VIETNAM NATIONAL TEXTILE and GARMENT GROUP (Vinatex) September 17, 2014

VIETNAM NATIONAL TEXTILE AND GARMENT GROUP (Vinatex) September 17, 2014

PRE-IPO COMPANY NOTE

Auction date September 22, 2014 Vinatex’s IPO will be held on September 22 after a two-month delay. The Bidding price VND 11,000 Company will offer a 24.4% stake to the public and 24% to strategic partners. The Target Price: VND 11,300 Company hopes to list these shares on the Ho Chi Minh Stock exchange within the next three years. Industry: Textile Post-IPO Chartered Cap (VND bn) 5,000 Good Prospects for revenue and profit growth: To-be listed on: N/A Not yet listed  Strong industry growth: The Vietnam garment industry has recorded a CAGR of Ownership No. of shares Percent (%) 17% in export turnover and has significant opportunities for expansion from Structure (mn) free trade agreements being negotiated. When TPP and other FTAs conclude State 255 51% their negotiations, they will become significant growing catalysts for this sector. Public Offerings 122 24.4%  Advantage from full vertical integration: Vinatex is a first-mover in processing Strategic Partners 120 24% its full package value chain from cotton production to final commercial Staff 3 0.6% garments. Financial performance of the Group  Divestiture and restructuring program: To date, Vinatex is progressing on 21 2009-2012 divestments with a book value of VND917 billion (USD 43.7 million), achieving (VND bn) 2013A 2014F VPBS CAGR 85% of total divestment value so far. Net Revenue -3.9% 10,954 N/A  Strong and well-operated associates: Vinatex holds shares in companies Gross profit -3.7% 1,715 N/A endowed with great production capability, including Viet Tien JSC, Phong Phu Net profit 8.7% 198 341 JSC, Hoa Tho, Garco 10, etc. EPS (VND) 462 682 Profitability should recover from 2013 declines: ROE (%) 5.6% N/A ROA (%) 1.7% N/A We project consolidated 2014 net profit to grow by 72% to reach VND341 billion Ratios Vinatex Peers VNI from VND198 billion in 2013 on the back of: P/E 2014 16.1 21.8 15.7  Contribution from 51% share of Phong Phu’s ownership: We estimate that P/B 2014 0.95 1.6 2.0 Vinatex will record nearly VND90 billion (USD4.3 million) of net income this year from its investment in Phong Phu JSC after deducting minority interests . Company Description:  Divestitures of over VND760 billion in 2014: Divestitures will help Vinatex to remove net losses of unprofitable sub-companies from its bottom line and may Vietnam National Textile and Garment Group (Vinatex) also generate financial income from the disposals of those companies. was formerly Vietnam Textile and Garment Corporation.  Restructuring process and equitization: Changes underway are expected to In 2005, Vietnam Textile and Garment Corporation and its bring positive catalysts to Vinatex both in terms of operating mechanisms and members were restructured and named as Vietnam business strategies. Textile and Garment Group (Vinatex) after its parent  Robust performance of the parent company: Profits have improved thanks to company. increasing the ODM exporting method’s portion to earn higher margins and being responsible for importing 15% cotton of the whole group. Vinatex specializes in producing and trading materials, equipment and products (mainly yarns, fabrics and Company seems fully valued at bid price garments) or commercial services for textile and garment  IPO bidding price is 3.1% below our fair value: The bidding price for Vinatex sector. shares is VND 11,000. This equates to 16.1 times the estimated 2014 EPS of For 2013, the group recorded revenue of VND10,954 VND682/share (consolidated) and 0.95 times the book value of the company. billion (USD521.6 million), a decline of 12% y-o-y, and Based on the relative P/E and P/B ratios for comparable regional companies, the profit of VND198 billion (USD9.4 million), a decline of fair value of Vinatex would be VND 11,300/share, 3.1% above the offering price. 60.4% y-o-y.  Valuation depends on affiliate results, which are difficult to forecast: Vinatex seems to rely on its affiliates to save its bottom line. Furthermore, Vinatex’s disclosure of its historical performance is fragmented, making it daunting for investors to thoroughly evaluate the prospects of the group. Management has

provided little information regarding forecast of affiliates and investments.

(Please see important disclosure information at the end of this report)

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Contents

VIETNAM TEXTILE AND GARMENT INDUSTRY ...... 3 Industry size and Composition ...... 3 Exports ...... 3 Imports ...... 4 Development Plan ...... 6 Free Trade Agreements ...... 6 EU-Vietnam FTA ...... 6 Trans-Pacific Partnership (TPP) ...... 7 Foreign investments in textile ...... 7

VIETNAM NATIONAL TEXTILE AND GARMENT GROUP – A LEADING PLAYER IN THE INDUSTRY ...... 9 IPO Plan ...... 9 Organizational structure ...... 10 Highlighted associates and subsidiaries ...... 10 Subsidiaries which will be included in Vinatex equitization ...... 11 Vinatex’s position in the industry...... 12 Strong Vertical Integration ...... 12 Investments ...... 13 Opportunities from TPP ...... 14 Production capacity ...... 14 Far-flung land bank ...... 15 Export Market ...... 15 Expansion Plan ...... 15

HISTORICAL PERFORMANCE (CONSOLIDATED) ...... 17 Vinatex’s revenue experienced ups and downs due to divestitures ...... 17 Gross profit margin stayed relatively flat ...... 17 Net Financial Income - Lower threat from interest rates ...... 17 Bottom line was buoyed by affiliates ...... 18 Divestitures lead to shift in capital structure towards equity funding ...... 18 Positive signs on liquidity ...... 19 Well-managed working capital...... 19

MANAGEMENT FORECAST FOR PARENT COMPANY ...... 20

VPBS FORECAST FOR CONSOLIDATED NET PROFIT ...... 20

VALUATION ...... 22 Peer comparison ...... 22

APPENDIX ...... 23 VINATEX’S INVESTMENT PROJECTS AFTER IPO ...... 23

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VIETNAM TEXTILE AND GARMENT INDUSTRY Industry size and Composition

Vietnam’s textile industry has Vietnam’s textile and garment industry, with more than 6,000 companies, is one grown at a high speed and of the leading export industries in Vietnam and plays an important role in the contributed significantly to economy. Sizes of enterprises in the industry are mainly small and medium national export turnover. except for a few large-caps, such as Vinatex. 70% of the firms are garment companies. The rest are companies specializing in spinning, knitting, dyeing and other apparel activities. Private enterprises make up 84% of companies in the market followed by FDI enterprises, whereas SOEs only represent 1% of the total. Exports The textile and garment industry has developed rapidly, with a CAGR of 17% per year in export value from 2008 to 2013. The year 2013 was a successful year for the industry with total export value of USD20.096 billion, accounting for 15% of total Vietnam export value and 12% of GDP. Textile and garment exports have benefited significantly from foreign direct investment (FDI) enterprises. During 2013, the FDI segment exported around USD12billion, 18% higher than last year’s export value and accounting for 60% of the total textile export value. The remaining 40% came from domestic companies, of which Viet Tien Garment JSC is the largest exporter with an export turnover of USD32.6 million in 1H2014.

