2014 market outlook and strategy run now charge later january 2014 ssiresearch
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Date: 31.01.2014 Institutional Research & Investment Advisory
www.ssi.com.vn Visit SSI Research on Bloomberg atSSIV 1
EXECUTIVE SUMMARY
2014 Macro Outlook: A year of loosely infrastructure spending
In 2014, the government will continue to advocate its double-goal strategy: supporting growth while
maintaining macroeconomic stability We believe the government will be more inclined to promote pro-growth
measures in 2014 as local businesses cannot bear the brunt of another prolong reform. The end of the 5-year plan
(2011-2015) is in hands reach and the government needs to salvage and implement some of the previous
announced reforms. Below are key highlights that will capture the governments attention during the year:
1. The apparent need for infrastructure improvement: With Vietnams poor infrastructure score
against ASEAN peers, it is conspicuously rational for the government to direct its focus onto upgrading Vietnams
infrastructure system. Two important sectors include transportation and energy, with capital expenditure to increase
33.3% and 11.7% in 2014. It is estimated that Vietnam needs approximately USD 167 bn similar to Vietnams
current GDP - in the next ten years for infrastructure investments (source: ADB), and this leaves Vietnam with a
dilemma; to stay competitively fit against its ASEAN peers, it needs to enhance and improve its infrastructure, but
with investment needs exceeding available funding, Vietnam will need to accurately identify and execute the most
viable projects. However, it should be noted that infrastructure investment is a long term strategy, and its multiplier
effect could potentially translate into significant growth in the coming years, but not immediately in 2014.
Although the need for improving infrastructure is apparent, there are a number of issues in the implementation of
infrastructure projects in Vietnam: (1) Land-swap mechanism in infrastructure projects; (2 Is PPP (Public
Private Partnership) the solution? (3) Concern on efficiency of infrastructure investment projects
2. Accelerating SOEs restructuring: SOEs restructuring were plagued with delays in 2013, and we expect
that a number of 2013 IPOs would be carried over to 2014, including Viglacera (glass & ceramics), Vinatex (textile
and garment) and Vietnam Airlines. A number of new IPOs were announced including ACV (Airport Corporation of
Vietnam, owner of all the major airports in Vietnam, including Tan Son Nhat, NoiBai and primary investor of the Long
Thanh Airport mega-project), and a number of the Ministry of Transports CIENCO (Civil Engineering Construction
Corp, No 1-4-5-6, which are all major contractors for most of the public infrastructure projects). The new regulation
that stipulates the listing of stocks within one year after an IPO would entice investors participation. Other
developments in 2014 would include SCIC (State Capital Investment Corp) and SOEs non-core business
divestment, where the MoF might issue a decision that permits SCIC and SOEs to sell states assets below book
value.
3. Funding source: Foreign investors remain an extremely imperative part of the equation
Large-scale infrastructure projects, banking sector reform and more aggressive IPOs raise the question of funding
sources. Public investment will remain identical in 2014 (from state budget development investment, plus
government disbursement was nearly USD 13 bn, similar to 2013s level). The government expects for higher credit
growth in 2014 (target 12-14%, but our estimate is higher at 15% - because of a soft-landing for the banking sector
which will be discussed below), and seemingly factors behind higher credit growth are not only consumer credit (as
in 2013) or SOEs, but also private investment. Foreign investors remain an extremely imperative part of the equation,
not just FDI (2013 high commitments might result in better disbursements in 2014), or FII (with foreign ownership
limit extending for both bank and non-bank institutions), but ODA would become an integral source of financing. It is
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Date: 31.01.2014 Institutional Research & Investment Advisory
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reported that undisbursed ODA reached USD 15 bn so far, and the government has set aside roughly USD 1 bn as
counter-capital for 2014 with detailed distribution sent to all provinces, so it signals more disbursement of ODA for
2014.
Risk to our forecast: (1) Political risks will be limited, if not rare, and nowhere in the proximity to Thailand. (2) In
regards to public finance, the risk of high public debt is very conspicuous and legitimate, given the nature of high
budget deficit, increasing demand for infrastructure investment (however, ill-managed), all of which could easily
translate to higher inflation. Public debt is rapidly increasing (debt payment accounted for roughly 24% of the state
budget in 2013, and several experts forecast that it would rise to 30% in the next 3 years, which would be quite
alarming), and the reason behind the rapid increase was to satisfy the immense demand for infrastructure projects.
2014 MARKET OUTLOOK: Six investment themes for 2014
1. The economy has bottomed out with macro stability being ensured, all the elements
are in place for upsides ahead
Although the recovery will be gradual with continuous support from the FDI sector, the two important reforms (i.e.
banking reform and SOEs reform) have finally exhibited initial momentum. Our assumption is that both reforms will
accelerate in 2014. It is befitting to assume that 2013, the year of the snake, exhibited crawling banking and SOEs
reforms and restructuring. We expect that 2014, the year of the horse, banking and SOEs reforms and restructuring
will run rampant.
In both reforms, recapitalization is the key. However, it is not easy to attract external funding at this moment in time
as investors will carefully consider before investing in banks or SOEs, and among the factors of consideration there
are operation efficiency and risks. This, in turn, will accelerate the two reforms.
2. Given the gradual economic recovery and on-going reforms which triggered positive
catalysts for the market, market valuation re-rating is envisioned for 2014.
We believe the VN Index could increase 17-20% as compared with 2013-end (which closed at 504.6). This then
renders to the notion that the VN Index might reach 590-600 by the end of this year. If we add a 5% dividend yield,
the average total return from Vietnam equity market will be 23% in 2014.Our forecast is based on 2014 EPS growth
at 7%. We expect market PER will be rerated from the level of 10.7x in the beginning of the year to 12x 13x by
end of this year, powered by gradual economic improvement and the on-going reforms which will trigger positive
catalysts such as FOL extension, new IPOs or banks M&A etc
3. Time to revisit the banking sector?
We believe the time is prime to revisit the sector in 2014, although not immediately, but possibly by end of 1Q14 -
when banks release their 2013 results and have a more definite picture on 2014. After nearly 2 years of being head-
over-heels with challenges, management at most of the banks have now taken on a very conservative approach and
most have decreased operating expense by reducing staff, salary cut and organization restructuring to improve
operation efficiency. Developments in retail banking and consumer finance are the choices for many banks to
compensate for NIM reduction.
In 2013, given serious challenges facing the banking sector, investors shied away from bank stocks and this
corresponded with our consistent view of 'Sector Underweight' so far.
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Date: 31.01.2014 Institutional Research & Investment Advisory
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4. Top line growth will be stronger in 2014, margin expansion will trail that of 2013
2013s average sales/net profit growth of 62 companies under SSIResearch coverage are 9% and 19.3%,
respectively
2014s average sales/net profit growth of 62 companies are 16% and 8.2%, respectively
In 2013, margin expansion was supported by significant lower interest rate, lower input cost and operating
expense cut while top line growth was quite weak, corresponding with the overall weak economy. In 2014, our
forecast on revenue growth is better than 2013 while margin will stabilize with support from lower CIT (from 25%
in 2013 to 22% in 2014), no more salary cut and slightly lower interest rate in 2014.
2014 median EPS growth of 9% (2013: -5%)
2014 dividend yield of 5% (2013: 5%)
5. Industrial & Infrastructure-related sectors are our favorite for this year.
With mega infrastructure projects in the pipeline, we are bullish on industrial and infrastructure-related sectors such
as construction, construction materials, industrial zones and ports.
6. Turnaround stocks are sexy.
As the economy has bottomed out, different sectors will exhibit different turn-around phases. We believe that the
Consumer sector has already bottomed out in 1H13 while Banking -Property and a number of commodity sectors
have not yet reached their bottom. For turnaround companies, we would like to note that their valuations are still at
very high as they just transitioned from 'loss' to 'profit-making' status and their balance sheets remain under pressure
to a certain degree. Those stocks, mostly mid and small cap, will attract investors' attention, especially retail
investors in 2014.
