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VIETCOMBANK SECURITIES

0

1

2

3

4

5

6

7

SMR 5

SMR CV

SMR L

USD/ton

35%

14%

6%

3%

5%

3%

1%

35%

SVR L,3L

SVR 10

Latex

RSS

SVR CV

SVR 20

SVR 5

Others

VIETCOMBANK SECURITIES NATURAL RUBBER REPORT

Research & Analysis Analyst: Lê Thị Ngọc Anh ([email protected]) Page | 2

EXECUTIVE SUMMARY World Natural Rubber Sector

Largest producers of natural rubber in the world include Thailand,

Indonesia, Malaysia, India and Vietnam. As the global rubber

plantation industry is highly concentrated, top producers can easily

reach consensus on supply control to support rubber price.

High demand for rubber comes mainly from China, the US, EU…

among which China is the largest consumer.

The rubber price was on an uptrend in recent years. Since 2008

until now, rubber price’s gone through periods of high volatility.

Currently rubber price has considerably decreased compared to the

peak recorded in February 2011; however, it still maintains at a high

level.

Though the global economy is in a gloomy state, the automobile

industry keeps growing with a bright prospect in the coming

year. The natural rubber supply is forecast to grow faster than the

demand in the future. 2011’s supply remains lower than demand;

however, 2012 is expected to be a turning point where supply exceeds

demand at a more stabilized and higher price level.

Vietnam is the 5th

largest producer and 4th

largest exporter of

natural rubber in the world. Vietnam is expected to soon take the 4th

position, thanks to its rapid expansion of rubber plantation area and

sustainable increasing productivity since 2010.

Vietnam’s position in the rubber map is not that highly

recognized. Despite being the 4th largest producer of natural rubber,

Vietnamese rubber quality remains low and the product lacks a brand

identity. As a matter of fact, the rubber price for export is often 10-20%

lower than that of Thailand or Malaysia. Moreover, as China consumes

60-70% of Vietnamese rubber for export, they have high barganing

power in terms of price, making Vietnamese rubber highly dependent

on this country’s economic conditions and policies. On the other hand,

the domestic rubber manufacturing sector has not lived up to its

potential.

Vietnam Rubber Group (VRG) has the largest influence on

operations of rubber plantation and production in Vietnam. In the

coming years Hoang Anh Gia Lai JSC (not a member of VRG) will join

the top producers of the sector.

Rubber plantation companies have good fundamentals thanks to

rising rubber prices. 9M2011 the listed plantation companies showed

their revenue and profits exceeding those of 9M2010 as well as their

plans.

We believe DPR, TRC, PHR are good stocks for HOLD despite

their low liquidity. Their good fundamentals, low trading P/E, high

dividend payment ratios, and good business results are the support of

our recommendation. Of all listed stocks, TNC is most liquid, and its

price is lowest in absolute terms. We recommend BUY this stock for

short term investment tenors.

Natural rubber supply-demand forecast by IRSG (mil ton) and price forecast by Deutsche Bank (thousand USD/ton)

VCBS’ short term price forecast (thousand USD/ton)

Vietnam Natural Rubber Sector

Plantation area in 2010 (thousand ha): 740

Rubber yield 2010 (ton/ha): 1.72

Production 2010 (thousand ton): 755

Export 2010 (thousand ton): 783

Export value 2010 (bil USD) 2.37

Export 9M2011 (thousand ton): 525

Export value 9M2011 (bil USD): 2.27

Listed Rubber Plantation Companies

Market data on 26/10/2011

Number of listed companies 5

Market cap (bil VND: 6,753

% of market cap: 1.04

PE (x): 4.08

PB (x) 1.38

Financial ratios trailing 4Q as of Q3/2011

Revenue growth 9M2011 (%yoy): 61

Profit after tax growth 9M2011 (%yoy): 95

Total asset growth Q3/2011 (%yoy): 34

Net profit margin (%): 35

ROA (%): 28

ROE (%): 37

10.38

10.97

11.86

10.77

11.16

11.75

-0.39

-0.19

0.11

5

5.1

4.5

Price Difference Demand Supply

4.48

4.86 4.76 4.73 4.74

4.37

4.35 4.36 4.35 4.35

4

4.2

4.4

4.6

4.8

5

MH Holt -Winters MH ARIMA



I. SWOT ANALYSIS

Strengths

(1) Vietnam is the fifth largest producer and fourth largest exporter of natural rubber in the world.

(2) Natural rubber plantation offers high gross margin. Plantation companies can pass at a certain level the

risks and profits earned on to employees (due to the high percentage of labor cost within the the total cost

of production). Advantages of intensive labor and low labor cost create a competitive edge for companies

operating in the sector.

(3) Investments of plantation companies are mainly concentrated around the core business, which are

basically expansion of rubber plantation area.

(4) Plantation companies have access to tax incentives and loans at low lending rates. As these companies

are exporting companies located in disadvantageous localities, they receive support from the government in

operations.

Weaknesses

(1) Despite being the fourth largest exporter of natural rubber, Vietnam has a little voice over price control of

natural rubber. Also Vietnam’s natural rubber is often exported in the raw form, and the quality remains low.

This explains the reason why rubber of Vietnam is generally priced 20-30% lower than that of Thailand and

Malaysia.

(2) The land devoted to rubber plantation is limited. The sector’s current strategy is to expand the plantation

acreage to the northern and central area, as well as to Laos and Cambodia.

(3) Rubber manufacturing industry has not lived up to its potential. Most of the rubber is exported in the raw

form. Despite Vietnam being among top exporters of natural rubber, domestic rubber manufacturers find it

hard to purchase the standardized raw rubber for input, and still have to import this material from overseas.

(4) Vietnam exports 60-70% of natural rubber to China so the bargaining power of this client is very high. For

this reason the sector largely depends on this country’s economic conditions and policies.

Opportunities

(1) Vietnam is expected to soon become the fourth largest producer of natural rubber in the world. Currently,

the rubber yield reaches 1.72 tons/hectares, higher than the world’s average of 1.6 tons/hectares. Physical

expansion of plantation area in recent years also help Vietnam improve its production in the near future.

(2) High rubber price helps plantation companies recognize good business results and accumulate capital for

business expansion.

(3) A high level of exchange rate will bring advantages to exporters in general and plantation companies in

particular.

(4) High wood price also brings good revenue for plantation companies when cutting down the old trees for

sale.

(5) Expansion of plantation area to Laos and Cambodia will help Vietnam amflify its production, thanks to the

rich soil and favourable climate of South East Asian region.

Threats

(1) Strategy of expanding the plantation area reflects the fact that capital demand of the sector is high. The

current level of interest rate will considerably heighten the cost of investment.

(2) Worsening climatic conditions will negatively influence the yield and production.



(3) European debt crisis, low growth of the American economy, and Chinese monetary tightening policy will

raise concern about a global economic downturn, or even a crisis. Economic downturn will drive down the

oil price and demand for natural rubber, as well as the price of natural rubber.

II. OVERVIEW OF NATURAL RUBBER SECTOR

Rubber is extensively used in many applications and products. 60-70% of natural rubber is used for

production of tires and inner tubes.

Natural rubber is a polymeric material with high level of elasticity, compressibility, durability and friction. For these

characteristics, natural rubber is used in many applications including production of tires and inner tubes in

automobile industry, electric wires, medical equipment, gloves and toys… 60-70% of the natural rubber is used in

production of tires and inner tubes, thus, the natural rubber prospect is largely dependent on the automobile

industry.

Synthetic rubber is the close substitute

There are two types of rubber. Besides natural rubber, there is synthetic rubber (elastomer). While natural rubber

originates from rubber tree latex, the other type is synthesized from oil. Rubber trees are often planted in humid

tropical regions, with high level of rain. Rubber tree latex, the substance used for rubber production can be collected

for nine months each year. During the rest three months, rubber trees shed their leaves so no harvest could be

conducted (otherwise the trees will die). In the 1880s, the road vehicle boom urged scientists to develop synthetic

rubber from oil as a substitute for natural rubber, whose supply was in scarcity.

