HSC-Report-Team-8-group-2

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2015
RMIT University
S3480697 – Le NhatAnh
S3461886 – VuongMinhChau
S3461818 – NguyenHoangPhuc
S3461882 – Le Duc Manh
S3461583 – VuDuy Phat
[INVESTMENT]
[Type the abstract of the documenthere.The abstractistypicallyashort summaryof the contentsof the document.
Type the abstract of the documenthere.The abstractis typicallyashortsummaryof the contentsof the document.]

Contents
I. Executive summary ....................................................................................................................................... 1
II. Macro Analysis.............................................................................................................................................. 2
1. GDP GROWTH ........................................................................................................................................... 2
2. INTEREST RATE.......................................................................................................................................... 2
3. INFLATION ................................................................................................................................................ 3
4. EXCHANGE RATE........................................................................................................................................ 3
5. GOVERNMENT REGULATION...................................................................................................................... 4
III. Industry Analysis ....................................................................................................................................... 4
1. INDUSTRY OVERVIEW................................................................................................................................ 4
2. MARKET SCALE.......................................................................................................................................... 4
3. INDUSTRY DRIVING FORCES ....................................................................................................................... 5
IV. Company Analysis...................................................................................................................................... 6
1. BUSINESS ACTIVITIES .................................................................................................................................6
2. OWNERSHIP STRUCTURE ........................................................................................................................... 7
3. COMPETITORS........................................................................................................................................... 8
4. DISTRIBUTION CHANNELS.......................................................................................................................... 9
5. COMPETITIVE ADVANTAGES....................................................................................................................... 9
6. DEVELOPMENT STRATEGIES..................................................................................................................... 10
V. Financial Performance................................................................................................................................. 12
1. DuPontAnalysis....................................................................................................................................... 12
2. Risk Profile.............................................................................................................................................. 15
VI. Estimating Required Rate of Return:......................................................................................................... 16
1. DEFINITION............................................................................................................................................. 16
2. RETURN ON RISK FREE ASSETS.................................................................................................................. 16
3. EXPECTED MARKET RATE OF RETURN ....................................................................................................... 16
4. MARKET RISK PREMIUM .......................................................................................................................... 17
5. SYSTEMATIC RISK (β)................................................................................................................................ 17
6. ADJUSTED BETA....................................................................................................................................... 18
7. EXPECTED RETURN OF HSC....................................................................................................................... 18
VII. Valuation Model...................................................................................................................................... 18
1. DIVIDEND DISCOUNT MODEL (DDM) ........................................................................................................ 18
2. FREE CASH FLOW TO EQUITY (FCFE).......................................................................................................... 22
3. P/E RATIO............................................................................................................................................... 26
4. P/B RATIO............................................................................................................................................... 29
VIII. Model Discussion..................................................................................................................................... 32

1. DISCOUNT DIVIDEND MODEL (DDM) ........................................................................................................ 32
2. FREE CASH FLOW TO EQUITY (FCFE).......................................................................................................... 33
3. P/E RATIO............................................................................................................................................... 33
4. P/B RATIO............................................................................................................................................... 34
IX. Recommendation:................................................................................................................................... 34
X. References.................................................................................................................................................. 36
XI. Appendix................................................................................................................................................. 39

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I. Executive summary
Founded in 2003 by Ho Chi Minh City Finance and Investment Company and Dragon Capital, Ho
Chi Minh Stock Company (HSC) was one of the largest charter capitals among stock companies in Vietnam
market at the moment. HSC provides financial services and investment advisory for Private and also
Institutional clients. Not the oldest one, but HSC has now reached the top position. After being listed in the
Ho Chi Minh stock exchange in 2009, HSC is now leader of the market beside SSI.
In such a young and newly opened to the world market such as Vietnam, the stock market is a perfect
complementary for market mechanism by facilitating more capital flowing through the market. After 17
years, the stock market has significant contribution to the fast growth rate of Vietnam economy. In return,
HSC has also been growing at an impressive pace. Charter capital has increased more than 25 times, from
only 50 billion to 1,273 billion VND. Many rewards, local and international, were honoured in the name of
HSC for significant contribution and sustainable development.
This report will investigate deeply into the core of the company to analyse its current position. The
period of 5 years, from 2010 to 2014 will be investigated. Being a stock company, HSC’s performance relies
on the health of the economy. The macro-economic factors such as GDP growth rate, interest rate and
government regulations can directly affect the company’s financial result immediately. These factors are
being monitored for the last 5 years and will be analysed to clarify the relationship between macro-economic
factors and the HSC’s performance, not only in the past but also for a future prediction.
The period from late 2011 to early 2012 was a bad time for Vietnam economy, especially for the
stock market. However, HSC was less affected than many others. A closer look into the Industrial Analysis
and Micro Analysis could show a hint on the secret of their success. Technically, HSC’s financial
performance will be evaluated through a package of ratios, especially DuPont analysis. The company’s
structure, their cost management and profitability will be revealed.
The aim of this report and all those analysis are to provide an insight into HSC and the stock market
where it’s operating in, and that vision will draw investors to a conclusion where they are recommended to
buy or sell HSC’s stocks based on the calculated value. Four different models will be used to estimate its
intrinsic value, including Dividend discount model (DDM), Free cash flow to equity (FCFE), Price per
Equity (P/E) and Price per Book value (P/BV) ratios. Each approach has its own strengths and weaknesses,
hence different result. Therefore, a weight of appropriateness will be implemented on each model based on
its level of reliability and sensitivity to the market. The final recommended price is the weighted average of
all the approaches. Based on the team estimation, at the beginning of 2015, HSC stock price is currently
undervalued. Investors are recommended to BUY.

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II. Macro Analysis
1. GDP GROWTH
The GDP growth rate has been decreased
slightly during the 4-year period from 6.4%
to 6% with the average growth rate of nearly
5.8%. In 2010 and 2011, Vietnam recovered
from the impacts of the global financial
crisis in 2007 - 2008 as a result of the
government’s stimulus package (VND
17,000 billion) in 2009, which allowed firms
to borrow at 4% interest rate. However, this
package did also put a pressure on the
increasing inflation. The GDP growth rate
then decreased significantly in 2012 due to the increasing public debt, leading to the tight money policy at
this time. Simultaneously, this also caused the downturn in the real estate and stock market. However, since
2013, Vietnam economy has recovered gradually with the positive signs contributed by the restructure of
banking system in order to reduce the level of doubtful debt. With the current positive signal for the
economy in 2014, Vietnam GDP growth rate is forecasted to increase to 6.5 % in the next 2 years and will,
therefore, raise the business confidence both domestically and internationally. Such increase will encourage
the Investment demand, and enhance the capital inflow into the Investing sector - which, in turn, reassures
the potential development of the Financial services Industry.
2. INTERESTRATE
In Vietnam, the interest rate is governed by
the State Bank and is adjusted to meet the
macroeconomic goals. From 2010 to 2014, the
interest rate has fluctuated quite significantly
while reaching the peak at approximately 15% in
2011 due to the pressure to fight the high inflation
(18%). It then decreased in the following years,
and now stabilized at 6.5 % since the beginning of
2014. The fluctuation of the interest rate is due to
the fact that the Vietnam economy was affected
by the global financial crisis in 2008. In 2015,
according to Reuters (2015), State Bank of
Vietnam wants to cut the interest rate down to
5.5% in the hope of boosting the GDP growth rate. Such decline will encourage a switch from holding to
investing money into financial assets to achieve better return, which will ultimately boost the demand for
Investment and ensure the future growth of the Financial services Industry.
Figure 1: Vietnam AnnualGDP Growth rate (World Bank 2015)
Figure 2: Vietnam Interest rate (IEconomics 2015)

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Figure 3: Vietnam Inflation (World Bank 2015)
3. INFLATION
The inflation during this period, in general has
been falling. In 2011, the inflation reached the
peak (18.7%) as a result of the recession in the
financial sectors and the growth in the consumer
price index (CPI) at the same time, resulting in the
economy slowing down due to the drop in GDP
growth rate (Thanh Nien News, 2011). However,
the inflation rate has been decreasing since the end
of 2011. A stable inflation rate will help to
promote the foreign fund flowing into Vietnam and
retain the existing domestic fund since the value of their investment would be well managed, especially
since the government allows foreign investors to expand their ownership in more sectors starting in
September 2015.
4. EXCHANGE RATE
Figure 4: Vietnam Exchange rate 2010-2015(Yahoo Finance 2015)
The exchange market in Vietnam is managed by the State Bank of Vietnam (SBV) to maintain the
stability of exchange rate for specific period of time. During the last 5 years, the Vietnam dong (VND) has
depreciated by approximately 18% relative to the US dollar. In particular, at the beginning of this year, the
government has devalued the VND by 2% in the hope to boost the export value (Bloomberg, 2015). This
movement will encourage the export sector to compete in the global market with a more competitive price.
However, the simultaneous depreciation of others regional currencies such as Thailand, Indonesia, Malaysia
and especially China have hurt the Vietnam export sector in price, even though the SBV has devalued the

