You are on page 1of 20

26 November 2013

Vietnam Natural Rubber

ADD

18 March 2011

Trang Nguyen

High dividends in a cyclical low

Analyst
trang.nguyenan@vcsc.com.vn
+84 8 3 914 3588 ext. 116

Vietnam is the world’s 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.

We like:
- PHR, DPR, 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 3638% 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.

Not recommend:
- TNC, HRC

Relative Performance vs. VNI
50%

PHR

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.

VNIndex

25%
0%

50%

DPR

Nov-13

Sep-13

Jul-13

May-13

Mar-13

Jan-13

Nov-12

-25%

VNIndex

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 who’s
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.

25%
0%

50%

TRC

Nov-13

Sep-13

Jul-13

May-13

Mar-13

Jan-13

Nov-12

-25%

VNIndex

25%
0%

www.vcsc.com.vn| VCSC<GO>

Nov-13

Sep-13

Jul-13

May-13

Mar-13

Jan-13

Nov-12

-25%

Criteria
Current price (VND)
Target price (VND)
Market cap (USD mn)
30-days avg liquidity (USD)
VN tapping area (ha)
Cambodia tapping area (ha)
Year of Cambodia harvest
Age of trees (average)
Foreign ownership (%)
Gross margin (%)
ROA (%)
ROE (%)
Debt/Asset (%)
Dividend yield (%)
PER (x)

PHR
HOLD
31,100
30,000
112
15,000
10,700
6,700
2016
23.2
17.9
29.5
15.0
24.0
12.7
9.6
6.9

See important disclosure at the end of this document

DPR
ADD
48,000
54,000
100
190,000
7,200
6,300
2017
19.5
31.4
40.2
19.0
24.0
3.2
6.3
5.3

TRC
ADD
42,000
50,000
59
1,000
5,400
6,500
2018
18.0
30.8
32.7
22.0
27.0
1.0
7.1
5.0

HRC

TNC

Not recommended
N/A
N/A
N/A
N/A
41
13
700
19,000
1,800
1,300
N/A
N/A
N/A
N/A
26.0
15.7
5.4
1.6
8.1
28.8
9.0
13.0
11.0
15.0
20.5
0.1
5.1
8.7
14.1
6.5

Viet Capital Securities | 1

In this report

HOLD

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

Net supply

Thos. tons
500

Net supply

400
300
200
100
0
-100

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013E 2014E

-200
-300
-400
-500

Source: IRSG, 2012
We think the IRSG’s surplus forecast in FY13-FY14 results largely from the supply side,
especially Thailand and Indonesia who alone account for 60% of the world’s 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.

See important disclosure at the end of this document

www.vcsc.com.vn | VCSC<GO>

Viet Capital Securities | 2

9 4% Japan. The growth in world tyre production is bolstered by expanding global sales of cars and light commercial vehicles. See important disclosure at the end of this document www. natural rubber consumption will still likely to grow modestly by 3. led largely by emerging markets accounting for 70% of global consumption. ha Thailand 250 Indonesia 80 70 200 150 New planted 60 Replanted 50 New planted Replanted 40 100 30 20 50 10 0 2012E 2011 2010 2009 2008 2007 2006 2005 2004 2003 2012E 2011 2010 2009 2008 2007 2006 2005 2004 2003 0 Source: IRSG.major producers China 7% Vietnam 8% Figure 3b: China . 9% Source: IRSG.Figure 2: Thailand and Indonesia planted a lot of rubber trees in FY06-07. tyre production has been a driving force behind growth of global economies. Consequently. 36% China.com.9% yoy this year and continue this pace until 2014. ha Thos.vn | VCSC<GO> Viet Capital Securities | 3 . 35% India 9% Malaysia 9% Indonesi a 27% Thailand. which will become harvestable in FY13-FY14 HOLD Thos.the major consumer Other 6% Thailand 34% Others. India.vcsc. 2012 According to IRSG. 7 % % USA. 2012 Figure 3a: Thailand and Indonesia . The chart below demonstrates the correlation between these World GDP and natural rubber consumption. which directly responds to global economic growth. Demand 70% of world rubber consumption goes into the tyre industry.

3% global economic growth. However. World Bank. 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. When oil prices are high. See important disclosure at the end of this document www.vn | VCSC<GO> Viet Capital Securities | 4 . When oil prices are low. The end result being that oil price strongly influences the price of natural rubber. which is the main substitute of natural rubber.com.Figure 4: Rubber consumption ties to GDP growth HOLD Growth % World GDP growth 12 10 Natural rubber consumption growth 8 6 4 2 0 -22003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013F -4 -6 -8 Source: IRSG. synthetic rubber becomes more expensive and the demand for natural rubber thrives. 2012 IRSG forecasts for higher rubber demand in 2013 than 2012 based on the International Monetary Fund’s (IMF) projections in April for a 3. Traditionally. the correlation looks to have become weaker now that rubber is in huge oversupply.vcsc. synthetic rubber becomes cheaper and the demand for natural rubber falls. 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. the analysis of rubber price movements has been closely correlated to the price of oil.

vcsc. especially after the Syria – US conflict in 2013 which pushed crude oil prices to three-year highs. Vietnam rubber ranks 2nd in yield but only 9% of global output – price taker Among natural rubber producing countries.com. average yield reaches up to 1. The price trend divergence should normalize as rubber prices tend to follow the price of oil.vn | VCSC<GO> Viet Capital Securities | 5 .82 ton/ha) See important disclosure at the end of this document www. we think it’s hard to forecast the rubber price trend just yet.000 RT1 Rubber 140 CL1 Crude oil 120 100 4. due to surplus of 322.000 20 - 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: Bloomberg.000 60 2.000 tons in 2013 and 450. does not forecast price. crude oil is trading at a premium compared to natural rubber price. Indonesia. Vietnam’s production volume only accounts for 9% of global output.000 tons in 2014. VCSC estimates Currently. well behind that of Thailand. Crude oil prices continued moving strongly upward while rubber prices remained relatively stable.000 160 6. making Vietnam the second most efficient rubber producer after India (yield of 1.000 5. The IRSG.000 40 1.000 80 3. However. However. who issues forecasts for global supplydemand.71 ton/ha. will the gap narrow? HOLD Crude oil price USD/barrel Rubber price USD/ton 7. Malaysia and India.Figure 5: Gap between crude oil & natural rubber price at present.

