COMPANY REPORT 25/6/2014

Transcription

1 a Domesco Medical Import Export JSC (DMC) COMPANY REPORT 25/6/2014 Undervaluation: DMC s 2014 P/E of 8.0x lower than average forward PE of comparable firms 10.8x and attractive 2014 PE/EPS growth of 0.47x With the expected EPS growth rate of +17% (from a diluted 2013 EPS VND/share to about 4,700 VND/share in 2014), PEG ratio is approximately at 0.47x. This is the lowest level compared to those of its peers: TRA (1.39x), IMP (0.49x), showing that DMC is being undervalued and may become appealing to investors. (Notably, DHG s expected PEG is -1.65x due to a decrease of 7.1% in 2014 EPS) Revenue growth due to high demand for special treatment drugs, expansion of factories and distribution system We expect sales to increase by at least 10-12%/year in the due to: (1) DMC is the leader in special treament drugs segment which is growing rapidly. In particular, its product portfolio regarding diabetes, endocrinology and cardiology (52% of revenue) is 30-40% lower in price than imported drugs. (2) Since the end of 2013, factory capacity has increased +67%, from 1.3 billion units/year to 2.18 billion units/year, expected to help boost revenue growth by +51% in the period of (3) Nationwide network with points of sale allows the firm to distribute its own products and CFR s products. (4) Export sales is expected to increase by 10-15%, contributing 5-7% of 2014 net income due to markets expansion into Philippines, Myanmar, Latin America and Nigeria. Improving profitability ratio In 2013, DMC witnessed its fastest growth rate in ROE +2.1% (from 15.7% to 17.8%) compared with DHG (+0.4%), TRA (-1%) and IMP (-2.5%). The firm s profitability ratios are expected to improve as DMC will increase the proportion of manufactured goods (which have high gross margin) from 71.2% in 2013 to 75% in 2014, and 80% in Besides, DMC can significantly reduce commission when boosting export activity rather than domestic sales. DMC the only firm which has a pharmaceutical strategic partner DMC can take advantage of technology, management, market development (especially in Latin America) and cost saving in R&D. The firm s R&D fund in 2013 was approximately 129 billion VND, much lower than DHG (701 billion VND), IMP (196.5 billion VND) and TRA (156 billion VND). PHARMACEUTICAL SECTOR Key Indicators Market Cap (billion VND) DMC Price 25/6/14 (VND) Target Price (VND) Increase / Decrease (%) 41% Dividend yield (%) 4.7% 2014 PE (x) 8.0 PE / EPS growth rate PB 1.5 Debt/Asset (%) 11.5 Major shareholders CFR International 45.94% SCIC 34.71% Deutsche Bank Aktiengesellschaf & Deutsche Investment Management Ban Viet Securities & Healthcare Investment Fund (VCHF) 1030 Outstanding Shares 26,7m 52W highest 49,000 52W lowest 18,800 KLGD tb 10 phiên % 4.48%

2 FINANCIAL STATEMENT (BILLION VND) Income statement (billion VND) F Balance sheet F Revenue 1,132 1,261 1,430 1,568 Cash & equivalent Gross profit ST investment SG & A (247) (271) (278) (306) Accounts receivable Operating profit Inventories Non-recurring profit/loss Other current assets EBIT Total current assets Interest expense (11) (8) (5) (7) Gross fixed assets EBT Acc. depreciation (119) (146) (168) (206) Net income to SH Net fixed assets LT investments Cash flow Other long-tm assets Beginning cash Total long-term assets Operating cash Total Assets ,020 1,051 Investing cash (46) (12) (61) (100) Financing cash (33) (118) (8) (36) Accounts payable Cash generate 21 (25) (11) 42 Short-term debt Ending cash Other short-term debt Current liabilities Growth ratio Long-term debt Sales % 8% 11% 13% 10% Other long-term debt EPS % -3% 13% 19% -20% Total long-term debt Profitability ratio Total liabilities ROA % 10% 11% 11% 12% ROE % 14% 16% 17.8% 19.2% Preferred equity Liquitity/solvency 0% 0% 0% 0% Addt l paid in capital Current ratio Share capital Debt-to-asset 16% 9% 11% 11% Retained earnings Valuation metric Minority interest EPS (VND) 4,498 5,067 6,037 4,812 Total equity BVPS (VND) 32,310 32,025 35,291 26,543 Total debt & equity ,020 1,051 2

