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www.vcsc.com.vn| VCSC Viet Capital Securities | 1 See important disclosure at the end of this document
Vietnam Natural Rubber
18 March 2011
ADD
26 November 2013
High dividends in a cyclical low
Vietnam is the worlds 5th largest producer of natural rubber, account for
9% of global output, and does not have pricing power. Vietnamese natural
rubber companies are quite interesting: they have low debt level, efficient
working capital cycles and pay generous dividends (yields 6-10% despite
current relatively low rubber prices). We also believe there is a high chance
that dividends will increase when global natural rubber prices rebound.
Given low valuations, high dividend yields and potential upside, we have
an ADD rating for the sector and prefer PHR, DPR and TRC.
Gross margin stable as VRG oversees operations
VRG sets target-selling price (based on global price) and budget production
costs (by adjusting labour salaries) for the entire group, directly controlling the
operations of 4 out of the 5 listed natural rubber firms. The wage policy, which
links wages to about 40% of revenues, limits the upside in times of rising rubber
prices. Then again, as rubber prices declined in 2013, VRG reduced the ratio 36-
38% to prevent losses. As a result, natural rubber firms had relatively stable
gross margins over the past 5 years despite fluctuations in global rubber prices.
Natural rubber prices likely to remain depressed for a while
Historically, global natural rubber prices have fluctuated in line with crude oil
prices, but the pattern is now broken as crude oil is trading at premium to natural
rubber. Given that there is still a fair amount of natural rubber surpluses globally,
we think the possibility of rubber prices moving up is unlikely in the short term.
We like Phuoc Hoa (PHR), Dong Phu (DPR), and Tay Ninh (TRC)
All have large plantation areas, the highest profitability and healthiest financial
structures. They are also all members of VRG. Though rubber price has fallen as
much as 26% in the past two years, dividend payouts remain in the 30-50%
range, yielding 6-10% consistently over the past 5 years. Debt-free firms whos
downside is secured by VRG, natural rubber stocks look quite cheap at an
average PER of 5.0x vs. industry average of 6.7x in the region.
Trang Nguyen Analyst
[email protected] +84 8 3 914 3588 ext. 116
We like:
- PHR, DPR, TRC
Not recommend:
- TNC, HRC
Relative Performance vs. VNI
-25%
0%
25%
50%
Nov-1
2
Jan-1
3
Mar-
13
May-1
3
Jul-13
Se
p-1
3
Nov-1
3
PHR VNIndex
-25%
0%
25%
50%
Nov-1
2
Jan-1
3
Mar-
13
May-1
3
Jul-13
Sep-1
3
Nov-1
3
DPR VNIndex
-25%
0%
25%
50%
Nov-1
2
Jan-1
3
Mar-
13
May-1
3
Jul-13
Sep-1
3
Nov-1
3
TRC VNIndex
PHR
DPR TRC HRC TNC
Criteria HOLD ADD ADD Not recommended
Current price (VND) 31,100 48,000 42,000 N/A N/A
Target price (VND) 30,000 54,000 50,000 N/A N/A
Market cap (USD mn) 112 100 59 41 13
30-days avg liquidity (USD) 15,000 190,000 1,000 700 19,000
VN tapping area (ha) 10,700 7,200 5,400 1,800 1,300
Cambodia tapping area (ha) 6,700 6,300 6,500 N/A N/A
Year of Cambodia harvest 2016 2017 2018 N/A N/A
Age of trees (average) 23.2 19.5 18.0 26.0 15.7
Foreign ownership (%) 17.9 31.4 30.8 5.4 1.6
Gross margin (%) 29.5 40.2 32.7 8.1 28.8
ROA (%) 15.0 19.0 22.0 9.0 13.0
ROE (%) 24.0 24.0 27.0 11.0 15.0
Debt/Asset (%) 12.7 3.2 1.0 20.5 0.1
Dividend yield (%) 9.6 6.3 7.1 5.1 8.7
PER (x) 6.9 5.3 5.0 14.1 6.5
www.vcsc.com.vn | VCSC Viet Capital Securities | 2
See important disclosure at the end of this document
HOLD In this report
Global natural rubber industry: Surpluses in FY13 and FY14
Weakening correlation between natural rubber and crude oil prices
Vietnam natural rubber industry: controlled by Vietnam Rubber Group (VRG)
Listed rubber firms
Global natural rubber supply demand shows surplus
in FY13 and FY14
The International Rubber Study Group (IRSG) is the sole international body representing the
global rubber industry and compiles statistical data and analysis to issue forecast for global
demand and supply. They anticipate that natural rubber surpluses will shrink to 240,000 tons
in 2013 from 322,000 tons in 2012 and then inflate to 450,000 tons in 2014. A narrower
surplus this year may support rubber prices that have plunged almost 20% YTD so far, but
the outlook is not bullish.
In our view, over the past 10 years from FY04-FY14, rubber supply-demand situation swings
quite erratically without certain patterns. The chaotic nature of this means there is always a
limit to what we can predict accurately.
Figure 1 : Net surplus in FY13 FY14
Source: IRSG, 2012
We think the IRSGs surplus forecast in FY13-FY14 results largely from the supply side,
especially Thailand and Indonesia who alone account for 60% of the worlds production.
These two countries expanded their planting areas aggressively in FY06-FY07 compared to
other producers.
Supply
It usually takes seven years for the rubber trees to reach sufficient size before being tapped.
Now that those trees planted back in FY06-FY07 from Thailand and Indonesia are fully
matured, they start producing significant amount of latex.
