PHUOC HOA RUBBER JSC., - TVS · Industrial Park (IP) developer and transfer IP-used land. PHR...
Transcript of PHUOC HOA RUBBER JSC., - TVS · Industrial Park (IP) developer and transfer IP-used land. PHR...
PHUOC HOA RUBBER JSC., Unlock Land’s Value
BUY – 26% Potential Upside
My Tran, Associate [email protected]
Target price 12-month price target: VND 51,800 Expected 12-month dividend: VND 4,000
Trading Data and Key Metrics Ticker PHR
Sector Natural Rubber
Listed since August, 2009
Price as of Sep 28th, 2017 41,000
52-week range (VND’000) 16.8/43,000
Shares outstanding (mn) 81.3
Free Float (mn) 22.54
15-day average volume 475,936
2016 P/BV (x) 0.9
2016 P/E (x) 11.4
Dividend yield 9.3
Debt to Equity (x) 0.61
Source: Bloomberg, TVS Research
Price Performance Chart
Source: Bloomberg, TVS Research
Company Description Phuoc Hoa Rubber Jsc (PHR – HSX) is the top
nationally planting and exploiting natural rubber
which belongs to Vietnam Rubber Group. The
company was established in 1982, in which, its
main business is involved in exploiting rubber
products and developing industrial parks. The
company currently owns 15,277 ha rubber land,
in which, 8,600 planted land and three factories
with a total capacity of 27,000 tons/year. The
main export markets are Japan, China, Taiwan,
European countries and the US. Besides, PHR’s
key competitiveness lies in its large land bank.
The company also has advantageous location in
Southeast provinces of Vietnam which helps
plant rubber trees as well as develop IP in Binh
Duong province.
0
1000
2000
3000
0
20
40
60
8/1
8/20
09
8/1
8/20
10
8/1
8/20
11
8/1
8/20
12
8/1
8/20
13
8/1
8/20
14
8/1
8/20
15
8/1
8/20
16
8/1
8/20
17
Price ('000 VND)
Volume ('000 shares)
Equity Update| September 29, 2017
Thien Viet Securities JSC (TVS) does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict
of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Please see more important
disclosures in the last pages.
We issue our BUY rating for Phuoc Hoa Rubber JSC. (HSX-PHR) with a 12-month target price of VND
51,800 (+26% upside before dividend yield) based on the following key points:
1H2017 strong performance. In 1H2017, PHR posted a robust growth thanks to a strong recovery of
natural rubber (NR) price. Particularly, revenue and net profit increased by 58.6% and 105.2% YoY,
reaching at VND 657.7bn and VND 140.4bn, respectively. This strong performance is attributed to a
strong NR price in early-2017. Rubber segment’s gross profit margin also remained high, at 22.6%,
compared with 8.7% in 1H2016.
Our 2017-2018 Investment thesis are the below followings:
(1) Increased NR price and newly-planted trees at Cambodia boosts 2017 earnings. We expect the NR
price go up when seeing the fundamentals improve with: (i) higher demand from automaker
markets, especially China, Japan and EU market; (ii) 10-15% output cut by ANRPC and (iii) short-
term supply deficit. In our model, we project NR price will increase by 30% in 2017, equivalent to
VND 41mn/ton, higher than PHR’s guide of VND 35mn/ton and increase slightly in coming years. In
addition, PHR has also expanded its business in Cambodia with total 9,184 ha, in which 1,500 ha
falls in tapping period (planted in 2008), yielding 0.6-0.7 ton/ha. From 2018-2020, the newly-
exploited land in Cambodia is projected to increase by 1,500-2,000 ha/year and will reach the
highest yield in 2019-2020.
(2) Expected huge non-recurring income adds to bottom line.
Rubber-tree liquidation. We expect PHR would receive a steady income, around VND 140-
150bn/year from rubber tree liquidation. From early-2017 to August 2017, PHR liquidated total
1,040 ha with an average price of VND250-300mn/ha, translating into a revenue of VND 250-
300bn in 2017, of which VND 100bn recorded in 1H2017. We expect the price of rubber tree
liquidation stays at VND300 mn/ha till late-2017, 76% higher than in late-2016, thanks to NR
rubber’s price, natural forest closure and limited IP-used land.
Industrial Park (IP) developer and transfer IP-used land. PHR currently invests in Tan Binh IP
JSC., and Nam Tan Uyen IP JSC., and co-operates with VSIP (Vietnam Singapore Industrial Park).
