2014 Market Outlook and Strategy Run Now Charge Later January 2014 SSIResearch

Date: 31.01.2014 Institutional Research & Investment Advisory

www.ssi.com.vn Visit SSI Research on Bloomberg atSSIV 1

EXECUTIVE SUMMARY

2014 Macro Outlook: A year of loosely infrastructure spending

In 2014, the government will continue to advocate its double-goal strategy: supporting growth while

maintaining macroeconomic stability We believe the government will be more inclined to promote pro-growth

measures in 2014 as local businesses cannot bear the brunt of another prolong reform. The end of the 5-year plan

(2011-2015) is in hands reach and the government needs to salvage and implement some of the previous

announced reforms. Below are key highlights that will capture the governments attention during the year:

1. The apparent need for infrastructure improvement: With Vietnams poor infrastructure score

against ASEAN peers, it is conspicuously rational for the government to direct its focus onto upgrading Vietnams

infrastructure system. Two important sectors include transportation and energy, with capital expenditure to increase

33.3% and 11.7% in 2014. It is estimated that Vietnam needs approximately USD 167 bn similar to Vietnams

current GDP - in the next ten years for infrastructure investments (source: ADB), and this leaves Vietnam with a

dilemma; to stay competitively fit against its ASEAN peers, it needs to enhance and improve its infrastructure, but

with investment needs exceeding available funding, Vietnam will need to accurately identify and execute the most

viable projects. However, it should be noted that infrastructure investment is a long term strategy, and its multiplier

effect could potentially translate into significant growth in the coming years, but not immediately in 2014.

Although the need for improving infrastructure is apparent, there are a number of issues in the implementation of

infrastructure projects in Vietnam: (1) Land-swap mechanism in infrastructure projects; (2 Is PPP (Public

Private Partnership) the solution? (3) Concern on efficiency of infrastructure investment projects

2. Accelerating SOEs restructuring: SOEs restructuring were plagued with delays in 2013, and we expect

that a number of 2013 IPOs would be carried over to 2014, including Viglacera (glass & ceramics), Vinatex (textile

and garment) and Vietnam Airlines. A number of new IPOs were announced including ACV (Airport Corporation of

Vietnam, owner of all the major airports in Vietnam, including Tan Son Nhat, NoiBai and primary investor of the Long

Thanh Airport mega-project), and a number of the Ministry of Transports CIENCO (Civil Engineering Construction

Corp, No 1-4-5-6, which are all major contractors for most of the public infrastructure projects). The new regulation

that stipulates the listing of stocks within one year after an IPO would entice investors participation. Other

developments in 2014 would include SCIC (State Capital Investment Corp) and SOEs non-core business

divestment, where the MoF might issue a decision that permits SCIC and SOEs to sell states assets below book

value.

3. Funding source: Foreign investors remain an extremely imperative part of the equation

Large-scale infrastructure projects, banking sector reform and more aggressive IPOs raise the question of funding

sources. Public investment will remain identical in 2014 (from state budget development investment, plus

government disbursement was nearly USD 13 bn, similar to 2013s level). The government expects for higher credit

growth in 2014 (target 12-14%, but our estimate is higher at 15% - because of a soft-landing for the banking sector

which will be discussed below), and seemingly factors behind higher credit growth are not only consumer credit (as

in 2013) or SOEs, but also private investment. Foreign investors remain an extremely imperative part of the equation,

not just FDI (2013 high commitments might result in better disbursements in 2014), or FII (with foreign ownership

limit extending for both bank and non-bank institutions), but ODA would become an integral source of financing. It is



reported that undisbursed ODA reached USD 15 bn so far, and the government has set aside roughly USD 1 bn as

counter-capital for 2014 with detailed distribution sent to all provinces, so it signals more disbursement of ODA for

2014.

Risk to our forecast: (1) Political risks will be limited, if not rare, and nowhere in the proximity to Thailand. (2) In

regards to public finance, the risk of high public debt is very conspicuous and legitimate, given the nature of high

budget deficit, increasing demand for infrastructure investment (however, ill-managed), all of which could easily

translate to higher inflation. Public debt is rapidly increasing (debt payment accounted for roughly 24% of the state

budget in 2013, and several experts forecast that it would rise to 30% in the next 3 years, which would be quite

alarming), and the reason behind the rapid increase was to satisfy the immense demand for infrastructure projects.

2014 MARKET OUTLOOK: Six investment themes for 2014

1. The economy has bottomed out with macro stability being ensured, all the elements

are in place for upsides ahead

Although the recovery will be gradual with continuous support from the FDI sector, the two important reforms (i.e.

banking reform and SOEs reform) have finally exhibited initial momentum. Our assumption is that both reforms will

accelerate in 2014. It is befitting to assume that 2013, the year of the snake, exhibited crawling banking and SOEs

reforms and restructuring. We expect that 2014, the year of the horse, banking and SOEs reforms and restructuring

will run rampant.

In both reforms, recapitalization is the key. However, it is not easy to attract external funding at this moment in time

as investors will carefully consider before investing in banks or SOEs, and among the factors of consideration there

are operation efficiency and risks. This, in turn, will accelerate the two reforms.

2. Given the gradual economic recovery and on-going reforms which triggered positive

catalysts for the market, market valuation re-rating is envisioned for 2014.

We believe the VN Index could increase 17-20% as compared with 2013-end (which closed at 504.6). This then

renders to the notion that the VN Index might reach 590-600 by the end of this year. If we add a 5% dividend yield,

the average total return from Vietnam equity market will be 23% in 2014.Our forecast is based on 2014 EPS growth

at 7%. We expect market PER will be rerated from the level of 10.7x in the beginning of the year to 12x 13x by

end of this year, powered by gradual economic improvement and the on-going reforms which will trigger positive

catalysts such as FOL extension, new IPOs or banks M&A etc

3. Time to revisit the banking sector?

We believe the time is prime to revisit the sector in 2014, although not immediately, but possibly by end of 1Q14 -

when banks release their 2013 results and have a more definite picture on 2014. After nearly 2 years of being head-

over-heels with challenges, management at most of the banks have now taken on a very conservative approach and

most have decreased operating expense by reducing staff, salary cut and organization restructuring to improve

operation efficiency. Developments in retail banking and consumer finance are the choices for many banks to

compensate for NIM reduction.

In 2013, given serious challenges facing the banking sector, investors shied away from bank stocks and this

corresponded with our consistent view of 'Sector Underweight' so far.



4. Top line growth will be stronger in 2014, margin expansion will trail that of 2013

2013s average sales/net profit growth of 62 companies under SSIResearch coverage are 9% and 19.3%,

respectively

2014s average sales/net profit growth of 62 companies are 16% and 8.2%, respectively

In 2013, margin expansion was supported by significant lower interest rate, lower input cost and operating

expense cut while top line growth was quite weak, corresponding with the overall weak economy. In 2014, our

forecast on revenue growth is better than 2013 while margin will stabilize with support from lower CIT (from 25%

in 2013 to 22% in 2014), no more salary cut and slightly lower interest rate in 2014.

2014 median EPS growth of 9% (2013: -5%)

2014 dividend yield of 5% (2013: 5%)

5. Industrial & Infrastructure-related sectors are our favorite for this year.

With mega infrastructure projects in the pipeline, we are bullish on industrial and infrastructure-related sectors such

as construction, construction materials, industrial zones and ports.

6. Turnaround stocks are sexy.

As the economy has bottomed out, different sectors will exhibit different turn-around phases. We believe that the

Consumer sector has already bottomed out in 1H13 while Banking -Property and a number of commodity sectors

have not yet reached their bottom. For turnaround companies, we would like to note that their valuations are still at

very high as they just transitioned from 'loss' to 'profit-making' status and their balance sheets remain under pressure

to a certain degree. Those stocks, mostly mid and small cap, will attract investors' attention, especially retail

investors in 2014.



