ASIA PACIFIC SECURITIES JOINT STOCK COMPANY INDUSTRY REPORT AUTOMOBILE

Transcription

1 ASIA PACIFIC SECURITIES JOINT STOCK COMPANY INDUSTRY REPORT AUTOMOBILE

2 TABLE OF CONTENTS Industry view Position of Vietnam automobile industry in the world Position of Vietnam automobile industry in Southeast Asia Industry analysis Industry characteristics Impact factors Poster s 5 forces model Business activities Manufacturing Distribution Trading Recommendation THA Truong Hai Auto corporation TMT TMT Automobile Joint Stock Company HHS Hoang Huy Investment Service JSC HAX Hang Xanh Motors Service JSC SVC Sai Gon General Service Corporation Stock comparison Recommendation

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4 INDUSTRY VIEW Position of Vietnam automobile industry in the world Global automobile consumption (million) F Total North America Canada United States Mexico Western Europe Germany Eastern Europe Russia Asia China India South America Brazil Vietnam Recently, North America, Western Europe and East Asia, which were traditional automakers, were still largest automakers in the world. While 4

5 Germany was the first mass producer, United State produced almost autos in the period before 1945 with For, GM East Asia with Japan and recently Korea, China and Taiwan were the largest suppliers from 1960 Vietnam automobile industry starts late and the development base is weak. After the economic reform in 1986, Vietnam Government prioritized the domestic automobile industry with a series of supportive policies. After 25- year development, Toyota, Honda, Ford, GM entered Vietnam and competed with domestic automobile manufacturers as Truong Hai, TMT, Vinaxuki. Total automobile sales were around 120,000 units per year. However, according to OICA, in 2013, Vietnam produces 40,902 units of autos, equal to only 0.04% global output. Whereas, output of the 5 largest manufactures that were China, United States, Germany and Korea accounted for 25%, 12%,11%, 6.6% and 5.2%, separately. Therefore, it can be seen that, Vietnam was a very small automobile manufacturer in the world. Position of Vietnam automobile industry in Southeast Asia Vietnam Thailand Malaysia Indonesia Philippines ASEAN AUTOMOTIVE PRODUCTION In Southeast Asia, Vietnam automobile output was also very low in comparison to Thailand, Indonesia and Malaysia. In 2013, while Vietnam produced only 40,000 units, Thailand was currently one of the seven largest automakers with output nearly 2.5 million units. Indonesia also grew strongly in 2013 with the output of 1.2 million units. In April 2012, Vietnam automobile part supplier segment included 33 level 1 companies and 181 level 2 companies. Whereas, in Thailand, the number of level 1 companies was 709, included 354 domestic companies and 355 joint ventures. The number of level 2 and level 3 suppliers was also more than 1,100 firms. The number of firms in the manufacturing chain of Malaysia and 5

6 Indonesia was also higher than Vietnam. While Malaysia had 280 level 1 suppliers and 200 level 2 suppliers, Indonesia also had 166 level 1 suppliers and 336 level 2 suppliers. According to HIS, Thailand had only 16, Malaysia had 13 and Indonesia had 12 automobile manufacturers. With an appropriate structure, the localization rate of Thailand, Indonesia and Malaysia products was very high in comparison to Vietnam. 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Thailand Indonesia Malaysia Vietnam LOCALIZATION RATIO Imported Domestic In conclusion, Vietnam automobile industry was very small and weak, in comparison to not only developed countries but also countries in Southeast Asia. Vietnam automobile market overview According to Vietnam Automobile Manufacturers Association (VAMA), total sales of its members grew by 20% in 2013 to 96,688 units. The strong growth in 2013 was largely attributed to the rebound on the automotive sector, which was ravaged by the regression in In 2014, the growth rate of automobile demand will be normalized. Whereas, in 2013, total domestic sales was high, therefore, we believed that, the growth rate of sale will be lower than In macroeconomic view, Vietnam economy has overcome the difficulties in the trough of business cycle and is recovering. Whereas, the Government also takes steps to privatize the state-owned enterprises. Vietnam s GDP is expected to grow by 5.9% in 2014 and 6.4% in 2015, according to BMI. Besides the ongoing privatization drive, the stable interest in 2014 is also another factor supporting the auto sales. Due to the low and stable and interest rate, credit growth rate increase strongly which motivate automobile industry. 6

7 In 2015, import tariffs on Complete Build-Up auto will remain unchanged at 50% before decreasing to 40% in 2016 and 0% in Therefore, the trend of delayed consumption may appear due to the expectation of cheaper auto in the next few years. We believe that import imported auto sector will grow slowly in