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currency to 3%. VND is expected to devalue in the following years based on the decision of SBV.
Therefore, in long term, such devaluation might discourage the capital inflow into Vietnam.
5. GOVERNMENTREGULATION
The corporate tax in Vietnam was at 25% from 2010 and just reduced by 3% to 22% in 2014 which
aimed to stimulate the economy (Trading Economics). Furthermore, in 2015, the government announced
through the Decree 60/2015/ND-CP that allowed the expansion in the foreign ownership by up to 100% in
some sectors such as securities starting in September (Bloomberg, 2015). On the other hand, under the
Decree 42/2015/ND-CP has been enacted by the Prime Minister, the Ministry of Finance also plans to set up
the derivatives and derivatives trading market in 2016 such as requirements, regulation, and trading system
(Vietnam Plus, 2015). Under those decrees, it will promise a dramatic growth for the stock market in the
future as more foreign funds will flow into Vietnam after the market is diversified and more opened for
foreign investors.
III. Industry Analysis
1. INDUSTRYOVERVIEW
Under the Decree 48/CP was enacted by the government on July 11th 1998, Vietnam Stock Market
was born. In the same time, Ho Chi Minh Stock Exchange was founded and started its first operation on July
28th 2000. Six years later, Vietnam Stock Depository was established to provide supporting services to the
whole securities market.
As a young market in a young economy, the stock market was started lowly. Break-through came in
2006 with the newborn of Ha Noi Stock Exchange and the OTC market. With almost 60% growth rate,
Vietnam was the second hot spot in the world for investment. The market was booming in 2007, VN Index
reached its highest peak of 1170.67 points, but in the end of the year it was adjusted, went back down and
fluctuated ever since. After 15 years, the VN-Index now is 594.26 point with around 126.5 million of stocks
being traded every day, equivalent to 2,251.21 billion VND of trading value (HOSE 2015). As of today,
Vietnam stock market capitalization is roughly 51.9 billion USD (31.1% GDP), one of the youngest and
smallest stock market in the region.
2. MARKET SCALE
Currently, there are 348 securities listed in HOSE, including 309 stocks, 38 bonds and 1 ETF. The
majority of them are in manufacturing (95 companies), wholesale and retail trade (45 companies), real estate
(38 companies), construction (32 companies) and many more. According to HOSE (2015), there is only
5.5% of the listed companies are in the sector of finance, banking and insurance but they represent the
highest percentage of market capitalization (more than 38% of the whole Vietnam stock market)

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Figure 5: Vietnam market liquidity from Sep 2014 to Aug 2015 (source)
In an Asian market like Vietnam, the traditional Tet holiday is usually on February, that’s why
trading in that particular month is the lowest. The market is improved later on to reach its peak in the
beginning of 4th quarter. Investors tend to trade a lot at the beginning of the fiscal year but they will p lay
very carefully at the end to make sure they have nice looking financial report next year.
Put-through trades contribute around 10% to the total trading value in HOSE. According to HOSE
(2015), only trades with volume from 20000 stocks and above in 1 deal have to use the put-through
procedure. The Vietnamese economy is still weak, there are not much blue chip company’s listed, old
regulations which strictly limited room for foreign investors and perhaps these are reasons why the HOSE is
not so vibrant.
3. INDUSTRYDRIVINGFORCES
In a country, the stock market could be a major index for the whole national economy. To illustrate,
it reflects not only the products and services in the market, but also the financial market. Therefore, these
key factors should be closely investigated in order to clearly understand the fluctuation of the stock market.
● Vietnam economy
The health of the economy is very important when investing in stock market. To explain, high GDP
with strong growth rate, positive net export, and stable price level will ensure a healthy environment for
firms to develop and making a strong platform for the stock market. Furthermore, CPI and inflation are also
important determinants in stabilizing the economy. However, Vietnam recently is still suffering from the
financial crisis, bad management and low productivity and slow gait in reformation. Hence, this situation
could not do much to boost the stock market.
● Interest rate
Most of business operation is concerned with leverage, especially in financial business. The interest
payment plays in important role in which directly affects the profit margin of investors. In general, interest
rate in Vietnam is relatively high 6.5% (comparing to Singapore, Thailand, Malaysia and the Philippines
with the rate are 0.23%, 1.5%, 3.25% and 4%, respectively). Hence, if the interest rate of Vietnam could be
lowered, there would be more capital flow into the stock market.

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Interest rate also impacts directly to every company’s performance, which is reflected on the stock
price. With low interest rate, firms can be assured with not so expensive long term debt, make more profit,
boost the stock price and enhance liquidity.
● Government regulations
As a young market, the Ho Chi Minh Stock exchange is still limited and excluded many tools. The
upcoming Decree 60 is awaited to make a breakthrough to the market. With an increase in foreign
ownership limit for publicly-traded companies, Vietnamese stock market will attract more capital inflow.
Besides, cross ownership is restricted and hence, there will be more liquidity. Moreover, banking operations
are facilitated in using more short term capital and lending for stock and real estate. Therefore, these
adjustments could decrease interest rate and boost the economy.
IV. Company Analysis
1. BUSINESS ACTIVITIES
Type of Clients:
Figure 6: HSC’s revenue breakdown 2014 (adapted from Annual report 2014)
● Individual clients
The Brokerage service for Individual clients was the major strength in HSC business activities ever
since its inception. With the advantages of early entry and high reputation, HSC remains one of the 5 leading
firms in this market segment. More importantly, HSC was the first company to apply the model of customer
direct consulting through the VIS Portals into its operation.
● Institutional clients
HSC is one of the 3 leading securities brokerage for foreign investors. HSC provides practical utility
through their daily reports, company reports and specialized reports based on investing segment, and

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strategic analysis documents. The company has diversified the services for Institutional clients in order to
provide more options for both domestic and foreign investors.
Type of Services:
Figure 7: Revenue breakdown based on Business types in Q1 and Q2 of 2015 (adapted from Annual report 2014)
● Brokerage services
HSC finds out the needs, the financial capacity and risk tolerance levels of customers and then
provides effective financial solutions, in accordance with their specific financial situations. Indeed,
brokerage services are the core business of HSC. In the first 2 quarters of 2015, they contribute up to 39.5%
and 46.9% of the firm’s revenue, respectively.
● Securities investments
HSC simplifies the investment process for all customers, and offers them a complete approach to the
service of managing customers’ account to ensure that every transaction and provided information will be
updated, managed and monitored continuously by highly professional and experienced staffs.
● Finance advisory services
HSC ascertains the needs, financial current status and growth potential of the corporate clients to
provide specific solutions to best meet their specific requirements, from raising capital, looking for financial
investors to issuance of shares to the public.
● Custodian services
HSC receives securities deposited by clients, helps them to store and implement their rights to those
securities. The modern networks allow HSC to implement those rights efficiently, minimize the error and
provide more accurate reports. Therefore, HSC is one of the most prestigious Securities Depository in the
market.
2. OWNERSHIP STRUCTURE
Figure 8 shows the ownership structure of HSC. As can be seen,
the major investors of HSC are foreign shareholders with nearly
49% of the firm’s ownership. The other 51% of the ownership
belongs to the local investors in which 29.5% are owned by the
State, and the rest are from other domestic investors.
Figure 8: Ownership Structure (reproduced from HSC, 2014)

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3. COMPETITORS
In Vietnam, there are approximate 100 securities
corporations including domestic and foreign
companies. Specifically, top 10 giant companies
were holding 62% market share in Vietnam (Phuong
Chi, 2015). From the figure 9, there were two main
leaders in securities brokerage which are SSI and
HSC with the market share were 12.53% and
11.74%, respectively.
HSC used to be a winner in 2013 with the market
share of 13.28%; However, there was a huge change
in Q4/2014, which HSC trading dropped
dramatically, and SSI took the leader position in that
year. Furthermore, the distance between the top 2
and the rest was quite far. For example, 3rd and 4th position were VCSC and VND with the market share of
6.52% and 5.81% and 2 times lower comparing to 1st position.
a. Saigon SecuritiesIncorporation(SSI)
Saigon Securities Incorporation (SSI) was established in 2000 and had approximately 15 years’
experience in financial industry. Similarity to HSC, SSI has many business activities the same as HSC.
Besides that, SSI has some activities raising profit that HSC does not have including depositary shares and
leased assets. Moreover, according to VNeconomy (2012), SSI operated its business with more than eight
thousand billion VND capital and was 2.5 times higher compared to HSC. With such a great amount of cash,
their business activities would be more effective and easy than HSC. In addition, one difference in SSI
compared with other securities companies as the company implements long-term investment strategy
through holding of more than 20% of the capital to become associated company of SSI. To illustrate,
looking at the list of associated companies of SSI, the majority are now trading in agricultural products,
aquatic products for export. For example, NSC, HVG, ABT and SSC had good business results and stable
dividend payment every year. With numerous activities raising revenues, SSI will have sustainable growth
and become the most competitive rivals with HSC.
b. VietCapital Securities(VCVS)
Figure 10: Top 5 Securities companies with highest revenue in 2014 (adapted from cafef, 2014)
Figure 9: Securitiesmarketshare 2014 (reproducedfrom
Infonet,2015)

