Vietnam Agribusiness Sector Report

Issue Date: 30 July 2013

Part of StoxPlus’s Market Research Reports for Vietnam

@ 2013 StoxPlus Corporation.

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Table of Contents

Our research contacts for

this report are: Part Content Page

Thuan Nguyen, FCCA 1 Sector Structure and Description 3-4

CEO
thuan.nguyen@stoxplus.com
+84 98 389 0000 2 Livestock Sector 5-11

Harry Hoan Tran, CFA Profile of Key Livestock Players

Senior Analyst
harry.tran@stoxplus.com
+75 1597 1532 3 Farming 12-21

Huong Thieu, MBA

Profile of Key Farming Players
Research Manager
Huong.thieu@stoxplus.com
+84 4 35626962 ext 108

Duy Nguyen, MBA

Research Associate
Duy.nguyen@stoxplus.com
+84 4 35626962 ext 107

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completeness of any information hereto contained.

2
 Sector Structure and Overview

Sector Overview

Agribusiness is the business of agricultural production. It includes crop production (farming and contract
farming), seed supply, agrichemicals, farm machinery, distribution, processing, marketing, and retail sales.

Seeds

Farming Plantation

Processing

Feeds

Agriculture Livestock Raising

Processing

Agrichemicals
Agriservice
Agriproduct Retailing

3
 Sector Structure and Overview

Market Overview

Figure : Breakdown of Vietnamese Agriculture Industry, 2011

• Vietnam boasts impressive figures in regards to its agricultural
production. It is the world’s second-largest exporter of rice, and one of
the world’s largest exporters of coffee and cashews. It is also a major Agriservice,
producer of various fruits, sugar, rubber and cotton. Food crop 0.5US$bn,
production has more than doubled since the early 1990s, and 1.3%
industrial crop output has increased by more than 300%, according to
the Vietnamese General Statistics Office. In 2011, agriculture’s share
Livestock, Farming
of economic output was 20.6%. US$10.3bn,
• This high output is mainly due to Vietnam’s climate and geography: 26.5%
while the two major deltas which receive heavy rainfall all year-round Livestock
have an ideal climate for fruit and rice, the central highlands are ideal Farming,
for the production of coffee and cashews. Even outlying districts of US$28.1bn,
Ho Chi Minh City, such as the Cu Chi district, feature major rubber 72.2% Agriservice
growing operations. Can Tho City, being the main hub of the Mekong
Delta, is a transit point for agricultural goods in the region.

Source: GSO

4
 Livestock Sector

Livestock sector: pig farming is the most dominant segment

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5
 Livestock Sector

Livestock: Animal feed sector are dominated by foreign players

Figure : Animal feed players market shares by sale volume 2011

• Vietnam's feed industry is one of the world's fastest growing agribusiness
markets. It is estimated that approximately a third of Vietnam's feed is prepared
C.P.
in backyard farms from domestic and far yard scraps. However, its commercial Vietnam,
feed output it growing at an extremely rapid pace. The animal feed industry has 18%
been receiving significant - mainly foreign - investment in recent years, given the
attractive prospects of the livestock and aquaculture industries of the country.
Foreign-invested feed companies continue to meet most of the domestic Proconco,
Other, 41%
demand, such as Thailand's Charoen Pokphand Group and US-based Cargill, 12%
according to the Ministry of Industry and Trade.
Dabaco, Cargill
• Demand exceeds supply: Since Charoen Pokphand Group first came to Vietnam,
Vietnam in 1993, the animal feed industry has transformed considerably from 3%
Vietnam 8%
poor-quality manually mixed products towards strictly standardized formula Green East Hope,
fodders. Unlike self-made feed, industrial feed provides adequate nutrition and is Feed, 8% 10%
free from contaminated ingredients. The government has since placed a high
priority on the development of industrial farming and expects the use of industrial
Source: Vietnam Animal Feed Association
feed to increase from 56% in 2010 to 70% in 2020 . Currently, the market is still
lucrative as supply only meets 60% of demand, leaving a big slice of the pie
unconsumed. Figure : Breakdown of total feed supply

