Report - Masan Group

msn
cs
n
COVERA
AGE MASAN GRO
OUP CORPO
ORATION
HSSX Symbol: MSN mong listed firms, Masan M
Gro
oup’s operrations aree quite Am
ou
utstanding. Besides, th
he group’s growth prospects alsso have higgh potentiaal. Howeveer, we belieeve that th
he current market m
prrice has alreeady reflected the fairr value of th
he group.
An
nalysts: Ngu
uyen Thi La
an Huong Ngu
uyen Manh Hoang AC
CBS Researcch Center Ap
pril 9, 2013
MSN – COVERAGE HOLD Target price: 117,924 Current price: 123,000 Updated as of April 9, 2013 MSN –COVERAGE HOLD Target price: VND 117,924 Current price: VND 123,000 Updated as of April 9, 2013 LEADING BUSINESSES Currently, Masan Group holds three leading businesses including 77% of Masan Consumer, 80% of Masan Resources (effective stake) and 30% economic benefit of Techcombank. Only after 10 years of operation, Masan Consumer, its key subsidiary, becomes the largest sauce producer in Vietnam. Besides, the firm also holds the second­largest market share of instant noodles in general and the largest market share of premium instant noodles in specific. Moreover, after acquiring Vinacafé Bien Hoa in 2011, Masan Consumer has indirectly controlled 44% of instant coffee market share. Besides, in terms of mining sector, Masan Resources holds 100% economic benefit of Nui Phao project. So far, Nui Phao is one of the largest tungsten mines in the world come along with significant deposits of fluorspar, bismuth and copper. Yet, as an open­pit mine characterized by low strip ratio, Nui Phao has relatively low operating costs compared to other tungsten producers. According to our estimates, Nui Phao could generate over US$ 350 million revenues and US$ 150­200 million EBITDA annually in over 16 years. HIGH GROWTH POTENTIAL SUPPORTED BY M&A After successively acquiring over 50% of Vinacafé Bien Hoa, 40% of Proconco and 24.90% of Vinh Hao, we believe Masan Group might continue to support its fantastic growth via M&A. The group targets firms with strong and sustainable cash flows. After taking control of acquired firms, the group affords to build up an outstanding operating platforms characterized by professional management, sound marketing system and high profitable product portfolio. Since Masan Group retains all of its net income; according to our projection, the average internal generated cash flows available for further M&A could be up to VND 4,000­5,000 billion per annum during the next 5 years. Through M&A activities, we believe Masan Group can keep up its fantastic growth rate in the years to come. HOLD RECOMMENDATION Among Vietnamese listed firms, Masan Group’s operating is quite outstanding. The group has strong and stable cash flows generated by two subsidiaries Masan Consumer and Masan Resources. Besides, Masan Group’s growth prospects also have high potential. However, after considering Masan Group’s fundamentals and related risks, we believe that the current market price of VND 123,000 per share has already reflected the fair value of the group. Hence, we give a HOLD recommendation for this ticker for long­term investors. CONTENTS KEY STATISTICS .................................................................................................................... 3 BUSINESS ANALYSIS ............................................................................................................. 4 CORPORATE GOVERNANCE ............................................................................................... 10 FINANCIAL ANALYSIS ........................................................................................................ 12 VALUATION ......................................................................................................................... 14 RECOMMENDATION ........................................................................................................... 14 Nguyen Manh Hoang, Financial Analyst +84 8 5 404 3054 (687) | [email protected] ACBS Research Center +84 8 5 404 3257 | [email protected] Contact Center +84 8 39 107 107 | [email protected] Website: www.acbs.com.vn Bloomberg: ACBS<GO> Bloomberg: ACBS<GO> Page 2 of 15 MSSN – COVEERAGE HOLD
Tarrget price: 117,924 Currrent price: 123,000 Upd
dated as of A
April 9, 2013 KEY STATISSTICS
800
'000 units
700
VND '000
Price­Vo
olume
55
140
50
120
600
0
04/12
60
25
3.5
40
20
2.5
15
08/12
10/1
12
12/12
02/13
Perform
mance Current Price (VND) Market C
Cap (VND Bil) 52 Week
k High (VND) 52 Week
k Low (VND) Average Volume in 100 days (share) utstanding (sharre) Share Ou
1 month return (%) 3 month return (%) 6 month return (%) 12 montth return (%) BS (VND
D Bil) 2009 2010 Currentt Assets 2,,442 4,627 Cash and
d cash equivalen
nts 1,,124 3,395 Short‐terrm investments 776 490 Accountss receivable 283 314 Inventorries 199 290 Non­currrent Assets 4,,575 16,503 Long‐terrm investments 3,,920 8,100 Total Asssets 7,,017 21,130 Current Liabilities 1,,211 3,225 Non‐currrent liabilities 737 5,756 Owners’ Equity 4,,762 10,624 d Earnings 435 2,712 Retained
Total Re
esources 7,,017 21,130 IS (VND Bil) 2009 2010 Revenue
es 3,958 5,586 Cost of ggoods sold 2,58
84 3,195 Gross prrofit 1,374 2,392 Financiaal Income 60 1,621 16
Financiaal Expenses 10
03 270 Selling E
Expenses 637 951 G&A Exp
penses 10
05 214 Operatin
ng profit 68
89 2,577 Other prrofit (4
4) 8 Profit/Lo
oss from Associaates 4
48 161 EBT 733 2,746 2,629 EAT 680 Net proffit 680 2,283 Valation
n Result Masan Consumer (77%) Masan R
Resources (80%)) Techcom
mbank (30%) Other Asssets of MSN Liabilitiees of MSN Net Asse
et Value Shares O
Outstanding Target S
Share Price (VN
ND) Bloomberg: ACBS<GO
O> Price Earnin
ngs Ratio (P/E) ((L1)
Price to Book Ratio (R1)
10
0
06/12
4.5
30
