Investment - OGC

8/6/2019 Investment - OGC

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Equity Report

Ocean Group Joint Stock Company OGC

Students: Nguyn Th Ngc Huyn (CQ501145)

Nguyn Thanh Tng (CQ502973)C CQ502973)

Table of Contents

1. Overview about OGC..................................................................................................... 4

a. OGCs main businesses are investment and real estate business activities: ........................ 4

i. Investment activities ................................................................................................ 4

ii. Real estate business activities ................................................................................... 4

b. Financial status - Highlights: ....................................................................................... 5

2. Main Analysis ............................................................................................................... 6

a. Shareholders structure analysis .................................................................................... 6

b. Financial analysis ....................................................................................................... 7

i.

Operating activities analysis..................................................................................... 7

ii. Cash flow and liquidity analysis ............................................................................. 10

iii. Financial activities analysis .................................................................................... 11

iv. Profitability analysis .............................................................................................. 12

3. Potential, opportunity of the industry and OGC............................................................... 13

a. Compare with other same industry companies ............................................................. 13

b.

Potential, opportunity of the industry and OGC........................................................... 13

4. Recommendation ......................................................................................................... 15

a. Valuation................................................................................................................. 15

b. Recommendation...................................................................................................... 16


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AEP50 Investments assignment 2011

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Executive summary

Ocean Group Joint Stock Company OGC

About OGC: OGC is a public held company, listed in HOSE with charter capital of VND2.500

billion. OGCs main businesses are investment and real estate business activities. About financialinvestment activities, some famous companies that have received contributed equity, and become

member companies of OGC are OceanBank, OceanMedia, and OceanHospitally. Real estate business is

the strategic business field of OGC. OGC has invested in high capital projects, in favorable places of

big cities such as: Trang Tien, Le Van Luong, Truong Chinh (Ha Noi), Tran Phu (Nha Trang), Hoi An

(Da Nang), Nguyen Van Troi, Thu Thiem (Ho Chi Minh city), Ha Long (Quang Ninh).

Shareholders structure: 10 biggest shareholders own 83% shares, and all are institutions,

showing that shareholders structure of OGC is not dispersed.

Financial status:

Billion VNDs

2009 2010

Consolidated revenues (*) 294.5 2,258.0Earning before tax 47.9 785.4

Earning after tax42.9 595.7

EBITDA 43.8 581.5Total assets 4,821.8 7,498.8Equity 2,028.9 3,256.5Charter capital 1,968.0 2,500.0EPS (VND) 756 2,558ROE (%) 2.2% 23.8%ROA (%) 0.9% 7.9%

(*) consists of revenue from financial activities and transfer of real estate projects


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In 2010, almost all financial indicators increased dramatically, especially earning after tax in 2010

was increasing more than 13 times. The main reason is that in 2010, some important projects of OGC

were finished and generated revenues for OGC. ROE and ROA were still low, compared to other real

estate companies. Its because in 2010, OGC issued new shares to increase its charter capital to 2,500

billion VNDs. The comparison of financial index of real estate companies just shows the relativity,

usually only reflects the operating effectiveness of those companies in the past, but it doesnt show the

potential value and particular advantages of each company because of the peculiarity of real estate

business activities.

Potential, opportunity of the industry and OGC:About financial investment activities,

OGC has advantages when invests contribution capital into OCS, OJB, OHC, OMC, those

companies are operating effectively and gradually assert their position and image in market. Viet Nam

is in the period of recovering after the worst worlds recession in 2008. Moreover, with the returning ofthe foreign capital flow, real estate market will become more attractive; guarantee a rapid benefit

source for investor. In recent years, while the real estate market becomes bustle, OGC has taken its

advantages and opportunities promptly.

Valuation: Using 2 methods: DCF method and P/E, P/B multiples method, we evaluate fair value

of OGCs stock is 18,204 VNDs/share. At the moment, market price of OGC is lower than its value.

