Company reports

MWG [BUY - 38.9%] - BHX We Will Get There - Equity Update - 29 March 2018

30-03-2018 09:38:12

We reiterate BUY rating for MWG with a revised 12M TP of VND 158,500 (previously VND 162,500) – a 38.9% upside including 2018F DPS of VND 1,200. This revision is primarily due to the longer-than-expected BHX’s breakeven period 1 year. Below are key investment highlights:   § MWG – We are still convinced by the long-term success of BHX. MWG reported net sales of VND 66.3trn (+49% YoY) and NPAT of VND 2,206bn (+40% YoY), beating our sales forecast by 3%. BHX – assumed as MWG’s growth engine after 2018F – was still making loss. We expect this grocery chain would turn profitable no earlier than 2020F, which is 1 year longer than our prior estimate due to difficulties in acquiring new customers and optimizing operations. That said, we are still convinced by the long-term success of BHX though mid-term challenges and their unfavorable impact on MWG are inevitable.   § BHX: “We will get there” – A statement by Mr. Robert Alan Willett (MWG’s board member & BestBuy International’s ex-CEO) when being asked in the AGM whether BHX can survive and become the No.1 grocery retailer in Vietnam has confirmed the Company’s confidence and commitment to replicate the success of TGDD & DMX in their “younger brother” BHX. Still, BHX is facing unsolved operating issues especially in fresh stock management, resulted in net loss of VND 161bn last year. We estimate 2018F revenue to be VND 4.5trn and net loss to be VND 338bn (-20% and +275% vs. prior estimates). GPM of fresh foods and packaged foods would extend 400bps and 100bps to 16% and 12% respectively. We expect BHX to turn profitable no earlier than 2020F with net sales of VND 27trn and NPAT of VND 297bn. Our estimated new BHX stores and SSSG in 2018/19/20F are 500/1500/1500 and 20%/25%/15% respectively.   § DMX – High double-digit sales growth is expected in 2018F. DMX was the key growth factor of MWG last year with VND 30.2trn in sales (+120% YoY) and 642 stores by end-2017 (+386 stores vs. 2016). For 2018F, we estimate DMX to continue being MWG’s sales powerhouse given that 386 new stores opened last year will run full year. Particularly, sales is expected to climb to VND 41.5trn (+37% YoY) with 70-80 new stores. SSSG may decrease to 5% (2017: 6.5%) and GPM would increase to 17% (+80 bps YoY).   § TGDD – Matured but still a major sales contributor. TGDD posted VND 34.6trn in sales, up 13.2% despite of negative SSSG (-2%) for the first time after 13 years in market. MWG now plans no expansion for TGDD from 2018F onwards. We estimate 0% SSSG and 0 net new store for TGDD in 2018F. Accordingly, sales would grow slightly 4.2% YoY to VND 36trn, mostly attributable to 2017 new stores that will run full year.

DXG [NOT-RATED] - Transforming into Developer - AGM Notes - 19 March 2018

20-03-2018 09:30:50

We attended DXG’s 2017 Annual General Meeting (AGM) with the following key points: Gross margin surged to 62%, up from 42% in FY2016, benefiting from secondary investment segment. DXG brokers carried out 22,108 transactions in FY17, accounting for 29% of Vietnam’s property market transactions. The combination of brokerage and secondary investment resulted in a 99% YoY increase in brokerage revenue in FY2017. In secondary investment segment, DXG will put money into the trouble projects, in exchange, DXG obtains the right to be the prime broker or convert the loans into actual housing units at favorable prices. In addition, DXG may require the projects to be constructed by DXG’s construction division. At the end of FY2017, DXG had VND 1,546bn (+96% YoY) put as cash advance at more than more than 18 projects of other developers. 2018 outlook sounds good. For FY18, we expect DXG will achieve revenue of VND 4,704bn (+63% YoY) and net income of VND 1,024bn (+36% YoY). Revenue of development sector is based on our assumed DXG’s hand-over of Opal Riverside, Lux City, Opal Garden and Lux Garden. We conservatively forecast that brokerage sector will carry out 23,120 transactions (including DXG/LDG’s projects, third parties’ project and co-develop projects) bringing about VND 1,734bn. Diluted EPS forward is VND 2,660 implying P/E 13.5x.

