natural+rubber+industry+report 31052013 fpts

May 2013

Ngo Kinh Luan Analyst Chemical industry Email: [email protected] NATURAL RUBBER INDUSTRY www.fpts.com.vn REPORT 2013

FPT Securities Joint Stock Company, HCMC Branch 29-31 Nguyen Cong Tru St, District1, HCMC, Vietnam Tel: (84) - 8 6290 8686

NATURAL RUBBER INDUSTRY

Report summary

Total global natural rubber production reached the amount of 11.4 mil tonnes increased by 3.97% compared with 2011. Global natural rubber consumption in 2012 was 10.9 mil tonnes, went up by 0.23% compared with 2011. Tapping productivity was 1.1 ton/hectare.

According to the statistics of Association of Natural Rubber Producing Countries (ANRPC) thand Vietnam 09/05/2011 Rubber Group (VRG), in 2012, the explthoitation of Vietnam was 863,600 tonnes, stood at the 5 place of the world. Besides that, Vietnam ranked 4 position in the world for the natural rubber export volume (1.02 mil tonnes in 2012) and 2nd for the natural rubber tapping productivity. In 2012, Vietnam average tapping productivity was 1.71 ton/hectare, lower than India (1.82 ton/hectare), significantly higher than the global average level of 1.1 ton/hectare. 09/05/2011

In the domestic extent, Binh Phuoc and Binh Duong are 2 provinces that have largest arceage for rubber plantation, account for 22% and 18%, respectively, of total rubber area in Vietnam. The next provinces are Tay Ninh with 11%, Dong Nai with 6%.

Rubber consumption in domestic market was 15-18% of exploitation output, equivalent to 150,000 ton/year.

Rubber export: in 2012, Vietnam exported 1.02 mil tonnes of natural rubber, valued 2.85 bil USD, gained by 25% in terms of quantity and 11.7% in value. The import volume was about 302,000 tonnes dropped by 16.6% compared with 2011. The main import market is Cambodia (account for 59%) and main export market is China (account for 40%). The export volume of listed companies of natural rubber industry accounts for a very small portion of total industry from 3%-4%, about 28-30 thousand tonnes.

2013 industry outlook For the world: in 2013, rubber supply is expected to exceed demand about 179,000 tonnes, the long-term rubber price is also expected to drop. For Vietnam: the export volume is expected to reach 1 mil tonnes in 2013, slightly reduce compared with 1.02 mil tonnes in 2012. The import tax reduction for rubber of China and the increase in import and prospective tire industry development of India will boost the natural rubber export in 2013. The domestic demand will increase from 2013 onward since the radial tire plant operation of Casumina and Da Nang Rubber Company will start at the end of this year. In addition, VRG has invested in upgrading the productivity of VRG Khai Hoan Gloves Manufacturing Plant from 1.2 bil to 3.2 bil units/year, it will raise the domestic demand.

Strategy for industry development VRG has proposed the Government to boost Vietnam rubber area from 800,000 hectares to 1 mil hectares in 2015, raise the rubber planning in Northern Region from 50,000 hectares to 100,000 hectares in 2020. The Prime Minister signed the Decision No. 1782/Q-TTg approving the VRG restructure plan. In long-term orientation, the main function of rubber industry firms will focus on: (1) Planting and processing rubber, (2) Producing and processing wood, (3) Developing industrial park on rubber acreage. Stocks of natural rubber company are divided into 2 groups. In which, 1st group includes: PHR, DPR, TRC are seen as 3 companies having highest ROE and ROA (average ROE is 35% and ROA is 21%), this group has the best and the most stable profit margin. The 2nd group includes: HRC and TNC with smaller scale in terms of equity, total assets and rubber area. Besides that, these 2 companies have lower profit margin with ROE from 15-25% and ROA from 13-17%. With small scale and old rubber area, it results to lower efficiency of HRC and TNC than 3 other companies. In general, companies in natural rubber industry operate relatively well, healthy financial status, high dividend but quite low liquidity; they are appropriate for value investing. The business results in 1st quarter of 2013 of almost companies in natural rubber industry are significantly lower than the same period of 2012 (total revenue down by 33%, profit before tax down by 56%) due to lower consumption and lower selling price (output down by 24% and price down by 10-14%).

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Recommendation:

PHR: is the largest company among 5 companies listed in natural rubber industry at present, in 2008-2012 period, the average sales growth rate was 19.4%/year, average ROE was 35.5%/year. According to 2013 business plan, forward EPS is 4,800 VND, with the price on June 12th, 2013 of 29,800VND the forward P/E of 2013 is 6.2 times. Dividend in 2012 was 30% in cash and that of 2013 is

expected to be 30%.

09/05/2011

DPR: In 2008-2012 period, DPR had average sales growth rate about 17%/year, average ROE of 32.1%. It has had the highest profit margin in 5 listed natural rubber companies. EPS in the two recent years reached the highest level, 2011 was 18,663 VND and 2012 was 12,552 VND, this is a suitable stock thor investment. f

According to business plan in 2013, forward EPS is 11,000 VND, with the price on June 12 , 2013 of 50,000 09/05/2011 VND, the forward P/E of 2013 is 4.5 times. The dividend in 2012 was 40% in cash and that of 2013 is expected to be 30%.

TRC: is the 3rd highest sales growth rate in listed natural companies, following PHR and DPR in 2008-2012 period with average sales growth rate of 14%/year, average ROE of 35%/year. According to 2013 business plan, forward EPS is 7,600 VND, with the price on June 12th, 2013 of 49,000 VND, the forward P/E of 2013 is 6.4 times. The dividend in 2012 was 35% in cash, that of 2013 is expected to be 30%.

With the currently declining rubber price, it shows that 2013 will be a difficult year for companies in natural rubber industry. The investment recommendation is given for long-term basis, and limited for short-term in this year.

Investors using this report should mention that the assessments are based on subjective opinions of FPTS analysts. Investors take their own responsibility on investment decisions. Please read carefully the disclaimer at the end of this report.

