Thien Long Group (HSX:TLG) : Pure Fundamentals Play With Attractive Valuation

13 April 2015
Thien Long Group (HSX:TLG) BUY

Vy Nguyen
Analyst – vy.nguyen@vcsc.com.vn Pure fundamentals play with attractive valuation
+848 3914 3588 ext. 147
go
 We initiate TLG with a BUY rating and TP of 71,500 (upside of 19.2%) after
factoring in an illiquidity discount of 20%.
 Next-to-none distribution channel and robust export footprint to support
FY15-19E revenue CAGR of 15%.
Initiation
 Weak oil price paves way for GPM expansion of 200bps.
Consumer Goods  At current price of VND60,000, TLG is trading at a FY15 PER of 9.0x based
Target price 71,500 on VCSC forecast FY15 EPS of VND6,631 (+20.5% vs. FY14)
Current Price 60,000
Cash Dividend 1,500 The No.1 stationery group in Vietnam. TLG possesses all the attributes needed
Upside 19.2% for sustained market leadership: diversified product portfolio that fully captures
Dividend Yield 2.1% customer lifetime value, next-to-none distribution channels across all 63 provinces,
Total Return 21.3%
distinctive direct selling channels such as B2B and E-commerce, and growing export
Key Metrics footprint in 40+ countries. TLG’s dominant 60% market share in the pens segment
Market cap USD 74.8mn also demonstrates the group’s commitment and discipline to nurturing its core
30d avg trading value USD 4,041
business while diversifying its product offerings to other stationery categories.
Foreign ownership 20.0%
Foreign limit 49.0% Revenue to grow at 15% from FY15-19E. As TLG already dominates the writing
Current shares outstanding 26.8mn
Fully diluted share count 26.8mn
instruments category, the group is now aggressively pushing sales of office supplies.
12M High VND 60,000 We forecast this product to be the main growth driver with FY15-19E revenue CAGR
12M Low VND 32,984 of 23% and will replace Writing instruments as the biggest revenue contributor (30%
Ownership
FY19) in five years. Export revenues are also expected to grow at a FY15-19E
Thien Long An Thinh Invest 52.4% CAGR of 30% thanks to successful expansion in ASEAN and growing penetration in
Vietnam Holding Ltd 7.3% more sophisticated markets like China, US, EU.
Chairman 6.5%
CEO 3.7% FY15 gross margin set to expand on low plastics price. The oil price collapse
since Jun 14 has caused plastics prices to hit a five-year low in Jan 15 and still
shows weakness. Plastics represent 20% of COGS for TLG. We expect gross
Index, ETF inclusion
margin to improve from 37% in 2014 to 39% this year.
NA
Attractive valuation. Our DCF valuation gives TLG a BUY rating based on an
Company Description intrinsic valuation of VND89,000 per share thanks to its solid fundamentals and
Thien Long Group is a leading stationery
strong growth prospects. However, due to the lack of liquidity in TLG’s stock, we
manufacturer in Vietnam with a wide variety
of products in its portfolio, including writing apply an ~20% “illiquidity” discount on this price to reach a target price of
instruments, office supplies, school supplies VND71,500, translating to FY15 PER of 10.8x based on FY15 EPS of VND6,631.
and art supplies. Founded in 1981 and listed
on the Ho Chi Minh Stock Exchange in 2010, Key Financial Metrics 2013A 2014A 2015F 2016F 2017F
TLG now holds a 60% share of the writing Revenues (VNDbn) 1,406 1,614 1,831 2,091 2,401
instruments category and is expanding its Net Profit After Tax (VNDbn) 117 147 178 202 230
export footprint. Gross profit margin (%) 36.8% 36.9% 39.0% 37.6% 37.0%
Operating profit margin (%) 12.7% 11.9% 12.5% 12.1% 12.0%
Relative Performance
Net Profit After Tax margin (%) 8.3% 9.1% 9.7% 9.7% 9.6%
EPS, fully dilluted 4,351 5,503 6,631 7,533 8,600
100% TLG VNIndex
80% EPS growth (%) 16.4% 26.5% 20.5% 13.6% 14.2%
60% EV / EBITDA @ mkt price 7.5 6.2 4.9 4.0 3.3
40%
20% Price / FCF @ mkt px 12.9 5.5 13.7 12.0 11.4
0% Price / Earnings @ mkt px 13.8 10.9 9.0 8.0 7.0
-20%
-40% Price / Book @ mkt px 2.2 1.8 1.5 1.3 1.1
Oct-14
Dec-14
Aug-14
Feb-15
Apr-14
Jun-14
Apr-15
Return on assets (%) 11.8% 13.9% 15.2% 15.1% 14.8%