3 1. THE LOCAL PHARMACEUTICAL SECTOR & DMC S MARKET POSITION VIETNAM PHARMACEUTICAL SECTOR Vietnam pharmaceutical market size was about USD 3.3 billion in 2013, +16.2% compared with The market is expected to reach USD 7.06 billion in 2018, growing at 16%p.a, the highest in Southeast Asia. Vietnam pharmaceutical market structure is mainly composed of generic drugs, accounting for about 50% and the main distribution channel is via the hospital system in the form of prescription drugs (ETC). Despite its small market share, over the-counter channel (OTC) is growing very fast due to higher profit margin than ETC channel, thus becoming the most lucrative market for many pharmaceutical companies. Structure of Vietnam pharmaceutical market 50.0% 50.6% 51.2% 27.2% 26.9% 26.7% 23.1% 22.7% 22.3% 72.8% 73.1% 73.3% 26.9% 26.7% 26.4% Generic drugs Patented drugs Others OTC ETC Source: BMI Pharmaceuticals & Healthcare Report Q The growth prospect of Vietnam pharmaceutical market is supported by the following factors: Pharmaceutical expenditure per capita in 2012 in Vietnam remained low (about USD36 /person/year), compared to other regional countries such as Thailand (USD 64), Malaysia (USD54), Singapore (USD138) (according to BMI). Strong demand from a large population of 90 million people with a growing concern in healthcare. The government s strategy to develop the domestic pharmaceutical industry to 2020, which targets to satisfy 80% of annual drugs consumption. The investment in healthcare is expected to increase by 11%/year from 132 USD/person/year to 227 USD/person/year during the period. 3

4 Bn USD Company report Vietnam pharmaceutical market growth 7.06 CAGR 16%/year F 15F 16F 17F 18F Source: BMI Doanh Sales (bn số (Tỷ USD) USD) Investment in healthcare sector/person/year (USD) CAGR 11%/year Source: IMS Health Q12014 Vietnam's pharmaceutical industry has developed disorderly with the same market strategy which creates stiff competition for every player. Currently, Vietnam has 178 pharma enterprises including 98 producing modern drugs, 80 producing herbal medicines and 30 ones in traditional medicine business. Most of domestic pharmaceutical enterprises produce cheap generic drugs and mainly focus on distribution via ETC channel. Therefore, the competition pressure is becoming larger. Vietnam hasn't developed a modern pharmaceutical industry yet. The domestic pharma firms only meet 50% of domestic demand and most of them are cheap generic drugs. The remaining 50% is largely special treatment drugs which are imported at high cost, accounting for 70% of the pharmaceutical market in value. The pharma-chemistry manufacturing industry is still underdeveloped. Thus, 90% of raw materials have to be imported from China, India. DOMESCO S STATUS Domesco is the 3rd largest listed enterprise in terms of revenue and market capitalization (after DHG and TRA). Regarding market share of drugs produced domestically, DMC ranked 3rd with 3.7%, after DHG (10.8%) and TRA (4%). This firm aims to occupy 5% of the domestic drugs manufacturing market in production market share of drugs manufactured domestically The Rest, 78.5% 227 DHG, 10.8% IMP, 3.0% TRA, 4.0% Source: Ministry of Health 2013 DMC, 3.7% In special treatment drugs segment, DMC is the largest domestic pharma company. DMC's strength lies in its the Special Treatment drug segments which target the middle & high income segment. In particular, the diabetes, endocrinology and cardiology drugs (52% of revenue) have great advantages with 30-40% lower price than imported drugs. 4