20
100
5.5
35
400
200
7.5
6.5
40
80
300
Times
P/E - P/B
P
45
100
500
Times
5
04/13
3
04/12
1.5
0.5
06/12
08/12
10/12
12/12
02/13
04
4/13
Compa
any brief
Masan Group C
Corporation Masan Group MSN 6,872,801,230,000 VND 8th Floor, Central Plaza , 17 Le Duan, District 1, HCMC 62 +84 8 6256 386
Conglomerate Food Producingg, Mining and Baanking Positio
on Chairm
man of Board Vice Ch
hairman of Board Board Member Board Member Board Member Board Member Shareholderr Structure (%) Masan
n Corporation 36.44 Hoa H
Huong Duong Ltd
d 14.52 BI Priivate Equity New
w Market II K/S 4.78 Finan
ncial Ratios 2009 201
10 2011 2012 Liquiidity ratios Cash rratio (Times) 0.93 1.05 2.64 1.10 Curreent ratio (Times)) 1.85 1.34 3.29 1.67 Quick
k ratio (Times) 3.46 2.02 1.43 1.78 Profittability ratios 40.54 Grosss profit margin (%
%) 34.71 42.81 43.35 Operaating profit marggin (%) 18.52 49.16 35.14 25.67 Net profit margin (%)) 35.37 17.17 47.07 19.42 8.74 ROE ((%) 23.55 29.68 14.89 ROE ((%)‐pro forma*
19.27 13.34 18.08 19.28 ROA ((%) 15.57 16.22 7.21 3.60 ROA ((%) – pro forma* 9.34 12.27 10.54 5.50 Solve
ency ratios Total debt ratio (%)
20.26 28.99 28.12 37.27 103.6
Debt tto equity (%) 29.86 57.66 59.48 Liabillities to assets raatio (%) 35.80 49.01 27.75 42.50 Finan
ncial Leverage (T
Times) 1.38 1.74 1.56 1.96 Intereest coverage (Tim
mes) 10.07 9.24 12.75 10.08 U
Unit: VND billio
on Valua
ation Ratios 20
009 2010 2011 2012 6
67,040 Earnin
ngs Per Share (V
VND) 1,4
426 4,726 3,829 2,251 1
16,266 Book v
value Per Share (VND) 9,9
996 20,618 30,810 20,265 3,343 Price tto earnings (Tim
mes) 23
3.98 15.87 23.63 45.31 Price tto book value (T
Times) 3
3.42 3.64 2.94 4,418 5.03 (10
0,020) Price tto sales (Times) 4
4.12 6.92 6.61 6.75 81
1,047 Divideend Yield (%) 0
0.00 0.00 0.00 0.00 687,28
80,123 Beta ((Times) 0
0.28 0.31 1.35 1.50 117
7,924 * Pro‐fo
orma numbers aadjust for goodw
will amortisation on acquisition o
of associaates 12
23,000
8
84,535 13
35,000 8
85,000 6
61,460 687,28
80,123 12.28 26.73 32.64 12.28 2011 2012 12,541 9
9,221 9,574 5,719 1,223 1,841 903 936 613 564 21,031 29
9,527 9,321 1
11,363 33,573 38
8,749 3,626 5,188 8,392 1
13,802 15,876 13
3,928 4,680 5,967 33,573 38
8,749 2011 2012 7,057 10
0,389 3,998 6,177 3,059 4
4,212 1,185 808 348 308 1,010 1,317 406 728 2,480 2,667 (4) 164 393 (288) 2,869 2
2,543 2,496 2
2,018 1,973 1
1,302 Officiaal name Abbreeviation HSX S
Symbol Charttered Capital Headq
quarter Tel. Sector Subseector Board
d of Directors Nguyeen Dang Quang
Ho Hu
ung Anh Lars K
Kjaer Madh
hur Maini Nguyeen Thieu Nam Nguyeen Hoang Yen Pagge 3 of 15 MSSN – COVEERAGE HOLD
Tarrget price: 117,924 Currrent price: 123,000 Upd
dated as of A
April 9, 2013 BUSIN
NESS ANALYSSIS Masan Group holdss three leading
g businesses including 77% of f Masan Conssumer, 80% of f Masan Reso
ources and 30% ecconomic beneefit of Techcom
mbank. Masan Gro
oup is curreently one off the largest firms listeed on HSX. The group has an astoundingg profile in acquiring and buildingg market‐leaading firms in Vietnam. So far, Masan Gro
oup holds a a majority stake s
of 77..29% and 8
80% in Massan Consum
mer and Masan Ressources resp
pectively. Beesides, the firm also ow
wns 30% ecconomic ben
nefit of Techcombaank. Masan G
Group
Masan Consumeer
(77%)
Techcom
mbank
(30%
%)
Masan M
Ressources
(80%)
MASAN CONSUM
MER Leading in FMCG Sector Masan Consumer iss now the largest t sauce produ
ucer and holds th
he second po
osition in instantt noodles market. Only after 10 years of o operation
n, Masan Co
onsumer now becomess the largestt sauce producer in Vietnam. The firm currently holds domiinant market share off sauce i
fiish sauce (76%), (
soyaa sauce (78
8%), and chili c
sauce (37%). products including Besides, th
he firm also
o holds the second‐largest market share of instant i
noo
odles in general and the largest market share of prem
mium instantt noodles in specific. So far, M
Masan Consu
umer’s subsidiiary, Vinacaffé Bien Hoa, holds 4
44% of instan
nt coffee markett share. ng Vinacafé B
Bien Hoa in 2011, Masaan Consumerr has supported its Besides, affter acquirin
subsidiary in R&D, maarketing strrategy and d
distribution channel. Th
he synergy ccreated o has brougght a huge success s
to Vinacafé V
Bieen Hoa. So far, f 44% of instant by the two
coffee market share beelongs to Vin
nacafé Bien Hoa. Products Fish Saucee Soya Saucce Chili Saucce Instant No
oodles Instant Co
offee ket Share Mark
At the e
end of 2011
1 76%
78%
37%
16%
44%
Position 1st
1st
2nd
2nd
1st
Source: Ma
asan Group a
and ACBS Reesearch (2013) Last yea
ar, Masan Con
nsumer bought 4
40% stake in
n Proconcco, a leading animal feed pro
oducer in Vieet Nam. Recentlly, Masan Consumer has also
o acquired 2
24.9% of Vinh Ha
ao, the first d
domestic minera
al water prod
ducer in Vietnam
m. Bloomberg: ACBS<GO
O> Last year, M
Masan Conssumer also b
bought 40%
% stake in Prroconco, a leeading anim
mal feed producer in i Vietnam. Proconco is i now speccializing in pig, poultry
y, fish and shrimp feeds. Acco
ording to ou
ur estimation
n, currently,, 11% of tottal animal feeed market b
belongs to Proconcco. The acqu
uisition migght help Maasan Consum
mer to take part in sup
pplying protein‐baased productts including pork, chick
ken and seafo
ood. Given tthe high dem
mand of hygiene foo
od productss, this markeet is highly p
potential. Recently, M
Masan Consu
umer has accquired 24.9
9% of Vinh H
Hao. This firrm is known
n as the first domeestic mineraal water pro
oducer in Vietnam V
and
d currently holds the second position in
n mineral water w
produ
uction. Vinh
h Hao has a wide ran
nge of well‐‐known drinking products p
inccluding mineeral water, purified waater and mineral waterr based soft drinkss. Masan Con