Vietnam leading exporters in textile and garment sector as of June 2014 Name Value (USD 000’s) Viet Tien Garment JSC 32,612 Tinh Loi Garment Ltd 30,398 Garco 10 JSC 18,615 EINS VINA 17,176 HANESBRANDS VN- Hue Branch 16,953 Source: VITAS Vietnam exports mainly jackets, t-shirts and pants. The United States is the largest import market of Vietnam’s garment products with 43% of total value. The European Union (EU) is the second market with 14% of total value followed by Japan with 12% of total value. Korea has emerged recently as a potential market of Vietnam’s exports. The export value of the garment industry to this country rose from only USD0.14 billion in 2008 to USD1.67 billion in 2013, a 12-fold increase within only six years, and accounted for 8% of total export value. Textile export value from 2008 - 2013 Textile companies breakdown Exporting market breakdown

Total (USD thousand) FDI companies Domestic companies Others 2013 60% 40% 32% 20,096 2012 60% 40% 17,018 15,831 2011 61% 39% USA 43% 2010 11,210 61% 39% 9,130 9,084 2009 60% 40% 2008 58% 42% EU 2007 54% 46% Japan 13% 2006 47% 53% 12% 2008 2009 2010 2011 2012 2013 2005 44% 56%

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According to the Vietnam Textile and Apparel Association (VITAS)’s estimates, given the current growth rate of 15% to 17% per year, Vietnam’s garment export value is expected to reach USD40 billion in 2025, double the current export numbers. Imports Production depends on imported materials. Vietnam exports textile and garments products but has shortages in material for production. The country imports mainly fibers, yarns, cottons and fabric. In the period of 2009 to 2013, Vietnam’s imported garment materials value had a CAGR of 21%. Of this, 62% of the total import value is contributed by fabric imports. As of 2013, Vietnam’s textile and apparel industry imported USD13.6 billion, increasing by 19% as compared to last year, of which, USD10.9 billion of import value was used for producing export textiles and garments.

 Cotton imports: In 2013, cotton imports reached 589,000 tons, equaling USD1.19 billion, an increase of 39% in volume and 34% in value in comparison to 2012. Vietnam imports cotton mainly from the United States (37%), India (19%) and Australia (7%). Vietnam’s domestic cotton supply is miniscule compared to the national demand for production, fulfilling only 2%. The main reason is that Vietnam has not focused on the development of cotton plantations and Vietnam does not have natural advantages for planting cotton. Therefore, so far, Vietnam’s textiles and garments are heavily dependent on imported materials.  Yarn & Fiber import: Yarn import in 2013 was 697,000 tons, a 7% increase in volume, and reached USD1.52 billion in value, an 8% rise in value as compared to last year’s numbers. Yarns are imported from Taiwan and China, Thailand and Korea.  Fabric import: In the import value breakdown, fabrics hold the dominant position with 62% of the total textile and garment import value. In 2013, fiber import value was USD8.4 billion, up 19% compared to 2012. Cotton import markets Yarn and Fiber import markets Fabric import markets

China Korea Taiwan USA India Australia Taiwan China Korea Japan Others Brazil Invory Coast Others 3% 3% 6% 6% 5% 5% 10% 8% 11%

10% 16% 48% 52% 78%

20% 20%

Source: VITAS and VPBS collects

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Cotton, fiber and yarn import volume Total import and fabric import value (USD mn)

Fiber & Yarn imports (thousand tons) Fabric imports (USD mn) Total import value (USD mn)

Cotton imports (thousand tons) 13,547 800 697 11,209 11,363 610 589 600 8,911 410 7,064 342 6,356 6,422 61,44 400 288

200 3,980 4,454 4,168 5,362 6,730 6,886 8,419 3,696 0 2012 2013 5M2014 2007 2008 2009 2010 2011 2012 2013 5M2014

Source: VITAS

Vietnam’s cotton plantation area was around 10,000 ha. After the boom period from 2001 to 2006, plantation areas declined steadily. The reason for this was that planting cotton consumes significant amounts of land and is much influenced by weather. Moreover, cotton planting in Vietnam has been relatively spontaneous. In combination with low planting techniques, Vietnam’s cotton is of low quality which cannot qualify for garment production, leading to unstable growth in cotton plantations. Given modest plantation areas, Vietnam’s cotton only accounts for 2% of domestic cotton use. According to Decision 29/QD-TTg, Vietnam has a program to develop Vietnam cotton plantations until 2015 with a vision to 2020. The plantations of the nation are expected to increase to 30,000 ha in 2015 and 60,000 ha in 2020. However, we think that this is a relatively ambitious plan as there have not been many changes since the Decision was applied, implying that Vietnam’s cotton will still depend on imported cotton for the medium-term. In Vietnam, there are four basic levels of processing garments for export from the lowest value to the highest: cut, make, trim (CMT); original equipment manufacturing (OEM/FOB); and original design manufacturing (ODM). Vietnam textile production chain

Source: VPBS collects

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Development Plan A Master Plan was ratified to set a development plan for the textile and garment industry in 2020, with a vision to 2030. A Master plan for the textile According to Decision 3218/QD-BCT issued in April 2014, the Ministry of Trade and garment industry’s development has been set to and Commerce approved the Master plan of Vietnam’s Textile industry to 2020, maintain strong growth in the with a vision to 2030. Accordingly, Vietnam continues to focus on traditional long term. export markets such as the United States, Japan and the European Union as well as expanding to other new markets. Accordingly, the export value of Vietnam is

expected to reach USD23 to 24 billion in 2015 and USD36 to 38 billion in 2025, increases of 15% and 84% to 2013’s number, respectively. In the Master Plan, Vietnam’s textile and garment industry is divided into seven regions with different development strategies. Specifically, the seven regions of development are mentioned as below: Map of seven regions for textile development

Source: MOIT According to the Master Plan, we observe that Vietnam has plans for investment in weaving, dyeing and spinning factories, which are currently experiencing shortages in the country’s value chain. However, development of input materials is still modest, which remains one of the largest challenges to Vietnam’s textile and garment industry.

Free Trade Agreements Free trade agreements (FTAs), such as TPP, will bring both opportunities and challenges for Vietnam’s textile and garment industry

EU-Vietnam FTA

FTAs, such as TPP, are key The EU, with USD 350billion of imported textiles and garments, is one of the drivers for Vietnam’s textile prominent markets for Vietnam. Aggregate export value of these products and garment industry for the next three years. reached USD2.8 billion in 2013, an increase of 14.32% y-o-y. Signing the FTA will help to boost Vietnam’s garment exports to this market noticeably by 20%. Accordingly, Vietnam will enjoy tax preferences for garment exports, which will be reduced from the current level of 11.6% to 0%. The EU-Vietnam FTA is expected to be signed at the end of this year and become effective in 2015.

