rong viet securities - investment strategy report outlook 2018

BỨC TRANH LỢI NHUẬN QUÝ III/2013

A First Look at 2018 December 2017

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3

REPORT CONTENT

MACRO OUTLOOKS

STOCK MARKET OUTLOOKS

INVESTMENT IDEAS & STOCK PICKS

MACRO ECONOMICS

5

2017: Impressive Performance

Vietnam’s GDP growth was at the top of Asia Interest rate’s gradual drop and a newly low platform

Source: Bloomberg, A.T. Kearney, RongViet Research

Foreign capital still flowed into Vietnam Vietnam’s retail market: sweet fruit

2.7%

3.0%

0%

2%

4%

6%

8%

Taxes and subsidies ServiceIndustry and construction Agriculture, forestry and fishingGDP growth 2017 GDP growth 2016

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14

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05/12 05/13 05/14 05/15 05/16

VGB 5Y yield VGB 10Y yieldCPI RHS Short-term Lending rateVietnam 5Y CDS RHS

(%) (Points)

-8-6-4-202468

1012

Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017

Net Errors and OmissionsFinancial AccountCapital AccountCurrent Account

(USD B)

0

20

40

60

80

100

120 GRDI Score Time pressure*(Points)

Note: 1) High time pressure means it is urgent to enter the country and capture the growth opportunity2) Vietnam’s lower 5Y CDS illustrates a sorter mid-term risk

6

2018 economic outlook: Identifying the prospects

2018 business environment: • According to RongViet Research’s forecast, the 2018 economic growth will reach 6.70% YoY (basic scenario) and 7.0% YoY

(positive scenario), thanks to 2 drivers, including consumption and investment

• Interest rate burden put on prioritized sectors is likely to decline in the context of VGBs’ low yield

• SBV stands keeps loosening monetary policy which is expected to ease negative effects on domestic commodity prices

• Basic commodity prices will rally gradually

• FX risk is low in H1 2018

Hope for turning points:• Investment opportunities stemming from the state divestment plan in the hope of higher business efficiency of divested

companies

• Strengthening of public revenue via consumption tax’s hikes

• Identifying long-term momentum of the economy, including 3 SEZs named Van Don, North Van Phong, and Phu Quoc

• Completely reducing 1/3–1/2 of business registration documents

• Renegotiating lots of trading agreements, such as CPTPP, RCEP, and EVFTA

2018 themes:Theme 1 : 2018 – switching points of state divestment plan

Theme 2 : Restructuring public revenue

Theme 3 : Consumer financing – opening a door for credit growth

Theme 4 : SEZs – hope for new momentum?

7

2018 Forecast

Source: RongViet Research

2015 2016 2017E 2018F

GDP growth 6.68% 6.21% 6.65% 6.7%-7.0%

Trade balance (USD B) -4.1 +1.78 +2.0 +1.8

Export growth 7.9% 9.0% 18.9% 13.8%

Import growth 12.0% 5.6% 19.2% 14.0%

Inflation 0.6% 2.66% 3.62% 3.71%

Refinancing interest rates 6.5% 6.50% 6.25% 6.25%

M2 growth 14.5% 18.4% 17.5% 17.0%

Credit growth 17.3% 18.2% 19.0% 18.0%

Public deficit 4.6% 3.64% 3.5% 3.7%

Trading USD/VND rate 22,485 22,761 22,715 23,014

8

Theme 1: 2018 – Switching point for state divestment plan

Source: GSO, HNX, Fin Pro, RongViet Research

Completing most of the equitization plan Slow state divestment

~60% of domestic-denominated bond dues in 2018-2021 Comments:

There will be 89 SOE equitization in 2018-2020. After 30

years, Vietnam expectedly completes the equitization

plan on 4.655 state-owned companies

However, state ownership ratio remains high due to

extremely low state divestment

2018 is willing to be a switching point of state divestment

plan as there are 181 companies, 70% of a 3-year plan in

2018-2020

0

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300 Book value Divestment value Premium(VND T)

An engine behind significant state divestment effort

0

2

4

6

8

10

12(USD B)

Note: 2017’s divestment value excludes Sabeco’s USD4.8B value deal

9


Source: Bloomberg, HNX, RongViet Research

The government removes administrative obstacles Tightening cycle is at the beginning

Regarding SOE equitization, Decree No.126/2017/ND-CP:

• Supporting potentially strategic investors as the non-transferable time will be cut down to 3 years from 5 years

• Pushing listing/registering after equitization

• Diversifying valuation methods by adding book building method

• Land ownership right’s revaluation is based on market value

• Guidelines of calculating goodwill value

Regarding the state divestment, draft decree amending andsupplementing some articles of Government's Decree No91/2015/NĐ-CP:

Interest rates of South Korea and China

• Rebuilding a 2-step divestment process, consisting of publicoffering auction and put-through transactions, of which,public offering auction includes normal auction and large-size auction

• Legalizing unregistered state ownership public offeringauction

• Accepting a lower divestment value compared with itsbook value 3

4

5

6

7

01/12 09/12 05/13 01/14 09/14 05/15 01/16 09/16 05/17

South Korea China(%)

Encouraging environment and the government’s action

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0.6

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-1

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01/00 01/02 01/04 01/06 01/08 01/10 01/12 01/14 01/16

ECB LHS FED LHS BOJ RHS(%) (%)

10


Source: Bloomberg, HNX, RongViet Research

FX reserve: Will the 10-year-ago event recur? Considerate M2 growth

Controlling floating money Adjusting short-term money via OMO channels

05

101520253035404550

1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017E

(USD B)

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2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Credit growth M2 growth

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2012 2013 2014 2015 2016 2017E

Loan value

Net VGBs value

Money supply

Liquidity gap

-300

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-100

0

100

200

300

05/12 12/12 07/13 02/14 09/14 04/15 11/15 06/16 01/17 08/17

Reverse repoOutrightTotal trading value

(Trillion VND)

SBV policies to adapt to a new environment

11

Theme 1: 2018 – Switching point of state divestment plan

Source: RongViet Research compiles

Natural Rubber Oil&Gas Utility Industry

Agriculture Oil&Gas Utility Cement

Aviation Pharmacy Textile Construction material

IPO – State divestment in 2018

12

Theme 2: Restructuring public revenue

Source: Bloomberg, RongViet Research

Public debt-to-GDP rate close to the roof of 65% 40% gap of capital for infrastructure investment

A massive loss caused by lower export-import taxes Comments:

• Restructuring public budget plays an important role

• Significant revenue like export-import tax, grants and

priority loans will drop, resulting in changes in revenue

structure

• Lack of infrastructure investment calls for private sectors’

participation

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30

2007 2010 2013 2016 2019 2022 2025 2028 2031 2034 2037 2040

Energy TelecommunicationAirport PortsRail RoadWater

(USD B)

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2007 2010 2013 2016 2019

ACFTA AFTAAKFTA AIFTAAANZFTA EPA

0

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80%

2009 2010 2011 2012 2013 2014 2015 2016 2017E2018F

Grants RHSPublic debt-to-GDP rate LHSDebt repayment-to-public revenue rate LHS

(VND B)

Fiscal “wheel” wears out

13


Source: MOF, RongViet Research

Public revenue structure Public expense structure*

(1) Income and consumption taxes account for the biggest percentage of total revenue, 26.3% and 37.4%, respectively

(2) Fees, charges and non-tax surges 20.6% YoY, accounting for 17% of total revenue

(3) Environmental protection tax grows at an annual 22 pace on average and accounts for 3.9% of total revenue

(4) Revenue from Lottery was added

(1) Regular expenditures climb 13,1% YoY in 10 years and accounts for 74% of total expense

(2) Investment expenditures increase only 8,7% YoY and its percentage drops to 26% of total expense

(3) According to the financial restructure plan, the government prioritizes debt repayment in 2016-2020

* Note: Public expenditures exclude principal repayment

Public revenue structure Public expense structure

0%

20%

40%

60%

80%

100%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Income taxes Consumption taxesExport-Import taxes Environmental protection taxRevenue from Loterry Other taxesFees, charges and non-tax Grants

0%

20%

40%

60%

80%

100%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Administration expenditures Economic expendituresSocial expenditures Interest paymentOthers Investment expenditures

Public budget structure

14


Source: MOF, RongViet Research

Type Impact

Value-Added Tax (VAT)

1) The MoF estimates the VAT increase could add 0.06-0.39% to CPI

2) RongViet Research estimates budget revenue could be added by VND70,000 billion-VND90,000 billion

3) Vietnam’s shadow economy, equivalent to 15.1% of GDP, may increase

4) Strongly impacted sectors: Consumer; Real Estate; Agriculture

Special Sale Tax 1) Special Sales Tax contributes to 7-8% of total budget revenue. The increase of SST for soft drinks andcigarettes could boost budget revenue in the medium term

