Hoa Sen Group
Hoa Sen Group
Hoa Sen Group
VND
42,7OO
Target price:
Forecast price appreciation:
VND
46,5OO
8.9%
HOLD
VND
VND
47,OOO
415OO
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6OSecurities
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G
5O
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Exchange: HSX
Industry:
Steel
Beta
4O
1.19
57,745 - 35,626
96.3
4,113
236,414
EPS
(VND)
3,952
3,358
FY2013
7.O%
5,941
FY2012
2.3%
3,761
FY2011
1.2%
1,622
Ratio HSG
P/E 12.7
Peer
9.6
VNI
15.4
P/B 1.8
O.7
2.O
1.8
1.1
1.2%
9.O%
13.O%
14.9%
2.3%
3.4%
2010-13
CAGR
Revenues 34%
EBITDA 17%
Net Income 39%
2O14E
(VND bn)
15,O3O
997
381
2O14-18F
CAGR
19%
23%
36%
Company Description:
- Established in 2001, Hoa Sen Group (HSG) specializes in
manufacturing galvanized steel sheet, steel pipes and other
construction materials to serve industrial production and civil
construction.
- The Group occupies 37% market share in the galvanized
steel sheet segment and 20% market share in the steel pipe
segment in 8M2014.
- The completion of Phase 2 of Hoa Sen Phu My Steel Sheet
Plant will increase its cold rolling capacity from 580K tons to
980K tons, galvanized capacity from 820K tons to 1.22 million
tons per year.
- 9M-FY2014 results: Net revenues: VND10,966 billion
(USD517 million), Net income: VND281.5 billion (USD13
million), Equity: VND2,348 billion (USD111 million).
www.VPBS.com.vn
2O
43.5%
Dividend
yield
5.4%
5.9%
28.5
Year
3O
1O
O
I
-1O
Page I 1
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Page I 2
CONTENTS
INDUSTRY OVERVIEW ......................................................................................................................................................................3
HOA SEN GROUP (HSG) ....................................................................................................................................................................5
HISTORY ...................................................................................................................................................................................5
ORGANIZATIONAL STRUCTURE AND MANAGEMENT .........................................................................................................6
SHAREHOLDERS AND OWNERSHIP .....................................................................................................................................8
COMPANY OVERVIEW .......................................................................................................................................................................9
A LEADING STEEL SHEET AND STEEL PIPE PRODUCER ...................................................................................................9
CAPACITY EXPANSION TO DRIVE GROWTH......................................................................................................................11
NATIONWIDE RETAIL NETWORK TO DELIVER PRODUCTS TO END USERS .................................................................13
SALES GROWTH TO BE FURTHER DRIVEN BY EXPORTS ...............................................................................................14
FINANCIAL PERFORMANCE ...........................................................................................................................................................15
COST ANALYSIS ....................................................................................................................................................................15
GROWTH.................................................................................................................................................................................16
EFFICIENCY AND PROFITABILITY .......................................................................................................................................18
LIQUIDITY AND SOLVENCY ..................................................................................................................................................20
FORECAST ASSUMPTIONS ............................................................................................................................................................21
VALUATION ...................................................................................................................................................................................... 24
DISCOUNTED CASH FLOW ...................................................................................................................................................24
COMPARABLE MULTIPLES ...................................................................................................................................................25
SENSITIVITY ANALYSIS...................................................................................................................................................................26
TECHNICAL ANALYSIS ....................................................................................................................................................................27
CONCLUSION................................................................................................................................................................................... 28
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INDUSTRY OVERVIEW
During the period from 2008 to 2013, the sales volumes of Vietnam Steel Association (VSA)'s
members achieved the compounded annual growth rates (CAGRs) of 18.9% in steel sheet and
15.3% in steel pipe, higher than a CAGR of 7.8% in construction steel.
The first 8 months of 2014 (8M2014) saw consumption volume of steel sheet increase by 29%
y-o-y thanks to exports while consumption of steel pipe grew by 32% y-o-y mainly due to
domestic growth.
Galvanized steel sheet (thousand tons)
Consumption
Production
2008
2009
2010
2011
2012
Source: Vietnam Steel Association
2013 8M2014
2008
2009
2010
2011
2012
Source: Vietnam Steel Association
2013
8M2014
Steel sheet
Steel sheet is gradually replacing asbestos-cement for roofing and wall covering due to major
health concerns. Steel sheet is a type of flat steel product, produced from raw material which is
cold rolled coil. Steel sheet is diverse in terms of color, size, and thickness and has many
applications, but it is used mostly in roofing, construction, manufacturing mechanical products
such as automotive.
It's worth noting that the gap between supply and demand of this segment further widened as
new companies entered the market or when existing companies increased capacity. Steel sheet
produced by Vietnamese firms is of medium-grade, which is used mostly in roofing and general
usage such as home furniture and parts for motorcycle repair. Other flat products such as
heavy plates used for shipbuilding and galvanized sheets used for cars have to be imported.
The main growth driver of sales volume of this segment has been through export activities.
Countries like Myanmar, Indonesia and Malaysia have significant demand for steel sheets of
medium-quality for general usage and civil construction; these are products Vietnam can supply
at attractive prices. Vietnam's steel sheet producers, benefiting from relatively lower labor cost,
have a competitive edge in terms of product pricing. In 8M2014, total sales volume of VSA
members reached 1.18 million tons, up 29.1% y-o-y, in which export volumes surged by 51.9%
y-o-y to reach 520 thousand tons, accounting for 44% of total sales volumes. In contrast,
domestic sales volumes reached 663 thousand tons, increased by 15.6% y-o-y.
The main client group of steel sheets is individual contractors, especially in suburban areas,
which are less vulnerable to changes in prices than contracts for big
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Page I 4
construction sites. Moreover, their bargaining power is low. However, as steel products are becoming more
standardized, individual customers have the power of switching to another brand without much switching cost.
The market, therefore, is a highly competitive one as there are several FDI firms (Blue Scope Steel, Sun Steel,
and most recently China Steel Sumikin) operating in this segment. These firms have a certain advantage in
terms of economy of scales and advanced technology. Despite these, the steel sheet segment still holds
potential for domestic companies that can offer high-quality products with reasonable prices and especially have
good relationships with local contractors.
Steel pipes
The steel pipe segment witnessed the participation of many companies specializing in the steel sheet segment
but wanting to diversify their product offerings, as in the case of Hoa Sen Group which entered the steel pipe
segment in 2009 and Nam Kim Group which entered in 2012. These companies are more capable with raw
material sourcing and possess advanced technology, which poses a competitive challenge for companies that
only manufacture steel pipe.
Steel pipe plays an important role in engineering construction and industrial production. As the size of the steel
pipe segment is particularly small compared to the steel sheet segment, the gap between supply and demand is
not prominent, this segment can absorb the extra production volume even when existing firms expand capacities
or new firms enter the market.
