STRATEGY_DEC2011 &_SSI

Sector Watch August 2010

1

Saigon Securities Inc. Research & Investment Advisory

TABLE OF CONTENT EXECUTIVE SUMMARY ................................................................................................................................................ 3

ECONOMY .................................................................................................................................................................. 6

2011 REVIEW: BOTH INFLATION AND MONETARY POLICY IN PLAY ....................................................................... 6

2012 OUTLOOK: A YEAR OF FLYING DRAGON OR DRAGONFILES? ......................................................................... 9

EQUITY STRATEGY: 2009 WILL COME BACK? ............................................................................................................. 13

2011 STOCK MARKET: BACK TO 2006 LEVEL ........................................................................................................ 13

2012 OUTLOOK: 2009 WILL COME BACK? ........................................................................................................... 14

SECTOR REVIEW & OUTLOOK .................................................................................................................................... 19

SUMMARY ......................................................................................................................................................... 20

SECTORS IN FOCUS ............................................................................................................................................. 26

VIET NAM BANKING SECTOR ................................................................................................................................. 26

AUTO COMPONENTS: TIRE ÌNDUSTRY ................................................................................................................... 33

COFFEE .................................................................................................................................................................... 36

SUGAR .................................................................................................................................................................... 39

CONFECTIONERY .................................................................................................................................................... 42

DAIRY ...................................................................................................................................................................... 44

COOKING OIL .......................................................................................................................................................... 48

INSTANT NOODLE AND SAUCE .............................................................................................................................. 51

DRY BULK ................................................................................................................................................................ 54

ELECTRICITY ............................................................................................................................................................ 56

FERTILIZER (urea) ................................................................................................................................................... 60

FISHERIES ................................................................................................................................................................ 62

HOSPITALITY ........................................................................................................................................................... 65

VIETNAM INSURANCE ............................................................................................................................................ 68

OIL & GAS ............................................................................................................................................................... 71

PHARMACEUTICALS ............................................................................................................................................... 74

CONSTRUCTION PLASTICS ...................................................................................................................................... 76

PROPERTY: .............................................................................................................................................................. 78

RUBBER ................................................................................................................................................................... 84

STEEL ....................................................................................................................................................................... 88

TECHNOLOGY ......................................................................................................................................................... 91

COMPANIES IN FOCUS .............................................................................................................................................. 95

RATING ................................................................................................................................................................... 137


EXECUTIVE SUMMARY

2012 MACRO OUTLOOK: A YEAR OF FLYING DRAGON OR DRAGONFLIES?

One of the frequent asked questions is whether any past year had similarities with each others, as analysts

usually use historical data to establish future expectations. We admit that 2011 was a similar year to 2008

year for certain reasons. So, if 2008 had some similarities with 2011, would 2012 be a replicate of 2009?

We do not think it would be that simple. What we face ahead in 2012 is more challenging. Set aside global

risks, we see some key specific challenges for Vietnam economy in 2012 as below:

1. Public investment will be tighter in 2012

2. Given pressures on consumer price still out there though less serious than 2011 as large part of the

increase was made, we expect Vietnam‟s 2012 CPI growth pressure to be lower than 2011, at around

12% higher YoY, on average. This is much different from 2009, when CPI only rose modestly by 6.52%

by year-end.

3. In 2012, with the fact that many small banks are still facing high NPLs and liquidity risks, high credit

growth is not feasible. Liquidity supports might be much more refined and focused on some particular

groups.

4. Restructuring will aim at 2 sectors, namely banking sector & SOEs sector. This is the main difference

from 2009.

While year of Dragon is normally anticipated as a good year in Asian culture, depicted by the image of a

flying dragon, it remains unclear about whether the picture of the “dragon who flies” or just some dragonflies,

to best illustrate the year of 2012. Actually, we remain a “between scenario” with conservative view regarding

the 2012 economic outlook, due to the long time required for restructuring, as there is no quick fix for any of

the Vietnam issues and possible recession at global scale could weigh in. Big catalyst to observe is interest

rates might be eventually reduced to support economic growth in Vietnam, by the time that inflation pressure

should be eased in order to assure macro stability and sustainability.

2012 EQUITY OUTLOOK: 2009 WILL COME BACK?

In short, we think that the type of aggressive policy loosening or generous stimulus packages witnessed in

2009 is unlikely to happen again. On the contrary, as discussed in the macro part, in order to pay back for

the consistently high investment and money supply growth recently, and to reduce the risk of shaping an

even bigger asset-price bubble in the future, government is likely to adopt a prudent monetary and

investment policy and any policy loosening in 1H12 would only be temporary and limited. 2012 equity

outlook therefore will be much different from 2009, and expected to be a special year with following themes


Banking reform: we see the banking reform as the base for a sustainable interest rate reduction. In our

view, the reform will include 3 courses: (1) stress-test of banks to specify weak ones and strong ones;

(2) M&A of banks and (3) Recapitalization of banks (this phase will go together with the M&A).

Liquidity issue within the banking system.

Interest rate reduction will be among the key positive catalysts that the market expects.

Impact of the Restructure of SOE sector on market

Divestment by a number of close-end funds

Market valuation: Is that a true distress?

Our forward 2012 P/E for the 61 companies under coverage with market cap accounting for over 70% of total

market cap is 7.22x. If excluding MSN, VIC and BVH, 2012 P/E will be 6.10x. Current P/E for 2011 that

excludes MSN, BVH and VIC is 6.77x.

While it is true that the low valuation does not mean that we have hit the bottom, we check the following

questions:

(1) Are the earnings are going to reduce further and short of expectation? The answer is NOT LIKELY, in

our view, as according to interviews with companies this is the most difficult time and many understand

that they are in a very difficult situation. While the interest rate has chance to reduce, most companies

know that they are in deep difficulties therefore would set a very conservative target for 2012 (which will

be officially announced in the AGM).

(2) Besides earnings, are there any factors that can keep valuation at the distressed level? Our answer is

Yes with all the above-mentioned factors.

As a result, the low valuation of the market should be an opportunity for long-term investors once the

banking issues can be solved fundamentally. If the VND interest rates can be reduced sustainably, people

will look for other investment forms, of which equity is an option as valuation dropped strongly and can be in

distressed in 1Q12. However, we should pay attention to How the interest rate can be reduced as it can

have long-term negative impact.

While we keep a conservative view on the market for the above-mentioned reasons, the chance for short-

term rallies cannot be wiped out.

RECOMMENDATION

Consumer staple and pharmaceuticals continue to be our favourite sectors at this time owing to high

sustainability and resistance. Beside this defensive choice, we are also in favour of a number of other


companies, who can survive well in 2012 and bounce back strongly in a market rally. Our current Top

recommendation include: CTG, DHG, DIG, DRC, EIB, FPT, HAG, HVG, NTP, SBT, VCB, VNM and VSH.


ECONOMY

2011 REVIEW: BOTH INFLATION AND MONETARY POLICY IN PLAY

2011 was not a good year for Vietnam and investors was looking forward to the end of 2011 and hope for a

better 2012. We hereafter provide a quick recap of key macro-economic events in 2011:

Soaring inflation kept interest rates at an elevating level: 2011 CPI rose to 18.13% (average CPI grew

18.58% YoY), which was double the Government‟s initial target set at the beginning of the year. Top 4

groups of leading movers in CPI basket were Foods and Foodstuff (24.8%), Education (20.41%),

Transportation (19.04%) and Housing & Construction Materials (17.29% If Food and Foodstuff were

excluded, CPI would only rise about 7.8% in 2011. CPI followed an abnormal pattern in 2011 compared to

previous years, in that price level increased after Tet holiday and then remained stable until year-end. The

abrupt hike in utilities prices (+15.28% in March) and the 9% currency depreciation in February were the

main reasons for this trend distortion.

CPI 2009-2011 (YoY growth, breakdown by groups of goods and merchandise)

With a large weight of meat in CPI basket, the jump in pork price alone could translate into high inflation

(10% of meat price increase contributes to an estimated 1.1% increase in CPI increase). Reasons for

foodstuffs price volatility, in our view, might include: a jump in animal feed price; a poor distribution system;

a disadvantaged terms of trade for agricultural products and border trade. Excluding the seasonal trend, the

seasonal adjusted month-on-month CPI has been clearly showing a clear declining trend.

Monetary policy played too large a role…

In reaction to high inflation pressures, SBV applied a strictly tightened monetary policy through the year


Increased policy interest rates (this year OMO rate acts a major policy rate, not the base rate, and raised

OMO rate 6 times (twice in Jan, once in Feb, twice in April and once in May) from 10% to 15%, and then

lowered it to 14% on July. Anọther policy rate, refinancing rate, is also used, but mostly after OMO rate

revision).

Tightened non-manufacturing lending, starting after government resolution 11 in Feb

Introduced a number of administrative measures, including imposing and raising ceiling deposit rate of

14%, strictly monitor and control gold bar and the forex market.

Set credit growth lower for the year 2011, but just to reflect the fact that credit growth had been

weakened in the tightened environment.

Commercial banks also breached the rule and pushed up deposit rates to as around 20% in order to attract

depositors. Interbank interest rates climbed to a peak of 30-40% for small banks, which were using short

term deposits to fund medium and long tem loans (and in many cases to fund their related businesses),

making them almost insolvent. This created the opportunity for SBV to trigger the restructuring scheme of the

banking system.

Credit growth (YoY) and OMO rate

In 2011, GDP growth slowed down, retail sales weakened and inventory piled up: the Government

initially targets GDP growth of 6-6.5% and then lowered it down to 6%, during meetings with international

donors . This adjustment was not very significant (given the fact that some USD 7.4 bn ODA were committed

during 2011). The GDP target is not very sensitive to the stock market. There was a consensus that macro

stability must be ensured, in order to gain the confidence of local and foreign investors. Actual GDP came

out at 5.89% YoY, in line with our expectations. The industry and construction sectors were poor performers,

especially construction was hit hard in Q4, during a traditionally busiest season of the year and ended lower


than in 2010. The downturn typically was the result of the tightening monetary policy, causing high lending

rates, which stagnated real estate market and curtailed public investments. Agriculture sector growth picked

up during the year, as there was no significant damage from natural disasters, and productivity (in both rice

production and fisheries farming) improved in 2011.

Industrial production index (a new series introduced starting from June 2011) edged up only 6.8% YoY on

average, after growing 7.1% and 9.3% YoY respectively in 2009 and 2010. In a number of major subsectors,

including oil and gas, cement, steel and pharma, the slowdown was caused by a weaker demand (also seen

in retail sales) and resulted in a pile-up of inventories.

Industrial Production index and its YTD growth in 2011

Source: GSO


Retail sale YTD growth (at current price and inflation adjusted) 2008-2011

Source: GSO

2012 OUTLOOK: A YEAR OF FLYING DRAGON OR DRAGONFILES?

One of the frequent asked questions is whether any past year had similarities with 2011, as analysts usually

use historical data to establish future expectations. We admit that 2011 was a similar year to 2008 year for

the following reasons on a relative basis:

GDP growth declined, with construction growth almost flat, which reflected the fact that real estate has

always been the first sector to be hit in the economic slowdown in emerging countries like Vietnam.

Inflation rate was almost 20%, and in reaction SBV raised policy interest rates, causing deposit interest

rates to escalate accordingly. Depositors were able to negotiate interest rates with banks. Gasoline and

foodstuff prices were again major leading movers in CPI.

Demand side was quite weak, with inflation-adjusted retail sale growth in single digit.

VND was depreciating about 10%. Gold price was quite volatile (hit 1000 USD/ounce in 2008, close to

2000 USD/ounce in 2011, and then corrected 30% afterwards).

So, if 2008 had some similarities with 2011, would 2012 be a replicate of 2009? We do not think it would be

that simple. What we face ahead in 2012 is more challenging: an easy-going fiscal stimulus is not possible

this time, in an environment of global turmoil, which was caused by excessive public debts. Set aside global

risks, we discuss the key specific challenges for Vietnam economy in 2012 below:

1. Public investment will be tight in 2012: Looking back, 2009 public investment grew at 52% as compared

to 4% in 2008. However, we believe that 2012 public investment will not be strong and investment


criteria will be much more selective. Private funding would slowly gain its important role, either in

forms of PPP or the stock market, and this is positive as private sector requires more investment

efficiency to achieve a lower ICOR for the economy.

2. Inflation: Excluding the seasonal trend, the seasonal adjusted month-on-month CPI now shows a clear

declining trend. We see the following impact factors on inflation in 2012: Lower pressure from commodity

price; Increase in basic salary of about 26% from May 2012; Utilities price hike; Higher credit growth

target in 2012 (15%); Growth stimulus to be introduced and possible State investment contraction. Given

pressures on consumer price still out there though less serious than 2011 as large part of the increase

was made, we now expect Vietnam‟s 2012 CPI growth pressure to be lower than 2011, at around 12%

higher YoY, on average. This is much different from 2009 situation, when CPI only rose modestly by

6.52% by year-end.

3. 2012 Credit growth target was set at 15%, after a year with lowest credit growth recently (2011‟s growth

at 12-13%). In fact, 2012‟s credit growth target is much more modest than in 2009 (37.73%), the year

benchmarked with the 4% interest rate subsidy. In 2012, with the fact that many small banks are still

facing high NPLs and liquidity risks, high credit growth is not feasible. Liquidity supports might be much

more refined and focused on some particular groups.

4. Restructuring will aim at 2 sectors, namely banking sector & SOEs sector. This is the main

difference from 2009. This time, the process will be painful and could take a lot of time: On the one hand,

property market is having deep problems. For the first time in history, house price in Hanoi decrease

and this reduction has not yet stopped or expected to stop in short-term (please see our Sector analysis

in following part). On the other hand, we just saw the start in the restructuring of the banking system in

December 2011 (which may take 3 years to complete). Some observers believe that the restructuring,

i.e consolidation of the banking system is now just cosmetic and quite administrative, so the hardest

part should be the banking assets, which could be of low quality and would need further write-offs.

5. SOE restructuring : According to the Ministry of Planning & Investment, total investment in non-core

business of 11 economic groups amounts to 19,500bn VND (nearly 1 bn USD). Among which:

Petrovietnam has the highest investment in non-core business (6,708bn VND), followed by Rubber

Corporation (3,848bn VND). All the investment in non-core business must be divested before 2015.

Table: Investment in non-core business by 11 economic groups

Petrovietnam 6708

Vietnam Rubber Group 3848

Electricity of Vietnam 2107

VNPT (Vietnam Post & Telecommunication) n/a

Vinacomin n/a

Vinatex n/a

Baoviet Holding n/a


Viettel n/a

Vinachem n/a

HUD Holdings n/a

Vietnam Industry-Construction Group n/a

TOTAL (bn VND, by Dec2011) 19,500

However, we still keep the view that the public investment in infrastructure and public-housing projects will

not be cut and this can help reduce the liquidity crunch among property developers as well as pressure on

banks‟ NPLs.

Some other important aspects of the economy in the year of 2012 include:

Trade deficit: Exports might have some difficulties in 2012. Troubled sectors could include textiles and

garment, footwear and rice. For the first two sector, salary and input prices are rising (as we are dependent

on imports for raw materials) while global demand could be weaker (in US, EU and Japan). As a recession

could not be ruled out, our estimates are lower than the government target.

Trade deficit declined in 2011, starting from July. Gold export was one reason of the trade deficit decline.

Main impacts on import in 2012 include: (1) Gold export might be lower, and gold import in 2012 might be

higher, as SBV aims at controlling the gold market with expected new Decree on the Gold bar producers and

traders; (2) downward pressure on imports resulting from weak local and global demand; As Vietnam

normally depends on imported raw material for a lot of sectors (50-60% of imports are machineries, materials

and other input for production/export), in fact lower trade deficit might not be a good thing at all.

Overall, for 2012, we expect trade deficit likely to be widened, as imports might be re-emerged again while

exports face more hurdles.

Exchange rate: SBV changed to a flexible mechanism in dealing with exchange rates, so there might not be

a one-time large depreciation as in 2011, but rather the depreciation would be a step by step decline.

Overall, we expect VND would depreciate by about 3-5% in 2012. The SBV governor also announced a

target 3% for the depreciation of the VND.

2011‟s BoP balance was supported by a lower trade deficit, higher remittances (estimated at USD9 bn,

despite of the loss of Lybia labour market) and stable FDI disbursements. For 2012, trade deficit could be

wider, as imports might re-emerge while exports face more hurdles. The increase of remittances in 2011

could reflect the fact that remittances was now flowing through the official banking channel. Gold trading

would be more closely monitored in 2012, and although it can put more pressure on the official import of

gold, but as the SBV can put the trading of gold and USD under its total control, this will definitely provide a

positive impact on the exchange rate.

Last, but not least, we still have to follow the inflation performance in the year as we believe this factor has

the largest impact on VND so far.


Interest rates: Vietnam enterprises were hard hit in 2011 mainly because of higher lending rates and

stagnating demand in almost all industry sectors. In 2012, an across-the-board growth stimulus program is

not feasible, but support for important business lines, e.g. agriculture, exports related or even some sub-

sector of real estate would be available, as interest groups could not wait forever for help.

Inflation pressure eased in late 2011, thanks to the tight monetary policy, coupled with the downtrend in

global commodities prices but the pressures are still there. At the moment, lowering interest rate might not

be feasible, at least for the next 2 months, due to the problem in the banking sector. But as easing monetary

trend in the world will start, gradual interest rate cuts (by 0.5-1%) for targeted groups might be possible from

late March 2012. SBV also confirmed that they would consider doing so by then.

Conclusion

Year of Dragon is normally anticipated as a good year in Asian culture, depicted by the image of a flying

dragon. It remains unclear about whether the picture of the “dragon who flies” or just some dragonflies, to

best illustrate the year of 2012. Actually, we remain a “between scenario” with conservative view regarding

the 2012 economic outlook, due to the long time required for restructuring, as there is no quick fix for any of

the Vietnam issues and possible recession at global scale could weigh in. Big catalyst to observe is interest

rates might be eventually reduced to support economic growth in Vietnam, by the time that inflation pressure

should be eased in order to assure macro stability and sustainability.

2007 2008 2009 2010 2011 2012f

GDP growth (%) 8.48 6.23 5.32 6.78 5.9 5.8

Agriculture (%) 3.41 3.79 1.83 2.77 4 2.7

Industry & Construction (%) 10.6 6.33 5.52 7.69 7.4 6.5

Construction (%) 12.01 0.02 11.36 10.06 -0.97 6

Service (%) 8.68 7.2 6.63 7.51 6.99 6.5

Retail Sale (%) 23.3 31 18.6 24.53 22 24

Industrial Production Index (%) n/a 7.4 7.1 10.7 6.8 7.2

CPI (%) 12.6 19.9 6.52 11.75 18.13 12

PPI (Agriculture) (%) 21.05 39.6 4.42 14.35 31.8 17

PPI (Industrial) (%) 10.95 21.81 7.31 12.63 18.3 14

Exports (USD bn) 48.56 62.68 57.09 72.19 96.3 106.8

Imports (USD bn) 62.68 80.71 69.94 84.80 105.8 121.3

Trade Balance (USD bn) -14.12 -18.02 -12.85 -12.60 -9.5 -14.5

% of Export 29.07 28.76 22.51 17.46 9.86 13.57

Exchange rate (USD/VND) 15950 17483 18479 18932 21250 22150

Current Account Balance (USD bn) -6.9 -10.8 -6.6 -4.3 -3.5 -4.5

Foreign reserve (USD bn) 23.74 24.17 16.8 12.9 15.2 15

Foreign reserve/imports (weeks) 19.69 15.57 12.48 7.91 7.47 6.43

Credit growth (%) 52.42 25.43 37.73 29.81 10.9 14

Deposit rate (VND -%) 14.71 8.61 11.89 16.66 12


EQUITY STRATEGY: 2009 WILL COME BACK?

2011 STOCK MARKET: BACK TO 2006 LEVEL

Chart: Stock Market 2011,

The Vietnam stock market has spent the past 5 years going nowhere. Within 2011, VNIndex decreased by

27.7%% from 485.97 to 351.55 and by end of 2011, VNIndex comes to the level of 2006, just before the

strong uptrend to the peak of 1158 by 13Mar2007.

Liquidity on the stock market also dropped in 2011. Average daily trading value of HOSE in 2011 is just

30.8mil USD, roughly 50% of which belong to 20 big cap stocks (out of 302 stocks listed in HOSE), equal to

just 42.5% of 2010‟s level.

Average Daily Trading Value on HOSE from 2007-2011(mil USD).

Source: Bloomberg


Overall, in 2011, foreign investors concerned on inflation, banking system, currency and market illiquidity,

domestic investors were hurt by the deleveraging process of the economy. Furthermore, as the foreign

investors are hesitant, this harms the expectation of domestic investors. Confidence of domestic investors

has been low with spreading news and rumours on bankruptcy of some individuals. After the year, domestic

investors made a big loss which made them highly conservative.

In 2011, with the negative sentiment by investors, the market declined quicker than the earnings

pictures of listed companies. Actually, earnings pictures started to show a clear declining pattern from

2H11 and we think the situation will last to 1H12. This is the reason why the P/E and P/B of many

companies have dropped to their historical lows. Our 2012P/E now stands at 7.22x, compared to current

P/Es of 7.94x, 10.71x and 12.55x for 2011, 2010 and 2009.

2012 OUTLOOK: 2009 WILL COME BACK?

In short, we think that the type of aggressive policy loosening or generous stimulus packages witnessed in

2008-2009 is unlikely to happen again. On the contrary, as discussed in the macro part, in order to pay back

for the surge in investment and consistently high money supply growth recently, and to reduce the risk of

shaping an even bigger asset-price bubble in the future, government is likely to adopt a prudent monetary

and investment policy and any policy loosening in 1H12 would only be temporary and limited. 2012

therefore will be much different from 2009, and expected to be a special year with following themes:

1. Banking reform: This reform directly relates to the big question of investors on When and How the

interest rate can be reduced. In fact, we see the banking reform as the base for a sustainable interest

rate reduction. In our view, the reform will include 3 courses: (1) stress-test of banks to specify weak

ones and strong ones; (2) M&A of banks and (3) Recapitalization of banks (this phase will go together

with the M&A).

The reform will likely last for several years, and we are just in the early phase. In particular, we are

going to see following catalysts:

New loan classification standards to be applied: SBV issued Circular No35 in Nov11 on the

information publication of SBV. According to this Circular, SBV will publicize 5 out of 12 core data in

accordance with IMF standards, including Capital Adequacy Ratio (CAR), NPL ratio, NPL in each

sector, ROA, ROE of the whole banking system. Being effective from 1/4/2012, we expect that the

SBV will draft and issue within 1Q11 a new circular on debt classification. If the new loan

classification standards are applied, bad debts and loan loss provisions will likely be higher

than current level.

M&A of banks: According to the Governor, 5-8 banks will likely be the targets for M&A in 2012.

Recapitalization: In the past, from 2001-2005, the Government pumped around 15,000VND in the

forms of government bond to the state-owned commercial banks in order to improve the financial


structure of these banks. Back to the current situation, the current official NPLs are valued at

76,600bn VND, equivalent to 3.31% of total outstanding credits. Of the NPLs, group 5 (Loss)

accounted for the largest weight (see below table). This number is likely to be higher with the new

classification of loans

Types of banks

SOEs Banks JSC Banks JV Banks Non - Banks Foreign banks

Total % in total loans

Amount (bl VND)

% in NPLs

Amount (bl VND)

% in NPLs

Amount (bl

VND) %

Amount (bl VND)

% in NPLs

Amount (bl VND)

% in NPLs

NPL 40,569 100% 31,021 100% 1,748 100% 3,297.59 100% 2,010.63 100% 78,646 3.31%

Loss (group 5) 20,804 51.3% 14,836.1 47.8% 1036.9 59% 1,758.3 53.3% 739.7 36.8% 36,828.0 1.55%

2. Liquidity issue will remain in 2012 within the banking system. As current Loan-to-Deposit ratio

(LDR) of banking system keeps being high recently at around 100%, the chance for high credit growth is

low while this should be the main source of earnings for banks. Banks will need to attract deposits

aggressively and in a tightened monetary policy environment this would create tight liquidity periods.

Tight liquidity is also the condition for the SBV to implement stress-test and M&A process.

3. Interest rate reduction will be among the key positive catalysts that the market expects. However,

with the liquidity issue in the banking system and the reform forecasted as explained above, it is very

difficult for any loosening measure in 1H12. The first movement might be expected in 2Q11 from

SOCBs with gradual move of 0.5% but for very selective borrowers.

4. Impact of the Restructure of SOE sector on market: While the total credit to SOEs accounts for a

large part of total outstanding credit to the economy (over 2500trn VND), in order to de-leverage the

pressure to divest non-core business of SOEs is high. In our view, the process will have the following

impacts on the market: (1) The market needs time and resource to absorb the divestment by SOEs. (2)

The process can add the pressure to the cash flow of SOEs and delay their CAPEX in 2012. (3) While

the short-term impact may be painful, a long-term gain is the push of efficiency of investment in public

sector. Recently, PVN announced that they have cut and delayed a number of projects with total

investment amounting to 7,250 bn VND.

5. Divestment by a number of close-end fund, who raised fund around the market peak of 2007: This will

add pressure to the selling forces on the market although this can be an opportunity for institutional

investor to buy with current low market liquidity and total divestment in 2012 is estimated at 1.5bn USD

as compared to current market cap of over 20bn USD.


Total asset value of funds to be expired 2011-2015

Source: LFC Rothschild and funds’ websites

Market valuation: Is that a true distress?

Our forward 2012 P/E for the 61 companies under coverage with market cap accounting for over 70% of total

market cap is 7.22x. If excluding MSN, VIC and BVH, 2012 P/E will be 6.10x. Current P/E for 2011 that

excludes MSN, BVH and VIC is 6.77x.

While it is true that the low valuation does not mean that we have hit the bottom, we check the following

questions:

(1) Are the earnings are going to reduce further and short of expectation? The answer is NOT LIKELY, in

our view, as according to interviews with companies this is the most difficult time and many understand

that they are in a very difficult situation. While the interest rate has chance to reduce, most companies

know that they are in deep difficulties therefore would set a very conservative target for 2012 (which will

be officially announced in the AGM).

(2) Besides earnings, are there any factors that can keep valuation at the distressed level? Our answer is

Yes with all the above-mentioned factors.

As a result, the low valuation of the market should be an opportunity for long-term investors once the

banking issues can be solved fundamentally. If the VND interest rates can be reduced sustainably, people

will look for other investment forms, of which equity is an option as valuation dropped strongly and can be in

distressed in 1Q12. However, we should pay attention to How the interest rate can be reduced as it can

have long-term negative impact.


M&A, therefore, will be strong especially in both banking & real estate sectors and in other sectors as well.

Prices of a number of stocks have been driven by this factor, examples being STB, REE, VCF or MSN and

possibly many more.

Short term rallies?

While we keep a conservative view on the market for the above-mentioned reasons, the chance for short-

term rallies cannot be wiped out. The up-side for a short-term rally after Tet, in our view might be the

exchange rate, as the market is expecting a slight depreciation around this time. If the situation appears to

be better than expected as the banks have sufficient supply of USD and banks‟ liquidity issue does not

intensify (we mentioned tight liquidity periods), these might be supportive factors for the market, but again,

just in short-term.

RECOMMENDATION

Consumer staple and pharmaceuticals continue to be our favourite sectors at this time owing to high

sustainability and resistance. Beside this defensive choice, we are also in favour of a number of other

companies, who can survive well in 2012 and bounce back strongly in a market rally. Our current Top

recommendation include: CTG, DHG, DIG, DRC, EIB, FPT, HAG, HVG, NTP, SBT, VCB, VNM and VSH.

No. Industry (ICB) Sub-sector Company

1 Basic Materials

1. 1 Natural Rubber Neutral

1.2 Steel Underweight

1.3 Fertilizer Neutral

2 Consumer Goods

2.1 Sugar Neutral SBT

2.2 Milk Overweight VNM

2.3 Coffee Overweight

2.4 Confectionery Overweight

2.5 Cooking Oil Neutral

2.6 Noodle & Sauce Overweight

2.7 Fisheries Overweight HVG

3 Consumer Services

3.1 Hospitality Neutral

3.2 Tires Neutral DRC

4 Financials

4.1 Banking Neutral EIB, CTG, VCB

4.2 Insurance Neutral

5 Health Care

5.1 Pharmaceutical Overweight DHG

6 Industrials

6.1 Dry Bulk Neutral

6.2 Plastic Pipe Neutral NTP

7 Oil & Gas


No. Industry (ICB) Sub-sector Company

7.1 Oil & Gas Neutral

8 Technology &

Telecommunication

8.1 IT Neutral FPT

9 Utilities

9.1 Electricity Neutral VSH

10 Real Estate

10.1 Real Estate Underweight HAG, DIG

In the following part, we would like to provide the 2011 Review & 2012 Outlook of the above sectors and the

profile of the companies in Top recommendation.