2) Allow domestic car manufacturers to better compete with imported cars

Corporate Income Tax 1) SMEs make up 95% of all companies operating in Vietnam. Therefore, tax reduction will enhance suchbusinesses

2) CIT from SMEs contributes less than 1% to total budget revenue. So we think the tax cuts will impactinsignificantly to budget revenue

3) Limit corporate leverage, especially state-owned corporation

4) Weakening the momentum of price transferring

Personal Income Tax 1) Supporting medium-income class

2) Encouraging employees in the prioritized sectors

3) Rising public revenue via tax burden put on lottery income

Tax reform

15

Theme 3: Consumer financing – opening a door for credit growth

Source: Bloomberg, NFSC, RongViet Research

Total credit to non-financial sector (% of GDP) Credit-to-GDP gap*

Big gap for consumer financing development Global trend related to household debts

-15

-10

-5

0

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15

09/09 07/10 05/11 03/12 01/13 11/13 09/14 07/15 05/16 03/17

0%

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250%

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Thailand Malaysia Indonesia China Australia Korea EM

2008 2017

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35%

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2010 2011 2012 2013 2014 2015 2016 2017E

Vietnam's consumer financing-to-GDPLHSVietnam's Credit growth RHS

Expansion of household debt

Note: Over 10% credit-to-GDP gap warns of financial crisis in next 3 years

16


Source: Bloomberg, NFSC, RongViet Research

Consumption contribution to GDP Consumer financing structure

Banks take the driving role Low net-interest margin

8.43 8.97

18.0723.27

0.47 1.53

2.53

3.28

0

5

10

15

20

25

30

2013 2014 2015 2016

Finance companiesBanks

Spread-out effects on the economy

2.4%

2.6%

2.8%

3.0%

3.2%

3.4%

5%

10%

15%

20%

2012 2013 2014 2015 2016 2017E

NIM RHSShort-term lending rate LHSShort-term deposit rate LHSBanks' Consumer financing interest rate LHS

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

China Thailand Indonesia Philippines Vietnam

52.36%15%

24%

1%

3% 4.64%

Buy/repair houses Transport

Durable goods Hi-tech goods

Education, tourism, health care Others

17


Source: Bloomberg, Savills, RongViet Research

Saving/GDP rates of Asian nations Stock market movement

Real estate prices climb in Ho Chi Minh city Lesson from other countries

70

75

80

85

90

88

89

90

91

92

93

94

Q1/2012 Q1/2013 Q1/2014 Q1/2015 Q1/2016 Q1/2017

Housing Price Index LHS

Office Price Index RHS

0%

10%

20%

30%

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50%

-15%

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03/13 10/13 05/14 12/14 07/15 02/16 09/16 04/17 11/17

Potential risks from surging consumer financing growth

100

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25

50

75

100

125

1981 1984 1988 1992 1995 1999 2003 2006 2010 2014

Canada new housing price index LHSCanada Household Debt-to-GDP ratio LHSUS household debt-to-GDP ratio LHSU.S. Housing price index RHS

(%) (Points)

18

Theme 4: SEZs – hope for a new momentum?

Lessons from other countries

Contents China India

Results SEZs account for 22% of China’s GDP growth, creating 30 million jobs; taking 45% of FDI

Upto 2014, only 164/564 SEZs are alive

Size Very big. Typically in hundreds of hectares Over 10 hectares

Position Well thought out and located only on coasts to facilitate exports and importseasily.

Anywhere. No restriction

Number Only 6 SEZs: Shenzhen, Zhuhai, Shantou, Xiamen, Hainan and Pudong Any number

Policy regime Experimentation of liberal policies in the specified areas Based on fiscal sops.

Labor law Relaxed in the SEZs Flexibility is totally absent

Investors Basically foreigners who are wooed with sops and promises of stability in policy

Basically local not foreign investor driven; which should have been the case.

4%

5%

6%

7%

8%

9%

10%

1991 1994 1997 2000 2003 2006 2009 2012 2015

GDP growth

Manufacturing Area Industrial Area High-tech, border-gate economic zones Open and Coastal Economic Zones

Source: GSO, RongViet Research

The economy’s momentum is weakening

19


Van Don

1) Prioritized sectors:• Hi-tech projects• Supporting industry• Tourism• Logistics

2) Job creation (2030): 132,0003) Additional public revenue (2021-2030): USD4 billion4) Added value (2021-2030): USD9.7 billion

North Van Phong

1) Prioritized sectors:• Information technology• Electricity• Exact mechanics• Ports and logistics• Defense• Tourism• Commerce–finance

2) Job creation (2030): 65,0003) Additional public revenue (2021-2030): USD2.2 billion4) Added value (2021-2030): USD10 billion

1) Prioritized sectors:• Tourism• Retail• Healthcare

2) Job creation (2030): 57,6003) Additional public revenue (2021-2030):

USD3.3 billion4) Added value (2021-2030): USD19 billion

Phu Quoc

SEZs’ Impact

20


Stage 1 Stage 2 Stage 32022 2026 2030

Preliminary Period 2018

• Entertainment casino• Port and airline services• Shopping center• Creative technology; entrepreneur

center

• Seafood processing• Logistic services• Education; Health services• Finance services

• Bioengineering• Green technology• High technology,…

Van Don

Preliminary Period 2018

• Complete legal formalities, planning, arrange management system

• Build main infrastructure

• Complete synchronized substruction and legal system

• Attract investment and main sectors

• Deep investment to establish international city status

• Create spillover effect

• Build cargo port, international airline port

• Build shopping center – finance• Build urban area• Develop model: high-tech area, high-

tech center

• Transport by international airline; develop port service

• Build finance - banking; attract international funds

• Build yacht port; Education; Health services• Develop high technology for national

defence, new building material technology; biology technology,….

• Develop and optimize port services• Develop finance forms, securities,

venture capital,….• Develop services, traveling,….• Develop R&D activities

Bac Van Phong

Stage 1 Stage 22025 2030

Start 2018

Acceleration Develop and disseminate2021 2025

• Create spillover to Kien Giang and national economy

• Expand pilot with opener regulars

Develop main sectors:• Traveling• Shopping center and exhibition• Study and development

Develop momentum sectors:• Processing• Communication and logistics• Universal education and finance

services• Health services,…

Develop other sectors:• Bio-engineering, green technology• High-tech appliance center, AI• Advanced telecommunication services• Investment funds

Phu Quoc

• Complete legal formalities, planning, arrange management system

• Build main infrastructure

• Complete synchro substruction and legal system

• Attract investment and main sectors

SEZs development process

21

List of potential risks

No Risk Impact Level Probability

1 Unreal bad debts solved Direct

2 Delay of IPOs & state divestment Direct

3 Negative effects of consumption tax hikes

Direct

4 Foreign outflow Direct

5 Commodity prices Direct

6 China’s economic policies Direct

7 China-US relationship worsens Indirect

8 Political risks Indirect

Note: Probability-Impact Assessment

Very high High Medium Low Very low

22

Appendix: Some projects in SEZs


Name Sector Size (VND B) Investors Status

Van Don

Van Don International Airport Infrastructure 7,500 Sun Group Operation in 2018

Ha Long - Hai Phong Highway Infrastructure 13,600 CIENCO 4 Operation in 2018

Ha Long – Van Don Highway Infrastructure 13,988 BOT Bien Cuong JSC. Operation in 2018

Van Don – Mong Cai Highway Infrastructure 16,014 N/A Start in 2017

Bac Cai Bau seaport Infrastructure 2,200 MBLand Hoildings Studying

Van Don Heritage Road Tourism 5,000 Van Don Heritage Road JSC. Studying

Sonasea Dragon Bay Tourism 4,950 CEO group Studying

Furama Ha Long Viet Nam Resort & Villas Tourism 1,120 Viglacera corporation Pending

Eco-tourism area Ngoc Vung, Van Canh Tourism 46,000 FLC group Studying

Non-tariff, clean industrial zone Industrial area 31,500 N/A N/A

Van PhongVan Phong 1 Thermal Power Project Energy 58,721 Sumitomo corporation (Japan) Licensed

Nam van phong petrochemical refinery complex Energy 109,248 Petrolimex and Nippon Oil Energy (Japan) Licensed

Phu Quoc

Phu Quoc International Passenger Port Infrastructure 1,600 Vingroup Operation in 2018

The Phu Quoc Cable Car Tourism 10,000 Sun Group Operation in 2018

Safari Park Infrastructure 3,150 Vingroup Pending

Deep Water Port Infrastructure 2,000 PVN Pending

Sun World Hon Thom Natural Park Tourism 10,000 Sun Group Pending

Expansion of International Airport Infrastructure 2,000 Airport Corporation of Vietnam Operation in 2018