Synthetic rubber, despite its inability to completely replace natural rubber, is a close substitute. Natural rubber and

synthetic rubber share most of the characteristics. For this reason, and for the fact that the natural rubber supplies

were limited, synthetic rubber soon replaced natural rubber as manufacturing input. Synthetic rubber accounts for

56-60% of total rubber consumption. In periods of oil price hikes, synthetic rubber costs also rose, forcing

manufacturers to shift to natural rubber as their input, thus pushing up the natural rubber price. Natural rubber has

some premium characteristics over the synthetic elastomer, for example its substitute cannot completely replace it in

production of bus tires, heavy truck tires, airplance tires, or medical latex plastic. Natural rubber used in heavy truck

tires accounts for 60-80% of the rubber consumed (see table below).

In recent years, rising demand for rubber and thus rising rubber price are the result of high oil price and fast growth

of automobile industry in China and India. Also manufacturing industries in general are inclined to use more of

natural rubber as input rather than synthetic rubber to cut back consumption of fossil fuels and save the

environment. Facts show that since the third quarter 2009 till now, natural rubber price has exceeded synthetic

rubber (first quarter 2011 it is 1.9 times that of synthetic rubber) and synthetic rubber consumption has declined to

55% from 61%.

Tire type Natural (kg/tire)

Synthetic (kg/tire)

Natural

/Total (%)

Radial Automobile 2.1-2.16 1.44-1.5 40-42

Light truck 2,73-3 3-3.3 45-50

Heavy truck 3.6-4.8 19.2-20.4 80-85

Bias

Light truck 4 4 50

Heavy truck 7.7-8.8

65-60

Industrial auto 0.5 0.5 50

Agricultural auto 3.9 1.9 45

0

20

40

60

80

100

120

52%

53%

54%

55%

56%

57%

58%

59%

60%

61%

62%

Consumption ratio Oil price

USD/barrel



Use of rubber in automobile tires in China

(Source: China Rubber Association)

Chart of synthetic rubber consumption ratio and oil price

Every year the whole world produces 20 million tons of rubber, of which natural rubber accounts for 40-44%. Rising

price of natural rubber as compared to synthetic one is mainly explained by its scarcity and premium characteristics.

Most of the biggest rubber consumers such as China, the US, EU zone use synthetic rubber more than natural one,

except for India, thanks to its sufficiently large domestic supply of natural rubber. Despite being the largest producer

of synthetic rubber, Asian countries still have to import rubber from other regions.

Natural rubber can be classified into following types:

(1) Block rubber: technically specified (SVR 3L, SVR 10, SVR 20, SVR 5, SVR L…) and viscosity stabilized

natural rubber (SVR CV50, SVR CV 60…) are mostly used in automobile industry.

(2) Condensed rubber (cream latex, centrifuged latex) is used in production of rubber gloves, medical

equipment, bubble, buffer...

(3) Rubber sheets (RSS)

(4) Other types of rubber: Crepe, mixed rubber (of both natural and synthetic rubber).

World rubber production (million ton) Change (%) in price of natural rubber (TSR 20) vs. synthetic elastomer (USA SBR) and oil price

Source: IRSG

Largest producers of natural rubbers are Thailand, Indonesia, Malaysia, India, and Vietnam. As the rubber

plantation industry is highly concentrated, it’s easy for these countries to reach consensus on supply

control to support the price of rubber.

Largest producers of natural rubber: Rubber tree plantation depends largely on soil and climatic condition. For this

reason, rubber tree planting can only be conducted mainly in Asia, Africa, and Latin America. Thailand, Indonesia,

Malaysia, India and Vietnam account for 90% of the natural rubber plantation acreage and supplies. Indonesia has

the largest plantation area, but Thailand trees have the highest yield. In 2010 Thai natural rubber production is 3.3

million tons, accounting for 34% of the total, while those of Indonesia, Malaysia, India and Vietnam are respectively

2.73, 0.94, 0.85, and 0.76 million tons (equivalent to 30%, 10%, 9% and 8% of the world’s).

Strategies to support high prices by largest producers: At the end of 2008, when natural rubber price dropped to the

trough of 1,102 USD/ton, IRCO (International Rubber Cooperation Organization) convened a meeting, at which

participating countries reached an agreement to take a number of measures to control supply and export volume in

an attempt to curb the declining price. According to this agreement, three top producers would increase the

0

5

10

15

20

25

30Natural Synthetic

Total

0

20

40

60

80

100

120

140

160

180

200



replanted area from 112 thousand ha to 169 thousand ha, which cut back 215 thousand tons of rubber produced and

700 thousand tons of natural rubber for export in 2009. Such actions exerted an impact on the price of rubber at that

time. Recently, when the price dropped, Thailand cut down the supply by 120 thousand tons/year and called for

other major planting countries to join the price recovery scheme.

Production and export of top 5 producers of natural rubber in 2010 (Unit: thousand ton)

Natural rubber production structure in 2010

Nguồn: IRSG

China is the top consumer of natural rubber

Using up 7.62 million tons in 2010, Asia ranked top in the list of the largest consumers of rubber, among which China

took the largest share. The automobile industry of China has passed that of the US since 2009, and along with its

impressive growth brought China to the top level of rubber consumption. In 2010 China absorbed 3.3 million tons of

rubber, accounting for 31% global consumption and recording an increase of 8.6% compared to that of 2009.

North America and EU were behind Asia in rubber consumption. After a declining demand in 2009, these two

regions inflated their uses of rubber in 2010 with respective increases of 36% and 37% yoy. In 2010 North America

absorbed 1.07 million tons of rubber, equivalent to 10% of the global consumption while that of EU is 1.13 million

tons or 11%.

China’s natural rubber consumption Regional consumption of natural rubber in 2010

Source: China Rubber Associaition and IRSG

Rubber price has been on an uptrend over the last few years. Since 2008 till now, the price of rubber has

experienced periods of high volatility. At present the price of rubber declined considerably as compared to

the peak established in February 2011. Still it remains at a high level.

3,267

2,730

941

851

755

2,680

2300

900

10

780

0 1,000 2,000 3,000 4,000

Export Production

33%

30%

10%

9%

8%

10% Thailand

Indonesia

Malaysia

India

Vietnam

Other

1.31

1.44

1.60

1.90

2.10

2.35

2.53

2.65

3.30

3.50

0 1 2 3 4

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011F

Mil. ton 71%

10% 6%

11%

2%

1%

Asia/Oceania

North America

Latin America

EU_27

Other Europe

Africa



Period 2008 – 2009: The rubber price sharply fell under the negative impact of the financial crisis and economic

downturn, hitting the trough of 1,102 USD/ton in December 2008. 2009 witnessed a strong recovery of the price

thanks to the high growth of Chinese automobile industry, and the joint attempt of largest producers to cut back

supply and export.

In 2010: During the early months of 2010 the rubber price kept trending up. From May to July, the price went down

with concerns over the slow recovery of the global economy and the increase in supply (this period was the harvest

time of natural rubber). In August, the price resumed the uptrend at signals of diminishing supply due to unfavorable

climatic conditions ravaging in largest rubber producers. Also this time Chinese demand for natural rubber rose and

the American economy showed positive signs of recovery.

In 2011: During the first half of 2011, the price of rubber continued to stay high, and consecutively new record levels

were made. Indeed, the rubber price climbed to the peak of 5,700-5,900 USD/ton on 18 February 2011, then

suddenly plummeted to 4,000 USD/ton in March right after occurance of the tsunami in Japan. Recovery came back

shortly as demand kept the steady increase and passed the mostly unchanged supply. After reaching the peak in

February 2011, the price went down amid concerns of a global economic crisis as the European debt issue turned

more turbulent, while the US economy grew slowly and China imposed a tightening monetary policy to fight inflation.

