vietnam cement market report 2015

‹#›

Vietnam Cement Market 2015

@ 2015 StoxPlus Corporation.

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Date of report: 31 August, 2015

Part of StoxPlus’s Market Research Report Series for Vietnam www.stoxresearch.com

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2

Date: 31 August 2015

Dear Clients,

Re: The publication of Vietnam Cement Market Report, 2015

StoxPlus has been issuing the annually updated Vietnam Cement Market

Report in the last three years, providing the first and most

comprehensive report on this sector. Taking into account feedbacks

from our clients, in addition to the comprehensive analysis of the

market itself, we updated Vietnam Cement Market Report this year with

the focus on analyzing demand and supply together with distribution

network and price of cement in Vietnam.

The research provides latest insights on current situation of supply –

demand in Vietnam cement sector by analyzing two main sources of

demand including (i) domestic (infrastructure, civil and residential

building), and (ii) exporting activities as well as the key development

trends, particularly direct sale and consolidation process. Full 10 year

forecasts (2015 – 2025) are included in this update.

As part of the research, we have conducted various field trips as well as

discussions and interviews with industry players at management levels

to grasp local insights of how cement is distributed in Vietnam. For the

pricing survey, we analyze cement price of different brands (including

PCB30 and PCB40) in the North, Central, and the South. Besides, we get

information on sale revenue of key players and domestic consumption

from Vietnam Cement Association (“VNCA”).

We understand that this is a targeted but also an open research. We would

be happy to provide any further information to address any questions that

you may have, for any specific sector or target business in Vietnam. Our

ultimate objective is to bring real values to our clients via in-depth

research and practical local insights.

Should you have any questions, please contact I myself or our Research

Manager, Ms. Lan Nguyen at +84-4-35626962 (ext. 109) or her email:

[email protected]

Yours sincerely,

Nguyen Quang Thuan

CEO

StoxPlus Corporation

StoxPlus Joint Stock Company

Head office:

5th Floor, Anh Minh Building

36 Hoang Cau, Dong Da

Hanoi, Vietnam

telephone: (+84-4) 3 562 6962

stoxplus.com

Ho Chi Minh City Branch:

20th Floor, AB Tower

76A Le Lai Street, District 1

Ho Chi Minh City, Vietnam

telephone: (+84-8) 3823 3485

stoxplus.com

mailto:[email protected]

3

Table of Contents

Part Content Page

Executive Summary 4 – 5

1 Demand – Supply Analysis 7 – 36

1.1 Current Situation 7 – 14

1.2 Supply Analysis 16 – 23

1.3 Demand Analysis 25 - 36

2 Logistics & Distribution Network 38 – 43

2.1 Logistics System 38 – 39

2.2 Distribution Network 41 – 43

3 Competitive Landscaping & Analysis 45 – 55

3.1 Competition Dynamics 45 – 46

3.2 Sale Strategies 48 – 49

3.3 Pricing Analysis 51 – 55

4 Industrial Performance 57 – 64

4.1 Financial Indicators 57 – 61

4.2 Key Operational Performance 63 - 64

Part Content Page

5 Outlook 66 – 71

5.1 WHR system 66

5.2 M&A and consolidation of the sector 68 – 69

5.3 Key development trends 71

6 Macroeconomic Situation & Regulatory Framework 73 – 80

6.1 Macroeconomics 73 – 75

6.2 Regulatory Framework 77 – 80

7 Appendices 82 – 104

7.1 Appendix 1: Updated list of cement production facilities in

Vietnam

82

7.2 Appendix 2: List of delayed and canceled cement factories 84

7.3 Appendix 3: Major infrastructure projects 86 – 91

7.4 Appendix 4 Factsheet of listed cement companies 93 – 102

7.5 Appendix 5: List of acronyms 104

4

Still, Vietnam cement market continue to

experience the supply surplus with the utilisation

rate of only 60% in 2014 if excluding export sale

volume.

In 2014, Vietnam cement sector witnessed signs of

recovery in domestic market as well as cement and

clinker exporting activities with a significant increase

of 15% in total consumption. Domestically, cement

consumption has reached 50.8 million tons, posting a

growth of 10 per cent year-on-year. Meanwhile,

exporting volume was pegged at 21.2 million tons,

valuing at US$1bn.

Under our base case, which is a prudent scenario

based on analysis of macroeconomics and cement

demand factors such as the status of infrastructure

development and residential sector, we forecast a 7%

annual demand growth for cement until 2025.

Despite the strong growth of domestic and

international demand, Vietnam cement market will

not reach equilibrium until 2022 at our base case

scenario. This could be explained by the fact that

many mega cement factories are under construction

and expected to add up 14.7 MTPY to total production

capacity within the next two years.

New-added supply capacity by region

Executive Summary

0.0

20.0

40.0

60.0

80.0

100.0

120.0

North Central South Wholecountry

MPTY

2015 2017

This page is intentionally removed for demo purpose

5

Consolidation, direct retail and renewable energy

would be the development trends for Vietnam

cement sector in the future.

We are observing an active consolidation tendency

than ever in cement sector of Vietnam. In this

situation where many cement producers are facing

financial distressed, consolidation is just a matter of

timing to obtain the economy of scale for this sector

in both production and logistics. Notable active

acquirers are some local cement companies with

strong financial position including the Vissai and a

few foreign investors.

Also, for cost efficiency, cement companies in

Vietnam are starting to use renewable energy as well

as promote direct sale. The pioneer for this trend is

LafargeHolcim. By 2014, this foreign-owned cement

manufacturer has invested US$18 million in a 44

million kWh WHRPG, which helps LafargeHolcim to

reduce a large amount of non-renewable energy

including coals as well as reducing the CO2 emission.

