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RongViet Securities - A First Look at 2017

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Despite turbulences affecting the economy, listed companies, and investors’ confidence, the stock market of Vietnam has delivered an impressive gain during 2016. The unpredictable flows for funds, and the speed at which Vietnam’s economy and market earnings will grow amid great uncertainties, will determine the stock market’s movement in 2017.

Access to this presentation has been made possible through "Sao Bien. Room for Education", an Austrian-based non-profit organization and cooperation partner of Viet Dragon Securities.

Reprinted with the permission of Viet Dragon Securities. Not for US investors.

Veröffentlicht in: Wirtschaft & Finanzen
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RongViet Securities - A First Look at 2017

  1. 1. A First Look at 2017 Please see the second page for additional important disclosures. Viet Dragon Securities Corp. (“VDSC”) is a foreign broker-dealer unregistered in the USA. VDSC research is prepared by research analysts who are not registered in the USA. VDSC research is distributed in the USA pursuant to Rule 15a-6 of the Securities Exchange Act of 1934 solely by Rosenblatt Securities Inc, an SEC registered and FINRA-member broker-dealer
  2. 2. DISCLAIMER: This research report was prepared by Viet Dragon Securities Corp. (“VDSC”), a company authorized to engage in securities activities in Vietnam. VDSC is not a registered broker-dealer in the United States and, therefore, is not subject to U.S. rules regarding the preparation of research reports and the independence of research analysts. This research report is provided for distribution to “major U.S. institutional investors” in reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”). Any U.S. recipient of this research report wishing to effect any transaction to buy or sell securities or related financial instruments based on the information provided in this research report should do so only through Rosenblatt Securities Inc., 20 Broad Street 26th Floor, New York NY 10005, a registered broker dealer in the United States. Under no circumstances should any recipient of this research report effect any transaction to buy or sell securities or related financial instruments through VDSC. Rosenblatt Securities Inc. accepts responsibility for the contents of this research report, subject to the terms set out below, to the extent that it is delivered to a U.S. person other than a major U.S. institutional investor. The analyst whose name appears in this research report is not registered or qualified as a research analyst with the Financial Industry Regulatory Authority (“FINRA”) and may not be an associated person of Rosenblatt Securities Inc. and, therefore, may not be subject to applicable restrictions under FINRA Rules on communications with a subject company, public appearances and trading securities held by a research analyst account. 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Neither VDSC nor any of its directors, officers, employees or agents shall have any liability, however arising, for any error, inaccuracy or incompleteness of fact or opinion in this research report or lack of care in this research report’s preparation or publication, or any losses or damages which may arise from the use of this research report. VDSC may rely on information barriers, such as “Chinese Walls” to control the flow of information within the areas, units, divisions, groups, or affiliates of VDSC. Investing in any non-U.S. securities or related financial instruments (including ADRs) discussed in this research report may present certain risks. The securities of non-U.S. issuers may not be registered with, or be subject to the regulations of, the U.S. Securities and Exchange Commission. Information on such non-U.S. securities or related financial instruments may be limited. Foreign companies may not be subject to audit and reporting standards and regulatory requirements comparable to those in effect within the United States. The value of any investment or income from any securities or related financial instruments discussed in this research report denominated in a currency other than U.S. dollars is subject to exchange rate fluctuations that may have a positive or adverse effect on the value of or income from such securities or related financial instruments. Past performance is not necessarily a guide to future performance and no representation or warranty, express or implied, is made by VDSC with respect to future performance. Income from investments may fluctuate. The price or value of the investments to which this research report relates, either directly or indirectly, may fall or rise against the interest of investors. Any recommendation or opinion contained in this research report may become outdated as a consequence of changes in the environment in which the issuer of the securities under analysis operates, in addition to changes in the estimates and forecasts, assumptions and valuation methodology used herein. No part of the content of this research report may be copied, forwarded or duplicated in any form or by any means without the prior
  3. 3. VIETNAM 2017 MACRO OUTLOOK: Rising Challenges STOCK MARKET: Our Outlook for 2017 INVESTMENT THEMES: Our Updated Stock Picks for 2017 3
  4. 4. Economic Outlook: We forecast that Vietnam’s real GDP will grow by 6.58% in 2017, higher than the market consensus of 6.3% and 2016’s growth rate of 6.25%. The key rationales are: • We expect to see resilience in manufacturing and consumption • The recovery of oil prices and agriculture should positively affect GDP growth • Without a meaningful rise in protectionism, led by the US, we could see exports continue to grow, in line with the recovery of global trade Rising Challenges: • Limited support from fiscal policy as public debt will reach its limit of 65% of GDP • Monetary policy continues to deal with many economic puzzles, including o Controlling inflation and the depreciation of the dong o Keeping interest rates low to support the private sector o Putting more credit screening regulations in place for households and real estate loans • Global headwinds: The trajectory of US and China’s business cycles (FED rate hikes, RMB depreciation vs. stronger dollar, more trade barriers) Macro Themes in 2017: Theme 1 : Riding the Commodity Bull Market Theme 2 : Trade Barriers – WillVietnam be Hurt? Theme 3 : SOE Reforms Special Topic : China – One Belt One Road Strategy 4
