Pharmaceutical Industry
October 18, 2021
Son Tran
Senior Analyst
son.tran@vcsc.com.vn
+8428 3914 3588 ext. 185
Phap Dang, CFA
Associate Director
phap.dang@vcsc.com.vn
+8428 3914 3588 ext. 143
See important disclosure at the end of this document
Sector Report
Attractive long-term growth potential
In this report, we review the prospects and competitive landscape of Vietnam’s pharma industry,
including the retail distribution space (i.e., pharmacies). Our key conclusions are: (1) Vietnam
boasts ample long-term growth headroom on the back of its aging population and rising consumer
income against low medicine spending per capita, (2) the Government’s policies favor high-quality,
locally produced drugs in the hospital channel, which in turn benefit local drug producers that are
equipped with top-tier production standards, and (3) the consolidation in the pharmacy space is
accelerating with the aggressive store expansion of the leading nationwide chains. In terms of our
coverage, we currently have OUTPERFORM ratings on two pharma stocks — DHG
(OUTPERFORM, TP VND106,000/share) and IMP (OUTPERFORM, TP VND76,900/share).
Meanwhile, while we have a positive view on FRT’s pharmacy business, our cautious view on its
mobile business drives our current UNDERPERFORM rating (TP VND35,000/share).
Rapidly rising pharma spending — especially in the hospital channel. US market research
company IQVIA forecasts Vietnam’s pharma industry will deliver an ~8% sales CAGR from 2019-
2023. Vietnam’s pharma spending per capita boasts extensive growth headroom as it amounted
to only USD41 in 2018 vs China’s USD95 and a global average of USD159 (per IQVIA) with future
demand to be bolstered by Vietnam’s robust income growth and aging population. In our view, the
hospital channel (74% of Vietnam’s pharma sales in 2020, per IQVIA) will outgrow the pharmacy
channel due to widening universal healthcare coverage and potential tighter regulations on
prescription drug sales at pharmacies.
Regulations favor local drug producers with strong production technology in the hospital
channel. Per Circular 15/2019/TTBTY, the drug procurement of public hospitals must go through
a tender process that is stratified by quality standards in which the top two tiers (~60% of generic
drug tender value) are limited to EU – Good Manufacturing Practices (EU-GMP) or equivalent drugs
(e.g., Japan-GMP and PIC/S-GMP issued by ICH member countries). Vietnam’s regulations
(Vietnam Drug Law 2016 and Circular 03/2019/TT-BYT) also prioritize local drugs once they can
fully replace imported alternatives.
Nationwide chains are consolidating the fragmented pharmacy market that is stacked with
~50,000 drugstores — most of which are individual businesses. Strategies differ among these big
chains, based on our observations. Specifically, compared to peers, Pharmacity (unlisted) has a
bigger focus on non-drug offerings (e.g., FMCG products) that should put its GPM materially above
the sector’s average, in our view. Long Chau Pharmacy’s (subsidiary of FRT) format resembles
that of a traditional drugstore and emphasizes a wide range of medicine — especially prescription
drugs. Meanwhile, An Khang’s (MWG’s subsidiary) stores are being integrated with select MWG
grocery stores to leverage the latter’s customer traffic and selling space. Per our estimate, the top
two chains — Pharmacity and Long Chau — will combine for a low-teen market share in 2021,
which should expand further given their ongoing aggressive footprint expansion.
Relevant covered stocks: IMP (OUTPERFORM), DHG (OUTPERFORM) and FRT
(UNDERPERFORM). IMP was among the first movers in Vietnam in terms of obtaining the EU-
GMP standard and boasts one of the largest EU-GMP capacities in Vietnam. Backed by its new
capacity and product range extension, we expect IMP to gain market share from imported drugs in
the hospital channel’s high-quality tiers thanks to its cost competitiveness. Meanwhile, DHG’s
valuations (current 2021F/2022F PERs of 17.1x/16.0x vs its five-year average of 18.7x and a five-
year peer average of 18.4x) look reasonably attractive against our view for a stable mid-single-digit
annual growth outlook given DHG’s market-leading distribution network in the pharmacy channel,
robust brand equity and diverse product portfolio. For FRT, we think Long Chau could reach a
bottom-line breakeven point in late 2022-early 2023, which is backed by GPM expansion from a
larger scale and better product mix, maturation of new stores and operating leverage. That said,
growth and competition challenges in FRT’s mobile business lead to our current cautious view.
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 Contents
Attractive long-term growth potential ......................................................................................... 1
Vietnam’s pharmaceutical industry overview ............................................................................ 3
Ample growth headroom against low medicine spending per capita ................................. 3
Vietnam’s pharma spending per capita to be fueled by an aging population and rising
income ................................................................................................................................ 3
Hospital channel to lead industry growth thanks to Vietnam’s widening universal health
coverage and potential stricter control over the pharmacy channel’s prescription drug sales
............................................................................................................................................ 4
Competitive landscape ................................................................................................................. 5
Fragmented with an extensive presence of imported medicine — especially in the hospital
channel ............................................................................................................................... 5
Local players with strong technology to capture hospital channel’s top tiers are in prime
position to outperform ......................................................................................................... 7
Significant presence of foreign strategic investors in local pharma companies — a win-win
proposition ........................................................................................................................ 11
Comparison between leading listed pharma companies ........................................................ 12
Business ........................................................................................................................... 12
Financials.......................................................................................................................... 14
Pharmacy market: Nationwide chains are taking market share from individual drugstores
and small local chains ................................................................................................................ 16
Relevant stocks under our coverage ........................................................................................ 20
DHG: Reasonably attractive valuations against stable outlook [OUTPERFORM
+16.0%] ............................................................................................................................ 20
IMP: Robust earnings growth outlook on the back of leading production technology and
ample spare capacity [OUTPERFORM +11.3%] ............................................................. 20
FRT: Pharmacy business is seeing clearer path towards profitability [UNDERPERFORM -
15.0%] ............................................................................................................................... 21
VCSC Rating System ................................................................................................................... 22

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 Vietnam’s pharmaceutical industry overview
A large portion of the content on pages 3-11 was previously published in our reports IMP: Inflection
point for growth as new capacity comes online – Initiation in September 2020 and DBD: Potential
catalysts from new facilities, distribution revamp - Company Report in July 2021.