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Date: 31.01.2014 Institutional Research & Investment Advisory
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TABLE OF CONTENTS
EXECUTIVE SUMMARY ......................................................................................................................................................................... 1
MACRO .......................................................................................................................................................................... 5
2013 Macro Review: FDI-led growth ............................................................................................................................................... 6
2014 Macro Outlook: A year of loosely infrastructure spending ............................................................................................... 9
MACRO ECONOMIC FORECAST................................................................................................................................................... 17
2014 MARKET OUTLOOK .......................................................................................................................................... 18
MARKET REVIEW: Vietnam Stock market saw a decent performance in 2013 .................................................................... 19
MARKET OUTLOOK: Six investment themes for 2014 .............................................................................................................. 20
SECTOR WEIGHTING SUMMARY ................................................................................................................................................. 26
NATURAL RUBBER (Basic Materials) .......................................................................................................................... 27
STEEL (Basic Materials) ..................................................................................................................................... 30
FERTILIZER (Basic Materials) ........................................................................................................................... 33
SUGAR (Consumer Goods) ............................................................................................................................... 35
DAIRY (Consumer Goods) ................................................................................................................................ 38
CONFECTIONERY (Consumer Goods) ............................................................................................................. 42
FISHERIES (Consumer Goods) ......................................................................................................................... 44
FEED (Consumer Goods) ................................................................................................................................... 48
OTHER F&B (Consumer Goods) ....................................................................................................................... 51
TIRES (Consumer Discretionary) ...................................................................................................................... 54
Textile & Garment (Consumer Discretionary) .................................................................................................. 57
BANKING (Financials) ........................................................................................................................................ 60
INSURANCE (Financials) .................................................................................................................................. 68
HEALTH CARE (Pharmaceuticals) .................................................................................................................... 75
PLASTIC PIPE (Industrials) ................................................................................................................................ 79
PORTS AND SHIPPING (Industrials) ................................................................................................................. 82
ENERGY (Oil & Gas) ........................................................................................................................................... 85
TECHNOLOGY & TELECOMUNICATION (IT) ................................................................................................... 88
UTILITIES (Electricity) .......................................................................................................................................... 91
PROPERTY (Commercial Developer) ............................................................................................................... 93
INDUSTRIAL PARK DEVELOPER (Real Estate) ............................................................................................ 101
INFRASTRUCTURE & CONSTRUCTION (Industrials) ................................................................................... 105
RATING ................................................................................................................................................................................................. 108
DISCLAIMER ........................................................................................................................................................................................ 108
CONTACT ............................................................................................................................................................................................. 109
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Date: 31.01.2014 Institutional Research & Investment Advisory
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MACRO
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Date: 31.01.2014 Institutional Research & Investment Advisory
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2013 Macro Review: FDI-led growth It was clear from the beginning of 2013 that FDI
would serve as Vietnams macroeconomic hope, and
throughout the year, it proved to be the engine
behind Vietnams economic growth given its
substantial contributions to total social investments,
manufacturing, and exports amid a deprecate private
sector. In particular, 2013 GDP growth finished at
5.42% YoY, improving slightly compared to the previous
years level of 5.25%. Among GDPs constituents,
Services posted the highest growth rate of 6.56% YoY,
and contributed 2.85 percentage points to the overall
growth. Industry and Construction came in second place
with an increase of 2.09% YoY; meanwhile, Agriculture,
Forestry & Fishery almost flattened at 2.67% following
unfavorable weather conditions. On the expenditure
side, final consumption edged up 5.36% YoY, and gross
capital formation posted an uptick of 5.45%. The story of
FDI-led growth is staunchly reflected in the below data.
2013 growth FDI sector State sector Private sector Total investment 9.9% 8.4% 6.6% Construction 34.3% -1.4% 6.2% Employment in manufacturing sector 6.6% -0.3% 3.2% Export 26.8% 3.5% Import 24.2% 5.6%
Source: GSO
Vietnams GDP growth (by sectors, yearly, year-on-year) 2010 2013
Source: GSO
Although we have seen modest growth, we believe it is
too premature to substantiate that economic growth will
regress back to its standard trend. In fact, economic
indicators are still alluding to challenges ahead
which will require further governments attention
and responses despite modest improvement. For
instance, retail sales growth was designated at a 4-year
low of 12.6% YoY in nominal terms or 5.6% in real
terms. The Index of Industrial Production (IPI)
convalesced, and registered a modest growth of 5.9%;
moreover, the inventory/production ratio remained high
at around 71.1% in spite of continuous efforts to lessen
this number.
Despite stagnant global economic activities,
Vietnams trade posted a persuasive performance
with a growth rate of 15.7% YoY compared to 2012s
level of 18.2%. However, the majority chunk of export
turnover was contributed by the FDI sector, which
-2
0
2
4
6
8
10
12
2010 2011 2012 2013
GDP growth (%- 2010p)
Agriculture (%)
Industry & Construction (%)
Construction (%)
Manufacturing (%)
Service (%)
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Date: 31.01.2014 Institutional Research & Investment Advisory
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accounted for 61.4% of total export value and increased
22.4% YoY. The composition of the export basket
continued to gravitate towards high value added
products with computer, hand phone, and electronic
exports amounting up to 24.35% of total exports. On the
other hand, imports experienced slightly higher growth of
16.1% YoY. As such, the overall trade balance was
modestly positive at USD 10 million. But it is worth
noting that this figure has not taken into account gold
imports. Indeed, positive trade balance, and sustainable
FDI inflows helped the central bank strengthened its
foreign reserve, which was estimated at USD 32 billion
or 12.7 weeks of imports. Consequently, the Vietnamese
Dong recorded the best performance against other
foreign currencies.
Monthly trade balance VND/USD exchange rate
Source: GSO, & SSI Source: SBV, Bloomberg, & SSI
Economic stability became the Governments pride
as headline inflation recorded a 10-year low of 6.04%
YoY and averaged 6.6%. Specifically, soft domestic
demand continued to materialize since foods and
foodstuffs price growth remained at a low level of 5.08%
YoY. Additionally, decelerating commodity prices also
supported lower nationwide inflation. As such, the rally in
consumer price was solely predicated on public goods
and service price growth following a series of
government upward adjustments in health care
(+18.97% YoY) and education fees (+11.71% YoY).
Vietnams inflation Inventory, manufacturing, and retail sales
Source: GSO Source: GSO
(2,000)
(1,500)
(1,000)
(500)
-
500
1,000
1,500
2,000
5,000
7,000
9,000
11,000
13,000
15,000
Jan
-12
Mar
-12
May
-12
Jul-
12
Sep
-12
No
v-1
2
Jan
-13
Mar
-13
May
-13
Jul-
13
Sep
-13
No
v-1
3
Trade Balance (RHS)Exports (LHS)Imports (LHS)
20,500
21,000
21,500
22,000
22,500
Jan
-13
Feb
-13
Mar
-13
Ap
r-1
3
May
-13
Jun
-13
Jul-
13
Au
g-1
3
Sep
-13
Oct
-13
No
v-1
3
Dec
-13
Jan
-14
Official VND/USD Rate
Unofficial VND/USD Rate
-2%
-1%
0%
1%
2%
3%
4%
5%
0%
5%
10%
15%
20%
25%
30%
35%
Jan
-09
Jul-
09
Jan
-10
Jul-
10
Jan
-11
Jul-
11
Jan
-12
Jul-
12
Jan
-13
Jul-
13
Consumer price index: YoY (LHS)
Consumer price index: MoM (RHS)
CPI MoM (seasonal adjusted) (RHS)
-20%
-10%
0%
10%
20%
30%
40%
0%
50%
100%
150%
200%
250%
300%Inventory/production Ratio (LHS)
Retail Sales Real Growth (YoY)
Industrial Production Index (YoY) (RHS)
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Given tamed inflation, the central bank further
curtailed policy rate, and propelled lending at banks
to support domestic economic activities, however,
the impacts were constrained by high Non
Performing Loans (NPLs). Banking data released by
the State Bank of Vietnam (SBV) indicated that total
credit lines accelerated in December, and surpassed the
SBVs target of 12% YoY to finish at 12.51%. However,
its relatively challenging to identify the proportions of
actual credit growth and rescheduled one. In fact, fears
of rising bad debts galvanized banks to cascade their
money into the bond market, helping the Government to
finance its widened budget deficit at a low cost. As such,
even though the Vietnam Asset Management Company
(VAMC) asserted that they purchased VND 32.4 trillion
or USD 1.5 billion worth of bad debts in 2013, it will likely
take time to resolve these amounts, clean up banks
distressed assets, and enhance lending at banks.
Credit and deposit growth (% YoY) Budget deficit & issuance of G-bonds
Source: SBV & SSI Source: HNX, MOF, & SSI
-5%
0%
5%
10%
15%
20%
25%
30%
Jan
-12
Mar
-12
May
-12
Jul-
12
Sep
-12
No
v-1
2
Jan
-13
Mar
-13
May
-13
Jul-
13
Sep
-13
No
v-1
3Credit growth
Deposit growth
0%
1%
2%
3%
4%
5%
6%
7%
8%
-
20
40
60
80
100
120
140
160
180
200
2009 2010 2011 2012 2013
Trillion Dong T-bills (LHS)
G-bonds (LHS)
Budget deficit (% of GDP) (RHS)
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Date: 31.01.2014 Institutional Research & Investment Advisory
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2014 Macro Outlook: A year of loosely infrastructure spending
When it is all said and done, what will be definitive of 2014? And to answer this question, we must first acquaint
ourselves with the past. Five years ago in 2009, the government initiated the so-called lending rate subsidy
stimulus package which ushered in a period of easy accessible credit that ultimately failed to support sustainable
GDP growth. Core problems such as inflation, the depreciation of the Dong, bad debt, ect., began to emerge in 2010,
and by 2011, the government found themselves fully submerge in the crisis. 2012 and well into 2013, was a period of
assessments of the damages done and methods of amending those damages. Solutions such as comprehensive
banking restructuring and equitizing state owned enterprises (SOEs) were gradually proposed, ratified, signed into
law and implemented in 2013. This brings us to date, with the 2015 deadline of completing comprehensive
restructuring, before the Party Congress in 2016, we think that 2014 would serve as an important stepping stone to
accelerate the long-awaited reform or in short, a year of less talking but more walking.
