VIETNAM PLASTIC INDUSTRY REPORT - VCBS

VIETNAM PLASTIC INDUSTRY REPORT

December, 2016

CONTENT

Vietnam plastic industry overview in

9M.2016 – Page 2

2017 Outlook – Page 8

Performance of listed plastic firms in

9M.2016 – Page 11

Potential firms - Page 16

Analyst

Tran Thi Thu Trang

[email protected]

+84-8 38 205 510 (Ext: 641)

VCBS Reports

www.vcbs.com.vn/vn/Services/AnalysisResearch

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9M.2016 – BENEFIT FROM CHEAP RAW MATERIALS PRICE

Vietnam plastic industry is still a new sector compared to others such as mechanical,

chemical or textile industry, but it has grown rapidly in recent years with annual growth rate

of 16-18%. Packaging segment has accounted for the highest proportion in plastic industry

structure due to a strong development of end-product industries such as foods and

beverages. Construction plastic segment has grown positively because of the recovery of the

real estate and construction industry.

Export turnover of plastic products increased by 5.3% yoy in the first 9 months, and

Japan has been the largest export market with consumer products such as plastic bags.

USA and the EU are also potential markets, but plastic bag is subject to anti-dumping tax in

the US market, so the export turnover of plastic bag accounts for a modest proportion.

Meanwhile, demand for plastic pipes in the EU market has remained a high level.

Moreover, in this market, Vietnam's products are not subject to anti-dumping tax which

fluctuates from 8% - 30% like other Asian countries, especially China. This is a favorable

condition for firms to strengthen export activity to this market.

Plastic resins price declined in the first half of year in tandem with oil prices, but has

recovered since Q3.2016. This helps to improve profit margin of plastic firms.

A significant drawback of plastic industry is majority of raw materials (around 80%) need

to be imported because of underdeveloped petrochemical industry. In particularly, PE, PP

resins made up the largest proportion in import turnover and increase over years in value.

However since 1 January, 2017, PP resin will be subject to import tariff of 3% instead of 1%

at present.

2017 OUTLOOK

Export turnover is expected to increase in 2017 mainly comes from Japan and the US

market. However, the EU market is likely difficult for domestic firms because of

unfavorable evolution of EUR which causes difficulty to selling activity as well as they are

subject to competitive pressure from goods produced in EU due to the COGS and raw

materials fell as the EUR down.

Plastic resins price is expected to increase in the last months of 2016 and remain this

level in 2017. It is likely that oil price is forecasted to fluctuate between 50-55USD in 2017

because of impact of the agreement to cut oil production of members of OPEC and import

demand from China market. The plastic resins price, meanwhile, has increased since Q3,

and we believe this trend will continue in Q4 but stay at this level in 2017.

Competitive pressure in domestic market and opportunities - challenge from the

participation of foreign firms. Plastic industry with rapid growth is attracting participation

of many other firms, creating an intense competition, especially in construction plastic

segment. Meanwhile, the strong growth of this industry has now attracted attention of

foreign investors, particularly from Thailand. This creates opportunities as well as

challenges for Vietnam plastic enterprises.

Based on the positive performance in 9M.2016 and potential outlook in 2017 of domestic

firms, we recommend investment opportunity in 2017 including: NTP, BMP, DNP.

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Research Department Page | 2

Ngày 07 tháng 12 năm 2016

VIETNAM PLASTIC INDUSTRY OVERVIEW IN 9M.2016

Plastic industry has a potential

growth due to relatively low

demand for plastic products in

Vietnam compared to other

regions and the World. In

addition to this, plastic

industry is one of sectors

receiving tax and capital

incentives to improve

development.

Vietnam plastic industry is still a new sector compared to others such as mechanical, chemical or textile

industry, but it has grown rapidly in recent years. In the period of 2010-2015, plastic industry is an

industry which had the highest growth rate with an annual growth rate of 16-18%. This came from a high

demand because plastic products are widely used in all sectors such as consumer goods, construction,

telecommunication… We can see that the amount of plastic per capita increased significantly from

33kg/year in 2010 to 41 kg/person in 2015, which shows a strong demand in domestic market. However,

this figure is relatively low compared to an average of the Asian region and the World (48.5kg/year and

69.7 kg/year respectively).

Note: Data of Asia, USA, EU and the World was in 2015

Source: VPA, VCBS

According to Decision 2992/QĐ-BCT about the targets in developing plastic industry to 2020 and

towards 2030, this sector has received tax and capital incentives to improve development. Whereby:

- The projects to manufacture plastic equipment can borrow 85% of total investment capital with

preferential interest rates.

- The high-tech factory investing in areas with difficult socio-economic conditions has tax

exemption in the first 4 years.

- The production of plastic products will reach 12.5 million tons and export turnover will be

USD4.3 bn in 2020, followed by a growth rate of 15% each year later.

Packaging segment which is

divided into four smaller

segments: plastic packaging,

food packaging, construction

packaging and PET

packaging still accounts for

the highest proportion in

plastic industry structure.

Packaging segment has remained the highest proportion in plastic industry. According to Vietnam

Plastic Association (VPA), plastic industry is divided into four segments: packaging, consumer,

construction and technical segment. In which, packaging has remained the largest proportion (37,4%-

2015) in recent years. This structure has small change compared to the period of 2000-2005 when the

amount of construction plastic accounted for a relatively high percentage (around 30%). However, real

estate and construction industry slow down since 2008 caused a decline in the proportion of

construction plastic to 21% and 18.2% at present. According to The plastic industry development plan

to 2020, the plastic industry will be restructured towards reducing the proportion of packaging and

0

20

40

60

80

100

120

140

160

3337 37 38 40 41

48.50

69.70

155146

128

Consumption in Vietnam plastic

industry and Global

0

1

2

3

4

5

6

7

8

9

2010 2011 2012 2013 2014

Production by quantity and value of

Vietnam plastic industry

Quantity (million tons) Value (billion USD)




Consumer plastic products,

meanwhile, is unable to

compete with high-quality

products from foreign rivals

such as Lock&Lock due to

low quality. On the other

hand, the recovery of real

estate and construction

market lead to an increase in

construction plastic products

such as plastic pipes, profile

bars and plastic doors or

windows.

consumer plastic, increasing the percentage of construction and technical segment.

Source: VPA, VCBS

Packaging segment: has remained the highest proportion in Vietnam plastic industry

withproducts such as plastic packaging, food packaging, construction packaging and PET

packaging. According to the global trend, PET bottles and recycled plastic bags will be likely to

achieve higher growth rate in the coming years compared to others products. The packaging

segment can be divided into four smaller segments:

Plastic packaging: this is the only product reaching the export turnover of over USD 200

mn in the first 6 months of 2016. This category is exported to some important markets

such as Japan, UK and German. The main material to produce plastic bag is PE. However,

this product is subject to anti-dumping tax in the US market and EU market because of the

plastic bag usage restriction, which could be by biodegradable packaging.

Food packaging: Food packaging and consumer goods industry is the target market of

this sector. The main material to produce food packaging is PP resin. One of the leading

firms in food packaging industry is An Phat Plastic and Green Environment JSC

(AAA) which is a large plastic bags manufacturer with the majority of revenue coming

from exporting activity. The main products include shopping bags, garbage bags, plastic

film and plastic resins. AAA operates five plants with total capacity of 46,800 tons/year

and is constructing Plant 6 with the capacity of 37,000 tons/year, doubling current

capacity and Plant 7 with capacity of 9.600 tons/year. Phase 1 of plant 6 which is Plant

6A was competed in June, 2016, is currently in the process of installing machinery, testing

and finishing the production line with the average quantity of 300 tons/month. Plant 6B

was completed, and machinery is currently being installed to be on schedule. Plant 7 has

completed the construction of wall and roof and is in the process platform, it is expected

to be completed and put into operation in Q4.2016.