-500
-400
-300
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-100
0
100
200
300
400
500
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013E 2014E
Thos. tons Net supply
Net supply
www.vcsc.com.vn | VCSC Viet Capital Securities | 3
See important disclosure at the end of this document
HOLD Figure 2: Thailand and Indonesia planted a lot of rubber trees in FY06-07, which will become
harvestable in FY13-FY14
Source: IRSG, 2012
Figure 3a: Thailand and Indonesia - major
producers
Figure 3b: China - the major consumer
Source: IRSG, 2012
According to IRSG, natural rubber consumption will still likely to grow modestly by 3.9% yoy
this year and continue this pace until 2014, led largely by emerging markets accounting for
70% of global consumption.
Demand
70% of world rubber consumption goes into the tyre industry. The growth in world tyre
production is bolstered by expanding global sales of cars and light commercial vehicles,
which directly responds to global economic growth. Consequently, tyre production has been a
driving force behind growth of global economies. The chart below demonstrates the
correlation between these World GDP and natural rubber consumption.
0
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E
Thos. haThailand
New planted
Replanted
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12
E
Thos. ha Indonesia
New planted
Replanted
Thailand34%
Indonesia
27%
Malaysia9%
India9%
Vietnam8%
China7%
Other6%
China, 35%
India, 9%
USA, 9%
Japan, 7%
Thailand,4%
Others, 36%
www.vcsc.com.vn | VCSC Viet Capital Securities | 4
See important disclosure at the end of this document
HOLD Figure 4: Rubber consumption ties to GDP growth
Source: IRSG, World Bank, 2012
IRSG forecasts for higher rubber demand in 2013 than 2012 based on the International
Monetary Funds (IMF) projections in April for a 3.3% global economic growth. Improved
prospect for global demand may mildly reduce the anticipated surplus this year.
Link between rubber and crude oil: historically strong
but weakening?
Crude oil is the main input for the production of synthetic rubber, which is the main
substitute of natural rubber. Traditionally, the analysis of rubber price movements has been
closely correlated to the price of oil. When oil prices are low, synthetic rubber becomes
cheaper and the demand for natural rubber falls. When oil prices are high, synthetic rubber
becomes more expensive and the demand for natural rubber thrives. The end result being
that oil price strongly influences the price of natural rubber.
However, the correlation looks to have become weaker now that rubber is in huge oversupply.
Also the degree of substitutability between natural rubber and synthetic rubber depends on
the length of the time for which the gap between supply-demand persists shown in the table
below.
-8
-6
-4
-2
0
2
4
6
8
10
12
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013F
Growth %World GDP growth
Natural rubber consumption growth
www.vcsc.com.vn | VCSC Viet Capital Securities | 5
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HOLD Figure 5: Gap between crude oil & natural rubber price at present, will the gap narrow?
Source: Bloomberg, VCSC estimates
Currently, crude oil is trading at a premium compared to natural rubber price, especially after
the Syria US conflict in 2013 which pushed crude oil prices to three-year highs. Crude oil
prices continued moving strongly upward while rubber prices remained relatively stable. The
price trend divergence should normalize as rubber prices tend to follow the price of oil.
However, due to surplus of 322,000 tons in 2013 and 450,000 tons in 2014, we think its hard
to forecast the rubber price trend just yet. The IRSG, who issues forecasts for global supply-
demand, does not forecast price.
Vietnam rubber ranks 2nd
in yield but only 9% of
global output price taker
Among natural rubber producing countries, Vietnams production volume only accounts for
9% of global output, well behind that of Thailand, Indonesia, Malaysia and India. However,
average yield reaches up to 1.71 ton/ha, making Vietnam the second most efficient rubber
producer after India (yield of 1.82 ton/ha)
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2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Rubber price USD/ton Crude oil price USD/barrel
RT1 Rubber
CL1 Crude oil
www.vcsc.com.vn | VCSC Viet Capital Securities | 6
See important disclosure at the end of this document
HOLD Figure 6: Position of Vietnam rubber industry in worlds market
Source: Bloomberg, VCSC estimates
According to the regulation in Decision No. 750/Q-TTG and No. 124/Q-TTg of Prime
Minister, total domestic rubber area will be kept at 800,000 ha. However, targets set out by
the government in the 2009 strategy were lower than the real figures. By the end of 2012,
total area plantation has covered 910,500 ha and is continuously expanding. There is high
probability that Vietnam will have more than one million ha of rubber in 2015-2020 period,
especially when those planted in Cambodia and Laos can be tapped.
Figure 7: Laos and Cambodias plantation quite minor among Vietnams vast plantation
Source: Governments plan, VCSC estimates, VRG
Incorporating Laos and Cambodias plantation, Vietnams total production volume can
increase at max of 1.1mn tons ~ 10% of worlds production, still has minimal impact on the
international rubber market.
1.7
1.2
1.5
1.8 1.7
1.2
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Thailand Indonesia Malaysia India Vietnam China
Mil tons Tons/ha
Production (000' tonnes) Productivity (ton/ha)
0
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800
1,000
1,200
1,400
1,600
2012 2013E 2014E 2015E
Thos. ha
Vietnam Plantation development
Laos
Cambodia
VN (Listed firms)
VN (others)
Planned
www.vcsc.com.vn | VCSC Viet Capital Securities | 7
See important disclosure at the end of this document
HOLD According to the Ministry of Agriculture and Rural Development (MARD), 83% of total output
is exported, mainly to China (44%) and Malaysia (21%)
Vietnam Rubber Group oversees operations of all subsidiaries
The Vietnam Rubber Group (VRG) was established by the government to monitor local
rubber market as well as implement national production targets. VRG controls about 44%
production area while that of private sector is 56%. All currently listed natural rubber
companies are subsidiaries of VRG, except for Thong Nhat Rubber Company (TNC).
At the beginning of the year, VRG sets a target-selling price and budget labour cost for each
company. This mechanism prevents rubber companies from enjoying enormous earnings
when rubber prices increase. When rubber price falls sharply, VRG sets a floor-selling price
as well as readjust the wage policy to protect rubber companies from incurring losses. For this
reason, rubber companies have stable gross margins regardless of volatility in global prices.
