Sector Report - Pharma - Jaccar

JACCAR EQUITY RESEARCH – VIETNAM
JACCAR EQUITY RESEARCH – VIETNAM
Pharmaceutical Industry NO PAIN, NO GAIN

Analyst
GORGIARD Servane • Young market with a high potential growth (around 15% per year for
81-85 Ham Nghi – District 1 the next 5 years) thanks to drugs consumption on the rise.
Ho Chi Minh City
+84 8 39 14 90 60 • Very difficult to operate for foreigners but still dominated by
sgo@jaccar.net international products.
Next events • Strategic industry for the government in terms of development, who
Domesco Medical Import & Export JSC is promoting domestic production.
31/03/2009: Shareholder meeting
25/12/2008: Dividend • A very fragmented market with a multitude of local companies
Hau Giang Pharmaceutical JSC which produce all the same products (generics and food
30/12/2008: Extraordinary Shareholder Meeting
supplements)
26/12/2008: Dividend payment
Imexpharm Pharmaceutical JSC • The current economic situation burdens Vietnamese companies with
15/04/2009: Results
heavier obstacles.
• Partnerships between foreign and local would suit to all the
stakeholders to Jaccar’s view.
• We adopt a recommendation of REDUCE for DHG, DMC and IMP
with a target price of VND 86,500, VND 53,900 and VND 58,500
Achieved: December 12, 2008 respectively.
Disclaimer : Please refer to important disclosures

at the end of this report www.jaccar.net
PHARMACEUTICAL INDUSTRY
www.jaccar.net 2
CONTENTS
NO PAIN, NO GAIN ......................................................................................................... 1

INVESTMENT CASE ....................................................................................................... 5
VIETNAMESE’S WELCOME… NOT SO EASY! ............................................................ 8
Government’s antibiotics against foreign bacteria ..................................................... 8
When the law makes everything more complicated ....................................................................... 8
Industry’s governmental vitamins … or poison pills? ...................................................................... 9
The custom duty pain .................................................................................................. 10
The Vietnamese distribution network: bypass and complication ........................... 11
Inescapable hospitals ................................................................................................................... 12
Profitable Pharmacies ................................................................................................................... 13
Wanting wholesalers ..................................................................................................................... 13
DON’T REST ON ONE’S LAURELS: TREATMENT NEEDED ..................................... 14
Local manufacturing on the cheap ............................................................................. 14
Rising equipment’s quality ............................................................................................................ 14
Basic Vietnamese production ....................................................................................................... 15
Vietnamese short-term vision: no promotion, no R&D ............................................ 17
Minimal marketing expenses ........................................................................................................ 17
Looking for R&D ............................................................................................................................ 18
Reinforce the distribution network ............................................................................. 18
A DIFFICULT ENVIRONMENT TO COME OUT BIGGER… OR NOT? ....................... 21
When prices bolts ........................................................................................................ 21
Requisite raw materials ................................................................................................................. 21
Significant salaries ........................................................................................................................ 22
Edgy exchange rate ...................................................................................................................... 23
And foreign companies hang on ................................................................................ 24
Local desperation......................................................................................................... 26
CONCLUSION ............................................................................................................... 27
COMPANY SHEETS...................................................................................................... 28
Hau Giang Pharmaceutical JSC ................................................................................................... 28
Domesco Medical Import & Export JSC ....................................................................................... 56
Imexpharm Pharmaceutical JSC .................................................................................................. 77
www.jaccar.net 3
www.jaccar.net 4
INVESTMENT CASE
In 2007, the Vietnamese pharmaceutical market represented around 1bn USD, according to
market’s consensus. High growth rate over the years, great potential, quite complex and obscure
are its main characteristics. In fact with an average growth rate observed over the past few years
of more than 15%, pharmaceutical industry is destined to a good evolution potential. Compared
to the Indonesian market, which is twice the value but half the volume, Vietnamese market is as
A market with great
potential: low prices, young, healthy and difficult, as the people. It records good fundamentals, relies mainly on
high volumes and 13.4$ volumes and low prices. Indeed the Vietnamese population just starts to consider healthcare
drug consumption per expenses. The country counts 86 million inhabitants, as for July 2008 estimates which grows by
person
1% per year, with almost 90% under 65 years-old, more than 70% rural, and yearly healthcare
expenses account only for 13.4$per person, compared to around 35$ in Thailand, 32$ in
Indonesia and 19$ in the Philippines. The country is growing faster than its Asian neighbors.
Pharmaceutical market growth - ASEAN region

25
20 HONG KONG
PAKISTAN
MALAYSIA
15
% GROWTH
INDONESIA
PHILIPPINES
10
THAILAND
SINGAPORE
5 VIETNAM
0
0 5 10 15 20 25
% SHARE IN ASEAN
Source: IMS MIDAS Sep 2007.

Legend: Sales in constant US$ at manufacturer level. Bubble size indicates sales
However the healthcare offer is restricted. Some international hospitals, 978 hospitals run by the
Limited healthcare offer Ministry of Health, the population has the choice between high-standards, international, very
expensive hospitals or local, low-value, overcrowded ones. Most of the rich Vietnamese prefer to
go abroad and spend between 500,000 and 1 million USD for treatment in Singapore, Hong
Kong, Thailand, Europe or the US. For those who have low revenue, their choice goes to State-
hospitals and if they can avoid it they will go to the pharmacy to get the medicine needed. Indeed
Vietnamese prefer to buy drugs directly from the pharmacist, according to advices or
commercials, than to go see the doctor.
The healthcare industry is at its beginning, in the expansion phase. The offer is growing, the
demand is skyrocketing. Recently a healthcare park has been licensed in HCMC, for an
investment of 400 millions USD, including 5 hospitals with a capacity of 1,750 beds, research
center, residential living, etc. This project developed in joint-venture with 70% for Singapore’s
Shangri-La Healthcare Investment Pte, is the first one of this scope and introduce high-end
healthcare treatment in Vietnam in order to satisfy the newly rich population.
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Evolution of the pharmaceutical market

Pharmaceutical consumption per capita ($)
160
Saturation
INDONESIA
80 Maturation
PHILIPPINES
40 THAILAND
Expansion
SINGAPORE
20
VIETNAM
Introduction
10
5 years 10 years 15 years 20 years 25 years Time
Source: Jaccar
Above all the potential of the market is high; people spend more and more on healthcare. Even if
the prices were frozen by the government from March 2008, the prices hike the rest of the year
compensating the decrease in volume. This is the reason why Jaccar’s forecast of the market in
2008 is 20%. By 2009 the market will suffer due to the economic crisis and the tightening of the
governmental budget. However the volume will still continue to grow as the population and the
demand for healthcare products are increasing. This will be the main drivers of the Vietnamese
Pharmaceutical market for the next few years, even if growth will be lower than previous years in
2009 and 2010, compared to 23% in 2006 and 20% in 2007.
An average 15% growth

for the next few years Pharmaceutical market revenue forecasts
110 2,600
Millions
100 Growth (%) Value ($US) 2,400
2,200
90
1,907 2,000
80
1,800
70
1,644
1,600
60
1,430
1,400
1,254
50
1,110 1,200
40 925
1,000
771
30
627 800
556 20
20 479 15 16
13 14 600
23
20
10 400
16 16
13
0 200
2003 2004 2005 2006 2007 2008e 2009f 2010f 2011f 2012f
Sources: IMS, Jaccar
The growth potential of the Vietnamese pharmaceutical industry mentioned above will be driven
by the volumes. Jaccar forecasts lower volume growth in 2008 and 2009, due to the economic
slowdown and the price hike, but an overall increase of the volume in the coming years, because
of the raise in drug consumption by the Vietnamese population. Regarding the price effect, the
Vietnamese market is known to have very low drug prices. To Jaccar’s mind, prices will to grow
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only a little in the future, as the government is very carefull on drug price increase and doesn’t
allow any big raise.
Volume growth rather Price and Volume growth ( 2006-2012e)

than price growth 19%
7% 17%
14%
13%
12%
11% 11%
3% 3% 3% 3%
2% 2%
2006 2007 2008 2009 2010 2011 2012 2006 2007 2008 2009 2010 2011 2012
Source: Jaccar
The forecasts of average drug consumption is 15$/person/year in 2015. According to Jaccar, it

will arrive sooner, even if the international environment is not ideal and the country faces some
macro-economic problems. Indeed with the membership to the World Trade Organization (WTO)
in January 2007, Vietnam is more impacted by global markets and politic decisions. The country
has now to open more its borders and welcome international companies, willing to develop their
sales. For locals companies this membership is a real challenge, as they now have to face older,
more developed, international companies. The government is still reluctant and preserves an
environment that helps domestic companies. But we can wonder what will happen to the
Vietnamese pharmaceutical companies after the withdrawal of the privileges and if they will have
enough resources and potential to face bigger global pharmaceutical companies.
Eight Vietnamese listed Currently there are 3 key pharmaceutical companies listed on the Vietnamese Stock-Exchange:
• DHG Pharma (DHG): Vietnamese leader on the pharmaceutical market in term of
companies
revenue, DHG is developing a strong distribution network. The management is focusing

on increasing the number of subsidiaries rather than the production capacity. Our target
price is VND 86,500 (USD 5.2), with a Reduce recommendation, due to overvalued
stock price.
• Domesco (DMC): One of the top 3 among Vietnamese companies on the pharmaceutical
market, DMC is a strong distributor, with 48% of its revenue coming from trading.
Today DMC is in a strong restructuring process and focusing on core business. The
investments are limited and the costs are revised. For DMC, our recommendation is
Reduce with a target price of VND 53,900 (USD 3.3).
• Imexpharm (IMP): According to most experts of the market, IMP is a good, reliable
company, who has developed efficient manufacturing facilities. The company is well-
known as an excellent generic producer, who can rely on the support of the government
and a strong and impressive General Director, Mrs. Dao. IMP is today involved in
several under-license drugs contracts with foreign companies. Our target price is VND
58,500 (USD 3.2) and the recommendation is Reduce.
Five new ones have been recently listed too. However, we have decided to focus on DHG, DMC
and IMP in our report:
• Pharimexco (DCL)
• OPC Pharmaceuticals (OPC)
• Cai Lay Pharmaceutical (MKV)
• Traphaco (TRA)
• Ha Tay Pharmaceutical (DHT)
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VIETNAMESE’S WELCOME… NOT SO EASY!

The accession to WTO has been a big step for Vietnam entering a global economy. This implies
commitments, guidelines the government has to accept and respect. The pharmaceutical sector
has now to welcome foreign investors and make their way easier. However the market still shows
constraints to regulate the entries, and to allow Vietnamese companies to enjoy some advantages.
Government’s antibiotics against foreign bacteria

Local production has to The government’s objective is to develop the healthcare sector and promote local production of
reach 60% of total drugs, to reach 60% of the total Vietnamese drug consumption by 2010. Vietnamese authorities
Vietnamese drug
consumption by 2010 create a set of rules and regulations to help local pharmaceutical companies to expand.
When the law makes everything more complicated

Even with the WTO access in January 2007, the Vietnamese market is still quite closed. In fact
lots of sectors are still restricted for foreigners. The pharmaceutical sector is one of them.
According to the Investment Law of 2005, the creation of a company requires certain restrictions,
depending on the sector. For a foreign pharmaceutical company, there are 3 ways to enter the
market.
3 ways to set up:

- 100% foreign-owned
• First a foreign company can establish a 100% foreign-owned company. This type of legal
- Joint-venture entity can also be a factory. The newly created factory can distribute by itself its
- Representative office manufactured products. On the other hand, this does not allow the company to distribute
its imported products, not manufactured in the Vietnamese factory. As a consequence for
the imported products, it will have to use a distributor.
• The main disadvantage of this way is the tax scheme. 100% foreign-owned companies
are taxed at a 28% annual rate. This is subject to changes as from 01/01/2009, a new tax
rate will be implemented at 25%. The other constraint is the huge investment needed to
create a factory, at least 20 million USD. Some international pharmaceutical don’t have
the financial power, or simply don’t want to manufacture in Vietnam, because they have
already factories on other Asian countries like India and/or China.
• The second way that foreign companies can use to enter the Vietnamese pharmaceutical
market is by creating a joint-venture with a Vietnamese partner, who must own at least
51% of the company. A joint-venture has the normal activities of a company
(buying/selling).
Foreign companies use rarely this type of legal entity mainly because it implies to look
for a Vietnamese partner. As a foreigner it is quite difficult to do, as you don’t know the
market and the players who could be interested to create a partnership with you. You
need somebody in the country, you can rely on, to find you a Vietnamese company to
form a partnership. It is complicated, time-consuming and needs a lot of trust among the
parties. In accordance with the guideline from WTO, by January 2009, the Vietnamese
government has to reform this measure to allow creating a company with no restriction
regarding the capital contribution of the Vietnamese partner.
However, according to most of the observers of the market, this reform will not be implemented
before July 2009, maybe January 2010.
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• Finally foreign companies are allowed to be present in Vietnam as representative office.

According to the law, a representative office cannot have a revenue and so cannot sell, it
is a cost centre. Its goal is to promote the products of the company. As a result and
because distribution is also a restricted area, to sell, foreign companies need to go
through a distributor. There are three kinds of distributors:
- Vietnamese State distributors: most of the State-owned pharmaceutical

companies are distributors of imported products. For example
Vinapharm, which is a State-owned company under the Ministry of
Health has 17 companies around Vietnam responsible of trading and
import/export;
- Vietnamese private distributors: every Vietnamese private
pharmaceutical company can be a distributor for imported product;
- Foreign distributors: there are only 3 foreign distributors on the market:
Zuellig Pharma (Germany), Diethelm (Switzerland) and Megaproduct
(India).
Zuellig Pharma is the biggest of the 3 foreign distributors and most of the international
companies work with it. They often use one of these distributors to distribute their imported
products and a Vietnamese one, as its connections with authorities are stronger than those of
foreign distributors, especially for hospital biding. Solvay Pharmaceutical for example uses 3
different distributors: Zuellig Pharmaceutical, Diethelm and KimChau. For Vietnamese
companies it is much easier as they can be distributors for themselves or for another company.
Most foreign companies

The decision to choose one of these legal entities is often driven by political or financial reasons.
have a representative A representative office is not taxed, as it doesn’t have a revenue. Building a factory needs bigger
office in Vietnam initial investment. And creating a joint-venture asks for trust and reliability with an unknown
company. That is why most of the international companies chose the representative office as legal
form to create a company in Vietnam. Out of 35 foreign companies of our panel, we found that
23 set up a representative office when they enter the Vietnamese market. That is to say that they
have to rely on a distributor to market their products.
Legal entity repartition of foreign companies
10% 13%
Branch + Own-Factory
Rep Office
JV
77%
Source: Jaccar
Industry’s governmental vitamins … or poison pills?

Strong lobbying locally Like in every country in the world, healthcare is a sensitive subject. As it touches every
inhabitant of the country, most governments like to keep a certain control over this issue. In
Vietnam, every province has its own pharmaceutical manufacturer, as so do all part of the
government. There are pharmaceutical companies belonging to the Ministry of Health, belonging
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to the police, belonging to the customs… This is one of the reasons why the pharmaceutical
industry counts 1,330 domestic companies and is subject to strong lobbying.
The government objective is to improve health of its people. Through its “Five years
Development Plan 2006-2010” issued in March 2006, the Vietnamese Government describes its
goals and the actions to achieve these goals. Regarding healthcare and pharmaceutical, the
ambition is high: increase average life-expectancy to over 72 years, decrease maternal and infant
mortality, reduce the rate of malnutrition, improve average height of young people, increase the
number of doctors, pharmacists and hospital beds per 10,000 people. Today, according the 2008
estimates of the CIA (Central Intelligence Agency), the life-expectancy is 71.33 years, infant
mortality is 23.61 deaths per 1,000 births and according to Ministry of Health numbers, there are
32 medical staffs per 10,000 people.
Will to open healthcare To achieve these goals, the government is willing to open the healthcare system to private and
services and develop
local production foreign investment, to a certain extent. The country is certainly needing hospitals beds and well-
educated doctors, but it does not call for foreign pharmaceutical companies. The will of the
government is to open the healthcare to foreign investors but to keep the pharmaceutical
production locally and develop it, in order to reach a local production of at least 60% of the total
medicines consumption by 2010, versus around 50% today.
One of the government acts to promote domestic production was developed in the “Five years
Development Plan 2006-2010” and increases the proportion of generic drugs in the hospitals’
drugs portfolio. As a result, as local production is mainly generics, the authorities are, through a
diverted way, promoting domestic companies. This proportion is targeted to reach 25% of the
total drugs in 2010.
The government is With the implementation of the national healthcare insurance, the government will also look
pushing hospitals to buy
local generics closely at the costs of medicines and will “change the methods of hospital fee collection at public
healthcare centers according to the principle of collecting exactly and enough necessary
expenses” 1. Moreover with the economic difficulties in Vietnam, the tightening of the
government budget and the increase of operating expenses, hospitals will have to reduce their bill
and so be more careful of the drugs they buy. Consequently, generics will be chosen in
comparison with more expensive drugs, like branded medicines.
The custom duty pain

Importations are In Vietnam importation is very limited. For pharmaceutical products, like drugs, medical
restricted for foreigners
equipment…, it is an exclusivity of Vietnamese companies, and mainly State or former State-
owned companies. Foreign companies have to go through an importer to enter medicines in
Vietnam. Most of Vietnamese pharmaceutical companies act as importer, either for themselves,
like Domesco Import Export Company, a local pharmaceutical manufacturer, which almost 50%
of its total revenue come from imported products; or for distributors.
Though this way they can benefit from another substantial revenue, knowing that importation fee
can reach 1.5% of the total import value.
The importer, like the distributor, has to handle the stocks and the financial risk of their clients.
On the Vietnamese market, the distributor often acts as a wholesaler.
A long way to go before To Jaccar’s opinion, with the access to WTO and the implementation of the guideline in the
an open market Vietnamese law, the government will have to let these kinds of barriers go and ease the process
for foreign companies. The government is currently working on a new law about dos and don’ts
of foreign companies, in regard to importation and distribution. This regulation should be
1
“Five Years Development Plan 2006-2010”, Department of Planning and Investment, Vietnam Authorities
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available before the end of the year. But we think the changes will be long and the reticence to
issue importing business license for foreign companies will last, at least until 2010.
The Vietnamese distribution network: bypass and

complication
The medical sales The distribution in Vietnam is very complex and unstructured. The reason of this state is mostly
representative is the key because the distribution relies on personal relationships between medical sales representative and
element of distribution
doctors, hospital directors, pharmacist… and contributions. All the pharmaceutical companies,
foreign and local, currently in Vietnam develop a strong network of medical sales representative,
with each of them the role to approach doctors, hospitals, pharmacies. DHG has currently 700
medical sales representatives, DMC around 350, Sanofi has approximately 200 sales
representative but can count on a well-known international brand and a good reputation, and
Zuellig Pharma has 120 medical representatives.
Distribution Network for foreign companies
Manufacturer
1.5%
Abroad
Importer
Vietnam
6-9% Distributor Representative office
promotion
2-5%
Wholesaler
Doctors
20%
prescription
Pharmacies Hospitals
Patient
Fee, money transfer
Sources: IPS, Jaccar
This particular distribution network has several implications:
International companies
rely on strong
advantages: brand name
and high-tech products
• For international pharmaceutical companies it can be expensive but in reality it is not so
much. Firstly because they can rely on well-known brand and products that are not
produced in Vietnam. As a result, hospitals, doctors, pharmacies have to purchase them
to treat their patients. The lobbying costs represent around 5-6% of their total revenue in
Vietnam. Moreover they often implement internally a strong code of conduct, which
doesn’t allow them to unethical behavior.
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• For local companies, on the contrary, it is a much bigger expense. Indeed as all
Vietnamese pharmaceutical manufacturers produce the same kind of medicines; it takes a
strong relationship with their interlocutor and some support for hospitals and doctors to
prescribe Vietnamese drugs. For domestic companies, selling expenses can grow up to
30% of the total revenue.
• For customers, the Vietnamese pharmaceutical market is characterized as high volume,

low prices. Meanwhile the selling expenses often work as margin transfer, and it is the
manufacturer that usually lowers its price. Consequently the consumer still benefit from
low prices. And even if there is a little rise, the price is nevertheless low.
Vietnamese pharmaceutical companies have their own network of medical sales representatives.
Distribution Network for domestic companies
Local Manufacturer
promotion
Wholesaler
20-50% Doctors
20%
prescription
Pharmacies Hospitals
Patient
Fee, money transfer
Source: Jaccar
Inescapable hospitals
Currently, there are 978 hospitals (central, provincial and district hospitals) run by the Ministry of
Health, around 47 hospitals run by other ministries and approximately 28 private hospitals, i.e.
3% of the total hospital beds available. State-owned hospitals are the only market which presents
an interest for pharmaceutical companies.
State hospitals are the Hospital distribution is operating through a bidding process. When a drug or a piece of medical
biggest market in
Vietnam…
equipment is needed, once or twice a year, the hospital places a bid, in which every company can
apply by offering a tender. Out of all the companies that answered the hospital chooses 3 to
provide one type of product required. As the process to apply as hospital’s supplier is very long
and requires money and a complex and structured medical file, all the pharmaceutical companies
cannot answer the bid. When the hospital chose the company to supply drugs or medical
equipments, prices are fixed until the end of the contract, i.e. the next bid.
… which operate There is no common buying cooperation between hospitals; every hospital is responsible for its
through a bidding
process…
expenses, and so run its own bidding process. Consequently, the medical representative has to
visit every hospital. 5 years ago, in some European countries, like France or Germany, the same
process was applied. Since governments have created central buying services to gather suppliers
for all hospitals. Such move is on its way but will take time to implement in Vietnam. Each
hospital is run according to the own way of its director and Jaccar doesn’t see effective central
buying before 2 to 4 years.
… with no purchase
cooperative for the
moment… The role of the medical sales representative is to meet with doctors to present its products and its
company. Pharmaceutical companies organize seminars for doctors to understand better the
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drugs, its application and restraints. For international companies these seminars are scientific as
they develop and import new drugs for the Vietnamese market. For local companies, as their
products are well-known since long time or very safe medicines, this is more like “lobbying”
seminars where they test their relationship with the doctor, hospital director or pharmacist. In all
cases, the sales representative is the key, as most of the buying process is based on relationship.
… and tough conditions: For any pharmaceutical company, hospital is a tough market, mainly because credit terms are at
fixed and low prices and
long payment terms. least 3 months and prices must be low. The pharmaceutical company needs a good working
capital management before starting to work with hospitals. Furthermore with the current price
freeze, some domestic companies working with State Hospitals opted out of their contracts
paying a fee of 10 to 20%. They said, if they did not, their losses would have reach 45-50%.
However, many local producers said they cannot stop supply, as they could not afford to damage
their relationship with hospitals. Indeed even if hospital market represents only around 20% of
the total value of the Vietnamese pharmaceutical market, to be present in the hospital is a
necessity, as the condition to sell in pharmacies (80% of the market) relies on it.
Profitable Pharmacies
A wide network of small Like for hospitals, medical representatives build a network among pharmacies and visit them to
pharmacies promote their products. Pharmacies are a big market, as there are, according to the authorities,
39,016 pharmacies nationwide. Most of them are small, one of a kind pharmacy, belonging to one
person, theoretically a pharmacist. There are not retail chains of drugstores, because Vietnamese
pharmacists don’t have the money to build it and the distribution process is closed by authorities
for foreign companies. Out of this total, only 83 are GPP (Good Pharmacies Practice) accredited.
Vietnamese local customers’ habit goes to small pharmacies, as they only go to see the doctors if
they have a serious diseases. Instead they go to the pharmacists, ask for advice and buy the exact
quantity of drugs needed.
Recently local authorities wanted to tighten regulations to improve drugstores practices, for
example ban selling medicines to patients without a doctor’s prescription. By 2011, pharmacies
that do not meet GPP standards, issued by the International Pharmaceutical Federation (IPF) in
1993, would only been able to sell medicines that do not require prescription, which are very
cheap drugs.
The GPP standards requires the full-time presence of a pharmacist, a facility at below 30 degrees
Celsius, proper pricing for goods and clear labeling for medicines showing the origin and
instructions for use. Upgrading a pharmacy is a big investment for small pharmacists, around 500
million VND (30,000 USD), and they are still hesitating especially regarding the fear of losing
their capital when the house-rental contracts expire, as lots of them rent their facilities.
Unfortunately this regulation was dropped because of the impossibility of implementation. In fact
it didn’t match with the Vietnamese lifestyle and would have been too expensive for small
pharmacies. By this law the government decided to be clean on the evolution of the pharmacies
market. Lots of pharmacies would have shut down by 2011 as there are too many, probably more
than 50%. The government wanted to improve the quality and quantity of controls on counterfeit.
Wanting wholesalers
Some rare wholesalers Wholesalers play a minor role on the Vietnamese pharmaceutical sector. They act as pharmacies’
wholesales and most of them are not established ones. They buy large quantities to distributors
that they split to sell to small pharmacies as these cannot afford large quantity. In fact in Vietnam
medicines are sold individually in pharmacies, not by box. If a customer needs only 15 capsules,
he will not buy 20 because there are 20 in the box. Wholesalers do the same with pharmacies,
which only need some boxes. Meanwhile small pharmacies have no exclusive relationship with
one wholesaler or distributor. They are shopping around, may buy one day from one distributor
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and the next from another wholesaler. It totally depends on price and availability of products
since the wholesalers typically stock only fast moving items. There are also 7 pharmaceutical
wholesale markets in Vietnam: 3 in Ho Chi Minh City, 2 in Hanoi, 1 in Can Tho and 1 in
Danang.
As a result the pharmaceutical industry in Vietnam is still quite restricted for foreigners and local
companies can develop their position. The distribution process is completely unstructured and
Vietnamese companies benefit from a big advantage on this as they know it very well.
International companies cannot access this market without a domestic partner. However lots are
missing and could be brought by foreigners.
DON’T REST ON ONE’S LAURELS: TREATMENT

NEEDED
The Vietnamese pharmaceutical market is not easily accessible for foreign companies, the
government is helping local companies to expand and grow, the distribution process is closed and
run by Vietnamese. But domestic pharmaceutical companies need to improve some important
characteristics of their business plan. The very first to change is the production, which is cheap
and relies on low-tech equipment, and then the low expenses on advertisement and R&D. And
finally the distribution network, concentrated on the South of Vietnam. Foreign companies can
here bring a reliable experience to Vietnamese companies.
Local manufacturing on the cheap

Vietnamese production could be defined by one word: cheap. Cheap production is low-value
products, such as generics, herbal products, with low margin. And cheap equipments are low-
tech, often second-hand machines. On top all companies are manufacturing the same products.
Rising equipment’s quality

Low-tech manufacturing The industrial equipments used by Vietnamese Pharmaceutical companies are usually very
equipment
simple and don’t require lots of technologies, either mechanics or electronics. In fact, Vietnamese
manufacturing companies focus on generics, mostly as tablets and capsules. This type of products
is common and easy to manufacture and induce simple technology in process and equipments. On
the contrary, injectable products, like vaccines, require equipment, environment and quality
control, much more developed. But Vietnamese companies don’t produce this kind of products
and the only liquid medicines available are syrups and eye drops. The production process is less
complicated and hygiene and quality control are lighter, usually done on site.
According to local companies, industrial equipments come from China, India, Thailand and also
from Europe or the US. In general manufacturers buy a mix of different machines; the choice is
often base on the price in order to buy either new or second-hand machinery depends on financial
capacity of the company and its future contracts. For example, Imexpharm uses equipments from
Belgium, Thailand and China. Some domestic companies, subcontractors for international
pharmaceutical companies, have to provide themselves with high-quality equipments, to be able
to answer all the specifications required.
Today Vietnamese pharmaceutical companies have to face a great challenge: upgrade the
industrial equipment to GMP (Good Manufacturing Practice) standards. There are 4 different
levels of GMP certifications, depending on the requirements asked:
• GMP-ASEAN : standards from ASEAN (Association of South-East Asia Nation)
• GMP-WHO : standards set up by the WTO (World Trade Organization)
• GMP-EU : standards of the European Union
• GMP-FDA : American standards
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From a stage to another, the level of requirements is different especially in the reporting and
Upgrade in process maintenance process. Indeed a GMP-WHO certification asks for more utilities, like air-treatment.
The reporting is a very important condition and is stricter with GMP-FDA or GMP-EU than with
GMP-WHO or ASEAN. To upgrade from GMP-WHO to GMP-FDA or EU, the company needs
to invite the assessors to visit the factory for an audit that can cost between 30 to 50 K USD and
modify the production lines according to their observations. However the international standards
have been created to fit the closest as possible the American and European standards.
GMO-WHO is the new Since the WTO membership in January 2007, the Vietnamese government is implementing
rule
production and quality standards nationwide. Regarding the pharmaceutical industry, all
manufacturers must, by the end of 2010, upgrade their facilities to GMP-WHO requirements.
GMP-WHO standards:
• Avoid cross contamination

• Prevent mistakes
• Provide with a traceability
• Ensure responsibility
• Guarantee products’ performance
If companies can’t respect these requirements, they will have to stop production. GMP-WHO
standards are more restricting than GMP-ASEAN but less that GMP-EU and GMP-FDA. These
standards are use to certify a production line. To some experts’ point of view, a production line
has to be built accordingly with the standards and that it is very difficult to adapt an existing line,
because of the complexity of the building process. However the implementation of the standards
is a good start. Indeed building production line is very expensive. For a workshop with several
production lines, the investment needed is between 150,000 and 700,000 USD, depending on the
equipment already there. Nevertheless regular maintenance and upgrade as soon as possible have
to be checked, in order to avoid a decrease in quality. GMP-WHO certifications have to be
renewed very often, as they are valid for only 2 years.
Only 61 out of 170 Currently Vietnam counts around 170 pharmaceutical producers, among them 61 are GMP-WHO
manufacturers have
GMP-WHO
certified and 19 GMP-ASEAN. This number is still very low and all the companies will not be
able to apply GMP standards. Among big players of the sector, the assumption that 50% of
companies will not survive more than 5 years is agreed quite often. We can deduct that more than
half of the Vietnamese pharmaceutical companies will disappear until 2015.
The major challenge for Vietnamese companies till 2010 will be to become GMP-WHO
accredited in order to attract international companies. Indeed if the equipment used by local
companies has international standards, foreign pharmaceutical companies would acknowledge
the quality of the process and as a result could be interested in subcontracting. Consequently,
Vietnamese pharmaceutical production would keep a high level, as whishes by the government.
Basic Vietnamese production

On the Vietnamese pharmaceutical market, almost every drug is available, from cheap generic
like paracetamol to high-tech drugs very specialized and traditional Asian medicine. The top
selling products are drugs from plants/food supplements and antibiotics. You can find below the
list of top leading therapeutics class of drugs.
www.jaccar.net 15
Food supplements and

antibiotics are the top Top selling therapeutic class of drugs (2007)
sellers
Rank Code Category Sales k USD Total %
1 A ALIMENTARY T.& METABOLISM 188,193 21.9%
2 J SYSTEMIC ANTI-INFECTIVES 182,802 21.2%
3 C CARDIOVASCULAR SYSTEM 84,164 9.8%
4 N NERVOUS SYSTEM 71,906 8.4%
5 R RESPIRATORY SYSTEM 67,662 7.9%
6 M MUSCULO-SKELETAL SYSTEM 44,930 5.2%
7 G G.U.SYSTEM & SEX HORMONES 39,539 4.6%
8 L ANTINEOPLAST+IMMUNOMODUL 30,960 3.6%
9 D DERMATOLOGICALS 29,600 3.4%
10 V VARIOUS 29,235 3.4%
Source: IMS
On the other hand Vietnamese pharmaceutical production is limited. The domestic companies
manufacture mostly generics, low-value medicines, internationally available because of the
expiration of the property rights. As a result every pharmaceutical company in the world can
produce it. In this category, the main production is antibiotics and pain-reliever.
Top 50 local products in revenue (2007) Top 50 local products in revenue (2010e)
14% 18%
Food Suppl. Food Suppl.

