VIETNAM MARKET EQUITY RESEARCH

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1 VIETNAM MARKET EQUITY RESEARCH SAIGON THUONG TIN REAL ESTATE JSC INITIAL COMPANY REPORT Recommendation: BUY Date: 14/8/214 Company information Name: Saigon Thuong Tin Real estate Joint stock Company Chartered Capital: 1.51 Bill VND Market cap: Bill VND Sector: Financials-Real estate Listed on: HNX Ticker: SCR Outstanding shares shares Foreign ownership.5% Source: MBS collection Price fluctuation of stock: Buying price: VND/share Target price 12 months: 13.1 VND/share Earnings Strip H1.214 Revenue 1, , EBITDA 1, EBIT Net Income EPS* VND 4, Div VND 6 Div Yield 2.86% Na Na Na Na ROA 5.62%.24% 1.35%.14%.15% ROE 19.46%.75% 3.94%.35%.32% The company was established in 24, even though it achieved some positive results from 28 to 21, fast development and gloomy real estate market has weakened its business performances. SCR is in the process of restructuring to achieve more stable developments. Based on the status of upcoming major projects, on investment prospect, we recommend to BUY this stock. Investment highlights: Valuation based on financial analysis: P/E Method: 9.78 P/B Method: FCFE Method: 9.3 FCFF Method: 19.8 Target price 12m: 13.1 Recommendation technical analysis Recommendation:: HOLD Price on 13/8/214: 9.7 Short term trend: Up Middle term trend: Down Long term trend: Up Buying price: Target price: Cut loss price: <7.5 Research: Chu The Huynh huynh.chuthe@mbs.com.vn Tel: ext:6118 Sales: Gordon Edward Alexander Gordon.Edward@mbs.com.vn Mobile: Achieving notable success in the market: it creates images of a real estate developer who brings professional, luxury, modern and synchronized products to customers. - Most of the projects are in Ho Chi Minh market: this is an active market with the highest rate of economic development and income per se in the country. - Shares with high liquidity: its shares are concerned by many investors, which is an advantage when it wants increase its scale by increasing capital. - Positive results from restructuring: The company is in the restructuring process, the financial status has been better since share capital increased, financial investments decreased, and investment projects have been focused to regain capital. Company s activities are gradually stabilized. - Policies to support and to revive the real estate market: In specific, VND3 trillion worth of funds with low interest has been injected into the economy from the beginning of 213. Funds from banks for real estate loans also have been released for suitable low interest rates. - High demand for housing: With population of more than 9 million people with young structure and high urbanization rate, this is a huge market for real estate companies. In MOC s real estate development plan, in 22 housing area will reach 25 square meters per person in average. In the period from , there will be 425 million meters used to build 3 million new apartments and houses, 12.5 million metres of them are social houses in urban areas. Major risks: - Low productivity, dramatic fluctuation: the real estate market still have many difficulties, real estate prices sharply decline while financial costs do increase because of huge amount of borrowing. The company is still in the restructuring process to achieve stable developments the following years. - Difficulties in financial status: the company continues to restructure, extracts its scale, refinances with higher equity and long-term capital. However, difficulties about market situation do lengthen process. - Difficulties in real estate market: the company still suffers from high inventory, slow sales, especially in medium and luxury houses segments. - Funds for real estate market still depend greatly on banks: Following current research, 7% funds for real estate market comes from banks. High bad debts rate in banking system make funds strictly controlled. Other funds like real estate bonds, REITs have not developed yet. Evaluating Business results in H1/214 and the capability of completing targets in 214: In 214, real estate market has shown some positive signs; however the company establishes a cautious business plan, which is based on projects started in previous years. Real estate sale in 214 was planned to be around 47 billion vnd, profit to be 56 billion vnd, equal 57% and 6% consequently of those for the year 213. Through discussion with company s representatives, we know that business status in the first 6 months is still in control. Although sales and profits were low and not as expected, it is quite sure that the company will achieve its plans thanks to Carillon and Belleza projects. Especially, cash flows from operating activities show positive signs as the company has been focusing on selling in Arista project and continuing on put Jamora City project on sale.

