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2 TOPICS Country Overview.. 3 Declining - - PowerPoint PPT Presentation

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SSI INSTITUTIONAL SALES MARKET OUTLOOK December 2011 STRICTLY CONFIDENTIAL 2 TOPICS Country Overview.. 3 Declining Inflation .. 8

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SLIDE 1

SSI INSTITUTIONAL SALES

MARKET OUTLOOK

December 2011 STRICTLY CONFIDENTIAL

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SLIDE 2

SSI 2

TOPICS

 Country Overview………….……………………………….3  Declining Inflation…………………………………………..8  Prudent Monetary Policy to reduce Interest Rates……..13  Currency Reform to stabilize the VND…………..........…10  Vinashin………………………………….................................14  Long Term Outlook……...................................................17

Saigon Securities Inc., Institutional Sales

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SLIDE 3

SSI 3

COUNTRY OVERVIEW

 Macro Economic Improvements after WTO:

  • Strong Demographics: Young population (88 million+1million/year)/Urbanization
  • GDP = US$119 billion (2011E), GDP/Capita doubled since joining WTO (2006)
  • External Debts:US$49.3 billion* (42% of GDP), mainly low cost ODAs (US$30bn)
  • SBV Forex Reserves: US$15.2 billion**- Stable
  • Low Debt Service Ratio: *3.2% of Exports

(*Ref: MOF Sept 2011) (**Ref: ADB June 2011) Source: GSO, SSI

Saigon Securities Inc., Institutional Sales

3 3 4 8 12 10 11 9 2 4 8 20 64 23 19 11 0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 2004 2005 2006 2007 2008 2009 2010 YTD 10/11

FDI Disbursements (USD billion) FDI Commitments (USD billion)

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SLIDE 4

SSI 4

COUNTRY OVERVIEW

 Continued but declining Foreign Direct Investment Flows

  • YTD to Oct 2011, disbursed FDIs: +1% yoy (US$9.1bn), registered FDIs: -22% yoy

(US$11.27 bn in 861 projects)

  • Nike Vietnam: No 1 shoe manufacturer (37%), surpassing China (36%), since 2010.
  • First Solar Vietnam Manufacturing Co. Ltd (US$1 billion).
  • Jaks BOT 1,200 MW power plant in Hai Duong (US$2.26 billion).
  • Nestle to build $270 million Coffee Factory in Dong Nai, increase sourcing of coffee from

local farmers and produce Nescafe products for local and exports, starting in 2013.

Source: GSO, SSI

Saigon Securities Inc., Institutional Sales

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SLIDE 5

SSI 5

COUNTRY OVERVIEW

 Stable Political Regime and new young Cabinet:

  • 3.6 million members in Vietnam Communist Party (VCP)
  • 11th Party Congress (1400 delegates): held in Jan 2011 (every 5 years)
  • Central Committee (160 members) appointed at Congress
  • Politburo appointed by Central Committee (14 members- include 4 new)
  • General Secretary of VCP:
  • Mr. Nguyen Phu Trong
  • National Assembly (493 elected deputies): highest organ of law making power

appoints the President, the PM, Chief Justice, Supreme Inspector and the Cabinet

  • President of National Assembly: Mr. Nguyen Sinh Hung
  • President:
  • Mr. Truong Tan Sang
  • Prime Minister:
  • Mr. Nguyen Tan Dung
  • Cabinet: Deputy PMs, Ministers, SBV Governor, Commission Heads (21)

Source: www.Info.vn

Saigon Securities Inc., Institutional Sales

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SLIDE 6

SSI 6

MACRO OVERVIEW

 Economic Slowdown in 2011

  • Slow GDP Growth:

+5.8% actual (YTD Q3 2011)

  • Slow Retail Sales and Industrial Production
  • Slow Credit Growth(2011 Est.):