  5. 5. Fiscal Policy Monetary Policy  A high public debt ratio will lead to a more restrictive fiscal policy, hindering the ability to support the economy through the fiscal channel  FX debt repayment is in the pipeline, which will trigger temporary shocks in the currency market during 2017  In the near term, there is a need to use privatization revenue to reduce debt  Monetary policy makers are set to prepare for gradual FED rate hikes and the recovery of commodity prices over the coming years  The SBV is unlikely to raise interest rates in 2017  Higher FX reserves provide the SBV with a buffer against capital outflows and speculation on the currency Sources: MoF, Worldbank, RongViet Research, * The new method: Excluding principal repayment in budget deficit calculation (Law of Budget 2015 will be effective in 2017) High Debt Repayment Obligations in 2017 Budget Deficit will Remain Under New Law 0 50000 100000 150000 200000 250000 300000 2011 2012 2013 2014 2015 2016E 2017F billion VND Interest payment Principal repayment 0% 2% 4% 6% 8% 2011 2012 2013 2014 2015 2016E 2017F %GDP New Old 5
  6. 6. MACRO KEY DEBATES RISKS • Will inflation be a concern in 2017? • Where does monetary policy go from here? o High M2/GDP ratio is not triggering concerns for money oversupply and inflation o No policy interest raise • If US rates rise, how will the SBV react? • The dong’s depreciation against USD and price adjustments of public goods & services • Upside risks from the recovery of oil prices • NPL issues • A faster pace of FED rate hikes 0 50 100 150 200 250 2000M1 2001M1 2002M1 2003M1 2004M1 2005M1 2006M1 2007M1 2008M1 2009M1 2010M1 2011M1 2012M1 2013M1 2014M1 2015M1 2016M1 Commodity Recovery 0 50 100 150 200 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 % Record high Credit/GDP M2/GDP 0 0.5 1 1.5 2 2.5 3 Percent Potential Fed Funds Rates 6 Sources: IMF, SBV, Bloomberg, RongViet Research
  7. 7. Main Drivers of CPI in 2017 2017 Outlook  We expect to see CPI rise to 6% in 2017, above the government’s target of 4%  Historically, a 20% increase in oil prices caused a 1% rise in inflation  The dong’s depreciation against the USD and price adjustments of public goods & services (electricity, water) poses risks in our opinion. Sources: GSO, IMF, RongViet Research 2016 CPI Breakdown (%) The Recovery of Commodity Prices Moderate Inflation In 2017 0 50 100 150 200 250 2000M1 2000M9 2001M5 2002M1 2002M9 2003M5 2004M1 2004M9 2005M5 2006M1 2006M9 2007M5 2008M1 2008M9 2009M5 2010M1 2010M9 2011M5 2012M1 2012M9 2013M5 2014M1 2014M9 2015M5 2016M1 2016M9 1-1.5% 1.0% 0.5% 0.0% 0.2% 0.4% 0.6% 0.8% 1.0% 1.2% 1.4% Healthcare (Up 30-50%) Transport (Oil up 20%) Education (Up 10%) Contribution to CPI 7
  8. 8. Liquidity Gap in 2016 was at its Lowest Level in 2013-2016 2017 Outlook  M2 stock and M2/GDP ratios reached an all-time high in 2016, but this ratio is not a convincing indicator of money oversupply, which we believe is not a major source of concern for inflation in 2017.  Credit growth is in line with key sectors’growths, and the SBV is unlikely to raise interest rates in 2017. Instead, they should be ready to cool the credit boom in other sectors (such as consumer spending and real estate). Sources: WB, SBV, RongViet Research, Liquidity gap = ∆M2 - ∆ Net G-bond issues - ∆ Credit M2/GDP and Credit/GDP Reached an All-time High Credit by sectors & CAGR growth 2012-2016 Where Does Monetary Policy Go From Here? 0 1000000 2000000 3000000 4000000 5000000 01/2013 03/2013 05/2013 07/2013 09/2013 11/2013 01/2014 03/2014 05/2014 07/2014 09/2014 11/2014 01/2015 03/2015 05/2015 07/2015 09/2015 11/2015 01/2016 03/2016 05/2016 07/2016 09/2016 billion VND Retail & Transportation +11.3% Manufacturing & Construction +9.0% Agriculture +16.2% Others +23.8% 0 20 40 60 80 100 120 140 160 180 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016E % Credit/GDP M2/GDP 0 50000 100000 150000 200000 250000 -200000 0 200000 400000 600000 800000 1000000 1200000 2013 2014 2015 2016E billion VND Credit Net G-bond issues M2 Liquidity gap (right axis) 8
  9. 9. Reasons to Keep Easing Vietnam Government Bond Rate • Public debt in Vietnam is less exposed to Fed rate hikes because it is more reliant on domestic borrowings now (compared to 2011) • Because of budget constraints, Vietnam is much more dependent on monetary policy to support economic growth • Keep government borrowing costs at a low level Foreseeable Risks in the Medium Term • Higher inflation pressure • Lending criteria tightens and borrowing costs rise • High vulnerability to FX movements Sources: Bloomberg, RongViet Research A Gradual Pace of Fed Rate Hikes in 2017 External Debt/Total Debt Fed Rate Hikes – Headwind For Monetary Policy 76% 74% 68% 64% 69% 71% 2011 2012 2013 2014 2015 2016E0 0.5 1 1.5 2 2.5 3 01/12/2016 01/09/2017 01/06/2018 01/03/2019 01/12/2019 Percent Bloomberg Weighted Average of Federal Reserve Policy Rate Forecasts (Upper Bound) OIS Implied Fed Funds Rates 0 2 4 6 8 10 12 2012 2013 2014 2015 2016 1Y 3Y 5Y 9
  10. 10. MACRO KEY DEBATES RISKS • Potential Outcomes of Trump‘s anti-globalization agenda • Vietnam’s exports outlook (in short and medium term) • FDI flow is not likely to decline in the medium term • Vietnam is a potential winner if US imports from China decline • More uncertainties under the Trump presidency • Weakness in global trade • Less support from the FDI sector • Decline in Macro Stability 0 10 20 30 40 50 60 70 80 90 100 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 Vietnam Exports (% of GDP) 10Sources: zerohedge, GSO, RongViet Research
  11. 11. Trade Deficit of the US (2000-2015) Decomposition of US Trade Deficit (%) Sources: Deustche Bank, RongViet Research How a Trump Presidency Could Harm Vietnam’s Trade Trump’s Plan Potential Outcomes (1) Withdraw US from TPP: There is no chance for the TPP to be approved under Trump’s administration. (2) Raise trade barriers for US trade partners: A 20% tax on imported goods, a 35% import tariff on Mexico and a 45% import tariff on China, as well as NAFTA renegotiation. (3) Bring jobs back to the USA: 35% tax on US companies that move jobs overseas. (1) Bilateral trade deals or new FTAs (without US) are feasible (2) Easier said than done: China might retaliate (3) A damage to the global supply chain: FDI investors should consider the negative impacts on their businesses. China 50% Germany 10% Japan 9% Mexico 8% Korea 4% Italia 4% India 3% Others 12% 0 1 2 3 4 5 6 7 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 %GDP vs. China vs. others 11
  12. 12. Commodity-Linked Products Export Growth (2016) 2017 Outlook  Growth momentum will remain intact in the FDI sector, and trade barriers are not likely to hurt Vietnam’s exports in the near term.  A commodity price recovery will support exports of the domestic sector, as commodity-linked products accounted for more than 30% of total domestic exports.  We expect a 9% growth in exports (higher than the Government’s target of 6-7%), and the trade deficit is expected to be ~$2 billion in 2017. Sources: GSO, Customs, FII, RongViet Research *Positive growth due to an >35% increase in volume Vietnam Exports: Positive Growth In the Short-run Vietnam Exports Dependency Growth Momentum will Remain Intact 55% 56% 62% 64% 61% 63% 68% 70% 2013 2014 2015 2016 % Non-processing exports % FDI exports 149% -20% -10% 0% 10% 20% 30% 40% 50% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016E 2017F FDI implemented capital FDI exports growth Hope from TPP Rank: 4 Rank: 9 Rank: 12 Rank: 7 Rank: 6 Rank: 11 -60% -40% -20% 0% 20% 40% 0 2 4 6 8 10 12 14 YoY Growth Domestic Exports (Ranking in value) Rubber Cashew Rice Crude oil Coffee* Pepper* 12
