LogisticsSectorUpdate

7/25/2019 LogisticsSectorUpdate

http://slidepdf.com/reader/full/logisticssectorupdate 1/18

www.vcsc.com.vn | VCSC<GO> Viet Capital Securities | 1

Vietnam’s Logistics Sector – Sector pre-initiation overview

18 March 2011

17 September 2015

Still adolescent but growing-up fast

Vietnam’s USD 50-60 billion logistics industry is growing fast but is still in the

early stages of development. The sector has been growing at ~20% per year and

is expected to sustain double-digit growth for at least the next 5-10 years. Most

Vietnamese logistics players are 2PL (secondary party logistics) providers unlike in

more developed markets where 3PL providers and integrated supply chain

management vendors dominate.

The sector provides broad exposure to the country’s emergence as a

manufacturing hub... After stagnating in 2011 and declining in 2012, total

disbursed FDI into Vietnam grew by over 9% CAGR since then to reach USD12b

in 2014, with around 70% of this coming into the manufacturing sector. Majorupcoming free trade agreements should accelerate this trend, thereby driving

sustained demand for a whole range of logistics services in the coming years.

...while simultaneously allowing one to ride fast emerging domestic

consumption themes like the growth in organized and internet retailing.

Vietnam has become one of the fastest growing retail markets in the world. Retailing

sales grew at 17.5% from 2009 to 2014 to reach VND 1,751t (USD 80b) in 2014 and

is expected to touch VND 2,202t by 2019. The modern trade channel penetration is

less than 15% in urban areas and just 0-1% in rural areas (4-5% nationwide) but this

is increasing fast with several global and domestic players entering the market. This

is spurring demand for logistics services while also creating demand for specializedlogistics capabilities like cold chain management (for grocery retailers). Internet

retailing is another rapidly emerging sector, having grown by 43% in 2014 to VND

11t in value. The complex last-mile delivery and payment collection requirements of

internet retailing in Vietnam is driving demand for specialist logistics services.

Inefficiency is still a major hindrance to the industry, depressing the valuation

of logistics companies... The lengthy customs and regulatory procedures in

Vietnam increase logistics costs while also leading to delays in cross-border cargo

movement. The underdeveloped transport infrastructure in the country further

exacerbates this problem. This “inefficiency” discount is reflected in the relatively low

median P/E of 7.4x for the universe of listed logistics companies in Vietnamese

versus 15.1x in the Philippines, 19.8x in India and 23.1x in Thailand.

...but the continued flow of FDI and rapid infrastructure development will

boost efficiency and close this valuation gap with regional peers. Vietnam is

continuing to see strong FDI flows into high-tech manufacturing segments like

electronics, which have complex supply chain requirements, involving several

imports of multiple precision components and exports of high-value, fragile finished

goods. This will pressure existing logistics players to upgrade their capabilities. The

huge spending underway in road, rail, port and airport infrastructure will, in turn allow

local players to improve their efficiency, and consequently, profitability.

Anirban Lahiri

Senior Manager

[email protected] +848 3914 3588 ext. 130

mailto:[email protected]






HOLDTable of Contents

The Vietnam Logistics Industry is at an inflection point ............................................................... 3

Transportation is a vital part of the logistics value chain and will benefit from improving

infrastructure ............................................................................................................................ 4

Within the Warehousing segment, Cold Storage is a promising and highly underserved niche ................................................................................................................................................. 6

The Forwarding segment is seeing increasing participation from foreign players ................... 7

Demand for other value-added logistics services should grow fast ......................................... 8

Vietnam’s Logistics Industry is expected to grow in size and sophistication in the future........... 9

...despite the presence of some structural challenges.. ............................................................ 11

Lengthy customs processes are a major impediment to efficiency but the government seems

to have recognized this .......................................................................................................... 11

Inadequate infrastructure is another bottleneck but this is also being tackled quite

aggressively. .......................................................................................................................... 11

...because of a host of supporting macro trends... .................................................................... 12

Foreign investment is boosting demand for quality logistics services ................................... 12

Free Trade Agreements are providing that additional oomph ............................................... 13

...and supportive regulatory and policy measures ..................................................................... 13

The Vietnamese listed logistics universe is sizeable and trading at an attractive valuation ..... 14

Table of Figures

Figure 1: Logistics Industry Structure .......................................................................................... 3

Figure 2: Freight Volume by Transportation Medium .................................................................. 4

