MPC Minh Phu Corporation

Exchange: Sector:

HOSE Consumer Staples

HRS
Equity Research

July 06, 2010

Horizon Securities
Research team Tu Tran Senior Analyst tutran@horizonsecurities.com

Company Visit Note

Minh Phu Corporation (MPC): Established in 1992 as a privatelyowned enterprise, Minh Phu Corporation (MPC) was first listed on HNX on December 2006 with chartered capital of VND600bln (US$31.4mln) and then moved to HOSE a year later. MPC is currently the leading shrimp exporter in Vietnam with a 10% market share. The United States is the companys largest export market, representing 45% of total revenues in 2009; South Korea (13.4%), Japan (12.4%), Canada (12.2%), and EU (11.1%) were other leading markets.

MINH PHU SEAFOOD CORPORATION

Head office: Ward 8 Industrial zone, Ca Mau City Tel: Fax: Email: (84-780)-839391 (84-780)-833119

Company highlights
In 1Q2010, MPC generated revenues of VND663bln (US$34.7mln), an increase of 46% y-o-y and net income of VND38bln (US$1.99mln), a decrease of 22.7% y-o-y. In March 2010, MPC became the first shrimp exporter in Vietnam to receive the GLOBAL GAP certification, which is a globalize quality and environmental standard for aquatic products. The certificate enables the company to surpass one of many hurdles in exporting to the highly-regulated European market. Rising capacity is a key catalyst: Management highlighted that MPCs annual capacity has increased to 24,000 tons per year from 09 capacity of 19,500 tons/ha. In addition, another new processing plant, Minh Phu Hau Giang with capacity of 20,000 tons per year coming into stream in 2Q10 will be an additional growth driver in terms of processing volume for the company. Feeding area expansion, a platform for future growth: We believe that enlarging feeding area provides MPC with a competitive edge over other domestic counterparts. The company aims to broaden feeding area to 860 ha at the end of 2010 from its current 250ha, equivalent to an increase in its own raw materials supply from 25% at present to approximately 60%-80%. New manufacturing factory underpins future sales growth: MPC has increased chartered capital from VND150bln (US$7.8mln) to VND300bln (US$15.7mln) for its subsidiaries, Minh Phu Hau Giang (MPC has 90% ownership) to complete a 19,500-ton capacity processing plant. Valuation: MPC is currently trading at a 2010 P/E of 8.9x, which represents a 12.7% premium to local peers and 2009 P/B of 1.9x, which is a 26.7% premium. Share price performance: the stock is down by 9.4% YTD but has outperformed the VN-Index by 3.6% last month

minhphu@minhphu.com minhphu@hcm.vnn.vn 6-Jul-10

MPC Consumer Staples - Shrimps VND30.000 (US$1.57) 19,100 70,000,000 10,000 2,100,000 9.86/49 47,830 1M 1.7% 3.6% 3M -6.0% -3.2% 20,290 6M -14.3% -8.0%

Stock profile/statistics
Bloomberg Ticker Sector Price (VND) VND/USD Share Outstanding Par (VND) Market Capitalization (VND mln) Foreign room/ limit (%) 52 week High/ Low (VND) Stock performance (%) Absolute (%) Relative Vs VNIndex (%)

% Ownership Structure as of March 31, 2010 Company founders Strategic investors in which: foreigners Others 26% 42% 9% 33%

thousand shares

1,200

60,000 Volume

1,000

Price

50,000

800

40,000

600

30,000

400

20,000

200

10,000

A-08 O-08 J-09 A-09 J-09 O-09 J-10 A-10 J-10

Please refer to the important disclosures at the end of this document.

VND

ou

Company Visit Note Minh Phu Corporation (HOSE: MPC)

BUSINESS OVERVIEW
Established in 1992 as a privately-owned enterprise, Minh Phu Corporation (MPC) was first listed on HNX on December 2006 with chartered capital of VND600bln (US$31.4mln) and then moved to HOSE a year later. In late 2009, the company finished upgrading its three factories (Minh Quy, Minh Phat in Ca Mau and Minh Phu in Kien Giang) to a total capacity of 24,000 tons per annum while improving utilization rate to around 90% in the first six months of 2010. Also in 2010, the company plans on expanding its 250ha fish farm, representing 25% of its raw material inputs, to 860ha by adding a 510ha feeding area in Ca Mau and another 100ha in Kien Giang.

2009 Review
In 2009, MPC generated VND3,094bln (US$162mln) of revenues, an increase of 7.6% y-o-y, and net income of VND239bln (US$12.5mln) driven by a VND156bln (US$8.2mln) reversal of stock provision from 2008 losses. MPC is currently the leading shrimp exporter in Vietnam with a 10% market share. The United States is the companys largest export market, representing 45% of total revenues in 2009; South Korea (13.4%), Japan (12.4%), Canada (12.2%), and EU (11.1%) were other leading markets. FY2009 EXPORT REVENUES BREAKDOWN
Canada 12% EU 11% Others 6%

Japan 12%

Korea 13%

US 46%

Source: company data

MPC exported 16,096 tons of shrimp in 2009, 45% of which were tiger prawns and the remaining 55% were white leg shrimps. Although margins are higher for tiger prawns, management expects to have a higher product concentration from white leg shrimps due to a shortage of tiger prawns from local farmers and wholesalers.

