20100813181108vietnam_macro_strategy_report_1h2010_version_8_12_2010

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www.vcsc.com.vn

Economics & Strategy 2H2010


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www.vcsc.com.vn | VCSC VIET CAPITAL SECURITIES | 1

CPI concerns easing focus back on domestic growth

At the beginning of 2010 many observers feared high inflation would return after a year of

loose monetary policy in 2009, especially as CPI edged higher during the first three months

of 2010 due to the seasonal Chinese Lunar New Year (Vietnamese Tet) holiday effect.

However, things have cooled down since April and month-on-month CPI growth is wellbelow 0.3%, a rather good number for Vietnam. Inflation expected at 8% will allow the SBV

to accommodate a loose monetary policy in the coming months in a bid to support the GDP

growth target of 6.5% this year.

Trade deficit is a manageable concern thanks to strong FDI

and remittances

Trade deficit reached USD 6.3 bn in 1H-2010, and may reach USD 15 bn by year end.

However, Vietnam is still able to maintain strong FDI and capital inflows. With equilibrium in

balance of payment, we think foreign exchange will remain stable towards the year end.

Domestic consumption is the key growth driver

Under stable macro environment, the economy has been growing robustly in 1H2010 as

GDP reached 6.1% year on year. Though export has bounced back from a drop in 2009, it

has not been strong enough to narrow the trade deficit, which will likely continue towards the

second half of the year as the global economy is still struggling. Looking forward, we believe

domestic consumption, which has been the key growth driver in the first half, will continue to

play its important role in the second half this year. In fact, we expect a looser monetary

policy would on the one hand stir up consumption demand and at the same time encourage

more corporate investments, consequently lifting growth in the forecast period.

Investment strategy: follow domestic demand, watch for

commodity input producers

Given the deceleration in global economic recovery, a sound portfolio strategy should be

overweight on companies that are geared towards domestic market. We like food,

construction, construction material, and real estate. Stocks like BMP, CTD, HBC, HDC,

HPG, NTP, SJS and VNM represent VCSCs top picks in these sectors.

Economics & StrategyWednesday, 11-August-2010

2H2010

Growth intact; consumption on rise


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2VIET CAPITAL SECURITIES |www.vcsc.com.vn | VCSC

Wednesday,11August2010 Economics & Strategy

GDP growth on trackGDP growth for the first half of the year reached 6.1%, which is in line with the target of

6.5% for the year. The relatively high GDP growth is largely attributed to growth in three

sectors - agriculture, processing and manufacturing, and service, which together account for

52.34% of GDP. the manufacturing sector accounted for the highest portion and contributed

21.42% to GDP, a 7.6% growth compared to last year. The service sector also reached

similar growth Thanks to an excellent harvest season, agriculture increased its contribution

to GDP from 11% in Q1 to 22.5% in Q2.

Table 1: GDP by Sector

# Industry % Contribution to GDP GDP growth (%)Q1 Q2 1H2010 Q1 Q2 1H2010

Total GDP 100.00 100.00 100.00 5.83 6.40 6.16

Sector I 14.91 27.02 21.88 3.45 3.25 3.31

1 Agriculture 10.97 22.47 17.59 3.45 3.14 3.22

2 Forestry 0.77 0.64 0.70 4.15 2.87 3.52

3 Fishery 3.17 3.91 3.59 3.33 4.10 3.78

Sector II 42.77 37.87 39.95 5.65 7.21 6.50

4 Exploration industry 10.83 8.19 9.31 0.52 -12.83 -6.48

5 Processing & manufacturing 23.42 19.95 21.42 5.48 9.57 7.64

6 Utilities 4.04 3.58 3.78 13.42 10.71 11.94

7 Construction 4.48 6.15 5.44 7.13 11.49 9.89

Sector III 42.33 35.11 38.17 6.64 7.38 7.05

8 Services 15.85 11.48 13.33 7.11 8.12 7.64

9 Others 26.48 23.63 24.84 6.44 6.78 6.63

Source: GSO

CPI on a downward trend and in check

For the first three months of 2010, the CPI was up 4.12% cf. While high, this was in line withthe effect of the Chinese Lunar New Year (Tet in Vietnam) which always affect the price of

goods are people hoard goods prior to the festivities. Once passed, priced come down to

their previous levels.