• Local firms are disadvantaged as foreign firms enjoy economies of scale. 100%
The good prospect of the domestic animal feed sector has attracted huge 90% 18% 20% 18%
interest from foreign firms. With newer technology in breeding, feeding, and 80%
housing of livestock, foreign firms typically build large-scale operations that 13% 12%
70% 14%
result in economies of scale and lower production cost. In contrast, local firms
60%
are relatively small in terms of production capacity. Among the seven biggest
50%
animal feed producers, six are foreign firms or foreign-invested enterprises.
40%
• In total, 58 joint ventures and foreign-invested enterprises produce about 6.9 56% 67% 70%
30%
million tonnes of industrial feed, controlling 60% of output. The remaining 172 20%
local firms only produce 4.5 million tonnes (the other 40%). While domestic firms 10%
struggle, Cargill, Japfa Comfeed and C.P. Vietnam have all announced
0%
intentions to build more production plants in the next few years. According to Mr. 2010 2015 2020
Le Ba Lich, chairman of the Vietnam Animal Feed Association, 30% of domestic
feed producers went bankrupt in 2011. Industrial feed Self-made Import
Source: Vietnam Animal Feed Association

6
 Livestock Sector

Livestock: Animal feed sector are dominated by foreign players

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7
 Key Livestock Players

C.P. Vietnam Livestock Corporation: the dominant in livestock market in Vietnam

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8
 Key Livestock Players

DABACO JSC

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9
 Key Livestock Players

PROCONCO JSC: A local leading animal feed player

Company Profile Shareholder Structure

• Registered name: Proconco Joint Stock Company
• Head office: Bien Hoa Industrial Zone 1, Dong Nai province
• Year of establishment: 1991
• Charter Capital: VND146billion (US$7.3million)
• Type of company: Private Company
• Principal group businesses: Produce animal feed products
• Main products: Con Co bran, Ami bran, France feed
• # of employees: n.a.
• March 10, 2008: Proconco transferred into a model of joint stock company after
17 years operation under the form of joint-venture between Vietnam and SSI
France. The major shareholders of the company includes Donataba,
Seaprodex, Tin Nghia, Huu Nghia, ISA and Prudential. The Vietnamese
shareholders hold 60% of the total charter capital , the 40% left belongs to
Prudential funds.
• Oct 2012: Masan Group bought 40% share of Proconco from Prudential
Assurance Private Limited and PCA International Funds SPC (Vietnam
Segregated Portfolio) by cash with the total value of US$96million.
Masan’s strategy is 3F: Feed, Farm and Food. The group’s M&A activities are not only
for horizontal but also for vertical consolidation.

Financial Indicators

2011
Owner's Equity (VNDbn) 1,900

Net Profit margin (%) 5.5%

ROA (%) 21.5%

ROE (%) 36.2%

10
 Key Livestock Players

Viet Nam Livestock Corporation JSC – a SOE just completed IPO

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11
 Farming Sector

Coffee: Vietnam is the largest producer of Robusta coffee with total export value of US$3.7bn in 2012

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12
 Farming Sector

Coffee: list of key players by capacity 2011

Volume Robusta Production & Processing Volume

Robusta Export Capacity
(1000 tons/year) Capacity (1000 tons/year)
1 Vinacafe Tay Nguyen 186 1 Thai Hoa Group 400
2 Intimex 142 2 Tay Nguyen Investment Company 150
3 Thai Hoa Group 116 3 2/9 Company 50
4 2 - 9 Tay Nguyen Company 70 4 Vinacafe Da Lat 70
5 An Phuc Trading Company 58 5 Intimex 30
6 Truong Ngan Trading Company 40 6 ACOM 40
7 Nothern Foodstuff Company 37 7 OLAM Vietnam Company 40
8 Generalexim 30 8 OLARDAKMAN 25
9 Bac Ha Company 25 9 Netcafe 40
10 Tin Nghia Company 22 10 Amaro 40
11 OLAM Vietnam Company 80
12 ACOM Vietnam 50
13 AMARAZO Vietnam 35
14 OLARDAKMAN 27
15 LUIS Vietnam 25

Volume Instant Coffee Production & Processing Volume

Arabica Export Capacity
(1000 tons/year) Capacity (1000 tons/year)
1 Thai Hoa Group 12 - 15 1 OLAM Vietnam Company 2,500
2 Cong Chinh 3-4 2 Thai Hoa Group 2,000
3 OLAM 2-3 3 Vinamilk 1,500
4 Vinacafe 1-2 4 Vinacafe Bien Hoa 900
5 Cat Que 1 - 1.5 5 Nestea Vietnam 800
6 Trung Nguyen 300

Note:
• Thai Hoa Group is technically in default.
• Intimex is a SOE, has been equitised already.

