fpt corp (fpt) – flash note - tvs reports/2016/t12... · technology, telecom, trading, retail,...
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FPT CORPORATION Divestment Delay
NOT-RATED
Son Nguyen, Senior Analyst [email protected]
Trading Data and Key Metrics Ticker FPT
Sector Technology
Listed since 13-Dec-2006
Price as of 29-Nov- 2016 VND 43,150
52-week range (VND’000) 47,900-42,700
Market cap (VND bn) 19,821
Shares outstanding (mn) 459.43
Free Float (mn) 364.26
10-day average volume 543,070
Trailing P/ BV (x) 2.2
Trailing P / E (x) 11 Source: TVS, Thomson Reuters Data
Price Performance Chart
Source: TVS, Thomson Reuters Data
Price Perf. (%) 3M 12M YTD
Absolute -2.9 3.1 2.9
Source: TVS research, Thomson Reuters Data
Company Description
Founded in 1988, FPT Corporation is a Vietnamese-based information technology conglomerate. The company operates in various sectors including Technology, Telecom, Trading, Retail, and Education. FPT expands into 19 countries and is among one of the most well-known Vietnamese companies.
Revenue Structure
Source: Company data, TVS research
-10.00%
0.00%
10.00%
20.00%
30.00%
1-Dec-15
1-Jan-16
1-Feb-16
1-Mar-16
1-Ap
r-16
1-May-1
6
1-Jun
-16
1-Jul-16
1-Au
g-16
1-Sep-16
1-Oct-16
1-No
v-16
1-Dec-16
FPT VNIndex
23%
17%58%
2%
% total revenue
Technology
Telecom
Distribution& Retail
FLASH NOTE I December 1, 2016
We attended the FPT Capital Market Day regarding 3Q2016 and 9M2016 business
performance review. Key updates are highlighted as follows:
3Q2016 witnessed a good performance as revenue and EBT grew by +7% and +22% YoY
respectively. Revenue exhibited the strongest quarterly performance since 2Q2015. Telecom
and Technology sector contributed most to both top line and bottom line growth.
Consequently, FPT had consolidated revenue of VND 28,468 billion (-2.7% YoY). EBT was VND
2,011 billion and net income was VND 1,330 billion (+4.7% YoY). EPS accumulated to VND
2,900 (+4.1% YoY). We expect the company surpasses 2016 targets slightly when Software
Outsourcing, Telecom Services and Integration System segments do well.
Divestment delay in Retail and Distribution segments disconnects 2016’s earnings.
Distribution & Retail segments continue incurring low margin compared with others in
9M2016 and it created the economic sense to divest them from FPT’s portfolio. As per
management guidance, the divestment deal may not be closed in 2016 as they can not reach
agreement with the potential buyers to sell bundle of Retail and Distribution.
Healthy growth in Software Segment driven by oversea market development, particularly
Japan. 9M-2016 witnessed a jump of revenue to VND4,169 billion (+27% YoY) and EBT to VND
604 billion (+30% YoY). Oversea markets also signify a very high profit margin as they possess
only 15% of FPT’s revenue but account for 30% of EBT. Among foreign markets, Japan plays
an increasingly important role that represents the best foreign market in 2016 so far and an
average 32% growth / year over the last 10 years.
In 2017, management team expects Bangladesh, Korea and Europe will add more penny to
their pocket when they have positive talk with some potential clients, such as Airbus.
Table: 9M2016 Business Performance
9M-2016 9M-2015 % change (YoY)
Revenue 28,468 29,257 -2.7%
EBITDA 3,224 2,873 12.2%
EBT 2,012 1,969 2.2%
EBT margin 7.10% 6.70% 6.0%
Net income 1,330 1,270 4.7%
EPS - adjusted (VND) 2,900 2,787 4.1%
Source: Company Data and TVS Research
Thien Viet Securities JSC (TVS) does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Please see more important disclosures in the last pages.
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FPT Corp (FPT) – FLASH NOTE 2
9M2016 BUSINESS PERFORMANCE UPDATE
Q3 and 9M-2016 performance. Q3-2016 recorded VND 10,650 billion (+7% YoY) in
revenue and VND 754 billion Earnings Before Tax (+22% YoY). This was much better
than the previous quarter when EBT had gone down 7% YoY. Q3’s sales were aided
by strong growth from Telecom sector (EBT VND320 billion, +18% YoY) and cost
reductions from Technology sector (EBT292 billion, +45% YoY). Company’s earnings
increased by 29% YoY to reach VND667 billion. Q3’s revenue exhibited the strongest
quarterly performance since Q2-2015. Gross profit maintained a considerable 21%
in recent quarters but net profit margin felt to 4%.
