MASAN GROUP CORPORATION (MSN) · From Q3/2014, Masan Resource started to earn net profit and...

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www.VPBS.com.vn Page | 1 INITIATING COVERAGE: BUY Current price (03/24/2015): VND 80,500 Target price: VND 94,000 Short-term trading recommendation Hold Mid-term resistance level 85,000 Mid-term support level 78,000 Bloomberg ticker: MSN VN Exchange: HSX Industry: Conglomerate Beta 0.79 52w High / Low (VND’000) 108 / 78.5 Outstanding shares (mn) 747 Market cap (VNDbn) 65,074 LTM Avg trading vol 265,937 Foreign-owned ratio (%) 35% Year MSN Group EPS (VND) 2015F 2,083 2014 1,447 2013 646 2012 2,176 MSC 2010-14 CAGR 2015F (VND bn) 2015-19 CAGR Revenues 24% 16,039 24% EBITDA 22% 4,285 27% Net income 28% 3,898 24% MSN Peers VNI P/E 56.6 27.3 12.9 P/B 4.2 3.3 1.8 EV/EBITDA 21.5 12.5 9.1 ROE 7.3% 14% 13.6% ROA 4.1% 6.7% 2.6% Profit margin 6.7% 6.3% 9.1% (*)Peers are based on MSC’s peers (see pg. 25) Company description: MSN was established in 2004 and listed its shares on the Ho Chi Minh Stock Exchange (HSX) in 2009. The business lines include consumer staples production (85% of revenue), natural resource extraction(15% of revenue) and associate in banking sector. In details, Masan holds 74.2% in Masan Resource, which is operating Nui Phao, the second largest tungsten mine outside China and 30.4% in Techcombank, one of largest joint-stock commercial bank in Vietnam. 2014 results: Total assets: VND24,647 billion (USD1.2 billion); Net revenues: VND16,089 billion (USD755 million); Net income: VND1,080 billion (USD51 million). We initiate coverage of Masan Group Corporation (MSN) with a long-term BUY recommendation based on the following: Strong revenue growth Impressive revenue growth thanks to organic growth and M&A: From 2010 to date, MSN has delivered organic growth in seasonings and convenience foods, and also proceeded with M&A deals in coffee and beverages, while expanding their addressable market to USD5 billion, increasing the company’s revenue by 24 percent/year. Leading consumer company in Vietnam: MSN holds the top position in consumer segments such as fish sauce, soy sauce, instant noodle and instant coffee. Extensive distribution network, strong R&D and brand building are the company’s strengths. Platform to expand consumer business: MSN utilizes its strong F&B distribution platform to build brands. It has, for example, significantly expanded distribution of the VinaCafe brand and has now entered into the beer and processed meat segments, which can provide ongoing revenue growth. Recent earnings are impacted by goodwill from M&A deals: MSN has to amortize goodwill from its deals. In addition, high minority interest has lowered net income of the company, resulting in negative EPS of VND409/share in 9M2014. Thanks to selling Minh Viet packaging and Masan Agri, MSN recorded a net profit of VND1,080 billion (USD51 million), an increase of 139 percent y-o-y in 2014. Potential from minerals: Masan Resources (MSR) began earning profits in Q3/2014. We forecast that MSR can earn EBITDA of USD150 million in 2015. We project that MSR will contribute 33 percent of MSN’s 2015 net revenue. MSN’s consolidated net income after minorities would be VND1,560 billion, a 44 percent increase. Uncertainties around mine have brought stock price down. Underperforming stock: MSN’s share price has underperformed the market as the operation of Nui Phao mine was slower than investors expected. But with Nui Phao now successfully generating profit, this trend should change. Please see important disclosure information at the end of this report. -20 -10 0 10 20 30 12/13 02/14 04/14 06/14 07/14 09/14 11/14 MSN VN Peer Index VNINDEX MASAN GROUP CORPORATION (MSN) March 25, 2015

Transcript of MASAN GROUP CORPORATION (MSN) · From Q3/2014, Masan Resource started to earn net profit and...

Page 1: MASAN GROUP CORPORATION (MSN) · From Q3/2014, Masan Resource started to earn net profit and expected to contribute 30 percent to MSN Group’s profit in the following years. Consumer

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INITIATING COVERAGE: BUY

Current price (03/24/2015): VND 80,500 Target price: VND 94,000

Short-term trading recommendation Hold

Mid-term resistance level 85,000

Mid-term support level 78,000

Bloomberg ticker: MSN VN Exchange: HSX Industry: Conglomerate

Beta 0.79

52w High / Low (VND’000) 108 / 78.5

Outstanding shares (mn) 747

Market cap (VNDbn) 65,074

LTM Avg trading vol 265,937

Foreign-owned ratio (%) 35%

Year MSN Group EPS (VND)

2015F 2,083

2014 1,447

2013 646

2012 2,176

MSC 2010-14

CAGR 2015F

(VND bn) 2015-19

CAGR Revenues 24% 16,039 24%

EBITDA 22% 4,285 27%

Net income 28% 3,898 24%

MSN Peers VNI

P/E 56.6 27.3 12.9

P/B 4.2 3.3 1.8

EV/EBITDA 21.5 12.5 9.1

ROE 7.3% 14% 13.6%

ROA 4.1% 6.7% 2.6%

Profit margin 6.7% 6.3% 9.1%

(*)Peers are based on MSC’s peers (see pg. 25)

Company description:

MSN was established in 2004 and listed its shares on the Ho Chi Minh Stock Exchange (HSX) in 2009.

The business lines include consumer staples production (85% of revenue), natural resource extraction(15% of revenue) and associate in banking sector. In details, Masan holds 74.2% in Masan Resource, which is operating Nui Phao, the second largest tungsten mine outside China and 30.4% in Techcombank, one of largest joint-stock commercial bank in Vietnam.

2014 results: Total assets: VND24,647 billion (USD1.2 billion); Net revenues: VND16,089 billion (USD755 million); Net income: VND1,080 billion (USD51 million).

We initiate coverage of Masan Group Corporation (MSN) with a long-term BUY recommendation based on the following:

Strong revenue growth Impressive revenue growth thanks to organic growth and M&A: From

2010 to date, MSN has delivered organic growth in seasonings and convenience foods, and also proceeded with M&A deals in coffee and beverages, while expanding their addressable market to USD5 billion, increasing the company’s revenue by 24 percent/year.

Leading consumer company in Vietnam: MSN holds the top position in consumer segments such as fish sauce, soy sauce, instant noodle and instant coffee. Extensive distribution network, strong R&D and brand building are the company’s strengths.

Platform to expand consumer business: MSN utilizes its strong F&B distribution platform to build brands. It has, for example, significantly expanded distribution of the VinaCafe brand and has now entered into the beer and processed meat segments, which can provide ongoing revenue growth.

Recent earnings are impacted by goodwill from M&A deals: MSN has to amortize goodwill from its deals. In addition, high minority interest has lowered net income of the company, resulting in negative EPS of VND409/share in 9M2014. Thanks to selling Minh Viet packaging and Masan Agri, MSN recorded a net profit of VND1,080 billion (USD51 million), an increase of 139 percent y-o-y in 2014.

Potential from minerals: Masan Resources (MSR) began earning profits in Q3/2014. We forecast that MSR can earn EBITDA of USD150 million in 2015. We project that MSR will contribute 33 percent of MSN’s 2015 net revenue. MSN’s consolidated net income after minorities would be VND1,560 billion, a 44 percent increase.

Uncertainties around mine have brought stock price down. Underperforming stock: MSN’s share price has underperformed the

market as the operation of Nui Phao mine was slower than investors expected. But with Nui Phao now successfully generating profit, this trend should change.

Please see important disclosure information at the end of this report.

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MASAN GROUP CORPORATION (MSN) March 25, 2015

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CONTENTS

MASAN GROUP - BUSINESS DESCRIPTION......................................................................................................... 3

Company Overview ....................................................................................................................................................... 3

Business activities .......................................................................................................................................................... 5

Consumer production .................................................................................................................................................... 5

Natural Resources .......................................................................................................................................................... 7

Techcombank (TCB) ....................................................................................................................................................... 8

HISTORICAL PERFORMANCE................................................................................................................................. 10

Masan Consumer ......................................................................................................................................................... 10

MSC’s future investments ........................................................................................................................................... 15

Masan Resource ........................................................................................................................................................... 17

Techcombank ............................................................................................................................................................... 18

MSN’s business result in 2014 and 2015..................................................................................................................... 19

FORECAST & VALUATION ..................................................................................................................................... 20

Forecast of MSC ........................................................................................................................................................... 20

MSC valuation .............................................................................................................................................................. 24

Forecast of MSR ........................................................................................................................................................... 25

Forecast of Techcombank ............................................................................................................................................ 26

TCB Valuation .............................................................................................................................................................. 28

MSN Valuation ............................................................................................................................................................. 29

TECHNICAL ANALYSIS ........................................................................................................................................... 31

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MASAN GROUP - BUSINESS DESCRIPTION

Company Overview

Establishment and development

Masan Group was established in November 2004 and listed on the Ho Chi Minh Stock Exchange in November 2009. The Group is one of the largest private companies in Vietnam and focuses on the consumer and natural resources industries. MSN controls two subsidiaries: Masan Consumer (MSC), Masan Resources (MSR). It has established Masan Consumer Holding (MCH), which holds all the Group shares in MSC and also owns Masan Brewery, which owns the Su Tu Trang beer brand. The market capital of MSN is VND58,128 billion (USD3 billion), which ranks as the fifth largest company on the Vietnamese stock markets.

Vision

MSN aims to become Vietnam’s largest private company in terms of scale, profitability and shareholder return. In order to reach their target, MSN adopts both organic growth and a selective M&A strategy.

MSN Group’s investors are reputed entities which support the Group both financially, strategically and technically. Some of the typical global investors of Masan Group as well as Masan’ subsidiaries include:

PENM Partners (MSN’s shareholder - six percent): established in 2006 and formerly belonging to BankInvest Group. This is the fund which operates three PENM funds with total assets of USD400 million, including the PENM fund in Vietnam.