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CONTENTS 09/05/2011 I. NATURAL RUBBER INDUSTRY OVERVIEW ...................................................................... 4

1. Global natural rubber industry .................................................................................... 4 09/05/2011 2. Domestic natural rubber industry ............................................................................... 5

2.1 The position of Vietnam natural rubber industry. ...................................................... 5

2.2 Scale and dispersion structure of Vietnam natural rubber ........................................ 7

2.3 Output, natural rubber tapping productivity in Vietnam............................................. 9

2.4 The natural rubber import-export situation of Vietnam.............................................11

II. 2013 NATURAL RUBBER INDUSTRY OUTLOOK..............................................................14

III. SITUATION OF LISTED NATURAL RUBBER COMPANIES ..............................................16

1. Operating scale............................................................................................................16

1.1 Listed companies in the industry .............................................................................16

1.2 Rubber area, tapping volume of companies year by year .......................................17

2. Rubber area structure of listed companies ...............................................................19

3. Product structure of listed companies.......................................................................20

4. Business plan and 2013 outlook of typical companies.............................................21

APPENDIX

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ABBREVIATION CATALOGUE

PHR

DPR

TRC

HRC

TNC

JSC

LTD

VRG

MARD

Net profit before tax

Net profit after tax

: Phuoc Hoa Rubber Joint Stock Company

: Dong Phu Rubber Joint Stock Company

: Tay Ninh Rubber Joint Stock Company

: Hoa Binh Rubber Joint Stock Company

: Thong Nhat Rubber Joint Stock Company

: Join Stock Company

: Limited

: Vietnam Rubber Group

: The Ministry of Agriculture and Rural Development

: Net PBT

: Net PAT

09/05/2011

09/05/2011

AGROINFO : Information Center for Vietnam Agriculture and Rural Development

IRSG : International Rubber Study Group

ANRPC : Association of Natural Rubber Producing Countries

GSO : General Statistics Office

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I. NATURAL RUBBER INDUSTRY OVERVIEW

1. Global natural rubber industry In 2012, total natural rubber production was 11.4 mil tonnes, increase by 3.97% yoy. In which, 09/05/2011 Asia accounted for major portion with about 93% of the global production, the following continents were Africa (4-5%), Latin America (2.5-3%). According to the statistics of IRSG, the global natural rubber consumption in 2012 was 10.9 mil 09/05/2011 tonnes, went up by 0.23% yoy. Asia had the highest natural rubber consumption in the world, about 69.7% of the global demand, the next one was Europe (13.5%), North America (10.7%). Global natural rubber production and consumption

2000-2012

Unit: Mil tonnes

Source: Agroinfo, FPTS

The 4 leaders of natural rubber production includes: Thailand, Indonesia, Malaysia, Vietnam keeps about 82% of total production output in the world; the group with highest global consumption includes: China (33.5%), US (9.5%), India (8.7%), Japan (6.6%), Malaysia (4.6%). For China, the five-year average consumption volume was 32% of total natural rubber consumption in the world and accounted up to 25% of global import. The top 4 natural rubber exporters are: Thailand (2.8 mil tonnes), Indonesia (2.45 mil tonnes), Malaysia (1.31 mil tonnes) and Vietnam (1.02 mil tonnes), account for about 87% of global natural rubber export volume.

Global distribution in terms of consumption Global distribution in terms of production

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Global natural rubber area in 2000-2011 period Global volume and tapping capacity in 2000-2012 period

09/05/2011

09/05/2011

Source: Agroinfo, FPTS The average growth rate of plantation area in 2000-2011 period was 3.8%/year. Total natural rubber area in the world to 2012 was 9.56 mil hectares. The average volume growth rate in 2000-2012 period was 4.2%/year. The 2012 volume was 11.41 mil tonnes, increased by 4.6% compared with 2011. The tapping productivity from 2007 up to now has been dropped from 1.23 ton/hectare down to 1.14 ton/hectare. This is the lowest level in the last 6 years.

2. Domestic natural rubber industry

2.1 The position of Vietnam natural rubber industry.

Top 5 countries in terms of production volume Top 4 countries in terms of export volume


To the end of 2012, Vietnam ranked the 5th in the word for the natural rubber tapping volume with the portion of 7.6%, equivalent to 863,600 tonnes and ranked the 4th for the natural rubber export in the world, accounted for 10.3% of the global market share, equivalent to 1.02 mil tonnes. Four countries including: Thailand, Indonesia, Malaysia, Vietnam account for 87% of total global natural rubber export volume. In addition, these four countries also account for 73% of total global natural rubber production, in which: Thailand (3.55 mil tonnes), Indonesia (3.00 mil tonnes), Malaysia (0.95 mil tonnes), India (0.904 mil tonnes) and Vietnam (0.86 mil tonnes).

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Ton/hectare NATURAL RUBBER INDUSTRY

Top 5 countries of tapping volume at the end of 2012

Indicators Thailand Indonesia Malaysia India Vietnam

Total area (hectare) (*) 2,756,000 3,456,000 1,048,000 737,000 910,500

Tapping volume (tonnes) Average productivity (ton/hectare)

3,500,000

1.72

3,000,000

1.16

950,000

1.47

904,000

1.82

09/0,5/2011 863 600

1.71

(*) Except for Vietnam (31/12/2012), other countries' data is updated at the end of Source: Agroinfo, IRSG, ANRPC 09/05/2011 February 2012

National rubber area in 2000-2012 period In the last 2 years, Vietnam reached to the 5th position of global rubber area, in particular, in 2012, rubber area of these countries were as following: Thailand (2.756 mil hectares), Indonesia (3.456 mil hectares), China (1.07 mil hectares), Malaysia (1.048 mil hectares), Vietnam (0.91 mil hectares), India (0.737 mil hectares).

At the end of 2012, according to the statistics of ANRPC and VRG, Vietnam ranked the 5th for

National exploitation output in 2000-2012 period

National tapping productivity in 2000-2012 period

the global natural rubber tapping volume, with 863,600 tonnes. Moreover, Vietnam had the highest growth rate in terms of volume and area in the world, the average growth rates in 2000- 2012 period were 9.5%/year in production and 6.8%/year in area, respectively. According to the end of 2012's data, tapping volume of these countries were as following: Thailand (3.5 mil tonnes), Indonesia (3.0 mil tonnes), Malaysia (0.95 mil tonnes), Vietnam (0.86 mil tonnes) and India (0.904 mil tonnes).