8 INDUSTRY ANALYSIS 8

9 INDUSTRY CHARACTERISTICS General characteristics Automobile-owned ratio in Vietnam was very low in compare to other country in Southeast Asia and to the world. While only 10% of Vietnamese families owned autos, 53% of Filipino families, 54% on Indonesian families and 93% of Malaysian families do. In addition, due to the low and stable interest rate, auto credit grew sharply. The Government also reduced vehicle registration fee, therefore, auto sales increased significantly. The import tariffs on vehicles imported from ASEAN will be abolished gradually. Therefore, auto price is expected to decline strongly due to the market penetration of imported autos from Thailand and Indonesia. Beside of that, Vietnam is considered as one of the lowest production cost countries. We believe that automobile supply will be very abundant. Due to the growth of both demand and supply, Vietnam automobile industry is expected to grow continuously. Although there are many advantages, Vietnam automobile industry also encounters many challenges. Firstly, the lack of production incentives means that the automotive sector lags other sectors in attracting FDI. While leading automobile manufacturers in the world as Toyota, Honda, Mazda, and Ford increase their investment in Thailand, Indonesia Vietnam is still a small producer with negligible output. Secondly, the underdeveloped supplier segment shares the blames in attracting auto production investment. While the growth rate of this sector in Thailand and Indonesia was 12.3% in the period from 2010 to 2013, Vietnam Did not have any significant change. Therefore, assembling firms depend strongly in parts imported. Thirdly, undeveloped road network prevent the consumption of automobile. Because of the undeveloped transport infrastructure, two-wheelers are preferred than auto. Market segments Based on main business activities, Vietnam automobile market is divided into two segments that are manufacturing and distribution. Generally, almost manufacturing firms has their own distribution system as Truong Hai, TMT, and Toyota Whereas, almost distribution firms are agents of venture carmakers as Toyota, Ford or import and distribute vehicles of famous automobile makers. HHS (Dongfeng trucks distributor), SVC (agents of Toyota, Ford, GM ), HAX (agent of Mercedes-Benz Vietnam) are typical distribution firms. Based on origin of vehicles, Vietnam automobile market includes two segments that are Complete Built-Up vehicles (imported vehicles) and Completely Knocked Down vehicles (domestic vehicles). The preference of imported vehicles was illustrated by the growth of market share of this segment, which was contributed mainly by luxury cars. 9

10 According to General Department of Vietnam Customs, in the first 6 months of 2014, Korea was still the largest imported auto supplier of Vietnam with 7,740 units, 8% lower than the first half of Vietnam also imported 4,960 units from Thailand (increase by 50.5%, yoy), 4,630 units from China (increase by 127%, yoy) and 1,430 from Japan (increase by 66%, yoy). 100% 90% 80% 70% 58,809 60% 74,335 88,008 50% 40% 30% 20% 28,638 10% 18,249 22,511 0% T/2014 CKD CBU Based on the use of vehicles, Vietnam Automobile market consists of two segments that are Commercial Vehicles (CV) and Passenger Cars (PC). Commercial Vehicles such as trucks, buses are used for transporting goods or paid passenger; therefore, it is a very important segment. Key players in this segment are THACO, Cuu Long (TMT), Vinaxuki, Isuzu or foreign manufacturers as Dongfeng or SINO. In contrast, recently, passenger cars such as 4 to 9-seats cars are referred very much. Key players include Toyota, Ford, Honda KIA, and Mazda 10

11 100% 90% 80% 35,505 44,389 70% 49,630 60% 50% 40% 30% 57,079 66,130 20% 28,638 10% 0% M/2014 Passenger Car Commercial Vehicle 11

12 Value chain IMPORTING Parts Complete Built-Up Vehicle ASSEMBLING 70%Imported parts 30%Domestic parts + Domestic labor DISTRIBUTION Imported vehicles distribution Domestic vehicles distribution 12

