a. n.a. n.a. n.a. P/CFPS (x) n.a. n.a. 35.8 37.6 / 34 n.a. n.a. FCF Yield (%) n.a. n.a. n.a. n.a. n.a. n.a.
Growth FY06A FY07A FY08A FY09E* FY10E* Revenues n.a. 162.2% 14.3% n.a. n.a. EBITDA n.a. 124.8% -100.0% n.a. n.a. EBIT n.a. 126.8% -38.8% n.a. n.a. Net Income n.a. 146.9% -19.2% n.a. n.a. EPS n.a. 88.8% -40.9% -6.9% n.a. BVPS n.a. 290.7% 29.1% n.a. n.a.* Bloomberg Consensus Estimates
Growth Indicators FY06A FY07A FY08A Fixed Assets/Assoc n.a. 801.6% -97.2% Debt n.a. 53.1% -100.0% Financial Investments n.a. 0.2% 350.9% Other LT Assets n.a. 56102.6% -92.4%
Profitability FY06A FY07A FY08A Gross Margin (%) 59.2 57.3 33.6 EBITDA Margin (%) 54.5 46.8 0.0 EBIT Margin (%) 53.6 46.3 24.8 Pre-Tax Margin (%) 52.4 49.9 36.2 Net Margin (%) 42.2 39.7 28.1
Solvency & Liquidity FY06A FY07A25.571 FY08A25.571 Acid Test Ratio 31.03 50.95 n.a. Current Ratio 0.09 1.17 2.00
LT Debt/Capital 31.1% 9.7% 0.0%
Net Debt/Equity -43.4% 17.6% 2.5%
LT Debt/Fixed Assets 201.6% 48.1% 0.0%
Total Liab/Total Assets 61.0% 29.1% 23.9%
Management Company Data
Chairman Dang Thi Hoang Yen Head Office Tan Tao Industrial Zone Tan Tao A
Ward Binh Tan District HCMC
CEO Thai Van Men CFO/ Chief Accontant Nguyen Thi Suong Website http://www.tantaocity.com/ IR Contact Nguyen Thi Suong Telephone +84837505171
Major Shareholders Shares (mn) Insider Holdings Shares
Tan Dong Phuong Invest, Construct and Develop Ltd.,
36.36 Dang Thi Hoang Yen 15.83
VOF INVESTMENT LTD 16.41
Vietnam Infrastructure Strategic Limited
2.93
Rickluck International Limited 5.71 Dang Quang Hanh 2.30
Company Description & Principal ActivitiesTan Tao Investment Industrial Corporation (ITA) builds and manages industrial zones in Vietnam, including infrastructure and facilities in the Tan Tao Industrial Park and other commercial and industrial buildings. It is also involved in supporting activities, including rentals for corporate clients, construction and electricity works, warehousing and other telecommunication related services, including data transmission and internet provision. The company has developed nine industrial parks throughout Vietnam with a combined area of 9,033 hectares.
Market OutlookIndustrial zone development is one of the key planks of Vietnam’s industrial policy, with targeted production from industrial zones expected to contribute 25%-36% of total of industrial output by 2010, and exports to increase from 19% to 32% in 2010. Tan Tao industrial zone’s rental price is considered high in comparison with other industrial zones in Ho Chi Minh City but it is well-managed, strategically located, and well serviced with comprehensive infrastructure thus attaining its position as the top industrial park in Ho Chi Minh City.
Company HistoryITACO, known as ITA Group has been in operation for more than 11 years, with over 20 subsidiaries in various industries. The company was established in November 1996 and later changed its name to Tan Tao Investment – Industry Corporation – ITACO. ITA’s first project involved transforming an area 12 kilometres west of Ho Chi Minh City into the biggest industrial park in southern Vietnam. ITACO listed on the Ho Chi Minh City Stock Exchange in November 2006.
S&P Vietnam 10 Ho Chi Minh Stock Index
MSCI AC Asia Index ITA
Close/Volume Chart
Relative Performance
Ticker Share Price - VND
ITA 34,200
01 Jul 09
Mn SharesVND
01 Jul 09
95
Profit & Loss (VND bn) FY06A FY07A FY08A Revenue 352.8 924.9 1,057.6 EBITDA 192.4 432.6 0.0 EBIT 189.0 428.7 262.4 Interest & Fx Exp (34.5) (29.6) (57.0) Non Op Inc (Loss) 30.2 62.7 177.6 Pre-Tax 184.7 461.8 383.0 Taxes (35.9) (85.3) (86.3) Minorities & Pref’s 0.0 (9.2) 0.0 Net Income to Common 148.8 367.4 296.7
Balance Sheet (VNDbn) FY06A FY07A FY08A Cash & Equiv. 30.5 1,004.7 116.3 ST Investments & Mkt. Sec 0.0 151.0 7.5 Receivables 31.0 44.6 622.9 Inventories 0.7 21.3 1,390.4 Other Curr Assets 350.5 517.8 22.2 Net Fixed Assets 85.8 43.1 49.5 Construction in Progress 2.2 631.5 0.6 Invest. in Assoc. 113.7 1,144.0 0.0 Financial Investments 849.2 851.0 3,837.3 Other L.T. Assets 0.5 289.1 21.9 Payables (1.0) (19.7) 0.0 Other Curr Liab. (613.9) (920.7) (1,066.5) ST Debt (100.8) (101.4) 0.0 LT Debt (177.5) (324.7) 0.0 Other LT Liab 0.0 0.0 (384.6) Net Assets 570.9 3,331.7 4,617.5 Minorities 0.0 36.0 (7.2) Book Capital 450.0 2,907.8 3,880.3 Ret. Earnings 120.9 387.8 744.4 Total Liab. & Equity 1,464.1 4,698.1 6,068.6
Working Capital Analysis FY06A FY07A FY08A Days Receivable 32.1 17.6 215.0 Days Inventory 1.9 19.7 723.2 Days Payable 2.5 18.2 0.0 Cash Operating Cycle (27.7) 20.3 508.2
Derived Cash Flow (VNDbn)* FY06A FY07A FY08A EBIT n.a. 428.7 262.4 Depreciation & Amort n.a. 3.9 (262.4) Chgs in Working Cap n.a. 124.2 (1,325.8) Operating Cash Flow n.a. 556.8 (1,325.8) Net Interest, Fx & Taxes n.a. (114.9) (143.3) Fixed Asset Capex n.a. (649.3) 0.0 Investments n.a. (1,032.2) (1,842.3) Non Op Inc (Loss) n.a. 62.7 177.6 Other Non Cash Adj. n.a. (454.4) 1,698.9 Dividends Paid n.a. 0.0 0.0 Change in Paid in Capital n.a. 2,457.8 972.5 Change in Net Debt n.a. 147.7 (426.0) Net Cash Flow n.a. 974.2 (888.4) * Calculated from Balance Sheet & P&L
DuPont Analysis FY06A FY07A FY08A EBIT / Sales 0.54 0.46 0.25 Sales/Total Assets 0.24 0.20 0.17 less Net Int./Assets (0.00) 0.01 0.02 Pre-Tax ROA (%) 12.6% 9.8% 6.3% Assets/Equity 2.56 1.41 1.31 Pre-Tax ROE (%) 32.4% 13.9% 8.3% 1-Tax rate 0.81 0.82 0.77 ROE (%) 26.1% 11.3% 6.4%
Miscelleaneous FY06A FY07A Current Altman Z Score n.m. n.m. 1.8 Asset Growth (%) -75.9% 220.9% 29.2% Capex/Sales (%) n.m. 70.2% 0.0% Earnings Retention (%) 66.4% n.a. n.a.
Management Strategy and GoalsManagement will focus on the core business of developing industrial parks up to the year 2010. ITA aims to develop high-quality structures and cooperate with foreign and domestic partners in developing infrastructure. In addition, ITA also seeks to be involved in other sectors such as power, port and telecommunications projects under its subsidiaries ITA Power, ITA Port, and ITA – Tel.
Investment Plans- Industrial - Science and Hi-tech Parks including Kien Luong Industrial Park, Agrita Industrial Park, Tan Duc Industrial - Urban - Services Area
- New City and Township including Tan Duc Resettlement, ITA Paradise New Town, Tan Tao New City, Tan Duc New City
- Infrastructure development for Kien Luong and Nam Du deep sea port, Long An 2x600 MW Power Plant
- Office buildings such as ITA Sky, Tan Tao Sky, ITA Mart and ITA Bank Building and ITA Office Building in Tan Tao IP
- Tan Tao University
Key Success FactorsWith the overwhelming success of Tan Tao Industrial Park (TTIP), ITA has embarked on several industrial park projects and is expanding into other related infrastructure and urban township projects. Marketing is one of the company’s key strengths and the company has attracted many foreign as well as local investors to its industrial park. ITA will leverage its marketing skills to bring investors to its other projects.
Key Risk FactorsA contraction in economic growth and exports due to the ongoing economic crisis internationally, will have an adverse effect on the level of foreign and domestic investment in industrial parks. This will consequently harm ITA’s near term revenue and earnings outlook. In addition, ITA plans several highly capital intensive investments in power and ports which will require equity issuance at some point in the dutire. Finally, transparency on financial and operational disclosure by management is not very robust.
Financials / Real Estate Holdings & Development
Revenues by Type, 2008
96
PetroVietnam Finance
Trading & Liquidity 20Days 100Days 180Days Volume (Reg, Trading) 1,215,525 593,804 529,139 VND Val. (Reg. Trading, bn) 54.2 19.3 15.0 Percent of market (%) 1.7 1.2 1.4
Shares Outstanding (mn) FY07A FY08A Current Wgt. Avg Issued Shares n.a. 500.0 500.0 Fully Dilluted Shares n.a. 500.0 500.0 Foreign Owned (% / Limit) 159.4mn 12.9% 30.0%
Market Values VND (bn) USD (mn) EUR (mn) Market Cap 20,750 1,165.7 833.1
Corperate Actions Ex-Date Amt/(ratio) Fiscal Year n.a. n.a. n.a. n.a.
Per Share (VND) FY06A FY07A FY08A Trail 12M FY09E* FY10E* EPS n.a. n.a. 101 101 n.a. n.a. BVPS n.a. n.a. 12,213 n.a. n.a. n.a. DPS n.a. n.a. n.a. n.a. n.a. n.a. Gross OPPS n.a. n.a. 9 n.a. n.a. n.a.* Bloomberg Conscencus Estimates
Key Valuations FY07A Avg +/- 1 s.d. FY08A Avg +/- 1 s.d. FY09E* FY10E* P/E (x) n.a. n.a. 188.4 188.4 / 188.3 n.a. n.a. P/B (x) n.a. n.a. 1.6 1.6 / 1.5 n.a. n.a. Dividend Yield (%) n.a. n.a. n.a. 1.9 n.a. n.a. P/Gross Op Profit (x) n.a. n.a. 3.6 n.a. n.a. n.a. Op Profit Yield (%) n.a. n.a. 28.0 28 / 27.9 n.a. n.a.
Growth (P&L) FY06A FY07A FY08A FY09E* FY10E* Revenues n.a. n.a. n.a. n.a. n.a. Net Interest n.a. n.a. n.a. n.a. n.a. Commissions n.a. n.a. n.a. n.a. n.a. Net Income n.a. n.a. n.a. n.a. n.a. EPS n.a. n.a. n.a. n.a. n.a. BVPS n.a. n.a. n.a. n.a. n.a.
Growth (Bal. Sheet) FY06A FY07A FY08A Deposits n.a. n.a. n.a. Loans n.a. n.a. n.a. Financial Investments n.a. n.a. n.a. Other LT Assets n.a. n.a. n.a.
Profitability FY06A FY07A FY08A Trial 12M Revenues/Assets n.a. n.a. 1.7% n.a. Net Interest/Assets n.a. n.a. 1.3% n.a. Cost/Income ratio n.a. n.a. 36.7% n.a. Gross Op Margin n.a. n.a. 0.0% n.a. Net Margin n.a. n.a. 6.5% n.a.
Solvency & Liquidity FY06A FY07A FY08A Liquid Assets/Deposits n.a. n.a. (0.09) Trading Sec./Deposits n.a. n.a. (0.18)
Loans/Deposits n.a. n.a. -8362.7%
NPL’s n.a. n.a. 2.5%
CAR n.a. n.a. n.a.
Management Company Data
Chairman Nguyen Dinh Lam Head Office 72F Tran Hung Dao, Hoan
Kiem, Ha Noi CEO Tong Quoc Truong CFO/ Chief Accontant Pham Quang Huy Website www.pvfc.com.vn IR Contact Ha Thai Son Telephone +8449426800
Major Shareholders Shares Insider Holdings Shares PetroVietnam 78% Nguyen Dinh Lam 30,000
Tong Quoc Truong 12,300
Company Description & Principal ActivitiesPVF is one of the bluechip stocks listed on the HoSE with a total market capitalization in excess of VND20 trillion. PVF’s main products include personal financial services, cor-porate lending, project investment, money markets and foreign exchange trading, and M&A services.
Market OutlookVietnam is one of the most un-banked markets in the world with an account-holder penetration rate of less than 10%, which offers huge potential for consumer lending and mortgages. Financial institutions including banks and finance companies aim to push consumer lending as a key business segment in 2009 due to the government’s 4% interest subsidy program. Loosening credit policies however raise concerns regarding loan quality and risk management.
Company History PVF was established in 2000 and quickly became the largest non-banking financial institution in Vietnam with chartered capital of VND5 trillion at the end of 2008. PVF has successfully made its IPO in October 2007 and listed their shares on HoSE in October 2008. Morgan Stanley is PVF’s second strategic partner with a 10% stake (50 million shares) in addition to PetroVietnam
S&P Vietnam 10 Ho Chi Minh Stock Index
MSCI AC Asia Index PVF
Close/Volume Chart
Relative Performance
Ticker Share Price - VND
PVF 41,500
01 Jul 09
Mn SharesVND
01 Jul 09
97
Profit & Loss (VND bn) FY06A FY07A FY08A Net Interest Income n.a n.a 587.6 Commission Income n.a n.a 23.0 Trading Income n.a n.a (835.6) Other income n.a n.a 988.0 Total Revenues n.a n.a 763.0 Provissions n.a n.a (479.2) Operating Costs n.a n.a (280.1) Pre-Tax Income n.a n.a 3.7 Taxes n.a n.a 46.2 Net Income n.a n.a 49.9
Balance Sheet (VNDbn) FY06A FY07A FY08A Cash & SBV Deposits n.a n.a 17.9 Loans n.a n.a 17,500.3 Provisions n.a n.a (291.5) Trading Securities n.a n.a 36.8 Investment Securities n.a n.a 592.2 Net Fixed Assets n.a n.a 68.6 Invest. in Assoc. n.a n.a 391.8 Financial Investments n.a n.a 479.8 Other LT Assets n.a n.a 12,790.5 Net Interbank n.a n.a 8,108.7 Central Bank n.a n.a 0.0 Deposits n.a n.a (209.3) Certificates n.a n.a (3,609.5) Other LT Liab n.a n.a (29,770.6) Net Assets n.a n.a 6,105.9 Capital n.a n.a 5,000.0 Reserves n.a n.a 1,056.0 Minorities n.a n.a 0.0 Retained Earnings n.a n.a 49.9 Total Liab. & Equity n.a n.a 45,104.1
Revenue Analysis FY06A FY07A FY08A Interest/Revenues n.a n.a 77.0% Commission/Revenues n.a n.a 3.0% Trading/Revenues n.a n.a -109.5% Provission/Revenues n.a n.a 62.8%
Credit Quality FY06A FY07A FY08A NPL’s n.a n.a 438.2 Special Mention n.a n.a 751.2 Overdue Loans n.a n.a 1,189.4 Overdure Loans/Loans n.a n.a 6.8% Specific Provisisons n.a n.a 173.8 General Provissions n.a n.a 117.8 Total Provissions n.a n.a 291.5 General Provisons/Loans n.a n.a 0.7% Specific Provisons/Loans n.a n.a 1.0% Spec. Prov./Total Provisions n.a n.a 60% Provision Charge/Loans n.a n.a 2.7% NPL Covergae n.a n.a 67% Off BS & Contigencies n.a n.a 9,620.4 Off BS & Contigencies/Assets n.a n.a 21%
DuPont Analysis FY06A FY07A FY08A PreTax/Revenues n.a n.a 0.00 Revenues/Assets n.a n.a 0.02 Pre-Tax ROA n.a n.a 0.00 Assets/Equity n.a n.a 7.39 1 - Tax Rate n.a n.a 1.00 Year End ROE (%) n.a n.a 0.1%
ROE (Avg Equity) n.a n.a n.a
Miscelleaneous FY06A FY07A FY08A Asset Growth (%) n.a. n.a. n.a. Provision Growth (%) n.a. n.a. n.a. Earnings Retention (%) n.a. n.a. n.a.
Management Strategy and GoalsPVF’s management aims for average annual revenue growth of 30% on the basis of tight risk management procedures. PVF is also planning to gain access to international financial markets in Asia, Europe and the US by leveraging strategic partner Morgan Stanley’s strong networks and customer base. Finally, PVF will be investing heavily on IT infrastructure to automate its operating activities to ensure secure and fast transactions.
Recent NewsIn the first 5 months of 2009, PVF has sourced funding for a number of large-scale projects including Nhon Trach 2 Electricity Plant, PVTex Dinh Vu, and PVEP oil exploration. In the first quarter of 2009, PVF reported net revenues of VND724 billion and pre-tax profit of VND25.4 billion, or 18.56% and 7.34% of the 2009 guidance respectively. The company however expects strong investment income due to the recent strong market rally and investment gains by reducing its holdings in PetroVietnam affiliate stocks such as DPM, PVS, PVT, and PET.
Key Success FactorsStrategic alliances with PetroVietnam remain one of the key catalysts to support PVF’s growth. PVF remains active in lending at competitive rates due to PetroVietnam’s favourable funding costs while PetroVietnam’s expansion in the oil and gas sector allow PVF to boost income from project funding activities. The government’s interest subsidy programs also support PVF’s growth in consumer lending, which is one of the company’s key lines of business.
Key Risk FactorsThe global economic crisis continues to have a negative impact on the Vietnamese financial industry. Consumer finance growth raises concerns over loan quality and risk management while the economic slowdown may cause delay in government’s projects. Competition will continue to squeeze interest margins while network expansion and competition for well-qualified staff will add an extra cost burden.
Financials / Specialty Finance
Loan Book, 2008
98
PetroVietnam Insurance
Trading & Liquidity 20Days 100Days 180Days Volume (Reg, Trading) 463,135 303,805 329,199 VND Val. (Reg. Trading, bn) 16.7 9.6 9.6 Percent of market (%) 0.5 0.6 0.9
Shares Outstanding (mn) FY07A FY08A Current Wgt. Avg Issued Shares 68.5 97.6 103.6 Fully Dilluted Shares 68.5 97.6 103.6 Foreign Owned (% / Limit) 11.8mn 11.4% 49.0%
Market Values VND (bn) USD (mn) EUR (mn) Market Cap 3,251,470 182.7 129.3
Corperate Actions Ex-Date Amt/(Ratio) Fiscal YearCash Dividend 21-Nov-08 700 FY08Stock Dividend 11-Jul-08 2/25 FY08
Per Share (VND) FY06A FY07A FY08A Trail 12M FY09E* FY10E* EPS n.a. 3,652 1,760 1,938 3,399 n.a. BVPS n.a. 19,156 22,096 n.a. n.a. n.a. DPS n.a. 648 1,000 n.a. n.a. n.a. GOPS n.a. 3,585 1,754 n.a. n.a. n.a. Rev/Share n.a. 10,231 10,298 n.a. n.a. n.a.* Bloomberg Conscencus Estimates
Key Valuations FY07A Avg +/- 1 s.d. FY08A Avg +/- 1 s.d. FY09E* FY10E* P/Revenues (x) n.a. n.a. 2.9 3.6 / 2.2 n.a. n.a. P/E (x) n.a. n.a. 8.7 11.9 8.9 n.a. P/B (x) 3.1 3.6 / 2.7 1.5 1.3 n.a. n.a. Dividend Yield (%) n.a. n.a. 2.6 2.7 n.a. n.a. P/GOPS (x) n.a. n.a. 3.5 4.8 / 2.1 n.a. n.a.
Growth FY06A FY07A FY08A FY09E* FY10E* Revenues n.a. 94.3% 43.4% n.a. n.a. Commission n.a. 267.3% -15.7% n.a. n.a. Advissory n.a. 97.4% 29.6% n.a. n.a. Net Income n.a. 467.8% -31.3% n.a. n.a. EPS n.a. n.a. -51.8% 93.1% n.a. BVPS n.a. n.a. 15.3% n.a. n.a.* Bloomberg Conscencus Estimates
Growth Indicators FY06A FY07A FY08A Trading Securities n.a. 267.3% -15.7% Debt n.a. n.a. n.a. Financial Investments n.a. 165.0% 4.5% Equity n.a. 144.3% 30.4%
Profitability FY06A FY07A FY08A Rev/Assets (%) 30.2 15.5 20.4 (Rev-Trading)/Assets (%) 25.7 11.1 17.0 Operating Margin (%) 121.3 127.4 141.9 Pre-Tax Margin (%) 16.7 35.7 17.1 Net Margin (%) 12.2 35.7 17.1
Solvency & Liquidity FY06A FY07A FY08A ST Invetsments/Assets 49.0 48.1 46.0 LT Debt/Capital - - - Debt/Equity - - - Equity/Total Assets 60.1 38.8 46.5
Management Company Data
Chairman Nguyen Anh Tuan Head Office 154 Nguyen Thai Hoc, Ha Noi CEO Bui Van Thuan CFO/ Chief Accontant Phung Tuan Kien Website www.pvi.com.vn IR Contact Pham Hoai Nam Telephone +84437335588
Major Shareholders Shares Insider Holdings SharesPetroVietnam 61.56 mn Nguyen Anh Tuan 160,748PVFC 11.65 mn Bui Van Thuan 65,396
Company Description and Principal ActivitiesPVI is the second largest non-life insurance company in Vietnam and is the leading oil and energy insurance provider. In addition to oil and gas, the company provides a wide range of non-life insurance to sectors such as construction, transportation, aviation, motor vehicle, and agricultural industries. PVI also provides shipping insurance to the marine fleets of PetroVietnam, Vosco and Vitranschart.
Market OutlookThe Vietnam insurance market has grown by 39% in 2008 and we believe that the long-term potential remains strong with life insurance expected to grow 20-25% per year and the non-life sector set to grow 17% per year until 2012. Growth is derived from the country’s low insurance penetration and insurance density rate and the increasing awareness of insurance benefits. However, competition is getting tougher following the market deregulation and the entrance of new foreign insurers, which are expected to stimulate product diversity and enhance customer services.
Company HistoryPVI is a member of the PetroVietnam Group and was established in 1996. In 2002, the company successfully applied for the ISO 9001:2000 certification, raising the quality of its services. PVI was listed on the Hanoi Stock Exchange in 2007. The state remains PVI’s major shareholder 59.4% interest.
Ticker Share Price - VND
PVI 30,100
S&P Vietnam 10 Ho Chi Minh Stock Index
MSCI AC Asia Index PVI
Close/Volume Chart
Relative Performance
01 Jul 09
Mn SharesVND
01 Jul 09
99
Profit & Loss (VND bn) FY06A FY07A FY08A Net Premiums 275.3 440.9 758.0 Investment & Trading Income 53.8 197.6 166.5 Other Op Income 31.4 62.0 80.4 Total Revenues 360.5 700.5 1,004.9 Insurance Claims & Underwriiting Exps 76.7 192.2 421.4 SG&A, Depreciation & Others 223.7 262.9 412.3 Pre-Tax 60.2 250.1 171.7 Taxes (16.2) 0.0 0.0 Net Income to Common 44.0 250.1 171.7
Balance Sheet (VNDbn) FY06A FY07A FY08A Cash & Equivalents 59.7 1,158.7 833.6 ST Investments & Mkt. Sec 585.7 2,173.0 2,260.7 Receivables 98.7 332.1 414.7 Long Term Invest. & Others 69.4 531.4 1,061.4 Net Fixed Assets 48.9 62.9 64.9 Other LT Assets & Deferred Charges 333.0 261.2 283.0 ShortTerm Borrowings 0.0 0.0 0.0 Other ShortTerm Liab (129.0) (198.7) (1,970.6) Long Term Debt 0.0 0.0 0.0 Other Long Term Liab 0.0 (2,566.2) (659.7) Net Assets 1,066.3 1,754.4 2,288.0 Preferred Equity 0.0 0.0 0.0 Minority Interest 0.0 0.0 0.0 Paid in Capital 447.3 1,553.0 2,085.5 Retained Earnings 270.9 201.4 202.5 Total Liab. & Equity 1,195.3 4,519.3 4,918.4
Revenue Analysis FY06A FY07A FY08APremiums/Revenue 76.4 62.9 75.4 Invest Inc/Revenue 14.9 28.2 16.6 Other Op Income/Revenues 8.7 8.9 8.0
Other Metrics FY06A FY07A FY08A Revenue less Trading (VND bn) 306.8 503.0 838.4 Growth (%) n.a. 64.0 66.7 Op Profit 437.2 892.7 1,426.3 Growth (%) n.a. 104.2 59.8 Cost/Income (21.3) (27.4) (41.9) Growth (%) n.a. 29.0 52.9 Investments/Assets (%) 76.9 53.9 51.7 Investments/Capital (%) 205.4 156.7 122.0 Long Term Investments/Capital (%) 74.4 16.8 13.6
* Calculated from Balance Sheet & P&L
DuPont Analysis FY06A FY07A FY08A Op Profit / Revenues 1.21 1.27 1.42 Revenues/Total Assets 0.30 0.16 0.20 less Net Int./Assets (0.32) (0.14) (0.26) Pre-Tax ROA (%) 5.0% 5.5% 3.5% Assets/Equity 2.67 2.91 2.36 Pre-Tax ROE (%) 13.5% 16.1% 8.2% 1-Tax rate 0.73 1.00 1.00 Year End ROE (%) 9.8% 16.1% 8.2%
Miscelleaneous FY06A FY07A Current Asset Growth (%) n.a. 278.1% 8.8% Earnings Retention (%) n.a. 82.3% 43.2%
Key Risk FactorsWithin five years of WTO accession (by 2011) non-life branches of foreign insurance companies will be permitted to operate in Vietnam with full national treatment. New entrants are expected to enter the non-life insurance sector with progressive market deregulation, some of which have already gained a firm foothold such as AAA (1.87%), BIC (2.43%) and Liberty (0.42%).
Key Success FactorsVietnam is still a largely untapped insurance market with long-term potential in the non-life market with growth estimated to achieve 17% per annum in the next three years. PVI is the second largest player in the sector and should be well positioned to benefit from this industry growth. Their strategic relationship with PetroVietnam allows PVI to cement its dominance in the oil and gas and technical insurance sectors while its diversified portfolio and experienced management team should shelter investment risk.
Recent NewsMany international businesses operating in Vietnam have become PVI’s clients and partners, including BP, KNOC, GVPC, Conoco Philips, Vietgazprom, Talisman and Petronas, to name a few. Particularly, PVI has recently underwritten oil and gas policy to Vietgazprom valued at US$250 million for the period 2009-2010. As at the end of Q1 2009, PVI had achieved revenues of VND709bn and net profit growth of 13.7% YOY to VND68.9bn.
Management Strategy and GoalsThe company aims to apply a modern corporate governance model and attract talented staff, focusing on training and customer service. PVI aims to be the first non-life insurance company in Vietnam to obtain international recognition. It also aims to establish a presence in the ASEAN region and write potential business in countries where its parent, PetroVietnam undertakes oil and gas exploration and production activities. The company intends to increase its revenues from reinsurance focusing in particular on energy, marine, property, and construction. Investment income is expected to make a more significant revenue contribution while PVI intends to follow operational standards of some of the well-known European insurance companies.