Table 2: Consumer Price Index

CPI (%) 1.2010 2.2010 3.2010 4.2010 5.2010 6.2010

Whole country (mom) 1.36% 1.96% 0.75% 0.14% 0.27% 0.22%

Whole country (yoy) 7.62% 8.04% 8.51% 8.69% 8.76% 8.75%

Whole country (ytd) 1.36% 3.35% 4.12% 4.27% 4.55% 4.78%

Source: GSO


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As a matter of fact, looking at m-o-m CPI we can easily see the effect of Tet - prices have

come down significantly since.

Chart 1: Month-on-month CPI growth is showing signs of cooling down in Q2

Source: GSO

Vietnams consumer price index rose 0.27% month-on-month in May and 0.22% in June

after growing at the slowest monthly pace of 0.14% in April. The largest contribution to the

CPI basket is foods and foodstuffs (accounting for 39.93% of the basket). These have

trending down thanks to stability in world commodity prices.

Chart 2: Monthly CPI movement is largely dependent on fluctuation in food and

foodstuff prices

Source: GSO

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Credit growth slow as lending rates stay high and banks

face difficulties mobilizing fundsAfter relatively low YTD credit growth of 4.6% in Q1-2010, growth gained traction in May

and June, reaching 1.7% and 2% respectively, with cumulative 6-month credit growth

reaching 10.5% which is rather low considering the target for the year is 25%. The low

growth is due in part to the difficulty for banks to raise deposits (only 10.82% deposit growth

over the same period), high interest rates and low growth in M2 (only 9.6% in Q1 as keeping

inflation under control was the priority at the beginning of year). Theres still a lot of room for

further credit growth in the remaining months of the year and we could see some action in

the stock market as a result.

Table 3: Credit growth 1H-2010

1.2010 2.2010 3.2010 4.2010 5.2010 6.2010

Credit growth mom 0.26% 2.09% 2.26% 1.46% 1.70% 2.00%

Credit growth ytd cf. Dec 09 0.26% 2.35% 4.61% 6.07% 7.77% 10.52%

Source: SBV

In Q1-2010, lending interest rate were relatively high at around 16% - 18% per annum

rates businesses could not afford. As a consequence, enterprises put off taking and many

faced difficulties financing their business operation and corporate development.

Since the beginning of April 2010, the SBV has directed banks to lower lending interest

rates from 14% to 12% and deposit interest rates from 12% to 10%. However, this target

hasnt been reached as commercial banks face difficulties in attracting deposits, indicated

by low deposit growth.

SBV is active in OMO market to lower lending interest

rate and facilitate growth in 2H-2010.The market anticipates banks will slash interest rates to boost credit growth in the remaining

months of 2010 given the macroeconomic stability and strong support from the central bank.

That being said, interest rate cuts seem to be slow even though the SBV has been quite

active in using monetary policies to assist local banks in cutting rates and pumping cash to

the economy through the interbank market.


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Chart 6: ON and 1w interest rate has been trending down to below 7% since early

April

Source: Reuters

In addition, 1-yr government bond yields have been trending down from above 11% per

annum to around 9.5% per annum, leaving more room for reduction in deposit and lending

interest rates.

Chart 7: Government bond yields trending downward (1-year bond yield)

Source: Reuters

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Trade deficit is a manageable concern thanks to strong

FDI, remittancesIn the first 6 months of 2010, Vietnam was able to maintain good export growth 15.8%

yoy. If excluding gold and oil exports, the country is back to pre-crisis export growth of 29%

yoy following a 9.5% contraction in 2009.

Table 4: Export turnover breakdown

Exports (all goods) Exports ex-oil and gold

Unit: USD mn. 6M 2010 6M 2009 YOY 6M 2010 6M 2009 YOY

Total Exports 32,127 27,737 15.8% 28,186 21,822 29.2%Domestic Sector 14,918 14,113 5.7% 13,575 11,508 18.0%

FDI Sector 17,209 13,624 26.3% 14,611 10,314 41.7%

Source: GSO

Although exports have been strong, imports have been stronger, which led to high trade

deficit in Q1. As a consequence, the trade deficit reached USD 6.3 bn, equivalent to 20% of

total export which incidentally is the official target. The majority of imports consist of

machinery and materials used for exports, so its not as bad as it looks.