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Trans-Pacific Partnership (TPP)

TPP is the proposed cooperation in trade among 12 countries, including Australia, Brunei, Chile, Canada, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam. This agreement will create a free-trade area with GDP up to 40% of the world total and trade value accounting for one-third of global trade. Similarly to other FTAs, TPP includes cooperation in commerce and services but also extends to other areas, including intellectual property, investor- state arbitration, environment, organized labor issues, etc. Vietnam has signed FTAs with Australia, Brunei, Chile, Japan, Malaysia, New Zealand and Singapore. Therefore, TPP with these countries are not likely to have much effect on Vietnam. On the other hand, North American countries (Mexico, Canada and especially the United States) will be potential markets for Vietnam in the long term. Currently, tariffs to export garments to the United States are around 17 to 18% and this rate will plunge to 0% when the TPP agreement finishes negotiation. However, in order to receive duty-free access, member countries which want to export garments must follow the “yarn forward” rule of origin (ROO). Accordingly, this requires TPP members to use yarns which are made in TPP members to produce textiles and garments. However, the latest update is that this rule will only be applied after three or five years after TPP comes into effect. Until then member countries which cannot produce yarns can import from TPP outside suppliers. This would be a boost to Vietnam’s textile and apparel industry that depends heavily on imported yarns. In July 2014, TPP negotiation was hosted in Ottawa (Canada) to discuss some labor, state-owned enterprises, services, investment, and all areas of market access, among others. After all, everything seemingly stands still and there was no new agreement on ROO for textiles and garments sector. Down the line, we feel that TPP will reach its finalization not until the inception of 2015 after missing the pipeline by the end of 2013. Foreign investments in textile Taking advantage of Vietnam’s TPP status, many FDI investors have increasingly scaled up their investments in Vietnam’s textile and garment industry, especially in building weaving, dyeing, spinning factories as well as garment factories. Many investors come from China, which will not join TPP but holds the biggest share in exporting garments to the United States. Following the increasing growth of garment exports in 2013, Vietnam garment exports are expected to see a strong rise of 30% in 2014, reaching USD26 billion. According to Mr. Nguyen Van Thoi, Chairman of Thai Nguyen Investment and Trade JSC (TNG), at the end of Q1/2014, most of the export garment companies had received full orders for the whole year, a positive signal for the sector.

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Investment Investment Investors Nation Type value (USD Status Location mn) Foshan Sanshui Jialida Building a whole value textile + garment industrial +Luenthai (Hong Kong) + Hongkong Nam Dinh 350 chain from e to final zone Vinatex products weaving, dyeing, spinning Build from 3/2014 to Jiangsu Yulun Textile Group China Nam Dinh 68 factory 6/2016 yarn production with total Finished 1st phase in Texhong textile group China Quang Ninh capacity of 140 thousand 300 7/2013 and starts 2nd tons/year phase weaving, dyeing and TAL group Hongkong N/A 200 Looking for location making garment produce clothing and Forever Glorious Company Taiwan Ho Chi Minh 50 Planning accessories for water sports yarn production with total Build from 6/2014 and Dong-il Korea Dong Nai capacity of 9 thousand 52 expect to finish in mid- tons/year 2015 designing and producing Gain Lucky Limited China Ho Chi Minh 140 Planning high-end products Source: VPBS collects So far, Vietnam’s textile and garment industry’s largest advantage is its competitively-priced labor. Labor costs of Vietnam are lower than China, giving the country a distinct cost advantage. Moreover, the Government has granted many supportive policies to attract FDI and export garment companies (tax-free for importing of materials which are later to be re-exported under garment products within 90 to 120 days).

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VIETNAM NATIONAL TEXTILE AND GARMENT GROUP – A LEADING PLAYER IN THE INDUSTRY

Vinatex plays a leading role in Vietnam National Textile and Garment Group (Vinatex) was formerly Vietnam the local textile and garment Textile and Garment Corporation, which was formed by the merger of Vietnam industry, both in terms of capacity and export values. Textile Corporation and Textile Export – Import Federation. In 2005, Vietnam Textile and Garment Corporation and its members were restructured and named as Vietnam Textile and Garment Group (Vinatex) after its parent company. In 2010, the parent-company was reorganized into a one-member limited-liability

company, 100% owned by the state. In September 2014, the parent-company and its four wholly-owned subsidiaries will be equitized in accordance with the restructuring plan of state-owned enterprises, finishing the target of equitizing 100% of Vinatex group. Vinatex specializes in producing and trading materials, equipment and products (mainly yarns, fabrics and garments) or commercial services for the textile and garment sector. Vinatex plays a leading role in the textile and garment sector in terms of capacity with 133,395 tons of yarn, 206 million m2 of fabric and production of 330 million garment units each year.

IPO Plan The company plans to offer Its initial public offering (IPO) will be held for 122 million shares, a 24.4% stake, 24.4% of its shares to public shareholders. on September 22, 2014 with a starting price of VND 11,000/share. After its IPO, it is expected that the share capital will increase to VND5,000 billion (USD23.8 million). The state, represented by the Ministry of Industry and Commerce, will still remain as the largest shareholder and hold 51% of total share capital while 48.4% will be offered to outsiders as follows: public offering (24.4%), strategic investors (24%), private placement to staff (0.6%). Recently, Vinatex released the information regarding its strategic partners, including Vingroup JSC and Vietnam Investment and Development JSC (V.I.D). These two companies, both in the real-estate sector, will buy 120 million shares of Vinatex, accounting for 98% of total auctioned shares to strategic shareholders. More specifically, Vingroup and V.I.D will subscribe for 50 million and 70 million shares from Vinatex, respectively (10% and 14% of the post-IPO share capital), worth in total VND1,320 billion based on its bidding price at VND11,000/share.

 Vingroup JSC (HSX-VIC) with a share capital of over VND9,000 billion is the leader in the real estate market, owning over 30 real estate projects of hotels, resorts, shopping malls nationwide.

 Vietnam Investment and Development Corporation (V.I.D) operates in infrastructure development and investments at industrial zone, raising funds and providing services for real estate projects. The Company currently presides over nine large industrial parks in northern Vietnam. Moreover, as of 16 September 2014, Ho Chi Minh Stock Exchange announced the number of investors registering for the auction of Vinatex. Specifically, there are 87 investors including:

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Type of Investors Number of Investors Number of shares registered Individual Investors Local 54 53,675,300 Foreign 18 32,900 Institutional Investors Local 3 1,850,000 Foreign 12 55,000,000 Total 87 110,558,200 Source: HSX The number of shares registered totaled over 110 million shares, making up 90% of the auctioned shares to the public in the upcoming IPO. Organizational structure After its IPO, State will still be Vinatex is a conglomerate including nearly 80 subsidiaries and affiliates. The the largest shareholder with 51% of total shares. parent company of Vietnam National Textile and Garment Group has been a 100% state-owned enterprise since 2010 with a pre-IPO share capital of VND 3,400 billion. Vinatex plays a leading role in the high-potential industry of textile and garment. It stands to be among the chief beneficiaries of the ongoing TTP negotiations. However the complexity of group’s structure and the restructuring that is currently in progress could make it difficult for investors to evaluate the company’s earnings prospects in the coming years. Vinatex’s operating structure Vinatex’s shareholder structure

Others 24.4%

State- ownership V.I.D Group 51.0% (Strategic investor) 14.0%

Vingroup Labour (Strategic ownership investor) 0.6% 10.0%

Source: Company, VPBS Highlighted associates and subsidiaries Vinatex holds investments in well-known textile and garment companies such as Phong Phu JSC, Viet Tien Garment JSC, Hoa Tho Textile- Garment JSC. These companies have maintained relatively strong growth with high dividend rates over the years. Viet Tien Garment JSC: This is the leading exporting textile company in Vietnam with 1H2014 export value of USD32.6 million. Viet Tien has a very strong domestic distribution channel across 64 provinces. From 2010 to 2013, the company had a CAGR of 27.8% of net revenue and as of 1H2014, its net revenue