Construction packaging: the main product is cement bag which is made from PP resin

and Kraft paper. The potential of this sector depends on the development of the real estate

and construction industry.

PET packaging: Although the market size of PET packaging segment in Vietnam is only

50% compared to the food packaging segment, but this is the segment showing domestic

37.4%

29.3%

18.3%

15.1%

Vietnam plastic industry structure

by sector in 2015

Packaging Consumer Construction Technical

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1995 2000 2005 2008 2015 2020F 2025F

21%30% 30%

39% 37.4% 35% 31%

60%

25%20%

21%29.3%

18%17%

15%

30%30%

21%

18.3%

25%27%

5%15%

20% 21%15.1%

23% 25%

Vietnam plastic industry structure by

sector 1995-2025F

Packaging Consumer Construction Technical




enterprises’ strength. Strong growth in demand for packaging products in other industries

led to the significant development of the PET packaging market. Ngoc Nghia Plastic

(NNG) was the leading firms in the PET packaging market, achieving revenue growth

on average of 15%/year. However, in recent years, the performance of NNG has slowed

down due to inefficient investment in the food industry. The detailed analysis of NNG is

in the third section of report.

Consumer segment: this segment accounts for over 29% of the plastic industry with household

products such as, furniture, cabinets, toys, dishes ...Vietnam consumer plastic products makes up

90% of the domestic industry, but the majority is low-quality products with low profit margin.

Meanwhile, FDI and foreign enterprises such as Lock&Lock produce high-quality products with

high profit margin. Many consumer plastic products are also exported to many countries around the

world, but the export turnover has been low because of intense competition. Out-dated technology

and machinery is one of the reason making plastic product being low-quality and less competitive.

In addition to this, the high-quality plastic market with wide coverage requires not only the

production capacity but also attractive advertising strategy and professional services which

domestic enterprises are lack of. One large enterprise in this segment is Rang Dong Plastic JSC

(RDP). RDP has a wide distribution network through three forms (1) the company's branch system,

(2) B2B (distribute to large customers, factories) and (3) B2C (through supermarkets and dealers).

RDP supplies a wide range of products for supermarkets with 40 stores in the North, 19 stores in

the Central, 65 supermarkets in Ho Chi Minh City and 38 supermarkets in the West. Main

customers of RDP are Vinamilk, Sabeco, Masan..Besides, RDP also exports products to foreign

countries such as Japan, Korea, Germany, Netherlands, USA, Canada, Asian and African countries.

With a wide distribution network and exporting activity, we believe that the RDP has built a good

relationship with the agent system and stable salability of their products.

Construction segment: The main products in this sector include uPVC, HDPE, PPR pipes, profile

bars, plastic doors and windows, panels, furniture used mainly for construction needs. The growth

rate of this segment is expected to increase positively due to the recovery of real estate market and

an increase in the number of construction project. Construction plastic market share accounts for

18.2% of the total industry, but the pace of development of this sector has been positive with the

average growth rate of 15-20%/year and leads to the strong development potential. The main

materials for construction plastic products are PVC, PP, HDPE resins. The two largest firms in the

construction plastic pipe market are Tien Phong Plastic JSC (NTP) and Binh Minh Plastics JSC

(BMP). While NTP dominates the northern market with over 60% market share, BMP leads the

southern market with about 50% market share. Dong Nai Plastic JSC (DNP) also joins the

construction plastic market, but focuses on the construction segment which is less competitive.

Dong A Plastic Group JSC (DAG) produces a series of plastic door panels and profile bars. The

development of real estate and housing demand in Vietnam leads to a potential of construction

plastic industry. This is one of the most important factors attracting foreign investors to invest in

Vietnam plastic industry.

Technical segment: Products of this sector are used in assembling automobile, motorcycle, plastic

electronic devices, accounting for 15% of the value of product. Despite the limited number of

enterprises, the total production volume of this segment makes up 20% of total production of

plastic industry and primarily serves the domestic market.

Japan, the US and EU are

potential export markets of

domestic plastics firms.

Export turnover of plastic products increased by 5.3% yoy in the first 9 months, and Japan has

been the largest export market. Since 2005, export of plastic industry has grown steadily, reaching

the CAGR of 20%. Plastic products are now exported to over 150 countries and territories around the




world including Japan, China, Middle East, Africa, Europe and America. In the first 9 months of 2016,

export turnover of plastic products achieved USD 1,618 mn (+5.3% yoy). Japan has been the largest

importer with import turnover of USD 375.7 mn, accounting for 23.2%. The US market is the second

largest exporter with import turnover of USD 246.4 mn, making up 15.2%. Meanwhile, the Netherlands

is the largest EU importer in the first 9 months with import turnover of USD 92.7 m, accounting for

5.73% of total export turnover of Vietnam plastic industry.

Japan is a very potential market for plastic industry export with the demand for plastic products at

about USD 8 bn each year. Some plastic products mostly exported to this market are plastic bags,

household plastic, canvas and furniture in offices and schools. This is one of the very tough markets

with strict regulations on the quality of goods, but Vietnam plastic firms are less likely to meet these

standards because of the lack of information and experience. However, this is still a very potential

market and domestic enterprises should penetrate deeper into them.

According to the US market, plastic bags continued to be subject to anti-dumping tax when exported

to this market. Consequently, exports of plastic bags to the US accounts for a very modest proportion.

On the other hand, others products such as plastic film,.. are the most potential products in the US

market and should be focused on. Besides, US also imports many products such as canvas, household

plastic and plastic products used in transport and packaging.

Demand for plastic products in the EU market has remained at a high level and export turnover of

Vietnam plastic firms has improved positively, especially the plastic pipes. Moreover, in the EU

market, Vietnam's products are not subject to anti-dumping tax which fluctuates from 8% - 30% like

other Asian countries such as China. This is a favorable condition for firms to strengthen export activity

to this market.

Source: VPA, VCBS

Undeveloped petrochemical

industry leads to a lack of

raw materials for the

production of plastic

products in Vietnam. Hence,

almost 80% of the raw

materials are imported from

The majority of raw materials to produce plastic product are imported from other countries.

Despite strong growth in recent years, plastic industry has an important drawback which is the import

of nearly 80% of raw materials. Vietnam plastic industry needs around 3.5 million tons of raw materials

and hundreds of other types of additives to facilitate the manufacturing process. However, domestic

market only provides around 900,000 tons raw materials and additives because of undeveloped

petrochemical industry.

23.22%

15.23%5.73%

5.50%

5.24%

4.36%

4.13%

3.79% 2.59%

2.12%

Structure of the export market by

value in 9T.2016

Japan US Netherlands Korea German

Cambodia UK Indonesia Phillipine Thailand

0

50

100

150

200

250

T1 T2 T3 T4 T5 T6 T7 T8 T9 T10 T11 T12

Export turnover of plastic industry

(million USD)

2015 2016




Korea, Saudi Arabia,

Taiwan, China, Thailand,

Japan and Singapore, and

PP, PE resins have been

accounted for the largest

proportion in import

turnover.