Financials / Property & Casualty Insurance
Premium Breakdown, 2008
100
Saigon Securities Inc
Trading & Liquidity 20Days 100Days 180Days Volume (Reg, Trading) 2,916,739 2,021,096 1,409,003 VND Val. (Reg. Trading, bn) 202.1 102.6 66.1 Percent of market (%) 6.5 6.4 6.0
Shares Outstanding (mn) FY07A FY08A Current Wgt. Avg Issued Shares 103.1 132.5 150.3 Fully Dilluted Shares 103.1 132.5 150.3 Foreign Owned (% / Limit) 64.7mn 43.0% 49.0%
Market Values VND (bn) USD (mn) EUR (mn) Market Cap 10,071,587 565.8 400.7
Corperate Actions Ex-Date Amt/(Ratio) Fiscal YearCash Dividend 26-Nov-08 1,000 FY08Cash Dividend 15-May-08 2,000 FY07Bonus 24-Dec-07 1/2 FY07Rights Issue 24-May-07 1/5 FY07Bonus 24-May-07 1/5 FY07Cash Dividend 23-Apr-07 556 FY06Cash Dividend 20-Jul-06 556 FY06
Per Share (VND) FY06A FY07A FY08A Trail 12M FY09E* FY10E* EPS n.a. 8,378 1,890 1,256 1,745 2,668 BVPS 13,414 33,804 28,879 n.a. n.a. n.a. DPS 1,389 2,555 1,000 n.a. n.a. n.a. GOPS 0 9,298 2,332 n.a. n.a. n.a. Rev/Share 0 13,112 10,432 n.a. n.a. n.a.* Bloomberg Conscencus Estimates
Key Valuations FY07A Avg +/- 1 s.d. FY08A Avg +/- 1 s.d. FY09E* FY10E* P/Revenues (x) 16.2 17.6 / 14.9 5.9 9 / 2.8 n.a. n.a. P/E (x) 23.9 26.4 / 21.5 21.1 27.2 36.7 24.0 P/B (x) 8.5 10.9 / 6 1.6 1.4 n.a. n.a. Dividend Yield (%) 0.7 1 / 0.3 5.0 7.0 n.a. n.a. P/GOPS (x) 9.9 11.8 / 7.9 5.6 9 / 2.1 n.a. n.a.
Growth FY06A FY07A FY08A FY09E* FY10E* Revenues n.a. 257.3% 2.2% n.a. n.a. Commission n.a. 257.7% -34.8% n.a. n.a. Advisory n.a. 411.7% 153.5% n.a. n.a. Net Income n.a. 257.1% -71.0% n.a. n.a. EPS n.a. n.a. -77.4% -7.7% 52.9% BVPS n.a. 152.0% -14.6% n.a. n.a.* Bloomberg Conscencus Estimates
Growth Indicators FY06A FY07A FY08A Trading Securities n.a. 257.7% -34.8% Debt n.a. 328.0% -84.4% Financial Investments n.a. 192.1% -37.5% Equity n.a. 236.0% -3.9%
Profitability FY06A FY07A FY08A Rev/Assets (%) 10.0 14.4 24.6 (Rev-Trading)/Assets (%) 4.9 7.0 16.5 Operating Margin (%) 80.0 70.9 22.4 Pre-Tax Margin (%) 80.0 71.1 20.1 Net Margin (%) 63.9 63.9 18.1
Solvency & Liquidity FY06A FY07A FY08A ST Invetsments/Assets 47.4 28.4 15.3 LT Debt/Capital 41.4 13.7 10.0 Debt/Equity 62.0 79.0 12.8 Equity/Total Assets 32.0 43.2 69.3
Management Company Data
Chairman Nguyen Duy Hung Head Office72 Nguyen Hue, District
1, HCMC
CEO Nguyen Duy Hung CFO/ Chief Accontant Hoang Thi Minh Thuy Website www.ssi.com.vn IR Contact Nguyen Hong Nam Telephone +84838242897
Major Shareholders Shares Insider holdings Shares ANZ 18.0% Nguyen Duy Hung 14.2 mn Daiwa Securities 10.5% Nguyen Hong Nam 7.8 mn Nguyen Duy Hung 9.3%
Company Description & Principal ActivitiesSSI is one of the largest securities company in Vietnam and is the only large broker not wholly owned by one of the local financial institutions. The company’s scope of business includes institutional & retail brokerage, advisory & underwriting, proprietary trading and fund management. The company is a leader in brokerage with a 17% share of the market and derives a large part of its revenues from trading and underwriting. SSI also has the largest foreign customer base with over 100 institutions and over 30,000 individual accounts as at year-end 2008. ANZ and Daiwa Securities are the strategic shareholders.
Market OutlookThe recovery of the equities market in 2009 has fuelled brokers’ growth in their key businesses including brokerage, investment banking and proprietary trading. With more than 100 licensed brokers participating in the industry, competition remains fierce as new players are striving to gain stronger foothold using advanced technology systems, product innovation and a higher standard of customer service. Securities companies remain heavily reliant on proprietary trading as key source of income, which is a risky approach to sustainable growth.
Company HistorySaigon Securities Incorporation (SSI) was one of the first three securities companies in Vietnam. Established in 2000 with charter capital of VND 6.0bn, SSI is regarded one of the top five players with the strongest financial base among existing and newly established securities companies in Vietnam. The company first listed on the Hanoi stock exchange (HNX) in December 2006 and later shifted to the more liquid HOSE in October 2007.
Ticker Share Price - VND
SSI 64,000
Close/Volume Chart
Relative Performance
S&P Vietnam 10 Ho Chi Minh Stock Index
MSCI AC Asia Index SSI
01 Jul 09
Mn SharesVND
01 Jul 09
101
Profit & Loss (VND bn) FY06A FY07A FY08A Commissions 126.7 363.4 183.8 Prop. Trading 194.4 695.4 453.7
Advisory, Underwritting & Other Income
57.4 293.6 744.5
Total Revenues 378.5 1,352.4 1,382.0 Operating Costs (75.8) (393.4) (1,073.1) Others (0.0) (2.4) 31.1 Pre-Tax 302.7 961.5 277.8 Taxes (60.7) (97.3) (27.3) Net Income to Common 242.0 864.2 250.5
Balance Sheet (VNDbn) FY06A FY07A FY08A Cash & Client Cash in Trust 1,415.1 2,142.3 1,611.0 ST Investments & Mkt. Sec 1,786.2 2,668.0 860.5 Receivables 325.7 1,394.3 355.7 Other Curr Assets 38.1 24.0 5.3 Total Loans 0.0 0.0 0.0 Long Term Invest. & Others 0.0 0.0 0.0 Net Fixed Assets 7.3 37.7 38.1 Other LT Assets & Defered Charges 195.3 3,119.4 2,755.6 ShortTerm Borrowings (249.0) (2,650.0) (110.0) Other ShortTerm Liab (1,421.2) (1,695.2) (832.3) Long Term Debt (500.0) (555.6) (388.9) Other Long Term Liab (352.0) (404.4) (392.8) Net Assets 1,245.4 4,080.6 3,902.2 Preferred Equity 0.0 0.0 0.0 Minority Interest 0.0 0.0 0.0 Paid in Capital 1,010.5 3,195.8 3,362.7 Retained Earnings 196.7 860.8 534.2 Total Liab. & Equity 3,767.7 9,385.7 5,626.1
Revenue Analysis FY06A FY07A FY08ACommission/Revenue 33.5 26.9 13.3 Trading/Revenue 51.4 51.4 32.8 Advissory, Underwritting/Revenues 15.2 21.7 53.9
Other Metrics FY06A FY07A FY08A Revenue less Trading (VND bn) 184.1 657.1 928.3 Growth (%) n.a. 257.0 41.3 Op Profit 302.7 959.1 309.0 Growth (%) n.a. 216.9 (67.8) Cost/Income 20.0 29.1 77.6 Growth (%) n.a. 45.2 166.9 Investments/Assets (%) 52.6 61.7 64.3 Investments/Capital (%) 196.1 181.1 107.5 Long Term Investments/Capital (%) 19.3 97.6 81.9 * Calculated from Balance Sheet & P&L
Proprietary Trading Assets FY06A FY07A FY08A Prop Book - Listed Equity (%) 35.7% 16.2% 3.9% Prop Book - OTC Equity (%) 16.4% 24.4% 25.4% Prop Book - Bonds (%) 48.0% 59.5% 70.6%
DuPont Analysis FY06A FY07A FY08A Op Profit / Revenues 0.80 0.71 0.22 Revenues/Total Assets 0.10 0.14 0.25
less Net Int./Assets 0.00 0.00 (0.01) Pre-Tax ROA (%) 8.0% 10.2% 4.9% Assets/Equity 3.73 2.94 1.67 Pre-Tax ROE (%) 30.0% 30.1% 8.3% 1-Tax rate 0.80 0.90 0.90 Year End ROE (%) 24.0% 27.0% 7.4%
Miscelleaneous FY06A FY07A Current Asset Growth (%) n.a. 149.1% -40.1% Earnings Retention (%) n.a. 69.5% 47.1%
Management Strategy and GoalsManagement’s strategy is to improve customer service and maintain market share of around 14.5% for trading on the HOSE and 7% for the HNX, with an aim of increasing the number of accounts by 30%. One of the goals of brokerage is to increase the number of foreign accounts through road shows and in partnership with banks. In advisory, SSI aims to target large IPOs of state-owned enterprises belonging to VNPT, EVN and PetroVietnam. Another area of focus is to increase underwriting, especially in FDI companies and to give clients an all in one package including advisory, underwriting and listing services. SSI’s financial targets for 2009 are revenues and profit before tax of VND461bn (excluding proprietary trading revenue) and VND261bn respectively.
Recent NewsIn Q1, SSI achieved revenues and pretax profit of VND351bn and VND128bn which represents 37% and 23% of full year’s targets respectively.
Key Success FactorsStock ownership in Vietnam is still low and retail trading will pick up once the market improves as it has been recently. With a dominant position and a large capital base, SSI is going to be able to weather the storm better and longer than some of the smaller and less well-capitalized competitors when times are bad. The company has overcome some of the earlier periods of weakness in the markets (2001-2002) without the backing of strong institutional shareholders, unlike some of its competitors. A move towards a more technologically advanced platform will also assist countering some of the new entrants targeting sophisticated, well-educated middle-class customers. In the medium to long term, we see some likely consolidation in the sector with many securities companies being bought or closing shop. This should bode well for the large, remaining players such as SSI.
Key Risk FactorsVietnam is still a frontier market but already foreign financial institutions such as Morgan Stanley, JP Morgan have set up operations. With almost 100 securities companies in Vietnam, SSI is going to face increasing competition from both local and overseas players in lower brokerage and advisory fees. Proprietary trading still accounts for an overwhelming proportion of SSI’s revenues and there is a risk that concentration in certain sectors and OTC stocks as well as a weak market could adversely affect earnings.
Financials / Investment Services
Revenues by Source, 2008
102
Saigon Thuong Tin Commercial Bank
Trading & Liquidity 20Days 100Days 180Days Volume (Reg, Trading) 8,307,926 5,180,054 3,699,800 VND Val. (Reg. Trading, bn) 297.3 137.2 93.3 Percent of market (%) 9.6 8.6 8.4
Shares Outstanding (mn) FY07A FY08A Current Wgt. Avg Issued Shares 500.7 510.8 493.3 Fully Dilluted Shares 500.7 510.8 510.8 Foreign Owned (% / Limit) 141.8mn 28.7% 30.0%
Market Values VND (bn) USD (mn) EUR (mn) Market Cap 17,217 967.1 687.8
Corperate Actions Ex-Date Amt/(ratio) Fiscal YearStock Dividend 23-Jul-08 3/20 FY08Stock Dividend 7-Jun-07 3/25 FY07Rights Issue 7-Jun-07 1/1 FY07Bonus 13-Oct-06 1/10 FY06
Per Share (VND) FY06A FY07A FY08A Trail 12M FY09E* FY10E* EPS 1,147 2,792 1,869 3,048 2,340 3,085 BVPS 5,888 14,366 15,727 n.a. 18,230 21,741 DPS n.a. n.a. n.a. n.a. n.a. n.a. Gross OPPS 1,366 3,159 2,173 n.a. n.a. n.a.* Bloomberg Conscencus Estimates
Key Valuations FY07A Avg +/- 1 s.d. FY08A Avg +/- 1 s.d. FY09E* FY10E* P/E (x) 34.7 41 / 28.4 11.0 11.8 / 10.2 14.9 11.3 P/B (x) 7.2 9.8 / 4.6 1.9 2.6 / 1.2 1.9 1.6 Dividend Yield (%) n.a. n.a. n.a. n.a. n.a. n.a. P/Gross Op Profit (x) 6.0 6.8 / 5.3 1.7 n.a. n.a. n.a.
Op Profit Yield (%) 16.8 16.9 / 16.8 64.8 65 / 64.6 n.a. n.a.
Growth (P&L) FY06A FY07A FY08A FY09E* FY10E* Revenues 37.1% 129.8% 0.5% n.a. n.a. Net Interest 2.5% 69.3% -0.5% n.a. n.a. Commissions 7.4% 61.6% 190.8% n.a. n.a. Net Income 97.2% 197.4% -31.7% n.a. n.a. EPS 1,638 3,820 1,831 25.2% 31.9% BVPS 10,000 16,518 12,980 15.9% 19.3%
Growth (Bal. Sheet) FY06A FY07A FY08A Deposits -267.3% 152.6% 4.3% Loans 69.8% 145.8% -1.0% Financial Investments 524.5% 81.3% -21.0% Other LT Assets 122.5% 107.1% 59.3%
Profitability FY06A FY07A FY08A Trial 12M Revenues/Assets 4.3% 3.8% 3.6% Net Interest/Assets 2.7% 1.8% 1.7% Cost/Income ratio 38.4% 30.4% 51.7% Pretax Margin 0.0% 0.0% 0.0% Net Margin 44.2% 57.3% 38.9%
Solvency & Liquidity FY06A FY07A FY08A Liquid Assets/Deposits -21.8% -16.3% -25.3% Trading Sec./Deposits -1.5% -9.4% -0.8% Loans/Deposits -82.2% -80.0% -75.9% NPL’s 0.6% 0.4% 0.6% CAR 11.82 11.07 10.56
Management Company Data Chairman Dang Van Thanh Head Office 278 Nam Ky Khoi Nghia CEO Tran Xuan Huy District 3, HCMC CFO/ Chief Accontant Le Hung Cuong Website www.sacombank.com.vn IR Contact Dang Van Thanh Telephone +84839320420
Major Shareholders Shares Insider Holdings SharesIFC 5.25% Dang Van Thanh 20.01 mnDragon Financial Holdings 8.73% Dang Hong Anh 20.8 mn
ANZ 10.00% Nguyen Thi Mai Thanh 20.02 mn
Company Description & Principal ActivitiesSacombank is one of the largest Joint Stock Banks by assets in Vietnam. Apart from traditional banking business, STB also has a real estate arm through SacomReal, securities business through Sacombank Securities. Their scope of business includes taking deposits; providing loans to retail and corporate customers, trading in securities and stock brokerage, corporate finance advisory and underwriting as well as real estate advisory/investments.
Market OutlookVietnam is one of the most un-banked markets in the world with a penetration rate of less than 10%. There is huge potential for consumer lending, mortgages, and card services. Most banks have concentrated on consumer lending as a key business segment in 2009 due to the government’s 4% interest subsidy program. Loosening credit policies however raise concerns over loan quality and risk management. Interest margins appear thin due to tough competition and the recovery of other investment alternatives such as equity investments, and gold trading.
Company HistorySaigon Thuong Tin Commercial Joint Stock Bank (Sacombank) (STB) was established in 1991 by the merging of four credit organizations in Ho Chi Minh City. Its initial charter capital was VND3 billion. In 2002, Sacombank’s charter capital increased when the International Financial Corporation (IFC) became the second major foreign shareholder, after Dragon Financial Holdings (UK). In Aug-05, ANZ bank acquired a 10% stake and became the third largest shareholder.
Ticker Share Price - VND
STB 34,900
Close/Volume Chart
Relative Performance
S&P Vietnam 10 Ho Chi Minh Stock Index
MSCI AC Asia Index STB
01 Jul 09
Mn SharesVND
01 Jul 09
103
Profit & Loss (VND bn) FY06A FY07A FY08A Net Interest Income 680.4 1,151.9 1,146.7 Commission Income 119.7 193.4 562.3 Trading Income 11.6 909.3 508.6 Other income 250.8 187.0 236.3 Total Revenues 1,062.5 2,441.6 2,454.0 Provissions (43.0) (118.4) (74.1) Operating Costs (408.3) (741.2) (1,269.9) Pre-Tax Inocme 611.3 1,582.0 1,109.9 Taxes (141.2) (184.1) (155.2) Net Income 470.1 1,397.9 954.8
Balance Sheet (VNDbn) FY06A FY07A FY08A Cash & SBV Deposits 3,821.1 7,213.9 11,683.2 Loans 14,394.3 35,378.1 35,008.9 Provisions (81.4) (177.6) (251.8) Trading Securities 264.6 4,147.0 377.0 Investment Securities 2,065.0 9,173.8 8,969.6 Net Fixed Assets 708.1 1,019.8 1,696.3 Invest. in Assoc. 0.0 80.6 135.8 Financial Investments 780.6 1,414.9 1,118.4 Other LT Assets 804.2 1,665.8 2,653.6 Net Interbank 1,204.1 147.5 2,559.2 Central bank (107.0) (750.2) (52.2) Deposits (17,511.0) (44,231.9) (46,128.8) Certificates (2,529.3) (5,197.4) (7,659.1) Other LT Liab (942.5) (2,534.7) (2,351.5) Net Assets 2,870.8 7,349.6 7,758.6 Capital 2,248.7 5,662.5 5,977.6
Reserves 185.5 452.6 796.7 Minorities 0.0 0.0 0.0 Retained Earnings 436.2 1,234.5 984.3 Total Liab. & Equity 24,776.2 64,572.9 68,438.6
Revenue Analysis FY06A FY07A FY08A Interest/Revenues 64.0% 47.2% 46.7% Commission/Revenues 11.3% 7.9% 22.9% Trading/Revenues 1.1% 37.2% 20.7% Provission/Revenues 4.0% 4.8% 3.0%
Credit Quality FY06A FY07A FY08A NPL’s 92.8 127.4 208.4 Special Mention 44.7 5.9 129.2 Overdue Loans 137.6 133.4 337.6 Overdure Loans/Loans 0.96% 0.38% 0.96% Specific Provisisons 21.9 27.7 40.5 General Provissions 59.5 149.8 211.3 Total Provissions 81.4 177.6 251.8 General Provisons/Loans 0.41% 0.42% 0.60% Specific Provisons/Loans 0.15% 0.08% 0.12% Spec. Prov./Total Provisions 26.9% 15.6% 16.1% Provision Charge/Loans 0.30% 0.33% 0.21% NPL Covergae 87.7% 139.3% 120.8% Off BS & Contigencies 3,434.0 8,751.0 11,580.9 Off BS & Contigencies/Assets 13.9% 13.6% 16.9%
DuPont Analysis FY06A FY07A FY08A PreTax/Revenues 0.58 0.65 0.45 Revenues/Assets 0.04 0.04 0.04 Pre-Tax ROA 0.02 0.02 0.02 Assets/Equity 8.63 8.79 8.82 1 - Tax Rate 0.77 0.88 0.86 Year End ROE (%) 16.4% 18.9% 12.4% ROE (Avg Equity) 19.8% 27.4% 12.6%
Miscelleaneous FY06A FY07A FY08A Asset Growth (%) 6755.4% 160.6% 6.0% Provision Growth (%) 77.4% 118.1% 41.8% Earnings Retention (%) n.m. n.m. n.m.
Management Strategy and GoalsManagement’s strategy is to maintain operational prudence and strengthen corporate governance. The bank aims to diversify its revenue stream with a focus on fees and commissions while credit growth will be monitored closely to keep NPLs at below 2%. STB is already targeting untapped markets such as Laos, Cambodia, and China and has become the first Vietnamese bank to win approval to establish branches in these countries. Financially, the bank aims for a pre-tax profit of VND1.6tn this year (an increase of 47%) with an overall target for a 20-23% ROE and ROA of 1.5-2.0%.
Recent NewsIn the first 5 months of 2009, STB earned a pre-tax profit of VND660bn, or 41.25% of the full year target. Total deposits reached VND69.1 trillion; outstanding loans reached VND44.8 trillion in the period while total assets amount to nearly VND78.5 trillion, up 14.76% year-to-date. STB is now the leader among commercial joint stock banks in its operational network with over 225 transaction offices nationwide. The IFC recently reduced its holdings in STB while another strategic partner ANZ has registered to divest its holding after setting up a 100% foreign owned subsidiary.
Key Success FactorsSTB is one of the largest joint stock banks by assets and is regarded as one of the most well managed banks in Vietnam. The country’s low banking penetration will be the medium to long term driver of growth. An experienced management team with a clear vision on development strategies is also one of the key success factors. STB’s achievements are also founded on its credible reputation, intensive distribution network and enhanced information technology.
Key Risk FactorsThe global economic crisis continues to have a negative impact on Vietnam’s financial industry in which STB is a key player. Credit growth pressure raises concerns over loan quality while interest margins remain thin due to intensified competition. Moreover, similar to other banks, expanding networks and competition for well-qualified staff will add an extra cost burden at a time when net interest margins are falling.
Financials/Banks
Loan Book, 2008
104
Bank for Foreign Trade of Vietnam
Trading & Liquidity 20Days 100Days 180Days Volume (Reg, Trading) 3,271,230 3,271,230 3,271,230 VND Val. (Reg. Trading, bn) 203.7 203.7 203.7 Percent of market (%) 6.6 12.5 18.3
Shares Outstanding (mn) FY07A FY08A Current Wgt. Avg Issued Shares 1,210.1 1,210.1 1,210.1 Fully Dilluted Shares 1,210.1 1,210.1 1,210.1 Foreign Owned (% / Limit) 29.7mn 2.5% of 30.0%
Market Values VND (bn) USD (mn) EUR (mn) Market Cap 72,605 4,078.5 2,900.5
Per Share (VND) FY06A FY07A FY08A Trail 12M FY09E* FY10E* EPS n.a. 1,989 2,096 n.a. 2,667 3,299 BVPS n.a. 9,341 11,249 n.a. 14,053 17,352 DPS n.a. n.a. n.a. n.a. n.a. n.a. Gross OPPS n.a. n.a. n.a. n.a. n.a. n.a.* Bloomberg Conscencus Estimates
Key Valuations FY07A Avg +/- 1 s.d. FY08A Avg +/- 1 s.d. FY09E* FY10E* P/E (x) n.a. n.a. n.a. n.a. 22.7 18.3 P/B (x) n.a. n.a. n.a. n.a. 4.3 3.5 Dividend Yield (%) n.a. n.a. n.a. n.a. n.a. n.a. P/Gross Op Profit (x) n.a. n.a. n.a. n.a. n.a. n.a. Op Profit Yield (%) n.a. n.a. n.a. n.a. n.a. n.a.
Growth (P&L) FY06A FY07A FY08A FY09E* FY10E* Revenues 24.1% 9.1% 54.5% n.a. n.a. Net Interest 17.3% 5.5% 61.6% n.a. n.a. Commissions 22.5% 9.7% 31.5% n.a. n.a. Net Income 123.0% -16.3% 5.4% n.a. n.a. EPS 6,659 5,458 3,049 27.2% 23.7% BVPS 25,540 30,595 11,396 24.9% 23.5%
Growth (Bal. Sheet) FY06A FY07A FY08A Deposits -1169.2% 26.5% 10.9% Loans 698.9% 44.1% 15.5% Financial Investments 281.6% 175.3% 35.7% Other LT Assets 270.2% 57.3% 33.6%
Profitability FY06A FY07A FY08A Trial 12M Revenues/Assets 3.2% 2.9% 4.0% Net Interest/Assets 2.3% 2.1% 3.0% Cost/Income ratio 23.0% 28.2% 30.3% Gross Op Margin 0.0% 0.0% 0.0% Net Margin 54.5% 41.8% 28.5%
Solvency & Liquidity FY06A FY07A FY08A Liquid Assets/Deposits -12.7% -10.5% -21.7% Trading Sec./Deposits -0.5% -1.1% -0.2% Loans/Deposits -60.5% -69.0% -71.8% NPL’s 2.7% 3.7% 4.6% CAR n.a 11.20% 8.9%
Management Company Data Chairman Nguyen Hoa Binh Head Office 198 Tran Quang Khai, Hanoi
CEO Nguyen Phuoc Thanh
CFO/ Chief Accontant Nguyen Thi Hoa Website www.vietcombank.com.vn IR Contact Nguyen Thi Hoa Telephone +84439343137
Major Shareholders Shares Insider Holdings SharesSCIC 90.72% Nguyen Hoa Binh 3,500
Nguyen Phuoc Thanh 2,500
Company Description & Principal ActivitiesVietcombank is the second largest bank in Vietnam by total assets (VND221 tn) as at 31 December 2008. The bank’s main activities include taking deposits and making loans to retail and corporate customers in VND, gold and foreign currencies. Other services include payment services, treasury services, foreign exchange trading, and credit card and debit card services. Vietcombank is the sole shareholder in Vietcombank Securities (100%), Vietcombank Leasing Company (100%), Vietnam Finance Company Limited (100%), Vietcombank Asset Management Company (100%), and holds significant stakes in Vietcombank Fund Management (51%), Vietcombank Cardif Life Insurance (45%), and Shinhan Vina Bank (50%).
Market OutlookVietnam is one of the most un-banked markets in the world with an account-holder penetration rate of less than 10%. There is huge potential for consumer lending, mortgages as well as cards. Most banks concentrated on consumer lending as a key business segment in 2009 due to the government’s 4% interest subsidy program. Loosening credit controls however raises concerns over loan quality and risk management. Interest margins appear thin due to tough competition and the recovery of other investment alternatives such as equity investments and gold trading.
Company History Vietcombank was established in 1963 as a spin-off from the Foreign Exchange unit of the State Bank of Vietnam. In 1990, Vietcombank became a full-service bank from its previously specialized function as a foreign exchange dealer, extending their business lines into commercial lending, card activities, and treasury services. The bank was transformed into a joint stock bank following its IPO at the end of 2007 and is set to list on the HoSE in June 2009.
Ticker Share Price - VND
VCB 60,500
Close/Volume Chart
Relative Performance
Corperate Actions Ex-Date Amt/(Ratio) Fiscal YearCash Dividend 23-Jul-08 1,000 FY08Cash Dividend 16-May-08 400 FY08Cash Dividend 8-Aug-07 675 FY07Rights Issue 8-Aug-07 2/5 FY07Cash Dividend 7-Feb-07 975 FY06
S&P Vietnam 10 Ho Chi Minh Stock Index
MSCI AC Asia Index VCB
01 Jul 09
Mn SharesVND
01 Jul 09
105
Profit & Loss (VND bn) FY06A FY07A FY08A Net Interest Income 3,884.3 4,099.9 6,623.6 Commission Income 548.3 601.4 790.9 Trading Income 426.9 790.4 678.2 Other income 422.0 271.8 809.8 Total Revenues 5,281.4 5,763.4 8,902.5 Provissions (174.2) (943.5) (2,883.9) Operating Costs (1,213.6) (1,627.7) (2,694.1) Pre-Tax Income 3,893.7 3,192.1 3,324.5 Taxes (1,016.6) (785.1) (788.1) Net Income 2,877.1 2,407.1 2,536.3
Balance Sheet (VNDbn) FY06A FY07A FY08A Cash & SBV Deposits 14,266.7 14,866.9 34,043.6 Loans 67,742.5 97,631.5 112,793.0 Provisions (1,491.6) (2,102.9) (4,264.2) Trading Securities 568.6 1,575.3 271.7 Investment Securities 30,394.5 41,158.7 41,604.5 Net Fixed Assets 1,109.9 1,049.2 1,360.9 Invest. in Assoc. 487.7 586.6 1,180.1 Financial Investments 477.0 1,313.1 1,781.5 Other LT Assets 1,337.8 2,104.6 2,811.6 Net Interbank 40,064.2 21,240.7 6,467.3 Central bank (16,791.4) (12,685.3) (9,515.6) Deposits (111,916.3) (141,589.1) (157,067.0) Certificates (8,778.8) (3,221.1) (2,922.0) Other LT Liab (6,167.5) (8,316.1) (14,651.8) Net Assets 11,303.2 13,612.1 13,893.4 Capital 4,356.7 4,429.3 12,100.9 Reserves 6,606.1 8,643.6 830.5 Minorities 75.1 84.3 103.4 Retained Earnings 265.2 454.8 858.7 Total Liab. & Equity 166,952.0 197,363.4 221,950.4
Revenue Analysis FY06A FY07A FY08A Interest/Revenues 73.5% 71.1% 74.4% Commission/Revenues 10.4% 10.4% 8.9% Trading/Revenues 8.1% 13.7% 7.6% Provission/Revenues 3.3% 16.4% 32.4%
Credit Quality FY06A FY07A FY08A NPL’s 1,860.7 3,616.6 5,202.0 Special Mention 398.9 1,666.0 3,061.3 Overdue Loans 2,259.6 5,282.6 8,263.4 Overdure Loans/Loans 3.34% 5.41% 7.33% Specific Provisisons 1,116.5 763.5 3,509.6 General Provissions 0.0 1,954.0 807.8 Total Provissions 1,116.5 2,717.4 4,317.4 General Provisons/Loans 0.00% 2.00% 0.72% Specific Provisons/Loans 1.65% 0.78% 3.11% Spec. Prov./Total Provisions 100.0% 28.1% 81.3% Provision Charge/Loans 0.26% 0.97% 2.56% NPL Covergae 60.0% 75.1% 83.0% Off BS & Contigencies 33,505.9 45,039.0 38,270.5 Off BS & Contigencies/Assets 20.1% 22.8% 17.2%
DuPont Analysis FY06A FY07A FY08A PreTax/Revenues 0.74 0.55 0.37 Revenues/Assets 0.03 0.03 0.04 Pre-Tax ROA 0.02 0.02 0.01 Assets/Equity 14.77 14.50 15.98 1 - Tax Rate 0.74 0.75 0.76 Year End ROE (%) 25.5% 17.7% 18.3% ROE (Avg Equity) 29.4% 19.4% 18.4%
Miscelleaneous FY06A FY07A FY08A Asset Growth (%) 1055.0% 18.2% 12.5% Provision Growth (%) 3149.5% 41.0% 102.8% Earnings Retention (%) n.m. n.m. n.m.