Recommendation:We evaluate and analysis OGC based on collecting information, researching,

and analyzing the real situation of operating activities and financial activities of OGC. Based on real

situation of on-going projects, and other up-coming projects in 2011, we suggest that dividend and

profit plan of OGC from 2010 2012 is totally possible unless situation of catastrophic happen, and

affect the operating activities of company. Especially in 2010, while the domestic and world economic

is recovering, growth constantly, all companies business also guarantee high revenues and profits.

Our recommendation is just to refer investors to give their own decision; we dont imply that the

value of stock as well as the forecasted data is guaranteed.


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1. Overview about OGCOcean Group Joint Stock Company was established according to Certificate of Business

Registration No. 0103017634 issued by Ha Noi Administration of Planning and Investing at 31,

May 2005.

OGC is a public held company, listed in HOSE with charter capital of VND2.500 billion. The

market capitalization value of OGC up to March 2011 is about VND5.000 billion.

a. OGCs main businesses are investment and real estate business activities:i. Investment activities- Invests in Ocean Bank (OJB) with 20% charter capital of OJB, equivalent of VND400 billion;

- Invests in Ocean Securities (OCS) with 75% charter capital of OCS, equivalent of VND225

billion;

- Invests in Ocean Hospitality (OCH) with 79% charter capital of OCH, equivalent of VND420

billion;

- Invests in Ocean Media (OMC) with 50% charter capital of OMC, equivalent of VND10

billion;

- Invests in VNT Investment and Infrastructure Development Joint Stock Company with 50%

charter capital of VNT, equivalent of VND40 billion;

- Invests in Ocean Real Estate Management Joint Stock Company with 90% charter capital;

- Invests in Ocean Thang Long Joint Stock Company with 75% charter capital.

ii. Real estate business activitiesThis is the strategic business field of OGC in next few years, with a strong capability and the

capital support from Banks, OGC has invested in high capital projects, in favorable places of big

cities such as: Trang Tien, Le Van Luong, Truong Chinh (Ha Noi), Tran Phu (Nha Trang), Hoi An

(Da Nang), Nguyen Van Troi, Thu Thiem (Ho Chi Minh city), Ha Long (Quang Ninh)


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nvestment s ass gnment

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b. Financial status - Highlights:Billion VNDs

2009 2010

Consolidated revenues (*) 294.5 2,258.0Earning before tax 47.9 785.4Earning after tax 42.9 595.7EBITDA 43.8 581.5Total assets 4,821.8 7,498.8Equity 2,028.9 3,256.5Charter capital 1,968.0 2,500.0EPS (VND) 756 2,558ROE (%) 2.2% 23.8%ROA (%) 0.9% 7.9%

(*) consists of revenue from financial activities and transfer of real estate projects

294.542.9

4,821.80

2,258.00

595.7

7,498.80

Consolidated revenues Earning after tax Total assets

Billion VNDs2009 2010


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2. Main Analysisa. Shareholders structure analysis

By number of shares Number of

shareholders

% Stock value

(10,000

VND)

%

1 1000 1,614 55.62% 798,048 0.32%1001 10,000 1,027 35.39% 3,727,790 1.49%

10,001- 1,000,000 244 8.41% 13,611,540 5.44%>1,000,000 17 0.59% 231,862,622 92.75%

Total 2,902 100% 250,000,000 100%

About 17 shareholders own 92.75% of OGCs stocks and all of them are institutions, showing

that shareholders structure of OGC is not dispersed. Its easier for board of director identifies the

goal of company, and makes the decision quickly.

