1. [Team #] Student Research
This report is published for educational purposes only by
students competing in the CFA Institute Research
Challenge 2015.
any Name
ầy
CFA Institute Research Challenge
Hosted in Vietnam
2. CFA Institute Research Challenge in Vietnam Date 13/11/2015
2
INVESTMENT HIGHLIGHTS:
We initiate coverage of COTECCONS (CTD) with a long-term BUY recommendation
and price appreciation potential of 22.4% based on the following:
CTD - pioneers in Design & Build packages (D & B): CTD is also one of a few domestic enterprises
which have the ability to assume the D & B Package. D & B project the most prominent of CTD is
Masteri Thao Dien with total approximately 3,500 billion bid package. D & B contracts accounted for
over 40% of the revenue of CTD in 2014.
Lucrative prospects of infrastructure construction: One of the major projects this year that is worth to
mention is the first BOT (Built-Operation-Transfer) project of FCC - a part of the National Highway 1A
(Ha Nam) with an investment of VND 2,000 billion. This project is being implemented on schedule and it
is a good premise for FCC to implement a lot of key infrastructure domestic projects. Therefore,
COTECCONS is leading to new developments in the field of public projects.
Strong business performance: We value CAGR over the period from 2012 to 2020 of total revenue will
reach 22%. CTD will continue to have a remarkably positive CAGR growth which will occupy 22% of
the total net income by 2020. The solvency and liquidity of the company are at a good level. In 2015,
ROE of CTD is higher than the industry average ratios thanks to the company effectively used the
property to profitability. This confirmed the sustainable growth of the CTD.
Recommendations
Revenue of CTD in 2015 is expected to reach VND 10,382,488 million, increase 35% compared to 2014
and profit after tax forcast VND 428.720 million (+ 31% yoy), equivalent to EPS dilution 9.927 per share
(include 1 million ESOP shares and 3.6 million swap shares are released to Unicons shareholders ). The
target price of DCF Valuation method is VND162,606 per share. P/E peer is 18.4x and EV/EBITDA peer
is 14.24x, the target prices in this manner are VND183,131 and VND195,754. Currently, the market share
price is VND124,000. We fix the price which is higher than the market price at the date of
12.November.2015 is 22.4%. Therefore, we recommend a BUY on the CTD’s stock for investment
purposes in the long term.
Forecast Summary 2013 2014 2015F 2016F 2017F 2018F
Net Sale (VNDmn) 6,189,651 7,633,622 10,305,808 12,582,772 14,742,849 16,930,220
Gross Profit (VNDmn) 464,373 555,920 772,936 943,708 1,105,714 1,185,115
Net Income (VNDmn) 236,734 306,396 428,720 492,263 553,431 564,896
EPS (VND) 5,619 7,272 9,927 11,399 12,815 13,080
DPS (VND) 2,000 5,000 3,000 3,000 3,000 2,000
BVS(VND) 58,588 64,305 70,867 82,159 94,844 107,832
Source : CTD’s annual reports and team estimates
Source : Bloomberg and team estimates
COTEC CONSTRUCTION JSC ( VIETNAM )
Construction Industry
Ticker: Bloomberg – CTD:VN
KEY FINANCIAL DATA
Operating 2014 2015F
Operating margin 4.5% 5.0%
Net margin 4.0% 4.2%
ROA 7.0% 7.9%
ROE 13.4% 14%
Debt/Equity 0.85
Current/Total assets 0.75
Equity/Total assets 0.52
EPS (VND) 7,272 9,927
DPS(VND) 5,000 3,000
BVPS(VND) 123,259 144,160
P/E 12.49
P/B 0.86
EV/EBITDA 7.36
Dvd yield 4.03%
Debt/Equity 0.85
Current/Total assets 0.75
Equity/Total assets 0.52
Beta 0.42
52w High 27/10/2015 130,000
52wLow 7/9/2015 90,500
Outstanding shares (mn shares) 43.2
Market
capitalization
(VNDbn) 5,355
Foreign-owned ratio 49%
RATING BUY
Target price
VND 151,741
(USD 6.75)
Current price,
11 November 2015
VND 124,000
(USD 5.51)
Upside 22.40%
Source: Team estimates
TEAM STUDENT RESEARCH
UPSIDE
22.4%
CTD: FRONT-RUNNER
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Figure 1: Distribution network
Source: CTD’s annual report
BUSINESS DESCRIPTION
Background and develop history.
COTEC CONSTRUCTION JOINT STOCK COMPANY (Abbreviations: Coteccons) was
established in 2004 as a construction company. In 5th
August 2015, the company has increased its
charter capital to VND 432,530 million.
Coteccons was established as a independent company and now has had a main subsidiaries, 3
affiliates operating in the fields of construction, trading and infrastructure development.
The profit after tax (PAT) of Coteccons has reached 327 billion which is mainly contributed by
construction activities and expected to increase to 400 billion in 2015. The company’s 2015 plan is
to increase PAT to 400 billion.
Competitions
The construction market in Vietnam is extremely large and potential. Therefore, Coteccons has
many domestic and international competitors. But the biggest competitor needs to be mentioned is
Joint Stock Company of Construction and Real Estate Business (HBC).
Key business activities: Civil, industrial & infrastructural Construction
+ Construction, installation, repair projects
+ Investment consulting, project management projects
+ Design of construction projects
Areas of business
Business areas of the company and its branches stretch from the north to the south of Vietnam. The
company expands to in many places and it also has many valuable projects.
In 2012, Coteccons established a representative office of Unicons in Cambodia and Myanmar and
in 2014,they also opened a representative office in Guangzhou – China.
Figure 2: Shareholders
Shareholder
No. of
Shares
Ownership
(%)
KUSTOSHEM 10,430,000 24.1%
Thành Công Co.
Ltd
8,029,749 18.6%
Dragon Capital VN
Mother Fund
3,477,980 8.0%
The Ton Poh
Thailand Fund
2,500,000 5.8%
Nguyễn Bá Dương 2,214,666 5.1%
Red River Holding 1,854,673 4.3%
Ánh Sáng
Commercial Co.Ltd
1,564,740 3.6%
VN Dragon Fund
Ltd
1,500,000 3.5%
Amersham
Industries Limited
1,099,400 2.5%
Tân Việt Co.Ltd 918,012 2.1%
Norges Bank 854,173 2.0%
VN Property Fund
Limited
415,150 1.0%
Source: Cafef (Date as of November 6, 2015.)
Management and shareholders
The organizational structure and leadership of Coteccons (CTD) is in the form of a joint stock
company. The Board of Directors consists of 7 members. CTD added three new members to the
BOD this year: Mr. Hoang Xuan Chinh, Mr. Tony Xuan Diep, and Mr. Giuseppe Maniscalco
Ferrara who replace Mr. Huynh Ba Long, Mr. Brain Quan Pham, and Mr. Huynh Le Duc. CTD
therefore currently has three members of its BOD from The Kusto Group, a Singaporean private
holding company with diversified investments in construction materials manufacturing, energy
development and civil construction. Besides, Coteccons has 3 members in Control Department.