Ample growth headroom against low medicine spending per capita

Per IQVIA, Vietnam is one of the “pharmerging” markets — a group of countries that have relatively
low pharma penetration and high growth potential. IQVIA forecasts Vietnam’s pharma industry will
deliver an ~8% sales CAGR over 2019-2023. Vietnam’s pharma spending per capita boasts
extensive growth headroom as it amounted to only USD41 in 2018 vs China’s USD95 and a global
average of USD159, per IQVIA.
Figure 1: Historical and forecast pharma spending growth for “pharmerging” markets

Source: IQVIA

Vietnam’s pharma spending per capita to be fueled by an aging population

and rising income
According to the World Bank’s forecasts, Vietnam’s number of people aged 65 and older will more
than double to 18.4 million — or 18% of its total population — by 2040 from 7.9 million in 2020,
which bodes well for healthcare spending.
Data from German data provider Statista (Figure 2) indicates that Vietnam will record a similar
aging pace from 2020-2035 to China in 2005-2020. The fact that China’s medicine spending per
capita in 2010 was around the same level vs Vietnam in 2018 (USD41) and that it posted an 11%
CAGR over 2010-2018 (based on IQVIA’s data) reinforces our conviction in Vietnam’s pharma
spending growth going forward.
In addition, Vietnam’s robust economic growth prospects bode well for its pharma spending as
consumers become more health conscious.
Figure 2: Vietnam and China’s median ages

47.0 47.8 48.0

China Vietnam 40.6 43.0 45.4
36.7 38.4
32.6 35.0
29.8
27.0 41.2
23.7 22.0 21.1 23.4 24.7 38.5 39.7 40.4
19.6 19.2 20.1 21.7 32.5 34.6 36.7
28.5 30.5
24.5 23.6 21.9 22.3 24.2 26.4
19.2 18.2 18.3 19.1 20.0 21.1

Source: Statista, VCSC

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 Hospital channel to lead industry growth thanks to Vietnam’s widening
universal health coverage and potential stricter control over the pharmacy
channel’s prescription drug sales
In 2020, hospitals in Vietnam accounted for 74% of total medicine revenue. The hospital channel
posted a 10% CAGR in 2018-2020 while revenue from the pharmacy channel was flat during the
same period. The hospital channel’s outperformance vs the pharmacy channel is backed by the
Government’s promotion of universal healthcare coverage, which climbed from 67% in 2012 to 91%
in 2020. The Government targets for this ratio to reach 95% by 2025, per Resolution 20-NQ/TW
that was issued in 2017.
Meanwhile, Circular 02/2018, which aims at limiting the illegal use of prescription drugs (i.e., drugs
consumed without a prescription) and unauthorized drugs (i.e., unauthentic and smuggled drugs)
in the pharmacy channel has also put pressure on pharmacy sales.
Figure 3: Value share and YoY growth of key pharma segments in Vietnam in 2020

By sales channel By drug type By origin

74% 70% 65%

30% 35%
26%
10% 10% 5% 7%
0% 1%

Pharmacy Hospital Patented Generic Local Imported

Share 2018-2020 CAGR Share 2018-2020 CAGR Share 2018-2020 CAGR

Source: IQVIA, VCSC

We believe Vietnam’s high universal healthcare coverage will underpin medicine spending in the
hospital channel going forward — even after the coverage penetration is saturated — similar to
what happened in Thailand after its successful rollout of its Universal Coverage Scheme (UCS). In
2001, Thailand implemented the UCS, which was a public insurance system that aimed to achieve
universal access to healthcare — including essential medicine — and to encourage primary care
centers and hospitals to use resources efficiently via capitated payment for outpatient services and
other payment policies for inpatient care. This scheme increased Thailand’s insured population
from ~40% of the country’s total population in 2001 to 95.5% in 2004, which boosted medicine
revenue — especially from specialty drugs — as more people came to hospitals for treatments that
they could not previously afford. Medicine spending in the hospital channel kept outgrowing that of
the pharmacy channel even after the UCS’s coverage became saturated.

Figure 4: Total volume (standard units per capita) for Figure 5: Total volume (standard units per capita) for
insulin in Thailand by channel antihypertensives in Thailand by channel

14 Hospital Pharmacy 7,000 Hospital Pharmacy

12 6,000
UCS rolled out in April
10 2001, reaching 40% 5,000
UCS's
8 coverage coverage 4,000
6 reached 3,000
4 95.5% 2,000
2 1,000
0 0
Q2-1998
Q4-1998
Q2-1999
Q4-1999
Q2-2000
Q4-2000
Q2-2001
Q4-2001
Q2-2002
Q4-2002
Q2-2003
Q4-2003
Q2-2004
Q4-2004
Q2-2005
Q4-2005
Q2-2006

Q2-1998
Q4-1998
Q2-1999
Q4-1999
Q2-2000
Q4-2000
Q2-2001
Q4-2001
Q2-2002
Q4-2002
Q2-2003
Q4-2003
Q2-2004
Q4-2004
Q2-2005
Q4-2005
Q2-2006

Source: BMJ Open, VCSC Source: BMJ Open, VCSC

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 Competitive landscape
Fragmented with an extensive presence of imported medicine — especially
in the hospital channel
A fragmented industry. Per IQVIA’s Q1 2021 report, the top five pharma players in Vietnam held
a combined market share of only 16.5% in the 12-month period ending Q1 2021, of which the
market leader occupied a mere 4.8% market share.
Imported drugs account for nearly two-thirds of industry sales. According to IQVIA, Vietnam’s
pharma market recorded total revenue of VND104tn (USD4.4bn; +2% YoY) in 2020, of which 65%
was occupied by imported medicine. We attribute the prevalence of imported drugs to (1)
Vietnamese’s trust towards western drugs, (2) Vietnam’s lack of ability to develop patented drugs,
(3) advanced technologies enabling drugs from developed countries to dominate the high-end
segments in the hospital channel, and (4) low-price advantages of drugs imported from developing
countries such as India and Pakistan.
Figure 6: Vietnam’s pharma market share in 2020

DHG, 3.2% PME, 1.7%

TRA, 1.5%
IMP, 1.2%

DBD, 1.0%

Other domestic
companies, 26.3%

Imported drugs, 65.0%

Source: IQVIA, VCSC estimate

Fierce competition among domestic drug makers. Per the Drug Administration of Vietnam
(DAV), there were 178 companies with 203 production plants that were qualified with GMP
standards as of YE2019 — the majority of which were GMP-WHO. Due to limited know-how and
R&D investments, domestic pharma companies mainly produce generic drugs and common
supplements. Given the large number of competitors and their rather homogeneous production
capabilities, competition is stiff among domestic pharma companies.
Most Vietnamese pharma companies have pharmacies as their main distribution channel because
their inferior production standards prevent them from participating in the high tiers (tier 1 and tier 2)
of the hospital channel (more details on page 9) while price competition in the lower tiers (tier 3-5)
is fierce.