Figure 3: Quality of infrastructure global ranking out of 148 countries 2013-2014 ...................... 5

Figure 4: Grocery Retail Sales (VND t) ........................................................................................ 6

Figure 5: Grocery Retail Outlets and Selling Space .................................................................... 7

Figure 6: Distribution of Vietnam’s seaport system ..................................................................... 8

Figure 7: Logistics Services Outsourcing Demand of Vietnamese Enterprises .......................... 9

Figure 8: Evolution of the Global Logistics Industry .................................................................... 9

Figure 9: Vietnam's Logistics Performance Scores ................................................................... 10

Figure 10: Logistics cost as a percentage of GDP in 2014 ....................................................... 10 Figure 11: Time Needed to Transport Goods across Borders................................................... 11

Figure 12: Foreign Direct Investment into Vietnam ................................................................... 12

Figure 13: Vietnam’s exports by category in value terms (2014) .............................................. 13

Figure 14: Mean and median P/E of Logistics companies ........................................................ 15




HOLDThe Vietnam Logistics Industry is at an inflection point

Vietnam’s logistics market, by some estimates, is ~US$60 billion in total value. In total, there

are around 1,000 logistics firms, 25 of which are foreign firms. Foreign firms of note are

Maersk Logistics, APL Logistics, NYK Logistics and MOL Logistics. Most foreign firms can

offer third or fourth party logistics (3PL or 4PL) services while Vietnam domestic firms can onlyhandle 2PL services. Foreign firms in Vietnam currently dominate the market, with a collective

market share of approximately 80%.

The sustained growth in the country’s economy and trade with the rest of the world over the

past two decades has led to rapidly increasing levels of transportation demand, which have put

a strain on limited resources. To date, Vietnam’s transport and logistics system has been able

to accommodate fast growth despite limited connectivity. However, the shift in the industrial

base towards more sophisticated manufacturing (electronics, chemicals and automotive

assembly) and the development of modern retail formats are increasing the complexity of

supply chain requirements with heightened needs for timeliness and efficiency. This creates an

unprecedented opportunity for domestic logistics players to upgrade their capabilities and

evolve from 2PL vendors focused just on forwarding and transportation into 3PL providers thatprovide the entire spectrum of supply chain services and offer tailored solutions to clients. The

industry is divided into four main categories: transportation, forwarding, warehouse, and other

value-added services.

Figure 1: Logistics Industry Structure

Cold Storage

Cold

Transportation

Rail

Water

Road

Air

Bonded

Warehouse

Cold Chain

Container

(Un)Loading

Packaging,

Inspection, etc

Domestic

International

CustomClearance

ICD & CFS

Services

Seaports

Airports

Logistics

Transportation

Forwarding

Warehousing

Others

Port Operations




HOLDTransportation is a vital part of the logistics value chain and will benefit

from improving infrastructure

Transportation services account for the biggest chunk of the Vietnam logistics market.

Providing basic transportation services is usually the first step in the evolution of the logistics

industry in most market with other services developing around this core. Vietnam is no different

and, given the relative immaturity of the logistics industry in the country, transportation services

are still the dominant category in value terms. The vast majority of local logistics companies

are just trucking fleet operators that simply move products from point A to B. The low entry

barriers in the road transportation category have resulted in a fragmented supply-side with

limited quality assurance. The sea-shipping and air freight category, on the other hand, is

dominated by joint ventures between foreign players and local firms.

Road is by far the more popular medium for moving freight within the country and

should continue to grow fast due to regional economic integration . Road is not only an

important medium for domestic transportation but increasingly plays a role in cross-border

goods flows, being the main form of transport linking Vietnam's factories to the country's port

and also plays a key role in linking Vietnam with its second-largest export partner China.Vietnam’s road network is extensive at around 222,000 kilometres but only around 19-20% is

paved and expressways are still relatively uncommon; most of the widest roads have fewer

than 4 lanes and separate interchanges. Given its traditional dominance and popularity as a

transportation medium, Vietnam’s road network is now congested with maximum traffic speed

barely exceeding 60 km/h. Roads connecting industrial zones to major ports in both the North

and South are particularly congested due to increased freight volumes in line with growing

export-oriented manufacturing activity.