Particularly, PHR disclosed that the company will transfer 300 ha to VSIP in 2017 and 391 ha in
2018. The revenue from transfer land will be allocated in 2017-2019. For the 300-ha transfer
land profit, PHR will book 50% in 4Q2017 and the remaining in 1Q2018. With plan of transfer
2,037 IP-used land ha during 2017-2020 period, we believe it will unlock the PHR’s intrinsic
value.
NTC’s divestment delivers the one-off profit for PHR. In 3Q2017, PHR and VRG have agreed to
divest PHR-owned NTC. PHR made known that his investment cost ranges around VND 56-59bn.
Based on current NTC’s market price of VND60-70,000/share, we expect that PHR could gain
around VND 250-310bn. This divestment is expected to occur in 2018 after VRG’s IPO, which
will happen in late-2017 and early-2018.
Valuation. We rate BUY for PHR with a 12-month target price of VND 51,800 – a 26% potential upside,
using a blended of DDM, FCFF and P/E methods. We expect 2017F dividend to be VND 4,000, higher
than planned cash dividend payment of VND 1,500 as PHR will enjoy strong cash flow without
significant capital expenditure.
Key investment risks. (1) A downside risk in natural rubber price, (2) Delay in booking non-core
businesses’ profit, and (3) Economy slowdown.
Please visit TVS Research on Bloomberg at <TVSJ> GO
PHUOC HOA RUBBER JSC (PHR-HSX) | Equity Update 2
SUMMARY FINANCIALS Earning Model (VNDbn) 2015A 2016A 2017F 2018F Balance Sheet (VNDbn) 2015A 2016A 2017F 2018F Net sales 1,227 1,178 1,541 1,698 Cash and equivalents 401 293 371 507 Cost of sales 1,058 1,018 1,277 1,390 Financial investment 201 532 532 532 Gross profit 169 161 264 308 Accounts receivable 107 160 170 187 Selling expenses 24 18 26 29 Inventory 148 177 230 250 General administration expenses 67 61 77 87 Prepaid expenses, other CA 33 31 33 34 Other operating income/(expenses) 73 77 51 170 Total current assets 890 1,194 1,335 1,510 EBITDA 124 127 177 212 Depreciation & Amortization 45 49 17 19 Net Property and equipment 2,047 2,204 2,197 2,168 EBIT 79 78 161 192 Net intangibles 0 0 0 0 Net interest income/(expenses) 38 56 16 139 Total investment 212 249 276 306 Net investment income 40 24 27 30 Other long - term assets 77 161 169 177 Others (recurring) 105 101 438 607 Total Assets 3,226 3,808 3,978 4,161 Pretax Profit 261 262 641 968 Income tax 46 33 128 194 Account Payables 301 288 370 403 Tax rate (%) 19% 23% 20% 20% Short-term debt 360 603 579 461 Minorities 3 3 3 4 Net Income 212 225 510 771 Total Current Liabilities 779 1,016 1,075 989 EPS (basic, reported) 2,083 2,219 5,016 7,584 Weighted shares outstanding (mn) 81.3 81.3 81.3 81.3 Long-term debt 254 232 193 153 Other long-term liabilities 74 317 333 349 Common dividends declared 20% 18% 40% 40% Total long-term liabilities 329 549 525 502 DPS (VND) 2,000 1,800 4,000 4,000 Dividend Payout ratio (%) 96% 81% 80% 53% Stockholders' equity 2,135 2,236 2,319 2,610 Common Equity 815 813 813 813 Treasury shares (97) (97) (97) (97) Growth and Margin (%) Capital surplus Sales Growth (%) -23.5% -4.0% 30.8% 10.2% Retained earnings 314 377 434 687 EBITDA Growth (%) N/A 2.8% 39.6% 19.4% Budget sources and other funds 982 1,029 1,054 1,093 EBIT Growth (%) -48.8% -0.6% 199% 1198% Minority interest 58 59 59 59 Net Income Growth (%) -19.4% 3.8% 124.% 50.9% Total liabilities and equity 3,226 3,808 3,978 4,161 EPS Growth (%) -19.8% 3.9% 1261% 51.2% Gross Margin (%) 13.8% 13.4% 17.1% 18.1%