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 Figure 7: Vietnam pharma industry by distribution channel
Category Total pharma revenue of USD4.4bn (as of 2020)
Pharmacy channel (26% of
Hospital channel (74% of industry revenue)
industry revenue)
Patented drugs Tier 1 and 2 Tier 3, 4 and 5
Requirements Drugs covered under Pharma companies with Pharma companies with Key success factor is to
patent protection — advanced manufacturing WHO-GMP standard; establish a well-covered and
mostly imported from standards (i.e., EU-GMP, they use APIs imported efficient distribution system
developed countries. PIC/S-GMP and Japan- from China and India to as Vietnam currently has
GMP) and high-quality generate price ~50,000 pharmacies — most
materials that are often competitiveness. of which are individual and
sourced from developed small businesses.
countries.
Main drug Specialty medicines Antibiotics and specialty Antibiotics and some Common drugs (e.g., pain
categories medicines. specialty medicines (e.g., killer, fever reducer and cold
digestives and diabetes medicine), antibiotics and
and cardiovascular supplements.
drugs)
Major Major foreign pharma Dominated by imported Dominated by domestic Domestic companies such as
competitors corporations with strong drugs due to high drugs as well as Indian DHG, DMC, PME, TRA and
R&D technological barriers. drugs. IMP.
Among the listed Vietnamese Notable listed Imported drugs: Western
companies, PME and IMP Vietnamese pharma drugs in the high-end
are the pioneers in this companies: DHG, DBD, segment and Indian and
segment thanks to their past PME, DMC, and MKP. Pakistani drugs in the mass
investments in EU-GMP segments.
production plants.
Source: VCSC

Vietnam’s pharma industry is also heavily dependent on imported raw materials, most of
which are active pharmaceutical ingredients (API). According to the Ministry of Industry and
Trade, Vietnam imports 80%-90% of its pharma raw materials, of which China and India are the
dominant sources. China and India are also the top two global exporters of pharma raw materials
— especially those for generic drugs — thanks to their scale and cost advantages.
The dependence on imported materials exposes Vietnam’s pharma companies to risks related to
fluctuations in Chinese and Indian raw material prices as well as exchange rates. For example,
price hikes in Chinese APIs as a result of China’s environmental crackdown partly weighed on the
GPM of Vietnam’s pharma producers in 2018-2019.

Figure 8: Breakdown of Vietnam’s imports of Figure 9: In-house product GPM of leading listed
pharmaceutical materials by country source (USD mn) pharma companies

450 60%
400 11%
12% 50%
350 15% 14% 14%

300 16% 40%

16%
16% 17%
250 19%
30%
200
20%
150 68%
62% 65% 64%
100 60% 10%

50 0%
0 DHG IMP DBD DMC
2016 2017 2018 2019 2020
2016 2017 2018 2019 2020
China India
Source: Vietnam Customs, VCSC compilation Source: Company disclosures, VCSC compilation

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 Local players with strong technology to capture hospital channel’s top tiers
are in prime position to outperform
Public hospitals are required to procure medicine via a tender process that aims to lower
procurement prices for hospitals. Drug tender is implemented across all levels of public
healthcare facilities, ranging from district, provincial and central hospitals to regional Departments
of Health Services. In 2018, Vietnam started centralized drug tender (national level), which happens
once every two years compared to lower levels’ annual events.
Since 2013, “lowest price for products that satisfy the same technical hurdles” has been the guiding
principle behind the drug tender process. That said, drug quality and the differentiation of drug
quality started to become more of an emphasis in 2016. Please see Figure 11 for a description of
the evolution of regulations on drug tender and Figure 12 for changes in technical requirements
imposed by each regulation.
The current setup of hospital drug tenders tends to favor high-quality, locally produced
drugs. Per Vietnam’s Drug Law 2016, the Government’s critical imperatives for the pharmaceutical
industry are ensuring adequate and timely supply of drugs with good quality and reasonable prices
while also incentivizing local drug production.
The promotion of drug quality was exemplified by Circular 15/2019 that raised drug quality
requirements in public drug tender (Figure 12). Now, only EU-GMP drugs that are either (1)
produced entirely in an SRA country (see definition of an SRA country on Page 10) or (2) produced
in Vietnam and granted sales licenses by an SRA country are eligible to participate in Tier 1 of the
public hospital tendering process. Meanwhile, Tier 2 in the public drug tender is narrowed to EU-
GMP drugs (including drugs that are not eligible for Tier 1) and drugs manufactured entirely by a
production line in a country that is a member state of both PIC/S and ICH (more details in Figure
12).
In Tier 1 and Tier 2, domestic drugs have cost competitiveness vs imported drugs thanks to lower
factory construction costs and operating costs (e.g., labor, land, utilities, and environmental
treatment). Therefore, domestic drugs will be at an advantage over imported drugs when bidding
in these two tiers given the abovementioned guiding principle of “lowest price for products that
satisfy the same technical hurdles” behind the drug tender process.
Figure 10: 2020’s tender results in public hospitals

Tier 5, 5%
Patented, 16%
Tier 4, 15%

Tier 3, 16%

Tier 1, 33%

Tier 2, 15%

Source: DAV, VCSC compilation (Tier 1-5 are all generic drugs)

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 Vietnam’s Drug Law 2016 also does not allow public hospitals to buy imported drugs that
can be fully replaced by domestic ones in terms of pharmacology, pricing and supply
availability. Specifically, a medication will be added to this “no-import list” if at least three local
manufacturers can produce it at equivalent quality standards and lower prices compared to
imported alternatives. In 2016, there were 146 “no-import” drugs, all of which were based on WHO-
GMP standards. In 2019, this list was expanded to 640 drugs and included four EU-GMP drugs.
Figure 11: The evolution of regulations on drug tender in hospital channel
Period Overall theme Regulations Key regulations and impacts
Joint Circular
There was neither drug-tier differentiation nor details regarding drug
Before 10/2007/TTLT-BYT-BTC
Promoting quality selection criteria. Winning bidders were usually those that could offer
2013 Effective from August 25,
quality drugs at reasonable prices.
2007
Among the drugs that satisfied technical hurdles — which were
unchallenging — those with the lowest prices would win the tender.
The regulation did not distinguish between drugs with EU-GMP and
Joint Circular PIC/S standards granted by ICH member countries (i.e., of highest
2013-
Promoting low price 01/2012/TTLT-BYT-BTC quality) and those with EU-GMP and PIC/S standards granted by non-
2016
Effective from June 1, 2012 ICH member countries (i.e., of lower quality than ICH member
countries). As a result, drugs with EU-GMP and PIC/S standards granted
by ICH member countries — which are generally more expensive to
make — were put at a disadvantage in the tender process.
Joint Circular This Circular redefined drug tiers, in which the most notable change was
36/2013/TTLT-BYT-BTC separating EU-GMP and PIC/S standards granted by ICH member
Effective from January 1, countries and EU-GMP and PIC/S standards granted by non-ICH
2014 member countries (Figure 12).
This Circular provided a score board for technical hurdles that attributed
Joint Circular
a weighting of 70% to drug quality and 30% to packaging, storing and
31/2014/TTLT-BYT-BTC
delivering (30%). The bidding drugs needed to achieve a minimum
Effective from September
overall score of 80%, which was higher than 70% previously. However,
26, 2014
in general, this was still not a significant quality barrier to overcome.
This Circular made changes to the scoring system and stipulated that
the winning bidders would be those with the highest combined score of
Circular 11/2016/TT-BYT
quality and price instead of the cheapest among the qualified as
Effective from July 1, 2016
previously. Even though this change added some emphasis on quality,
in practicality, price remained the major deciding factor.
Promoting high- Law 105/2016/QH13 on
After No imported drugs are allowed if they can be fully replaced by domestic
quality, locally pharmacy
2016 ones in terms of pharmacology, pricing and supply availability.
produced drugs Effective from July 1, 2017
Drug tiers are further redefined, in which drugs that have PIC/S-GMP
Circular 15/2019/TT-BYT
standards issued by a non-ICH member country are disqualified from
Effective from October 1,
Tier 2, thus benefiting drugs with EU-GMP standard and PIC/S standard
2019
that are granted by an ICH member country.
Source: VCSC compilation