Sonasea Villas & Resort Tourism 4,500 CEO group N/A

Phu Quoc Marina Tourism N/A BIM group N/A

Condotel Premier Residences Tourism N/A Sun group N/A

The Coast Villas Tourism N/A Nam Land N/A

Grand Word Tourism 7,500 LDG Group Pending

23

Appendix: Tax reformTypes Key changes Impact

Value-

Added Tax

(VAT)

1) Increase the current standard VAT rate to 12% from 10%.2) Transfer of land use rights is proposed to be changed from VAT exempt to taxable At the standard VAT rate.3) Remove the role of subtracting land-use-right transfer price/land rent out of real estate prices used to calculate VAT4) Transfer of fertilizers, agricultural machines, off-shore fishing boats from VAT exempt to taxable.5) Threshold for payment by bank for both VAT and CIT purposes is proposed to be reduced from VND20 million toVND10 million6) The draft law removes a number of goods/services entitled to 5% VAT rate, moving them to the standard tax rate(water, medical and educational equipment used for multiple purposes, sporting and entertaining activities, books)

1) The MOF estimates the VAT increase could add 0.06%-0.39% to CPI.2) RongViet Research estimates public revenue could beadded VND70,000 billion – VND90,000 billion.3) Vietnam’s shadow economy, currently equivalent to 15.1%of GDP, may grow.4) Significantly under-impacted sectors: Consumer; RealEstate; Agriculture; etc.

Special

sale tax

(SST)

1) Introduce SST on soft drinks at either 10% or 20% from 01 Jan 2019.2) Increase taxes for cigarettes and cigars:• Add a fixed SST charge of VND1,000 per pack of 20 cigarettes and VND1,500 per cigar, effective 01 January 2020; or• Increase the SST rate from 75% to 80% on cigarettes from 1 January 2020 and to 85% from 1 January 2021.3) Amend taxable revenue for automobiles with less than 9 seats manufactured in Vietnam to sales price of manufacturer exclusive of the value of spare parts produced domestically.4) Hike SST on imported pickup trucks: 60% of the rate on sedans with the same engine capacity.

1) Special Sale Tax contributes to 7-8% of total budgetrevenue. Such hike could boost budget revenue in themedium term.2) Allow domestic car manufacturers to better compete withimported cars.

Corporate

Income

Tax (CIT)

1) CIT burden put on SMEs will be down to 15%-17%.2) Tax on capital/share transfers by non-residents (CAPT): 1% on sales proceeds as opposed to the current 20% on net gain.3) Proposal to allow offsetting of gains from real estate transfers against losses from operations.4) Introduction of thin capitalization rules: no tax deduction for interest where debt to equity ratio exceeds 5:1 for manufacturing companies, 4:1 for other industries and 12:1 for banking.

1) SMEs make up 95% of all companies operating in Vietnam.Therefore, facilitating SMEs groups through tax incentives isone of the ways to upgrade growth driver in Vietnameconomy.2) CIT from SMEs contributes less than 1% to total budgetrevenue. So, the tax cut will impact insignificantly to budgetrevenue.3) Discouraging high corporate leverage, especially state-owned companies.4) Limiting transfer pricing manipulation.

Personal

Income

Tax (PIT)

1) Reduce the number of tax brackets from 7 to 5 for employment income for tax residents and broaden the tax base for middle income earners.2) There is 50% reduction of PIT on employment income of individuals working in IT industry, agriculture, and agricultural product processing projects.3) PIT on both residents and nonresidents for capital transfer is proposed to be 1% on sales proceeds.4) Amend the tax rate for income from prizes from flat rate of 10% to progressive rates up to 30%.

1) Supporting mid-class income persons.2) Encouraging employment in prioritized sectors.3) Increase budget revenue via increase of tax on prizes.


STOCK MARKET OUTLOOKS

25

Market review: beyond expected

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Bad debt resolutiondicussion

Banking and real estate stocks continued to increase

SAB started to increase as state divestment confirmed to happen in 2017

Debut of the derivative market

GAS, PVD, PVS rallied as oil price recovered strongly

State divestment speed up: IDC, VNM, SAB, DMC, BMP, NTP, FPT, etc

Despite low liquidity, market advanced thanks to large cap stocks

- Extended the timeline applying Circular 06 - Prime Minister decided to boost credit growth further - VRE listed on

HOSE- VIC surged

- SAB auctioned at VND320,000/share

Banking stocks rallied

US bombed Afghanistan

Real estate stocks rallied

YTD: +43.4%

- Banking stocks returned thanks to recapitalization

- Strong state divestment due to public debt reached the limit

26

Market review: moderated earnings growth, yet higher P/E

Vietnam stock market relative valuations

Source: Bloomberg, RongvVet Research

Change of market cap over the last 10 years

Source: Bloomberg, Rongviet Research

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1012141618202224

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Current P/E 2018E Earning growth (%)

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-39%

74%

14%

-14% -12%

16%

4%9%

-8%

13%

0%

1%

2%

3%

4%

5%

6%

-40%

-20%

0%

20%

40%

60%

80%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017E

Earnings growth (left axis) Dividend yield (right axis)

Earnings growth of VNIndex 2007 – 2017

27

o 2017 is the most active year of foreign investors

o Net value in 2017: USD1.07 billion (VND23,830 billion)

o 10-year accumulated value: USD4.4 billion

o Food & beverage was the most favorite destination of foreign capitals

Market review: strong foreign inflows

Foreign investors’ accumulated value Foreign investors’ net buying values categorized by sectors

Source: Fiinpro, RongViet Research

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

-200

-100

0

100

200

300

400

500

600

01-0

1-07

01-0

8-07

01-0

3-08

01-1

0-08

01-0

5-09

01-1

2-09

01-0

7-10

01-0

2-11

01-0

9-11

01-0

4-12

01-1

1-12

01-0

6-13

01-0

1-14

01-0

8-14

01-0

3-15

01-1

0-15

01-0

5-16

01-1

2-16

01-0

7-17

Net Value(mn $) Accumulate value (mn$)

29%

15%

14%

11%

11%

9%

5%6% Food & Beverage

Financial Services

Real Estate

Banks

Basic Resources

Utilities

Construction & Materials

Others

28

o Though both foreign ETFs performed quite well in 2017, ETF investors were still net sellers but withsmaller amount compared to 2016

o Domestic ETFs gained more than 50% because they bought all shares in VN30 Index and tracked exactlythe VN30 Index without constraints on FOL like foreign ETFs are facing

Market review: ETFs movement

ETFs’ net inflows/ outflows since inception

Source: Fiinpro, RongViet Research

-80

-60

-40

-20

0

20

40

60

80

100

01-0

2-08

01-0

6-08

01-1

0-08

01-0

2-09

01-0

6-09

01-1

0-09

01-0

2-10

01-0

6-10

01-1

0-10

01-0

2-11

01-0

6-11

01-1

0-11

01-0

2-12

01-0

6-12

01-1

0-12

01-0

2-13

01-0

6-13

01-1

0-13

01-0

2-14

01-0

6-14

01-1

0-14

01-0

2-15

01-0

6-15

01-1

0-15

01-0

2-16

01-0

6-16

01-1

0-16

01-0

2-17

01-0

6-17

01-1

0-17

Mn

USD

29

o Market cap has increased gradually and surged to 68% GDP in 2017 thanks to large cap stocks listed

o Average daily turnover in 2017 increased ~63% compared to that of 2016

o Margin lending has been increasing continuously since 2016, which is a factor that helps boost theliquidity on the market

Market review: Liquidity surged

Change of market cap over the last 10 years

Source: Bloomberg, RongViet Research

0%

10%

20%

30%

40%

50%

60%

70%

80%

0

500

1,000

1,500

2,000

2,500

2006 2008 2010 2012 2014 2016

Thou

sand

bill

ion

VND

HSX HNX % Marcap to GDP

Change of turnover over the last 10 years

Source: Bloomberg, Rongviet Research

-75%

-25%

25%

75%

125%

175%

225%

275%

0

1,000

2,000

3,000

4,000

5,000

6,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 YTD2017

Bn V

ND

HSX HNX Growth

30

o More listed firms, more “float” thanks to regulations supporting IPO, state divestment, new listing shares