In 2014, the government will continue to advocate its double-goal strategy: supporting growth while
maintaining macroeconomic stability (GDP growth at 5.8%, CPI around 7%, VND depreciation at 2% at most,
budget deficit at 5.3% of GDP, credit growth at 12-14%, maintain deposit rate stability and lower lending rate for
priority sectors). Our own estimate for key macroeconomic indicators are provided in page 14, where we expect
GDP growth at a lower rate of 5.6% (due to limited immediate ramifications from infrastructure investment and the
FDI sector), higher CPI (7.5%, due to the fact that results from public investments could not improve overnight,
couple with the continuous increases of subsidized utilities prices such as healthcare, electricity and higher VND
depreciation).
In pertaining to exchange rate, although forex reserve is adept to increase in parallel with import growth (12 weeks of
import) and foreign remittance remains resilient, we expect trade deficit might return due to a series of mega
infrastructure projects which is scheduled to commence in 2014 (therefore increasing demand for construction
materials and machineries). However, the current account balance or overall balance of payment is all positive,
therefore permitting the SBV to actively manage the VND/USD exchange rate.
We believe the government will be more inclined to promote pro-growth measures in 2014 as local businesses
cannot bear the brunt of another prolong reform. The end of the 5-year plan (2011-2015) is in hands reach and the
government needs to salvage and implement some of the previous announced reforms. Below are key highlights that
will capture the governments attention during the year:
4. The apparent need for infrastructure improvement
With Vietnams poor infrastructure score against ASEAN
peers (source: WEF 2013-2014 report), it is
conspicuously rational for the government to direct its
focus onto upgrading Vietnams infrastructure system.
Two important sectors include transportation and
energy, with capital expenditure to increase 33.3% and
11.7% in 2014. Key projects in the pipeline include:
national road 1A & 14, a number of expressways,
bridges, airports, deep-water ports (transportation), two
refineries and pipelines, a number of thermal power
plants and the second 500kV grid (energy see pages
8-9 for details). It is estimated that Vietnam needs
approximately USD 167 bn similar to Vietnams current
GDP- in the next ten years for infrastructure
investments (source: ADB), and this leaves Vietnam with
a dilemma; to stay competitively fit against its ASEAN
peers, it needs to enhance and improve its
infrastructure, but with investment needs exceeding
available funding, Vietnam will need to accurately
identify and execute the most viable projects. However,
it should be noted that infrastructure investment is a long
term strategy, and its multiplier effect could potentially
translate into significant growth in the coming years, but
not immediately in 2014.
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Date: 31.01.2014 Institutional Research & Investment Advisory
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Infrastructure Score
148 countries, The Global Competitiveness Report 2013-2014 (WEF)
Singapore Malaysia Thailand Brunei Indonesia Vietnam Laos Philippines Cambodia Myanmar
Infrastructure score 2 29 47 58 61 82 84 96 101 141
Quality of overall infrastructure 5 25 61 39 82 110 65 98 86 146
Quality of road 7 23 42 35 78 102 65 87 80 138
Quality of railroad infrastructure 10 18 72 n/a 44 56 n/a 89 91 104
Quality of port infrastructure 2 24 56 49 89 98 137 116 81 136
Quality of air transport infrastructure 1 20 34 55 68 92 76 113 90 146
Available airline seat kilometers 16 23 14 100 15 32 121 26 88 94
Quality of electricity supply 8 37 58 59 89 95 61 93 112 118
Mobile telephone subscriptions 18 27 49 64 62 21 90 81 38 148
Fixed telephone lines 29 79 96 72 82 88 122 109 110 127
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List of notable infrastructure projects to be implemented in 2014
Project name Location Total
investment (USD bn)
Starting date
Completion date
Capacity Investors Lenders Contractors
Transportation
Road & bridge
National Road 1A Expansion
2.5 2013 2016
National Road 14
0.8 2013 2016
Hanoi-Haiphong
0.3 2007 2015
Da Nang-QuangNgai
1.5 2013 2016
World Bank Lotte
Ben Luc - Long Thanh Highway
1.5 3Q.2013
VEC JICA+ADB
DauGiay - PhanThiet Highway
Dong Nai + BinhThuan
0.8 3Q.2015
Bitexco + 2nd investor
WB
NinhBinh-BaiVot (PPP)
NinhBinh, ThanhHoa,
Nghe An 2.4 2014 2018
WB (PPP)
Cao Lanh bridge
Dong Thap 0.1 2013 2017
AusAID, ADB CRBC - China &Vinaconex E&C
Vam Cong bridge
Dong Thap 0.3 2013 2017
Cu Long CIPM
EDCF (South Korea)
GS E&C & HANSHIN E&C (South Korea)
Airports
NoiBai Terminal 2
Ha Noi
Cat Bi HaiPhong 0.2 2013 2015
Ports
Lachhuyen (deepwater port)
HaiPhong 1.2 2013 2017
Saigon New Port Corp
Japan ODA Toa Corporation, Penta Ocean
Hau river channel
TraVinh 0.4
2008 (delayed
from 2011,
restarted 2014)
Energy
Nghi Son refinery
ThanhHoa 9.0 2013 2017
(started)
10 mil tons/year (expandable to
20 mil tons/year)
Kuwait, Idemitsu
Kosan, Mitsui Chemical
JGC (Japan) - Chiyoda (Japan), GS E&C (South Korea), SK E&C (South Korea),
Technip France (France), TechnipGeoproduction (Malaysia).
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Project name Location Total
investment (USD bn)
Starting date
Completion date
Capacity Investors Lenders Contractors
Vung Ro refinery
Phu Yen 3.2
2017 (detailed
designing) 8 mil tons/year
Technostar Management Ltd
Electricity
DuyenHai 3 coal-fired power plant
TraVinh 1.3 2012 2015 1,244 MW EVN
Bank of China, ICBC, China
Development Bank
Eastern Electrification, Southwest Design Institute, Zhejiang Power Construction
Long Phu 1 coal-fired power plant
SocTrang 1.2 2011 2017/2018 1,200 MW PVN
Petrovietnam Technical Services Joint Stock Corporation (PTSC)
Mekong Delta Wind Power Centre
Bac Lieu 1.0 2012 2015 500 MW
VDB, US Eximbank
Mong Duong 2 coal-fired BOT power plant
QuangNinh 2.1 2011 2014 1,200 MW
China Investment
Corporation
Doosan Heavy Industries & Construction Co., Posco Energy Ltd., AES, HoaBinh
Construction and Real Estate Trading Joint Stock Co (HBC)
QuangTrach 1 coal-fired power plant
QuangBinh 2.3 2013 2015 1,200 MW PVN
PVX, PVE
Quynh Lap 1 coal-fired power plant
Nghe An 1.5 2012 2016 1,200 MW Vinacomin
No 1 Construction Consultancy JSC
Thai Binh 2 coal-fired power plant
Thai Binh 1.7 2011 2015 1,200 MW PVN
, Toshiba, Babcock & Wilcox Beijing Company (BWBC), Petrovietnam
Construction Joint Stock Corporation (PVC), Sojitz Corporation, Daelim Industrial
Company
Vinh Tan 1 thermal power plant BOT project
BinhThuan 1.9 2013 2018 1,200 MW Vinacomin
and Chinese Investors
China Southern Power Grid
Vinh Tan 2 thermal power plant
BinhThuan 1.3 2013 2015 1,244 MW EVN
Shanghai Electric Group[Construction)
VungAng 2 coal-fired power plant
Ha Tinh 1.7 2013 2015 1,200 MW
Vapco Engineers, Hung Nghiep Formosa Ha Tinh Co.
Vinh Tan 4 thermal power plant
BinhThuan 1.6 2014 2017 1200 MW EVN Kesim, Ksure,
JBIC Doosan, Mitsubishi, PECC2,
Source: SSI Research
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Although the need for improving infrastructure is
apparent, there are a number of issues in the
implementation of infrastructure projects in Vietnam
which we discuss below:
Land-swap mechanism in infrastructure projects:
Currently, many infrastructure projects in Vietnam
whether in the form of BOT (Build Operate
Transfer) or BT (Build Transfer) are not financially
feasible for the private sector, keep in mind, Vietnam
needs the private sectors participation as
Government funding in itself is insufficient. In order
to attract investments, the government initiated a
land subsidy policy program. In essence, what the
government does is compensate investors land
granted once they complete a project and hand it
back to the government. In a normal transaction,
instead of getting paid in physical cash, they are
compensated by land. Therefore, investors are seen
as contractors rather than investors, and the investor
is more in fact the government.
However, this strategy is problematic in several
respects. Firstly, the non-transparent nature of land
swap projects provides fertile ground for corruption,
inflated investment costs and loss of state
resources. Secondly, relying on land as a form of
subsidy will become less and less feasible for the
government as most of thevaluable plots in urban
areas and along the coast are already occupied and
their inflated prices are being questioned by the
market.
