research on vietnam stock market
DESCRIPTION
Research on Vietnam Stock MarketTRANSCRIPT
RESEARCH ONVIETNAM STOCK MARKET
Group of Study & ResearchTran Cong Tuong
Bui Le Huyen TrangTran Kim Minh
To Quoc Phuong
© CFVG - MBA 18 - Group of Study & Research. All rights reserved. 2
AGENDA
Importance of Financial Management
Capital Employed & Capital Structure
Operating Performance Measure
Vietnam Stock Market
Securities Law
Financial Investment
Conclusion
Importance of Financial Management
© CFVG - MBA 18 - Group of Study & Research. All rights reserved. 4
Corporate Finance Objectives
Revenues growth
Capital growth
Earnings growth / Profit maximization
Stock price growth
Firm value maximization & Investor’s expectations
© CFVG - MBA 18 - Group of Study & Research. All rights reserved. 5
How Companies Create Value? [1]
CapitalEmployed
Fixed Assets+
WC
CapitalEmployed
Fixed Assets+
WC
EquityEquity
Net DebtNet Debt
Balance Sheet
Operating Performance(Asset allocation)
Cost of capital (Capital structure)
A company creates value only if operating performance is good enough to cover the cost of capital. (ROCE > WACC)
A company creates value only if operating performance is good enough to cover the cost of capital. (ROCE > WACC)
© CFVG - MBA 18 - Group of Study & Research. All rights reserved. 6
Firm Value, Growth Rate & Stock Price [2]
© CFVG - MBA 18 - Group of Study & Research. All rights reserved. 7
Firm Value, Growth Rate & Stock Price (cnt.) [2]
© CFVG - MBA 18 - Group of Study & Research. All rights reserved. 8
Firm Value, Growth Rate & Stock Price (cnt.) [2]
© CFVG - MBA 18 - Group of Study & Research. All rights reserved. 9
Firm Value, Growth Rate & Stock Price (cnt.) [2]
© CFVG - MBA 18 - Group of Study & Research. All rights reserved. 10
Firm Value, Growth Rate & Stock Price (cnt.)
Why did stock price of banking sector decrease in the last two years?
Why should we not invest in banking sector in this year (2011)?
Capital Employed & Capital Structure
© CFVG - MBA 18 - Group of Study & Research. All rights reserved. 12
Capital Employed [1]
Fixed AssetsEquity
Working Capital(Current assets- liabilities)
Net Debt(Debt - cash)
Fixed Assets
Current Assets
Cash & Equivalent
Equity
ProvisionsFor risks and expenses
Debt
Dettes d’ExploitationCurrent Liabilities
ASSETS LIABILITIES & EQUITYCAPITAL EMPLOYED
© CFVG - MBA 18 - Group of Study & Research. All rights reserved. 13
Capital Employed & Income Statement [1]
© CFVG - MBA 18 - Group of Study & Research. All rights reserved. 14
Low Cost Structure
Combination of
– Common stock
– Preferred stock
– Bond
– Long-term & short-term debts
=> To gain lowest cost of capital
Operating Performance Measure
© CFVG - MBA 18 - Group of Study & Research. All rights reserved. 16
Income Statement – Basic [3]
© CFVG - MBA 18 - Group of Study & Research. All rights reserved. 17
Income Statement – Trend Analysis [3]
© CFVG - MBA 18 - Group of Study & Research. All rights reserved. 18
Income Statement – Industry Analysis [3]
© CFVG - MBA 18 - Group of Study & Research. All rights reserved. 19
Activity Ratios
Indications of how well a firm utilizes various assets (inventory, fixed assets…)
– E.g. Total asset turnover ratio
– The effectiveness of using total assets to create revenue
– Higher -> Better, but compare industry average
– Different industries -> Different turnover ratios
– Manufacturing ≈ 1, Retail ≈ 10
© CFVG - MBA 18 - Group of Study & Research. All rights reserved. 20
Liquidity Ratios
Measure firm’s abilities to pay short-term liabilities
– E.g. Current ratio
– Ability to pay short-term debts as they become due
– Higher -> Better
– < 1 -> Liquidity crisis (Working capital negative)
– = 2 -> Reasonable ratio
© CFVG - MBA 18 - Group of Study & Research. All rights reserved. 21
Solvency Ratios
Information on firm’s financial leverage and ability to meet long-term obligations
– E.g. Financial Leverage (FL)
– Level of using debt financing
– More debts -> Higher FL -> More risky to shareholders
– Higher FL can increase shareholders’ return (ROE)
– VIC: 4.6, HAG: 2.1, TDH: 1.49, Real Estate: 2.65
© CFVG - MBA 18 - Group of Study & Research. All rights reserved. 22
Profitability Ratios
How well company generates profits
– E.g. Cross profit margin, operating profit margin, pretax income margin, net profit margin
© CFVG - MBA 18 - Group of Study & Research. All rights reserved. 23
Return on Equity (ROE)
Return on the amount of owners’ equity
Higher -> Better, Desirable > 15%
Important ratio for investor
VIC: 24.35%, HAG: 30.47%, TDH: 18.76%
Real Estate: 19.72%, Health Care: 19.67%
Return on common equity = net income - preferred dividends / average common equity.