Outlook: The tide is high…

No. Ticker Company Market cap (Trillion VND) No. Ticker Company Market cap

(Trillion VND )1 VNM Vinamilk 293.2 21 NVL Novaland 38.32 VIC VinGroup 193.9 22 ACB Asia Commercial Bank 34.33 VCB Vietcombank 176.3 23 VRG Vietnam Rubber Group 34.04 GAS PetroVietnam Gas 176.2 24 PVPower PetroVietnam Power Corporation 33.75 SAB SABECO 171.5 25 FPT FPT Corp 29.96 VRE Vincom Retail 87.1 26 BHN HABECO 29.57 BID BIDV 83.8 27 HDBANK HD Bank 25.98 CTG VietinBank 83.6 28 STB Sacombank 22.69 PLX Petrolimex 81.1 29 VCS VICOSTONE 19.6

10 MSN Masan Group 79.7 30 CTD COTECCONS construction 16.711 ROS FLC FAROS Construction 79.2 31 EIB Eximbank 15.212 THA Truong Hai Auto Corporation 70.5 32 DHG Hau Giang Pharmaceutical 14.913 HPG Hoa Phat Group 66.7 33 TPBANK Tien Phong Bank 14.314 VJC Vietjet Air 64.4 34 PNJ Phu Nhuan Jewelry 14.215 VPB VPBank 60.4 35 PVOil PetroVietnam Oil Corporation 13.916 TCB TechcomBank 51.0 36 SSI SaiGon Securities Inc. 13.717 BSR Binh Son Refining and Petrochemical 45.3 37 REE Refrigeration Electrical Engineering 13.218 MBB MBBank 45.2 38 GMD Gemadept 11.619 MWG Mobile World Investment 40.9 39 SBT Bourbon Tay Ninh 11.520 BVH Bao Viet Group 40.7 40 VGC Viglacera Corporation 11.2

Source: Various sources and media news

31

o Market liquidity can increase thanks to: (1) more “supply” and “demand”, (2) monetary easing, (3) moreproduct like covered warrant and trading mechanism such as T+0. The average trading value persession can be around VND5,000 billion to VND6,000 billion

o Earnings growth is still positive. Here are some assumptions of the estimate:

o Estimation based on 50 largest stocks representing 87% market cap of the VNIndex

o VNM +13%, VIC +83%, VCB +34%, VRE +43%, MSN +45%, MWG +27% etc

o Possible dilution of banking stocks

o Market valuation is acceptable

Outlook: The tide is high…

Normal case

P/E remains

Earnings growth: 17% – 19%

VNIndex: + 17% – 19%

Getting into msci’s shortlist on June 2018 (unlikely)

P/E premium: 25% – 40% (see appendix)

Earnings growth: 17% – 19%

Vnindex: + 45% – 67%

32

o Unexpected political risks: Arrests of a few VIPs started to “settle a fire” in the last quarter

o Mind the volatility:

o In the past, there was no clear evidence showing positive correlation between volatility and marginlending. However, these two factors has been moving in a same way since beginning 2017

o Intraday volatility increased sharply in Q4 2017

Risk: …but mind the wind

Margin and volatility

0

10000

20000

30000

40000

50000

60000

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

Q1/2016 Q2/2016 Q3/2016 Q4/2016 Q1/2017 Q2/2017 Q3/2017

Margin Volatility

Intraday volatility

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%

1.8%

2.0%

Q1/

2010

Q3/

2010

Q1/

2011

Q3/

2011

Q1/

2012

Q3/

2012

Q1/

2013

Q3/

2013

Q1/

2014

Q3/

2014

Q1/

2015

Q3/

2015

Q1/

2016

Q3/

2016

Q1/

2017

Q3/

2017

Intraday Volatility (LHS) Quarterly Return (RHS)

Source: FiinPro, RongViet Research

33

Appendix: How PE in frontier markets when they were upgraded?

7

8

9

10

11

12

13

14

15

16

4,000

5,000

6,000

7,000

8,000

9,000

10,000

11,000

12,000

13,00006

/30/

2009

12/3

1/20

09

06/3

0/20

10

12/3

0/20

10

06/3

0/20

11

12/2

9/20

11

06/2

8/20

12

12/3

1/20

12

06/3

0/20

13

12/3

1/20

13

06/3

0/20

14

12/3

1/20

14

06/3

0/20

15

12/3

1/20

15

06/3

0/20

16

12/2

9/20

16

06/2

9/20

17

12/0

6/20

17

DSM

P/E

DSM

inde

x

DSM index DSM P/E

Official ReclassificationReclassification

Announcement

Qatar market 18 months prior official reclassification:

Index +41%P/E +45%

6810121416182022

1,5002,0002,5003,0003,5004,0004,5005,000

06/3

0/20

09

12/3

1/20

09

06/3

0/20

10

12/3

0/20

10

06/3

0/20

11

12/2

9/20

11

06/2

8/20

12

12/3

1/20

12

06/3

0/20

13

12/3

1/20

13

06/3

0/20

14

12/3

1/20

14

06/3

0/20

15

12/3

1/20

15

06/3

0/20

16

12/2

9/20

16

06/2

9/20

17

12/0

6/20

17

AD

SMI P

/E

AD

SMI i

ndex

ADSMI index ADSMI P/E

Official ReclassificationReclassification Announcement

18 months prior official reclassification:

Index +73%P/E +56%

UAE market

Source: Bloomberg, RongViet Research compiles

34

Appendix: How PE in frontier markets when they were upgraded?