Is PPP (Public Private Partnership) the solution?
The government has made tremendous strides in
launching a comprehensive PPP where all parties
involved will benefit. But what is still unclear and
remained ambiguous to a lot of investors is the
magnitude of the governments role. In a PPP
project, conventionally, the governments
participation will come in the form of subsidy, in
many cases land subsidies. However, it is very
difficult for the government and private investors to
agree on the value of the land as both parties have
different methods of evaluating land. The
accountability on the government side is also a
question. The governments ambiguous role in PPP
can explain why there is such a lack of PPP in
infrastructure projects. All the ambiguities have
prompted the Ministry of Investment and Planning to
draft a new Decree on PPP, which will include the
definition and mechanisms of PPP, BOT, BTO, BT,
BOO, DBFMOT, BFOM, O&M. The new decree will
clearly specify the role of the Government in PPP
projects and allow SOEs to participate in PPP
projects as well.
Concern on efficiency of infrastructure
investment projects: The most important
infrastructure challenge facing Vietnam is
investment inefficiency rather than inadequate levels
of investments. What VN needs is a well-
coordinated national strategic plan that identifies and
prioritize a number of viable large-scale projects.
Vietnam does not need ports in every coastal cities
nor an airport in every city. 2014 infrastructure
spending should be carefully monitored.
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5. Accelerating SOEs restructuring
SOEs restructuring were plagued with delays in 2013,
and we expect that a number of 2013 IPOs would be
carried over to 2014, including Viglacera (glass &
ceramics), Vinatex (textile and garment) and Vietnam
Airlines. A number of new IPOs were announced
including ACV (Airport Corporation of Vietnam, owner of
all the major airports in Vietnam, including Tan Son
Nhat, NoiBai and primary investor of the Long Thanh
Airport mega-project), and a number of the Ministry of
Transports CIENCO (Civil Engineering Construction
Corp, No 1-4-5-6, whichareall major contractorsfor most
of the public infrastructure projects).Mobifones IPO
(mobile phone operator) is also expected to be
scheduled in 2014 (after splitting from Vietnam Post and
Telecommunication Group - VNPT), however,less likely
than those mentioned. The new regulation that
stipulates the listing of stocks within one year after an
IPO would entice investors participation. Other
developments in 2014 would include SCIC (State Capital
Investment Corp) and SOEsnon-core business
divestment, where the MoF might issue a decision that
permits SCICand SOEs to sell states assets below book
value.
IPO Watch
Chartered Capital (Mn
USD)
2013 Revenue
(Mn USD) 2013 PBT (Mn USD)
Shares offered
Share price
(VND) Shares
outstanding IPO time
Viglacera
145
76,947,600
10,300
307,000,000 20/02/2014
Vinatex
236
2,151
68.40
245,000,000 N.A
500,000,000 1Q 2014
Vietnam Airlines
422
3,422
25.17
383,000,000 N.A
894,200,000 2014
Airports Corporation of Vietnam
693
397 N.A
36,732,500 N.A
146,930,000 2014
Vinamotor N.A N.A N.A 51% of shares
outstanding N.A N.A 2014
Cienco 1
33
340 N.A
16,183,500 N.A
70,000,000 N.A
Cienco 4
28
498 N.A
16,125,200 N.A
60,000,000 N.A
Cienco 5
21
198 N.A
14,215,300 N.A
43,900,000 N.A
Cienco 6
28 N.A N.A
28,724,100 N.A
60,000,000 N.A
Mobifone N.A
1,943
311.00 N.A N.A N.A N.A
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6. Funding source: Foreign investors remain an extremely imperative part of the equation
Large-scale infrastructure projects, banking sector
reform and more aggressive IPOs raise the question of
funding sources. Public investment will remain identical
in 2014 (from state budget development investment,
plus government disbursement was nearly USD 13 bn,
similar to 2013s level). The government expects for
higher credit growth in 2014 (target 12-14%, but our
estimate is higher at 15% - because of a soft-landing for
the banking sector which willbe discussed below), and
seemingly factors behind higher credit growth are not
only consumer credit (as in 2013) or SOEs, but also
private investment. Foreign investors remain an
extremely imperative part of the equation, not just FDI
(2013 high commitments might result in better
disbursementsin 2014), or FII (with foreign ownership
limit extending for both bank and non-bank institutions),
but ODA would become an integral source of financing.
Although in the longer term
ODAwillgraduallybecomescarce as Vietnam is rapidly
approaching the per capita income level of a lower-
middle income country, It is reported that undisbursed
ODA reached USD 15 bn so far, and the government
has set aside roughlyUSD 1 bn as counter-capital for
2014 with detailed distribution sent to all provinces, so it
signals more disbursement of ODA for 2014.
Risk to our forecast
Political risks will be limited, if not rare, and nowhere in
the proximity to Thailand. Continuous reforms and
comprehensive restructuring will expose
mismanagement and in certain cases, corruption, and
those who are responsible should be held accountable.
A number of high profile criminal cases have been
brought to courts, and we hope that past disruptions
would not exacerbate and engender more volatility.
In regards to public finance, the risk of high public debt is
very conspicuous and legitimate, given the nature of
high budget deficit, increasing demand for infrastructure
investment (however, ill-managed),all of which could
easily translate to higher inflation.Our concern remains
on the public debt level. The latest report published by
the MoF revealed some intriguing subjects concerning
public debt. The below table are the estimated data for
2013-2014:
(unit: VND trillion) 2012 2013 2014
Government debt (1) 1280 1573.8 1952.3
Government guaranteed debt (2) 342 457.1 512.1
Municipal debt (3) 20.9 43.9 64
Public debt (=1+2+3) 1642.9 2074.8 2528.4
Government debt (% GDP) 42.60% 46.20%
Public debt (% GDP) 56.20% 59.80%
(1): Government debt includes domestic one (government bond in VND, Treasury bills and other borrowings) and external one (ODA, sovereign bonds.)
(2) Government guaranteed debt includes domestic one (VDB, VBSP, VEC bond) and external one.
(3) Municipal debt includes municipal bond, borrowing from Treasury and other.
The composition of external debt and domestic debt
which combined make up for government debt was 57%
and 43% respectively (2012 data). It is worth mentioning
that total government debt which was used for re-lending
to domestic companies totaled USD 10.8 bn with a NPL
ratio of 3.45%.
Pertaining to government guaranteed debt issued by
VDB and VBSP (total volume was roughly USD 8 bn), a
duration risk can be seen as most of the issued bonds
are 2-3 year, but the pay-back period is at least 10-15
years. One example is the notorious case of VEC
(Vietnam Expressway Corporation - where the MoF once
denied guaranteeing VECs bonds), the MoF announced
that they might have to pay VND 3.85 trillion on behalf of
VEC, from now to 2015 as VEC is incapable of servicing
the loan.
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(unit: VND trillion) 2012 2013 2014
Government guaranteed debt 342.1 457.1 512.1
Domestic 191.5 198.5 235.1
VDB+VBSP 153.2 148.1 167.1
VEC 4.3 4.4 5
Other 34 46 63
External 150.6 258.6 277
Source: MoF, SSI estimates
In regards to municipal debt, it was reported that the
amount increased from USD 1 bn in 2012 to nearly USD
2 bn in 2013 (of which USD 0.7 bn were municipal
bond). Public debt is rapidly increasing (debt payment
accounted for roughly 24% of the state budget in 2013,
and several experts forecast that it would rise to 30% in
the next 3 years, which would be quite alarming), and
the reason behind the rapid increase was to satisfy the
immense demand for infrastructure projects. We think
that inefficient management and disbursement have
exacerbated matters. As long as GDP growth is
ensured, rising debt can be admissible, so it explains
why the government has placed great emphasis on
growth, and the increasing absolute GDP number would
help maintain the debt at the limit stipulated in the Laws
of Public Debt i.e 65%.