Management Strategy and GoalsVietcombank aims to purse deposit and credit growth while maintaining a tight control on loan quality and risk management procedures. Vietcombank will continue to focus on the bank’s key strengths in foreign exchange dealings, international settlements and trade finance to fuel growth. The bank also seeks to diversify its loan portfolio to SMEs and individual customers, and is placing great emphasis on retail banking. Management is also set to make substantial investments in IT infrastructure and distribution networks to support its retail banking strategies.
Recent NewsVietcombank has recently been approved to list 112 million shares on the HoSE and they are expected to make their bourse debut at the end of June 2009. The bank is still in the process to searching for a strategic partner with a global presence and in-depth expertise to strengthen its competitiveness. Financially, in Q1 2009, VCB reported pre-tax profit of VND1.39 trillion or 42% of 2009 guidance.
Key Success FactorsVCB is one of the largest banks by assets and is also regarded as one of the most well managed banks in Vietnam. The country’s low banking penetration will be the medium to long term driver of growth. The experienced management team with a clear vision and development strategy is one of the key factors driving the bank’s success. The achievement of VCB is also founded on its credible reputation, intensive distribution network and enhanced information technology.
Key Risk FactorsThe global economic crisis continues to have a negative impact on Vietnam’s financial sector, in which VCB is one of the key players. Easing credit growth restrictions raise concerns over loan quality while net interest margins remain thin due to intense competition. Similar to other banks, an expanding network and competition for well-qualified staff will add an extra cost burden at a time when net interest margins are falling.
Financials / Banks
Loan Book, 2008
106
Vietnam National Reinsurance
Trading & Liquidity 20Days 100Days 180Days Volume (Reg, Trading) 221,670 60,426 42,788 VND Val. (Reg. Trading, bn) 8.5 2.2 1.5 Percent of market (%) 0.3 0.1 0.1
Shares Outstanding (mn) FY07A FY08A Current Wgt. Avg Issued Shares 46.6 63.6 67.2 Fully Dilluted Shares 46.6 63.6 67.2 Foreign Owned (% / Limit) 20.1mn 29.9% of 49.0%
Market Values VND (bn) USD (mn) EUR (mn) Market Cap 2,050,162 115.2 82.1
Corperate Actions Ex-Date Amt/(Ratio) Fiscal YearCash Dividend 23-Jul-08 1,000 FY08Cash Dividend 16-May-08 400 FY08Cash Dividend 8-Aug-07 675 FY07Rights Issue 8-Aug-07 2/5 FY07Cash Dividend 7-Feb-07 975 FY06
Per Share (VND) FY06A FY07A FY08A Trail 12M FY09E* FY10E* EPS 1,322 1,567 2,508 2,741 n.a. n.a. BVPS 9,042 12,784 28,428 n.a. n.a. n.a. DPS n.a. n.a. n.a. n.a. n.a. n.a. GOPS n.a. 1,596 3,047 n.a. n.a. n.a. Rev/Share n.a. 7,608 9,706 n.a. n.a. n.a.* Bloomberg Conscencus Estimates
Key Valuations FY07A Avg +/- 1 s.d. FY08A Avg +/- 1 s.d. FY09E* FY10E* P/Revenues (x) n.a. n.a. 3.7 4.6 / 2.7 n.a. n.a. P/E (x) n.a. n.a. 16.5 13.8 n.a. n.a. P/B (x) 6.2 7.3 / 5 1.4 1.1 n.a. n.a. Dividend Yield (%) 2.1 2.7 / 1.5 3.8 5.2 n.a. n.a. P/GOPS (x) 9.0 9.7 / 8.3 3.7 4.8 / 2.5 n.a. n.a.
Growth FY06A FY07A FY08A FY09E* FY10E* Revenues 20.0% 18.6% 74.0% n.a. n.a. Commission 18.1% -13.6% 325.2% n.a. n.a. Advissory n.a. 32.0% 18.3% n.a. n.a. Net Income 41.7% 20.9% 118.3% n.a. n.a. EPS 41.7% 18.5% 60.1% n.a. n.a. BVPS n.a. 41.4% 122.4% n.a. n.a.* Bloomberg Conscencus Estimates
Growth Indicators FY06A FY07A FY08A Trading Securities -20.3% -13.6% 325.2% Debt 15.9% n.a. -100.0% Financial Investments n.a. -28.9% 292.8% Equity -29.3% 48.5% 211.3%
Profitability FY06A FY07A FY08A Rev/Assets (%) 34.3 29.3 22.7 (Rev-Trading)/Assets (%) 27.9 25.3 15.1 Operating Margin (%) 155.2 160.5 147.9 Pre-Tax Margin (%) 23.9 23.6 33.2 Net Margin (%) 20.2 20.6 25.8
Solvency & Liquidity FY06A FY07A FY08A ST Invetsments/Assets 35.8 18.2 34.3 LT Debt/Capital - - - Debt/Equity - 48.4 - Equity/Total Assets 47.4 50.6 70.2
Management Company Data Chairman Trinh Quang Tuyen Head Office 7 Floor, 141 Le Duan St, Hanoi CEO Trinh Quang Tuyen CFO/ Chief Accontant Luu Thi Viet Hoa Website www.vinare.com.vn IR Contact Nguyen Thi Minh Chau Telephone +84439422365
Major Shareholders Shares Insider Holdings SharesSCIC 40.30% Trinh Quang Tuyen n.aSwissRe 25% Pham Cong Tu n.aBao Viet 8.40% Tran Trong Phuc n.a
Company Description & Principal ActivitiesVNR provides reinsurance services, both life and non life to direct insurers in Vietnam. It also writes reinsurance on a non-compulsory basis from various Asian markets, including Japan, South Korea, Thailand, China, and Singapore. Its main operations are providing reinsurance services for foreign and domestic life and non-life insurers, investing in government bonds, corporate stocks and bonds, trading real estate and making capital investments. VinaRe recorded an annual average growth rate of 32.7 percent in revenues during its first ten years of operation.
Market OutlookThe Vietnam insurance market has grown by 39% in 2008 and the long-term potential remains optimistic with life insurance expected to grow by 20% to 25% per year and non-life insurance by 17% per year until 2012. This will drive reinsurance volumes and VinaRe, being the largest reinsurance company in Vietnam will be well positioned to benefit from the trend. However, as most major insurers in Vietnam now have large financial institutions as foreign strategic shareholders or have increased their capital bases, their ability to take on more underwriting/reinsurance is enhanced. As such, the amount of business available to VinaRe will reduce over time. Moreover, as competition has increased, pricing and underwriting standards may have declined, resulting in lower risk adjusted returns.
Company HistoryThe Vietnam National Reinsurance Corporation (VinaRe) was established in Hanoi in 1994. The company was equitized in 2004 and converted to a joint stock company from January 2005. SwissRe became a strategic shareholder in January 2008, taking a 25% stake for USD79m. VNR was officially listed on HASTC in March 2006.
Ticker Share Price - VND
VNR 29,800
Close/Volume Chart
Relative Performance
S&P Vietnam 10 Ho Chi Minh Stock Index
MSCI AC Asia Index VNR
01 Jul 09
Mn SharesVND
01 Jul 09
107
Profit & Loss (VND bn) FY06A FY07A FY08A Net Premiums 151.0 184.6 267.9 Investment & Trading Income 55.9 48.3 205.3 Other Op Income 92.3 121.9 144.2 Total Revenues 299.3 354.8 617.4 Insurance Claims & Underwriiting Exps 165.1 214.5 295.8 SG&A, Depreciation & Others 62.6 65.9 127.7 Pre-Tax 71.5 83.8 205.1 Taxes (11.0) (10.7) (45.5) Net Income to Common 60.5 73.1 159.6
Balance Sheet (VNDbn) FY06A FY07A FY08A Cash & Equivalents 32.1 99.3 426.0 ST Investments & Mkt. Sec 312.6 221.1 933.8 Receivables 143.8 263.6 535.6 Long Term Invest. & Others 316.6 570.6 775.0 Net Fixed Assets 39.1 37.3 35.3 Other LT Assets & Deferred Charges 28.2 21.2 18.1 ShortTerm Borrowings 0.0 (297.4) 0.0 Other ShortTerm Liab (225.5) (13.9) (409.9) Long Term Debt 0.0 0.0 0.0 Other Long Term Liab (0.0) (0.6) (1.0) Net Assets 646.9 901.1 2,313.1 Preferred Equity 0.0 0.0 0.0 Minority Interest 0.0 0.0 0.0 Paid in Capital 343.0 549.7 1,776.3 Retained Earnings 70.5 64.2 134.5 Total Liab. & Equity 872.5 1,213.0 2,723.9
Revenue Analysis FY06A FY07A FY08APremiums/Revenue 50.5 52.0 43.4 Invest Inc/Revenue 18.7 13.6 33.3 Other Op Income/Revenues 30.9 34.4 23.4
Other Metrics FY06A FY07A FY08A Revenue less Trading (VND bn) 243.4 306.5 412.1 Growth (%) n.a. 26.0 34.4 Op Profit 464.4 569.3 913.2 Growth (%) n.a. 22.6 60.4 Cost/Income (55.2) (60.5) (47.9) Growth (%) n.a. 9.6 (20.7) Investments/Assets (%) 39.1 20.0 34.9 Investments/Capital (%) 99.3 44.1 53.6 Long Term Investments/Capital (%) 8.2 3.9 1.0 * Calculated from Balance Sheet & P&L
DuPont Analysis FY06A FY07A FY08A Op Profit / Revenues 1.55 1.60 1.48 Revenues/Total Assets 0.34 0.29 0.23 less Net Int./Assets (0.45) (0.40) (0.26) Pre-Tax ROA (%) 8.2% 6.9% 7.5% Assets/Equity 2.54 2.21 1.53 Pre-Tax ROE (%) 20.9% 15.2% 11.5% 1-Tax rate 0.85 0.87 0.78 Year End ROE (%) 17.6% 13.3% 9.0%
Miscelleaneous FY06A FY07A Current Asset Growth (%) n.a. 39.0% 124.6% Earnings Retention (%) n.a. n.a. n.a.
Management Strategy and GoalsManagement’s goal is to build VNR into a leader in reinsurance in Vietnam and the region. The company wants to be known as the centre for insurance services with a strong IT platform and staff that are knowledgeable and skilled in the reinsurance industry. VNR aims to have a strong capital base to take on reinsurance contracts both domestically and regionally, maintain liquidity and increase financial investments. Its slogan is “Safety, Profitability and Stability”. Financially, the company targets revenues of VND 1,000 bn with retained premium grow by 5.4% to VND 300 bn in 2009. Pretax profit target for 2009 is VND210bn.
Recent NewsThe company has invested in local insurance companies including PJICO (8.8%), a leading non life insurer in Vietnam with a 10% market share; PTI (7.5%), a smaller non-life insurer, and in newly formed insurance companies such as ABIC Insurance (10%), Bao Tin Insurance (10%) and Samsung-Vina (50%), a joint-venture with Samsung Fire & Marine and one of the top global non-life insurance companies in the world. The company has also taken a 12.5% stake in a newly established bank, Tien Phong Bank, jointly with VMS Mobile and FPT.
Key Success FactorsWith a strong capital base and being the only reinsurer in Vietnam, VinaRe is in a unique position to benefit from the growth in the insurance sector in general. The company has a reliable customer base due to the fact that many of VNR’s shareholders and investee companies are also clients and partners. As Vietnam opens its door to the world through the WTO, more foreign companies are entering Vietnam and more Vietnamese companies are doing business overseas. As such there is an opportunity for VinaRe to take on more underwriting contracts outside Vietnam, especially within Asia. With SwissRe, a world renowned reinsurer, on board, it is natural to assume that VinaRe’s technical capability in underwriting and investing will improve, leveraging on its partner’s experience and expertise.
Key Risk FactorsAs most major insurance companies in Vietnam have now either secured foreign strategic shareholders who are large financial institutions or increased their capital bases, their ability to take on more underwriting will be greatly enhanced. As such, VinaRe potential market will be less than otherwise. Moreover, as the number of insurance companies has increased, underwriting standards and pricing have declined, resulting in lower risk adjusted returns. In addition, VinaRe’s strategy of relying on shareholders as customers presents an inherent conflict of interest as the business that these shareholders bring may not necessarily be in the best interests for the company.
Financials / Reinsurance
Investment Portfolio, 2008
108
Imexpharm Pharmaceutical
Trading & Liquidity 20Days 100Days 180Days Volume (Reg, Trading) 44,146 33,574 23,091 VND Val. (Reg. Trading, bn) 3.1 2.0 1.4 Percent of market (%) 0.1 0.1 0.1
Shares Outstanding (mn) FY07A FY08A Current Wgt. Avg Issued Shares 10.0 11.7 11.6 Fully Dilluted Shares 10.0 11.7 11.6 Foreign Owned (% / Limit) 4.5mn 39.2% 49.0%
Market Values VND (bn) USD (mn) EUR (mn) Market Cap 714 40.1 28.4 Net Debt (131) (7.4) (0.0) Minorities & Others 23 1.3 0.9 Enterprise Value 605 34.0 24.1
Corperate Actions Ex-Date Amt/(ratio) Fiscal YearCash Dividend 27-Apr-09 1,000 FY08Cash Dividend 10-Nov-08 1,000 FY08Cash Dividend 29-Apr-08 2,000 FY07Rights Issue 19-Sep-07 1/10 FY07Cash Dividend 17-Apr-07 857 FY06Stock Dividend 17-Apr-07 1/10 FY07
Per Share (VND) FY06A FY07A FY08A Trail 12M FY09E* FY10E* EPS 4,770 5,472 4,997 5,359 4,731 6,685 BVPS 23,904 42,672 44,239 n.a. n.a. n.a. DPS 728 843 2,740 n.a. n.a. n.a. CFPS 8,079 (1,115) 6,439 10,158 n.a. n.a. FCFPS 5,932 (2,889) (995) 5,310 n.a. n.a.* Bloomberg Consensus Estimates
Key Valuations FY07A Avg +/- 1 s.d. FY08A Avg +/- 1 s.d. FY09E* FY10E* P/E (x) 35.9 39.8 / 32.1 20.1 20.8 / 19.3 12.9 9.1 P/B (x) 5.7 7.2 / 4.2 2.4 3.2 / 1.7 n.a. n.a. Dividend Yield (%) 0.6 0.7 / 0.4 2.2 3.5 / 0.9 n.a. n.a. P/CFPS (x) n.a. n.a. 6.3 6.5 / 6 n.a. n.a. FCF Yield (%) n.a. n.a. 3.7 4 / 3.5 n.a. n.a.
Growth FY06A FY07A FY08A FY09E* FY10E* Revenues 55.8% -14.0% 24.4% n.a. n.a. EBITDA 19.6% 20.8% 11.7% n.a. n.a. EBIT 21.0% 17.1% 10.3% n.a. n.a. Net Income 59.6% 29.0% 6.9% n.a. n.a. EPS -4.1% 14.7% -8.7% -5.3% 41.3% BVPS 5.7% 78.5% 3.7% n.a. n.a.
* Bloomberg Consensus Estimates
Growth Indicators FY06A FY07A FY08A Fixed Assets/Assoc 54.3% 64.9% 160.3% Debt -94.8% -0.4% 23.8% Financial Investments 65.5% 517.4% 125.2% Other LT Assets 77.3% 317.8% -13.3%
Profitability FY06A FY07A FY08A Gross Margin (%) 30.1 42.7 43.1 EBITDA Margin (%) 10.0 14.0 12.6 EBIT Margin (%) 8.7 11.9 10.5 Pre-Tax Margin (%) 9.0 14.0 12.6 Net Margin (%) 8.0 12.1 10.4
Solvency & Liquidity FY06A FY07A FY08A Acid Test Ratio 2.12 1.29 2.42 Current Ratio 3.50 5.59 4.71 LT Debt/Capital 0.0% 0.0% 0.2% Net Debt/Equity 26.2% 9.1% 20.5% LT Debt/Fixed Assets 0.3% 0.3% 0.9% Total Liab/Total Assets 23.1% 12.5% 13.5%
Management Company Data
Chairman Tran Thi Dao Head Office,4 , 30 April Street, Cao Lanh,
Dong Thap Province
CEO Tran Thi Dao CFO/ Chief Accontant Phan Hoang Minh Tri Website www.imexpharm.com IR Contact Phan Hoang Minh Tri Telephone +84673851941
Major Shareholders Shares Insider Holdings SharesState 26.04% Tran Thi Dao 0.93%Vietnam Holding Ltd 6.88%
Company Description & Principle ActivitiesIMP is well-known for production and distribution of generic drugs and is also involved in several licensing contracts with foreign companies such as Sanofi Aventis, GSK Pharmascience, Innotech and Robinson. Its two pharmaceutical factories producing both Betalactam and non-Betalactam products have been accredited with GMP-WHO certification and have a total production capacity of 250 million units per year. IMP is also engaged in the production and plantation of traditional medicines and has acquired access to 1,041ha of national reservation forest in Long An Province through the purchase of the Remedica Center which supports its research and production of herbal raw materials.
Market OutlookPharmaceutical consumption in Vietnam is still at an early stage of development although annual per capita expenditure is rising rapidly from USD7.60 in 2003 to USD16.45 in 2008, at a CAGR of 16.7%. The total consumer market size was estimated at USD1.43bn in 2008 compared with USD0.61bn five years ago (a CAGR of 18.6%), of which imported drugs accounted for 49.8%. Economic growth, increasing urbanization rates, rising per capita income, and increasing health awareness are expected to drive a minimum annual growth rate of 15% in the next five years.
Company HistoryIMP was founded in September 1983 as the Pharmaceutical Cooperative Company of Dong Thap by the Health Department of the Dong Thap Province. It was the first state owned pharmaceutical company to be equitized in 2001 and was listed on the HOSE in December 2006. It is considered one of top three domestic pharmaceutical companies.
Ticker Share Price - VND
IMP 61,000
Close/Volume Chart
Relative Performance
S&P Vietnam 10 Ho Chi Minh Stock Index
MSCI AC Asia Index IMP
01 Jul 09
Mn SharesVND
01 Jul 09
109
Profit & Loss (VND bn) FY06A FY07A FY08A Revenue 525.4 451.6 561.8 EBITDA 52.4 63.2 70.6 EBIT 45.7 53.6 59.1 Interest & Fx Exp (3.4) (0.5) (1.5) Non Op Inc (Loss) 4.7 10.2 13.2 Pre-Tax 47.1 63.2 70.8 Taxes (4.8) (8.7) (12.5) Minorities & Pref’s 0.0 0.0 0.0 Net Income to Common 42.3 54.5 58.3
Balance Sheet (VNDbn) FY06A FY07A FY08A Cash & Equiv. 65.6 49.2 110.9 ST Investments & Mkt. Sec 0.0 155.3 25.7 Receivables 49.8 50.1 85.8 Inventories 129.8 137.8 148.3 Other Curr Assets 15.2 77.5 27.5 Net Fixed Assets 31.1 40.5 116.9 Construction in Progress 4.0 3.2 14.6 Invest. in Assoc. 0.2 14.5 19.8 Financial Investments 1.4 8.6 19.4 Other L.T. Assets 7.6 31.8 27.6 Payables (30.9) (38.2) (45.8) Other Curr Liab. (35.0) (28.0) (28.8) ST Debt (4.1) (4.0) (4.0) LT Debt (0.1) (0.1) (1.1) Other LT Liab (0.4) (0.6) (0.8) Net Assets 234.2 497.6 515.8 Minorities 0.0 0.0 0.0 Book Capital 164.9 394.7 394.7 Ret. Earnings 69.2 102.8 121.1 Total Liab. & Equity 304.7 568.4 596.4
Working Capital Analysis FY06A FY07A FY08A Days Receivable 34.6 40.5 55.8 Days Inventory 129.0 194.5 169.2 Days Payable 30.7 54.0 52.3 Cash Operating Cycle 125.1 208.0 165.7
Derived Cash Flow (VNDbn)* FY06A FY07A FY08A EBIT 45.7 53.6 59.1 Depreciation & Amort 6.6 9.7 11.6 Chgs in Working Cap 35.9 (70.3) 12.3 Operating Cash Flow 88.3 (7.1) 82.9 Net Interest, Fx & Taxes (8.2) (9.2) (14.0) Fixed Asset Capex (19.0) (17.7) (86.7) Investments (0.6) (21.5) (16.1) Non Op Inc (Loss) 4.7 10.2 13.2 Other Non Cash Adj. (46.4) (168.9) 93.0 Dividends Paid (8.4) (31.9) (11.7) Change in Paid in Capital 49.3 229.8 0.0 Change in Net Debt (76.1) (0.0) 1.0 Net Cash Flow (16.4) (16.4) 61.6 * Calculated from Balance Sheet & P&L
DuPont Analysis FY06A FY07A FY08A EBIT / Sales 0.09 0.12 0.11 Sales/Total Assets 1.72 0.79 0.94 less Net Int./Assets 0.00 0.02 0.02 Pre-Tax ROA (%) 15.5% 11.1% 11.9% Assets/Equity 1.30 1.14 1.16 Pre-Tax ROE (%) 20.1% 12.7% 13.7% 1-Tax rate 0.90 0.86 0.82 ROE (%) 18.1% 11.0% 11.3%
Miscelleaneous FY06A FY07A Current Altman Z Score n.m. n.m. 7.3 Asset Growth (%) -48.9% 86.6% 4.9% Capex/Sales (%) 3.6% 3.9% 15.4% Earnings Retention (%) 84.7% 84.6% 45.2%
Management Strategy and GoalsManagement has focused on expanding into hospitals with historical sales growth achieving 40% per year. Instead of relying on only one current distribution agent, IMP also plans to expand and reinforce its distribution network by establishing a subsidiary that will be responsible for expanding its distribution network in targeted markets.
Investment PlansIMP’s total production capacity will increase to 600 million units upon the commencement of the new Cephalosporin factory in Binh Duong by end-FY09E. IMP will also relocate the existing antibiotics Betalactam (Cephalosporin) production line in Dong Thap to the new factory. The entire project will cost VND110bn, half of which will be debt funded.
Key Success FactorsIMP’s key success factors include their modern and efficient production facilities, long-term partnerships with foreign counterparts, and a strong management team with extensive industry experience and ability to obtain strong government support.
Key Risk FactorsIMP’s current distribution network is thinly allocated, with reliance on a single distributor, and in the early stages of expansion. Vietnam’s accession to the WTO in January 2007 and the full liberalization of the pharmaceuticals market in January 2009 has opened greater opportunities for direct foreign access that will see increasing competition between giant foreign companies and domestic enterprises, many of which are still in the early stages of development. The company will therefore face greater challenges in quality maintenance, product diversification and cost control.
Health Care / Pharmaceuticals
Revenues by Business Line, 2008
Food
110
Ticker Share Price - VND
BMP 64,500
Market OutlookVietnam’s plastics market is geographically segmented, with northern Vietnam dominated by NTP and southern Vietnam by Binh Minh Plastics and several smaller private companies. The pipe industry typically grows as fast as the nationwide construction growth, which is currently at twice the pace of the national GDP growth rate. Vietnam is a developing economy and there are therefore plentiful growth opportunities for pipe companies to exploit.
Company HistoryBMP was established in 1977 as Binh Minh Plastics joint state-private factory. It began manufacturing pipes in 1986 and in 1990, the then Ministry of Light Industries reformed Binh Minh Plastics joint state-private factory to become the Binh Minh Plastics Production Science Enterprise. Four years later, the enterprise was nationalized and became a state-owned company. The company was equitized in early 2004 and listed in 2006.
Trading & Liquidity 20Days 100Days 180Days Volume (Reg, Trading) 79,898 54,062 37,919 VND Val. (Reg. Trading, bn) 5.4 2.7 1.7 Percent of market (%) 0.2 0.2 0.2
Shares Outstanding (mn) FY07A FY08A Current Wgt. Avg Issued Shares 16.7 16.8 17.1 Fully Dilluted Shares 16.7 16.8 17.1 Foreign Owned (% / Limit) 7.5mn 43.9% of 49.0%
Market Values VND (bn) USD (mn) EUR (mn) Market Cap 1,152 64.7 45.8 Net Debt 17 1.0 0.0 Minorities & Others (120) (6.7) (4.8) Enterprise Value 1,049 58.9 41.7
Corperate Actions Ex-Date Amt/(ratio) Fiscal YearCash Dividend 26-Nov-08 1,000 FY08Stock Dividend 16-Jun-08 1/5 FY08Cash Dividend 18-Jul-07 833 FY07Cash Dividend 22-Feb-07 1,667 FY06Rights Issue 15-Sep-06 3/20 FY06
Per Share (VND) FY06A FY07A FY08A Trail 12M FY09E* FY10E* EPS 5,805 5,743 5,709 6,600 7,240 n.a. BVPS 22,576 25,022 28,984 n.a. n.a. n.a. DPS n.a. 2,507 1,009 n.a. n.a. n.a. CFPS (803) 3,347 5,700 10,565 n.a. n.a. FCFPS (947) (2,749) (534) 1,617 n.a. n.a.* Bloomberg Consensus Estimates
Key Valuations FY07A Avg +/- 1 s.d. FY08A Avg +/- 1 s.d. FY09E* FY10E* P/E (x) 22.0 24 / 19.9 8.9 9.4 / 8.4 8.9 n.a. P/B (x) 6.6 7.6 / 5.7 1.9 6.7 n.a. n.a. Dividend Yield (%) 1.4 1.8 / 1 2.0 1.4 n.a. n.a. P/CFPS (x) n.a. n.a. 135.3 3.8 n.a. n.a.
FCF Yield (%) (2.0) n.a. (12.7)138.1 / -163.5
n.a. n.a.
