VietnamStrategy2016 20160108

Vietnam Strategy
2016
Barry Weisblatt
Head of18
Research
March 2011
barry.weisblatt@vcsc.com.vn
+84 8 3914 3588 ext. 105
Strong earnings will drive market up 18 - 20%
Long Ngo
Senior Manager
long.ngo@vcsc.com.vn
+84 8 3914 3588 ext. 145
The VN-Index finished 2015 with a disappointing 1% increase for the second
half and 6.4% for the year. The outlook for 2016 looks better, but with risk. We
expect strong earnings growth, driven by an emerging consumer and strong
manufacturing. Normally, you would expect that a strong earnings growth
outlook would lead to rising P/E ratios but we actually do not foresee this. We
forecast 20% EPS growth but with little to no multiple expansion.
Anirban Lahiri
Senior Manager
anirban.lahiri@vcsc.com.vn
+84 8 3914 3588 ext. 130
Macro outlook:
Phap Dang
Manager
phap.dang@vcsc.com.vn
+84 8 3914 3588 ext. 143
2016 by the Numbers

VCSC Macro Forecast
GDP (nominal):
GDP growth:
Inflation forecast:
Credit growth:
VND devaluation:
Trade deficit:
Budget def as % of GDP:
US$200 bn
6.8%
3.5%
18.0%
5.4%
US$5.2 bn
5.4%
VCSC Market Forecast

VNI at yearend 2015:
VNI at yearend 2016:
VNI expected return:
P/E 2015:
P/E 2016 (target):
EPS growth (VCSC coverage
simple avg):
EPS growth (VSCS coverage
weighted avg):
579
680-700
17 - 21%
11.3x
11.5x
17.1%
28.9%
FDI helped strengthen manufacturing, which will continue to drive GDP growth.
Consumption is increasing with retail sales rising due to low inflation and
increasing employment. Record high consumer confidence suggests this will
continue.
TPP and other FTAs, as well as regulatory reform new business law, new
foreign ownership laws - have spurred massive FDI.
The government debt continues to be a concern, although somewhat
manageable. Low oil prices did hurt revenues but the shortfall was made up
from tax collections. We continue to watch this area with caution in 2016.
Exports will grow in 2016 but so will imports, so the trade deficit will remain. The
silver lining is that much of the imports are equipment for investment in
manufacturing. The bad news is that most of the exports are from the FDI sector.
At less than 1%, inflation has nowhere to go but up. Still, we expect it to remain
moderate in 2016 due to low commodity prices.
There will be pressure on the dong this year, especially since China will probably
devalue the yuan, but we dont expect devaluation to significant exceed 2015.
Due to high credit growth, continuing government deficits and somewhat higher
inflation, we expect interest rates to rise both for lending and for bonds.
The biggest risk to the economy and the market performance comes from China.
Of course, Vietnam is not unique in this regard but poor economic performance
in China can affect us in many ways. It will put pressure on our currency to
compete for export markets. China is not only our largest import market but also
one of our largest export markets after the U.S., EU and ASEAN. China can
impact us in everything from lower demand for our exported mobile phones to
the threat of cheap steel being dumped into Vietnam.
Equity market outlook:
See important disclosure at the end of this document
H2/2015s lacklustre performance was driven by falling oil prices, yuan

devaluations and the Fed rate increase offset by the TPP agreement and some
help from Vinamilk. All of these will continue to affect the market in 2016.
The VN-Index may seem quite cheap at an 11.1x P/E ratio, especially compared
to its regional peers. However, we believe that due to rising bond yields we are
unlikely to see any expansion.
We are forecasting strong earnings growth especially from a few heavyweight
large caps that should drive the market.
However, we will need to break through the psychological barrier of 640 in order
to achieve our target for the VN-Index of 680 700.
www.vcsc.com.vn | VCSC<GO>
Viet Capital Securities | 1
Sectors and stocks we like:
HOLD
Since economic growth will be fuelled by strong manufacturing and a strong consumer, we
especially like stocks that can benefit most from these trends. Much of the export manufacturing
will come from FDI companies but several domestic sectors will benefit from their growth.
Consumer: Strong retail sales and low inflation have resulted in record high consumer
confidence.
o Masan (MSN): Singha investment is a game changer. It not only provides a platform for
MSN to take its fish sauce and other brands regional, it gives the company a war-chest
for acquisitions.
o Mobile World (MWG): While its core phone business remains strong, concerns of a cap
on growth have been alleviated by the expansion into minimarts.
o FPT Corporation (FPT): Retail revenue should still grow 20% while telecom and
software outsourcing will each exceed 30%.
Banks: A stable property market and strong manufacturing have fuelled strong credit growth
while a stable macro environment has helped banks clean up balance sheets.
o Asia Commercial Bank (ACB): High non-interest income and high levels of capital
boost our valuation.
Logistics: Expanding manufacturing and consumerism both require expanded logistics.
Transportation and storage as well as ports will benefit.
o Gemadept (GMD): While ports continue to operate at high capacity, new distribution
centres will drive growth making the company well positioned to benefit from Vietnams
growing trade.
Thermal power: Growing manufacturing is increasing demand for power while natural gas
input prices are falling.
o Nhon Trach 2 Thermal Power Plant (NT2): Samsung CE Complex will increase
demand for power while NT2 plans to expand capacity with a second plant.
o Pha Lai Thermal Power Plant (PPC): Utilization is rising due to droughts and the
company pays a very attractive dividend.
Contents
HOLD
Macro Scorecard ........................................................................................................................... 5

The Macro Picture: Poised for strong growth on the heels of robust FDI .............................. 6
Vietnam to buck the global downtrend by delivering higher GDP growth at 6.8% in 2016 ......... 6
Consumption: Gathering more momentum with resilient consumer confidence on more job
opportunities from growing FDI ................................................................................................... 8
Investment: FTAs - including TPP, Vietnam-EU & AEC - will ensure that FDI remains strong 10
Government Budget: The aggressive call for fiscal consolidation ............................................ 13
Trade: Export growth should improve in 2016 but the trade deficit will remain due to import
growth ........................................................................................................................................ 15
Inflation: Price increase to accelerate albeit at a moderate pace ............................................. 19
Forex rate: Its impossible to stay immune from external turbulence ........................................ 20
Interest rate: Time for some tightening ..................................................................................... 23
Stock Market Performance ........................................................................................................ 25
What happened in H2/2015: It was Vinamilk vs the global economy ....................................... 25
Outlook for 2016: Earnings growth will drive market performance. .......................................... 28
Banking sector: Controlling the commanding heights of the banking system ................... 31
2015 recap: SOE banks see healthy price surge, recapitalisation and M&A............................ 32
2016 outlook access to equity capital markets to anoint winners .......................................... 33
Stock recommendations ............................................................................................................ 37
Consumers sector: Undemanding valuation for retail stocks ............................................... 38
What happened in 2015: Domestic consumption picked up ..................................................... 39
Retailing Inevitable elevation, but it is just the beginning....................................................... 40
2016 outlook BUY retail stocks when you can ....................................................................... 42
Property sector: Ride on market leaders as liquidity stabilizes ............................................ 45
What happened in 2015: record liquidity, high-end took spotlight ............................................ 46
2016 outlook: market to stabilize from 2015s high base .......................................................... 47
Cement sector: Industrial construction to drive sales volume .............................................. 50
What happened in 2015: record-high sales volume fuelled by busy construction activities ..... 51
Outlook for 2016: Hefty industrial construction will ensure the growth momentum .................. 52
Stock recommendation.............................................................................................................. 52
Steel sector: The fight against Chinese steel has not ended ................................................ 53
What happened in 2015 ............................................................................................................ 54
2016 outlook .............................................................................................................................. 57
Recommendation for 2016 ........................................................................................................ 59
Power sector: Surging demand, drought and weakness in gas prices to benefit gas
thermal players. .......................................................................................................................... 61
HOLD
What happened in 2015 ............................................................................................................ 62

Outlook for 2016 ........................................................................................................................ 64
Oil & Gas sector: Vietnams oil & gas production activities could stall if oil price slides
further to USD30/bbl ................................................................................................................... 69
What happened in 2015 ............................................................................................................ 70
Outlook for 2016 ........................................................................................................................ 73
Stock recommendations for 2016 ............................................................................................. 76
Textile sector: Gearing-up for growth ...................................................................................... 81
What happened in 2015: Conclusion of TPP negotiations strengthened Vietnams standing as
a global textile export hub. ........................................................................................................ 82
2016 Outlook: The Good ....................................................................................................... 82
and the Ugly........................................................................................................................... 84
Logistic sector: Bright outlook for part operations with expansion plans ........................... 87
What happened in 2015: Port operations in Vietnam have grown robustly this year despite a
moribund global maritime shipping landscape .......................................................................... 88
...and this is reflected in the strong performance of port operators this year relative to that of
shipping lines ............................................................................................................................. 89
How the market perceived 2015 developments ........................................................................ 91
Outlook for 2016 ........................................................................................................................ 93
Macro Indicators ......................................................................................................................... 99
Macro Scorecard
HOLD
2015
2016F(7)
6.0
6.7
6.8
13.8
8.1
10.0
12.0
12.1
12.0
1.8
0.6
3.5
6.6
4.1
0.6
2.0
2.0
2.2
2.1
2.3
2.2
(7.9)
0.9
(1.2)
(1.4)
(5.1)
(5.4)
20.0
14.0
10.5
8.5
8.5
9.5
33.3
13.1
21.0
18.8
17.7
18.2
19.0
37.7
29.8
10.9
8.9
12.5
14.2
17.1
18.0
11.7
11.5
12.6
9.8
8.5
6.2
6.6
7.2
97.2
106.4
123.5
141.7
170.0
186.2
191.3
200.0
10.0
10.0
11.0
10.5
11.5
12.5
14.5
16.0
16.8
12.9
14.0
26.1
26.3
34.6
30.5
28.0
(12.9)
(12.6)
(9.8)
0.7
0.0
2.0
(3.2)
(5.2)
53.8
62.1
70.8
73.4
78.8
80.6
85.0
89.3
9.4
8.6
8.1
6.7
6.8
6.7
7.6
7.8
15.3
10.7
6.6
14.8
20.6
21.5
20.0
14.0
(6.9)
(5.8)
(4.9)
(4.8)
(6.6)
(5.7)
(5.4)
(5.4)
41.9
44.6
43.2
39.4
42.3
43.2
48.9
50.4
Public Debt % of GDP
(4)
52.6
56.3
54.9
50.8
54.2
53.7
61.3
63.2
External Debt % GDP
(4)
39.0
42.2
41.5
37.4
37.3
39.9
41.5
44.7
2009
2010
2011
2012
2013
2014
2015E(7)
2016F(7)
-6.6
-4.3
0.2
9.3
9.4
9.4
1.8
0.1
Goods
-7.6
-5.1
-0.5
8.7
8.7
12.1
7.6
6.9
Services
-2.4
-2.5
-3.2
-1.4
-1.4
-3.5
-5.0
-6.0
Primary Income
-3.0
-4.5
-4.8
-6.2
-7.3
-8.8
-9.7
-10.7
Secondary Income
6.4
7.9
8.7
8.2
9.5
9.6
9.0
9.9
Financial account
6.8
6.2
6.5
8.7
0.0
5.6
1.1
4.2
Direct Investment
6.9
7.1
6.6
7.2
6.9
8.1
9.0
10.1
Portfolio Investment
-0.1
2.4
1.5
2.0
1.5
0.1
0.1
0.1
MACRO INDICATORS
2009
2010
2011
2012
2013
GDP growth (1)
5.4
6.4
6.2
5.2
5.4
Export growth (1)(2)
(8.9)
26.5
34.2
18.2
15.4
(13.3)
21.3
25.8
6.6
16.0
6.5
11.7
18.1
6.8
6.0
7.1
8.9
18.7
9.1
3.2
2.7
2.0
VND depreciation (%) (6)
(5.7)
(5.5)
Lending Rates (%) (5)
16.4
20.5
29.0
2014
YOY % growth
Import growth
(1)(2)
Inflation (year-end) (1)

Inflation (avg.)
(1)
Unemployment Rate %
M2 growth (%)
(1)
(5)
Credit growth (%)
(5)
5Y G-bond Yield (%) (6)
Units in USD billion

Nominal GDP (1)
FDI disbursement
(1) (2)
Intl Reserves (4)

Goods Trade Balance
(1)(2)
Exports as % of GDP (1)(2)

FDI as % of GDP
(1) (3)
FX reserve as % of GDP (5)

Budget Deficit as % of GDP
(4)
Gov. Debt as % of GDP (4)
BALANCE OF PAYMENTS (5)

Units in USD billion
Current account
Other Investment
-0.1
-3.3
-1.5
-0.4
-8.4
-2.6
-8.0
-6.0
Error & Omission
-9.0
-3.7
-5.6
-6.1
-8.8
-6.6
-6.0
-6.0
Balance of Payment
-8.9
-1.8
1.1
11.9
0.6
8.4
-3.1
-1.7
Sources: (1) General Statistics Office (GSO), (2) Vietnam Customs Office, (3) Foreign Investment
Agency (FIA), (4) Ministry of Finance (MOF), (5) State Bank of Vietnam (SBV), (6) Bloomberg, (7)
Viet Capital Securities (VCSC)
Thanh Duong
thanh.duong@vcsc.com.vn
+84 8 3 914 3588 ext. 173
The Macro Picture: Poised for strong growth on the heels

HOLD
of robust FDI
Vietnam to buck the global downtrend by delivering higher GDP growth at
6.8% in 2016
The industry and construction sector continues to drive economic growth with the manufacturing
subsector being the main catalyst on the heels of persistently strong capital influx from MNCs.
Meanwhile, the firm recovery of domestic demand convinces us to pencil in high growth for the
service sector in 2016.
Figure 1: Vietnam GDP growth
8.0%
6.0%
4.0%
2.0%
Industry & Const
Services
2018F
2017F
2016F
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
0.0%
Agri & Forestry
Source: GSO, VCSC
Manufacturing sector retains its strength to drive growth thanks to the FDI snowball
HOLD
The snowball of registered FDI in 2013 & 2014 has finally disbursed with implemented FDI in 2015
reaching a record-high and helping manufacturing industries to continue their healthy expansion
and post double digit growth for the first time since 2008.
Figure 2: FDI into Vietnam has been booming since the low in 2011-2012, especially on
manufacturing sector
Others
25
Agrian business
Hospitality services
Logistics
Wholesale & retail
20
USD billion
Construction
15
Real estate
10
Utility
Real estate
Manufacturing
0
2009
2010
2011
2012
2013
2014
2015
Source: FIA
Figure 3: FDI disbursement has spurred the growth of manufacturing sector

15
12%
14
10%
8%
12
6%
11
YoY Growth
USD billion
13
4%
10
2%
9
8
0%
2009
2010
2011
FDI disbursement
2012
2013
2014
2015
Growth of manufacturing (%)
Source: GSO, FIA
Consumption: Gathering more momentum with resilient consumer

HOLD
confidence on more job opportunities from growing FDI
We project growth acceleration for service sector as domestic demand recorded a decent
pickup in 2015, reflected by a five-year high in real retail sales growth and buoyant auto and
apartment sales (indicators of growing spending on discretionary goods). Looking at GDP growth
on the expenditure front, private consumption was the stimuli for GDP growth to reach an eightyear high in 2015. Better wage payment from the increase in non-farm employment and abundant
job opportunities due to more FIEs coming to Vietnam have been the key factors to sustain strong
consumer confidence, nurturing the firm return of domestic consumption.
Figure 4: GDP growth by expenditure private consumption is leading growth

20%
15%
10%
5%
0%
-5%
-10%
-15%
2006
2007
2008
Private consumption
2009
2010
2011
Government consumption
2012
2013
2014
Gross capital formation
2015
2016F
Net export
Source: GSO, VCSC
Figure 5: Real retail sales reached a five-year high as consumer confidence stayed
elevated
HOLD
20%
125
120
16%
115
110
12%
Consumer
confidence 3Q15 105
105
100
8%
Real retail sales

growth 2015 vs. 2014
- 8.40%
95
90
4%
85
0%
Oct-15
Jul-15
Apr-15
Oct-14
Jan-15
Jul-14
Apr-14
Oct-13
Jan-14
Jul-13
Apr-13
Oct-12
Jan-13
Jul-12
Apr-12
Jan-12
Jul-11
Oct-11
Apr-11
Jan-11
Jul-10
Oct-10
Apr-10
Jan-10
80
Source: GSO, AC Nielsen
Figure 6: Non-farm employment is increasing, along with the uptrend of FDI into Vietnam
60%
50%
40%
30%
20%
10%
2005
2007
2008
Agri
2009
2010
2011
2012
Industry & Construction
2013
2014
1H15
Service
Source: GSO
Investment: FTAs - including TPP, Vietnam-EU & AEC - will ensure that FDI
HOLD
remains strong
The conclusion of the Trans-Pacific Partnership negotiations, which cover 12 signatories across
the Pacific region and the Vietnam-EU FTA act as a magnet for investment into Vietnam to in order
for firms to gain tariff-free access to big markets like the US, the EU or Japan. Moreover, TPP is
motivating Vietnam to develop a more transparent and foreigner-friendly business environment by
calling for fair treatments among all market participations, improving protection of intellectual
property, stimulating cross-border services and simplifying customs procedures. This in turn will
not only attract but also ensure that FIEs will invest over a longer horizon.
Figure 7: TPP countries account for 45% of Vietnams total trade

200
USD billion
100
-100
-200
2009
2010
Export to TPP countries
2011
Total export
2012
2013
2014
Import from TPP countries
11M15
Total import
Source: Customs Office
Figure 8: Vietnams major trade partners TPP and Vietnam-EU FTA are gearing up
opportunities to enhance trade relationship with the US, Japan and the EU
40%
30%
20%
10%
0%
US
EU
ASEAN
Export (%of total export)
CHINA
JAPAN
KOREA
Import (% of total import)

Although sluggish global demand is posing challenges on the sector in 2H15, recent conclusions
of Vietnam-EU FTA and the Trans-Pacific Partnership (TPP) draft or the inauguration of
ASEAN Economic Community (AEC) are incentivizing another massive wave of oversea
capital influx into manufacturing, countering off external headwinds in the coming year.
HOLD
In 2015, at least USD1 billion was channelled into the textile and garment industry. Prominent
projects include those from Far Eastern New Century (Taiwanese synthetic fibres producer),
Hyosung (Korean yarn producer), Worldon (Chinese high-end fashion producer) and Texhong
(Hong Kong yarn producer).
Trade liberalisation movements well encourage the persistent shift of production to Vietnam.
Pouchen, a Taiwanese shoes maker, is shifting its production to Vietnam (circa 42% of
Pouchens shoes were made in Vietnam in 2015, up from 34% in 2013) in anticipation of lower
tariff barriers when entering the US and the EU.
Meanwhile, Cheng Loong, a Taiwanese industrial paper producer supplying packaging for
Nike and Apple, decided to expand their production in Vietnam to take advantages from FTAs.
and giant electronics MNCs such as Samsung continue pouring capital into Vietnam. In
2015, Samsung received licensed for another USD 3b investment in Samsung Bac Ninh and
an additional USD 600m into Samsung Electronics Ho Chi Minh City (SEHC). SEHC is
designed to become one of the groups largest bases of producing electronic home appliances.
Meanwhile, in 2016 we will witness many big-ticket FDI projects commencing operation, with
SEHC as a notable example. Henceforth, despite a global slowdown, we believe the industry could
successfully carry forward its momentum in 2016 thanks to the firm FDI catapult.
Figure 9: Vietnam PMI remains resilient vs. Asian peers though sluggish global demand
has weighed on manufacturing output in 2H15
56
Expansion
54
52
50
48
46
Contraction
Vietnam
China
Indonesia
Oct-15
Jul-15
Apr-15
Jan-15
Oct-14
Jul-14
Apr-14
Jan-14
Oct-13
Jul-13
Apr-13
Jan-13
44
Malaysia
Source: Markit
Figure 10: yet big-ticket FDI projects in the manufacturing sector starting operation in
2016 should help manufacturing to gain traction in the coming year.
HOLD
Company
Business
Investment amt.
Description
Samsung
Samsung
Electronics Ho Chi
Minh City (SEHC)
Electronics mfg.,
including high-end
TV products and
household
appliances
USD 2b in total
(including
expansion)
SEHC is expected to create approximately 15,000

jobs and its products are prioritized for export.
Operation at SEHC is scheduled to start in 1Q16.
Cheng Loong
Paper
manufacturing
USD 1b
SEHC marked the third Samsungs factory operating

in Vietnam, aside Samsung Electronic Vietnam Thai
Nguyen (SEVT, smartphone manufacturing) and
Samsung Display Bac Ninh (SDBN, hi-end display
manufacturing). Samsungs investment in Vietnam
has neared USD 15b so far.
This Taiwanese paper producer supplies packaging to
big companies such as Apple and Nike.
The plant, planned to go operation in 2016, will be
Cheng Loongs biggest ever with annual capacity of
one million tonnes (Groups current capacity is 2.12
million tonnes)
Far Eastern New

Century (FENC)
Synthetic
and textile
Texhong Group
Yarn production
fibres
USD 274m
FENC is supplying filaments for Nike. Its new plant in

Vietnam is scheduled to start operation in 2H16
USD 300m
This will be the fourth plant of the Hong Kong group in

Vietnam. 90% production are brought back to China.
Texhong also plans to go downstream.
Government Budget: The aggressive call for fiscal consolidation
HOLD
Crude oil lingering at low levels and falling corporate income tax will continue to pose
challenges on revenue collection in 2016. As such, we think that aggressive efforts to collect
taxes in arears will remain in 2016 with possibilities of tax being raised elsewhere to compensate
for the gap.
Meanwhile, funding the fiscal deficit remains a headache. Although the MOF has approved
issuance of G-bonds with short tenors of less than five years again, robust credit growth will make
it hard for the MOF to raise capital from domestic market. Accessing the international capital
markets will become more expensive due to the US Fed's rate hikes and higher fluctuation in the
forex market.
Aside from difficulties in revenue collection and fiscal deficit funding, we also believe in a
more stringent control on government spending in 2016 to ensure fiscal stability.
Countercyclical fiscal policy with growing debt borrowing has been in place since 2011 to support
economic recovery. This has resulted in Vietnam public debt reaching 61.3% GDP (nearing the
statutory limit of 65% GDP set by the National Assembly). Meanwhile, debt service payment has
significantly increased its burden on the budget as interest payment is estimated to have eaten up
9% of the state revenue in 2015 vs. 6% in 2013.
The need to ward off the budget woes, on the flip side, would lead to acceleration in
structural reform or the speeding-up of privatization and divestment. In October 2015, the
government announced it would divest all of its shares in 10 enterprises held by State Capital
Investment Corporation (SCIC), which is estimated to bring approximately USD 4 billion for the
state budget, though the precise timeframe is still ambiguous. Meanwhile, there are long-awaited
IPOs to take place in 2016 from large state corporations such as Mobiphone, Vicem, Vinalines etc.
Figure 11: Government budget in summary
2014
2015E
Units
VND trillion
GDP
3,937,856
Revenues
863,520
21.9%
927,500
22.1%
1,014,500
21.6%
SOEs
188,040
4.8%
212,619
5.1%
256,308
5.5%
FIEs (excluding crude oil)
223,743
5.7%
202,771
4.8%
159,010
3.4%
Non-state sector
112,198
2.8%
124,475
3.0%
143,488
3.1%
Crude oil revenue
100,083
2.5%
61,000
1.5%
54,500
1.2%
Customs revenue
95,966
2.4%
94,500
2.3%
91,000
1.9%
Grants
6,433
0.2%
4,500
0.1%
3,000
0.1%
1,060,640
26.9%
1,558,840
27.6%
1,273,200
27.1%
208,040
5.3%
203,210
4.8%
823,995
17.5%
800,532
20.3%
878,830
21.0%
254,950
5.4%
52,068
1.3%
65,060
1.6%
N/A
N/A
224,000
5.7%
226,000
5.4%
254,000
5.4%
Spending
Current spending
Investment
Development
Principal payment
Budget deficit
&
% of GDP
VND trillion
2016F
% of GDP
4,192,862
VND trillion
% of GDP
4,696,005
Source: MOF
Figure 12: List of SCIC stocks to be divested