nsumer also
o intended to
o acquire the remainingg stake of Vinh Hao Pagge 4 of 15 MSN – COVERAGE HOLD Target price: 117,924 Current price: 123,000 Updated as of April 9, 2013 via tender offer. By taking control of Vinh Hao, Masan Consumer is in hope to put one more step into the fast‐growing beverage market. Strong Revenue Growth Unit: VND billion Net Revenue
10,389 7,057 5,586 3,958 1,922 571 660 2006
2007
2008
2009
2010
2011
2012
Source: Masan Group and ACBS Research (2013) During 2006­2012, Masan Consumer’s net revenue increased at an astounding rate of over 18 times. Over the period of 2006‐2012, Masan Consumer’s net revenue increased at an astounding rate of over 18 times. Regarding revenue structure, sauce has been a biggest contributor to Masan Consumer’s revenue. According to our estimation, in 2012, sauce accounted for 47% of Masan Consumer’s total revenues. The follower is instant noodles which contributed a smaller portion of 33% the firm’s total revenues. Besides, its subsidiary, Vinacafé Bien Hoa added nearly VND 2,115 billion, equivalent to around 20% of Masan Consumer’s total revenues. Sauce product line is In terms of sauce product line, thanks to aggressive advertising and marketing estimated to grow at 10% per strategies, Masan Consumer’s sauce brands have become highly recognized over the last 3‐4 years. Besides, the recent food safety scandals related to fish sauce and soya annum in the next 5 years. sauce have raised the demand for quality and safety products. Consequently, consumers have tended to shift to well‐known premium brands like Masan Consumer’s. As a result, only 10 years after the launch, the major portion of sauce market share belonged to Masan Consumer. However, since Masan Consumer holds the dominant sauce market share, especially the fish and soya sauce, the upside potential of this product line is quite limit. According to our estimation, the sauce product line might grow at around 10%, which is close to the growth rate of the industry. Instant noodles product line is expected to grow faster at around 25­30% per annum during 2013­2018. The other traditional product line, instant noodles, has also experienced a strong growth in recent years. In details, Masan Consumer’s instant noodles market share has climbed from 2% in 2008 to 16% in 2011. Up to now, Masan Consumer has a wide range of instant noodles’ brands targeting from hi‐end to low‐end market. In 2012, the newly launched product named Kokomi which targets the mass market has been a key driver for 2012 astounding growth of sales. In 2012, from our projection, the revenues created by instant noodles product line reached an impressive growth rate of 65% which was 6 times higher than the growth rate of the overall industry. From our view, we expect this product line to grow at around 25‐30% per annum during 2013‐2018. According to our estimation, the sales of Vinacafé Bien Hoa might increase 30% y.o.y over the next five years. Regarding Vinacafé Bien Hoa, after being acquired by Masan Consumer, the firm has been strongly supported in terms of R&D, marketing strategies and distribution channels. In late June 2012, the firm has launched several new products including “Wake up Café Saigon” and cereals product named “Kachi”. These new products contributed significantly to the sales growth of Vinacafé Bien Hoa. Additionally, last November, a new coffee product called Wake up Weasel flavor has been launched successfully. This new unique flavored coffee product is expected to work well in Bloomberg: ACBS<GO> Page 5 of 15 MSN – COVERAGE HOLD Target price: 117,924 Current price: 123,000 Updated as of April 9, 2013 2013. In general, the 2012 growth rates of 33% in sales and 44% in net income have clearly demonstrated the synergy created by the two. According to our estimation, the sales of Vinacafé Bien Hoa might increase 30% y.o.y over the next five years. High Profit Margin Gross Profit Margin
43%
41%
43%
31%
35%
24%
12%
2006
2007
2008
2009
2010
2011
2012
Source: Masan Group and ACBS Research (2013) Over the last 3 years, the gross profit of Masan Consumer was quite stable in a range of 41­43%. During 2006‐2010, Masan Consumer’s gross profit margin climbed dramatically from 12% in 2006 to 43% in 2010. Then over the last 3 years, the gross profit margin was quite stable in a range of 41‐43%. The gross margin of sauce and instant noodles product lines are expected to remain stable at over 40% and 30% respectively. Instant noodles have suffered the lower profit margin of 34‐38% according to our estimation. This could be primarily explained by the intensive competition in the instant noodles market and the penetration strategy of Masan Consumer. However, the current profit margin of this segment is still a desire of many F&B producers. Under the plan to expand the current market share, we are worry that the profit margin of instant noodles product line might be reduced slightly; nevertheless, the profit margin is still expected to keep as high as over 30% during the next 5 years. The profit margin of Vinacafé Bien Hoa is expected to be widened by 2­3 percentage points and it might stabilize at around 30% over the forecasted period. Regarding Vinacafé Bien Hoa, in 2012, the profit margin of this subsidiary also climbed nearly 3 percentage points to 27.62%. The main factor which will raise the gross profit margin of Vinacafé Bien Hoa will be the successful replacement of imported material with self‐produced instant coffee. Despite the soar of profit margin in 2012, this figure is still low compared to sauce and instant noodles segments. This year, we expect the profit margin of Vinacafé Bien Hoa to be widened by 2‐3 percentage points and it might stabilize at around 30% over the forecasted period. Among Masan Consumer’s product portfolio, sauce has a highest profit margin of 46‐