  13. 13. FDI Flow Is Not Likely To Diminish In the Medium Term 116 127 137 104 180 155 68 99 125 140 156 179 268 280 281 321 321 0 50 100 150 200 250 300 350 Bangladesh Myanmar Pakistan Cambodia Vietnam India Indonesia Malaysia Thailand Philippines China $ Monthly Minimum Wage in the Textile industry (2016) Sources: ShengLu, BDG Asia, RongViet Research Potential protectionism is not likely to decrease FDI flow into Vietnam because: Three Electronics Clusters in Vietnam  FDI in Vietnam has flowed mostly into the manufacturing sector (59% of total capital) thanks to not only the TPP but also low labor costs, and macroeconomic and political stability.  In China, net FDI is expected to be negative ($100-150 bn per year) in 2016-2018. Vietnam is definitely a potential destination for China’s FDI outflow but the reallocation of production can only take place over time.  Korea and Japan (not US) are the two major FDI investors in Vietnam, who are not likely to be aligned on broad-based protectionist measures.  Without the TPP, Vietnam‘s further integration in the global economy remains (Vietnam signed FTAs with 52 nations across the globe, and some important FTAs are under negotiation (EU-Vietnam FTA, RCEP…). 13
  14. 14. The Triumph of Hope Over Fear 63% 12% 20% 17% 6% 31% 82% 5% 20% 32% 24% 63% 61% 63% 39% 0% 20% 40% 60% 80% 100% Leather products Chemicals Paper Rubber Precious metal products Plastics Toys Automobile Steel products Electrical machinery Wood products Computers Telephones Footwear Apparel China's share in US's imports 0% 0% 0% 0% 1% 1% 1% 2% 2% 5% 7% 8% 11% 12% 30% 0% 5% 10% 15% 20% 25% 30% 35% Leather products Chemicals Paper Rubber Precious metal products Plastics Toys Automobile Steel products Electrical machinery Wood products Computers Telephones Footwear Apparel Share in Vietnam's exports Potential Winners if US Imports from China Decline Industries that US will likely place high priorities in trade war Expectations if the US only targets products shipped directly from China:  If US imports from China decline and the vacuum is filled by other exporters, Vietnam could potentially benefit the most  Wait to Benefit: Electrical machinery, telephones, and computers  Ready to Benefit: Textile, leather, footwear, and toys Sources: Deutsche Bank, Customs, RongViet Research, Data as of 2015 14
  15. 15. 0 50 100 150 200 250 2008 2009 2010 2011 2012 2013 2014 2015 2016-2020 Number of Privatized SOEs 2008-2020F MACRO KEY DEBATES RISKS • High public debt will catalyze further privatization efforts • SOE reforms: Opportunities vs . Challenges • SOE reforms across Vietnam and Asia • Potential IPOs and State divestments in 2017 • Political risks • Corporate governance reforms disappoint 15 Source: RongViet Research
  16. 16. Challenges/Negative Movements (-) Equitization Plan for 564 SOE companies (2011-2016) (-) The State continues to hold controlling stakes (63% - under the plan), and the governance reforms and improved efficiency might never materialize (-) Equitization agenda has not been conducted on time, despite previous optimism and the recognized necessity of this agenda (-) Less accessible for foreign investors (-) Post IPO restructuring * Cartography for national defense and security; Electricity transmission; Railway infrastructure management; Air traffic and rescue services; Public post; Management and exploitation of irrigation systems; Policy credit for economic and social development; Safety in banking system; Lottery Sources: GSO, RongViet Research, Fiinpro Partial Privatization: Still Challenging Opportunities/ Positive Movements (+) High Public Debt Pushes Privatization Further (+) The State will only retain 100% ownership in 12 sectors*, creating diversified investment opportunities for many investors (+) More efforts to push companies that had an IPO into listing on stock exchanges (Circular 115/2016/TT-BTC) , which is considered as a way to promote transparency of these companies (+) The divestment of profitable industries such as dairy and breweries has progressed, with the Government likely to sell stakes in Vinamilk, Sabeco, and Habeco in 2017 63% 17% 2% 1% 17% State Strategic investors Labors Union IPO 50.100% 50.800% 54.500% 59.600% 62.200% 64.600% 65.200% 45% 50% 55% 60% 65% 70% 2011 2012 2013 2014 2015 2016E 2017F %GDP 16
  17. 17. Vietnam China Malaysia Indonesia  Governance  Equitization plan  Loosening the State’s authority - Non-core business divestment - Increasing transparency - Mixed ownership  Asset restructuring  Governance  Zombie SOEs - Loosening the State’s authority - Regrouping SOEs by function  Control SOEs through a holding company (Khazanah)  Governance and Operational efficiency - Establish a holding company  State asset sales Sources: HSBC, RongViet Research, - progressing,  Cautious  Finished (all or in part) SOE Reforms Across Asia Vietnam: High SOE Assets as % of GDP How are SOEs restructured?  Vietnam and China: a decentralized model (Ministry or similar organization)  Malaysia, Indonesia, and Thailand: the Temasek model (Singapore) -20% 10% 40% 70% 100% 130% 160% China Vietnam Malaysia Indonesia Thailand India Singapore Srilanka Korea Taiwan Philippines % GDP 17
  18. 18. IPO – State Divestment in 2017 Natural Rubber Q1/2017 Oil&Gas Q3/2017 Utility Agriculture Construction Utility Telecom A holding company Consumer Goods 04/2017 Consumer Goods Telecom Consumer Goods 18
  19. 19. China’s economic story:  Growth leading up to 2007 created a phenomenal trade surplus level  After financial crisis: • Trade surplus fell sharply • Internal investment stimulus led to a housing crash and overcapacity in manufacturing Solution: AIIB (Asian Infrastructure Investment Bank) RCEP (Regional Comprehensive Economic Partnership) • Supports infrastructure development in Asia – Pacific • China as a founding member with 50% capital contribution • 57 expected founding partners • $100 billion in capital (~2/3 ADB, ~½ WB) • 46% of the population • $17 trillion GDP • 40% global trade turnover • ASEAN + China, Japan, Korea, India, Australia, and New Zealand 04/2005 01/2006 10/2006 07/2007 04/2008 01/2009 10/2009 07/2010 04/2011 01/2012 10/2012 07/2013 04/2014 01/2015 10/2015 Housing price 10/2016 5/2016 12/2015 7/2015 2/2015 9/2014 4/2014 11/2013 6/2013 1/2013 8/2012 3/2012 10/2011 5/2011 12/2010 7/2010 2/2010 Steel oversupply 01/2002 11/2002 09/2003 07/2004 05/2005 03/2006 01/2007 11/2007 09/2008 07/2009 05/2010 03/2011 01/2012 11/2012 09/2013 07/2014 05/2015 03/2016 China Trade Surplus 19 Source: Bloomberg