Return on equity (%) 19.7% 21.7% 22.2% 21.0% 19.9%
Debt-to-equity (x) 0.4 0.3 0.2 0.2 0.1
Note: NPAT = net profit after tax and minority interest
See important disclosure at the end of this document www.vcsc.com.vn|VCSC<GO> Viet Capital Securities | 1
Financial Statements
VNDbn
P&L
2013A 2014A 2015F 2016F 2017F VNDbn
Balance sheet
2013A 2014A 2015F
HOLD
2016F
2017F
Revenue 1,406 1,614 1,831 2,091 2,401 Cash & eq. 176 317 368 469 576
- COGS -889 -1,017 -1,118 -1,304 -1,512 ST investment 0 0 0 0 0
Gross profit 517 596 714 786 889 Accts rec 81 73 88 100 115
- Sales & mkt -192 -242 -302 -324 -360 Inventories 456 425 484 565 654
- Gen& admin -147 -163 -183 -209 -240 Cur assets 21 21 21 21 21
Oper. profit 179 191 228 253 289 Current assets 734 837 960 1,155 1,366
- FX gain/loss -1 -1 -2 -2 -2 Fix assets, gs 430 452 507 578 669
- Non-op (net) 10 16 16 16 16 - Acc. Depr. -251 -281 -329 -389 -455
EBIT 188 206 242 267 303 Fix assets, net 180 171 178 189 214
- Int. exp -23 -15 -15 -15 -15 LT investment 21 0 0 0 0
EBT 166 191 228 252 288 LT assets othr 74 99 99 99 99
- Income tax -49 -44 -50 -50 -58 Total LT assets 275 270 276 287 313
PAT 117 147 178 202 230 Total Assets 1,009 1,106 1,237 1,443 1,679
- Minority int. 0 0 0 0 0
NPAT 117 147 178 202 230 Accts payable 52 70 67 78 91
EBITDA 223 241 291 327 369 ST debt 238 182 182 182 182
Other ST debt 60 85 97 111 127
Out. shares (m) 22 25 (*) 27 (*) 27 27 Cur liabilities 349 338 346 371 400
Full dil. Shs (m) 27 27 27 27 27 LT debt 11 16 0 0 0
EPS 5,241 5,887 6,631 7,533 8,600 Other LT debt 19 20 20 20 20
Full dil EPS 4,351 5,503 6,631 7,533 8,600 Total LT debt 30 36 21 20 20
(*) Share dividend at a ratio of 10:1 (end 2013) and 10:1.5 (end 2014)
Total liabilities 380 374 367 391 420
2013A 2014A 2015F 2016F 2017F Pref equity 0 0 0 0 0
Growth Paid in capital 128 128 128 128 128
Rev growth % 15.6% 14.7% 13.5% 14.1% 14.9% Share capital 233 268 268 268 268
Op profit grw % 9.0% 6.9% 19.3% 10.8% 14.2% Ret earnings 268 336 474 655 863
EBIT growth % 7.2% 9.6% 17.5% 10.1% 13.4% Minority int. 0 0 0 0 0
EPS growth % 16.4% 26.5% 20.5% 13.6% 14.2% Total equity 630 732 870 1,051 1,259
Debt & equity 1,009 1,106 1,237 1,443 1,679
Profitability
Gross pm % 36.8% 36.9% 39.0% 37.6% 37.0% VNDbn 2013A 2014A 2015F 2016F 2017F
Oper pm % 12.7% 11.9% 12.5% 12.1% 12.0% CASH FLOW
EBIT % 13.4% 12.8% 13.2% 12.8% 12.6% Beg cash bal 151 176 317 368 469
EBITDA % 15.8% 14.9% 15.9% 15.6% 15.4% Net Income 117 147 178 202 230
NPAT margin % 8.3% 9.1% 9.7% 9.7% 9.6% Depreciation 38 37 49 60 66
ROE % 19.7% 21.7% 22.2% 21.0% 19.9% ∆ in work. cap 54 -65 -68 -76 -91
ROA % 11.8% 13.9% 15.2% 15.1% 14.8% Other adjust -14 -10 0 0 0
Cash oper. 87 229 161 194 221
Efficiency Net Capex -22 -25 -55 -71 -91
Days inv. OH 180.5 158.0 148.4 146.7 147.2 Investments 5 0 0 0 0
Days AR 17.0 17.5 16.0 16.4 16.4 Cash invest -17 -25 -55 -71 -91
Days AP 20.9 21.9 22.4 20.3 20.4 Dividends paid -21 -12 -40 -20 -23
Cash cvrs ratio 176.7 153.6 142.0 142.8 143.1 ∆ in capital 0 0 0 0 0
∆ LT, ST debt -24 -51 -15 0 0
Liquidity Cash finance -45 -63 -56 -21 -23
Current ratio 2.1 2.5 2.8 3.1 3.4 Net changes 25 141 50 102 106
Quick ratio 0.8 1.2 1.4 1.6 1.8 End cash bal 176 317 368 469 576
Cash ratio 0.5 0.9 1.1 1.3 1.4
Debt/assets 0.2 0.2 0.1 0.1 0.1
Debt/capital 0.3 0.2 0.2 0.1 0.1
Debt/equity 0.4 0.3 0.2 0.2 0.1
Int. coverage 8.3 13.9 16.6 18.3 20.8
Source: Company financial statements, VCSC forecasts

See important disclosure at the end of this document www.vcsc.com.vn | VCSC<GO> Viet Capital Securities | 2
Profit and Loss HOLD
1Q 2Q 3Q 4Q TLG target VCSC fcst
2015E (Jan 15 (Apr 15 (Jul 15 (Oct 15 YTD (Jan 15 (Jan 15
- Mar 15) -Jun 15) - Sep 15) – Dec 15) – Dec 15) – Dec 15)
Revenues 366.0 473.8 569.2 422.3 NA NA 1,831
Finished goods 295.7 382.8 459.8 341.1 NA NA 1,479
Domestic 248.8 322.0 386.9 287.0 NA NA 1,245
Writing instruments 118.1 152.9 183.7 136.3 NA NA 591
Office supplies 84.5 109.4 131.4 97.5 NA NA 423
School supplies 27.5 35.6 42.7 31.7 NA NA 137
Art supplies 18.7 24.2 29.0 21.5 NA NA 93
Export 46.9 60.7 73.0 54.1 NA NA 235
Branded products 27.5 35.5 42.7 31.7 NA NA 137
OEM 19.5 25.2 30.3 22.4 NA NA 97
Merchandise goods (*) 70.5 91.2 109.6 81.3 NA NA 353
Gross profit margin 39.1% 40.6% 39.3% 36.6% NA NA 39.0%
NPAT 36.0 53.0 66.3 22.3 NA NA 177.7
NPAT margin (%) 9.8% 11.2% 11.6% 5.3% NA NA 9.7%
Earnings per share 1,344 1,979 2,475 833 NA NA 6,631
1Q 2Q 3Q 4Q TLG target TLG result

2014 (Jan 14 (Apr 14 (Jul 14 (Oct 14 YTD (Jan 14 (Jan 14
- Mar 14) -Jun 14) - Sep 14) – Dec 14) – Dec 14) – Dec 14)
Revenues 312.5 433.5 496.3 371.3 NA 1600 1,614
Finished goods 247.7 343.6 393.3 294.3 NA NA 1,279
Domestic 212.3 294.5 337.1 252.2 NA NA 1,096
Writing instruments 104.9 145.4 166.5 124.6 NA NA 541
Office supplies 66.9 92.7 106.2 79.4 NA NA 345
School supplies 23.7 32.9 37.7 28.2 NA NA 122
Art supplies 16.9 23.4 26.8 20.1 NA NA 87
Export 35.4 49.1 56.2 42.0 NA NA 183
Branded products 19.7 27.4 31.3 23.4 NA NA 102
OEM 15.6 21.7 24.8 18.6 NA NA 81
Merchandise goods (*) 63.1 92.6 99.7 79.9 NA NA 335
Gross profit margin 35.4% 38.1% 37.1% 36.6% NA NA 36.9%
NPAT 24 46 58 20 NA 130 147
NPAT margin (%) 7.61% 10.54% 11.70% 5.40% NA NA 9.1%
Earnings per share 888 1,706 2,167 749 NA NA 5,503
(*) Merchandise goods include stationeries from other brands that TLG trades via its trading subsidiaries.
Forecast for Fiscal Year 2015
FY14A FY15
forecast
FY16
forecast
YoY % (vs.
FY14)
Explanation
HOLD
(1Q14- (1Q15-
1Q15) 1Q16)
Revenues 1,614 1,831 2,091 13%
Finished goods 1,279 1,479 1,720 16%
Domestic 1,096 1,245 1,417 14%
Writing instruments 541 591 644 9%
Intensive direct selling through B2B and E-
Office supplies 345 423 518 23%
commerce
School supplies 122 137 155 12%
Art supplies 87 93 100 7%
Expansion in ASEAN countries and successful niche
Export 183 235 303 29% market approach in penetrating large and
sophisticated markets like China, US and EU
Branded products 102 137 185 35%
OEM 81 97 118 21%
Merchandise goods 335 353 371 5%
GPM expansion on the back of five-year low in
Gross profit 596 714 786 20%
plastics price
Competition requires increasing effort and cost for
Sales & marketing exp -242 -302 -324 25%
sales and marketing
General admin exp -163 -183 -209 13%
Operating profit 191 228 253 19%
Non-operating profit 15 14 14 -6%
EBIT 206 242 267 17%
Interest expense -15 -15 -15 -2%
Profit before tax 191 228 252 19%
Profit after tax 147 178 202 20%
NPAT (after minority interest) 147 178 202 20%
EBITDA 241 291 327 21%
Gross profit margin % 36.9% 39.0% 37.6%