13 IMPACT FACTORS Political Vietnam politics is very stable, hence, in short-term, the economy in general and automotive industry in particular will not suffer from the political risk. In addition, corruption was also recognized and the Government is taking steps to handle this problem. The political factor that affected Vietnam automobile recently was the conflicts between Vietnam and China in East Sea. Now, China is one of the most important auto and parts suppliers of Vietnam, therefore, input of Vietnam automotive industry will be deficient if political conflicts exist. Economic Vietnam is one of the fastest-growing countries in ASIA with average growth rate of 7.1% in the period from The growth of the economy is followed by the growth of middle-class in Vietnam. In addition, the urbanization rate in Vietnam is also very high. Therefore, the demand of autos in Vietnam will increase significantly. Besides of that, the Government through the privatization of state-owned enterprises and the restructuring of commercial banking system also supports the globalization. Vietnam was also member of WTO and AEC, which increase completions and motivate the growth of domestic companies. However, Vietnam economy is encountering many challenges. Although the currency devaluation policy affect positively to the balance of payment, it also increase the production cost of automobile firms because most of parts was imported. Inflation was controlled, but the recovery rate and credit growth was low. Business environment Vietnam s population is large and young, labor cost was very low. This factor will attract the investment from all around the world, especially from East Asia countries as Korea, Japan, Taiwan therefore, domestic company can assess to modern technology. Another factor that attracts foreign investment in Vietnam was the geographic location. Vietnam locates in Indochinese peninsula and important international sea routes, which was advantage to transportation and international trade. Vietnam Government took steps to reform the economy. The privatization process and the restructuring of the commercial banking system were the factors that foreign investors are interested in. However, Vietnam has to handle many problems to improve business environment. Weak infrastructure will prevent the application technology and the deployment of new projects. Transportation system was lagged to the requirement of economic development. Whereas, labor qualification was low this decreased the productivity. 13

14 In addition, corruption was another factor that affected foreign investment. Despite of the efforts of the Government to prevent corruption, Vietnam ranks 123th in 176 countries in corruption level. POSTER S FIVE FORCES ANALYSIS Poster s five forces analysis Intensity of competitive rivalry: Domestic automobile was divided into two sectors that were commercial vehicle and passenger cars. The largest commercial vehicles (trucks and buses) contributor was Truong Hay with some competitors as Hoang Huy (HHS) or TMT. With passenger cars, Toyota Vietnam is the head with strong competition of Truong Hai. Other companies as Hang Xanh (HAX) and Savico (SVC), which imported Completely Built Up cars, did not have considerable market share. TOYOTA OTHERS HINO 917 VINAMOTOR 955 VINASTAR MERCEDES ISUZU VEAM 1132 VISUCO GM 2467 HONDA 3238 FORD 3554 THACO PC CV Threat of new entrants: in the AFTA commitment, automobile import tax rate for almost kinds of auto in Vietnam will be remain unchanged in 2014 and 2015 at 50%, reduce to 40% at 2016, 30% at 2017 and 0% at At present, imported autos from Thailand, Indonesia, China is 5%-10% more expensive than domestic autos, therefore, in 2017, when the automobile import tax will reduce to 30%, price of domestic and imported will be equal. Threat of new entrants is very high. 14

15 Threat of substitute products or services: Now, Vietnam automobile industry does not have any considerable substitute products. Automobile, especially dump truck and van are essential goods for manufacturing and transportation. Bargaining power of customers: The demand for auto has increased sharply in 2013 and the first half of However, we have to pay more attention to the trend of demand pending in because of the expectation of the decrease of automobile price with the reduction of tax. Bargaining power of suppliers: Almost auto parts in Vietnam are imported, mainly from China, Korea and Japan, which are large suppliers with a global market. However, most of Vietnam automobile has had joint venture with foreign producers; therefore, bargaining power of suppliers is low. 15

16 OPERATING ACTIVITIES 16

17 MANUFACTURING Automobile has been considered as a strategic industry for nearly 20 years. However, now Vietnam is only an assembler with the main operating activities are importing parts, assembling and distributing autos. Vietnam s parts suppliers segment is also very small; therefore, Vietnam automobile industry depends strongly on importing. Although it is a disadvantage for assembling industry, this shows that automobile is potential, especially when automobile-owned ratio in Vietnam is only 4%. Production will grow, but importing still more attractive Figure: Vietnam automobile production (Resource: BMI) Year F 2015F 2016F 2017F 2018F Total 31,181 40,470 42,898 46,809 51,498 55,351 59,690 64,583 Passenger Cars (PC) 29,904 38,900 41,234 45,028 49,575 53,293 57,468 62,161 Commercial Vehicles (CV) 1,277 1,570 1,664 1,781 1,923 2,058 2,222 2,422 According to VAMA, total automobile output in November 2013 was 10,003 units, 27.4% higher than in November Total output in the first 11 months of 2013 was 83,656 units, increase by 24.5%, year-over-year. This is also the first time after November 2010 that total domestic output was more than 10,000 units. However, it can be seen that Vietnam automobile industry encountered many difficulties in the period from 2010 to While the declination in 2011 was a result of the business cycle, the difficulties in 2012 were caused by many factors: the inconsistence of macroeconomic policies, the lack of production incentives and the weakness of supporting industry. Due to the inconsistence of incentive policies, recently, the growth of production was contributed only by available brand as Truong Hai, Toyota, and Ford The influence of new players is not considerable. We can conclude that, the recent growth was caused only by demand: The recovery of the economy and personal consumption. While production did not grow, the importing segment grew strongly and stably. We believe that this segment will grow sharply due to the remove of import tariff, which attracts the entrance of foreign automakers, especially from ASEAN. If it does not have any incentive policy from the Government, imported vehicles from Thailand, Indonesia, will dominate Vietnam automobile market completely. The weakness of supporting industry According to the automobile industry development plan in the period from 2010 to 2020 of Vietnam Government, the localization ratio is minimum 60% for all kind of auto. However, this ratio of less than 9 seats-autos is only 15% while more than 10 seats-autos are only 30%. The blame of this problem is shared mainly by the weakness of supporting industry. 17

