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2H.2016 OUTLOOK REPORT

VCBS | 2H.2016 OUTLOOK REPORT

Research and Analyst Department – VCBS

Page | 1

Contents

MACROECONOMICS ................................................................................................ 2

Economic slow-down 2

CPI rebounded but still under control. 5

Exchange rate was stable. Pressures in 2H.2016 come from world market. 6

Interest rates slightly increased in 1H2016. In 2H2016, interest rates are expected to

be relatively stable. 7

Global economy 10

STOCK MARKET ...................................................................................................... 13

Market Highlights 13

Oil & Gas took the lead. Building materials, Sugarcane and Pharmaceutical recorded

outstanding growth. Bank and Securities was pretty flat. 14

Foreign investors net sold in the first 6 months (except transactions in VIC) 16

ETF funds’ trading was dovish 17

Second half outlook: Gaining Momentum exist in mid-term. Asset Bubble risk in

long-term 18

PROSPECT OF INDUSTRIES AND FIRMS .......................................................... 21

Banking Sector 23

Real Estate Industry 29

Logistics 35

Electricity 39

Packaging 46

Steel Industry 52



Page | 2

MACROECONOMICS

Economic slow-down

GDP in 1H.2016 increased by

5,52%, which is lower than

the growth in 2015’s same

period.

After an impressive breakthrough in 2015, Vietnam's economy in the first half of 2016 has

shown a clear slowdown. GDP growth was 5,52% compared to last year, of which the growth

rate was +5.48% in the Q.1; +5,55% in the Q.2. The growth rates were lower than 1H.2015

(First half of 2015: +6,28%, Q1 was at +6.12% and +6,47% in Q2 ). In which, the growth of

industry and construction sector increased by 7.12%, lower than the rate of 9.09% in 2015,

contributed 2.41% the general growth. The service sector grew moderately by 6,35% (Q1.2015

increased 5.9%), contributed 2.41 percentage points. Noticeably, the Agriculture, Forestry and

Fishery sector slightly decreased by 0.18%, which caused to reduce 0.03% of general growth.

Sources: CEIC, VCBS

The decline of the Agriculture

was due to the negative

climate change impact.

In the Agriculture, Forestry and Fishery sector, the Agriculture (accounted for 75%) fell by

0,78%. Abnormal weather changes such as brass monkeys occurred in early year had damaged

to crops, livestock in northern mountainous provinces. Meanwhile, the complicated situation of

salt intrusion in Mekong Delta and the drought in the provinces of South Central, Southeast

and Highlands have strongly impacted on agricultural production and local people's life.

The production growth

reduced and Mining industry

dropped, while

Manufacturing industry

contributed the most to the

whole economic growth.

Government expenditure,

domestic investment demand

and consumer demand have

grown slowdown

Industrial production index increased by 7.5% yoy, much lower than 2015’s outstanding firgue

at 9.7%. As for the reason that Mining decreased by 2.2% (1H2015 increased by 8.2%),

reduced 0.5% to the general growth, since production of crude oil fell more than 6% against

unfavorable global price movements, Industrial consumption index rose modestly as compared

to the same period in 2015 since only reached 8.8% yoy (12.7% in 1H.2015).

Manufacturing industry has continues to be the bright spot of econimic growth in

1H.2016 with an increase of 10.1% (equivalent to the same period in 2015), contributed

7.1% to the general growth. According to Nikkei, the PMI of Manufacturing in June was 52.6,

remained to be quite same to the record of 52.7 in May. Thus, PMI has recorded a figure of

being above 50 for 7 consecutive months, reflecting the expansion of production. In which,

total number of new orders continued to grow, though as comparison, it was weaker than in

May, but still contributed positively to the general growth. While this was an optimistic sign in

Manufacturing,, however, PMI posted at 52.6 in June was not exceptional as compared to the

same period recent years ( 52.2 in 2015 and 52.3 in 2014). The constructive growth of PMI in

0%

1%

2%

3%

4%

5%

6%

7%

8%

Q1 Q2 Q3 Q4

GDP growth (qoq)

2013 2014 2015 2016

-2%

0%

2%

4%

6%

8%

10%

12%

6/2008 9/2009 12/2010 3/2012 6/2013 9/2014 12/2015

GDP growth by Industry

GDP

Agriculture

Industry and Construction

Service



Page | 3

this period could related to economic cycle as a result of several big FDI launched and

promoted the production of new product lines in this time.

Sources: CEIC, NIKKEI, SBV, VCBS

In terms of credit growth, by 20/6/2016, credit growth reached 6,2% ytd, dropping as

compared to the growth of 6.28% in the same period in 2015. We expect that the

domestic investment demand had not shown much improvement compared to last year

due to (1) economic slowdown and (2) credit growth might continue to be contributed from

Real estate and Construction sector while Industry - the core production of economy - has

remained subdued. According to the SBV, by the end of April, some sectors had excess of

credit growth over the same period such as Construction (+17,46% yoy), Logistic and

Communication (+16,22% yoy) and others Services (+29,02% yoy) while Industry recorded

the modest growth by 6% yoy.

For Import and Export, in 1H.2016, Viet Nam Vietnam recorded trade surplus at $ 1.5

billion dollars. In particular, total export tunover reached 82.2 billion USD, grew slightly

5.9% yoy, lower than the figure 9% in 2015’s same period. Total import tunrnover reached

80.7 billion USD, reduced 0,5% yoy, competely contrary to the dramtically increase of more

than 17% in 1H.2015. The return of trade surplus was a support factor for exchange rate but

was not really a positive indicator because its motivation came from import reduction

meanwhile export growth slowed down. Notably, the imported value of macineries and

equipments, instruments, accessories, factors inherent in production capacity, decreased 5,9%

yoy. Imports reduced sharply in line with the deceleration of the manufacturing sector

which caused by the input of Vietnam economy depends heavily on import.

46

47

48

49

50

51

52

53

54

55

56

0%

2%

4%

6%

8%

10%

12%

14%

01/1

502/1

503/1

504/1

505/1

506/1

507/1

508/1

509/1

510/1

511/1

512/1

501/1

602/1

603/1

604/1

605/1

606/1

6

Inven

tory I

nd

ex

Industrial Inventory and

Manufacturing PMI

Inventory Index (% yoy)

Manufacturing PMI

PMI threadhold (50)

0%

5%

10%

15%

20%

25%

30%

Credit growth and M2

Credit growth (yoy) M2 growth (yoy)



Page | 4

Sources: CEIC, VCBS

Total retail sales of goods and profit in consumer services in the first 6 months of 2016

increased by 9.5% (yoy), excluding the pricing growth by 7.5%, lower than the rate of 8.8%

in the same period in 2015. As the result, consumer demand had recorded to strike.

Undeniable that (1) the pri ce adjustment of some essential commodities such as health,

education, energy,… and (2) the unfavorable changes of the weather and the environment have

made negative impact on consumer sentiments. In the 2H.2016, pricing would continue to

rise as scheduled while the climate changes issue could not be solved shortly, we expect that

the consumer demand would not breakthrough and likely to be lower than as in 2015.

In the first 6 moths of 2016, Government spending has not been boosted. The total budget

expenditure from the beginning of year to 15/6/2016 was estimated at VND508.5bn, which

was 39.9% of budget target and slightly increased 1,46% yoy, much lower than the growth of

11% in 2015. In details, the development investment expenditures reached VND74.5bn

decreased nearly 8% , corresponding to the figure of 1H.2015

The GDP growth is forecasted

to be 5,8% - 6% in 2016.

Indicators in the first half of 2016 showed the economic growth has sharply decelerated. The

unfavorable changes from climate and environment and price of crude oil stayed at low level

had led to the shrinkage of agriculture and mining sector, which resulted negatively on

economic growth. The gaining momentum came from Manufacture along with FDI.

Meanwhile, dosmetic investment demand, consumer demand and Government expenditures

has grown slowly.

6

7

8

9

10

11

12

13

14

0

50

100

150

200

250

300

350

01/1

502/1

503/1

504/1

505/1

506/1

507/1

508/1

509/1

510/1

511/1

512/1

501/1

602/1

603/1

604/1

605/1

606/1

6

Tn

. V

ND

Retail Sales

Services & Tourism Hotel & Restaurant

Trade Growth rate (%) -5

-3

-1

1

3

5

7

9

11

13

15

01/1

5

02/1

5

03/1

5

04/1

5

05/1

5

06/1

5

07/1

5

08/1

5

09/1

5

10/1

5

11/1

5

12/1

5

01/1

6

02/1

6

03/1

6

04/1

6

05/1

6

06/1

6

bn

US

D

Import - Export

Exports Imports Trade Balance



Page | 5

Source: VCBS

In the last 6 months, domestic investment demand and consumer demand are expected to

improve due to cyclical factor and the support of the orientation maintaining low interest rates.

However, we do not expect an early breakthrough. Meanwhile, the downtrend of the global

crude oild price and the success bond issuance result, we expect that Mining and Government

expenditures sector would be intensified to support the general growth. On the other hand, the

stability and growth of Vietnam economy would continously be affected by the negative

prospect of global economy and the unfavourable weather changes, climate changes and

enviroment issues.

Thus, economy growth might continue to accelerate in each quarter but could hardly

achieve 6.7% for the year. We forcast that GDP growth would reach 5.8% - 6%.

CPI rebounded but still under control.

Consumer price index (CPI)

in June increased 0.46%

(mom), equivalent to 2.39%

(yoy). The inflation rate in

2016 is expected to be

3.5% - 4%.

The evolution of the CPI in the first half of 2016 was under a lot of pressure to increase.

Firstly, there were the seasonal factors and the price adjustment of some products according to

SBV, especially in Education and Medical. Besides, unlike in 2015, CPI was influenced by the

sharply rise in foodstuff prices because sources had been adversely affected due to

unfavourable weather changes, in particular drought in the southern provinces.

The CPI in June recorded a slight increase of 0.46% (mom), corresponding to an increase of

2.39% yoy and 2.35% ytd. In which, the biggest contribution to the CPI growth in this month

came from Transportation sector (+2,99% mom) after rising fuel price twice in late May and

early June (CPI overall increased about 0,27%). It was followed by Housing materials sector

with the increase of 0.55% because of highly rising demand of using electricity due to hot

weather, and Restaurant and food services (+0,21% mom). Other sectors in the CPI basket

increased slightly less than 0,2% mom, except Post and telecommunications dropped 0.06%

Inflation in June 2016 increased +0.13 %( mom) and +1.88% (yoy), lower than the level of

2.01% in 2015.

-4%

-3%

-2%

-1%

0%

1%

2%

3%GDP in business cycle



Page | 6

Sources: CEIC, VCBS

In scenario that the consumer demand has no unexpected major shocks (which expressed

through the total retail sales of goods and consumer services revenue an inflation grew lower

than the same period), we expect the adjustment in prices of items under the control of the

State would continuously be the factor which has major impact on CPI in the last 6 months of

2016.

In fuel price, after a recovery process, we expect that the current price level would be relatively

stable in near future and the possibility of strongly increasing in crude oil price would hardly

be happened, when the world economy is facing with gloomy prospects and reduction risks.

For Medical and Education services, rising plan would continue with strongly growth in the

last half of Q3 and most likely to be the factor causing CPI volatile more sharply.

Therefore, although the evolution of the CPI was under a lot of pressure of increasing, most of

which can be accomodated and controlled under government, if necessary. We forecast the

inflation rate in 2016 would post at 3,5% - 4%.

Exchange rate was stable. Pressures in 2H.2016 come from world market.

Foreign exchange market and

exchange rate were fairly

stable in 1H.2016. Exchange

rate risk reduced against with

the late 2015 period, athough

we should pay attention to

world market pressures. We

expect that the devaluation of

VND against USD would drop

by 1% - 3% in 2016.

In 1H.2016, exchange rate and foreign exchange market were stable. Some heated up periods

but did not last long. Exchange rates in commercial banks were hold at 22.330 – 22.340

VND/USD, decreased 200 VND (-1%) as compared to the end of 2015. Recently, exchange

rates and foreign exchange market have received many supportive factors:

(1) SBV applied many new methods and provisions to stabilize market such as lower USD

interest rates and operated the daily core exchange rate management mechanism.

(2) In terms of supply and demand, in 1H.2016, the supply of foreign currency was considered

abundant due to (i) FDI fund disbursed hit USD7.3bn, increased sharply 15,1% yoy; (ii) Viet

Nam recorded the export surplus with USD1.5bn instead of import surplus over USD3bn last

year; (iii) oversea remittance were anticipated to growth (+10% yoy) and focused on beginning

of the year; and (iv) many valuable foreign investment businesses on Vietnam enterprises were

recoreded.

On the other hand, along with SBV’s methods and policies, after the tense period in late 2015

-4%

0%

4%

8%

12%

16%

20%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

01

/12

03

/12

05

/12

07

/12

09

/12

11

/12

01

/13

03

/13

05

/13

07

/13

09

/13

11

/13

01

/14

03

/14

05

/14

07

/14

09

/14

11

/14

01

/15

03

/15

05

/15

07

/15

09

/15

11

/15

01

/16

03

/16

05

/16

CPI growth rate

CPI (mom) CPI (yoy)



Page | 7

foreign currency demand has moderated (USD credit at the end of June fell more than 5% ytd).

(3) Global market logged in upward trend, especially when FED delayed and did not rush to

hike the interest rate.

Sources: CEIC, VCBS

In the second haft of 2016, we consider that dosmetic economy would continue to support for

exchange rate stabilization particularly when SBV purchased 8 billion USD to strengthen forex

reserves meanwhile FDI inflow has maintained the possitive growth.

However, considering the pressure from the global market, we believe that exchange rate risk

should still require attention since Vietnam economy is seen as a small economy but large

aperture and therefore, the resistance to world market movements is not high. China remained

to be the biggest importer in Vietnam. Meanwhile, Europe has accounted for about 20% of

the total imports, therefore, the volatility of the two largest economies may affect the stability

and growth of Vietnam foreign exchange rate and forex market. Especially when (1) China

slowed down causing depreciation of CNY and (2) the bleak outlook of the European economy

with the result of the referendum in the UK on the decision to leave the EU (Brexit). Besides,

(3) FED would not likely to hike interest rate in this year but pressure from the stronger USD

should be concerned while the growth prospects of US has stayed at a rather more positive

level than many regions in the world, especially after Brexit.

Consequently, we forcasted that exchage rate risk would decreased as compared to the

late period of 2015, athough still pay attention to pressures coming from international

market. We anticipate that VND would be devaluated roughly 1% - 3% against USD

in 2016

Interest rates slightly increased in 1H2016. In 2H2016, interest rates are expected to be relatively

stable.

Interest rates slightly

increased in Q1 and remained

In 1H2016, the deposit rates at commercial banks have signal of increasing slightly a few

dozen basis points in Q1 and relatively stable lately in Q2. However, the ceiling’s deposit rate

20,600

20,800

21,000

21,200

21,400

21,600

21,800

22,000

22,200

22,400

22,600

01/14 03/14 05/14 07/14 09/14 11/14 01/15 03/15 05/15 07/15 09/15 11/15 01/16 03/16 05/16 07/16

USD/VND Exchange rate

Reference exchange rate Ceiling exchange rate

Floor exchange rate VCB spot bid exchange rate

VCB spot offer exchange rate



Page | 8

stable in Q2. Rates are

expected to stay around

existing levels in 2H2016.

of 5.5%/year for a term under 6 months remained. In particular, the deposit rates for terms of

less 6 months fluctuates almost from 4.5% - 5.5%/year, from 6 to less than 12 months, it would

be about 5.4% - 6.8%/year and the rates for terms of more 12 months is around 6.5% -

8%/year.

Meanwhile, given the fact that the lending rates would change more slowly than the deposit

rates a long time, the lending rates did not have volatility in comparison to that in end of 2015.

According to SBV, the lending rates of the priority sectors is from 6% - 7%/year for short

terms and 9% - 10%/year for medium and long terms. The rate of the manufacture sectors is

from 6.8% - 9%/year in short terms and 9.3% - 11%/year in medium and long terms. For good,

intelligible, healthy financial status customers, the rate is from 5-6%/year.

We noticed that interest rates uptrend in Q1 mainly came from improvement of banking

system raised the demand of the capital mobilization. Mentioned (i) the growth rate of deposit

(13.59% in 2015) was below the credit growth (17.3% in 2015), leading to higher LDR ratio in

some banks. (ii) The circular 06 – revision of Circular 36 shows tendency toward tightening

regulations on proportion of short-term loans to medium and long terms

After that, in Q2, given (i) banks’ liquidity supported by the Central bank’s USD net bought

while (ii) credit growth (+8.23%) has catched up and surpassed deposit growth (+6.2%),

interest rates level generally stable in this period.

Sources: CEIC, VCBS

In 2H2016, given (1) the economy economy’s capital absorption capacity has not considerably

extended, (2) Gorvenrment tendency to keep interest rates at areasonably level to support the

economy growth together with (3) the Central bank’s steady movement in supporting and

providing VND liquidity, we do not set expectation in the growth possibility of interest rate

level in future.

In the other hand, interest rate decline possibility might also face several challenges while (1)

Exchage rate risks as mentioned; (2) inflation and inflation rates expectation in 2016 are still in

control, though relatively higher than 2015and (3) pressures on assets scale growth, capital

symmetry and commercial banks’ safe ratio guarantee, especially after Cicular 06 was

officially issued with specific route. However, as mentioned in previous reports, while

exchange rate was operated toward more flexible, we believe that State Bank of Vietnam still

has many policies and processes to stabilize interest rates.

0%

2%

4%

6%

8%

10%

12%

14%

16%

06/12 10/12 02/13 06/13 10/13 02/14 06/14 10/14 02/15 06/15 10/15 02/16 06/16

Deposit and Lending rates

L.R agriculture, rural & exports L.R manufacturing

D.R (<1M) D.R 3M

D.R (>12M)



Page | 9

We expect that the ceiling of deposit rates would be maintain around existing levels, still

kept at 5.5% for terms less of 6 months in the future.

In 1H2016, VND230.526bn

(+122,31% yoy) was trade on

Primary market and

VND636,875bn (+83% yoy)

was trade on the secondary

market.

Bond market seemed to dwell in January 2016 but soon had a break-through in the following

months. Up to VND230,526bn was trade in the primary market in the first 6 months of 2016

(+123.31% yoy). Meanwhile, Treasury Bond was accounted for VND187,726bn – more than

80% according to the first year plan. Bond demand was strongly supported by (1) ample

liquidity due to the huge USD net-bought by SBV and (2) credit growth, or particularly, the

maket adsorption was rather gloomy. By the end of June 2016, Government bond issuance has

amended to increase bond issuance up to VND30,000bn - focusing on the 5Y tenor and longer

terms, while newly adding 7Y tenor to the market.

Sources: HNX, VCBS

Winning rates showed a clear fluctuation between groups of tenors. Long-term bonds (7-30Y)

illustrated almost no instability and maintained constancy in the last 6 months. On the other

hand, 3Y-5Y tenors shifted downward due to being favourably to investors and banks.

0

10,000

20,000

30,000

40,000

50,000

60,000

70,0001/1

5

3/1

5

5/1

5

7/1

5

9/1

5

11

/15

1/1

6

3/1

6

5/1

6

Primary market

ST VBSP VDB

-

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

1/1

5

3/1

5

5/1

5

7/1

5

9/1

5

11

/15

1/1

6

3/1

6

5/1

6

Secondary market

Outrights Repo



Page | 10

Sources: HNX, VCBS

In 2H2016, we believe that bond yield would be under pressure given (1) Inflation and

expectation of the higher inflation compared to 2015; (2) Considering the seasonal factor, credit

growth might continue to be heated up, which would affect the money allocation on bond

investment; (3) Many banks are close to approaching the limit of bond portfolio; (4) Stable

supply thanks to the amended bond issuance and (5) While ensuring the sufficient amount of

liquidity in the system, however, SBV might not maintain the overabundance status as in the

previous period in order to cope with the pressures from the global market and avoid inflation

risks in 2017.