As required by laws, WHRPG would be constructed by

many other Vietnam cement companies within the

next few years if funding gap is fulfilled.

Executive Summary (cont’d)

0.0%

10.0%

20.0%

30.0%

40.0%

2010 2011 2012 2013 2014SCG Cement - Building Material Anhui Conch (China)

PT Semen Indonesia Vietnam Listed Cement Companies

Vietnam cement EBITDA margin vs. other peers in region


6

Section 1: Demand – Supply Analysis

1.1 Current Situation

1.2 Supply Analysis

1.3 Demand Analysis

Contents

7

Vietnam continues to experience a surplus in cement supply, resulting in the low efficiency of many

cement companies

Figure 1: Vietnam Cement Supply and Demand



In 2014, the utilisation rate of Vietnam cement companies was

around 80% which indicates that Vietnam experienced a supply

surplus of 20%. If excluding the export volume, utilisation rate

would be only 60%.

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Mt

Total Domestic Production Total Consumption

Source: StoxPlus, VNCA


8

Government is trying to fix the surplus situation

The Master Plan is no longer a good fit with the new market condition. As a result, the Government has decided to delay 9 out of 16 cement

factories planned to be built by 2015 until after 2015. 24 other projects planned for the period of 2016-2020 is also under a very uncertain status.

Part of the reason for such delay is also due to lack of fund. As a result of the economic downturn, many owners and investors of cement plants

who have registered for new projects planned under the Master Plan do not have the financial capacity to implement the project, especially the

purchase of equipment. Previously, the government would guarantee the capital invested. However, since 2011, the Government would guarantee

the loans for.

In fact, many of the registered projects are only for the owners and investors to reserve their share in the Master Plan. They do not have any real

plans to actually implement such projects.

However, the surplus situation still persists, requiring more direction from Government and line ministries to remove cement facilities with

obsolete technology, energy consuming & environment pollution from master plan.



Vietnam continues to experience a surplus in cement supply, resulting in the low efficiency of many

cement companies (cont’d)

9

Figure 2: Cement & clinker consumption, 2010 -2015


Domestic consumption of cement started recovering in 2013 and reached 50.8 million ton in 2014,

posting a 10 percent y-o-y increase

Figure 3: Growth rate of cement domestic consumption, 2005 - 2014


-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

% Growth of Domestic Consumption




10

Cement domestic consumption is growing in all regions. The Central is the fastest – growing market with

the sale volume of 12.3 million ton in 2014, followed by the North and the South

Figure 5: Breakdown consumption by location


Figure 4: Growth rate of cement consumption by location


0%

20%

40%

60%

80%

100%

2009 2010 2011 2012 2013 2014

North Central South




11

Figure 6: Clinker production and domestic consumption by location, 2014


In comparison with 2013, the supply shortage of clinker in the south became more seriously while

more cement plants came into operation in the North & Central during the year 2014




12


Figure 8: Clinker & cement export volume by type, 2010 - 2015

Due to low domestic consumption and supply surplus, companies have to increase export volume. Yet,

Vietnam still mainly exports clinker instead of bagged cement (80% of export volume)

However, for the first half of 2015, export activities faced

challenges due to 2 main reasons:

• Political instability in Bangladesh – main clinker exporting

market of Vietnam

• Vietnam clinker lost its competitive advantages in price. In

2015, many clinker exporters in the region including China,

Thailand and Korea increased its production capacity while

domestic demand stayed low. As a result, these countries

promoted exporting activities, leading fiercer competition

for Vietnam. Particularly, China is the main competitor with

lower-price clinker and higher volume.

Key exporters in 2014:



Figure 7: Clinker & cement export over total consumption, 2010 - 2015



13


The Vissai continues to be the leading clinker exporter in Vietnam with total export volume of 3.2 Mt

in 2014

No. Key importers Volume (Mt)

1 Biroute

2 Holcim

3 Heidelberg Cement (“HC”) Trading

4 MI (Crown Cement)

5 Trade Resource

6 SCG Trading

7 Peakward

TOTAL

Figure 10: Top buyers of Vietnam clinker in 2014


Figure 9: Top clinker exporters in 2014

Buyers of Vietnam clinker are mostly Bangladesh companies and top

global cement companies.

Biroute is the trading division of commodity house Shun Shing Group

International Ltd, a leading cement producer in Bangladesh. Biroute

bought 3.6Mt of clinker from Vietnam in 2014. Also from Bangladesh

is MI Cement, who bought 0.76Mt clinker from Vietnam in 2014.

Other top buyers of Vietnam clinker are: Holcim, HC Trading, SCG

Trading, and Peakward.




14

Bangladesh is the top destination for Vietnam clinker and cement export. Export FOB average price of

clinker is around US$39-40 per ton, and US$51-60 for cement

Figure 12: Clinker and cement export of some peers in region, 1H2015


FOB price

(US$/ton)

Clinker

quality

Increase in

exporting (Mt)

Japan

Korea

China

Thailand

Vietnam

Note: + : clinker with higher quality compared to Vietnam’s

- : clinker with lower quality compared to Vietnam’s

Figure 11: Clinker and cement export of destination in 2014





15



1.2 Supply Analysis

1.3 Demand Analysis

Contents

16

According to our analysis, Vietnam cement sector is still characterised by a surplus in supply until

2022 at the base case scenario of 7% y-o-y growth rate

Figure 13: Vietnam Cement Supply and Demand

Source: StoxPlus from VNCA


1.2 Supply Analysis

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

5%

Base case

9%

Capacity

utilisation

Our analysis indicates that cement demand growth will be in the range of 7% per year. At the historical growth of 7% (excluding export),

cement equilibrium will NOT be achieved until 2022.