Table 5: Import, Export Summary

MoM (Unit: USD mn.) 1.2010 2.2010 3.2010 4.2010 5.2010 *6.2010 1H2010

Export 4.9 3.9 5.2 5.7 6.3 6.3 32.3

Import 6.2 4.7 6.5 7.0 7.2 7.1 38.6

Deficit -1.30 -0.80 -1.30 -1.25 -0.90 -0.74 -6.29

YoY (%) 1M2010 2M2010 3M2010 4M2010 5M2010 6M2010

Export growth 28.1% 0.1% -1.6% 8.9% 12.6% 15.7%

Import growth 86.6% 39.6% 37.6% 35.6% 29.8% 29.4%

Deficit (% of Export) -26.5% -23.9% -24.3% -23.6% -21.3% -19.5%

Source: GSO, (*) revised

Remittance and capital inflow will be key sources to maintain balance of payment

equilibrium while running a structurally high trade deficit balance. Fortunately, FDI

disbursements have shown positive signs of stable inflows in 1H-2010 and had the highest

jump in May and in June, jumping USD 1.1 bn and USD 0.9 bn respectively. Accumulated

disbursed FDI has reach USD 5.4 bn ytd, an increase of 6% yoy.


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Table 6: Foreign Direct Investment 1H-2010

1.2010 2.2010 3.2010 4.2010 5.2010 6.2010

FDI Registered ytd (US bn) 0.3 1.8 2.1 5.9 7.1 8.4

FDI Disbursed ytd (US bn) 0.4 1.1 2.5 3.4 4.5 5.4

Source: GSO

Remittance should also ease pressures of running a trade deficit. In the first 6 months of

2010 remittances remained robust at USD 3.8 bn and we believe were on track to reach the

USD 6 bn forecasted by the government.

As a consequence, VND/USD rates on the black market have come in line with the officialrate, effectively putting a dent on currency speculation and stabilizing the whole VND/USD

equilibrium that plagued 2009.

We expect increased FDI and capital inflows to continue into the latter half of the year to

offset the trade deficit and restore full confidence in balance of payment equilibrium, even in

slight surplus, and allow the SBV to accumulate forex reserves.

Table 7: Balance of Payments

Q1-2010 Q2/2010 1H-2010

Current account -1,892 -1,678 -3,570

Trade deficit -3,400 -2,900 -6,300

Services -543 -606 -1,149

Remittance 2,051 1,828 3,879

Capital account 3,758 3,247 7,005

FDI (net) 1,670 2,035 3,705

Loans/ODA (net) 798 702 1,500

FII (net) (*) 1,290 510 1,800

Total balance 1,866 1,569 3,435

Source: SBV, unit USD mn

(*) Including USD 1,000 mn foreign-denominated government bond


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Indicators to watch

Monthly CPI growth if lower than 0.3%/month this will facilitate more flexible

monetary policy.

One year government bond yield if lower than 9% will facilitate lower interest rate

level to be established and higher credit growth can be achieved, which will be an

important factor to the economic and market development in general.

Interbank interest rate and the amount of money pumped in OMO if maintained

below 7% with higher funding through OMO, lending interest rate should trend lower

in accordance with the SBVs direction.

Table 8: Key economic indicators summary

1H2009 2009 A 1H2010 2010 F Comment

Gross Domestic Product 3.9% 5.32% 6.16% 6.8%GDP will probably exceedgovernments target of6.5%

CPI (vs. previous Dec) 2.68% 6.88% 4.78% 8.5%

CPI will be under lesspressure towards the year

end thanks to stabilizedprices of foods and fuels

Credit growth (%) 19% 37.7% 10.65% 22%

Credit growth is below thetarget of 25% due to lowdeposit growth andmonetary base

Export (USD bn) 27.6 56.6 32.3 64.0 13% export growth

Import (USD bn) 29.7 68.8 38.6 79.0 15% import growth

Trade deficit (USD bn) -2.1 -12 -6.3 -15.0

Registered FDI (USD bn) 8.87 21.5 8.43 20.0

Disbursed FDI (USD bn) 4.0 10.0 5.7 8.0

Remittance (USD bn) 6.2 3.8 6.0

Base rate (%) 8% 8% 8%

VND/USD 18,500 19,000 19,250

Source: VCSC forecast


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Outlook for 2H-2010 Monetary policy loosens, interest

rates drop, and growth acceleratesFrom what we have seen so far, the domestic economy has been making good progress

despite a number of challenges such as the elimination of the stimulus package and

inflationary threats. This encouraging result that domestic GDP continues to grow robustly

amid challenges is consistent with what we have forecasted in our investment strategy

report for 2010 at the beginning of the year. In our view, the key growth driver will be strong

domestic consumption.