Figure 8: Rubber price swings wildly but rubber firms gross margins quite steady
Source: Bloomberg, VCSC estimates
VRG began operating abroad due to a shortage of available land in Vietnam. To date, they
have over 70,000 ha under rubber cultivation in Cambodia and several thousand ha in Laos.
VRG planned to plant 100,000 ha of rubber in Laos and 100,000 ha in Cambodia by 2014.
Though much smaller in scale, private sectors are growing into two major listed
conglomerates Hoang Anh Gia Lai (HAG) and Gemadept (GMD). HAG owns an area of
51,000 ha of land to plant rubber in Laos, Cambodia and Vietnam and they expect to extend
this area up to 100,000 ha at the end of this year. GMD is also applying for 29,000 ha of
plantation ha in Cambodia but they have just covered 5,500 ha by the end of 2012.
0%
20%
40%
60%
80%
100%
120%
-
1,000
2,000
3,000
4,000
5,000
6,000
2006 2008 2009 2010 2011 2012
Gross marginUSD/ton
Rubber price (RT1 commdt)
PHR
DPR
TRC
www.vcsc.com.vn | VCSC Viet Capital Securities | 8
See important disclosure at the end of this document
HOLD Figure 9: VRG still dominates rubber industry
Source: Company data, VCSC estimates
Listed rubber firms
For now, there are five rubber companies listed on the stock market. All have similar financial
structures with limited leverage and strong profitability. Among five listed firms, three
companies Phuoc Hoa Rubber (PHR), Dong Phu Rubber (DPR), and Tay Ninh Rubber (TRC)
are in the top with decent market cap, large plantation area and healthy financial ratios.
As for Hoa Binh Rubber (HRC), the company has up to 50% of rubber area out of productive
age (more than 24 years old compared to groups average of 20). Old rubber trees lead to low
exploitation efficiency, and hence it has the lowest gross margin, ROA and ROE than other
listed companies.
Thong Nhat Rubber (TNC) meanwhile is too small in scale with only 2,000 ha plantation. It
also operates less efficiently than the top three firms do.
Recommended Not recommended
Criteria PHR DPR TRC HRC TNC
Exchange HOSE HOSE HOSE HOSE HOSE
Market cap (USD mn) 112 100 59 41 13
30-days average trading (USD) 15,000 190,000 1,000 700 19,000
Foreign ownership (%) 17.9 31.4 30.8 5.4 1.6
VN Plantation area (ha) 22,000 16,000 7,300 5,100 2,000
Cambodia plantation area (ha) 7,600 9,000 7,600 N/A N/A
VRG ownership (%) 66.0 56.0 62.0 55.0
Gross margin 29.5 40.2 32.7 8.1 28.8
ROA 15.0 19.0 22.0 9.0 13.0
ROE 24.0 24.0 27.0 11.0 15.0
Debt/Asset 12.7 3.2 1.0 20.5 0.1
Source: Bloomberg, VCSC estimates
0
200
400
600
800
1,000
1,200
2012 2013E 2014E 2015E
Thos. ha
Plantation development
GMD
HAG
VRG
Others
www.vcsc.com.vn | VCSC Viet Capital Securities | 9
See important disclosure at the end of this document
HOLD The top three rubber firms are all subsidiaries of VRG, which make them subject to similar
pricing structure as VRG directs selling price and labour cost mechanism.
Revenue determined mostly by selling price
Revenue growth depends almost entirely on fluctuation of rubber price, as current plantations
are fully planted for all listed firms
Figure 10: Stable volume, volatile selling price
Source: VCSC estimates
Following VRGs expansion plan, listed rubber firms began to operate abroad due to shortage
of plantations in Vietnam.
Among three rubber firms, PHR will see growth from its 100% owned subsidiary in Cambodia
at the earliest in 2016.
PHR DPR TRC
Vietnam tapping area (ha) 10,700 7,200 5,400
Cambodia tapping area (ha) 6,700 6,300 6,500
Cambodia Ownership 100% 58% 100%
Yield (ton/ha) 2 2.3 2.15
1st year of Cambodia exploitation 2016 2017 2018
Source: VCSC estimates
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25,000
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35,000
2009 2010 2011 2012 2013E
VND mn/tonTons
PHR (vol)
DPR (vol)
TRC (vol)
price
www.vcsc.com.vn | VCSC Viet Capital Securities | 10
See important disclosure at the end of this document
HOLD Gross margin
Variations of gross margins are due to differences in product mix and age profile.
PHR has high proportion of trees out of productive age while most of DPRs plantation are at
the most productive age (11-25 according to figure 12). Thus, PHR has the lowest gross
margin (30%) compared to TRC (33%) and DPR (40%)
Figure 11: Trees age profile of listed rubber firms
Source: VCSC estimates, company data
Figure 12: Rubber trees provide the highest yield from year 11th to year 25
th
Source: VCSC estimates, company data
PHR sells premium rubber types SVR CV50, 60 (55% output). DPR focuses on SVR3L (50%
output) and TRC has strength in Latex (70%)\
0%
10%
20%
30%
40%
50%
60%
70%
80%
0-6 `7-10 `11-25 >25 Age
PHR DPR TRC
-
0.5
1.0
1.5
2.0
2.5
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26
Yield (ton/ha)
Age
www.vcsc.com.vn | VCSC Viet Capital Securities | 11
See important disclosure at the end of this document
HOLD Figure 13: Export price by rubber product types
Source: VRA, VCSC estimates, Oct2013
Valuation Valuation Method PE multiple
Target PER 6.0x
According to our compilation, regional rubber firms are trading at PER of 6.7x on average,
excluding Shangdong Yanggu Huatai Che-A and Hoa Binh Rubber which trade at abnormal
high PER of 115.0x and 15.1x.