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

180.0

200.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Mt

Under the base case,

cement equilibrium

achieved by 2022

28.0(*)

Under the Master Plan, there will be 15 cement factories to be

built and operated by 2020, which would increase cement supply

by 28.0 MTYP. But the status of those projects is very uncertain.


17

Cement Production – Demand Balance Comments

North

Central

South

Supply-demand forecasting by region

Demand growth = 9%

• The South has a CAGR of 3% in cement

consumption from 2007-2010.

• At the base case growth of 7%, the South

will continue to have a shortage of

clinker. The situation would get worse if

none of the cement plants is built

according to the Master Plan.

Demand growth = 7%

Figure 14: Vietnam cement demand and supply by region

Source: StoxPlus’ estimates and analysis; VNCA

Demand growth = 5%


1.2 Supply Analysis


18

Source: StoxPlus

Figure 15: Cement supply capacity by group of players

Vietnam cement capacity currently is nearly 90 MTPY with 4 groups of cement manufacturers. Key

players include: VICEM, Xuan Thanh, Cong Thanh, the Vissai, LafargeHolcim, Nghi Son, and Viettel

FOREIGN-OWNED

VICEM

LOCAL PRIVATE

VIETTEL

2015

Total Capacity

0.0

1.5

3.0

4.5

6.0

MTPY

FOREIGN-OWNED

0.0

2.5

5.0

7.5

10.0

MTPY

LOCAL PRIVATE


1.2 Supply Analysis


19

Figure 18: Breakdown cement plants by capacity, 2014

Source: StoxPlus

45% of Vietnam cement plants are small with capacity of < 1 MTPY and contributing to less than

20% total capacity, which are not efficient

Figure 16: Breakdown cement plants by capacity, 2014

Source: StoxPlus


1.2 Supply Analysis

Source: StoxPlus

Figure 17: Breakdown cement plants by type, 2014


20

According to the adjusted Master Plan of Vietnam Cement, total cement capacity will reach 138

MTPT by 2020. At that level, supply surplus will likely to continue

Our Forecasting Methodology for Cement SupplyFigure 19: Vietnam production capacity by region, 2015 -2017

Source: StoxPlus

0.0

20.0

40.0

60.0

80.0

100.0

120.0

North Central South Whole country

MPTY

2015 2017


1.2 Supply Analysis


21

Total capacity of the North remain the highest in the whole country. By 2017, there is 1 new plant

namely Xuan Thanh Assembly 2 with total production capacity of 4.50 MTPY

Figure 21: New plants in the North, 2015 - 2017

Source: StoxPlus

Source: StoxPlus

Cement facilities are located near the raw material are – limestone

mines. Top provinces in term of number of cement factories are Ha

Nam, Hai Duong and Ninh Binh.

In the period of 2015 – 2017, there is only one new plant namely Xuan

Thanh Assembly 2 with total production capacity of 4.50 MTPY in Ha

Nam, expected to complete in Q3/2017.

Vicem is considered the market leader in the North with 7 factories

and total production capacity of 9.4 MTPY.

Figure 20: Key players in the North by capacity in 2015


1.2 Supply Analysis


22

Cement capacity in the Central will increase significantly from now to 2017 due to construction of 3

high capacity cement plants (Cong Thanh, Long Son, and Song Lam)

Figure 23: New plants in the Central, 2015 - 2017

Source: StoxPlus

Source: StoxPlus

Group Company nameCapacity

(MTPY)

VICEM

VICEM Bim Son 4.60

VICEM Hoang Mai 1.40

VICEM Hai Van 1.39

PRIVATEDong Lam 1.80

Xuan Thanh 1.40

FOREIGN

Luks Vietnam 2.45

Nghi Son 4.30

Song Gianh 1.40

Figure 22: Key Player in the Central by capacity, 2015


1.2 Supply Analysis


23

There will be no new cement plant in the South from now until 2017. Only 1 grinding station in Can

Tho will be built (grinding capacity = 0.25 MTPY)

Figure 25: New plants in the South, 2015 - 2017

Source: StoxPlus

Source: StoxPlus

Figure 24: Key Player in the South by capacity


1.2 Supply Analysis


24



1.2 Supply Analysis

1.3 Demand Analysis

Contents

25

Demand for Vietnam cement depends on 2 sources: domestic construction (including infrastructure,

non-residential, and residential construction) and overseas demand (cement export)


1.3 Demand Analysis

Demand source Market value in 2014 Growth trend Implications for cement

Infrastructure US$12.3bn

Strong growth

US$300bn more

infrastructure project

from 2015-2030

Key main drivers for

cement demand. Yet,

many projects face

funding challenges

Non-residential (civil

and office buildings)US$6.7bn

Stable growth, focusing on

big cities such as Hanoi

and Ho Chi Min City

Higher cement demand

focusing on big cities

Residential US$16.9bn

Strong growth with higher

transaction volume as well

as new projects,

particular for low and

medium-end buildings

The second major drivers

for cement demand.

However, this source

heavily depend on its own

cycle

Cement

Export

US$912mn

(21.1 Mt clinker and

cement)

Slow growthA temporary solution for

the supply surplus of

Vietnam cement

26

Figure 26: Gross output of construction by types of work Figure 27: Growth rate of construction gross output by types of work

Source: StoxPlus from General Statistics Office of Vietnam

In line with economic recovery, Vietnam construction sector posted a potential growth rate of 10.2%

y-o-y in 2014


0.00

10.00

20.00

30.00

40.00

50.00

2010 2011 2012 2013 2014 YTD2015

US$ b

n

Residential buildings Non-residential buildings

Civil engineering works Specialized construction services

For the first half of 2015, construction output reached US$14.9 bn,

contributing to 5.02% of total GDP.