About the tapping volume, Vietnam is still lower than 4 above countries. But in terms of tapping productivity, Vietnam ranks the 2nd in the world, the 2012's rubber yield was 1.71 ton/hectare, the leader was India with 1.82 ton/hectare. The recent 5-year average of Vietnam was 1.70 ton/hectare, in which, India was 1.82 ton/hectare, Thailand was 1.68 ton/hectare, Indonesia was 1 ton/hectare and Malaysia was 1.46 ton/hectare.

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Natural rubber export volume of Thailand, Malaysia, Indonesia and Vietnam in 2007-2012 period

In the top four countries with highest natural

rubber export volume in 2007-2012 period, 09/05/2011 Vietnam and Malaysia were two countries with high export growth level, in particular: Malaysia was 12.1%/year, Vietnam was 7.5%/year, that of

Thailand was 2.8%/year and Indonesia was 09/05/2011 0.3%/year.

One noteworthy point of Indonesia and Malaysia is the most of their rubber area focusing on small regions (smallholder farming), in particular, 85% rubber area in Indonesia belongs to minor production area; this rate of Malaysia is 93%. According to the survey, this rate of Vietnam is more balanced, in particular, the major holder farming (Government Company, JSC of VRG) accounts for 44.36%, that of smallholder farming is 49.28% and private sector is 6.36%. With current plant for rubber area expansion, in the future, the area for major holder farming will quickly surpass the smallholder farm to obtain the highest portion in Vietnam.

2.2 Scale and dispersion structure of Vietnam natural rubber

Total rubber area and rubber tapping area in Vietnam in 2005-2012 period

Source: GSO

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Rubber area dispersion in terms of region According to the regulation in Decision No. 750/Q-TTG and No. 124/Q-TTg of Prime Minister to 2015 and 2020 vision, total domestic rubber acreage will be stable at the level of 800,000 hectares. However, to the end of 2012, according to the statistics of MARD, total area planned for rubber plantation was 910,500 hectares, surpassed the planning for 2015. In which, rubber

tapping area accounted for about 55.55%, equivalent to 505,800 hectares. Total volume to the 09/05/2011 end of 2012 was 863,600 tonnes, average productivity was 1.71 ton/hectare, slightly lower than the 1.72 ton/hectare level of 2011.

Rubber area dispersion in Vietnam

Rubber area dispersion in key provinces 09/05/2011

Source: Decision No. 750/Q-TTg of Prime Minister and GSO, MARD

The probability that Vietnam will have more than 1 mil hectares of rubber in 2015-2020 period is very high. Accordingly, the South-eastern Region will be 390,000 hectares, the Highland Region will be 280,000 hectares and the Southern Central Coast will be 40,000 hectares, the Northern Central Region will be 80,000 hectares, and provinces in North-western Region will be 50,000 hectares and 200,000 hectares in Laos and Cambodia. Regarding mainly key provinces, Binh Phuoc and Binh Duong are currently having the largest area for rubber plantation. In which, Binh Phuoc accounts for 22% of total country area and 36% of total area of the South-eastern Region. Binh Duong accounts for about 18%, the next provinces are Tay Minh 10%, Gia Lai 11%, Dong Nai 6% of total country area. Rubber area in 2010-2012 period Unit: hectare

Source : FPTS's gathering

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According to planning data of VRG, to the end of 2012, the South-eastern Region will have the largest rubber area in Vietnam. Total VRG rubber area will be 358,000 hectares, 273,000 hectares domestically planted and about 85,000 hectares abroad. To the end of 2012, total rubber area of listed companies only accounted for about 6% of total country area and accounted for 15% of total VRG area (including area planted overseas). 09/05/2011 2.3 Output, natural rubber tapping productivity in Vietnam Output, natural rubber tapping productivity

in Vietnam in 2000-2012 period

Source: Agroinfo

The exploitation volume in 2010-2012 period

Unit: ton

09/05/2011 In the last 12 years, Vietnam rubber area grew relatively well, averaged at about 6.8%/year from 413,000 hectares in 2000 to 910,500 hectares in 2012.

To 2012, Vietnam rubber exploitation output was 863,600 tonnes, up 6.4% yoy. Average output growth rate in 2000-2012 period was 9.5%/year.

In 2000, Vietnam rubber tapping productivity was only 1.25 ton/hectare, to 2012, this level grew to 1.71 ton/hectare. This number has been stable in the last 3 years and at the highest level in the last 10 years. It was the second highest figure in the world, only after India, that of India was 1.82 ton/hectare, and it was approximately the same with Thailand level of 1.72 ton/hectare, significantly outstripped the global average level and higher than two leaders in natural rubber production, Malaysia (1.47 ton/hectare) and Indonesia (1.16 ton/hectare).

At present, in terms of exploitation volume, listed companies are only accounting for about 6% of total domestic volume, 19% of VRG (267,000 tonnes). Dong Nai Rubber General Company is currently the biggest company with volume of 35,000 tonnes. Total exploitation volume of listed companies in 2012 was 51,038

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tonnes, in which Phuoc Hoa JSC had the highest number of 19,954 tonnes. More than 77.15% of total domestic exploitation belongs to other subsidiaries in VRG, smallholder farming and private companies. Tapping productivity in key regions In terms of key regions, Tay Ninh has the 09/05/2011 highest tapping productivity in Vietnam with the Unit:Ton/hectare level of 2.10 tonnes/hectare, following by Binh

Phuoc with 1.98 ton/hectare and Binh Duong 09/05/2011 with 1.85 ton/hectare. In order to obtain this achievement, VRG and Vietnam Rubber Association have made effort continuously. The overall planning of the rubber plantation area throughout the country accompanies with advanced plantation method and new plant hybridization, they have resulted to the leading position of Vietnam in terms of productivity among the top natural rubber producing countries in the world.