By geographic #

shareholders

% Stock value

(10,000

VND)

%

Viet Nam 2,861 98.59% 226,582,380 90.63%

Individual 2,837 97.76% 22,508,183 9.00%Institution 24 0.83% 204,074,197 81.63%

Foreign 41 1.41% 23,417,620 9.37%

Individual 23 0.79% 83,050 0.03%Institution 18 0.62% 23,334,570 9.33%

Total 2,902 100% 250,000,000 100%

10 biggest shareholders Stock value(10,000 VND)

%

Lien Viet Investing & Financial Consulting

JSC

9,393,361 3.76%

Deutsche BankAG London 9,663,000 3.87%BaoMinh Investment & Construction JSC 9,973,970 3.99%

PetroVietNam Finance Corporation 10,000,000 4.00%Market vectors ETF Trust 10,206,260 4.08%FPT Capital 11,111,111 4.44%VNECO Ha Noi Investing & Trading JSC 12,082,760 4.83%Thanh Dong Trading JSC 20,000,000 8.00%VNT Limited Liability Company 27,725,000 11.09%Ha Bao Private Company 87,080,500 34.83%Total 207,235,962 82.89%


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b. Financial analysisi. Operating activities analysis

As stated above, main activities of OGC are financial investment, and real estate business. OGC

is the large shareholder of its member companies such as OJC, OCH, VNT

Real estate business is the strategic business field of OGC in next few years, with a strong

capability and the capital support from Banks, OGC has invested in high capital projects, in

favorable places of big cities.

To assess the performance of operating activities, were analyzing data from Income Statement

of OGC (% of sales):

2009 2010

Sales 100.00 100.00Return and discount 0.70 0.24Net Sales 99.30 99.76Cost of goods sold 87.68 73.56Earning from sales and services 11.62 26.20Revenue from financial activities 18.39 24.36

Financial expenses 16.73 7.06Interest expenses 16.05 7.05

Sales expenses 2.35 1.09Management expenses 10.32 5.41Operating income 0.61 37.00Other revenues 0.74 19.54Other expenses 0.36 11.47Profit from associated companies 18.34 4.91Earnings before taxes 19.32 49.97Taxes 2.02 12.07

Net Income 17.30 37.90


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Income Statement of OGC (% of 2009):

2009 2010

Sales 100.00 633.99Return and discount 100.00 218.91Net Sales 100.00 636.90

Cost of goods sold 100.00 531.89Earning from sales and services 100.00 1429.17Revenue from financial activities 100.00 839.48Financial expenses 100.00 267.40Interest expenses 100.00 278.53Sales expenses 100.00 294.71Management expenses 100.00 332.04Operating income 100.00 38691.48Other revenues 100.00 16787.35Other expenses 100.00 20141.48

Profit from associated companies 100.00 169.63Earnings before taxes 100.00 1639.59Taxes 100.00 3788.20Net Income 100.00 1388.77

Analyzing sales, cost of goods sold, and earning from sales and services:

In 2010, sales revenue of OGC is increasing dramatically to 1,572 billion VNDs, more than

633% of 2009. The number is really fantastic, but we should note that OGC just entered the

business from 2007. OGC had so many potential projects, but they are just really taken into

account and recorded as revenue when it finishes constructing in 2010. Revenue of OGC in 2010

was very high compare to other real estate companies, and it also had a highest growth rate.

100.00 100.00 100.00

633.99531.89

1429.17

Sales Cost of goods sold Earning from sales andservices

2009 2010


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While sales revenue increases 633%, cost of goods sold increase 532%, at the lower rate, that

makes earnings from sale and service increase more than 14 times 1429%. Analyzing the

proportion of cost of goods sold, in 2010, cost of products is more than 40%, cost of services is

2.8%; in addition, therere some new activities that generate new costs such as real estate

transferring: 257 billion VNDs.

Analyzing expenses:

In general, cost of goods sold is quite high because of the particular properties of real estate

business. Management expenses and sales expenses are only accounted for small portions of sales

revenue. Proportion of sales expense to sales revenue decreases from 2.35% to 1.09% in 2010. It

shows that even the sales level increases, the sales expense doesnt increase correspondently, that

means high expenses that company spent in the past to promote the image of company, execute the

marketing plan and restructure the distribution system are now working. This is a very important

factor that increases profit of company in 2010 as well as coming years.

