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The Vietnam stock market report 05-02-2012

Vietnam stock market daily: Laggards such as VIC; DPM & FPT made some gains while rubber & some other cyclical stocks did well also. KBC targets (1) base-case with sales of VND1,000 billion and NPAT of VND200 billion (2) best-case with VND1,500 billion – 2,000 billion and NPAT of VND500 billion – 700 billion in FY2012.

The markets’ early gains failed to hold and we closed slightly lower although volumes were high. Market breadth narrowed although foreigners were far more active and net buyers by some margin. High beta sectors saw further profit taking across the board today with brokers; banks and many real estate stocks falling back. Meanwhile laggards such as VIC; DPM & FPT made some gains while rubber & some other cyclical stocks did well also.

The AGM season is still continuing and we attended the KBC AGM recently. KBC held its AGM last Friday and here are our notes. KBC posted audited FY2011 sales of VND633 (-30.6% y/y) and NPAT of VND77.8 billion (-93% y/y). This year, the company targets (1) base-case with sales of VND1,000 billion and NPAT of VND200 billion (2) best-case with VND1,500 billion – 2,000 billion and NPAT of VND500 billion – 700 billion. The company expects Wintek, the touch-screen producer and current tenant of 18ha in Quang Chau, to lease another 100ha; and a potential tenant to lease a considerable area.

Although this sounds promising, HSC would like to await for more concrete evidence of these leads before adjusting our own forecasts. Currently then we still forecast FY2012 sales of VND699 (+6% y/y) billion and NPAT of VND118 billion (+53% y/y). KBC also plan to issue 20 million shares this year through private replacement. Based on this plan and our current earnings forecast, we estimate EPS of VND180, P/E is 89.08xs and BVPS is VND15,603 and P/B is 1.03xs.

DPM AGM last Friday finally put an end to a very long saga by approving the purchase of a 51% stake in the Ca Mau fertilizer plant (DCM) project. PVN and its subsidiaries were not allowed to vote so about 78 million shares owned by minority shareholders voted on the deal, 88.8% agreed, 5.1% disputed while 6.1% had no opinion. Under this deal DPM will pay a total of VND2.5 trillion over two years, VND1,877 billion or 75% of the deal in FY2012, and VND626 billion or 25% of the deal in 2013, to enter into a BBC contract with PVN. Details of the BCC was not finalized but DPM said that revenue and expenses of the DCM will be consolidated into DPM’s income statement while net profit of DCM will be distributed in accordance with capital contribution.

Perhaps given DPM’s aggressive campaign before the AGM and its comprehensive presentation about the project during the meeting itself, the proposal was passed easily in the end. The issues that excited more attention during the AGM was DPM’s habitual low-balled targets. DPM submitted a FY2012 target of VND13.9 trillion for sales (+50% y/y thanks to the contribution from DCM’s output) and VND1,764 billion (-43.8% y/y) for NPAT even though in Q1/2012 the company had made a NPAT of VND961.26 billion (+69.1% y/y), completing 52% of the full year target.

Despite shareholders’ request for the company to revise up its FY2012 target, DPM’s management insisted on keeping the same target with the reasoning that domestic urea prices may fall due to oversupply from DCM & the Ninh Binh plant output. Finally, the AGM voted for the BOM target without any adjustment. DPM’s AGM also voted for a cash dividend of VND2,500 for 2011 payable soon after the AGM and VND2,500 for 2012, paying sometime in late 2012 or early 2013. So in total, DPM’s shareholder will receive VND5,000 in cash dividend over 1 year or so, implying a dividend yield of 13.5%.

In Q1 FY2012, VNM net sales was posted at VND5,984 billion, up 29.6% y/y. Of which volumes increased by 19.8% y/y and average selling price increased by 8.2% y/y. On 23rd January the company raised selling price for most product categories. Gross margin was reported at 30.6%, equal to the FY2011 full year gross margin. Higher ASP was fully offset by higher COGS due to higher raw material prices. The price of raw fresh milk surged 30% y/y although the price of raw milk powder has been flat for months. We estimate that raw fresh milk cost accounts for 20% of raw material cost and 19% of COGS.

Net financial income came at VND133 billion, up strongly 295% y/y mainly due to the VND39.5 billion in provision reversal related to financial investments. As at end of Q1, short term and long term equity investments came at VND107 billion and VND313 billion respectively. Meanwhile cost savings helped VNM to reduce SG&A expense. In Q1, SG&A expense as a % of sales was 9%, down from last year’s level of 10.5% while in Q1 FY2011 it came to 9.5% y/y.

For FY2012 we forecast VNM net sales at VND26,517 billion, up 22.6% y/y and net profit at 4,754 billion, up 12.7% y/y. VNM is trading at reasonable valuation of 11x forward P/E. We reiterate Outperform rating for VNM.

Fiachra Mac Cana

Ho Chi Minh Securities


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