Growth FY06A FY07A FY08A FY09E* FY10E* Revenues n.a. 35.1% 20.7% n.a. n.a. EBITDA n.a. 2.5% 39.6% n.a. n.a. EBIT n.a. 1.0% 36.1% n.a. n.a. Net Income n.a. 13.0% -0.1% n.a. n.a. EPS n.a. -1.1% -0.6% 26.8% n.a. BVPS n.a. 10.8% 15.8% n.a. n.a.* Bloomberg Consensus Estimates
Growth Indicators FY06A FY07A FY08A Fixed Assets/Assoc n.a. 194.5% 41.6% Debt n.a. 5.7% 955.1% Financial Investments n.a. -99.8% 21450.0% Other LT Assets n.a. -2.3% 83.8%
Profitability FY06A FY07A FY08A Gross Margin (%) 25.6 20.9 22.8 EBITDA Margin (%) 23.4 17.8 20.5 EBIT Margin (%) 19.2 14.3 16.2 Pre-Tax Margin (%) 19.6 16.4 13.9 Net Margin (%) 16.9 14.1 11.7
Solvency & Liquidity FY06A FY07A FY08A Acid Test Ratio 5.43 0.15 1.37 Current Ratio 6.92 3.40 3.92 LT Debt/Capital 0.0% 0.0% 0.0% Net Debt/Equity 25.9% 0.8% -6.2% LT Debt/Fixed Assets 0.0% 0.0% 0.0% Total Liab/Total Assets 9.7% 15.3% 13.7%
Management Company Data
Chairman Le Quang Doanh Head Office240 Hau Giang Street, Ward
9, District 6, HCM city
CEO Le Quang Doanh
CFO/ Chief Accontant Trang Thi Kieu Hau Websitehttp://www.
binhminhplastic.com/
IR Contact Nguyen Thanh Hai Telephone +84839690973
Major Shareholders Shares (mn) Insider Holdings Shares
Citigroup Global Markets Ltd & Citigroup Global Markets Financial Products Ltd
0.768 Trang Thi Kieu Hau 97422
Nguyen Thi Kim Yen 78400
Company Description and Principal ActivitiesThe Ho Chi Minh City based BMP is the only other listed company in addition to NTP that is primarily engaged in plastic pipe production. The manufacture and sale of uPVC, HDPE pipes and their respective fittings accounts for 90% of BMP’s revenue with the remaining 10% derived from sales of pesticide sprayers, PVC pipe adhesives, and protective construction helmets.
Close/Volume Chart
Relative Performance
S&P Vietnam 10 Ho Chi Minh Stock Index
MSCI AC Asia Index BMP
Binh Minh Plastic
01 Jul 09
Mn SharesVND
01 Jul 09
111
Profit & Loss (VND bn) FY06A FY07A FY08A Revenue 503.4 680.0 821.0 EBITDA 117.8 120.8 168.6 EBIT 96.5 97.5 132.7 Interest & Fx Exp (0.6) 2.3 (11.6) Non Op Inc (Loss) 2.8 11.5 (6.9) Pre-Tax 98.8 111.3 114.1 Taxes (13.8) (15.3) (18.2) Minorities & Pref's 0.0 0.0 0.0 Net Income to Common 84.9 96.0 95.9
Balance Sheet (VNDbn) FY06A FY07A FY08A Cash & Equiv. 102.3 8.1 18.1 ST Investments & Mkt. Sec 0.0 22.2 13.4 Receivables 56.7 88.9 81.5 Inventories 123.3 138.3 188.8 Other Curr Assets 58.9 91.7 40.1 Net Fixed Assets 44.7 80.2 186.6 Construction in Progress 0.0 51.7 0.0 Invest. in Assoc. 0.0 0.0 0.0 Financial Investments 15.0 0.0 6.5 Other L.T. Assets 17.2 16.8 31.0 Payables (18.8) (54.9) (13.2) Other Curr Liab. (17.6) (16.1) (15.1) ST Debt (4.4) (4.6) (48.5) LT Debt 0.0 0.0 0.0 Other LT Liab 0.0 (0.5) (0.8) Net Assets 377.5 421.6 488.4 Minorities 0.0 0.0 0.0
Book Capital 243.4 244.4 273.6 Ret. Earnings 134.1 177.2 214.8 Total Liab. & Equity 418.2 497.7 566.0
Working Capital Analysis FY06A FY07A FY08A Days Receivable 41.1 47.7 36.2 Days Inventory 120.1 93.8 108.7 Days Payable 18.3 37.3 7.6 Cash Operating Cycle 97.3 83.3 80.1
Derived Cash Flow (VNDbn)* FY06A FY07A FY08A EBIT n.a. 97.5 132.7 Depreciation & Amort n.a. 23.3 35.9 Chgs in Working Cap n.a. (45.2) (34.3) Operating Cash Flow n.a. 75.5 134.3 Net Interest, Fx & Taxes n.a. (13.0) (29.8) Fixed Asset Capex n.a. (101.9) (104.7) Investments n.a. 15.0 (6.4) Non Op Inc (Loss) n.a. 11.5 (6.9) Other Non Cash Adj. n.a. (65.7) (32.5) Dividends Paid n.a. (17.0) (17.0) Change in Paid in Capital n.a. 1.1 29.2 Change in Net Debt n.a. 0.3 43.9 Net Cash Flow n.a. (94.2) 10.1 * Calculated from Balance Sheet & P&L
DuPont Analysis FY06A FY07A FY08A EBIT / Sales 0.19 0.14 0.16 Sales/Total Assets 1.20 1.37 1.45 less Net Int./Assets 0.01 0.03 (0.03) Pre-Tax ROA (%) 23.6% 22.4% 20.2% Assets/Equity 1.11 1.18 1.16 Pre-Tax ROE (%) 26.2% 26.4% 23.4% 1-Tax rate 0.86 0.86 0.84 ROE (%) 22.5% 22.8% 19.6%
Miscelleaneous FY06A FY07A Current Altman Z Score n.m. n.m. 7.7 Asset Growth (%) -26.1% 19.0% 13.7% Capex/Sales (%) n.m. 15.0% 12.8% Earnings Retention (%) n.a. 56.3% 82.3%
Management Strategy and GoalsThe board of management have vowed to adhere to the company’s core business, which is the manufacture of plastic pipes and fittings, but also indicated the company’s interests in developing new products if favorable conditions are presented. Regarding short-term goals, if GDP is less than 6.5%, the company will adjust their production volume target to 90% of production volume achieved in 2008, and 100%, otherwise.
Investment PlansNo new investment plans have been announced. The company is likely to focus their attention on making the new northern-based plant profitable.
Key Success FactorsBMP is the second largest plastic pipe producer in Vietnam in terms of production volume. BMP’s name is well established in their home market. Plastic pipe technology is simple enough for BMP not to face threats from new plastic pipe plants. Plastic pipes are also bulky and thus not economically transportable. Unlike other industries that face threats from cheaper Chinese products being imported into Vietnam, plastic pipe companies in general and BMP in particular therefore have a solid market base. BMP is also active in marketing activities.
Key Risk FactorsMost established private plastic pipe companies are southern-based and hence competing directly against BMP. In addition, NTP has invested 51% in a plastics plant in the south to penetrate the southern market. The economic recession also impacts construction growth and hence, plastic pipe demand. Fluctuations in the crude oil price due to the economic crisis also affect the prices of plastic resins, the input materials for plastic pipe production.
Revenues by Product, 2005
Industrials / Building Materials & Fixtures
112
Hoa Phat Group
Trading & Liquidity 20Days 100Days 180Days Volume (Reg, Trading) 2,138,965 1,145,872 821,919 VND Val. (Reg. Trading, bn) 122.1 54.2 36.3 Percent of market (%) 4.1 3.4 3.3
Shares Outstanding (mn) FY07A FY08A Current Wgt. Avg Issued Shares 170.8 191.5 196.4 Fully Dilluted Shares 170.8 191.5 196.4 Foreign Owned (% / Limit) 56.8mn 28.9% 49.0%
Market Values VND (bn) USD (mn) EUR (mn) Market Cap 11,095 623.3 441.5 Net Debt (647) (36.3) (0.0) Minorities & Others (54) (3.1) (2.2) Enterprise Value 10,393 583.9 413.6
Corperate Actions Ex-Date Amt/(ratio) Fiscal YearCash Dividend 14-Apr-09 1,000 FY08Cash Dividend 5-Dec-08 1,000 FY08Cash Dividend 11-Sep-08 1,000 FY08Stock Dividend 11-Jul-08 2/5 FY08Cash Dividend 17-Dec-07 714 FY07
Per Share (VND) FY06A FY07A FY08A Trail 12M FY09E* FY10E* EPS n.a. 3,760 4,461 3,692 3,652 4,195 BVPS n.a. 17,005 20,936 n.a. 22,418 n.a. DPS n.a. 1,282 2,297 n.a. n.a. n.a. CFPS n.a. (1,777) 3,792 n.a. n.a. n.a. FCFPS n.a. (2,826) 1,370 n.a. n.a. n.a.* Bloomberg Consensus Estimates
Key Valuations FY07A Avg +/- 1 s.d. FY08A Avg +/- 1 s.d. FY09E* FY10E* P/E (x) 19.1 19.9 / 18.2 8.3 8.7 / 7.9 14.8 12.9 P/B (x) 4.1 4.3 / 4 2.2 3 / 1.5 2.4 n.a. Dividend Yield (%) 1.0 1.1 / 1 3.0 5.2 / 0.8 n.a. n.a. P/CFPS (x) n.a. n.a. n.a. n.a. n.a. n.a. FCF Yield (%) n.a. n.a. n.a. n.a. n.a. n.a.
Growth FY06A FY07A FY08A FY09E* FY10E* Revenues 45.1% 327.9% 48.2% n.a. n.a. EBITDA n.a. n.a. 24.6% n.a. n.a. EBIT 2101.4% 550.8% 20.4% n.a. n.a. Net Income 2536.4% 792.7% 33.0% n.a. n.a. EPS n.a. n.a. 18.6% -18.1% 14.9% BVPS n.a. n.a. 23.1% 7.1% n.a.* Bloomberg Consensus Estimates
Growth Indicators FY06A FY07A FY08A Fixed Assets/Assoc -6.7% 144.1% 73.7% Debt -9.4% 183.8% -33.7% Financial Investments n.a. n.a. -100.0% Other LT Assets -92.7% 18098.5% 291.2%
Profitability FY06A FY07A FY08A Gross Margin (%) 9.6 17.1 15.0 EBITDA Margin (%) 0.0 15.4 13.0 EBIT Margin (%) 8.8 13.4 10.9 Pre-Tax Margin (%) 5.6 13.5 12.2 Net Margin (%) 5.5 11.4 10.2
Solvency & Liquidity FY06A FY07A FY08A Acid Test Ratio 0.17 1.21 1.73 Current Ratio 0.99 2.22 2.82 LT Debt/Capital 21.2% 7.7% 0.2% Net Debt/Equity -93.3% -16.0% -2.1% LT Debt/Fixed Assets 17.9% 26.0% 0.7% Total Liab/Total Assets 53.3% 32.2% 22.9%
Management Company Data
Chairman Tran Dinh Long Head Office34 Dai Co Viet St, Hai Ba Trung
District, Hanoi
CEO Tran Tuan Duong CFO/ Chief Accontant Nguyen Thi Thanh Van Website http://www.hoaphat.com.vn IR Contact Nguyen Thi Thanh Van Telephone (84)-(0)43.6282011
Major Shareholders Shares (mn) Insider holdings SharesTran Dinh Long 50.96 Tran Tuan Duong 5.6VOF Investment Limited 11.92 Nguyen Manh Tuan 5.6Bank Invest 10.25 Nguyen Ngoc Quang 4.2
Doan Gia Cuong 4.2Hoang Quang Viet 1.12
Company Description & Principal ActivitiesHoa Phat Group Joint Stock Company (HPG) comprises ten member subsidiaries and three alliances. The company has developed into a multi-industry manufacturing corporation across sectors such as steel, cement, piping, furniture, refrigeration and mineral exploitation.
Market OutlookDue to the government’s economic stimulus package, the construction sector has driven a recovery in the steel industry. Steel factories have reopened and steel production has increased in recent months. The government has also implemented measures to assist local firms by raising the steel import tax from 0% to 10%.
Company HistoryThe first member company of HPG was the established in August 1992 after the implementation of the Enterprise Law. HPG became a group to adapt with the expansion of operations and in early 2007 and was listed on the HOSE in November of that year.
Ticker Share Price - VND
HPG 54,000
Close/Volume Chart
Relative Performance
S&P Vietnam 10 Ho Chi Minh Stock Index
MSCI AC Asia Index HPG
01 Jul 09
Mn SharesVND
01 Jul 09
113
Profit & Loss (VND bn) FY06A FY07A FY08A Revenue 1,318.9 5,642.9 8,364.8 EBITDA 0.0 871.5 1,086.0 EBIT 116.0 755.2 909.2 Interest & Fx Exp (41.7) (35.9) (136.4) Non Op Inc (Loss) 0.2 40.2 245.8 Pre-Tax 74.5 759.4 1,018.6 Taxes (2.6) (115.5) (159.2) Minorities & Pref’s 0.0 (1.9) (5.2) Net Income to Common 71.9 642.1 854.2
Balance Sheet (VNDbn) FY06A FY07A FY08A Cash & Equiv. 9.2 399.3 510.2 ST Investments & Mkt. Sec 0.0 266.0 734.4 Receivables 107.7 570.1 472.9 Inventories 186.6 1,580.1 1,820.2 Other Curr Assets 11.8 320.0 311.3 Net Fixed Assets 392.0 928.8 1,171.6 Construction in Progress 0.0 28.2 110.4 Invest. in Assoc. 0.0 0.0 380.6 Financial Investments 0.0 631.7 0.1 Other L.T. Assets 0.2 32.6 127.6 Payables (53.6) (328.7) (295.8) Other Curr Liab. (5.4) (286.5) (372.2) ST Debt (247.6) (653.1) (588.3) LT Debt (70.2) (248.9) (9.2) Other LT Liab 0.0 (16.1) (28.5) Net Assets 330.8 3,223.4 4,345.3 Minorities 0.0 80.9 234.2 Book Capital 300.0 2,635.0 3,584.5 Ret. Earnings 30.8 507.6 526.5 Total Liab. & Equity 707.6 4,756.8 5,639.4
Working Capital Analysis FY06A FY07A FY08A Days Receivable 29.8 36.9 20.6 Days Inventory 57.1 123.3 93.5 Days Payable 16.4 25.7 15.2 Cash Operating Cycle 43.7 112.1 88.0
Derived Cash Flow (VNDbn)* FY06A FY07A FY08A EBIT 116.0 755.2 909.2 Depreciation & Amort (116.0) 116.3 176.8 Chgs in Working Cap 2.7 (1,607.8) (81.5) Operating Cash Flow 2.7 (736.3) 1,004.6 Net Interest, Fx & Taxes (44.3) (151.3) (295.6) Fixed Asset Capex (0.5) (179.1) (463.6) Investments 0.0 (631.7) 251.0 Non Op Inc (Loss) 0.2 40.2 245.8 Other Non Cash Adj. 683.7 (430.9) (1,274.7) Dividends Paid (219.0) (439.9) (1.7) Change in Paid in Capital 0.0 2,335.0 949.5 Change in Net Debt (32.8) 584.2 (304.4) Net Cash Flow 390.1 390.1 110.9 * Calculated from Balance Sheet & P&L
DuPont Analysis FY06A FY07A FY08A EBIT / Sales 0.09 0.13 0.11 Sales/Total Assets 1.86 1.19 1.48 less Net Int./Assets (0.06) 0.00 0.02 Pre-Tax ROA (%) 10.5% 16.0% 18.1% Assets/Equity 2.14 1.48 1.30 Pre-Tax ROE (%) 22.5% 23.6% 23.4% 1-Tax rate 0.97 0.85 0.84 ROE (%) 21.7% 20.0% 19.8%
Miscelleaneous FY06A FY07A Current Altman Z Score n.m. n.m. 5.2 Asset Growth (%) -87.5% 572.2% 18.6% Capex/Sales (%) 0.0% 3.2% 5.5% Earnings Retention (%) n.a. 65.9% 48.5%
Management Strategy and GoalsHPG still focus on their key business – the steel industry, while diversifying to other sectors. They will be focusing their resources to maintain production timelines and continue developing their extensive distribution network into the central and the southern regions. HPG is also strengthening their export lines and overseas exports and sales, and improving their human resources capacity.
Investment PlansThe first phase of their 1.0 million tonnes/year cement factory and the 350,000 tonnes/year steel complex will commence operations this year, providing an important top-line catalyst. Hoa Phat Group also established Hoa Phat Lao Company Ltd., in order to promote investments in mineral exploitation through investment contracts and iron ore exploitation in Hua Phan province with the Laos P.D.R. government.
Key Success FactorsHPG is a leading producer of black steel pipes and zinc - plated steel pipes in Vietnam, and one of the largest office furniture suppliers in Vietnam. HPG’s products are high quality with a good brand name and a widespread distribution network and they have applied advanced technologies with strong R&D support. Going forward the company will need to ensure that
Key Risk FactorsAlthough the economy has sluggishly recovered, the construction sector is still experiencing some difficulties. HPG is heavily invested in cement and steel production, both of which are exposed to near-term declining demand. HPG also requires a substantial capital injection to finance for their projects (particularly cement) and may face difficulties raising funds in the slowing economy.
Revenues by Segment, 2008
Industrials / Diversified Industrials
114
Tien Phong Plastic
Trading & Liquidity 20Days 100Days 180Days Volume (Reg, Trading) 422,760 233,862 180,338 VND Val. (Reg. Trading, bn) 29.1 13.0 9.4 Percent of market (%) 0.9 0.8 0.8
Shares Outstanding (mn) FY07A FY08A Current Wgt. Avg Issued Shares 21.7 21.7 21.7 Fully Dilluted Shares 21.7 21.7 21.7 Foreign Owned (% / Limit) 2.9mn 13.4% 49.0%
Market Values VND (bn) USD (mn) EUR (mn) Market Cap 1,463 82.2 58.1 Net Debt 203 11.4 0.0 Minorities & Others (155) (8.7) (6.2) Enterprise Value 1,511 84.9 60.0
Corperate Actions Ex-Date Amt/(ratio) Fiscal YearFinal 8-May-09 1,800 FY09Interim 8-May-09 1,200 FY09Interim 12-Nov-08 1,200 FY08Final 14-May-08 2,000 FY08Interim 13-Jul-07 1,000 FY07Stock Dividend 16-May-07 1/2 FY07Final 16-May-07 333 FY07
Per Share (VND) FY06A FY07A FY08A Trail 12M FY09E* FY10E* EPS 6,278 5,755 7,126 7,902 7,000 8,647 BVPS n.a. 15,570 18,912 n.a. n.a. n.a. DPS 1,714 1,333 3,202 n.a. n.a. n.a. CFPS 8,917 72 1,975 n.a. n.a. n.a. FCFPS 8,010 (2,136) (211) n.a. n.a. n.a.* Bloomberg Consensus Estimates
Key Valuations FY07A Avg +/- 1 s.d. FY08A Avg +/- 1 s.d. FY09E* FY10E* P/E (x) 17.7 18.9 / 16.6 7.9 8.3 / 7.4 9.1 7.4 P/B (x) 8.8 10.2 / 7.4 3.0 4.3 / 1.7 n.a. n.a. Dividend Yield (%) 1.0 1.4 / 0.6 5.3 8.5 / 2.2 n.a. n.a. P/CFPS (x) n.a. n.a. 109.5 6.9 n.a. n.a. FCF Yield (%) n.a. n.a. (5.8) 26.2 / -37.9 n.a. n.a.
Growth FY06A FY07A FY08A FY09E* FY10E* Revenues n.a. 26.1% 21.2% n.a. n.a. EBITDA n.a. -4.4% 41.5% n.a. n.a. EBIT n.a. -0.4% 48.0% n.a. n.a. Net Income n.a. 4.8% 23.8% n.a. n.a. EPS n.a. -8.3% 23.8% -1.8% 23.5% BVPS n.a. n.a. 21.5% n.a. n.a.* Bloomberg Conscencus Estimates
Growth Indicators FY06A FY07A FY08A Fixed Assets/Assoc n.a. 43.1% 31.4% Debt n.a. 109.4% 121.0% Financial Investments n.a. 32.6% 0.0% Other LT Assets n.a. n.a. 104.1%
Profitability FY06A FY07A FY08A Gross Margin (%) 28.2 23.9 27.4 EBITDA Margin (%) 21.3 16.1 18.8 EBIT Margin (%) 17.3 13.7 16.7 Pre-Tax Margin (%) 0.0 0.0 0.0 Net Margin (%) 16.6 13.8 14.1
Solvency & Liquidity FY06A FY07A FY08A Acid Test Ratio 8.45 0.38 1.34 Current Ratio 2.96 1.92 1.58 LT Debt/Capital 0.0% 0.0% 0.0% Net Debt/Equity 2.0% -26.6% -49.6% LT Debt/Fixed Assets 0.0% 0.0% 0.0% Total Liab/Total Assets 26.8% 37.9% 44.2%
Management Company Data
Chairman Tran Ba Phuc Head Office2 An Da Street, Ngo Quyen
District, Hai Phong City CEO Pham Van Vien
CFO/ Chief Accontant Nguyen Trung Kien Websitehttp://nhuatienphong-tifoplast.
com.vn
IR Contact Nguyen Trung Kien Telephone +84313640973
Major Shareholders Shares Insider Holdings Sharesn.a. Tran Ba Phuc 18,172
Company Description & Principal ActivitiesNTP, based in Hai Phong city, is a well-known brand name in the Vietnamese northern pipe market. They specialise in the production of PVC pipes (around 85% of tonne-measured pipe and conduit production volume), HDPE pipes (10%), PPR pipes, fittings and conduits (3%).
Market OutlookThe Vietnamese pipe market is geographically segmented with northern Vietnam dominated by NTP (31.2% of the country sup-ply, 2005) and southern Vietnam by Binh Minh Plastics (26%). Four other private plastic pipe companies account for the re-maining share (42.8%). The pipe industry grows generally as fast as nationwide construction growth, which has historically been at twice the pace of overall GDP growth. Vietnam is a developing economy; therefore, there is plentiful growth potential for pipe companies to keep up with.
Company HistoryNTP was established in 1960 as a factory specialized in products for teenagers. After transforming into a company following a decision by the Ministry of Light Industry, the company aban-doned their existing product lines and switched to producing PVC pipes. NTP was equitized in 2004 and has listed on the HNX in June 2006.
S&P Vietnam 10 Ho Chi Minh Stock Index
MSCI AC Asia Index NTP
Close/Volume Chart
Relative Performance
Ticker Share Price - VND
NTP 64,000
01 Jul 09
Mn SharesVND
01 Jul 09
115
Profit & Loss (VND bn) FY06A FY07A FY08A Revenue 716.5 903.3 1,094.5 EBITDA 152.4 145.6 206.1 EBIT 124.3 123.8 183.3 Interest & Fx Exp (7.3) (5.3) (36.8) Non Op Inc (Loss) 1.9 6.1 7.9 Pre-Tax 0.0 0.0 0.0 Taxes 0.0 0.0 0.0 Minorities & Pref’s 0.0 0.0 0.0 Net Income to Common 118.9 124.7 154.4
Balance Sheet (VNDbn) FY06A FY07A FY08A Cash & Equiv. 58.0 21.7 42.6 ST Investments & Mkt. Sec 0.0 0.0 0.0 Receivables 113.5 220.3 199.1 Inventories 95.8 153.3 271.7 Other Curr Assets 6.6 21.6 29.0 Net Fixed Assets 55.3 61.9 84.0 Construction in Progress 1.0 18.6 22.6 Invest. in Assoc. 1.6 2.4 2.4 Financial Investments 4.6 6.1 6.1 Other L.T. Assets 0.0 37.7 76.9 Payables (6.9) (57.2) (31.8) Other Curr Liab. (30.3) (37.7) (46.8) ST Debt (53.1) (111.3) (245.9) LT Debt 0.0 0.0 0.0 Other LT Liab 0.0 0.0 0.0 Net Assets 246.1 337.4 409.8 Minorities 0.0 0.0 0.0 Book Capital 144.5 216.7 216.7 Ret. Earnings 101.6 120.7 193.1 Total Liab. & Equity 336.4 543.5 734.3
Working Capital Analysis FY06A FY07A FY08A Days Receivable 57.8 89.0 66.4 Days Inventory 68.0 81.3 124.8 Days Payable 4.9 30.4 14.6 Cash Operating Cycle 15.1 22.7 73.1
Derived Cash Flow (VNDbn)* FY06A FY07A FY08A EBIT n.a. 123.8 183.3 Depreciation & Amort n.a. 21.8 22.8 Chgs in Working Cap n.a. (121.6) (120.9) Operating Cash Flow n.a. 24.1 85.3 Net Interest, Fx & Taxes n.a. (5.3) (36.8) Fixed Asset Capex n.a. (47.8) (47.4) Investments n.a. (2.3) 0.0 Non Op Inc (Loss) n.a. 6.1 7.9 Other Non Cash Adj. n.a. (72.1) (122.7) Dividends Paid n.a. (69.4) 0.0 Change in Paid in Capital n.a. 72.2 0.0 Change in Net Debt n.a. 58.1 134.7 Net Cash Flow n.a. (36.3) 20.9 * Calculated from Balance Sheet & P&L
DuPont Analysis FY06A FY07A FY08A EBIT / Sales 0. 17 0.14 0.17 Sales/Total Assets 2.13 1.66 1.49 less Net Int./Assets (0.37) (0.23) (0.25) Pre-Tax ROA (%) 0.0% 0.0% 0.0% Assets/Equity 1.37 1.61 1.79 Pre-Tax ROE (%) 0.0% 0.0% 0.0% 1-Tax rate n.a. n.a. n.a. ROE (%) n.a. n.a. n.a.
Miscelleaneous FY06A FY07A Current Altman Z Score n.m. n.m. n.a. Asset Growth (%) -54.2% 61.6% 35.1% Capex/Sales (%) n.m. 5.3% 4.3% Earnings Retention (%) 72.7% 76.8% 55.1%
Management Strategy and GoalsShareholder approved goals and strategies include maintaining their leading position in pipe and fitting production in Vietnam, securing the home market (northern Vietnam) and progressively penetrating new domestic and overseas markets.
Investment PlansNTP hopes to have their VND23bn plant in Vientiene, Laos commissioned in Q3 2009 and are currently moving one of their production lines to the new and more spacious VND45bn plant.
Key Success FactorsNTP is an established brand name in the north of Vietnam. Plastic pipe technologies are simple enough that NTP will not face significant threats from new plastic pipe plants. Plastic pipes are bulky and thus not economically freighted over long distances. Therefore, unlike other industries which face threats from cheaper Chinese imports, plastic pipe companies in general and NTP in particular have a solid market base.
Key Risk FactorsThe economic recession causes a downturn in construction growth and hence plastic pipe demand. Fluctuations in the crude oil price also affect the prices of plastic resins, which are the input materials for plastic pipe production. BMP, the second biggest plastic pipe manufacturer in the country in terms of production volume, has built a plant in the North, obviously to invade NTP’s home market although this plant has yet to become profitable.
Industrials / Building Materials & Fixtures
Revenues by Product, 2005
116
Petroleum Technical Services
Trading & Liquidity 20Days 100Days 180Days Volume (Reg, Trading) 1,170,325 704,080 577,485 VND Val. (Reg. Trading, bn) 47.6 24.8 19.4 Percent of market (%) 1.6 1.6 1.8
Shares Outstanding (mn) FY07A FY08A Current Wgt. Avg Issued Shares 147.3 150.2 173.8 Fully Dilluted Shares 147.3 150.2 173.8 Foreign Owned (% / Limit) 16.0mn 9.2% 49.0%
Market Values VND (bn) USD (mn) EUR (mn) Market Cap 6,187 347.6 246.0 Net Debt 1,190 66.9 0.0 Minorities & Others n.a. n.a. n.a. Enterprise Value n.a. n.a. n.a.
Corperate Actions Ex-Date Amt/(ratio) Fiscal YearCash Dividend 18-Nov-08 679 FY08Rights Issue 18-Nov-08 7/10 FY08Cash Dividend 12-Mar-08 950 FY07
Per Share (VND) FY06A FY07A FY08A Trail 12M FY09E* FY10E* EPS n.a. 2,166 3,576 2,048 5,894 n.a. BVPS n.a. 8,008 13,681 n.a. n.a. n.a. DPS n.a. n.a. 1,474 n.a. n.a. n.a. CFPS n.a. (3,283) 8,476 n.a. n.a. n.a. FCFPS n.a. (7,853) (8,715) n.a. n.a. n.a.* Bloomberg Consensus Estimates
Key Valuations FY07A Avg +/- 1 s.d. FY08A Avg +/- 1 s.d. FY09E* FY10E* P/E (x) n.a. n.a. 12.1 12.1 / 12.1 5.8 n.a. P/B (x) 9.7 11.6 / 7.9 3.5 14.0 n.a. n.a. Dividend Yield (%) n.a. n.a. 3.9 2.7 n.a. n.a. P/CFPS (x) n.a. n.a. 2.8 3.7 n.a. n.a. FCF Yield (%) n.a. n.a. (4.9) -4.8 / -5.1 n.a. n.a.
