Vietnam Strategy

Transcription

Vietnam Strategy

Vietnam Strategy
VIETNAM
Reality may force some changes
A combination of stubbornly low and tepid GDP growth rates (4.6% in 2Q13),
and ineffectiveness of 800bps in policy cuts (since Jan-12), is forcing policy
makers in Hanoi to turn to FDI, and portfolio capital to underwrite GDP growth.
With inflation now squarely back in mid-single digits, the next step has to be
starting the process of bank recapitalisation which will mean a fair bit of dilution.
Some of the recent stepped-up activities in bank restructuring are encouraging,
and if ownership liberalisation, improved FDI flows be followed by a pick-up in
the substance and pace of SOE reform, then GDP growth of 6%+ for Vietnam
may well resume from 2015 and beyond.
Inside
2
Theme 1: Bank reform is slow, but liquidity is held up
Macro update
4
The magnitude of Vietnam‟s NPL reality was quantified by the 1 year delay in
implementation of Circular 2/2013/TT-NHNN to 1 July 2014. Circular 2 aimed to
tighten risk management and enforce more consistent and uniform standards on
the treatment of debt, collateral, and NPLs. The SBV acknowledged that Circular
2 would have brought to light an additional VND270tn (~USD13bn) in NPLs.
Theme 1: Bank reform still slow, liquidity
holds up
8
Theme 2: FDI may surge, TPP an
opportunity for VN
14
Theme 3: Facing reality –
Steady change
17
Appendices – Demographics,
FDI & wages
18
FPT Corp.
20
Hoa Phat Group JSC
22
PetroVietnam Drilling and Well Services 24
PetroVietnam Fertilizer & Chemical
27
Vietnam Dairy Products
29
An Asset Management Company (VAMC) to tackle NPLs was established on
July 26th. Given only VND500bn (USD24mn) in paid-in capital and banking
regulations, two things are clear: i) it will initially use base money to buy loans, ii)
it lacks incentives or ability to easily liquidate underlying loan collateral. Thus, we
conclude the VAMC‟s job is to provide a liquidity buffer to the weakest banks.
Finally, the SBV has just been given authority to direct banks (presumably stateowned banks) to take primary equity stakes in weaker SBV supervised banks
that fail to meet recapitalisation or follow the SBV‟s restructuring instructions.
Theme 2: FDI will grow, TPP a serious opportunity for VN
Vietnam continues to benefit from relative wage cost advantages, esp. vis a vis
China. Samsung is now building a new US$3.7bn smart phone and chip plant in
Thai Nguyen province in the north of the country. The Trans Pacific Partnership
(TPP) is stimulating a surge in inbound textile investment. Soft factors such as 8
public holidays per annum vs. 23 in China will also help drive FDI.
Theme 3: Opening up foreign limits – 60% from 49%?
Last week, the MoF submitted a proposal to the PM‟s office to raise foreign limits
to a maximum of 60% for public company‟s termed „non conditional‟ industries.
Restricted industries would remain at 49%, plus a quota of 10% in non-voting
shares. A big question remains; will policy makers increase restrictive bank limits
and allow effective or foreign control of Vietnam‟s commercial banks?
Conclusion
Analyst(s)
Peter Bennett
+65 6601 0847
Vina Securities
Cal Le
+848 3821 9316
peter.bennett@macquarie.com
cal.le@vinasecurities.com
27 August 2013
Macquarie Capital Securities
(Singapore) Pte. Limited
We still believe the market faces strong fundamental headwinds (related to the
weak banking and real estate sectors). Stock picking continues to be key, but
easy choices (i.e. VNM & GAS) are no longer bargains. Significant dilution in the
banking sector is a foregone conclusion, and we would avoid banks as a
consequence. On VNM, while it‟s 30% higher than the PER valuation of the
VN30, it‟s still 29.5% cheaper than regional peers. Stocks we still like a lot
include: FPT, HPG, PVD and DPM. All have: i) single-digit PE ratios, ii) good
growth potential and iii) in DPM‟s and HPG‟s case, solid dividend yields that are
twice as high as the broader markets.
Please refer to the important disclosures and analyst certification on inside back cover of this document, or on our
website www.macquarie.com.au/disclosures.
Macquarie Research
Vietnam Strategy
Many of the themes highlighted in last year‟s note “The moment of awful clarity” remain valid,
albeit progress is slowly but steadily being made.
1)
Further economic stability has been achieved, but at the expense of continued low and
below trend GDP growth.
2)
As inflation has fallen dramatically, policy rates have been slashed by 800bps in the last
18 months alone. This has resulted in only a tepid return of credit growth (selective
sectors and at 5.6% for 1H13 - YTD), as banks essentially remain largely unwilling to
lend out new money. Curing the Zombie-like banking system will require liberalisation of
restrictive share ownership rules and squarely facing up to NPL realities.
3)
Some big ticket FDI projects have been announced, to tackle much needed economic
value add, and more immediately, some high profile manufacturing led FDI
disbursements are clearly underway.
4)
Liberalisation of foreign limits in public companies has now been proposed. But specifics
remain elusive. The PM‟s office has been asked to sign off on raising the limits to 60% in
non-restricted sectors and 49% in restricted sectors. One big question is what happens
to the current restrictive limits imposed on commercial banks. Recapitalisation can‟t
efficiently take place without changes here.
Politically, policy makers still seem to be grasping with multiple govt mandated economic
deliverables, but for reasons we will highlight later on, seem unwilling or may well be justly
afraid to make hard sacrifices to achieve them. This is especially true when it comes to large
scale liquidations of real estate (and related NPL‟s) or focussing on loose monetary policy to
achieve growth at any cost.
The policy goals are broadly defined as follows: Real GDP growth of 6.0% (at a minimum), 78% inflation, an accommodative (but not liberal) credit growth and to a lesser degree a
crawling peg exchange rate policy to help the GDP numbers along. The SBV devalued the
VND by 1.0% in July this year, ostensibly to boost exports, fx reserves and aid GDP growth.
Where we would be putting our money
The VNIndex has returned 26.5% since Sept-12. Of the 105 points it gained, 73.0 of them
came from VNM (+108.6% YoY) and GAS (+69.1% YoY). On the downside, Banks have
been predictably relative laggards along with some conglomerates and real estate stocks. But
in general negative contributions were pretty minor (sub 10pts in aggregate).
Fig 1
VNIndex return chart
Fig 2
VinaSecurities key stocks summary
Ho Chi Minh Stock Exchange (HoSE) (VNINDEX)
Price Close
MAV10
MAV50
550
530
Ticker
DPM
FPT
HAG
HPG
PVD
VNM
VNINDEX
510
490
470
450
430
410
390
370
RSI10
350
70
30
Rating
O
O
N
O
O
O
FY13E
PER(x)
6.8
8.4
29.3
9.9
7.1
17.1
11.5
FY14E
PER(x)
7.6
7.3
16.1
6.6
6.3
14.0
9.9
FY15E
PER(x)
9.0
6.5
9.6
5.2
5.9
11.5
n.a
FY13E
P/B(x)
1.6
1.7
0.9
1.6
1.4
6.1
1.6
FY13
EDiv
Yield
(%)
7.2%
3.2%
0.0%
6.1%
1.5%
2.7%
3.1%
Vol bn
-10
150
100
Note: O=Outperform; N=Neutral; U=Underperform
50
23-08-12
24-10-12
25-12-12
25-02-13
26-04-13
27-06-13
Source: Bloomberg
Source: Bloomberg, Macquarie Research, Vina Securities, August 2013
27 August 2013
Source: Macquarie Research, August 2013; priced as of 22 August 2013
2
Macquarie Research
Vietnam Strategy
Like last year, we continue to believe the market and Vietnamese economy face strong
fundamental headwinds almost exclusively related to the weak banking and real estate
sectors. Stock picking continues to be key, but the easy choices (i.e. VNM and GAS) are no
longer the bargains they were. Significant dilution in the banking sector is a foregone
conclusion, it‟s just a matter of time and we would still avoid the sector as a consequence.
On VNM, while it‟s 30% higher than the PER valuation of the VN30, it‟s still 29.5% cheaper
than regional peers Stocks we still like a lot include: FPT, HPG, PVD and DPM. All have: i)
single-digit PE ratios, ii) good growth potential and iii) in DPM‟s and HPG‟s case, solid
dividend yields that are twice as high as the broader markets.
27 August 2013
3
Macquarie Research
Vietnam Strategy
Macro update
Is the jar half full or half empty?
In its recently completed 2013 Article IV consultation with Vietnam, the IMF‟s executive board
broadly concluded:
 “Vietnam regained macroeconomic stability over the past year, but the economy is
progressing at two speeds. The export sector is performing well - especially foreigninvested enterprises - but the domestic sector, though improving, has yet to find a solid
footing because of several factors, including low productivity, structure of resource
allocation, impaired bank balance sheets and inefficiency in several state-owned
enterprises (SOEs).”
Slow domestic demand, low credit & GDP growth – low inflation.
Against the above assessment, Vietnam‟s below trend GDP growth has persisted now for
almost six quarters and semi-official public commentaries suggest that the official 6.0% GDP
growth target for 2013 is almost unreachable. Inflation has been almost unseasonably low,
averaging only 0.1% per month over 2Q13, but looks to come in around 7.2% for the year,
when seasonal factors and core pressures recur later over the second half of this year.
Fig 3
Real GDP Growth (% -YoY)
9.0
Fig 4
Historical & Inflation outlook
30.0
6.0
28.3
8.0
25.0
7.0
20.0
4.0
6.0
15.0
3.0
5.0
5.0
22.2
10.0
4.0
3.0
6.2
2.0
5.0
1.0
0.0
-
2.0
(1.0)
Aug-06
Dec-06
Apr-07
Aug-07
Dec-07
Apr-08
Aug-08
Dec-08
Apr-09
Aug-09
Dec-09
Apr-10
Aug-10
Dec-10
Apr-11
Aug-11
Dec-11
Apr-12
Aug-12
Dec-12
Apr-13
Aug-13
Dec-13
(5.0)
1.0
Sep-07
Dec-07
Mar-08
Jun-08
Sep-08
Dec-08
Mar-09
Jun-09
Sep-09
Dec-09
Mar-10
Jun-10
Sep-10
Dec-10
Mar-11
Jun-11
Sep-11
Dec-11
Mar-12
Jun-12
Sep-12
Dec-12
Mar-13
Jun-13
0.0
Source: SBV, Macquarie Research, Vina Securities, August 2013
CPI MoM
CPI YoY
T12M
Source: GSO, Macquarie Research, Vina Securities, Aug 2013
The sluggish GDP is despite the fact that in the last 12 months, the SBV‟s key refinancing
rate has been cut by a further 200bps, over and above the 600bps of cuts in early 2012.
Whilst policy cuts will affect the economy with a lag, we think the loosening effects should
have been felt by now. Credit expansion is only at 5.6% (as of July) and the SBV has a 12%
target for the year. Clearly, something other than interest rates is at play in the system.
27 August 2013
4
Macquarie Research
Fig 5
Vietnam Strategy
12M Changes key rates and Bond yields
15.0
16.0
13.0
12.6
13.1
13.4
(%)
9.0
10.0
6.0
4.0
2.0
7.0
6.7
24,000
13.4
12.0
8.0
VND/USD Fx rate and 3M+ , 6M+ CDS
Disc , Refinacing Rate, Interbank & Yield Curve
18.0
14.0
Fig 6
7.5 7.9
12.7 12.3
12.6 12.5
23,000
9.8 10.210.2
8.7 8.7 9.3
22,000
9.3 9.5 9.5
8.5
Jan-12
7.8
20,000
6.1
4.9 5.2
7.0 4.4
6.0 5.7 6.4
5.3 5.5
5.0
5.9
4.5 5.0
21,000
19,000
Dec-12
18,000
Jul-13
17,000
16,000
-
15,000
VNDUSD Spot
VND 3M CDS
VND 6M CDS
Source: Bloomberg, Macquarie Research, Vina Securities August 2013
Anecdotally, we also see hints of slower consumer demand, particularity in the consumer
discretionary sectors and non-staple food sectors. As the table below shows, revenues in
these listed consumer stocks is sluggish, while pre-tax profitability has been slowing in
tandem as costs and SG&A expenses rise.
Most notable amongst these is FPT trading/retail, who distributes a wide range of consumer
electronics, including Apple, Nokia, Dell, Toshiba and others. Jewellery retailer PNJ is also
facing demand led issues (even as Gold prices have fallen). YoY, in consumer foodstuff
segments confectionary (KDC), coffee (VCF), and fish sauces and noodles (MSC – a
subsidiary of listed MSN), YoY growth is essentially flat in real terms, coming in at low-singledigit growth levels.
Fig 7
Consumer demand indicators from listed stocks
Revenue
YoY growth
1H12
2H12
1H11
2H11
1H12
2H12
1H13
FPT trading/retail
PET
KDC
MSC
MSC excl. VCF
VCF
PNJ excl gold export,
gold bar trading
8,117.6
4,695.2
1,512.7
N/A
N/A
721.8
2,234.4
8,191.4
5,625.5
2,734.1
N/A
N/A
863.7
2,122.8
6,730.1
5,206.3
1,549.5
4,061.9
3,239.8
837.0
2,208.2
7,606.8
4,947.5
2,736.3
6,327.5
5,090.0
1,277.7
1,899.7
7,452.8
5,461.2
1,705.9
4,270.1
3,426.8
843.3
2,116.4
-17.1%
10.9%
2.4%
N/A
N/A
16.0%
-1.2%
Pretax profit
FPT trading/retail
PET
KDC
MSC
MSC excl. VCF
VCF
PNJ excl gold export
1H11
279.6
234.7
51.9
N/A
N/A
135.6
184.5
2H11
241.0
172.0
297.3
N/A
N/A
97.8
133.7
1H12
268.1
151.3
27.2
1,299.7
1,186.9
112.8
160.8
2H12
129.4
154.6
462.7
2,019.9
1,919.3
213.4
149.3
1H13
209.4
154.2
131.3
1,181.7
1,124.2
57.5
111.5
1H12
-4.1%
-35.5%
-47.5%
N/A
N/A
-16.8%
-12.8%
HoH growth
2H12
1H13
1H12
1H13
-7.1%
-12.1%
0.1%
N/A
N/A
47.9%
-10.5%
10.7%
4.9%
10.1%
5.1%
5.8%
0.7%
-4.2%
-17.8%
-7.5%
-43.3%
N/A
N/A
-3.1%
4.0%
13.0%
-5.0%
76.6%
55.8%
57.1%
52.6%
-14.0%
-2.0%
10.4%
-37.7%
-32.5%
-32.7%
-34.0%
11.4%
2H12
-46.3%
-10.1%
55.6%
N/A
N/A
118.1%
11.7%
1H13
-21.9%
1.9%
382.1%
-9.1%
-5.3%
-49.0%
-30.7%
1H12
11.2%
-12.0%
-90.8%
N/A
N/A
15.3%
20.3%
2H12
-51.7%
2.1%
1598.6%
55.4%
61.7%
89.1%
-7.2%
1H13
61.8%
-0.2%
-71.6%
-41.5%
-41.4%
-73.1%
-25.3%
Source: Company Data, VinaSecurities, Macquarie Research August 2013
Official retail sales data tells a similar story, with both the nominal and inflation adjusted
growth data trending downwards in recent months. Overall, the data supports the view that
domestic demand is weak, underpinned by weak credit growth and below trend GDP growth.