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and profit before tax reached VND2,553 billion and VND172 billion, increases of 7.4% y-o-y and 26.3% y-o-y, respectively. Phong Phu JSC: The Company has a closed value chain from yarn production to final garment products. Moreover, Phong Phu has the leading position in producing denim fabric. Moreover, this was one of the very first companies in Vietnam to apply the ODM method. Currently 70% of Phong Phu’s products are made using ODM, which is a higher value added method of production. From 2011 to 2013, Phong Phu maintained a stable growth rate of 5%/year in its net revenue. For 1H2014, Phong Phu recorded net profit of VND171 billion, equaling 62% of its plan for this year. Hoa Tho Textile and Garment JSC: This Company is regarded as an engine of the local sector and has kept its revenue growth at a high level with a CAGR of 23.9% between 2010 and 2013. By the end of 2013, Hoa Tho contributed over VND 21 billion or 6.67% to total dividends received by Vinatex. Through 1H2014, after- tax profit of Hoa Tho reached VND22 billion, down 18.6% compared to the same period of 2013.

2013 Cash Cash Chartered 1H2014 2014 target Vinatex Export dividend dividend Name capital Net profit profit ownership value % in plan % (VND bn) (VND bn) (VND bn) (USD mn) 2013 in 2014 280 (before Viet Tien JSC 47.9% 280 334 141 30% 20% tax) Phong Phu JSC 51% 734 N/a 171 276 (after tax) 15% 15-20% Hoa Tho JSC 71.6% 150 100 22 78 (before tax) 20% 20% Source: VPBS collects

Subsidiaries which will be included in Vinatex equitization  Dong Xuan Knitting One-member Limited-liability company (Doximex) was founded in 1959 as a fully-controlled unit of Vinatex. It is the first state-owned knitting enterprise in Vietnam with European-standard and modernized knitting production. It concentrates on producing high-quality knitting products such as 100%-cotton knitting garments for either domestic sales or export.  8/3 Textile One-member Limited-liability Company is another Vinatex wholly- owned company. It is continuously upgraded to become a key knitting- weaving plant in Northern Vietnam. It is also hugely capable of producing and dyeing.  Dong Phuong Knitting One-member Limited-liability Company (Dopimex) in Tan Phu District was formerly a knitting company, established in 1972 with production line and vertical-knitting machineries imported from the U.S. Its products are exported to foreign markets and widely used in Ho Chi Minh City and adjacent provinces.  Vietnam Fashion Trading One-member Limited-liability Company was previously named as Vinatexmart network – a dependent accounting company of Vinatex, established by the end of 2010 aiming to distribute and sell locally produced textiles and garments only. The Group plans to open up the Vinatexmart network to 204 wholesale and retail stores nationwide by 2015, especially in urban areas.

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Among these four wholly-owned subsidiaries, in 2013, only Dong Xuan generated significant net profit of VND 8.25 billion whereas the Vinatexmart reported a net loss of VND 44.8 billion (-92.6% y-o-y) and the other two companies have very modest net profit of less than VND 1.0 billion.

Net Chartered Investment Revenue Vinatex's Profit Vinatex's subsidiaries capital value 2013 ownership 2013 (VND bn) (VND bn) (VND bn) (VND bn) Dong Xuan Knitting One-member Ltd. 100% 30 30 476 8.3 8/3 Textile One-member Ltd. 100% 183 183 80 0.2 Dong Phuong Knitting One-member Ltd. 100% 200 200 266 0.8 Vietnam Fashion Trading One-member Ltd. 100% 215 215 1,699 -44.8 Total 628 2,521 -36 Source: Vinatex

Vinatex’s position in the industry Vinatex is a leading provider of textile and garment with advantages of economies of scale, extensive distribution network and full package value chain. In percentage terms, Vinatex accounts for 95.5% of yarn production, 42.3% fiber production along with an in-order 25.7% and 20% of total fabric and sewing products in Vietnam. In 2013, Vinatex comprised 14.2% of total export turnover of the local sector with USD 2.9 billion, an increase of 12% y-o-y. Localization rate of Vinatex’s products was reported at 57.5%, higher than the average of 48% for the sector. Vinatex holds its controlling stakes in well-known textile and garment corporations such as Viet Tien, Viet Thang, Garco 10 and Nha Be, etc. Vinatex plays a central role in setting strategies to keep these companies supporting each other. For 1Q2014, six out of the 12 largest textile and garment companies of Vietnam were members of Vinatex.

Vinatex’s market share by products Vinatex’s sale breakdown by markets

Vinatex Others Local Export

5% 42% 46% 50% 50% 58% 74% 80% 96% 58% 54% 42% 50% 50% 26% 20%

Yarn Fiber Fabric Sewing 2010 2011 2012 2013

Source: Vinatex

Strong Vertical Integration Vinatex is among the first-movers to blueprint and process a full package value chain from cotton planting to sewing and distribution. This provides the procurement of cotton for production aiming to meet the “yarn-forward” rule of TPP and holds up its plan towards ODM line to add values to its product and compete against foreign players.

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Vinatex’s Value Chain

2 Cotton Spinning Weaving (206mn m ) Sewing and Cutting and Knitting (9,298 Distribution 313 tons/year 133,395 tons/year tons/year) 330mn units

 Vietnam Cotton JSC  Phu Bai Yarning JSC  Phong Phu JSC  Viet Tien JSC  50 Vinatexmart in 26  Phong Phu JSC  Viet Thang JSC  Garment 10 JSC provinces.

 Viet Thang JSC  Hoa Tho Textile and  8/3 Knitting JSC.  Vietnam Textile and Garment JSC…  Dopimex…  Nha Be JSC… Garment Fashion Trading Ltd.

Source: Vinatex

Investments The value of Vinatex’s total investmentin subsidiaries and associates currently stands at VND 3,403 billion, corresponding to 84.6% of the parent’s equity or 76.1% of the group’s equity. According to Decision 320/QD-TTg by the Prime Minister, in the period from 2013 to 2015, Vinatex will be restructured by divesting of non-core business, i.e. financial services, beverage production, real estate investment and some less efficient affiliates with a total divestment value of VND1,083 billion. This will allow the Group to streamline its core business and thus better control its operations as well as financial results. By the end of 2013, Vinatex had already divested 11 companies with a book value of VND 156.5 billion. To date, it is progressing with another 21 non-core businesses, estimated to be worth VND761 billion and having accumulated book value up to VND917 billion or nearly 85% of the total divestment value received until the end of 2014. Vinatex might also have to decrease its holding in some profitable affiliates such as Hong Linh JSC or Hoa Tho. This is owing to the restructuring and equitization plan in which states that Vinatex should hold from 50 to 65% of the total shares of its subsidiaries and no more than 50% in the case of some associates.