5 Source: IMS health Q PRODUCTS 2013 Market share of special treatment drug groups Others 44% Neurology 6% Sterilization Group 20% Metabolism Group 19% Cardiovascular Group 11% DMC differentiates from other opponents by applying product diversification strategy, from common non-prescription drugs to the special treatment drugs for cardiology, diabetes, endocrinology... In particular, the special treatment drugs contribute up to 52% of revenue and gain great advantages in prices compared to foreign products (30-40% cheaper). The proportion of manufactured products with high gross margin is expected to increase from 71.2% in 2013 to 75% in 2014, and 80% in DMC s manufactured goods contribute 93% of total gross profit in In particular, the Non-betalactam line (cardiology, diabetes group...) has very high gross profit (about 70%). This strategy will help improve DMC s profit margin in the upcoming years. Products portfolio: - Cardiovascular Drugs: Antithrombotic Drugs, Cerebral Circulation Enhancing, Antianginal, Blood Pressure Increasing / Lowering, Blood Lipid Lowering Drugs - Gastrointestinal Drugs: Anti-Gastric Ulcer, Anti-Emetic, Laxative And Cleansing, Diarrhea Treatment, Anti-Dehydration - Electrolyte. - Insulin And Hypoglycemia Group - Supplementary Group For Diabetes Treatment - Painkillers, Antipyretic, Non-Steroide Anti-Inflammatory Group, Gout And Osteoarthritis Treatment Drugs - Antiallergic Drugs And For Cases Of Hypersensitivity To Drugs Ingredients - Respiratory Medicine - Group Of Minerals And Vitamins - Anti-Bacterials - Anti-Anemia Drugs - Herbal Products And Dietary Supplements 3. CONSUMPTION MARKET & DISTRIBUTION NETWORK The domestic market accounts up to 97% proportion while exporting markets capture a modest share of 3% yet highly potential. Export activities have grown rapidly, from USD 0.73 million to USD 1.8 million in period, +34%p.a thus increasing its proportion from 1.4% to 2.6% in revenue structure. Boosting exports is an important part in DMC s development strategy in the upcoming years, leveraging the support of strategic partner CFR - leading pharmaceutical group in Latin 5

6 America. In 2013 DMC was the listed pharmaceutical enterprise which has the highest export revenue compared with DHG (USD 1.6 million), IMP (USD 1 million). DMC s export markets consist of Myanmar, Philippines (these 2 markets account for 78% of exports revenue), Cambodia, Laos, Japan, Hong Kong, Nigeria... In particular, DMC successfully exported to the profoundly demanding Japan which even DHG couldn t penetrate. In 01/2014 DMC has started exporting to Peru, paving the way into the Latin American market. Size & growth prospect of important export markets: Myanmar USD 385 million +20%/year; Philippines USD 4 billion, +14%/year, Peru USD 1.72 billion, +7%/year. 2,500 2,000 1,500 1, Regaring distribution channels, DMC products are distributed in two main channels: (1) Hospital Distribution Channel (ETC) consists of distribution channels from hospitals, mainly distributing special treatment products and new generation antibiotics. (2) Over the counter Channel (OTC) consists of private pharmacies, agencies, authorized distributors, and the company s distribution system. OTC is DMC s main distribution channel and continues contributing from 65% to 70% of revenue in Due to the nature of DMC products which are of high quality targeting highaverage income group thus they are distributed mainly via OTC channel with proportion at about 65%. The remaining 35% is distributed via ETC channel which focuses primarily on special treatment and new generation antibiotics group. ETC channel is also affected by Circular 01 and Circular 36 (revised version of Circular 01), which focus on low price and care less about quality thus impeding the firm s expansion plan & shrinking its profit margin. Currently, DMC is expanding its OTC channel, which targets a proportion of 70% revenue in 2014 from 65%, an important development strategy of DMC in order to: (1) Increase sales, Source: 2013 DMC Annual Report Export revenue (million USD) CAGR 34%/year (2) Expand profit margin compared with ETC channel (3) Minimize impacts of unfavorable policy in drugs bidding, The sales result of manufactured goods on these two channels compared to other competitors: 6