Dragon Capital (MSN’s shareholder - four percent): established in 1994. This fund manages USD1.3 billion assets of individuals and entities all over the world.

KKR (MSC’s shareholder-18 percent): Kohlberg Kravis Roberts fund has been the long-established asset management fund since 1976 which invests in various assets in North America, Europe, Middle East and Asia. KKR invested USD159 million in MSC in April 2011 and then invested another USD200 million in January 2013.

Mount Kellett (MSR’s shareholder - 20 percent) is currently managing around USD4.1 billion of assets. In 2010 Mount Kellet invested USD100 million to own 20 percent of Masan Resources.

One of the largest private companies in Vietnam with market capitalization of USD3 billion.

The management team of MSN is comprised of professionals in risk management, capital allocation expertise and senior in industry executives who bring track records at multinational corporations, while the teams at the operating subsidiaries have considerable experience in marketing, manufacturing and R&D.

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Shareholder Structure

Masan Corporation, which was set up in 2000, is the biggest shareholder of MSN. This is the parent company of the Group, holding 33 percent of MSN Group’s shares directly and 13 percent through wholly owned subsidiary Sunflower Construction Company.

Foreign ownership accounts for 35 percent in MSN’s shareholder structure. Orchid Capital Investments Pte, Ltd (Chandler Corporation) and Private Equity New Markets II K/S (PENM Partners) are the two largest foreign institutional investors with 10 percent and six percent ownership, respectively.

MSN’s shareholder structure

Source: MSN

Organizational Structure

The management board of MSN includes six members, including Mr. Nguyen Dang Quang (Chairman cum CEO), Mr. Ho Hung Anh (Vice Chairman), Mr. Nguyen Thieu Nam (Vice Director) and three other members.

Masan Group’s main activities include two main segments which are consumer staples and mining/processing natural resources. Further, MSN has an associate bank, Techcombank with ownership of 30.36 percent. MSN management has made it clear that their main focus is on the consumption platform.

In terms of restructuring plans, MSN’s recently announced a series of corporate initiatives to strengthen their consumer production sector which include:

(1) Consolidating Masan’s direct and indirect interests in MSC into MCH.

(2) Transferring the ownership and operating management of Masan Brewery from Masan Group to MCH. Accordingly, MCH’s business results will integrate vertically in the beer section.

(3) MSC establishes a new subsidiary, Masan Beverage, which will manage non-alcoholic beverage businesses, especially bottled beverages.

Masan Corporation

33%

Sunflower Construction

Company13%

Orchid Capital Investments

10%

PENM Partners6%

Other Foreign Investors

19%

Other Local Investors

19%

Diversified shareholder structure with the presence of many blue-chip financial investors.

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(4) MSC sold their non-strategic subsidiary, Minh Viet Packaging. The proceeds of the sale will be used to fund new manufacturing facilities.

MSN’s operating structure

Source: MSN

Business activities

Masan Group’s business results are contributed by two key sectors: consumption and natural resources. Its business is affected by the contribution of the Group’s associate in the banking sector, Techcombank. Prior to 2014, from 80 percent to 90 percent of MSN Group’s business results were contributed by its consumer production business. The rest came from Techcombank. From Q3/2014, Masan Resource started to earn net profit and expected to contribute 30 percent to MSN Group’s profit in the following years.

Consumer production

Masan Consumer Holdings One Member Ltd. (MCH), 100 percent owned by Masan Group, is in charge of consumer segment.

Masan Brewery One Member Ltd, was controlled directly by Masan Group. However, after restructuring, Masan Brewery is under the control of Masan Consumer Holdings. The company accounts for 100 percent of Lamka Ltd, which bought 99.9 percent of Phu Yen Beer and Beverage Company (PYBECO). The value of this deal is VND252 billion, smaller than the previous deals.

Under Masan Consumer Holdings, Masan Consumer Corporation (MSC) manages two large subsidiaries, comprising of Masan Food One Member

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Ltd., Masan Beverage. Through the end of 2014, MSC reported charter capital of VND5,313 billion (USD249 million).

Masan Food JSC: Masan Food JSC is one of the largest consumer production companies in Vietnam. Masan Food manages a series of consumption companies in producing soya sauce, fish sauce, chili sauce, instant noodles, instant coffee, instant cereals. Below Masan Food are four operating subsidiaries including Masan Industrial (sauce and instant noodle production), Vitecfood (sauce production), Masan HD (sauce production) and Masan PQ (sauce production).The company has built famous brand name products such as Chinsu, Nam Ngu, Tam Thai Tu, Omachi, Sagami and Kokomi. Masan Food is holding the two latest investments of the Group, which are Saigon Nutri Food and Cholimex Foods.

Masan Beverage Company: this company controls two investments: Vinh Hao Mineral Water Corporation and Vinacafe Bien Hoa.

Vinh Hao Mineral Water Corporation: Masan Beverage holds 63.9 percent of Vinh Hao Mineral Water. Vinh Hao Mineral Water is the famous company in bottled water beverage. Masan Consumer paid VND438 billion (USD20.6 million) to buy Vinh Hao’s stake in September 2013

Vinacafe Bien Hoa: From October 2011 through the end of 2012, Masan Consumer bought 53.2 percent of Vinacafe Bien Hoa at an estimated total value of VND1,209 billion (USD56.8 million).

Production Capacity

In general, MSC produces and markets soy sauce, fish sauce, chili sauce, instant noodles, instant coffee, instant meals, bottled beverages. Most of MSC’s products are sold in Vietnam. We estimate that MSC can produce around 400 million liters of fish sauce, soy sauce and chili sauce, two billion packages of instant foods and 4,000 tons of instant coffee per year.

In November 2014, MSC started to build Masan Northern Food Industry Center in Nghe An province. The project is built on 6.33 ha and investment for the first phase is VND1,200 billion (USD56.3 million). It is expected to be finished next year. After being put into operation, this food center will enhance the food supply for the Northern area and reduce logistics costs. According to baodatutu.vn source, the whole project capacity would be 540 million packages of instant foods, 250 thousand tons of seasonings and sauces, 130 million liters of beverage per year.

Distribution Channels

MSC owns an extensive distribution network, one of the largest in the country, with more than 200,000 retail selling points over 64 provinces. MSC has five main distribution centers in Binh Duong, Tan Binh, Da Nang, Hung Yen, Hai Duong, six factories, and many other outsourcing facilities.

Strategy

MSC implemented a transformation program during 2011 - 2020, aiming to become the largest consumer company in Vietnam. Accordingly, the company set a large competitive market with a clear reclassification of categories: sauce, condiment and chili sauce which belong to the seasonings category, instant noodles belong to the convenience food category, instant coffee and mineral water belong to the beverage

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category. In fact, MSC separated Vinacafe and Vinh Hao from Masan Food and put the two companies under control of a new subsidiary, Masan Beverage, in 2014.

Based on a clear classification of each category, MSC has continuously launched new products which serve a wide range of consumers from standard products to premium and super premium products. For example, Chinsu brand name is reallocated as a super brand name in all soy sauce, fish sauce and chill sauce categories. To support the production strategy, MSC has invested strongly in the IT platform and R&D activities.

By leveraging its knowledge of consumers’ behaviors and preferences, enhancing human resources capability, its distribution network and promotion campaigns, MSC is striving to maintain their leading position in food and beverage in Vietnam.

MSC’s position in the industry

There has been no official ranking among consumer companies in Vietnam. However, according to reports of some well-known market research companies such as Euromonitor and Kantar World Panel, MSC currently holds a dominant role in the packaged food industry with top positions in sauces, noodles and dried processed food. In terms of brand name popularity, Kantar World Panel’s Brand Footprint 2014 Report shows that Masan is the third largest company out of top 10 companies which have most penetrated the four key cities of Vietnam (Hanoi, Ho Chi Minh, Da Nang, Can Tho) after Vinamilk and Unilever. Masan takes second place in rural areas just after Unilever. Accordingly, Nam Ngu and Tam Thai Tu, two sauces brand along with Wake-up Café Saigon and Kokomi (instant noodle), are the brand names of MSC which have enjoyed rocketing growth in surveyed areas.

MSC’s latest market share Segment Market share Rank

Sauces, dressings and condiments 49.2% (75% in Fish Sauce) 1

Instant noodles 26-30% (up from 17-20% in 2013) 2

Dried processed food 16.8% 2

Coffee (Vinacafe) 32.4% (43.5% in instant coffee) 1

Source: Masan, Euromonitor

Natural Resources

Masan operates this segment via its 74.2 percent ownership of Masan Resources JSC. Mount Kellet, an American private equity group, is another strategic investor of Masan Resources JSC with a 20 percent stake.

Via two subsidiaries (Masan Resource Thai Nguyen One Member Ltd Co., and Investment & Trading Thai Nguyen One Member Ltd Co.), Masan Resources JSC exploits and operates Nui Phao project. Nui Phao is located about 50 miles northwest of Hanoi and this is the only project of the company.

MSC holds the top position in consumer segments such as fish sauce, soy sauce, instant noodle and instant coffee.

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Masan bought 100 percent of the economic interest of Dragon Capital in Nui Phao in 2010 by issuing 29.7 million shares of MSN to exchange for MSR shares and paying VND893 billion in cash. Total value of buying MSR shares from Dragon Capital, including transaction cost, was VND2,917 billion (USD136 million). In addition, MSN has borrowed money from many financial institutions and issued bonds to invest in the mine. Masan has invested USD105 million as equity, Mount Kellett has invested a total of USD135 million. Besides, Masan has given loans to MSR, and has issued bonds worth USD319 million.

Nui Phao is a poly-metallic mine with significant deposits of tungsten, bismuth, fluorspar and cooper.

These are important metals used in industries such as tungsten’s use in automobile production and heating elements in energy.