2 , Real Estate Loan (Trillion VND) Source: Vietnam State Bank Total FDI and FDI of Real estate (Bill USD) Source: Ministry of Planning and Investment SCR Revenue Breakdown 1% 8% 6% 4% 2% % Registered FDI Real estate FDI Real estate Office leasing Material Others 6.9 In the first 6 months, aggregate sales reached 49 billion vnd, 24% higher than those of the year 213. Gross profits gained 134 billion vnd, triple those of the previous years, while gross profits margin did 27.5 %. Both sales and financial costs significantly reduced by 5% compared to those in 213. Selling costs increased notably to 42 billion vnd compared to 23 billion of those in 213. Administrative costs were controlled to be equal to those in 213. Profits from operating reached VND41 billion, compared to minus VND35 billion for those in the previous year. Meanwhile, the company noted a 9 billion VND lost from cooperators. Profit before taxes was VND35 billion while profit after taxes was VND15 billion. Even though it is low but still a great complement because in the same period in 213, profit after taxes of parent company was negative 55 billion vnd. We evaluate that with a cautious business plan, which doesn t focus totally on profits, the company has the ability to achieve the 214 plan. Yet, pressure to complete the plan must consider since the real estate market has not absolutely enhanced. We also appreciate company s activities in restructuring process, adjusting projects, and development investment, in order to gain cash flows from projects. Sectors overview: Viet Nam real estate market has been through a difficult time since 21. Prices of real estate have decreased greatly from 2% to 5%; the market has been frozen with high inventory and a high level of bad debts whilst many companies go bankruptcy. There are many reasons explained by experts, such as lacks in housing structure when many companies focused on med- and high-priced segments while the majority of demands come from medium class with averaged wages. Additionally, funds for real estate depend hugely on short term bank loans. Indeed, when banks extract loans, projects are significantly affected. Furthermore, weak financially skilled projectors who interested more on projects speculating than final products have been appeared in the current situation. However, after enhancements of the government, the banking system and enterprises themselves, real estate market has been in recovery since the end of 213, i.e. an increase in trading volume, a decline in inventory, more lending and lower bad debts. Positive signs from macro policies: - The SBV s VND3 thousands billion fund started to positively affect in housing demand and in partially solving NPLs existed in the banking system. - In specific, the government agreed to extend lending period to 15 years, reduce the interest rate to 5% per year, and abandon rules about area and price sold As a result, in the first 5 months of 214, the amount of money injected in the economy reached VND2.15 trillion, increased 225% compared to that in the end of In 213, MOC proposed to the Government a number of rules regarding construction investment, and management on urban house development, such as Resolution No.11/213/ND-CP, Resolution No.15/213/ND-CP - Decree No. 1/NQ-CP dated 7/1/213, Decree No. 2 dated 7/1/213 and Joint Circular No.1/214/ TTLT-NHNN-BXD-BTP-BTNMT dated 25/4/214 are about mortgage guidance rules and also extension for foreigners to buy and possess houses. Those resolutions somehow help reduce difficulties in production activities, increase domestic real estate demand. - Statistically, loans for real estate increased to VND266.7 trillion in the end of February 214 from VND262 trillion at the beginning of this year. Clearly, real estate loans continue to rise from the end of 211. Positive signs from market demand: - According to MOC, real estate inventory in the first 6 months reached VND83.4trillion, reduced 35% compared to that of the previous year and 11.7% to Q1/ Housing demand increases, especially on low-floor and social houses. According to Savills, trading value increased sharply in the last 6 months, in which Hanoi had 4 successful trades and Ho Chi Minh City did 3, double than those of the previous year. - According to Savills, in Hanoi, prices of a 1 st - class, villas, and town houses did sharply increase, equal to VND29, VND41.7 and VND41.5 million per sqm. Secondary selling price increased 1.1% after 11 consecutive quarters falling in price. However price of apartments either diminished slightly or remained at the same with the previous quarter. Some villas and town house projects are competing directly with med- and low-priced apartment projects which have an average price of VND2-3 billion per unit, such as: Gamuda Gardens urban areas - Increasing in FDI into real estate market: According to Foreign Investment Agency, till 2/7/214, total fund raised in real estate considerably increased, equal to USD1.13 billion with 2 new projects, counted for 11.9% of the total. Clearly, foreign investors have come back to Viet Nam real estate market when there are more attractive opportunities. Company overview: Despite being established in 24, the company has grown and reached a notable position in southern real estate market with new modern real estate projects such as Celadon City, Carillon Apartment, Jamona City Projects that the company is involved: - Belleza Apartment: 4.9 hectare, with 587 apartments