  20. 20. AIIB Proposed Project Approved project • India – Energy Power Supply (Co-finance WB) – 28% capital • Kazakhstan – Roads and Highways (Co-Finance WB) • Indonesia – Urban transport and urban water supply (Co- Finance WB) – 25%  36% capital • Oman – Transport/Highway (Co-Finance WB) – 75% capital • Azerbaijan – Energy Supply/Oil and Gas (Co-Finance WB) – 17% capital • Indonesia – Infrastructure upgrade (Co-finance WB) – 12% capital • Tajikistan – Road connectivity (Co-finance EBRD) – 26% capital • Pakistan – National motor way (Co-finance ADB, Department for international development (UK)) – 36.6% capital • Bangladesh – Electric Supply – 63% capital • Myanmar – Energy Supply (Co-finance ADB, IFC) Projects Loan Conditions AIIB ADB • 12 – 15 year term • 3 – 7 year grace period • Interest rate linked to Libor Rate • Commitment fee: 0.25% • Front-end fee: 0.25% • 25 year term • 5 year grace period • Interest rate: 2% per annum • No commitment fee 20
  21. 21. Benefits • Low interest loans for infrastructure investments: o ADB and WB stopped providing ODA to Vietnam since Vietnam has emerged to become a middle-income country o To meet the goal of $300 billion in GDP by 2020 with infrastructure accounting for 10 – 11% of GDP, Vietnam needs roughly $25 - $30 billion/year. Vietnam still faces a shortage of $9 billion/year (compared to $2.1 billion/year a decade ago) Risks • Uncertainty: o Uncertain whether with 50% of capital contribution, China will operate based on a multilateral mechanism other than bilateral mechanism • Efficiency: o Investments from China result in the use of Chinese materials and operating mechanism, low quality technologies and the likely inflow of Chinese labor o Projects are often slow in progress and inefficient o Example: Cat Linh – Ha Dong railroad project: in 2009, the value invested was $586 million. In 2014, the added investment was $250 million • Social and Environmental Impacts: o Environmental and property damage o Example: In Myanmar, investments from China in hydro electrical projects, copper-mining and gas pipelines had to stop because of environmental damage, natural resource losses AIIB 21
  22. 22. RCEP TPP RCEP • 40% of World GDP and 25% trade turnover • US as the pivot • China and India are not members • Built on the developed countries’standards which requires members to follow guidelines on intellectual property and government procurement • 30% of World GDP, 40% of trade turnover, and 46% of the world’s population • ASEAN is the driving force while China supports growth • Pressure on China and India reforms if they want to participate • Simpler and freer rules to support interregional cooperation • Connects the two largest Asian economies, namely China and Japan Tariff reduction/elimination More integration into commercial goods, services and investment 22
  23. 23. Benefits Challenges • Reduced tariffs leads to increased trade • Technology Transfer • More FDI invested in East Asia, especially Vietnam because it has low-labor costs • Improved Supply Chain Management • Benefiting Industries: Agriculture (Rice, Vegetables), Fishery, Textile, Transport and Hospitality • Trade deficit increases, especially with China • Fierce competition with China particularly in trade relations with Japan • Fierce competition from ASEAN countries with similar commercial structures • Industries under fierce competition: Steel, Paper, Banking, and F&B RCEP’s Impacts on Vietnam 23
  24. 24. 2014 2015 2016E 2017F Economic Growth 5.98% 6.68% 6.25% 6.58% Trade Balance (USD B) +1.5 -4.1 +2.5 -2.0 Export Growth 11.6% 8.1% 7.5% 9.0% Import Growth 15.9% 12.0% 3.3% 12.0% Inflation 1.9% 0.6% 5.0% 6.0% Refinancing rate 6.5% 6.5% 6.5% 6.5% M2 Growth 16.0% 14.5% 18.0% 18.0% Credit Growth 12.6% 17.3% 16.5% 16.0% Budget Deficit/GDP 4.7% 4.6% 3.1% 3.5% Exchange Rate 21,405 22,540 22,700 23,200 24 Source: RongViet Research
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  26. 26. 2016 Stock Market Overview 500 530 560 590 620 650 680 710 740 - 50 100 150 200 250 300 04/01 01/02 07/03 04/04 05/05 02/06 30/06 28/07 25/08 23/09 21/10 18/11 Brexit - M2 and credit growth gap continued to widen - VN-Index conquered the 8-year high of 650 pts - Market incidents: TTF, DRH, ATA, JVC - Foreigners switched to net seller VIC, VCB reached all- time high - VNM reached all-time high thanks to FOL news on end July - State capital divestments discussed - ROS listed on HOSE - ETF funds completed their Q3 review - Tick size change ROS getting big enough to distort the Index - BHN listed on UPCOM - Circular 115 requires SOEs to listed on UPCOM within 20 days after IPO - OPEC meeting - SAB listed on HOSE Foreigners net sold VNM after its roadshow - Oil price hit the bottom $28/barrel - GAS traded at VND 30.000/share - Oil price recovered to $45/barrel - GAS traded at VND 60.000/share Foreigners switched to net buyers +15.4 % YTD 26
  27. 27. The driver of market return is PE expansion There is a stark contrast in sector performances Sources: FiinPro, RongViet Research Valuation Multiples are at a Multi-year High! ROE Hardly Improved Between 2012 and 2016 2016 Stock Market Overview 0 5 10 15 20 01/03/2012 06/01/2012 10/22/2012 03/20/2013 08/13/2013 01/02/2014 06/06/2014 10/28/2014 03/27/2015 08/20/2015 01/11/2016 06/09/2016 10/28/2016 0 1 2 3 4 5 PBR PER 5% 10% 15% 20% 25% 30% 01/03/2012 06/01/2012 10/22/2012 03/20/2013 08/13/2013 01/02/2014 06/06/2014 10/28/2014 03/27/2015 08/20/2015 01/11/2016 06/09/2016 10/28/2016 VNINdex HNXINdex 60 80 100 120 140 160 180 4/1/2016 02/22/2016 04/04/2016 05/19/2016 06/30/2016 08/11/2016 09/23/2016 11/04/2016 Tech Industrial O&G Consumer services Healthcare Consumer goods Banks Resources Financials Utilities -10% -5% 0% 5% 10% 15% 20% 25% 30% 35% +/- PE +/- BVPS +/- EPS/BVPS Price return +/- Div 27
  28. 28. -80% -60% -40% -20% 0% 20% 40% 60% 80% 100% Retail Insurance RealEstate Technology Oil&Gas FinancialServices Utilities Travel&Leisure IndustrialGoods&Services Personal&HouseholdGoods Chemicals Banks Automobiles&Parts BasicResources Food&Beverage Media Construction&Materials HealthCare Dividend Yield Earrnings Growth P/E Change Gain 2016 Overview for Various Industries Sources: FiinPro, RongViet Research 28
  29. 29. Overview for Various Industries Market Cap (billion VND) +/- Price 1M (%) +/- Price 3M (%) +/- Price YTD (%) +/- Price 12M (%) Trailing PER (x) PBR (x) 12M ROAA (%) 12M ROE (%) Gross profit Margin (%) Net profit margin (%) EBITDA margin (%) Debt /Equity (x) HNX-Index 149,060.7 -0.6 -5.8 0.2 0.0 10.2 0.98 6.64 14.86 24.92 13.15 12.93 0.7 VN-Index 1,367,478.9 -1.1 -0.6 15.4 17.3 15.9 1.97 9.79 17.99 33.37 16.29 18.99 0.5 UPCOM Index 250,727.0 -4.5 0.4 10.6 16.3 56.5 1.52 4.94 9.94 20.84 9.67 22.36 0.7 Consumer goods 387,868.4 -2.5 -5.3 17.1 20.3 14.8 6.1 20.7 29.4 32.8 15.4 19.5 0.5 Industrials 347,152.0 9.1 28.4 55.4 56 18.2 4.0 7.6 14.3 21.5 15.7 23.6 0.6 Banks 311,447.7 -2.6 -6.5 -6.2 -5.9 13.0 1.7 0.8 11.8 53.5 23.1 - - Financials 274,480.4 -2.1 0.7 8.3 10.6 25.3 2.7 2.7 7.4 35.0 17.8 18.1 0.7 Utilities 182,691.7 1.5 5.4 65.9 52.8 20.1 2.7 8.0 12.1 19.9 11.5 20.1 0.4 Resources 138,665.0 2.3 -2.5 13.8 14.1 10.5 2.0 9.0 16.9 13.4 1.7 12.6 0.3 Consumer services 55,983.9 -0.4 -4.1 42.6 39.5 19.7 4.4 12.9 28.9 21.7 9.8 10.4 0.7 Technology 25,915.0 0.5 -2.9 9.3 8.5 10.2 1.9 7.3 16.7 20.2 6.0 16 0.7 Healthcare 23,576.1 -0.2 -1.7 61.1 61.1 24.0 3.0 13.6 21.4 39.3 10.6 16.8 0.4 Oil & Gas 18,637.1 3.9 -6.4 1.4 -13.1 14.7 0.7 2.1 4.8 8.9 2.2 9.7 0.3 29Source: RongViet Research