27 August 2013
5
Macquarie Research
Fig 8
Vietnam Strategy
Retail sales growth (real terms)
Fig 9
50.0
3.5%
40.0
3.0%
Nominal retail sales & avg. real growth rates
250,000
200,000
2.5%
30.0
2.0%
150,000
20.0
1.5%
10.0
100,000
1.0%
0.0
0.5%
(10.0)
0.0%
-0.5%
0
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Apr-11
Jul-11
Oct-11
Jan-12
Apr-12
Jul-12
Oct-12
Jan-13
Apr-13
Jul-13
Dec-07
Mar-08
Jun-08
Sep-08
Dec-08
Mar-09
Jun-09
Sep-09
Dec-09
Mar-10
Jun-10
Sep-10
Dec-10
Mar-11
Jun-11
Sep-11
Dec-11
Mar-12
Jun-12
Sep-12
Dec-12
Mar-13
Jun-13
50,000
Retail Sales Growth (YoY %)
CPI (YoY %)
Retail Sales Growth less CPI - (YoY %)
T12M Ave real growth (YoY %)
Source: GSO, Macquarie Research, Vina Securities, August 2013
Nominal Retail Sales (VND bn)
Source: GSO, Macquarie Research, Vina Securities, August 2013
Exports growing, foreign reserves, FDI & Portfolio flows are rising
Monthly non-oil exports continue to grow strongly YoY (as of July 2013) as annual growth
was 15.7%, with non-oil and total exports reaching US$10.6bn and US$11.2bn, respectively.
Export growth is strongest in the electronics and footwear categories rising at 41.2% and
26.6%, respectively. These two sectors accounted for US$1.72bn, and along with general
manufacturing (textiles and others) accounted for in excess of 85% of non-oil exports.
Registered FDI data since 2012 also lends credibility to a positive outlook for manufacturing
and FDI. Notably, in the last 18 months, virtually all approved and registered FDI has gone
into manufacturing, with real estate in fact contracting as projects have been abandoned.
Fig 10
Monthly non-oil exports (USDm)
Fig 11
12,000
10,000
10,600.0
9,163.8
8,000
6,000
4,000
2,000
0
Rubber
Fish
Coffee
Rice
Electronics
Footwear
Coal
Others
Non-Oil Exports
Cumulati
ve to
Dec-12
Dec-12 to
date
Cumltv
Share
Incrementa
l Share
103,524
49,724
10,606
9,917
12,919
(1,465)
92
(37)
52.9%
21.9%
4.9%
4.5%
104.7%
-11.9%
0.7%
-0.3%
7,486
15
3.4%
0.1%
3,938
3,675
3,476
91
(10)
43
1.8%
1.7%
1.6%
0.7%
-0.1%
0.3%
3,344
3,177
2,814
(40)
20
312
1.5%
1.5%
1.4%
-0.3%
0.2%
2.5%
1,322
1
0.6%
0.0%
1,219
85
0.6%
0.7%
1,234
51
0.6%
0.4%
1,087
74
0.5%
0.6%
Other Services
733
8
0.3%
0.1%
Education and Training
Administrative and Support
Services
458
191
0.3%
1.5%
201
(8)
0.1%
-0.1%
207,936
12,342
100%
100%
Registered Capital
Manufacturing and
Processing
Real Estate
Accomodations and food
Construction
Electricity, Gas, Water,
Production & Distrib.
Information and
communications
Arts and Entertainment
Transport and Storage
Agriculture, forestry,
fisheries
Mining
Wholesale, retail, repair
Finance, banking,
insurance
Health and Social
Assistance
Water Supply, Waste
Treatment
Professional Specialties,
Science and Tech.
Total
27 August 2013
Recent trends in Approved FDI (US$m)
Source: MPI, VinaSecurities, Macquarie Research August 2013
6
Macquarie Research
Vietnam Strategy
Summing it up
On balance, Vietnam‟s stubbornly below trend GDP growth (4.9% - 2Q13), for the most part,
remains largely self-inflicted. In part, as Vietnam has allowed the banking system‟s hangover
from the 2006 – 2010 credit and real-estate boom to persist. Perhaps because of a lack of
political will or perhaps inexperience in handling its first modern NPL crisis, the country has
been somewhat slow to react. Recent stepped-up activities, however, are encouraging, and in
addition, what appears to be a recent willingness to liberalise barriers to new investment into
the stock market and restricted FDI sectors is a welcome development.
If true, and if ownership liberalisation and improved FDI is followed by a pick-up in the
substance and pace of SOE reform, then GDP growth of 6%+ for Vietnam is likely to resume
from 2015 and beyond.
Fig 12
Summary Macro forecasts
Key Indicators
2008A
2009A
2010A
2011A
2012A
2013E
2014E
Real GDP Growth
Inflation (YoY)
Inflation (avg)
VND/USD rate (Interbank)
Fx Reserves (USDbn)
Exports (USDbn)
Imports (USDbn)
Import Cover (months)
Trade Deficit (USDbn)
FDI Commitment (USDbn)
FDI Disbursed (USDbn)
Credit Expansion
Budget Deficit/GDP
Public Debt/GDP
6.2%
19.9%
23.0%
17,486
23.9
62.9
80.4
3.6
-17.5
71.7
11.5
30.0%
4.6%
42.9%
5.3%
6.5%
7.0%
18,500
15.2
56.6
68.8
2.7
-12.2
22.6
10
37.7%
4.8%
52.6%
6.8%
11.8%
9.2%
19,498
12.7
71.6
84.0
1.8
-12.4
18.6
11.0
27.7%
6.2%
56.6%
5.9%
18.1%
18.6%
21,034
13.5
96.2
105.8
1.5
-9.6
15.6
11
16.0%
5.0%
57.5%
5.5%
7.7%
8.6%
20,843
25.4
114.6
114.3
2.7
0.3
16.3
10.5
7.0%
4.8%
48.8%
5.4%
7.2%
8.3%
21,300
32.3
137.7
142.2
2.7
-4.5
17.0
11.5
10.0%
4.5%
48.9%
5.6%
6.3%
8.0%
21,800
38.5
158.3
163.9
2.8
-5.6
19.0
13.0
14.0%
4.5%
50.0%
Source: IMF, GDO, Macquarie Research, Vina Securities, August 2013
27 August 2013
7
Macquarie Research
Vietnam Strategy
Theme 1: Bank reform still slow, liquidity
holds up
NPL problem is further quantified by Circular 2
True system NPLs
remain dangerously
high
The magnitude of Vietnam‟s NPL reality was quantified by the 1 year delay in implementation
of Circular 2/2013/TT-NHNN to 1 July 2014. Circular 2 aimed to tighten risk management and
enforce more consistent and uniform standards on the treatment of debt, collateral, and
NPLs. The SBV and SOCB banks have acknowledged that Circular 2 would have brought to
light an additional VND270tn (~US$13bn) in NPLs for the system. This would have meant an
NPL ratio of approximately 16.0% based upon the SBV‟s latest NPLs estimate.
Circular 2 would
have added
~US$13bn to the
statistics
Against that sanguine back drop, the SBV‟s latest (February) estimate has NPLs at 6.0%,
down from earlier September and December 2012 estimates of 8.8% and 7.8%, respectively.
One the other hand, independent outsiders have since gradually raised their estimates, with
Fitch Ratings increasing its upper range to as high as 20% as recently as 9 July 2013. Finally,
this week, the SBV stated on its website it had recently completed a review to bad debt in the
banking system (to international standards) but declined to give further comments.
Fig 13
Fig 14 Real Estate and landed property as a
percentage of loan collateral
NPL Ratios
10.0%
90%
9.0%
80%
8.0%
70%
7.0%
6.0%
60%
5.0%
50%
4.0%
40%
3.0%
30%
2.0%
Banks (Reported)
Apr-13
May-13
Mar-13
Jan-13
Feb-13
Dec-12
Oct-12
Nov-12
Sep-12
Jul-12
SBV Estimate
Aug-12
Jun-12
Apr-12
May-12
Mar-12
10%
Jan-12
20%
0.0%
Feb-12
1.0%
0%
ACB
CTG
EIB
2011
MBB
STB
VCB
2012
Source: Company Data, Macquarie Research, VinaSecurities August
2013
Reinforcing the NPL issue is that a substantial majority of loans in Vietnam use real-estate,
landed property and immovable assets as collateral. Just for the major listed banks, collateral
exposure ranges from just under 50% to approximately 72% of total collateral. Clearly, any
significant impairment in real estate collateral values would result in further NPLs.
The discrepancies between outsider, SBV, and bank NPL estimates highlight the ongoing
short-comings of the current accounting and reporting standards. As mentioned in prior notes,
we believe banks may be relying on several accounting strategies to mask bad debts in their
loan books, these included: buying corporate bonds issued by bad customers, issuing new
funds to repay older overdue loans – i.e. ever greening; lending to customers‟ related parties
to pay off bad debts.
The magnitude of Circular 2‟s VND270tn bite comes, in part, from its specific address of
some of these accounting strategies. Circular 2 expanded the definition of debt to include
unlisted bonds, credit cards loans, and deposits at other credit institutions. Defining unlisted
bonds as debt limits a bank‟s ability to mask debt by replacing borrower loans with purchased
bonds issued by the same „bad‟ borrower. The circular also supplanted an earlier SBV
decision which gave banks the flexibility to maintain and not increase a debt‟s risk grouping
despite being rescheduled more than once.
27 August 2013
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Macquarie Research
Vietnam Strategy
Consequently, the delay in Circular 2 affords banks continued flexibility in managing (or
exposing) their real NPL situation until at least mid-2014. But given the delay, the circular‟s
impact is almost impossible to measure across individual banks. Only a handful of banks
claim either compliance or near limited additional NPL exposure to Circular 2.
By example, Military Bank (MBB VN) tells investors it was fully compliant with Circular 2 in its
FY12A results, while Vietcombank (VCB VN) has stated that its incremental exposure to
Circular 2 was VND6.0tn (US$283mn) of the VND270tn. For the others, we are left to glean
hints from notes in their audit reports and from media reports.
For example, from disclosures and notes from Sacombank‟s latest annual report, the auditor
highlighted VND9.02tn in real estate refinancing loans (approximately 9.5% of the bank‟s total
customer loan book) that were made in apparent breach of lending rules. While the bank has
classified these loans as Group 1 (Current), Circular 2 introduces several additional criteria
for assessing the risks for such loans.
 In particular, “debts that violate regulations on credit extension” could warrant a Group
3 (Sub-standard) classification, requiring additional specific provisioning of 20% of the
risk weighted asset.
In this case, (Fig 8.0) related parties were extended credit exceeding that allowed by state
regulations. The pledged collateral of VND8,657.0bn also is largely comprised of real estate
which is risk weighted by a factor of 50% for CAR calculation purposes under SBV guidelines.
Fig 15
STB’s 2012 Audit report – An Emphasis of Matter & Note 8.3 (*)
Source: STB 2012 Audit report, VinaSecurities, Macquarie Research, August 2013
Under Circular 2, for Sacombank, we estimated a Group 3 provision charge (on just this item,
and before any other Circular 2 effects) could have totalled VND960bn, or 96% of STB‟s 2012
net profits. More importantly, it could have meant a 7.0% hit to the bank‟s Tier 1 capital and
pushed STB‟s CAR to 8.9% (below the 9.0% requirement) and BVPS down 7% to
VND13,091/sh.
A significant provisioning charge may await Asia Commercial Bank (ACB) surrounding its
exposure to Vinalines, the unprofitable SOE shipbuilder which collapsed after racking up
more VND43tn (USD2.1bn) in debts, more than four times its equity. Of this total,
approximately VND854bn in loans and VND88bn in investments in Vinalines bonds are
owned by the bank. Based upon 2012 financial disclosures, ACB classified these loans to
Vinalines as Group 2 – Special mention, which saves the bank from reporting the debts as
NPLs under Vietnam Accounting Standards (VAS) and VAS.
27 August 2013
9
Macquarie Research
Vietnam Strategy
As the Govt works to implement Vinalines‟ restructuring plan with various stakeholders, ACB
will very likely have to book significant provisioning charges, as it begins reclassifying these
loans to NPL status and begins to take on for significant provisioning for the Vinalines bonds.
For just these loans, assuming a Group 5 – Bad loan classification with 20% recoveries, we
estimate incremental provision charges of VND683bn. This would have pushed ACB‟s 2012
NPL ratio from 2.46% to 3.12%, above the SBV‟s 3% compulsory rate for NPL sales to the
VAMC.
We note ACB has indicated its interest in possibly selling up to half, or VND1.5tn (US$70mn),
of its reported NPLs to the AMC. ACB has one of the highest exposures to real estate in its
collateral portfolio. But it is classified as a Tier 1 bank on the SBV‟s liquidity-based ranking
framework.
In the background – IMF/World Bank Financial Stability Assessment
Program was undertaken and results are pending
In 2011, the government of Vietnam agreed to undertake jointly with the SBV, IMF and the
World Bank, a Financial Stability Assessment Program (FSAP). The FSAP‟s purpose is to
provide a comprehensive and in-depth analysis of a country‟s financial sector, through a
comprehensive analytical framework.
According to the IMF, in developing and emerging market countries, FSAPs are conducted
jointly with the World Bank and include two components: a financial stability assessment,
(undertaken by the IMF), and a financial development assessment, (undertaken by the World
Bank). Each individual country‟s FSAP concludes with the preparation of a Financial System
Stability Assessment (FSSA) report. Publication of the report is not mandatory.
For Vietnam the FSSA we understand has been completed and in its recent Article 4
consultations the IMF Board of Directors encouraged Vietnam to implement the steps
recommended in the program „To return the banking system to health‟. The FSSA report has
yet to be made public, but we understand that the Government of Vietnam is considering the
IMF‟s and World Bank‟s suggestion to publish it.