According to the General Statistics Office, the average transportation distance is relatively

short at about 61 kilometres, reflecting the skew in favour of local-to-local transportation. Given

the underdeveloped road infrastructure and the limited fleet size of long-haul trucks in the

country, road transportation has not been a favoured means for long-distance transportation.Vietnam is now heavily investing in upgrading its road network with a particular emphasis on

expanding its highway / expressway network from the current 600km to 2,000km by 2020. The

improving national highway network, growing trade links with China, the formation of the

upcoming ASEAN Economic Community (AEC) and a growing fleet of long-haul trucks in the

country should all give a fillip to long-haul road transportation.

Figure 2: Freight Volume by Transportation Medium

Mill ion tonnes 2012A 2013A 2014F 2015F 2016F CAGR

Road Freight 722.2 765.1 811.4 860.1 915.9 6.1%

Air Freight 178.7 183.7 195.6 203.3 212.4 4.4%

Inland Waterway Freight 168.49 180.8 192.9 205.1 218.1 6.7%Maritime Freight 98.0 98.4 98.5 98.6 98.8 0.13%

Rail Freight 7.00 6.52 6.73 6.96 7.2 0.7%

Source: BMI Report

Inland waterways are also a vital but underexploited domestic transportation medium .

Vietnam has a large and intricate network of inland waterways that stretch for over 42,000

kilometres, which connects it extensively with neighbouring countries including China, Laos,

Cambodia and Thailand as well as to Vietnam’s South China sea cost. However, the potential

of these vast waterways is still relatively underexploited due to the low clearance of bridges

over waterways and poor river port facilities. Most bridges on the two main rivers in Vietnam –

the Mekong in the south and the Red River in the north – do not allow passage of barges

above 96 TEU in capacity (to put this in perspective, barges up to 208 TEU use the Rhine




HOLDRiver which connects most of Western Europe. Inland ports are generally small and in poor

condition, with loading and unloading mainly carried out on the river bank because few ports

have proper handling facilities. Yet river barges play a vital role in feeding cargo to most of the

mainline vessels at Cai Mep-Thi Vai port in the South. With adequate investments, the dense

river network connecting Vietnam with the rest of Indochina could position the country as a

transit hub for Southeast Asia (particularly for land-locked regions like Laos and Northern

Cambodia), much like the Netherlands is for Europe.

Rail has lagged heavily as a transportation medium due to underdeveloped

infrastructure but this could change. The rail system in Vietnam is rather underdeveloped

and, being a legacy of the French colonial era, is heavily in need of upgrades and expansion.

Rail is a vital medium in countries like China and India as it is capable of handling large freight

volumes economically and reliably. Improving the rail network would make a significant impact

in improving the logistics competitiveness of the country. Recent discussions around the

Japanese providing funding assistance and expertise in upgrading and building-out the local

rail network are positive steps in this direction. Once this happens – and once the Vietnamese

rail network gets integrated into regional rail networks following the creation of the AEC – it is

expected that the average rail freight transportation distance will increase considerably fromthe current 567 kilometres. This should further lower overall logistics costs in the country.

Figure 3: Quality of infrastructure global ranking out of 148 countries 2013-2014

Vietnam Philipp. China India Thailand Indonesia Pakistan

Quality of roads 102 87 54 84 42 78 72

Quality of railroads 58 89 20 19 72 44 75

Quality of port

infrastructure 98 116 59 70 56 89 55

Quality of air

transport

infrastructure 92 113 65 61 34 68 88

Quality of

electricity supply 95 93 67 111 58 89 135

Source: The Global Competitiveness Report 2013 - 2014

Maritime transportation is important in supporting Vietnam’s growing participation in

global trade but port quality is a constraint. Accounting for more than half of the total

accrued FDI, investment in manufacturing, in particular, has been driving the country’s demand

for international transport and logistics services. Situated in the southeast of the Indochinese

peninsula and with a 3,200 km coastline situated along one of the busiest cargo lanes in the

world, Vietnam depends heavily on sea freight transportation for its external trade. Since 2007,

Vietnam’s container port throughput has been expanding at a CAGR of 12.5%, reaching 8.1

million TEUs in 2013, double the volume seen in 2007. Driven by exports from foreign-investedmanufacturers and by the import of intermediate and capital goods, Vietnam’s external trade

grew strongly last year, with exports and imports growing by 14% and 12%, respectively.