TABLE OF CONTENTS

EXECUTIVE SUMMARY ......................................................................................................................................................................... 1

MACRO .......................................................................................................................................................................... 5

2013 Macro Review: FDI-led growth ............................................................................................................................................... 6

2014 Macro Outlook: A year of loosely infrastructure spending ............................................................................................... 9

MACRO ECONOMIC FORECAST................................................................................................................................................... 17

2014 MARKET OUTLOOK .......................................................................................................................................... 18

MARKET REVIEW: Vietnam Stock market saw a decent performance in 2013 .................................................................... 19

MARKET OUTLOOK: Six investment themes for 2014 .............................................................................................................. 20

SECTOR WEIGHTING SUMMARY ................................................................................................................................................. 26

NATURAL RUBBER (Basic Materials) .......................................................................................................................... 27

STEEL (Basic Materials) ..................................................................................................................................... 30

FERTILIZER (Basic Materials) ........................................................................................................................... 33

SUGAR (Consumer Goods) ............................................................................................................................... 35

DAIRY (Consumer Goods) ................................................................................................................................ 38

CONFECTIONERY (Consumer Goods) ............................................................................................................. 42

FISHERIES (Consumer Goods) ......................................................................................................................... 44

FEED (Consumer Goods) ................................................................................................................................... 48

OTHER F&B (Consumer Goods) ....................................................................................................................... 51

TIRES (Consumer Discretionary) ...................................................................................................................... 54

Textile & Garment (Consumer Discretionary) .................................................................................................. 57

BANKING (Financials) ........................................................................................................................................ 60

INSURANCE (Financials) .................................................................................................................................. 68

HEALTH CARE (Pharmaceuticals) .................................................................................................................... 75

PLASTIC PIPE (Industrials) ................................................................................................................................ 79

PORTS AND SHIPPING (Industrials) ................................................................................................................. 82

ENERGY (Oil & Gas) ........................................................................................................................................... 85

TECHNOLOGY & TELECOMUNICATION (IT) ................................................................................................... 88

UTILITIES (Electricity) .......................................................................................................................................... 91

PROPERTY (Commercial Developer) ............................................................................................................... 93

INDUSTRIAL PARK DEVELOPER (Real Estate) ............................................................................................ 101

INFRASTRUCTURE & CONSTRUCTION (Industrials) ................................................................................... 105

RATING ................................................................................................................................................................................................. 108

DISCLAIMER ........................................................................................................................................................................................ 108

CONTACT ............................................................................................................................................................................................. 109



MACRO



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2013 Macro Review: FDI-led growth It was clear from the beginning of 2013 that FDI

would serve as Vietnams macroeconomic hope, and

throughout the year, it proved to be the engine

behind Vietnams economic growth given its

substantial contributions to total social investments,

manufacturing, and exports amid a deprecate private

sector. In particular, 2013 GDP growth finished at

5.42% YoY, improving slightly compared to the previous

years level of 5.25%. Among GDPs constituents,

Services posted the highest growth rate of 6.56% YoY,

and contributed 2.85 percentage points to the overall

growth. Industry and Construction came in second place

with an increase of 2.09% YoY; meanwhile, Agriculture,

Forestry & Fishery almost flattened at 2.67% following

unfavorable weather conditions. On the expenditure

side, final consumption edged up 5.36% YoY, and gross

capital formation posted an uptick of 5.45%. The story of

FDI-led growth is staunchly reflected in the below data.

2013 growth FDI sector State sector Private sector Total investment 9.9% 8.4% 6.6% Construction 34.3% -1.4% 6.2% Employment in manufacturing sector 6.6% -0.3% 3.2% Export 26.8% 3.5% Import 24.2% 5.6%

Source: GSO

Vietnams GDP growth (by sectors, yearly, year-on-year) 2010 2013

Source: GSO

Although we have seen modest growth, we believe it is

too premature to substantiate that economic growth will

regress back to its standard trend. In fact, economic

indicators are still alluding to challenges ahead

which will require further governments attention

and responses despite modest improvement. For

instance, retail sales growth was designated at a 4-year

low of 12.6% YoY in nominal terms or 5.6% in real

terms. The Index of Industrial Production (IPI)

convalesced, and registered a modest growth of 5.9%;

moreover, the inventory/production ratio remained high

at around 71.1% in spite of continuous efforts to lessen

this number.

Despite stagnant global economic activities,

Vietnams trade posted a persuasive performance

with a growth rate of 15.7% YoY compared to 2012s

level of 18.2%. However, the majority chunk of export

turnover was contributed by the FDI sector, which

-2

0

2

4

6

8

10

12

2010 2011 2012 2013

GDP growth (%- 2010p)

Agriculture (%)

Industry & Construction (%)

Construction (%)

Manufacturing (%)

Service (%)



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accounted for 61.4% of total export value and increased

22.4% YoY. The composition of the export basket

continued to gravitate towards high value added

products with computer, hand phone, and electronic

exports amounting up to 24.35% of total exports. On the

other hand, imports experienced slightly higher growth of

16.1% YoY. As such, the overall trade balance was

modestly positive at USD 10 million. But it is worth

noting that this figure has not taken into account gold

imports. Indeed, positive trade balance, and sustainable

FDI inflows helped the central bank strengthened its

foreign reserve, which was estimated at USD 32 billion

or 12.7 weeks of imports. Consequently, the Vietnamese

Dong recorded the best performance against other

foreign currencies.

Monthly trade balance VND/USD exchange rate

Source: GSO, & SSI Source: SBV, Bloomberg, & SSI

Economic stability became the Governments pride

as headline inflation recorded a 10-year low of 6.04%

YoY and averaged 6.6%. Specifically, soft domestic

demand continued to materialize since foods and

foodstuffs price growth remained at a low level of 5.08%

YoY. Additionally, decelerating commodity prices also

supported lower nationwide inflation. As such, the rally in

consumer price was solely predicated on public goods

and service price growth following a series of

government upward adjustments in health care

(+18.97% YoY) and education fees (+11.71% YoY).

Vietnams inflation Inventory, manufacturing, and retail sales

Source: GSO Source: GSO

(2,000)

(1,500)

(1,000)

(500)

-

500

1,000

1,500

2,000

5,000

7,000

9,000

11,000

13,000

15,000

Jan

-12

Mar

-12

May

-12

Jul-

12

Sep

-12

No

v-1

2

Jan

-13

Mar

-13

May

-13

Jul-

13

Sep

-13

No

v-1

3

Trade Balance (RHS)Exports (LHS)Imports (LHS)

20,500

21,000

21,500

22,000

22,500

Jan

-13

Feb

-13

Mar

-13

Ap

r-1

3

May

-13

Jun

-13

Jul-

13

Au

g-1

3

Sep

-13

Oct

-13

No

v-1

3

Dec

-13

Jan

-14

Official VND/USD Rate

Unofficial VND/USD Rate

-2%

-1%

0%

1%

2%

3%

4%

5%

0%

5%

10%

15%

20%

25%

30%

35%

Jan

-09

Jul-

09

Jan

-10

Jul-

10

Jan

-11

Jul-

11

Jan

-12

Jul-

12

Jan

-13

Jul-

13

Consumer price index: YoY (LHS)

Consumer price index: MoM (RHS)

CPI MoM (seasonal adjusted) (RHS)

-20%

-10%

0%

10%

20%

30%

40%

0%

50%

100%

150%

200%

250%

300%Inventory/production Ratio (LHS)

Retail Sales Real Growth (YoY)

Industrial Production Index (YoY) (RHS)



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Given tamed inflation, the central bank further

curtailed policy rate, and propelled lending at banks

to support domestic economic activities, however,

the impacts were constrained by high Non

Performing Loans (NPLs). Banking data released by

the State Bank of Vietnam (SBV) indicated that total

credit lines accelerated in December, and surpassed the

SBVs target of 12% YoY to finish at 12.51%. However,

its relatively challenging to identify the proportions of

actual credit growth and rescheduled one. In fact, fears

of rising bad debts galvanized banks to cascade their

money into the bond market, helping the Government to

finance its widened budget deficit at a low cost. As such,

even though the Vietnam Asset Management Company

(VAMC) asserted that they purchased VND 32.4 trillion

or USD 1.5 billion worth of bad debts in 2013, it will likely

take time to resolve these amounts, clean up banks

distressed assets, and enhance lending at banks.

Credit and deposit growth (% YoY) Budget deficit & issuance of G-bonds

Source: SBV & SSI Source: HNX, MOF, & SSI

-5%

0%

5%

10%

15%

20%

25%

30%

Jan

-12

Mar

-12

May

-12

Jul-

12

Sep

-12

No

v-1

2

Jan

-13

Mar

-13

May

-13

Jul-

13

Sep

-13

No

v-1

3Credit growth

Deposit growth

0%

1%

2%

3%

4%

5%

6%

7%

8%

-

20

40

60

80

100

120

140

160

180

200

2009 2010 2011 2012 2013

Trillion Dong T-bills (LHS)

G-bonds (LHS)

Budget deficit (% of GDP) (RHS)



2014 Macro Outlook: A year of loosely infrastructure spending

When it is all said and done, what will be definitive of 2014? And to answer this question, we must first acquaint

ourselves with the past. Five years ago in 2009, the government initiated the so-called lending rate subsidy

stimulus package which ushered in a period of easy accessible credit that ultimately failed to support sustainable

GDP growth. Core problems such as inflation, the depreciation of the Dong, bad debt, ect., began to emerge in 2010,

and by 2011, the government found themselves fully submerge in the crisis. 2012 and well into 2013, was a period of

assessments of the damages done and methods of amending those damages. Solutions such as comprehensive

banking restructuring and equitizing state owned enterprises (SOEs) were gradually proposed, ratified, signed into

law and implemented in 2013. This brings us to date, with the 2015 deadline of completing comprehensive

restructuring, before the Party Congress in 2016, we think that 2014 would serve as an important stepping stone to

accelerate the long-awaited reform or in short, a year of less talking but more walking.