At present, the rubber is traded at 4,000 USD/ton.

Rubber price chart for period 2000-present Rubber price in 2011

Source: Bloomberg - data of Malaysian prices

Characteristics – Determinants of rubber price

(1) 60-70% of rubber is used in production of tires and inner tubes. For this reason, rubber price is highly

dependent on the automobile industry prospect.

(2) Rubber price moves in line with the oil price, as synthetic rubber, its close substitute is synthesized from

oil.

(3) Rubber plantation and production is highly concentrated in top 5 producers. It’s fairly easy for these

countries to control supply to support the price.

(4) China is the largest consumer of natural rubber with 31% share of global consumption in 2010.

Therefore, any change in this country’s economic conditions or policies will have a strong influence on

the rubber sector.

(5) Like other commodities, rubber price depends on inventory of big consumers such as China, the US,

EU…

0

1

2

3

4

5

6

7

SMR 5

SMR CV

SMR L

USD/ton

3.5

4

4.5

5

5.5

6

6.5 SMR 5

SMR 10

SMR CV

SMR GPC

SMR L

USD/ton



(6) Rubber price is under impact of the exchange rate of local currencies of biggest exporters (baht of

Thailand, ringgit of Malaysia) against USD or CNY. As China and the US are main importers, changes in

these exchange rates also trigger the change of rubber price.

(7) Large producers of natural rubber are often located in the same region, so they have similar climatic

conditions and resemble in time of harvest. During harvest time, generally after period of February to May

in Vietnam, increasing production drives down the rubber price.

(8) Weather conditions play a major role in rubber production. It can be seen that during 2010 and 6 months

of 2011, the price remained sustainably high as heavy rain in Thailand and drought in Indonesia

negatively affected rubber plantations in these two countries.

III. WORLD RUBBER PRICE PROSPECT - PRICE FORECAST MODELS

The automobile industry has a promising prospect despite a gloomy global economy.

The global economy showed signals of decelerating recovery in 2010, after being hard hit by the depression in 2008-

2009. In 2011 a series of issues related to public debt, budget deficit, inflation, unemployment continually affected

recovery of the global economy in a negative way. Though the year 2011 is about to end, it can be observed that

these issues still exist. According to the world economy prospect report just released in September 2011, IMF

lowered the world economy’s growth rate to 4% in 2011-2012. In this report Chinese economic growth estimate is

also revised down to 9.5% as this country is pursuing an anti-inflation policy. The growth rate of the US economy is

forecast to be 1.5% in 2011, while that of EU is 1.6% in 2011 and 1.1% in 2012.

However, the automobile industry is still enjoying good growth and bright prosperity in the coming years. According

to Wards Auto, the total number of automobiles in the world at the end of 2010 reached 1.015 billion, which means

one running a car out of every 6.75 persons. The US leads the list of automobile numbers with 240 million ones,

while those of China and Japan are respectively 78 and 74 million. One research of Pricewaterhouse Coopers states

that the global automobile industry is expected to accelerate in 2012 thanks to the emerging countries in Asia, who

contributes half of the growth. It is forecast that this industry will grow by 6.3% in 2011 and 8.8% in 2012. Asia is

indicated to play a vital role with its ownership of around 60% of the total vehicles.

Regional car production turnover

(million units)

Chinese tire production in period 1990-2010

(million units) Source: Bloomberg

According to industry experts, the rubber price will remain stabilized at a high level.

Supply of natural rubber is forecast to grow faster than the demand for it. However, in 2011, the supply is expected

to stay lower than the demand. 2012 will be the turning point where supply is expected to exceed demand.

0

10

20

30

40

50

60

70

80

90 Asia PacificNorth AmericaEU

0

10

20

30

40

50

60

70

80



The International Rubber Study Group (IRSG) forecasts the global demand for (both natural and synthetic rubber) to

be 25.7 million tons in 2011 and 27.6 milliion tons in 2012. Of the total, synthetic rubber will increase by 5% in 2011

and 9% in 2012 while that of natural rubber will be respectively 3.8% and 5.4%. According to to IRSG, the natural

rubber production will increase by 5.6% in 2011 and 8.2% in 2012.

Rubber supply – demand forecast in 2011-2012 Forecast consumption of rubber in 2011-2012

Source: IRSG

Association of Natural Rubber Producing Countries (ANRPC) forecasts that the price of rubber will be stabilized after

an impressive growth during the last two years. This association owns 92% of total natural rubber production and its

production is expected to increase by 6.3% in 2011 and 6% in 2012.

Deutsche Bank forecasts rubber price will stay at a high level..

In a recent report, Deutsche Bank forecasts the average rubber price will reach 5 USD/kg in 2011, 5.1 USD/kg in

2012 and 4.5 USD/kg in 2013.

VCBS believes the rubber price will fluctuate in a narrow range and remain high. We built a forecast model

for rubber price with a short term view.

In the fourth quarter, the price of rubber will stay within a narrow range and continually stand at a higher level than

that of 2010.

At year end the demand for rubber rises but at a moderate level, due to global economic growth concerns.

Demand is always high in the fourth quarter. China just announced its plan to increase rubber inventory until 2012.

It’s noted that demand for rubber in emerging market is steadily increasing. However, there still exist concerns over

the European debt crisis, slow recovery of the US economy and the tightening policy of China. Such events prevent

the price from climbing higher.

Rubber supply might slightly increase in the fourth quarter; however, supply still falls short.

Heavy rainfall in Thailand and cold dry weather in Indonesia both adversely affect latex collection and yield in these

two countries. Recently Thailand had a plan to cut down 120 thousand tons/year and called for other countries to join

the scheme to drive up the price of rubber.

In the long run rubber price will be stabilized at a high level, due to a limited supply under control of IRCO.

Rubber price has declined to a certain extent from the peak. At the same time, the rising demand for rubber, which

moves in line with extensive growth of the global automobile industry especially in China, together with a limited

rubber supply under strict control of IRCO and influence of weather conditions will bring stability to the rubber price in

the next years.

10.38

10.97

11.86

10.77

11.16

11.75

-0.39

-0.19

0.11

Difference Demand Supply

2012F

2011F

2010

Unit: mil ton

10.77

11.16

11.75

13.85

14.54

15.85

24.62

25.7

27.6

Total Synthetic Rub Natural Rub

2012F

2011F

2010

Unit: mil ton



Short term price forecast model

We built two models of Holt – Winters and ARIMA to forecast the price of rubber with a short term view. With these

two models, we got the price projection as follows (unit: thousand tons).

Holt – Winters and ARIMA rubber price projection models

As these two models analyse the inner components of the time series, the results are more suitable in a short term

time frame in case there are no outside shocks affecting the price of rubber. We believe the results of the models are

significant for reference in the short run. The details are as follows:

1. Holt – Winters exponential smoothing forecast model analyses the components of the time series

including trend (T), cycle (C), season (S), irregularity (I).

Rub is the average quarterly price data collected in period of first quarter 2000 to third quarter 2011 of SMR5 rubber

in Malaysia. Unit: thousand ton(s).

Date: 10/27/11 Time: 17:22 Sample: 2000:1 2011:3 Included observations: 47 Method: Holt-Winters Multiplicative Seasonal Original Series: RUB Forecast Series: RUBF Parameters: Alpha 1.0000 Beta 0.0000 Gamma 0.0000 Sum of Squared Residuals 5.012096 Root Mean Squared Error 0.326558 End of Period Levels:

Mean 4.614518

Trend 0.067415 Seasonals: 2010:4 0.972346 2011:1 1.039799 2011:2 1.004144 2011:3 0.983710

Model result The real rubber price (Rub) and the forecast price (Rubf)

The forecast of rubber price in the coming quarter is as follows:

4.48

4.86 4.76 4.73 4.74

4.37

4.35 4.36 4.35 4.35

4

4.1

4.2

4.3

4.4

4.5

4.6

4.7

4.8

4.9

MH Holt -Winters MH ARIMA

0

1

2

3

4

5

6

Rub

Rubf

Unit: thousand USD/tấn



Results of Holt - Winter Model

2. Autoregressive Integrated Moving Average - ARIMA: the time series are stationarized by transformations

such as differencing or logging.