Sales & marketing % sales 15.0% 16.5% 15.5%
General admin % sales 10.1% 10.0% 10.0%
Operating profit margin % 11.9% 12.5% 12.1%
EBIT margin % 14.9% 15.9% 15.6%
EBITDA margin % 14.9% 15.9% 15.6%
NPAT margin % 9.1% 9.7% 9.7%
Effective tax rate % 23.0% 22.0% 20.0% Tax rate will drop to 20% from 2016
Table of Contents
HOLD
Company at a Glance .................................................................................................................. 7
Vietnam stationery demand set to grow at a CAGR of 10% FY14-19F, outpacing global
demand growth ..................................................................................................................... 8
The No.1 stationery group in Vietnam ....................................................................................... 11
The market leader with a strong core business ..................................................................... 11
Diversified product portfolio fully captures customer lifetime value ....................................... 11
TLG’s distribution network is second-to-none ........................................................................ 12
Local domination fuels global ambition .................................................................................. 15
Relentless pursuit of quality, innovation and technology development ................................. 16
Earnings outlook ........................................................................................................................ 18
Revenue CAGR of 15% expected for the period FY15-19E .................................................. 18
Five-year low in plastic prices to fuel gross margin expansion in FY15E .............................. 19
Valuation .................................................................................................................................... 21
DCF Valuation ........................................................................................................................ 21
Peers comparables ................................................................................................................ 22
VCSC Target Price and Rating History .................................................................................. 22
Table of Figures
HOLD
Figure 1: Select Company Metrics ............................................................................................... 7
Figure 2: Global writing instruments industry growth rates.......................................................... 8
Figure 3: Global writing instruments industry growth rates vs. GDP per capita .......................... 9
Figure 4: Global writing instruments industry growth rates vs. Median age of population .......... 9
Figure 5: Global writing instruments industry market size ........................................................... 9
Figure 6: TLG’s market share in the writing instruments category ............................................ 11
Figure 7: TLG’s product lines contribution to total revenue ....................................................... 11
Figure 8: TLG’s product and brand portfolio and target customer segment .............................. 12
Figure 9: TLG’s extensive distribution network .......................................................................... 13
Figure 10: TLG’s subsidiaries .................................................................................................... 13
Figure 11: TLG’s traditional and modern distribution channels ................................................. 14
Figure 12: TLG actively promotes its products through international exhibitions and fairs ....... 15
Figure 13: TLG’s export revenue and contribution to total revenue .......................................... 16
Figure 14: Contribution of branded products vs. OEM to TLG’s export revenue ...................... 16
Figure 15: TLG is moving toward more automated production ................................................. 16
Figure 16: Price positioning of TLG and domestic competitors for ballpoint pens .................... 17
Figure 17: TLG’s quality and management standard qualifications .......................................... 17
Figure 18: Domestic sales breakdown by product line FY13-19E ............................................. 18
Figure 19: Domestic sales growth rate by product lines FY15-19E .......................................... 18
Figure 20: Export revenue by segments .................................................................................... 19
Figure 21: Plastic prices slumped to 5-year low ........................................................................ 20
Figure 22: Gross profit margin expanded .................................................................................. 20
Figure 23: Revenue and margin assumptions ........................................................................... 21
Figure 24: DCF assumptions ..................................................................................................... 21
Figure 25: 5-year DCP Valuation ............................................................................................... 21
Figure 26: Peers comparables ................................................................................................... 22
Company at a Glance
HOLD
Business Stationery manufacturer
Revenue USD75mn
Net profit USD7mn
USD/VND = 21.458
Key sales drivers Demand for stationeries and writing instruments

Key cost drivers Plastic input prices
Key risks factors Raw material cost rise, competition
Major clients End users (retail consumers and institutional consumers)
Leadership Mr. Co Gia Tho (Chairman)
Dr. Vo Van Thanh Nghia (CEO)
Address Lot 6-8-10-12, Road No.3, Tan Tao Industrial Park
Website http://www.thienlonggroup.com/
Email nga.tp@thienlongvn.com
Telephone (+84)8 37505555 - Ext 172
Figure 1: Select Company Metrics

Revenue Mix Gross Profit Margin & NPAT Margin
2000 VNDbn 50%

1500 40%
1000 30%
500 20%
10%
0
2011 2012 2013 2014 0%
2011 2012 2013 2014
Art supplies School supplies
Office supplies Writing instruments Gross margin % NPAT margin %
Total cost breakdown Capital Structure
2,000
VND bn
Dep'n
3% 1,500
Outsourcing Other
services s1% 1,000
16%
Raw 500
material
Labor
55% -
25%
2011 2012 2013 2014
Total shareholder's equity

Total liabilities
Source: Company financials 2014
Vietnam stationery demand set to grow at a CAGR of
10% FY14-19F, outpacing global demand growth HOLD
Will pens and stationeries become obsolete? This is the first question that pops up when
we think about the future of writing instrument and stationery products in an increasing digital
world. The growing ubiquity of smart phones and tablets posses an obvious threat for
traditional handwriting. Instead of writing on physical paper, people are now able to link their
mail, calendar, notes, documents and reminders seamlessly and store it in a “digital cloud” for
anytime, anywhere access.
However, it will take a long time if not forever for smart gargets to entirely replace
traditional writing instruments. There are four solid reasons for this. Firstly, for students and
office workers – the main consumers of stationeries – pens and paper are cost effective and
require minimal effort in using compared to modern personal learning devices and
technologies like SMARTboard. Secondly, drawing and writing are natural forms of human
expression that are naturally fostered since very early childhood. Thirdly, people still enjoy and
appreciate writing as one way to express personal identities, feelings and sincerity over the
impersonal nature of modern communication tools. Lastly, it is actually simpler and faster using
pens and paper for daily notes. An analogy would be the continued relevance of physical
books despite growing availability of e-books and devices like Kindle.
With these factors in mind, it can be further elaborated that the following factors are needed for
a growing stationery market: young and fast-growing population, rising demand for education
services and educational products, increasing customer willingness to pay more for better
products and writing experiences, and a low existing penetration rate of stationery products.
Relative to the world, Vietnam ranks high on each of these pre-conditions, thereby
creating a strong foundation for robust growth in demand of stationery products.
Figure 2: Global writing instruments industry growth rates