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 Figure 12: Summary of quality requirements of Vietnam’s public tender for generic drugs
Joint Circular Joint Circular
Quality category Circular 11/2016/TT-BYT Circular 15/2019/TT-BYT
01/2012/TTLT-BYT-BTC 36/2013/TTLT-BYT-BTC
• Effective from June 1, • Effective from January 1,
• Effective from July 1, • Effective from October 1,
2012 2014 2016 2019
Tier 1 • Drugs produced in an • Drugs manufactured by a• Drugs manufactured by a • Drugs that comply with
EMA, ICH or PIC/S production line that production line that EU-GMP standards or
country. satisfies EU-GMP or satisfies EU-GMP or equivalents and are
PIC/S-GMP standards PIC/S-GMP standards at manufactured entirely in
issued by an ICH country.a plant in Australia or an an SRA country.
• Drugs that meet WHO- ICH country. • EU-GMP drugs (and
GMP standards and have • Drugs that meet WHO- equivalents) that are
certificates of free sales in
GMP standards and have made entirely in Vietnam
an ICH country. certificates of free sales and have certificates of
in Australia or an ICH free sale in an SRA
country. country.
• Drugs on the list of
proprietary drugs or
reference biological
medicines announced by
the Ministry of Health
(MoH), except for
proprietary medicines
whose prices are
negotiated between the
MoH and pharma
companies.
Tier 2 • Drugs that meet WHO- • Drugs that meet EU-GMP • Drugs that meet EU-GMP • Other EU-GMP drugs.
GMP standard. or PIC/S-GMP standards or PIC/S-GMP standards • Drugs manufactured
issued by a non-ICH issued by a non-ICH entirely by a
country. country (except for manufacturing line in a
• Drugs franchised by Australia). country that is a member
production establishments state of both PIC/S and
satisfying EU-GMP or ICH.
PIC/S-GMP standards
issued by an ICH country
and produced at WHO-
GMP establishments.
Tier 3 • Drugs having evidence of • Drugs that meet WHO- • Drugs that meet WHO- • Drugs that meet WHO-
bioequivalence GMP standard. GMP standard. GMP standard and have
announced by the MoH. evidence of
bioequivalence
announced by the MoH.
Tier 4 • Other drugs • Drugs having evidence of • Drugs having evidence of • Other WHO-GMP drugs
bioequivalence announced bioequivalence made entirely in Vietnam.
by the MoH announced by the MoH
Tier 5 N/A • Other drugs • Other drugs • Other WHO-GMP drugs
Source: Ministry of Health, VCSC compilation

Note to Figure 12:

The European Medicines Agency (EMA) is a decentralized agency of the European Union responsible for the
scientific evaluation, supervision and safety monitoring of medicines in the EU. A list of the participating
countries can be found here.
The Pharmaceutical Inspection Co-operation Scheme (PIC/S) is a non-binding, informal cooperative
arrangement among regulatory authorities in the field of good manufacturing practices (GMP) of medicinal
products for human or veterinary use. It is open to any authority having a comparable GMP inspection system.
PIC/S is presently comprised of 52 participating authorities from all over the world. A list of the participating
countries can be found here.

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 Note to Figure 12 (continued):
The International Council for Harmonization of Technical Requirements for Pharmaceuticals for Human Use
(ICH) is an initiative that brings together regulatory authorities and the pharmaceutical industry to discuss and
issue harmony guidelines on scientific and technical aspects of pharmaceutical product development and
registration. The ICH currently has 16 participating authorities and 32 observers, which can be found here.
Stringent Regulatory Authority (SRA) is comprised of the ICH’s members and observers prior to October 23,
2015, and regulatory authorities associated with an ICH member through a legally-binding, mutual recognition
agreement prior to October 23, 2015. SRA’s 36 members include the United States, Japan, Canada, Australia,
Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany,
Greece, Hungary, Iceland, Ireland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Netherlands,
Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, Switzerland, and United Kingdom.

Investing in facilities of EU-GMP or equivalent standards to capture growth in the hospital

channel is a common trend among top pharma companies
As we mentioned earlier, due to limited know-how and R&D investments, domestic pharma
companies mainly produce generic drugs and common supplements. Given the large number of
competitors and their rather homogeneous production capabilities (i.e., WHO-GMP standard),
competition is stiff among domestic pharma companies. Therefore, investing in production facilities
of EU-GMP or equivalent standards has been a popular trend among the top pharma companies
as it would allow them to take part in the two highest quality tiers of the public drug tender. Among
listed companies, PME and IMP have been the pioneers with their early investments in EU-GMP
facilities, followed by DHG with its recently commenced Japan-GMP production lines.

Figure 13: Winning value in the hospital channel’s tender Figure 14: Successful bid value of top listed pharma
by drug tier in 2020 (VND bn) companies in 2020 (VND bn) in the hospital channel

900
Patented 800
Tier 1 700
600
Tier 2
500
Tier 3 400
300
Tier 4
200
Tier 5 100
0 2,000 4,000 6,000 8,000 10,000 0
Tier 1 Tier 2 Tier 3 Tier 4 Tier 5
Made in Vietnam Made in other countries IMP PME DBD DHG DMC

Source: DAV, VCSC compilation Source: DAV, VCSC compilation

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 Figure 15: Facilities in Vietnam that comply with EU-GMP or equivalent standards (2020)