Vietnam has seen a proliferation in the number of ports in recent years. With companies from

Intel Corp. to Samsung Electronics Co. building multi-billion-dollar factories in Vietnam over the

past couple of years provincial authorities have established competing ports capable of

handling overseas traffic, causing plunging rates and losses for operators estimated at $1.5

billion or more, according to Seaport Consultants Asia. The highly decentralized decision-

making process means that there is no coordinated strategy or master plan for port

development. Additionally, ports development plans and ground transportation infrastructure

development plans are not in sync, resulting in several ports being constrained by poor

connectivity with factories and logistics hubs. The government wants to build even more ports,




HOLDemphasizing “quantity over quality,” a World Bank report in January said. The overcapacity

may undermine Vietnam’s ability to attract more higher -value manufacturing that demands

efficient transportation systems, the report said.

On the brighter side, deep-water port capacity – previously a major constraint to efficient

shipping – is now being addressed by the government. About $2 billion has been invested by

foreign investors and state-owned and private Vietnamese companies in state-of-the-artterminals at Cai Mep port, Vietnam’s only deep-sea facility located at the mouth of the Cai Mep

River and South China Sea. Opened in 2009, the port is part of the country’s goal to boost

shipping volume more than 130 percent from 2012 to the end of the decade. As deep-water

port capacity increases, there will be less need for transhipment to and from regional hubs like

Singapore and Hong Kong, thereby slashing maritime shipping costs to and from Vietnam.

Within the Warehousing segment, Cold Storage is a promising and highly

underserved niche

Cold warehousing is a high potential and underserved niche, comprising cold storage

and cold transportation. According to Frost & Sullivan, climate controlled logistics is one of

the highest potential and yet, most underserved segments of the logistics market in Vietnam. According to StoxPlus, the country’s total cold chain capacity is just 473 thousand tons which

includes total system-wide capacity at a given point in time (goods in cold storage + goods in

cold transit). The continued entry of major modern format grocery retailers and the increasing

export of farming and seafood products are expected to create multiple opportunities for Cold

Chain specialists. Additionally, due to Vietnam’s traditional “eating fresh” society, the “frozen

food” retail sector is currently fragmented and the Cold Chain industry is under -invested.

However, the demand for frozen products is increasing with changing lifestyles in urban areas,

putting the limited existing Cold Chain infrastructure under pressure. Each year Vietnam incurs

a loss of at least USD 2.5b in distribution of farming products and seafood. This is equivalent

to a loss rate of approximately 25%, extremely high compared to other countries, even those at

similar stages of development.

In order to remedy this situation, the government has introduced various financial incentives in

order to attract foreign investment into this segment. Japanese firms currently make up the

largest percentage of foreign specialists operating in the country.

Figure 4: Grocery Retail Sales (VND t)

Source: Euromonitor, 2014

384.7450.5

549.6708.1

880.2

1092.8

15.320.1

24.0

30.9

37.4

45.4

0

200

400

600

800

1000

1200

2008 2009 2010 2011 2012 2013

Traditional Grocery Retailers Modern Grocery Retailers




HOLDFigure 5: Grocery Retail Outlets and Selling Space

Source: Euromonitor, 2014

The Forwarding segment is seeing increasing participation from foreign

players

Local companies are very active in this segment but should expect growing competition

from foreign players. Some of the leading domestic players in this segment are Vinafreight

and Vinalines. Local companies have, thus far, dominated the domestic freight forwarding

segment as it requires strong relationships with the carriers or transportation service providers

which, as pointed out above, largely comprise local companies. That being said foreign playershave an advantage when it comes to overseas freight forwarding and, in recognition of this,

they are increasingly moving into this segment of the logistics market.

The Port-Handling segment is growing, spurred by increasing trade and

supported by an improvement in port capacity and connectivity

Soai Rap channel project: On June 21, 2014, the project for dredging the Soai Rap channel

(phase 2) to accommodate vessels with a load of more than 50,000 tons was inaugurated.

Before the completion of this project, vessels from the Eastern Sea entering Ho Chi Minh city

had to go around the Vung Tau cape, Ranh Rai bay and rivers including Nga Bay, Long Tau,

Nha Be, Sai Gon with a total distance of 85 km. Furthermore, Long Tau channel is too narrow

to accommodate large cargo ships. Soai Rap channel can now allow large vessels to pick upgoods at Hiep Phuoc port. According to government, the total annual cargo through Soai Rap

could reach 120-150 million tonnes by 2025.