Revisiting our CAR stress tests for listed banks
We updated our previously published CAR and ABVPS sensitivity analysis with FY12A
results to gauge the circular‟s potential implementation risk for the six listed banks. Half the
list quickly falls below the 9% regulatory CAR minimum with only a moderate 5% increase in
NPLs. Anecdotally, the above disclosures suggest STB as precariously situated and will
quickly need additional paid-in capital due to even minor adverse charges; VCB could tolerate
incremental provisions of VND18tn (3.1x its incremental NPL exposure) before even having to
go to shareholders. Outside of SOE‟s MBB even at a lower CAR of 11.1% may well be the
best of the bunch given claims of very prudent and Circular 2 compliant provisioning.
Fig 16
Banks
ACB
Stress testing listed banks CAR’s
Item s
CAR
ABVPS
VCB
CAR
ABVPS
MBB
CAR
ABVPS
STB
CAR
ABVPS
EIB
CAR
ABVPS
CTG
CAR
ABVPS
Reported
+3% NPLs
+5% NPLs
+7% NPLs
+9% NPLs
+11% NPLs
13.5%
11.1%
9.5%
7.8%
6.0%
4.1%
13,463
14.8%
17,996
11.1%
13,530
9.5%
14,076
16.4%
12,798
10.3%
12,743
10,174
12.6%
14,874
9.4%
11,295
7.7%
11,109
14.4%
10,979
7.5%
8,928
7,981
11.0%
12,793
8.2%
9,806
6.4%
5,788
9.4%
10,712
6.9%
8,316
5.1%
3,595
7.7%
8,630
5.7%
6,827
3.7%
9,131
7,153
5,174
13.0%
11.6%
10.1%
9,766
8,553
7,340
5.5%
6,385
3.4%
3,842
1.2%
1,299
1,402
5.9%
6,549
4.4%
5,337
2.3%
3,196
8.6%
6,128
+13% NPLs
2.2%
(791)
4.1%
4,468
3.0%
3,848
0.9%
1,218
7.0%
4,915
-1.1%
-3.4%
(1,244)
(3,787)
Source: Company Data, VinaSecurities, Macquarie Research, August 2013
27 August 2013
10
Macquarie Research
Vietnam Strategy
Several reports suggest both the business and banking communities pressed the SBV for the
delay in implementing Circular 2, raising concerns over the possibility the Circular could
precipitate a vicious cycle - by increasing NPLs, banks would further tighten credit, causing
more business bankruptcies, and in-turn creating more NPLs.
While any cure should not be worse than the disease, we continue to believe that any viable
long-term solution, that doesn‟t provide significant amounts of new capital to Banks, may
result in significant short-term costs and disruptions to the risk appetite for the new credit in
the system.
27 August 2013
11
Macquarie Research
Vietnam Strategy
The Tool of Choice – Vietnam Asset Management Company
Following the decision to defer the NPL, the SBV‟s choice to utilize a “bad bank” vehicle to
handle NPLs was not really controversial. Similar models have been utilised in China and
Japan (both were set up around 2000). Even before its official launch, however, the VAMC
was already working to temper and recalibrate market expectations.
Described as “miniscule” by the World Bank, the VAMC‟s VND500bn (US$24mn) initial
capitalization precludes the vehicle from absorbing any appreciable amounts of bad debt
loses. The VAMC did report, however, that foreign investors have expressed interest in
working with the VAMC to provide additional private capital for loan purchases. Private
capital involvement is not unprecedented and would follow other AMC models, including the
Resolution Trust Company in the US and Cinda AMC in China. We view the possibility of
strategic private capital involvement as an encouraging sign for the VAMC and a critical factor
to its overall effectiveness.
The VAMC‟s most immediate impact will be to provide indirect liquidity support to the system.
The SBV has mandated that banks (over time) with NPLs greater than 3% to sell portions of
their bad debts to the VAMC until NPL ratio‟s fall below the 3% target.
In return, banks receive face-value equivalent amounts of special 5-YR, 0% coupon VAMC
bonds, which can then be pledged as collateral at the SBV‟s discount window for proceeds
(currently fixed at 5.5%). We expect banks to take this opportunity to off-load their most
problematic NPLs. As such, banks are required to book 20% annual provisions over the life
of their bonds (i.e. 100% provisioned at maturity).
Without explicit decree, the SBV expects banks to use their added liquidity for new prudent
customer lending. The SBV currently maintains a 12% credit growth target for the year; its
July YTD estimate, however, was at only 5.2%. Considering the low credit demand in the
economy, some banks may simply consider buying 5-YR, 8.4% government bonds (the most
liquid) to secure a low risk 290 bps spread. Higher spreads could be earned if the Govt offers
more long dated treasuries in auction.
Due to the lack of tangible bank reforms to date, and the corresponding dilution to controlling
shareholders, some banks may also be tempted to revert to their earlier risky lending
practices or expand into new, even higher-risk ventures in hopes of recouping earlier loan
losses. We plan to watch carefully how banks decide to deploy any new found liquidity.
On paper, the VAMC wields significant authority, including powers to recover and restructure
debts, participate in borrower restructuring, sell loans and auction collateral, request state and
law enforcement resources in support of its actions, and inspect banks. Given the current
legal and regulatory ambiguities surrounding bankruptcy laws and asset seizures, we suspect
it will take some months before the VAMC can effectively organize and begin auctioning
significant asset amounts.
While the VAMC would be the entitled owners of the NPLs, as a practical matter, we
understand that the banks themselves will retain the responsibility for bad debt recoveries.
Considering the VAMC‟s size and limited institutional experience with asset recovery, auction,
and seizure, we view this arrangement as more than just a convenience for the VAMC.
Within days of its launch, the VAMC announced it was preparing to buy up to VND10tn
(US$474mn) in NPLs from about 10 banks. The list may include ACB, which earlier indicated
its interest in possibly selling up to half, or VND1.5tn (US$70mn), of its reported NPLs. ACB
has one of the highest exposures to real estate in its collateral portfolio. The VAMC expects
to buy VND40tn-70tn in NPLs by the end of 2012.
In addition to the immediate liquidity, we also see the VAMC providing two other benefits: 1) it
gives both banks and the SBV time to develop and implement more substantial restructuring
and reform policies, 2) in contrast to Circular 2, the VAMC provides a softer inducement for
banks to bring forth and disclose underreported NPLs, an issue that continues to hinder the
market.
27 August 2013
12
Macquarie Research
Vietnam Strategy
Recently, a more aggressive SBV
As the SBV works and learns its way through its first modern NPL crisis, its approach could
be best described as slow and incremental. Its call for voluntary restructuring and
consolidation within the system, followed by the delay of Circular 2, appears to mostly be a
somewhat tepid initial approach.
In early August, however, this encouragement became forceful with Decision 48/2013, which
empowers the SBV to either purchase direct stakes in weak banks or order banks it deems
healthy to purchase stakes in weak banks. We do not know which banks the SBV may
designate as purchasing banks. Considering their ownership, we would not be surprised to
see an SOCB or two (as subsidiaries of the SBV) as likely designates. Such actions will
certainly begin to dilute the shareholders of existing weak banks.
For any direct SBV investments, we suspect, again, the source to be a combination of base
money or conversion of liquidity support into equity in the targeted banks. In the case, of
SOCBs, unsecured interbank loans from SOCBs to weak banks could also be converted into
equity. Finally, to support designated purchasing banks with their investments, the SBV could
assist through the discount window or the Ministry of Finance could offer tax incentives.
Depending upon the form and level of SBV assistance, the impact on healthy banks and their
shareholders remains unclear. Questions regarding investment levels, governance and
management oversight, cross-ownership and ownership limitations, exit strategies and
investment time horizons also remain open.
Finally the Prime Minister just approved the enabling Decision 48/2013/QD-TTg on banks
under special supervision. According to decision, when a bank that is under special
supervision, doesn't fulfil requests to increase chartered capital, undergo restructuring or
M&A activities, the State Bank of Vietnam (SBV) will have the right to assign other banks to
buy shares of weaker banks. The decision will take effect on September 20th 2013.
Next shoe to drop – raising single shareholder and foreign limits
The SBV has suggested amendments to the Govt for Decree 69 by proposing a „special‟
exemption to the 20% strategic shareholder limit, with the approval of the Prime Minister‟s
Office, but then only for „weak banks‟ (presumably those in bottom quartile of the SBV‟s
liquidity based ranking). Since then, there has yet to be a significant recapitalisation of a
„weak bank‟ under these proposals.
By and large, single shareholder limits in Vietnamese Joint stock banks, still stand at 15% (or
20% with SBV approval). Foreign ownership remains capped at an aggregate 30% and
recent updates to regulations have extended these rules to capture the potential effects of
convertible instruments on a fully diluted basis amongst other administrative measures.
Against that background, Brett Krause – the head of the Banking Group of the Vietnam
Business Forum – mooted the associations view in June this year that current shareholder
and foreign limits are insufficient to allow for an adequate recapitalisation of Vietnam‟s
banking system, through new investment. The VBF called for a „roadmap to majority foreign
ownership‟ to allow „rapid rehabilitation of the sector‟.
The IMF‟s resident representative for Vietnam noted “It‟s in the interest of the overall financial
system. At the end of the day, some money should be put in, in part because you don‟t want
to prolong the problem.”
The choices facing policymakers are now clear 1) refloat the system with base money (and
risk a return of high inflation), 2) liberalise ownership rules (allowing effective or outright
majority control) and allow significant recapitalisation to take place on market terms – and by
definition, accept necessary dilution of founding shareholders or 3) to continue to restrict
ownership at the expense of potentially slower recovery in the sector and likely a continuation
of weak credit appetite by lenders.
27 August 2013
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Macquarie Research
Vietnam Strategy
Theme 2: FDI may surge, TPP an
opportunity for VN
FDI into
manufacturing is
now significant.
On the back of several factors, but most importantly; a strong Govt. push to attract higher
value-added manufacturing to Vietnam, along with the ongoing emphasis on inflation control
and macro stability, and finally, what appears to be a strong political push to conclude the
Trans Pacific Partnership Agreement this year, Vietnam looks to be earning some early
dividends.
TPP is generating
significant FDI
Interest in Textiles
and garments
On top of Samsung Electronics‟ ongoing US$2.0bn investment for its largest mobile phone
plant outside of Korea to date in the Northern Thai Nguyen province. Samsung ElectroMechanics Co will now invest US$1.2 billion in a plant to manufacture chips and electronic
components at the same site. Construction is expected to start in October 2013 and begin
operations in August 2014. According to several widely available media reports, inclusive of
this plant, Samsung‟s total investment in Vietnam will reach at US$5.7bn and be its third
facility in the country.
Fig 17
Vietnam Exports (USDm)
TPP Countries
Australia
Brunei
Canada
Chile
Japan
Malaysia
Mexico
New Zealand
Peru
Singapore
United States
Total
China
2010
2,704
n.a.
802
94
7,728
2,093
489
123
38
2,121
14,238
30,430
7,743
Fig 18
2011
2,519
n.a.
969
138
10,781
2,832
590
151
n.a.
2,286
16,928
37,194
11,125
Source: MPI, Macquarie Research, Vina Securities, August 2013
2012
3,209
n.a.
1,157
169
13,065
4,500
683
184
n.a.
2,368
19,665
44,998
12,388
Vietnam Imports (USDm)
TPP Countries
Australia
Brunei
Canada
Chile
Japan
Malaysia
Mexico
New Zealand
Peru
Singapore
United States
Total
China
2010
1,444
n.a.
349
291
9,016
3,413
89
353
69
4,101
3,767
22,893
20,204
2011
2,123
n.a.
342
336
10,400
3,920
91
384
90
6,391
4,529
28,606
24,594
2012
1,772
n.a.
456
370
11,602
3,412
112
385
n.a.
6,691
4,827
29,627
28,785
In the recent state visit to Washington DC by Vietnamese President Trung Tan Sang,
Vietnam and the USA reaffirmed their intentions to conclude “a comprehensive, high-standard
Trans-Pacific Partnership (TPP) agreement this year.” The opportunity the TPP presents to
Vietnam is clear and broadly summed up as follows:
 “Joining the TPP, and positive, robust implementation of the commitments could
increase bilateral trade between Vietnam and the U.S. to about US$61.3 billion by
2020. And Vietnam‟s apparel exports to the U.S. could increase to US$22 billion by
2020. Already, South Korean, Chinese, Japanese and other companies have
announced over US$1 billion FDI in Vietnam to provide the supporting textiles
industries, yarn-spinning and fabric-weaving, so that Vietnam‟s apparel exports will be
able to benefit from zero import duties in TPP markets.”
-Herb Cochran, Executive Director of AmCham Vietnam in HCMC.
One of the key issues in the TPP is the “yarn-forward” rule, which means yarn and fabric must
be manufactured and assembled in the free-trade partner country in order to enter U.S.
markets tariff-free. Dropping this has been contentious, as more than 160 Members of
Congress have signed a letter to the U.S. trade representative, asking to maintain the yarnforward rule, which has reportedly been included in every major U.S. free trade deal for the
last 25 years.
We note that Garment companies in Vietnam heavily rely on fabric imports as the domestic
textile industry cannot supply high-quality fabric. Currently, Vietnam imports raw materials
used in garment manufacturing, including 75 per cent of fabric, 90 per cent of cotton and all
polyester filament and fibre requirements. The demand for fibre was high and local firms had
to import 150,000 tonnes each year, according to a press statement by the Vietnam National
Textile Garment Group.
27 August 2013
14
Macquarie Research
Vietnam Strategy
As we have noted last year, the trade deficit with China is a significant source of opportunity
cost to Vietnam. In 2012, Vietnam ran a US$16.4bn trade deficit with China and in the first
half of this year, it reportedly stood at US$11.4bn.
There has been press commentary that “yarn-forward” and trans-shipment provisions will
result in a slower rate of textile FDI in Vietnam relative to if the rule was included. However,
we believe that the country‟s proximity to China along with TPP benefits will drive a growing
trend of intermediate manufacturing investment in Vietnam, a necessary step if Vietnam
hopes to increase productivity, and become less dependent on wage advantages over time.
China‟s Texhong textile group may have already seen this likely outcome, it has already
invested $200 million in a plant in Dong Nai Province, and in April 2012 the company said it
would invest $300 million to build a new yarn factory in Quang Ninh. When fully complete,
Texhong will be able to produce110,000 tonnes of yarn in Vietnam. As noted in its 1H13
interim reports:
 “At present, the first phase of the northern Vietnam project of about 170,000 spindles
and 30 sets of open-end spinning machines was successfully put into full production in
July 2013 at high efficiency. Our newly expanded capacity in other places including
Vietnam and China of about 600,000 spindles in aggregate is expected to be put into
full operation on a gradual basis in the third quarter of 2013.”