The project of construction raw materials industry has not developed. Among three plants

including Nghi Son (Thanh Hoa), Dung Quat (Quang Ngai) and Vung Tau (Baria), only Dung Quat

Polypropylene Plant with capacity of 150,000 tons PP/year came into operation in August, 2010. Phu

My Plastic and Chemical Corp.,Ltd and TPC Plastic and Chemical Corp., Ltd manufacture PVC resin

with a total total capacity of 390,000 tons. Currently, domestic market only provides around 900,000

tons of raw materials and additives because of underdeveloped petrochemical industry, plastic recycling

industry, which could meet only 20-30% of material demand, meanwhile, there is no exact statistics on

the number of plastic recycling business.

The inactive condition of input materials reduces competitiveness of domestic enterprises and causes

difficulties in taking advantage of tax incentives by the provision relating to the origin of goods. In

addition, fluctuations in the world price of plastic resins will cause significant impact on the

performance of plastic firms. The exchange rate fluctuation is also an important factor that affects

plastic firms’ results importing raw materials.

Table: Domestic enterprises producing plastic materials

Category Company Capacity (tons/year)

PP Binh Son Refinery Co., Ltd. 150.000

PET Hung Nghiep Formosa Co., Ltd. 145.000

PVC Phu My Plastic and Chemical Co., Ltd.

TPC Plastic and Chemical Co., Ltd.

200.000

190.000

PS Vietnam Polystyrene Co., Ltd. 48.000

EPS Vietnam Polystyrene Co., Ltd. 38.000

BOPP Hung Nghiep Formosa Co., Ltd.

Youl Chon Vina Plastic JSC

Euro Film Corporation

60.000

12.000

30.000

DOP LG Vina Chemical Co., Ltd. 40.000

Source: VPA

Supplement: The Nghi Son oil refinery plant which has a capacity of 380,330 tons PP resin per year is

expected to come into operation in the middle of 2017.

By 2020, the demand of raw materials will be around 5 million tons and domestic plastic firms must

have enough materials for effective production and increasing competitive advantage when a series of

free bilateral and multilateral trade agreements will be signed in the future.

PE and PP resins have remained the highest proportion in import turnover. According to VPA, the

import turnover of plastic resin in the first 9 months of 2016 reached 3.3 million tons (+16.3% yoy)

with a value of USD 4,470 mn (+2.95% yoy). The main markets are South Korea, Saudi Arabia,

Taiwan, China, Thailand, Japan and Singapore, in which Korea is the leader with a turnover of USD

859. 8 mn (-1.7% yoy), accounting for 19.2% of total import turnover of plastic resin. Import turnover

from other countries were relatively high, with the turnover from Saudi Arabia of nearly USD 704.5 mn

(+1.8% yoy, accounting for 15.8%), from Taiwan of USD 677.8 mn (-0.7% yoy, accounting for

15.2%), from the US of USD 478.8 mn, from China of (+21.3% yoy, accounting for 10.7%), and from

Thailand od USD 397.7 mn, (+ 2% yoy, accounting for 8.9%).

Notably, the amount of plastic material imported from Brazil and Canada in the first 9 months

increased significantly compared to the same period last years, with an increase by 120% yoy and

156% yoy respectively. However, the import turnover from some markets declined such as the UK (-

35.69% yoy), Hong Kong (-31% yoy) and South Africa (-28.7% yoy).




Source: VPA, VCBS

Technology and machinery are out-dated which leads to ineffective production. The technologies

are as follow:

- Injection moulding technology: used to make plastic components and parts for electronic

devices, electrical suppliers, motorbikes and automobile industries in Vietnam. There are

approximately 3,000 types of Injection moulding equipment in Vietnam.

- Injection blow moulding technology: A large number of plastic product manufacturers in

Vietnam are using injection blow moulding machines to produce plastic packaging products,

including PET bottles and kegs. Plastic firms in Vietnam use injection blow moulding

equipment imported from other countries to produce plastic packaging products.

- Profile Technology: used to make products such as PVC, PE pipe, aluminum and plastic pipe,

fiber, PVC doors, frames, roofing, wall coverings.

The majority of imported machine is from the US, Asian countries (including China, Japan, Taiwan).

However, despite being less expensive, machine imported from Asian markets, especially China, are

more out-dated than those from German, Italy and Japan. We all have modern technology in plastic

production, such as plastic IC manufacturing technology, DVDs, CDs, bottles of 4 layers, PET bottles

-

200

400

600

800

1,000

1,200

860

704 678

479 398

233

181

Import turnover of plastic resin

by marketUSD mn

16.42%

15.80%

20.04%

5.44%

4.22%

11.16%

9.27%

17.67%

Import turonver structure of plastic

resin by market in 9M.2016

Saudi Arabic Taiwan Korea Japan

Singapore China Thailand Others

0%

5%

10%

15%

20%

25%

30%

35%

40%

PE PP PET PVC PS EVA Others

27.5%

22.8%

8.8%

5.6%

3.3% 3.0%

29.0%24.9%

20.3%

7.2%

4.3%3.7% 3.7%

36.0%

Structure of plastic resin imported

by category

Quantity Value

-

1.00

2.00

3.00

4.00

5.00

6.00

2010 2011 2012 2013 2014 2015

2.30 2.55

2.23 2.49 2.65

3.90 3.78

4.70

4.00

4.70 5.00

5.95

Quantity and value of plastic

resin imported

Quantity (million tons) Value (USD bn)




and BOPP.

Plastic resins price fluctuates

in tandem with the oil prices.

Although the plastic resin

price witnessed a decline

trend in the first 6 months, oil

price recovery has led to an

increase in resin prices on

global markets since

Q3.2016.

Plastic resin prices declined in the first half of year in tandem with oil prices, but has recovered

since Q3.2016. Most plastic resins are produced by crude oil and natural gas, only a modest amount is

produced by corn or some other biological products, so plastic resins price depends on oil prices

volatility as well as natural gas prices. Packaging segment accounts for the largest share, so PP and PE

resins are two types of materials accounting for the largest proportion in import turnover.

Source: VPA, VCBS

2017 OUTLOOK

Vietnam plastic industry

has large potential

development because of the

plastic consumption per

capita of 41 kg/year, being

relatively lower than the

average of Asia of 48

kg/year and the world of

70 kg/year. VPA expects

this figure will reach

45kg/year in 2020. In

addition to this, the biggest

expectation of plastic firms

is international free trade

agreements such as

EVFTA, or RCEP.

Export turnover is expected to increase in 2017 with the main markets of Japan and the US. Look

at the positive developments in the first 9 months, export turnover of plastic products is projected to rise

in 2017. However, the EU market is likely difficult for domestic firms because of unfavorable evolution

of EUR which causes damage on the number of orders as well as domestic firms. They are subject to

competition from goods produced in the region due to the cost of goods and raw materials fell as the

EUR down. Japan and the US are still potential markets for exporting with huge demands.

Packaging segment - growth potential depends on the end - product industry such as food and

beverages. As mentioned above, the consumer goods sector, including canned food and drinks are

the target markets of packaging segment, especially food and PET packaging. We think that the

food industry will have opportunities to grow in the future. Positive economic growth will increase

the wealthy class and urbanization rate. According to the estimation, the number of wealthy class is

expected to double in the next 5-year period. This is a positive factor for the development of

consumer goods industry, especially canned food. According to BMI Research, the food industry is

forecasted to grow substantially with an increase in food sales of 10.2% in 2016 and a compound

annual growth in the period 2015- 2020 of 10.9%. With regards to beverage industry, according to

the Association of Wine - Beer - Beverage Vietnam, some of the major contributors to the growth

of this sector is bottled green tea, herbal tea, energy drink which are projected to get CAGR in the

period of 2015 – 2019 of 17.8%, 27.6% and 24.7% respectively. Although the plastic industry

development plan until 2020 is to reduce the proportion of packaging segment, we believe that

with the strong growth of the food and beverage industry, packaging segment will grow positively.