12%
Volume CAGR (*)
10%
Value CAGR (*)
8%
6%
4%
2%
0%
-2%
-4% VNM CHN IDN THA IND PHL SGP HKG TWN USA KOR AUS JPN DEU FRA GBR ITA
Younger population, low purchasing power Older population, high purchasing power
Willing to pay more for innovative/good products Shift towards paperless working practices
Stationery product penetration is still low High adoption of digital technologies
Threat from electronic devices remains low Growing environmental concerns
(*) FY13-18: IDN, IND, PHL, SGP, HKG, USA, DEU

(*) FY14-19: VNM, CHN, THA, TWN, KOR, AUS, JPN, FRA, GBR, ITA
Source: Euromonitor 2014, Technavio 2014, TLG, VCSC estimates
Figure 3: Global writing instruments industry growth rates vs. GDP
per capita
HOLD
12% VNM
10%
8% CHN
Gowth rate (%)
6%
IDN
4% IND THA HKG SGP
2% PHL USA
KOR AUS
0% JPN
Younger and
- 20,000 40,000 DEU 60,000 80,000
-2% poorer countries
ITA GBR FRA
tend to
-4% GDP per capita (USD) experience higher
Source: Worldbank demand for a
whole class of
products,
Figure 4: Global writing instruments industry growth rates vs.
Median age of population including writing
instruments, as
12% VNM education and
CHN literacy levels rise
10%
8%
Growth rate (%)
6% IDN
IND THA
4% PHL
SGP
2% USA
KOR
0%
20 25 30 35 AUS 40 FRA 45 JPN 50
-2% DEU
GBR ITA
-4% Median age of population (year)
Source: UNdata
Figure 5: Global writing instruments industry market size (USDmn)
Market size in 2013 or 2014 (*)

4,500 Market size in 2018 or 2019 (*)
3,500
2,500
1,000
800
600
400
200
0
(*) FY13-18: IDN, IND, PHL, SGP, HKG, USA, DEU

(*) FY14-19: VNM, CHN, THA, TWN, KOR, AUS, JPN, FRA, GBR, ITA
Source: Euromonitor 2014, TLG, VCSC estimates
Technavio, a London-based research and advisory company with a global coverage, expects
the stationery and cards market in Vietnam to grow at a CAGR of 10.01% FY14-19. TLG, with
HOLD
its dominant 60% market share in writing instruments, also expects the market to growth 8% to
10% in volume with price growth of less than 5%. This outpaces Asia countries whose value
growth rates lie between 0-5% and developed markets (US and Europe) whose growth rates
are negative.
Vietnam stationery market’s double-digit growth is backed by:
 Large and young population: 90.5mn people, 35% of whom are in pre-school and
school and 60% of whom are working age.
 Soaring spending on education: From 1998 to present, Vietnamese government

expenditure on education has increased from 13% to over 20% of total budget. This
number is among the highest in the world. Vietnamese people also put great priority
on education, with parents investing evermore in their children’s education.
 Rising demand for more product choice creates room for product development:
The difference in income with Vietnam positioning as a developing country against
other more developed countries results in the fact that Vietnamese people utilize more
basic and low cost writing instruments than those that are used by developed
countries. Rising income will allow Vietnamese people to spend more on stationery
and afford increased prices for better quality and branding. On top of that is the
valuable opportunity for stationery producers who have the will and capability to sharp
market demand for more sophisticated products. People are no longer satisfied with
the traditional blue ballpoint pen but and are demanding a wide variety of writing and
other stationery products. This creates a room for stationery companies to keep
introducing new types of products such as gel pens, roller ball pens, mechanical
pencil, highlighters, correction tapes, sticky notes, etc with various colours ranging
from traditional black, blue and red to vibrant yellow, pinks, orange, green, etc.
 Quality supersedes price. The recent scandals involving unsafe toys from China
have raised huge concerns over the safety of products for children, and are making
Vietnamese consumers more conscious about quality. This will confer a competitive
edge to manufactures that comply with international quality and safety standards not
only in their own country but also in export markets.
 Consumers trading up to higher-end products: With the rise in per capita income,
people are becoming more willing to pay for high-end and luxury writing instruments
which not only deliver a better writing experience but also act as markers of social
status.
The No.1 stationery group in Vietnam
HOLD
The market leader with a strong core business
Since its establishment as a small family business in 1981, TLG has been focusing on defining
and developing its core business: manufacturing stationeries, which in turn is built around its
core writing instruments product line. This abiding commitment has been the main driver
behind TLG’s stable earnings CAGR of 20% from FY09-14 and its current 60% market share
in the writing instruments category, well ahead of its 2 main local competitors namely Hong Ha
Stationery and Ben Nghe Ball Pen & Stationery, which together account for only ~15% market
share in this category. Chinese producers and high-end imported brands hold the remaining
25% of the writing instruments market.
Diversified product portfolio fully captures customer lifetime value

Expanding product portfolio... In its early days, TLG produced only pens but the group has
gradually expanded its portfolio to include four product lines which straddle different
demographic segments: Art supplies (“Colokit” brand) for pre-school children, School supplies
(“Diem10” brand) for school children, Writing instruments with “TL” brand for general use and
“Bizner” premium brand for middle-aged costumers.
...satisfies all types of customer needs. Having a product that is relevant for each age-group
enables TLG to build a strong relationship with its customers from childhood right up to middle-
age hence extracting value from customers throughout their lifetime. TLG’s different brands
also cover a broad spectrum of income brackets, right from mass-market customers to a high-
income audience and working professionals, thereby minimizing risk. Finally, the close
adjacency of the different product lines means that the company can also maximize customer
lifetime value through cross-selling of its different products to the same customer (eg. An office
worker who buys a pen might very likely also require files, folders or markers).
Figure 6: TLG’s market share in the writing Figure 7: TLG’s product line contribution to
instruments category total revenue (*)
Hong Ha & Art

supplies
Ben Nghe
School 8%
12% supplies
11%
TLG Writing
Others instruments
28% (*) 60% Office
52%
supplies
29%
(*) Including other domestic producers and (*) Total revenue includes finished goods
imported goods (domestic and export) and merchandise
goods.
Source: TLG, VCSC estimates Source: TLG
Figure 8: TLG’s product and brand portfolio by target customer segment
Brands Product lines Products HOLD