PHR [+BUY - 21%] - Multiple Potential Catalysts - Equity Update - 16 March 2018

16-03-2018 10:02:57

We attended PHR’s 2018 Annual General Meeting with the following key points: 2017 strong performance. In 2017, PHR delivered a strong growth thanks to a surge in natural rubber (NR) price and rubber-tree liquidation. Revenue and net profit increased by 40% and 44% YoY, reaching at VND 1,654bn and VND 325bn, respectively. Gross profit margin remained high at 17.2%, up from 13.4% in 2016. 2018 target plan. In 2018, PHR sets a conservative plan. Particularly, revenue and net profit will achieve VND 1,931bn (+16.7% YoY) and VND 330bn (+1.5% YoY). Valuation. We reiterate our BUYING rating for PHR with a 12-month target price of VND 55,600 – a 13% potential upside before dividend yield, using a P/E method. We expect 2018F dividend to be VND 4,000, higher than planned cash dividend payment of VND 2,000 as PHR will enjoy strong cash flow without significant capital expenditure. The estimated dividend yield is c.8.13%, delivering total stock return of 21%.Key investment risks. (1) A downside risk in natural rubber price, (2) Delay in booking non-core businesses’ profit, and (3) Economy slowdown.

CTD [+11.5% - HOLD] - Lower Gross Margin Weighted Down Valuation - 2017 Equity Update - 21 Feb 2018

22-02-2018 16:03:48

2018 Outlook – Headwinds from 15% fall in 2017 newly signed contract projects together with gross margin pressure. The FY2018 backlog is estimated VND 22,802bn (+2% YoY) which was below our expectation of VND 24,050bn. We think the shortage was due to VinCity’s delay in FY2017. In addition, 15% fall in newly signed contracts in FY2017 increase the backlog burn rate in FY18 and become a leading indicator for FY18 slowing revenue growth. We forecast CTD will achieve a revenue of VND 30,462bn (+12% YoY) of which construction still accounts for 99.7%. We estimate new contract signed in FY18 will be VND 27,498bn. We forecast FY18’s revenue would be contributed by 79% of backlog transferred from FY17 and 21% of new contracts in 2018. We conservatively reduce full year gross margin to 7% to reflect our concern on residential high-end segment slow-down. Gross profit would be VND 2,150bn (+7% YoY). We still expect CTD to enjoy a strong financial income (VND 276bn), but this amount would be lower than in FY2017 as there will cash disbursements to new revenue platform. Net income arrives at VND 1,699bn (+3% YoY). EPS forward is VND 20,438. Valuation. We revise down our 12-month target price for CTD to VND 206,353 (+11.5% potential upside before dividend yield.) using DCF method. A lower target price reflects our concerns over a not-yet-contribution of new growth platform while core business would witness thinner gross margin and slowing revenue growth.

FW: MWG [+20.1% - BUY] - Strategic M&A to Secure Future Growth - Equity Update - 04 Jan 2018