Consumer segment - great potential but is under competitive pressure from foreign rivals. The

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2010 2011 2012 2013 2014 2015

32.6% 32.1%40.4% 40.5%

27.0% 27.5%

26.4% 24.7%

28.8% 31.7%

22.0%22.8%

8.1% 8.3%

11.9%11.6%

6.6% 8.8%

5.9% 5.4%

6.1%6.3%

8.1%5.6%

Structure of plastic resin imported

PE PP PET PVC PS

0

10

20

30

40

50

60

70

0

200

400

600

800

1000

1200

1400

1600

1800

Plastic resins and oil price volatility

HDPE PVC PP Brent oil




prospect of consumer segment has been remained positive due to (1) the population increases leads

to a large demand of consumer goods (number of working-age population accounted for 50%), (2)

income per capita increases and 6.1 million families will be out of poverty during the period of

2015-2050 with an income of 5000-10000 USD/year (according to BMI Research), (3) the

proportion of consumers using domestic products is gradually increasing, proved by 85%-95%

Vietnamese brand names in supermarkets. However, out-dated technology leads to low-quality

products, consumer plastic firms are now facing the intense competition from foreign rivals, such

as Lock&Lock. The high-quality products of foreign enterprises will have higher profit margins

than the domestic products. Therefore, Vietnam plastic firms have to enhance product quality by

improving production technology, and developing attractive advertising strategy to help domestic

products compete well with foreign products.

Construction segment – the recovery of real estate and construction industry supports

growth of this segment. Construction segment market share accounts for 18.2% of the total

industry but witnessed a rapid development with a growth rate of 15-20%/year. According to the

classification system of Hochiminh Stock Exchange, construction plastic index has risen by 45% in

the first 9 months of the year. BMI forecasts the 2016 growth rate of Vietnam infrastructure

construction will be 9.85% and the real average growth will be about 6%/year over the period of

2016 – 2024. The development of construction and real estate sector will boost the demand for

plastic construction product in the future.

Recycled plastic – a new trend in future. Recycled plastic products are now popular in developed

countries due to environmental pollution caused by plastic waste spreading into environment and

causing serious problems. The Vietnam Plastic Association said that if we can use the recycled

materials at 35-50%/year, plastic firms can reduce cost of producing by more than 15%. This

segment has a positive potential, especially food packaging and PET bottles. The increase in

demand for recycled plastic product came from government policies to reduce environmental

pollution caused by plastic products. However, despite the promising potential, this segment is

encountering some problems: (1) the variety of recycled plastic leads to difference in quality

resulting in instability of recycled plastic, (2) relatively high cost, which is 30 -50% higher than

pure resin, (3) requiring high technology, which domestic firms are lack of. However, this will be

likely to become a new trend of future in the situation of supply for this item is still lacking.

Plastic resins price will

rise slightly in the last

months of the year and

remain at this level in

2017.

Plastic resins price is expected to increase in the last months of 2016 and stay at this level in 2017.

The explanations are below:

- Oil prices are expected to fluctuate between 50-55USD in 2017. The agreement to cut oil

production of the members of OPEC made oil price rebound sharply to more than 50

USD/barrel. OPEC will reduce by 1.2 million barrels per day from 33.6 million barrels/at

present and it will take effect since the early of 2017. However, this likely leads to the fact that

shale - oil manufacturers in the US will increase oil production which will have negative

impact to oil price. Meanwhile, demand for crude oil in China has risen strongly in the last

months, but perhaps that imports surged by the decline of oil prices, rather than the increase in

actual demand. Hence, the effort of OPEC to increase oil price may not be effective.

- The US market: PPIPRAM Index which evaluates raw material and plastic resins in the US

market has risen since September .

- Other markets: PE and PP resins price in Turkey increased in November compared to the

previous months due to pressure of being less profitable than other markets. Prices have




fluctuated between 10-40USD/tons. The decline in supply can be because factories in Saudi

Arabia, Oman, India and Egypt closed. Another reason contributing to this upward trend is due

to the Chinese market has recovered and pulled prices up. At the same time, the import tax of

PP resin which will increase to 3% in 2017 also have impact to the resin price when suppliers

likely increase PP resin price in tandem with adjusted tax rate.

According to this analysis, we think that plastic resins price will rise in the last months of 2016 and

remain at this level or increase slightly in 2017. However, most Vietnamese plastic firms have reserved

raw materials to produce within 2 to 6 months, especially in the peak season. Therefore, there is a certain

lag and firms must be flexible in order to avoid significant impact of the volatility of raw material costs.

The increase in import

tariff of PP resin from 1%

to 3% in 2017 will

negatively affect domestic

firms, especially packaging

and construction segment.

Tax policy affecting to Vietnam plastic firms. Decree 122/2016/NĐ-CP on the import tariff for PP:

- Since 01/09-31/12/2016: Import tariff of PP is 1%

- Since 01/01/2017: Import tariff of PP is 3%

This leads to difficulties in raw materials source for manufacturing enterprises, especially food and

construction packaging. According to the VPA, if the import tariff increase to 3%, domestic plastic

firms have to pay for importing materials around VND 1,870 bn in 2017. Hence, domestic plastic firms

are subject to not only increase in plastic resin price but also the import tax cost. Meanwhile, PP

manufacturers in some countries such as Asian nations, Korea, China has advantages.

Competition does not take

place directly in packaging

segment with four small

categories. Meanwhile,

competition in construction

plastic has been intense.

Apart from the two largest

firms which are Tien

Phong plastic JSC and

Binh Minh plastic JSC,

other firms such as Hoa

Sen Group, Tan A Dai

Thanh, Europipe have

begin to penetrate the

construction plastic

market.

Competitive pressure in domestic market. There are more than 2,000 companies operating in the

plastic industry, of which approximately 84% are concentrated in the South where intense competition

occurs, and 14% are located in the North. Packaging plastic which competition does not take place

directly because of having four small segments has remained the highest proportion (37.4% in 2015).

However, we note that with an increase in import tax rate of PP resin, domestic firms in food and

construction packaging will likely come under pressure competition from foreign rivals as we have

mentioned above.

Source: VPA

Construction segment is under pressure of intense competition. The two largest firms in this segment

are Tien Phong Plastic JSC (NTP) who leads the northern market with a market share of around 60%

and Binh Minh Plastic JSC (BMP) dominating the southern market with a market share of nearly 50%.

However, in recent years, these two firms have begun to expand their market share by penetrating into

the central market which has no leader. The acquisition of Five Star Plastic JSC and the merger plan of

Da Nang Plastic JSC show this strategy. Besides, they maintain their market share by increasing the

discount rate for dealers which is around 11%-17% of BMP and approximately 20% of NTP. Apart

84.20%

14.20%

1.60%

Plastic industry structure by market

The South The North The Central




from BMP and NTP, other firms such as Hoa Sen Group, Tan A Dai Thanh, Europipe have begun to

penetrate into the construction plastic market.

Hoa Sen Binh Dinh plastic factory: Established in 4/2016.

- Consists of 2 phases, each phase had a capacity of 12,000 ton/year.

- Both phases are expected to complete in 12/2016 and will have total capacity of

24,000 ton/year.

