vinatex slides eng 2014 (vietnam national textile company) ipo by bsc

INVESTMENT OPPOTUNITY in the VIETNAM NATIONAL TEXTILE AND GARMENT GROUP

2 INVESTING IN VINATEX’S STOCKS OFFERING

CONTENT

Vinatex: An introduction

Vietnam Textile and Garment sector’s prospect

The market leader of the sector

Financial Analysis

Financial results’ forecast and valuation

3 INVESTING IN VINATEX’S STOCK OFFERING

VINATEX: AN INTRODUCTION

XThe company: The Holding company of Vietnam Textile and Garment Group XThe role of the Company within the Group: Vinatex is the holding company of the Group, outlining the strategic direction and labour use, controling and coordinating the activities of its members and subsidiaries, facilitating and synergizing the Group’s performance. XWe consider the Group’s business as a whole in order to comprehensively evaluate its position in the industry.



OVERVIEW OF THE GROUP’S BUSINESS

• 313 tons •133.395 Tons • Woven fabrics :206 millions m2 • Knitted fab-rics: 9289 tons

• 330 million products

• More than 50 large supermarkets in 26 cities and counties

COTTON YARN SPNINING SEWING DISTRIBUTION


OVERVIEW OF THE GROUP’S BUSINESS INDUSTRY PROSPECT

Figure 1. Forcasted exports of the Vietnam Textile & Garment sector, 2013 - 2020 (Bil. USD)

1

9.0 21

.4 23

.9 26

.9 30

.6 34

.1 37

.4 40

.9

0

15

30

45

2013 2014 2015 2016 2017 2018 2019 2020

Source: Vinatex

Three industry movers:

1 Domestic and international demand’s growth

2 The shift in the global textile production - consumption value chain

3 Opportunities from bilateral and multilateral Free Trade agreements.

CARG = 11,56%

INVESTING IN VINATEX’S STOCKS OFFERING

A SHIFT IN THE VALUE CHAIN: CHINA + 1

Table 1.Changes in the rankings of world’s top Textile & Garment exporters from 2008 to 2012 (Bil. USD)

2008China 120Turkey 13,6Bangladesh 10,9India 10,9Vietnam 9Indonesia 6,3Mexico 4,9

XChina’s low-cost labour competitive advantage is diminishing

This is due to: XA sharp increase in labour cost XChina’s recent changes in its industrial development planning XNew competitors emerge and participate in the global value chain

2012China 160Bangladesh 20Turkey 14Vietnam 14India 14Indonesia 8USA 6


FREE TRADE AGREEMENTS

1 Trans-Pacific Partnerships (TPP),

2 Vietnam - EU Free Trade Agreement,

3 Russia-Belarus-Kazakhstan Custom Union Free Trade Agreement,

4 RCEP Asean+6 Agreement,

5 Vietnam - Korea Free Trade Agreement

Common trends X Tax rate reduction from 10% on average to 0%

X “yarn forward” requirement

X Negotiation to be finalized by 2014 - 2015



VIETNAM TEXTILE & GARMENT EXPORT MARKETSFigure 2. Vietnam Textile & Garment export markets, 2012

42.98%

14.00%

12.03%

9.28%

21.71%

Source: General Department of Vietnam Customs

� US � EU � Japan � Korea � Other


TRANS-PACIFIC STRATEGIC ECONOMIC PARTNERSHIP AGREEMENT

X Since the 1st round of negotiation in Melbourne - Australia (March, 2010), TPP negotiation has essentially finished. The negotiation rounds among the participating countries’ Ministers is in process.

X The countries participating in the Agreement are the most significant and potential export markets of the Vietnam Textiles and Garment sector.

X Vietnam is the second largest exporter in the US, accounting for 8.5% of the total market share, only below China which holds 39,4%.