48%. Since this product line still enjoys uncontested competition, we expect its gross profit margin to maintain around the current level over the years to come. M&A Outlook In 2011, Masan Consumer acquired over 50% of Vinacafé Bien Hoa; up to now, 53.2% stake of Vinacafé Bien Hoa belongs to Masan Consumer. In 2012, Masan Consumer bought 40% stake of Proconco, equivalent to USD 96 million. This year, after holding 63.51% ownership of Vinh Hao, Masan Consumer continues buying the remaining stake via tender offer. The total capital invested to acquire 100% of Vinh Hao is expected to be around VND 700 billion. Masan Consumer might also support its fantastic growth via M&A. Bloomberg: ACBS<GO> As consistent to Masan Group’s strategy, from our view, Masan Consumer might also support its fantastic growth via M&A. Masan Consumer targets firms with strong and sustainable cash flows. After taking controls of acquired firms, Masan Consumer affords to build up an outstanding operating platforms characterized by professional management, sound marketing system and high profitable product portfolio. After Page 6 of 15 MSN – COVERAGE HOLD Target price: 117,924 Current price: 123,000 Updated as of April 9, 2013 acquiring Vinacafé Bien Hoa, the synergy created for the two has clearly demonstrated the ability and efficiency of Masan Consumer’s M&A strategy. The average internal generated cash flows available for further M&A could be up to VND 4,000 – 5,000 billion per annum during the next 5 years. Since Masan Consumer retains all of its net income; according to our projection, the average internal generated cash flows available for further M&A could be up to VND 4,000‐5,000 billion per annum during the next 5 years. However, since we do not have any information of Masan Consumer’s further M&A plan, we do not take into consideration the upside as well as downside potential of future M&A deals in our valuation model. Valuation Regarding market based valuation, we use the adjusted average price to earnings (P/E) and EV/EBITDA multiples of F&B producers in emerging Asia Pacific countries to get the fair price of Masan Consumer. Under this approach, the fair price of the firm should be VND 86,739 billion. Price (VND billion)
84,018
89,460
86,739
Valuation method Price to earnings (P/E)
EV/EBITDA Average Weight
50%
50%
100%
Source: ACBS Research (2013) MASAN RESOURCES Nui Phao Project Masan Resources currently holds 100% economic benefit of Nui Phao project. Currently, Masan Resources holds 100% economic benefit of Nui Phao project. So far, Nui Phao is one of the largest tungsten mines in the world come along with significant deposits of fluorspar, bismuth and copper. When come into production, Nui Phao is expected to be the biggest tungsten producer outside China and belong to the top producers of fluorspar and bismuth in the world. As an open‐pit mine characterized by low strip ratio, Nui Phao has relatively low operating costs compared to other tungsten producers. Besides, the project is located 180km and 240km away from Hai Phong and Cai Lan ports, which provide convenient access for shipping products. Additionally, there is a narrow gauge railway that connects to the Vietnam railway system. Ore Reserves Proven Probable Total Tonnes (‘000) 25,200
27,350
52,550 Tungsten (%) 0.26
0.17
0.21 Fluorspar (%) 8.31
7.71
8.00 Copper (%) 0.25 0.17 0.21 Bismuth (%) 0.12
0.08
0.10 Gold (g/t) 0.27
0.18
0.22 Source: Masan Group and ACBS Research (2013) As far as we know, Masan Resources has already finalized the offtake contracts for fluorspar and bismuth products from Nui Phao. Besides, copper produced is expected to sell domestically to minimize the logistics costs. In terms of tungsten, Masan Resources is still working on discussions with potential offtakers. The firm intended to find an offtaker who can also work as a partner providing technical expertise towards producing value‐added tungsten products. Nui Phao is expected to generate over US$ 350 million revenues and US$ 150­200 million EBITDA annually during the life span of over 16 years. Bloomberg: ACBS<GO> In this Q2/2013, this project is expected to come into production. According to the firm, the life span of this project is estimated to be over 16 years. During this period, Nui Phao could generate over US$ 350 million revenues and US$ 150‐200 million EBITDA annually. So far, to finance Nui Phao project, we estimated that Masan Resources has facility to borrow US$ 285 million from Vietnam Development Bank, Standard Chartered Bank and a syndicate of local commercial banks led by Vietcombank at floating interest Page 7 of 15 MSN – COVERAGE HOLD Target price: 117,924 Current price: 123,000 Updated as of April 9, 2013 rates. According to the estimated cash flow generated from the project, we expect all debt to be paid in the first six years after Nui Phao comes into production. Global tungsten APT price ($/mtu)
500
400
300
200
100
0