The exploitation and consumption volume in 2002-2012 period

Unit: Thousand tonnes

The Vietnam rubber consumption position in the recent years

In 2008-2012 period, the natural rubber consumption growth rate averaged at about 11%/year, average consumption was about

132,000 tonnes/year, the average consumption/exploitation ratio was about 17- 18%. In particular, it was 100,000 tonnes in 2008 and up to 150,000 tonnes in 2012.

The uses of natural rubber in Vietnam are primarily for tire, medical glove, pillow, Additionally, natural rubber consumption is mainly contributed by temporary import and re- export activity.

The low domestic consumption is the result of small domestic production scale, rubber export


companies focus on export to achieve higher efficiency and profit level. The current consumption is reflected by the trading form among commercial companies in Vietnam, afterward, these companies also export. In fact, in consumption structure of listed companies,

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Thousand dollars Thousand tonnes NATURAL RUBBER INDUSTRY

there is about 40-50% for domestic consumption but eventually this amount is exported through commercial companies. Therefore, the natural rubber supply actually outnumbers the domestic demand very

significantly, average level of about 5-6 times in 09/05/2011 the last 3 years.

2.4 The natural rubber import-export situation of Vietnam 09/05/2011 2.4.1 The import situation

The import volume and value in 2010-2012 period

Import market portion in terms of quantity - 2012

Import market portion in terms of value - 2012

In 2012, the natural rubber import volume was about 302,000 tonnes, decreased by 16.6% compared with 2011; import value was 803.29 mil USD, dropped by 14.9% yoy. Every year, the rubber import portion still maintains at high level due to compensation for some materials for domestic production that are inadequate or not produced such as: RSS, Skim, CSR10 Besides that, the temporary import and re- export activity has boosted the import volume. As the estimate in total of import volume, it is about 60% for temporary import and re-export activity and 40% for domestic consumption. This shows that the actual domestic consumption/exploitation ratio is relatively modest, about 17-18%.

In 2012, Vietnam imported natural rubber from more than 40 countries around the world, mostly from: Cambodia, Thailand, Myanmar, Laos and Korea.

From 2010 till now, Cambodia is the largest rubber supplier of Vietnam, about 59% in terms of quantity and 60% in terms of value. The next one is Thailand with 17% in terms of quantity and 18% in terms of value. They have geographical advantage and appealing price for import.

Source: General Department of Customs www.fpts.com.vn

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Thousand dollars Thousand tonnes NATURAL RUBBER INDUSTRY

2.4.2 The export situation

Portion of rubber and major commodities

Rubber is one of three major agricultural products for export in Vietnam. In 2011,

export in 2011

rubber accounted for 24% of total 09/05/2011 agricultural product export value. The average natural rubber export growth

rate of Vietnam in 5 years was 11.9% in 09/05/2011 terms of volume and 15.5% in terms of value. In 2012, according to the Statistics Department, Vietnam's natural rubber export volume was 1.02 mil tonnes, valued 2.85 bil USD; increase by 25% in volume and declined by 11.7% in value yoy. Export

Volume and value of natural rubber export in 2010-2012 period

surplus in 2012 was 721,000 tonnes, valued 2.05 bil USD; increased 57.8% in volume and decreased 13.6% in value. The cause was over 16.6% decrease in importing natural rubber. The higher volume was not enough to offset for the decrease in rubber price. In particular, the average export price reduced by 29% compared with 2011, from 3,961 USD/ton to 2,795 USD/ton. If we just consider the listed companies, their export volume accounts for a very small portion of total industry, from 3%-4% equivalent to 28-30 thousand tonnes. About three largest listed companies: PHR, DPR, TRC, their export volume in 2012 dropped by only 0.5% but export revenue dropped by up to 29% compared yoy, it was the result of rapid decrease last year. The main exporters of Vietnam are: China, Malaysia, Taiwan, Korea, German, India, U.S....In which, China is the largest market accounting for about 40% of total natural rubber export value of Vietnam in 2012. Last year, natural rubber export to it was 408 thousand tonnes, valued 1.17 bil USD, reduced by 19% in terms of volume and 39% in terms of value compared with 2011.

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Export portion in terms of volume in 2012


Although, China is major market and highly potential, Vietnamese companies have attempted to diversify the export market to reduce the excessive dependence on China to limit the risk of selling price fluctuation

and export order. In particular, in 2011, 09/05/2011 Chinese market accounted for 60% of total Vietnam natural rubber export value but in 2012 this number was only 40-41% both in volume and value. This is a beneficial 09/05/2011 direction for natural rubber exporters; it will enable the natural rubber trading activity and product from rubber to be more stable and better development.

Export portion in terms of value in 2012

Source: General Department of Customs

In terms of volume, Vietnam accounts for a relatively large portion in natural rubber import structure of countries in the area and in the world, in particular: India (11-15%), China (8.6%), Korea (10%), Malaysia (7%) and US (2%). About listed natural rubber companies, in recent years, these companies often did not directly export to China but through to the sales to domestic commercial companies and they exported to China. Therefore, these companies only bear the indirect affect from China. The major export markets for these listed companies are Europe and some Asian countries (except for China). Besides that, they also have found major customers with high credibility in other potential overseas market to expand their export market, to limit the risk for their products.

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Natural rubber price movement in 2008-2012 period

09/05/2011

09/05/2011

Source: FPTS's gathering II. 2013 NATURAL RUBBER INDUSTRY OUTLOOK 1. Industry outlook

For the world: the natural rubber output in 2013 is expected to grow slowly due to the oversupply along with weak demand. According to the forecast of IRSG, the expected global rubber output will be 11.77 mil tonnes and demand will be 11.59 mil tonnes, oversupply will be 179,000 tonnes. However, the Governments from Thailand, Indonesia and Malaysia also agreed to reduce the export volume of 300,000 tonnes to constraint the decrease in price of this product, this action will prevent from the oversupply situation in 2013. The forecast on exploitation volume growth rate in 2013 of major rubber producers in the world: Thailand increase by 3.4%, Indonesia decrease by 8.9%, Malaysia increase by 6.5%, India increase by 3.8%, Vietnam increase by 10% (for VRG). At present, to April 2013, the total natural rubber inventory at two general warehouses: Shanghai and Qingdao of China was 480,000 tonnes, at the 3-year highest level, accounted for more than 16% of import in 2013. With high inventory as well as import rubber demand for China automobile tire manufacturing is expected to grow by only 0.9% in 2013, additionally, the pressure from Chinese Yuan appreciation to reduce export surplus, European sovereign debt crisis does not have improvement sign, they will constraint the increase of rubber price in the near future. According to industry specialists, in 2013, the rubber price will reduce in the first half year and will endure the decrease in the next period if there is no sign of recovery from major economies like: US, China and Japan.

