VIETNAM CONTAINER SHIPPING JSC (VSC) · gateway ports in Haiphong (Lach Huyen port) and Ba Ria –...

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INITIATING COVERAGE: HOLD

Current price (3/27/2015): VND 50,000

Target price: VND 54,800

Short-term trading recommendation Hold

Mid-term resistance level 54,000

Mid-term support level 49,000

Bloomberg ticker: VSC VN Exchange: HSX

Industry: Logistics

Beta 0.96

52w High / Low (VND’000) 71.0/48.0

Outstanding shares (mn) 34.4

Market cap (VNDbn) 1,718.7

LTM Avg trading vol (shares) 57,750

Foreign-owned ratio (%) 49.0%

Year Div.Yield EPS (VND)

2015 VPBS Forecast 1.0% 5,643

2014 3.0% 7,182

2013 7.0% 8,394

2012 8.0% 8,022

2009-14

CAGR

2015E

(VNDbn)

2015-19

CAGR

Revenues 14.3% 863.1 12.0%

EBITDA 11.7% 342.4 11.4%

Net income 9.9% 233.9 8.5%

2014 VSC Selected

peers VNI

P/E 6.9x 8.0x 13.3x

P/B 1.6x 1.4x 1.9x

Debt/Equity 1.2% 24.8% 112.7%

Profit margin 27.8% 25.0% 9.7%

ROE 25.6% 20.0% 14.7%

ROA 18.9% 14.8% 2.8%

Company description:

VSC was established in 1985 as a state-owned entity

and listed its shares on the Ho Chi Minh Stock

Exchange (HSX) in 2008.

The business lines include port operation (60 percent

of 2014 revenues), container yard operation (20

percent), container freight station (10 percent) and

others (10 percent).

2014 results: Total assets: VND1,495 billion (USD70

million); Net revenues: VND891 billion (USD42 million);

Net income: VND248 billion (USD12 million).

We initiate coverage of Vietnam Container Shipping JSC (VSC)

with a long-term HOLD recommendation based on the following:

High growth in revenue and net income from 2016:

New port will increase container throughput: VSC will put its VIP

Green Port (located at a preferred position in Nam Hai Dinh Vu

area) into operation in 2016. We forecast that the container

throughput of the company will increase by 39 percent and the

company will enjoy 35 percent growth y-o-y in port revenue in

2016. We expect this segmental revenue to have a CAGR of 12.4

percent from 2015 to 2019, leading to a CAGR of 12.0 percent in

VSC’s consolidated revenues in the same period.

Flat growth in other segments: Other segments have reached

full capacity and will record stagnant growth.

Stiffer competition will slow earnings growth: Increased

competition will cause margins to tighten so that consolidated

net income will grow with a CAGR of 8.5 percent, compared to

12.0 percent for revenue growth.

Stock seems to be fully valued:

Higher P/E in future due to stock dilution: VSC’s LTM P/E ratio is

slightly lower than its peers despite its higher ROE and ROA.

However, with the issuance of bonus shares (20 percent on par),

the company’s P/E ratio is expected to grow higher in 2015.

Underperforming its peers: During the last 12 months, VSC’s

stock price decreased 13.2 percent, underperforming not only its

peers (+2.8 percent) but also the VN-Index (-6.6 percent).

Please see important disclosure information at the end of this report.

-40

-30

-20

-10

0

10

20

3/14 4/14 5/14 6/14 7/14 8/14 9/14 10/14 11/14 12/14 1/15 2/15 3/15

1 year % price change

VSC Peer Index VN-Index

VIETNAM CONTAINER SHIPPING JSC (VSC) March 30, 2015


CONTENTS

INDUSTRY OVERVIEW: PORT AND MARINE TERMINALS IN HAIPHONG ......................................................................... 3

COMPANY OVERVIEW ............................................................................................................................................................. 5

Ownership and management structure .............................................................................................................................. 5

Market position ..................................................................................................................................................................... 7

BUSINESS ACTIVITIES ............................................................................................................................................................. 8

Port operation: establishing new port in favorable position ............................................................................................ 8

Container yard operation: volume decreased .................................................................................................................. 11

Container Freight Station: bright growth prospect from new CFSs ..................................................................................... 12

Other segments: decreasing revenue from barging........................................................................................................ 13

BUSINESS PERFORMANCE ................................................................................................................................................... 14

Growth ................................................................................................................................................................................. 14

Profitability and efficiency .................................................................................................................................................. 16

Solvency and liquidity ........................................................................................................................................................ 16

FORECAST ASSUMPTIONS ................................................................................................................................................... 17

VALUATION ............................................................................................................................................................................. 18

DCF model ........................................................................................................................................................................... 19

Market multiple ................................................................................................................................................................... 19

TECHNICAL ANALYSIS .......................................................................................................................................................... 20

CONCLUSION .......................................................................................................................................................................... 21

APPENDIX – VPBS PROJECTION........................................................................................................................................... 22


INDUSTRY OVERVIEW: PORT AND MARINE

TERMINALS IN HAIPHONG

Vietnam has a sizable seaborne trade thanks to its preferable location. Statistics of

the Vietnam Marine Administration (Vinamarine) showed that the throughput in

Vietnam reached 370.3 million tons in 2014, representing a compound annual growth

rate (CAGR) from 2009 to 2014 of 8.1 percent. Container trade grew with a higher

CAGR of 16.7 percent during the same period to achieve 10.2 million TEUs (twenty

foot equivalent unit of a container) in 2014. Vinamarine has sets a 2015 target for

cargo throughput of Vietnamese port systems of 407 million tons, up 10 percent y-o-y.

The World Bank also estimated that the nationwide container volumes would grow at

an average annual rate of eight to nine percent through 2020. If so, the current

capacity of Northern seaports will be insufficient to meet market demand by 2018.

However, because of additional capacity from newly established seaports under the

master plan, there should be abundant supply.

Ports in the Haiphong area accounted for 17.8 percent of 2014 market share of

Vietnam’s port system. From 2009 to 2014, this area had a CAGR of cargo throughput

of 14.6 percent, which was higher than the growth rate of all Vietnam’s port system

(8.1 percent).

In our view, the volume throughput of Haiphong port area will grow from 14 percent

to 16 percent per year till 2020. The main reasons are as follows:

The rapid growth rate of manufacturing activities in the North area (e.g.

electronics, garment and tires);

Support from growing cross-border trade with southern China, through the

border gates at Mong Cai, Lang Son and Lao Cai;

The improving quality of infrastructure connecting from/to Haiphong City.

Recently, Vietnam has put into operation many highways such as: Haiphong –

Quang Ninh highway and Haiphong – Hanoi highway, etc., leading to the

reduction in transportation time as well as logistics cost, which creates a

competitive advantage for this area.

From 2015 to 2020, thanks to

higher growth import and

export activities, we expect

cargo throughput via Haiphong

port system will increase 14%

to 16% per year.


According to the newest master plan on development of Vietnam's seaport system

through 2020 with orientations toward 2030, in the Decision 1037/QD-TTg of the

Prime Minister dated June 24, 2014, total throughput of Vietnam is estimated to

achieve from 400 to 410 million tons in 2015 and 640 to 680 million tons in 2020.

