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FPT University

INDIVIDUAL ASSIGNMENT

Valuation and Financial Modeling

DHG Company
BUI HOANG MAI TRINH SB60440

CONTENT
I. Executive....................................................................................................................................... page 3 II. Overview about DHG and medicine industry ............................................................................ page 3 II.Valuation ...................................................................................................................................... page 4 III.Conclusion .................................................................................................................................. page 10 IV. References .................................................................................................................................. page 10

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I. Executive II. report provides an analysis and evaluation about the price of share for TCT and the comparion with This
other companies in the same industry( DMC,DBT,IMP,OPC)

There are some methods and models to evaluate the price of share for firm such as P/E, P/B and equity or firm value/ Sales. Each of them has their own advantages and disadvantages. In this report, I will evaluate this company in the two method: P/E and P/S. In P/E method: To go the the last result, I calculated the following data: P/E ratio, Expected growth, Beta, Payout ratio and Predicted P/E( I will clarify the method in the next part). After calculating, I find out that The predicted P/E is less than The P/E ratio about 0.31. Therefore, I conclude that DHC price is overvalued. Moreover, calculating in the same method. I get the results about 4 companies in the same industry of DHG like this: IMP is evaluated overvalued. Contrary to DMC, OPC and DBT, they are undervalued already. In P/S method: I calculated the these data: P/S ratio, Net profit margin, Expected growth, Payout ratio and Predicted P/S( I will clarify the method in the next part) in order to get the last result. After calculating, it showed that The predicted P/S is more than The P/S ratio a small amount. Therefore, I conclude that DHC price is undervalued.

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Moreover, calculating similarly to DHC situation. I get the results about 4 companies in the same industry of DHG like this: OPC is evaluated overvalued. Contrary to IMP, DMC and DBT, they are undervalued already.

II. Overview
The Past Until 6/2011, there were 103 factories producing medicine reaching GMP-WHO and Eroupe GMP, Japanese GMP standards. Up to that time, it also made 919 million USD medicines. The Present Nowadays, Vietnam producing medicine industry becomes more and more developt and has a lot of advantages in comparision with others in the area. According to BMI, medicine industry made up to 1.5% GDP. Annual revenue of the whole industry is about 1.11 billion USD, makes up 1.59% GDP. Athought this industry has a smaller size than other industries, it is still the one which has fastest growth rate recently. On the other hand, the medicine which is produced in Vietnam making up about 50% medicine market, but it is up to 90% material imported. We can see that Vietnam medicine industry is mainly about producing medicine simply. The Future Vietnam medicine industry completely can developt more and more if it applies some more modern techniques in producing and exploit all the potential market. DHG company Company name: Hau Giang pharmaceutical joint-stock company Abbreviate name: DHG PHARMA Business sector: Producing medicine, food medicine and cosmetic. History Set up date: 02/9/1974 with the the first name is Medicine enterprise 2/9. Joint stock date: 21/12/2006, with 8.000.000 shares on HOSE.
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Medicine industry

Position: DHG is one of the best company in the whole industry which rated in the fourth level among all of the medicine producers.(According to IMS 2010). Revenue of DHG also increases much and always keep the leader position in this kind of industry.

III. Valuation
P/E ratio: Firstly, I collected Net Income data of 5 companies( DHG, DMC,DBT,IMP,OPC) in 5 years_ from 2008 to 2012. Secondly, I relied on the fincial reports of these companies form 2008 to 2012 in order to get the number of shares outstanding _ all of them is shares that companies registered to issue. Then, I let Net income devided by numbers of share to have EPS. Lastly, EPS is averaged. And this is the result
Average EPS DHG DMC DBT IMP OPC 9,684.85 4,611.18 3,730.83 5,405.97 4,892.01

III.

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Moreover, I also get the price of these shares on in December,2012( The data is got on cafef.vn)

Date DHG DMC DBT IMP OPC

Price

Dec-12 70,300 Dec-12 28,300 Dec-12 16,400 Dec-12 34,200 Dec-12 37,400

And in order to find out the P/E ratio, I let Price devided by Average EPS P/E DHG DMC DBT IMP OPC 7.26 6.14 4.40 6.33 7.65

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Expected growth: Depending on the Net Income over years. I calculated the growth rate of it.
Net Income 2012 DHG g 2011 2010 2009 2008

491,292,801,008 419,762,158,583 383,335,234,331 362,340,382,334 129,994,593,623 17.04% 9.50% 5.79% 178.73%

DMC 90,123,792,655 80,103,348,441 82,791,634,722 76,362,466,059 62,805,354,885 g 12.51% -3.25% 8.42% 21.59% DBT g IMP g OPC g 13,325,394,403 13,226,886,844 12,582,263,388 7,178,773,058 9,649,144,075 0.74% 5.12% 75.27% -25.60% 77,613,706,411 77,606,045,576 80,465,662,197 65,706,720,938 58,265,654,856 0.01% -3.55% 22.46% 12.77% 55,744,903,479 50,476,661,494 50,522,119,317 49,392,620,075 31,251,448,534 10.44% -0.09% 2.29% 58.05%

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Next, I averaged them.