VRG Incorporating Laos and Cambodia’s plantation.400 1. total area plantation has covered 910.vn | VCSC<GO> Viet Capital Securities | 6 .2 2 1. VCSC estimates. 750/QĐ-TTG and No. Figure 7: Laos and Cambodia’s plantation quite minor among Vietnam’s vast plantation Thos.8 1. See important disclosure at the end of this document www. especially when those planted in Cambodia and Laos can be tapped.200 Cambodia 1.8 1 0.7 1.2 1.600 Laos 1. 124/QĐ-TTg of Prime Minister. ha Vietnam Plantation development 1.7 1.500 ha and is continuously expanding.vcsc.2 0. VCSC estimates According to the regulation in Decision No.Figure 6: Position of Vietnam rubber industry in world’s market HOLD Tons/ha Mil tons 4 2. Vietnam’s total production volume can increase at max of 1. There is high probability that Vietnam will have more than one million ha of rubber in 2015-2020 period.6 3 1.0 1. However. By the end of 2012. total domestic rubber area will be kept at 800.000 VN (Listed firms) 800 600 VN (others) 400 Planned 200 0 2012 2013E 2014E 2015E Source: Government’s plan.000 ha.com. still has minimal impact on the international rubber market.4 - Thailand Indonesia Malaysia India Production (000' tonnes) Vietnam China Productivity (ton/ha) Source: Bloomberg.5 1.1mn tons ~ 10% of world’s production. targets set out by the government in the 2009 strategy were lower than the real figures.

VRG sets a floor-selling price as well as readjust the wage policy to protect rubber companies from incurring losses. All currently listed natural rubber companies are subsidiaries of VRG. See important disclosure at the end of this document www. private sectors are growing into two major listed conglomerates – Hoang Anh Gia Lai (HAG) and Gemadept (GMD). Though much smaller in scale.com.000 100% DPR TRC 4. For this reason. GMD is also applying for 29. At the beginning of the year.000 ha under rubber cultivation in Cambodia and several thousand ha in Laos. 83% of total output is exported.000 60% 2. VRG controls about 44% production area while that of private sector is 56%.vcsc.000 ha of rubber in Laos and 100. Cambodia and Vietnam and they expect to extend this area up to 100. VRG planned to plant 100.000 ha of land to plant rubber in Laos.000 80% 3.000 ha of plantation ha in Cambodia but they have just covered 5. VCSC estimates VRG began operating abroad due to a shortage of available land in Vietnam.000 120% PHR 5. This mechanism prevents rubber companies from enjoying enormous earnings when rubber prices increase.000 ha in Cambodia by 2014. mainly to China (44%) and Malaysia (21%) HOLD 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.000 ha at the end of this year. rubber companies have stable gross margins regardless of volatility in global prices. they have over 70. except for Thong Nhat Rubber Company (TNC).500 ha by the end of 2012. VRG sets a target-selling price and budget labour cost for each company.000 40% 1.000 20% - 0% 2006 2008 2009 2010 2011 2012 Source: Bloomberg. When rubber price falls sharply.According to the Ministry of Agriculture and Rural Development (MARD). Figure 8: Rubber price swings wildly but rubber firms’ gross margins quite steady USD/ton Gross margin Rubber price (RT1 commdt) 6.vn | VCSC<GO> Viet Capital Securities | 7 . To date. HAG owns an area of 51.

Dong Phu Rubber (DPR). Thong Nhat Rubber (TNC) meanwhile is too small in scale with only 2.0 27.0 55.0 62.vn | VCSC<GO> Viet Capital Securities | 8 .0 Debt/Asset 12.000 GMD 800 HAG 600 VRG 400 Others 200 0 2012 2013E 2014E 2015E Source: Company data.000 7.000 1. ha 1. Old rubber trees lead to low exploitation efficiency.5 0.000 7.7 8.200 Plantation development 1.0 Gross margin 29. Recommended Criteria Not recommended PHR DPR TRC HRC TNC HOSE HOSE HOSE HOSE HOSE 112 100 59 41 13 15. there are five rubber companies listed on the stock market. Among five listed firms.8 ROA 15.0 15.300 5. It also operates less efficiently than the top three firms do. VCSC estimates See important disclosure at the end of this document www.0 19.000 16.000 190. and Tay Ninh Rubber (TRC) are in the top with decent market cap.9 31.0 ROE 24.000 700 19.2 1.600 N/A N/A VRG ownership (%) 66.1 28.000 17. and hence it has the lowest gross margin.6 22.Figure 9: VRG still dominates rubber industry HOLD Thos.000 ha plantation.0 9. All have similar financial structures with limited leverage and strong profitability.2 32. large plantation area and healthy financial ratios.0 22. the company has up to 50% of rubber area out of productive age (more than 24 years old compared to group’s average of 20).100 2.0 11.4 1.0 13.0 20. VCSC estimates Listed rubber firms For now.com. ROA and ROE than other listed companies.7 3.600 9.1 Exchange Market cap (USD mn) 30-days average trading (USD) Foreign ownership (%) VN Plantation area (ha) Cambodia plantation area (ha) Source: Bloomberg.0 56.4 30. As for Hoa Binh Rubber (HRC). three companies Phuoc Hoa Rubber (PHR).8 5.5 40.000 7.0 24.vcsc.