SECTOR REVIEW & OUTLOOK


SUMMARY

2011 Net sales growth 2012

Sales in 2011 grew strongly largely thanks to DPM‟s impressive 65% growth thanks to increase in urea selling price. The rubber sector also posted 35% growth in 2011 thanks to high rubber price. Meanwhile, sales in steel sector suffered due to the gloomy state of the market.

16.3% Basic Materials 3.3%

Sales growth in Basic Material sector, as a whole, will not be as high as it was in 2011. Urea and rubber prices are less likely to repeat the same increase in 2012 therefore DPM and the rubber industry will not experience the same growth as in 2011. Sales in the steel sector are likely to remain as it was in 2011.

Sales in 2011 increased rapidly at 40.7% mainly thanks to price rise in the context of high inflation and also rise in sales volume. Besides, because of specific reasons like consolidating new subsidiaries, enjoying VND devaluation, significant rise in sales volume, and some consumer goods companies enjoyed especially high net sales growth including KDC (126%), HVG (77%), MPC (60%) and SBT (59%).

40.7% Consumer Goods 30.7%

Sales in 2012 are expected to increase at a lower rate than that of 2011 because inflation is forecast to be lower and there is no extraordinary change in sales volume growth.

Net sales increased by 26.7% on both selling price (PNJ: gold price rise, DRC: selling price rise by ~20%) and volume (PET: full capacity of PP distribution).

26.7% Consumer Services 7.1%

A very low growth in volume is expected (PNJ: numbers of sales items may increase but total gold volume in products remain stable; PET: no new business line). Sales of tire companies will grow very modest due to possible slowing demand especially industrial tire. Sales of hospitality companies will boost thanks to expected increase in number of visitors and better infrastructure

As the pharmaceutical demand is growing at 15% annually, so are the sales of pharmaceutical companies. Most pharmaceutical companies achieved or beat their earnings targets. For instance, DHG beats its targets by 30%, IMP by 10% and TRA by 30%.

12.3% Health Care 11.3%

Since health care demand is stable and growing, sales of pharmaceutical companies are expected to continue to grow this year.

Though the whole sector was negatively impacted by a down property sector and depressed public investment, industrials, in general, witnessed growth in their top lines. The growth was mostly derived from some producers of construction materials and industrial goods (BMP, REE, NTP and HPG) and top industrialists (PVX, VCG). However, the growth was

22.4% Industrials 16.1%

The negative factors in 2011 continues challenging industrial companies „ top line in 2012. There are no signals that those negative factors would be gone quickly in 2012. We would likely see the growth curve slowing down in the year to come. The holdup in the top line‟s growth may be mostly triggered by several large players such as PVX, VCG, HPG and SJS



significantly lower than 2010‟s figures (over 35%, on average) implying difficulties that the whole sector was encountering throughout 2011.

Top 3 non-life insurers continued to dominate the market with combined share of about 56.2% and sale growth achieved an 66.4% increase in 2011. The rapid growth of sale was driven by (i) its diversify strategy and (ii) high price in the context of high inflation and high compensation (iii) rapid growth in motor insurance business.

66.4% Insurance 14.3%

Vietnam insurance industry is expected to have stable grow at 18% in 2012.

Non-life insurers face difficult environment due to a possible decrease in Property & Casualty segment, Hull and P&I segment with investment cut from Government & SOEs sector. Non-life insurance premiums are forecasted to grow at a steady growth rate of 18% (22% in 2011), aligned with moderately slower economic growth.

Therefore, written premium of Top 3 insurers will be a modest growth of 14.3% in line with GWP market growth and FY12 GDP growth of 6%.

(1) As subsidiaries of Petrovietnam, business activities of exploration and rig leasing firms (PVS, PVD) were stable.

(2) Gas: Gas price increase in the year has pushed up the revenue of gas companies. However the high growth in volume slowed down in 2H11, as majority of gas firms‟ customers are industrials including ceramic & steel, who have been observed to cut down their consumption due to low demand for their product.

33.3% Oil & Gas 16.1%

(1) Oil exploration activities will accelerate on price increase, which will support rig firms like PVD and exploration firm like PVS. (2) With expected lower global gas price and stable demand, 2012 sales growth of gas companies will be lower than 2011.

The whole market was under attack from several factors: low credit growth, weakening liquidity, rising input costs, suppressed supply and low demand. Several large players HAG, DIG, SJS, ITC either missed their targets or revised down sales targets significantly.

-10.1%

Real Estate -18.3%

Negative factors continue to move into 2012 suppressing sales significantly. Some developers have switched from retail to wholesale by selling all or most of their stake at some projects in order to reduce their debt burn and lowering interest payment. That may drive the industry competition more severe in the coming month. Amid rising competition, M&A activities will likely a popular topic for property developers in 2012 since several developers might be knocked out given pressing down sale and soaring financial distress.

FPT, the largest market capital stock, grows by 30% YoY in 2011 thank to success of FTG

28.3% Technology &

Telecommunications 21.8%

FPT is unlikely to grow fast as in 2011, especially FTG and F-Tel when catalysts for their strong growth in 2011



(strong growth of NOKIA distribution), FTEL( increased of internet fee and high growth of F-Online) and FPT-Education.

are unlikely to recur.

VSH experienced 16% growth thank to high water level, PGD grew more than 60% thank to rise of both output(13%) and selling price(50%).

16.2% Utilities 14.1%

Lower output of VSH when the water level is back to normal level. PGD also grow slower in 2012 due to lack of positive catalysts like in 2011.

27.1% Total 15.9%

2011 Net profit growth 2012

Despite volatile liquidity, credit growth of listed bank was at high rate (18%-20%) compared average credit growth of banking system (12%) and interest income was still dominant in earning of listed bank (estimated to account for 70%-90% of operating income depending on level of diversification of each bank).

Small banks suffered the most due to weak market position, difficulty in mobilizing funds under both Directive No.1 and Circular No.2. It resulted in lower earnings in 2011 which would prevent the banks to grow business in 2011.

Large listed banks with a better capital base and customer base like Vietin-bank, Exim-bank, Vietcom-bank and ACB stand better chance to comply with requirements to respect credit growth target while still attempting to achieve earnings.

There was no a sign of imminent downturn while bank profit (for 5 banks stock under our coverage) is estimated to increase strongly by 28.5% in end of year 2011. Across the listed banks, Vietin-bank and Exim-bank had high PBT growth rates, 76% and 71% respectively in 2011 due to their loan expansion and widen NIM.

28.5% Banking 16.1%

The performance of banking sector will be impacted by SBV's move as interest income continues to be main driver. There are still more restructuring in positive direction for vietnam's banking sector, especially large listed bank with a better capital and customer base (EIB, VCB, Vietinbank, ACB) - who stand better chance as their credit growth will be higher as SBV will likely set credit growth for individual bank based on their strengths and financial position. We expect NIM outlook will be under pressure and competition in deposit market will intensify.

Credit outlook: Expected

higher annual growth rates for TOP 12 commercial banks (Agirbank, BIDV, VCB, CTG, EIB, ACB, STB, Maritime Bank, Military Bank, VP Bank and VIB)

Credit growth quota for each bank will be based on rating system and financial indicators on (i) liquidity condition, (ii) asset quality and (iii) capital capability (such as CAR, LDR), with four-scale like A,B,C,D.

NIM outlook: We expect NIM

to moderate in 2H12, driven by: The effect of corporate loan re-pricing and mortgage rate hikes in 2011 becoming fully reflected. Due to contractual obligations, banks were unable to re-price many corporate



loans in 2011. Hence, the positive impact of loan re-pricing was more than negated by the higher cost of deposits, as deposits re-price much more quickly than loans.

Earnings: Combined higher

credit growth, higher credit provisions and moderate NIM, we expect sector reported net profit up by 16.1% in 2012, down from FY11‟s growth of 28.5%.

Strong net profit growth in this sector thanks to strong earnings growth from DPM and the rubber sector because of strong increase in selling price of urea and natural rubber.

25.3% Basic Materials -1.3%

Next year, profit margins in this sector will decline because (1) DPM will face higher gas input cost while selling price may not increase accordingly and (2) profit margin in the rubber industry might go down due to the decline in rubber price.

In 2011, although sales increased sharply, net profit growth of consumer goods companies still declined by 2.13%. It is because there are some companies having extraordinary income from transferring real estate projects/factories in 2010 like VNM and KDC. If we exclude VND 384 billion from VNM‟s other income and VND 425 billion from KDC‟s other income in 2010, net profit was actually up by 8.34% YoY in 2011.

-2.1% Consumer Goods 27.1%

Average 2012 net profit growth is expected to be much higher at 27.28% thanks to increase in sales. Besides, we expect an improvement in gross margin of some consumer goods companies in the context of forecasted declining raw materials' prices.

2011 sector profit growth was driven by PET's outstanding bottom line growth which was majorly due to its other income gained from selling off subsidiaries and asset revaluating. Among tire companies, except for DRC exceeded earnings target, CSM, SRC had very low earnings or even loss due to rising interest expense and input cost (mostly rubber).

37.7% Consumer Services -13.6%

PET‟s extraordinary financial income is unlikely to recur; PNJ's bottom line is expected to see no significant growth from core business due to stable sales volume and lower gross profit margin due to lower-content-gold jewelries. Tire companies will have negative earnings growth due to significant increase in depreciation expense (DRC), interest expense (DRC, CSM) on rising debt to finance radial projects.

Profit growth increased around the same rate as sales growth.

11.0% Health Care 12.1% Stable profit growth thanks to the steady nature of the pharmaceutical business.

Soft demand, slow sales and rising input costs put industrial companies‟ earnings on fire. Also, some firms, namely PVX, VCG …, which benefited from exiting their

-10.1% Industrials 9.8%

2011‟s hard-hit earnings may have brought a low-base effect to 2012 when several firms‟ bottom line may pick up slightly in the year. However, what



investment portfolio in 2010, failed to execute the same strategy in 2011 given the down capital market. Those factors added up squeezing the firms‟ bottom line in 2011

mostly accounts for the growth in 2012 comes from REE‟s earnings as REE is expected to grow almost double PAT (from VND440 to VND702) from its sale of 42 millions Sacombank shares.

Top insurers continued rapid growth of GWP but this positive factor are offset as provision charge of securities investment is higher and higher compensation cost in 2H11. In addition, top insurers has experienced underwriting loss (except PVI)

Meanwhile, the big insurers (like BVH, PVI, and BMI) estimated to reach their initial target due to their economic scale and large market share.

16.9% Insurance 13.0%

Underwriting profit: Tough

competition and high compensation rate makes it difficult to achieve underwriting profit. In addition, Some insurers claimed to focus more on profitability with growing market share and aggregated operating expense ratios for 3 largest insurers will be marginally higher for 2012.

Investment profit: can also

experience lower yield in bond and deposit rate, resulting an increase of 13.04% in net profit growth for TOP 3 non- line insures in our view.

Oil & gas companies all strongly beat the target set for 2011. Gas companies still benefit from buying input gas from PVGas at favourable price.

23.5% Oil & Gas 23.3%

PVD will have decent growth with the TAD in operation. For gas companies, with longer view toward gas price in 2014 when PVGas starts to import LNG, PVGas will stick to its original plan of lifting gas price to industrial users by at least 20-30% on annual basis, therefore, make profit margin of gas distributors decline gradually in the next few years.

Property firms‟ margins sharply plummeted throughout 2011 due to several factors: 1. Higher construction costs including materials and wages; 2. More capitalized interest expenses having accumulated in the equivalent projects available for sale in 2011 and even in 2012; 3. Rising loss provisions put aside to protect lower fair market value; 4. Importantly, the low market liquidity never gave property firms a chance to raise selling prices

-35.5% Real Estate -30.5%

Depressed sales plus rising inputs (construction, interest, …) and other negative factors continue squeezing property firms‟ earnings and margins in 2012. Also, 2012 may witness more fierce competition between developers in selling their products or projects so as to settle their liabilities (interest payment, principals…) and to meet their targets set for 2012 after a losing year 2011.

FPT;s net profit grow by 17% in 2011 thank to higher contribution of Ftel, F-Education and FTG.

16.5% Technology &

Telecommunications 16.4%

Growth of net profit of FPT remain high in 2012 thank to 100% consolidation of FTG, FIS and F-soft in Q3/2011. In addition, we expect ELC will experience a positive growth in 2012 vs negative growth in 2011.



VSH and PGD experienced a good year thanks to high water level and increased selling price, respectively

11.0% Utilities -12.3%

PPC is expected to continue making loss in 2012 due to high forex loss of VND 600bn allocated in next 4 years. VSH also experienced a negative growth in 2012 due to lower output. PGD will not experience a strong growth as in 2011.

7.9% Total 11.2%


SECTORS IN FOCUS

VIET NAM BANKING SECTOR

2011 - A YEAR LOOKING BACK

In early 2011, Vietnam Government issued Resolution No 11 and later SBV issued Directive No.1 with

priority objectives: to curb inflation and to stabilize the economy and banking system.

2011 is quite challenge year for the Vietnamese banking sector. The credit and funding growth rates for

entire banking system were tightened at 12% and 13%, much lower than central bank targets (target below

20% loan growth for year 2011). Therefore, Vietnamese banks have suffered due to tightening policy.

I. Earnings pictures of the banking sector

Small banks suffered the most due to weak market position and difficulty in mobilizing funds under

both Directive No.1 and Circular No.2. It resulted in lower earnings in 2011 which would prevent the

banks to grow business in 2011.

Large listed banks with a better capital base and customer base like Vietin-bank, Exim-bank,

Vietcom-bank and ACB stand better chance to comply with requirements to respect credit growth

target while still attempting to achieve earnings. There was no sign of imminent downturn while

bank profit is estimated to increase strongly by 32.3% in end of year 2011. Across the board,

Vietin-bank and Exim-bank had high PBT growth rates, 76% and 71% respectively in 2011.

Interest income was still dominant in earnings of listed banks. It is estimated to account for 70%-90%

of operating income depending on level of diversification of each bank.

II. Bank liquidity: in term of liquidity, with the credit growth cap of below 20% for whole year 2011 (this

decision was announced), banks tended to push lending activities early during the year to increase

interest income. However, they had difficulties in attract deposits, especially SOCBs who strictly

complied with the 14% cap on deposit rates set by SBV. As a result, LDR of banks have increased and

negatively affected their liquidity from time to time and tutorship of some small banks by SBV increased.

III. Asset quality of the banking sector: As a consequence of a deterioration of macro factors in the

economy combined with stress test on the property sector and the reduced liquidity in banking system,

asset quality of banks has most probably deteriorated and the ability of most banks to generate strong

earnings growth has diminished. In our view, total bad debts in the banking system could even increase

as high as 3.7% by the end of 2011. Total bad debt currently reported 3.31% or VND 78,646 billion

(US$3.7 billion), increasing by 69% versus the end of 2010


Bank stocks

Source: Bloomberg

The financial sector (including bank stocks) is down nearly -22.18% in 2011, by far worst performer in

Vietnam stock market. The weakness has been so pervasive that the VNI Index has been down -27.66 % in

2011. Among banking stocks, outperforming stocks are EIB (+9.35%), STB (+12.53%) and CTG (+1.72%).

On the other hand, losing stocks are VCB (-22.49%) and ACB (-13.89%). Various reasons for financial

sector (including banking stocks) to decline further, including (i) tightened monetary policy led to intensive

deposit competition and tighter liquidity in both banking system and stock market, resulting in higher selling

pressure on stock market toward year-end, (ii) worsening macro-economic conditions and the falling value of

financial and real estate assets have deteriorated the credit quality of the banking system, (iii) possible

restructuring program in short is likely to have negative impact on banking system.

There are reasons that made bank stocks are being traded at P/E of 7.29x and P/B of 1.18x by end 2011,

below their lowest historical level. In our view, despite the headwind in next two quarters, low valuation

should limit downside of bank stocks.

2012 OUTLOOK: IN SEARCH OF STABLE GROWTH

MORE STABLE MACRO – ECONOMIC TARGETS

Summary-Bank sector's stable macro -economic target

Unit: VND trillion 2009 2010 2011e 2012f

Money Supply (M2) 2,104,443 2,805,222 3,141,849 3,581,708

Growth rate 29% 33% 12% 14%

Total Deposit 1,803,331 2,290,230 2,587,960 2,976,154

Growth rate 23% 27% 13% 15%

Total Credit 1,869,000 2,425,962 2,717,077 3,097,468

Growth rate 38% 30% 12% 14%

LDR 104% 106% 105% 104%


Source: SBV, SSI Research estimate

In 2012, with inflation expected to cool down and the government pursuing economic stability rather than a

“growth-at-all-costs” policy, SBV mentioned that their main objective is to stabilize the banking system for

next 5-year period:

(i) The first objective of the monetary policy at this time is to stabilize the Value of VND

(ii) Credit growth of the whole banking system must not exceed three times of annual GDP growth;

(iii) Money supply growth must be controlled in parallel with economic growth, which must be moderated so

as to curb inflation.

Given above direction, we expect economic fundamentals to improve. In short, inflation should be lower, the

BoP should be better supported Money supply (M2) higher in 2012 and these factors should support process

of interest rate reduction which is expected to be in place soon in 2012.

However, asset quality of the banking sector is also a concern if the government to ease policy prematurely.

In our view, there are three key themes for 2012

(i) Theme #1: Higher credit growth for Top G12 commercial banks and tighter credit restrictions (USD

lending) regulated set by SBV. However Fund mobilization expects slightly better with higher money

supply if VND is not much depreciatied. NIM expects to be steady on improving liquidity.

(ii) Theme #2: restructure program of the sector are medium – term issues (2011 – 2013). In short, M&A

banking sector is likely roll out soon step by step process in order to lower interest rate set by SBV.

Listed banking stocks will be likely driven by these factors in 2012.

(iii) Theme #3: banking sector stability is also medium – term issue (2011 – 2015) and tighter measures

(credit classification, risk management) set by SBV will be applied soon in early of this year 2012.

THEME 1 #: Higher credit growth for Top G12 commercial banks and tighter credit restrictions (USD

lending) regulated set by SBV. However Fund mobilization expects slightly better with higher money

supply if VND is not much depreciatied. NIM expects steady on improving liquidity

VIETNAM’S CREDIT GROWTH MULTIPLIER HAS PEAK

We see that: (1) SBV has been tightening its monetary policy, in an attempt to fight inflation and, more

importantly, asset –price bubble. (2) Apart from macro consideration, more stringent banking control will

constrain loan growth.


Therefore, by considering both macro and micro factors, we see loan growth of about 14%-15% per annum

in Vietnam in the next 3 years. These mean the multiplier should become stable. Historically, the pace of

loan growth in Vietnam tends to be roughly higher three times of real GDP.

Credit growth quota for each bank will be based on rating system and financial indicators (CAR, LDR), such

as a four-scale like A,B,C,D. Top 12 commercial banks (Agirbank, BIDV, VCB, CTG, EIB, ACB, STB,

Maritime Bank, Military Bank, Vp Bank and VIB) will benefit as SBV can approve to extend their credit growth

in 4Q2011 and higher than 20% growth for full year 2011. We expects they maintain steady credit growth for

year 2012. However, given the diversification of each bank, listed banks will have different credit growth

rates due to (i) their liquidity condition, (ii) asset quality and (iii) capital capability.

Vietnam- Credit to economy and YoY growth, 2003 - 2012


Vietnam- Bank loan as % GDP and credit & nominal GDP Growth


FUNDING MOBILIZATION: A SLIGHTLY BETTER LIQUIDITY with a growth rate of 15% in 2012

As credit demand slows, we expect the prevailing tight liquidity condition to improve in 2012. Fund

mobilization expects slightly better with higher money supply. And if VND is not much depreciatied, we

estimate fund mobilization growth rate of 15%, increasing compared with last year. A higher fund


mobilization growth implies our expectation that liquidity in system will gradually improve. However, the

improvement is unlikely to recover significantly. The reasons are:

Demand for FX loan expects to be still high as borrowing cost of USD-dominated loan is still well below

400 bp – 600 bp versus borrowing cost of VND-dominated loan.

The level of system liquidity is dependent on VND exchange rate movement and VND interest rate.

High current LDR of banking system (nearly 90%-100% range) should limit the system‟s liquidity time to

time.

Stronger demand for VND-denominated loan if VND lending rate drops gradually from Q2 2011.

Vietnam – Deposit and YoY growth


PROFIT

Net interest margin (NIM) outlooks:

We expect the rate of net interest margin to moderate in H2 2012, driven by: The effect of corporate loan re-

pricing and mortgage rate hikes in 2011 becoming fully reflected. Due to contractual obligations (either as a

result of loan tenure or drawdown commitments), banks were unable to re-price many corporate loans in

2011. Hence, the positive impact of loan re-pricing was more than negated by the higher cost of deposits, as

deposits re-price much more quickly than loans as banks‟ loan portfolios are due within one year, versus

more than 90% of customer deposits are very short term (1 month or shorter).

Earnings Forecast

Combined higher credit growth and moderate NIM, we expect sector reported net profit up by 16.1% in 2012,

down from FY11‟s growth 28.5% which was partly driven by reflecting moderate NIM and higher credit

provisions.

Ticker Rating % Upside Target Current PER PBR EPS (VND) Dividend (VND) BVPS (VND) Net profit (bn VND)


Price (VND)

Price (VND) 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012

ACB SELL -8% 18,000 19,600 6.81 7.17 1.41 1.41 2,880 2,735 2,300 2,000 13,864 13,864 2,700 3,000

VCB BUY 29% 27,300 21,100 9.72 9.08 1.42 1.16 2,170 2,325 1,200 1,500 14,818 18,196 4,275 5,390

CTG BUY 17% 24,000 20,500 6.83 7.23 1.41 1.22 3,003 2,836 2,000 2,000 14,509 16,822 6,075 6,750

EIB BUY 37% 19,000 13,900 5.87 4.98 1.11 0.94 2,369 2,792 1,800 2,000 12,531 14,731 2,927 3,450

STB SELL -27% 13,000 17,700 9.61 9.88 1.34 1.33 1,842 1,791 1,500 1,500 13,224 13,284 1,978 2,250

Source:SSI Estimates

THEME # 2: restructure program of the sector are medium – term issues (2011 – 2013). In short, M&A

banking sector is likely roll out soon step by step process in order to lower interest rate set by SBV.

Listed banking stocks will be likely driven by these factors in 2012

As our expectation, M&A in banking sector has kick off by two events which has happened recently

First merge case in end 2011 between private banks, namely First Bank- Vietnam Tin Nghia Bank and

Saigon commercial bank which run business under new bank entity from 1/1/2012.

First M&A in banking sector in 2012: Eximbank (ticker EIB, HOSE) has become a new strategic partner

of Sacombank with a stake of 9.7% after buying STB shares from ex-strategic foreign partner ANZ Bank.

We expect that, there are some possible merger cases in both OTC and listed market which will be

addressed soon under pressure by both approved restructuring program set by central bank and distress

market condition.

BANK CONSOLIDATION - MILESTONE

2010

3/2011

8/2011

9/2011

10/2011

12/2011

Now -2012

2013

Extend 01-

years to

increase

chartered

capital from

VND 2000 bn to

VND 3000 VND

VN

Government

request

Holding

company

limited

diversified

investments,

especially

banking

Discipline by

Impose same

cap deposit

rate of 14%

Support

liquidity to

small bank

(VND 15,000

billion)

Restrict interbank loan

Bail out weak

bank

First merge

case in end

2011 between

private banks,

namely First

Bank- Vietnam

Tin Nghia Bank

and Saigon

commercial

bank which run

business under

new bank entity

from 1/1/2012

First M&A in

banking sector

in 2012 as

Eximbank (tiker

EIB, HOSE) has

become a new

strategic

partner of

Sacombank

with a stake of

9.7% after

bought STB

shares from ex-

strategic

foreign partner

ANZ Bank.

COMPL

ETE


Theme # 3: banking sector stability is also medium – term issue (2011 – 2015) and tighter measures

(credit classification, risk management) set by SBV will be applied soon in early of this year 2012.

In our view, under restructuring banking program and some pressures by international organization, in early

in 2012, SBV will likely require all banks to apply same methodology (Article 7, Decision 493) for all their

loans. It is to make banking system more transparency and help to closely monitor bad debt position in

banking system.

In Nov11, SBV issued Circular No35 on the information publication of SBV. According to this Circular, SBV

will publicize 5 out of 12 core data in accordance with IMF standards, including Capital Adequacy Ratio

(CAR), NPL ratio, NPL in each sector, ROA, ROE of the whole banking system. As the circular being

effective from 1/4/2012, we expect that the SBV is now drafting and will issue within 1Q11 a new circular on

debt classification (which includes the application of Article 7 as mentioned above). If the new loan

classification standards are applied, the figures of bad debts and loan loss provisions will likely

increase from current level.

RISKS TO THE OUTLOOK

1) Resumption of VND depreciation expectation could dampen VND loan demand and drain system liquidity

again; 2) NPL ratio could deteriorate notably from current historically low levels as affected by above factors.

Conclusion: After a falling of 20% in stock price, listed bank stocks now have attractive valuation

level in new year 2012 (PE2012 of 6.46x, PB2012 of 1.16x) as compared with historical level. In short –

tem, this tough valuation of listed banking stocks will limit the downside but one-year horizon, listed

banking stocks will be likely faced UPSIDE/DOWNSIDE risk driven by

(i) M&A factor,

(ii) Process of interest rate reduction or

(iii) Rising bad debt (under the restructure of banking system and SOE sector) and higher credit

provision will likely to have negative impact on their earning.

Our Top buy: EIB, CTG and VCB.

Sector Weighting: Neutral


AUTO COMPONENTS: TIRE ÌNDUSTRY

Highlights:

In 2011, the price of rubber, the main raw material, increased strongly by 39%, causing squeeze in gross

margin;

Sale volume advanced by a small rate while final good inventory rose signaling a stagnant demand;

Among tire companies, three big companies listed diversely responded to this tough year: DRC

exceeded target, CSM did not meet the target yet produced profit while SRC had loss in the first 9

months;

Big players are still keen on the radial projects of which some first phases are completed and massive

capital disbursement expected in 2012;

Managements of tire companies keep being conservative of another difficult year for 2012. Downside

risks: slowing down demand on bad economic condition, rising labor cost, increasing interest expense

and fierce competition from foreign tire producers. Upside catalysts: expected dip in rubber price, stable

export market.

2011 Review: The whole industry witnessed a difficult year due to the big fluctuation of natural/ synthetic

rubber price and other rising input costs so that increase in selling price had not been enough to compensate

for. As a result, gross margin had deteriorated in all tire companies.

Although the 2011 ended with rubber price had a 25% decline yoy, in overall, average rubber price stood

higher in 2011 as compared to 2010 (39% yoy on average), squeezing the gross profit of all companies in

tire industry. As we may know, rubber (including both natural and synthetic rubber) counts for 60-70% of total

input cost, therefore, the any increase in rubber price has significant eating up gross profit.

Figure 1: Average domestic RSS price (USD) in 2010 and 2011

Source: Vietnam Rubber Association


Figure 2: Gross margin

Source: Companies’ data, SSI Research estimate

There were some signals of stagnant demand starting since the second quarter of the year due to the

economic slowdown: rising level of inventory and very modest volume growth, hitting tire producers as a

whole. However, for the whole years, sales value growth was seen in most big tire companies such as DRC

(23%), CSM (11%) and SRC (8% in 9M2011).

DRC had a successful year with the result of revenue and earnings both exceeded its set target for the year,

with 25% sales value growth and net profit of 197 VND bn (exceeding 31% target).

CSM: though sales increased by around 11% for the whole year, net profit squeezed significantly due to a

large surge of interest expense that the firm paid on increasing long-term debt to finance its No.9 Nguyen

Khoai project. Gross margin also was eaten up due to rising costs (from approx. 14% in 2010 to around

7.5% in 2011). Besides, interest expense significantly increased (114% yoy in 9M2011) due to the additional

debt establishment amounted to 112 VND since 1Q2011 related to the real estate project on Nguyen Khoai

street. With the investment totaled 142 VND bn into this project within the year, CSM had basically done with

its land use right contribution for this projects, booked that investment as “other current assets” and this

amount will be paid back by the new entity when the project is sold. Though the results for the whole year

2011 has not been announced yet, it is said that total sales amounted to approx 3,000 VND bn by 2011-end

(of which export sales accounted for 30%) while PBT found it hard to meet the initial target of 120 VND bn.