Target holdings of Vinatex at some sub-companies Name Current holding Target holding Hoa Tho Textile and Garment JSC 71.62% 50 – 65% Hue Textile and Garment JSC 65.54% 50 – 65% Phu Bai Yarn JSC 66.5% 50 – 65% Textile and Garment Import – Export JSC 68.34% 50 – 65% Vinatex Hong Linh 78.14% <50% Vietnam Yarn JSC 55% <50% Vietnam Wool JSC 67.15% <50% Pho Noi Infrastructure Development JSC 51% <50% *This is based on the Decision 320/QD-TTg by Prime Minister on restructuring plan of Vinatex

Source: VPBS collects Vinatex has been approved to increase its holding in Phong Phu JSC (PPJ) from 48.9% in 2013 to 51.0% since the beginning of 2014. Hence, PPJ will consolidate its revenue to Vinatex beginning in June 2014. This allows Vinatex to incorporate the vertical value chain of PPJ with 70% of output manufactured by ODM technique. www.VPBS.com.vn Page | 13

Opportunities from TPP Vinatex passed through the first phase of its restructuring plan by divesting most of its non-core businesses. The second phase of simplifying its organization structure and changing its ownerships at sub-companies will take several years to be completed. Moreover, it will take times for Vinatex to wind up its vertical value chain to advance its ODM production line. For those reasons, Vinatex plans to wait for three years to list its stock on an exchange until after it can finalize its restructuring process. However, we believe that Vinatex needs to proceed with its listing sooner than expected in order to raise more funds for more competitive markets from the success of TPP negotiations.

Production capacity Cotton production: Vinatex is capable of producing 313 tons of cotton per year. However, this capacity can only meet 0.45% the Group’s demand for 700,000 tons. The other 99.5% has to be imported, mainly from China and Thailand.

Spinning: By the end of FY2013, yarn output of Vinatex totaled 111,800 tons. This amount covered the Group’s demands for production and the surplus was exported to other countries. Nevertheless, there was still a small portion of high- quality yarn that needed to be imported from India, Pakistan and China. Spinning capacity of typical sub-companies (‘000 tons) Installed Real Surplus (%) Hanoi Textile and Garment JSC 16.5 14.5 12.1% Hue Textile and Garment JSC 7.5 6.7 10.7% Nam Dinh Textile and Garment JSC 12.0 10.5 12.5% Hoa Tho Textile and Garment JSC 7.5 6.5 13.3% Phu Bai Yarn JSC 10.5 9.3 11.4% Phong Phu JSC 22.5 20.0 11.1% Viet Thang JSC 16.0 14.5 9.4% Total 92.5 82.0 11.4% Source: Vinatex

Knitting-Weaving and Dyeing: In comparison to FDI companies, Vinatex remains as a low-end player on the field of weaving-knitting and dyeing with modest installed capacity. In 2013, the Group produced 161.4 million m2 of fabric, a decrease of 2.7% y-o-y and equivalent to 80.7% of total capacity.

Weaving-Knitting and Dyeing capacity Installed Capacity Number of machines Weaving 206 million (m) 2,067 Dyeing (weaving products) 70 million (m) 91 Knitting 9,289 tons 308 Dyeing (knitting products) 10,400 tons 169 Dyeing 7,200 tons 33 Source: Vinatex

Sewing: In 2013, Vinatex was able to produce 330 million garment units per year. 10% of exported garments by Vinatex were under ODM contracts, higher than the sector average at around 5%. Vinatex intends to increase this rate to 12 to 14% of total output in 2014 and 20% in 2020 owing to the higher net margin of 10% from ODM products compared to that of CMT products at only two to three percent.

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Far-flung land bank To date, Vinatex possess a far-flung land bank of nearly 540,000 m2, of which over 490,000 m2 is used for production. This vast land bank has attracted big players in real estate sector such as Vingroup and V.I.D to become strategic shareholders of Vinatex lately. The ownership of this land bank was allocated between the parent- company and its subsidiaries as below:

Name Land area (m 2) Vinatex – the Parent company 38,511 Hai Phong Veston 42,508 Vinatex Quang Ngai 49,000 Pho Noi Waste Treatment Center 11,648 Vietnam Textile and Garment Fashion Trading 23,509 Ltd. Dong Xuan Knitting Ltd. 195,322 Dong Phuong Knitting Ltd. 72,307 8/3 Textile Ltd. 106,915 Total 537,730 Source: Vinatex Export Market In 1H2014, the export value of Vinatex is estimated to be USD1.62 billion, an increase of 15 y-o-y or 16% of the sector. By the end of 2020, this value is expected to rise rigorously to USD 5.0 billion at a CAGR of 11.4%/year thanks to success of bilateral and multilateral free trade agreements. The key export markets of Vinatex are U.S, EU and Japan. The Group plans to boost these three markets to contribute over 76% of Vinatex’s export value in 2015 while maintaing other prospective markets such as South Korea, the Middle East and Russia. Forecasted Vinatex export value Vinatex Export markets

Export value (USD mn) USA EU Japan Korea Others

6,296 5,709 5,194 14% 4,708 4,173 3,622 7% 3,333 2,951 12% 51%

16% 2013 2014 2015 2016 2017 2018 2019 2020

Source: Vinatex Expansion Plan CAPEX Vinatex plans to spend VND11,581 billion (USD55.1 million), funded 40% by equity and 60% by debt, as capital expenditures for the four years after its IPO. This amount will be utilized to set up 25 new investment projects includes: 8 spinning, 9 weaving-knitting, 2 sewing and 6 projects for cotton and eucalyptus plantation (preferred to the Appendix). To partly support the local sector and its own future cotton demands for production, Vinatex has its concentration on scaling up its current cotton plantation area. These projects are treated as the

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pedals for Vinatex to build out its value chain and boost two fragile links of spinning and weaving-knitting-dyeing.

The Asian Development Bank (ADB) pledged to provide a loan facility of over USD100 to 120 million with a term of 25 years and preferential interest rate of 3% or lower to Vinatex and its subsidiary companies to assist them with their restructuring plans.

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HISTORICAL PERFORMANCE (CONSOLIDATED)

Vinatex’s revenue experienced ups and downs due to divestitures Between 2009 and 2011, net consolidated revenue of Vinatex enjoyed upward movements at a CAGR of nearly 18.3% but then remarkably reversed course to VND 12,431 billion, a decline of 36.7% y-o-y and declined a further 12% in 2013. This downswing primarily stemmed from: (1) Phong Phu’s revenue was no longer included due to Vinatex’s divestiture in August 2012, (2) divestments of other affiliates, (3) lackluster sales from some subsidiary companies. Consolidated revenue and growth

25 30% 19.2% 17.4% 14.3% 20% 20 10%

Thousands 15 0%

-11.9% -10% 10 20 17 -20% 14 12 5 11 -30% -36.7% - -40% 2009 2010 2011 2012 2013 Net Revenue Growth

Source: Vinatex and VPBS Gross profit margin stayed relatively flat Gross margin of Vinatex over the period from 2011 to 2013 stayed at 12%, below its peak in 2010 of 14%. Sewing enjoyed the highest gross margins of 15 to 17%, followed by spinning with 10%. However, despite the tail-off in net revenue in the last two years, there was an expansion in the ratio of operating expense to net revenue from 9.8% to 11.1%. Consequently, operating margin finally bottomed out at 1.1% in 2013.