000 10 - 2009 2010 2011 2012 2013E Source: VCSC estimates Following VRG’s expansion plan. Among three rubber firms.000 100 90 30. which make them subject to similar pricing structure as VRG directs selling price and labour cost mechanism.000 70 20.15 2018 Source: VCSC estimates See important disclosure at the end of this document www. HOLD Revenue determined mostly by selling price Revenue growth depends almost entirely on fluctuation of rubber price.vn | VCSC<GO> Viet Capital Securities | 9 .3 2017 TRC 5.500 100% 2.000 80 25.200 6.000 40 10.400 6.com. listed rubber firms began to operate abroad due to shortage of plantations in Vietnam.vcsc.The top three rubber firms are all subsidiaries of VRG. PHR will see growth from its 100% owned subsidiary in Cambodia at the earliest in 2016. volatile selling price Tons VND mn/ton 35.000 30 PHR (vol) DPR (vol) TRC (vol) price 20 5.000 60 50 15.300 58% 2. Vietnam tapping area (ha) Cambodia tapping area (ha) Cambodia Ownership Yield (ton/ha) st 1 year of Cambodia exploitation PHR 10. as current plantations are fully planted for all listed firms Figure 10: Stable volume.700 6.700 100% 2 2016 DPR 7.

0 1. company data th th Figure 12: Rubber trees provide the highest yield from year 11 to year 25 Yield (ton/ha) 2.0 0.com.vcsc. company data PHR sells premium rubber types SVR CV50.vn | VCSC<GO> Viet Capital Securities | 10 .Gross margin Variations of gross margins are due to differences in product mix and age profile. PHR has the lowest gross margin (30%) compared to TRC (33%) and DPR (40%) Figure 11: Trees age profile of listed rubber firms 80% 70% PHR 60% DPR TRC 50% 40% 30% 20% 10% 0% 0-6 `7-10 `11-25 >25 Age Source: VCSC estimates.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 Age Source: VCSC estimates. HOLD PHR has high proportion of trees out of productive age while most of DPR’s plantation are at the most productive age (11-25 according to figure 12).5 1.5 2. Thus. DPR focuses on SVR3L (50% output) and TRC has strength in Latex (70%)\ See important disclosure at the end of this document www. 60 (55% output).

3 24.1 13.260 2.8 19.vcsc. Mrkt cap (USDmn) PE trailing ROA (%) Debt/ Asset China 252 7.1 11.vn | VCSC<GO> Viet Capital Securities | 11 .8 17.6 11.1 17.1 DPR VN Dong Phu Rubber Vietnam 96 4. excluding Shangdong Yanggu Huatai Che-A and Hoa Binh Rubber which trade at abnormal high PER of 115.2 23. ROE and ROA while trading at lower PER of 5.340 2..380 TRC 2.2 24.2 - HFT TB Hwafong Rubber Thailand 53 8.1 3.2 6.240 2.5 34.5 TNC VN Thong Nhat Rubber Vietnam 12 6.8 16.280 2.7 27. We think Vietnamese rubber firms deserve a higher PER despite some discount for VRG control. thus believe PER of 6.1 11. VCSC estimates.7 20.2 PHR VN Phuoc Hoa Rubber Vietnam 116 5.300 2.7 21.0x and 15.7 10.5 45.2 8.7x on average.1 8.0x on lower debt/asset ratio.9 Vamshi Rubber India 1 4.1 38.7 6.200 SVR CV 50 SVR CV 60 Latex SVR L SVR 3L SVR 5 SVR 10 SVR 20 Source: VRA.1x.4 22.1 14.0x is justifiable for Vietnam rubber stocks. Vietnamese rubber firms have similar market cap.5 13.360 DPR 2.9 Ticker Name Country 600579 CH Quingdao Yellow Sea Rubber VMSR IN Average ROE (%) Source: Bloomberg Compared to regional peers.320 2.0x According to our compilation.com.9 20.0 IDR IN Indag Rubber India 22 5.9 25.220 2.5 TRC VN Tay Ninh Rubber Vietnam 58 3. Oct2013 Valuation Valuation Method PE multiple Target PER 6.Figure 13: Export price by rubber product types HOLD USD/ton Export price PHR 2.1 HRC VN Hoa Binh Rubber Vietnam 40 15.2 15. See important disclosure at the end of this document www.400 2.5 12. regional rubber firms are trading at PER of 6.1 - IRC TB Inoue Rubber Thailand 96 7.6 0.