7 The revenue proportion by distribution channels in 2013 IMP 40% 60% DHG 10.6% 89.4% DMC 35.8% 64.2% Kênh ETC có giường bệnh (ETC) Source: 2013 Annual Report of DMC, DHG, IMP Kênh (OTC) không giường bệnh (OTC) Regarding market coverage, presently DMC has distributed nationwide, equivalent to IMP and TRA (although still modest compared to DHG: 36 subsidiaries and branches). This also explains the current advantages of DHG in the OTC channel. Subsidiaries Hospital & branches pharma DHG DMC 15 4 IMP 18 TRA 15 During the period, DMC continues to promote its main business channel - OTC by consolidating and expanding the existing distribution system: - "Good Distribution Practice" (GDP) system: 11 branches nationwide, 2 offices & 4 distributing centers in Dong Thap. - Good Pharmacy Practice (GPP) system: 4 hospital pharmacies in Dong Thap and 16 private pharmacies. - Customers base of over 14,000 points of sale, including: Pharmacies - Retailers, Wholesalers, Hospitals / Medical Centers / Local Clinics, Private Clinics. 7

8 GDP drugs distribution system of DMC DISTRIBUTION SYSTEM Hospital Pharmacy National Business System General Agency General Clinic Source: DMC Medical Center 4. INPUT MATERIALS With abundant and diversified supply inside and outside of the country, the risk of shortage or price fluctuation of pharmal-chemistry raw materials is insignificant. Currently due to an underdeveloped pharma-chemistry industry, 90% of raw materials used to produce modern medicines are imported. - For pharma-chemistry raw materials, laboratory chemicals, modern medicine ingredients and modern medical equipments are 100% imported from Japan, Hong Kong, ASEAN, Europe, United States, and particularly India and China. These are the world s two largest pharmachemistry markets with unlimited supply and competitive prices. - For herbal supplies: DMC has diversified sources such as (1) Importing from China, (2) Purchasing from domestic suplliers and (3) Investing and developing its own herbs planting area. Currently, DMC has established a planting area of key materials such as Saffron, Baby Jackfruit and other materials in an area of 33 ha in Tinh Bien and Tri Ton, An Giang Province. DMC possesses the advantages of self-developed herbs planting area and herbs processing factory with large capacity (150 million units/year and 250 tons/year) with high technology, GMP -WHO certified. This suggests that DMC is highly eligible, with all the right conditions, to promote the group of herb-related products and dietary supplements in the period. 8

9 5. FACTORIES & TECHNOLOGY DMC is one of the few pharmaceutical companies with full certificates: GMP (Good Manufacturing Practice), GLP (Good Laboratory Practice), GSP (Good Storage Practice); and is qualified for international quality management system ISO 9001:2000,and ISO/IEC standard for testing laboratories. Presently, DMC has 05 factories with technology qualified for WHO-GMP. Since late 2013, the factory capacity increased by 67%, from 1.3 billion units/year to 2.18 units billion/year, expecting to translate into revenue growth of +51% in the period. In particular, the Non-betalactam factory (65% total capactity and is used to produce for DMC and CFR franchise items) which has just been expanded from 800 million units/year to 1,100 million units/year, +38% is forced to run at nearly full capacity. This shows that the demand for Nonbetalactam products on the market is very high. With growing market demand for Nonbetalactam & Cepalsporin product lines, the possibility of reaching the 2014 target of 1897 million units total production is highly practical. DMC is planning to invest a new Powder-Young Rice-Capsule Nonbetalactam factory, applying GMP-EU (higher than the WHO-GMP), with expected capacity of 2.5 billion units/year. The projected total investment is about 500 billion VND in Can Lo Industrial Park (Dong Thap). The project is currently in the pre-feasibility period before conducting bidding, groundbreaking, equipment installation. It is expected to go into operation in 2018, meeting the demand for high quality Nonbetalactam products in domestic and exports market. DMC Factories Units Standards Capacity Capacity (upgraded) % Change Penicillin factory Cepalosporin factory Non betalactam factory Dietary supplements and beverage factory 6. PRODUCTION Million units WHO -GMP % Million units GMP -Colombia & PIC/S % Million units WHO -GMP % Million units WHO -GMP % Herb processing factory Million units WHO -GMP 250 tons/year 150 million unitsp & 250 tons/year The new Non Million units GMP-EU On progress, expected completion in 2018 betalactam factory Total capacity Nguồn: DMC 1300 million units và tons 150 million units 2180 million units & 250 tons 68% Over the past time, output at DMC s main factories has shown positive growth. To date, the total number of SKUs which were put into production reached 280, including: Non Betalactam: 193 Cephalosporin: 34 Penicillin: 14 Herbs related products: 19 Dietary supplements: 20. 9

