23
SSI INSTITUTIONAL SALES MARKET OUTLOOK December 2011 STRICTLY CONFIDENTIAL
SSI INSTITUTIONAL SALES
MARKET OUTLOOK
December 2011
STRICTLY CONFIDENTIAL
SSI
2
TOPICS
Country Overview………….……………………………….3
Declining Inflation…………………………………………..8
Prudent Monetary Policy to reduce Interest Rates……..13
Currency Reform to stabilize the VND…………..........…10
Vinashin………………………………….................................14
Long Term Outlook……...................................................17
Saigon Securities Inc., Institutional Sales
SSI
3
COUNTRY OVERVIEW Macro Economic Improvements after WTO:
Strong Demographics: Young population (88 million+1million/year)/Urbanization
GDP = US$119 billion (2011E), GDP/Capita doubled since joining WTO (2006)
External Debts:US$49.3 billion* (42% of GDP), mainly low cost ODAs (US$30bn)
SBV Forex Reserves: US$15.2 billion**- Stable
Low Debt Service Ratio: *3.2% of Exports (*Ref: MOF Sept 2011)
(**Ref: ADB June 2011)
Source: GSO, SSI Saigon Securities Inc., Institutional Sales
3 3 48
12 10 11 9
2 48
20
64
2319
11
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
2004 2005 2006 2007 2008 2009 2010 YTD 10/11
FDI Disbursements (USDbillion)
FDI Commitments (USDbillion)
SSI
4
COUNTRY OVERVIEW Continued but declining Foreign Direct Investment Flows YTD to Oct 2011, disbursed FDIs: +1% yoy (US$9.1bn), registered FDIs: -22% yoy
(US$11.27 bn in 861 projects)
Nike Vietnam: No 1 shoe manufacturer (37%), surpassing China (36%), since 2010.
First Solar Vietnam Manufacturing Co. Ltd (US$1 billion).
Jaks BOT 1,200 MW power plant in Hai Duong (US$2.26 billion).
Nestle to build $270 million Coffee Factory in Dong Nai, increase sourcing of coffee from
local farmers and produce Nescafe products for local and exports, starting in 2013.
Source: GSO, SSI Saigon Securities Inc., Institutional Sales
SSI
5
COUNTRY OVERVIEW Stable Political Regime and new young Cabinet:
3.6 million members in Vietnam Communist Party (VCP)
11th Party Congress (1400 delegates): held in Jan 2011 (every 5 years)
Central Committee (160 members) appointed at Congress
Politburo appointed by Central Committee (14 members- include 4 new)
General Secretary of VCP: Mr. Nguyen Phu Trong
National Assembly (493 elected deputies): highest organ of law making power
appoints the President, the PM, Chief Justice, Supreme Inspector and the Cabinet
President of National Assembly: Mr. Nguyen Sinh Hung
President: Mr. Truong Tan Sang
Prime Minister: Mr. Nguyen Tan Dung
Cabinet: Deputy PMs, Ministers, SBV Governor, Commission Heads (21)
Source: www.Info.vn Saigon Securities Inc., Institutional Sales
SSI
6
MACRO OVERVIEW Economic Slowdown in 2011
Slow GDP Growth: +5.8% actual (YTD Q3 2011)
Slow Retail Sales and Industrial Production
Slow Credit Growth(2011 Est.): +12%(+10.2% in VND/+18.7% in FX); M2: +10%
Source: GSO, SSI, Citibank Saigon Securities Inc., Institutional Sales
7.6%
8.4%
7.2%
7.8%8.2%
7.9%
8.2%
8.5%
7.4%
6.5% 6.18%
3.14%
3.90%
4.62%
5.32%
6.16%
6.78%
5.60%
5.76%
2%
3%
4%
5%
6%
7%
8%
9%
10%
2Q054Q052Q064Q062Q074Q072Q084Q081Q094Q092Q104Q102Q11
Vietnam GDP Growth YoY
Real GDP Growth Annual %
SSI
7
MACRO OVERVIEW Improved Trade Deficit and Balance of Payments
Improved Trade Deficit: - US$ 8.9 billion (YTD 11/2011, 10% less than last year)
Balance of Payment: +US$3.1 billion (2010:-$3.1 billion; 2009:-US$8.8 billion)
Manageable Public Debts: US$56.4 billion (56% of GDP), of which 56% in ODAs
Source: GSO, SSI, Citibank Saigon Securities Inc., Institutional Sales
5.5 4.6
4.8
12.4
17.5
12.2
12.4
10.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
160.0
180.0
200.0
2004 2005 2006 2007 2008 2009 2010 2011E
Tra
de
De
fic
it (
US
D b
n)
Imp
orts a
nd
Ex
po
rts V
alu
e (
US
D b
n)
Trade DeficitExports (USD bn)
Imports (USD bn)
Trade Deficit (USD bn)
SSI
8
DECLINING INFLATION
CPI declined with lower Credit Growth
Headline CPI:17.5% up to November 2011 (19.4% y-o-y)
Core CPI: 13%
Main causes of High Inflation in 2011:
Food Inflation (40% of CPI): +22.8% yoy (up to Nov 2011)
• Fragmented Farm Industry
• Inefficient food distribution logistics
• Capital shortage of farmers
2011 One-time Events:
• Currency Depreciation (+9%),
• End of Fuel subsidies (+18%)
• Electricity Rate Increase (+15%).