Pakistan market KSE index

10

11

12

13

14

15

20,00022,00024,00026,00028,00030,00032,00034,00036,000

07/3

1/20

15

08/3

1/20

15

09/3

0/20

15

10/3

0/20

15

11/3

0/20

15

12/3

1/20

15

01/2

9/20

16

02/2

9/20

16

03/3

1/20

16

04/2

9/20

16

05/3

1/20

16

06/3

0/20

16

07/2

9/20

16

08/3

1/20

16

09/3

0/20

16

10/3

1/20

16

11/3

0/20

16

12/3

0/20

16

01/3

1/20

17

02/2

8/20

17

03/3

1/20

17

04/2

8/20

17

05/3

1/20

17

06/3

0/20

17

07/3

1/20

17

08/3

1/20

17

09/2

9/20

17

10/3

1/20

17

11/3

0/20

17

12/0

8/20

17

KSE

P/E

KSE

inde

x

KSE index KSE P/E


Index +60%P/E +46%

7

8

9

10

11

12

13

16,000

18,000

20,000

22,000

24,000

26,000

07/3

1/20

15

08/3

1/20

15

09/3

0/20

15

10/3

0/20

15

11/3

0/20

15

12/3

1/20

15

01/2

9/20

16

02/2

9/20

16

03/3

1/20

16

04/2

9/20

16

05/3

1/20

16

06/3

0/20

16

07/2

9/20

16

08/3

1/20

16

09/3

0/20

16

10/3

1/20

16

11/3

0/20

16

12/3

0/20

16

01/3

1/20

17

02/2

8/20

17

03/3

1/20

17

04/2

8/20

17

05/3

1/20

17

06/3

0/20

17

07/3

1/20

17

08/3

1/20

17

09/2

9/20

17

10/3

1/20

17

11/3

0/20

17

12/0

8/20

17

KSE3

0 P/

E

KSE3

0 in

dex

KSE30 index KSE30 P/E


Index +50%P/E +47%

Pakistan market KSE 30 index

Source: Bloomberg, RongViet Research compiles

35

Historical Daily Rolling P/E

Bank Insurance

Retailing Personal & Household Goods

0

2

4

6

8

10

12

14

16

01/0

4/20

10

06/0

4/20

10

11/0

4/20

10

04/0

4/20

11

09/0

4/20

11

02/0

4/20

12

07/0

4/20

12

12/0

4/20

12

05/0

4/20

13

10/0

4/20

13

03/0

4/20

14

08/0

4/20

14

01/0

4/20

15

06/0

4/20

15

11/0

4/20

15

04/0

4/20

16

09/0

4/20

16

02/0

4/20

17

07/0

4/20

17

12/0

4/20

17

0

5

10

15

20

25

01/0

4/20

10

06/0

4/20

10

11/0

4/20

10

04/0

4/20

11

09/0

4/20

11

02/0

4/20

12

07/0

4/20

12

12/0

4/20

12

05/0

4/20

13

10/0

4/20

13

03/0

4/20

14

08/0

4/20

14

01/0

4/20

15

06/0

4/20

15

11/0

4/20

15

04/0

4/20

16

09/0

4/20

16

02/0

4/20

17

07/0

4/20

17

12/0

4/20

17

05

101520253035404550

01/0

4/20

10

06/0

4/20

10

11/0

4/20

10

04/0

4/20

11

09/0

4/20

11

02/0

4/20

12

07/0

4/20

12

12/0

4/20

12

05/0

4/20

13

10/0

4/20

13

03/0

4/20

14

08/0

4/20

14

01/0

4/20

15

06/0

4/20

15

11/0

4/20

15

04/0

4/20

16

09/0

4/20

16

02/0

4/20

17

07/0

4/20

17

12/0

4/20

1702468

101214161820

01/0

4/20

10

06/0

4/20

10

11/0

4/20

10

04/0

4/20

11

09/0

4/20

11

02/0

4/20

12

07/0

4/20

12

12/0

4/20

12

05/0

4/20

13

10/0

4/20

13

03/0

4/20

14

08/0

4/20

14

01/0

4/20

15

06/0

4/20

15

11/0

4/20

15

04/0

4/20

16

09/0

4/20

16

02/0

4/20

17

07/0

4/20

17

12/0

4/20

17

Source: FiinPro, RongViet Research compiles

36


Oil & Gas Basic Resources

Chemicals Construction & Materials

02468

10121416

01/0

4/20

10

06/0

4/20

10

11/0

4/20

10

04/0

4/20

11

09/0

4/20

11

02/0

4/20

12

07/0

4/20

12

12/0

4/20

12

05/0

4/20

13

10/0

4/20

13

03/0

4/20

14

08/0

4/20

14

01/0

4/20

15

06/0

4/20

15

11/0

4/20

15

04/0

4/20

16

09/0

4/20

16

02/0

4/20

17

07/0

4/20

17

12/0

4/20

17

0

5

10

15

20

25

30

01/0

4/20

10

06/0

4/20

10

11/0

4/20

10

04/0

4/20

11

09/0

4/20

11

02/0

4/20

12

07/0

4/20

12

12/0

4/20

12

05/0

4/20

13

10/0

4/20

13

03/0

4/20

14

08/0

4/20

14

01/0

4/20

15

06/0

4/20

15

11/0

4/20

15

04/0

4/20

16

09/0

4/20

16

02/0

4/20

17

07/0

4/20

17

12/0

4/20

17

0

5

10

15

20

25

30

01/0

5/20

15

03/0

5/20

15

05/0

5/20

15

07/0

5/20

15

09/0

5/20

15

11/0

5/20

15

01/0

5/20

16

03/0

5/20

16

05/0

5/20

16

07/0

5/20

16

09/0

5/20

16

11/0

5/20

16

01/0

5/20

17

03/0

5/20

17

05/0

5/20

17

07/0

5/20

17

09/0

5/20

17

11/0

5/20

17

0

5

10

15

20

25

01/0

4/20

10

06/0

4/20

10

11/0

4/20

10

04/0

4/20

11

09/0

4/20

11

02/0

4/20

12

07/0

4/20

12

12/0

4/20

12

05/0

4/20

13

10/0

4/20

13

03/0

4/20

14

08/0

4/20

14

01/0

4/20

15

06/0

4/20

15

11/0

4/20

15

04/0

4/20

16

09/0

4/20

16

02/0

4/20

17

07/0

4/20

17

12/0

4/20

17


37


Real Estate Utilities

Food & Drinks Automobile & Parts

02468

1012141618

01/0

4/20

10

06/0

4/20

10

11/0

4/20

10

04/0

4/20

11

09/0

4/20

11

02/0

4/20

12

07/0

4/20

12

12/0

4/20

12

05/0

4/20

13

10/0

4/20

13

03/0

4/20

14

08/0

4/20

14

01/0

4/20

15

06/0

4/20

15

11/0

4/20

15

04/0

4/20

16

09/0

4/20

16

02/0

4/20

17

07/0

4/20

17

12/0

4/20

17

0

5

10

15

20

25

30

35

01/0

4/20

10

06/0

4/20

10

11/0

4/20

10

04/0

4/20

11

09/0

4/20

11

02/0

4/20

12

07/0

4/20

12

12/0

4/20

12

05/0

4/20

13

10/0

4/20

13

03/0

4/20

14

08/0

4/20

14

01/0

4/20

15

06/0

4/20

15

11/0

4/20

15

04/0

4/20

16

09/0

4/20

16

02/0

4/20

17

07/0

4/20

17

12/0

4/20

17

05

1015202530354045

01/0

4/20

10

06/0

4/20

10

11/0

4/20

10

04/0

4/20

11

09/0

4/20

11

02/0

4/20

12

07/0

4/20

12

12/0

4/20

12

05/0

4/20

13

10/0

4/20

13

03/0

4/20

14

08/0

4/20

14

01/0

4/20

15

06/0

4/20

15

11/0

4/20

15

04/0

4/20

16

09/0

4/20

16

02/0

4/20

17

07/0

4/20

17

12/0

4/20

17

0

5

10

15

20

25

30

01/0

4/20

10

06/0

4/20

10

11/0

4/20

10

04/0

4/20

11

09/0

4/20

11

02/0

4/20

12

07/0

4/20

12

12/0

4/20

12

05/0

4/20

13

10/0

4/20

13

03/0

4/20

14

08/0

4/20

14

01/0

4/20

15

06/0

4/20

15

11/0

4/20

15

04/0

4/20

16

09/0

4/20

16

02/0

4/20

17

07/0

4/20

17

12/0

4/20

17


38


Financial Services Travel & Tourism

Technology Industrials

0

5

10

15

20

25

30

35

02/0

5/20

1305

/05/

2013

08/0

5/20

13

11/0

5/20

13

02/0

5/20

1405

/05/

2014

08/0

5/20

14

11/0

5/20

14

02/0

5/20

1505

/05/

2015

08/0

5/20

15

11/0

5/20

15

02/0

5/20

1605

/05/

2016

08/0

5/20

16

11/0

5/20

16

02/0

5/20

1705

/05/

2017

08/0

5/20

17

11/0

5/20

17

05

10152025303540

06/0

1/20

15

08/0

1/20

15

10/0

1/20

15

12/0

1/20

15

02/0

1/20

16

04/0

1/20

16

06/0

1/20

16

08/0

1/20

16

10/0

1/20

16

12/0

1/20

16

02/0

1/20

17

04/0

1/20

17

06/0

1/20

17

08/0

1/20

17

10/0

1/20

17

12/0

1/20

17

0

2

4

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39

Our sector rating for 2018

No. Subsector2017

Supply -Demand

InputLegal

Environment

Long-term growth

potential

Technological

development

Competition Rating

Technology + + + 3.8 Positive

Automotive retail + - + + -- 3.7 Positive

F&B (Beer, milk) ++ + + 3.6 Positive

Banking + - + + + - 3.3 Positive

Power + - + + - 3.3 Positive

Aviation + - + 3.2 Positive

Real Estate + - + + 3.2 Positive

Oil & Gas ++ + + - 3.9 Positive

Phamarceutical + ++ + + - 3.8 Positive

Automotive - Rubber Tires + + - 3.1 Positive

Textile + - 3.0 Neutral

Port - + + + + - 3.0 Neutral

Insurance + + -- 3.0 Neutral

Steel + - - + 3.0 Neutral

Construction - + + 3.0 Neutral

Building materials - + + - 3.0 Neutral

Chemicals - Fertilizers/Agochemicals - - + - 2.6 Negative

Chemicals - natural rubber - - + 2.6 Negative

THE BIG GAME FOR ALL STAKEHOLDERS

41

Vietnam has gone through half of the new term and is entering the third year led by Prime Minister Nguyen Xuan Phuc(2016 - 2021). It can be observed that the government is endeavoring to handle the “leftover” issues and paving the wayfor the future, to which 2018 is an important year. In this particular period of time, each of the participants of theeconomy seems to be engaged in the "big game" that the government is the “moderator”

• The government strengthens the confidence of the local business community and promotes the image ofVietnam to foreign investors. Two prominent features in this role are drastic reform of administrativeprocedures and raising the status of the national economy, exemplified by the race to upgrade the Vietnamesestock market

• SBV maintains low interest rates, facilitates the handling of bad debts (that is handling the real estate propertiesas collateral) and indirectly increases the attractiveness of ongoing divestments from SOEs

• Real estate companies are taking advantage of low interest rates, aggressively increasing supply to the market.At the same time, banks are raising capital, "cleaning" their balance sheets before executing more sustainablebusiness strategies and getting ready to apply Basel 2 in early 2019

• The State’s divestments from 181 SOEs in 2018 will continue to be an opportunity for foreign strategic investorswho are interested business development in Vietnam, especially in the consumer sector

• Finally, the orientation towards on-the-spot export through tourism and services (for the FDI sector) will createincentives for the expansion and development of the big players in the fields of infrastructure, utility,construction, logistics, supporting industries and HoReCa (hotel, restaurant, cafe)

The Big Game for All Stakeholders

Peak of State’s Divestment and IPOs

43

o In 2018, there will be 181 companies to be divested, which accounts for 70% of total plannedcompanies to be divested in 2018-2020

o To complete such a challenged plan, the Government has been adjusted many legal frameworks(Decree 126 and Daft on Decree 91) to make it flexible and feasible for investors to participate inbidding progress

o Given 2 big successful deals in 2017, VNM and SAB, we also expect that the officials will have experienceto do the State’s divestment process on the following big deals (ACV, GAS, PLX, Genco, Sawaco, etc.)