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Viet Capital Securities (VCSC) was established in 2007, is one of the fastest-growing stock
companies in Vietnam. In 2014, VCSC accounted for 6.52% in the total brokerage trading of the market and
became the 3rd company in the list of top 10 securities company had highest revenue in 2014. From the
figure 2, comparing to other rivals HSC and SSI, VCSC earned more profit from consulting activities and
accounted approximately 13.74% (VCSC annual report 2014). This number was greater comparing to SSI
and SHC with 1.1% and 1.53%, respectively (Ha Thai 2015). According to Hoan, vice president has shared
that ‘We emphasized the human factor as a competitive advantage. A good broker must have ability to
advise customers most effectively rather trading the most’. VCSC chose human value as a key to be
successful in the future. Although VCSC has established for short time, the company has built for itself
many remarkable achievements and affirms its strong position in the Top 3 in the core activities of market
segment: the first bank investment, broker and analyst. In the future, it may become another formidable
competitor with HSC.
c. VNDIRECT (VND)
VNDIRECT Securities Joint Stock Company was established since 2006 with the co-founder Financial
Group Investments IPA. After 8 years of establishment, VNDIRECT has grown into retail stock company
with equity over 1835.3 billion VND and more than 500 professional employees (Infor Net 2015). In 2014,
the company has focused on developing the core business activities such as personal brokerage, financial
services, self-investment and investment banking. The result has brought for VNDIRECT so many
successes. To illustrate, in 2014 only, the revenue had increased by 67.5% in which the array of brokerage
was accounted for 42% (Hoang Tu 2015). Hence, the company has planned to increase the employee to
emphasize on brokerage sector. Moreover, since 2009, the company has cooperated with INCOM to provide
a SMS Securities for customer. This application will help the company gain advantages against other
competitors in term of customer services. In 2015, the Decree 60 of the government will create more
opportunities for the company to develop and expand the business.
4. DISTRIBUTION CHANNELS
a. Online trading
HSC provides trading services through an online channel, i.e. the VM-Trade, which allows the
customers to trade and search for information in the most rapid, convenient and accurate way. There are 2
different types of account for different types of customers: the VI-Trade for the normal customers and the
VIP-Trade for the VIP ones. Different types of account provide different services, and the VIP accounts will
have access to wider range of services.
b. Directtrading
HSC also provides direct trading services where the firm’s consultants and customers will meet face-
to-face in the trading offices. HSC’s offices only locate in Ho Chi Minh City and Hanoi. Meanwhile, SSI
(currently ranked the 1st) has its trading offices spread in other big cities such as Hai Phong, Nha Trang, and
Vung Tau. Obviously, in terms of direct distribution channel, HSC is one step behind its major competitors
in capturing all available customers.
5. COMPETITIVE ADVANTAGES
a. Human Resource
In 2015, HSC is a leader in Securities Company with 573 employees (Phuong Mai, 2015). The
reason is that the company wants to enhance the quality of consultation as well as the services for customers,
especially in brokerage area. Moreover, staffs in the company are well-trained with high specialization. As a

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result, human is key factor for the success of the business and are considered as the competitive advantages
for HSC.
b. Technology
Since 2013, HSC has been successful in introducing the “information security ISMS” under the
standard of ISO 27001. The purpose is that to ensure the security of information under the principle of C.I.A
(Confidentiality - Integrity - Availability). Specifically, ISMS helps minimize the risks related to security of
information, enhance the confidence and peace of mind of customers in transactions at HSC (Bao moi,
2013). With this success, it will confirm the pioneering position of HSC in the development of advanced
technology systems and gain the competitive advantages against other rivals.
c. High dividend paid
Another factor that is considered to be a key success factor is the high and dividend. For over the last
four years, dividend always has been paid with high percentage, particularly in 2013 and 2014 is 12%.
Compared to interest rate from deposit in bank, this rate of dividend is much higher. Thus HSC high
dividend tends to be more attractive for clients.
d. Risk management
Risk management is also considered as competitive advantage for HSC. The reason is that beside the
corporate governance and skilled employees, HSC also has to take a view of risks that may appear in
business. By taking a clear look at all risks that expose to the business, HSC can be able to re-assess its
strength at current position and develop an appropriate strategy for its growth.
e. Transparencyfor customers
For clients, transparency plays an important role for assessing HSC’s performance. To explain,
clients and investors are concerned that what kind of activities HSC doing and whether the money are
appropriately invested. Thus, to satisfy the wonders of customers, HSC focuses on developing Investor
Relations with different information channels. To clarify, Investor Relations hold general meeting every
year and provide annual reports for investors to be fully informed about company’s operating results and its
activities. Moreover, Investor Relations also arrange meetings with investors and media every quarter to
assess the financial situation of HSC and disclosure any information required for investors. Therefore,
investors and clients are satisfied with disclosure method of HSC.
6. DEVELOPMENTSTRATEGIES
a. The “Prudent strategy”
Figure 11: HSC Revenue breakdown (adapted from Security Information, 2015)

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In 2015, the company has set a target of 779 billion in revenues and 415.6 billion in profit before tax.
After many years doing business on market, HSC is growing fast and becomes one of the top securities
Corporation in Vietnam. Hence, HSC already has a lot of competitive advantages against other rivals such as
high market share, large number of well-qualified staffs and great amount of assets. For sustainable growth,
in different time frame, HSC always has ‘prudent strategy’ to apply in order to maintain and develop its
business (Security Information, 2015)
From 2010 to 2012, HSC did not focus on too much on investment activities due to the fluctuation of
the economy. However, they choose less risky activities instead. Brokerage, financial advisor and lending
margin were the main activities during that HSC applied to raise profit. With large customer network, these
activities brought for company so many successes. Since 2012, the company boosted the development
through many investment activities and high ROE and ROA each year would demonstrate for sustainable
growth for the company (see appendix 3). In 2015, HSC will focus on developing investment strategies and
hedging investments in securities. Furthermore, HSC will provide speculative services and online services
through a network of worldwide brokers. Moreover, reinforcing the capital and expanding overseas
operations in order to leverage the accessibility of potential customers.
b. Growth Model
For the aim of maintaining the growth rate, HSC concentrates on a model that contains three main areas.
The first area is the company itself. HSC focuses on providing staff benefits to encourage their dedication;
and manages the risks that can appear in its business to achieve a stable growth. This can be achieved
through (HSC, 2014):
➢ Enhance the role of risk management and risk control in the financial management, the accounting
and auditing, as well as the enterprise risk management.
➢ Continue to promote the transparency in business operation
In the second area, the concern of HSC is to maintain stable dividend for shareholders, following with
the professional services and increase in capital raising channels. This can be achieved through (HSC,
2014):
➢ Reinforce and promote the development of core business through products and services
diversification.
➢ Enhance the efficiency of using capital through continuously promoting the strengths of the current
products and services, as well as through developing new products and services that meet both the
international standards and the customers’ need.
The final area is the society, which requires HSC to meet the financial responsibilities to the
Government and to protect the environment. This can be achieved through (HSC, 2014):
➢ Promote the creation of a strategic CSR development plan to accelerate the enhancement of
corporate value based on the sustainable development.
Thus, to achieve positive impacts on these areas, HSC has to fulfil all the above missions to bring out
benefits and opportunities for the company itself. Hence, by determining what HSC needs to do for this
model, company can exploit the available benefits and opportunities.

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V. Financial Performance
1. DuPontAnalysis
NET PROFIT MARGIN
Figure 12: Net profit margin from 2010 to 2014(Team estimated)
The net profit margin measures how much a company actually earns form every dollar of sales. A
more profitable company having better cost control usually has higher net profit margin.
HSC is one of the top companies that has highest net profit margin, but is the only firm able to keep
it stable over the 5-year period. Meanwhile, most of the others suffered a fall of profit margin in 2011,
especially VNDIRECT, due to the recession in the economy. From 2012 onwards, the industry witnesses a
strong recovery with almost every firms increasing theirs net profit margin. HSC, in general, is more
profitable than the average, indicating that the company’s management board has succeeded in leading the
company through the recession time.
ASSET TURNOVER
Figure 13: Asset Turn over from 2010 to 2014 (Team estimated)

