vietnam rubbersectorupdate 2013

www.vcsc.com.vn| VCSC Viet Capital Securities | 1 See important disclosure at the end of this document

Vietnam Natural Rubber

18 March 2011

ADD

26 November 2013

High dividends in a cyclical low

Vietnam is the worlds 5th largest producer of natural rubber, account for

9% of global output, and does not have pricing power. Vietnamese natural

rubber companies are quite interesting: they have low debt level, efficient

working capital cycles and pay generous dividends (yields 6-10% despite

current relatively low rubber prices). We also believe there is a high chance

that dividends will increase when global natural rubber prices rebound.

Given low valuations, high dividend yields and potential upside, we have

an ADD rating for the sector and prefer PHR, DPR and TRC.

Gross margin stable as VRG oversees operations

VRG sets target-selling price (based on global price) and budget production

costs (by adjusting labour salaries) for the entire group, directly controlling the

operations of 4 out of the 5 listed natural rubber firms. The wage policy, which

links wages to about 40% of revenues, limits the upside in times of rising rubber

prices. Then again, as rubber prices declined in 2013, VRG reduced the ratio 36-

38% to prevent losses. As a result, natural rubber firms had relatively stable

gross margins over the past 5 years despite fluctuations in global rubber prices.

Natural rubber prices likely to remain depressed for a while

Historically, global natural rubber prices have fluctuated in line with crude oil

prices, but the pattern is now broken as crude oil is trading at premium to natural

rubber. Given that there is still a fair amount of natural rubber surpluses globally,

we think the possibility of rubber prices moving up is unlikely in the short term.

We like Phuoc Hoa (PHR), Dong Phu (DPR), and Tay Ninh (TRC)

All have large plantation areas, the highest profitability and healthiest financial

structures. They are also all members of VRG. Though rubber price has fallen as

much as 26% in the past two years, dividend payouts remain in the 30-50%

range, yielding 6-10% consistently over the past 5 years. Debt-free firms whos

downside is secured by VRG, natural rubber stocks look quite cheap at an

average PER of 5.0x vs. industry average of 6.7x in the region.

Trang Nguyen Analyst

[email protected] +84 8 3 914 3588 ext. 116

We like:

- PHR, DPR, TRC

Not recommend:

- TNC, HRC

Relative Performance vs. VNI

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3

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13

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3

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PHR VNIndex

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TRC VNIndex

PHR

DPR TRC HRC TNC

Criteria HOLD ADD ADD Not recommended

Current price (VND) 31,100 48,000 42,000 N/A N/A

Target price (VND) 30,000 54,000 50,000 N/A N/A

Market cap (USD mn) 112 100 59 41 13

30-days avg liquidity (USD) 15,000 190,000 1,000 700 19,000

VN tapping area (ha) 10,700 7,200 5,400 1,800 1,300

Cambodia tapping area (ha) 6,700 6,300 6,500 N/A N/A

Year of Cambodia harvest 2016 2017 2018 N/A N/A

Age of trees (average) 23.2 19.5 18.0 26.0 15.7

Foreign ownership (%) 17.9 31.4 30.8 5.4 1.6

Gross margin (%) 29.5 40.2 32.7 8.1 28.8

ROA (%) 15.0 19.0 22.0 9.0 13.0

ROE (%) 24.0 24.0 27.0 11.0 15.0

Debt/Asset (%) 12.7 3.2 1.0 20.5 0.1

Dividend yield (%) 9.6 6.3 7.1 5.1 8.7

PER (x) 6.9 5.3 5.0 14.1 6.5

www.vcsc.com.vn | VCSC Viet Capital Securities | 2

See important disclosure at the end of this document

HOLD In this report

Global natural rubber industry: Surpluses in FY13 and FY14

Weakening correlation between natural rubber and crude oil prices

Vietnam natural rubber industry: controlled by Vietnam Rubber Group (VRG)

Listed rubber firms

Global natural rubber supply demand shows surplus

in FY13 and FY14

The International Rubber Study Group (IRSG) is the sole international body representing the

global rubber industry and compiles statistical data and analysis to issue forecast for global

demand and supply. They anticipate that natural rubber surpluses will shrink to 240,000 tons

in 2013 from 322,000 tons in 2012 and then inflate to 450,000 tons in 2014. A narrower

surplus this year may support rubber prices that have plunged almost 20% YTD so far, but

the outlook is not bullish.

In our view, over the past 10 years from FY04-FY14, rubber supply-demand situation swings

quite erratically without certain patterns. The chaotic nature of this means there is always a

limit to what we can predict accurately.

Figure 1 : Net surplus in FY13 FY14

Source: IRSG, 2012

We think the IRSGs surplus forecast in FY13-FY14 results largely from the supply side,

especially Thailand and Indonesia who alone account for 60% of the worlds production.