In 2014, the government will continue to advocate its double-goal strategy: supporting growth while

maintaining macroeconomic stability (GDP growth at 5.8%, CPI around 7%, VND depreciation at 2% at most,

budget deficit at 5.3% of GDP, credit growth at 12-14%, maintain deposit rate stability and lower lending rate for

priority sectors). Our own estimate for key macroeconomic indicators are provided in page 14, where we expect

GDP growth at a lower rate of 5.6% (due to limited immediate ramifications from infrastructure investment and the

FDI sector), higher CPI (7.5%, due to the fact that results from public investments could not improve overnight,

couple with the continuous increases of subsidized utilities prices such as healthcare, electricity and higher VND

depreciation).

In pertaining to exchange rate, although forex reserve is adept to increase in parallel with import growth (12 weeks of

import) and foreign remittance remains resilient, we expect trade deficit might return due to a series of mega

infrastructure projects which is scheduled to commence in 2014 (therefore increasing demand for construction

materials and machineries). However, the current account balance or overall balance of payment is all positive,

therefore permitting the SBV to actively manage the VND/USD exchange rate.

We believe the government will be more inclined to promote pro-growth measures in 2014 as local businesses

cannot bear the brunt of another prolong reform. The end of the 5-year plan (2011-2015) is in hands reach and the

government needs to salvage and implement some of the previous announced reforms. Below are key highlights that

will capture the governments attention during the year:

4. The apparent need for infrastructure improvement

With Vietnams poor infrastructure score against ASEAN

peers (source: WEF 2013-2014 report), it is

conspicuously rational for the government to direct its

focus onto upgrading Vietnams infrastructure system.

Two important sectors include transportation and

energy, with capital expenditure to increase 33.3% and

11.7% in 2014. Key projects in the pipeline include:

national road 1A & 14, a number of expressways,

bridges, airports, deep-water ports (transportation), two

refineries and pipelines, a number of thermal power

plants and the second 500kV grid (energy see pages

8-9 for details). It is estimated that Vietnam needs

approximately USD 167 bn similar to Vietnams current

GDP- in the next ten years for infrastructure

investments (source: ADB), and this leaves Vietnam with

a dilemma; to stay competitively fit against its ASEAN

peers, it needs to enhance and improve its

infrastructure, but with investment needs exceeding

available funding, Vietnam will need to accurately

identify and execute the most viable projects. However,

it should be noted that infrastructure investment is a long

term strategy, and its multiplier effect could potentially

translate into significant growth in the coming years, but

not immediately in 2014.

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Infrastructure Score

148 countries, The Global Competitiveness Report 2013-2014 (WEF)

Singapore Malaysia Thailand Brunei Indonesia Vietnam Laos Philippines Cambodia Myanmar

Infrastructure score 2 29 47 58 61 82 84 96 101 141

Quality of overall infrastructure 5 25 61 39 82 110 65 98 86 146

Quality of road 7 23 42 35 78 102 65 87 80 138

Quality of railroad infrastructure 10 18 72 n/a 44 56 n/a 89 91 104

Quality of port infrastructure 2 24 56 49 89 98 137 116 81 136

Quality of air transport infrastructure 1 20 34 55 68 92 76 113 90 146

Available airline seat kilometers 16 23 14 100 15 32 121 26 88 94

Quality of electricity supply 8 37 58 59 89 95 61 93 112 118

Mobile telephone subscriptions 18 27 49 64 62 21 90 81 38 148

Fixed telephone lines 29 79 96 72 82 88 122 109 110 127



List of notable infrastructure projects to be implemented in 2014

Project name Location Total

investment (USD bn)

Starting date

Completion date

Capacity Investors Lenders Contractors

Transportation

Road & bridge

National Road 1A Expansion

2.5 2013 2016

National Road 14

0.8 2013 2016

Hanoi-Haiphong

0.3 2007 2015

Da Nang-QuangNgai

1.5 2013 2016

World Bank Lotte

Ben Luc - Long Thanh Highway

1.5 3Q.2013

VEC JICA+ADB

DauGiay - PhanThiet Highway

Dong Nai + BinhThuan

0.8 3Q.2015

Bitexco + 2nd investor

WB

NinhBinh-BaiVot (PPP)

NinhBinh, ThanhHoa,

Nghe An 2.4 2014 2018

WB (PPP)

Cao Lanh bridge

Dong Thap 0.1 2013 2017

AusAID, ADB CRBC - China &Vinaconex E&C

Vam Cong bridge

Dong Thap 0.3 2013 2017

Cu Long CIPM

EDCF (South Korea)

GS E&C & HANSHIN E&C (South Korea)

Airports

NoiBai Terminal 2

Ha Noi

Cat Bi HaiPhong 0.2 2013 2015

Ports

Lachhuyen (deepwater port)

HaiPhong 1.2 2013 2017

Saigon New Port Corp

Japan ODA Toa Corporation, Penta Ocean

Hau river channel

TraVinh 0.4

2008 (delayed

from 2011,

restarted 2014)

Energy

Nghi Son refinery

ThanhHoa 9.0 2013 2017

(started)

10 mil tons/year (expandable to

20 mil tons/year)

Kuwait, Idemitsu

Kosan, Mitsui Chemical

JGC (Japan) - Chiyoda (Japan), GS E&C (South Korea), SK E&C (South Korea),

Technip France (France), TechnipGeoproduction (Malaysia).



Project name Location Total

investment (USD bn)

Starting date

Completion date

Capacity Investors Lenders Contractors

Vung Ro refinery

Phu Yen 3.2

2017 (detailed

designing) 8 mil tons/year

Technostar Management Ltd

Electricity

DuyenHai 3 coal-fired power plant

TraVinh 1.3 2012 2015 1,244 MW EVN

Bank of China, ICBC, China

Development Bank

Eastern Electrification, Southwest Design Institute, Zhejiang Power Construction

Long Phu 1 coal-fired power plant

SocTrang 1.2 2011 2017/2018 1,200 MW PVN

Petrovietnam Technical Services Joint Stock Corporation (PTSC)

Mekong Delta Wind Power Centre

Bac Lieu 1.0 2012 2015 500 MW

VDB, US Eximbank

Mong Duong 2 coal-fired BOT power plant

QuangNinh 2.1 2011 2014 1,200 MW

China Investment

Corporation

Doosan Heavy Industries & Construction Co., Posco Energy Ltd., AES, HoaBinh

Construction and Real Estate Trading Joint Stock Co (HBC)

QuangTrach 1 coal-fired power plant

QuangBinh 2.3 2013 2015 1,200 MW PVN

PVX, PVE

Quynh Lap 1 coal-fired power plant

Nghe An 1.5 2012 2016 1,200 MW Vinacomin

No 1 Construction Consultancy JSC

Thai Binh 2 coal-fired power plant

Thai Binh 1.7 2011 2015 1,200 MW PVN

, Toshiba, Babcock & Wilcox Beijing Company (BWBC), Petrovietnam

Construction Joint Stock Corporation (PVC), Sojitz Corporation, Daelim Industrial

Company

Vinh Tan 1 thermal power plant BOT project

BinhThuan 1.9 2013 2018 1,200 MW Vinacomin

and Chinese Investors

China Southern Power Grid

Vinh Tan 2 thermal power plant

BinhThuan 1.3 2013 2015 1,244 MW EVN

Shanghai Electric Group[Construction)

VungAng 2 coal-fired power plant

Ha Tinh 1.7 2013 2015 1,200 MW

Vapco Engineers, Hung Nghiep Formosa Ha Tinh Co.

Vinh Tan 4 thermal power plant

BinhThuan 1.6 2014 2017 1200 MW EVN Kesim, Ksure,

JBIC Doosan, Mitsubishi, PECC2,

Source: SSI Research



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Although the need for improving infrastructure is

apparent, there are a number of issues in the

implementation of infrastructure projects in Vietnam

which we discuss below:

Land-swap mechanism in infrastructure projects:

Currently, many infrastructure projects in Vietnam

whether in the form of BOT (Build Operate

Transfer) or BT (Build Transfer) are not financially

feasible for the private sector, keep in mind, Vietnam

needs the private sectors participation as

Government funding in itself is insufficient. In order

to attract investments, the government initiated a

land subsidy policy program. In essence, what the

government does is compensate investors land

granted once they complete a project and hand it

back to the government. In a normal transaction,

instead of getting paid in physical cash, they are

compensated by land. Therefore, investors are seen

as contractors rather than investors, and the investor

is more in fact the government.