#
Stock
% SCIC Owns
Vinamilk (VNM)
45.10%
FPT (FPT)
6.00%
Binh Minh Plastic (BMP)
38.40%
Tien Phong Plastic (NTP)
37.10%
Vietnam Reinsurance (VNR)
40.40%
Bao Minh Insurance (BMI)
50.70%
Ha Giang Mineral and Mechanics (HGM)
46.60%
Sa Giang Import Export (SGC)
49.90%
Vietnam Infrastructure
47.60%
10
FPT Telecom
50.20%
HOLD
Source: State Capital Investment Corporation, ***time frame for divestment undecided***
Trade: Export growth should improve in 2016 but the trade deficit will remain
HOLD
due to import growth
Vietnam export growth in 2015 slowed to 8.1% from last years 12%. However, amid lackluster
global demand, this result is a commendable feat, especially when regional export-oriented
economies incurred contraction in shipments (Figure 14). Notably, FIEs in Vietnam delivered
healthy double digit growth despite oils slump, being the main contributor to Vietnams export
growth (Figure 15 and 16). Meanwhile, domestic enterprises with agricultural commodities being
the prime export products, actually recorded declines due to the plunge of most commodity prices
in 2015.
Going forward into 2016, we believe that strong inflow of foreign investment ahead of
massive FTAs should be sufficient to boost Vietnam export growth even if external demand
remains stuck in a rut. Of note, as Vietnam is still taking a relatively small proportion of global trade
while MNCs are constantly shifting their production into Vietnam, the country is in a sweet pot to
enlarge its share from a low base (Figure 17). Furthermore, we expect commodity prices to see a
lighter pace of contraction from the lows of 2015, adding more margin to growth. We forecast
export growth to inch higher to 10% in 2016.
Imports continue to surge as FIEs are sourcing little from local enterprises while domestic
demand will fuel the import of consumer-related goods. Given our expectation of increasing
FDI, further acceleration in machinery import is undeniable (Figure 18) while higher consumer
spending on discretionary goods means import auto sales will have another fruitful year ahead
(Figure 19). As such, we forecast imports to outpace exports to deliver growth of 11% in 2016
Therefore, we forecast the trade deficit to continue in 2016, reaching USD5 billion.
Consequently, the countrys current account deficit will be contracted further in the year to come
(Figure 20).
Figure 13: Vietnam export and import
200
Trade balance
Exports
20
Imports
160
120
0
80
USD billion
USD billion
10
-10
40
2015
2016F
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
-20
1994
Source: GSO, Customs Office, VCSC

Figure 14: Vietnam remain a bright spot of export among emerging economies in Asia
HOLD
10%
5%
0%
-5%
-10%
-15%
-20%
VN
MY
BL
HK
CH
TL
PH
SG
KO
ID
IN
Source: VCSC collection
Figure 15: Foreign-invested enterprises are the star of export growth

25%
18%
20%
15%
FIEs have helped the countrys

export to outperform regional
peers by maintain double digit
growth...
14%
Exports growth - FIEs (ex-oil,
YoY)
10%
5%
Exports growth - FIEs (incl.

oil, YoY)
0%
Exports growth - Domestic

firms (YoY)
-5%
-4%
Oct-15
Jul-15
Apr-15
Jan-15
Oct-14
Jul-14
Apr-14
Jan-14
-10%
... as opposed to the contraction in

shipments from local firms
Figure 16: Top shipments reflect the dominance of FIEs in Vietnams export
HOLD
180
Smart phones, Electronics & PCs
160
Garments & Footwear
Aqua & Agr. Products
140
Crude oil
USD billion
120
Others
100
80
60
40
20
0
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Figure 17: Vietnams share in global trade is still modest growth opportunities are wideopen
Apparels & Footwear to the EU
Apparels & Footwear to the US

50
40
30
USD billion
20
10
30
20
10
China
Bangladesh
Turkey
India
Vietnam
Morocco
Cambodia
Tunisia
Indonesia
Pakistan
Sri Lanka
Switzerland
Thailand
Hong Kong
Others
China
Vietnam
Indonesia
Bangladesh
India
Mexico
Italy
Cambodia
Honduras
Sri Lanka
El Salvador
Pakistan
Nicaragua
Guatemala
Others
EUR billion
40
Axis Title
Source: Eurostat
Axis Title
Source: US Census Bureau
Figure 18: The surge in machinery imports

this year is in line with robust disbursed
FDI
30
15
25
14
Figure 19: Yet, recovering domestic

demand led to impressive growth of
imported cars
HOLD
500
USD m
'000
units
400
12
10
300
15
11
10
200
10
Sep-15
Jan-15
May-15
Sep-14
Jan-14
May-14
CBUs (RHS)
FDI disbursement, USD bln (RHS)
Source: Customs Office, FIA
Sep-13
Machinery import, USD bln
Jan-13
2009 2010 2011 2012 2013 2014 2015
2
0
May-13
Sep-12
100
May-12
Jan-12
14
12
13
20
16
Value (LHS)
Figure 20: We forecast current account surplus to further narrow in 2016

30,000
USD million
20,000
10,000
0
-10,000
-20,000
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015E2016F
Merchandise trade balance
Net services and investment income
Net remittances
Current account balance
Source: SBV, VCSC
Inflation: Price increase to accelerate albeit at a moderate pace
HOLD
We believe inflation hit bottom in 2015. In 2015, inflation fell to a 14-year low of 0.63% largely
due to the plunge of oil prices as the transportation category was the biggest dragger to the CPI
reading. Yet, we reckon some signs of bottoming out as on-year inflation bounced to 0.6% in
December from 0% in September and October.
As such, our view is that inflation will carry on its two-year subdued streak into the first few
months of 2016 but then rolling into mid-year, price appreciation will speed up. Higher
inflationary pressure is becoming more imminent as consumer demand and credit growth, which
has been robust since 2015, will remain resilient in quarters ahead. Moreover, consecutive Dong
devaluations in H2/15 with expected further weakening in Q1/16 would gradually impact prices of
imports.
However, there are opposing forces to abate the pressure. We expect commodity prices to
see contained recovery from the lows of 2015. Meanwhile, pricing of imported products will gain
support from tax elimination stipulated by FTAs, offsetting the impacts of a weaker Dong to some
extent.
As such, we forecast year-end inflation at 3.5%, with some upside risk. This further backs our
anticipation of the SBVs shift to a more tightened monetary stance. However, as the pickup
remains under a manageable range (less than 5%), the SBV will not be in a rush for an abrupt
switch.
Figure 21: Inflation to pick up in H2/16 but the increase is manageable

20%
3%
CPI MoM (RHS)
CPI YoY (LHS)
16%
2%
12%
1%
8%
0%
4%
Oct-16
Jul-16
Apr-16
Jan-16
Oct-15
Jul-15
Apr-15
Jan-15
Oct-14
Jul-14
Apr-14
Jan-14
Oct-13
Jul-13
Apr-13
Jan-13
Oct-12
Jul-12
Apr-12
-1%
Jan-12
0%
Source: GSO, VCSC
Forex rate: Its impossible to stay immune from external turbulence
HOLD
Effective January 4, 2016, the SBV starts to adopt a more market-controlled exchange rate
mechanism. Under the new regime, the reference rate shall be adjusted on daily basis as opposed
to being kept for a long horizon like what had been implemented previously. Adjustments should
be determined based on:
The weighted average of interbank rates on the previous day

The movement of the US dollar and other currencies of Vietnams important trading partners
including the euro, Chinese yuan, Japanese yen, Taiwanese dollar, Singapore dollar, Korean
won, and Thai baht
Macro indicators such as inflation and interest rates
Meanwhile, a defined trading band is still applied (which is standing at 3%) so as to prevent
unexpected volatility.
The SBVs switch is well-grounded given global currency market is entering an era of
greater turbulence, from a strengthening US dollar on the Fed rate hike to a more volatile yuan,
given its nomination as a new internal reserve currency by the IMF. As such, by adjusting the
reference rate frequently in an anticipated manner, the SBV is showing their readiness to respond
to any external changes without causing shocks to the local forex market.
and defending a prolonged fixed reference rate has become costly in the context that
Vietnam is more integrated into the increasingly changing global landscape. The
appreciation of the USD and the surprise yuan depreciations of late caused many currencies of
Asian export-oriented economies to tumble. Therefore, pegging the dong to the USD for a long
horizon would hurt the competitiveness of a country where export turnover is equivalent to c.80%
of GDP. Meanwhile, efforts to steady the forex rate caused Vietnams forex reserves to fall
significantly below the comfortable standard level of three months of imports. As of end Q3/15, the
ratio stood at 2.1 months of imports with total reserves estimated at USD30.3 billion vs. USD37
billion as of end July.
The implementation of this flexible exchange rate system will introduce gradual and
expected dong depreciation going forward. As such, we believe this would help to better the
forex market activities by harnessing a wait-and-see sentiment on one-off devaluations.
The Dong is under strong depreciation pressure in the coming year. Abroad, the USD is likely
to carry forward its momentum on the heel of Feds rate hikes, hinted at an aggregate of 100 bps
in 2016 (25 bps hike per quarter). Meanwhile, slowing growth of China economy is weighing on
Yuan to depreciate. At home, the expected widening of trade deficit in 2016 will further narrow the
current account surplus, burdening the balance of payment.
However, the Dong would not go that far. The SBV vowed to exert stringent policies, including
the new exchange rate mechanism, to thwart US hoarding, alleviating speculating pressure on the
dong. Meanwhile, a strong VND devaluation would increase the extent of Vietnams debt burden
the country has USD80 billion of external debt (41.5% of GDP) while public debt is approaching
the ceiling of 65% of GDP.
As such, we forecast VND/USD rate would reach VND 23,700 at year-end, implying an
effective depreciation of 5.4%.
Figure 22: Forex reserves have been falling since Q3/15
HOLD
40
5.0
35
4.0
25
3.0
20
2.0
15
# of month
USD billion
30
10
1.0
5
0.0
Jan-09
Apr-09
Jul-09
Oct-09
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Apr-11
Jul-11
Oct-11
Jan-12
Apr-12
Jul-12
Oct-12
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
Apr-14
Jul-14
Oct-14
Jan-15
Apr-15
Jul-15
Oct-15
FX reserve
Import cover (RHS)
Source: SBV
Figure 23: The balance of payments deficit has eroded the current account surplus
30,000
USD million
20,000
10,000
-10,000
-20,000
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015E 2016F
Current account balance
Direct investment
Portfolio investment
Other investment
Net errors and omissions
Overall balance
Source: SBV, VCSC
Figure 24: However, the dong has been one of the currencies in ASEAN with best
performance despite three devaluations in 2015
HOLD
20%
10%
PHP, -6.56%
0%
VND, -7.49%
-10%
THB, -14.68%
-20%
MYR, -28.85%
-30%
IDR, -35.20%
-40%
VND
MYR
THB
PHP
Nov-15
Aug-15
May-15
Feb-15
Nov-14
Aug-14
May-14
Feb-14
Nov-13
Aug-13
May-13
Feb-13
Nov-12
Aug-12
Feb-12
May-12
Nov-11
Aug-11
May-11
Feb-11
-50%
IDR
Source: Bloomberg
Interest rate: Time for some tightening
HOLD
We expect interest rate (lending and deposit rates as well as bond yields) hikes of circa 100
bps in 2016
Interest rates have fallen by about 800 bps since 2011 and we believe rates are bottoming out:
Some rate hike will take place for the purpose of mobilizing capital to grow banks loan
book. As the economy reenters into a firm recovery phase, credit growth has been
overwhelming deposit growth in 2015. Furthermore, the SBV has shown their intention to keep
a pro-growth policy by targeting 18%-20% credit growth in 2016, a slight acceleration above
2015s pace.
We expect a moderate increase in government bond yields. The increasing budget deficit
(up 12% vs. 2015) together with a considerable amount of bonds to expire will continue
burdening the bond supply in 2016. As commercial banks are the main clientele of G-bonds
(holding circa 80% of current G-bond outstanding), lending rate is all but moving in tandem
with the movement of return on this risk-free asset.
However, as the SBV is still prodding an accommodative policy, we believe that the hike will be
limited for the time being. As such, we forecast a moderate increase of 100 bps in 2016.
Figure 25: Credit growth is outperforming deposit growth
40%
M2 (%YoY)
Deposit growth (%YoY)
Credit growth (%YoY)
30%
20%
10%
Oct-15
Jul-15
Apr-15
Jan-15
Oct-14
Jul-14
Apr-14
Jan-14
Oct-13
Jul-13
Apr-13
Jan-13
Oct-12
Jul-12
Apr-12
Jan-12
Oct-11
Jul-11
Apr-11
Jan-11
0%
Source: SBV
Figure 26: Pressure on bond supply persist in 2016
HOLD
400
Bond rollover
VND 103 trillion
350
VND trillion
300
119
250
71
32
200
40
150
24
27
114
109
112
174
237
224
226
2009
2010
2011
2012
2013
2014
2015E
100
Budget deficit,
VND 254 trillion
50
Budget deficit
2016F
Bond rollover
Source: MOF
Figure 27: Bond Yield will carry on the uptrend in 2016
16%
14%
12%
10%
10Y
7.21%
8%
5Y
6.66%
6%
1Y
4.96%
4%
Oct-15
Jul-15
Apr-15
Jan-15
Oct-14
Jul-14
Apr-14
Jan-14
Oct-13
Jul-13
Apr-13
Jan-13
Oct-12
Jul-12
Apr-12
Jan-12
Oct-11
Jul-11
Apr-11
Jan-11
2%
Source: Bloomberg
Barry Weisblatt
+84 8 3 914 3588 ext. 140
Stock Market Performance
HOLD
What happened in H2/2015: It was Vinamilk vs the global economy

Figure 28: Both of the major indices recorded slight declines in H2
700
650
100
MBB issues
new shares
RMB
devaluation
600
550
SCIC
divestiture
VNM earnings
release
Yellen says
hike is
"live possbility"
90
Fed raises
rates
Oil prices
falling
80
500
TPP
agreement
VNM FOL
rumors
VNM F&N
rumors
Oil prices
falling
70
450
400
Jul-15
60
Aug-15
Sep-15
Oct-15
VN-Index
Nov-15
Dec-15
HN-Index
Source: Bloomberg & VCSC
Vietnams stock markets finished 2015 with unimpressive performances. The VN-Index gained a
mere 6% for the year while the HNX-Index actually declined by 5%. Since our mid-year report, the
performance in H2 was not better. The VN-Index fell 3% from 592 to 576 while the HNX-Index fell
8% from 85.3 to 78.6. Key drivers were:
Falling oil prices: Oil prices fell most strongly at the beginning and the end of the period,
dragging oil & gas stocks down both times. The impact in July was offset by rising bank stocks
fuelled by issuance of new shares from MBB.
China currency devaluation: China devalued its currency by 5% over three-days in midAugust and Vietnam followed suit by devaluing the dong and widening the trading band. The
VN-Index reacted by falling 9%, but it quickly rebounded.
TPP agreement: Vietnam stocks reacted very well to the announcement of an agreement on
the Trans-Pacific Partnership (TPP) agreement. Stocks in export and transportation sectors
were particularly affected. But the effects were short lived, with TPP stocks correcting
somewhat after a few days.
Fed rate increase: Markets have known for quite some time that the US Fed would eventually
raise its benchmark interest rate and that this could lead to foreign outflows from Vietnam.
However, the market did not seem to fully price this in until the first week of November when
Fed Chair Yellen made the comment that a December hike was a live possibility and her
comments were followed the next day by a very strong US jobs report. Over the next six
weeks, the VN-Index fell 9% before rebounding slightly on the day of the rate increase
announcement.
Vinamilk: If one company can ever move a whole market, it was Vinamilk (VNM) during this
period. The shares rose from 91,700 (adj) on July 1 to a peak of 140,000 before correcting to
finish the year at 128,000, a 40% increase over the six months. Because of its large market
cap, the shares had a significant impact on the overall market, adding approximately 30 points
to the VN-Index. VNMs story was fuelled by (1) the announcement by the government SCIC
would divest its shares; (2) rumors that following the divestiture VNM would increase its FOL;
(3) the announcement that 9M earnings had increased 35% y-o-y; and (4) rumors that F&N
would acquire a large share of the company.
HOLD
It could have been worse. Just ask our neighbors.
Figure 29: Vietnam outperformed its regional peers

110
105
100
95
90
85
80
Jul-15
Aug-15
Sep-15
VietNam
Indonesia
Oct-15
Nov-15
Philippines
Dec-15
Thailand
Source: Bloomberg
Although Vietnams market performance was lacklustre, it was significantly better than our
neighbors. Global economic factors, such as oil prices and the yuan devaluation clearly affected
them similarly to Vietnam, but they did not have the benefit of VNM boosting their markets in
October. Interestingly, the Fed rate rise seemed to affect Thailand and Vietnam in the same way,
but not Indonesia nor the Philippines.
But is the VN-Index still cheap compared to our neighbors?
HOLD
Figure 30: How to explain Vietnams lower valuations
Thailand
Jakarta
Philippines
Vietnam
SET Index
JCI Index
PCOMP Index
VN- Index
P/E
16.8
26.8
19.9
11.3
P/B
1.7
2.3
2.5
1.7
ROE (%)
7.9
9.2
12.8
15.5
ROA (%)
1.9
2.3
2.9
2.7
Market cap USDm
340,034
351,814
172,743
51,063
Foreign inflow USDm
(3,905)
(1,892)
(1,600)
(104)
Inflation YoY
-0.97%
4.90%
1.10%
0.60%
5 yr Govt bond yield
2.15%
8.80%
4.10%
6.50%
Source: Bloomberg
Even though the VN-Index outperformed our neighbors during 2015, it still trades at a much lower
P/E ratio than any of them. This is true in spite of the fact that its ROE is the highest and its ROA
is nearly the highest and we had the lowest foreign outflows. While this might suggest that we are
due for a correction as foreign flows seek our undervalued stocks but there are a few reasons for
the lower values. The first is market size. The HOSE market cap is a fraction of the other markets.
This difference is magnified by foreign ownership limits thereby reducing investible opportunities
for foreign investors. Furthermore, Vietnam has a higher risk-free rate, especially on a real (inflation
adjusted) basis. This is a function of our sovereign credit rating and reduces our equity valuations.
Considering these factors, the difference in multiples begins to seem more justified.
Figure 31: HSX sector performance H2/2015
Auto & parts

Insurance
Const & Materials
Household Goods
F&B
Banks
Media
Technologies
Basic resources
Industrial G&S
Travel & Leisure
Real Estate
Financial Services
Chemicals
Retail
Health Care
Utilities
Oil&Gas
65.9%
61.8%
60.1%
37.9%
36.6%
36.2%
16.4%
16.0%
14.9%
14.1%
10.0%
7.7%
-1.3%
-3.1%
-10.5%
-18.6%
-35.3%
-49.3%
Figure 32:
H2/2015
Travel & Leisure
Industrial G&S
Chemicals
Const & Materials
Basic resources
Technologies
Insurance
Utilities
Media
Banks
Retail
Financial Services
Oil&Gas
F&B
Real Estate
Auto & parts
Health Care
Household Goods
HNX
sector
performance
47.3%
40.1%
29.4%
29.4%
26.9%
25.7%
20.0%
12.9%
9.9%
9.2%
7.9%
5.9%
4.7%
-2.8%
-3.2%
-12.3%
-34.6%
-40.5%
Source: Bloomberg
The auto & parts sector had the strongest performance, due largely to expectations of increased
automobile purchases as regulations change. Banks and F&B (led by VNM) also had very strong
performances and had far more impact on the overall market due to their larger market
capitalization. Oil & gas and utility stocks were among the worst performers and made a strong
negative impact on the overall market with PVGas (GAS) estimated to have shaved more than 10
points off the VN-Index by itself.
HOLD
Outlook for 2016: Earnings growth will drive market performance.
Figure 33: The VN-Index is recovering towards its long-term trend line
1,200
1,000
Bubble
800
600
400
200
0
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Source: Bloomberg and VCSC

Past performance is, of course, not always and indicator of future performance but it is interesting
to note that following the bubble of 2006-2007 and the crash of 2008-2009, the VN-Index returned
to the exact same trend line it had been on previously. During 2015 the index dropped below this
trend line, but was returning to it at the end of the year, indicating (although maybe not in the most
scientific way) that share prices had not appreciated too quickly and that there is room for further
recovery going into 2016.
Figure 34: Bond yields and equity valuations were both flat during the period
HOLD
18
14
16
12
14
10
12
10
4
2
VNI - PE Ratio (LHS)
Oct-15
Jul-15
Apr-15
Jan-15
Oct-14
Jul-14
Apr-14
Jan-14
Oct-13
Jul-13
Apr-13
Jan-13
Oct-12
Jul-12
Apr-12
Jan-12
Oct-11
Jul-11
Apr-11
Jan-11
Oct-10
Jul-10
Apr-10
Jan-10
5YR Gov Bond Yield (RHS)
Source: Bloomberg
The VN-Index has recorded a very strong negative correlation to the five-year G-bond yield since
2010. During H2/2015 both were relatively flat although the P/E ratio was more volatile. For 2016,
we have forecast the bond yields would increase by up to 100 basis points. It is therefore unlikely
that we will see significant multiple expansion for the market as a whole even though the current
level may seem low. Furthermore, global geopolitical factors that hurt market performance in
H2/2015 show every indication of continuing their trend in 2016. Oil prices should remain low
(assuming the Middle East does not break out into full-scale war); weakness in the Chinese
economy will likely lead to further devaluations and the Fed will likely continue to increase rates at
a steady pace throughout the year at least two, possibly four times.
If P/E ratios will not expand then we will need earnings growth in order to see increased valuation.
Fortunately, the outlook here is more positive. For the VCSC coverage universe, we are
forecasting 28.9% EPS growth on a market-weighted basis, 17.2% on a simple average basis.
This is due to three heavy-weights VCB, MSN, and VIC pulling up the weighted average. Our
coverage universe represents approximately 75% of the total listed market-cap. If we
conservatively assume the rest of the market does not do as well and forecast 20% EPS growth
with no P/E multiple expansion, this would bring the VN-Index just shy of 700.
Figure 35: The VN-Index has faced strong resistance at 640
HOLD
700
650
640 resistance level
600
550
500
450
J-14 F-14 M-14 A-14 M-14 J-14 J-14 A-14 S-14 O-14 N-14 D-14 J-15 F-15 M-15 A-15 M-15 J-15 J-15 A-15 S-15 O-15 N-15 D-15 J-16
Source: Bloomberg
There are two elements of downside risk we should consider though: technical and geopolitical.
From a technical perspective, the VN-Index has approached 640 two times during the past two
years and both times failed to break through. There is definitely negative retail sentiment
surrounding this level and we will need some strong catalyst in order to break through. It may take
a few tries in order to do so. From a geopolitical perspective, we must consider the risk around
China. Its manufacturing is declining, currency is devaluing and its equity markets have taken big
hits. All of these weigh on global markets and affect Vietnam, not only as an emerging capital
market but also as a trading partner of China. If China should experience a hard landing, this could
create a completely different scenario for Vietnam (as well as for many other countries). With
these two risks in mind, we temper our forecast back a bit to 680 and note the possibility of a darker
scenario.
Long Ngo
Senior Manager
long.ngo@vcsc.com.vn
+848 3914 3588 ext. 145
Thuy Le
Analyst
thuy.le@vcsc.com.vn
+848 3914 3588 ext. 116
Banking sector: Controlling the commanding heights of the

HOLD
banking system
Figure 36: Bank Index vs. VNINDEX
70.0%
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
-10.0%
Jan-15
Feb-15
Apr-15
Jun-15
VNI
Jul-15
Sep-15
Nov-15
Dec-15
Bank Index
Source: Bloomberg
Figure 37: Bank Tickers vs. VNINDEX

140%
120%
100%
80%
60%
40%
20%
0%
-20%
-40%
Jan-15
Apr-15
VNI
ACB
Jul-15
VCB
BID
Oct-15
CTG
MBB
EIB
STB
Source: Bloomberg
Company name
Tickers Rating
Market Foreign
Cap Avail in
US$mn US$mn
Target
Div
FY16
FY17
Current
FY16
price
Upside yield @ FY15 EPS EPS
EPS
Price
P/E
VND /
%
current growth % growth growth
VND/sh
(x)
share
price
%
%
MR
QTR
P/B
(x)
BANKS
Asia Commercial JSB
ACB
BUY
760.8
24,200
19,100
26.7%
4.2%
16.7%
15.0%
48.2%
14.2
1.3
Vietcombank
VCB
O-PF
5,033.9
95.6
47,000
42,500
10.6%
2.4%
26.0%
48.8%
40.7%
15.8
2.1
VietinBank
CTG
O-PF
2,995.3
15.0
21,000
18,100
16.0%
3.3%
12.6%
-8.4%
4.8%
13.9
1.1
Military Bank
MBB
O-PF
988.4
15,000
13,900
7.9%
5.8%
-10.3%
-23.3%
-11.5%
10.1
1.0
BIDV
BID
MP
2,932.5
79.2
18,600
19,300
-3.6%
3.6%
-28.0%
-21.7%
-15.3%
21.6
1.5
Eximbank
EIB
UP
606.5
22.4
9,600
11,100
-13.5%
1.8%
1,354.1%
-81.2% 138.4% 121.9
1.0
Sacombank
STB
SELL
1,010.0
190.9
9,300
12,600
-26.2%
0.0%
26.0%
-58.0%
0.9
-16.7%
23.2
2015 recap: SOE banks see healthy price surge, recapitalisation and M&A
HOLD
Two significant recapitalisations but not public markets driven: BID and MBB completed
major recapitalisations but they were mainly driven by the government and existing major
shareholders, respectively. We dont see these as repeatable going forward. Access to equity
capital markets, driven by institutional investor participation, will be key for our favoured stocks
going forward.
Market bids up healthy banks while side-stepping weaker banks: Bank investors bid up SOE
banks in 1H15, at least two quarters before credit growth numbers clearly indicated robust demand
for credit in the economy. Bank investors however showed discernment by side-stepping weaker
SME/retail focused banks like EIB and STB.
M&A of big players with small banks: The industry saw mergers of some small banks with other
big banks: BID and MHB, CTG and PG Bank, STB and Southern Bank. Acquisition of weak banks
follows the direction set by SBV to restructure the current system, which will allow a narrowed
number of efficient banks to operate. M&A benefits the whole system in the long-term as banking
services and products will be provided big banks with strong financial position. For the banks after
these mergers, a larger customer base and network is advantageous, especially for expanding into
the retail sector. However, in the short-term, banks after these mergers have to resolve problems
of NPLs and depressed NIMs.
Cross-holding has been gradually resolved: SBV has shown strong commitment to disentangle
cross-holding issues in the banking system by the issuance of Circular 36/2014 and several
enforcements in 2015. Weaker SME banks have received most of the SBV spotlight. EIB was
inspected by the SBV and some individuals were requested to lower their stakes to below 5% cap.
Cross-holding between EIB and associate companies, between STB and EIB are also in the midst
of being resolved. In addition, with the merger of STB and Southern Bank in play, SBV has
inspected STB and requested an individual in Southern Bank to transfer their entire voting rights
to the SBV. Enforcements has started at SME banks, and we can see more to come in 2016,
although extended timeline may be allowed in some cases.
Share price impact of these divesture overhangs has generally been negative. When news of broke
of the sequestration of voting rights at STB and EIB on 23 Oct 2015 we saw a 9.8% drop in the
share price of STB in the two weeks thereafter whereas EIB only dropped 1.7% over the same
period. However, the liquidity of STB is more than three times larger than EIB and the scale of the
overhang at STB is of a significant order of magnitude larger (possibly up to 50% of shares
outstanding). MBB is a stock also subject to significant overhang and it has generally
underperformed in 2015 however this overhang was clear when Circular 36/2014 was first released
and its underperformance in 2015 may have more to do with its operational performance and a
highly dilutive equity raising.
2015 credit growth exceeds initial target on robust economy and the freedom provided by
a low inflation environment: system wide credit growth came in at 18% compared with initial
2015 SBV target of 13 to 15%.
Loan book weighted loan yields, funding cost and NPL ratios: Loan yields for 9M15 came in
at 6.92% versus FY14 of 7.51%, but funding cost for 9M15 improved to 3.82% versus FY14 of
4.40%. The industry NPL ratio for 3Q15 continued to improve to 1.68% versus YE14 of 1.83% with
much of the improvement being due to sales to the Vietnam Asset Management Company
(VAMC).
2016 outlook access to equity capital markets to anoint winners
HOLD
Our refreshed view on listed banks is laid out in our recently published December 2015 sector
report where we gradually build up our case on our favoured banks. As a house, weve always
avoided making definitive conclusions simply on headline numbers, especially when those
headlines numbers cannot even be compared across banks. In our first banking sector report
published in November 2014, we devoted the piece to drilling down on each of the banks balance
sheet. This focus on asset quality suited the times when there were still so many doubts in the
market about systemic risk in the banking system. Fast forward 13 months and with GDP metrics
pushing at five-year highs and SOE banks completing a remarkable share price run, we felt the
new focus in the second sector report should be forward looking on topics set to focus the minds
of boards of banks for the years ahead. For us these topics revolved around the looming
introduction of Basel II in Vietnam, evolution of the interbank market in Vietnam, a reality check on
real estate lending, banks handling of their IT development and finally putting this all together to
present a VCSC view on normalized ROEs.
By taking this approach in the second report we argue that a pure focus on numbers fails to give
a true picture of how banks, typically the most complex organisations operating in any economy,
will prosper in the long-run. The strategies at play behind the numbers should be as important to
investors, especially for a buy and hold market like Vietnam.
Traversing these five topics there is one name that consistently rises above all others and that is
VCB. Comparing VCB to a technology titan would be a stretch but there is definitely a vein of
strategic aplomb at VCB and hence the title we hatched for the report controlling the
commanding heights of the banking system. Our approach to valuation of all banks under our
coverage has also undergone more of a straight laced approach, discarding some of the leap of
faith approaches of the past and instead presenting a uniform argument and the main drivers of
valuation. Under this standardized valuation approach three names that surface are ACB, VCB
and CTG. Built into the valuation of these three banks is an assumption that these banks have
superior access to equity capital market and an ability to sustain credit growth in the long term.
ACB is a valuation call and also a vouch of approval for its managements handling of post-crisis
ACB (i.e. last two years). As a member of the troubled SME/retail focused banks it was the first to
take on the task of reforming itself and even at its nadir its problems were much more manageable
than present day STB and to a lesser extent EIB. The VCB call may strike some as lacking
originality however our sector report goes to great ends to find valuation support. With Vietnams
stock market what it is, subject to the vicissitudes of ETF rebalancing, a firm valuation call on VCB
is useful in highlighting trading opportunities. Finally, CTG is a non-consensus call based on our
work looking at its IT systems, relatively admirable approach to credit extension and the other
typical attractive elements of SOE banks being CIR and relatively low credit cost.
Figure 38: Banking stocks recommendations
Coverage universe
valuation summary
1 ACB (1st pick)
2 VCB (2nd pick)
3 CTG (3rd pick)
4 MBB
5 BID
6 EIB
7 STB
Recommend.
Current price
Target price
Total return
BUY
OUTPERFORM
OUTPERFORM
OUTPERFORM
MARKETPERFORM
UNDERPERFORM
SELL
19,100
42,500
18,100
13,900
19,300
11,100
12,600
24,200
47,000
21,000
15,000
18,600
9,600
9,300
30.9%
12.9%
19.3%
13.7%
0%
-11.7%
-26.2%
Though we refer readers to the sector report we repeat below the essence of valuation drivers for
our banks under coverage:
HOLD
Figure 39: 4 categories of normalised cost to income ratio

Category 1
Category 2
Category 3
Category 4
Explanation
SME/retail
focused
banks
with
poor
IT
systems
and
constrained
financial capacity
Decent
IT
systems
and
relatively strong
financial capacity
Top
of
industry
systems
the
IT
More than 15% of

interest bearing
assets
in
interbank lending
from 2017 and
high proportion of
non-interest
income
Cost
income
ratio
Baseline 52%
Baseline 44%
Minus 1% from
baseline
Minus 5% from
baseline
to
STB
EIB
*
*
ACB
BID
MBB
(plus 4% for
legacy
cost
overheads)
*
*
(as
MBBs
branch network
expands
to
support growing
balance sheet)
CTG
VCB
Source: VCSC estimates
Figure 40: 3 categories of normalised interest income as percentage of total operating

income
HOLD
Category 1
Category 2
Category 3
Explanation
Typical
interbank
profile and absence
of
special
noninterest
income
franchise
Historically
strong
franchise in noninterest income
More than 15% of

interest
bearing
assets in interbank
lending from 2017
and strong franchise
in
non-interest
income
Interest income as %
of
total
operating
income
Baseline 90%
Baseline 83%
Baseline 75%
BID
CTG
MBB
STB
EIB
ACB
*
*
VCB
Figure 41: Adjustments to baseline NIMs
HOLD
Interbank
adjustments
VCB
=
Resulting
NIMs
of
3.1%
Bond
portfolio
adjustments
*
50bps
deduction
to
NIMs for 15bps
(as % of interest
bearing
asset)
outsize footprint
in
interbank
market
CTG
=
Resulting
NIMs
of
2.8%
BID
=
Resulting
NIMs
of
2.8%
MBB
=
(sitting
in
between
SOCB and
JSCB)
Resulting
NIMs
of
3.2%
ACB
=
Resulting
NIMs
of
3.2%
STB
=
Resulting
NIMs
of
3.2%
EIB
=
Resulting
NIMs
of
3.2%
Customer
loan
book adjustments
Other adjustments
* Kick from 2015

type USD bonds
(and presumably
more
in
the
future)
compensates for
tendency
to
under-price
corporate loans =
overall
10bps
boost
* 70bps boost
from funding cost
advantage
All
banks
presumed
to
normalise bond
portfolio to 15%
of
interest
bearing assets(*)
with
the
exception of STB
that has large
holdings of illiquid
corporate bonds
(STB is assumed
to normalise to
25%)
* 20bps boost
from funding cost
advantage

(*) interest bearing assets split-up calculation excludes deposits at the SBV
Stock recommendations
HOLD
BUY Asia Commercial Joint Stock Bank (HNX: ACB) We upgrade to a BUY on ACB as this
bank benefits most from our application of standardised valuation techniques across banks, in
particular our assertion that CIR at ACB can hold between baselines set for SOCBs and JSCBs
and that the bank can hold a circa 17% non-interest income business relative to operating income
in the years ahead. ACB is at the high end of our seven banks under coverage in terms of capital
under Cir36 and an adequate level under Basel II means ACB has the least dilution risk behind
EIB. We apply conservatism to the ACB valuation and despite the banks claim that accumulated
provisions and revised collateral value fully cover total outstanding principal of the six companies
we apply a 1/3 write-off of the outstanding principal which equates to VND1,865 per share and still
see upside of circa 26.7%. Other positives include relatively low exposure to real estate developers
and good IT infrastructure.
OUTPERFORM Vietcombank (HSX: VCB) We maintain an OUTPERFORM on VCB by
focusing on the bigger picture at VCB where we see leadership in important segments of the
banking system: establishing a hegemonic position in accumulating USD deposits and interbank
settlements, exhibiting more prudent lending in real estate, ranking second in the IT stakes and
exhibiting sector leading characteristics in our path to calculating normalised ROEs. VCB has the
lowest credit cost and CIR was able to hold at 38%. This is the only bank with a shot at achieving
non-interest income of 25% relative to total operating income. 10% issuance of primary shares for
strategic investors is planned for completion in 1Q16. Additionally, in the past 12 months we see
more of a willingness at the board level to engage with investors. We recommend investors build
positions in VCB on price weakness (where prudence can be discarded after the completion of
1Q16 equity raising).
OUTPERFORM Vietinbank (HSX: CTG) We upgrade to an OUTPERFORM on CTG as it
slides into third place based on old fashion banking qualities of good management of credit cost
and without observable bad debt baggage. CTG is well positioned to benefit as Vietnams economy
accelerates in the years ahead. Having MUFJ as a major shareholder is a major plus when it
comes to tapping equity capital markets. CTGs level of exposure to tier 1 property developers,
which is ahead of most of its peers, is another positive. On IT platforms, CTG is the best bank in
our coverage universe for user-friendly, fast processing system and the lowest fees charged. The
bank also took an axe to on balance sheet problem loans, writing off VND2,628 billion (USD116
million) for 9M15 (equivalent to 0.5% of gross customer loan book) vs VND887 billion (USD39
million) for same period last year. In addition, we're seeing both healthy VAMC provisioning for the
3Q15 plus specific provision account being topped up on par with 9M14 with a number of
VND2,394 billion (USD106 million) vs VND2,626 billion (USD116 million). Asset quality metrics are
improving with three months past due falling from 1.5% of customer loan book in 2Q15 to 1.0% in
3Q15.
Phap Dang
+84 8 3 914 3588 ext. 143
Vy Nguyen
vy.nguyen@vcsc.com.vn
+84 8 3 914 3588 ext. 147
Consumers sector: Undemanding valuation for retail stocks
HOLD
Figure 42: Consumers Index vs. VNINDEX

40.0%
30.0%
20.0%
10.0%
0.0%
-10.0%
Jan-15
Apr-15
VNI
Jul-15
Consumer Index
Oct-15
Source: Bloomberg
Figure 43: Consumers Tickers vs. VNINDEX

100%
80%
60%
40%
20%
0%
-20%
-40%
Jan-15
Apr-15
VNI
VNM
Jul-15
MWG
FPT
Oct-15
PNJ
TLG
MSN
Source: Bloomberg
Company
Ticker
Rating
Market Foreign Target

Cap
Avail in price
US$mn US$mn VND /
share
Current Upside
Div
FY15
FY16
Price
%
yield @
EPS
EPS
VND/sh
current growth growth
price
%
%
CONSUMERS
FY17
EPS
growth
%
FY16
P/E
(x)
MR QTR
P/B
(x)
25.3%
26.1%
22.1%
16.7
5.1
Mobile Word
MWG
BUY
495
102,000
76,000
34.2%
2.0%
56.6%
28.6%
13.4%
7.9
5.2
FPT Corp
FPT
BUY
830
64,000
47,000
36.2%
4.3%
7.5%
19.9%
21.5%
8.8
2.2
Masan Group
MSN
BUY
2,513
431
101,000
76,500
32.0%
NA
26.3%
93.5%
52.8%
21.6
3.6
Vinamilk
VNM
BUY
6,614
146,000 124,000
17.7%
3.5%
27.8%
12.9%
10.7%
18.9
7.8
Phu Nhuan Jewellery
PNJ
O-PF
187
48,500
42,800
12.3%
4.7%
-13.7%
66.9%
83.7%
12.1
3.0
Thien Long Group
TLG
M-PF
116
32.9
86,000
89,000
-3.4%
2.2%
29.9%
11.9%
10.9%
14.1
2.9
What happened in 2015: Domestic consumption picked up
HOLD
Consumer confidence has been on a steady rise against the backdrop of macro stability,
driving a bounce-back in FMCG growth since Q4/14-Q1/15, which progressed as the year went
on. Growth in rural areas continued to outpace urban areas on the back of a lower base and a
more active penetration strategy by FMCG players as growth in urban areas slows down.
Uneven stock performance. Consumer staple stocks (VNM & TLG) performed exceptionally well
in 2015 while consumer retail stocks did not live up to their operating performance, as in earnings
growth, for different reasons. MWG suffered from weak buying by investors due to lack of foreign
room while retail investors found little excitement in its trading illiquidity. Meanwhile, the incident of
Dong A Bank overshadowed PNJs core business excellence during Q3-Q4/15.
3Q15
2Q15
1Q15
4Q14
3Q14
2Q14
1Q14
4Q13
3Q13
1Q13
3Q15
2Q15
1Q15
-5
4Q14
3Q14
2Q14
1Q14
4Q13
10
3Q13
10
2Q13
15
1Q13
15
2Q13
Figure 44: YoY FMCG growth in Vietnams urban (left) and rural (right) areas
-5
Avg. Price paid
Volume
Value
Avg. Price paid
Volume
Value
Source: KantarWorld Panel
Food & Beverage Divergent trends
HOLD
Beverages including dairy remained the fastest growing category within FMCG with
accelerating growth especially in dairy. In contrast, consumption of packaged foods slightly
dipped. This divergence has translated into listed companies performance, with VNM reporting
strong top line growth while MSNs consumer business stagnated.
According to Nielsen Vietnam, the fact that beverages are outgrowing foods is attributed to 1)
producers putting a greater emphasis on health in their products (i.e. adding nutrients) with health
being ranked as the top concern of Vietnamese consumers nowadays, 2) consumers increasing
preference for convenience as beverages typically come in small packages and 3) sustainable
innovations that expanded category. To demonstrate the last point, Pepsi Suntory expanded its
tea category away from Green Tea Lemon to Olong and expanded category from refreshing to
healthy with its TEA+ Olong product, which achieved 56% growth in its second year while Meadow
Fresh expanded milk from fruit flavour to real fruit juice with its Nutriboost products, posting an
84% growth in its second year.
Home care
Personal
care
Pack. Foods
Beverages
25
20
15
10
5
0
-5
Dairy
Home care
Personal
care
Pack. Foods
Beverages
10
8
6
4
2
0
-2
-4
Dairy
Figure 45: % volume growth of super categories in 9M15 vs 9M14 in urban (left) and rural
(right) areas
Source: KantarWorld Panel
Retailing Inevitable elevation, but it is just the beginning

2015 witnessed an explosive expansion by retailers, incumbents or new entrants alike.
Leveraging on their established platforms, leading players like PNJ and MWG posted impressive
core earnings growth driven by aggressively opening new stores. MWG has also announced its
minimarket chain, which together with Vinmart+ of Vingroup (HSX: VIC) will propel the shift in
Vietnamese grocery shopping behaviour towards modern retail formats going forward. While
MWG will go through an experimental period of 12-18 months before deciding whether to scale up
the new chain (which could reach 6,000-8,000 stores by YE2018-2020), Vingroup already revealed
its ambitious plan of reaching an accumulated 60 supermarkets and 2,000-3,000 minimarkets by
YE2016. Foreign retailers also played their part in pushing the development of modern retail, with
the expansion of Aeon Mall (hypermarket), Lotte Mart (hypermarket) and convenience store chains
(Circle K, Family Mart, Ministop etc.), as well as the entrance of E-mart (hypermarket) and Simply
Mart (supermarket, belonged to Auchan).
HOLD
Figure 46: MWG and PNJs accelerating pace of store expansion catapulted profit growth
400
1,200
300
800
200
400
100
0
2011
2012
2013
2014 FY15F
2011
2012
2013
2014 FY15F
MWG - store count
PNJ - store count
MWG - core NPAT (VNDb)
PNJ - core NPAT (VNDb)
Source: Company disclosures

As we discussed in last years strategy report, Vietnams modern retail is at its inflection
point of development and so we always look at retail plays as attractive investments. PNJ
and MWG remain our favourites but low free-float remains a roadblock to their investability.
Technical goods market

2015 continued on 2014s path, as mobile and consumer electronics (CE) spearheaded
Vietnams technical goods market growth. Fundamental drivers remained the same, including
the shift from feature phones to smartphones and increasing affordability in mobile phones, and
growing penetration in CE.
Figure 47: Summary of major technical goods categories in 9M15
50,000
35%
30%
40,000
25%
30,000
20%
20,000
15%
10%
10,000
5%
0%
Mobile
CE + domestic
appliances
9M15 sales value (VNDb)
IT products
% growth vs 9M14
Source: GFK & VCSC
Jewellery retailing
HOLD
Vietnam gold jewellery demand grew 22% in 9M15 vs 9M14 as Vietnams economic growth
sped up, weak gold prices offered good buying opportunities for gold jewellery and the surprising
VND devaluation in Q3/15 ignited a rush to gold as safe heaven.
Vietnam (LHS)
Global (RHS)
Vietnam
3Q15
2Q15
3Q15
1Q15
3Q14
4Q14
1Q14
2Q14
4Q13
2Q13
3Q13
1Q13
2Q15
1.0
1Q15
2.0
4Q14
3.0
40%
30%
20%
10%
0%
-10%
-20%
-30%
3Q14
4.0
2Q14
800
700
600
500
400
300
200
100
0
1Q14
5.0
Year-on-year growth
Figure 48: Vietnam and global demand for gold jewellery volume (left) and growth rate
(right)
Global
Source: World Gold Council
2016 outlook BUY retail stocks when you can

We expect domestic consumption to keep its rally momentum in 2016, driven by:
- Rising income and consumer confidence. Discretionary goods should outgrow staple goods again
on the back of its higher income elasticity and Vietnams young middle-income class.
- More jobs created by FDI inflows and a healthy real estate market (many Vietnameses wealth is
tied to property) to spur consumption
- Rapid development of modern retail especially small-format stores, which widens access to
consumer goods and encourages consumption of packaged foods and beverages
- Possibility (admittedly a remote one) of a recovery in commodity prices, which will boost rural
populations income and bolster even higher growth in the rural areas
BUY retail stocks on growth potential and attractive valuation. Although we are also bullish
on staple goods plays, the undeserving relative underperformance of retail stocks in 2015 has
made them among those with highest upside in our coverage. Earnings growth should remain
elevated in 2016 primarily driven by store expansion.
HOLD
BUY Mobile World (HSX: MWG) MWG remains one of our top picks as it presents a
compelling growth stock play which is capitalizing on Vietnams underdeveloped but fast-growing
retail sector. We expect MWG to deliver another good year in 2016 driven by its footprint expansion
especially in the DienmayXANH (CE) chain, as we pencil in a 29% EPS growth in FY16 vs FY15.
Whether MWG can continue to grow at this pace afterwards depends on the outcome of the new
minimarket chain BachhoaXANHs experimental period, which has a high likelihood of success
according to our analysis discussed in the report dated 26 Oct 2015. Regardless, MWG remains
very cheap at FY16 PER of 7.9x.
BUY FPT Corporation (HSX: FPT) One of those stocks that will keep investors away from
sleepless nights, boasting a durable growth trajectory thanks to Telecom and Software
Outsourcing while presenting market-leading corporate governance and transparency. FY16
bottom line growth will better reflect FPTs true performance, as we estimate margins of the
telecom segment to stabilize after heavy investments in fiber optics in 2015. As such, Telecoms
profit will grow more in line with its revenue at nearly 30%. Meanwhile, we believe Software
Outsourcing will maintain its growth rate at 35-40% in 2016 as FPT continues to ride on its cost
competitiveness and aggressive staff recruitments. On the ICT Trading & Retail front, we expect
Retail to rise 20% owing to store expansion to offset the stagnation of Trading caused by the fact
that MWG now can deal directly with Apple instead of having to go through FPT Trading as before.
BUY Vinamilk (HSX: VNM) Given the high visibility of a robust FY16 on the back of improving
domestic consumption and subdued input milk powder prices, any surprising share price
movement relative to our 22x forward PER-based price target is likely to emanate from market
reactions to new developments on the issue of FOL and state divestment. In our viewpoint,
chances are surprises will come on the upside given that the recent M&As related to other large
listed F&B companies, namely KDC (confectionery unit) in 2014 and MSN (with its F&B subsidiary)
in 2015, ended up with buyers paying significant valuation premium. We currently project EPS
growth of 13% in FY16 vs FY15 based on the conservative assumption that VNMs input milk
powder cost base will average USD2,400 per ton in 2016 (similar to 2015), against spot prices of
USD2,400 for whole milk powder and USD1,700 for skim milk powder as at end of 2015.
BUY Masan Group (HSX: MSN) MSN took another big stride towards re-transforming itself
into a consumption-focused business by partnering up with Thai beer giant, Singha Asia (Singha)
through its consumer subsidiary. Apart from the valuation premium that Singha paid for MSNs
consumer platform (roughly 30x FY16 PER on a post-money basis under our estimates), the deal
brings about substantial growth opportunities for MSNs consumer business by 1) enabling MSN
to bring its seasonings and coffee products to Thailand via Singhas distribution network, 2)
allowing MSN to tap into other Indochina countries (Myanmar, Laos and Cambodia) when the time
is right, and 3) enriching MSNs war chest to roughly USD1.8 billion post-deal, which can be used
to expand and deepen its consumer platform via either operational investments or M&As. Given
that we are modelling this free capital at its face value and have not factored in any future
contributions from the new geographical markets, our current valuation certainly carries further
upside especially from potential value-added M&A that MSN has proven that it can pull off
evidenced by the recent acquisition of Masan Nutri-Science. Earnings multiple for MSN still looks
pricey in 2016 due to its mining business, which is suffering from depressed metal prices.
Nonetheless, if we strip out Masan Resources which is EBITDA-positive and the investment in
Techcombank, we estimate that the market is attributing an FY16 PER of around 15x to MSNs
consumption-driven businesses (branded F&B and animal protein), which is undemanding in our
opinion given the opportunities derived from the Singha partnership that we mentioned above.
OUTPERFORM Phu Nhuan Jewellery (HSX: PNJ) 2015 would have been an excellent year
all around for PNJ without the big provision related to the investment in DongA Bank. Without the
fresh provision of VND181 billion (USD8 million) in 2015 that propelled us to forecast a 14% NPAT
drop in FY15 vs FY14, NPAT would have grown by 48% under our estimates. However, we believe
now is time to put the DongA Bank incident aside and re-focus on PNJs success story as a
jewellery retailer well positioned to capitalize on Vietnams growing middle-income class. PNJs
aggressive retail footprint expansion is being supported by its effective marketing campaigns and
product innovations. On the other hand, GPM expansion resulting from better product mix and a
greater contribution from high-margin retail business is also boosting bottom line growth. With the
remaining VND204 billion (USD9 million) of the provision related to DongA Bank anticipated to be
booked in 2016, attention should be re-directed to PNJs core business in which we expect core
NPAT to jump by 36% in FY16 vs FY15.
HOLD
MAKET PERFORM Thien Long Group (HSX: TLG) A typical consumer staple play with stable
and durable growth potential while a simple business model means things can hardly go wrong.
However, given a demanding valuation of 14.1x FY16 PER and unresolved trading illiquidity,
patience is needed for investors to build up a position. Healthy sales growth of 16% together with
a substantial margin expansion thanks to low plastic prices led to a 30% EPS growth in FY15 vs
FY14. Looking forward to FY16, given expected flattish margins based on our house view that oil
prices have limited downside, sales growth will command the story. We forecast EPS to increase
by 12% in FY16 vs FY15 against a top line growth of 14%.
Phap Dang
+84 8 3 914 3588 ext. 143
Huy Vuong
huy.vuong@vcsc.com.vn
+84 8 3 914 3588 ext. 139
Property sector: Ride on market leaders as liquidity stabilizes
HOLD
Figure 49: Property Index vs. VNINDEX

30.0%
Tho Hoang
tho.hoang@vcsc.com.vn
+84 8 3 914 3588 ext. 174
20.0%
10.0%
0.0%
-10.0%
Jan-15
Apr-15
Jul-15
VNI
Oct-15
Real estate index
Source: Bloomberg
Figure 50: Property Tickers vs. VNINDEX

80%
70%
60%
50%
40%
30%
20%
10%
0%
-10%
Jan-15
Apr-15
VNI
Jul-15
VIC
DXG
Oct-15
KDH
NLG
Source: Bloomberg
Company
Market Foreign
Cap
Avail in
US$mn US$mn
Target
Div
FY15
Current
price
Upside yield @
EPS
Price
VND /
%
current growth
VND/sh
share
price
%
FY16
EPS
growth
%
FY17
EPS
growth
%
FY16
P/E
(x)
MR QTR
P/B
(x)
-37.8%
112.2%
67.6%
17.7
3.2
-47.9%
118.4%
72.8%
22.6
3.7
NA
47.9%
-29.4%
14.3%
6.7
1.2
23.9%
NA
48.6%
65.9%
7.5%
6.4
1.0
17.9%
2.2%
49.3%
112.6%
47.3%
8.6
1.5
Ticker
Rating
Vingroup
VIC
O-PF
3,693
586
54,500
48,000
13.5%
NA
Dat Xanh Group
DXG
BUY
94
25,400
18,000
41.1%
Khang Dien House
KDH
BUY
170
26,400
21,300
Nam Long Group
NLG
BUY
144
27,000
22,900
Real Estate
What happened in 2015: record liquidity, high-end took spotlight
HOLD
Transaction volume reached record high level. The number of condominium transactions in
HCMC and Hanoi totalled 37,940 in 9M15, which is already 35% higher than the whole 2014 and
the highest mark ever. Although the majority of activity happened in new projects, the elevation in
market liquidity has helped overall inventory drop 24% YTD through October 2015.
Figure 51: Transaction volume of condos
25,000
HCMC
Figure 52: Properties inventory (VNDbn)
Hanoi
120,000
20,000
100,000
15,000
80,000
10,000
60,000
40,000
5,000
20,000
Oct15
2014
2013
2012
9M15
2014
2013
2012
2011
2010
2009
2011
Source: Ministry of Construction and CBRE Vietnam
High-end segment led the way. This segment accounted for roughly one-third of the market
transaction volume, much higher than previous years. Among the factors lifting the whole property
market that we list below, we want to highlight: 1) improving infrastructure in the areas surrounding
CBD, most notably in the East of HCMC and 2) the inevitable return of investors as ones that have
catapulted high-end to be the fastest growing segment in 2015 (9M15 transaction volume edged
up by 134% vs 9M14).
Figure 53: Segment breakdown in HCMC
(in terms of condo sales)
Figure 54: Segment breakdown in Hanoi

(in terms of condo sales)
High-end
High-end
Mid-end
Mid-end
Affordable
Affordable
Source: CBRE Vietnam (from inside out - 2012, 2013, 2014 and 9M15)
Multiple factors played in favour of the property market in 2015, including:
HOLD
Macro stability in general and low inflation in particular improved homebuyers' confidence.
Interest rates fell to rarely seen levels with borrowing rates of 7-8% for the first year of
mortgages.
Banks were more accommodative, with the first ever appearance of 25-year mortgages
and loan-to-value ratios of 70-90%. Such lending was encouraged by Circular 36, which
reduced the risk weighting of mortgage loans from 250% to 150%.
Highly capable players, most notably Vingroup and Novaland supplied quality product to
the high-end segment and are consolidating the market coming out of the previous crisis.
In the low- and mid-end segments, we also saw leading player, NLG gain market share.
Projects launched in 2015 are well located with designs and sizes suited for buyers with
real living purpose.
We see accelerating progress of infrastructure development including the construction of
the Metro Lines as well as Thu Thiem Urban Area (up-and-coming area close to CBD).
More projects are being strategically located near these developments to capture the value
premium.
Investors are returning, mostly in the high-end segment.
New laws loosen up foreign ownership of properties in Vietnam but its impact has been
insignificant so far. Leading developers stated that foreigners have remained a minimal part of
their buyer profile due to:
Lack of detailed guidance on the implementation of the Real Estate Business Law 2014;
Lengthy procedures;
Inflexible financing, in which 1) foreigners cannot buy properties in Vietnam with money
borrowed from Vietnam-based banks and 2) it is complicated for foreigners to transfer
money back to their countries after selling properties.
2016 outlook: market to stabilize from 2015s high base

We believe the property market will remain healthy in 2016 but do not foresee another
liquidity surge in the primary market owing to 1) pent-up demand during the 2011-2013
downturn having been partly realized in 2014-2015 and 2) secondary supply poised to increase in
2016. On the other hand, we expect banks to remain accommodative thanks to healthier balance
sheets and comfortable headroom for mortgage lending, while quality projects coupled with prices
kept under control will sustain demand. An interest rate hike, though likely, will not be of significant
magnitude in our viewpoint.
Prices will be kept in check due to three main reasons. Firstly, a large primary supply is coming
in 2016. According to Savills, HCMC will welcome new primary supply of 57,500 condos between
Q4/15-17 while that of Hanoi will reach 27,900 units between Q4/15-16. This level of new stock
runs at a similar rate compared to 2014s. Secondly, secondary supply should pick up following
2015s record primary transactions, especially those coming from investors as higher interest rates
will urge profit-taking on their leveraged position. Finally, a greater number of projects are slated
for delivery/move-in, weighing on rental yield and ultimately property prices.
On the other hand, we may see more luxury projects introduced to the market as developers seek
to capture niche demand from this high-margin segment, which has been less active compared to
the other segments over the last few years. Nassim Thao Dien by Son Kim Land or Madison by
Novaland have jumpstarted this segment towards end of 2015 while Novaland and Vingroups
pipelines suggest more luxury projects to come in 2016.
A different market dynamic this time around gives us less worry over the secondary supply
overhang. We believe that the secondary market going forward will be more liquid and
fundamentally driven compared to the previous cycle thanks to a drastic improvement in product
quality. During the last cycle, residential properties were mostly meant for investment/speculation
purpose and so would have a hard time finding buyers once the market turned cold. In contrast,
this time around, investors are holding products that will be welcomed by real demand-driven
homebuyers and hence, bring about lower liquidity risk.
HOLD
Figure 55: Historical condo prices in Vietnam (USD per sqm)
2,500
2,000
1,500
1,000
500
2009
2010
2011
High-end
2012
Mid-range
2013
2014
9M15
Affordable
Source: CBRE Vietnam

Over the medium and long term, mid-end should be the fastest and most durably growing
segment. Mid-end fits well with Vietnams rising middle-income class and urbanization. It is less
cyclical than the high-end segment and it should receive a stronger push from developers on the
back of its better profitability in relation to the low-end segment.
Our top picks should do well in this environment. The expected stabilization should do more
good than harm to property developers in our opinion as long as liquidity maintains at healthy level
since it will prolong the upcycle. We recommend investors to again ride on established names
whose execution capabilities will ensure that they will be able to capitalize on market demand.
HOLD
BUY Dat Xanh Group (HSX: DXG) - Leading real estate broker and emerging low/mid-end
developer. Leveraging on its market expertise and a robust project pipeline built in 2015, we
believe DXG is becoming a prominent player in the low/mid-end segment. The greater
fragmentation in the low/mid-end segment compared to high-end means there are ample
opportunities for DXG to consolidate the market. DXGs pipeline includes 12 projects. Most of them
are poised to be launched in 2016, boasting a GDV of VND17 trillion (USD752 million) and 10,000
total units. These aggressive launches will be supported by DXGs sales capabilities, in which its
brokerage platform consists of 30 transaction floors, 1,500 permanent salesmen and 2,000
collaborators. The key risk is DXGs unproven capabilities in executing various developments at
the same time.
BUY Khang Dien House (HSX: KDH) - Leading mid-end landed property developer. In the short
term, KDH will continue to realize its land bank in District 9 (East of HCMC) on the back of its
unique product offering and brand name. Based on a total land bank of 82ha currently, we estimate
KDH to launch 2,600 townhouses and 3,000 apartments from 2016 to 2019. In long term, the
recent takeover of BCI, which provides an additional 700ha of land bank in the West of HCMC,
assures KDH of unimpeded development. Key risk is the companys ongoing move-up to villa
development which yields higher margin vs townhouses but also poses greater liquidity risk.
BUY - Nam Long Group (HSX: NLG) - Leading affordable-housing developer. NLG boasts a
positive outlook and solid earnings growth momentum as it continues to ride on its reputed Ehome
project series. Thanks to its cheap land bank, superior economies of scale and a strong brand,
NLG is able to compete profitably in the tough affordable segment and gain market share in the
process. The company looks to cement its position by commencing its Camellia Garden project
(6ha) and East Gate Residences project (17ha) in 2016, both located in the outskirt areas of HCMC
suited for affordable housing development. Key risk remains its 355ha Waterpoint project in Long
An province (45-60 mins from HCMC) that accounts for 43% of NLGs inventory and has been
standing idle for several years despite substantial investments already made for land clearance
and land use rights.
OUTPERFORM Vingroup (HSX: VIC) - leading high-end brand. On the back of a superior
project pipeline, VIC is set to reinforce its strong foothold in its traditional Hanoi market, which
appears less heated than HCMC at the moment (see figure 1). In the HCMC market, we also
expect VIC to launch new landmark projects to extend its success following the Vinhomes Central
Park (VCP) project. Since commencing VCP in November 2014, VIC has sold 6,543 units out of
8,325 units launched as at end of September 2015 (79% take-up rate). Speaking of other
businesses, VIC is rolling out its strategy of shoring up the contribution from recurring income
streams by aggressively expanding its retail property and hotel/resort portfolio. VIC aims at
reaching one million sqm of retail space by YE2016 from about 700,000 currently, while we believe
one or two new hotel/resort projects will be put into operations each year. Key risk is a cooler-thanexpected property market as high-end segment is highly cyclical. On the other hand, VICs acrossthe-board penetration into the consumer retail segment, while appearing potential and enticing
owing to Vietnams underdeveloped modern retail sector, remains a drag on earnings in short term.
VICs target of reaching 50 supermarkets and 2,000-3,000 minimarkets by YE2016 from about 20
and 150 currently has drawn close attention to its execution capabilities, which remain unproven
at this point.
Thanh Duong
thanh.duong@vcsc.com.vn
+84 8 3 914 3588 ext. 173
Cement sector: Industrial construction to drive sales volume
HOLD
Figure 56: Cement Index vs. VNINDEX

60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
-10.0%
Jan-15
Apr-15
Jul-15
Cement index
Oct-15
Jul-15
Oct-15
VNI
Source: Bloomberg
Figure 57: Cement Tickers vs. VNINDEX
80%
60%
40%
20%
0%
-20%
-40%
Jan-15
Apr-15
VNI
HT1
BCC
BTS
HOM
Source: Bloomberg
Company
Ticker
Rating
Ha Tien 1
HT1
O-PF
Market Foreign Target Current Upside

Div
FY15
Cap
Avail in price
Price
%
yield @
EPS
US$mn US$mn VND / VND/sh
current growth
share
price
%
380
33
31,700
26,800
18%
0%
134.2%
FY16
EPS
growth
%
FY17
EPS
growth
%
FY16
P/E
(x)
MR QTR
P/B
(x)
25.5%
22.1%
10.4
1.6
What happened in 2015: record-high sales volume fuelled by busy

HOLD
construction activities
Cement consumption is on resilient recovery, in tandem with the boom of construction
activities. Domestic cement sales volume increased 11% vs. 2014 to 55 million tonnes in 2015,
posting the highest growth since 2010. Growth was spurred by robust construction activities (the
construction components in GDP breakdown posted double digit growth for the first time since
2009) as the recovery of the real estate market boosted residential construction while record-high
FDI disbursement stirred up demand from industrial construction
Figure 58: Cement sales volume growth gained more momentum in 2015
70
20%
11%
15%
60
10%
50
5%
40
0%
30
-5%
20
-10%
2006
2007
2008
Supply
2009
2010
2011
2012
Domestic demand
2013
2014
2015E
Demand Growth
Source: GSO, VNCA

Growth skewed to the South, as this region is poised to massive infrastructure projects such as
the metro line while residential projects are heating up in Ho Chi Minh City. Meanwhile, supplydemand dynamics in the South remained far better than in the oversupplied northern market.
Figure 59: The South witnessed growth acceleration, outperforming other regions
in 2015
HOLD
2014
16%
North
41%
11M15
12%
South
33%
South
35%
8%
North
42%
Central
25%
4%
0%
North
Central
South
Central
24%
Source: VNCA (from inside out 2014, 11M15)
Outlook for 2016: Hefty industrial construction will ensure the growth
momentum
The strong influx of overseas capital into Vietnam manufacturing will drive demand for
factory construction. As such, we believe 2016 will be another fruitful year for cement producers,
especially leading players with strong brand equity in the Southern market such as HT1.
The IPO of Vietnam Cement Industry Corporation (VICEM) is most likely to take place in
2016, after several delays. VICEM has significant control over Vietnam's cement industry as this
state-owned enterprise is the parent of eight subsidiaries (including HT1), whose aggregate market
share are standing at 35% nationwide. Furthermore, VICEM has stakes in joint ventures with wellknown foreign players operating in Vietnam such as Holcim Vietnam, Nghi Son or Chinfon. VICEM
planned to reduce their stake in subsidiaries listed on stock exchanges (including HT1) after their
privatization.
Stock recommendation
OUTPERFORM Ha Tien 1 (HSX:HT1) Leading cement producer in the South of Vietnam,
commanding more than one-third of the market share. We maintain our positive view on the stock
as HT1 is showing its capability to utilize its leading position in the fastest-growing market and ride
well the coattails of booming construction projects. In 2015, HT1 posted record-high sales volume
growth, up 18% vs. 2014. Given the momentum of the cement industry in the year to come, we
believe HT1 could continue to deliver decent sales growth in 2016. Moreover, for a heavy-capital
investment business, continuous increase in volume sold implies persistent improvement in
EBITDA margin this pattern was proven in their FY15 financial performance. HT1 is trading at
FY16 PER of 10.4x and EV/EBITDA, vs. peers 22x and 12x respectively.
Duong Dinh
duong.dinh@vcsc.com.vn
+84 8 3 914 3588 ext. 140
Steel sector: The fight against Chinese steel has not

HOLD
ended
Figure 60: Steel Index vs. VNINDEX
20%
15%
10%
5%
0%
-5%
-10%
-15%
-20%
-25%
VNI
Steel Index
-30%
Jan-15
Feb-15
Apr-15
Jun-15
Jul-15
Sep-15
Nov-15
Dec-15
Source: Bloomberg
Figure 61: Steel Tickers vs. VNIDEX

140%
120%
100%
80%
60%
40%
20%
0%
-20%
-40%
-60%
VNI
HSG
HPG
POM
TIS
Source: Bloomberg
Company
Ticker
Rating
Hoa Phat Group
HPG
O-PF

Cap
Avail in price
US$mn US$mn VND /
share
959.0
93.0
33,600
Current Upside
Div
FY15
FY16
Price
%
yield @
EPS
EPS
VND/sh
price
%
%
28,200
19%
5%
21%
46%
FY17
EPS
growth
%
-8%
FY16
P/E
(x)
MR QTR
P/B
(x)
6.5
1.2
What happened in 2015
HOLD
Demand for construction steel reached a five-year peak

Over the past eleven months of 2015, thanks to a robust real estate sector recovery as well as
swelling spending on infrastructure projects, demand for construction steel skyrocketed by 26.5%
vs. the same period last year. Such growth has surprised all industrys players as it is nearly twice
the expected 12%-14% growth for 2015. In addition, this has made Vietnam the largest steel
consuming country in the SEA region, surpassing Thailand.
Figure 62: Vietnam construction steel sector volume growth

Growth (%)
M tons
7
6
26.5%
30%
28.1%
20%
19.5%
13.0%
4
10%
2.5%
-2.1%
-6.7%
0%
1
4.1
4.9
4.8
4.5
4.5
4.3
5.9
2009
2010
2011
2012
2013
2014
11M15
-10%
Sales volume (LHS)
Growth, % (RHS)
Source: VSA & VCSC
A good year for all producers despite a flood of Chinese imports & pricing pressure
The NPAT of all the top four steel producers improved over the first nine months of this year
compared to the same period last year. POM turned a profit after realizing a loss of VND20 billion
(USD885 million) last year. Meanwhile, TIS and VNS saw their NPAT grow by 26% and 72%
respectively. This growth was driven mainly by good sales volume growth as well as a 40 to 80
bps improvement in EBITDA margins. The fact that HPGs competitors delivered slightly higher
margin improvement than HPG is due to their aggressive restructuring efforts in recent years,
embarked upon after they all suffered losses in the past three years. HPG fared much better over
the period than its competitors.
Figure 63: 9M15A NPAT of construction steel producers

3,500
3,000
2,500
2,000
1,500
1,000
500
(500)
2,671
HOLD
2,920
119
HPG
205
VNSteel
9M14A
37
29
19
TIS
-20
POM
9M15A
Source: Companies listed here
Figure 64: Construction steel producers

gross margin
Figure 65: Construction steel producers

EBITDA margin
25%
25%
20%
20%
15%
15%
10%
10%
5%
5%
0%
0%
HPG
POM
9M14A
TIS
VNSteel
9M15A
HPG
POM
9M14A
TIS
VNSteel
9M15A
Source: VSA & VCSC
Imports from China were significant but we lack the data needed to assess its impact specifically
on the construction steel segment. Over the past 10 months, Vietnam imported 7.7m tons of all
types of steel from China, up 62% vs. the same period last year. According to Southeast Asia Iron
& Steel Institution, most of these imports are flat steel and other types of steel rather than long
steel. Their statistics over 1H15A show that Vietnams long steel imports rose by 24% while imports
of flat steel soared by 43% compared to 1H14A. According to VSA, steel billet imports leapt by
290% over 9M15A to reach 1.1m tons (of which 75% was from China).
Over the first 11 months of 2015, local steel prices fell by 24%, more or less in line with global
trends but a milder decline than that witnessed for Chinese steel due to a sharp slowdown in
Chinas economic growth and vast overcapacity there. In the meantime, iron ore and steel scrap
prices plunged by 40% and 44%, respectively and coking coal price dropped by 25%. Hence, in
addition to the benefits of recent restructuring efforts finally kicking-in, domestic steel producers
saw an improvement in profitability this year as the fall in raw material costs more than offset the
decline in steel prices; TIS was the only player that experienced a significant contraction in gross
margin.
Figure 66: Chinese steel imports
Figure 67: Local steel price & input

materials price
HOLD
+62%
000 tons
9,000
700
600
120
500
100
5,370
6,000
5,000
USD/ton
140
+65% 7,710
8,000
7,000
160
400
80
4,000
3,000
3,255
300
60
Iron ore (LHS)
2,000
1,000
-
Coking coal (LHS)
20
Steel scrap (RHS)
2014
100
VSA member's ASP (RHS)
2013
200
40
10M15
Source: Customs Office, Bloomberg, VSA and VCSC
Figure 68: Difference between local and Chinese steel price

USD/ton
600
20%
15.9%
550
13.7%
500
9.5%
7.8%
7.5%
450
15%
12.0%
5.7%
4.5%
3.0%
400
6.0%
7.4%
7.2%
10%
5%
350
0%
Jan
Feb
Mar
April
May
June
July
Aug
Sep
Oct
Nov
Dec
Difference (%)
Chinese construction steel price (freight & tariff incl.)
VSA member construction steel price
Source: Bloomberg, VSA and VCSC
Market consolidation happened outside the Vietnam Steel Association group

As of October 2015, we see that consolidation in Vietnams construction steel sector has taken
place mainly outside the Vietnams Steel Association group as market share of the five biggest
players only inched up by 300 bps to 60.1%. HPG has taken away market share from other big
players rather than from small players. According to estimate of VSA, Chineses steel market share
is ~20% up from having no presence in the market last year.
Figure 69: Market share of producers in VSA
100%
80%
42.9%
39.9%
40%
7.8%
8.2%
12.3%
20%
15.6%
8.3%
6.7%
10.4%
13.0%
60%
21.7%
13.2%
0%
2011
10M15
HPG
Pomina
Tisco
VNSteel
Vinakyoei
Others
Figure 70: Chinese steel market share in

the steel billet segment
HOLD
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
86%
100%
14%
0%
2014
2015
Chinese steel players
Domestic players
Source: VSA & VCSC
2016 outlook
Demand for construction materials to remain buoyant
Even though the interest rate is expected to rise in 2016, it will still stay low enough to continue to
support the property market. We believe that demand for construction steel will continue to be
resilient into next year given continue strong construction activity within the real estate sector as
well as many road/bridge infrastructure projects and new factory construction especially for Foreign
Invested Enterprises.
The Vietnamese Government will try to protect local steel producers
On 28 December 2015, the Minister of MOIT just signed a directive to apply safeguard
investigations against Chinese steel.
This followed a proposal from the four biggest steel players including HPG, POM, TIS and
Vietnam-Japan Steel JSC.
These players requested the review of material injury that imported products are causing to
the domestic industry. In particular, the steel billet market share of domestic players dropped
from 100% in 2014 to 86% in 2015, and from 100% in 2014 to 98% in 2015 in the case of
steel bars.
An import tariff of 33-45% was proposed for steel billet and finished long steel. Such tariffs
should be immediately imposed for 200 days while waiting for MOITs final conclusion.
We think these tariffs are high enough to start curbing Chinese steel imports.
but competition from Chinese steel could get harsher still

Firstly, China recently announced that it will cut the 25% export tariff on billet and pig iron to 20%
and 10% respectively from Jan 2016. In January-October, China exported 141,659 tonnes of pig
iron and 5,367 tonnes of steel billet. Chinese steel exports continued to grow by 22% over 11
months of this year after surging by 50% last year.
Chinese steel production is forecasted to decrease by 3.1% in 2016 while domestic consumption
is anticipated to reduce by 3%. However, a sharper slowdown in Chinese GDP growth and a
souring of the local property market there could intensify the supply glut in China and boost the
flood of Chinese steel into Vietnam despite the new domestic policies to protect local producers.
Figure 71: Chinese steel exports
110
M tons
100
101.9
Figure 72: Chinese steel production &

consumption volume growth
HOLD
4%
93.8
0%
90
-2%
80
70
1.9%
2%
-4%
2014
-3.4%
10M15
2016F
-3.1%
-3.0%
-5.7%
-6%
62.3
60
-8%
50
-10%
-7.6%
Steel consumption growth(%)
40
2013
2014
11M15
Production growth(%)
Source: Chinese MPI, Bloomberg & VCSC
Secondly, a further devaluation of the yuan this year against the USD cannot be ruled out. The
general view is that the yuan is currently overvalued and the inclusion of the currency in the IMFs
list of reserve currencies will only increase the pressure on the Chinese central bank to allow the
yuan to trade more freely, thereby increasing the risk of another devaluation. If this happens and
Vietnam does not follow suit with its own devaluation, then competition from Chinese steel will get
much stiffer. Even if the dong is devalued to retain competitiveness versus the yuan, this will make
imports of iron ore and coking coal more expensive thereby causing some gross margin erosion
for local producers.
According to industry players, steel prices might continue to be under pressure on the back of
depressed input material prices including iron ore, steel scrap and hard coking coal and intensifying
competition from Chinese imports. The ability of local players to maintain their gross margins into
2016 will therefore depend on how global prices of iron ore and coking coal fare in relation to local
steel prices in Vietnam.
Iron ore prices are expected to stay flattish in 2016
According to Bloomberg consensus, iron ore price is anticipated to stay flat in 2016 vs. 2015s
average level but will reduce slightly after that. Iron ore price plunged by 44% this year on surging
output from three biggest players amid Chinas GDP growth slowing to its lowest level since 1990.
This resulted in a significant supply-side correction and therefore less pricing pressure but the
capacity overhang will continue to pressure prices for a while.
Overall, local steel producers might see flat gross margins in 2016 -- or even a slight contraction
as competition from Chinese imported steel weighs on local steel prices while prices of major raw
materials stay flattish.
Figure 73: Iron ore price

56
54
HOLD
55
53
54
52
50
50
48
46
2015
2016F
2017F
2018F
Source: Bloomberg & VCSC
Recommendation for 2016

OUTPERFORM Hoa Phat Group (HSX:HPG) For 2016, we are forecasting a 300 bps decline
in the steel segments EBITDA margin due to stiffer competition from imported Chinese steel. On
the demand side, the buoyant real estate market should continue to support HPGs top line into
next year. In addition, the fact that market consolidation has just happened outside VSA proves
that HPG has room to grow its market share further by taking share from smaller players.
Furthermore, the fact that small players in VSA were still able to deliver volume growth in 2015
and given that HPG has much greater scale than the smaller competitors proves that HPG still has
a significant competitive edge over imported Chinese steel. Finally, even though the depressed
iron ore prices make it difficult for vertically integrated steel producers (since the incremental
margin in the iron ore part of the steel value chain is now too low to justify the depreciation and
other operational overheads associated with iron-ore production), HPG will not feel the pressure
as much since it still sources 70-80% of its iron ore from third parties.
The only major risk we see is an intensifying of competition from imported Chinese steel in the
event of a sharper slowdown in China and further devaluation of the yuan. However, were this to
happen, HPG would be better positioned than any other domestic player to withstand the pressure.
Finally, we do not see this as posing a downside risk to the stock as it appears that the market has
already priced this in.
NON RATED Hoa Sen Group (HSX:HSG) HSG is the biggest player in Vietnams galvanized
steel sector (steel for roofing and walling, usually used in rural areas) with dominant market share
of 40%. The company has evolved from a distributor in 2002 to become the largest galvanized
steel producer in Southeast Asia at the moment. HSGs nationwide retail distribution network
makes it distinctive versus other competitors who are pure producers. HSG has surpassed
reputable foreign players such as BlueScope and Maruichi Sun Steel to increase its market share
from 21% in 2008 to 39% in 2015. The company started to export to other SEA countries since
2009 and export revenue now accounts for 40% of the companys total revenue.
In its last fiscal year (starting from 1 October 2014 to 30 September 2015), HSG delivered top-line
growth of 16% and bottom-line growth of 59%. This was a big surprise given that China accelerated
its dumping into other markets and also given the anti-dumping tax on HSGs exports into other
South East Asian countries.
HSGs current strategy is to expand its business in the domestic market (especially to the North
where its presence is still humble) by doubling its distribution network by 2020. It is in the
preliminary stages of building a new factory in Central Vietnam to double its capacity to 2MTPA by
2020 as its current facilities are operating at ~100% utilization rate.
HSGs main competitor is Chinese steel but so far, its high-quality product, good brand-name as
well as its distribution network have helped protect its market share as well as margins in spite of
difficult industry conditions for a few years now. However, its high gearing ratio (partly due to
combined producer & distributor status) and USD-denominated borrowings make it vulnerable to
interest rates and dong devaluation. HSG is trading at a PER of 6.3x on 2015 EPS.
HOLD
Duong Dinh
+84 8 3 914 3588 ext. 140
Power sector: Surging demand, drought and weakness

HOLD
in gas prices to benefit gas thermal players.
Figure 74: Power Index vs. VNINDEX
20%
15%
10%
5%
0%
-5%
-10%
VNI
-15%
Jan-15
Feb-15
Power Index
Apr-15
Jun-15
Jul-15
Sep-15 Nov-15 Dec-15
Source: Bloomberg
Figure 75: Power tickers vs. VNINDEX

60%
40%
20%
0%
-20%
-40%
-60%
VNI
NT2
PPC
VSH
Source: Bloomberg
Company
Ticker
Rating
Market Foreign
Cap
Avail in
US$mn US$mn
Target
price
VND /
share
Div
FY15
FY16
Current
Upside yield @
EPS
EPS
Price
%
VND/sh
price
%
%
FY17
EPS
growth
%
FY16
P/E
(x)
MR QTR
P/B
(x)
Nhon Trach 2
NT2
BUY
319.0
98.6
34,900
26,800
30.2%
7.4%
37%
88%
4%
5.6
1.5
Pha Lai Thermal Power
PPC
BUY
249.0
86.2
21,700
19,000
14.2%
7.8%
-30%
42%
41%
4.2
1.0
Vinh Son Song Hinh

Hydro
VSH
M-PF
143.0
30.9
13,100
15,900
-17.6%
6.2%
84%
-18%
-8%
11.9
1.2
HOLD
Huge capacity added but drought dented output

Electricity consumption grew by 11.9% in the first eleven months of 2015 vs. the same period last
year to 131.3 billion kWh, the highest level in the past five years. An estimated 5,900 MW of total
system-wide capacity was added in 2015, an impressive growth of 17% in total capacity from the
beginning of the year.
Due to El Nio which led to a unusually low rainfall, hydroelectricity could only contribute
approximately 20% to Vietnams electricity supply through 10 months this year in contrast to the
estimated 37% contribution in National Load & Despatch Centres 2015 plan. Historically,
hydropower plants have contributed 40% of the total power supply in Vietnam.
Figure 76: Electricity supply structure in 10M15

100%
3%
3%
80%
32%
36%
60%
28%
41%
40%
20%
37%
20%
0%
2015 NLDC's plan
Hydro
Gas thermal
10M15A
Coal thermal
Others
Source: MOIT & VCSC
Revised power development plan (PDP) VII is currently under formulation
HOLD
Proposed lower forecast for electricity consumption versus earlier is based on the assumption
of higher electricity savings, a better efficiency ratio (elasticity ratio between GDP & electricity
consumption growth rate will reduce from current 1.8x to 1.0x as economic growth become
less energy-intensive). According to Green Innovation & Development Centre, demand for
electricity is estimated to be 464.7 billion kWh by 2030, 76% of PDP VIIs base case.
Proposed lower capacity accordingly to ~117,000 MW by 2030, 79% of PDP VIIs base case.
In particular, it is estimated that there is now no need to build ~30,000 MW of coal power plants
as Vietnams ports and related infrastructure are not equipped to handle such huge coal import
volumes and there are also concerns on pollution.
CO2 fee imposed on coal thermal (2020 onwards) will bring production cost of this power
source to USD6.7-9.1cent/kWh compared to the current unit production costs of USD5.7
cent/kWh and USD3.6cent/kWh unit costs for coal thermal and hydropower, respectively.
Developing renewables such as wind, power and biomass are emphasized in the revised plan.
Flat electricity price due to lower gas price

The average selling price of power plants nationwide through 10 months of 2015 was
VND1,183/kWh (~USD 5.3 cents/kWh), nearly flat vs. the same period last year. This is mainly
owing to lower gas prices, as we can see below: the input gas price for power plants above takeor-pay volume has declined ~15% in 2015 vs. 2014.
Figure 77: Average selling price of power
plants
1,350
VND/kWh
Figure 78: Gas price for power plant's

above take or pay volume
1,300
USD/MMBTU
1,250
1,183
1,200
5
1,150
1,100
1,180
1,050
1,000
950
3
1Q
2Q
3Q
2014
2014
4Q
2015
2015
Source: EVN & VCSC
Outlook for 2016
HOLD
Spurt of FDI into the manufacturing sector following a slew of recently concluded FTAs will
drive strong growth in electricity demand
We expect electricity consumption in Vietnam will grow at least 12% in 2016 on robust economic
growth of 6.8%, a surge in registered FDI into the manufacturing sector on the back of recentlysigned FTAs such as Vietnam-Russia, Vietnam-EU and Vietnam-Korea. TPP is expected to be
signed in 2018 and the manufacturing investment in anticipation of this will be another driver for
electricity consumption starting in 2016.
Registered FDI into the manufacturing sector which typically accounts for 50% of electricity
consumption in Vietnam has totalled USD45 billion over the last two years and eleven months,
nearly double the amount registered for the previous three-year period. In particular, Samsung's
CE Complex (investment of USD1.4 billion in District 9, Ho Chi Minh City, just increasing to USD2.0
billion) which will produce high-tech white goods is expected to come online in Q2/16 and will
materially boost electricity demand in the HCMC urban area.
Figure
79:
Registered
manufacturing sector
FDI
into
Figure 80: Electricity consumption growth

rate
16%
18
USD25b
16
14
12
10
15.5%
15%
USD45b
14%
13%
11.9%
12.0%
12%
11.4%
11%
10%
10.5%
10.0%
9%
9.0%
8%
Source: FIA, EVN & VCSC
Drought will severely hamper hydropower production in 2016...

According to EVN, year-to-date water flow into hydropower reservoirs is just 52% of the level
realized in the same period last year. In addition, the water level of reservoirs in the Central &
Southern regions are just at 20-30% of their designed capacity. Similarly, water levels of reservoirs
in the North are at just 40-50% of their designed capacity. Therefore, going forward to Q1 & Q2
next year (which is dry season), the contribution of hydropower plants will be modest and the
scenario played out in 2015 might repeat next year.
....and as a result, new supply will fail to match to incremental demand in 2016
Based on our assumed consumption growth rate of 12%, demand will grow by 17 billion kWh in
2016. In the meanwhile, as observed, new electricity supply in 2016 is expected to reach 14.3
billion kWh, mainly from Duyen Hai 1 (in the South) and Mong Duong 1 (in the North). Large-scale
hydropower plants such as Huoi Quang & Lai Chau, which are expected to come online later this
year, will not yet contribute significantly to 2016 supply as test runs will take time and the drought
will also limit their production. Finally, Duyen Hai 3 will not be connected to the national grid until
late 2016, implying that its contribution will also be very minimal.
HOLD
Figure 81: New electricity supply for 2016

Power plants
Type of power
Duyen Hai 1
Coal
7,258
Expected output
(b kWh)
1,200
Mong Duong 1
Coal
5,599
1,080
Huoi Quang
Hydro
449
Lai Chau
Hydro
1,037
Duyen Hai 3
Coal
Sum
Capacity Notes
(MW)
Came online in
2015 but in the
middle of test runs
and
not
yet
contributed to power
supply in 2015
520
Come
online
on Dec
2015
1,200
Come
online
on
October
2015
1,200
To
come
online
in late
2016
5,200
14,342
Source: EVN & VCSC
For 2015, Vietnams electricity system had an extremely low reserve margin -- except for January
and February, the reserve margin ratio for the rest of the year ranged from -11% to 6% versus a
standard reserve margin ranging from 25% to 40%. This situation might continue into 2016 due to
supply constraints and surging demand.
Figure 82: Vietnam's electricity system reserve margin in 2015

30,000
12%
14%
15%
6%
25,000
20,000
1%
10%
5%
2%
0%
15,000
0%
-1%
10,000
-3%
-1%
-5%
5,000
-10%
Jan
Feb
-11%
Mar
Reserve margin(%)
-15%
Apr
May
Jun
Jul
Peak demand
Aug
Sep
Oct
Usable capacity
Source: MOIT & VCSC
Slow progress on new power plants will exacerbate the power shortage in the next two
years.
HOLD
Over the next two years, we see capacity growth being limited at 3% - 14% per annum after 2015s
ample growth of 17%. In 2016, Duyen Hai 3 will come on-stream.
We revise our estimates for the national theoretical reserve down for the 2016-2017 period and up
after 2018 as updated information shows that there will be delays on the Thai Binh, Nam Dinh,
Vinh Tan 3 and Duyen Hai 3 expansion power plant projects.
Figure 83: Vietnam electricity capacity

growth
Figure 84: National theoretical reserve
160%
20%
17%
143%
14%
15%
140%
10%
9%
10%
11%
120%
5%
Previous estimates
Current estimates
3%
0%
100%
2015 2016 2017 2018 2019 2020
2015 2016 2017 2018 2019 2020
Source: EVN, MOIT & VCSC
We expect retail electricity prices to rise in 2016.

Even though electricity price hikes could have a profound impact on GDP growth, we think there
are several reasons that EVN will continue to raise tariffs in spite of continued weakness in oil &
gas prices:
EVN released its 2014 financial statements in which we see NPAT of VND3.3 trillion
(USD146 million), down 61% vs. 2013. Accumulated FX translation loss as of 31
December 2014 is VND4.8 trillion (USD212 million).
The dongs 5% depreciation against the USD in 2015 has resulted in an incremental
VND2.0 trillion (USD88 million) input gas cost burden for producers (as gas prices are
fixed in USD). In addition, EVN also suffered FX translation losses of VND20.0 trillion
(USD884 million) for 2015, bringing total accumulated FX losses to VND24.8 trillion
(USD1.1 billion).
2015 saw the lowest inflation in the past ten years (less than 1% inflation vs. target of 5%)
allowing EVN ample room to raise electricity prices without fear of stoking inflation.
EVNs gearing ratio as of 31 December 2014 is still very high at 2.3x
Previously, the Government approved the price range for 2013-2015 period at VND1,437
VND1,835. At the moment, the price is only VN1,622/kWh, leaving room for further hikes.
Since Vietnam still lacks power capacity, the selling price should be high enough to attract
investment in generation as well as to trim demand by boosting electricity savings
initiatives and lift the efficiency ratio.
Low oil price makes gas thermal the best power source.
Based on the assumption that the oil price stays at USD40/bbl in 2016, we estimate the upstream
price of electricity produced by gas thermal power plants will fall further and narrow its gap with
price of hydropower to 3% in 2016 from the previous gap of 26% over H2/2012-2014 period when
oil prices averaged USD104/bbl. At the same time, this will also widen the upstream price gap
between gas thermal and coal thermal with the gas thermal price potentially ending up 31% lower
than coal thermal price vs. just 17% cheaper, previously.
HOLD
The Competitive Generation Market (CGM) wholesale price is estimated to remain flat in 2016 vs.
2015 as the drought will lift hydropower prices while coal thermal prices remain unchanged and
low oil prices bring down the gas thermal power price. Of note, low gas prices will widen the gap
between gas thermals CGM price and the price fixed in the PPA, thereby benefiting margins of
gas thermal power producers
Figure 85: Average selling price by power source

1,400
1,200
-17%
1,000
26%
-29%
-31%
8%
3%
800
600
400
200
2H2012-2014
Hydro
2015E
Gas Coal
2016E
Source: EVN & VCSC
Wholesale competitive market officially goes into pilot mode in 2016.
MOIT released the pilot operation plan of the Wholesale Competitive Market (WCM) for
2016.
EVN will gradually transfer current PPA contracts that they signed with power plants to the
five Electric Power Trading Companies (EPTCs) on the principle that average electricity
cost of each wholesale buyer will be the same.
In addition, each power plants contract volume (~60%-80% of total output) will be decided
by these EPTCs every year instead of by EVN.
This handover process will retain the contract price but the Competitive Generation Market
(CMG) price will increasingly be determined by supply & demand.
For 2016, each EPTC will be transferred three contracts, one hydro, one gas thermal and
one coal thermal.
We believe this will further enhance the transparency and competitiveness of Vietnams
power sector with at least five wholesale buyers instead of only one buyer at present.
While this movement may only have a nominal impact on power plants in the short term,
this shows that Government is on the right track to fully liberalize the sector by 2022 (which
will then benefit all power plants). It should also attract much needed FDI to help increase
Vietnams power production to keep pace with rapid demand growth.
HOLD
BUY Nhon Trach 2 thermal power plant (HSX:NT2) We maintain a BUY rating on NT2 for
several reasons: Firstly, we expect the same record utilization rate of 85% for 2016 on robust
growth in manufacturing activity and drought which is impeding hydropower output. The operation
of the Samsung CE Complex will exacerbate the electricity shortage in the South of Vietnam. In
case the drought is more severe than expected, NT2s utilization rate could rise by another five
percentage points to help cover up the shortfall. Secondly, as mentioned above, gas thermal is the
best choice for next year due to its growing competitiveness vis--vis other power sources We
estimate that NT2s input gas price will drop by another 20% in 2015, making its gas price match
the Take or Pay price secured by Phu My 10 years ago. Thirdly, we expect that NT2 will get
approval for their second plant as PetroVietnam wants to diversify their business further given the
continuing weak outlook for oil prices. NT2 just hired one more vice general director who will
responsible for the development of the second plant. We expect that Governments decision on
licensing for this second plant will be announced in H1/16. Fourthly, we believe NT2 will raise its
divided in the coming AGM.
BUY Pha Lai thermal power plant (HSX:PPC) We upgrade PPC from M-PF to BUY as we
believe PPC is another beneficiary of the drought and revise its 2016 utilization rate from 62% to
70%. In addition, we expect that in 2016 PPC will be able to pay out a cash dividend of VND2,000
(11.0% yield at current price) if both the JPY/VND and USD/VND exchange rates do not appreciate
more than 5% (the company and its associates have JPY and USD denominated debt). The
tapering-off of depreciation expenses will lift EPS growth by 40.3% and result in a sharp contraction
of PPCs PER to 6.0x at current prices. Meanwhile, signals from the company suggest that the
upcoming PPA renegotiation for Pha Lai 1 will work in its favour. Moreover, the pressure on PPC
to divest its 26% stake in Hai Phong Thermal Power Plant under the new Investment Law appears
to be a non-issue as it might only apply to future stake purchases rather than being retrospectively
applied to legacy holdings this means that any potential hit to earnings from a fire-sale of this
stake is now unlikely.
MARKET PERFORM Vinh Son Song Hinh Hydropower plant (HSX:VSH) We downgrade
VSH as retail investor speculation in Q3 results pushed the price up at the same time that a
worsening drought and the uncertainty around the construction of a key part of the Upper Kontum
project (tunnel from 5th Km - 15th Km) clouds the medium-term outlook.
Duong Dinh
+84 8 3 914 3588 ext. 140
Tram Ngo
tram.ngo@vcsc.com.vn
+84 8 3 914 3588 ext. 135
Oil & Gas sector: Vietnams oil & gas production

HOLD
activities could stall if oil price slides further to
USD30/bbl
Figure 86: Oil & Gas Index vs. VNINDEX
30%
20%
10%
0%
-10%
-20%
-30%
-40%
-50%
Jan-15
Feb-15
Apr-15
Jun-15
Jul-15
VNINDEX
Sep-15
Nov-15
Dec-15
Feb-16
Oil and Gas Index
Source: Bloomberg
Figure 87: Oil & Gas Tickers vs. VNINDEX

60%
40%
20%
0%
-20%
-40%
-60%
Jan-15
Feb-15
DPM
Apr-15
GAS
Jun-15
PLC
Jul-15
PVD
Sep-15
PVS
Nov-15
PVC
Dec-15
VNINDEX
Source: Bloomberg
Company
Ticker
Rating

Cap
Avail in price
US$mn US$mn VND /
share
Current Upside
Div
FY15
FY16
Price
%
yield @
EPS
EPS
VND/sh
price
%
%
OIL & GAS (1)
FY17
EPS
growth
%
FY16
P/E
(x)
MR QTR
P/B
(x)
-8.3%
-19.6%
4.4%
10.1
1.1
Phu My Fertilizer
DPM
BUY
486.4
109.4
37,925
28,800
31.7%
8.7%
37.9%
10.6%
7.8%
7.5
1.1
Petrolimex
Petrochemical
PLC
BUY
137.9
60.7
44,701
38,400
16.4%
7.8%
39.6%
10.5%
16.8%
8.1
2.1
PVN Drilling
PVD
M-PF
354.7
47.2
21,800
22,900
-4.8%
6.6%
-23.9%
-54.8%
-11.4%
10.0
0.5
PVN Tech Services
PVS
BUY
291.8
71.8
17,243
14,700
17.3%
8.2%
-21.0%
-27.8%
0.4%
6.9
0.6
PVN Gas
GAS
O-PF
3,155.0
1,482.9
38,500
34,500
11.6%
8.7%
-17.8%
-13.2%
-1.9%
9.0
1.7
PVN Drilling Mud
PVC
U-PF
32.4
12.0
11,636
14,600
-20.3%
4.8%
-64.5%
-42.7%
14.6%
19.0
0.6
Note: (1) Price Targets based on Brent oil at US$40/bbl

HOLD
Global Brent oil price keeps searching for a bottom due to supply glut. The oil price has
plunged 67% from its peak of USD115 in June last year and 32% since the beginning of FY15.
The global oil market remained oversupplied by 1.5 to 2.3 million bpd in FY15. After OPECs
December meeting, Brent crude tumbled towards its eleven-year low of less than USD40 in
response to the following:
OPEC decided to impose no ceiling on its production in order to maximize low-cost OPEC
supply and shake out higher-cost non-OPEC producers.
OPECs three largest members, Saudi Arabia, Irag and Kuwait keep pumping more oil to
the market at near record highs amid anticipation of new crude from Iran. OPECs output
touched a three-year high of 31.7m bpd in November.
Russias oil output continued to hover over post-Soviet record levels, i.e. 10.8m bpd in
November.
A 40-year ban on U.S. crude exports was lifted on 18 December 2015.
Surplus oil inventories have been approaching the highest levels in at least a decade. As
extra Iranian and U.S. export oil come onto the market, the supply glut is expected to grow,
raising concern around hitting storage capacity limits.
China, the worlds largest commodities consumer, released third quarter macro data
showing its slowest growth rate in six years; demand is likely to remain weak.
Figure 88: Brent oil price
80
OPEC abandoned
output limits
70
IEA released report showing
oil glut will worsen due to
slow demand growth
60
50
40
China released
weak 3Q15
macro data
30
U.S. oil export
ban is lifted
20
Brent oil price (USD/bbl)

Source: Bloomberg
Figure 89: Quarterly global oil supply and demand (million barrels per day)
HOLD
3.0
98
96
94
1.5
92
90
0.0
Oil surplus range from 1.5 to 2.3m bpd
88
86
-1.5
1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15
2013
2014
Surplus - RHS (mb/d)
Demand - LHS (mb/d)
2015
Supply - LHS (mb/d)
Source: IEA
PetroVietnam boosted oil & gas production to make up for price declines.
In 2015, PetroVietnams oil and gas production touched a five-year high. Crude oil production is
estimated to have grown by 9% to 18.7m tons while natural gas production also is estimated to
have climbed to 10.7bcm (+5% vs. 2014).
PetroVietnam tried to boost production in low-production cost fields while it has brought production
in high-production cost fields as well as most exploration and development activities to a halt.
Figure 90: Vietnam oil & gas production

20
18
16
14
12
10
8
6
4
2
0
2010
2011
2012
Crude oil (m tons)
2013
2014
2015E
Natural gas (bcm)
Source: MOIT & VCSC
Oil & gas share prices collapsed in line with declining prices, despite production hikes.
HOLD
As oil prices tumbled by 30% in 2015, oil & gas stocks (GAS, PVS, PVD and PVC) that were
exposed to low oil prices also plunged by 30-50%. In the meanwhile, beneficiaries of low oil prices
(PLC and DPM) saw share price increases of 35% and 9%, respectively.
Figure 91: Covered stocks' share price movement vs. Brent oil price
60%
40%
20%
0%
-20%
-40%
-60%
Jan-15
Feb-15
DPM
Apr-15
GAS
Jun-15
PLC
Jul-15
PVD
Sep-15
PVS
Nov-15
PVC
Dec-15
Brent oil price
Source: Bloomberg
In terms of earnings, we estimate that PVC was hit hardest by the oil price plunge, followed by
PVD. GAS seems to be the most oversold with a share price decline of 47.5% vs. an earnings
decline of just 17.8% while DPMs impressive EPS growth failed to draw investors interest.
Figure 92: Covered stocks' FY15F EPS growth vs. oil price performance in 2015
60%
39.6%
40%
37.9%
20%
0%
-20%
-17.8%
-21.0%
-23.9%
-29.8%
-40%
-60%
-64.5%
-80%
PLC
DPM
GAS
PVS
PVD
PVC
YTD Brent oil performance
Source: VCSC estimates, (*) EPS growth is calculated based on EPS normalized (less extraordinary items
and less contribution to employee bonus and welfare fund per Circular 200)
Outlook for 2016
HOLD
While we do not want to take a punt on oil prices, we assume that Brent oil price of
USD40/bbl forms a good base case scenario for next year
Analysts forecast a recovery of oil price to USD50/bbl, up 35% from current levels (5 January)
based on several reasons:
Production cuts will turn the market around in the coming year, especially U.S. shale oil
production will fall as drillers succumb to mounting debt service obligations. US. Shale oil
production break-even point is estimated at USD50-60/bbl.
In 11M15, Chinas crude oil imports increased 8.6% vs. TSPLY to 6.6 million bpd. For
2016, China is forecasted to purchase 8% oil more from overseas as they target a
stockpiling of 100 days worth of import by 2020, tripling the number as of the middle of
2015.
OPEC squeezing budget. Plunging oil price eats into many OPECs national budget. Saudi
Arabia needs to sell oil at around USD106 a barrel in order to balance the Government
budget. Similarly, other OPEC countries needs oil price of USD49-100/bbl.
Additionally, several of the worlds major producers, such as Russia, Saudi Arabia and Iran, are
involved in military conflicts that could escalate anytime and drive up oil prices.
Figure 93: Brent oil price forecast
60
USD/bbl
56
53
50
50
43
40
40
30
20
10
0
Bloomberg's
consensus
EIA
Moody
Reuter's poll
VCSC's base case
Source: Bloomberg, EIA, Moody, Reuters December 2015 & VCSC
We set a base case assumption for oil price of USD40/bbl for 2016 based on consensus of experts
estimates of USD50/bbl but adjust this further down to factor in the increasing speculation by
traders on a continued slide in price.
but if oil were to slide below our base-case level, the outlook for local producers and
service providers would be disproportionately bleaker
Vietnams production activity would be at risk with crude oil production cost of USD30-37/bbl. Even
though oil production cost in Vietnam is lower than some countries, it is much higher than in OPEC
countries such as Saudi Arabia and Iraq. We assume that if oil price were at USD30/bbl, Vietnams
oil & gas operators could cut down production activities. Under this scenario, the outlook for midstream players such as PVD, PVS and PVC would be very bleak.
Figure 94: Vietnam's crude oil production cost in comparison with other countries
HOLD
United Kingdom
52.5
Brazil
49.0
Canada
41.0
USA
36.0
Vietnam
33.5
Iraq
USD/bbl
10.7
Saudi Arabia
10.0
0
10
20
30
40
50
60
Source: CNN money & VCSC
Block B O Mon Project to spur E&P activities, however capex plan still unclear. In mid-June
2015, PetroVietnam announced that it had fully acquired Chevrons stake in two offshore
production sharing contracts (PSCs) in Vietnam including Block B 48/95 and Block 52/97. The
drilling campaign is scheduled to start in FY17, with a plan to drill up to 1,000 wells over the next
10 to 15 years, and gas production expected to commence in FY19 with annual output of 7bcm.
Total capex for the project is USD10 billion. The Block B project was officially kicked off in June
2015 with the ground breaking of a new supply base in Phu Quoc to support initial exploratory
drilling campaigns. Nonetheless, while we acknowledge its prospects, we will not factor Block B
into the valuations of companies within our coverage universe until the contracts have been
awarded. But we believe that while this massive project will not yet contribute revenue and
earnings for our covered companies in 2016, the announcement of contract awards will be a big
share price catalyst for all the service providers.
Figure 95: VCSCs estimated breakdown of Block B O investment capital of USD 5.5b (*)
Categories
Unit
Wells to drill
Central
Processing
Platform
Light
production
platform
Tender barge
(PVD VIII)
Jack-up
(PVD VII)
FSO
rig
Well services
of tender barge
Well services
of Jack-up rig
Unit value
/ Dayrate
(USD)
Total
(USD)
1,000
1
800m
800m
45
50m
2,250m
One light platform (over 1,000 tons) can

connect to 20 - 25 wells.
125k
438m
140k
196m
150m
150m
10
20m
200m
20m
80m
To drill and complete a well in Block B will

take 7-10 days, and assuming the tender
barge to operate 10 years in Block B
starting 2018
Assuming JU rig operating in Block B in 4
years from 2017
FSO will stay during the whole production
cycle.
Assuming service value at USD
20m/rig/year and 10 years
Assuming service value at USD
20m/rig/year and 4 years
Note
PVNs disclosure. Main assumption

Daily processing capacity of 18mcm of gas
and 21,000 bpd of condensate.
Chemicals
500
229m
Length of gas
pipeline
Total
400km
1,140m
1,140m
Estimate for 500 wells to be drilled in 10

years from 2018
From GAS
HOLD
5,483m
Source: VCSC estimates; Central Processing Platform and FSO values are imitative of Hai Thach Moc Tinh
project; Light production Platform is imitative of White Rabbit project; (*) This breakdown excludes capex of
~USD4b for power complex development as this will not benefit the O&G service companies.
Figure 96: Investment timeline for Block B

Value
(USDm)
Scope of work
2016
2017
2018
2019
2020
Upstream services projected based on NCS and White Lion project.
PVS
VSP
PXS
PVD
M&C - 35 light production platforms +

central
O&M - 35 light production platforms +
central
891
891
M&C - FSO construction
150
Top site and jacket construction
1,125
Subcontractors for 10 light production

platforms
Exploratory drilling (PVD VII & PVD
VIII)
144
634
Well related services
280
PVC
Mud & Chemical
229
PVB
Pipeline coating for 400km gas pipeline
137
GAS
Pipeline designing, purchasing and

construction
1,003
Total
5,483
Stock recommendations for 2016
HOLD
Figure 97: Summary of O&G companies under coverage

Impact of low
oil price on
earnings
Rationale
Assessment
DPM
Positive
Impact
PLC
for
Impact
Recommendation
TP/share Base Case

USD
40
Brent
Input cost directly pegged to fuel

oil and output price is indirectly
influenced by oil price
BUY
37,900
Positive
Impact
Input cost links to crude oil prices
BUY
44,701
GAS
Negative
impact
Output price for LPG and

industrial parks directly pegged
to oil price but floor on output
price for power plants above
Take or pay will reduce exposure
to oil price
OUTPERFORM
38,500
PVD
Negative
impact
Day rates for jack up rigs and

workload for well services is
strongly impacted by oil price
MARKET PERFORM
21,800
PVS
Negative
impact
Service contracts and margins

influenced by oil prices despite
stable FSO/FPSO segment.
BUY
17,243
UNDER PERFORM
11,636
PVC
Negative
Drilling fluids contracts and
impact
margins influenced by oil prices
BUY Phu My Fertilizer (HSX: DPM) DPM traversed 2015 successfully when it benefited from
low input gas costs thanks to low oil prices. Our base case oil price assumption of USD 40 / bbl
represents a 26% decline from the average oil price in 2015 and this should therefore boost DPMs
performance greatly in 2016 based on the current oil-linked input pricing theme.
Low oil prices have a positive impact on DPM: Dry gas input accounted for 79% of urea input cost.
Lower fuel oil prices translate to lower costs. However, a further weakening in oil prices will also
lead to a slight fall in urea selling prices, even though DPM has enough pricing power to command
a 5% premium to the local average selling price of urea. We conservatively assume that every
25% change in oil prices will result in an 18% change in input gas price but only a 5% change in
urea prices.
Loss-making PVTex associate, is now a complete write-off as DPM booked a final provision in
Q3/15. Nonetheless, concerns remain over debt guarantees for PVTex, which are estimated
roughly at VND1,313 billion (USD58 million) or VND3,500/share and we deduct this from our TP.
It is likely that DPM will be forced to make good on this commitment but not until it is due in June
2017.
Figure 98: DPM sensitivity to oil price

Assumptions for FY16
Oil price (USD/bbl)
Fuel oil price assumption (USD/ton)
Input gas price (USD/MMBTU)
Urea selling price (USD/ton)
Financials (FY16E)
ROE (%)
NPAT (VNDb)
EPS (VND/share)
EPS growth (%) normalized
Valuation
PER (x)
DCF-derived TP (VND/sh)
TSR (%)
Dividend yield (%)
HOLD
20
102
2.2
279
30
159
2.8
294
40
215
3.4
309
50
272
4.0
326
60
329
4.7
342
18.1%
1,817
4,084
17.1%
17.6%
1,761
3,958
13.5%
17.2%
1,715
3,856
10.6%
16.9%
1,681
3,778
8.3%
16.5%
1,646
3,700
6.1%
7.1
39,807
46.9%
8.7%
7.3
38,778
43.3%
8.7%
7.5
37,925
40.4%
8.7%
7.6
37,260
38.1%
8.7%
7.8
36,594
35.7%
8.7%
Source: VCSCs estimate
BUY Petrolimex Petrochemical Corp. (HNX: PLC) 2016 looks promising for PLC as it is not
only a good play on economic growth and capital investment but also a beneficiary of the oil price
slump. Top line growth will be driven by asphalt demand for which will be boosted by rising
investment in infrastructure projects. Meanwhile, margin expansion from low input cost for both
asphalt and lubricant will further boost PLCs earnings growth.
Low oil price has positive impact on PLC: 70% of input materials comprise of base oil and imported
asphalt. Asphalt is made from crude oil and base oil (input for lubricant), both of which are linked
to crude oil prices. Hence, lower oil prices convert to lower input costs.
Our main concerns for PLC are payment realization risk (as its clients are largely SOEs) and forex
loss as 90% of its raw materials are imported. The former, in our view, is presently managed well
by PLC while the latter has not yet been hedged. We assume VND will devalue by 5% in 2016 and
our target price already factors in the forex losses resulting from this.
Figure 99: PLC sensitivity to oil price

Oil price (USD/bbl)
Lubricant gross margin %
Asphalt gross margin %
Financials (FY16E)
ROE (%)
NPAT (VNDb)
EPS (VND/share)
Valuation
PER (x)
TSR (%)
Dividend yield (%)
20
27.5%
20.5%
30
27.0%
20.0%
40
26.5%
19.5%
50
26.0%
19.0%
60
25.5%
18.5%
31.9%
454
5,336
25.0%
30.1%
428
5,027
17.8%
28.4%
401
4,718
10.5%
26.6%
375
4,409
3.3%
24.8%
349
4,100
-3.9%
7.2
50,956
40.5%
7.8%
7.6
47,834
32.4%
7.8%
8.1
44,701
24.2%
7.8%
8.7
41,567
16.1%
7.8%
9.4
38,485
8.0%
7.8%
OUTPERFORM PetroVietnam Gas (HSX: GAS) We recently reduced our TP for GAS by 13%
to VND38,500 mainly due to a rise in the cost of capital (due to a rise in the cost of equity and a
13% reduction in estimated 2016 earnings on a lower oil price assumption of USD40/bbl (-26% vs.
2015). GAS is asking the government to modify the market pricing mechanism for gas sales to
power plants to ensure that the output price should at least equal the input price. Therefore, we
expect the average selling price (ASP) for above Take or Pay (AToP) to remain at USD3.8/MMBTU
so long as the oil price is below USD40/bbl. We believe that GAS is trading at a pretty fair PER of
9.0x on FY16Es EPS forecast with an 8.3% dividend yield.
HOLD
ASP for power plants AToP (46% Monthly

fuel oil -MFO) should be at least equal input
gas price
Figure 100: GAS's sensitivity to oil prices

Oil price (USD/bbl)
Fuel oil price assumption (USD/ton)
Selling price to power plants AToP (USD/MMBTU)
Selling price to industrial parks (USD/MBTU)
LPG selling price (USD/ton)
Financials (FY16E)
ROE (%)
NPAT (VNDbn)
EPS (VND/share)
Valuation
PER (x)
TSR (%)
Dividend yield (%)
20
102
3.80
3.51
364
30
159
3.80
4.91
432
40
215
3.80
6.30
500
50
272
4.08
7.70
568
60
329
4.72
9.10
636
16.0%
6,322
3,254
-29.5%
17.3%
6,889
3,546
-23.1%
19.4%
7,814
4,022
-12.8%
22.4%
9,214
4,743
2.8%
26.3%
11,068
5,697
23.5%
10.6
35,100
9.0%
7.2%
9.7
36,700
15.1%
8.7%
8.6
38,500
20.3%
8.7%
7.3
41,900
30.1%
8.7%
6.1
46,200
42.6%
8.7%
BUY Petroleum Technical Service Corp. (HNX: PVS) The situation will be less severe for
PVS as compared with PVD thanks to its diversified portfolio ranging from upstream to downstream
activities. We forecast that PVSs main pillars including OSV, M&C, Supply Base and Seismic
Survey/ROV will all see revenue declines of 30%-60% for 2016 following prolonged low oil prices
resulting in weakening E&P activities. In addition, gross margins across all its six business
segments will contract by 100-450 bps due to fiercer competition amidst declining job volumes.
We are assuming income from FSO/FPSO joint venture (which contributed 46% to PVS profit in
2015) will only fall slightly as all JVs are locked into 10-year contracts with fixed day rates (despite
possible pricing pressure in the long term as production activities are hurt by weak oil prices).
Low oil price has negative impact on PVS: Aside from FSO/FPSO segment which has secured
fixed long-term contracts, the other five core businesses have high exposure to E&P activities and
oil price. A weakening of oil prices will result in lower OSV and supply base day rates as well as
job flow cuts in the M&C, O&M and Seismic Survey segments.
We think the gloomy earnings outlook is already priced-in as (1) the stock is trading at 1YF PER
of 6.9x compared to its regional peers average adjusted 1YF PER of 12.7x and (2) it has a juicy
dividend yield of 8.2%. We therefore keep BUY rating on the stock.
Figure 101: PVS sensitivity to oil price
HOLD

Oil price (USD/bbl)
Rev growth vs. 2015 (%)
Blended gross margin (%)
Financials (FY16E)
ROE (%)
FY16E's NPAT (VNDbn)
EPS (VND/share)
Valuation
PER (x)
TSR (%)
Dividend yield (%)
20
-41.6%
2.7%
30
-31.6%
4.7%
40
-21.6%
6.7%
50
-11.6%
8.7%
60
-1.6%
10.7%
3.8%
452
927
-68.6%
5.9%
708
1,452
-50.9%
8.6%
1,041
2,134
-27.8%
11.9%
1,450
2,974
0.6%
15.7%
1,937
3,972
34.4%
15.5
11,206
-19.0%
4.8%
10.0
14,062
2.5%
6.8%
6.9
17,243
25.5%
8.2%
5.0
20,763
49.4%
8.2%
3.7
24,617
75.6%
8.2%
MARKET PERFORM PV Drilling (HSX: PVD) We cut down our TP for PVD by 28% to
VND21,800 as recent day-rate negotiations between PVD and clients suggest substantial price
declines are imminent. We slash our 2016 day-rate assumption from USD120,000 to USD100,000
given observed day-rate in Southeast Asia (Rig-zone). As a consequence, 2016 NPAT was
revised down by 34%.
Figure 102: PVD's day-rate vs. oil price