Going forward, we believe the situation will likely improve as a few supporting factors

emerge.

Domestic consumption to remain robust.

SBV will likely loosen its monetary policy as inflation pressure cools down and

the need to support growth is prioritized by year-end. Consequently, we think

lending interest rates will drop to a more reasonable level, say 12% pa, from a

current relatively high rate of around 14%.

Should interest rates fall, economic activity should accelerate in Q3 and

especially in the important Q4.

As the world continue to struggle on the recovery path, commodity prices are

likely to either flatten or rise slowly which should leave a minimal effect on

inflation.

Investment strategy: follow domestic demand, watch for

commodity input producersUnlike the domestic situation, global economic indicators in the past 6 months foreshadow a

longer recovery period for the world. Although the chance of a double dip seems quite low, a

quick bounce back seems difficult. In this regard, a sound portfolio strategy should be

overweight on companies that are geared towards domestic demand such as those in the

food industry, construction, construction material, and real estate.

We also see investment opportunities in commodity-input producers as prices remainsubdued; tire producers and plastic pipe manufacturers fit the bill.


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VCSC RECOMMENDED SECTORS

Food and beverageExperiencing rapid economic growth and high consumer confidence, Vietnam is a great

potential market for the food and beverage sector. The expected growth for the sector is

promising based on the following (1) double-digit growth thanks to increasing consumption

per capita, especially in the main cities with high disposal income consumers (2) better

awareness of quality F&B goods (3) most producers have good control over input materials

and (4) firms low financial gearing. We like VNM for its efficiency and the company is a

good representative for the F&B sector.

Real estateThough the first half is usually the low season of the year, the sector performed pretty well in

comparison with the market. Real estate companies on average saw a 5.2% increase in

stock prices c.f. VN-Index around 1%. Looking forward to 2H-2010, the sector should benefit

from the following supporting trend and factors:

We expect money policy to be loosened towards the end of the year. With dropping

interest rate, home buyers should find it easier to seek financing solutions and

therefore purchasing power will likely increase.

Second half is usually the earnings season of the year when most companiesrecord high revenue and profit. This practice stems from the intention to defer tax

payments till year end, but it is also characterized by the accounting requirement to

record revenue. In order to record sales, property developers must transfer

completed units to customers or complete construction on the corresponding phase

of a project which revenue is to be recorded. Towards the end of the year, progress

is usually accelerated, and therefore earnings jump, consequently lifting investors

sentiment.

Nevertheless, we can see a key challenge facing condo developers. A great number of

condos are coming out to the market as many apartment buildings are completed. We think

the market is not over supplied yet, but condo developers may see a squeeze in their profit

margins going forward.

The investment strategy in this sector therefore is to look for companies with large and

favorably located land bank that are purposed for development of land plots and villas - the

segment which is less likely to be hit thanks to limited supply. We also like companies that

are located in Ha Noi as several key transportation infrastructures are to be completed this

year. Two of our recommended stocks are SJS and HDC.

ConstructionUnlike real estate industry, contractors are able to book revenue in phases as work is

completed. Therefore once a contract is signed, construction companies as long as they

fulfill the terms of agreed upon work in the contract are almost certain to achieve the


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guaranteed revenue. In other words, contractors only need to worry about finishing the work

and not about whether a particular project can be sold or not.

However, this safety net has its downsides - the construction sector is highly competitive

with many private and public companies vying for a limited number of projects. The

competition is extremely fierce especially among subcontractors pressuring gross margins

in the sector. Main general contractors see gross margins of around 10-15% while

subcontractors usually settle for much less in the single digit range. Therefore how well a

construction company controls costs is crucial to preserving the bottom line.

Thus we see the construction sector as having a safe and stable revenue source and will

see benefits from a seasonal year-end push to complete contracts and accelerated credit

growth in 2H-2010. In the construction sector, we like two particular stocks: CTD and HBC.