However, this strategy is problematic in several

respects. Firstly, the non-transparent nature of land

swap projects provides fertile ground for corruption,

inflated investment costs and loss of state

resources. Secondly, relying on land as a form of

subsidy will become less and less feasible for the

government as most of thevaluable plots in urban

areas and along the coast are already occupied and

their inflated prices are being questioned by the

market.

Is PPP (Public Private Partnership) the solution?

The government has made tremendous strides in

launching a comprehensive PPP where all parties

involved will benefit. But what is still unclear and

remained ambiguous to a lot of investors is the

magnitude of the governments role. In a PPP

project, conventionally, the governments

participation will come in the form of subsidy, in

many cases land subsidies. However, it is very

difficult for the government and private investors to

agree on the value of the land as both parties have

different methods of evaluating land. The

accountability on the government side is also a

question. The governments ambiguous role in PPP

can explain why there is such a lack of PPP in

infrastructure projects. All the ambiguities have

prompted the Ministry of Investment and Planning to

draft a new Decree on PPP, which will include the

definition and mechanisms of PPP, BOT, BTO, BT,

BOO, DBFMOT, BFOM, O&M. The new decree will

clearly specify the role of the Government in PPP

projects and allow SOEs to participate in PPP

projects as well.

Concern on efficiency of infrastructure

investment projects: The most important

infrastructure challenge facing Vietnam is

investment inefficiency rather than inadequate levels

of investments. What VN needs is a well-

coordinated national strategic plan that identifies and

prioritize a number of viable large-scale projects.

Vietnam does not need ports in every coastal cities

nor an airport in every city. 2014 infrastructure

spending should be carefully monitored.



5. Accelerating SOEs restructuring

SOEs restructuring were plagued with delays in 2013,

and we expect that a number of 2013 IPOs would be

carried over to 2014, including Viglacera (glass &

ceramics), Vinatex (textile and garment) and Vietnam

Airlines. A number of new IPOs were announced

including ACV (Airport Corporation of Vietnam, owner of

all the major airports in Vietnam, including Tan Son

Nhat, NoiBai and primary investor of the Long Thanh

Airport mega-project), and a number of the Ministry of

Transports CIENCO (Civil Engineering Construction

Corp, No 1-4-5-6, whichareall major contractorsfor most

of the public infrastructure projects).Mobifones IPO

(mobile phone operator) is also expected to be

scheduled in 2014 (after splitting from Vietnam Post and

Telecommunication Group - VNPT), however,less likely

than those mentioned. The new regulation that

stipulates the listing of stocks within one year after an

IPO would entice investors participation. Other

developments in 2014 would include SCIC (State Capital

Investment Corp) and SOEsnon-core business

divestment, where the MoF might issue a decision that

permits SCICand SOEs to sell states assets below book

value.

IPO Watch

Chartered Capital (Mn

USD)

2013 Revenue

(Mn USD) 2013 PBT (Mn USD)

Shares offered

Share price

(VND) Shares

outstanding IPO time

Viglacera

145

76,947,600

10,300

307,000,000 20/02/2014

Vinatex

236

2,151

68.40

245,000,000 N.A

500,000,000 1Q 2014

Vietnam Airlines

422

3,422

25.17

383,000,000 N.A

894,200,000 2014

Airports Corporation of Vietnam

693

397 N.A

36,732,500 N.A

146,930,000 2014

Vinamotor N.A N.A N.A 51% of shares

outstanding N.A N.A 2014

Cienco 1

33

340 N.A

16,183,500 N.A

70,000,000 N.A

Cienco 4

28

498 N.A

16,125,200 N.A

60,000,000 N.A

Cienco 5

21

198 N.A

14,215,300 N.A

43,900,000 N.A

Cienco 6

28 N.A N.A

28,724,100 N.A

60,000,000 N.A

Mobifone N.A

1,943

311.00 N.A N.A N.A N.A

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6. Funding source: Foreign investors remain an extremely imperative part of the equation

Large-scale infrastructure projects, banking sector

reform and more aggressive IPOs raise the question of

funding sources. Public investment will remain identical

in 2014 (from state budget development investment,

plus government disbursement was nearly USD 13 bn,

similar to 2013s level). The government expects for

higher credit growth in 2014 (target 12-14%, but our

estimate is higher at 15% - because of a soft-landing for

the banking sector which willbe discussed below), and

seemingly factors behind higher credit growth are not

only consumer credit (as in 2013) or SOEs, but also

private investment. Foreign investors remain an

extremely imperative part of the equation, not just FDI

(2013 high commitments might result in better

disbursementsin 2014), or FII (with foreign ownership

limit extending for both bank and non-bank institutions),

but ODA would become an integral source of financing.

Although in the longer term

ODAwillgraduallybecomescarce as Vietnam is rapidly

approaching the per capita income level of a lower-

middle income country, It is reported that undisbursed

ODA reached USD 15 bn so far, and the government

has set aside roughlyUSD 1 bn as counter-capital for

2014 with detailed distribution sent to all provinces, so it

signals more disbursement of ODA for 2014.

Risk to our forecast

Political risks will be limited, if not rare, and nowhere in

the proximity to Thailand. Continuous reforms and

comprehensive restructuring will expose

mismanagement and in certain cases, corruption, and

those who are responsible should be held accountable.

A number of high profile criminal cases have been

brought to courts, and we hope that past disruptions

would not exacerbate and engender more volatility.

In regards to public finance, the risk of high public debt is

very conspicuous and legitimate, given the nature of

high budget deficit, increasing demand for infrastructure

investment (however, ill-managed),all of which could

easily translate to higher inflation.Our concern remains

on the public debt level. The latest report published by

the MoF revealed some intriguing subjects concerning

public debt. The below table are the estimated data for

2013-2014:

(unit: VND trillion) 2012 2013 2014

Government debt (1) 1280 1573.8 1952.3

Government guaranteed debt (2) 342 457.1 512.1

Municipal debt (3) 20.9 43.9 64

Public debt (=1+2+3) 1642.9 2074.8 2528.4

Government debt (% GDP) 42.60% 46.20%

Public debt (% GDP) 56.20% 59.80%

(1): Government debt includes domestic one (government bond in VND, Treasury bills and other borrowings) and external one (ODA, sovereign bonds.)

(2) Government guaranteed debt includes domestic one (VDB, VBSP, VEC bond) and external one.

(3) Municipal debt includes municipal bond, borrowing from Treasury and other.

The composition of external debt and domestic debt

which combined make up for government debt was 57%

and 43% respectively (2012 data). It is worth mentioning

that total government debt which was used for re-lending

to domestic companies totaled USD 10.8 bn with a NPL

ratio of 3.45%.

Pertaining to government guaranteed debt issued by

VDB and VBSP (total volume was roughly USD 8 bn), a

duration risk can be seen as most of the issued bonds

are 2-3 year, but the pay-back period is at least 10-15

years. One example is the notorious case of VEC

(Vietnam Expressway Corporation - where the MoF once

denied guaranteeing VECs bonds), the MoF announced

that they might have to pay VND 3.85 trillion on behalf of

VEC, from now to 2015 as VEC is incapable of servicing

the loan.

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(unit: VND trillion) 2012 2013 2014

Government guaranteed debt 342.1 457.1 512.1

Domestic 191.5 198.5 235.1

VDB+VBSP 153.2 148.1 167.1

VEC 4.3 4.4 5

Other 34 46 63

External 150.6 258.6 277

Source: MoF, SSI estimates

In regards to municipal debt, it was reported that the

amount increased from USD 1 bn in 2012 to nearly USD

2 bn in 2013 (of which USD 0.7 bn were municipal

bond). Public debt is rapidly increasing (debt payment

accounted for roughly 24% of the state budget in 2013,

and several experts forecast that it would rise to 30% in

the next 3 years, which would be quite alarming), and

the reason behind the rapid increase was to satisfy the

immense demand for infrastructure projects. We think

that inefficient management and disbursement have

exacerbated matters. As long as GDP growth is

ensured, rising debt can be admissible, so it explains

why the government has placed great emphasis on

growth, and the increasing absolute GDP number would

help maintain the debt at the limit stipulated in the Laws

of Public Debt i.e 65%.