Table 2. Vietnam Textile & Garment exports to the US with and without the effect of TPP

9

15

2022

26

0

5

10

15

20

25

30

2013 2020E 2025E

� With the effect of TPP � Without the effect of TPP

Source: Amcham


VINATEX - THE LEADER OF THE TEXTILE & GARMENT SECTOR


INVESTMENT HIGHLIGHTS

1 Advanced&efficient manufacturing technology,

2 Globally competitive , subsidiaries&affiliates,

3 Fully integrated supply chain from Research and Development / Training / Design / Yarn - Textile / Dyeing - Sewing and Distribution

4 Economy of scale in Revenues, Total assets & Growth

5 The shift to FOB II and ODM.

6 Restructuring and focusing on investments within the industry

INVESTING IN VINATEX’S STOCKS OFFERING12

ROBUST SUBSIDIARIES AND AFFILIATES

X Vinatex owns stakes in several industry leaders in the Vietnam Textile and Garment sector.

X The member companies have strong reputation, high capacity, good brand recognition and independence in business activities.

X The Holding company - Vinatex outlines the Group development strategy, coordinates and synergizes its members to achieve an efficient business operation.

Among the 12 top Vietnam Textile and Garment exporters in the first quarter of 2014, 6/12 were Vinatex’s member companies.


OVERVIEW OF SOME OF THE MEMBERS OF THE GROUP

Viet Tien Garment Joint Stock Corpo-ration(Vinatex owns 47,88%)

Most of Viet Tien’s products is exported to Japan (27%), United States (22%) and the EU (21%). Viet Tien owns strong distribution system which covers 64 provinces and cities, concentrating on urban areas.

The company’s exports reached 334 million USD in 2013, up 23.7% yoy.

.

Figure 3. Viet Tien’s net revenues (Bil. VND)

2,313

3,378

3,897

4,831

0

2,000

4,000

6,000

2010 2011 2012 2013

Source: Viet Tien Garment Joint Stock Corporation’s audited financial statement

CARG 27,84%



Phong Phu Corporation (Vinatex owns 48,88%)

Phong Phu Corporation (PPCo) is a vital link in Vi-natex’s supply chain, manufacturing in the ODM model. The company meets the raw material ori-gins requirement of FTAs. As of now, Vinatex has increased its ownership in PPCo to 51%.

Competitive advantages:

X Complete value chain from yarn, fabric to garment.

X Successful ODM model application at Phong Phu International Joint Stock Company (PPJ)

X Joint ventures in producing raw materials (thread) since 1989, currently accounting for more than 45% market shares in Vietnam.

Figure 4. PPCo net Revenues (Bil. VND)

3.926

4.361 4.295

0

1.000

2.000

3.000

4.000

5.000

2011 2012 2013

Source: PPCo’s audited financial statement

CARG 4,59%




Hoa Tho Textile & Garment Joint Stock Corporation(Vinatex owns 71,62%)One of the leading company of the industry. Domestic and export revenues are 14.7% and 85.3%, respectively. 13% of exports comes from the US, 71% from EU and 16% from other markets.

In 2014, the company’s plan for revenues, profits before tax and dividend payout ratio were 2,750 Bil. VND, 83 Bil. VND, and 20%, respectively. Export revenue target is 120 milllion USD, planned fiber production to reach 11,300 tons, and planned garment production to reach 12 million units.

Figure 5. Hoa Tho’s net revenues (Bil. VND)

1,280

1,636

1,952

2,432

0

500

1,000

1,500

2,000

2,500

3,000

2010 2011 2012 2013

Source: Hoa Tho Textile- Garment Joint Stock Corporation’s Financial Statement

CARG 23,86%


VINATEX’S VALUE CHAIN

Yarn X Vinatex is mostly self-sufficient in yarn.

X A small amount of yarn were imported because of fine count requirement and other special requirements not being met by domestic manufacturers.

Textile X Vinatex plans to invest 6071 Bil. VND into 9 fabric projects (textile and dyeing) in 2014 - 2017.

Sewing X The Group accounted for 15% of the Textile and Garment sector’s exports.

X Futher application of ODM model, gradually shift from CMT and FOB I to FOB II and ODM.