Ticker Name Country Mrkt cap (USDmn)
PE trailing
ROE (%)
ROA (%)
Debt/ Asset
600579 CH Quingdao Yellow Sea Rubber
China 252 7.3 24.1 38.9
VMSR IN Vamshi Rubber India 1 4.9 20.2 6.5 45.0
IDR IN Indag Rubber India 22 5.5 34.9 25.2 -
HFT TB Hwafong Rubber Thailand 53 8.1 13.6 11.1 -
IRC TB Inoue Rubber Thailand 96 7.8 17.1 8.7 10.5
TNC VN Thong Nhat Rubber Vietnam 12 6.5 13.1 11.6 0.1
HRC VN Hoa Binh Rubber Vietnam 40 15.1 11.2 8.7 20.5
TRC VN Tay Ninh Rubber Vietnam 58 3.7 27.4 22.1 17.1
DPR VN Dong Phu Rubber Vietnam 96 4.2 23.8 19.1 3.2
PHR VN Phuoc Hoa Rubber Vietnam 116 5.2 24.2 15.5 12.7
Average 6.7 21.1 14.8 16.9 Source: Bloomberg
Compared to regional peers, Vietnamese rubber firms have similar market cap, ROE and
ROA while trading at lower PER of 5.0x on lower debt/asset ratio. We think Vietnamese
rubber firms deserve a higher PER despite some discount for VRG control, thus believe PER
of 6.0x is justifiable for Vietnam rubber stocks..
2,200
2,220
2,240
2,260
2,280
2,300
2,320
2,340
2,360
2,380
2,400
SVR CV 50
SVR CV 60
Latex SVR L SVR 3L SVR 5 SVR 10 SVR 20
USD/ton
Export pricePHR
TRC
DPR
www.vcsc.com.vn | VCSC Viet Capital Securities | 12
See important disclosure at the end of this document
HOLD Although rubber price has fallen by 26% since its peak in 2010, rubber firms can still protect
profit margin by cutting cost of production (mainly employee salary). With virtually no debt,
they are free of interest payment pressure.
Profit & Loss Analysis
Figure 14: VCSC earnings forecast (VND bn)
2013E PHR DPR TRC Explanation
Sales 1,770 1,179 732
Rubber 1,573 992 721
Volume sold (tons) 29,968 18,998 13,763 No plantation expansion c.p last yr
Price (VND mn/ton) 52.5 52.2 52 Rubber price drops 17% yoy
Others 197 187 10
Cost of goods sold (1,297) (746) (528) Salary cut from 40% sale to 38%
Gross profit 474 433 203 GM lower last year as wage policy
not yet revised down
SG&A (77) (59) (33)
Operating profit 397 374 170
Forex gain/loss 3 2 1 VND devaluation by 3% this year
Non op. gain/loss 108 59 110
EBIT 508 434 281
Interest expense (20) (6) (1) TRC has no debts
EBT 488 429 280
Tax rate 25% 9.0% 10.7% DPR and TRC granted tax incentive
Profit after tax to Shldrs 364 390 249
Outstanding shares (mn) 72 43 30.0
EPS (VND) 5,054 9,070 8,339.5
Target price 30,000 54,000 50,000 Target PER of 6.0x
Current price 31,100 48,000 42,000
Upside -3% 13.4% 19.1%
Source: VCSC forecast
Sustainable high dividends
Low level of debt and efficient working capital cycles lead to high cash generation. Even 3/5
companies are having investment projects in Cambodia, we still forecast strong cash balance
in the coming years, sufficient to sustain current dividend levels. High dividend payouts also
mean the VRG always get their share of the profits.
Assuming rubber firms continue to pay dividend of VND3,000/share in the future, our
projection shows that natural rubber firms see no cash shortfall risk.
PHR 2009 2010 2011 2012 2013E 2014E 2015E
Beginning cash 323 228 424 637 446 481 474
Operating CF (63) 438 449 99 419 309 268
Investing CF 22 (28) 25 (139) (300) (100) (50)
Financing CF (64) (214) (260) (202) (85) (215) (215)
Capex (84) (179) (105) (308) (300) (100) (50)
Dividend (119) (279) (332) (156) (215) (215) (215)
Ending Cash 228 424 637 446 481 474 477
Source: Bloomberg, VCSC estimates
www.vcsc.com.vn | VCSC Viet Capital Securities | 13
See important disclosure at the end of this document
HOLD DPR 2009 2010 2011 2012 2013E 2014E 2015E
Beginning cash 39 279 508 822 646 831 910
Operating CF 182 514 892 480 453 358 315
Investing CF (24) (193) (406) (463) (100) (150) (100)
Financing CF 81 (92) (172) (193) (169) (129) (129)
Capex (53) (81) (132) (150) (100) (150) (100)
Dividend (0) (109) (165) (219) (129) (129) (129)
Ending Cash 279 508 822 646 831 910 996
Source: Bloomberg, VCSC estimates
TRC 2009 2010 2011 2012 2013E 2014E 2015E
Beginning cash 150 245 441 675 559 692 778
Operating CF 129 368 327 (54) 274 226 199
Investing CF (28) (68) 13 93 (50) (50) (100)
Financing CF (5) (104) (105) (156) (90) (90) (90)
Capex (30) (58) (25) (8) (50) (50) (100)
Dividend (15) (60) (89) (132) (90) (90) (90)
Ending Cash 245 441 675 559 692 778 787
Source: Bloomberg, VCSC estimates
At present, PHR has the highest dividend yield and dividend payout where DPR and TRC are
cheaper in terms of PER (about 5.0x).