In 8M2014, sales volumes of VSA members reached 681 thousand tons, up 32% y-o-y. Specifically, export
volumes reached 103 thousand tons, down 20% y-o-y; in contrast, domestic sales volumes increased sharply by
49% to reach 577 thousand tons, accounting for 85% of total sales volume. Part of the reason for the declining
growth rate in export volumes is rising anti-dumping lawsuits in export markets (the United States and Canada).
However, we do not believe this is a major concern for steel pipe producers as their export volumes only account
for a small portion of their total sales volumes (3.2%). Moreover, steel pipe producers' target export markets are
mostly within the South East Asia region due to Vietnam's geographic location.
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Page I 5
2001
2006
2007
2008
FY200
9
FY2010
Sen JSC, the precursor of Hoa Sen Group, was established with an initial charter
of VND 30 billion
Established Hoa Sen Steel Sheet JSC
Established Hoa Sen Building Materials JSC and Hoa Sen Engineering Construction JSC.
Hoa Sen JSC was renamed as Hoa Sen Group
Signed an agreement with Gemadept JSC to establish Hoa Sen Gemadept International Port & Logistics JSC
Listed 57,038,500 shares on Ho Chi Minh City Stock Exchange.
Started construction of Phase 1 of Hoa Sen Phu My Steel Sheet Plant
FY2012
FY2013
FY2011
FY2014
Source: HSG
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Source: HSG
<
f
-------------
BOARD
OF
SUPERVISIORY
BOARD OF DIRECTORS
LEGISLATION &
ADMINISTRATIVE
DIVISION
>1
BOARD OF MANAGEMENT
FUNCTIONAL
DIVISIONS
>*
HOA
SEN PHU
RETAIL
NETWORK
MY
STEEL
SHEET
Source: HSG
www.VPBS.com.vn
PLANT
HOA SEN
BUILDING
MATERIALS
ONE
MEMBER LTD
HOASEN
TRANSPORTATION &
ENGINEERING ONE
MEMBER LTD
MEMBER LTD
MEMBER LTD
HOA SEN
GEMADEPT
LOGISTICS &
INTERNATIONAL
PORT JSC
BRANCH
Page I
The Group owns a retail network consisting of 133 branches and six base depots and manages
the Hoa Sen Phu My Steel Sheet Plant.
The Group has five subsidiaries in which it holds 100% ownership:
Hoa Sen Binh Dinh Steel pipe One Member Limited Liabilities Company
|n 2008, the Group partnered with Gemadept Corporation to build Hoa Sen
Gemadept Logistics & International Port in the Cai Mep - Thi Vai port, in which the
Group contributed 45% capital and Gemadept contributed 51%. The revised total investment
capital was reduced to USD30 million instead of USD63 million per initial plan. By the end of
FY2013, the access road leading to the port and the port's design had been completed. The
Group thus far has disbursed VND44.45 billion and is now seeking partners to transfer its
holding as the Group decided to focus on its core business.
I Name I
Board of Directors
Mr. Le Phuoc Vu
I Title
I Experience/Degree
1 Ownership
1
Chairman
16.47%
Vice Chairman
0.09%
Member
Member
Member
0.00%
Board of Management
Mr. Tran Ngoc Chu
General Director
0.09%
0.01%
0.00%
0.02%
0.01%
0.00%
0.00%
Supervisory Board
Mr. Le Vu Nam
Mr. Ly Van Xuan
Mr. Le Dinh Hanh
0.01%
0.09%
0.00%
0.00%
I
Source: HSG
The Group's management team is well-experienced and has worked for the Group for many
years. Mr. Le Phuoc Vu, Chairman, has contributed significantly to the leadership and strategic
development of the Group. In the early days, when HSG first started out as a steel sheet
retailer, it faced challenges from many competitors who were more financially capable.
Accordingly, Mr. Vu decided to set his own strategic development for the Group. As someone
who has ample understanding of the domestic market, he realized that the development of a
retail network to distribute products directly to end-users without going through middle channels
plays a key role in the success of the Group and that the undertaking was necessary in spite of
the significant investment of time and capital required.
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Page I 8
Major shareholders
(>1%)
Tam Hy One Member Ltd
Number
of
22,000,000
shares
16,420,679
22.84%
17.05%
Mr. Le Phuoc Vu
Deutsche Bank AG London
15,867,152
6,691,923
16.47%
6.95%
5,650,000
5.87%
4,822,123
5.01%
Epsom Limited
2,920,600
3.03%
Ownership
ne Bank
Others
30,8%
)nd0n
Mr.Le Phuoc Vu
16.5%
Tam Hy One
Member Ltd
22.8%
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Page I 9
COMPANY OVERVIEW
A LEADING STEEL SHEET AND STEEL PIPE PRODUCER
The Group offers two core products: galvanized steel sheet and steel pipes. Galvanized steel
sheets are the most profitable segment and contribute the most to the Group's net revenues.
From FY2009 to FY2013, total sales volumes grew at a CAGR of 39.7%.
Revenues by product segments in 9M-FY14
Plastic
products
2,7%
Other
products
Steel
pipe
18,6%
500.000
GI
2,1%
Standard steel
sheet 0,5%
400.000
Purlin
300.000
200.0
Pre-painted GI
11,2%
100.000
0
FY2009
FY2010
FY2011
FY2012
FY2013
9M-FY14
Pre-painted
CRC
1,0%
Source: Annual report, VPBS analysis
Pre-painte
GL
14,2%
HSG's products
From FY2008 to FY2013, sales volume of galvanized steel presented a CAGR of 36.7%. This
segment includes galvanized steel sheet (GI), galvalume steel sheets (GL), pre-painted
galvanized steel sheets (pre-painted GI), pre-painted galvalume steel sheets (pre-painted GL)
and pre-painted CRC and hot dipped galvanized steel (HGI). From FY2009 to FY2013, this
segment contributed from 78% to 85% to the Group's net revenues, however, this segment
accounted for a slightly lower portion of net revenues of 74% in 9M-FY2014.
HSG maintains its leading position in the galvanized steel market, its market share far exceeds
G3321
construction
Source: HSG
www.VPBS.com.vn
those of other steel producers including Nam Kim, Sun Steel and Ton Phuong Nam. However,
the Group's market share has declined in the past two years due to fierce competition in the
marketplace.
Page I 10
Other
companies
Ton
Nam Kim
Phuong
share 48%
1.600
41%
1.400
34%
1.200
1.000
Nam
HSG
39%
37% ^
42%
37%
36%
29%
30%
21% ^
800
24%
600
% 18%
400
** 12%
,^
**
200
**
6%
** 0%
_______________________
5~ B ~ I B ~ :
2012
2013
8M2014
Source: VSA. Note: Excluding sales volume of Perstima Viet Nam as its products do not serve
construction industry
HSG's galvanized steel pipe is
highly regarded by the market. The
Group gained 8M2014 market share
of 19.8% in steel pipe.
This product was launched in 2009 and contributed from 7% to 13% of net revenues from
FY2009 to FY2013. In 9M-FY2014, this segment accounted for 18.6% of net revenues.