Consolidated Gross profit and Gross Margin

Gross profit Gross margin Operating margin

2500 16% 14% 2000 12% 12% 11% 12% 12% 1500 2,365 2,352 8% 1000 1,609 1,501 5% 1,335 4% 500 3% 3% 2% 1% 0 0% 2009 2010 2011 2012 2013

Source: VPBS Net Financial Income - Lower threat from interest rates In 2013, Vinatex posted a net financial loss of VND90.7 billion compared to a gain of VND127 billion in 2012. Last year, its financial income was reported to fall by 64.5% y-o-y to VND 210 billion because of: (1) no more proceeds from

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disposal of its affiliates, (2) dividends and interest received decline by 8.3% y-o- y and 43.9%, respectively to VND 5.0 billion and VND 102 billion. In the meantime, 2013’s financial expense declined by 37.9% compared to 2012 with a value of VND300 billion but that could not offset the decrease in financial income. Underlying this downturn is lending rate declines to 6.94%, on average, triggering a decrease of 35.7% in interest expense, in spite of a 43.6% increase in long-term debt. Vinatex’s net financial income and interest expense 200 600

100 500 82 128 - 400 2009 2010 2011 2012 2013 (100) (29) (91) 300 (200) (414) 200 (300)

(400) 100

(500) - Net Financial Income Interest Expense Source: Vinatex, VPBS Bottom line was buoyed by affiliates In FY2013 Vinatex net profit fell by over 60.4% y-o-y to VND198 billion, resulting in consolidated EPS of VND462/share. We observe that Vinatex’s net profit heavily hinges on the income from associates. For instance, in 2013 Vinatex recorded income from associates of about VND227 billion, down 30% y-o-y but higher than its operating profit of VND120 billion. Vinatex’s operating profit and income from associates

Income from associates Operating Profit Net Income

800

600 485 500 448 389 400 198 200 87 373 9 758 75 627 326 283 227 120 - 2009 2010 2011 2012 2013

Source: Vinatex, VPBS Divestitures lead to shift in capital structure towards equity funding Vinatex’s divestitures of affiliates led to a reduction in total asset and its debt structure as well. In 2013, short-term and long-term borrowings of Vinatex totaled VND3,640 billion, showing a precipitous fall from 2010 levels of VND5,610 billion whereas its equity gradually increased thanks to escalating retained earnings each year except for 2013. Total debt/equity tailed off from 1.17x to 0.73x between 2010 and 2013 and liabilities to equity, therefore, was lowered to 1.24x in 2013, which was below the average value of listed textile and garment companies at 1.47x.

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Liabilities/Shareholders’ Equity of garment listed companies (2013) Capital Structure of Vinatex

Liabilities/Shareholders' Equity Shareholders' equity/Total resources

Debts/Total Resources Vinatex 1.24 GMC 1.99 TNG 3.54 46% 44% 49% NPS 1.15 60% 58% KMR 0.34 54% 56% EVE 0.14 51% 40% 42% TCM 1.69 2009 2010 2011 2012 2013 Source: Vinatex and VPBS Positive signs on liquidity The current ratio of Vinatex rallied from 1.13x in 2010 to 1.27x by the year-end 2013 and the quick ratio also improved in the same manner. This implies that there was no liquidity problem to Vinatex over the past five years. In coming years, with the loan from ADB, we believe that Vinatex will still be able to maintain its liquidity balance. Vinatex current and quick ratio

Current ratio Quick ratio

1.40 1.20 1.30 1.27 1.00 1.21 1.22 1.13 0.80 0.87 0.60 0.79 0.82 0.70 0.69 0.40 0.20 - 2009 2010 2011 2012 2013

Source: VPBS Well-managed working capital Vinatex’s working capital management improved with lower trade A/R DOH of 42 days, stable inventory DOH of 64 days and higher trade A/P DOH of 41 days. This implies that Vinatex was able to utilize its working capital for financing its operating activities but successively kept its suppliers’ trust. Vinatex current and quick ratio

Days Receivable Outstanding Days Inventory Outstanding

Days Payables Outstanding 64 65 64 64 55 45 45 40 42 33 41 38 38 35 28

2009 2010 2011 2012 2013

Source: VPBS

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MANAGEMENT FORECAST FOR PARENT COMPANY

Revenue and profit from 2011 – 2016F of the parent company (VND bn)

Net revenue Net profit

10,000 709 800 700 8,000 507 600 6,000 356 500 400 234 4,000 216 217 300 200 2,000 100 116 116 3,556 5,957 8,569 100 0 0 2011 2012 2013 2014F 2015F 2016F

Source: Vinatex

The Management Board of Vinatex released its projections for the parent company’s financial results from 2014 through 2016 with CAGRs of 55% for revenue and 41.2% for net profit. There are two catalysts for Vinatex parent company’s revenue to grow in the next three years: 1/ the company will increase the ODM exporting method’s portion to earn higher margins and 2/ Vinatex parent company will be responsible for importing 15% of the group’s cotton demand. However, most of the imported cotton is used for internal production within the group. Hence, cotton trading activities of the parent company are considered to be internal trading when consolidated. Then we assume that this activity will not have much impact on Vinatex’s consolidated business results. For the full- year 2014, Vinatex is forecast to record net revenue of VND3,556 billion, 30.6 times higher than that of 2013 and a net profit of VND356 billion, equaling consolidated EPS of VND712/share. Based on the bidding share price of VND11,000/share, Vinatex’s parent company will trade at a P/E of 15.4x. As Vinatex provided historical consolidated results from 2009 to 2013 while they do forecast only parent company’s results from 2014 to 2016. VPBS FORECAST FOR CONSOLIDATED NET PROFIT

The key fact that Vinatex increased its ownership of Phong Phu JSC to 51% in the middleof this year and thus, profit from PPJ will be consolidated.However, since Vinatex will start to record this profit no earlier than June 2014, only half of PPJ will be included. Moreover, in the midst of huge divestitures at unprofitable affiliates, we believe that Vinatex’s bottom line in FY2014 will not be pressured any longer by net losses from these companies. Vinatex forecasted 2014 net profit 2013 Net profit 2014F Net profit Name contribution contribution (VND bn) (VND bn) Parent 234 356 Viet Tien 116 130 Phong Phu 111 90 Hoa Tho 46 40 www.VPBS.com.vn Page | 20

4 wholly-owned (36) (25) Others (273) (250) Total (Vinatex) 198 341 Source: VPBS

The equitization with the participation of strategic partners is not only regarded as an opportunity to raise funds for Vinatex but also another upside catalyst to boost its performance on the back of possible changes in operating mechanism and strategies. The favorable movements in Vietnam’s textile and garment sector and macro factors, such as lower lending rates, should also shore up net profit of Vinatex’s subsidiary companies. Altogether and based on the projection of Vinatex for the parent company, VPBS projects that 2014’s consolidated net profit will climb 72% y-o-y to VND341 billion, resulting in consolidated EPS of VND682/share compared to VND462/share of 2013.

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VALUATION

To value Vinatex, we combine the relative P/E and P/B methods as we do not have enough data for a full DCF valuation. Accordingly, we derive a value of Vinatex of VND11,300/share by assigning equal weights to each method. We believe that this is a quite reasonable price for Vinatex given a long period of continuing restructure and listing after three years. Peer comparison

We chose comparable companies, including regional and domestic peers which operate in the same industry as Vinatex. We eliminated peers that have outlying ratios and assembled a shortlist of 14 companies. Simply comparing P/E and P/B ratios may not give an accurate picture, however, because the peer companies are trading in different markets that have different risk-free rates and macroeconomic conditions. For a more accurate comparison, we look at both relative P/E and relative P/B ratios to derive values of VND10,524/share and VND12,154/share, respectively.