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MACRO ECONOMIC FORECAST
2007 2008 2009 2010 2011 2012 2013 2014F
GDP growth (%- 2010p) 7.13 5.66 5.4 6.42 6.24 5.25 5.42 5.6
Agriculture (%) 3.96 4.69 1.91 3.29 4.02 2.68 2.67 2.8
Industry & Construction (%) 7.36 4.13 5.98 7.17 6.68 5.75 5.43 5.7
Construction (%) n/a n/a n/a 10.06 -0.62 3.25 5.4 5.5
Manufacturing (%) n/a n/a n/a 8.38 11 5.8 7.44 7.7
Service (%) 8.54 7.55 6.55 7.19 6.83 5.9 6.56 6.7
Retail Sale (%) 22.9 30.9 18.5 24.96 22 16 12.6 14
Industrial Production Index (%) n/a 7.4 7.1 10.7 6.8 4.8 5.9 6.5
CPI (%) 12.6 19.9 4.35 11.09 18.13 6.81 6.03 7.5
PPI (Agriculture) (%) 17.46 0 -4.56 13.81 31.8 6.2 0.57 4.3
PPI (Industrial) (%) 7.44 25.79 2.38 13.44 18.3 10.1 5.25 7
Exports (USD bn) 43.7 58.0 51.3 72.2 96.9 114.6 132.2 146.7
Imports (USD bn) 54.5 74.8 62.3 84.8 106.7 113.8 131.3 150.4
Trade Balance (USD bn) -10.84 -16.81 -10.95 -12.60 -9.80 0.80 0.90 -3.70
% of Export 24.82% 28.98% 21.32% -17.45% 10.11% 0.70% 0.68% -2.52%
Exchange rate (USD/VND) 15950 17483 18479 18932 21250 20900 21250 21900
Current Account Balance (USD bn) -6.9 -10.8 -6.6 -4.3 -0.6 7 8.8 8.1
Foreign reserve (USD bn) 23.74 24.17 14.1 12.4 13.5 25.4 32 36
Foreign reserve/imports (weeks) 22.64 16.80 11.77 7.60 6.58 11.61 12.67 12.45
Credit growth (%) 52.42 25.43 37.73 29.81 14.41 8.91 12 15
Deposit rate (VND -%)
14.71 8.61 11.89 16.66 8 8 8
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2014 Market Outlook
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MARKET REVIEW: Vietnam Stock market saw a decent
performance in 2013 Vietnam stock market made a decent rebound in 2013,
where the VN Index and the HNX Index closed at 504.63
and 67.84 pts, 21.97% and 18.83% YoY growth,
respectively. Total market capitalization reached VND
949 trillion (around USD 4.5 bn or 32% of GDP and 24%
YoY growth). Trading value roughly averaged VND 1.38
trillion/session (USD 65.4 mil, 31% YoY growth). Foreign
investors maintained in a net buy position (approximately
USD 365 mil in equity and USD 500 mil in bond).
VN Index performance in 2013 (Source: Bloomberg) HNXIndex performance in 2013 (Source: Bloomberg)
In more details, from Jan to May, the VN Index strongly
rallied spurred by significant foreign inflow (about USD
280 mil, most notably, ETFs) and trading volume
improved given supportive measures by the State
Securities Commission (higher trading band on the
HOSE from 5% to 7% and the HNX from 7% to 10%,
introduction of market order,). The rally was also
supported by strong earnings seasons, and a turnaround
was imminent. Discussions on foreign ownership limit
extension fueled investors sentiment throughout the
year. Fears from U.S. Fed tapering and the official VND
depreciation in June triggered a sizeable outflow from
June to August (total net foreign outflow was about USD
130 mil). Nevertheless, sentiment was elevated in
September, with fears from increasing risks in the
banking sector subsiding because of better-than-
expected VAMCs participation in bad debt resolution,
the exhaustive discussions on FOL extension and the
revival of foreign inflow (in the last four months of 2013,
foreigners total net-buy position was approximately VND
170 mil, higher than the outflow level in June-Aug
period). Leading movers for the VN Index were GAS,
and VNM and lagging mover was MSN. While on the
HNXIndex, PVS and OCH led the rally while PVX, and
ACB were the biggest laggers.
HOSE Movers
Ticker Closing
price Change Index points Ticker
Closing price
Change Index points
GAS 66,500 +27,900 34.636 MSN 82,500 -19,500 -8.314 VNM 135,000 +47,000 22.669 EIB 12,500 -3,200 -2.461 HPG 41,100 +20,100 5.445 CTG 16,200 -3,262 -1.670 VIC 70,000 +9,623 5.337 PVF 4,200 -4,200 -1.518 PVD 61,000 +26,909 4.208 ALP 4,000 -5,000 -0.615
2014
Market
Outlook
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HNX Movers
Ticker Closing
price Change Index points Ticker
Closing price
Change Index points
PVS 20,300 +6,600 1.833 PVX 3,000 -2,600 -0.679 OCH 27,600 +16,200 1.563 ACB 15,600 -900 -0.558 LAS 37,500 +14,583 0.742 PSD 49,500 -18,500 -0.168 NTP 59,900 +25,900 0.729 SQC 78,200 -1,700 -0.112 SHB 6,900 +1,100 0.637 PVR 3,500 -3,200 -0.111
MARKET OUTLOOK: Six investment themes for 2014
7. The economy has bottomed out with macro stability being ensured, all the elements are in place for
upsides ahead:
Although the recovery will be gradual with continuous
support from the FDI sector, the two important reforms
(i.e. banking reform and SOEs reform) have finally
exhibitedinitial momentum. Our assumption is that both
reforms will accelerate in 2014. It is befitting to assume
that 2013, the year of the snake, exhibited
crawlingbanking and SOEs reforms and restructuring.
We expect that 2014, the year of the horse, banking and
SOEs reforms and restructuring will run rampant.
Banking reformexhibited encouraging progress in 2013
with the birth of VAMC which managed to purchase a
large chunk of bad debt from banks. VAMC will continue
their bad debt purchasing program in 2014. Our view is
that bad debt restructuring and sales is much more
fundamental and we hope this commence this year.
Circular 02 - a new risk management regulation will not
be delayed but rather be eased in order to help banks
maintain their credit growth at not a depress level. Debt
restructuring will continue and consequently we do not
expect a sharp rise in the official NPL level after Circular
02 takes effect.
Our assumption is that the banking sector will need at
least 3 years to clean its balance sheet, based on the
calculation that the PPOP (Pre-Provision Operating
Profit) of the whole system in 2012 was roughly 42% of
the official NPL of 4.6%. As the process of aggressive
provision-booking began in 2H12, 2014 will be the 3rd
year or the last year of this process. This is why we
believe this might be an appropriate time to revisit our
view on the sector in 2014.
SOEs reform will not be a cakewalk. We see the
motivation behind SOEs reform should be SOEs debt
restructuring and weak financial situation in a number of
large SOEs. In 2013, all the economic groups submitted
their restructuring plans to the Prime Minister which were
then approved. Therefore, in 2014, we hope to see
SOEs abiding to their plans of divestments in non-core
businesses, cleaning their balance sheets, all the actions
that are required to amend past mistakes, in essence,
more walk and less talk.
In both reforms, recapitalization is the key. However, it
is not easy to attract external funding at this moment in
time as investors will carefully consider before investing
in banks or SOEs, and among the factors of
consideration there are operation efficiency and risks.
This, in turn, will accelerate the two reforms.
Unsurprisingly, we will see more divestments and IPOs
in the coming time (as mentioned in our Macro
Outlook).The recent Decree 01 by the Government on 3
January 2014 relaxed the terms and conditions for
foreign investors to acquire domestic banks and we
hope to see more M&A transactions in the banking
system in the coming time.
2014
Market
Outlook
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8. Given the gradual economic recovery and on-going reforms which triggered positive catalysts for the
market, market valuation re-rating is envisioned for 2014.
We believe the VN Index could increase 17-20% as
compared with 2013-end (which closed at 504.6). This
then renders to the notion that the VNIndex might reach
590-600 by the end of this year. If we add a 5%
dividend yield, the average total return from Vietnam
equity market will be 23% in 2014.Our forecast is based
on 2014 EPS growth at 7%. We expect market PER will
be rerated from the level of 10.7x in the beginning of the
year to 12x 13x by end of this year, powered by
gradual economic improvement andthe on-going reforms
which will trigger positive catalysts such as FOL
extension, new IPOs or banks M&Aetc.
Source: SSIResearch
9. Time to revisit the banking sector?
We believe the time is prime to revisit the sector in 2014,
although not immediately, but possibly by end of 1Q14 -
when banks release their 2013 results and have a more
definite picture on 2014. After nearly 2 years of being
head-over-heels with challenges, management at most
of the banks have now taken on a very conservative
approach and most have decreased operating expense
by reducing staff, salary cut and organization
restructuring to improve operation efficiency.
Developments in retail banking and consumer finance
are the choices for many banks to compensate for NIM
reduction.
In 2013, given serious challenges facing the banking
sector, investors shied away from bank stocks and this
corresponded with our consistent view of 'Sector
Underweight' so far.
2014
Market
Outlook
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10. Top line growth will be stronger in 2014, margin expansion will trail that of 2013
2013s average sales/net profit growth of 62
companies under SSIResearchcoverage are 9% and
19.3%, respectively
2014s average sales/net profit growth of 62
companies are 16% and 8.2%, respectively
In 2013, margin expansion was supported by
significant lower interest rate, lower input cost and
operating expense cut while top line growth was
quite weak, corresponding with the overall weak
economy. In 2014, our forecast on revenue growth
is better than 2013 while margin will stabilize with
support from lower CIT (from 25% in 2013 to 22% in
2014), no more salary cut andslightly lower interest
rate in 2014.
2014 median EPS growth of 9% (2013: -5%)
2014 dividend yield of 5% (2013: 5%)
11. Industrial & Infrastructure-related sectors are our favorite for this year.
With mega infrastructure projects in the pipeline, we are
bullish on industrial and infrastructure-related sectors
such as construction, construction materials, industrial
zones and ports.