The radial project is kept on track, and a huge capital amount of around 1000 VND bn will be disbursed in

2012 of which 60-70% is financed by bank loans.

Stock performance:


Source: SSIRearch

Tire companies‟ stocks had a deep loss of 55% value over the past year while consumer discretionary had

an outperforming year with ~25% gain. CSM‟s stock dipped 74%, DRC‟s stock reduced by 59%. Seemingly,

investors reacted quite aggressively to the business results of tire companies. Selling force due to portfolio

restructure also caused declined in stock price of DRC by year-end.

2012 Outlook:

Overall, we would see another difficult year for tire market due to expected stagnant demand in 2012,

especially for the industrial tire segment due to the public investment cut and the slowing down industrial

production.

Moreover, competition will become more intensive due to (1) Price of imported products from China and

Korea might slightly reduce due to lower tax following Asean-China Free Trade Agreement and Asean-

Korea Free Trade Agreement. Accordingly, tax rate on rubber and rubber products will reduce to 0% in 2012

(Source: Ministry of Finance) and (2) there is still no action of the Government to protect domestic tire

producers from foreign rivals especially Chinese one.

On the cost front, there might be increases in labor cost and interest expense. While the former is likely

because of compensation for employees on high price inflation, the latter is due to large bank loans to

finance radial projects of DRC, CSM.

However, we could expect some upside catalysts to happen: (1) expected decline in rubber price may largely

pick up the gross margin; (2) Interest rate fall partly reduces financial pressure and (3) export market and

part of domestic market (i.e. Vinacomin and some long-term partners such as Truong Hai Auto, etc)

expected to be stable.

Weighting: NEUTRAL

Top pick: DRC


COFFEE

Vietnam’s coffee volume consumption grew at 9.55% in 2011;

Local coffee bean price fluctuated significantly in 2011 and was 62% higher than that of 2010 on

average;

Vinacafe Bien Hoa remained the leading position with market share of 32.7% in 2010, followed by

Nestle Vietnam (30.3%) and Trung Nguyen (18.2%);

2011 is an eventful year of M&A deals in coffee industry including Masan & Vinacafe deal and Jolibee &

Viet Thai;

Vietnam’s domestic coffee sales volume is expected to be up by 9.55% in 2012;

We maintain an investment view of Overweight over the Vietnamese coffee market.

2011 Review

According to Business Monitor International (BMI), Vietnam‟s coffee volume consumption increased by

9.55% in 2011 which nearly equaled to the growth rate in 2010 (10% - Source: Euromonitor). Local coffee

bean price fluctuated significantly in high price range in 2011. On average, the price saw a 62% increase

compared to that of 2010 although it has been in a downtrend since September 2011. The rise of main

material has affected negatively coffee processing companies if they did not have an appropriate strategy to

purchase and store coffee beans.

Vinacafe Bien Hoa remained the leading position with market share of 32.7% in 2010. Right behind Vinacafe

is Nescafe (30.3%) and the third position belonged to Trung Nguyen Coporation with brand names Trung

Nguyen and G7.

Fresh and Instant Coffee Market Share in Vietnam (2010)

Source: Euromonitor


After Vinacafe raised its production capacity by building up new 3,200 tons instant coffee production plant in

2010, Nescafe announced, in August 2011, that it would invest USD 270 million to set up a new plant in

Vietnam. This plant will provide products for both domestic and export market and is expected to commence

its operation in 2013.

In 2011, Vinacafe started its strategy to focus more on roasted - ground coffee which is believed to be of

higher profit margin and highly potential.. Currently, sales from roasted ground coffee account for less than

1% of total sales. According to Vinacafe, this revenue structure will be changed in a short term. The

Company targets that roasted ground coffee sales will be the second largest revenue contributor, replacing

nutritious cereals (Nutritious cereals currently account for 19% of the total revenue). In order to carry this

strategy, Vinacafe Bien Hoa will open a coffee shop chain in large cities of Vietnam. The first one was

already opened in Hanoi in July 2011. The second one is in Dong Nai which is expected to commence its

operation in late 2011. These shops also target to sell roasted-ground coffee to small coffee shops in its

region. We think it is an appropriate strategy of Vinacafe Bien Hoa if it can take advantage of its available

strengths including well-known brand name, wide distribution network, and management expertise.

2011 is an eventful year of M&A deals in consumer sector in general and in fresh and instant coffee industry

in particular. Masan Food acquired a 50.11% stake in Vinacafe. The offered price is VND 80,000 per share.

Thanks to this deal, VCF‟s stock price was supported to consistently increase since May 2011. At the end of

2011, VCF price was around VND 90,000/share which is 68% higher than its initial listing price in Jan 2011.

Jolibee acquired a 49% stake in Viet Thai Internation (VTI) in return of USD 25 million. VTI currently owned a

coffee shop chain with 100 shops under brand-name Highland Coffee in 6 large cities nationwide. The

interest of foreign investors again proves the highly potential of Vietnam‟s domestic coffee market.

Coffee sector performance in 2011

Source: Bloomberg,SSI Research


In 2011, the coffee sector, which was mainly driven by VCF, outperformed the stock market when it gained

70.09% and the VN Index was down 27.66%. It also outperformed Consumer Staples as well. Since

Vinacafe sold 3.445 million shares in early May and reduced its stake in Vinacafe Bien Hoa (VCF) from

50.26% to 37.3%, there was rumor that Masan Food would acquire Vinacafe Bien Hoa. This news supported

VCF‟s price a lot. On 12 October 2011, Masan Food announced that its public offer to purchase a 50.11%

stake in VCF ended successfully. Since Oct 2011, VCF‟s price started to decline slightly when it was said to

be overpriced by many brokerage houses. However, this stock still gained 70% totally in 2011.

2012 Outlook

BMI estimates that Vietnam‟s domestic coffee sales volume will be up by 9.55% in 2012. The market is said

to be attractive to investors in future. In July 2011, according to BBC, Starbucks, for the first time, officially

announced its plan to enter Vietnam‟s coffee market in 2013.

In our opinion, Vietnam‟s coffee market is highly potential and we have an investment view of Overweight

over this industry for the following reasons:

According to International Coffee Organization, Vietnam‟s coffee consumption per capita is currently

0.7kg per year which is much lower than world average of 1.3kg;

CAGR of domestic coffee consumption of Vietnam is 15% in the last ten years which is much higher

than world average of 4%;

Currently Vietnam only uses 9% of its coffee production while other four top 5 coffee exporters (Brazil,

Colombia, Indonesia and Ethiopia) use 35% on average;

According to BMI, Vietnam‟s coffee sales are expected to increase by 11.5% p.a. on average in the next

5 years. Euromonitor also expects fresh and instant coffee retail volume sales see a CAGR of 11% over

2010 - 2015 period.


SUGAR

2011 is a successful year of sugar companies in Vietnam when both sales and profit recognized a high

growth;

We expect a decrease in sugar price in 2012 due to a forecasted oversupply;

We change our Investment View over Sugar Sector from Overweight to Neutral in 2012.

2011 Review

According to Vietnam Sugar Cane Association, Vietnam‟s sugar output increased by 29.3% in 2010-2011

season, reaching the record high of 1,150,460 tonnes. It was thanks to expansion in planted area and

increase on sugarcane yield because of favorable weather. Sugar price fluctuated significantly during year

2011 but in overall, it was higher than in 2010. FAO Sugar Price Index was 372.8 points in 2011, 70.8 points

(19%) higher than in 2010. Vietnam‟s sugar companies had a good year with high growth of sales and profit

in 2011.

Wholesale price (after VAT) - VND/kg FAO Sugar Price Index

Source: Vietnam Sugarcane Association;

www.agro.gov.vn Source: FAO

Currently, Vietnam has 37 sugar plants of which 10 plants have sugar output of more than 40,000 tonnes,

accounting for 54.5% of the total output in 2010-2011 season.

Market share by sugar output (2010-2011 season)

Source: Vietnam Sugar Cane Association

http://www.agro.gov.vn/


In late 2010, some local sugar companies raised concerns over lack of both raw and refined sugar supply in

the context of rising demand. Then they proposed to the Ministry of Finance (MoF) to reduce import tax for

sugar products. As a result, on 1 March 2011, the MoF issued Circular No. 29/2011/TT-BTC lowering import

tax for raw sugar and refined sugar from 25% and 40% to 15%. The circular came into effect on 15 April

2011.

Sugar sector performance in 2011

Source: Bloomberg, SSI Research

In 2011, sugar sector declined by 20.26%, outperforming the VN Index. This was thanks to good business

performance of sugar companies in 2011 when both sales volume and selling price increased. However,

compared to Consumer Staple sector, this stock still underperformed when price movements of some

leading consumer stocks including MSN, VNM and VCF were all event-driven in 2011.

2012 Outlook

Some leading sugar companies raise production capacity in late 2011 including Lam Son Sugar JSC,

Bourbon Tay Ninh Corporation, etc. Therefore, production capacity is expected to improve significantly in

2012. Furthermore, high sugar price in the last two years has encouraged farmers to plant sugar cane,

providing sugar plants with a more stable source of raw materials. As a result, sugar output in 2012 is

expected to hike up.

We change our Investment View over Sugar Sector from Overweight to Neutral due to oversupply expected

in 2012. According to Vietnam Sugar – Cane Association, sugar output in 2012 is forecast to be 1,412,110

tons or 23% YoY which may meet domestic local demand of around 1.4 million tons (estimate of Ministry of

Industry and Trade). If trafficked sugar volume is included, sugar supply will exceed demand. Responding to

this projection, in September 2011, Vietnam Sugar – Cane Association proposed not to import sugar in 2012

in order to support sugar price in local market. In 2011, quota to import sugar was 250,000 tons.


Furthermore, the association lately submitted a proposal to Ministry of Trade and Industry to export sugar to

neighbor countries including China. This is the first time Vietnam has exported sugar.

2010 – 2011 2011 – 2012 %

Planting area (ha) 248,761 259,727 4%

Sugarcane output (ton) 12,470,900 14,668,900 18%

Production capacity (sugarcane ton per day) 112,200 129,200 15%

Sugar output (ton) 1,150,460 1,412,110 23%

Source: Vietnam Sugar – Cane Association. 2010 – 2011: Actual figures. 2011 – 2012: Estimates

On international sugar market, sugar price has been in a downtrend due to expected good results for

2011/12 season and concerns over the spread of European debt crisis affecting negatively sugar demand.

According to the latest FAO forecasts, world sugar production may reach 173 million tonnes in 2011/12, an

increase of 4.1 percent over the 2010/11 season. For the second consecutive year, global production is

anticipated to surpass consumption, with a surplus of 7 million tonnes, much larger than last year‟s.

International Sugar Organization lately also announced the forecast that world sugar market will have a

surplus of 4.46 million tonnes in 2011/12 season.

If forecasts mentioned above turn to be correct, local sugar price may be difficult to extend its rally in 2012.

As far as we know, some sugar companies also forecast a decrease in sugar selling price in their business

plan for year 2012. For example, LSS projects sugar price may remain unchanged or 3% - 5% decline in

2012.

We expect that sales of sugar companies will increase in 2012. The main reason comes from increase in

sugar sales volume, not rising sugar price. In order to support farmers and make them more committed to

plant sugar-cane, sugar factories usually sign 4 – 5 year purchase contracts with farmers. Accordingly, sugar

cane purchase price is fixed, regardless of sugar price fluctuation. Therefore, if sugar price declines, gross

margin will be negatively affected.

We change our investment view over sugar sector from Overweight to Neutral.


CONFECTIONERY

Kinh Do continued to hold a strong market position in different segments of confectionery;

In our opinion, Vietnam’s confectionery market is potential and we have an investment view of

Overweight.

2011 Review

Kinh Do continued to hold a strong market position in different segments of confectionery. We do not have

official information about market share in 2011 therefore we present here the market share in 2010.

Accordingly, Kinh Do is the largest producer in biscuit, baked good and ice cream with the market share of

31.1%, 13.4% and 25.5%, respectively. In sugar confectionery (candy) and chocolate confectionery, the

leading positions belong to Perfetti Van Melle Vietnam Co., Ltd. (22.8%) and Belcholat JSC (10.3%).

Vietnam Biscuit Market Share (2010) Vietnam Candy Market Share (2010)

Source: Euromonitor Source: Euromonitor

Competition levels in the Vietnamese confectionery sector is increasing when there are a lot of foreign

companies attracted to this highly potential market. Nabati, the leading confectionery brand of Indonesia,

officially started to distribute its biscuit products in Vietnam in May 2011.

Confectionery sector performance in 2011



In 2011, confectionery sector declined significantly by 41.13%, underperforming the VN Index.

2012 Outlook

The majority of raw materials for confectionery production are now imported. Then if the Vietnam dong

continues to decline in value in 2012, cost of goods sold of confectionery companies will be negatively

impacted.

In our opinion, Vietnam‟s confectionery market is potential and we have an investment view of Overweight

over this industry for the following reasons:

In the past few years, the Vietnamese confectionery sector‟s average real growth rate is high, at 10% -

12%, in comparison with region average of 3% and the world of 1% - 1.5%;

Confectionery consumption per capita of Vietnamese is low, at 1.8kg/year while world average is 2.8kg

per person per year;

Euromonitor estimates potential volume sales growth rates for different segments of confectionery as

follows:

Estimated volume growth (%)

Biscuits Baked Goods

Ice cream

Sugar Confectionery

Chocolate Confectionery

Sweet and Savoury Snacks

2011-2016 9.0% 7.0% 8.8% 6.0% 5.0% 6.0%

Source: Euromonitor


DAIRY

Dairy sales value increased at around 20% YoY in 2011;

In overall, dairy raw material price in 2011 was higher than that of 2011. However, it started to decline

since the peak in March 2011;

Vinamilk still holds firmly its strong position in all segments in dairy market;

In our opinion, Vietnam’s dairy market is highly potential both in long-term and in short-term and we

have an investment view of Overweight over this industry.

2011 Review

According to Euromonitor, different segments of dairy all witnessed high sales growth rates in 2011. The

consumer demand rose and selling price was up too due to high inflation, increasing prices of raw materials

and the decline in value of Vietnam dong.

2011 growth rate of sales value

2011 sales value (VND billion)

Drinking Milk 20% ~ 12,800

Yoghurt and Sour Milk 22% 4,000

Baby Food (Milk Powder) 19% 15,100

Ice Cream 19% 1,300

Cheese 20% 788.4

Other Dairy (Condensed Milk, Cream)

26% 4,300

Source: Euromonitor (October 2011)

In overall, dairy raw material price in 2011 was higher than that of 2011. FAO Dairy Price Index was 222.2

points in 2011 when it had been 200.4 points in 2010. However, after the peak in March, international dairy

price has been declined starting from June 2011. This movement certainly reduced profitability of Vietnam‟s

dairy companies especially if they did not have an appropriate strategy to purchase raw materials.

Furthermore, dairy was a product under the State‟s price stabilization scheme coverage in 2011 which made

Vietnam‟s dairy companies not be allowed to raise selling prices at their will. In fact, in 2011 Vinamilk only

raised its selling price once in late February. Since then, VNM has kept its selling price unchanged even its

profit margin has been obviously deteriorated.


FAO Dairy Price Index

Source: FAO

2011 continued to witness significant increase in price of imported dairy products. And recently in early

December 2012, some imported and foreign dairy products‟ prices were raised from 3% to 19%. For

example, Abbott‟s products increased by 9% on average, Mead Johnson 18% (maximum) and Nestle

Vietnam (3%-15%). Whereas, some large domestic dairy companies raised selling price only a little, such as

Vinamilk. If consumers change their consumption habit and use domestic products as a replacement in the

context of economic difficulty, it may have a positive impact on local dairy producers such as Vinamilk.

Vinamilk still holds firmly its strong position in all segments in dairy market. We do not have official figure on

market shares in 2011 then we represent here this information of 2010. In 2010, Vinamilk dominated

condensed milk and yoghurt with the market share of 88% and 71%, respectively. Its market share in

drinking milk segment was 40.9%, ranking the first. It was the second largest company in baby food (milk

powder) with 18.5% market share, behind Abbott Vietnam (23.8%) and in ice cream with 14.2% market

share, behind Kinh Do Corporation (25.5%). In cheese segment, VNM also held number three and a market

share of 6.4%. These numbers are findings of Euromonitor which was released in October 2011.

We visited both Vinamilk and TH True Milk in September 2011 and obtained some updated information on

market share from these two companies. According to Vinamilk, its market share in drinking milk segment is

44% nationwide and 54% in 36 large cities in 6M11. Its market share in milk powder segment is 30% and

80% for yoghurt and condensed milk in the same period. According to TH True Milk, its market share in the

North‟s drinking milk market is 12%.


Drinking Milk Products in Vietnam Market Share (2010)

Source: Euromonitor

Year 2011 saw remarkable achievements of Vinamilk including reaching sales of around USD 1 billion and

the first investment in a milk powder producer abroad (New Zealand). For further information about VNM,

please refer to VNM Company Factsheet in this report.

Dairy sector performance in 2011


In 2011, dairy sector performance, which is mainly driven by VNM, outperformed the market when it

increased by 59.32%. The bonus stock plan released at 2011 Annual General Meeting had supported VNM‟s

price since April 2011. After the ex-right date (29 November 2011), this stock declined quite rapidly when

investors sold out and took profit. However, VNM still gained 59.32% totally in 2011.

2012 Outlook

In our opinion, Vietnam‟s dairy market is highly potential both in long-term and in short-term and we have an

investment view of Overweight over this industry for the following reasons:


Dairy consumption per capita of Vietnamese is still low. For example, in 2010, fresh milk consumption of

Vietnamese people is still much lower than that in regional countries. A Vietnamese person consumes

15 liters of milk per annum, while the figures are 23 liters in Thailand and 25 liters in China;

According to Ministry of Industry and Trade, Vietnam‟s milk consumption per capita is forecast to grow

steadily in 2011 – 2025 when the standard of living is being improved and income per capita is

increasing.

Year 2010A 2015E 2020E 2025E

Milk consumption per capita (liter/person) 15 21 27 34

Source: Ministry of Industry and Trade

Domestic dairy industry has grown by 5.3% p.a. in volume on average in 2006 – 2010 period. It is

expected to grow at 7.8% p.a. in volume on average in 2011 – 2015.

Average volume growth (%)

Powder milk

Drinking milk

Ice cream

Yoghurt Butter Cheese Condensed

milk

2006-2010 (A) -1.3% 18.4% 8.8% 7.2% -0.3% -2.1% 0.7%

2011-2015 (E) 11% 10% 8% 7% 5% 3% 1%

Source: Ministry of Industry and Trade

Currently, domestic production only can meet around 25% of local demand which creates enough room

for milk producers to develop their businesses.


COOKING OIL

In 2011, sales value increased by 18% to VND 18.5 trillion mainly thanks to increase in volume;

Gross margin declined in 9M11 due to increasing price of imported raw materials and the

implementation of the State’s Price Stabilization Scheme in 2011;

Cai Lan Oils & Fats Industries Co., Ltd. ranks the first with a 35.2% market share, followed by Tuong An

Vegetable Oil JSC with a 21.9% market share;

The commencement of first two soybean crushing plants in Vietnam in 2011 is expected to help to

reduce the dependence on imported raw materials and improve profit margin of cooking oil companies in

the long-term;

In our view, the sector is highly potential thanks to stable growth rate in the next few years and low

consumption per capita for the time being.

2011 Review

According to Euromonitor, oils and fats sector in Vietnam enjoyed current YoY value growth of 18% in 2011

to reach nearly VND 18.5 trillion. Vietnam Trade Promotion Agency estimates that oil production volume has

increased more 105,000 tons or 15% to 805,000 tons in 2011. As a necessary consumer product, demand

remained high and stable, especially for vegetable and seed oil in 2011.

Currently, Vietnam has to import around 90% of crude vegetable and seed oil (palm oil, soybean oil) for

manufacturing cooking/refined oil. Therefore, gross margin of cooking oil companies has been impacted

negatively when international oil price in 9M11 has been much higher than that of 2010. FAO‟s annual oil

price index has been up by 60.3 points to 254.5 points in 2011 (23.6%). For example, TAC‟s gross margin in

9M11 was 7.24% while this ratio in 9M10 was 11.05%. Furthermore, some leading cooking oil companies

including Cai Lan Oils & Fats, Tuong An Vegetable Oil, etc. participated the State‟s Price Stabilization

Scheme which even reduced their gross margin further.

Cai Lan Oils & Fats Industries Co., Ltd. continued to hold the leading position, followed by Tuong An

Vegetable Oil, Golden Hope Edible Oil and Tan Binh Vegetable Oil (Golden Hope beat Tan Binh to become

the third largest cooking oil manufacturer in 2010).


Oils and Fats Market Share in Vietnam (2010)

Source: Euromonitor

2011 witnessed a milestone of the Vietnamese oils & fats sector. In May and June 2011, first two soybean

crushing plants in Vietnam (Quang Minh in Hung Yen province and Burge Vietnam in Ba Ria – Vung Tau

province) came into operation. These plants are expected to reduce the dependence of Vietnam in imported

crude soybean oil.

Quang Minh group invested in a plant with total investment capacity of VND 1,000 billion and designed

capital of 360,000 tons of soybean per year. According to Quang Minh group, the plant is projected to

cater for 10% of total crude vegetable and seed oil demand in Vietnam.

Burge Vietnam plant has the total investment of USD 100 million and will crush around one million tons

of soybean per year. According to Burge Vietnam, the facility will contribute to around 30% of the total

demand for soybean oil and meal in Vietnam.

Cooking oil performance in 2011

Source: Bloomberg, SSIResearch


In 2011, cooking oil sector declined by 19.25%, underperforming the VN Index. There was no surprise in

TAC‟s financial performance or significant event in 2011. Then this price movement was driven by the whole

market‟s performance.

2012 Outlook

In 2012, oils & fats sector is projected to continue to grow. According to Euromonitor, Vietnam‟s oils & fats

volume is expected to grow at a constant CAGR of 6% over 2012-2016. This estimate is lower than target of

Ministry of Industry and Trade (average volume growth of 9.92% in 2011-2015).

In 2012, Vietnam‟s Government will continue to prioritize the objective of taming inflation. Therefore, prices

of necessary goods like cooking oil are expected to be kept as they were in 2011. Furthermore, according to

FAO, oil price may increase in 2012 due to expected s lowdown in palm oil and soyoil output. In fact, in

November 2011, oil price started to increase after a downtrend since early 2011.

FAO Oils Price Index

Source: FAO

According to the Industrial Policy Strategy Institute (IPSI), cooking oil consumption per capita is around 7.3 –

8.3 kg in Vietnam which is much lower than the recommended level of 13.5kg per capita by WHO. IPSI

forecasts Vietnamese cooking oil consumption per capita will be 16.2-17.4 kg in 2015 and 18.6-19.9 in 2020.

So there is huge growth potential for the Vietnamese cooking oil.

Currently, Vietnam encourages private enterprises to develop modern and large-scale vegetable and seeds

oil crushing plants in order to gradually replace imported raw materials with locally-produced ones. The

commencement of two soybean crushing bean plants is the starting point of this strategy. In longer term, this

policy will help reduce cooking oil producers‟ dependence on imported raw materials and fluctuation of profit

margins due to instability of international price and exchange rate.

We have an investment view of NEUTRAL over oils and fats sector in 2012.


INSTANT NOODLE AND SAUCE

In 2011, sales value growth rates of noodle and sauce sectors are 19% and 17%, respectively;

Attracted by the potential of noodle and sauce market, many foreign investors enter Vietnam through

both M&A and greenfield investments;

In the next five years, sales volume growth rates of noodle and sauce sectors are 7% and 5%,

respectively.

2011 Review

Noodle: According to Euromonitor, noodles in Vietnam saw an increase of 19% to reach market size of VND

17 trillion in 2011. Noodle sector has not reached maturity and there is still potential to explore.

Acecook Vietnam JSC firmly holds leading position with 50.8% market share, leaving the second and third

largest companies - Asia Food Industry Co., Ltd (12.1%) and Masan Food Corporation (11.9%) – far behind.

Instant Noodle Market Share in Vietnam (2010)

Source: Euromonitor

Attracted by the fourth largest noodle market in the world, after China, Indonesia and Japan, Nissin Foods

Holding (Japan) announced that it had intention of building an instant noodle plant in Vietnam. Nissin will set

up a 100% foreign-invested company to run a new plant with the total investment of around USD 41 million.

The plant is said to be located in an industrial park 35km North of Ho Chi Minh City and will commence

operation in June 2012. The participation of a Japanese instant noddle giant proves Vietnamese instant

noodle market to be highly potential. Furthermore, this will increase rivalry and likely affect existing players‟

revenue and profit.

In June 2011, Acecook Vietnam lodged a complaint against Masan Food with the Ministry of Industry and

Trade‟s Vietnam Competition Authority (VCA). The Japanese firm claimed that Masan‟s Tien Vua instant

noodle advertisements conveyed misleading information about instant noodle quality which could harm


Vietnam‟s noodle business. This event once again proved competition in this sector to be fierce among

companies in all segments from high-end, middle end to low end.

Sauce: According to Euromonitor, sauces, dressings and condiments enjoyed sales growth of 17% to reach

VND 14 trillion in 2011. Masan Food Corporation led the market with more than 39% market share.

Sauces, Dressings and Condiments Market Share in Vietnam (2010)

Source: Euromonitor

In May 2011, Kohlberg Kravis Roberts (KKR) purchased a 10% stake of Masan Food in return of USD 159

million. Purchase price is approximately VND 220,000 per share which was 47% higher than its current

market price on OTC market (VND 150,000/share) at that time. This deal is said to be the largest private

placement on OTC market in 2011, which proves the attractiveness of Vietnam‟s consumer staples sector in

general.

Masan Group performance in 2011

Source: Bloomberg, SSIResearch


In 2011, MSN fluctuated significantly and in overall, it outperform the VN Index when it increased by 16.03%.

Its price movement was driven by some specific events while MSN‟s financial performance was not so good.

9M11‟s net profit accounted for only 57% of year target. In May 2011, KKR purchased a 10% stake of Masan

Food with the price of VND 220,000 per share which was 47% higher than its current market price on OTC

market at that time. This deal supported MSN‟s price in May 2011. In early September the PER increased

from 29.77x to 43.96x thanks to the inclusion of MSN as a new constituent in FTSE Vietnam Index since 19

September 2011. In overall, this stock gained 16.03% in 2011.

2012 Outlook

Instant Noodle: According to Euromonitor, over the next five years, noodle sector is expected to grow at a

compound annual sales volume growth rate of 7%. The Vietnamese noodle market is believed to be

potential thanks to increasing GDP per capita and young people accounting for around 65% of total

population.

Sauce: Sauce, dressings and condiments sector is forecast, by Euromonitor, to see a compound annual

sales volume growth rate of 5% over the next five years.

Therefore, we have an Overweight investment view over noodle and sauce sector.


DRY BULK

Drybulk sector faced another difficult year in 2011, similar to 2008 recession, with freight rate sinking

while fuel price surging. Higher lending rate and VND depreciation enlarged interest expenses, and

selling old or even almost-new vessels is a tough option for staying solvent and providing counter capital

to invest in new ships built by Vinashin member shipyards.

Stock price underperformed in 2011, and we believe that this story could continue, as sector

fundamental is not going to improve.

2011 Review

All of the largest drybulk carriers suffered from huge loss in 2011 as difficulties from late 2010 were

carried over to 2011. Fuel price was increasing by 38% (diesel oil price), while freight rate was falling

36% (BHSI index, and level of decline is larger on BDI) on average so they ate up gross margins. In fact,

dry bulk shipping volume increased about 6%, but the total tonnage increased much higher, at 14.8%

which led to the steep fall of freight rate and utilization rate fell from 92% to 87% in 2011.

Meanwhile, higher lending rate, coupling with depreciating VND, put pressure on the high level of USD-

denominated debts, resulting in high interest expenses, so it is all what damaged the bottom line of dry

bulk transport firms.

Largest carriers, include VOS and VST, all of whom are Vinalines‟ subsidiaries, have to buy new

Supramax-size vessels built by Vinashin, and they have to sell some of its pretty new vessels to have

counter capital for that investment. It is really not a financial-wise investment (despite the fact that they

got some kind of interest-subsidy from the government through Vietnam Development Bank) and not to

say about its delivery timeliness (with falling vessel price, about 15-25% YoY). We believe that it remains

a burden for the years to come. Meanwhile VSP is now considering selling all of its fleet and switch its

business line to real estate, but its debt burden is still there and it is not clear how the company could

clear its debts or avoid being delisted after 3 straight years running in red.