Growth FY06A FY07A FY08A FY09E* FY10E* Revenues n.a. n.a. 50.1% n.a. n.a. EBITDA n.a. n.a. 42.7% n.a. n.a. EBIT n.a. n.a. 71.7% n.a. n.a. Net Income n.a. n.a. 68.3% n.a. n.a. EPS n.a. n.a. 65.1% 64.8% n.a. BVPS n.a. n.a. 70.8% n.a. n.a.* Bloomberg Consensus Estimates
Growth Indicators FY06A FY07A FY08A Fixed Assets/Assoc n.a. n.a. 121.4% Debt n.a. n.a. 450.3% Financial Investments n.a. n.a. -5.5% Other LT Assets n.a. n.a. -68.5%
Profitability FY06A FY07A FY08A Gross Margin (%) n.a. 9.4 10.2 EBITDA Margin (%) n.a. 8.7 8.3 EBIT Margin (%) n.a. 4.3 4.9 Pre-Tax Margin (%) n.a. 0.0 6.2 Net Margin (%) n.a. 5.5 6.2
Solvency & Liquidity FY06A FY07A FY08A Acid Test Ratio n.a. 0.90 0.72 Current Ratio n.a. 0.99 1.05
LT Debt/Capital n.a. 18.4% 87.1%
Net Debt/Equity n.a. 45.1% -51.3%
LT Debt/Fixed Assets n.a. 15.4% 64.2%
Total Liab/Total Assets n.a. 75.5% 70.9%
Management Company Data
Chairman Thai Quoc Hiep Head Office Floor 5, PetroVietnamTower
CEO Nguyen Hung Dung 1-5 Le Duan Street District
1 Ho Chi Minh City, Vietnam
CFO/ Chief Accontant Nguyen Van Mau Website http://www.ptsc.com.vn IR Contact Le Phuc Yen Telephone +84839102828
Major Shareholders Shares Insider Holdings Shares PetroVietnam Holdings 60 mn Thai Quoc Hiep 52,100 PVFC 12.32 mn Pham Hung Cuong 7,800 Jaccar Fund 4.00 mn Nguyen Tan Hoa 8,000 BIDV Securities Company 1.47mn Nguyen Tran Toan 31,600 KITMC Fund Management 1.08 mn Nguyen Hung Dung 11,600
Phung Tuan Ha 23,400 Nguyen Huu Hai 7,700
Company Description & Principal ActivitiesPetroleum Technical Services Corporation (PVS) provides a variety of technical services to oil & gas operators in Vietnam. The company is primarily involved in leasing and chartering specialized ship services, owning and operating FSO & FPSO (floating, production, storage and offloading) vessels as well as port & supply base services and mechanical & construction services. The leasing and chartering business engages in chartering specialized and commercial AHTS vessels (anchoring-handling-tug-supply) for exploration and logistics with a dominant market share of 87%. Within the current port system, PVS also claims a market share of 90% in its oil & gas supply base business. Other services offered include: operations and maintenance, manpower provision, oil & gas materials, equipment and tools provision. The group’s non-core businesses cover property management, mineral water production and gasoline trading. PVS is a 60% owned subsidiary of PetroVietnam and the company has 10 wholly owned subsidiaries and three affiliates.
Market OutlookVietnam is the third largest oil producer in Southeast Asia after Malaysia and Indonesia. PetroVietnam has stepped up its exploration program both locally and abroad, including pending contracts in Iran, Iraq, Kazakhstan and Southeast Asia. The increased capital spending by PetroVietnam for its E&P program could potentially increase the market value of oil and gas services in Vietnam to US$1.8-2.0bn per year which would benefit players such as PVS. Vietnam has progressively liberalized the oil and gas sector to allow foreign participation in E&P activities through production sharing contracts (PSC), joint operating companies (JOC), and joint ventures (JV), with production ratios open to negotiation.
Company HistoryThe company originated from two entities, Geophysics Company which was established in 1976, and Petroleum Service Company which was established in 1986. The geophysics entity added a technical service entity in 1989 and in February 1993 merged with Petroleum Services Company. In 1989, Geophysics Company and Petroleum Technical Services were established and subsequently in 1993 a merger of Petroleum Service Company and Geophysics and Petroleum Technical Services created the current entity. PVS was equitised in July 2006 and subsequently listed on Hanoi Stock Exchange in September 2007. In 2007 PVS revamped its organizational structure establishing seven representative offices and branches, and ten subsidiary companies. The group also has three joint ventures with foreign partners primarily in the FSO/FPSO division.
Ticker Share Price - VND
PVS 33,900
Close/Volume Chart
Relative Performance
S&P Vietnam 10 Ho Chi Minh Stock Index
MSCI AC Asia Index PVS
01 Jul 09
Mn SharesVND
01 Jul 09
117
Profit & Loss (VND bn) FY06A FY07A FY08A Revenue n.a. 5,775.7 8,671.3 EBITDA n.a. 504.6 720.1 EBIT n.a. 246.3 422.8 Interest & Fx Exp n.a. (91.2) (70.5) Non Op Inc (Loss) n.a. 164.0 187.6 Pre-Tax n.a. 0.0 539.9 Taxes n.a. 0.0 (2.6) Minorities & Pref’s n.a. 0.0 0.0 Net Income to Common n.a. 319.1 537.2
Balance Sheet (VNDbn) FY06A FY07A FY08A Cash & Equiv. n.a. 939.8 1,047.9 ST Investments & Mkt. Sec n.a. 3.9 3.9 Receivables n.a. 1,699.5 2,436.6 Inventories n.a. 131.9 304.2 Other Curr Assets n.a. 46.0 450.5 Net Fixed Assets n.a. 711.3 1,077.4 Construction in Progress n.a. 694.0 2,075.9 Invest. in Assoc. n.a. 97.6 174.3 Financial Investments n.a. 408.6 386.2 Other L.T. Assets n.a. 79.7 25.1 Payables n.a. (1,042.1) (1,451.4) Other Curr Liab. n.a. (1,579.2) (1,957.5) ST Debt n.a. (190.5) (216.3) LT Debt n.a. (216.9) (2,025.6) Other LT Liab n.a. (603.8) (5.5) Net Assets n.a. 1,179.8 2,325.7 Minorities n.a. 0.0 0.0
Book Capital n.a. 1,000.0 1,750.0 Ret. Earnings n.a. 179.8 575.7 Total Liab. & Equity n.a. 4,812.2 7,982.1
Working Capital Analysis FY06A FY07A FY08A Days Receivable n.a. 107.4 102.6 Days Inventory n.a. 9.2 14.3 Days Payable n.a. 72.7 68.0 Cash Operating Cycle n.a. (25.5) (20.3)
Derived Cash Flow (VNDbn)* FY06A FY07A FY08A EBIT n.a. 246.3 422.8 Depreciation & Amort n.a. 258.3 297.3 Chgs in Working Cap n.a. 743.8 (526.3) Operating Cash Flow n.a. 1,248.5 193.8 Net Interest, Fx & Taxes n.a. (91.2) (73.1) Fixed Asset Capex n.a. (673.3) (2,582.8) Investments n.a. (506.1) (54.3) Non Op Inc (Loss) n.a. 164.0 187.6 Other Non Cash Adj. n.a. (1507.9) (147.4) Dividends Paid n.a. (221.5) (0.2) Change in Paid in Capital n.a. 0 750.0 Change in Net Debt n.a. 407.4 1,834.5
Net Cash Flow n.a. (1,180.1) 108.0
* Calculated from Balance Sheet & P&L
DuPont Analysis FY06A FY07A FY08A EBIT / Sales n.a. 0.04 0.05 Sales/Total Assets n.a. 1.20 1.09 less Net Int./Assets n.a. (0.05) 0.01 Pre-Tax ROA (%) n.a. 0.0% 6.8% Assets/Equity n.a. 4.08 3.43 Pre-Tax ROE (%) n.a. 0.0% 23.2% 1-Tax rate n.a. n.a. 1.00 ROE (%) n.a. n.a. 23.1%
Miscelleaneous FY06A FY07A Current Altman Z Score n.m. n.m. 2.0 Asset Growth (%) n.a. n.a. 65.9% Capex/Sales (%) n.m. 11.7% 29.8% Earnings Retention (%) n.a. n.a. 58.8%
Management Strategy and GoalsPVS seeks to progressively displace leased vessels with company-owned vessels in the specialised ship services division as margins are substantially higher for owned ships. In addition, PVS seeks to become an owner-operator of FPSO and FSO vessels operating offshore. As new fields are developed or existing vessels replaced PVS seeks to join consortia to develop and operate these vessels. Over time management is seeking to monetise their non-core businesses and focus on specialized ship, FSO/FPSO, port and M&S services. In the longer run, the company aims to become a leading regional petroleum technical services company.
Investment PlansPVS has substantial capex plans, budgeting to spend USD250mn in FY09, followed by about USD400mn in FY10. The capex plan includes: USD100mn to acquire FSO5 which will be leased to VietsovPetro, two additional FSO/FPSOs under joint-venture with Malaysia’s MISC Bhd, two AHTS vessels and the remaining portion for expanding its port base services including the a fertilizer port and petroleum service center in Phu My. Future capex will be centered on the acquisition of three to five AHTS ships annually, further provisioning for FPSO/FSO’s, and developing port systems for planned oil refineries such as Nghi Son and Long Son and port systems, in new E&P exploration areas, like Kien Giang, southern Vietnam and Hon La – Quang Binh.
Key Success FactorsPVS’s growth is linked to substantial capex and displacing leased assets with owned assets. Delivering projects on-time and on-budget is key to financial performance and the company’s ability to expand ROE’s in the medium term. PVS will need to focus on core businesses to not be seen as a conglomerate going forward.
PVS also needs to maintain its leadership in providing oil and gas technical services in Vietnam to both local and foreign contractors. In addition, the company has built a strong reputation in South-east Asia through many large scale EPCI contracts. Finally, the market will look to margin expansion as a measure of how well PVS is executing its business plans.
Key Risk FactorsFalling oil prices could potentially reduce E&P and field development activities. It is estimated that worldwide investments in E & P activities shall be cut by 12% in 2009. Although the 2009 E&P budget of PetroVietnam has increased by 33% to USD4.0bn , the day-rates and fees for services rendered depend heavily on regional markets and are competitive. Low oil prices may lead to decreasing demand/fees for PVS’ services while falling day-rates could adversely affect the company’s near term earnings growth. Given a huge capex plan, PVS will likely issue more equity. The risk of EPS dilution cannot be ignored; especially in case new capital intensive projects that the company has not yet brought on stream. Finally, PetroVietnam as a controlling shareholder has tarnished reputation in corporate governance. Related party transactions may raise suspicions amongst investors.
Industrials / Transportation Services
Revenues by Division, 2008
118
PetroVietnam Transportation
Trading & Liquidity 20Days 100Days 180Days Volume (Reg, Trading) 1,076,165 785,024 518,101 VND Val. (Reg. Trading, bn) 24.7 15.1 9.8 Percent of market (%) 0.8 1.0 0.9
Shares Outstanding (mn) FY07A FY08A Current Wgt. Avg Issued Shares 106.5 113.5 147.6 Fully Dilluted Shares 106.5 113.5 147.6 Foreign Owned (% / Limit) 8.6mn 5.8% 49.0%
Market Values VND (bn) USD (mn) EUR (mn) Market Cap 3,026 170.0 120.4 Net Debt 1,192 67.0 0.0 Minorities & Others 1,785 100.3 71.0 Enterprise Value 6,003 337.2 238.8
Corperate Actions Ex-Date Amt/(ratio) Fiscal YearRights Issue 22-Sep-08 1/1 FY08Cash Dividend 15-May-08 143 FY08
Per Share (VND) FY06A FY07A FY08A Trail 12M FY09E* FY10E* EPS n.a. 176 609 758 810 n.a. BVPS n.a. 7,536 5,197 n.a. n.a. n.a. DPS n.a. n.a. 49 0 n.a. n.a. CFPS n.a. 1,638 4,635 n.a. n.a. n.a. FCFPS n.a. (402) (13,645) n.a. n.a. n.a.* Bloomberg Consensus Estimates
Key Valuations FY07A Avg +/- 1 s.d. FY08A Avg +/- 1 s.d. FY09E* FY10E* P/E (x) n.a. n.a. 21.7 21.8 / 21.7 24.1 n.a. P/B (x) 4.9 5.2 / 4.5 2.7 22.6 n.a. n.a. Dividend Yield (%) n.a. n.a. 1.0 2.6 n.a. n.a. P/CFPS (x) n.a. n.a. n.a. 0.9 n.a. n.a. FCF Yield (%) n.a. n.a. n.a. n.a. n.a. n.a.
Growth FY06A FY07A FY08A FY09E* FY10E* Revenues 103.8% -29.0% 253.3% n.a. n.a. EBITDA 115.5% -48.9% 219.1% n.a. n.a. EBIT 144.6% -64.9% 314.5% n.a. n.a. Net Income 95.0% -58.3% 268.3% n.a. n.a. EPS n.a. n.a. 245.5% 33.0% n.a. BVPS n.a. n.a. -31.0% n.a. n.a.* Bloomberg Consensus Estimates
Growth Indicators FY06A FY07A FY08A Fixed Assets/Assoc 214.4% 33.8% 134.1% Debt 184.6% -25.3% 435.2% Financial Investments n.a. n.a. 55.7% Other LT Assets -7.6% -93.4% 1557.4%
Profitability FY06A FY07A FY08A Gross Margin (%) 31.6 21.2 18.4 EBITDA Margin (%) 42.4 30.5 27.6 EBIT Margin (%) 22.3 11.0 12.9 Pre-Tax Margin (%) 11.8 8.3 11.1 Net Margin (%) 10.2 6.0 6.2
Solvency & Liquidity FY06A FY07A FY08A Acid Test Ratio 16.92 13.81 19.68 Current Ratio 2.73 0.69 0.93
LT Debt/Capital 150.7% 72.1% 118.9%
Net Debt/Equity -104.9% -47.4% -174.3%
LT Debt/Fixed Assets 72.9% 38.4% 56.5%
Total Liab/Total Assets 63.4% 56.8% 73.0%
Management Company Data
Chairman Mr. Do Van Lien Head Office 4th floor, H3 Tower
CEO Mr. Ta Duc Tien384 Hoang Dieu, Dist.4,
HCMC CFO/ Chief Accontant Nguyen Thi Kim Anh Website www.pvtrans.com.vn IR Contact Ms. Phan Thi Kim Lien Telephone +84839111301
Major Shareholders Shares Insider Holdings Shares PetroVietnam Holdings 43.20 mn Pham Viet Anh 15,000 PVFC 5.83 mn Thai Ngoc Lan 1,900 VN Direct 4.13 mn Nguyen Phung Hung 10,800 ACB 2.88 mn Tran Tuan Nam 1,200
Nguyen Anh Minh 3,902
Company Description & Principal ActivitiesPetro Vietnam Transportation Corporation is a subsidiary of the Vietnam National Oil and Gas Group (PetroVietnam). It has two wholly owned subsidiaries located in Hanoi and Vung Tau cities as well as five associate companies and joint ventures. PVT provides transportation services for crude oil, petroleum products, LPG and petrochemicals products. They also offer FSO/FPSO conversion and supply services, agency services, repairs and maintenance, trading of maritime spare parts and equipments, gasoline, LPG as well as maritime logistics services. In addition, they also provide taxi services and vehicle leasing through some associates with a non-controlling stake.
Market OutlookVietnam is the third largest oil and gas producer in Southeast Asia producing average of 15 million tons of oil and more than 30 billion cubic meters of natural gas each year. Crude oil is typically exported and PVT has been one of the leading transport companies in this segment for past five years.
With the first refinery now in operation, PVT will see the growth in its market share in crude oil transport. As a subsidiary of PetroVietnam, PVT is expected to reserve monopoly rights to transport crude oil input for new refineries: Dung Quat, Nghi Son, Long Son. Crude oil for the refineries is currently sourced from the Bach Ho oil fields with long term supply contracts being negotiated with Venezuela and Algeria. All of these open up further opportunities for PVT.
Dung Quat, Vietnam’s first refinery with an annual processing capacity of 6.5 million tonnes is expected to fulfill 30% of the country’s total petroleum demand. With a population of 86.5 million people and more than 20 million motorbikes, demand for refined oil products in Vietnam is expected to grow by 13% to 15% annually by 2010, implying significant ongoing demand for imported petroleum.
Company HistoryPetroVietnam Transportation Corporation was established in 2002 as a subsidiary of PetroVietnam Group. The company purchased the first Aframax crude oil transportation ship named Poseidon M in 2003. In 2006, the second Aframax ship named Hercules also was purchased and entered into operation. In 2007 the company was equitized and converted to a joint stock company , subsequently the company became the PetroVietnam Transportation Corporation in July 2007. Currently, PVT has four branches & subsidiaries, five associates and joint-ventures.
Ticker Share Price - VND
PVT 19,500
Relative Performance
Close/Volume Chart
S&P Vietnam 10 Ho Chi Minh Stock Index
MSCI AC Asia Index PVT
01 Jul 09
Mn SharesVND
01 Jul 09
119
Profit & Loss (VND bn) FY06A FY07A FY08A Revenue 442.4 314.0 1,109.1 EBITDA 187.6 95.8 305.8 EBIT 98.6 34.6 143.3 Interest & Fx Exp (54.4) (33.8) (116.8) Non Op Inc (Loss) 8.1 25.3 96.8 Pre-Tax 52.3 26.1 123.4 Taxes (7.3) (7.3) (39.4) Minorities & Pref’s 0.0 0.0 (14.9) Net Income to Common 45.0 18.8 69.1
Balance Sheet (VNDbn) FY06A FY07A FY08A Cash & Equiv. 284.9 256.2 1,997.1 ST Investments & Mkt. Sec 0.0 0.0 112.3 Receivables 19.8 43.6 110.7 Inventories 11.0 13.4 23.7 Other Curr Assets 5.3 13.3 257.9 Net Fixed Assets 1,064.2 1,192.0 2,543.4 Construction in Progress 0.6 233.1 793.3 Invest. in Assoc. 0.0 0.0 0.0 Financial Investments 0.0 8.1 12.6 Other L.T. Assets 22.2 1.5 24.1 Payables (16.8) (18.6) (101.5) Other Curr Liab. (49.8) (365.4) (886.0) ST Debt (48.9) (68.9) (1,415.6) LT Debt (776.8) (547.9) (1,885.7) Other LT Liab (0.2) (0.2) (0.2) Net Assets 515.6 760.3 1,586.1 Minorities 0.0 0.0 837.7 Book Capital 448.5 720.0 720.0 Ret. Earnings 67.0 40.3 28.4 Total Liab. & Equity 1,408.1 1,761.2 5,875.1
Working Capital Analysis FY06A FY07A FY08A Days Receivable 16.3 50.7 36.4 Days Inventory 13.3 19.7 9.6 Days Payable 20.3 27.4 40.9 Cash Operating Cycle 17.3 (3.6) 14.0
Derived Cash Flow (VNDbn)* FY06A FY07A FY08A EBIT 98.6 34.6 143.3 Depreciation & Amort 88.9 61.3 162.5 Chgs in Working Cap (55.5) 283.0 281.6 Operating Cash Flow 132.1 378.9 587.4 Net Interest, Fx & Taxes (61.7) (41.1) (156.1) Fixed Asset Capex (571.1) (217.3) (2,074.3) Investments 0.0 (8.1) (4.5) Non Op Inc (Loss) 8.1 25.3 96.8 Other Non Cash Adj. (316.6) (223.4) 607.6 Dividends Paid 0.0 (5.5) (0.5) Change in Paid in Capital 245.1 271.5 0.0 Change in Net Debt 535.5 (208.9) 2,684.5 Net Cash Flow (28.7) (28.7) 1,740.8 * Calculated from Balance Sheet & P&L
DuPont Analysis FY06A FY07A FY08A EBIT / Sales 0.22 0.11 0.13 Sales/Total Assets 0.31 0.18 0.19 less Net Int./Assets (0.03) (0.00) (0.00) Pre-Tax ROA (%) 3.7% 1.5% 2.1% Assets/Equity 2.73 2.32 3.70 Pre-Tax ROE (%) 10.1% 3.4% 7.8% 1-Tax rate 0.86 0.72 0.68 ROE (%) 8.7% 2.5% 5.3%
Miscelleaneous FY06A FY07A Current Altman Z Score n.m. n.m. 0.4 Asset Growth (%) -76.0% 25.1% 233.6% Capex/Sales (%) 129.1% 69.2% 187.0% Earnings Retention (%) n.a. n.a. 92.0%
Management Strategy and GoalsBy agreement between PVT and PV Oil (merged from Petechem and PDC, the two largest trading and distribution companies in the PetroVietnam Group), PetroVietnam Transportation JSC will transport all crude oil for the refineries as well as all refined oil-products. PVT’s target also show intention of acquiring at least 30% market share in the crude oil exporting segment. Through various investments, PVT will expand the capacity of its fleet by building and purchasing ships to meet the transportation demand.
Investment PlansPVT has a master plan for the 2008-2015 period in which it will invest USD1,400mn in Aframax and VLCC vessels, USD420mn for refined products ships, USD235mn for LPG and LNG transportation vessels and USD30mn for chemicals transport ships. In addition, it has plans to spend USD240mn for other businesses such as FSO/FPSO provisions and ports.
Capital expenditure in 2009 of PVT includes USD150mn for one Aframax, two petroleum product ships, one LPG, one FSO for Dai Hung operators.
Key Success FactorsPetroVietnam has a good performance in oil and gas sector in recent year.
PVT is a subsidiary of the PetroVietnam Group which has supported PVT in financing, and acquiring the transportation rights for its various refineries.
Key Risk FactorsTo finance their ambitious capex plan, the company must raise more capital and, although growth is expected to remain attractive, EPS dilution is still a concern. Oil price fluctuations affect the operating costs of PVT as fuel cost account for 30-40% in production cost of PVT. The complex organizational structure is another risk as the management board may cannot effectively cover all the business areas.
Industrials / Marine Transportation
Revenues by Business Line, 2008
120
Refrigeration Electrical Engineering
Trading & Liquidity 20Days 100Days 180Days Volume (Reg, Trading) 1,132,551 960,884 676,378 VND Val. (Reg. Trading, bn) 55.2 36.0 23.4 Percent of market (%) 1.8 2.2 2.1
Shares Outstanding (mn) FY07A FY08A Current Wgt. Avg Issued Shares 78.1 80.4 81.0 Fully Dilluted Shares 78.1 80.4 80.4 Foreign Owned (% / Limit) 36.8mn 45.5% 49.0%
Market Values VND (bn) USD (mn) EUR (mn) Market Cap 3,493 196.2 139.0 Net Debt (301) (16.9) (0.0) Minorities & Others (331) (18.6) (13.2) Enterprise Value 2,861 160.7 113.8
Corperate Actions Ex-Date Amt/(ratio) Fiscal YearStock Dividend 13-Aug-08 2/5 FY08Stock Dividend 8-May-07 1/2 FY07Final 20-Dec-06 429 FY06Rights Issue 11-Oct-06 1/5 FY06
Per Share (VND) FY06A FY07A FY08A Trail 12M FY09E* FY10E* EPS 3,630 3,724 (1,912) 472 2,024 3,547 BVPS 16,449 24,623 27,168 n.a. n.a. n.a. DPS 4,749 6,889 8,465 n.a. n.a. n.a. CFPS 946 1,302 1,526 3,541 n.a. n.a. FCFPS (1,654) (19) (385) 2,063 n.a. n.a.* Bloomberg Consensus Estimates
Key Valuations FY07A Avg +/- 1 s.d. FY08A Avg +/- 1 s.d. FY09E* FY10E* P/E (x) 19.4 20.8 / 18 14.9 16.1 / 13.7 20.3 11.6 P/B (x) 4.5 5.4 / 3.6 1.4 2 / 0.8 n.a. n.a. Dividend Yield (%) 0.5 0.6 / 0.4 n.a. n.a. n.a. n.a. P/CFPS (x) n.a. n.a. 16.9 17.7 / 16.1 n.a. n.a. FCF Yield (%) n.a. n.a. n.a. n.a. n.a. n.a.
Growth FY06A FY07A FY08A FY09E* FY10E* Revenues 112.8% 18.6% 18.1% n.a. n.a. EBITDA 87.0% -4.7% 6.2% n.a. n.a. EBIT 98.8% -11.5% 1.7% n.a. n.a. Net Income 227.8% 30.8% n.m. n.a. n.a. EPS 179.9% 2.6% n.m. n.m. 75.3% BVPS 21.6% 49.7% 10.3% n.a. n.a.* Bloomberg Consensus Estimates
Growth Indicators FY06A FY07A FY08A Fixed Assets/Assoc 59.6% 43.0% 14.9% Debt -41.0% 43.9% 41.9% Financial Investments -51.2% 10.8% 69.2% Other LT Assets -18.4% 83.0% 25.0%
Profitability FY06A FY07A FY08A Gross Margin (%) 26.3 30.5 28.6 EBITDA Margin (%) 21.0 16.9 15.2 EBIT Margin (%) 18.8 14.0 12.1 Pre-Tax Margin (%) 36.3 40.1 n.m. Net Margin (%) 27.0 29.8 n.m.
Solvency & Liquidity FY06A FY07A FY08A Acid Test Ratio 0.73 0.97 5.26 Current Ratio 5.52 5.56 7.53
LT Debt/Capital 5.4% 4.2% 4.4%
Net Debt/Equity 3.6% -2.3% 5.7%
LT Debt/Fixed Assets 5.5% 5.9% 4.8%
Total Liab/Total Assets 11.9% 11.7% 8.5%
Management Company Data
Chairman Nguyen Thi Mai Thanh Head Office 364 Cong Hoa – 13th Ward – Tan Binh
District - HCMC
CEO Nguyen Thi Mai Thanh CFO/ Chief Accontant Ho Tran Dieu Lynh Website http://www.reecorp.com/ IR Contact Luc Chanh Truong Telephone +84838100350
Major Shareholders Shares (mn) Insider Holdings Shares Venner Group Limited 5.37 mn Nguyen Thi Mai Thanh 516,140 Veil Holdings Limited. 5.84 mn Nguyen Ngoc Hai 1,164,730 HIFU 4.87 mn Luu Minh Luan 161,740 VOF Investment Ltd. 3.96 mn Nguyen Thi Thanh Hoai 140,350
Company Description & Principal ActivitiesRefrigeration and Electrical Engineering Corporation (REE) is engaged in the electrical components and equipment industry. Through its subsidiaries, it manufactures, designs, installs, and repairs electrical and electronic equipment, information and telecommunication systems, and provides construction services to industrial and civil works. It is also involved in developing and operating real estate projects and has substantial financial investments. The company has five subsidiaries, eleven alliances and one joint venture.
Market OutlookThe prospects for the Machinery & Equipment (M&E) sector are highly correlated with the domestic construction industry. It is estimated that M&E values typically comprise about 20-30% of the total gross development value of construction projects. The penetration rate of air conditioning systems in Vietnam remains low and we expect the industry to grow at around 10% per year in the medium term. REE is estimated to have a 30% market share. Average rental rates for prime offices have also increased substantially supported by strong demand that outpaces supply.