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Total asset turnover ratio is an indication showing the company’s efficiency in utilizing its asset to
generate revenue. The higher the ratio is, the better the company performs and it also implies that company
is generating more revenue for every dollar of assets (Investopedia 2015).
Overall, the asset turnover ratio for all firms fluctuated from 2010 to 2014. During 4-year period, while
most of the firms had a fall in the ratio; However, HSC moved in the opposite direction with an increase
from 16.71% in 2011 to 23.67% in 2014. The main reason is because HSC revenue has been rising
throughout the last 4 years. This ratio also points out that HSC is more efficient in using its asset to generate
higher revenue, compared to the three peers.
INTERESTEXPENSERATE
Figure 14: Interest expense from 2010 to 2014 (Team estimated)
Interest expense ratio is the interest that company has to pay for the debts of borrowing. A higher
rate of interest expense indicates the more debt company owed and a higher interest that it will have to
repay. Therefore, a low interest rate expense is more preferred.
In general, there was a big distinction between HSC’s interest expense ratio and its competitors.
Through the whole 5-years period, HSC always maintained the lowest interest expense rate, whereas its
peers fluctuated over time, especially in 2011. Due to the downfall of the economy, many Securities
Company suffered from loss during that time and high interest expense ratio as a result. A supporting reason
was during that time, HSC mainly concentrated on Consultant activities and interest on banking investment
rather than self-investment as other competitors (Bao Moi, 2011). Thus, its loss would maintain lower than
its competitors.
FINANCIAL LEVERAGE

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Figure 15: Financial leverage from 2010 to 2014 (Team estimated)
The financial leverage multiplier shows which capital contributes to the company’s assets. In DuPont
analysis, this ratio shows how much company relies on debt that can reflect the accuracy of the return on
equity (ROE). According to the graph, HSC’s and SSI’s financial leverages are quite similar which average
ratio is around 1.5 times and adjusted very lowly. The ROE of the HSC would not change much as the
financial leverage over this period is quite stable.
TAX RETENTION RATE
Figure 16: Tax retention from 2010 to 2014 (Team estimated)
The retention ratio evaluates the percentage of a firm’s earnings that are retained after all taxes are
paid off. Normally, a firm with higher retention rate tends to generate higher return for the company itself as
well as for its investors.
Based on the above graph, the tax retention ratio of the first 3 firms tends to increase initially and
then decline over times as compared to an upward trend of VNDIRECT. From 2011 onwards, HSC retained
the lowest after-tax earnings as compared to its two competitors. In 2014, the tax retention ratio of HSC

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increased to 78.1%, higher than that of its biggest competitor - SSI (which was currently at 76.4%). The
overall increase in the tax retention rate reflected the government efforts in reducing the corporate tax and
became the premise for an official Decree 96/2015/TT-BTC (regarding cutting corporate tax) later on in
2015.
RETURN ON EQUITY
Figure 17: Return on Equity (Team estimated)
The return on equity is the amount of net income relative to the shareholders equity. It measures how
profitable a firm is by calculating how much profit the company made for every dollar shareholders have
invested. A high ROE is usually indicating a faster growing company.
From 2010 to 2014, HSC is the only firm that could maintain a return on equity greater than 9% for 5
years. It was slightly affected by the market downfall in 2011 while VNDirect was struggled much more. In
2012, the market was recovered and most firms developed at almost the same pace, especially HSC who
could yield a higher return than the industry average. The managing of directing board should be highly
appreciated for growing stably both profit and equity throughout the years.
2. Risk Profile
Figure 18: Financial Risk ratio from 2010 to 2014 (Team estimated)

16
The Debt-to-Equity (D/E) ratio and the Debt-to-Capital (D/C) ratio are measurement of a firm’s debt
relative to its total value of equity, and are used to estimate the extent to which firm is taking on debts for
leveraging. Normally, firm with higher D/E and D/C ratio tends to be more aggressive in debt financing and
hence bears higher default risk.
Figure shows an upward trend in both ratios during the past 5 years, indicating that HSC became
more aggressive toward debt financing as means of leverage. Even though the 2 ratios remain within the
acceptable level, investing in HSC should be considered to be riskier over times.
VI. Estimating RequiredRate of Return:
1. DEFINITION:
CAPM is a model used to measure the expected rate of return of a risky asset which contains 2
components. Those components are the risk free rate and the systematic risk of the asset (Beta) multiply by
risk premium. For risk free, this will be compensated for investors in terms of time value of the money,
while compensation presented by the second part of CAPM will occur for any additional risks that investors
have to bear (Investopedia, 2015).
The general formula of CAPM is:
E(R)i = RFR + βi(Rm – RFR)
2. RETURN ON RISK FREE ASSETS:
According to Tradingeconomics (2015), 10-year Vietnam Government Bond from 2007 to 2015 has
a return of 6.79%. This rate of return of Vietnam Government Bond will be first component in determining
expected return for HSC.
3. EXPECTED MARKET RATE OF RETURN:
To determine the expected rate of the market (VN-Index), many factors will need to be taking into
account such as inflation, exchange rate or government regulation. However, to be simpler for this report,
expected market rate of return will only consider the change in Vietnam’s GDP growth rate. The table below
shows the expected market return which is based on different scenarios for GDP growth rate in Vietnam. To
demonstrate that, the historical rates of annual GDP growth rate and data of VN-Index for more than 10
years are gathered for assumption (Worldbank, 2015; CafeF, 2015). Then VN-Index will be forecasted
based on its historical change in response to change in GDP growth rate over the last 10 years.
As showed in below table, for GDP interval between 6 % and 6.5%, probability is around 90%. The
reason is that the Vietnam government planned to have GDP growth rate of more than 6.2% in 2015 and it
has a fact that in the first two quarters, the growth is 6.28% (Huu Hoe, 2015). Hence, this GDP growth rate
will accumulate highest probability to happen. Thus, this leads to the low probability for another two
intervals due to lack of evidence. To illustrate, for interval below 6%, IMF believes that ASIA countries
including Vietnam will remain the same growth as previous years because of low export (IMF, 2015),
therefore the probability in this scenario is 5%. It is the same for the third scenario World Bank affirms that
GDP growth rate of Vietnam should be around 6.5 to 7 percent (World Bank, 2015).

17
Finally, the expected market return will be the sum of all market returns in different scenarios.
GDP Interval Probability VN - Index Market return
5.5% - 6% 0.15 8.3% 1.245%
6% - 6.5% 0.60 14.7% 8.82%
6.5% - 7% 0.25 21.1% 5.275%
E(market return) 15.34%
Figure 19: Market return (Team estimated)
4. MARKET RISK PREMIUM:
Market Risk Premium = Expected Market Return – Risk Free Rate
= 15.34% - 6.79%
= 8.55%
5. SYSTEMATIC RISK (β):
Beta is a measurement which represents the systematic risk of a risky asset corresponding to the
market as a whole. In this report, systematic risk (Beta) is measured by regression model with combination
of the historical rate of return of HSC as a dependent variable and historical market return (VN-Index) as an
independent variable. Historical data mentioned for calculating Beta is daily return of HSC and daily market
return from beginning of 2010 to the end of the year 2014. The table below is a result for measuring the Beta
by using regression model.
Figure 20: Regression model (Team estimated)

18
Beta (slope coefficient for HSC) is 1.465 and this represents the positive relationship between the
return of HSC and VN-Index.
R2 is 0.459 which indicates that 45.9% of the variation of HSC can be explained by the return of the
market (VN-Index).
P-value represents the significance of the model, in this case is less than 5% and this indicates that
the market return (VN-Index) can be used to explain the return of HSC.
6. ADJUSTED BETA
The raw beta above is not an accurate indicator for any future forecast due to its historical data.
Instead, the Bloomberg formula should be applied to calculate the adjusted beta which will be more precise
in predicting the expected return of HSC:
Adjusted Beta = Raw Beta x 0.67 + 1 x 0.33 = 1.31
7. EXPECTED RETURN OF HSC
E(RHSC) = RFR + Beta (RM – RFR)
= 6.79% + 1.31 (15.34% - 6.79%) = 18 %
VII. ValuationModel
1. DIVIDEND DISCOUNT MODEL (DDM)
DDM is simplest model to estimate the intrinsic value for a stock given a growth rate. The current price
of the stock will be the sum of the present value of future dividend.
Based on the either constant growth or multi- growth of the company, a relevant formula will be applied
to analyse for specific firm. In this report, there are two fundamentals DDM, one is used for the constant
growth rate and another is used for the multi growth rate
Constant growth model:
𝑃 =
D1
𝑘 − 𝑔
=
D0(1 + 𝑔)
𝑘 − 𝑔
Where:
P: the intrinsic value of the stock
k : the required of return of the stock
g: is the growth rate
Note: the growth of the firm must be greater the value of the required rate of return of the stock.