Peak of State’s divestment and IPOs

The State’s divestment results in 2012 – 2020F


0

20

40

60

80

100

120

140

0

20

40

60

80

100

2012 2013 2014 2015 2016 2017

Thou

sand

s

State's divestment No. deal IPO No. deal State's divestment Value (VND B) (RHS) IPO Value (VND B) (RHS)

44

o The race to emerging market will bring positive impacts on participants of the stock market

The market infrastructure has been improved with some new products: derivatives in 2017 and coverwarrant in 2018

Other most important criteria, “the openness to FO”, will be accelerated in 2018 such as R&D onintraday (T+0) transaction, services for opened fund, pension fund, etc.

⇒ The way for Vietnam to be in EM is still long, yet more products and better infrastructure making Vietnammore attractiveness among frontier markets

⇒ More products and more qualified listed firms would help to improve the liquidity in the stock market

Average matching value in the stock and derivative markets (VND B)

Source: FiinPro, RongViet Research

50

1,050

2,050

3,050

4,050

5,050

Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17

HSX Derivative


45

State's divestment in 2018

No Ticker Name Listed Charter Capital (VND B) Divester Divested ratio

1 ACV Airport Corporation of Vietnam Upcom 26,194 MTVN 20.0%

2 PLX Vietnam National Petroleum Group HSX 23,238 MOIT 25.0%

3 VGT Vietnam Textile and Garment Group Upcom 7,608 MOIT 53.0%

4 VNP Vietnam Plastic Corporation SCIC 131 SCIC 65.0%

5 DVN Vietnam Pharmaceutical Corporation Upcom 2,459 MOHVN 30.0%

6 VGC Viglacera Corporation HNX 6,405 MOCVN 20.0%

7 DBD Binh Dinh Phamaceutical and Medical Equipment Jsc. Upcom 891 Binh Dinh province, People's committee 10.0%


State-owned enterprises to be IPO in 2018

NoTicker NameCharter Capital

(VND B)1 PVOil PetroVietnam Oil Corporation 10,342

2 PVPower PetroVietnam Power Corporation 23,419

3 BSR Binh Son Refining and Petrochemical Ltd 31,005

4 VRG Vietnam Rubber Group 26,141

5 VNF2 Vinafood 2 2,823

6 VICEM Vietnam Cement Industry Corporation 12,360

7 MOBIFONE Mobifone

8 GENCO 3 EVN Genco 3Source: RongViet Research compiles

New listing in 2018

No Ticker NameCharter Capital

(VND B) 1 TCB Techcombank 8,878

2 HDBANK HDBank 8,100

3 TPBANK TPBank 5,842

4 VEAM VEAM Corporation 4,903

5 THA Thaco 4,145



46

Circulars/Decrees Note

126/2017/ND-CP

(1) Reducing the committed period for strategic investors to 3 years from 5 years;

(2) Being listed on the stock exchange (HSX, HNX, or UpCOM) not later than 90 days after the IPO; and,

(3) Adding "book building" method to define the winning price

Draft on amending Decree 91/2015/ND-CP

(1) Reducing the steps needed to sell the state’s shares from three to two; and,

(2) Discussing the feasibility of selling the state’s shares with a price lower than book value per share



47

Price @ 20 Dec 2017

Our stock picks

Ticker Target price

(VND)

Total return

(%) Rating

2016 2017E 2018F ROIC (%)Debt to Equity

(x)ROA (%) ROE (%) Div Yield PER

Trailing PBR Cur. +/-

Price 1y

3-month avg. daily turnover (USD K)

Market cap

(USD M)

Foreign remaining

room(%) +/- Rev.

(%)+/- NPAT

(%)+/- Rev.

(%)+/- NPAT

(%)+/- Rev.

(%)

+/-NPAT

(%)TTM (%) (x) (x) (%)

ACV 127,000 32.7 Buy 11.2 -70.1 15.5 -23.9 22.5 45.0 9.4 0.6 10.5 19.8 1.5 43 8.1 105.5 481 9,313.7 45.5

FPT 62,900 15.1 Neutral 4.1 3.1 -50.7 45.1 14.6 -27.8 15.3 0.7 7.5 17.8 3.5 14 2.8 59.1 5,358 1,320.2 0.0

PHR 46,000 14.1 Neutral -4.0 3.9 32.8 102.9 8.1 77.6 4.9 0.4 9.7 17.0 7.0 9 1.5 74.5 622 148.6 39.1

48

Price @ 20 Dec 2017

Our watch list

Name Subsector Current

price (VND)

Mar. cap (VND B)

Shares Outstanding

Trailing PER (x)

PBR Cur. (x)

2016 Trailing 12 months

+/-Rev. (%)

+/-PAT (%)

+/-REV (%)

+/- PAT (%) ROIC (%)

Debt to Equity

(x)ROE (%) ROA

(%)

BMPConstruction &

Materials83,200 6,811 81,860,938 15.8 2.8 18.5 21 5.8 -33.8 15.2 2.5 18.0 15.2

HCM Financial Services 56,300 7,295 129,570,368 16.3 2.8 39.3 43 48.3 48.8 10.3 17.8 17.8 10.3

NTPConstruction &

Materials72,500 6,470 89,240,302 13.6 3.1 22.4 9 11.3 22.2 12.7 24.5 24.5 12.7

VCI Financial Services 73,100 8,772 119,996,000 13.4 3.3 26.6 42 60.1 109.2 N/a N/a 34.6 15.1

VND Financial Services 23,700 3,579 150,997,785 7.8 1.5 36.9 2 74.7 116.1 6.8 20.7 20.7 6.8

The Focus on Growth Engines

50

GDP growth by sectors GDP growth by foreign investment

Source: GSO, RongViet Research compiles


16.0% 16.4% 17.0% 17.6%15.0%15.5%16.0%16.5%17.0%17.5%18.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

2013 2014 2015 2016

% contribution (RHS) % GDP growth of FDI

GDP growth

o FDI continues to show their important role as a growth engine of Vietnam’s economy in 2017:supporting the growth of construction, domestic building materials, and manufactures

o In 2018, some large FDI projects in steel (Formosa), electricity, electronic and semiconductor sectors willhave significant contribution into Vietnam’s GDP growth and export value

o Despite of TPP’s failure, Vietnam moves on other key FTAs such as CPTPP, RCEP, and EVFTA, whichpresents the Government’s further commitment on trade and investment liberalization

o The development of SEZs (Special Economic Zones), such as Van Don, Bac Van Phong, Phu Quoc, willboost growth of tourism as well as hospitality sector, which will be drivers for service’s growth

1.0 1.0 1.1 1.2 1.3

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2013 2014 2015 2016 2017 E

Mill

ions

Agriculture, forestry and fishing Industry and constructionService Taxes and subsidies

51

Six countries with the highest number of tourists arrivals to Vietnam (passengers in thousands)

MoT accounted for large proportion of State’s investment budget


14281900 1947 1780

2696

3594

700 748 8481110

1544

2158

0500

1,0001,5002,0002,5003,0003,5004,000

2012 2013 2014 2015 2016 11M 2017

China Korea Japan USA Taiwan Russia

2812

21 1832

0

10

20

30

40

50

60

70

80

2013 2014 2015 2016 E 2017 E

MoT MARD MoH VDB VBSP MoET Other

o Disbursement of state budget has faced some obstacles in 2017, and we expect that the difficulties willbe solved in 2018

o Investment into soft and hard infrastructure will boost the growth of sectors such as technology, airport,traffic infrastructure, industrial real estate, and supportive sectors (tile-granite, construction stone, etc.)

o Given its strong recovery in 2017, the earnings of steel firms will experience a reasonable growth in 2018

o Electricity price must be increase to attract private investment into this sector


52

List of infrastructure projects by type up to 2020

Name Total investment (USD M) Investment model

Dau Giay - Lien Khuong highway 3,520 PPP

Ninh Binh - Thanh Hoa - Nghi Son route of the North-South highway 1,867 PPP

Noi Bai - Ha Long highway 1,762 PPP, BOT

Trung Luong - My Thuan highway 1,381 PPP, ODA

Bien Hoa - Vung Tau highway 1,175 PPP, ODA

Cam Lo - La Son highway 1,095 PPP, BOT

Bien Hoa - Vung Tau railway 5,000 BOT

Upgrading the Hanoi - Ho Chi Minh city railway route 2,300 BOT, ODA

Railway into Hai Phong international port 1,600 PPP, BOT

Hanoi urban railway route 6 (from the center of Hanoi to Noi Bai Airport) 1,356 PPP