10 2013 Manufacturing output reached 100.4% of the year target and increased by 12% yoy. In particular, the NonBetalactam factory accounted for ~65% of the total production +10% y/y; Penicillin, Cephalosphorin Factories all exceeded the 2013 plan with 8.9% and 15.1%, and increased sharply on yearly basis, respectively by 22.8% and 50% Production Factories Percentage Growth 2014 Penicillin (mn units) % 23% 237 Cepalosporin (mn units) % 48% 174 Non betalactam (mn units) 1,007 1,108 65% 10% 1,518 Supplements (mn units) % -12% 139 Herbs (ton) % -5% 34 Total 1,518 1,701 12% 1,897 Source: DMC 7. SWOT - STRATEGIC ANALYSIS STRENGTHS - DMC is the largest domestic pharma firm in special treatment drugs segment which is growing very fast. In particular, diabetes, endocrinology and cardiology product group (~52% of revenue) are 30-40% lower in price than imported drugs and achieve BE/BA (bioequivalence). These are DMC s advantages when bidding. - Increasing export turnover, expanding market: Philippines, Myanmar (these 2 markets account for 78% of total export sales), Latin America and Nigeria. Presently, 2013 export revenue captured 2.6% of total revenue (USD 1.8 million), higher than DHG (USD 1.6 million), IMP (USD 1 million). - DMC is the only pharma firm which has a pharma strategic partner (CFR holds 45.94%), so it can take advantage of technology, management, market development, especially in Latin America and cost saving in R&D. The firm s R&D fund in 2013 was ~129 billion VND, much lower than DHG (701 billion VND), IMP (196.5 billion VND) and TRA (156 billion VND). - Nationwide Distribution network. DMC has created close relationships with local Pharmaceutical Companies, thus ensuring efficiency when distributing products into the dealers and pharmacies system. WEAKNESSES - Difficult to to compete in price when bidding for other product lines which are outside the group of cardiology, diabetes, endocrinology - The high production cost of the herb processing factory as initially being equipped with advanced technology (GMP-WHO), resulted in uncompetitive selling price. In 2014, DMC plans to restructure the factory into a subsidiary and seek strategic partners or hire consultants to have a proper direction in technology investment. OPPORTUNITIES - General growth rate of the pharmaceutical sector +15.1% p.a in (according to BMI). - Demand for special treatment drugs is accelerating. In 2012, 5.7% of the population have problem with diabetes, up 211% compared to 2002, the fastest globally. 10