Stroman Hung Yen plastic factory

- Targets: Construct 20 depots in the North and Central, with production around 20,000

tons and revenue of VND1,000 bn.

- Phase 2: The factory will be completed in 2017.

Europipe: A private enterprise with the investment capacity of HDPE pipe, PPR pipe, UPVC

pipe of over 400 billion.

In conclusion, the competition in construction plastic has become increasingly intense. Although,

domestic plastic enterprises remain dominant due to large-scale and strong brand, we believe that, if

there is no reasonable policies to adapt to competitive market, the market share of them will be affected

negatively.

The acquisition of foreign firms – Opportunities and Challenges. Vietnam plastic industry with

strong development is attracting attention from foreign investors. Some corporations from Thailand,

Japan and South Korea have conducted some acquisitions in domestic firms. We summarize some

dominant acquisition as below:

- SCG – a Thailand Group has spent about USD121 mn to invest in 7 plastic firms in Vietnam

such as Tin Thanh Packaging JSC, Tien Phong Plastic JSC, Binh Minh Plastic JSC, Plastic and

Chemical TPC Vina Co.,Ltd.

- A Japanese investment organization - RISA Partners is expected to invest in East Asia Plastic

Co. and Oji Holdings Corporation Company acquired United Packaging Co.,Ltd.

- Dongwon Systems of Korea has acquired two large firms - Tan Tien Plastic Packaging and

Minh Viet Plastic Packaging, which is a packaging company of Masan Group.

- With regards to the two largest plastic industry are BMP and NTP, the divestment of shares of

SCIC leads to a high probability of increasing ownership of SCG which will create

opportunities and challenges

These foreign enterprises choose joint- venture way to contribute capital and create impact on the

market rather than branding from scratch. The full takeover of domestic enterprises by purchasing from

SCIC after divestments, or buyout small firms is expected to continue to take advantage of saving cost

and domestic resources, as well as to exploit the demand of the domestic market. This trend will

continue to prepare for the FTAs.

PERFORMANCE OF LISTED PLASTIC FIRMS IN 9M.2016

In the first 10 months, the

majority of plastic stocks has

risen significantly, caused by

(1) Raw materials prices

declined which supports

profit margin. (2) Production

has increased because of

Plastic firms listed on the stock market mainly are in packaging and construction segment. In

which:

Packaging segment: There are 12 packaging companies listed on the stock market which is

divided into smaller categories such as plastic bags, food packaging, PET packaging,

construction packaging with a total capitalization of more than VND 4,000 bn. Despite the

majority in terms of numbers, most of the packaging firms are now much smaller than

construction plastic segment. The largest scale in terms of revenue and profit is AAA.




rising capacity and

expanding scale of operation.

(3) Real estate and

construction market have

recovered in recent years and

(4) Demand for plastic

products worldwide increases

or the trade agreement will

be signed (FTA ...).

Construction segment: The construction plastic enterprises dominate the market cap with a

total capitalization of more than VND 20,500 bn. In particular, NTP and BMP are the two

largest firms with the highest revenue and profit growth over recent years.

In the first 9 months of 2016, packaging manufacturers recorded a positive growth in revenue and

profit, but depends on specific firms. Revenue of packaging firms grew by 4.54%, while NPAT

recorded a strong growth of 41.5% over the same period last year.

Particularly, Ngoc Nghia Plastic - a PET plastic packaging manufacturer recorded a net revenue of

VND 1,246 bn (-6.29% yoy) and a sharp decline in NPAT from VND 37.4 bn in 9T.2015 to only

VND 8.8 bn in the first 9 months of 2016. Although net revenue fell slightly, NPAT dropped

significantly due to a considerable increase in SG&A expenses compared to the same period (+48%

yoy and +40% yoy respectively). NNG used to be the largest enterprises in PET packaging sector,

accounting for over 30% domestic market share. In 2009, NNG suddenly entered to the food sector

with an establishment of the East Asian Food Corporation (DAF) - a confectionery producer and Hong

Phu Foods Corporation (HPF) – a fish sauce manufacturer who launched 2 fish sauce brand -Thai Long

and Kabin to compete directly with Masan Consumer who dominates the sauces market with 70%

market share. Besides, confectionery segment could not compete with big brands like Kinh Do, Bibica,

Hai Ha. Therefore, two new areas recorded losses from the beginning. By 2015, the company has

decided to quit the confectionery segment with a total net loss of VND 265 bn. In terms of the sauces

sector, NNG targets to get 30% market share in 2018, and expect to increase investment in Hong Phu

Foods Corporation to VND 1.600 bn in order to reduce financial pressures and increase

competitiveness for their products. NNG also plans to invest about VND200-300 bn to establish a

company specializing in food sector. However we think that NNG will unlikely to achieve their targets

in the short-term when the Kabin and Thai Long brand accounts for a very modest proportion in the

market. Despite recording a 39% growth in revenue in 2015, the sauces sector only reached VND 400

bn. Meanwhile, Masan Consumer now makes up over 70% market share of fish soy sauce reaching

VND 5,600 bn in revenue.

The revenue growth of construction segment is stable, except for Dong Nai Plastic JSC (DNP) with a

sudden increase by 65.4% yoy in revenue. Peak seasons of this sector are Q2 and Q4 like construction

industry. BMP and NTP also recorded a positive performance with revenue growth of 19.8% yoy and

21.9% yoy respectively and profit growth of 38.7% yoy and 8.87% yoy respectively. In particular,

being under fierce competition makes them increase discount rate agents to protect and expand market

share. Dong Nai Plastic JSC (DNP) joining mainly in the large projects market does not encounter such

strong competition. Dong A Plastic JSC (DAG) maintains market share by some type of incentives for

dealers such as payment extension. However, this policy also causes DAG to borrow more to finance

working capital resulting in liquidity and solvency risk.

Ticker Segment

Market cap

(VND bn)

Net sales

9T.2016 % yoy

NPAT

9T.2016 % yoy

AAA Soft packaging 1,520.67 1,476,234 27.82% 101,476 427.29%

RDP Soft packaging 621.84 890,007 6.46% 50,288 9.48%

SPP Soft packaging 309.06 612,752 -0.38% 11,498 65.99%

NNG PET packaging 771.94 1,246,216 -6.29% 8,876 -76.28%

TPC Food packaging 185.04 532,434 4.39% 16,221 112.93%

TPP Food packaging 204.59 383,410 -10.05% 18,977 71.30%

DTT Food packaging 81.52 93,983 5.94% 5,423 20.65%

VPK Food packaging 123.20 148,024 -35.30% 3,528 -82.40%




BPC Construction packaging 79.04 239,668 16.27% 13,445 93.45%

BXH Construction packaging 78.31 151,209 22.03% 7,137 78.92%

DPC Construction packaging 88.82 52,335 -13.08% 1,744 62.84%

VBC Construction packaging 234.00 508,334 6.03% 22,286 13.85%

BMP Construction plastic 9,186.65 2,478,640 19.80% 539,648 38.72%

NTP Construction plastic 5,793.21 3,102,643 21.89% 284,463 8.87%

DNP Construction plastic 678.04 1,079,784 65.40% 68,498 92.83%

DAG Construction plastic 590.37 1,032,646 6.13% 43,271 33.35%

Source: Financial Statement of listed firms, VCBS

Gross profit margin (GPM) of plastic firms have maintained high (above 15%), which is

dominated by construction plastic firms. In which, construction plastic firms have retained the

highest GPM (above 20%). Especially, the GPM of BMP and NTP are the highest figures which are

34.7% and 35.3% respectively, a slight increase compared to the same period of 2016. This could be

because a decline in plastic resin in the first half of 2016. Although this figure has recovered since

Q3.2016, domestic plastic firms have reserved sufficient raw materials to manufacture within at least 2

months which helps them avoid negative impact.