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MACRO ECONOMIC FORECAST

2007 2008 2009 2010 2011 2012 2013 2014F

GDP growth (%- 2010p) 7.13 5.66 5.4 6.42 6.24 5.25 5.42 5.6

Agriculture (%) 3.96 4.69 1.91 3.29 4.02 2.68 2.67 2.8

Industry & Construction (%) 7.36 4.13 5.98 7.17 6.68 5.75 5.43 5.7

Construction (%) n/a n/a n/a 10.06 -0.62 3.25 5.4 5.5

Manufacturing (%) n/a n/a n/a 8.38 11 5.8 7.44 7.7

Service (%) 8.54 7.55 6.55 7.19 6.83 5.9 6.56 6.7

Retail Sale (%) 22.9 30.9 18.5 24.96 22 16 12.6 14

Industrial Production Index (%) n/a 7.4 7.1 10.7 6.8 4.8 5.9 6.5

CPI (%) 12.6 19.9 4.35 11.09 18.13 6.81 6.03 7.5

PPI (Agriculture) (%) 17.46 0 -4.56 13.81 31.8 6.2 0.57 4.3

PPI (Industrial) (%) 7.44 25.79 2.38 13.44 18.3 10.1 5.25 7

Exports (USD bn) 43.7 58.0 51.3 72.2 96.9 114.6 132.2 146.7

Imports (USD bn) 54.5 74.8 62.3 84.8 106.7 113.8 131.3 150.4

Trade Balance (USD bn) -10.84 -16.81 -10.95 -12.60 -9.80 0.80 0.90 -3.70

% of Export 24.82% 28.98% 21.32% -17.45% 10.11% 0.70% 0.68% -2.52%

Exchange rate (USD/VND) 15950 17483 18479 18932 21250 20900 21250 21900

Current Account Balance (USD bn) -6.9 -10.8 -6.6 -4.3 -0.6 7 8.8 8.1

Foreign reserve (USD bn) 23.74 24.17 14.1 12.4 13.5 25.4 32 36

Foreign reserve/imports (weeks) 22.64 16.80 11.77 7.60 6.58 11.61 12.67 12.45

Credit growth (%) 52.42 25.43 37.73 29.81 14.41 8.91 12 15

Deposit rate (VND -%)

14.71 8.61 11.89 16.66 8 8 8

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2014 Market Outlook



MARKET REVIEW: Vietnam Stock market saw a decent

performance in 2013 Vietnam stock market made a decent rebound in 2013,

where the VN Index and the HNX Index closed at 504.63

and 67.84 pts, 21.97% and 18.83% YoY growth,

respectively. Total market capitalization reached VND

949 trillion (around USD 4.5 bn or 32% of GDP and 24%

YoY growth). Trading value roughly averaged VND 1.38

trillion/session (USD 65.4 mil, 31% YoY growth). Foreign

investors maintained in a net buy position (approximately

USD 365 mil in equity and USD 500 mil in bond).

VN Index performance in 2013 (Source: Bloomberg) HNXIndex performance in 2013 (Source: Bloomberg)

In more details, from Jan to May, the VN Index strongly

rallied spurred by significant foreign inflow (about USD

280 mil, most notably, ETFs) and trading volume

improved given supportive measures by the State

Securities Commission (higher trading band on the

HOSE from 5% to 7% and the HNX from 7% to 10%,

introduction of market order,). The rally was also

supported by strong earnings seasons, and a turnaround

was imminent. Discussions on foreign ownership limit

extension fueled investors sentiment throughout the

year. Fears from U.S. Fed tapering and the official VND

depreciation in June triggered a sizeable outflow from

June to August (total net foreign outflow was about USD

130 mil). Nevertheless, sentiment was elevated in

September, with fears from increasing risks in the

banking sector subsiding because of better-than-

expected VAMCs participation in bad debt resolution,

the exhaustive discussions on FOL extension and the

revival of foreign inflow (in the last four months of 2013,

foreigners total net-buy position was approximately VND

170 mil, higher than the outflow level in June-Aug

period). Leading movers for the VN Index were GAS,

and VNM and lagging mover was MSN. While on the

HNXIndex, PVS and OCH led the rally while PVX, and

ACB were the biggest laggers.

HOSE Movers

Ticker Closing

price Change Index points Ticker

Closing price

Change Index points

GAS 66,500 +27,900 34.636 MSN 82,500 -19,500 -8.314 VNM 135,000 +47,000 22.669 EIB 12,500 -3,200 -2.461 HPG 41,100 +20,100 5.445 CTG 16,200 -3,262 -1.670 VIC 70,000 +9,623 5.337 PVF 4,200 -4,200 -1.518 PVD 61,000 +26,909 4.208 ALP 4,000 -5,000 -0.615

2014

Market

Outlook



HNX Movers

Ticker Closing

price Change Index points Ticker

Closing price

Change Index points

PVS 20,300 +6,600 1.833 PVX 3,000 -2,600 -0.679 OCH 27,600 +16,200 1.563 ACB 15,600 -900 -0.558 LAS 37,500 +14,583 0.742 PSD 49,500 -18,500 -0.168 NTP 59,900 +25,900 0.729 SQC 78,200 -1,700 -0.112 SHB 6,900 +1,100 0.637 PVR 3,500 -3,200 -0.111

MARKET OUTLOOK: Six investment themes for 2014

7. The economy has bottomed out with macro stability being ensured, all the elements are in place for

upsides ahead:

Although the recovery will be gradual with continuous

support from the FDI sector, the two important reforms

(i.e. banking reform and SOEs reform) have finally

exhibitedinitial momentum. Our assumption is that both

reforms will accelerate in 2014. It is befitting to assume

that 2013, the year of the snake, exhibited

crawlingbanking and SOEs reforms and restructuring.

We expect that 2014, the year of the horse, banking and

SOEs reforms and restructuring will run rampant.

Banking reformexhibited encouraging progress in 2013

with the birth of VAMC which managed to purchase a

large chunk of bad debt from banks. VAMC will continue

their bad debt purchasing program in 2014. Our view is

that bad debt restructuring and sales is much more

fundamental and we hope this commence this year.

Circular 02 - a new risk management regulation will not

be delayed but rather be eased in order to help banks

maintain their credit growth at not a depress level. Debt

restructuring will continue and consequently we do not

expect a sharp rise in the official NPL level after Circular

02 takes effect.

Our assumption is that the banking sector will need at

least 3 years to clean its balance sheet, based on the

calculation that the PPOP (Pre-Provision Operating

Profit) of the whole system in 2012 was roughly 42% of

the official NPL of 4.6%. As the process of aggressive

provision-booking began in 2H12, 2014 will be the 3rd

year or the last year of this process. This is why we

believe this might be an appropriate time to revisit our

view on the sector in 2014.

SOEs reform will not be a cakewalk. We see the

motivation behind SOEs reform should be SOEs debt

restructuring and weak financial situation in a number of

large SOEs. In 2013, all the economic groups submitted

their restructuring plans to the Prime Minister which were

then approved. Therefore, in 2014, we hope to see

SOEs abiding to their plans of divestments in non-core

businesses, cleaning their balance sheets, all the actions

that are required to amend past mistakes, in essence,

more walk and less talk.

In both reforms, recapitalization is the key. However, it

is not easy to attract external funding at this moment in

time as investors will carefully consider before investing

in banks or SOEs, and among the factors of

consideration there are operation efficiency and risks.

This, in turn, will accelerate the two reforms.

Unsurprisingly, we will see more divestments and IPOs

in the coming time (as mentioned in our Macro

Outlook).The recent Decree 01 by the Government on 3

January 2014 relaxed the terms and conditions for

foreign investors to acquire domestic banks and we

hope to see more M&A transactions in the banking

system in the coming time.

2014

Market

Outlook



8. Given the gradual economic recovery and on-going reforms which triggered positive catalysts for the

market, market valuation re-rating is envisioned for 2014.

We believe the VN Index could increase 17-20% as

compared with 2013-end (which closed at 504.6). This

then renders to the notion that the VNIndex might reach

590-600 by the end of this year. If we add a 5%

dividend yield, the average total return from Vietnam

equity market will be 23% in 2014.Our forecast is based

on 2014 EPS growth at 7%. We expect market PER will

be rerated from the level of 10.7x in the beginning of the

year to 12x 13x by end of this year, powered by

gradual economic improvement andthe on-going reforms

which will trigger positive catalysts such as FOL

extension, new IPOs or banks M&Aetc.

Source: SSIResearch

9. Time to revisit the banking sector?

We believe the time is prime to revisit the sector in 2014,

although not immediately, but possibly by end of 1Q14 -

when banks release their 2013 results and have a more

definite picture on 2014. After nearly 2 years of being

head-over-heels with challenges, management at most

of the banks have now taken on a very conservative

approach and most have decreased operating expense

by reducing staff, salary cut and organization

restructuring to improve operation efficiency.

Developments in retail banking and consumer finance

are the choices for many banks to compensate for NIM

reduction.

In 2013, given serious challenges facing the banking

sector, investors shied away from bank stocks and this

corresponded with our consistent view of 'Sector

Underweight' so far.

2014

Market

Outlook



10. Top line growth will be stronger in 2014, margin expansion will trail that of 2013

2013s average sales/net profit growth of 62

companies under SSIResearchcoverage are 9% and

19.3%, respectively

2014s average sales/net profit growth of 62

companies are 16% and 8.2%, respectively

In 2013, margin expansion was supported by

significant lower interest rate, lower input cost and

operating expense cut while top line growth was

quite weak, corresponding with the overall weak

economy. In 2014, our forecast on revenue growth

is better than 2013 while margin will stabilize with

support from lower CIT (from 25% in 2013 to 22% in

2014), no more salary cut andslightly lower interest

rate in 2014.