These two countries expanded their planting areas aggressively in FY06-FY07 compared to

other producers.

Supply

It usually takes seven years for the rubber trees to reach sufficient size before being tapped.

Now that those trees planted back in FY06-FY07 from Thailand and Indonesia are fully

matured, they start producing significant amount of latex.

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2004 2005 2006 2007 2008 2009 2010 2011 2012 2013E 2014E

Thos. tons Net supply

Net supply



HOLD Figure 2: Thailand and Indonesia planted a lot of rubber trees in FY06-07, which will become

harvestable in FY13-FY14

Source: IRSG, 2012

Figure 3a: Thailand and Indonesia - major

producers

Figure 3b: China - the major consumer

Source: IRSG, 2012

According to IRSG, natural rubber consumption will still likely to grow modestly by 3.9% yoy

this year and continue this pace until 2014, led largely by emerging markets accounting for

70% of global consumption.

Demand

70% of world rubber consumption goes into the tyre industry. The growth in world tyre

production is bolstered by expanding global sales of cars and light commercial vehicles,

which directly responds to global economic growth. Consequently, tyre production has been a

driving force behind growth of global economies. The chart below demonstrates the

correlation between these World GDP and natural rubber consumption.

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Thos. ha Indonesia

New planted

Replanted

Thailand34%

Indonesia

27%

Malaysia9%

India9%

Vietnam8%

China7%

Other6%

China, 35%

India, 9%

USA, 9%

Japan, 7%

Thailand,4%

Others, 36%



HOLD Figure 4: Rubber consumption ties to GDP growth

Source: IRSG, World Bank, 2012

IRSG forecasts for higher rubber demand in 2013 than 2012 based on the International

Monetary Funds (IMF) projections in April for a 3.3% global economic growth. Improved

prospect for global demand may mildly reduce the anticipated surplus this year.

Link between rubber and crude oil: historically strong

but weakening?

Crude oil is the main input for the production of synthetic rubber, which is the main

substitute of natural rubber. Traditionally, the analysis of rubber price movements has been

closely correlated to the price of oil. When oil prices are low, synthetic rubber becomes

cheaper and the demand for natural rubber falls. When oil prices are high, synthetic rubber

becomes more expensive and the demand for natural rubber thrives. The end result being

that oil price strongly influences the price of natural rubber.

However, the correlation looks to have become weaker now that rubber is in huge oversupply.

Also the degree of substitutability between natural rubber and synthetic rubber depends on

the length of the time for which the gap between supply-demand persists shown in the table

below.

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12

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013F

Growth %World GDP growth

Natural rubber consumption growth



HOLD Figure 5: Gap between crude oil & natural rubber price at present, will the gap narrow?

Source: Bloomberg, VCSC estimates

Currently, crude oil is trading at a premium compared to natural rubber price, especially after

the Syria US conflict in 2013 which pushed crude oil prices to three-year highs. Crude oil

prices continued moving strongly upward while rubber prices remained relatively stable. The

price trend divergence should normalize as rubber prices tend to follow the price of oil.

However, due to surplus of 322,000 tons in 2013 and 450,000 tons in 2014, we think its hard

to forecast the rubber price trend just yet. The IRSG, who issues forecasts for global supply-

demand, does not forecast price.

Vietnam rubber ranks 2nd

in yield but only 9% of

global output price taker

Among natural rubber producing countries, Vietnams production volume only accounts for

9% of global output, well behind that of Thailand, Indonesia, Malaysia and India. However,

average yield reaches up to 1.71 ton/ha, making Vietnam the second most efficient rubber

producer after India (yield of 1.82 ton/ha)

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2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Rubber price USD/ton Crude oil price USD/barrel

RT1 Rubber

CL1 Crude oil



HOLD Figure 6: Position of Vietnam rubber industry in worlds market


According to the regulation in Decision No. 750/Q-TTG and No. 124/Q-TTg of Prime

Minister, total domestic rubber area will be kept at 800,000 ha. However, targets set out by

the government in the 2009 strategy were lower than the real figures. By the end of 2012,

total area plantation has covered 910,500 ha and is continuously expanding. There is high

probability that Vietnam will have more than one million ha of rubber in 2015-2020 period,

especially when those planted in Cambodia and Laos can be tapped.

Figure 7: Laos and Cambodias plantation quite minor among Vietnams vast plantation

Source: Governments plan, VCSC estimates, VRG

Incorporating Laos and Cambodias plantation, Vietnams total production volume can

increase at max of 1.1mn tons ~ 10% of worlds production, still has minimal impact on the

international rubber market.