2012 Outlook

Drybulk shipping, with major products being iron ore, coal.., is highly correlated with the global economy

growth, which would be bleak and a decent rebound should never be expected. Excess tonnage would

be key obstacle to pare any short term gain from freight rate.

Vinalines, major shareholder of all Vietnam largest drybulk carriers, would continue struggling in

2012, after having to take over a large part of Vinashin business line. We believe that the weak

management capability, burdening debt profile and low competitiveness will confront the corporation

considerably .


This sector‟s stocks were underperforming VnIndex in 2011, and at the current very low price (significant

lower than book price, as well as par value) we believe that market participants bet for the possibility of

going bankrupt. We do not believe that is an option for all, especially for Vinalines subsidiaries, as they

might get some kind of subsidy or support from the government.

Our investment view for the sector is HOLD. We believe that the current price factored all the difficulties

and negative catalysts for the sector, and there will unlikely be anybankruptcy cases, at least for

Vinalines subsidiaries like VST, VOS or VNA. However we are not comfortable with the outlook of the

sector fundamentals and do not want to place a risky bet on those stocks.


ELECTRICITY

Total electricity output in 2011 increased by 9.4% YoY, lower than average growth rate in recent years.

Hydro power source was prioritized since there is no shortage of electricity.

According to Circular 31/2011/TT-BCT, EVN may adjust its average retail price every 3 months instead

of annual adjustment as previously. EVN only has to seek Prime Minister’s approval for an electricity

price hike of 5+%.

In 2012, the generation competitive market will start by the end of Feb 2012. There will be 3 Generation

Companies to be established in 2012.

The thermal power plants are likely to gain back their position in 2012 due to higher electricity demand.

2011 Review:

Total output this year is estimated to reach 106.6bn KWh, up 9.4% YoY, lower than the average

growth rate of 14-16% in recent years. It is also estimated that total output in 2012 will increase by

10.5% to 117.77bn KWh, of which commercial output amounts to 107.2bn KWh.

Hydro power source prioritized: Since there was no shortage of electricity this year, EVN mobilized

less from thermal sources, especially from Vinacomin and PVN, because thermo-power plants‟

wholesale price is higher than hydro power source. Therefore, thermal power plants were likely to

generate less output and profit in 2011. PPC- a thermal power plant, for example, generated only 4.88bn

KWh this year as compared to its capacity of 7bn KWh/year. By contrast, VSH - a hydro power plant -

generated 918mn KWh, much higher than its target output of 750mn KWh.

EVN’s difficult financial situation: According to the audit report issued by the State Auditor, EVN

made a loss of VND 8.416bn and VND 3,453bn, in 2010 and 1H2011 respectively. The company made

a loss of VND 3,500 in 2011. Total forex loss to be allocated to retail electricity price from 2012 amount

to VND 15,462.8bn. By the end of June 2011, Account Payable of EVN to PVN and Vinacomin

amounted to VND 8,861bn and 1,211bn respectively. Under the difficult financial situation, EVN is

continuing to propose for electricity price hike to MOIT and MOF.

Circular 31/2011/TT-BCT: Adjusting retail electricity price on a market-oriented basis

Following the decision 24/2011/QD-TTg issued on 15 April 2011 on adjusting electricity retail price on

market base, the Ministry of Industry and Trade (MOIT) has issued the Circular 31/2011/TT-BTC

detailing the basis and procedure to EVN to adjust its retail price. EVN may adjust its average retail

price every 3 months instead of annual adjustment as previously. EVN only has to seek Prime Minister‟s

approval for an electricity price hike of 5+%.


According to the document No380 issued by ERAV, retail electricity price increased by nearly 5% from

VND 1,242/KWh to VND 1,304/KWh from 20 December 2011. This is the second electricity price hike in

2011, after the first time of 15.28% in Mar 2011, leading the total electricity price to hike by more than

20% in 2011. However; this 5% increase is likely to affect the general economy in 2012.

Sector Performance

In 2011, the sector underperfomed VN-Index by several percent. PPC, VSH delcined by 41% and 33%

respectively in 2011 . While PPC declined due to high loss earning result, VSH did poorly due to concern

on unfinalized eletricity price and longlasting overdued loan to EVN.

2012 Outlook

Competitive electricity generation market:

According to Deputy Prime Minister, Mr Hoang Trung Hai, the competitive generation market operation

will be delayed for 2 months until the end of February 2012 instead of Jan 1st 2012 as planned due to

uncompleted IT infrastructure and pending issues of contact transferring. Since July 2011, the trial

competitive market has operated. Until now, the market is a still virtual one, in which the power

companies send their projected power output and offer a selling price to EVN for reference and record

only, but price is still based on PPAs between EVN and Power companies. When the trial period ends,

only 5-10% of total power output would be sold at a competitive price, and the remaining 90-95% of the

output would still be sold at a fixed price. Therefore, we expect that the delay of the market does not

affect operation of power plants and EVN.

Other price hike expected in 2012

It is said by Mr Vuong Dinh Hue, the Minister of MOF, that to offset one fourth of 2011‟s operating loss

and one third of forex loss of EVN in 2010, the electricity is likely to increase by 10-15.6% in 2012.

Therefore, we see that the 5% price hike may only improve slightly EVN‟s existing financial situation. We


also expect that the benefits for IPPs are far from being obvious since EVN is still deep in debt and

operating loss.

Thermal power plant may gain back their position:

With higher output and demand of electricity expected in 2012, thermal power plant will be mobilized

more than in 2011. The hydropower companies in the North like Thac bac(TBC) and in the central area

like TMP are in shortage of water for producing electricity in 1Q/2012. In this situation, we expect EVN to

mobilize more from thermal power plants like PPC and NBP. Although the bottom line will be affected by

a lot of expenses, from COGS to forex loss, the output of these companies is expected to increase in

2012.

EVN is going to reduce its investment in its non-core business: following the transfer of EVNT to

Viettel, EVN announced its intent to partially withdraw its capital in EVNFC and ABB. Currently EVN

invested in EVNFC and ABB VND 1,000bn and 115bn respectively. EVN is now investing in 4 non-core

businesses, including property, insurance, banking, and finance with total capital of VND 2,100bn,

accounting for 4.22% of total capital.

3 Generation Companies (Genco) to be established in 3 regions of Vietnam

According to the proposal by EVN, power plants, including those that EVN holds controlling stake, 100%

ownership and ongoing projects to 2015, will be allocated to 3 Gencos. The Gencos are stated-owned

enterprises that EVN holds 100% charter capital or a controlling stake. Those companies will operate as

limited companies.

The structure of Gencos includes a parent company and subsidiaries that EVN hold 100% charter capital

or a controlling stake. When the competitive market is started, all the output from Gencos will be sold to

the unique Buyer of EVN.

For multifunctional hydro power plants, including Hoa Binh, Yaly, Sesan 3, Sesan 4, Sonla, Tri An,

Pleykrong, and Tuyen Quang, will continue to be dependent companies of EVN. The total capacity of

those power plants is now 5,320MW, accounting for 21.25% of EVN. It is expected that the total capacity

of these hydro power plants will reach 6,520MW, accounting for 10.82% of EVN by 2015.

According to that proposal by EVN, toward a competitive market, Gencos will be established fairly in

terms of capacity, technology and area, to ensure that no Genco holds more than 25% of the total

capacity. It is expected that Genco 1 will take 18 plants with total capacity of 6,260MW, Genco 2: 12

plants with capacity of 6,069MW and Genco 3: 10 plants with capacity of 6,814MW. Their parent

companies will independently (not dependent on EVN) administrate, operate plants and mobilize capital

for construction and investment.


In the first stage, EVN will wholly own Gencos, and then gradually reduce its ownership. Gencos can

call for capital from independent investors, including PVN, Vinacomin, SCIC and other local and

foreign investors. This is one of the solutions to pool capital invested in the industry.

Weighting: NEUTRAL


FERTILIZER (urea)

Since urea is a vital fertilizer for universally all kinds of plants, it plays an important role in the agricultural

industry of Vietnam.

As of this moment, Vietnam still has to import approximately 50% of its urea to meet the domestic

demand. However, that situation is about to change in 2012 when more fertilizer companies are to be

entering service. In 2012, domestic supply is expected to exceed demand by 200,000 tons.

Phu My Fertilizer (DPM) is the largest urea manufacturer in Vietnam with a market share of

approximately 50%. Next year, domestic competition will intensify as other fertilizer companies will enter

service, causing supply to exceed demand.

Domestic urea price is influenced by world price. In order to stabilize domestic urea price, the

Government designated DPM as the price stabilizer agent in this market.

2011 Review

2011 has been a favorable year for the urea business as urea price has been at high level since the

second quarter. This price movement was supported by the world price, which followed the same trend.

DPM‟s earnings this year is expected to grow 58% YoY thanks to this price increase.

Source: Bloomberg

Because the expansion of agriculture land is highly unlikely, urea demand can only edge up only slightly

from last year mostly due to the deterioration of soil. In 2012, domestic urea demand will stay around the

same level as this year at approximately 2 million tons.

As far as competition goes, it is mostly DPM vs. imported Chinese urea. DPM products are favored by

farmers thanks to its strong brand name and consistent quality. Imported urea currently enjoys the 0%

import tax rate.


2012 Outlook

Selling price will still dictate the profitability of the urea sector. Currently urea price has already been at

high level and seemed to move in a sideway direction. However, factors such as economic downturn

and other macro threats such as the European Sovereign Debt could cause commodity prices, including

urea‟s, to plunge. These macro factors will remain a threat to the urea sector.

Competition in 2012 will intensify with the arrival of Ninh Binh Fertilizer (280,000 tons), Ca Mau Fertilizer

(800,000 tons) and the expansion of Ha Bac Fertilizer (320,000 tons). While demand remains at

2,000,000 tons, production will increase to 2,180,000 tons, causing supply to outstrip demand in 2012.

However, DPM is still likely to be the market leader since it has already had a strong footprint in the

market and is known for its brand name and quality.

Since domestic production is expected to surpass domestic demand in 2012, the current 0% import tax

rate is likely to increase. This should limit the presence of imported urea in Vietnam.

Weighting: NEUTRAL


FISHERIES

2012 revenue growth in core business is expected to be limited after a decent growth in 2011, but for

sector leaders, consolidation and diversification would ensure healthy growth.

2011 performance is improving for pangasius sector, thanks to decent price increase, while frozen

shrimp exporters faced difficulty because decease is wide-spreading and debt structure

Consolidation continued in fisheries sector, with some big M&A deals took place

Raw material supply issue (for both quality and volume) remained unsolved in 2011

2012 core business growth might not be high, but market leaders could eat up more market share and

gain growth through diversification

Stock price for the sector was going in line with VnIndex in 2011, and as pangasius sector outperformed

while frozen shrimp underperformed. We believe for 2012, the sector could outperform VnIndex thanks

to low PE and high dividend yields.

2011 Review

Fisheries production (both catching and farming) posted growth in 2011 at 4.6% and 7.4% YoY

respectively (2.53 million tons for catching and 2.93 million tons for farming), as there was no significant

natural disaster in Vietnam. Then fisheries export hit USD 6.1 bn or 21.5% YoY growth, where growth

rates of frozen pangasius and shrimp export value are 26.5% and 13.7% respectively. Most of the

growth in 2011 was contributed by price increase, as export price jumped 22 % for pangasius and 14%

for frozen shrimp, on average.

Raw material shortage remained unsolved. For shrimp, antibiotic residue was a very serious problem

and desease was wide-spreading (total acreage area damaged was 85 thousand ha, about 3 times of

2010 and mostly for black tiger). Therefore, exporters at time have to import raw shrimp for processing.

White shrimp extended its growth, at 70% YoY and closed the gap to black tiger which posted 0.6%

decline in 2011.

For pangasius, shortage is quite inherent and price escalated as farmers feel reluctant in raising

pangasius after a series of loss and in high lending rate environment. However firms with its own farm

could enjoy a more stable input price and weather well for a good profit.

Internal competition was easing, especially for pangasius, thanks to VASEP‟s effectiveness in

controlling ceiling price of pangasius. It is the major change in sector fundamental as they switched

focus from revenue to bottom line. Trade and non-trade barrier was not a big issue, as no new measure

was imposed and Vietnam even won the anti-dumping case over US through WTO‟s settlement.


Pangasius exporters, especially who have integrated production chain, are those who benefit the

most from the price increase. But it should be noted that who are in big debt and have no good control

over raw material supply would be hit hard in the high lending rate environment. It is also true for frozen

shrimp sub-sector. There are some major M&A deals in the sector, i.e HVG acquired FBT or CMX being

bought by group of financial investors, as enterprise value fell to attracted level and consolidation would

be the key for the sector sustainable growth in future.

Vietnam Frozen Shrimp Export 2007-2011 (Volume: thousand tons, Value: USD million, Price: USD/kg)

Vietnam Pangasius Export 2007-2011 (Volume: thousand tons, Value: USD million, Price: USD/kg)

2012 Outlook

The outlook of the fisheries industry will likely be stable in 2012, on the back of gradual switch of

customers‟ taste to a more healthy food and a weaker VND.


Vietnam plans to export USD 6.5 bn USD in 2012, about 6.5% YoY growth. Overall it is conservative but

reflects the fact that the growth outlook of global economy is weak in 2012. We believe that volume

growth is expected to be limited to support price, which later on profit, but it does not mean no growth in

export volume for all, as big exporters might still expand at expense of many small players who exist as

they could not have good control over raw material supply and suffering from high interest rate.

Several large fisheries exporters are now seeking opportunity in other business lines to diversify, such

as rice processing and exporting (VHC), or farming and exporting both pangasius and shrimp (HVG).

Exporters are now still worried on the implementation of Foodstuff Safety Laws and the Circular 55 of

Ministry of Agriculture and Rural development, which might negatively affect their business (put more

burden on cost and time).


HOSPITALITY

Highlights:

In 2012, total revenues from the tourism sector hit VND130 thousand bn, growing at 30% yoy;

Infrastructure has been improved to facilitate the rising lodging demand. The number of rooms advanced

by 13% yoy (from 235,000 rooms in 2010 to 250,000 rooms in 9M2011);

VPL had a good performance during the year (before the delisting date on Dec 23, 2011) representing in

43% growth in revenue and 200% growth in profit after tax in the first 3 quarters while OCH is still

struggling with its expansion plan;

VPL has been merged with Vingroup, leaving OCH to be the largest company in the hospitality industry

in term of market capitalization;

2012 is expected to a good year for the hospitality sector mainly thanks to growing number of outbound

and inbound visitors together with supportive promoting activities from the Vietnam National

Administration of Tourism (VNAT) and policy to develop Vietnam’s tourism by the Government.

2011 Review:

A quite good year on the back of a successful tourism industry despite a slowdown economy

Vietnam is still a favored destination for foreign arrivals. According to VNAT, the number of foreign

arrivals hit 6 billion, domestic visitors hit 30 billion by year-end, growing 19%, 7.1% yoy

respectively. Revenue from hospitality activities had improved significantly owing to the advanced

occupancy rate and hike in average room rate. Total revenue from the tourism sector achieved

130,000bn VND by year-end, growing 30% yoy.

Infrastructure was developed rapidly in recent years in order to facilitate the rising lodging demand. For

the time being, there are 987 hospitality companies in total, owning more than 12,500 hotels (Sources:

VNAT). In 9M2011, the number of rooms increased by more than 13% yoy, from c.235,000 rooms

in 2010 to more than 250,000 rooms in 9M2011.


Figure 1: Number of rooms in 2010 and 9M2011, source: VNAT

Two largest representatives of Hospitality sector are VPL (before Dec 23, 2011) and OCH, which

account for approx. 78.6% and 4.5% total market capitalization of hospitality industry. VPL witnessed a

good year in its core business thanks to an increase of 42% in total revenue and more than 200% in its

profit after tax in the first 9 months, which mostly owing to the expansion of its luxury hotels and resorts

chain.

OCH surged to be the largest company in the industry in term of market capitalization after VPL delisted

from the stock exchange. The company had a year with a bunch of M&A activities in order to expand its

hotel chains and seeking for capital gain rather than revenue improvement from its core business.

However, we believe that with the large charted capital and the determined business scope, the

company should focus more on hospitality business in the years to come if it still wants to convince

investors about its fundamentals and sustainability. There are more things to observe over this company

in 2012.

Stock performance:

Source: SSIResearch


Hospitality stock had an outperforming year, up by 75% which mostly driven by VPL which gained more than

90% of its value during the year. However, given the VPL‟s low liquidity, it should be noticed that the

significant rise up of its price is not solely from fundamental reasons but rather from some speculations,

especially since the announcement of the merger with Vincom.

2012 Outlook: Expected increase in number both inbound and outbound visitors as main upside

catalyst for a good year of hospitality industry.

Looking forward, in our opinion, the lodging sector would not be severely affected by the forecasted worse

economy in 2012 owing to the anticipated increase in the number of international tourist arrivals as well as

domestic tourism, which will support the occupancy rate.

In addition, recent significant improvement in infrastructure such as international airport in Da Nang and

some national roads connected to important tourism cities will support the tourism and hospitality sector in

the coming time. Vietnam sets a target of welcoming at least 6.6bils outbound arrivals, 32 bils inbound

visitors and 150 thousand VND bils in revenue in 2012 representing growth rate of 8.3%, 6.7% and

15.3% respectively which will further help hospitality industry to grow.

The government is keen on expanding the tourism industry, building on the rapid growth to achieve in 2012.

It announced a 10-year investment plan for the sector in August 2011, of which investment will amount to

US$42.5bn, a considerable scaling up of state support for the industry. This follows the decision by the

government to designate tourism as an „economic spearhead', which means it is viewed as a strategic sector

of the economy.

Weighting: NEUTRAL


VIETNAM INSURANCE

2011 Review

Life and Non-life insurance premiums are estimated to grow at 12% and 22% respectively for full year

2011

Non-life insurance still maintained high growth however stiff competition and high compensation in non-

life business have dampened non-life insurers.

Life insurance had moderate growth in 2011 and fueled by rising new policies from new clients and new

link investment product, beside traditional protection – type product

Life insurance

Total written premium of life insurance market in first eleven months of 2011 is estimated at VND 13,545

billion, up 11.34% YoY. Top six market leaders did not change much, including: Prudential (38%), Bao Viet

Life (27%), Manulife (12%), AIA (8%), Dai-ichi (7%), ACE (6%).

Total premium of new policy is estimated at VND 3,966 billion in 11M11, up 24.48% YoY:

Investment link insurance: The total new premiums of Unit insurance products reached VND 1,567.4

billion, with 215,543 contracts respectively.

General insurance: General insurance premium reached VND 1,920.6 billion, equivalent to 305,954

contracts. The number of contracts increased by 5.3% YoY.

Source: AVI

Non- life insurance

Total written premium is estimated at VND 18,935 billion, up 20.6% over the same period in 2010. The

leading non-life insurers are: Bao viet with sale estimate at VND 4,438 billion, growing 17% over the same


period last year, accounting for 23.5% market share, followed by PVN (VND 4,205 billion, up 28.8%, 22.2%

market share), Bao Minh (VND 2,004 billion, up 6%, 10.6% market share), PJICO (VND 1,646 billion, up

19.5%, 8.7% market share) and PTI (VND 994.6, up 75%, 5.3 market share)

However, the amount of original insurance compensation in 11 months of 2011 is estimated at VND 7,445

billion, increased by 39.3% over the same period in 2010 (35.4%).

The insurance companies have higher rate to compensate, including Bao Minh (60.4%), BIC (65.7%), Liberty

(53.9%) and Bao Long (55.6%). Aviation insurance segment has the highest compensation rate of 118.8%

due to compensation paid for losses of Vietnam Airlines at Narita Airport (Japan) in 2008. The segments

have second and third highest compensation rates including fire insurance (56.6%) and motor vehicle

insurance (50.4%)

Source: AVI

2012: VIETNAM’S INSURANCE MARKET TO SUSTAIN GROWTH IN 2012

Sector Weighting: Neutral

Vietnam insurance industry is expected to have stable grow at 18% in 2012

Life insurance premiums in 2012 is forecast to grow by 13% (12% in 2011), fuelled by rebound in

demand for traditional protection-type products despite economic difficulty.

Non-life insurers face difficult environment due to a possible decrease in Property & Casualty segment,

Hull and P&I segment with investment cut from Government & SOEs sector. Non-life insurance

premiums are forecasted to grow at a steady growth rate of 18% (22% in 2011), aligned with moderately

slower economic growth. However tough competition and high compensation rate makes it difficult to

achieve underwriting profit.

Investment portfolios are expected not to face sharp drop as in 2011.


Reason for Neutral Recommendation

Generally, economic weakness, fiscal tightening and an accommodative monetary policy are keeping

government bond yields low. It poses a huge challenge to the insurance industry as it reduces investment

yields and undermines the profitability of life savings products with interest rate guarantees.

Positive factor:

Gross written premium (GWP) continues to rise at growth rate of 18% in 2012

Moderate life insurance growth (13%), fuelled by protection products

In 2012, most insurance segments recorded stable growth rates, fuelled by strong demand for investment-

linked products in the first-half of the year. Demand also came from retirement (e.g. fixed annuities) and

medical (e.g. hospital cash) insurance. The reason, including rising economic and investment risk, higher

unemployment rate, leads to increase the demand of protection type products.

Stable non-life insurance growth (18%) in 2012

In 2012, non-life insurance premium growth is expected to remain a steady growth of 18%. Further increase

in vehicle insurance and increasing demand for health and personal accident products may be key growth

drivers.

Negative factor

Looking ahead, moderately economic growth in 2012 will likely affect most non-life insurance business

across the board. Non-life insurers will face a difficult environment due to a possible decrease in

Property &Casualty segment, Hull and P&I segment with investment cut from Government & SOEs

sector. Underwriting profitability would be affected by higher loss ratios.

Meanwhile, investment portfolios are expected not to face a sharp drop as in 2011. While interest

income may likely decrease with lower interest rate expected in 2012, the impact on Government bonds

portfolio can be positive; therefore insurers can count on little relief from the investment side to offset

difficulties on the underwriting side.

Ticker PER PBR EPS (VND) Dividend (VND) BVPS (VND) Net profit (bn VND)

2011 2012 2011 2012 2011 2012 2010 2011 2012 2011 2012 2010 2011 2012

BMI 3.14 2.93 0.27 0.26 2,612 2,794 1,500 1,500 1,500 30,706 31,320 146 197 211

BVH 26.70 23.44 2.55 2.39 1,674 1,907 1,200 1,200 1,400 17,500 18,676 974 1,138 1,297

PVI 11.87 10.47 0.67 0.63 1,533 1,738 700 1,500 1,500 27,000 28,738 297 322 365

Top Buy: na


OIL & GAS

2011 Review

Oil price saw significant fluctuation in 2011: Oil price hiked in the first half of 2011 on the back of political

instability in major oil producing nations including Liberia and Arab nations. WTI reacked its peak of 112.8

USD/barrel by end of April, while Brent stayed at 126.7 USD/barrel. After that oil price flunged to 75.7

USD/barrek by October due to Europe‟s government spending crisis. However, thanks to higher demand of

oil by year end and oil producing nations‟s effort in cutting supply, oil price has been kept stable at around

100 USD/barrel since Nov 2011.

Vietnam’s oil exploration slightly increased while export value surged thanks to price improvement:

According to PVN‟s 2011 report, the corporation explored around 15.19 mil tons of oils and 8.6 billions m3 of

gas, up 0,6% and down 7,5 respectively from 2010. However, thanks to oil price uptrend, despite little

improvement in export volume (5,6%), export value was up 49,3%, totaling 8.9 bil USD.

Thanks to oil price uptrend, business activities of exploration and rig leasing firms improved a great

deal: After 9 months of 2011, almost all companies exceeded their whole year plans.

2011 plan 9M2011 % plan completion

DT

(bil VND) LNST

(bil VND) DT

(bil VND) LNST

(bil VND) DT LNST

PVD 8.000 900 6.555 846 81,9% 94,0%

PVS 21.000 700 17.476 702 83,2% 100,3%

Gas companies benefited from price increase not volume: Majority of gas firms‟ customers are

industrials including ceremics and steel. These categories of buyers have been observed to cut down their

consumption due to low demand for their products. In particular, PGD has to revise down its sales volume

plan to 520mcm for the whole year, up 13%yoy but fall 11% behind earlier target.


2011 Plan 9M2011 % Plan completion

Revenue Net profit Revenue Net profit Revenue Net profit

PV Gas 44,182 3542 45,066 3649 102 103

PGD 3,158 129 2,367 256 74.9 198.4

PGS 4,100 180.1 4,098.61 316.35 99.9 175.7

PVGas twice raised selling price to its industrial buyers; first time by 25% and second time by 20%, following

its road map to raise price to on par with imported LNG price by 2014 when it is supposed to import first

batch of LNG. Thus, PGD and PGS consequently has to lift their selling price up to cope with “inflated” input

price. In particular, PGD applied 30% increase in Mar and another 20% in October.

Price setting mechanisms remained “awkward” and that will negatively affects gas firms’ profit

margin

As far as we know, PVGas will inform its “children” companies like PGD of the “range of price” (i.e: 20-30%)

increase that PVGas is to raise. What PGD will do is to go and negotiate with their clients and report back to

PVGas how much more their clients could bear. The procedure of “reporting” and “negotiating” may last

quick or long dependis on where the two figures (input price and output price) meet.

Though, according to an undisclosed source, companies like PGD will always enjoy at least USD0.8-

USD1/MMBTU (currently USD1.1/MMBTU on average) as gross profit margin, there are reasons to believe

that their gross profit margins will decline gradually: (i) PVGas wants to accelerate the procedure to narrow

the gap between domestic and global gas price and (ii) such companies like PGD do not know how much

PVGas will leave for them as profit per MMBTU in advance, and soPVGas could possibly raise their selling

price more than what they could transfer to their clients.

2012 outlook

Oil demand is expected to remain strong in 2012: the demand from Asia is expected to be the driver for

oil price to go up in 2012. According to some research, Asia‟s demand for oil is forecasted to increase 0.9 mil

barrel/day, while that in Middle east, Africa and South America is expected to maintain stable. According to

IEA, 2012 oil demand is around 90.3 mil barrels/day, up 1.3 mil barrel on daily basis.

Oil price is forecasted to remain stable: According to some research, WTI price on average will stay at

around 100 USD/barrel on average, almost unchanged from 2011. This, in our opinion, is due to (i) relatively

stable demand and (ii) already high level of oil price.

Oil exploration activities will accelerate on price increase. In our opinion, oil exploring activities may

accelerate in 2012 due to stably high oil price. Recently, PVN has been assigned by the government to

produce 15.8 tons of oil and 9 bil m3 of gas, up 4% and 4.7% yoy. More active oil exploring activities will

support rig firms like PVD and exploration firms like PVS.


Despite forecasted lower global gas price, domestic gas price will continue to be adjusted up, which

negatively affect gas firms’ profit margin: Due to high oil stock level by end of 2011, concensus forcasts

indicated that natural gas supply may be abundant in 2012, which puts a downward pressure on gas price.

Though, domestic price is also driven by global price since 60% of domestic gas consumption is imported,

we believe that with a longer wiew toward gas price in 2014 when PV Gas first imports LNG, PV Gas will

stick to its original plan of lifting gas price to industrial users by at least 20-30% on annual basis. Therefore,

we are convinced that profit margin of gas firms may decline gradually in the next few years.

Sector weighting: Neutral


PHARMACEUTICALS

The demand for pharmaceutical products is stable regardless of the state of the economy.

Pharmaceutical sector has a lot of potentials. According to the estimates by the Drug Administration of

Vietnam, healthcare spending increase 16% annually and will reach $40/person by 2015

The pharmaceutical sector is expected to grow around 19% in 2012. For domestic pharmaceutical

companies, that growth is around 16% since they participated only in the generic segment. Companies

in the sector are aiming for a 10-15% earnings growth in 2012 and we believe that these growths are

attainable.

We recommend this sector as defensive play in 2012. However, investors should pay attention to low

liquidity of the sector. We single out DHG as a good stock in particular .

2011 Review

2011 was a bad year for the stock market but this is when defensive nature of pharmaceutical stocks

really shined. While VnIndex lost 27% in 2011, cumulatively pharmaceutical stocks gained 0.08%.

In term of earnings, most pharmaceutical companies completed or exceeded their earnings target. For

instance, DHG, IMP and TRA all beat their earnings target by 31%, 10% and 30%, respectively.

Compared to other listed companies who are struggling with completing their earnings targets,

pharmaceutical companies‟ performance is encouraging. This business performance is attributed to the

stable and growing demand of pharmaceutical products.