EBITDA Margin (%) 10.1% 10.8% 11.5% 12.5% EBIT Margin (%) 6.4% 6.6% 10.4% 11.3% Ratios Net Income Margin (%) 17.5% 18.9% 33.1% 45.4% ROE (%) 9.8% 9.7% 22.0% 29.5% ROA (%) 6.4% 6.2% 13.1% 18.9% Cash flow Statements (VNDbn) 2015A 2016A 2017F 2018F ROIC (%) 6.4% 16.1% 5.4% 6.5% Pretax profit 261 260 641 968 Inventory days 62.7 58.4 58.2 63.0 Adjustments for: 61 (114) - - Receivable days 32.0 41.4 39.0 38.3 Depreciation and amortization (9) (9) 17 19 Payable days 89.3 105.5 94.0 101.6 Change in inventories (67) 29 53 20 Asset Turnover (x) 0.4 0.3 0.4 0.4 Change in trade receivables (29) 51 9 17 Debt/equity (x) 35.5% 44.2% 69% 57% Change in trade payables 84 (17) 83 33 Other operating cash flow
Cash flow from operations 244 265 549 787 Net Capital expenditure 44 (139) (94) (211) Valuation (Multiples) Change in Financial investment 253 (368) 27 30 EV / EBITDA (x) 10.5 16.2 N/a N/a Divestures 4 5 0 0 P/E (x) 8 11.4 8.6 5.7 Other investments, net (313) 35 - - Dividend Yield (%) 13% 7% 9.3% 9.3% Cash flow from investing (11) (467) (67) (181) P/B (x) 0.6 0.9 1.5 1.3
Equity issued - - - -
Net borrowings (134) 221 16 (78)
Dividends to shareholders (164) (141) (423) (393)
Cash flow from financing (298) 80 (407) (471)
Net cash flow (64) (122) 75 135
Opening cash 465 415 296 371 Notes: CA = current assets; CL = current liabilities Closing cash 403 296 371 507 Source: TVS model and forecast
Please visit TVS Research on Bloomberg at <TVSJ> GO
PHUOC HOA RUBBER JSC (PHR-HSX) | Equity Update 3
2016 & 1H2017 BUSINESS PERFORMANCE
2016 - Weak core earnings partially compensated by non-core one.
In 2016, PHR recorded a VND 1,178bn (-4.0% YoY) in revenue and VND 220bn (+14.7% YoY) in
net profit, exceeding 11.78% and 60.93% of yearly target plan, respectively. This translates into
an EPS of VND 2,219. Gross profit remained low at 13.4% as NR price hit a 20-year low in 2016.
Revenue and gross profit from core activity contributed 82% and 63%, respectively, to its total
business. However, non-core profits (accounting for c.80% of parent’s profit before tax) from
rubber tree liquidation (VND 143.8bn) and transfer land (VND 106.4bn) for Nam Tan Uyen
Industrial Park JSC., (NTC – UPCoM) and Tan Binh Industrial Park Jsc., made PHR outperform
peers.
1H2017 strong performance attributed to NR price recovery
In 1H2017, PHR posted a robust growth thanks to a strong recovery of NR price. Particularly,
revenue and net profit increased by 58.6% and 105.2% YoY, reaching at VND 657.7bn and VND
140.4bn, respectively. This strong performance is due to a surge in NR price in early-2017.
Regarding rubber segment, average selling price and COGS reached at VND 45mn/ton and VND
35mn/ton, respectively. Rubber revenue accounted for 74% in revenue (VND 489bn, +55% YoY)
and 88% in gross profit (VND 27.5bn, +303% YoY). The core segment’s gross profit margin also
remained high, at 22.6%, compared with 8.7% in 1H2016.
Figure 1: Sales breakdown by segments (1H2017) (VND bn)
Figure 2: Gross profit breakdown by segments (1H2017) (VND bn)
Source: PHR, TVS Source: PHR, TVS
In 7M2017, the company continued to post a record-high profit, reaching at VND 607.34bn
(+53% YoY) in revenue and VND 221.20bn (+201.7% YoY) in before-tax profit (PBT). Sales
volume increased by 5.8% with an average price of VND 42.96mn/ton, up 45.2% YoY.
Outsourcing volume has increased significantly as the company wants to keep inventory for
late-2017 demand. In 7M2017, the company also completed liquidating 1,000 ha of rubber tree
with an average price of VND 250-300mn/ha, translating into a liquidation revenue of VND 250-
300bn in 2017. The company, however, only recorded VND 100bn in 1H2017, implying that the
remaining will be booked in 2H2017.