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Thailand Indonesia Malaysia India Vietnam China

Mil tons Tons/ha

Production (000' tonnes) Productivity (ton/ha)

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2012 2013E 2014E 2015E

Thos. ha

Vietnam Plantation development

Laos

Cambodia

VN (Listed firms)

VN (others)

Planned



HOLD According to the Ministry of Agriculture and Rural Development (MARD), 83% of total output

is exported, mainly to China (44%) and Malaysia (21%)

Vietnam Rubber Group oversees operations of all subsidiaries

The Vietnam Rubber Group (VRG) was established by the government to monitor local

rubber market as well as implement national production targets. VRG controls about 44%

production area while that of private sector is 56%. All currently listed natural rubber

companies are subsidiaries of VRG, except for Thong Nhat Rubber Company (TNC).

At the beginning of the year, VRG sets a target-selling price and budget labour cost for each

company. This mechanism prevents rubber companies from enjoying enormous earnings

when rubber prices increase. When rubber price falls sharply, VRG sets a floor-selling price

as well as readjust the wage policy to protect rubber companies from incurring losses. For this

reason, rubber companies have stable gross margins regardless of volatility in global prices.

Figure 8: Rubber price swings wildly but rubber firms gross margins quite steady


VRG began operating abroad due to a shortage of available land in Vietnam. To date, they

have over 70,000 ha under rubber cultivation in Cambodia and several thousand ha in Laos.

VRG planned to plant 100,000 ha of rubber in Laos and 100,000 ha in Cambodia by 2014.

Though much smaller in scale, private sectors are growing into two major listed

conglomerates Hoang Anh Gia Lai (HAG) and Gemadept (GMD). HAG owns an area of

51,000 ha of land to plant rubber in Laos, Cambodia and Vietnam and they expect to extend

this area up to 100,000 ha at the end of this year. GMD is also applying for 29,000 ha of

plantation ha in Cambodia but they have just covered 5,500 ha by the end of 2012.

0%

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120%

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2,000

3,000

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6,000

2006 2008 2009 2010 2011 2012

Gross marginUSD/ton

Rubber price (RT1 commdt)

PHR

DPR

TRC



HOLD Figure 9: VRG still dominates rubber industry

Source: Company data, VCSC estimates

Listed rubber firms

For now, there are five rubber companies listed on the stock market. All have similar financial

structures with limited leverage and strong profitability. Among five listed firms, three

companies Phuoc Hoa Rubber (PHR), Dong Phu Rubber (DPR), and Tay Ninh Rubber (TRC)

are in the top with decent market cap, large plantation area and healthy financial ratios.

As for Hoa Binh Rubber (HRC), the company has up to 50% of rubber area out of productive

age (more than 24 years old compared to groups average of 20). Old rubber trees lead to low

exploitation efficiency, and hence it has the lowest gross margin, ROA and ROE than other

listed companies.

Thong Nhat Rubber (TNC) meanwhile is too small in scale with only 2,000 ha plantation. It

also operates less efficiently than the top three firms do.

Recommended Not recommended

Criteria PHR DPR TRC HRC TNC

Exchange HOSE HOSE HOSE HOSE HOSE

Market cap (USD mn) 112 100 59 41 13

30-days average trading (USD) 15,000 190,000 1,000 700 19,000

Foreign ownership (%) 17.9 31.4 30.8 5.4 1.6

VN Plantation area (ha) 22,000 16,000 7,300 5,100 2,000

Cambodia plantation area (ha) 7,600 9,000 7,600 N/A N/A

VRG ownership (%) 66.0 56.0 62.0 55.0

Gross margin 29.5 40.2 32.7 8.1 28.8

ROA 15.0 19.0 22.0 9.0 13.0

ROE 24.0 24.0 27.0 11.0 15.0

Debt/Asset 12.7 3.2 1.0 20.5 0.1


0

200

400

600

800

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2012 2013E 2014E 2015E

Thos. ha

Plantation development

GMD

HAG

VRG

Others



HOLD The top three rubber firms are all subsidiaries of VRG, which make them subject to similar

pricing structure as VRG directs selling price and labour cost mechanism.

Revenue determined mostly by selling price

Revenue growth depends almost entirely on fluctuation of rubber price, as current plantations

are fully planted for all listed firms

Figure 10: Stable volume, volatile selling price

Source: VCSC estimates

Following VRGs expansion plan, listed rubber firms began to operate abroad due to shortage

of plantations in Vietnam.

Among three rubber firms, PHR will see growth from its 100% owned subsidiary in Cambodia

at the earliest in 2016.

PHR DPR TRC

Vietnam tapping area (ha) 10,700 7,200 5,400

Cambodia tapping area (ha) 6,700 6,300 6,500

Cambodia Ownership 100% 58% 100%

Yield (ton/ha) 2 2.3 2.15

1st year of Cambodia exploitation 2016 2017 2018

Source: VCSC estimates

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2009 2010 2011 2012 2013E

VND mn/tonTons

PHR (vol)

DPR (vol)

TRC (vol)

price



HOLD Gross margin

Variations of gross margins are due to differences in product mix and age profile.