Residential and non-residential buildings:

• Residential buildings keeps its recovery trend with the impressive

growth rate of 13.5% in 2014. On the contrary, non-residential segment

posted an negative growth rate for the same period.

• The VND30,000 bn - credit package of the SBV had clear instruction

from Line Ministry after the period of delay in disbursement.

• Up to the present time, the whole country has 124 social housing

projects that are underway with construction scale of about 78,700

units, including 85 social housing projects for low-income people.


1.3 Demand Analysis


27

Figure 28: Construction and infrastructure value

Source: StoxPlus from BMI

Figure 29: Rural and urban population growth rate

-1.00%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

2006 2007 2008 2009 2010 2011 2012 2013 2014e

Population growth rate Urban growth rate Rural growth rate


Thank to the golden age population with the urbanization rate up to 3% per year and high demand

for infrastructure development, the construction and infrastructure development sector has been

potential in long term


1.3 Demand Analysis


28

Figure 31: Infrastructure project value by categories, 2015 - 2030

Source: StoxPlus

Vietnam is expected to spend about US$20bn on infrastructure development annually during the

period of 2015 – 2030 for a total investment value of US$283bn


1.3 Demand Analysis

0

10

20

30

40

50

60

70

80

PowerPlants

Roads &Bridges

Railways Ports Oil & Gas Water Airports

2015 - 2020 2020 - 2030

Source: StoxPlus

Figure 30: Number of infrastructure projects by categories, 2015 - 2030


29

Of all sections, road and bridge is the highest cement consumption one which total value reaches

US$67.7bn in the period of 2015 - 2023

Source: StoxPlus

Figure 32: Value of major infrastructure projects in 2015 - 2030

Source: StoxPlus

Figure 33: Top roads and bridges projects by value in 2015 – 2030


1.3 Demand Analysis


30

The infrastructure projects are allocated in developing economic zones including Red River Delta in

the North, South Central Coast in the Central, and South East in the South

Source: StoxPlus

Figure 35: Infrastructure project value by region, 2015 - 2030


1.3 Demand Analysis

0 10 20 30 40 50 60 70 80

South Central Coast

South East

Red River Delta

Mekong River Delta

North Central Coast

Northern Midlands & Mountainous

Central Highlands

Source: StoxPlus

Figure 34: Number of infrastructure by region in 2015 - 2030Implication for cement sectors:

• According to Vietnam cement experts, cement consumption rate

varies for difference type of infrastructure projects. Particularly,

the cement value proportion over total investment value is as

followed:

− Roads & Bridges, Ports, Airports: 5 – 7%

− Other types: less than 3%


31

Mega infrastructure projects in Hanoi and HCMC in period of 2015 – 2030 are mainly roads & bridges

and Metro Line, which are high-cement consumption segments


1.3 Demand Analysis


32

Figure 36: Major infrastructure projects by status in 2015 - 2030

Source: StoxPlus

However, a large number of infrastructure projects are still in the planning step

Delayed

Under construction

Project finance closure

Designing

Fund seeking

Contract awarded

FS approved

N/A

Planning,

2015-2020

Delayed

Under construction

Designing

Fund seeking

Contract awarded

FS approved

N/A

Planning 71%

2020-2030


1.3 Demand Analysis


33

Figure 37: Project under construction, y-o-y change

Source: StoxPlus from CBRE

All Future

Projects (2015-

2030)

HCMC Hanoi Da Nang Can Tho Khanh Hoa Vung Tau Hai

Phong

Office 202 269 58 28 11 35 17

Retail 98 140 37 7 14 20 11

Hospitality & SA 33 35 29 4 27 19 5

Total 582 731 203 45 66 95 43

Figure 38: Future projects by category, 2015 - 2030

Source: StoxPlus from CBRE


1.3 Demand Analysis

Office building is the biggest cement consumption segment in non-residential buildings. Future office

projects are mainly located in Hanoi and Ho Chi Minh City


34

The residential market, which had been depressed for several years, is experiencing strong signs of

recovery


1.3 Demand Analysis

Figure 39: Project under construction, y-o-y change

Source: StoxPlus from Cushman & Wakefield


35

Population: 5.6m

Capacity: 0.3 MTPY

Consumption: 5.8 Mt

Per cap: 1,044 kg

Population: 65.2mn

Capacity: 56.4 MTPY

Consumption: 29.8 Mt

Per cap: 457 kg

Population: 6.9mn

Capacity: 2.8 MTPY

Consumption: 3.4 Mt

Per cap: 515 kg

Population: 92.6mn

Capacity: 86.6 MTPY


Per cap: 546 kg

Population: 100.1mn

Capacity: 28.4 MTPY


Per cap: 210 kg

Population: 15.6mn

Capacity: 2.0 MTPY

Consumption: 3.2 Mt

Per cap: 205 kg

Population: 51.4mn

Capacity: 5.5 MTPY

Consumption: 8 Mt

Per cap: 155 kg

Population: 0.5mn

Capacity: 0.5 MTPY(grinding)