Market cap Market Market Relative Relative Name P/E P/B Country (USDmn) P/E P/B P/E P/B Zhejiang Giuseppe Garment Company 373.1 35.24 2.37 33.11 2.97 China 1.06 0.80 Limited Dalian Dayang Trands Share Co., Ltd. 304.8 34.89 1.84 33.11 2.97 China 1.05 0.62 Zhejiang Baoxiniao Garment Co Ltd 740.2 32.45 1.70 33.11 2.97 China 0.98 0.57 Silverman Holdings Ltd 103.2 26.42 1.05 33.11 2.97 China 0.80 0.36 Loyal Textile Mills Limited 24.1 29.02 1.32 19.16 2.97 India 1.51 0.44 Bhartiya International Limited 66.5 27.51 2.55 19.16 2.97 India 1.44 0.86 Fineotex Chemical Limited 26.5 26.77 3.09 19.16 2.97 India 1.40 1.04 Thanulux Public Company Limited 103.8 16.13 1.03 18.15 2.25 Thailand 0.89 0.46 Saha-Union Public Company Limited 397.4 13.80 0.74 18.15 2.25 Thailand 0.76 0.33 Northern Textiles and Garment JSC 3.7 22.26 1.17 16.51 2.18 Vietnam 1.35 0.54 Mirae JSC 14.6 13.18 0.68 16.51 2.18 Vietnam 0.80 0.31 Thanh Cong Textile Garment Investment 78.3 10.81 2.21 16.51 2.18 Vietnam 0.65 1.01 Everpia Vietnam JSC 32.6 8.77 0.86 16.51 2.18 Vietnam 0.53 0.39 Hue Textile Garment JSC 10.6 7.27 2.05 16.51 2.18 Vietnam 0.44 0.94 Median 0.93 0.55

Target 15.43 1.21

Target price 10,524 12,154

Final price 11,339

Source: Bloomberg, VPBS

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APPENDIX VINATEX’S INVESTMENT PROJECTS AFTER IPO

Installed Equity Plan Debt Disbursement Total Name of project Time span Capacity Equity Debt 201 Resources 2014 2015 2016 2014 2015 2016 2017 (Tons/year) 7 Spinning 3,400 1,336 2,064 501 254 228 353 831 383 418 431

2013-2014 480 179 301 179 301 Phu Hung Yarn 8,800 2016-2017 220 77 143 77 143

2014-2015 240 96 144 96 144 Nam Dinh Yarn 8,800 2016-2017 240 96 144 96 144

2014-2015 240 96 144 96 144 Phu Cuong Yarn 8,800 2016-2017 240 96 144 96 144

Que Son Yarn 2016-2017 6,600 360 144 216 60 84 216

Dong Van 2 Yarn 2014-2015 7,920 410 164 246 80 84 149 97

Yarn 2015-2016 7,920 410 164 246 80 84 149 97

Yen My Yarn 2014-2015 - 200 80 120 50 30 93 27

Khoai Chau Yarn 2015-2016 6,600 360 144 216 60 84 110 105

Weaving-Knitting 6,071 2,249 3,822 120 670 912 547 261 1,282 1,435 844 & Dyeing Viscose 2014-2017 30,000 2,386 835 1,551 200 310 325 371 576 604

Wool Products 2014-2017 1,884 1,200 420 780 100 200 120 186 371 223 Knitting Plant 6mn Southern Yarn-dyed 2014-2015 275 110 165 30 40 40 56 74 35 (m/year) 6mn Nam Dinh Yarn-dyed 2015-2016 250 100 150 20 40 40 37 74 39 (m/year) Dyeing Plant for 2014-2017 2,500 680 272 408 50 80 80 62 93 149 149 17 Weaving fabric Dyeing Plant for 2014-2016 4,000 160 64 96 10 30 24 19 56 21 Knitting fabric Knitting & Dyeing 2014-2016 4,000 220 88 132 10 50 28 19 93 20 Plant Dyeing Plant for 2014-2016 6,000 600 240 360 20 100 120 37 186 137 Knitting fabric Dopimex Expansion 2015-2016 3,000 300 120 180 50 70 93 87 Plant Sewing 1,100 440 660 80 160 200 - 149 297 214 -

300 sewing lines in 2014-2016 400 160 240 30 60 70 56 111 73 Central 300 sewing lines in 2014-2016 700 280 420 50 100 130 93 186 141 North Materials 1,010 410 600 120 226 64 - 224 313 63 - Production Cotton Farm 2014-2015 200 80 120 30 50 56 64

Cotton Farm 2014-2015 200 120 30 50 56 64 80 Cotton Farm 2014-2015 200 80 120 30 50 56 64

Eucalyptus Farm 2014-2015 140 56 84 30 26 56 28

Eucalyptus Farm 2015-2016 110 50 60 20 30 37 23

Eucalyptus Farm 2015-2016 160 64 96 30 34 56 40

TOTAL 11,581 4,435 7,146 821 1,310 1,404 900 1,465 2,275 2,130 1,275

Source: Vinatex

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Income Statement (VND bn) 2009 2010 2011 2012 2013 Revenue 14,023 16,722 19,628 12,431 10,954 Growth rate 14% 19% 17% -37% -12%

Cost of Goods Sold

Depreciation in CGS 656 648 610 419 380 Reported Cost of Goods Sold 12,414 14,357 17,277 10,930 9,619 Less: Depreciation included in CGS 656 648 610 419 380 Cost of Goods Sold 11,758 13,709 16,666 10,511 9,239 Gross Profit 2,265 3,013 2,962 1,919 1,715 Gross Profit Margin 16% 18% 15% 15% 16%

Total Selling Expenses 553 717 694 576 593 Total General & Admin Expenses 682 890 1,030 642 622 EBITDA 1,029 1,406 1,238 701 500 EBITDA Margin 7% 8% 6% 6% 5%

Depreciation 656 648 610 419 380 Amortization -

EBIT 373 758 627 283 120

Financial income 465 990 671 591 210 Interest Expense 275 363 522 373 240 Foreign Exchange Losses (Gains) 142 194 236 20 30 Others 77 352 327 70 30 Financial expenses 494 909 1,086 463 300 Net Financial Income (Expense) (29.0) 81.9 (414.5) 127.6 (90.7)

Other income 793 218 1,615 193 219 Other expenses 457 91 938 87 143 Total Others 336 128 676 105 76

Income from associates 87 9 75 326 227 Pretax Income 768 976 964 841 333

Income Tax Expense 125 169 173 94 60 Deferred tax 5 (11) (41) 17 (1) Effective Tax Rate 16% 17% 18% 11% 18% Income Before XO Items 638 819 833 730 274

Extraordinary Loss Net of Tax - - - - - Minority Interests 249 370 347 230 76 XO Items & Minority Interest 249 370 347 230 76 Net Income 389 448 485 500 198 Net Profit Margin 3% 3% 2% 4% 2%

Average Number of Shares (mn shares) 326.8 340 340 430 428.6 EPS (VND) 1,953 2,408 1,428 1,163 638

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Balance Sheet (VND bn) 2009 2010 2011 2012 2013 Current Assets