19
Multi growth stage model:
𝑃 =
D1 -
1 + 𝑘
+
D2 -
(1 + 𝑘)2 + ⋯+
𝐷𝑛
(1 + 𝑘) 𝑛
Where:
P is the intrinsic value of the stock
k is the required rate of return of the stock D1, D2 …
Dn = Amount of the dividend paid out
Note: the growth of the firm must be greater the value of the required rate of return of the stock.
The second approach will be applied when the company has different timeframe of growing.
Normally, the second way is more preferred as it reflects truly the growth of the market. To explain,
dividend paid can base on some factors such as the policy itself, macroeconomics and microeconomics
factors.
a. Dividend growth rate
Estimate the growth based on historical data:
Another way to estimating the growth based on the history.
Looking at historical averages in growth:
➢ Geometric or arithmetic means
Using various models:
➢ Linear regression:
○ Book Value or EPS--t = a + bt
➢ Log- linear regression:
○ In (EPSt) or in (Book value)= a+ bt
In which:
EPS is earning per share in period
t is the year t where t goes from 1 to n
b is the coefficient that indicates the average absolute change in the series during the period
Estimate the growth by fundamental method:
g = Percentage of earning retained x Return on equity = RR x ROE
Where:
g = potential growth rate
RR= the retention rate of earnings
ROE= the firm’s return on equity

20
ROE and retention ratio (RR) are the key determinants for a potential growth of a business. Based on
the opportunity for the company to invest in the future, then the board of directors decided how much
retention ratio is kept to reinvest (Reilly and Brown, 2012). As this report has stated above that ROE’s
component including net profit margin, total asset turnover and financial leverage, then the business can
increase either of each component to raise the ROE.
There are a lot of factors including internal and external factors could affect the growth of the
business. Based on the analysis of macroeconomics, microeconomics and the business, the following
information will provide of potential growth of HSC in the next five years.
Period Expected growth rate Explanation
2015 - 2016 7.00% - The “Room” expansion for foreign investors
through the Decree No.60 (Huy Thang, 2015) is
a positive sign for HSC to attain more foreign
investments to expand its business.
- Company enhances the risk management and
risk control as the stock market is going to allow
derivatives product trading. Such enhancement
will help change the investors’ perception of
investing in HSC being less risky, and hence can
attract more capital inflows.
- It is to grow quick as the market is currently
unstable, and even in the near future.
2017 – 2018 12.00% - Through the enhancement in products and
services diversification (HSC, 2014), HSC can
capture more potential customers and therefore,
has higher profit and ROE
- Receiving many prestigious awards in 2014
will become a platform for HSC to enhance its
strong and competitive brand.
- The reduction in Corporate tax to 22% in 2015,
and 20% from 2016 onwards (Decree
96/2015/TT-BTC, 2015) gives chances for HSC
to increase its net revenue.
- The allowed transactions at time (T+0)
through the “Draft Circular replacing Circular
74” (Binh An, 2015) will create a positive
impact on the stock price in the medium and
long term, thereby boosting the revenue and
profits for all Securities Companies.
- The estimated increase of 15-20% in M2

21
Money supply - the total amount of VND in the
entire society will enhance the available money
pool for investing sectors (Vietstock, 2015)
2019 –
onwards
10.00% - The excess growth within the previous period
will stimulate the simultaneous development of
other competitors and even stimulate the
entrances for new-born rivals.
b. Intrinsic value
Actual Normal Growth Super Growth Constant Growth
Year 2014 2015 2016 2017 2018 2019
Period 0 1 2 3 4 5
DIV 2,100 2,247 2,404.3 2,692.8 3,015.9 3,317.5
g 4.72% 7.0% 7.0% 12.0% 12.0% 10.0%
Annuity 41,469.2
DDM 1,904.2 1,726.7 1,638.9 1,555.6
Discount Annuity 21,389.4
Intrinsic value 28,214.8
The intrinsic value is 28,214.8 VND, which is lower the prevailing market price of HSC (31,200
VND) ⇒ Overvalued.
c. Sensitivity Analysis
Intrinsic value’s Sensitivity to Stage 1 and 2 of Growth rate
Super growth
Slow growth
5% 6% 7% 8% 9%
10% 27,440.13 27,636.47 27,832.80 28,029.13 28,225.46
11% 27,627.54 27,825.66 28,023.77 28,221.89 28,420.00

22
12% 27,814.95 28,014.85 28,214.75 28,414.65 28,614.55
13% 28,002.35 28,204.04 28,405.73 28,607.41 28,809.10
14% 28,189.76 28,393.23 28,596.70 28,800.17 29,003.64
There is a positive relationship between the growth rate in both the 2 stages and the intrinsic value of
HSC. As the growth rate rises by 1%, the corresponding intrinsic value will increase, but not significantly
(almost 0.9%). In addition, the gap between the 2 extreme values is quite small, around 1,800 VND. These
suggest that the intrinsic value is therefore not very sensitive to change in the Dividend growth rate.
Intrinsic value’s Sensitivity to Beta and Market risk premium
Market risk
premium
Beta
1.11 1.21 1.31 1.41 1.51
6.55% 48,966.71 43,113.13 38,687.39 35,223.84 32,439.47
7.55% 39,919.84 35,703.10 32,439.47 29,838.62 27,717.26
8.55% 34,070.81 30,806.17 28,214.75 26,170.24 24,465.19
9.55% 29,978.74 27,329.24 25,223.85 23,510.57 22,089.20
10.55% 26,955.37 24,732.87 22,952.33 21,493.85 20,277.29
As shown in the table above, the Beta and market risk premium have an inverse relationship with the
intrinsic value of HSC. Specifically, when there is an increase in either Beta or the risk premium, the stock
value of HSC will decrease. This can be explained as the risk increase, the required rate of return by
investors have to increase in order to compensate for the higher risk they have to bear with.
In this sensitive analysis, there is a big impact on the the intrinsic value due to the input variables. To
illustrate, when increasing either Beta by 0.1 unit or the Market risk premium by 1%, the average increase in
the Intrinsic value of HSC is 9.34% and 13.34% respectively. Additionally, the gap between the maximum
and minimum value is quite significant with 26,040 VND. Thus, the intrinsic value is very sensitive to
change in the required rate of return.
As a result, it can be concluded that HSC intrinsic value is quite sensitive to change in either Beta or
the market risk premium, and is not very dependent on the change in the dividend growth rate.
2. FREE CASH FLOW TO EQUITY (FCFE)
a. Historical Data

23
FCFE = Net income+ Depreciation expense – Capital expenditure – Change in working Capital
– Principal Debt repayments + New debts issued
FCFE is a method to calculate the cash available to common stockholders after deducting all expenses,
reinvestment and debt repayments.
2010 2011 2012 2013 2014
Net income 182,311,697,653 194,420,423,020 246,380,523,819 282,174,310,748 376,152,047,249
Depreciation 6,754,711,184 8,850,284,140 9,157,862,246 6,535,525,051 3,078,461,196
Capital expenditure (20,382,993,832) (4,636,982,426) (8,669,134,244) (3,175,695,574) (5,308,359,612)
Change in Net WC 332,839,245,774 1,280,106,895,287 (1,388,254,621,635) 1,133,805,376,339 107,708,306,686
New Debt 0 825,000,000,000 0 0 350,000,000,000
Debt Paid 0 (615,000,000,000) (100,000,000,000) (110,000,000,000) (350,000,000,000)
FCFE
(164,155,830,769) (871,473,170,553) 1,535,123,873,456 (958,271,236,114) 266,213,842,147
Outstanding shares 59,841,941 99,617,517 100,565,957 127,249,720 127,229,583
FCFE/share -2,743 -8748 15,265 -7,531 2,092
FCFE/Share growth
rate -218.91% 274.49% -150.67% 127.79%
b. Estimated growth rate for FCFE per Share
In the last 5 years, we have witnessed many changes in the stock market. As being still very young
and primitive, we have seen many adjustments in the market every year. That is the reason why the financial
structure of HSC has been changed many times and many ways, hence its income. With high fluctuation, the
forecast is not legit if relied on trailing ratios. Therefore, an investigation of micro and macroeconomic
factors will be a more appropriate base to predict the future growth rate of FCFE per share.
The forecast includes 3 period, the near future (from 2015 to 2016) where there are many change in
the local economy as well as the global economy, the future (from 2017 to 2018) where all the changes are
fully implemented and the economy starts to accelerate, and the far future (from 2019 and onward) where
everything is stable and the growth is constant.
Period
Expected growth
rate
Explanation
2015-16 6% In early 2015, market liquidity is not as high as
expected. The monetary devaluation of many countries,
especially in China, has negative effect on VN stock

24
market. Revenue is predicted to decrease in 2015 (HSC,
2015).
However, HSC’s income could increase thanks to new
regulations that facilitate the stock market:
- Increase in foreign ownership in Vietnamese
companies (100% for stock company)
- Simplify administration procedure for foreign investor
- Investors may trade in T+0 or short sales
- Reduction in Corporate tax
- Increase in money supply
In term of politic, 2016 is the year of 12th National
Congress of VN Communist Party and the US
presidential election, many improvements in economic
policies will be considered and may boost the market.
⇒ HSC’s income could slightly increase in the near
future, hence FCFE.
2017-18 15% New policies could be fully implemented in the
economy, improve company’s performance.
The FTA with Euro zone which could be approved by
late 2016 will bring new opportunities to VN market.
TPP also helps to improve trade.
This period could be the golden era for Vietnam when
the economy is more opened and many facilitating
policies are in place.
⇒ HSC growth may increase more quickly in this
period.
2019-
onward
12% The economy is in the mature phase, growth is stable.
HSC growth rate will also become stable due to its
sustainable development strategies.
⇒ FCFE per share growth rate is stable at a higher level.