ODM PRODUCTION INCREASES VINATEX’S VALUE

R&D

SPINNING

WEAVING

KNITTING

SEWING

TRANSPORT & DISTRIBUTION

X Vinatex and members’ ODM production revenues contribution is more than twice the average level of the Textile & Garment sector, but it is still lower than the potential.

X Further application of ODM Producion

X Profit margin of ODM production is much higher than that of CMT (10% compared to 3%).

X Vinatex International Jsc (VTJ), established in 2013, will work directly with global buyers.


REVENUE BREAKDOWN BY PRODUCTION METHODS

Figure 6. Producing methods within the Group

55%

20%

15%

10%

CMT

FOB I

FOB II

ODM

� CMT � FOB II

� FOB I � ODM

Source: Vinatex

Figure 7. Producing methods of companies outside the Group

65%

20%

10%

5%

� CMT � FOB II

� FOB I � ODM

Source: Vinatex



RESTRUCTURING AND FOCUSING ON TEXTILE & GARMENT SECTOR

Divestments of non-core businesses

X Total divestment amount in this period is 1,143 Bil. VND at par value, 1,083 Bil. VND according to the reassessed value.

X In which, Vinatex has divested 11 Companies, grossing184 Bil. VND (higher than the reassessed value of 156.51 Bil. VND).

X Vinatex will divest all non-core businesses in 2015.

Increase investment in Textile & Garmet Sector

X Increasing the ownership in Phong Phu Corporation to 51%.

X Increasing ownership in some of its members

X Decreasing the non-core business investment and focusing more on investment in the Apparel & Textile Sector

The aim: Decrease non-core investment and focus on the Textile & Garment industry, complete the supply chain, increase member’s competitive advantage, thereby improving operational & financial results


FINANCIAL ANALYSIS


ANALYSIS OF THE CONSOLIDATED FINANCIAL STATEMENT

Vinatex’s shares value comprises of:

X Operating results of the 4 Limited Liability Companies with 100% State ownership

X Operating results of subsidiaries after deducting minority interest

X Value obtained from the operation of associated companies and other long-term investments

X Operating results of the three dependent accounting companies and office leasing activites

X Indirect contribution from the non-business units, such as colleges & training and research institutes.


OVERVIEW OF VINATEX’S PORTFOLIO

Table 3.Financial investments breakdown, 2012 - 2013

2012 2013Equity 4.534.509 4.686.398Long-term investments 3.368.328 3.245.071Investments in subsidiaries 1.523.237 1.484.027

As a % of equity 34% 32%As a % of Long-term investments

45% 46%

Investments in affiliates 1.291.040 1.269.675As a % of equity 28% 27%As a % of Long-term investments

38% 39%

Other investments 554,051.0 511,849.6As a % of equity 12% 11%Tỷ trọng/ĐTTC dài hạn 16% 16%

Source: Vinatex’s FS, 2012 - 2013

Figure 8. Returns of financial investments

9.9

% 10

.9%

11

.1%

8.9

% 10

.3%

0.0%

6.0%

12.0%

2009 2010 2011 2012 2013

Source: Vinatex consolidated FS, 2009- 2013




Table 4.Total Asset, Revenue and Net Income of the biggest subsidiaries (Bil. VND)

2012 2013

TTS DT LNTT TTS DT LNTT

Hoa Tho Textile & Garment JSC. 976 1.977 58 975 2.454 53 % yoy 31,87% 19,13% -0,14% 24,16% -8,5%Hanoi Textile & Garment JSC 947 532 117 1.049 785 15% yoy 10,70% 47,45% -87,56%Total 1923 2509 175 2024 3239 68

Source: Hoa Tho Textile & Hanosimex FS

On Dec 31, 2013, besides the 4 100%-owned Sole member Limited Liability Co., Vinatex has 14 other subsidiaries (according to the Consolidated Financial Statement), of which are Hoa Tho Textile & Garment Joint Stock Corporation, Hanoi Textile Garment Corporation – Hanosimex,…


On Dec 31,2013, Vinatex has invested in 34 associate companies , 27 – 28% of the funding of which comes from Vinatex’s equity. 8 companies among those keep the key role in the Group.