968 18.000/share in the future.573 992 Volume sold (tons) 29.0% 390 43 9.297) (746) Gross profit SG&A Operating profit Forex gain/loss Non op.763 52 10 (528) 474 433 203 (77) 397 3 108 508 (20) 488 25% 364 72 5.998 Price (VND mn/ton) 52.339.5 52. they are free of interest payment pressure. VCSC estimates See important disclosure at the end of this document www.2 Others 197 187 Cost of goods sold (1. our projection shows that natural rubber firms see no cash shortfall risk.0 8.100 -3% (59) 374 2 59 434 (6) 429 9.000 48.0x Source: VCSC forecast Sustainable high dividends Low level of debt and efficient working capital cycles lead to high cash generation.vn | VCSC<GO> Viet Capital Securities | 12 .5 50.com. With virtually no debt. Even 3/5 companies are having investment projects in Cambodia.000 42.000 31.1% Explanation No plantation expansion c.7% 249 30. sufficient to sustain current dividend levels. Assuming rubber firms continue to pay dividend of VND3. gain/loss EBIT Interest expense EBT Tax rate Profit after tax to Shldrs Outstanding shares (mn) EPS (VND) Target price Current price Upside TRC 732 721 13.179 Rubber 1.054 30. High dividend payouts also mean the VRG always get their share of the profits.vcsc. PHR Beginning cash Operating CF Investing CF Financing CF Capex Dividend Ending Cash 2009 323 (63) 22 (64) (84) (119) 228 2010 228 438 (28) (214) (179) (279) 424 2011 424 449 25 (260) (105) (332) 637 2012 637 99 (139) (202) (308) (156) 446 2013E 446 419 (300) (85) (300) (215) 481 2014E 481 309 (100) (215) (100) (215) 474 2015E 474 268 (50) (215) (50) (215) 477 Source: Bloomberg. HOLD Profit & Loss Analysis Figure 14: VCSC earnings forecast (VND bn) 2013E PHR DPR Sales 1. we still forecast strong cash balance in the coming years.770 1. rubber firms can still protect profit margin by cutting cost of production (mainly employee salary).4% (33) 170 1 110 281 (1) 280 10.070 54.p last yr Rubber price drops 17% yoy Salary cut from 40% sale to 38% GM lower last year as wage policy not yet revised down VND devaluation by 3% this year TRC has no debts DPR and TRC granted tax incentive Target PER of 6.Although rubber price has fallen by 26% since its peak in 2010.000 13.000 19.

000 2011 3.000 48. rubber stocks are actually inert with changes in outside factors (fluctuations of rubber prices.000 6.000 31.000 3. high-yield investment channels.3% 8.8% 38.500 2012 3.6% 6.4% 4.000 3. hence the investment argument of dividends becomes more prominent. PHR has the highest dividend yield and dividend payout where DPR and TRC are cheaper in terms of PER (about 5. VCSC estimates At present.8% 9. etc) Such behaviours prove that investors are well-aware of the fundamental nature of Vietnamese rubber stocks as a long-term.0% 39. But this does not seem to apply to Vietnamese rubber stocks.000 2. VCSC estimates However stock prices in history show little correlation to rubber price Usually.100 3.3% 7.com.500 2013 Current Price 3.000 42.4% 8.000 5.9% 30. Therefore.000 4.0% 33.1% 36.1% 48. the price of a commodity and its related stocks show a high positive correlation.vn | VCSC<GO> Viet Capital Securities | 13 .3% 9.4% 40.2% 4.000 3.6% 8.DPR Beginning cash Operating CF Investing CF Financing CF Capex Dividend Ending Cash 2009 39 182 (24) 81 (53) (0) 279 2010 279 514 (193) (92) (81) (109) 508 2011 508 892 (406) (172) (132) (165) 822 2012 822 480 (463) (193) (150) (219) 646 2013E 646 453 (100) (169) (100) (129) 831 2014E 831 358 (150) (129) (150) (129) 910 HOLD 2015E 910 315 (100) (129) (100) (129) 996 Source: Bloomberg.5% 31. market move. Despite strong swings in world’s rubber price.0% 32. Natural rubber stock prices usually slumped around Nov/Dec where price is adjusted down by the amount of dividend payment. rubber stocks tend to move sideways with a mild adjustment of ± 10% price change along the longterm median line. Figure 15: Div PHR DPR TRC Dividend Yield PHR DPR TRC Dividend payout PHR DPR TRC 2009 2.vcsc.6% 10.8% 29.8% 20.1% 9.000 3.0x).3% 9.000 2. VCSC estimates TRC Beginning cash Operating CF Investing CF Financing CF Capex Dividend Ending Cash 2009 150 129 (28) (5) (30) (15) 245 2010 245 368 (68) (104) (58) (60) 441 2011 441 327 13 (105) (25) (89) 675 2012 675 (54) 93 (156) (8) (132) 559 2013E 559 274 (50) (90) (50) (90) 692 2014E 692 226 (50) (90) (50) (90) 778 2015E 778 199 (100) (90) (100) (90) 787 Source: Bloomberg.7% 26.6% 30. See important disclosure at the end of this document www.0% Source: Company data.6% 6.000 2010 3.3% 7.1% 67.000 3.1% 60.

500/ton and USD3.000 40.000/share and VND4.400/ton). as investment thesis into rubber companies we also like to note that: .000 5.000 10.300/ton (nearly double current price at USD2. which could potentially see another 2% adjustment this year .vn | VCSC<GO> Viet Capital Securities | 14 .000 50. DPR increased dividend payment to VND5. rubber firms can enlarge its profit base enormously.000 Aug-09 - Source: Bloomberg.Figure 16: Stock price inelastic with changing in rubber prices Stock price VND TRC Dividend PHR DPR Dividend HOLD Rubber price Rubber USD/ton Dividend Dividend 70.com.000 3.Rubber companies will see organic growth in the future once their expansion in Cambodia plantation comes to fruition. Such happened in 2011 and 2012 where rubber price went up strongly to an average of USD4.000 20.000 4.vcsc. There is a high possibility that they can increase current dividend payment at that point.000 60.000 Aug-13 Apr-13 Dec-12 Aug-12 Apr-12 Dec-11 Aug-11 Apr-11 Dec-10 Aug-10 Apr-10 Dec-09 2.000 7. VCSC estimates If rubber price goes up.000 30. See important disclosure at the end of this document www.000/share (please see figure 15) Besides good dividend plays.USD-driven sale and debt-free status allow rubber firms to benefit from VND devaluation.000 6.