Company Standards Factory Product Approval date

Penicillin antibiotics such as
Vinh Loc Hi-Tech
Imexpharm (HSX: IMP) EU-GMP amoxicillin and anti-beta- January 2019
Antibiotic Plant (IMP2)
lactamases.
Oral and intravenous
cephalosporins such as
Renewed in July
cefotaxime, cloxacillin and
2019 (initially
EU-GMP Binh Duong Plant (IMP3) cefoxitin.
granted in
Intravenous penicillin such as
September 2016)
amoxicillin and anti-beta-
lactamases.
Oral cephalosporins.
Pymepharco (HSX: November 2017
EU-GMP Oral beta-lactam Oral cefaclor and oral
PME) November 2017
cefpodoxime.
EU-GMP Injectable beta-lactam Intravenous cephalosporin February 2018
Sterile cephalosporin
Medochemie EU-GMP Intravenous cephalosporin June 2017
facility
EU-GMP Oral factory Non-sterile pills and tablets March 2018
Stellapharm EU-GMP Branch 1 Non-sterile pills and tablets May 2019
Savipharm EU-GMP Tan Thuan factory Non-sterile pills and tablets August 2019
Intravenous beta-lactam
Tenamyd EU-GMP Tan Thuan factory June 2017
antibiotics
Sterile: eye drops
Rohto-Mentholatum Japan-GMP Binh Duong Plant Non-sterile: cream, gel and February 2019
ointment drugs
Hau Giang Pharma
Japan-GMP Tan Phu Thanh factory Non-sterile tablets May 2019
(HSX: DHG)
Source: DAV, VCSC compilation

Significant presence of foreign strategic investors in local pharma

companies — a win-win proposition
Vietnam’s pharma sector has seen vibrant indirect foreign investments over the years. While
strategic foreign investors sought quick local access through existing manufacturing and
distribution systems, domestic pharma companies eyed support from these foreign partners in
terms of production technology, product development and export opportunities. The flip side of this
trend is that most listed Vietnamese pharma stocks are tightly held, causing below-average trading
liquidity.
Below are notable M&A transactions in Vietnam’s pharma sector:

• Pymepharco (PME) – Stada Arzneimittel AG (“Stada” – a German pharma company): Stada

became PME’s strategic partner in 2008 through a private placement, which was followed by its
multiple stake acquisitions that raised its ownership in PME to 89.5% as of now. Backed by
Stada’s support, PME successfully obtained the EU-GMP certification for its first factory in 2013
and was one of the first local companies to apply this standard. Partly thanks to its early-mover
advantages, PME has been the leading Vietnam-based drugmaker in the hospital channel, where
it focuses on the two highest quality tiers.
• Domesco (DMC) – Abbott Laboratories (“Abbott” – an American medical device and
healthcare company): In 2011, CFR International SpA (“CFR” – a Chile-based pharma company
that was taken over by Abbott in 2014) acquired a 44.7% stake in DMC from various institutional
investors before raising its stake to 51.7% in 2016. In 2017, CFR transferred its entire stake in
DMC to Abbott. That said, per our observation, Abbott has not made significant contributions to
DMC’s business, which we think could be because DMC is not a high priority for Abbott. The
initial investment in DMC was made by CFR before it became Abbott’s subsidiary.

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 • DHG – Taisho Pharmaceutical (“Taisho” – a Japanese pharma company): Taisho became
a strategic investor of DHG in 2016 via a 24.4% stake acquisition before it raised its ownership
to 51% in 2019. Taisho has contributed to DHG’s business improvements on multiple fronts,
including cost optimization, working capital optimization, production technology upgrades and
product development. In terms of production technology, Taisho helped DHG to upgrade two
production lines to the Japan-GMP standard (a top-tier standard). DHG is also building a new
antibiotics factory under the Japan-GMP standard. Regarding product development, Taisho is in
the process of transferring its lifestyle disease treatment drugs to DHG, which are set to contribute
less than VND100bn (USD4.3mn) in sales in 2021 compared to our in-house revenue forecast
of VND3.4tn (USD150mn) for DHG.

• Mekophar (MKP) – Nipro Corp (a Japanese pharma company): Nipro has been MKP’s
strategic investor since 2016 with a current ownership of 18.6%. In late 2019, aided by Nipro’s
support, MKP completed a new factory under the Japan-GMP standard. Unlike its peers, instead
of leveraging this factory to penetrate the hospital channel in Vietnam, MKP’s new factory acts
as a production hub for Nipro, whose products will be exported to Nipro’s international markets
under Nipro’s brands.
• Traphaco (TRA) – Daewoong Pharma (“Daewoong” – a Korean pharma company):
Daewoong has been TRA’s strategic investor since 2018 with a current ownership of ~40%, per
our estimate. Daewoong is fueling TRA’s strategy of ramping up its generic drug business (~20%
of 2020 total revenue) apart from its market-leading herbal medicine business. In Q1 2021,
Daewoong completed transferring seven generic drugs in the special treatment categories (e.g.,
diabetes, digestive and cardiovascular) to TRA and expects to continue doing so in the future.
• Imexpharm (IMP) – SK Group (“SK” – a South Korean conglomerate): SK acquired a
significant stake in IMP in 2020 and its current ownership stands at 29.4%. In our view, the key
areas that SK could provide support to IMP are exports and raw material procurement.

Comparison between leading listed pharma companies

Business
Figure 16: VCSC’s business analysis of top listed pharma companies1
DHG TRA IMP PME DBD
Key product Beta-lactam Beta-lactam
categories include antibiotics are the key antibiotics and cancer
oral antibiotics, No. 1 player in herbal product category. treatment drugs are
painkillers and fever medicine. Hospitals — the mainstay
Business categories.
reducers. Pharmacies are the especially the high- Similar to IMP
focus
The pharmacy key distribution quality drug Hospitals —
channel accounted channel. segments — are the particularly Tier 3 and
for 86% of DHG’s key distribution below — are the key
revenue in 2020. channel. distribution channel.
Owns the most One of the largest The biggest
One of the largest
extensive distribution Extensive distribution EU-GMP production Vietnamese company
EU-GMP production
in the pharmacy in the pharmacy capacities in in terms of cancer
capacities in
channel (Figure 19). channel (no. 2 behind Vietnam. treatment drugs,
Vietnam.
Strong reputation in DHG in terms of Strong position in which were launched
Strengths active pharmacy Strong support from in 2012.
the painkiller, fever antibiotics. Per
customers). the parent company
reducer and oral IQVIA, IMP ranked Broad distribution
Stada in terms of
antibiotics categories. Top-of-mind herbal fourth and eighth in coverage in the
technology, raw
DHG claimed a ~9% medicine brands. terms of revenue in hospital channel, in
material
(#2 nationwide) oral antibiotics and which DBD captures