Bismuth is usually mixed with other metals, such as lead, tin, iron or cadmium to form low-melting alloys and it is used in automatic fire sprinkler systems, fire detection systems and electrical fuses.

Fluorspar is a major source of hydrogen fluoride, a commodity chemical used to produce a wide range of materials. Nui Phao project’s deposit is considered to be the second largest outside of China with a total volume of 66 million tons (both proven and probable amount) of tungsten grade 0.21 percent.

Tungsten price (USD/ton) Copper price (USD/ton)

Source: Bloomberg

Techcombank (TCB)

Established since 1993, Techcombank is currently one of the largest JSCBs in Vietnam. By 2013, Techcombank had a nationwide network of 1,229 ATMs, and 315 branches and transaction offices, only behind STB. For the past 20 years, it has been recognized as a pioneer in creativity and innovation, providing the best financial solutions for the customers, especially for retail and SME clients.

Overall, Techcombank was the fourth largest private bank in terms of profit before tax and fifth largest private bank in terms of total assets by end of 2014. Currently, Techcombank shares are traded OTC. It has market a capitalization of VND8,825 billion (USD411.27million) based on the current average price and charter capital of VND8,878 billion (USD413.74 million).

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TCB’s shareholder structure Top 10 JSCBs in assets 2014

Source: Banks’ Annual Reports, VPBS collection

In 2009, Masan Group initially acquired 19.99 percent equity of Techcombank and kept raising its investment, given Techcombank’s outstanding results at the time. With its shareholding, Masan Group became the largest shareholder of Techcombank, with Mr. Nguyen Dang Quang as a BOD member.

In 2010, Masan group increased its economic interest in Techcombank to 28.9 percent through the acquisition of VND3,936 billion worth of convertible bonds and has agreed to irrevocably and mandatorily convert those bonds into shares.

In 2011, the Group purchased another VND828.4 billion worth of convertible bonds, increased its economic interest to 30.8 percent, but then reduced to 30.6 percent due to Techcombank’s issuance of new shares for its ESOP.

Through bond acquisitions, Masan has increased its economic interest in Techcombank without exceeding the limit requirement of owning no more than 20 percent chartered capital of a credit institution. With economic interest of 30.4 percent as of FY2013, Techcombank has contributed to Masan group VND200.33 billion (USD9.34 million), a decline of 16 percent versus VND232.76 billion (USD10.85 million) in 2012 due to a difficult operating environment and conservative provisioning.

In 2014, total Masan’s investment in Techcombank summed up to VND8,598 billion (USD400.69 million), with economic interest of 30.4 percent. By end of 2014, Techcombank contributed approximately VND331 billion (USD15.3 million) (excluding amortization of goodwill) to Masan Group’s net profit.

Masan Group, 19.5%

Private shareholders

5.5%

HSBC, 19.4%

Eurowindow holding,

4.7%Eurofinance,

3.0%

Others, 47.9%

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HISTORICAL PERFORMANCE

Masan Consumer

Revenue

From 2010 to 2014, MSC’s net revenue recorded a CAGR of 24 percent per year. 2014’s total revenue was VND13,098 billion (USD615 million), two times higher than 2010’s number.

Due to expansion of the addressable market to USD5 billion, good organic execution in sauces and instant noodles and M&A deals, the revenue structure of MSC has changed continuously. In 2010, the sauces category played the most important role in MSC’s revenue with 69 percent of revenue breakdown. Instant food played the second role with 24 percent of revenue. Packaged and other products accounted for the remaining portion. However, within the next four years, the proportion from the sauces category reduced to 40 percent of 2014’s revenue, despite growth in sauce revenues, as there were some new products in convenience food (Sagami, B’fast and Komi congee, coffee: Wake Up 3-in-1 and Phinn 2-in-1). In 2014, revenue contribution of instant food increased to 30 percent from 24 percent in 2010. Revenue of the beverage sector, mainly from Vinacafe and Vinh Hao, gained 26 percent in MSC’s revenue breakdown after just three years participation since 2012.

In 2014 total revenue of MSC grew 10 percent. The growth rate was lower than the previous growth rate based on (1) late 2015 Lunar New Year: this year’s Tet was one month later than previous year’s, leading to part of Tet revenue being recorded in Q1/2015 instead of Q4/2014; (2) low consumer demand in 2014. In general, Consumer Price Index of Vietnam in 2014 only increased 4.09 percent as compared to 2013 and was at the bottom within 10 recent years. Of which food and food stuff, beverage rose at around 4 percent. Accordingly, the stagnant demand impacted the whole economy, including demand for consumer sector.

In general, VPBS estimates that the growth in revenue of MSC for 2014 was derived as 2 percent growth of seasonings, 3 percent growth of convenience foods and 30 percent growth in beverage (mainly Vinacafe Bien Hoa). In business line breakdown, Vinacafe Bien Hoa grew significantly thanks to the impressive growth of the Wake-up brand name. Brand portfolio mix among medium and high brands was a growth catalyst for sauces products such as: Chinsu 3 Ngon and Nam Ngu 3 in 1 fish sauces. In Q3/2014 MSC successfully launched granules- Nam Ngu brand powdered seasoning. Masan Consumer has expanded its addressable market in the seasonings segment to USD1 billion, by introducing new brands, SKU’s and opening up of new categories like powdered seasonings. For instant noodle products, Omachi, Sagami and Kokomi are the brands which reported good growth and now MSC plans to market brand extensions such as “Sagami Red” and “Kokomi Happi”.

MSC is considered to be one of the fastest growing consumer companies in Vietnam with CAGR of 24%.

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Revenue breakdown of MSC MSC’s net revenue and growth (%)

Source: MSC, VPBS Estimate

Sauces, dressings and condiments

Consumers choose MSC’s products because they are well-recognized as responsible brands with trusted quality and strict sanitary controls. In order to gain customers’ recognition, MSC made great efforts in R&D and marketing to launch products that are advertised as good for the consumer’s health. In fact, many MSC products gained good growth after many scandals in the sauce segment relating harmful ingredients. Accordingly, consumers shifted to use MSC’s products which are believed to be better for their health as they are produced with reliable processes such as Chinsu and Tam Thai Tu soy sauce with no 3-MCPD (cancer causing ingredients) or Omachi instant noodles- non fried noodles.

Despite change in product structure, sauces, dressings and condiments remain the primary contributor to MSC with 40 percent of revenue. From 2010 to 2014, this segment grew at CAGR of 8 percent. This is also the segment which earns the highest gross profit margin of over 50 percent per year. In 2014, gross profit margin of this segment reached the peak among four recent years’ margins with 57 percent.

Fish sauce: is an indispensable ingredient in the Vietnamese diet. Hence, fish sauce revenue dominates MSC’s seasonings revenue with about 77 percent of this segment’s revenue breakdown. MSC has two brand names (eight types of product) for fish sauce product, which are Nam Ngu (standard fish sauce) and Chinsu (premium fish sauce) with a retail price range from VND11,000 to VND33,000 per 500 ml to 900 ml bottle. Nam Ngu is a mass market product. Beside Nam Ngu products, MSC has Nam Ngu II fish sauce, a more economical brand name than the first ones and Nam Ngu III (now change to Nam Ngu Super Saver), a direct competitor of unbranded products.

From 2008 to 2013 the fish sauce market rose at a high growth rate of 11 percent in volume and 19 percent in value per year. This market is quite fragmented with

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Net Revenue (VND bn)

Seasonings accounted for 40% of MSC’s revenue in 2013 – with a CAGR of 8% from 2010 to 2014 with gross margin of 57%.

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branded and unbranded fish sauce. MSC’s fish sauces accounted approximately for 70 to 75 percent of the market.

Soy sauce: As almost every Vietnam traditional dish calls for fish sauce, soy sauce is a much smaller market than fish sauce. However this sauce has a clear presence in vegetarian cooking. Soy sauce accounted for 18 percent of MSC’s revenue. MSC owns six types of products under two soy sauce brand names, which are Tam Thai Tu (standard class) and Chinsu (premium class). Retail prices for soy sauce are from VND9,500 to VND18,000 depending on type. MSC’s Chinsu products took around 70 percent in high class soy sauce in Vietnam. During the period from 2008 to 2013, the soy sauce market reported a growth rate of 9 percent in volume and 17 percent in value per year, relatively lower than the growth rates of fish sauce.

Chili sauce: This type of sauce contributed a modest portion to sauce revenue of MSC with only five percent. Chili sauce was primarily a dipping agent but it has been increasingly used as a cooking aid. MSC currently has two chili sauce brand names: Rong Viet (standard class-VND6,000/bottle) and Chinsu (premium class-VND10,000/bottle). Chili sauce’s growth in volume was 11 percent per year and it had a strong growth rate in value of 20 percent thanks to an increase in average selling price (ASP) during years. Based on the market value of VND874 billion (USD41 million) in 2013, market share of MSC in chili sauce was more than 50 percent.

Convenience foods

Instant noodles made up 30 percent of MSC’s revenue with a gross profit margin of 36 percent in 2013, the second highest margin after the sauce segment. From 2010 to 2014, this segment recorded an impressive CAGR of 30 percent per year. The dramatic growth of instant noodles came from proactive strategies of MSC in marketing by continuously introducing new products to meet with the constant change in consumers’ tastes and demands. So far, MSC offers 14 types of instant noodle products in standard and mid-priced range from VND2,500 to VND6,500/ pack under Kokomi, Sagami and Omachi brand names. Given the current market size of VND22,342 billion (USD1 billion), MSC holds 30 percent market share, claiming the second position after Acecook Vietnam.

Besides instant noodles, MSC has addressed their presence in the market via other types of convenience foods such as instant spaghetti (Omachi spaghetti), instant breakfast (B’fast), instant porridge (Komi), thus expanding the overall market.