Target customers
Premium writing instruments High-incomer users

Writing
instruments
Folders, files, markers, etc. Office workers

Office supplies
Ball point pen, gel pen, etc Mass market

Writing
instruments
Notebooks, blackboards, School-aged children and

chalk, etc young students
School
supplies
Crayons, oil pastels, water Pre-school aged children

colors, etc
Art supplies
Source: TLG
TLG’s distribution network is second-to-none

Ubiquitous presence across Vietnam. TLG’s domestic distribution network touches all 63
provinces and cities nationwide with 110 distributors covering more than 53,000 points-of-sale
(POS).The distribution network is supported by 2 general warehouses, one each in the North
and South of the country. The reach of TLG’s distribution network puts the company in a
different league altogether; the company’s closest competitor and the number two market
player, Hong Ha Stationery, covers only 10,000 POS. To put it simply, anyone in Vietnam who
needs to write will be within striking distance of a store selling TLG pens.
Distribution network restructuring to boost efficiency. In 2014, TLG restructured its
distribution network by re-evaluating each of its distributors and retaining only the most
effective and efficient ones. This resulted in a fall in number of distributors (110 FY14 vs. 135
FY13) but led to a corresponding surge of 7,000 in the number of POS covered. The improved
distribution network is helping TLG improve its market share, enhance geographical
penetration and reduce working capital. To put the efficiency of its reconfigured distribution
network into perspective, Hong Ha Stationery covers just one-fifth the number of POS as TLG
through nearly the same number of distributors as TLG (100 vs. 110 distributors for TLG).
Figure 9: TLG’s extensive distribution network
North central No. of POS surged when HOLD

warehouse TLG restructured its
(Hanoi) distribution network.
53,000
45,000 45,000 46,000
40,000
135 135 135

101 110
South central
warehouse
(HCMC) 2010 2011 2012 2013 2014
Distributors Points of sales
Source: TLG
Gaining traction in new channel development. To complement its traditional distribution

network, TLG has started to develop new, direct channels since 2010, including Business-to-
business (B2B) and E-commerce. These initiatives are a part of TLG’s strategy to start
developing direct relationships with customers and are managed by the Tan Luc group of
subsidiary companies including Southern Tan Luc and Northern Tan Luc. These trading
companies not only sell TLG’s products directly to end customers but also buy and sell other
popular brands. This creates a one-stop-shop model where customer can go to FlexOffice
website or call Tan Luc’s sales team and order any stationery they need. In 2014, the
combined revenue of these two companies revenue grew by 70%, reaching VND355bn, ~21%
total TLG revenue.
These direct selling channels should eventually help to boost customer engagement, and
consequently customer lifetime value, as well as boost contribution margins as the company
captures the value currently claimed by middlemen in the value-chain. Sales to supermarket
and bookstores directly also holds enormous potential given the rapid emergence of organized
retailers and chain store operators; sales to large accounts could help reduce selling expenses
and further boost operating margins in the future.
Figure 10: TLG’s subsidiaries

Charter %
No. Subsidiary name Specification capital Owned
(VND bn) by TLG
Thien Long Long Thanh Manufacturing and trading
1 80 100%
Manufacturing & Trading Co. Ltd stationery
Trading and distributing stationery
Thien Long Global Trading &
2 (Managing traditional distribution 20 100%
Service One Member Co. Ltd
channel)
Southern Tan Luc Trading & Trading stationery
3 20 100%
Services One Member Co. Ltd (Manage direct selling channels)
Northern Tan Luc Trading & Trading stationery
4 10 100%
Services One Member Co. Ltd (Manage direct selling channels)
Source: TLG
Thien
FigureLong
11: TLG’s Group (HSX:TLG)
traditional and modern distribution channels OUTPERFORM
Modern channels
Traditional channel
Distributor B2B E-commerce

http://flexoffice.com.vn/
Retailers Bookstores & Institutional

Supermarkets (Schools & Corporates)
End-users
Source: TLG
Local domination fuels global ambition
Export footprint across 40+ countries; export revenue grew at a FY08-14 CAGR of 35%.
This performance was impressive in view of the recent global economic crisis and was driven
by TLG’s ambition and relentless efforts to take the TLG brand beyond Vietnam’s borders. The
group has been actively participating in numerous international stationery industry exhibitions
and trade fairs for many years and has made its products available in more than 40 countries
across five continents. While traditional export markets were within the ASEAN region, TLG
has, in recent years, successfully entered more sophisticated and competitive markets like the
US, EU and China, the world’s largest stationery manufacturer. Export revenues contributed
11.3% to total 2014 revenues in 2014, up from only 6.1% in 2008.
Figure 12: TLG actively promotes its products through international exhibitions and fairs
International Stationery & Office

London Stationery Show 2014 Paperworld Frankfurt 2014
Products Fair Tokyo 2014
Source: TLG
Shifting to more sustainable export growth. TLG exports two types of products: branded
products (under FlexOffice and Colokit brands) and products for Original Equipment
Manufacturers (OEMs), which includes make-to-order white label products and contract-
manufacturing for third party brand owners. Although both of the product types play important
roles in TLG’s export strategy, revenues from the OEM line rely on orders which are “lumpy” in
nature, thereby making this revenue stream relatively volatile. Therefore, the group has been
moving toward more sustainable and stable export growth by increasing the contribution of its
own branded products in total export revenues. We estimate that before 2012 branded
products accounted for less than 40% of TLG’s export revenue but this number increased to
55% in 2014 indicating that TLG is gaining better brand awareness in offshore markets. This
will ultimately allow it to gain pricing power in these markets, thereby boosting margins.
Figure 13: TLG’s export revenue (VND bn) and Figure 14: Contribution of branded products
contribution to total revenue (%) vs. OEM to TLG’s export revenue HOLD
11.3 11.2
10.0
47% 45% Branded products
7.5 57%
getting bigger
6.4 6.7
6.1 share in export
revenue means
180 more sustainable
137 140 export growth and
53% 55%
43% higher margins
78
54
29 40
2008 2009 2010 2011 2012 2013 2014 2012 2013 2014
Export revenue Export/Total revenue Branded products OEM
(*) Growth includes the impact of 35% devaluation of

the VND against USD, 0.5% appreciation against
EUR over this period.
Source: TLG Source: TLG, VCSC estimates
Relentless pursuit of quality, innovation and technology development
Best-in-class, captive manufacturing facilities. Currently, TLG owns 100% of its two
factories Thien Long (HCMC) and Thien Long Long Thanh (Dong Nai province). TLG also has
its own mechanical workshop to design and manufacture plastic moulds and equipment, which
reduces the need to import expensive equipment from other countries, thereby lowering
manufacturing costs, and improving production flexibility. In 2014, TLG’s production capacity
reached approximately 595mn units, a 10% increase from 2013.
Figure 15: TLG is moving toward more automated production