1 Table continues on the next page

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 market share in 2020
in oral antibiotic
category, per IQVIA.
Small exposure to the
fast-growing hospital
channel (Figure 18),
owing to limited
advanced production
Weaknesses
technology. Most of
DHG’s production
facilities are under
the common WHO-
GPM standard.
Cementing its
position in the
pharmacy channel
with new products
that are transferred
from Taisho,
including lifestyle
disease treatment
drugs such as
neurological,
Strategic
cardiovascular and
plans
digestive drugs.
Investing in a Japan-
GMP antibiotics
factory, which is set
to commence in late
2024. This factory
would be able to
compete in the high-
quality tiers of the
hospital channel.
Source: VCSC
See important disclosure at the end of this document
injectable antibiotics, procurement, and ~50% of healthcare
respectively, in 2020. product transfers. facilities in Vietnam.
Strong position in DBD claimed the 14th
antibiotics. PME and 10th positions in
ranked third in terms oral antibiotics and
of oral antibiotics injectable antibiotics,
sales in 2020, respectively, in 2020,
according to IQVIA. per IQVIA.
Lack of advanced
production
technology as all of
DBD’s current
Limited presence in facilities are under
non-beta-lactam
the common WHO-
categories such as GMP standard, which
Limited presence in non-beta-lactam prevents DBD from
generic drugs, which antibiotics and penetrating the high-
Similar to IMP.
account for ~20% of special treatment value tier-1 and tier-2
TRA’s revenue. drugs — especially in segments in the
the high-quality tiers
hospital channel.
of the hospital
channel. DBD’s pharmacy
distribution trailing
peers in terms of both
breadth and depth
(Figure 19).
DBD is investing in
an EU-GMP cancer
treatment drug
factory that is
awaiting approval.
DBD also plans
another two EU-GMP
factories that would
upgrade its entire
product portfolio
dedicated to the
Penetrating the non-
hospital channel to
Penetrating the beta-lactam Similar to IMP, PME
this top-tier standard.
hospital channel with categories in the completed the
DBD is repivoting its
special treatment hospital channel with construction of an
distribution strategy
drugs that are an upcoming EU- EU-GMP non-beta-
for the pharmacy
transferred from GMP factory that is lactam factory that is
channel, particularly
Daewoong Pharma. set to commence set to commence
expanding its points-
TRA is also recruiting operation in mid- operation in 2022.
2022. of-sale rather than
high-level personnel Leveraging Stada’s
relying on a small
for its hospital- Leveraging SK’s international network
dedicated division. group of big
international network to boost exports.
pharmacies. To
to boost exports.
support this effort,
DBD is expanding its
salesforce, tightening
the standard
operating procedures
for the salesforce as
well as increasing
data usage to
optimize sales and
management
activities.
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 Financials
In general, there are two key differences in the profit margin and working capital structures between
pharma companies that focus on the pharmacy channel and those focusing on the hospital channel:
- Companies that focus on the pharmacy channel (e.g., DHG and TRA) tend to generate higher
GPM than their hospital-oriented peers (e.g., IMP, PME and DBD) given the hospital channel’s
bulkier volumes and competitive drug tender process. However, the pharmacy channel also
requires higher selling expenses for the salesforce as well as marketing activities. Overall, based
on our discussions with pharma companies, the EBIT margins of the two channels are not materially
different.
- Sales in the hospital channel typically bear longer receivable days because they involve bulk
volumes and as it traditionally takes long for State-owned counterparties to settle payment. For
example, it could take up to six months for the Health Insurance Fund to complete a payment.
Figure 17: Financial comparison between leading listed pharma companies
DHG TRA IMP PME DBD
Top of the pack in
terms of GPM thanks Superior margins,
IMP currently
to its focus on high- even in terms of GPM
generates thinner
Among the leaders in margin herbal despite its large DBD’s GPM is
margins than PME,
terms of GPM and exposure to the inferior to peers,
medicine. which we attribute
EBIT margin thanks hospital channel. Per which we attribute to
However, fierce partly to IMP’s lower
to its strong exposure management, PME’s the fierce price
Margins competition in the capacity utilization as
to the pharmacy robust GPM is partly competition in the
herbal medicine a substantial portion
channel and effective aided by joint lower quality tiers
space leads to of its EU-GMP
opex control (Figure procurement of raw (tier 3 and below) of
intensive marketing capacity just became
18). materials with the the hospital channel.
spending, which operational in recent
parent company
curbs TRA’s EBIT years.
Stada.
margin.
Despite its smaller
Currently trailing Despite its slim
net margin, TRA’s
Materially ahead of peers due to lower Tracks well with margins vs peers,
capital return
Capital peers (Figure 22) factory utilization and peers as its strong DBD’s capital return
generation is on par
return thanks to its superior tied-up capital related margins offset tied-up generation is broadly
with peers as the
generation net margin and to its upcoming IMP4 capital related to its in line with peers
herbal medicine
(ROE, ROIC) insignificant capex factory, which is ongoing investments thanks to its light
business is generally
needs awaiting the EU-GMP in EU-GMP capacity. capex in the last few
less capital-intensive
approval. years.
than generic drugs.
Compared to PME
and DBD, IMP has
substantially shorter
receivable days
because it employs
local partners to deal
with hospital drug
Receivable days are tender on its behalf.
Receivable days are Receivable days are Receivable days are
at the lower end of This approach helps
at the lower end of at the higher end of at the higher end of
the spectrum (Figure IMP shorten its
Working the spectrum as TRA the spectrum as PME the spectrum as DBD
21) as DHG primarily receivable days in
capital primarily distributes primarily distributes primarily distributes
distributes its exchange for
its products via the its products via the its products via the
products via the commissions paid to
pharmacy channel. hospital channel. hospital channel.
pharmacy channel. these local partners.
We estimate that
~80% of IMP’s
winning value in the
hospital drug tender
in 2019-2020 was
secured by its local
partners.
Source: VCSC

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 Figure 18: 2020 revenue breakdown by channel (VND bn) Figure 19: Number of active pharmacy customers at
YE2020
3,500
3,000
2,500
2,000 86%
1,500 50%
1,000 59%
93% 37% 30,000
500 27,000
50%
14% 41% 63%
- 7%
12,000
DHG PME TRA IMP DBD 8,000

Hospital channel Pharmacy channel DHG TRA IMP DBD

Source: Company disclosures, VCSC estimates Source: Company disclosures, VCSC compilation

Figure 20: 2018-2020 average GPM, EBIT margin and NPM Figure 21: 2018-2020 average days inventory
outstanding, days sales outstanding and days payable
outstanding (days)
53.4%

45.5% 44.0%
41
39.1%
34.2% 83
115 51
29 47
20.0% 64
19.2% 58 27 109
13.1% 16.0%
17.5% 16.9% 13.5%
12.9% 11.8% 176
10.3% 136 152 156
119

DHG PME TRA IMP DBD

DHG PME TRA IMP DBD
2018-2020 average DIO 2018-2020 average DSO
GPM EBIT margin NPM 2018-2020 average DPO

Source: Company disclosures, VCSC Source: Company disclosures, VCSC compilation

Figure 22: 2018-2020 average ROE, ROIC and equity multiplier

ROE (%) ROIC (%) Equity multiplier (x)
36% 1.7
21%
1.4
1.3
17% 26% 1.2 1.2
16%
15% 25% 23%

11%
15%

DHG PME TRA IMP DBD DHG PME TRA IMP DBD DHG PME TRA IMP DBD

Source: Company disclosures, VCSC; ROIC = EBIT/(owner's equity + net debt)

