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Vnm 20121219-buy

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Vnm 20121219-buy

  1. 1. www.vcsc.com.vn | VCSC<GO> Viet Capital Securities | 1 See important disclosure at the end of this document Vinamilk (VNM) 18 March 2011 VND84,500 – BUY 19 December 2012 Growth and valuation 11A 12E 13E 14E 15E Revenues (VND bn) 21,627 26,441 32,101 39,166 47,433 Operating profit (VND bn) 4,317 5,818 6,870 8,718 11,025 OP margin (%) 20.0% 22.0% 21.4% 22.3% 23.2% Net profit (VND m) 4,218 5,202 6,047 7,409 8,877 EPS (VND) 5,288 6,236 7,249 8,882 10,641 EPS growth (%) 16% 18% 16% 23% 20% DPS (VND) 2,000 3,000 3,000 3,000 3,000 BPS (VND) 15,641 19,193 26,776 31,658 38,299 PER (x) 24.6 20.8 17.9 14.6 12.2 PBR (x) 8.3 6.8 4.9 4.1 3.4 Dividend yield (%) 2.3% 2.3% 3.5% 3.5% 3.5% ROE (%) 33.8% 32.5% 27.1% 28.1% 27.8% Debt/(D+E) (%) 0.0% 0.0% 0.0% 0.0% 0.0% A safe haven Investors appear to recognize the competitive advantages and growth opportunities of Vinamilk. The company has a good brandname, economy of scales, an extensive distribution network, and expanding production capacity to meet growing demand. Given the lack of viable alternatives in the Vietnamese stock market, we believe it will remain a safe haven for investors despite its relatively high PER. We initiate with a Buy recommendation and a target price of VND106,000. Double digit growth potential Vietnam still has one of the lowest levels of dairy consumption in the world, and so Vinamilk can still maintain double-digit growth in revenue and net profit. Growth in demand is being supported by the growing middle class and education on dairy nutrition. Vinamilk can catch the opportunity with its nationwide distribution network and expanding capacity. Stable profit margin Vinamilk’s profit margin will remain stable. VNM can pass most of its higher raw material costs to its consumers. Economies of scale and effective inventory and expense management will reduce its unit cost. Hence, Vinamilk’s profit margins, ROE and ROA will remain high. Plenty of cash to pay dividends Vinamilk will make most of its capacity expansion in FY12, and vertical expansion in coming years will cost less. The company has no outstanding debt and strong operating cash flow, so financing future investments and dividends is not an issue. Vinamilk will pay a dividend of VND 3,000 per share in FY12. Target price offers some upside Our target price of VND106,000 per share is based on its historic average PER and PBR as well as our DCF method. Compared with its region peers, we note that VNM tends to trade at a lower PER, though a direct comparison is difficult given Vietnam’s high inflation rate. The foreign price of VNM is now at our target price, and VNM represents 12% of the Ho Chi Minh Index. Anh Nguyen Senior Analyst anh.nguyen@vcsc.com.vn +84 8 3 914 3588 ext. 194 Initiation Target price VND106,000 Upside 25% Consumer Goods Market cap US$3,439m Shares outstanding 834m 12M High VND92,700 12M Low VND52,000 Foreign ownership 49% Foreign limit 49% Ownership Shareholder (state) 45.0% F&N Dairy Investment 9.5% Dragon Capital 7.4% Deutsch Bank AG 5.4% Others 32.6% Company Description Vinamilk is the largest dairy company with 39% market share. With more than 30 years in the market, Vinamilk has established an excellent brand name for its product portfolio that includes powdered milk, liquid milk, yogurt, condensed milk and fruit juices. The products are produced and distributed nationwide. 0 100 200 300 400 500 600 700 800 0 20 40 60 80 100 Dec-11 Mar-12 Jun-12 Sep-12 Price Performance VND ‘000 ----- Price (LHS) ▬ Vol (RHS) ‘000
  2. 2. www.vcsc.com.vn | VCSC<GO> Viet Capital Securities | 2 See important disclosure at the end of this document All Report Types Investment thesis Strengths The dairy industry has grown at a CAGR of 17% for the period from FY06 to FY11 in revenue and 8.1% in volume from FY03 to FY11. However, dairy consumption is still low compare to the region and to world standards, implying strong long-term growth potential. With 30 years of history, diversified products, a trusted brandname, Vinamilk holds a leading industry position with a 39% market share in FY10. Continued aggressive brand building, educating customer and pioneer products will assure Vinamilk hangs onto this position. Overall growth will be supported by low dairy consumption, large population and increasing income by the middle class. Our forecast sees potential growth of 6.5% in volume for the next 5 years for the industry. We estimate that VNM will continue to achieve growth rate of 21% and 16% in revenue and net profit respectively in FY13. Onward, revenue and profit will both sustain at 22% for the next 5 years. In addition, its cash position allows VNM to continue paying dividend of VND 3,000 per share in FY13 and potentially increasing it in later years. The risks There is increasing competition from local and foreign players. A local player, TH Milk, had started to invest US$400mn for its factory and cow farm, expected to invest total of US$1.2bn in the dairy industry. Increasing investment in cow farm, factory and strong advertisement from Friesland Campina to expand production and increase its market share. Number of smaller players (Long Thanh Milk, Moc Chau, Ba Vi milk) entered liquid and yogurt market segment, which provide more substitute products, create more competitive market. With lower import-tax for dairy products (3%-5%) encouraging the flow of brandname dairy products to Vietnam. It could affect Vinamilk revenue and lower profit margin. Raw material accounts for more than 60% of COGs, in which high percentage is imported, and so any change in raw material price could put a huge affect to Vinamilk’s profit margin. VNM cannot immediately transfer all the volatile of raw material to its customer via selling price adjustment. In FY09, Whole milk powder (WMP) price decreased from US$4/kg to 2.8/kg, which is 41% decline, but the gross margin increased from 32% to 37%. However, VNM gradually increase its selling price and cleverly manage its inventory to partially hedging this risk. For FY09/11, WMP increased 53.6%, from US$ 2.8/kg to 4.3/kg, still gross margin reduced from 37% to 31% due to these matters.