Area
Plant Location Starting operation
(m2)
Tan Tao Industrial Park 1999 (built)
Thien Long 16,000
(Ho Chi Minh City) 2003 (upgraded)
Long Thanh Industrial Park
Thien Long Long Thanh 2009 30,000
(Dong Nai Province)
Total revenue / Total employees (VNDmn / total employees)
525
474 Both production and revenue
417
354 increased significantly over years
291 302
248 but the number of total employees
remained virtually unchanged,
resulting in a substantial rise in
revenue per employee.
2008 2009 2010 2011 2012 2013 2014
Source: TLG, VCSC
Continuous product innovation. TLG’s continuous investment in product R&D and its quick
product development cycles have enabled the group to pull way ahead of its competitors. EachHOLD
year, TLG releases dozens of new products, many of which possess breakthrough technology
such as the environmentally-friendly washable ink system for school and art supplies, the first-
of-its-kind in Vietnam.
Meeting international standards for product quality and safety. TLG has a strong
commitment to ensuring the quality and safety of its products, which is reflected in the
numerous certifications that the group has earned. This strict compliance to international
standards not only enables TLG’s products to successfully penetrate foreign markets but also
builds differentiation between TLG and other domestic players as well as Chinese
manufacturers, especially in low-end products. As recent concerns in Vietnam around the
safety of Chinese products for kids has became more and more serious, Vietnamese are now
willing to pay a premium for safer products. Interestingly, this is also a theme in China which is
one of the export markets for TLG; Chinese consumers don’t trust local products and not all of
them can afford expensive western alternatives – this creates an opportunity for TLG.
Figure 16: Price positioning of TLG and domestic competitors for ballpoint pens (VND/unit)
TLG prices its 25,000

… and slightly higher
ballpoint pens 12,500
than other domestic
nearly double
manufacturers in
that of low-end
exchange for certified
Chinese … but still much more
quality and safety… 5,500
products… affordable compare to
premium competitors.
2,400 2,700
1,400 2,000
Aihao 555 Hong Ha Ben Nghe Thien Long Pentel Stabilo Zebra F-301
TC08 L16 TL027 BK417 BP338
(TLG)
Source: VCSC
Figure 17: TLG’s quality and management standard qualifications

Cert. Area Cert. Area
Calibration and Testing
ISO 9001 Quality Management ISO 17025
Laboratories Control
International Council of Toy
ISO 14001 Environmental Management ICTI
Industries
Occupational Health and Safety EN-71 Part 3; European Standard for non-
OHSAS 18001
Management EN-71 Part 9 toxic/ safety measures
American Standard ASTM for
SA 8000 Social Accountability D- 4236
non-toxic/ safety measures
Source: TLG
Earnings outlook
HOLD
Revenue CAGR of 15% expected for the period FY15-19E
Office supplies will be the main growth driver. Writing instruments and office supplies
contribute 52% and 29% of TLG’s revenue respectively, with the former category dominating
since inception. However, as TLG has already captured a dominant market share of 60%
market share in this category and has developed an established reputation for pens over the
last 34 years, this product line is now reaching maturity and growth, going forward, is likely to
be in line with the overall market growth rate of ~10% per annum. Recognizing this, TLG has
been pushing sales of office supplies via direct selling channels to offices and corporations.
We expect this product line will grow at a CAGR of 23% over the period FY15-19E, hence
overtaking writing instruments by 2019 to become TLG’s biggest product line in terms of
revenue contribution.
Figure 18: Domestic sales breakdown by product line FY13-19E
100%
80%
Office supplies will
60% continue to increase its
contribution to total sales
40%
20%
0%
2013 2014 2015E 2016E 2017E 2018E 2019E
Art supplies School supplies Office supplies Writing instruments
Source: VCSC forecasts
Figure 19: Domestic sales growth rate by product lines FY15-19E
The growth driver with highest sales

Sales CAGR
CAGR FY15-19E of 23% backed by
25% FY15-19E of 9%
intensive direct selling strategy to
in line with the penetrate corporate accounts.
20% industry growth
of ~10% Will realize healthy
15% growth as TLG
leverages its
10%
strong institutional
relationships.
5%
0%
Writing instruments Office supplies School supplies Art supplies
Sales growth CAGR FY15-19E
Export revenues set to clock a CAGR of 30% over the period FY15-19E. Exporting is a key
HOLD
strategic initiative for TLG as it aspires to become a global player. Historically, TLG has
penetrated foreign markets by introducing its products through international exhibitions and
fairs then taking OEM contracts or selling finished products under the FlexOffice and Colokit
brands via large purchasing orders from overseas wholesalers. This approach offers distinctive
advantages as TLG does not need to build a distribution network in each of its export markets
and compete head-on with well-established local players in each of these markets.
ASEAN countries constitute “low-hanging fruit” and, recognising this, TLG is pushing
penetration by setting up representative offices in Laos and Myanmar. These countries, which
are close to and have demographics similarity to Vietnam, can become natural extensions to
TLG’s Vietnamese distribution platform. Meanwhile, TLG will continue to penetrate the US, EU
and Chinese markets through sales of its branded products. We expect export revenue will
grow at a CAGR of 30% through to 2019 and constitute one-fifth of total sales by the end of
this period.
Figure 20: Export revenue by segments (VNDbn)
21%
total
800 CAGR 30%
revenue
700
600
500
11%
400
total
300 revenue
200
100
0
2013 2014 2015E 2016E 2017E 2018E 2019E
OEM Branded products
Five-year low in plastic prices to fuel gross margin expansion in FY15E