Source: Bloomberg and ACBS Research (2013) Since tungsten is estimated to contribute up to 55% of total revenue of Nui Phao, the fluctuation in price of tungsten could significantly change the fair value of Nui Phao. Over the last 20 years, the price of tungsten climbed nearly 9 times, equivalent to the CAGR of 11%. However, recently, the current economic downturn has drifted down the demand of tungsten, which resulted in the drop of tungsten price. Despite of the current slump in price, in terms of long‐term prospect, we believe that tungsten might return to its upward trend, driven by the world increasing demand of this metal. Valuation According to our valuation model, Masan Resources is priced at VND20,330 billion. In our valuation model, we use Net Present Value (NPV) approach to price the intrinsic value of Masan Resources and its added value to Masan Group. According to our assumptions, Masan Resources is currently priced at VND 20,333 billion. TECHCOMBANK Scale growth Among the fastest growing banks in terms of scale. Established in 1993, Techcombank is among the commercial banks having fastest growth in terms of operation scale. Total assets recorded an average growth of over 60% in the period of 2007‐2011. However, in 2012, due to the difficulties of the whole economy as well as the banking sector, total assets of Techcombank slid by 0.4% to VND 180 trillion. In terms of equity, Techcombank increased its charter capital rapidly with an average growth of 37% in the period of 2008 – 2011. At the end of 2012, the bank’s charter capital stood at VND 8.8 trillion after the issuance of 6 million shares to employees. Regarding dividend payment policy, in the past years, most of profits are preserved for investment instead of paying out. Network Possessing 307 branches and At the end of 2011, Techcombank possessed the 3rd largest network among private transaction offices and 1,205 commercial banks in Vietnam with 307 branches and transaction offices nationwide. The number of ATM also increased from 1,021 to 1,205 in 2011. As the first private ATMs at the end of 2011. commercial bank to become the member of Smartlink – Banknetvn, it helps clients to access more than 9,000 ATMs. The network’s enlargement helped the bank to enhance its approach to clients, expand its client base and improve service platform. Given the bank’s strategy to focus on SME and retail clients, the network building plays a more and more important role in the bank’s success. Bloomberg: ACBS<GO> Page 8 of 15 MSN – COVERAGE Updated as of April 9, 2013 HOLD Target price: 117,924 Current price: 123,000 Credit & Fund mobilization activities Credit growth Techcombank’s credit growth in the period of 2008 – 2011 was quite high, 33% annually on average. At the end of 2011, total outstanding loans (including corporate bonds) of the bank were VND 84 trillion. In our estimation, the bank held about 2.95% of the lending market share. Outstanding loans growth recorded a five year low of 8% in 2012. 2012 was a challenging year for the Vietnamese banking sector with weak credit growth and rising NPL. Techcombank is not an exceptional case. Being affected by the difficulties of the economy as a whole and the banking system in particular, the growth rate of Techcombank’s outstanding loans recorded a five year low of 8%. If corporate bonds are included, the credit growth rate in 2012 will be 14%. With this, the outstanding loans (including corporate bonds) of the bank as of the end of 2012 were VND 95 trillion. In 2013, we expect the credit activity of the bank to grow by 11%. In the later years, the credit growth is expected to recover gradually. However the impressive results as in the past might not happen. In our projection, the growth rate in the period of 2014‐
2018 is forecast at 15% per year on average. Fund structure The LDR at the end of 2012 was 85%. Total mobilized funds of Techcombank as of the end of 2012 were VND 166 trillion, decreasing slightly by 1% compared to the beginning of the year. Regarding customer deposits, after experiencing a “modest” growth of 10% in 2011, it has recovered and posted an impressive growth of 26%, lifting the average growth for the period of 2009‐
2012 to 31%. With this result, the bank outperformed the industry in terms of fund mobilization growth. Looking at the fund structure, the proportion of customer deposits in total mobilized funds increased to 67% after gradually falling from 74% in 2008 to 53% in 2011. Given the customer deposits at the end of 2012 of VND 111 trillion, Techcombank enlarged its fund mobilization market share from 3.6% in 2011 to 3.77% in 2012. With the improvement of customer deposit in 2012, the loan to deposit ratio (including corporate bonds) at the end of 2012 was 85%, falling from the level of 95% in 2011 and also lower than the industry average of 89.35%. However, according to our calculation, as of the end of 2012, Techcombank was still a net borrower on the interbank market. With the current situation when the interbank market funds are available at relatively low costs, the liquidity risks might not affect the business operations of Techcombank in the short‐term. Nevertheless, in the long run, the ability to develop credit activity further might be constrained. In the projection period, the customer deposits are expected to grow by 15% per year, equivalent to the credit growth rate in the same period. The LDR is projected to decrease slightly and remain at around 82%. Decreasing credit quality Notably, Techcombank was quite strict in solving bad debts and clearing the balance sheet. Then the bank would record other income in the year later for collectible debts. As such, the NPL ratios in 2009 and 2010 were 2.5% and 2.3% respectively and the bank recorded about over VND 200 billion other income in 2010 and 2011 for debts which were collected after clearing, However, in 2011, the cleared bad debts were only VND 27 billion. As a result, the NPL ratio at the end of the year climbed to 2.8%. In 2012, due to the difficulties of the economy which affected the business operation of 2012 provision expenses were over 4 times as much as enterprises, we expect that the credit quality of Techcombank became worse as the same trend of the banking system. It has been proven by the significant acceleration of that in 