Management attributes this to the additional capacity of steel pipe lines from the first quarter of
this financial year. This may explain the lower portion of galvanized steel sheet in net revenues
in 9M-FY2014 since additional steel sheet production lines operated later in the year than the
steel pipe lines.
This product segment includes black steel pipe and galvanized steel pipe, which enjoys strong
demand and is a highly regarded product. From FY2009 to FY2013, sales volume of steel pipes
achieved a remarkable CAGR of 50.7%. Despite the late entry into this competitive segment,
the Group's steel pipe competes well with other well-known producers such as Hoa Phat and
Seah VN. Its market share grew rapidly throughout the year to capture 19.8% in 8M2014, up
from 14.5% in 2013. This is a remarkable achievement considering that the steel pipe market is
fragmented and the level of competition is much fiercer than the galvanized steel market.
Market share of steel pipe producers
Other companies i
Hoa Phat
i Viet Duc
i HSG
20%
14%
8%
5%
10%
g
11%
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Page I 11
H SeAH VN HSG
market share
720
20%
540
15%
360
10%
180
5%
0%
2009
2010
201
1
2012
2013
8M2014
Source: VSA
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Page I 12
Others products:
The Group will continue to focus on
core segment. Management expects
revenue from other products segment
to gradually decline in the future.
Other products include plastic pipe and purlin which contribute around 8% of the revenue structure
from FY2009 to FY2013. According to management, these products have lower margins then its
core products (galvanized steel and steel pipe), moreover, the Group has not expanded the
capacity of these production lines since FY2008. Following the strategy to prioritize manufacturing
core products which are more profitable, it is expected that the growth rate of revenue from these
products will gradually decline in the coming years.
tons/year
Galvanizing line
1 50,000
90,000
Vung Tau)
Pickling line
700,000
400,000
450,000
Galvanizing line
100,000
180,000
Annealing furnace
142,000
5,000l/hr
Vung Tau)
Galvanizing line
120,000
400,000
1 50,000
400,000
Pickling line
250,000
180,000
Annealing furnace
Hoa Sen Steel Sheet One Member LLC (in Binh Duong)
Hoa Sen Building Materials One Mem ber LLC (Ba Ria
42,000
Vung Tau)
10
101,000
41,000
12
30,000
66,000
71,000
Total
Color coating line
980,000
Galvanizing line
370,000
850,000
420,000
279,000
steel sheets, which can create durable products with exceptional quality at a low cost.
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Source: HSG
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Page I 14
to
source
its
own
materials.
CRC
The Group has two production plants; one in Binh Duong and one in Ba Ria - Vung Tau. The plant
in Binh Duong has operated since 2004, with galvanized capacity of 150,000 tons per year; and
color coating capacity of 90,000 tons per year.
The large scale production plant in Ba Ria - Vung Tau was constructed in 2010 under the name of
Hoa Sen Phu My Steel Sheet Plant. The plant has a total investment of VND3,071 billion, with a
total area of 16.7 ha, including 87,542 sqm for its workshop and 690 sqm for its office, an 110KV
transformer station and water recycling system.
Phase 1 of the Hoa Sen Phu My Steel Sheet Plant includes the following production lines: cold
rolling lines of 400,000 tons per year; hot galvanized line of 450,000 tons per year; galvanized
lines of 220,000 tons per year; and color coating line of 180,000 tons per year.
After the completion of Phase 1 in 2011, the total capacity of galvanized steel products reached
820,000 tons/year. However, its cold rolling lines only had combined capacity of 580,000
tons/year.
In 2013, the Groups started the construction of phase 2 with a total investment of VND1,344
billion, which is financed by long-term debt and retained earnings. The project was completed in
August 2014. By then, HSG's production capacity had increased significantly as cold rolling
capacity reached 980,000 tons/year; galvanized capacity reached 1,220,000 tons/year; color
coating capacity reached 420,000 tons/year. The Group's vertical investment to integrate the value
chain has essentially been completed.
It's worth noting that Phase 2 of the project will enable HSG to source 100% of its CRC needs,
therefore, it will only need to import HRC. Being able to fully self-supply CRC is a major advantage
when compared to its peers, who still depend on imports of CRC. The import tax rate of CRC is
7%, while that of HRC is 0% (according to CEPT commitments - Common Effective Preferential
Tariff). In addition, with designed capacity of 980,000 tons/year, HSG's cold rolling lines will be the
second largest after Posco (1.2 million tons/year) and about five times the capacity of Nam Kim
Group (200,000 tons/year) and Dai Thien Loc (200,000 tons/year).
When the new cold rolling lines are put into operation in FY2014, it will take some time for the
testing period before the production lines can reach their fully designed capacity. If we assume that
the utilization rate of the cold rolling lines is 75% in FY2015, then the amount of import duty that
the Group can save from being able to self-produce CRC is: 980,000 (designed capacity) * 75% *
USD655 (CRC price) * 7% (import tariffs) = USD33.7 million. This allows the Group to set more
competitive prices both thanks to economies of scale and preferential tax rates.
According to its development strategy with a vision to FY2018, when its sale volumes reached one
million tons, the Group expects to implement a hot-rolled strip mill project to further integrate its
value chain. However, after discussions with management, we learned that the Group chose not to
implement the project due to the substantial investment capital requirements. Meanwhile, the
Group could still buy raw materials from its traditional channels at good prices. In addition, when
the Formosa Ha Tinh project goes into operation in late 2015, the demand for imports of raw
materials will be significantly reduced as this project can provide the domestic market with about
3.3 million tons of hot-rolled steel, providing the Group with another source of raw materials.
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Subsidiaries
The Group's strategy is to directly sell its products to end-users through its own retail network, which is widespread
throughout the country. With centralized management establishing general policies, the Group imposes strict quality
control over the products it provides to their final consumers. This is an important competitive advantage of the Group as
most steel producers do not have their own distribution network and rely mostly on independent distributors. This
strategy, however, does not add value for the company as it needs to offer discount and promotion programs to the retail
outlets to encourage them to increase sales volume.
Through its own retail network, HSG can actively adjust its selling price to adapt to market
conditions. Specifically, in the context of plummeting raw materials price as occurred in 2009,
steel producers had to reduce the selling prices of their finished products while using high cost
raw materials, which eroded their profits. To counter this problem, HSG rapidly sold its products
through its own retail network while adopting flexible selling prices, then use the proceeds to
purchase the currently cheaper raw materials. Whereas other steel producers were stuck with
mounting inventories as they relied on other retail outlets.
The retail network accounts for around 33% of total revenues. The Group targets to have a total
of 188 branches by the end of FY2018 and aims to build 15 branches each year. The six base
depots play an important role in reducing inventories that need to be maintained at the retail
branch and reducing the pressure to borrow shortterm loans to finance the inventory.
After meeting with management, we learned that when the Group opens a new retail branch, it
mainly rents land instead of buying in order to take advantage of existing infrastructure. Thus
the cost of opening a new branch is estimated at VND4 billion.