0
100
200
300
400
500
600
700
Rubber Wood Others Total
1H2017 1H2016
0
50
100
150
Rubber Wood Others Total
1H2017 1H2016
Gross profit remained low in
2016 as NR price hit a 20-year
low. Non-core profit, however,
makes PHR outperform peers.
A surge in NR price in early-2017
secured PHR’s 1H2017 strong
performance.
We expect large profit from tree
liquidation booked in 2H2017.
Please visit TVS Research on Bloomberg at <TVSJ> GO
PHUOC HOA RUBBER JSC (PHR-HSX) | Equity Update 4
Figure 3: Global NR price (USD/kg) and PHR’s selling price (VNDmn/ton)
Source: PHR, TVS Research
43
2.4
0
1
2
3
4
5
0
20
40
60
80
100PHR's selling price NR price
Please visit TVS Research on Bloomberg at <TVSJ> GO
PHUOC HOA RUBBER JSC (PHR-HSX) | Equity Update 5
INVESTMENT THESIS
Increased NR price and newly-planted trees at Cambodia boosts earnings.
Core business – Tracking with global rubber prices
Rubber segment takes lion share of PHR’s total earnings, equivalent to 58% profit before tax in
1H2017. We believe that with current expansion plan in Cambodia, PHR could capture ample
profit from the upward trend of NR price. The downside risk of rubber price, however, could
hurt its total earnings due to strong correlated with global NR price. We see high correlation
between PHR’s core profit and NR price (See more in Figure 4).
Figure 4: NR price and PHR’s rubber gross profit
Source: PHR, TVS Research
Although NR price has slowed down recent times, we expect that NR price will go up due to:
Higher demand thanks to the recovery of Chinese auto market. After a recovery in
June, Chinese passenger-car sales have continued to accelerate in July-August, 2017,
5.3% higher than in August, 2016. China is the world’s largest rubber consumer, mostly
for car tires production, constituting c.40% of total world rubber consumption. Thus,
bright outlook in Chinese auto market has been raising hopes for the growth
momentum of NR price after a dip recently. Other auto markets, like EU and Japan,
also delivered a high growth in 8M2017’s sales volume, accelerating 5% and 8.1%,
respectively.
Short-term supply deficit supports NR price bounce back in 3Q2017. The world
rubber consumption of NR reached at 8.54 mn tons, where supply deficits over
500,000 tons in 8M2017. As the result, NR price has recently bounced back after a dip
in June, reaching around JPY220-230/kg in September, 2017.
Alliance power play important role in NR price movement. In August, 2017, Thailand,
Indonesia and Malaysia, which are the key member of ANRPC*, considered to increase
rubber price to support rubber farmers by cutting rubber output from 10% to 15%.
0.00
1.00
2.00
3.00
4.00
5.00
6.00
0%
5%
10%
15%
20%
25%
30%
35%
40%
45% GPM Natural Rubber price
The upward trend of NR price
could lift PHR’s profit.
Supply-demand, alliance
power and weather condition
play important role in NR
price’s movement. And we
expect the price will go up.
Please visit TVS Research on Bloomberg at <TVSJ> GO
PHUOC HOA RUBBER JSC (PHR-HSX) | Equity Update 6
Weather condition could positively affect short-term NR price’s movement.
September-January is the peak season in rubber harvest times. However, rainfall could
lower rubber yield as well as rubber exploitation volume. This could support for NR
price trend in late-2017.
*ANRPC (Association of Natural Rubber Producing Countries) has 11 members, including
Cambodia, China, India, Indonesia, Malaysia, Papua New Guinea, Philippines, Singapore, Sri
Lanka, Thailand and Vietnam. This group accounted for 90% of global rubber production.
In Vietnam Rubber Group, PHR ranked the top 5 in the planted rubber land with a total 15,277
ha in Vietnam and 8,632 ha in tapping period. Each year, the company taps around 16,000-
18,000 tons of rubber and outsource 11,000-14,000 tons of rubber from Rubber Farmers in
Southeast region. Thanks to its advantageous location in Southeast region, the company could
flexibly collect from the farmer to utilize its operating capacity of 27,000 tons/year. Moreover,
the company has also expanded its business in Cambodia with total 9,184 ha, in which 1,500 ha
falls in tapping period (planted in 2008), with an average yield of 0.6-0.7 ton/ha. From 2018-
2020, the newly-exploited land in Cambodia is projected to increase by 1,500-2,000 ha/year
and will reach the highest yield in 2019-2020, thus offset the decreasing land in Binh Duong
province due to industrial park expansion (See more in figure 6).