SBV’s regulations helped

stabilizing the financial

market and assuring market

liquidity.

As the regulator, SBV has productively fulfilled its responsibilities for the first half of

2016. Heavy pressures on monitoring interest and exchange rate policies were coming from

unexpected movements of the global financial market; however, SBV has successfully

maintained a fair interest rate and minimized speculative investments on the Foreign exchange

market to secure market liquidity.

Global economy

The USA

The USA economy gave out

contrariwise signals.

However, with unstable

movements after Brexit and

China economic concerns,

FED might not raise interest

rate this year.

GDP growth in Q1 was consecutively adjusted from 0.5% (as announced in April) to 0.8%

and 1.1% in the next adjustments. In the mean time, GDP growth in Q4 was also raised to

1.4% due to the improvement in construction industry, corporate investment as well as exports.

However, manufacture sector, which is a bright spot of huge economy in the previous period,

continue to expand moderately. PMI in manufacture moved in a tight band around 51 with the

modest expanding compared to the end of 2015. Meanwhile, inflation rate, except for the

growth of 1.4% yoy in January, slightly moved around 1%, creating a high distance with 2%

target in mid term.

The labor area marked contrariwise datas. Unemployment rate in 1H2016 was always

-

1

2

3

4

5

6

7

8

9

10

01/1

40

2/1

40

3/1

40

4/1

40

5/1

40

6/1

40

7/1

40

8/1

40

9/1

41

0/1

41

1/1

41

2/1

40

1/1

50

2/1

50

3/1

50

4/1

50

5/1

50

6/1

50

7/1

50

8/1

50

9/1

51

0/1

51

1/1

51

2/1

50

1/1

60

2/1

60

3/1

60

4/1

60

5/1

60

6/1

6

%

Winning rates and CPI

CPI (y-o-y) 3Y 5Y7Y 10Y 15Y20Y 30Y



Page | 11

maintained at below 5%, especially in March when this rate posted at 4.7%. However, this

cannot be seen as a good sign as unemployment rates reduction mainly came from the fact that

458,000 people had stopped job searching.

Given that (1) relatively pessimist signals from labor area; (2) difficulties in achieving the

inflation rate target of 2%; and (3) unfavorable tendencies in global economy coming from

China economy deceleration or Brexit, FED would certainly postpone the interest rate raising in

monetary policy meeting regardless of recovering signals from the USA economy.

Consequently, the US stock market has been positively reacted these movements. We believe

FEDrate hike would occur in the beginning of next year.

Europe

EU economy has not shown

steady recovering signals,

forcing ECB to maintain

easing policies. However, EU

economic recovery is still in

question, especially after

Brexit.

Europe’s economic slightly recovered. According to the announcement of Eurostat, GDP

growth of Eurozone posted at 0.6%, slightly increased from to 0.4% in April – the highest level

this year thanks to the improvement in household spends and personal investments. Labor area

recorded a considerable progress as unemployment rate decreased from 10.4% in the end of last

year to 10.1% in May in the EU19 and from 8.8% to 8.7% in March in the EU28 as compared

to 9.6% in May 2015. Meanwhile, EU's manufacturing sector continued to expand, marked that

manufacturing PMI permanently kept at above 51.The manufacturing index in June even

reached 52.8, the highest from early this year, thanks to the augment in (san luong) and new

orders quantity. Industrial ouput also increased 2% yoy in June.

On the contrary, the gloomy inflation rate in first 5 months had not surpassed 0% and slightly

inched up by 0.1% in June. In the same situation, core inflation rate calculated up to June only

increased by 0.9% as compared to 0.8% in last month.

Slow recovery from Europe’s econmy forcing ECB to maintain easing by keeping deposit rate

at minus levels and continue to extend the subjects of refinancing or property acquisition

progams. However, while the easing has not come into action, Brexit dealt a blow on ECB

efforts. In details, ECB’s June meeting report have shown increasing concerns by insisting

Brexit’s considerable consequences on EU, especially through commercial and financial

market. Otherwise, ECB might not extend easing policy in future. Significant policy decisions

might be given out when the influence on each area and global economy from Brexit become

more specified...

Europe’s economic slow recovery was due to the massive migration and Brexit.

Asia

China’s economy continued to

slowdown as macroeconomic

data announced, though

somewhat downturn, resulting

in short term steady

expectation.

China’s economic slowdown does not seem to post. In details, PMI in June published by Markit

and Caixin posted at 48.6, declined from 49.2 in May. PMI has been decreasing for 17

consecutive months. To be more specific, this figure market the biggest drop since February

regarding new orders’ quantity declined. Manufactoring PPI decreased at 2.6%, this is the 53th

consecutive months of decreasing. However, the decline rate has been slowed down.

Meanwhile, inflation in June also increased by 1.9% yoy, higher than expected at 1.8% and still

within the target of 3% this year. Food group had a major contribution to CPI rasing, though

decreased in last 3 months, from 7.4% in April to 5.9% and 4.6% in May and June.

In another movement, China’s trading status has slightly improved, though still faced

decreasing. Import datas in first 5 months weakened, prolonged the consecutive declining

sequences to 52 months. China’s foreign exchange reserves after recored an incredible low rate

at 3.2 thousand bn in January, has slowed the downtrend as foreign exchange reserves in



Page | 12

remained 5 months moved sideways and temporarily allayed the anxiety of foreign capital’s

outflowing from financial market possibility.

With the mainstream of China’s economic downtrend, we expect that ignity method would be

taken into action. However, this method is considered as double-sworded that could lead to

CNY devaluation. CNY momentum was being concerned after Brexit, CNY referenced

exchange rate was adjusted to decrease over 1%, resulting in CNY reaching the bottomed level

as compared to USD value within the last 5 years.

Japan’s economy growth was

weak. The Yen rose sharply,

trading was decreased and

unfavorable prospect in

Japan’s economy.

The growth of Japan’s economy in Q.1 was adjusted to 1.9% yoy from 1.7% announced before

and higher than 0.5% in last quarter due to a slight decrease in ivestment compared to initial

statistics. However, Japan’s economy still showed slowdown while the economic concern was

mainly on the shrinkaghe of consumer spendings and imports. In May, sales reached a huge

drop of 11.3%, compared to the former forecast of 10.4% – marking the 8th

consecutive month

of decreasing and the biggest decline since January as Japan’s export demand weakened. At the

same time, imports crucially decreased 13.8%, marking the 17th

consecutive month of

downtrend. The downtrend of trading immediately made no sense of trade balance’ peak in

April.

In addition, consuming and manufacturing still recorded unfavorable signals. CPI declined by

0.4% yoy in April. Core inflation rate also marked minus 0.4% yoy in May, slightly decreased

from minus 0.3% in April. Core inflation exceeding food and energy prices only increased by

0.6% compared to +0.7% in April. Japan’s manufacturing PMI in June posted at 48.1 – the 4th

consecutive month of narrowing after marked January peak. Unemployment rate recorded at

steady 3.2%.

Accordingly, BOJ has announced the fixed interest rate of minus 0.1% in the latest meeting.

However, the next movements from BOJ would be taken into consideration as Yen has rosen

sharply after Brexit. Strong local currency might threaten export activities in Japan. Together

with negative influances from natural disasters early this year would negatively affect the

growth efforts of the third world’s biggest economy.



Page | 13

STOCK MARKET

Market Highlights

Source: VCBS

Indexes sank in January due to

disruptive news from worldwide

market. However, indexes

advanced nicely in 5 months

later.

2016 got off a weak start due to chaos from worldwide market. If in the end of 2015, indexes

slightly pulled back with condensed liquidity then the early 2016 experienced selling-off pressure

heated up in almost every sector especially in large-caps tickers. At the end of January, VN Index

dived 9.1% and hit the trough of 520.

After that, against every investor’s expectation, the market recorded the first big wave in 2016

which lasted more than 5 months. At the end of Q2.2016, VN Index surged 21.59% (compared with

the trough recorded in January) up to 632.26 and approached its own peak of 640. Therein, some

supportive information as well as constructive news from some sectors in turn boosted indexes

passing strong resistance level 580, 600 point or 625 point, etc. Concern that Brexit would make a

big shock to the financial market was soon washed away regardless of a wild fluctuation of more

than 5% during 24th

June session. The scenario of washout of session did not occur when bottom

fishing demand was activated strongly in that session. Thereby, the expectation about medium and

long-term upbeat rhythm still remained

As far as trading volume was concerned, the average trading volume has slightly reduced in Q2 in

spite of the stability of growth. The reason was not too difficult to explain as fundamental factor is

supposedly insufficient to support the market, which derive doubtful sentiment and their sharply

disbursement limitation.



Page | 14

Source: VCBS

Market’s P/E in the 1H.2016

tend to bounce back and

approached the its own peak

recorded in August 2014

P/E ratio of Vietnam market (HSX) was 13.63 at the end of Q2, sharply increase compared

with 11.31 at the end of 2015 . We believe that the up-trend of P/E in first half was dominated by

the significant market price increase from some stocks, which strongly influenced large-caps

index such as GAS, VNM, PVD, HPG, HSG etc. Therein, many stocks have set new price level

within 3-5 years.

Remarkably, in first half while VN Index pushed 9.19% ahead– less than half of P/E growth in

HSX, expectations of investors were boosted faster than the actual profit that the market brought.

Chỉ số P/E của thị trường Việt Nam (sàn HSX) vào cuối Q2 ở mức 13,63; tăng khá mạnh so

với mốc 11,31 cuối năm 2015. Chúng tôi cho rằng xu hướng tăng của chỉ số P/E trong nửa đầu

năm có yếu tố chi phối chính là mức tăng đáng kể thị giá của nhiều cổ phiếu vốn hóa lớn như

GAS, VNM, PVD, HPG, HSG,…. Trong đó, nhiều cổ phiếu đã thiết lập mặt bằng giá mới trong

vòng 3-5 năm trở lại đây.

Đáng chú ý, khi VN Index nửa đầu năm chỉ tăng 9,19% - chưa bằng một nửa tốc độ tăng của P/E

trên HSX, kỳ vọng của nhà đầu tư đang tăng nhanh hơn so với lợi nhuận thực tế mà thị trường

mang lại.

Source: Bloomberg, VCBS

Oil & Gas took the lead. Building materials, Sugarcane and Pharmaceutical recorded outstanding

growth. Bank and Securities was pretty flat.

Oil & Gas, Materials and Pharmaceutical sharply

increased. Banking, Securities,

Mineral were at the bottom.

In 1H.2016, against the gloomy movements in 2015 and January 2016, Oil & Gas stocks rebounded

sharply with attractive yields (+61.34%). The positive increase was mainly due to the recovery of

crude oil prices from its trough of $26 per barrel to around $50 per barrel. Considering in remaining

time of years background, especially in effects after Brexit, we expect that Oil & Gas group shall

0

50

100

150

200

250

300

510

535

560

585

610

635

01

/04

/20

16

01

/18

/20

16

02

/01

/20

16

02

/22

/20

16

03

/07

/20

16

03

/21

/20

16

04

/04

/20

16

04

/19

/20

16

05

/05

/20

16

05

/19

/20

16

06

/02

/20

16

06

/16

/20

16

06

/30

/20

16

Volume VN-Index

0

20

40

60

80

100

70

74

78

82

86

01

/04

/20

16

01

/18

/20

16

02

/01

/20

16

02

/22

/20

16

03

/07

/20

16

03

/21

/20

16

04

/04

/20

16

04

/19

/20

16

05

/05

/20

16

05

/19

/20

16

06

/02

/20

16

06

/16

/20

16

06

/30

/20

16

Volume HNX-Index

10

12

14

16

18

P/E of HSX 01.2014 - 06.2016

10

12

14

16

18

P/E của HSX T01/2014 - T6/2016



Page | 15

move sideways or reduce slightly. Whereby, there is not much repercussion from rebounded prices,

Oil & Gas stocks could hardly to keep such an impressive growth as it has already achieved

recently.

On the other hand, 1H.2016 recorded the outstanding growth of some industries such as Steel,

Building Materials, Pharmaceuticals, Sugar, etc. Therein, these industries had individual support

news. For the Steel, they were iron ore price movements and prices of steel products on the world

market, accompany with policy support from the movement of anti-dumping tariffs on steels,

especially Chinese steel. For the Building materials, the rehabilitation of Real Estate was considered

to be factor promoting the growth of the industry. Meanwhile, Sugar recorded the remarkable surge

in commodities market in over the world market after unfavorable weather events affected

sugarcane crop globally. Last but not least, the expectations about room’s extension for foreign

ownership and outstanding business performance activated gaining momentum in Pharmaceutical- a

low beta sector.

Nguồn: VCBS tổng hợp

On the other hand, 1H.2016 of 2016 recorded the bleak from Banking stocks. Unlike the same

period last year, Banking sector failed to set themselves as the market’s highlights. While VN Index

won 9.19%, Banking almost stood still except top-industry stock as VCB. We appraise that t lack of

supporting information as well as lackluster financial performance from processing and

restructuring of bad debts were main reasons to explain why this sector could not break through and

took the leading role.

When it came to Securities sector, although market has gone through 6 months of active trading, this

sector has yet to log in a certain upbeat rhythm. This can be explained by active M&A case with a

view to restructuring firms. When the future of these companies was still uncertain in accordance

with lack of supporting information, Securities sector failed to attract much attention. However,

with the characteristic of closely monitoring market, we speak highly outlook of this sector in Q3

especially the top tickers.

In the first 6 months, the strongest downgrade sector is Minerals. This was convincing evidence that

investors were changing their mind from speculative stocks with high liquidity, unremarkable

business activities to the fundamental stocks. Therefore, despite of increasing fairly well in Q1 and

coming second after Oil & Gas, Minerals no longer kept its position.

-40%

-20%

0%

20%

40%

60%

80%

04/01/16 25/01/16 22/02/16 14/03/16 04/04/16 26/04/16 19/05/16 09/06/16 30/06/16

VCBS Sector Indices

VCBS Oil & Gas Index VCBS Mining Products IndexVCBS Food Products Index VCBS Securities IndexVCBS Real Estate Index VCBS Banking Index



Page | 16

Large-cap tickers stood out in

Q2 and were main driver of

upbeat force. Then small-cap

and mid-cap stocks quickly

caught up.

When it comes to capitalization factor, large-cap group was the main factor pulling indices down in

first quarter. Though not being spotlight of market, many mid-caps and pennies rallied durably.

Notably they brought huge profits for investors who did bottom-fishing before and after the Tet

holiday.

However, large-cap has regained the lead role since Q2 and has kept the rhythm during the last 5

months. Then the positive effect quickly spread to the rest two groups.

Overall, in the 1H.2016 of 2016, the most outstanding stocks were belong to mid-cap group which

directly gained from basic factors such as recovering commodity prices, divesting or increasing the

percentage of ownership for foreign investors. Representative stocks for this group should be

mentioned to Pharmaceuticals, Sugar. However, the opportunities in these stocks did not seem to

benefit majority of investors, except for the ones who got themselves accessed to the information in

advance.

Source: VCBS

Foreign investors net sold in the first 6 months (except transactions in VIC)

After the first 2-month of dovish

trading, foreign investors net

bought 4 months in consecutive

later on.

In the first 6 months, foreign investors net sold 559 billion VND on the Vietnam market. Trading

activities of foreign investors also had certain changes in orientation. In the last 3 years, foreign

often had trading activities quite similar to general market movements when turned their position

into net-bought at the bottom (520 point) and net-sold at the top (around 600 point). However, in

this year, the net-bought activity of foreign investors was upholding continuously even when the

factor approached the last peak. Vision, investment strategy and the market participants in the recent

period were changes. “Buy low sell high” strategy was gradually replaced by the “buy and hold” for

the medium and long term.

-15%

-10%

-5%

0%

5%

10%

15%

20% VCBS MarketCap Indices

VCBS LargeCap Index VCBS MidCap Index VCBS SmallCap Index



Page | 17

Source: VCBS

When it comes to Top stocks traded by the foreign:

- Foreign investors focused on net buying MBB when it loosens room. On the other hand, 2

ETF funds made a great contribution to the remaining net-bought tickers such as SBT,

ASM, NT2, etc. on the basis of their portfolio restructure procedure in February.

- Meanwhile, foreign investors focused on net selling mainly VIC with pressure from the

convertible bonds from foreign organizations. Nevertheless, many other large-caps such as

DRC, HSG, and HPG etc. were also on top of net selling stocks. This indicated money flow

appeared to flee from large-caps in Q1.

Nguồn: VCBS tổng hợp

ETF funds’ trading was dovish

ETF net withdrew sizable fund

certificates in Q1 then

rebounded marginally

In two quarters, FTSE withdrew about 650 thousand fund certificates, which worth about VND 275

bln in Vietnamese stock market. Meanwhile, VNM Fund also recorded a net withdrawal of 2.1

million fund certificates which correspond with value of net withdrawal about VND 488 bln. Thus,

either the volume of fund certificates in circulation or the value of the two ETFs dived compared to

the end of Q4.2015 and contrasted with the slight net deposit trend in the same period last year.

1950

175

-308

-1135 -1208 -943

78

-141

1027

-919

1675 1462 1547

743

-454

-1033

1166

-435

-2121

-1241

-180

776

-1308

990

404

-2,500

-2,000

-1,500

-1,000

-500

0

500

1,000

1,500

2,000

2,500Foreign Net Bought/Sold value from June 2014-June 2016

1545

693 574

317 288 266 242 232 224 222

0

200

400

600

800

1000

1200

1400

1600

1800

Top 10 net bought tickers by the Foreign

-5147

-630 -452 -313 -271 -259 -203 -186 -178 -169

-6000

-5000

-4000

-3000

-2000

-1000

0

VIC HPG HSG VSH CTD DRC HAG HHS VNS KSB

Top 10 Net sold tickers by the Foreign



Page | 18

Source: VCBS

This again reinforces the judgment that ETF’s inflows though remaining an important position, the

influence clearly declines compared to the previous time. This development can be explained by the

gloom in some tickers in these Funds’ portfolio while market especially favored mid-cap and small-

cap stocks with supportive fundamental elements.

Second half outlook: Gaining Momentum exist in mid-term. Asset Bubble risk in long-term

Market is likely to log in

positive zone in Q3.

Nevertheless, Q4 may record

some disruptive movement of

the indexes.

With positive developments beat market’s expectations, index received the first big waves in this

year which lasted more than 5 months. We believe that the major factors governing the market trend

in the last 6 months shall be:

(1) The significant improvement in some Blue-chip’ business result may create more positive

impact on the market. Therein, the most prominent sectors are Steel, Oil & Gas, Consumer goods,

Insurance, etc.

(2) Foreign investors remain active in Q3 when the risk has not disclosed. Although market is

not likely to receive the massive new inflows as it did in Q2. With expectation that the central

banks will maintain easing measures and FED will not rush to raise interest rate at least in this year

foreign inflows though not so abundant as the previous period, will still exist on the market.

(3) Meanwhile, from the beginning of this year, State Bank of Vietnam (SBV) has purchased

foreign currency in order to build up foreign exchange reserves. This move has the same effect as

easing measure when contributing to maintain abundant liquidity status in the market. Meanwhile,

stock markets in one way or the other will be added new internal inflows. It is considered as one of

the factors that support the stock market’s mid-term trend.