Raw materials take up 65-70% of COGS for TLG, which mainly includes cost of plastic
(imported from Taiwan, Korea, Thailand), ballpoint (imported from Switzerland, India), and ink
(imported from US, Japan, Germany). Among these, ink and ballpoint prices are stable but
plastic prices fluctuate in line with oil prices. Plastic represents ~30% of raw material costs,
translating to ~20% of COGS, meaning that fluctuation in plastics price can have a significant
impact on gross margins.
Because of the oil price collapse since Jun 2014, plastic prices hit a five-year low in Jan 2015
and have only recovered by ~23% since. There are three main types of plastics used in TLG’s
production: General purpose polystyrene (GPPS), General plastic film polypropylene (GPPP)
and High density polyethylene (HDPE) and prices for these are down 27% (reaching
USD1,275/ton), 13% (reaching USD1,350/ton) and 14% (reaching USD1,320/ton) down from
the same period last year, respectively. With the continued weakness in oil prices, we expect
TLG’s gross margin to stay at elevated levels over the medium term.
Figure 21: Plastic prices (USD/ton) slumped to 5-year low
2000
HOLD
1800
1600
1400
1200
1000
800
1-Jan-10 1-Jan-11 1-Jan-12 1-Jan-13 1-Jan-14 1-Jan-15
General pupose polystyrene (GPPS) General plastic film polypropylene (GPPP)

High-density polyethylene (HDPE)
Source: Bloomberg
The impact of plastic price movement on TLG’s gross margin has been historically proven.
When plastic prices fell below USD1,300/ton over the period 2H10-1H11, FY11 gross margin
expanded 350bps vs. FY10 to 39%. Based on this pattern, it would appear that TLG is going to
witness a dramatic gross margin expansion in 2015 given the sharp recent drop in plastic
prices. However, as TLG now has long-established relationships with its suppliers, TLG will
only realize a partial benefit from the fall in plastic prices (this also means shields it from the
risk of future rises in oil prices). Additionally, the benefit from plastic price decreases will be
partially offset by increases in electricity and labour costs. Considering these factors, we
expect FY15E gross margin to improve by 209bs to 39%, matching the level realized in 2011.
We forecast FY15E NPAT will touch VND178bn (+20.5% vs FY14), corresponding to a FY15E
EPS of VND6,631.
Figure 22: Gross profit margin expanded
40% TLG’s long-standing

relationships with suppliers
39% keep its gross margin
stable in hard times +209bps
38% +350bps
37%
36%
35%
34%
2010 2011 2012 2013 2014 2015E
Gross margin %

Valuation
We initiate on TLG with a one-year target price of VND71,500, implying that there is a 19.2%
HOLD
potential upside to the current market price of VND60,000. Because TLG has very low liquidity
(30-day average trading volume reaches only 1,518 shares), we apply a 20% “illiquidity”
discount over the VND89,287 intrinsic value derived from the DCF model.
Target price 71,430

DCF 89,287
Illiquidity discount 20%
DCF Valuation
Figure 23: Revenue and margin assumptions
2015E 2016E 2017E 2018E 2019E 2020E
Revenue (VND bn) 1,831 2,091 2,402 2,777 3,234 3,795
Revenue growth (%) 13.5% 14.1% 14.9% 15.6% 16.5% 17.3%
Finished goods 15.7% 16.3% 16.9% 17.6% 18.4% 19.2%
Domestic 13.5% 13.8% 14.2% 14.5% 14.9% 15.3%
Writing instruments 9.1% 8.9% 8.7% 8.5% 8.3% 8.1%
Office supplies 22.5% 22.6% 22.7% 22.8% 22.9% 23.0%
School supplies 12.3% 12.4% 12.5% 12.6% 12.7% 12.8%
Art supplies 7.2% 7.3% 7.4% 7.5% 7.6% 7.7%
Export 28.5% 29.1% 29.7% 30.3% 30.9% 31.4%
Branded products 34.8% 35.0% 35.3% 35.5% 35.7% 35.9%
OEM 20.6% 20.8% 21.0% 21.2% 21.4% 21.6%
Merchandise goods 5.2% 5.3% 5.4% 5.5% 5.6% 5.7%
Gross profit margin 39.0% 37.6% 37.0% 36.6% 36.4% 36.1%
Operating profit margin 12.5% 12.1% 12.0% 11.5% 11.2% 10.8%
Net profit margin 9.7% 9.7% 9.6% 9.2% 8.9% 8.6%
Figure 24: DCF assumptions

2015E 2016E 2017E 2018E 2019E 2020E
Risk free rate 5.5% 5.5% 5.5% 5.5% 5.5% 5.5%
Risk premium 7.0% 7.0% 7.0% 7.0% 7.0% 7.0%
Cost of equity 8.3% 8.3% 8.3% 8.3% 8.3% 8.3%
Cost of debt 8.0% 8.0% 8.0% 8.0% 8.0% 8.0%
Beta 0.4 0.4 0.4 0.4 0.4 0.4
Debt ratio 17.4% 14.8% 12.6% 10.9% 9.4% 8.2%
WACC 7.9% 8.0% 8.1% 8.1% 8.1% 8.1%
Terminal growth rate 2.0%
Figure 25: 5-year DCF Valuation

Multi-stage DCF Valuation
Forecast length in years 5
PV of FCF 559
PV of Terminal value 1,648
Total PV of FCF + PV of Terminal value 2,207
add: cash & ST investments 368
minus: short and long-term debt 183
Equity less fair value of minority interest 2,392
Outstanding shares (million) 27
Price per share 89,287
Peers comparables
At current price VND60,000, TLG is trading at T12M PER of 11.5x, a 29% discount to its
HOLD
regional peers average, despite significantly higher ROE. This relatively low PER reflects these
facts:
 TLG is a domestic-focused midcap company compared to other multi-national large

enterprises like Pilot or Mitsubishi Pencil.
 Thien Long An Thinh Investment JSC, a company of TLG’s chairman family, and the
chairman himself collectively hold 58.89% of TLG. In addition, employees own 12.04%
and long-term institutional investors holds 10.23%, leaving an effective free float of
only 18.84%.
 TLG stock is relatively illiquid owing to low free float and low coverage
Our target price at VND71,500 translates to FY15 PER of 10.8x based on FY15 EPS of
VND6,631. At the current price, TLG is trading at FY15 PER of 9.0x.
Figure 26: Peers comparables

Mkt cap T12M T12M
Country ROA % ROE %
(USD mn) PER PBR
Pilot Corp. Japan 1,310 17.4 2.8 9.6 17.4
Mitsubishi Pencil Co. Japan 1,150 17.2 1.8 8.3 11.3
Asia File BHD China 204 14.2 1.7 9.8 11.9
Linc Pen & Plastic Ltd India 37 20.1 2.9 7.6 15.4
Average 675 16.1 2.3 8.8 14.0
Thien Long Group Vietnam 74 11.5 2.2 14.0 21.7
Source: Bloomberg
VCSC Target Price and Rating History

Initiation
80,000
BUY - 71,500
70,000
60,000
50,000
40,000
30,000
20,000
10,000 Actual Price Target Price
VCSC Rating System & Valuation Methodology
HOLD
Absolute, long term (fundamental) rating: The recommendation is based on implied total return for the stock defined
as (target price – current price)/current price + dividend yield, and is not related to market performance. This structure
applies from 24 March 2014.
Equity rating key Definition