48% Pain-killer
50% Pain-killer
24% Antibio
Antibio 22%
other other
12% 12%
Source: Jaccar Source: Jaccar
Consequently the Vietnamese production is uniformed and concentrates on antibiotics and food
supplements/herbal medicine. The only high-value drugs could be found in the “other” category,
which gather mainly generic treatment against allergies, blood pressure or hepatitis B. Excluding
some companies specialized in a particular category, like Traphaco, specialized in traditional
medicine, all the other Vietnamese pharmaceutical companies produce the same drugs.
Vietnamese philosophy: There is no diversification among local competitors and the management strategic view is more
copy what is working
to cooperate and copy than to be original. Vietnamese pharmaceutical companies choose which
product they want to manufacture regarding the top seller products in the world, not the local
demand. As a result local companies make the same products. On the opposite some international
companies which develop their own-branded drugs, can be leader on some niche market. Solvay,
for example, in Vietnam for a long time thanks to Laboratoires Fourniers, records high local
selling volumes of its drug Lipanthyl, an anti-diabetic treatment, whereas the worldwide sales of
this product are dropping. The main reason is, as global sales of this drug are decreasing,
Vietnamese pharmaceutical companies are not interested in producing this treatment. On the
Vietnamese market, Solvay is now the leader for this category of drug.
www.jaccar.net 16
The top global generic The global generic market is dominated by Teva (Israel), in a process of buying back the
producers are not present
in Vietnam American Barr, and Sandoz, a subsidiary of Novartis. The Indians Ranbaxy (nearly brought by
the Japanese Diachi), Dr.Reddy’s and Cipla, are part of the main international generic companies,
along with Zentiva (Eastern Europe). In France, Biogaran, belonging to Laboratoires Serviers,
has a very strong position. In Vietnam, except Sandoz, present since 1991, these companies are
not active players. However, according to some experts, the liberalization of the market with the
WTO membership will induce an increase in their market share and their brand recognition.
All local companies In order to differentiate in the next years, Vietnamese pharmaceutical companies are trying to
develop herbal treatments
diversify their business, especially in increasing their range of traditional/herbal medicine
products. This is not the more profitable products and the total Vietnamese market is still limited
(1 to 2 % of the total pharmaceutical market of nearly 1bn USD), but there is a potential to
develop brand recognition. Big international pharmaceutical companies don’t propose this type of
products and Vietnamese customers buy it quite often. As a consequence to propose a range of
herbal medicine is a differentiation compared to foreign players and increase public brand
awareness. Unfortunately all local companies are tacking the same path and don’t innovate
compared to each other. The main products developed are light treatments and food supplements,
gathering medicine against cold, vitamins, organs well-being. The only companies which could
be profitable with this kind of products will be the biggest ones that rely already on some brand
recognition.
Vietnamese short-term vision: no promotion, no

R&D
As Vietnamese production is common and low-value, and the generic market is very competitive,
as the first to enter is the first recognized by customers, it seems logical that to survive and attract
clients, companies advertise a lot and try to differentiate by looking for new medicines. In fact
local companies’ advertisements are very small and R&D expenses quite limited.
Minimal marketing expenses

The budget for marketing expenses in pharmaceutical companies is limited (between 2% and 4%
of total revenue). In fact Vietnamese companies advertise only a little, and mainly locally, that is
in their town, at best in their province. The selling expenses, as described by Vietnamese
companies, include mostly the costs of the medical representatives. Indeed the best way to sell a
product in Vietnam is by close relationship with the client and that is why the distribution
network is important when talking about medicines.
Domestic pharmaceutical companies explain that their marketing actions are seminars,
promotional actions and articles in newspapers or on television.
Small advertising
expenses through
• Seminars can refer to business lunch or dinner with their clients. Under no circumstances
business lunch and it is scientific seminars, like organized by foreign companies, including new drugs
promotional actions presentation. As most of the medicines of Vietnamese pharmaceutical companies
products are generics and food supplements, a presentation of this kind of products has
no use.
• Regarding promotional actions, it concerns events for the public like, free drugs
distribution, free diagnostic… This intends to promote the companies to the public, as
final consumers choose drugs according to ad, advice from friends or preference for a
company instead of another.
• And finally newspaper and television advertisement refers to appearance of the company
to an event related in the news. Only few Vietnamese companies advertise directly on
television, as it is very costly (around 30,000 USD minimum for a small clip) and the
number of channel is very large and regional.
www.jaccar.net 17
Looking for R&D

Regarding Research and Development (R&D), domestic pharmaceutical companies don’t do any.
Some companies wanting to diversify into traditional medicines try to look for new drugs from
plants. But their budget is too limited to start R&D like the international companies. The
medicines manufacturers don’t have the equipment to produce high-tech drugs, this is logical that
they don’t have the resources to do R&D for this kind of products.
No technology and Moreover R&D induces lots of constraints. At first the requirement for government subsidy and
resource to do R&D facilities is necessary, as R&D is a long-term process. The government’s orientation is a key
success factor for companies willing to develop R&D. Today, the government is interested in
developing laboratories for science experiments, 15 just opened in HCMC, but these facilities are
not exclusively for medical experiments and the preference is given to scientific research that will
offer practical uses. The healthcare R&D is not considered as a priority. In the “Five-Years
Socio-Economic Development Plan 2006-2010”, the authorities plan to “accelerate the research
and apply technological advances to intensify farming, in order to increase productivity, generate
jobs and produce goods for consumption, production and export”. No quantifies objective has
been set yet. The medical research is for the moment at its premises and is not going to take off
soon.
Secondly the University programs don’t train doctors to work in R&D. The country is already
lacking of educated doctors/nurses/pharmacists, the health of people is a priority. The main goal
of the government until 2010 is to renovate the educational system, by modernizing the
education, upgrading the quality of teaching methods and teachers, increase enrollment into
university and training. There are only 2 University of Pharmacy/Medicine in Vietnam, one in
HCMC and one in Hanoi.
Some R&D in alternative
dosage forms or
Finally companies don’t plan to spend time and money on R&D. The shortage of educated
treatments researchers and the difficulties to borrow money from bank intensify this situation. Consequently
with no facility, no subsidy, no educated people, no money, no long-term vision, Vietnamese
pharmaceutical companies lose interest in this mater.
This environment will not change soon, to Jaccar’s view. Even if its long-term vision is to
encourage and develop research, the government has other priorities for the next 5 years and
medical R&D is not the most important. Some companies work by themselves, in cooperation
with some research centers, like the Medicine University of HCMC, to develop new medicines.
But the discovered drugs are, for the moment, alternative treatments, i.e. medicines already exist
to treat this type of disease.
Reinforce the distribution network

The Vietnamese pharmaceutical market is uneven according to the region, even the province.
There are 64 provinces in Vietnam, divided into 3 main regions: North, Center and South.
Northern Region counts mainly Hanoi and Haiphong, Center Danang and Hue and the South Ho
Chi Minh City and the Mekong Delta.
www.jaccar.net 18
Population repartition (2007) Population reparation (2010e)
20%
17%
36% 37%
North
North
Center
Center
South 22% South

17%
Mekong Mekong
27%
24%
Pharmaceutical revenue repartition (2007) Pharmaceutical revenue repartition (2010e)
11% 11%
25% 24%
North North
Center Center
South 10% South
15% Mekong Mekong
49%
55%
Most of the
pharmaceutical revenue
Ho Chi Minh City and the Mekong Delta only account for around 60% of the total Vietnamese
is made in the South pharmaceutical market. Indeed lots of local pharmaceutical companies have their head-quarter in
the Mekong Delta. The 4 listed companies of this industry are located in Can Tho, Cao Lanh and
Vinh Long. This can be explained by the important population density in a region representing
less than one quarter of the total country (23%). HCMC is the biggest city of Vietnam with more
than 8 million inhabitants. Meanwhile the region is known as very fertile and jobfull that attracts
lots of people. The other reason is, as a fertile and attractive zone, HCMC and the Mekong Delta
gather the more rich people. The average healthcare expenses are forecasted to increase for the
next 5 years (15$/person/year in 2015, compared to 10$ in 2006 and 4.2$ in 1995), and so the
biggest cities in Vietnam, Hanoi, HCMC and also Danang, are targeted.
www.jaccar.net 19
In spite of a wish to expand the distribution network, domestic pharmaceutical companies can’t
for the moment claim a nationwide network. Most of the Southern companies have the biggest
part of their revenue coming from the South and the same scenario for the Northern companies.
The challenge for Vietnamese pharmaceutical companies is now the development of a nationwide
network like the foreign distributors, such as Zuellig Pharmaceutical who are able to deliver
directly a product all around the country.
The improvement of the distribution network is a key-success factor for Vietnamese companies
compared to foreign ones. Indeed only Vietnamese companies can understand and work with its
complexity and blurriness 2. Moreover it’s a huge advantage in order to become subcontractor or
distributors for international pharmaceutical companies. It seems to Jaccar that if local companies
can claim good industrial equipment with international standards and a strong and connected
distribution network, it will be more profitable for foreign pharmaceutical companies to choose a
Vietnamese partner than to import or produce locally.
Distribution network of the 3 biggest Vietnamese pharmaceutical companies
29% 29% 14% 9%

39% 17%
29% 5%
16% 26% 13% 12%
55% 45% 48% 71% 57% 86%
45% % of branches in this region
40% % of this region in the total revenue
Sources: DHG, Jaccar Sources: IMP, Jaccar Sources: DMC, Jaccar
2
Cf I-C : The Vietnamese distribution network: bypass and complication
www.jaccar.net 20
A DIFFICULT ENVIRONMENT TO COME OUT

BIGGER… OR NOT?
The Vietnamese pharmaceutical industry is complex. Even with support from the government
and the local sector process, local companies must face lack of competitiveness and originality in
their business plan. The current environment adds also more challenges. In addition to
competition from international companies on their market, Vietnamese pharmaceutical
companies must face a striking global economic crisis. The best of them will have a chance to
grow and expand, if they succeed to take the challenge.
When prices bolts

Soaring inflation in 2008 At the beginning of 2008, the US subprime crisis started a slowdown in the global economy. As a
that induces increase in result we saw a jump in prices of basic raw materials: oil, milk, rice. And, consequently,
all prices
companies and consumers have to face a general increase of the expenses. In Vietnam, inflation
is skyrocketing, over the 10 first months of 2008, the CPI (Consumer Price Index) rose by more
than 23%. The main impact comes from food and foodstuffs, accounting for 42.85% if the basket
of consumer commodities and services. In the meantime, in October 2008, CPI decreased by
0.19% over September 2008. The CPI forecasts for the whole year 2008 stand around 25%,
according to BMI.
Companies are not safe. Increase of raw materials, salaries, transportation, services. The real
challenge, in a developing country environment, is now to stop and minimize losses. For
Vietnamese pharmaceutical companies API (Active Principle Ingredients), needed to produce
drugs and salaries, are the main operating expenses, accounting for between 50 and 80% of the
total revenue.
Requisite raw materials

API Prices jumped at Over the 9 first months of 2008, the price of some basic API, like paracetamol, amoxicillin,
mid-2008
cefalexin rose by an averaged 20-30%. Today the price of these products starts to decline slowly,
due to lower oil prices. These materials are essential to produce antibiotics and pain-killers, first
medicines manufactured in Vietnam, i.e. 60% of the total production. Until now, some companies
succeeded in counter the effects of the increase, by signing long-term contracts at the beginning
of the year (and in general for 1 year) with their suppliers. For smaller firms, with no purchasing
power, a drop of the margin is quite certain and will increase the difficulties they face.
Vietnamese companies have no pricing power regarding raw materials.
Most used API in Vietnam

Name Application
CEFALEXIN Antibiotic
ACETAMINOPHEN Pain-reliever
AMOXICILLIN Antibiotic
ASCORBIC ACID Food Supplement
AMPICILLIN Antibiotic
Source: Jaccar
In Vietnam 90% of raw materials are imported, mainly from India and China, for almost 70%.
The remaining comes from Europe and the US and is used for the production of a limited type of
drugs, such as licensed medicines. China is the biggest importer of API, like cefalexin and its
derivatives. Furthermore, China is one of the last and the biggest country in the world to continue
producing penicillin, essential part in the composition of all the others API for antibiotics.
Consequently, Chinese companies have a strong power over the rest of the world. The fluctuation
www.jaccar.net 21
China is the biggest of the API’s prices depends on the Chinese government. Indeed, during the last Olympic Games
producer of antibiotics’
API in the world in Beijing, APIs’ activity stopped and prices jumped by more than 50%. The Chinese government
has in his hands the worldwide supply of API and can disrupt easily the global market, thanks to
local measures, like closing factories or increasing exportation taxes.
API Price Evolution (2008)
$80
$75
$70
$65
$60
$55
$50
$45
$40
Tet Holidays Olympic games End of Olympic Sep-08
Games
Source: Phoenix Commodities
Even if bad quality can be found in some Chinese API producers, Vietnamese pharmaceutical
manufacturer, especially the biggest, are quite fussy about the quality and control it. To Jaccar,
there is not risk of poisoning with the biggest Vietnamese pharmaceutical companies.
Forecasts on raw materials’ prices are today nearly impossible, as even specialists on this market
API Prices will continue can’t predict the evolution. The global economic future is today quite uncertain and API prices
to increase in the future
depend on the Chinese government and international demand. Nevertheless Jaccar forecasts a
slighter increase in raw materials’ price for 2009, due to drop in oil price and the same growth as
previously observed for the next years.
API price Evolution (2007-2011e)

$100
$80
$60
$40
$20
$-
2007 2008e 2009f 2010f 2011f
Source Jaccar
Significant salaries
Salaries represent also an important operating expense for Vietnamese companies, especially in
Vietnamese
pharmaceutical
the pharmaceutical industry, where the sales department counts lots of employees to reach as
companies counts lots of many clients as possible. Domesco counts 1,000 employees, DHG Pharma 2,000 employees.
employees With the high inflation rate experienced this year, 25% forecasts for 2008 according to BMI, and
www.jaccar.net 22
18% and 7.8% for 2009 and 2010 respectively, salaries will have to be reevaluated. Some
pharmaceutical companies, such as DHG Pharma, found a way to minimize expenses by
calculating sales representatives’ salary on the basis of cash earned, instead of sales. DHG
Pharma is an established and well-known company, very popular among Vietnamese people and
in addition to the basic salary, the company offers bonuses and compensation, like transportation,
lunch, rent…
Big pharmaceutical
companies won’t face Moreover, despite habits of high employee turnover (approximately 5% of the total manpower
strong increase in
personnel expenses per year) in Vietnam thanks to the easiness of finding a job, and with the actual difficult
economic environment, Vietnamese workers may change their behavior regarding employment,
by staying longer in the company and accepting more difficult conditions. This is the reason why
DHG can implement such a remuneration based on performances. However smaller company of
the pharmaceutical sector, with weaker brand name and fundamentals, could not change their
salary policy so easily. The risk of employees leaving the company is strong in this case.
Edgy exchange rate

Another effect, expected this year, on the expenses of Vietnamese companies is the exchange
rate. The Vietnam Dong (VND) leans back against the US Dollar (USD). The daily trading band
on inter-bank market increased progressively from January 2008 to +/- 3%. Every day the
financial authorities, the State Bank of Vietnam, fix an official exchange rate between VND and
USD. Institutions, especially banks, have to comply with this rate, or be punished. However,
banks can increase the real exchange rate to customers by increasing changing fees, use multiple
transfers…
VND vs USD
fluctuations caused local
pharmaceutical With the drop of the USD and the economic problems of the country, and despite no official
companies to increase devaluation, the VND depreciates in real, in 2008, of almost 8%. Moreover, during June and July
their costs, even take 2008, Vietnam experienced a shortage in USD, which induced an increase of the official
debts
exchange rate at 16,700/17,000 VND per USD but also a soaring growth of the black market
exchange rate to almost 19,000 VND per USD. The scarcity of USD in banks conducts to a credit
crunch; the only companies that could access loans were import/export companies and State
companies. The other firms had to buy USD on the black market, in order to pay their suppliers.
Knowing that 90% of API, needed for the production of drugs, are imported and paid in USD,
VND’s devaluation became for some companies a real problem and a heavy expense.
By the end of 2008, the BMI base we kept forecasts an exchange rate VND/USD at 16,600-16-
700. According to BMI the VND will appreciate from next year and for the 4 following years to
reach an average of 14,200 VND per USD in 2012. This trend is supported by the sharp rise in
FDI, especially in 2008, in exports and current account and by the stronger growth of GDP from
2010. Jaccar’s forecasts of the companies are based on these numbers.
Market, CPI and Exchange rate forecasts

2003 2004 2005 2006 2007 2008e 2009f 2010f 2011f 2012f
Real GDP growth, % change y-o-y 7.3 8 8.4 8.2 9 5.5 7 9 8.5 8.2
CPI % y-o-y, eop 2.9 10 8.4 6.8 13 26.4 12 6 5 5.5
CPI % y-o-y, ave 3.2 5 8.3 7.4 8 27.6 18 8 5.2 5.3
Exchange rate VND/US$, eop 15,656 15,001 15,913 16,072 16,018 17,000 16,000 15,000 14,400 14,000
Exchange rate VND/US$, ave 15,509 15,742 15,859 16,017 16,045 16,509 16,500 15,500 14,700 14,200
Source BMI
A revaluation of the VND would allow the Vietnamese companies to enjoy low importations
costs and as a result increase their margin. On the other hand, their exportations would suffer, but
as Vietnamese pharmaceutical companies don’t export so much, the consequences on the
financial statements are minor. The exchange rate VND/USD will probably not be a risk for the
future. The government holds the measures to keep it under control.
www.jaccar.net 23
And foreign companies hang on

There are today in Vietnam, 170 drug manufacturers. Except some foreign companies, which
A vast number of
pharmaceutical own their factories, like Sanofi-Aventis, and some joint-venture between local and international,
companies in VN most of these 170 companies are Vietnamese manufacturers, that is to say around 150. This high
number can be explained by the complexity and the potential of the industry. Indeed, when
distribution was not developed, each region, province, town, ministry created its own
pharmaceutical factory. Today more and more companies cover the nationwide market and most
of the small businesses have difficulties to face the increasing operating costs. Mergers,
acquisitions and bankrupts will happen in the next 3 years.
But almost 40% of the With a value of around 1bn USD in 2007, according to the market consensus, the Vietnamese
market is made by 17
international companies
pharmaceutical market is dominated by foreign companies. In fact international corporations are
in a dominant position regarding the local consumption while Vietnamese manufacturers control
the production. And the government wants to keep the production locally.
The 10 first companies in term of total revenue are big international pharmaceutical
corporations; the first one would be the French Sanofi-Aventis with total revenue for 2007 of 52
millions USD, followed by the American GSK with 48 millions USD. The first Vietnamese
companies in the ranking are DHG Pharma, listed at the 7th position. Domesco is 15th, Mekophar
24th, Imexpharm 26th, OPC 49th and Pharimexco 170th.
Top 20 companies in Vietnam (in terms of revenue)

Rank Company Name Revenue 2007 (k USD)
1 SANOFI-AVENTIS COR 52,164
2 GSK GROUP 48,654
3 SERVIER GROUP 22,206
4 BMS GROUP 21,028
5 NOVARTIS GROUP 20,537
6 PFIZER GROUP 19,972
7 HG PHARM 19,178
8 UNITED PHARMA 18,510
9 SOLVAY GROUP 15,848
10 ASTRAZENECA GROUP 15,793
11 BOEH. INGEL. GROUP 14,491
12 J&J GROUP 13,447
13 MERCK SERONO GROUP 12,840
14 IPSEN GROUP 12,723
15 DOMESCO 11,539
16 BAYER SCHERING GR. 11,382
17 ORGANON GROUP 11,237
18 GEDEON RICHTER 10,996
19 STADA 9,865
20 ROCHE GROUP 8,996
Source: IMS
The Vietnamese pharmaceutical market is quite particular because of the characteristics of the
players. Indeed, some very big global pharmaceutical companies, leaders on most of the other
markets, are not in Vietnam. For example Pfizer, giant global corporation, has a restricted activity
in Vietnam and is ranked on the 6th position, whereas Laboratoires Serviers, a more moderate
French player, is number 3. The possible reason lays in the fact that the Vietnamese industry was
difficult and didn’t have a sufficient potential for these big companies, which just re-enter the
market and start a new local development. The membership of the country in the WTO is a major
factor is this change of strategy.
www.jaccar.net 24
Top 50 products in number of boxes sold (2007) Top 50 products in number of boxes sold (2010e)
18%
18%
Branded Europe
2% 2% Branded Europe
Branded Japan
4% Branded Japan
Branded US 8% Branded US
56% Import Generic 54%
Import Generic
20% Local Generic
18% Local Generic
Top 50 products in revenue (2007) Top 50 products in revenue (2010e)
6%
12%
14% Branded Europe Branded Europe
Branded Japan 12% Branded Japan
Branded US Branded US
16% 54%
60% Import Generic
Import Generic
18%
Local Generic
Local Generic
4%
4%
… Because Vietnamese On the other hand Vietnamese consumers prefer foreign products, especially European and
prefer foreign products…
American ones, symbol of quality. Indeed, as mentioned above, most of the Vietnamese go to the
doctor’s office only if they have a very serious disease. A consultation is time-consuming and
expensive (an average of 100,000 VND for hospital doctor, namely 10% of the average monthly
salary). In public hospitals, waiting lines are very long and doctors not very friendly. So if
symptoms are not severe, people choose to use the same treatment as previously used, or drugs
they saw on television, or advised from friends and family, and buy it at the pharmacy. Actually
Vietnam has recently been ranked 2nd country in the world of self-medication by the Association
of the European Self-Medication Industry (AESGP). As most of the medicines are OTC and
don’t need prescription, the country is developing a great resistance to antibiotics and drug
allergies.
… Which benefit from
large marketing expenses
The only companies with a budget for marketing expenses and money to advertise nationally are
foreign pharmaceutical companies. As a result products from international firms are chosen by
www.jaccar.net 25
Vietnamese consumers, firstly because of the brand recognition and also because in people’s
mind western product means quality. Following are the top products in Vietnam. Foreign
products are the top selling in number of box but also in revenue. Efferalgan for instance,
products of the American pharmaceutical company BMS, 2nd product the most sold in Vietnam,
was intensively advertise for several years.
Top 10 products sold in Vietnam (in terms of revenue)

Revenue 2007
Rank Product Company Application
(k USD)
1 AUGMENTIN GlaxoSmithKline Antibiotic 10,107
2 ZINNAT GlaxoSmithKline Antibiotic 6,883
3 PANADOL GlaxoSmithKline Pain-reliever 5,947
4 VASTAREL Laboratoires Servier Cardiology 5,747
5 EFFERALGAN Bristol-Myers Squibb Pain-reliever 5,596
6 DIAMICRON Laboratoires Servier Anti-diabetic 4,818
7 PLAVIX Sanofi-Aventis Blood solution 4,587
8 SMECTA Ipsen Anti-infection 4,101
9 VENTOLIN GlaxoSmithKline Respiratory system 3,747
10 DIANEAL LOW CALCI Baxter Oncology Hospital solution 3,720
Source: IMS
Top 10 products sold in Vietnam (in terms of # of box)

# of box sold 2007
Rank Product Company Application
(000 units)
1 STREPSILS Boots Group Respitatory system 10,515,191
2 EFFERALGAN Bristol-Myers Squibb Pain-reliever 3,847,411
3 NATRI CLORID Pharmedic Ophtalmology 3,833,253
4 CORTIBION Roussel VN Dermato 2,845,912
5 VITA C GLUCOSA Mekophar (TW24) Vitamin 2,606,215
6 GLUCO C HG Pharmaceutical Vitamin 2,533,154
7 NATRI CLORID Haipharco Ophtalmology 2,297,159
8 TETRACYCLINE Quaphaco anti-infection ears 2,156,698
9 PANADOL GlaxoSmithKline Pain-reliever 2,116,754
10 ALPHACHYMOTRYPSIN Sanofi-Aventis Anti-inflammatory enzyme 2,116,180
Source: IMS
Local companies only do a little bit of direct marketing, focus on their advantage to be close to
consumers. Indeed, as shown in the table above, domestic products are quite popular among the
population. Most of these top selling products are food supplements and complementary
treatments, like eye and ear drops, vitamins. International pharmaceutical companies don’t have
this type of products in their portfolio and concentrate on high-margin drugs. The offer of
Vietnamese companies, despite being low-margin, is in accordance with the local demand and
represents a great potential in case of a future development of more high-tech drugs.
Local desperation
Vietnamese In spite of increasing export, most of the Vietnamese pharmaceutical companies focus on the
pharmaceutical domestic market. Export markets only represent a small part of the total revenue, between 1 and
companies focus on
domestic market… 5%. The main export countries are the bordering countries, especially Cambodia and Laos,
Eastern Europe (Russia, Ukraine) and for some of them Africa, through an external distributor for
example. This is the case for Domesco which is exporting its products to some African countries
through Tedis SA, a French pharmaceutical distributor.
… because only few The main reason of this lack of interest for export market may be found in the portfolio of
potential market…
Vietnamese pharmaceutical companies. As a matter of fact, as mentioned previously, local
production gather mainly generic drugs, food supplements and herbal medicine. Potential markets
www.jaccar.net 26
for these types of products are limited and are mainly Developing Countries that are looking for
generics, cheaper, and Asian Countries, because of the medicine philosophy. However these
countries are often overwhelmed by Chinese products. Implantations of Vietnamese products are
consequently restricted.
… and not enough
certification to export in
developed countries Meanwhile most of the Vietnamese companies don’t have a GMP-accredited industrial
equipment. So they can only export their products in countries with no regulations regarding
certifications. However it is now an exception. This situation could be problematic in the case
where the local pharmaceutical market becomes overloaded. It doesn’t seem that Vietnamese
companies plan to develop their export market and they have rather specializing on Vietnamese
consumers.
CONCLUSION
Today Vietnamese production has a limited potential growth, partly because of all the problems it
has to face. High importations, operation costs on the rise, limited market caped by foreign
companies. The government wants to promote local production and is setting up a number of
advantages, helps to promote and push domestic companies in this way. But barriers will have to
end and Vietnamese pharmaceutical companies will be alone in front of bigger, richer, more
experienced companies.
To Jaccar’s opinion, the way out for local manufacturers is cooperation with international
pharmaceutical for distribution and/or production. But local companies have to gather essential
elements to attract investors:
• An excellent quality of manufacturing equipment

• A will of mutual cooperation from the management
• A complete and efficient distribution network
Some local companies started already in this direction and received some propositions. The
others will have to upgrade their facilities and adapt to the new rules of the markets or will
disappear. However some small pharmaceutical companies could survive under the control of
bigger ones, becoming subcontractors and potentially be absorbed. Their survival could be
production for the domestic market, where constraints will stay lower than international ones.
Regarding foreign companies willing to take over local ones, in Jaccar’s view, it doesn’t worth
investing. Indeed, if they can fulfill certain conditions, Vietnamese pharmaceutical companies
could be great subcontractors or distributors. In this way, international companies don’t need to
invest large amount of money, production stay locally, as wishes by the authorities, and the best
of the domestic companies can grow and expand.
The growth potential is however restricted today and would be interesting maybe in few years
when the number of companies would have decreased and the market would become more clear
and foreseeable. The Vietnamese pharmaceutical sector could then grow as a subcontracting
industry with maybe 1 or 2 big ones which will dominate the local market, like in Indonesia,
where the 3 biggest companies are local, thanks to previous development of the foreign
pharmaceutical companies.
Currently there are 8 listed pharmaceutical companies on the Vietnamese Stock Exchange. On
the pharmaceutical market, according to IMS, DHG is ranked 7th, DMC 15th, IMP 26th, TRA 30th,
DHT 47th, OPC 49th and DCL 170th (MKV is not included because it is a veterinary company)
DHG is the leading Vietnamese company, and is often considered, along with Imexpharm the
two best local companies on the market, DHG by its distribution orientation, Imexpharm by its
equipments and cooperation with foreigners. Our recommendation is to Reduce on both stocks,
because of an overvaluation of the companies on the market.
www.jaccar.net 27
COMPANY SHEETS Hau Giang Pharmaceutical JSC

Rating: REDUCE
Target Price: 86,500 VND
SIMPLE COLD OR SERIOUS DISEASE
Company Data • DHG is the biggest Vietnamese pharmaceutical company in terms of
Price, close (Dec 12, 2008): 126,000 VND revenue with a total turnover of USD 77.9m in 2007, according to the
Price, close (Dec 12, 2008): 7.56 USD company. The group has been managed for 20 years by Mrs. Pham Thi
Free Float (in %): 39.2%
Market cap. (VND bn): 2,520 Nga, a strong leader, who will probably leave the company within 5
Market cap. (USD m): 151.20 years
Turnover per day: 54,740
Bloomberg code: DHG VN
• Its main activity is to produce generic drugs like antibiotics, food
Company Contacts supplements such as vitamins, and to distribute them through its own
Dr. Phạm Thị Việt Nga (CEO) distribution network. In addition the company is entering the traditional
Mr. Lê Chánh Đạo (CFO)
Ms. Le Thi Honh Nhung (IR)
medicine segment by investing into herbal raw material production and
www.dhgpharma.com.vn expanding its herbal products range.
Shareholder structure • The coming year is expected to be difficult, even if the pharmaceutical
SCIC (State) 44.61% market is less sensitive toward economic crisis. In addition Vietnam
Citigroup 5.98%
Vinacapital 2.20%
WTO commitments will induce a greater liberalization of the market.
Local companies will face harder competition and less profitability.
Performance
•
300,000
250,000
Currently DHG is investing to develop its distribution capacity to reach a
200,000
nationwide coverage and be one of the first Vietnamese companies with
150,000
such a capacity. This is now DHG’s top priority. In addition a strong
100,000
distribution network is a real advantage to attract foreign companies
50,000 willing to enter the Vietnamese pharmaceutical market.
0
•
12/06 3/07 6/07 9/07 12/07 3/08 6/08 9/08
Price Price/VN Index

Thanks to 2007 capital increase, DHG would have some cash reserve
sufficient to cover the normal activity, some small investments and
dividends for 2009 and 2010. However the margins and ratios would
P&L Highlights drop. ROE and ROCE would lose respectively 11 and 17 basis point
(VND bn) 2006 2007 2008e 2009e 2010e
Sales 873 1,285 1,459 1,628 1,870 between 2007 and 2009. Jaccar doesn’t forecast a recovery until 2011.
EBIT 98 140 99 106 131
•
Op. Margin (%) 11% 11% 7% 7% 7%
Net Income 87 128 91 84 107 DHG is often considered as a blue chip on the Vietnamese stock-
Net Margin (%) 10% 10% 6% 5% 6% exchange. We choose to evaluate DHG using the sector-based
Fixed Assets 153 268 315 358 401
Debts 168 43 15 40 40
transactions methods, as the distribution network is and will be the
FCF (95) (179) (26) (65) (33) strongest asset the company is developing. The contact list is the main
FCF yield (%) -68% -99% -20% -51% -26% value of this distribution network, so we used also multiples of the
Private Banking sector. As a result we set a rating REDUCE with a
Key Ratios
(x) 2006 2007 2008e 2009e 2010e
target price at VND 86,500.
EV/Sales 1.4 2.6 1.7 1.5 1.4
EV/EBITDA 11.2 20.5 20.2 19.1 16.2
EV/EBIT 12.7 23.9 24.9 23.8 19.5
PE 12.8 26.7 27.8 30.0 23.6 SWOT ANALYSIS
P/Book 6.9 5.4 3.7 3.4 3.1 Strengths Weaknesses
ROE (%) 54% 20% 14% 12% 14% • Top 1 Vietnamese pharmaceutical company in • Products portfolio = cheap drugs : generics,
ROCE (%) 32% 27% 14% 13% 14% revenue traditional medicines, food supplements
Div. Yield (%) 1% 1% 3% 1% 1% • Building a strong distribution network with 700 • Few R&D
Payout ratio (%) 16% 30% 77% 36% 28% sales representatives • Distribution network relies on personal contacts
• Several partnerships with foreign companies on
Next Events their way
30/12/08 Extraordinary Shareholder Meeting
26/12/08 Dividend payment
Opportunities Threats
Analyst • Pharmaceutical sector is one of the government • International companies dominate the
favorites and will do everything to promote it Vietnamese market
GORGIARD Servane
81-85 Ham Nghi • International companies could be interested in • WHO deadline: in 2009 the market must open
joint-venture or subcontracts with locals the distribution to international players
District 1
Ho Chi Minh City • Global fluctuation of the price of API
Tel: +84 8 39 14 90 60
sgo@jaccar.net
www.jaccar.net 28
VALUATION
To valuate DHG we looked at different methods: DCF, Peers comparison, Assets, Sector-based
transactions.
- We could not choose the DCF method. Indeed the Free Cash Flows of the company are
mostly negative.
- The Peer Comparison is not relevant when talking about DHG because we could not find
a company comparable to DHG.
- Valuate the company with its factories is also not relevant. The production equipment is
not high-tech and doesn’t require specific techniques or large investment. The Net Asset
Value was not accepted.
Finally, in Jaccar’s view, the most valuable asset of DHG is its distribution network, relying on
personal contacts between the sales representative and its interlocutor. We choose to determine
the value of the distribution network using multiples of sector-based transactions.
DCF
We didn’t choose to valuate DHG with the DCF method, because the company doesn’t have
recurrent positive Free Cash Flows.
Evolution of Cash and Free Cash Flow (2005-2011e)