(4) In July, corporates earning season shall approach. Accordingly, the enterprises taking

advantage of fluctuations in commodity prices to reduce manufacturing costs and owning good

corporate governance may continue to attract inflows.

(5) Meanwhile, enterprises with M&A activity or government’s divestments will take

considerable attention of investors. Therein, the remarkable deals taking place in Q1 including (i)

Government’s divestment in KSB; (Ii) M&A between C32 and Hoa An Joint Stock Company

(DHA); (iii) VIC’s acquisition of Truong Thanh Furniture. And there are other deals, which we

150

200

250

300

350

400

450

500

550

600

01/1

5

02/1

5

03/1

5

04/1

5

05/1

5

06/1

5

07/1

5

08/1

5

09/1

5

10/1

5

11/1

5

12/1

5

01/1

6

02/1

6

03/1

6

Total Asset (mn.USD)

VNM FTSE

0

5

10

15

20

25

30

10

15

20

25

30

35

01/1

5

02/1

5

03/1

5

04/1

5

05/1

5

06/1

5

07/1

5

08/1

5

09/1

5

10/1

5

11/1

5

12/1

5

01/1

6

02/1

6

03/1

6

No.

Ou

tsta

nd

ing S

ha

res

(mn

)

NA

V (

US

D)

No. Outstanding Shares & NAV

No. Outstanding Shares of VNM

No. Outstanding Shares of FTSE

NAV of VNM

NAV of FTSE



Page | 19

assess likely occur in late 6M 2016.

The potential risk factors can

cause market reversal in the

second half of Q3 or early Q4.

However, in late Q3 and early Q4, we do not exclude the possibility of reversal. Therein, the base

factors including:

(1) Domestic economy showing slowdown signals. Specifically, Q2 GDP growth rate was only

5.55%. Thus, 6M growth rate reached 5.52% - relatively low compared to the level of 6.28%

in the same period last year. Considering in the first 6 months, except for the service area, all

sectors are signing deceleration. In addition, with this growth rate, we believe that 6.7% growth

target in 2016 is almost impossible to achieve. Consequently, we lower the 2016 GDP growth

forecast for Vietnam to 5.8% - 6%.

(2) Brexit event and direct or indirect impact on Vietnam’s market. Therein, we believe that the

most effectible and obvious factor is the exchange rate. Considering that economic growth Vietnam

is forecast to decelerate along with orientation to maintain low interest rate to support growth, the

central bank will not have much exchange rates policy available to manage the market. Thus, after

being stable in 6 months, we believe that exchange rate in last 6 months shall be more volatile. The

key point, in our opinion, is when and how SBV will manage exchange rate. With reasonable and

timely operating policies, negative impact from exchange rate risk on the market may become

lackluster.

(3) After Brexit event, global financial market and foreign exchange recognized strong volatility.

Therein, the haven assets are sought by many investors such as gold, JPY or USD. Accordingly, we

cannot exclude the possibility of inflows into the market will be dispersed to other investment

channels such as gold, foreign currencies or real estate. It should also be noted that a strong uptrend

in gold price often signs the downtrend of economy. Therefore it is essential to be cautious about the

overall trend of the market in medium and long-term.

(4) At the same time, pressure from national debt problem may become a threat to market’s

stability while resonating with macroeconomic indexes not as good as expected. Together with that,

the pressure is from the shortage of budget revenue as crude oil price is forecast to stabilize at

around $50/barrel by the end of this year.

To sum up, despite the significant risks, market trend remain positive thanks to the stimulus

measures. Accordingly, in short-term we expect the positive trend of the market. However, in the

medium and long term, with macroeconomic slowdown, inflow in one way or another still gets in

stock market; the asset bubble risk will be the factor investors should consider.

The factors bring duplex impact:

(1) We recommend investors to concern about commodity price movements in the

worldwide market. This factor has a significant impact on many companies during the first 6

months. In addition, it is forecasted to be the focus affecting corporations’ prospect business result.

In positive side, enterprises taking advantage from commodity prices will continue to improve

profit margin and business result. In contrast, companies not having a rational inventory policy will

face lagging behind pressure compared to its peers in the sector and lower the relative attractiveness

of the companies.

(2) Based on expectation that the exchange rate is likely more volatile. We draw attention to

companies with debts in strong foreign currencies such as USD, EUR and CNY as the exchange

rate is likely to fluctuate sharply in the last 6 months.



Page | 20

Large-cap stocks are expected to

keep the market’s upbeat

rhythm. Potential growth of mid-

cap and small-cap stocks

remains.

In Q2, after index successfully conquered the strong resistance and formed a new trend, we

recommend investors to prioritize allocating portfolio on stocks driving the market trend and

attract inflows. Besides, the stocks with good fundamentals and special support information will

continue to be the market’s spotlight. We assess the Q2 prospects of some sectors as follows:

(1) Banking sector: Banking profit shall witness a high segmentation. With consecutive legal

documents are issued towards cleaning, strengthening system, many banks will face significant

difficulties. However, in contrast, banks having good asset structure and economic of scale will

continue to expand sales and profits.

(2) Real Estate - Construction sector: Demand for construction and real estate has considerable

growth prospect thanks to foreign inflows ahead of free trade agreements TPP. In addition, the

movement of raw material price is a factor that investors should draw attention. Recovery trend

of Real Estate will create growth opportunities in following sectors - Building Materials and

Civil Works. Besides, Seaport and Industrial Real Estate are also expected to benefit from this

factor.

(3) Steel sector: Continue to revolve around a number of key factors such as (i) the steps to

support the anti-dumping duty policy, (2) movement of raw materials price such as iron ore or

finished product.

(4) Oil & Gas sector: This sector’s movements heavily depend on crude oil price fluctuations.

However, oil price is forecast to stable at around $50/barrel. We believe that these stocks will

have the certain advantage in growth or at least remain stable in the last 6 months when there is

no serious oversupply situation as prediction.

(5) Securities sector: This sector was fairly dovish during the first 6 months while market grew

pretty impressive. We expect a breakthrough in these stocks, especially the leading tickers such

as SSI or HCM - tickers with large advantage in size and market share.

Foreign inflows are expected to

return actively following the

supportive information.

With the reactions from worldwide market, together with strong fluctuations in the major

currency pairs, central banks are likely to maintain or even enhance more easing measures.

Meanwhile, FED is likely to delay another interest lifting. Thus, these factors will support to

maintaining the cheap inflows into frontier and emerging markets, including Vietnam.

However, in contrast, from risk’s perspective, Brexit event will increase risk-averse sentiment,

reducing the attractiveness for inflows in stock channel, especially when compared to haven

channels such as gold or some major currencies. Accordingly, the possibility of appearing new

foreign inflows is still a question mark.

Thus, we believe that in the last 6 months, foreign inflows, though still following the net-bought

trend, likely will not be as abundant as the first half-year period.

VIETCOMBANK SECURITIES



Page | 21

PROSPECT OF INDUSTRIES AND FIRMS

With regard to 2H.2016 outlook, we think that there are many companies having good results in Q2.2016. Currently, investors should

focus on this group which have good performance and still remain undervalue.

Credit growth rate of banking sector is stronger in the last months.

Banking industry is likely to remain strong credit growth rate in the last months because of the seasonal factor, and we think it can get

16% as the projection. The interest rate is relatively stable and deposit interest rate can increase slightly in the different terms. The

nonperforming loan rate has been controlled at 3% since 2015, but banks (except VCB) are under pressure of provisioning costs for a

large amount of nonperforming loan sold by special bonds in 2015.

Real estate, logistics and packaging achieve good growth rates and are beneficial from free trade agreements.

The total demand in some luxurious segments of real estate is likely to decrease slightly because the market has reached the saturation.

Meanwhile, the intermediate segment will account for the larger proportion due to matching the needs of the majority of people.

Circular No 06 will gradually impact to the real estate market and led to some difficulties to investor and home buyers.

Logistics is also beneficial after Vietnam joins in some international free trade agreements. The growth in import-export activities will

increase the demand for transport services. However, the outlook of dry cargo transport and container is unlikely positive because of the

imbalance in ships.

The integration also brings opportunities for packaging industry because it attracts FDI from foreign enterprises. In addition, the demand

for consumers which are retailers has remained good growth provides opportunities for the packaging industry in the future.

El Nino is forecasted to end and ENSO phenomenon will become neutral in June-July. La Nina may appear in the last months of 2016.

Therefore, hydropower plants which had poor performance in the first half of the year due to the impact of El Nino will has positive

outlook in the last months. However, the unpredictable fluctuation of foreign exchange rate is the main risk of thermal power plants with

a large amount of foreign outstanding debts.

After increasing significantly, the growth rate of steel industry is forecasted to level off.

Steel industry witnesses a great growth in the first half of 2016 when almost tickers recorded considerable increase in prices. However,

we think that the recovery of this industry is not really sustainable, the price is unlikely to rise strongly in the last months because

Vietnam is under pressure to reduce tariffs as free trade agreements, in which, steel is on the list of preferential import tax. Gross profit

margin is likely to decline when the cheap inventories have been released and the companies are under competitive pressure.



Page | 22

Based on the prospect of industries and firms, we have some recommendation as follow:

No Industries Recommendation

1 Banking Sector VCB : Buy

ACB: Hold

2 Real Estate VIC: Hold

HUT: Buy

3 Logistics GMD: Hold

VSC: Buy

PVT: Buy

4 Electricity NT2: Hold

5 Packaging DHC: Hold

BPC: Buy

6 Steel Industry HPG: Hold

VGS: Buy



Page | 23

Banking Sector

1H.2016 highlights Credit kept on high growth though the momentum has curbed. Banks boosted deposit mobilization.

As of June 20, credit surged by 6.2% ytd, lower than same period of 7.86% ytd. The drivers were

agriculture, services, transportation and telecommunication sectors. Deposit bounced back with solid

growth of 8.23% ytd, exceeding credit since end of February. As explained in our recent Banking report,

banks run on restructuring their deposit book towards more medium and long-term tenors to (i) prepare

for stricter requirement of Circular 06 (i.e. the amendments to Circular 36) and (ii) strengthen liquidity

after LDR rally driven by robust credit growth at the end of 2015.

Credit and deposit in VND led the trend, USD saw the sluggishness with a decline of 5.97% ytd in credit

and 5.07% ytd in deposit in 5M.2015. The reasons were (i) the adjustment of dollar deposit rate cap to

zero badly hit depositors’ interest and (ii) exchange rate risk and administration orders (e.g. Circular 24)

negatively affected borrowing demand in foreign currencies. (Noted: Circular 24 has been amended to

loosen rules on loans in foreign currencies since end of May).

Source: VCBS summaries

Deposit rate was lifted by 20-30 bps in the first 2 months. Lending rate kept stable. Bank run on

restructuring has upheaved deposit rate base by 20-30 bps, mostly in medium and long-term tenor. After

that, since the end of Quarter 2, deposit rate was generally well balanced, though we still saw some small

downwards adjustment by 8-10 bps. That together with the ample liquidity in the interbank market after

Q1 reinforced our view that banks’ demand for restructuring cooled off in Q2, and that some players even

adjusted down deposit rate to maintain a healthy spread.

Unlike deposit rate, lending rate was generally stable, except for a small downward adjustment in the end

of August after the prime minister’s call for lower lending rate to support enterprises. In response, some

state-owned banks actually consented such as BIDV and Viettinbank guaranteed to keep lending rate cap

for medium and long-term loans not to exceed 10%, and cut 0.5% of lending rate for short-term loans.

Overall, we do not surprise on the upward trend of interest rate given (1) inflation rate took off; (2)

deposit rate kept sinking over the past 3 year, which propelled depositors to other investment channels;

(3) exchange risk was over there. That said, banks seem to sacrifice their profit to keep lending rate stable

to support government’s high economic growth target of 6.7%.

0%

5%

10%

15%

20%

25%

Credit and deposit growth

Credit growth (yoy) Deposit growth (yoy)

http://vcbs.com.vn/vn/Communication/GetReport?reportId=4218



Page | 24

Source: VCBS summaries

LDR (lending to deposit ratio) of the whole system slightly fell from 89.31% (in January 2016) to

87.52% (in August 2016) after deposit was filled up in the first months of the year. However, this is

still very high and that of state-owned banks group even exceeded the ceiling (97.44% comparing to

90% (interest rate cap of state-owned banks excluding VCB, BID and CTG) and 80% (interest rate cap

of VCB, BID and CTG) according to Circular 06, the amendments to Circular 36).

The Circular 06, the amendments to Circular 36, was issued with a view to tightening financial

ratio requirements and improving risk management in banking sector. In short term, some

provisions might (1) restrict capital inflows in real estate sector; (2) create more disparity between banks

with conservative risk management and those who previously compromised on risk to prioritize growth.

However, comparing to the draft of Circular 06, the official version seems to “be less restrictive and

lengthen the effective date”, which, therefore, softened market reaction. In addition, some provisions in

Circular 06 aimed at stimulating demand for government bonds, one of the most important capital

mobilization channels given current tight state budget. (See more in: Report on Circular 06)

Capital adequacy ratio (CAR) of the whole sector declined from 13% to 12.76%. This was

inevitable given sluggish bank capital supplement but high credit growth. Moreover, real estate loans

kept robust growth (+5.76%) in 6M.2016. That said, demand for raising capital to improve CAR is

urgent in the whole sector, especially in state-owned banks whose CAR has reduced to 9.21%

(comparing to the requirement: 9%). Most banks has planned to raise capital in AGM this year, and at

the end of Q2, some of them has started their plan. Notably, recent MOF’s requirements for cash

dividend in BID and CTG, those who have very low CAR, will put high pressure on these banks to

improve CAR to prepare for long-term growth.

NPL ratio showed sign of increase from 2.55% (2015) to 2.62% (Q1.2016). Apart from seasonal

factors that NPL ratio is usually reported low at the end of the year, this may result from high loan

growth in real estate sector in 2015.

The fact that NPL ratio was less than 3% since 2015 has reduced pressure on banks’selling NPL to

VAMC. As of June, loan value sold to VAMC was VND 11,813 bn, much lower than that of the same

period (VND 28,000 bn). The process now more focused on restructuring and debt settlement instead of

selling debt to VAMC to reduce reported number. That said, we have seen some positive signs in NPL

settlement process, which was (1) VAMC’s representative mentioned on their ideas to buy NPL at

market price in this year; (2) Circular 08 was issued with a view to improving legal framework on

transaction of NPL on the market and empowering more rights to VAMC (Report on Circular 08). In

our opinion, the point is how VAMC mobilize enough fund to buy NPL on the market. Given the fact

that VAMC’s capital resource is much smaller than total NPL value of the whole sector, there will be a

70

75

80

85

90

95

100

105

LDR

State-owned banks Private banks Whole system





Page | 25

long way to go. Regarding the empowerment of debt settlement rights to VAMC: Though Circular 08

has not fully addressed the problem, it will partly increase the VAMC’s involvement in the most

important point – who is the owner and who has the right to dispose of the debt. We, therefore, could

expect more proactiveness in VAMC’s activities and an acceleration in the debt settlement process.

Banking restructuring kept going on, though there was not much significant events in the first half

of the year. Some of these events could be (1) Divestment of cross-ownership (e.g. CTG divested from

Saigonbank, Maritime Bank sold its share in MBB); (2) some banks self-reformed (ABBank) or was

transferred to SBV (PVCombank, of which the transferring had decided in 2015 but extended to 2016);

and (3) SBV took inspection to step on bank’s restructuring process (e.g. EIB).

There was sharp differentiation in Q1.2016 business results among banks. The only thing in common,

which we could say, was NIM fell from 3.12% (Q1.2015) to 2.76% (Q1.2016). This might come from the

downtrend of interest rate, or from business nature of each own banks (i.e. change in earning asset

components, reversal of accrued income…). Of all banks, we could be easily pick up high growth banks

(i.e. VCB, CTG, SHB). However, we do not think such banks to be our top picks, as (1) Q1 is often off-

peak time of credit growth, and therefore should be not seen as representative for the whole year; (2)

There is a large difference in provision expenses among 4 quarters of the year, while high bottom-line

might come from intentionally delaying provisioning and (3) Even in some case where banks take high

provision, we should still concern on NPL ratio and asset quality. That said, we do not surprise on such

disparity since each bank is on different stage of reform and management, and we expect such divergence

will continue during this year



Page | 26

Growth Credit Deposit

Net

interest

income

Non-

interest

income

Operating

income

Provision

expense PBT

NPL

ratio

NIM

Q1.2016 Q1.2015

VCB 6.30% 2.69% 29.6% 21.5% 28.7% -14.0% 58.0% 1.9% 2.81% 2.67%

BID 4.2% 8.5% 22.8% 59.2% 27.0% 103.4% -8.6% 1.3% 2.73% 2.92%

CTG 2.8% 2.1% 14.6% 88.5% 23.5% -4.6% 53.8% 1.0% 2.86% 3.09%

MBB 2.5% -0.6% -11.7% -7.8% -10.4% -68.6% 10.7% 1.6% 3.27% 4.29%

STB 11.9% 7.2% -36.2% 29.6% -23.7% -85.0% -75.5% 2.3% 1.99% 4.36%

EIB -2.6% 2.7% 2.9% -4.2% 1.8% NA -94.3% 2.8% 3.33% 2.70%

SHB 4.7% 4.0% 44.1% -13.6% 44.9% 2012.6% 46.2% 1.9% 1.94% 1.70%

ACB 7.6% 3.5% 13.8% -72.1% 5.5% -5.7% 8.3% 1.3% 3.20% 3.21%

Average 4.7% 3.8% 10.0% 12.6% 12.2% 276.9% -0.2% 1.7% 2.76% 3.12%



Page | 27

2H.2016 outlook We expect credit growth to seasonally accelerate at the end of this year, but maintain our forecast

of 16%, which is lower than SBV plan. The data in the first 4 months reinforced our view that loans to

constructions and BOT projects declined. Loans to real estate, though kept on high growth in the first half

of the year, but will be soon curbed after Circular 06. Besides, slowdown economic growth will drag on

demand for credit.

We also do not expect an improvement in deposit and credit in foreign currencies though Circular 07 is

issued to loosen regulations on such activities. Our reasons are based on existing exchange rate risk and

zero cap on USD deposit.

Lending rate is stable. Deposit rate could slightly upturn in long-term tenor. Our reasons for lending

rate forecast are (1) FED rate hike, one of the main pressure on lending rate, has been halted after Brexit

shock and (2) SBV still prioritizes low cost of fund to stimulate economic growth. Regarding to deposit

rate, we do not deny the possibility of another banks’ restructuring deposit book toward more medium and

long-term tenor. And therefore, NIM of the whole system will again under downward pressure.

The fact that NPL ratio was less than 3% since 2015 has reduced pressure on banks’ selling NPL to

VAMC. However, given high loan value sold to VAMC in 2015, most banks will be challenged by

high provisions for special bonds in the second half of this year, except for some few banks (e.g. VCB

as they had been previously active in NPL settlement). Such that, there will be a sharp difference in

business results among banks (as mentioned above).

Banking restructuring process seems to be sluggish in the first half of the year, which may come from

political change. That said, we expect the process will be boosted at the second half of the year.

Overall, Vietnam banking sector has stepped on the late stage of the restructuring process, of which most

of problems has been shown to be solved. We are looking forward for the growth phase after 2-3 years

banks’ suffering from high provisions to clear the NPLs issue in the past. This is also the growth potential

that we value the best to choose our investment top picks as below.