Consumption: 0.4 Mt

Per cap: 795 kg

Population: 30.0mn

Capacity: 33.0 MTPY


Per cap: 692 kg

Import

Exports

Imports & exports

Population: 251.5mn

Capacity: 67.1 MTPY

Consumption: 60 Mt

Per cap: 238 kg

Source: StoxPlus from Cemtech


1.3 Demand Analysis

There are 3 groups of countries in ASEAN in term of cement consumption: cement import, cement

export and cement import & export

Figure 40: Overview of ASEAN countries

36

Figure 41: Potential market for Vietnam cement export

Source: StoxPlus from HC Trading, Cemergy

Bangladesh is still the most potential market for exporting clinker & cement


1.3 Demand Analysis


37

2.1 Logistics System

2.2 Distribution Network

Contents

Section 2: Logistics & Distribution Network

38

Clinker and cement are transported from the North and Central to the South. Ocean shipping is the

preferred means of transportation due to large volume and low cost

Clinker

Grinding & Packaging

Warehouse

Thanh Hoa

CanTho/Vinh LongHiep Phuoc –HCM

Quang Ninh

Hai Phong

Quang Binh

Figure 42: Clinker & cement transportation routes

Source: StoxPlus




39

There are 17 sea ports belonging to 10 cement companies / plants

Figure 43: List of harbors and ports of cement companies

Source: Ministry of Transportation




40




Contents

41



Vietnam cement distribution network are following the modern model of direct sale recently


42

General characteristics of cement distribution system in Vietnam

Figure 44: Cement supply chain

Source: TNS




43

General characteristics of cement distribution system in Vietnam

Figure 45: Value chain analysis of a leading cement producer

Source: StoxPlus




44

Section 3: Competitive Landscaping & Analysis

3.1 Competition Dynamics

3.2 Sales Strategies

3.2 Pricing Analysis

Contents

45

Source: Cement Association and StoxPlus

Market share of key players in 2014: VICEM accounts for 35% of total market share in terms of sales

revenue.

Figure 46: Market shares by key players in 2014




46

Different groups of players have different competitive advantages that impact their sales strategies.




47





Contents

48

More details on sales strategies of key players


3.2 Sale Strategy


49

Key Players Product

differentiation

Pricing Target

market

Distribution channels Logistics capability Implications on sales

strategy

Foreign-

owned

Thang Long • Price premium of

3.7% for PCB40

(+3.7%); 7.2% for

PCB30 in the North

(+ 7.2%) and 28.5% in

the Central (+28.5%)

• North • Have a large

distribution network in

the North and some

distributors in the

South such as: Thanh

An (in Ho Chi Minh).

• A port in Quang

Ninh (Cai Lan port)

• Retain the price premium

in the North and Central

regions based on branding

More details on sales strategies of key players


3.2 Sale Strategy


50





Contents

51

Vietnam cement price is still much lower than neighbouring countries due to supply surplus and lack

of planning from the Government, leading to price dumping.

Figure 47: Comparison of cement price per ton of countries in the region, as of April 2015

Source: StoxPlus, ICR

0

20

40

60

80

100

120

140

160

Myanmar Malaysia Singapore Bangladesh Cambodia India Thailand Indonesia Vietnam

US$ p

er

ton

Vietnam has the

lowest price in

the region




52

Figure 48: Average price of PCB30 and PCB 40 by region, as of 30/4/2015

Cement price is the highest in the South (around US$72 - 85), while is the lowest in the North (around

US$57 - 66)




0.00

15.00

30.00

45.00

60.00

75.00

90.00

PCB30 PCB40

US$ p

er

ton

North Central South


53

Hoang Thach is the clear price leader for PCB30 in the North, while Nghi Son leads in PCB40 due to

their superior quality.

Figure 50: Price of PCB30 in the North, as of 30/4/2015

Figure 49: Price of PCB40 in the North, as of 30/4/2015

Average = 62.4 US$/ton

-15.0% -10.0% -5.0% 0.0% 5.0% 10.0%

Nghi Son

Ha Long

Thang Long

Cam Pha

Tuyen Quang

PCB40 North



Source: StoxPlus, VNCA Source: StoxPlus, VNCA


54

Hoang Thach is also the price leader in the Central region.


Figure 51: Price of PCB30 in the Central region, as of 30/4/2015




55

Vicem Ha Tien is the price leader in the South due to their brand and long standing history. Foreign

companies also have a high price strategy in the South.

Figure 52: Price of PCB30 and PCB40 in the South, as of 30/4/2015

• Other foreign companies also dominate the market price in the South, with Holcim, Chinfon, and FICO all able to attain a price premium.

Average = 77.4 US$/ton





56

Section 4: Industrial Performance

4.1 Financial Indicators

4.2 Key Operational Performance

Contents

57

Figure 53: Vietnam cement companies' EBITDA vs. other peers in the region

Source: StoxPlus

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

2010 2011 2012 2013 2014

SCG Cement - Building Material Anhui Conch (China)

PT Semen Indonesia Vietnam Listed Cement Companies

Compared with other peers in region, Vietnam cement companies are still considered low efficient




58



Source: StoxPlus

In 2014, most of listed cement companies had higher EBITDA than that of 2013 thanks to the decrease

in fuel price, particularly coal. Most of high EBITDA margin companies belong to VICEM group.

Figure 54: % EBITDA of Listed Cement Companies


59

Figure 55: D/E of Listed Cement Companies

Source: StoxPlus

-40.0

-30.0

-20.0

-10.0

0.0

10.0

20.0

30.0

40.0

2013 2014



The average D/E ratio of listed cement companies has improved, standing at 3.5 times. Big

borrowings put a burden to cement companies and some of them go to bankrupt


60

Figure 56: Net Profit Margin of Listed Cement Companies

Source: StoxPlus

Majority of cement companies gained profit in 2014 but some SOEs including Song Da Cement, X18

Cement and Lang Son Cement.




61

Reasons for high manufacturing costs and low profit of Vietnam cement plants




62




Contents

63

Clinker Cost Analysis

Figure 57: Clinker cost of production of a leading cement player in the Central region

Source: StoxPlus

Original cost of production

• This breakdown is based on the clinker cost structure of a leading

cement player in the Central region.