Profits of packaging sector have been stable but the performance depends on particular firm.

Construction packaging recorded a relatively positive growth in terms of GPM and net profit margin,

food packaging and soft packaging segment, meanwhile, rose slightly compared to the same period of

last year. Raw materials price accounts for a reasonably large proportion of COGS of these enterprises

(an average of over 60%). Hence, a fluctuation of plastic resin prices has significant impact to them. It

is noticeable that GPM of NNG grew substantially in 9M.2016 due to a decline by 12% yoy in COGS.

Ticker Segment

GPM

9M.2016

GPM

9M.2015

NPM

9M.2016

NPM

9M.2015

AAA Soft packaging 14.11% 11.51% 6.87% 1.67%

RDP Soft packaging 13.56% 13.59% 5.65% 5.49%

SPP Soft packaging 13.35% 12.20% 1.88% 1.13%

NNG PET packaging 32.94% 28.58% 0.71% 2.81%

TPC Food packaging 6.96% 7.69% 3.05% 1.49%

TPP Food packaging 20.93% 18.26% 4.95% 2.60%

DTT Food packaging 16.72% 16.56% 5.77% 5.07%

VPK Food packaging 15.30% 20.20% 2.38% 8.76%

BPC Construction packaging 16.42% 11.76% 5.61% 3.37%

BXH Construction packaging 15.93% 13.56% 4.72% 3.22%

DPC Construction packaging 19.63% 13.92% 3.33% 1.78%

VBC Construction packaging 11.85% 11.15% 4.38% 4.08%

BMP Construction plastic 34.69% 31.07% 21.77% 18.80%

NTP Construction plastic 35.27% 35.29% 9.17% 10.27%

DNP Construction plastic 20.68% 17.85% 6.34% 5.44%

DAG Construction plastic 8.79% 8.09% 4.19% 3.33%





Noticeably, short-term debt accounts for a large proportion which is an average of 70% in capital

structure of Vietnam plastic firms. This leads to a relatively low quick ratio, except for BMP having

the highest figure (4.25). These loans are used to finance working capital including raw materials

expenses and inventories. In addition, some companies also have incentives to boost selling activities

such payment extension, increasing discount rate leading to an increase in short-term borrowing.

Additionally, these firms also increase long-tem debts to finance the investment in plants, properties

and machinery including DAG (48.2%), DNP (53.7%), AAA (41.2%). The debt ratio of leaders such as

BMP and NTP are relatively low which helps improve liquidity and solvency ratios. Although the

purpose of these loans is to finance operating and investing activities, if the capital structure is not

balanced, credit risk is inevitable.

Ticker Segment ST debt LT debt

Debt/total

asset

Quick

ratio

AAA Soft packaging 64.20% 35.80% 51.13% 0.82

RDP Soft packaging 72.25% 27.75% 63.67% 0.54

SPP Soft packaging 96.10% 3.90% 81.75% 0.46

NNG PET packaging 80.44% 19.56% 65.75% 0.49

TPC Food packaging 89.50% 10.50% 37.64% 1.23

TPP Food packaging 72.06% 27.94% 67.93% 0.79

DTT Food packaging 87.59% 12.41% 14.72% 1.35

VPK Food packaging 26.78% 73.22% 54.80% 0.41

BPC Construction packaging 100.00% 0.00% 38.54% 1.46

BXH Construction packaging 100.00% 0.00% 39.88% 1.31

DPC Construction packaging 0.00% 0.00% 0.00% 5.56

VBC Construction packaging 87.95% 12.05% 63.95% 0.83

BMP Construction plastic 100.00% 0.00% 2.21% 4.25

NTP Construction plastic 81.75% 18.25% 33.75% 0.93

DNP Construction plastic 46.26% 53.74% 77.09% 0.68

DAG Construction plastic 51.82% 48.18% 42.56% 0.87


Positive performance came from the expansion of production to increase output.

An Phat Plastic (AAA) is currently carrying out the construction of Plant 6 with a

capacity of 37,000 tons/year, doubling the current production capacity, and Plant 7 with a

capacity of 9,600 tons year. Phase 1 of plant 6 was competed in June, 2016, it is currently

in the process of installing machinery, testing and finishing the production line with the

average quantity of 300 tons/month. The factory of plant 6B was completed and is

currently installing machinery to ensure the schedule. Plant 7 has completed the

construction of wall and roof and is in the process platform, expected to be completed and

put into production in Q4.2016.

Binh Minh Plastic (BMP): has completed phase 1 of the Binh Minh Long An plant with

the total investment capacity of VDN 144 bn, total area of 32,400 m2 and a capacity of

5,000 tons accessories/year in October, 2015 helps to solve the lack of plastic accessories

situation in plastic market. BMP is conducting phase 2 of this plant and is expected to

build stores to reserve materials and finished goods. Besides, they have invested in




maintenance and rebuilding machinery and equipment to reduce the shortage of goods,

and increase revenue when the market demand improves.

Tien Phong Plastic (NTP): NTP has acquired 2.1 million shares of Five Star Plastic Co.

Ltd’s shareholders with a face value of 10,000 dong/share on 16/09/2015. Accordingly,

they has acquired land use rights of over 6.1 hectares to construct the plant specializing in

producing HDPE pipe with a capacity of 40,000 tons/year. It is expected to be completed

and put into operation at the end of 2017.

Dong A Group (DAG): DAG has expanded capacity by an investment of 20 new

production lines which increases total capacity to 51,000 tons. In which, 6 lines of them

has put into production since the middle of October, 2016. These new lines’ capacity are

1.5 times higher than the old ones which helps to reduce labor costs, loss ratio in

production process (the current loss ratio is 3% - 5%, while it was 7% previously) and less

likely to cause environmental pollution. Moreover, in 2017, they plans to invest 2 Fomex

machine and 1 PP machine to increase total capacity to 1,000 tons PP/ year and over 2,500

tons Fomex / year.

In addition to the capacity expansion, domestic enterprises also conduct M&A to strengthen and expand

market shares. Recently, AAA acquired 30% shares of Vinh Packaging Plastic (VBC), and Dong Nai

Plastics (DNP) acquired Tan Phu Plastic (TPP).

In the first 10 months, the majority of plastic stocks has risen significantly, caused by:

(1) Raw materials prices declined which support profit margins.

(2) Production has increased because of rising capacity and expanding scale of operation.

(3) Real estate and construction market have recovered in recent years.

(4) Demand for plastic products worldwide increases and the trade agreements will be signed (FTA,

EVFTA, RCEP ...).

Hence, we can see that the strong price rally in plastic stocks not only came from positive results, but

expectations of foreign capital inflows when barriers of the ownership for foreign investors are likely to

be removed.

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

1/5

/2015

2/5

/2015

3/5

/2015

4/5

/2015

5/5

/2015

6/5

/2015

7/5

/2015

8/5

/2015

9/5

/2015

10/5

/2015

11/5

/2015

12/5

/2015

1/5

/2016

2/5

/2016

3/5

/2016

4/5

/2016

5/5

/2016

6/5

/2016

7/5

/2016

8/5

/2016

9/5

/2016

10/5

/2016

11/5

/2016

Price movements of soft-packaging

segment

AAA RDP SPP

0

5000

10000

15000

20000

25000

30000

35000

40000

Price movements of food packaging

segment

TPC TPP DTT VPK




Source: Bloomberg, VCBS

POTENTIAL FIRMS

Based on the potential as mentioned above, we recommend investment opportunity in 2017 including:

NTP, BMP, DNP.