25
c. Intrinsic Value
Actual Normal Growth Super Growth
Constant
Growth
Year 2014 2015 2016 2017 2018 2019
Period 0 1 2 3 4 5
FCFE/share 2,092.39 2,217.93 2,351.01 2,703.66 3,109.21 3,482.32
FCFE Growth rate 4.72% 6.00% 6.00% 15.00% 15.00% 12.00%
Annuity (VND) 58,130.63
Discount FCFE 1,879.76 1,688.73 1,645.93 1,604.21
Discount Annuity 29,992.79
Intrinsic value 36,811.42
d. Sensitivity Analysis
Super Growth
Slow Growth
4% 5% 6% 7% 8%
13% 35,549.63 35,891.45 36,233.28 36,575.1 36,916.92
14% 35,833.25 36,177.8 36,522.35 36,866.9 37,211.45
15% 36,116.86 36,464.14 36,811.42 37,158.69 37,505.97
16% 36,400.47 36,750.48 37,100.48 37,450.49 37,800.49
17% 36,684.09 37,036.82 37,389.55 37,742.28 38,095.02
The sensitivity analysis shows a positive relationship between the growth rate, both in slow pace and
fast pace, and the intrinsic value of HSC’s stock. For every percent increasing in the growth rate, the

26
intrinsic value is increased almost equally (~0.96%). However in Super growth stage, the intrinsic value is
not as sensitive as before (~0.79%). This is an evidence to show that investors tend to be more careful when
the company is growing too fast.
Market Risk
Premium
Beta
1.11 1.21 1.31 1.41 1.51
6.55% 107,262.07 81,357.13 65,521.28 54,839.39 47,147.69
7.55% 69,662.65 56,239.61 47,147.69 40,582.07 35,618.40
8.55% 51,565.02 42,959.71 36,811.42 32,199.47 28,612.11
9.55% 40,921.84 34,745.56 30,185.75 26,681.41 23,904.20
10.55% 33,914.36 29,163.29 25,577.05 22,774.19 20,523.41
As observing from above, the intrinsic value has negative relationship with both the Market Risk
premium and Beta. The higher the Market risk premium is (which means either a higher in Expected rate of
return or a lower Risk free rate), the lower the intrinsic value will be devalued. On the other hand, the higher
the HSC stock’s market risk (beta), the lower its value is. Every change of 1 percent of market risk premium
will lead to a 37599.42 change in the value, while a change of 0.1 of beta yields a lower change of 25904.94
in the value. Actually, investors care more about how much they will be compensated than how risky they
are in the market.
3. P/E RATIO
a. Historical Data
Figure 20: P/E Ratio from 2010-2014 (Team estimated)

27
Overall, the period 2010-2014 witnessed an upward trend in the P/E ratio of both HSC and the industry
average. Comparing to HSC and VND, SSI always maintains the highest P/E. Especially in 2011, SSI was
the highest among the industry and even among itself in the other years. One supporting reason is that in
2011, its EPS was only 227 VND - much lower than the 2 other firms and the industry average. Meanwhile,
the same case did not apply for VND within that same period. The company’s EPS was low and was a loss;
therefore, the resulting P/E ratio was below zero. For HSC, despite an initial fall in 2011, its P/E ratio
remained quite stable during the 3-year ending period.
b. Ratio Breakdown
2014 Payout Ratio Growth rate Beta Required rate (k)
SSI 47.16% 6.92% 1.08 16.02%
HSC 71.04% 4.72% 1.31 18.00%
VND 20.90% 6.78% 1.24 17.39%
Average 46.37% 6.14% 1.21 17.14%
Median 47.16% 6.78% 1.24 17.39%
The median will be used to avoid the extreme values and thus, provides a more accurate estimation
for the future P/E.
➢ Payout ratio
Holding other variables constant, firms with lower reinvestment needs will have higher P/E ratios
compared to other firms. The table has shown that the average payout ratio of the industry was 40.5%, while
HSC possessed the highest ratio of 71.04%. Thus, it implies that the share price of HSC will be more
expensive.
➢ Growth rate
The growth rate of HSC is 4.72%, the lowest compared to SSI and VND. Such growth will lower the P/E
for HSC.
➢ Beta
Normally, a high Beta implies higher required rate of return and therefore a lower P/E. Since HSC has
the highest beta compared to other competitors and the industry average, its P/E ratio will be negatively
impacted.
c. Future Estimation

28
P
EPS
=
70% ∗ (1 + 7%) ∗ (1 −
(1 + 7%)2
(1 + 18%)2 )
18% − 7%
+
40% ∗ (1 + 12%) ∗ (1 −
(1 + 12%)2
(1 + 18%)2 )
18% − 12%
+
85% ∗ (1 + 7%)2 ∗ (1 + 12%)2 ∗ (1 + 10%)
(18% − 10%) ∗ (1 + 18%)4 = 10.61
Period 2014 2015-2016 2017-2018 2019 onwards
Length of Period (years) 1 2 2 Infinite
Required rate 18.00% 18.00% 18.00% 18.00%
Payout ratio 71.10% 70.00% 40.00% 85.00%
Expected growth rate 4.70% 7.00% 12.00% 10.00%
Estimated P/E: 10.62
Estimated 2015 EPS: 2,956 x (1 + g) = 3,162.92
Estimated 2015 Price: 3,162.92 x 10.62 = 33,549.16
d. Sensitivity Analysis
Super growth
Slow growth
5% 6% 7% 8% 9%
10% 31,477.01 32,016.86 32,561.66 33,111.39 33,666.07
11% 31,973.09 32,521.85 33,075.63 33,634.44 34,198.27
12% 32,473.56 33,031.31 33,594.16 34,162.12 34,735.19
13% 32,978.43 33,545.24 34,117.24 34,694.44 35,276.84
14% 33,487.68 34,063.64 34,644.88 35,231.40 35,823.20
There is a positive relationship between the growth rate in both the 2 stages and the intrinsic value of
HSC. As the growth rate in either growth stage increase by 1%, the corresponding intrinsic value will
increase, but not significantly (almost 1.7% for the slow growth stage and 1.5% for the super one). In
addition, the gap between the 2 extreme values is insignificant, with nearly 4,346.2 VND. These suggest that
the intrinsic value should be insensitive to change in the growth rate.

29
Market risk
premium
Beta
1.11 1.21 1.31 1.41 1.51
6.55% 68,286.79 58,442.62 51,016.87 45,220.22 40,572.95
7.55% 53,082.89 46,021.38 40,572.95 36,245.50 32,728.41
8.55% 43,294.18 37,853.60 33,594.16 30,172.52 27,366.46
9.55% 36,478.25 32,086.56 28,613.45 25,801.39 23,480.67
10.55% 31,468.60 27,806.12 24,888.46 22,512.56 20,542.77
As showed above, intrinsic value of HSC’s value is negative correlated to Beta and Market risk
premium. Every 1% increase for Beta or Market risk premium leads to a fall in value of the HSC share, but
with a lower decreasing rate. It means the higher the rise in the Market risk premium or Beta, the lower the
decrease in the intrinsic value. Moreover, the difference between the two extreme values is quite large which
is 47,744.02 VND. Hence, the intrinsic value has a high sensitivity towards Beta and Market risk premium.
4. P/B RATIO
a. Historical Data
Figure 21: P/BV Ratio from 2010-2014 (Team estimated)

30
In general trend, the last 5 years witnessed a recovery in the P/BV ratio of all firms and the industry as
well after the initial fall in 2011. The reason for that fall in 2011 was because the stock price of all firms had
a drop more than a half of their initial prices in the previous year.
As shown on the above graph, the P/BV ratio of SSI remained the highest among the industry,
following by HSC. The difference between these 2 companies is not very noticeable throughout the period,
only significant in 2010. Despite ranking the 2nd, HSC growth in this ratio was steadier and more noticeable
throughout the 5-year period.
b. Future Estimation
➢ Basedon Industry benchmark in 2014
2014 ROE Payout Ratio Growth rate Beta Required rate (k)
SSI 13.09% 47.16% 6.92% 1.08 16.02%
HSC 16.31% 71.04% 4.72% 1.31 18.00%
VND 8.57% 20.90% 6.78% 1.24 17.39%
Average 12.66% 46.37% 6.14% 1.21 17.14%
Median 13.09% 47.16% 6.78% 1.24 17.39%
Again, the median will be used to avoid the extreme values and thus, provides a more accurate
estimation for the future P/BV.
However, using historical data to predict future movement will not be appropriate to this case. Even
though the 2 components - the ROE and the Payout ratio - suggested that HSC was outperforming as
compared to the other 2 competitors and the industry average, this method applies the growth rate of 2014 -
which indeed has not yet captured the impacts of both macro and micro factors on the company's future
growth rate.
➢ Basedon Multi-growth stage Model
Since using historical data to predict future growth is not applicable, the Multi-growth stage must be taken
into account.