2014 median EPS growth of 9% (2013: -5%)

2014 dividend yield of 5% (2013: 5%)

11. Industrial & Infrastructure-related sectors are our favorite for this year.

With mega infrastructure projects in the pipeline, we are

bullish on industrial and infrastructure-related sectors

such as construction, construction materials, industrial

zones and ports.

12. Turnaround stocks are sexy.

As the economy has bottomed out, different sectors will

exhibit different turn-around phases. We believe that the

Consumer sector has already bottomed out in 1H13

while Banking -Property and a number of commodity

sectors have not yet reached their bottom. For

turnaround companies, we would like to note that their

valuations are still at very high as they just transitioned

from 'loss' to 'profit-making' status and their balance

sheets remain under pressure to a certain degree.

Those stocks, mostly mid and small cap, will attract

investors' attention, especially retail investorsin 2014.

2014

Market

Outlook



Top movers from 31Dec2013 Top movers from 23Jan2014

GAS 28% GAS 13%

CTG 14% CTG 8%

MSN 12% MBB 24%

PVD 36% HPG 16%

HPG 33% PVD 14%

MBB 34% FPT 18%

FPT 37% DHG 15%

VNM 4% EIB 6%

PVS 48% HAG 6%

STB 20% PVS 7%

BVH 11% BMP 15%

EIB 16% HSG 11%

VCB 4% LAS 17.7%

VIC 4% BCI 27%

DPM 10% DIG 19%

DHG 18% PNJ 13%

HSG 26% NTP 9%

LAS 41% ITA 5%

BMP 25% HVG 7%

ITA 16% PGS 15%

Source: SSIResearch



Top high earnings growth conviction for 2014

Market cap (mil USD) Foreign ownership (%) 2014 Earnings growth 2013PER 2014PER 2014PBR

MSN 3289.6 34.9 376% 116.3 20.7 Na

CII 108.0 40.4 330% 51.4 9.4 1.5

KBC 146.3 25.8 174% 84.8 41.4 1.0

PAC 27.8 25.6 111% 16.8 8.0 1.1

PNJ 108.0 49.0 56% 11.7 7.5 1.6

EIB 802.1 27.1 51% 21.9 14.5 1.0

DIG 89.2 30.0 48% 47.8 34.6 0.7

ACB 706.5 30.0 47% 18.3 12.5 1.2

HAG 738.7 35.3 36% 19.3 19.2 Na

BCI 65.4 34.8 35% 16.1 11.9 0.7

IMP 38.0 48.2 34% 13.1 9.7 1.1

TDH 25.9 33.3 34% 40.5 31.5 0.4

BVH 1490.6 24.1 27% 23.2 18.3 2.4

BMP 164.6 49.0 26% 12.1 9.6 2.0

KDC 451.9 49.0 25% 21.4 24.5 1.3

TCM 65.9 49.0 23% 9.8 8.0 1.7

PVD 956.8 40.6 20% 10.7 8.8 1.7

HVG 140.6 10.1 20% 9.7 8.4 0.9

PVI 199.7 49 20% 13.8 11.6 0.6

PVT 131.8 5.3 19% 11.9 9.8 1.0

BTP 38.9 1.7 18% 11.8 10.0 0.8

FPT 714.0 49.0 18% 8.8 7.6 1.8

EVE 35.4 49.0 17% 8.5 7.2 0.9

DBC 71.7 38.8 17% 9.5 8.1 0.9

PET 72.2 26.9 17% 8.2 6.9 1.1

PSD 35.2 3.8 16% 7.6 6.6 3.1

NTP 133.1 48.1 14% 9.3 8.1 1.8

VNS 98.4 42.5 13% 8.2 7.3 1.1

ITA 214.9 17.3 13% 49.3 44.0 0.7

VNM 5596.1 49.0 13% 18.4 16.3 5.5

PVS 597.7 24.4 11% 10.2 9.2 1.5

HPG 941.9 45.8 10% 10.3 9.5 1.9

Source: SSIResearch



Stocks with low PER

Market cap (mil USD) Foreign ownership (%) 2014 PER as of 23Jan14 2013EPS growth 2014EPS growth

MBB 734.3 10 5.8 -2.5% 3.7%

PGS 62.6 22.2 5.9 38.0% 9.3%

DXP 17.8 29.76 6.2 7.1% 4.0%

TRC 59.6 30.88 6.4 -42.6% 2.5%

PSD 35.2 3.8 6.6 -19.1% 15.8%

PET 72.2 26.9 6.9 -4.4% 18.7%

SBT 84.1 14.82 6.9 -40.2% 5.5%

EVE 35.4 49 7.2 4.8% 17.6%

DPR 94.5 32.42 7.2 -44.4% -5.9%

LAS 166.8 11.69 7.2 13% 9%

VNS 98.4 42.47 7.3 15.3% 13.3%

PNJ 108.0 49 7.5 -35.3% 55.8%

FPT 714.0 49 7.6 9.0% 16.0%

VSC 85.3 49 7.7 -4.6% 6.0%

TCM 65.9 49 8.0 Na 22.7%

PAC 27.8 25.64 8.0 -43.2% 110.8%

NTP 133.1 48.14 8.1 2.3% 14.4%

DBC 71.7 38.84 8.1 -51.7% 17.1%

DVP 84.0 13.39 8.2 8.5% 5.4%

HSG 211.4 35.73 8.4 58.0% -7.4%

HVG 140.6 10.07 8.4 -23.8% 15.9%

PGD 91.3 4.93 8.5 -8.3% 7.9%

PVD 956.8 40.58 8.8 19.7% 21.9%

PHR 117.4 19.2 8.9 -45.0% -16.3%

DPM 835.9 31.13 9.1 -21.1% -19.3%

PVS 597.7 24.43 9.2 9.9% 11.3%

CII 108.0 40.37 9.4 -89.4% 446.6%

HPG 941.9 45.75 9.5 92.0% 8.7%

PPC 396.9 11.69 9.5 149.0% -41.8%

BMP 164.6 49 9.6 -38.6% 26.4%

CSM 123.7 13.07 9.6 -7.0% -17.8%

REE 386.8 44.99 9.6 39.7% -8.9%

IMP 38.0 48.21 9.7 -24.3% 34.5%

PVT 131.8 5.29 9.8 113.7% 20.5%

BTP 38.9 1.65 10.0 -49.8% 18.2%

Source: SSIResearch



SECTOR WEIGHTING SUMMARY

Sub-Sector Sector Weighting Favorite stock

Natural Rubber Underweight PHR, DPR

Steel Neutral HPG

Fertilizer Neutral DPM, LAS

Sugar Underweight SBT

Diary Neutral VNM

Confectionary Neutral

Fisheries Neutral HVG

Feed Other F & B

Overweight Neutral

DBC MSN

Tires Neutral

Textile & Garment Overweight TCM, EVE

Banking Underweight MBB

Insurance Neutral BVH, BIC

Pharmaceutical Overweight DHG

Plastic pipe Ports and shipping

Overweight Neutral

BMP VSC, VIP

Oil & Gas Overweight GAS, PVD, PVS

IT Overweight FPT

Electricity Neutral

Property Neutral DIG, BCI

Industrial park developer Neutral KBC

Infrastructure and Construction Overweight CII, FCN



NATURAL RUBBER (Basic Materials) UNDERWEIGHT

KienTran Nguyen, +84 4 9366321 ext 679, [email protected]

Natural rubber performance in 2013

Source: Bloomberg

DPR performance in 2013

Source: Bloomberg

2013 Summary: another treading year for prices.

Rubber sector in 2013: The natural rubber industry

underperformed the VN Index and the Basic Materials sector in

2013. The industry forfeited 0.8% while the VN Index and the

Basic Materials sector gained 20.6% and 29.5% respectively in

2013.

Vietnams NR industry witnessed a decline in export value

resulted from decreases in NR price: in 2013 Vietnam is

estimated to reach approximately 1mn tons (+ 6.7% YoY), and

USD 2.5bn (- 11.7% YoY) in NRs export volume and value

respectively.

Average selling price of SVR 3L, accounting for 43% of total

export volume, depressed 18% YoY in 2013.

World NR supply increased at a faster pace than

consumption: in 2013, total NR output is estimated at11.6 mn

tons (+ 2.2% YoY) while total consumption is estimated at

approximately 11.3mn tons (+ 1.9% YoY) which is a surplus of

0.3mn tons (+ 14% YoY) by the end of 2013. NR output in 2013

increased due to plantings during 2005 2008 which were then

harvested in 2013 while the improvement in NR consumption

was mainly contributed by the surge in demand for NR in China

during 2013. In 2013, China imported approximately 2.47mn

tons (+13.5% YoY) of NR which was the result of a recovery

seen in the auto industry.