Construction materialsConstruction materials sector benefits significantly from increasing demand in construction

industry thanks to overall economic and population development. There is still a great

potential for construction growth since Vietnam is an emerging market with young

population, where demand for infrastructure improvement is high. Therefore, consumption

growth for construction materials is secured in the next several years.

In the construction materials sector, we like the PVC pipe and steel industries. For PVC

pipe, direct competition in the subsector is relatively low since most companies havedeveloped their own market segments and customer base. The main difficulty in PVC pipe

production stems from plastic materials, of which 90% is imported. Consequently,

production cost is highly dependent on the input materials world price trend. After prices

surged in Q1, plastic prices have fallen by 15% since; therefore, profit margins in 2H-2010 is

expected to improve.

For the steel industry, the potential growth of Vietnam steel industry is highly regarded at an

average growth rate of 10% per year for the next 5-10 years. Currently, the Vietnam steel

industry is still significantly dependent on the world steel market as more than 50% billet and

nearly 100% flat steels are imported for domestic uses. As a result, domestic steel price is

directly and considerably impacted by fluctuations in global steel prices and demands.

During 1H-2010, along with global markets, the domestic steel industry has faced strong

fluctuations in price and demand causing significant impact on steel companies. The third

quarter is still a difficult time as it falls into a usually low rainy season; however, some

positive signals of a halt in the downtrend has been seen and we expect a stable recovery

of price and demand from mid-Q3 before starting the peak season in the last quarter.

We recommend NTP as a good stock in plastic pipe industry and also like BMP and HPG

thanks to their strong fundamental background.


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Table 9: VCSC Recommendation Summary

Sector Why we like the sector VCSC Stock Picks

Food and

beverage

(1) double-digit growth thanks to increasing

consumption habit; (2) better awareness on quality

F&B goods; (3) cost control on input materials; and (4)

low financial gearing

VNM

Real estate

(1) purchasing power will likely increase towards the

year end thanks to dropping interest rate; (2) second

half is usually the earnings season; (3) bias towards

companies with large and favorably located land bank

HDC, SJS

Construction

(1) enjoy higher growth with recovery in economic and

real estate sector; (2) able to secure a safe and stable

revenue source; (3) benefits from a seasonal year-end

push to complete contracts and accelerated credit

growth in 2H-2010

CTD, HBC

Construction

material (PVC

pipe, steel)

(1) increasing demand in construction industry thanks

to overall economic and population development; (2)

falling material input price for plastic pipe; and (3)

recovery in steel price and demand from mid-Q3.

BMP, HPG, NTP

Source: VCSC summary

VCSC TOP STOCK PICKS

VNM: Vinamilk Vietnam DairyVNM is the F&B industry leader with 40% domestic market share and has the most

recognized brand name and an extensive distribution network. VNM dominates such key

dairy segments as fresh milk, powder milk, yoghurt, and condensed milk. The company has

experienced strong growth in both the top line and the bottom line in the recent years

coupled with attractive efficiency and profitability ratios. Ending 1H-2010, VNM recorded

impressive financial performance fully derived from core business operations with 52.6%

and 67.4% increases in revenue and earnings respectively compared to 1H-2009. We

positively anticipate the companys revenue for the whole year 2010 to increase by 44.1% to

VND 15,292 bn and net income to jump 56.3% to VND 3,714 bn from the previous year.

With strong financial capability and strong cash balance, VNM continues focusing on core

business development for future growth. Supported by great potential growth of the industry,

strong position in the market, and great fundamentals, we are confident in VNMs ability to

maintain its impressive growth in the next three years with the expected average growth rateof revenue and earnings being over 35% and 22% respectively. In addition, VNM is now

trading at a very attractive P/E forward 2010 of 8.7x.


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HDC: Hodeco Ba Ria Vung Tau Housing DevelopmentHDC is the leading property developer in Vung Tau with projects at prime locations. Land

price in Vung Tau is on the rise as it benefits from: (1) improving transport from HCM city (2)

land area is limited by the sea which makes expansion impossible, and (3) the increasing

trend in secondary vacation home ownership.

Valuation seems attractive with NAV at VND 67,000 per share, 31% higher than its current

price. Forecast earnings for 2010 and company target 2011 are VND 125 bn and VND 165

bn respectively, placing PE 2010 and 2011 at 8x and 6x.

There could be earnings surprise as HDC may start selling and recording profit from its core

project Ngoc Tuoc 2 villa houses. This can potentially provide a total of VND 850 bn grossprofit, which has not been considered in the plan for 2011.

