Company reports

HSG [+1% - NEUTRAL] - Cautious Approach As Cycle’s Top Is Not Far Ahead - Initiation Report - April 2017

07-04-2017 17:54:08

We initiate coverage on Hoa Sen Group, a leading steel manufacturer in Vietnam as of March 2017. The stock is part of the VN30 Index and had a stellar performance last fiscal year as well as Q1 result. The overall consensus has thus been positive and management is forecasting more good news ahead. We however are cautious on the Company’s performance based on: •FY2016’s earning jump reflects a unique combination of 1) sharp recovery in the underlying commodity 2) HSG’s cheap inventories – a situation which unlikely to repeat this year. •Management’s revenue expectation seems overly aggressive as it incorporate both aggressive volume growth and selling price increase. •There is a thin margin of safety in term of valuation

Kinh Do Frozen Foods - Do you like Ice Cream - Flash Note - 31 March 2017

31-03-2017 12:02:27

We attended KDF’s IPO roadshow on March 27th 2017 and note the following key points: Mininum offering price per share of VND 52,000; Kido Group still holds 65% stake post-IPO. Kido Group (KDC) will sell 35% of its stake in Kido Frozen Foods JSC (KDF) in 2Q17, in which 20% is distributed by VDSC to public investors at VND 52,000 per share (P/E forward 15.2x) via subscription from March 31st 2017 to April 12th 2017, and 15% is offered to KDC’s partners at a discounted price. Post-IPO, KDC still has controlling interest at KDF with 65% ownership. 2013-16 review: The ice cream giant was enjoying robust revenue and earnings growth. KDF reported 2016 revenue and NPAT of VND 1,396.8bn and VND 142.6bn respectively, implying the robust 2013-16 CAGR of 21.9% and 42.1%. While ROE and ROA both declined last year due to the new equity raise of VND 383.4bn and the new factory of VND 400bn in Bac Ninh province, margins continued expanding thanks to economies of scale and ASP increase. According to the IPO materials, KDF is the market leader in ice cream segment with 35% market share by end-2016 (1st runner-up is Unilever VN with 10.3%). Ice cream is by far KDF’s largest sales and profit center, generating 83% of total revenue (VND 1,160bn) and 77% of gross profit (VND 447bn) in 2016.2017-20 Outlook: Testing new waters & seeking for M&A opportunities. The Company guidance shows 2017F revenue of VND 1,828bn (+30.8% YoY) and NPAT of VND 200bn (+40.2% YoY). Over 2017-20F, KDF expects to see 27-29% CAGR of both top- and bottom-line, in which revenue and NPAT would reach VND 3,900bn and VND 414bn respectively by end-2020F. 60% of new growth would come from frozen foods, an emerging business started in 4Q16 but would gradually succeed ice cream as KDF’s sales powerhouse in the next 4 years. The Company is also open to M&A opportunities to penetrate deeper into the VND 7,700bn frozen foods market.

PNJ [+25.3% - BUY] - Ample Room for Market Share Expansion - Equity Update - 30 March 2017

31-03-2017 10:27:08

We reiterate BUY rating to PNJ with a revised 12M TP of VND 91,000 (previously VND 85,000) after adjusting earning forecast by 90bps and lowering WACC from 10.8% to 9.7% (see Figure 1 as below). Key investment themes for PNJ in 2017-18F are: Ample room for market share expansion. We believe PNJ can push top-line growth through (1) gaining more market share from unbranded retailers who are now controlling a massive c.60% of Vietnam’s jewelry sector and (2) expanding its retail network with 70 new stores in 2017-18F. Assuming SSSG to recover to 9-10% (2016: 8%) and Vietnamese jewelry demand to remain stable, we estimate 2017F revenue of 9,443bn (+9.6% YoY) and 2018F revenue of VND 10,145bn (+7.4% YoY). According to PNJ, gold jewelry sales grew 44% and SSSG achieved 27% in 2M17. Margin upswing and earnings recovery. We expect margin and earnings growth to be boosted by (1) larger contribution of jewelry retail that contains rich margin in total revenue and (2) no further provision for investments in non-core business that hindered earnings in the last 2 years. Following that, we estimate GPM to expand 190 bps in the next 2 years. NPAT would see double-digit growth, reaching VND 649bn (+44% YoY) in 2017F and 760bn in 2018F (+17.2% YoY). Lower WACC results in higher DCF-based TP of VND 91,000; attractive valuations in regional context. Though we only tweaked our earning forecasts by 90bps, we have lowered WACC from 10.8% to 9.7% after reviewing PNJ’s capital structure that is utilizing more debt than estimate. Accordingly, the DCF-based 12M TP is VND 91,000 – a 21.3% upside. We estimate 2017F dividend of VND 3,000, implying 25.3% return. PNJ currently trades at EV/EBITDA forward and P/E forward of 8.5x and 13.8x, which are ~20% discount to regional peers’ comparable valuations. In our opinion, PNJ’s valuations are attractive given its EBITDA margin is 26% higher than the regional mean.