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Page| 16
=6= --- 1 - ---------1 -- ---- --- 1 - ---- ----1 -- 1 --- --- 1 - 1--- ----1
FY2009 FY2010 FY2011 FY2012 FY2013 9M-FY14
Source: Annual reports
HSG has built a strong reputation in the export markets as the last two years have witnessed
significant increases in both export volume and value. From FY2009 to FY
2013, the export revenues and export volume grew at CAGR of 161% and 158%, respectively.
The proportion of export revenue as a percentage of total revenue increased from 3.4% in
FY2009 to 41.1% in 9M-FY2014.
Export is good sales channel in times of
The Group is seeking to diversify its export markets to reduce reliance on some markets. HSG
exports most of its products to ASEAN countries to serve the construction industry. The Group
main drawback is anti-dumping lawsuit in
expects to reap benefits from the lowering of intraregional tariffs through the Common Effective
export markets.
Preferential Tariff (CEPT) Scheme for Asean Free Trade Area. However, it is difficult to quantify
these benefits as HSG's products will be up against its counterparts from other Asean countries. Moreover, ASEAN
countries could still initiate anti-dumping investigations should a large quantity of products with cheap prices flood into
their country.
slowdown in domestic consumption. The
HSG also plans to boost more exports to major markets in other regions such as the U.S.,
Australia and Europe. These markets are highly demanding in terms of product quality,
moreover, high transportation costs and prolonged transit time are also challenging factors that
the Group needs to take into account when choosing to export to these markets.
Maintaining high sales volume is the Group's priority and boosting exports will be the main
growth driver to keep sales volumes going. Exports yield lower profit margins due to high
transport costs, however, help HSG to maintain their high sales volume during the off-season
construction period, particularly the first quarter (Lunar New Year) and third quarter (rainy
season). In addition, the Group will gain revenue in foreign currency, which helps reduce its
exposure to exchange rate risks.
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Page| 17
HSG can compete directly with big companies in the region as its products are internationally certified and price
competitive. Further, Vietnam's geographic location in the region can help the Group ship large orders quickly to other
ASEAN countries.
However, The Group may face two major challenges:
Fluctuations in exchange rate.
The Group needs to heavily borrow in USD to import raw material, thus any unfavorable movements in VND/USD
exchange rate will have a major impact on the Group's bottom line.
However, the Group will also benefit from this currency depreciation as it receives export revenues in dollars.
The Group's USD-denominated loan accounts for 70 - 80% of total outstanding loans and the interest rate differentials
between the USD and VND loans are about 4% -6% per year. Therefore, even if the VND depreciates, the Group's
interest expense is still lower compared to borrowing entirely in VND.
Trade disputes in the export market.
Trade dispute is a concern for steel companies exporting to ASEAN countries. Many steel associations in other countries,
such as Thailand and Malaysia, filed letters of complaint regarding the mounting steel imports from Vietnam. Although
these filings only convey concerns regarding possible damage to their domestic steel industries, it does reflect the high
level of protection of their steel industries.
As Vietnam's steel products are offered at attractive prices, they have certain competitive advantages in the export
market, which means that a large quantity of products with cheap prices flooding into the country could spark antidumping investigations.
FINANCIAL PERFORMANCE
COST ANALYSIS
Total production costs by factors (FY2013)
Outsourcing
Others
3,4%
Administrative expense/Revenues
Selling expense/Revenues
Depreciation 8.7%
1,8%
Human
resources
3,4%
FX loss/Revenues
Interest expense/Revenues
16%
14%
12%
3,0%
-3,5%-
10%
8%
'4,3%'
2,6%
4,1%
6%
4%
_2,3%_
"3,0%_
1,8%
4,2%
_2,1%_
_3,0%_
2%
~7%
,2%-
TO
,4%^^H3,5%^^a3,4%
0%
FY2009
Source: Annual report, VPBS analysis
www.VPBS.com.vn
FY2010
FY2011
FY2012
FY2013
Page| 18
The Group's cost structure is relatively stable over the years, in which, the cost of raw materials
(mainly HRC) has accounted for over 80% of total production costs, so fluctuations in the HRC
price have a major impact on the Group's profitability.
Declines in net FX loss and interest expense
Financial expenses mainly consist of interest expense and foreign exchange losses. The Group
experienced a surge in interest expense in FY2010 as interest rates started trending up after
the interest rate subsidy program ended in 2009. In addition, in 2010, the State Bank of Vietnam
devalued the exchange rate USD/VND three times. The Group has to heavily borrow foreign
currency to import raw material, HSG has to shoulder the additional costs arising from the
revaluation of its loans. From FY2012, net FX loss experienced major declines as revenue
gained from export helped the Group partly offset FX loss, moreover, interest expense also
declined thanks to the interest rate cuts.
Higher SG&A expenses than industry averages
As the Group has its own retail network and an increasing number of employees, its selling and
administrative expenses of total revenue stay fairly high above the average of the steel industry.
The Group's SG&A accounted for 6-7% of net revenue from FY2009 to FY2013, which was
higher than industry average of 3-5% of net revenue. S,G&A expenses are expected to remain
high as the Group expands its retail network, which is costly to operate as the Group has to
shoulder the additional staff cost, outsourcing services cost. In addition, the Group sponsors for
many television programs and charitable activities as part of the marketing effort to consolidate
its brand within the industry, which also push up its SG&A expenses.
GROWTH
Steady growth of revenues but unsteady net profits
From FY2009 to FY2013, net revenues exhibited remarkable growth at CAGR of 42.8%, while
sales volume during this period achieved CAGR of 39.7%, indicating that growth in revenues
was mainly driven by growth of sales volume. However, operating profits grew at slower rate
with a CAGR of 26.2% during the same period as the Group faced certain difficulties regarding
cost management.
FY2011 net profit declined by 25.3% y-o-y due to soaring raw material cost and exchange rate
losses. In addition, the rising interest rates environment and a distressed stock market made it
impossible for the bond issuance of VND500 billion, which forced the Group to resort to
borrowing loans and further pushed up interest expense.
In 9M-FY2014, the Group recorded net revenues of VND10,966 billion, up 28.1% y-o-y, fulfilling
78.3% of the management's target. The first nine months saw the sharp increase of cost of
goods sold and selling expenses. Consequently, net profits reached VND281.5 billion, down
sharply 47.7% y-o-y and fulfilling 46.9% of the target.
www.VPBS.com.vn
Page| 19
7OO
Net profits
(VNDbn)
6OO
I
5OO
14.000
12.000
4O
10.000
8.000
3O
6.000
4.000
2O
FY2OO9 FY2O1O FY2O11 FY2O12 FY2O13 9M-FY14
2.0
Current assets will account for greater portion in the asset structure
From FY2009 to FY2013, equity grew at a CAGR of 23.9% with primary contribution from
retained earnings. Total assets grew at a CAGR of 30.8%. In FY2012, current assets dropped
15% y-o-y as the Group proactively reduced inventory to pay off short-term loans.
In the assets structure, current assets accounts for a stable proportion of 50% of total assets.
However, in FY2013, current assets accounted for 59% due to 96% y-o-y increase in inventory,
which must be maintained at high level in order to meet the demand of the domestic and export
market.
