Company reports

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.

PNJ [+19.3% - BUY] - Still A Bargain - 3Q2017 Equity Update - 29 November 2017

01-12-2017 16:46:54

We reiterate our BUY rating for PNJ with a revised 12M TP of VND 142,000 (previously VND 118,000) – an 16.4% upside. Below are key investment highlights: § 9M17 in numbers: 34 new stores, 22% SSSG and 31% YoY sales growth PNJ is accelerating store expansion. PNJ opened 34 new stores in 9M17, implying just 6 stores behind the FY plan of 40 and raising total stores to 249. SSSG was 22% (-3% vs. 6M17), which is expected as the ghost/seventh month in the lunar calendar fell in 3Q17 when Vietnamese consumers avoid buying valuable goods like jewelries. Still, 9M17 SSSG nearly triples that of 2016 (8%) thanks to improvements in logistics (see our prior note for more details) and higher investment in A&P activities (7% of revenue vs. 6.5% in 2016).   Revenue & earnings continue healthy uptrend. PNJ posted revenue of VND 7,800bn (+31% YoY) and NPAT of VND 500bn (+42% YoY) in 9M17, completed 76% and 83% of company guidelines respectively. The gap between revenue and earnings growth was due to the major provision for DongA bank fully booked in 2015-16. Eliminating this provision (VND 82bn) and the real-estate disposal income of VND 43bn from 9M16 P&L, 9M17 core NPAT still grew 28% YoY. Revenue structure in percentage of jewelry retail/wholesale/gold bar is 51%/28%/20% (9M16: 48%/31%/20%), reflecting PNJ’s focus shifted from wholesale to retail business. Gold products still accounts for most of jewelry retail sales (96%, 9M16: 95%) with an expanding GPM of 28.2% (+30 bps YoY). Overall, 9M17 GPM remains stable at 17.3% (9M16: 17.3%).   § 4Q17-2018F Outlook: Strong upside for both top & bottom-line PNJ confirms it will open 27 more stores in 4Q17, ending 2017 with 276 stores and making the target of 300 stores by April-2018 now very possible (initial target: 300 stores by 2020). We estimate 2017-18F gross revenue to be VND 10,966bn (+28% YoY) and VND 12,825bn (+17% YoY) respectively, with SSSG of 23.5% and 18%. Our estimates for NPAT are VND 768bn for 2017F (+70% YoY) and VND 963bn for 2018F (+25% YoY). Besides provision expenses, 2017F high double-digit NPAT growth is also attributable to the extra CIT expenses of VND 68bn being charged in 4Q16 since the provision for DongA bank was excluded by tax authority from deductible expenses (see our prior note for more details). Eliminating non-recurring P&L items, the normalized YoY growth of 2017F NPAT is 37%.   GPM would expand in 4Q17 thanks to growing sales of the high-margin retail business. We keep our GPM estimate for 2017F at 17.7% (+120 bps YoY) and 2018F at 18.6% (+90 bps YoY).   § Valuation – Still a bargain: We reiterate our BUY rating for PNJ with a revised 12M TP of VND 142,000 (previously VND 118,000) – an 16.4% upside, derived from DCF, P/E forward (18.5x) and EV/EBITDA forward (11.9x). We expect 2017F dividend to be VND 3,500, implying ROI of 19.3%.

CTD [+10.4% - NEUTRAL] - 3Q2017 Margin Slid Down - Equity Update - 28 Nov 2017

28-11-2017 13:21:06

We assign HOLD rating to CTD with unchanged our 12-month target price of VND 255,500 (please see our valuation at Huge Backlog Weight On Stock Value). The change in stock rating does not imply company fundamentals deterioration. Instead, the stock price performance recorded at 11.14% since our September-2017 report, leading to 12-month potential upside of 10.4% falling into our “HOLD rating” coverage. In addition, we view there is no more significant improvements in company fundamentals within 12-month investment horizon except for public listing of Ricons – one of CTD’s subsidiaries. Gross margin stayed lower due to price hike of construction material. CTD announced 3Q2017 performance with revenue of VND 7,641bn (+44% YoY) and  profit VND 568bn (+24% YoY). Gross margin went down to 7.4% compared with 8.6% at 3Q2016 and 8% at 2Q2017. Net income achieved VND 478bn (+31% YoY). CTD has been subject to the price hike of sand and steel. However, CTD is less affected compared with other competitors as the company has better bargaining power and inventory turnover. For 9M2017, CTD achieved a revenue of VND 18,185bn (+35% YoY) and gross profit of VND 1,447bn (22% YoY). The bottom line was VND 1,191bn (+24% YoY). 9M2017EPS arrived at VND 14,703. We reduce our FY2017 revenue forecast from VND 29,170bn to VND 26,798bn (29% YoY). Consequently, FY2017 gross profit and net income are expectedly lowered to VND 2,051bn (+14% YoY) and VND 1,706bn (+20% YoY) respectively, lower than our previous estimates of VND 2,263bn and VND 1,725bn. EPS forward is VND 21,794. We forecast that new contracts signed in FY2017 will be VND 28,300bn and backlog transferred to FY2018 is VND 24,050bn (+7% YoY). For FY2018, we forecast that CTD will hit VND 29,163bn in revenue (+9% YoY) in which construction sector is presumably accounts for 99%. We believe that backlog will gain back on track, as the company will continue its expansion into industrial construction and benefit from upcoming FTAs. The bottom line will achieve VND 1,695bn (-0.6% YoY) which reflects a lower gross margin from mid- and affordable segments. Yet, we expect that CTD will enjoy strong financial income (VND 300bn) as well as robust performance from its affiliated company – Ricons (VND 65bn). EPS forward is VND 21,654 implying a FY2018 P/E of 10.7x. Listing of Ricons may be an one-off catalyst. Ricons Investment Construction JSC is scheduled to be listed in FY2018. Currently Ricons is traded on OTC at 14x-15x par value, which CTD may record as financial income in P&L once Ricons is listed. We will update further after getting full listing plan. Valuation. We keep our target price in line with our previous report (please see our previous report named Huge Backlog Weight On Stock Value) at which we derive our target price for CTD of VND 255,493 (+10.4% upside) using both DCF and multiple-market methods.