2011. Bloomberg: ACBS<GO> provision expenses, which reached VND 1.5 trillion, over 4 times as much as that in 2011. However the NPL ratios and overdue debt at the end of 2012 were 2.7% and Page 9 of 15 MSN – COVERAGE Updated as of April 9, 2013 HOLD Target price: 117,924 Current price: 123,000 5.6% respectively, lower than those in 2011. It was attributable to the reason that the bank used about VND 1.1 trillion provisions to clear bad debts in the year. Service activities Given the strategic cooperation with HSBC, who holds a 20% stake, Techcombank received many supports to develop service activities. Service income accounted for about 17% of total income of the bank on average in the period of 2008‐2011. Nevertheless, the fast development of service activities of commercial banks is causing increasing competition. In 2012, service income fell by 31% y‐o‐y while service expenses grew by 31%. Hence, the net income from service activities posted a drop of 51% to only VND 565 billion, contributing 10% to operating income. We expect that the negative growth of service income will not continue in the future. In our projection, service income is forecast to increase by 15% per year in the period of 2014‐2018. Profitability In previous years, the profitability ratios of Techcombank were very impressive with Profitability ratios decreased average ROE and ROA in the period of 2008 – 2011 of 25.14% and 1.96% respectively, significantly in 2012. among the best in the industry. However the situation became worse in 2012. As mentioned above, because of significant increase in provision expenses for credit losses, the bank’s earnings result was strongly damaged. 2012 EBT stood at VND 1 trillion only, falling by 76% compared to 2011. As such, the ROE and ROA were pulled down to 5.92% and 0.42% respectively. In the coming years, we expect the bank’s earnings will recover and post an average growth of 22% annually in the period of 2014 – 2018. Valuation To value the intrinsic value of Techcombank we use the Residual income method with the required rate of return of 15.5%. Under this method, Techcombank is priced at VND 10,217 billion. With the comparable method, price to earnings (P/E) and price to book (P/B) ratios of Asia Commercial Bank (HNX: ACB), Military Bank (HSX: MBB) and Eximbank (HSX: EIB) are used as benchmarks to determine the fair price of Techcombank. We define the intrinsic value of Tecombank at VND 12,068 billion. Valuation method Price (VND billion)
Weight Residual income
10,217
50%
Price multiple approach
12,068
50%
Average 11,143
100% Source: ACBS Research (2013) CORPORATE GOVERNANCE SHAREHOLDING STRUCTURE Shareholders As of 31 Dec 2012 Masan Corporation Hoa Huong Duong Ltd BI Private Equity New Market II K/S (Bankinvest) Number of Shares 250,421,247 99,817,804 32,862,779 Stake (%) 36.44
14.52
4.78
Sources: Masan Group and ACBS Research (2013). Since Masan Corporation currently holds 100% ownership of Hoa Huong Duong Ltd, Masan Corporation controls 50.96% stake of Masan Group. Another major shareholder is BI Private Equity New Market II K/S (4.78%) – Bankinvest, a European fund. Besides, foreign investors currently hold 21.64% ownership of Masan Group. Bloomberg: ACBS<GO> Page 10 of 15 MSN – COVERAGE HOLD Target price: 117,924 Current price: 123,000 Updated as of April 9, 2013 In addition to Bankinvest, leading international investors such as TPG, Richard Chandler Corporation, Goldman Sachs and IFC have invested in Masan Group’s convertible insstruments. Therefore, it is likely that these investors might become the group’s major shareholders. COMPANY STRUCTURE Masan Corporation
100%
HoaHuong Duong 36.44%
14.52% Techcombank 100% Hoa Bang Lang Masan Horizon Masan Group
100% 49.12%
5.71%
Masan Consumer
63.51% Vinh Hao 100% Masan Industrial 100%
Viet Tien Food 100% 100%
100%
Hoa Dong Tien Hoa Muoi Gio 100%
Nui Phao
40% Masan Food
100% Masan Resources
6.73%
6.73%
53.2% Vinacafé BH 100%
Hoa Thuoc Duoc
Hoa Phong Lan 9.00%
80% 100%
20% Proconco 100% 94.5%
Minh Viet Packaging
Masan Phu Quoc Masan HD
Sources: Masan Group and ACBS Research (2013). Masan Corporation owns 36.44% of Masan Group and Hoa Huong Duong, a 100% owned subsidiary of Masan Corporation also holds 14.52% of Masan Group. Masan Group directly owns 49.12% of Masan Consumers and holds another portion of 28.17% via Hoa Bang Lang, Hoa Phong Lan, Hoa Thuoc Duoc and Hoa Dong Tien. Hoa Thuoc Duoc and Hoa Dong Tien are two firms whom Masan Group does not own but has been assigned 100% of voting rights and all economic benefits relating to the ownership in these companies. Masan Group also owns 20% of Techcombank and 80% of Masan Resources via its 100% owned subsidairy named Masan Horizon. Its subsidairy, Masan Consumer, owns 100% of Masan Food, 53.2% of Vinacafé Bien Hoa, 24.9% of Vinh Hao and 40% of Proconco via Hoa Muoi Gio. Masan Food has 5 subsidairies specializing in producing instant noodles and sauces. Bloomberg: ACBS<GO> Page 11 of 15 MSN – COVERAGE HOLD Target price: 117,924 Current price: 123,000 Updated as of April 9, 2013 As far as we know, many of these subsidiaries were formed to facilitate investment by private equity funds. Besides, Masan Group has stated that its vision is to simplify the company structure over the next year. BOARD OF DIRECTORS Board of Directors 1 Nguyen Dang Quang
2 Ho Hung Anh
3 Lars Kjaer 4 MadhurMaini
5 Nguyen Thieu Nam
6 Nguyen Hoang Yen
Sources: Masan Group and ACBS Research (2013). Mr. Nguyen Dang Quang is currently the chairman of board. Position Chairman of Board
Vice Chairman of Board
Board Member
Board Member
Board Member
Board Member