Viet Thang Corporation, Viet Tien Garment Joint Stock Corporation and Phong Phu Corporation are the key members that Vinatex owns nearly 50% capital and these maintain the dividend payout ratios of 20-25% / year; Vinatex keeps more than 25% capital of the other 5 key Corporations and receives dividend ratio of approximately 20% / year.


Table 5. Total Asset, Revenue and Net Income of the 4 biggest associates companies (Bil. VND)

2012 2013TTS DT LNTT TTS DT LNTT

Phong Phú 4.276 4.360 305 4.536 4.295 281% yoy 3,18% 11,06% -19,96% 6,09% -1,5% -7,76%TCTCPViệtTiến 1.942 3.897 206 2.457 4.831 312%yoy 11,39% 15,36% -0,03% 26,49% 23,98% 51,53%TCTViệtThắng–CTCP 943 1.917 144 1.071 2.032 109%yoy 2,84% 2,10% 17,64% 13,63% 6,03% -24,28%TCT May 10-CTCP 724 1.489 37 795 1.840 43%yoy 10,89% 2,12% 17,78% 9,77% 23,54% 14,53%Tổng 7.885 11.663 692 8.859 12.998 745

Source: Viet Tien JSC, Viet Thang JSC, May 10 JSC Financial Statements



CONSOLIDATED FINANCIAL RESULTS

Figure 10. Total Liabilities, 2010 - 2013 (Tril. VND)

7.46.0

4.4 4.5

2.4

2.0

1.2 1.6

0

4

8

12

2010 2011 2012 2013

� Long-term liabilities � Current liabilities

Source: Vinatex’s consolidated Financial statement for the period 2010 - 2013

Figure 9. Total Assets, 2010 - 2013 (Tril. VND)

8.97.3

5.7 5.7

6.9

6.8

5.4 6.1

0

6

12

18

2010 2011 2012 2013 � Current-Assets � Fixed Assets

Source: Vinatex’s consolidated Financial statement for the period 2010 - 2013


CONSOLIDATED FINANCIAL RESULTS

Revenues and profits X The Group’s revenue and profit decreased as a result of 33

subsidiaries no longer being consolidated on the balance sheet from 2011 to 2012.

X Gross profit margin from the business result has been stable, slightly improved from 12.0% (for the year 2011) to 12.2% (for the year 2013). Sewing products bring about the highest gross margin at 15 to 17%, followed by fabrics (10%)

Operational efficiency X The Group’s operational ratios have been stable for the

past 02 years. In particular, total asset turnover in 2013 is 0.93, slightly decreased from that in 2012. The Group’s inventory days maintains at 64 days. Account receivable days slightly reduced to 42 days.

X The USD revenues from operation helped the Group in accessing low-cost loans and currency hedging

Figure 11. Group’s revenues, 2010 - 2013 (Tril. VND)

16.719.6

12.4 11.0

0

5

10

15

20

25

2010 2011 2012 2013

Source: Vinatex’s consolidated Financial Statement

CONSOLIDATED FINANCIAL RESULTS (CONT.)

27 CƠ HỘI ĐẦU TƯ CỔ PHIẾU VINATEX

1 Secure financialstructure

2 Robust ratios & indicators

3 Improving operational efficiency

4 Privatisation bolsters Vinatex’s development

5 Most of the Holding Company’s main income

source is from dividend distributed by the subsidiaries

Financial highlights:


FINANCIAL RESULTS FORECAST & VALUATION

FINANCIAL RESULTS FORECAST

Income from distributed divi-dends accelerates

X The income from distributed dividends is estimated to reach 326 Bil. VND in 2014 and rise to 516 Bil. VND in 2020, equivalent to a CAGR of 6.76% over the period from 2013 to 2020.