Figure 5: Vietnam Rubber Group’s subsidiaries (2016)
PHR DPR TRC Dau Tieng Dong Nai Phu Rieng Loc Ninh VRG
Key Indicators Binh Duong Binh Phuoc Tay Ninh Binh Duong Dong Nai Binh Phuoc Binh Phuoc
Revenue (VNDbn) 1,178 854 402 982 1,297 1,369 730 20,720
PBT (VNDbn) 260 189 77 375 315 116 3,227
Total area (ha) 24,461 16,583 13,600 - 34,234 18,850 15,859 300,000
Parent 15,277 10,083 6,000 - 34,234 18,850 10,800 -
Cambodia* 9,184 6,500 7,600 - - - 5,059 -
Tapping area (ha) 16,294 13,228 4,718 16,035 18,351 11,504 10,250 253,300
Parent 8,632 7,135 4,718 16,035 18,351 11,504 7,000 -
Cambodia* 7,662 6,093 - - - - 3,250 -
In-house volume (tons) 16,400 14,476 9,050 26,212 24,316 26,000 - -
Outsourcing volume (tons) 14,000 2,610 711 12,930 5,936 9,000 - -
Consumption volume (tons) 30,874 17,232 10,639 39,143 30,252 35,541 12,238 -
Source: PHR, TVS Research
Figure 6: Cambodia’s exploiting plan
Planting year Area (ha) 2016 2017 2018 2019 2020
Expected exploited volume (tons)
2009 503.45 503.45
2010 2,023.96 1,000 1,024
2011 2,544.40 1,000 1,544.4
2012 2,278.00 1,000 1,278
2013 239.39 239.39
2014 75.08
Sum 7,664.28 503.45 1,000.00 2,023.96 2,544.40 1,517.39
Source: PHR, TVS Research
The increase in Cambodia’s
newly-exploited land offsets
the decreasing land in Binh
Duong province.
Please visit TVS Research on Bloomberg at <TVSJ> GO
PHUOC HOA RUBBER JSC (PHR-HSX) | Equity Update 7
Ample income from non-core businesses
More Steady Revenue Coming From rubber tree liquidation
Along with a strong performance in rubber segment, rubber tree liquidation has proven as an
attractive segments. PHR owns an old-tree profile, with average age of 16-24 year old
compared with younger tree structure like DPR and TRC. Thus, the company would receive a
steady income, around VND 140-150bn/year from rubber tree liquidation. According to VRG,
rubber wood contributed c.32% of total export value of USD 4.85bn (+16.4% H-o-H).
Figure 7: Revenue from liquidating rubber tree
Source: PHR, TVS Research
From early-2017 to August 2017, PHR liquidated total 1,040 ha and expects to liquidate more
500 ha in 4Q2017. Thanks to a rising rubber price, natural forest closure and FDI attractions,
rubber wood tree’s price has experienced a rapid growth this year. In September, rubber wood
liquidation is traded at VND 300mn/ha, 76% higher than in late-2016. We expect that rubber
wood liquidation price could continue their upward trend in the rest 2017
Extraordinary profit thanks to transferring land to IP developers
Owning the favorable geographic location, PHR has more advantages as an IP developer apart
from NR exploiter. PHR currently invests in Tan Binh IP JSC., and Nam Tan Uyen IP JSC., and co-
operates with VSIP (Vietnam Singapore Industrial Park), which are three well-known IP
developers.
Tan Binh IP JSC.,: total area of 352 ha and commercial land is 244 ha with current
occupancy rate of 60% and current land rental of USD 54-55/sqm. The company plans
to expand further 1,000 ha in 2018.
0
20
40
60
80
100
120
140
160
180
200
2009 2010 2011 2012 2013 2014 2015 2016 1H2017
Liquidating rubber tree adds
more steady revenue around
VND 140-150bn per year.
VND140-150 bn/year
The company planned to
transfer 2,037 ha for IP
developers during 2017-2020
period. We expect PHR can
recognize extra-profit from
transferring land to VSIP
during 2017-2018.