The development of transportation infrastructure will support increasing cargo volumes

through Cai Mep port zone in coming years: The expansion of highway 51 was finished in

2015. Road 965 – the arterial road linking Cai Mep port zone with highway 51 – has also been

completed making freight traffic more convenient between Cai Mep and major industrial areas

around HCMC. Currently, work is also underway to complete the inter-port route connecting

SP-PSA port and SITV port within Cai Mep port zone and should be completed within 2015.

18.5

19

19.5

20

20.5

21

21.5

22

22.5

570

580

590

600

610

620

630

640

2008 2009 2010 2011 2012 2013

R e t a i l s e l l i n g s p a c e

O u t l e t s

Outlets '000 Selling Space mn sq m




HOLDHa Noi- Hai Phong highway: As of June 2015, the construction of this highway was around

90% complete, which is improving connectivity between Ha Noi and Hai Phong. This is an

important route as it connects the fast-emerging northern key economic zones with the second

largest group of seaports in the country.

Figure 6: Distribution of Vietnam’s seaport system

Source: World bank

Demand for other value-added logistics services should grow fast

Demand for other value-added logistic services is increasing as companies seek

integrated supply chain solutions from vendors. Nonetheless, a large portion of these

services is still operated in-house by companies operating in Vietnam. Based on the historical

trend of a sharp increase in outsourcing of value-added services and the still relatively low %

of these services that are being outsourced currently (relative to traditional logistics services

like transportation and warehousing), the demand for such services will continue to rise over

the medium-term irrespective of growth in the end-user industries. Companies will increasingly

seek one-stop-shop solutions from 3PL vendors which will include value-added services in

addition to traditional services like transportation and freight forwarding.




HOLDFigure 7: Logistics Services Outsourcing Demand of Vietnamese Enterprises

No. Logistic Services % outsourcing

2008 2012

1 Outbound transportation 85 91

2 Outbound warehousing 71 85

3 Inbound transportation 69 88

4 Inbound warehousing 33 56

5 Reserves management 28 48

6 Storage management 19 67

7 Purchase order management 14 43

8 Suppliers management 11 23

9 Customs information & supporting 9 13

10 Withdrawal logistics 7 19

11 Climate control logistics 5 21

Source: Frost & Sullivan

Vietnam’s Logistics Industry is expected to grow insize and sophistication in the future...Figure 8: Evolution of the Global Logistics Industry

Source: Frost & Sullivan

Vietnam’s logistics sector is growing fast but still at the early stages of development. It

is growing quickly at a rate of 20 percent per year, and is expected to maintain a high growth

rate in the coming two decades driven by a growing economy, growing size and sophistication

of the manufacturing and export base, fast growing penetration of organized retailing, and, a

thriving e-commerce sector.

The room for expansion in size and scope is huge. Most Vietnamese logistic companies

are just 2PL (secondary party logistics) providers that use their own assets to provide basic

logistics services such as transportation and warehousing. As customer needs become more

Manufacturers and

DistributorsLogistics services,

Transportation, Distribution

<1970s 1980 1990 2000 >2010

1PL

Asset Operators

Asset Intensive Transportation

VN Logistics

Sector

Export licensing,

Warehousing, Routing,

Transportation

2PL

Contractors

Asset intensive non-transportation

Only 15% of local companies

are now playing here3PL

Consultants

Non asset intensive non transportation

Forecasting, Planning,Supply chain

optimization

4PL

FutureIntegrated Supply chain

Solution provider

Tactical StrategicOne Stop Solution

Horizontal

Collaboration Joint

Ventures

F o c u s i n g o n c o r e c o m p e t e n c i e s

C o n s o l i d a t i o n

Order processing,

Information management

quality

Value-added

services

outsourcing

penetration

increasing fast




HOLDcomplex, logistics vendors need to combine management skills and system technology along

with their existing physical assets and labour resources to provide a broad spectrum of

professional services. Only around 15% of Vietnamese logistics providers today are capable

providing such 3PL services and, those that do, have a substantial competitive advantage.

As the sector matures, efficiency should improve substantially. Vietnam’s logistics

industry is still rather inefficient with most vendors providing basic services like transportationand warehousing and no providers of system-level integrated services and solutions. As a

result, supply chains are put together in piece meal fashion, involving multiple vendors at each

stage and the result is suboptimal at a system level. This, together with inadequate

infrastructure and lengthy customs procedures has resulted in a nationwide logistics cost-to-

GDP ratio of nearly 25% which is much higher than that of regional peers. As vendors

graduate to 3PL status, logistics efficiency should improve over time.