In the past few years, the Group's most prominent investment was the Hoa Sen Phu My project.
Phase I of the project was completed in 2011 and Phase 2 was completed in 2014. The Group
stated that its vertical investment process (which focuses on completing the value chain of
production) will essentially be completed by the end of
2014. Going forward, the Group will focus on the expansion of its retail network, and possible
construction of its production plant abroad.
From FY2015, we expect the proportion of long-term assets in the asset structure to decline
after the completion of phase 2, while the proportion of short-term assets will increase due to
the increase of inventory and accounts receivable to accommodate the expansion of its
domestic and export market.
Shareholders' equity
Total assets
I I I I I
I
FY2009 FY2010 FY2011 FY2012 FY2013 9M-FY14 Source:
www.VPBS.com.vn
Page I 20
www.VPBS.com.vn
Page| 21
24
100
K*
50
0
0
19
Source: Annual
report, VPBS
analysis
The
Group
offers a 15-20
day
credit
14
0
90
FY2009
FY2010
40
Source: Annual report, VPBS analysis
-10
-60
FY2011
1I
HPG POM NKG VGS DTL TLH | HSGj
FY2013
CCC surged to 117 days in FY2010 as inventory days outstanding peaked at 133 days, which
was due to the mounting of raw material inventories caused by the rotational power cut from 6
to 8 days in three consecutive months amidst construction season. CCC was shortened
significantly in FY2012 as the Group started to boost export activities, thereby rapidly reducing
inventories. The Group can also utilize its good relationship management with supplier to
extend payable days to accommodate sufficient working capital.
In FY2013, CCC of listed steel companies in Vietnam averaged around 98 days, which was
higher than that of 79 days of the Group. We believe this is a direct result of sustainable and
high sales volume, providing a stable source of revenue, therefore, the liquidity risk of the Group
is still manageable.
www.VPBS.com.vn
Page| 22
Dupont analysis
> Asset turnover
ROE ROA
Asset/Equity
8x
30%
6,69%
8%
25%
6x
20%
4x
15%
6%
4,94%
>440%
-^ST ------------------------------ 3,3 -------- 3,65%X^,2
2,7
2,6
4%
>2,6
-------
10%
5%
FY2009
0%
FY2009
FY2010
FY2011
FY2012
FY2010
FY2011
2%
1
FY2012
1,9
FY2013
0%
FY2013
Source: Annual report, VPBS analysis
ROE and ROA experienced steep declines from FY2009 to FY2011 as equity and asset
increased significantly following the implementation of the Hoa Sen Phu My project (Phase 1)
while net profits did not keep up with the same growth. ROE and ROA hit the lowest in FY2011
due to deteriorating net margin in the context of the economic downturn. However, such profit
margin was still higher than the average of the steel industry in such a difficult year as in
FY2011.
Higher gross profit margins than other galvanized steel producers; gross margin
worsened in 9M-FY2014
The Group's gross margin dropped to its lowest in FY2011, reflecting the challenging macro
environment in which it operated, and recovered steadily through FY2013, by which time gross
margin improved to 14.5%.
Moreover, we saw that gross margin of HSG was higher than other galvanized steel and steel
pipe producers like NKG and VGS. The past two years saw the industry landscape become
increasingly competitive, most steel companies' gross margin declined as they had to lower
selling prices to maintain market share.
HSG follows the "just in time" inventory management technique closely, meaning that it only
buys just enough raw material inventory for their production plan. However, it still monitors
closely the movement of HRC prices and will actively speculate on raw material if the price
movement is favorable. The Group imported substantial amount of HRC in the last few months
of 2013 in anticipation of bounce back in HRC price once global economy outlook improves.
However, HRC price still proceeded on a downtrend, consequently, the use of high cost raw
material inventories coupled with lower selling prices depressed gross margins in 9M-FY2014 to
11.4% from 15.9% in 9M-FY2013.
www.VPBS.com.vn
Page| 23
Gross margin of galvanized steel & steel pipe producers HSG's profit margins
HSG
NKG
VGS
EBITDA margin
PBT margin
25%
20%
15%
10%
5%
0%
FY2009 FY2010 FY2011
Source: Annual report, VPBS analysis
FY2012
FY2013
9M-FY14
1 Cash
H ratio
FY2OO9
O.O4x
FY2O1O
O.O2x
FY2O11
O.O4x
FY2O12
O.O3x
FY2O13
O.O4x
Current ratio
1.O4x
O.96x
O.88x
O.97x
O.97x
Quick ratio
O.4Ox
O.36x
O.3Ox
O.4Ox
O.28x
Total debt/Equity
1.17x
1.29x
1.63x
1.31x
1.54x
O.45x
O.49x
O.49x
O.5Ox
O.48x
Debt/EBITDA
2.42x
3.O5x
3.78x
2.57x
2.94x
Debt/EBIT
3.21x
3.87x
5.19x
3.49x
3.93x
EBITDA/Int. Exp.
5.63x
4.36x
2.66x
3.O3x
6.89x
EBIT/Int. Exp.
4.24x
3.45x
1.94x
2.23x
5.16x
Despite its strong growth in revenues, the Group keeps its cash at minimum to accommodate
on-going business operations, therefore, the cash ratio stays low from 0.2x to 0.4x. Current ratio
and quick ratio worsened slightly as a result of increasing short-term borrowing to finance its
working capital, mainly inventories.
Total debt to equity and other solvency ratios deteriorated especially in FY2011 due to
substantial borrowing that was used to finance its Hoa Sen Phu My Steel Sheet Plant project
amidst rapidly rising interest rates. These ratios improved in FY2012 as the Group increased its
export revenues to partially finance for its operations. From FY2013, the Group implemented
Phase 2 of Hoa Sen Phu My Steel Sheet project, as the project was mostly financed with longterm borrowings, we expect the Group's interest expenses to surge in the next two years.
www.VPBS.com.vn
Page I 24
FORECAST ASSUMPTIONS
Selling volumes
Projected sales volume
Thousand tons
Galvanized steel sheet
FY2013
FY2014E
FY2015E
FY2016E
FY2017E
FY2018E
529
608
729
875
1,050
1,239
15%
20%
20%
20%
18%
186
205
225
248
273
88%
10%
10%
10%
10%
Growth (% y-o-y)
Steel pipe
Growth (% y-o-y)
99
www.VPBS.com.vn
Page I 25
USD/ton
800
1.000
HRC price
Gross margin
0%
30%
200
4000
20%
-- - -- - - -- - - - -- - - -- - - - -- l t r l t r l t r l t r l t r l t r
10%
Source: Quarterly reports, Bloomberg, Note: arrows indicate the timing of speculation
HSG's gross margin was significantly influenced by major movements in HRC price since it is
fully dependent on imports of this product. Should the price movement become favorable, the
Group will see major improvements in its gross margin.
The Group publicly disclosed that it imported large amounts of HRC in April 2009 when HRC
price reached an all-time low, which should be able to satisfy nearly two quarters of production.