 “For the expansion plan in 2014, it is expected that production facilities equivalent to
about 520,000 spindles will be built and are expected to be completed in the second
half of 2014. The total investment will be about RMB1.35 billion. This will include the
second phase of our northern Vietnam project with about 230,000 spindles.”
Fig 19
Selected Big Ticket FDI projects
New Capital
(USD mn)
Total Capital
(USD mn)
28,700
17,100
2,800
4,500
28,700
27,000
6,740
4,500
Korea, Singapore
Korea
Russia
Singapore
Singapore
2,000
1,000
1,000
338
200
3,200
2,500
1,000
338
200
Industry
Investor Country
New Capital
(USD mn)
Total Capital
(USD mn)
Electronics
Real Estate / Industrial parks
Electronics
Real Estate / Industrial parks
Manufacturing and Processing
Korea
Japan
Taiwan
Japan
Japan
Japan
Japan
830
1,200
870
1,000
575
441
180
1,500
1,200
1,120
1,000
575
441
180
Project - 2013
Province
Industry
Investor Country
PTT Nhon Hoi Refinery
Formosa Plastics Group
Nghi Son Oil Refinery
Long Son Petrochemical
Complex
Samsung Electronics Co., Ltd
Bus Industrial Center Co., Ltd
VSIP Dung Quat
VSIP Binh Hoa
Binh Dinh
Ha Tinh
Thanh Hoa
Ba Ria
Refining (Feasibility Study)
Steel / PetroChemiclas
Refining
Petrochemicals
Thailand
Taiwan
Japan, Kuwait
Thailand, Qatar
Thai Nguyen
Bac Ninh
Binh Dinh
Quang Ngai
Binh Duong
Electronics
Electronics
Manufacturing & Processing
Industrial Parks
Industrial Parks
Project - 2012
Province
Tokyu Binh Duong Garden City
Wintek Vietnam Co., Ltd.
Shimizu Group
Bridgestone Tire Vietnam
LIXIL Vietnam
Oshima Shipbuilding
Bac Ninh
Binh Duong
Bac Giang
Hanoi
Hai Phong
Dong Nai
Khanh Hoa
27 August 2013
15
Macquarie Research
Vietnam Strategy
There has been some movement in big ticket FDI Projects over the last year. As noted, these
intermediate industries are necessary precursors‟ for Vietnam to improve productivity.
The Japanese and Kuwaiti joint venture behind the Nghi Son Oil Refinery complex in Thanh
Hoa Province took a major step forward in late July when the project officially received its
land-use rights and construction certificates. The US$9.0bn project, 75% foreign-owned, is
scheduled to begin construction in the Nghi Son Economic Zone in September and is
expected to boost the country‟s refinery capacity by more than 200,000 barrels/day, or 10
million tonnes/yr, once completed in 2016.
This would more than double the country‟s current estimated 6.5 million tones/yr refining
capacity and allow Vietnam to meet upwards of 70% of its domestic petrol fuel needs, up
significantly from its current 30% level.
Following closely behind Nghi Son, another mammoth project, the US$4bn Long Son
Petrochemical complex, also received its official land transfer papers in mid-August, allowing
construction to begin in early 2014. The Long Son complex will produce polymer materials
and plastics for domestic consumption.
27 August 2013
16
Macquarie Research
Vietnam Strategy
Theme 3: Facing reality – Steady change
Raising foreign ownership limits
Long-awaited
changes to FII limits
have been
proposed.
The Ministry of Finance, following a review by the State Securities Commission submitted a
plan on liberalisation of foreign limits to the Prime Minister‟s office for approval. Details remain
sketchy, but the plan would raise limits to 60% from 49% for what was termed „non
conditional‟ industries. Restricted industries limits would remain at 49%, with an additional
quota of 10% in non-voting shares. No disclosures on which industries will be restricted were
mentioned, but we expect Energy, Telecom, Utilities and Resources to lead the list. But an
open question remains; will policy makers allow foreign control of Commercial Bank (i.e. will
foreign limits in banks go from 30% currently to 49% or perhaps 60%)?
Incremental room if
US$4.6bn could be
created.
An increase in foreign limits from 49% to 60% and the creation of a 10% non-voting tranche in
restricted sectors would open up another US$4.5 in foreign quota over and above the existing
available room of US$2.1bn. This would also be only for stocks listed in the VN30 Index. A
sizable increase in quota would also make up significant room in the small cap stocks or
stocks with low free floats that are not captured by the VN30.
The two industry groups that would see the largest increase in foreign availability (in absolute
terms) would be Commercial Banks followed Food Products. The later is largely driven by
increased room in MSN and VNM, whilst the former from the six listed banks.
Fig 20
Estimating the invest-ability effects of higher foreign limits
GICS Industry Group (USD mn)
Mkt Cap
Energy Equipment & Services
Chemicals
Metals & Mining
Transportation Infrastructure
Construction & Engineering
Consumer Discretionary
Auto Components
Food Products
Commercial Banks
Real Estate Management & Devel
Insurance
Capital Markets
Diversified Financial Services
Electronic Equip., Instruments
Electric Utilities
Gas Utilities
Total
Additional Quota
$602.7
$758.2
$842.3
$242.1
$157.2
$366.8
$273.3
$9,325.8
$8,366.2
$2,761.0
$1,374.2
$476.6
$873.3
$614.3
$136.9
$62.6
$27,233.5
Avail. Quota Assumed New Limit Non Voting Shares
$72.1
$158.2
$72.1
$43.8
$51.7
$0.0
$85.1
$547.3
$419.8
$247.9
$341.3
$29.3
$29.3
$0.0
$28.4
$0.0
$2,126.3
49%
60%
49%
60%
60%
60%
60%
60%
60%
60%
60%
60%
60%
60%
49%
49%
10%
0%
10%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
10%
10%
Increased Quota
$132.4
$241.7
$156.3
$70.4
$69.0
$40.4
$115.1
$1,573.2
$2,929.7
$551.6
$492.5
$81.7
$125.3
$67.6
$42.1
$6.3
$6,695.3
$4,568.8
Source: Macquarie Research, Vina Securities, August 2013
Next steps, executing on SOE reforms
The government‟s SOE reform plan has been progressing slowly and haphazardly. Officially,
SOEs will be required to divest non-core assets, streamline operations, and improve internal
controls and financial reporting lines. About 1,200 SOEs are planned to be restructured.
However, the reform strategy for the 2011–2015 periods focuses on retaining full ownership
of approximately half of the SOEs that operate in public service areas or are of strategic
value, some of which have significant monopoly power (i.e. EVN). The balance of the SOEs
are to be equitized, restructured, sold, or ultimately be liquidated.
Implementation on SOE reform so far has been haphazard, a few large SOEs (PetroVietnam,
VinaChem) have put broadly defined plans on paper, but very few sizable transactions in
restructuring have been executed.
One of the problems with SOEs is the contingent liabilities they reportedly possess. There
has been comments that public/debt to GDP is closer to 100% once SOE loans are added
into the equation. In what sounds like a familiar reason for delaying circular 2. Too aggressive
reform could lead to uncomfortable liquidations of collateral and further NPL visibility. As
such, as the VAMC begins to deal with the bad debt in the system, it may well herald or open
the door to acceleration in SOE reform.
27 August 2013
17
Macquarie Research
Vietnam Strategy
Appendices – Demographics, FDI & wages
Fig 21
Fig 22
Vietnam Population Pyramid (2015E)
70-74
65-69
60-64
55-59
50-54
45-49
40-44
35-39
30-34
25-29
20-24
15-19
5-9
0-4
Vietnam Population Pyramid (2030E)
70-74
65-69
60-64
55-59
50-54
45-49
40-44
35-39
30-34
25-29
20-24
15-19
5-9
0-4
6.0%
4.0%
2.0%
0.0%
Male (%)
2.0%
4.0%
6.0%
6.0%
4.0%
Female (%)
2.0%
Male (%)
0.0%
2.0%
4.0%
6.0%
Female (%)
Source: World Bank, Macquarie Research, Vina Securities, Aug 2013
Fig 23
Fig 24
Vietnam Working age Population (1960-2050E)
Vietnam Dependency Ratio (1960-2050E)
Fig 25 Cumulative FDI (US$m)
Registered Capital
Real Estate
Construction
Electricity, Gas, Water,
Production & Distrib.
Information and
communications
Arts and Entertainment
Agriculture, forestry, fisheries
Mining
Wholesale, retail, repair
Finance, banking, insurance
Health and Social Assistance
Water Supply, Waste
Treatment
Professional Specialties,
Science and Tech.
Other Services
Education and Training
Admin and Support Services
Total
Jun-09
Jan-11
Jun-11
Dec-11
Jun-12
Sep-12
Dec-12
Mar-13
Jul-13
87,401
33,929
10,938
9,118
2,107
95,155
48,004
11,383
11,596
4,870
98,480
48,198
11,748
11,739
5,136
93,053
47,002
11,830
12,500
7,398
97,922
49,358
10,539
10,385
7,404
100,791
49,732
10,540
10,245
7,408
103,524
49,724
10,606
9,917
7,486
111,470
47,920
10,606
10,063
7,489
116,443
48,259
10,698
9,880
7,501
4,644
4,789
4,829
5,697
5,721
6,115
3,938
3,952
4,030
3,662
2,125
2,960
3,078
1,006
1,182
952
48
3,461
3,180
3,094
2,940
1,609
1,321
988
64
3,621
3,218
3,161
2,975
1,814
1,322
1,037
387
3,636
3,262
3,218
2,975
2,067
1,322
1,015
710
3,699
3,446
3,284
3,020
2,321
1,322
1,166
2,410
3,680
3,463
3,290
3,020
2,530
1,322
1,166
2,402
3,675
3,476
3,344
3,177
2,814
1,322
1,219
1,234
3,629
3,496
3,262
3,182
2,984
1,322
1,302
1,239
3,665
3,519
3,304
3,197
3,126
1,322
1,305
1,285
508
717
786
983
1,004
1,060
1,087
1,113
1,161
600
244
177
646
380
183
644
345
183
716
355
188
713
429
189
728
433
192
733
458
201
740
463
201
741
648
194
164,680
194,380
199,625
197,927
204,332
208,115
207,936
214,434
220,278
Source: World Bank, Macquarie Research, Vina Securities, August 2013
27 August 2013
18
Macquarie Research
Fig 26
Share of FDI buy 5 largest industries
60.0%
% of Cumulative Registered Capital
Vietnam Strategy
Real Estate
Construction
Electricity, Gas, Water, Air Conditioning Production & Distrib.
50.0%
Fig 27 Wage differentials – Vietnam vs. China (Avg
textile worker salary US$ month)
600
500
400
40.0%
300
30.0%
200
20.0%
100
10.0%
0
2008
0.0%
2009
2010
Indonesia
Vietnam
Philippines
Fig 28
2011
2012
Cambodia
China
Source: Macquarie Research, Vina Securities, August 2013
Coastal vs. in-country population density
Source: Columbia University, Macquarie Research, Vina Securities, August 2013
27 August 2013
19
Macquarie Research
Vietnam Strategy
VIETNAM
FPT VN
Outperform
VND45,400
Price (at 06:52, 23 Aug 2013 GMT)
Valuation
VND
49,100
- PER
12-month target
VND
49,100
Upside/Downside
%
+8.1
12-month TSR
%
+12.1
Volatility Index
Low
GICS sector
Technology Hardware & Equipment
Market cap
VNDbn
12,490
Market cap
US$m
592
Free float
%
70
30-day avg turnover
US$m
0.0
Number shares on issue
m
275.1
Investment fundamentals
Year end 31 Dec
Revenue
EBIT
EBIT growth
Reported profit
EPS rep
EPS rep growth
PER rep
Total DPS
Total div yield
ROA
ROE
EV/EBITDA
Net debt/equity
P/BV
2012A 2013E 2014E 2015E
bn 24,594 26,342 29,278 32,668
bn 2,232 2,279 2,592 2,964
% -12.9
2.1
13.7
14.3
bn 1,540 1,546 1,759 1,976
VND 5,665 5,648 6,392 7,184
%
12.8
-0.3
13.2
12.4
x
8.0
8.0
7.1
6.3
VND 3,635 1,508 1,500 2,501
%
8.0
3.3
3.3
5.5
%
15.3
15.3
15.5
15.6
%
25.4
22.3
22.0
21.2
x
4.9
4.7
4.1
3.5
%
11.8
2.9
-5.6 -12.5
x
2.0
1.7
1.4
1.3
FPT VN rel Vietnam Ho Chi Minh
performance, & rec history
FPT Corp.
Vietnam’s infocomm leader
The company
 FPT is a proxy on Vietnam’s fast-growing Info-Communications (ICT) market.
It has a leading market share in sales in each segment in which it operates:
software outsourcing (1st), systems integration (1st), IT products distribution
(1st) and broadband telecommunication services (3rd).
 Founded by 13 partners in 1988, FPT Corporation (FPT) became a public
company in Mar-02 and listed on the Ho Chi Minh stock exchange (HoSE) in
Dec-06. Over the last 25 years, the group has established its reputation in
Vietnam’s information and communication technology (ICT) sector with
market-leading positions in software outsourcing (1st), systems integration
(1st), IT and mobile product distribution (1st) and broadband service (3rd).

The group employs nearly 15,000 staff and operates under five main
divisions: FPT IS, FPT Software, FPT Telecom, FPT Trading and FPT Edu.
Recent results & key drivers
 Pre-tax profit for the first seven months of FY13 totaled VND1.4tn (+5.7%
YoY), or 57.6% of our FY13 estimate. This was underpinned by FPT Telecom
(+8.5% YoY), which contributed 42.3% to blended profit, and the software
outsourcing division (+60% YoY). IT and mobile distribution remain a drag on
the bottom line, with segment pre-tax profit down 29.8% YoY.
 We believe that Vietnam’s core ICT market (which includes broadband,
software outsourcing and systems integration) will continue to grow, driven by
1) Competitive advantages in software outsourcing on lower wages and
comparable skills, 2) broadband penetration rising off a low base and the
introduction of value-added services such as IP TV and 3) improved
performance in the systems integration division as e-Govt and other banking
tenders grow.
 FPT is in exclusive negotiations to acquire the state’s 50.2% stake in FPT
Telecom. We expect any transaction to be largely funded by stock issuance
and to be concluded late this year. On our estimates, VND592.3bn–719.8bn
in FPT Tel profits will accrue to the State Capital Investment Corporation
(SCIC) in the next two years.