  30. 30. 30 2017 Key Forecasts #1 There will be a mean-reversion in market valuation #2 Funds flows are not supportive in the short term #3 Earnings growth will sustain despite strong dilution #4 Sentiment will consolidate, but will do so cautiously
  31. 31. 10.6% 7.6% -2.7% 10.6% 19.5% 8.0% Share dilution NPAT growth EPS growth Low scenario High scenario Two Scenarios of 2017 Market Performance VNIndex Historical Trailing PER 2017 Market Performance Breakdown * Based on the 100 largest stocks, representing 87% of total market cap -5 0 5 10 15 20 25 7 8 9 10 11 12 13 14 15 16 17 Vietnam China HongKong India Taiwan Korea Malaysia Indonesia Philippines Singapore Thailand 2017E P/E 2017E Earning growth (%) Vietnam Stock Market Relative Valuations 2017 P/E forecast PER 2017 = 15x New listings PER >15x Market Upgrade Privati- zation 0 5 10 15 20 25 Jan-09 Jun-09 Nov-09 Apr-10 Sep-10 Feb-11 Jul-11 Dec-11 May-12 Oct-12 Mar-13 Aug-13 Jan-14 Jun-14 Nov-14 Apr-15 Sep-15 Feb-16 Jul-16 Dec-16 As the PE goes higher, the chances of mean reversion also increases! Sources: RongViet Research, JPMorgan Source: RongViet Research 31
  32. 32. Market Valuation: Not cheap, but not Expensive Yet YTD returns PE PB EV/EBITDA VNIndex 15.4% 15.9 2,0 10.7 Upcom Index 10.6% 56.5 1,5 12.3 HNXIndex 0.2% 10.2 1,0 6.8 Pakistan 42.1% 12.1 2.0 10.4 Sri Lanka -5.7% 12.3 1.41 7.2 Thailand 22.6% 16.7 1.8 10.8 Singapore 6.3% 12.5 1.2 13.7 Indonesia 17.7% 24.5 2.4 12.0 Malaysia -0.1% 17.0 1.7 10.5 Philippines 3.1% 19.1 2.3 12.5 Laos -9.0% 9.4 0.9 12.9 Source: Bloomberg Components of index performance Source: RongViet Research EPS growth (8%) Dividend (3%) P/E change (-4%) Total market return (7%) 32
  33. 33. A Wind of Change from the UPCOM 0% 5% 10% 15% 20% 25% 0 200,000 400,000 600,000 800,000 1,000,000 1,200,000 1,400,000 1,600,000 1,800,000 2,000,000 2010 2011 2012 2013 2014 2015 YTD 2016 HSX Foreign marcap Full marcap % of full marcap % Participation 0% 5% 10% 15% 20% 0 50,000 100,000 150,000 200,000 2010 2011 2012 2013 2014 2015 YTD 2016 HNX Foreign marcap Full marcap % of full marcap % Participation 0% 2% 4% 6% 8% 0 50,000 100,000 150,000 200,000 250,000 300,000 2010 2011 2012 2013 2014 2015 YTD 2016 UPCOM Foreign marcap Full marcap % of full marcap % Participation • Foreign ownership in HSX and HNX has stabilized since 2014 • Participation rates in the 2 main exchanges have increased slightly • Foreign investors have increased their positions in the UPCOM over the last 2 years UPCOM stocks may continue to emerge as the linkage between IPO and listings will be strengthened by Circular 115/2016/TT-BTC 33 Source: RongViet Research
  34. 34. FOL Lifting is Still on the Way Only 28 companies have increased the FOL or have plans to do so Tickers Notes Status Tickers Notes Status SSI Announced lifting FOL to 100%. Done SMC FOL lifting to 100% approved at AGM Pending EVE Announced lifting FOL to 100%. Done HHS FOL lifting to 100% approved at AGM Pending VHC Announced lifting FOL to 100% Done FCN FOL lifting to 100% approved at AGM Pending PAN Announced lifting FOL to 100% Done VDS FOL lifting to 100% approved at AGM Pending DMC Announced lifting FOL to 100% Done TSC FOL lifting to 100% approved at AGM Pending FCN Announced lifting FOL to 100% Done VNE FOL lifting to 100% approved at AGM Pending GTN Announced lifting FOL to 100% Done BMP FOL lifting to 100% approved at AGM Pending KMR Announced lifting FOL to 100% Done VIX FOL lifting to 100% approved at AGM Pending FID Announced lifting FOL to 100% Done ASP FOL lifting to 100% approved at AGM Pending CVT Announced lifting FOL to 100% Done HQC Announced increase of the FOL to 60% Pending VNM Announced lifting FOL to 100% Done TDH Announced increase of the FOL to 60% Pending CII Announced lifting FOL to 70% Done HCM Unofficial information about 100% FOL lifting Unofficial BIC Announced lifting FOL to 49% Done TCM Unofficial information about 100% FOL lifting Unofficial BSI Announced lifting FOL to 49% Done Source: RongViet Research MBB Announced lifting FOL to 20% Done 34
  35. 35. Ticker Current FOL Possible FOL Expected foreign inflows (best cases) (VND B) MSN 48.1% 100% 24,535.76 MWG 49.0% 100% 11,587.11 CTD 49.0% 100% 6,749.05 PVD 49.0% 100% 4,217.48 KBC 49.0% 100% 3,497.83 KDC 49.0% 100% 3,293.46 DCM 49.0% 100% 2,915.94 KDH 49.0% 100% 2,410.67 DRC 49.0% 100% 1,938.70 NLG 49.0% 100% 1,616.27 CAV 49.0% 100% 1,307.23 SJS 49.0% 100% 1,242.58 HVG 40.5% 100% 1,223.36 NCT 49.0% 100% 1,120.94 CSM 49.0% 100% 1,022.63 IJC 49.0% 100% 1,125.71 BFC 49.0% 100% 865.92 LIX 49.0% 100% 941.87 CSV 49.0% 100% 606.38 STK 49.0% 100% 468.08 TMT 49.0% 100% 322.55 HTL 49.0% 100% 324.36 DGW 49.0% 100% 330.91 Source: StoxPlus List of companies that can legally increase FOL to 100% FOL Lifting is Still on the Way 35
  36. 36. ETFs have Fallen out of Favor VNM ETF YTD return: -9.08% FTSE ETF YTD return: 0.14% VNIndex: +17.76% Tracking difference: -17.62% Tracking difference: -26.84% 36
  37. 37. ETFs have Fallen out of Favor Net outflow: - Year-to-date: -78.53 mn USD Net outflow: - Year-to-date: -71.01 million USD -10 -8 -6 -4 -2 0 2 4 01-12-15 01-01-16 01-02-16 01-03-16 01-04-16 01-05-16 01-06-16 01-07-16 01-08-16 01-09-16 01-10-16 01-11-16 01-12-16 mnUSD Db x-trackers Vietnam FTSE ETF -8 -6 -4 -2 0 2 4 01-12-15 01-01-16 01-02-16 01-03-16 01-04-16 01-05-16 01-06-16 01-07-16 01-08-16 01-09-16 01-10-16 01-11-16 01-12-16 mnUSD VanEck Vectors Vietnam ETF Total outflows = -$149.54 million (~23% of beginning NAV) – The largest net outflows since inception! 37Source: RongViet Research
  38. 38. Market Status Upgrade is Nowhere in Sight C. Market Accessibility Assessment Vietnam C.1 Openness to foreign ownership Investor qualification requirement ++ Foreign ownership limit (FOL) level -/? Foreign room level -/? Equal rights to foreign investors -/? C.2 Ease of capital inflows/ outflows Capital flow restriction level ++ Foreign exchange market liberalization level -/? C.3 Efficiency of operational framework Market entry Investor registration & account set up -/? Market organization Market regulations + Competitive landscape Information flow -/? Market infrastructure Clearing and Settlement -/? Custody ++ Registry/ Depository ++ Trading ++ Transferability -/? Stock lending -/? Short selling -/? Stability of institutional framework + Hardly any changes have been made to put Vietnam among other emerging markets MSCI“C group”criteria revision 2015 MSCI“C group”criteria revision 2016 C. Market Accessibility Assessment Vietnam C.1 Openness to foreign ownership Investor qualification requirement ++ Foreign ownership limit (FOL) level -/? Foreign room level -/? Equal rights to foreign investors -/? C.2 Ease of capital inflows/ outflows Capital flow restriction level ++ Foreign exchange market liberalization level -/? C.3 Efficiency of operational framework Market entry Investor registration & account set up -/? Market organization Market regulations + Competitive landscape Information flow -/? Market infrastructure Clearing and Settlement -/? Custody ++ Registry/ Depository ++ Trading ++ Transferability -/? Stock lending -/? Short selling -/? Stability of institutional framework + 38