And in September 2015, Coteccons added one more deputy general director who is Mr. Phan Huy
Vinh. Now, Coteccons has 1 general director and 3 deputy general directors in charge of the
following areas: Human Resources, Finance, Business, Design and Build.
Shareholders
By the end of October 2015, a group of foreign investors have held 49.04% stake of Coteccons, the
remaining percent belongs to the Board of Directors and other organizations and individual
investors in the country. The shareholder has the largest percentage among foreign investors is
Kusto Group holding 24.1%; the domestic organization which holds the biggest proportion is
Limited Liability Company MTV Trading and Investment Co.( 18.6%); and the president Nguyen
Ba Duong holds 5.1%.
Late last March, Coteccons’s structure changed as its biggest shareholder - Indochina Holdings
Group Limited sold all of 3 million Coteccons shares; and 2.5 million of these 3 million
Coteccons shares were sold to The Ton Poh Thailand Fund Thailand
Figure 3:
Source: Cafef (Date as of November 6, 2015.)
Member of Corporation
Unicons (Uy Nam Joint Stock Company Contruction) was established in 2006, Coteccons holds
51.24% of the total equity at Unicon.The business activities include construction and General
Contractor D & B. In 2015 Coteccons also plan to issue 3.6 million shares to swap all the remaining
shares of Unicons - except for the number of Unicons shares that Coteccons owns. After the swap,
Coteccons will own 100% of the charter capital in Unicons. In October 2015, Coteccons plan to
issue new shares to acquire Unicons.
Ricons (Phu Hung Gia Joint Stock Company): Coteccons owns 20.16% of Ricons shares. PHG
was established in 2004 and especialise in construction, commercial and real estate. In its next long
term strategy, Coteccons also intends to M & A Ricons with the goal of expanding its business,
further increasing capacity in Contraction.
FCC (FCC Joint stock company of infrastructure company): It is a new company which was
established in 2014. The main activities of the FCC is to build infrastructure and civil works. The
company was founded by a partnership between three construction companies which are FECON
(contributing 40% of the total number of shares), CIENCO ( 25%) and COTECCONS( 35%). The
first BOT project of this joint venture company is part of the national highway 1A (Hanam) with an
investment of VND 2,000 billion.
Initially, the FCC will do subcontracting for foreign contractors. The plan is that after 10 years,
4. CFA Institute Research Challenge in Vietnam Date 13/11/2015
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Figure 4: CTD’s ownership in affiliates
Source: CTD’s annual report
this venture can deploy general contractors. Objectives set out in the future for CotecCons is the
array infrastructure construction which will account for about 50% of total revenue. However,
Coteccons must initially be the subcontractor for general foreign contractors. Because the
infrastructure sector is quite complex in terms of scale, technique, management, but foreign
companies have superior capacity to address all the above complicated issues. This is also the area
in which the company, state-owned corporations are holding major market shares. Moreover, state
all comperations are prossessing a major proportion of the market shares in this sector, so
Coteccons will need to be in caution when it joints the market.
Quảng Trọng commercial JSC: was established in 2007. The main activities of Quang Trong are
real estate business and project management.
Strategies: COTECCONS in the future remains focus on building and design segment, and
still expands to infrastructure to diversify its business activities
The company’s for next 5 years orientation development plan is to continue to expand the scale of
operation in the country, particularly focusing on developing value-added package services, namely
models and modeling General Contractor D & B. In early 2014, Coteccons established Design
Management center consisting of capable employees who would be able to select (based on the
investor's request) select sufficient design units (structure, architecture, MEP) and they could also
create design ideas and critical design solutions together and supports the idea of harmonious
combination between aesthetic and economic aspects and meet all the requirement of the project to a
maximum scale. At the end of 2014, 30% of the total revenue belongs to Design and Build contracts
that Coteccons managed to obtain such as Masteri, Brotex, Regina Miracle and Ibis Styles Hotel.
The goal in the future is to increase this percentage will increase to 50% of total revenue. In addition,
the company also promoted in the field of infrastructure projects though cooperative ventures and
associated with experienced domestic and foreign contractors. CTD object which is set out in the
future is Segment infrastructure construction that will account for about 50% of the total revenue.
One of the major projects this year that is worth to mention is the first BOT (Built-Operation-
Transfer) project of FCC - a part of the National Highway 1A (Ha Nam) with an investment of VND
2,000 billion. This project is being implemented on schedule and it is a good premise for FCC to
implement a lot of key infrastructure domestic projects. Therefore, COTECCONS is leading to new
developments in the field of public projects.
The company will complete the plans which is expected to gain VND 9.200 billion in revenue and
the profit before tax is forcasted to be VND 400 billion at the end of 2015. In addition, Coteccons
has 50 major contracts including short-term and long-term projects. If the company can maintain its
market stability, the goal of achieving $ 1 billion sales in 2017 will be accomplished.
About Unicon’s M&A (mergers and acquisitions): In 2015, Coteccons will complete the purchase
of 100% shares at the current market value, so they would focus on utilize human resources and
acquire market shares from smaller segments.
INDUSTRY OVERVIEW
CHARACTERISTICS
Construction growth in Vietnam gradually trended higher over the course of 2014.
According to 2014 preliminary data of the General Statistics Office (GSO), the construction sector
is VND 181984 billion (USD 9.9 billion ), grew by 6.3% year-on-year (y-o-y), with forecasting
increase steadily at around 6.2% and will reach VND 291,780 billion (USD 14.6 billion) in 2017.
In the detail, the gross output of construction sector reached VND849 trillion in 2014, included:
The state sector reached VND 84.3 trillion (decreased by 9% compared with 2013), accounting for
10%; The private sector reached VND 709.9 trillion (increased by 10% compared with 2013),
accounting for 84%; Foreign invested sector reached VND 54.8 trillion (increased by 62%
compared with 2013), accounting for 6.5%.
FACTORS AFFECTING THE CONSTRUCTION INDUSTRY
Investment demand for infrastructure
The latest information from the Ministry of Construction said that through 2014, the rate of
urbanization reached 34.5% (increased by 1.03% compared with 2013).Heading to 2020, Vietnam
plans to strive for 45%, still lower than the current figures of 49% in Philippines and 52% in
Indonesia. This also demonstrates that growth potential of this sector in the future is very large and
depends massively on government policies that attract investment.
Foreign direct investment (FDI) in the construction and real estate sectors is rising again.
Ongoing FDI showed positive growth in Q2 2015. Specifically, FDI disbursements in Q2 2015
reached $3.25 billion, up 6.6% over last quarter, and up more than 12% compared to Q2 2014.