BUY If the target price is 20% higher than the market price
OUTPERFORM If the target price is 10-20% higher than the market price
MARKET PERFORM If the target price is 10% below or 10% above the market price
UNDERPERFORM If the target price is 10-20% lower than the market price
SELL If the target price is 20% lower than the market price
NOT RATED The company is or may be covered by the Research Department but no rating or
target price is assigned either voluntarily or to comply with applicable regulation
and/or firm policies in certain circumstances, including when VCSC is acting in an
advisory capacity in a merger or strategic transaction involving the company.
RATING SUSPENDED A rating that happens when fundamental information is insufficient to determine an
investment rating or target. The previous investment rating and target price, if any,
are no longer in effect for this stock.
Unless otherwise specified, these performance parameters only reflect capital appreciation and are set with a 12-
month horizon. Future price volatility may cause temporary mismatch between upside/downside for a stock based on
market price and the formal recommendation, thus these performance parameters should be interpreted flexibly.
Small Cap Research: VCSC Research covers companies with a market capitalisation of up to US$50mn, inclusively.
Clients should note that coverage may not be consistent and that VCSC may drop coverage of small caps at any time
without notice.
Target price: In most cases, the target price will equal the analyst's assessment of the current fair value of the stock.
The target price is the level the stock should currently trade at if the market were to accept the analyst's view of the
stock, provided the necessary catalysts were in place to effect this change in perception within the performance
horizon. However, if the analyst doesn't think the market will reassess the stock over the specified time horizon due to
a lack of events or catalysts, then the target price may differ from fair value. In most cases, therefore, our
recommendation is an assessment of the mismatch between current market price and our assessment of current fair
value.
Valuation Methodology: To derive the target price, the analyst may use different valuation methods, including, but not
limited to, discounted free cash-flow and comparative analysis. The selection of methods depends on the industry, the
company, the nature of the stock and other circumstances. Company valuations are based on a single or a
combination of one of the following valuation methods: 1) Multiple-based models (P/E, P/cash flow, EV/sales,
EV/EBIT, EV/EBITA, EV/EBITDA), peer-group comparisons, and historical valuation approaches; 2) Discount models
(DCF, DVMA, DDM); 3) Break-up value approaches or asset-based evaluation methods; and 4) Economic profit
approaches (Residual Income, EVA). Valuation models are dependent on macroeconomic factors, such as GDP
growth, interest rates, exchange rates, raw materials, on other assumptions about the economy, as well as risks
inherent to the company under review. Furthermore, market sentiment may affect the valuation of companies.
Valuations are also based on expectations that might change rapidly and without notice, depending on developments
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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
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Disclaimer
Analyst Certification of Independence
HOLD
I, Vy Nguyen, hereby certify that the views expressed in this report accurately reflect my personal views about the subject securities or
issuers. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or
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HOLD
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& Foreign Individuals
Head of Institutional Sales Vietnamese Sales

Mr. Michel Tosto, M. Sc. Mr. Dung Nguyen
+84 3914 3588 ext 102 +84 3914 3588 ext 136
michel.tosto@vcsc.com.vn dung.nguyen@vcsc.com.vn
Retail & Corporate Sales & Brokerage

Ho Chi Minh City Hanoi
Ms. Quynh Chau Mr. Quang Nguyen
+84 8 3914 3588 ext 222 +84 4 6262 6999 ext 312
quynh.chau@vcsc.com.vn quang.nguyen@vcsc.com.vn

Thien Long Group (HSX:TLG) : Pure Fundamentals Play With Attractive Valuation

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Thien Long Group (HSX:TLG) : Pure Fundamentals Play With Attractive Valuation

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13 April 2015

Thien Long Group (HSX:TLG) BUY

Return on assets (%) 11.8% 13.9% 15.2% 15.1% 14.8%

Source: Company financial statements, VCSC forecasts

1Q 2Q 3Q 4Q TLG target TLG result

Gross profit margin % 36.9% 39.0% 37.6%

Key sales drivers Demand for stationeries and writing instruments

Figure 1: Select Company Metrics

2000 VNDbn 50%

Total cost breakdown Capital Structure

Total shareholder's equity

Source: Company financials 2014

Figure 2: Global writing instruments industry growth rates

(*) FY13-18: IDN, IND, PHL, SGP, HKG, USA, DEU

Source: Euromonitor 2014, Technavio 2014, TLG, VCSC estimates

Figure 5: Global writing instruments industry market size (USDmn)

Market size in 2013 or 2014 (*)

(*) FY13-18: IDN, IND, PHL, SGP, HKG, USA, DEU

Source: Euromonitor 2014, TLG, VCSC estimates

 Soaring spending on education: From 1998 to present, Vietnamese government

Diversified product portfolio fully captures customer lifetime value

Hong Ha & Art

Source: TLG, VCSC estimates Source: TLG

Brands Product lines Products HOLD

Premium writing instruments High-incomer users

Folders, files, markers, etc. Office workers

Ball point pen, gel pen, etc Mass market

Notebooks, blackboards, School-aged children and

Crayons, oil pastels, water Pre-school aged children

TLG’s distribution network is second-to-none

North central No. of POS surged when HOLD

135 135 135

Distributors Points of sales

Gaining traction in new channel development. To complement its traditional distribution

Figure 10: TLG’s subsidiaries

Distributor B2B E-commerce

Retailers Bookstores & Institutional

International Stationery & Office

Export revenue Export/Total revenue Branded products OEM

(*) Growth includes the impact of 35% devaluation of

Source: TLG Source: TLG, VCSC estimates

Relentless pursuit of quality, innovation and technology development

Figure 15: TLG is moving toward more automated production

Total revenue / Total employees (VNDmn / total employees)

Source: TLG, VCSC

TLG prices its 25,000

Figure 17: TLG’s quality and management standard qualifications

Figure 18: Domestic sales breakdown by product line FY13-19E

Art supplies School supplies Office supplies Writing instruments

Source: VCSC forecasts

Figure 19: Domestic sales growth rate by product lines FY15-19E

The growth driver with highest sales

Sales growth CAGR FY15-19E

Source: VCSC forecasts

Figure 20: Export revenue by segments (VNDbn)

Source: VCSC forecasts

Five-year low in plastic prices to fuel gross margin expansion in FY15E

General pupose polystyrene (GPPS) General plastic film polypropylene (GPPP)

Figure 22: Gross profit margin expanded

40% TLG’s long-standing

Source: VCSC forecasts

Target price 71,430

Figure 24: DCF assumptions