Potential companies

VCB: HOLD

VCB announced its preliminary 6M.2016 business results positively with VND 4,193 bn (+33%

yoy), completing 56% year-end target. This came from

(1) High credit growth of 10.76%, equivalent to 29.6% yoy. Thanks to a low LDR comparing to

other state owned banks, VCB has more room to expand its loan book. That said, retail loan was

the main driver with private and SME loans surging by 50% yoy in the first 6 months that VCB

is keeping on track with its planned target for 2016. Deposit growth kept lagging with a

growth of 6.72% ytd. VCB seems to intentionally remain a low cost of funds and at the same

time, let LDR to rise. Given a low funding cost base and a strong brandname, VCB could

mobilize deposit on demand with ease.

(2) Given VCB’s (i) solid credit expansion; (ii) more retail loan (with higher lending rate) in credit

structure and (iii) increasing demand deposit, NIM improved by 10-20 bps comparing to same

period, though VCB had adjusted deposit rate 2 times in early Q1 and late Q2.

(3) Non-interest earnings maintained a 2-digit growth rate that VCB held its leading position in

financial services and foreign currencies, of which international payments and commercial

finance +8.34%, card sales +20-50% yoy, foreign currency trading +1% yoy, cash transfer +11%

yoy)

(4) Provision expense was VND 3,000 bn in 6M.2016, decreasing by 10% yoy and equivalent to

54.5% year-end target. Strong growth in SME loan and severe droughts in southern provinces

may trigger a higher NPL rate. However, given its high provision cushion of VND 3,000 bn and

prudent risk management, VCB could still control NPL rate less than 2% while maintaining a



Page | 28

high loan loss provision coverage ratio (higher than 120%).

We believe that robust credit expansion in the first 6 months has deepened CAR by roughly 0.5% to

9.5%. Accordingly, VCB is under pressure of capital raise to ensure future growth. We has seen VCB’s

plan of stock issue to foreign investors in AGM. That said, if the plan is fulfilled, CAR is expected to

increase by 2%. Apart from that, we still keep an eye on other CAR improvement options, such as raising

Tier II capital, divestment of cross-ownership with other banks… And if all of these are executed, VCB

may soon claim to be the first bank ready for Basel II compliance.

VCB’s positive earnings results in 6M.2016 and the fact that credit seasonally grows well in the end

of the year reinforced our views that VCB will far exceed its planned target this year. We forecast its

profit before tax of VND 9,256 bn (+35.6% yoy, exceeding 23% plan target). These are our assumptions:

(1) Credit grows by 20%. With a strong credit growth of 10.76% in the first half of year, the other

10% is at fingertips. However, we do not raise the whole year forecast since the fact that VCB is

controlling loans to high risk sectors (such as real estate and construction, which are credit

drivers in 2015) and at the same time, keeping a healthy CAR ratio.

(2) Deposit growth is expected at 17.5%, which will lift LDR from 77.3% (2015) to 79% (2016).

VCB has let LDR to surge in the first half of the year, and we expect the things could be

continued in the other half of the year.

(3) NIM expands by 0.03% from 2.58% to 2.61%, supported by all the things in 1H.2016. VCB is

one of the few banks which could improve NIM in the context of (i) increasing deposit rate; (ii)

stable lending rate.

(4) Provision expense is as planned (VND 5.500 bn, declined by 9.4% yoy) due to high credit

quality and low risk of new NPLs.

With current price of VND 56,000 per share, VCB is traded at PB forward 2.89, 60% higher than adjusted

average by accrued interest. The stock price has rallied by 38% since we published our 2016 strategic

investment report. Given VCB’s leading position in banking sector, positive business results and other

short-term catalysts (i.e. stock issue to foreign investors, cash dividend, and divestment of cross-

ownership in other banks...), VCB may still attract investors’ interest. However, considering current high

price and a higher investment risk, we downgrade our ratings from BUY to HOLD for VCB.

ACB: HOLD As of Q1.2016, ACB announced VND 310 bn profit before tax (+10.4% yoy, completing 20.6%

year-end target). Core business showed positively, slow growth of bottom-line was due to high provision

for past issues.

(1) Net interest income grew by 13.8%, resulting from high credit growth (7.6% ytd, equivalent to

21% yoy) and NIM slightly declined from 4.2% to 4.0%. ACB had rose its deposit rate in the

first quarter like most banks, but it also boosted up short-term loan (low margin), and both of

these negatively hit NIM.

(2) Income from services and foreign currency trading surged robustly, with a growth of 19.6% and

105% respectively.

(3) High provision for investment securities, which in our opinion, may be related to bonds and

loans to “6-company group”.

(4) Provision expense was VND 233 bn, decreased by 6% yoy. However, if including the provision

related to “6-company group” in investment securities, adjusted provision expense increased 1.5

times.

All of the above contributed to a modest growth of 10.4% in profit before tax. Financial ratio showed

positively with NPL ratio of 1.32% (i.e. equal to that at the end of 2015), loan loss provision coverage



Page | 29

ratio improved from 87% (2015) to 89.8% (Q1.2016). CAR decreased in Q1 due to high credit growth,

but ACB has recently successfully issued VND 2,000 bn bonds for Tier II capital. Therefore, ACB still

maintained the highest CAR among listed banks.

Regarding NPL settlement: (1) in 6-company group: ACB planned to provision VND 1,000 bn this year

and has completed 20-30% its plan in Q1. The speed of debt recovery seems to be lower than expected, so

we expected ACB will mainly rely on provisioning to settle the past NPL; (2) in VND 400 bn loan to

Vietnam Construction Bank, ACB has been allowed to adjust the term to 2020 and to be paid 20% of

principal each year with 2% annual interest rate; (3) in VND 772 bn loan to GPBank, ACB was allowed

to purchase GBBank’s assets as payment of debts with interest of 9.2% annually. At the end of 2015,

ACB has purchased VND 500 bn, and plan to buy the remaining VND 272 bn in this year.

We kept our forecast in recent report after ACB’s AGM that ACB completed its year-end target of 14.4%

growth in profit before tax. PB forward is 1.2, equivalent to the sector average. We appreciate growth

potential of ACB in long-term, especially after all past NPL issues has been fully addressed. Given

current speed of debt recovery, we recommend HOLD ACB.

Real Estate Industry

Industry analysis 1H.2016

Liquidity remained at high

level but decreased

compared to the same

quarter last year. Mid-end

sector takes up a large

proportion of sold

apartments.

Tightened credit policies

start showing their

influences on property

developers and consumers.

Real estate market continued to stay at the positive status in Q1.2016. However, there was signs of

slowdown in Q.2 as (1) liquidity remained high but has declined compared to the same period last year,

(2) supply of high-end sector continued to increase while sales volume at mid-end sector rose

significantly to conquer the largest share and (3) the credit policy was newly issued towards strict

supervision on credit capital of the real estate sector

Successful trading transaction decreased. According to CBRE, in 1H2016, 8.900 apartments were

traded successfully in Hanoi (-6% yoy) and almost 15.000 apartments in HCMC (-16% yoy), the market

was active in Q.1 but less likely in Q.2. Mid-end sector rose significantly to conquer the largest shares at

40% the total amount of consumption in Hanoi and HCMC. Meanwhile, affordable sector dropped

sharply to 20% of the total consumption compared to 26% in 2015 due to the influence from the

expiration of VND30,000bn low-cost credit package. High-end sector competed more intensively and

reduced in trading volume, though, the market has recorded the emergence of luxury sector.

Sales volume in Hanoi and HCMC

Source: CBRE

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

Affordable Mid-end High-end Luxury

Ha Noi

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

Tp. Ho Chi Minh



Page | 30

Sale price fluctuated in a tight band but has shown signs of a slight decrease in high-end and mid-end

sector. In Hanoi, the offer price of some projects has inched up from 4-6% compared to last year;

however, the average resale price in the market has reduced 1.3% in equivalent to last year. In HCMC,

offer price which ticked up in Q.1 but fell in Q.2, has declined 1% compared to the same period in 2015.

The reasons came from the decrease in consumption result in Q.2 while supply still remained high.

(Source: CBRE, VNREA).

Supply has increased continuously; meanwhile, the supply of high-end sector ticked up constantly has

led to an intense competition. The reason why property developers has great interest on the high-end and

luxury sector is due to (1) Higher profit margin (2) while absorption rate of the high-end sector remained

high since the buyers expected attractive profits from house rental. From Q.2, the supply of mid-end

sector has gradually become the forerunner while the majority of the market demand was focusing on

mid-end and affordable sector. Affordable sector and social housing showed signs of difficulties on the

supply and consumption because the incentives from low-cost credit was no longer available, meanwhile,

the low profit margin could not attract the new investors yet. According to Savills, by the end of Q.2

2016, the total amount of the primary housing supply posted at 17.370 units (+29% yoy) in Hanoi and

40.100 units (+54% yoy) in HCMC.

Outstanding loans for real estate showed signs of slowdown. According to SBV, by the middle of

Q2.2016, the outstanding loans for investment and real estate sector reached over VND415,000bn, inched

up by 5,75% ytd, possibly until the end of Q.2, the growth rate would increase modestly compared to the

general credit growth rate of the economy in the first 6 months which was 6.2% ytd. Therefore, the

outstand loans of real estate marked a major slowdown comparing to 10.89% rate of 1H.2015. Besides,

the credit package of VND30,000bn was disbursed up to 70% by the end of May, 2016; the remaining

was extended by the SBV for only household buyers who have already signed contract before April 2016.

Therefore, the low-cost funding officially stopped providing for new loan demand.

New policy on credit risk management of real estate sector was issued. In May 2016, SBV has issued

Circulars No. 06 towards increasing safety assurance for ratio in credit institution activities. Hence, short

term capital for medium-long term loans would start to decrease from 60% to 50% on 1st Jan 2017 and

continue to drop to 40% from 1st Jan 2018. For the real estate loan, the risk ratio would tick up from 150%

to 200% from the 1st of Jan 2017. Therefore, in the long term, the commercial banks would apply stricter

control on lending particularly for the real estate sector. The credit crunch will affect both the property

developers and the house buyers. The main pressure would be on the newly established projects or

starting to operate.

FDI in real estate sector remained at a high level. In 1H.2016, FDI investment on real estate took the

second place (after manufacturing sector which accounted for 71.5%) with 25 new projects, the total

amount of newly registered volume went up to USD604,8 mil, which accounted for 5,3% of the total

registered volume (Source: Foreign Investment Agency - Ministry of Planning and Investment). FDI

investment on real estate was directly focused on the real needs of the market such as housing, apartment

and office for lease (Source: CBRE).

2H.2016 Outlook

Tightened credit policies

will show more impacts in

the latter of this year.

High supply level will

result in harsh competition

in high-end sector, while

mid-end and affordable

Total sales volume might continue to slightly decline. High-end sector competition would be more

aggressive as many projects are going to be launched, while the demand on this sector would reduce as

the rental request seems to be close to reach saturation. Mid-end sector would eventually achieve the

higher proportion of the total consumption as this product line fits well with the demand of the majority of

people in Hanoi and HCMC. Affordable sector would continuously be under influence of the suspension

of the low-cost credit package, however, in the long term, this sector has more chance to recover when the

credit-oriented of SBV and the government shifts to prioritize the social housing project and commercial

housing project which are in line for the real needs of the people.



Page | 31

sector would eventually

achieve the higher sales

volume.

Circular 06 shows gradual impact on the real estate market. Although the longer application period of

the policy has lessened the impact on the market at the moment, but by end of the year Circular 06 will

have a stronger impact when financial institutions must meet the credit risk mangement ratios. These

changes will negatively affect investors and buyers by making it harder for them to receive credits from

banks. These policies, however, are necessary for a secure and stable real estate market.

The market is transitioning to a more secure and stable growth period. The foundation for a stable

real estate market is stable, long term economic growth and high demand for housings. According to

CBRE Vietnam, more new and re-launched projects will be opened for sales to the market with the same

volume of 2015. Market outlook is quite stable but investors should be more cautious by the final half of

2016.

Great prospects ahead coming from economic integration. The real estate market will benefit from

free trade agreements including the Trans-Pacific Partnership (TPP), Free Trade Agreement with Korea,

EU and other trade agreements. The elimination of tariffs on a wide range of goods and services will help

attract more foreign investments coming to Vietnam. The demand for real estate for factories, offices and

housings for foreigners will become higher as FDI increases. In the long run, economic integration plays a

crucial role to the development of Vietnam’s real estate market.

Firms with great outlooks Many real estate firms are recording high financial growth this year as a result of their current projects.

However, fast dilution rate that does not match with profit growth rate is going to be an impediment for

these companies. This year also sees harsh competitions due to weakened purchasing power and firm

differentiation, big firms with stronger financial power will have more advantage over smaller firms when

credit requirements are tightened.

VIC: HOLD

recommendation

Positive firm outlook due to

impressive sales results

and handover projects

despite retail division

performing not up to

expectation.

Financial results Q1.2016

VIC reported great consolidated financial results compared to the same quarter last year. The

company reported revenue of 14,740 billion VND (+133.6% yoy, 32.8% of target) and net income of

1,289 billion VND (+261.1% yoy, 43% of target), however the net income attributable to

shareholders of the parent saw a less impressive performance of 779 billion VND (+82% yoy) since

most of its profit came from real estate segment, including projects with low ownership percentage

such as Central Park and Vinpearl Phu Quoc.

Gross profit margin downed to 32.4% from 35.5% in Q1.2015 and 34.4% in 2015. The reasons were

(1) Retail division recorded high revenue growth but low efficiency (2) Hospitality and entertainment

division was negatively affected from the temporary close down of Vinpearl Nha Trang.

2016 Outlook

Positive 2016 outlook due to completed real estate projects. Real estate division will be the most

efficient, but losses from retail division will affect the company’s profitability. VIC’s target for 2016

was 45,000 billion VND in revenue and 3,000 billion VND in net income. According to the forecast,

VIC will record a revenue of 47,910 billion VND (+41% yoy) and net income of 4,000 billion VND

(+167% yoy) because retail division and hospitality division earning was less than our prediction in

the last report. Net income attributable to shareholders of the parent should reach 2,500 billion VND

(+106% yoy), and basic EPS reach 1,161 VND per share due to a significant portion of profits

coming from real estate projects with low ownership percentage such as Central Park and Vinpearl

Phu Quoc.

Real estate transfer division could record revenue of 25,264 billion VND (+19.3%) for 2016.

Prospective projects that could bring in the most revenue includes Vinpearl Villas, Central Park, Park

Hill (Times City) and Nguyen Chi Thanh. Gross profit margin is expected to improve thanks to



Page | 32

Central Park and Vinpearl mansions.

Rental properties division is likely to reach 100,000 m2 (+11.7%) with the target of opening 20 new

shopping centers in metropolitan areas, bringing the number of shopping centers to a total of 42 in

2016. However, gross profit margin should be stable due to low occupancy rates in newly launched

projects. We estimate that revenue of 2016 will be 3,168 billion VND.

Hospitality division has the potential for high revenue growth. Estimated revenue of 2016 should be

3,707 billion VND (+30% yoy) as the number of new rooms increased to 5,000 from 8 newly opened

resorts in 2016. Gross profit margin may decrease due to low capacity, discounted rates and high

administrative costs in the initial phase.

Retail division promises highest growth rate as VIC is aggressively launching new Vinmart and

Vinmart+ stores. We estimate that revenue of 2016 will be 13,987 billion VND (+225% yoy).

Accelerated rate of store opening might help increase revenue but high SG&A expenses should keep

profitability low. Losses from business activities is expected to be higher than 3,000 billion VND.

Healthcare and education division sees stable growth due to new projects. In 2016 Vinmec will have

6 hospitals and 2 clinics in Hanoi, Ho Chi Minh, Hai Phong, Nha Trang, Phu Quoc, Ha Long with

1,428 hospital beds. We expect that revenue of healthcare and education division will reach 945

billion VND and 353 billion VND respectively.

Real estate projects contributed to 2016 revenue:

Projects

%

ownership

Land area

(m2)

Floor area

(m2) Location

1 Vinhomes Central Park 74% 422,000 1,892,000 Ho Chi

Minh

2 Vinhomes Times City - Park Hill 95% 335,695 1,891,721 Ha Noi

3 Vinhomes Royal City 98% 120,942 768,977 Ha Noi

4 Vinhomes Nguyen Chi Thanh 98% 13,039 223,260 Ha Noi

5 Vinhomes Gardenia 93% 176,300 472,000 Ha Noi

6 Vinpearl Nha Trang Villas 88%

1,355,530 237,614 Nha Trang

7 Vinpearl Phu Quoc Villas 48%

1,851,290 696,142 Kien Giang

8 Vincom Shophouse Hai Phong 98% 19,960 47,633 Hai Phong

Investment Recommendation:

Vingroup is the forerunner in most of its business segments and the company showed many potentials

for long term growth as (1) the company is constantly developing large scale real estate projects in

prime locations (2) VIC achieved great sales numbers in 2015 (14,000 apartments, mansions and

townhouses) and 2000 apartments, mansions and townhouses in Q1.2016, totaling to more than

80,000 billion VND of contract value.

VIC’s revenue may exceed original target due to contributions from real estate division despite

underperformance in retail division. In 2017 VIC may continue to achieve positive results due to high

property sales volume in 2015 and the first half of 2016. However, we are cautiously following the



Page | 33

performance of its retail segment.

EPS forward for 2016 is 1.161 VND per share, P/E forward is 43.9 times, much higher than industry

average and market average. According to NAV valuation method, VIC’s recommended price is

55,000 VND per share (a 25% increase compared to 2015). Since VIC is a leading player in many

business segments and has stable growth potentials, we recommend HOLD for VIC.

HUT: BUY

recommendation

Changing business model

from construction to

infrastructure investment

and real estate.

Financial report Q1.2016

HUT achieved very high growth compared to the last first quarter. The company reported revenue of

597 billion VND (+237.7% yoy, 25% target) and net income of 85 billion VND (+1,400% yoy,

22.4% target). Real estate took up 68.3% of revenue with 408 billion VND coming from Foresa Villa

Xuan Phuong project and high growth of BOT division with revenue of 99 billion VND (+141.5%

yoy).

Gross proft margin went up to 24% in real estate and 54.5% in BOT division helps increased gross

proit margin to 29.6%, up from 17.8% in 2015. This result reflects changes in HUT’s business model

by focusing on real estate as its main business activity.

2016 Outlook

We forecast that HUT will exceed 2016 target with revenue of 2,500 billion VND (+10.8% yoy) and

net income of 400 billion VND (+148.4% yoy) (HUT’s targets for 2016 are 2,400 billion VND in

revenue and 380 billion VND in net income) with real estate division contributing the most revenue

and profits, and construction division contributing the least. In particular, real estate division should

bring in 1,600 billion VND from Forest Villa Xuan Phuong project, while BOT project will see

double growth compared to 2015 with revenue of 400 billion VND. HUT may achieve a gross profit

of 600 billion VND, financial expenses increased to 150 billion VND (+43% yoy), and net income of

400 billion VND (+148.4% yoy), equivalent to an EPS forward in 2016 of 2,350 VND per share.

HUT is changing its business model from construction to infrastructure and real estate investment,

focusing on (1) expanding real estate sales activities, (2) putting up 07 BOT road tolling projects and

(3) investing in non-stop tolling station and automatic weigh stations. Construction activities have

been passed on to Thang Long JSC.

BOT division is moving to stable growth phase. HUT is the main contractor of 7 BOT tolling

projects, including 4 in operation and 3 in-progresses, with all projects should be in operation by

2018. BOT projects will have stable profit margin (more than 10%) and fewer business risks. Fee

collection will create a stable cash flow for capital returns and debt payments. With 4 projects

currently in operation, expected revenue for 2016 is 400 billion VND with gross profit margin of

50%. Revenue will increase greatly to 800 billion VND when all 7 projects will be in operation.

Real estate segment are looking to become HUT’s main business activity as it will bring in the most

revenue and profits for the company in the upcoming years. HUT is currently focusing on investing

in its current real estate projects. HUT has 5 real estate projects with great business potentials. In

2015, Foresa Villa Xuan Phuong is expected to bring 1,600 billion VND in revenue with a gross

profit margin of 25%. As these projects are villas and terraced houses, they have faster construction

time and see faster results than high-rise buildings in construction like Xuan Phuong Residence and

South Building Phap Van.

We expect HUT will acquire a new real estate project as an exchange of road 70 BT construction

project, near road 70 area or Le Duc Tho road.



Page | 34

Main projects in operation in 2016:

Project name

Capital

(billion

VND)

Project scale %

ownership Time frame Location

Real estate poject

1 Foresa Villa Xuan

Phuong 2,800

38 ha, 813 mansions and

townhouses 100% Handover Q4.2016 Ha Noi

2 South Buiding Tower 211 2.173m2, 16-floor building

consisting of 140 apts. 100% Handover Q2.2017 Ha Noi

3 Xuan Phuong Residence 1,100

3,95 ha including 6 17-floor

building and 126 apts. HUT owns 4

floors (14-17)

100% Handover by the end

of 2017 Ha Noi

4 48 Tran Duy Hung

Building 500

2.800 m2, office and luxury apts in

25-floor building 100%

Construction started in

2016 Ha Noi

5 My Dinh

Residence 3,000

49 ha, 400 apts and high-rise

facilities 100%

Expected to start in

2017

Ha Noi

BOT projects

1 BOT 10 Tan De 650 5.5 km, capital return period of 14

years 100% Tolling started 2014 Thai Binh

2 BOT 21 My Loc 487 3.9 km, capital return period of 23

years 100% Tolling started 2014 Nam Định

3 BOT QL1 Quang Binh 2,004 31.5 km, capital return period of 22

years 100% Tolling started 6.2015 Quang Binh

4 BOT 39B Thai Binh 550 16.62 km 51% Tolling started 3.1016 Thai Binh

5 BOT QL10 Hai Phong 2,815 30.55 km, capital return period of

15 years 100% Tolling starts 2018 Hai Phong

6 BOT Dong Hung 434 6,65 km 100% Tolling starts Q3.2017 Thai Binh

7 BOT QL32 Phu Tho 1.109 31.07 km, capital return period of

20 years. 30% Tolling starts 2017 Phu Tho

Source: HUT, VCBS

Investment recommendation:

HUT is changing its business model from construction to infrastructure and real estate investment.

Real estate division is bringing in the largest revenue and profits as HUT is aggressively capitalizing

on large-scale projects in prime locations with high commercial value such as Foresa Villa Xuan

Phuong and My Dinh Residence. BOT division is entering its stable growth phase and will be able to

generate stable cash flows for long term. By 2018, revenue from tolls will double 2016 as the number

of tolling projects increases from 4 to 7.

For 2016 HUT’s financial results are expected to exceed original targets with revenue of 2,500 billion

VND (+10.8% yoy) and net income of 400 billion VND, with real estate division making up most of

its revenue and profits. 2017-2018 outlook is positive due to (1) incomes from BOT division and (2)

revenue from 5 real estate projects in operation.

The EPS forward for 2016 is 2,350 VND per share, equivalent to a P/E of 5.1 times, much lower than

industry average and market average. HUT’s dividend yield is estimated to reach 12% per year, making it

an attractive stock for long-term investment. Therefore, we recommend BUY for HUT.



Page | 35

Logistics

1H.2016 Results

Logistics companies

recorded positive results,

whereas, logistics

companies in Haiphong

recorded revenue loss due

to decreases in reefer

(refrigerated container)

demands.

Logistics industry recorded positive results in the first half of 2016 with remarkable increase in

demand. According to the Ministry of Planning & Investment, import/export has recorded stable growth

in the first 4 month of 2016. To be specific, in the first 4 month of 2016, exports recorded $53 billion in

total value (+6% yoy), and imports recorded $51 billion in total value (-1.2% yoy). Exporting products

such as agricultural/seafood maintain stable growth and reached $6.7 billion (+7% yoy), which accounts

for 13% of the total exporting value.

In the North: Ports in Hai Phong area maintains the expectation for FDI inflow. According to the

Department of Statistics in Haiphong, in the first 3 month of 2016, cargo volumes reached 31.2 million

tons (+7.7% yoy), revenue from warehouse/transportation reached VND4.9 trillion (+16% yoy), cargo

volume through Hai Phong ports reached 18.2 million tons (+13% yoy). Also, Hai Phong International

Port is expected to begin phase 2 of the construction in the middle of 2016 – the project includes a 750

meter wharf which can accommodate 100,000 DWT carriers, and Tan Vu-Lach Huyen sea-overpass is

expected to finish in the middle of 2017.

In the South: After 5 years operating, from April 2011 to April 2016, the cargo volume through Cai Mep

area has increased 700%, the number of carriers over 80,000 DWT has increased 500%. In the first 3

months of 2016, Cai Mep has accommodated 576 carriers (+57% yoy), total cargo volume reached

423,000 TEU (+51% yoy). Currently, every week, there are 1 ship sailing to Mediterranean sea (9,000

TEU), 2 ships sailing to Northern Europe (14,000 TEU), 3 ships sailing to America, and another 6 ships

for local shipping.

Shipping Industry maintains negative outlook in 2016 due to the imbalance of supply and demand.

Because of negative effects from the world economy as well as China, since the beginning of 2016, 18%

of the world carriers have stopped working. In Q1.2016, the supply for shipping industry increased 7%

while demand increased 1% only. As a result, shipping fee has decreased by 50% recently. From the point

500 in 2015, shipping fee keeps going down which leads to revenue losses of shipping companies. Also,

the shipping industry is no longer beneficial from low oil price due to the 30% increase of oil price since

the beginning of 2016. To be specific, oil price has increased from $35/barrel in January to $48/barrel in

June 2016.

In Vietnam, after 2016 Tet holiday, many logistics companies such as Gemadept, Vinalies has to

downsize their shipping segment, and cut costs as much as possible. However, some companies specified

in Oil&Gas shipping such as PV Trans are still doing well due to some specific privileges from the

government.

To sum up, logistics companies have been doing well due to the stable growth of cargo capacity in

the first half of 2016, while there are revenue losses for companies in Hai Phong area due to decreases in

reefer (refrigerated container) demands.



Page | 36

Source: VCBS

In Q1.2016, logistics companies with positive growth included CLL, GMD, PSP, PDN and PVT.

Specifically, PVT recorded 46% growth in revenue mainly due to the new operation: FSO/FPSO service,

while GMD recorded slow growth as most GMD ports nearly reaches their maximum designed capacity.

Although the cargo volume in the North has increased significantly, Hai Phong ports recorded losses in

revenue mainly due to revenue decrease in reefer segment (refrigerated container). In Q1.2015, revenue

from reefer segment increased significantly, the tough custom clearance process with China led to high

demands for reefer. In Q1.2016, Mong Cai custom has operated smoothly without any problem in

customer clearance, and therefore, reefer demand decreased compared to the previous year.

Q1.2016 results of some leading logistics companies

Name Revenue

(billion VND)

Revenue

growth

NPAT

(billion VND)

NPAT

growth

Debt/

Total assets

EPS

(thousand

VND)

PE Assets growth Equity growth

Port (and other related services) segment

GMD 848 4% 84 4% 21% 3.8 11 6% 6%

VSC 225 -1% 42.8 -26% 35% 5.7 12 9% 12%

PDN 86.4 17% 14 10% 48% 4.2 12 4% -3%

DXP 40.4 -14% 13.2 -46% 12% 9 8 1% 4%

DVP 142 -3% 63 -4% 16% 7 11 7% -16%

HAH 121 -32% 36 -19% 44% 7.2 5.7 1% 9%

Shipping segment

PVT 1,534 38% 99.2 46% 55% 1.5 10 1% 3%

VTO 296 1% 31 159% 45% 1 12 -2% 3%

PCT 390 60% 6.2 15% 27% 0.8 13 0% 3%

2H.2016 Outlook

Port segment is expected to

maintain positive growth in

Logistics industry is beneficial after Vietnam signed the free trade agreements such as FTAs, TPP.

According to the Ministry of Planning & Investment, Vietnam economy has recorded positive growth

since the beginning of 2016; many manufacturers will be operating full-time until the end of this year due

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

CL

L

DV

P

DX

P

GM

D

HA

H

VS

C

PS

P

TC

L

PD

N

PV

T

Q1.2016 Revenue Growth

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

CL

L

DV

P

DX

P

GM

D

HA

H

VS

C

PS

P

TC

L

PD

N

PV

T

Q1.2016 Net Profit Growth



Page | 37

2016. Whereas, shipping

segment remains negative

outlook due to low demand

and low service fee.

to large orders. In the first 4 months of 2016, the total value of exports reached $53 billion (+6% yoy),

imports value reached $51 billion (-1.2%). There are signals for the recovery of some industries,

performance of corporations has recovered and made-in-Vietnam products have gained firm reputation in

the world market. Accordingly, the logistics industry is expected to improve significantly in the second

half of 2016.

VCBS remains negative outlook for shipping industry in 2016 due to the imbalance in supply &

demand. The number of non-working carriers has been increasing since the beginning of 2016 and

accounts for 6.6% of the total carrier vessels in the world. According to HIS, since the beginning of 2016,

there have been 200 newly-built cargo carriers delivered to shipping companies. According to Shanghai

Containerised Freight Index, shipping fee from China to Northern Europe has decreased by 7% reaching

$271/TEU, while shipping fee to Northern Europe has decreased by 7% reaching $271/TEU. According

to World Container Index of Drewry & Cleartrade, shipping fee from Asia to East Coast of America has

decreased by 9.3% reaching $770/FEU. Whereas, Oil & Gas shipping industry in Vietnam shows positive

signals due to high demand, the recovery of oil price will boost the performance of oil refineries/thermal

power plants, which will improve the demand for Oil & Gas transportation.

Potentials logistics firms

Name Q1.2016 2016 (Forecast) Recommendation

GMD

Q1.2016 revenue reached VND848

billion (+4.3% yoy), gross profit was

VND220 billion (+10% yoy), and

NPAT was VND84 billion (+4% yoy)

Nam Hai Dinh Vu port remains stable growth, Nam Hai logistics is expected to

operate in 2017. Forecasting 2016 revenue is VND3,917 billion (+9.3% yoy),

NPAT is VND524 billion (+14% yoy). EPS forward is VND2,920/share, P/E is

9.1.

Hold

VSC


billion (-1% yoy), and NPAT was

VND43 billion (-26% yoy)

Forecasting Q2.2016 revenue is VND275 billion, net profit before tax is VND85

billion (+14% yoy). EPS forward is VND2,920/share, P/E is 9.1. Forecasting

2016 revenue is VND1,160 billion (+25% yoy), NPAT is VND281 billion

(+1.4% yoy). Diluted EPS forward is VND5,323/share. VIP Green Port will be

the main catalyst for revenue growth. Currently, VSC is holding 74% of VIP.

Buy

PVT

Q1.2016 revenue reached VND1,534

billion (+37% yoy, achieved 110%

target), and NPAT was VND99 billion

(+46% yoy, achieved 115% target)

Revenue in the first half of 2016 was VND3,103 billion (+22% yoy, achieved

120% target), NPAT was VND270 billion (+26% yoy, achieved 136% target),

tax amount paid was VND163 billion (achieved 156% target)

Buy

PCT


billion (+60% yoy), and NPAT was

VND6.2 billion (+15% yoy)

The planned target for 2016 revenue is VND950 billion with NPAT of VND15

billion (-13% yoy). However, the company used to setting lower target than it

can actually perform, and therefore, VCBS forecasts the revenue will reach

VND1,112 billion (+1.4% yoy), and NPAT will be VND17 billion (+2.3% yoy)

Hold



Page | 38

MHC

Q1.2016 revenue/other income

reached VND76 billion (+650% yoy),

and NPAT was VND41 billion

(+280% yoy). The company gained

profit from selling HAH shares, and it

currently holds only 2.8% of HAH.

Forecasting 2016 revenue/other income is VND135 billion, NPAT is VND44

billion (-60% yoy). Dividend payout ratio will be 25%, in which 10% by cash

and 15% by stock.

MHC plans to sell all of its shares at Potraco with the total value of VND19.2

billion. Also, MHC might sell more shares from other company to gain the profit

of around VND45 billion in 2016.

Hold

GMD: HOLD

VCBS recommends HOLD for GMD due to its impressive performance in Q1.2016 as well as its

potential in 2016/2017. To be specific:

Phase 1 of Nam Hai logistics (supporting Nam Hai Dinh Vu port) is expected to operate in Q3 this

year, the project’s chartered capital is VND120 billion and GMD owns 65% of the project. Nam Hai

logistics is expected to connect port operations and logistics companies in the Northern port area.

Gemalink is planned to be re-started in the beginning of 2017, and expected to operate in the middle of

2018. Currently, Gemalink’s construction has been finished 39%. To be added, Gemalink is the largest

port project at Cai Mep-Thi Vai, the total investment is $345 million co-operating with CMA-CGM, in

which GMD owns 75% of the project. Gemalink has a 1,150 meter wharf which can accommodate

carriers up to 200,000 DWT; its warehouse area is 72 ha with the capacity of 2.4 million TEU/year.

Gemalink is a potential project because (1) Cat Lai port has been overloaded, (2) Gemalink is an

important part of the logistic chain connecting with Mekong Port, and (3) GMD already has a firm

customer base for Cai Mep – Thi Vai.

As most of GMD ports nearly reached their maximum capacity, VCBS estimates that 2016 port revenue

will reach VND1,838 billion (+10% yoy). Also, forecasting revenue from storage/ICD service is

VND1,149 billion (+9.7% yoy), and revenue from shipping service will remain at VND930 billion

(equivalent to 2015 revenue)

Forecasting 2016 revenue is VND3,917 billion (+9.3% yoy), NPAT is VND524 billion (+14% yoy),

EPS is 2,920. In case VIG exercise the right to convert the convertible bond into stock, the diluted EPS

will be VND2,320. Implementing the comparable analysis (P/E and EV/EBITDA), the reasonable price

for GMD is VND29,659/share.

Potential risks:

1. GMD has been investing heavily in real estate and rubber plant. Specifically, GMD has invested

VND1,400 billion in rubbers planting while the project cannot generate profit before 2018. Whereas,

the real estate project needs another $145 million which could negatively affect the Debt/Asset ratio.

2. Hoa Sen port project has been delayed due to difficulties at Cai Mep-Thi Vai.

VSC: BUY

VSC recorded positive results in 2015 and there are signals for potential growth in 2016. To be specific,

newly-built VIP Green Port will be the main catalyst for 2016 revenue growth; VSC currently owns 74%

of VIP Green Port. The first wharf has been operating since the end of 2015, the second wharf is planned

to operate in the end of 2016 which will boost the total capacity up to 600,000 TEUs. Recently, VSC has

transferred 3 customers including Evergreen, OOCL and Cosco to VGP. Currently VGP accommodates

around 6 carriers/week - equivalent to 29,000 TEUs/week. According to the latest forecast, 2016 capacity

of VGP will reach 350,000 TEUs, revenue is VND419 billion and NPAT is VND71 billion.

However, the customer transfer from Green Port to VGP has caused negative effects to the capacity of

Green Port. By the end of April 2016, although Green Port signed contracts with 3 other customers (1



Page | 39

local and 2 foreign shipping companies), forecasting 2016 capacity will decrease by 25% because new

shipping companies have smaller-size carriers.

Forecasting Q2.2016 revenue of VSC is VND275 billion, NPAT is VND85 billion. Forecasting 2016

revenue is VND1,160 billion (+25% yoy), NPAT is VND281 billion (+1.44% yoy), diluted EPS is

VND5,323/share. Forecasting 2017 revenue is VND1,258 billion (+8.4% yoy), NPAT is VND356 billion,

diluted EPS is VND6,364/share. Implementing discounted cash flow analysis, the reasonable price for

VSC is VND81,000/share.

Potential risks:

1. Lach Huyen port is going to operate in the beginning of 2018. However, until 2020, Lach Huyen

port might not cause significant effect to the cargo capacity of Hai Phong area as Hai Phong

ports remain the stable growth of 15%/year. Also, the target customer of Lach Huyen port is

different as it focuses on large carriers over 20,000 DWT.

(1) Shipping companies tend to build bigger ships; this might affect Green Port’s cargo capacity as

Green Port can only accommodate ships less than to 40,000 DWT.

PVT: BUY

In the first half of 2016, revenue of PV Trans was around VND3,103 billion (+22% yoy, 120% of the

target), NPAT was around VND221 billion (+26% yoy, 136% of the target). Q2.2016 net profit margin

increased and reached 6.5%, PVT has implemented the cost cutting campaign by strictly controlling the

fuel costs and other maintenance costs. As a result, in the first half of 2016, PVT has saved VND24

billion (102% of the target). In summary, PVT has over-achieved the H1.2016 target in terms of revenue

as well as NPAT.

Currently, GPP Ca Mau is planned to operate in the beginning of 2017, PV Trans is working with PV Gas

to provide the barge shipping service for GPP Ca Mau (monopolistically). Also, PV Trans is going to sign

a contract to provide coal/oil input for Thai Binh 2 thermal power plant, the power plant is planned to

operate in the end of 2016. In addition, PVT is planning to buy more ship (5-7 years old) and barges (2-3

barges, $2,000,000 - $3,000,000 each). This would be a good time for ship purchasing; the ship price is

currently low due to the gloomy outlook of the shipping industry.

2016 forecasting revenue is VND6,092 billion (+5.7% yoy), NPAT is VND475 billion (+10% yoy),

EPS forward is VND1,857/share – equivalent to P/E 7.4. Implementing the comparable analysis (P/E and

EV/EBITDA), the reasonable price for PVT is VND19,584/share. We recommend BUY for PVT. To be

specific, forecasting shipping revenue will slight increase and reach VND2,754 billion (+2% yoy) mainly

from local shipping contracts. Revenue from FSO/FPSO service will be around VND804 billion (+64%

yoy) as Dai Hung Queen will operate for the whole year. Also, revenue from commercial and other

activities will slightly increase and reach VND2,534 billion (+2% yoy).

Potential risks:

1. In 2016, the instability of oil price will negatively affect the shipping industry.

2. Foreign exchange rate instability remains the main risk of PVT as 59% of PVT’s outstanding

loan is in foreign currency. It is estimated that the company need a provision

Electricity



Page | 40

1H.2016 Highlight:

Hydro power electricity

production decreased

significantly because of El

Nino. Electricity supply

mix changed towards

reducing hydropower

plants, increasing thermal

power

.

Electricity production rose compared to the same period in 2015. According to EVN, total electricity

generated by all types of plants in 5M.2015 was 72.6 billion kWh (+13.1% yoy). Electricity produced and

bought from EVN were 69.84 billion kWh (+12,1%). In which:

Hydropower: 18.2 billion kWh (26.07%)

Coal thermal power: 28.8 billion kWh (41.3%)

Gas thermal power: 20.8 billion kWh (29.76%)

Oil thermal power: 1.06 billion kWh (1.53%)

Import: 0.96 billion kWh (1.37%)

Commercial electricity were 61.9 billion kWh (+12.3%), in which domestic electricity increased by

12.5%.

Electricity supply mix changed towards thermal power. By the end of May, hydropower proportion

reduced from 37% to 26%, meanwhile thermal coal power rose from 33% to 41%, thermal gas power still

remained the same proportion in 2015. The reasons are as followed:

(1) Power Master Plan VII currently focuses on development of Coal Thermal Power (the second-

cheapest energy source) since the hydropower potential is narrowed down. 2 out of 3 new

factories are coal thermal powers, the other (O Mon I) is gas thermal power.