Mr. Nguyen Dang Quang is currently the chairman of board; he is also known as a leader who has built up Masan Group since the date of establishment. Mr. Madhur Maini serves as both board member and CEO of Masan Group. Besides, Mr. Nguyen Thieu Nam, deputy CEO of Masan Group, concurrently serves the group’s board member. Other 3 board members are Mr. Ho Hung Anh, Mr. Lars Kjaer and Ms. Nguyen Hoang Yen. FINANCIAL TRANSPARENCY During 2009­2012, the auditors gave unqualified opinion on all of the firm’s financial statements in accordance with VAS. Masan Group’s financial statements were audited by KPMG which is one of the prestigious Big 4 auditing firms. During 2009‐2012, the auditors gave unqualified opinion on all of the firm’s financial statements in accordance with VAS. FINANCIAL ANALYSIS LIQUIDITY Liquidity Ratios Cash ratio (times)
Quick ratio (times)
Current ratio (times)
2009 0.93 1.85 2.02 2010 1.05 1.34 1.43 2011 2.64 3.29 3.46 2012 1.10 1.67 1.78 Sources: Masan Group and ACBS Research (2013). At the end of 2012, Masan Group’s liquidity ratios were much lower compared to 2011 but still in a safe range. Masan Group’s liquidity ratios had increased significantly then reached a peak in 2011. The main reason for the sudden increase in 2011 liquidity ratios was an existence of VND 9,574 billion cash and cash equivalents item on Masan Group’s 2011 balance sheet. In 2011, the cash and cash equivalents item increased by over VND 6,100 billion which mainly came from the increasing debt of VND 3,316 billion and the 2011 retained earnings of nearly VND 1,968 billion. At the end of 2012, Masan Group’s liquidity ratios were much lower compared to 2011 but still in a safe range. In details, the group’s cash ratio, quick ratio and current ratio were 1.10, 1.67 and 1.78 respectively. Besides, at the end of 2012, Masan Group had around VND 7,559 billion cash and bank deposits on the balance sheet. SOLVENCY Solvency Ratios Debt to assets (%)
Liabilities to assets (%)
Debt to equity (%)
Liabilities to equity (%)
Financial leverage (Times)
2009 20.26 27.75 29.86 40.90 1.38
2010
28.99 42.50 57.66 84.54 1.74
2011 28.12 35.80 59.48 75.70 1.56
2012 37.27 49.01 103.68 136.34 1.96
Sources: Masan Group and ACBS Research (2013). Bloomberg: ACBS<GO> Page 12 of 15 MSN – COVERAGE HOLD Target price: 117,924 Current price: 123,000 Updated as of April 9, 2013 During 2009‐2012, Masan Group’s debt climbed over 10 times from VND 1,422 billion in 2009 to VND 14,440 billion at the end of 2012. Besides, the owner’s equity increased at a slower pace of nearly 3 times from VND 4,762 billion in 2009 to VND 13,928 billion in 2012. Consequently, the solvency ratios of Masan Group seemed to look worse during 2009‐2012. In details, the debt to equity ratio soared 3 times from 29.86% in 2009 to 103.68% in 2012. Besides, the firm financial leverage also increased from 1.38 times to 1.96 times during 2009‐2012. However, if we exclude promissory notes and convertibles, which are likely to convert to equity, the debt is lower – at VND 8,775 billion at the end of 2012. Also, net of cash and cash equivalents, debt is at VND6,881 billion, giving a net debt‐to‐equity ratio of 49% in 2012. We still highly evaluate the solvency of Masan Group despite of the deteriorating solvency ratios. Despite of the above, we still highly evaluate the solvency of Masan Group mainly thanks to the strong expected cash flow generated from Masan Consumer and Masan Resources. PROFITABILITY Profitability ratios Gross profit margin Selling expenses/Net revenue
General and Administrative expenses/Net revenue
Net profit margin ROE ROE– pro‐forma ROA ROA – pro‐forma 2009
34.71
16.09
2.66
17.17
23.55
18.08
15.57
12.27
2010 42.81 17.03 3.83 47.07 29.68 19.28 16.22 10.54 Unit: % 2011 2012 43.35 40.54
14.31 12.67
5.76
7.01
35.37 19.42
14.89
8.74
19.27 13.34
7.21
3.60
9,34
5.50
* Pro‐forma numbers adjust for goodwill amortisation on acquisition of associates Sources: Masan Group and ACBS Research (2013). Over the last 3 years, Masan Group’s gross profit margin remained stable in a range of 40‐43%. Besides, thanks to the economies of scale, the selling expenses to net revenue ratio has decreased consistently from 17.03% in 2010 to 12.67% in 2012. However, the group’s general and administrative expenses has climbed much stronger than the increase of sales; as a result, the general and administrative expenses to net revenue ratio has jumped significantly from 2.66% in 2009 to 7.01% in 2012. Not as stable as gross profit margin, the net profit margin of Masan Group fluctuated in a wide range during 2009‐2012. The outstanding high net profit margin of 2010 and 2011 were mainly explained by the extraordinary high financial income of nearly VND 1,351 billion in 2010 and VND 837 billion in 2011. Masan Group’s ROA and ROE have experienced a decrease over the last 3 years. However, we believe these ratios might improve in the years to come. Bloomberg: ACBS<GO> In terms of return on assets (ROA) and return on equity (ROE), these ratios have experienced a decrease over the last 3 years. In details, Masan Group’s ROA dropped from 16.22% in 2010 to 3.60% in 2012 (on pro‐forma basis adjusting for goodwill amortization, the ROA was 5.50%). Besides, the firm’s ROE also slid from 29.68% in 2010 to the low level of 8.74% in 2012 (on pro‐forma basis adjusting for goodwill amortization, the ROE was 13.34%). The main reasons explained for the slump of Masan Group’s profitability could be (1) Since Nui Phao was acquired in 2010, the project has not yet contributed economic benefits to the group (2) The group’s M&A deals have completed recently under the relatively high price compared to the market price; hence, it takes time for Masan Group to build up the acquired firms’ operating platforms to create