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For Vietnam: About export: The forecast on China import demand (the biggest export market of Vietnam) shows that there will be a slight growth of 0.9%. In the meanwhile, as the cautious estimate of MARD,

the natural rubber export in 2013 will be approximately 1 mil tonnes, slightly lower than 1.02 09/05/2011 mil tonnes of 2012. Furthermore, on December 17th, 2012, the Chinese Ministry of Finance stated that it will cut back the tax on natural rubber import in 2013. This is a good signal for domestic manufacturing and trading companies in 2013. 09/05/2011 Besides that, for India (the 3rd largest natural rubber importer of Vietnam), the 17% depreciation of Rupee will encourage the India tire export industry, it will grow by from 8-10% in 2013. Consequently, it will lift up the demand for import natural rubber for manufacturing, it is estimated that India will in need of about 225,000 tonnes in 2013, increase by 9.7% compared with 2012. However, the drop in rubber price is one of the barriers of domestic rubber companies. The natural rubber price is forecast to be in downtrend in the first half of this year. The recovery in the rest of the year is still no answer, but the majority of specialists and research agencies suppose that rubber price will be decrease in long term. Therefore, the growth of natural rubber industry in the next period will depend on the volume growth. About the domestic market: According to the latest data, the domestic demand in the last 3 years accounted for about 17- 18% of total domestic supply. This rate will be improved from 2013 when Da Nang Rubber JSC and Casumina launch two entire-steel radial tire plants. Besides that, in 2012, VRG has invested in upgrading the productivity of VRG Khai Hoan Glove Manufacturing Plant from 1.2 bil to 3.2 bil units/year, this will be promising for the higher domestic demand in the near future. 2. The development strategy

In 2013, VRG will exploit the first 600 hectares of rubber in Cambodia. To the end of 2012, VRG planted 63,000 hectares of rubber in Cambodia. It plans to complete 100,000 hectares in 2014. To 2015, it is expected to have stable rubber area of 800,000 hectares, the productivity will be 1.2 mil ton/year. Nevertheless, to the end of 2012, total Vietnam rubber area was 910,500 hectares, higher than the 2015 plan figure. As a result, VRG is proposing the Government for a higher adjustment to 1 mil hectares in 2015. In 2020-2030 period, the rubber volume of Vietnam is expected to be about 1-1.1 mil ton/year, account for about 10% of global volume, it will be a favourable advantage of Vietnam natural rubber industry. The Government has had the plan to expand the rubber area to the Northern provinces. According to the plan, to 2020, there will be 50,000 hectares of rubber area planted in the North-western provinces. After many years of implementation, at present, MARD announces that the North-western provinces have 19,707 hectares of rubber planted, that fulfils 39% the plan. In which, Son La has 6,664 hectares, Dien Bien has 3,468 hectares, Lai Chau has 8,986 hectares. In the demand of development and the land support from farmers of the Northern mountainous area, MARD has asked the Prime Minister for the

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adjustment for the rubber development plan in the North-western Region from 50,000 hectares to 100,000 hectares to 2020. On November 23rd, 2012, the Prime Minister signed the Decision No. 1782/Q-TTg regarding the Vietnam Rubber Group Restructure Plan. Accordingly, it is planned to withdraw capital from the investment outside of core industry in 2012-2020 period. For long-term orientation, the main activities of companies in industry will focus on: (1) Rubber

plantation and processing, (2) Wood production and processing, (3) Industrial park 09/05/2011 development on rubber planting area. According to the capital withdraw plan, it will partial affect the listed companies. In particular, PHR will on the 2012-2015 road map to withdraw capital from the hydropower and other industry sectors such as: Gruco Gon River Hydropower, VRG Ngoc Linh Hydropower, VRG Sai Gon Investment JSC. HRC and DPR 09/05/2011 also withdrawal from Viet Long Investment Fund, TRC has planned to withdraw capital from Rubber Commercial Services and Tourism JSC, VRG Infrastructure Investment Ltd Company... Furthermore, in the future, the major companies in industry being in the form of Single Member Ltd Company will be equitized to attract investment and improve the competition in industry. According to the plan, VRG will keep 100% capital of 22 Single Member Ltd Companies; hold more than 50% of 18 JSC; less than 50% of 20 other companies. In general, this capital withdrawal plan will be a strategic step for long-term development of entire industry. This will foster financial capital and human resources concentration for the whole industry to improve the strength and core business for future sustainable development.