Figure 5 : Strategy about Revenue structure in
the form of contract performance
Source: recent news
Figure 6
Source: GSO
Figure 7
5. CFA Institute Research Challenge in Vietnam Date 13/11/2015
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Figure 8
Figure 9
Figure 10
Source: FIA, BSC
Cumulatively in the first 6 months, Vietnam received $ 6.3 billion of direct investment capital
disbursement, 9.6% more than the same period in 2014. 16 industries and sectors received
foreign direct investment, which is 2 industries and sectors more compared with Q1/2015. Real
estate ranked the second with 8.5% of total investment capital.
Q2 2015, Vietnam attracted investments from 15 countries more, bringing the total number of
countries investing in Vietnam to 48. Countries with the biggest investments are South Korea
($1.5 billion), Virgin Islands (nearly $0.7 billion), and Turkish (nearly $0.7 Billion). In the
construction sector, Ho Chi Minh City is the province which attracted most FDI capital in this
field with more than 377 projects and $ 3 billion in capital. Hanoi ranks the second with 527
projects and invested $ 2 billion. Hai Phong is the third with 18 projects and invested $ 1 billion.
The next provinces are Ba Ria - Vung Tau, Binh Duong, Dong Nai, Quang Ninh.
Total in the near future, the construction sector will have more opportunities to attract more FDI
due to the new economic policies will be more liberal and more open officially in force,
especially the supple amendment the Law on Construction, Law of investment, Enterprise Law.
These laws have loosened many regulations, enabling foreign investors to participate in the
construction market and real estate of Vietnam.
The outlook of FDI in the next period remains positive
In 2nd
quarter 2015, VKFTA (Vietnam-Korea) was officially signed and opening the door to
trades and investments. Korea currently is the leading countries in providing FDI in Vietnam.
The 13th round of negotiations for EVFTA (EU - Vietnam) obtained positive results with the
route to finalize the negotiations. TPP certainly has some advantages to be finalized in 2015. In
this context, Vietnam provides investment attractiveness compared to other countries in the
region. In addition, Vietnam now is a country with a stable monetary policy in the context of
widespread uncertainly in EU, China or among countries executing easy monetary policy in the
region.
Policies of real estate sector affect the construction sector.
The real estate sector is considered a trigger for construction demand. Hence, government
policies for the real estate sector will affect strongly the construction sector, particularly Decree
69, 71 and Circular 13, 19. These regulations are for compensation, land use tax and raising risk-
weighting of loans to real estate to 250%. It forced real estate enterprises to halt their ongoing
projects and cautiously implement new projects; causing stagnant growth in the construction
sector.
Government plans to intensively attract investment capital for the large scale
infrastructure projects up to 2020.
Earlier in May 2014, the Prime Minister issued a portfolio of national projects calling for
foreign investment to 2020, these projects require roughly USD58.1 billion of foreign
investment. According to this, 127 projects were divided into 5 groups, comprised of: technical
infrastructure, social infrastructure, agriculture, preservation and processing, and the
manufacturing-services sector. These projects are expected to be approved by the government in
the form of PPP, BOT, ODA, 100% foreign capital or joint ventures with foreign investors.
Real estate market will be positive due to TPP
In the long term, the TPP is implemented will positively impact so many segments of the real
estate market. Typically the real estate segment of the industrial zone will benefit directly from
the foreign enterprises to invest in Vietnam's market, office segment certainly also affected by
the increase of foreign businesses directly entering Vietnam market by the increase of the
enterprise. Housing segment will have a positive impact, including arrays for sale real estate and
leasing. Because when people trade more foreigners are naturally demand their housing rent
increases. In addition, the TPP will contribute to Vietnam's economic growth, more stable and
this will generate funds on the market. Therefore, when the property is in recovery and still
attractive course it will draw investment cash flow.
COMPETITIVE POSITIONING
Industry Parks Construction
The domestic segmented marketing strategy. With an advantage of a stable basis as soon as CTD
was established, focusing on industry parks construction helps CTD to play a decisive role in the
market. Revenue from industry parks construction accounted for 38% of total (7,633 billion
VND in 2014). That’s the reason why CTD’s market share in this field is much higher than other
competitors (LCG, SC5, HU1, BCE…). Especially HBC which is a potential and strong
competitor had revenue from this field accounting for 31% of total in 2013. But this rate was
only 8.8% of total (3,567 billion VND) in 2014.
6. CFA Institute Research Challenge in Vietnam Date 13/11/2015
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Figure 11
Source: team estimates
Figure 12
Source: team adjusts
Figure 13
Source: CTD’s annual report and team estimates
Figure 14: Estimated revenue
Source: CTD’s annual report and team estimates
Commercial Centers and Offices Construction
Another big construction ranks second in CTD’s total revenue. Although it is not a major field,
CTD also invests heavily in this field. Its market share is not high and even lower than other
competitors. Revenue from commercial centers and offices construction of CTD accounted for
32% of total and HBC 51% of total in 2014. In this field, CTD seems to have difficulties of
competing with HBC such as covering the market not good. But 32% of total revenue of CTD
was much higher than 51% of total revenue of HBC. In general, CTD’s market share in this field
was higher than other competitors but it was as high as HBC. That depends on many factors.
Civil Construction
Revenue from this field accounted for 25% of total in 2014. This rate of HBC was 33%. CTD’s
market share is stable. CTD can compete equally with HBC in this field. CTD’s weight of this
field increased slightly from 23% to 25% in 2014 meanwhile HBC’s weight of this field
increased strongly from 23.9% to 32.8%. HBC is focusing on this field more and CTD needs to
be more cautious because CTD seems to be surpassed by HBC.
Hotels and Resorts Construction
CTD’s weight of this field dropped strongly to 4% (in 2014) from 16% (in 2013). That may
result from reducing investment in this field to developing other fields. Despite the small weight,
the execution some foreign investors’ big projects (Ho Tram Strip) and management minor
bidders from Japan, Singapore, China and investors’ high appreciation help CTD to increase its
market share in this field.
HISTORICAL FINANCIAL ANALYSIS
RAPID EARNINGS GROWTH
Net income in 2014 increased by 27.7% compared to 2013. In 2015, net income is expected to
increase 31% compared with 2014. In 2020, it will reach VND 919,226 million.
We also evaluate that the company will continue to have a remarkably positive CAGR growth
which will occupy 22% of the total net income by 2020, the net profit margin will increase
effectively from 3.8% in 2012 to 4.4% in 2020.
SUSTAINABLE SALES GROWTH
Revenue in 2014 increased by 23.3% compared to 2013. To predict revenue growth, we have
found and estimated the seasonal variations by using the proportional model. In 2015, it is
forcasted that the company’s revenue will increase by 35% compared to 2014 which is higher
than the average growth rate of the industry (28.9%) (calculated using median method). We
estimate CAGR over the period from 2012 to 2020 of total revenue will reach 22%.