• According to this structure, the composition of clinker cost is as

followed: coal (60%), electricity (14%), raw materials (10%),

maintenance (9%), labor (6%), SG&A (1%), and other fixed costs (1%).

• Coal accounts for the majority of clinker cost of production, as coal is

concentrated in quang Ninh Gulf area in the North and has to be

transported to the Central for clinker production, hence driving up the

cost.




64

Detailed Cement Landed Cost: a case study in the Central of Vietnam




65

Section 5: Outlook

5.1 WHRPG System

5.2 M&A and Consolidation

5.3 Key Development Trends

Contents

66

Section 5: Outlook

5.1 WHRPG System

By 2014 end, all cement projects with a capacity of 2,500 tonnes of clinker per day must have

WHRPG system commissioned but only three of them complied with the regulation until now

Cement plants implemented WHRPG

• Currently only Holcim Hon Chong (Kien Giang), Ha Tien 1 (previously

known as Ha Tien 2) and Cong Thanh Cement (Production Assembly 1)

have invested in the technology so far, according to Vietnam Cement

Association.

Fund for WHRPG


67

Section 5: Outlook

5.1 WHRPG System


Contents

68

Cement sector has been experiencing an active consolidation than ever in Vietnam by both among

domestic players and inbound transactions from giant regional players

Section 5: Outlook



69

Acquiror VIETNAM Type AnDate Size (US$m) Stake

Acquiror KAZAKHSTAN Type AnDate Size (US$m) Stake

FOREIGN INVESTORS

Taget Name

SONG GIANH COSEVCO CEMENT

Seller

HB GROUP

Acquiror N/A Type AnDate Size (US$m) Stake

Minority February 13, 2015 0.00% → 40.00%

Taget Name

SONG DA CEMENT

Section 5: Outlook



70

Section 5: Outlook

5.1 WHRPG System


5.3 Key Development Trends

Contents

71

Consolidation, direct retail and renewable energy would be the development trends for Vietnam

cement sector in the future

TopCement Case Study

• TOPCEMENT was founded with the idea of direct sale to cement retailers

without the presence of distributors.

• TOPCEMENT provide pioneering new methods in business as well as the

solutions used cement an effective manner, creating value visible to

investors, partners and our customers.

• In the period 2010 – 2014, TOPCEMENT invested in US$4.5 million in

developing the retail network, grinding stations as well as cement deport to

accelerate the direct sale of cement.

Section 5: Outlook

5.3 Key Trend Developments


72

Section 6: Macroeconomic Situation & Regulatory Framework

6.1 Macroeconomic

6.2 Regulatory Framework

Contents

73

Vietnam economic has shown early signs of firming up of recovery in 2014.


Figure 58: Vietnam CPI and GDP growth, 2009 – Q2/2015

Figure 59: FDI registered and disbursement into Vietnam,2005 -

1H2015



6.1 Macroeconomic

6.78%6.44%

18.57%

1.00%

0%

5%

10%

15%

20%

0%

2%

4%

6%

8%

GDP Growth CPI

3.3 4.18.0

11.5 10.0 11.0 11.0 10.5 11.5 12.56.3

0

15

30

45

60

75

90

US$ b

n

FDI registered FDI Disbursed


74

Real estate business and construction seem not to attract FDI investors in first half of 2015 with only

10% of total FDI registered capital.

Figure 60: : Breakdown of FDI registered capital by country, 1H2015

Source: StoxPlus from Ministry of Planning & Investment

Source: StoxPlus from Ministry of Planning & Investment

Figure 61: : Breakdown of FDI registered capital by sector, 1H2015

FDI composition:

• Most of FDI projects in Vietnam are done by small and medium

companies. They focus on manufacturing sector like garment,

footwear and other basic export processing and concentrate in

HCMC, Hanoi and provinces around these two cities like Binh Duong,

Dong Nai , Tay Ninh (near HCMC), Vinh Phuc, Hai Phong (near Hanoi).

• Top FDI mega-projects in 1H2015 includes Hyosung Dong Nai Ltd –

Turkey (US$660 mn – Dong Nai); Worldon Vietnam Ltd – British Virgin

Islands (US$300 mn - HCM City); Lu Thai – Hong Kong (US$160 mn –

Tay Ninh); and Tra Vinh 1 Power Plant – South Korea (US$120 mn –

Tra Vinh). Three out of four top projects are in garment sector.

• Recently, Vietnam starts moving up the value chain by

accommodating some large investment projects by MNCs, TNCs in

electronic and high-tech industries. Canon has it biggest printer

assembling plant in Vietnam, Intel invested over 1 billion USD to

build a chip testing and assembling plant, Samsung put in 600 million

to build a cell phone assembling plant.

• FDI disbursement in 1H2015 in real estate business and construction

is small, accounting for 10% of total FDI registered capital.


6.1 Macroeconomic


75

Figure 62: Vietnam State Deficits, 2006 - 2015


Figure 63: State Capital Investment Expenditure, 2006 - 2015


0%

5%

10%

15%

20%

25%

30%

35%

0

10,000

20,000

30,000

40,000

50,000

60,000

2009 2010 2011 2012 2013 2014 2015e

US$ m

n

State budget expenditure Development investment

State Deficit has been increasing steadily since 2012. Meanwhile, State capital investment

expenditure decreases sharply, with a slight bounce back in 2015.


6.1 Macroeconomic


76

Section 6: Macroeconomic Situation & Construction Development

6.1 Macroeconomic


Contents

77

The Government has eased its control of cement price in an attempt to develop a market-driven

pricing mechanism

Cement price: regulatory roundup

• Under the Law on Price (Law No. 11/2012/QH13 dated 20 June 2012), the

Government shall manage the price under the market mechanism, respect

right of self-determination of price, the price competition of organizations

and individuals as prescribed by law.