Beverage (Vinh Hao and Vinacafe Bien Hoa) In 2014, the beverage segment accounted for 26 percent of MSC’s revenue. Revenue of the segment mainly comes from Vinh Hao (10 percent) and Vinacafe Bien Hoa (90 percent). Since the purchase of Vinacafe Bien Hoa in 2011, beverage revenue of MSC increased eight times from VND333 billion (USD15.6 million) to VND3,433 billion (USD161 million). Gross profit margin of MSC’s beverage was more than 35 percent, increasing steadily during the years. Vinacafe Bien Hoa (VCF): VCF has been one of the very first operating coffee companies in Vietnam since 1969. The company’s main products include roasted-ground coffee, instant coffee and instant nutritious cereal. Products from coffee contribute around 80 percent of VCF’s revenue while cereal accounts for the remaining proportion. VCF’s coffee brand names consist of Vinacafe 3-in-1, Wake Up Saigon, Phinn Coffee and Wake Up 247. VCF’s products are exported to Japan,

Instant noodle increased their revenue share from 24% in 2010 to 30% in 2014 with a CAGR of 30% from 2010 to 2014 with gross margin of 36%.

Beverage took 26% of MSC’s revenue in 2014 with a CAGR of 118% from 2011 to 2014 with gross margin of 36%. Beverage revenue grew fast thanks to the merger of Vinacafe Bien Hoa and Vinh Hao Minerals Water.

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United States, China and some countries in East Europe with a modest value in total revenue (7 percent). In 2013 VCF was the second largest company in the hot drinks market with 19.7 percent market share just after Nestle Vietnam with 27 percent and the largest in the instant coffee market with over 43 percent market share. At the end of 2014, charter capital of VCF was VND265.8 billion (USD12.5 million). In terms of capacity, VCF has three factories with total capacity of 4,080 tons of instant coffee per year. Two out of three factories have already operated for a long period of time (1968 and 1998, respectively). The newest factory is the largest, with production capacity of 3,200 tons of instant coffee per year, 78 percent of the total capacity. This factory has operated since 2013.

VCF’s revenue breakdown (2014E) VCF’s market share in Vietnam coffee market

Category Market share Rank

Fresh coffee 1.8% 2

Instant coffee 43.5% 1

Other hot drinks 26.9% 2

General hot drinks 19.7% 2

Source:, VPBS estimate Source: Euromonitor, MSN data

After MSN acquired 53.2 percent of VCF in 2011, the company improved their strong revenue CAGR to 23 percent, much higher than the 16 percent recorded prior to MSN’s investment, thanks to wider exploitation of MSC’s distribution network. In addition, a series of new products were introduced to the market after the acquisition, such as Wake up Saigon, Wake up café, New Vinacafe (coffee) and Kachi (Instant nutritious cereal). Accordingly, gross profit margins of VCF improved from 20 percent in 2008 to 35.8 percent in 2014. On the other hand, the higher selling cost and administration (SG&A) expenses increased commensurate with revenue. The ratio of SG&A/revenue of VCF increased from 11 percent in 2008 to 24 percent in 2014, resulting in net profit margin increasing from 11 percent to 13.5 percent.

For 2014, VCF reported net revenue of VND2,974 billion (USD140 million), an increase of 29 percent y-o-y. Thanks to the low COGS, VCF’s gross profit increased dramatically by 55 percent. Gross profit margin of VCF in 2014 also reached a peak of 35.8 percent. The rise in gross profit was high enough to offset the increase in SG&A expenses. In combination with four times higher net financial income in 2014 (VND61 billion vs. VND17 billion of 2013) and a lower tax expense, 2014 net profit of VCF (VND401 billion) was reported at 54 percent higher than last year. Accordingly, net profit margin of VCF was at 13.5 percent, higher than 11.3 percent of 2013. Given the

2%

78%

20%

Roasted-ground coffee Instant coffee

Instant nutritious cereal

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2014 target revenue of VND3,000 billion (USD141 million) and net profit of VND400 billion (USD19 million), VCF fulfilled the whole year plan.

At the end of December 2014, VCF had no long-term loans. They only recorded VND533 billion of short-term loans for working capital needs, equaling 21 percent of total equities. 90 percent of the loans are VND loans with relatively low interest rates from six percent to eight percent.

Revenue growth of VCF Margins of VCF

Source: VCF

Vinh Hao mineral water: Vinh Hao mineral hot spring was discovered in 1909 in Binh Thuan province and exploited commercially in 1928 by a French company. Until 1995, Vinh Hao JSC was under control of The People’s Committee of Binh Thuan Province and Sai Gon Finance JSC (Current Viet A Bank). Vinh Hao JSC registered to be a public company in 2008 but until September 2014 the company was not a public company. Hence we only have financial statements of Vinh Hao for 2013 backward. Vinh Hao’s main products include still bottled water, mineral bottled water (non-carbonated and carbonated mineral water), flavored mineral water (lemon, strawberry, orange and energy mineral water). For still bottled water, Vinh Hao focuses on large size containers (5 liters and 25 liters), used at homes and offices. In 2013, sale volume of Vinh Hao was 133.4 million liters of water, an increase of 8.1 percent y-o-y. Vinh Hao JSC has two production plants in Binh Thuan and Binh Duong provinces, four branches in Ho Chi Minh, Da Nang, Hung Yen and Binh Duong as distribution centers. Vinh Hao JSC has their-own distribution network with more than 40 agents and 25,000 retailing points. In September 2013, MSC bought 63.5 percent of Vinh Hao, turning the company into their subsidiary. After merging with MSC, Vinh Hao’s products have been launched into the market with more attractive designs and distributed via a larger network. Vinh Hao has one subsidiary (Krongpha Trade, Service and Production JSC) and owns 30 percent of one associate company (Vinh Hao Spirulina Corporation). Vinh Hao bought 99.9 percent of Krongpha for a total value of VND45.6 billion (USD2.1

1302 1586

2115 2299

2974

162 211 298 260 401

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

0

500

1000

1500

2000

2500

3000

3500

2010 2011 2012 2013 2014

Net revenue (VND bn)Net profit (VND bn)Revenue growth (%)Net profit growth (%)

21%25%

28%30%

36%

12% 13% 14%11%

13.5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

2010 2011 2012 2013 2014

Gross profit margin SG&A/net revenue

Net profit margin

Entering USD 2.5 billion bottled beverage market via Vinh Hao mineral water

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million). This company owns a mineral water resource in Binh Thuan. Through the end of 2013, charter capital of Vinh Hao was VND81 billion (USD3.8 million). Given current revenue, Vinh Hao is calculated to account for seven percent in bottled water market share, where the company is ranked first in carbonated bottled water production and number seven in still bottled water production. From 2010 to 2013, CAGR of Vinh Hao was 12 percent/year with a relatively stable gross profit margin of 36 percent/year. However a high ratio of SG&A expenses to net revenue at 30 to 33 percent/year has squeezed company’s net profit margin to only three to five percent. Thanks to the consolidation of Krongpha subsidiary, Vinh Hao recorded VND214 billion in financial income, increasing the company’s net profit from VND13.3 billion (USD0.6 million) in 2012 to VND223 billion (USD10.5 million) in 2013. The bigger benefit of the Vinh Hao acquisition for Masan is that it has provided a platform to target the attractive USD2.5 billion beverage market, which is growing at 20 percent. To enable this, Masan has used the platform to launch energy drinks and isotonic drinks such as Storm (energy drink) and Aktiva (isotonic drink). It is estimated that in three years, Masan Beverage may be as large as Masan Food.

Vinh Hao’s net revenue and profit Vinh Hao’s margins

Source: Vinh Hao

MSC’s future investments

MSN has expanded its operations via a mix of organic growth as well as M&A deals by acquiring controlling ownership in attractive consumer companies. On November 11, 2014, Masan Group announced that Masan Consumer would proceed to buy publicly up to 49 percent of Cholimex Food shares with a tender offer price of VND90,000 per share, equivalent to a total investment value of VND729 billion (USD34.7 million). Masan Food, one of Masan Consumer’s subsidiaries will proceed directly with the investment.

This is the Masan’s first M&A deal with a food company since Vinacafe Bien Hoa, Vinh Hao Mineral water and Phu Yen Beer.

73%

12%

24%

2%

0%

10%

20%

30%

40%

50%

60%

70%

80%

0

50

100

150

200

250

300

350

400

450

500

2010 2011 2012 2013

Net revenue (VND bn) Net profit (VND bn)

Revenue growth (%)

37%32%

36% 36%

5%2% 3%

49%

0%

10%

20%

30%

40%

50%

60%

2010 2011 2012 2013

Gross profit margin (%) SG&A/net revenue (%)

Net profit margin (%)

MSN is penetrating attractive markets of beer and processed meat.

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Cholimex Food was founded in 1983. In 2006, the company was equitized and its current charter capital is VND81 billion (USD3.3 million). Business activities include producing, processing and distributing food with main products including sauces and frozen food. 30 percent of revenue is from exports and 70 percent is domestic revenue. With its brands that have been around the market for nearly 30 years, the company has been successful with the chili sauce product line and the “Huong Viet” brand.

Cholimex Food reported impressive results during the past eight years. In the period from 2006 to 2014, Cholimex Food’s net revenue increased from VND53.7 billion (USD2.5 million) to VND1,017 billion (USD48 million), a CAGR of 44 percent, and net income surged from VND1.5 billion (USD70,000) to VND40 billion (USD1.9 million), a CAGR of 51 percent. In 2015 Cholimex plans to earn total revenue of VND1,260 billion (USD59 million) and profit before tax is expected to reach VND54 billion (USD2.5 million), increasing 18 percent y-o-y in total revenue and eight percent y-o-y in profit before tax. Cholimex Food pays regular dividends of 15 to 20 percent/year.

Cholimex Food’s ownership structure includes: Cholimex (40.7 percent), Nichirei (19 percent), VCSC (14.6 percent), Vietcapital Land (10 percent) and others (15.7 percent). Masan Food has bought 33 percent out of its intended 49 percent ownership interest to date. However, it remains to be seen whether MSC will be able to gain a controlling stake.