18 The number of necessary parts to assemble a vehicle was around 20,000 to 30,000. Whereas, the number parts suppliers in Vietnam is only more than 200. In addition, these suppliers only produce simple and low benefit as wheels, battery, seats While the technology to produce complex and high benefit as engines, grounds was unachievable, simple parts manufacturing was not invested significantly. It can be seen that, Vietnam supporting industry was very small and weak. While supporting industry was very small and weak, most of parts were imported. Therefore, localization ratio of Vietnam automobile industry was very low. According to the Government s tariff reduction schedule, parts imported tariff will be removed completely in Whereas, Indonesia and Thailand s supporting industry was developed. Therefore, if the capacity of domestic firm does not grow, imported parts will dominate Vietnam market. Without manufacturing capacity of both complex and simple parts, Vietnam automobile industry depends completely on imported parts and was only an assembler. DISTRIBUTION DOMESTIC CONSUMPTION Total sales in the first 7 months of 2014 were 77,998 units, increased by 32% year over year. Specifically, car sales increased by 34% and truck sales increased by 28%. July 2014 was the 16 th month that total sales grow year over year. This impressive number reflected partly the recovery of automobile industry if it is compared to that of 2 years before. While the economy was encountered difficulties, total sales in the first 7 months of 2012 were 50,316 units only. 18

19 Whereas, Vietnam s economy is recovering due to many supporting factors. Besides the investor s belief in the Government s determination of restructuring the economy and commercial banking system, the expansionary monetary policy with low interest rate was also another factor that supports automobile industry. With macroeconomic perspective, the outlook of automobile sales is very positive. In addition, Vietnam automobile sales in middle-term and long-term is also affected strongly by other factors: Formation of ASEAN Economic Community (AEC) by Vietnam was an export-oriented economy; therefore, the formation of AEC will be an opportunity. The growth of the economy results in the increase of middle-class and the demand of automobile. In addition, the reduction of automobile import tariff will decrease the automobile price, which will increase automobile demand. We expect autos sale will be in the next period. Large and young population Vietnam s population is large and very young. In addition, the autos-owned ratio in Vietnam is only 4% while middle-class is increasing sharply. Therefore, Vietnam is a potential market. It can be seen that the prospect of automobile sales was very positive. However, it is notable that the capacity of domestic enterprise is very small. Therefore, prospect of every firm will depend on particular business strategy. THACO 30.60% 32.50% FORD HONDA GM VISUCO VEAM 2.40% 1.70% 2.00% 1.70% 2.00% 1.60% 2.10% 3.50% 4.50% 5.90% 9.60% ISUZU MERCEDES VINASTAR VINAMOTOR HINO AUTOMOBILE MARKET SHARE (JUNE 2014) 19