265 3.860 -14% -39% -26% -17% -20% -29% -34% -40% -1% -12% -10% -13% 0% -15% -11% -12% 29.7 Liquidity Current ratio Quick ratio Cash ratio Debt/assets Debt/capital Debt/equity Interest coverage 1.4 0.501 (654) 1.8 76.1 0.6% 26.Sales & marketing .6 0.699 267 200 2.Financial Statements .com.479 477 119 58 294 279 1.213 2. depreciation Net fixed assets LT investments Other LT assets Total long-term assets Total Assets 446 119 73 317 279 1.460 24 2.2 13.2% 15.075 458 72 4.1% 17.2 25.2% 31.215 2.379 0 0 813 1.vn | VCSC<GO> Viet Capital Securities | 15 .297 3.4 13.Net non-op gains EBIT .1 71.4 12.401 406 72 3.3 1.1 2.9% 14.vcsc.070 70 42 112 1.051 (651) 1. payables Cash conversion 77.2% 11.756 (1.359 3.7 0.6 1.3 12.4 0.053 10 304 756 1.5 0.337) 424 (19) (57) 348 0 109 457 (34) 423 (106) 318 (2) 316 1.1 0.048 3.101 481 119 59 276 279 1.560) 654 (24) (72) 558 0 206 764 (11) 753 (148) 605 (4) 602 1.798 267 200 2.1 2.General & admin Operating profit .5 0.7 0.867 3.070 70 42 112 1.7% 20.0% 8.3 0.522 24 2.1 0.360 24 2.1 0.6 2.1 0.400 267 200 1. shares (m) EPS HOLD Actual 2012 2013 Forecast 2014 2015 2.3% 21.1 0.479 0 0 813 1.8% 12.166 3.Interest expense EBT .6 0.Minority interests Net income to SH EBITDA Out.182 Preferred equity Paid in capital Share capital Retained earnings Minority interest Total equity Total debt & equity 0 0 813 1.5% 27.182 10 304 756 1.1 2.Income tax Profit after tax .8 86.1 0.0 76.182 10 304 756 1.383) 373 (19) (57) 297 0 109 405 (34) 372 (93) 279 (2) 277 816 72 8.761 (1.847 267 200 2.451 (653) 1.Acc.379 474 119 58 284 279 1.541 Accounts payable Short-term debt Other ST debt Current liabilities Long-term debt Other LT debt Total long-term debt Total liabilities 11 204 756 971 40 42 82 1.2 12.214 (1.390 509 72 5.Cost of goods sold Gross profit .211 24 2.6% 17.2 1.197 3.1 0.101 0 0 813 1.2 0.7 85.PHR VND billion P&L Revenue .6% 19.9 94.9 83.070 70 42 112 1.6 12.1 0.297) 474 (19) (58) 397 3 108 508 (20) 488 (122) 366 (2) 364 1.1 0. Accounts receivable Inventories Other current assets Total current assets Gross fix assets .7 85. receivable Days acts.3% 24.770 (1.1 Actual 2012 2013 Forecast 2014 2015 Cash & equivalent Short-term invest.0% Growth Revenue growth % Op profit growth % EBIT growth % EPS growth % Profitability Gross margin % Net profit margin % ROE % ROA % Efficiency Days inventory OH Days acts.314 3.541 Begin cash balance Net Income Depreciation ∆ in working capital Other adjustments Cash from operation 602 52 637 0 (555) 99 446 364 1 55 0 419 481 316 1 (8) 0 309 474 277 1 (9) 0 268 Net Capex Other investments Cash from invest (163) 24 (139) (300) 0 (300) (100) 0 (100) (50) 0 (50) Dividends paid ∆ in capital ∆ in LT & ST debt Cash from financing (156) (14) (32) (202) (215) 0 130 (85) (215) 0 (215) (215) 0 (215) Net changes in cash End cash balance (242) 446 34 481 (6) 474 3 477 VND Billion Balance Sheet Cash flow See important disclosure at the end of this document www.1% 9.228 2.Forex gain/loss .351 (652) 1.234 2.