Figure 9: Vietnam's Logistics Performance Scores

Sources: Logistics Performance Index, The World Bank

Figure 10: Logistics cost as a percentage of GDP in 2014

Sources: StoxPlus

2

2.5

3

3.5

4

2007 2010 2012 2014

Customs Infrastructure Logistics Services Timeliness

42.9 23.8 40.7 73.6

1,645.623.0%

8.0%

13.0%

19.0% 17.8%

0%

5%

10%

15%

20%

25%

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

Vietnam Singapore Malaysia Thailand China

Total Logistic Cost Proportion of GDP

USDb




HOLD...despite the presence of some structural challenges..

Lengthy customs processes are a major impediment to efficiency but the

government seems to have recognized this

Vietnam’s customs requirements are more stringent and cumbersome than those in

many other Asian countries. According to a number of local and foreign logistics companies

interviewed during a recent HKTDC Research trip to Vietnam , the country’s customs and

regulatory practices act to increase the operational costs of many logistics companies

servicing the region. Its customs practices are also seen as unpredictable and bureaucratic. It

takes, for example, 21 days to export a cargo shipment from Vietnam, compared to 14 days for

Thailand and 11 days for Malaysia.

The good news is that the Vietnam’s customs procedures are currently being

modernized. A new electronic customs clearance system (‘e Customs’) was launched in April

2014 to address these issues. Delays are still common. These have largely been attributed to

a number of inefficient, manual customs processes, including cargo inspections that have

attracted criticism for lacking in both transparency and consistency.

Figure 11: Time Needed to Transport Goods across Borders

Sources: Doing Business report 2015 , World Bank

Inadequate infrastructure is another bottleneck but this is also being

tackled quite aggressively.

Both local and foreign logistics companies often cite its relatively underdevelopedtransport infrastructure as a major challenge for business development in Vietnam. In

particular, logistics facilities, such as warehouses and container freight stations, are not

convenient to use, as they are often standalone and located far from either ports or

manufacturing plants. The road length and surface area growth has not kept pace with traffic

growth, leading to congestion and causing delivery delays that increase transportation costs.

The fast growth in the number of industrial parks has outpaced infrastructural

development. As of June 2014, there were about 290 industrial parks in Vietnam, 33 of which

had been operating for just over three years. In particular, many of the highways linking the

ports with industrial parks or city centres, as well as the port terminals, are highly congested.

The problem is most severe in the northern provinces, where the infrastructure is less

developed when compared with the south. Traffic and port congestion often leads to delays in

0 5 10 15 20 25 30

Malaysia

Thailand

Indonesia

Philippines

Vietnam

Cambodia

Import Time

Export Time




HOLDtransporting cargo from the factories to ocean carriers and can impede the delivery of imported

parts and components, resulting in higher inventory carrying costs for manufacturers.

Current logistics facilities are not up to international standard on all measures, including

a stable supply of utilities, efficient warehouse management systems and security. Although

several modern facilities have been built recently, largely by foreign-invested logistics

companies, the majority of the older ones are sub-standard. Significantly, many of the logisticsparks in Vietnam have been planned and developed by private companies, rather than by the

government, thereby depriving Vietnam’s logistics sector of the benefits of comprehensive

planning and the subsequent emergence of an efficient logistics network.

But Vietnam’s aggressive recent investment in infrastructure is encouraging. According

to KPMG, Vietnam is going to invest USD 170B in infrastructure between 2013 and 2020 to

bridge this infrastructure deficit and a large portion of this will be funded through overseas

money. A large number of landmark projects are already underway across the urban rail, road

and airport segments.

...because of a host of supporting macro trends...

Foreign investment is boosting demand for quality logistics services

Vietnam is becoming a popular FDI destination due to a growing domestic market and a

cost-competitive export base. Following Vietnam’s 2007 World Trade Organization (WTO)

accession, the FDI into the country has been rising steadily. For the period 2008-2013, FDI

inflow averaged US$10.8 billion annually - more than double the US$4.0 billion per annum

average seen during the six-years prior to 2007.

Figure 12: Foreign Direct Investment into Vietnam

Sources: General Statistics Office

Investment in manufacturing, in particular, has been driving the country’s demand for

international transport and logistics services, accounting for more than half of the total

accrued FDI and around 70 percent of new FDI in the past year . Since 2007, Vietnam’scontainer port throughput has been expanding at a compound annual growth rate (CAGR) of

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Realised capital (US $m) Number of Projects




HOLD12.5%, reaching 8.1 million TEUs in 2013 (double the volume seen in 2007). Driven by exports

from foreign-invested manufacturers and by the import of intermediate and capital goods,

Vietnam’s external trade flourished in 2014, with exports and imports growing by 14% and

12%, respectively.