Figure 1: Quarterly performance
Source: Company Data and TVS Research
Working capital would be better in next year as the company focuses to enhance
inventories turnover. Capex in 2016 is projected to be lower than the previous year
because there have been setbacks at telecom projects and construction of office
buildings. FPT Play is also projected to suffer loss in 2016 (-VND 170 billion) and 2017
due to 2-year cost allocation, although the performance is hoped to slightly improve
next year.
Over 9 months, FPT had consolidated revenue of VND 28,468 billion (-2.7% YoY). EBT
was VND 2,011 billion and net income was VND 1,330billion (+4.7% YoY). EPS
accumulated to VND 2,900 (+4.1% YoY). 9-month earnings went up 4.7% while
revenue was reduced 2.7% thanks to the high net profit of Q2. 9M’s growth was
made possible due to good performance at sectors including Software outsourcing,
Telecom services, and Integration System. Based on current results, we expect the
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
Q1-2015 Q2-2015 Q3-2015 Q4-2015 Q1-2016 Q2-2016 Q3-2016
14,713
11,744
9,72910,476
8,703 9,21310,650
425 457 389 662 346 515 468
Revenue Net income
Telecom and Technology sector
contributed most to both top line
and bottom line growth.
FPT Play continues suffering loss
due to cost allocation.
We expect the company
surpasses 2016 target slightly
when Software Outsourcing,
Telecom Services and Integration
System segment do well.
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FPT Corp (FPT) – FLASH NOTE 3
company to just slightly surpass last year’s performance (VND 38,707 billion revenue
VND 2,851 billion EBT).
Table 1: Financial summary (VND billion)
9M-2016 9M-2015 % change (YoY)
Revenue 28,468 29,257 -2.7%
EBITDA 3,224 2,873 12.2%
EBT 2,012 1,969 2.2%
EBT margin 7.10% 6.70% 6.0%
Net income 1,330 1,270 4.7%
EPS - adjusted (VND) 2,900 2,787 4.1%
Source: Company Data and TVS Research
Figure 2: Quarterly Gross profit margin Figure3: Quarterly Net profit margin
Source: Company Data and TVS Research
Distribution & Retail segment. Across all sectors, Distribution & Retail accounted for the biggest share of revenue (58%), followed by Technology (23%) and Telecom (17%). Yet, Distribution & Retail incurred low margin while Telecom and Technology contributed most to the firm’s EBT, 42% and 32% respectively.
The company had to set provision for inventories of Nokia Lumia in Q3 and will continue to do so in Q4. Number of stores continued to expand to 355 stores (47% YoY), achieving 113% plan of 2016.
FPT wants to sell the two sectors in one block but unable to finish the deal. FPT may
have to revive the plan and split into 2 separate trades in Q1-2017, but the firm
asserts its attention to hold maximum 49% of the shares after exit.
11%
15%
20%21%
19%21% 21%
0%
5%
10%
15%
20%
25%
Gross margin
2.9%
3.9% 4.0%
6.3%
4.0%
5.6%
4.4%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
Profit margin
It is very unlikely that the selling
of FPT Trading/Retail will go
through in 2016.
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FPT Corp (FPT) – FLASH NOTE 4
Regarding the cooperation with VNM, 30-40sqm out of 120-150sqm at each store
would be reserved to sell dairy products. FPT presents two main reasons for this
cooperation:
FPT would have another revenue stream from VNM’s products while fixed costs are
reduced. Risks are low and support from VNM is high. FPT does not have to suffer
loss period when entering a new market (often 2-3 years after opening). At the
moment, revenues from dairy products at FPT stores have doubled the break-even
point and the stores get profit immediate after opening. This cooperation would
have to yield at least a profit margin equal to current that of FPT retails.
Maximum in the next 2 years, handset market would reach maturity point. This
pushes FPT to find a new market to diversify. Generous offers from VNM did not
trigger this cooperation; rather it was initiated by FPT’s need to change. Cooperation
with VNM is just the pilot project. If the plan goes well, FPT would open independent
stores and enter into other new sectors.
Figure 5: Revenue breakdown (VND billion) Figure 6: Revenue breakdown (%)
Source: Company Data and TVS Research
Figure 7: Earnings before tax breakdown (VND billion) Figure 8: Earnings before tax breakdown (%)
Source: Company Data and TVS Research
6,641
4,92216,333
572
Revenue (VND billion)
Technology
Telecom
Distribution &Retail
Education -Others
23%
17%58%
2%
% total revenue
Technology
Telecom
Distribution &Retail
Education -Others
649
853
397
113
EBT
Technology
Telecom
Distribution &Retail
Education -Others
32%
42%
20%
6%
% EBT
Technology
Telecom
Distribution &Retail
Education -Others
Cooperation with dairy
company expected to add
more revenue and
diversify concentrated
risks.