On January 13, 2015, Masan Consumer, Masan Group’s subsidiary, announced that they would proceed to buy 100 percent of Giao Dich Saigon Nutri Food’s charter capital, which belongs to Saigon Nutri Food Ltd Co.(SNF) Masan Food, one of Masan Consumer’s subsidiaries will proceed directly with the deal. Details of this deal in terms of value and execution date have not been revealed. However, we assume that Masan Food can close this deal soon and consolidate the operation of SNF from Q2/2015.

SNF was established in 2006 under control of Quang Dung Corporation, a private company. The Company specializes in producing sausage, canned food and instant spring roll snacks in Binh Duong province. Since its establishment in 2013, SNF’s revenue has increased significantly by 61 percent per year. Nevertheless, for the three latest years from 2010 to 2013, revenue growth has slowed down to five percent per year from VND95 billion (USD4.4 million) to VND104 billion (USD4.9 million). Given the market value of chilled processed meats (VND1,051 billion) and canned/processed food (VND3,016 billion) in 2013, SNF does not hold a major position. However, this is the first deal which allows Masan Consumer to penetrate the attractive and fast growing processed food sector besides its traditional products such as sauces, instant noodles and beverages.

Protein consumption in Vietnam is estimated to increase, as we have observed in other Asian markets that it increases sharply as GDP crosses USD2,072 per capita (IMF as of Dec 31, 2014). Moreover, the share of processed meat in Vietnam is also expected to increase as the consumers focus on quality and standardization. Both these trends imply that this is a very attractive market and SNF gives Masan the platform to target this market.

Phu Yen Beer- PYBECO was founded in 2003 and officially went into operation in 2006. Its main business activities are beer production and activities related to beer, such as producing and installing equipment related to beer and soft drink

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technology. Originally PYBECO had primarily received outsourcing orders to produce Saigon Beer and 333 Beer for Sabeco. PYBECO also manufactures their own beer under the following brand names: American Beer, Tuy Hoa 450 and Tuy Hoa Special. In 2013, MSC bought 99.9 percent of PYBECO’s shares. After purchasing shares of Phu Yen Beer, PYBECO issued a new beer product under “White Lion” brand name. PYBECO’s updated assets are VND270 billion (USD12.8 million) and a capacity of 50 million liters per year. Given the total volume of the market of 3.3 billion liters/year, the output of PYBECO is very small, accounting for two percent of the total market. But the beer market is very large and attractive in Vietnam. So if Masan manages to execute successfully and build a brand in this segment, it can win big.

Masan Resource

Nui Phao has signed off-take agreements for most of their outputs and outputs of the company are sold at the world prices. In July 2013, the company entered into a cooperation agreement with H.C.Stark of Germany to produce high-value-added tungsten chemicals. Via a joint venture between Nui Phao Mining (51 percent) and H.C.Stark (49 percent), 100 percent of Nui Phao’s tungsten concentrate output will be purchased and then processed to transform into higher value chemicals such as sodium tungstate (ST), ammonium para tungstate (APT) and blue tungsten oxide (BTO). The joint venture has committed to buy 10,000 tons of tungsten concentrate/year for the next 10 years. H.C.Stark will be responsible for the technical operation of this joint venture while Nui Phao Mining Co., is in charge of financial control. In addition, about 60 percent of the products from the joint venture will be consumed by H.C.Stark.

Plan for Nui Phao’s outputs

Partner Off-take agreement details

Tungsten H.C.Stark Joint venture, off-take up to 10,000 tons /year within 10 years

Fluorspar CMC Cometals (USA)

Take or pay agreement for 200,000 tons/year at market-price

Bismuth Sidech S.A (Belgium) Off-take 2,000 tons/year

Copper N/A Plans to sell domestically

Source: MSN

MSR started to recognize gross profit in Q3/2014 and earned VND2,742 billion (USD128 million) in 2014’s net revenue. However, due to high financial expense (VND565 billion) and operating cost (VND2,213 billion), MSR has started to earn around VND200 billion in net profit after crossing break-even levels in Q3/2014.

According to the company’s announcement, the output of MSR’s factory reached 90% of designed capacity and collectable ratios have been improved at all products.

At the end of 2014, MSR’s charter capital was USD225 million. Total assets of MSR reached USD940 million. Given the project life of 20 years, it is estimated that MSR has depreciation cost of around USD30 million/year.

MSR started to earn around VND200 billion in net profit after crossing break-even level in Q3/2014.

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Techcombank

Recovery in 2014: During the period from 2008 to 2013, customer deposits and credits of TCB grew at a high CAGR of 27.8 percent and 31.9 percent, respectively, but the growth slowed down from 2012. This was reflected in a phenomenal CAGR of 138.7 percent of net income during 2008 to 2011 before plunging in 2012 and 2013 as a result of more conservative provisions for credit losses, poor performance in net non-interest income and increasing operating expenditures. After two years of restructuring, TCB started to recover with net profit increasing by 64.1 percent y-o-y to VND1,082 billion (USD50.42 million) in 2014 and achieved 91.6 percent of full-year target thanks to the improvement of net interest income, which increased 33.1 percent y-o-y.

TCB’s Income (VND bn) TCB’ s NPL ratio (%) and debt breakdown (VND bn)

Source: TCB

A weak lending environment led to deteriorating asset quality but improved in 2014: Regarding lending activities and asset quality, TCB has focused its lending activities primarily on SMEs and individuals. The Bank was also the leader in top 10 JSCBs with the largest consumer loans portfolio in 2013. In terms of breakdown by sector, in recent years TCB has extended more loans to real estate and construction, from nine percent in 2010 to 22 percent in 2013, which partially contributed to the jump of NPL ratio from 2.7 percent in 2012 to 3.65 percent in 2013, crossing the three percent threshold. The asset quality kept deteriorating in 1H2014 when NPL ratio reached 4.12 percent but TCB made conservative provisions towards year end, jumped by 59.7 percent, from VND1,414 billion (USD65.90 million) in 2013 to VND2,258 billion (USD105.23 million) in 2014 and as a result, depressed the NPL ratio down to 2.38 percent. On top of that, in 2014, TCB’s lending strategy was to shift more toward prioritized and less risky industries such as agriculture, supporting industries, and to SME’s clients, which has also helped in lowering the bank’s NPL ratio. However, the loans loss coverage ratio (LLC), which is equal to provisions divided by total NPLs, stayed at only 50.15 percent by the end of 2014, which is relatively lower than industry average.

--

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2008 2009 2010 2011 2012 2013 2014

VN

D b

illi

on

Operating income Net income

2.29%

2.83% 2.70%

3.65%

2.38%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

--

500

1,000

1,500

2,000

2,500

3,000

2010 2011 2012 2013 2014

VN

D b

illi

on

Substandard Doubtful Bad NPL ratio

Techcombank performed very well during 2008 – 2011 but started to slump from 2012. However, the Bank seemed to be back on the right track from the beginning of 2014 after some restructuring.

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MSN’s associate income

MSN’s current associates include Techcombank (30.4 percent) and Proconco (20.4 percent). For 2014, the two companies contributed VND610 billion (USD28.6 million) to MSN’s results. However, after amortizing goodwill, the net income contributed was dragged down to VND-53 billion (USD-2.5 million).

Income from associates (VND bn)

TCB contribution 331 Proconco contribution 279 Total contribution 610 Goodwill amortized from TCB -576 Goodwill amortized from Proconco -87 NI contribution -53

Source: MSN, VPBS estimate

MSN’s capital structure-debt levels

MSN recorded total debts of VND23,564 billion (USD1.1 billion) at the end of 2014 of which 74 percent was long term loans. Accordingly their debt/equity ratio in 2014 seemed high at 157 percent although net debt/equity was lower at 123 percent as MSN also had cash balances. Most of the short-term debts are VND bank loans. Meanwhile, 22 percent of MSN’s long-term debts are bank loans in USD and the remaining 78 percent are guaranteed bonds (VND13,600 billion) and convertible bonds (VND568 billion). The debt burden led to a heavy financial expense of VND1,710 billion (USD80 million) in 2014 at an average interest rate of eight percent, three times higher than the 2013’s interest expense. This was primarily due to the commissioning of Nui Phao mine on March 1, 2014 and should gradually reduce as the mine generates cash flows.

MSN’s business result in 2014 and 2015

Currently MSC contributes 82 percent of MSN Group’s business result. In 2014, MSN Group reported a 35 percent increase in net revenue to VND16,089 billion (USD506 million), of which MSC’s revenue was VND13,098 billion (USD615 million).

Consolidated EBITDA of MSN grew at 26 percent/year from 2010 to 2014, slower than 30 percent of revenue due to higher selling and administrative expenses (after amortization of M&A investments) as MSN invested in new product development and brand-building in order to target the attractive beverage and convenience foods market. For 2014, net income of MSN was only VND2,037 billion (USD95.6 million), up 56 percent compared to last year’s results thanks to the proceed from selling Masan Agri (Proconco investment) and Minh Viet packaging company, earning high financial income of VND1,571 billion (USD73.8 million). This helped to partly offset high depreciation of VND1,121 billion(USD52.6 million) and high financial expense of VND1,710 billion(USD80.3 million), as result of commissioning the Nui Phao project.

In addition, minorities’ interest has squeezed MSN’s net income growth, resulting in a growth decline of 17 percent within the last five years. In 2014, net income of MSN after minorities’ interest was only VND1,080 billion, still an increase of 139 percent y-

MSN has recorded an impressive revenue growth rate but net profit for parent shareholders has been squeezed by depreciation, high SG&A expenses, high financial cost and big burden of minorities interest.

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o-y. These numbers should also improve going forward as the resources business has crossed break-even levels.

Based on the earnings prospects of MSC and other entities such as MSR, Masan Agri, and TCB, we estimate that MSN can earn revenue of VND23,801 billion (USD1.1 billion), an increase of 48 percent y-o-y, and net profit after minorities interest of VND1,560 billion (USD73 million), an increase of 44 percent y-o-y.