Tien Phong Plastic JSC (HNX-NTP)

Results in 9M.2016

In the first 9 months, NTP recorded a positive growth in its performance. Net revenue was VND

3,102.6 bn (+21.9% yoy, 79.5% of plan), NPBT reached VND 319.6bn (+8.5% yoy, 77% of plan) and

NPAT increased by 8.8% yoy to VN284.4 bn.

Gross profit margin has remained high level, reaching 35.2%. This figure was relatively lower than

the highest level in the first 6 months (36.8%) because plastic resins price in Q3.2016 has recovered. In

the first 9 months, PVC resin price has risen by 26.76%, PE resin prices has increased by 8.57% and

HDPE resin price has grown by 6.54% compared to the beginning of the year. Plastic resins price

accounts for about 85% of the COGS’s structure and and COGS rose by 21.9% yoy in 9M.2016, higher

than the revenue growth.

Net profit after tax recorded a modest growth. NPAT reached VND 87.7 bn (+2.2% yoy) in

Q3.2016, and VND 284.4 bn (+8.8% yoy) in 9 months. Despite a positive growth of revenue, NPAT

increased moderately due to the fact that (1) plastic resins price has recovered which made COGS rise

(2) NTP tries to protect and expand market share by boosting selling activity through increasing

discount rate for dealers and contributors in the intense competition in plastic industry. This leads to an

increase in selling expense and higher proportion of net sales. (2) Financial expenses increased mainly

due to interest from bank loan. Hence, the net profit margin of NTP only achieved 9.17% compared to

10.27% of the same period in 2015.

Central Tien Phong Plastic JSC: Benefit from tax incentive. Nghe An factory focuses on production

of uPVC, PE, PPR pipes which is divided into 2 phases with total capacity of 40,000 tons/year. This

firm benefits from tax incentive: 0% for the first 4 years (2014-2017), 7.5% for the next 10 years (2017-

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

Price movements of construction

packaging segment

BPC BXH DPC VBC

-

50,000

100,000

150,000

200,000

250,000

Price movements of construction

plastic segment

BMP NTP DNP DAG




2028) and 15% for the following years.

2016 Forecast

In 2016, we forecast:

- Net revenue will achieve VND 4,343.1 bn (+22.1% yoy) with an increase by 20% yoy of

production, reaching 85,085 tons.

- Gross profit margin is expected to reach 35%, lower than the first half of 36.8% due to the

recovery of oil price since Q3.2016.

- Selling expense/sale ratio will be 20.3%.

- We forecast net profit of NTP of VND378.8 bn in 2016 (+ 5.91% yoy). EPS in 2016 will reach

4,693 dong share (after provision). With prices of 77,000 VND/share in 13, December 2016,

NTP is trading at PE forward 2016 of 16.4.

2017 outlook


- Net revenue is projected to achieve VND 5,131.2 bn (+18,1% yoy) with an increase by 17%

yoy of production, reaching 99,549 tons.

- Gross profit margin is forecasted to reach 34.2% due to the recovery of oil prices which leads

to an increase in plastic resin prices.

- Selling expense/sale ratio rises slightly to 20.5% because in 2017, NTP will subject to intense

competition from other rivals such as Hoa Sen Group, Europipe and Tan A Dai Thanh. Hence,

it is likely that NTP will increase selling expense to protect and expand market share.

- We forecast 2017 NPAT of VND 424.2 bn (+9.39% yoy). EPS in 2017 will reach 5,134

dong/share (after provision). With a price of 77,00 VND/share in 13, December 2016, NTP is

trading at a PE forward 2017 of 15.

NTP is a leading enterprise in Vietnam plastic industry with positive revenue growth and steady annual

profits, cash flow and strong financial health. They are making efforts to protect and expand market

share using a different strategy compared to BMP. While BMP focuses on profitable growth, NTP

minimizes competitive risks by switching to a new strategy focusing on plastic pipes for projects with

higher growth rates. We think that this is an important and reasonable strategy in this situation.

However, NTP also has some risks, such as (1) fluctuations in raw material prices, (2) the high discount

rate affecting profit and (3) the exchange rate risk. In terms of SCIC divestment, it is likely that

Thailand shareholders - The Nawaplastic Industries with the percentage of ownership of 23.8% will

increase ownership rate. However, the share price has surged 64% since the beginning of year due to

information of this divestment. Using the discounted cash flow methods (FCFF, FCFE), we determine

the price of NTP after one year is 88,238 VND /share. We recommend POSITIVE for NTP.

Binh Minh Plastic JSC (HSX – BMP)

Results in 9M.2016

The first 9 months results recorded positive growth. Net revenue reached VND 2,478.6 bn (+19.8%

yoy, 74.4% of plan, NPBT was VND 663.1 bn (+34.8% yoy, 110% of plan) and NPAT reached VND

539.6 bn (+38.7% yoy). The positive performance came from:

- Consumption increased compared to the same period.

- Plastic resins price reduced which made gross profit margin improve.




The production rose by 21% yoy in 9T.2016, and average selling price decreased slightly. In the first

9 months, the production of BMP reached 59,606 tons (+21% yoy). It is likely because plastic products

demand has risen, so they increased capacity of 25,000 tons in Binh Duong Plant.

Gross profit margin grew from 31.07% in 9M.2015 to 34.69%. Gross profit in 9M.2016 achieved

VND 859.8 bn (+33.76% yoy) leading to an increase in GPM to 34.69%. Despite a positive increase in

GPM, BMP is encountering a fierce competition which made them increase discount rate for dealers to

improve selling activity. This is proved by a surge in the deduction of revenue by 233% yoy to over

VND 222 bn. The main reason of a rise in GPM is due to decrease in raw material costs as we

mentioned in NTP analysis. Although resins price in Q3.2016 has recovered, raw material storage cycle

of about 1.5 to 2 months helps them avoid impact of plastic resins price increase. However, it is likely

that GPM in Q4.2016 will decline slightly because of the uptrend of plastic resins price since Q3

onwards.

Conducting Phase 2 of Long An plant.

Phase 1: capacity of 5,000 tons/year was put into operation from 10/2015.

BMP will implement Phase 2, with a capacity of 90,000 tons/year.

In 2 years from 2017 to 2018, BMP will install machinery, production lines according to the

ability of the company and increase capacity to match the demand of the market. BMP

estimates in Phase 2 of Long An plant, BMP will disburse more than VND 300 bn each year.

2016 Forecast


- Net revenue will achieve VND 3,231.9 bn (+15.7% yoy) with an increase by 21.1% yoy of

production, reaching 80,039 tons.

- Gross profit margin is expected to reach 34.3%.

- Selling expense/sale ratio will be 4.51%.

- We forecast net profit of BMP of VND 628.7 bn in 2016 (+ 21.2% yoy). EPS in 2016 will

reach 12,443 dong share (after provision). With prices of 195.000 VND/share in 13, December

2016, BMP is trading at PE forward 2016 of 15.6.

2016 Outlook


- Net revenue is projected to achieve VND 3,649.6 bn (+12.9% yoy) with an increase by 13%

yoy of production, reaching 90,444 tons.