Earnings and target price revision
Note: Recommendation timeline - if not a continuous line, then there was no
Macquarie coverage at the time or there was an embargo period.
 No change.
Source: FactSet, Macquarie Research, August 2013
(all figures in VND unless noted)
Price catalyst
 12-month price target: VND49,100 based on a PER methodology.
 Catalyst: Strong growth in software business, recovery in the IS segment and
ongoing negotiations to consolidate FPT Telecom.
Action and recommendation
Analyst(s)
Jeff Su
+886 2 2734 7512
jeff.su@macquarie.com
Vina Securities
Gigi Nguyen
+848 3821 9316
giao.nguyen@vinasecurities.com
27 August 2013
Macquarie Capital Securities Limited,
Taiwan Branch
27 August 2013
 We maintain our OP rating and value the stock at VND49,100, for a 12.1%
TSR. We note that FPT trades at a significant discount to peers, but given our
forecast for EPS growth of 13.2% for FY14 and a full foreign limit, we believe
a valuation re-rating will likely come with full consolidation of FPT Tel and
more visibility on consolidated EPS growth. Our target price reflects the
simple average of FY13E and FY14E fair values for FPT based on a target
PER of 8.7x.
20
Macquarie Research
Vietnam Strategy
FPT Corp. (FPT VN, Outperform, Target Price: VND49,100)
Interim Results
2H/12A
1H/13E
2H/13E
1H/14E
Revenue
Gross Profit
Cost of Goods Sold
EBITDA
Depreciation
Amortisation of Goodwill
Other Amortisation
EBIT
Net Interest Income
Associates
Exceptionals
Forex Gains / Losses
Other Pre-Tax Income
Pre-Tax Profit
Tax Expense
Net Profit
Minority Interests
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
13,353.0
2,674.6
10,678.4
1,276.8
205.3
0.0
0.0
1,071.6
42.7
3.3
33.0
15.4
35.5
1,201.5
-205.9
995.6
-208.2
12,267.2
2,763.6
9,503.6
1,437.9
205.3
0.0
0.0
1,232.6
3.7
8.0
40.9
-32.5
23.9
1,276.7
-217.7
1,059.0
-255.9
14,075.2
2,980.3
11,094.9
1,356.6
310.1
0.0
0.0
1,046.5
125.6
24.6
-0.0
3.9
-0.0
1,200.5
-215.7
984.8
-241.8
15,208.1
3,440.2
11,768.0
1,686.9
340.7
0.0
0.0
1,346.2
134.9
17.0
0.0
-18.0
0.0
1,480.1
-259.0
1,221.1
-307.6
Reported Earnings
Adjusted Earnings
bn
bn
787.4
754.4
803.1
762.2
743.0
743.0
EPS (rep)
hào
2,896
2,934
2,714
Profit & Loss
2012A
2013E
2014E
2015E
Revenue
Gross Profit
Cost of Goods Sold
EBITDA
Depreciation
Other Amortisation
EBIT
Net Interest Income
Associates
Exceptionals
Pre-Tax Profit
Tax Expense
Net Profit
Minority Interests
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
24,594.3
5,091.8
19,502.5
2,631.3
399.7
0.0
0.0
2,231.6
86.4
32.7
55.7
34.1
-33.9
2,406.6
-421.1
1,985.5
-445.2
26,342.4
5,743.9
20,598.5
2,794.5
515.4
0.0
0.0
2,279.1
129.3
32.7
40.9
-28.6
23.9
2,477.2
-433.4
2,043.8
-497.7
29,278.4
6,622.9
22,655.5
3,247.6
655.9
0.0
0.0
2,591.7
259.7
32.7
0.0
-34.6
0.0
2,849.5
-498.6
2,350.9
-592.3
32,668.2
7,762.2
24,906.0
3,770.6
807.1
0.0
0.0
2,963.5
370.6
32.7
0.0
-38.0
0.0
3,328.7
-632.5
2,696.2
-719.8
913.5
913.5
Reported Earnings
Adjusted Earnings
bn
bn
1,540.3
1,484.6
1,546.1
1,505.3
1,758.6
1,758.6
1,976.4
1,976.4
3,320
EPS (rep)
hào
5,665
5,648
6,392
7,184
6.2
8.0
7.1
6.3
3,635
10.3
272
272
1,508
3.3
274
274
1,500
3.3
275
275
2,501
5.5
275
275
2012A
2013E
2014E
2015E
2,631.3
-421.1
201.4
0.0
260.5
2,672.1
0.0
-716.5
0.0
201.3
-515.2
-988.4
652.9
-1,718.6
-686.3
-2,740.4
2,794.5
-433.4
-731.3
0.0
98.3
1,728.1
0.0
-1,017.6
0.0
23.9
-993.7
-412.8
13.5
-331.8
243.2
-487.9
3,247.6
-498.6
-1,168.2
0.0
1,003.2
2,584.0
0.0
-1,283.8
0.0
0.0
-1,283.8
-412.8
0.0
-7.2
-34.6
-454.6
3,770.6
-632.5
-1,313.2
0.0
1,195.6
3,020.6
0.0
-1,300.0
0.0
0.0
-1,300.0
-688.0
0.0
-7.2
-38.0
-733.2
PE (rep)
EBITDA Margin
EBIT Margin
Earnings Split
Revenue Growth
EBIT Growth
%
%
%
%
%
Profit and Loss Ratios
9.6
8.0
50.8
-0.4
-14.8
11.7
10.0
50.6
9.1
6.3
9.6
7.4
49.4
5.4
-2.3
11.1
8.9
51.9
24.0
9.2
2012A
2013E
2014E
2015E
Revenue Growth
EBITDA Growth
EBIT Growth
Gross Profit Margin
EBITDA Margin
EBIT Margin
Net Profit Margin
Payout Ratio
EV/EBITDA
EV/EBIT
%
%
%
%
%
%
%
%
x
x
-3.1
-10.4
-12.9
20.7
10.7
9.1
8.1
66.6
3.9
4.6
7.1
6.2
2.1
21.8
10.6
8.7
7.8
27.4
4.7
5.7
11.1
16.2
13.7
22.6
11.1
8.9
8.0
23.5
4.1
5.1
11.6
16.1
14.3
23.8
11.5
9.1
8.3
34.8
3.5
4.4
Balance Sheet Ratios
ROE
ROA
ROIC
Net Debt/Equity
Interest Cover
Price/Book
Book Value per Share
%
%
%
%
x
x
25.4
15.3
22.5
11.8
nmf
1.5
22,735.1
22.3
15.3
23.7
2.9
nmf
1.7
26,769.4
22.0
15.5
23.8
-5.6
nmf
1.4
31,529.3
21.2
15.6
23.8
-12.5
nmf
1.3
36,211.8
Total DPS
Total Div Yield
Weighted Average Shares
Period End Shares
x
hào
%
m
m
Cashflow Analysis
EBITDA
Tax Paid
Chgs in Working Cap
Net Interest Paid
Other
Operating Cashflow
Acquisitions
Capex
Asset Sales
Other
Investing Cashflow
Dividend (Ordinary)
Equity Raised
Debt Movements
Other
Financing Cashflow
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
Net Chg in Cash/Debt
bn
-583.5
246.5
845.6
987.4
Free Cashflow
bn
1,955.7
710.5
1,300.1
1,720.6
2012A
2013E
2014E
2015E
2,318.9
3,208.6
2,699.5
1,147.9
2,348.6
485.5
2,000.3
14,209.2
3,097.3
2,859.7
293.6
297.3
567.0
7,114.9
6,181.8
912.5
0.0
7,094.3
14,209.2
2,565.4
3,436.7
3,135.7
1,147.9
2,903.3
433.0
1,906.2
15,528.1
2,838.0
2,807.2
14.3
532.9
597.0
6,789.3
7,328.6
1,410.2
0.0
8,738.8
15,528.1
3,410.9
3,819.7
3,449.9
1,147.9
3,583.7
380.5
2,038.2
17,830.7
3,090.7
2,807.2
7.2
592.3
656.6
7,153.8
8,674.5
2,002.4
0.0
10,676.9
17,830.7
4,398.3
4,261.9
3,793.6
1,147.9
4,129.1
328.0
2,185.4
20,244.3
3,369.4
2,807.2
0.0
660.8
721.8
7,559.2
9,962.8
2,722.3
0.0
12,685.1
20,244.3
Balance Sheet
Cash
Receivables
Inventories
Investments
Fixed Assets
Intangibles
Other Assets
Total Assets
Payables
Short Term Debt
Long Term Debt
Provisions
Other Liabilities
Total Liabilities
Shareholders' Funds
Minority Interests
Other
Total S/H Equity
Total Liab & S/H Funds
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
All figures in VND unless noted.
Source: Company data, Macquarie Research, August 2013
27 August 2013
21
Macquarie Research
Vietnam Strategy
VIETNAM
HPG VN
Price (at 06:52, 23 Aug 2013 GMT)
Valuation
Outperform
VND32,200
VND
34,000
- PER
12-month target
VND
34,000
Upside/Downside
%
+5.6
12-month TSR
%
+11.8
Volatility Index
High
GICS sector
Materials
Market cap
VNDbn
13,493
Market cap
US$m
639
Free float
%
56
30-day avg turnover
US$m
0.0
m
419.1
Year end 31 Dec
Revenue
EBIT
EBIT growth
Reported profit
EPS rep
EPS rep growth
PER rep
Total DPS
Total div yield
ROA
ROE
EV/EBITDA
Net debt/equity
P/BV
2012A 2013E 2014E 2015E
bn 16,827 18,663 22,023 25,993
bn 1,624 1,948 2,928 3,585
% -27.9
19.9
50.3
22.5
bn
994 1,500 2,110 2,636
VND 2,157 3,580 5,036 6,290
% -27.8
66.0
40.7
24.9
x
14.9
9.0
6.4
5.1
VND
791 2,000 2,000 2,000
%
2.5
6.2
6.2
6.2
%
8.9
9.5
13.2
16.3
%
12.7
16.6
22.5
24.1
x
8.3
7.0
4.9
4.2
%
58.4
87.9
54.1
16.9
x
1.7
1.5
1.3
1.1
HPG VN rel Vietnam Ho Chi Minh
Hoa Phat Group JSC
Vietnam’s most profitable steel
company
The company
 HPG is the second- biggest player (14.3% market share) in Vietnam’s steel
industry, with long steel capacity of 650,000 TPA. HPG secured its
competitive market position by leveraging an integrated production chain,
which includes: 1) six iron ore mines with total reserves of 50.0mn tonnes, 2)
an internal coke production factory with capacity of 700,000 TPA and 3) an
ongoing project to double its steel production capacity.
 HPG’s market share has steadily risen, to 14.3% in May-13 from 12.0% in
Dec-10, despite a gloomy construction and real estate market. HPG has
opportunistically grabbed market share away from weaker competitors.
 For 1H13, HPG achieved VND8,410.4bn in revenue (-3.9% YoY) and
VND1,012.6bn in net profit (+86.7% YoY), which accounted for 45.0% and
67.5% (from asset disposals) of our FY13E revenue and profit forecasts,
respectively.
 HPG’s phase II steel capacity project (500,000 TPA) will complete the group’s
blast furnace production chain, doubling capacity to 1.15mn TPA, and lower
production costs (- 8.1%) given internal coke & iron ore supply. The phase II
plant is expected to come on-stream in late-3Q13.
 We estimate that the operation of this Basic Oxygen Furnace (phase II) will
help HPG achieve sales volume of 703,000 tonnes (+15.0% YoY) in FY13E
and 829,900 tonnes (+18.0% YoY) in FY14E.
 We thus forecast core EPS growth (construction steel) will be 14.9% in
FY13E, rising to 45.1% in FY14E. This growth reflects higher sales volumes,
lower production and input costs (-8.1%) and a substantial drop in interest
expense (given an 800bp in rate cuts since Jan-12 ).
 HPG’s legacy property project (Mandarin Gardens) has now sold 600 of 1,000
units. The company is slowly selling down its unsold inventory. We estimate
revenue of VND5,885.9bn and net profit of VND745.4bn over the FY13–15E
period.
 No change.
Price catalyst
Analyst(s)
Gary Pinge
+852 3922 3557
 Catalyst: Volume growth in 2H13, following the phase II commercialisation.
gary.pinge@macquarie.com
Vina Securities
Duong Dinh
+848 3821 9316
 HPG shares are now trading on a FY13E P/E of 8.5x (a 40.6% discount to
duong.dinh@vinasecurities.com
27 August 2013
Macquarie Capital Securities Limited
27 August 2013
Peers). EPS is back on a growth path, with a CAGR of 29.1% in FY12–14E.
ROE is also back to 20.0%, and HPG has promised a dividend yield of 6.5%.
We note that our valuation is based on the company’s core steel business
earnings and excludes its real estate interests.