As we do not have the company’s plan to issue shares for additional cash, we assume that charter capital of MSN in 2015 would increase to VND7448 billion (USD350 million) as MSN has to issue additional shares of nine million in December 2015 for Goldman Sachs Group’s convertible loan.

Estimate 2015 (VND bn) 2014 2015 MSC 13,098 16,039

MSR 2,991 7,762

Total revenue 16,089 23,801

Gross profit 6,600 10,537

Income from associate -53 42

Profit before tax 2,740 3,975

Tax -703 -875

NI 2,037 3,101

MI interest -957 -1,541

NI of parent company 1,080 1,560

EPS (VND/share) 1,447 2,083

FORECAST & VALUATION

Forecast of MSC

We expect that MSC’s net revenue will grow at a CAGR of 24 percent from 2014 to 2019. The growth of MSC comes mainly from pillars of seasonings and sauces, convenience food and beverage.

Seasonings and sauces- revenue’s CAGR of 15 percent.

Fish sauce: Revenue’s CAGR of 14 percent with gross margin of 60 percent. This growth is based on the assumption that the fish sauce segment can grow from nine percent in 2014 to 15 percent in 2019. MSC should grow faster than the segment growth which is forecast at six percent/year from 2014 to 2019. MSC is currently the leader in fish sauce production and we project that the company’s market share can be improved given the ability to expand to middle- and premium-products, expansion into powdered seasonings and other initiatives.

Soy sauce: Revenue’s CAGR of 15 percent with gross margin of 58 percent. Demand for soy sauce is relatively stable, therefore, the segment growth rate is forecast at 10 percent/year over the next five years. MSC’s soy sauce can rise at 15 percent/year, maintaining MSC’s leading position in soy sauce.

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Chili sauce: Revenue’s CAGR of 20+ percent with gross margin of 46 percent. The likelihood of MSC taking control of Cholimex is still uncertain. However, we can foresee a cooperative relationship between MSC and Cholimex in chili sauce, especially premium products. Based on the synergies created from MSC and Cholimex as well as MSC’s on-going new products, the market share of MSC in chili sauce can be 70 percent. Taking a conservative view, we do not consolidate Cholimex’s business results into our model.

Convenience food: Revenue CAGR of 25 percent. Instant noodles still hold the largest position in this segment. MSC also continues to develop their production of snacks, instant porridge, spaghetti and especially protein meat products.

Instant noodle: Revenue’s CAGR of 20 percent with gross margin of 45 percent. Instant noodle continues to contribute the largest revenue to MSC (32 percent in total revenue) of any segment. Although this is a very fragmented market with the participation of new comers, we forecast that the market share of MSC will fluctuate in a range from 30 percent in 2014 to 58 percent in 2019. The strong R&D activity, branding and marketing campaigns will help MSC introduce new products successfully to the consumers.

Beverage: Revenue CAGR of 35 percent. The segment is expected to have the strongest growth among MSC’s pillars, given ready production platforms of Vinacafe and Vinh Hao.

Instant coffee: Revenue’s CAGR of 30 percent percent with gross margin of more than 35 percent. Since Vinacafe instituted their third plant in 2013, we believe that the plant has proceeded to nearly full capacity and project that it will contribute strong growth for MSC’s instant coffee revenue in the forecast period. MSC also targets the roasted and ground coffee market in the medium term. Accordingly, MSC’s instant coffee is expected to grow 30 percent/year with an expected market share of 70 percent in 2015.

Bottled water: Revenue’s CAGR of over 50 percent with gross margin of 40 percent. After the deal with MSC, Vinh Hao ’s products have been re-launched under new eye-catching designs, increasing the revenue of this segment. MSC has also launched energy drinks and isotonic drinks under the Vinh Hao platform, which should help it to show rocketing growth by capturing a share in the USD 2.5 billion beverages market.

Other products: We forecast that other products such as packaging and cereals will grow at over 35 percent/year with gross margin of 55 percent.

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Revenue breakdown of MSC Total revenue of MSC

Source: MSC,VPBS

Gross margin assumption

We assume that the gross margins or the segments of sauces and dressings, instant noodles and bottled water will gradually improve based on the lower average fixed cost with economies of scale benefits. In addition, smart combinations between products can help to improve MSC’s gross profit. Accordingly, gross margin of MSC will be around 45 percent compared to 44 percent in 2014 and its historical average over the past five years of 43 percent.

SG&A assumptions

A characteristic typical of the consumer industry, MSC has to spend heavily on branding, advertising and building a distribution network. In addition, it is noted that goodwill amortization from purchasing Vinacafe, Vinh Hao is recognized in the administration expense. We forecast the SG&A/revenue ratio will be maintained at 20 percent/year compared to 26 percent in 2014 and an average of 20 percent over the past five years.

Financial income and expenses

MSC’s financial income comes from two of its largest parts: loans to other entities (60 percent) and bank deposits (15 percent). In 2014, MSC received VND1,247 billion (USD58.5 million) from the former and VND330 billion (USD15.5 million) from the latter.

Given the huge cash amount balance (VND3,150 billion (USD148 million/year) and VND9,000 billion (USD422.5 million) loans to other entities in the Group, we expect that MSC can earn regularly around VND1,682 billion each year of financial income (10 percent of interest/year).

MSC has mobilized money for organic activities and M&A deals. Recently MCH, Masan Consumer Holdings has successfully raised VND2,100 billion (USD98.5 million) of bonds. This is a rare 10-year bond transaction with a very low coupon rate

40% 38% 36% 34% 31% 29%

33% 33% 32% 31% 31% 30%

26% 29% 31% 34% 37% 40%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2014E 2015F 2016F 2017F 2018F 2019F

Seasonings and sauces Convenience food Beverage Others

0

5000

10000

15000

20000

25000

30000

35000

40000

45000

2014 2015F 2016F 2017F 2018F 2019F

Revenue (VND bn)

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(eight percent/year) by a private-sector company in Vietnam. This is a validation of the consumption strategy, and provides capital for growth. MSC currently has around VND4,386 billion of short term debts and VND3,844 billion of long term debts, mainly guaranteed bonds. Accordingly, MSC has to pay around VND900 billion (USD42.3 million)/year of financial expense. But it also has cash on the books, so MSC does not have much net debt. For 2014, MSC reported a 26 percent increase y-o-y in net financial income to VND1,660 billion (USD78 million ]).

Effective tax rate

We forecast the effective tax of MSC at 18 percent in the period 2014 to 2019. Of which, the corporate tax rate (CIT) in the parent company is an applicable tax rate of 22 percent from 2014 to 2015 and 20 percent from 2016 to 2019. CIT tax rates for subsidiaries are varied among the companies depending on each company’s tax scheme.

Net income

We forecast the MSC can earn a net revenue of VND16,039 billion (USD753 million) and net income after minorities interest of VND3,898 billion (USD183 million), increases of22 percent and 17 percent y-o-y, respectively in 2015. Accordingly, EPS of MSC will increase by nearly 20 percent from VND6,171 to VND7,374/share.

Dividend

The dividend level is decided by the Board of MSC which we have researched. MSC historically paid dividend by shares. However, in Q2/2014 MSC spent VND5,800 billion on paying cash dividend for 2013 and interim dividend 2014, total VND11,000/share.

Balance Sheet

We make key assumptions to build MSC’s balance sheet as below:

Day sales outstanding: average 51 days. The historical three-year average number was 48 days.

Day inventories outstanding: fluctuates at around 49 days, increasing from 40 days of three year history’s number.

Day payables outstanding: is stable at 29 days, relatively equal to the three previous years’ data.

Current assets and current liabilities: remaining stable as percentage of related revenues and expenses.

Capital expenditure: We do not have the capital expenditure plan of MSC so we assume that during 2015 to 2019 the capital expenditure of the company is expected to be VND830 billion/year, approximately equal 2014’s capex.

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MSC valuation

We derive the fair value of MSC (VND149,901/share) based on the DCF method and EV/EBITDA method.

Combined valuation

Method Target price Weight DCF value 141,734 50% EV/EBITDA 149,373 50% Weighted average target price

145,553

DCF method

We derive at the intrinsic value of MSC based on DCF method of VND141,734/share.

Cost of Equity Value Five-year government bond yield 5.4% Beta 0.79 Market premium 8.76%

Cost of Equity 12.3% Cost of Debt Long-term interest rate 9% Effective Tax Rate 18% After Tax Cost of Debt 7.4% Current Share Price (VND) 84,000 Number of shares (million) 529 Market Capitalization (VND bn) 44,402 Debts (VND bn) 8,271 WACC 11.6% Terminal Growth Rate 6% Valuation per share 141,734

Source: Bloomberg, VPBS

EV/EBITDA Method

By using average EV/EBITDA of regional peers, we derive a relative price of MSC at VND149,373/share. 14 peers used to compare are conglomerate companies which are operating in mainly packaged food.

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Name Country P/E P/B ROE (%) EV/EBITDA Market's

EV/EBITDA Relative

EV/EBITDA Century Pacific Food, Inc. Philippines N/A 4.6 23.9 14.5 14.7 1.0

PT Indofood CBP Sukses Makmur Tbk Indonesia 27.7 4.8 19.6 14.3 11.4 1.3

PT Mayora Indah Tbk Indonesia 38.4 4.8 13.1 12.5 11.4 1.1 PT Ultrajaya Milk Industry and Trading Company Tbk

Indonesia 43.9 4.8 13.9 12.6 11.4 1.1

Khon Kaen Sugar Industry PCL Thailand 13.1 1.4 15.7 10.6 10.7 1.0

Bright Dairy & Food Co., Ltd. China 40.8 4.4 12.4 13.9 11.8 1.2

Xiwang Foodstuffs Company Limited China 22.9 2.6 12.8 10.4 11.8 0.9

Chongqing Fuling Zhacai Group Company Limited

China 44.0 4.5 14.4 19.6 11.8 1.7

Thai Union Frozen Products Public Company Limited

Thailand 18.9 2.3 13.1 11.2 10.7 1.1

Jonjee High-Tech Industrial and Commercial Holding Co Ltd d

China 28.8 3.4 12.2 15.8 11.8 1.3

Chacha Food Company Limited China 25.3 2.6 11.6 12.4 11.8 1.1

Dongwon F&B Co., Ltd. South Korea 20.7 2.5 12.8 10.2 8.0 1.3

Ottogi Corporation South Korea 17.3 2.1 13.2 9.6 8.0 1.2 Daesang Corporation South Korea 12.9 1.5 12.9 7.5 8.0 0.9 Average

27.3 3.3 14.4 12.5 10.9 1.1

Masan Consumer N/A N/A 23.0 15.4 13.8 EV of MSC (VND bn) 84,762 Cash (VND bn) 3,596 Debt (VND bn) 8,271 Minority Interest (VND

bn) 1,129

Shares 529 Market value (VND bn) 78,958

Share price (VND) 149,373

Source: Bloomberg, VPBS

Forecast of MSR

Since Q1/2014, MSR started to earn gross profit yet recorded a net profit loss due to high expenses. But in Q3/2014, MSR recorded a positive net profit. In 2015, we forecast that EBITDA of MSR would be USD150 million and net income of USD112 million.