Please visit TVS Research on Bloomberg at <TVSJ> GO
PHUOC HOA RUBBER JSC (PHR-HSX) | Equity Update 8
Nam Tan Uyen IP JSC.,: total area of 620 ha and commercial land is 429 ha with current
occupancy rate of 90-100% and current land rental of USD50-60/sqm. NTC plans to
expand further 346 ha (commercial land of 256ha) in Q42017.
VSIP: PHR disclosed that the company will transfer 300 ha to VSIP in 2017 and 391 ha
in 2018. The revenue from transfer land will be allocated in 2017-2019. For the 300-
ha transfer land profit, PHR will book 50% in 4Q2017 and the remaining in 1Q2018.
Figure 8: PHR’s planned transfer land
Company Type of Investment %Ownership Acreage (ha) Land transfer price (VND mn/ha)
Time
Tan Binh IP JSC., Subsidiary 80% 1,000 N/a 2016-2020
Nam Tan Uyen IP JSC., Investment associates 32.85% 346 925* 2017-2020
VSIP Co-operation 691 1,000 2017-2018
Source: PHR, TVS Research, *current price
NTC’s divestment delivers the one-off profit for PHR
In 3Q2017, PHR and VRG have agreed to divest the PHR’s stake in NTC. The company made
known that their investment cost ranges around VND 56-59 bn. Based on current NTC’s market
price of VND60-70,000/share, we expect that PHR could gain around VND 250-310bn. This
divestment is expected to occur in 2018 after VRG’s IPO, which will happen in late-2017 and
early-2018.
Favorable geographic location
PHR is one of the largest NR exploiter in Vietnam Rubber Group. The company has the
advantageous location in Southeast provinces of Vietnam where the weather condition is
favorable for planting and tapping NR trees. The company locates in the central of Binh Duong
Province where is well-known for FDI investors. The province remains attractive to foreign
investors, following by Ho Chi Minh City, ranked the 2nd place with total FDI investment of USD
29bn in 8M2017. Therefore, the favorable natural location gives PHR advantages to position
itself as an Industrial park developer, besides its traditional business.
Favorable geographic location
gives PHR advantages to
position itself as an industrial
park developer and rubber
exploiter.
Please visit TVS Research on Bloomberg at <TVSJ> GO
PHUOC HOA RUBBER JSC (PHR-HSX) | Equity Update 9
Figure 9: PHR’s location
Source: Google Map, TVS Research
Please visit TVS Research on Bloomberg at <TVSJ> GO
PHUOC HOA RUBBER JSC (PHR-HSX) | Equity Update 10
OUTLOOK and VALUATION
2017 and 2018 Outlook
In 2017, we expect that PHR sell around 29,450 tons, of which 15,450 tons is outsourced, with
an average yield of 1.9 tons/ha. Cambodia’s exploitation volume will be at 900 tons with a lower
yield of 0.6 tons/ha. The average rubber price is expected to be VND 41mn/ton, up 30% YoY. In
2017, we project that PHR’s revenue and profit after tax will reach VND 1,541bn (+30.8% YoY)
and VND 510bn (+126.1% YoY), respectively. This translates into an EPS of VND 5,016. With
strong performance, we expect the company could rise its cash dividend payment to 35-40% in
2017 instead of 15% as per management’s guide.
For 2018 forecast, we expect that rubber price could increase slightly due to its fundamental
support. However, rubber volume from in-house exploitation and consumption could be lower
due to liquidation and transfer land activities, reaching at 14,500 tons and 27,500 tons,
respectively. PHR’s net revenue and NPAT is projected to increase by 10.2% and 51.2% YoY,
equivalent to EPS of VND 7,584. 2018 P/E forward will be 5.41x, lower than the average P/E of
8.6x in domestic natural rubber sector.
We value PHR using a blended of FCFF, PE and DDM methods. Our 12-month target price is
VND 51,800/share.
Figure 10: Valuation summary
Method Price (VND) Weight (%)
DDM 45,298 30%
FCFF 40,242 30%
PE 65,225 40%
Target price (VND) 51,766 100%
Source: TVS Research
For DDM model, we expect PHR can pay dividend of VND 4,000 per share until 2021 as we are
bullish on the business cash flow without significant capital expenditure.