We estimate that within the next 2 to 3 years, when TPP pact would gradually take effect, the
segment such as building industrial parks, factories, offices and apartments will benefit the
company most. This is the core business segments of CTD and the company is increasingly
dominating the entire market share so Revenue Growth will continue to grow.
In 2020 we estimate that CTD will achieve its expected target in indicators: the revenue growth
will reach 11%. Now, we expect that the company will maintain its revenue growth by 6.2%.
PROFITABILITY
We realize that the company’s gross profit margin was 28.7% lower in 2014 compared to 2013
due to the higher levels of revenue growth (COGs Growth reached 23.6%). This results from the
increase of reserve levels of inventories, particularly from the increase of the construction cost in
progress. Because of the provision for bad debts in 2014 fell sharply compared with 2013 (From
VND 95.306 million in 2013 to VND 41.748 million in 2014), their gross profit margin
decreased but EBITDA margin in 2014 increased over the previous year at 4.5% due to the
decrease of Managing Expenses (down 0.93% compared with 2013).
According to financial statements the first 6 months of 2015, we estimate that the provision of
declining in inventories as well as for bad debts, so we expect that the provisions will rise to
7.3% in Gross profit margin and EBITDA margin will be up 4.8% in 2015. In 2020, we forcast
that the Gross profit margin will reach 8.5%, 6% of EBITDA margin and the net profit margin
will also increase to 4.3%.
The net profit margin of CTD is higher than the industry average but still lower than some
companies such as HUT, FCN, THG. CTD specializes in infrastructure’s field; net profit margin
of this segment is 10-20% double higher than other segments such as industrial construction and
civil. Therefore, to increase net profit margin, the company needs to expand operations and
participation in the infrastructure sector.
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Figure 15 : CTD’s margin analysis
Source: team estimates
Figure 16: CTD’s liquidity analysis
Source: CTD’s annual report and team estimates
Figure 17:
Source: team estimates
Figure 18
Source: team estimates
This is also the problem that the company found and it is gradually implemented with the
establishment of joint venture company FCC which is specializing in building infrastructure,
improving the target in future that revenues from this segment up to 50% of total revenue.
In addition, the net profit margin of the company is only about 4% in 2014, net profit margin
during the construction and civil typically arrays 5-10%. We realize this may be due to CTD
with usage costs of COGs (COGs / Revenue ratio) is quite large (COGs accounted to 93% of
total revenues) gave its EBITDA margin affected from this expense. Meanwhile, CDC,HU3 and
HBC have the usage costs of COGs lower. This shows that at present the company is having
problems in the management of cost control COGs.
To improve its net profit margin CTD should seek specific measures to manage the company’s
costs, especially COGs. The company should reduce not only the usage of costs but also the need
to boost its revenue growth by expanding its market share and decreasing the unrealized
revenues from order backlog contracts. We will offer several solutions to manage COGs in
operational risk management.
LIQUIDITY AND SOLVENCY
Coteccons does not use short-term and long-term debts but mainly use its all equity to invest in
its construction projects and to pay for its suppliers. Thus, the company’s liquidity is still high
even though there is a high pressure of raising interest rate in 2015 and the economic growth
targets and the demand of equity are higher due to Vietnam’s economy continuing recovery.
The indicators of payment increase during the period from 2013-2015 and it is expected that this
trend will continue until 2020. This is due to the fact that the company is effectively controling
its inventory turnover and unused loan capital. Current ratio,quick ratio and cash ratio of
Coteccons are higher than the industry average (For more details about these indicators, please
refer to Appendix I.).
Regarding the liquidity, the company takes 102 days to acquire receivables and takes 50 days for
inventory turnover; these indicators are lower than the industry’s average indicator. Cash
conversion cycle of the company in 2014 was 70 days, down 9% compared to 2013.
Additionally, this indicator is much lower than the industry’s average indicator (249,7 days).
This shows that company has good solvency and liquidity. Through activity breakdown ratio,
generally Coteccons has the receivables turnover which is smaller than the payables turnover,
indicating that its businesses are benefiting from the appropriation of suppliers payables.
OPERATING EFFICIENCY
In 2014, the total assets of Coteccons are over VND 4,863,062 million; increase more 7%
compared with 2013, mainly due to the increase in long-term assets ( in 2014 increase 121%
compared to 2013). General characteristics of company in the construction sector is short-term
assets in total assets accounted for more than the long-term assets, due to the receivables is a
large proportion. However, we can see that the proportion of current assets to total assets was
reduced in 2014 due to cash and cash equivalents were reduced by 24% compared with 2014;
besides the cost of construction in progress in 2014 was VND 5691 million, increased 5 times
compared to 2013. The reason is that company strategically expands business scale, diversifies
and dominates the entire market share by expanding the scale of operations with the M & A
Unicons to this subsidiary to compete with small and medium companies, while the parent
company will compete with big companies. Scaling means the company investment further in
purchases of fixed assets.
The financial statements for the first 6 months of 2015 showed that the construction costs in
progress was VND 39 069 million, more than 7 times compared to 2014.
Therefore, we evaluate that the cash flow in 2015 will continue to decrease by 45% compared
with 2014. But in 2020, the future cash flows will increase to VND 1,821,171 million.
The ratio of receivables to total assets is relatively large in Coteccons.
In the short-term assets, receivables make up proportion more than other items (59% in 2014 and
we considered would increase 69% in 2015). Company issues more capital appropriation is a
major problem in the construction industry in Vietnam. The major problem in the construction
industry in Vietnam is that companies used tremedous capital to invest in other inappropriate
projects. If the state – owned enterprises could not be able to collect debts as the disbursement of
a particular project was delayed, the private enterprises would also not collect debts easily as the
debts account for a large proprotion of total assets. In 2014, CTD’s receivables was accounted
up to VND 2,129,478 million, representing 44% of total assets. We expect this proportion will
increase to 53% of total assets in 2015. Thus half the assets of the CTD will be located in the
construction project. However, the business activities of company have been expanding, the size
of accounts receivable has increased, along with the number of days for receivables will decrease
as the receivables turnover increased. Therefore, the management of debts would remain under
control.
8. CFA Institute Research Challenge in Vietnam Date 13/11/2015
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Figure 19: ROE dupont
Source: team estimates
Figure 20 : Valuation
Source: team estimates
Figure 21:
Source: CTD’s annual report
Figure 22
Source: CTD’s annual report
ROE dupont decomposition
Return on equity (ROE) was 13.4% in 2014; more than 8.06% compared with 2013. According
to our projections, In 2015 ROE of CTD will reach 14.8%; increase of 10.5% compared with
2014. The data showed an increase of ROE due to the company was using the property to gain
profitability effectively. ROA increased to 6.95% from 6.25% in 2014 and is expected to
continue to rise to 8.3% in 2015. The increase in ROA is mainly due to the quickly increase of
assets turnover, Our forecast in 2015 is to grow 23.5% compared to 2014; thus offset the 2.3%
decrease of the net profit margin. In addition, Return on common equity ratio and ROA ratio are
higher than the industry average ratios. (6.5% and 1.8% respectively). Prediction in 2020, ROE
will reach 15.5%, more than 4.7% and ROA reach 9.1%, increase 9.6% compared with 2015,
which are mainly driven by total asset turnover (increase by 15% compared with 2015).