12. Turnaround stocks are sexy.
As the economy has bottomed out, different sectors will
exhibit different turn-around phases. We believe that the
Consumer sector has already bottomed out in 1H13
while Banking -Property and a number of commodity
sectors have not yet reached their bottom. For
turnaround companies, we would like to note that their
valuations are still at very high as they just transitioned
from 'loss' to 'profit-making' status and their balance
sheets remain under pressure to a certain degree.
Those stocks, mostly mid and small cap, will attract
investors' attention, especially retail investorsin 2014.
2014
Market
Outlook
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Top movers from 31Dec2013 Top movers from 23Jan2014
GAS 28% GAS 13%
CTG 14% CTG 8%
MSN 12% MBB 24%
PVD 36% HPG 16%
HPG 33% PVD 14%
MBB 34% FPT 18%
FPT 37% DHG 15%
VNM 4% EIB 6%
PVS 48% HAG 6%
STB 20% PVS 7%
BVH 11% BMP 15%
EIB 16% HSG 11%
VCB 4% LAS 17.7%
VIC 4% BCI 27%
DPM 10% DIG 19%
DHG 18% PNJ 13%
HSG 26% NTP 9%
LAS 41% ITA 5%
BMP 25% HVG 7%
ITA 16% PGS 15%
Source: SSIResearch
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Top high earnings growth conviction for 2014
Market cap (mil USD) Foreign ownership (%) 2014 Earnings growth 2013PER 2014PER 2014PBR
MSN 3289.6 34.9 376% 116.3 20.7 Na
CII 108.0 40.4 330% 51.4 9.4 1.5
KBC 146.3 25.8 174% 84.8 41.4 1.0
PAC 27.8 25.6 111% 16.8 8.0 1.1
PNJ 108.0 49.0 56% 11.7 7.5 1.6
EIB 802.1 27.1 51% 21.9 14.5 1.0
DIG 89.2 30.0 48% 47.8 34.6 0.7
ACB 706.5 30.0 47% 18.3 12.5 1.2
HAG 738.7 35.3 36% 19.3 19.2 Na
BCI 65.4 34.8 35% 16.1 11.9 0.7
IMP 38.0 48.2 34% 13.1 9.7 1.1
TDH 25.9 33.3 34% 40.5 31.5 0.4
BVH 1490.6 24.1 27% 23.2 18.3 2.4
BMP 164.6 49.0 26% 12.1 9.6 2.0
KDC 451.9 49.0 25% 21.4 24.5 1.3
TCM 65.9 49.0 23% 9.8 8.0 1.7
PVD 956.8 40.6 20% 10.7 8.8 1.7
HVG 140.6 10.1 20% 9.7 8.4 0.9
PVI 199.7 49 20% 13.8 11.6 0.6
PVT 131.8 5.3 19% 11.9 9.8 1.0
BTP 38.9 1.7 18% 11.8 10.0 0.8
FPT 714.0 49.0 18% 8.8 7.6 1.8
EVE 35.4 49.0 17% 8.5 7.2 0.9
DBC 71.7 38.8 17% 9.5 8.1 0.9
PET 72.2 26.9 17% 8.2 6.9 1.1
PSD 35.2 3.8 16% 7.6 6.6 3.1
NTP 133.1 48.1 14% 9.3 8.1 1.8
VNS 98.4 42.5 13% 8.2 7.3 1.1
ITA 214.9 17.3 13% 49.3 44.0 0.7
VNM 5596.1 49.0 13% 18.4 16.3 5.5
PVS 597.7 24.4 11% 10.2 9.2 1.5
HPG 941.9 45.8 10% 10.3 9.5 1.9
Source: SSIResearch
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Stocks with low PER
Market cap (mil USD) Foreign ownership (%) 2014 PER as of 23Jan14 2013EPS growth 2014EPS growth
MBB 734.3 10 5.8 -2.5% 3.7%
PGS 62.6 22.2 5.9 38.0% 9.3%
DXP 17.8 29.76 6.2 7.1% 4.0%
TRC 59.6 30.88 6.4 -42.6% 2.5%
PSD 35.2 3.8 6.6 -19.1% 15.8%
PET 72.2 26.9 6.9 -4.4% 18.7%
SBT 84.1 14.82 6.9 -40.2% 5.5%
EVE 35.4 49 7.2 4.8% 17.6%
DPR 94.5 32.42 7.2 -44.4% -5.9%
LAS 166.8 11.69 7.2 13% 9%
VNS 98.4 42.47 7.3 15.3% 13.3%
PNJ 108.0 49 7.5 -35.3% 55.8%
FPT 714.0 49 7.6 9.0% 16.0%
VSC 85.3 49 7.7 -4.6% 6.0%
TCM 65.9 49 8.0 Na 22.7%
PAC 27.8 25.64 8.0 -43.2% 110.8%
NTP 133.1 48.14 8.1 2.3% 14.4%
DBC 71.7 38.84 8.1 -51.7% 17.1%
DVP 84.0 13.39 8.2 8.5% 5.4%
HSG 211.4 35.73 8.4 58.0% -7.4%
HVG 140.6 10.07 8.4 -23.8% 15.9%
PGD 91.3 4.93 8.5 -8.3% 7.9%
PVD 956.8 40.58 8.8 19.7% 21.9%
PHR 117.4 19.2 8.9 -45.0% -16.3%
DPM 835.9 31.13 9.1 -21.1% -19.3%
PVS 597.7 24.43 9.2 9.9% 11.3%
CII 108.0 40.37 9.4 -89.4% 446.6%
HPG 941.9 45.75 9.5 92.0% 8.7%
PPC 396.9 11.69 9.5 149.0% -41.8%
BMP 164.6 49 9.6 -38.6% 26.4%
CSM 123.7 13.07 9.6 -7.0% -17.8%
REE 386.8 44.99 9.6 39.7% -8.9%
IMP 38.0 48.21 9.7 -24.3% 34.5%
PVT 131.8 5.29 9.8 113.7% 20.5%
BTP 38.9 1.65 10.0 -49.8% 18.2%
Source: SSIResearch
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SECTOR WEIGHTING SUMMARY
Sub-Sector Sector Weighting Favorite stock
Natural Rubber Underweight PHR, DPR
Steel Neutral HPG
Fertilizer Neutral DPM, LAS
Sugar Underweight SBT
Diary Neutral VNM
Confectionary Neutral
Fisheries Neutral HVG
Feed Other F & B
Overweight Neutral
DBC MSN
Tires Neutral
Textile & Garment Overweight TCM, EVE
Banking Underweight MBB
Insurance Neutral BVH, BIC
Pharmaceutical Overweight DHG
Plastic pipe Ports and shipping
Overweight Neutral
BMP VSC, VIP
Oil & Gas Overweight GAS, PVD, PVS
IT Overweight FPT
Electricity Neutral
Property Neutral DIG, BCI
Industrial park developer Neutral KBC
Infrastructure and Construction Overweight CII, FCN
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NATURAL RUBBER (Basic Materials) UNDERWEIGHT
KienTran Nguyen, +84 4 9366321 ext 679, kiennt1@ssi.com.vn
Natural rubber performance in 2013
Source: Bloomberg
DPR performance in 2013
Source: Bloomberg
2013 Summary: another treading year for prices.
Rubber sector in 2013: The natural rubber industry
underperformed the VN Index and the Basic Materials sector in
2013. The industry forfeited 0.8% while the VN Index and the
Basic Materials sector gained 20.6% and 29.5% respectively in
2013.
Vietnams NR industry witnessed a decline in export value
resulted from decreases in NR price: in 2013 Vietnam is
estimated to reach approximately 1mn tons (+ 6.7% YoY), and
USD 2.5bn (- 11.7% YoY) in NRs export volume and value
respectively.
Average selling price of SVR 3L, accounting for 43% of total
export volume, depressed 18% YoY in 2013.
World NR supply increased at a faster pace than
consumption: in 2013, total NR output is estimated at11.6 mn
tons (+ 2.2% YoY) while total consumption is estimated at
approximately 11.3mn tons (+ 1.9% YoY) which is a surplus of
0.3mn tons (+ 14% YoY) by the end of 2013. NR output in 2013
increased due to plantings during 2005 2008 which were then
harvested in 2013 while the improvement in NR consumption
was mainly contributed by the surge in demand for NR in China
during 2013. In 2013, China imported approximately 2.47mn
tons (+13.5% YoY) of NR which was the result of a recovery
seen in the auto industry.
Natural rubber stocks performance: PHR was the best
performer among listed NR stocks in 2013. The stock gained
5.6% while DPR and TRC forfeited 12.5% and 5.2% respectively
in 2013. PHRs products structure comprises of approximately
50% of SVR CV 50, 60 in total sales volume which carry higher
prices than other products categories. Higher dividend yield is
another attractive element of PHR compared to DPR and TRC
60%
70%
80%
90%
100%
110%
120%
130%
140%
Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13
Vn Index Materials Natural rubber
60%
70%
80%
90%
100%
110%
120%
130%
DPR VNINDEX Index
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SVR 3Ls average physical price in 2013
Source: VRA, Jan-2013
2014 Outlook: Negative
Sector trend: natural rubber pricesare expected to slightly
decrease in 2014
The gap between supply and demand of natural rubber is
expected to expand approximately 10% YoY in 2014. 2014s
NR output and demand are expected at 11.96mn tons (+ 3.3%
YoY), a result of increase tapping area, and 11.59mn tons (+
3.1% YoY), a result of a recovery seen in the Chinese auto
industry.