20 TRADING In the first 7 months of 2014, while sales of Completely Knocked Down (CKDdomestic vehicle) increased by 24%, sales of new Completely Built-Up (CBUimported vehicle) increased by 62%. This is not the first time that the growth of CBU overwhelmed CKD. This is the reflection of preference of imported vehicle over domestic vehicle. Figure: sales growth Year M/2014 CBU vehicles growth 28.00% 23.00% 62.00% CKD vehicles growth -1.00% 18.00% 24.00% This consumption trend was illustrated by the quantity of imported vehicles. Vietnam is expected to import more and more automobile from Japan, Korea, China and ASEAN in the next period. The most important factor that will affect import and export strongly in middle term and long-term is the reduction of import tariff of automobile from ASEAN through ATIGA. According to that, in the January 2014, Vietnam reduced tariff of parts imported from ASEAN by 10%-15% and commit to abolish tariff of autos imported from ASEAN in The first direct effect will be the market penetration of cheap vehicles from ASEAN, especially Thailand and Indonesia. With the difference of technology and scale, it is very difficult for domestic companies to compete with foreign manufacturers. In reality, although import tariff only decreased slightly by 10% (60% to 50%) in 2013, the quantity of imported cars from Thailand increased sharply. Specifically, the quantity of imported cars from Thailand increased by 75.9% in 2013 and 50.5% in the first haft of 2014, according to General Department of Vietnam Customs. We can conclude that, the market penetration of imported vehicle is inevitable. Although be affected strongly, domestic automobile enterprises will not be shocked in short-term. Firstly, only vehicles with more than 40% of benefit created by ASEAN companies will be supported. Therefore, there are only some product lines that can penetrate into Vietnam market in short-term. Secondly, Vietnam s transportation infrastructure is very weak that is not suitable for automobile in short-term. Therefore, customer preferred to buy motorbike than automobile. Automobile demand will not be booming only 20

21 because of price. Thirdly, the penetration of foreign manufacturers and the growth of automobile sales will create opportunities for Vietnam automobile industry. The growth of automobile consumption will be followed by the demand of after sale services. Hence, automobile services segment will develop significantly. In addition, the increase of demand of automobile parts will also create opportunities for domestic parts suppliers. Because of the threat of new entrants, many small enterprises will exit. However, it can be the motivations and opportunities for potential and sensitive enterprises. 21

22 RECOMMENDATION THA TMT HHS HAX SVC Truong Hai Auto Corporation TMT Automobile Joint Stock Company Hoang Huy Investment Services JSC Hang Xanh Motors Service JSC Sai Gon General Service Corporation 22

23 TRUONG HAI AUTO CORPORATION Financial Summary F Net Revenue (VND billion) 11, , , , /- yoy (%) 41.51% % 28.07% 57.44% Net Profit (VND billion) , , /- yoy 0.53% % % % Total assets (VND billion) 10, , , , /- yoy 30.90% 24.59% 12.61% 22.46% Equity (VND billion) 4, , , , /- yoy 0.36% 0.50% 18.20% 8.99% Debts/Total Assets 55.91% 64.48% 63.04% 67.43% Gross profit margin 14.76% 14.65% 17.81% 15.74% Net profit margin 5.22% 2.17% 7.60% 12.23% EPS (VND) 2, , , ROA 6.60% 1.93% 7.83% 14.61% ROE 15.26% 5.53% 21.39% 44.86% THA BASIC INFORMATION Current price n/a (VND) EPS (VND) 3, P/E n/a Book value (VND) Beta Average volume n/a n/a n/a Listed shares 352,500,000 Outstanding share 352,500,000 Capitalization n/a (VND billion) SHAREHOLDER STRUCTURE Mr. Tran Ba 61.22% Duong and family Jardine Cycle & Carriage 18.55% Hoang Cuong 7.24% Other 12.99% In the first half of 2014, Truong Hai s revenue was VND 8,974 billion and net profit was VND 1,245 million, equal to nearly 50% of planned revenue and 67% of planned revenue. In comparison to the first half of 2013, Truong Hai s revenue increased by 57%. The growth of Truong Hai s revenue was the result of the recovery of automobile demand and the expansionary monetary policy, which will remain unchanged in the second half of Therefore, Truong Hai s revenue can be USD 1 billion in These impressive numbers reflected partly the leading position of Truong Hai in Vietnam automobile industry. According to VAMA, in the first 6 months of 2014, due to the success of THACO TRUCK, Truong Hai was the leading firm in CV segment, beyond competitors as TMT or Isuzu. Whereas, in the PC segment, although Toyota Vietnam has been the largest company for a long time, Truong Hai also grew strongly, and was the second PC assembler and distributor with key products as KIA or Mazda. The highlight of Truong Hai was the strategic vision of company s leaders. These strategic decisions were the main causes of the success of Truong Hai, which take the company to be the largest distributor in Vietnam automobile market: Chu Lai-Truong Hai industrial park invested in 2003 now is the production center of Truong Hai with closed production process; products of joint venture of Truong Hai and KIA Korea, Truong Hai and Mazda now are key product lines of Truong Hai; the showroom system that was invested significantly in 2012 and 2013 now was a large competitive advantage of Truong Hai. In short-term, Truong Hai will continuously take advantages of the strong growth of domestic demand. In the last 6 months of 2014, 23

24 Truong Hai expects to consume 21,624 vehicles, 21% higher than the first half. Expectation in middle term of Truong Hai will continuously be supported by the recovery of economy. However, this is the time for the company to adjust business and investing strategy and adapt to the changes in business environment due to the globalization. In long-term, the abolishment of import tariff will reduce automobile price and increase demand strongly. However, besides opportunities, Truong Hai will have to compete intensively with competitors from Thailand and Indonesia. TMT AUTOMOBILE JOINT STOCK COMPANY Financial Summary F Net Revenue (VND billion) /- yoy (%) % % 2.91% 95.78% Net Profit (VND billion) /- yoy % % % % Total assets (VND billion) /- yoy % -4.34% % 60.93% Equity (VND billion) /- yoy -8.78% -3.05% 1.40% 1.35% Debts/Total Assets 48.86% 48.18% 39.82% 62.10% Gross profit margin 10.86% 7.97% 10.25% 11.62% Net profit margin 0.31% 0.25% 1.13% 4.04% EPS (VND) , ROA 0.43% 0.20% 1.08% 4.67% ROE 0.83% 0.38% 1.79% 12.32% TMT BASIC INFORMATION Current price (VND) 13, EPS (VND) 1, P/E Book value (VND) 10, Beta 0.75 Average volume 76, TMT and brand Cuu Long has been established for more than 40 years and is one of the first automobile companies in Vietnam. However, because of the intense competition of large companies that had advantages of technology and capital resources, TMT now is not one of the leading automobile firms in Vietnam automobile industry. Overcoming the difficulties in the period from 2010 to 2013, while other companies planned ambitious business performances, TMT planned only VND billion in revenue and VND 5.29 billion in net profit, increase by 16% and -7% in comparison to However, in the first half ò 2014, TMT achieved VND billion in revenue and VND 19.9 billion in net profit, equal to 67% and 376% of the plan, separately. Although beyond the planned revenue and net profit, these number did not illustrate the mutations of TMT s 24

25 Listed shares 30,839, Outstanding share 30,429, Capitalization (VND billion) SHAREHOLDER STRUCTURE Domestic 60.48% institutions Foreign institution Domestic individuals Foreign individuals 0.14% 38.02% 1.36% operating activities because this was very small in comparison to the scale of TMT. In reality, TMT was not a company that was sensitive to the business cycle. While almost automobile companies business performance was very positive in 2013 after a recession period, TMT s net profit was very small, especially in the first half. We believe that, management was not strength of TMT. We can conclude that, the prospect of TMT in the next period will depend on the recovery of economy rather than the improvement of production capacity. In the last 6 months of 2014, business performance of TMT will be improved due to the high demand while inventory will be liquidated rapidly. We expect that the company s revenue will be 70% higher than the plan. In middle term and long-term, prospect of not only TMT bur also other automobile companies will be affected strongly by the ATIGA. This will be an opportunity of TMT because the company can import cheaper parts from ASEAN to decrease the dependence of parts imported from China. The mutations of TMT s business performance can be caused by 2 factors: Electro Static Power Coating Factory is in final stage and will be completed at 3rd Quarter TMT will be one of the two companies in Vietnam own ESPC technology (with Mercedes Benz Vietnam). This is the state of the art technology that will not only beautify the product, but also save material and energy. The factory will provide services for TMT and other domestic producers. TMT Vietnam-TATA India cooperation: product of that joint venture will be TATA Nano the cheapest automobile for Vietnam market. However, this project is in planning stage only. 25