300,000
Oil price impact on PVDs dayrate lags oil price by 12 years due to contract length with customers.
250,000
140
216,934
112
200,000
98
112
108
98
181,554
100
81
150,000
64
145,125
130,000
159,167
126,291 127,165 127,838
100,000
100,000 60
54
40
50,000
180
20
These low dayrates reflected oil price slump in 2009 - 2010
(20)
2008
2009
2010
2011
PVD's dayrate (USD)
2012
2013
2014
2015E
2016F
Oil price (USD/bbl)
Low oil price has negative impact on PVD: Even though PVN will maintain oil and gas production
to support oil export activities and meet gas demand from upcoming power plants, we believe that
they would still need to cut cost to maintain their margins if the oil price weakness is prolonged. As
a result, PVD will suffer from day-rate cuts, less well-related services demand as well as reduce
leased rigs. We ran an analysis for lower day-rates vs. current contracted rates and modelled for
a potential drop in well-related revenue.
Even though PVD still has a healthy balance sheet and we see no liquidity risk, we put a M-PF
rating on the stock given a steep 2016 PER of 10.0x as well as poor and declining ROE.
Figure 103: PVD sensitivity to oil price
HOLD

Oil price (USD/bbl)
JUs day rate (USD/day)
Utilization rate (%)
Financials (FY16E)
ROE (%)
FY16E's NPAT (USDm)
EPS (VND/share)
Valuation
PER (x)
TSR (%)
Dividend yield (%)
20
80,000
98%
30
90,000
98%
40
100,000
98%
50
110,000
98%
60
120,000
98%
3.3%
20
3,680
-76.8%
4.8%
30
4,236
-65.8%
6.3%
39
4,792
-54.8%
7.8%
49
5,348
-43.8%
9.3%
59
5,904
-32.8%
19.5
12,600
-42.8%
2.2%
13.3
17,200
-19.2%
5.7%
10.0
21,800
1.7%
6.6%
8.1
26,300
21.4%
6.6%
6.7
30,900
41.5%
6.6%
Source: VCSC estimate, 2016 Day rate applicable to PVD I, II, III & IV; assume no growth after 2016, Baker
Hughes JV provide a wide-range of technical services. TAD's rate FY16 onwards is USD 190k. No change
in day rate for land rig.
UNDER PERFORM Drilling Mud Corp. (HNX: PVC) Similar to PVDs main services, PVCs
core drilling fluids services are entirely exposed to E&P activities plus O&G operators drilling plans.
Therefore, under oil price pressure, capital expenditure cuts threaten PVCs earnings and
squeezes its margins. The average number of jack-up rigs in operation has dropped to about nine
rigs in 9M15 vs.14 rigs in 9M14 (exclusive of VietSovpetros fleet). We estimate that each rig can
drill from four to six wells annually. Hence, numbers of wells being drilled will drop by 50% to
around 30 in 2016 based on the assumption that there will be seven JU rigs operating in Vietnam.
Given negative ROE and EPS growth outlook as well as unjustified 1YF PER of 19.0x, we keep a
U-PF rating for this stock.
Figure 104: PVC sensitivity to oil price

Assumptions
Oil price (USD/bbl)
No. of wells for drilling fluids supply
Financials
ROE (%)
FY16E's NPAT (USDm)
EPS (VND/share)
Valuation
PER (x)
TSR (%)
Dividend yield (%)
20
20
30
25
40
30
50
35
60
40
1.6%
20
340
-74.6%
2.6%
32
554
-58.7%
3.6%
44
768
-42.7%
4.6%
56
981
-26.8%
5.5%
69
1,195
-10.8%
42.9
7,822
-45.1%
1.4%
26.4
9,729
-29.3%
4.1%
19.0
11,636
-15.5%
4.8%
14.9
13,543
-0.4%
6.8%
12.2
15,449
14.0%
8.2%
Vy Nguyen
vy.nguyen@vcsc.com.vn
+84 8 3 914 3588 ext. 147
Textile sector: Gearing-up for growth
HOLD
Figure 105: Textile Index vs. VNINDEX

Nghia Le
nghia.le@vcsc.com.vn
+84 8 3 914 3588 ext. 181
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
-10.0%
-20.0%
Jan-15
Feb-15
Apr-15
Jun-15
VNI
Jul-15
Sep-15
Nov-15
Dec-15
Textile Index
Source: Bloomberg
Figure 106: Textile Tickers vs. VNINDEX

70.0%
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
-10.0%
-20.0%
Jan-15
-30.0%
Feb-15
Apr-15
Jun-15
VNI
TNG
Jul-15
Sep-15
TCM
Nov-15
Dec-15
STK
Source: Bloomberg
Company
Ticker
Rating
STK
M-PF

Cap
Avail in price
US$mn US$mn VND /
share
Current Upside
Div
FY15
FY16
Price
%
yield @
EPS
EPS
VND/sh
price
%
%
FY17
EPS
growth
%
FY16
P/E
(x)
MR QTR
P/B
(x)
9.9%
10.4
9.7
TEXTILE
Century Synthetic Fiber
64.7
21.4
33,900
31,300
8.3%
0%
-8.8%
44.1%
What happened in 2015: Conclusion of TPP negotiations strengthened

HOLD
Vietnams standing as a global textile export hub.
Vietnam's textile industry is getting a major boost from the Tran-Pacific Partnership (TPP)
and other important FTAs that have been recently inked and expected to take effect in the near
future. While these new trade agreements will not have an earnings impact on local textile players
for a while, their conclusion served as a major price catalyst for listed players across the textile
value chain.
However, now that the TPP premium is already priced-in, we believe that price movements in the
upcoming period will be driven more by earnings and fundamental developments rather than broad
sentiment on the sector.
Figure 107: Benefits of TPP and other FTAs are already priced-in.
16
14
12
10
8
6
4
2
0
Jan-15
Feb-15
Apr-15
VNI
Jun-15
TNG
Jul-15
TCM
Sep-15
STK
Nov-15
Dec-15
STK
Source: Bloomberg, VCSC
2016 Outlook: The Good

Our view is that the textile sectors is poised for strong growth over the medium-to-longterm based on the following factors:
The existing cost advantages of Vietnam-based exporters, including: cheap labour, lower
corporate tax rate in conjunction with tax incentives for capex expansion.
Which, in turn, will attract further FDI investment boosting the countrys output as well as
Vietnam shares in the global textile market.
The new found tariff advantages from upcoming FTAs will dramatically reduce selling
price, thus, boosting demand for Made in Vietnam textiles.
Figure 108: Vietnams advantages in terms of monthly wages (left) and corporate tax rate
(right)
HOLD
1000
USD
50%
800
40%
600
30%
400
200
0
Source: CEIC
20%
10%
0%
Source: KPMG
Capacity expansion and the thirst for locally-produced intermediates are the main
performance catalysts in medium-term given the material origin requirements of the said FTAs
and the limited current capacity of industry incumbents. While the recently concluded FTAs and
TPP are unlikely to start boosting export volumes of garments from Vietnam immediately (and by
consequence, sales of intermediates domestically), most players already started expanding
capacity 1-2 years ago in anticipation of these trade agreements and as this incremental capacity
comes online in 2016 and 2017, it will start benefiting the top-line of companies like TCM, TNG
and STK. Given the capacity bottleneck in the mid-stream part of the value chain in Vietnam (fabric
production) and the strict rule of origin requirements of TPP, upstream producers should see their
growth outpace that of downstream producers. More fabric production capacity is being added
domestically to address the existing bottleneck and this will translate into greater demand for
locally-produced yarn.
Figure 109: The current bottleneck in Vietnam textile value chain
Source: VCOSA, VCSC
The largest players in the sector are expected to be listed in 2016, broadening access to
this sector. Vinatex and its subsidiaries are well positioned to ride on the coattails of the free trade
bonanza. With two notable subsidiaries preparing to IPO and list in 2016 -- Viettien and May10 -and the granddaddy Vinatex expected to follow suit in 2017, we expect investor interest to gravitate
towards these new additions to the listed universe.
HOLD
Viettien is currently the largest exporting member of the Vietnam Textile and Apparel Association
(VITAS) with an average monthly export turnover of roughly USD30 million, well over that of our
listed top pick TCM. May10 also has an impressive USD20 million worth of monthly export
turnover, currently. With a large customer base already in the US, EU and Japan, both firms are
well situated to benefit from the FTAs and TPP over the medium-to-long term.
and the Ugly

New FDIs are a double-edged sword as they also attract fierce competition. Going beyond
2016, FDI firms will gain a larger foothold in Vietnam's textile industry; some of these players will
set-up fully vertically integrated operations while others who are purely downstream players
will be followed into Vietnam by their existing upstream supplies. This will create competition for
local incumbents across the textile value chain. Only leading local players with a large existing
customer base will be able to withstand this competition over the medium-term.
In the long run, we tone down our view on the current upstream manufacturers amid the
intensifying competition from foreign entrants. As mentioned above, the shifting of textile
plants to Vietnam will also mean the shifting of upstream production to Vietnam. FTAs will attract
international midstream players into Vietnam, filling in the gap between low upstream capacity and
growing downstream demand. Many fabric and garment producers, especially from mainland
China, Hong Kong and Taiwan (non-TPP countries) have already set up yarn and fabric factories
in Vietnam. Therefore, a major part of growth will be absorbed by new comers rather than local
incumbents such as STK. Nonetheless given the lead time required to build these new facilities
we believe that local players will not really feel the heat for another couple of years.
Figure 110: Major FDI textile and garment projects in Vietnam
No.
1
2
3
4
5
6
7
8
FDI
Country
TEXHONG
TAL
CRYSTAL PACIFIC
BROS EASTERN
SHENGZHOU
HAPUTEX
POLYTEX
HYOSUNG ISTANBUL TEKSIL
China
Hong Kong
Hong Kong
Hong Kong
China
Hong Kong
Taiwan
Turkish
Registered
capital
(USDm)
120
600
545
400
427
120
274
660
Product
Yarn
x
x
Fabric
x
x
x
Garment
x
x
x
x
x
x
Source: VCOSA, VCSC
HOLD
MARKET PERFORM Century Synthetic Fiber (HSX: STK)

Being the only midstream player listed on HOSE, STK made a strong debut this September with
stock price rallying 15.5% in the first 2 days of trading thanks to the anticipated finalization of TPP.
The company is one of the top listed premium synthetic yarn producers exporting to international
garment houses that in turn make shoes and shirts for blue-chip brands like Nike and Adidas. With
the current bottleneck in domestic yarn supply and the strict yarn-forward rules of origin coming
into force under TPP, STKs positioning as a high-quality yarn producer gives it lots of room for
expansion. However, as pointed out earlier, the growing entry of foreign yarn makers as well as
the entry of vertically-integrated garment producers (that can spin their own yarn) pose downside
risks to STKs long-term prospects.
The year 2016 will see the most pronounced effect of new capacity addition for STK as the
companys third factory Trang Bang 3 started to operate with 50% capacity commissioned starting
September 2015 and will see 100% capacity commissioned in 2016. The fourth factory Trang Bang
4 will also be completed in 2016 and expected to commence operations in 2017. These capacity
expansions will bolster STKs growth for the next two years. The company is currently able to meet
only 20% of its existing clients total demand for PES FY. Also, as these customers grow
especially those who increase their buying from Vietnam in order to benefit from FTAs STK
should have an increasing captive pool of demand to support sustained growth over the medium
term.
Looking further, STK will pursue a forward integration strategy into fabric production, aiming to
eventually become an integrated textile producer. We forecast EPS to increase by 44% in FY16
vs FY15 against a top line growth of 31% but, despite this robust growth outlook, the stock looks
a bit expensive at 10.4x FY16 PER and a TTM PER of 12.6x, versus a TTM PER of 9.8x for peers.
Figure 111: Capacity expansion pipeline of STK

Total designed capacity (tons)
Cu Chi
Trang Bang 1
Trang Bang 2
Trang Bang 3
Trang Bang 4
2014
37,000
15,000
11,000
11,000
2015
44,500
15,000
11,000
11,000
7,500
2016
52,000
15,000
11,000
11,000
15,000
2017
60,000
15,000
11,000
11,0
15,000
8,000
Source: STK, VCSC
NON RATED Thanh Cong Textile and Garment (HSX: TCM)

The firm is currently the largest and the most fundamentally sound listed textile and garment
exporter. Operating with a fully integrated value chain, the firm derives 50% of its revenues from
exporting finish products while a smaller portion of revenues come from from sale of yarn (40%)
and fabrics (7%) to third parties. Its vertically integrated model is a natural fit with TPPs yarnforward rules of origin. Moreover, TCMs geographically diversified customer base will allow it to
benefit from several FTAs at them same time, especially the Korea-Vietnam FTA which is now
officially in effect.
With the first phrase of its 3-years expansion scheme completed in 2015, the second phrase will
look to add another garment factory by 2016 and a dying and weaving factory in the third phase
by 2018. The total expansion plan will aim to significantly boost capacity across the value chain
with end-product capacity rising by 90% and weaving capacity and dyeing capacity rising by 70%
and 130% respectively.
HOLD
Figure 112: Capacity expansion pipeline of TCM

Phrases
Garment phrase 1
Garment phrase 2
Weaving
Dying
Additional Capacity
Completion time frame
9,600
6,074
4,818
10,650
2015
2017
2018
2018
Thousands of units
Thousands of units
Million tons
Million tons
Source: TCM, VCSC
Moreover, thanks to its largest strategic partner E-land Asian Holding a well know Korea-based
textile corporation TCM has better access to internationally experienced management as well as
cutting-edge manufacturing technology. In 2014, the revenues from E-land-related contracts
accounted for more than 15% of TCMs top line. With the new FTA with Korea, this partnership will
become ever more important.
Being the only fully integrated listed textile player, TCM enjoys a premium over other exporters,
trading at a TTM PER of 7.9x, but still much cheaper than its mid-stream counterpart, STK.
NON RATED TNG investment and Trading (HNX: TNG)

Unlike its larger counterparts, TNGs advantages lie in its deep roots in the US market. Only
focusing on Cut-Make-Trim activities, this textile manufacturer will not immediately benefit from
FTAs. However, the growing capacity in downstream production on the back of the recent FTAs
and TPP will eventually granted TNG the ability to source their material locally. TNG real attraction
are its impressive growth. Top line growth accelerated from 16% in 2014 to 35% in 2015 on the
back of aggressive capacity expansion. Having just completed a new garment factory and a cotton
sheet factory in 2015, TNGs pipeline stretches as far as 2020 with four additional factories
expansions programs currently in the works.
Being the smallest player among the 3 on our list, TNG is trading at a TTM PER of only 6.0x which
is rather impressive in view of its recent earnings growth track record.
Hai Hoang
hai.hoang@vcsc.com.vn
+84 8 3 914 3588 ext. 138
Logistic sector: Bright outlook for part operations with

HOLD
expansion plans
Figure 113: Logistic Index vs. VNINDEX
70.0%
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
-10.0%
Jan-15
Apr-15
Jul-15
Logistics index
VNI
Oct-15
Source: Bloomberg
Figure 114: Logistic Index vs. VNINDEX

140%
120%
100%
80%
60%
40%
20%
0%
-20%
Jan-15
VNI
Apr-15
GMD
TMS
Jul-15
DVP
Oct-15
VSC
DXP
Source: Bloomberg
Company
Ticker
Rating
Gemadept
GMD
OM-PF
Market Foreign
Cap
Avail in
US$mn US$mn
223.7
0.0
Target
price
VND /
share
Div
FY15
FY16
Current
Upside yield @
EPS
EPS
Price
%
VND/sh
price
%
%
44,000
41,000
7.3%
5.2%
-24.0%
27.7%
FY17
EPS
growth
%
FY16
P/E
(x)
MR QTR
P/B
(x)
N/A
9.1
0.8
What happened in 2015: Port operations in Vietnam have grown robustly

this year despite a moribund global maritime shipping landscapeHOLD
The total cargo volumes through Vietnams ports recorded an increase of 10.4% YoY in the first
half of 2015 to reach approximately 203m tonnes, of which container cargo clearance volume
touched 6.2 million TEUs, up 26% on YoY basis. This growth was largely driven by Vietnams rapid
emergence as a regional manufacturing hub which is driving imports of both capital equipment and
components as well as exports of finished products.
Domestic freight transportation volumes comprising of road freight, air freight, inland waterway
freight, maritime freight and rail freight grew at a more subdued but still respectable rate of 5.7%
YoY to touch 546 million tonnes in the first half of this year. With the continued growth in imports
and exports as well as the acceleration in GDP growth, we can expect domestic freight volumes
to pick-up slightly in 2016 although the sharp recent slowdown in global trade poses some
downside risks.
Figure 115: Cargo volume through ports and
domestic transportation volume 2005-2014
Port's cargo
throughput in
million tonnes
400.0
Figure 116: Cargo volume through ports and

domestic transportation volume in 1H2015
Domestic freight
transport in million
tonnes
1200.0
600.0
1000.0
500.0
800.0
400.0
600.0
300.0
400.0
200.0
200.0
100.0
350.0
million tonnes
+5.7%
300.0
250.0
200.0
150.0
+10.4%
100.0
50.0
0.0
0.0
0.0
1H2014
1H2015
Cargo volume through the ports
Cargo volume through the ports
Domestic Freight Transport
Domestic Freight Transport
Source: GSO, Ministry of Transport.
The strong performance of the port sector in Vietnam is particularly impressive when you consider
the sharp downturn in the global maritime shipping industry. Container freight rates have nosedived
prompted by a fall in the volume of seaborne trade. This fall in demand has not been accompanied
by a reduction in supply largely because the slump in steel prices has dissuaded shipping lines
from scrapping their old vessels; 60% fewer container ships have been scrapped this year
compared with the same period last year. At the same time, orders for new ships have boomed,
rising 60% YoY in the first five months of 2015. These factors have combined to create huge
oversupply, thereby pressuring freight rates. The cost of sending a container from Shanghai to
Europe, for instance, has almost halved since March of this year (The Economist, October 29th,
2015).
Meanwhile, the bulk shipping industry has been hit even harder given the sharp slowdown in
Chinese commodity imports. The Baltic Dry Index, a measure of shipping rates for commodities
such as coal, iron ore, steel and grain, recently touched a 30-year low, having fallen 96% since
touching its all-time high in May 2008.
Vietnams ports have, however, managed to shrug-off these headwinds in the container and bulk
shipping sectors owing to the countrys rapid emergence as a manufacturing hub as well as the
strong recovery in the countrys domestic economy. However, the country is not immune to this
and a deepening slump in global trade could impact Vietnams trade volumes and, consequently,
lead to a slowdown in container traffic through Vietnams seaports in 2016 and beyond.
HOLD
Figure 117: Baltic Dry Index

14,000
BDI hit a fresh

30-year low of
498 points in
November 2015
12,000
10,000
8,000
6,000
4,000
2,000
-
Source: Bloomberg, VCSC.
...and this is reflected in the strong performance of port operators this year
relative to that of shipping lines
Vietnamese port operators in the Hai Phong port zone such as DVP, VSC, HAH or GMD,
saw a dramatic expansion in gross margin, mainly stemming from higher cargo volumes
(leading to higher utilization) as well as due to a spike in demand for reefer-related services.
In 9M2015, there was a backlog of more than 2,000 cold containers in the Hai Phong port zone
consisting mainly of frozen foods that were temporarily imported into Vietnam via sea for reexport to China via land. Recent tightening of controls by the Chinese along the SinoVietnamese border in recent months have prolonged custom clearance time, thereby
lengthening the storage period for these reefer containers. Reefer container services carry
substantially higher gross margins (~50%) than other regular container-handling services
owing to their specialized nature. Such spikes could repeat in the future as border conditions
between Vietnam and China remain tense owing to disputes over the East sea.
Local pure-play logistics companies that do not have any seaport operations saw a
modest improvement in GPM, with the notable exception of TMS. Only TMS which owns a
strong system of DCs (distribution centres) was able to improve gross margins substantially
by providing more value-added services within its DCs. Nevertheless, revenue growth of pureplay logistics service providers increased rapidly driven by the recovery in the domestic
economy as well as trade between Vietnam and the rest of the world.
Despite benefiting from lower oil prices (fuel cost accounts for 40-45% COGS), Gross
margin of domestic maritime transportation or shipping companies were still
pummelled by the prolonged weakness in global shipping freight rates. In fact, global
freight rates have remained low with the Baltic Dry Index (BDI) plunging from 12,000 in 2008
to bottom at 509 points in Feb 2015 and then falling again to hit a fresh 30-year low of 498
points in November. The index is likely to stay depressed as the maritime transportation
industry continues to suffer from chronic overcapacity and Chinas demand for commodities
continues to weaken. Meanwhile, container shipping rates have also seen sharp falls owing to
the sharp slowdown in global trade activity in recent months.
HOLD
Figure 118: Revenue of domestic logistics companies: 9M2015 vs. 9M2014

9M2014
3000
9M2015
+26.9%
2500
-21.6%
2000
+29.5%
1500
+26.6%
+7.6%
1000
-12.2%
+14.9%
+27.0%
+35.4%
+30.5%
500
+7.7%
+7.9%
0
GMD
VSC
HAH
DVP
DXP
VNF
TMS
STG
VNT
VNL
VOS
VNA
Source: VCSC, Companies s financial results
Figure 119: Gross Profit Margin of Logistics companies in 9M2015

Port operators: GPM expansion of
650 bps on average
9M2015
9M2014
60.0%
50.0%
Logistics: GPM expansion of
180 bps on average
40.0%
Transportation:
GPM contraction
of 490 bps on
average
30.0%
20.0%
10.0%
0.0%
GMD
VSC
HAH
DVP
DXP
VNF
TMS
STG
VNT
VNL
VOS
VNA
-10.0%
Source: VCSC, Companies s financial results
How the market perceived 2015 developments
HOLD
The stock price performance of port operators and logistics service providers outperformed
the VN-INDEX on the back of TPP finalization
Figure 120: The appreciation in stock prices of port operators and logistics companies
strongly outperform the VN-Index
140%
The conclusion of TPP

negotiations on 5 October
2015 boosted demand for
logistics and seaport stocks
throughout Q4
120%
100%
80%
60%
40%
20%
0%
Dec-14
Feb-15
VSC
Apr-15
GMD
Jun-15
DVP
DXP
Aug-15
Oct-15
TMS
VN-Index
Source: Bloomberg, VCSC
Among the port operators, valuations became increasingly polarized based on capacity to
grow and the impact of the new Bach Dang bridge on operations
By December 2015, the divergence among trailing-twelve-month P/Es of listed port players
became wider. On the one hand, the market strongly rewarded those players with spare existing
capacity or pipeline capacity. In the other camp were those with limited spare capacity, inability to
add further capacity or proximity to the upcoming Bach Dang bridge. It is noteworthy that operators
with port facilities upstream along the Cam River primarily fell into the discounted camp because
of the following two reasons:
Many of the upstream ports are close to the Bach Dang bridge which is currently under
construction; the market has factored in the risk of this construction work disrupting cargo
traffic through to 2018; interestingly, there is a clear positive correlation between proximity to
the bridge and the discount applied by the market.
Upstream ports also lack capacity expansion plans primarily because of their inability to match
ongoing trends in the shipping industry; shipping lines are increasingly favoring larger vessels
to boost economies of scale and the upstream ports would not be able to accommodate such
vessels even with expanded capacity due to to limitations imposed by their geographical
location; the upstream portion of the Cam River is not broad or deep enough to host ships
greater than 10,000 DWT.
Figure 121: Valuations of port operators were polarized

Port
players
GMD
VSC
New capacity
addition plans
Incremental
150,000 TEUs at
NHDV port
Incremental
500,000 TEUs
with new VIPGreen port
Risk from
Bach Dang
bridge const.
HOLD
Distance
upstream
TTM P/E
Small
(Nam Hai port)
12.3
Small
(Green port)
9.8
DVP
No
No
9.9
DXP
No
Medium
7.5
HAH
No
Quite significant
6.2
Average P/E for each

group
The ones with new

capacity are trading at
the average P/E of
11.0x
The ones with no
capacity expansion are
trading at the average
P/E of 8.7x
HAH is trading at the
lowest P/E of 6.2x
because of location risk
and no capacity
expansion
Source: VCSC
Figure 122: The market is attaching a premium to ports that are further downstream and
further away from the Bach Dang bridge
GMD: 12.3x
VSC: 9.8x
DVP: 9.9x
DXP: 7.5x
HAH: 6.2x
Source: VCSC
Outlook for 2016
HOLD
Port operators with new capacity expansions in the downstream portion of the Cam have a
bright outlook in 2016
In 2016, only port operators located in the downstream area of the Cam river can absorb
the expected incremental cargo volume handled in Hai Phong: By the end of December 2015,
it is expected that cargo throughput in Hai Phong will touch 3.75 million TEUs, up 12.1% on 2014
levels. In 2016, we assume that the growth rate in cargo throughput in the area will be sustained
implying that an incremental 400,000 450,000 TEUs of cargo volume will be handled through Hai
Phong next year, over and above 2015 levels. However, this incremental cargo volume will not be
equally allocated to all operators due to following reasons:
(1) The construction of Bach Dang bridge is disrupting cargo traffic along the upstream part of the
Cam River. As a result of this all seven ports in this area including Greenport, Nam Hai, Doan Xa,
Transvina, Chua Ve, SNP 128 and Hai An are likely to see flat or a modest growth in cargo
throughput in 2016. It is worth noting that all upstream ports are only able to accommodate 10,000
DWT vessels, while the commencement of bigger ports in the downstream such as NHDV, Vipgreen recently have started attracting many bigger vessels from new customers with vessel
capacity ranging from 20,000 to 30,000 DWT. New shipping fleet capacity is increasingly going to
be in the >10,000 DWT category as shipping lines switch to larger ships to reap scale economies.
(2) There are only four ports in the downstream part of the Cam river that still have spare capacity
or new capacity in the pipeline to absorb the new cargo throughput in the area: Tan Vu (PHP),
SNP 189, Nam Hai Dinh Vu (GMD) and VIP- Green (VSC) (Figure 8)
(3) The downstream ports are located right next to the Dinh Vu industrial park. As a result, these
ports will be the preferred choices for exporting intermediate and finished products of FDI
manufacturers. Overall, the surge in cargo throughput will help the port operators such as
VSC and GMD increase their market share in the area. On the other hand, the market shares
of small players located upstream are likely to shrink substantially.
Figure 123: Outlook for port operators in Hai Phong is heavily influenced by location
Source: VCSC, Google maps

Figure 124: 2016 outlook for port operators

Location
Capacity
2015
Utilization
VCSC s comments on 2016

outlook
SNP 128
200,000
93.8%
Ports in the upstream area of the Cam

River are unable to absorb more cargo
due to 3 reasons: (1) capacity is full or
nearly full, (2) low service quality at
ports such as Transvina and Chua Ve,
(3) disruption from the construction of
Bach Dang bridge, (4) cannot
accommodate vessels of more than
10,000 DWT due to geographical
constraints that they cannot get around
Hai An
Upstream
Ports
Downstream
Ports
HOLD
Ports
(HAH)
200,000
137.5%
Chua Ve (PHP)
Green
Port
(VSC)
Transvina
800,000
36.3%
400,000
88.5%
200,000
42.5%
Doan Xa (DXP)
Nam
Hai
(GMD)
PTSC Dinh Vu
(PVS)
250,000
88.0%
200,000
108.0%
200,000
102.5%
SNP 189
200,000
56.3%
Dinh Vu (DVP)
600,000
100.8%
Tan Vu (PHP)
800,000
93.8%
Nam Hai Dinh

Vu (GMD)
650,000*
69.2%
VIP-Green
(VSC)
500,000
0.0%
Full capacity
Can absorb more cargo but the location
and scale are inferior to that of
neighboring players.
Full capacity.
Total throughput can
increase by 20,000
TEUs (+3% YoY)
Total throughput can
increase by 150,000
TEUs (+33% YoY)
Total throughput in
the first year of
operation can reach
280,000 TEUs
Expected to
capture the
incremental
throughput of
450,000 TEUs
thru
Hai
Phong
in
2016
Source: VCSC, Company data, VPA.

*Note: Nam Hai Dinh Vu port can increase designed capacity from 500,000 TEUs to 650,000 TEUs through
addition of the new Depot and Container Yard.
Figure 125: Estimated market share in 2015
Figure 126: Expected market share in 2016
5.0%
5.5%
2.3%
2.0%
4.5%
4.9%
6.5%
7.3%
27.7%
2.7%
25.2%
3.0%
15.1%
9.4%
19.4%
17.8%
16.1%
14.4%
5.2%
5.9%
Hai Phong port
Gemadept
Doan Xa
Hai Phong port
Gemadept
Doan Xa
Dinh Vu
Viconship
SNP 189
Dinh Vu
Viconship
SNP 189
Hai An
Transvina
PTSC Dinh Vu
Hai An
Transvina
PTSC Dinh Vu
SNP 128
Source: VCSC forecast
SNP 128
Source: VCSC forecast
Tariffs in the Hai Phong port zone are not projected to rise in 2016 due to the ample spare
capacity in the downstream area (see Figure 13 below) and the low utilization of the upstream
state-owned ports such as Chua Ve and Hoang Dieu. We believe that the cargo handling tariff in
Hai Phong will stabilize between USD34-38 per TEU during 2016. Therefore, in the absence of
tariff rises, the average GPM of port operators should decline slightly if the volume of reefer
containers falls in 2016 from the high base value realised this year (reefer container tariffs carry
higher margins than conventional container cargo and, consequently, the spike in reefer container
volumes in 2015 lifted the margins of port operators).
HOLD
Figure 127: Demand and supply of cargo handling services in Hai Phong (million TEUs)
7.00
6.00
Vip Green to commence

operations in 2016
Lach Huyen
phase 1
Forecast at 12.1% CAGR
5.00
4.00
3.00
2.00
1.00
-
Cargo volume through ports in Hai Phong
Capacity
Source: VCSC
Logistics: Demand for inbound logistics services will grow fast next year on the back of
robust FDI inflows.
Vietnam is witnessing a surge in manufacturing-led Foreign Direct Investment in anticipation of the
prospects created by the expected conclusion of a number of free trade agreements as well as
TPP, negotiations on which were finalized earlier this year. In 9M2015, total newly registered
FDI capital reached USD17.15 billion, up 53.4% y-o-y while disbursed FDI touched USD9.65
billion, up 8.4% YoY. While TPP is not expected to start benefiting exports any time before 2018,
given the long lead times for creating new manufacturing capacity, companies are already
investing heavily and the resulting construction of factories and imports of plant and machinery are
providing a strong filip to the demand for logistics services. This is particularly visible in the textile
sector which is seeing a string of new projects from Chinese and Taiwanese manufacturers.
Growing labor costs in China, the dimming of growth prospects in its domestic market and its
conspicuous exclusion from TPP are also spurring a shift of manufacturing capacity from China to
Vietnam and a few other countries in SEA as witnessed by the recent doubling down of investments
in Vietnam by Samsung, LG as well as Nokia. Capacity additions in more sophisticated industries
like consumer electronics tend to boost imports of complex capital equipment and machinery in
the near term, thereby driving greater cargo volumes through ports, greater demand for industrial
parks as well as higher demand for transportation and warehousing services. This view is
corroborated by the strong demand that KBC the leading listed industrial park operator in
Vietnam is seeing from large blue chip manufacturers especially from Japan and Korea. KBCs
existing and prospective client list includes blue-chip multinationals such as Microsoft, Hee-Sung,
Canon, LG, Foxccon, Wintek, Mitac, DK UIL, Woojeon & Handan, Bujeon, Starwood, Siflex,
Hosiden, Nichirin, UMEC and Crystal. The robust demand for industrial park space is a lead
indicator of demand for warehouse and inbound logistics services.
HOLD
In the medium-to-long term, this will also create sustained demand for in-bound logistics services
such as distribution centers and warehouses offered by local logistics companies since FDI
production facilities in Vietnam are typically involved in assembly work and rely on imported
components from overseas. Outbound shipments of finished and intermediate products will also
drive strong demand for outbound logistics once these new factories start producing, however, this
segment of the logistics market will be largely captured by foreign players because international
shipping is a weakness in the domestic logistics value chain. However, large, integrated domestic
players like GMD will still benefit greatly from this export trend for 2 main reasons: 1) international
3PL companies tend to outsource the various services to domestic producers with logistics assets,
2) regardless of who handles the outbound logistics, port cargo handling volumes will rise thereby
benefiting port operators like GMD.
Figure 128: Committed Foreign Direct Investment into Vietnam

30.0
90.0%
80.0%
25.0
70.0%
20.0
60.0%
50.0%
15.0
40.0%
10.0
30.0%
20.0%
5.0
10.0%
-
0.0%
2009
2010
2011
Commited FDI
2012
2013
2014
9M2015
% FDI to Mfg & Industrials
Source: VCSC
A strong network of Distribution Centres will be a key asset in capturing the increasing
demand for logistics services in 2016. Currently, there are 3 players that have been investing
aggressively in DC systems are Gemadept (GMD), Transimex (TMS) and Sotrans (STG).
Distribution Centers (DC) have just appeared in Vietnam in recent years to meet the growing
demand for supply chain management services for large-scale production. Unlike traditional
warehouses which simply provide goods storage and security services, DCs provide inventory
management and tracking services. A strong DC network including bonded warehouses, CFS,
cold stores and traditional warehouses will help companies provide a wide range of services across
the 3PL chain including traditional services such as forwarding, custom clearance, transportation,
cargo handling, distribution, delivery and value-added services such as inventory management,
packaging and labelling. Overall, DCs are considered a vital transit point for cargo flow along the
logistics value chain both in-bound and out-bound journeys.
Figure 129: The players with ample DC capacity are best positioned to capture the
increasing demand for inbound logistics
HOLD
Logistics
players
Current
capacity
DC
Current ICD
capacity
New capacity
TTM P/E
GMD
101,795 m2 of
warehouse
500,000
TEUs
Additional 21,340 m2 of warehouse

from DC3 and Hai Duong logistics,
50,000 pallets of cold storage in
HauGiang
12.3
TMS
34,000 m2 of
warehouse
500,000
TEUs
Additional
100,000
m2
warehouse at high-tech park
12.5
STG
113,710 m2 of
warehouse
360,000
TEUs
Additional 30,000 m2 with the new

warehouse, namely Phu My
warehouse
Average P/E
of
9.6
11.5
Source: VCSC

OUTPERFORM Gemadept (HSX: GMD) - We see three main potential growth catalysts within
the core business of the company in 2016, including: (1) The new depot (total area of 21 ha) that
is expected to commence operations from the beginning of 2016 will help to lift the handling
capacity of Nam Hai Dinh Vu port from 500,000 to 650,000 TEUs per annum; (2) Distribution
Center 3 is projected to reach 80-90% of its designed capacity in 2016, only one year from its
commissioning in October 2015 and (3) The income from associates is expected to grow more
than 20% YoY in 2016 with the strong anticipated growth in cargo handling volumes at the SCSC
air cargo terminal.
NON RATED Viconship (HNX:VSC): Given that the Green port is operating at 100% capacity,
the new VIP-Green port is going to be the growth engine for VSC in 2016. Phase 1 of the project
has already been completed and the first berth was put into operation in November 2015.
Currently, because VIP-Green is undergoing commissioning, it can only accommodate three to
four vessels a week, equivalent to around total 100,000 TEUs cargo throughput in the first four
months of operation. We assume two scenarios for the commissioning of the second berth: (1) If
the second berth starts operating from Q2/2016, the total throughput of VIP-Green in 2016 can
touch 323,200 TEUs and total throughput of VSCs port system can increase by 90% YoY (2) If
the second berth is put into operation from Q3, the total throughput of VIP-Green in 2016 can reach
280,000 TEUs and, as a result, total throughput of VSCs port system can increase by 78% YoY.
Under both scenarios, VSC should receive a significant revenue boost in 2016.
NON RATED Transimex (HSX:TMS): The key growth catalyst for TMS in 2016 is the logistics
cluster project in Saigon high-tech park, serving the home appliances manufacturing operation of
Samsung. The VND300 billion (USD13 million) logistics cluster of TMS includes bonded
warehouses, CFS, cold stores, traditional warehouses as well as an ICD for container storage.
Samsung has guaranteed enough cargo to match about 60% of storage and logistics capacity of
TMS logistics cluster and the contract was finalised in November 2015. We are bullish about the
growth prospects for this logistics cluster for the following reasons: (1) There are about 67 domestic
and FDI projects that have registered for licenses to invest in Saigon high-tech park. This will allow
TMS logistics cluster to diversify its customer base and reduce dependence on Samsung, (2)
There are currently only two logistics providers in and around this high-tech park, including TMS
and Ryobi Holding (Japan) meaning that competition is quite low (3) Finally, Samsung will in all
probabilities continue to use TMS as its logistics provider in the high-tech park because the
switching cost is very high. Therefore, the cash flow from serving Samsung in coming years is
quite certain especially given that the construction of both the logistics cluster of TMS and the
factory of Samsung are likely to be completed concurrently in February 2016. According to TMS
management, once the logistics cluster is fully utilized, it will add 30-40% to the current run-rate
revenue.
HOLD
Macro Indicators
HOLD
Figure 130: USD/VND Exchange Rate
Figure 131: Vietnam G-Bond Yields
23,000
12%
Interbank
Upper band
Lower band
22,600
22,200
22,547
22,485
10%
10Y
7.18%
8%
5Y
6.63%
1Y
4.97%
21,800
6%
21,400
21,233
21,000
4%
2%
Jan-14
Mar-14
May-14
Jul-14
Sep-14
Nov-14
Jan-15
Mar-15
May-15
Jul-15
Sep-15
Nov-15
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
Apr-14
Jul-14
Oct-14
Jan-15
Apr-15
Jul-15
Oct-15
20,600
Figure 132: Trade Balance
Figure 133: Foreign Direct Investment

6
USD b
USD b
Monthly Disbursement
Monthly Registered Capital
4
0
-2
2
Monthly trade surplus/deficit
YTD trade surplus/deficit
Dec-15
Sep-15
Jun-15
Mar-15
Dec-14
Sep-14
Jun-14
Mar-14
Dec-13
Sep-13
Mar-13
Dec-15
Jun-15
Sep-15
Mar-15
Dec-14
Sep-14
Jun-14
Mar-14
Dec-13
Jun-13
Sep-13
Mar-13
Dec-12
Figure 134: Retail Sales Growth
Jun-13
-6
Dec-12
-4
Figure 135: Industrial Production

30%
20%
Retail Nominal Growth YoY

20%
Retail Real Growth YoY

15%
10%
10%
0%
Inventory (beginning of month, YoY)
Mar-15
Jun-15
Sep-15
Dec-15
Jun-15
Sep-15
Dec-15
Dec-14
Sep-14
Jun-14
Mar-14
Dec-13
Sep-13
Jun-13
Dec-12
Mar-13
IIP Mfg (YoY)
Mar-15
Figure 136: Credit Growth
Figure 137: Key Policy Rates
40%
10%
YoY Credit growth

30%
IIP Overall (YoY)
Dec-15
Jun-15
Sep-15
Mar-15
Dec-14
Sep-14
Jun-14
Mar-14
Dec-13
Sep-13
-20%
Jun-13
0%
Mar-13
-10%
Dec-12
5%
8%
YTD Credit growth
20%
6%
10%
4%
0%
2%
-10%
0%
Refinancing rate
Dec-14
Sep-14
Jun-14
Mar-14
Dec-13
Sep-13
Jun-13
Mar-13
Deposit rate
Dec-12
Dec-15
Aug-15
May-15
Feb-15
Nov-14
Aug-14
May-14
Feb-14
Nov-13
Aug-13
May-13
Feb-13
Nov-12
Discount rate
Source: General Statistics Office of Vietnam, State Bank of Vietnam

VCSC Rating and Valuation Methodology
HOLD
Absolute, long term (fundamental) rating: The recommendation is based on implied total return for the stock defined as
(target price current price)/current price + dividend yield, and is not related to market performance. This structure applies
from 27 May 2015.
Equity rating key
Definition
BUY
OUTPERFORM (O-PF)
MARKET PERFORM (M-PF)
UNDERPERFORM (U-PF)
SELL
Total stock return including dividends over next 12 months expected to exceed 20%
Total stock return including dividends over next 12 months expected to be positive
10%-20%
Total stock return including dividends over next 12 months expected to be between
negative 10% and positive 10%
Total stock return including dividends over next 12 months expected to be negative
10%-20%
Total stock return including dividends over next 12 months expected to be below
negative 20%
NOT RATED
The company is or may be covered by the Research Department but no rating or

target price is assigned either voluntarily or to comply with applicable regulation
and/or firm policies in certain circumstances, including when VCSC is acting in an
advisory capacity in a merger or strategic transaction involving the company.
RATING SUSPENDED
A rating that happens when fundamental information is insufficient to determine an

investment rating or target. The previous investment rating and target price, if any,
are no longer in effect for this stock.
Unless otherwise specified, these performance parameters only reflect capital appreciation and are set with a 12-month
horizon. Future price volatility may cause temporary mismatch between upside/downside for a stock based on market price
and the formal recommendation, thus these performance parameters should be interpreted flexibly.
Small Cap Research: VCSC Research covers companies with a market capitalisation of up to US$50mn, inclusively.
Clients should note that coverage may not be consistent and that VCSC may drop coverage of small caps at any time
without notice.
Target price: In most cases, the target price will equal the analyst's assessment of the current fair value of the stock. The
target price is the level the stock should currently trade at if the market were to accept the analyst's view of the stock,
provided the necessary catalysts were in place to effect this change in perception within the performance horizon. However,
if the analyst doesn't think the market will reassess the stock over the specified time horizon due to a lack of events or
catalysts, then the target price may differ from fair value. In most cases, therefore, our recommendation is an assessment
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Break-up value approaches or asset-based evaluation methods; and 4) Economic profit approaches (Residual Income,
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Furthermore, market sentiment may affect the valuation of companies. Valuations are also based on expectations that
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Disclaimer
HOLD
Analyst Certification of Independence

We, the authors, hereby certify that the views expressed in this report accurately reflect my personal views about the subject securities or
issuers. 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. The equity research analysts responsible for the preparation of this report receive compensation based upon
various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues, which include
revenues from, among other business units, Institutional Equities and Investment Banking.
VCSC and its officers, directors and employees may have positions in any securities mentioned in this document (or in any
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all of the entities mentioned in this report or may be providing, or have provided within the previous 12 months, significant advice or investment
services in relation to the investment concerned or a related investment.
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Contacts
HOLD
Corporate
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Hanoi Branch
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research@vcsc.com.vn
Long Ngo, Senior Manager ext 145
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Real Estate, Construction and Materials
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Macro and Market
Phap Dang, Manager ext 143
Minh Nguyen, Retail Manager ext 142
Vy Nguyen, Analyst ext 147
Tram Le, Retail Senior Analyst ext 194

Nghia Le, Retail Analyst ext 181
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Institutional Sales and Brokerage

& Foreign Individuals
Head of Institutional Sales
Vietnamese Sales
Michel Tosto, M. Sc.
Dung Nguyen
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dung.nguyen@vcsc.com.vn
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Ho Chi Minh City
Hanoi
Quynh Chau
Quang Nguyen
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quynh.chau@vcsc.com.vn
quang.nguyen@vcsc.com.vn

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Vietnam Strategy

Strong earnings will drive market up 18 - 20%

2016 by the Numbers

VCSC Market Forecast

Equity market outlook:

See important disclosure at the end of this document

H2/2015s lacklustre performance was driven by falling oil prices, yuan

Viet Capital Securities | 1

Sectors and stocks we like:

See important disclosure at the end of this document

Viet Capital Securities | 2

Macro Scorecard ........................................................................................................................... 5

See important disclosure at the end of this document

Viet Capital Securities | 3

What happened in 2015 ............................................................................................................ 62

See important disclosure at the end of this document

Viet Capital Securities | 4

Public Debt % of GDP

External Debt % GDP

GDP growth (1)

Export growth (1)(2)

VND depreciation (%) (6)

Lending Rates (%) (5)

Inflation (year-end) (1)

Credit growth (%)

5Y G-bond Yield (%) (6)

Units in USD billion

Intl Reserves (4)

Exports as % of GDP (1)(2)

FX reserve as % of GDP (5)

Gov. Debt as % of GDP (4)

BALANCE OF PAYMENTS (5)

Error & Omission

See important disclosure at the end of this document

Viet Capital Securities | 5

The Macro Picture: Poised for strong growth on the heels

Figure 1: Vietnam GDP growth

Industry & Const

Agri & Forestry

Source: GSO, VCSC

See important disclosure at the end of this document

Viet Capital Securities | 6

Wholesale & retail

Figure 3: FDI disbursement has spurred the growth of manufacturing sector

Growth of manufacturing (%)

Source: GSO, FIA

See important disclosure at the end of this document

Viet Capital Securities | 7

Consumption: Gathering more momentum with resilient consumer

Figure 4: GDP growth by expenditure private consumption is leading growth

Gross capital formation

Source: GSO, VCSC

See important disclosure at the end of this document

Viet Capital Securities | 8

Real retail sales

Source: GSO, AC Nielsen

Industry & Construction

See important disclosure at the end of this document

Viet Capital Securities | 9

Figure 7: TPP countries account for 45% of Vietnams total trade

Export to TPP countries

Import from TPP countries

Source: Customs Office