Results of Relaxed SBV Monetary Policy since 2006
Inefficient & still dominant State Sector (Low ICOR)
Source: GSO, Citibank, SSI
Saigon Securities Inc., Institutional Sales
6.6%
6.8%
7.8%
8.8%
12.6%
19.4%
26.8%27.9%
19.9%
11.3%
3.9%
2.4%
6.5%
9.5%
8.7%8.9%
11.7%
13.9%
19.8%
23.0%
19.4%
0%
5%
10%
15%
20%
25%
30%
CPI 12 months
SSI
9
WHEN SBV WILL DRIVE INTEREST RATES DOWN ?
Harsh Restrictive Monetary Policy in 2011:
SBV Policy Rates :
• OMO Repo Rate: 14% (+400 bps since 2010)
• Refinancing Rate: 15% (+500 bps)
• Discount Rate: 13%
• Base Rate: 9%
SBV to drive down Policy Rates by 2% by Q2 2012
High Loan Rates:
• VND Production Loans: 17-19%
• VND Non-Production Loans: 25% and above
• USD Loans: 8% and above
Negative Impacts on Banking System in 2011:
Banks Cut Access to Credits: Loan Growth slowed
Rising NPLs in Banking Sector (to 5% by Year End)
Real Estate Bubble Burst, pulling down Prices
Shortage of Liquidity among small Banks, driving up
Interbank Money Market Interest Rates
Source: GSO, Citibank, SSI
Saigon Securities Inc., Institutional Sales
SSI
10
CURRENCY POLICY REFORM
To stabilize the VND
Unofficial VND/USD FX Rate converged to Official FX Rate in March 2011
SBV reportedly sold USD 2.5 billion in 2011 to support the VND
Source: Reuters, December 9, 2011
Saigon Securities Inc., Institutional Sales
SSI
11
2011 CURRENCY RETURN
VND/USD compared to other selected emerging market currencies
Source: Reuters, December 16, 2011
Saigon Securities Inc., Institutional Sales
CURRENCY RETURNS OF SELECTED CURRENCIES COMPARED TO VIETNAM DONG
Currency
2011 YTD Spot
Currency Return %
versus USD South African Rand -20.8%
Turkish Lira -17.8%
Indian Rupee -15.5%
Polish Zloty -14.7%
Mexican Peso -11.0%
Brazilian Real -10.7%
Chilean Peso -9.7%
Vietnam Dong -7.2%
Argentina Peso -7.1%
Czech Koruna -4.3%
Thai Bhat -4.1%
Russian Ruble -3.9%
South Korean Won -2.8%
Columbia Peso -1.4%
Indomesian Rupiah -0.7%
Philippine Peso -0.2%
Venezuela Bolivar 0.0%
Chinese Renminbi 4.0%
Peruvian New Sol 4.1%
Source: Bloomberg December 16, 2011
-25% -20% -15% -10% -5% 0% 5% 10%
South African Rand
Turkish Lira
Indian Rupee
Polish Zloty
Mexican Peso
Brazilian Real
Chilean Peso
Vietnam Dong
Argentina Peso
Czech Koruna
Thai Bhat
Russian Ruble
South Korean Won
Columbia Peso
Indomesian Rupiah
Philippine Peso
Venezuela Bolivar
Chinese Renminbi
Peruvian New Sol
2011 YTD Spot Currency Return % versus USD
SSI
12
AUSTERE MONETARY & FISCAL POLICY
Government Resolution No 11 (February 24/2011)
SBV Monetary Policy (Tightening then Prudent)
Directive No 1:
• Reduce Credit Growth: Max.+20%; M2: +16%
• Non Production Credits: Max 16% of all O/S Credits
Increase of Policy Interest Rates: OMO:14%, Refinancing Rate:15%
Bank Deposit Ceiling Rates: 14% (6% below 1 mo); USD Depos: 2%
USD Deposit Required Reserve Ratio: +1% to 8%
SBV Currency Reform:
More Market oriented Currency Regime
Control/Clamp Down of unofficial forex markets
Fiscal Policy Tightening: 10% Reduction of Government Expenditures
Freeze non-necessary Government Projects
2011 Budget Deficit : reportedly on target to reduce to 5% GDP
Saigon Securities Inc., Institutional Sales
SSI
13
REFORM PLAN IN FINANCIAL SECTOR IN 2012 Prudent SBV Monetary Policy