3 5,282 4,77 4,14 4,9 Revenue, gross margin, growth rate 1,2 1, Net income, ROA, ROE Asset structure 8, 6, 4, 2, Net Revenues Operating net income Gross Profit Margin.75% 3.94% % 9.% 6.% 3.%.% -3.% -6.% Gross Profit Revenues Growth 6.% 5.% 4.% 3.% 2.% 1.%.35%.% Net Income ROA ROE 41% 42% 33% 36% 4% 1,491 1,826 1,447 1,419 Longterm Asset Equity rate 6% 2% % Shorterm Asset - Carillon Apartment: 7,8sqm, with 467 apartments - Celadon City: 82 hectare - Jamona City: 1.6 hectare, with nearly 2 villas and 1,8 apartments - Arista Villas: 9.2 hectare, with 238 apartments - Jamona Riverside: 7.9 hectare, with nearly 1.23 apartments - Charmington: 5,sqm, basement area around 65,7sqm. - Floryl Hill resort Company s products are assessed to be medium with modern and young design ideas in a green area, combined with utilities such as parks, kindergarten, schools, malls, and sport centers. Currently the company is focusing its resources in Jamona City project in District 7, Ho Chi Minh city. This is the biggest project after being out of Celadon City project. Total investment fund of this project is planned to be nearly VND1 trillion in 1.6 hectare area with villas, street houses, sky villas and about 1.8 apartments. Till the end of June 214, total funds spent on this project reached VND1,636 billion. Business result in the period : Business activities in the period faced many same difficulties with the real estate market. In 21, the company transferred Celadon City project, recorded huge profits. Yet, after that year, the market s status quickly turned gloomy, the business performance negatively affected as a result. Despite of difficulties in the market, the company still completed its projects as planned, including Belleza Apartment, Carillon Apartment, Arista Villas which were transferred to customers at the end of 213. Besides, the company started Jamona City project with area of more than 1 hectare. This is a big project that will bring most of cash flows and profits in the period Business results: Revenue in 21 increased significantly, reaching VND1,117 billion, followed by a sharp decrease in 2 years before recovering in 213 with a revenue of VND1,93 billion, double those of 212. This is a specific factor of a real estate company when revenue is recorded when projects delivered to customers. Gross profits varied greatly through year whereas gross profit margin was unstable. This showed that there were fluctuations in SCR business activities. One outstanding point was that revenue from financial activities was quite large because of project transfer and fund transfer that the company made every year. Financial cost has tendency to fall year to year, reaching VND187 billion in 213. Profit from operating increased significantly in 21, reaching a record of VND931 billion. In 212, profits shrunk to only VND32 billion and then recovered to VND93 billion in 213. Profit before taxes was also affected by other incomes. In 21, profit before taxes was only VND589 billion due to huge other costs, involving contract penalties, interest from inactivate projects, etc. In 213, profit before taxes reached VND72 billion, decreasing by 37% compared to those in 212. Even though profit before taxes in 213 was VND72 billion, profit after taxes was only VND8 billion because other income could not get taxes deduction while deferred tax asset did not record. Hence, tax cost reached to VND64 billion. Financial status: Overall, asset scale tends to decrease, financial structure has been becoming healthier since shortterm debt is decreasing and equity is increasing. We appreciate company s effort to restructure and extract its scale, and to reduce investment in projects after the expansion in the time of booming real estate market. Till the end of 213, total assets decreased to VND5,587 billion and continued to decrease to VND5,59 billion in Q2/214. In 21, the company s total assets reached its highest level at VND7,593 billion. Till the end of 213, asset structure focused on short-term assets with inventory of VND2,95 billion, accounted for 53% total assets, receivables of VND563 billion, accounted for 1.1% total assets. Inventory was mainly on projects such as Jamona City, Arista, Belleza and Carillon. For the first half year of 214, inventory kept decreasing because Belleza and Carillon projects completed and were delivered to customers. Long-term assets are mainly on long-term financial asset with total value reaching VND1,16 billion, accounted for 18% total assets. These are the funds prepared for future projects. Along with company efforts to achieve healthier financial structure, its capital structure has been becoming better. Till the end of 213, equity increased and reached 4.5% total assets compared to 32% in 211. In 214, the company planned to increase equity by VND375 billion through new shares issuance. Trade payables reached VND3,317 billion in the end of 213, sharply declined from VND4,247 billion in 212. In payables category, advance from buyers reached VND722 billion. Short term bank loan were VND656 billion whilst long term bank loan were VND1,561 billion. The company has been trying to look for more stable long term capital to fund its projects. Source:SCR s annual report and financial report