Therefore, seaports which can serve huge ships will be built up such as: international

gateway ports in Haiphong (Lach Huyen port) and Ba Ria – Vung Tau (Cai Mep – Thi

Vai port), along with Van Phong – Khanh Hoa transshipment port.

Volume of cargo throughput of Vietnamese ports

Source: Vinamarine, VPBS collected

According to the Decision, Lach Huyen port will come to full operation in the coming

years. It includes two components:

Component A has investment capital of VND18,600 billion (USD885 million),

sponsored by ODA from the Japanese Government and Vietnamese reciprocal

capital under public–private partnership methods in order to build infrastructure

for the port during the plan.

Component B includes two harbors which can accommodate up to 100,000 DWT

(deadweight tonnage, one DWT equivalent to one ton) ships with investment

capital of VND6,500 billion (USD309 million) from a joint venture between Saigon

Newport (51 percent) and Molnykit Company – Japan (49 percent).

The project was expected to be completed and fully operational by the middle of

2017. According to the Ministry of Transport, after operating, Lach Huyen Port will

accommodate vessels up to 8,000 TEUs in the next period. The import and export of

goods through the Northern region can be shipped directly to European and

American markets. The plan of Vietnam’s National Shipping Lines (Vinalines) states

that Lach Huyen Port will be able to serve about 30 million tons of throughputs per

year by 2020.

After completion, Lach Huyen port might be a threat to the existing ports in the

Haiphong area although it was said to serve bigger size of vessels or different market

segment. The first reason is the preferential position of Lach Huyen port, which is at

the river mouth or has the shortest shipping way from pilot point. This creates a

convenience for both shippers and senders when using huge vessels to economize

transportation costs. Secondly, the port is connected to Dinh Vu area via sea cross

bridge Tan Vu, which will be constructed above the Nam Trieu channel. Since most

of shippers now use Nam Trieu Channel to access the existing ports in Haiphong, the

bridge will limit the vessel size to this port or reduce the cargo throughput of those

ports.

4%

12%

2%

11%

14%

15%

12%

14% 13%

19%

0%

5%

10%

15%

20%

0

100

200

300

400

2009 2010 2011 2012 2013 2014

mn tonsTotal Haiphong's volumeTotal growth rate Haiphong's growth rate

Lach Huyen International Port

and Tan Vu Lach Huyen Bridge

will be significant threat to all

existing ports in Haiphong

area.


COMPANY OVERVIEW

Vietnam Container Shipping JSC (VSC) was established in 1985 and listed its shares

on the Ho Chi Minh Stock Exchange (HSX) in 2008. VSC provides logistics services,

including ports, trucking and warehouses throughout Vietnam.

Port operation (57 percent of 2014 revenues): VSC has one existing port in

Haiphong area named Green Port, which was put into operation in 2004. The

company is constructing a new port - VIP Green Port, which is expected to open

in 2016. This new port belongs to VSC’s subsidiary VIP Green Port JSC (VSC

owns 65 percent, Vietnam Petroleum Transport JSC (VIP – HSX) owns 30 percent.

Container yard operation (18 percent): The company currently has

approximately 278,550 square meters in warehouses and container freight

stations in Haiphong, Danang and Ho Chi Minh City.

Container freight storage (CFS) (10 percent): in Q4/2013 and Q1/2014, the

company put into operation two CFSs, which are utilized at 70 percent of

capacity.

Others (15 percent): including inland transportation via trucking, customs

brokerage, shipping agencies and container repairing services.

Company history

Source: Company’s data

Ownership and management structure

VSC operates as a diversified business group with many subsidiaries for each type of

its business activities.

• Established as a state-owned entity1985

• Established a joint venture with five Japanese companies, named Vijaco1995

• Established a subsidiary named Viconship Ho Chi Minh1997

• Equitized Infacon and Cenvico (Viconship Danang)2000

• Was equitized and renamed Vietnam Container Shipping JSC2002

• Put into operation Green Port in September and established TSL Co., Ltd.2004

• Put into operation berth no. 2 of Green Port2006

• Listed shares on Ho Chi Minh Stock Exchange (HSX)2008

• Established a subsidiary named Viconship Quang Ninh2009

• Restructured and established Green Depot Co., Ltd, Green Logistics Center Co., Ltd.

2012

• Established VIP Green Port JSC to construct new port in Nam Hai Dinh Vu area

2014

• Expects to complete first phrase of VIP Green Port2015

The core businesses of VSC are

port and container yard

operation segments.


Charter capital of subsidiaries and affiliates

Data as of 12/31/2014. Source: Company’s data

VSC’s stock seems quite attractive to foreign investors with current foreign

ownership of 49 percent. However, the stock liquidity is a matter of concern because

the average trading volume is quite low. The maximum daily stock trading volume

during the last 12 months was 286,780 shares on August 22, 2014. Viewed positively,

this proves to some extent that the company’s shareholders believe in the business

results and are long term investors.

Management has strong experience in the port industry and has been working for the

company for several years. Notably, Mr. Nguyen Viet Hoa (Chairman) joined the

company at its establishment, while Mr. Nguyen Van Tien (CEO) has experience in

managing Transvina Port and PTSC Dinh Vu Port. Thanks to this management team,

the company activities are expected to be stable and adaptive to any business

environment changes.

VIETNAM CONTAINER SHIPPING CORPORATION

SUBSIDIARIES

100%

Viconship Ho Chi Minh (VND6 billion -

USD282,000)

Green Depot Co. Ltd. (VND25 billion - USD1 million)

TSL Co. Ltd. (VND200 million - USD9,400)

Green Logistics Center Co., Ltd. (VND90 billion - USD4

million)

Green Star Lines (VND15 billion -

USD704,000)

Viconship Danang (VND6 billion - USD282,000)

VIP Green Port JSC (VND450 billion - USD21

million)- 65%

AFFILIATES

PTSC Dinh Vu Port JSC (VND400 billion -USD19 million) - 22%

Green Star Lines Co., Ltd (VND6

billion -USD282,000)-

49%

Danang Logistics JSC (VND30 billion - USD1

million) - 37%

Low stock liquidity is a matter

of concern.


Ownership structure Management structure

Source: Exchange data, Bloomberg as of

January 28, 2015

Name Position Year of

birth Qualification

Stock

ownership

Board of Directors 12/31/2014

Mr. Nguyen Viet Hoa Chairman 1956 Construction machinery

Engineering 1.53%

Mr. Nguyen Van Tien Member 1969 Master of Economics 0.12%

Mr. Tran Xuan Bao Member 1963 Engineering 0.22%

Ms. Hoang Thi Ha Member 1962 Bachelor of Economics 0.36%

Mr. Nguyen The Trong Member 1978 Bachelor of Business

Administration 0.02%

Mr. Nguyen Viet Trung Member n/a n/a n/a

Mr. Nghiem Tuan Anh Member n/a n/a n/a

Mr. Hoang Trong Giang Member 1957 Engineering 0.30%

Mr. Hoang Tuan Luc Member n/a n/a n/a

Board of Management

Mr. Nguyen Van Tien CEO 1969 Master of Economics 0.12%

Mr. Tran Xuan Bao CFO 1963 Engineering 0.22%

Mr. Nguyen The Trong COO 1978 Bachelor of Business

Administration 0.02%


Market position

Green Port is located deep inside the Cam River, 30 kilometers away from pilot point.