Cash & Near Cash Items 783 1,450 1,285 891 1,299 Short Term Investments 471 520 560 286 203 Accounts & Notes Receivable 2,784 3,119 2,892 2,699 2,218 include: Trade A/R 1,854 1,838 1,703 1,345 1,169 Inventories 2,161 2,957 2,235 1,613 1,762 Other Current Assets 277 895 345 258 265 Total Current Assets 6,476 8,943 7,317 5,746 5,747

Long-Term Assets

Long-term receivables 184 107 51 13 47 Gross Fixed Assets 8,399 8,435 7,208 5,327 6,173 Less: Accumulated Depreciation (4,598) (4,945) (4,172) (3,213) (3,431) Net Tangible Fixed Assets 3,801 3,491 3,036 2,114 2,742 Leasing Fixed Assets 1 0 3 2 10 Intangibles 153 167 151 260 244 Construction in progress 444 557 811 463 538 Net Fixed Assets 4,399 4,214 4,000 2,839 3,534 Real Estate Invesments 35 26 22 42 32 Long Term Investments 2,037 2,325 2,367 2,193 2,093 Other Long Term Assets 213 269 362 332 364 Total Long-Term Assets 6,869 6,942 6,803 5,419 6,070 Goodwill - - - 14 13 TOTAL ASSETS 13,345 15,885 14,121 11,179 11,830

Current Liabilities

Accounts Payable 1,229 1,367 1,155 1,026 1,047 A/P DOH 38 36 25 36 41 Accrued Expenses 58 70 146 183 278 Short Term Borrowings 2,790 3,960 3,470 2,398 2,362 Other Short Term Liabilities 1,661 2,014 1,222 826 845 Total Current Liabilities 5,737 7,412 5,994 4,433 4,532 Long Term Liabilities

Long Term Borrowings 2,014 1,650 1,595 890 1,278 Other Long Term Liabilities 240 798 430 342 339 Total Long Term Liabilities 2,254 2,448 2,025 1,231 1,617 Total Liabilities 7,991 9,859 8,019 5,664 6,149

Equity

Share Capital & APIC 3,268 3,400 3,400 4,300 4,286 Other Equity 4 19 27 (352) (352) Retained Earnings 428 203 407 501 355 Other Funds 395 729 938 414 675 Total Shareholders’ Equity 4,094 4,352 4,773 4,863 4,964 Minority Interest 1,260 1,674 1,329 652 717 TOTAL LIABILITIES AND EQUITY 13,345 15,885 14,121 11,179 11,830

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Cash Flows (VND bn) 2009 2010 2011 2012 2013 Net Income 389 448 485 500 198 Depreciation & Amortization 656 648 610 419 147 Changes in Working Capital 264 (742) 104 (931) 206 Other Non-Cash Adjustments (135) (85) 390 (538) (100) Cash From Operation Activities 1,174 269 1,590 (550) 451 Disposal of Fixed Assets 105 49 155 32 69 (Increase)/ Decrease in Investments (723) (386) (483) (218) 238 (Capital Expenditures) net of disposals (832) (913) (1,401) (849) (1,170) Other Investing Activities 231 417 126 423 297 Cash From Investing Activities (1,219) (833) (1,602) (613) (566) (Dividends Paid) (76) (128) (218) (130) (52) Increase (Decrease) in Long Term Borrowings -119 990 55 890 519 Increase (Decrease) in Capital Stocks 264 369 10 9 57 Other Financing Activities 66 0 0 0 0 Cash From Financing Activities 135 1,231 (152) 769 523 Net Changes in Cash 90 668 (165) (394) 409

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RATIO ANALYSIS 2009 2010 2011 2012 2013 ANNUAL GROWTH

Total assets growth 8.4% 19.0% -11.1% -20.8% 5.8% Equity growth 15.2% 6.3% 9.7% 1.9% 2.1% Net income growth 81.5% 28.3% 1.7% -12.3% -62.5% Sales growth 14.3% 19.2% 17.4% -36.7% -11.9% PROFITABILITY

Return on assets (ROA) 2.91% 3.07% 3.24% 3.95% 1.72% Return on equity (ROE) 16.69% 19.39% 18.25% 15.16% 5.57% Net margin 4.55% 4.90% 4.24% 5.88% 2.50% Operating margin 2.66% 4.53% 3.20% 2.27% 1.10% Gross Margin 11.47% 14.14% 11.98% 12.07% 12.19% CAPITAL STRUCTURE

LT debt/equity 0.49 0.38 0.33 0.18 0.26 Debt ratio 0.36 0.35 0.36 0.29 0.31 Liabilities/Shareholders' equities 1.95 2.27 1.68 1.16 1.24 Fixed assets/total assets 0.33 0.27 0.28 0.25 0.30 Equity Multiplier 3.36 3.46 3.29 2.63 2.34 Debt/Equity 1.17 1.29 1.06 0.68 0.73 EFFICIENCY

Inventory turnover 5.74 5.61 6.65 5.68 5.70 A/R turnover 8.12 9.06 11.09 8.16 8.72 A/P turnover 9.57 10.56 13.21 9.64 8.92 Total asset turnover 1.09 1.14 1.31 0.98 0.95 Days Inventory Outstanding 64 65 55 64 64 Days Receivable Outstanding 45 40 33 45 42 Days Payables Outstanding 38 35 28 38 41 LIQUIDITY

Net working capital 739 1,531 1,323 1,313 1,215 Net working capital/Total asset 6% 10% 9% 12% 10% Current ratio (x) 1.13 1.21 1.22 1.30 1.27 Quick ratio (x) 0.70 0.69 0.79 0.87 0.82 Cash ratio 0.22 0.27 0.31 0.27 0.33 DUPONT ANALYSIS

Net margin 5% 5% 4% 6% 2% Asset turnover 1.09 1.14 1.31 0.98 0.95 Equity multiplier 3.36 3.46 3.29 2.63 2.34

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GUIDE TO RATINGS DEFINITION VPBank Securities (VPBS) uses the following ratings system: Buy: Expected return, including dividends, over the next 12 months is greater than 15%. Hold: Expected return, including dividends, over the next 12 months is from -10% to +15%. Sell: Expected return, including dividends, over the next 12 months is below -10%.

CONTACT INFORMATION

For further information regarding this report, please contact the following members of the VPBS research department:

Barry David Weisblatt Head of Research

Le Mai Thuy Linh Ngo Thu Ba Pham Duy Man Director - Fundamental Analysis Analyst/ Research Analyst Research Assistant – Intern [email protected] [email protected] [email protected]

For any questions regarding your account, please contact the following:

Marc Djandji, CFA Ly Dac Dung Head of Institutional Sales and Brokerage Head of Retail Sales and Brokerage [email protected] [email protected] +848 3823 8608 Ext: 158 +844 3974 3655 Ext: 335

Domalux Vo Van Phuong Head of Brokerage – Nguyen Chi Thanh Branch 1, HCMC Head of Brokerage – Nguyen Chi Thanh Branch 2, [email protected] HCMC +848 6296 4210 Ext: 128 [email protected] +848 6296 4210 Ext: 130 Nguyen Danh Vinh Deputy Head of Brokerage – Le Lai branch HCMC Tran Duc Vinh [email protected] Head of Brokerage – Lang Ha Branch, Hanoi +848 3823 8608 Ext: 146 [email protected] +844 3835 6688 Ext: 369

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