III. SITUATION OF LISTED COMPANY IN NATURAL RUBBER INDUSTRY 1. Operating scale

1.1 Listed companies in the industry:

Indicators on March 31st, 2013 PHR DPR TRC HRC TNC

Stock exchange HOSE HOSE HOSE HOSE HOSE Chartered capital (mil VND) 813,000 430,000 300,000 172,610 192,500 Total assets (mil VND) 3,101,131 2,821,172 1,484,791 656,835 379,867 Owners' equity (mil VND) 2,024,148 2,179,990 1,308,986 484,351 329,669 Outstanding shares (shares) 78,490,047 43,000,000 29,125,000 17,260,976 19,250,000

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Namest Dec 31 ,2012

Phuoc Hoa Rubber Joint Stock Company - PHR Dong Phu Rubber Joint Stock Company - DPR

Rubber area (hectares)

22,489

15,925

Tapping area (hectares) 11,000

7,121

Productivity (Ton/hectare)

2.00

2.30

Tapping output (Tonnes) 19,954

16,368 0

Tay Ninh Rubber Joint Stock Company - TRC Hoa Binh Rubber Joint Stock Company - HRC

7,300

5,101

5,407

1,812

2.15

0.88

09/05/202 11 11,6

1,700

Thong Nhat Rubber Joint Stock Company - TNC

2,075

1,298

1.09

09/051/2011 ,414

Source: FPTS's gathering

1.2 Rubber area, tapping volume of companies year by year

Area Unit: hectare The rubber acreage of almost companies increased in 2012. The main factor for year by year area growth is the rubber plantation in Laos and Cambodia. In specific, in 2012, PHR added 2,278 hectares in KamphongThom - Cambodia; DPR added 1,300 hectares in Kratie - Cambodia; TRC added 473 hectares in SiemRiep - Cambodia, HRC is currently replanting in large scale, resulting to significant fall in tapping area, it is only 2,241 hectares at present, Tapping volume TNC in 2012 maintained the productive area of 1,344 hectares. Unit: ton

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Unit: ton/hectare Unit: hectare NATURAL RUBBER INDUSTRY

Rubber area and tapping productivity of listed companies to the end of 2012

In 2012, exploitation volume of PHR and TRC did not change significantly compared with 2011; it was 19,954 tonnes and 11,602 tonnes, respectively. Thanks to high tapping productivity,

DPR achieved higher exploitation 09/05/2011 volume by more than 630 tonnes in 2012, to 16,368 tonnes. For HRC and TNC, the old rubber area has been increasing, it must be dispose large 09/05/2011 number of area, whereas, the new exploitation area still yields low productivity, it leads to lower tapping productivity and volume.

According to the assessment, from now to 2015, the exploitation area of HRC will only fluctuate around 2012 level (2,241 hectares). To 2021, it is expected that its total rubber area will be replanted and total exploited area will reach the initial level of 5,101 hectares.

Source: FPTS's gathering

Among listed companies, PHR, DPR, TRC are in the top 3 companies with largest scale for exploitation area (more than 5,000 hectares) and belong to group with leading tapping productivity (more than 2 tonnes/hectare). HRC and TNC have small exploitation area and quite low tapping productivity, it is about 0.88 ton/hectare and 1.09 ton/hectare, respectively.

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2. Rubber area structure of listed companies

PHR

a DPR

DPR

a DPR

TRC

09/05/2011

09/05/2011

HRC TNC

a DPR a DPR

Source: Listed company data, FPTS's gathering

At present, among listed companies, HRC has highest portion of old rubber area, HRC has up to 50% of rubber area more than 24 years old and is currently replanting about 47% by new area. It leads to lower exploitation efficiency and lift the exploitation expense of HRC in comparison with other companies in the industry.

PHR currently has 22% of rubber area more than 25 years old, 42% of area from 11-25 years old but it is compensated by about 29% of area in basic construction stage to replace old area. DPR has 15% of rubber area more than 25 years old, however it has up to 70% of area in the period of yielding high productivity. TRC has 13% of area more than 25 years old and 71% of area in energetic period with high ability to produce latex. TNC has about 18% of area more than 25 years old, 39% from 11-25 years old and it is replanting in large rate with more than 32% of area from 0-6 years old.

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3. Product structure of listed companies

PHR

DPR

TRC/05/2011 09

09/05/2011

HRC TNC

Source: Listed company data and VRG

The product structure of listed companies in natural rubber industry implies that almost the companies produce SVR and Latex. In which, SVR dominates; this is also the advantageous product of Vietnam. In the structure of natural rubber product export, this product accounts for roughly 75-80%. PHR and HRC mainly focus on high value SVR CV50, 60; DPR focuses on SVR3L, SVR10, 20; TRC has the strength in Latex and TNC has RSS which creating competitive advantage over the rest listed companies.

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4. Business plan and 2013 outlook of typical companies

2013 Plan Total area Tapping area %FY2012 Consumption %FY2012

Average selling price

%FY2012 Revenue %FY2012 Net PBT %FY2012

Indicators

Unit Hectare Hectare

Tonnes

Mil VND/Ton

Bil VND

Bil VND

PHR 22,733 10,636 100% 26,000 83%

62

95% 1,857 80% 504 68%

Unit

DPR 16,907 7,121 100% 20,000 104%

62

97% 1,434 103,6% 515 87%

PHR

TRC 7,773 5,011 93% 12,602 91%

62

100% 901.3 98% 256.9 67%

DPR

09/05/2011

09/05/2011

TRC

Market price (12/06/2013) VND/share 29,800 50,000 49,000 Average 3-month trading volume Share/day 67,171 15,614 2,580 Gross profit margin %29.48 39.96 32.42 Net PBT margin %33.96 42.52 42.59 2012 ROE %31.78 26.39 28.60 2013E EPS VND/share 4,800 11,000 7,600 P/E forward Times 6.2 4.5 6.4 Source : Listed companies' consolidated financial statement and FPTS's gathering PHR PHR is the largest company among 5 listed natural rubber companies with average revenue growth rate of 19.4% in 2008-2012 period, average ROE of 35.5%/year. With large scale of rubber area and large portion of high-value and diverse products, it has created competitive advantage over other listed companies. One noteworthy point about PHR is that the corporate tax rate imposed on PHR is 25% while other companies such as DPR, TRC are granted with the tax rate of 15% and reduced by 50% (according to the provision of Circular No. 134/2007/TT- BTC issued by the Ministry of Finance on November 23rd, 2011 about equitization of State enterprises). This undermines the operating efficiency of PHR compared with other companies in industry. According to the 2013 business plan: consumption volume will decrease by 17%, revenue will decrease by 20%, Net PBT will decrease by 32% compared with 2012 result. Expected dividend is 30%. According to 2013 plan, PHR sets the consumption of about 26,000 tonnes of rubber, decrease by 17% compared with 2012. This substantial drop is caused by the reason that the company will exploit new rubber area with low productivity in first period; average tapping productivity is