Investment in ODM X ODM’s revenues margin is assumed

to be 10% on average based on the deployment plan

Centralized cotton operation X The plan mainly supports the

subsidiaries, not targeting profits. Profit margin from this operation is forecasted to be around 1%

Financing costs X Interest expense in 2014 is

forecasted to slightly decrease by 1.81% to 33 Bil. VND

X Funding from ADB worths over 100 millions USD at low interest rates, a long repayment period (23 years) and a 5-year grace period

X Interest expense in 2015 is forecasted to reduce, gradually increase from 2016 onwards

Profit after tax is expected to increase

X Based on the mentioned forecast for business and financial operations, we expect the profit after tax to reach 300 Bil. VND in 2014 and 891 Bil. VND in 2020

Dividends distribution X We assume Vinatex will pay

dividends at the rate of 5% in the first year after privatisation and gradually increase to 12% after 2017


FINANCIAL RESULTS FORECAST (CONT.)

Balance sheet 2014F 2015F 2016F

Current assets (Bil. VND) 2,600 1,920 2,298

Fixed assets (Bil. VND) 3,374 4,541 4,720

Total assets (Bil. VND) 5,974 6,461 7,017

Short-term liabilities (Bil. VND)

332 495 702

Long-term liabilities (Bil. VND)

517 726 1,072

Shares capital (Bil. VND) 5,125 5,239 5,243

Equity (Bil. VND) 5,974 6,461 7,017

Income Statement 2014F 2015F 2016F

Net revenue (Bil. VND) 1,897 6,077 8,692Grossprofit(Bil.VND) 80 197 313Incomefromfinancialactivities (Bil. VND)

408 425 503

Profitaftextax(Bil.VND) 300 408 562ROE 5.8% 7.8% 10.7%EPS (VND) 599 816 1,123

Dividend 5% 7% 10%

Forecasts of financial results, 2014 - 2016


DIVIDEND DISCOUNT MODEL

RationaleThe DDM Method is used in view of long-term investors’ interest, in this case Vinatex’s dividends after the IPO.

A 02 – phase growth model is applied in this case:

X Phase 01 from 2013 to 2020: Corresponding to the period that Vietnam’s textile and garment export is expected to sharply increase and the ODM production model is successfully deployed at Vinatex.

X Phase 02 after 2020: Long – term growth. Dividend growth rate is forecasted to be at 3.22% p.a. and calculated based on the assumption that after 2020, Vinatex achieves stable operation with the Return on Equity rate at 15% p.a.

AssumptionsRisk free rate 7,10%Market’s required return 12,00%Industry beta 1,06WACC 12,29%Post 2020 dividend growth 3,22%Valuation Result 11.442

VND



PRICE-TO-BOOK VALUATION MODEL

RationaleP/B comparison is used since Vinatex’s stock is offered at a price close to the book value, making P/B ratio a strong basis for valuation.

Selection criteria for the comparables X Total assets within the 150 millions USD -

380 millions USD range (Vinatex Total assets approximates 250 millions USD)

X ROA and ROE close to those of Vinatex (2013 ROA = 4.42%; 2013 ROE = 4.94%)

X The average P/B of the comparables is 1.30

P/B Model

Owner’s equity after IPO 5.032.867.970.214Expected profit 352.563.741.1452014 Retained earnings 2.563.741.145Owner’s equity at the end of 2014

5.035.431.711.359

Number of shares 500.000.000Book value 10.071P/B 1,30Valuation result 13.332


THANK YOU!

CONTACTHead Office10th&11thfloor–BIDVTower35HàngVôi–HoànKiếm–HàNộiTel: 84 4 39352722Fax: 84 4 22200669Website: www.bsc.com.vn

Hochiminh Branch9thfloor–146NguyenCongTruStDistrict 1, Hochiminh CityTel: 84 8 3 8218885Fax: 84 8 3 8218510Facebook: www.facebook.com/BIDVSecurities

Tran Thang Long Head of [email protected](+84) 43935 2722 ext. 118

Nguyen Thanh Hoa Head of [email protected](+84) 43935 2722 ext. 155

vinatex slides eng 2014 (vietnam national textile company) ipo by bsc

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