For domestic companies, since 90% of input ingredients are imported, their profitability is influenced by

pharmaceutical ingredient prices and exchange rate. While price is controlled by the Drug Administration

of Vietnam to some extent, companies are known to occasionally find way to circumvent this restriction

and increase prices. The movements of input cost in 2011 was mixed. While the cost of vitamin has

gone up considerably almost by 100%, cost of antibiotic ingredient has been very stable. However,

pharmaceutical companies has been able to maintain their margins in 2011.

Among listed pharmaceutical companies, the most notable ones are DHG, DMC, IMP and TRA. These

companies have strong distribution network and a long history of tradition. Among all companies, DHG is

still the pack leader with strong earnings growth and healthy financial status. Consistent with its

earnings, DHG‟s stock performance is also the best among pharmaceutical stocks. In 2011, DHG gained

14%.

DVD, the notorious pharmaceutical company has officially ceased operation after failing to release a

single financial report in 2011. DVD‟s former CEO was 4 years in prison for stock manipulation. This is

the first time a person is sent to prison for this type of crime.

2012 Outlook


Both domestic and foreign drug companies participated in this market with each side taking roughly half

of market share. While foreign drug companies focused on high value patented drug segment, domestic

companies do business mostly in the generic segment. The pharmaceutical sector is expected to

grow around 19% in 2012. For domestic pharmaceutical companies, that growth is around 16%

since they participated only in the generic segment.

Source: BMI

In term of earnings, we do not expect significant change in earnings performance. Growing

pharmaceutical demand will fuel earnings growth for these companies in 2012. Companies in the

sector are aiming for a 10-15% earnings growth in 2012 and we believe that these growths are

attainable, given the growth of the market and pharmaceutical companies‟ in the past years.

Pharmaceutical companies‟ margins in 2012 will once again be influenced by input costs. Although input

costs will be unpredictable as in 2011, we expect that pharmaceutical companies will be able to maintain

their profit margins as in 2011.

DHG is still expected to be the leading company in this sector. With the completion of the new plant

expected in 2012, DHG will tackle its capacity weakness and cement its leading position in the market.

Since 2012 is expected to be another bad year for the stock market, pharmaceutical stocks are expected

to once again outperform the market in 2012. Therefore, we recommend this sector as defensive play

in 2012. However, investors should pay attention to low liquidity of the sector. We single out

DHG as a good stock in particular due its high margin, high market share and a leading position in the

industry.

Weighting: OVERWEIGHT


CONSTRUCTION PLASTICS

Most of plastic companies experienced a strong revenue growth thanks to rise of selling price.

Only low debt companies experienced a profit growth in 2011.

While NTP underperformed VN-Index due to its negative profit growth, BMP saw the opposite trend

thank to its excellent earnings result.

Plastic companies find 2012 a continuing tough year with no-growth target.

Resin price remain the key factor affecting profit margin

2011 Review:

Currently, there are about 180 companies operating in the sector. The biggest listed companies including

NTP, BMP, DAG, DNP and DPC in a descending order of market share. BMP and NTP account

approximately for 50% of the entire market share. Total revenue of these companies grew by about 18%

YoY in 2011, much lower than the growth rate of 28.4% in 2010. This is because the output did not grow

much in 2011 but even declined. NTP, for example, sold only 50,000 tons, declining 8% YoY. The behind

reason is low consumption which result from bad property market and tightened monetary policies.

Increasing input price ate up profit

Source: Bloomberg

In 2011, PVC and HDPE resin prices increased by 7.14% and 10% in USD term, respectively, resulting in

lower gross profit margin of these companies although they raised selling price in 2011. Besides increasing

resin price, rising transportation cost, forex change and ascending labor cost are also the reasons for lower

profit margin.

Financial expense limited bottom line of leveraged companies


Except for BMP which holds very low debt, interest expenses of DPC, DAG and NTP soared more than

100% in 2011 due to higher interest rates and their leverage business models.

2011 sector performance

In 2011, while NTP underperformed VN-Index slightly, BMP saw the opposite trend. BMP‟s price was

supported by its good earnings result, but NTP experienced a negative growth in 2011.

2012 Outlook

The companies in the industry still find 2012 a tough year, at least in the 1H2012. The continuing

tightened policies result in inactive construction and slow moving property market. Both NTP and BMP set a

conservative target with no growth of both revenue and profit next year. However, with ample capacity and

controlling market share, the two companies are likely to rebound once the construction market improves.

Resin price declined but can bound back in 2012: in Q4/2011, the resin price declined significantly QoQ

to the same level as beginning of 2010. The low price inventory is likely to improve slightly profit margin of

plastic companies in Q1/2012. However, the oil price is on the rise and resin price is likely to follow. Under a

low consumption situation, it is more difficult for plastic companies to raise their selling prices.

Large size pipe helps widen customer base: although HDPE 1,200mm pipe, which is made by both BMP

and NTP, just started being produced in 2011, there are several projects of water providers using the large

scale pipe. Although accounting for small portion in revenue structure, the new product will help improve

profit margin and diversify their customer base, reducing dependence on construction activities and property

market.

Weighting: NEUTRAL


PROPERTY:

2011 – a year of downward pressure and 2012 – a gloomy outlook

The Government‟s Resolution 11 and Directive 01 by SBV caused a shocking reduction to credit growth

in the Property sector. Instead of high historical growth, loans to property projects were squeezed by

VND31,000 by 3Q.-end.

Developers were getting away from luxury residential apartment segments and property prices in those

segments kept trending down amid extremely low liquidity throughout Vietnam. Also, investors no longer

found investment in residential apartment segment lucrative due to potential oversupply and over-

valuation. It seems to be against conventional wisdom that property firms normally book high sales and

earnings towards year-end, i.e. in 3Q and 4Q in 2011

For the whole 2011, the PERs of property firm under our coverage kept trending down.

Though the CPI and lending interest rates may cool down, we do not see any signals of a sharp or

gradual drop in interest rates on loans to property projects. In fact, some sources of research exhibit an

increase regarding the weight of non-performing loans to property projects reaching over 10%.

Several significant M&A deals were taking place in the property sector in 2011 when debt-distressed

developers needed to sell their projects for quick proceeds to pay down their short-term debts. M&A

activities will likely be a popular topic for the sector in 2012 since several developers might be knocked

out given pressing down sale and soaring financial distress.

The continuity in the banking sector‟s restructuring plan in which banks are holding secured loans based

on aggressive property valuation will prevent property prices from bouncing back in the foreseeable

future

2011 Review

The Government‟s Resolution 11 and Directive 01 by SBV caused a shocking reduction to credit growth

in the Property sector. Instead of high historical growth, loans to property projects were squeezed by

VND31,000 by 3Q.-end. That was actually going against 2011‟s intention of only slowing down the

growth rate of property loans.

Several individual investors had pooled capital from their colleagues, friends, relatives and even banks

to put in their property portfolio. However, since liquidity curved down, they failed to exit most of their

properties even when cutting selling prices. A series of bankruptcy cases report throughout Vietnam

most of which had root in aggressive investment in properties impacted negatively on investors‟

sentiment and continuously put a lot of downward pressure upon property price.


The new urban planning for Hanoi‟s Greater Areas led to hundreds of projects to be delayed, which got a

great amount of money previously put in those projects and got stuck

Projects which were running behind schedule started to see a lot of lawsuits filed by clients against

developers. Those lawsuits were touching upon several negative issues in commercial property sale

contracts including handing-over schedule, quality of facilities and services, warranties, and legal status

of projects. That added to burning investors‟ confidence.

Developers were getting away from luxury residential apartment segments and property prices in

those segments kept trending down amid extremely low liquidity throughout Vietnam. Also,

investors no longer found investment in residential apartment segment lucrative due to potential

oversupply and over-valuation.

Source: CBRE, 4Q.2011

The down trend in sales and earnings were what we may observe in general. It seems to be

against conventional wisdom that property firms normally book high sales and earnings towards

year-end, i.e. in 3Q and 4Q. Firms‟ sales and earnings continued sliding down towards year-end.

Specifically, that was the case for ITC, SJS, QCG, KBC and TDH since they generated too little sales to

cover their rising costs throughout the quarter.

Total sales and Earnings of several leadings property firms

(SJS, ITA, ITC, QCG, TDH, HDG, NTL, VIC)


Source: SSI Research, 4Q.2011

There are few companies reporting sales and profits growth that was mainly due to the low base effect in

the same period last year.

Consequently, most of the firms would unlikely meet its targets set for FY2011. Also, several firms

had to revise down their targets significantly during the quarter due to the gloomy market outlook. For

instant, IJC revised its targets PAT from VND520 bn to VND310bn while it was VND330 bn from

VND550bn for DIG. Though several firms were not officially talking about their possible failure to meet

targets for 2011, our talks with them during the quarter reveal that they would likely to suffer it

In general, property firms were undergoing lower gross margins throughout 2011 due to several factors:

higher construction costs including materials and wages

more capitalized interest expenses having accumulated in the equivalent projects available for sale

in 2011 and even in 2012. Also, firms‟ cash outflow is to rise accordingly.

rising loss provisions put aside to protect lower fair market value for other properties in the firms‟

inventories or works in-progress.

importantly, the low market liquidity never gave property firms a chance to raise selling prices as

they had done previously. In fact, several of those players started cutting prices to attract more

customers such as the cases of Petro Landmark, Gold House (HAGL), Eco Park (Residential

Apartments), and Hoa Binh Green City.

The low liquidity noted above was leading to lower margin mostly across the board for property

firms. Besides the above mentioned factors, firms were boosting their selling expenses through

promotional campaigns or hiring real estate agencies besides raising wages to attract more talent in

their sale force so as to push up sales throughout the period. However, those actions did not seem


to yield sufficient positive outcome via a rise in sales. In fact, they turned out to hurt firms‟ EBIT

margin in 2011.

Most of the firms had their debt financing status stabilized throughout the period due to the

following factor:

They were unable to access further debt financing due to regulations imposed by SBV

They were trying to lower their debt financing in the high interest rate setting during the period.

However, it was not easy for property firms to pay down debts amid the low and slow sale situation.

In fact, though their debt status remained somewhat unchanged, they might have shifted their short-

term to long-term debts.

Several firms were less thirsty for funding since they decided to slow down or even delay

development of their projects.

Regarding property firms’ debt structure, we have found out that their exposure to short-term

debts was wound down. Several firms restructured their debts by using long-term loans to roll over

their short-term ones. (e.g., SJS, HDG, VPL, VIC, HAG...). Also, they were trying down pay back

short-terms as many as they could so that they were not suffering from immediate pressure in the

coming time.

Given the down sales and dropping EBIT as noted above, real estate firms had their interest

coverage plunge dramatically. This may trigger investors‟ concerns that how those firms are able to

settle their minimum interest payment obligations before they may need to return part of their loans

when they come due. Should they fail to fulfill those liabilities, they would face difficulties winning

banks‟ trust in their next financing round to fund even their current projects, which would, in turn,

deter them from selling their future products.

For the whole year, the PERs of property firms under our coverage kept trending down due to:

gloomy industry outlook for 2011 and 2012 regarding high interest rates, low liquidity, rising

construction costs plus growing debt burdens


Source: SSI Research, 2011

Property firms have gradually failed to sell their products to the markets. That has prevented them

from meeting their targets.

The overall picture for the property sector in the coming time is still seen with a lot of dark dots which

has discouraged investors from putting more money into this type of stocks;

The FDI portion flowing into the property segment has been very stagnant for the whole year (5.3%

in 2011 versus 30%+ in 2010). Also, it was no longer channeled into property investment or

development. It was actually adding a negative catalyst for the industry.

Source: CBRE, 2011

2012 Outlook

Though the CPI and lending interest rates may cool down, we do not see any signals of a sharp or

gradual drop in interest rates on loans to property projects. In fact, some sources of research exhibit an

increase regarding the weight of non-performing loans to property projects reaching 8 - 10%.


The credit growth cap of 15-17% into 2012 will make the above-mentioned situation worse for property

firms.

Thus, property firms will continue finding it hard to raise debts upon funding their projects while costs of

debt show no sign of sliding below 19% soon. As for new equity issue, developers would have a lot of

difficulties attracting new cash from investors given the industry‟s gloomy outlook and the weakened

stock market. A few investment funds, e.g., Vina-Capital, Indochina Land who has had huge exposure to

real estate, have decided to limit their more money in development of apartment and office buildings in

tier-1 cities.

Moreover, some developers have switched from retail to wholesale by selling all or most of their stake at

some projects in order to reduce their debt burn and lowering interest payment. That may drive the

industry competition more severe in the coming months

Actually, several significant M&A deals were taking place in the property sector in 2011 when debt-

distress developers needed to sell their projects for quick proceeds to pay down their short-term debts.

M&A activities will likely a popular topic for property developers in 2012 since several developers might

be knocked out given pressing down sale and soaring financial distress.

Source: Stox Plus, 2011

Though dozens of developers have announced delay of project development, we will see that there

would be tens of thousands of in-progress apartments in Hanoi and HCM city coming into the market.

Several developers, especially in Northern Vietnam, have resorted to price-cut though they have yet to

see a rise in sales since end-users seem to wait for further correction regarding prices.


HCM City Hanoi City

Source: CBRE, 4Q.2011

A series of individual bankruptcy cases reported recently may potentially result in several individual

investors, who have highly-levered investments in apartments and land plots, being forced to sell their

assets. That will possibly yield a hard-to-forecast pressure upon the prices of apartments and land plots

in both Southern and Northern Vietnam in the coming time.

The continuity in the banking sector‟s restructuring plan in which banks are holding secured loans based

on aggressive property valuation will prevent property prices from bouncing back in the foreseeable

future.

Sector Weight: UNDERWEIGHT

RUBBER

Strong earnings growth in the sector performance in 2011 thanks to high rubber price and high volume

of exports.

Strong fluctuation in prices in 2011 due to natural disaster and the negative sentiment toward the world

economy.

In 2012, however, rubber companies are expected to have negative growth due to weaker demand and

low rubber price.

Rubber price in 2012 is expected to be more stable than in 2011 amid low demand and slow global

economic recovery

The major revenue and earning driver for rubber firm is price. Without expected favorable price

movement, coupled with forecasted negative supply growth, we are concerned that rubber firms will not

see their top and bottom line to growth much in 2012. Single digit growth is believed to be central

scenario for the sector.


2011 Review

A Year of price fluctuations

Strong price fluctuations were observed in 2011. Export rubber price reached its peak of 4,567 USD/tons in

February when supply was tight during wintering period but suddenly plunged in early March due to

earthquake in Japan, which caused concerns on rubber demand from tyre industry to drop. After worries

over tyre industry demand was cleared away, rubber price recovered on the back of low supply during leaf-

shedding season in Thailand, Malaysia and Indonesia. Rubber price ended 2011 in low mode after going

down for almost 5 months amid arising concerns over low recovery of world economy, Euro debt crisis and

flood in the world-biggest-rubber-exporting nation, Thailand, which caused factories halt production.

Source: VRA

2011 export volume up 6% but export revenue up 35% thanks to higher rubber price

According to Vietnam customs‟s report, in 2011, Vietnam total rubber export volume was 826,000 tons,

almost similar to last year figure (773,819 tons), with total turnover of 3.2 billions dollar, up 35% from 2010.

This is all contributed to favorable movement of natural rubber price in the period. Vietnam currently ranks 4th

in the world in rubber export and 5th in natural rubber production.

2012 outlook

Expected lower rubber price on supply-demand mismatch…

According to the Association of Natural Rubber Producing Countries (ANPRC), weak demand will continue

to keep the market dormant. The latest report of this association indicated that production this year could

increase to 10.42 million tonnes from 10.1 million tonnes last year, a growth of 3.1 per cent. But it is still

lower than the 6.4 per cent growth seen last year while demand will lower by 1%. That supply overweighs

demand will deter rubber price from taking a big leap.


Source: Ministry of Industrial and Trade

…even during wintering season

Though, it has been seen previously that sentiment in the rubber market will improve from February to end of

May, on lower supply, the situation, in our view is not expected to repeat in 2012 for the following reasons:

1. Low speculative sentiment: Speculative investors are observed to stay away from the market since

rubber price kept losing due to the current economic turmoil and low demand outlook.

2. Currently high inventory level: historically, producers and speculators usually stock inventory in 4Q of the

previous year before the leaf-shedding season, which caused lower supply. However, it seems that the

gravity of the current global economic situation has made rubber demand to stay sluggish since the last

quarter of 2011. Thus, with huge inventories are reported to be held by biggest rubber consumer, China,

we are not convinced that there will be big leap in rubber price within the next quarters.

No big fluctuation in rubber price is forecasted to happen in 2012

In combination of (i) expected low demand for rubber due to currently low state of global economy and (ii) all

sorts of events, either positive or negative, which could directly impose significant impacts on natural rubber

price have occurred in 2011 and factored in price. Thus, any unexpected events to happen in this year, we

believe could only have minor effects on price movements.

Domestic rubber firms’ supply is expected to experience negative growth due to low rubber price

and losing price competitiveness…

Apart from overall lower tapping yield due to aging rubber plantation, we believe that domestic firms‟ supply

might be lower as producers have more incentive to aggressively cut down aged trees for replanting

purposes.


Also, from 8 December 2011, export tax rate of 3% has been applied on some rubber tyres including

centrifuged rubber which belongs to the list of products that producers are encouraged to manufacture. The

application of export tax rate is expected to lower competitive edges of Vietnamese rubber products against

other nations‟ when rubber price is retreating.

….And there will be no growth next year

The major revenue and earning driver for rubber firm is price. Without expected favorable price movement,

coupled with forecasted negative supply growth, we are concerned that rubber firms will not see growth in

their top and bottom line in 2012. We estimate that sales and profit in this sector will decline 18% and 23%,

respectively.

Weighting: NEUTRAL


STEEL

2011 was a difficult year for the steel industry with low consumption, high inventory, high borrowing cost

and high input cost.

Selling prices in 2011 fluctuate strongly. After a strong rally in in 1Q, steel prices stabilized in 2Q and 3Q

and dropped slightly in 4Q.

Most steel companies cannot complete their earnings targets in 2012. Less financially capable

companies are facing risks of insolvency.

The steel picture in 2012 is still negative with no sign of recovering from the real estate market and

government construction.

Several steel projects will enter service by 2012, further increasing domestic production and

competitions in the market.

Less financially capable steel companies in 2012 would go bankrupt in 2012..

2011 Review

In overall, 2011 was a bad year for the steel industry. Sluggish demand, unfavorable policies, high cost

of production and the bad state of the real estate market contributed to the gloomy picture of this sector

in 2011.

Source: VSA

In 2011, sales and production grew strongly in 1Q but drop significantly in 2Q and 3Q after the issuance

of Resolution 11, which aimed to reduce government spending.


Inventory ran high among steel companies especially in 2Q and 3Q due to the unexpected drop in

demand. Steel companies paid as much as 200-300,000 VND/ton for each ton of inventory.

High borrowing cost in 2011 also significantly increased interest expense for steel companies. Currently,

short term debt is accounted for as much as 60% of total assets.

Input costs such as billets and scraps also increase 17% from 2010, further reducing profit margins.

Steel industry‟s gross margin declined to 8.48% in 3Q11 from 13.46% in 1Q11.

Source: Ministry of Industrial and Trade

At the end of 2011, total supply is 6.22 million ton, down 1.1% from 2011 and total demand is 5.97

million ton, down 1.6% from 2010.

Most steel companies are expected to not complete their 2011 earnings target. We expect HPG, the

most decent steel companies in the industry, to complete only 75% of its earnings target this year.

In 2011, steel stocks lost 58.8% of its market cap. This performance reflects the poor performance of the

sector in 2011.

2012 Outlook

In overall, the outlook in the steel sector is still rather bleak in 2012. According to the VSA, supply and

demand will grow 3-4% from 2011, at 6.4 million tons and 6.25 million tons, respectively.

Several large domestic steel projects will enter service in 2012, bringing total domestic production to

8.99 million tons. This will mean that domestic supply will greatly outstrip demand and create more

competition in the industry.


The real estate market is expected to be in a bad state at least until the second half of this year, when

we predict that real estate‟s price would come down to a more reasonable level. Until then, steel demand

continued to be sluggish.

As the government still determined to put inflation under control, it is likely that public investments will be

tight in 2012. Therefore, steel demand from this segment will still be limited.

We do not expect borrowing cost to come down much in 2012. This will mean that interest expense will

still be a heavy burden for steel companies in 2012. Smaller and less financially capable steel

companies are likely to go bankrupt. However, this will be an opportunity for companies that survive to

takeover more market share.

HPG, being the leading steel company in the market, will still face great challenges in 2012: Its steel

segment will be hit the bad state of the market. Its coke business will face a lot of uncertainties due to

fluctuating input and selling prices. The Mandarin Garden will be hard to sell due to high prices and

customers losing interest in the luxury apartments segment. Therefore, we do not see positive catalyst

for HPG stock in 2012.

As steel stocks will have little catalyst for rally in 2012, we do not recommend steel stocks as attractive

investments in 2012.

Weighting: UNDERWEIGHT


TECHNOLOGY

ICT and Telecom revenues declined YoY in 2011 due to cutting public and private spending. The number of

internet users increased strongly in 2011, but FPT and VNPT lost its market share while Viettel gain more

market share in 2011.

Following the Decree 25/2011-NĐ-CP, an institution or an individual cannot own more than 20% in more

than one (1) telecommunication companies, which operate in the same market.

In 2012, Growth of the telecom segment is unlikely to experience any surprise since the mobile market has

been quite saturated.

According to BMI’s report on Vietnam Technology Industry, in the long term, the Vietnamese IT market is

estimated to grow at a CAGR of 16% in the next 4 years.

2011 Review

ICT segment: Growth rate declined by a half

Source: MIC

According to the report issued by MIC, the revenue of the whole ICT segment reached about USD 8.5bn in

2011, increasing only 11.4% YoY, lower than that of 24% in 2010. Software is the segment experiencing the

lowest growth rate in 2011, only at 6%, but service segment was growing fast at 18%, catching up with the

software segment and reaching 1.1 USD bn in revenue. The lower growth of the segment was mostly

because of both lower public expenditure and private ICT spending cut due to difficult economic condition.

Telecom Segment: big players reached new levels


According to GSO, total revenue of Telecom in 2011 reached about VND 12bn USD, jumping nearly 30%

YoY. It is notable that both Viettel and VNPT achieve the revenue of VND 120,000bn in 2011, and Viettel

reported a profit of 1bn USD in the same year, up 23% YoY.

Source: MIC‟s white Book

There were 11.8mn new subs of phones in 2011, 12.9% lower than the number of new subs in 2010. By the

end of 2011, there were 133.1mn subs, up 3.9% YoY, including 15.5mn fixed phones (up 0.1%) and

117.6mn mobile subs (up 4.4%). The number of 3G subs increased to 12.8mn, up 150% in the 2H2011.

There are 5 MNPs possessing the 3G license, including Viettel, VNPT (VInaphone and MobiFone), EVNT

and Hanoi Telecom.

Internet: by the end of Nov 2011, the number of internet users increased to 32.6mn users, rising 22% YoY.

The number of broadband subs increased from 3.6mn to 4.2mn, up 16.1% YoY.

17.77%

8.87%

67.70%

Internet market share

HTC VIETTEL SPT NETNAM FPT VNPT EVN QTSC CMC SCTV ADTEC CCVN CMC TI


Source: VNNIC

According to the statistics of VNNIC, the 3 leading internet providers, including VNPT, Viettel and FPT,

accounting for 94% of the total market share by the end of 2011. However, it should be noted that Viettel‟s

market share soared significantly from only 9.4% in 2010 to 17.77% in 2011, while VNPT and FPT are losing

their market share. Although the market share is based only on the number of users, not revenue, the

changes reflect partially the rise of Vietel in the internet market.

Significant events

EVNT transferred to Vietel: from Nov 2011, the PM of Vietnam has finally decided to transfer EVNT to

Viettel after FPT backed off the deal to acquire EVNT in April 2011. The process is expected to be

completed by Mar 2012. The M&A will boost Vietel‟s market share to nearly 50% and push Hanoi Telecom in

danger since it was sharing 3G infrastructure with EVNT.

According to Decree 25/2011-NĐ-CP, which came into effect from 1 June 2011, an institution or an

individual cannot own more than 20% in more than one (1) telecommunication companies, which

operate in the same market. The decree is likely to affect VNPT (owns 2 large MNPs of MobiFone and

VinaPhone) and FPT (the company that is searching for opportunity to join the mobile network market).

2011 Sector performance

In 2011, IT sector underperformed VN-Index since all of stocks in the sector declined significantly. While

FPT declined only 12.4%, ELC, CMG and SGT declined from 30-60%. While FPT performance was affected

by significant news like change of top management team, drop of EVNT, etc. other stock‟s performance

resulted from poor earnings results.

2012 outlook


Potential M&A deals in the telecom segment

In Oct 2011, The PM signed an official decision stating ONLY FIVE (5) facility-based operators, including

VNPT, Viettel, Gtel, Indochina Telecom and Vishipel, will be required to be controlled (above 50%

ownership) by the government. The decision was effective since 1 Dec 2011. FPT Telecom and CMC TI are

obviously out of the list. SCIC is now holding 51% of each of the two companies and plan to liquidate their

holdings. FPT is negotiating with SCIC to purchase all the shares of FTel held by SCIC.

Following Decree 25 mentioned above, VNPT must be prepared to abide the decree. The available

alternatives for VNPT may include: (1) merger VNP and VMS, (2) IPO one of the two, or (3) merger one of

the two with VNPT holdings.

The growth of the telecom segment is unlikely to experience any surprise since the mobile market

has been quite saturated. ICT will likely see a tough year in 2012 since the fiscal policy is unlikely to be

loosened soon. However, software and content services is growing fast and generating more profit for

telecom service companies like ELC, VMG, and VTC Online, FPT Online (subsidiary of FPT Telecom).

According to BMI‟s report on Vietnam Technology Industry, in the long term, the Vietnamese IT market is

estimated to grow at a CAGR of 16% in the next 4 years. The Vietnamese government has also unveiled

its ambitious plans to develop the country's IT industry. The plans, which state a revenue target for the whole

sector ranging US$17bn-US$19bn in the next 4 years, include major investments to develop production

centers in software, services, hardware and electronics. Revenues are projected at US$2bn from software

sales, US$12.5bn from hardware, US$2bn from digital content, and US$1.5bn from IT services.

Weighting: NEUTRAL


COMPANIES IN FOCUS


Company background: Vietinbank was established in 1988 after being separated from the State Bank of Vietnam to stand as an independent bank, and officially named as Vietnam Industry and Commerce Bank (ICB) in 1990. Since April 2008, ICB has successfully launched a new logo and changed its name to Vietinbank

After over 20 years of development, Vietinbank has now become one of the second largest banks in Vietnam with approximately VND 368 trillion in total assets (2010). It possesses a wide distribution network of 750 branches & transaction offices and 1,074 ATMs covering 56 provinces throughout the country.

In December 2008, Vietinbank became the second state-owned bank, following Vietcombank, to have an IPO. The average successful price at the auction was VND 20,265 per share (USD 1.14), which was said to be a success given the choppy stock market in the year. To date, the State, represented by SCIC, remains the biggest shareholder, with 89.23% ownership.

On 16th July 2009, 121 million shares of Vietinbank (equalling only 10.8% of its total shares outstanding) were listed on HoChiMinh Stock Exchange, of which about 74 million shares are free-floating.

Business lines:Vietinbank currently has six (6) subsidiaries: (1) Vietinbank Securities JSC (76%); (2) VietinBank Financial Leasing Company (100%); (3) VietinBank Assets Deployment and Debt Management Company (100%), (4) VietinBank Non-Life Insurance Company (100%), (5)VietinBank Gold and Precious Metals and Gems Company (100%) and (6)VietinBank Fund Management Company(100%).

Traditional commercial banking (lending and deposit taking) is CTG‟s most important business, which accounts for over 80% of total operating income. Customer loans accounted for 61%-66% of total assets.

Currently, the bank has interests in Indovina Bank, GiaDinhBank, Saigon-CongThuong Bank, Banknet, HaTien Cement JSC, and PhuocHoa Rubber JSC

Management and Strategy:

Vietinbank (CTG) aims to become a regional financial group by 2015. To that end, the bank needs to strengthen its base including: capitalization, corporate governance, human resource, IT platform, and expertise in banking business, especially retail banking.