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 Key Farming Players

VINACAFE BIEN HOA – a very profitable business

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14
 Key Farming Players

THAI HOA GROUP – is the largest café processing player but in bankruptcy

Company Profile Income results

• Registered name: Thai Hoa Viet Nam Group JSC
Net sales Net Profit/(loss) % Gross margin
• Head office: 352 Giai Phong, Phuong Liet, Thanh Xuan, Ha Noi 14.9%
3,500 3,232 20.0%
• Year of establishment: 1996 . Charter Capital: VND577bn (US$28mn)
3,000 5.0% 4.2% 10.0%
2.7%
• Type of company: Listed Company
2,500 2,227 0.0%
• Principal group businesses: Processing of agricultural products; Trade in food,
food; Purchase of machinery, equipment and materials for production; Sales and 2,000
-10.0%

VNDbn
lease warehouses, workshops, coffee planting, perennial plantations; Growing of 1,500 1,284 1,289
rubber trees; Processing of forest products, wood, wood; Production of fertilizer: -20.0%
fertilizer, NPK fertilizer, agricultural products from industrial waste; Transport of 1,000
-30.0%
goods by automobiles; Business hotels, motels; A number of other professions 500 281
licensed under the business registration. (21) 1 35
- -40.0%
• Main products: Coffee beans and coffee products 2008 2009 2010 2011 2012
(500) -50.0%
• # of employees: 308 by Dec 2012 (210) -47.7%
(1,000) (393) -60.0%
• Thai Hoa Café has total coffee processing of 400.000 tons per year.
• Prior to 2011, Thai Hoa was in the top 10 Vietnam leading coffee export
companies. In the 2009/2010 season (from Oct 2009 to Sep 2010), Thai Hoa Financial Indicators
exported 83,000 tons of coffee with the total value of US$125million, became the
2008 2009 2010 2011 2012
3rd coffee exporter and accounted 8% total coffee export value of Vietnam.
Total Asset (VNDbn) 1,631 2,458 3,025 2,315 2,032
• On 4/7/2012, share of Thai Hoa had been delisted from Hanoi Stock Exchange
(HNX) due to the accumulated loss as of 31/12/2012 up to VND622.543billion, Owner's Equity (VNDbn) 245 361 601 378 (14)
higher than the charter capital of VND577.499billion. Revenue (VNDbn) 1,284 3,232 2,227 1,289 281
Operating Profit (VNDbn) (35) (1) 59 (287) (410)
Reason for making lost: Net Profit (VNDbn) (21) 1 35 (210) (393)
• The company borrowed large amount to invest in manufacturing machinery. Net Profit margin (%) -2.7% 0.0% 1.9% -21.7% -140.0%
Because of financial crisis, interest rates have been too high in recent years, ROA (%) -1.3% 0.0% 1.3% -7.9% -18.1%
while profit could be realized in years later, so it gets financial trouble and is
technically in default now. ROE (%) -8.7% 0.2% 7.2% -42.9% -215.7%
EPS (VND) (986) 19 633 (3,641) (6,803)
• The company has been trading coffee without hedging thus getting lost from
the decrease of global coffee price. EV (VNDbn) 1,173 1,765 2,023 1,586 1,546
BVPS (VND) 11,308 10,274 10,934 6,547 (240)

15
 Farming Sector

Rice: Vietnam is the largest rice exporter by volume yielding US$3.7bn value in 2012

Overview Large scale rice farming program

• Rice is the main food staple for Vietnamese. Vietnam currently has about 4 • The Cultivation Department of the Ministry of Agriculture and Rural
million ha rice farming with total production volume of about 26.9 million Development of Vietnam is endeavoring to develop a large-scale rice farming
tonnes in 2012. Of which, 19.7 million tonnes are for domestic consumption model whereby neighboring farmers work with businesses and government
and the remaining 7.5 million tonnes are for export. officials to increase rice yields. In this model, businesses provide capital for
farmers to increase farm inputs such as fertiliser and machinery. They also
• Vietnam becomes the largest exporter of rice recently with total export
provide a ready consumer network for farmers. In return, they reserve the
volume of 7.5mn tonnes in 2012 or US$3.7bn export value. However rice
exclusive right to purchase after the harvest. Currently, large-scale rice farms
export prices are normally 20-25% discount comparing to peers such as
cover 10,000ha of total rice area harvested. The plan aims to expand this to
Thailand and India. Average Vietnamese rice export price (25% broken rice)
1mn ha in 2015, or approximately 10% of total area harvested for rice.
in April 2013 is approximately US$300 per ton, while Thailand and India’s
price rice are US$560 per ton and US$430 per ton, respectively.
• Rice production is made by farmers and sales made to local sole traders.
Local sole traders then sells to rice trading companies including Vinafood 1,
Vinafood 2 etc. Figure : Vietnam Rice Production & Consumption, 2007-2012
• In fact, there are 264 rice export companies by 2012 in Vietnam. However,
there will be a consolidation because the government has mandated that all Rice Production Rice Consumption
rice exporters are required to have at least one rice storage warehouse with
a minimum capacity of 5,000 tonnes of paddy and a rice processing facility 30,000
26,300 26,900
with a minimum processing capacity of 10 tonnes per hour. All rice exporters
24,375 24,393 24,993
had until September 2012 to take the necessary actions and adapt to these 25,000 22,922
changes.
19,400 19,150 19,400 19,788
Foreign restriction removed 20,000 18,775 19,000