04-01-2018 10:28:02

We reiterate the BUY rating for MWG with a revised 12M TP of VND 162,500 (previously VND 131,000) – a 20.1% upside including 2018F DPS of VND 1,200. This upgrade is attributable to improved cash flows following strategic M&A made in 2017. Below are key investment highlights: § #1 M&A: Tran Anh Group (HNX ticker: TAG) – From competitor to subsidiary. MWG completed the negotiation to acquire c.95% stake of TAG – a leading electronics retailer with 16% market share in Northern Vietnam. The deal will be funded by the 5Y 6.55%-fixed corporate bond of US$ 50mn issued in Nov-17, and MWG will possibly pay a premium over market prices. Though TAG’s business performance is questionable (VND 5bn loss in 1H17), MWG expects to leverage TAG’s 34 megastores (1,500-2,000 m2 per store, mostly in Hanoi) to increase its footprint in the North. We anticipate the takeover would not be easy for MWG – a Southern Vietnam-based company – due to culture and store-size differences (typical DMX’s store-size is 400-600 m2), and may take it 12-18 months to optimize the operation at TAG. The “TAG” brand would remain in the first 1-2 years before being replaced by MWG’s own brand. We estimate TAG to generate c.VND 7,500bn in sales and c.VND 110bn in NPAT in 2018&19F (2017E: VND 3,500bn in sales & VND 16bn in loss). § #2 M&A: An Khang (AK) – MWG’s move into retail pharmacy. In Dec-17, MWG announced the acquisition of the pharmacy retailer AK (established in 2006, 14 stores in HCMC). This M&A shows MWG’s ambition to leverage its retail know-how in multi-sector to secure future growth, amid the flagship mobile retail chain TGDD has matured and the fast-growing electronics retail chain DMX would mature in 1-2 years. Though MWG aims to open 30-40 new AK stores in 2018, there is still no clear plan regarding how it will execute the expansion. Thus, we currently rule out AK’s impact on the group financials and will revisit this case in further update. § Bach Hoa Xanh (BHX) – Expecting profit from 2019F onwards. BHX reported VND 1.2trn in sales with 208 new stores in 11M17 (now total 248 stores, 2016: 40 stores). We estimate this grocery retail chain to end 2017 with 280 stores, all locating in suburb districts for pilot testing. BHX is still making loss, of which the primary reason, in our opinion, is due to BHX has yet reached its optimal economies of scale. Thus, despite of the current loss, we believe BHX will certainly accelerate store expansion in 2018-19F with the target of ~2,000 new stores in 2 years. Accordingly, we estimate BHX to start making profit from 2019F thanks to 1) larger scale (2,000 stores by end-2019F, TVS Research estimates), 2) more effective product mix (BHX has trimmed down its SKU from 2,200 to 1,500 in 4Q17), 3) plenty room for raising selling prices (now 10-20% under wet-market rates), and 4) more effective control over inventory loss ratio (from 3-4% currently to 1% in 2019F). Our revised 2017F estimates for BHX: revenue VND 1.8trn with 240 new stores; SSSG 20-25%; gross margin 15%. See Figure 1 for 2018-19F store expansion and sales forecasts. § Dien May Xanh (DMX) – On the right track. DMX reported 11M17 revenue of VND 26trn (+124% YoY), with 351 new stores (607 in total, 2016: 256 stores). The massive store addition is right on track with the management’s target for DMX in 2017 before shifting their expansion focus for BHX in 2018-19F. Our revised 2017F estimates for DMX: revenue VND 28.5trn (+108.5% YoY) with 400 new stores; SSSG 17% (2016: 15%); gross margin 16.5% (+120 bps YoY thanks to higher supplier discount). See Figure 1 for 2018-19F store expansion and sales forecasts. § The Gioi Di Dong (TGDD) – Sign of maturity. TGDD reported 11M17 revenue of VND 31.7trn (+14% YoY), with 117 new stores (1,068 in total, 2016: 951 stores). Comparing to 387 new stores in 2016, it’s obvious the expansion has slowed down, implying sign of maturity. Our revised 2017F estimates for TGDD: revenue VND 34.1trn (+11.4% YoY) with 125 new stores; SSSG 2% (2016: 10%); gross margin 17.5% (+100 bps YoY thanks to higher supplier discount). See Figure 1 for 2018-19F store expansion and sales forecasts.

BSR [NOT - RATED] - Vietnam Giant Refinery Takes Privatization - IPO Flash Notes - 21 Dec 2017

22-12-2017 09:36:52

We attended Binh Son Refining and Petrochemical Company Ltd.,’s IPO Roadshow with following key fact: 2017 Business Preview Tied to A Recovery in Price Realizations and Higher Crack Spread. ·         9M2017 revenue and net profit (NPAT) reached VND 54,304bn and VND 5,466bn, equivalent to 87% and 325% of 2017 company guidance, respectively.  FY2017 NPAT guided by management team will be around VND 8,000bn, increasing by 78% YoY and exceeding 3.8 times of 2017 budget. ·         9M2017 gasoline and diesel consumption volume reported at 4.2 mn tons, equivalent to 84% of 2017 plan. Dung Quat plant operates at 103-105% total design capacity (6.5 mn tons/year). ·         In 2017, BSR delivers a strong performance on the back of oil price recovery and favorable tax policy. Oil price increases by 16.7% YoY, and crack spread* increases by 18.4% YoY which fuels BSR’s strong performance. In addition, from 1/1/2017 BSR has enjoyed import tax exemption when the refined products are considered as import substitution. Thus, gross margin increased from 2.6% in 9M2016 to 11.5% in 9M2017. ·         BSR ranks the 1st position in domestic gasoline market, with 28% share, followed by imported products from Singapore (26%), Korea (16%) and Malaysia (16%). ·         BSR has a strong client base, operating in oil and gas distribution and retail sector, e.g. Petrolimex (PLX-HSX), PVOil, and Saigon Petro. ·         2017 is the third year for the major plant turnaround conducted every 3 years, which lasted 51 days. The next one will be conducted in 2020. In 2021, Dung Quat plant will stop in 2 months for plant upgrade and expansion. *Crack spread ratio: refers to the price difference between a barrel of crude oil and the petroleum products refined from it. 2018 – 2022 onwards Plan – Focusing on high-end products ·         In 2018 – 2020, BSR’s guided revenue and NPAT growth are 14.3% and 1.5% CAGR respectively. ·         The expansion project is expected to complete in 2021 and put into operation in 2022. It adds more 2 mn tons to 8.5 mn tons/year. Total projected investment cost is USD 1.8bn with an IRR of 8-11%. It will be financed at a Debt-to-Equity ratio of 70/30. ·         After plant expansion, the company will add more high-end petroleum products (RON97, DO and Asphalt) to its product portfolio , whose the quality is complied with EURO V standard according to Decision No. 49/2011/QD-TTg.** ·         The Southern and Central regions are the target market, which will account for 90% and 10% of total volume consumption. ·         Blue Whale gas field project: with estimated reserve of 150 bn cubic meters, and locating at 80-100km east off the Central coast in Vietnam, the project is expected to put into operation in 2023 and be main gas source for Dung Quat Plant expansion. Dung Quat Plant will use 1 bn cubic meters for deep processing.