The country has evolved into an increasingly diversified manufacturing base for

multinationals, with the import of production inputs and the output of finished productsinevitably generating more business for logistics companies. Historically, ready-to-wear

garments and shoes have dominated Vietnam’s labour -intensive, consumer goods exports.

Intermediate and capital goods - such as machinery, raw materials, fabrics, electronic parts

and components for manufacturing - now account for the lion’s share of Vietnam’s total imports

and are mostly sourced from China, Japan and Korea. These products involve multiple

components and complex supply chain dependencies which require higher-end logistics

service capabilities.

Figure 13: Vietnam’s exports by category in value terms (2014)

Sources: General Statistics Office

Free Trade Agreements are providing that additional oomph

Vietnam’s international trade is expected to increase with the finalization of many free

trade agreements such as the Trans-Pacific Partnership (TPP) and several bilateral tradeagreements. Additionally, the conclusion of the ASEAN Economic Community adhered to

above will also provide a huge boost to intraregional trade flows. The resulting increase in

trade will further boost demand for logistics services.

...and supportive regulatory and policy measures

The government has developed a master plan to boost port capacity in the country.

Decision 1037/QD-TTg outlines future developments for the maritime business until 2030. The

country’s port sector will be divided into six main areas. There w ill be a focus on developing

ports that can handle ships with a capacity of 100,000 tonnes or more.

Government to incentivize cold storage investment to reduce post-harvest losses.Decision 63/2010/QD-TTg provides supporting policies to reduce losses of fresh produce and

Telephoneand parts

16%

Electronics,computers

andcomponents

8%

Textiles andgarments

14%

Shoes andsandals

7%

Aquaticproducts

5%

Machinery,and

equipments5%

Others45%




HOLDgrains after harvesting. Enterprise that invest in cold storage can borrow up to 100 percent of

machinery value to fund their capital expenditures. The State Budget will also subsidize 100

percent of interest expense in the first two years and 50 percent interest expense in the third

year.

Foreign investment restrictions in the logistics sector are being relaxed gradually,

stimulating growth in logistics capacity and quality. In January 2014, in accordance withWorld Trade Organization (WTO) service sector commitments, Vietnam began allowing wholly

foreign-invested enterprises to enter the logistics market in almost every sector. However, the

container-handling services and road transport services sectors still require a joint venture to

be formed with Vietnamese partners, with foreign ownership capped at 51%.

In reaction to the liberalization of the sector and the perceived growth potential of Vietnam’s

logistics market, foreign firms are now investing heavily throughout the country. For example,

in 2013, DHL Supply Chain invested US$13 million in an expansion project. It is expected to

build 141,000m2 in storage capacity and have roughly 100 shipping vehicles and 2,200

workers by the end of 2015. According to Oscar De Bok, General Manager of DHL SupplyChain in Southeast Asia, the company is preparing for the fast growth of the retail industry,

consumer goods, tech products and automotive industry in Vietnam. Since its entry in 2001,

DHL Supply Chain Vietnam has had an annual growth of 45 percent, compared to its annual

global growth of 25 percent.

Maersk Line, ocean-shipping subsidiary of A.P. Moller-Maersk, has also constructed four new

storage facilities and it is planning on an expansion project in 2015. From 2005 to 2010,

Maersk Line’s operations in Vietnam grew by 200 percent.

The Vietnamese listed logistics universe is sizeable

and trading at an attractive valuation

The majority of logistics companies in Vietnam are not listed on the stock market.

Currently, there are only 25 listed logistic companies out of a total of approximately 1,000

operating logistic companies in the country.

The total market capitalization of the listed companies is sizeable, at over USD 1 billion.

Port operators account for the lion’s share of the overall sector market capitalization.