SJS: Sudico Song Da Urban & Industrial ZoneSJS is a company we like because it has a large land bank that is located at strategic

locations in Ha Noi, which we believe will likely see price appreciation as key transport

infrastructures come into operation. Our estimated earnings for 2010 is around VND 1,000

bn, and accordingly its EPS should be around VND 10,000. At the price of VND 73,500 (on

8/2/2010), the companys PE 2010 should be around 7.4x, which is quite attractive

compared with industry average around 10x - 11x. In addition, the current stock price is at

28.6% discount to our estimated Net Asset Value at VND 103,000 per share.

CTD: CotecCons Cotec ConstructionCTD is the leading listed construction company in the nation with an estimated backlog of

around VND 5,600 billion. As a dominate player in the industry CTD holds several

advantages. First with its large scale in terms of technical expertise, equipment, manpower

and management, the company is able to oversee and execute a multitude of projects

ranging from industrial factories, commercial and residential buildings, resorts and tourist

parks. Second, CTD has maintained an excellent track record of quality and on time delivery

of projects. Third, the company is able to compete for work on some of the largest projects

in the country as a main contractor and does not take the role of sub contractor. Combined

with its capable positioning against foreign contractors such as Hyundai, Kumho, Daewoo,

i.e., CTD holds a strong negotiating position when choosing projects and is able to maintain

higher margins.

CTD was able to achieve 13.7% gross margin and 11.5% net margin in 2009. However,

gross margin has shrunk to just 10% on higher construction materials cost and net margin to

8.1% due to a full tax levy in 1H-2010. Despite the margin contraction we are still positive on

CTD given its large backlog and financial position in particular the lack of long-term interest

bearing debt.

CTD has already completed 59% of its revenue plan and 52.2% profit after tax plan for 1H-

2010 bringing in VND 1,356 billion and earning VND 110 billion. We believe CTD will

exceed its earnings guidance of VND 210 billion and instead earn near VND 235 billion.


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Thus at this level of earnings, PE 2010 forward at the current price of VND 75,000 per share

is under 10x, a fairly attractive PE for a blue-chip construction company.

HBC: Hoa Binh ConstructionHBC is the runner up in the industry after CTD. HBC is making good progress towards

achieving their profit goal as demonstrated by impressive 1H-2010 result. The company

posted VND 55 bn net profit for the period compared with only VND 1.7 bn in 1H2009.

In fact 2009 was a tough year for HBC as it suffered a loss from its real estate business. But

the most important reason for the strong earnings in 1H-2010 is that the company has been

able to increase its gross margin quite significantly from a normal 12.1% to 17.3%, thus

lifting net margin to 10.6% from a low base 5%. This implies HBCs capability to increase itsprice in new contracts and also better cost management.

Going forward, we think the company stands a good chance of fulfilling its revenue and

profit goals for the year thanks to a couple of large projects which HBC has just won. We

forecast that the company can deliver 1,617 bn revenue and VND 110 bn net profit for 2010.

Accordingly, at the current price of VND 44,600, PE 2010 is around 6x, which we feel is an

attractive valuation level.

NTP: Tien Phong PlasticNTP announced 1H business results with strong profit growth exceeding our

expectations. Revenue and profit increased by 32% and 15% compared to 1H2009 while

material price increased significantly in Q1. Sale volume reached 26,500 tons in 1H, up 20%

yoy. In addition, NTP could also transfer part of increasing plastic material costs to its

customers the company has increased selling prices by 10% in 1H.

NTP has the highest production capacity among peers and holds the leading position in

Northern market thanks to its established brand name. Also, the fact that NTP product

specifications use different measurement units inches instead of centimeters creates a

major competitive advantage for NTP, and causes lots of difficulties for other competitors to

penetrate into Northern market. We project NTP can achieve around VND 360 billion profit

in 2010, translating into 2010 EPS of VND 16,614. Accordingly, P/E 2010 at current price ofVND 94.000/share is 5.7x.

BMP: Binh Minh PlasticsBMP announced 1H-2010 business results with revenue up by 32% and profit down by 10%

compared to 1H2009. BMPs profit margin is lower than NTPs, partly due to higher

depreciation costs and the ability to control production costs. BMP has also increased

selling price by 8% in 1H-2010.