In addition, the negative effect of declining financial leverage will be offset by the increasing of
ROA, which confirms the sustainable profitability for CTD. To increase ROE, enterprises need
to increase business performance by controling costs efficiently, especially the cost of goods
sold. Company needs to change in input - raw materials and the cost of construction activity.
Besides, the company should have reasonable policies to recovery debts as soon as possbile,
reduce capital accumulation phenomenon in the payment process as well as the
misappropriatetion of capital.
VALUATION
Price multiples method reflects market sentiment on the stock price in the short term. DCF
Valuation shows the long-term stock price. We assess CTD as a company which has stable
growth rate, sustainable development for years. This company is also highly appreciated by both
domestic and foreign investors. The stock of CTD have a full room in their transaction (49%).
Therefore, we have decided to weight the DCF is 60%, multiples approaches forward P / E and
EV / EBITDA are 20% and derived a fair value per share of CTD at VND 151,741 per share.
ASSUMPTION
Total revenue
We forecast revenue growth for each segment separately based on our assessment of each
segment’s outlook and financial statements of CTD. We found that the revenues primarily come
from construction activities, which are the core businesses of CTD (representing 97.4% of total
sales structure). So fluctuations in segment revenue from construction activities is almost like the
volatility of total revenue. We have assessed revenue’s volatility from construction activities and
total revenues through the following historigram (from Q1/2010 to Q2/2015)
Revenue from construction activities
We expect this segment to achieve revenue of 10,035,405 million VND in 2015, up 35%
compared to 2014 and will grow rapidly over 20,387,436 million VND in 2020. From 2021 to
2025, the growth rate of this segment’s revenue is predicted to be the same as the country’s GDP
growth rate.
Revenue from sale of goods
Revenue from the sale of goods accounted 3.01% of the total revenue and also showed the growth
from 2013 to 2015. As estimated, This segment's revenue reached VND 310.187 million in 2015,
up 48% compared to 2014 and will increase to VND 1,332,575 million in 2023.
Revenue from the lease of construction equipment and real estate investment.
Revenues from these two segments account for very small proportion of total revenue. Along
with the increase in return of the real estate industry, we anticipate that revenue of 2 arrays will
also rise. By 2015, we expect that the Revenue from the lease of construction equipment will
reach VND 12.432 million and the real estate investment will reach VND 24.423 million. In 2023,
Revenue from the lease of construction equipment were forcasted to be doubled compared to
2015.Revenue from the real estate investment will also increase to VND 41,562 million.
For more details about revenue forecasting method, please refer to Appendix II
Estimating Balance sheet and Income Statement
We make the following key assumptions with regard to consolidated balance sheet and Income
Statement :
About receivable turnover, payable turnover, inventories turnover,... detailed in the table shown in
appendix FINANCIAL ANALYSIS ...
9. CFA Institute Research Challenge in Vietnam Date 13/11/2015
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Figure 23
Source: team estimates
Figure 24
Source: team estimates
Figure 25:
Source: Bloomberg and team estimates
Figure 26
Source: Bloomberg and team estimates
About short-term investment: taking the average of the previous 4 years.
About CAPEX plan: The investment cost of fixed assets of companies are mainly from the
purchase of machinery and construction equipment. We predict that these costs will increase with
the growth rate of GDP.
About tangible fixed assets, intangible fixed assets & real estate investment: Projection according
to CAPEX plan and projected depreciation over the years according to the straight-line
depreciation method in all aspects.
About Capital Construction in Process: projected according to percentage changes over the years
of CAPEX
About Other Assets and Other liabilities: stabilizing by the value in 2014.
About share capital : Already registered through increased charter capital to VND 432.530 million
dated 5th August 2015. Forecasted to 2022 remained the charter capital.
About Social & Welfares: projected under the profit distribution plan and appropriated funds in
2015. Financial Provision Fund was eliminated in the funding of the balance sheet.
About COGs, Managing Expenses estimated by the percentage change in revenue.
For more details about financial statement forecasting method, please refer to Appendix II
DCF valuation: Free Cash Flow to the Firm (FCFF)
Our DCF model suggests a target price of VND 126,606 per share.
Our inputs for the DCF model are as followed:
Terminal growth rate is accessed to be 3%.
Cost of equity
Cost of equity is estimated to be 12.4% by using the capital asset pricing model (CAPM). Risk
free rate is Vietnam Government Bond 10y reached 7.06% in 27th October 2015. Total equity
risk premium as "Country Default Spreads and Risk Premiums '' is 12.5% of Aswath Damodara.
As Coteccons has been listed on the stock market since 2009, we calculated the value of beta by
using traditional statistical methods with previous data from 10th September 2010 to 31st
October 2015. We also use the function "COVAR / VAR" in order to calculate beta (0.42).
WACC
Currently, Coteccons haven’t got loans, so the cost of debt (Kd) of the company was 0%.And in
the future, the company also intends not to ask for any loan . . . Corporate income tax is currently
22%. Cost of Equity (Ke) was calculated as 12.4% above. Because of no loans, Long-term equity
ratio is 100%. Thus the rate of return is equal with 12.4% of Cost of equity.
For more details about DCF Valuation method, please refer to Appendix
Multiple Pricing: Forward P/E and EV/EBITDA
We choose regional peers based on the similar characteristics with CSM in business
activities, strategy and financial performance: In Vietnam, HBC is the biggest competitor of
CTD. However, HBC’s market capitalization, P / E and the indicators of profitability as ROA,
ROE are all lower than the industry average. In addition, the domestic private construction
companies are on a smaller scale than the CTD. For better comparison, we select other
construction company in Asia using four criteria: Current market cap 2014 higher than
USD180mn, revenue 2014 at least USD100mn, ROE in 2014 higher than 10%. From 6 foreign
peers, we have the median forward PER and EV/EBITDA equal to 18.4 and 7.9, respectively.
According to data from Bloomberg, P / E and EV / EBITDA of Coteccons higher than the
Companies in Malaysia and South Korea, but lower than in India and Thailand company, equal to
14.1 and 7.9 respectively. The price that we take calculated under 2 muitiple Approaches forward
P / E and EV / EBITDA is VND 183,131 and VND 195,754 respectively.