Company HistoryRefrigeration and Electrical Engineering Corporation was founded in 1977 as the state-owned Refrigeration Electrical Company. With a pro-active management, the company is considered a pioneer in change and market orientation. REE was the first company equitized in 1993; it was also one of two companies initially listed on Ho Chi Minh City stock exchange in July 2000
Ticker Share Price - VND
REE 41,000
Relative Performance
Close/Volume Chart
S&P Vietnam 10 Ho Chi Minh Stock Index
MSCI AC Asia Index REE
01 Jul 09
Mn SharesVND
01 Jul 09
121
Profit & Loss (VND bn) FY06A FY07A FY08A Revenue 824.1 977.1 1,154.4 EBITDA 173.1 165.0 175.2 EBIT 154.6 136.9 139.1 Interest & Fx Exp (12.8) (6.9) (22.9) Non Op Inc (Loss) 157.1 262.1 (257.9) Pre-Tax 299.0 392.0 (141.7) Taxes (76.5) (100.5) (12.2) Minorities & Pref’s (0.1) (0.5) 0.1 Net Income to Common 222.4 291.0 (153.8)
Balance Sheet (VNDbn) FY06A FY07A FY08A Cash & Equiv. 156.9 117.8 359.0 ST Investments & Mkt. Sec 306.7 654.5 374.0 Receivables 393.9 505.2 530.1 Inventories 965.8 1,675.2 1,775.3 Other Curr Assets 173.0 225.0 169.5 Net Fixed Assets 755.0 1,030.9 1,580.8 Construction in Progress 316.2 598.3 356.9 Invest. in Assoc. 122.7 78.2 23.7 Financial Investments 292.1 323.6 547.4 Other L.T. Assets 118.3 216.4 270.5 Payables (213.8) (121.6) (68.3) Other Curr Liab. (57.5) (335.7) (187.0) ST Debt (58.8) (73.8) (148.3) LT Debt (59.0) (95.8) (92.4) Other LT Liab (38.1) (8.5) (13.0) Net Assets 3,173.3 4,789.7 5,478.4 Minorities 0.8 10.9 10.8 Book Capital 790.3 1,890.6 2,125.9 Ret. Earnings 294.2 354.2 (37.4) Total Liab. & Equity 3,600.5 5,425.1 5,987.3
Working Capital Analysis FY06A FY07A FY08A Days Receivable 174.5 188.7 167.6 Days Inventory 580.3 900.1 786.1 Days Payable 128.5 65.3 30.2 Cash Operating Cycle 534.3 776.7 648.7
Derived Cash Flow (VNDbn)* FY06A FY07A FY08A EBIT 154.6 136.9 139.1 Depreciation & Amort 18.5 28.1 36.1 Chgs in Working Cap 170.9 (686.6) (271.6) Operating Cash Flow 344.0 (521.6) (96.3) Net Interest, Fx & Taxes (89.2) (107.4) (35.1) Fixed Asset Capex (609.5) (744.0) (445.1) Investments 183.6 13.0 (169.4) Non Op Inc (Loss) 157.1 262.1 (257.9) Other Non Cash Adj. 202.6 587.5 938.6 Dividends Paid (538.2) (680.7) 0.0 Change in Paid in Capital 392.4 1,100.3 235.3 Change in Net Debt (81.9) 51.8 71.1 Net Cash Flow (39.1) (39.1) 241.2 * Calculated from Balance Sheet & P&L
DuPont Analysis FY06A FY07A FY08A EBIT / Sales 0.19 0.14 0.12 Sales/Total Assets 0.23 0.18 0.19 less Net Int./Assets 0.04 0.05 (0.05) Pre-Tax ROA (%) 8.3% 7.2% -2.4% Assets/Equity 3.32 2.41 2.85 Pre-Tax ROE (%) 27.5% 17.4% -6.7% 1-Tax rate 0.74 0.74 1.09 ROE (%) 20.5% 12.9% -7.3%
Miscelleaneous FY06A FY07A Current Altman Z Score n.m. n.m. 3.1 Asset Growth (%) -39.9% 50.7% 10.4% Capex/Sales (%) 74.0% 76.1% 38.6% Earnings Retention (%) -30.8% -85.0% 542.7%
Management Strategy and GoalsManagement’s goal is to become an internationally ranked M&E contractor. The company aims to participate in the large scale, high quality and technology related projects and structure itself as a holding company. REE’s goal is to have a diversified revenue stream from its core business of M&E contracting and manufacturing of air conditioning systems as well as equity investments, real estate and infrastructure. Due to the difficult economic period, management refocused on key activities.
Investment PlansREE, together with their REE Land subsidiary will develop real estate investments including offices for rent, and industrial zones in Ho Chi Minh City and Haiphong. The company has contributed funds to establish REE Real Estate JSC, REE Electricity JSC, Hap-Ree JSC, Haiphong Industrial Zone JSC, Bach Tuyet Paint JSC, Vietnam Infrastructure and Real Estate JSC. In addition, the company invested in a thermal power project in Vung Anh with a capacity of 1,200MW, a hydro power project in Laos with a capacity of 150-180MW and a project to recover methane emitting from the landfill and to generate power according to the UN’s Clean Development Mechanism. Finally the company has a substantial investment portfolio, with several listed and OTC holdings primarily in the banking sector.
Key Success FactorsREE is one of the most well-managed companies in Vietnam using a model advocated by the Asian Development Bank (ADB). The company has diversified revenue streams from its core businesses of M&E contracting and manufacturing of air conditioning systems as well as equity investments, real estate and infrastructure. The company focuses on creativity and training both locally and abroad. For example, REE’s project managers use advanced models to follow up the schedule, quality, and cost savings, and the company focus on cost-saving measures for customers. As a large company, REE benefits from economies of scale with multi-use warehouses used to serve several projects at the same time.
Key Risk FactorsREE has accumulated a large investment portfolio in financial and banking stocks. In addition, the real-estate sector also faced a slowdown in the past year and the recovery in this sector will follows the economic recovery. In its core business, the emergence of low cost Chinese contractors and the growing presence of medium size domestic contractors such as Rosaco, SME, QME, Toan Thinh Phat and Intech may hinder REE’s ability to replenish its order book. Moreover, we expect competition in the air conditioning industry to intensify going forward with the growing presence of foreign manufacturers upon Vietnam’s accession to AFTA and WTO.
Industrials / Industrial Machinery
Revenues by Bussiness Unit, 2008
122
Song Da Urban & Industrial Zone Development
Trading & Liquidity 20Days 100Days 180Days Volume (Reg, Trading) 433,189 279,377 257,541 VND Val. (Reg. Trading, bn) 44.0 20.6 17.2 Percent of market (%) 1.5 1.3 1.6
Shares Outstanding (mn) FY07A FY08A Current Wgt. Avg Issued Shares 31.4 39.9 39.8 Fully Dilluted Shares 31.4 39.9 39.8 Foreign Owned (% / Limit) 11.9mn 30.0% 49.0%
Market Values VND (bn) USD (mn) EUR (mn) Market Cap 4,015 225.5 159.7 Net Debt 207 11.6 0.0 Minorities & Others (140) (7.9) (5.6) Enterprise Value 4,082 229.3 162.4
Corperate Actions Ex-Date Amt/(ratio) Fiscal YearCash Dividend 3-Sep-08 3,000 FY08Cash Dividend 28-May-07 262 FY07Rights Issue 28-May-07 1 FY07Cash Dividend 15-Jan-07 197 FY06Stock Dividend 15-Jan-07 3 FY07
Per Share (VND) FY06A FY07A FY08A Trail 12M FY09E* FY10E* EPS 3,142 9,055 2,982 3,200 5,475 n.a. BVPS 14,229 29,895 28,893 n.a. n.a. n.a. DPS 327 436 2,991 0 n.a. n.a. CFPS (4,070) 3,031 (3,552) n.a. n.a. n.a. FCFPS (4,110) 3,009 (3,662) n.a. n.a. n.a.* Bloomberg Consensus Estimates
Key Valuations FY07A Avg +/- 1 s.d. FY08A Avg +/- 1 s.d. FY09E* FY10E* P/E (x) 39.9 49.3 / 30.5 10.8 13 / 8.6 17.5 n.a. P/B (x) 12.9 16.7 / 9.1 3.1 14.0 n.a. n.a. Dividend Yield (%) 0.2 0.2 / 0.1 2.7 2.4 n.a. n.a. P/CFPS (x) n.a. n.a. n.a. 4.8 n.a. n.a. FCF Yield (%) n.a. n.a. n.a. n.a. n.a. n.a.
Growth FY06A FY07A FY08A FY09E* FY10E* Revenues n.a. 110.7% -55.6% n.a. n.a. EBITDA n.a. 169.5% -50.3% n.a. n.a. EBIT n.a. 180.7% -50.1% n.a. n.a. Net Income n.a. 137.1% -58.2% n.a. n.a. EPS n.a. 188.2% -67.1% 83.6% n.a. BVPS n.a. 110.1% -3.4% n.a. n.a.* Bloomberg Consensus Estimates
Growth Indicators FY06A FY07A FY08A Fixed Assets/Assoc n.a. 49.1% 30.5% Debt n.a. -81.7% 585.2% Financial Investments n.a. 385.1% 37.0% Other LT Assets n.a. 1061.2% -74.8%
Profitability FY06A FY07A FY08A Gross Margin (%) 38.9 49.0 61.1 EBITDA Margin (%) 35.3 45.1 50.6 EBIT Margin (%) 33.2 44.3 49.8 Pre-Tax Margin (%) 35.7 48.3 55.1 Net Margin (%) 35.7 40.1 37.8
Solvency & Liquidity FY06A FY07A FY08A Acid Test Ratio 0.17 0.90 0.07 Current Ratio 1.07 1.32 0.56 LT Debt/Capital 31.8% 2.6% 11.3% Net Debt/Equity -27.9% 7.5% -18.1% LT Debt/Fixed Assets 29.3% 4.1% 12.6% Total Liab/Total Assets 42.0% 21.9% 27.8%
Management Company Data
Chairman Phan Ngoc Diep Head Office 1st & 2nd Floor, CT1, My
Dinh – Me Tri, Tu Liem, Hanoi
CEO Vi Viet Dung
CFO/ Chief Accontant Vu Van Son Website http://www.sudicosd.
com.vn IR Contact Vu Van Son Telephone (84)-(0)4-37.684.503
Major Shareholders Shares Insider Holdings Shares Song Da Construction 14.52 mn Luu Ngoc Dung 0.067 mn Deutsche Bank AG London 1.998 mn Phan Ngoc Diep 0.1 mn
Vu Hong Su 0.03 mn
Company Description & Principal ActivitiesSong Da Urban & Industrial Zone Investment and Development (SJS) is engaged in real estate consultancy. The company provides consultancy services on the investment, development, technical and architecture design of housing residences, industrial zones and other structures. It also sells properties and provides services for urban and industrial zones. In addition, the Company is involved in the construction of properties, the trading of machinery, as well as the manufacture and merchandise of construction materials and interior products. It has two subsidiaries and seven affiliated companies
Market OutlookThe difficult period of tight liquidity in Vietnam seems to be over and the property sector is recovering with the resumption of lending growth in the broader economy. In addition, underlying demand for suburban and modern housing is high, given several years of under investment in this segment and a rapidly expanding urban middle class. The sector will likely recover quickly as macro-economic conditions improve. Finally, the recent expansion of Hanoi’s city limits will also open up new opportunities for property developers in the capital.
Company HistorySong Da Urban Development Investment and Industrial Zone JSC was founded in July 2003. It was later converted into a state-owned company belonging to Song Da Corporation. The company is now recognized as one of a few leading developers in the real estate industry, with total assets of VND1.0tn and ownership of a large land bank. The company was listed on the HOSE in June 2006.
Ticker Share Price - VND
SJS 96,000
Close/Volume Chart
S&P Vietnam 10 Ho Chi Minh Stock Index
MSCI AC Asia Index SJS
01 Jul 09
Relative Performance
Mn Shares
VND
01 Jul 09
123
Profit & Loss (VND bn) FY06A FY07A FY08A Revenue 336.1 708.1 314.1 EBITDA 118.5 319.5 158.9 EBIT 111.7 313.5 156.4 Interest & Fx Exp 0.0 (0.0) (2.8) Non Op Inc (Loss) 8.1 28.2 19.6 Pre-Tax 119.8 341.7 173.3 Taxes 0.0 (57.6) (54.4) Minorities & Pref’s 0.0 0.0 0.0 Net Income to Common 119.8 284.1 118.9
Balance Sheet (VNDbn) FY06A FY07A FY08A Cash & Equiv. 21.3 121.7 9.2 ST Investments & Mkt. Sec 0.0 35.0 0.0 Receivables 201.3 232.8 141.2 Inventories 12.3 11.8 24.5 Other Curr Assets 52.6 44.1 44.3 Net Fixed Assets 10.2 14.5 18.5 Construction in Progress 578.6 756.4 1,010.6 Invest. in Assoc. 33.2 156.2 180.9 Financial Investments 22.5 109.4 149.9 Other L.T. Assets 4.2 48.6 12.2 Payables (122.2) (134.6) (131.3) Other Curr Liab. (98.3) (168.4) (94.6) ST Debt 0.0 0.0 (86.5) LT Debt (172.8) (31.6) (130.0) Other LT Liab (0.3) (0.1) (0.2) Net Assets 542.7 1,195.8 1,148.5 Minorities 0.0 0.0 0.0 Book Capital 50.0 599.7 599.7 Ret. Earnings 492.7 596.1 548.8 Total Liab. & Equity 936.2 1,530.5 1,591.1
Working Capital Analysis FY06A FY07A FY08A Days Receivable 218.6 120.0 164.0 Days Inventory 21.8 11.9 73.1 Days Payable 217.0 136.1 392.4 Cash Operating Cycle 20.2 28.0 301.5
Derived Cash Flow (VNDbn)* FY06A FY07A FY08A EBIT n.a. 313.5 156.4 Depreciation & Amort n.a. 6.0 2.5 Chgs in Working Cap n.a. 60.0 1.6 Operating Cash Flow n.a. 379.5 160.5 Net Interest, Fx & Taxes n.a. (57.6) (57.2) Fixed Asset Capex n.a. (0.7) (4.4) Investments n.a. (209.9) (65.2) Non Op Inc (Loss) n.a. 28.2 19.6 Other Non Cash Adj. n.a. (328.5) (350.9) Dividends Paid n.a. (119.2) 0.0 Change in Paid in Capital n.a. 549.7 0.0 Change in Net Debt n.a. (141.2) 184.9
Net Cash Flow n.a. 100.4 (112.5)
* Calculated from Balance Sheet & P&L
DuPont Analysis FY06A FY07A FY08A EBIT / Sales 0.33 0.44 0.50 Sales/Total Assets 0.36 0.46 0.20 less Net Int./Assets 0.01 0.02 0.01 Pre-Tax ROA (%) 12.8% 22.3% 10.9% Assets/Equity 1.73 1.28 1.39 Pre-Tax ROE (%) 22.1% 28.6% 15.1% 1-Tax rate 1.00 0.83 0.69 ROE (%) 22.1% 23.8% 10.4%
Miscelleaneous FY06A FY07A Current Altman Z Score n.m. n.m. 3.3 Asset Growth (%) -41.2% 63.5% 4.0% Capex/Sales (%) n.m. 0.1% 1.4% Earnings Retention (%) 89.6% 95.2% -0.3%
Management Strategy and GoalsSJS is a property developer focused on acquiring and developing suburban land banks for infrastructure investment and resale to property developers. Management’s goal is to expand and develop the current land bank and improve the service operation as its primary source of income in the coming years.
Investment PlansSJS has a lot of projects, of which the biggest includes My Dinh urban centre with the total investment of VND 4.5tn, South An Khanh with the total investment amounting to VND 2.6tn, Tien Xuan urban centre with the total investment of VND 1.9tn, and La Khe residential area with the total investment of VND 1.3tn. The company also invests in other joint stock companies in other sectors including cement, finance, rubber, and insurance.
Key Success FactorsSJS is one of the best known and managed subsidiaries in the Song Da Group. Its management team has good relations with the government which has been a key factor in winning in real-estate contracts and securing land development rights. The company’s long experience in developing real-estate projects is also another key competitive advantage.
Key Risk FactorsAn adverse change in macroeconomic conditions such as a slowdown in GDP growth, high interest rates and restrictive lending practices by banks will materially affect SJS’s ability to do business. In addition, further rise in raw material and construction costs including construction labor may well lead to a delay or even cancellation of projects. Even though the company has good contacts, it is still challenging to acquire real estate projects as it faces bidding from many competitors. Finally, SJS has made equity investments in sectors outside its core competencies and this poses risks.
Industrials / Heavy Construction
Revenues by Type, 2008
124
Vietnam Container Shipping
Trading & Liquidity 20Days 100Days 180Days Volume (Reg, Trading) 50,733 28,532 24,519 VND Val. (Reg. Trading, bn) 3.6 1.7 1.5 Percent of market (%) 0.1 0.1 0.1
Shares Outstanding (mn) FY07A FY08A Current Wgt. Avg Issued Shares 9.6 9.5 9.5 Fully Dilluted Shares 9.6 9.5 9.5 Foreign Owned (% / Limit) 1.8mn 19.0% 49.0%
Market Values VND (bn) USD (mn) EUR (mn) Market Cap 624 35.0 24.8 Net Debt (136) (7.6) (0.0) Minorities & Others (4) (0.2) (0.2) Enterprise Value 484 27.2 19.3
Corperate Actions Ex-Date Amt/(ratio) Fiscal YearCash Dividend 17-Dec-08 3,000 FY08Cash Dividend 6-Aug-08 2,000 FY08Stock Dividend 5-Jun-08 1/5 FY08
Per Share (VND) FY06A FY07A FY08A Trail 12M FY09E* FY10E* EPS n.a. 6,778 10,926 11,416 12,614 n.a. BVPS n.a. 25,891 30,315 n.a. n.a. n.a. DPS n.a. 1,141 3,499 n.a. n.a. n.a. CFPS n.a. 8,955 13,051 8,835 n.a. n.a. FCFPS n.a. 1,869 10,070 6,728 n.a. n.a.* Bloomberg Consensus Estimates
Key Valuations FY07A Avg +/- 1 s.d. FY08A Avg +/- 1 s.d. FY09E* FY10E* P/E (x) n.a. n.a. 6.1 6.3 / 5.8 5.1 n.a. P/B (x) n.a. n.a. 2.1 5.1 n.a. n.a. Dividend Yield (%) n.a. n.a. 4.4 1.9 n.a. n.a. P/CFPS (x) n.a. n.a. 4.5 7.5 n.a. n.a. FCF Yield (%) n.a. n.a. 11.1 11.9 / 10.4 n.a. n.a.
Growth FY06A FY07A FY08A FY09E* FY10E* Revenues 26.3% 42.3% 33.3% n.a. n.a. EBITDA n.a. 33.9% 21.0% n.a. n.a. EBIT 44.3% 33.2% 25.3% n.a. n.a. Net Income 42.6% 44.2% 60.3% n.a. n.a. EPS n.a. n.a. 61.2% 15.4% n.a. BVPS n.a. n.a. 17.1% n.a. n.a.* Bloomberg Consensus Estimates
Growth Indicators FY06A FY07A FY08A Fixed Assets/Assoc 27.2% 35.0% 19.6% Debt 41.6% -12.3% -20.2% Financial Investments n.a. n.a. n.a. Other LT Assets 33.9% 30.6% 122.1%
Profitability FY06A FY07A FY08A Gross Margin (%) 35.9 35.0 36.8 EBITDA Margin (%) 38.7 36.4 33.1 EBIT Margin (%) 27.7 25.9 24.4 Pre-Tax Margin (%) 29.9 31.4 37.6 Net Margin (%) 27.4 27.7 33.4
Solvency & Liquidity FY06A FY07A FY08A Acid Test Ratio 1.18 1.72 2.47 Current Ratio 1.10 2.33 1.74
LT Debt/Capital 19.7% 10.0% 5.9%
Net Debt/Equity 3.0% 5.8% 18.3%
LT Debt/Fixed Assets 26.4% 17.3% 11.3%
Total Liab/Total Assets 47.7% 30.0% 34.1%
Management Company Data Chairman Nguyen Viet Hoa Head Office 11 Vo Thi Sau St CEO Nguyên Viet Hoa Ngo Quyen, Hai Phong CFO/ Chief Accontant Tran Xuan Bao Website www.viconship.com IR Contact Le The Trung Telephone +84313836705
Major Shareholders Shares Insider Holdings Shares Vinalines 2.26 mn Nguyen Viet Hoa 139,056 Vietnam Holding Ltd 0.635 mn Nguyen Van Tien 9,711
Company Description & Principal ActivitiesVSC’s main businesses are seaport operations, warehousing, container shipping agency, and multimodal transport. Its Green Port berth with a 320 meter dock and capacity for a 10,000 DWT ship is a well-known port in central region of Vietnam. VSC’s warehouse services offer space for up to 4,000 TEUs as well as storage, transportation, and goods distribution services. VSC is currently the shipping agent for many reputable international companies including MSC (Switzerland) and TS Lines (Taiwan). Agency services includes warehousing, export packing, port and cargo handling services, stevedoring facilities, bunkering, bonded stores, and a complete range of container logistics, dispositioning, inland transportation, maintenance and repairs, and leasing arrangements. VICONSHIP is also a pioneer in container transportation with its own trucking fleet.
Market OutlookVietnam has a long coastline and underdeveloped road infrastructure, the country is favorable to sea-based transport and logistics. Real GDP growth has averaged above 7.0% in the past four years and international trade (exports and imports) has grown at more than 20% annually in recent years. Growth in seaborne tonnage has increased by an estimated of 12%-15% annually. In 2007, total cargo through seaports reached 181.1 million tonnes, up 17.2% against the previous year while throughput at the northern Haiphong port grew by 47.3%.
Company HistoryVICONSHIP (VSC) was established in July 1985 and equitized in April 2002 as the North Vietnam Container Shipping Company (VICONSHIP HAI PHONG), a subsidiary of Vietnam National Shipping Lines. In June 2002, VICONSHIP HAI PHONG acquired Central Container Shipping Joint Stock Co. Ltd. in Da Nang and International Freight Forwarder & Container Service Co. to become Vietnam Container Shipping Joint Stock Company. VSC was listed on the Ho Chi Minh City Stock Exchange on 12th December 2007. The company’s organization structure includes five subsidiaries and two joint ventures.
Ticker Share Price - VND
VSC 64,500
Close/Volume Chart
Relative Performance
S&P Vietnam 10 Ho Chi Minh Stock Index
MSCI AC Asia Index VSC
01 Jul 09
Mn SharesVND
01 Jul 09
125
Profit & Loss (VND bn) FY06A FY07A FY08A Revenue 164.9 234.7 312.8 EBITDA 63.8 85.5 103.4 EBIT 45.6 60.8 76.2 Interest & Fx Exp (1.7) (2.5) (6.3) Non Op Inc (Loss) 5.5 15.5 47.9 Pre-Tax 49.4 73.8 117.7 Taxes (4.2) (8.7) (13.4) Minorities & Pref’s 0.0 0.0 0.0 Net Income to Common 45.1 65.1 104.3
Balance Sheet (VNDbn) FY06A FY07A FY08A Cash & Equiv. 42.2 47.7 79.2 ST Investments & Mkt. Sec 25.6 82.2 83.0 Receivables 44.9 57.2 62.8 Inventories 1.6 2.6 3.3 Other Curr Assets 54.2 15.9 27.2 Net Fixed Assets 104.9 134.2 144.6 Construction in Progress 4.5 9.9 6.2 Invest. in Assoc. 0.9 4.7 27.2 Financial Investments 0.0 0.0 0.0 Other L.T. Assets 1.6 2.1 4.6 Payables (35.9) (27.7) (32.1) Other Curr Liab. (59.6) (45.2) (89.9) ST Debt (9.0) (8.3) (9.5) LT Debt (28.9) (24.9) (17.0) Other LT Liab (0.4) (0.7) (1.0) Net Assets 146.6 249.7 288.8 Minorities 0.0 0.0 0.0 Book Capital 58.9 117.8 133.7 Ret. Earnings 87.7 131.9 155.1 Total Liab. & Equity 280.4 356.5 438.2
Working Capital Analysis FY06A FY07A FY08A Days Receivable 99.4 88.9 73.3 Days Inventory 5.6 6.2 6.0 Days Payable 123.7 66.2 59.3 Cash Operating Cycle 29.9 (16.5) (8.0)
Derived Cash Flow (VNDbn)* FY06A FY07A FY08A EBIT 45.6 60.8 76.2 Depreciation & Amort 18.2 24.7 27.3 Chgs in Working Cap (54.8) 2.5 31.4 Operating Cash Flow 9.1 88.0 134.8 Net Interest, Fx & Taxes (5.9) (11.2) (19.7) Fixed Asset Capex (32.0) (68.0) (28.5) Investments 0.4 (3.8) (22.5) Non Op Inc (Loss) 5.5 15.5 47.9 Other Non Cash Adj. 26.8 (35.7) (42.6) Dividends Paid (11.0) (33.4) (47.1) Change in Paid in Capital 1.5 58.9 15.9 Change in Net Debt 11.1 (4.7) (6.7) Net Cash Flow 5.5 5.5 31.5 * Calculated from Balance Sheet & P&L
DuPont Analysis FY06A FY07A FY08A EBIT / Sales 0.28 0.26 0.24 Sales/Total Assets 0.59 0.66 0.71 less Net Int./Assets 0.01 0.04 0.09 Pre-Tax ROA (%) 17.6% 20.7% 26.9% Assets/Equity 1.91 1.43 1.52 Pre-Tax ROE (%) 33.7% 29.5% 40.8% 1-Tax rate 0.91 0.88 0.89 ROE (%) 30.8% 26.1% 36.1%
Miscelleaneous FY06A FY07A Current Altman Z Score n.m. n.m. 4.0 Asset Growth (%) -36.0% 27.1% 22.9% Capex/Sales (%) 19.4% 29.0% 9.1% Earnings Retention (%) n.a. 83.2% 68.0%
Management Strategy and GoalsManagement’s goal is to fully exploit opportunities within Vietnam where average import and export growth rates can exceed 20% per year. Their broad strategy is to concentrate on seaport operations in the future, invest in more capacity in Container Freight Storage (CFS) and Inland Container Depots (ICD), develop a logistics centre in Southern Vietnam, and modernize its Green Port in Central Vietnam. VSC also has plans for expanding its business into domestic sea transportation segment.
Investment PlansTo implement their strategy, VSC has invested in Green Logistics in Ho Chi Minh City with a stake of 33.3%. It has also built one ICD in Da Nang and a container storage facility in Hai Phong. The company will spend USD3mn in 2009 to acquire one second hand container ship with 7,000-8,000DWT (300-350 TEUs equivalent) to penetrate the domestic sea transport business.
Historical Success FactorsVSC is one of the more successful companies in maritime services market and container transport sector, with a prevailing market share of 26% in Hai Phong and counting 70% of the industry participants as clients. Container volumes processed through VSC’s Green Port alone accounts for 26% of total container volumes in the central region of Vietnam. Moreover, goods through VSC’s CFS have market share of 65% in North Vietnam for their port and warehousing businesses. The company’s strengths include new business expansion (ports), cost control and an average return on equity of 30% in each of the past four years.
Key Risk FactorsAll VICONSHIP businesses are closely related with export-import activities. The downturn of import and export volumes in the first half of 2009 is evidence for the economic slowdown which may impact the company adversely. In accordance with the World Trade Organization commitments, Vietnam will progressively open its maritime services market including container-shipping agency, brokerage, and forwarding. This will be a great challenge for companies like VSC. The company’s operational risks are tied to the export and import activities of major clients including domestic companies and shipping companies.
Industrials / Transportation Services
Gross Profit Breakdown, 2007
126
Vietnam Tanker
Trading & Liquidity 20Days 100Days 180Days Volume (Reg, Trading) 739,799 593,424 426,491
VND Val. (Reg. Trading, bn) 11.4 7.7 5.6
Percent of market (%) 0.4 0.5 0.5
Shares Outstanding (mn) FY07A FY08A Current Wgt. Avg Issued Shares 40.0 59.8 59.6 Fully Dilluted Shares 40.0 59.8 59.6
Foreign Owned (% / Limit) 4.4mn 7.3% 49.0%
Market Values VND (bn) USD (mn) EUR (mn) Market Cap 817 45.9 32.5 Net Debt 2,517 141.4 0.0 Minorities & Others (1) (0.0) (0.0) Enterprise Value 3,332 187.2 132.6
Corperate Actions Ex-Date Amt/(ratio) Fiscal YearCash Dividend 20-Apr-09 400 FY08Cash Dividend 20-May-08 200 FY08Cash Dividend 25-Mar-08 300 FY07Cash Dividend 24-Dec-07 636 FY07Rights Issue 24-Dec-07 1/2 FY07
Per Share (VND) FY06A FY07A FY08A Trail 12M FY09E* FY10E* EPS 1,560 4,695 602 365 597 n.a. BVPS 8,664 10,372 13,079 n.a. n.a. n.a. DPS n.a. 668 826 n.a. n.a. n.a. CFPS 1,944 3,250 3,508 (17,485) n.a. n.a. FCFPS n.a. (14,943) (26,481) n.a. n.a. n.a.* Bloomberg Consensus Estimates
Key Valuations FY07A Avg +/- 1 s.d. FY08A Avg +/- 1 s.d. FY09E* FY10E* P/E (x) n.a. n.a. 6.9 7.1 / 6.7 23.6 n.a. P/B (x) 4.7 5.3 / 4.1 1.6 16.2 n.a. n.a. Dividend Yield (%) 1.3 1.5 / 1.1 5.8 1.0 n.a. n.a. P/CFPS (x) n.a. n.a. n.a. 5.7 n.a. n.a. FCF Yield (%) n.a. n.a. n.a. n.a. n.a. n.a.