BMP has the second highest production capacity among peers, just below NTP. However,

competition in the South is much more intense as nearly 80% of businesses in thesubsector is located in this region. Even though the absolute value of NTP profit is higher

than that of BMP, cash flow from NTPs operating activities is low since selling policies


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through contracting operation allow customers longer payment terms. Thus, the quality of

BMP profit reflected in operating cash flow is consider better than NTP, regarding abilityto re-invest in business activities. Our forecasted 2010 profit for BMP is VND 230 billion,

translating to 2010 EPS of VND 6,740. Accordingly, 2010 P/E at current price is 7.8x; a 35%

premium to NTP. However, historically, NTP has been traded at some discount to its peers

in the South. We consider BMP P/E of 7.8x quite attractive compared to the whole market.

HPG: Hoa Phat GroupHPG is one of the largest domestic steel companies that employs modern technology and

possess a full chain of steel production and distribution. This allows HPG to reduce input

costs and increase accumulated value to have competitive price. The new construction steel

production plant operated since end of 2009 enhances HPGs total designed capacity from250,000 tons to 600,000 tons per year. The efficiency of the new integrated steel plant has

significantly contributed to HPGs improved market share, sales volume, and revenue in the

first half of 2010. Having 260,130 tons construction steels consumed in 1H-2010, HPG has

jumped from the 4th

place with only 8.6% market share at the end of 2009 to the 3rd

largest

steel producer with 12% market share. Ending 1H-2010, HPG earned VND 5,920 bn in

revenue and VND 631 bn in net income, achieving 48% target revenue and 46.7% target

income.

There is high probability that HPG will achieve 2010 earnings target of VND 1,350 bn thanks

to the current gradual recovery of the steel industry after a difficult period during Q2-2010

and potential contribution from the real estate segment. HPG is currently trading at P/Eforward 2010 of 8.6x (based on the new charter capital of VND 3,245.5 bn after the

conversion of convertible bonds at the year end). We are looking forward to greater growth

and performance from the company from 2011 onwards with more significant contribution of

real estate activities and stable operational efficiency of the new integrated steel plant.

Table 10: Financial forecast for recommended stocks

TickerPriceVND000

Chartercapital

Marketcapital

Sales2010F

Salesgrowth

PAT2010F

PATgrowth

EPSVND000

ROE ROAP/E

2010F

BMP 51.0 347 1,773 1,400 22% 230 -8% 6.7 27% 23% 7.6

CTD 75.0 307 2,413 3,088 28% 235 4% 7.6 18% 13% 9.8

HBC 44.6 151 674 1,617 -8% 110 128% 7.3 17% 7% 6.0

HDC 51.0 200 789 500 64% 125 61% 6.2 38% 14% 8.1

HPG 35.8 3,245 11,619 12,465 53% 1,380 8% 4.2 20% 12% 8.4

NTP 93.7 216 2,030 1,850 20% 360 18% 16.6 36% 27% 5.6

SJS 73.5 1,000 7,350 1,600 43% 1,000 41% 10.0 35% 26% 7.0

VNM 91.0 3,531 32,130 15,293 44% 3,714 56% 10.5 40% 32% 8.7

Source: VCSC 2010 forecast, unit: VND bn


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Table 11: YTD returns by sector 1H-2010

YTD Return Market Cap Weight P/E 2009

Banks -18.9% 104,166 19.2% 12.9

Construction -0.3% 8,992 1.7% 9.7

Construction Materials -6.2% 39,329 7.3% 11.2

Financial Services 20.5% 94,604 17.4% 16.6

Food & Beverage 18.3% 45,321 8.4% 12.2

Gas, Water & Electricity -19.9% 12,696 2.3% 6.9

Transportation -11.6% 13,744 2.5% 9.1

Oil -27.2% 12,619 2.3% 10.7

Other 4.8% 67,461 12.4% 10.8Pharmaceuticals 0.3% 8,882 1.6% 9.8

Real Estate Investment 5.2% 113,606 20.9% 10.4

Rubber 1.3% 12,558 2.3% 10.5

Seafood -4.0% 8,389 1.5% 5.5

Total 542,374 100.0% 12.0

Source: Bloomberg, VCSC summary, unit: VND million

*Data as of 8/3/2010


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20100813181108vietnam_macro_strategy_report_1h2010_version_8_12_2010

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