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FPT Corp (FPT) – FLASH NOTE 5
Software Segment. Apart from Distribution & Retail, we see that Software Outsourcing and Broadband were the two sub-sectors contributing the most to the firm revenue in the first 9 months, VND 3,666 billion and VND 3,171 billion respectively.
Foreign markets demonstrated a desirable development. 9M-2016 witnessed a jump
of revenue to VND4,169 billion (+27% YoY) and EBT to VND 604 billion (+30% YoY).
Oversea markets also signify a very high profit margin as they possess only 15% of
FPT’s revenue but account for 30% of EBT. Among foreign markets, Japan plays an
increasingly important role that represents the best foreign market in 2016 so far
and an average 32% growth / year over the last 10 years. It is on track to achieve
USD100 million revenue this year. Bangladesh and Korea are rising stars which have
potential to contribute a bigger part in coming years. EU market will be promising in
2017 as FPT is in progress of negotiating with big potential clients.
EBT increased quicker than revenue in which 60-65% were recurring revenue. The
company has attempted to reduce currency risk by hedging currency exchange.
Overall, fluctuation of JPY affected 7-8% of FSoft revenue in 2016. Revenue from
domain and automotive accounted for 40% and 15% respectively.
In 2017, revenue from EU market is expected to make a big jump as negotiations
with big clients such as Airbus in progress. The company does not deem China as
competition threat as the neighbor nation faces increasing salary. Instead, the
Vietnamese software developer would take advantage of China’s shortage of human
resource to gain outsource contracts by continually boosting human capital, both
qualitatively and quantitatively. Impacts of the US presidential election on the
company are still unclear. There are possibilities that visas may be tightened and
wages may have to go up. Yet, the Management will not release responses until the
US new policies are clearer.
Figure 9: Earnings before tax breakdown (VND billion) Figure 10: Earnings before tax breakdown (%)
Source: Company Data and TVS Research
24,299
2,006730
476
454
502
9M-2016 Revenue (VND billion)
Domestic market
Japan
US
EU
APAC
Emerging markets
1,408
604
EBT (VND billion)
Domestic market
Overseas markets
Healthy growth in software
segment driven by oversea
market development,
particularly Japan.
Bangladesh, Korea and EU
markets expected to add more to
top line in 2017.
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FPT Corp (FPT) – FLASH NOTE 6
Telecom experienced a good growth. Costs of installation of fiber-optic cables have
been decreased. Japan market witnessed the strongest growth of 50%YoY, followed
by Pacific markets (+30%YoY) and EU markets (+10%YoY). The USD85 billion –
acquisition deal between AT&T and Time Warner played a contributing factor in -
10% YoY growth in US market as the newly-merged company aims to cut costs across
IT contractors including FPT.
Integration System (IS) suffered setbacks from traditional clients. Government has
tightened fiscal policies and cut budgets scheduled projects. Moreover, big clients in
banking system have been carrying out systematic reform. This also caused
reduction in spending. Nevertheless, IS sector welcomed new implementations of
Intelligent traffic system at Hanoi-Lao Cai highway or other projects to recognize
number plates and detect car density in HCMC.