Cash Balance Cash Balance Free Cash Flow Free Cash Flow
(VND m) (USD k) (VND m) (USD k)
2005 35,466 2,149 (4,683) (284)
2006 35,002 2,121 (94,971) (5,756)
2007 129,951 7,876 (179,372) (10,871)
2008e 76,721 4,650 (25,693) (1,557)
2009e 36,988 2,242 (64,733) (3,923)
2010e 3,845 233 (33,143) (2,009)
2011e 16,076 974 52,231 3,165
Source: Jaccar
Even if cash is positive over the year, FCF is historically negative. The exception of 2008 is
mainly due to a cash withdraw from 6 months deposit of VND 50bn (USD 3m). A significant
change in the future is, for Jaccar, very unlikely because of the structure of the FCF. Indeed 3
main items consume the cash:
1) the working capital,
2) the investments and
3) the dividends.
• The working capital relies on a particular combination that forces the company to
develop a strong working capital management. Historically it represents around 60% of
the gross cash flow from operations. DHG pays its suppliers very quickly, after 15 days
in 2007. This turnover was improved by around 5 days, compared to previous years.
Another upgrade is not forecasted, as the company doesn’t have a strong negotiation
power with its suppliers. Meanwhile DHG records a receivable turnover of around 65
days. Clients pay with long credit terms, hospitals benefit from at least 3 months term
and pharmacies have around 1 month. In addition the manufacturer tends to keep high
stocks, especially in 2007, when DHG increased its inventories by more than 90%. The
average turnover of inventories is more than 2 months.
• Furthermore Investments represents also a big part of the cash burning. With VND 193bn
(USD 11.6m) in 2007 (around 140% of the gross cash flow from operations), DHG has a
long history of investments (46% in 2005, 116% in 2006). The company is restructuring
its distribution network, building its own subsidiaries, which require a substantial
investment in land and building. For example in 2007, DHG bought VND 35.8bn (USD
www.jaccar.net 29
2.2m) worth of land to establish 4 distribution subsidiaries in Vietnam. However, in 2008

the pharmaceutical producer has faced a slowdown that forces it to reduce investments.
The company suspended the heavy projects, like factories, to focus on the company
external expansion. The investments are the first item DHG reduces in case of economic
deceleration. In Jaccar’s forecasts, investments are reduced from 2009 at 64% of the
gross cash flow from operations and around 50% the following years.
• Dividends also have a high cash impact. For 3 years the company has been paying 25%
of par value as dividends to its shareholders, that is between 20 and 30% of the gross
cash flow from operations. In the future DHG explained to us that they will lower the
dividends, but they will still stay higher than deposit rates. Jaccar is forecasting a 15%
dividend for the next few years, i.e. 27% of the gross cash flow from operations in 2009
and around 20% the next years.
Consequently the FCF being negative and no change planned, Jaccar decided that the valuation of
DHG using DCF was irrelevant.
PEER COMPARISION
For the valuation of DHG with a peer comparison, we used two set of different peers: one with
the biggest international generic producers and another one with smaller drugs manufacturers
closer to DHG.
Peer Comparison
Peer Group 1 : Peer Group 2 :
Big international drugs manufacturers Smaller Asian drugs manufacturers
TEVA Top Sun Science and Technology
RANBAXY China Medical System Holding
BARR AnHui Fengyman Pharmaceutical
DR.REDDY’S Dalian Merro Pharmaceutical
CIPLA Henan Lingrui
ZENTIVA Nissui Pharmaceutical
Source: Jaccar
The first set gathers the biggest generic producers in the world, led by Teva, an Israeli company
that develops, manufactures and markets generic and branded human pharmaceuticals and API.
Ranbaxy is the biggest Indian generic manufacturer that makes antibiotics, analgesics, anti-
inflammatory and gastrointestinal drugs and distributes a wide range of pharmaceutical products.
The American Barr Pharmaceuticals Inc develops, manufactures and markets generics and
proprietary prescription pharmaceuticals. The Indians Dr. Reddy's Laboratories Limited and
Cipla Ltd provide a complete range of pharmaceutical services by manufacturing bulk drugs,
formulations and molecules. Zentiva NV is a Czech drug manufacturer that specializes in
developing, manufacturing, marketing, and selling pharmaceutical products.
In the second set, we chose small pharmaceutical companies, located in Asia. Topsun Science
and Technology Co., Ltd. develops and manufactures Chinese raw material medicines, Western
raw material medicines, tablets, capsules, injections, and other pharmaceutical products. China
Medical System Holdings Limited manufactures pharmaceutical and medical products primarily
in China. Anhui Fengyuan Pharmaceutical Co., Ltd. develops, manufactures, and sells a
variety of Chinese medicines and preparations, chemical drugs and preparations, and biological
drugs. Dalian Merro Pharmaceutical Co., Ltd. manufactures and markets a variety of
pharmaceuticals including chemical medicines, chemical preparations, and natural medicines.
The Company also manufactures medical instruments and operates pharmacies. Henan Lingrui
Pharmaceutical Co., Ltd. manufactures and markets a variety of Chinese medicines. The
Company's products include ointment, electuary, tablets and capsules.
The Japanese Nissui Pharmaceutical Co, Ltd. produces clinical testing reagents for medical
institutions. The Company also provides over-the-counter drugs and health foods.
www.jaccar.net 30
Multiples Peer Group 1

Market cap EV/Sales EV/Sales EV/Sales EV/Ebitda EV/Ebitda EV/Ebitda EV/Ebit EV/Ebit EV/Ebit PE PE PE
Company Name
(USD m) 2008e 2009e 2010e 2008e 2009e 2010e 2008e 2009e 2010e 2008e 2009e 2010e
TEVA 34,334 3.12 2.57 - - - - 12.97 10.32 - 14.90 13.82 11.47

RANBAXY 1,798 1.39 1.17 0.95 14.47 11.92 8.09 14.81 12.02 6.68 21.08 15.12 10.39
BARR 7,098 3.09 2.62 - 10.99 9.80 9.18 16.75 13.66 - 22.42 17.48 16.03
DR.REDDY’S 1,625 1.41 1.22 1.01 8.87 7.55 5.83 12.53 10.22 8.49 14.37 12.24 10.25
CIPLA 2,957 - - - - - - - - - - - -
ZENTIVA 2,066 2.91 2.60 2.32 12.25 10.10 9.03 17.12 14.33 12.39 23.49 18.89 16.32
Median 2.91 2.57 1.01 11.62 9.95 8.56 14.81 12.02 8.49 21.08 15.12 11.47
Source: Bloomberg
Valuation: VND 64,406 With the first set, we find a share value for DHG of VND 64,406, i.e. around USD 3.9, recording
a discount of 46%. However this valuation is irrelevant due to the group of peers chosen. This
calculation was given for information only.

Company Name
Top Sun 112 - - - - - - - - - - - -

China Medical 85 1.22 0.96 0.77 3.97 3.06 2.38 4.48 3.51 2.51 5.49 4.21 3.05
AnHui Fengyman 139 - - - - - - - - - - - -
Dalian Merro 171 - - - - - - - - - - - -
Henan 215 - - - - - - - - - - - -
Nissui 172 - - - - - - - - - - - -
Median 1.22 0.96 0.77 3.97 3.06 2.38 4.48 3.51 2.51 5.49 4.21 3.05
Source: Bloomberg
Valuation: VND 18,668 Regarding the second set of peers, we chose mainly Asian drug manufacturer with production,
activities and size close to DHG. Nevertheless we don’t have enough information available
through Bloomberg and Factset for these companies.
SECTOR-BASED TRANSACTIONS
Jaccar considered another method to valuate DHG by sector-based transactions, either by
pharmaceutical transactions or by valuing the most important asset of the company, that is the
distribution network.
Transaction in the Pharmaceutical sector

Pharmaceutical Transactions
Enterprise
Price
Target Bidder Country Date Value P/Sales P/Ebitda P/Ebit PE
(USD m)
(USD m)
Teva
Barr Pharmaceuticals USA Pending 7,460 7,460 3.2 18.9 25.8 51.9
Pharmaceutical
Laboratorios Diba Perrigo Company Mexico 06/10/2008 250 250 - - - -
JB Laboratories Perrigo Company USA 16/09/2008 440 440 - - - -
Be-Tabs Ranbaxy
South Africa 08/05/2007 70 70 2.3 7.7 - -
Pharmaceuticals Laboratories
Ranbaxy
Terapia Romania 08/06/2006 324 335 4.2 12 - -
Laboratories
Eon Labs Novartis USA 21/07/2005 1,710 2,730 4.1 10.7 10.9 19.2
Median 3.65 11.4 18.4 35.6
Average 3.45 12.3 18.4 35.6
Source: Mergermarket.com
When we apply these transaction multiples to DHG, we arrive at a target price of VND 132,972
Valuation: VND 132,972 (around USD 8). The targets are generics producers, they are bigger and more established
companies, which can explain the higher price obtained. The total revenue 2007 of these
companies is from 2 to 28 times bigger than DHG’s total revenue.
www.jaccar.net 31
The distribution network

When talking about Vietnamese pharmaceutical companies, we found that the distribution
network is the most valuable asset they have, because it is unique to each company. In fact the
sales representative, in charge of the selling of the drugs, has established with its interlocutors,
doctors, hospitals, pharmacies, an unequaled relationship. To Jaccar, this exceptional partnership
is the value of DHG and may be the reason of future growth.
To value the distribution network, we looked at similar sectors using address book as main asset.
We found that the Private Banking sector works the same way. So we decided to use multiples
from Private Banking, knowing that only PE can compare with the Banking and the
Pharmaceutical sectors.
Private Banking Transactions

Enterprise
Price
Target Bidder Country Date Value PE
(USD m)
(USD m)
La Compagnie Financiere
Bank of China France Pending 330.4 1,654 10.5
Edmond de Rothschild Banque
BNP Paribas Private
Insinger de Beaufort Holding Luxembourg Pending 233.4 - -
Bank
Banca del Gattardo BSI Switzerland 10/03/2008 1,626 1,626 18.4
Banco Bradesco Fundacao Bradesco Brazil 05/03/2008 1,464 61,539 14.1

St Galler
Anglo Irish Bank Ireland 29/02/2008 225 225 -
Kantonalbank
Banco Bilbao Vizcaya Argentaria Banco de Sabadell USA 28/12/2007 69.6 69.6 -
Median 14.1
Average 14.3
Valuation: VND 69,145 The estimate given by this valuation provides a price target per share of VND 69,145
(USD 4.19).
CONCLUSION
Valuation per share summary
VND
VND USD
(incl. discount)
Sector-based Transactions: Pharmaceutical 132,972 113,026 6.85
Sector-based Transaction: Private Banking 69,145 58,773 3.56
Median 101,726 86,467 5.24

Source: Jaccar
Our target price is VND As a result, taking the sector-based transaction methods shown above, and using a 15% discount
86,467 (we applied a
country discount of 15%) on the prices, as a country discount, we arrive at a target price of VND 86,500 (USD 5.24). Our
and our recommendation recommendation is REDUCE.
is REDUCE.
There is no speculative The main shareholder, the SCIC, is willing to disengage from the company a little and to sell
aspect in the medium
term around 20% of its participation into the capital. DHG is sometimes considered as a blue chip on
the Vietnamese stock-market, as it is the biggest pharmaceutical company, a speculative aspect
on this stock may be possible. However this type of behavior has not been observed on DHG
stock for a long time.
www.jaccar.net 32
A CUSHY HISTORY
DHG Pharma (DHG) was first created as the pharmaceutical company of South West Province,
and grew safely as a pharmaceutical State company, with no real economical constraints to face.
A former State company

Established on the 2nd of September 1974 as the Pharmaceutical Company 2/9 by the Department
of Health of the South West Province, DHG main activity was to supply the regional market.
DHG had however a previous life during the war as an army company, in charge of the local drug
manufacturing. Between 1975 and 1976, DHG changed its name 2 times, becoming The
Pharmaceutical Company of the West of the Mekong Delta and then The Pharmaceutical
Company of the Health Department of Hau Giang Province. In 1976, the original Pharmaceutical
Company 2/9, split into 3 different entities: the Pharmaceutical Factory 2/9, the Pharmaceutical
Company and the Raw Materials Company. The 19th of August 1979, these 3 entities gathered to
become The Manufacturing Pharmaceutical Cooperation of Hau Giang (Xi nghiep Lien hop
Duoc Hau Giang). At that time, companies could not access technology, industrial equipments
were obsolete and saving money to invest in assets was not possible; products were made by
hand.
The 1988-1992 period was tough for DHG. With capital problems, weak technology and labor
strikes, the company had to change. Its strategy, marketing, management evolved. DHG sent its
key managers to study a Master degree, recruited students from HCMC University, hired Giang
people, known as very good sellers. And finally in 1992, the company grew into a government
trading company.
In 1996 when Vietnamese people started to be interested in local products, instead of foreign
ones, DHG saw its revenue increased significantly. Meanwhile since 2003, the company set up a
computerized system to ease administration work.
12 years on top of the The 2nd of September 2004, according to the People Committee of Can Tho, the Manufacturing
Vietnamese
pharmaceutical market Pharmaceutical Cooperation of Hau Giang became Hau Giang Pharmaceutical (DHG Pharma)
with a chartered capital of VND 80bn (USD 5m). It rapidly grew to become today the leading
Vietnamese pharmaceutical company in terms of revenue and listed on the HCMC Stock-
Exchange (HOSE) on the 21/12/2006. DHG has been the 1st Vietnamese pharmaceutical
company in terms of revenue for 12 years.
Board members own The board of management is chaired by Mrs. Pham Thi Viet Nga and 7 other members. Mrs Nga
0.89% of the company
and don’t use it is also the Board representative of the SCIC and Mrs. Loan is the representative for DHG Trade
Union. Their participation is small-scale and has been around these proportions since the listing.
None of these managers sold large quantities of shares recently.
DHG Board of Management (November 2008)

Position in the % of voting
Board Members Position in the company % of capital
Board rights
Phạm Thị Việt Nga CEO Chairman of the Board 0.29% 0.29%
Lê Minh Hồng Vice-president Board member 0.16% 0.16%
Lê Chánh Đạo Vice-president Board member 0.12% 0.12%
Nguyễn Thị Hồng Loan Manufacturing Director Board member 0.08% 0.08%
La Ngọc Vân Investment and Development Director Board member 0.08% 0.08%
Hà Mỹ Dung Quality Director Board member 0.07% 0.07%
Đoàn Đình Duy Khương Marketing Director Board member 0.06% 0.06%
Huỳnh Thị Kim Tươi Sales Director Board member 0.03% 0.03%
Source: DHG
DHG is now a joint-stock company, but has kept the government as major shareholder
represented by the SCIC (State Capital Investment and Trading Corporation) with 44.61%. The
www.jaccar.net 33
SCIC is a dedicated structure to manage all the participations of the Vietnamese State in the 876
public equitized companies.
The State is still the main In April 2008, DHG had 3600 shareholders. Foreign investors account for 40% of the capital,
shareholder with more
than 44.5% with 50 to 60 companies, among them Citigroup (5.98%), Vinacapital (2%), Dragon Capital
(4%). Domestic investors represent 15.66%. The State shareholding tends to decrease years after
years, from 51% in 2006 to 44.61% now, but will stay at significant level, at around 20%.
DHG Shareholders (07/11/2008)

Shareholder % of capital % of voting rights
SCIC 44.61% 44.61%
Employees 6.10% 6.10%
Domestic Investors 9.56% 9.56%
Foreign Ownership (50-60 companies) 39.74% 39.74%
Citigroup 5.98% 5.98%
Vinacapital 2.20% 2.20%
Dragon Capital 4.02% 4.02%
Indochina Capital 2.04% 2.04%
Deutsche Bank 1.06% 1.06%
Others 24.44% 24.44%
Source: DHG
The corporate structure of the company seems to Jaccar in accordance with what is observed on
the Vietnamese market today. Foreign investors don’t participate in the company’s decisions and
act as sleeping partners. The General Director is the decision leader.
Woman at the head

DHG has been managed by Mrs. Pham Thi Viet Nga since 1988, when she was elected director
after only 8 years in the company. This very strong and business oriented woman started working
for DHG 28 years ago. She was 14 years old when she joined the revolution and worked already
for the army predecessor of the Pharmaceutical Company 2/9. After the war in 1975, she was sent
to the Pharmaceutical University in HCMC. She graduated successfully and is now a Doctor in
Pharmacy and Economics. In 1980, she became the Head of Thot Not-Can Tho Pharmacy.
Mrs. Nga is a strong
Between 1986 and 1988, she was appointed Director of Pharmaceutical Logistic and Material of
woman multiplying the Hau Giang, later becoming the current DHG Pharma. Currently she is the CEO and Director of
positions the Board of DHG and also the chairman of Vinh Hao Seaweed, a subsidiary of DHG.
To some insiders of the industry, Mrs. Nga has somebody she can rely on and would be suitable
for the future. But Mrs. Nga is not leaving soon. In Jaccar’s opinion, she will stay in her current
position for at least 3 to 5 years.
Its succession is still not Meanwhile Mrs. Nga can count on 2 vice-presidents, Mrs. Le Minh Hong and Mr. Le Chanh
up to date but starts
questioning Dao, working for DHG since 24 and 19 years respectively and followed by numerous
experienced managers. Mrs. Hong is 49 years old and has worked for 24 years at DHG. She has
been vice-president and deputy director of Planning since September 2004. Mr. Dao joined DHG
29 years ago. At 49, before being appointed Vice-president and CFO in 2007, he was in charge of
Accounting. All the other managers of DHG entered the company right after graduation and the
average age is 42 years old.
The position at the Board of Management and the Board of Control is occupied for 5 years. A
change of manager, especially the General Director, would be decided by the Board of
Shareholders, knowing that a percentage of ownership is equal to same percentage of voting
rights. The next election will be held in April 2010.
www.jaccar.net 34
A radical turn
DHG is historically a manufacturing company. In 1992 when the company became a government
trading company, its revenue structure changed. In 1988, its manufacturing revenue accounted for
only 25.8% of the total revenue. Today, finished products’ sales represent 95% of the total
From trading to revenue.
producing
When DHG was established, a clear structure was in place in Vietnam. Some companies were
central pharmaceutical companies, such as the Central Company number 23 in HCMC, and their
activities were to produce certain types of drugs. There were around 25 factories of this type in
Vietnam. The rest of them were trading companies and DHG was one of them.
At that time, 90% of drugs consumed on the Vietnamese market were imported. In 2000-2002,
the government decided to promote local production to change this trend. The current
government’s objective is by the way that local production reaches 60% of the total Vietnamese
consumption by 2010. As a result, all domestic pharmaceutical companies started to manufacture
drugs. First companies were subcontractors to produce for foreign Asian pharmaceutical
companies from Korea or India, because the costs of production in Vietnam were cheaper. And
then local factories started to manufacture for themselves. Today, DHG is focused on
manufacturing and do only some importations.
As most of Vietnamese CEO, Mrs. Nga would like to diversify the business, sign of success and
prosperity. DHG always benefited from a strong support of the authorities, as it was formerly
under the protection of the recently deceased former Prime Minister, Mr. Vo Van Kiet. Today the
question can be asked whether or not the government will continue to support all the companies
of the pharmaceutical industry or if it will have to make a choice.
ON TOP OF THE MARKET

DHG is today the biggest Vietnamese pharmaceutical company in terms of revenue. In a very
fragmented market, with around 200 players, its market share is estimated at 5% of the total
Vietnamese pharmaceutical market and 10% among only Vietnamese companies. Their objective
is to increase this market share to 8-10% of the total local pharmaceutical market in the next few
years, by developing a stronger brand recognition and strengthen the availability of their products
nationwide.
Same same but different !

DHG production and equipments look like any other local pharmaceutical company in Vietnam.
However the manufacturer succeeded in becoming the first company on the market.
A wide range of products … too much?

DHG proposed 300 products under 12 different categories. Out of the 300 products, 200 are
manufactured in big quantities. 30 products are dedicated to hospitals.
Antibiotics lead the The production of DHG is like the production of every other domestic pharmaceutical company
revenue,
Food supplements the in Vietnam: generics and herbal medicine. In 2007, antibiotics and pain-relievers accounted for
sales 27% of the sales but 62% of the revenue. The other categories of products, like cardiovascular
drugs or respiratory drugs represented only 23% of the total revenue, whereas for Jaccar these are
the medicines with the most potential on the Vietnamese market in the future.
www.jaccar.net 35
Product share in revenue and in number of boxes (2007)
7%
14% 14%
14%
2% 13%
49%
25%
15%
13% 33%
1%
Antibiotics Pain-reliever Food Supplements Cardiovascular drugs Respiratory drugs Other
Source: IMS
No change forecasted in In Jaccar’s view, by 2010, the products portfolio will not change so much as antibiotics will stay
the product portfolio
the biggest part of revenue. However food supplements, including herbal medicine, will develop
as wanted by the company, decreasing the proportion of more specified treatment, like
cardiovascular or respiratory drugs.
Products share in revenues (2008 to 2010e)
6% 6%
7%
14% 14% 13%
2%
2% 2%
49% 49% 50%
16% 17% 17%
13% 13% 12%
Antibiotics Pain-reliever Food Supplements Cardiovascular drugs Respiratory drugs Other
Source: Jaccar
Gross Margin per product

80.00%
70.00%
60.00%
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
2007 Gross margin per products QI/2008 Gross margin per products QII/2008 Gross margin per products
Source: DHG, Jaccar
www.jaccar.net 36
Hapacol, DHG top seller DHG’s flagship product is Hapacol, a pain-reliever which exists under 30 different sub-
product (12% of total
revenue in 2007), categories. It’s almost the top selling product in number of boxes, after vitamin C, and the first
compete on the difficult one in terms of revenue for 2007. 5 of DHG’s products, Klamentin, Haginat, Hapenxin, Hagimox
market of the pain-killers and Eugica, account for around 40% of the total revenue in 2007 but only 17.4% of the number
of packs sold. 4 of these products, Klamentin, Haginat, Hapenxin and Hagimox are antibiotics
(amoxicillin and cephalexin), the most commonly found in the world. The most sold products,
along with Hapacol, are vitamins and anti-allergies drugs, with 47% of the number total of packs
sold in 2007. According to DHG, Hapacol accounts for 10% of the total revenue in 2008.
As a pain-killer the gross margin of Hapacol is around 60%, the net margin however is much
lower as there are lots of marketing expenses linked to the success. In 2008, the margin dropped
because of the sharp increase of paracetamol prices. In addition Hapacol must face fierce
competition from foreign products, like Efferalgan or Panadol, that Vietnamese prefer because
they are supposed to be more efficient and better quality and also thanks to big marketing
expenses.
Top Selling products (2007)

Revenue 2006 Revenue 2007 # of Packs 2007
Application Growth
(USD) (USD) (boxes)
HAPACOL Pain-reliever 1,928,652 10.1% 19.3% 2,300,013 12.0% 1,477,979 7.7%
KLAMENTIN Antibiotic 1,113,697 5.8% 70.1% 1,894,425 9.9% 427,116 2.2%
HAGINAT Antibiotic 1,068,482 5.6% 72.1% 1,839,188 9.6% 322,467 1.7%
HAPENXIN Antibiotic 1,785,324 9.3% -21.3% 1,404,158 7.3% 178,232 0.9%
HAGIMOX Antibiotic 1,012,949 5.3% 13.4% 1,148,547 6.0% 209,462 1.1%
EUGICA Herbal medicine 747,851 3.9% 48.6% 1,111,106 5.8% 735,765 3.8%
TOTAL 7,656,955 46.2% 26.6% 9,697,437 50.6% 3,351,021 17.4%

TOTAL Company 16,568,505 100% 19,177,645 100% 19,242,668 100%
Source: IMS
Production facilities
6 GMP-WHO production
Currently DHG has a manufacturing capacity of 3bn units/year, with 6 workshops, used at 85%.
facilities produce 300 The factories represent around 40% of the total gross fixed assets, i.e. VND 70bn (around USD
products 4m). These assets are depreciated at approximately 30%, knowing that VND 5bn (USD 300k) are
fully depreciated but still in use.
2 factories projects The company had a project of 2 new factories for 2008-2009, increasing the production capacity
suspended
to 5bn units/year, but the current difficult economic environment forced the company to postpone
these investments. All the existing plants have been accredited GMP-WHO, for some since
December 2006. As the accreditation is valid for only 2 years, DHG is at present in the process of
reapplying for the standards, which take 2 months and stop the activity of some part of the
factory for a while, but doesn’t really impact the production. According to the management, the
next factories to be built will be GMP-EU.
Externalization of the In addition to the production facilities, DHG invested in a packaging factory. In 2007, the
packaging via DHG PP
and Vinh Tuong company brought back 2 million shares, that is 20% of the chartered capital, to have a
Packaging Company participation in an existing packaging company, Vinh Tuong Packaging Company. 5 to 7% of
this subsidiary’s work is dedicated to DHG, which can benefit from a 5% discount price. In
addition, in March 2008, DHG established another packaging subsidiary, DHG PP. Previously
created as a department of the company, DHG PP took its independence. DHG PP’s work was
completely committed to DHG at 100%. But for 5 to 6 years, DHG PP has been working for
other companies, approximately at 10% of its revenue. Indeed, it brings a substantial profit. The
goal of DHG in these factories is to reduce its packaging costs with Vinh Tuong as packaging
represents more than 50% of drugs costs and to create a simpler legal environment for DHG PP
to diversify its clients.
www.jaccar.net 37
Foreign power
The raw materials needed for the drugs are imported 90%, from Europe, China, Japan. API
(Active Principle Ingredient) account for more than 30 to 40% of total sales. With a change of
Raw materials supply is 10% in the price of raw materials, the margin drops by 3.5 points. As a result DHG set up a
one of the key problem of
pharmaceutical network of suppliers, reliable, to secure the production, and implemented annual contracts with
companies, as it needs to them to assure the delivered quantities. One of these suppliers from the US even asked them to be
be imported
their executive distributor in Vietnam. Their supply chain is as a result quite secure. Meanwhile
prices vary according to the global market. In 2008, APIs’ prices increased by 26 to 30%. In
Jaccar’s view, 2009 will see another increase in the price of raw materials, as global prices will
rise again.
Regarding inventories, the industry standards stand around 3 months, DHG records an inventory
of a little bit more than 2 months, around 65 days per year. When buying raw materials, DHG
buys in large quantity, around 6 months of inventory. If the quality is good they can buy up to 9
months stock. Meanwhile DHG pays its suppliers very quickly, around 15 days maximum.
The two-headed beast

As for clients, even if hospitals are a very important market, especially for brand recognition in
DHG clients share the pharmacies, DHG makes the majority of its revenue on the OTC market (70%) with 20,000
between pharmacies and
hospitals is 70%/30% pharmacies nationwide. DHG set up yearly contracts with agents and pharmacies. Some can last
2, even 3 years but it is rare. The company claims that their products are available in all the
country, through agents and drugstores. The trade receivables register at 65 days, knowing that
hospitals request at least 3 months credit terms and pharmacies around 1 month.
A supply contract with a hospital imposes low selling prices and high receivables. In addition if
the pharmaceutical company wants to end the contract before its term, it has to pay fees to the
hospitals. In 2008 with the government’s spending tightening, hospitals record very late payment,
sometimes more than 6 months. For some pharmaceutical companies, it was cheaper to choose to
break the supply contract and pay the fees than continue working with hospitals. DHG kept its
hospitals clients and its products are now available in almost all public hospitals of the country.
Indeed hospitals are a key market as it allows political approval and economic success.
However the cash management is very tight. DHG pays its suppliers at 15 days but receives
payments at 65. As a result the working capital is imbalanced and the free cash flows are always
negative.
Working Capital
Inventories 65 days
Clients 65 days
Suppliers 15 days
Change in Working Capital (m VND) – 2007 86,292

% of Gross Cash Flows from Operations 63%
Source: Jaccar
The sinew of war

Owning its distribution Regionally, the revenue is divided between the 3 main Vietnamese regions, with a domination of
network is today DHG’s
priority the South (Mekong Delta and HCMC). Historically located in the South, DHG now makes a quite
important part of its revenue in the North, compared to some of its direct competitors
(Imexpharm = 17% and Domesco = 9%).
www.jaccar.net 38
Revenue Geographical breakdown
29%
45%
26%
North Center South
Source: DHG
This is mainly explained by the share of the distribution network. The group had developed a
strong distribution network. At the end of 2007, the company was hiring 350 medical sales
representatives. In August 2008, this number jumped to 700.
17 branches,
3 pharmacies,
700 sales representatives, In addition to the employees, 17 branches and 3 pharmacies belong exclusively to DHG plus 21
21 agents, independent agents and 16 retail shops in hospitals. The company owns the biggest and most
16 retail shops in developed distribution network, with almost 60% of the branches and the distribution centers are
hospitals
located in the South.
Most of these branches have their own land, which increase the investment but also the value of
the company, especially for the land in big cities like HCMC and Hanoi, where land starts to
become a rare commodity. The land accounts for nearly VND 105bn (USD 6.4m), that is almost
46% of the fixed assets, bearing in mind that in Vietnam land is registered as “Land use right” in
the intangible fixed assets. The lease term of the land is 50 years. The expansion of the
distribution network is one of DHG’s longest projects. The average size of the branch is about
200 sqm and last year DHG bought land at market price to grow its distribution network. The 4
new offices opened this year represent an investment in land of almost VND 36bn (around USD
2m) in 2007.
Restructuration is also This structure is changing as DHG is restructuring its distribution network. In fact the company is
on its way by creating a
clearer subsidiaries modifying the legal status of the branches and making them subsidiaries. Through this
network reorganization, the manufacturer will ease the independence of different activities and as a result
allow them to look for other clients and so other revenues. DHG will focus on production and all
the other entities of the group will offer the services, like distribution, raw materials supply or
consumer care.
Currently DHG has 10 subsidiaries. The company has a clear method, including 3 different
models to set up a new subsidiary:
… Pharma = regional distribution subsidiary, for example, the newly created ST Pharma
in Soc Trang and DT Pharmal in Dong Thap;
DHG … = subsidiary proposing services for DHG and product diversification, like DHG
PP, a packaging factory;
www.jaccar.net 39
Joint-venture = cooperation with any company related to the healthcare industry, such as
hospitals, material supply, pharmaceutical companies. DHG own for the moment 30% in
Algua Vinh Hao, a seaweed company, and 20% in Clean Package Vinh Tuong, a
packaging factory. In addition, DHG also buy shares of local smaller pharmaceutical
companies to use their distribution network and production facility and to develop good
relationship with competitors. For the moment we don’t have enough information about
the details of the agreement between the group and these smaller companies regarding
production and quality control.
Subsidiaries (October 2008)
Source: Jaccar
A CLEAR STRATEGY TO FACE THE FUTURE

The Vietnamese market is today very unsecure for domestic companies: WTO, inflation,
currency, imports… They have to face lots of new challenges. DHG’s strategy seemed to be in
line with the economic environment: limit APIs’ imports and increase botanic raw materials local
production, focus on herbal drugs manufacturing, support local research, develop distribution
network, multiply partnership with foreign and local companies.
Save the margin and the cash

The economic situation of 2008 is difficult internationally. The subprime crisis in the US created
an international financial crisis, affecting all national economies in the world. Vietnam will suffer
like the rest of the world, especially since the WTO membership in January 2007, which induced
greater interaction with global market and less entry barriers. The US is the largest export market
for Vietnam, with nearly 20% of country’s export value, and is the largest investor. The impacts
on Vietnam will be strong and the cost of living will suffer. Moreover commodities’ prices rose
sharply, and raw materials and transportation costs are affected. 2008 and 2009 will be difficult
years worldwide and Vietnamese companies will see increase in their operating expenses.
Salaries, APIs, transportation may go up and the margin of pharmaceutical firms will fall.
www.jaccar.net 40
Cash savings
Limited investments to As a pharmaceutical company, DHG do not suffer from reducing exports as it is only a small part
keep the cash
of its revenue. But the rise of raw materials and salaries would have a huge impact on the
business and would induce the company to focus on core business, lower investments, reduce the
growth. DHG stopped lots of projects this year. Out of 10, 5 are suspended. Today, DHG focus
on a warehouse. Furthermore the company is putting money aside, VND 80bn (USD 4.8m) are
kept in cash and gold in case of emergency. In Jaccar’s view, DHG is staying in line with its
strategy, which already took into account the future economic difficulties the company will have
to face. In 2009, growth will be lower and Vietnamese companies, especially DHG, have to
understand that investment will have to slow.
Cash Balance and Free Cash Flow evolution – 2005-2011
$15
Millions
$5
Cash Balance
Free Cash Flow
2005 2006 2007 2008e 2009e 2010e 2011e
-$5
-$15
Source: Jaccar
The margin in trouble