Figure 11: DDM-based method
VND unless otherwise stated 2017 2018 2019 2020 2021
Cash Dividend 4,000 4,000 4,000 4,000 4,000
Cost of Equity (%) 10.33%
Present Value of Cash Dividend 3,897 3,532 3,201 2,902 2,630
Cumulative Present Value of DDM 16,162
Growth rate (%) 1.2%
Terminal Value (VND) 44,312
Discount Factor 0.66
PV of Terminal Value 29,136
Implied Price per Share 45,298
Source: TVS Research
Our blended model arrives fair
value of VND 51,800 per share,
26% potential upside before
dividend yield.
Please visit TVS Research on Bloomberg at <TVSJ> GO
PHUOC HOA RUBBER JSC (PHR-HSX) | Equity Update 11
Figure 12: FCFF-based method
VNDbn unless otherwise stated 2017 2018 2019 2020 2021
FCFF 437 436 361 365 438
WACC (%) 7.92%
Present Value of FCFF 428 396 304 284 317
Cumulative Present Value of FCFF 1,729
Terminal Value 3,289
Discount Factor 0.72
Present Value of Terminal Value 2,378
Total FCFF 4,107
Less: Total Debt
835
Implied Equity Value 3,272
Number of shares (mn)
81
Price per Share (VND)
40,242
Source: TVS Research
Figure 13: Peer comparison
No. Ticker Company ROE P/E
1 DPR Dong Phu Rubber JSC., 11.63% 9.3
2 TRC Tay Ninh Rubber JSC., 5.08% 7
Average P/E 8.6
Source: TVS Research
Downside risks to our model are:
(1) Commodity price risk. Decline in natural rubber price could undermine PHR’s future
earnings.
(2) Delay in transferred-land’s profit recognition. Currently PHR do not disclose the non-core
business recognition practices that raises our concerns about quarterly earnings volatility.
(3) Economy slowdown. Domestic GDP growth slows could lead to a decline in FDI flows,
which negatively affected industrial park and wood segments.
Please visit TVS Research on Bloomberg at <TVSJ> GO
PHUOC HOA RUBBER JSC (PHR-HSX) | Equity Update 12
ANALYST CERTIFICATION
I, My Tran, hereby certify that all of the views expressed in this report accurately reflect my personal views about the subject company or companies or its or their securities. I also certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.
RATING and VIEWS Buy (B), Neutral (N), Sell (S) – Analysts recommend stocks as Buys or Sell based on his own views. Being assigned a Buy or Sell is determined by as total stock’s return (TSR) potential that represents the price differentials between the current share price and the price target expected during the time horizon plus expected dividend yield. Any stock not assigned as Buy or Sell is deemed Neutral.
TVS Investment Research: Equity Rating Definitions 12-month rating Definition Buy Total Stock’s Return Potential > 15% Neutral Total Stock’s Return Potential between (-15%) and 15% Sell Total Stock’s Return Potential < (-15%) Short-term rating Definition Buy Stock price expected to rise within three-month because of a specific catalyst or event Sell Stock price expected to fall within three-month because of a specific catalyst or event Not-rated The investment rating and target price, if any, suspended as there is not a sufficient fundamental
basis for determining an investment rating or target.
DISCLAIMER Copyright©2017 Thien Viet Securities JSC (TVS). ALL RIGHT RESERVED. This research report is prepared for the use of TVS clients and may not be redistributed, retransmitted or disclosed as a whole or partially in any form or manner without the prior written consent of TVS. The information herein is obtained from various sources and TVS does not guarantee its accuracy. Neither the information nor any opinions expressed in this publication constitutes a buy or sell recommendation on any securities or investment. TVS therefore does not take any responsibilities for any investor’s decisions.
THIEN VIET SECURITIES JOINT-STOCK COMPANY HO CHI MINH 63A Vo Van Tan St, District 3 Floor 9, Bitexco Nam Long Building Tel: +84 (8) 299 2099 | Fax: +84 (8) 299 2088
HA NOI 22 Lang Ha, Dong Da TDL Building Tel: +84 (4) 220 3228 | Fax: +84 (4) 220 3227
RESEARCH DEPARTMENT
Duy Nguyen (Mr.), Manager Equity Capital Market [email protected]
Son Nguyen (Mr.), Senior Analyst Real Estate [email protected]
Trung Dong (Mr.), Associate Consumer Goods [email protected]
My Tran (Ms.), Associate Agribusiness [email protected]
Quang Luong (Mr.), Analyst Team Support [email protected]
INVESTMENT BANKING BROKERAGE DEPARTMENT