+12%(+10.2% in VND/+18.7% in FX); M2: +10%

Source: GSO, SSI, Citibank

Saigon Securities Inc., Institutional Sales 7.6% 8.4% 7.2% 7.8% 8.2% 7.9% 8.2% 8.5% 7.4% 6.5% 6.18% 3.14% 3.90% 4.62% 5.32% 6.16% 6.78% 5.60% 5.76%

2% 3% 4% 5% 6% 7% 8% 9% 10% 2Q054Q052Q064Q062Q074Q072Q084Q081Q094Q092Q104Q102Q11

Vietnam GDP Growth YoY

Real GDP Growth Annual %

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SLIDE 7

SSI 7

MACRO OVERVIEW

 Improved Trade Deficit and Balance of Payments

  • Improved Trade Deficit:
  • US$ 8.9 billion (YTD 11/2011, 10% less than last year)
  • Balance of Payment:

+US$3.1 billion (2010:-$3.1 billion; 2009:-US$8.8 billion)

  • Manageable Public Debts: US$56.4 billion (56% of GDP), of which 56% in ODAs

Source: GSO, SSI, Citibank

Saigon Securities Inc., Institutional Sales

5.5 4.6 4.8 12.4 17.5 12.2 12.4 10.0 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0 0.0 20.0 40.0 60.0 80.0 100.0 120.0 140.0 160.0 180.0 200.0

2004 2005 2006 2007 2008 2009 2010 2011E

Trade Deficit (USD bn) Imports and Exports Value (USD bn)

Trade Deficit

Exports (USD bn) Imports (USD bn) Trade Deficit (USD bn)

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SLIDE 8

SSI 8

DECLINING INFLATION

 CPI declined with lower Credit Growth

  • Headline CPI:17.5% up to November 2011 (19.4% y-o-y)
  • Core CPI: 13%

Main causes of High Inflation in 2011:

  • Food Inflation (40% of CPI): +22.8% yoy (up to Nov 2011)
  • Fragmented Farm Industry
  • Inefficient food distribution logistics
  • Capital shortage of farmers
  • 2011 One-time Events:
  • Currency Depreciation (+9%),
  • End of Fuel subsidies (+18%)
  • Electricity Rate Increase (+15%).
  • Results of Relaxed SBV Monetary Policy since 2006
  • Inefficient & still dominant State Sector (Low ICOR)

Source: GSO, Citibank, SSI

Saigon Securities Inc., Institutional Sales

6.6% 6.8% 7.8% 8.8% 12.6% 19.4% 26.8% 27.9% 19.9% 11.3% 3.9% 2.4% 6.5% 9.5% 8.7% 8.9% 11.7% 13.9% 19.8% 23.0% 19.4%

0% 5% 10% 15% 20% 25% 30%

CPI 12 months

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SLIDE 9

SSI 9

WHEN SBV WILL DRIVE INTEREST RATES DOWN ?

 Harsh Restrictive Monetary Policy in 2011:

  • SBV Policy Rates :
  • OMO Repo Rate:

14% (+400 bps since 2010)

  • Refinancing Rate:

15% (+500 bps)

  • Discount Rate:

13%

  • Base Rate:

9% SBV to drive down Policy Rates by 2% by Q2 2012

  • High Loan Rates:
  • VND Production Loans:

17-19%

  • VND Non-Production Loans:

25% and above

  • USD Loans:

8% and above

 Negative Impacts on Banking System in 2011:

  • Banks Cut Access to Credits: Loan Growth slowed
  • Rising NPLs in Banking Sector (to 5% by Year End)
  • Real Estate Bubble Burst, pulling down Prices
  • Shortage of Liquidity among small Banks, driving up

Interbank Money Market Interest Rates

Source: GSO, Citibank, SSI

Saigon Securities Inc., Institutional Sales

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SLIDE 10

SSI 10

CURRENCY POLICY REFORM

To stabilize the VND

  • Unofficial VND/USD FX Rate converged to Official FX Rate in March 2011
  • SBV reportedly sold USD 2.5 billion in 2011 to support the VND

Source: Reuters, December 9, 2011

Saigon Securities Inc., Institutional Sales

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SLIDE 11

SSI 11

2011 CURRENCY RETURN

VND/USD compared to other selected emerging market currencies

Source: Reuters, December 16, 2011

Saigon Securities Inc., Institutional Sales

CURRENCY RETURNS OF SELECTED CURRENCIES COMPARED TO VIETNAM DONG

Currency 2011 YTD Spot Currency Return % versus USD

South African Rand

  • 20.8%

Turkish Lira

  • 17.8%

Indian Rupee

  • 15.5%

Polish Zloty

  • 14.7%

Mexican Peso

  • 11.0%

Brazilian Real

  • 10.7%

Chilean Peso

  • 9.7%

Vietnam Dong

  • 7.2%

Argentina Peso

  • 7.1%

Czech Koruna

  • 4.3%

Thai Bhat

  • 4.1%

Russian Ruble

  • 3.9%

South Korean Won

  • 2.8%

Columbia Peso

  • 1.4%

Indomesian Rupiah

  • 0.7%

Philippine Peso

  • 0.2%

Venezuela Bolivar 0.0% Chinese Renminbi 4.0% Peruvian New Sol 4.1% Source: Bloomberg December 16, 2011

  • 25%
  • 20%
  • 15%
  • 10%
  • 5%

0% 5% 10%

South African Rand Turkish Lira Indian Rupee Polish Zloty Mexican Peso Brazilian Real Chilean Peso Vietnam Dong Argentina Peso Czech Koruna Thai Bhat Russian Ruble South Korean Won Columbia Peso Indomesian Rupiah Philippine Peso Venezuela Bolivar Chinese Renminbi Peruvian New Sol

2011 YTD Spot Currency Return % versus USD

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SLIDE 12

SSI 12

AUSTERE MONETARY & FISCAL POLICY

Government Resolution No 11 (February 24/2011)

 SBV Monetary Policy (Tightening then Prudent)

  • Directive No 1:
  • Reduce Credit Growth:

Max.+20%; M2: +16%

  • Non Production Credits:

Max 16% of all O/S Credits

  • Increase of Policy Interest Rates: OMO:14%, Refinancing Rate:15%
  • Bank Deposit Ceiling Rates: 14% (6% below 1 mo); USD Depos: 2%
  • USD Deposit Required Reserve Ratio: +1% to 8%

 SBV Currency Reform:

  • More Market oriented Currency Regime
  • Control/Clamp Down of unofficial forex markets

 Fiscal Policy Tightening:

  • 10% Reduction of Government Expenditures
  • Freeze non-necessary Government Projects
  • 2011 Budget Deficit : reportedly on target to reduce to 5% GDP

Saigon Securities Inc., Institutional Sales

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SLIDE 13

SSI 13

REFORM PLAN IN FINANCIAL SECTOR IN 2012

 Prudent SBV Monetary Policy

  • Credit Growth:
  • Relax Credit Growth:

Max.+15-17%

  • M2 Growth:
  • Max. +14-16%

A Credit Growth Quota for each Bank, based on bank’s financial strength

  • Reduce Policy Interest Rates:

in steps in H1 2012

  • Focused Credit Easing:

Facilitate access to credit for Farmers, Exporters and SMEs

 SBV Currency Reform:

  • Intensify Inspections of Unofficial Foreign Currency Market
  • Reduce impact of Gold demand/supply on VND/USD exchange rate
  • Continuation of flexible Currency Policy to reduce Imports and increase

Exports

 Banking/Securities Market Restructuring

  • Resolve issues of illiquid and weak small banks
  • Accelerate Privatization of State-Owned Commercial Banks and SOEs
  • SOEs to dispose Finance/Securities Businesses, Increase

Efficiency/Profitability

  • New Securities Regulations to strengthen securities markets

Saigon Securities Inc., Institutional Sales

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SLIDE 14

SSI 14

VINASHIN

 Initially expected to lead Industrialization Policy of Vietnam

  • Expansion Period:

Expanded in 2006 to deliver 64 ships in 2010 (US$580 million), 28 exported, 36 for domestic use

  • Hit by 2008 Global Recession : cancelled ship orders, falling asset values

 Unpaid Debts: between US$3.8 billion to US$4.5 billion, including:

  • US$ 750 million Vietnam Sovereign Bonds: issued in 2005, 6.875% payable

semi-annually starting January 2006.

  • US$600 million Syndicated Loan led by Credit Suisse at LIBOR +1.5%,

principal payable in 10 semi-annual installments, starting December 2010.

  • VND 26 trillion (US$1.3 billion) Loans made by local commercial banks, not

counted as Bad Debts by local banks

  • VND 8.3 trillion (US$415 million) in Vinashin Corporate Bonds

 Restructuring and Transfer of Loss Making Operations

  • Reported Losses of US$100 million+ on US$580 million revenues in 2010
  • Asset disposals and Transfer to Petro-Vietnam and Vinalines: ongoing

 To avoid Next Vinashin: Deregulation of Electricity market and EVN

Saigon Securities Inc., Institutional Sales

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SLIDE 15

SSI 15

STOCK MARKETS AT DISTRESSED LEVELS

  • VN Index (HOSE) : Main Board: P/E: 9.4X
  • 304 Listed Stocks, Total Market Cap: US$24 billion
  • HNX Index (Hanoi) : smaller Cap market: P/E: 7.7X
  • 393 Listed Stocks, Total Market Cap: US$4 billion

Source: HOSE, HNX, SSI 50 100 150 200 250 300 350 400 450 500 Jul-05 Jul-06 Jul-07 Jul-08 Jul-09 Jul-10 Jul-11

Hanoi Stock Exchange HNX Index

At all time Low

  • f 58.9

Saigon Securities Inc., Institutional Sales

100 300 500 700 900 1100 D-03 M-… J-04 S-04 D-04 M-… J-05 S-05 D-05 M-… J-06 S-06 D-06 M-… J-07 S-07 D-07 M-… J-08 S-08 D-08 M-… J-09 S-09 D-09 M-… J-10 S-10 D-10 M-… J-11 S-11

HOSE VN Index

Joined WTO Dec 2006 Declined 37% since Oct 2009

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SLIDE 16

SSI 16

ATTRACTIVE STOCK PRICES

All time Low Valuation

  • Dominated by Financials & Real Estate (53% of VN Index)
  • VN Index P/E peaked at 45 X in 2007 now at 9.4 X Earnings

(HNX P/E peaked at 45 X in 2007 now at 7.7 X Earnings)

Source: Bloomberg

Saigon Securities Inc., Institutional Sales

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SLIDE 17

SSI 17

MARKET OUTLOOK: MORE POSITIVE

Main Scenario Forecasts

 2011 Forecast: GDP: 5.8%, CPI:18% p.a. (in Dec 2011)  2012 Forecast: GDP: 6%, CPI: 12%  Monetary Policy has turned from “Tight” to “Prudent” Policy:

  • Government Yield Curve to Steepen with short-

term Yields declining to 11% by H1 2012

  • VN Index to recover 30% to 470 in H2 2012.

 Pressure on VND/USD exchange rate to continue until 2011 year-end but limited deprecation expected (1 to 5%).  VN-Index will re-test 370 level before recovering.

Saigon Securities Inc., Institutional Sales

6.6% 7.8%8.8% 12.6% 27.9% 19.9% 11.3% 3.9% 2.4% 6.5% 8.7% 13.9% 20.8% 23.0% 22.4% 15% 15% 14%

0% 5% 10% 15% 20% 25% 30%

12/2006 06/2007 12/2007 06/2008 12/2008 06/2009 12/2009 06/2010 12/2010 04/2011 06/2011 08/2011

CPI and SBV Policy Rates

Vietnam CPI 12 months SBV Refinance/OMO Rate 370 390 410 430 450 470 490 510 530 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11

VN Index Since Jan 1, 2011

Austere Resolution No 11 SBV Deposit Interest Cap 14% Bank Liquidity Shortage/ Real Estate Price Bust

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SLIDE 18

SSI 18

INDUSTRIAL SECTOR EQUITY OUTLOOK

NEGATIVES  Increased Costs of Import Input & Raw Materials and Wages (+10-20%)  High Interest Rates affecting Low-Margin/High Debt businesses  Real Estate Price Deflation  Price Stabilization regulation cap Revenues: squeezed earnings POSITIVES  Strong growth in Manufacturing/Exports/Materials/IT/Food  Strong Earnings of large Listed Banks  Conservative Business/Profit Projections

Saigon Securities Inc., Institutional Sales

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SLIDE 19

SSI 19

SECTOR & STOCK RECOMMENDATIONS

Overweight Sectors  Consumer Staples (Milk, Sugar, Fisheries) & Discretionary Neutral Sectors  Banks/Insurers  Energy (Oil & Gas)  Information Technology  Industrials (Plastics)  Materials (Rubber)  Pharmaceuticals Underweight Sectors  Real Estate  Dry Bulk  Materials (Steel & Cement) Top Recommendations  Strong Management & Competitive position (VCB, CTG, EIB)  Good Business Fundamentals , Sustainable Growth & Low Leverage

  • DHG, DPM, PNJ, PVD, PGD,

PGS, VNM, VSH  High Dividends:

  • HVG, SBT

 Low P/E Valuation:

  • DRC, PHR

Saigon Securities Inc., Institutional Sales

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SLIDE 20

SSI 20

TOP RECOMMENDATIONS

2011E

Companies Market Capitalization (US $ mio) Revenue growth % Net Profit Growth % Operating Margin % Net Profit Margin % EPS Current Price P/E Dividend yield CTG

1,895 na 90% na na 3,213 19,200 5.9 10%

DHG

182 17% 11% 48% 18% 6,561 57,500 8.76 3%

DPM

563 24% 46% 43% 30% 6,551 30,700 4.7 5%

DRC

40 23%

  • 11%

15% 7% 3,783 18,100 4.8 6%

HVG

63 77% 112% 15% 6% 6,992 19,800 2.8 14.9%

PHR

88 16% 14% 35% 24% 7,054 23,000 3.2 13%

PNJ

106 32% 22% 4% 1.5% 4,279 35,400 8.2 6%

PVD

367 21% 18% 22% 11% 4,956 36,100 7.0 6%

SBT

70 59% 48% 33% 30% 3,608 11,000 3.0 18%

EIB

758 na 45% na Na 2,125 12,900 6.0 12%

VCB

2,162 na 11% Na Na 2,028 22,500 12.0 5%

VNM

2,481 32% 12% 32% 19% 11,199 91,500 8.0 3%

Saigon Securities Inc., Institutional Sales Source : SSI Research & Investment Advisory, December 2, 2011

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SLIDE 21

SSI 21

VIETNAM LARGE CAP STOCKS

Stock Tickers Market Caps (US$ mio) Revenue growth % Net Profit Growth % Operating Margin % Net Profit Margin % EPS Current Price P/E Dividend yield MSN

2,900 18%

  • 28%

42% 28% 2,439 117,000 48 0%

VCB

2,162 na 11% Na Na 2,028 22,500 12.0 5%

VNM

2,481 32% 12% 32% 19% 11,199 91,500 8.0 3%

BVH

1,944 45% 17% na na 1,674 60,000 36 0%

CTG

1,895 na 90% na na 3,213 19,200 5.9 10%

VIC

1,629

  • 4%

21% 76% 62% 6,896 87,500 12.9 0%

ACB

879 Na 16% na na 2,400 19,700 8.0 0%

VPL

763 41% 400% 20% 26% 2,539 78,000 31.0 0%

EIB

758 na 45% na Na 2,125 12,900 6.0 12%

STB

680 na Flat Na na 2,021 13,900 6.5 10.6%

HAG

511

  • 2%
  • 11%

46% 45% 3,928 23,000 5.8 0%

DPM

563 24% 46% 43% 30% 6,551 30,700 4.7 5%

FPT

523 30% 21% 20% 8% 7,444 49,300 6.6 3%

PVD

367 21% 18% 22% 11% 4,956 36,100 7.0 6%

PVF

260 9%

  • 41%

na na 563 9,100 16.0 5%

Saigon Securities Inc., Institutional Sales Source : SSI Research & Investment Advisory, December 2, 2011

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SLIDE 22

SSI 22

DISCLAIMER

The information, statements, forecasts and projections contained herein, including any expression of opinion, are based upon sources believed to be reliable but their accuracy completeness or correctness are not guaranteed. Expressions of opinion herein were arrived at after due and careful consideration and they were based upon the best information then known to us, and in our opinion are fair and reasonable in the circumstances prevailing at the time. Expressions of opinion contained herein are subject to change without notice. This document is not, and should not be construed as, an offer or the solicitation of an offer to buy or sell any securities, SSI and other companies in the SSI and/or their

  • fficers, directors and employees may have positions and may affect transactions in

securities of companies mentioned herein and may also perform or seek to perform investment-banking services for these companies, This document is for private circulation only and is not for publication in the press or elsewhere, SSI accepts no liability whatsoever for any direct or consequential loss arising from any use of this document or its content, The use of any information, statements forecasts and projections contained herein shall be at the sole discretion and risk of the user.

Saigon Securities Inc., Institutional Sales

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SLIDE 23

SSI 23

SSI RESEARCH CONTACTS

SAIGON SECURITIES INC. Member of the Ho Chi Minh Stock Exchange, the Hanoi Stock Exchange and Regulated by the State Securities Commission. HO CHI MINH CITY 72 Nguyen Hue Street, District 1 Ho Chi Minh City Tel: (848) 3824 2897 Fax: (848) 3824 2997 Email: info@ssi.com.vn HA NOI 1C Ngo Quyen Street, Hanoi Tel: (844) 3936 6321 Fax: (844) 3936 6311 INSTITIONAL SALES , RESEARCH & INVESTMENT ADVISORY ssiresearch@ssi.com.vn Research Coverage Ext Email Bich Pham, CFA INSTITUTIONAL SALES RESEARCH 586* bichpn@ssi.com.vn Linh Nguyen Financials (North) 427 linhndh@ssi.com.vn Phuong Hoang Equity Strategy, Conglomerate & Oil/Gas 409 phuonghv@ssi.com.vn Quan Minh Pham Technical Analyst 615 quanpm@ssi.com.vn Phong Tran Financials (South) 2151* phongtt@ssi.com.vn Hung Pham Macro & Fisheries & Logistics 637 hungpl@ssi.com.vn Cuong Vu Real Estate 440 cuongv@ssi.com.vn Giang Nguyen Consumer Staples 430 giangntt@ssi.com.vn Minh Nguyen Plastics/ Construction Materials 435 minhnd@ssi.com.vn Kien Nguyen Info Tech 510 kiennt@ssi.com.vn Khoa Do Pharmaceuticals/Materials 670 khoadv@ssi.com.vn Trang Pham Real Estate Team 442 trangph@ssi.com.vn Ngoc Tran Research Team Assistant 775 ngoctthn@ssi.com.vn Note: * Tel (848) 3 824 2897, those Extension without * please dial (844) 3936-6321

Saigon Securities Inc., Institutional Sales