Led by a dynamic and bold-minded management board, CTG is transforming rapidly from a State-owned bank into a commercial joint-stock bank. The bank has successfully applied a performance-based remuneration mechanism, which its peer Vietcombank hasn‟t been able to implement since its IPO two years ago. CTG also plans to make substantial investment in improving its IT platform in the coming two years, and finalizing a foreign strategic partner to help the bank promote retail banking business. International Finance Company (IFC) is a strategic foreign investors in CTG and Bank of Nova Scotia (Canada) also is on-going become 2nd strategic partner of CTG

Strength and weaknesses:

Strength:

CTG owns unique advantages including scale, market share, brand name, a large customer base, IT systems, human resources, and especially a leading position and high-margin in wholesale lending business. Under the direction of the Board of Directors and the Board of Management, together with high efforts of all staff within VietinBank system, the Bank has achieved many encouraging performance results recently. Moreover, the financial results of the Bank are higher compared to previous years.

Scale & Market share: the 2rd largest bank in terms of asset, the 3th largest bank in terms of total outstanding loans, and the2th largest in terms of branch coverage with more than 750 branches nationwide. CTG is a key player in settlement market alongside Vietcombank and Eximbank. It accounts for 11% of the import settlement market and 8% of the export settlement market.

Brand & Credibility: established over 22 years, Vietinbank (the brand) is well-known brand, which is trusted by Vietnamese individuals and organizations

Customer base: Traditionally focusing on wholesale banking, CTG has close relationships with large corporations namely Petro Vietnam (PVN), Electricity Vietnam (EVN), Vietnam Coal and Mineral Corporation (Vinacomin), Vinaconex, Petrolimex, VNPT, Northern Food Corporation, Cement Corporation, and Steel Corporation. In the expanding to retail and SME banking, CTG

STOCK INFO

TARGET PRICE 24,000 VND/share

Price(VND) 18,700

Current Share Outstanding 2,022,972,000

Market Cap (VNDBil) 36,413

Foreign Owner Ratio(%) 10.8%

State Owner Ratio(%) 80,2%

ROA (2011) 26%

ROE (2011) 1,5%

CTG Price & Trading Volume

Valuation

2011E 2012E

P/E 6.83 7.2

P/B 1.4 1.2

Dividend yield

10% 10%

Estimate

VND Bn 2011E 2012E

Pretax profit 8,100 9,000

Net profit 6,075 6,750

EPS(VND) 3,004 2,836

Total Assets 460,421 585,000

Phong Tran

Senior Analyst

[email protected]

VIETINBANK - CTG

BANKING SECTOR

COMPANY PROFILE

19/01/2012


has attracted many individuals and SMEs to its client portfolio. Brand, scale, branch coverage, IT system will

CTG to penetrate these new banking segments.

Strategic partners: International Finance Company (IFC) and Bank of Nova Scotia (Canada) are among

strategic foreign investors of CTG. As a result, CTG will improve their balance sheet, risk profile with

potential support by their strategic partners.

Weakness:

80.3% stake owned by the State, CTG has its own problem of corporate governance and risk

management. However, the Government will reduce their stake in CTG to 51% in the future.

SBV‟s intervention on financial markets is executed through 4 state-owned banks (or formerly state-own

banks), including CTG, which can cause CTG to be diverted from its main goal of maximizing

shareholders‟ value. CTG probably follows policy roles from SBV to limit credit growth in entire banking

system, which may reduce CTG‟s market share

2011 UPDATES

Overall, CTG has a one fast-growing year compared with the entire Vietnam banking system. The SBV

approved CTG to extend its credit growth to 25% which was higher than the average credit growth of the

banking system in FY2011.

As of 31/12/2011, the firm‟s total mobilization growth increased by 24.4% and credit growth likely

reached 23% for full year. Its total asset reached VND 460,421 billion or a 25.4% increase. Its PBT

reached VND 8.105 billion, up by 76% YoY.

BOM expects to pay a dividend rate of 20% and announcement will be issued soon in Q1 of 2012

2012 OUTLOOK

According to the bank, BOM expects a 20%-25% growth in profit for 2012; they now expand into retail

business and gold business to maintain high growth in the coming years. This strategy is based on the

second largest branch network nationwide.

Initial Target for 2012

Profit before Tax Credit growth Deposit growth Total asset growth

(VND bn) Change (%) (%) (%)

CTG 9,720 20% 20% 25% 20%

Moderating loan growth:

We forecast Viet-inbank‟s loan growth to moderate to ~20% in FY12 from ~23% in FY11. This is based

on system growth assumption of 15% - 17%. Vietinbank has been known to overshoot growth targets in

the last 2 years but we see little chance for that in FY 2012 given the focus on improved funding profile.


Large/middle corporate loan growth is expected to reduce in FY12, as management is targeting higher

share from SME and retail clients. Loan growth is expected at ~ 15% p.a.in the segment of large/mid-

corporate over FY11-13.

The share of SMEs in CTG‟s core business will likely be the key driver for growth over FY 12 – 13. We

estimate with support of Strategic partner IFC in product innovation and business development skills, the

bank‟s share of SME could rise to reach 25% p.a. growth.

Deposit & Funding: the bank will focus on improving the deposit efficiency per branch, to push deposit

growth to over 25% for FY12 and to orient toward more retail – deposits.

Margin outlook: the bank continued to have leadership in corporate lending segment and they have

advantage of having a large low cost funding, due to the bank‟s traditional policy role. Potential margin

will stabilize at average NIM of 4% p.a. as their liquidity improvement in 2H12.

Based on the above assumption, we expect the bank‟s PBT to reach VND 9,000 billion (up 4% YoY in

2012), generating in a forecast EPS of VND 2,836 and a BVPS of VND 16,822

Financials (unit) 2009 2010 2011E 2012E

Total Asset (Bn VND) 243,785 367,712 460,421 585,000

Gross Loan (Bn VND) 163,170 234,205 277,581 333,097

Customer Deposit (Bn VND) 148,530 205,919 243,899 304,873

Owners Equity (Bn VND) 12,572 18,170 29,535 40,036

Pretax Profit (Bn VND) 3,373 4,598 8,100 9,000

Net Profit (Bn VND) 2,583 3,414 6,075 6,750

EPS (VND) 2,268 2,231 3,003 2,836

Dividend per share (VND) 1,200 2,000 2,000

Book Value per share (VND) 11,085 11,906 14,509 16,822

Avg ROA (%) 1.10% 0.90% 1.5% 1.3%

Avg ROE (%) 20.50% 18.70% 26% 19.5%

Tier 1 Ratio (%) 8.00% 8.00% >9% >10%

Valuation and recommendation

Positive/Negative Factors

Positive:

2011’s bottom line significantly ahead of our expectation, 2012 Outlook bright: CTG is forecast

to keep the high growth pace for year 2012 in terms of loan growth and asset growth. Since CTG

has a strong footprint in corporate segments, the bank should enjoy a higher rate of loan growth.

Also the bank‟s expansion into the SME area should lead to an improvement in SME market share

and asset yield. They now expand into retail business and gold business to maintain high growth in

the coming years. This strategy is based on the second largest branch network nationwide.


Support from its strategic partner: The bank will benefit from the experience and contribution of

its strategic partner IFC, in risk management and business development strategy, innovation

production and business skill.

Extra dividend: Given that their performance is likely to exceed its initial target 2011, the firm‟s BOD

expects to revise its stock dividend payment rate from 15% to 20% for the FY 2011.They will

announce in Q1 2012.

Negative:

Partially offsetting these positive rating factors is concerns about the company‟s potential EPS

dilution on large capital increases.CTG expects to increase its assets to VND 585 trillion ($26 billion)

by the end of 2012, up 27% from 2011 and it would be $60 billion by 2015. CTG also expects to

scale up its chartered capital to $4 billion by 2015. By the end of 2012, CTG expects to hike its

chartered capital to VND 30 trillion from VND 20.3 trillion in the end of last year. Accordingly, capital

raising plan will be raised from share issuance to the existing shareholders and VND 3.57 trillion will

be mobilized from offering shares to the second strategic partner or 15% stake after the share issue.

Where’s the earnings risk for 2012? Risks lie in funding competition and funding costs. This is

especially so when the credit outlook is stable and Vietnamese banks are running on relatively high

LDRs.

We maintain BUY for CTG share: Target Price: VND24,000/share:

How much recovery has already been priced in, what are the key metrics?

CTG‟s recent weakness has reduced its share‟s valuation and we think Stock price was oversold and

followed retail investor’s setiment for sometimes. However it provides a good BUY opportunity with the target

price of VND 24,000 per share or reflecting a premium of 28% to current price in one year horizon.

With the stock price being VND 18,700/share on January 10th 2012, CTG is being traded at P/E of 6X.

CTG is relatively cheap stock given their advanced fundamental

We believe there remain areas in which CTG can improve further, e.g. SMEs, and wholesale-related non-NII.

Therefore, we still see potential upside to market expectations on CTG's profitability, especially in FY12

when we believe its business will improve (in FX business line and service fee) and operation cost expects

to further decline.

Brokers’ Recommendation:

SSI ACBS BVS Vina Mekong JPM

Recommendation: Buy Buy n.a n.a n.a n.a

Target Price: 24,000 VND 23,293 VND n.a n.a n.a n.a


Risks to outlook

Macro risks should not be ignored; as The government signals to prioritize macro stability in 2012 and

SBV extend their tightening monetary policy in 2012.

Asset quality is another issue concerning as the bad debt of the Vietnamese banking system is expected

to rising significant as tighter regulation set by SBV in risk management and credit classification in 2012.

Fiercer competition between banks will persist and we will continue to see interest rate races between

small and large banks. Besides, competition from foreign banks will be more intense since they will be

allowed to raise capital in VND from 2012 in the same way as local banks. We expect this will have an

impact upon local banks‟ profitability.


Company Background: Hau Giang Pharmaceutical Joint Stock Company was

founded in 1974 as a state owned company. In 2004, the company was privatized and become a joint stock company. Currently the largest domestic pharmaceutical company in term of both earnings and size, DHG has 200 drugs in its portfolio and utilize the widest distribution network in the industry with 10 distributing subsidiaries, 44 sales offices covering all 64 provinces. In addition, DHG‟s manufacturing facilities are also GMP-WHO, GLP and GSP certified and a new plant is expected to enter service in 2012. Flagship products are Hapacol, Klametin, and Haginat.

Besides pharmaceuticals, DHG also have several other wholly owned subsidiaries that operate in pharmaceutical distribution, tourism, packaging and Eastern medicine ingredient. However, these subsidiaries, one way or the other, only serve as supporters of the main pharmaceutical manufacturing operations.

Management and Strategy: DHG retained the original people who have been with

the company since the beginning therefore DHG has one of the most experienced management team in the industry. However, as the current management team approaching retirement, it is unknown whether the next generation has what it takes to continue the work.

DHG‟s strategy is to achieve slow and stable growth. Since DHG is already very large in size, this strategy seems appropriate for a defensive company such as DHG.

Strength: Widest distribution network covering all 64 cities and provinces

nationwide.

Experienced management team.

Leading position in the industry in term of earnings and size.

Healthy financial status with a lot of cash.

Weakness: Manufacturing plant is already operating at full capacity while the new plant will not enter service until 2H2012.

DHG‟s large number of subsidiaries is difficult to monitor.

DHG is already large in size, making it difficult for fast annual growth

Financial Summary

Financials (unit) 2009A 2010A 2011E 2012F

Sales (Bn VND) 1,746 2,035 2,380 2,785

EBITDA (Bn VND) 413 434 522 581

EBIT (Bn VND) 400 400 452 522

Pretax Profit (Bn VND) 410 434 484 541

Net Profit (Bn VND) 363 383 426 476

EPS (VND) 13,597 14,163 6,561 7,338

Dividend per share (VND) 2,500 3,000 2,500 2,500

Book Value per share (VND) 38 48 24 29

ROA (%) 24% 21% 20% 19%

ROE (%) 35% 30% 27% 26%

Sales (Bn VND) 1,746 2,035 2,380 2,785

STOCK INFO

TARGET PRICE VND 62,375 BUY

Price (VND) 57,000

Current Share Outstanding 65.1 mil

Market Cap (VND Bil ) 3681

Foreign Owner Ratio (%) 48.87%

State Owner Ratio (%) 43.4%

ROE: 27%

ROA: 20%

DHG Price & Trading Volume

Source: Reuters

Valuation

2011E 2012F

P/E 8.5 8.5

P/B 2.4 2.5

Dividend yield

EV/ EBITDA

Estimate

2011E 2012E

Revenue 2380 2785

Earnings 426 476

EPS 6561 7338

Total Equity 1553 1867

Total Assets 2141 2555

Dividend Rate

20% 20%

Khoa Do

Analyst

[email protected]

HAU GIANG PHARMACEUTICALS - DHG

SECTOR: Pharmaceuticals

COMPANY PROFILE

20/01/2012


2011 REVIEW

2011 was a pleasant year for people who invested in DHG. DHG‟s shareholders saw theirs stock gained

14% while VnIndex plummeted 28%. As a defensive stock, DHG did well in the disappointing 2011 stock

market.

We estimate that 2011‟s sales and net income at VND 2,380 billion (up 17%) and VND 426 billon,

respectively. Thereby DHG may beat its 2011 earnings target and record an 11.2% earnings growth YoY.

This is the best earnings performance among all the pharmaceutical companies. It is also impressive

knowing that capacity of DHG‟s plant has been full since 2009 and the company found way to create

revenue growth by producing high value products.

DHG continued its plan to build a new plant and this plant is expected to enter service by 2Q2012. Recently,

the company has asked its shareholders to increase the plant‟s investment capital budget from VND 506

billion to VND 676 billion. This increase will allow the area of Betalactam production unit to increase by 1600

m2 and the area of the Packaging plant to increase by 2000 m2. Clearly, DHG wants to increase the design

capacity of this new plant. The new plant will have twice the capacity as the old plant and will be used

exclusively for Rx drug productions. The old plant will be converted to be a functional food production unit.

In 3Q11 there was a fire incident in which 10 billion worth of damage was done to the company. However,

the incident was fully insured and did not hinder DHG‟s earnings performance. In fact, DHG is expected to

beat its earnings targets this year by 30%.

2012 OUTLOOK

We expect DHG to continue to post revenue growth in 2012. We estimate 2012‟s sales and net profit at VND

2,785 billion and VND 476 billion, up 17% and 11.7% YoY, respectively.

Our earnings estimate put the 2012 forward EPS at 7,339 VND. At 56,500 VND, DHG‟s forward PE is at

7.5x, which is very attractive for a defensive stock in the current downtrend of the market.

Although a new plant will enter service in 2012, we conservatively do not expect it to make a big significant

contribution to earnings growth since the plant will need time to run smoothly. However, earnings surprise

could come from this new plant if DHG can utilize this new plant effectively.

VALUATION AND RECOMMENDATION

We recommend BUY for DHG with an one year target price of 62.375 VND

PE 6.5 7.0 8.0 8.5 9.0 9.5 10

Price 47,698 51,367 58,706 62,375 66,044 69,713 73,382

RECOMMENDATION: BUY

A good defensive stock against a potentially bad market.


Demand not affected by the state of the economy. Revenue growth is projected at 17% in 2012.

New plant will enter service, solving the full capacity problem.

Healthy financial status. Lot of cash on balance sheet. The new plant can be financed with 100% equity.

The industry leader with largest distribution network, revenue and market share (4% nationwide)


Company background: DIC GROUP is based in Vung Tau, a neighboring province

of HCM city. The company actually started operating in 1990 as a minor business unit under the Ministry of Construction. Over the time, the initial small unit grew to be a large-size corporation in 2008. Though DIG touches upon several business fields, it has a strong focus on developing new urban areas and industrial zones and on investing in real-estate business and infrastructure of urban area, industrial and hi-tech zones. During the past three years, the company has made a great jump in boosting its assets, chartered capital, revenues and total profits. Specifically, revenues nearly doubled from 343.7bn VND to 653.7bn VND during the period of 2006-2008 while the profits jumped from 21.3bn VND to 165bn VND. DIG has a lot of investments in tens of affiliates and subsidiaries throughout Vietnam. In 2010, DIG became a company member of a state-owned Group called Vietnam Industrial Construction Group, thus enabling itself to be able to look into several property and infrastructure development projects nationwide.

Business lines DIG currently holds ownership in multiple companies in several

business areas. However, its core competence lies in property development in multiple huge projects throughout Vietnam.

Management and Strategy: Management team consists of members who have been

active in several industries. The firm focuses on developing properties in several provinces out of Hanoi and HCMC.

Strengths and weaknesses:

Strengths:

Experienced management team who has been with the company for tens of years and based in Vung Tau for years.

DIG‟s high creditability and good reputation with the debt-holder community may enhance its capability to approach new funding sources for project development.

Huge land-bank across Vietnam

The current management shows its intention to invest in its value-chain via sub-businesses which would give DIG a lot of upside gains with respect to margins

Low valuation compared to the firm‟s NAV.

Weaknesses

Huge portion of ownership belongs to the Government, which can trigger management reshuffle at any time.

The current business size regarding the personnel issue may well prevent DIG from catching up with several large projects lining up concurrently, which may well lead DIG to loose its control, thus a bit slashing its potential profitability

A large part of its land-bank is now located in the areas which are under development rather than have already been developed

Financial summary table

Bn VND 2010A 2011E 2012E

Net sales 797.3 1284.5 1348.7

Operating Profit (EBIT) 349.0 387.6 439.9

Net Profit 303.2 305.6 339.4

EPS (VND) 4,194 3,119 2,611

Total Assets 3,852 4,614 5,412

Total Equity 1,730 2,033 2,371

ROE 17.5% 15.0% 14.2%

ROA 7.87% 6.62% 6.27%

STOCK INFO

TARGET PRICE: 13,053

Price (VND) 18,000

Current Share Outstanding (M) 492

Market Cap (VND Bil ) 1,450



ROE (%) 12.4

ROA (%) 5.11

HAG vs VnINDEX Performance

Source: Reuters

Valuation

2011E 2012E

P/E 6.95x 6.23x

P/B .86 0.75

Dividend yield

0 0

P/ EBITDA 6.8x 5.0x

Estimate

2011E 2012E

Revenue 1284.5 1348.7

Earnings 305.6 339.4

EPS 3,119 2,611

Total Equity 2,033 2,371

Total Assets 4,614 5,412

Dividend Rate

10% 5%

Cuong Vu

Senior Analyst

[email protected]

DIC GROUP JSC - DIG

Sector: Real Estate

COMPANY PROFILE

19/01/2012


2011’S REVIEW:

DIG‟s sales activities did not make any improvement over its slow activities throughout 2011. It continued

concurrently selling products at its two current key projects: Lake Side (Ba Ria – Vung Tau) and Vinh Yen

South (Vinh Phuc province).

DIG has successfully managed to maintain its core business of property development. The sales from this

key portion have always accounted for 80 – 90% of the total sales during the past 4 years. That has been the

case for each quarter this year.

We also noticed that DIG has had to put aside some amount for loss provisions for its long-term investments

in associates or affiliates: VND2.5 bn in 3Q and VND35 bn for 9M.2011.

However, the provisions were getting contracted in 3Q.2011 since the firm had already put aside before.

Since those investments are long term, the value of loss provisions may not increase significantly in the

coming time. Also, the relative value was very minor, around 8% of the firm‟s total long-term financial

investments.

On the cost management front, DIG seems to have prevented CoGS from going up. Also, it has sharply

reduced its SG&A by over 50% QoQ and 30% YoY in line with the overall business picture and outlook.

Additionally, DIG does not appear to have been roughly affected by its leverage position. DIG has benefited

from its long-term relationships with large financial institutions such as Vietcombank, BIDV, Agribank and

SCIC, thus it has kept its interest rates on loan below 19% on average through 2011. Though we expect the

current tight capital market to last at least until mid-2012, we may not see that high interest payments will put

a hard burden upon DIG in the coming time

2012’S OUTLOOK:

The hundred-hectare available land bank will definitely enable DIG to maintain its profits and revenues for a

very long haul, especially when the Real Estate (RE) industry recovers in the years to come. DIG

conservatively continues to realize earnings from some of its strategic projects: Vinh Yen South, An Son Hill

Villas (Da Lat) and Dai Phuoc Lotus (Dong Nai),

Even when the RE industry keeps its current choppy trend, DIG‟s vast land bank may still benefit from sale

of bare land to secondary investors and/or co-operate with other developers for immediate profits

DIG has tight ties with local authorities in the areas it operates, which has a significant contribution to its

process of land acquisition. That leads to the company‟s ability to benefit from low-cost acquisition. This

advantage will be further enhanced when the government plans to raise bars higher to any potential players

via tax and credit policies.

The company has somewhat reserved sufficient cash for project development with further debt financing. Its

very conservative D/E ratio and debt structure will free the firm from rising interest rates on loans



PE forward (12 months):

3.5 4.0 4.5 5.0 5.5 6.0

Price: 9,137 10,443 11,748 13,053 14,358 15,664

Attractive valuation with PER having dipped below the firm‟s historical figure. The value of the current land-

bank owned by DIG has definitely exceeded the firm‟s market cap., i.e., VND1,339 bln, and even the firm‟s

market value, i.e., VND 2,200 bln

Huge land-bank, acquired for low prices/costs

Diversified land portfolio throughout Vietnam with emphasis in big cities

Strong and efficient management with “sticky” political ties

INVESTMENT RISKS:

Earnings feasibility: Apartment and land plot sales, the current dominant earnings driver of DIG, may not be

as smooth as those achieved at launched projects due to the stagnation of the overall property market.

DIG may encounter the counter-party risk since its large buyer Phuoc An Co., Ltd at its key project Vinh Yen

South may not be able to make timely payments. Even in the worst-case scenario, Phuoc An may return the

project to DIG and DIG may have to deduct its sales later on.


Company background: Da Nang Rubber JSC, initially being an American-army

vehicle factory, equitized in 2006 with Vietnam Chemical Corporation (Vichem) holding 51% ownership. DRC manufactures tires and tubes for bicycles, bikes, cars and truck, for the last of which, DRC is the domestic market leader. With initial charter capital of VND92.5bln in 2006 when listed, after several equity raisings, DRC now records a charter capital of more than VND460bln.

DRC has more than 80 1st-tier agents nationwide, of which more than 10 are manufacturers and large corporate consumers, and 25 countries of export. Together with two other tire companies under Vichem, The Southern Rubber Industry JSC (HOSE: CSM) and Sao Vang Rubber JSC (HOSE: SRC), the three firms are now accounting for 70% of total domestic cars/trucks tire market, and almost 100% domestic motorbike and bike tire market.

Business lines: With total consumption volume of more than 10m units, DRC has

achieved 3-year average net sales growth of more than 20%/year.

Car tires and tubes: With annual production volume of >1m units and gross margin of >30%, car tire and tube is the biggest contributor to DRC‟s total revenue and gross profit (~87%).

Motorbike tires and tubes: With ~30 product categories and production volume >2m nits/year (>80% design capacity), motorbike tires and tubes annually account for around ~5% and ~4.5% to CSM‟s total revenue and gross profit respectively.

Bike tires and tubes: a range of >20 sorts of product; ~8m units/year; contributes 7.2% and 7.4% to sales and gross margin respectively.

Technical rubber and others: ~7bln worth units/year (rubber gloves, technical

rubber spare parts, etc.); accounting for <1.5% revenue and ~1.5% gross profit.

Management and Strategy: Management team consists of members who have been

active in the industry for the past 20-30 years. Their strategy is focusing on car and specialized truck tires. To be well-placed for the opportunities that this segment is expected to bring in the future, the company is investing VND3 trillion into the radial tire factory (with designed capacity of 600,000 units/year) in Binh Duong, which is expected to run in 2013.


Strengths: One of the three biggest tire companies; have specialized products that

meet 50% domestic demand and are not produced by two competitors (CSM and SRC); products directly supplied to big corporate users which helps lower selling expense; reputable products with competitive quality and price; low competition between the three largest firms because of their different segment focus (DRC: industrial tires, CSM: motorbike and light truck tires, SRC: bike tire and tube); experienced management and skilled workers.

Weaknesses: Limited ability to expand the market to the North and South Vietnam as

DRC, CSM, and SRC are both under Vinachem, which holds 51% ownership in all three firms; not yet have strong position in passenger car tire segment which has seen more affluent growth; heavily dependent on natural rubber suppliers for materials.


Financials (unit) 2009 2010 2011A 2012E

Sales (Bn VND) 1,815 2,160 2,716 2,537


EPS (VND) 25,644 6,350 4,258 3,675


Net Debt (Bn VND) 58 206 -67 20,4

STOCK INFO

TARGET PRICE VND20,211

Price (VND) 17,200

Current Share Outstanding (mil)

46.15



State Owner Ratio (%) 51%

DRC’ price & volume Performance

Source: Reuters

Valuation

2011E 2012E

P/E 4.04 5.5

P/B 0.77 0.75

Estimate

2011E 2012E

Revenue 2,716 2,537

Earnings 197 170

EPS 4,258 3,675

Trang Pham

Analyst

[email protected]

DANANG RUBBER JSC - DRC

TIRE

COMPANY PROFILE

10/01/2012


2011 REVIEW:

According to the company management, the company exceeded the targets set for 2011 with 2,716 VND bn

in revenue and 197 VND bn in profit after tax. Although revenue grew by approx 25% yoy, earnings almost

had no growth, mainly due to hike in rubber price. However, comparing to other companies in the tire

industry, DRC has performing quite well thanks to its quite stable market of industrial tire segment

(automotive tire and tube accounted for 86.6% of total sales in 9M2011).

During the year, DRC borrowed from bank ~300 VND bn in order to finance its radial project. In 2011, the

company had invested 425 VND bn into this project. Much more capital needed in 2012 for this project

suggests interest expense to rise significantly. The total capital for this project is 3,000 VND bn of which the

method of financing would be 30% equity and 70% debt. Besides, the company had completed the plant

removal to Lien Chieu industrial zone in 3Q2011 and the real estate project on the old location is still

pending.

On the cost front, the firm faced increasingCoGS mostly due to the advanced rubber price during the year

for both natural rubber and synthetic rubber. While natural rubber is mostly bought from domestic suppliers,

synthetic rubber is imported from Russia, Germany, etc.

Basically, the company had a good fundamental, with sale growth has been on average of 20% in recent

years, capital structure has remained at safe zone (D/E ratio less than 30% in most 3 recent years)and

positive cash flow from operating activities.

2012 OUTLOOK:

Healthy fundamental on the back of stable focused business is believed to sustain although its top line and

bottom line would be more or less negatively affected by the downtrend of economy in 2012.

The “tacit agreement” between Vietnam Chemical (Vichem) with Vietnam Coal Mineral (Vinacomin) that

Vinacomin subsidiaries will only consume DRC‟s industrial tires will keep part of demand for DRC‟s tire

relatively stable even in bad economic conditions.

Moreover, expected fall in prices of main input materials (i.e natural rubber and synthetic rubber which

together account for 60-65% of total CoGS) will help to improve gross profit (refer to figure 1). However, part

of that improvement should compensate for the increase in labor cost in 2012 (account for 5-7% total CoGS).

Higher depreciation expense from removed bicycle and motorbike tire and tube factory in Lien Chieu

industrial zone and significant increase in interest expense on rising debt issuance for radial project will

together cause squeeze in net profit.

The company sets plans for 2012, which are 2,950 VND bn in revenue and 172.5 VND bn in NPAT,

representing growths of 8.6% and -12% respectively.


Firgure 1: NR price and DRC’s gross profit correlation


We estimate 2012‟s EPS would be around 3,675 VND and therefore 1-year target price at 20,211

VND/share, suggesting a BUY recommendation.

2012‟s PE : 6.5 6 5.5 5 4.5

Price: 23,885 22,048 20,211 18,373 16,969


Company background : Vietnam Export Import Joint Stock Commercial Bank (“Eximbank” or “EIB” or “the Bank”) was established in 1990 as one of first joint stock commercial banks of Vietnam. EIB went listing on HOSE in October 2009. In 2011, the Bank increased its charter capital to VND 12,355 billion.

Business lines: Eximbank currently has the following subsidiaries/associtates: (1) EIB Assets Management Company (EIB owns 100%); (2) Viet Dragon Securities JSC (17.67%); Eximland (10.99%); Kim Viet Gold Trade Import Export JSC (11%).

The majority (around 75%) of total income is derived from interest income, followed by fee and commission income and income from dealing in foreign currency. EIB is one of top ten largest banks in terms of the total assets as of 31 Dec 2011. EIB‟s deposit and credit market share as of 31 Dec 2011 is around 3.5% & 2.8%, holding the eighth position in the Vietnamese commercial banking sector.