In addition, in October 2005, the Vietnamese government introduced a new Pharmaceutical Law,
tightening pricing regulations and requiring approval from the Drug Administration to increase
their price by over 1%. Following complaints from customers and hospitals, in March 2008, the
government took a step further by putting a cap on drugs’ prices, and making any rise illegal.
Consequently pharmaceutical companies, local and foreign, cannot pass on the hike in production
costs, thus lowering the margin. Since, pharmaceutical companies and medicine suppliers haven’t
stopped asking for price increase. At the end of July, the Ministry of Health’s Drug
Administration received requests for 790 categories of medicines. It approved the price rise for
some 200 drugs by 5-10%. However some pharmaceutical companies didn’t wait for the approval
and a recent survey of drug retailers show many medicines increased in price by 11 to 80%.
Fixed selling prices, In accordance with the Health Ministry, DHG increased 24 of its products by an average rate of
increasing operating
expenses, 2008 saw 7%. This is not much compared to the input costs up to more than 25%. For Jaccar, API and staff
decline in margins, and it costs will continue to grow in 2009 and if the government still freezes drugs’ prices, DHG would
is forecast to continue not be able to keep its margin. In fact, according to Jaccar’s assumptions, the company will
release around VND 60bn (USD 3.6m) cash per year, which allow the company some
investments and dividends but no strong development.
Margin evolution
2005 2006 2007 2008e 2009e 2010e 2011e
Gross Margin 45.78% 67.44% 63.15% 59.64% 58.72% 59.12% 59.74%
EBITDA Margin 10.75% 12.69% 12.70% 8.31% 8.10% 8.42% 9.01%
Operating Margin 10.75% 11.18% 10.84% 6.75% 6.47% 6.97% 7.71%
Net Margin 9.96% 9.97% 9.98% 6.22% 5.16% 5.70% 6.86%
Source: Jaccar
www.jaccar.net 41
To reduce costs, DHG is DHG’s objective is now to reduce the costs of production, by reducing APIs’ imports. As API are
willing to develop its
local production of API essential in the production of drugs, domestic companies are completely dependent on external
factors. In 2008 prices of raw materials increased strongly and obliged domestic companies to
look for solutions, responses. DHG experienced an increase of 26 to 30% of its raw materials,
even with long-term contracts with suppliers, and for Jaccar, the impact in 2009 will still be
important. An increase of the prices of API of between 10 to 15% is forecast for next year. That
is why DHG is willing to decrease its chemical APIs’ imports. And the project is to restructure
the products portfolio, focus on top-seller products, with high market share and prestige.
Moreover as the production of API for herbal drugs is less subject to dependency, can be done in
the country and is encouraged by the government, DHG will develop its herbal products range. In
response the company is building relationships with local scientific researchers to buy new
medicine formula from plants. For example with the HCMC Medical University, DHG bought
the formula of Natugen, a drug from extract of papaya for digestive system diseases. These new
products tend to increase in the total revenue but will remain marginal compared to more sold
drugs like antibiotics (less than 10% of total revenue by 2010-2012)
Multiply partnerships
Local helpers
To create a network of DHG is developing partnership with other companies. By investments, the company buys shares
secondary companies,
DHG is taking a of small Vietnamese pharmaceutical competitors. The purpose is to strengthen the relationships
participation in small between DHG and these smaller companies and on top use their distribution network and their
Vietnamese production facilities. As this year the company doesn’t have enough money to build its own
pharmaceutical
companies factories, and because the volumes sold are still increasing, and also because small
pharmaceutical companies don’t have the finance to run their own manufacturing equipment,
DHG build a partnership with them and use their production plant. As a result DHG strengthens
its position as a reliable big pharmaceutical company among domestic companies and builds a
friendly circle. It also allows the company to develop its activities without large investments. At
the 19th of November 2008, DHG invested almost VND 37bn (USD 2.2m) in fellow
pharmaceutical companies.
Investments in other pharmaceutical companies (at 19/11/2008)

Chartered Capital Total Share % of Value Value
Company name
(VND m) owned capital (VND m) (USD)
Calapharco Pharmaceutical 30,000 655,000 21.83% 24,950 1,512,121
Ninh Thuan Pharmaceutical 2,132 40,558 19.02% 797 48,283
Nghe An Pharmaceutical 20,000 95,680 4.78% 3,923 237,750
Binh Duong Pharmaceutical 40,204 182,600 4.54% 4,287 259,806
Tra Vinh Pharmaceutical 63,000 67,800 1.08% 2,575 156,080
Cuu Long Pharmaceutical (Pharimexco) 9,719 2,520 0.26% 23 1,407
Tay Ninh Pharmaceutical 3,569 19,670 5.51% 222 13,452
Ba Ria Vung Tau Pharmaceutical - Cosmetic 5,000 70 4,242
TOTAL INVESTMENT 36,847 2,233,142
Source: DHG
Foreign partners
DHG is also trying to DHG is also looking for partnership with foreign companies, to be subcontractor, processor,
build relationships with
foreigners agent, or distributor. The company already received some propositions to create a joint-venture,
where the group would be the processor of the factory. But nothing has been concluded yet. For
Jaccar, this is a perfect way of development, both for the foreign party and for DHG. Indeed, with
the WTO membership, international companies will access Vietnamese market more easily and
the entry barriers will drop. As they are richer, bigger and have more experience, the only way
out for Vietnamese pharmaceutical companies is to be combined with them. And if on top of it,
Vietnamese companies have good production equipments, it will be more obvious for foreign
companies to go together with a domestic company rather than compete.
www.jaccar.net 42
As a result, to Jaccar’s mind, DHG is taking the right path by joining with foreigners. The
company has the 2 main advantages foreigners are looking for and that will make them set up
partnership with locals: good production equipment and facilities GMP-WHO standards and a
strong distribution network. According to the type of partnership, DHG can get something out.
As subcontractor and processor, the group can learn about new products, techniques, equipments,
processes. As distributor and agent, the company will be able to earn more regular money.
Diversification vs specialisation
Vietnamese market trend is to diversify, especially in real-estate and financial services. In 2007,
the stock-market was very high and most of the Vietnamese companies invested large amounts in
stocks, this includes pharmaceutical companies. Since the beginning of 2008, stock-market is
collapsing and companies now have to face huge losses and devaluations, which will impact their
financial statements. In 2007, regarding short-term investments, DHG invested mainly in risk-
free short-term deposit (less than 1 year) and in shares which encounter losses. In 1H08 the
company record provisions for VND 1.4bn (USD 85k). For the long-term investments, the
company took participations in fellow pharmaceutical companies last year. These are not
speculative investments; DHG wants to become a partner with these smaller companies, so it kept
it and increase it by buying other shares and creating new subsidiaries.
Regarding the operation of the company, business diversification is gratifying for the General
Director. It is often interpreted as a proof of know-how and shows she knows how to grab
opportunities when they arrive. Unfortunately sometimes too much diversification is bad for the
wealth of the company, especially in a context of economic crisis, and especially during the
development phase of the company (and not during the maturity phase). Indeed when
investments don’t match with the core business, there can’t be any synergies and it represents
only cash outflows.
Vietnamese pharmaceutical companies, like in the other sectors, want to diversify their business.
The tendency goes to traditional herbal medicines. All the companies we visited are developing
this activity. Some go further with aquaculture products, fertilizers, animal food, veterinary
products, alcoholic or soft drinks.
DHG is staying focused on the expansion of its activity. In fact the medium-short term strategy of
Staying focused on the the company is to focus on production and reduce investments. Lots of projects have been
core business and suspended this year and will start again when the company is able to make profits. Out of 10
vertical diversification is
the best way to keep the projects forecast in 2008, only 5 will go on, of which a warehouse with GSP (Good Storage
growth, to Jaccar’s view Practice) standards. The other investments, like a project of accommodation building for
employees, new offices, 2 factories, are delayed.
5 out 10 2008 projects

were suspended Status of 2008 projects
Investment (USD)
Projects Investment (VND) Status
(1USD=16,500VND)
Betalactam factory 150 bn
9m Suspended
Non-betalactam factory (124bn building + 26bn equipment)
New offices
33 bn 2m Suspended
Accommodation for workers
Joint-venture with an hospital (expansion of the
40 bn 2.4 m Suspended
hospital)
Warehouse 25 bn 1.5 m In-process
Vinh Hao Processing Company 20 bn 1.2 m In-process
DHG Travel 3 bn 0.18 m In-process
DHG PP 5 bn 0.3 m In-process
DHG Nature 3 bn 0.18 m In-process
TOTAL Projects 279 bn 16.9 m

TOTAL Invested in 2008 56 bn 3m
Sources: DHG, Jaccar
www.jaccar.net 43
This strategy is, in Jaccar’s opinion, a smart move. Indeed with the global financial crisis, the
company has to keep the resources needed to promote the activity, to make it grow. Strategic
investments have to be forecast, and a diversification into new activities is not necessary. This
also shows that DHG can stay in line with what was said before and is reasonable in its expansion
projects.
www.jaccar.net 44
FORECASTS
Income Statement
Slowing Sales
Sales share
Lower growth of revenue

The sales share between products is based on 2007 figures where 49% of sales are antibiotics,
for the next 3 years than 13% are pain-killers, 15% food supplements and herbal treatments and 23% others. In 2008 this
historically observed products share changes because drugs prices increased, mainly on specified drugs that are more
unavoidable. Consumption decreased whereas antibiotics and pain-killers, more common
products, stayed attractive. As a result their proportion increased in the total revenue. For the next
years, DHG’s management is focusing on antibiotics, the biggest sellers, and herbal medicines.
The first will stay more or less constant in the sales share and food supplements will increase. As
pain-killers are a very easily consumable and a very common drug, their sales percentage will
remain the same, but other treatments will decrease.
Sales 2008e
Revenue 2007 % of Volume Price Revenue 2008
(VND m) revenue Growth Growth (VND m)
Antibiotics 629,753 49% 6% 7% 714,266
Pain-killers 167,077 13% 7% 7% 191,287
Food Supplements 192,781 15% 8% 9% 226,942
Cardiovascular drugs 25,704 2% 3% 10% 29,123
Respiratory drugs 179,929 14% 2% 8% 198,210
Other 89,965 7% 3% 7% 99,150
TOTAL SALES 1,285,210 1,458,978
Source: Jaccar
Sales 2009e
Antibiotics 714,266 49% 8% 3% 794,549
Pain-killers 191,287 13% 5% 3% 206,877
Other 99,150 7% 0% 5% 104,108
TOTAL SALES 1,458,978 1,627,857
Source: Jaccar
Sales 2010e
Antibiotics 794,549 49% 12% 5% 934,390
Pain-killers 206,877 13% 5% 2% 221,565
Other 104,108 6% 0% 5% 109,313
TOTAL SALES 1,627,857 1,869,825
Source: Jaccar
www.jaccar.net 45
Sales 2011e
Antibiotics 934,390 50% 12% 2% 1,067,447
Pain-killers 221,565 12% 10% 2% 248,596
Other 109,313 6% 15% 7% 134,510
TOTAL SALES 1,869,825 2,155,141
Source: Jaccar
Price effect
Prices will lower in 2009 In 2008 the prices of most drugs rose, between 11 and 80% on the Vietnamese market. In
and come back slowly
from 2010 accordance with the Ministry of Health, DHG increased its drug prices by an average rate of 7%.
Food supplements are the category which grew the most, as these products were cheaper
originally and Vietnamese people tend to buy them more easily in situation of costs reduction.
For 2009 to 2011, the price growth will slow down, but will stay healthy as the Vietnamese
market is characterized by high volume and low prices. The progression margin is high to reach a
more mature market. Prices of herbal medicine and specified drugs will grow faster because the
population is asking for the first ones and the second category benefits from a lower supply on
the market.
Volume effect
Volume, the driver of The volume effect is driven by an increasing demand for medicine in Vietnam. In 2008 with the
Vietnamese
pharmaceutical growth, price hike and the economic difficulties, volume growth slowed down a little and will remain
will slowdown in 2009 lower in 2009. But from 2010 and more specifically in 2011, the gain in volume will go back to
but will regain after. higher levels, as previously observed in the past. For Jaccar, food supplements’ volumes are
going to increase more than the other categories, as DHG is producing more and because of the
population’s demand for this type of product.
Raw materials on the rise

API prices will stay high The price of raw materials has been evaluated according to outside sources. 2008 has seen an
from next years, even
with the decline in oil incredible rise of price of API. Raw materials’ costs grew by more than 25%. The prices growth
prices is forecast to slow down in 2009, but will still stay high, especially for antibiotics and pain-
killers, due to high power of Chinese companies that lead the market. Food supplements’ API
will have a lower rise as most of it is produced locally in Vietnam. Moreover raw materials’ costs
are linked to the sold volume increase. The VND devaluation played a significant role in 2008
since 90% of API consumed in Vietnam are imported. DHG had to pay its supplier in USD. And
in June/July 2008 the exchange rate was skyrocketing, with a rate on the black market at 1USD
for 19,000 VND, the impact of the currency was substantial for a part of the year. In the future,
according to BMI the forex rate will not be against DHG.
Growing Personnel Costs

2,000 employees make With raw materials, personnel cost is the other big cost item. DHG employs in 2008 around 2,000
personnel costs an
important operating people. With an increase of 10% compared to 2007, this cost item is becoming very large. In
expense: +16% per year addition in 2008 the inflation was skyrocketing, with a forecast for the end 2008 of 25%. The
salaries will have to follow this trend to keep social peace into the company. DHG’s employees’
average salary is high in comparison with its competitors with VND 8.75m per month (USD 530)
vs USD 358 for Imexpharm and USD 197 for Domesco. In 2008 DHG implemented a new
remuneration plan for the sale representatives based on the cash brought back into the company
and not the contracts anymore. In addition to the fixed salary, these employees benefit from a
variable part and some allowances like lunch, transportation and even rent, to secure their stay in
the company and lower turnover. Until 2011, Jaccar planned an increase of the average salary of
10%, based on the average historical salary growth, and a rise of the number of 5% due to the
will of DHG to expand its distribution network.
www.jaccar.net 46
Preferential Corporate Income Tax

10% per year till 2014 DHG benefits from a special tax plan. The company is responsible to pay CIT at a rate of 20% on
taxable income for 10 years from its transformation into a joint-stock company, which happened
in 2004. In addition DHG is exempted from CIT for 2 years from 2005 and is reduced 50% the 5
following years.
On 21st December 2006, the company listed on the HCMC Stock-Exchange, so the CIT was
reduced 50% during 2 years.
As a result from 2007 to 2014, DHG enjoys a reduction of 50% of CIT, at 10%.
Balance Sheet
Constant Fixed Assets (22.88% of total assets in 2008e)
Fixed assets increase a In 2008, DHG lowered its investments because of economic difficulties. The company focused
little per year as no big
investment is forecast in on expanding its distribution network by establishing subsidiaries, on investments in fellow
the 2 coming years pharmaceutical companies and on one warehouse project. This warehouse required an investment
of VND 25bn (USD 1.5m) and was finished in November 2008. The other projects are for the
moment suspended but Jaccar forecast they will occur in 2009 and 2010. The tangible fixed
assets will consequently increase by VND 60bn (USD 3.6m) per year from 2009, depreciated
over 10 years.
Regarding the intangible assets, this item mainly concerns the land-use right, i.e. land purchase,
as in Vietnam land is the State ownership and the population can only rent it. This land-use right
has a lease term of 50 years. As DHG is willing to expand its subsidiaries network, Jaccar
forecast an increase of VND 5bn (USD 300k) of land-use right per year, depreciated over 50
years.
Construction in progress will increase in 2009 and after because of the resumption of the projects
like the factories.
Important Current Assets (58.94% if total assets in 2008e)

Current assets are big The turnover of the inventories is 65 days. DHG buy large stocks of raw materials to secure
part of the working
capital supply. It can buy up to 9 months inventories if the management finds out that the quality of a
supplier is good. The credit term for the clients is also quite long, with an average 65 days trade
receivable. Hospitals require at least 3 months to pay and pharmacies, 1 month. Hospitals are
known to be late in the settlement of debts. As a result the company records very long current
assets that burn its cash.
As the company doesn’t seem to want to change this situation, Jaccar’s forecasts for the next
years are based on historical average at 65 days.
Short Trade Payables (6.23% of total liabilities in 2008e)

15 days trade payable Meanwhile DHG pays its suppliers very quickly, at around 15 days in 2007. This situation is a
historically observed
major cash burner, even if the company succeeds in increasing this delay in 2007 compared to
2006. However it doesn’t seem to Jaccar that DHG has the power to influence its suppliers to
lengthen the term. This is the reason why our forecasts are based on an historical average at 15
days.
Shareholders’ equity (69% of total liabilities in 2008e)

No new issuance forecast The shareholder’s equity increases every year thanks to the growth of net profit minus dividends.
soon
DHG operates an increase in capital in 2007, from VND 80bn (USD 4.8m) to VND 200bn (USD
12m) plus premium of VND 379bn (USD 23m). The company doesn’t project another share
issuance soon.
www.jaccar.net 47
Debts (1.5% of total liabilities in 2008e)

Negative gearing ratio. The company used to finance its activity and investments by short-term loans. Except a decrease
Only short-term debt
in 2008 to VND 15bn (USD 909k), Jaccar’s forecasts include a short-term facility of VND 40bn
(USD 2.4m) as previously observed and a rise to VND 80bn (USD 4.8m) in 2011 to finance the
working capital and investments.
Historically DHG never contracted long-term debts, so we didn’t forecast any increase on this
item. The gearing ratio is negative at -18.26% in 2008
To conclude, the difficulties in the activities induce a sharp drop in the ROE and the ROCE from
2006, at respectively 54% and 32%, to 14% and 15% in 2008. In our forecasts, 2009 and 2010
see another decrease in these ratios, to 9% and 10% and an improvement could be seen only from
2011.
Cash-Flow Statement
Lowered Investments
Investments are lowered As explained previously, 2008 investments were lowered, especially in fixed assets. However
for the next 3 years
DHG invested by creating subsidiaries and buying shares of other pharmaceutical companies,
which caused financial investment to increase. From 2009 to 2011, Jaccar plans that the company
will restart its assets investments by VND 65bn (USD 4m) per year and stop financial
investments.
Substantial Dividends
Dividends 2008 has been For 3 years DHG has paid 25% dividends to its shareholders. In 2009, the company would like to
paid in 2008 (Nov and
Dec) lower the dividends but that they would still remain more interesting than bank deposit rates. As a
result Jaccar forecast a dividend rate at 15% par value. It is possible that a part of the dividends
will be given in shares but we didn’t forecast it. Indeed a new Personal Income Tax should be
effective from the 1st January 2009, which changes the taxable income basis. Revenue from
securities should now be taxable. As a result lots of listed companies are paying the 2008
dividends early and for next year some companies will distribute shares instead of cash.
www.jaccar.net 48
Company Profile Risks

DHG is the first Vietnamese pharmaceutical company in terms of revenue and the 7th on the Internal
Vietnamese market, according to IMS. Its main activity is to manufacture medical products. Thanks to • Stay focused on low-value medicine
GMP-WHO factories, DHG produces antibiotics and generic drugs. With a portfolio of more than 300 • Diversification into traditional medicine like the other Vietnamese pharmaceutical companies
products and a developed distribution network, DHG's main market is the South of Vietnam. The • Lighter political support
liberalization of the pharmaceutical market in the coming years thanks to WTO forced the company to
choose a development axis. DHG management chooses to strengthen the distribution network to make
External
it the widest Vietnamese one in the next future. The financial situation of the group is characterized by • 2009 will be a difficult economic year, a drop in people income will be noticeable
a high proportion of current assets and shareholders’ equity in the balance sheet, low ratio of debts and • Foreigners will access more easily the pharmaceutical market in the coming years, thanks to the WTO
a net margin historically around 10% but which will decrease in the next 2 years. • Depends on raw material importation, subject to the international market
www.dhgpharma.com.vn
Key Figures What's Up E

Geographical breakdown (sales) Division breakdown (sales) Company Q
• The company releases the 3Q08 results end of October: 9 months 2008 revenue increased by 31.5% yoy, but net
margin drop from 9.16% to 8.98%; U
6.8% • On November 4, the company announces an adjustment on the 2Q08 results, including a provision for bad debts of I
VND 1.56bn (USD 95k). At 3Q08, this provision reaches VND 8.56bn (USD 519k);
26.0% 13.6% 2008Dividends: Tranche 1 (10% par value) has been distributed on Nov 28 and Tranche 2 (15% of par value) will be T
on Dec 26th.
45.0%
2.0%
Y
49.0% Sector
• A recent survey from the Health Authorities in Hanoi shows that prices of drugs are starting to cool off and are now
T
15.6%
stable, due to slowdown in oil price. Some domestic drugs, especially pain-killers see their prices decreasing while
imported drugs continue to increase, but more slowly.
29.0%
13.1% • The shortage of doctors, medical staff, and hospital beds is getting more and more serious. HCMC and Hanoi I
hospitals are overcrowded (10 times more patients that they can handle), the other provinces lack educated doctors; P
• The Ministry of Health (MoH) and the Ministry of Industry and Trade (MIT) have agreed to work together to
South North Center
Antibiotics Pain-reliever Food Supplements
develop the pharmaceutical industry, by conducting scientific and technological research. S
Cardiovascular drugs Respiratory drugs Other
Efficiency profile Profitability profile Peers Comparison

VND bn In % VND bn In %
170,000 14.5 900,000 36
160,000 13.5
800,000 32
150,000 12.5
700,000 28
140,000 11.5
130,000 10.5 600,000 24
120,000 9.5
500,000 20
110,000 8.5
400,000 16
100,000 7.5
90,000 6.5 300,000 12

2006 2007 2008e 2009e 2010e 2011e 2006 2007 2008e 2009e 2010e 2011e
EBIT Op. margin Assets ROCE
www.jaccar.net 49
Income Statement (VND bn) - 2005 2006 2007 2008e 2009e 2010e 2011e
Sales - 556 873 1,285 1,459 1,628 1,870 2,155
% of growth - - 57% 47% 14% 12% 15% 15%
Price (%) - - - - 8% 4% 5% 3%
Volume (%) - - - - 6% 7% 9% 12%
Organic growth (%) - - 100% 100% 100% 100% 100% 100%
External growth (%) - - 0% 0% 0% 0% 0% 0%
Other income - (2) (5) (16) (15) (16) (19) (22)
Total Sales - 554 868 1,269 1,444 1,612 1,851 2,134
Change in inventories - - - - - - - -
COGS - 299 279 458 574 656 746 846
Gross Income - 255 589 812 870 956 1,105 1,287
% of growth - - 131% 38% 7% 10% 16% 16%
Other external costs - 195 346 476 540 602 692 797
Taxes - 0 0 0 0 0 0 0
Personnel costs - 0 132 173 209 222 256 296
EBITDA - 60 111 163 121 132 158 194
% of growth - - 85% 47% -26% 9% 19% 23%
Depreciation - 0 13 24 23 27 27 28
Reported provisions - - - - - - - -
Other incomes and charges - 1 0 0 0 0 0 0
EBIT - 61 98 140 99 106 131 167
% of growth - - 61% 43% -29% 7% 24% 27%
Interest income - 0 1 6 8 4 0 2
Interest expenses - 6 11 17 5 14 10 0
Interest balance - (5) (11) (12) 3 (10) (10) 2
Pretax Income - 55 87 128 102 95 121 168
% of growth - - 57% 47% -21% -6% 27% 39%
Income taxes - 0 0 0 10 10 12 17
Tax rate - 0% 0% 0% 10% 10% 10% 10%
Minority interest - 0 0 0 1 2 2 4
Associate income - - - - - - - -
Net income before extraordinary items - 55 87 128 91 84 107 148
% of growth - - 57% 47% -29% -7% 27% 39%
Extraordinary items - - - - - - - -
Net Income - 55 87 128 91 84 107 148
% of growth - - 57% 47% -29% -7% 27% 39%
Division breakdown / Sales (% of growth)
Antibiotics - - - - 13% 11% 18% 14%
Pain-reliever - - - - 16% 8% 7% 12%
Food Supplements - - - - 17% 19% 19% 18%
Geographical breakdown / Sales (% of growth)
South - - - - 14% 9% 12% 15%
North - - - - 14% 15% 15% 15%
Center - - - - 14% 12% 19% 15%
Cash Flow Statement (VND bn) - 2005 2006 2007 2008e 2009e 2010e 2011e
Net Income - 55 87 128 91 84 107 148
Depreciation and amortization - 12 14 23 23 27 27 28
Capital gains/losses on asset disposals - 5 11 14 - - - -
Others - (14) (21) (28) (19) (1) (1) (4)
Cash Flow from Operations - Gross - 59 91 138 95 109 132 172
Net change in operating assets & liabs - 28 66 86 6 74 65 20
Cash Flow from Operations - Net - 30 25 51 89 35 67 152
Gross CAPEX - 28 105 105 25 65 65 65
Net CAPEX - 27 104 105 25 65 65 65
Money spent on acquisitions - 0 1 98 70 5 5 5
Cash received from divestment - 0 0 10 50 0 0 0
Net financial investment - 0 1 89 20 5 5 5
Dividends paid - 8 14 39 70 30 30 30
Dividends received - 0 0 1 2 2 2 2
Others - - - - 2 1 2 1
FCF - (5) (95) (179) (26) (65) (33) 52
Increase in shareholder equity - 0 0 399 0 0 0 0
Excess Cash Flow - (5) (95) 219 (26) (65) (33) 52
Change in long term debt - 19 95 (124) (28) 25 0 (40)
Foreign exchange rate effect - (0) 0 0 - - - -
Net Increase (Decrease) Cash & Equivs - 15 (0) 95 (53) (40) (33) 12
www.jaccar.net 50
Balance Sheet (VND bn) - 2005 2006 2007 2008e 2009e 2010e 2011e
Gross tangible fixed assets - 70 116 169 194 254 319 384
Accumulated depreciation tangibles - 23 35 58 80 106 132 158
Tangible Fixed Assets - 46 81 111 114 148 187 226
% of growth - - 75% 37% 2% 30% 26% 21%
Gross intangible fixed assets - 9 62 106 111 116 121 126
Accumulated depreciation intangibles - 0 0 0 1 1 2 4
Intangible Fixed Assets - 9 62 105 110 114 118 121
of which goodwill - - - - - - - -
Long Term Investments - 0 2 38 85 85 85 85
% of growth - - 1,219% 2,276% 122% 0% 0% 0%
Construction work in progress - 2 5 12 5 10 10 10
Long term deposit - - - - - - - -
Long term prepaid expenses - 7 3 0 0 0 0 0
Long term assets - 0 0 1 1 1 1 1
Total Financial Fixed Assets - 7 5 38 85 85 85 85
% of growth - - -30% 671% 122% 0% 0% 0%
Fixed Assets - 64 153 268 315 358 401 443
% of growth - - 138% 75% 17% 14% 12% 10%
Inventories - 113 121 230 284 317 364 389
Trade debtors - 65 154 235 243 294 338 359
Prepayments - 6 11 3 20 23 26 30
Provisions - 0 (1) 0 0 0 0 0
Other debtors - 8 8 24 30 32 34 36
Cash Bank - 35 35 130 77 37 4 16
Marketable securities - 0 0 52 10 15 20 25
Accruals and deferrals - - - - - - - -
Current Assets - 228 330 674 664 717 785 855
% of growth - - 45% 104% -1% 8% 9% 9%
Shareholders Equity - 131 161 636 676 731 807 925
% of growth - - 23% 294% 6% 8% 10% 15%
Minority interest - - - - 3 5 7 7
Discretionary provisions - 0 0 1 2 1 1 1
Bonus and welfare funds - 0 9 16 16 16 16 16
Training funds - - - - - - - -
Fund for board of management - - - - - - - -
Other funds - 0 0 0 0 0 0 0
Provisions - total - 1 9 17 18 17 17 17
Debt - long term - 0 0 0 0 0 0 0
Debt - short term - 73 168 43 15 40 40 0
Debts - 73 168 43 15 40 40 0
% of growth - - 129% -74% -65% 167% 0% n/m
Accounts payable - 16 19 56 61 68 78 90
Other current liabilities - 71 126 190 206 215 237 260
Total Liabilities - 292 483 942 979 1,075 1,186 1,298
Treasury shares - - - - 7 8 8 8
Working capital - 105 150 245 311 382 446 465
% of growth - - 44% 63% 27% 23% 17% 4%
Average Capital Employed - 169 304 514 626 740 847 908
Off-Balance Sheet - - - - - - - -
Off-balance lease liabilities - - - - - - - -
Off-balance rental liabilities - - - - - - - -
Others Off-balance liabilities - - - - - - - -
Valuation (x) - 2005 2006 2007 2008e 2009e 2010e 2011e