(2) Hydropower production plummeted due to the impact of drought.

(3) Hydropower plants have been fully exploited in our country, and there are many drawbacks

because it depends on the nature, destroys the ecological environment and causes flood.

In addition, Governments also plans for the development of nuclear power, but this is only the beginning

of research process. Nuclear power plant is expected to operate in 2030, accounted for around 3.8% of

market share in total electricity production.

1H.2016 Highlight:

Hydro power electricity

production decreased

significantly because of El

Nino. Electricity supply

mix changed towards

reducing hydropower

plants, increasing thermal

power

.

Electricity production rose compared to the same period in 2015. According to EVN, total electricity

generated by all types of plants in 5M.2015 was 72.6 billion kWh (+13.1% yoy). Electricity produced and

bought from EVN were 69.84 billion kWh (+12,1%). In which:

Hydropower: 18.2 billion kWh (26.07%)

Coal thermal power: 28.8 billion kWh (41.3%)

Gas thermal power: 20.8 billion kWh (29.76%)

Oil thermal power: 1.06 billion kWh (1.53%)

Import: 0.96 billion kWh (1.37%)

Commercial electricity were 61.9 billion kWh (+12.3%), in which domestic electricity increased by

12.5%.

Electricity supply mix changed towards thermal power. By the end of May, hydropower proportion

reduced from 37% to 26%, meanwhile thermal coal power rose from 33% to 41%, thermal gas power still

remained the same proportion in 2015. The reasons are as followed:

(4) Power Master Plan VII currently focuses on development of Coal Thermal Power (the second-

cheapest energy source) since the hydropower potential is narrowed down. 2 out of 3 new

factories are coal thermal powers, the other (O Mon I) is gas thermal power.

(5) Hydropower production plummeted due to the impact of drought.

(6) Hydropower plants have been fully exploited in our country, and there are many drawbacks

because it depends on the nature, destroys the ecological environment and causes flood.

In addition, Governments also plans for the development of nuclear power, but this is only the beginning

of research process. Nuclear power plant is expected to operate in 2030, accounted for around 3.8% of



Page | 41

36.92%

32.52%

29.12%

0.29% 1.07%

Electricity supply mix 2015

Hydro

Thermal coal

Thermal gas

Thermal oil

Import

26.07%

41.30%

19.76%

1.53% 1.37%

Electricity supply mix 5M.2016

Hydro

Thermal coal

Thermal gas

Thermal oil

Import

market share in total electricity production.

Investment projects are on schedule.

Electricity supply: some projects are expected to complete in 2016: Lai Chau, Huoi Quang,

Trung Son, Song Bung 2 Hydropower Plant, Duyen Hai 3 Thermal Power Plant. Some key

projects such as: the expansion of Duyen Hai 3, Vinh Tan 4, Thai Binh 1 Thermal Power Plants,

the expansion of Da Nhim has finished negotiation and prepare to sign the contract. The

expansion of Thac Mo Hydropower Plant has completed all concrete works headrace tunnel

before 12 days of the plan. Also, the basic construction for Thac Mo expansion has been done

(12 days earlier than the plan), and the first generator of Thai Binh 1 thermal power plant has

been setup (1 month earlier than the plan). In addition, in May 2016, generators of Vinh Tan 2

and Duyen hai 1 power plant has been setup and put into operation.

Power grid: in the first 5 months of 2016, 48 projects were completed (including 9 projects 500-

220kV and 39 projects 110kV), in which, there are some key projects to boost power

transmission capacity such as: 500kV Pleiku 2 substation, Vung Ang - Ba Don - Dong Hoi

220kV line. Currently, 20 projects have been started the construction (1 projects of 220kV and

19 projects of 110kV).

Total value of contruction invesment in Q1.2016 was estimated at VND26,167 bn, value of disbursement

was higher than the same period in 2015, reaching VND20,014 bn. In the first 5 months, total value of

contruction investment reached VND52,719 bn, the value of disbursement reached VND40,933 bn.

Another 16 plants are allowed to participate in the Vietnam Competitive Power Generation Market

(VCGM) in 2016. According to Decision No 79/QD – DTDL dated November 20, 2015, since

01.01.2016, there has been 63 plants joining in the competitive power generation market with total

capacity of 14,912 MW. In which, there are 45 hydropower plants (accounted for 38% of total market

capacity), 13 thermal coal plants (maked up 38% of total capacity) and 5 thermal gas plants (accounted

for 24% of total market capacity). Moreover, there are 16 new plants with total capacity of 6,239.5 MW

on the process of fulfiling the requirement (in terms of infrastructure, power purchase agreement, the

electrical licenses ...) to participate in VCGM in 2016. Therefore, when the power plants meets the

requirement to participate in the electricity market in 2016, there will be 73 out of 110 plants that have

capacity of over 30MW taking part in the CGM which contribute to raise the total capacity of CGM to

21,151.5 MW, accouting for 54% of capacity of the total system (38,953.5MW).

Vietnam is implementing the 2nd level of VCGM, this is the Vietnam Wholesales Electricity Market

(VWEM). This will be tested during the period from 2016 to 2018 and come into effect in 2019.



Page | 42

Currently, the Minister of Industry and Trade and international consultants is implementing the final

stages of project “Building regulations of operation of the Vietnam Wholesales Electricity Market” to lead

to the draft circular about the VWEM since July, 2016. The deparment will complete all regulations about

VWEM to submit to other Deparments. This is an important document to generate the VWEM. The

regulations of VWEM are expected to finish in June, 2017.

The majority of electricity

companies saw negative

performance results in this

period

In Q1.2016, energy industry performance was not positive when the majority of electricity

companies recorded sinificant loss. There are three reasons:

El Nino phenomenon from 2015 to the first half of 2016 caused severe drought which negatively

impacted the electricty production of hydropower plants.

Gas input decreased which made electricity price of gas thermal power plants fell.

The fluctuation of foreign exchange rate made firms with high foreign outstanding debts record

foreign exchange rate loss.

Look into more detail:

Hydropower: Low production due to severe droughts: In 2015 and the first half of 2016, under the

effect of El Nino, the drought dried up nationwide hydroelectric dam. The water level in hydropower

lakes were much lower than the average over previous years. According to National Centre for

Hydrometeorological Forecasting, from October, 2015 to March, 2016, the amount of rain in the Central

decreased by 30-50%, the Central highland, South and Binh Thuan province was lower by 20-40% than

the average. This impacts negatively the water sources of hydropower plants. As the matter of fact, hydro

production in Q1.2016 was 9.12 billion kWh (-14.6% yoy). According to EVN, there are 81 hydropower

plants (with a capacity of over 30MW) with total capacity of 15,570 MW, accounting for 40.4% the

capacity of total system (38,500MW). In particular, due to the severe drought, only 38 lakes can regulate

water for power generation, irrigation and water supply in the dried lands with a total capacity of 33.01

billion m3.

The majority of electricity companies saw negative performance results in this period. Details are as

follows:

In the North, Thac Ba Hydropower Plant has a capacity of 120MW but the electricity

production was much lower than that of the same period because the amount of water fell

significantly. Therefore, net sales in Q1.2016 declined over VND9bn which made NPAT

decreased by 16.2%.

In the Central: The Central Hydropower Plant recorded NPAT by only 1/9 of the same period,

reaching VND8.78bn. Due to the impact of El Nino, the water flow was very low and the

electricity production was 79.4 million kWh (-73% yoy). VSH recorded poor results with the

electricity production falling by 21.8% compared to the same period which made NPAT

decrease by 19.3%. SBA also reported a loss of VND2.5 bn in NPAT.

In the South: Thac Mo Hydropower Plant (TMP) and South Hydropower Plant (SHP) reported

looses in Q1.2016 (-VND1.6 bn and VND54.3 bn respectively). Only Can Don Hydropower

Plant reported a profit of VND15 bn in Q1.2016, but still decreased by 51.6% yoy.

Thermal power: foreign exchange loss eroded profit. In Q1.2016, foreign exchange rate fluctuated

unpredictably and some currencies moved differently: USD (-0.46%), EUR (+1.35%), JPY(+7.74%) and

KRW (+8.5%). However, the majority thermal power companies were hit negatively since their

outstanding debts were mainly in foreign currencies.

Debts in JPY: In Q1.2016, JPY appreciated by around 8% against VND and made PPC record

a foreign exchange rate loss of VND262 bn which led to a loss of VND157 bn in NPAT.



Page | 43

Debts in EUR, USD: As of 31.03.2016, total foreign outstanding debts of NT2 were USD123.6

mn and EUR112.9 mn. In Q1.2016, NT2 recorded a foreign exchange loss of VND58.6 bn

compared to a profit of VND314.3 bn in Q1.2015. Among thermal power group, NT2 which

should be benefited by EUR depreciation eventually recorded a forex loss as its gain in EUR was

offset by its loss in USD.

Others: With regard to BTP, net sales in Q1.2016 decreased slightly by 6.9% due to the impact

of provisional price in 2015 (but will be revised when there are official price in 2016). However,

KRW which appreciated by 8.5% against VND make BTP recored a loss of foreign exchange

rate of VND45.9 bn. Because gas prices plummeted more significantly, BTP recorded a loss of

VND18.7 bn compared to a loss of VND122.8 bn in the same period last year. Only Ninh Binh

Thermal Power Plants reported a positive results. The electricity production in Q1.2016 was

higher than in Q1.2015 due to the fact that NLDC encouraged NBP to operate 2 generators.

NPAT surged compared to the same period, reaching VND10.7 bn. This also due to reducing

attrition rate. Net sales in Q1.2016 was the provisional number because NBP has not signed a

Power Purchase Agreement with the EVN.

Low gas price are beneficial for thermal power plants. With regard to NT2, since 01.08.2015, gas

input price has been calculated based on market price (46% MFO + tax). Therefore, oil pirce officiallly

impacted to gas price from 01.08.2015 to 31.12.2015. Oil price has decreased recently which led to a

strong decline in gas price of thermal power plants. However, this also impacts to electricity price.

Electricity price in PPA of NT2 plunged by 28.9% to 1,039 dong/kWh arter gas price plummeted by 45%

from 5.65 USD/mmBTU in Q1.2015 to 3.13 USD/mmBTU in Q1.2016.

Performance results of electricity companies in Q1.2016

Compan

y

Capacity Location Net sales

(VND bn)

% yoy Net

income(

VND bn)

% yoy Debts/total

assets

EPS traling PE Notes

Hydropower

TBC 120 Yen Bai 62.5 -12.3% 30.1 -16.2% 2.5% 1,730 13.8 The North

CHP 170 Hue 94.7 -45% 8.8 -89% 54.7% 2,040 9.6

Central VSH 136 Binh Đinh 105.4 -16.7% 63.1 -21.6% 44.2% 1,130 13

SBA 73 Quang Nam,

Phu Yen

22.6 -36.8% -2.5 -150% 52.1% 730 13.1

SHP 122.5 Lam Đong 36.1 -48.3% -54.3 -58.2% 57.5% 1,420 13,2 Highlands

SJD 104 Binh Phuoc 47.4 -32% 15 -51.6% 22.6% 3,530 7.62

The South TMP 150 Binh Phuoc 59.4 -64% -1.6 -103% 31.9% 2,080 12.5

Thermal Power

NT2 750 Đong Nai 1,387 -22.3% 318.6 -36.7% 60.3% 3,220 10.8 Gas thermal

power BTP 388 Vung Tau 389.5 -6.9% -18.7 +84.7% 45.3% 3,630 4.2

PPC 1040 Hai Duong 1,706.7 -14.7% -156.8 -402% 48,9% 0,820 17.5 Coal thermal

power NBP 100 Ninh Binh 180 +24.9% 10.7 1378% 36.6% 1,630 12.2

Source: VCBS

2H.2016 Outlook:

Performance results of hydropower

companies will be more positive when

El Nino is forecasted to end and ENSO phenomenon will become neutral in June-July. La

Nina may appear in the last months of 2016. At 10.06.2016, the National Oceanic and

Atmosphere America (NOAA) officially announced that El Nino phenomenon lasted since 2015

has officially ended. It is likely that La Nina which is a weather phenomenon opposing to El



Page | 44

El Nino ends. Thermal power

companies will move in tandem with

exchange rates.

Nino will occur shortly after El Nino. It will make the amount of water on the equatorial Pacific

surface drop and the amount of rain in the South Asia increase. Therefore, La Nina will be

beneficial for hydropower plants because the amount of rain in Vietnam will rise due to being

one of the countries in South Asia.

Similar to El Nino, the impacts of La Nina to hydropower plants will be different. Hydropower

plants in the Central and South were the most significantly affected by El Nino, meanwhile the

North was less affected. By contrast, some plants in the Central coast such as VSH, CHP will be

beneficial while some of the North such as TBC will be negatively affected. La Nina will cause

a large amount of rain in the Central Highland and the South but of the North decrease.

Therefore, VCBS forecast, in the last half of 2016, performance results of hydropower plants

will be positive, especially VSH, CHP, SBA and SHP.

Uncertain exchange rate market may badly affect firms with high foreign currency debts.

In the first 6 months of 2016, there were some unexpected issues which affected the foreign

exchange rate. In which, Brexit (UK leaves EU) had negatively impact to EUR. UK left EU

would make EU outlook become more negative and this will make the EUR weaken. However,

Brexit also slowed the progress of increasing interest rate of FED in 2016 and we expect FED to

raise interest rate only one time at the end of 2016. The pressure of the appreciation of USD is

not much. However, when EUR and USD fluctuate unpredictably, investors will pay attention to

safer currencies, such as JPY. It means that JPY will become stronger. Since the beginning of

2016, JPY has appreciated about 16% against VND, thus some firms with high JPY outstanding

debts such as PPC will be suffer from the pressure of foreign exchange loss. In the last 6 months

of 2016, we are expecting (1) Firms with high USD and JPY outstanding debts (such as Hai

Phong, Quang Ninh and Pha Lai Thermal Power) are likely to suffer foreign exchange loss and

(2) Those whose owing other foreign currencies debt will have their earning fluctuated sharply.

Regarding Vietnam Power Sector Restructuring (1) There will be another 16 power plants

participating in the competitive generation market. The number of participants will then be

83, with a market capacity of 21,152 MW, accounting for 54% of total capacity; (2) Ministry of

Industry and Trade issued Decision 8266, which approved competitive wholesale power market

design. Some important points of the Decision are (i) The participants; (ii) Market model; (iii)

Implementation roadmap; (iv) Power purchase contracts. That said, there will be two pilot

stages from 2016 to 2018 (2016: model test on paper, 2017-2018: real model test) before the

wholesale market is officially launched. In the short term, we do not expect a significant impact

of the new decision on the market, especially in 2016 when the model test will be conducted on

paper only. For Power sector restructuring, we still count on the implementation of competitive

generation market, which is slowly processed given the fact that market participants have

accounted for only 40-50% of total capacity and each of them sell as little as 5-20% of their

production to the market.

Potential companies

Ticker Q1.2016 result 2016 outlook Recomme-

ndation

NT2 Net sales: VND 1,387 bn (-21% yoy,

23.1% plan)

NPAT: VND318 bn (-37% yoy, 43%

plan)

Net sales: VND6,691 bn(-0,6% yoy), NPAT: VND 1,424.7 bn (+24,8%

yoy). EPS forward: 5,128 dong/share.

Short-term outlook: the depreciation of EUR

Long-term outlook: the expansion of Nhon Trach 2 Thermal Power Plant

(NT3) and NT4 with a capacity of 750-800MW and (2) the project of

"Production of commercial CO2 emissions from Nhon Trach Thermal

Hold



Page | 45

Power Plant"

REE Net sales: VND554.3 bn (-18% yoy,

19% plan), NPAT: VND 98.8 bn (-

32% yoy, 11% plan).

In 2016, REE targets to achieve VND2.933 bn in net sales (+10.9% yoy)

and VND 986 bn in NPAT. It is likely that REE can reach this plan due to

the fact that M&E sector can earn sales from some new projects such as

Deutsches Haus, VTV Tower, Trang An Plaza. Real estate sector also has

two new projects: (1) building for lease at 24, Quang Trung street and (2)

new urban area in Quang Ngai. Water utility sector still remains stable

growth, but electricity utility is unlikely to achieve targets due to the

impact of Pha Lai Thermal Power Plant.

Hold

PPC

Net sales: VND1,707 bn (-45% yoy),

NPAT: VND 157.3 bn (-406% yoy)

Net sales: VND7,480 bn (-2.5% yoy), NPAT: VND504.6 bn (-10% yoy).

EPS forward: 1,586 đong/share.

Exchange rate risk: the appreciation of JPY. PPS’s outstanding debt at the

end of 2015 was 21 billion JPY. As estimated, in Q2.2016, PPC may

record VND690 bn of a loss of exchange rate.

Follow

SHP Net sales: VND36.1 bn (-48,3%

yoy, 6,2% plan), NPAT:VND -54,3

bn (-139,2% yoy),

Net sales: VND590 bn (-0.8% yoy), NPAT: VND165bn (-2.4% yoy). EPS

forward: 1,760 đong/share.

Da M’bri plant is likely to achieve target because water flow in the Da

M’bri stream area is relatively better than other tributaries in the province.

Moreover, thanks to years - regulatory reservoirs, Da M’bri is entirely

possible to store water when the rainy season comes (rainy season in Lam

Dong usually starts from mid-April - early May). Because it paused the

generator in Q1.2016 to ensure the water sufficiency for the dry season,

the output may increase since Q2.2016.

Positive

CHP Net sales: VND94.7 bn (-45% yoy),

NPAT:VND 8.8 bn (-89% yoy),

CHP targets to achieve VND600 bn of net sales (-17.8% yoy), VND213

bn of NPAT (-35% yoy). However, there are some positive factors: El

Nino has ended, and it is likely that La Nina will appear at the end of 2016

(maybe in fall), coinciding with the period of the rainy season of CHP. La

Nina occurs will cause heavy rains in the central provinces, and thus CHP

will be beneficial. The proportion of CHP’s electricity production in CGM

market is still very low (8%), so CHP can expand its proportion and

increase profit. Besides, because the plants of CHP are quite new,

depreciation and interest expenses will decrease in the long-term.

Positive

NT2: HOLD

Q1 results

In Q1.2016, NT2 recorded VND1,387 bn (-21% yoy, 23.1% plan) of net sales, VND318 bn (-37% yoy,

43% plan) of NPAT. Total electricity production of NT2 in Q1.2016 reached 1,335 billion kWh (+2.5%

yoy, 30% plan). Despite an increase in electricity production, net sales and NPAT decreased. This is due

to the fact that:

(1) Price in PPA fell by 28,9% to 1,039 VND/kWh after gas price witnessed a decrease of 45%

(from 5,65 USD/mmBTU in Q1.2015 to 3,13 USD/mmBTU in Q1.2016).



Page | 46

(2) In Q1.2015, realised foreign exchange was VND314.3 bn, but in Q1.2016, NT2 witnessed a loss

of VND58.6 bn.

Because NT2 applied gas price by market, input expenses fell more than electricity price. This made gross

profit increased by 31.1% and gross profit margin reached 33.5%. After eleminating all exchange rate

factors, net profit before tax in Q1.2016 soared by 85% compared to the same period, reaching VND

399.5 bn.