© CFVG - MBA 18 - Group of Study & Research. All rights reserved. 24
Return on Assets (ROA)
How much earnings were generated from assets
Higher -> Better, but compare industry average
Different industries -> Different ratios
VIC: 4.92%, HAG: 13.16%, TDH: 12.63%
Real Estate: 8.28%, Health Care: 11.15%
© CFVG - MBA 18 - Group of Study & Research. All rights reserved. 25
Valuation Ratios
Valuation ratios are used for investment analysis in common equity
Measure of how cheap or expensive a security
Earnings, Dividends, Earnings per share (EPS), Price-to-Earnings (P/E), Price-to-Book Value (P/B)
© CFVG - MBA 18 - Group of Study & Research. All rights reserved. 26
Earnings, Dividends, Earnings per share (EPS),
Net Income – Preferred dividends = Net income available to common
Net income available to common – Common dividends = Retained Earnings
Earnings per share (basic)
VIC: 2,429; HAG: 6,592; TDH: 6,178 (vnd)
© CFVG - MBA 18 - Group of Study & Research. All rights reserved. 27
Price-to-Earnings (P/E)
P/E
(= stock price / EPS), trailing P/E, leading P/E
Price an investor is paying for $1 of the company's earnings
E.g. EPS: $2, Stock Price: $20, P/E = 10 (20/2)
Higher -> More expensive -> Higher hope, but not whole story
VIC: 36.64, HAG: 11.68, TDH: 5.49 (27Dec2010)
Compare P/E to other companies in the same industry
Different industries -> Different P/E ranges
Real estate: 14.65, Health care: 17.95, Banking: 8.44
© CFVG - MBA 18 - Group of Study & Research. All rights reserved. 28
Price-to-Book Value (P/BV or P/B)
Book value of equity = (total assets – total liabilities) – preferred stock
Compare a stock's market value to its book value
Screening for stocks are undervalued or overvalued, but having shortcomings
Different industries -> Different P/B ranges
Compare P/B to other companies in the same industry
VIC: 8.67, HAG: 3.14, TDH: 0.97 (27Dec2010)
Real estate: 1.69, Health care: 1.50, Banking: 1.81
© CFVG - MBA 18 - Group of Study & Research. All rights reserved. 29
Financial Ratios – Trend & Industry Analysis [3]
Vietnam Stock Market
© CFVG - MBA 18 - Group of Study & Research. All rights reserved. 34
Vietnam Stock Market at a Glance
State Securities Commission (SSC)
– Regulate the development of the national stock exchanges
Ho Chi Minh City Stock Exchange (Hose)
– Trade equities
Hanoi Stock Exchange (HaSTC)
– Trade equities, bonds and over the counter (OTC) securities
OTC securities are traded on a platform called Upcom
© CFVG - MBA 18 - Group of Study & Research. All rights reserved. 35
Vietnam Stock Market at a Glance (cnt.)