As such, the company’s port location is less competitive than many ports that were

built later such as: Dinh Vu Port of Dinh Vu Investment and Development JSC (DVP –

HSX), Nam Hai Dinh Vu Port of Gemadept Corporation (GMD – HSX) and Hai An Port

of Hai An Transport and Stevedoring JSC (HAH-HSX). In 2014, the company’s market

share in Haiphong area was about 12 percent in terms of container throughput via

port.

With the new VIP Green Port, which we discuss below, the company’s capacity is

expected to reach 800,000 TEUs per year, which would currently rank second behind

Haiphong Port JSC (1 million TEUs).

Comparison with other ports’ capacity

Name of Port No. of berths Max vessel size (DWT) Maximum draft (m)

Tan Vu 5 20,000 10.5

Nam Hai 1 10,000 9.0

Hai An 1 20,000 8.7

Dinh Vu 2 40,000 8.7

Tan Cang 189 1 15,000 8.7

PTSC Dinh Vu 1 20,000 8.5

Hoang Dieu 11 10,000 7.4

Chua Ve 5 10,000 8.4

Doan Xa 1 10,000 8.4

Green Port 2 20,000 8.0

Transvina 1 12,000 7.8

Source: Company data

BOM

5%

Deustche

Bank Group

9%

Franklin

Temptation

10%

PXP Fund

5%

Vietnam

Holding

15%

Other

foreign

shareholders

10%

Others

46%

Green Port is located deep

inside of Cam River, leading to

less competitive advantage.


BUSINESS ACTIVITIES

VSC operates in logistics services with a wide range of services related to port

systems. According to the company’s management, in 2014, port operation

contributed 57 percent to consolidated revenues, followed by container yard services

(18 percent), CFS services (10 percent) and trucking and other services (15 percent).

Port operation: establishing new port in favorable position

Green Port: low future growth prospect

Currently, VSC has one main port: Green Port. Constructed in 2004, this port is

located in the Cam River with the shipping way of 30 kilometers from the pilot point

(the starting point of maritime access channel). The port’s position is not favorable as

it is located deep inside the Cam River.

The port’s designed capacity is approximately 300,000 to 350,000 TEUs per year. It

has two berths that are each 160 meters long and can accommodate vessels up to

20,000 DWT (deadweight tonnage).

From 2011 to 2014, the port a had high utilization rate thanks to the wide range of

services that the company provides along with the port services such as: container

trucking, barging or repairing services. Some notable shippers of the company are

OOCL, Evergreen, MSC and Dongyoung.

From 2009 to 2014, the container throughput via Green Port increased from 319,000

TEUs to 360,000 TEUs in 2014, representing a CAGR of 2.4 percent. During this time,

the container throughput peaked in 2011 and then dropped significantly in 2012. In

2013 and 2014, the container throughput stayed at 360,000 TEUs, which is considered

to be a full utilization rate of this port. As such, the company had to transfer a part of

its goods to PTSC Dinh Vu Port. In 2014, we estimate this number was 70,000 TEUs,

leading to total container throughput of VSC of 430,000 TEUs.

In 2015, the company aims to achieve 360,000 TEUs of container throughput via its

Green Port, equal to 2014’s figure.

Throughput via Green Port (TEU) and Haiphong ports (ton)

Source: Company’s data, VPBS collected

We believe that the growth prospects for this port are now limited. The main reasons

are (1) the limitation of space for expansion due to infrastructure development of

Haiphong Government, (2) the fiercer competition from existing ports, and (3) the

entrance of new ports.

0

20

40

60

80

300

320

340

360

380

2009 2010 2011 2012 2013 2014

mn tons'000 TEUs VSC Haiphong ports

Green Port currently operates

at full capacity with a CAGR of

2.4% of container throughput

from 2009 to 2014.

The most contributed segment

in consolidated revenues is

port (57%).


With regards to the new ports, many companies, such as Gemadept Corporation

(GMD – HSX), Dinh Vu Investment and Development JSC (DVP – HSX) constructed

new ports in Dinh Vu Industrial Zone. This zone is located at the river mouth, creating

capacity to accommodate bigger vessels and increasing convenience for shippers

with a wider turning basin than the locations deep inside Cam River. In addition, the

establishment of Lach Huyen International Port, which may be launched in 2017, will

be a big threat of the company.

In terms of infrastructure development, the Haiphong Government is relocating those

ports which are deep inside Cam River towards the Dinh Vu Industrial Zone in order

to expand the city’s residential area. This creates a threat for the port’s expansion.

Moreover, construction has begun on Bach Dang Bridge as a result of government’s

effort to reduce the transportation time from Quang Ninh province to Haiphong City

and Hanoi. Completion is expected by the end of 2016. This bridge will cross over the

maritime access channel and might limit the size of vessels entering Cam River.

New port: additional growth opportunity

The Dinh Vu Industrial Zone is expected to become the leading zone in the Northern

area in the near future with increasing cargo throughput for the Haiphong port

system. Recently, many new big FDI (foreign direct investment) enterprises (e.g.

Bridgestone Vietnam Tire Manufacturing LLC) have established their factories in Dinh

Vu Industrial Zone.

VSC established a new port named VIP Green Port in order to increase its

competitiveness and capture the growth opportunity in Dinh Vu area. In October

2014, VSC and Vietnam Petroleum Transport JSC (VIP – HSX) set up a joint venture,

VIP Green Port JSC, with charter capital of VND450 billion (USD21 million). VSC

contributed 65 percent of the capital, followed by VIP (30 percent) and others (5 percent).

On November 11, 2014, VIP Green Port JSC commenced construction of VIP Green

Port. The new port is projected to have two 200 meter long berths and can

accommodate two vessels of 20,000 DWT to 30,000 DWT at the same time. The

maximum draft is 10.5 meters. VSC expects that the first phase of this project will be

finished in November 2015 and the second phase will be completed in September

2016. It is located in Dinh Vu area, next to Dinh Vu Port of DVP (capacity of 500,000

TEUs per year) and Nam Hai Dinh Vu Port of GMD (capacity of 500,000 TEUs per

year). According to management, the designed capacity of this port will be 600,000

TEUs after two phases. However, the capacity can reach 700,000 TEUs to 800,000

TEUs if the loading/unloading speed is improved.

Total investment capital of this port is estimated to be VND1,337 billion (USD62

million). In its 2015 annual general meeting, VSC’s shareholders gave approval for

VSC to guarantee a loan of VND700 billion (USD33 million) to VIP Green Port JSC

from JSC Bank for Foreign Trade of Vietnam (VCB). The loan term is 10 years with an

interest rate equal to the one year base lending rate (6.8 percent in 2015) plus a

margin (1.8 percent in 2015). This loan will be disbursed according to the

construction progress and payment term by the company for machinery and

equipment.