2 1.Cost of goods sold Gross profit .com.5 0.6% 20.302 84 2.559 367 43 7.185 (843) 342 (12) (47) 283 0 83 366 (6) 360 (32) 328 0 328 Cash & equivalent Short-term invest.164 (313) 851 152 300 1.Acc.1 104.9 3.2 1.9% 11.2 106.vcsc.481 Begin cash balance Net Income Depreciation ∆ in working capital Other adjustments Cash from operation 822 540 43 0 (103) 480 646 390 1 62 0 453 831 368 1 (11) 0 358 910 328 1 (13) 0 315 Net Capex Other investments Cash from invest (147) (316) (463) (100) 0 (100) (150) 0 (150) (100) 0 (100) Dividends paid ∆ in capital ∆ in LT & ST debt Cash from financing (219) 0 85 (193) (129) 0 (40) (169) (129) 0 0 (129) (129) 0 0 (129) Net changes in cash End cash balance (176) 646 184 831 79 910 86 996 Cash flow See important disclosure at the end of this document www.551 3. payables Cash conversion 92.070 411 43 8.821 0 147 430 1.0 0.264 2.198 152 300 1.3 2.0 2.0 119.963 3.2% 39.414 (315) 1.Financial Statements .303 2.625 -25% -37% -32% -33% -14% -23% -27% -28% 0% -11% -6% -6% 0% -15% -11% -11% 40.9% 27. shares (m) EPS HOLD Actual 2012 2013 Forecast 2014 2015 VND Billion Balance Sheet 1.043 0 147 430 2.6 90.3% 13.1% 16.1% 31.1 4.Interest expense EBT .6 15.282 0 147 430 2.518 1. Accounts receivable Inventories Other current assets Total current assets Gross fix assets .552 435 43 9.402 3.831 1.2 89.7% 11.103 84 2.Net non-op gains EBIT .0 3.6% 28.5% 36.0 0.Sales & marketing .5 5.731 1.603 84 2.4 4.2% 25.181 (790) 391 (12) (46) 332 0 78 410 (6) 404 (36) 368 0 368 1.514 (316) 1.8 2.0 0.1 15.1 103.7% 33.0 0.DPR VND billion P&L Revenue .0 64.7% Growth Revenue growth % Op profit growth % EBIT growth % EPS growth % Profitability Gross margin % Net profit margin % ROE % ROA % Efficiency Days inventory OH Days acts.1 0.7 101.7 Actual 2012 2013 Forecast 2014 2015 646 394 74 226 177 1.vn | VCSC<GO> Viet Capital Securities | 16 . depreciation Net fixed assets LT investments Other LT assets Total long-term assets Total Assets 637 43 12.179 (746) 433 (12) (46) 374 2 59 434 (6) 429 (39) 390 0 390 1.7 4.650 3.0 72.7 0.8 Liquidity Current ratio Quick ratio Cash ratio Debt/assets Debt/capital Debt/equity Interest coverage 4.Forex gain/loss .5% 9.General & admin Operating profit .2 1.764 3.264 (314) 950 152 300 1.864 84 2.099 152 300 1.641 1.1 1. receivable Days acts.0 0.3% 33.0 0.0 73.525 3.043 910 394 49 200 177 1.481 Accounts payable Short-term debt Other ST debt Current liabilities Long-term debt Other LT debt Total long-term debt Total liabilities 2 85 290 377 42 138 180 557 2 45 290 338 42 138 180 518 3 45 290 338 42 138 180 518 3 45 290 338 42 138 180 518 Preferred equity Paid in capital Share capital Retained earnings Minority interest Total equity Total debt & equity 0 147 430 1.7 0.0 1.821 831 394 49 189 177 1.6 19.8 5.Minority interests Net income to SH EBITDA Out.0 0.9 0.Income tax Profit after tax .7 15.2% 13.1 112.282 996 394 49 214 177 1.377 (824) 553 (14) (54) 485 1 109 594 (5) 589 (50) 538 1 540 1.

168 0 1.0 0.8 19.732 -24% -42% -31% -32% -19% -34% -28% -28% -1% -17% -7% -7% -1% -24% -9% -9% 32.6% 27.8 1.5 6.783 2 4 166 171 5 0 5 176 0 0 300 1.8% 34.5% 29.8 6.3 0.644 778 210 39 91 41 1.vn | VCSC<GO> Viet Capital Securities | 17 .644 2 4 166 171 5 0 5 176 0 0 300 1.0 0.0 328.6% 23.0 0.0 264.6 4.Acc.0 0.0% 23.1 77.0 4.783 787 210 39 96 41 1.8 6.160 657 (208) 449 0 174 623 1.4% Growth Revenue growth % Op profit growth % EBIT growth % EPS growth % Profitability Gross margin % Net profit margin % ROE % ROA % Efficiency Days inventory OH Days acts.7% 38.2 6.TRC VND billion P&L Revenue .com. receivable Days acts.0 0. depreciation Net fixed assets LT investments Other LT assets Total long-term assets Total Assets 415 30 11.6% 11.Sales & marketing .3 19.3 0.Net non-op gains EBIT .8 59.3% 12.0 Actual 2012 2013 Forecast 2014 2015 559 210 74 76 41 960 557 (206) 351 0 174 525 1.General & admin Operating profit .9 3.418 0 1.1% 13.895 Accounts payable Short-term debt Other ST debt Current liabilities Long-term debt Other LT debt Total long-term debt Total liabilities 1 4 166 171 5 0 5 176 Preferred equity Paid in capital Share capital Retained earnings Minority interest Total equity Total debt & equity 0 0 300 1.7 58.vcsc.0% 16.0 4.9 56.070 607 (207) 400 0 174 574 1.468 1.0 19.2 5.895 559 249 1 24 0 274 (50) 0 (50) (90) 0 0 (90) 134 692 692 229 1 (3) 0 226 (50) 0 (50) (90) 0 0 (90) 86 778 778 202 1 (4) 0 199 (100) 0 (100) (90) 0 0 (90) 9 787 Cash flow Begin cash balance Net Income Depreciation ∆ in working capital Other adjustments Cash from operation Net Capex Other investments Cash from invest 675 348 23 0 (425) (54) 68 25 93 Dividends paid ∆ in capital ∆ in LT & ST debt Cash from financing (132) (20) (5) (156) Net changes in cash End cash balance (116) 559 See important disclosure at the end of this document www.485 2 4 166 171 5 0 5 176 0 0 300 1.610 280 30 8.Income tax Profit after tax .Financial Statements .1 78.0 0.8 1.4% 28. Accounts receivable Inventories Other current assets Total current assets Gross fix assets .6 0.173 757 (209) 548 0 174 722 1.485 692 210 39 87 41 1.7 1.0 0.1 77.Forex gain/loss . shares (m) EPS HOLD Actual 2012 2013 Forecast 2014 2015 VND Billion Balance Sheet 908 (611) 297 (8) (34) 256 (1) 137 391 (1) 390 (42) 348 0 348 732 (528) 203 (6) (27) 170 1 109 279 (1) 279 (30) 249 0 249 725 (552) 173 (6) (27) 140 0 116 257 (1) 256 (27) 229 0 229 720 (579) 140 (6) (27) 107 0 120 227 (1) 226 (24) 202 0 202 Cash & equivalent Short-term invest.306 0 1.718 1.5 Liquidity Current ratio Quick ratio Cash ratio Debt/assets Debt/capital Debt/equity Interest coverage 5.Interest expense EBT .0 428.5% 19.9 83.0 0.0 0.Cost of goods sold Gross profit .606 1.296 258 30 7.1% 15.2% 18.1 6. payables Cash conversion 60.Minority interests Net income to SH EBITDA Out.0 290.620 228 30 6.5 4.5 0.5 28.009 0 1.309 1.9% 32.