  3. 3. www.vcsc.com.vn | VCSC<GO> Viet Capital Securities | 3 See important disclosure at the end of this document All Report Types Figure 1: International whole milk powder (WMP) and skim milk price Source: www.wisc.edu Figure 2: Vinamilk price and historical P/E,P/B Source: Bloomberg 0 1,000 2,000 3,000 4,000 5,000 6,000 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 US$ tonne WMP Skim Milk 0 20 40 60 80 100 120 140 160 0 2 4 6 8 10 12 14 16 Dec-09 Feb-10 Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 VND '000x P/E P/B Market price
  4. 4. www.vcsc.com.vn | VCSC<GO> Viet Capital Securities | 4 See important disclosure at the end of this document All Report Types Industry Overview No history of dairy consumption Dairy consumption per capital has increased strongly from 9kg in FY03 to 15.7kg in FY11. The CAGR for this period is 8.1%, but compared with average consumption in Asia Pacific and the world, Vietnam falls into lowest range. Vietnam is only 16% of average Pacific Asia milk consumption and 7% of daily-recommended nutrition. Figure 3: Dairy consumption per capital Source: Food and Agriculture Policy Research Institute (FARPI) Figure 4: US Dairy recommendation (2,000 cal) Min Max Milk Intake/day per adult (250 ml) 2 3 Daily intake in litres 0.47 0.7 Yearly intake in litres 172 256 Yearly intake in kg. 176 264 Average daily intake in litres 214 Average daily intake in kg. 220 Source: United States Department of Agriculture (USDA) Reliance on imported dairy products Local dairy production satisfies only 21% of current demand. Vietnam has to import 79% of its dairy consumption. The government encourages expansion of cow farms and dairy production capacity. Vietnam targets to have 400,000 dairy cows and a self-sufficiency rate of 39% in FY20. Even if Vietnam can achieve this ambitious plan, the dairy industry still has to rely on imported dairy. Because of the gap between demand and supply, the market can absorb continuously increasing selling prices and still grow at double-digit rates. 16 40 17 28 15 97 125 292 146 319 80 169 121 300 0 50 100 150 200 250 300 350 Vietnam Thailand Indonesia China Philippine AsiaPacific India EU Mexico Australia Japan Ukraine Latin America USA kg
  5. 5. www.vcsc.com.vn | VCSC<GO> Viet Capital Securities | 5 See important disclosure at the end of this document All Report Types Figure 5: Vietnam milk production Source: FAPRI Figure 6: Vietnam imported dairy product value Source: GSO, FAPRI Highly concentrated market Vinamilk and Friesland account for 64% of total market share. The remainder is shared by a number of small players. Vinamilk dominates most markets such as yogurt, condensed milk and liquid milk. Imported/foreigner brands are leading the powdered milk market segment. 262 278 278 292 299 310 0 50 100 150 200 250 300 350 2008 2009 2010 2011 2012 2013 Milk Cow Numbers ('000 head) Cow Milk Production ('000 metric ton) 0 100 200 300 400 500 600 700 800 900 2006 2007 2008 2009 2010 2011 10M2012 US$ mn
  6. 6. www.vcsc.com.vn | VCSC<GO> Viet Capital Securities | 6 See important disclosure at the end of this document All Report Types Both Vinamilk and Friesland have products in all of product lines from UHT milk to powdered milk. Others try to penetrate drinking milk segment, but still their market share is less than 5% each. Dairy companies locate their factories mostly to supply for their big northern and southern market. Vinamilk is the only one that has factories located in central part of Vietnam. Figure 7: Vietnam dairy market share FY10 Source: EMI & VCSC collected Figure 8: Dairy companies and their product lines UHT Pasteurize Yogurt Condensed Powdered Milk Vinamilk X X X X X Friesland X X X X X Abbott X Nestle X Mead Johnson X Dumex X Hanoi Milk X X X IDP X X X X Moc Chau X X X Long Thanh X X X TH Milk X X X Source: EMI & VCSC collected Market Outlook With strong historical growth rate and still an imbalance between supply and demand, the market is expected to show a high growth ratio (revenue’s CAGR of 17% for FY06-FY11). According to EMI forecast, dairy consumption could achieve a CAGR of 6.5% in term of volume for the period from FY11-FY16. VNM 39% Friesland 25% Others 36%
  7. 7. www.vcsc.com.vn | VCSC<GO> Viet Capital Securities | 7 See important disclosure at the end of this document All Report Types Figure 9: Vietnam dairy market size Source: EMI & VCSC estimated According to the most recent population survey, more than one-fifth of the population of 87mn is living in cities like Hanoi, Ho Chi Minh, Da Nang. The fact is one in seven is now middle class while one in five living in the cities. This is boosting the demand for dairy products, which is perceived as a healthy and nutritious choice. Figure 10: Vietnam GDP per capital & Income growth rate Source: BMI, GSO As the living standard is increasing since “Doi Moi”, the economy has significant changed. GDP per capital is more than triple from US$ 351 in FY00 to US$1,156 in FY10 16 18 21 25 29 35 37 40 42 44 0 5 10 15 20 25 30 35 40 45 50 2006 2007 2008 2009 2010 2011F 2012F 2013F 2014F 2015F VND tn 8.20% 8.40% 6.20% 5.20% 6.80% 6.30% 6.80% 7.20% 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 0 500 1,000 1,500 2,000 2,500 2006 2007 2008 2009 2010 2011F 2012F 2013F US$ GDP/ Cap (USD) Real GPD growth