Figure 15: Div 2009 2010 2011 2012 2013 Current Price
PHR 2,000 3,000 3,000 3,000 3,000 31,100
DPR 2,000 3,000 5,000 4,000 3,000 48,000
TRC 2,000 3,000 3,500 3,500 3,000 42,000
Dividend Yield
PHR 6.4% 9.6% 9.6% 9.6% 9.6%
DPR 4.2% 6.3% 10.4% 8.3% 6.3%
TRC 4.8% 7.1% 8.3% 8.3% 7.1%
Dividend payout
PHR 60.8% 48.6% 29.7% 40.5% 67.0%
DPR 38.0% 30.0% 26.8% 31.9% 33.1%
TRC 39.1% 32.8% 20.4% 30.1% 36.0%
Source: Company data, VCSC estimates
However stock prices in history show little correlation to rubber price
Usually, the price of a commodity and its related stocks show a high positive correlation. But
this does not seem to apply to Vietnamese rubber stocks, hence the investment argument of
dividends becomes more prominent. Despite strong swings in worlds rubber price, rubber
stocks tend to move sideways with a mild adjustment of 10% price change along the long-
term median line. Natural rubber stock prices usually slumped around Nov/Dec where price is
adjusted down by the amount of dividend payment. Therefore, rubber stocks are actually inert
with changes in outside factors (fluctuations of rubber prices, market move, etc)
Such behaviours prove that investors are well-aware of the fundamental nature of Vietnamese
rubber stocks as a long-term, high-yield investment channels.
www.vcsc.com.vn | VCSC Viet Capital Securities | 14
See important disclosure at the end of this document
HOLD Figure 16: Stock price inelastic with changing in rubber prices
Source: Bloomberg, VCSC estimates
If rubber price goes up, rubber firms can enlarge its profit base enormously. There is a high
possibility that they can increase current dividend payment at that point. Such happened in
2011 and 2012 where rubber price went up strongly to an average of USD4,500/ton and
USD3,300/ton (nearly double current price at USD2,400/ton), DPR increased dividend
payment to VND5,000/share and VND4,000/share (please see figure 15)
Besides good dividend plays, as investment thesis into rubber companies we also like to note
that:
- USD-driven sale and debt-free status allow rubber firms to benefit from VND devaluation,
which could potentially see another 2% adjustment this year
- Rubber companies will see organic growth in the future once their expansion in Cambodia
plantation comes to fruition.
2,000
3,000
4,000
5,000
6,000
7,000
-
10,000
20,000
30,000
40,000
50,000
60,000
70,000
Au
g-0
9
De
c-0
9
Ap
r-1
0
Au
g-1
0
De
c-1
0
Ap
r-1
1
Au
g-1
1
De
c-1
1
Ap
r-1
2
Au
g-1
2
De
c-1
2
Ap
r-1
3
Au
g-1
3
Rubber USD/tonStock price VND TRC PHR DPR Rubber price
Dividend Dividend Dividend Dividend
www.vcsc.com.vn | VCSC Viet Capital Securities | 15
See important disclosure at the end of this document
HOLD Financial Statements - PHR
Actual Forecast
Actual Forecast
VND billion 2012 2013 2014 2015
VND Billion 2012 2013 2014 2015
P&L
Balance Sheet
Revenue 2,214 1,770 1,761 1,756
Cash & equivalent 446 481 474 477
- Cost of goods sold (1,560) (1,297) (1,337) (1,383)
Short-term invest. 119 119 119 119
Gross profit 654 474 424 373
Accounts receivable 73 59 58 58
- Sales & marketing (24) (19) (19) (19)
Inventories 317 276 284 294
- General & admin (72) (58) (57) (57)
Other current assets 279 279 279 279
Operating profit 558 397 348 297
Total current assets 1,234 1,213 1,215 1,228
- Forex gain/loss 0 3 0 0
Gross fix assets 2,051 2,351 2,451 2,501
- Net non-op gains 206 108 109 109
- Acc. depreciation (651) (652) (653) (654)
EBIT 764 508 457 405
Net fixed assets 1,400 1,699 1,798 1,847
- Interest expense (11) (20) (34) (34)
LT investments 267 267 267 267
EBT 753 488 423 372
Other LT assets 200 200 200 200
- Income tax (148) (122) (106) (93)
Total long-term assets 1,867 2,166 2,265 2,314
Profit after tax 605 366 318 279
Total Assets 3,101 3,379 3,479 3,541
- Minority interests (4) (2) (2) (2)
Net income to SH 602 364 316 277
Accounts payable 11 10 10 10
Short-term debt 204 304 304 304
EBITDA 816 509 458 406
Other ST debt 756 756 756 756
Out. shares (m) 72 72 72 72
Current liabilities 971 1,070 1,070 1,070
EPS 8,390 5,075 4,401 3,860
Long-term debt 40 70 70 70
Other LT debt 42 42 42 42
Growth
Total long-term debt 82 112 112 112
Revenue growth % -14% -20% -1% 0%
Total liabilities 1,053 1,182 1,182 1,182
Op profit growth % -39% -29% -12% -15%
Preferred equity 0 0 0 0
EBIT growth % -26% -34% -10% -11%
Paid in capital 0 0 0 0
EPS growth % -17% -40% -13% -12%
Share capital 813 813 813 813
Retained earnings 1,211 1,360 1,460 1,522
Profitability
Minority interest 24 24 24 24
Gross margin % 29.5% 26.7% 24.1% 21.2%
Total equity 2,048 2,197 2,297 2,359
Net profit margin % 27.2% 20.6% 17.9% 15.8%
Total debt & equity 3,101 3,379 3,479 3,541
ROE % 31.6% 17.2% 14.1% 12.0%
ROA % 19.6% 11.3% 9.3% 8.0%
Cash flow
Begin cash balance 602 446 481 474
Efficiency
Net Income 52 364 316 277
Days inventory OH 77.6 83.4 76.4 76.3
Depreciation 637 1 1 1
Days acts. receivable 12.1 13.6 12.1 12.1
in working capital 0 55 (8) (9)
Days acts. payables 2.8 2.9 2.7 2.7
Other adjustments (555) 0 0 0
Cash conversion 86.9 94.0 85.8 85.7
Cash from operation 99 419 309 268
Net Capex (163) (300) (100) (50)
Liquidity
Other investments 24 0 0 0
Current ratio 1.3 1.1 1.1 1.2
Cash from invest (139) (300) (100) (50)
Quick ratio 0.7 0.6 0.6 0.7
Dividends paid (156) (215) (215) (215)
Cash ratio 0.5 0.4 0.4 0.5
in capital (14) 0 0 0
Debt/assets 0.1 0.1 0.1 0.1
in LT & ST debt (32) 130 - -
Debt/capital 0.1 0.1 0.1 0.1
Cash from financing (202) (85) (215) (215)
Debt/equity 0.1 0.2 0.2 0.2
Net changes in cash (242) 34 (6) 3
Interest coverage 71.2 25.3 13.6 12.1
End cash balance 446 481 474 477
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See important disclosure at the end of this document
HOLD Financial Statements - DPR
Actual Forecast
Actual Forecast
VND billion 2012 2013 2014 2015
VND Billion 2012 2013 2014 2015
P&L
Balance Sheet
Revenue 1,377 1,179 1,181 1,185
Cash & equivalent 646 831 910 996
- Cost of goods sold (824) (746) (790) (843)
Short-term invest. 394 394 394 394
Gross profit 553 433 391 342
Accounts receivable 74 49 49 49
- Sales & marketing (14) (12) (12) (12)
Inventories 226 189 200 214
- General & admin (54) (46) (46) (47)
Other current assets 177 177 177 177
Operating profit 485 374 332 283
Total current assets 1,518 1,641 1,731 1,831
- Forex gain/loss 1 2 0 0
Gross fix assets 1,164 1,264 1,414 1,514
- Net non-op gains 109 59 78 83
- Acc. depreciation (313) (314) (315) (316)
EBIT 594 434 410 366
Net fixed assets 851 950 1,099 1,198
- Interest expense (5) (6) (6) (6)
LT investments 152 152 152 152
EBT 589 429 404 360
Other LT assets 300 300 300 300
- Income tax (50) (39) (36) (32)
Total long-term assets 1,303 1,402 1,551 1,650
Profit after tax 538 390 368 328
Total Assets 2,821 3,043 3,282 3,481
- Minority interests 1 0 0 0
Net income to SH 540 390 368 328
Accounts payable 2 2 3 3
Short-term debt 85 45 45 45
EBITDA 637 435 411 367
Other ST debt 290 290 290 290
Out. shares (m) 43 43 43 43
Current liabilities 377 338 338 338
EPS 12,552 9,070 8,559 7,625
Long-term debt 42 42 42 42
Other LT debt 138 138 138 138
Growth
Total long-term debt 180 180 180 180
Revenue growth % -25% -14% 0% 0%
Total liabilities 557 518 518 518
Op profit growth % -37% -23% -11% -15%
Preferred equity 0 0 0 0
EBIT growth % -32% -27% -6% -11%
Paid in capital 147 147 147 147
EPS growth % -33% -28% -6% -11%
Share capital 430 430 430 430
Retained earnings 1,603 1,864 2,103 2,302
Profitability
Minority interest 84 84 84 84
Gross margin % 40.2% 36.7% 33.1% 28.9%
Total equity 2,264 2,525 2,764 2,963
Net profit margin % 39.2% 33.1% 31.2% 27.7%
Total debt & equity 2,821 3,043 3,282 3,481
ROE % 25.6% 16.3% 13.9% 11.5%
ROA % 20.5% 13.3% 11.6% 9.7%
Cash flow
Begin cash balance 822 646 831 910
Efficiency
Net Income 540 390 368 328
Days inventory OH 92.6 101.6 90.1 89.7
Depreciation 43 1 1 1
Days acts. receivable 15.2 19.1 15.2 15.2
in working capital 0 62 (11) (13)
Days acts. payables 1.2 1.0 1.1 1.1
Other adjustments (103) 0 0 0
Cash conversion 106.7 119.6 104.2 103.8
Cash from operation 480 453 358 315
Net Capex (147) (100) (150) (100)
Liquidity
Other investments (316) 0 0 0
Current ratio 4.0 4.9 5.1 5.4
Cash from invest (463) (100) (150) (100)
Quick ratio 3.0 3.8 4.0 4.3
Dividends paid (219) (129) (129) (129)
Cash ratio 1.7 2.5 2.7 2.9
in capital 0 0 0 0
Debt/assets 0.0 0.0 0.0 0.0
in LT & ST debt 85 (40) 0 0
Debt/capital 0.1 0.0 0.0 0.0
Cash from financing (193) (169) (129) (129)
Debt/equity 0.1 0.0 0.0 0.0
Net changes in cash (176) 184 79 86
Interest coverage 112.7 73.8 72.5 64.7
End cash balance 646 831 910 996
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See important disclosure at the end of this document
HOLD Financial Statements - TRC
Actual Forecast
Actual Forecast
VND billion 2012 2013 2014 2015
VND Billion 2012 2013 2014 2015
P&L
Balance Sheet
Revenue 908 732 725 720
Cash & equivalent 559 692 778 787
- Cost of goods sold (611) (528) (552) (579)
Short-term invest. 210 210 210 210
Gross profit 297 203 173 140
Accounts receivable 74 39 39 39
- Sales & marketing (8) (6) (6) (6)
Inventories 76 87 91 96
- General & admin (34) (27) (27) (27)
Other current assets 41 41 41 41
Operating profit 256 170 140 107
Total current assets 960 1,070 1,160 1,173
- Forex gain/loss (1) 1 0 0
Gross fix assets 557 607 657 757
- Net non-op gains 137 109 116 120
- Acc. depreciation (206) (207) (208) (209)
EBIT 391 279 257 227
Net fixed assets 351 400 449 548
- Interest expense (1) (1) (1) (1)
LT investments 0 0 0 0
EBT 390 279 256 226
Other LT assets 174 174 174 174
- Income tax (42) (30) (27) (24)
Total long-term assets 525 574 623 722
Profit after tax 348 249 229 202
Total Assets 1,485 1,644 1,783 1,895
- Minority interests 0 0 0 0
Net income to SH 348 249 229 202
Accounts payable 1 2 2 2
Short-term debt 4 4 4 4
EBITDA 415 280 258 228
Other ST debt 166 166 166 166
Out. shares (m) 30 30 30 30
Current liabilities 171 171 171 171
EPS 11,610 8,296 7,620 6,732
Long-term debt 5 5 5 5
Other LT debt 0 0 0 0
Growth
Total long-term debt 5 5 5 5
Revenue growth % -24% -19% -1% -1%
Total liabilities 176 176 176 176
Op profit growth % -42% -34% -17% -24%
Preferred equity 0 0 0 0
EBIT growth % -31% -28% -7% -9%
Paid in capital 0 0 0 0