The reserves of the mine are tested as below following the info provided by the company in Q3/2014 IR newsletter.

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Total Thousand tons Tungsten % Fluorspar % Copper % Bismuth %

Total 66,000 (previously 52,550) 0.21 8.00 0.21 0.10

Source: MSN

The revenue of each year is calculated based on the average output of three million extract outputs per years and the project life of 20 years (3.3 million tons of output/year). For price of minerals, we apply current prices for the forecast period. These are considered to be the bottom prices during a period of economic contraction and the prices have possibilities to increase in the long term.

MSR' valuation (USD mn) 2015F 2016F 2017F 2018F 2019F 2020F Total revenue 364 364 375 384 396 395

Op exp 157 153 158 157 162 158

EBITDA 150 154 158 166 171 175

-Depreciation 30 30 30 30 30 30

-Interest expense 8 8 7 7 7 6

EBT 112 116 121 129 135 139

-tax 0 0 0 0 0 0

NI 112 116 121 129 135 139

+Depreciation 30 30 30 30 30 30

-Capex 20 20 20 20 20 10

+ Net Loan -31 -31 -31 -31 -31 -31

Cash flow 90 95 99 108 113 127

Total NPV 704

Forecast of Techcombank

Balance sheet to grow modestly in 2014 and 2015 and pick up from 2016

Despite a decline in total assets in 2013, TCB has been recovering in 2014. Therefore we project TCB’s total assets to attain 11.6 percent CAGR over the period of 2014 to 2019. Particularly:

- Customer loans and deposits: customer loans growth rate is estimated to be around 14 to 17 percent for the period from 2015 through 2019. Customer deposit growth rate is estimated to grow at 13 to 14 percent for the next five years.

Balance sheet to grow modestly in 2014 - 2015 and picks up from 2016.

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- Assets projection (VND bn) 2014 2015F 2016F 2017F 2018F 2019F

Total assets 175,915 195,801 215,939 239,083 270,436 304,744

Growth 11% 11% 10% 11% 13% 13%

Earning assets 157,055 174,647 195,045 218,730 248,267 282,081

% of total assets 89% 89% 90% 91% 92% 93%

Growth 15% 11% 12% 12% 14% 14%

Of which

Loan growth 14% 14% 14% 14% 15% 17%

Interbank assets growth 22% 3% 3% 3% 3% 3%

Debt securities growth 15% 10% 11% 12% 14% 11%

Asset quality

NPL ratio (before write-off)

4.19% 3.20% 3.46% 3.15% 3.07% 3.08%

NPL ratio (reported) 2.38% 2.98% 2.68% 2.41% 2.41% 2.41%

Loan loss coverage (LLC) 50% 75% 79% 83% 85% 85%

Source: VPBS

Net interest income should grow at 11.8 percent CAGR thanks to gradually improving NIM, stable credit growth and a relatively higher capital utilization ratio LDR. Moving forward the industry average (82.7 percent) as the high and stable source of income from government bonds will no longer be the case.

Net non-interest Incomes expected to grow at 21.3 percent, mainly come from fees and commission growth.

Provision expenses will stall from 2016 onwards, consume about 29.4 percent of pre-provision operating profit (PPOP).

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TCB Valuation

TCB is an OTC stock that is currently quoted at VND9,940. Based on two valuation approaches: residual income and P/B multiple, we generated a fair price of TCB shares at VND16,209, 63.1percent higher than its current OTC price and one year total expected return for TCB is 63.1 percent, as we do not expect TCB to pay dividend in the next few years.

Combined valuation

Method Target price Weight Residual income 19,637 30% P/B 14,739 70% Weighted average target price 16,209

P/B multiple method

We select four banks: MBB, STB, EIB, and ACB as TCB’s peer group as they are most similar to TCB in terms of size, type of business, and operating efficiency. Overall, TCB performed better than peers’ average on most indicators.

Earnings projection (VND bn) 2014 2015F 2016F 2017F 2018F 2019F

Net interest income 5,773 6,097 6,717 8,046 9,074 10,098

Growth 33% 6% 10% 20% 13% 11%

NIM 3.94% 3.68% 3.63% 3.89% 3.89% 3.81%

Non-interest income 1,334 1,753 2,075 2,485 2,946 3,502

Growth 2% 31% 18% 20% 19% 19%

Fee income 1,123 1,539 1,847 2,245 2,694 3,232

Growth 52% 37% 20% 22% 20% 20%

Forex trading income 23 25 28 30 34 37

Growth 0% 10% 10% 10% 10% 10%

Equity investment 180 180 191 199 207 219

Yield 28% 20% 20% 20% 20% 20%

Other income 8 9 10 11 12 14

Growth -98% 10% 10% 10% 10% 10%

Operating income 7,106 7,850 8,792 10,531 12,021 13,600

Growth 26% 10% 12% 20% 14% 13%

Operating expenses 3,431 4,244 4,731 5,723 6,621 7,599

Growth 2% 24% 11% 21% 16% 15%

CIR 48% 54% 54% 54% 55% 56%

Provisions for loan losses 2,258 2,205 1,615 1,547 1,330 1,250

Growth 60% -2% -27% -4% -14% -6%

Provisions/PPOP 61% 61% 40% 32% 25% 21%

Net profit 1,082 1,093 1,957 2,609 3,256 3,801

Growth 64% 1% 79% 33% 25% 17%

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Bank Shares

outstanding 2014 (mn)

Price (VND) as of March

12, 2015 P/E P/B

TTM EPS (VND)

BVPS 2014 ROE (%) ROA (%) NIM (%)

STB 1,143 20,400 10.54 1.29 1,936 15,815 12.2% 1.2% 4.31%

MBB 1,159 13,900 6.44 0.97 2,119 14,284 15.1% 1.2% 3.77%

EIB* 1,229 13,200 289.35 1.15 46 11,443 0.4% 0.0% 1.79%

ACB 896 17,100 16.10 1.24 1,062 13,831 7.7% 0.5% 3.06%

Peers avg 11.03 1.16 8.9% 0.7% 3.23%

TCB 888 9,940 8.16 0.59 1,219 16,895 7.2% 0.6% 3.94%

*We excluded EIB’s P/E when calculating Peers average as it is absurdly high

Using P/B multiple and TCB’s current BVPS at VND16,895, we value TCB share at VND14,739. In our model, we applied a 25 percent discount on TCB’s multiple due to its illiquidity.

P/B valuation TCB’s 2015 BV (VND) 16,895 TCB’s current P/B 0.60 Justified P/B 0.87 Target price 14,739

Residual income method

Using TCB’s financial results above in combination with a beta of 0.8 and expected market premium of 8.76 percent, our residual income model yields a fair value of VND19,637 for each TCB share, which is 98 percent higher than TCB’s current OTC price. As TCB is a non-listed stock, we use peer average beta as a proxy for TCB’s beta and add an extra 1 percent to its cost of equity, given its illiquidity.

MSN Valuation

As MSN Group is a holdings group which combines many subsidiaries in many different sectors, we use the Sum Of Parts (SOP) method to value the company. We combine the value of MSC, TCB and MSR in the calculation.

Sum Of Parts method

Residual Income Valuation 2014E 2015F 2016F 2017F 2018F 2019FNet Income 1,081,859 1,092,905 1,957,011 2,609,329 3,255,520 3,801,482 Shareholders Investment 13,920,070 14,999,712 17,867,757 19,292,084 21,368,728 25,130,299 Capital Charge 1,855,267 1,999,162 2,381,415 2,571,249 2,848,024 3,349,366 Residual Income (773,408) (906,257) (424,403) 38,080 407,496 452,115 Terminal value 5,700,302 Present Value Factor 1.000 0.882 0.779 0.687 0.606 0.535PV Residual Net Income (773,408) (799,676) (330,449) 26,163 247,044 3,291,241Total Projected EVA 2,434,323 Curent Book Value Equity 14,999,710 Value of Equity 17,434,033 Number of Shares 887,808 Share Value (VND) 19,637

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SOP Method Value (VND bn) MSN's ownership Value of MSN's

shares (VND bn) MSC DCF 79,517 78.4% 61,594

TCB P/B & Residual income

17,434 30.4% 5,293

MSR NPV 14,671 74.2% 11,170 Total 78,057 +Net cash 9,209

-Total loans 16,764

MSN's equity value 70,517 Outstanding shares (mn shares) 747

Share value (VND/share) 94,400

Source: VPBS

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TECHNICAL ANALYSIS

The technical chart has shown MSN fluctuating between VND78,000 and VND85,000 per share. Following the attempt to overcome the resistance level of VND90,000 this February, MSN declined consistently and currently accumulated in the lower bound of its sideways trend.

Its trading volume has shrunk sharply after MSN hit strong selling forces on March 20, well below the average level of the last 10 sessions, indicating the weakness of selling forces. Also, the support at the lower bound may help MSN low down.