EV/Sales - - 1.4 2.6 1.7 1.5 1.4 1.2
EV/EBITDA - - 11.2 20.5 20.2 19.1 16.2 12.9
EV/EBIT - - 12.7 23.9 24.9 23.8 19.5 15.0
PE - - 12.8 26.7 27.8 30.0 23.6 17.0
PEG - - - 109% 4% 8% -21% -28%
P/Book - - 6.9 5.4 3.7 3.4 3.1 2.7
Dividend yield (%) - - 1% 1% 3% 1% 1% 1%
www.jaccar.net 51
Per Share Data (k VND) - 2005 2006 2007 2008e 2009e 2010e 2011e
Shares outstanding (millions) - 8 8 19 20 20 20 20
Number of share fully diluted (millions) - - - - - - - -
EPS - Basic - Before extras - 7 11 7 5 4 5 7
EPS - Basic - After extras - 7 11 7 5 4 5 7
EPS - Diluted - Before extras - - - - - - - -
EPS - Diluted - After extras - - - - - - - -
Latest price - - 121.4 234.0 126.0 126.0 126.0 126.0
High price - - 158.6 276.5 227.0 - - -
Low price - - 121.4 114.9 92.5 - - -
Average price - - 138.8 182.0 126.0 126.0 126.0 126.0
Dividend per share - 1 2 2 4 2 2 2
Book value per share - 16 20 34 34 37 40 46
Cash Flow from Oper Per Share - Gross - 7 11 7 5 5 7 9
Cash Flow from Oper Per Share - Net - 4 3 3 4 2 3 8
Free Cash Flow Per Share - (1) (12) (10) (1) (3) (2) 3
Profitability Ratios (%) - 2005 2006 2007 2008e 2009e 2010e 2011e
Gross Margin - 46% 68% 64% 60% 59% 60% 60%
EBITDA Margin - 11% 13% 13% 8% 8% 9% 9%
Operating Margin - 11% 11% 11% 7% 7% 7% 8%
Net Margin - 10% 10% 10% 6% 5% 6% 7%
Division breakdown / Margins
EBITDA Margin
Antibiotics - - - - - - - -
Pain-reliever - - - - - - - -
Food Supplements - - - - - - - -
Operating Margin
Antibiotics - - - 46% 44% 45% 46% 46%
Pain-reliever - - - 12% 12% 14% 14% 13%
Food Supplements - - - 10% 10% 12% 13% 13%
Net Margin
Antibiotics - - - 46% 44% 45% 45% 46%
Pain-reliever - - - 12% 12% 13% 13% 13%
Geographical breakdown / Margins
EBITDA Margin
South - - - - - - - -
North - - - - - - - -
Center - - - - - - - -
Operating Margin
South - - - - - - - -
North - - - - - - - -
Center - - - - - - - -
Net Margin
South - - - - - - - -
North - - - - - - - -
Center - - - - - - - -
Solvability & Efficiency Ratios (%) - 2005 2006 2007 2008e 2009e 2010e 2011e
ROE - 42% 54% 20% 14% 12% 14% 16%
ROCE - 36% 32% 27% 14% 13% 14% 16%
Gearing - 29% 82% -22% -11% -2% 2% -4%
Equity / Total Assets - 45% 33% 67% 69% 68% 68% 71%
Pay-out Ratio - 14% 16% 30% 77% 36% 28% 20%
Interest cover - 10.5 9.9 9.4 22.5 9.2 15.6 n/m
Inventories (nb of days) - 73.6 50.3 65.3 70.7 70.7 70.7 65.7
Trade debtors (nb of days) - 46.1 68.6 67.5 65.7 70.7 70.7 65.7
Accounts payable (nb of days) - 10.7 7.7 15.9 15.2 15.2 15.2 15.2
Working capital (nb of days) - 104.9 106.6 116.2 116.2 121.2 121.2 111.1
Number of employees (FTE's) - - - 1,817 2,000 2,020 2,121 2,227
Sales / Employee - - - 698.6 722.2 797.8 872.8 958.0
EBIT / Employee - - - 76.9 49.4 52.3 61.7 74.8
Salary / Employee - - - 95.0 104.5 109.7 120.7 132.8
Bonus / Personnel costs - n/m 0.1 0.1 0.1 0.1 0.1 0.1
www.jaccar.net 52
Income Statement (USD m) - 2005 2006 2007 2008e 2009e 2010e 2011e
Sales - 33.37 52.38 77.11 87.54 97.67 112.19 129.31
% of growth - - 57% 47% 14% 12% 15% 15%
Price (%) - - - - 8% 4% 5% 3%
Volume (%) - - - - 6% 7% 9% 12%
Organic growth (%) - - 100% 100% 100% 100% 100% 100%
External growth (%) - - 0% 0% 0% 0% 0% 0%
Other income - (0.13) (0.29) (0.96) (0.88) (0.98) (1.12) (1.29)
Total Sales - 33.24 52.09 76.16 86.66 96.69 111.07 128.02
Change in inventories - - - - - - - -
COGS - 17.96 16.76 27.46 34.46 39.35 44.74 50.77
Gross Income - 15.28 35.33 48.70 52.21 57.35 66.32 77.24
% of growth - - 131% 38% 7% 10% 16% 16%
Other external costs - 11.69 20.74 28.55 32.39 36.14 41.51 47.84
Taxes - 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Personnel costs - 0.00 7.94 10.36 12.54 13.30 15.36 17.74
EBITDA - 3.59 6.65 9.79 7.28 7.91 9.45 11.66
% of growth - - 85% 47% -26% 9% 19% 23%
Depreciation - 0.00 0.79 1.43 1.37 1.59 1.63 1.69
Reported provisions - - - - - - - -
Other incomes and charges - 0.05 0.01 0.03 0.02 0.02 0.02 0.03
EBIT - 3.64 5.87 8.39 5.93 6.34 7.85 9.99
% of growth - - 61% 43% -29% 7% 24% 27%
Interest income - 0.02 0.03 0.35 0.50 0.24 0.02 0.10
Interest expenses - 0.34 0.67 1.04 0.32 0.86 0.60 0.00
Interest balance - (0.32) (0.64) (0.69) 0.17 (0.62) (0.58) 0.10
Pretax Income - 3.32 5.22 7.70 6.10 5.71 7.27 10.09
% of growth - - 57% 47% -21% -6% 27% 39%
Income taxes - 0.00 0.00 0.00 0.61 0.57 0.73 1.01
Tax rate - 0% 0% 0% 10% 10% 10% 10%
Minority interest - 0.00 0.00 0.00 0.05 0.10 0.14 0.22
Associate income - - - - - - - -
Net income before extraordinary items - 3.32 5.22 7.70 5.44 5.04 6.40 8.87
% of growth - - 57% 47% -29% -7% 27% 39%
Extraordinary items - - - - - - - -
Net Income - 3.32 5.22 7.70 5.44 5.04 6.40 8.87
% of growth - - 57% 47% -29% -7% 27% 39%
Antibiotics - - - - 13% 11% 18% 14%
Pain-reliever - - - - 16% 8% 7% 12%
Food Supplements - - - - 17% 19% 19% 18%
South - - - - 14% 9% 12% 15%
North - - - - 14% 15% 15% 15%
Center - - - - 14% 12% 19% 15%
Cash Flow Statement (USD m) - 2005 2006 2007 2008e 2009e 2010e 2011e
Net Income - 3.32 5.22 7.70 5.44 5.04 6.40 8.87
Depreciation and amortization - 0.71 0.85 1.38 1.37 1.59 1.63 1.69
Capital gains/losses on asset disposals - 0.31 0.65 0.83 - - - -
Others - (0.81) (1.27) (1.65) (1.11) (0.08) (0.08) (0.24)
Cash Flow from Operations - Gross - 3.53 5.45 8.26 5.70 6.56 7.94 10.32
Net change in operating assets & liabs - 1.70 3.95 5.18 0.34 4.44 3.93 1.19
Cash Flow from Operations - Net - 1.83 1.50 3.08 5.36 2.12 4.01 9.13
Gross CAPEX - 1.65 6.31 6.32 1.50 3.90 3.90 3.90
Net CAPEX - 1.62 6.27 6.27 1.50 3.90 3.90 3.90
Money spent on acquisitions - 0.01 0.09 5.89 4.20 0.30 0.30 0.30
Cash received from divestment - 0.00 0.00 0.57 3.00 0.00 0.00 0.00
Net financial investment - 0.01 0.09 5.31 1.20 0.30 0.30 0.30
Dividends paid - 0.48 0.84 2.34 4.20 1.80 1.80 1.80
Dividends received - 0.00 0.00 0.09 0.09 0.09 0.09 0.09
Others - - - - 0.09 0.09 0.09 0.09
FCF - (0.28) (5.70) (10.76) (1.54) (3.88) (1.99) 3.13
Increase in shareholder equity - 0.00 0.00 23.93 0.00 0.00 0.00 0.00
Excess Cash Flow - (0.28) (5.70) 13.16 (1.54) (3.88) (1.99) 3.13
Change in long term debt - 1.17 5.67 (7.47) (1.65) 1.50 0.00 (2.40)
Foreign exchange rate effect - (0.00) 0.00 0.00 - - - -
Net Increase (Decrease) Cash & Equivs - 0.88 (0.03) 5.70 (3.19) (2.38) (1.99) 0.73
www.jaccar.net 53
Balance Sheet (USD m) - 2005 2006 2007 2008e 2009e 2010e 2011e
Gross tangible fixed assets - 4.19 6.95 10.13 11.63 15.23 19.13 23.03
Accumulated depreciation tangibles - 1.41 2.09 3.45 4.80 6.36 7.92 9.48
Tangible Fixed Assets - 2.78 4.87 6.68 6.83 8.87 11.21 13.55
% of growth - - 75% 37% 2% 30% 26% 21%
Gross intangible fixed assets - 0.54 3.72 6.33 6.63 6.93 7.23 7.53
Accumulated depreciation intangibles - 0.00 0.00 0.02 0.03 0.07 0.13 0.26
Intangible Fixed Assets - 0.54 3.72 6.32 6.60 6.87 7.10 7.27
Long Term Investments - 0.01 0.10 2.29 5.10 5.10 5.10 5.10
% of growth - - 1,219% 2,276% 122% 0% 0% 0%
Construction work in progress - 0.10 0.30 0.73 0.30 0.60 0.60 0.60
Long term prepaid expenses - 0.42 0.20 0.00 0.00 0.00 0.00 0.00
Long term assets - 0.03 0.01 0.08 0.06 0.06 0.06 0.06
Total Financial Fixed Assets - 0.42 0.30 2.29 5.10 5.10 5.10 5.10
% of growth - - -30% 671% 122% 0% 0% 0%
Fixed Assets - 3.87 9.20 16.11 18.89 21.49 24.07 26.58
% of growth - - 138% 75% 17% 14% 12% 10%
Inventories - 6.80 7.28 13.82 17.02 18.99 21.81 23.35
Trade debtors - 3.87 9.26 14.13 14.59 17.64 20.26 21.55
Prepayments - 0.38 0.68 0.15 1.22 1.36 1.56 1.80
Provisions - 0.00 (0.03) 0.00 0.00 0.00 0.00 0.00
Other debtors - 0.48 0.49 1.42 1.80 1.92 2.04 2.16
Cash Bank - 2.13 2.10 7.80 4.60 2.22 0.23 0.96
Marketable securities - 0.00 0.00 3.12 0.60 0.90 1.20 1.50
Current Assets - 13.67 19.77 40.43 39.83 43.02 47.10 51.32
% of growth - - 45% 104% -1% 8% 9% 9%
Shareholders Equity - 7.84 9.68 38.14 40.59 43.83 48.43 55.50
% of growth - - 23% 294% 6% 8% 10% 15%
Minority interest - - - - 0.18 0.30 0.42 0.42
Discretionary provisions - 0.02 0.02 0.05 0.12 0.06 0.06 0.06
Bonus and welfare funds - 0.02 0.55 0.95 0.95 0.95 0.95 0.95
Other funds - 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Provisions - total - 0.03 0.56 1.00 1.07 1.01 1.01 1.01
Debt - long term - 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Debt - short term - 4.40 10.07 2.61 0.90 2.40 2.40 0.00
Debts - 4.40 10.07 2.61 0.90 2.40 2.40 0.00
% of growth - - 129% -74% -65% 167% 0% n/m
Accounts payable - 0.99 1.12 3.36 3.65 4.07 4.67 5.39
Other current liabilities - 4.27 7.54 11.43 12.33 12.91 14.24 15.58
Total Liabilities - 17.54 28.97 56.53 58.72 64.52 71.17 77.90
Treasury shares - - - - 0.39 0.48 0.48 0.48
Working capital - 6.28 9.02 14.73 18.65 22.93 26.76 27.89
% of growth - - 44% 63% 27% 23% 17% 4%
Average Capital Employed - 10.15 18.21 30.83 37.53 44.42 50.83 54.46
Valuation (x) - 2005 2006 2007 2008e 2009e 2010e 2011e

EV/Sales - - 1.4 2.6 1.7 1.5 1.4 1.2
EV/EBITDA - - 11.2 20.5 20.2 19.1 16.2 12.9
EV/EBIT - - 12.7 23.9 24.9 23.8 19.5 15.0
PE - - 12.8 26.7 27.8 30.0 23.6 17.0
PEG - - - 109% 4% 8% -21% -28%
P/Book - - 6.9 5.4 3.7 3.4 3.1 2.7
Dividend yield (%) - - 1% 1% 3% 1% 1% 1%
www.jaccar.net 54
Per Share Data (USD) - 2005 2006 2007 2008e 2009e 2010e 2011e
Shares outstanding (millions) - 8.00 8.00 18.83 20.00 20.00 20.00 20.00
EPS - Basic - Before extras - 0.42 0.65 0.41 0.27 0.25 0.32 0.44
EPS - Basic - After extras - 0.42 0.65 0.41 0.27 0.25 0.32 0.44
Latest price - - 7.3 14.0 7.6 7.6 7.6 7.6
High price - - 9.5 16.6 13.6 - - -
Low price - - 7.3 6.9 5.5 - - -
Average price - - 8.3 10.9 7.6 7.6 7.6 7.6
Dividend per share - 0.06 0.11 0.12 0.21 0.09 0.09 0.09
Book value per share - 0.98 1.21 2.03 2.03 2.19 2.42 2.77
Cash Flow from Oper Per Share - Gross - 0.44 0.68 0.44 0.28 0.33 0.40 0.52
Cash Flow from Oper Per Share - Net - 0.23 0.19 0.16 0.27 0.11 0.20 0.46
Free Cash Flow Per Share - (0.03) (0.71) (0.57) (0.08) (0.19) (0.10) 0.16
Gross Margin - 46% 68% 64% 60% 59% 60% 60%
EBITDA Margin - 11% 13% 13% 8% 8% 9% 9%
Net Margin - 10% 10% 10% 6% 5% 6% 7%
EBITDA Margin
Antibiotics - - - - - - - -
Pain-reliever - - - - - - - -
Food Supplements - - - - - - - -
Operating Margin
Antibiotics - - - 46% 44% 45% 46% 46%
Pain-reliever - - - 12% 12% 14% 14% 13%
Net Margin
Antibiotics - - - 46% 44% 45% 45% 46%
Pain-reliever - - - 12% 12% 13% 13% 13%
EBITDA Margin
South - - - - - - - -
North - - - - - - - -
Center - - - - - - - -
Operating Margin
South - - - - - - - -
North - - - - - - - -
Center - - - - - - - -
Net Margin
South - - - - - - - -
North - - - - - - - -
Center - - - - - - - -
ROE - 42% 54% 20% 14% 12% 14% 16%
ROCE - 36% 32% 27% 14% 13% 14% 16%
Gearing - 29% 82% -22% -11% -2% 2% -4%
Pay-out Ratio - 14% 16% 30% 77% 36% 28% 20%
Interest cover - 10.5 9.9 9.4 22.5 9.2 15.6 n/m
Number of employees (FTE's) - - - 1,817 2,000 2,020 2,121 2,227
Sales / Employee - - - 0.0 0.0 0.0 0.1 0.1
EBIT / Employee - - - 0.0 0.0 0.0 0.0 0.0
Salary / Employee - - - 0.0 0.0 0.0 0.0 0.0
www.jaccar.net 55
Domesco Medical Import & Export

JSC
Rating: REDUCE
TIGHTENING THE BELT
• DMC is the second largest Vietnamese pharmaceutical company on the
Company Data market today in terms of revenue, with an annual turnover 2008 of VND
Price, close (Dec 12, 2008): 53,000 VND 930bn (USD 55.8m). The group has been managed for more than 20
Price, close (Dec 12, 2008): 3.18 USD
years by Mr. Chanh, an ambitious businessman, who has turned a small
Market cap. (VND bn): 730 medical equipment company into the top 2 of the pharmaceutical market.
Market cap. (USD m): 43.79
•
Bloomberg code: DMC VN The product portfolio of DMC is no more original than its competitors
and comprises generics and food supplements. With more than 400
Company Contacts products manufactured today, the company is now restructuring its range
Mr. Huỳnh Trung Chánh (CEO) by decreasing its offer by 70%and focusing on high-margin drugs,
Mrs. Nguyễn Thị Tiến (CFO)
Phạm Ngọc Tuyền (IR) namely antibiotics, cardiovascular and diabetes medicines.
www.domesco.com
• Originally an importer, DMC kept a large portion of its revenue from
Shareholder structure imports and trading, only 52% of its sales coming from production. The
SCIC 34.50%
company imports drugs and medical equipments to supply hospitals and
Amersham Industries Ltd 12.64%
Vietnam Dragon Fund 6.93% pharmacies and is also a distributor for local pharmaceutical companies.
The distribution network of DMC is for the moment concentrated in the
Performance South, but it is one of the long-term objectives of the company to
200,000
180,000 develop it nationwide.
160,000
140,000
120,000
100,000 • DMC is currently in a restructuring process. The product portfolio, the
80,000
60,000
human resources, the investments are screened and reduced. At mid-
40,000
20,000
2008, the company wanted to diversify into 11 new businesses. Now the
0 strategy is “focusing on the core business” and experts and specialists are
12/06 3/07 6/07 9/07 12/07 3/08 6/08 9/08
approached to join the company to improve the efficiency.
P&L Highlights
• The financial situation at the end of the year seems weak, in Jaccar’s
(VND bn) 2006 2007 2008e 2009e 2010e opinion. According to our forecasts, next year investments will have to
Sales 662 813 930 1,041 1,203 be financed by bank loan. For 2009 to 2011, the operations won’t
EBIT 58 65 66 63 82 produce enough cash to finance large investments. However sales are
Op. Margin (%) 9% 8% 7% 6% 7%
Net Income 49 64 58 47 60 still growing and ROE and ROCE will remain at correct level.
Net Margin (%) 7% 8% 6% 4% 5%
•
Fixed Assets 106 150 232 276 289
Debts 52 3 4 54 54 The valuation of DMC was conducted via the Peer Comparison and
FCF (54) (79) (68) (45) (14) Sector-based Transactions methods, because for Jaccar DMC value lies
FCF yield (%) -46% -59% -129% -85% -27%
mainly in its distribution network. The multiples used give a target price
Key Ratios at 53,900 VND and our recommendation is REDUCE, due to risk of
(x) 2006 2007 2008e 2009e 2010e financial instability next year.
EV/Sales 1.8 2.0 0.8 0.7 0.6
EV/EBITDA 19.9 23.7 9.5 10.3 8.6
EV/EBIT 21.2 25.2 10.7 12.0 9.4 SWOT ANALYSIS
PE 25.0 27.1 12.7 15.8 12.3
Strengths Weaknesses
P/Book 5.8 4.0 1.7 1.5 1.4
ROE (%) 24% 15% 14% 9% 11%
• One of the top pharmaceutical companies in • Not consistent in their strategy
ROCE (%) 20% 18% 12% 9% 11%
Vietnam • No R&D
Div. Yield (%) 1% 1% 3% 3% 3% • A developed distribution network, especially in the • No reliability on the distribution network
Payout ratio (%) 16% 39% 43% 44% 34%
south • High price of raw materials and imported
products and selling prices fixed by the
government
Next Events
31/03/09 Shareholder meeting
25/12/08 Dividend
• Pharmaceutical sector is one of the government • International companies dominate the
Analyst favorites and will do everything to promote it Vietnamese market
GORGIARD Servane • International companies could be interested in • WHO deadline: in 2009 the market must open
81-85 Ham Nghi joint-venture or subcontracts with locals the distribution to international players
District 1 • Drug consumption is increasing • Difficult economic environment
Ho Chi Minh City
Tel: +84 8 39 14 90 60
sgo@jaccar.net
www.jaccar.net 56
VALUATION
The valuation of DMC was conducted using different methods:
- The DCF was not used as the FCF of the company are negative
- We looked at the peer comparison method
- The method using sector-based transactions seemed appropriate.
DMC is a manufacturer and a distributor. As the manufacturing equipment is basic and doesn’t
require high investments, we chose to evaluate DMC by its distribution network. In Vietnam,
distribution is based on personal relationship with the client; we decided to also use multiples
Private Banking, as it works in the same way for this industry too. An average of peer
comparison and sector-based transactions multiples seemed a good valuation method.
DCF
DMC’s Free Cash Flows are negative. The cash available from the company’s operations is spent
directly in investments to develop the subsidiaries, industrial projects and pay dividends. The
activities of DMC don’t allow, for the moment, any extra-cash.
Cash Flow and Free Cash Flow evolution (2005-2011e)
$5
Millions
Cash (USD)
$0
Free Cash Flow (USD)
-$5
Source: Jaccar
Indeed the working capital, the investments and the dividends consume the cash from operations.
• With three months inventory, 50 days of receivables and 40 days payables, the
company’s working capital is a cash burner that represents historically more than 60% of
the cash from operations. Indeed DMC buys each quarter its required stock and pays the
suppliers quite quickly, even if it’s among the longest of the industry. Meanwhile the
clients pay with longer terms than expected regarding the small share of hospitals. DMC
may have agreed on particular terms with them.
• Investments are also a big cost item, with an average 60% of the gross cash from
operations. The main expenses occurred in 2007 and probably in 2008, due to the set up
of some subsidiaries. As DMC is restructuring the company we expect the investments to
be lower in the near future.
• Finally dividends represent around 32% of the gross cash flow from operations. The
company distributes in general between 15 and 18% par value. In 2008 dividends are
expected at 15% par value and we took this assumption for the coming years too.
As a result, the FCF are negative, the company finances its next expenses via capital increase.
The valuation of DMC using the DCF methods is thus irrelevant.
www.jaccar.net 57
PEER COMPARISON
For the valuation of DMC with a peer comparison, we used two sets of different peers: one with
the biggest international generic producers and another one with smaller drug manufacturers
closer to DMC.
Peer Comparison
CIPLA Henan Lingrui
Source: Jaccar
The first set includes the biggest generic producers in the world, led by Teva, an Israeli company
Company's products include ointment, electuary, tablets and capsules. The Japanese Nissui
Pharmaceutical Co, Ltd. produces clinical testing reagents for medical institutions. The
Company also provides over-the-counter drugs and health foods.

Company Name
TEVA 34,334 3.12 2.57 - - - - 12.97 10.32 - 14.90 13.82 11.47

RANBAXY 1,798 1.39 1.17 0.95 14.47 11.92 8.09 14.81 12.02 6.68 21.08 15.12 10.39
BARR 7,098 3.09 2.62 - 10.99 9.80 9.18 16.75 13.66 - 22.42 17.48 16.03
DR.REDDY’S 1,625 1.41 1.22 1.01 8.87 7.55 5.83 12.53 10.22 8.49 14.37 12.24 10.25
CIPLA 2,957 - - - - - - - - - - - -
ZENTIVA 2,066 2.91 2.60 2.32 12.25 10.10 9.03 17.12 14.33 12.39 23.49 18.89 16.32
Median 2.91 2.57 1.01 11.62 9.95 8.56 14.81 12.02 8.49 21.08 15.12 11.47
Source: Bloomberg
Valuation: VND 52,971 With this peer group, we find a target price at VND 52,971 (USD 3.2).
www.jaccar.net 58

Company Name
Top Sun 112 - - - - - - - - - - - -

China Medical 85 1.22 0.96 0.77 3.97 3.06 2.38 4.48 3.51 2.51 5.49 4.21 3.05
AnHui Fengyman 139 - - - - - - - - - - - -
Dalian Merro 171 - - - - - - - - - - - -
Henan 215 - - - - - - - - - - - -
Nissui 172 - - - - - - - - - - - -
Median 1.22 0.96 0.77 3.97 3.06 2.38 4.48 3.51 2.51 5.49 4.21 3.05
Source: Bloomberg
Valuation: VND 15,880

The lack of information for this second peer makes the valuation not really relevant. For
information this method gives a target price of VND 15,880 (USD 0.96)
SECTOR-BASED TRANSACTIONS
To evaluate DMC, we used two sets of sector-based transactions: the Pharmaceutical sector and
the Private Banking sector. Indeed the value of DMC is in its distribution network, working
thanks to personal contacts, like Private Banking.
Pharmaceutical Sector-based Transactions

Price Enterprise
Target Bidder Country Date P/Sales P/Ebitda P/Ebit PE
(USD m) Value
AZ Tika GSK Sweden Pending 225 225 5.4 - - -
The Specials Laboratory
United Drug UK 18/11/2008 38 38 - - - -
Holdings

Be-Tabs
Ranbaxy Laboratories South Africa 08/05/2007 70 70 2.3 7.7 - -
Pharmaceuticals
Terapia Ranbaxy Laboratories Romania 08/06/2006 324 335 4.2 12 - -
Median 4.15 10.7 10.9 19.2
Average 4 10.13 10.9 19.2

Using this valuation, we reached at a share price of VND 68,261 (USD 4.14). We took out of our
calculation the acquisition of Barr by Teva, as these two companies belong to the top generics
producers in the world.
On the Vietnamese pharmaceutical market, as it relies on personal relationship and it is still quite
difficult for foreigners to have an impact, the distribution network is often assimilated to the
value-added of a local company. To evaluate this asset, we decide to choose a comparable
industry, which is Private Banking.
www.jaccar.net 59
Private Banking Transactions

Enterprise
Price
Target Bidder Country Date Value PE
(USD m)
(USD m)
La Compagnie Financiere Edmond de
Bank of China France Pending 330.4 1,654 10.5
Rothschild Banque
BNP Paribas Private
Insinger de Beaufort Holding Luxembourg Pending 233.4 - -
Bank
Banca del Gattardo BSI Switzerland 10/03/2008 1,626 1,626 18.4
Banco Bradesco Fundacao Bradesco Brazil 05/03/2008 1,464 61,539 14.1
Anglo Irish Bank St Galler Kantonalbank Ireland 29/02/2008 225 225 -

Banco Bilbao Vizcaya Argentaria Banco de Sabadell USA 28/12/2007 69.6 69.6 -
Median 14.1
Average 14.3

The Private Banking multiples gives a valuation of DMC share of VND 58,560 (USD 3.55).
CONCLUSION
Valuation Summary
VND
VND (incl. discount) USD
Sector-based Transactions: pharmaceutical 62,085 52,772 0.90
Sector-based Transactions: Private Banking 58,560 49,776 3.02
Median 63,411 53,899 3.27

Source Jaccar
When using the sector-based transaction valuation method and including a country discount of
Our target price is VND
53,900, with a country 15%, we find a target price of VND 53,899 (USD 3.27).Meanwhile the company reflects a risk in
discount and our its financial management and seems to need large cash inflows from 2009. As a result our
recommendation is
REDUCE because of
recommendation is REDUCE.
financial risk in the
short-term The speculative aspect of this stock is not obvious. The foreign shareholders are mainly sleeping
partners for the moment. It doesn’t seem that they want to sell out their position, but Korean
No speculative aspect,
but a probability that investment funds are in selling position today in Vietnam, due to favorable exchange rate.
some shareholders may Moreover some shareholders may wake up after the commitments of Vietnam to WHO would be
sell out completed.
www.jaccar.net 60
FROM THE PAST WITH LOVE

DMC is today among the leading pharmaceutical company in Vietnam. Previously a State-owned
company, DMC succeeds in developing a particular revenue breakdown, with 48% from trading.
Another Former State-owned Company

Established in July 1985 DMC was established on 4th of July 1985 as the Medical Material Company of Dong Thap
and equitized in 2004 Province by the People’s Committee of Dong Thap Province. The company was then importing
medical equipments to supply Dong Thap province’s hospitals.
Until its equitization on 1st January 2004, as Domesco Medical Import and Export JSC, DMC
changed its names five times and moved from a Medical Equipment Company to an
Import/Export Company.
DMC is the provincial The particularity of Dong Thap Province is that currently two pharmaceutical companies co-exist.
pharmaceutical company
in Dong Thap Province The trading and the production companies from origin didn’t merge. DMC is the former trading
company and stayed under the responsibility of the provincial health department, whereas
Imexpharm is the former production company and moved under the control of the Ministry of
Health.
Listed in December 2006, In December 2006, the company listed on the HCMC Stock-Exchange as the third Vietnamese
at unrealistic level of
valuation pharmaceutical company at VND 121,100 (USD 7.34), giving a high valuation of the company at
1.9 times the sales or 25 times the PE. Today DMC counts several foreigners holding its equity,
accounting for 46.18% of the capital. The SCIC, the State Capital Investment Company, is the
major shareholder, with a participation of 34.50%, from 51% in 2004.
Shareholders (September 2008)

% of % of voting
Companies Nb of shares
ownership rights
SCIC 4,750,650 34.50% 34.50%
EXIMBANK 599,993 4.36% 4.36%
VIETFUND MANAGEMENT 313,202 2.27% 2.27%
HSC (HCMC SECURITIES CORP.) 221,154 1.61% 1.61%
Other domestic shareholders 1,526,094 11.08% 11.08%
AMERSHAM INDUSTRIES LTD. 1,739,961 12.64% 12.64%
VIETNAM DRAGON FUND LIMITED 954,805 6.93% 6.93%
VOF INVESTMENT LTD 631,550 4.58% 4.58%
KITMC WORLDWIDE VIETNAM RSP BALANCED FUND 442,450 3.21% 3.21%
TEDIS SA 414,595 3.01% 3.01%
J.P.MORGAN WHITEFRIARS INC. 286,130 2.08% 2.08%
PCA INTERNATIONAL FUNDS SPC 253,440 1.84% 1.84%
TONG YANG VIETNAM PRIVATISATION TRUST FUND 1 249,260 1.81% 1.81%
BNP PARIBAS ARBITRAGE (HONGKONG) LIMITED 248,020 1.80% 1.80%
DAMS-GREYSTANES LIMITED 160,000 1.16% 1.16%
FULLERTON VPIC FUND 151,610 1.10% 1.10%
Other foreign shareholders 827,085 6.02% 6.02%
Source: DMC
DMC has been managed by Mr. Chanh for more than 20 years. The Board of Direction includes 5
members, elected for 5 years, nominated by the Chairman of the Board, himself elected by the
shareholders.
Mr. Chanh has been
managing DMC for more
than 20 years
www.jaccar.net 61
Board of Directors (April 2008)

% of voting
Name Position % of ownership
rights
Mr. Huỳnh Trung Chánh Chairman of the Board 0.96% 0.96%
Mrs. Nguyễn Thị Tiến Vice-chairman of the Board 0.63% 0.63%
Mr. Dương Văn Khuyến Board member NC NC
Mr. Nguyễn Văn Hoá Board member NC NC
Mr. Trịnh Hoài Giang Board member NC NC
Source: DMC
Like the directors of the two other big companies of the sector (DHG Pharma and Imexpharm),
Mr. Chanh has worked for DMC most of his life. Even if he is not going to leave the company
soon (more than 5 years) his succession is starting to raise questions. His number 2, Mrs. Tien is
more and more present in the decision process. The strategic orientation of the company is
decided by Mr. Chanh, who has a good long-term vision, even if the number of projects is
sometimes too much.
A specific combination
Almost 50% of the DMC has always been a trading company. In 2008, 48% of the total revenue came from sales of
revenue come from
trading merchandises with VND 389bn (USD 23.6m). Out of these merchandises, DMC imports drugs
that the company distributes by itself afterwards, but also medical equipments. These equipments
include big machinery for hospitals that the company provides through bidding and imports when
necessary and small equipments imported anyway and stocked. In addition DMC is also a
distributor for local products, which account for 36% of the total revenue in 2008.
This unique breakdown among the big Vietnamese pharmaceutical companies makes DMC a
strong competitor for distribution in the country.
THE BIG RESTRUCTURING PROGRAM: YES WE

CAN
DMC is in the process of At the beginning of year 2008, DMC had lots of ideas of development, diversification and
reorganization of the
company investments. The company wanted to diversify in 11 new businesses: fertilizers imports, water
waste treatment facility, veterinary products. With the economic crisis, the chairman decided to
stop all non-core investment and to restructure the company.
A product portfolio on diet

DMC currently proposes 400 products. Like the other Vietnamese pharmaceutical companies,
DMC produces mainly antibiotics and pain-killers, accounting for 55% of the total revenue of the
production. However DMC is very specialized in antibiotics. Indeed all the top seller products, in
revenue and in number of units are antibiotics.
Antibiotics are the main
drug produce and sell by
the company
Top Products
Revenue 2007 # of Unit sold
Application % %
(USD) 2007
CEFALEXIN (DSC) Antibiotic 1,024,184 8.88% 24,921,361 6.18%
AMOXICILLIN (DSC) Antibiotic 792,090 6.86% 25,020,312 6.20%
ZINMAX Antibiotic 718,030 6.22% 1,771,164 0.44%
CEFACLOR (DSC) Antibiotic 505,530 4.38% 4,392,844 1.09%
AMPICILIN (DSC) Antibiotic 487,299 4.22% 15,902,575 3.94%
DOROPYCIN Antibiotic 435,761 3.78% 4,536,932 1.12%
VOSFAREL Cardiovascular 409,508 3.55% 19,144,962 4.74%
CEFADROXYL (DSC) Antibiotic 326,876 2.83% 5,584,979 1.38%
AMLODIPIN (DSC) Cardiovascular 247,843 2.15% 8,501,607 2.11%
DOMITAZOL Genito-urinary system 244,813 2.12% 6,406,265 1.59%
TOTAL 5,191,933 45.00% 116,183,002 28.79%
TOTAL COMPANY 11,538,634 100% 403,498,077 100%
Source: IMS
www.jaccar.net 62
The revenue breakdown per product is not forecast to change a lot. Anyway the share of
antibiotics and cardiovascular will increase a little in the coming year, due to the focus of the
company on these two particular medicines.
Products breakdown – 2008 - 2009 - 2010

1%
1% 1%
31% 31% 32%

35%
36% 36%
5%
4% 4%
11% 4% 11% 11%
3% 3%
3% 3% 3%
2%
4% 1% 3% 4% 2% 3% 2% 3% 2% 3% 2%
Antibiotics Antidiabetic/Antihistaminic/Respiratory Medicinal herb Other
Cardiovascular Gastro-intestinal Imported products Trading (local products)
Analgesic/antiinflammatory Food supplement Export
Source: DMC
Big restructuring of the

portfolio: from 400
products to 120 The portfolio of DMC has currently been restructured and the goal is to move from 400 products
manufactured today to 120 by mid 2009, that is losing 70% of the existing products. The
management wants to focus on high-margin and profitable drugs, like antibiotics, analgesics,
cardiovascular and diabetes medicines. The marketing department will conduct market studies to
determine which products are successful and which are not. In Jaccar’s opinion, this focus is
needed as the number of products proposed is too big to develop the brand name, make a clear
marketing strategy, and manage the orders and stocks.
DMC today has 4 factories with GMP-WHO standards. The total capacity is 1.2bn units per year,
used at 80% capacity. Three of these production facilities manufacture drugs (non-betalactam,
cephalosporin, penicillin) and one is for food supplements, like vitamins. The company is
expanding its production capacity with the set up of a new non-betalactam factory forecast to be
operational in 2009. The objective of DMC is to reach 2 to 2.1bn units by 2011, including a new
liquid factory planned in 2010.
Main customers of DMC Most of DMC clients are pharmacies and hospitals account only for 20% of the total revenue.
are pharmacies but are
trying to re-target the According to some insiders of the market, the company targeted the hospital market at first but
hospitals moved to pharmacies. Today, management is trying to reach the public segment, even if hospitals
are known as a tough market (low prices, long credit terms). The receivables of DMC stay at 40
days of revenue. This is quite long in view of the low percentage of hospitals in the revenue.
Employees on the move