PHR has high proportion of trees out of productive age while most of DPRs plantation are at

the most productive age (11-25 according to figure 12). Thus, PHR has the lowest gross

margin (30%) compared to TRC (33%) and DPR (40%)

Figure 11: Trees age profile of listed rubber firms

Source: VCSC estimates, company data

Figure 12: Rubber trees provide the highest yield from year 11th to year 25

th

Source: VCSC estimates, company data

PHR sells premium rubber types SVR CV50, 60 (55% output). DPR focuses on SVR3L (50%

output) and TRC has strength in Latex (70%)\

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PHR DPR TRC

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Yield (ton/ha)

Age



HOLD Figure 13: Export price by rubber product types

Source: VRA, VCSC estimates, Oct2013

Valuation Valuation Method PE multiple

Target PER 6.0x

According to our compilation, regional rubber firms are trading at PER of 6.7x on average,

excluding Shangdong Yanggu Huatai Che-A and Hoa Binh Rubber which trade at abnormal

high PER of 115.0x and 15.1x.

Ticker Name Country Mrkt cap (USDmn)

PE trailing

ROE (%)

ROA (%)

Debt/ Asset

600579 CH Quingdao Yellow Sea Rubber

China 252 7.3 24.1 38.9

VMSR IN Vamshi Rubber India 1 4.9 20.2 6.5 45.0

IDR IN Indag Rubber India 22 5.5 34.9 25.2 -

HFT TB Hwafong Rubber Thailand 53 8.1 13.6 11.1 -

IRC TB Inoue Rubber Thailand 96 7.8 17.1 8.7 10.5

TNC VN Thong Nhat Rubber Vietnam 12 6.5 13.1 11.6 0.1

HRC VN Hoa Binh Rubber Vietnam 40 15.1 11.2 8.7 20.5

TRC VN Tay Ninh Rubber Vietnam 58 3.7 27.4 22.1 17.1

DPR VN Dong Phu Rubber Vietnam 96 4.2 23.8 19.1 3.2

PHR VN Phuoc Hoa Rubber Vietnam 116 5.2 24.2 15.5 12.7

Average 6.7 21.1 14.8 16.9 Source: Bloomberg

Compared to regional peers, Vietnamese rubber firms have similar market cap, ROE and

ROA while trading at lower PER of 5.0x on lower debt/asset ratio. We think Vietnamese

rubber firms deserve a higher PER despite some discount for VRG control, thus believe PER

of 6.0x is justifiable for Vietnam rubber stocks..

2,200

2,220

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2,340

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2,380

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SVR CV 50

SVR CV 60

Latex SVR L SVR 3L SVR 5 SVR 10 SVR 20

USD/ton

Export pricePHR

TRC

DPR



HOLD Although rubber price has fallen by 26% since its peak in 2010, rubber firms can still protect

profit margin by cutting cost of production (mainly employee salary). With virtually no debt,

they are free of interest payment pressure.

Profit & Loss Analysis

Figure 14: VCSC earnings forecast (VND bn)

2013E PHR DPR TRC Explanation

Sales 1,770 1,179 732

Rubber 1,573 992 721

Volume sold (tons) 29,968 18,998 13,763 No plantation expansion c.p last yr

Price (VND mn/ton) 52.5 52.2 52 Rubber price drops 17% yoy

Others 197 187 10

Cost of goods sold (1,297) (746) (528) Salary cut from 40% sale to 38%

Gross profit 474 433 203 GM lower last year as wage policy

not yet revised down

SG&A (77) (59) (33)

Operating profit 397 374 170

Forex gain/loss 3 2 1 VND devaluation by 3% this year

Non op. gain/loss 108 59 110

EBIT 508 434 281

Interest expense (20) (6) (1) TRC has no debts

EBT 488 429 280

Tax rate 25% 9.0% 10.7% DPR and TRC granted tax incentive

Profit after tax to Shldrs 364 390 249

Outstanding shares (mn) 72 43 30.0

EPS (VND) 5,054 9,070 8,339.5

Target price 30,000 54,000 50,000 Target PER of 6.0x

Current price 31,100 48,000 42,000

Upside -3% 13.4% 19.1%

Source: VCSC forecast

Sustainable high dividends

Low level of debt and efficient working capital cycles lead to high cash generation. Even 3/5

companies are having investment projects in Cambodia, we still forecast strong cash balance

in the coming years, sufficient to sustain current dividend levels. High dividend payouts also

mean the VRG always get their share of the profits.

Assuming rubber firms continue to pay dividend of VND3,000/share in the future, our

projection shows that natural rubber firms see no cash shortfall risk.