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 Pharmacy market: Nationwide chains are taking market
share from individual drugstores and small local chains
The pharmacy market in Vietnam is highly fragmented with around 50,000 drugstores —
most of which are individual (mom-and-pop) and small businesses. The prevalence of mom-
and-pop businesses leads to issues with medical expertise and consulting capabilities in this
industry. Specifically, even though the regulation states that every pharmacy needs to be
represented by a certified pharmacist, it does not require such pharmacist to be present at the
pharmacy all the time. This situation, coupled with the loose enforcement by the authority, leads to
(1) certified pharmacists renting their degrees to pharmacy owners but not actually working at those
pharmacies and (2) a pharmacist certificate being rented to multiple pharmacies at the same time.
This situation explains why Vietnam is among a few countries that have fewer pharmacists than
pharmacies.
Figure 23: Number of pharmacies and pharmacists per 10,000 people

Japan
Taiwan
India
Korea
Mongolia
Thailand
Singapore
Vietnam
Philippines
China
Laos
Indonesia
Myanmar
Cambodia

0 2 4 6 8 10 12 14 16 18 20

Pharmacies per 10,000 people Pharmacists per 10,000 people

Source: WHO (latest update in 2021), VCSC compilation

Nationwide chains are set to capture more market share given their aggressive expansion
plans. Based on our estimate, the two biggest chains (Pharmacity and Long Chau) combined for
a mid/high-single-digit market share in 2020. However, given their ongoing rapid footprint
expansion, we expect their market share will increase quickly going forward — reaching a double-
digit level in 2021. Pharmacity aims to establish a total of 5,000 stores by 2025 (from 513 stores at
YE2020) while Long Chau expects to open 150-200 new stores per year in the next few years (vs
YE2020 store count of 200).
From the consumer’s perspective, while prices remain the most influential factor to their purchase
decisions, we believe as income rises, factors such as service quality, medical consulting
capabilities, product variety and customer loyalty programs will become increasingly important and
support the growth of nationwide chains.

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 Figure 24: Factors consumers are most interested in when choosing a drugstore

Customer loyalty Near-to-home

programs locations
8% 3%

Popular brands Prices

9% 30%

Promotions
11%

Service quality
11% Consulting services
15%

Product variety
13%
Source: YouNet Media’s survey based on social media discussions in 2020 (N = 4,657)

Figure 25: Store count of major pharmacy chains

YE2018 YE2019 YE2020 July 2021

631

513

286
252
200
150
118
70 68
23 20 20

Pharmacity Long Chau (FRT) An Khang (MWG)

Source: Company disclosures, VCSC compilation

The proliferation of nationwide chains could put some pressure on the profit margins of
pharma producers — especially those that rely on the pharmacy channel for distribution.
This is because as the scale of these nationwide chains widens, their bargaining power vs suppliers
will strengthen, which in turn will allow them to negotiate more favorable trade terms.
The leading chains are running rather different store formats. Pharmacity runs “modern” store
formats that resemble those in developed countries; additionally, non-drug product offerings such
as FMCG are prominent. Meanwhile, we view Long Chau and An Khang formats as upgraded
versions of a traditional drugstore. However, while Long Chau is opening standalone stores, An
Khang stores are being integrated with select MWG grocery stores in order to leverage the latter’s
customer traffic and store space (Figure 29).

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 Figure 26: Comparison between drugstore formats
Mom-and-pop drugstores Traditional drugstore chains Modern drugstore chains
Wider product range compared to Broadest FMCG offerings (e.g.,
mom-and-pop drugstores — personal care, beauty care, baby
Focus on common medicine (e.g., care products and even non-
especially when it comes to
Product range antibiotics, painkillers and fever alcoholic drinks).
supplements and prescription drug
reducers).
— in order to attract big-ticket orders Drug variety is typically lower than
from hospital patients. traditional drugstore chains.
Different store sizes, ranging from
Mostly below 50 sqm but larger than
Mostly below 50 sqm. 20-40 sqm/store, 40-70 sqm/store to
mom-and-pop drugstores.
All customer consulting and order more than 70 sqm/store.
Store format All customer consulting and order
placing activities are executed over For non-drug products, open floor
placing activities are executed over
the counter. layouts resemble those of a
the counter.
convenience store.
For many stores, staff capabilities to More stringent recruitment of More stringent recruitment of
consult and dispense medicine are pharmacists compared to mom-and- pharmacists compared to mom-and-
Consulting questionable. pop drugstores. pop drugstores.
quality
Staff training is mainly conducted on Apart from hands-on training, staff Apart from hands-on training, staff
a “hands-on” basis. are provided with training courses. are provided with training courses.
Issues of drugs with questionable Clear product origins, which foster Clear product origins, which foster
quality and origin are common. consumer trust. consumer trust.
Product quality Selling prices are generally lower Generally higher selling prices than Generally highest prices among all
and pricing than chained stores thanks to light mom-and-pop drugstores. drugstore formats.
opex. Customer loyalty programs are Customer loyalty programs are
No customer loyalty programs. available. available.
Notable players Long Chau, An Khang, Phano Pharmacity
Source: VCSC

Figure 27: Long Chau is the leading chain in terms of sales per store thanks to its broad
product assortment — especially for prescription drugs

Current monthly sales/store by pharmacy chain (USD thousand)

~43

~25
~20 <20

Long Chau Pharmacity An Khang Phano

Source: FRT, VCSC estimates

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 Figure 28: Store fronts of a mom-and-pop drugstore (left) and Pharmacity (right)

Source: VCSC compilation

Figure 29: Store fronts of Long Chau (left) and An Khang (right)

Source: VCSC compilation

Figure 30: Internal layouts of Long Chau (left) and Pharmacity (right)

Source: VCSC compilation

See important disclosure at the end of this document www.vcsc.com.vn | VCSC<GO> October 18, 2021 | 19
 Relevant stocks under our coverage
DHG: Reasonably attractive valuations against stable outlook
[OUTPERFORM +16.0%]
Our latest Update Report on DHG, Reasonably attractive valuations against stable outlook, dated
August 11, 2021.
DHG looks appealing with 2021F/2022F PERs of 17.1x/16.0x vs its five-year average of 18.7x
and a five-year peer average of 18.4x. We expect mid-single-digit earnings growth per annum for
DHG, which will be mainly driven by its longstanding, extensive presence in the pharmacy channel,
robust brand equity as well as Taisho’s (DHG’s controlling shareholder) product support in fast-
growing lifestyle disease treatments such as neurological, cardiovascular and digestive drugs.
We expect DHG’s in-house product revenue to grow slightly slower than the industry (2020-
2023F CAGR of 7% for DHG vs 8% for the industry, per IQVIA) due to DHG’s small exposure to
the faster-growing hospital channel, which accounted for only ~14% of DHG’s sales in 2020.
DHG is constructing an antibiotics factory under the Japan-GMP standard to expand its
addressable market in the hospital channel. This factory will allow it to participate in the high-
quality tiers (Tier 1 and Tier 2) of hospital drug tender. Nevertheless, this new factory is set to
commence in late 2024; as such, we do not expect any significant improvements in DHG’s hospital
revenue in the near term.