© CFVG - MBA 18 - Group of Study & Research. All rights reserved. 36
Top 100 Richest People on VN Stock Market
When MBA 18? :D
Securities Law
© CFVG - MBA 18 - Group of Study & Research. All rights reserved. 38
Criteria for Listing Shares in Hose
Capitalization: VND 80 billion charter capital
Profitability: profitable in last 2 consecutive years
Debt position: no overdue debts not setup provision
Minimum shareholders: 20% common shares held by at least 100 shareholders
Share lock-up: “Key people” hold 100% shares in 6 months, 50% in following 6 months
© CFVG - MBA 18 - Group of Study & Research. All rights reserved. 39
Publication of Information
EventClose Factory
STATE SECURITIES COMMISION
Do Not Inform Him
SECURITIES LAWArticle: Public of Information
Violate LawTo Be Hard Punished
LISTED COMPANY
© CFVG - MBA 18 - Group of Study & Research. All rights reserved. 40
Insider Trading
EventJust invent a
medicine for HIV
Tell your wife
Securities Law& Penal Code
Violate LawsTo Be in Jail
CEO of aListed Company
Buy Stock
© CFVG - MBA 18 - Group of Study & Research. All rights reserved. 41
Price Manipulation
AgreementBuy / Sell Stocks
Securities Law& Penal Code
Violate LawsTo Be in Jail
A Stock Surfing Team
Increasing / Decreasing Stock Price Artificially
Financial Investment
© CFVG - MBA 18 - Group of Study & Research. All rights reserved. 43
Good Company vs. Good Stock
Good company– Great financial data (huge capital, high revenues, earnings,
dividends…)
– High growth rate, strong brand name, great innovation…
– E.g. Microsoft, Apple, Vincom, FPT, Vinamilk
But are they good stocks? – May or may not be
Good stock– Stock price below intrinsic value (undervalued stock)
Typical mistake of investor– Invest on good company
© CFVG - MBA 18 - Group of Study & Research. All rights reserved. 44
Value Investing vs. Technical Trading
Value Investing Technical Trading
Methodology Invest on long-term value of the business Speculation
Investment time Mid-term or long-term Short-term (surfing)
Analysis
Fundamental analysis
(based on company financial data)
Technical analysis
(based on stock price historical data)
Key Step Investment valuation (find intrinsic value) Identify up/down trends
Risk
The firm may choose various ways of reporting their financial data (expenses, assets or liabilities…)
Two technical investors may derive totally different conclusions when observing the same chart
© CFVG - MBA 18 - Group of Study & Research. All rights reserved. 45
Other Investment Notes
Determine required rate of return
Measure the rate of return
Identify/measure risks (market risk, liquidity risk…)
Compare with alternative investments (bond, gold, real estate, foreign currencies, savings…)
© CFVG - MBA 18 - Group of Study & Research. All rights reserved. 46
Investment Process (Value investment)
StockValuationStock
ValuationInvestmentDecision
InvestmentDecision
IndustryAnalysisIndustryAnalysis
CompanyAnalysisCompanyAnalysisScreeningScreening
Economic
Analysis
© CFVG - MBA 18 - Group of Study & Research. All rights reserved. 47
Step 1: Industry Analysis
Sectors
Selecting investment sectors– Your knowledge & experience about the sector (in-depth
understanding)
– Trends of the sector
How to find Industry Analysis reports?– Saigon Securities Inc. website (SSI)
Financials Materials Coal Mining
Commodity Chemicals (Natural Rubber) Consumer Goods Electricity
Farming & Fishing Oil & Gas Pharmaceuticals
Real Estate Technology & Telecom Transport
© CFVG - MBA 18 - Group of Study & Research. All rights reserved. 48
Step 2: Screening
Screening:
– Create a shortlist of “industry-average-above” companies in a sector
– The shortlist is used for company analysis step
– How to create the shortlist?
© CFVG - MBA 18 - Group of Study & Research. All rights reserved. 49
Step 2: Screening (cnt.)
Quick review balance sheet & income statement in last 3 years
“Industry-average-above” criteria
– Charter capital, revenues, earnings
– Net profit margin, EPS
– ROE
– P/E
– Financial Leverage
– It’s not necessary to satisfy all criteria
© CFVG - MBA 18 - Group of Study & Research. All rights reserved. 50
Step 3: Company Analysis
Fundamental analysis on the shortlist’s companies
Fundamental analysis
– Analyzing company business
– Analyzing company financial data
© CFVG - MBA 18 - Group of Study & Research. All rights reserved. 51
Step 3: Company Analysis (cnt.)
Analyzing company business
– Business model
– Competitive advantage
– Management team
– Corporate governance
© CFVG - MBA 18 - Group of Study & Research. All rights reserved. 52
Step 3: Company Analysis (cnt.)