  8. 8. www.vcsc.com.vn | VCSC<GO> Viet Capital Securities | 8 See important disclosure at the end of this document All Report Types Vietnam’s two children policy, which led to more spending on kids, also affects the consumption of dairy product. All of these factors will keep the industry on its strong growth path. Market share Outlook Vinamilk dominates the yogurt and condensed milk market, with a market share in FY11 of 71% and 88% respectively. We do not expect this will change in the medium future. Condensed milk has a low margin (est. gross margin of 13%), low growth rate (volume growth rate from 2-3%) and requires significant capital to manufacture. Friesland seems to have given up on this product line and small players find it not attractive enough to enter. Vinamilk with its 88% market has been the leader for this market. Yogurt involves heavy investment in coolers and chilled transportation vehicles, which will create a barrier for new entry. With 178,000 sales points and yogurt factories in the north, south and central of Vietnam, Vinamilk has an advantage for this product, and guarantees its dominant market share. The most profitable product line, powdered milk, is lead by Abbot Vietnam with the market share of 23.8% in FY10, followed by Vinamilk with 18.5%. Foreign companies still dominate the market, accounting for a 61.4% market share. Vietnamese perception on imported/foreigner brand is the key reason for the popularity of foreign brands. Vinamilk targets to increase market share by significantly lower price (lower by 10-30% compare to international brands) and gradually education of customers’ view by advertisement, conventions and events. Vinamilk is expecting to gain its target of 35% market share, but its appears it will takes much longer or a different strategy to change customers’ view. Figure 11: FY10 Liquid milk market share Source: EMI Figure 12: FY10 Powdered milk market share Source: EMI Vinamilk 41% Freisland 25%Nestle Vietnam 7% Hanoi Milk 5% Mead Johnson 3% Fonterra 3% F&N Vietnam 2% Others 16% Abbott 24% VNM 19% Mead Johnson 14% Freisland 14% Nestle 9% Others 20%
  9. 9. www.vcsc.com.vn | VCSC<GO> Viet Capital Securities | 9 See important disclosure at the end of this document All Report Types Operations Vinamilk achieved strong revenue growth rate for the past period, CAGR for FY05-FY11 is 25%. Total revenues for FY11 reached US$1 bn. Despite the slow-down, melamine crisis, and economic downturn, Vinamilk still achieved impressive business results. Gross and net margin have remained at double-digits since listing in FY06. The gross margin had been improving from an average of 24.5% for FY05-FY07 to 32.9% for the period FY08-FY11. Good management and effective inventory policy have kept VNM’s price very competitive. Over 200 products to satisfy difference classes of income Vinamilk possess extensive products under 5 brand names: Vinamilk (liquid milk, yogurt, ice cream), Vfresh (fruit juice and soy milk), Dielac (powdered milk), Ridielac (nutrition powdered) and condensed milk and aiming for higher margin value-added products. Due to health concern, we notice Vinamilk is shifting to more value added products. For yogurt, Vinamilk came up with Collagen added product, Liquid milk with ADM and powdered milk with product with adding more nutrition ingredient. VNM has the products for all income levels with broad packaging products size and flavours. Figure 13: Vinamilk revenue by segments Source: Vinamilk 85% 89% 89% 87% 15% 11% 11% 13% 2008 2009 2010 2011 Domestic Sale Export
  10. 10. www.vcsc.com.vn | VCSC<GO> Viet Capital Securities | 10 See important disclosure at the end of this document All Report Types Figure 14: Vinamilk revenue by products Source: Vinamilk Production capacity Capacity increased steadily with a CAGR of 19.5% for FY07-FY12, total capacity of 1.1mn tons in FY12 and expect to increase to 1.6mn tons by FY13. In FY11, capacity grew by 38.5% with the operation of its Tien Son factory (with condensed milk, yogurt and liquid milk). The capacity increased to 1.1mn tons when the Danang factory start to operate in FY12, adding to the supply of liquid milk and yogurt into Vietnam central market. With Danang factory, Vinamilk is the first one to have a factory in this part. With a factory in this area, Vinamilk will make distribution more efficient and strengthen Vinamilk position in raising cities in central region. Historically, Vinamilk utilisation rate remained at an average of 70%. With significant growth of capacity recently, we expect the utilisation rate will be below 60% level and slowly increase. At the capacity of 1.6mn tons, it will be good enough for Vinamilk in 5 years term. Figure 15: Vinamilk production capacity Source: VCSC estimates 29% 24% 21% 18% 27% 31% 32% 35% 29% 27% 29% 28% 13% 15% 16% 16% 2% 3% 2% 3% 2008 2009 2010 2011 Beverage & others Yoghurt Powder milk Liquid milk Condensed milk 0.52 0.57 0.67 0.93 1.11 1.66 0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 2008 2009 2010 2011 2012 2013 mn tonnes
  11. 11. www.vcsc.com.vn | VCSC<GO> Viet Capital Securities | 11 See important disclosure at the end of this document All Report Types Expense analysis Branding expense reached VND1,232bn in FY11, CAGR is 18.6% for the period FY09- FY11. In term percentage of net revenue, in FY09, branding expense was 8.2%, dropped to 6.3% in FY10, and remained stable of 5.7% for FY11 and 9MFY12. Compared with the growth rate of net revenue for the same period, Vinamilk expenses has been effective when it brought the CAGR for this period to 42.7%. Without any significant change in advertisement program, we believe this ratio will remain stable. Direct cost for selling expenses (advertisement, promotion and commission) accounts 70.3% of the total selling expense in FY09 and remain stable at 68% in FY11 and FY12. Figure 16: Vinamilk branding expenses Source: VCSC Vinamilk Figure 17: Vinamilk selling expenses by category Source: VCSC Vinamilk 875 990 1,232 1,120 8.2% 6.3% 5.7% 5.7% 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 0 200 400 600 800 1,000 1,200 1,400 2009 2010 2011 9M2012 VND bn 0% 5% 10% 15% 20% 25% 30% 35% Labor Material Tools Depr. Logistic Advertise Promotion Comm. FY09 FY10 FY11