No hiring for 2009, but DMC today employs around 1,000 persons. The average salary is set at approximately VND 3m
move the employees
within the company and (USD 187) per month. This is quite low compared with competitors in the sector (DHG Pharma =
subsidiaries VND 7.9m, USD 480; Imexpharm = VND 4.9m, USD 298). The company is not planning to
increase its wage bill for 2009 but instead will requalify employees among the company. Some
office workers will move to the manufacturing department, DMC’s employees will work for the
subsidiaries like Domeval or Domepac.
DMC is looking for In addition the manufacturer is hiring experts to manage the strategic departments. The objective
experts to improve the
efficiency is to reach 6 to 10 by the end of 2009. In November, a Swiss person started working for DMC as
a financial expert and the company is now looking for a marketing specialist. For Jaccar, this
focus on key departments is the right strategy to improve the efficiency of the company by
reducing useless costs.
www.jaccar.net 63
Stop! In the name of … good sense

Restructuring of the Four months ago, DMC was thinking big. Now the watchword is core business. The company
investments too: only
core-business projects had investments and projects to diversify into 11 new businesses: cattle breeding, veterinary
will be studied from now products, drinks, medical tourism, real estate, medical school, etc. Even if these projects were in
line with the demand, logical and sensible, the company couldn’t develop everything. In fact the
effect of the economic crisis will lower the market growth, in Jaccar’s view, and companies have
to understand the difficulties this will bring and reduce the costs to focus on operations.
DMC stopped all non-core investments and will probably consider them later. Meanwhile some
projects are still on going to feed the growth. In fact DMC is restructuring its subsidiaries to set
up a group.
The management is also

trying to create a group New strategic structure
with subsidiaries like
hospital, packaging
factory and agricultural
facility
Source: DMC
DOMEDIC is a private hospital in which DMC is the major shareholder. The other shareholders
of this company are doctors working at the hospital. The group wants to expand the bed capacity
from 50 today to 100. In addition the objective is to specialize in endoscopic surgery. The project
for the moment is in the feasibility study stage and will not be implemented, in Jaccar’s view,
before the end of 2009.
DOMENAL is a structure dedicated to agricultural projects, like cattle feed, veterinary drugs or
aquatic products. Phase 1 calls for an investment of VND 140bn (USD 8.5m) and is supposed to
be finished at the end of 3Q09.
DOMEPAC is the external packaging facility. Today, DMC outsources its packaging to two
companies, including Vinh Tuong Clean Packaging Company. With DOMEPAC, DMC wants to
develop its own services provider, even if the subsidiary will not be used exclusively by the
group. The facility, developed in association with foreign experts from Hong Kong and Taiwan,
is supposed to be in operation by mid 2009.
In Jaccar’s opinion, these entities are separated from the current DMC, even if some
arrangements will be performed at the beginning, like redirecting employees from one company
to another. The accounting integration within the group is for the moment unsettled by DMC, as
no revenue has been brought yet. DMC will probably consolidate the revenue of its subsidiaries
in the future, publishing a proforma for the previous years. We didn’t include any sales forecasts
for these three subsidiaries in our predictions.
Furthermore DMC is building a “medical industrial park” in Can Lo on over 100,000 sqm land.
The group plans to build its own factories and also to develop joint-venture with foreigners.
DMC is signing a contract with an international company to establish a factory for injectable
products. The agreement stakes that DMC brings human resources and the distribution network
and the foreign partner will transfer the technology and R&D. Construction should start at the
beginning of 2009 and production would start in 2010. We didn’t take this new investment into
consideration in our forecasts, because of the probability of this project and lack of information.
www.jaccar.net 64
A project of joint-venture In Jaccar’s view, this project puts DMC is a good position regarding the future, as injectable
with a foreign company
may be signed soon products are not easily produced on the Vietnamese market. The group would have a strategic
position as the distributor of such products but also as the manufacturer who will get the
technology. Meanwhile some other local players in the pharmaceutical market in Vietnam seem,
for Jaccar, better positioned than DMC today.
THE FUTURE IS IN OUR HANDS

DMC is one of the current leading Vietnamese pharmaceutical companies. The strategy of the
group is now to restructure itself and focus on the core business, without excluding some key
developments. However the future is not clear for the moment. 2009 will be a difficult year.
Strengthen Distribution Network

DMC revenue mainly originates from the South, at 86% for 2007, with a large domination of
HCMC, with 55%. The Mekong Delta is also a strong market for DMC as its market from origin.
DMC has 6 branches in addition to its Head Office in Dong Thap. 50% of these branches are
located in the South (HCMC, Can Tho and Dong Thap); two are in the North (Hanoi and Vinh)
and one in Danang. The company employs also more than 200 medical sales representatives.
Each of the branches includes a warehouse with GSP.
Distribution mainly in
the South for now, but
the company is trying to Geographical Breakdown
develop it
4%
10%
86%
North Center South
Source: DMC
DMC relies on external In addition to its own distribution facilities, DMC works with local pharmaceutical companies to
distributors to reach the
whole country reach a nationwide coverage, like Thai Binh Medical Material Pharmaceutical, Binh Thuan
Medical Material Pharmaceutical or An Giang Pharmaceutical. The group also invests in these
smaller Vietnamese companies.
The expansion of the distribution network is the current preoccupation of most of the biggest
Vietnamese pharmaceutical companies. DMC is buying land to increase its number of
subsidiaries, but it is not its main goal, contrary to DHG Pharma for example. DMC is trying now
to strengthen its production capacity and to increase its partnerships with foreign companies. For
Jaccar, DMC has first to prove the quality of its equipments and products in order to attract
subcontracting and collaboration contracts, as IMP did.
www.jaccar.net 65
Look outside
Exports could be a Even if export is only a small percentage of the total revenue (1.2% in 2008), DMC developed a
growth potential for
DMC, as it already has wide network of distributors abroad. Indeed the company exports to 7 countries, in Asia and
some connection and Africa. The collaboration started in 2004 and DMC sent to each country a specific type of drug,
relationships with foreign for instance Japan asks for herbal medicine and food supplements, whereas in Laos or Myanmar
companies like TEDIS
DMC exports western drugs. In addition, the group is in the process of penetrating the American
market. Recently an American company contacted DMC to import 200,000 units of a generic to
the USA. The two future partners are now negotiating the details of the contract to finalize it. By
this agreement, DMC could enter the US market, willing to increase the consumption of generics.
On the other hand, DMC has developed a strong cooperation with TEDIS. In addition to being a
strategic partner with around 3% of the capital, TEDIS is also the exclusive distributor of DMC
products in Africa. This French company is a wholesale exporter who’s operating mostly in
France, Black and North Africa. DMC is also the exclusive distributor of TEDIS products in
Vietnam. The collaboration with TEDIS is, in Jaccar’s opinion, an opportunity for DMC as it can
strengthen the position of DMC’s products abroad and so diversify its revenue risks, knowing
that most of the countries in the world are asking for generics in this troubled time.
www.jaccar.net 66
FORECASTS
Income statement
Tired Sales
Sales will grow slower for The sales growth forecasts have been calculated according to 2007 division breakdown. 2009
the next year, driven by
antibiotics and food should be a difficult year, with a slowdown of the total revenue growth at 12%, with almost no
supplements price increases. Whereas most of the other categories will stagnate, herbal medicines and trading
will continue to grow in 2009.
From 2010, antibiotics, cardiovascular and anti-diabetic drugs and trading will continue to
increase by 10-20% in volume per year, as planned by the company. The price rise is low, as the
government forbids any unauthorized increase in price.
Sales 2008e
Revenue % of Volume Price Revenue
2007 revenue Growth Growth 2008
Antibiotics 253,472 31% 5% 7% 284,776
Cardiovascular 35,478 4% 4% 8% 39,849
Analgesic/anti-inflammatory 27,603 3% 5% 5% 30,432
Anti-diabetic/Antihistaminic/Respiratory 26,471 3% 5% 6% 29,462
Gastro-intestinal 18,960 2% 5% 6% 21,103
Food supplement 17,041 2% 30% 8% 23,926
Medicinal herb 8,626 1% 20% 8% 11,180
Other 32,528 4% 5% 8% 36,886
Imported products 91,728 11% 3% 12% 105,818
Trading (local products) 291,774 36% 5% 10% 336,998
Export 9,514 1% 5% 0% 9,990
100.00%
TOTAL 813,196 930,421
Source: Jaccar
Sales 2009e
Antibiotics 284,776 31% 15% 0% 327,492
Cardiovascular 39,849 4% 5% 0% 41,841
Food supplement 23,926 3% 10% 10% 28,950
Medicinal herb 11,180 1% 50% 10% 18,447
Other 36,886 4% 5% 0% 38,731
Export 9,990 1% 10% 20% 13,187
100%
TOTAL 930,421 1,040,793
Source: Jaccar
www.jaccar.net 67
Sales 2010e
Antibiotics 327,492 31% 15% 2% 384,149
Cardiovascular 41,841 4% 30% 5% 57,113
Food supplement 28,950 3% 8% 10% 34,393
Medicinal herb 18,447 2% 15% 10% 23,335
Other 38,731 4% 3% 5% 41,887
Export 13,187 1% 10% 10% 15,956
100%
TOTAL 1,040,793 1,203,099
Source: Jaccar
Sales 2011e
Antibiotics 384,149 32% 16% 1% 450,068
Cardiovascular 57,113 5% 20% 3% 70,592
Food supplement 34,393 3% 13% 5% 40,807
Medicinal herb 23,335 2% 15% 10% 29,519
Other 41,887 3% 7% 1% 45,268
Export 15,956 1% 20% 10% 21,062
100%
TOTAL 1,203,099 1,394,987
Source: Jaccar
Sizable COGS
COGS sold increase COGS represent almost 80% of the sales. The price of raw materials and of products imported
faster than sales,
lowering the margin was very high in 2008, due to increase in API and oil prices. From 2009 the rise will be lower
than in 2008 but still substantial, lowering the gross margin to below 20%.
Maintained Personnel Costs

No hiring in 2009, except DMC planned to keep its wage bill stable for 2009. However, we forecast an increase in average
for experts
salary due to the arrival of the experts, as desired by the company, with, one supposes, higher
salaries.
In Jaccar’s opinion, the number of employees and average salary will grow from 2010, by
respectively 5% and 10% per year.
Corporate Income Tax

CIT at 20% from 2009 DMC has the advantage to be entitled to a CIT of 20% only for 10 years from 2004. In addition
for 2 years after the IPO process in 2006, the company was exempted from tax, and had a 50%
reduction for the year 2008. From 2009 the CIT of the company should be 20%, until 2014.
Balance Sheet
Low Fixed assets (18.14% of total assets in 2008e)
Fixed assets will grow DMC’s fixed assets will grow every year, according to the investment forecast by the company.
slowly during the coming
years In 2009, the launch of the non-betalactam factory will be added to the fixed assets. For the
www.jaccar.net 68
following years, we estimates an increase of VND 30bn (USD 1.8m) per year in average for
investments in equipment and warehouses.
The intangible assets don’t experience the same growth as the tangible ones, as DMC is not
concentrating its efforts on buying land.
Long Current assets (59.62% of total assets in 2008e)

High inventories and DMC has developed long-term relationships with its suppliers and implements one-year
receivables burn the cash
of the company agreements to secure its API and products supply. However each contract is signed per quarter,
with a particular quantity and price. Consequently, DMC buys 3 months of materials and the
inventory record a turnover of 90 days, used in our forecasts.
Regarding the account receivables, DMC’s clients are mostly pharmacies, with an average credit
term of 30 days. 20% of the revenue comes from hospitals with payment terms of at least 90
days. The receivables turnover is however a little longer than expected with 50 days.
Longer Trade payables (16.25% of total liabilities in 2008e)

Good relationships with The average turnover of the payables is 40 days, including a payment term from the suppliers at
suppliers allows the
company to have 30 days 30 days and 10 days of advances from customers. DMC succeeded in creating a strong
payables relationship with its suppliers and its customers that allows the company to rely on longer terms
to finance its working capital.
Financial Structure
No new issuance forecast The shareholders’ equity represents 78.7% of the liabilities. It grew in 2007 thanks to a share
issuance of around 3m shares at an average price of VND 66,441(USD 4), knowing that the price
at that time approaches around VND 130,000. This capital increase gives a valuation of the
company at 0.25 times the sales. In our forecasts, we didn’t include any new capital increase.
VND 50bn (USD 3m) Regarding the debts, DMC doesn’t really rely on debt and prefers short-term financing, including
new debt in 2009
a VND 3b (USD 182k) short-term facility. Nevertheless, in Jaccar’s view, DMC will have to
increase its debt. As a result we forecast a VND 50bn (USD 3m) new long-term debt in 2009
with a rate of 10% and an increase of the short-term facility by VND 12bn (USD 727k) in 2011.
These assumptions were not confirmed by the company and may be subject to fluctuations.
As a consequence, ROE and ROCE drop in 2008 and 2009 to around 9% before taking an
uptrend after. Moreover in 2009, the gearing ratio becomes positive at 4.66% and continues to
increase to 9.72% in 2011.
Cash-Flow Statement
Light Investments
Low investment level The investments forecast by the company for the coming years are not very large. In our
planned, as the company
doesn’t seem to have forecasts, to limit the increase of financing needs, we include an investment of VND 70bn (USD
sufficient cash 4.2m) in 2009 and VND 40bn (USD 2.4m) in 2010 and 2011. These amounts are not high
compared to a) what the company wants to do and b) its competitors. 2009 investments include
the last part of the non-betalactam factory and the set up of DOMENAL. The following years, the
investments are not specific for one particular project but gather all kinds of small investments
DMC will have to make (warehouses, land purchase…)
Stable Dividends
Dividends at 15% par DMC is distributing a 15% par value dividend in 2008, which will represent 28.46% of gross
value for the next 3 years
cash-flow from operations. In our forecasts, we took the same assumption. Indeed, in Jaccar’s
opinion, DMC shouldn’t stop the distribution of dividends, knowing that the major shareholder,
the SCIC, is willing to see cash inflows.
www.jaccar.net 69

Domesco is a Vietnamese pharmaceutical company. Its main activities are to manufacture, import and Internal
distribute medical products and equipments. Thanks to GMP-WHO factories, Domesco produces • The manufacturing materials are weak, even with GMP-WHO, the products are cheap drugs
antibiotics and generic drugs. With a portfolio of more than 360 products and a developed distribution • The distribution network relies on personal relationship,
network, Domesco's main market is the South of Vietnam. After a period of crazy diversification, • Strong restructuration on going
Domesco is now restructuring the whole company, from HR to product portfolio, from financial
investments to projects. Indeed the company is now focusing on the core business and wants to lower
External
• The Vietnamese pharmaceutical companies produce mainly antibiotics, food supplements, generic and traditional
the expenses. The financial situation is correct even if a drop in net profit is expected. In addition the medicine drugs.
company will have to raise money from next year to develop the projects and investments. • Not very competitive compares with international players.
www.domesco.com • 90% of raw materials are imported

• End of Oct, the company released the 3Q08 results. The first 9 months revenue is VND 677bn (USD 41m), 73% of
4.0% 0.0% 0.0% 2008 target. However the net margin drops at 7.5% compared to 9% for the first 9 months 2007, due to higher selling U
expenses. I
10.0% • DMC announced the advance payment of the first tranche of 2008 dividends at 10% par value (VND 1,000/share) on
Dec 25th T
Sector Y
47.6%
52.4%
imported drugs continue to increase, but more slowly. T
• The shortage of doctors, medical staff, and hospital beds is getting more and more acute. HCMC and Hanoi hospitals
86.0%
are overcrowded (10 times more patients that they can handle), the other provinces lack educated doctors. I
• The Ministry of Health (MoH) and the Ministry of Industry and Trade (MIT) have agreed to work together to P
develop the pharmaceutical industry, by conducting scientific and technological research.
South North Center Sales of merchandises Finished goods Pure drinking water Other
S

110,000 9.0 600,000 22
100,000 8.5 550,000 20
500,000 18
90,000 8.0
450,000 16
80,000 7.5
400,000 14
70,000 7.0
350,000 12
60,000 6.5 300,000 10
50,000 6.0 250,000 8

2006 2007 2008e 2009e 2010e 2011e 2006 2007 2008e 2009e 2010e 2011e
www.jaccar.net 70
Sales - 569 662 813 930 1,041 1,203 1,395
% of growth - - 16% 23% 14% 12% 16% 16%
Price (%) - - - - 9% 1% 3% 3%
Volume (%) - - - - 5% 11% 12% 13%
Organic growth (%) - - - - 100% 100% 100% 100%
External growth (%) - - - - 0% 0% 0% 0%
Other income - (1) (3) (2) (3) (3) (3) (3)
Total Sales - 568 659 811 928 1,038 1,201 1,392
Change in inventories - 0 280 360 412 476 555 641
COGS - 461 246 279 329 374 423 481
Gross Income - 107 133 173 187 188 222 270
% of growth - - 24% 30% 8% 1% 18% 22%
Taxes - 0 1 1 1 2 2 2
Personnel costs - 0 20 31 37 41 47 55
EBITDA - 45 62 69 74 73 89 116
% of growth - - 38% 12% 7% -2% 22% 30%
Depreciation - 0 3 4 8 10 7 7
Reported provisions - 0 0 0 0 0 0 0
EBIT - 45 58 65 66 63 82 109
% of growth - - 29% 13% 2% -5% 30% 33%
Interest balance - 0 (5) (1) (2) (5) (7) (9)
Pretax Income - 45 53 64 64 58 75 100
% of growth - - 18% 20% 1% -10% 29% 34%
Income taxes - 9 5 0 6 12 15 20
Tax rate - 20% 10% 0% 10% 20% 20% 20%
Associate income - 0 0 0 0 0 0 0
% of growth - - 33% 34% -9% -20% 29% 34%
Extraordinary items - 0 1 0 0 1 1 1
Net Income - 36 49 64 58 47 60 80
% of growth - - 34% 32% -9% -20% 29% 33%
Sales of merchandises - - - 24% 14% 10% 12% 14%
Finished goods - - - 22% 15% 14% 19% 18%
Pure drinking water - - - 10% -100% - - -
South - - - - 14% 11% 16% 15%
North - - - - 14% 12% 16% 28%
Center - - - - 14% 40% 16% 16%
Net Income - 36 49 64 58 47 60 80
Capital gains/losses on asset disposals - 9 0 0 - - - -
Others - (1) (7) (16) 4 16 20 0
Net change in operating assets & liabs - 23 79 54 35 27 41 48
Cash Flow from Operations - Net - 32 (25) 9 35 45 46 39
Gross CAPEX - 26 23 43 50 30 30 30
Net CAPEX - 26 21 42 50 30 30 30
Net financial investment - (1) 1 28 29 40 10 10
Dividends paid - 6 8 25 25 21 21 21
Dividends received - - 0 7 - - - -
Others - - - - - - - -
FCF - 1 (54) (79) (68) (45) (14) (22)
Excess Cash Flow - 57 (37) 125 (68) (45) (14) (22)
Change in long term debt - (54) 38 (49) 1 50 0 12
Foreign exchange rate effect - - - - - - - -
Net Increase (Decrease) Cash & Equivs - 4 1 76 (68) 5 (14) (10)
www.jaccar.net 71
% of growth - - 17% 11% 64% 21% 17% 14%
% of growth - - 109% 1,917% 207% 67% 10% 9%
Long term prepaid expenses - - - - - - - -
Long term assets - 0 0 0 0 0 0 0
% of growth - - 109% 1,917% 207% 67% 10% 9%
Fixed Assets - 71 106 150 232 276 289 322
% of growth - - 49% 41% 55% 19% 5% 11%
Inventories - 116 162 213 233 260 301 349
Trade debtors - 52 88 111 129 145 167 194
Prepayments - 7 2 5 5 6 7 8
Provisions - 0 (0) (0) (0) (0) (0) (0)
Other debtors - 3 4 21 11 11 12 13
Cash Bank - 16 16 92 24 29 15 5
Accruals and deferrals - 1 2 1 0 0 0 0
Current Assets - 195 274 453 402 451 501 567
% of growth - - 40% 65% -11% 12% 11% 13%
% of growth - - 31% 112% -1% 15% 8% 11%
Minority interest - - - - - - - -
Discretionary provisions - - - - - - - -
Bonus and welfare funds - - 0 1 1 1 1 1
Other funds - - 16 28 70 30 30 30
Debt - long term - 6 3 1 1 51 51 51
Debt - short term - 8 49 2 3 3 3 15
Debts - 14 52 3 4 54 54 66
% of growth - - 260% -95% 30% 1,359% 0% 22%
Total Liabilities - 267 380 603 634 727 790 889
Treasury shares - - - - - - - -
Working capital - 84 150 212 247 274 315 363
% of growth - - 79% 41% 17% 11% 15% 15%
Valuation (x) - 2005 2006 2007 2008e 2009e 2010e 2011e

EV/Sales - - 1.8 2.0 0.8 0.7 0.6 0.6
EV/EBITDA - - 19.9 23.7 9.5 10.3 8.6 6.8
EV/EBIT - - 21.2 25.2 10.7 12.0 9.4 7.3
PE - - 25.0 27.1 12.7 15.8 12.3 9.2
PEG - - - 9% -53% 25% -23% -25%
P/Book - - 5.8 4.0 1.7 1.5 1.4 1.2
Dividend yield (%) - - 1% 1% 3% 3% 3% 3%
www.jaccar.net 72
Latest price - - 121.1 163.0 53.0 53.0 53.0 53.0
High price - - 121.1 177.0 167.0 - - -
Low price - - 114.2 83.1 48.5 - - -
Average price - - 118.4 133.3 53.0 53.0 53.0 53.0
Cash Flow from Oper Per Share - Net - 5 (3) 1 3 3 3 3
Free Cash Flow Per Share - 0 (5) (6) (5) (3) (1) (2)
Gross Margin - 19% 20% 21% 20% 18% 19% 19%
EBITDA Margin - 8% 9% 9% 8% 7% 7% 8%
Net Margin - 6% 7% 8% 6% 4% 5% 6%
EBITDA Margin
Sales of merchandises - - - 17% - - - -
Finished goods - - - 83% - - - -
Pure drinking water - - - 0% - - - -
Operating Margin
Net Margin
EBITDA Margin
South - - - - - - - -
North - - - - - - - -
Center - - - - - - - -
Operating Margin
South - - - - - - - -
North - - - - - - - -
Center - - - - - - - -
Net Margin
South - - - - - - - -
North - - - - - - - -
Center - - - - - - - -
ROE - 23% 24% 15% 14% 9% 11% 14%
ROCE - 23% 20% 18% 12% 9% 11% 13%
Gearing - -1% 18% -23% -5% 5% 7% 10%
Pay-out Ratio - 15% 16% 39% 43% 44% 34% 26%
Interest cover - 13.0 8.7 5.8 13.1 12.6 11.5 12.3
Number of employees (FTE's) - 0 0 959 1,007 1,007 1,057 1,110
Sales / Employee - n/m n/m 845.8 921.5 1,031.1 1,135.5 1,254.3
EBIT / Employee - n/m n/m 67.9 65.8 62.5 77.5 98.1
Salary / Employee - n/m n/m 32.2 37.0 40.7 44.8 49.3
Bonus / Personnel costs - - 0.0 0.0 0.0 0.0 0.0 0.0
www.jaccar.net 73
Sales - 34.16 39.72 48.79 55.83 62.45 72.19 83.70
% of growth - - 16% 23% 14% 12% 16% 16%
Price (%) - - - - 9% 1% 3% 3%
Volume (%) - - - - 5% 11% 12% 13%
Organic growth (%) - - - - 100% 100% 100% 100%
External growth (%) - - - - 0% 0% 0% 0%
Other income - (0.07) (0.16) (0.12) (0.15) (0.15) (0.15) (0.15)
Total Sales - 34.09 39.56 48.67 55.68 62.30 72.04 83.55
Change in inventories - 0.00 16.81 21.59 24.71 28.54 33.28 38.44
COGS - 27.66 14.76 16.72 19.72 22.45 25.41 28.89
Gross Income - 6.44 7.99 10.36 11.24 11.31 13.34 16.22
% of growth - - 24% 30% 8% 1% 18% 22%
Taxes - 0.00 0.06 0.06 0.08 0.09 0.11 0.13
Personnel costs - 0.00 1.22 1.85 2.24 2.46 2.84 3.28
EBITDA - 2.68 3.69 4.15 4.46 4.38 5.34 6.95
% of growth - - 38% 12% 7% -2% 22% 30%
Depreciation - 0.00 0.20 0.25 0.48 0.60 0.42 0.42
Reported provisions - 0.00 0.03 0.00 0.00 0.00 0.00 0.00
EBIT - 2.68 3.46 3.90 3.98 3.78 4.92 6.53
% of growth - - 29% 13% 2% -5% 30% 33%
Interest income - 0.22 0.14 0.64 0.21 0.03 0.02 0.01
Interest balance - 0.01 (0.28) (0.08) (0.13) (0.32) (0.45) (0.56)
Pretax Income - 2.70 3.18 3.83 3.85 3.46 4.47 5.97
% of growth - - 18% 20% 1% -10% 29% 34%
Income taxes - 0.54 0.33 0.01 0.39 0.70 0.90 1.20
Tax rate - 20% 10% 0% 10% 20% 20% 20%
Associate income - 0.00 0.00 0.00 0.00 0.00 0.00 0.00
% of growth - - 33% 34% -9% -20% 29% 34%
Extraordinary items - 0.02 0.06 0.03 0.03 0.03 0.04 0.04
Net Income - 2.17 2.92 3.85 3.49 2.80 3.61 4.81
% of growth - - 34% 32% -9% -20% 29% 33%
Sales of merchandises - - - 24% 14% 10% 12% 14%
Finished goods - - - 22% 15% 14% 19% 18%
Pure drinking water - - - 10% -100% - - -
South - - - - 14% 11% 16% 15%
North - - - - 14% 12% 16% 28%
Center - - - - 14% 40% 16% 16%
Net Income - 2.17 2.92 3.85 3.49 2.80 3.61 4.81
Capital gains/losses on asset disposals - 0.55 0.00 0.00 - - - -
Others - (0.04) (0.41) (0.98) 0.26 0.96 1.20 0.00
Net change in operating assets & liabs - 1.36 4.75 3.24 2.11 1.63 2.46 2.90
Cash Flow from Operations - Net - 1.91 (1.53) 0.53 2.12 2.73 2.77 2.33
Gross CAPEX - 1.53 1.35 2.55 3.00 1.80 1.80 1.80
Net CAPEX - 1.53 1.23 2.53 3.00 1.80 1.80 1.80
Net financial investment - (0.04) 0.03 1.69 1.74 2.40 0.60 0.60
Dividends paid - 0.33 0.47 1.50 1.49 1.24 1.24 1.24
Dividends received - - 0.01 0.45 - - - -
Others - - - - - - - -
FCF - 0.08 (3.25) (4.74) (4.11) (2.71) (0.87) (1.30)
Excess Cash Flow - 3.44 (2.21) 7.49 (4.11) (2.71) (0.87) (1.30)
Change in long term debt - (3.21) 2.25 (2.94) 0.05 3.00 0.00 0.72
Foreign exchange rate effect - - - - - - - -
Net Increase (Decrease) Cash & Equivs - 0.23 0.04 4.55 (4.06) 0.29 (0.87) (0.58)
www.jaccar.net 74
% of growth - - 17% 11% 64% 21% 17% 14%
% of growth - - 109% 1,917% 207% 67% 10% 9%
Long term prepaid expenses - - - - - - - -
Long term assets - 0.00 0.00 0.00 0.00 0.00 0.00 0.00
% of growth - - 109% 1,917% 207% 67% 10% 9%
Fixed Assets - 4.27 6.37 9.00 13.91 16.55 17.33 19.31
% of growth - - 49% 41% 55% 19% 5% 11%
Inventories - 6.97 9.71 12.77 13.96 15.61 18.05 20.92
Trade debtors - 3.11 5.30 6.65 7.75 8.67 10.03 11.62
Prepayments - 0.45 0.12 0.28 0.31 0.35 0.40 0.46
Provisions - 0.00 (0.03) (0.03) (0.03) (0.03) (0.03) (0.03)
Other debtors - 0.19 0.23 1.27 0.66 0.69 0.72 0.76
Cash Bank - 0.93 0.97 5.52 1.46 1.75 0.88 0.30
Accruals and deferrals - 0.07 0.14 0.05 0.00 0.00 0.00 0.00
Current Assets - 11.73 16.44 27.17 24.11 27.04 30.05 34.04
% of growth - - 40% 65% -11% 12% 11% 13%
% of growth - - 31% 112% -1% 15% 8% 11%
Minority interest - - - - - - - -
Discretionary provisions - - - - - - - -
Bonus and welfare funds - - 0.03 0.04 0.05 0.05 0.05 0.06
Other funds - - 0.97 1.67 4.20 1.80 1.80 1.80
Debt - long term - 0.38 0.17 0.04 0.04 3.04 3.04 3.04
Debt - short term - 0.49 2.95 0.13 0.18 0.18 0.18 0.90
Debts - 0.86 3.11 0.17 0.22 3.22 3.22 3.94
% of growth - - 260% -95% 30% 1,359% 0% 22%
Working capital - 5.04 9.02 12.71 14.82 16.44 18.90 21.80
% of growth - - 79% 41% 17% 11% 15% 15%
Valuation (x) - 2005 2006 2007 2008e 2009e 2010e 2011e

EV/Sales - - 1.8 2.0 0.8 0.7 0.6 0.6
EV/EBITDA - - 19.9 23.7 9.5 10.3 8.6 6.8
EV/EBIT - - 21.2 25.2 10.7 12.0 9.4 7.3
PE - - 25.0 27.1 12.7 15.8 12.3 9.2
PEG - - - 9% -53% 25% -23% -25%
P/Book - - 5.8 4.0 1.7 1.5 1.4 1.2
Dividend yield (%) - - 1% 1% 3% 3% 3% 3%
www.jaccar.net 75
Latest price - - 7.3 9.8 3.2 3.2 3.2 3.2
High price - - 7.3 10.6 10.0 - - -
Low price - - 6.9 5.0 2.9 - - -
Average price - - 7.1 8.0 3.2 3.2 3.2 3.2
Cash Flow from Oper Per Share - Net - 0.28 (0.15) 0.04 0.15 0.20 0.20 0.17
Free Cash Flow Per Share - 0.01 (0.32) (0.37) (0.30) (0.20) (0.06) (0.09)
Gross Margin - 19% 20% 21% 20% 18% 19% 19%
EBITDA Margin - 8% 9% 9% 8% 7% 7% 8%
Net Margin - 6% 7% 8% 6% 4% 5% 6%
EBITDA Margin
Operating Margin
Net Margin
EBITDA Margin
South - - - - - - - -
North - - - - - - - -
Center - - - - - - - -
Operating Margin
South - - - - - - - -
North - - - - - - - -
Center - - - - - - - -
Net Margin
South - - - - - - - -
North - - - - - - - -
Center - - - - - - - -
ROE - 23% 24% 15% 14% 9% 11% 14%
ROCE - 23% 20% 18% 12% 9% 11% 13%
Gearing - -1% 18% -23% -5% 5% 7% 10%
Pay-out Ratio - 15% 16% 39% 43% 44% 34% 26%
Interest cover - 13.0 8.7 5.8 13.1 12.6 11.5 12.3
Number of employees (FTE's) - 0 0 959 1,007 1,007 1,057 1,110
Sales / Employee - n/m n/m 0.1 0.1 0.1 0.1 0.1
EBIT / Employee - n/m n/m 0.0 0.0 0.0 0.0 0.0
Salary / Employee - n/m n/m 0.0 0.0 0.0 0.0 0.0
Bonus / Personnel costs - - 0.0 0.0 0.0 0.0 0.0 0.0
www.jaccar.net 76
Imexpharm Pharmaceutical JSC

Rating: REDUCE
SMALL IS BEAUTIFUL
Company Data • IMP is one of the top 3 Vietnamese pharmaceutical companies with a
Price, close (Dec 12, 2008): 62,000 VND total turnover 2007 of VND 454bn (USD 27.5m). The company has been
Price, close (Dec 12, 2008): 3.72 USD managed by Mrs. Dao, a strong business woman, for 24 years. Her
Market cap. (VND bn): 744 succession is in question, even if she will not leave before 2010.
Market cap. (USD m): 44.64
Bloomberg code: IMP VN
• The production of the group comprises generics and food supplements.
Antibiotics and pain-killers bring the biggest portion of the revenue at
Company Contacts 60%. IMP is also developing its traditional medicine range through the
Mrs. Tran Thu Dao (CEO) acquisition of the Remedica Center, which produces and researches
Mr. Nguyen Quoc Dinh (CFO)
Mr. Nguyen Quoc Dinh (IR)
herbal raw materials and new formulas.
www.imexpharm.com
• IMP is also known as the first Vietnamese pharmaceutical company to
Shareholder structure have been granted GMP certifications and has built its fame on that. Now
SCIC 26.04% the strategic development is based on the quality: of the equipment, of
Vietnam Holdings 6.00%
JP Morgan Whitefriars inc. 4.97%
the products and of the management.
Performance
250,000
• The main market of the group is the hospital market with 50% of the
revenue. The potential is large, with a growth of an average 40% per
200,000
year, but requires strong political support. Mrs. Dao is well-known
150,000
among decision-makers in the pharmaceutical industry in Vietnam and
100,000 has developed good relationship with its clients and suppliers.
50,000
0
12/06 3/07 6/07 9/07 12/07 3/08 6/08 9/08 12/08
• IMP’s biggest success is the production of under-licensed drugs for big
international pharmaceutical companies. Today the company is
manufacturing for 5 foreign companies, including Sandoz and
Pharmascience, signed an agreement with Sanofi for 3 products and is in
P&L Highlights
(VND bn) 2006 2007 2008e 2009e 2010e
negotiation with GSK.
Sales 527 454 547 613 700
EBIT
Op. Margin (%)
47
9%
58
13%
60
11%
53
9%
68
10%
• For Jaccar, IMP value stays in the production capacity, but also in the
Net Income 42 55 51 48 65 product portfolio and the management. As a result our valuation is based
Net Margin (%) 8% 12% 9% 8% 9% on the Peer comparison and the Sector-based Transaction methods,
Fixed Assets 44 99 175 282 377
Debts 4 4 4 44 24
which take into account the value of the company as a whole. Our target
FCF 46 (215) (35) (2) (91) price is VND 58,500 and our recommendation is REDUCE. We don’t
FCF yield (%) 56% -155% -56% -4% -147% believe in any speculative aspect of the share in the short-term.
Key Ratios
(x) 2006 2007 2008e 2009e 2010e
EV/Sales 1.1 2.7 1.3 1.2 1.1
EV/EBITDA 11.3 18.2 9.8 10.2 9.0
EV/EBIT 12.1 21.2 11.9 13.6 11.7
PE 15.8 23.7 14.4 15.5 13.5 SWOT ANALYSIS
P/Book 3.0 2.8 1.6 1.5 1.3 Strengths Weaknesses
ROE (%) 21% 12% 11% 10% 10% • Mrs. Dao is known as a very efficient manager, • Succession of Mrs. Dao issue
ROCE (%) 24% 17% 13% 9% 9% self-willed and determined • No reliability on the distribution network
Div. Yield (%) 1% 1% 3% 3% 3% • A reliable manufacturing equipment • High price of raw materials and imported
Payout ratio (%) 15% 15% 45% 49% 36% • A history of partnership with foreign companies products and selling prices fixed by the
government
Next Events
15/04/09 Results
Analyst • Pharmaceutical sector is one of the government • International companies dominate the
GORGIARD Servane favorites and will do everything to promote it Vietnamese market
81-85 Ham Nghi • International companies could be interested in • WHO deadline: in 2009 the market must open
District 1 joint-venture or subcontracts with locals the distribution to international players
Ho Chi Minh City • Increasing drug consumption • Difficult economic environment
Tel: +84 8 39 14 90 60
sgo@jaccar.net
www.jaccar.net 77
VALUATION
The valuation of IMP was conducted according to several methods:
- The DCF valuation was irrelevant as the company’s FCF are negative.
- We looked at similar companies to use the Peer Comparison method
- We didn’t choose the NAV method because of a lack of information of the details of
each production facility
- Sector-based Transaction in the pharmaceutical sector seems appropriate.
As IMP’s value is mainly its industrial equipment, but also in its products portfolio for potential
subcontracting, we chose to evaluate the company thanks to the Peer comparison and Sector-
based transaction methods because both of them reflect the total value of the company.
DCF
IMP records negative Free Cash Flow. Indeed the company releases cash from its activity, all the
available amount is reinvested into upgrade of the current equipment or expansion projects. The
manufacturer is developing for the future which creates a negative FCF situation. Consequently
the DCF valuation method is irrelevant
Cash and Free Cash Flow evolution (2005-2011e)
$10
Millions
$5
$0
Cash
2005 2006 2007 2008e 2009e 2010e 2011e
Free Cash Flow
-$5
-$10
-$15
Source: Jaccar
Peer Comparison
For the valuation of IMP with a peer comparison, we used two set of different peers: one with the
biggest international generic producers and another one with smaller drug manufacturers closer to
IMP.
Peer Comparison
CIPLA Henan Lingrui
Source: Jaccar
www.jaccar.net 78
The first set gathers the biggest generic producers in the world, led by Teva, an Israeli company
Company's products include ointment, electuary, tablets and capsules. The Japanese Nissui
Pharmaceutical Co, Ltd. produces clinical testing reagents for medical institutions. The
Company also provides over-the-counter drugs and health foods.

Company Name
TEVA 34,334 3.12 2.57 - - - - 12.97 10.32 - 14.90 13.82 11.47

RANBAXY 1,798 1.39 1.17 0.95 14.47 11.92 8.09 14.81 12.02 6.68 21.08 15.12 10.39
BARR 7,098 3.09 2.62 - 10.99 9.80 9.18 16.75 13.66 - 22.42 17.48 16.03
DR.REDDY’S 1,625 1.41 1.22 1.01 8.87 7.55 5.83 12.53 10.22 8.49 14.37 12.24 10.25
CIPLA 2,957 - - - - - - - - - - - -
ZENTIVA 2,066 2.91 2.60 2.32 12.25 10.10 9.03 17.12 14.33 12.39 23.49 18.89 16.32
Median 2.91 2.57 1.01 11.62 9.95 8.56 14.81 12.02 8.49 21.08 15.12 11.47
Source: Bloomberg
Valuation: VND 60,085 Using the first peer group, we get a valuation of IMP share at VND 60,085 (USD 3.6).

Company Name
Top Sun 112 - - - - - - - - - - - -

China Medical 85 1.22 0.96 0.77 3.97 3.06 2.38 4.48 3.51 2.51 5.49 4.21 3.05
AnHui Fengyman 139 - - - - - - - - - - - -
Dalian Merro 171 - - - - - - - - - - - -
Henan 215 - - - - - - - - - - - -
Nissui 172 - - - - - - - - - - - -
Median 1.22 0.96 0.77 3.97 3.06 2.38 4.48 3.51 2.51 5.49 4.21 3.05
Source: Bloomberg
The lack of information available through Bloomberg makes this valuation difficult. However we
find a share value of VND 17,544 (USD 1.06).
Sector-Based Transactions
By using the sector-based transaction valuation method, we can appreciate the total value of the
company, including its facilities, equipments, products, distribution.
www.jaccar.net 79
Out of all the last sector-based transaction in the pharmaceutical industry, we removed the
purchase of Barr by Teva, as the target company is one of the world’s biggest and so the
multiples available were irrelevant.
Pharmaceutical Sector-based Transactions
Price Enterprise
Target Bidder Country Date P/Sales P/Ebitda P/Ebit PE
(USD m) Value
AZ Tika GSK Sweden Pending 225 225 5.4 - - -
The Specials Laboratory
United Drug UK 18/11/2008 38 38 - - - -
Holdings

Ranbaxy
Be-Tabs Pharmaceuticals South Africa 08/05/2007 70 70 2.3 7.7 - -
Laboratories
Ranbaxy
Terapia Romania 08/06/2006 324 335 4.2 12 - -
Laboratories
Median 4.1 11.5 18.3 35.5
Average 3.8 12.3 18.3 35.5
This method gives a valuation of the IMP share of VND 75,534 (USD 4.58).
CONCLUSION
Today, IMP first selling argument is the quality of its products. This is the priority of the
company to attract new clients, domestic and international. As a result the main value of the
company is its production equipments and capacity like its product portfolio, but also its
management. The company as a whole has to be valued. In Jaccar’s view, the Peer comparison
and the Sector-based Transaction methods are the most relevant in this case.
Valuation Summary
VND
VND USD
(incl. discount)
Peer comparison group 1 18,062 15,352 0.93
Sector-based Transactions: pharmaceutical 75,534 64,204 3.89
Median 68,809 58,488 3.54

Source: Jaccar
With a country discount of 15%, Jaccar’s target price for IMP share is VND 58,500 (USD 3.54)
Our target price is VND and our recommendation is Reduce.
58,500 and
recommendation is
REDUCE. The main shareholders will stay in the capital of the company in the medium short-term. The
No speculative aspect of speculative aspect of this stock is not consistent.
the stock is expected.
www.jaccar.net 80
HISTORICALLY RELIABLE
The fame to be the first
IMP was first created as the Pharmaceutical Cooperative Company of Dong Thap by the Health
Department of the Dong Thap Province on the 28th of September 1983. At that time 70 people
worked for the company and produced the 10 drugs manually and most of the revenue was from
trading. The turnover was VND 30bn (USD 1.8m) per year.
First pharmaceutical In November 1992, the company changed its name and became the Pharmaceutical Company of
companies to have GMP Dong Thap, belonging to the People’s Committee of Dong Thap Province. From this moment
in Vietnam
IMP started a strong development with stable management, new equipments. The number of
employees increased to 200 and the total revenue to VND 150bn (USD 9m) per year. It is at that
time that IMP built the first certified pharmaceutical factory in Vietnam. In fact, in 1994, their
factory burnt. The management decided to build a new one and chose to apply the GMP (Good
Manufacturing Practice)-ASEAN criteria to be entitled to certification. It took 1 year and a half to
deliver the new plant, including training for the workers, and so IMP became the 1st
pharmaceutical manufacturer to apply GMP-ASEAN standards in Vietnam. Following that, the
company certified also for GLP (Good Laboratory Practice) and GSP (Good Storage Practice)-
ASEAN. In August 2006, the company achieved a new stage by implementing GMP-WHO.
Listed on HOSE in In July 2001, the State company was converted into a Joint-Stock company under the name
December 2006
Imexpharm with a capital of VND 22bn (USD 1.3m); and listed on the HCMC Stock-Exchange
on the 4th of December 2006.
Today IMP is famous for being the first company to implement manufacturing certifications and
good-quality products. Unfortunately, this fame starts to fade with the arrival of so many
competitors on the market, including 75 local companies with GMP. As a former State company,
IMP counts in its shareholders the SCIC, the investment management company of the State,
whose participation moved from 51% in 2001 to 26% now. For Jaccar, the SCIC will stay in the
capital of IMP, with a minimum percentage at around 20%.
IMP Shareholders (Nov. 2008)

% of capital % of voting rights
SCIC 26.04% 26.04%
VietHolding 6.00% 6.00%
JP Morgan Whitefriars 4.97% 4.97%
VFM 3.00% 3.00%
Other foreign shareholders 31.03% 31.03%
Management 0.10% 0.10%
Other domestic shareholders 28.86% 28.86%
Source: IMP
IMP is the State In Dong Thap province, two major pharmaceutical companies coexist, IMP and Domesco. This is
pharmaceutical company a unique situation, as theoretically every province has one, and one only, pharmaceutical
of Dong Thap province.
Strong political support manufacturer under the responsibility of Health Department of this Province. However, IMP
succeeded in developing in Dong Thap Province, along with Domesco, and became a State
company directly under the responsibility of the Ministry of Health. IMP benefits today from a
strong political support from the Ministry of Health and the Prime Minister.
No foreigners on the The management of IMP is leaded by Mrs. Dao, the General Director and two Vice-Presidents,
Board Mr. Tran Thai Hoang and Mr. Nguyen Quoc Dinh. The Board of Management comprises
currently 7 members. The Chairman of the Board is elected by the shareholders for 5 years. The
current mandate will end in 2012. On top of being Board Members, Mr. Dinh and Mr. Hoang are
also representatives of the SCIC in IMP Board. No foreigners are present, because none of them
wanted a seat.
www.jaccar.net 81
Board of Direction (Nov 2008)

Name Position in the Board Position in the company
Mrs. Tran Thi Dao President of the Board General Director
Mr. Nguyen Quoc Dinh Board Member Vice-president
Mr. Tran Thai Hoang Board Member Vice-president
Mrs. Lưu Thi Hanh Board Member Chief Accountant
Mrs. Nguyen Kim Phương Board Member HR Manager
Mrs. Nguyen Thi Thu Hong Board Member Head of HCMC Branch
Deputy President of the Health Department
Mr. Hoang Tha Phon Board Member
of An Giang Province
Source: IMP
The corporate governance observed in IMP is close to what is noticed on the market. Foreign
shareholders are sleeping partners and the political organs occupy high decision positions within
the company.
Mrs. Dao: strong leader

Mrs. Dao has been the General Manager of IMP for 24 years. This 56 years-old woman has the
reputation of being a very determined manager, who developed a strong enterprise culture within
her company and has a motherly attitude with her employees.
Mrs. Dao is an
impressive business For 7 years during the war, she worked for a military hospital. From 1974 to 1980 she went to
woman who succeeded in HCMC to study, first basic knowledge and got specialized in pharmaceutical. She worked for the
creating a strong
competitor on the Pharmaceutical Division in the Health Department in Dong Thap for 3 years and in 1984 she was
Vietnamese appointed General Manager of the future IMP.
pharmaceutical market
When talking to players of the industry, Mrs. Dao appears to be a reason why IMP is now a
leading pharmaceutical company in Vietnam. She is unanimously recognized as an efficient and
self-willed business woman, who succeeded in turning a small pharmaceutical factory into one of
the top pharmaceutical companies in Vietnam.
No successor yet The question of her succession is in every mouth. Indeed Mrs. Dao may leave the company soon,
from 1 to 3 years. The two vice-presidents, Mr. Dinh and Mr. Hoang, could replace her, as they
have been working of IMP for a long time, respectively 9 years and 18 years. According to some
insider of the market, Mrs. Hong, the Manager of the HCMC branch may be considered as a good
successor. To some other insiders, Mrs. Dao did not think specifically about anybody and there is
a great risk that the management changes completely with the arrival of some executives from the
Ministry of Health.
A token of trust
IMP has always been a partner with foreign companies. Indeed, its first partnership started at the
IMP has been working end of the 90’s with Sandoz. Today IMP is producing under-licensed drugs for five foreign
with foreigners since the companies. These contracts don’t induce more R&D development from IMP as most of the drugs
end of the 90’s
are generics and the company doesn’t have the ability to conduct R&D, except via the Remedica
Center for herbal products.
In addition IMP just signed a contract with Sanofi to produce three drugs (2 generics and 1 OTC
products) for 5 years and is in negotiation with GSK (GlaxoSmithKline) for another
subcontracting agreement. GSK has visited the facilities already three times and the two
companies are now discussing the products and the conditions.
www.jaccar.net 82
The contracts between IMP and the foreign companies agreed on quantity and prices during
annual discussion, but are not fixed. However the 2 companies need guarantees of production and
supply and a breach of contract implies fees, so it is not in their interests to end the contract.
Subcontracting contracts
Company Country Length of contract 1st contract Next renewal
Sandoz Switzerland 5 years 1999 2011
DP Pharma Iran 5 years 2003 2009
Innotech France 5 years 2007 2012
Robinson Pharma USA 3 years NC NC
Pharmascience Canada 5 years 2007 2012
Sanofi Aventis France 5 years 2009 2013
Source: IMP
In 2007, 20% of its revenue came from under-licensed products. These contracts guarantee to
IMP a certain level of work and revenue, even if the gross margin on this type of drugs is lower
than the one on IMP products, between 5 and 15% depending on the product. Indeed in 3Q08, the
Under-licensed products total revenue decreased by 25% mainly due to the decrease of under-licensed products sales.
accounts for 20% of the Meanwhile the gross margin appreciated by 13%.
total revenue
THE FINAL COUNTDOWN

The current situation of IMP is uncertain. The membership of Vietnam of the WTO in January
2007 induces a greater openness of the country by January 2009. The market will see more
foreign companies competing with the locals. Moreover the current economic crisis implies a
slowdown in the world but also on the Vietnamese market.
Some originality
Even if IMP looks like any other Vietnamese pharmaceutical company, the manufacturer has
developed some slight differences that make it a little innovative.
The under-licensed products

Like most of the other local pharmaceutical manufacturers in Vietnam, IMP produces the same
Antibiotics = 39%, range of drugs that are generics and food supplements. The antibiotics and pain-relievers account
Franchised products = for 60% of the total revenue. But IMP can also rely on the revenue from franchised (or under-
21% licensed) drugs, which account for 20% of the revenue.
www.jaccar.net 83
IMP Revenue breakdown from 2007 till 2009e

1.04% 1%
2.89% 3%
5% 4%
4.97%
20%
40% 22% 41%
20.80% 38.67%
3%
6%
1%
13.36% 13%
6% 20% 0.70% 11.95% 11%
3%
5.62%
Antibiotic Pain-killer Vitamin Special treatment Food supplement Franchised products Import Remedica Center Other
Sources: IMP, Jaccar
IMP’s most sold product is Mexcold, a pain-killer, which represents more than 15% of the
number of units sold in 2007, accounting for around 5% of 2007 revenue. IMP developed 4
different categories of Mexcold. The company doesn’t advertise a lot about this product
dedicated to mass public. When talking about pain-killers, foreign products are the most
recognized by the public, like Panadol or Efferalgan. Mexcold competes with these international
products and local ones, developed by the other Vietnamese pharmaceutical companies, such as
Hapacol from DHG Pharma, which relies on much stronger marketing expenses.
Top selling products

Opxil (antibiotic) and Application Revenue 2007 (USD) % # of units sold 2007 %
Mexcold (pain-killer) are
top products
OPXIL Antibiotic 942,930 13.87% 13,779,087 7.89%
PHARMOX Antibiotic 717,250 10.55% 13,247,244 7.59%
CEPHALEXIN (DP3) Antibiotic 456,800 6.72% 7,453,076 4.27%
MEXCOLD Pain-killer 351,050 5.16% 26,899,358 15.41%
ANDOL S Pain-killer 327,639 4.82% 12,471,857 7.14%
MAX-GO LUTEIN Vitamin 280,526 4.13% 2,944,262 1.69%
PROBIO Digestive treatment 274,476 4.04% 3,580,692 2.05%
ZANIMEX Antibiotic 231,167 3.40% 330,855 0.19%
CENTRIVIT Vitamin 230,078 3.38% 3,450,969 1.98%
CEDIPECT Pain-killer 216,970 3.19% 5,323,281 3.05%
TOTAL 4,028,886 59.27% 89,480,679 51.26%
TOTAL COMPANY 6,797,184 100% 174,566,313 100%
Source: IMS
However IMP advertises more on the quality of the company as a whole or on the number of
foreign companies working with them than on its products, to first develop the strength of quality
and reliability.
IMP’s communication
strategy is based on the
quality For the year 2008, the selling prices of IMP drugs have increased by around 10-15%. The biggest
rise comes from vitamins, because of a sharp rise in API prices. Pain-killers and antibiotics’
prices grew between 10 and 15%.
Quality of the equipments

IMP counts on one production center to manufacture all its products. This facility is located at
their head-quarter in Cao Lanh, Dong Thap Province and is accredited GMP-WHO. The total
production capacity is today 1.1bn units per year, used entirely. However the capacity can be
increased easily by changing the technology if needed. In 2008 the company already invested
VND 10bn (USD 606k) to improve the production capacity.
www.jaccar.net 84
An industrial equipment The equipments come new from Europe, Thailand, and China. As IMP is manufacturing under-
of quality, upgraded
recently licensed products, the company has to provide with good equipment quality and safe
environment. These contracts are a security that IMP’s industrial equipment is good quality, and
the manufacturing process follows the rules. When talking with international companies, IMP
appears to be one of the only Vietnamese companies to be able, one day, to be accredited with
GMP-FDA.
Interesting clients
Most of Vietnamese pharmaceutical companies get their revenue mainly from the pharmacies
50% of the revenue market (on average 70%). IMP has developed a particular combination, with a revenue coming at
comes from Hospitals, 50% from the hospital market and 50% from the OTC market. Indeed the company focuses its
due to strong lobbying of
Mrs. Dao production on hospital drugs. The access to hospital bidding process is quite difficult and very
competitive, but IMP has the right support at the Ministry of Health to become one of the hospital
drug suppliers.
And however trade The State-owned hospitals market is the biggest in Vietnam, with 978 hospitals and a growth of
receivable turnover is 40 40% per year. And even if the conditions are very tight and difficult (low prices, long payment
days
terms), the sale of drugs depends on it, as it is, in general, doctors in hospitals that prescribe the
treatments. Furthermore it brings recognition among the population. Focusing on that market is a
good strategic line but needs strong political support. IMP is in this situation and manages to have
around 40 days trade receivable which is a low turnover compared with its competitors (DHG
Pharma: 65 days, Domesco: 50 days)
The Binh Duong factory In addition the company is currently building a new factory in Binh Duong Province, near
will increase hospital HCMC, dedicated to the hospital market. This new facility will produce antibiotics
products availability for
IMP (cephalosporin) and asks for an investment of VND 110bn (USD 6.6m) and will be finished by
the end of 3Q09. IMP is at the moment in the process of buying the equipments and technology
from American, European and Asian firms.
South is the easiest

In the Vietnamese pharmaceutical market, the distribution network is often considered as a key
success factor for local companies. Indeed as the distribution of drugs is restricted for foreigners,
domestic companies have a wide path to develop without outside competition. Most of the
Vietnamese manufacturers are developing their network to face the deadline of January 2009
WTO commitment, when pharmaceutical distribution is supposed to be open for international
companies.
IMP is trying to develop IMP revenue comes mainly from the South, at 71%. Located in the Mekong Delta, it is the first
in the North and the market of IMP with 51% alone. The northern and central regions are not very developed and it is
Center one of IMP’s goals to strengthen its distribution there.
www.jaccar.net 85
Revenue geographical breakdown
17%
12%
71%
North Center South
Source: IMP
Distribution also via IMP currently owns 7 branches (2 in HCMC, 4 in the Mekong delta and 1 in Hanoi), 7 drugstores
external companies until in Dong Thap Province and 400 medical sales representatives. The company plans to increase its
to be able to build its own
branches number of branches to 13 by the end of 2009, to develop mainly in the center of Vietnam
(DaNang, Nha Tranh). In addition to its own subsidiaries, IMP also works with around 20
companies for distributions, such as Gia Dai Pharmaceutical in which the manufacturer invested
25.5% of the capital. IMP used the distribution network of these smaller Vietnamese
pharmaceutical companies where it doesn’t have any branches, with a long-term objective to
build its own distribution subsidiaries all over the country.
Each branch comes along with a warehouse GSP-WHO accredited. The land needed to develop
these branches is bought by the company at market price (only the land in Cao Lanh has been
given by the government at the set up of the company); only the land of one of the branches in
HCMC is leased. To achieve the expansion plan, IMP bought, in 2007 and 2008, 5 areas of land
in the Center and the South of Vietnam. The total investment needed is VND 70bn (USD 4.2m),
including the land already purchased.
Developing the distribution network is one of IMP’s targets but not the main objective. In fact, as
previously mentioned, the company is strengthening its reputation of quality and reliability. The
distribution network is developed in parallel and a project of partnership with foreigners to create
an external distribution company may be considered, to avoid intermediaries existing currently.
The never-ending raw materials problem

Good relationships with Like all the pharmaceutical companies in Vietnam, IMP imports 90% of its raw materials which
suppliers… represents 80% of the drug price. To secure its supply IMP works with 2 suppliers per products
and implements long-term contracts, in general 1 year. With these contracts, IMP and the supplier
agreed, at the beginning of each year, the quantity needed for the year and the margin that will be
applied to the international price of the API (Active Principle Ingredient). Then each quarter IMP
sends the order of the exact quantity with the price. Consequently, the manufacturer can secure
the quantity but not the price, as international prices of API move according to global factors. In
2008, IMP recorded an increase of 15% of its raw materials costs. It is lower than most of the
other pharmaceutical companies because IMP decrease its bought quantities to reduce the rise.
www.jaccar.net 86
In fact, as IMP is producing under-licensed drugs for foreign companies, the company has to
follow strict specifications, including buying high-quality API. As a result, IMP buys antibiotics’
API from European suppliers (Sandoz, ACS Dobfar…), paracetamol from an American supplier
(Mallinckrodt) and vitamins’ API from a Singaporean (DSM) and a German (Roche) suppliers.
The prices’ hike in 2008 forced the company to change its product share. The price of vitamins’
API increased so much at mid-year (+250%) that the company decided to slow down the
production, to reduce the purchase of API, to avoid increasing the selling price too much. Now
that the price of API decreased and is more stable, IMP will get back to its previous production
levels. This management shows, in Jaccar’s opinion, the quality of IMP’s directors that adapt the
production to the costs regarding the selling prices, in order to lower the impacts for the final
consumer.
… to lower the impact of In 2008, to reduce the impact of price increase, IMP bought large quantities of API. This is the
the prices’ fluctuation … reason why the inventory turnover for the first 9 months of 2008 reaches 158 days. As the price is
now stabilizing, inventories will probably decrease to reach a year-end number around 130 days,
and 120 days the years after, as previously observed.
The payment term of the suppliers is approximately 30 days, which is in line with the industry
… and enjoy longer
payment terms
standards, especially with foreign companies. Indeed some of IMP’s suppliers are also IMP’s
partners in subcontracting agreements, especially Sandoz. This testifies as well the good
relationships that exist between these companies.
A BEND TO TAKE
IMP’s current situation relies on some good fundamentals: contracts with foreigners, good
reputation and political support. But the economic crisis and WTO commitments could put the
company in a less secure position regarding its future.
Into traditional
Like the other Vietnamese pharmaceutical companies, IMP is developing its herbal medicine
range of products. The company plans to increase its herbal products to 10% of the revenue in
2010. In 2008, IMP launched 5 new products and 5 others are in the pipeline to be on the market
in 2009.
The Remedica Center to In 2007, IMP bought a research center, the Remedica Center in Dong Thap Muoi, for
develop API and drugs approximately VND 20bn (USD 1.2m). This center is dedicated to develop traditional medicine
for IMP own growth but by looking for new formulas and producing herbal API. The land is 10 ha and a factory is under
also its competitors
consideration. Currently around 100 people are working for the Remedica Center by planting,
harvesting, producing herbal API and formulas. The revenue for 9 months 2008 is VND 4.1bn
(USD 250k), namely 1.04% of the total revenue
This acquisition is, in Jaccar’s view, an intelligent move from IMP as the company is now self-
sufficient for its own supply in herbal API. In addition IMP supplies in herbal raw materials other
Vietnamese pharmaceutical companies such as DHG Pharma, Domesco or OPC Pharmaceutical.
IMP diversifies its activities vertically, to avoid intermediaries, and by supplying its competitors,
will benefit from their success without taking too many risks. In the future the earnings from the
Center will increase to some extend as the other Vietnamese pharmaceutical companies are
building their own facilities.
www.jaccar.net 87
Team work
For a long time IMP has been building partnerships with other companies: foreign
pharmaceutical companies, domestic pharmaceutical companies and local companies.
The Canadians in da place

Pharmascience wants to IMP has been in association with Pharmascience Canada since May 2007. The company is
be a long-term partner manufacturing generics for the North-American producer, 10 products in 2007 that will increase
to 30 by 2012.
In addition a factory project is in the negotiation process between the two companies. With an
investment of USD 10m, this production facility is IMP’s big coming project for the next 2 years.
Indeed currently the partners agreed on the design of the factory and discussed market research to
decide the type of drugs to be produced. These negotiations are scheduled to end by 2009 and the
factory to be in operation by 2011. As the drugs will be dedicated to the local market but also for
export, the facility will be GMP-FDA and GMP-EU certified.
USD 10m for a new Regarding contributions, IMP and Pharmascience haven’t agreed yet on the capital breakdown,
factory in joint-venture even if both of them will participate in the equity, and the Vietnamese manufacturer will bring
labor and local market expertise while the North-American trader will bring the technology. IMP
will have at least 51% of the capital of the newly created entity and bring the same percentage of
investment.
This joint-venture is a big step for IMP. The company seizes here a great growth potential, as it
reaches the North-American and European markets, which will be more and more attracted to
generics to decrease their health expenses.
Milk intrusion
An agreement with In 2007, IMP started the operation of the Imexmilk factory. Today only a part of this production
Bibica to produce milk facility is used (50%), 80% for Bibica and 20% for IMP products. Indeed the company has a
products contract with Bibica to manufacture its products, IMP being only the processor as Bibica supplies
the raw materials.
Regarding its own milk products, IMP is waiting for governmental approval to launch into the
market specific milk treatment, for sick and old people. IMP doesn’t target milk for babies.
For Jaccar, the diversification into milk treatment is smart from IMP. However the target should
not be high-end customers. Indeed this type of customer chooses its products according to the
brand name, usually foreign products. Regarding low-end consumers, lots of other Vietnamese
companies are entering this market, including Vinamilk, a very serious competitor. IMP will have
either to focus on hospitals or use subcontracting, because the company’s brand name is too weak
compared with Vinamilk.
Sowing IMP
Last year IMP did some financial but also strategic investments. Indeed the company bought
some stocks and participations in related companies.
Fellow listed companies
IMP invested in listed

IMP bought stocks of its direct competitors. The company now owns stocks of DHG Pharma,
companies, including Domesco, OPC Pharmaceutical. In addition IMP also bought stocks of other companies like a
some competitors cotton processing manufacturer which produces cotton buds, bandages, medical cottons. The total
www.jaccar.net 88
investments in these stocks accounted for VND 19bn (USD 1.2m) at the end of 2007. In 3Q08
stocks investments worth VND 8.6bn (USD 522k) in the balance sheet and the company recorded
a provision of VND 4.2bn (USD 234k). Anyway, IMP decided to keep these stocks in the long-
term and will not sell them now. Nevertheless these investments are recorded in Short-Term
Investments in the Balance Sheet.
Stock investment (3Q08)