Variable LnRub = ln(Rub). In which Rub: is the average quarterly price data collected in period of first quarter 2000

to third quarter 2011 of SMR5 rubber in Malaysia. Unit: thousand ton(s).

LNRUBt = 1,882*LNRUBt-1 - 1,404*LNRUBt-2 +0,522*LNRUBt-3 - 0,675*ut-1 + 0,624*ut-2

The result shows that the price of rubber is under influence of the price during the three months preceding the

current period (RUBt-1, RUBt-2 , RUBt-3 ) and under influence of the price volatility during the two months preceding

the current period (ut-1 , ut-2).

The real rubber price (Rub) and the forecast price

(Rubf)

ARIMA model forecast price of rubber

IV. VIETNAM RUBBER SECTOR

Vietnam is the 5th

largest producer and 4th

largest exporter of natural rubber in the world.

Vietnam is endowed with favorable natural conditions to promote the natural rubber plantation. Currently, Vietnam

ranks 5th

in terms of rubber plantation acreage and rubber production and 4th

in rubber export. India ranks 4th

in

production of rubber; however, this country also has large consumption of rubber, so its export is lower than that of

Vietnam. Vietnam, on the contrary, exports more than its production as it imports the raw material from Laos, and

4.48

4.86 4.76

4.73 4.74

4.2

4.3

4.4

4.5

4.6

4.7

4.8

4.9

Thousand USD/ton

-1

-0.5

0

0.5

1

1.5

2

1

10

19

28

37

46

55

64

73

82

91

100

109

118

127

136

145

lnrubf

lnrub

4.284.304.324.344.364.384.404.42

4.37

4.35 4.36

4.35 4.35

4.34

4.35

4.36

4.37

4.38



Cambodia then re-exports to a third country. The average export volume over production ratio of Vietnam is about

120%.

Though Vietnam is among top 5 in terms of production and export, its production is just equal to 23% of Thailand

and 28% of Indonesia. Vietnamese rubber is not highly rated in the global market for its low and unequal quality

(most of the exported rubber originates from small holders). This explains why Vietnamese rubber is sold at 10-20%

lower than that of Thailand or/and Malaysia.

In 2010 the plantation area of Vietnam reached 740 thousand ha, of which 60% is harvestable, and the rest is on

early cultivation stage. Rubber yield of Vietnam has increased considerably for the last two years. In 2010 the rubber

yield recorded reached 1.72 tons/ha while total export volume reached 783 thousand tons, worth 2.37 billion USD,

indicating a 7% increase in quantity and 94% increase in value compared to 2009.

Export structure in 2010 Export market structure

Source: VRA, GSO, Ministry of Industry and Commerce

Vietnam’s major export market is China

Vietnam exports rubber to 70 countries in the world, among which China is the biggest partner. Export to China

(mostly SVR 3L) accounts for 60% of the total, generally via unofficial cross border trade. Two reasons explain why

most of the Vietnamese rubber flows to China. Geographically, Vietnam is adjacent to China. Economically, this

country has a very large demand for rubber. However, that export structure brings high bargaining power to China,

resulting in Vietnam’s rubber sector totally dependent on China’s policies and economic conditions.

Malaysia, Taiwan, South Korea, Germany, the US rank after China in the list. 8M2011 exports to China, Malaysia,

Taiwan, Germany and the US reached respectively 1,166, 142, 92, 83, 82 and 52 million USD.

Ongoing extension of plantation acreage and higher productivity created favourable conditions for Vietnam

to move up to rank 4th

in the list of top producers.

Rubber plantation acreage and harvestible area have increased steadily since 2000. Till now the total acreage has

extended to 740 thousand ha from 412 thousand ha, of which 60% of the area is harvestible and 40% is in early

stage of cultivation, thanks to government support and the price uptrend.

Small holding plantation area is getting a bigger percentage in the total plantation area, of about 45-50%, which is

still far lower than 85-90% of neigbouring Thailand and Malaysia. Production yield of Vietnamese rubber is making

new highs for the last two years. The plantations are mainly concentrated in the South East, which covers 52% of

the country’s total acreage. Central Highlands own 32% of the total plantation area, while that of North Central and

South Central Coast is 10%.

35%

14%

6%

3%

5%

3%

1%

35%

SVR L,3L

SVR 10

Latex

RSS

SVR CV

SVR 20

SVR 5

Others

66%

5%

4%

5%

8%

3%

3%

6%

China

South Korea

Germany

Taiwan

Malaysia

US

India

Others



Increase in plantation area and productivity promises potentially higher production in the next years. Indeed, the

cultivable area expanded to 379 thousand ha in period 2003-2010. Vietnam has capacity to exceed India to take the

fourth position in the list of top producers of natural rubber.

Acreage and production yield over the years Regionally-located plantations

Source: GSO, VRA

The land devoted to rubber plantation is limited, so the rubber sector is expanding its activities to the North

of Vietnam and to neighbouring countries like Laos and Cambodia.

As mentioned, rubber is mainly planted in the South East. According to the sector development strategies, Central

Highlands, North Central, and Central Coast will be the next places for expansion of rubber plantation acreage. As

rubber can only grow in certain climatic and weather conditions, North Western provinces such as Lai Chau, Son La,

Dien Bien cannot promote rubber tree plantation. It is observed that for 5 years since 2006, the total plantation area

of this region could moderately be extended to 15 thousand ha. Many trees died because of the cold weather.

Region Newly planted acreage (thousand ha)

Post planning total acreage (thousand ha)

South East 25 390

Central Highlands 95-100 280

Central North 20 80

North West 35 50

South Central Coast 10-15 40

Rubber plantation planning to 2015 with the target of over 800 ha of acreage

Along with the domestic expansion strategy, plantation companies plan to enlarge the plantation area in Laos and

Cambodia. Vietnam has invested in 100 ha of rubber plantation in Cambodia and been transferred 95 thousand ha.

In period 2005-2010, 28 thousand ha of rubber was planted, and it is expected to reach 50 thousand by 2011 and

100 thousand ha by 2012. Similarly, in Laos Vietnamese plantation companies have had rubber trees planted in 55

thousand ha out of 100 ha.

Despite Vietnam being one of the top producers of natural rubber, its rubber processing sector has not lived

up to the potential.

Vietnam mainly exports rubber as raw material, which does not bring back high profit as manufactured products.

According to industry experts, if the raw material is made into tires and inner tubes, the export value can become 8-

10 times higher than that of raw rubber. This value can even be 18-20 times higher if the raw material is converted to

0.0

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0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

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0

100

200

300

400

500

600

700

800 Acreage (thousand ha)

Production (mil ton)

Yield (ton/ha)

52% 37%

5% 6%

South EastCoast

CentralHighlands

Central Coast

North West



technically specified rubber products. Currently, domestic demand for rubber accounts for 150-18% of the total

production, within which 70% is used for tire and inner tube production. Rubber-derived products for export (tires and

inner tubes, gloves, rubber buffer belts, etc.) just account for 15-20% of the total export value. This indicated that the

processing sector is still weak as compared to the potentiality.

At present there still exist problems of domestic manufacturing companies having limited access to natural rubber for

their production and/or low quality rubber. This entails the demand to import natural rubber from overseas.

The tire and inner tube production sector has large room to expand their businesses. In Vietnam now there are two

big tyre companies including Da Nang Rubber JSC and Mien Nam Rubber JSC. They both have large-scale projects

to manufacture car and truck tyres.

9M2011 rubber export value reached 2.27 billion USD. The plan of 3 billion USD of export is within reach.