Table 2: Sectors performance in 2015-2016
Revenue EBT
Q3-2016 Q3-2015 9M-2016 9M-2015 Q3-2016 Q3-2015 9M-2016 9M-2015
Technology
1,307 1,099 3,666 2,901 207 167 556 452
949 615 1,838 1,606
84 33 93 152 232 288 544 622
209 194 593 609
Telecom
1,113 969 3,171 2,700 253 220 676 694
505 380 1,408 1,006
126 106 343 269 67 52 177 121
Distribution 2,315 2,007 5,607 5,424
72 91 240 391 1,037 2,073 3,358 8,076
Retail 2285 1918 6544 5170
59 38 157 109 347 96 824 419
Education 165 151 464 412 36 37 122 114
Source: Company Data and TVS Research
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FPT Corp (FPT) – FLASH NOTE 7
Table 3: Sub-Sectors performance in 2015-2016
Sub-sectors
Revenue EBT
Q3-2016 Q3-2015 9M-2016 9M-2015 Q3-2016 Q3-2015 9M-2016 9M-2015
Technology
Software outsourcing 1,307 1,099 3,666 2,901 207 167 556 452
System integration 949 615 1,838 1,606
84 33 93 152 Software solutions 232 288 544 622
IT service 209 194 593 609
Telecom
Broadband 1,113 969 3,171 2,700 253 220 676 694
Leased-lines & others 505 380 1,408 1,006
Online advertising 126 106 343 269 67 52 177 121
Distribution IT distribution 2,315 2,007 5,607 5,424
72 91 240 391 Mobile Manufacturing & Distribution
1,037 2,073 3,358 8,076
Retail Retail 2285 1918 6544 5170
59 38 157 109 Online retail 347 96 824 419
Education Education 165 151 464 412 36 37 122 114
Source: Company Data and TVS Research
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FPT Corp (FPT) – FLASH NOTE 8
FINANCIAL SUMMARY
Earning Model (VNDbn) 2011A 2012A 2013A 2014A 2015A Balance Sheet (VNDbn) 2011A 2012A 2013A 2014A 2015A
Net sales 25,370 24,594 27,028 32,645 37,960 Cash and equivalents 2,902 2,319 2,751 4,336 3,585
Cost of sales 20,412 19,902 21,489 26,456 30,466 Financial investment 862 662 1,443 1,428 2,617
Gross profit 4,958 4,692 5,539 6,189 7,494 Accounts receivable 4,023 4,202 4,925 5,379 6,313
Selling expenses 2,396 2,461 3,203 3,854 4,559 Inventory 3,276 2,700 3,329 4,573 5,268
General administration expenses 0.00 0.00 0.00 0.00 0.00 Prepaid expenses, other CA 310 347 460 993 1,176
Other operating income/(expenses) 5 34 -133 -12 4 Total current assets 11,373 10,229 12,908 16,709 18,959
EBITDA 2,935 2,597 2,913 2,894 3,664 Property and equipment Depreciation & Amortization - - - - - At cost 3,139 3,938 4,672 5,891 7,632
EBIT 2,559 2,198 2,469 2,347 2,931 Less accumulated depreciation -1,257 -1,590 -1,869 -2,355 -2,966
Net interest income/(expenses) 0.00 0.00 0.00 0.00 0.00 Net property and equipment 1,883 2,349 2,803 3,536 4,666
Net investment income 36 33 22 41 - Net intangibles 485 485 504 635 319
Others (recurring) 65 53 38 34 39 Total investments 865 696 707 810 728
Pretax Profit 2,502 2,407 2,516 2,459 2,851 Other long - term assets 338 449 648 969 1,374
Income tax 422 421 450 380 413 Total Assets 14,943 14,209 17,571 22,658 26,046
Tax rate (%) 17 17 18 15 14 Account Payables 1,339 1,809 2,200 3,019 2,815
Minorities 705 912 1,045 1,344 1,601 Short-term debt 0 0 0 6,608 8,033
Net Income 2,079 1,985 2,065 2,079 2,438 Other current liabilities 7,137 5,010 6,869 3,343 4,119
EPS (basic VND, reported) 4,375 3,941 3,544 3,237 3,814 Total Current Liabilities 8,475 6,820 9,069 12,970 14,968
Weighted shares outstanding (mn) 384 391 454 455 456 Long-term debt 0 22 55 142 614 Other long-term liabilities 946 1,186 1,238 1,633 1,883
Common dividends declared - - - - - Total long-term liabilities 947 1,208 1,293 1,775 2,497
DPS (VND) 1,190 1,322 1,552 1,437 1,652 Dividend Payout ratio (%) 27% 34% 44% 44% 43% Stockholders' equity 5,521 6,182 7,209 7,913 8,581
Dividend cover (X) 3.68 2.98 2.28 2.25 2.31 Common Equity 2,161 2,738 2,752 3,440 3,975 Treasury shares -1 -1 -1 -1 -1
Growth and Margin (%) Capital surplus 50 49 49 49 49
Sales Growth (%) 27% -3% 10% 21% 16% Retained earnings 3,173 3,181 4,207 4,268 4,395
EBITDA Growth (%) 26% -12% 12% -1% 27% Budget sources and other funds 138 213 201 157 162
EBIT Growth (%) 28% -14% 12% -5% 25% Minority interest 705 912 1,045 1,344 1,601
Net Income Growth (%) 23% -5% 4% 1% 17% Total liabilities and equity 14,943 14,209 17,571 22,658 26,046
EPS Growth (%) 19% -10% -10% -9% 18% Capitalized leases - - - - -
Gross Margin (%) 20% 19% 20% 19% 20% Capital employed 6,468 7,390 8,502 9,688 11,078