Management and Strategy: Main shareholders of EIB include Sumitomo Mitsui Banking Corporation as foreign strategic partner (15%), Vietcombank (~8%), ACB (~1%). Management team of EIB, especially Mr. Dung – chairman of BoM and Mr. Phuoc – CEO is strong and very aggressive.

EIB has the growth strategy of becoming a diversified banking and financial group in the period 2010 – 2015 by setting up various subsidiaries and expanding its branch network. EIB will develop retail banking with the technical and market support from its foreign strategic partner. Recently, BOM expect to growth by M&A and potential acquisition other banks. Currently, Eximbank owned 9.7% stake in Sacombank

STRENGTH AND WEAKNESSES:

Strength:

Shareholders: Having leading international and domestic banks as shareholders (Sumitomo, VCB, ACB) provides EIB with strategic support in terms of finance, management, technical and market expansion.

Strong financial capability: With extremely high shareholders‟ equity in comparison to the total assets, the Bank has the strong financial capability to increase total credit and to finance business expansion. It has the largest charter capital (VND 12,355 billion) among Vietnamese commercial banks (except State-owned banks)

Well-known brand-name in international payments: EIB has established a reputation in international payment.

Weakness:

Corporate structure: Holding a minor stake in only a few associates/subsidiaries results in the Bank not having diversified sources of income. The Bank becomes more and more dependent upon interest income.

Thin branch network: As at 31/12/2011 the Bank has 203 branches. That is too little with respect to a bank with around VND 12,355 bn charter capital.

Financials (unit) 2009 2010 2011E 2012E

Total Asset (Bn VND) 65,448 131,111 183,691 238,798

Gross Loan (Bn VND) 38,003 62,346 74,668 87,362

Customer Deposit (Bn VND) 38,767 70,705 72,886 86,005

Owners Equity (Bn VND) 13,353 13,511 15,482 18,200


Net Profit (Bn VND) 1,133 1,815 2,927 3,450

EPS (VND) 904 1,718 2,369 2,792


Book Value per share (VND) 15,174 12,824 12.531 14,731

Avg ROA (%) 1.99% 1.85% 1.88% 1.6%

Avg ROE (%) 8.65% 13.51% 20.2% 20.5^

Tier 1 Ratio (%) 26,87% 17,79% 15.1% >10%

STOCK INFO


Price (VND) 13,900



Foreign Owner Ratio (%) 30%


ROAE (2011) 1.9%

ROAA (2011) 20.2%

EIB’s Volume & Price Performance

Source: Reuters

Valuation

2011E 2012E

P/E 5.87 4.98

P/B 1.10 0.94

Dividend yield

13% 14%

Estimate

VND Bn 2011E 2012E

Pretax profit 4,000 4,600


EPS (VND) 2,369 2,792


Total Assets 183,691 238,798

ADVISORYTƯADVISOR

Phong Tran

Senior Analyst

[email protected]

VIETNAM EXPORT IMPORT JSCB - EIB

BANKING SECTOR

COMPANY PROFILE

19/01/2012


2011 UPDATES

In fact, The bank has track record to outperform their target PBT. In 2011, EIB reached a PBT of around

VND 4,000 billion, a 71% increase compared to 2010‟s PBT and exceeded its initial target of VND 3,000

billion. It has a superior profit growth rate compared with that of other commercial banks in 2011.

The Bank plans a cash dividend ratio (on par value) of 18% in 2011.

The Bank is also aggressive in business expansion with the average total assets growth rate of around

40%/year in the next five years.

2012 OUTLOOK

In 2012, BOM expects to keep high growth pace in term of profit and asset. BOM expects PBT to increase by

15% YoY to VND 4,600 billion in 2012.

We revise up our forecast on Eximbank’s financial performance in 2012. We estimate the bank can

generate PBT of VND 4,600 billion in 2012, up from our old estimate (PBT of VND 4,300 billion). The

bank is on going to expand it operation by increasing number of branches and acquiring stakes in

other banks. In early 2012, EIB acquired a 9.7% stake in STB.

Where‟s the earnings risk for 2012? Risks lie in funding competition and funding costs. This is

especially so when the credit outlook is stable and Vietnamese banks are running on relatively high

LDRson relatively high LDRs.


Investment recommendation: we maintain BUY in the long-term with 1 year target price VND 19,000 per

share.

We maintain our recommendation BUY on EIB, thanks to EIB‟s success in achieving profit and assets

growth targets in 2011 and expected rapid growth in 2012. We believe that current market price (VND

13,900/share on 12 January 2012) is potential for a long-term investment based on its good profitablility and

high cash dividend ratio.

Reasons for recommendation:

How much upside has already been priced in, what are the key metrics?

2011 is as a successful year of Eximbank when the Bank reached full year PBT of VND 4,000 billion,

exceeding its target PBT of VND 3,000 billion. This actual result is very good with a 71% up from last

year‟s PBT. It reflects management‟s aggression in expanding the Bank‟s operation. EIB‟s management

team is strong and very ambitious.


BOM expects to keep high growth pace in term of profit and assets. BOM expects PBT to increase by

15% -30% to VND 4,600 – VND 5200 in 2012. , especially, the bank has experience to outperform their

target PBT in the past. The bank is ongoing to expand its operations by increasing number of branches

and acquiring stakes in other banks such as STB in early 2012.

Asset quality and ROE has improved significantly. EIB has improved it ROE from 13.5% in 2010 to

20.2% in 2011. And it expected that ROE will be 20.5% in 2012. This are key metrics for the potential

upside of this stock beside expected high cash dividend payment. BOM expects pay cash dividend of

18% in 2011. Furthermore, a higher cash dividend rate of 20% is planned for 2012

Valuation: At the current price of VND 13,900 per share on date 12 January 2012, EIB‟s multiples (P/E

of 5.48X and P/B of 1.1X) are low in comparison with other listed banks. Especially 2012 PE is the

lowest thanks to potential growth in profit of the Bank.

Brokers‟ Recommendation:

SSI ACBS BVS Vina Mekong JPM

Recommendation: Buy Buy n.a n.a n.a n.a

Target Price: 19,000 VND 19,452 VND n.a n.a n.a n.a

RISKS

Macro risks should not be ignored. The government will prioritize macro stability in 2012 and the

SBV will maintain their tightening monetary policy in 2012.

Asset quality is another issue because the bad debt of the Vietnamese banking system is

expected to rise significantly as tighter regulations set by SBV in risk management and credit

classification will be applied in 2012.

Fiercer competition between banks will persist and we expectinterest rate races will continue

between small and large banks in 2012. banks. Besides, competition from foreign banks will be


Company background: FPT, founded in 1988, is the biggest IT firm in Vietnam. It‟s

equitized in 2002 and listed on the HOSE in 2006. Throughout its history, FPT has experienced consistently high growth. In 2011, revenue and PBT are expected to grow by 30% and 26%YoY, respectively.

Business lines: FPT‟s PBT mainly come from FTG (FPT Trading Group- ICT product

distribution) with 20.6%, F-Tel (providing Internet, online services and Lease line) with 30%, F-Soft( providing software outsourcing) with 11.5%, FIS (FPT Information System) with 24%. Though, the corporation also has business in other sectors like Education (FPT University), Banking (Tien Phong Bank), Securities (FPTS), Fund management (FPT Capital) and Real Estate (FPT-Land).

Management and Corporate Governance

Management team includes both experienced members who possess IT knowledge and 20 years of experience in this industry, as well as young ambitious members who have worked for financial entities for years.


Strengths: Solid balance sheet, the first position in software outsourcing & system

integration industry, the third position in Internet providing, licensed to test 4G, Strong position in online services and education of technology.

Weaknesses: Complex business structure, spread financial investments in Property,

Securities, Banking and Asset management.


Financials (VND) 2008 2009 2010A 2011E 2012E

Sales 16,382 18,404 20,516 26,335 32,147

EBITDA 1,664 2,062 2,960 3,129 3,754

EBIT 1,489 1,852 2,656 2,743 3,277

Pretax Profit 1,240 1,698 2,022 2,598 3,076

Net Profit 836 1,063, 1,264 1,672 2,029

EPS 5,924 7,393 6,598 7,739 8,426

Dividend 2,600 2,500 1,500 1,500 N/A

BVPS 16,814 20,854 20,617 21,216 27,823

STOCK INFO

TARGET PRICE (31/12/2012) VND 59,000

Price (VND) VND 59,000

Current Share Outstanding (mn) 216




ROE 42.3%

ROA 16.1%

FPT Price & Trading Volume

Source: Reuters

Valuation

2011A 2012E

P/E 6.3x 5.8x

P/B 2.3x 1.8x

Estimate

(VND bn) 2011A 2012E

Revenue 26,335 32,147

PBT 2,598 3,076

Earnings 1,672 2,029

EPS(VND) 7,739 8,426

Kien Nguyen

Research analyst

[email protected]

FPT CORP - FPT

Sector: Information Technology

COMPANY PROFILE


2011 PREVIEW AND UPDATE

It was announced that FPT‟s revenue and PBT amounted to VND 22,980bn and 2,270bn in 11M, ,

increasing 23% and 27%, achieving 86% and 89% of whole year targets. It is an encouraging earnings

result and FPT is approaching its whole year targets, respectively. FTel and FSoft have walked through more

than 90% of their profit targets, thus their targets are achievable. F-Education obviously will surpass its target

profit by more than 20% as we expected. FTG just completed about 85-87% of its target revenue and nearly

90% of profit target. The target revenue is unlikely to be achieved but profit target may achievable. FIS is

expected to complete only 95-98% of its profit targets this year.

We expect FPT may achieve 98-99% of its target profit before tax, or equivalent to VND 2,598bn, EPS

2011 and 2012 reach about VND 7,739 and VND 8,426, respectively.

According to the instruction from PM, Viettel will officially take over EVNT since 2012. It is really good news

for FPT since EVN has no reason to keep VND 708bn deposit of FPT related to EVNT deal anymore. In

addition, according to the CEO of FPT, FPT and EVN have completed the procedures for refund of FPT‟s

deposit. We believe that FPT will get back the deposit in cash soon and does not need to make provision by

the year end.

2012 OUTLOOK

According to the CEO of FPT, the company is going to set a target growth of at least 25% in terms of both

revenue and PBT next year. The final target has not yet released, but the company may revise up the targets

if the economy turns positive in Q1/2012.

We see the 25% is another ambitious target of FPT this year. Success of FPT in 2011 was contribution of

excellent FTG result (which grow by nearly 30%) and FPT Telecom. However, FTG is unlikely to make

another surprise in 2012.

FPT is negotiating with SCIC to buy all F-Tel shares held by SCIC. So far, FTel is the subsidiary with highest

profit contribution for FPT. Therefore, fully consolidation of Ftel is likely to be positive for FPT.


At the price of VND 48,600 now FPT is traded at PE 2012 of 5.8x which quite low as compared with its

historical PE.

PE 2012 5.5 6 6.5 7 7.5 8

Price 2012 46,343 50,557 54,770 58,983 63,196 67,409

Given that the price is quite undervalued at the moment and its strong core business, potentials for growth

and ambitious management, we recommend BUY for the stock for 1 year horizon at target price of VND

59,000.


INVESTMENT RISKS

FPT has the ambition to buy back its warrant and FTEL shares. Although the purpose is encouraged, the

price that FPT spend on the deals will affect benefit of shareholders.

Expand to non-IT segment like electronics distribution takes time to assess profitability.

Increasing competition in all main business segments, especially distribution and software outsourcing,

(distribution accounting for 65% of sales) and complex corporate governance are the risks seen in the

coming years.

Changing some top management of holdings and subsidiaries may create some interruptions in

operation


Company background: Founded in 1990 as a small timber manufacturer and

equitized in 2006, after nearly 20 years HAG has grown into a conglomerate with major business encompassing Real estate, Mining, Rubber, Hydro-power and Wood and granite manufacturing. Among which real estate, with clear land bank of more than 600,000m2 mostly in city centers, is the core operation until 2012. HAG is planning to gradually adjust its earnings structure focusing more on rubber, hydropower and mining so as to pillar future business operation since 2012. The company was listed on HOSE in Dec 2008 and its current chartered capital is 3,115 billion VND, the largest listed real estate firm and one of the largest caps in Vietnam.

Business lines HPG currently holds ownership in multiple companies. However, it

has 04 major subsidiaries: (1) Hoang Anh Gia Lai Land JSC (88% owned by HAG), HAGL Rubber JSC (100% by HAG), HAGL Mining JSC (100% by HAG), HAGL Hydro-power JSC (100% by HAG).

Management and Strategy: Mangement team consists of members who have been

active in several industries for the past several years. Mr. Duc Doan, the founder and chairman, has led the firm since inception. From its core business of property development, HAG has entered other 03 key sectors: rubber plantation, Mining and Hydro-power with sustainable approach regarding industry diversification and financing sources.


Strengths:

Well-established brand name thanks to good track records in real estate

business, good endorsement campaign with regional football stars

Strong cost management skills in the fields the Group invests in.

Sufficient natural resources: HAG is licensed to develop 17 hydro-power

plants, plant 51,000 hectares of rubber and exploit 60 million tons of iron ore

in Vietnam, Laos and Cambodia.

Strong relationship with both domestic and overseas authorities/governments

Affordable apartment projects thanks to low input cost, good focal market

segment and assertive sale policies.

Weaknesses

A possible leadership reshuffle may hurt the firm‟s future performance

A bit extreme independence upon the chairman‟s role

Sovereign risks for the firm‟s overseas exposure


Bn VND 2010A 2011E 2012E

Net sales 4,524.9 4,050.0 3,780.0

Operating Profit (EBIT) 1,957.2 1,151.9 1,586.0

Net Profit 2093.6 1209.6 1349.5

EPS (VND) 6,721 2,589 2,888

Total Assets 18,342 23,693 26,125

Total Equity 8,481 9,771 11,200

ROE 11.41% 5.11% 5.17%

ROA 24.7% 12.4% 12.0%

STOCK INFO

TARGET PRICE: 19,414

Price (VND) 18,000

Current Share Outstanding (M) 492




ROE (%) 12.4

ROA (%) 5.11

HAG Price & Trading Volume

Source: Reuters

Valuation

2011E 2012E

P/E 6.95x 6.23x

P/B .86 0.75

Dividend yield

0 0

P/ EBITDA 6.8x 5.0x

Estimate

2011E 2012E

Revenue 4,050.0 3,780.0

Earnings 1209.6 1349.5

EPS 2,589 2,888


Total Assets 23,693 26,125

Dividend Rate

N/a N/a

ADVISORYTƯADVISOR

Cuong Vu

Senior Analyst

[email protected]

HOANG ANH GIA LAI JSC - HAG

Sector: Real Estate, Conglomerate

COMPANY PROFILE

19/01/2012


2011’S REVIEW:

2011 was not a successfully year for HAGL when the firm did not manage to achieve its revised target

earnings while continuing to get negative cash flows from operations and investment activities.

Throughout 2011, HAGL earned its net income of over VND1,700 bn translating into EPS2011 of VND2,589.

Most of the company‟s earnings came from HAG‟s sale of apartments, sale of 5% of its ownership at HAGL

Land and iron ore.

In terms of financing sources, HAG managed to raise several thousand billions VND through second equity

issues and debt financing. HAG extended its list of strategic partners to DB, Temasek and possibly Credit

Suisse. After its capital restructuring, HAG adjusted its leverage ratio to a safety level and pressed its short

term debt ratio to below 20% of its total debts. The existing debt ratio of 30% will help provide the firm a lot of

financial flexibility when it needs to fund several projects in the coming time.

The year 2011 was still regarded as a year of cautious investing decisions for the firm since we have viewed

lots of investments in its rubber and sugar cane while HAG was slowing down its investment in several risky

property projects.

2012’S OUTLOOK:

Real estate: HAG plans on focusing on two of its projects with BIDV, Phu Hoang Anh I (the last block out of

five, Block 5), An Tien (2012) and a mid-income project in Binh Tan district. Since the property portion will be

still critical to the corporation‟s consolidated earnings in 2012, HAG appears more aggressive with its selling

plan in which it may lower its selling prices by 15 – 20% in some of their projects in HCMC.

Rubber: HAGL possess 51,000 ha of land for rubber planting (21,57% in Vietnam and the rest in Laos and

Cambodia), with 7,000 ha planted in 2008, another 5000 ha planted in 2009; 12,000 ha in 2010 and the rest

to be completed in 2011 and 2012. As planned, the company completes planting in 2012 and exploits latex

since this year. However, a significant trunk of rubber sales may not come after 2015.

Hydropower: HAGL continues to invest in its total planned amount of VND 6,300 billion to develop 17

hydropower projects on Highlands, the centre of Vietnam and Laos with total capacity of 420 MW. Two

plants with total capacity of 42 MW have started operation in 2011; two other projects (176MW in total) will

run in 2012.

Mining: HAGL owns iron mines in Vietnam, Laos and Cambodia with estimated reserves up to 60 million

tons. Iron ores will be exploited from 2010. However, the firm has encountered several issues in the field

such as strict regulation upon iron ore activities plus higher export tariff and a change in Cambodia

Government policy regard to the level of capital-intensiveness required for projects in Cambodia. However,

the firm seems to have successfully achieved the exploitation license in Laos, it may commence its activities

in the country from 2012.



Overall, we believe that there will a lot of challenges awaiting HAG in the coming, or at least in 2012: (i) The

property market is not favorable for the firm to sell its apartments, which may negatively impact its 2012

target since its property division still makes a significant contribution to the firm in 2012 and even 2013; (ii)

the ugly capital market may prevent the firm to pursue its plan to sell ownership at Mining JSC and HAGL

Land JSC in 2012; (iii) there is still a possibility that HAG fails to gain a permission to export iron ore

exploited in Vietnam, Laos; (iv) unfavorable macro economy may prevent the firm from raising further debt-

financing in 2012 as planned.

Given the challenges ahead, through traded at forward PE of 6.5-7.0x, a historical low, our view is NEUTRAL

on HAG to this point.

INVESTMENT RISKS:

Earning feasibility: Apartment sales, the current dominant earning driver of HAG, may not be as smooth as

those achieved at launched projects due to the stagnation of apartment markets. Commodity prices may not

sustain their current high, which may affect rubber and mining businesses.

Legal risk: Vientiane and Phnom Penh are likely to issue further regulations on natural resource exports.

Thus, the firm may encounter potential difficulties gaining permits to export iron ore in 2012.


Company background: Hung Vuong JSC (HVG), with its predecessor is Hung

Vuong Ltd which established in 2003 in My Tho IZ, Tien Giang and converted to Joint Stock Company in 2007. HVG is now the largest Vietnamese pangasius exporters and the second largest fisheries exporter in 2009. Its core business is processing and exporting frozen pangasius fillet. HVG is one of the few fully integrated Vietnam fisheries company covering the entire value chain from farming, manufacturing of fish feed, processing, production of frozen fish and cold storage warehousing.

Business Description

HVG is one of the few fully integrated Vietnam fisheries company covering the entire value chain from farming, manufacturing of fish feed, processing, production of frozen fish and cold storage warehousing:

With over 250 ha of fish farms, HVG farming operations has assured the supply for most of its raw material demand. HVG currently has the country‟s largest fish aquaculturing acreage.

With a fish feed production capacity of 420,000 tons/year, HVG‟s two (2) factories have fully met HVG farming demands and any excess is to sold to the domestic market.

HVG has eight (8) processing factories with total capacity of 310,000 tons/year of finished products, which meet all the EU export quality standards.

Total cold storage warehouse capacity is 42,000 tons (30% for HVG processing operations and 70% for warehousing service).

At beginning of 2010, HVG succeeded in the public takeover of Angiang Fisheries Import & Export JSC (AGF) at transaction value of VND 135 billion.

Management and Strategy: HVG business strategy is to continue to lead the

industry as Vietnam largest producer of pangasius fish. HVG management has extensive experience in fisheries sector but its main challenge is also how to drive rapid expansion of the company.


Strengths: HVG developed a fully integrated value chains of frozen pangasius fillet

production. Integrated operations help HVG assure product quality and to control cost. HVG currently is the country‟s largest exporter of pangasius fish.

Weaknesses: Expansion strategy has been recently aggressive, leading to high high

level of account receivables, the collection of which has been a challenge since 2009, as many HVG European clients have be negatively affected by the European economic crisis.


Financials 2009A 2010 2011E 2012E

Sales (Bn VND) 3,087 4,432 7,830 9,860

EBITDA (Bn VND) 323 294 1002 1219

EBIT (Bn VND) 276 195 669 913



EPS (VND) 4,888 4,145 6,992 8,047

Dividend/Share (VND) - 3,000 3,000 3,000

Book Value/Share (VND) 28,558 27,586 31,826 36,081

ROA 10.42% 5.64% 6.74% 6.86%

ROE 22.17% 13.67% 20.85% 20.64%

STOCK INFORMATION

TARGET PRICE 31,000 VND

Price (VND) 20,600

Current Share Outstanding 65,998,073


Foreign Ownership Ratio (%) 6.4%

State Ownership Ratio (%) 0%

ROE 6.7%

ROA 20.85%

HVG vs VnIndex Performance

Source: Reuters

Valuation

2011E 2012E

P/E 2.96x 2.57x

P/B 0.65x 0.57x

Dividend

Yield 14.56% 14.56%

Estimate

2011E 2012E

Revenue

(VND bn) 7830 9860

Earnings 533 610

EPS 6992 8047

Total Equity 2554 2957

Total Assets 6504 5439

Hung Pham

Senior Analyst

[email protected]

HUNGVUONG CORPORATION - HVG

Food Producers

COMPANY PROFILE

15/01/2012


BUSINESS UPDATE:

The company‟s major strategy now is to restructure HVG group:

HVG would try to restructure its company to 3 group of business line for easier management. First is its

pangasius processing and exporting business , second is the farming and fish feed business and last is the

shrimp production (through Faquimex). In addition, HVG would raise stake in subsidiaries and affiliates,

namely AGF (might buy stake from SCIC), VTF, Faquimex (might buy its treasury share - and others) to

51% and more, and final target is to list only HVG on the stock bourse. No new issuance is needed, as they

would use retained earnings to fund this investment. HVG Investor Relation activities would be better, as

HVG relocated its headoffice to Nguyen Du str in District 1 (Hochiminh city CBD).

Expansion in pangasius business should not be expected, as HVG, as well as other largest players in the

field, believed that volume expansion would hurt the bottom line. While others try to add rice trading into

business, HVG still choose shrimp for 2012-and-beyound growth . At the moment, Faquimex is expanding its

shrimp hatchery in Ninh Thuan and imported parent shrimp from Hawaii to aim at not only to producing

quality post larvae, but also to be able to domesticated foreign parent shrimp for sustainable development.

Hung Vuong Tay Nam is also testing its shrimp feed production line and would start to supply to FBT by

March 2012.

For animal feed business, full capacity is witnessed in Hung Vuong Tay Nam and Viet Thang (VTF) and

some time they have to outsource its production, so HVG is in the process of buying another animal feed

company in Dong Thap (total capacity of 60,000 tons per year).

It was reported that Vietnam pangasius sector has faced some difficulties in November and December.

Customers blamed the European debt crisis for tightened credit flow, while Vietnamese exporters are not

willing to give delayed payment, so overall total export volume declined. For HVG, in November, net revenue

was VND 578 bn, about 30% lower MoM, but still 18.4% higher YoY and overall 11-month revenue was VND

7255 bn, 79% higher YoY. Gross margin improved from 12% in Oct to 14.5% in Nov. Net profit was VND 34

bn in Nov, and 11-month net profit was VND 473 bn, or at EPS of VND 6280 and HVG has already beat the

full year target by 15.55%.

There is no significant change in its balance sheet from Oct to Nov. Cash increased by VND 23 bn to 263 bn,

account receivables fell slightly from VND 2393 bn to 2352 bn while inventory edged up VND 10 bn to 1358

bn. We believe that HVG operation is still positive and reiterate our BUY recommendation for HVG.

2012 OUTLOOK

The outlook of the fishery industry will likely be stable in 2012, on the back of gradual switch of customers‟

taste to a more healthy food and a weaker VND. In the pangasius sector, the change of sources of raw

material supplies (from farmers to home-grown farming), a focus on bottom line rather than on aggressive

sale expansion (i.e focus on export price rather than export volume) and stricter export regulation


(introduction of floor price) will be major positive catalysts, despite domestic competition and trade barriers in

export markets. HVG has some 8,800 sqm of land in District 6 of HCM City, which HVG is considering a

number of options to develop.

Financial Policy (mainly dividend policy and leverage): Dividend is normally 30% in cash, Most of HVG loan

is short term to fund its operation (and half of their short term loan is in foreign currency, to enjoy low lending

rate).


Recommendation: BUY

Valuation is attractive for an industry‟s leader in pangasius export. At the moment we believe that investors

sentiment for fisheries stock is improving, but we still keep acceptable P/E level low to be conservative. Our

one year target for HVG is raised to VND 31,127 and we maintain our BUY recommendation with positive

outlook for the company.

Valuation matrixValuation matrix

P/E 3X 4X 5X 6X

Price VND 23,345 31,127 38,909 46,691

One-year target Price: 31,127 VND per share

RISKS

Market access: Main risk is the increase of trade barriers against Vietnam pangasius exporters in coming

years.

HVG‟s recent quick expansion poses some risks: Aggressive expansion led to rapid increase of account

receivables and more exposures to credit losses. Client credit risk management needs to be improved and

better monitored.


Company background: Tien Phong JSC was originally an SOE

established in 1960 to make children plastic toy products then moved to

manufacturing PVC pipes in response to market demand as of 1993. The

company was equitized in Dec 2004 and listed on HNX two years later.

Tien Phong JSC is now the biggest plastic construction pipe in the North

with approximately 70% market share.

Business lines: Core products include: u.PVC (70% of total revenue),

HDPE, PPR pipes and accompanied fittings. The company set up a

subsidiary in Central Vietnam, a JV in the South, a branch in Laos and a

packaging company.


Management team includes experienced members who worked from NTP

for more than 20 years.


Strengths: Market leader with over 70% market share in the North, ample

capacity.

Weaknesses: Dependence on input cost, high leveraged, USD-dominated

loan


Financials (bn VND) 2009 2010A 2011E 2012E

Sales 1,492 1,952 2,232 2,609

EBITDA 385 410 478 529

EBIT 361 383 397 432

Pretax Profit 349 367 350 378

Net Profit 304 313 263 283

EPS 14,013 14,441 6,064 6,541

Dividend 3,000 3,000 1,500 2,000

BVPS 24,952 35,949 19,913 22,691

TARGET PRICE (31/12/2012) VND 32,705


Current Share Outstanding (mn) 43,3

Market Cap (VND Bil ) 134.2

Foreign Owner Ratio (%) 34%


ROE 31%

ROA 29%

NTP Price & trading volume

Source: Reuters

Valuation

2011A 2012E

P/E 4.5x 4.2x

P/B 1.4x 1.2x

Estimate

(VND bn) 2011A 2012E

Revenue 2,232 2,609

PBT 350 378

Earnings 263 283

EPS(VND) 6,064 6,541

Kien Nguyen

Research analyst

[email protected]

TIENPHONG PLASTIC JSC - NTP

Sector: Plastics pipe

COMPANY PROFILE

19/01/2012


2011 PREVIEW AND UPDATE

It is estimated that in 2011, NTP achieve about VND 2,248 and 350bn in term of revenue and PBT,

increasing by 12% and declining 5% YOY , respectively. Although revenue grows strongly, profit declined

due to lower profit margin. Most of revenue increase was contributed from price raise in 1h2011. To boost

sales and increase competitiveness, NTP reduced its PVC products by 5% since Nov 2011.

NTP is going to set up a subsidiary in the central of Vietnam with total capital of VND 120bn. The subsidiary

is likely to bring a lot of benefits to NTP, including tax favors, reduction in transportation cost and serving the

central market, which is estimated to account for one forth of the North market consumption.

2012 OUTLOOK

NTP is going to propose a no growth target for 2012. Although we agreed with NTP that the market

consumption stays low in 1H 2012 due to effect of tightened policies, we see the no growth target is quite

conservative since:

Resin price is declining in Q4/2011; therefore profit margin may improve in Q1/2012

The Company converted all its USD-dominated debt to VND ones, incurring high interest rates instead of

forex loss, thus financial expense will not grow much in 2012.

Profits from associates (NTP in the South) and JVs (NTP in Laos) have not yet been taken into account.

It is just roughly estimated targets suggested by the management of NTP up to now. The official and final

targets will be proposed and approved in AGM 2012.


At the price of VND 27,500 now NTP is traded at PE 2012 of 4.2x which quite low to its historical PE.

PE 2012 3.5 4 4.5 5 5.5 6

Price 2012 22,893 26,164 29,434 32,705 35,975 39,246

We see that the new targets are too conservative and expect NTP will surpass the new ones by few percent.