Vietnamese rubber is mainly exported through Mong Cai, Quang Ninh ports in the North and Cat Lai, Tan Cang

ports in the South.

Thanks to the increase in price and production for the last two years, rubber has reaffirmed its position as one of the

major commodities to bring back a large flow of dollars. In 2010 rubber exports reached 2.37 billion USD. In 2011

the export value is estimated to be 3 billion USD.

9M2011 Vietnam exported 525 thousand tons of rubber, worth 2.27 billion USD, recording an increase of 2.4% in

quantity and 60% increase in value, thanks to the rising price of rubber. This also indicates 76% completion of the

year plan. China continues to be the largest trading partner with purchase of 65% of the total export value. Unofficial

cross border trade accounts for 50% of the trades.

The fourth quarter is the time for harvesting natural rubber. Demand for natural rubber also jumps high this time. For

this reason we estimate the 3 billion USD export plan of the sector is within reach.

Rubber production and export 9M2011

Nguồn: GSO

Plantation companies are entitled to tax incentives as well as favourable lending rates.

Being a member of WTO enables Vietnam’s rubber sector to penetrate the global market, expand the customer base

and enjoy tax incentives in other markets. This sector also has access to favorable loans and grants of interntional

financial institutions such as WB, IMF, to expand the plantation acreage, to use advanced technology in plantation

and processing.

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100

150

200

250

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350

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Production (thousand ton)

Value (bil USD)

mil USD Unit: thousand ton



As rubber sector brings back foreign currency, companies in the sector have access to favorable loans for

investment and development. Rubber plantations are often located in disadvantaged localities, so enterprises are

generally granted tax incentives. TRC and DPR, for example, enjoy 15% of corporate income tax for 12 years since

establishment, and waived of this tax for three years from the first profitable year and had their tax payable cut in half

for the next 7 years. Plantation companies also enjoy agricultural land tax incentives.

Ministry of Finance just released Document No. 9375/BTC-CST dated 18 July 2011 taking polls of a new draft

decree which states the export tax of 5% be imposed on natural rubber products. According to this document, some

natural rubber products in 4001 and 4002 groups will be taxed 5% instead of 0% as present. There are respondents

to this poll that the MOF should have a detailed plan to raise the tax rate step by step at appropriate times, and the

tax increase should be based on the export price. Also the tax revenue collected should be reinvested in expansion

schemes as were in Thailand, and Malaysia. Ministry of Industry and Commerce, and Ministry of Agriculture and

Rural Development share the same view that natural rubber of 4001 group should not be taxed and recommend a

tax rate of 3-5% on products of group 4002. At the end of October 2011 Ministry of Finance issued Decree

145/2011/TT-BTC which stipulates the export tax rate of rubber products in group 4001 is 3% and that of group 4002

is 5%.

Competitive rivalry is low in the rubber sector. However, the entry barrier is fairly high.

A rubber tree needs from 5 to 7 years to generate latex so plantation companies often have to commit long term

capital to the business. Besides that, rubber tree cultivation is closely dependent on soil and weather conditions. The

land area suitable for rubber plantation is limited. Besides, planting rubber trees and collecting latex require workers’

experience and expertise. For all these reasons, new comers of the sector have to face a lot of hurdles.

Competition within the industry is not high, due to the fact that demand for natural rubber is high while the supply is

not sufficient. Within the sector companies differentiate themselves based on plantation acreage, tree structure in

terms of age, range of products, and export share, etc.

Prospect of Vietnam’s natural rubber sector

Natural rubber sector prospect

According to Vietnam Rubber Association (VRA), the rubber production is forecast to increase by 4% in 2011. Plus

the source of rubber from temporary import – reexport, Vietnam can export up to 830 thousand tons of rubber (+ 50

thousand tons as compared to 2010) and reach an export value of 3 billion USD. 9M2011 Vietnam exported 525

thousand tons of rubber, worth 2.27 billion USD, recording 2.4% increase in quantity and 60% increase in value,

thanks to the rising price of rubber. So far Vietnam has completed 63% of the year plan in terms of production and

76% of the 3 billion USD target.

Increasing productivity of Vietnamese rubber together with expansion of plantation area to 387,800 ha in period

2003-2010 enables the country to improve the ranking from the fifth to the fourth position in the list of top producers

of natural rubber.

Vietnam rubber sector development strategy

Strategy for the development of natural rubber sector until 2020 includes promotion of industrial rubber production,

increase of rubber manufactured product share in total export structure, expansion of the plantation area to 800

thousand ha, targeting 1.1 million tons of latex production per year, and extension of rubber processing capacity to

360 thousand tons in 5 years, as well as acceleration of the new plantation scheme in Central Highlands and North

West. Development of rubber processing sector will help drive up the export value, further diversify the range of

products for export, decrease sector’s dependence on China and considerably cut down imports of rubber-based

products.



V. NATURAL RUBBER PLANTATION COMPANIES

Vietnam Rubber Group (VRG) has greatest influence on business operations of rubber plantation

companies.

This group regulates the export price applicable to all companies in the group. At the end of 2010, the group had 40

trillion dongs in total assets. For the last five years, on average VRG has invested 5,400 billion VND to expand

operations. In 2010 the group recorded total revenue of 1.1 billion USD, profit of 350 million USD, of which revenue

and profit from rubber plantation is 900 million USD and 300 million USD accordingly. In 2010 VRG moved up from

the fourth to first position in the list of top 10 exporters.

As of end 2010 VRG had 299 thousand ha of natural rubber plantation under management, accounting for 40.4% of

the total area. Currently the average yield of this group is 1.8 tons/ha (that of the world is 1.6 tons/ha, and of Vietnam

is 1.72 tons/ha). Total production and consumption of VRG in 2010 are 450 thousand tons, accounting for 59,6% of

the country’s. Production is expected to decline in the future, due to its limited ability to further expand the plantation

area. Moreover, the replanted acreage and mature plantations (where trees are cut down for sale) are increasing.

According to VRG’s plan, after 2012 the production will go up again as it’s the time newly cultivated plantations turn

harvestible. In 2011 VRG expects a growth rate of 5%. At present VRG is implementing three large scale projects of

planting 100 thousand ha of natural rubber in Central Highlands, and Central Coast, planting 100 thousand ha of

natural rubber in Laos and 100 thousand ha in Cambodia.

9M2011 VRG harvested 157,903 tons of natural rubber, (-4% yoy), processed 183,679 tons (55% of plan) including

purchase of 28,452 tons (85% of plan) and sale of 191,316 tons (66% of plan). This group exported 89,435 tons

(accounting for 31% of total consumption). The average price 9M2011 is 97 million VND/ton (67% yoy). With this

VRG recognized total revenue of 24,156 billion VND (+163% of plan), in which revenue from rubber production is

18,560 billion VND (+66% yoy), total profit of 8,541 billion VND (+69% yoy, exceeding the plan by 22%).

Top 5 companies in the sector in terms of production and acreage are Dong Nai, Dau Tieng, Phu Rieng, Binh Long

and Phuoc Hoa. All these companies are located in the South East and have high yielding rubber.

No. Company Acreage

(ha) Harvestible

2010(ha) Yield 2010

(ton/ha) Production 2010 (ton)

Production 2011 (ton)

1 Dong Nai Rubber LTD. Company 34,267 24,790 1.69 42,000 35,000

2 Dầu Tiếng Rubber LTD. Company 29,000 20,340 2.07 42,043 38,000

3 Phú Riềng Rubber LTD. Company 18,850 12,974 2.00 26,000 26,100

4 Bình Long Rubber LTD. Company 14,900 11,000 2.04 22,408 21,400

5 Phước Hòa Rubber LTD. Company 16,800 10,754 2.01 21,616 20,000

6 Lộc Ninh Rubber LTD. Company 10,833 6,952 1.90 13,208 12,400

7 Đồng Phú Rubber JSC 10,047 7,245 2.23 16,143 15,000

8 Kom Tum Rubber LTD. Company 10,000 8,763 1.28 11,216 12,400

9 Bà Rịa Rubber LTD. Company 8,570 3,400 1.53 5,200 5,000

10 Chu Păh Rubber LTD. Company 8,122 5,693 1.23 7,007 8,300

11 Mang Yang Rubber LTD. Company 7,815 6,612 1.14 7,565 8,000

12 Tây Ninh Rubber JSC 7,200 5,552 2.17 12,067 11,400

13 Tân Biên Rubber LTD. Company 6,161 6,000 2.07 12,434 12,200

14 Chu Sê Rubber LTD. Company 6,000 6,000 1.50 9,000 9,300

15 Hòa Bình Rubber JSC 5,098 2,874 1.35 3,873 3,000

16 Thống Nhất Rubber JSC 2,071 1,337 1.20 1,603 1,760

Top producers in the sector and listed companies

Source: VCBS compiled



In the near future Hoang Anh Gia Lai JSC, a sizeable company will likely join the rubber sector as a top

producer. HAG is not a member of VRG.

HAG is a new entrant of the rubber sector. However, with a strong capital base, HAG shortly expanded its ownership

to 51 thousand ha of rubber plantation under management and continued to enlarge its total acreage to 100

thousand ha, mainly in Laos and Cambodia. With this plan HAG is threatening the top position of Dong Nai rubber

LTD Company, the number 1 company of VRG. As the late comer, HAG has certain advantages over planting

expertise and use of higher yielding varieties.

General overview of listed rubber plantation companies

At present there are 5 rubber plantation companies listed on the two exchanges, most of which are of medium size.

(1) DPR – Đồng Phú Rubber JSC

(2) HRC – Hòa Bình Rubber JSC

(3) PHR – Phước Hòa Rubber JSC

(4) TRC – Tây Ninh Rubber JSC

(5) TNC – Thống Nhất Rubber JSC

All mentioned companies are members of VRG, who own more than 50% of the equity. Except for PHR in top 5, the

other companies are of small size in the sector. DPR and TRC are top yielding companies while HRC and TNC have

relatively low productivity. DPR, PHR, HRC and TNC mainly produce latex for tire and inner tube manufacturing

while TRC’s major product is latex for technical rubber products such as gloves and medical equipments.

No. 2010 DPR PHR HRC TRC TNC

1 Plantation acreage (ha) 10,047 16,800 5,098 7,200 2,073

2 Harvestible acreage (ha) 7,245 10,754 2,874 5,552 1,328

3 Yield (ton/ha) 2.23 2.01 1.35 2.17 1.2

4 Production (ton) 16,143 21,616 3,873 12,067 1,603

5 Inventory BEG (ton) 1,052

736 881

6 Purchase volume (ton) 1,978 10,845 3,086 339

7 Processed volume (ton) 17,516

6,959 17,000 1,857

8 Sale volume (ton) 16,470 31,441 6,452 11,719 1,735

9 Export (ton) 7,762 14,290 3,250 5,377

10 Inventory END (ton) 2,097

1,242 1,567

11 Sale price (million VND/ton) 39.20 46.63 50.38 40.22

12 Average price (million VND/ton) 62.44 63.47 63.59 62.47 62.9

13 Total revenue (bil VND) 1,127 2,030 441 815 188

14 Revenue from plantation (bil VND) 1,028 1,300 410 718

15 Profit before tax (bil VND) 433 662 107 305 60.4

16 Profit after tax (bil VND) 395 503 95 275 51.9

17 EPS (VND/share) 9,335 6,268 5,546 9,243 2,695

18 Dividend 30% 30% 25% 30% 15%

Listed companies’ production details

Source: compiled by VCBS

Plantation companies have good fundamental ratios thanks to the rising price of rubber. Of the listed

companies, TRC and DPR show the best performance.

Impressive growth: These companies have high growth rates especially in terms of revenue and profit.

TRC, DPR and TNC all have growth rates of 9M2011 double those of 2010.

High profitability: Rubber plantation sector has higher profit margin as compared to others. In a rising price

trend, most of the companies in the sector have exceptionally high ROA, ROE, EPS.



Good liquidity: Thanks to low financial leverage and good cash flow, DPR, TRC and TNC have good

liquidity ratios, which are far higher than 1.

Borrowing and investment is small: Only HRC, DPR, PHR put priority in investment plans.

Good efficiency

Financial Ratios 2011 DPR HRC PHR TNC TRC

Growth

Total Assets (Q3/2011 vs. Q3/2010) 42% 27% 34% 20% 48%

Owners’ Equity (Q3/2011 so với cùng kỳ 2010) 45% 16% 32% 21% 55%

Revenue (9T2011 so với cùng kỳ 2010) 90% 87% 36% 5% 89%

Profit after tax (9T29011so với cùng kỳ 2010) 129% 32% 51% 118% 147%

Liquidity

Current Ratio 2.6 1.8 1.1 5.8 3.5

Quick Ratio 2.2 0.9 0.9 4.7 3.0

Cash Ratio 1.8 0.7 0.6 3.8 2.8

Asset Equity Structure

Liabilities/Total Assets 22% 20% 42% 10% 19%

Long term debt/Total Assets 2% 5% 2% 0% 1%

Interest bearing debt/Liabilities 8% 33% 27% 1% 9%

Current Assets/Total Assets 53% 27% 45% 60% 63%

Investments/Total Assets 27% 45% 20% 8% 11%

Profitability

Gross Margin 42% 20% 36% 50% 43%

Profits from Operations/Net Revenue 41% 16% 31% 50% 42%

Profit before tax/Net Revenue 46% 22% 35% 55% 47%

Profit after tax/Net Revenue 41% 19% 27% 47% 42%

ROA 32% 22% 23% 26% 37%

ROE 42% 27% 41% 29% 46%

EPS 15,724 7,090 8,134 4,584 16,082

BV 37,714 26,484 20,124 15,777 34,894

Efficiency

Days of Account Receivable 30 9 39 59 16

Days of Account Payable 2 10 2 4 1

Days of Inventory 45 51 52 97 52

Total Asset Turnover 0.9 1.2 1.0 0.6 1.0

Fixed Asset Turnover 2.9 4.5 2.7 1.8 3.4

Owners’ Equity Turnover 1.1 1.5 1.7 0.7 1.3

Listed companies financial ratios

Source: compiled by VCBS

9M2011plantation companies had revenue and profit far exceed 9M2010 and their plans. Though most of the

plantation companies had their production decline, thanks to the rising price of rubber, they still got their revenue and

profits far exceed those of 9M2010 and their plans. We expect these companies to record good result in the last

quarter as it’s the harvest time of plantations and the price of rubber still remains at a high level. We believe

plantation companies can outperform the plans by at least 20%.

Rubber plantation stocks are not very impressive to the majority of investors. Despite good results, their stock prices

steadily fell and liquidity got squeezed. PE of those stocks has declined to a relatively low range.



Lack of liquidity in those rubber stocks can be explained by the facts that the listed rubber plantation companies are

of small size in terms of capital. Moreover, VRG and institutions hold a large percentage of ownership so the free

float volume is small.

The following reasons explain why the rubber stocks kept declining in a downtrend market

(1) The good results were not beyond investors’ expectations. Despite staying at a high level, the price of rubber is

trending down, thus the prospect of natural rubber plantation is not expected to be far outstanding.

(2) Plantation companies concentrate on their core business; however, investments in the new planting scheme, and

improvements of planting conditions are not prioritized.

(3) Many stocks are high in absolute prices, have low liquidity and dividend payment policy below investors’

expectations.