EPS growth % -32% -28% -7% -9%
Share capital 300 300 300 300
Retained earnings 1,009 1,168 1,306 1,418
Profitability
Minority interest 0 0 0 0
Gross margin % 32.7% 27.8% 23.9% 19.5%
Total equity 1,309 1,468 1,606 1,718
Net profit margin % 38.4% 34.2% 32.1% 29.3%
Total debt & equity 1,485 1,644 1,783 1,895
ROE % 28.6% 18.0% 15.1% 12.6%
ROA % 23.6% 16.0% 13.5% 11.4%
Cash flow
Begin cash balance 675 559 692 778
Efficiency
Net Income 348 249 229 202
Days inventory OH 60.3 56.5 59.0 58.8
Depreciation 23 1 1 1
Days acts. receivable 19.7 28.3 19.8 19.8
in working capital 0 24 (3) (4)
Days acts. payables 1.1 0.9 1.1 1.1
Other adjustments (425) 0 0 0
Cash conversion 78.9 83.8 77.7 77.5
Cash from operation (54) 274 226 199
Net Capex 68 (50) (50) (100)
Liquidity
Other investments 25 0 0 0
Current ratio 5.6 6.2 6.8 6.8
Cash from invest 93 (50) (50) (100)
Quick ratio 4.9 5.5 6.0 6.0
Dividends paid (132) (90) (90) (90)
Cash ratio 3.3 4.0 4.5 4.6
in capital (20) 0 0 0
Debt/assets 0.0 0.0 0.0 0.0
in LT & ST debt (5) 0 0 0
Debt/capital 0.0 0.0 0.0 0.0
Cash from financing (156) (90) (90) (90)
Debt/equity 0.0 0.0 0.0 0.0
Net changes in cash (116) 134 86 9
Interest coverage 264.1 428.5 328.2 290.0
End cash balance 559 692 778 787
www.vcsc.com.vn | VCSC Viet Capital Securities | 18
See important disclosure at the end of this document
HOLD VCSC Rating System and Valuation Methodology
Absolute performance, long term (fundamental) rating key: The recommendation is based on implied absolute
upside/downside for the stock from the target price, defined as (target price current price)/current price, and is not
related to market performance. This structure applies from 1 November 2010.
Equity rating key Definition
BUY If the target price is 20% higher than the market price
ADD If the target price is 10-20% higher than the market price
HOLD If the target price is 10% below or 10% above the market price
REDUCE If the target price is 10-20% lower than the market price
SELL If the target price is 20% lower than the market price
NOT RATED The company is or may be covered by the Research Department but no rating or
target price is assigned either voluntarily or to comply with applicable regulation
and/or firm policies in certain circumstances, including when VCSC is acting in an
advisory capacity in a merger or strategic transaction involving the company.
RATING SUSPENDED The investment rating and target price for this stock have been suspended as there is
not a sufficient fundamental basis for determining an investment rating or target. The
previous investment rating and target price, if any, are no longer in effect for this
stock.
Unless otherwise specified, these performance parameters only reflect capital appreciation and are set with a 12-
month horizon. Future price volatility may cause temporary mismatch between upside/downside for a stock based on
market price and the formal recommendation, thus these performance parameters should be interpreted flexibly.
Small Cap Research: VCSC Research covers companies with a market capitalisation of up to US$50mn, inclusively.
Clients should note that coverage may not be consistent and that VCSC may drop coverage of small caps at any time
without notice.
Target price: In most cases, the target price will equal the analyst's assessment of the current fair value of the stock.
The target price is the level the stock should currently trade at if the market were to accept the analyst's view of the
stock, provided the necessary catalysts were in place to effect this change in perception within the performance
horizon. However, if the analyst doesn't think the market will reassess the stock over the specified time horizon due
to a lack of events or catalysts, then the target price may differ from fair value. In most cases, therefore, our
recommendation is an assessment of the mismatch between current market price and our assessment of current fair
value.
Valuation Methodology: To derive the target price, the analyst may use different valuation methods, including, but
not limited to, discounted free cash-flow and comparative analysis. The selection of methods depends on the
industry, the company, the nature of the stock and other circumstances. Company valuations are based on a single
or a combination of one of the following valuation methods: 1) Multiple-based models (P/E, P/cash flow, EV/sales,
EV/EBIT, EV/EBITA, EV/EBITDA), peer-group comparisons, and historical valuation approaches; 2) Discount
models (DCF, DVMA, DDM); 3) Break-up value approaches or asset-based evaluation methods; and 4) Economic
profit approaches (Residual Income, EVA). Valuation models are dependent on macroeconomic factors, such as
GDP growth, interest rates, exchange rates, raw materials, on other assumptions about the economy, as well as risks
inherent to the company under review. Furthermore, market sentiment may affect the valuation of companies.
Valuations are also based on expectations that might change rapidly and without notice, depending on developments
specific to individual industries.