synergies and (3) Holding large cash and bank deposits with low interest rates has also dragged down the return on assets of Masan Group. In details, in 2011, the group held VND 10,796 billion cash and bank deposits over VND 33,573 billion total assets; besides; at the end of 2012, the group held VND 7,924 billion cash and bank deposits over VND 38,749 billion total assets. Despite of the consistent decrease in profitability, we believe that the group’s profitability ratios might improve Page 13 of 15 MSN – COVERAGE Updated as of April 9, 2013 HOLD Target price: 117,924 Current price: 123,000 in the years to come; especially when Masan Resources starts to contribute profit to the group. VALUATION NET ASSET VALUE APPROACH To find out the intrinsic value of Masan Group, we estimate the fair value of Masan Consumer, Masan Resources, Techcombank and its added value to the group. Regarding the value of other assets of parent company, we believe that this value should be equivalent to the book value. TARGET PRICE Net Asset Value Approach Masan Consumer (77%)
Masan Resources (80%)
Techcombank (economic interest – 30%)
Other Assets of MSN
Liabilities of MSN
Net Asset Value Shares Outstanding
Target Share Price (VND) Unit: VND billion 67,040
16,266
3,343
4,418
(10,020)
81,047 687,280,123
117,924 Source: ACBS Research (2013) According to our assumptions and other available information, we define the intrinsic value of Masan Group at VND 117,924 per share. RECOMMENDATION RISK ASSESSMENT Regarding downside risks, there are three main issues needed to be considered (1) Since Masan Group decided to support growth via massive M&A, if the group loses in creating synergies by building up the outstanding operating platforms for acquired firms, this “supporting growth via M&A” strategy could significantly drag down the profitabiltiy of Masan Group. (2) The change in price of metals produced by Nui Phao could considerably change the value of Masan Resources also the value of Masan Group. (3)If the economy does not become better, the bad debt provision can drain out the profit of Techcombank in the coming years, this could negatively affect the target share price of MSN. RECOMMENDATION Among Vietnamese listed firms, Masan Group’s operating is quite outstanding. The group has strong and stable cash flows generated by two of its subsidiaries Masan Consumer and Masan Resources. Besides, Masan Group’s growth prospects have high potential. However, after considering Masan Group’s fundamentals and related risks, we believe that the current market price of VND 123,000 per share has already reflected the fair value of the group. Hence, we give a HOLD recommendation for this ticker for long­term investors. Bloomberg: ACBS<GO> Page 14 of 15 MSN – COVERAGE Updated as of April 9, 2013 HOLD Target price: 117,924 Current price: 123,000 ANALYST CERTIFICATION The analysts named in the first page of this report, who are primarily responsible for the preparation of this report, certify that the opinion(s) on the subject company and any other views or forecast expressed herein accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or view(s) contained in this report. REPORT DISTRIBUTION This report is restricted to and intended only for the clients of ACBS in Vietnam. If the client receives and/or uses this report outside Vietnam, it is the client’s sole responsibility to ensure that it is legally permitted in client’s jurisdiction. Otherwise the client should disregard this report in its entirety and let ACBS know that it does not longer wish to receive such reports. DISCLOSURE & DISCLAIMER As at the issue date of this report, the analyst(s) and ACBS have no interest in Masan Group Corporation. This report is provided for information purposes only. It is aimed to aid the client in the investment progress. It is not intended as an offer or solicitation for the purchase of the share of the subject company. The opinions and recommendations herein (if any) do not take into account individual client circumstances, objectives, or needs and are not intended as recommendations of particular share, investment tactic or strategy to a particular client. The information in this report is obtained from sources believed by ACBS to be reliable. However ACBS makes no warranty or representation as to their accuracy or completeness as well as this report is free from human’s or device function’s error(s). The information is subject to change without prior notice. The Client shall be liable for any risk or loss (if any) as the client makes the investment based on this report. ACBS accepts no liability and will not be liable for any loss or damage arising directly or indirectly from the client’s use of this report, including any loss, damage or expense arising from, but not limited to, any defect, error, imperfection, fault, mistake or inaccuracy with its contents. Some parts of the report reflect the assumptions, views and analytical methods of the analysts who prepared them, and ACBS is not responsible for any error of their works and assumptions. ACBS may have issued, and may in the future, issue other reports that are inconsistent with, and reach different conclusions from, the information presented in this report. Although at the present, ACBS and the analysts do not have any interest in the subject company as disclosed above, in the future, ACBS and the analysts may have positions in and may from time to time purchase or sell its shares. © Copyright. ACB Securities Company Limited 2013, ALL RIGHTS RESERVED. No part of this report may be reproduced or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of ACB Securities Company Limited. Bloomberg: ACBS<GO> Page 15 of 15