4 FINANCIAL STATEMENTS INCOME STATEMENT Bill VND H1.214 Net Revenue , Cost of Goods Sold Gross Profit Financial Revenue Financial Expenses Interest expenses Selling Expenses General and Administrative Expenses Operating net income Other income Other expense Other profit 9 15 (4) 2 Net income from JVC (86) 68 (17) (9) Earnings Before Taxes Payable Income tax expenses Deferred income tax expenses (27) Net income Minority interests (1) (15) (1) 3 Net Income for common Shareholders BLANCE SHEET H1.214 SHORT-TERM ASSETS 5,282 4,77 4,14 4,9 Cash and cash equivalents Short-term financial investments Accounts receivable 1, Inventories 2,679 3,382 2,954 2,744 Other current assets LONG-TERM ASSETS 1,491 1,826 1,447 1,419 Long- term accounts receivable Fixed assets Real Estate Investments Long-term financial investments 1,45 1,442 1,16 1,1 Goodwill Other long-term assets TOTAL ASSETS 6,774 6,596 5,587 5,59 LIABILITIES 4,571 4,247 3,317 3,22 Short-term liabilities 3,2 2,31 1,756 1,676 Short-term borrowing 1, Accounts payable - Trade Advance from Buyers 91 1, Long-term liabilities 1,569 1,947 1,561 1,526 LT borrowings 1,564 1,943 1,541 1,54 OWNERS' EQUITY 2,169 2,256 2,261 2,272 Paid - in capital 1, 1,43 1,51 1,51 Surplus share capital Treasury stocks Retained earnings Others reserve fund Minority interests TOTAL RESOURCES 6,774 6,596 5,587 5,59 (Source: SCR s audited financial report,h1 without audited ) CASH FLOW STATEMENT Cash flow from operating activities Net profit Adjustments for: Depreciation and amortisation Increase/ decrease in inventories (254) (73) 428 Increase/ decrease in trade receivables (122) Increase/ decrease in trade payables 249 (85) (393) Cash flow from operating activities (96) Cash flow from investing activities Increase/ decrease in tangible fixed assets (325) 56 (51) Increase/ decrease in intangible fixed assets Increase/ decrease in long - term investments 441 (396) 426 Increase/ decrease cash flow from investing activities 31 (71) 558 Cash flow from financing activities Equity issued (33) 86 5 Increase/ decrease other fund (84) Increase/ decrease in financial debts 11 (616) (152) Increase/ decrease in long term liabilities (1,19) 378 (385) Dividend to shareholders (2) (89) (8) Increase/ decrease cash flow from financing activities (1,85) (182) (624) Net cash flow (88) Opening cash Closing cash FINANCIAL RATIOS Liquidity ratios Current ratio Quick ratio Activity ratios Receivables turnover Inventory turnover Asset turnover Debt ratios Debt ratios Debt/ Equity Profitability ratios Gross profit margin 23.% 6.2% 18.4% Operating net income ratios 16.8% 5.5% 8.5% ROA.2% 1.3%.1% ROE.7% 3.9%.4% Others EPS BPS 21,694 15,774 15,55 DPS Dividend Yield NA NA NA

5 RECOMMENDATION: MBS recommendation system is the difference between the price and the market price at the issued time up to 6 months. There are 3 levels for each stock recommendations which can be changed to fit the companies situation: SALE: when the market price is above 15% HOLD: when market prices are +/-15% BUY: when the market price is under 15% DISCLAIMER: Copyrights. MBS 214. ALL RIGHTS RESERVED. Authors have based this document on information from sources they believe to be reliable but which they have not independently verified. The views expressed in this report are those of the authors and not necessarily related, by any sense, to those of MBS, Neither any information nor comments were written for advertising purposes or recommendation to buy / sell any securities. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic. Mechanical, photocopying recording, or otherwise, without the prior written permission of MBS. MB SECURITIES (MBS) Established since May 2. MBS was one of the first 5 securities firms operating in Vietnam. After years of continuous development. MBS has become one of the leading securities company in Vietnam, providing a full range of services including: brokerage, research and investment advisory, investment banking and capital markets underwriting. MBS s network of branches and transaction offices has been expanded and operated effectively in many major cities such as Hanoi, Ho Chi Minh City, Hai Phong and other strategic areas. MBS s clients include individual investors and institutions, financial institutions and enterprises. As a member of the MB Group, including MB Bank. MB Land. MB Asset Management. MB Capital and Viet R.E.M.A.X (Viet REM). MBS is able to leverage substantial human, financial and technological resources to provide its clients with tailored products and services that few securities firms in Vietnam can match. MBS is proud to be recognized as: - A leading brokerage firm ranked No.1 in terms of brokerage market share since 29; - A renowned research firm with a team of experienced analysts that provides market-leading research products and commentaries on equity markets and the economy; and - A trusted provider of investment banking services for corporate clients. MBS HEAD OFFICE MB Building. 3 Lieu Giai. Ba Dinh. Ha Noi Tel: Fax: Website: