1.

Methodology
Dividend Discount Model (DDM): The dividend discount model is a method of
valuing a company's stock price based on the idea that a share is worth the net
present value of its future dividends.

Gordon Growth Formula: If the dividend for a company always grows at a
constant rate then

Where,

is the fair price of the stock,

is next years expected dividend, r is

the discount rate, and g is the dividend growth rate.
Multi-stage DDM: To apply the theory and formula above, we must create
scenario where the dividend will grow at a certain rate for a number of years and
then slow down to a constant growth rate g after that.
t
t
t
t
r) (
P
r) (
D
...
r) (
D
r
D
P

1 1 1 1
2
2 1
0

Where t is the year when the dividend will grow at a constant rate forever,
and

Therefore, we will need to make the assumption about KDCs dividend payout for
the next 05 years and the constant growth rate to estimate its intrinsic value.
5
2018
5
2018
4
2017
3
2016
2
2015 2014
) 1 ( ) 1 ( ) 1 ( ) 1 ( ) 1 ( 1 r
P
r
D
r
D
r
D
r
D
r
D
IV

Where
g r
g D
g r
D
P

) 1 (
2018 2019
2018

2. Assumption
a. The required rate of return:
Using CAPM, we calculate = 1.363 and r = 0.1459.
However, in the stock market, the current of KDC is = 0.8 and r = 0.13
Two main reasons for the huge difference in : First, our calculation is based
on 5-year data from 2009 to 2013; during that period, there was high variance
in Vietnamese risk-free interest rate. Second, many analysts argue that since
reflects the current risk, they only take the last 1- or 2-year data in account.

b. Historical data:


KDCs dividend payout (based on proposal in Annual General Shareholders
Meeting):

Year 2009 2010 2011 2012 2013
Percentage of
par value (%)
24 24 24 20 20
Value (VND) 2,400 2,400 2,400 2,000 2,000
Stock price at
January 1
st

(VND)
30,900 63,500 52,000 26,800 41,000
Dividend yield .08 .04 .05 .07 .05
(Source: http://kinhdo.vn/investor/report-financial.html)
Average dividend yield from 2009 to 2013 = .06






Year 2009 2010 2011 2012 2013
Net Income 522,943,037 578,611,860 278,635,437 357,429,691 492,792,885
Dividends
Paid
358,909,886 323,262,940 144,300,875 311,455,719 318,141,106
Retained
Earning
164,033,151 255,348,920 134,334,562 45,973,972 174,651,779
Reinvestment
Rate (b)
.31 .44 .48 .13 .35
Total Equity 2,418,021,466 3,738,214,531 3,814,673,284 4,010,273,661 4,881,643,589
ROE .22 .15 .07 .09 .10
Dividend
Growth Rate
(g)
.07 .07 .04 .01 .04

(Source: http://www.hsx.vn/hsx/Modules/Danhsach/SymbolDetail.aspx?type=S&MCty=KDC)
Average dividend growth rate from 2009 to 2013 = .05
Over the last 4 years from 2010 to 2013, KDC has an average net sales
growth rate of 26% and an average profit before tax growth rate of 22.5%.
Also KDC is the market leader with market share of 30%. However, experts
and analysts point out that the market growth rate of confectionary industry
has started slowing down. In addition, the arrival of many strong foreign
companies such as Glico, Lotte, etc. has made the industry more competitive.

In order to grow, KDC has launched a strategy called Food and Flavor.
Via R&D and M&A, the company will gradually enter the new markets of
instant noodle, powder seasoning, cooking oil, and etc. At the moment, its
instant noodle products are ready and waiting for the right time to be
announced. Moreover, KDC has put more than VND 1,800 billion from its own
capital into real estate business. If Vietnamese economy does not surge back
in a near future, KDC might suffer huge loss in those investments.

Based on information above, we create different scenarios for KDCs
dividend growth rate from 2014 to 2018. And during that period, KDC wont
buy back any share. From 2019, the dividend will grow at a constant rate. We
also expect that KDC keeps its dividend policy stable (no significant change
between each year) and the market does not crash. Assume that Boom is
12%, Slightly Grow is 8%, Normal is 5%, and Slow down is 2%.
Scenario 1

g = 8%

Year Dividend Growth Rate
Dividend
(VND)
IV with
r = .1459
IV with
r = .13
2014 5% 2,100
33,820 44,704
2015 8% 2,268
2016 8% 2,449
2017 12% 2,743
2018 12% 3,073
2019
Constant perpetual
growth rate 8%
3,318

Scenario 2

g = 5%

Year Dividend Growth Rate
Dividend
(VND)
IV with
r = .1459
IV with
r = .13
2014 5% 2,100
24,062 28,955
2015 5% 2,205
2016 8% 2,381
2017 12% 2,667
2018 8% 2,881
2019
Constant perpetual
growth rate 5%
3,024

Scenario 3

g = 5%

Year Dividend Growth Rate
Dividend
(VND)
IV with
r = .1459
IV with
r = .13
2014 2% 2,040
22,180 26,643
2015 5% 2,142
2016 5% 2,249
2017 8% 2,429
2018 8% 2,623
2019
Constant perpetual
growth rate 5%
2,755

Scenario 4

g = 5%

Year Dividend Growth Rate
Dividend
(VND)
IV with
r = .1459
IV with
r = .13
2014 2% 2,040
21,131 25,351
2015 2% 2,080
2016 5% 2,185
2017 5% 2,294
2018 8% 2,478
2019
Constant perpetual
growth rate 5%
2,601


On May 5
th
2014, the stock value of KDC is about VND 57,000. Using
DDM, we may conclude the stock is overvalued (for both r); the market price
is much higher than the intrinsic value. Investors should not take long position
at the current market price.
Some critical problems with the DDM:
1) A steady dividend with constant growth rate is impractical.
2) It is very sensitive to the dividend growth rate and the discount rate
assumptions. A slight change may give a huge difference in result.
Besides, DDM cant be applied to high-growth stocks with dividend
growth rate higher than expected return rate since that case causes a
negative stock price.
3) Our forecast future dividends might be far away from reliable. There
are plenty of variables to predict. One error in the assumption easily
leads to another and another.
Regardless of the issues above, in our opinion, DDM is not suitable to
assess KDCs stock price. Over years, KDC has kept low dividend yield to
retain more capital. Its strategies are to grow and expand new businesses.
The possible outcome for the next couple years is hard to predict. Therefore,
our assumption about future dividends is unlikely reflects the companys value
due to lack of information. In this case, price appreciation is the key to attract
investors.