Ticker Total

Assets (bil VND)

Chartered capital

(bil VND)

Net Margin

Debt/ Equity

ROA

ROE

% of profit plan

EPS Trailing

BV

P/E

P/B

Price 26/10/11

DPR* 2,086 430 41% 29% 32% 42% 127% 15,740 37,714 3.1 1.3 49,500

HRC 569 173 19% 25% 22% 27% 105% 7,090 26,484 8.2 2.2 58,000

PHR 2,864 813 27% 74% 23% 41% 102% 8,170 20,124 3.5 1.4 28,500

TNC* 339 193 47% 12% 26% 29% 105% 4,584 15,777 3.1 0.9 14,000

TRC 1,299 300 42% 24% 37% 46% 123% 16,082 34,894 2.5 1.1 40,000

Listed stock’s financial highlights

(Source: compiled by VCBS. Data updated as of 3rd

quarter 2011. TNC’ data is based on revised plan. DPR data is

of parent company).

RECOMMENDATION

We believe DPR, TRC, PHR are good stocks for HOLD despite their low liquidity. Their good fundamentals, low

trading P/E, high dividend payment rates, and good business results justify our recommendation. Of all listed stocks,

TNC is most liquid, and its price is lowest in absolute terms. We recommend BUY this stock for short term

investment tenors.



DPR - ĐỒNG PHÚ RUBBER JSC

DPR has shown higher efficiency in operations for the last two years. The trees are in highest yielding

years of age.

In 2011 DPR’s production dropped, and is expected to regain growth in 2013.

Major export markets in 2010 are South Korea, China and Taiwan.

9M2011 DPR had 1,280 billion VND of revenue (+90% yoy) and 500 billion VND of profit after tax (+129%

yoy). The accumulated profit exceeded the plan by 27%.

DPR has good fundamentals and high sustainable growth prospect in the future. Currently the stock is

traded at relatively low PE. We recommend HOLD to this stock.

Price

28/10/11 52W price range

Outstanding Vol.

Avg Vol 1M Price return

1M Beta

PE (TTM)

PB (TTM)

Div 2011 % foreign ownership

% State ownership

48,500 47,500-69,500 43,000,000 4, 567 -4% 0.84 3.08 1.29 30% 35.03% 55.81%

Price and Volume Chart Major shareholders

Vietnam Rubber Group

FTIF - Templeton Frontier Markets

Fund

55.81%

6.68%

SWOT

Strengths Weaknesses

DPR has good fundamentals.

Plantations are located in places with good climatic

conditions, and rich soil. The plants are in high yielding

years of age. Yields of the last two year are highest

among companies in VRG and exceed the average

national yield.

DPR’s management have good vision. It is one of the

first movers to deploy expansion of plantation in

Cambodia.

DPR has access to corporate tax incentives.

Slow progressing in Đăk Nông project due to

problems of land requisition. This project was

kicked off in 2008, but till now just 904 out of 4,000

ha of land were cultivated.

Đồng Phú Technical Rubber JSC did not do well

the trading and marketing task for its products. As

input costs remain high, this company is not

expected to make profit in 2011.

Opportunities Threats

High price of rubber will support DPR in operations, as

the trees are in the age of highest yielding.

The strategy to expand plantations of DPR will

support its long term sustainable growth prospect.

DPR will need large capital to establish Đồng

Phú – Snuol LTD. Company with planned

chartered capital of 1,200 billion VND. DPR will

need large loans to finance this project.

Unexpected climatic and weather change may

adversely affect DPR’s plantations in particular

and rubber plantations in general.



Production Info 2009 2010 2011F

Plantation acreage (ha) 10,047 10,047 9,761

Harvestible acreage (ha) 7,553 7,245 7,236

Chopping area 465 590

Yield (ton/ha) 2.25 2.23 2

Production (ton) 17,030 16,143 14,500

Inventory BEG (ton) 1,642 1,052 2,097

Purchase volume (ton) 2,201 1,978 4,000

Processed volume (ton) 19,003 17,516 18,500

Sale volume (ton) 19,593 16,470 18,300

Export (ton) 7,032 7,762 10,000

Inventory END (ton) 1,052 2,097 2,297

Sale price (mil VND/ton) 22.62 39.2 46

Avg price (mil VND/ton) 32.17 62.44 67

Financials 2009 2010 2011F

Total revenue (bil VND) 684 1,127 1,323

Plantation rev (bil VND) 630 1,028 1,228

Profit before tax (bil VND) 221 433 442

Profit after tax (bil VND) 211 395 403

Total Assets (bil VND) 1,246 1,676

Owners’ Equity (bil VND) 868 1,227

Liabilities/Total Assets 29% 25%

Net Profit Margin 33% 38%

ROA 17% 24%

ROE 24% 32%

EPS (VND/share) 5,269 9,165

BV (VND/share) 20,718 28,543

Dividend 15% 30% 30%

Compiled by VCBS

Among listed companies in the sector, DPR emerged as the most active in its investment plan to expand the plantation area.

Major projects of DPR

(1) Establishment of Đồng Phú – Snuol LTD. Company with 10,000 ha of plantation, and investment capital of

1,200 billion VND, which is 100% owned by DPR.

(2) Participation in establishment of Đồng Phú – Kratie Rubber JSC in Cambodia, with chartered capital of 350

billion VND to plant 8,000-9,000 ha of rubber out of a total area of 10,000 ha. DPR contributes 140 billion

VND, accounting for 40% of chartered capital. Up to 3,300 ha in total was already tree cover (70 ha in 2008,

1,100 ha in 2009, 2,130 ha in 2010). In 2011 around 2,500 ha will become tree cover and 2012 the planting

is expected to be complete so that 2014 the plantation can start generating revenue. The company’s

chartered capital will be increased to 500 billion VND and DPR plans to extend its ownership to 49%.

(3) Participation in establishment of Đồng Phú – Đak Nông Rubber JSC with chartered capital of 120 billion

VND to plant rubber trees on acreage of 4,000 ha. So far DPR has covered 904 ha with rubber trees and

expected to get revenue in 2014.

(4) Participation in establishment of Dong Phu Technical Rubber JSC with chartered capital of 110 billion VND,

in which DPR contributes 56 billion VND, accounting for 50.9%. This company specializes in production of

mattress, pillows using the latex of DPR. Every year this manufacturer is expected to use up to 3,000 tons of

dried latex of DPR. The company plans to raise its chartered capital to 129 billion VND, with DPR

contributing 75 billion VND or 58.14% of chartered capital. Products of this company are now available in the

market.

(5) Participation in establishment of North Dong Phu Industrial Park JSC with chartered capital of 100 billion

VND in which DPR contributes 51 billion VND or 51% of capital. The company will develop and invest in

industrial park and residential areas with total planned area of 240 ha. The company has deployed

infrastructure building and started to market its products to the public. Dividend payment for 2011 is

expected to be 5-8%.



PHR - PHƯỚC HÒA RUBBER JSC

Be the top sizeable among listed companies

At present PHR’s production declined as the old trees account for a large percentage in the plant

structure.The company had to chop trees for sale, around 600-800 ha each year. It is expected that production

will regain growth in 2015 when the newly planted plantations turn harvestible.

In 2013 PHR is expected to have increasing cash inflow.

9M2011 PHR had 1,887 billion VND of revenue (+36% yoy), and 480 billion VND of profit after tax (+51%

yoy), passing the profit plan by 2%.

PHR stock is liquid, and PE is in a low range. We recommend HOLD to this stock.

Price

28/10/11 52W price range

Outstanding Vol.


1M Beta PE

(TTM) PB

(TTM) Div 2011

% foreign ownership

% State ownership

28,400 28,400-39,700 78,975,047 19,858 0.4% 0.88 3.84 1.41 30% 13.11% 66.62%



Miền Nam Rubber Industrial JSC

Vietinbank

66.62%

1.21%

0.5%

SWOT


PHR ranks 5th

among top plantation companies in

the rubber sector in terms of acreage, production. It is

the biggest among listed companies at present. PHR

put priority in investment and development of rubber

plantations in Cambodia since 2009.

PHR shifted its product structure, producing more of

SVR CV, which is of higher value as compared to other

types.

Has a diversified customer base. PHR exported its

products to 28 countries and is not too depedent on the

Chinese clients.