22
Macquarie Research
Vietnam Strategy
Hoa Phat Group JSC (HPG VN, Outperform, Target Price: VND34,000)
Interim Results
2H/12A
1H/13E
2H/13E
1H/14E
Profit & Loss
2012A
2013E
2014E
2015E
Revenue
Gross Profit
Cost of Goods Sold
EBITDA
Depreciation
Other Amortisation
EBIT
Net Interest Income
Associates
Exceptionals
Pre-Tax Profit
Tax Expense
Net Profit
Minority Interests
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
8,192.9
1,550.4
6,642.5
957.9
293.3
0.0
0.0
664.6
-189.9
-0.2
24.5
41.5
42.7
583.1
-76.2
506.9
-53.0
8,398.2
1,596.1
6,802.1
1,182.9
306.5
0.0
0.0
876.5
-121.2
-0.3
47.7
-26.4
0.0
776.3
-93.2
683.0
-8.0
10,264.4
1,950.8
8,313.6
1,445.8
374.6
0.0
0.0
1,071.2
-148.2
-0.3
58.2
-32.2
0.0
948.8
-113.9
834.8
-9.8
9,910.2
2,175.7
7,734.4
1,701.5
384.1
0.0
0.0
1,317.4
-147.4
-0.3
0.0
-30.7
0.0
1,139.1
-170.9
968.2
-18.6
Revenue
Gross Profit
Cost of Goods Sold
EBITDA
Depreciation
Other Amortisation
EBIT
Net Interest Income
Associates
Exceptionals
Pre-Tax Profit
Tax Expense
Net Profit
Minority Interests
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
16,826.9
3,081.5
13,745.4
2,220.5
596.2
0.0
0.0
1,624.2
-457.8
-0.5
14.9
-5.3
42.7
1,218.2
-187.7
1,030.6
-36.5
18,662.6
3,546.9
15,115.7
2,628.8
681.1
0.0
0.0
1,947.7
-269.4
-0.6
105.9
-58.6
0.0
1,725.0
-207.2
1,517.9
-17.9
22,022.6
4,834.9
17,187.7
3,781.2
853.6
0.0
0.0
2,927.6
-327.6
-0.6
0.0
-68.1
0.0
2,531.3
-379.7
2,151.6
-41.4
25,993.1
5,605.3
20,387.8
4,446.4
861.1
0.0
0.0
3,585.3
-243.1
-0.6
0.0
-78.0
0.0
3,263.6
-554.8
2,708.8
-72.8
Reported Earnings
Adjusted Earnings
bn
bn
453.9
429.5
675.0
627.3
825.0
766.8
949.6
949.6
Reported Earnings
Adjusted Earnings
bn
bn
994.1
979.1
1,500.0
1,394.1
2,110.2
2,110.2
2,636.0
2,636.0
VND
1,083
1,611
1,969
2,266
EPS (rep)
VND
2,157
3,580
5,036
6,290
9.7
9.0
6.4
5.1
791.4
3.8
461
419
2,000
6.2
419
419
2,000
6.2
419
419
2,000
6.2
419
419
2012A
2013E
2014E
2015E
2,628.8
-207.2
-1,498.2
0.0
-911.2
12.2
0.0
-2,238.3
0.0
-0.6
-2,238.9
-838.1
0.0
2,848.2
-58.6
1,951.6
3,781.2
-379.7
-246.8
0.0
266.4
3,421.1
0.0
-100.0
0.0
-0.6
-100.6
-838.1
0.0
-1,476.7
-68.1
-2,383.0
4,446.4
-554.8
446.1
0.0
302.7
4,640.3
0.0
-100.0
0.0
-0.6
-100.6
-838.1
0.0
-2,651.4
-78.0
-3,567.5
EPS (rep)
PE (rep)
EBITDA Margin
EBIT Margin
Earnings Split
Revenue Growth
EBIT Growth
%
%
%
%
%
11.7
8.1
43.9
-4.7
-10.7
14.1
10.4
45.0
-2.7
-8.7
14.1
10.4
55.0
25.3
61.2
17.2
13.3
45.0
18.0
50.3
2012A
2013E
2014E
2015E
Revenue Growth
EBITDA Growth
EBIT Growth
Gross Profit Margin
EBITDA Margin
EBIT Margin
Net Profit Margin
Payout Ratio
EV/EBITDA
EV/EBIT
%
%
%
%
%
%
%
%
x
x
-5.7
-20.6
-27.9
18.3
13.2
9.7
6.1
37.4
6.2
8.5
10.9
18.4
19.9
19.0
14.1
10.4
8.1
60.1
7.0
9.5
18.0
43.8
50.3
22.0
17.2
13.3
9.8
39.7
4.9
6.3
18.0
17.6
22.5
21.6
17.1
13.8
10.4
31.8
4.2
5.2
ROE
ROA
ROIC
Net Debt/Equity
Interest Cover
Price/Book
%
%
%
%
x
x
12.7
8.9
10.3
58.4
3.5
1.1
19,293.8
16.6
9.5
12.6
87.9
7.2
1.5
20,873.4
22.5
13.2
14.3
54.1
8.9
1.3
23,909.1
24.1
16.3
18.3
16.9
14.7
1.1
28,199.4
Total DPS
Total Div Yield
Period End Shares
x
hào
%
m
m
Cashflow Analysis
EBITDA
Tax Paid
Chgs in Working Cap
Net Interest Paid
Other
Operating Cashflow
Acquisitions
Capex
Asset Sales
Other
Investing Cashflow
Dividend (Ordinary)
Equity Raised
Debt Movements
Other
Financing Cashflow
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
2,220.5
-187.7
-1,311.8
0.0
1,548.4
2,269.4
0.0
-1,828.1
0.0
168.4
-1,659.7
-361.8
0.0
-118.9
101.1
-379.6
bn
230.2
-275.1
937.5
972.2
Free Cashflow
bn
441.3
-2,226.1
3,321.1
4,540.3
2012A
2013E
2014E
2015E
1,294.5
1,150.5
3,884.2
240.4
6,840.9
1,084.8
4,520.5
19,015.7
1,520.6
4,850.2
1,455.7
209.9
2,401.7
10,438.2
7,790.6
492.4
294.5
8,577.5
19,015.7
1,019.4
1,191.4
5,543.9
240.4
8,420.7
1,062.2
4,691.9
22,169.9
1,674.9
5,633.4
3,520.8
209.9
1,873.5
12,912.6
8,452.5
510.3
294.5
9,257.3
22,169.9
1,956.9
1,384.2
6,395.1
240.4
7,689.7
1,039.7
3,597.7
22,303.6
1,912.9
5,106.5
2,571.0
209.9
1,932.5
11,732.8
9,724.6
551.6
294.5
10,570.8
22,303.6
2,929.2
1,566.5
7,430.0
240.4
6,951.2
1,017.1
1,661.5
21,795.8
2,253.0
2,540.7
2,485.4
209.9
1,865.3
9,354.4
11,522.5
624.4
294.5
12,441.5
21,795.8
Balance Sheet
Cash
Receivables
Inventories
Investments
Fixed Assets
Intangibles
Other Assets
Total Assets
Payables
Short Term Debt
Long Term Debt
Provisions
Other Liabilities
Total Liabilities
Shareholders' Funds
Minority Interests
Other
Total S/H Equity
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
27 August 2013
23
Macquarie Research
Vietnam Strategy
VIETNAM
PVD VN
Price (at 06:52, 22 Aug 2013 GMT)
Valuation
Outperform
VND59,000
VND 69,100.00
- EV/EBITDA
12-month target
VND 69,100.00
Upside/Downside
%
+17.1
12-month TSR
%
+17.3
Volatility Index
Medium
GICS sector
Energy
Market cap
VNDbn
12,399
Market cap
US$m
588
Free float
%
50
30-day avg turnover
US$m
0.0
m
210.2
Revenue
EBIT
EBIT growth
Reported profit
EPS rep
EPS rep growth
PER rep
Total DPS
Total div yield
ROA
ROE
EV/EBITDA
Net debt/equity
P/BV
2012A 2013E 2014E 2015E
m
m
%
m
¢
%
x
¢
%
%
%
x
%
x
572.8
90.9
26.7
62.6
29.9
18.3
9.4
0.4
0.1
10.1
19.1
5.3
78.2
1.7
Placement finished successfully
Event
 We reiterate our OP rating for PVD, increase our TP by 19.9% to VND69,100
(+17.1% upside). This is due to the decline in net debt given USD68.5mn in
private placement’s proceeds, a delay in raising loans for a high-spec jack-up
and increased FY13E profits of USD2.9mn.
 Placement finished: PVD was able to sell a total 38.0mn shares at an avg.
price of VND38,262/sh (19.6% higher than our trailing BVPS assumption).
 PVD has indicated they will now not invest in a new build high–spec jack-up
Year end 31 Dec
PetroVietnam Drilling and
Well Services
650.6
112.5
23.8
84.9
37.1
24.2
7.5
0.4
0.1
11.9
20.3
5.1
36.0
1.5
656.6
119.8
6.5
88.2
35.5
-4.3
7.9
0.4
0.1
11.5
17.1
4.8
35.6
1.3
723.2
140.2
17.0
97.8
39.4
10.9
7.1
0.4
0.1
12.3
15.9
4.2
11.1
1.0
PVD VN rel Vietnam Ho Chi Minh
(to be completed in late 2013) with Falcon Energy. Instead, PetroVietnam
Drilling Overseas (PVDO) – a joint venture between PVD (55% stake), Falcon
(10% stake) and Joy Pride – Keppel (35% stake) has ordered an USD210mn,
400 ft WD jack-up from Keppel FELS (scheduled for delivery in 1Q15).
 1H13A results: USD313.4mn in Rev (+30.9% YoY) and USD41.5mn in NP
(+41.2% YoY). These account for 50.1% and 50.1% of our previous FY13E’s
forecasts respectively. Finally, another leased-in rig was secured, Key
Gibraltar (1+1 year contract), for PVEP. PVD now has 6 leased-in rigs.
Impact
 With approximately USD68.5mn proceeds from the placement, PVD’s net
gearing ratio should drop to 36.7% by FY13E from the 82.1% at FY12A.
 We are lowering our FY14E NP estimates to USD88.2mn vs. USD92.8mn
given the decision not to invest in the new build rig. We now estimate 3.9% in
FY14E NP growth, but a 4.3% contraction in EPS growth given dilution.
 We like the participation of Keppel in PVDO as this will ensure timely delivery.
The 400ft WD rig will help PVD achieve double digit EPS growth again of
10.9% and 22.4% for FY15/16E on our estimates.
(all figures in USD unless noted)
 We raise our FY13E revenue forecast to US$650.6mn from US$624.5mn and
our net profit by 3.5% to US$84.9mn from US$82.0mn respectively, on the
back of strong margin. Our TP jumps by 19.9% to VND69,100.
Price catalyst
Analyst(s)
 12-month price target: VND69,100.00 based on an EV/EBITDA methodology.
James Hubbard, CFA
+852 3922 1226
james.hubbard@macquarie.com
 Catalyst: Progress of the high-spec jack-up project, and a rising dayrate trend.
Vina Securities
Duong Dinh
+848 3821 9316
 Regional jack-up dayrates look to remain robust averaging over
27 August 2013
27 August 2013
USD160,000/day. At 6.3x our FY14E EBITDA forecast of US$153.1mn, PVD
trades at a 32.5% discount to its peer group, and at a prospective FY14E PER
of 7.8x EPS and PB of 1.2x BVPS respectively.
24
Macquarie Research
Vietnam Strategy
Valuation
We revise up our target price by 19.9% from VND57,600 to VND69,100/sh. Our estimated equity
value has increased to USD747.9mn (+46.5% vs previous forecast) and USD830.3mn (+2.2% vs.
previous forecast) respectively for FY13E & 14E. These are due to the decline in net debt (with the
placement’s proceeds and delay in raising new debt for high-spec jack-up project) as well as more
EBITDA expected for FY13E. The increase in EBITDA is mainly due to higher gross margin and one
more leased rig, Key Gibraltar with 1+1 year contract for PVEP.
PVD finally and successfully closed its long running private placement, receiving proceeds of
USD68.5mn. In particular, 20.1mn shares were sold at VND31,758 to PetroVietnam (with a three
year lock-up), 17.8mn shares (with a one year lock-up) were sold at average of VND45,605 to PYN
fund management Ltd, PENM Partners – Private Equity New Market II & VOF – Vietnam Investment
Property Holding Ltd. The proceeds have helped PVD to lower the net debt to equity to 36.7% at
FY13E from 82.1% as of FY12E.
As of the end of FY13E, we estimate PVD’s target price of VND69,100, implying upside of 17.1%.
Going forward to FY14E, our fair value rises further to VND73,389 (+24.4% upside).
Fig 1 Valuation
Year Ended
FY13E
FY14E
FY15E
Reported EBITDA
Less Minority EBITDA from TAD rig
PVD's Proportionate EBITDA
163.3
(19.2)
144.1
172.1
(19.0)
153.1
197.0
(34.1)
163.0
Net debt
Less Minority Net Debt in TAD
PVD's proportionate Net Debt
175.6
(15.7)
159.9
204.4
(70.2)
134.2
110.4
(55.4)
55.0
Target EV @ 6.3x
Less proportionate net debt
Equity Value
Outstanding shares after issuance
Equity Value/Sh (US$)
907.8
(159.9)
747.9
247.6
3.02
964.5
(134.2)
830.3
247.6
3.35
1,026.7
(55.0)
971.7
247.6
3.92
VND/US$ Fx rate
Equity Value/Sh (VND)
Target price (VND/sh)
Upside
Share price
21,453
64,810
69,100
17.1%
59,000
21,882
73,389
22,976
90,179
24.4%
59,000
52.8%
59,000
Source: Company data, Macquarie Research, Vina Securities March 2013
27 August 2013
25
Macquarie Research
Vietnam Strategy
PetroVietnam Drilling and Well Services (PVD VN, Outperform, Target Price: VND69,100.00)
Interim Results
1H/13A
2H/13E
1H/14E
2H/14E
Revenue
Gross Profit
Cost of Goods Sold
EBITDA
Depreciation
Other Amortisation
EBIT
Net Interest Income
Associates
Exceptionals
Pre-Tax Profit
Tax Expense
Net Profit
Minority Interests
m
m
m
m
m
m
m
m
m
m
m
m
m
m
m
m
m
313
102
211
83
25
0
0
58
-5
1
-3
0
0
51
-6
45
-3
337
104
233
80
26
0
0
54
-8
6
3
0
0
56
-7
49
-5
309
101
207
81
25
0
0
56
-4
3
0
0
0
55
-10
45
-4
348
114
234
91
28
0
0
63
-5
4
0
0
0
62
-11
51
-5
Reported Earnings
Adjusted Earnings
m
m
42
45
43
40
41
41
47
47
EPS (rep)
EPS (adj)
EPS Growth yoy (adj)
%
0.20
0.02
44.8
0.17
0.02
5.7
0.17
0.02
-21.4
EBITDA Margin
EBIT Margin
Earnings Split
Revenue Growth
EBIT Growth
%
%
%
%
%
26.6
18.6
52.7
30.7
33.1
23.7
16.1
47.3
1.3
15.1
2012A
2012A
2013E
2014E
2015E
Revenue
Gross Profit
Cost of Goods Sold
EBITDA
Depreciation
Other Amortisation
EBIT
Net Interest Income
Associates
Exceptionals
Pre-Tax Profit
Tax Expense
Net Profit
Minority Interests
m
m
m
m
m
m
m
m
m
m
m
m
m
m
m
m
m
573
178
395
140
49
0
0
91
-13
3
0
0
0
81
-12
69
-6
651
206
445
163
51
0
0
112
-13
7
1
0
0
107
-13
93
-8
657
215
441
172
52
0
0
120
-9
7
0
0
0
117
-21
97
-9
723
245
479
197
57
0
0
140
-12
8
0
0
0
136
-24
112
-14
Reported Earnings
Adjusted Earnings
m
m
63
63
85
84
88
88
98
98
0.19
0.02
17.1
EPS (rep)
EPS (adj)
EPS Growth (adj)
PE (rep)
PE (adj)
%
x
x
0.30
0.03
18.3
6.0
60.3
0.37
0.04
24.9
7.4
73.2
0.35
0.04
-4.8
7.5
75.2
0.39
0.04
10.9
6.8
67.8
26.2
18.2
47.0
-1.5
-3.2
26.2
18.2
53.0
3.2
17.0
Total DPS
Total Div Yield
Period End Shares
%
m
m
0.00
0.2
210
210
0.00
0.1
229
249
0.00
0.2
249
249
0.00
0.2
249
249
2013E
2014E
2015E
2012A
2013E
2014E
2015E
172
-21
-1
0
-20
130
0
-156
0
7
-149
-10
0
66
0
56
197
-24
-34
0
40
179
0
-51
0
8
-43
-10
0
-81
0
-91
Revenue Growth
EBITDA Growth
EBIT Growth
Gross Profit Margin
EBITDA Margin
EBIT Margin
Net Profit Margin
Payout Ratio
EV/EBITDA
EV/EBIT
%
%
%
%
%
%
%
%
x
x
27.4
31.6
26.7
31.1
24.4
15.9
12.0
13.9
3.9
5.9
13.6
16.7
23.8
31.7
25.1
17.3
14.4
10.9
5.0
7.1
0.9
5.4
6.5
32.8
26.2
18.2
14.7
11.5
4.7
6.6
10.1
14.5
17.0
33.8
27.2
19.4
15.5
10.4
4.1
5.7
ROE
ROA
ROIC
Net Debt/Equity
Interest Cover
Price/Book
%
%
%
%
x
x
19.1
10.1
11.8
78.2
6.9
1.1
1.7
20.3
11.9
15.7
36.0
8.5
1.4
1.9
17.1
11.5
14.9
35.6
12.8
1.2
2.2
15.9
12.3
14.9
11.1
11.9
1.0
2.7
Profit & Loss
Cashflow Analysis
EBITDA
Tax Paid
Chgs in Working Cap
Net Interest Paid
Other
Operating Cashflow
Acquisitions
Capex
Asset Sales
Other
Investing Cashflow
Dividend (Ordinary)
Equity Raised
Debt Movements
Other
Financing Cashflow
m
m
m
m
m
m
m
m
m
m
m
m
m
m
m
m
140
-12
71
0
-70
129
0
-40
0
-3
-42
-9
0
-52
-6
-68
163
-13
15
0
-52
113
0
-40
0
-31
-71
-10
68
-78
0
-20
m
19
22
37
45
Free Cashflow
m
90
73
-26
128
2012A
2013E
2014E
2015E
51
144
38
2
633
7
42
916
107
93
234
14
116
563
299
1
52
353
916
73
147
42
2
660
7
42
972
109
66
182
14
113
484
442
10
37
488
972
110
148
42
2
763
7
42
1,114
108
81
234
14
104
540
520
18
35
574
1,114
155
163
45
2
757
7
42
1,172
117
81
153
14
99
464
608
33
67
707
1,172
Balance Sheet
Cash
Receivables
Inventories
Investments
Fixed Assets
Intangibles
Other Assets
Total Assets
Payables
Short Term Debt
Long Term Debt
Provisions
Other Liabilities
Total Liabilities
Shareholders' Funds
Minority Interests
Other
Total S/H Equity
m
m
m
m
m
m
m
m
m
m
m
m
m
m
m
m
m
m
m
All figures in USD unless noted.