Comp.Market

Cap(VND bn)

Revenue

(VND bn)GPM

NPAT

marginROE ROA

TTM

P/EP/B

Port Companies

GMD 3,809 3,013 20.7% 17.6% 11.3% 6.7% 15.6 0.8

DVP 2,100 542 43.6% 42.0% 30.0% 24.0% 8.2 2.4

VSC 2,236 891 35.0% 27.8% 25.6% 18.9% 8.2 2.0

HAH 892 431 37.0% 30.6% 34.9% 22.8% 6.3 2.1

CLL 813 235 46.7% 32.3% 20.0% 14.7% 8.2 1.6

TCL 565 845 21.1% 12.8% 22.1% 12.8% 5.9 1.1

PDN 466 270 37.0% 17.8% 16.1% 11.0% 9.6 1.5

DXP 354 160 32.6% 25.0% 16.9% 15.2% 8.3 1.6

VGP 142 260 13.1% 5.0% 8.3% 5.2% 3.5 0.7

Average 8.2 1.5

Median 8.2 1.6




HOLDTransportation

PVT 2,687 5,268 10.4% 6.5% 11.5% 3.6% 7.7 0.8

VIP 621 693 21.7% 31.7% 21.7% 12.2% 3.1 0.6

VTO 520 1,526 10.9% 3.4% 5.0% 2.4% 8.8 0.5

VOS 420 2,037 6.5% 3.5% 5.6% 1.4% Nm 0.4

VFC 284 1,139 6.3% 7.8% 19.3% 12.2% 28.4 0.6

VST 106 1,104 -5.5% -13% -53.4% -5.4% Nm 0.5

TJC 75 222 8.8% 10.4% 24.5% 12.1% 2.6 0.6

VNA 56 761 7.8% 0.2% 0.7% 0.1% Nm 0.3

Average 10.1 0.5

Median 7.7 0.6

Logistics services

TMS 1,474 442 21.1% 31.2% 20.0% 14.9% 9.2 1.8

VNF 380 1,702 3.3% 2.4% 22.9% 9.4% 7.5 1.9

SFI 300 604 32.6% 7.9% 19.1% 9.0% 4.9 1.0

VNL 252 668 4.4% 7.5% 30.5% 19.0% 4.5 1.3

STG 293 873 13.1% 3.2% 19.3% 12.5% 9.3 2.0

HMH 209 112 23.5% 36.6% 18.7% 17.3% 6.0 0.9

TCO 192 181 23.6% 12.2% 12.8% 9.5% 6.3 0.8

PRC 15 180 6.0% 1.1% 6.5% 3.1% 6.6 0.5

NCT 3,088 678 56.5% 40.4% 74.0% 62.0% 6.5 6.8

Average 6.7 1.9

Median 6.4 1.3

Source: Bloomberg – based on 2014 full-year results and closing prices as of 09/09/2015

Note: TTM P/E was calculated based on TTM results; P/B was calculated using the balance sheet as at

end of Q2 2015

Vietnamese logistics companies are trading at a discount relative to regional peers. The

mean and median P/E ratios for Vietnamese companies are 8.0x and 7.4x, among the lowest

in the region. This probably reflects the current low capability of the Vietnamese logistics

industry. As the industry matures and efficiency and profitability improve, Vietnamese logistics

companies should close the valuation gap with regional peers, creating upside for early

investors.

Figure 14: Mean and median P/E of Logistics companies

Sources: Bloomberg as at mid-August, 2015.

3 8 . 8

1 6 . 7

1 6 . 6

1 8 . 6

5 7 . 3

2 6 3

0 . 4

2 1 . 5 2

9 . 2

8 . 0

2 8 . 1

2 1 . 8

2 3

1 1 . 5

3 6 . 7

1 9 . 8

2 3 . 1

1 2 . 2

1 5 . 1

7 . 4

France German Denmark Singapore China India Thailand Indonesia Phillipine Vietnam

Mean

Median




HOLDVCSC Rating and Valuation Methodology

Absolute, long term (fundamental) rating: The recommendation is based on implied total return for the stock

defined as (target price – current price)/current price + dividend yield, and is not related to market performance. This

structure applies from 27 May 2015.

RATING DEFINITION

BUYTotal stock return including dividends over next 12 months expected to exceed20%

OUTPERFORM (O-PF)Total stock return including dividends over next 12 months expected to be positive10%-20%

MARKET PERFORM (M-PF)Total stock return including dividends over next 12 months expected to bebetween negative 10% and positive 10%

UNDERPERFORM (U-PF)Total stock return including dividends over next 12 months expected to benegative 10%-20%

SELLTotal stock return including dividends over next 12 months expected to be belownegative 20%

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HOLDDisclaimer

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LogisticsSectorUpdate

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