Growth FY06A FY07A FY08A FY09E* FY10E* Revenues n.a. 84.4% 3.6% n.a. n.a. EBITDA n.a. 56.7% -9.5% n.a. n.a. EBIT n.a. 70.3% -23.3% n.a. n.a. Net Income n.a. 112.6% -80.8% n.a. n.a. EPS n.a. 201.0% -87.2% -0.8% n.a. BVPS n.a. 19.7% 26.1% n.a. n.a.* Bloomberg Consensus Estimates
Growth Indicators FY06A FY07A FY08A Fixed Assets/Assoc n.a. 94.5% 131.7% Debt n.a. 144.2% 144.2% Financial Investments n.a. n.a. 15.1% Other LT Assets n.a. 8.0% 8.0%
Profitability FY06A FY07A FY08A Gross Margin (%) 33.3 27.8 22.2 EBITDA Margin (%) 49.7 42.2 36.9 EBIT Margin (%) 25.4 23.4 17.3 Pre-Tax Margin (%) 0.0 0.0 5.3 Net Margin (%) 22.4 25.8 4.8
Solvency & Liquidity FY06A FY07A FY08A Acid Test Ratio 0.37 2.27 0.24 Current Ratio 2.37 2.50 0.42
LT Debt/Capital 103.0% 166.4% 303.4%
Net Debt/Equity -101.4% -160.0% -323.0%
LT Debt/Fixed Assets 71.3% 75.1% 74.1%
Total Liab/Total Assets 54.9% 64.3% 77.2%
Management Company Data
Chairman Mr. Nguyen Duc Thang Head Office 12 Le Duan, 1 Dist, Ho Chi Minh city
CEO Mr. Luu Van Thang CFO/ Chief Accontant Ms Pham Ly Trang Khanh Website www.viettanker.com.vn IR Contact Ms. Phan Thi Kim Lien Telephone +84838222675
Major Shareholders Shares Insider Holdings Shares
Vietnam Petroleum Corporation
20.00 mn Mr. Luu Van Thang 102,900
Sacombank 3.11 mn Mr Dam Xuan Trong 15,000
Life Insurance Prudential Vietnam
2.15 mn Mr. Nguyen Cong Dinh 23,600
Amersham Industries Ltd 2.2 mn
Company Description & Principal ActivitiesVTO is one of the principal petroleum transporters in Vietnam operating six ocean-going vessels and five smaller coastal vessels for domestic transportation services. At the end of 2008, VITACO’s total tonnage was 186,607DWT, a 55% increase over 2007. Its main businesses are international/overseas petroleum shipping, domestic petroleum shipping, shipping agency, repairs & maintenance, petroleum & other petrochemical products trading, ship brokering, and ship towing services. VTO has also expanded its business line into new areas including real estate development and office leasing
Market OutlookTransportation demand for imported petroleum is increasing with energy demand in Vietnam, which is expected to grow by at least 5% per annum for several years. According to the Vietnam Ministry of Trade, annual petroleum consumption in Vietnam will increase 7% per year although with the operation of Dung Quat (2009) and Nghi Son (2012) refineries, imported petroleum demand is still expected to grow at 10%-14% per year for the next few years, accounting for more than 50% of total consumption. Consequently, total petroleum consumption is forecasted by the Government to reach 18mn tonnes in the coming years from 16.3mn tonnes currently. In addition, the commercial operation from all off Vietnam’s three new petroleum refineries (from 2015) will lead to a high demand for bulk domestic transportation services, especially within the 5,000-10,000 tonnage range.
Company HistoryVITACO was established in September 1975 as a direct subsidiary of Vietnam National Petroleum Corporation (Petrolimex). It was equitized in October 2005 and become a joint stock company with the state retaining a 51% stake. VTO subsequently listed on the Ho Chi Minh Stock Exchange in January 2007. VTO has two branches: VITACO Services & Trading Co. Ltd and VITACO Danang Co. Ltd both are based in Nha Trang.
Ship DWT Year of buildingPetrolimex 04 29,998 1988Petrolimex 08 37,453 2003Petrolimex 09 40,019 2007Petrolimex 11 (SLS 472) 40,000 2007Petrolimex 12 13,000 2008Petrolimex 14 13,000 2008Nha Be 01 3,580 1976Nha Be 02 2,364 1977Nha Be 03 4,793 1978Ap Bac 02 1,200 1986
Ticker Share Price - VND
VTO 14,100
Close/Volume Chart
Relative Performance
S&P Vietnam 10 Ho Chi Minh Stock Index
MSCI AC Asia Index VTO
01 Jul 09
VND Mn Shares
01 Jul 09
127
Profit & Loss (VND bn) FY06A FY07A FY08A Revenue 394.1 726.7 753.1 EBITDA 195.8 306.9 277.8 EBIT 100.0 170.3 130.6 Interest & Fx Exp (41.1) (78.5) (112.1) Non Op Inc (Loss) 29.4 96.0 21.7 Pre-Tax 0.0 0.0 40.2 Taxes 0.0 0.0 (4.2) Minorities & Pref’s 0.0 0.0 0.0 Net Income to Common 88.3 187.8 36.0
Balance Sheet (VNDbn) FY06A FY07A FY08A Cash & Equiv. 7.9 39.9 11.1 ST Investments & Mkt. Sec 174.4 90.2 1.0 Receivables 0.0 48.7 45.0 Inventories 34.6 29.4 54.5 Other Curr Assets 148.8 92.9 37.5 Net Fixed Assets 705.9 1,378.0 3,193.0 Construction in Progress 2.6 0.1 0.1 Invest. in Assoc. 0.0 0.0 0.0 Financial Investments 0.0 50.4 58.0 Other L.T. Assets 13.3 11.7 12.6 Payables (21.4) (17.6) (46.6) Other Curr Liab. (70.1) (65.6) (57.6) ST Debt 0.0 0.0 (164.0) LT Debt (505.3) (1,035.5) (2,364.7) Other LT Liab 0.0 (0.2) (0.5) Net Assets 490.6 622.3 779.5 Minorities 0.0 0.0 0.0 Book Capital 400.0 400.0 600.0 Ret. Earnings 90.6 222.3 179.5 Total Liab. & Equity 1,087.5 1,741.3 3,412.8
Working Capital Analysis FY06A FY07A FY08A Days Receivable 0.0 24.5 21.8 Days Inventory 48.0 20.4 33.9 Days Payable 29.8 12.3 29.0 Cash Operating Cycle 77.7 8.2 41.1
Derived Cash Flow (VNDbn)* FY06A FY07A FY08A EBIT n.a. 170.3 130.6 Depreciation & Amort n.a. 136.6 147.2 Chgs in Working Cap n.a. 4.0 55.0 Operating Cash Flow n.a. 310.9 332.8 Net Interest, Fx & Taxes n.a. (78.5) (116.4) Fixed Asset Capex n.a. (727.7) (1,793.3) Investments n.a. (50.4) (7.6) Non Op Inc (Loss) n.a. 96.0 21.7 Other Non Cash Adj. n.a. 0.9 (148.7) Dividends Paid n.a. (49.4) (10.4) Change in Paid in Capital n.a. 0.0 200.0 Change in Net Debt n.a. 530.2 1,493.1 Net Cash Flow n.a. 32.0 (28.8) * Calculated from Balance Sheet & P&L
DuPont Analysis FY06A FY07A FY08A EBIT / Sales 0.25 0.23 0.17 Sales/Total Assets 0.36 0.42 0.22 less Net Int./Assets (0.09) (0.10) (0.03) Pre-Tax ROA (%) 0.0% 0.0% 1.2% Assets/Equity 2.22 2.80 4.38 Pre-Tax ROE (%) 0.0% 0.0% 5.2% 1-Tax rate n.a. n.a. 0.89 ROE (%) n.a. n.a. 4.6%
Miscelleaneous FY06A FY07A Current Altman Z Score n.m. n.m. 0.5 Asset Growth (%) -68.1% 60.1% 96.0% Capex/Sales (%) n.m. 100.1% 238.1% Earnings Retention (%) n.a. 85.8% -37.2%
Management Strategy and GoalsManagement’s goal is to meet the shipping demands of its parent company Petrolimex, penetrate regional markets, and capitalize on the opportunities arising from vessel supply shortage. Ships that do not meet international standards will not be allowed to operate in petroleum transport from 2010 in Vietnam. VTO’s principle strategy is to concentrate on overseas transport by expanding its international fleet tonnage by 30%. They will continue also with their domestic transport operations but without further investment. In addition, VTO will expand shipping agency services for bulk carriers and container ships and may engage in financial investments and property development.
Investment Plans•Purchased 13,000 DWT, and 40,000 DWT vessels for USD67mn (completed in 2008)
•Office tower at 236/106/1A Dien Bien Phu St, Binh Thanh Dist, HCM: pending investment in 2009
•Office tower and hotel project (JV Petrolimex Land Company).
•Office leasing (JV An Phu joint-stock company).
Key Success FactorsVITACO is the largest petroleum transportation company in Vietnam, accounting for 25% of all petroleum imports into Vietnam in 2006, and 42% of Petrolimex import volumes. The company’s market share of the domestic fleet is 40% nationwide and 60% of Petrolimex transportation demand.
Key Risk FactorsPlunging oil prices have led to low freight rates for all tanker sizes, affecting VTO’s earnings. A slow recovery in freight rates is the most significant risk factor especially since VTO has just put larger ships in operation. Longer-run, two more domestic refineries (Nghi Son and Long Son) will lead to lower volumes of imported petroleum products and as such, VTO may face tough competition from PetroVietnam Group transportation companies, which may affect VTOs market share in the medium-term. VTO also runs the risks of losses in petroleum trading if fuel prices domestically are subject to price controls if accompanied by rising international prices.
Industrials / Marine Transportation
Revenues by Business Line, 2008
128
PetroVietnam Drilling and Well Services
Trading & Liquidity 20Days 100Days 180Days Volume (Reg, Trading) 380,552 217,295 201,065 VND Val. (Reg. Trading, bn) 31.2 15.8 14.8 Percent of market (%) 1.0 1.0 1.4
Shares Outstanding (mn) FY07A FY08A Current Wgt. Avg Issued Shares 130.1 132.2 132.2 Fully Dilluted Shares 130.1 132.2 132.2 Foreign Owned (% / Limit) 37.8mn 28.6% 49.0%
Market Values VND (bn) USD (mn) EUR (mn) Market Cap 11,102 623.7 441.5 Net Debt 3,267 183.5 0.0 Minorities & Others 1,462 82.1 58.1 Enterprise Value 15,831 889.4 629.6
Corperate Actions Ex-Date Amt/(ratio) Fiscal YearCash Dividend 3-Dec-08 2,500 FY08Cash Dividend 8-May-08 1,543 FY07Stock Dividend 8-May-08 1/5 FY08Stock Dividend 15-Jun-07 7/50 FY07Rights Issue 15-Jun-07 23/50 FY07
Per Share (VND) FY06A FY07A FY08A Trail 12M FY09E* FY10E* EPS 906 4,395 6,978 7,426 5,887 6,102 BVPS 6,175 14,105 16,142 n.a. 19,702 26,639 DPS n.a. n.a. 2,781 0 n.a. n.a. CFPS (2,689) 1,711 14,451 12,667 n.a. n.a. FCFPS (6,884) (9,782) (11,458) (9,918) n.a. n.a.* Bloomberg Consensus Estimates
Key Valuations FY07A Avg +/- 1 s.d. FY08A Avg +/- 1 s.d. FY09E* FY10E* P/E (x) 44.4 54.7 / 34.2 15.1 16 / 14.3 14.3 13.8 P/B (x) 15.0 19.7 / 10.3 5.5 11.1 4.3 3.2 Dividend Yield (%) n.a. n.a. 2.5 4.5 n.a. n.a.
P/CFPS (x) 125.9 131.6 /
120.245.1 3.9 n.a. n.a.
FCF Yield (%) (11.4) -10.1 / -12.8 (13.9) 20.9 / -48.7 n.a. n.a.
Growth FY06A FY07A FY08A FY09E* FY10E* Revenues n.a. 103.0% 36.2% n.a. n.a. EBITDA n.a. 358.0% 51.1% n.a. n.a. EBIT n.a. 294.0% 57.2% n.a. n.a. Net Income n.a. 391.2% 61.3% n.a. n.a. EPS n.a. 385.1% 58.8% -15.6% 3.7% BVPS n.a. 128.4% 14.4% 22.1% 35.2%* Bloomberg Consensus Estimates
Growth Indicators FY06A FY07A FY08A Fixed Assets/Assoc n.a. 71.9% 150.8% Debt n.a. 98.9% 190.4% Financial Investments n.a. 3876.5% 190.7% Other LT Assets n.a. 194.7% 2.0%
Profitability FY06A FY07A FY08A Gross Margin (%) 14.5 25.8 32.4 EBITDA Margin (%) 11.6 26.2 29.1 EBIT Margin (%) 10.8 20.9 24.1 Pre-Tax Margin (%) 12.0 21.2 24.9 Net Margin (%) 8.6 20.9 24.7
Solvency & Liquidity FY06A FY07A FY08A Acid Test Ratio 0.40 1.80 0.67 Current Ratio 0.94 1.90 0.52 LT Debt/Capital 89.1% 54.8% 79.7% Net Debt/Equity -69.8% -47.3% -158.8% LT Debt/Fixed Assets 48.2% 51.6% 33.5% Total Liab/Total Assets 63.6% 45.5% 69.6%
Management Company Data Chairman Mr. Do Dinh Luyen Head Office 4th Floor, Sailing Tower
CEO Mr. Do Van Khanh 111A Pasteur, Ben Nghe
Ward, 1 Dist., HCMC
CFO/ Chief Accontant Ms. Ho Ngoc Yen Phuong Website www.pvdrilling.com.vn IR Contact Mr. Do Danh Rang Telephone +84 8 3914 2012
Major Shareholders Shares Insider Holdings Shares PetroVietnam Holdings 66.59 mn Mr. Van Duc Tong 21,863 PVFC 12.42 mn Ms. Tran Thi Quy 53,151 VCB 5.76 mn Mr. Luong Trong Diep 22,346 Deutsche Bank 6.72 mn ACBS 2.5 mn SSI 1 mn
Company Description & Principal ActivitiesPetroVietnam Drilling & Well Services Joint Stock Company (PVD) is the only domestic drilling contractor and oil services company in the E&P sector in Vietnam. The company offers drilling and well technical services including high-tech cementing and stimula-tion, well testing, directional drilling, mud logging, wire-line logging, slick-line and low- tech services such as drilling tool rentals and tubular handling services for oil & gas operators in Vietnam. PVD is also involved in the provision of manpower for offshore stations, oil-spill control, workshop services and materials, equipment and spare-parts for offshore companies. During 2007 and 2008 the company formed six subsidiaries and three joint-venture companies engaged in technical and well services, offshore and logging activities, and investment and training programs.
Market OutlookGlobal demand for drilling rigs is estimated at around 700 rigs annually for the period 2008 to 2012, approximately 61% (430) of which are jack-up rigs. Vietnam will require eight to ten jack-up rigs annually, consistent with the number of rigs currently deployed. PetroVietnam, as well as several international E&P companies have articulated an aggressive offshore exploration program in addition to existing planned gas field developments. Overall, this should provide healthy but competitive demand for PVD’s single jack-up rig currently in-service and the two new jack-ups coming into service later this year.
Company HistoryPVD was established in 1994 as a division of PTSC Offshore Services. In November 2001, PetroVietnam Drilling & Well Services Company (PV Drilling) was established as a wholly owned subsidiary of PetroVietnam. In February 2006, it was converted to joint-stock company with PetroVietnam retaining 51% of the equity. PVD listed on the HoSE on December 5th of that year. In May 2007, the company converted into a holding company establishing six subsidiaries, one of which was PVDI, a 51% owned financing SPV. In June 2009, PVD finally received approval to buy out minorities in PVDI, following a contentious shareholder approval process in November 2008.
S&P Vietnam 10 Ho Chi Minh Stock Index
MSCI AC Asia Index PVD
Close/Volume Chart
Relative Performance
Ticker Share Price - VND
PVD 84,000
01 Jul 09
Mn SharesVND
01 Jul 09
129
Profit & Loss (VND bn) FY06A FY07A FY08A Revenue 1,348.8 2,738.6 3,728.7 EBITDA 156.5 717.0 1,083.5 EBIT 145.1 571.7 898.7 Interest & Fx Exp (13.0) (77.3) (165.5) Non Op Inc (Loss) 29.6 85.5 195.6 Pre-Tax 161.6 579.9 928.7 Taxes (45.2) (3.5) 4.3 Minorities & Pref’s 0.0 (4.5) (10.8) Net Income to Common 116.4 571.9 922.3
Balance Sheet (VNDbn) FY06A FY07A FY08A Cash & Equiv. 152.6 521.9 687.8 ST Investments & Mkt. Sec 0.0 0.0 120.0 Receivables 417.6 711.6 1,043.3 Inventories 64.6 45.7 174.5 Other Curr Assets 45.6 391.3 39.8 Net Fixed Assets 54.2 2,086.9 2,122.5 Construction in Progress 1,409.3 420.9 4,113.2 Invest. in Assoc. 0.0 7.9 75.0 Financial Investments 1.5 58.5 170.1 Other L.T. Assets 28.9 85.1 86.8 Payables (379.0) (289.8) (1,028.0) Other Curr Liab. (297.1) (273.1) (880.2) ST Debt 0.0 (109.2) (1,983.8) LT Debt (705.5) (1,294.0) (2,091.1) Other LT Liab (1.0) (2.5) (25.3) Net Assets 791.6 2,361.3 2,624.4 Minorities 0.0 497.1 491.0 Book Capital 680.0 1,302.6 1,522.8 Ret. Earnings 111.6 561.7 610.6 Total Liab. & Equity 2,174.2 4,329.9 8,632.9
Working Capital Analysis FY06A FY07A FY08A Days Receivable 113.0 94.8 102.1 Days Inventory 20.5 8.2 25.3 Days Payable 120.0 52.1 148.9 Cash Operating Cycle 27.5 (34.6) 72.0
Derived Cash Flow (VNDbn)* FY06A FY07A FY08A EBIT n.a. 571.7 898.7 Depreciation & Amort n.a. 145.3 184.8 Chgs in Working Cap n.a. (734.0) 1,236.4 Operating Cash Flow n.a. (17.0) 2,319.9 Net Interest, Fx & Taxes n.a. (80.8) (161.1) Fixed Asset Capex n.a. (1,495.5) (3,424.3) Investments n.a. (64.9) (178.7) Non Op Inc (Loss) n.a. 85.5 195.6 Other Non Cash Adj. n.a. 989.3 (1,313.8) Dividends Paid n.a. (367.5) (163.6) Change in Paid in Capital n.a. 622.6 220.3 Change in Net Debt n.a. 697.8 2,671.7 Net Cash Flow n.a. 369.3 165.8 * Calculated from Balance Sheet & P&L
DuPont Analysis FY06A FY07A FY08A EBIT / Sales 0.11 0.21 0.24 Sales/Total Assets 0.62 0.63 0.43 less Net Int./Assets 0.01 0.00 0.00 Pre-Tax ROA (%) 7.4% 13.4% 10.8% Assets/Equity 2.75 1.83 3.29 Pre-Tax ROE (%) 20.4% 24.6% 35.4% 1-Tax rate 0.72 0.99 1.00 ROE (%) 14.7% 24.4% 35.6%
Miscelleaneous FY06A FY07A Current Altman Z Score n.m. n.m. 1.7 Asset Growth (%) -74.8% 99.2% 99.4% Capex/Sales (%) n.m. 54.6% 91.8% Earnings Retention (%) n.a. n.a. 60.1%
Management Strategy and GoalsManagement’s goal is to expand market share in Vietnam and to become the market leader in drilling and drilling related services. Principally PVD hopes to displace rigs leased in country by firms such as Trans-Ocean and Sea-Drill. In the longer-run, PVD aims to become a leading regional provider of drilling and well services, creating added value for clients by delivering high quality services at competitive prices. In the drilling services segment, PVD will continue to acquire offshore drilling rigs and invest in advanced technologies. In drilling engineering services, PVD will invest and develop new services, especially concentrating on higher margin services such as mud logging and well-head services. In high-tech services, PVD will continue to strengthen its strategic alliances with existing partners and develop cooperation with other international service providers to enhance services to clients. The company’s expansion plans for overseas markets will include countries where PetroVietnam and PVD’s long-term partners are present. Malaysia in particular looks promising with several jointly developed fields already in production
Investment PlansThe company has invested USD440mn in two additional Jack-up rigs: PV Drilling II and PV Drilling III. These rigs are due for delivery in October 2009 and early 2010, respectively and are fully funded through project-finance debt and equity issuance to PetroVietnam from PVD. In the future, PVD also has plans to acquire or contract-manage one semi-submersible rig and one Tender-Assisted drilling rig. Capex on these two rigs could exceed USD600mn.
Key Success FactorsPVD is a subsidiary of the PetroVietnam Group and as such has had financial support from PetroVietnam in securing bridge financing for the investment in the two new rigs. In addition, PVD hopes for PetroVietnam support in securing new rig rental contracts. Given the rapid expansion of PVD’s asset base, it is critical that PVD’s rigs be quickly contracted and fully utilized from delivery, otherwise profitability and margins will suffer. A supporting factor for rig rentals is that given PVD’s proactive engagement in ancillary services, the company is well positioned to capitalize on the robust ancillary market for drilling and well services. Finally, cost control remains important. As day rates and well services are competitively bid, it is important for the company to continue to maintain vigilance in operating costs in order to maintain margins. In FY08, PVD achieved a 13% reduction in cash operating costs from improved operating performance on PVD I. consequently, efficient operations of PVD II & III are critical for future earnings growth.
Key Risk FactorsPVD is taking delivery of two rigs just as day-rates have weakened globally. A slowdown in E&P activities is expected in-line with the weaker oil prices and lower economic growth rates worldwide. Anecdotal evidence also points to a pending large supply of new-build rigs currently under construction in the region. Consequently, the day-rate at which PVD contracts its rigs in 2H09 and 2010 will be a key determinant of PVD’s share-price going forward. Corporate governance is also a concern for PVD as the company seeks to continue to use PetroVietnam as a means of finance new rig investment. In the recent acquisition of PVDI minorities, PVD issued 25.7mn shares to its parent and PVDI minorities at a valuation that was not-favorable to PVD minority shareholders. Transactions between PetroVietnam and PVD do not appear to be at arm’s-length and should be examined closely. Finally, much of PVD’s strategy is to displace rigs operating in Vietnam and leased-out by global players such as TransOcean and Sea-Drill. Beyond PetroVietnam Group operated fields, rigs leases are subject to competitive tender by international E&P field operators and this may-well impair day-rates going forward.
Oil & Gas / Oil equipment, Services & Distribution
Net Profit Breakdown, 2008
130
Ticker Share Price - VND
FPT 70,000
Trading & Liquidity 20 Days 100 Days 180 Days Volume (Reg, Trading) 819,467 717,935 585,917 VND Val. (Reg. Trading, bn) 58.7 42.8 33.5 Percent of market (%) 2.0 2.7 3.1
Shares Outstanding (mn) FY07A FY08A CurrentWgt. Avg Issued Shares 137.2 138.9 141.2 Fully Dilluted Shares 137.2 138.9 141.2 Foreign Owned (% / Limit) 47.6mn 33.7% 49.0%
Market Values VND (bn) USD (mn) EUR (mn)Market Cap 10,305 578.9 409.7 Net Debt (3) (0.1) (0.0)Minorities & Others n.a. n.a. n.a.Enterprise Value n.a. n.a. n.a.
Corperate Actions Ex-Date Amt/(ratio) Fiscal YearInterim 4-Jun-09 1,000 FY09Stock Dividend 7-Nov-08 1/2 FY08Final 7-Nov-08 1,067 FY082nd Interim 28-Jul-08 667 FY08Interim 21-Apr-08 667 FY08Final 8-Oct-07 1,333 FY072nd Interim 24-Jul-07 400 FY07Stock Dividend 21-May-07 1/2 FY07Interim 6-Mar-07 267 FY07
Per Share (VND) FY06A FY07A FY08A Trail 12M FY09E* FY10E* EPS 3,559 5,375 6,020 6,346 6,237 7,255 BVPS 11,444 14,359 17,287 n.a. n.a. n.a. DPS n.a. 2,045 2,802 n.a. n.a. n.a. CFPS n.a. 5,366 9,951 n.a. n.a. n.a. FCFPS n.a. 1,780 4,840 n.a. n.a. n.a.* Bloomberg Consesus Estimates
Key Valuations FY07A Avg +/- 1 s.d. FY08A Avg +/- 1 s.d. FY09E* FY10E* P/E (x) 22.8 24.5 / 21.2 10.4 10.5 / 10.3 11.2 9.6 P/B (x) 13.4 16.5 / 10.3 3.8 5.3 / 2.2 n.a. n.a. Dividend Yield (%) 0.6 1.2 / 0.1 4.3 5.8 / 2.8 n.a. n.a. P/CF S (x) 25.0 26.8 / 23.2 11.6 19.5 / 3.6 n.a. n.a. FCF Yield (%) 1.2 n.a. 8.5 16.4 / 0.6 n.a. n.a.
Growth FY06A FY07A FY08A FY09E* FY10E* Revenues -19.2% 18.4% 21.4% n.a. n.a. EBITDA 75.4% 52.9% 45.9% n.a. n.a. EBIT 72.0% 51.7% 46.9% n.a. n.a. Net Income 60.6% 63.7% 13.4% n.a. n.a. EPS 56.3% 51.0% 12.0% 3.6% 16.3% BVPS 120.6% 25.5% 20.4% n.a. n.a.* Bloomberg Consesus Estimates
Growth Indicators FY06A FY07A FY08A Fixed Assets/Assoc 104.0% 182.9% 26.8% Debt -18.3% 67.5% -5.7% Financial Investments 6750.0% 70.1% 105.7% Other LT Assets -30.1% 171.8% 242.5%
Profitability FY06A FY07A FY08A Gross Margin (%) 12.0 14.5 18.2 EBITDA Margin (%) 6.5 8.4 10.1 EBIT Margin (%) 5.6 7.1 8.6 Pre-Tax Margin (%) 5.3 7.6 7.6 Net Margin (%) 4.0 5.5 5.1
Solvency & Liquidity FY06A FY07A FY08A Acid Test Ratio 1.07 0.84 1.17 Current Ratio 1.60 1.29 1.30 LT Debt/Capital 0.4% 2.9% 0.1% Net Debt/Equity -7.4% -21.2% 0.1% LT Debt/Fixed Assets 2.1% 10.6% 0.3% Total Liab/Total Assets 50.5% 57.8% 51.7%
Management Company Data
Chairman Truong Gia Binh Head OfficeLot B2 – Cau Giay Small Industry and Industrial
Handicraft making Consortium
CEO Nguyen Thanh Nam Cau Giay District, Hanoi City CFO/ Chief Accontant Nguyen The Phuong Website www.fpt.com.vn IR Contact Nguyen Van Thang Telephone +844.3730.1515
Major Shareholders Shares Insider Holdings SharesState 7.13% Bui Quang Ngoc 4.18%
Citigroup Global Markets Financial Products Llc
2.29% Truong Gia Binh 8.82%
Deutsche Bank London 4.80% Hoang Minh Chau 2.81%Red River Holding 3.63% Nguyen Thanh Nam 1.89%
Company Description & Principle ActivitiesThe Corporation for Financing and Promoting Technology (FPT) is primarily a distributor of telecommunications and IT hardware for several global brands. They are also rapidly diversifying across five core businesses areas: systems integration, software outsourcing, telecommunications, distribution, and education, and are involved in finance and real estate ventures. The company supplies embedded systems, customized software, and outsourcing services. In telecommunications, it provides broadband backbone and resale services, multi-media, entertainment, and advertising. Under distribution, FPT assembles personal computers and distributes imported hand phones. The company is also developing and managing a high-tech industrial park. FPT founded and operates FPT University and two programming and multimedia training centres. It is also engaged as a minority shareholder in a securities brokerage, fund management, and commercial banking arm.