DCM [Not-Rated] - State-Owned Divestment: New Catalyst - Flash Notes - 12 December 2017

13-12-2017 11:04:32

2017 Preview – Strong top-line growth thanks to Cambodia fertilizer market expansion ·         2017 estimated revenue and NPAT will reach VND 6,000bn (+21% YoY) and VND 650-680bn (+4-9% YoY), exceeding 13% and 3%-7% of company guidance, respectively. 2017 urea production volume is estimated at 880,000 tons (+9.4% YoY), equivalent to 110% of design capacity. Total expected fertilizer consumption is 955,000 tons, with 880,000 tons of urea and 75,000 tons of other trading fertilizers (NPK, DAP and Potash) (Figure 2). ·         In 2017, the company held c.41% market share. Mekong Delta and Cambodia are the target markets of DCM, in which, the shares are c.58% and c.38% for the former and the latter respectively. Regarding South-Eastern and North-North Central region, its shares are c.24% and c.12%, respectively (Figure 1). ·         DCM is the leading urea exporter to Cambodia. In 9M2017, the company exported c.79,000 tons urea (+34% YoY) to Cambodia. Total Cambodia fertilizer consumption is 700,000 tons/year and a half of this belongs to urea. With low fertilizer usage rate (30kg/ha) as compared with Vietnam (397 kg/ha), Cambodia has high fertilizer demand and is a promising market that could support for DCM’s long-term growth. ·         According to the 2017 target plan, the company sets a low gasoline price in 2017, at USD 1.52/MMBTU, to maintain the company’s ROE of 12% agreed between DCM and Vietnam government. The figure is lower than 2017F DPM’s input price of USD 4.56/MMBTU.

DXG [+29% - BUY] - 3Q2017 Strong Performance Bolstered By Brokerage Segment - 3Q2017 Equity Update - 12 December 2017

13-12-2017 10:52:34

We initiate a BUY rating for Dat Xanh Real Estate & Construction Corporation (HOSE: DXG) with a 12-month target price of VND 25,388 (+25% potential upside before dividend yield) based on the following key points: 3Q2017 showed mark improvement driven by brokerage sector. In 3Q2017, DXG has reported an improvement in its financial results with revenue reaching VND 797bn (+240% YoY) and net profit of VND 257bn. The positive results were bolstered by strong performance in both brokerage and development sectors. In particular, development sector increased five times to contribute VND 241bn while brokerage sector achieved VND 512bn (+228% YoY). As the result, DXG achieved revenue of VND 1,676bn (+27% YoY) and earnings of VND 460bn (+219% YoY) in 9M2017 season. EPS reached VND 1,609 (+31% YoY). Brokerage sector has replaced development sector to be the biggest contributor accounting for 57% revenue. Brokerage sector is likely to do well in coming quarters, but high gross margin comes at a cost of (i) forfeit opportunity costs of the amount used as deposits; (ii) risk of those financially distressed projects. In addition, we expect gross margin of development sector to be decreasing as the company may have capitalized the loans into the COGS. For FY2017, we forecast that DXG will achieve VND 3,499bn in revenue (+39% YoY) and VND 1,715bn (+53% YoY) in gross profit. We forecast brokerage segment will carry out 11,450 transactions and brings about VND 1,177bn (+45% YoY). Development segment will report revenue of VND 1,914bn (+29% YoY). On pro-forma basis, we expect Opal Riverside and Opal Garden projects will be main contributor to FY2017 results. FY2017 earning is expected to be VND 826bn (+54% YoY) and EPS arrives at VND 3,010. For FY2018, we conservatively forecast that DXG would achieve revenue of VND 3,843bn (+9.8% y/y) and gross profit VND 1,706bn (-0.5% YoY). Development revenue will come from already sold-out projects Opal Garden and Lux Garden and partly from Opal Skyview and Gem Riverside. We expect brokerage segment will continue to do well and grow at least 10% YoY due to ease-money policy in 4Q2017. FY2018 EPS is lower because of lower-than–expected-selling progress in FY2017, which may affect FY2018 revenue. This is amplified by an issuance of additional 17.3 million shares in 4Q2017. However, a good selling progress at key project Gem Riverside next year would offset for FY2017 slow sale.