  12. 12. www.vcsc.com.vn | VCSC<GO> Viet Capital Securities | 12 See important disclosure at the end of this document All Report Types Distribution networks Vinamilk has the most extensive nationwide distribution network, which cover all 64 provinces. In FY11, the distribution network includes 232 distributors and 178,000 sale outlets throughout the country (growth of 27% compare to FY10). Vinamilk continue to expand and strengthen this network to be able to distribute directly to customer especially in rural area where more than 70% of the population is. Rural area played a key role for the sharp sale increase in recent years. Vinamilk will make the network more efficient by building a factory in Danang and Thanh Hoa to strengthen its position in the central part of Vietnam (none of the competitors have factory in this area). Vinamilk use both modern and traditional distribution channel. Modern channel is to take advantage of the increasing urbanization. However, traditional distribution (mom & pop shops) channel is vital as it accounts for 80% of Vinamilk total sales. Figure 18: Vinamilk revenue break down by distribution channels Source: Vinamilk Figure 19: Vinamilk sale points Source: Vinamilk Tradition channel 80% Modern channel 20% 125 135 140 178 0 20 40 60 80 100 120 140 160 180 200 2008 2009 2010 2011 Thousand
  13. 13. www.vcsc.com.vn | VCSC<GO> Viet Capital Securities | 13 See important disclosure at the end of this document All Report Types Cost driven by imported powdered milk and local milk purchase price Raw material (powdered milk, local milk price, sugar and so on) fluctuates from 62% to 73% of the COGs, followed by the packaging cost, which account around for 20% and the rest is production cost and depreciation cost. Vinamilk is buying 60% of the total fresh milk produced by local farmers. Vinamilk bought 118 mn litres in FY08 and increased to 144 mn litres in FY11. Due to inflation and increasing production cost from local farm, Vinamilk increased it purchase price each year, purchase milk price grow at CAGR of 9.4% for FY08-FY12. Figure 20: Local fresh milk purchase & value Source: Vinamilk Annual Report Figure 21: Local fresh milk purchase price Source: USDA 840 901 1,010 1,454 1,273 118 125 127 144 134 0 20 40 60 80 100 120 140 160 0 200 400 600 800 1,000 1,200 1,400 1,600 2008 2009 2010 2011 10M2012 Mn LitresVND bn 0.2 0.3 0.35 0.35 0.35 0.36 0.51 0.51 0 0.1 0.2 0.3 0.4 0.5 0.6 FY03 FY04 FY06 FY07 FY08 FY09 FY10 FY11 US$/litres
  14. 14. www.vcsc.com.vn | VCSC<GO> Viet Capital Securities | 14 See important disclosure at the end of this document All Report Types Revenue & Profit Drivers VNM achieved revenue growth rate at CAGR of 25% for the period from FY05-FY11. Of this, powdered milk, liquid milk and yogurt had the strongest growth rate, achieving a CAGR of 42%, 37% and 38% over the same period respectively. VNM has been focusing more on premium products with better growth rate and better margin. Contribution of liquid, powdered and yogurt become more important for Vinamilk to sustain growth in revenue and profit. Figure 22: Vinamilk revenue forecast by products Sales (VND bn) FY10 FY11 FY12E FY13E FY14E FY15E FY16E Condensed milk 3,243 3,945 4,433 4,980 5,595 6,286 7,062 Liquid milk 5,049 7,463 9,183 11,496 14,515 18,481 23,730 Powdered milk 4,526 6,160 7,700 9,625 12,032 14,438 17,326 Yogurt 2,591 3,517 4,516 5,315 6,256 7,364 8,667 Others 343 542 609 684 769 864 970 Total 15,753 21,627 26,441 32,101 39,166 47,433 57,756 Source: VCSC forecast Condensed milk has the lowest profit margin. We estimate the gross margin is 13%, in which more than 80% of the COGs is raw materials. Volatility in raw material prices will affect this product line the most. Liquid milk and yogurt have the gross margin of 35% and 44% respectively. The premium powdered segment has the highest margin of 61%; however, foreigners dominate this segment. Vinamilk products are in the low-end to middle-end. We estimate the gross margin for powdered milk is 38%. Those are the three product lines that Vinamilk focuses on to grow revenues and profits. Figure 23: Vinamilk gross margin by products Source: VCSC estimate FY12 13% 35% 44% 28% 61% 0% 10% 20% 30% 40% 50% 60% 70% Condensed Milk Liquid Milk Yogurt Low-end powder milk Premium powder milk
  15. 15. www.vcsc.com.vn | VCSC<GO> Viet Capital Securities | 15 See important disclosure at the end of this document All Report Types Liquid milk On average, liquid milk accounted for 31% of revenue for the past 4 years, reaching 35% in FY11. Vinamilk is the market leader in this segment with a 40.9% of market share. For the near term, liquid milk is still the most important driver for revenues and profits. With the base of UHT milk, in FY11, Vinamilk introduced pasteurized milk and ADM added milk to penetrate increasing demand for more nutrition & fresh milk. The ADM, which come in 110 & 180 ml, targets children of hectic families. Demanding for convenience is the key reasons for recent trend of switching from powdered GUM to read-to-drink white and flavoured milk. With a historical CAGR for FY06-FY10 of 15.8% and expected CAGR for FY11-FY15 of 13.1%, liquid milk remains a key growth and profit contributor. With rich and pioneering products, Vinamilk will grow strong in this segment. Plain white milk and flavoured milk still dominate the market. However, we do not see much choice for customers in term of vitamin added products and low fat milk yet. Big cities account for more than 70% of milk consumption. We had seen Vinamilk launched ADM added liquid milk; this could be the beginning for a new trend of product series. We believe VNM could still grow more than 15% in term of volume within this segment. Figure 24: Vietnam liquid milk market size Source: EMI Powdered milk This is the most attractive segment with high profit margin and strong near-term growth. Vinamilk has 18.5% of market share in FY10 and contributed an average of 28% of total