In the first 6 months of 2016, electricity production achieved 2,762 million kWh (+1% yoy). Total

revenue in 6M.2016 reached VND2,942 bn (-10.5% yoy, 54.8% plan). It is unlikely that electricity

production in Q3 and Q4.2016 can increase considerably beacause El Nino will weaken, and La Nina is

likely to occur which will cause heavy rain and increase water level in reservoir basin of hydropower

plants.

Outlook

In short-term, the main factor which supports NT2 is the depreciation of EUR. As of 31.03.2016, foreign

outstanding debts of NT2 were USD123.6 mn and EUR112.9 mn. Some factors that negatively impact to

EUR are:

(1) Brexit has caused a huge impact to global financial market, including EU.

(2) The immigration crisis in Europe, slow economic growth of the members and political instability

as well as terrorism threat in many countries.

Therefore, it is likely that ECB will decrease interest rate and implement many supportive programs. This

will increase pressure on EUR and it is more likely that EUR will equal USD. For these reasons, we

believe that in the short term, NT2 will be beneficial from the decline of EUR.

In the long-term, we expect some positive factors: (1) the expansion of Nhon Trach 2 Thermal Power

Plant (NT3) and NT4 with a capacity of 750-800MW and (2) the project of "Production of commercial

CO2 emissions from Nhon Trach Thermal Power Plant".

Recommendation

NT2 plans to pay 20% dividend in 2016. VCBS forecasts FY2016 net sales of VND6,691 bn (-0.6%

yoy), NPAT of VND1,424.7 bn (+24.8% yoy). EPS forward 2016 will be 5,128 VND/share. We

recommend HOLD for long-term investment.

Packaging

Industry in 1H.2016:

The low price of raw

materials is the motivation

of improving in gross profit

margin

Structure of packaging industry

Locations of plastic factory

Source: Stock Plus

Packaging Industry

Plastic

Sort packaging

PE

textiles

lamination BOP

P

Hard packaging

Plate

Mold tubes

HDPE

PET

Khác

Paper

Glass

Metal

Other



Page | 47

663

441

722

445

Paper Paper products

The volume of imported paper and

paper products

5T.2015 5T.2016

Packaging industry has strong differentiation, both in term of firm size and product struture.

Vietnam Packaging industry has a relatively large size ( ~ USD6.3 billion - StoxPlus 2014) with multiple

branching products. Each branch product has strong differentiation of material, technology, quality ... to

serve a variety of customers.

The size of packaging company in Vietnam is just small to medium. There are about 10-20 companies

that gain more than USD30mn revenue per year, and a lot of small companies with less than USD5mn

revenue per year.

The variety in product and quality demands let the market differentiate into multiple arrays. The large

companies with mordent printing technology and capture customer taste usually have stable customer list.

Dependence on imported raw material

Most of machine and raw material (paper, plastic resin, ink…) is imported. Especially for Plastic

packaging arrays, this proportion is about 90%. This makes the companies in the industry face with high

risk of input material prices and exchange rates.

For paper packaging products: According to the General Department of Customs, in the first 5 month of

2016, the volume of imported paper and paper products (packaging paper account for more than 80%)

increased relatively 8.9% and 1%, but the value of imported paper increased slightly by 45,5% and

imported paper products decreased 3% over the same period due to reducing about 4% of raw material

paper prices.

Source: General Department of Customs

For plastic packaging arrays: plastic resin raw material prices (PE,PP,HDPE,LDPE,…) increased

slightly in the first half of 2016 due to the recovery of oil prices, however Q1.2016 result of most plastic

packaging companies have still growing thanks to cheap raw material inventory as INN, PBP, SPP, BPC.

552

70

577

68

Paper Paper products

The value of imported paper and

paper products

5T.2015 5T.2016



Page | 48

Source: Bloomberg

Speedy grow, variety demand

Packaging is an auxiliary industry, therefore the growth of the industry depends heavily on the growth of

others industry such as drink, food, coffee, cosmetics industry…In recent years, the demand in most

sector using packaging have been growing at a rate of 5-16% CAGR, which helps the packaging industry

constantly expand its scale. In addition, customer’s demands have a significant diversity, which requires

luxury and eye-catching products. Therefore, the agility to customer tastes and actively investing in

technology to meet the new demand is critical for companies in the industry.

Compare companies in the industry

Compa

nies Products

Revenue (Bn VND) % yoy Gross profit margin (Bn

VND) Net profit (Bn VND) % yoy Companies

3M2016 3M2015

3M.2016 3M.2015

3M2016

AAA Plastic packaging 424 318 +33.2% 13.26% 8.71% 28.5 (6.4) NA

BBS Plastic packaging 87 93 -6.4% 10.78% 9.89% 3.2 2.6 +23.1%

BPC Plastic packaging 80 56 +42.9% 14.39% 11.25% 3.7 1.7 +117.6%

DHC Paper packaging 140 149 -6.0% 19.56% 15.50% 18.3 12.5 +46.4%

INN Complex packaging 208 186 +11.8% 18.76% 17.16% 15.5 14.0 +10.7%

MPC Metal packaging 81 84 -3.6% 17.40% 11.23% 5.5 1.5 +266.7%

PBP Plastic packaging 33 32 -3.1% 19.31% 18.17% 3.3 2.9 +13.8%

PMP Plastic packaging 46 24 +91.7% 19.55% 15.80% 1.9 1.0 +90%

SPP Plastic packaging 184 177 +5.6% 12.96% 12.75% 1.5 1.6 -6.2%

SVI Paper packaging 322 302 +6.6% 12.69% 12.53% 15.5 14.9 +4.0%

2H.2016 Industry Outlook

Demand continues to rise in

most arrays, particularly

plastic packaging

The increasing production

The demand of packaging products is forecasted to grow 10%, while paper packaging industry have an

average annual growth rate of 8% per year until 2018, and plastic packaging is 16% per year. With the

main catalysts:

(1) Customer demand in the retail sector will grow along with the growth rate expected for the food

packaging industry and drinking products - over 10% per year.

(2) In the near future, The FDI inflows will increase sharply to catch the trade agreements. Textiles

and fisheries sectors that benefit from the free trade agreement will boost demand for packaging

products in the coming years.

With positive outlook, the packaging sector attracted FDI from foreign enterprises with large-scale plants:

0

500

1000

1500

2000

3/01/2014 3/01/2015 3/01/2016

Price of HDPE and PVC

HDPE PVC

0

500

1000

1500

2000

3/01/2014 3/01/2015 3/01/2016

Price of HDPE and PVC

HDPE PVC



Page | 49

capacity plan of FDI

enterprises will not put

pressure on domestic

companies this year.

FDI projects increased the

capacity of paper mills will

not put pressure on the

companies in 2016

- SCG (Vina Krafft) will double the production capacity of 243,500 tonnes of paper per year to

487,000 tons per year. The new plant is expected to come into operation from Q2.2017.

- Lee & Man paper factory with a capacity of 600,000 tonnes per year (in Chau Thanh) went into

operation, but currently it is having some problems with the disposal process of waste water.

- Chanh Duong Paper Plant is expected to increase production from 100,000 tons of paper per year

to 500,000 tons per year.

The new projects are on the planning process, so the output will not grow suddenly to increase the

competitive pressures within 2016. However the pressure will gradually increase in 2017, 2018 because

supply increases faster than demand.

Paper prices increased

seasonally

Early Q3.2016, OCC paper prices rose slightly approximately 3.5% because large paper companies in

China purchases more scrap paper, and US suppliers have low inventories level. This price is almost

equivalent to early 2015; therefore the gross profit margin of packaging companies will be likely to

decline slightly in Q3.2016 compare to 1H2016. We suppose that the business result of paper packaging

company such as DHC, SVI will grow slightly in 2016 thanks to the increasing output and slightly

improving in gross profit margin.

Export markets continue to

be a challenge for the

plastic packaging products

Export markets of plastic bags are affected by the US prolonged the imposition of anti-subsidy and anti-

dumping duty on the P/E plastic bags imported from Vietnam, regulations restricting the use of plastic

bags and the shifting trend to the use of biodegradable bags in the EU. The Ministry of Finance has

officially adjust tariffs for imported PP resins and other polymers of propylene or other olefins

(dispersions or primary forms) of 1% instead of 3% as planned previously.

Raw plastic resin prices are

forecast to stabilize at a

higher price level in 2015

will make a gross profit

margin of plastic packaging

businesses declined slightly

in the second half.

In 2016, according to Moody's prediction, world oil prices will be traded from $40 to $50/barrel. If this

prediction is correct, it is likely that the price of products derived from petroleum such as plastic resin will

remain more stable compared to 2015. However, stable raw material prices will cause margins to maintain

without surging as in 2015 - when the companies benefited greatly from the raw materials and oil prices

plummeted.

Ticker Business result Q1 2016 Outlook 2016 Recommend

ation

BPC

1H2016 revenue reached

VND 85.84bn (+2,95% yoy);

NPAT reached VND 5.5 bn

(+59.3% yoy).

2016 business result is estimated at VND 296.5 bn in revenue and VND 11.5 bn in

NPAT correspond to EPS of VND 3,026. Continue to benefit from low price of:

1) Produce 52.1 million cement bag including 38.1million BimSon cement

bags, 5 million Hoang Mai cement bags, 3 million Nghi Son cement bags

and 6 million bags for other customers.

2) The output of the product is guaranteed by the contract signed.

Buy

DHC

Q1.2016 revenue reached

VND 140 bn (-6% yoy);


(+46.4% yoy).

Forecasted earnings in 2016 is estimated at 645.5 billion DT (-0,86% yoy) and 77

billion dong (-3.5% yoy). EPS forward reached VND3,801:

(1) Output of packaging plant will grow approximately 20% by the production

rose from 2.4 million bags per month to 3.5 million bags per month after

putting the new printer into operation since M10.2015.

(2) Production of paper plant is growing around 5% at 4,950 tons / month.

(3) The output product is still guaranteed by the traditional customers (outside

HVG) and some new plants in Giao Long Industrial Park. The company

continues to benefit from the 10% tax rate for the paper plant in 2016

Hold



Page | 50

SVI


VND 322 bn (+6.6% yoy);


(+4.0% yoy).

Projected NPAT of VND73 bn in 2016 (+ 5.51% yoy). Accordingly, forward EPS is

estimated at VND 5,698.

(1) Planned Output in 2016 with 75,000 tons of carton (the maximum capacity of the

factory in Bien Hoa and Binh Duong), 7,000 tonnes offset packaging and 1,000

tonnes of cardboard packaging is feasible.

(2) 2016, SVI no longer enjoy tax incentives (15%) for Bien Hoa paper plant,

therefore the tax expense is estimated to increase VND3 bn. Bien Hoa Paper

Factory is also expected to be relocated in the period 2017-2018, so it does not

affect the business results of the company in 2016.

Hold

CLC


VND 421 bn (+12.3% yoy);


(+42,9% yoy).

Forecasted Revenue in 2016 is at VND 1,707 bn (-3.45% yoy) and VND98.16 bn (-

3.44% yoy) correspond to EPS of VND3,598.6

1) Exchange rate was relatively stable compared to the projected 5% increase as

planned.

2) Prices of input materials are forecasted to remain low, as oil prices have not

yet recovered its momentum in the short term.

3) Since 2016, the company will be subject to a corporate income tax of 20%

instead of 15% preferential rate.

4) According to the roadmap to increase excise taxes on tobacco products, the

tax will go up by 5% from the date of 01.01.2016 and further increased by

5% from the date of 01.01.2019. In the second half of 2016, the capacity is

not likely to have strong growth compared to 2015.

Hold

Enterprises with good

prospects

DHC: Long-term outlook

positive - HOLD

Business outlook positive 2016 with the following catalysts:

(1) Output of packaging plant will grow approximately 20% because the production rose from 2.4

million bags per month to 3.5 million bags per month after putting the new printer into operation

since M10.2015

(2) Production of paper plant is growing around 5% at 4.950 tons / month.

(3) The output product is still guaranteed by the traditional customers (outside HVG) and some new

plants in Giao Long Industrial Park. The company continues to benefit from the 10% tax rate for

the paper plant in 2016

The supply of domestic packaging companies has not met domestic demand yet, and the growth rate in

the packaging industry in the next years is forecasted at 10-11% per year thanks to the signed trade

agreement. The products of DHC are not in the direct competition with foreign manufacturers, and they

have lower prices. We believe that the long term prospects of DHC is positive with the expansion of

business production through the construction of new plants.

Giao Long 2 Kraft paper plant: Design capacity reached 600 tons per day, equal to 3.7 times the current

capacity. Total investment of VND 660 bn financed with 6 mn new issue shares and loans (interest from

7.5- 8% per year). The constructions have begun in M5.2016 and expected to generate revenue from

M11.2017 (earlier than our previous forecast). Revenue increased by 1,100 billion and profit before tax

increased by VND101 bn (price reduced by 5% and 65% capacity). IRR and payback period and 3 years

32%

Accordingly, Revenue and NAPT in 2016 are estimated at VND645.5 bn (-0.86% yoy) and VND77bn (-

3.5% yoy) respectively. EPS forward is VND 3.801. At the price of dated 19.07.2016 is 38,200 VND /

share, the P / E of 10.1 times estimated forward - quite suitable for a packaging business. Considering the

positive long-term prospects of the company, we recommend HOLD for DHC.



Page | 51

BPC: Stable business

activity - Positive outlook

2016 - Undervalue - BUY

BPC : Stable business activity - Positive outlook 2016 - Undervalue - BUY

Source: BPC financial reports

OperatingAcititives: BPC input material is PP, Kraft and sutures so the company continues to benefit from the low price of

raw materials because oil prices show no signs of recovery in the short-term, and import tariffs with PP

was adjusted to 1% instead of 3%.

Raw material suppliers: The company have long-term relationship with supplier, but it does not depend

on any supplier. Some key partners: Minh Khang, Viet Phap, Dong A (Kraft paper); Plastic bags import

export company, Da Nang Plastic and Chemistrial Company (Plastic resins) and Tuan Hong (Sutures).

Capacity: 65 million bags per year – equivalent to the production capacity of other companies in the

industry such as Z76 (Ministry of Defence), Hai Phong Packaging company, Ha Nam packaging company

and Thanh Hoa Packaging company. Although the machines of the company have almost fully

depreciated, they are still working well. In the second haft of 2016, the company will invest in a product

line of cement bags that does not use sewing thread. The value of fixed assets is only VND14.7bn while

equipment has yet needed to be replaced and additional investment value is not large. Therefore,

depreciation expense will decrease about VND7 bn after next 2 years.

Salability of the product: Over 80% the products are guaranteed by Bim Son Cement Company (BCC).

In addition, the company also offers packaging products for Hoang Mai Cement, Nghi Son Cement,

Huong Duong Cement. Therefore, annual revenue of the company is relatively stable at around VND300

bn.

1H2016 Business result: The first half of 2016, BPC recorded VND85.84 bn in revenue (+2.95%yoy)

and VND5.5bn in NPAT (+59.3%yoy) thanks to the fact that company have reserved a major raw

material by the end of 2015. (at the bottom of PP price chart) to meet the demand of production for

1H.2016. Accordingly, gross profit margin has improved to 17.11% compared to 12.55% of 1H2015.

Although in the second half of this year, BPC is unlikely to maintain such the high profit margin as in the

first half because the price of PP resins have hit the level of the end of 2014, and most likely will only

fluctuate in a narrow range. Therefore, on a cautious view, we assume that in the second half of 2016, the

company will remain the gross profit margin equivalent to the first half of 2015. The NPAT is estimated

at VND 6.8bn in 2H2016.

Healthy financial status: By the end Q2.2016 , BPC has no long-term debt , accounts receivable mainly

from Bim Son Cement and usually paid within 6 months, and therefore the company has no non-

performing-loan. Quick ratio of enterprises was 1.43 - almost no liquidity risk. Short-term debt is VND60

bn credit line loan finacing for working capital with low interest rates - only 6 % per year.

In 2016, the company planned to produce 52.1 million cement bag including 38.1million BimSon cement

bags, 5 million Hoang Mai cement bags, 3 million Nghi Son cement bags and 6 million bags for other

70.024 78.761

63.237

79.862 55.635 83.381

67.116

87.752 79.782

9% 10% 8% 11%

11%

13% 11%

13% 14%

0%

5%

10%

15%

20%

0

50

100

Q1.2014 Q2.2014 Q3.2014 Q4.2014 Q1.2015 Q2.2015 Q3.2015 Q4.2015 Q1.2016

Sales and Gross profit marrgin

Sales Gross profit margin



Page | 52

customers. With the projected revenue of VND 296.5 billion, profit is expected to be VND12.3 bn and

EPS forward of VND 3,236. At a price of VND24,700 on July.19.2016 , the P/E forward is 7.63 times -

relatively attractive compared to 10.3 times of other companies in the industry

With stable businesss , healthy financial status , valuation remains attractive compared to other companies

in the industry, VCBS recommend BUY for BPC.

Steel Industry

1H.2016

The steel market recovered

in March due to the steel

price recovery and

temporary protection tariff

Domestic steel pice recovered

In 1H2016, the domestic steel price sharply rebounded, especially in March 2016, thanks to (1) the

recovery in iron ore price, (2) temporary protection tariff imposed on steel bar and bloom, which is up to

33% since March 7th

, 2016, (3) China officially implements cut down on steel industry employment and

on coking coal quantity by 500,000 ton per annum.

Steel Product Original tax Temporary protection tax

(valid until Oct, 2016)

Alloy bloom 0% 23.3%

Pure bloom 5%-10% 28.3% - 33.3%

Alloy bar with Bo/Crom 10% 24.2%

Pure bar 15%-20% 29.2%-34.2%

Source: VCBS collection and estimation

Construction steel quantity dramatically increased in March. There was change in market share

mix:

According to General Department of Vietnam Custom, accumulated imported quantity of steel input and

scrap boosted by 49% yoy and 33,2% yoy (respectively) in 5M2016, which illustrated the growth in

demand for production. Quantity supplied monthly increased by 40% as of this Jan and Feb. We believe

that domestic steel producers raised their capacity to expand market shares, as responded to the Decision

0

50

100

150

200

250

300

350

0

20

40

60

80

100

120

7/8/2015 10/8/2015 1/8/2016 4/8/2016

scrap iron ore,

coking coal

Input price movement

coking coal iron ore scrap

6

7

8

9

10

11

12

13

14

VN

D m

n/t

on

Construction steel price movement

Chinese domestic price Imported price

VN domestic price



Page | 53

of imposing protection tariff by Ministry of Industry and Commerce.

Anticipating the uptrend of steel price, steel agents increased their demand in order to store up the cheap

supply, which led to the boost in steel consumption in March by over 100% as of Jan and Feb, and 166%

as of the previous March.

On the contrary to the uptrend of steel price in 2nd

quarter, the consumption fell back to 600.000-700.000

ton per month after the rocketed March. Accumulated total steel consumption in 5M2016 was up to 3.35

million ton (+133.8%yoy).

Source: VSA

Because of the recovery of steel price and the boost in consumption by steel agents, a majority of steel

factories have been back to the operation again, which created a great deal of supply to the steel market

and changed the market share. In detail, VNSteel acquired more market share, up to 23.2%. Meanwhile,

after a successful year with over 21% market share, Hoa Phat group lost their share by 1% to other steel

producers, acquiring only 20% of market share in 5M2016.