26 HOANG HUY INVESTMENT SERVICES JOINT STOCK COMPANY Financial Summary F Net Revenue (VND billion) /- yoy (%) -8.7% -26.1% 7.8% 24.3% Net Profit (VND billion) /- yoy 59.9% -32.6% 17.4% 3.6% Total assets (VND billion) /- yoy 26.1% 25.5% 31.9% 20% Equity (VND billion) /- yoy 62.9% 23.3% 34.3% 1.7% Debts/Total Assets 26.9% 28.2% 26.8% 33.8% Gross profit margin 16.9% 16.8% 18.6% 0.0% Net profit margin 16.6% 15.1% 16.4% 13.7% EPS (VND) 7,204 11,157 2,262 2,222 ROA 28.2% 15.1% 12.1% 10.4% ROE 42.8% 20.8% 16.5% 16.8% HHS BASIC INFORMATION Current price (VND) 17, EPS (VND) 1, P/E Book value (VND) 9, Beta 0.36 Average volume 686,579 Listed shares 38,249,948 Outstanding shares 57,364,241 Capitalization (VND billion) SHAREHOLDER STRUCTURE Domestic 0.00% institutions Foreign institutions 0.00% Domestic individuals 99.97% Foreign individuals 0.03% Consumption of heavy trucks, truck tractors imported from China is growing rapidly and is dominating this segment because of cheap price. Following by this trend, Hoang Huy, that was the exclusive distributor of Dongfeng truck has grown rapidly for years. Hoang Huy is known as a company that had a special business model. With more than 75% of 20 to 25 employees who were disable, Hoang Huy concentrate on importing, registrations automobile and was exempted from income tax. Whereas, automobile distribution that was the main operation activity of Hoang Huy is performed through nearly 40 agents in 30 provinces and cities which was focus on big markets. Hoang Huy s key products were heavy trucks, therefore, strategic clients of the company is transportation and logistics firms. Hoang Huy s business performance was very impressive. In the first 6 months of 2014, Hoang Huy achieved VND billion in revenue and VND billion in net profit, increase by 35.54% and decrease by 29.06%, year over year. The decrease in net profit was the result of the heavy truckload control policy of the Government and the company involves this factor in yearly plan. The business performance in the period from 2011 to 2013 also shows that, although be affected by the economic regression, Hoang Huy s profit margin was very high. Focusing on heavy truck distribution is an appropriate strategy of Hoang Huy. In contrast to passenger cars and light trucks, heavy trucks segment was not affected strongly by the abolishment of import tariff because this is not the product that ASEAN companies take advantages. Therefore, the prospect of Hoang Huy in the next few years will depend mainly on policies of the Government and Vietnam-China relation. 26

27 HANG XANH MOTORS SERVICE JOINT STOCK COMPANY Financial Summary F Net Revenue (VND billion) , /- yoy (%) % % 7.08% 62.73% Net Profit (VND billion) /- yoy % 90.40% % % Total assets (VND billion) /- yoy -2.84% % 0.00% -2.45% Equity (VND billion) /- yoy -9.87% -3.05% 1.40% 1.07% Debts/Total Assets 63.68% 63.14% 62.88% 61.63% Gross profit margin 4.33% 3.10% 4.15% 2.38% Net profit margin -1.32% -3.71% 0.22% 1.42% EPS (VND) -1,124-2, ,005 ROA -4.15% % 0.65% 4.93% ROE % % 1.79% 13.16% HAX BASIC INFORMATION Current price (VND) 7, EPS (VND) P/E 8.27 Book value (VND) 8, Beta 0.36 Average volume 1,993 Listed shares 11,116,169 Outstanding share 11,116,169 Capitalization (VND billion) SHAREHOLDER STRUCTURE Domestic 43.86% institutions Foreign institutions 0.85% There are more and more luxury car brands in Vietnam such as Mercedes, Audi, Lexus and recently Peugeot. With the increase of demand, the competition in this segment will be very intense in the next period. Being one of three exclusive agents of Mercedes-Benz Vietnam (MBV), Hang Xanh had many experience and was a famous brand. However, the recent position of Hang Xanh was deterioted, in comparison to not only MBV s agents, but also other luxury car distributors in Vietnam. After being negative in the period from 2009 to 2012, Hang Xanh s net profit was positive in In the first 6 months of 2014, Hang Xanh achieved VND billion in revenue and VND 5.3 billion in net profit, equal to 58% planned revenue and 83% planned net profit. However, it can be seen that HAX s operating profit was still negative and most of net profit was contributed by other profits. The operating activities of HAX improved insignificantly. The recent highlight of HAX was that the inventory was liquidated partly. While automobile distribution is in difficulties, repair and maintenances services were stable. Hang Xanh was recognized by Mercedes-Benz as the best services supplier of their agents in Vietnam. These activities will contribute steady cash flow to Hang Xanh. The expectation of HAX in the next few years is positive because of the growth of demand and the ambition of Mercedes-Benz in dominating Vietnam luxury car market. However, if there is not any improvement in management, it is very difficult for Hang Xanh to compete with other distributors. 27