Therefore, we recommend HOLD for MSN at the time of the publishing report.

Ticker MSN (VND/share) Horizon analytic 3 to 6 months 3-month highest price 90,000 3-month lowest price 77,500 Current 50-day MA 84,000 Current 100-day MA 83,000 Mid-term resistance level 85,000 Mid-term support level 78,000 Recommendation HOLD

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MSC's Income Statement (VND bn)

2014A 2015F 2016F 2017F 2018F 2019F

Total Revenue 13,098 16,039 19,760 24,504 30,597 38,483

Growth rate 10% 22% 23% 24% 25% 26%

Cost of Goods SoldGCS(excluding depreciation) 6,855 8,404 10,354 12,840 16,033 20,165

CGS % of segment revenue 52% 52% 52% 52% 52% 52%

Depreciation in CGS 472 483 610 685 798 903

Reported Cost of Goods Sold 7,327 8,887 10,964 13,526 16,831 21,068

Less: Depreciation included in CGS 472 483 610 685 798 903

Cost of Goods Sold 6,855 8,404 10,354 12,840 16,033 20,165 Gross Profit 6,243 7,635 9,406 11,664 14,564 18,318 Total Selling Expenses 2,710 2,675 3,296 4,087 5,103 6,419

Other 647 533 581 634 663 693

Total General & Admin Expenses 647 533 581 634 663 693 Income from Affiliated Companies 74 30 30 30 30 30

EBITDA 2,960 4,457 5,559 6,973 8,828 11,236 Depreciation 472 408 501 565 672 790

Amortization - - - - - -

EBIT 2,488 4,049 5,058 6,408 8,156 10,446

Financial income 2,171 1,928 1,659 1,426 2,164 1,721

Financial expenses

Interest Expense 511 873 872 920 930 961

Foreign Exchange Losses (Gains) - - - - - -

Other Financial Expenses Losses (Gains) - - - - - - Net Financial Income (Expense) 1,660 1,055 787 505 1,234 759

Other Income 80

Pretax Income 4,228 5,104 5,845 6,913 9,390 11,205

Income Tax Expense 729 880.05 1,008 1,192 1,619 1,932

Income Before XO Items 3,499 4,224 4,837 5,721 7,771 9,273

Extraordinary Loss Net of Tax - - - - - -

Minority Interests 158 191 218 258 351 419

XO Items & Minority Interest 158 191 218 258 351 419 Net Income 3,341 4,033 4,619 5,463 7,420 8,854

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MSC's Balance Sheet (VND bn) 2014A 2015F 2016F 2017F 2018F 2019FCurrent Assets

Cash & Near Cash Items 3,596 3,327 1,870 4,754 3,199 5,176

Short Term Investments 3,718 2,926 3,310 3,318 3,185 3,271

Accounts & Notes Receivable 921 2,127 3,256 3,003 4,283 5,481

A/R DOH 26 48 60 45 51 52

Inventories 912 1,118 1,378 1,708 2,133 2,683

Inv DOH 49 49 49 49 49 49

Other Current Assets 34 34 34 34 34 34

Total Current Assets 9,181 9,531 9,848 12,818 12,833 16,645

Long-Term Assets

Gross Fixed Assets 3,028 3,585 4,363 5,288 6,281 7,180

Accumulated Depreciation 843 1,251 1,752 2,317 2,989 3,780

Net Fixed Assets 2,185 2,334 2,611 2,970 3,291 3,400

Long Term Investments 388 388 388 388 388 388

Intangibles 1,138 1,138 1,138 1,138 1,138 1,138

Other Long Term Assets 11,065 10,790 11,261 11,758 12,282 12,836

Total Long-Term Assets 14,776 14,650 15,398 16,254 17,100 17,761

Total Assets 23,957 24,181 25,246 29,072 29,933 34,406

Current Liabilities

Accounts Payable 550 674 831 1,030 1,286 1,618

A/P DOH 29 29 29 29 29 29

Accrued Expenses - - - - - -

Short Term Borrowings 4,386 2,887 2,964 3,676 1,530 1,924

Other Short Term Liabilities 2,021 1,295 1,658 1,476 1,567 1,522

Total Current Liabilities 6,957 4,856 5,453 6,182 4,383 5,064

Long Term Liabilities

Long Term Borrowings 3,885 4,370 2,334 2,611 2,079 2,304

Other Long Term Liabilities 223 223 223 223 223 223

Total Long Term Liabilities 4,108 4,593 2,557 2,834 2,302 2,527 Total Liabilities 11,065 9,449 8,009 9,016 6,686 7,591

Equity

Preferred Equity - - - - - -

Share Capital & APIC 5,336 5,336 5,336 5,336 5,336 5,336

Retained Earnings 3,245 5,164 7,668 10,488 13,679 17,248

Other Equity 3,182 3,182 3,182 3,182 3,182 3,182

Total Shareholders Equity 11,763 13,682 16,186 19,006 22,197 25,766

Minority Interest 1,129 1,050.00 1,050.00 1,050.00 1,050.00 1,050.00

Total Liabilities & Equity 23,957 24,181 25,246 29,072 29,933 34,406

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MSC's Cash Flows (VND bn) 2014A 2015F 2016F 2017F 2018F 2019F Net Income 3,341 4,033 4,619 5,463 7,420 8,854

Depreciation & Amortization 472 408 501 565 672 790

Changes in Working Capital (180) (2,014) (869) (60) (1,357) (1,462)

Other Non-Cash Adjustments (1,676) 275 (471) (497) (524) (553) Cash From Operation Activities 1,957 2,702 3,780 5,471 6,210 7,629

Disposal of Fixed Assets - - - - - -

Capital Expenditures (748) (557) (778) (925) (993) (899)

Increase/Decrease in Investments (797) 792 (384) (8) 133 (86)

Other Investing Activities 917 - - - - - Cash From Investing Activities (628) 236 (1,163) (933) (860) (985)

(Dividends Paid) (2,458) (2,114) (2,114) (2,643) (4,229) (5,286)

Increase (Decrease) in Short Term Borrowings 2,214 (1,499) 77 712 (2,146) 394

Increase (Decrease) in Long Term Borrowings - 485 (2,036) 277 (531) 225

Increase (Decrease) in Capital Stocks 57 (79) - - - -

Other Financing Activities (1,640) - - - - -

Cash From Financing Activities (1,827) (3,207) (4,074) (1,654) (6,906) (4,667)

Beginning Cash Balance 4,168 3,596 3,327 1,870 4,754 3,199

Net Changes in Cash (498) (269) (1,456) 2,884 (1,556) 1,977

Expected Ending Cash Balance 3,670 3,327 1,870 4,754 3,199 5,176

Cash Balance per balance sheet 3,596 3,327 1,870 4,754 3,199 5,176

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Ratio Analysis 2014A 2015F 2016F 2017F 2018F 2019FValuation Ratios EV to EBIT 32 20 16 12 10 8 EV to EBITDA 27 18 14 11 9 7

Profitability Ratios Gross Margin (ex. Dep) 47.7% 47.6% 47.6% 47.6% 47.6% 47.6% EBITDA Margin 22.6% 27.8% 28.1% 28.5% 28.9% 29.2% Operating Margin 19.0% 25.2% 25.6% 26.2% 26.7% 27.1% Profit Margin 25.5% 25.1% 23.4% 22.3% 24.3% 23.0% Return on Avg. Assets 0.1 0.2 0.2 0.2 0.3 0.3 Return on Avg. Equity 0.2 0.3 0.3 0.3 0.4 0.4

Leverage Ratios Interest Coverage Ratio (EBIT/I) 4.9 4.6 5.8 7.0 8.8 10.9 EBITDA / (I + Cap Ex) 2.4 3.1 3.4 3.8 4.6 6.0 Tot Debt/Capital 0.4 0.3 0.2 0.2 0.1 0.1 Tot Debt/Equity 70% 53% 33% 33% 16% 16%

Liquidity Ratios Asset Turnover 0.5 0.7 0.8 0.8 1.0 1.1 Accounts Receivable Turnover 14.2 7.5 6.1 8.2 7.1 7.0 Accounts Payable Turnover 23.8 23.8 23.8 23.8 23.8 23.8 Inventory Turnover 14.4 14.3 14.3 14.3 14.3 14.3 Current Ratio 1.3 2.0 1.8 2.1 2.9 3.3 Quick Ratio 1.2 1.7 1.6 1.8 2.4 2.8

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GUIDE TO RATINGS DEFINITION

VPBank Securities (VPBS) uses the following ratings system: Buy: Expected return, including dividends, over the next 12 months is greater than 15%. Hold: Expected return, including dividends, over the next 12 months is from -10% to +15%. Sell: Expected return, including dividends, over the next 12 months is below -10%. CONTACT INFORMATION

For further information regarding this report, please contact the following members of the VPBS research department:

Barry David Weisblatt Head of Research [email protected] Ngo Thu Ba Senior Research Analyst [email protected]

Chu Le Anh Ngoc Research Assistant [email protected]

Lê Thi Dieu Linh Research Assistant [email protected]

For any questions regarding your account, please contact the following:

Marc Djandji, CFA Head of Institutional Sales and Brokerage & Foreign Individuals [email protected] +848 3823 8608 Ext: 158 Ly Dac Dung Head of Retail Sales and Brokerage [email protected] +844 3974 3655 Ext: 335

Vo Van Phuong Director of Retail Sales and Brokerage Nguyen Chi Thanh 1 - Ho Chi Minh City [email protected] +848 6296 4210 Ext: 130

Domalux Director of Retail Sales and Brokerage Nguyen Chi Thanh 2 - Ho Chi Minh City [email protected] +848 6296 4210 Ext: 128

Tran Duc Vinh Director of Retail Sales and Brokerage Lang Ha - Ha Noi [email protected] +844 3835 6688 Ext: 369

Nguyen Danh Vinh Associate Director of Retail Sales and Brokerage Le Lai - Ho Chi Minh City [email protected] +848 3823 8608 Ext: 146

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