Additionally, VSC will grant a loan of VND100 billion (USD5 million) for VIP Green

Port JSC.

VIP Green Port is expected to

boost segmental revenue after

being launched in 2016. The

port has a preferable location at

Dinh Vu area.


VIP Green Port project

Phase Start date

Expected

completion

date

Investment

capital Borrowings Capacity Note

First

phase

November

2014

November

2015

VND980 billion

(USD46 million)

VND530 billion

(USD25 million)

250,000

TEUs (first

berth)

Land use rights in 37 years of VND350 billion

(USD16 million). Machinery and equipment's

value is VND334 billion (USD16 million),

according to management. VND296 billion

(USD14 million) is used for infrastructure.

Second

phase

November

2015

September

2016

VND360 billion

(USD33 million)

VND270 billion

(USD13 million)

250,000

TEUs

(second

berth)

VND135 billion (USD6 million) is for second

berth. Machinery and equipment’s value of

VND225 billion (USD10 million).


The company will use modern equipment such as two gantry quay cranes (QC crane)

and eight RTG (rubber-tyred gantry) cranes. This type of crane will help the company

increase stacking productivity, leading to a higher container throughput as well as

gross margin than the existing port (Green Port), which uses multi-function cranes

(this old type of crane has lower capacity than gantry quay crane). The company

expects the payback period to be seven years and the container throughput to be

around 60 percent of capacity (or 200,000 TEUs) in 2016 and 70 percent in the

following years.

With the establishment of VIP Green Port, VSC can now serve its VIP clients with

modern equipment. Currently, the company already has clients with container

throughput of 50 percent of its first berth’s capacity or 125,000 TEUs for its new port.

VIP Green Port JSC will also enjoy a favorable tax scheme from Haiphong

government. In details, the company will be exempted from corporate income tax

from 2014 to 2018 and entitled to an income tax rate of five percent from 2019 to

2028. With this tax incentive scheme, we expect that VIP Green Port will add high

value to both VSC and VIP from 2016 onwards.

VPBS forecast: 2016 revenues increase 35 percent y-o-y thanks to new port

In terms of the old port – Green Port, we forecast that the container throughput will

stay at 360,000 TEUs per year in 2015 and 2016 due to full utilization rate. However,

from 2017 onwards, due to operation of the new port and the infrastructure

development, we forecast that the container throughput will decline steadily to

300,000 TEUs in 2019. We expect that the gross margin of this port will stay at 45

percent during the forecast period.

As the new port – VIP Green Port - will be put into operation in 2016, we

conservatively forecast that the container throughput of this port will equal 50

percent of capacity in 2016, 70 percent in 2017, 80 percent in 2018, and will reach 90

percent of capacity in 2019. We expect the gross margin of this port to be

significantly lower than the firm’s older port because it will need to compete with the

neighboring port of GMD in order to build up its customer base. Therefore we expect

that VIP Green port will record a gross margin of 35 percent in 2016 (in line with

statements by management) and then increase by 2 percent each year thanks to

improving in productivity.

However, we expect revenues to grow more slowly container throughput because

the company will be forced to cut prices due to the competition from GMD, DVP and

Haiphong Port JSC.

New port will help port revenue

increase 35% y-o-y in 2016.


Forecast revenue and gross margin of port operation

2011 2012 2013 2014 2015F 2016F 2017F 2018F 2019F

Container throughput (TEUs) 373,000 347,000 360,000 430,000 440,000 610,000 710,000 780,000 800,000

% y-o-y 11% -7% 4% 6% 2% 39% 16% 10% 3%

Green Port (TEUs) 373,000 347,000 360,000 360,000 360,000 360,000 360,000 330,000 300,000

PTSC Dinh Vu (TEUs)* 70,000 80,000 0 0 0 0

VIP Green Port (TEUs) 250,000 350,000 400,000 450,000

Revenue (VNDbn) 508 518 700 804 885 911

% y-o-y 2% 35% 15% 10% 3%

Gross profit (VNDbn) 229 233 286 330 368 387

Gross margin 45% 45% 41% 41% 42% 43%

Green Port 45% 45% 45% 45% 45% 45%

VIP Green Port 35% 37% 39% 41%

Note: *: this is the container throughput that VSC hires PTSC Dinh Vu Port to load/unload. Source: VPBS

Container yard operation: volume decreased

Container yard (C/Y) operation of the company includes loading and unloading

containers from depots in Haiphong, Danang and Ho Chi Minh City. The total yard

area of the company is around 278,550 square meters.

The company has one big depot in Haiphong area (Green depot) with 90,000 square

meters. This depot contributed about 18 percent to 2014 consolidated revenues of

VSC.

Total area of VSC Container throughput of VSC’s yard

Name Area

(sqm)

Stacking

Capacity (TEU)

Chua Ve

Terminal area 60,000 2,000

CFS 5,000

Green depot


Green Logistic Center


CFS 1 7,525

CFS 2 7,525

Danang

An Hai Dong warehouse 950

Hai Son container yard 14,500 750

Ho Chi Minh City

Warehouse No 1 6,000

Warehouse No 2 1,500

Container yard 1 12,100 600

Container yard 2 7,500 350

Total 278,550

Source: Company’s data Source: Company’s data

This segmental container throughput decreased significantly, from 508,620 TEUs in

2009 to 129,000 TEUs in 2012, and then bounced back to 210,000 TEUs in 2014 due to

the competition from others company within the area.

In 2015, the company plans to spend VND31 billion (USD1.5 million) to buy another

container yard with area of 26,400 sqm, which is located next to the Green Depot in

Haiphong area. If the project is completed, the company can increase its terminal

area in the Green Depot to 116,400 sqm, leading to an increase in its container

throughput. VSC aims to achieve this segmental container throughput in 2015 of

220,000 TEUs, up five percent y-o-y.

509

214

276

129 130

210

0 7 8 8 11 18

0

100

200

300

400

500

600

2009 2010 2011 2012 2013 2014

thousand TEUs Depot CFS

In order to maintain a stable

container throughput, the

company starts to increase its

yard area.


From 2015 to 2016, we expect that the company’s container throughput might

increase 10 percent per year thanks to the new additional area in the Green Depot

area, which would translate into higher segmental revenue. From 2017 to 2019, we

expect that container throughput as well as revenue will increase just five percent per

year. In addition, we forecast that the company will only maintain this segment’s

gross margin at 2014’s level of 25 percent.

Forecast revenue and gross margin of container yard operation

2011 2012 2013 2014 2015F 2016F 2017F 2018F 2019F

Throughput (TEUs) 276,000 129,000 130,000 210,000 231,000 254,100 266,805 280,145 294,153

% y-o-y 29% -53% 1% 62% 10% 10% 5% 5% 5%

Revenues (VNDbn) 160 176 194 204 214 225

% y-o-y

10% 10% 5% 5% 5%


Gross margin (%)

25% 25% 25% 25% 25% 25%

Source: VPBS

Container Freight Station: bright growth prospect from new CFSs

VSC has just put into operation two CFSs in the Green Logistics Center (located in

Dinh Vu area) with around 15,050 square meters in Q4/2013 and Q1/2014. According

to management, these CFSs were operated at 70 percent to 75 percent of their

capacity in 2014 with the majority of goods being garment and textile products.