The cheap source of raw material boosted gross margin as high as 35% in 4Q-FY2009.
From FY2010 to FY2012, we believe the Group remained cautious and followed closely the
"just in time" model or had minor speculative activities as this period saw wild fluctuations in
HRC prices. Gross margins plummeted to stay around 10-14%. In general, it was difficult for
most steel producers to achieve gross margins as high as the period before 2009. This is
attributable to the fact that the operating environment of the steel industry took a worse turn:
high-cost raw materials coupled with significant lower selling prices to stay competitive in the
context of plummeting domestic demand and mounting inventories. This has become a longstanding issue of the industry.
In the Annual General Meeting held in January 2014, the Group stated that it imported
substantial amount of HRC to satisfy two quarters of production, however, wrong timing of
speculation depressed the Group's gross margin in 9M-FY2014 from 15.9% to 11.4% in 9MFY2013. The Group actively pushed sales through its retail channel to provide a way out for this
high cost inventory. For the final quarter of FY2014, to be on the conservative side, we
anticipate gross margin to stay unchanged at 11.4% as average selling prices are expected to
stay unchanged or may decrease in order to stimulate sales of substantial finished inventory.
Steelfirst, a leading metal industry trade publication, expects the major HRC price trend in the
remaining quarter of 2014 to stay flat or even decline slightly amid concerns that Chinese steel
producers are ramping up production in spite of sluggish demand due to the Government's
tightening measures.
www.VPBS.com.vn
Page I 26
We recognize the difficulty in forecasting the Group's gross margin for FY2015 onwards as this
is highly dependent on the movement of HRC price and most importantly the Group's decision
on whether or not to speculate and the timing of the speculation. For the forecast period, we
expect the Group's gross margin to recover and increase by 1% per year in FY2015 and
FY2016, due to: (1) the Group is capable of fully self-supplying its own source of CRC; (2) exits
of incompetent galvanized steel producers, who are still dependent on imports of CRC; (3)
improvements in domestic steel demand, which should tip the favor in the supply side and lead
to favorable movements of steel prices.
Tax rates
The Group has an obligation to pay income tax at the rate of 25% on taxable profit. The
provisions of the Investment Incentive Certificate allow HSG to be exempt from business
income tax for three years starting from the first year it generates a taxable profit (2004), and
they are entitled to a 50% reduction in business income tax for seven years thereafter. This
means that the Group was subject to a tax rate of 25% in 1Q-FY2014, and 22% from 2QFY2014. The corporate tax rate is set to be lowered further to 20% from FY2016.
We make the following key assumptions with regard to HSG's consolidated balance sheets:
www.VPBS.com.vn
Page I 27
VALUATION
Based on the discounted cash flow (DCF) and multiples approaches, we derived a fair value of
HSG at VND46,500 per share.
Valuation method
DCF
Fair price
40,300
Weight
40%
P/E at 15.5x
61,449
30%
18,435
TEV/EBIDTA at 8.0x
39,833
30%
11,950
Target price
(VND/share)
16,120
46,500
The risk-free rate is taken from the yield of five-year local currency Government bond
yields, which is equivalent to 5.7%.
The expected market return is expected to be 15.0%.
Beta is estimated to be 1.2.
Cost of equity is estimated to be 16.7% by using the
capital
asset pricing
model (CAPM).
Weighted average cost of capital (WACC) is calculated to
be 11.3%.
Terminal growth rate is accessed to be 3%.
COMPARABLE MULTIPLES
Compared to its regional peers, we noted that HSG delivered superior 2013 ROE and ROA
and gross profit margin. Accordingly, we derived HSG's targeted P/E at 15.5x and EV/EBITDA
at 8.0x based on its regional peers.
Valuation multiples
P/E
EV/EBITDA
Relative
1.06
0.77
VN-INDEX
2014E
14.6x
10.3x
Target
15.5x
8.0x
www.VPBS.com.vn
Page I 28
Company
Country
Market
Gross
cap
marflin
(USDmn)
Net margin
201
2
201
3
201
2
ROA
201
3
2012
ROE
2013
201
2
P/E
201
3
P/B
EV/EBITDA
LTM
2014E
LTM
2014E
LTM
2014E
Relative
Relative
P/E
P/B
Relative
EV/
EBITDA
India
389
NA
NA
13%
9%
NA
5%
NA
5%
24.2
28.0
0.9
0.9
19.8
19.3
1.3
0.3
1.7
India
358
NA
NA
3%
NM
2%
NM
6%
NM
29.7
16.9
0.7
0.5
4.7
6.3
1.6
0.2
0.4
India
372
NA
NA
9%
11%
11%
13%
23%
23%
15.8
NA
3.0
NA
8.4
NA
0.8
1.0
0.7
India
291
NA
NA
20%
15%
5%
4%
5%
5%
17.8
NA
0.8
NA
14.3
NA
0.9
0.3
1.2
India
189
NA
NA
1%
1%
1%
1%
7%
5%
38.6
NA
0.9
NA
8.5
NA
NA
0.3
0.7
Thailand
140
16%
9%
5%
9%
3%
22%
6%
NA
NA
3.9
NA
NA
NA
NA
1.7
NA
Pakistan
113
15
%
9%
9%
NM
2%
NM
2%
NM
8%
17.0
13.4
2.0
NA
8.7
NA
1.5
1.0
1.3
Malaysia
86
9%
12%
3%
3%
3%
3%
5%
5%
11.8
9.6
0.9
NA
6.5
5.8
0.7
0.4
0.6
India
43
NA
NA
29%
23%
21%
14%
23%
15%
15.2
NA
1.7
