http://www.wsj.com/articles/vietnam-airlines-raises-nearly-52-million-in-ipo-1415955368 HANOI—Vietnam Airlines Friday raised nearly 1.1 trillion dong ($52 million) in its initial public offering, though it failed to attract enough foreign investment, according to a person familiar with the deal. The company sold all of the 49 million shares offered, representing a 3.48% stake, at an average price of 22,307 dong a share, the bourse said in a filing. Among buyers were two corporate investors, the company said without elaborating. A senior official with the bourse said the corporate investors are two local banks, Vietnam Technological & Commercial Joint Stock Bank and The Joint Stock Commercial Bank for Foreign Trade of Vietnam, or Vietcombank. “These two investors bought most of the shares offered, helping contribute to the success of the IPO,” the official, who didn’t want to be identified, said. Vietnam Airlines President and Chief Executive Pham Ngoc Minh in August said the company is speaking to several potential strategic investors to sell a separate 20% stake. The company is expected to hold its first shareholders meeting in March next year, Pham Viet Thanh, the airline’s chairman, said. The disappointing result comes as investors have been unenthusiastic about Vietnam’s privatization campaign, partly because of a lack of transparency in many state-run companies and the inordinate amount of time it takes for a company’s shares to start trading after going public. But recently, the government has moved to speed up its reforms of state-owned enterprises, public investment and a banking system burdened by high levels of nonperforming loans in an effort to revive economic growth. “Privatizing a state-owned company like Vietnam Airlines shows the government’s right direction in restructuring state-owned enterprises to enhance their transparency and efficiency,” Deputy Minister of Transport Nguyen Hong Truong said after the Friday IPO. Write to Vu Trong Khanh at Trong-Khanh.Vu@dowjones.com and Nguyen Amh Thuat anhthu.nguyen@wsj.com

1. Company report
Vietnam Airlines

2. Content
4 About the IPO
4 The airline industry outlook
4 Vietnam Airlines
4 Financial Analysis
4 Operating forecast and
Valuation

3. About Vietnam Airlines IPO
Par value 10,000 VND
Number of shares 49,009,008 shares
Offering price 22,300 VND per share
Offering proportion
3.475% of total charter
capital
„ The State
„ IPO
„ Strategic investors
„ Employees
„ Company Union
75%
3.475%
20%
1.475% 0.05%

4. The Airline industry outlook
4Signs of recovery
4Vietnam’s advantageous location in a
dynamic airline market
4Fast-paced growth of investments and
tourism
4Improved living standards in Vietnam

5. Signsofrecovery Revenues growth and profit margins of
the global airline industry
-6%
-4%
-2%
0%
2%
4%
0
200
400
600
800
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Doanh thu Biên lợi nhuận gộp„„ Revenue (billion USD) „„ Profit margin Source: IATA
Take off, again: The global
airlines industry saw growth
after the economic downturn

6. Growth rates of world air transport markets
2%
11%
7%
4%
8%
7%
1%
13%
10%
5%
6%
8%
0% 2% 4% 6% 8% 10% 12% 14%
Bắc Mỹ
Trung Đông
Châu Mỹ
Châu Âu
Châu Á Thái Bình Dương
Châu Phi
Source: IATA„„ 2012 „„ 2013
Signsofrecovery
Africa
Asia-Pacific
Europe
America
Middle East
North America
Locational advantage:
Vietnam is located in Asia
Pacific, the 2nd fastest growing
air transportation market

7. Dominant: Vietnam
Airlines holds the
largest market share
of international on
international routes,
leading by a wide margin.
Vietnam Airlines’ position
Market share of Vietnam Airlines’
international passenger operations
40.6%
59.4%
„„ Vietnam Airlines „„ Other
Revenue structure of Vietnam Airlines’
international transportation
12.10%
46.35%
21.94%
5.00%
14.61%
„„ Europe „„ North East Asia „„ South East Asia
„„ Australia „„ CLMV
Source: CAPA Source: Vietnam Airlines

8. Domestic market
4Accelerated growth in the tourism industry
4Large population and improving income per capita
4Stable growth of FDI capital