27 August 2013
26
Macquarie Research
Vietnam Strategy
VIETNAM
DPM VN
Price (at 13:00, 22 Aug 2013 GMT)
Valuation
Outperform
VND41,300
VND 48,000.00
- DCF
12-month target
VND 48,000.00
Upside/Downside
%
+16.2
12-month TSR
%
+23.5
Volatility Index
Low/Medium
GICS sector
Materials
Market cap
VNDbn
15,691
Market cap
US$m
733
Free float
%
39
30-day avg turnover
US$m
0.1
m
379.9
Year end 31 Dec
Revenue
EBIT
EBIT growth
Reported profit
EPS rep
EPS rep growth
PER rep
Total DPS
Total div yield
ROA
ROE
EV/EBITDA
Net debt/equity
P/BV
2012A 2013E 2014E 2015E
bn 13,322 10,612 10,583 10,568
bn 3,013 2,220 2,011 1,828
%
-0.9 -26.3
-9.4
-9.1
bn 3,002 2,335 2,101 1,775
VND 7,924 6,144 5,530 4,671
%
-3.3 -22.5 -10.0 -15.5
x
5.2
6.7
7.5
8.8
VND 4,500 3,000 3,000 1,500
%
8.5
7.3
7.3
3.6
%
30.3
20.5
17.5
15.1
%
34.9
25.0
20.9
16.7
x
3.2
4.2
4.6
5.1
% -61.0 -59.4 -62.8 -64.8
x
1.7
1.6
1.5
1.5
DPM VN rel Vietnam Ho Chi Minh
PetroVietnam Fertilizer &
Chemical
An agricultural cash cow
The company
 PetroVietnam Fertilizer and Chemical Corp is the largest fertilizer producer
and distributor in Vietnam. The company’s key product is prilled urea (gas
feedstock), marketed domestically gand regionally under the Phu My Urea
brand. The company, 60% owned by PetroVietnam Oil & Gas Group, has
several distribution and associate companies located throughout the country.
 DPM’s stock price has fallen sharply since March and although there is no
change to our fundamental view, with almost 24% upside to our target price,
we upgrade the stock from Neutral to Outperform.
 1H13A results: Revenues fell 14.4% YoY to VND6.1tn with net profit falling
17.4% YoY to VND1.6tn. Gross margins, improved to 35.8% from 34.8%.
These results represent 59.7% and 69.7% of our FY13 forecasts. Part of the
revenue decline came from falling avg. urea prices as well as the absence of
revenues from Ca Mau urea, in which DPM no longer distributes. Net profits
were down, due to a 17.1% YoY increase in selling expenses and a 26.1%
decrease in interest income from lower rates.
 Increased global urea production capacity and abundant natural gas
inventories continue to place downward pressure on urea global prices.
DPM’s ASP for urea fell to about US$410/tonne in 1H13A.
 Domestic supply: DPM’s sister company (PVFCM) Ca Mau relied heavily
upon DPMs distribution network and will now need time to develop its own.
Vinachem’s Ninh Binh Nitrogenous Fertilizer Plant has experienced various
setbacks and inconsistent production since its launch in March 2012.
 Longer-run, DPM still plans to invest in a JV for a USD900mn Ammonia plant
and is planning a USD63mn investment in a NPK facility for FY14. It will also
look to participate in the PVCFC (Ca Mau) equitization next year.
 DPM’s FY12A final dividend of VND2,000/sh brought dividend payments to
VND4,500/sh, (a T12M yield of 10.68%). With a growing cash position and no
major CAPEX projects underway this year, we believe DPM can easily raise
its payout ratio above our forecast 50% (equiv. to VND3,000/sh).
 No change.
Price catalyst
Analyst(s)
James Hubbard, CFA
+852 3922 1226
james.hubbard@macquarie.com
Vina Securities
Duong Dinh
+848 3821 9316
27 August 2013
27 August 2013
 12-month price target: VND48,000.00 based on a DCF methodology.
 Catalyst: Higher DPS, treasury management, urea prices and competition
 DPM trades at 6.7x FY13E EPS, with a prospective dividend yield of
VND4,348/sh and 7.3% (with upside potential). DPM is in a net cash position
and in the mid term is expected to invest FCF for expansion or acquisition.
27
Macquarie Research
Vietnam Strategy
PetroVietnam Fertilizer & Chemical (DPM VN, Outperform, Target Price: VND48,000.00)
Interim Results
2H/12A
1H/13E
2H/13E
1H/14E
2012A
2013E
2014E
2015E
Revenue
Gross Profit
Cost of Goods Sold
EBITDA
Depreciation
Other Amortisation
EBIT
Net Interest Income
Associates
Exceptionals
Pre-Tax Profit
Tax Expense
Net Profit
Minority Interests
m
m
m
m
m
m
m
m
m
m
m
m
m
m
m
m
m
6,232,830
1,966,346
4,266,484
1,200,442
105,933
0
0
1,094,509
258,296
-41,741
-1,897
-3,837
339
1,305,669
-221,751
1,083,918
-21,617
5,147,021
1,671,906
3,475,114
1,181,654
104,887
0
0
1,076,767
224,021
-23,133
0
0
0
1,277,656
-127,766
1,149,890
-17,460
5,465,393
1,775,323
3,690,070
1,254,746
111,375
0
0
1,143,372
237,878
-24,563
0
0
0
1,356,686
-135,669
1,221,018
-18,540
5,132,863
1,567,118
3,565,745
1,080,253
104,887
0
0
975,366
199,514
-23,133
0
0
0
1,151,747
-115,175
1,036,572
-17,460
Revenue
Gross Profit
Cost of Goods Sold
EBITDA
Depreciation
Other Amortisation
EBIT
Net Interest Income
Associates
Exceptionals
Pre-Tax Profit
Tax Expense
Net Profit
Minority Interests
m
m
m
m
m
m
m
m
m
m
m
m
m
m
m
m
m
13,321,853
4,537,322
8,784,531
3,226,234
212,835
0
0
3,013,399
565,032
-47,696
0
-4,966
1,279
3,527,048
-474,402
3,052,646
-50,796
10,612,414
3,447,229
7,165,184
2,436,401
216,262
0
0
2,220,139
461,899
-47,696
0
0
0
2,634,342
-263,434
2,370,908
-36,000
10,583,223
3,231,172
7,352,051
2,227,326
216,262
0
0
2,011,064
411,368
-47,696
0
0
0
2,374,736
-237,474
2,137,263
-36,000
10,568,135
3,047,174
7,520,961
2,044,759
216,262
0
0
1,828,497
349,754
-47,696
0
0
0
2,130,555
-319,583
1,810,972
-36,000
Reported Earnings
Adjusted Earnings
m
m
1,062,301
1,064,198
1,132,430
1,132,430
1,202,478
1,202,478
1,019,112
1,019,112
Reported Earnings
Adjusted Earnings
m
m
3,001,850
3,001,850
2,334,908
2,334,908
2,101,263
2,101,263
1,774,972
1,774,972
hào
hào
%
2,804
2,809
-35.8
2,980
2,980
-41.7
3,164
3,164
12.6
2,682
2,682
-10.0
%
%
%
%
%
19.3
17.6
35.5
32.9
-31.8
23.0
20.9
48.5
-27.4
-43.9
23.0
20.9
51.5
-12.3
4.5
21.0
19.0
48.5
-0.3
-9.4
2012A
2013E
2014E
2015E
EPS (rep)
EPS (adj)
EPS Growth yoy (adj)
EBITDA Margin
EBIT Margin
Earnings Split
Revenue Growth
EBIT Growth
Revenue Growth
EBITDA Growth
EBIT Growth
Gross Profit Margin
EBITDA Margin
EBIT Margin
Net Profit Margin
Payout Ratio
EV/EBITDA
EV/EBIT
%
%
%
%
%
%
%
%
x
x
44.4
-0.1
-0.9
34.1
24.2
22.6
22.9
44.3
3.2
3.4
-20.3
-24.5
-26.3
32.5
23.0
20.9
22.3
48.8
4.2
4.6
-0.3
-8.6
-9.4
30.5
21.0
19.0
20.2
54.3
4.6
5.1
-0.1
-8.2
-9.1
28.8
19.3
17.3
17.1
32.1
5.1
5.7
ROE
ROA
ROIC
Net Debt/Equity
Interest Cover
Price/Book
%
%
%
%
x
x
34.9
30.3
59.9
-61.0
nmf
1.7
23,663.9
25.0
20.5
55.9
-59.4
nmf
1.6
25,497.6
20.9
17.5
45.1
-62.8
nmf
1.5
27,363.7
16.7
15.1
39.2
-64.8
nmf
1.5
28,474.1
Profit & Loss
EPS (rep)
EPS (adj)
EPS Growth (adj)
PE (rep)
PE (adj)
hào
hào
%
x
x
7,924
7,924
-3.1
5.2
5.2
6,144
6,144
-22.5
6.7
6.7
5,530
5,530
-10.0
7.5
7.5
4,671
4,671
-15.5
8.8
8.8
Total DPS
Total Div Yield
Period End Shares
hào
%
m
m
4,500
8.5
379
379
3,000
7.3
380
380
3,000
7.3
380
380
1,500
3.6
380
380
2012A
2013E
2014E
2015E
2,436,401
-263,434
-496,228
0
175,686
1,852,425
0
-200,000
0
0
-200,000
-1,140,000
0
7,762
-219,976
-1,352,214
2,227,326
-237,474
-10,600
0
159,217
2,138,469
0
-200,000
0
0
-200,000
-1,140,000
0
0
0
-1,140,000
2,044,759
-319,583
-7,668
0
136,757
1,854,265
0
-200,000
0
0
-200,000
-570,000
0
0
-570,000
-1,140,000
Cashflow Analysis
EBITDA
Tax Paid
Chgs in Working Cap
Net Interest Paid
Other
Operating Cashflow
Acquisitions
Capex
Asset Sales
Other
Investing Cashflow
Dividend (Ordinary)
Equity Raised
Debt Movements
Other
Financing Cashflow
m
m
m
m
m
m
m
m
m
m
m
m
m
m
m
m
3,226,234
-474,402
315,763
0
211,922
3,279,517
0
-714,542
0
849,103
134,561
-1,330,000
0
28,380
-553,500
-1,855,120
m
1,558,958
300,211
798,469
514,265
Free Cashflow
m
2,564,975
1,652,425
1,938,469
1,654,265
2012A
2013E
2014E
2015E
5,629,403
46,193
1,171,462
62,077
1,896,165
770,898
1,004,337
10,580,535
398,388
27,737
8,477
124,031
851,974
1,410,607
5,775,353
205,561
3,189,014
9,169,928
10,580,535
5,929,614
110,394
1,427,139
62,077
1,928,165
722,636
936,465
11,116,490
317,363
50,000
0
124,031
730,449
1,221,843
6,266,581
205,561
3,422,505
9,894,647
11,116,490
6,728,083
110,091
1,448,804
62,077
1,960,165
674,374
888,552
11,872,146
316,490
50,000
0
124,031
741,867
1,232,387
6,765,566
241,561
3,632,631
10,639,758
11,872,146
7,242,348
109,934
1,466,674
62,077
1,992,165
626,112
840,743
12,340,054
316,038
50,000
0
124,031
752,251
1,242,320
7,010,044
277,561
3,810,128
11,097,733
12,340,054
Balance Sheet
Cash
Receivables
Inventories
Investments
Fixed Assets
Intangibles
Other Assets
Total Assets
Payables
Short Term Debt
Long Term Debt
Provisions
Other Liabilities
Total Liabilities
Shareholders' Funds
Minority Interests
Other
Total S/H Equity
m
m
m
m
m
m
m
m
m
m
m
m
m
m
m
m
m
m
m
27 August 2013
28
Macquarie Research
Vietnam Strategy
VIETNAM
VNM VN
Outperform
Price (at 13:00, 23 Aug 2013 GMT)VND136,000
Valuation
VND
170,000
- PER
Vietnam Dairy Products
More milk for the masses
Event
VND
170,000
%
+25.0
%
+27.9
Low/Medium
Food, Beverage
& Tobacco
Market cap
VNDbn
113,418
Market cap
US$m
5,360
Free float
%
85
30-day avg turnover
US$m
0.2
m
834.0
 We upgrade VNM to Outperform from Neutral and raise our target price by
 We think that VNM’s fundamental growth story remains intact. Why?