The container throughput of the CFS segment enjoyed a CAGR of 24.8 percent during

the period from 2010 to 2014, thanks to the operation of two new CFSs in Q4/2013

and 2014. According to management, gross margin of this segment was 30 percent in

2014. In 2015, the company targets to achieve 20,000 TEUs of container throughput,

up 14 percent y-o-y.

In the future, thanks to the upcoming free-trade agreements such as: Vietnam –

Europe, Vietnam – Korea, Trans Pacific Partnership (TPP), the garment and textile of

Vietnam will benefit the most. This might lead to the substantially increase of

revenue for VSC in this segment.

However, the company might cope with fiercer competition from both domestic and

foreign rivals. Some notable direct competitors are GMD, which will expand its

warehouse and logistic centers in the North of Vietnam, and DVP. This will result in

lower gross margins for this segment whenever the competition is tougher.

As such, we forecast that revenue growth of this segment will be 10 percent in 2015

thanks to full operation of the CFSs and five percent each year from 2016 onwards,

while gross margin will stay at 35 percent during the forecast period.

Forecast revenue and gross margin of CFS

2014 2015F 2016F 2017F 2018F 2019F

Throughput (TEUs) 17,500 21,000 22,050 23,153 24,310 25,526

% y-o-y 65% 20% 5% 5% 5% 5%

Revenue (VNDbn) 89 98 103 108 113 119

% y-o-y 10% 5% 5% 5% 5%


Gross margin (%) 35% 35% 35% 35% 35% 35%

Source: VPBS

Container throughput of the

CFS segment had a CAGR of

24.8% from 2010 to 2014,

thanks to two new CFSs in

Q4/2013 and 2014.


Other segments: decreasing revenue from barging

Other business activities of VSC include container repairing, forwarding agency,

trucking and barging. These activities made up about 15 percent of 2014 consolidated

revenues of VSC. According to the management, gross margin of this segment is

from around 9 percent.

In 2014, the company has disposed of two barges as its client, MSC shipping,

stopped landing in Cai Lan International Terminal in Quang Ninh province last

December. Additionally, the company cannot operate its barges efficiently in other

routes such as Cat Lai or Phnom Penh route. This caused a 52.9 percent y-o-y drop in

container throughput in 2014. As such, from 2015 onwards, the company does not

provide shipping services or record shipping revenue.

In terms of trucking, the revenue ton.kilometer1 enjoyed a CAGR of 14.7 percent from

2009 to 2014 and achieved 54 million ton km. This is because in 2014, there was a

new regulation that limits the maximum freight weight of the trucks, then the

trucking segment of the company had higher growth rate (23.9 percent y-o-y).

Additionally, from September 2014 till February 5, 2015, oil prices plummeted 51.5

percent and 44.7 percent in gasoline RON 92 and diesel DO 025S, respectively. This

reduction will push up the gross margin of this segment as the reduction of

transportation fees will be much less than the reduction of fuel costs.

In 2015, the company plans to purchase an additional 15 container trucks and two

cargo trucks with total investment capital of VND33.2 billion (USD1.6 million). This

supplement to the company’s fleet will help this segmental revenue and profit go up.

Actually, the company targets the revenue ton kilometer of trucking will be 60 million

ton km, up 11 percent y-o-y.

During the forecast period, for this segment, we expect revenue and gross margin as

below:

2015: down 47 percent y-o-y in revenue due to the lack of barging revenue. We

expect that this segment’s gross margin will be 10 percent during the forecast

period thanks to lower fuel costs.

2016 onwards: we believe that revenue will grow 10 percent per year with the

gross margin being stable at 10 percent.

Forecast revenue and gross margin of other segments

2014 2015F 2016F 2017F 2018F 2019F

Revenue (VNDbn) 134 70 77 85 94 103

% y-o-y -47% 10% 10% 10% 10%


Gross margin (%) 9% 10% 10% 10% 10% 10%

Source: VPBS

1 Revenue ton.kilometer: used to determine the total amount of freight that is shipped by a transportation company.

The company plans to buy

additional 17 trucks for trucking

services in 2015.


BUSINESS PERFORMANCE

Growth

Revenues

From 2009 to 2014, the consolidated net revenues of VSC achieved a CAGR of 14.3

percent, which was much higher than that of container throughput at 3.6 percent,

thanks to revenues from other logistics segments, such as CFS and trucking. In

comparison to other listed port companies in Haiphong, VSC’s revenues had a lower

CAGR than DVP (15.4 percent) in the same period since VSC’s port location is less

favorable.

During this period, the growth rate of revenues reached its peak in 2009 at 46 percent

due to the increment in container throughput of all business segments. Of this, the 48

percent augmentation of port’s container throughput was the main cause.

After that, the revenue growth rate decreased to around 20 percent per year from

2010 to 2012 due to the slowdown in container throughput of the port’s segment as

well as container depot. However, the shipping segment (via two barges and one

small sized vessel) helped the company maintain its positive growth.

In 2013, consolidated revenues only increased two percent y-o-y due to the price

competition from existing ports. But in 2014, revenues grew 13 percent y-o-y mainly

thanks to the surge in the CFS and port segments.

For 2015, the company’s management expects to achieve VND800 billion (USD37

million) in consolidated revenues, down 10 percent y-o-y, due to the lack of barging

revenue.

Consolidated net revenues

Source: Consolidated financial statements

Operating cost

From 2009 to 2014, operating cost (including cost of services, selling and general and

administrative expenses) had a CAGR of 15.9 percent, higher than that of

consolidated revenues. The main element that drove the rising trend of operating

cost was outside cost, which contributed, on average, about 40 percent during the

period and had a CAGR of 22.6 percent. The second largest expense was labor cost,

which had a CAGR of 11.5 percent.

From 2009 to 2012, due to the high growth rate of operating cost, which was driven

mostly by outside cost and labor cost, the company’s margin experienced a down

trend. However, in 2013, the company tried to cut cost by reducing labor and outside

costs.

46%

20%17%

21%

2%

13%

0%

10%

20%

30%

40%

50%

-

200

400

600

800

1,000

2009 2010 2011 2012 2013 2014

VNDbn Revenues Growth rate

The company had a lower

CAGR of revenue than DVP due

to less favorable port position.

Operating cost increased at a

higher speed than revenues.


In 2014, only other costs decreased while other types of cost by elements increased,

of which, outside cost increased the most. Certainly, this led to the decline in the

company’s margin.

For all periods, raw materials consistently increased year over year mainly due to the

increment in electricity prices.

Operating cost structure Fluctuation of operating cost elements

Source: Company’s data Source: Company’s data

Total assets and equity

Total assets and owners’ equity grew with the CAGRs from 2009 to 2014 of 18.2

percent and 19.7 percent, respectively. This means that the company mainly financed

its assets by its equity. Actually, equity usually made up 70 percent of VSC’s total

assets. This enabled the company to maintain solid and stable financial position.