1Q-2010 UPDATE
In 1Q2010, MPC generated revenues of VND663bln (US$34.7mln), an increase of 46% y-o-y and net income of VND38bln (US$1.99mln), a decrease of 22.7% y-o-y. The surge in revenues and decline in net income was due to the expiration of tax benefits in 2010 when the company had to pay a 25% tax-rate as opposed to a marginal 0% rate in 2009. In March 2010, MPC became the first shrimp exporter in Vietnam to receive the GLOBAL GAP certification, which is a globalize quality and environmental standard for aquatic products. The certificate enables the company to surpass one of many hurdles in exporting to the highly-regulated European market. 2

Horizon Securities

Company Visit Note Minh Phu Corporation (HOSE: MPC)

BUSINESS PLAN
Pocessing output Export volume Export value Total Sales EBT EAT Unit price Taxation EBT margin Net margin Est exchange rate Ton Ton USD mil. VND bil. 2007 12,592 11,679 145 2,358 2008 14,570 13,878 18.8% 156 2,877 22.0% (38) -119.7% 2009 16,533 16,096 16.0% 158.7 3,094 7.5% 254.5 242.9 9.9 2010 21,400 21,400 33.0% 200 3,900 26.1% 273 218.4 -10.1% 10.0 20% 7.00% 5.60% 19.50 2011 31,000 31,000 44.9% 310 6,045 55.0% 423.15 363.1 66.3% 10 14% 7.00% 6.01% 19.5 2012 38,000 38,000 22.6% 380 7,410 22.6% 518.7 445.1 22.6% 10 14% 7.00% 6.01% 19.5 2013 42,000 42,000 10.5% 420 8,190 10.5% 573.3 486.8 9.4% 10 15% 7.00% 5.94% 19.5 2014 42,000 42,000 0.0% 420 8,190 0.0% 573.3 486.8 0.0% 10 15% 7.00% 5.94% 19.5

VND bil.

193

6.03% 19.50

Source: company data

2010s OUTLOOK
MPC plans to increase sales by 28% Y-o-Y in FY10, mainly from rising processing volume while price is expected to decrease marginally. We believe that MPC can reach its target because the price of tiger prawn in the U.S. has surged by more than 40% YTD in the wake of Gulf of Mexico oil spill. Low inventories along with a shortage of supply are likely to squeeze prices further in coming months. New manufacturing factory underpins future sales growth: MPC has increased chartered capital from VND150bln (US$7.8mln) to VND300bln (US$15.7mln) for its subsidiaries, Minh Phu Hau Giang (MPC has 90% ownership) to complete a 19,500ton capacity processing plant. The factory is expected to begin operating in Q2 2011, aggregating the annual capacity to 43,500 tons, an increase of 81%. FARMING AREA EXPANSION PLAN
Total framing area Feeding area Additional area expansion in which at Kien Giang at Ca Mau ha ton ha ha ha Current 250 2,699 2010 860 6,884 610 100 510 2011 1,172 14,398 312 162 150 2012 1,422 21,899 250 250 2013 1,672 25,749 250 250 2014 1,672 28,090

Source: company data

Developing feeding land area establishes the platform for subsequent years: in order to secure its raw material input, management plans to expand its fish farm aggressively from 860ha at the end of 2010 to over 1,600ha in 2013. The new fish farm zone is expected to supply 100% of the required raw materials for the company. This helps the company minimize uncertainties with regards to quality and quantity of raw materials. Expansion through co-operation towards a fully integrated manufacturing process: MPC plans on partnering with leading domestic firms to produce packaging and with a Singaporean firm to develop a container port in Hau Giang province. In 2010, the management plans on raising chartered capital by VND200bln to VND900bln (US$47.1mln) to finance the Minh Phu Hau Giang processing plant. MPC is also considering a VND600bln (US$31.4mln) convertible bond if it requires more capital. The company has a debt to equity ratio of 1.0x as of March 31, 2010.

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Company Visit Note Minh Phu Corporation (HOSE: MPC)

RISKS
Uncertainty of raw materials: With 75% of its raw shrimp materials coming from outside vendors, MPC has little control over the quantity and quality of the inputs. Dilution of core business activities: Despite having reduced its trading portfolio substantially from VND200bln (US$10.5mln) at beginning of 2009 to VND14bln (US$0.73mln) at year end, MPC remains cautious that these non-core business activities may hamper mainstream business performance due to inherent stock market volatility.

Valuation
MPC stock is currently trading at a 2010 P/E of 8.9x, which represents a 12.7% premium to local peers and 2009 P/B of 1.9x, which is a 26.7% premium. Given its strong growth potential in the overseas markets, but pricey valuation, we recommend taking a cautious approach on the stock. QUICK VALUATION
Market cap Name Minh Phu Seafood JSC Nam Viet Corp Hung Vuong Corp Cuulong Fish JSC An Giang Fisheries. Vinh Hoan Corp Local peers US$/share $1.57 $1.11 $1.63 $2.08 $1.93 $2.13 TSO (mln) 70.0 65.6 66.0 11.0 12.9 35.3 (US$mln) 110 73 107 23 25 75 PE 2010 8.9x 13.9x 4.5x 5.8x 7.2x 7.3x 7.9x PB 1.9x 0.9x 1.2x 2.3x 0.7x 1.9x 1.5x ROA 10.8% -5.8% 2.2% 8.2% 1.2% 12.7% 4.9% ROE 21.1% -8.7% 9.2% 28.3% 2.3% 28.2% 13.4%

Source: HRS research, Company data

Horizon Securities

Company Visit Note Minh Phu Corporation (HOSE: MPC) Disclaimer

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