  39. 39. Foreigners’activities since 2007 Foreigners’activities in 2016 (as of 09/12/2016) Source: RongViet Research Source: RongViet Research - 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 -200 -100 0 100 200 300 400 500 Thg1-07 Thg8-07 Thg3-08 Thg10-08 Thg5-09 Thg12-09 Thg7-10 Thg2-11 Thg9-11 Thg4-12 Thg11-12 Thg6-13 Thg1-14 Thg8-14 Thg3-15 Thg10-15 Thg5-16 Thg12-16 Net Value(mn $) Accumulate value (mn$) Foreign Trading Activity Drops in 2016 (325) (275) (225) (175) (125) (75) (25) 25 (200) (180) (160) (140) (120) (100) (80) (60) (40) (20) - 20 04/01 22/02 04/04 19/05 30/06 11/08 23/09 04/11 Net bought/ sold (mn $) Accumulated value (mn $) From 2007 to 2015, foreigners accumulated 3,742 million USD in Vietnamese stocks However, by 08/12/2016, the accumulative value has been reduced to only 3,397 million USD  That means foreign investors have withdrawn a staggering 345 million USD from Vietnam stock market in 2016 !! 39
  40. 40. Capital inflows may continue to increase (1) Monetary easing (2) More large-caps will list on the stock market (3) Relaxation of margin lending requirements for newly listed and UPCOM stocks (4) Room to increase margin lending is still ample 40
  41. 41. 2017 SECTOR RATINGS Growth drivers Risk SUM Cyclicality Regulation Input cost Exports Domestic demand SUM Competition Commodities price risk Interest rate risk FX risk Automobile & Parts + + - + MH MH MH M MH Banking + + - + MH MH N MH N Basic resources +++ + - + + MH MH H M M Chemicals ~ + - M M H N N Construction & Building materials ++ + + - + MH MH M M N Financial services + + M M N H N Food & Beverages + - + + MH MH M N M Healthcare ~ - + MH MH M N M Industrial goods & Services ++ + + - + MH MH M MH MH Insurance + + MH MH N H N Oil &Gas + + N N H N N Personal & Household goods - - - + H MH M M H Real estate ++ + + - + H H N H M Retailing ++ + + N MH N M N Technology ~ M MH N M M Travel & Tourism ~ - + M H N N M Utilities + + N N N N MH Seriously negative - - Negative - Neutral ~ Positive + Very positive + + N Negligible M Moderate MH Moderate to High H High 41Source: RongViet Research
  42. 42. Historical 3-month Rolling P/E Financial Services Insurance Real Estate Retailing Personal & Household Goods Food & Drinks 0 2 4 6 8 10 12 14 16 02/06/2012 05/21/2012 08/29/2012 12/10/2012 03/29/2013 07/15/2013 10/24/2013 02/13/2014 05/30/2014 09/11/2014 12/22/2014 04/13/2015 07/28/2015 11/06/2015 02/24/2016 06/08/2016 09/19/2016 0 5 10 15 20 25 30 35 40 02/25/2013 05/20/2013 08/06/2013 10/24/2013 01/13/2014 04/11/2014 07/03/2014 09/23/2014 12/10/2014 03/10/2015 06/02/2015 08/19/2015 11/06/2015 01/26/2016 04/21/2016 07/12/2016 09/29/2016 0 5 10 15 20 25 30 02/06/2012 05/21/2012 08/29/2012 12/10/2012 03/29/2013 07/15/2013 10/24/2013 02/13/2014 05/30/2014 09/11/2014 12/22/2014 04/13/2015 07/28/2015 11/06/2015 02/24/2016 06/08/2016 09/19/2016 0 5 10 15 20 25 30 35 40 45 02/06/2012 05/21/2012 08/29/2012 12/10/2012 03/29/2013 07/15/2013 10/24/2013 02/13/2014 05/30/2014 09/11/2014 12/22/2014 04/13/2015 07/28/2015 11/06/2015 02/24/2016 06/08/2016 09/19/2016 0 2 4 6 8 10 12 14 16 02/06/2012 05/15/2012 08/17/2012 11/22/2012 03/07/2013 06/17/2013 09/20/2013 12/25/2013 04/11/2014 07/21/2014 10/27/2014 02/02/2015 05/21/2015 08/25/2015 11/30/2015 03/11/2016 06/20/2016 09/23/2016 0 5 10 15 20 25 02/06/2012 05/15/2012 08/17/2012 11/22/2012 03/07/2013 06/17/2013 09/20/2013 12/25/2013 04/11/2014 07/21/2014 10/27/2014 02/02/2015 05/21/2015 08/25/2015 11/30/2015 03/11/2016 06/20/2016 09/23/2016 42
  43. 43. Historical 3-month Rolling P/E Oil & Gas Basic Resources Utilities Chemicals Construction & Materials Automobile & Parts 0 5 10 15 20 25 30 35 02/06/2012 05/15/2012 08/17/2012 11/22/2012 03/07/2013 06/17/2013 09/20/2013 12/25/2013 04/11/2014 07/21/2014 10/27/2014 02/02/2015 05/21/2015 08/25/2015 11/30/2015 03/11/2016 06/20/2016 09/23/2016 0 2 4 6 8 10 12 14 16 02/06/2012 05/15/2012 08/17/2012 11/22/2012 03/07/2013 06/17/2013 09/20/2013 12/25/2013 04/11/2014 07/21/2014 10/27/2014 02/02/2015 05/21/2015 08/25/2015 11/30/2015 03/11/2016 06/20/2016 09/23/2016 0 5 10 15 20 25 30 02/06/2012 05/15/2012 08/17/2012 11/22/2012 03/07/2013 06/17/2013 09/20/2013 12/25/2013 04/11/2014 07/21/2014 10/27/2014 02/02/2015 05/21/2015 08/25/2015 11/30/2015 03/11/2016 06/20/2016 09/23/20160 5 10 15 20 25 30 35 40 45 09/15/2014 10/31/2014 12/18/2014 02/06/2015 04/03/2015 05/27/2015 07/14/2015 08/31/2015 10/19/2015 12/04/2015 01/22/2016 03/17/2016 05/09/2016 06/24/2016 08/11/2016 09/29/2016 11/16/2016 0 2 4 6 8 10 12 14 16 02/06/2012 05/21/2012 08/29/2012 12/10/2012 03/29/2013 07/15/2013 10/24/2013 02/13/2014 05/30/2014 09/11/2014 12/22/2014 04/13/2015 07/28/2015 11/06/2015 02/24/2016 06/08/2016 09/19/2016 0 1 2 3 4 5 6 7 8 9 10 02/06/2012 05/21/2012 08/29/2012 12/10/2012 03/29/2013 07/15/2013 10/24/2013 02/13/2014 05/30/2014 09/11/2014 12/22/2014 04/13/2015 07/28/2015 11/06/2015 02/24/2016 06/08/2016 09/19/2016 43
  44. 44. Historical 3-month Rolling P/E Healthcare Travel & Tourism Technology 0 5 10 15 20 25 30 35 40 45 02/06/2012 05/15/2012 08/17/2012 11/22/2012 03/07/2013 06/17/2013 09/20/2013 12/25/2013 04/11/2014 07/21/2014 10/27/2014 02/02/2015 05/21/2015 08/25/2015 11/30/2015 03/11/2016 06/20/2016 09/23/2016 0 5 10 15 20 25 30 02/06/2012 05/21/2012 08/29/2012 12/10/2012 03/29/2013 07/15/2013 10/24/2013 02/13/2014 05/30/2014 09/11/2014 12/22/2014 04/13/2015 07/28/2015 11/06/2015 02/24/2016 06/08/2016 09/19/2016 0 2 4 6 8 10 12 14 16 02/06/2012 05/15/2012 08/17/2012 11/22/2012 03/07/2013 06/17/2013 09/20/2013 12/25/2013 04/11/2014 07/21/2014 10/27/2014 02/02/2015 05/21/2015 08/25/2015 11/30/2015 03/11/2016 06/20/2016 09/23/2016 44Source: RongViet Research, FiinPro
  45. 45. 45 Our View on Various Sectors
  46. 46. Food & Drinks, FMCG, Retailing, Logistics & Transportation LOW-HANGING FRUIT 46
  47. 47. More Productivity, More Consumption! Total Retail Sales (VND B) Vietnam Household Income Distribution Sources: GSO, RongViet Research Source: Boston Consulting group • Higher productivity & more employment for skilled workers leads to faster income growth and consumption. • Expansion of the“MAC”will result in higher demand for entertainment, recreation and premium goods. • The ability to pass on input price increases depends on the level of competition and each company’s market power. 0 500 1000 1500 2000 2500 3000 3500 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015  434% 47 0 2000 4000 6000 8000 10000 12000 2012 2020 Poor Aspirant Emerging Established Affluent
  48. 48. More Productivity, More Consumption! Road Freight Tonnes Port Throughput (mm tonnes) Sources: GSO, RongViet Research Source: Ministry of Transport • The logistics sector is crucial in ensuring a continuous flow of goods in, out and within the country. • Seaports operators are among the most profitable companies in the market. • TPP or no TPP, trade will continue to grow and FDI will keep on flowing. 722 1189 0 10 20 30 40 50 60 70 0 200 400 600 800 1000 1200 1400 2012 2013 2014 2015f 2016f 2017f 2018f 2019f Road Freight Tonnes (mn) Road freight tonnes-km (bn ton km)  64.7% 0 2 4 6 8 10 12 14 2011 2012 2013 2014 2015 2016E Vietnam Cat Lai Hai Phong 48
  49. 49. Our Top Picks in this Theme Ticker Target price (VND) Current price (VND) Rating Time horizon Financials Valuation Trading 2016 2017 +/- Rev. (%) +/- NPAT (%) +/- Rev. (%) +/- NPAT (%) PBR Cur. (x) PEFR (x) +/- Price 1y (%) 3M Avg. Vol. (shares) 3M Avg. turnover (VND B) MC (VND B) Room (%) Food & Beverages SAB 143,000 141,200 Neutral Long-term 10.9 34.2 8.6 4.8 6.8 22.3 n/a 144,170 17,801 90,549 39.6 VNM 146,000 132,500 Neutral Long-term 17.1 26.0 15.4 9.4 9.4 20.3 37.6 2,098,362 291,329 92,317 52.1 Retailers PNJ 89,600 68,900 Buy Long-term 6.0 221.7 8.0 29.6 4.3 14.9 80.5 140,238 10,149 6,771 - Transportation GMD 30,000 26,950 Accumulate Intermediate- term 5.6 (2.2) 9.9 36.7 0.9 13.4 12.2 529,978 14,628 4,836 19.0 PVT 15,300 12,000 Accumulate Long-term 5.1 13.0 1.2 1.0 1.0 7.8 38.9 830,787 11,228 3,377 24.2 VSC 71,200 55,700 Accumulate Long-term 18.5 (9.0) 17.6 23.0 1.9 11.1 (13.4) 116,612 7,794 2,538 - Source: RongViet Research, as of 08/112/2016 49
  50. 50. Watch List Name Subsector Mar. cap (VND B) Shares Outstanding Trailing PER (x) PBR Cur. (x) ROEA (%) ROAA (%) Current price (VND) 2015 Trailing 12 months +/- Rev. (%) +/- PAT (%) +/- Rev. (%) +/- PAT (%) LIX FMCG 1,817.6 32,400,000 8.9 3.8 43.7 26.5 56,100 124.6 3.0 13.4 20.7 NET FMCG 727.9 22,398,374 7.9 2.4 31.9 22.6 32,500 87.4 (2.5) 13.6 3.3 BHN Food &Beverages 29,940.7 231,800,000 33.7 5.8 15.1 9.2 135,700 6.4 5.1 5.1 6.4 CMF Food &Beverages 1,130.0 8,100,000 20.1 4.7 21.7 10.6 139,500 24.7 14.1 24.7 14.1 MSCC Food &Beverages 40,362.0 538,160,117 14.4 3.6 22.9 16.7 75,000 0.9 (15.3) 9.4 32.3 NCS Food &Beverages 771.1 11,998,630 8.5 4.0 52.6 35.4 64,000 66.5 17.7 17.7 66.5 SVC Retailing 1,039.0 24,975,507 10.9 1.2 8.8 3.3 41,600 86.0 24.7 23.1 (16.8) ACV Transport 90,172.0 2,177,173,236 41.3 3.6 8.3 3.9 41,800 (33.4) 24.8 24.8 (33.4) HAH Transport 892.3 22,939,129 6.9 1.5 26.7 15.9 38,900 26.9 21.9 (11.2) (41.1) HVN Transport 55,239.0 1,227,533,800 18.1 3.4 17.5 2.7 45,000 (4.5) 93.3 8.5 162.0 Source: RongViet Research, as of 08/12/2016 50
  51. 51. Construction and Building Materials, Real estate, Infrastructure, Insurance & Industrials RIPENING FRUIT: 51
  52. 52. Nurturing Growth from the Inside • To boost GDP growth and draw FDI, it is imperative that Vietnam builds more infrastructure. • The development of infrastructure, new household formation and easier financing for house buyers will continue to support house prices and keep the property market buoyant. • Strong backlog and new orders will keep construction and materials businesses growing. Construction Gross Product (VND B) Real Estate Transactions HCMC & Hanoi (units) Sources: GSO, RongViet Research Source: Ministry of Construction 0 200 400 600 800 1000 1200 1400 1600 1800 2000 01/2015 03/2015 05/2015 07/2015 09/2015 11/2015 01/2016 03/2016 05/2016 07/2016 09/2016 Hanoi HCM 0 50 100 150 200 250 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 52
  53. 53. Nurturing Growth from the Inside • Stable interest rates will continue to nurture the manufacturing sector and support expansion plans. • Companies equipped with advanced technology and large market shares will be able to withstand competition and market disruption. • Innovators and market leaders are better positioned to receive incentives. Monthly PMI and IIP (Moving Average) Manufacturing Sector Output (VND T) Sources: GSO, RongViet Research Sources: GSO, Markit 0 100 200 300 400 500 600 700 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 -10 -8 -6 -4 -2 0 2 4 6 8 10 44 46 48 50 52 54 56 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 PMI IP (3m moving average) 53
  54. 54. Nurturing Growth from the Inside • Vietnam’s nonlife insurance market is poised for rapid growth thanks to healthy economic growth, heavy investment in infrastructure and increased consumption of the private sector. • Vietnam has low gross premium per capita and low non-life penetration; the continuous increase in household income will boost demand for non-life insurance products. • The participation of strategic partners can help local insurers diversify their product offerings and improve the overall market penetration. Gross Non-Life Premiums Written (VND T) Non-life Premium Structure (1H2016) Sources: GSO, RongViet Research Source: BMI, AVI Transport Property General liabilities Credit/Financial Guarantee Motor vehicle Health & Personal accident Other 0% 5% 10% 15% 20% 25% 0 5 10 15 20 25 30 35 40 45 2011 2012 2013 2014 2015 2016F 2017F 2018F Non-life premiums +/-NL 54
  55. 55. Our Top Picks in this Theme Ticker Target price (VND) Current price (VND) Rating Time horizon Financials Valuation Trading 2016 2017 +/- Rev. (%) +/- NPAT (%) +/- Rev. (%) +/- NPAT (%) PBR Cur. (x) PEFR (x) +/- Price 1y (%) 3M Avg. Vol. (shares) 3M Avg. turnover (VND bn) MC (VND bn) Room (%) Construction CTD 195,000 171,500 Neutral Long-term 54.9 102.9 25.0 15.0 2.3 8.8 65.1 132,631 27,846 13,203 (1.3) SRF 32,100 25,700 Accumulate Long-term 44.0 29.4 12.0 11.9 1.5 9.0 84.2 16,316 461 626 21.9 VGC 17,800 15,400 Accumulate Long-term 1.2 57.9 7.2 7.9 1.3 8.8 96.9 167,601 2,787 4,780 46.2 Building Materials BMP 179,000 189,000 Neutral Long-term 25.8 27.2 12.8 9.2 3.7 14.5 55.4 106,622 20,113 8,595 - HPG 50,300 40,850 Accumulate Long-term 13.0 58.5 26.9 5.9 1.9 6.6 62.1 4,348,141 184,751 34,427 13.0 HSG 52,100 46,000 Accumulate Intermediate- term 10.3 124.1 27.5 34.6 2.2 6.2 117.1 1,809,957 76,951 9,041 21.1 NKG 45,700 35,200 Buy Intermediate- term 51.6 353.5 44.1 27.8 1.2 5.2 190.8 395,743 15,228 1,761 21.7 Infrastructure HUT 15,000 11,500 Buy Long-term 75.5 173.5 14.9 41.6 0.9 14.3 13.1 1,575,676 19,797 2,028 31.9 CTI 36,000 25,600 Buy Intermediate- term 35.0 105.0 17.9 2.5 1.6 8.3 36.5 387,006 11,132 1,101 21.3 Source: RongViet Research, as of 08/12/2016 55