Despite chopping trees for sale reduces its

production, PHR gains good profits thanks to the high

rising wood price.

Despite owning large plantation acreage, PHR’s old

trees account for a large percentage. The company

has to chop trees by 600 ha/year, thus reducing its

production.

PHR is not entitled to corporate tax incentives as

other counterparts. The current corporate income tax

is 25%.


PHR is a sizeable company. Rising price of rubber

will bring good gains to the company.

PHR is among first movers to expand the plantation

coverage in foreign countries. This would help create

long term sustainable growth.

The large scale project of rubber planting in

Cambodia and replanting scheme require large

capital.



Production Info 2009 2010 2011F

Plantation acreage (ha) 16,800 16,800 16,800

Harvestible acreage (ha)

10,754

Yield (ton/ha) 2.04 2.01 1.94

Production volume (ton) 24,092 21,616 20,000

Purchase volume (ton) 5,484 10,845 6,000


Sale volume (ton) 32,393 31,441 26,000

Export volume (ton) 13,262 14,290

Sale price (mil VND/ton) 25.28 46.63 46.47

Avg price (mil VND/ton) 31.87 63.47 65

Compiled by VCBS

Financials 2009 2010 2011F

Total revenue (bil VND) 1,068 2,030 1,902

Plantation rev (bil VND)

1,300 1,690


Profit after tax (bil VND) 267 503 466

Total Assets (bil VND) 1,869 2,305

Owners’ Equity (bil VND) 1,159 1,284



ROA 14% 22%

ROE 23% 39%


BV (VND/share) 12,507 15,798

Dividend 20% 30% 30%

Besides its investments in the core business, PHR also conducts investments in development of industrial park and

residential areas. The company plans to raise additional capital to invest in subsidiaries – Phuoc Hoa Kampong

Thom Rubber Development LTD Company in Cambodia and other real estate projects. PHR also has some other

projects that are expected to start generating sustainable revenue in 2013.

PHR’s major projects

(1) Invest in Phước Hòa Kampong Thom Rubber Development LTD to plant 9,184 ha of rubber in Cambodia

with total investment of 1,131 billion VND. This is the biggest project of PHR, which requires the company

to contribute 400 billion VND. In the next three years, the company will need to invest additional 150-180

billion VND/year. The project is estimated to start generating profit in 2015.

(2) Invest in VRG Sai Gon Invest JSC with chartered capital of 600 billion VND. PHR’s contribution is 150

billion VND, accounting for 25% of the capital. PHR has completed the capital contribution.

(3) Invest in Đoàn Kết Rubber JSC in Kratie, with chartered capital of 270 billion VND. PHR will contribute 81

billion VND, accounting for 30% of capital. In 2011 PHR plans to disburse 20 billion VND.

(4) Invest in Phuoc Hoa Residential Area (100% owned by PHR) with total investment capital of 70 billion VND.

The intital stage of investment is complete.

(5) Invest in Tan Binh PHR Industrial Park with total capital of 100 billion VND. PHR’s contribution is 60 billion

VND, accounting for 60% of the project capital. In 2011 PHR plans to disburse 10 billion VND.

(6) Invest in the Residential Area for residents of the farms. PHR plans to invest 90 billion VND (100% of the

project capital). In 2011 it will disburse 9 billion VND.



TRC - TÂY NINH RUBBER JSC

TRC has good fundamentals.

The major markets for export are Indonesia, Malaysia, the US, Germany.

The main product of TRC is latex, with high profit margin and stable demand.

9M2011 TRC had 843 billion VND of revenue (+89% yoy), and 362 billion VND of profit after tax (+147% yoy),

exceeding 23% of the plan.

PE of TRC stock is fairly low. Considering good financial ratios of TRC, we recommend HOLD to this

stock.

Price 28/10/11

52W price range

Outstanding Vol.


1M Beta PE (TTM) PB (TTM) Div 2011

% foreign ownership

% State ownership

38,000 36,100-71,500 29,600,000 7,461 -3.8% 0.89 2.36 1.09 30% 32.15% 60%



FTIF - Templeton Frontier Markets Fund

Citigroup Global Market Ltd & Citigroup

Global Market Financial Products Ltd

60%

5.59%

5.17%

SWOT


The plantations generate high yields.

Latex accounts for a large percentage in the

product structure of TRC. This latex is used in

production of gloves, and medical equipment so the

demand for it is stable. Also the profit margin is higher

than granulated rubber.

TRC has good fundamentals.

TRC is entitled to tax incentives.

Its progress of plantation expansion is relatively low

compared to other companies in the sector.

The plantations are located close to the city center, so

the land hire costs are higher than counterparts.

TRC has a project of manufacturing steel barrels to

contain latex. The company has completed the

investment stage; however, the products are not well

accepted by the market due to their use of inapproprite

cover paint.


TRC has high production yields. This together with

the high price of rubber will support TRC’s business

results in the future.

TRC will incur higher costs due to its slow progress of

investment. This might cause TRC to miss opportunities

to make profit given that the trend to open plantations in

Laos and Cambodia is booming among rubber plantation

companies.

Unfavorable weather and climatic conditions will

negatively affect the production of TRC and plantation

companies in general.



Compiled by VCBS

Production Info 2009 2010 2011f

Plantation acreage (ha) 7,200 7,200

Harvestible acreage (ha)

5,552 5,493

Yield (ton/ha) 2.24 2.17 2.02

Production (ton) 13,211 12,067 11,100

Inventory BEG (ton) 683 881

Purchase volume (ton) 5,070 339 3,000


Sale volume (ton) 13,013 11,781 15,326

Export (ton) 7,630 5,377 6,639

Inventory END (ton) 881 1,567

Sale price (mil VND/ton) 22.62 40.22 49.86

Avg price (mil VND/ton) 32.2 62.47 67.20

Financials 2009 2010 2011f

Total revenue (bil VND) 491 815 1,234

Plantation rev (bil VND) 440 718 819


Profit after tax (bil VND) 163 275

Total Assets (bil VND) 791 1,055

Owners’ Equity (bil VND) 628 767



ROA 21% 26%

ROE 26% 36%


BV (VND/share) 20,210 25,580

Dividend

30% 30%

TRC seems to be more conservative in their investments compared to other plantation companies. The company

just contributed a moderate percentage of capital in a number of medium size projects. TRC is considering its

expansion of plantation in Cambodia, but so far there has been no specific plan being announced in 2011. TRC

plans to disburse 49.56 billion VND in its investment this year.

TRC’s major projects

(1) Invest in Dầu Tiếng – Lào Cai Rubber JSC, with chartered capital of 400 billion VND to plant 10,000 ha of

rubber trees. TRC will contribute 60 billion VND, equal to 15% of chartered capital. At the end of 2010 TRC

just disbursed about 3 billion VND, and planned to disburse 17 billion VND in 2011.

(2) Invest in Phu Tho Rubber JSC, with chartered capital of 300 billion VND to plant 10,000 ha of rubber trees.

In 2011 TRC planned to disburse 15 billion VND.

(3) Invest in establishment of An Thịnh – Việt Lào JSC with total capital of 80 billion VND to plant cassava, and

trade rubber and agricultural products. TRC will contribute 16 billion VND or 20% of chartered capital. In

2011 the company planned to disburse 10 billion VND.

(4) Invest in Nghệ An Rubber JSC, with chartered capital of 378 billion VND. TRC’s contribution is 10%. In

2011 TRC disbursed additional 7.56 billion VND to raise ownership ratio from 8% to 10%.



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This report is designed to provide updated information on the results of companies’ business as well as

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Therefore, this report should be best considered as a reference only. VCBS does not bear any

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All the information stated in the report has been collected and assessed as carefully as possible,

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All opinions, judgments, estimations and projections in this report represent independent views of the

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quoting. Copyright 2010 Vietcombank Securities Company. All rights reserved.

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Le Huyen Minh

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