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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.

VNM[+11% - NEUTRAL] - Geopolitical Issue Hindered Demand in Key Export Market - 1H2017 Equity Update - 14 September 2017

14-09-2017 11:03:47

We downgrade Vinamilk (VNM) to NEUTRAL from BUY with a revised 12M DCF-based target price of VND 160,000 (previously VND 167,000) after lowering our export sales forecast. Key investment highlights for VNM in 2017-18F are: Geopolitical issue hindered demand in key export market; trade deal with China is yet settled. VNM reported total sales of VND 25.4trn in 1H17 (+11.5% YoY), with domestic sales up 17.1% YoY while export sales down -11.9% YoY. VNM comments that the robust domestic sales growth was attributable to 1) growth in drinking milk (mkt. share +3.9% vs. end-2016, now 58.4%) and drinking yogurt (mkt. share +4.1% vs. end-2016, now 38%), and 2) aggressive spending on marketing expenses (+17% YoY in 2Q17; +8% YoY in 1H17). On the other hand, the underperforming export activity is due to 1) sluggish demand caused by geopolitical instability in Iraq – VNM’s No.1 importer, 2) no sales has been made to China despite the MOU signed with Chinese partners last May, and 3) VNM is struggling to define a more sustainable and diverse export strategy (see risk section as below for more detail). Margins remain stable; tax incentives spur bottom-line growth. Though milk powder price – a primary input material – increased 40% this year on average (GDT), VNM’s material costs still grew in line with revenue in 1H17 (+10.3% YoY) as the company was enjoying low-cost materials pre-ordered in 2016. GPM, therefore, sustains at 48.7% (+10 bps YoY). The applicable CIT rate in 1H17 was 15.4% (1H16: 16.7%), which is 200 bps lower than the company-estimated CIT rate of 17.5% thanks to tax incentives at VNM’s new factories. Accordingly, 1H17 net earnings were VND 5,851bn (+17.3% YoY) while NPM hit the record-high of 23% (1H16: 21.9%). Long-term projection adjusted for lower export sales forecast. Given the addressed challenges that VNM is facing regarding overseas business, we lower our CAGR forecast for export sales over 2017-21F from 16.4% to 6.4%. For 2017, we estimate export sales to be VND 8,128bn (-6.5% YoY). We believe margin compression is likely in 2H17 when high-cost milk materials are weighted in production costs. Accordingly, we estimate 2017F GPM to be 47.2% (-50 bps YoY). See Figure 1 for estimate revisions of revenue and earnings in 2017-18F.