According to the IMFs world economic outlook published in Oct
2013, world economic growth was revised down to 2.9% in
2013 and to 3.6% in 2014, down from 3.1% and 3.8% from
Junes forecast respectively. These forecasts compare with
growth in 2012 and 2011 of 3.2% and 3.9% in 2011
respectively, implyinga slow improvement in the next 12
months.
The recovery of the global auto industry supported the demand
for natural rubber in 2013. In 2013, global automobile sales
reached a record high of 82.84 mn units (+4.1% YoY), and it is
expected to increase 5% YoY in 2014. However, demand for
replacement tire accounts for 90% of total demand for tire
globally. This implies that the demand for replacement tire will
improve in the next few years starting in 2015 with the gradual
recovery of the global economy. Thus, the gap between supply
and demand of NR is expected to reduce starting in 2015 and
this will support NR prices.
Risks: Natural rubber prices are highly volatile which can be
80%
85%
90%
95%
100%
105%
110%
115%
120%
125%
130%
PHR VNINDEX Index
80%
85%
90%
95%
100%
105%
110%
115%
120%
125%
130%
TRC VNINDEX Index
1,500
1,700
1,900
2,100
2,300
2,500
2,700
2,900
3,100
3,300
SVR3L
SECTOR
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Date: 31.01.2014 Institutional Research & Investment Advisory
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adversely affected by fluctuations in currency exchange,
weather conditions, oil prices, and changes in policies in major
consuming countries.
Sector Call: Underweight
Investment view: Our assumption is that average prices of NR in
Vietnam are expected to decline at least 4% YoY in 2014.
Accordingly, PHR, DPR, and TRCs revenue are expected to reach
VND 1,585bn (- 15.6% YoY), VND 1,030bn (- 10% YoY), VND
705bn (- 8% YoY) respectively, and pre-tax profit are expected to
reach VND 366bn (- 19.5% YoY), VND 276bn (- 15% YoY), VND
205bn (- 8% YoY) respectively. We reiterate our HOLD
recommendations for these three natural rubber stocks, with 1-year
target prices of VND 29,718/share, VND 45,515/share, and VND
40,221/share
Drivers/catalysts to watch:
Global and Chinas monthly auto sales, and Chinas monthly import
of NR should be closely monitoredin 2014
Favorite stock: PHR, DPR
- PHR offers the highest dividend yield and dividend payout
ratio
- DPR also offers higher dividend payout ratio than TRC.
DPR possesses a younger profile of rubber tree than PRH,
and TRC which generates higher profit margins.
PHR, DPR, TRC (23/01/2014)
Stock Price Market cap PER PBR EV/EBITDA Dividend yield EPS (VND) EPS Growth Sales growth Net profit growth
(VND) (mil USD) 2013 2014E 2013 2014E 2013 2014E 2013 2014E 2013 2014E 2013 2014E 2013 2014E 2013 2014E
PHR 31,400 121 7.18 8.5 1.24 1.21 4.99 5.76 9.4% 10% 4,371 3,728 -43% -15% -15% -16% - 41% - 15%
DPR 47,100 96 5.39 7.25 0.88 0.85 4.38 5.69 8.5% 6.2% 8,746 6,494 -30% -26% -15% -10% -30% -26%
TRC 43,000 61 5.75 7.34 0.87 0.82 4.74 5.95 7% 7% 7,482 5,856 -34% -22% -15% -1% -34% -22%
SECTOR
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STEEL (Basic Materials) NEUTRAL
Minh Dinh, +84 838242897ext2148, minhdd@ssi.com.vn
Steel industry performance in 2013
Source: Bloomberg
2013 Summary: Only industry leaders achieved
encouraging business results
Strongly outperformed the VN Index: The steel industry gained
79.42%, compared with 20.62% of the VN Index. Best-performing
stocks were HSG (+112.6%) and HPG (+94.8%).
Only industry leaders achieved positive business results:
Except for HPG and HSG, business performances of steel
companies were extremely poor in 9M13. HPG and HSG were the
only two exceptions thanks to lowest production cost and dominant
market share. In addition, HSG possesses outstanding distribution
network and well-known brands.
Two factors influenced earnings growth of HPG and HSG: i) lower
interest expense, ii) low-cost inventory 1Q and 2Q13. In addition,
HPG earned approximately VND 250 bn in extraordinary earnings,
and HSG saw sale volume advanced by 32.7%, in which export
volume increased by 54.8% and accounted for 46% of sales.
9M13 earning results of steel companies
(VND bn) DNY DTL HLA HPG HSG NKG POM TLH VGS VIS
Net sale 1,745 1,463 3,205 12,474 9,065 3,168 7,706 2,174 1,770 2,406 YoY growth 124.2% 42.6% -21.5% -1.2% 19.8% 42.5% -15.9% 5.5% -10.9% -13.7%
NI attributable to shareholders
11 10 -241 1,465 455 42 -242 141 7 -10
YoY growth 8.5% -58.2% -658.7% 78.9% 69.3% -180.4% -4942% 279.9% 87.5% -206.9%
Margin 0.6% 0.7% -7.5% 11.7% 5.0% 1.3% -3.1% 6.5% 0.4% -0.4%
12M Trailing P/E 13.2 48.4 -0.6 11.5 7.1 -53.2 -10.7 3.7 16.5 -13.6
Note: DNYs sales grew by 124.2% thanks to expansion in production capacity, however net income only increased by 8.5%. TLHs income
growth was a result of extraordinary income, not from core business.
Demand for construction steel remained brittle. Construction
steel sale volume advanced by a modest 2.2% in 11M13, of which
domestic sale only increased by 1.1%. Steel companies
acknowledged that 2013 remained a difficult year for the whole
industry. Several companies suffered from loss for a long time and
went bankrupt.
Sales of steel sheet and pipe were more encouraging and saw
double-digit growth. Compared with construction steel, demand for
steel sheet and pipe was less affected by the stagnant property
60%
80%
100%
120%
140%
160%
180%
200%
Vn Index Materials Steel
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Date: 31.01.2014 Institutional Research & Investment Advisory
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sector because customers are much more diversified. Nevertheless,
fierce competition and overcapacity confined profit of most
companies at a minimum level.
In order to cope with the overcapacity problem, steel sheet and pipe
companies managed to export. Fortunately, their production costs
were competitive enough for selling products to other countries,
mainly within ASEAN region. Though export generated small profit
margins, this was an effective measure to increase inventory
turnover and generate additional cash.
Aggregate steel sale volume of Vietnamese steel companies
(tons) Construction steel Steel sheet Steel pipe
2012 11M13 2012 11M13 2012 11M13
Total sales 4,475,284 4,215,264 1,103,476 1,377,667 649,706 714,170 YoY growth -6.7% 2.2% 14.2% 39.6% 2.7% 20.8%
Domestic sales 4,222,527 3,934,324 732,370 828,650 512,685 552,201 YoY growth -7.8% 1.1% -0.1% 26.5% -2.3% 18.8%
Export 252,757 280,940 371,106 549,017 137,021 161,969 YoY growth 16.2% 22.5% 59.1% 65.5% 26.8% 27.9%
Note: Because sale volume of certain companies was not compiled in 2012, we estimate that actual growth rate of total steel sheet sale would
be approximately 32%, and growth rate of domestic steel sheet sale would reach approximately 20%. Source: Vietnam Steel Association (VSA).
2014 Outlook
Slight improvement in demand: We expect domestic sale volume
of construction steel to advance by 4-5% in 2014. Though a
significant improvement is improbable, we have seen certain
indicators for a possible recovery in steel demand:
- According to the General Statistics Office (GSO), the
construction industry expanded by 5.83% in 2013, compared
with 2.09% in 2012.
- More social and low-cost housingprojects will be implemented in
2014.
- Higher investments ininfrastructure projects.
Material prices may not be as favorable as in 2013: During 1Q
and 2Q13, steel companies benefited from a rising trend in material
prices because they had amassed low-cost inventory earlier.
Nevertheless, based on various sources of commodity price
forecast, we do not think there is a high possibility for a similar trend
to repeat in 2014.
Issues and risks: Overcapacity remains a problem in the industry.
As a result, steel companies find it implausible to increase profit
margin, except in the case of a fluctuation in steel prices.
0
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(US
D/t
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Steel material price
Hot rolled coilSteel scrapIron ore
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Sector Call: Neutral
Drivers/catalysts to watch: Steel material price; Growth rate of
construction industry.
Favorite stock: HPG
Industry leader in construction steel, steel pipe and office
furniture. HPG is amassing steel market share (from 13.7% in
2012 to 15.2% in 2013).