TRA [ NOT-RATED]- Growing OTC Market Share with Healthy Cash Flow - Flash Notes - November 2017

07-11-2017 13:26:27

We recently visited Traphaco (TRA) to update about 9M17 business performance. Below are key notes: § 2017 sales may miss target. TRA reported 9M17 revenue of VND 1,316bn and NPAT of VND 178bn. With this results, the company expects full-year results to achieve c.98% revenue target (VND 2,000bn) and c.100% earnings target (VND 242bn). TRA comments it would miss revenue target due to the underperforming sales of Boganic – TRA’s flagship product that contributes c.25% to total revenue – under tough competition from local rivals. For 2018, the current targets are VND 2,400bn for revenue and VND 300bn for net earnings.  § Growing OTC market share with healthy cash flow. TRA continues being the 2nd largest player in OTC market with 3.5% market share (2016: 3.4%, after Sanofi), covering 27,000 drug stores across Vietnam (2016: 18,000 stores). OCT sales currently accounts for 87% of total revenue with the remaining 13% belongs to ETC. TRA insists its strategy to focus on OTC channel by setting long-term ratio target of OTC/ETC sales at 90%/10%. This strategy would allow TRA to enjoy healthy cashflow as OTC sales require shorter receivable days than ETC sales, explaining why TRA can maintain a short cash conversion cycle of 60 days (2016, DHG: 142 days, IMP: 160 days, PME: 224 days). The company plans to expand its retail network to 30,000 drug stores in 2018. TRA also exports its products, however export sales only accounts for a minor portion.  § The new factory will play key role in future production. TRA expects the new WHO-GMP factory (inaugurated in Oct-17, capex $21.1M, capacity 1.2bn units p.a.) to generate VND 100bn sales this year. The current ratio of production output between western medicines and herbal/traditional medicines is 32%/68% and TRA expects to have 45%/55% ratio in 2020, thanks to the new factory that specializes in western medicines (eye-drops, nose-drops, capsules, ointment and cream medicines). In 2 years, TRA will move all product lines of herbal/traditional medicines at the old factory (currently running at 50% of designed capacity) to the new one, and the old factory will be used to produce supplements. This implies 1) the new factory will be TRA’s main source of production in the future and 2) no major capex for production facility is foreseeable in 3-5 years.  § SCIC divestment is not anytime soon. Since SCIC is holding a critical stake of 35% at TRA and TRA is not on the government’s priority list for sell-off (the company is at No.120 on the list), there is no potential divestment of SCIC from TRA till 2020.  § Others. Mekong Capital successfully exited its 25% stake at premium price per share (unofficial source), possible buyer is an Asian pharmaceutical company; TRA is expecting 20% equity raise in 2018F to support business expansion; in 2020, the company expects its market cap to reach VND 10,000bn (currently: VND 5,500bn), revenue to reach VND 4,000bn and NPAT to reach VND 500bn.

PME [NOT - RATED] - Strong Production Capacity Heads Up Favorable ETC Bidding Policies - Pre-Listing Notes - 19 Sept 2017

02-11-2017 10:16:59

We attended the analyst meeting of Pymepharco (PME) on 12/10/17, below are keynotes:Revenue structure: (a) By product, Capsules account for 95% of revenue, in whichcephalosporin antibiotic products make up 30%; (b) By sales channel, revenue ratio ofOTC/ETC is 52%/48%; (c) By location, local sales accounts for 98% of revenue, mainly inthe Middle and South of Vietnam where PME locates 16/19 of its distribution centers. Product and market strategies: (a) Increase contribution of OTC channel, the new nonbetalactam capsule factory (capex VND 500bn to be built in 2018-19, capacity 1.2bn unitp.a.) will focus on franchised products from a French partner (a member of STADAGroup) to add 50 new SKUs for OTC channel in 2017-21 – targeted revenue ratio ofOTC/ETC in long-term is 65%/35%; (b) Increase presense in ETC channel via genericmedicine group 2, on the back of 1) PME owns 1 of the only 2 EU-GMP cephalosporinantibiotic production lines in Vietnam, which allows PME to well compete with foreignplayers when bidding for generic medicine group 2, and 2) new ETC bidding policyfavours generic medicine produced by local manufacturer to increase domestication ratefrom 50% to 80% (Cir. 11/TT-BYT); (c) Develop the Northern market, PME plans to open6 more distribution centers in the North in 2018-2020 to increase revenue contributionof this region to 25% (currently: 15%). Key catalyst – Injection medicine factory returns to mornal production by end-2017.PME expects to receive EU-GMP certificate for its Cephalosporin powder for injectionproduction line in Nov-17, when this line will go back to normal production. Sinceinjection products used to account for 20-25% of total revenue under normal operation(currently <1%), we believe its return is a key catalyst to help PME achieve its sales &earnings growth target of 15% p.a. in 2018-19. Valuation: EPS 2018F is VND 5,100, with the average P/E forward of Vietnamsepharmaceutical industry is 20x, we estimate PME’s 12M fair value is VND 102,000. Others: Minimum dividend 20% p.a. in 2018-19; Potential listing on HOSE in Nov-17.