For more details about peers comparison, please refer to Appendix III
10. CFA Institute Research Challenge in Vietnam Date 13/11/2015
10
Figure 27: Selling prices of construction steel by
region
Figure 28: Selling prices of cement by region
INVESTMENT RISK
Operational risk | The Exchange rate risk is quite high
CTD has 49% of charter capital, which own by foreigners. Moreover, CTD is a big company with the
infinity-scale projects requiring modern machinery, equipment and its constant innovation. Hence,
CTD imported many modern machinery from abroad. So that, the influence of exchange rates in VND
is not small. It could take many risks as well as increase procurement and amortization costs if the
exchange rate increases. CTD should manage foreign currency risks by reviewing, evaluating the
current market and anticipating when company has plan to buy goods in foreign currency to minimize
the costs, if CTD has any difference in rates are too high. This risk is given into assumption in
evaluation.
Operational risk | Risks related to subcontractors (Incompetent subcontractors) is quite high
The risk occurs when the main contractor selects incompetent contractor to perform work categories
of project. Substandard supplies are delivered by suppliers such as insufficient concrete slump, long
transport time or unsatisfactory sand, stone. Principal contractors need to establish a mechanism for
verifying the subcontractors, strengthening the verification of their legality which avoid the cases that
subcontractors subcontract law violations
Principal contractors should carefully check the business licenses of contractors, the certificate of
professional contractors and the certificate of production safety. They also need to carefully select
good project managers and assistant team to ensure responsibility and enhance the control project
process.
Operational risk | High risk from slow payment of completed works
The delayed payment for works have been checked: Risks occur because the investor delayed or not
paid for the contractor according to the payment schedule of the contract. The risk can affect to the
progress of project when the contractor suspends or decreases the amount of works. This is quite
common risks in construction, especially in projects is funded by the government. In addition, the
payment process usually lasts very long. This risk is given into assumption in evaluation.
Management transition risk | CTD have difficulty in transferring power to the heir in
management team
Currently, The force of CTD’s management and senior leaders is not young, so the problem is how to
manage all system as well as medium and small components in the near future when the leadership is
gradually aging in qualification and experience. CotecCons has a talented young team. CotecCons’s
annual report shows that the company currently has around 700 employees, of which 90% is young
workers aged 23-40, but this also is creating restrictions. The difference in CTD’s generations of
leaders is quite large. Besides, the abilities to determine operating in the great issues of the heir are
not really qualified and experienced. These are the reasons that CotecCons’s devolution is unfulfilled.
Competition risk | Low Risks from competitors in the industry
The increase in construction demand, the Vietnam’s development, the cultural integration and the
development policy of government in the sector are more beneficial. Moverover, These advantages
facilitate the emergence of competitors and the potential competitors have more opportunities to
expand and grow. Many projects and tender work packages have dominated the market share
gradually.
In addition, the expansion of investment in public projects is being directly involved in a huge
competitive environment among the contractors, who have power and long experiences in this field.
To minimize the risks, CTD should actively expand market share as well as implement good projects
in the market share to stable it. CTD needs to promote trademark and affirm its position to gain more
valuable projects and packages.
Operational risk| COGs utility's level of CTD has been higher than other companies.
As analysing in profitability, CTD has a higher COGs/Revenue ratio than other companies in the
same industries, which has partly made its net profit margin not be improved. If Net profit margin
were not high, then it could let this company fall into much difficulty in term of facing to the price
escalation's overview. Therefore, this company needs to efficiently manage COGs so as to enhance
net profit margin, because COGs utility's level amounts to 93% total revenues/turnovers. COGs cost
is affected by many factors, such as material cost, equipment, facilities serving for construction,
labour cost,..., which are the main complicated factors. Regarding the Price fluctuations, this company
should estimate and judge its ability of irregular cost variance and create the provision in order to
quickly adapt to the price variance may be happened. When it comes to labour cost, it should
calculate consistently a number of workers for each building, avoiding the case of outing of workers,
then boosting the cost. It should have manager teams, who are high professional, enthusiasm, and
honesty, control the design and build procedure. This risk is given into assumption in evaluation.
11. CFA Institute Research Challenge in Vietnam Date 13/11/2015
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Figure 29: Forward P/E and EV/EBITDA for
CTD and peers
Source: Bloomberg
Figure 30 D&B projects compared to traditional
project delivery
Source: team summaries
Figure 31
Source: team estimates
Figure 32
Source: team estimates
INVESTMENT SUMMARY
Good entry point
We initiate a BUY recommendation for CTD with a target price of VND151,741 per share,
22.4% upside from current price level. CTD has ability to construct modern and large-scale
buildings in domestic with 48% of total market share in residential building segment. The company
management and human resources are good and professional; the financial situation is healthy and
on the track to thrive. The consolidation with Unicons which conducted from May 2013 benefited
company’s revenue and profitability, as well as the competitiveness and the expansion of market
share through potentially industrial construction segment. From 2010 to 2014, Vietnamese
construction sector was in difficult straits, CTD’s revenue shot up with CAGR of 23%. In the first 6
months of 2015, the company enjoys strong financial performance with 50.3% YoY increase in
revenue. Besides, CTD is the most efficient operations in the industry with total asset turnover reach
1.6 times, this figure doubled compared with the industry average of 0.7 rounds. The value of signed
contracts and positive results in a half of 2015, we asume that CTD will succesfully accomplish their
2015 targets, with sales of VND 9,200 billion (up 20.5% y-oy) and profit after tax forecast of VND
400 billion (up 11.7% y-o-y). During a half of 2015, CTD respectively fulfilled 47.5% and 53.8% of
revenue and profit after tax targets.
We expect that CTD with strong position in construction operations and with the expansion of
construction activities to the infrastructure sector will help its share continuously increase.
Moreover, CTD’s stock is still undervalued in comparison to its peers as can be seen by 32%
discount in terms of P/E and 81% discount for EV/EBITDA
CTD continues development in civil construction segment and remains focus on industrial
construction segment
In 2014, the real estate market had many signs of prosperity, especially in the housing market. By
the active support from macro-economic factors and supporting policies from the government, the
real estate market in 2015 is expected to continue increase following the trend of 2014. Seizing this
opportunity, in 2014, CTD increased the proportion of revenue from civil projects up to 25% but still
remained the proportion of revenue from 2013 of industrial construction segment (38%). Some
typical industrial projects may be mentioned in this moment, like colored yarn factory Brotex (970
billion), Gain Lucky factory (900 billion) and Coca-Cola factory. The advantages in industrial park
construction segment in the future as GDP growth continues to exceed the expected growth
(reaching 6.2%), the amount of FDI in Vietnam remains high and many large enterprises in
worldwide such as Nike, Adidas and Intel tend to move factories from China to Vietnam which will
help CTD maintains revenue growth and steady cash flow stability in service operations.