We still expect EPS 2011 and 2012 stay high at VND 6,064 and VND 6,541. NTP‟s ample capacity and

strong pricing power are still the NTP‟s advantages and the keys to survive and rebound once the

construction sector improve. At current price of VND 27,500, we recommend BUY for the stock for 1year

horizon.

INVESTMENT RISKS

Volatile Resin price, which result from unpredictable oil price movement, affect profit margin of NTP

significantly.


High leverage: Decision to convert all debt from USD to VND also increase opportunity cost for the company

if the forex rate only change slightly in 2012.


Company Background: Bourbon Tay Ninh JSC (SBT) is one of the leading sugar

companies in Vietnam with 15 years history of establishment and development. The company was established on 1995 with 95 million USD charter capital (Group Sucrecries Bourbon (G.B): 70%, Vietnam Sugar Union II: 15%, Tay Ninh Sugar Union: 15%).

In 2000, SBT became 100% foreign-owned company. In 2001, SBT raised its capital up to 113 million USD and on 23 March 2007, the Company was equitized to become Bourbon Tay Ninh JSC and its charter capital was up to 1,419 bn VND. SBT was listed on the stock market in 2008.

In December 2010, Group Sucrecries Bourbon transferred its SBT shares to Thanh Thanh Cong JSC, Dang Thanh Co., Ltd. and SBS.

Business Lines and Market Position: The company has one sugar plant in Tay

Ninh province with its designed capacity of 9,000 tons sugar cane per day. Besides that, SBT has one join-venture company (49% of Bourbon An Hoa JSC).

Main product of SBT is refined sugar (RE) which accounts for 88% - 90% of the total sales value. Its total output is 7.08% of the whole country‟s sugar output in 2010-2011 season. Its total output is expected to amount to 95,000 tonnes, accounting for 6.73% of the whole country‟s sugar output in 2011-2012 season. The company‟s market is mainly in the South of Vietnam and the majority of its revenue comes from whole sale activities.

Management and Strategy: In late 2010, SBT changed its management team with a

new Chairwoman Ms. Huynh Bich Ngoc (Thanh Thanh Cong‟s Chairman) who replaced Mr. Jacques Chateuvieux and Mr. Nguyen Ba Chu (Thanh Thanh Cong‟s Deputy Director) replaced Ms. Phan Thi Thu Huong to be the C.E.O of SBT. SBT‟s corporate governance is said to be not so good.

Strength and Weaknesses:

Strength:

Production lines of SBT were invested with modern technology with the highest design capacity among other factories in Vietnam;

Good quality product thanks to modern technology;

The highest liquidity stock among sugar stocks.

Weakness:

SBT‟s sales mostly come from whole sales activity;

Brandname is not so popular in retail market;

Not good corporate governance.

Financial Summary


Net Sales (Bn VND) 771 1,104 1,763 2,031

EBITDA (Bn VND) 242 413 607 701

EBIT (Bn VND) 169 341 533 619



EPS (VND) 1,484 2,444 3,608 4,158



EV/EBITDA n.a n.a n.a n.a

ROA 11.6% 18.2% 25.4% n.a

ROE 13.6% 20.1% 27.6% 28.8%

STOCK INFO


Price (VND) 12,000

Current Share Outstanding 131,252,330




ROE (2011): 27.6%

ROA (2011): 25.4%

SBT Price & Trading volume

Source: Reuters

Valuation

2011E 2012F

P/E 3.33 2.89

P/B 0.81 0.71

Dividend yield

16.7% 20.8%

Estimate

Bn VND 2011E 2012F

Revenue 1,763 2,031

Earnings 512 590

EPS (VND) 3,608 4,158


Total Assets N.a N.a

Dividend

Rate 20% 25%

Giang Nguyen

Senior Analyst

[email protected]

SOCIETE DE BOURBON TAY NINH JSC - SBT

CONSUMER STAPLES

COMPANY PROFILE

08/01/2012


2011 REVIEW

We estimate that 2011‟s sales will be VND 1,763 billion or 59% increase YoY thanks to 18% and 35% rise in

selling price and sales volume, respectively. It means exceeding 10% its sales target for year 2011 (VND

1,600 billion). Year 2011 saw a success of SBT when it used 80% of designed production capacity for the

first time. In the past year, this ratio was low, at only 60% - 65%.

We estimate that 2011‟s net income will be VND 512 billion or 48.3% increased YoY. 2011 EPS is estimated

at VND 3,608. On the last trading day of 2011, SBT was traded at current PE 3.33x.

SBT completed factory expansion in September 2011 and upgraded designed capacity by 1,000 sugar cane

ton per day to 9,000 ton per day. This is the first stage of SBT‟s road map to raise its production capacity up

to 16,000 sugarcane tons per day by 2015.

In 2011, SBT bought back 13 million treasury shares in total. SBT continuously bought BHS stock and as of

9 November 2011, SBT held 6.8 million shares or a 22.72% stake at BHS.

In July 2011, SBT registered to buy 7.5 million shares of STB. After that, in November 2011, it continued to

register to buy 4 million shares of SCR. These transactions raise investors‟ concern over SBT‟s corporate

governance.

2012 OUTLOOK

According to SBT‟s production plan for 2011 – 2012 crop, area for planting sugar-cane will increased from

12,178 ha to 14,000 ha. Production capacity will be 9,000 sugar-cane tons per day for the whole year 2012.

As a consequence, sugar volume is expected to increase by 18.75% or 1,500 tons to 95,000 tons in 2012.

However, we expect a decline in sugar price in 2012 in the context of oversupply in both Vietnam‟s market

and global market. Therefore, we estimate that 2012 sales will grow by around 15.2% up to VND 2,031

billion.

The Company plans to continue to increase its production capacity which will be in line with its ability to

expand the plantation area for sugar cane. According to SBT, in 2012, it can increase the capacity to 12,000

sugarcane tons per day.

We estimate that 2012 net profit will be up by 15.25% YoY to the amount of around VND 590 billion. If the

Company does not increase charter capital in 2012, EPS is estimated to be VND 4,158 or 15% YoY

increase.


PE (2012) 2.50 3.0 3.5 4.0 4.5 5.0 5.5

Price 13,615 14,655 15,694 16,734 17,773 18,813 19,852


Recommendation: BUY with the 1 – year target price of VND 16,734 or 39% upside from the current price of

VND 12,000/share.

High growth of both sales and profit expected in 2012;

Being one of market leaders in Vietnam‟s sugar market (rank No. 3 in terms of sugar output, behind LSS and

Casuco)

Focusing on core business;

Multiples including PE an PB are currently low;

High dividends yield ( > 15%) which is really attractive.


Company background Established in 1963, VCB was originally Foreign Currency Department of SBV which was split to become a bank specializing in foreign related transactions. VCB was the first and the only bank in Vietnam at that time.

In 1996, VCB was reorganized to become a commercial bank with expanded business operations in retailed banking and corporate banking beside its traditional businesses of trade finance and FX.

VCB was equitized in 2007 and its IPO was in Dec 2007. VCB was then transformed into a joint-stock commercial bank in June 2008, but the majority ownership (above 90%) is still held by the State.

VCB made its debut in HOSE on 30th June 2009. At this moment, VCB only lists about 1/10 of its authorized outstanding shares on the HOSE, and only this portion is counted in the VNI Index.

Business lines: Vietcombank currently has five (5) subsidiaries: (1) Vietcombank Securities JSC (100%); (2) Vietnam Finance Company (100%); (3) VCB-Money Company (75%), (4) Vietcombank Financial Leasing Company (100%) and (5) Vietcombank Tower Company (70%).

Key earning drivers of Vietcombank are interest income, fee and commission income and forex trading.

Management and Strategy: Vietcombank is conservative in its expansion plan with modest targets to better control risk. The Board of Directors of Vietcombank is all appointed by the state and no one really stands out to influence the operation of the bank.

STRENGTH AND WEAKNESSES:

Strengths:

VCB owns unique advantages including scale, market share, brand name, a large customer base, IT systems, human resources, stakes in large corporations and especially a leading position in trade finance, forex and debit/credit cards. These are elements that differentiate VCB with other competitors.

Scale & Market share: 3rd largest bank in terms of asset, 4th largest bank in terms of total outstanding loans, 5th largest in terms of branch coverage with more than 200 branches nationwide and 1st position in terms of ATM network with 1,244 ATMs. Trade finance market share: 20% (No.1). Export and import payments: 20% of total payment (No.1). Market share in terms of number of debit and credit card issuance: 18% & 33%; in terms of international card payment: 52% (No.1). Debit card name: Connect24 (>3 million cards issued).

Brand & Credibility: established over 45 years, Vietcombank is well-known brand, which is trusted by Vietnamese individuals and organizations. VCB has relationships with 1,300 correspondent banks in 90 nations, a strength that few banks in Vietnam can replicate.

Customer base: Traditionally focusing on wholesale banking, VCB has close relationships with large corporations such as Petro Vietnam, EVN, VNPT, Vinafood. In the expanding to retail and SME banking, VCB has attracted many individuals and SMEs to its client portfolio. Brand, scale, branch coverage, IT system will help VCB to penetrate these new banking segments.

IT system: VCB owns one of the best systems in Vietnam. It has made substantial investments in IT thanks to assistance of World Bank and the State. In its development strategy, VCB also identifies IT as its competitive edge and will invest more to upgrade its systems. Scale and capital are advantages of VCB as smaller banks hardly have large capital investments in IT.

Human resource: VCB‟s staff is known to be better than competitors thanks to its standardized and regular training.

Financial highlights: VCB has one of the highest ROE ratio among banks for many years thanks to sustainable growth of earning from fees and forex besides interest income. ROE 2010 was 20% and estimated ROE 2011 is approximately 17%. However, NPL level is high.

STOCK INFO


Price (VND) 20,600





ROE (2011) 15.6%

ROA (2010) 1,4%

VCB Price & Trading Volume

Source: Reuters

Valuation

2011E 2012E

P/E 9.8 11.7

P/B 1.2 1.5

Dividend yield

6% 8%

Estimate

VND Bn 2011E 2012E


EPS (VND) 2,028 2,325

Total Assets 369,200 424,580

Phong Tran

Senior Analyst

[email protected]

VIETCOMBANK - VCB

BANKING SECTOR

COMPANY PROFILE

18/01/2012


Strong capital capabilities: The bank will strengthen its capital capabilities and could get a healthier its

Balance sheet and improve its risk profile, further to the support by strategic partner Mizuho.

Weakness:

SBV‟s intervention on financial markets is executed through 4 state-owned banks (or formerly state-own

banks), including VCB, which can cause VCB to be diverted from its main goal of achieving shareholder

value. VCB probably follows guidance from SBV to limit credit growth in entire banking system, which

may reduce VCB‟s market share if banks increase credit growth to gain market share.

According to VCB, the state will sell more stakes in VCB to eventually reduce its ownership to 51%.

2011 Updates

2011 Financial performance: according to VCB‟s BOM, as of 31/12/2011, the bank‟s PBT is VND

5,700, achieving 100% its initial target for 2011. Deposit growth has increased by 14% and credit has

increased by 13.5%. Its total asset reached VND 360,000 billion or a 17% increase.

Asset quality: BOD reported that their NPL figure is higher than those of other commercial banks

because VCB pursues a conservative strategy in NPL classification as they actively classify NPL in

accordance with international standards.

Mizuho has one member in the BOM, one person in the BOD and has sent 5 bank experts to support

VCB‟s operation

2012 OUTLOOK

2012 Plan and outlook: BOM has expected Solid growth for next year with credit growth balance to

average credit growth of banking system (around 15% -17% yoy). They will maintain their position in

deposit as they expect a 15%-20% deposit growth. However, they estimate a 10%-15% PBT growth and

NPL will maintain below 3% for next year.

VCB’s policy role in banking system’s restructure: according to BOM, they has experience in

supporting small banks to restructure in the past. It will likely play its political role and be available if SBV

asks them to support small banks. However, they just offer support in operation and business and will

not invest in these banks.

Initial Target for 2012

Profit before Tax Credit growth Deposit growth Total asset growth

(VND bn) Change (%) (%) (%)

VCB 6,900 15% 15% 20% 15%

The banking sector should undergo some consolidation in next few years, after a high growth period in

2007 to 2010. SBV will likely limit credit growth in the banking sector at 15% to17% in 2012.


We forecast that in FY2012, VCB will likely record loan growth of 15% YoY in line with banking sector

growth and a higher NIM FY 2012, as VCB will continue to receive cheap funding sources from OMO

window and Refinancing window.

VCB will continue leading the banking industry in international payments, USD – denominated lending

and on interbank market.VCB will derive more interest income in 4Q 2011 & 1Q2012 , thanks to their

strong equity of VND 23,178 billion and additional US $500 million sale of 15% equity stake to Mizuho

Bank. We expect net interest income to grow at normal rate of 20% - 25% YoY and to contribute 80% -

85% of total operating income in FY 2012 (compared to 83% currently).

Based on the above assumptions, we expect the bank‟s PBT to reach 7,186 billion (up 15% YoY in FY

2012), resulting in a forecast EPS of VND 2,325 and a BVPS of VND 18,196


Positive/Negative Factors

Positive:

2012 outlook profit moderate: we believe that VCB will achieve its 2012 earning target as the bank

has the advantage of scale, a large customer base and strengths in foreign exchange, trade finance

and settlement business.

Support from its strategic partner: The bank will benefit from the experience and contribution of

its strategic partner Mizuho Corporate Bank The bank will strengthen its capital capabilities and may

get a more healthy Balance sheet and improve its risk profile and CAR ratios.

Scope of Business Alliance

(i) The business alliance will involve mutual cooperation in corporate transaction fields including investment

banking and securities business beginning with syndicated loans, project finance, trade finance and

settlement operations. It will take advantage of the corporate customer base of both bank groups and the

financial expertise of MHCB, Mizuho Bank, Ltd. and Mizuho Securities Co., Ltd. Formation of an alliance

in retail and consumer finance in Vietnam will also be targeted.

(ii) The Three Companies will provide technical support to Vietcombank through training of personnel etc.,

including providing expertise in areas such as products, risk management, and internal control.

(iii) Other opportunities for business partnerships with all MHFG companies, not limited to the Three

Companies, will also be considered.


Maintain BUY and forecasts. We maintained our BUY recommendation for VCB. Target price: VND

27,500

RISKS

Macro risks should not be ignored; as The government signals to prioritize macro stability in 2012 and

SBV extend their tightening monetary policy in 2012.

Asset quality is another issue as the bad debt of the Vietnamese banking system is expected to rise

significantly as tighter regulation set by SBV in risk management and debt classification in 2012.

Fiercer competition between banks will persist and we will continue to see interest rate races between

small and large banks. Besides, competition from foreign banks will be more intense since they will be

allowed to raise capital in VND from 2012 in the same way as local banks. We expect this will have an

impact upon local banks‟ profitability.


Company Background: Vietnam Dairy Products Joint Stock Company (Vinamilk)

was set up in 1993 as a State-owned enterprise. It was equitized in 2003. It went listing on HOSE in Jan 2006 with ticker of VNM. Since then, VNM has been always one of the leading stocks on the exchange.

Vinamilk has 3 branches, 4 wholly-owned subsidiaries, 2 associates and 2 joint controlled entities. It now has 9 factories (excluding factories of its subsidiaries) across the country of which 8 are dairy ones. Besides, one of its subsidiaries (Lam Son Dairy one member Co., Ltd.) also has a dairy factory in Thanh Hoa province. It has 250 distributors and 170,000 retail outlets so far.

Business Lines and Market Position: Vinamilk has a very wide range of products

including drinking milk, yoghurt, milk powder, condensed milk, soya-bean milk, juice, tea, ice cream and cheese under some brand names such as Vinamilk, Dielac, Ridielac, Probi, Susu, Longevity, Southern Star and V-fresh.

10% and 14% of its sales value came from export market in 2010 and 2011, respectively. Vinamilk is market leader of Vietnam‟s dairy market. Its market position in Vietnam is very strong with the largest market share in all its main market segments. In 2010, Vinamilk dominated condensed milk and yoghurt with the market share of 88% and 71%, respectively. Its market share in drinking milk segment was 40.9%, ranking the first. It was the second largest company in baby food (milk powder) with 18.5% market share, behind Abbott Vietnam (23.8%) and in ice crease with 14.2% market share, behind Kinh Do Corporation (25.5%). In cheese segment, VNM also held number three and a market share of 6.4%.

Management and Strategy: Management team has been active in the industry for a

long time. The CEO, Ms. Mai Kieu Lien, has an experience of more than 33 years in FMCG industry. VNM‟s corporate governance is said to be one of the best in Vietnam. After some failure of expanding to other businesses, i.e. coffee, beer, etc., than dairy in the past, Vinamilk now refocus on its core business.

Strength and Weaknesses:

Strength: Economies of scale as the market leader in the Vietnamese dairy sector;

Dairies factories across the country; Popular brand name with customers, especially in domestic market; Human resources: aggressive and experienced; Long-term relationship with local and foreign suppliers; A diverse product range; An appropriate strategy to focus on core business.

Weakness: Strongly dependent on imported dairy materials. Currently, around 70% -

75% milk powder is imported which makes Vinamilk‟s highly dependent on the fluctuation of international dairy price and foreign exchange rate. As of 31 December 2010, the Company has only 5 farms to raise 5,657 dairy cows. Its own farms supplies only 6.55% of its local dairy materials. The remaining is purchased from farmers.

Financial Summary


Net Sales (Bn VND) 10,614 15,753 20,810 26,100

EBITDA (Bn VND) 2,574 3,637 4,756 6,093

EBIT (Bn VND) 2,340 3,347 4,353 5,593


Net Profit (Bn VND) 2,376 3,615 4,057 5,097

Adjusted EPS (VND) 4,513 6,834 7,466 9,380



EV/EBITDA N.a N.a N.a N.a

ROA 32.9% 37.6% 32.2% N.a

ROE 42.4% 50.0% 40.7% 37.8%

STOCK INFO


Price (VND) 80,500

Current Outstanding Shares 555,849,514




ROE (2011): 40.7%

ROA (2011): 32.2%

VNM Price & Trading volume

Source: Reuters

Valuation

2011E 2012F

P/E 10.78 8.58

P/B 5.62 4.47

Dividend yield

3.7% 3.7%

Estimate

2011E 2012F

Revenue 20,810 26,100

Earnings 4,057 5,097

EPS 7,466 9,380


Total Assets 14,450 N.a

Dividend Rate

30% 30%

Giang Nguyen

Senior Analyst

[email protected]

VIETNAM DAIRY PRODUCTS JSC - VNM

CONSUMER STAPLES

COMPANY PROFILE

07/01/2012


2011 REVIEW

We estimate that 2011‟s sales will be VND 21,235 billion or 32% increase YoY thanks to 19.5% and 10.5%

rise in selling price and sales volume, respectively. It means the company exceeds a little by 3% compared

with its sales target for year 2011 (VND 20,560 billion). Year 2011 saw a success of Vinamilk when it

reached sales of around USD 1 billion one year sooner than plan. Export sales also had good results when

amounted to USD 140 million (+72% increase YoY) or 14% of the total sales.

We estimate that 2011‟s net income will be VND 4,057 billion or 12% increased YoY. In spite of high growth

of sales, net income may be only up by 12.2% YoY because VNM had an extraordinary profit from

transferring Saigon Coffee factory to Trung Nguyen in return of around VND 384 billion (net) in 2010. 2011

EPS is estimated at VND 7,466. On the last trading day of 2011, VNM was traded at current PE 11.59x.

The Company continued its plan to invest and upgrade its dairy plants in 2011. On 27 September 2011,

VNM signed a VND 300 billion contract with Coteccons relating to the construction of Dielac Factory No. 2 in

Binh Duong province. Danang factory is expected to commence its operation in late 2011. The construction

of Mega Binh Duong factory is as scheduled and it is expected to be in operation in late 2012.

In 2011, Vinamilk had raised its selling prices several times, mostly in 1Q11. However, after that, it kept

selling prices unchanged in the last three quarters of 2011, following the State‟s price stabilization scheme.

Meanwhile, in 1Q11, the Company raised fresh milk collection price several times in order to support

domestic farmers in the context of high inflation. Furthermore, international milk powder price in 2011 was

high in comparison with that of 2010. As a result, VNM‟s gross margin is expected to fall to 30.7% in 2011

(2010: 32.2%).

Notable events in 2011:

Date News/Events Results/Impact

25 Mar 2011

2011 Annual General Meeting

Approve the plan to issue bonus share for existing shareholders at 2:1 ratio This plan partially helped VNM gain 59.32% in 2011, significantly outperforming the VN Index (decline by 27.66%)

13 Sep 2011

Cash dividends of VND 2,000/share

Remaining cash dividends of 2011 will be VND 1,000 per share.

30 Dec 2011

Listing of new bonus shares on HSX

Listing shares increased by 1.5 times to 556,114,754 shares at year end

2012 OUTLOOK

We estimate that VNM‟s 2012 financial results continue to be positive. Its sales are forecast to grow by

around 25.4% YoY up to VND 26,633 billion. We estimate that 2012 net profit will be up by 25.6% YoY to the

amount of around VND 5,097 billion.

If the Company does not issue new shares in 2012, estimated EPS will be VND 9,380. At the market price of

VND 80,500/share on 6 Jan 2011, 2012 PE will stay at 8.58x which is quite attractive compared with VNM‟s

historical PEs.


As planned, in late 2012, Mega Binh Duong plant (Stage 1 production capacity: 400 liters per year) and

Dielac No.2 (production capacity: 54,000 tonnes per year) will go into operation. These plants will raise

VNM‟s total production capacity significantly from the level of 677,150 tonnes as of 31 Dec 2010. We expect

a considerable increase in sales and profit of VNM in 2013 and thereafter.


PE (2012) 9.5 10.0 10.5 11.0 11.5 12.0 12.5

Price 89,106 93,796 98,486 103,176 107,865 112,555 117,245

Recommendation: BUY with the 1 – year target price of VND 105,052 or 30% upside from the current price

of VND 80,500/share.

Sustainable demand for dairy products (CARG = 7.8% in volume in 2011 – 2015);

High and stable growth of both sales and profit;

Being the market leader of local dairy market;

Focusing on core business (amounted for 85%-90% of profit);

Good corporate governance;

High liquidity and leading stock with good investors‟ sentiments;

Ongoing investment and upgrading current milk plants; exploring new material zones.


Company background: VSH is a hydropower plants operated since 1994. With total

capacity of 136MW, VSH generates average 850-900mn KWh/year. Besides generating electricity, VSH also provides admin, operation, maintenance services related to power projects.

Business lines: Most of revenue comes from electricity (99.7%) and the rest is from

maintenance and other services. The company has a subsidiary (VSH technical service and consulting Limited Company-100%) and an associate (BinhDinh tourism JSC-49.72%).


BOM include 5 members: chairman and CEO which are representatives of EVN, one member from SCIC and the 2 independent members (one is from Vinacap , the other is former chairman of company). The 3 independent members set up the electricity price negotiation board (without 2 dependent members- the Chairman and CEO).


Strengths: Location enjoys stable water level and weather, VSH generates stable

electricity output through years. VSH is the company with highest profit margins in the sector, good fundamentals with potential of capacity expansion.

Weaknesses: since EVN still hold 32% of VSH, EVN has high bargaining power,

delaying the electricity price finalization. Business model is heavily affected by water level.


Financials (bn VND)

2008 2009 2010A 2011E 2012E

Sales 484 518 425 500 483

EBITDA 447 469 381 439 432

EBIT 296 318 230 287 302

Pretax Profit 370 387 325 387 371

Net Profit 370 375 302 356 345

EPS 2,698 1,816 1,474 1,728 1,673

Dividend 1,800 400 1,000 1000 n.a

BVPS 15,572 10,963 11,772 12,999 14,170

STOCK INFO

TARGET PRICE (31/12/2012) VND 9,200


Current Share Outstanding (mn) 202




ROE 14%

ROA 10.7%

VSH Price & Trading Volume

Source: Reuters

Valuation

2011A 2012E

P/E 4.8x 4.9x

P/B 0.6x 0.6x

Estimate

(VND bn) 2011A 2012E

Revenue 500 483

PBT 387 371

Earnings 356 345

EPS(VND) 1,728 1,673

Kien Nguyen

Research analyst

[email protected]

VINH SON-SONG HINH HYDRO POWER JSC COMPANY PROFILE


2011 PREVIEW AND UPDATES

In 2011, VSH generated about 918mn KWh, much higher than its initial estimate of 750mn KWh. The

outstanding performance is thanks to better weather and high rainfall this year. The high water level at

reservoirs also guarantees the high output in Q1/2012.

VSH and EVN have not come to the final electricity price of 2010. The two parties are waiting for final

decision from MOIT. EVN failed to refund VND 500bn loan that has already been overdue in Sept 2011. In

Dec 2011, VSH held an AGM but failed to seek out solutions to the two issues mentioned above. The

company also paid cash dividend of VND 2000/share for 2010 and 2011.

2012 OUTLOOK

VSH is likely to continue to set a low target at 750mn KWh output in 2012. The high water level at reservoirs

only guarantees high output in Q1/2012. However, we expect that VSH will surpass its target in 2012.

However, unfinal electricity price creates a lot of uncertainties related to performance of VSH. Overdue loan

also is another concern for shareholders and investors.

VSH is implementing some projects of Thuong Kontum and Vinh Son 2&3. The projects are expected to be

completed in 2014-2016 with total capacity of 3 times higher than current VSH‟s one.


At the price of VND 8.300 now VSH is traded at PE 2012 of 4.9x which quite low to its historical PE.

PE 2012 4 4.5 5 5.5 6 6.5

Price 2012 6,690 7,527 8,363 9,199 10,035 10,872

With a stable output and highest profit margin in the sector, VSH is the most attractive stock in the electricity

sector. At current price, we recommend HOLD for the stock since risk of a decrease in price of electricity

sold to EVN is still persistent.

INVESTMENT RISKS

Pending issues, including the price has not yet finalized and long lasting overdue loan to EVN are biggest

risks of VSH.

EVN is holding more than 30% of VSH, controlling VSH through 2 representatives of CEO and Chairman.

SCIC, which is holding 24% of VSH, is not active in fighting against EVN for benefits of the company.


DISCLAIMER

RATING Within 12-month horizon, SSIResearch rates stocks as either BUY, HOLD or SELL determined by the stock‟s expected

return relative to the market required rate of return, which is 22% (*). A BUY rating is given when the security is

expected to deliver absolute returns of 22% or greater. A SELL rating is given when the security is expected to deliver

returns below or equal to negative 10%, while a HOLD rating implies returns between negative 10% and 22%.

*The market required rate of return is calculated based on 1-year Vietnam government bond yield and market risk premium derived from using Relative Equity Market Standard Deviations method. Our rating bands are subject to changes at the time of any significant changes in the above two constituents.

The information, statements, forecasts and

projections contained herein, including any

expression of opinion, are based upon sources

believed to be reliable but their accuracy

completeness or correctness are not guaranteed,

Expressions of opinion herein were arrived at after

due and careful consideration and they were based

upon the best information then known to us, and in

our opinion are fair and reasonable in the

circumstances prevailing at the time, Expressions of

opinion contained herein are subject to change

without notice, This document is not, and should not

be construed as, an offer or the solicitation of an

offer to buy or sell any securities, SSI and other

companies in the SSI and/or their officers, directors

and employees may have positions and may affect

transactions in securities of companies mentioned

herein and may also perform or seek to perform

investment-banking services for these companies.

This document is for private circulation only and is

not for publication in the press or elsewhere, SSI

accepts no liability whatsoever for any direct or

consequential loss arising from any use of this

document or its content, The use of any information,

statements forecasts and projections contained

herein shall be at the sole discretion and risk of the

user.

Institutional Research & Investment Advisory

Phuong Hoang

Director of

Institutional

Research &

Investment

Advisory

409 [email protected].

vn

Hung Pham Senior Analyst 637 [email protected]

Cuong Vu Senior Analyst 440 [email protected],vn

Phong Tran Senior Analyst 1951* [email protected]

Giang Nguyen Senior Analyst 430 [email protected],vn

Kien Nguyen Analyst 510 [email protected]

Khoa Do Analyst 670 [email protected]

Trang Pham Analyst 537 [email protected]

Nga Nguyen Analyst [email protected]

Ngoc Tran Team

Assistant 775

[email protected],v

n

* Tel (848) 3 824 2897, those Extension without * please

dial (844) 3936-6321

mailto:[email protected]



mailto:[email protected],vn









STRATEGY_DEC2011 &_SSI

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