9. Vietnam Airlines
4The National Carrier of Vietnam
4A dominating market share of 51.8%
4Carried 15 million passengers and 184,606
tons of cargo, operating on 39 domestic
routes and 52 international routes in 2013

10. An integrated value chain
Vietnam Airlines
Airline services Airline-related businessesAIRLINES

11. Investment highlights
4Valuable tangible and intangible assets
42014-2018 business plan with an emphasis on efficiency
4Robust subsidiaries and affiliates

12. Operating Performance

13. Market share
Passenger operations
44 Revenue reached VND45,407 billion
in 2013 (+5% yoy), accounting for
86% of Total revenue.
44 Vietnam Airlines dominates 51.8% of
the total market share (63.2% of the
domestic flights and 40.6% of the
international flights).
Passenger revenue and volume
19 18
27
34
43 45
4
8
12
16
15
30
45
60
2008 2009 2010 2011 2012 2013
„„ Revenue (in thousand billion VND „„ Passenger volume (in million)

14. Market share
Cargo operations
44 Revenue slightly rose to VND 4,377
billion in 2013, 8% of Total revenue.
44 Total market penetration was 29%
(75% domestic and 7% international
market). .
Cargo revenue and volume
2.2
1.5
2.6 2.8
4.4 4.4
50
100
150
200
250
1
2
3
4
5
2008 2009 2010 2011 2012 2013
„„ Revenues (million VND) „„ Cargo Volume (Thousand ton)
Nguồn: Vietnam Airlines

15. Valuable assets
44 Young fleet: As of 31 December
2013, Vietnam Airlines owned 83
aircrafts with an average age of
5.34 years, which are significantly
younger than regional airlines.
44 Fast depreciation scheme:
Vietnam Airlines’ accounting
policy allows assets to be
depreciated for a period of 12-15
years while the industry average
was over 15 years.
Average fleet age of full-service carriers in Asia
0 2 4 6 8 10 12
China Southern
Air China
China Eastern
Cathay Pacific
Malaysia Airlines
Garuda Indonesia
Singapore Airlines
Thai Airways
Vietnam Airlines
Philippine Airlines
China Airlines

16. 44 A network of 52 international
routes and 39 domestic routes
accompanied by over 400 landing
& take-off slots at international
airports are invaluable intangible
assets for Vietnam Airlines
44 Prestigious brand name, strong
repuation in the international airline
industry
44 Young and professional workforce
Valuable assets
Number of routes operated by airlines in
Vietnam (as of 31 December 2013)
39
15 14
52
3
2
0
20
40
60
80
100
Vietnam
Airlines
Vietjet Air Jetstar
„„ Domestic „„ International

17. 2014-2018 business plan: A focus on efficiency
44 Replacing the existing wide-
body aircrafts by innovative
A350 & A787 in order to expand
the fleet to 116 aircrafts by
2018
44 Increasing flight frequency
of efficient routes (in both
domestic and international
market)
44 Upgrading the service quality
to 4-star standard in 2015-
2016 and improving customer
structure
Projected operating flight hours (hour/day/airplane)
9.08
9.05
8.63
9.12
9.80
10.14
10.41
10.56
2011
2012
2013
2014F
2015F
2016F
2017F
2018F

18. 44 Enhancing the affiliation with theSkyteam
members and other airlines
44 Considerable cost saving from increased
proportion of Vietnamese pilots
2014-2018 business plan: A focus on efficiency
Projected pilot structure
0
200
400
600
800
1000
1200
2014 2015 2016 2017 2018
„„ Vietnamese „„ Foreign
Source: Vietnam Airlines

19. Tình hình tài chính
Financial Analysis

20. The parent company
44 The average annual rate of
revenue growth from 2008
to 2013 was 15.8%.
44 Revenues comes from four
main sources
44 Vietnam Airlines’ profit
margins improved
significantly, up from 7.7%
(2011) to 8.41% (2012) and
reached 10.58% (2013).
23.20
35.60
44.87
49.58
52.83
0 10 20 30 40 50 60
2009
2010
2011
2012
2013
Revenues Profit margins
12.80%
13.79%
7.70%
8.41%
10.58%
0.00% 5.00% 10.00% 15.00%
2009
2010
2011
2012
2013