PHR 2009 2010 2011 2012 2013E 2014E 2015E

Beginning cash 323 228 424 637 446 481 474

Operating CF (63) 438 449 99 419 309 268

Investing CF 22 (28) 25 (139) (300) (100) (50)

Financing CF (64) (214) (260) (202) (85) (215) (215)

Capex (84) (179) (105) (308) (300) (100) (50)

Dividend (119) (279) (332) (156) (215) (215) (215)

Ending Cash 228 424 637 446 481 474 477




HOLD DPR 2009 2010 2011 2012 2013E 2014E 2015E

Beginning cash 39 279 508 822 646 831 910

Operating CF 182 514 892 480 453 358 315

Investing CF (24) (193) (406) (463) (100) (150) (100)

Financing CF 81 (92) (172) (193) (169) (129) (129)

Capex (53) (81) (132) (150) (100) (150) (100)

Dividend (0) (109) (165) (219) (129) (129) (129)

Ending Cash 279 508 822 646 831 910 996


TRC 2009 2010 2011 2012 2013E 2014E 2015E

Beginning cash 150 245 441 675 559 692 778

Operating CF 129 368 327 (54) 274 226 199

Investing CF (28) (68) 13 93 (50) (50) (100)

Financing CF (5) (104) (105) (156) (90) (90) (90)

Capex (30) (58) (25) (8) (50) (50) (100)

Dividend (15) (60) (89) (132) (90) (90) (90)

Ending Cash 245 441 675 559 692 778 787


At present, PHR has the highest dividend yield and dividend payout where DPR and TRC are

cheaper in terms of PER (about 5.0x).

Figure 15: Div 2009 2010 2011 2012 2013 Current Price

PHR 2,000 3,000 3,000 3,000 3,000 31,100

DPR 2,000 3,000 5,000 4,000 3,000 48,000

TRC 2,000 3,000 3,500 3,500 3,000 42,000

Dividend Yield

PHR 6.4% 9.6% 9.6% 9.6% 9.6%

DPR 4.2% 6.3% 10.4% 8.3% 6.3%

TRC 4.8% 7.1% 8.3% 8.3% 7.1%

Dividend payout

PHR 60.8% 48.6% 29.7% 40.5% 67.0%

DPR 38.0% 30.0% 26.8% 31.9% 33.1%

TRC 39.1% 32.8% 20.4% 30.1% 36.0%

Source: Company data, VCSC estimates

However stock prices in history show little correlation to rubber price

Usually, the price of a commodity and its related stocks show a high positive correlation. But

this does not seem to apply to Vietnamese rubber stocks, hence the investment argument of

dividends becomes more prominent. Despite strong swings in worlds rubber price, rubber

stocks tend to move sideways with a mild adjustment of 10% price change along the long-

term median line. Natural rubber stock prices usually slumped around Nov/Dec where price is

adjusted down by the amount of dividend payment. Therefore, rubber stocks are actually inert

with changes in outside factors (fluctuations of rubber prices, market move, etc)

Such behaviours prove that investors are well-aware of the fundamental nature of Vietnamese

rubber stocks as a long-term, high-yield investment channels.



HOLD Figure 16: Stock price inelastic with changing in rubber prices


If rubber price goes up, rubber firms can enlarge its profit base enormously. There is a high

possibility that they can increase current dividend payment at that point. Such happened in

2011 and 2012 where rubber price went up strongly to an average of USD4,500/ton and

USD3,300/ton (nearly double current price at USD2,400/ton), DPR increased dividend

payment to VND5,000/share and VND4,000/share (please see figure 15)

Besides good dividend plays, as investment thesis into rubber companies we also like to note

that:

- USD-driven sale and debt-free status allow rubber firms to benefit from VND devaluation,

which could potentially see another 2% adjustment this year

- Rubber companies will see organic growth in the future once their expansion in Cambodia

plantation comes to fruition.

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Rubber USD/tonStock price VND TRC PHR DPR Rubber price

Dividend Dividend Dividend Dividend



HOLD Financial Statements - PHR

Actual Forecast

Actual Forecast

VND billion 2012 2013 2014 2015

VND Billion 2012 2013 2014 2015

P&L

Balance Sheet

Revenue 2,214 1,770 1,761 1,756

Cash & equivalent 446 481 474 477

- Cost of goods sold (1,560) (1,297) (1,337) (1,383)

Short-term invest. 119 119 119 119

Gross profit 654 474 424 373

Accounts receivable 73 59 58 58

- Sales & marketing (24) (19) (19) (19)

Inventories 317 276 284 294

- General & admin (72) (58) (57) (57)

Other current assets 279 279 279 279

Operating profit 558 397 348 297

Total current assets 1,234 1,213 1,215 1,228

- Forex gain/loss 0 3 0 0

Gross fix assets 2,051 2,351 2,451 2,501

- Net non-op gains 206 108 109 109

- Acc. depreciation (651) (652) (653) (654)