Nb of % of Provisions 2008 Provisions 2008
Company Code Sector
shares capital (VND m) (USD)
DHG Pharma DHG Pharmaceutical 10,000 0.05% 1,041.80 63,139
Domesco DMC Pharmaceutical 22,500 0.16% 805.85 48,839
OPC Pharmaceutical OPC Pharmaceutical 16,380 0.21% 0 0
Vinh Hoan Corporation VHC Fish Processing 10,000 0.03% 208.00 12,606
Bach Tuyet Cotton Corporation BBT Cotton Processing 40,000 0.58% 729.86 44,234
Vietnam Securities Investment Fund VF1 Security Fund 50,000 0.10% 1,404.80 85,097
Source: IMP
Fellow pharmaceutical companies
IMP invested also in other smaller non-listed pharmaceutical companies, accounted in Investment
in Business Concerns and Joint Venture in the Balance Sheet. IMP uses them as distributors to
stretch its distribution network. As a consequence the manufacturer can secure its market share in
the Mekong Delta and rely on its other partners for the rest of the country.
Investments is small
pharmaceutical Investments (3Q08)
companies for a potential % of
take over Company Capital (VND m) Capital (USD)
capital
Gia Dai Pharmaceutical 26.00% 182 11,030
An Giang Pharmaceutical 25.50% 14,289 866,000
Soc Trang Pharmaceutical 25.50% 5,340 323,629
Source: IMP
In addition all these companies bring a supplementary activity to IMP. Indeed Gia Dai is a big
distributor, as well as An Giang, which also has a production line of tablets for future transfer of
production and Soc Trang is popular in ointments products successful in the local market. IMP is
today using the production facilities of these companies for simple products. As a shareholder,
the big manufacturer has a seat on the Board of Directors and supports its subsidiary with advice
on product quality control systems.
With these investments, IMP is building a network of affiliates to create a database of skills and
know-how to draw from. The company can thereafter focus on its most profitable or honorific
activities, like the production of antibiotics or under-licensed drugs for international companies,
and use its smaller partners like subcontracting companies for its other activities. Jaccar’s opinion
is that IMP would probably take over these smaller companies in the future.
www.jaccar.net 89
FORECASTS
Income Statement
Sales: Lower Growth … but still growth
Sales forecasts have been calculated according to the IMP’s 9 months 2008 breakdown. The
Lower growth in 2009
and 2010 but strong company objective 2008 of total revenue is VND 565bn (USD 34m). However we chose to lower
revenue sources via new this target as the total revenue 3Q08 states at VND 395bn (USD 23.9m), that is 70% of the total
subcontracting
agreements and the
objective. 2008 saw an increase in large selling prices, a lower production of vitamins due to high
antibiotics factory raw materials, the launching of herbal products and the establishment of the Remedica Center.
Sales 2008e
Antibiotics 181,770 40% 7% 10% 213,944
pain reliever 59,075 13% 2% 13% 68,090
vitamins 27,266 6% -13% 25% 29,651
Special treatment 54,531 12% 15% 15% 72,117
functional food 4,544 1% 5% 10% 5,249
franchised products 95,429 21% 8% 10% 113,370
Import 22,721 5% 8% 11% 27,238
Other 9,089 2% 40% 40% 17,813
TOTAL 454,426 100% 547,473
Source: Jaccar
For 2009, sales of drugs will probably stagnate. IMP would counter this effect thanks to the
opening of the Binh Duong factory, which will raise the production of antibiotics, the signature of
2 new subcontracting contracts with Sanofi and GSK. In addition the company should launch 5
new herbal products with the cooperation of the Remedica Center which would continue work
with the other pharmaceutical companies of the sector.
Sales 2009e
Antibiotics 213,944 39% 16% 0% 248,175
pain reliever 68,090 12% 0% 0% 68,090
vitamins 29,651 5% -10% 0% 26,686
functional food 5,249 1% 100% 10% 11,547
Import 27,238 5% 0% 0% 27,238
Other 17,813 3% 20% 0% 21,376
TOTAL 547,473 100% 612,716
Source: Jaccar
In 2010, the growth should still be restricted. However we forecast an increase in volumes,
especially functional food as wanted by the company. The prices’ rise is limited because of the
control of the government on essential goods, in which pharmaceutical products are included. We
didn’t include any new subcontracting contracts.
www.jaccar.net 90
Sales 2010e
Antibiotics 248,175 41% 13% 3% 288,850
pain reliever 68,090 11% 10% 2% 76,397
vitamins 26,686 4% 10% 2% 29,942
functional food 11,547 2% 30% 5% 15,762
Import 27,238 4% 0% 3% 28,055
Other 21,376 3% 20% 0% 25,651
TOTAL 612,716 100% 699,767
Source: Jaccar
2011 would see the comeback of growth as observed in the past, with high potential of
antibiotics, special treatment drugs and herbal/traditional medicine.
Sale 2011e
Antibiotics 288,850 41% 15% 2% 338,822
pain reliever 76,397 11% 10% 2% 85,718
vitamins 29,942 4% 10% 5% 34,583
functional food 15,762 2% 50% 10% 26,007
Import 28,055 4% 0% 3% 28,897
Other 25,651 4% 8% 27,704
TOTAL 699,767 100% 825,933
Source: Jaccar
Raw Materials: Fluctuation is the rule
Raw materials are

Raw materials will continue to represent a large part of the sales, around 60% and are subject to
subjects to international the increase of volumes and prices, even if international prices of API tend to stabilize due to the
prices downtrend in oil price. Jaccar forecasts a slight increase in 2009. In addition the signature of two
subcontracting agreements with Sanofi and GSK will influence the gross margin which would
drop under 40% in 2009.
Stable Personnel costs
No increase of employees
IMP plans to keep its wage bill stable for 2009 with no hiring and no increase in average salary.
and salary before 2010 Indeed the company benefits from a good reputation and one of the best salary policies that
motivates employees. From 2010 Jaccar forecasts a rise in the number of employee of 5% and in
the average salary of 10%, as the company is willing to develop its distribution network by
opening new branches.
Preferential Corporate Income Tax

IMP benefits from a special Corporate Income Tax at 20%. Moreover the company is fully
CIT at 10%
exempted during 2 years from the first profit-making year and is reduced 50% the following
years. In addition the company enjoys also a reduction of 50% of CIT for 2 years from the year
the company listed on HCMC Stock-Exchange, that is in 2006. Today IMP pays a CIT on taxable
income at 10%. We took this assumption in our forecasts.
www.jaccar.net 91
Balance sheet
Growing fixed assets (29.61% of Total assets 2008e)
Factories and land Fixed assets are planned to increase substantially in accordance with the investments wanted by
purchases make growing
the fixed assets until the company. Indeed in 2009 the new factory in Binh Duong goes into operation and will
2011 increase the tangible assets by almost 80% due to high investments (VND 100bn, USD 6m) in
equipment forecast at the beginning of the year. In 2010 the Joint-venture project with
Pharmascience is supposed to be finalized and the investment is needed to build the factory. As a
result another VND 100bn (USD 6m) is planned to be disbursed, increasing the fixed assets.
Regarding intangible assets, IMP is developing its distribution network by buying land. In
Vietnam, land is leased with a term of 50 years. This land-use right is registered in the Intangible
Assets. In 2008 this item increased due to high investments, especially a piece of land in HCMC
for VND 35bn (USD 2.1m). They are expected to grow a little in the next few years but relatively
as, for Jaccar, the company will focus on production.
Current Assets: Inventories take the lead

(49.4% of Total assets 2008e)
Inventories: 120 days, IMP inventories turnover is quite high compared with other companies in the sector, with an
Receivables: 40 days historical average around 120 days. In 2008 inventory turnover is higher at 130 days, due to high
raw materials’ prices increase. The policy of the company was to buy large quantity of API in
case of high price change (around 6 months). In general as IMP’s suppliers are American or
European it takes two to three months for the materials to come, the company buys consequently
a minimum of three months per order.
Furthermore, the trade receivables are well managed as the turnover is around 40 days (DHG =
65 days, Domesco = 50 days), despite a high percentage of the revenue coming from hospitals
(50%), known as difficult clients (long term, low prices). IMP did succeed in creating a good
relationship with its clients. In 2007 the company recorded high prepayment to suppliers. This
item included land purchase. Indeed, the payment for the land was already done even if the legal
documents weren’t finalized yet. As s result, IMP classified this expense in prepayment to local
supplier. Jaccar forecast a decrease of this item, to 15 days of revenue.
Good management of Trade payables

(7.78% of Total liabilities 2008e)
Payables: 30 days Historical account payable turnover states between 30 and 40 days. This shows a good
management from IMP who set up strong relationship with its suppliers. As some of IMP’s
suppliers are also its clients, IMP appears to have succeeded long-term partnerships with its
closest stakeholders.
Financial Structure
No debts,
Shareholders’ equity = Shareholders’ equity represents 89% of the total Liabilities in 2008 estimates, debt only 0.7%.
89% of liabilities The financial structure of IMP relies mainly on retained earnings. The share issuance of 2007
increased the chartered capital from VND 84bn (USD 5.1m) to VND 116.6bn (USD 7m) plus a
premium of VND 197bn (USD 11.9m). The VND 4bn (USD 242k) debt is a preferential short-
term annual loan given by the Office of Dong Thap Communist Party at a rate of 0.9%/month.
The company doesn’t for the moment have any long-term bank loan.
www.jaccar.net 92
In our forecasts, we include a new bank loan of VND 40bn (USD 2.4m) in 2009 as planned by
the company, to finance next year investments. Moreover we also add a capital increase in 2010
New bank loan in 2009
and new issuance in 2010
of 2.2m shares for VND 150bn (USD 9.1m) at an average observed price over a month of VND
67,864. This issuance is an approximation and is subject to fluctuations. This new capital
increase’ goal is to finance 2010 investments, especially the joint-venture with Pharmascience,
requiring an investment around VND 90bn (USD 5.4m) and VND 60bn (USD 3.6m) of working
capital.
Despite high investments The increase of debt doesn’t impact the gearing ratio much which stays negative till 2011. ROE
ROE and ROCE levels and ROCE drop respectively from 10.96% and 16.47% to 9.77% and 13.32% in 2008 and 8.65%
stays comfortable
and 9.05% in 2009. The uptrend should start again from 2010.
ROE and ROCE evolution

30%
24.16%
25%
20% 17.75%
16.47%
13.32%
15% 18.05% 12.31%
15.69% 9.05% 9.33%
10%
10.96% 11.81%
9.77%
5% 8.65% 8.79%
0%
2005 2006 2007 2008e 2009e 2010e 2010e
ROE ROCE
Source: Jaccar
Cash Flow Statement

Investments coming
VND 200bn (USD12m)
investments coming in IMP is planning two major projects for the next two years: the Cephalosporin factory in Binh
the next 2 years
Duong and the joint-venture factory with Pharmascience. These developments need an
investment of around VND 200bn (USD 12m), half in 2009 and the other half in 2010. To
finance them, IMP intends to increase its long-term debt in 2009 by VND 40b (USD 2.4m), to
sell its short-term deposit of VND 92bn (USD 5.6m) and to use its cash reserves. In addition a
share issuance, planned at first in 2009, has been postponed until 2010.
Furthermore, the company is developing its distribution network, which implies land purchase in
the coming years. Finally IMP is still interested in investing in other companies, either listed or
not, and Jaccar forecast some expenses, growing from 2009 to 2011.
Moderate Dividends
20% of par value,
forecast to be stable IMP is historically distributing 20% of par value as dividends, which represents in 2008 33% of
gross cash flow from operations. The company is constant and not greedy with its dividends. For
Jaccar, dividends will not stop and the rate will stay the same for at least 3 years, as the main
shareholder SCIC is very interested in receiving dividends.
www.jaccar.net 93

IMP is known as a reliable company, managed by Mrs. Dao for a long time. First company to have Internal
GMP equipment, IMP produces several under-license drugs of international companies, such as • The manufacturing materials are weak, even with GMP-WHO, the products are cheap drugs
Sandoz, Innotech or Sanofi. IMP is today the strongest Vietnamese pharmaceutical company regarding • The distribution network relies on personal relationship,
the quality of the products, which makes them a little more expensive than its competitors. The total • Management issue with the succession of Mrs. Dao
revenue is divided equally between the hospitals and the retail markets due to the strong political
situation of Mrs. Dao among the pharmaceutical industry decision-makers. The quality of the
External
equipments and the drugs is the current strategic development axis chosen by IMP in order to attract • The Vietnamese pharmaceutical companies produce mainly antibiotics, food supplements, generic and traditional
more foreigners in its production lines. The financial situation is stable (net margin around 10%, medicine drugs.
gearing negative, good management of the working capital) and relies on strong investments in the • Not very competitive compared with international players.
next 2 years with big projects coming up (a new factory, a joint-venture with Canadians). • Subject to international variation of raw materials prices
www.imexpharm.com

• The release of 3Q08 shows an increase in the total revenue first 9 months of 17.2% and 3.4% for the net profit
5.0%
3.3% explained by the growth of selling and administrative expenses. U
12.0%
• On Dec 10th IMP will distribute the first payment of 2008 dividends at 10% par value (VND 1,000/share) I
• In Dec, IMP has been awarded third class Independence Medal by the Vietnamese Government, due to outstanding
performances and contribution of the company to the development of the country. T
16.0%
20.7% Sector Y
71.1%
imported drugs continue to increase, but more slowly. T
• The shortage of doctors, medical staff, and hospital beds is getting more and more serious. HCMC and Hanoi
72.0%
hospitals are overcrowded (10 times more patients that they can handle), the other provinces lack of educated I
doctors. P
• The Ministry of Health (MoH) and the Ministry of Industry and Trade (MIT) have agreed to work together to
South North Center
Sales of merchandises Sales of products under franchise
develop the pharmaceutical industry, by conducting scientific and technological research. S
Sales of imports Other

110,000 15.5 500,000 28
100,000 14.5
450,000 24
90,000 13.5
400,000 20
80,000 12.5
70,000 11.5
350,000 16
60,000 10.5
300,000 12
50,000 9.5
40,000 8.5 250,000 8

2006 2007 2008e 2009e 2010e 2011e 2006 2007 2008e 2009e 2010e 2011e
www.jaccar.net 94
Sales - 339 527 454 547 613 700 826
% of growth - - 55% -14% 20% 12% 14% 18%
Price (%) - - - - 13% 0% 3% 4%
Volume (%) - - - - 7% 12% 11% 14%
Organic growth (%) - - 100% 100% 100% 100% 100% 100%
External growth (%) - - 0% 0% 0% 0% 0% 0%
Other income - (2) (2) (3) (3) (3) (3) (3)
Total Sales - 337 525 452 545 610 697 823
Change in inventories - 0 33 27 34 38 41 44
COGS - 218 334 232 289 340 382 437
Gross Income - 119 158 193 222 232 274 342
% of growth - - 33% 22% 15% 4% 18% 25%
Taxes - 0 0 0 0 0 0 0
Personnel costs - 0 41 43 51 51 59 68
EBITDA - 38 50 67 72 70 89 125
% of growth - - 30% 36% 7% -3% 26% 41%
Depreciation - 0 3 10 13 18 21 24
Reported provisions - 0 0 0 0 0 0 0
EBIT - 38 47 58 60 53 68 102
% of growth - - 22% 24% 4% -12% 29% 50%
Interest balance - (8) (2) 5 (4) (1) 3 3
Pretax Income - 30 44 62 56 52 71 105
% of growth - - 48% 41% -10% -8% 37% 47%
Income taxes - 4 5 9 6 5 7 11
Tax rate - 12% 11% 14% 10% 10% 10% 10%
Associate income - 0 0 0 0 0 0 0
% of growth - - 50% 36% -6% -8% 37% 47%
Extraordinary items - 0 3 1 1 1 1 1
Net Income - 26 42 55 51 48 65 95
% of growth - - 60% 29% -6% -7% 36% 47%
Sales of merchandises - - - -18% 29% 10% 17% 19%
Sales of products under franchise - - - 1% -8% 20% 8% 21%
Sales of imports - - - -23% 70% 0% 3% 3%
South - - - - 22% 12% 13% 16%
North - - - - 13% 5% 22% 25%
Center - - - - 20% 21% 14% 18%
Net Income - 26 42 55 51 48 65 95
Capital gains/losses on asset disposals - 0 (0) 0 0 0 0 0
Others - 11 7 4 6 5 7 11
Net change in operating assets & liabs - 42 (31) 72 31 10 34 49
Cash Flow from Operations - Net - 2 87 (3) 39 60 59 80
Gross CAPEX - 6 19 18 80 115 105 45
Net CAPEX - 6 19 18 80 115 105 45
Net financial investment - 0 1 172 (46) (85) 7 15
Dividends paid - 11 6 8 23 23 23 28
Dividends received - - - - - - - -
Others - 14 15 14 16 10 15 15
FCF - (30) 46 (215) (35) (2) (91) (22)
Excess Cash Flow - 41 84 (16) (35) (2) 59 (22)
Change in long term debt - 10 (74) (0) 0 40 (20) (20)
Foreign exchange rate effect - - - 0 - - - -
Net Increase (Decrease) Cash & Equivs - 51 10 (16) (35) 38 39 (42)
www.jaccar.net 95
% of growth - - 44% 30% 67% 148% 54% 14%
of which goodwill - 0 0 0 0 0 0 0
% of growth - - 54% 1,365% -5% 9% 0% 0%
Long term prepaid expenses - 4 7 30 - - - -
Long term assets - 0 1 1 12 12 12 12
% of growth - - 55% 550% -59% 9% 0% 0%
Fixed Assets - 28 44 99 175 282 377 417
% of growth - - 58% 123% 78% 61% 34% 11%
Inventories - 144 130 138 198 204 233 275
Trade debtors - 42 50 50 61 68 78 92
Prepayments - 34 6 63 23 26 29 34
Provisions - 0 (0) (0) (0) (0) (0) (0)
Other debtors - 11 9 14 10 10 10 10
Cash Bank - 56 66 49 14 52 90 48
Current Assets - 287 260 470 416 380 461 480
% of growth - - -9% 80% -12% -9% 21% 4%
% of growth - - 69% 118% 1% 6% 39% 10%
Discretionary provisions - 0 0 0 0 0 0 0
Bonus and welfare funds - 3 1 2 1 1 1 1
Training funds - 0 0 0 - - - -
Fund for board of management - 0 0 0 - - - -
Other funds - 44 27 48 71 70 70 70
Debt - long term - 3 1 0 0 40 20 0
Debt - short term - 76 4 4 4 4 4 4
Debts - 78 4 4 4 44 24 4
% of growth - - -95% -1% 0% 1,000% -45% -83%
Total Liabilities - 315 305 568 591 662 837 897
Working capital - 163 128 198 230 240 274 330
% of growth - - -21% 55% 16% 4% 14% 20%
Valuation (x) - 2005 2006 2007 2008e 2009e 2010e 2011e

EV/Sales - - 1.1 2.7 1.3 1.2 1.1 1.0
EV/EBITDA - - 11.3 18.2 9.8 10.2 9.0 6.5
EV/EBIT - - 12.1 21.2 11.9 13.6 11.7 8.0
PE - - 15.8 23.7 14.4 15.5 13.5 9.2
PEG - - - 50% -39% 8% -13% -32%
P/Book - - 3.0 2.8 1.6 1.5 1.3 1.2
Dividend yield (%) - - 1% 1% 3% 3% 3% 3%
www.jaccar.net 96
Latest price - - 82.6 181.6 62.0 62.0 62.0 62.0
High price - - 90.2 237.9 188.4 - - -
Low price - - 74.8 82.6 57.0 - - -
Average price - - 82.1 138.6 62.0 62.0 62.0 62.0
Cash Flow from Oper Per Share - Net - 0 11 (0) 3 5 4 6
Free Cash Flow Per Share - (6) 6 (23) (3) (0) (7) (2)
Gross Margin - 35% 30% 43% 41% 38% 39% 42%
EBITDA Margin - 11% 9% 15% 13% 12% 13% 15%
Net Margin - 8% 8% 12% 9% 8% 9% 12%
EBITDA Margin
Sales of merchandises - - - - - - - -
Sales of products under franchise - - - - - - - -
Sales of imports - - - - - - - -
Operating Margin
Net Margin
EBITDA Margin
South - - - - - - - -
North - - - - - - - -
Center - - - - - - - -
Operating Margin
South - - - - - - - -
North - - - - - - - -
Center - - - - - - - -
Net Margin
South - - - - - - - -
North - - - - - - - -
Center - - - - - - - -
ROE - 22% 21% 12% 11% 10% 10% 13%
ROCE - 18% 24% 17% 13% 9% 9% 12%
Gearing - 18% -30% -45% -27% -6% -13% -9%
Pay-out Ratio - 41% 15% 15% 45% 49% 36% 29%
Interest cover - 4.3 13.2 29.7 11.0 11.2 25.3 204.4
Number of employees (FTE's) - 510 605 730 750 750 788 827
Sales / Employee - 661.4 868.4 618.6 726.6 813.6 885.4 995.8
EBIT / Employee - 74.7 77.1 79.1 79.7 70.1 86.3 123.0
Salary / Employee - 0.0 68.2 59.3 68.2 68.2 75.0 82.5
www.jaccar.net 97
Sales - 20.35 31.64 27.27 32.85 36.76 41.99 49.56
% of growth - - 55% -14% 20% 12% 14% 18%
Price (%) - - - - 13% 0% 3% 4%
Volume (%) - - - - 7% 12% 11% 14%
Organic growth (%) - - 100% 100% 100% 100% 100% 100%
External growth (%) - - 0% 0% 0% 0% 0% 0%
Other income - (0.11) (0.11) (0.17) (0.15) (0.15) (0.15) (0.15)
Total Sales - 20.24 31.52 27.10 32.70 36.61 41.84 49.41
Change in inventories - 0.00 1.98 1.61 2.02 2.30 2.48 2.63
COGS - 13.08 20.04 13.91 17.35 20.42 22.94 26.24
Gross Income - 7.16 9.50 11.58 13.33 13.90 16.42 20.54
% of growth - - 33% 22% 15% 4% 18% 25%
Taxes - 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Personnel costs - 0.00 2.47 2.60 3.07 3.07 3.54 4.09
EBITDA - 2.28 2.98 4.04 4.35 4.21 5.32 7.52
% of growth - - 30% 36% 7% -3% 26% 41%
Depreciation - 0.00 0.16 0.58 0.76 1.06 1.24 1.42
Reported provisions - 0.00 0.01 0.00 0.00 0.00 0.00 0.00
EBIT - 2.28 2.80 3.46 3.59 3.15 4.08 6.10
% of growth - - 22% 24% 4% -12% 29% 50%
Interest income - 0.05 0.09 0.41 0.17 0.34 0.39 0.21
Interest balance - (0.49) (0.14) 0.28 (0.22) (0.04) 0.18 0.17
Pretax Income - 1.79 2.66 3.74 3.36 3.11 4.26 6.27
% of growth - - 48% 41% -10% -8% 37% 47%
Income taxes - 0.21 0.29 0.52 0.34 0.32 0.43 0.63
Tax rate - 12% 11% 14% 10% 10% 10% 10%
Associate income - 0.00 0.00 0.00 0.00 0.00 0.00 0.00
% of growth - - 50% 36% -6% -8% 37% 47%
Extraordinary items - 0.01 0.17 0.05 0.06 0.06 0.06 0.06
Net Income - 1.59 2.54 3.27 3.08 2.85 3.88 5.70
% of growth - - 60% 29% -6% -7% 36% 47%
Sales of merchandises - - - -18% 29% 10% 17% 19%
Sales of products under franchise - - - 1% -8% 20% 8% 21%
Sales of imports - - - -23% 70% 0% 3% 3%
South - - - - 22% 12% 13% 16%
North - - - - 13% 5% 22% 25%
Center - - - - 20% 21% 14% 18%
Net Income - 1.59 2.54 3.27 3.08 2.85 3.88 5.70
Capital gains/losses on asset disposals - 0.00 (0.01) 0.00 0.00 0.00 0.00 0.00
Others - 0.67 0.43 0.25 0.34 0.32 0.43 0.63
Net change in operating assets & liabs - 2.54 (1.87) 4.31 1.89 0.61 2.03 2.94
Cash Flow from Operations - Net - 0.12 5.22 (0.17) 2.33 3.63 3.53 4.82
Gross CAPEX - 0.38 1.14 1.06 4.80 6.90 6.30 2.70
Net CAPEX - 0.38 1.13 1.05 4.80 6.90 6.30 2.70
Net financial investment - 0.02 0.03 10.34 (2.76) (5.10) 0.42 0.90
Dividends paid - 0.65 0.39 0.50 1.40 1.40 1.40 1.66
Dividends received - - - - - - - -
Others - 0.84 0.92 0.81 0.98 0.58 0.90 0.89
FCF - (1.77) 2.75 (12.88) (2.09) (0.15) (5.48) (1.34)
Excess Cash Flow - 2.47 5.03 (0.98) (2.09) (0.15) 3.52 (1.34)
Change in long term debt - 0.58 (4.45) (0.00) 0.00 2.40 (1.20) (1.20)
Foreign exchange rate effect - - - 0.00 - - - -
Net Increase (Decrease) Cash & Equivs - 3.05 0.58 (0.98) (2.09) 2.25 2.32 (2.54)
www.jaccar.net 98
% of growth - - 44% 30% 67% 148% 54% 14%
of which goodwill - 0.00 0.00 0.00 0.00 0.00 0.00 0.00
% of growth - - 54% 1,365% -5% 9% 0% 0%
Long term prepaid expenses - 0.26 0.40 1.82 - - - -
Long term assets - 0.00 0.06 0.05 0.74 0.74 0.74 0.74
% of growth - - 55% 550% -59% 9% 0% 0%
Fixed Assets - 1.68 2.66 5.91 10.51 16.91 22.59 25.03
% of growth - - 58% 123% 78% 61% 34% 11%
Inventories - 8.62 7.79 8.27 11.86 12.25 14.00 16.52
Trade debtors - 2.53 2.99 3.00 3.65 4.08 4.67 5.51
Prepayments - 2.03 0.38 3.80 1.37 1.53 1.75 2.06
Provisions - 0.00 (0.02) (0.01) (0.02) (0.02) (0.02) (0.02)
Other debtors - 0.68 0.55 0.86 0.62 0.62 0.62 0.62
Cash Bank - 3.36 3.94 2.95 0.86 3.11 5.43 2.89
Current Assets - 17.22 15.63 28.19 24.94 22.78 27.64 28.78
% of growth - - -9% 80% -12% -9% 21% 4%
% of growth - - 69% 118% 1% 6% 39% 10%
Discretionary provisions - 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Bonus and welfare funds - 0.18 0.08 0.12 0.05 0.05 0.05 0.05
Training funds - 0.00 0.00 0.00 - - - -
Fund for board of management - 0.00 0.00 0.00 - - - -
Other funds - 2.62 1.61 2.85 4.29 4.20 4.20 4.20
Debt - long term - 0.15 0.03 0.00 0.00 2.40 1.20 0.00
Debt - short term - 4.53 0.21 0.24 0.24 0.24 0.24 0.24
Debts - 4.69 0.24 0.24 0.24 2.64 1.44 0.24
% of growth - - -95% -1% 0% 1,000% -45% -83%
Working capital - 9.78 7.70 11.91 13.80 14.41 16.43 19.79
% of growth - - -21% 55% 16% 4% 14% 20%
Valuation (x) - 2005 2006 2007 2008e 2009e 2010e 2011e

EV/Sales - - 1.1 2.7 1.3 1.2 1.1 1.0
EV/EBITDA - - 11.3 18.2 9.8 10.2 9.0 6.5
EV/EBIT - - 12.1 21.2 11.9 13.6 11.7 8.0
PE - - 15.8 23.7 14.4 15.5 13.5 9.2
PEG - - - 50% -39% 8% -13% -32%
P/Book - - 3.0 2.8 1.6 1.5 1.3 1.2
Dividend yield (%) - - 1% 1% 3% 3% 3% 3%
www.jaccar.net 99
Latest price - - 5.0 10.9 3.7 3.7 3.7 3.7
High price - - 5.4 14.3 11.3 - - -
Low price - - 4.5 5.0 3.4 - - -
Average price - - 4.9 8.3 3.7 3.7 3.7 3.7
Cash Flow from Oper Per Share - Net - 0.03 0.69 (0.02) 0.20 0.31 0.25 0.35
Free Cash Flow Per Share - (0.39) 0.36 (1.41) (0.18) (0.01) (0.40) (0.10)
Gross Margin - 35% 30% 43% 41% 38% 39% 42%
EBITDA Margin - 11% 9% 15% 13% 12% 13% 15%
Net Margin - 8% 8% 12% 9% 8% 9% 12%
EBITDA Margin
Operating Margin
Net Margin
EBITDA Margin
South - - - - - - - -
North - - - - - - - -
Center - - - - - - - -
Operating Margin
South - - - - - - - -
North - - - - - - - -
Center - - - - - - - -
Net Margin
South - - - - - - - -
North - - - - - - - -
Center - - - - - - - -
ROE - 22% 21% 12% 11% 10% 10% 13%
ROCE - 18% 24% 17% 13% 9% 9% 12%
Gearing - 18% -30% -45% -27% -6% -13% -9%
Pay-out Ratio - 41% 15% 15% 45% 49% 36% 29%
Interest cover - 4.3 13.2 29.7 11.0 11.2 25.3 204.4
Number of employees (FTE's) - 510 605 730 750 750 788 827
Sales / Employee - 0.0 0.1 0.0 0.0 0.0 0.1 0.1
EBIT / Employee - 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Salary / Employee - 0.0 0.0 0.0 0.0 0.0 0.0 0.0
www.jaccar.net 100
Price Performance - Hau Giang Pharmaceutical JSC

280,000
260,000
240,000
220,000
200,000
180,000
160,000
140,000
120,000
100,000
80,000
Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08
BUY ACCUMULATE REDUCE SELL TARGET PRICE
Rating History
Date Rating
12. Dec 08 REDUCE
Price Performance - Domesco Medical Import & Export JSC

180,000
160,000
140,000
120,000
100,000
80,000
60,000
40,000
Rating History
Date Rating
12. Dec 08 REDUCE
Price Performance - Imexpharm Pharmaceutical JSC

240,000
220,000
200,000
180,000
160,000
140,000
120,000
100,000
80,000
60,000
40,000
Rating History
Date Rating
12. Dec 08 REDUCE
www.jaccar.net 101
Distribution of Ratings
Investment Rating Distribution: Global Group
Count Percent
BUY 2 29%
ACCUMULATE 1 14%
REDUCE 4 57%
SELL 0 0%
Investment Rating Distribution:
Count Percent
BUY 0 0%
ACCUMULATE 0 0%
REDUCE 3 100%
SELL 0 0%
Analyst Certification
We, BARBERY Caroline, GORGIARD Servane, LE VAN CAO Luan, certify that all of the views expressed in this
research report accurately reflect our personal views about the subject sector(s) and subject company (ies). The
compensation of the analyst who prepared this report is determined exclusively by research management and
senior management.
Important Disclosures
This report has been prepared by Jaccar Investment Managers (“JACCAR”). This document is confidential and is
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JACCAR Ratings and Valuation Methodology

Company Rating Definition (within a 12 month period)
BUY: Expected to outperform the market by at least 15% or more

ACCUMULATE: Expected to outperform the market by 5%
REDUCE: Expected to perform in line with the market
SELL: Expected to underperform the market by at least 10%
Valuation Methodology
The target price are based on several methods which include, but not restricted to analyses of market risks, growth
rate, revenue stream, DCF (discounted cash flows), EBITDA, Net attributable profit, FCF (free cash flows),
EV/SALES, EV/EBITDA, EV/EBIT, PE, P/CF, P/Book, ROE (Return on Equity), NAV (Net Asset Value), Dividend
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Sector Report - Pharma - Jaccar

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JACCAR EQUITY RESEARCH – VIETNAM

JACCAR EQUITY RESEARCH – VIETNAM

Pharmaceutical Industry NO PAIN, NO GAIN

Disclaimer : Please refer to important disclosures

NO PAIN, NO GAIN ......................................................................................................... 1

Pharmaceutical market growth - ASEAN region

Source: IMS MIDAS Sep 2007.

Evolution of the pharmaceutical market

An average 15% growth

Sources: IMS, Jaccar

Volume growth rather Price and Volume growth ( 2006-2012e)

The forecasts of average drug consumption is 15$/person/year in 2015. According to Jaccar, it

revenue, DHG is developing a strong distribution network. The management is focusing

VIETNAMESE’S WELCOME… NOT SO EASY!

Government’s antibiotics against foreign bacteria

When the law makes everything more complicated

3 ways to set up:

• Finally foreign companies are allowed to be present in Vietnam as representative office.

- Vietnamese State distributors: most of the State-owned pharmaceutical

Most foreign companies

Legal entity repartition of foreign companies

Industry’s governmental vitamins … or poison pills?

The custom duty pain

The Vietnamese distribution network: bypass and

Distribution Network for foreign companies

6-9% Distributor Representative office

Sources: IPS, Jaccar

This particular distribution network has several implications:

• For customers, the Vietnamese pharmaceutical market is characterized as high volume,

Distribution Network for domestic companies

Fee, money transfer

DON’T REST ON ONE’S LAURELS: TREATMENT

Local manufacturing on the cheap

Rising equipment’s quality

• Avoid cross contamination

Basic Vietnamese production

Food supplements and

Food Suppl. Food Suppl.

Source: Jaccar Source: Jaccar

Vietnamese short-term vision: no promotion, no

Minimal marketing expenses

Looking for R&D

Reinforce the distribution network

Population repartition (2007) Population reparation (2010e)

South 22% South

Source: Jaccar Source: Jaccar

Pharmaceutical revenue repartition (2007) Pharmaceutical revenue repartition (2010e)

Source: Jaccar Source: Jaccar

Distribution network of the 3 biggest Vietnamese pharmaceutical companies

29% 29% 14% 9%

55% 45% 48% 71% 57% 86%

45% % of branches in this region

40% % of this region in the total revenue

Sources: DHG, Jaccar Sources: IMP, Jaccar Sources: DMC, Jaccar

A DIFFICULT ENVIRONMENT TO COME OUT

When prices bolts

Requisite raw materials

Most used API in Vietnam

API Price Evolution (2008)

Source: Phoenix Commodities

API price Evolution (2007-2011e)

Edgy exchange rate

Market, CPI and Exchange rate forecasts