This capital structure showed its advantage during the high interest rate period,

reducing financial distress and creating positive results for the company. However,

during the low interest period rate, the company will need to change its capital

structure towards more debt as the cost of equity is much higher than the interest

rate. Additionally, the company can easily have access to the borrowings with

competitive interest rates from banks.

Through its dividend by share scheme, VSC’s share capital in 2014 was 3.6 times

higher than 2009’s figure. During this time, the company also maintained a high cash

dividend ratio, from 15 percent to 60 percent on par per year.

Asset structure (VNDbn)

Source: Consolidated financial statements

38 60 53 60 93 102 65 67 74 113

99 112 34

44 42 44

64 70

102 137

197

223 199

283

61

63

74

103 68

59

-

200

400

600

800

2009 2010 2011 2012 2013 2014

VNDbnRaw materials Labor cost Depreciation

Outsides Others

2010 2011 2012 2013 2014

Raw materials 59% -11% 13% 55% 10%

Labor cost 3% 11% 53% -12% 13%

Depreciation 28% -6% 7% 44% 9%

Outsides 35% 44% 13% -11% 42%

Others 4% 18% 39% -34% -13%

-40%

0%

40%

80%

431541 643

758884

1,058216

271214

297249

437

290 284 265510

639

1,015

357528 592

545493

480

2009 2010 2011 2012 2013 2014

0

400

800

1,200

1,6002009 2010 2011 2012 2013 2014Equity Liabilities Non-current assets Current assets

The company mainly financed

its assets by its equity.


Profitability and efficiency

As we mentioned above, from 2009 to 2014, VSC’s net income enjoyed a CAGR of 9.9

percent, lower than the growth rate of revenues, due to the increment of outside

costs and labor costs. The margins decreased gradually from 2009 to 2012 and then

recovered in 2013 thanks to the reduction in those costs. However, in 2014, VSC’s

margins declined due to the reduction of gross margin of CFS and port segments.

In 2015, with the targeted revenues down 10 percent, the company plans to achieve

VND245 billion (USD12 million) in profits before tax, down 19 percent y-o-y due to

the increment of labor cost as well as decrease in gross margin in most of segments.

Net income Profitability ratios

Source: Consolidated financial statements Source: Consolidated financial statements

The company’s ROE and ROA trended downward together as net income had a lower

growth rate than total assets and equity.

ROE decreased from 29 percent in 2009 to 19 percent in 2014 due to the decreases in

all factors (net margin, asset turnover and asset to equity). This showed that the

company’s profitability declined or the efficiency of equity and assets reduced.

Return on assets and return on equity Return on equity analysis

Source: Consolidated financial statements Source: Consolidated financial statements

Solvency and liquidity

As we mentioned above, the company did not have financial distress from

borrowings as it financed its assets by equity. Consequently, the liquidity ratio of VSC

was quite positive.

180 197 229

268 303 312

155 180 191

229 240 248

-

100

200

300

400

2009 2010 2011 2012 2013 2014

VNDbn Gross profits Net income

25%

30%

35%

40%

45%

2009 2010 2011 2012 2013 2014

Gross margin EBIT margin EBITDA marginPBT margin Net margin

43%

37%

32% 33%29%

26%

29%25% 23% 24%

22%19%

0%

10%

20%

30%

40%

50%

2009 2010 2011 2012 2013 2014

ROE ROA

0.8 0.8 0.8 0.8

0.7 0.7

1.5 1.5 1.4 1.4 1.3 1.4

34% 33%30% 29% 30%

28%

0%

10%

20%

30%

40%

0.4

0.8

1.2

1.6

2.0

2009 2010 2011 2012 2013 2014

Asset turnover Asset to equity

Net margin


However, from 2015 onwards, due to the capital demand for VIP Green Port JSC, the

company expects to increase its debt position from a low level in the period from

2009 to 2014. This will help ensure the company has flexible capital resources as well

as minimize its cost of capital in the current environment of low interest rates.

Liquidity analysis

2009 2010 2011 2012 2013 2014

Cash ratio * 0.3x 0.3x 0.3x 0.2x 1.2x 0.8x

Quick ratio 1.9x 2.0x 2.7x 1.9x 1.9x 1.6x

Current ratio 2.0x 2.0x 2.8x 2.1x 2.1x 1.8x

Debt-to-equity 13.7% 4.6% 0.1% 5.3% 1.0% 1.2%

Debt-to-total assets 9.1% 3.1% 0.1% 3.8% 0.8% 0.9%

Debt/EBITDA 0.3x 0.1x 0.0x 0.1x 0.0x 0.0x

EBITDA/ Int. exp. 110.4x 77.5x 412.3x 237.5x 227.2x 808.1x

Note:*cash ratio = (cash + cash equivalent) / current liabilities

Source: Consolidated financial statements, VPBS summary

FORECAST ASSUMPTIONS

Revenues and gross profits

We forecast revenue growth and gross margin for each segment separately based on

our analysis of each industry, our discussion with management and our assessment

of each segment’s outlook and potential.

We expect that consolidated revenues will decline by three percent this year then

grow at a CAGR of eight percent over the four following years. The port operation

segment will enjoy the highest growth rate due to the operation of VIP Green Port

starting from 2016.

VPBS forecast

2015f 2016f 2017f 2018f 2019f

Revenue (% y-o-y) -3% 24% 12% 9% 4%

Port 2% 35% 15% 10% 3%

Container yard 10% 10% 5% 5% 5%

CFS 10% 5% 5% 5% 5%

Others -47% 10% 10% 10% 10%

Gross margin 37% 35% 36% 36% 36%

Port 45% 41% 41% 42% 43%

Container yard 25% 25% 25% 25% 25%

CFS 35% 35% 35% 35% 35%

Others 10% 10% 10% 10% 10%

Financial activities

We forecast financial income and expenses as below:

Dividends from investments: remaining at VND5 billion each year

Interest income: remaining at five percent of cash and cash equivalents

Interest expenses of short-term borrowings: remaining at six percent of short-

term borrowings

Interest expenses of long-term borrowings: based on the loan disbursement and

repayment schedule of the company for two phases of VIP Green Port.


Tax rates

We forecast income tax expenses by multiplying profits before tax (excluding share

of profit of associates as this amount is profit after tax of associates) by appropriate

tax rates. According to Decision no. 218/2013/ND-CP issued on December 26, 2013,

the corporate income tax was lowered from 25 percent to 22 percent in 2014 and 20

percent from 2016 onwards. Additionally, with the tax incentives of VIP Green Port,

the effective tax rate will be from 16.4 percent to 20.9 percent during the forecasted

period.