Detailed financial analysis (both trend & industry analysis)
– Balance sheet, Income statement, Cash flows
– Shareholder equity (market capital, book value / a stock…)
– Management effectiveness (ROE, ROA, ROCE…)
– Profitability (gross profit margin, net income margin…)
– Growth rate (revenue growth, earning growth… )
– Financial leverage & risks (quick ratio, debt-to-equity, financial leverage… )
– Dividend
© CFVG - MBA 18 - Group of Study & Research. All rights reserved. 53
Step 4: Stock Valuation
Valuation is finding real value of stock (intrinsic value)
– Market price < intrinsic value => undervalued stock
– Market price > intrinsic value => overvalued stock
How to find intrinsic value of stock?
– Calculate by yourself (based on forecast of future cash flow)
– From reputable securities companies: Mekong Securities, Kim Eng, SSI, VinaSecurities, BVSC
© CFVG - MBA 18 - Group of Study & Research. All rights reserved. 54
Step 4: Stock Valuation (cnt.)
Relative valuation
– Comparing the stock price to those of similar companies
– Often used in Screening step (step 2)
P/E method: comparing stock P/E with
– Average P/E of the industry
– Average P/E of similar companies in the same industry
© CFVG - MBA 18 - Group of Study & Research. All rights reserved. 55
Step 5: Investment Decision - Buy
Company business – Good business model
– Strong management team
– A unique competitive position
Company financial status– High management effectiveness
– High profit margin
– Fast growth rate
Valuation– Market price much smaller than intrinsic value
© CFVG - MBA 18 - Group of Study & Research. All rights reserved. 56
Step 5: Investment Decision - Sell
Market price greater than intrinsic value
And other criteria
© CFVG - MBA 18 - Group of Study & Research. All rights reserved. 57
Step 5: Investment Decision - VIC
VIC – Vincom Joint Stock Company
Good business & financial status
Market price on 25/10/2010: 69.000
BVSC Valuation:
Market price (69) much smaller intrinsic value (104)
Market price on 31/12/2010: 97.500
Return on investment (monthly): 18.5% >> Interest rating 1.5%
© CFVG - MBA 18 - Group of Study & Research. All rights reserved. 58
Step 5: Investment Decision - VIC
© CFVG - MBA 18 - Group of Study & Research. All rights reserved. 59
Conclusion
Importance of correct intrinsic value calculation (valuation)
Using financial leverage as you can control risk
Building ability of smelling undervalued asset
Thank you!
Appendix
© CFVG - MBA 18 - Group of Study & Research. All rights reserved. 62
Investor Confidence Survey
Start date: 26-Nov-2010
End date: 09-Dec-2010
Number of respondents: 32
© CFVG - MBA 18 - Group of Study & Research. All rights reserved. 63
Demographic - Age
© CFVG - MBA 18 - Group of Study & Research. All rights reserved. 64
Demographic - Gender
© CFVG - MBA 18 - Group of Study & Research. All rights reserved. 65
Do you currently own any direct stocks/shares or funds in the VN stock market?
© CFVG - MBA 18 - Group of Study & Research. All rights reserved. 66
Investor Confidence Index
Investor confidence is quite low but investor confidence index should be compared with results of other quarters to see investor confidence trend.
© CFVG - MBA 18 - Group of Study & Research. All rights reserved. 67
Investor Confidence Index (cnt.)
People who own stocks (red bar) are more positive than people who not own stocks (yellow bar).
© CFVG - MBA 18 - Group of Study & Research. All rights reserved. 68
Expectations about the stock marketCompared to current, how do you think your investment portfolio will be in the next 6 months?
“Tất cả” is investors
© CFVG - MBA 18 - Group of Study & Research. All rights reserved. 69
Do you intend to withdraw from the VN stock market in the next 6 months?
30% of investor will withdraw from VN stock market in the next 6 months.
© CFVG - MBA 18 - Group of Study & Research. All rights reserved. 70
References
1. Prof Patrick GOUGEON, ESCP Europe/ 2009 – Financial Analysis
2. McKinsey Quarterly, The CEO’s guide to corporate finance
3. Schweser Study Notes CFA Level 1 2011
4. Slide Template: Avaya Asia-Pacific
© CFVG - MBA 18 - Group of Study & Research. All rights reserved. 71
Group of Study & Research
Tran Cong Tuong, [email protected]
Bui Le Huyen Trang, [email protected]
Tran Kim Minh, [email protected]
To Quoc Phuong, [email protected]