Market OutlookVietnam’s demographics are favorably disposed to the knowledge-based industries that FPT is targeting. A youthful population, high literacy and secondary education rates combined with rising consumerism gives the company enormous mid-term top line growth potential. In addition, several high technology business groups and funds such as IDG and Intel have focused on Vietnam in recent years, demonstrating the country’s potential in knowledge-based industries.
Company HistoryFPT was founded in 1998 and has become the largest IT conglomerate in Vietnam. The company’s founders and employees are significant stakeholders, with the state owning a minority 7.2% share. FPT was listed on the HOSE in December 2006.
FPT Corp
Close/Volume Chart
Relative Performance
S&P Vietnam 10 Ho Chi Minh Stock Index
MSCI AC Asia Index FPT
01 Jul 09
Mn SharesVND
01 Jul 09
131
Profit & Loss (VND bn) FY06A FY07A FY08ARevenue 11,398.0 13,498.9 16,381.8 EBITDA 740.0 1,131.5 1,650.9 EBIT 633.2 960.6 1,411.3 Interest & Fx Exp (70.8) (39.6) (363.6)Non Op Inc (Loss) 46.9 108.0 192.4 Pre-Tax 609.3 1,029.0 1,240.1 Taxes (73.7) (148.7) (189.0)Minorities & Pref’s (85.2) (142.8) (214.8)Net Income to Common 450.4 737.5 836.3
Balance Sheet (VNDbn) FY06A FY07A FY08ACash & Equiv. 669.5 895.5 1,242.5 ST Investments & Mkt. Sec 0.0 0.0 0.0 Receivables 1,509.8 1,511.1 1,541.3 Inventories 554.7 1,489.6 1,316.7 Other Curr Assets 310.7 446.4 557.8 Net Fixed Assets 286.7 606.8 694.4 Construction in Progress 36.7 8.8 221.8 Invest. in Assoc. 0.0 299.2 243.6 Financial Investments 13.3 22.6 46.5 Other L.T. Assets 28.0 76.0 260.3 Payables (626.7) (1,060.4) (1,057.5)Other Curr Liab. (308.5) (717.8) (866.1)ST Debt (778.0) (1,249.3) (1,236.8)LT Debt (6.9) (65.5) (3.0)Other LT Liab 0.0 (1.1) (1.9)Net Assets 1,689.0 2,262.0 2,959.5 Minorities 123.2 282.6 526.2 Book Capital 1,133.0 1,448.4 1,466.5 Ret. Earnings 432.9 531.0 966.8 Total Liab. & Equity 3,409.2 5,356.1 6,124.8
Working Capital Analysis FY06A FY07A FY08ADays Receivable 48.3 40.9 34.3 Days Inventory 20.2 47.1 35.9 Days Payable 22.8 33.5 28.8 Cash Operating Cycle (5.4) 39.8 30.3
Derived Cash Flow (VNDbn)* FY06A FY07A FY08AEBIT 633.2 960.6 1,411.3 Depreciation & Amort 106.8 170.9 239.6 Chgs in Working Cap (1,132.7) (229.1) 176.8 Operating Cash Flow (392.7) 902.4 1,827.7 Net Interest, Fx & Taxes (144.5) (188.3) (552.6)Fixed Asset Capex (246.6) (492.0) (710.0)Investments (11.8) (308.5) 31.8 Non Op Inc (Loss) 46.9 108.0 192.4 Other Non Cash Adj. 845.6 (251.5) 3.8 Dividends Paid (280.5) (389.3) (389.1)Change in Paid in Capital 585.7 315.4 18.1 Change in Net Debt (176.1) 529.9 (75.0)Net Cash Flow 226.1 226.1 347.0 * Calculated from Balance Sheet & P&L
DuPont Analysis FY06A FY07A FY08AEBIT / Sales 0.06 0.07 0.09 Sales/Total Assets 3.34 2.52 2.67 less Net Int./Assets (0.01) 0.01 (0.03)Pre-Tax ROA (%) 17.9% 19.2% 20.2%Assets/Equity 2.02 2.37 2.07 Pre-Tax ROE (%) 36.1% 45.5% 41.9%1-Tax rate 0.88 0.86 0.85 ROE (%) 31.7% 38.9% 35.5%
Miscelleaneous FY06A FY07A CurrentAltman Z Score n.m. n.m. 8.5 Asset Growth (%) -44.3% 57.1% 14.4%Capex/Sales (%) 2.2% 3.6% 4.3%Earnings Retention (%) n.a. 62.0% 53.4%
Management Strategy and GoalsManagement strategy is to become a diversified conglomerate focused around high growth telecommunications, content services, technology solutions and services, and human capital driven sectors. The company is organised and managed around largely independent business units with financial reporting done on a consolidation basis. The company seeks to be the market leader in all business segments in which it operates. FPT has ceased retail operations to avoid competition between sub-units and will also focus on restructuring and improving corporate governance and corporate finance, especially as several of FPT’s subsidiaries plan to equitize and seek listing in the coming years.
Investment PlansFPT’s capex plan for FY09 is relatively moderate due to the subdued economic outlook, the only major expenditure being USD60mn to build two office buildings that will serve as a corporate campus, which is scheduled for completion within three years.
Key Success FactorsFPT has successfully secured the Vietnamese distribution rights for several competing global technology brands. IT distribution is the firm’s highest grossing revenue and profit centre, thus FPT will still need to execute well in this segment in the near term although it is no longer the most profitable business line due to an increasingly competitive environment and the recently slowdown in growth in this sector. The firm’s systems integration depends largely on state spending for substantial portions of their respective revenue while in software outsourcing, Japanese clients account for 50% of the divisional revenue. The telecommunications business growth potential remains positive due to the growing demand for ADSLs, media and content services in Vietnam.
Key Risk FactorsFPT and its subsidiaries use of convertible preferred and common shares issued at par value (VND10,000/share) as a means of employee compensation which exposes public investors to substantial EPS dilution risks. FPT also has a less than 100% economic interest in many growth divisions such as telecommunications, software outsourcing and banking services. The company also consolidates selected associates (e.g. FPT Telecom) where the state as a key shareholder (50.1%) has granted to FPT rights to act on its behalf. If the State where to seek to exercise its voting rights, FPT would likely have de-consolidate and associate account this company. Vietnam’s WTO ascension will eventually allow foreign companies to establish wholly owned distribution subsidiaries which means that some of FPT’s key contracts may be lost. Finally, the company will face increasing challenges in software outsourcing in international markets when competing with established major players from India and China.
Telecommunications / Fixed Line Telecommunications
Revenues by Business Line, 2008
132
Pha Lai Thermal Power
Trading & Liquidity 20Days 100Days 180Days Volume (Reg, Trading) 1,335,979 711,970 517,007 VND Val. (Reg. Trading, bn) 40.7 20.3 13.8 Percent of market (%) 1.3 1.3 1.3
Shares Outstanding (mn) FY07A FY08A Current Wgt. Avg Issued Shares 319.7 325.2 325.2 Fully Dilluted Shares 319.7 325.2 325.2 Foreign Owned (% / Limit) 61.2mn 18.8% 49.0%
Market Values VND (bn) USD (mn) EUR (mn) Market Cap 8,942 502.3 355.6 Net Debt 3,448 193.7 0.0 Minorities & Others (946) (53.2) (37.6) Enterprise Value 11,444 642.9 455.1
Corperate Actions Ex-Date Amt/(ratio) Fiscal YearCancelled 28-Oct-08 300 FY08Final 5-Mar-08 500 FY08Interim 26-Sep-07 1,000 FY07Bonus 18-Jun-07 1/20 FY07Cash Dividend 16-Mar-07 952 FY06
Per Share (VND) FY06A FY07A FY08A Trail 12M FY09E* FY10E* EPS 3,002 2,578 (654) (648) 2,591 2,572 BVPS n.a. 11,761 10,568 n.a. n.a. n.a. DPS 1,143 1,992 500 0 n.a. n.a. CFPS 3,935 8,574 4,591 6,042 n.a. n.a. FCFPS 3,918 8,164 3,887 5,268 n.a. n.a.* Bloomberg Consensus Estimates
Key Valuations FY07A Avg +/- 1 s.d. FY08A Avg +/- 1 s.d. FY09E* FY10E* P/E (x) 22.2 23.2 / 21.2 12.3 13.1 / 11.5 10.4 10.5 P/B (x) 5.0 5.4 / 4.6 2.5 3.3 / 1.7 n.a. n.a. Dividend Yield (%) 2.3 3.1 / 1.4 3.9 5.2 / 2.6 n.a. n.a. P/CFPS (x) 6.7 7 / 6.4 4.5 5.4 / 3.5 n.a. n.a. FCF Yield (%) n.a. n.a. 20.4 21.3 / 19.5 n.a. n.a.
Growth FY06A FY07A FY08A FY09E* FY10E* Revenues 147.2% 5.5% 2.0% n.a. n.a. EBITDA 90.5% -1.1% -17.6% n.a. n.a. EBIT 904.5% -7.5% -31.0% n.a. n.a. Net Income 10771.7% -15.8% -125.8% n.a. n.a. EPS n.a. -14.1% -125.4% -496.2% -0.7% BVPS n.a. n.a. -10.1% n.a. n.a.* Bloomberg Conscencus Estimates
Growth Indicators FY06A FY07A FY08A Fixed Assets/Assoc -14.6% -12.4% -11.7% Debt 6505.5% -17.8% 23.6% Financial Investments n.a. n.a. -78.2% Other LT Assets -34.5% 583.5% 270.7%
Profitability FY06A FY07A FY08A Gross Margin (%) 33.5 29.3 27.9 EBITDA Margin (%) 56.5 53.0 42.8 EBIT Margin (%) 31.6 27.7 18.8 Pre-Tax Margin (%) 26.8 20.4 (12.1) Net Margin (%) 27.2 21.7 (5.5)
Solvency & Liquidity FY06A FY07A FY08A Acid Test Ratio 6.78 2.98 3.85 Current Ratio 5.75 3.25 4.69 LT Debt/Capital 169.3% 134.7% 184.9% Net Debt/Equity -163.3% -133.5% -180.0% LT Debt/Fixed Assets 89.0% 83.4% 116.4% Total Liab/Total Assets 65.0% 60.5% 68.2%
Management Company Data
Chairman Pham Kim Lan Head Office Phao Son Village, Pha Lai town,
Chi Linh, Hai Duong
CEO Nguyen Khac Son CFO/ Chief Accontant Le The Son Website http://www.ppc.evn.vn IR Contact Le The Son Telephone +84-0320 88 1126
Major Shareholders Shares Insider Holdings Shares EVN 221.81 mn Pham Kim Lan 105,840 PVFC 7.53 mn Nguyen Khac Son 107,310 Vietnam International Bank (VIB)
2.04 mn
Ngan Ha Investment & Contruction Joint Stock company
2 mn
Company Description & Principal ActivitiesPha Lai Thermal Power is a coal-based electricity generation company located in Hai Duong province. The company operates two separate plants: Plant I with four 110MW turbines, and Plant II, which was completed in 2002, with two 330 mw turbines. PPC sells electricity to Electricity of Vietnam (EVN), which is also PPC’s controlling shareholder.
Market OutlookVietnam has been barely able to cope up with the country’s power demand growth which will remain the case for many years. Every single unit of electricity generated within Vietnam territory will be purchased by EVN.
Company HistoryPha Lai thermal power plant was established in April 1982, reporting to Power Company I. In April 1995, the plant became a direct member of the EVN. In March 2005, the then Ministry of Industry issued a decision to upgrade the plant to a member company of EVN. The company was equitized in January 2006 and listed on the Hanoi Stock Exchange in May 2006. The company was relisted on the HOSE in January 2007.
S&P Vietnam 10 Ho Chi Minh Stock Index
MSCI AC Asia Index PPC
Close/Volume Chart
Relative Performance
Ticker Share Price - VND
PPC 26,900
01 Jul 09
Mn SharesVND
01 Jul 09
133
Profit & Loss (VND bn) FY06A FY07A FY08A Revenue 3,607.1 3,807.1 3,881.9 EBITDA 2,039.6 2,017.5 1,662.4 EBIT 1,141.0 1,055.9 728.8 Interest & Fx Exp (187.0) (397.6) (1,738.2) Non Op Inc (Loss) 11.4 119.5 541.3 Pre-Tax 965.4 777.8 (468.1) Taxes 13.9 46.5 255.3 Minorities & Pref’s 0.0 0.0 0.0 Net Income to Common 979.3 824.4 (212.8)
Balance Sheet (VNDbn) FY06A FY07A FY08A Cash & Equiv. 528.6 312.8 512.8 ST Investments & Mkt. Sec 0.0 1,030.0 2,735.6 Receivables 2,632.4 468.8 915.4 Inventories 353.0 469.4 557.2 Other Curr Assets 20.4 26.0 17.6 Net Fixed Assets 7,028.2 6,040.4 5,114.4 Construction in Progress 27.8 139.0 343.6 Invest. in Assoc. 0.0 0.0 0.0 Financial Investments 0.0 1,098.4 239.2 Other L.T. Assets 14.3 97.5 361.5 Payables (77.9) (104.9) (133.3) Other Curr Liab. (227.3) (332.7) (529.4) ST Debt (306.4) (264.3) (343.4) LT Debt (6,281.6) (5,153.6) (6,353.3) Other LT Liab (1.0) (1.9) (1.6) Net Assets 3,710.6 3,825.0 3,436.3 Minorities 0.0 0.0 0.0 Book Capital 3,107.0 3,262.4 3,262.4 Ret. Earnings 603.6 562.6 173.9 Total Liab. & Equity 10,604.8 9,682.3 10,797.3
Working Capital Analysis FY06A FY07A FY08A Days Receivable 266.4 44.9 86.1 Days Inventory 53.8 63.6 72.7 Days Payable 11.9 14.2 17.4 Cash Operating Cycle (200.8) 32.9 4.0
Derived Cash Flow (VNDbn)* FY06A FY07A FY08A EBIT 1,141.0 1,055.9 728.8 Depreciation & Amort 898.6 961.5 933.7 Chgs in Working Cap 6,936.4 2,173.9 (300.9) Operating Cash Flow 8,975.9 4,191.4 1,361.6 Net Interest, Fx & Taxes (173.1) (351.0) (1,482.9) Fixed Asset Capex (5.6) (131.1) (229.2) Investments 0.0 (1,098.4) 859.2 Non Op Inc (Loss) 11.4 119.5 541.3 Other Non Cash Adj. (14,911.0) (1,768.8) (2,128.8) Dividends Paid (636.8) (162.6) 0.0 Change in Paid in Capital 35.0 155.4 0.0 Change in Net Debt 6,488.3 (1,170.1) 1,278.8 Net Cash Flow (215.8) (215.8) 200.0 * Calculated from Balance Sheet & P&L
DuPont Analysis FY06A FY07A FY08A EBIT / Sales 0.32 0.28 0.19 Sales/Total Assets 0.34 0.39 0.36 less Net Int./Assets (0.02) (0.03) (0.11) Pre-Tax ROA (%) 9.1% 8.0% -4.3% Assets/Equity 2.86 2.53 3.14 Pre-Tax ROE (%) 26.0% 20.3% -13.6% 1-Tax rate 1.01 1.06 0.45 ROE (%) 26.4% 21.6% -6.2%
Miscelleaneous FY06A FY07A Current Altman Z Score n.m. n.m. 1.9 Asset Growth (%) -1.8% -8.7% 11.5% Capex/Sales (%) 0.2% 3.4% 5.9% Earnings Retention (%) 61.9% 22.7% 176.5%
Management Strategy and GoalsThe company’s goals include maintenance of the stability and reliability of turbines and generators, achieve targeted generation output, ensure proper overhaul and maintenance for the turbines and generators, manage cash reserves profitably by investing soundly, and determine options to reduce the risk from the company’s JPY36.2bn debt.
Investment PlansPPC has already found a customer who is interested in collecting fly ash from its Plant I and is cooperating with the customer to expedite the project. PPC has decided to invest VND 747 bn, or equivalently a 15% stake, in the recently-commissioned Quang Ninh Thermal Power Plant and is also interested in investing in Hai Phong Thermal Plant with a similar stake, although the details have yet to be finalised.
Key Success FactorsThe base-case PPA price is VND581 per KWh, which is comparable to other major power companies in Vietnam and can be adjusted to offset the effects caused by fluctuations in the price of coal and FO, two main input materials. The plant is located advantageously not too distant from coal mines and close to a six-way river junction. The Plant II is financed by Japanese ODA and therefore has favourable conditions and low interest terms.
Key Risk FactorsAside from the fact that thermal turbines and generators in general are not as stable and reliable as hydroelectric plants, plant I is about 20 years old, almost fully depreciated, and thus requires more attentive maintenance, causing some disruption in 2008. No hedging strategies for the Japanese yen-denominated debt are available for PPC, which derived an overall net loss in 2008 due to the unrealized translation loss associated with this debt.
Utilities / Electricity
Revenues by Source, 2008
134
Vinh Son - Song Hinh Hydropower
Trading & Liquidity 20Days 100Days 180Days Volume (Reg, Trading) 231,454 184,936 164,261 VND Val. (Reg. Trading, bn) 8.4 6.0 5.0 Percent of market (%) 0.3 0.4 0.5
Shares Outstanding (mn) FY07A FY08A Current Wgt. Avg Issued Shares 129.4 137.5 137.5 Fully Dilluted Shares 129.4 137.5 137.5 Foreign Owned (% / Limit) 40.2mn 29.3% of 49.0%
Market Values VND (bn) USD (mn) EUR (mn) Market Cap 4,537 254.9 180.5 Net Debt (545) (30.6) (0.0) Minorities & Others (122) (6.8) (4.8) Enterprise Value 3,871 217.5 154.0
Corperate Actions Ex-Date Amt/(ratio) Fiscal YearFinal 4-Mar-09 800 FY09Interim 12-Nov-08 1,000 FY08Final 12-Mar-08 800 FY08Rights Issue 15-Aug-07 1/10 FY07Interim 15-Aug-07 591 FY07Cash Dividend 3-Nov-06 788 FY06
Per Share (VND) FY06A FY07A FY08A Trail 12M FY09E* FY10E* EPS 2,146 1,984 2,698 2,836 2,397 2,432 BVPS 10,598 14,709 15,582 n.a. n.a. n.a. DPS 1,873 579 1,800 n.a. n.a. n.a. CFPS 2,968 2,420 3,623 n.a. n.a. n.a. FCFPS 2,616 2,101 3,512 n.a. n.a. n.a.* Bloomberg Consensus Estimates
Key Valuations FY07A Avg +/- 1 s.d. FY08A Avg +/- 1 s.d. FY09E* FY10E* P/E (x) 33.9 40.7 / 27.2 12.6 14.5 / 10.7 13.8 13.6 P/B (x) 5.1 6.3 / 4 2.0 2.3 / 1.7 n.a. n.a. Dividend Yield (%) 1.6 2.2 / 0.9 4.3 5.9 / 2.6 n.a. n.a. P/CFPS (x) n.a. n.a. n.a. n.a. n.a. n.a. FCF Yield (%) n.a. n.a. n.a. n.a. n.a. n.a.
Growth FY06A FY07A FY08A FY09E* FY10E* Revenues 123.0% -15.2% 30.7% n.a. n.a. EBITDA n.a. -11.3% 30.7% n.a. n.a. EBIT 158.8% -18.0% 52.1% n.a. n.a. Net Income 207.1% -5.1% 44.4% n.a. n.a. EPS n.a. -7.5% 36.0% -11.2% 1.5% BVPS n.a. 38.8% 5.9% n.a. n.a.* Bloomberg Conscencus Estimates
Growth Indicators FY06A FY07A FY08A Fixed Assets/Assoc -5.1% -5.8% -8.4% Debt n.a. -23.6% -20.7% Financial Investments -100.0% n.a. n.a. Other LT Assets 514.7% -80.9% 28.8%
Profitability FY06A FY07A FY08A Gross Margin (%) 55.8 54.6 63.3 EBITDA Margin (%) 88.3 92.4 92.4 EBIT Margin (%) 54.3 52.5 61.2 Pre-Tax Margin (%) 0.0 69.2 76.5 Net Margin (%) 62.0 69.4 76.7
Solvency & Liquidity FY06A FY07A FY08A
Acid Test Ratio 9.63 17.90 36.70 Current Ratio 1.25 6.70 8.24 LT Debt/Capital 31.4% 15.5% 10.5% Net Debt/Equity -36.6% -9.2% -13.1% LT Debt/Fixed Assets 24.5% 19.4% 15.2% Total Liab/Total Assets 29.2% 17.8% 13.7%
Management Company Data
Chairman Nguyen Van Thanh Head Office 21 Nguyen Hue Street,
Quy Nhon city, Binh Dinh province
CEO Vo Thanh Trung CFO/ Chief Accontant Huynh Cong Ha Website http://www.vshpc.evn.com.vn IR Contact Vo Thanh Trung Telephone +84-(0)56 89 2792
Major Shareholders Shares Insider Holdings Shares EVN 42.01 mn Nguyen Van Thanh 12,342 SCIC 32.99 mn Nguyen Duc Doi 432,500 SSI 6.15 mn Vo Thanh Trung 173,580
Company Description & Principal ActivitiesVinh Son – Song Hinh’s main business is hydroelectricity generation, which accounted for more than 99% of gross revenue in 2008. With the combined turbine generating capacities of 136 MW and 66MW in the Vinh Son plant and an additional 70MW in the Song Hinh plant, the company has been able to generate up to 860 GWh of electricity in 2008 of which Electricity of Vietnam (EVN) is the sole purchaser. VSH is also pursuing ambitious hydropower plant projects in and around its home province of Binh Dinh and is currently the largest market-cap hydroelectric company on the Ho Chi Minh City stock exchange.
Market OutlookVietnam’s electricity output has barely kept pace with growth in demand – a situation that will remain in the short to medium term as every unit of electricity generated within Vietnam territory will be consumed.
Company HistoryVSH was established as the Vinh Son hydroelectric plant, commissioned by EVN in 1994 in Binh Dinh province in Vietnam’s central region. Five years later the plant was assigned by EVN to operate the newly constructed Song Hinh plant, located in the neighboring Phu Yen province. It was incorporated following equitization in 2005 and approved to list on the HOSE in 2007.
Ticker Share Price - VND
VSH 33,000
Close/Volume Chart
01 Jul 09
Relative Performance
S&P Vietnam 10 Ho Chi Minh Stock Index
MSCI AC Asia Index VSH
Mn SharesVND
01 Jul 0901 Jul 09
135
Profit & Loss (VND bn) FY06A FY07A FY08A Revenue 436.6 370.2 483.7 EBITDA 385.6 342.0 447.1 EBIT 237.2 194.5 295.8 Interest & Fx Exp (26.8) (15.8) (26.5) Non Op Inc (Loss) 60.4 77.5 100.8 Pre-Tax 0.0 256.3 370.2 Taxes 0.0 0.6 0.7 Minorities & Pref’s (0.3) 0.0 0.0 Net Income to Common 270.6 256.8 370.9
Balance Sheet (VNDbn) FY06A FY07A FY08A Cash & Equiv. 53.5 228.8 48.0 ST Investments & Mkt. Sec 57.9 510.7 825.7 Receivables 26.2 62.6 60.3 Inventories 25.8 23.4 20.8 Other Curr Assets 3.3 8.0 39.1 Net Fixed Assets 1,581.3 1,572.5 1,422.0 Construction in Progress 143.4 42.0 56.1 Invest. in Assoc. 0.0 10.4 10.0 Financial Investments 0.0 0.0 0.0 Other L.T. Assets 5.3 1.0 1.3 Payables (5.6) (12.8) (1.3) Other Curr Liab. (4.2) (9.1) (10.3) ST Debt (121.2) (101.3) (104.2) LT Debt (421.9) (313.9) (224.8) Other LT Liab (0.1) (0.1) (0.2) Net Assets 1,343.6 2,022.3 2,142.4 Minorities 7.3 0.0 0.0 Book Capital 1,250.0 545.6 1,745.6 Ret. Earnings 86.3 1,476.7 396.8 Total Liab. & Equity 1,896.5 2,459.4 2,483.3
Working Capital Analysis FY06A FY07A FY08A Days Receivable 21.9 61.7 45.5 Days Inventory 48.8 50.7 42.8 Days Payable 10.5 27.8 2.7 Cash Operating Cycle 37.4 16.8 (0.0)
Derived Cash Flow (VNDbn)* FY06A FY07A FY08A EBIT 237.2 194.5 295.8 Depreciation & Amort 148.4 147.5 151.3 Chgs in Working Cap 170.8 (26.6) (36.5) Operating Cash Flow 556.4 315.4 410.6 Net Interest, Fx & Taxes (26.8) (15.2) (25.7) Fixed Asset Capex (44.4) (41.3) (15.3) Investments 60.8 (10.4) 0.5 Non Op Inc (Loss) 60.4 77.5 100.8 Other Non Cash Adj. (899.3) 929.1 (1,765.5) Dividends Paid (74.9) (247.4) 0.0 Change in Paid in Capital 0.0 (704.4) 1,200.0 Change in Net Debt 543.1 (127.9) (86.1) Net Cash Flow 175.3 175.3 (180.8) * Calculated from Balance Sheet & P&L
DuPont Analysis FY06A FY07A FY08A EBIT / Sales 0.54 0.53 0.61 Sales/Total Assets 0.23 0.15 0.19 less Net Int./Assets (0.13) 0.03 0.03 Pre-Tax ROA (%) 0.0% 10.4% 14.9% Assets/Equity 1.41 1.22 1.16 Pre-Tax ROE (%) 0.0% 12.7% 17.3% 1-Tax rate n.a 1.00 1.00 ROE (%) n.a. 12.7% 17.3%
Miscelleaneous FY06A FY07A Current Altman Z Score n.m. n.m. 6.8 Asset Growth (%) -23.6% 29.7% 1.0% Capex/Sales (%) 10.2% 11.2% 3.2% Earnings Retention (%) 12.7% 70.8% 33.3%
Management Strategy and GoalsFor 2009, the company will seek to meet electricity output targets and achieve targeted revenues, implement the ISO 9001-2008 quality control for electricity generating enterprises, and accelerate progress on key projects.
Investment PlansVSH has announced 4 hydropower plant projects but only three are certain:
Construction starts
Construction ends
Location MW E[GWh]
Vinh Son 3 Later 2009 2011Binh Dinh
province30 91
Vinh Son 2 Later 2009 2013 Gia Lai province 105 309
Upper Kon Tum Later 2009 2014Kon Tum province
220 1056
Dong CamNot yet
determinedTBC
Phu Yen province
130 430
Vinh Son 2 and Kon Tum projects are included in the government’s power development master plan.
Key Success FactorsThe water supply is relatively plentiful and stable thanks to consider-able rainfall in the reservoir regions. The steep topography translates into high water pressure at the turbine intake, thus enhancing the electricity-generating efficiency for each unit of water passing through the turbines. This will also be the case for the Vinh Son and Kon Tum dams. Compared to other hydro power companies, VSH have had a long-term Power Purchas-ing Agreement (PPA) with favourable pricing. Much of the debt associated with the construction of existing plants has been repaid and the remaining portion is negligible.
Key Risk FactorsHydro power plant project developments, while creating enormous growth for the company in the future, place a huge current financial burden on the company. VSH is also negotiating a new PPA with EVN, the outcome of which will be crucial especially when VSH is in need of cash to implement at least two large hydropower projects.
Utilities / Electricity
Revenues by Market, 2008
136
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Ministry of Foreign Affairs, Vietnam Political Systemhttp://www.mofa.gov.vn/en/tt_vietnam/nr040810155159/
Vietnam Embassy in the USAhttp://vietnamembassy.us/learn_about_vietnam/politics/overview/
Wikipedia, Politics of Vietnamhttp://en.wikipedia.org/wiki/Politics_of_Vietnam
More Vietnam on the Webhttp://www.gksoft.com/govt/en/vn.html
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