Long Thanh international airport (phase 1) 5,620 PPP, BOT

The phase 1 of Van Phong international port 500 FDI/ Joint Venture

Binh Dinh power centre 4,000 PPP

Dung Quat coal-fired thermal plant 140 PPP



53


Vietnam's free trade agreements

FTA Status Extra notes

Asean - Hong Kong, China FTA Signed 12 November 2017

Regional Comprehensive Economic Partnership First time China, India and Japan

Vietnam-European Free Trade Association FTA Signed 29 September 2017

Vietnam-Israel FTA Venture capital

Vietnam-European Union FTA Not signed yet Ambiguous laws

Trans-Pacific Partnership (TPP-11) Signed 11 Nov 201 Rename CPTPP

Asean Free Trade Area Signed and in effect

Asean-Australia and New Zealand FTA Signed Feb 2009

Asean-India Comprehensive Economic Corporation Agreement Signed and in effect Special goods

Asean-Japan Comprehensive Economic Partnership Signed 2008

Asean-People's Republic of China Comprehensive Econic Cooperation Agreement Signed and in effect

Asean-Republic of Korea Comprehensive Economic Cooperation Agreement Replaced by ATIGA

Chile-Vietnam Economic FTA Signed Jan 2014 Agricultural products

Japan-Vietnam Economic Partnership Agreement Signed 25 Dec 2008 First Agreement

Vietnam-Eurasian Economic Union FTA Signed 29 May 2015 Agricultural machine equipment

Republic of Korea-Vietnam FTA Signed 5 May 2015 Goods, services, investment


54

Our stock picks

Price @ 20 Dec 2017

Ticker Target price

(VND)

Total return

(%) Rating


(x)ROA (%) ROE (%) Div Yield PER

Trailing PBR Cur.

+/-Price

1y 3-month

avg. daily turnover (USD K)

Market cap

(USD M)

Foreign remaining

room(%) +/- Rev.

(%)+/- NPAT

(%)+/- Rev.

(%)+/- NPAT

(%)+/- Rev.

(%)

+/-NPAT

(%)TTM (%) (x) (x) (%)

ACV 127,000 32.7 Buy 11.2 -70.1 15.5 -23.9 22.5 45.0 9.4 0.6 10.5 19.8 1.5 43 8.1 105.5 480.7 9,313.7 45.5

CHP 31,900 15.8 Neutral -10.9 -21.5 28.6 54.2 -14.2 -19.0 21.1 0.7 16.3 29.0 2.5 7 2.0 46.5 143.7 156.4 45.7

DRC 28,200 20.5 Buy 1.3 -4.8 8.1 -45.3 4.1 40.3 14.8 0.6 8.6 15.6 7.2 12 1.9 -17.0 582.6 130.4 24.1

FPT 62,900 15.1 Neutral 4.1 3.1 -50.7 45.1 14.6 -27.8 15.3 0.7 7.5 17.8 3.5 14 2.8 59.1 5,358.2 1,320.2 0.0

HPG 53,600 21.5 Buy 21.2 89.4 28.3 23.3 30.6 18.1 21.9 0.4 19.1 32.1 0.0 8 2.2 68.6 7,670.7 2,949.5 8.5

LTG 57,100 38.9 Buy -0.9 9.2 7.4 23.1 11.4 2.6 12.7 1.3 6.4 17.7 3.6 7 1.3 0.0 64.4 122.9 4.6

NKG 49,400 30.6 Buy 55.4 310.7 62.0 29.0 14.6 10.4 14.0 2.2 8.4 33.9 2.6 6 1.8 66.9 1,104.0 221.3 9.8

NT2 37,600 22.5 Buy 18.6 -4.9 -10.3 -31.3 4.5 41.7 12.4 0.9 6.3 14.5 6.8 13 2.0 26.9 505.6 412.5 26.8

NTC 127,000 42.3 Buy 17.8 121.4 -10.4 -5.5 16.7 3.2 19.6 0.5 7.6 56.2 2.7 8 4.2 383.2 189.6 64.0 48.9

VJC 171,000 24.5 Buy 38.6 113.3 54.4 119.0 21.1 18.1 27.0 0.9 13.9 48.2 2.1 19 7.6 0.0 7,272.0 2,782.1 3.7

55

Price @ 20 Dec 2017

Our watch list


price (VND)

Mar. cap (VND B)

Shares Outstanding

Trailing PER (x)

PBR Cur. (x)


+/-Rev. (%)

+/-PAT (%)

+/-REV (%)

+/- PAT (%) ROIC (%)

Debt to Equity

(x)ROE (%) ROA

(%)

CTIConstruction &

Materials29,400 1,852 62,999,997 11.0 1.6 23.8 58 -2.2 36.7 3.2 11.8 11.8 3.2

HTIConstruction &

Materials16,800 419 24,949,200 5.5 1.0 33.1 9 -11.0 15.0 5.0 18.4 18.4 5.0

HUTConstruction &

Materials11,000 2,762 251,058,913 6.5 0.9 24.1 152 -37.9 -21.6 3.3 12.3 12.3 3.3

LHG Real Estate 17,000 849 49,939,812 3.1 0.7 106.8 138 38.0 58.4 9.9 24.1 24.1 9.9

PC1Construction &

Materials38,900 4,491 115,452,410 17.4 1.8 -3.0 24 -1.5 -36.5 4.4 10.5 10.5 4.4

REEIndustrial Goods &

Services42,500 13,177 310,050,926 7.9 1.7 38.4 28 53.3 117.5 13.7 21.1 21.1 13.7

PVTIndustrial Goods &

Services18,450 5,193 281,440,162 13.9 1.5 17.8 12 -2.7 -24.3 4.1 9.0 9.0 4.1

Opportunities in the“Golden Population Structure” Period

57

Retail sales continues to pick up The correlation between the average annual disposable income and total vehicle sales volume in Vietnam

Source: GSO, Euromonitor, RongViet Research compiles

260

280

300

320

340

0%

4%

8%

12%

10/2

016

11/2

016

12/2

016

01/2

017

02/2

017

03/2

017

04/2

017

05/2

017

06/2

017

07/2

017

08/2

017

09/2

017

10/2

017

Thou

sand

sRetail Sales (VND B) Growth (%)

Opportunities in the “Golden Population Structure” Period

o Vietnam’s golden population period will prolong in next 10 – 15 years, resulting the fast growth ofconsumer market during this time

o In 2017, Vietnam moved to No. 6 from No. 11 (out of 30) in Global Retail Development Index (GRDI) andis in the peak attractiveness period

o Domestic pharmaceuticals, who have been investing to upgrade their factories into EU-GMP or PIC/Scriteria, will be beneficiaries of Circular 01/2012/TTLT-BYT-BTC

o The higher special sales tax on vehicle with a cylinder capacity of 2,500 – 3,000 ccs unlikely causesnegative impacts on high-end cars

0

50

100

150

200

0

5

10

15

20

25

30

35

40

2012 2013 2014 2015 2016

Thou

sand

sDisposable Income per Capita (unit: million VND)

Passenger car sales volume

58

NIM and interest rate Proportion of consumer lending loan outstanding

Source: GSO, RongViet Research compiles


o Banking sector’s profitability has been improved in 2017 thanks to (1) the supportive policies andabundant monetary liquidity and (2) Higher proportion of retails loan outstanding, which help toincrease NIM

o Profitability in 2017 allows banks to enhance their loan loss reserves (LLR) => the better buffer, the saferfor banks in case of economic difficulties

o Banks’ recent investment on core banking and digital banking will boost growth in services income

o Given the high supply of apartments in 2018-19, affordable housing developers who have cleanprojects located in fully-invested infrastructure will less likely be hit negative affect

52.36%

15%

24%

1%

3% 4.64%

Buy/repair houses

Transport

Durable goods

Hi-tech goods

Education, tourisim,health careOthers2%

3%

3%

4%

5%

10%

15%

20%

2012 2013 2014 2015 2016 2017E

NIM RHSShort-term lending rate LHSShort-term deposit rate LHSBanks' Consumer financing interest rate LHS

59

Medicine spending per capita in Vietnam (USD)

Source: DAV, RongViet Research compiles

5.4 6.0 6.7 7.6 8.6 9.9 11.2 13.416.5

19.6 22.327.6 29.5 31.8 34.5

38.0

55.0

0%

5%

10%

15%

20%

25%

30%

0

10

20

30

40

50

60

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2021F

Spending Growth


Ha Noi real estate market Ho Chi Minh real estate market

Source: CBRE, RongViet Research compiles

0

5

10

15

20

25

0%

20%

40%

60%

80%

100%

120%

2014 2015 2016 2017F 2018F 2019F

Thou

sand

sSold Unit (Right) Affordable (Left)

Mid-end (Left) High-end (Left)

0

5

10

15

20

25

30

35

40

0%

25%

50%

75%

100%

125%

150%

175%

200%

2014 2015 2016 2017F 2018F 2019F

Thou

sand

sSold Unit (Right) Affordable (Left) Mid-end (Left)

High-end (Left) Luxury (Left)

60

Price @ 20 Dec 2017

Our stock picks

Ticker Target price

(VND)

Total return

(%) Rating


(x)ROA (%) ROE (%) Div

Yield PER

Trailing PBR Cur.

+/-Price

1y 3-month

avg. daily turnover (USD K)

Market cap

(USD M)

Foreign remaining

room(%) +/- Rev.

(%)+/- NPAT

(%)+/- Rev.

(%)+/- NPAT

(%)+/- Rev.

(%)

+/-NPAT

(%)TTM (%) (x) (x) (%)

ACB 42,000 21.0 Buy 21.6 28.9 38.3 62.4 16.1 72.0 0.0 0.0 0.7 12.6 0.0 18 2.6 93.9 4,825.4 1,508.4 0.0

CTG 27,000 25.3 Buy 16.3 20.0 21.1 3.0 9.9 38.4 0.0 0.0 0.7 12.3 3.2 11 1.3 57.2 2,379.7 3,628.2 0.0

HAX 42,300 12.8 Neutral 58.1 170.7 46.9 2.5 22.2 11.9 0.4 2.9 6.4 22.3 0.0 12 2.4 53.8 189.9 38.6 34.3

HDG 39,700 16.9 Neutral 34.4 90.8 5.8 -47.5 63.9 167.4 9.0 1.0 1.8 7.3 1.5 20 2.4 54.1 360.2 115.2 28.2

IMP 80,000 25.3 Buy 4.8 8.9 25.9 36.8 29.2 33.9 11.4 0.0 8.6 10.0 2.8 20 2.0 30.9 212.8 123.7 0.0

MBB 28,700 17.0 Neutral 12.4 16.7 29.0 44.1 18.1 40.5 0.0 0.0 1.4 13.8 2.0 12 1.6 105.4 5,300.4 1,997.2 0.0

NLG 37,200 18.0 Neutral 101.3 67.4 24.7 75.0 8.9 30.5 19.2 0.1 7.6 15.7 1.6 9 1.8 64.6 1,106.3 221.5 0.9

PGI 24,900 13.2 Neutral 0.0 5.2 10.3 55.5 13.2 -13.5 -22.0 0.0 2.7 11.5 0.0 14 1.4 0.0 23.3 86.1 28.1

PME 124,000 52.7 Buy 15.2 15.9 15.0 24.6 20.0 22.8 21.5 0.0 16.0 20.1 2.4 19 3.5 0.0 216.1 237.3 0.0

PNJ 147,200 11.4 Neutral 11.1 496.3 33.1 63.3 26.8 26.8 24.4 0.3 16.1 31.0 0.8 22 5.3 100.1 1,683.0 633.9 0.0

QNS 74,200 37.9 Buy -10.4 14.6 8.0 -34.5 8.3 41.5 24.9 0.4 19.1 31.5 5.4 11 3.2 -30.8 456.2 604.3 41.5

VCB 55,900 16.9 Neutral 17.3 28.6 -48.9 -38.6 18.1 40.5 0.0 0.0 1.0 15.8 1.6 21 3.2 41.8 4,204.5 7,693.6 9.3

VGC 30,200 21.9 Buy 4.1 56.4 9.4 62.7 17.3 13.5 11.8 0.4 4.6 12.0 3.9 13 1.8 0.0 946.0 482.0 13.3

61

Our watch list

Price @ 20 Dec 2017


price (VND)

Mar. cap (VND B)

Shares Outstanding

Trailing PER (x)

PBR Cur. (x)


+/-Rev. (%)

+/-PAT (%)

+/-REV (%)

+/- PAT (%) ROIC (%) Debt to

Equity (x) ROE (%) ROA (%)

BVH Insurance 59,800 40,692 680,471,434 27.2 3.0 24.0 0 25.4 19.7 1.9 0.3 10.5 1.9

KDFFood &

Beverage57,900 3,242 56,000,000 22.7 4.9 30.8 85 88.0 25.2 15.5 29.7 0.0 0.0

THACOAutomobiles &

PartsN/a N/a 1,658,000,000 N/a N/a 42.6 13 N/a N/a N/a N/a 41.7 18.6

VEAMAutomobiles &

PartsN/a N/a 1,328,800,000 N/a N/a 7.0 3 N/a N/a N/a N/a 26.7 24.2

VNMFood &

Beverage202,000 293,158 1,451,278,520 28.2 12.2 16.8 20 9.6 10.0 47.0 2.2 43.2 33.5

VNR Insurance 22,900 3,002 131,075,937 10.8 1.1 -2.8 -1 -0.4 24.8 4.2 10.1 10.1 4.2

VPB Banks 40,350 60,420 1,497,403,415 9.6 2.3 39.8 64 45.2 78.0 N/a N/a 28.6 2.5

BID Banks 24,500 83,759 3,418,715,334 14.5 1.9 23.2 5 25.2 -10.4 0.5 12.5 12.5 0.5

The Rebound of Oil Price

63

The gap between supply and demand oil The forecasted oil price in 2018



o Most of financial institute forecast that the oil price will continue to recover in the first of 2018 thanks tothe production reducing among large oil exporters

o The recovering of oil price results expectation on restarting some key oil and gas projects in Vietnam,some projects => Upstream firms, who operate in exploring and producing will be the firstbeneficiaries

o PVN’s divestment progress will be peak in 2018 with some big names will be listed, such as BRS, PV Oil,and PV Power

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Gap Supply - Demand (LHS) Oil price (RHS)

5052545658606264

GoldmanSachs

UBS CreditSuisse

JPMorgan Citigroup Barclays

Old forecast price New forecast price 2017 Estimated average price

64

Business results in Q3 TTM of up- and mid-stream O&G firms

Key O&G projects



Name Scheduled operation Progress

Nam Con Son No. 2, Phase 2 2019 FS

Red Emperor 2019 FS

White Lion 2019 – 2020 FS

Block B 2021 – 2022 FEED

155 141110 111

17 18 7 1030

40

50

60

70

0

100

200

2014 2015 2016 2017

Thou

sand

s Revenue NPAT Oil price (RHS)

Divestment plan

Period CompanyCurrent PVN’s ownership (%)

Target ownership (%)

2017-2018

Binh Son Refining and Petrochemical Company Limited * 100 43PV Oil* 100 35.1

PV Power* 100 51

PV Fertilizer and Chemicals Coperation (HSX:DPM) 61.3 51

PV Ca Mau Fertilizer Jsc. (HSX:DCM) 75.56 51

PV Phuoc An Port Investment & Operation Jsc. 79.54 0

Green Indochina Development Jsc. 29 0

PV Insurance Corporation (HSX:PVI) 36.85 0

2018-2019 PV Gas (HSX:GAS) 96.72 65

After 2019 PV Trans (HSX:PVT) 51 36

Source: RongViet Research compiles; * IPO in 2018

65

Our watch list

Price @ 20 Dec 2017


price (VND)

Mar. cap (VND B)

Shares Outstanding

Trailing PER (x)

PBR Cur. (x)


+/-Rev. (%)

+/-PAT (%)

+/-REV (%)

+/- PAT (%) ROIC (%) Debt to

Equity (x) ROE (%) ROA (%)

GAS Utilities 92,100 176,219 1,913,348,070 19.6 4.4 -8.1 -18 4.0 76.0 15.0 21.6 21.6 15.0

PLX Oil & Gas 70,000 81,117 1,158,813,235 18.9 4.6 -16.2 52 21.2 9.4 7.3 17.7 17.7 7.3

PVS Oil & Gas 22,000 9,827 446,700,421 11.6 0.9 -20.0 -32 -12.7 -11.1 3.4 7.1 7.1 3.4

PVD Oil & Gas 23,700 9,074 382,850,160 -47.0 0.7 -62.9 -92 -48.7 -209.4 -0.9 -1.5 -1.5 -0.9

Viet Dragon Securities CorporationViet Dragon Tower, 141 Nguyen Du Street.,

Dist.1, HCMC, Vietnamwww.vdsc.com.vn

Marc Djandji, CFAHead of Institutional SalesP. + 84 8 6299 2006 (Ext: 1312)E. [email protected]

Truc DoanHead of ResearchP. + 84 8 6299 2006 (Ext: 1308)E. [email protected]

rong viet securities - investment strategy report outlook 2018

Economy & Finance