In addition, proportion of management expense to sales revenue also decreases from 10.32% to

5.41% in 2010. This trend could be explained that those expenses are fixed and insensitive to the

sales volume.

87.68

10.322.35

73.56

5.41 1.09

Cost of goods sold Management expenses Sales expenses

Proportion of Sale Revenue

2009 2010


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Analyzing profits:

When we talk about the dramatically increasing in sales, its easy to conclude that net income

also increases sharply. In fact, it even increases 13 times to 2009. Remember that OGCs

businesses are not only real estate activities but also financial investing activities. The large

increasing in profit of member and associated companies in association with low expenses make

net income of OGC in 2010 spike.

ii. Cash flow and liquidity analysisAnalyzing cash flows:

OGC always keeps its cash balance high enough to meet the need of working capital. Only

financial activities generate positive cash flow for OGC. In 2010, company issued new stocks to

raise its charter capital to 250,000 billion VNDs. In coming years, when many important projects

of OGC are finished, investment and operating activities will start bringing cash to the company.

2009 2010

Cash flow from operating activities (117,377,831,302) (688,283,027,280)Cash flow from investment activities (1,829,422,274,721) (460,976,400,549)Cash flow from financial activities 1,992,348,106,275 1,365,808,449,338Cash inflow/outflow 45,548,000,252 216,549,021,509Cash balance at the beginning of the year 66,512,704,181 112,060,704,433Cash balance at the end of the year 112,060,704,433 328,609,725,942

100.00 100.00 100.00 100.00

633.99839.48

169.63

1388.77

Sales Revenue fromfinancial activities

Profit fromassociatedcompanies

Net Income

2009 2010


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Analyzing liquidity:

Current assets of OGC stay at the rate of 45%-48% of total assets while current liabilities just

account for 36%-40% of the total capital, hence, the liquidity of OGC is acceptable. However,

liquidity ratios of OGC are quite low compare to other real estate companies, and under the target

of industry.

2009 2010

Current ratio 1.117 1.259Quick ratio 1.115 1.256

iii. Financial activities analysisNet working capital:

In recent years, OGC keeps net working capital positive. The graph shows the net working

capital status of OGC in 2010. Current assets equal 45.4% of total assets and much greater than

current liabilities 36%. In the structure of long-term capital, 50.2% are stockholders equity; only

a small amount 13.8% is long-term liabilities.

Capital structure and leverage:

2009 2010

Long-term debt ratio 0.099 0.138Debt ratio 0.527 0.498Debt/Equity ratio 1.114 0.992

36

13.8

50.2

45.4

54.6

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Assets Capitals

Current liabilities Long-term liabilities Stockholders' equity

Current assets Long-term and other assets


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In average, half of OGCs assets are generated by debts. Most of current liabilities are loan

from banks; half of them are from OceanBank one of its member companies. However, OGC has

a high charter capital proportion; this may somehow lower the risk of bankruptcy for the company.

Capital structure report:

2009 2010Liabilities 52.71% 49.90%

Current liabilities 42.80% 36.06%Short term debts 11.99% 5.37%Account Payable 0.54% 2.77%Unearned Revenue 0.40% 0.15%Accrued expenses and other currentliabilities

29.87% 27.77%

Long-term liabilities 9.92% 13.84%Long-term debt 3.55% 10.61%

Other long-term liabilities 6.37% 3.23%Stockholders' equity 42.08% 43.43%

Charter capital 40.81% 33.34%Surplus 0.00% 5.68%Other equity 0.00% 0.07%Undivided profit 1.26% 4.35%

Minority interest 5.21% 6.67%Total liabilities and stockholders' equity 100.00% 100.00%

iv. Profitability analysis

2009 2010

ROE 2.11% 23.8%ROA 0.89% 7.94%

ROA and ROE of OGC in 2010 are much better than 2009, however theyre still low compare

to other companies in same industry. The reason might be in 2010, OGC raised new capital and

real estate activities just started to be implemented.