NA
9.1
NA
0.8
0.6
0.8
Thailand
47
5%
6%
1%
2%
5%
5%
9%
10%
22.0
NA
1.8
NA
16.1
NA
1.2
0.8
1.3
Average
9%
11%
10%
8%
7%
6%
13%
9%
21.3
17.0
1.6
0.7
10.7
10.5
1.1
0.7
1.0
Median
9%
10%
9%
5%
5%
4%
8%
6%
17.8
15.2
1.3
0.7
8.7
6.3
1.1
0.5
0.8
194 14%
15%
3.6%
4.9%
6.6%
9.3%
19%
27%
12.7
10.8
1.8
1.8
8.5
8.2
0.8
0.9
0.8
Vietnam
Market
Capital
FY2013
ROA
6M
ROE
Net sales
FY2014
Trailing
Gross profits
Net income
Debt
to
P/E
Trailing
P/B
Equity
VNDbn
26,987
% y-oy
VNDbn
% y-o-y
%margi
n
VNDbn
22.2%
13,197
59%
2,822
85%
21.4%
1,814
NM
5,416
5%
232.8
72%
4.3%
-9.1
NM
1,651
13%
110.7
219%
6.7%
47.6
950
-2%
81.8
16%
8.6%
HPG
POM
TLH
710
6.3%
13.2%
DTL
541
0.9%
2.6%
VIS
448
NKG
411
SMC
VGS
1,863
9.6%
VNDbn
NM
NM
11.2
% y-o-y
%margin
13.7%
0.6
9.6
2.5
NM
2.3
NA
0.8
-65%
2.9%
0.8
28.2
0.7
41%
1.2%
1.2
24.6
0.7
87%
NM
1,787
2%
118.5
-22%
6.6%
11.9
-54%
0.7%
2.0
NA
0.7
2.3%
17.1%
2,997
47%
160.5
-5%
5.4%
34.5
-14%
1.2%
2.9
8.9
1.1
301
1.0%
4.5%
5,360
8%
145.0
11%
2.7%
9.4
-50%
0.2%
3.1
18.1
0.5
277
1.1%
2.6%
1,154
-10%
53.9
5%
4.7%
14.5
245%
1.3%
0.8
12.1
0.6
TNA
224
5.2%
13.7%
715
0%
60.5
2%
8.5%
17.5
-9%
2.5%
1.8
6.8
0.8
HMC
197
2.0%
6.1%
1,114
-35%
48.2
-25%
4.3%
10.1
-2%
0.9%
1.7
9.6
0.6
DNY
DANA-Y Steel
159
0.8%
4.0%
1,061
13%
52.9
-11%
5.0%
4.1
-61%
0.4%
2.8
19.7
0.4
HLA
93
NM
1,202
-43%
-194.9
NM
NM
32.7
NA
3.6
KKC
93
6.7%
17.5%
278
92%
25.8
99%
9.3%
12.5
137%
4.5%
1.5
4.4
1.1
SSM
62
6.7%
13.0%
86
17%
11.5
50%
13.4%
4.0
62%
4.6%
0.9
5.2
0.8
BVG
Bacviet Steel
27
NM
69
-24%
13.3
-21%
19.2%
-12.5
NM
4.2
NA
0.4
NM
NM
NM
-277.8
NM
NM
Average
3.9%
10.6%
10%
34%
8.6%
26%
2.8%
4.0
13.4
1.0
Median
2.3%
13.0%
5%
8%
6.7%
-5%
1.2%
1.8
9.6
0.7
9.3%
27.5%
-8%
12%
-52%
2.6%
2.3
12.7
1.8
HSG
4,113
6,641
25%
792.7
170.6
www.VPBS.com.vn
Page I 29
SENSITIVITY ANALYSIS
Sensitivity of WACC and terminal growth rate to a target stock price
1.0%
42,600
WACC
11.3%
11.6%
11.9%
41,600
40,600
39,700
38,800
2.0%
45,700
44,400
43,200
42,100
41,100
3.0%
49,500
48,000
46,500
45,200
43,900
4.0%
54,500
52,500
50,700
49,000
47,500
5.0%
61,300
58,700
56,200
54,000
52,000
10.7%
11.0%
_ +J
^ (U
<D
05
to a)
0.0%
70,100
0.5%
85,600
-0.2%
19,700
35,100
50,600
66,100
81,500
0.0%
15,600
31,100
46,500
62,000
77,500
0.2%
11,500
27,000
42,400
57,900
73,400
0.4%
7,400
22,900
38,400
53,800
69,300
1.0%
Sensitivity of % USD denominated loan over short term loans and VND devaluation
against USD to a target stock price
70.6%
0.0%
www.VPBS.com.vn
54,300
1.0%
50,700
50,500
50,400
50,200
50,100
2.0%
47,100
46,800
46,500
46,200
45,900
3.0%
43,500
43,100
42,600
42,200
41,700
4.0%
40,000
39,400
38,800
38,200
37,600
Page I 30
TECHNICAL ANALYSIS
The technical chart shows HSG has been fluctuating around the MA50, between the highest
price at 47,000 and the lowest price at 41,500.
HSG is now trading below the MA10 and has not yet generated any uptrend signal. The trading
volume has recently been decreasing; indicating HSG is still in an accumulation phase.
Therefore, we recommend a HOLD strategy for HSG at the time of publishing report.
As of September 19, 2014
Horizon analytic
3 months highest price
3 months lowest price
Current MA50 days
Current MA100 days
Mid-term resistance level
Mid-term support level
Recommendation
www.VPBS.com.vn
HSG (VND/share)
3 to 6 months
47,000
41,500
43,900
43,900
47,000
41,500
HOLD
Page I 31
CONCLUSION
We believe the current restructuring of the steel industry to weed out incompetent producers provides a good opportunity for
companies with competitive advantages like HSG to move forward and seize additional market share. Moreover, Vietnam is
in the process of industrialization and urbanization, which should boost the demand for HSG's products.
The Group's key advantage is its ability to internally source its CRC needs. FY2014 marks a new milestone for the Group as
it will be able to source 100% of its CRC requirements thanks to the completion of Phase 2 of Hoa Sen-Phu My Steel Sheet
plant. The extensive retail network is another core competitive advantage, which allows it to deliver its product to end-users
and adopt a flexible sales program in response to changing market conditions.
We duly note that HSG still needs to import 100% of its HRC requirements, therefore, it is still exposed to the risk of HRC
price fluctuations as well as exchange rate risks. To counter these adverse effects, the Group has boosted export activities to
gain more foreign currency sources. Exports provide potential sales channels in times of slowdown in demand during the offpeak construction season. Our major concern is directed towards possible trade disputes with the Group's major export
markets.
We acknowledge the Group's leading position in the industry and its competitive advantage, however, the Group posted
disappointing 9M-FY2014 earnings results due to wrong timing of raw material speculation. All factors considered, we
recommend investors to HOLD the stock with our target price derived at VND46,500 per share.