EBIT 764 508 457 405

Net fixed assets 1,400 1,699 1,798 1,847

- Interest expense (11) (20) (34) (34)

LT investments 267 267 267 267

EBT 753 488 423 372

Other LT assets 200 200 200 200

- Income tax (148) (122) (106) (93)

Total long-term assets 1,867 2,166 2,265 2,314

Profit after tax 605 366 318 279

Total Assets 3,101 3,379 3,479 3,541

- Minority interests (4) (2) (2) (2)

Net income to SH 602 364 316 277

Accounts payable 11 10 10 10

Short-term debt 204 304 304 304

EBITDA 816 509 458 406

Other ST debt 756 756 756 756

Out. shares (m) 72 72 72 72

Current liabilities 971 1,070 1,070 1,070

EPS 8,390 5,075 4,401 3,860

Long-term debt 40 70 70 70

Other LT debt 42 42 42 42

Growth

Total long-term debt 82 112 112 112

Revenue growth % -14% -20% -1% 0%

Total liabilities 1,053 1,182 1,182 1,182

Op profit growth % -39% -29% -12% -15%

Preferred equity 0 0 0 0

EBIT growth % -26% -34% -10% -11%

Paid in capital 0 0 0 0

EPS growth % -17% -40% -13% -12%

Share capital 813 813 813 813

Retained earnings 1,211 1,360 1,460 1,522

Profitability

Minority interest 24 24 24 24

Gross margin % 29.5% 26.7% 24.1% 21.2%

Total equity 2,048 2,197 2,297 2,359

Net profit margin % 27.2% 20.6% 17.9% 15.8%

Total debt & equity 3,101 3,379 3,479 3,541

ROE % 31.6% 17.2% 14.1% 12.0%

ROA % 19.6% 11.3% 9.3% 8.0%

Cash flow

Begin cash balance 602 446 481 474

Efficiency

Net Income 52 364 316 277

Days inventory OH 77.6 83.4 76.4 76.3

Depreciation 637 1 1 1

Days acts. receivable 12.1 13.6 12.1 12.1

in working capital 0 55 (8) (9)

Days acts. payables 2.8 2.9 2.7 2.7

Other adjustments (555) 0 0 0

Cash conversion 86.9 94.0 85.8 85.7

Cash from operation 99 419 309 268

Net Capex (163) (300) (100) (50)

Liquidity

Other investments 24 0 0 0

Current ratio 1.3 1.1 1.1 1.2

Cash from invest (139) (300) (100) (50)

Quick ratio 0.7 0.6 0.6 0.7

Dividends paid (156) (215) (215) (215)

Cash ratio 0.5 0.4 0.4 0.5

in capital (14) 0 0 0

Debt/assets 0.1 0.1 0.1 0.1

in LT & ST debt (32) 130 - -

Debt/capital 0.1 0.1 0.1 0.1

Cash from financing (202) (85) (215) (215)

Debt/equity 0.1 0.2 0.2 0.2

Net changes in cash (242) 34 (6) 3

Interest coverage 71.2 25.3 13.6 12.1

End cash balance 446 481 474 477



HOLD Financial Statements - DPR

Actual Forecast

Actual Forecast

VND billion 2012 2013 2014 2015

VND Billion 2012 2013 2014 2015

P&L

Balance Sheet

Revenue 1,377 1,179 1,181 1,185


- Cost of goods sold (824) (746) (790) (843)


Gross profit 553 433 391 342


- Sales & marketing (14) (12) (12) (12)


- General & admin (54) (46) (46) (47)



Total current assets 1,518 1,641 1,731 1,831

- Forex gain/loss 1 2 0 0

Gross fix assets 1,164 1,264 1,414 1,514

- Net non-op gains 109 59 78 83


EBIT 594 434 410 366

Net fixed assets 851 950 1,099 1,198



EBT 589 429 404 360


- Income tax (50) (39) (36) (32)

Total long-term assets 1,303 1,402 1,551 1,650


Total Assets 2,821 3,043 3,282 3,481

- Minority interests 1 0 0 0




EBITDA 637 435 411 367

Other ST debt 290 290 290 290

Out. shares (m) 43 43 43 43

Current liabilities 377 338 338 338

EPS 12,552 9,070 8,559 7,625


Other LT debt 138 138 138 138

Growth


Revenue growth % -25% -14% 0% 0%

Total liabilities 557 518 518 518

Op profit growth % -37% -23% -11% -15%


EBIT growth % -32% -27% -6% -11%


EPS growth % -33% -28% -6% -11%



Profitability


Gross margin % 40.2% 36.7% 33.1% 28.9%

Total equity 2,264 2,525 2,764 2,963



ROE % 25.6% 16.3% 13.9% 11.5%

ROA % 20.5% 13.3% 11.6% 9.7%

Cash flow


Efficiency

Net Income 540 390 368 328







Cash conversion 106.7 119.6 104.2 103.8

Cash from operation 480 453 358 315

Net Capex (147) (100) (150) (100)