Lowest production cost compared with peers (approximately 7%
lower) thanks to vertically integrated production
Phase 2 of the Steel Complex, which commenced operations in
Oct 2013, raises production capacity from 650,000 tons to
1,150,000 tons of construction steel p.a. Once the economy
recovers, steel sale volume and profit margin will significantly
advance.
Mandarin Garden Apartment Project will generate an estimated
of VND 4,800 bn in revenue and VND 500 bn in net profit in
2014.
Risks: Addition depreciation and interest expense arising from
Phase 2 of the Steel Complex may prompt profit margin to
decline in 2014; growth rate in steel sale volume may be lower
than expected as demand for steel has not significantly
recovered.
HPG (23/01/2014)
Stock Price Market cap PER PBR EV/EBITDA Dividend yield EPS (VND) EPS Growth Sales growth Net profit growth
(VND) (mil USD) 2013 2014E 2013 2014E 2013 2014E 2013 2014E 2013 2014E 2013 2014E 2013 2014E 2013 2014E
HPG 47,200 941.9 10.3 9.5 2.2 1.9 1.4 6.2 4% 4% 4,582 4,980 92% 9% 14% 29% 95% 10%
SECTOR
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Date: 31.01.2014 Institutional Research & Investment Advisory
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FERTILIZER (Basic Materials) NEUTRAL
Thuy Nguyen, +84 4 9366321 ext 526, thuyntt@ssi.com.vn
Fertilizer industryperformance in 2013
Source: Bloomberg
Urea price in 2013
Source: Indexmundi
2013 Summary: Slightly outperformed
Fertilizer industry in 2013: The fertilizer industry slightly
outperformed the VN Index, DPM (which accounted for 84% of total
the industrys market cap) recorded 1 year performance of 26%
compared with 20.62% of the VN Index.
Fertilizer stock performance: Oversupply persisted, attractive
dividend yield remained alluring.
Two key players in the industry are DPM and LAS: DPMs core
business is centered on producing urea with capacity of 800,000
tons/year while LASs core business is producing superphosphate
and NPK with capacity of 830,000 tons and 730,000 tons
respectively.
DPM (1 year performance 26%): Negative earnings growth in 2013
(-20% YoY in our estimates) due to decreases in both volume and
average selling price. The urea oversupply put downward pressure
on average selling price (The current domestic urea demand is
approx2 mntons/year while the domestic urea supply is 2.3 mn
tons/year). 2013 dividend is estimated at VND 4,500/share (DPM
has already paid VND 2,500/share).
LAS (1 year performance 74%): 2012 dividend was VND
3,000/share and 20% in stock bonus, which was paid in 2Q13, which
spawned positive catalyst for the stock in 2013; Increase in net
income (+13.5% YoY).
2014 Outlook: Neutral
The performance of the whole industry is highly influenced by the
performance of DPM (weight in the industry is approx.84%)
Existing world oversupply will further exert downward pressure on
international urea price. Furthermore, in 2014, Ca Mau fertilizer plant
and NinhBinh fertilizer plant will be running at maximum designed
capacity, which will exacerbate domestic supply (In 2013, NinhBinh
urea plant was behind schedule as the plant was suspended for 71
days due to technical problems). Our estimates reveal that DPM
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would continue to record negative revenue growth and earnings
growth in 2014 (-12% YoY and -19% YoY respectively). However,
high dividend yield is an attractive element of DPM.
For LAS, despite the saturated superphosphate and NPK market,
we assume that LAS could experience a slight increase in bottom
line thanks to its lower input cost and lower depreciation cost. Our
estimates reveal that 2014 LAS bottom line would total VND 486 bn
(+8.7% YoY)
Sector Call: Neutral
Drivers/catalysts to watch: changes in international urea price,
domestic supply demand balance
Favorite stock: DPM, LAS
We assume that DPM and LAS will continue to maintain their
attractive dividend policy: 2013 dividend of DPM is estimated at VND
4,500/share and 2013 dividend of LAS is estimated at VND
2,000/share and 20% stock bonus
Stock call (23/01/2013)
Price (VND)
Market cap (mil
USD)
PER PBR EV/EBITDA Dividend yield EPS (VND) EPS growth Sale growth Net profit growth
2013 E
2014E
2013 E
2014E
2013 E
2014E
2013 E
2014E
2013 E
2014E
2013 E
2014E
2013 E
2014E
2013 E
2014E
DPM 46200 836 7.3 9.1 1.8 1.8 3.1 4.1 10% 8% 6302 5083 -21% -19% -20% -12% -21% -19%
LAS 45000 167 7.1 7.2 2.5 2.0 4.9 4.6 4% 4% 6339 6245 13% 9% 6% 8% 13% 9%
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SUGAR (Consumer Goods) UNDERWEIGHT
KienTran Nguyen, +84 4 9366321 ext679, kiennt1@ssi.com.vn
Sugar performance in 2013
Source: Bloomberg
SBT performance in 2013
Source: Bloomberg
2013 Summary: A bitter year for the sugar industry
Sugar sector in 2013: the sugar industry underperformed VN
Index and the Consumer Staples sector in 2013. The industry
forfeited 12.5% whilethe VN Index and the Consumer Staples
sector gained 20.6% and 17% respectively in 2013.
- Average selling price of sugar (ASP), including RE and RS,
continued on a downward spiral during 2013, and even fell
lower than 2012s average. In 2013, ASP of RE and RS
sugar declined 11%YoY, and 12%YoY respectively.
- Average purchasing price of sugarcane in the 2012 2013
production season was slightly higher than that in the 2011
2012.
- Smuggled sugar and the perennial oversupply situation
restricted improvements in the sugar industry. According to
the Vietnam Sugar and Sugarcane Association,
approximately 1,000 tons of sugar is smuggled into Vietnam
a day which accumulatesto a total of over 300,000 tons/year.
In the 2012 2013 production season, total sugar produced
reached approximately 1.5 mn tons while total sales volume
reached approximately 1.3mn tons in 2013.
Sugarstock performance: SBT underperformed the VN Index
in 2013. The stock forfeited 12.5% while the VN Index gained
20.6% in 2013. SBTs performance was adversely affected by
the oversupply situation and smuggled sugar during the year.
70%
80%
90%
100%
110%
120%
130%
140%
Vn Index Consumer Staples Sugar
80%85%90%95%
100%105%110%115%120%125%130%
02/
01/2
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02/
02/2
013
02/
03/2
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013
02/
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SBT VNINDEX Index
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Average price of RE and RS sugar in 2013
Source: Department of Price Management Ministry of
Finance
2014 Outlook: Negative
Sector trend: the industry will not likely see improvements
in 2014.
Perennial oversupply: in the 2013 2014 production season,
the Vietnamese sugar industry is expected to produce
approximately 1.6 mn tons of sugar, an increase of 7% YoY,
while total demand is expected at 1.5mn tons of sugar.
Moreover, other sugar supply sources include WTOs import
quota (77,200 tons in 2014), and smuggled sugar.
Ubiquity of smuggled sugar: over300,000 tons/year of sugar
(approximately 25% of total sugar produced in Vietnam) is likely
to be smuggled into Vietnam which willcompound the oversupply
situation facing the industry in 2014.
Unexpected price improvements: fundamentally, oversupply
will exert downward pressure on average selling price.
Moreover, domestic ASP is mainly influenced by smuggled
sugar. These two factors signify that sugar ASP in 2014 is more
likely to maintain on its downward trend. How deep the ASP will
stumbleis contingent on the control of smuggled sugar and
resolutions for the sugar industry.
Sector Call: Underweight
Investment view: 2014 is expected to be another bitter year for
sugar companies. In terms of fundamentals, investors should
monitorfor appropriate resolutions from the government to aid the
industry to reprieve its inventory and to bolster operation. In 2014,
SBT is forecastedto achieve VND 2,159bn (+5% YoY), and VND
275bn (+5% YoY) in revenue and pre-tax profit respectively,
equivalent to an EPS of VND 1,771/share. At the current price of
VND 12,100/share, the stock is being traded at 2014PE of 6.83x.
We reiterateour HOLD recommendation for this stock, with 1-year
target price of VND 14,218/share.
Drivers/catalysts to watch: (1) oversightof smuggled sugar, (2)
resolutions from the government to assist the industry
Favorite stock: SBT
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SBT (23/01/2014)
Stock Price Market cap PER PBR EV/EBITDA Dividend yield EPS (VND) EPS Growth Sales growth Net profit growth
(VND) (mil USD) 2013 2014E 2013 2014E 2013 2014E 2013 2014E 2013 2014E 2013 2014E 2013 2014E 2013 2014E
SBT 12,300 82 7.33 8.03 1.04 1.13 5.92 5.61 14.2% 10.7% 1,679 1,771 -40% 6% 5.3% 5% -36% 6%
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DAIRY (Consumer Goods) NEUTRAL
Giang Nguyen, +84 4 9366321 Ext 430, giangntt@ssi.com.vn
FAO Dairy Price Index (2011-2013)
Source: FAO, Jan-2014
Dairy performance in 2013
Source: Bloomberg
2013 Summary: O
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