- Gross profit margin is forecasted to decline from 34.3% to 33% in 2017. We believe that

similar to NTP, BMP will be affected when oil prices rise.

- Selling expense/sale ratio rises slightly to 4.7% and G&A/sales ratio remains 3.44%.

- We forecast 2017 NPAT of VND 707.1 bn (+12.4% yoy). EPS in 2017 will reach 13.995

dong/share (after provision). With a price of 195.000 VND/share in 13, December 2016, BMP

is trading at a PE forward 2017 of 13.9.

BMP is one of two leaders in Vietnam plastic industry with a extensive distribution system and

reputable brand for more than 38 years of operation. Besides, BMP has maintained steady growth, sales

production and ensured reasonable discount policy for dealers as well as good customer care regime.

Financial health has maintained a healthy state with no long-term debt and only a small amount of

short-term debt to finance the production and core activities. Moreover, BMP is one of 10 companies

on the list SCIC divestment in the future, so when completing the internal procedures to open room to




100%, BMP will become more attractive to foreign investors. Using the discounted cash flow methods

(FCFF, FCFE), we determine the price of BMP after 1 year is 222,500 VND/share. We recommend

POSITIVE for BMP.

Note: The prices of NTP and BMP exclude premium for investors' expectations after the SCIC

divestment.

Dong Nai Plastic JSC (DNP)

Results in 9M.2016

DNP recorded a significantly good performance in 9T.2016. Net revenue reached VND 1,081.6 bn

(+65.3% yoy) and NPAT increased 72.6% yoy to VND 52.9 bn. Gross profit margin of DNP also rose

from 17.8% to 20.7% in the first 9 months. Thus, DNP has completed 67% of revenue plan and 70.3%

of the profit plan. DNP has two plants with total capacity of 48,000 tons/year, loyal customers and a

good relationship with suppliers and dealers. The company’s products are used mainly in construction

segment rather than consumer segment which helps them avoid competing directly with BMP and NTP.

Gross profit margin has maintained a high level despite plastic resin price recovery. This could be

because, DNP has reserved raw materials since the beginning of the year, making inventory in the first

3 quarters maintain at a high balance. This low price of raw materials will improve profit margin when

oil prices rise. As we discussed above, oil prices have recovered and reaching over 50 USD/barrel,

DNP will therefore benefit from cheap raw materials.

Water sector will help to improve overall profit margin of DNP. DNP owns Binh Hiep Water Plant

- one of the leading profitable companies in the water supply with two plants Ca Giang and Tan Thanh

with total capacity of 30,000 m3/day supplying water for Phan Thiet city, Binh Thuan province. With

the advantage of Ca Giang lake located near the plant, Binh Hiep do not need to invest pipeline

(accounting for 50-60% of total investment cost). DNP has just completed the acquisition of the Dong

Tam Water plant (DTW), but it works quite lower than capacity of 35,000m3/day. However, DNP

expects to restructure DTW and increase capacity to 50,000 at the end of Q1.2017 and to 70-80,000 m3

at the early of 2018. Due to lack of financial information, we will not evaluate effectiveness of this

investment.

2017 outlook

Main growth drivers of DNP in 2017 still come from manufacturing plastic products estimated to

grow by about 10%. Besides, in 2017 DNP will start selling accessories and pipes in construction and

consumer market which is expected to increase revenue. DNP is improving the system of plastic pipe

production plants in all three regions, and continue to invest in northern plant systems to reduce

transportation costs from the central to the north, and complete contribution network in all three

regions.

The water sector will also create good cash flow with revenue and profit mainly come from Binh

Hiep Plant. After water plant in Long An, Tien Giang put into operation and the capacity expansion of

Binh Hiep Plant completes (+20,000 m3/day), this will contribute higher profit to total profit of DNP at

the end of 2017 onwards.

Recommendation




We believe DNP is a POSITIVE stock in 2017, caused by:

DNP is one of the leading enterprises in drainage pipes sector used in construction in the

Central and the South.

Profit margins remains stable thanks to reserving raw materials at low price.

M&A activities in recent years help to increase revenue and profit.

Water production is forecasted to have a high potential and contribute to the profitability and

sustainability of DNP.




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This report is designed to provide updated information on the results of companies’ business as well as analysis of factors

affecting the prospects of the business. The report and / or any judgments and information in the report are by no means

construed as investment advices, buy or sell offers, or investment proposals of any financial products, securities of related

companies analyzed in the report. Therefore, this report should be best considered as a reference only. VCBS does not bear any

responsibility for unwanted results when the information in the report is used.

All the information stated in the report has been collected and assessed as carefully as possible, however VCBS does not

guarantee the accuracy of the information and has no obligation to update the information after the report was released.

All opinions, judgments, estimations and projections in this report represent independent views of the analyst at the date of

publication only. Therefore, VCBS and/or departments of VCBS may have securities transactions inconsistent with

recommendations in this report.

This report may not be copied, reproduced, published or redistributed by any person for any purpose without the written

permission of an authorized representative of VCBS. Please cite sources when quoting. Copyright 2010 Vietcombank Securities

Company. All rights reserved

CONTACT INFORMATION

Ly Hoang Anh Thi

Head of Research

[email protected]

Tran Thi Thu Trang

Equity Analyst

[email protected]

VIETCOMBANK SECURITIES COMPANY http://www.vcbs.com.vn

Hanoi Headquarter Floor 12th and 17th, Vietcombank Tower, 198 Tran Quang Khai Street, Hoan Kiem District, Ha Noi

Tel: (84-4) -393675- Ext: 18/19/20

Ho Chi Minh Branch Floor 1st, Green Star Building, 70 Pham Ngoc Thach Street, Ward 6, District No.3, Ho Chi Minh City

Tel: (84-8)-38208116

Da Nang Branch Floor 2nd, 10 Hai Phong Street, Hai Chau District, Da Nang City

Tel: (84-511)-33888991 - Ext: 12/13

Can Tho Branch Floor 1st, Post Office Building, 2 Hoa Binh Avenue, Ninh Kieu District, Can Tho City

Tel: (84-710)-3750888

Phu My Hung Transaction Unit Lawrence Sting Building, 801 Nguyen Luong Bang Street, Phu My Hung Urban Zone, District No. 7, Ho Chi Minh City

Tel: (84-8)-54136573

Giang Vo Transaction Unit Floor 1st, C4 Giang Vo Block, Giang Vo Ward, Ba Dinh District, Ha Noi

ĐT: (+84-4) 3726 5551

An Giang Representative Office Floor 6th, Nguyen Hue Building, 9/9 Tran Hung Dao Street, My Xuyen Ward, Long Xuyen City, An Giang Province

Tel: (84-76)-3949841

Dong Nai Representative Office F240-F241 Vo Thi Sau Street, 7th Block, Thong Nhat Ward, Bien Hoa City, Dong Nai Province

Tel: (84-61)-3918812

Vung Tau Representative Office Ground Floor, 27 Le Loi Street, Vung Tau City, Ba Ria – Vung Tau

Tel: (84-64)-3513974/75/76/77/78

Binh Duong Representative Office 314 Binh Duong Avenue - Phu Hoa Ward - Thu Dau Mot City- Binh Duong

Tel: (+84-650) 385 5771

Hai Phong Representative Office Floor 2nd, 11 Hoang Dieu Strest, Minh Khai Ward, Hong Bang District, Hia Phong

Tel: (+84-31) 382 1630

http://www.vcbs.com.vn/

Documents

VIETNAM PLASTIC INDUSTRY REPORT - VCBS