Balance sheet

We make the following key assumptions with regard to VSC’s consolidated balance

sheet:

Day sales outstanding: remaining stable at 65 days

Day inventory outstanding: remaining stable at 10 days

Day payables outstanding: remaining stable at 50 days

Current assets and current liabilities: remaining stable as a percentage of related

consolidated revenues and expenses

Capex: VND630 billion (USD29.3 million) in 2015 for first phase of VIP Green Port

and VND360 billion (USD16.7 million) in 2016 for the second phase. Additionally,

the company will spend VND72.5 billion (USD3.4 million) in 2015 and VND10

billion (USD0.5 million) each year from 2017 to 2019 to supplement its trucking

fleet.

Long-term borrowings: according to the two investment phases of VIP Green

Port, the company will incur VND530 billion (USD24.7 million) in 2015 and

VND270 billion (USD12.6) in 2016.

Dividends: management expects to distribute dividends from 20 percent to 30

percent on par value per year. Due to huge capital demand for new ports, we

expect that VSC will distribute cash dividend of five percent on par from 2015 to

2016 and 10 percent from 2017 to 2019, besides the company will maintain 15

percent stock dividends from 2015 to 2017 and reduce to 10 percent per year in

2018 and 2019.

VALUATION

We employed the two methods of valuation - discounted cash flow (DCF) and market

multiples (price to earnings) - to derive a fair value of VSC at VND54,800 per share.

We put a 70 percent weight for DCF value as this method includes the valuation from

new port meanwhile P/E multiple method has not reflected the new port’s potential.

Valuation matrix Fair price Weight (VND/share)

DCF method 59,000 70% 41,300

P/E multiple 45,100 30% 13,530

Fair stock price 54,800


DCF model

We use the discounted cash flow (DCF) model to value VSC as we believe future cash

flow remains the key fundamental value-driver of VSC stock. Our DCF model

suggests a target price of VND59,000 per share for VSC stock.

Our inputs for the VSC model are as follows:

The risk-free rate is taken from the yield of 5-year local currency Government

bond yields, which is equivalent to 5.48 percent.

The expected market risk premium is 8.76 percent.

VSC’s beta is estimated to be 0.96.

Cost of equity is estimated to be 13.85 percent by using the capital asset pricing

model (CAPM).

Weighted average cost of capital (WACC) is calculated to be 14.0 percent.

VSC’s terminal growth rate is assessed to be 5.0 percent.

Sensitivity of WACC and terminal growth rate to a target stock price

Market multiple

We use Price to earnings multiple method to derive the value of VSC value at

VND45,100 per share.

Compared to the peer group, we noted that VSC’s LTM P/E is lower although the

company’s ROA and ROE are higher. In addition, VSC has the low level of

borrowings.

Selected peer comparison

Data as of 3/27/2015. Source: Bloomberg, Company’s data, VPBS forecast

Sensitivity of P/E to a target stock price

##### 11.0% 12.0% 13.0% 14.0% 15.0% 16.0% 17.0%

6.0% 116,400 94,000 78,100 66,100 56,900 49,500 43,500

5.5% 106,100 87,000 73,000 62,400 54,000 47,200 41,600

5.0% 97,500 81,000 68,600 59,000 51,400 45,100 39,900

4.5% 90,200 75,700 64,700 56,000 49,000 43,200 38,400

4.0% 84,000 71,200 61,200 53,300 46,800 41,500 37,000

WACC

Term

inal g

row

th r

ate

ROE ROADebt /

equity

Net

marginP/E P/B

VNDbn VNDbn % y-o-y VNDbn % y-o-y

GMD Gemadept Corp HSX 3,147 2,987 18% 539 180% 13% 8% 39% 18% 5.0 0.6

DVP Dinh Vu Port Invest. & Develop. JSC HSX 1,956 542 8% 228 16% 30% 24% 16% 42% 8.6 2.4

HAH Hai An Transport & Stevedoring JSC HSX 821 431 93% 133 61% 35% 23% 44% 31% 6.2 1.9

CLL Cat Lai Port JSC HSX 720 235 18% 76 -7% 20% 15% 25% 33% 9.5 1.8

PDN Dong Nai Port JSC HSX 438 270 33% 48 6% 16% 11% 46% 18% 9.2 1.4

DXP Doan Xa Port JSC HNX 319 160 -16% 40 -26% 17% 15% 0% 25% 8.0 1.3

STG South Logistics JSC HSX 193 873 32% 30 25% 21% 14% 0% 3% 6.4 1.3

Average 1,085 785 27% 156 36% 22% 16% 24% 24% 7.6 1.5

Median 720 431 18% 76 16% 20% 15% 25% 25% 8.0 1.4

VSC Vietnam Container Shipping JSC HSX 1,719 891 13% 248 3% 26% 19% 1% 28% 6.9 1.6

ExchgTicker

Current

Company Market

cap

2014

Sales Net income

6.0x 6.5x 7.0x 7.5x 8.0x 8.5x 9.0x 9.5x 10.0x

33,800 36,700 39,500 42,300 45,100 47,900 50,800 53,600 56,400

P/E


TECHNICAL ANALYSIS

VSC’s technical chart showed a downtrend after breaking down the mid-term support

level of the MA50 at VND57,500 per share on October 20, 2014. After bottoming out

at VND48,000 per share, VSC advanced to cross above the long-term resistance level

of the MA200 and has been adjusting since then until now.

The price of VSC is moving sideways around the strong support band of VND48,000

to VND50,000 per share and its trading volume has been low recently. This shows

that the selling pressure is weak, helping to reinforce the accumulation possibility of

this ticker.

Therefore, we recommend a HOLD for VSC at the time of the publishing report.

As of 3/27/2015 VSC (VND/share)

Horizon analytic 3 to 6 months

3-month highest price 54,000

3-month lowest price 48,500

Current 50-day MA 51,500

Current 100-day MA 50,800

Mid-term resistance level 54,000

Mid-term support level 49,000

Recommendation HOLD


CONCLUSION

The container throughput via Haiphong’s port systems is expected to grow from 14

percent to 16 percent per year from 2015 onwards thanks to many new free-trade

agreements of Vietnam. This creates a high potential growth rate for this area.

However, there is also a risk of over capacity when Lach Huyen International Port

project is expected to be put into operation from 2017.

VSC has a long development history with a high growth rate during the past five

years. The company had a CAGR of 14.3 percent in consolidated net revenues from

2009 to 2014, which was in line with CAGR of Haiphong’s cargo throughput (14.6%).

This proves that the company could keep pace with the area’s growth.

With preferable location of VIP Green Port, we expect that VSC can enjoy CAGRs of

12.0 percent and 8.5 percent in revenues and net income, respectively, for the period

from 2015 to 2019. The company will invest in new port in 2015, and the growth rate

will start from 2016 onwards.

The full foreign room and low liquidity are two matters of concern for this stock. As

such, we give a long-term HOLD recommendation with 1-year target price of

VND54,800 per share.