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3. Potential, opportunity of the industry and OGCa. Compare with other same industry companies

OGC has the total assets and total equity relatively quite high compare to other real estate

companies that was listed in stock exchange. However, revenues and profits are at the modest level

compare to those of other companies. The reason is that the real estate projects of OGC are in

constructing process and can be only accounted for revenues and profits from 2010 and later years.

The comparison of financial index of real estate companies just shows the relativity, usually

only reflects the operating effectiveness of those companies in the past, but it doesnt show the

potential value and particular advantages of each company because of the peculiarity of real estate

business activities.

b. Potential, opportunity of the industry and OGCAbout financial investment activities, OGC has advantages when invests contribution capital

into OCS, OJB, OHC, OMC, those companies are operating effectively and gradually assert

their position and image in market, OJB with a strategic shareholder - PetroVietNam (20% charter

capital) has been one of the young, flexible, developing and various service commercial banks, and

aimed to become one of the top commercial banks in Viet Nam.

Viet Nam is in the period of recovering after the worst worlds recession in 2008. Moreover,

with the returning of the foreign capital flow, real estate market will become more attractive;

guarantee a rapid benefit source for investor. In addition, OGC focuses investing in medium-sizecondominium projects; hence, its product will meet the need of majority of middle-class people.

Real estate activities can bring high profit, land is becoming scarce while the population is

growing with a high rate, especially in the big cities like Ha Noi, Sai Gon, income of residents

also has the trend of increasing. In 2010 and years after, owning a high-class apartment with full

services and facilities is totally able for people with medium income in big cities. After

researching, exploring, assessing the real estate market, OGC had concentrated investing in real

estate projects with high capital, favorable location, and good grounds; segmented to high-class

apartments, condominium for people with medium to high income in Ha Noi area with

convenience and full services.

In recent years, while the real estate market becomes bustle, OGC has taken its advantages and

opportunities promptly. Therefore, real estate activities have contributed significantly to revenues

and profit of the company. In 2009, proportion of revenue from real estate activities was 32%; in


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2010 and years after, revenues and profits from real estate activities will increase and get a major

proportion in total revenues and profits of OGC.

In the big cities and trading centers (especially Ha Noi), while the lands at center and good

locations are scarce, demands have the trend of increasing. Be aware with that, right from the very

start, OGC with its dynamic has possessed many projects with good scale, area, location and in

constructing guarantee high profits for OGC.

Real estate investing activities require huge amount of capitals. Lacking of capital while in

constructing process will affect directly to the progress of implementing projects. OGC

continuously increases charter capital, a small amount comes to financial investing activities

(member companies and associated companies), and the major part is used to supply working

capital to serve for real estate activities. Besides that, abundant capital source from OJB will assist

OGC much in operating activities.

Right now, OGC are implementing major real estate projects in Ha Noi and other big provincesand cities, specifically: Table of projects that are being implemented by OGC:

Project Location Function Estimated

Revenue (billion

VNDs)

VNT Tower Nguyen

Trai

19 Nguyen Trai,Thanh Xuan, Ha Noi

Public constructions,office and house

651,408

Starcity Center Le

Van Luong

Le Van Luong, HaNoi

Condominium, office andhouse

2,063,415

Starcity Center Tran Duy Hung, HaNoi

High class apartment,office and trading center

16,627,800

Minh Duc Industrial

Park

My Hao, Hung Yen Constructing and runninginfrastructure

615,125

Total 19,957,747

Besides these 4 projects that already announced, OGC also investing in other projects, however,

they are projects that are not officially implemented or in process of negotiation. Some projects

that are not officially announced: Projects of condominium, office and house VNT Le Van Luong,

VNT Ha Dinh, and 317 Truong Chinh. OGC already signed an agreement with Song Da

Corporation about 67ha project at Tay Mo about jointly implementing project. The project was

accepted to invest and OGC is finishing remained procedures. This project has a favorable

location, at Tran Duy Hung roads; guarantee the formation of a super urban zone similar to Phu

My Hung of Ho Chi Minh City.