Credit Growth:
• Relax Credit Growth: Max.+15-17%
• M2 Growth: Max. +14-16%
A Credit Growth Quota for each Bank, based on bank’s financial strength
Reduce Policy Interest Rates: in steps in H1 2012
Focused Credit Easing: Facilitate access to credit for Farmers,
Exporters and SMEs
SBV Currency Reform: Intensify Inspections of Unofficial Foreign Currency Market
Reduce impact of Gold demand/supply on VND/USD exchange rate
Continuation of flexible Currency Policy to reduce Imports and increase
Exports
Banking/Securities Market Restructuring
Resolve issues of illiquid and weak small banks
Accelerate Privatization of State-Owned Commercial Banks and SOEs
SOEs to dispose Finance/Securities Businesses, Increase
Efficiency/Profitability
New Securities Regulations to strengthen securities markets
Saigon Securities Inc., Institutional Sales
SSI
14
VINASHIN Initially expected to lead Industrialization Policy of Vietnam
Expansion Period: Expanded in 2006 to deliver 64 ships in 2010 (US$580
million), 28 exported, 36 for domestic use
Hit by 2008 Global Recession : cancelled ship orders, falling asset values
Unpaid Debts: between US$3.8 billion to US$4.5 billion, including:
US$ 750 million Vietnam Sovereign Bonds: issued in 2005, 6.875% payable
semi-annually starting January 2006.
US$600 million Syndicated Loan led by Credit Suisse at LIBOR +1.5%,
principal payable in 10 semi-annual installments, starting December 2010.
VND 26 trillion (US$1.3 billion) Loans made by local commercial banks, not
counted as Bad Debts by local banks
VND 8.3 trillion (US$415 million) in Vinashin Corporate Bonds
Restructuring and Transfer of Loss Making Operations
Reported Losses of US$100 million+ on US$580 million revenues in 2010
Asset disposals and Transfer to Petro-Vietnam and Vinalines: ongoing
To avoid Next Vinashin: Deregulation of Electricity market and EVN
Saigon Securities Inc., Institutional Sales
SSI
15
STOCK MARKETS AT DISTRESSED LEVELS
VN Index (HOSE) : Main Board: P/E: 9.4X
304 Listed Stocks, Total Market Cap: US$24 billion
HNX Index (Hanoi) : smaller Cap market: P/E: 7.7X
393 Listed Stocks, Total Market Cap: US$4 billion
Source: HOSE, HNX, SSI
50
100
150
200
250
300
350
400
450
500
Jul-05 Jul-06 Jul-07 Jul-08 Jul-09 Jul-10 Jul-11
Hanoi Stock Exchange HNX Index
At all
time Low
of 58.9
Saigon Securities Inc., Institutional Sales
100
300
500
700
900
1100
D-0
3
M-…
J-0
4
S-0
4
D-0
4
M-…
J-0
5
S-0
5
D-0
5
M-…
J-0
6
S-0
6
D-0
6
M-…
J-0
7
S-0
7
D-0
7
M-…
J-0
8
S-0
8
D-0
8
M-…
J-0
9
S-0
9
D-0
9
M-…
J-1
0
S-1
0
D-1
0
M-…
J-1
1
S-1
1
HOSE VN Index
Joined
WTO
Dec
2006
Declined
37% since
Oct 2009
SSI
16
ATTRACTIVE STOCK PRICES
All time Low Valuation
Dominated by Financials & Real Estate (53% of VN Index)
VN Index P/E peaked at 45 X in 2007 now at 9.4 X Earnings
(HNX P/E peaked at 45 X in 2007 now at 7.7 X Earnings)
Source:
Bloomberg Saigon Securities Inc., Institutional Sales
SSI
17
MARKET OUTLOOK: MORE POSITIVE
Main Scenario Forecasts
2011 Forecast: GDP: 5.8%, CPI:18%
p.a. (in Dec 2011)
2012 Forecast: GDP: 6%, CPI: 12%
Monetary Policy has turned from “Tight”
to “Prudent” Policy: Government Yield Curve to Steepen with short-
term Yields declining to 11% by H1 2012
VN Index to recover 30% to 470 in H2 2012.