31
P
BV
=
17.4% ∗ 70% ∗ (1 + 7%) ∗ (1 −
(1 + 7%)2
(1 + 18%)2 )
18% − 7%
+
19.5% ∗ 40% ∗ (1 + 12%) ∗ (1 −
(1 + 12%)2
(1 + 18%)2 )
18% − 12%
+
21.4% ∗ 85% ∗ (1 + 7%)2 ∗ (1 + 12%)2 ∗ (1 + 10%)
(18% − 10%) ∗ (1 + 18%)4 = 2.21
Period 2014 2015-2016 2017-2018 2019 onwards
Length of Period (years) 1 2 2 Infinite
Required rate 18.0% 18.0% 18.0% 18.0%
Payout ratio 71.1% 70.0% 40.0% 85.0%
ROE 16.3% 17.4% 19.5% 21.4%
Expected growth rate 4.7% 7.0% 12.0% 10.0%
BVPS 18,518.44
Estimated P/BV: 2.21
Estimated 2015 BVPS: 18,518 x (1 + g) = 19,814.73
Estimated 2015 Price: 19,814.73 x 2.21 = 43,790.55
c. Sensitivity Analysis
Super growth
Slow growth
5% 6% 7% 8% 9%
10% 40,995.11 41,705.75 42,422.94 43,146.66 43,876.93
11% 41,656.51 42,379.09 43,108.33 43,844.22 44,586.76
12% 42,323.78 43,058.40 43,799.80 44,547.97 45,302.90
13% 42,996.91 43,743.69 44,497.36 45,257.91 46,025.34
14% 43,675.91 44,434.95 45,201.00 45,974.04 46,754.09

32
The table above shows the sensitivity of intrinsic value of HSC share with the two different growth
stages. Transparently, the price of share will move in the same direction with the growth rate. To illustrate,
when the slow growth increases for 1% (from 7% to 8%), the price increases by 723.72 VND. Thus, this
also leads to another observation that for any 1% change in slow growth or super growth, it would result to a
change of 0.01% in the price of share. Therefore, the intrinsic value is less sensitive to two above growth
rates.
Market risk
premium
Beta
1.11 1.21 1.31 1.41 1.51
6.55% 90,246.54 77,060.03 67,115.60 59,355.06 53,135.25
7.55% 69,882.11 60,427.50 53,135.25 47,345.64 42,642.23
8.55% 56,777.04 49,496.81 43,799.80 39,225.73 35,476.68
9.55% 47,656.97 41,784.13 37,142.46 33,386.72 30,289.40
10.55% 40,958.04 36,063.95 32,168.03 28,998.04 26,372.17
As shown above, the intrinsic value of HSC share has an inverse relationship with Beta and Market
risk premium, meaning whenever Beta or Market risk premium increases, the intrinsic value will fall. For a
rise of either 0.1 unit in Beta or 1% in the Market risk premium, the intrinsic price will dramatically fall, but
at a diminishing rate. Besides, the gap between the 2 extreme value is very significant - 63,874.37 VND.
Both suggest that the intrinsic value of HSC share will be very sensitive to change in Beta and the Market
risk premium.
VIII. Model Discussion
1. DISCOUNT DIVIDEND MODEL (DDM)
The Dividend discount model (DDM) is the first technique to calculate the value a stock based on the value
of the dividends that will be paid in the future.
The advantage of this model is:
 Its simplicity leads to basic calculation and is almost based solely on the company’s dividend
growth rate.
Besides, this model also has many drawbacks:

33
 As this model requires the future dividend to calculate the price, many impractical assumptions
have to be made. Such subjective inputs may negatively impact the model and hence, leads to bad
prediction of the final intrinsic value.
 If the required rate of return is less than the dividend growth rate, the DDM will be invalid.
 Although the company had paid dividends annually, the payout ratio was not stable over time. For
instance, the payout ratio for 2010 was 10% and fell to 5% in 2012 and then jumped up to 12% in
2014. This unstable dividend growth rate causes difficulty in predicting the growth in the future.
Regardless of its simple use and easy calculation, there are more disadvantages come along with the model.
Hence, this method is considered not reliable and should only account for very low weight in pred icting the
final price.
2. FREE CASH FLOW TO EQUITY (FCFE)
Similar to the Discount Dividend Model (DDM), the FCFE model determines the stock’s value by
discounting all the free cash flow after paying all expenses, reinvestment and debt repayments. However, the
FCFE model is more reliable than the DDM since:.
➢ The FCFE model considers both internal and external factors rather than the dividend solely.
➢ The cash flow is recorded daily so the historical data is reliable, accurate and hardly bias while
the DDM model is relied on the company’s dividend policy.
➢ The FCFE can be used to forecast the potential dividend payment since it estimates the future
free cash flow of the company.
Still, the FCFE has its own shortcomings:
➢ There were negative FCFEs in 2010, 2011 and 2013 due to the large change in working capital.
The negative FCFE indicates a sign of the firm movement to raise or earn new equity.
➢ The historical FCFE fluctuated significantly, making it difficult to predict the forward FCFE to
value the HSC stock.
➢ By taking into account more factors, the FCFE model will require more information needed to
estimate the final intrinsic value, making it more complicated but reliable than the DDM model.
In short, the FCFE model will be better predictor than the DDM, and therefore will account for higher
weight in the final calculation compared to the other discount model.
3. P/E RATIO
P/E ratio is a widely-used technique to determine the current share price of a firm, based upon its
earning per share. Overall, a higher P/E ratio indicates higher expectation from the investors in the growth of
future earnings. This is an useful technique for investor as:
➢ It is easy to use, to comprehend and to derive investing decisions correspondingly.
➢ Normally, P/E ratio measures the share’s real value rather than its price alone. This will,
therefore, reflect how investors evaluate and price the company.
Regardless of the distinct advantages, this method still confronts some pitfalls needed to be considered:
➢ Based upon its definition, there is no such thing as a right or wrong P/E ratio, but rather a good
ratio. Hence, a “good” P/E ratio has to adequately reflect the investor's’ view and attitude toward
the firm value - which are very difficult to be used to provide accurate predictions on the future
intrinsic value.
➢ The guidelines for calculating the earnings per share are governed by the Generally Accepted
Accounting Principles (GAAP) which will change over time and will be used differently in

34
different companies. The EPS of a given firm can be twisted into various numbers depending
how the books are calculated and which Accounting principles have been adapted. Consequently,
in most cases, it is quite unsure whether the investors are comparing the same figures, or only
oranges to apples.
➢ When developing the model, some assumptions regarding the dividend have to be made. Since
the P/E technique heavily relies on the growth rate and the payout ratio of dividends meanwhile
HSC does not have a transparent dividend policy, those assumptions will increase the volatility
between the predicted and the actual intrinsic value.
After evaluating the advantages and disadvantages of the P/E model, it is best not to heavily depend on
this technique to calculate the company's intrinsic value (i.e this technique should not account for very high
weight in the final price).
4. P/B RATIO
The final method used to assist investors decision is the P/B ratio. This technique reflects the market
value of the stock in terms of company’s book value. It is measured by dividing the latest closing price of
the stock for the latest book value per share. P/B ratio is a helpful technique because of the following
reasons:
➢ It is simple, easily calculated and understandable for the investors.
➢ Other than the P/E ratio, it can bring another view of price stock to investors in relation to the
book value instead of the Earning per Share.
➢ The P/B ratio also assists investors in knowing how much a firm values its assets compared to the
earnings it made.
Nevertheless, P/B also has some specific constraints for analysing:
➢ Similar to P/E ratio, P/B needs to be measured based on the view of the investors about the future
scenarios. Hence, that P/B ratio has to be “good” in the mind of investors for future price.
Therefore, P/B ratio cannot be used to accurately predict the future price of stock.
➢ The P/B ratio does not take into account Intangible assets. Thus the ratio fails to reflect important
intellectual assets that contribute to the brand and the growth of HSC. As a result, this lowers the
book value and raises the P/B ratio higher.
As analysed for advantages and constraints, although there are some downside effects, P/B ratio is still
considered to have a medium weight for calculating HSC intrinsic value in the future.
IX. Recommendation:
The intrinsic value of HSC has been determined and analysed based on the four different models
which are the DDM, FCFE, P/E, and P/BV ratio. After evaluating the strengths and weaknesses of each
model, it is best not to rely solely on one model to predict the final price. Instead, each model partially
contributes to the company value; therefore, the final intrinsic value will be the weighted average of the four
techniques.
Based on the evaluation of both the advantages - disadvantages and the credibility (i.e, through the
sensitivity analysis), the suggested weight for DDM, FCFE, P/E, and P/BV ratio are 5%, 15%, 40%, 40%
respectively. The final price of HSC will be calculated as following:

35
Model Weight Intrinsic value Total
DDM 5% 29,664 1,483.20
FCFE 15% 36,811 5,521.71
PE 40% 33,549 13,419.60
PB 40% 43,790 17,516.00
100% Final Intrinsic value 37,940.51
The predicted price of VND 37,940 is higher than its prevailing market price of VND 31,200
(recorded at December 31th, 2014), indicating a sign of mis-pricing. The resulting investment decision
would be most appropriate to BUY at the current undervalue price and hold until the market is self-corrected
to make a profit of (37,940 - 31,200 =) VND 6,740 per share.