  56. 56. Watch List Name Subsector Mar. cap (VND B) Shares outstanding Trailing PER (x) PBR Cur. (x) ROEA (%) ROAA (%) Current price (VND) 2015 Trailing 12 months +/- Rev. (%) +/- PAT (%) +/- Rev. (%) +/- PAT (%) HBC Construction & Building materials 2,654.0 94,447,467 7.5 1.9 28.7 3.8 28,100 20.4 44.3 148.4 1,578.1 HT1 Construction & Building materials 8,317.6 381,541,911 9.8 1.4 18.2 7.1 21,800 142.3 12.6 10.7 87.3 NNC Construction & Building materials 1,185.3 16,440,202 7.1 2.9 49.2 37.9 72,100 18.4 29.5 11.4 17.8 PC1 Construction & Building materials 2,754.6 75,262,482 6.3 1.4 23.1 10.6 36,600 (42.2) 0.0 (21.2) 47.1 PLC Construction & Building materials 2,213.9 80,797,566 11.1 1.7 16.4 5.7 27,400 23.1 1.6 (39.7) (58.8) GTN Agriculture 4,587.5 250,000,000 117.6 1.7 1.4 1.0 18,350 (36.3) 231.9 (81.2) (86.9) VLC Agriculture 1,185.2 63,101,000 10.3 1.4 9.7 7.6 18,900 42.7 5.9 3.8 (25.7) KBC Real estate 6,788.0 469,760,189 8.6 0.9 9.5 5.6 14,450 93.0 34.2 (14.4) 94.8 KDH Real estate 4,715.1 233,999,892 13.0 1.0 8.4 4.3 20,150 338.6 69.1 60.9 (19.6) NLG Real estate 3,169.2 142,114,510 10.8 1.4 11.3 5.6 22,300 101.4 45.2 155.3 243.0 Novaland Real estate 35,362.2 589,369,234 44.1 1.7 11.2 2.0 60,000 138.2 351.0 - - Source: RongViet Research, as of 08/12/2016 56
  57. 57. 57
  58. 58. Turnaround Sectors • China’s renewed demand and strengthening of the greenback promises to bring new hope for commodities producers, exporters and even services providers. • Having suffered from currency shocks and unfavorable weather, electricity companies are ready for a turnaround. • Agricultural production is recovering from the worst drought in 100 years. Natural Rubber Prices (USD/kg) Crude Oil and Natural Gas Prices Sources: GSO, Bloomberg Source: Bloomberg 00 01 01 02 02 03 03 04 04 05 05 08/26/2011 10/2/2012 07/27/2012 11/1/2013 06/28/2013 12/13/2013 05/30/2014 11/14/2014 1/5/2015 10/16/2015 1/4/2016 09/16/2016 0 1 2 3 4 5 6 7 0 20 40 60 80 100 120 140 08/26/2011 10/2/2012 07/27/2012 11/1/2013 06/28/2013 12/13/2013 05/30/2014 11/14/2014 1/5/2015 10/16/2015 1/4/2016 09/16/2016 Brent crude oil $/brl (LHS) Natural Gas $/MMBTU (RHS) 58
  59. 59. Our Top Picks in this Theme Ticker Target price (VND) Current price (VND) Rating Time horizon Financials Valuation Trading 2016 2017 +/- Rev. (%) +/- NPAT (%) +/- Rev. (%) +/- NPAT (%) PBR Cur . (x) PEFR (x) +/- Price 1y (%) 3M Avg. Vol. (shares) 3M Avg. turnover (VND bn) MC (VND bn) Room (%) Chemicals BFC 43,000 30,000 Buy Long-term 2.4 19.2 10.2 6.7 1.8 6.0 54.8 133,309 4,765 1,715 32.1 VFG 112,000 77,900 Buy Long-term 10.5 4.3 24.8 12.4 1.9 9.9 33.9 13,548 1,106 1,424 27.6 Electricity, Water, Gas PPC 19,400 15,900 Accumulate Long-term (21.6) (38.9) 14.2 50.8 1.1 8.1 (3.1) 238,569 3,573 5,059 33.6 PGS 20,600 16,100 Buy Intermediate- term 16.0 204.0 10.6 (66.3) 0.8 2.3 7.2 190,278 3,232 805 27.9 REE 26,800 22,200 Accumulate Long-term 2.1 (3.6) 4.2 22.4 1.1 8.4 5.8 1,016,758 22,419 6,883 - Oil & Gas PVS 21,400 17,400 Buy Intermediate- term (19.1) (28.7) (2.4) 10.6 0.8 7.2 2.3 1,900,408 37,404 7,773 21.5 Source: RongViet Research, as of 08/12/2016 59
  60. 60. Watch List Name Subsector Mar. cap (USD M) Shares Outstanding Trailing PER (x) PBR Cur. (x) ROEA (%) ROAA (%) Current price (VND) 2015 Trailing 12 months +/- Rev. (%) +/- PAT (%) +/- Rev. (%) +/- PAT (%) DPR Natural Rubber 1,412.4 40,124,790 15.6 0.7 3.4 2.7 35,200 (27.2) (8.9) (11.4) (33.7) PHR Natural Rubber 1,883.8 78,490,047 6.9 0.9 12.3 8.0 24,000 (19.4) (23.5) 14.8 460.8 CHP Utilities 2,583.0 125,999,511 12.7 1.8 13.8 6.6 20,500 54.1 16.4 0.7 48.5 Source: RongViet Research, as of 08/12/2016 60
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  62. 62. Export Growth and Valuation The Good: • Large potential market and plenty of room for growth in the long term • Strong and high dividend yields for fertilizer companies and passenger carriers The Bad: • Competition & trade barriers reduce growth in the intermediate term Textile & Seafood Exports Growth Trailing PE and Current PB vs 3-year Averages Sources: GSO, Bloomberg Source: RongViet Research … but prices have decreased a lot!! -40% -20% 0% 20% 40% 60% 80% 01/2013 04/2013 07/2013 10/2013 01/2014 04/2014 07/2014 10/2014 01/2015 04/2015 07/2015 10/2015 01/2016 04/2016 07/2016 10/2016 Textile Footwear Seafood 0 2 4 6 8 10 12 14 16 18 TCM TNG VNS SKG DPM VNINDEX Trailing PER PBR 3Y Avg PER 3Y Avg PBR 62
  63. 63. Watch List Name Subsector Mar. cap (VND B) Shares Outstanding Trailing PER (x) PBR Cur. (x) ROEA (%) ROAA (%) Current price (VND) 2015 Trailing 12 months +/- Rev. (%) +/- PAT (%) +/- Rev. (%) +/- PAT (%) FMC Food producer 573.0 30,000,000 5.7 1.1 20.6 7.1 19,100 55.1 (0.1) 25.1 (18.8) VHC Food producer 5,067.4 92,301,883 9.6 2.1 23.7 11.1 54,900 (30.7) 3.2 29.7 122.2 TCM Personal & Household goods 711.9 49,099,501 6.4 0.8 12.6 4.4 14,500 (8.7) 8.6 (1.9) (12.4) TNG Personal & Household goods 431.7 34,264,978 4.8 0.8 18.7 4.8 12,600 34.1 39.7 (5.0) 18.1 VGG Personal & Household goods 2,478.0 42,000,000 6.1 1.9 27.9 9.5 59,000 5.8 16.9 20.1 16.7 SKG Travel & Tourism 2,505.2 34,271,242 11.6 3.7 36.4 35.7 73,100 69.5 36.3 20.6 21.7 VNS Travel & Tourism 2,151.1 67,859,192 6.9 1.3 20.3 10.6 31,700 4.9 12.8 5.8 (5.7) DPM Chemicals 8,805.0 391,334,260 6.7 1.0 14.8 12.5 22,500 34.2 2.3 (19.7) (49.8) LAS Chemicals 1,376.8 112,856,400 7.2 1.1 14.4 7.1 12,200 (30.2) (6.7) 6.4 (9.0) Source: RongViet Research, as of 08/12/2016 63
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  65. 65. Last but not Least • Given the tight budget, the political will to push privatization and state divestment is strong. • SOEs with $15 billion in market cap will hold their IPOs by 2018 and many will have to list shares in 2017. • Big private companies are rushing to IPO, too.  THE RESULT: Increased market size and more interest from foreign investors Big-ticket IPO/New listing No. Company IPO/Listing date No. Company IPO/Listing date 1 ACV Dec-16 8 PVOil 2017 2 BHN Nov-16 9 PVPower 2017 3 BSR 2017 10 QNS Dec-16 4 HVN Dec-16 11 SAB Dec-16 5 MSCC 2017 12 VEAM 2017 6 Novaland Dec-16 13 VGT 2017 7 PLX 2017 14 VietJet Air 2017 Source: RongViet Research 65
  66. 66. Watch List Name Mar. cap (USD M) Shares O/S after IPO Trailing PER (x) PBR Cur. (x) Current Price ( VND) ROEA (%) ROAA (%) 2015 2014 +/- Rev. (%) +/- PAT (%) +/- Rev. (%) +/- PAT (%) ACV 88,393 2,177,173,236 40.53 3.50 40,600 8.3 3.9 24.8 (33.4) 10.5 14.5 BHN 31,432 231,800,000 35.43 6.04 135,600 15.1 9.2 5.1 6.4 42.3 7.6 HVN 55,239 1,227,533,800 18.15 3.43 45,000 17.5 2.7 (4.5) 93.3 0.3 61.9 MSCC 40,362 538,160,117 14.36 3.60 75,000 22.9 16.7 0.9 (15.3) 9.7 4.7 Novaland 35,362 589,369,234 44.12 1.66 60,000 11.2 2.0 138.2 351.0 75.1 1,172.4 PLX 38,816 1,293,878,100 8.65 1.90 30,000 20.1 7.4 (29.0) n/a 5.5 n/a QNS 15,379 187,549,000 13.15 4.65 82,000 39.4 21.0 20.5 58.9 16.6 32.9 SAB 90,549 641,281,186 22.29 6.76 141,200 28.1 18.3 8.1 18.1 4.5 40.1 VEAM 20,596 1,328,800,000 1.74 0.50 15,500 30.2 26.8 15.9 31.4 (12.7) 41.2 VGT 6,800 500,000,000 15.96 0.92 13,600 5.8 2.2 12.6 14.5 22.9 69.8 Source: RongViet Research, as of 08/12/2016 66
  67. 67. THANK YOU! Viet Dragon Securities Corporation Viet Dragon Tower, 141 Nguyen Du Street., Dist.1, HCMC, Vietnam www.vdsc.com.vn Marc Djandji, CFA Head of Institutional Sales P. + 84 8 6299 2006 (Ext: 1312) E. marc.djandji@vdsc.com.vn Truc Doan Head of Research P. + 84 8 6299 2006 (Ext: 1308) E. truc.dtt@vdsc.com.vn

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