− Cement and construction steel;

− Coal;

− Animal feed for cattle, poultry and fishery…;

− Printing paper and writing paper (roll), newsprint paper produced

domestically;

− Textbooks;

− Functional food for under-6-year-old children, etc.




78

The cement producers are obligated to pay different types of taxes and tariffs

Figure 64 : Environmental Protection Tax applied from Jan 2012

Type of resources Tax rate

range (%)

Applicable

tax rate (%)

Iron

Bauxite

Limestone

Anthracite coal (underground)

Anthracite coal (surface mining)

Lignite (Brown coal), Fat coal

Other types of coal

Figure 65 : Natural resources tax rates applied since 1 Feb 2014

Source: Law No. 57/2010/QH12 & Circular No. 152/2011/TT-BTC

Source: Law No. 45/2009/QH12, Resolution No. 712/2013/UBTVQH13 &

Dispatch No. 18228/BTC-CST




79

The Government no longer provides loan guarantee and material price subsidies to cement players

Government loan guarantees for cement sector

• As of 31 Oct 2013, Vietnamese government guaranteed foreign loans

worth US$1.378bn for 17 cement projects, accounting for 8.96% of total

government-backed debts, according to Agency for Debt Management and

External Finance, MOF.

• There were four SOE projects including Dong Banh, Thai Nguyen, Tam

Diep and Hoang Mai which were in huge loss-making situations and on the

edge of bankruptcy. Their total debt was US$229mn and the MOF has

actually repaid the loans, assuming guarantor’s role.

• In a press release in 2012, MOF has announced that US$30-40 mn each

year will be spent on settling foreign debts for local cement producers

until 2018.




80

Cement industry looks to limit imports of clinker and cement to protect domestic producers

Table 66 : Export-Import tax rate, 2014

Source: Circular No. 164/2013/TT-BTC




81

Section 7: Appendices

Contents

7.1 Appendix 1: Full list of cement plants to be built under period 2015-

2030

7.2 Appendix 2: List of delayed and cancelled plants

7.3 Appendix 2: Major infrastructure projects

7.4 Appendix 3: Factsheet of listed cement companies

7.5 Appendix 4: List of acronyms

82

No Owner Factory Name Address ProvinceStatus update

Total

Capacity

Appendix 1: Full list of cement plants to be built under period 2015-2030


83


Contents

7.1 Appendix 1: Full list of cement plants to be built under period 2015-2030





84

No. Owner Factory

Capacity

(Mt)

1 Bac Kan Mineral Jsc Cho Moi 0.91

2 CTCP phát triển CN IDC Viet Duc 0.91

3 Truong Son Jsc Ngan Son (Bo Ha) 0.91

4 Luong Son Cement Jsc Cao Duong 0.91

5 Song Hong Corporation Long Tho 2 0.91

6 Phu Son Cement Jsc Phu Son 1.20

7 My Duc Cement Jsc My Duc 1.60

8 Nam Dong Cement Investment Jsc Nam Dong 1.80

9 Hung Vuong Development Jsc Yen Mao 0.91

10 Tan Tao Investment Industry Corp Tan Tao 0.91

11 Saigon Invest Group (SGI) Sai Gon Tan Ky 0.91

12 Minh Tan Cement Jsc Minh Tam 1.80

13 Thang Long Invest Group Thanh Son 1.00

14 Tan Phu Xuan Cement Jsc Tan Phu Xuan 0.91

15 Can Tho Mineral & Cement Jsc Hau Giang Grinding 0.25

Total 15.84

Source: StoxPlus

Master Plan is adjusted to secure the future of Vietnam cement sector

The Prime Minister decided to remove 5 plants from Master Plan

(No. 1 – 5 in the table) and delay 10 other plants, of which one

is grinding station in Can Tho. The reason for such that delay in

the case of Hau Giang Grinding is due to environmental issues.

The reason for such the Government’s action is that Master Plan

does not fit the situation of Vietnam anymore. Part of the

reason for such delay is also due to lack of fund. As a result of

the economic downturn, many owners and investors of cement

plants who have registered for new projects planned under the

Master Plan do not have the financial capacity to implement the

project, especially the purchase of equipment.

Additionally, according to Decision 1488/QD-TTg on approving

cement sector development until 2020, the Government

prioritizes developing highly-automated, energy efficiencies and

environmental – friendly cement factories.

Appendix 2: List of delayed and cancelled plants

85


Contents






86

Appendix 3: Major infrastructure projects

No.. Airport City/Province Economic zone Value (US$mn) Status New Timeframe

No.. Oil & Gas Pipelines City/Province Economic zone Value (US$mn) Status Timeframe

1 B - O Mon Natural Gas Pipeline Can Tho Mekong River Delta

800.00 Under

construction 2010 - 2015

2 Nam Van Phong Oil Refinery Khanh Hoa South Central Coast

8,000.00 Delayed 2015 - 2020

3 Nam Con Son 2 Pipeline Project Ba Ria - Vung

Tau

South East

1,300.00 Planning NA


87

No.. Ports City/Province Economic zoneValue

(US$mn) Status New Timeframe



88

No.. Power Plants & Transmission Grids City/Province Economic zone Value (US$mn) Status Timeframe