EBITDA Margin (%) 12% 11% 11% 9% 10% EBIT Margin (%) 10% 9% 9% 7% 8% Ratios (%)
Net Income Margin (%) 7% 6% 6% 5% 5% ROE (%) 35.39 26.32 24.01 21.59 23.41 ROA (%) 15.26 13.62 13.00 10.34 10.01
Cash flow Statements (VNDbn) 2011A 2012A 2013A 2014A 2015A ROIC (%) 35.96 32.44 29.64 26.32 27.36
Pre-tax Income 2,502 2,407 2,516 2,459 2,851 Inventory days 51.32 54.94 51.34 54.66 59.11
Adjustments for: Receivable days 53.03 61.20 61.80 57.76 56.37
Depreciation and amortization 376 400 443 547 733 Payable days 22.31 28.95 34.14 36.10 35.04
Change in inventories -834 584 -644 -1,312 -693 Asset Turnover (x) 1.9x 1.7x 1.7x 1.6x 1.6x
Change in trade receivables -291 105 -687 -681 -864 Net debt/equity (x) 0.3x 0.1x 0.1x 0.3x 0.5x
Change in trade payables 974 -115 618 1,086 395 Interest cover - EBIT(x) 0.1x 0.1x 0.0x 0.1x 0.1x
Other operating cash flow -880 -971 -846 -949 -1,267
Cash flow from operations 1,847 2,410 1,400 1,151 1,156 Valuation (Multiples)
Net Capital expenditure -465 -716 -920 -1,441 -2,090 EV / EBITDA (x) 3.7x 3.5x 4.2x 6.5x 6.4x
Acquisition - - - - - P/E (x) 5.5x 5.4x 8.0x 11.2x 11.0x
Divestures - - - - - Dividend Yield (%) 4.95 6.21 5.45 3.96 3.93
Other investments, net 572 262 156 190 227 P/B (x) 1.7x 1.4x 1.6x 2.1x 2.2x
Cash flow from investing 107 -253 -1,576 -1,469 -2,901
Equity issued 42 41 17 16 27
Net borrowings 198 -1,793 1,341 2,643 1,941
Dividends to shareholders -728 -988 -750 -756 -974
Cash flow from financing -487 -2,740 608 1,903 993
Net cash flow 1,466 -583 432 1,585 -752
Opening cash 1,436 2,902 2,319 2,751 4,336 Notes: CA = current assets; CL = current liabilities
Closing cash 2,902 2,319 2,751 4,336 3,585 Source: Thomson Reuters data, Thien Viet Securities model
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FPT Corp (FPT) – FLASH NOTE 9
ANALYST CERTIFICATION
I, Nguyen Thanh Son, hereby certify that all of the views expressed in this report accurately reflect my personal
views about the subject company or companies or its or their securities. I also certify that no part of my
compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed
in this report.
RATING and VIEWS
Buy (B), Neutral (N), Sell (S) – Analysts recommend stocks as Buys or Sell based on his own views. Being assigned
a Buy or Sell is determined by as total stock’s return (TSR) potential that represents the price differentials between
the current share price and the price target expected during the time horizon plus expected dividend yield. Any
stock not assigned as Buy or Sell is deemed Neutral.
TVS Investment Research: Equity Rating Definitions
12-month rating Definition
Buy Total Stock’s Return Potential > 15%
Neutral Total Stock’s Return Potential between (-15%) and 15%
Sell Total Stock’s Return Potential < (-15%)
Short-term rating Definition
Buy Stock price expected to rise within three-month because of a specific catalyst or event
Sell Stock price expected to rise within three-month because of a specific catalyst or event
Not-rated The investment rating and target price, if any, suspended as there is not a sufficient fundamental basis for determining an investment rating or target.
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use of TVS clients and may not be redistributed, retransmitted or disclosed as a whole or partially in any form or
manner without the prior written consent of TVS. The information herein is obtained from various sources and
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constitutes a buy or sell recommendation on any securities or investment. TVS therefore does not take any
responsibilities for any investor’s decisions.
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FPT Corp (FPT) – FLASH NOTE 10
THIEN VIET SECURITIES JOINT-STOCK COMPANY
HO CHI MINH
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Tel: +84 (8) 299 2099
Fax: +84 (8) 299 2088
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TDL Building
Tel: +84 (4) 220 3228
Fax: +84 (4) 220 3227
RESEARCH DEPARTMENT
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Equity Capital Market
Trang Vu (Ms.), Senior Analyst
Basic Material
Son Nguyen (Mr.), Senior Analyst
Real Estate
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Consumer Goods
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