CTD focuses on developing value-added package services, namely General Contractor D&B
CTD is also one of a few domestic enterprises which have the ability to assume the D & B Package.
The movement into the Design – Build model aims to increase not only the contract’s value of the
bid package implementation but also gross profit margin. This may be the prevailing direction and
the future strategy for Vietnam construction companies. D & B project the most prominent of CTD
is Masteri ThaoDien with total approximately 3,500 billion bid package. D & B contracts accounted
for over 40% of the revenue of CTD in 2014.
Extending the segment of infrastructural construction to support the development in long-
term
The infrastructure sector is very large proportion of Vietnam construction industry , accounting for
41.2% of the industry value; the contracts in construction segment has enormous value which will
help stable cash flows and increase gross profit margin. In the period 2016-2020, the demand for
investments in traffic of about 202,000 billion per year. CTD has seized this opportunity when the
PPP legal framework is finalized, in early 2014, CTD has signed partnership with FCN and
CIENCO 1 to establish a company specializing in the infrastructural construction - FCC. The first
phase, this joint venture will do subcontracting for foreign contractors, they plan after 10 years can
deploy EPC forms.
Strong and sustainable growth
We value CAGR over the period from 2012 to 2020 of total revenue will reach 22% through
estimating the seasonal variations by using the proportional model. EBITDA Margin will be
improved thanks to good management of construction projects and liabilities receivables to reduce
provisioning costs. Although the net profit margin of CTD is not high but we expect that the
company is increasingly empowering the industry and expanding the business operations, the net
profit margin will definitely improve. The solvency and liquidity of the company are at a good level.
In 2015, ROE of CTD estimated 14.8%; increase 10.5% compared to 2014 thanks to the company
effectively used the property to profitability. This confirmed the sustainable growth of the CTD.
A healthy financial situation.
CTD which has no short - term and long - term debt, only payable to suppliers. Therefore, CTD is no
great pressure in liquidity when market conditions deteriorate. Debt-to-equity ratio fell in 0.92 in
2014,we assess these indicators will fall in 0.78 in 2015 due to increased equity by issuing more than
1 million shares. The reduction of this rate prove that company reduce debts and not in financial
12. CFA Institute Research Challenge in Vietnam Date 13/11/2015
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Figure 33
Source: team estimates
difficulty.
Valuation method
We derived our target price by combining DCF valuation and multiple pricing with different weights
( 60% and 40% respectively). In DCF valuation,we used Discounted Cash Flow Model: Free Cash
Flow to the Firm (FCFF). In Multiple pricing,we compare CTD’s P/E and EV/EBITDA with those
of peer companies that are similar with CTD in term of market capitalization, revenue and ROE. The
peer group was chosen in a rigorous manner and we believe that the comparison to select companies
is fully justified.
Positive investment risk
We realize that the main risk affect company most is the use of cost of goods sold is quite high
which affect profitability and the delay in payment of investors especially the civil segment for
completed projects. The issues related to the change in management and the risk from subcontractors
will also affect the strategy as well as business activities of CTD in the future.
In addition, investors should pay attention to other possible risks such as the fluctuation of exchange
rates, interest rates and changes in government policy.
13. CFA Institute Research Challenge in Vietnam Date 13/11/2015
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APPENDIX I: INDUSTRY OVERVIEW& COMPETITIVE POSITIONING
A. Five Forces Model
Opponents: High
Legal corridor and barriers to entry are not high. The more economy is expanding, the more
industrialization of construction is increasing. Thereupon, there are many constructing firms were
established. Besides, Vietnam’s economic integration is more and more deep and wide. It will
facilitate FDI funds and promote investing. The integration is also bring opportunities to foreign firms,
which have high economic potential, standard of construction and management. They will became
strong opponents in Vietnam’s emerging market. Moreover, the price competition is growing through
promotional services, customer care and guarantee construction.
Threat of potential competitors: fairly high
The construction industry is attractive, especially for foreign investors because of the high potential of
a developing country. Besides, there are many advantages of factor to them such as loan, lower
interest rate. It facilities foreign firms to invest the capital in Vietnam to look for high profits. The
foreign companies have strong potential, technology and experience. This is the big challenge to local
firms. The local companies is also have difficulties and challenges with high fixed cost, capital and
interest rate while the infrastructure of Vietnam is weak. It makes big pressure among the company,
foreign and local firms.
Threat of substitutes: low
Products of construction are buildings and they do not have the substitute. These structures will be
enhanced and renewed the science of technologist to make a better quality, reduce time and cost of
works. Instead of these, they have warranty and care regime. The business is improving their service
quality, aftermarket service and guarantee to gain the market penetration such as “Gold guarantee”
Bargaining power of suppliers: medium
Building develops with industrialization and modernization so construction companies are more and
more, not only for local but also for foreign. Choosing the contractors is variety and rival. But just
only some constructors can meet effective quality with conditions for capacity of building,
professional capacity and reasonable price. It is good for bargaining of contractors because they hold
more factors to make the perfect structure. It have to advantage for both.
For foreign constructors, they have capacity, model technology and experiences but their price is
higher. So the decision is depend on the trust of effectiveness, productiveness, quality and price. There
are many factors effect on branch. The more economic is grown, the more companies are developed.
Bargaining power of buyers: fairly High
It is important to improve knowledge, technical skills in fierce environment. The quality of
constructions are not quite unequal. The variance is lower price, shorter time and better reputation. But
the competitors, who have all of them can not cover the market. It is larger. Infrastructure and housing
demand are increase. Buyers want to have good quality and service with reasonable price. So the
bargaining power of buyers is high because It depends on many their criterions.
14. CFA Institute Research Challenge in Vietnam Date 13/11/2015
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B. SWOT
Strengths
Brand of company is appeared with constructions in
Vietnam. They focus on civil construction, commercial
building, and industrial building.
Equity capital meet the demand of company strategy. They
have not to pay the loan capital. That means the company
did not borrow from financial institutions.
Healthy financial status: having good cash flow and none of
bank loans, investing in main business line.
Effective performance: 1st
in line
Scale of capital: large capitalized, none of bank loans.
After M&A with Unicons, the company has more market
share
Advantage of human resource: young employees fit with job
Modern technology: Applying Aluminum formwork at
Masteri Thao Dien Project. It saves time with the same
quality
Weaknesses
Hot growth will make they could not
control all of constructions
Subsidiary company and associated
company bring Coteccons’s trade
mark and maybe the quality of them is
not as good as Coteccons
Opportunities
The demand of housing accommodation is quite high and it
increases in next few years. Forecast to 2020, the speed of
urbanization will develop rapidly (460.000 ha)
Based on Decision of Prime Minister, residential floor area
per people is 20 m2 on average in 2020. The quality have
to meet national standard. This decision will encourage
tenement house development to save the land and increase
housing stock
The economic recovery will make the property market
increase.