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estimated to be only 1.84 ton/hectare compared with 2 tonnes/hectare of 2012. With the temporary selling price appointed by VRG of 62 mil VND, reduced by 20% compared with 2012, Net PBT is forecast to be 504 bil VND, reduced by 32% compared with 2012. At the moment, PHR has signed about 60% of orders for 2013. 1st quarter of 2013 business result: net sales was 331.6 bil VND, accomplished 17.8% of

2013 plan; Net PBT was 65.69 bil VND, accomplished 13% of 2013 plan, reduced by 71% 09/05/2011 compared with the same period of 2012. Average selling price in 1st quarter of 2013 was 62.3 mil VND/ton. Revenue and profit figures plummeted compared with the same period of 2012 due to: (1) 2,327 tonnes reduction in consumption; (2) 10.36 mil VND/ton reduction in selling price; (3) 119.64 09/05/2011 hectares reduction in rubber disposal area. If the price maintains at present level, it will accomplish and even exceed the 2013 plan set by Annual General Meeting's decision.

Rubber plantation plan KamthongThom Project: to 2013, it is expected to plant the last 300 hectares to achieve the plan of 7,600 hectares of rubber area. At the end of 2014, the first 500 hectares will be tapped (planted in 2009). Daklak Project: PHR only planted 113 hectares. In 2013, it is expected to plant 1,000 hectares additionally and complete 8,000 hectares to 2017.

2012 ROE was 31.78%, the highest of 5 listed companies. According to the 2013 business plan, forward EPS is 4,800 VND, as the price of 29,800 VND on June 12th, 2013 the forward P/E will be 6.2 times. Under the rapid decrease in rubber price circumstance at present, it is recommended for long-term investment, and limiting short-term investment in this year.

DPR In 2008-2012 period, DPR had the average sales growth rate of 17%/year, average ROE of 32.1%/year. In terms of profit to sales ratio, DPR has the most effective business result among 5 listed companies. The EPS of 2 recent years were very high, they were 18,663 VND and 12,552 VND in 2011 and 2012, respectively, this is good stock for investment. According to 2013 plan: consumption volume increase by 4%, sales increase by 3.6% and Net PBT will be equal 87% of 2012 result. Expected dividend is 30%. According to 2013 plan, tapping area of DPR will unchanged, consumption output is expected to be 20,000 tonnes, 4% higher than 2012 result and sales target is 1,434 bil VND, increase by 3.6% compared with 2012. Net PBT will be 515 bil VND, down by 13% compared with 2012. 1st quarter of 2013 business result: it got 228 bil VND of net revenue, accomplished 15.9% of 2013 plan, 24% lower than the same period last year. Net PBT was 78.3 bil VND, accomplished 15.2% of 2013 plan, reduced by 31% compared with same period of 2012. Sales and profit figures lower than the same period were caused by low consumption in 1st quarter, more than 660 tonnes (down by 24%), selling price reduced by more than 8.4 mil VND/ton compared with 1st quarter of 2012.

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Rubber plantation project: Dong Phu Kratie Project: to 2013, DPR plans to plant the last 300 hectares, completes 6,500 hectares of rubber area. At the end of 2014, it will exploit the first 1,100 hectares (planted in 2009).

Daknong Project: 946 hectares already planted. In 2013, it will plant 54 hectares more. At the 09/05/2011 end of 2013, it will exploit 180 hectares (planted in 2007). According to 2013 business plan, forward EPS is 11,000 VND; as the price on June 12th, 2013 of 50,000VND then the 2013 forward P/E is 4.5 times. Under the rapid decrease in rubber price circumstance at present, it is recommended for long-term investment, and 09/05/2011 limiting short-term investment in this year.

TRC TRC is the listed company ranking the 3rd for sales growth rate after PHR and DPR in 2008- 2012 period, sales growth rate was 14%/year. Average ROE was 35%/year. 2013 plan: consumption volume will go down by 9%; sales down by 12% and Net PBT down by 33% compared with 2012. Expected dividend is 30%. In this year, TRC will dispose the old rubber area, exploitation area will be decrease by about 500 hectares, it will lead to the lower output in 2013 as well as the lower selling price, down to 62 mil VND/ton, according to the plan and direction of VRG. TRC has set a relatively cautious target. 1st quarter of 2013 business result: net sales was 183.8 bil VND, accomplished 20% of 2013 plan, decrease by 27% compared with the same period; Net PBT was 54.5 bil VND, completed 21% of 2013 plan, decrease by 7% compared with same period. Sales and profit went down as the result of consumption dropped by more than 402 tonnes and selling price fell by about 7 mil VND/ton compared with 2012.

Rubber plantation project: at present, TRC is fully drawing attention to the Tay Ninh Rubber Siem Riep Project in Cambodia with total area of 7,600 hectares. In comparison with TRC's 5,407 hectares currently exploited in Vietnam over total rubber area of 7,300 hectares, this project plays a critical role in the long-term development of TRC. At the moment, 100% land of this project has been granted by Cambodia Government, but it is awaiting the investment license from Vietnam Government. Therefore, the company is facing the trouble of transferring direct capital investment from Vietnam to Cambodia. However, according to the plan, to 2015, 7,250 hectares of rubber will be completely planted. Until now, there has been 473 hectares of rubber planted, in 2013, the company is on schedule to plant 2,000 hectares more. According to 2013 business plan, forward EPS is 7,600VND, as the market price on June 12th, 2013 of 49,000VND, then the 2013 forward P/E is 6.4 times. Under the rapid decrease in rubber price circumstance at present, it is recommended for long-term investment, and limiting short-term investment in this year.