The selection of methods depends on the industry. including.vn | VCSC<GO> Viet Capital Securities | 18 . Clients should note that coverage may not be consistent and that VCSC may drop coverage of small caps at any time without notice. market sentiment may affect the valuation of companies. See important disclosure at the end of this document www. 3) Break-up value approaches or asset-based evaluation methods. EV/EBITA. and is not related to market performance. as well as risks inherent to the company under review. and historical valuation approaches. For investment advice. on other assumptions about the economy. Unless otherwise specified. Foreign currency rates of exchange may adversely affect the value. 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. discounted free cash-flow and comparative analysis. interest rates. depending on developments specific to individual industries. EVA). provided the necessary catalysts were in place to effect this change in perception within the performance horizon. such as GDP growth. HOLD 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 NOT RATED If the target price is 20% lower than the market price 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. peer-group comparisons. 2) Discount models (DCF.vcsc. these performance parameters only reflect capital appreciation and are set with a 12month horizon. our recommendation is an assessment of the mismatch between current market price and our assessment of current fair value. but not limited to. Company valuations are based on a single or a combination of one of the following valuation methods: 1) Multiple-based models (P/E. However. if any. Risks: Past performance is not necessarily indicative of future results. the nature of the stock and other circumstances. inclusively. P/cash flow. the target price will equal the analyst's assessment of the current fair value of the stock. are no longer in effect for this stock. therefore. and 4) Economic profit approaches (Residual Income. Valuation models are dependent on macroeconomic factors. the company. 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.VCSC Rating System and Valuation Methodology Absolute performance. EV/EBIT. clients should contact their local sales representative. Valuations are also based on expectations that might change rapidly and without notice. 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. Future price volatility may cause temporary mismatch between upside/downside for a stock based on market price and the formal recommendation. price or income of any security or related instrument mentioned in this report. raw materials. Target price: In most cases. EV/EBITDA). trade execution or other enquiries. including when VCSC is acting in an advisory capacity in a merger or strategic transaction involving the company. This structure applies from 1 November 2010. Furthermore. then the target price may differ from fair value. thus these performance parameters should be interpreted flexibly. Small Cap Research: VCSC Research covers companies with a market capitalisation of up to US$50mn. DVMA. the analyst may use different valuation methods. defined as (target price – current price)/current price. The previous investment rating and target price. EV/sales. long term (fundamental) rating key: The recommendation is based on implied absolute upside/downside for the stock from the target price. exchange rates.com. DDM). Valuation Methodology: To derive the target price. In most cases.

ext 139 Senior Analyst. Van Ngo. District 1.vcsc.238 Nguyen Cong Tru. Ly Vu. Mr. ext 140 Senior Analyst. ext 130 Senior Analyst.vn Hanoi Quang Nguyen +84 4 6262 6999. Hanoi +84 4 6262 6999 Transaction office 236 .com. Anh Nguyen. District 1. 2 Hai Trieu. Mr.vn Senior Analyst.vn Analyst.vn Vietnamese Sales Nguyen Quoc Dung +84 8 3914 3588. Hoa Dinh. ext 142 Institutional Sales & Brokerage & Foreign Individuals Head of Institutional Sales Michel Tosto. Mr. ext 136 dung. Minh Nguyen. Hoan Kiem District.nguyen@vcsc. HCMC +84 8 3914 3588 Transaction office 136 Ham Nghi. ext 116 Analyst.Sc.com.com. ext 222 quynh. Mr. HCMC +84 8 3914 3588 Hanoi branch 109 Tran Hung Dao. Trang Nguyen.Contacts HOLD Head office th Bitexco 15 Floor. ext 146 phuong. HCMC +84 8 3914 3588 Research Senior Manager Ms. District 1. ext 149 Technical Analyst.tosto@vcsc. Phap Dang.com.com.vn | VCSC<GO> Viet Capital Securities | 19 . ext 102 michel. Ms. Ms. Ms. Huy Nguyen.ton@vcsc. +84 8 3914 3588.com.com.chau@vcsc. ext 194 Research Team +84 8 3914 3588 research@vcsc. ext 312 quang. M. ext 147 Analyst. ext 143 Analyst. Phuong Ton. Mr.vn History of Recommendation Date Recommendation Closing price Target price See important disclosure at the end of this document www.vn Retail & Corporate Sales & Brokerage Ho Chi Minh City Quynh Chau +84 8 3914 3588. Ms.nguyen@vcsc. Dinh Nguyen.