OGC is the owner of INFO real estate and building material exchange. This exchange is the

distribution channel for the projects of OGC. In addition, this exchange also distributes projects


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that are not implemented by OGC. OGC is known as the top real estate distributor through INFO

real estate and building material exchange and through TV programs about real estate that OGC

are in associating with InfoTV.

OGC confidently asserts that OceanBank will exceed the profit target in 2011. So, member

companies will contribute to OGC more than targets. Member companies of OGC such as OJB and

OCH was also listed in stock exchange. This helps OGC performing better because it gives OGC

another mobilizing capital source and opportunity to expanding activities.

At 7, October 2010, OceanBank was accepted to perform initial public offering to raise the

charter capital from VND2,000 billion to VND5,000 billion. With this plan, OGC still owns 20%

shares of OceanBank. For the long run, OceanBank will aim to become one in the top ten

commercial bank of Viet Nam.

4. Recommendationa. Valuation

We use 2 methods to evaluate the value of OGC stocks: DCF method and P/E, P/B multiples

method.

The discounted cash flow method DCF evaluate stock based on the expected future cash flow

that shareholders of OGC will received (FCFE). Those cash flows are calculated based on the

operating plan of the company.

In order to calculate the value of OGC stock using DCF, we assume that the growing progress

of OGC is divided into 2 periods. First period: From 2010 to 2012, and second period after 2012:

constant growth period.

Year 2010 2011 2012

EBIT 924,056,248 1,338,832,486 1,642,949,917Tax 69,702,186 48,694,565 50,466,998Net Income 872,354,063 1,290,137,921 1,592,482,919

Depreciation 31,421,435 31,421,435 31,421,435(Net Investment) (1,298,920,653) (749,136,493) (776,565,640)Increase/Decrease Working Capital (50,000,000) (50,000,000) (50,000,000) New Loans Issued - - (Old Loans Pay Off) (30,000,000) (30,000,000) (70,000,000)FCFE (475,145,155) 492,422,863 727,338,714K 20% 20% 20%PV(FCFE) (475,145,155.00) 410,352,386 505,096,329


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Growth Rate (g) 10%Discount Rate (k) 20%FCFE(2012) 727,338,714PV(Terminal Value) 4,630,049,684Firm's Value 4,996,969,317Number of shares issued 250,000,000

Value of1 stock 19.988

Based on DCF method, the value of 1 stock of OGC is 19,988 VNDs.

We also use price multiple method to evaluate OGC:

Based on the information from various sources, we suggest P/E and P/B ratio of OGC are 6.44x

and 1.27x respectively. EPS for 2011 is estimated about 2266.77 VND and present BV is 12,960

VND/share. Values of OGC based on this method respectively are 14,598 VND/share and 16,459

VND/share.

Summarize of valuation methods:

Method Value Weight

DCF 19,988 60%P/E 14,598 20%P/B 16,459 20%Average: 18,204

We estimate the value of OGC is about 18,204 VNDs/share. At the moment, market price of

OGC is lower than its value.

b. RecommendationWe evaluate and analysis OGC based on collecting information, researching, and analyzing the

real situation of operating activities and financial activities of OGC. Based on real situation of on-

going projects, and other up-coming projects in 2011, we suggest that dividend and profit plan of

OGC from 2010 2012 is totally possible unless situation of catastrophic happen, and affect the

operating activities of company. Especially in 2010, while the domestic and world economic is

recovering, growth constantly, all companies business also guarantee high revenues and profits.Our recommendation is just to refer investors to give their own decision; we dont imply that

the value of stock as well as the forecasted data is guaranteed.

Date post:	07-Apr-2018
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