APPENDIX – VPBS PROJECTION

INCOME STATEMENT (VNDbn) 2011A 2012A 2013A 2014A 2015F 2016F 2017F 2018F 2019F

Port operation 508 518 700 804 885 911

Container yard operation 160 176 194 204 214 225

Container Freight Storage 89 98 103 108 113 119

Others 134 70 77 85 94 103

Revenues 644 779 792 891 863 1,074 1,202 1,306 1,358

% y-o-y 17.5% 21.0% 1.6% 12.5% -3.2% 24.4% 11.9% 8.7% 4.0%

COGS 373 467 425 509 460 579 639 698 723

Gross profits (excluding depreciation) 271 312 367 382 403 495 563 608 635

Selling expenses 0 0 3 3 9 11 12 13 14

G&A expenses 25 32 31 45 52 75 84 91 95

Selling and G&A expenses 25 32 35 48 60 86 96 104 109

EBITDA 245 280 333 334 342 409 467 503 527

Depreciation & amortization 42 44 64 70 84 117 135 138 140

EBIT 204 236 269 264 258 292 331 366 387

Financial income 52 45 16 16 23 24 33 39 48

Financial expense 24 -5 -4 -8 1 24 35 31 35

Net other incomes / (expenses) 8 4 2 1 1 1 1 1 1

Income from associates 0 0 13 13 15 16 18 19 21

EBT 240 290 304 302 296 309 348 394 422

Tax expense 49 61 63 54 62 56 57 65 71

Effective tax rate 20.4% 21.2% 20.9% 18.0% 20.9% 18.0% 16.5% 16.4% 16.7%

Profits after tax 191 229 240 248 234 254 291 329 352

Minority interest - - - - - 14 25 28 28

Net income 191 229 240 248 234 240 267 301 324

% margin 29.7% 29.3% 30.4% 27.8% 27.1% 22.3% 22.2% 23.1% 23.8%

EPS (VND) 10,028 8,022 8,394 7,182 5,643 5,028 4,862 4,999 4,883


BALANCE SHEET (VNDbn) 2011A 2012A 2013A 2014A 2015F 2016F 2017F 2018F 2019F

Cash & near cash items 59 47 282 216 243 426 543 726 761

Short term investments 389 331 61 52 52 52 102 152 252

Accounts receivables 126 127 121 154 153 229 199 267 217

Inventories 8 15 10 7 22 16 27 19 28

Other current assets 10 25 19 51 69 107 144 183 278

Current assets 592 545 493 480 540 830 1,014 1,347 1,537

Net fixed assets 212 365 457 421 1,039 1,282 1,162 1,039 915

Long-term investments 36 25 42 100 100 100 150 200 300

Other long-term assets 17 120 141 493 511 500 529 538 577

Long-term assets 265 510 639 1,015 1,651 1,883 1,841 1,777 1,791

Total assets 857 1,054 1,133 1,495 2,190 2,713 2,855 3,124 3,328

Accounts payable 79 82 82 90 59 131 81 148 88

Short-term borrowings 1 9 0 4 4 5 5 6 6

Other short-term liabilities 131 173 158 176 170 161 156 144 109

Current liabilities 211 265 239 270 234 297 242 298 203

Long-term borrowings 0 31 9 9 535 749 667 587 507

Other long-term liabilities 3 1 1 0 0 0 0 0 0

Long-term liabilities 3 33 10 10 535 749 667 587 507

Total liabilities 214 297 249 279 768 1,046 909 885 710

Share capital & APIC 276 278 325 383 414 477 548 603 663

Retained earnings 182 218 234 251 402 546 703 884 1,141

Equity 643 758 884 1,058 1,265 1,495 1,750 2,016 2,366

Minority interest 0 0 0 158 158 172 196 224 252

Total liabilities and equity 857 1,055 1,133 1,495 2,190 2,713 2,855 3,124 3,328


CASH FLOW STATEMENT (VNDbn) 2011A 2012A 2013A 2014A 2015F 2016F 2017F 2018F 2019F

Cash from operation activities 83 119 240 (39) 231 322 301 386 274

Cash from investing activities (70) (127) 97 (84) (702) (360) (115) (115) (215)

Cash from financing activities (113) (75) (146) 88 498 220 (69) (87) (25)

Net changes in cash (100) (83) 191 (36) 27 183 117 184 34

Beginning cash balance 89 59 47 282 216 243 426 543 726

Ending cash balance (11) (24) 238 246 243 426 543 726 761

Free cash flow to firm 101 (72) 95 (64) (470) (18) 315 397 289

RATIO ANALYSIS 2011A 2012A 2013A 2014A 2015F 2016F 2017F 2018F 2018F

Profitability ratios

Reported gross margin 35.6% 34.4% 38.3% 35.0% 36.9% 35.2% 35.6% 36.0% 36.5%

Gross margin (excluding depreciation) 42.0% 40.1% 46.4% 42.8% 46.7% 46.1% 46.9% 46.5% 46.8%

EBITDA margin 38.1% 36.0% 42.0% 37.4% 39.7% 38.1% 38.9% 38.5% 38.8%

Operating margin 31.6% 30.3% 33.9% 29.6% 29.9% 27.2% 27.6% 28.0% 28.5%

Net profit margin 29.7% 29.3% 30.4% 27.8% 27.1% 22.3% 22.2% 23.1% 23.8%

Return on avg. assets 22.9% 23.9% 22.0% 18.9% 12.7% 9.8% 9.6% 10.1% 10.0%

Return on avg. equity 32.3% 32.7% 29.3% 25.6% 20.1% 17.4% 16.4% 16.0% 14.8%

Leverage ratios

Interest coverage ratio (EBIT/I) 342.5x 199.9x 183.5x 638.6x 270.3x 12.0x 9.4x 11.8x 11.0x

EBITDA / (I + capex) 5.1x 1.3x 1.9x 9.7x 0.5x 1.1x 9.3x 10.9x 10.5x

Total debt/capital 0.1% 5.1% 1.0% 1.2% 29.9% 33.5% 27.8% 22.7% 17.8%

Total debt/equity 0.1% 5.3% 1.0% 1.2% 42.6% 50.4% 38.4% 29.4% 21.7%

Liquidity ratios

Asset turnover 0.8x 0.8x 0.7x 0.7x 0.5x 0.4x 0.4x 0.4x 0.4x

Accounts receivable turnover (days) 61.0 59.1 57.1 56.4 65.0 65.0 65.0 65.0 65.0

Accounts payable turnover (days) 65.0 57.5 61.2 54.0 50.0 50.0 50.0 50.0 50.0

Inventory turnover (days) 8.9 8.5 9.6 5.6 10.0 10.0 10.0 10.0 10.0

Current ratio 2.8x 2.1x 2.1x 1.8x 2.3x 2.8x 4.2x 4.5x 7.6x

Quick ratio 2.7x 1.9x 1.9x 1.6x 1.9x 2.4x 3.5x 3.8x 6.1x


GUIDE TO RATINGS DEFINITION

VPBank Securities (VPBS) uses the following ratings system:

Buy: Expected return, including dividends, over the next 12 months is greater than 15 percent.

Hold: Expected return, including dividends, over the next 12 months is from -10 percent to +15 percent.

Sell: Expected return, including dividends, over the next 12 months is below -10 percent.

CONTACT INFORMATION

For further information regarding this report, please contact the following members of the VPBS

research department:

Barry David Weisblatt

Head of Research

[email protected]

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