This document must not be acted on or relied on by persons who are not relevant persons. U. All resulting transactions by a US person or entity should be effected through a registered broker-dealer in the US. for information purposes only. formed or created under the laws of Canada or a province or territory of Canada. All rights reserved. This report is not directed at you if VCSC Broker or Decker&Co. Pakistan: For private circulation only. client feedback.com. Opinions. directly or indirectly.vn | VCSC<GO> Viet Capital Securities | 20 . Singapore: VCSC and/or its affiliates may have a holding in any of the securities discussed in this report. Institutional Equities and Investment Banking. implement and maintain such a policy. which include revenues from. 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). published or redistributed by any person for any purpose without the written permission of an authorized representative of VCSC. habitually invest money. VCSC does not issue or distribute this material to "retail clients". a prospectus. 47 and 49 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (all such persons being referred to as "relevant persons"). and does not constitute an offer or solicitation to buy or sell any securities discussed herein in any jurisdiction. hereby certify that the views expressed in this report accurately reflect my personal views about the subject securities or issuers. United States: This research report prepared by VCSC is distributed in the United States to Major US Institutional Investors (as defined in Rule 15a-6 under the Securities Exchange Act of 1934. The equity research analysts responsible for the preparation of this report receive compensation based upon various factors. Canada: The information contained herein is not. the information contained herein or the merits of the securities described herein. among other business units. 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. Please cite sources when quoting. a broker-dealer registered in the US (registered under Section 15 of Securities Exchange Act of 1934. in the course of and for the purposes of their business. only to persons of a kind described in Article 19 (5). the report has been issued to persons regarded as professional investors (or equivalent) in their home jurisdiction. LLC in the US shall be borne by Decker&Co. and any representation to the contrary is an offence.K. the specific holding is disclosed in the Important Disclosures section above. a public offering. an offer to sell securities described herein. competitive factors. is. VCSC may have. 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. DISCLAIMERS AND DISCLOSURE Copyright 2013 Viet Capital Securities Company “VCSC”. and under no circumstances is to be construed as. for securities where the holding is 1% or greater. VCSC and its officers. No securities commission or similar regulatory authority in Canada has reviewed or in any way passed judgment upon these materials. within the last three years. Korea: This report may have been edited or contributed to from time to time by affiliates of VCSC. (For research published within the first ten days of the month. including the quality and accuracy of research. In the case of share trading. This report is provided. and the EEA by VCSC issued by VCSC has been prepared in accordance with VCSC’s policies for managing conflicts of interest arising as a result of publication and distribution of investment research.) Japan: There is a risk that a loss may occur due to a change in the price of the shares in the case of share trading. For the purposes of this paragraph the terms "wholesale client" and "retail client" have the meanings given to them in section 761G of the Corporations Act 2001. 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. 38. Dubai: This report has been issued to persons regarded as professional clients as defined under the DFSA rules. any trades in such securities must be conducted through a dealer registered in Canada. India: For private circulation only. the disclosure may be based on the month end data from two months prior. This report has been prepared on the basis of information believed to be reliable at the time of publication. 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. reproduced. significant advice or investment services in relation to the investment concerned or a related investment. and overall firm revenues. This report has been issued in the U. served as manager or co-manager of a public offering of securities for.Disclaimer HOLD Analyst Certification of Independence I. an advertisement. VCSC does not issue or distribute this material to members of "the public" as determined in accordance with section 3 of the Securities Act 1978. related to the specific recommendations or views expressed in this report. Trang Nguyen. or have provided within the previous 12 months. You should satisfy yourself before reading it that Decker&Co. VCSC will be receiving a brokerage fee and consumption tax (shouhizei) calculated by multiplying the executed price by the commission rate which was individually agreed between VCSC and the customer in advance. Hong Kong: The 1% ownership disclosure as of the previous month end satisfies the requirements under Paragraph 16. The recipient of this material must not distribute it to any third party or outside New Zealand without the prior written consent of VCSC. or will be. Australia: This material is issued and distributed by VCSC in Australia to "wholesale clients" only.K. and European Economic Area (EEA): Unless specified to the contrary. I also certify that no part of my compensation was. 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. not for sale. The recipient of this material must not distribute it to any third party or outside Australia without the prior written consent of VCSC. LLC and VCSC is permitted to provide research material concerning investment to you under relevant legislation and regulations. LLC is prohibited or restricted by any legislation or regulation in any jurisdiction from making it available to you. This report may not be copied.5(a) of the Hong Kong Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission. and that a loss may occur due to the exchange rate in the case of foreign share trading. LLC. LLC. as amended) only by Decker&Co. APPENDIX I: TERMS FOR PROVISION OF REPORT. They do not necessarily reflect the opinions of VCSC and are subject to change without notice. or solicitation of an offer to buy securities described herein. See important disclosure at the end of this document www. any or all of the entities mentioned in this report or may be providing. Investors must make their investment decisions based upon independent advice subject to their particular financial situation and investment objectives. not for sale. in Canada or any province or territory thereof. or currently may make a primary market in issues of. as amended). issued and approved for distribution in the U.K. VCSC makes no representation or warranty regarding the completeness and accuracy of such information. alternatively. In other EEA countries. estimates and projection expressed in this report represent the current views of the author at the date of publication only.vcsc. New Zealand: This material is issued and distributed by VCSC in New Zealand only to persons whose principal business is the investment of money or who. All responsibility for the distribution of this report by Decker&Co. Many European regulators require a firm to establish.