12-month target
Upside/Downside
12-month TSR
Volatility Index
GICS sector
Year end 31 Dec
Revenue
EBIT
EBIT growth
Reported profit
EPS rep
EPS rep growth
PER rep
Total DPS
Total div yield
ROA
ROE
EV/EBITDA
Net debt/equity
P/BV
2012A 2013E 2014E 2015E
bn 26,562 32,779 40,316 49,059
bn 6,206 7,765 9,445 11,335
%
43.8
25.1
21.6
20.0
bn 5,819 6,831 8,313 10,190
VND 4,296 8,194 9,972 12,223
%
55.6
90.7
21.7
22.6
x
31.7
16.6
13.6
11.1
VND 1,926 3,801 4,002 4,446
%
1.4
2.8
2.9
3.3
%
35.2
35.4
34.6
33.2
%
39.6
39.0
38.4
37.2
x
16.6
13.2
10.8
9.0
%
-8.1 -14.2 -27.7 -42.7
x
7.3
5.9
4.7
3.7
VNM VN rel Vietnam Ho Chi Minh
11.8% to VND170,000/sh. We see a TSR of 27.9%, inclusive of a 2.9% div
yield.
 VNM’s shares have fallen by 9.9% off their recent high of VND151,000 and
now trade at 13.6x and 4.7x our FY14E EPS and BVPS estimates,
respectively.
 VNM ended 1H13 with net revenue of VND14,746.9bn (+14.4% YoY), EBIT of
VND3,833.5bn and NP of VND3,373.6bn (+21.5% YoY), which represents
45%, 49.4% and 49.4% of our full-year forecasts, respectively.
Impact
 1) Organic Growth: Dairy consumption in Vietnam stands at only 16kg per
capita (incl. butter), much lower than that of China and Thailand, which
consume nearly 23kg and 35kg per capita, respectively.
 2) Sustainable gross margins: VNM typically holds close to three months of
raw material in inventory. This gives the company significant visibility on input
prices, allowing ex-factory pricing to be adjusted ahead of COGS pressure.
Management seeks to maintain gross margin in the 30%+ range.
 3) Insulated from recent controversies: VNM was unaffected by the 2008
China melamine scandal and did not receive any of the contaminated whey
protein concentrate behind Fonterra’s (a VNM supplier) recent global recall.
 All in, we believe that VNM gives the investor sustainable earnings growth
above 20%, strong FCFF of VND4.3tn in FY13E and a net cash position. The
company also produces one of the highest ROEs of any listed Vietnamese
firm. FY12’s ROAE came in at 41.6% and we believe future ROEs will remain
over 35.0%, on our estimates.
 Currently trading at 13.6x FY14E EPS and 4.7x FY14E BVPS, the stock’s
approximate 30% PER premium relative to the VNINDEX does not look
unreasonable to us given the company’s higher profitability. In addition, we
note that VNM is currently trading at a significant 29.5% discount to its
regional dairy peers.
 We raise our target price by 11.8% as we roll our valuation forward to FY14E.
No changes to our estimates.
Analyst(s)
Gary Pinge
+852 3922 3557
Price catalyst
gary.pinge@macquarie.com
Vina Securities
Gigi Nguyen
+848 3821 9316
 Catalyst: Higher sales volumes and high GMs may drive an earnings surprise.
giao.nguyen@vinasecurities.com
27 August 2013
27 August 2013
 We upgrade VNM to Outperform on strong fundamentals as we roll our
valuation forward to FY14E. In our view, the recent price correction offers
investors a good buying opportunity.
29
Macquarie Research
Vietnam Strategy
Vietnam Dairy Products (VNM VN, Outperform, Target Price: VND170,000)
Interim Results
2H/12A
1H/13E
2H/13E
1H/14E
Revenue
Gross Profit
Cost of Goods Sold
EBITDA
Depreciation
Other Amortisation
EBIT
Net Interest Income
Associates
Exceptionals
Pre-Tax Profit
Tax Expense
Net Profit
Minority Interests
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
13,674.3
5,137.9
8,536.4
3,558.0
282.4
0.0
0.0
3,275.5
114.9
-0.8
154.3
11.2
4.9
3,559.9
-516.6
3,043.3
0.0
14,746.9
5,913.6
8,833.3
4,168.6
335.0
0.0
0.0
3,833.5
191.9
12.3
73.2
36.8
-32.8
4,114.9
-740.9
3,374.1
0.0
18,032.0
6,086.6
11,945.3
4,299.4
367.8
0.0
0.0
3,931.6
46.5
0.0
0.0
0.0
39.2
4,017.3
-560.3
3,457.0
0.0
19,910.7
7,276.3
12,634.4
5,136.3
471.7
0.0
0.0
4,664.6
278.4
0.0
0.0
0.0
0.0
4,942.9
-840.8
4,102.1
0.0
Reported Earnings
Adjusted Earnings
bn
bn
3,043.3
2,889.1
3,374.1
3,300.8
3,457.0
3,457.0
4,102.1
4,102.1
3,651
4,047
4,147
4,921
EPS (rep)
VND
Profit & Loss
2012A
2013E
2014E
2015E
Revenue
Gross Profit
Cost of Goods Sold
EBITDA
Depreciation
Other Amortisation
EBIT
Net Interest Income
Associates
Exceptionals
Pre-Tax Profit
Tax Expense
Net Profit
Minority Interests
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
26,561.6
9,608.2
16,953.3
6,737.3
531.5
0.0
0.0
6,205.8
281.7
12.5
287.3
41.8
100.5
6,929.7
-1,110.2
5,819.5
0.0
32,778.8
12,000.2
20,778.6
8,468.0
702.9
0.0
0.0
7,765.1
238.4
12.3
73.2
36.8
6.5
8,132.3
-1,301.2
6,831.1
0.0
40,316.4
14,733.6
25,582.9
10,400.3
955.2
0.0
0.0
9,445.1
563.6
0.0
0.0
0.0
6.5
10,015.2
-1,702.6
8,312.6
0.0
49,059.1
17,688.7
31,370.4
12,427.3
1,092.5
0.0
0.0
11,334.7
1,085.5
0.0
0.0
0.0
6.5
12,426.7
-2,236.8
10,189.9
0.0
Reported Earnings
Adjusted Earnings
bn
bn
5,819.5
5,532.1
6,831.1
6,757.9
8,312.6
8,312.6
10,189.9
10,189.9
VND
4,296
8,194
9,972
12,223
x
20.5
16.6
13.6
11.1
hào
%
m
m
1,926
2.2
1,355
834
3,801
2.8
834
834
4,002
2.9
834
834
4,446
3.3
834
834
2012A
2013E
2014E
2015E
12,427.3
-2,236.8
-3,194.4
0.0
3,653.4
10,649.5
0.0
-560.6
0.0
6.5
-554.1
-3,705.9
0.0
0.0
0.0
-3,705.9
EPS (rep)
PE (rep)
EBITDA Margin
EBIT Margin
Earnings Split
Revenue Growth
EBIT Growth
%
%
%
%
%
26.0
24.0
52.2
17.2
58.2
28.3
26.0
48.8
14.4
30.8
23.8
21.8
51.2
31.9
20.0
25.8
23.4
49.3
35.0
21.7
2012A
2013E
2014E
2015E
Revenue Growth
EBITDA Growth
EBIT Growth
Gross Profit Margin
EBITDA Margin
EBIT Margin
Net Profit Margin
Payout Ratio
EV/EBITDA
EV/EBIT
%
%
%
%
%
%
%
%
x
x
22.8
41.7
43.8
36.2
25.4
23.4
21.9
39.5
10.7
11.6
23.4
25.7
25.1
36.6
25.8
23.7
20.8
46.9
13.2
14.4
23.0
22.8
21.6
36.5
25.8
23.4
20.6
40.1
10.8
11.9
21.7
19.5
20.0
36.1
25.3
23.1
20.8
36.4
9.0
9.9
ROE
ROA
ROIC
Net Debt/Equity
Interest Cover
Price/Book
%
%
%
%
x
x
39.6
35.2
55.9
-8.1
nmf
4.7
18,587.3
39.0
35.4
45.8
-14.2
nmf
5.9
22,981.8
38.4
34.6
47.7
-27.7
nmf
4.7
28,952.6
37.2
33.2
53.2
-42.7
nmf
3.7
36,731.5
Total DPS
Total Div Yield
Period End Shares
Cashflow Analysis
EBITDA
Tax Paid
Chgs in Working Cap
Net Interest Paid
Other
Operating Cashflow
Acquisitions
Capex
Asset Sales
Other
Investing Cashflow
Dividend (Ordinary)
Equity Raised
Debt Movements
Other
Financing Cashflow
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
6,737.3
-1,110.2
-1,572.5
0.0
1,862.3
5,916.8
0.0
-3,134.0
0.0
-2,462.0
-5,596.0
-2,223.0
2,782.6
0.0
-2,784.9
-2,225.3
8,468.0
-1,301.2
-2,365.2
0.0
2,047.2
6,848.9
0.0
-2,267.1
0.0
18.7
-2,248.4
-3,168.3
-0.0
0.0
36.8
-3,131.5
10,400.3
-1,702.6
-2,733.0
0.0
2,756.3
8,720.9
0.0
-1,439.6
0.0
6.5
-1,433.2
-3,335.8
0.0
0.0
0.0
-3,335.8
bn
-1,904.4
1,469.0
3,951.9
6,389.5
Free Cashflow
bn
2,782.8
4,581.7
7,281.3
10,089.0
2012A
2013E
2014E
2015E
1,252.1
1,269.8
3,472.8
3,975.8
7,788.7
267.3
1,671.3
19,697.8
2,247.7
0.0
0.0
334.0
1,623.2
4,204.8
14,815.3
0.0
677.7
15,493.0
19,697.8
2,721.0
1,644.3
4,409.6
3,975.8
9,319.7
300.6
1,856.4
24,227.4
2,761.4
0.0
0.0
334.0
1,976.2
5,071.5
18,478.2
0.0
677.7
19,155.9
24,227.4
6,673.0
2,017.3
5,447.6
3,975.8
9,770.0
334.7
2,081.3
30,299.6
3,411.4
0.0
0.0
334.0
2,421.5
6,166.9
23,455.0
0.0
677.7
24,132.7
30,299.6
13,062.5
2,449.3
6,663.8
3,975.8
9,203.4
369.3
2,342.4
38,066.6
4,173.1
0.0
0.0
334.0
2,942.9
7,449.9
29,939.0
0.0
677.7
30,616.7
38,066.6
Balance Sheet
Cash
Receivables
Inventories
Investments
Fixed Assets
Intangibles
Other Assets
Total Assets
Payables
Short Term Debt
Long Term Debt
Provisions
Other Liabilities
Total Liabilities
Shareholders' Funds
Minority Interests
Other
Total S/H Equity
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
27 August 2013
30
Macquarie Research
Important disclosures:
Vietnam Strategy
Recommendation definitions
Volatility index definition*
Financial definitions
Macquarie - Australia/New Zealand
Outperform – return >3% in excess of benchmark return
Neutral – return within 3% of benchmark return
Underperform – return >3% below benchmark return
This is calculated from the volatility of historical
price movements.
All "Adjusted" data items have had the following
adjustments made:
Added back: goodwill amortisation, provision for
catastrophe reserves, IFRS derivatives & hedging,
IFRS impairments & IFRS interest expense
Excluded: non recurring items, asset revals, property
revals, appraisal value uplift, preference dividends &
minority interests
Benchmark return is determined by long term nominal
GDP growth plus 12 month forward market dividend
yield
Macquarie – Asia/Europe
Outperform – expected return >+10%
Neutral – expected return from -10% to +10%
Underperform – expected return <-10%
Macquarie First South - South Africa
Outperform – expected return >+10%
Neutral – expected return from -10% to +10%
Underperform – expected return <-10%
Macquarie - Canada
Outperform – return >5% in excess of benchmark return
Neutral – return within 5% of benchmark return
Underperform – return >5% below benchmark return
Macquarie - USA
Outperform (Buy) – return >5% in excess of Russell
3000 index return
Neutral (Hold) – return within 5% of Russell 3000 index
return
Underperform (Sell)– return >5% below Russell 3000
index return
Very high–highest risk – Stock should be
expected to move up or down 60–100% in a year
– investors should be aware this stock is highly
speculative.
High – stock should be expected to move up or
down at least 40–60% in a year – investors should
be aware this stock could be speculative.
Medium – stock should be expected to move up
or down at least 30–40% in a year.
Low–medium – stock should be expected to
move up or down at least 25–30% in a year.
Low – stock should be expected to move up or
down at least 15–25% in a year.
* Applicable to Asia/Australian/NZ/Canada stocks
only
EPS = adjusted net profit / efpowa*
ROA = adjusted ebit / average total assets
ROA Banks/Insurance = adjusted net profit /average
total assets
ROE = adjusted net profit / average shareholders funds
Gross cashflow = adjusted net profit + depreciation
*equivalent fully paid ordinary weighted average
number of shares
All Reported numbers for Australian/NZ listed stocks
are modelled under IFRS (International Financial
Reporting Standards).
Recommendations – 12 months
Note: Quant recommendations may differ from
Fundamental Analyst recommendations
Recommendation proportions – For quarter ending 30 June 2013
Outperform
Neutral
Underperform
AU/NZ
49.80%
39.85%
10.35%
Asia
57.68%
24.45%
17.87%
RSA
48.05%
42.86%
9.09%
USA
41.13%
54.70%
4.17%
CA
61.75%
34.42%
3.83%
EUR
47.10% (for US coverage by MCUSA, 8.12% of stocks followed are investment banking clients)
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Vietnam Strategy

Transcription

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