M&A with companies in line to expand the activity.
Increasing share market in Laos, Campuchia, and
Myanmar
The demand of transportation infrastructure in next 10
years will increase
New housing law has more policy to clear the market and
attract foreign Direct Investment (FDI)
It tends to move factories from China to Vietnam
Interest rate reduces. Consigning money on bank is lower
so the cash flow could invest in other effective investment
channels such as immovables. Cost of interest expense
decreases.
Laws for TPP (Trans-Pacific Partnership) are improved to
attract private investment company in infrastructure
Threats
The new investment law makes more
conditions to draw foreign investors.
There is no different between local
and foreign companies. They
authorize foreign investors own 100%
real estate projects. It facilitates for
them to approach capital resources,
lands… Some general foreign
contractors are Posco, Obayashi,
Kumho…
The property market is instability.
After Government issue investment’s
new laws and policy is inconsistent.
The property market had freezed for
few years. It decreases the demand of
building civil construction and
commercial buildings.
Do large scale projects in position
general contractor (Design and Build)
Low labour productivity leads to
increase investment expenditure of
FDI’s company
Exchange rate grows up. It effects to
price of material
16. CFA Institute Research Challenge in Vietnam Date 13/11/2015
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APPENDIX II: SALES FORECASTING: TIME SERIES ANALYSIS
Through CTD's Annual reports, we found that company has revenue growth steadily and changes by
quarters ( seasonal variation ). Therefore, we have estimated revenue by the use of time series analysis
involves calculating a trend line, extrapolating the trend line and adjusting the forecasts by appropriate
seasonal variations. The trend line extrapolated by using a common sense 'rule-of-thumb' approach,
based on movements in the past .
We have applied one method of finding the trend of revenue growth is by the use of moving averages.
We have taken a moving average of four quarterly results; and then we have calculated a second
moving average of two on the first moving average. A mid-point ( a second moving average of two )
is trend values relates to specific actual quarters. We used this trend line to forecast future trend line
values.
These above values adjusted by the average seasonal variation applicable to the future period using the
multiplicative model, to determine the forecast trend line for the period.
We applied this method to projected revenue for the three segments is construction activities, sale of
goods and the lease of construction equipment. The real estate investment segment, we do not project
that revenue in this way because in the analysis phase from the 1st quarter in 2012 to the 2nd quarter
in 2015, revenue was reduced. As discussed above, we expect that thanks to TPP pact, real estate
segment will grow again in the next 2-4 years, we project that revenue from this segment under the
expected growth rate of the real estate industry.
Revenue from constraction activities ( in VND million )
Year Quarter
Actual
volume of
sales (Y)
Moving
average of 4
quarters'
sales
Mid-point of 2
moving averages
Trend line (T)
Seasonal
percentage
(Y/T)
TOTAL
VOLUME
REVENUE
GROWTH
Turnover from construction activities
2012
Q1 948,793
4,420,474
Q2 968,412
Q3 1,116,153 1,105,119 1,106,132 1.009
Q4 1,387,116 1,107,145 1,144,011 1.213
2013
Q1 956,899 1,180,876 1,223,345 0.782
6,027,922 36%
Q2 1,263,337 1,265,814 1,386,397 0.911
Q3 1,455,904 1,506,981 1,530,488 0.951
Q4 2,351,782 1,553,996 1,595,221 1.474
2014
Q1 1,144,959 1,636,447 1,716,135 0.667
7,393,050 23%
Q2 1,593,141 1,795,823 1,822,043 0.874
Q3 2,093,410 1,848,263 1,896,607 1.104
Q4 2,561,540 1,944,951 2,078,699 1.232
2015
Q1 1,531,712 2,212,448 2,262,454 0.677
10,035,406 36%Q2 2,663,128 2,312,461 2,410,656 1.105
Q3 2,493,465 2,508,851 2,570,083 0.970
27. CFA Institute Research Challenge in Vietnam Date 13/11/2015
27
APPENDIX III : MULTIPLES VALUATION CRITERIA
Figure: Market capitalization 2014 higher than USD180mn
Source: Bloomberg
Figure: Revenue 2014 at least USD100mn
Source: Bloomberg
- 2.000.0004.000.0006.000.0008.000.00010.000.000
CTD VN Equity
HSL MK Equity
036190 KS Equity
MHB MK Equity
KNRC IN Equity
DEMCO TB Equity
JKIL IN Equity
Mkt Cap (VND mn)
0,00 100,00 200,00 300,00 400,00
CTD VN Equity
HSL MK Equity
036190 KS Equity
MHB MK Equity
KNRC IN Equity
DEMCO TB Equity
JKIL IN Equity
Revenue
28. CFA Institute Research Challenge in Vietnam Date 13/11/2015
28
Figure: ROE 2014 higher than 10%
Source: Bloomberg
APPENDIX IV: INVESTMENT RISK
ECONOMIC
RISK
MARKET
RISK
REGULATORY
RISK
OPERATIONAL
RISK
INTERNAL
RISK
HIGH
Slow
payment of
completed
works
Increase in
labor, SG&A
costs
Changes in
enviromental
policy
Affecting from
incompetent
subcontractors
Control
COGs
MODERATE
Increasing
competition
Vehicle
control
policy
Management
transition
Exchange
rate
difference
LOW
Sluggish
recovery of
the economy
INSIGNIFICANT MEDERATE SEVERE
0,00
2,00
4,00
6,00
8,00
10,00
12,00
14,00
16,00
18,00
CTD VN
Equity
HSL
MK
Equity
036190
KS
Equity
MHB
MK
Equity
KNRC
IN
Equity
DEMCO
TB
Equity
JKIL IN
Equity
Return on Equity
PROBABILITY
IMPACT
29. CFA Institute Research Challenge in Vietnam Date
29
Disclosures:
Ownership and material conflicts of interest:
The author(s), or a member of their household, of this report does not hold a financial interest in the securities of this company.
The author(s), or a member of their household, of this report does not know of the existence of any conflicts of interest that might bias the content
or publication of this report.
Receipt of compensation:
Compensation of the author(s) of this report is not based on investment banking revenue.
Position as a officer or director:
The author(s), or a member of their household, does not serve as an officer, director or advisory board member of the subject company.
Market making:
The author(s) does not act as a market maker in the subject company’s securities.
Disclaimer:
The information set forth herein has been obtained or derived from sources generally available to the public and believed by the author(s) to be
reliable, but the author(s) does not make any representation or warranty, express or implied, as to its accuracy or completeness. The information is
not intended to be used as the basis of any investment decisions by any person or entity. This information does not constitute investment advice, nor
is it an offer or a solicitation of an offer to buy or sell any security. This report should not be considered to be a recommendation by any individual
affiliated with Vietnam Organizer Team, CFA Institute or the CFA Institute Research Challenge with regard to this company’s stock.
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