36
X. References
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<http://antt.vn/ssi-vs-hsc-meo-nao-can-miu-nao-019083.html>
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https://www.bsc.com.vn/News/2015/7/16/464214.aspx
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August 2015, <http://www.baomoi.com/Nhin-lai-nam-2011-day-bien-dong-cua-cac-cong-ty-chung-
khoan/127/7770395.epi>
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2015,<http://www.bbc.com/vietnamese/vietnam/2009/12/091201_vn_ends_stimulus.shtml>
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 CafeF 2015, ‘Du Lieu Lich Su’, CafeF,viewed 20 August 31 2015, < http://s.cafef.vn/Lich-su-giao-dich-
VNINDEX-1.chn >
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14.pdf>
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107612.html>
 Hoang , N 2015, ‘Chung Khoan 2015 Trong Tuong Quan Voi Cung Tien M2’ ,Vietsock, viewed 29 August
2015, <http://vietstock.vn/2015/03/chung-khoan-2015-trong-tuong-quan-voi-cung-tien-m2-830-409237.htm>
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 Huu, H 2015, ’ Chính phủ đặt mục tiêu tăng trưởng GDP vượt kế hoạch’, Dau Tu Chung Khoan, viewed
20 August 2015, <http://tinnhanhchungkhoan.vn/thuong-truong/chinh-phu-dat-muc-tieu-tang-truong-gdp-
vuot-ke-hoach-124893.html>
 Huy ,T 2015, ‘Nghi dinh Noi Roomnhammuc dich gi?’,Thư viện Pháp luật, viewed 29 August 2015,
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muc-dich-gi>
 Incom 2009, ‘INCOM Cung Cap Dich Vu SMS Securities Cho CTCP Chung Khoan VNDIRECT’,Incom,
viewed 29 August 2015, <http://www.incom.vn/INCOM-cung-cap-dich-vu-SMS-Securities-cho-cong-ty-co-
phan-chung-khoan-VNDirect-c2-370-i117.html>
 International Monetary Fund 2015, ‘World Economic Outlook: Uneven Growth – short and long – term
factors’, p.45-68, International Monetary Fund, viewed 20 August 31 2015,
,<http://www.imf.org/external/pubs/ft/weo/2015/01/pdf/c2.pdf>
 Investopedia, ‘Capital Asset Pricing Model – CAPM’, Investopedia, viewed 20 August 31
2015,<http://www.investopedia.com/terms/c/capm.asp>
 Phuong, C 2015, ‘Thi Phan Moi Gioi HSX 2014: HSCMat Bot Thi phan, SSI Dau Bang’,CafeF,viewed 2
August 2015, <http://cafef.vn/thi-truong-chung-khoan/thi-phan-moi-gioi-hsx-nam-2014-hsc-mat-bot-thi-phan-
ssi-dau-bang-2015010717101083015.chn>

37
 Phuong, M 2015, ‘Nhan Su CTCK Tang Vot 6 Thang Dau NamHSC,VNdirect Dung Dau Ve Quan So’,
CafeF,viewed 29 August 2015, <http://s.cafef.vn/ssi-161801/nhan-su-ctck-tang-vot-6-thang-dau-nam-
vndirect-hsc-dung-dau-ve-quan-so.chn>
 Thanh nien news 2015, ‘ANZ forecasts 65 pct GDP growth for Vietnam in 2015-16’, Thanh nien
news, viewed 30 August 2015, <http://www.thanhniennews.com/business/anz-forecasts-65-pct-gdp-
growth-for-vietnam-in-201516-39935.html>
 Thu vien Phap luat 2015, ‘Thong Tu 96-2015 TT BTC Huong Dan Thu Nhap Doanh Nghiep Tai Nghi Dinh
12-2015-ND-CP’,Thu vien Phap luat, viewed 29 August 2015, <http://thuvienphapluat.vn/van-ban/Doanh-
nghiep/Thong-tu-96-2015-TT-BTC-huong-dan-thue-thu-nhap-doanh-nghiep-tai-Nghi-dinh-12-2015-ND-CP-
279331.aspx>
 Tradingeconomics, ‘Vietnam Government Bond 10y’, Tradingeconomics , viewed 20 August 31
2015,<http://www.tradingeconomics.com/vietnam/government-bond-yield>
 Tri Thuc Tre 2015, ‘20 Cong ty Chung Khoan Lon Nhat KiemTien Tu Nhung Nguon Nao’,CafeF,viewed 2
August 2015, <http://cafef.vn/thi-truong-chung-khoan/20-cong-ty-chung-khoan-lon-nhat-kiem-tien-tu-nhung-
nguon-nao-20150202023136504.chn>
 Van, H 2015, ‘GiamLai Suat Cho Vay Theo Nghi Dinh 67 Tu 7% Xuong 6,5%/Nam’,CafeF, viewed 30
August 2015, <http://cafef.vn/tai-chinh-ngan-hang/giam-lai-suat-cho-vay-theo-nghi-dinh-67-tu-7-xuong-6-5-
nam-20150813111536928.chn>
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kha-nang-phuc-hoi-20121020095845624.htm>
 Vneconomy 2012, ‘Chu Tich Quoc Hoi: Su Tri Tre Cua Nen Kinh Te Dang Hien Hien’,Vneconomy, viewed
30 August 2015,<http://vneconomy.vn/thoi-su/chu-tich-quoc-hoi-su-tri-tre-cua-nen-kinh-te-dang-hien-hien-
20121022105512425.htm>
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2015,<http://cafef.vn/tai-chinh-ngan-hang/no-cong-no-ngan-hang-cua-viet-nam-duoc-he-mo-
20121123013241545.chn>
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http://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG>
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2015,<http://www.worldbank.org/en/publication/global-economic-prospects/regional-outlooks/Global-
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2015,<http://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG/countries/VN?display=graph>
https://www.hsc.com.vn/vn/media/press/1099/1

39
XI. Appendix
STOCK BOND ETF
No of securities
codes
309 38 1
Proportion 88.79% 10.92% 0.29%
Listing volumes
(1000 securities)
39,503,473.23 66,310.46 21,500
Proportion 99.78% 0.17% 0.05%
Listing value
(mil VND)
395,034,732.25 6,827,412 215,000
Proportion 98.25% 1.7% 0.05%
Appendix 1: Vietnam stock market composition 2015
Month Order matching Put-through
Volume Value Volume Value
08/2015 88,898,450.00 16,365,667.98 7,808,633.40 2,150,861.58
07/2015 290,957,543.00 51,678,438.62 28,738,504.50 5,865,453.96
06/2015 289,597,123.00 44,276,690.76 25,225,782.20 6,245,352.86
05/2015 195,284,756.00 27,482,716.96 13,226,452.00 4,094,638.80
04/2015 147,991,528.00 24,037,139.48 17,155,109.90 5,044,225.69
03/2015 204,052,694.00 34,241,352.30 17,723,349.30 5,270,256.60
02/2015 104,381,298.00 17,048,719.04 9,076,077.60 2,119,226.61
01/2015 196,927,239.00 32,093,532.96 25,891,170.30 6,011,135.77
12/2014 232,499,235.00 38,739,911.29 29,289,819.20 9,831,105.11
11/2014 249,440,754.00 42,076,946.06 19,397,882.40 4,791,387.55
10/2014 294,758,720.00 51,268,274.24 17,377,530.90 4,454,744.91
09/2014 305,633,012.00 54,026,544.55 30,458,876.00 9,415,740.13
Appendix 2: Market liquidity in the last 12 months

40
YEAR ROA ROE
2010 7.9 11.7
2011 7.5 10.7
2012 8.5 11.8
2013 8.9 12.8
2014 10.8 16.3
Appendix 3: Adapted from Security Information, 2015
Year VN-Index Yearly Return GDP Growth Yearly
2001 235.4 41.46% 6.2% 0.00%
2002 183.33 -8.98% 6.3% 1.61%
2003 166.94 -20.88% 6.9% 9.52%
2004 239.29 11.80% 7.5% 8.70%
2005 307.5 29.62% 7.5% 0.00%
2006 751.77 146.26% 7.0% -6.67%
2007 927.02 25.06% 7.1% 1.43%
2008 315.62 -65.73% 5.7% -19.72%
2009 494.77 57.90% 5.4% -5.26%
2010 484.66 -6.26% 6.4% 18.52%
2011 351.55 -27.66% 6.2% -3.13%
2012 413.73 18.21% 5.2% -16.13%
2013 504.63 16.22% 5.4% 3.85%
2014 545.63 8.15% 6.0% 11.11%
Appendix 4: Historical GDP and VN-Index from 2001 to 2014 (Adapted from World Bank, 2015)

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