Liquidity

Other investments (316) 0 0 0


Cash from invest (463) (100) (150) (100)

Quick ratio 3.0 3.8 4.0 4.3

Dividends paid (219) (129) (129) (129)

Cash ratio 1.7 2.5 2.7 2.9

in capital 0 0 0 0

Debt/assets 0.0 0.0 0.0 0.0

in LT & ST debt 85 (40) 0 0

Debt/capital 0.1 0.0 0.0 0.0


Debt/equity 0.1 0.0 0.0 0.0

Net changes in cash (176) 184 79 86





HOLD Financial Statements - TRC

Actual Forecast

Actual Forecast

VND billion 2012 2013 2014 2015

VND Billion 2012 2013 2014 2015

P&L

Balance Sheet

Revenue 908 732 725 720


- Cost of goods sold (611) (528) (552) (579)


Gross profit 297 203 173 140


- Sales & marketing (8) (6) (6) (6)


- General & admin (34) (27) (27) (27)



Total current assets 960 1,070 1,160 1,173

- Forex gain/loss (1) 1 0 0

Gross fix assets 557 607 657 757

- Net non-op gains 137 109 116 120


EBIT 391 279 257 227

Net fixed assets 351 400 449 548



EBT 390 279 256 226


- Income tax (42) (30) (27) (24)

Total long-term assets 525 574 623 722


Total Assets 1,485 1,644 1,783 1,895

- Minority interests 0 0 0 0




EBITDA 415 280 258 228

Other ST debt 166 166 166 166

Out. shares (m) 30 30 30 30

Current liabilities 171 171 171 171

EPS 11,610 8,296 7,620 6,732


Other LT debt 0 0 0 0

Growth


Revenue growth % -24% -19% -1% -1%

Total liabilities 176 176 176 176

Op profit growth % -42% -34% -17% -24%


EBIT growth % -31% -28% -7% -9%


EPS growth % -32% -28% -7% -9%



Profitability


Gross margin % 32.7% 27.8% 23.9% 19.5%

Total equity 1,309 1,468 1,606 1,718



ROE % 28.6% 18.0% 15.1% 12.6%

ROA % 23.6% 16.0% 13.5% 11.4%

Cash flow


Efficiency

Net Income 348 249 229 202







Cash conversion 78.9 83.8 77.7 77.5

Cash from operation (54) 274 226 199

Net Capex 68 (50) (50) (100)

Liquidity

Other investments 25 0 0 0


Cash from invest 93 (50) (50) (100)

Quick ratio 4.9 5.5 6.0 6.0

Dividends paid (132) (90) (90) (90)

Cash ratio 3.3 4.0 4.5 4.6

in capital (20) 0 0 0

Debt/assets 0.0 0.0 0.0 0.0

in LT & ST debt (5) 0 0 0

Debt/capital 0.0 0.0 0.0 0.0


Debt/equity 0.0 0.0 0.0 0.0

Net changes in cash (116) 134 86 9





HOLD VCSC Rating System and Valuation Methodology

Absolute performance, long term (fundamental) rating key: The recommendation is based on implied absolute

upside/downside for the stock from the target price, defined as (target price current price)/current price, and is not

related to market performance. This structure applies from 1 November 2010.

Equity rating key Definition

BUY If the target price is 20% higher than the market price

ADD If the target price is 10-20% higher than the market price

HOLD If the target price is 10% below or 10% above the market price

REDUCE If the target price is 10-20% lower than the market price

SELL If the target price is 20% lower than the market price

NOT RATED The company is or may be covered by the Research Department but no rating or

target price is assigned either voluntarily or to comply with applicable regulation

and/or firm policies in certain circumstances, including when VCSC is acting in an

advisory capacity in a merger or strategic transaction involving the company.

RATING SUSPENDED The investment rating and target price for this stock have been suspended as there is

not a sufficient fundamental basis for determining an investment rating or target. The

previous investment rating and target price, if any, are no longer in effect for this

stock.

Unless otherwise specified, these performance parameters only reflect capital appreciation and are set with a 12-

month horizon. Future price volatility may cause temporary mismatch between upside/downside for a stock based on

market price and the formal recommendation, thus these performance parameters should be interpreted flexibly.

Small Cap Research: VCSC Research covers companies with a market capitalisation of up to US$50mn, inclusively.

Clients should note that coverage may not be consistent and that VCSC may drop coverage of small caps at any time

without notice.

Target price: In most cases, the target price will equal the analyst's assessment of the current fair value of the stock.