www.VPBS.com.vn
Page I 32
2011A
2012A
2013A
2014F
2015F
2016F
2017F
2018F
8,166
10,088
11,760
15,030
17,951
21,470
25,513
29,955
66.7%
23.5%
16.6%
27.8%
19.4%
19.6%
18.8%
17.4%
7,110
8,683
10,052
13,317
15,725
18,593
22,094
25,941
Gross profits
% y-o-y
1,056
13.4%
1,405
33.1%
1,708
21.5%
1,713
0.3%
2,226
29.9%
2,877
29.2%
3,419
18.8%
4,014
17.4%
SG&A expenses
498
648
842
1,067
1,275
1,524
1,811
2,127
558
-2.6%
758
35.8%
866
14.3%
646
-25.3%
951
47.2%
1,353
42.2%
1,607
18.8%
1,887
17.4%
208
274
291
350
356
362
368
374
766
1,031
1,156
997
1,308
1,715
1,975
2,261
49
49
40
48
55
65
92
125
458
19
409
15
247
20
247
45
260
-
295
-
331
-
389
-
0
1,123
50.6%
0
1,368
21.8%
0
1,624
18.7%
Revenues
% y-o-y
Cost of goods sold
EBIT
% y-o-y
Depreciation & amortization
EBITDA
Financial income
Financial expenses
Net other incomes / (expenses)
Income from associates
Pretax profits
% y-o-y
0
168
-33.1%
Tax expense
Effective tax rate
Profits after tax
% y-o-y
Minority interest
Net income _
% y-o-y
% margin
Average number of shares (mn)
EPS (VND)
Cash dividend (VND/share)
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0
412
144.3%
43
0
679
65.0%
98
4.9%
160
-25.6%
10.6%
368
129.8%
14.5%
581
57.8%
160
-25.6%
2.0%
99
1,622
500
368
129.8%
3.6%
97
3,761
1,000
0
493
-27.4%
112
164
225
274
325
22.8%
381
-34.5%
22.0%
582
52.8%
20.0%
898
54.4%
20.0%
1,094
21.8%
20.0%
1,299
18.7%
581
0
746
51.3%
381
582
57.8%
4.9%
-34.5%
2.5%
52.8%
3.2%
96
96
5,941
3,000
3,952
2,500
96
6,039
2,000
898
54.4%
4.2%
96
9,325
2,000
1,094
1,299
21.8%
4.3%
18.7%
4.3%
96
11,361
2,000
96
13,488
2,000
Page I 33
2011A
128
464
2,016
462
3,071
2,721
2015F
2016F
2017F
2018F
124
137
642
1,261
2,522
607
1,540
392
2,606
548
3,020
470
4,215
14
820
3,379
501
4,838
14
979
3,990
589
5,710
14
1,171
4,718
726
7,272
2,585
2,790
3,337
3,071
2,798
2,520
2,237
59
59
69
2,649
59
62
2,358
66
2,845
72
2,717
78
2,927
69
3,465
81
3,212
59
75
2,933
5,916
59
59
59
14
1,392
5,606
963
9,235
14
1,634
6,582
1,127
11,880
5,323
7,142
8,304
8,921
10,205
11,884
14,238
1,098
484
1,318
1,515
1,789
2,115
2,514
2,951
2,254
134
3,486
2,040
169
2,693
2,814
207
4,339
3,081
350
4,946
3,231
445
5,466
3,650
559
6,324
4,082
716
7,312
4,793
934
8,678
606
588
1,002
711
431
221
102
5
611
5
593
5
1,007
5
716
5
436
5
226
5
107
3,304
4,932
5,953
6,182
6,760
7,538
8,785
1,008
1,008
1,008
1,008
1,008
1,008
1,008
452
605
(46)
452
821
(71)
452
961
(71)
452
1,350
(71)
452
2,056
(71)
452
2,957
(71)
452
4,064
(71)
647
Capital surplus
Retained earnings
Others
2014F
177
58
645
Share capital
2013A
67
Long-term borrowings
Total liabilities
2012A
4,133
1,008
452
343
(20)
Equity
Minority interest
1,783
2,019
2,210
2,350
2,739
3,445
4,346
5,453
5,916
5,323
7,142
8,304
8,921
10,205
11,884
14,238
2014F
2015F
2016F
2017F
409
(903)
449
(103)
644
(84)
672
(83)
945
(83)
400
2012A
2013A
249
(775)
452
(56)
221
(479)
606
(456)
373
440
(334)
(55)
30
81
50
(59)
128
115
67
(54)
177
13
124
505
137
618
642
1,261
1,261
(2)
(2)
(5)
2,522
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2011A
128
(529)
67
177
124
137
642
1,261
392
(264)
(489)
359
554
582
2018F
855
Page I 34
1 RATIO ANALYSIS
2011A
2012A
2013A
2014F
2015F
2016F
2017F
2018F 1
7.2x
0.1x
10.8x
(0.3x)
7.1x
0.1x
4.6x
0.1x
3.8x
0.2x
3.2x
0.2x
Current EV to EBIT
Current EV to EBITDA
Price to sales (P/S)
9.5x
7.1x
0.3x
12.7x
8.2x
0.3x
8.6x
6.3x
0.2x
6.1x
4.8x
0.2x
5.1x
4.2x
0.2x
4.4x
3.6x
0.1x
Valuation ratios
1.2%
2.3%
1.9x
7.0%
1.8x
5.4%
1.6x
4.3%
1.2x
4.3%
1.0x
4.3%
0.8x
4.3%
12.9%
9.4%
6.8%
13.9%
10.2%
7.5%
14.5%
9.8%
7.4%
11.4%
6.6%
4.3%
12.4%
7.3%
5.3%
13.4%
8.0%
6.3%
13.4%
7.7%
6.3%
13.4%
7.5%
6.3%
2.0%
3.1%
9.2%
3.6%
6.6%
19.4%
4.9%
9.3%
27.5%
2.5%
4.9%
16.7%
3.2%
6.8%
22.9%
4.2%
9.4%
29.0%
4.3%
9.9%
28.1%
4.3%
9.9%
26.5%
1.9x
0.7x
61.9%
162.6%
2.2x
2.6x
56.7%
131.1%
5.2x
1.8x
60.6%
153.9%
3.8x
0.9x
63.5%
173.7%
5.4x
4.9x
59.0%
143.9%
6.8x
5.9x
54.2%
118.5%
7.2x
6.3x
49.7%
99.0%
7.2x
6.4x
47.3%
89.8%
1.4x
17.6x
1.9x
16.6x
1.6x
21.4x
1.8x
18.3x
2.0x
18.3x
2.1x
18.3x
2.1x
18.3x
2.1x
18.3x
6.5x
3.5x
0.9x
0.3x
17.9x
5.6x
1.0x
0.4x
7.6x
3.3x
1.0x
0.3x
8.8x
3.9x
1.0x
0.3x
8.8x
3.9x
1.0x
0.3x
8.8x
3.9x
1.1x
0.4x
8.8x
3.9x
1.3x
0.5x
8.8x
3.9x
1.4x
0.6x
Profitability ratios
Gross margin
EBITDA margin
Operating margin
Net profit margin
Return on avg. assets
Return on avg. equity
Leverage ratios
Interest coverage ratio (EBIT/I)
EBITDA / (I + capex)
Total debt/capital
Total debt/equity
Liquidity ratios
Asset turnover
Accounts receivable turnover
Accounts payable turnover
Inventory turnover
Current ratio
Quick ratio
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Page I 35
CONTACT INFORMATION
For further information regarding this report, please contact the following members of the
VPBS research department:
Barry David Weisblatt
Head of Research barryw@vpbs.com.vn
Luu Bich Hong
Director - Fundamental Analysis
honglb@vpbs.com.vn
For any questions regarding your account, please contact the following:
Marc Djandji, CFA
Head of Institutional Sales and Brokerage & Foreign Individuals marcdjandji@vpbs.com.vn +848 3823
8608 Ext: 158
Ly Dac Dung
Head of Retail Sales and Brokerage
dungld@vpbs.com.vn
+844 3974 3655 Ext: 335
Vo Van Phuong
Director of Retail Sales and Brokerage
Nguyen Chi Thanh 1 - Ho Chi Minh City
phuongvv@vpbs.com.vn +848 6296 4210
Ext: 130
Domalux
Director of Retail Sales and Brokerage
Nguyen Chi Thanh 2 - Ho Chi Minh City
domalux@vpbs.com.vn +848 6296 42l0
Ext: 128
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Page I 36
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