Natural rubber stocks performance: PHR was the best

performer among listed NR stocks in 2013. The stock gained

5.6% while DPR and TRC forfeited 12.5% and 5.2% respectively

in 2013. PHRs products structure comprises of approximately

50% of SVR CV 50, 60 in total sales volume which carry higher

prices than other products categories. Higher dividend yield is

another attractive element of PHR compared to DPR and TRC

60%

70%

80%

90%

100%

110%

120%

130%

140%

Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13

Vn Index Materials Natural rubber

60%

70%

80%

90%

100%

110%

120%

130%

DPR VNINDEX Index

SECTOR

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SVR 3Ls average physical price in 2013

Source: VRA, Jan-2013

2014 Outlook: Negative

Sector trend: natural rubber pricesare expected to slightly

decrease in 2014

The gap between supply and demand of natural rubber is

expected to expand approximately 10% YoY in 2014. 2014s

NR output and demand are expected at 11.96mn tons (+ 3.3%

YoY), a result of increase tapping area, and 11.59mn tons (+

3.1% YoY), a result of a recovery seen in the Chinese auto

industry.

According to the IMFs world economic outlook published in Oct

2013, world economic growth was revised down to 2.9% in

2013 and to 3.6% in 2014, down from 3.1% and 3.8% from

Junes forecast respectively. These forecasts compare with

growth in 2012 and 2011 of 3.2% and 3.9% in 2011

respectively, implyinga slow improvement in the next 12

months.

The recovery of the global auto industry supported the demand

for natural rubber in 2013. In 2013, global automobile sales

reached a record high of 82.84 mn units (+4.1% YoY), and it is

expected to increase 5% YoY in 2014. However, demand for

replacement tire accounts for 90% of total demand for tire

globally. This implies that the demand for replacement tire will

improve in the next few years starting in 2015 with the gradual

recovery of the global economy. Thus, the gap between supply

and demand of NR is expected to reduce starting in 2015 and

this will support NR prices.

Risks: Natural rubber prices are highly volatile which can be

80%

85%

90%

95%

100%

105%

110%

115%

120%

125%

130%

PHR VNINDEX Index

80%

85%

90%

95%

100%

105%

110%

115%

120%

125%

130%

TRC VNINDEX Index

1,500

1,700

1,900

2,100

2,300

2,500

2,700

2,900

3,100

3,300

SVR3L

SECTOR

IN

FOCUS



adversely affected by fluctuations in currency exchange,

weather conditions, oil prices, and changes in policies in major

consuming countries.

Sector Call: Underweight

Investment view: Our assumption is that average prices of NR in

Vietnam are expected to decline at least 4% YoY in 2014.

Accordingly, PHR, DPR, and TRCs revenue are expected to reach

VND 1,585bn (- 15.6% YoY), VND 1,030bn (- 10% YoY), VND

705bn (- 8% YoY) respectively, and pre-tax profit are expected to

reach VND 366bn (- 19.5% YoY), VND 276bn (- 15% YoY), VND

205bn (- 8% YoY) respectively. We reiterate our HOLD

recommendations for these three natural rubber stocks, with 1-year

target prices of VND 29,718/share, VND 45,515/share, and VND

40,221/share

Drivers/catalysts to watch:

Global and Chinas monthly auto sales, and Chinas monthly import

of NR should be closely monitoredin 2014

Favorite stock: PHR, DPR

- PHR offers the highest dividend yield and dividend payout

ratio

- DPR also offers higher dividend payout ratio than TRC.

DPR possesses a younger profile of rubber tree than PRH,

and TRC which generates higher profit margins.

PHR, DPR, TRC (23/01/2014)

Stock Price Market cap PER PBR EV/EBITDA Dividend yield EPS (VND) EPS Growth Sales growth Net profit growth

(VND) (mil USD) 2013 2014E 2013 2014E 2013 2014E 2013 2014E 2013 2014E 2013 2014E 2013 2014E 2013 2014E

PHR 31,400 121 7.18 8.5 1.24 1.21 4.99 5.76 9.4% 10% 4,371 3,728 -43% -15% -15% -16% - 41% - 15%

DPR 47,100 96 5.39 7.25 0.88 0.85 4.38 5.69 8.5% 6.2% 8,746 6,494 -30% -26% -15% -10% -30% -26%

TRC 43,000 61 5.75 7.34 0.87 0.82 4.74 5.95 7% 7% 7,482 5,856 -34% -22% -15% -1% -34% -22%

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STEEL (Basic Materials) NEUTRAL

Minh Dinh, +84 838242897ext2148, [email protected]

Steel industry performance in 2013

Source: Bloomberg

2013 Summary: Only industry leaders achieved

encouraging business results

Strongly outperformed the VN Index: The steel industry gained

79.42%, compared with 20.62% of the VN Index. Best-performing

stocks were HSG (+112.6%) and HPG (+94.8%).

Only industry leaders achieved positive business results:

Except for HPG and HSG, business performances of steel

companies were extremely poor in 9M13. HPG and HSG were the

only two exceptions thanks to lowest production cost and dominant

market share. In addition, HSG possesses outstanding distribution

network and well-known brands.

Two factors influenced earnings growth of HPG and HSG: i) lower

interest expense, ii) low-cost inventory 1Q and 2Q13. In addition,

HPG earned approximately VND 250 bn in extraordinary earnings,

and HSG saw sale volume advanced by 32.7%, in which export

volume increased by 54.8% and accounted for 46% of sales.

9M13 earning results of steel companies

(VND bn) DNY DTL HLA HPG HSG NKG POM TLH VGS VIS

Net sale 1,745 1,463 3,205 12,474 9,065 3,168 7,706 2,174 1,770 2,406 YoY growth 124.2% 42.6% -21.5% -1.2% 19.8% 42.5% -15.9% 5.5% -10.9% -13.7%

NI attributable to shareholders

11 10 -241 1,465 455 42 -242 141 7 -10

YoY growth 8.5% -58.2% -658.7% 78.9% 69.3% -180.4% -4942% 279.9% 87.5% -206.9%

Margin 0.6% 0.7% -7.5% 11.7% 5.0% 1.3% -3.1% 6.5% 0.4% -0.4%

12M Trailing P/E 13.2 48.4 -0.6 11.5 7.1 -53.2 -10.7 3.7 16.5 -13.6

Note: DNYs sales grew by 124.2% thanks to expansion in production capacity, however net income only increased by 8.5%. TLHs income

growth was a result of extraordinary income, not from core business.

Demand for construction steel remained brittle. Construction

steel sale volume advanced by a modest 2.2% in 11M13, of which

domestic sale only increased by 1.1%. Steel companies

acknowledged that 2013 remained a difficult year for the whole

industry. Several companies suffered from loss for a long time and

went bankrupt.

Sales of steel sheet and pipe were more encouraging and saw

double-digit growth. Compared with construction steel, demand for

steel sheet and pipe was less affected by the stagnant property

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sector because customers are much more diversified. Nevertheless,

fierce competition and overcapacity confined profit of most

companies at a minimum level.

In order to cope with the overcapacity problem, steel sheet and pipe

companies managed to export. Fortunately, their production costs

were competitive enough for selling products to other countries,

mainly within ASEAN region. Though export generated small profit

margins, this was an effective measure to increase inventory

turnover and generate additional cash.

Aggregate steel sale volume of Vietnamese steel companies

(tons) Construction steel Steel sheet Steel pipe

2012 11M13 2012 11M13 2012 11M13

Total sales 4,475,284 4,215,264 1,103,476 1,377,667 649,706 714,170 YoY growth -6.7% 2.2% 14.2% 39.6% 2.7% 20.8%

Domestic sales 4,222,527 3,934,324 732,370 828,650 512,685 552,201 YoY growth -7.8% 1.1% -0.1% 26.5% -2.3% 18.8%

Export 252,757 280,940 371,106 549,017 137,021 161,969 YoY growth 16.2% 22.5% 59.1% 65.5% 26.8% 27.9%

Note: Because sale volume of certain companies was not compiled in 2012, we estimate that actual growth rate of total steel sheet sale would

be approximately 32%, and growth rate of domestic steel sheet sale would reach approximately 20%. Source: Vietnam Steel Association (VSA).

2014 Outlook

Slight improvement in demand: We expect domestic sale volume

of construction steel to advance by 4-5% in 2014. Though a

significant improvement is improbable, we have seen certain

indicators for a possible recovery in steel demand:

- According to the General Statistics Office (GSO), the

construction industry expanded by 5.83% in 2013, compared

with 2.09% in 2012.

- More social and low-cost housingprojects will be implemented in

2014.

- Higher investments ininfrastructure projects.

Material prices may not be as favorable as in 2013: During 1Q

and 2Q13, steel companies benefited from a rising trend in material

prices because they had amassed low-cost inventory earlier.