BFC [+25% - BUY] - Commodity Price Recovery Sustain High-Margin Level - Equity Research - 08 December 2017

11-12-2017 09:20:13

We initiate a BUY rating for Binh Dien Fertilizer JSC (HSX: BFC) with a 12-month target price of VND 43,000 (+25% upside before dividend yield) based on the following key points: 2017 Preview – Sales volume hit all-time high. In 2017, BFC has shown a strong performance. New factory, favorable weather conditions coupled with lower input prices support the company capture both volume growth and margin expansion. However, the uptick in urea and DAP price since Q3/2017 has dragged on the company’s margin in late-2017. Our 2017-2018 Investment thesis are the below followings: (1) Commodity price recovery has sustained high-margin level. BFC’s selling price has found a floor in 2017, decreasing by 25% since 2012. At the same time, urea and DAP prices has recovered since Q3/2017 due to factory maintenance and anti-dumping policy. We believe the selling price will be improved in 2018 thank to recovery of agricultural commodities’ prices. It increases the ability to raise the company’s selling price. In fact, BFC raised selling price by 2-3% starting October, 2017, which fuels the company to maintain the high-margin level. (2) Gaining domestic market share cements its position. BFC takes the second place in Vietnam NPK market with a c.14.8%. Its share has gaining in three years given a tough competition from importers. BFC offers NPK fertilizer products focusing on high value agricultural commodities such as natural rubber, coffee, pepper, rice and tropical fruits in the major centers of crop and fruit production in Vietnam. With leading position and pan-Vietnam operation, we believe it create a shield to defend against the invasion of foreign competitors and sustain its bargaining power. (3) Cambodia expected to beefs up sales.  BFC is the biggest NPK exporter to Cambodia. The company has well experienced history in Cambodia market. Since 2002, Binh Dien is one of the first companies entering into Cambodia. In 9M2017, based on our calculation, the company exported ~73,000 tons of NPK to Cambodia, 37 times higher than 2002 and up 27% compared with 9M2016. This figure has shown the leading position of BFC in Cambodia as well as stepping stone to penetrate into other potential markets including Myanmar and Laos. (4) Strong financial indicators outperform peers. The company delivers better business performance with high profitability and lower degree of business among peers. BFC is trading at an attractive of forward P/E of 6.5x, lower than the average P/E of fertilizer sector (9.2x). Valuation. We initiate a BUY rating for BFC with a 12-month target price of VND 43,000 – a 25% potential upside, derived from blended valuation model of FCFF and P/E methods. We expect 2017F dividend to be VND 3,000, higher than 2017 planned dividend payment of VND 2,500.

SAB [ NOT-RATE] - No.1 Beer Maker in Privatization - Roadshow Notes - 07 December 2017

07-12-2017 15:27:36

§ SABECO – The No.1 brewer in Vietnam. According to SAB, it is the market leader in the Vietnamese beer sector with 40% of market share in terms of sales volume, followed by Heineken NV (25%) and Habeco (18%). SAB is also the No.2 player in terms of revenue (VND 30.5trn, 2016) after Heineken NV (VND 33.9tr, 2016), achieving 8.8% top-line CAGR in 2012-16. Currently, SAB is running 26 factories with total capacity of 2.0bn liters p.a. and utilization rate of 90%.   § Low single-digit growth plan in 2018F. Due to 1) Law 106/2016/QH13 that increases special consumption tax rate for alcoholic beverages from 50% to 65% over 2016-18 and 2) higher competition, SAB sets out conservative plan in 2018F. Particularly, the company guidance for 2018F revenue is VND 36trn (+4.4% YoY) and NPAT is VND 4.8trn (+2.2% YoY). For 2017F, revenue and NPAT would reach 34.5trn (+12.6% YoY, 9M17: VND 23.7trn) and VND 4.7trn (+1% YoY, 9M17: VND 3.3trn), respectively.