Pressure on VND/USD exchange rate to
continue until 2011 year-end but limited
deprecation expected (1 to 5%).
VN-Index will re-test 370 level before
recovering.
Saigon Securities Inc., Institutional Sales
6.6%7.8%
8.8%
12.6%
27.9%
19.9%
11.3%
3.9%2.4%
6.5%
8.7%
13.9%
20.8%
23.0%
22.4%
15% 15%14%
0%
5%
10%
15%
20%
25%
30%
12/2006 06/2007 12/2007 06/2008 12/2008 06/2009 12/2009 06/2010 12/2010 04/2011 06/2011 08/2011
CPI and SBV Policy Rates
Vietnam CPI 12 months
SBV Refinance/OMO Rate
370
390
410
430
450
470
490
510
530
Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11
VN Index Since Jan 1, 2011
Austere
Resolution
No 11 SBV
Deposit
Interest Cap
14%
Bank
Liquidity
Shortage/
Real Estate
Price Bust
SSI
18
INDUSTRIAL SECTOR EQUITY OUTLOOK
NEGATIVES
Increased Costs of Import Input & Raw Materials and Wages (+10-20%)
High Interest Rates affecting Low-Margin/High Debt businesses
Real Estate Price Deflation
Price Stabilization regulation cap Revenues: squeezed earnings
POSITIVES
Strong growth in Manufacturing/Exports/Materials/IT/Food
Strong Earnings of large Listed Banks
Conservative Business/Profit Projections
Saigon Securities Inc., Institutional Sales
SSI
19
SECTOR & STOCK RECOMMENDATIONS
Overweight Sectors
Consumer Staples (Milk, Sugar,
Fisheries) & Discretionary
Neutral Sectors
Banks/Insurers
Energy (Oil & Gas)
Information Technology
Industrials (Plastics)
Materials (Rubber)
Pharmaceuticals
Underweight Sectors
Real Estate
Dry Bulk
Materials (Steel & Cement)
Top Recommendations
Strong Management & Competitive
position (VCB, CTG, EIB)
Good Business Fundamentals ,
Sustainable Growth & Low
Leverage
DHG, DPM, PNJ, PVD, PGD,
PGS, VNM, VSH
High Dividends:
HVG, SBT
Low P/E Valuation:
DRC, PHR
Saigon Securities Inc., Institutional Sales
SSI
20
TOP RECOMMENDATIONS
2011E
Companies
Market
Capitalization
(US $ mio)
Revenue
growth
%
Net
Profit
Growth
%
Operating
Margin %
Net Profit
Margin % EPS
Current
Price P/E
Dividend
yield
CTG 1,895 na 90% na na 3,213 19,200 5.9 10%
DHG 182 17% 11% 48% 18% 6,561 57,500 8.76 3%
DPM 563 24% 46% 43% 30% 6,551 30,700 4.7 5%
DRC 40 23% -11% 15% 7% 3,783 18,100 4.8 6%
HVG 63 77% 112% 15% 6% 6,992 19,800 2.8 14.9%
PHR 88 16% 14% 35% 24% 7,054 23,000 3.2 13%
PNJ 106 32% 22% 4% 1.5% 4,279 35,400 8.2 6%
PVD 367 21% 18% 22% 11% 4,956 36,100 7.0 6%
SBT 70 59% 48% 33% 30% 3,608 11,000 3.0 18%
EIB 758 na 45% na Na 2,125 12,900 6.0 12%
VCB 2,162 na 11% Na Na 2,028 22,500 12.0 5%
VNM 2,481 32% 12% 32% 19% 11,199 91,500 8.0 3%
Saigon Securities Inc., Institutional Sales
Source : SSI Research & Investment Advisory, December 2, 2011
SSI
21
VIETNAM LARGE CAP STOCKS
Stock
Tickers
Market Caps
(US$ mio)
Revenue
growth
%
Net Profit
Growth %
Operating
Margin %
Net Profit
Margin % EPS
Current
Price P/E
Dividend
yield
MSN 2,900 18% -28% 42% 28% 2,439 117,000 48 0%
VCB 2,162 na 11% Na Na 2,028 22,500 12.0 5%
VNM 2,481 32% 12% 32% 19% 11,199 91,500 8.0 3%
BVH 1,944 45% 17% na na 1,674 60,000 36 0%
CTG 1,895 na 90% na na 3,213 19,200 5.9 10%
VIC 1,629 -4% 21% 76% 62% 6,896 87,500 12.9 0%
ACB 879 Na 16% na na 2,400 19,700 8.0 0%
VPL 763 41% 400% 20% 26% 2,539 78,000 31.0 0%