IMP: Robust earnings growth outlook on the back of leading production

technology and ample spare capacity [OUTPERFORM +11.3%]
Our latest Update Report on IMP, Strong outlook despite near-term COVID-19 headwinds, dated
August 6, 2021.
We forecast IMP to post a 2020-2023F EPS CAGR of 24% thanks to its competitive
advantages in EU-GMP facilities and favorable policy backdrop. We forecast the utilization of
IMP’s EU-GMP factories will pick up from ~25% in 2020E to ~50% in 2023F and IMP’s in-house
product GPM to expand from 41.0% in 2020 to 42.6% in 2023F while its ROIC will climb from 16.3%
in 2020 to 27.0% 2023F.
Robust outlook in the hospital channel as indicated by IMP’s surging tender winning value.
In 6M 2021, IMP won VND1.1tn (USD49mn) in contract value in hospital drug tender. 97% of this
amount was attributed to tier 1 and 2 — the highest tiers of drug quality in hospitals. Despite current
headwinds from COVID-19, the fact that IMP’s winning value in 6M 2021 was equivalent to 120%
of 2020’s winning value bodes well for its medium-term growth, in our view. We forecast the hospital
channel’s contribution to total revenue will widen from 41% in 2020 to 64% in 2023F.
Figure 31: DHG and IMP vs peers
TTM Net TTM
USD mn Market TTM ROE TTM LQ
Net YoY % YoY % D/E EV/
Company cap NPAT % P/E P/B
Sales x EBITDA
DHG 560 175 5.5 34 14.1 -0.5 11.5 22.8 17.2 3.8
PME 272 94 20.4 15 9.7 0.0 12.5 17.4 18.1 3.0
IMP 217 60 -3.1 9 16.8 -0.1 14.8 11.6 25.9 2.9
TRA 163 90 18.1 10 36.0 -0.3 8.8 18.8 17.9 3.3
DBD 119 53 -3.0 7 13.5 -0.1 12.1 16.3 15.5 2.3
Source: Bloomberg, VCSC (data as of October 15, 2021)

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 FRT: Pharmacy business is seeing clearer path towards profitability
[UNDERPERFORM -15.0%]
Our latest Update Report on FRT, Positive pharmacy progress but share price overshooting, dated
August 31, 2021.
Long Chau is seeing clearer path toward profitability. Despite raising its store count to 268 in
H1 2021 vs 200 stores at YE2020 and 70 stores at YE2019, we estimate Long Chau’s monthly
sales/store improved from VND750mn (USD33,000) in 2020 to VND1bn (USD42,000) in H1 2021
while its opex/sales slid from 25.8% in 2020 to 21.7% in H1 2021. We attribute these improvements
partly to the positive maturation of new stores — especially those opened in 2020. We think Long
Chau could achieve a bottom-line breakeven point in late 2022-early 2023, backed by GPM
expansion owing to a larger scale and better product mix, continued maturation of new stores and
operating leverage. Per our projection, Long Chau will contribute 35%/42% to FRT’s revenue and
NPAT-MI in 2025F.
Our overall cautious view on FRT is premised on the sluggish prospects of its mobile
business. FRT’s mobile business is facing slow industry growth as well as rising competition from
the market leader MWG, which continues to add mobile phone points-of-sale as part of its
consumer electronics store expansion. Given this situation and FRT’s lack of clear initiatives to
drive SSSG, we forecast low-single-digit annual revenue growth in the medium term for FRT’s
mobile business. Based on this view, we believe FRT’s current valuations (2021F/2022F PERs of
42.3x/25.9x) are highly demanding.

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 VCSC Rating System
Stock ratings are set based on projected total shareholder return (TSR), defined as (target price – current price)/current
price + dividend yield, and are not related to market performance.

Equity rating key Definition

BUY If the projected TSR is 20% or higher
OUTPERFORM If the projected TSR is between 10% and 20%
MARKET PERFORM If the projected TSR is between -10% and 10%
UNDERPERFORM If the projected TSR is between -10% and -20%
SELL If the projected TSR is -20% or lower
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
NOT RATED
policies in certain circumstances, including when VCSC is acting in an advisory capacity in
a merger or strategic transaction involving the company.
RATING SUSPENDED, A rating may be suspended, or coverage terminated, if fundamental information is deemed
COVERAGE insufficient to determine a target price or investment rating or due to a reallocation of
TERMINATED research resources. Any previous investment rating and target price are no longer in effect.

Unless otherwise specified, these performance parameters are set with a 12-month horizon. Movement in share prices may
cause a temporary mismatch between the latest published rating and projected TSR for a stock based on its market price
and the latest published target price.

Target prices are generally based on the analyst's assessment of the stock’s fair value over a 12-month horizon. However,
the target price may differ from the analyst’s fair value if the analyst believes that the market will not price the stock in line
with assessed fair value over the specified time horizon.

Risks: Past performance is not necessarily indicative of future results. Foreign currency rates of exchange may adversely
affect the value, price or income of any security or related instrument mentioned in this report. For investment advice, trade
execution or other enquiries, clients should contact their local sales representative.

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 Disclaimer
Analyst Certification of Independence
I, Son Tran, hereby certify that the views expressed in this report accurately reflect my personal views about the subject securities or issuers.
I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views
expressed in this report. The equity research analysts responsible for the preparation of this report receive compensation based upon various
factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues, which include revenues
from, among other business units, Institutional Equities and Investment Banking.

VCSC and its officers, directors and employees may have positions in any securities mentioned in this document (or in any related investment)
and may from time to time add to or dispose of any such securities (or investment).VCSC may have, within the last three years, served as
manager or co-manager of a public offering of securities for, or currently may make a primary market in issues of, any or all of the entities
mentioned in this report or may be providing, or have provided within the previous 12 months, significant advice or investment services in
relation to the investment concerned or a related investment.

Copyright 2013 Viet Capital Securities Company “VCSC”. All rights reserved. This report has been prepared on the basis of information
believed to be reliable at the time of publication. VCSC makes no representation or warranty regarding the completeness and accuracy of
such information. Opinions, estimates and projection expressed in this report represent the current views of the author at the date of
publication only. They do not necessarily reflect the opinions of VCSC and are subject to change without notice. This report is provided, for
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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, as amended) only by Decker&Co, LLC, a broker-dealer registered in the US (registered under Section
15 of Securities Exchange Act of 1934, as amended). All responsibility for the distribution of this report by Decker&Co, LLC in the US shall
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jurisdiction from making it available to you. You should satisfy yourself before reading it that Decker&Co, LLC and VCSC is permitted to
provide research material concerning investment to you under relevant legislation and regulations.

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 Contacts
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