'000 tonnes
• After 2011, foreign traders are allowed to directly undertake rice trading in
the country. Previously, foreign companies were required to enter into joint 15,000
ventures with local players. In an effort to improve the capabilities of local
rice exporters.
10,000
• Under WTO commitments, the Vietnamese rice market opening up to foreign
traders from 2011. 5,000

0
2007 2008 2009 2010 2011 2012E

Source: Ministry of Agriculture and Rural Development of Vietnam

16
 Farming Sector

Sugar: Vietnam has 40 mills with annual of 1.3mn tonnes in 2012

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17
 Farming Sector

Dang Van Thanh’s family plays an important role in sugar business of Vietnam

Figure : Cross-holding of Thanh Thanh Cong Jsc and its affilicates

Dang Van
Thanh’s
family

Dang Thanh Co., Thanh Thanh Thien Son

Sacombank Bentrimex Sontin-STE
Ltd Cong Jsc Logistics

27.6% 27.5% 33.7% 9.8% 13.3% 13.3%

23% 9.5%
BourBon Tay Ninh (SBT) Bien Hoa Sugar (BHS) Gia Lai Electric (GEC)

9.8%
24.9% 9.8% 19.4%
6.1% 64.6%

Gia Lai Sugar &

La Nga Sugar Ninh Hoa Sugar (NHS)
11.5% Thermoelectric (SEC)

42% 42% 10.3%

Sacombank Securities Jsc

Phan Rang Sugar 333 Sugar (S33)
(SBS)

Source: StoxPlus, the Company financial statements

18
 Key Farming Players

BIEN HOA SUGAR JSC – controlled by the Dang Van Thanh’s family

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19
 Key Farming Players

BOUBON TAY NINH JSC – the most profitable sugar player

Company Profile Breakdown of Revenue 2012

• Registered name: Societe De Bourbon Tay Ninh JSC
2%
• Head office: Tan Hung commune, Tan Chau, Tay Ninh 2%
4% 5%
• Year of establishment: 2007. Charter Capital: VND1419bn (US$70mn) Sugar
• Type of company: Listed Company
Molasses
• Principal group businesses: To produce sugar and related products; To
produce and merchandise sugar-using products and related products; To
produce electricity for using and trading; To manufacture and merchandise Electricity
fertilizers and agricultural materials; To grow sugar-cane and t help farmers to
grow and improve the productivity; To build and merchandise infrastructure for
Fertilizer
industrial parks and civil projects; To build and operate in restaurants and hotels;
To build supermarkets.
87% Other revenues
• Main products: Refined sugar, Molasses
• # of employees: 516 by Dec 2012

Ownership Structure Financial Indicators

2008 2009 2010 2011 2012

Thanh Thanh Cong Trading
Production JSC Total Asset (VNDbn) 1,766 1,846 1,957 2,306 2,634

Dang Thanh Co., Ltd. Owner's Equity (VNDbn) 1,446 1,649 1,790 1,794 1,696
25% Revenue (VNDbn) 563 771 1,104 2,050 1,961
34% Gia Lai Electricity Joint Stock Operating Profit (VNDbn) 84 223 370 569 414
Company
Net Profit (VNDbn) 82 210 345 553 370
Kinh Đo Ltd., Co.
Net Profit margin (%) 14.5% 27.3% 31.3% 27.0% 18.9%
Vietnam Dairy Products JSC. ROA (%) 4.7% 11.6% 18.2% 25.9% 15.0%
5% 25%
ROE (%) 5.3% 13.6% 20.1% 30.9% 21.2%
5%
6% Others EPS (VND) 574 1,480 2,432 3,896 2,608
EV (VNDbn) 1,869 2,049 1,869 2,230 2,625
BVPS (VND) 10,181 11,614 12,609 12,642 11,948

20
 Key Farming Players

LAM SON SUGAR JSC – Low efficiency and Profit is squeezing due to volatile sugar prices

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21
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