Average growth rate DHG Average g DMC Average g DBT Average g IMP Average g OPC Average g 52.77% 9.82% 13.88% 7.92% 17.67%

In my opinion and according the the growth rate of net income through years. I think the growth rate of them will be in the following rate. I think we should eliminate some strange factor( large increase or larg decrease) over years to get the most suitable rate. The followin growth rate also depends in the current business situation of Medicine sector in Vietnam( It cannot have the significant growth rate. In some years latter, it is suitable to have a stable or slight increase in growth rate).

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Expected growth rate DHG Expected g 11.00% DMC Expected g 9.82% DBT Expected g 6.00% IMP Expected g 4.00% OPC Expected g 9.00% Beta: According the VN-Index rate, the Price of these stock, their dividend by cash, devidend by share, we can calculate the Beta. This is my result Beta DBT 0.13

DHG 0.46

DMC 1.00

IMP 0.42

OPC 0.66

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Payout ratio: I collected the data about these companies History give dividend on cafef.vn in order to calculate the dividend per share by multiplied %dividend with the face value on Vietnam stock market( = 10,000 VND). And then average them: Average DPS

DHG DMC DBT IMP OPC Then Average DPS divided by average EPS, we has payout ratio:

2,500.00 1,980.00 1,400.00 2,320.00 1,500.00

Payout Ratio DHG DMC DBT IMP OPC 25.81% 42.94% 37.53% 42.92% 30.66%

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With all of above data, we use regression to get the Predicted P/E:
Company DHG DMC DBT IMP OPC P/E Ratio 7.26 6.14 4.40 6.33 7.65 Expected growth Beta Payout ratio Predicted PE 11.00% 0.46 25.81% 6.95 9.82% 1.00 42.94% 6.15 6.00% 0.13 37.53% 4.63 4.00% 0.42 42.92% 6.06 9.00% 0.66 30.66% 7.97 Under/Overvalued Overvalued Undervalued Undervalued Overvalued Undervalued

Note: All of the above data, we use their average figure, because I want to estimate them in the long period, not in a short time. P/S ratio: Similar to P/E ratio, we also calculate PS ratio, net profit margin, payout ratio, growth rate and Prdicted PS . Firsly, I collected their Revernue from 2008 to 2012, and then average them. After that in order to calculate the Sales per share, I let the number of shares divided by the average Reveue.
DHG DMC DBT IMP OPC Sales per share 52,424.38 53,856.57 159,429.09 52,897.80 37,367.35

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Finally, the price divided by the Sales per share equals to PS ratio: PS DHG DMC DBT IMP 1.34 0.53 0.10 0.65

OPC 1.00 Let Average EPS/ sales per share, we got net profit margin. And DPS/ EPS, we got payout ratio. Like this: Net profit margin 18.47% 8.56% 2.34% 10.22% 13.09% Payout ratio 25.81% 42.94% 37.53% 42.92% 30.66%

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Finally, I use regression to get the predicted PS:


Company DHG DMC DBT IMP OPC PS ratio Net profit margin Payout ratio 1.34098 18.47% 0.53 8.56% 0.10 2.34% 0.65 10.22% 1.00 13.09% Growth 25.81% 42.94% 37.53% 42.92% 30.66% 11.00% 9.82% 6.00% 4.00% 9.00% Predicted PS 1.37397 0.52587 0.11811 0.65064 0.94813 Under/Overvalued Undervalued Undervalued Undervalued Undervalued Overvalued

IV. Conclusion IV.


I prefer the second method_ P/S method to evaluate the price of share for DHG. The explaination for this could be: The sector which DHG trades in is producing medicine, so the sales may affect much to its business flow or even price share. The second explaination is that when doing regression for P/S method, I got low level of standard error_ about 0.06. Therefore, I believe this method will give a quite accurate result.

http://cafef.vn/ http://www.cophieu68.vn/ http://www.dhgpharma.com.vn/dhg/ And Financial report of DHG, DMC,DBT,IMP,OPC from 2008 to 2012

V. References V.

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