EIB 758 na 45% na Na 2,125 12,900 6.0 12%
STB 680 na Flat Na na 2,021 13,900 6.5 10.6%
HAG 511 -2% -11% 46% 45% 3,928 23,000 5.8 0%
DPM 563 24% 46% 43% 30% 6,551 30,700 4.7 5%
FPT 523 30% 21% 20% 8% 7,444 49,300 6.6 3%
PVD 367 21% 18% 22% 11% 4,956 36,100 7.0 6%
PVF 260 9% -41% na na 563 9,100 16.0 5%
Saigon Securities Inc., Institutional Sales Source : SSI Research & Investment Advisory, December 2, 2011
SSI
22
DISCLAIMER
The information, statements, forecasts and projections contained herein, including
any expression of opinion, are based upon sources believed to be reliable but their
accuracy completeness or correctness are not guaranteed.
Expressions of opinion herein were arrived at after due and careful consideration and
they were based upon the best information then known to us, and in our opinion are
fair and reasonable in the circumstances prevailing at the time.
Expressions of opinion contained herein are subject to change without notice.
This document is not, and should not be construed as, an offer or the solicitation of
an offer to buy or sell any securities, SSI and other companies in the SSI and/or their
officers, directors and employees may have positions and may affect transactions in
securities of companies mentioned herein and may also perform or seek to perform
investment-banking services for these companies,
This document is for private circulation only and is not for publication in the press or
elsewhere, SSI accepts no liability whatsoever for any direct or consequential loss
arising from any use of this document or its content, The use of any information,
statements forecasts and projections contained herein shall be at the sole discretion
and risk of the user.
Saigon Securities Inc., Institutional Sales
SSI
23
SSI RESEARCH CONTACTS
SAIGON SECURITIES INC.
Member of the Ho Chi Minh Stock Exchange, the Hanoi Stock Exchange and Regulated by the State Securities Commission.
HO CHI MINH CITY
72 Nguyen Hue Street, District 1 Ho Chi Minh City Tel: (848) 3824 2897 Fax: (848) 3824 2997 Email: [email protected]
HA NOI
1C Ngo Quyen Street, Hanoi Tel: (844) 3936 6321 Fax: (844) 3936 6311
INSTITIONAL SALES , RESEARCH & INVESTMENT ADVISORY [email protected]
Research Coverage Ext Email
Bich Pham, CFA INSTITUTIONAL SALES RESEARCH 586* [email protected]
Linh Nguyen Financials (North) 427 [email protected]
Phuong Hoang Equity Strategy, Conglomerate & Oil/Gas 409 [email protected]
Quan Minh Pham Technical Analyst 615 [email protected]
Phong Tran Financials (South) 2151* [email protected]
Hung Pham Macro & Fisheries & Logistics 637 [email protected]
Cuong Vu Real Estate 440 [email protected]
Giang Nguyen Consumer Staples 430 [email protected]
Minh Nguyen Plastics/ Construction Materials 435 [email protected]
Kien Nguyen Info Tech 510 [email protected]
Khoa Do Pharmaceuticals/Materials 670 [email protected]
Trang Pham Real Estate Team 442 [email protected]
Ngoc Tran Research Team Assistant 775 [email protected]
Note: * Tel (848) 3 824 2897, those Extension without * please dial (844) 3936-6321
Saigon Securities Inc., Institutional Sales