revenue in FY08-FY11. Vinamilk targeted a 35% market share in FY11, but failed. The significant high birth rate in FY12 (golden dragon year) will boost the growth rate in the near future. CAGR for FY06-FY10 was 18.5%. According to EMI forecast, volume CAGR for FY11-FY16 is 6.5%, however we expect growth rate will be higher compare to EMI forecast from the current baby boom. Parent wants the best products for their newborn child. Vietnamese’s perspective of imported/ foreigner brand is superior and they are willing to pay higher price for it. Vinamilk’s strategy of keeping a competitive price (average 10-30% lower compare to international brand) and promoting the creditability of local brand with the campaign “Vietnamese use Vietnamese good”, we expect Vinamilk will slowly increase its market 6 7 8 9 11 13 15 17 19 21 0 5 10 15 20 25 2006 2007 2008 2009 2010 2011F 2012F 2013F 2014F 2015F VND tn
  16. 16. www.vcsc.com.vn | VCSC<GO> Viet Capital Securities | 16 See important disclosure at the end of this document All Report Types share by 1% each year. Most of the market share will come from the low-end to middle- end range of products. Figure 25: Vietnam powdered milk market size Source: EMI Yogurt milk The market grew at CAGR of 7% for FY06-FY11, market size reached VND4tn in FY11. Vinamilk dominates the market with 71% market share (92% market share of spoonable yogurt). With more value added products (pre/pro-biotic, collagen product), good brand name, and actively marketing strategy, segment’s sale achieved average growth rate of 53% for FY09-FY11. We believe Vinamilk will stay dominant in this market with its current strategy. We expect revenue growth will remain at 18% for medium term. Condensed Milk Vinamilk’s first product line, condensed milk had been the most contributor for VNM in term of revenue and profit in the past. With long shelf-life and ease to use with boiling water, it had been widely used as a nutrition food in the past and is now used in coffee/ juice sweetener in the local market. Those are the catalyst for condensed milk to grow (CAGR for FY05-FY11 is 18%). VNM has 88% of this market, and we expect the growth rate will be lower due to switching to liquid milk usage. Condensed milk’s revenue contribution dropped from 28% in FY05 to 18% in FY11, and we expect this trend to continue in VNM revenue proportion. Other F&B The segment is driven by fruit juice and soya milk. Currently, this segment is less important in terms of revenue and profit; it contributes 1.6% in FY11 revenue. With 22% market share in the beverage industry, we expect stronger growth rate for the coming years. However due to the competitive landscape, the margin is low and the market size is small (Market size is VND950 bn for FY11). To be conservative, we assume the volume growth rate is 12% for next 5 years. 6 8 9 11 13 14 15 16 17 18 0 2 4 6 8 10 12 14 16 18 20 2006 2007 2008 2009 2010 2011F 2012F 2013F 2014F 2015F VND tn
  17. 17. www.vcsc.com.vn | VCSC<GO> Viet Capital Securities | 17 See important disclosure at the end of this document All Report Types Dividend outlook Historically, VNM has maintained a dividend payout ratio from 30-40%. With current and future strong cash flow, we believe VNM could remain the dividend per share as VND 3,000 or even increase it in the future. Figure 26: Dividend forecast Unit: VND FY08 FY09 FY10 FY11 FY12E FY13E FY14E FY15E EPS (Basic) 1,585 3,010 4,564 5,288 6,236 7,249 8,882 10,641 Dividend 650 993 1,780 1,692 1,995 3,000 3,000 3,000 Payout ratio 41% 33% 39% 32% 32% 41% 34% 28% Source: VCSC forecast With the current price, the dividend yield is 3.5%, but with rich operation cash flow, Vinamilk could increase future dividend if the management see fit. Capital spending Expected capital spending for FY12 is VND4.5tn, of which 65% is to expand production capacity especially in drinking milk, yogurt and powdered milk. In August FY12, the Danang factory was put in operation, bring an addition 77,000 tons of liquid milk and 26,000 tons of yogurt. We expect all of its under-construction factory to be operated in FY13, bringing the total production capacity to 1.67mn tons. Figure 27: Vinamilk CAPEX plan CAPEX Total Cost Disburse FY11 Disburse FY12 Disburse FY13-16 Complete date Capacity (tonnes) Description (VND bn) (VND bn) (VND bn) (VND bn) Vietnam Milk Factory 2,349 415 1,651 283 2013 444K- 800K Liquid milk Dielac 2 Factory 1,906 569 958 379 2013 54K Powdered milk, nutrition cereal Danang Milk 421 204 176 41 2012 104K Liquid milk, Yogurt Lam Son Dairy 253 47 181 25 2013 83.9K Liquid milk, Yogurt Vietnam Dairy Cow 2,006 36 646 1,324 2016 - Up to 28K cows Supply chain upgrade 2,642 1,225 689 728 2016 - Logistics, vehicles Branch Office, Warehouse 598 75 233 290 2016 - Warehouses, office building Total 10,175 2,571 4,534 3,070 Source: Vinamilk, VCSC Capex for the period from FY13-FY16 is VND3tn, so VNM will spend VND871bn annually for the next 5 years. Most of the capital will be used for vertical investment, which improve the self-sufficient rate of raw material. Vinamilk focuses on improving efficiency and minimizing risks in long-run. Vietnam Dairy cow will help Vinamilk to be proactive for liquid milk requirement. Its investment in New Zealand based powdered milk producer (VNM bought 19.3% Miraka stake) will help on stabilizing the import material and improve its brand name in powdered milk (Vietnamese foreign brand name perspective). If Vinamilk could fulfil its target of having 28,000 (currently Vinamilk has 9,500 cow heads) cows by FY16, it could produce up to 80,000 tonnes of fresh milk and help Vinamilk to self-efficient 25% of fresh milk demand.