The target price is the level the stock should currently trade at if the market were to accept the analyst's view of the

stock, provided the necessary catalysts were in place to effect this change in perception within the performance

horizon. However, if the analyst doesn't think the market will reassess the stock over the specified time horizon due

to a lack of events or catalysts, then the target price may differ from fair value. In most cases, therefore, our

recommendation is an assessment of the mismatch between current market price and our assessment of current fair

value.

Valuation Methodology: To derive the target price, the analyst may use different valuation methods, including, but

not limited to, discounted free cash-flow and comparative analysis. The selection of methods depends on the

industry, the company, the nature of the stock and other circumstances. Company valuations are based on a single

or a combination of one of the following valuation methods: 1) Multiple-based models (P/E, P/cash flow, EV/sales,

EV/EBIT, EV/EBITA, EV/EBITDA), peer-group comparisons, and historical valuation approaches; 2) Discount

models (DCF, DVMA, DDM); 3) Break-up value approaches or asset-based evaluation methods; and 4) Economic

profit approaches (Residual Income, EVA). Valuation models are dependent on macroeconomic factors, such as

GDP growth, interest rates, exchange rates, raw materials, on other assumptions about the economy, as well as risks

inherent to the company under review. Furthermore, market sentiment may affect the valuation of companies.

Valuations are also based on expectations that might change rapidly and without notice, depending on developments

specific to individual industries.

Risks: Past performance is not necessarily indicative of future results. Foreign currency rates of exchange may

adversely affect the value, price or income of any security or related instrument mentioned in this report. For

investment advice, trade execution or other enquiries, clients should contact their local sales representative.



HOLD Contacts

Head office

Bitexco 15th

Floor, 2 Hai Trieu, District 1, HCMC

+84 8 3914 3588

Transaction office

136 Ham Nghi, District 1, HCMC

+84 8 3914 3588

Hanoi branch

109 Tran Hung Dao, Hoan Kiem District, Hanoi

+84 4 6262 6999

Transaction office

236 - 238 Nguyen Cong Tru, District 1, HCMC

+84 8 3914 3588

Research Senior Manager

Ms. Phuong Ton, ext 146

[email protected]

Senior Analyst, Ms. Hoa Dinh, ext 140

Senior Analyst, Ms. Van Ngo, ext 130

Senior Analyst, Mr. Huy Nguyen, ext 139

Senior Analyst, Mr. Anh Nguyen, ext 194

Research Team

+84 8 3914 3588

[email protected]

Analyst, Ms. Ly Vu, ext 147

Analyst, Ms. Trang Nguyen, ext 116

Analyst, Mr. Phap Dang, ext 143

Analyst, Mr. Dinh Nguyen, ext 149

Technical Analyst, Mr. Minh Nguyen, ext 142

Institutional Sales & Brokerage & Foreign Individuals

Head of Institutional Sales

Michel Tosto, M.Sc.

+84 8 3914 3588, ext 102

[email protected]

Vietnamese Sales

Nguyen Quoc Dung

+84 8 3914 3588, ext 136

[email protected]

Retail & Corporate Sales & Brokerage Ho Chi Minh City

Quynh Chau

+84 8 3914 3588, ext 222

[email protected]

Hanoi

Quang Nguyen

+84 4 6262 6999, ext 312

[email protected]

History of Recommendation

Date Recommendation Closing price Target price



HOLD Disclaimer

Analyst Certification of Independence

I, Trang Nguyen, hereby certify that the views expressed in this report accurately reflect my personal views about the subject

securities or issuers. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific

recommendations or views expressed in this report. The equity research analysts responsible for the preparation of this report receive

compensation based upon various factors, including the quality and accuracy of research, client feedback, competitive factors, and

overall firm revenues, which include revenues from, among other business units, Institutional Equities and Investment Banking.

VCSC and its officers, directors and employees may have positions in any securities mentioned in this document (or in any

related investment) and may from time to time add to or dispose of any such securities (or investment). VCSC may have, within the

last three years, served as manager or co-manager of a public offering of securities for, or currently may make a primary market in

issues of, any or all of the entities mentioned in this report or may be providing, or have provided within the previous 12 months,

significant advice or investment services in relation to the investment concerned or a related investment.

APPENDIX I: TERMS FOR PROVISION OF REPORT, DISCLAIMERS AND DISCLOSURE

Copyright 2013 Viet Capital Securities Company VCSC. All rights reserved. This report has been prepared on the basis of

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author at the date of publication only. They do not necessarily reflect the opinions of VCSC and are subject to change without notice.

This report is provided, for information purposes only, to institutional investors and retail clients of VCSC in Vietnam and overseas in

accordance to relevant laws and regulations explicit to the country where this report is distributed, and does not constitute an offer or

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The information contained herein is not, and under no circumstances is to be construed as, a prospectus, an advertisement, a public

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