CTD [+14.9% - NEUTRAL] - New Growth Platform - Flash Notes - March 2017

22-03-2017 10:14:05

We attended the Conference Day held by Contec Construction JSC (Ticker: CTD). The management team revealed the FY2016 business performance review and new construction-related business lines. We believe new business segments will create new growth platform for CTD from 2017 onward. The highlights are below: 2017 outlook expected to see solid grow. In FY2016, CTD achieved revenue of VND 20,783bn (+52% YoY). Gross profit ended up VND 1,799bn (+62% YoY) and net income achieved VND 1,422bn (+209% YoY). We believe CTD will continue to expand its revenue and net income in FY2017 because of the following reasons: (i) 2016 huge backlog of VND 27,000bn carried forward, (ii) 2017 new contract of VND 21,500bn and (iii) margin improved through Design & Build model, higher productivities and strong cash balance. Executing new strategies to weather construction business cycle. The management team revealed CTD’s new course, which focuses on business risk management through business diversification. In particular, the management team intends to reduce construction’s revenue contribution to 50-60%, while the remaining would come from new sectors that include: (i) investment in infrastructure projects, (ii) investment in attractive real estate projects and (iii) merger and acquisition (M&A) in construction value chain. Additionally, CTD has joint-cooperation with Vingroup (Ticker: VIC) to build affordable housing units, namely VinCity Project. The projects guarantees huge work volume and stable revenue, but relatively lower margin.   Valuation is less attractive when comparing with historical trading P/E. Based on our discussion with management team, we forecast CTD will hit VND 23,725bn (+14.16% YoY) in revenue and VND 1,635bn (+15.00% YoY) in net income, translating diluted EPS of VND 21,223. We arrive CTD’s fair value at VND 235,547 when expecting P/E mean reverting to peers. We, however, alert investor that the current P/E is traded premium vs both historical next-twelve-month (20.21% NTM) and last-twelve-month (65.78% LTM). We, therefore, hold NEUTRAL view to CTD.

MWG [+21% - BUY] - The Bet for Green Grocery - Equity Update - March 2017

07-03-2017 13:21:11

Upgraded top-line forecasts. We upgraded our 2017-18F top line forecasts by 6-9% and estimate 2017F net revenue of VND 62,644bn (+40.4% YoY, company guidance is VND 63,000) after re-assessing MWG’s latest expansion plan and per-store sales. Our analysis indicates MWG to have 1,100 TheGioiDiDong (“TGDD”) and 500 DienMayXanh (“DMX”) stores by end-2017. SSSG of TGDD and DMX would sustain at 10-15%.The Green Hope named BachHoaXanh (“BHX”). We think BHX (aka Green Grocery) is an unknown factor though the management has updated their plan to open 250-300 BHX stores in 2017F (vs. initial plan of 40 stores) with the “Hope” to lead the $60bn grocery retail market in Vietnam. Our view is based on the fact that MWG may discontinue BHX if the chain doesn’t return positive EBITDA by end-2017, which is possible given BHX is still making loss after the first pilot year. In 2017F, we estimate BHX to generate VND 2,800bn in sales with 260 new stores, mostly in HCMC suburbs. Downgraded bottom-line forecasts. We downgraded our 2017-18F bottom line forecasts by 6-14%, with the revised 2017F NPAT of VND 2,036bn (+29.1% YoY, company guidance is VND 2,200bn) due to higher forecasts for SG&A expenses and interest expenses. We hold the view of slight GPM compression in 2017F (-10 bps) when MWG’s revenue structure leans towards the less-profitable business DMX.Revised DCF-based TP of VND 200,000; justifiable valuations in global context. We reiterate BUY rating to MWG with a revised 12M DCF-based TP of VND 200,000 – a 20% upside, and estimated 2017F dividend of VND 2,000, implying 21% return. MWG’s 2017F EBITDA margin is 13% below global average (5% vs. 5.8%), which is justifiable given its 2017F EV/EBITDA currently trades at 4% discount to mean (8.5x vs. 8.8x).

TVS - 2017 Market Outlook - Charting New Course

27-02-2017 11:30:43

1.Economy Outlook – Charting New Course •We expect 2017 economy delivers 6.41% growth (vs. 6.7% government target) with controlled inflation under 7%. •Although the monetary policy has more room (the Taylor rule rate of 5.43% vs. 9% base rate), the new cabinet is expected not to take use of it. •3.5% fiscal deficit is stretched target which requires government follow strictly financial discipline. •Uncertain global trade weights on both trade and foreign exchange. 2.Equity Market – Approaching to Next Bar •Given economic stabilization, we expect the VNindex enjoying 10.3% growth to price at 732.23. It does imply 2016 P/E traded at forward 14.45x. •Market movement gains momentum from new large-cap listings expected speeding up in 2017 . The new cabinet takes SOE-equitization plan seriously when public debt approaching to 60% GDP. •Foreign trading expected to be net-selling when selling forces does exist, explained by (i) hiking Fed rate, (ii) closing 10-year investment horizon fund since inception of 2007, and (iii) ETF being less attractive vehicle. 3.Our favorable sector/stock •Consumer goods sector [portfolio’s growth component] - backed by rising tide of private consumption. Our stock picks are VNM, PNJ and MWG. •Oil & Gas [portfolio’s alpha-generation component] – 2017 turnaround year. Our stock coverage are PVD and DCM. •Real Estate – Time to Enter Affordable Housing Segment. Our stock coverage is NLG •New listing - Short-term event-driven strategy. Our stock pick is VJC.