89

No.. Railways City/Province Economic zoneValue

(US$mn) Status Timeframe



90

No.. Roads & Bridges City/Province Economic zoneValue




91

No.. Water City/Province Economic zoneValue




92


Contents






93

HA TIEN 1 CEMENT HT1 HT1 HT1 HT1 HT1

VND Millions 2010 2011 2012 2013 2014

Sales

Cost of Sales

Gross Profit

GP Margin %

Overhead Expenses

Sales & Marketing

S&M %

Administration

Admin %

EBIT

EBIT Margin %

Depreciation

EBITDA

EBITDA Margin %

Financial Expense

Interest Expense

Profit/(Loss) before tax

Net Profit/(Loss) after tax

Net Profit Margin %

Cash Flow From Operation

CFO/Sales

Current Assets

Accounts receivable

Inventory

Non-Current Assets

Total Assets

Current Liabilities

Accounts payable

Borrowings

Non-Current Liabilities

Borrowings

Total Liabilities

Net Assets

Debt/ Total Assets

BIM SON CEMENT BCC BCC BCC BCC BCC

Appendix 4: Fact sheet of listed cement companies


94

VICEM BUTSON BTS BTS BTS BTS BTS

VND Millions 2010 2011 2012 2013 2014

Sales

EBIT

VICEM HOANG MAI CEMENT HOM HOM HOM HOM HOM

VND Millions 2010 2011 2012 2013 2013

Sales

EBIT



95

SAI SON CEMENT SCJ SCJ SCJ SCJ SCJ

VND Millions 2010 2011 2012 2013 2014

THAI BINH CEMENT TBX TBX TBX TBX TBX

VND Millions 2010 2011 2012 2013 2014

Sales

EBIT



96

CAN THO CEMENT CCM CCM CCM CCM CCM

VND Millions 2010 2011 2012 2013 2014

Sales

EBIT

VICEM HAI VAN HVX HVX HVX HVX HVX

VND Millions 2010 2011 2012 2013 2014

Sales

EBIT



97

QUANG NINH

CONSTRUCTION & CEMENT QNC QNC QNC QNC QNC

VND Millions 2010 2011 2012 2013 2014

Sales 1,418,765 1,630,898 1,600,004 1,258,904 1,288,333

Cost of Sales 1,133,322 1,313,990 1,390,629 1,079,181 1,157,078

SONG DA CEMENT SCC SCC SCC SCC SCC

VND Millions 2010 2011 2012 2013 2014

Sales

EBIT



98

SONG DA YALY CEMENT SDY SDY SDY SDY SDY

VND Millions 2010 2011 2012 2013 2014

Sales

EBIT

TIEN SON CEMENT TSM TSM TSM TSM TSM

VND Millions 2010 2011 2012 2013 2014

Sales

EBIT



99

CEMENT MATERIALS AND

TRANSPORT VTV VTV VTV VTV VTV

Sales

EBIT

DANANG MATERIALS AND

CEMENT DXV DXV DXV DXV DXV

VND Millions 2010 2011 2012 2013 2014

Sales

EBIT


100

YEN BAI CEMENT YBC YBC YBC YBC YBC

VND Millions 2010 2011 2012 2013 2014

Sales 299,300 333,203 359,139 432,716 483,011

EBIT

LANG SON CEMENT LCC LCC LCC LCC LCC

VND Millions 2010 2011 2012 2013 2014

Sales

EBIT



101

CEMENT PETROLEUM NGHE

AN PX1 PX1 PX1 PX1 PX1

VND Millions 2010 2011 2012 2013 2014

Sales

EBIT

GYPSUM AND CEMENT TXM TXM TXM TXM TXM

VND Millions 2010 2011 2012 2013 2014

Sales

EBIT

Debt/ Total Assets 44.5% 41.2% 0.0% 4.6% 4.8%



102

HA LONG CEMENT HLCM HLCM HLCM HLCM HLCM

VND Millions 2010 2011 2012 2013 2014

Sales 0 1,777,021 1,298,462 0 0

Cost of Sales 0 1,333,160 1,205,726 0 0

Gross Profit 0 443,861 92,736 0 0

CAM PHA CEMENT CPCM CPCM CPCM CPCM CPCM

VND Millions 2010 2011 2012 2013 2014

Sales 0 1,933,253 1,967,081 0 0



103


Contents






104

No. Word Stand for No. Word Stand for

1 ARC Acid Resistant Cement

2 BMI Business Monitor International

3 bn billion

4 CARG Compounded Annual Rate of Growth

5 CBRE Commercial Real Estate Services

6 CIF Cost, Insurance & Freight

7 CPI Consumer Price Index

8 D/E Debt/Equity

9 DWT Dead Weight Tonnage

10 EBITDA Earnings Before Interest, Tax, Depreciation and

Amortization

11 EC Expansive Cement

12 EPT Environmental Protection Tax

13 FDI Foreign Direct Investment

14 FII Foreign Indirect Investment

15 FOB Free On Board

16 GDP Gross Domestic Product

17 GSO General Statistics Office

18 HCMC Ho Chi Minh City

19 ICOR Incremental Capital Output Ratio

20 M&A Mergers & Acquisitions

21 mn Million

22 MT Million Ton

23 MTPY Million Ton Per Year

24 na Not Availble

25 NRT Natural Resources Tax

26 MoIT Ministry of Industry and Trade

27 ODA Official Development Assistance

28 PCB Blended Portland Cement

29 PPPs Public-Private Partnerships

30 SBV State Bank of Vietnam

31 SG&A Selling. General and Administration Expense

32 SOEs State Owner Enterprise

33 STAMEQ Director for Standards, Metrology And Quality

34 VICEM Vietnam Cement Industry Corporation

35 WHRPG Waste Heat Recovery Power Generation

36 VNCA Vietnam Cement Association

Appendix 5: List of Acronym

105

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vietnam cement market report 2015

Economy & Finance