Nevertheless, based on various sources of commodity price

forecast, we do not think there is a high possibility for a similar trend

to repeat in 2014.

Issues and risks: Overcapacity remains a problem in the industry.

As a result, steel companies find it implausible to increase profit

margin, except in the case of a fluctuation in steel prices.

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Sector Call: Neutral

Drivers/catalysts to watch: Steel material price; Growth rate of

construction industry.

Favorite stock: HPG

Industry leader in construction steel, steel pipe and office

furniture. HPG is amassing steel market share (from 13.7% in

2012 to 15.2% in 2013).

Lowest production cost compared with peers (approximately 7%

lower) thanks to vertically integrated production

Phase 2 of the Steel Complex, which commenced operations in

Oct 2013, raises production capacity from 650,000 tons to

1,150,000 tons of construction steel p.a. Once the economy

recovers, steel sale volume and profit margin will significantly

advance.

Mandarin Garden Apartment Project will generate an estimated

of VND 4,800 bn in revenue and VND 500 bn in net profit in

2014.

Risks: Addition depreciation and interest expense arising from

Phase 2 of the Steel Complex may prompt profit margin to

decline in 2014; growth rate in steel sale volume may be lower

than expected as demand for steel has not significantly

recovered.

HPG (23/01/2014)



HPG 47,200 941.9 10.3 9.5 2.2 1.9 1.4 6.2 4% 4% 4,582 4,980 92% 9% 14% 29% 95% 10%

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FERTILIZER (Basic Materials) NEUTRAL

Thuy Nguyen, +84 4 9366321 ext 526, [email protected]

Fertilizer industryperformance in 2013

Source: Bloomberg

Urea price in 2013

Source: Indexmundi

2013 Summary: Slightly outperformed

Fertilizer industry in 2013: The fertilizer industry slightly

outperformed the VN Index, DPM (which accounted for 84% of total

the industrys market cap) recorded 1 year performance of 26%

compared with 20.62% of the VN Index.

Fertilizer stock performance: Oversupply persisted, attractive

dividend yield remained alluring.

Two key players in the industry are DPM and LAS: DPMs core

business is centered on producing urea with capacity of 800,000

tons/year while LASs core business is producing superphosphate

and NPK with capacity of 830,000 tons and 730,000 tons

respectively.

DPM (1 year performance 26%): Negative earnings growth in 2013

(-20% YoY in our estimates) due to decreases in both volume and

average selling price. The urea oversupply put downward pressure

on average selling price (The current domestic urea demand is

approx2 mntons/year while the domestic urea supply is 2.3 mn

tons/year). 2013 dividend is estimated at VND 4,500/share (DPM

has already paid VND 2,500/share).

LAS (1 year performance 74%): 2012 dividend was VND

3,000/share and 20% in stock bonus, which was paid in 2Q13, which

spawned positive catalyst for the stock in 2013; Increase in net

income (+13.5% YoY).

2014 Outlook: Neutral

The performance of the whole industry is highly influenced by the

performance of DPM (weight in the industry is approx.84%)

Existing world oversupply will further exert downward pressure on

international urea price. Furthermore, in 2014, Ca Mau fertilizer plant

and NinhBinh fertilizer plant will be running at maximum designed

capacity, which will exacerbate domestic supply (In 2013, NinhBinh

urea plant was behind schedule as the plant was suspended for 71

days due to technical problems). Our estimates reveal that DPM

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would continue to record negative revenue growth and earnings

growth in 2014 (-12% YoY and -19% YoY respectively). However,

high dividend yield is an attractive element of DPM.

For LAS, despite the saturated superphosphate and NPK market,

we assume that LAS could experience a slight increase in bottom

line thanks to its lower input cost and lower depreciation cost. Our

estimates reveal that 2014 LAS bottom line would total VND 486 bn

(+8.7% YoY)

Sector Call: Neutral

Drivers/catalysts to watch: changes in international urea price,

domestic supply demand balance

Favorite stock: DPM, LAS

We assume that DPM and LAS will continue to maintain their

attractive dividend policy: 2013 dividend of DPM is estimated at VND

4,500/share and 2013 dividend of LAS is estimated at VND

2,000/share and 20% stock bonus

Stock call (23/01/2013)

Price (VND)

Market cap (mil

USD)

PER PBR EV/EBITDA Dividend yield EPS (VND) EPS growth Sale growth Net profit growth

2013 E

2014E

2013 E

2014E

2013 E

2014E

2013 E

2014E

2013 E

2014E

2013 E

2014E

2013 E

2014E

2013 E

2014E

DPM 46200 836 7.3 9.1 1.8 1.8 3.1 4.1 10% 8% 6302 5083 -21% -19% -20% -12% -21% -19%

LAS 45000 167 7.1 7.2 2.5 2.0 4.9 4.6 4% 4% 6339 6245 13% 9% 6% 8% 13% 9%

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SUGAR (Consumer Goods) UNDERWEIGHT

KienTran Nguyen, +84 4 9366321 ext679, [email protected]

Sugar performance in 2013

Source: Bloomberg

SBT performance in 2013

Source: Bloomberg

2013 Summary: A bitter year for the sugar industry

Sugar sector in 2013: the sugar industry underperformed VN

Index and the Consumer Staples sector in 2013. The industry

forfeited 12.5% whilethe VN Index and the Consumer Staples

sector gained 20.6% and 17% respectively in 2013.

- Average selling price of sugar (ASP), including RE and RS,

continued on a downward spiral during 2013, and even fell

lower than 2012s average. In 2013, ASP of RE and RS

sugar declined 11%YoY, and 12%YoY respectively.

- Average purchasing price of sugarcane in the 2012 2013

production season was slightly higher than that in the 2011

2012.

- Smuggled sugar and the perennial oversupply situation

restricted improvements in the sugar industry. According to

the Vietnam Sugar and Sugarcane Association,

approximately 1,000 tons of sugar is smuggled into Vietnam

a day which accumulatesto a total of over 300,000 tons/year.

In the 2012 2013 production season, total sugar produced

reached approximately 1.5 mn tons while total sales volume

reached approximately 1.3mn tons in 2013.

Sugarstock performance: SBT underperformed the VN Index

in 2013. The stock forfeited 12.5% while the VN Index gained

20.6% in 2013. SBTs performance was adversely affected by

the oversupply situation and smuggled sugar during the year.

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80%85%90%95%

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Average price of RE and RS sugar in 2013

Source: Department of Price Management Ministry of

Finance

2014 Outlook: Negative

Sector trend: the industry will not likely see improvements

in 2014.

Perennial oversupply: in the 2013 2014 production season,

the Vietnamese sugar industry is expected to produce

approximately 1.6 mn tons of sugar, an increase of 7% YoY,

while total demand is expected at 1.5mn tons of sugar.

Moreover, other sugar supply sources include WTOs import

quota (77,200 tons in 2014), and smuggled sugar.

Ubiquity of smuggled sugar: over300,000 tons/year of sugar

(approximately 25% of total sugar produced in Vietnam) is likely

to be smuggled into Vietnam which willcompound the oversupply

situation facing the industry in 2014.

Unexpected price improvements: fundamentally, oversupply

will exert downward pressure on average selling price.

Moreover, domestic ASP is mainly influenced by smuggled

sugar. These two factors signify that sugar ASP in 2014 is more

likely to maintain on its downward trend. How deep the ASP will

stumbleis contingent on the control of smuggled sugar and

resolutions for the sugar industry.

Sector Call: Underweight

Investment view: 2014 is expected to be another bitter year for

sugar companies. In terms of fundamentals, investors should

monitorfor appropriate resolutions from the government to aid the

industry to reprieve its inventory and to bolster operation. In 2014,

SBT is forecastedto achieve VND 2,159bn (+5% YoY), and VND

275bn (+5% YoY) in revenue and pre-tax profit respectively,

equivalent to an EPS of VND 1,771/share. At the current price of

VND 12,100/share, the stock is being traded at 2014PE of 6.83x.

We reiterateour HOLD recommendation for this stock, with 1-year

target price of VND 14,218/share.

Drivers/catalysts to watch: (1) oversightof smuggled sugar, (2)

resolutions from the government to assist the industry

Favorite stock: SBT

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SBT (23/01/2014)



SBT 12,300 82 7.33 8.03 1.04 1.13 5.92 5.61 14.2% 10.7% 1,679 1,771 -40% 6% 5.3% 5% -36% 6%



DAIRY (Consumer Goods) NEUTRAL

Giang Nguyen, +84 4 9366321 Ext 430, [email protected]

FAO Dairy Price Index (2011-2013)

Source: FAO, Jan-2014

Dairy performance in 2013

Source: Bloomberg

2013 Summary: O

Documents

2014 Market Outlook and Strategy Run Now Charge Later January 2014 SSIResearch