  18. 18. www.vcsc.com.vn | VCSC<GO> Viet Capital Securities | 18 See important disclosure at the end of this document All Report Types Investment on supply chain and warehouse also help Vinamilk’s distribution network, which is its advantage, to improving information and product flow from Vinamilk to its sale points. In order to maintain its leading position and manage increasing distribution network, Vinamilk recognizes its role and continues its investment. Valuation We use a combination of P/E, P/B and Discounted Cash Flow methods to come up with the target price. With stable cash flow and transparent CAPEX, we strongly rely on DCF. We use the proportion of 15%, 15% and 70% respectively from above three methods. Our 12 months target price is VND106,000 per share. DCF valuation Our fair valuation for VNM by using DCF method is VND102,970 for FY12E per share for core business based on WACC of 15.5% for FY12. We use a terminal growth rate of 3% and 25% tax rate. Rolling our valuation forward to FY14E, per share value rise to VND116,298, which implies a rise in valuation of 37.6% over a two year time horizon. Figure 28: DCF Assumption DCF Assumption FY12 FY13 FY14 Risk Free Rate 10% 10% 9.8% Risk Premium 8% 8% 7.8% Cost of Equity 20% 18% 16.0% Cost of Debt 20% 18% 16% FCFF 82,142 84,763 97,013 Per share value 102,970 101,613 116,298 Source: VCSC forecast P/E and P/B At the current price of VND 84,500, VNM is trading at PER of 16x and P/B of 5.4x. Forward PER and PBR for FY12 are 14x and 4.4x respectively. We use target PER and PBR for Vinamilk at 16x and 4.5x accordingly. Figure 29: Target price Multiple Target Multiple(x) FY12E FY13E FY14E EPS - Adjusted P/E @ 16x 99,769 115,991 142,118 Book value P/B @ 4.5x 86,369 120,492 142,462 DCF target price 102,970 101,613 116,298 Target price 100,000 106,000 124,000 Upside 130,000 18% 25% 47% Source: VCSC forecast Since listing in FY06, VNM traded in a PER range of 8x-30x. In term of PBR the lowest is 2.9x and the highest of 8.8x. We believe it is reasonable for VNM to trade on a PER of 16x and PBR of 4.5x, which is the long-term average. The target price makes sense to recognize VNM forward growth potential. Figure 30: EPS Growth CAGR EPS Growth FY14E/11 FY15E/12 FY15E/13 Average EPS reported (1.4%) 4.4% 21.7% 8.2% EPS - Adjusted 19% 20% 22% 20% Source: VCSC forecast
  19. 19. www.vcsc.com.vn | VCSC<GO> Viet Capital Securities | 19 See important disclosure at the end of this document All Report Types Comparison with peers Due to the size and the uniqueness of Vinamilk, we choose its peers as in the F& B sector within Asia Pacific region. Vinamilk is currently trading at PER of 13.8x, which is lower compare with the average of 17.2x of its peers, P/B is higher compare to average of 2.8x. However, in term of ROE of 40.8%, ROA of 33.2% and current dividend yield 3.1%, Vinamilk is almost twice of the peers average. Strong growth potential, high profit margin and low relative comparison makes VNM look attractive within the group. Figure 31: Peer comparables Index Short Name Market Cap (USD mn) Div. Yield (%) P/E P/B ROE (%) ROA (%) 1 UNI-PRESIDENT 8,411 1.8 21.2 3.2 15.4 3.5 2 CHAROEN POK FOOD 8,323 3.6 11.0 2.6 26.2 9.6 3 THAI BEVERAGE 8,214 3.6 15.9 3.9 26.3 10.8 4 LUZHOU LAOJIAO-A 7,455 4.2 12.0 5.6 53.1 34.1 5 KUALA LUMPUR KEP 7,240 3.1 19.9 3.1 17.1 10.8 6 CHAROEN POK INDO 5,445 1.3 18.3 6.7 42.3 29.5 7 SHANXI XINGHUA-A 5,147 0.7 24.3 9.2 44.7 27.0 8 INNER MONG YIL-A 5,131 1.2 18.1 4.6 27.8 8.9 9 INDOFOOD SUKSES 5,103 3.1 14.9 2.4 16.9 6.0 10 CHINA MENGNIU DA 4,997 1.1 21.5 2.6 12.9 7.2 11 PPB GROUP BERHAD 4,646 1.7 19.0 1.0 5.3 4.9 12 NISSIN FOODS HOL 4,585 2.4 24.8 1.2 5.0 3.5 13 INDOFOOD CBP SUK 4,417 2.3 20.4 3.9 20.4 13.5 14 UNIVERSAL ROBINA 4,198 1.9 20.3 3.4 12.7 7.8 15 YANTAI CHANGYU-B 4,188 3.6 12.0 4.0 37.1 25.9 16 CJ CHEIL 3,967 0.5 15.1 1.5 11.1 3.5 17 VIET NAM DAIRY P 3,438 3.1 13.8 5.1 40.8 33.2 18 NIPPON MEAT PACK 3,313 1.4 23.6 0.9 3.8 1.8 19 NISSHIN SEIFUN 3,211 1.9 19.2 0.9 4.7 3.3 20 ASTRA AGRO LEST 3,089 4.9 13.4 3.6 27.9 19.6 21 OLAM INTERNATION 3,049 2.6 10.2 1.1 11.7 2.8 22 TOYO SUISAN KAI 2,998 1.8 13.1 1.3 10.0 7.1 23 KIKKOMAN CORP 2,979 1.3 25.0 1.5 6.0 3.1 24 CHINA AGRI-INDUS 2,852 1.5 14.1 0.8 5.9 1.7 25 FIRST RESOURCES 2,656 1.8 10.5 2.5 25.7 15.1 26 THAI UNION FROZE 2,626 2.4 13.1 2.2 18.8 6.5 27 YAMAZAKI BAKING 2,581 1.7 17.4 0.9 5.2 1.9 28 BEIJING DABEIN-A 2,446 0.8 23.8 3.9 17.5 12.9 29 KEWPIE 2,262 1.6 14.3 1.1 7.8 4.4 30 FRASER & NEAVE 2,191 3.6 24.2 4.3 17.6 10.8 31 GRAINCORP LTD-A 2,111 3.9 11.6 1.6 14.1 7.5 32 GENTING PLANTATI 2,089 1.2 18.0 1.9 11.2 8.7 33 BEIJING YAN-A 2,050 2.1 15.1 1.3 9.0 4.8 34 ANHUI GUJINGD-B 2,028 1.4 10.8 2.5 26.1 17.4 35 SMART TBK 2,027 2.9 10.4 2.3 24.4 12.5 36 CP POKPHAND CO L 2,017 4.1 13.6 2.5 26.5 13.2 37 KAGOME 2,007 1.1 23.8 1.7 7.5 4.1 38 HITE JINRO CO 1,929 4.3 21.1 1.4 6.8 2.8 39 LOTTE CONFECTION 1,918 0.3 21.1 0.8 3.8 2.5 40 BIOSTIME INTERNA 1,896 2.0 19.4 6.1 32.9 25.6 41 GUANGDONG HAID-A 1,842 0.8 25.5 4.0 16.6 8.8 Average 3,733 2.2 17.4 2.8 18.5 10.7 Source: Bloomberg
  20. 20. www.vcsc.com.vn | VCSC<GO> Viet Capital Securities | 20 See important disclosure at the end of this document All Report Types Quarterly Results Summary Profit & Loss by Quarter VND billion 2012 1Q12 2Q12 3Q12 4Q12 YTD Revenues 5,876 7,011 6,6199 6,935 26,441 Gross profit 1,800 2,422 2,342 2,024 8,587 GP margin (%) 31% 35% 35% 29% 32% Operating profit 1,268 1,662 1,600 1,289 5,818 OP margin (%) 22% 24% 24% 19% 22% Net profit 1,270 1,506 1,395 1,030 5,202 Net profit margin (%) 22% 21% 21% 15% 20% 2011 1Q11 2Q11 3Q11 4Q11 YTD Revenues 4,535 5,420 5,697 5,975 21,627 Gross profit 1,509 1,702 1,673 1,704 6,588 GP margin (%) 33% 31% 29% 29% 30% Operating profit 1,078 1,169 1,049 1,021 4,317 OP margin (%) 24% 22% 18% 17% 20% Net profit 1,006 1,107 1,062 1,042 4,218 Net profit margin (%) 22% 20% 19% 17% 20% 2012 vs. 2011 1Q YoY % 2Q YoY % 3Q YoY % 4Q YoY % YoY % Revenues 30% 29% 16% 16% 22% Gross profit 19% 42% 40% 19% 30% Operating profit 18% 42% 53% 26% 35% Net profit 26% 36% 31% -1% 23% Source: Vinamilk financial statements