Risks: Past performance is not necessarily indicative of future results. Foreign currency rates of exchange may
adversely affect the value, price or income of any security or related instrument mentioned in this report. For
investment advice, trade execution or other enquiries, clients should contact their local sales representative.
www.vcsc.com.vn | VCSC Viet Capital Securities | 19
See important disclosure at the end of this document
HOLD Contacts
Head office
Bitexco 15th
Floor, 2 Hai Trieu, District 1, HCMC
+84 8 3914 3588
Transaction office
136 Ham Nghi, District 1, HCMC
+84 8 3914 3588
Hanoi branch
109 Tran Hung Dao, Hoan Kiem District, Hanoi
+84 4 6262 6999
Transaction office
236 - 238 Nguyen Cong Tru, District 1, HCMC
+84 8 3914 3588
Research Senior Manager
Ms. Phuong Ton, ext 146
Senior Analyst, Ms. Hoa Dinh, ext 140
Senior Analyst, Ms. Van Ngo, ext 130
Senior Analyst, Mr. Huy Nguyen, ext 139
Senior Analyst, Mr. Anh Nguyen, ext 194
Research Team
+84 8 3914 3588
Analyst, Ms. Ly Vu, ext 147
Analyst, Ms. Trang Nguyen, ext 116
Analyst, Mr. Phap Dang, ext 143
Analyst, Mr. Dinh Nguyen, ext 149
Technical Analyst, Mr. Minh Nguyen, ext 142
Institutional Sales & Brokerage & Foreign Individuals
Head of Institutional Sales
Michel Tosto, M.Sc.
+84 8 3914 3588, ext 102
Vietnamese Sales
Nguyen Quoc Dung
+84 8 3914 3588, ext 136
Retail & Corporate Sales & Brokerage Ho Chi Minh City
Quynh Chau
+84 8 3914 3588, ext 222
Hanoi
Quang Nguyen
+84 4 6262 6999, ext 312
History of Recommendation
Date Recommendation Closing price Target price
www.vcsc.com.vn | VCSC Viet Capital Securities | 20
See important disclosure at the end of this document
HOLD Disclaimer
Analyst Certification of Independence
I, Trang Nguyen, hereby certify that the views expressed in this report accurately reflect my personal views about the subject
securities or issuers. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific
recommendations or views expressed in this report. The equity research analysts responsible for the preparation of this report receive
compensation based upon various factors, including the quality and accuracy of research, client feedback, competitive factors, and
overall firm revenues, which include revenues from, among other business units, Institutional Equities and Investment Banking.
VCSC and its officers, directors and employees may have positions in any securities mentioned in this document (or in any
related investment) and may from time to time add to or dispose of any such securities (or investment). VCSC may have, within the
last three years, served as manager or co-manager of a public offering of securities for, or currently may make a primary market in
issues of, any or all of the entities mentioned in this report or may be providing, or have provided within the previous 12 months,
significant advice or investment services in relation to the investment concerned or a related investment.
APPENDIX I: TERMS FOR PROVISION OF REPORT, DISCLAIMERS AND DISCLOSURE
Copyright 2013 Viet Capital Securities Company VCSC. All rights reserved. This report has been prepared on the basis of
information believed to be reliable at the time of publication. VCSC makes no representation or warranty regarding the completeness
and accuracy of such information. Opinions, estimates and projection expressed in this report represent the current views of the
author at the date of publication only. They do not necessarily reflect the opinions of VCSC and are subject to change without notice.
This report is provided, for information purposes only, to institutional investors and retail clients of VCSC in Vietnam and overseas in
accordance to relevant laws and regulations explicit to the country where this report is distributed, and does not constitute an offer or
solicitation to buy or sell any securities discussed herein in any jurisdiction. Investors must make their investment decisions based
upon independent advice subject to their particular financial situation and investment objectives. This report may not be copied,
reproduced, published or redistributed by any person for any purpose without the written permission of an authorized representative of
VCSC. Please cite sources when quoting.
U.K. and European Economic Area (EEA): Unless specified to the contrary, issued and approved for distribution in the U.K. and the
EEA by VCSC issued by VCSC has been prepared in accordance with VCSCs policies for managing conflicts of interest arising as a
result of publication and distribution of investment research. Many European regulators require a firm to establish, implement and
maintain such a policy. This report has been issued in the U.K. only to persons of a kind described in Article 19 (5), 38, 47 and 49 of
the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (all such persons being referred to as "relevant
persons"). This document must not be acted on or relied on by persons who are not relevant persons. Any investment or investment
activity to which this document relates is only available to relevant persons and will be engaged in only with relevant persons. In other
EEA countries, the report has been issued to persons regarded as professional investors (or equivalent) in their home jurisdiction.
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distribute this material to members of "the public" as determined in accordance with section 3 of the Securities Act 1978. The recipient
of this material must not distribute it to any third party or outside New Zealand without the prior written consent of VCSC. Canada:
The information contained herein is not, and under no circumstances is to be construed as, a prospectus, an advertisement, a public
offering, an offer to sell securities described herein, or solicitation of an offer to buy securities described herein, in Canada or any
province or territory thereof. Any offer or sale of the securities described herein in Canada will be made only under an exemption from
the requirements to file a prospectus with the relevant Canadian securities regulators and only by a dealer properly registered under
applicable securities laws or, alternatively, pursuant to an exemption from the dealer registration requirement in the relevant province
or territory of Canada in which such offer or sale is made. The information contained herein is under no circumstances to be construed
as investment advice in any province or territory of Canada and is not tailored to the needs of the recipient. To the extent that the
information contained herein references securities of an issuer incorporated, formed or created under the laws of Canada or a
province or territory of Canada, any trades in such securities must be conducted through a dealer registered in Canada. No securities
commission or similar regulatory authority in Canada has reviewed or in any way passed judgment upon these materials, the
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