DHG - Tax Allowance as Key Catalyst - Flash Note - 24 Feb 2017

27-02-2017 10:33:26

We attended the analyst meeting of DHG on 22-Feb-2017 and noted these key points: Tax allowance as key catalyst: DHG reported 2016 net revenue of VND 3,782bn (+4.8% YoY) and NPAT of VND 713bn (+20.3% YoY), exceeding company guidance by 1.3% and 5% respectively. While topline expansion was boosted by robust performance of major brands (see Figure 1), NPAT’s high double-digit growth was mostly attributable to the CIT incentive for new factories in Hau Giang province (0% in 2015-18, 5% in 2019-27, 10% in 2028-29). This allowance saved DHG VND 108bn of CIT in 2016 (2015: VND 45bn); total tax savings over 2015-29 is estimated at VND 1,000bn. DHG has revealed no plan about FOL uplift as well as CEO succession (the current term of Dr. Nga, DHG’s CEO since 2004, will end next year). We anticipate a minimum 30% cash dividend for 2016. The Company will hold another analyst meeting in April 2017 and TVS Research will provide update accordingly.

VNM [+13.7% - NEUTRAL] - Headwinds from rising material cost - Equity Update - 16 Feb 2017

17-02-2017 10:11:13

Revenue growth to moderate in 2017-18F after the stellar 2016 performance. Vinamilk witnessed a successful 2016 when revenue reached the remarkable milestone of US$ 2bn (up 16.8% YoY), driven by robust domestic sales while overseas sales saw major setback last year. We forecast Vinamilk’s average revenue growth to moderate to 12% YoY in 2017-18F, in line with the company guidance of minimum 10% YoY growth over 2017-21F. We also lowered overseas volume growth forecast to 7-9% YoY from 15% YoY after reassessing demand in key export markets.Rising material costs to blow cyclical headwinds against earnings growth in 2017F. Global milk powder price has rallied c.60% growth T12M, boosted by cyclical supply curtail and demand upturn. Considering latest dairy forecasts, we revise our estimate for Vinamilk’s average purchase price of milk powder in 2017F to US$ 3,300/MT from US$ 2,800/MT, an incline of 18%. Under this event, domestic and overseas GPM would fall by 420 bps and 340 bps respectively this year from the all-time-high of 47.3% and 49.5% in 2016, before recovering in 2018F. 2017F NPAT is forecasted at VND 9,649bn, reflecting a slower growth of 3.2% YoY with NPM falls by 180 bps to 18.2%.Key investment risks: (1) Volatility in milk powder prices. Future earnings would be further dampened if the current rally of milk powder prices extends beyond 2017F, and (2) Key management change. Given no confirmation about the CEO’s retirement, whose current term ends in 2Q17, we hold a conservative view regarding the company’s corporate governance in 2017-18F.

LHG - The Street is Still Wet - Equity Update

03-02-2017 11:19:44

We attended LHG’s Extraordinary General Meeting (EGM) seeking shareholder’s approval of VND 172 billion tax-bill payback and new share issuance. Following are the updates: Growth of 60% in revenue and more than 200% in net income. LHG reported VND 480 billion (+60% yoy) in net revenue and VND 161 billion (+230% yoy) in net profit for FY2016. 2016EPS is forecasted to be VND 6,150 (subject to a Land Levy of VND172 billion). Currently LHG is trading at 2.52x. 34% stake investment to Sapulico as Short term catalyst. Sapulico listing on UpCom provides LHG 30%-40% premium. LHG should make a divestment as Sapulico are facing structural shift in business environment which may have enduring effect. Long Hau 3 development as long term catalyst. As the management’s guidance, LHG can enjoy the benefit with followings: (i) convenient distance to economic and transportation hubs; (ii) benefit from infrastructure investments; and (iii) Long Land-Use duration help LHG to enjoy relatively higher occupancy and rental rates. With his guidance, we expect Long Hau 3 to provide stable revenue stream and positive occupancy and rental rates. In additional, big land bank (891ha) supplies opportunities for future expansion. Land Levy as a setback. LHG is obliged to pay back to the State VND172 billion which may possibly be subtracted from Retained earnings. The EGM seeking shareholder’s approval expects the tax pay-back clearance in FY2016. We highlight the investor should wary of the contingent liability hitting hard to FY2016 financial performance. Stock dilution. LHG is to issue further 23,929,595 shares. This amount would be used to reduce debt burden in Long Hau 3 project. As per our calculation, dilution leads to a drop of 31.6% and 24.8% in EPS and BVPS respectively.