28 Domestic 53.28% individuals Foreign individuals 2.01% The growth of automobile consumption in the next period will increase the demand of after sales services. Therefore, the service sector of Hang Xanh will grow significantly. SAIGON GENERAL SERVICE CORPORATION Financial Summary F Net Revenue (VND billion) 6, , , , /- yoy (%) 47.50% % 21.60% 17.00% Net Profit (VND billion) /- yoy % 0.50% -8.20% 18.90% Total assets (VND billion) 2, , , , /- yoy 15.60% -0.40% 3.40% 20.00% Equity (VND billion) /- yoy 1.10% -1.10% 1.20% -0.10% Debts/Total Assets 67.10% 66.80% 67.30% 73.80% Gross profit margin 6.60% 7.10% 6.00% 6.50% Net profit margin 0.70% 0.80% 0.60% 0.60% EPS (VND) 2,871 1,787 1,648 1,958 ROA 3.20% 1.70% 1.50% 1.50% ROE 11.10% 6.30% 5.60% 6.60% SVC BASIC INFORMATION Current price (VND) 16, EPS (VND) 1, P/E Book value (VND) 29, Beta 1.23 Average volume 101,245 Listed shares 24,995,573 Outstanding share 24,975,507 Capitalization (VND billion) Savico was the largest automobile distribution system in Vietnam. Savico includes more than 20 affiliates that focus on automobile distribution located around the country; Savico dominated key markets as Hanoi, Danang, Ho Chi Minh city and Cantho. In 2013, the market share of Savico in distribution segment was 10.3%. In reality, SVC s business scope included 3 sectors that are Trading, Real estate services and Financial services. Although recently, real estate was the main business sector, which contributed more than 50% in revenue and net profit in 2013 and 2014F, Savico will concentrate in automobile distribution only. Although SVC was a famous brand and was the leading company in automobile distribution segment, business performance of the company was not as good as expectation. In the first half of 2014, SVC s revenue was VND 1,806 billion; however, net profit was VND 10 billion only. SVC s net profit was equal to TMT, whereas TMT s revenue was only 1/7 of SVC. It is notable that while the degree of financial leverage was very high, the net profit margin was very low. ROE was affected strongly by leverage. This problem will affect the stability of company s operating activities. 28

29 SHAREHOLDER STRUCTURE State-owned 43.86% shareholders Treasury stocks 0.85% Special shareholders Domestic shareholders Foreign shareholders 53.28% 2.01% 8.90% Savico is account to 20.2% of Toyota sales, 28% of Ford sales, and 7% of GM sales. These are famous and popular brands in Vietnam. In addition, is a distributor, SVC will be able to adapt to the change in the business environment that was caused by the penetration of ASEAN manufacturers. Therefore, we believe that, ATIGA was the opportunity for SVC rather than challenge. 29

30 STOCK COMPARISON 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 76.81% 98.50% 99.97% 97.14% 91.10% 23.19% 1.50% 0.03% 2.86% 8.90% THA TMT HHS HAX SVC OWNERSHIP STRUCTURE 4,000 3,500 3,000 2,500 2,000 1,500 Charter capital 1, HHS SVC TMT HAX THA CHARTER CAPITAL 30

31 Revenue 6M/2014 Revenue 2013 Revenue HHS SVC TMT HAX THA REVENUE FLUCTUATION Net profit 6M/2014 Net profit 2013 Net profit HHS SVC TMT HAX THA NET PROFIT FLUCTUATION 31

32 25.00% 20.00% 15.00% 10.00% 5.00% Gross profit margin Operating profit margin net profit margin ROE ROA 0.00% HHS SVC TMT HAX THA PROFIT MARGIN % 90% 80% 70% 60% 50% 40% Equity Liabilities 30% 20% 10% 0% HHS SVC TMT HAX THA CAPITAL STRUCTURE (30/06/2014) 32

33 RECOMMENDATION STICKER RECOMMENDATION CURRENT PRICE TARGET INVESTMENT PROFIT PRICE HORIZON THA Buy - 51,000-2 years TMT Hold 13,600 16, % 1 year HHS Buy 15,500 20, % 1 year HAX Sell 7,500 5, % 1 year SVC Buy 16,500 27, % 2 years 33

34 This report has prepared by analysts of APEC on basic of information believed to be reliable at the time of publication. APECS make no presentation of warranty regarding the completeness and accuracy of such information. Investor must make their investment decisions based upon independent advice subject to their particular situation and investment objectives. Issued by: Research Department Asia Pacific Securities JSC APEC. Analyst: Novae Nguyen Hoang Head Office: Address: APEC Building, 14 Le Dai Hanh, Hai Ba Trung, Hanoi. Tel: (84-4) EXT: 822 Fax: (84-4) For more information, please contact Research Department, Asia Pacific Joint Stock Company: VU THI THU TRANG Head of Research Tel: (84-4) NOVAE NGUYEN HOANG Analyst Tel: (84-4)