Update on Steel Pipe Market

Steel pipe market remained the high growth rate in 2015, the consumption in 5M2016 was up to 738.942

tonnes (+37.7%yoy). Hoa Phat and Hoa Sen continued to be the leader of this sector with market share of

23.3% and 22.74% respectively, slightly increase to the previous year figures (21.37% and 19.41%

respectively).. Steel pipe is necessary in such growing industry as communication, motorbike

manufacturing and so on. That’s why the domestic demand for this product rose sharply. Total

consumption rose by 37.7%yoy while the export quantity declined by 38.%yoy (48.2 thousand tonnes)

Update on Galvanized Steel Market

Galvanized steel market grew positively. The consumption in 5M2016 reached over 1 million tonnes

(+37,8%yoy). Since the beginning of this year, the hot rolled coil (HRC) price sharply increased by up to

50% yoy, reaching USD 600/ton. Thus, the galvanized steel rose as well. Those galvanized producers who

stored up cheap inventories last year recorded the expansion in gross profit margin.

0

200

400

600

800

1000

1200

Jan Feb Mar Apr May

Thousand

ton

Construction steel quantity in 5M2016

sản xuất bán hàng

VnSteel

23%

HPG

20%

Pomina

12%

Vinakyoei

9%

PoscoSS

5%

VGS

4%

Khác

27%

Market share in

construction steel market 5M2016



Page | 54

Nguồn:VSA

There was a significant change in galvanized steel market share. By the end of May 2016, HSG and NKG,

which were the leader of this sector, lost a large number of market share to their new competitors named

Ton Phuong Nam and Ton Dong A. In detail, HSG’s market share sharply fell from 37.5% (by the end of

2015) to 19.8%. NKG’s market share dropped from 13.8% (by the end of 2015) to 9%. On the contrary,

Ton Phuong Nam remarkably acquired 14% of market share in addition to their original 6% market share,

improving its share up to 20%.

Update on Steel companies

Most of steel producers grew strongly since March. Those firms which stored a majority of cheap

inventories in 2015 such as HPG, HSG, TLH, etc, outperformed in Q1.2016. Those steel pipe producers

such as HSG and VGS enjoyed the increasing demand in steel pipe and the rise in pipe price which

resulted from the recovery of HRC price.

Steel companies recorded

significant growth in

Q1.2016 due to cheap

inventories purchased

before the implementation of

protection tariff

Firm Total

asset

(VND

bn)

Equities

(VND

bn)

D/A

ratio

Net

revenu

e

(VND

bn)

%yoy NPAT

(VND

billion

)

%yoy NPM EPS

(ttm)

P/E

Construction steel

HPG 25,453 15,452 39% 7,257 22% 1,020 57% 14% 5,240 7.56

POM 6,270 2,426 61% 2,206 2% 30.3 -189% 1% 480 19.38

VIS 1,582 625 60% 668 -10% 21.8 -155% 3% 190 61.58

DNY 2,119 359 83% 364 -10% 1.6 -45% 0,4% 260 30.38

VGS 1,246 554 56% 1,169 50% 24.4 2340% 2% 1,920 6.04

TLH 1,882 946 50% 1,008 22% 103.8 3045% 10% n/a n/a

Galvanized steel

HSG 9,584 3,573 63% 4,411 1% 418 262% 9% 7,810 5.29

NKG 3,952 706 82% 1,800 53% 65.9 223% 4% 3,450 7.25

DTL 2,465 767 69% 598 42% 16.2 93% 3% n/a n/a

2H.2016 Outlook

The Ministry of Industry and Commerce has officially released the Decision 2968/QD-BCT about

imposing official protection tariff on bar steel and bloom steel.

HSG

38%

NKG

14%

Ton

Phuong

Nam 7%

Ton

Dong A

12%

Other

29%

Galvanized steel market share

2015

HSG

19%

NKG

9%

Ton

Phuong

Nam 21%

Ton

Dong A

15%

Other

36%

Galvanized steel market share

5M2016



Page | 55

Steel Product Original tax Temporary protection tax

(valid until Oct, 2016)

Official protection tax

(valid from Aug, 2016)

Alloy bloom 0% 23.3% 23.3%

Pure bloom 5%-10% 28.3% - 33.3% 28.3% - 33.3%

Alloy bar with Bo/Crom 10% 24.2% 25.4%

Pure bar 15%-20% 29.2%-34.2% 30.4% - 35.4%

Source: Ministry of Industry and Commerce

In detail, the additional protection tariff imposed on bloom steel remains at 23.3%, meanwhile that rate on

bar steel increases from 14.2% to 15.4%. The additional protection tariff lasts for 4 years since the valid

date of temporary tax (Mar 22nd

, 2016). Each year, the tariff rate declines by 1% - 2% and fell to 0% after

Mar 2020, unless there is any extension decision to be released.

Source: Ministry of Industry and Commerce

The recovery of steel market is not sustainable. The steel price is expected to not sharply increase as in

1H2016, because of following reasons:

(i) We expect domestic steel price may not increase, despite the protection tariff. As analysed

above, tax rate on bar steel has been upward adjusted to 15.4%. However, we believe that the

domestic steel price may not volatile much because (1) the increase by 1.2% is not significant,

meanwhile the competition among industry is more intensive, (2) there are still risks from the

depreciation of CNY currency, we assume domestic steel producers may use this 1.2% as a shield

against the exchange rate risk.

(ii) The recovery of iron ore price is believed to result from speculation factor, rather than from the

increase in demand. The investors buy iron ore in order to close position of short sell before. The

evidence is that after sharply rising in March, the iron ore price dropped and moved sideways

afterward.

(iii) Productivity of Chinese producers was high, but the Chinese demand decreased due to the

slowdown in growth rate of the economy. Thus, Chinese government issued some policies to

support steel exporters such as VAT refund of 13and CNY depreciation.

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

3/22/2016 3/22/2017 3/22/2018 3/22/2019 3/22/2020

Tax itinerary

bloom steel tax

bar steel tax

23.3%

21.3%

19.3%

17.3%

0%

15.4% 13.9%

12.4% 10.9%



Page | 56

(iv) The estimated import price for Chinese steel is close to the current domestic price (about VND

10.5 millions/ton)

(v) Input price, including iron ore 62%, coking coal, tends to be stable after the sharp increase in

Q2.2016

(vi) New supplier is activated by surprising huge demand in March.

Gross margin is forecasted to slightly narrow as compared to 1H2016 because (1) the majority of

cheap inventories have been liquidated in 1H2016, (2) input price rose back as compared to Q1.2016,

while the steel price is not likely to increase sharply as analysed above, (3) Rising competition occurs

after the whole industry enhanced capacity.

On the analysis on the impact of temporary protection tariff on business performance of steel

producer, we come to some conclusions:

(1) Imported price of Chinese steel was forced to increase by about 30% as before, reducing their

competing power in Vietnam steel market. The higher price of Chinese steel and increase in input price

resulted in the recovery of Vietnam steel price.

(2) Steel agents enhanced their consumption, which improves the steel producer revenue.

(3) Net profit margin expanded due to (a) the liquidation of cheap inventories in previous year, (b) selling

cost reduced because of the huge demand.

(4) Increase in inventories turnover which results in higher need on working capital. The firm may borrow

more to finance the operation, which causes the interest expense to rise.

(5) On the contrary, low-tech firm who must import bloom steel as input will be affected because the

tariff imposed on bloom steel is now up to 33.3%.We have summarised the technology of some large

steel producers, including

Firm Technology Main product

Firm Those firms which can produce bloom, enjoy the most benefit from tax Technology Main product

HPG Process from iron ore to steel Construction steel, steel pipe

TISCO Process from iron ore to steel Construction steel

DTL Refine pig iron: BOF

Refine bloom: EAF

Galvanized steel

VIS Refine bloom: EAF, Consteel Technology Construction steel

DNY Refine bloom: EAF

Continuously cold roll

Construction steel

Those firms enjoy less benefit from tax

HSG NOF galvanizing, cold roll Galvanized steel, steel pipe

NKG POSCO Korean Tech Galvanized steel, steel pipe

VGS Cold roll Tech from Germany Steel pipe, galvanized steel, construction



Page | 57

steel

TLH Simple handling Civil steel, industrial steel, light sheet

POM Refine pig iron: BOF

Refine bloom: EAF

POM is capable of producing their own bloom steel.

However, they decided to import bloom due to lower cost.

Construction steel

Protection tariff on galvanized steel may be imposed this year. The Ministry of Industry and

Commerce has released Decision on inspection to imposed tariff on galvanized steel imported. The targets

of this inspection are cold-rolled alloy/pure steel, PPGI in general. The protection tariff is expected to

have the same impact on galvanized steel segment as construction steel segment.

Potential Companies Most steel producers are still in their difficult time, though in Q1.2016, there are some favourable

movements in steel market. Beside some outstanding firms such as HPG, HSG, NKG, VGS, TLH, DTL,

etc the other firms such as POM, VIS, DNY, etc have no positive signal.

Based on the industry prospect and firm fundamental, we recommend some firm which may have better

performance in the future, such as:

Firm Performance on Q1.2016 Prospect in 2H2016 - 2017 Recommendation

HPG Net revenue was VND 7,257

billion (+22.4%yoy, 25.9%

KH)

NPAT was VND1,022

billion (+57.5%yoy,

31.9%plan)

Additional quantity from the production mix phase

3

The production mix phase 3 has higher capacity,

lower resource consumption and lower capital per

unit output

Expand the production base to galvanized steel and

steel for welding stick.

Forecast: EPS forward is VND

5,502/share, PE ratio is currently

7.6x. Recommend HOLD

VGS Net revenue was VND

1,160.4 billion (+50.4% yoy,

38.9%KH),

NPAT was VND 24.4 billion

(63.5%plan)

Partially benefit from protection tariff on bar steel

Steel pipe production grows sharply.

Enhancing capacity on hot-rolled galvanized steel

to increase the productivity of galvanized steel

with higher value

Enhancing capacity on HRC production line,

improve the construction steel productivity in

2017.

EPS forward is VND 2,308 per

share, PE ratio is currently 6x,

quite attractive. Recommend

BUY .

HSG Net revenue was VND 4,411

billion (+1% yoy)

NPAT was VND 418 billion

(+262%yoy, fully

accomplished the plan).

Increase the sale network to 209 agents

(+51%yoy). According to HSG’s plan, total

number of sale agents may reach 250 this year.

Successfully sign a big contract exporting to the

US. Total export quantity reaches 500,000 tonnes

with total value of USD 400 million. Currently, the

US is applying 120% tax against Chinese

HSG has potential in the 2H2016.

However, HSG stock price has

sharply increased by 100% in 6

months. We believe that the

majority of HSG’s prospect has

been reflected in this movement.

We recommend TRACK on



Page | 58

galvanized steel, which may result in advantage for

Vietnam product.

A number of new production lines come into

operation in Nghe An factory (In this factory, HSG

is free of corporate income tax)

It is believed that the protection tariff on

galvanized steel may be imposed temporarily.

movement of HSG for more

information, especially from the

result of inspection by Ministry of

Industry and Commerce.

HPG: HOLD

In Q1.2016, HPG generated VND7,256.92 billion (+22.4% yoy) of net revenue and VND 1,022.06 billion

(+57.51% yoy). In 4M2016, HPG sold more than 679.000 tonnes of steel (+19.3% yoy) with the price up

to VND 10.4 million/ton (+15.7%) after the decision on protection tariff.

The strong growth in Q1.2016 resulted from (1) the increase in steel price and consumption, (2)

liquidation of cheap inventories (expand the gross margin), (3) the steel production mix-phase 3 come

into operation.

HPG was among the most beneficial firms from the decision of protection tariff thanks to the production

line starting from iron ore to steel making it able to produce their own bloom (which was taxed up to

33%). Also, the tax help reducing the pressure from competition with Chinese steel.

Also, HPG has some highlight in 2016:

Lower cost of good sold. HPG can produce their own bloom (which is taxed up to 33%)

Experience in managing inventories, HPG stored iron ore for 2-3 months of production, which

help them keep the price of input lower in 1H2016

Expand the product base. HPG is investing on production line of galvanized steel and steel for

welding stick.

Concerning on risk, we lower the threat from Chinese steel since The Ministry of Industry and Commerce

has released the Decision 2968/QD-BCT on July, 2016 which officially imposes taxes on imported steel

until Mar 2020.

The fact that HPG has started a new galvanized steel production line, which may be a challenge because

the main consumption market of this product locates in the South and abroad. The consumption in the

North accounted for 13.8% only.

We adjust some assumption on valuation model in the beginning of the year with some changes in steel

price and input price

Average steel price is estimated as VND 10.5 million/ton. This is the estimated figure for

imported Chinese steel (adjusted by exchange rate and shipping cost)

Iron ore price is stable at USD55/ton until the end of this year, the average price of coking coal

reduced by 8% yoy.

The steel production mix – phase 3 comes into operation and starts depreciating in Q2.2016. The

resource consumed by this mix is 5% lower than phase 1 and 2. We conservatively assume that

this phase 3 will operate at 90% of max capacity this year. (As before, HPG used to run 100% of

capacity of Phase 2 in the first year of operation).

Steel pipe remains its growth rate by 23.3% this year.

According to the Forecast in 2016, HPG may generate VND30,707 billion of net revenue (+12%yoy,

109.6%plan), and VND 4,033 billion of net income (+15.1% yoy, 126%plan), EPS forward is expected to

be VND5,502 /share, and HPG is being traded with P/E of 7.6x. The HPG’s steel quantity sold is

estimated as 1.76 million tonnes. The valuation result for HPG is VND43,386/share by method of

discounting FCFF and relative valuation. We recommend HOLD for HPG.



Page | 59

VGS: BUY VGS is among the medium steel producer, specialized in steel pipe, galvanized steel and construction

steel with designated capacity up to 1.1 million tonnes/year. In Q1. 2016, VGS generated VND1,160.4

billion of net revenue (+50.4%yoy, 38.9%plan) and VND 24.4 billion of net income (63.5%plan). The

gross profit rose up to 5.7% thanks to (1) the strong recovery in steel price, (2) the bloom steel price

increased by 6.8% as compared to the beginning of 2016, (3) liquidation of VND 200 billion of cheap

inventories, (4) the steel pipe (main product) grew remarkably - the consumption increased by 50% yoy.

Prospect in 2H2016 and 2017

In 2016, VGS is investing in enhancing its capacity in 2 factories:

At the factory of Viet Duc Steel JSC, VGS invested an additional production line of hot dip

galvanized steel, raising the total capacity up to 180.000 ton/year. This line comes into operation

this July. By enhancing capacity in galvanized steel production line, VGS is shifting from the

traditional black pipe to galvanized pipe with higher value. Therefore, the gross margin of steel

pipe sector is expected to expand this year

At the factory of Viet Duc Steel Manufacturing JSC, VGS is investing 1 hot roll production line,

enhancing the total capacity from 350.000 tonnes/year to 540.000 tonnes/year. This line is

expected to operate in the beginning of 2017. The input for this production line is the bloom

which is taxed up to 33%. However, the gross margin may be enhanced since the tax rate

decreases gradually (-2%/year).

By enhancing production capacity, VGS may increase their revenue. Also, the gross margin can be

enlarged by the rising portion of galvanized pipe in revenue mix.

In additions, in the beginning phase of this sector, VGS remain the discount selling policy, reducing the

price in order to get more market share. Currently, VGS has signed a new contract to provide steel for 2

new projects of Vingroup, which are Vincom Shophouse Tuyen Quang and Vinhomes Metropolis Lieu

Giai. (Vingroup is among the biggest real estate firm in Vietnam). The growth motivation of this sector

depends on the increase in consumption from the expansion of capacity.

We think the plan of VND 3,000 billion of net revenue and VND 38.4 billion of net income of VGS is

promising. It is likely that VGS may overcome their target by the end of this Q3. As forcasted in 2016,

VGS may generate VND 4,647 billion of net revenue (+35.6%yoy, 155%plan) and VND 83.1 billion of

net income (+81.1% yoy, 216% plan). EPS forward is estimated as VND 2,308/share. VGS is being

traded with P/E of 5.2, which is quite attractive. We recommend BUY for VGS.



Page | 60

DISCLAIMER This report is designed to provide updated information on the fixed-income, including bonds, interest rates, some other related. The VCBS analysts

exert their best efforts to obtain the most accurate and timely information available from various sources, including information pertaining to market

prices, yields and rates. All information stated in the report has been collected and assessed as carefully as possible.

It must be stressed that all opinions, judgments, estimations and projections in this report represent independent views of the analyst at the date of

publication. Therefore, this report should be best considered a reference and indicative only. It is not an offer or advice to buy or sell or any actions

related to any assets. VCBS and/or Departments of VCBS as well as any affiliate of VCBS or affiliate that VCBS belongs to or is related to (thereafter,

VCBS), provide no warranty or undertaking of any kind in respect to the information and materials found on, or linked to the report and no obligation

to update the information after the report was released. VCBS does not bear any responsibility for the accuracy of the material posted or the

information contained therein, or for any consequences arising from its use, and does not invite or accept reliance being placed on any materials or

information so provided.

This report may not be copied, reproduced, published or redistributed for any purpose without the written permission of an authorized representative of

VCBS. Please cite sources when quoting. Copyright 2012 Vietcombank Securities Company. All rights reserved.

CONTACT INFORMATION

Ly Hoang Anh Thi

Head of Research

[email protected]

Tran Minh Hoang

Chief Economist

[email protected]

Le Thu Ha Mac Đinh Tuan Truong Anh Quoc

[email protected] [email protected] [email protected]

Nguyen Huy Hoang Nguyen Nguyen Phương Truong Thi Huyen


Nguyen Quang Han Tran Thu Hang Tran Thi Thu Trang


Le Duc Quang Nguyen Thi Thu Hang

[email protected] [email protected]



Page | 61

VIETCOMBANK SECURITIES COMPANY

http://www.vcbs.com.vn

Ha Noi Headquarter Floor 12th& 17th, Vietcombank Tower, 198 Tran QuangKhai Street, HoanKiem District, Hanoi

Tel: (84-4)-39366990 ext: 140/143/144/149/150/151

Ho Chi Minh Branch Floor 1st and 7

th, Green Star Building, 70 Pham Ngoc Thach Street, Ward 6, District No. 3, Ho Chi Minh

City

Tel: (84-8)-3820 8116

Da Nang Branch Floor 12th

, 135 Nguyen Van Linh Street, Thanh Khe District, Da Nang City

Tel: (84-511)-3888991 ext: 801/802

Phu My Hung Transaction

Unit

Lawrence Sting Building, 801 Nguyen Luong Bang Street, Phu My Hung Urban Zone, District No. 7,

Ho Chi Minh City

Tel: (84-8)-54136573

Giang Vo Transaction Unit Floor 1st, Building C4 Giang Vo, Giang Vo Ward, Ba Dinh District, Hanoi

Tel: (84-4)-37265551

Can Tho Representative

Office

Floor 1st, Vietcombank Can Tho Building, 7 HoaBinh Avenue, NinhKieu District, Can Tho City

Tel: (84-710)-3750888

Vung Tau Representative

Office

Floor 1st, 27 Le Loi Street, Vung Tau City, Ba Ria - Vung Tau Province

Tel: (84-64)-3513974/75/76/77/78

An Giang Representative

Office

Floor 6th

, Nguyen Hue Building, 9/9 Tran Hung Dao Street, My Xuyen Ward, Long Xuyen City, An

Giang Province

Tel: (84-76)-3949843

Dong Nai Representative

Office

F240-F241 Vo Thi Sau Street, 7th

Block, Thong Nhat Ward, Bien Hoa City, Dong Nai Province

Tel: (84-61)-3918815

HaiPhong Representative

Office

Floor 2nd

, 11 Hoang Dieu Street, Minh Khai Ward, Hong Bang District, HaiPhong City

Tel: (+84-76) 3949 843

Binh Duong Representative

Office

Floor 3th, 516 CachMangThang Tam Street, PhuCuong Ward, Thu Dau Mot City, Binh Duong Province.

Tel: (+84-76) 3949 843

http://www.vcbs.com.vn/

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