  21. 21. www.vcsc.com.vn | VCSC<GO> Viet Capital Securities | 21 See important disclosure at the end of this document All Report Types Financial Statements Units in VND billion Income statement FY11 FY12E FY13E FY14E FY15E Balance sheet FY11 FY12E FY13E FY14E FY15E Revenue 21,627 26,441 32,101 39,166 47,433 Assets - Cost of goods sold - 15,039 - 17,854 - 22,132 - 26,819 - 32,220 + Cash & equivalent 3,157 2,073 7,707 11,042 15,765 Gross profit 6,588 8,587 9,968 12,347 15,213 + Short-tm investments 736 996 1,162 1,325 1,485 - Sales & marketing -1,812 -2,283 -2,578 -3,071 -3,588 + Accounts receivable 1,141 1,521 1,847 2,253 2,729 - General & admin -459 -485 -520 -558 -601 + Inventories 3,272 4,011 5,033 6,172 7,503 Operating profit 4,317 5,818 6,870 8,718 11,025 + Other current assets 1,161 1,278 1,278 1,278 1,278 - Forex gains/(losses) 28 28 28 28 28 Total current assets 9,468 9,878 17,026 22,070 28,760 - Net non-op gains 650 392 450 555 603 + Gross fixed assets 6,943 11,298 12,109 12,920 13,731 EBIT 4,994 6,238 7,348 9,301 11,656 - Accum. depreciation -1,808 -2,281 -3,111 -3,947 -4,790 - Interest expense -15 0 0 0 0 + Net fixed assets 5,135 9,016 8,997 8,972 8,941 EBT 4,979 6,238 7,348 9,301 11,656 + LT investments 663 487 506 524 542 - Income tax expense -761 -1,037 -1,301 -1,891 -2,779 + Other long-tm assets 316 107 107 107 107 Profit after tax 4,218 5,202 6,047 7,409 8,877 Total long-term assets 6,115 9,611 9,610 9,603 9,590 - Minority interests 0 0 0 0 0 Total Assets 15,583 19,490 26,636 31,673 38,349 Net income to SH 4,218 5,202 6,047 7,409 8,877 Debt EPS (basic VND) 9,279 9,353 8,699 8,882 10,641 + Accounts payable 1,831 1,957 2,486 3,086 3,796 EBITDA 5,393 6,711 8,178 10,137 12,498 + Short-term debt 0 0 0 0 0 Depreciation -399 -473 -830 -836 -842 + Other short-term debt 1,116 1,364 1,656 2,020 2,447 Revenue growth % 37.3 22.3 21.4 22.0 21.1 Current liabilities 2,947 3,320 4,142 5,106 6,242 Op profit growth % 29.0 34.8 18.1 26.9 26.5 + Long-term debt 0 0 0 0 0 EBIT growth % 17.3 24.9 17.8 26.6 25.3 + Other long-term debt 159 159 159 159 159 EPS growth % -9.6 0.8 -7.0 2.1 19.8 Total LT debt 159 159 159 159 159 Profitability ratios Equity Gross margin % 30.5 32.5 31.1 31.5 32.1 + Preferred equity 0 0 0 0 0 NPAT margin % 19.5 19.7 18.8 18.9 18.7 + Addt’l paid in capital 1,277 1,277 1,277 1,277 1,277 ROE Dupont % 41.3 36.5 31.5 30.4 30.4 + Share capital 5,561 5,561 8,342 8,342 8,342 ROA Dupont % 32.0 29.7 26.2 25.4 25.4 + Retained earnings 5,639 9,172 12,717 16,790 22,330 * EBIT Margin % 23.1 23.6 22.9 23.7 24.6 + Minority interest 0 0 0 0 0 * Tax burden % 84.7 83.4 82.3 79.7 76.2 Total equity 12,477 16,010 22,336 26,408 31,948 * Interest burden % 99.7 100.0 100.0 100.0 100.0 Total debt & equity 15,583 19,490 26,637 31,674 38,350 * Asset turnover 1.6 1.5 1.4 1.3 1.4 Cash flow Leverage ratio 1.3 1.2 1.2 1.2 1.2 Beginning cash 613 3,157 2,073 7,707 11,042 ROIC 40.2 36.5 31.5 30.4 30.4 Net Income 4,218 5,202 6,047 7,409 8,877 Efficiency ratios + Depreciation 411 473 830 836 842 Days inventory on hand 68.2 74.5 74.6 76.2 77.5 + Other non-cash adj. -293 0 0 0 0 Days AR outstanding 14.6 18.4 19.1 19.1 19.2 + ∆ in non-cash -1,452 -861 -526 -581 -671 Days AP outstanding 35.4 38.7 36.6 37.9 39.0 Cash from operations 2,884 4,813 6,351 7,664 9,048 Cash conversion cycle 47.4 54.1 57.1 57.4 57.7 + Disposal fixed assets 47 0 0 0 0 Inventory turnover 5.3 4.9 4.9 4.8 4.7 + Capex -1,767 -4,354 -811 -811 -811 Liquidity/Solvency + ∆ in investments 0 0 0 0 0 Current ratio 3.21 2.97 4.11 4.32 4.61 + Other investments 1,254 125 -184 -181 -178 Quick ratio 2.10 1.77 2.90 3.11 3.41 Cash from investing -467 -4,229 -995 -992 -989 Cash ratio 1.07 0.62 1.86 2.16 2.53 + Dividends paid -741 -1,668 -2,503 -3,337 -3,337 Debt/assets % 0.00 0.00 0.00 0.00 0.00 + ∆ in capital 1,455 0 0 0 0 Debt/capital % 0.00 0.00 0.00 0.00 0.00 + ∆ in ST debt -568 0 0 0 0 Debt/equity % 0.00 0.00 0.00 0.00 0.00 + ∆ in LT debt 0 0 0 0 0 ST debt/equity % 0.00 0.00 0.00 0.00 0.00 + Other financing act. 0 0 0 0 0 LT debt/equity % 0.00 0.00 0.00 0.00 0.00 Cash from financing 126 -1,668 278 -3,337 -3,337 Interest coverage ratio 0.00 0.00 0.00 0.00 0.00 Net changes in cash 2,543 -1,084 5,634 3,336 4,723 Ending cash 3,157 2,073 7,707 11,042 15,765
  22. 22. www.vcsc.com.vn | VCSC<GO> Viet Capital Securities | 22 See important disclosure at the end of this document All Report Types Analyst Certification I, Anh Nguyen, hereby certify that the views expressed in this report accurately reflect my personal views about the subject securities or issuers. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. The equity research analysts responsible for the preparation of this report receive compensation based upon various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues, which include revenues from, among other business units, Institutional Equities and Investment Banking. VCSC Rating System and Valuation Methodology Absolute performance, long term (fundamental) rating key: The recommendation is based on implied absolute upside/downside for the stock from the target price, defined as (target price – current price)/current price, and is not related to market performance. This structure applies from 1 November 2010. Equity rating key Definition BUY If the target price is 20% higher than the market price ADD If the target price is 10-20% higher than the market price HOLD If the target price is 10% below or 10% above the market price REDUCE If the target price is 10-20% lower than the market price SELL If the target price is 20% lower than the market price NOT RATED The company is or may be covered by the Research Department but no rating or target price is assigned either voluntarily or to comply with applicable regulation