21. Assets
44 The total value of aircraft/ aircraft
engines amounted to VND44,575
billion and accounted for 75.12%
of total assets.
Capital Structure
44 The financial leverage is high,
with an average Liabilities/Equity
ratio of 4.92 in the last 3 years.
The parent company
Asset & Net Revenues
23.1
35.3
44.5
49.1
52.5
32.1
38.5
48.5
55.5
59.3
10
20
30
40
50
60
70
2009 2010 2011 2012 2013
„„ Net Revenues „„ Total Assets
Asset structure
84%
76%
82%
87%
85%
16%
24%
18%
13%
15%
0% 50% 100%
2009
2010
2011
2012
2013
„„Long-term assets „„Short-term assets
Source: Vietnam Airlines
Source: Vietnam Airlines

22. Operation and Liquidity Ratios
44 Vietnam Airlines owns an
excellent cash conversion
cycle with low level of Days
in Inventory and Days Sales
Outstanding. On the contrary,
its number of Days Payable
Outstanding has been at high
level.
The parent company
2010 2011 2012 2013
Days in Inventories 5.84 3.99 3.05 2.69
Days Sales Outstanding 18.99 18.32 16.72 15.02
Days Payable
Outstanding
46.99 47.13 50.00 57.52

23. Cost structure
The parent company
2009 2010 2011 2012 2013
Value
% of total
cost
Value
% of total
cost
Value
% of total
cost
Value
% of total
cost
Value
% of total
cost
Raw material 36.89% 13,492 39.01% 17,716 39.34% 19,597 40.10% 20,351 39.68%
Compensation 8.97% 2,720 7.86% 3,843 8.53% 3,892 7.96% 3,849 7.50%
Depreciation 6.90% 1,791 5.18% 2,171 4.82% 2,796 5.72% 3,419 6.67%
Outsourced expense 45.88% 16,177 46.77% 20,573 45.69% 21,559 44.12% 23,108 45.05%
Other operational expenses 1.35% 406 1.17% 726 1.61% 1,023 2.09% 567 1.11%
Total 22,601 100.00 34,587 100.00 45,028 100.00 48,867 100.00 51,294 100.00

24. 44 Current assets: (1) VND2,112 billion
of bank deposits of Vinapco; (2)
VND3,188 billion of the inventory of
Vinapco
44 Long-term debts: the subsidiary with
the highest value of long-term debt
of VND190.14 billion was Vietnam
Airlines Engineering Company
(VAECO) to finance its Hangar A76
factory.
44 Short-term loans: Vinapco
contributed VND5,226.79 billion of
short-term loans.
Financial Analysis | Consolidated
Consolidated Revenues and As-
sets Growth
32.61
46.35
56.47
64.86
68.86
35.43
43.06
56.38
64.72
69.64
10
20
30
40
50
60
70
80
2009 2010 2011 2012 2013
Doanh thu thuần Tổng tài sản
Cosolidated Assets struc-
ture
25%
34%
30%
25%
25%
75%
66%
70%
75%
75%
0% 20% 40% 60% 80% 100%
2009
2010
2011
2012
2013
Tổng tài sản Tài sản dài hạn„„ Short-term assets „„ Long-term assets„„ Net revenues „„ Total Assets