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Table of financial indicators of listed companies in natural rubber industry

09/05/2011

09/05/2011

P/E - P/B of companies compared with industry average ratio

Liquidity of listed natural rubber company shares in 3 months

(Average volume over one trading session) Unit:Share/day

Source: FPTS's gathering www.fpts.com.vn

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APPENDIX

Vietnam natural rubber statistics Tapping

Year 2000 2001 2002

Total area 413,000 416,000 429,000

Tapping Area 232,000 241,000 243,000

Volume 291,000 313,000 298,000

productivity 09/05/2011 1.25 1.30 1.23

2003 441,000 267,000 364,000 09/05/2011 1.36 2004 454,000 301,000 419,000 1.39 2005 483,000 334,000 482,000 1.44 2006 522,000 356,000 555,000 1.56 2007 556,000 373,000 602,000 1.61 2008 631,000 399,000 660,000 1.65 2009 678,000 422,000 724,000 1.72 2010 749,000 439,000 752,000 1.71 2011 834,000 472,000 812,000 1.72 2012 910,500 505,800 863,600 1.707

Source: Agroinfo

References

Ministry of Agriculture and Rural Development Vietnam Rubber Group - VRG Specialized information of Vietnam Rubber Group Agroinfo statistics IRSG statistics Materials from International Rubber Conference in China Material from Natural rubber market report of Industry and Commerce information Center of Ministry of Industry and Commerce General Department of Customs data General Statistics Office data Data from websites: Thitruongcaosu.net, Tocom, AFET, Malaysian Rubber Board, Indexmundi, Thuvienphapluat v website doanh nghip. Other materials

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5-year business result of listed companies in industry

PHR 2008 2009 2010 2011 2012 Average/CAGR Revenue 1,091,577 1,067,844 2,030,099 2,583,186 2,218,195 19.38% Gross profit 354,260 282,903 709,436 1,021,833 653,981 20.60% Gross profit margin 32.45% 26.49% 34.95% 39.56% 29.48% 33.61% Net PBT 388,939 351,095 661,578 1,003,389 753,204 09/05/2011 17.97% Net PBT margin 35.63% 32.88% 32.59% 38.84% 33.96% 35.12% ROA 16.81% 14.48% 24.11% 30.65% 19.44% 21.06% ROE 28.71% 28.71% 28.71% 28.71% 31.78% 35.54% DPR 2008 2009 2010 2011 2012 09/05/2011 Average/CAGR Revenue 728,795 648,310 1,028,421 1,837,202 1,384,643 17.40% Gross profit 252,024 233,460 463,062 866,224 553,307 21.73% Gross profit margin 34.58% 36.01% 45.03% 47.15% 39.96% 42.08% Net PBT 234,044 220,723 433,410 871,211 588,719 25.94% Net PBT margin 32.11% 34.05% 42.14% 47.42% 42.52% 41.73% ROA 21.48% 18.40% 27.00% 39.11% 20.56% 23.66% ROE 36.67% 28.59% 38.37% 51.19% 26.39% 32.11% TRC 2008 2009 2010 2011 2012 Average/CAGR Revenue 549,115 440,353 757,982 1,195,284 915,510 13.60% Gross profit 206,499 150,558 325,501 494,546 296,806 9 .5 0 % Gross profit margin 37.61% 34.19% 42.94% 41.37% 32.42% 38.20% Net PBT 198,220 162,510 304,993 568,058 389,933 18.43% Net PBT margin 36.10% 36.90% 40.24% 47.52% 42.59% 42.08% ROA 26.83% 21.12% 29.75% 40.78% 23.57% 27.27% ROE 42.18% 28.25% 39.98% 54.38% 28.60% 34.73% HRC 2008 2009 2010 2011 2012 Average/CAGR Revenue 289,976 202,645 411,801 688,411 494,477 14.27% Gross profit 98,951 50,816 105,668 134,112 40,139 -20.19% Gross profit margin 34.12% 25.08% 25.66% 19.48% 8.12% 20.59% Net PBT 88,025 71,523 106,512 142,537 110,502 5 .8 5 % Net PBT margin 30.36% 35.29% 25.86% 20.71% 22.35% 24.87% ROA 22.15% 15.88% 20.28% 22.83% 13.91% 17.88% ROE 26.95% 19.37% 24.68% 29.55% 18.88% 22.97% TNC (*) 2008 2009 2010 2011 2012 Average/CAGR Revenue 181,765 171,590 181,156 144,666 191,088 3 .6 5 % Gross profit 13,782 38,944 62,068 70,499 55,042 12.22% Gross profit margin 7.58% 22.70% 34.26% 48.73% 28.80% 32.91% Net PBT 8,393 34,402 60,427 82,403 79,429 32.17% Net PBT margin 4.62% 20.05% 33.36% 56.96% 41.57% 37.28% ROA 3.10% 11.06% 17.98% 22.10% 19.44% 17.21% ROE 3.90% 12.80% 20.11% 24.80% 22.04% 19.40%

(*) Growth rate data of TNC was taken from 2009 to 2012 because in 2008, Source:Listed companies' audited financial statements there was an extraordinary change due to the economic recession.

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Disclaimers

The information and statements contained herein, including any expression of opinion, are based upon sources believed to be reliable but their accuracy, completeness or correctness is not guaranteed. Expressions of opinion herein were arrived at after due and careful consideration and they were based upon the best 09/05/2011 information then known to us, and in our opinion are fair and reasonable in the circumstances prevailing at the time. Expressions of opinion contained herein are subject to change without notice.

This document is not and should not be construed as, an offer or the solicitation of an offer to buy or sell any securities. FPTS and other related companies and/or their officers, directors and employees may have positions and may have 09/05/2011 affect transactions in securities of companies mentioned herein and may also perform or seek to perform investment banking services for these companies.

No person is authorized to give any information or to make any representation not contained in this document and any information or representation not contained in this document must not be relied upon as having been authorized by or on behalf of FPTS. This document is private circulation only and is not for publication in the press or elsewhere.

FPTS accepts no liabilities whatsoever for any direct or consequential loss arising from any use of this document or its contents. The use of any information, statements forecasts and projection contained herein shall be at the sole discretion and risk of the users. This document is confidential and is intended solely for the use of its recipient. Any duplication or redistribution of this document is prohibited.

At the time of writing this analytic report, FPTS hold 4 shares of this enterprise and FPTS' analysts do not hold.

The information related to other stocks or other information related this stock can be viewed at https://ezsearch.fpts.com.vn or will be provided upon official request

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