and/or firm policies in certain circumstances, including when VCSC is acting in an advisory capacity in a merger or strategic transaction involving the company. RATING SUSPENDED The investment rating and target price for this stock have been suspended as there is not a sufficient fundamental basis for determining an investment rating or target. The previous investment rating and target price, if any, are no longer in effect for this stock. Unless otherwise specified, these performance parameters only reflect capital appreciation and are set with a 12- month horizon. Future price volatility may cause temporary mismatch between upside/downside for a stock based on market price and the formal recommendation, thus these performance parameters should be interpreted flexibly. Small Cap Research: VCSC Research covers companies with a market capitalisation of up to USD50mn, inclusively. Clients should note that coverage may not be consistent and that VCSC may drop coverage of small caps at any time without notice. Target price: In most cases, the target price will equal the analyst's assessment of the current fair value of the stock. The target price is the level the stock should currently trade at if the market were to accept the analyst's view of the stock, provided the necessary catalysts were in place to effect this change in perception within the performance horizon. However, if the analyst doesn't think the market will reassess the stock over the specified time horizon due to a lack of events or catalysts, then the target price may differ from fair value. In most cases, therefore, our recommendation is an assessment of the mismatch between current market price and our assessment of current fair value. Valuation Methodology: To derive the target price, the analyst may use different valuation methods, including, but not limited to, discounted free cash-flow and comparative analysis. The selection of methods depends on the industry, the company, the nature of the stock and other circumstances. Company valuations are based on a single or a combination of one of the following valuation methods: 1) Multiple-based models (P/E, P/cash flow, EV/sales, EV/EBIT, EV/EBITA, EV/EBITDA), peer-group comparisons, and historical valuation approaches; 2) Discount models (DCF, DVMA, DDM); 3) Break-up value approaches or asset-based evaluation methods; and 4) Economic profit approaches (Residual Income, EVA). Valuation models are dependent on macroeconomic factors, such as GDP growth, interest rates, exchange rates, raw materials, on other assumptions about the economy, as well as risks inherent to the company under review. Furthermore, market sentiment may affect the valuation of companies. Valuations are also based on expectations that might change rapidly and without notice, depending on developments specific to individual industries. Risks: Past performance is not necessarily indicative of future results. Foreign currency rates of exchange may adversely affect the value, price or income of any security or related instrument mentioned in this report. For investment advice, trade execution or other enquiries, clients should contact their local sales representative.
  23. 23. www.vcsc.com.vn | VCSC<GO> Viet Capital Securities | 23 See important disclosure at the end of this document All Report Types Contacts Head office Bitexco 15 th Floor, 2 Hai Trieu, District 1, HCMC +84 8 3914 3588 Transaction office 136 Ham Nghi, District 1, HCMC +84 8 3914 3588 Hanoi branch 109 Tran Hung Dao, Hoan Kiem District, Hanoi +84 4 6262 6999 Transaction office 236 - 238 Nguyen Cong Tru, District 1, HCMC +84 8 3914 3588 Research Head of Research Robert Zielinski, ext 145 robert.zielinski@vcsc.com.vn Senior Manager, Mr. Tu Vu, ext 105 Manager, Ms. Phuong Ton, ext 146 Senior Analyst, Ms. Hoa Dinh, ext 140 Senior Analyst, Mr. Huy Nguyen, ext 139 Senior Analyst, Mr. The Anh Nguyen, ext 194 Research Team +84 8 3914 3588 research@vcsc.com.vn Analyst, Ms. Ly Vu, ext 147 Analyst, Mr. Viet Vu, ext 143 Analyst, Ms. Duong Pham, ext 130 Analyst, Ms. Trang Nguyen, ext 116 Macro Analyst, Mr. Phong Nguyen, ext 120 Technical Analyst, Mr. Minh Nguyen, ext 142 Institutional Sales & Brokerage & Foreign Individuals Head of Institutional Sales Michel Tosto, M.Sc. +84 8 3914 3588, ext 102 michel.tosto@vcsc.com.vn Vietnamese Sales Nguyen Quoc Dung +84 8 3914 3588, ext 136 dung.nguyen@vcsc.com.vn Retail & Corporate Sales & Brokerage Ho Chi Minh City Quynh Chau +84 8 3914 3588, ext 222 quynh.chau@vcsc.com.vn Hanoi Quang Nguyen +84 4 6262 6999, ext 312 quang.nguyen@vcsc.com.vn Disclaimer Copyright 2012 Viet Capital Securities Company. All rights reserved. This report has been prepared on the basis of information believed to be reliable at the time of publication. VCSC makes no representation or warranty regarding the completeness and accuracy of such information. Opinions, estimates and projection expressed in this report represent the current views of the author at the date of publication only. They do not necessarily reflect the opinions of VCSC and are subject to change without notice. This report is provided, for information purposes only, to institutional investor and retail clients of VCSC, and does not constitute an offer or solicitation to buy or sell any securities discussed herein in any jurisdiction. Investors must make their investment decisions based upon independent advice subject to their particular financial situation and investment objectives. This report may not be copied, reproduced, published or redistributed by any person for any purpose without the written permission of an authorized representative of VCSC. Please cite sources when quoting. History of Recommendation Date Recommendation Closing price Target price 19 Dec 2012 Buy 84,500 106,000

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