25. SWOTtrength SWOThreatsSWOTeakness SWOTpportunities
4 Unique location
4 Rapid growth of tourism industry
4 Ranking 11th among top investment
destinations in 2012
4 Population of 88.7 million people with improving
income per capita
4 Forecast GDP growth rate of 5% per annum
4 Arrivals/departures to/from Vietnam continues
to rise at a rate of 10%/year
4 The Skyteam membership
4 Political instabilities in the destination countries
4 Macroeconomic risks such as high inflation,
local currency depreciation and soaring fuel
cost
4 Fierce competition with established
international full-service and low-cost carriers in
the domestic, regional and European market
4 Insufficient infrastructure to keep up with the
rapid growth of the industry: limited landing
spaces at HAN and SGN
4 Scarce professionals specializing in airline
industry, especially pilots and technicians.
4 The prestige brand name as Vietnam national
airlines with a strong position in domestic
market as well as in CLMV regions
4 The only full service carrier in Vietnam,
accompanied by differentiated domestic
products such as Class C and GLP program
4 Diverse input system to reduce the
dependence on suppliers
4 The leader in direct flight from Vietnam to
Europe, Vietnam to CLM and within the
country
4 Pioneer in regional technology and enhanced
competitive advantages from the innovated
fleet with the acquisition of A350-900 and
B787-9 aircraft since 2015
4 Tình hình kinh tế chính trị tại các quốc gia là
điểm đến của Vietnam Airlines còn nhiều biến
động;
4 Low revenue from international flights for
small proportion of high income customers
4 Poor service quality compared to major
regional airlines
4 Relatively low competitive advantage in the
global stage
4 High fixed cost
4 Limited financial capacity
SWOT Analysis

26. Forecasting and
valuation

27. Methodology
Revenue forecast
44Passenger and baggage
transportation
44Cargo and parcel
transportation
44Other services
44Financial investment
Expenses
44Direct cost
44Indirect cost
44Depreciation and amortization
44Financial expenses

28. Operating forecast
Income statement 2014 2015 2016
Net revenues (bil. VND) 57,357 65,423 78,752
Gross profit (bil. VND) 49,319 55,918 66,031
Financial expenses (bil. VND) 8,038 9,505 12,722
Profit after tax (bil. VND) 754 1,382 2,666
ROE 269 615 2,084
EPS (VND) 1.82% 4.06% 9.95%
Dividends 190 436 1,118
The forecast of major accounts for the period 2014-2016
Ballance sheet 2014 2015 2016
Current assets (bil. VND) 14,583 16,108 23,148
Non-current assets (bil.
VND)
55,499 72,688 90,023
Total assets (bil. VND) 70,082 88,796 113,171
Current liabilities (bil.VND) 19,735 24,369 29,963
Long term liabilities (bil.
VND)
35,562 49,274 62,264
Equity (bil. VND) 14,784 15,153 20,944
Book value (VND) 10,359 10,631 11,142

29. 44 The Adj. EV/EBITDAR multiple
applied for Vietnam Airlines’ valuation
is 8.19x, which is the average of EV/
EBITDAR multiples of similar Asian
airlines.
44 Multiple of rent is the factor of the
average of fleets and the cost of
flying. The most common multiply
used in calculating the market value
of leased aircraft is 7x
EBIT-
DAR
12,101
Adj EV/
EBITDAR
8.19
Short
term
debt
7,516
Long
term
debt
35,233
Cash
6,769
Operat-
ing lease
6,129
Multiple
of Rent 7
Adjusted firm
value
99,107
Net debt
35,980 Capitalized operat-
ing lease 42,900
The parent company value
20,227
Sơ đồ định giá Công ty mẹ (tỷ đồng)
Parent company valuation

30. 44 P/E: The P/E of VN-Index (15.3x) is
discounted to reflect their unlisted
condition. The calculated P/E (12x)
is then multiplied by PAT and the
ownership percentage of Vietnam
Airlines as of 31 December 2013.
44 P/B: Book value of the remaining
companies is assumed to remain
unchanged. Hence, P/B is
estimated at 1x (discounted from
P/B of VN index of 2x).
Subsidiaries & Affiliates valuation

31. Result
Sum of the parts
The value of Vietnam Airlines Billion VND 24,760
The value of the parent company Billion VND 20,227
The incremental value of Vietnam Airlines’
ownership in its subsidiaries and affiliates
Billion VND 4,533
Number of shares Million shares 1,058
The stock price of Vietnam Airlines VND per share 23,412

32. Thank you!
Contact
Head Office
10th & 11th floor – BIDV Tower
35 Hàng Vôi – Hoàn Kiếm – Hà Nội
Tel: 84 4 39352722
Fax: 84 4 22200669
Website: www.bsc.com.vn
Facebook: www.facebook.com/BID-
VSecurities
Tran Thang Long
Head of Research
longtt@bsc.com.vn
(+84) 43935 2722 ext. 118