11 - The government increased investment to expand the satellite hospital system to VND billion in 2013 to mitigate the overload pressure in urban cities. - DMC is facing ideal opportunity to export into the Latin American market starting by enter Peru market in Q1/2014. CHALLENGES - The majority 90% of pharmaceutical materials is imported. - Competition is becoming stiffer in terms of quality, payment time and mostly price. The popular tendency of late payment from customers also negatively impact on the firm business. - Policy Risk. According to Circular 01 and Circular 36 (revised version of Circular 01) products with low prices dominate and the product quality is no longer a significant matter, leading to the continuous price reduction by firms to win biddings. DMC participates in the biddings with high quality products and also with less competitive price, therefore ETC channel s revenue is influenced considerably. From the above analysis, we believe that the competitive strategy based on DIFFERENTIATION (boosting exports & adjusting products portfolio) and COST DEDUCTION (increasing productivity & improving manufacturing process) which DMC has applied during the past time is in accordance with its strengths & opportunities. This strategy allows DMC to concentrate resources on core products categories & major markets; reduce policy risks in drugs bidding and avoid price competition. 8. FINANCIAL ANALYSIS BUSINESS PERFORMANCE BN VND 1,800 1,600 1,400 1,200 1, Source: DMC 1,043 Sales EBITDA NI % +/- Revenue % +/- NI 1,132 1,261 Healthy growth in revenue and profit. In 2013, Net Sales +13.4% and Profit After Tax +19% yoy. This result helped DMC maintain Compound Annual Growth Rate (CAGR) in revenue and a stable profit at 11.1% p.a and 9% p.a during Compared with the average growth rate of 15% p.a of pharmaceutical industry in the same period, revenue growth of DMC is somewhat modest due to the following reasons: - Domestic pharmaceutical firms can only meet 50% of domestic demand leaving the remaining 50% for imported goods which accounted for about 70% of market value. 1, F 25% 20% 15% 10% 5% 0% -5% 11

12 - High competitive pressure from foreign pharmaceutical firms and among the domestic ones (due to a similar market strategy). DMC had a strong breakthrough within domestically produced drugs market when growing higher than the market during the last 2 years and currently holds 3.7% market share (from 3.3% in 2011), ranking 3rd after DHG (10.8%) and TRA (4%). Positive growth in revenue and profit in F period are largely contributed by (1) The strategy to expand the domestic market & promote exports combined with (2) boosting the proportion of manufactured goods from 55% in 2009 to 71% in 2013 and ~75% in Gross profit margin of manufactured goods in 2013 accounted for 93% of total gross profit, in which, gross profit of the Non-betalactam products are very high (about 70 %). Business plan for the period - Revenue CAGR reaches 10-12% p.a - The proportion of manufactured goods revenue is over 75% - Profit after tax increases at least 15% p.a - Export turnover increases 10-15% in % Market growth of drugs produced 25% 24% 24% 20% 15% 16% 13% 13% 10% 11% 8% 8% 5% 5% 0% DMC Thuốc Drugs sản produced xuất trong domestically nước Source: DMC, DHG % 71% Manufactured goods Imported goods Materials Source: DMC 2013 Revenue structure 11% 11% Service/Trading Equipments 18% 9% 4% 5% 7% 9% Positive Q1/2014 Business result with net revenue at VND 374 billion % y/y, Profit after tax at VND billion, % y/y, Profit after tax/revenue reached 8% up from 7.5% in This proves the efficiency in cost-cutting strategy: selling expenses rose by 18.36% y/y, General And Administrative Expenses increased by 7.05% y/y, all lower than revenue growth rate. We consider DMC s 2014 target of VND 1568 billion, +9.6% y/y, Profit After Tax VND131 billion, +21.8% y/y is highly achievable based on the following factors: 1. Huge market demand for the company s Non betalactam products 2. DMC has just expanded factories capacity from 1.2 billion to nearly 2 billion units, +68% since the end of DMC-CFR joint venture started paying off with export activities flourished (+13% y/y) and DMC has begun producing franchise products for CFR in Cephalosporin factory from Q2/

13 PROFITABILITY RATIO & LIQUIDITY RATIO FINANCIAL RATIO F Profitability ratio GM % 30.2% 33.0% 31.1% 28.8% 30.0% OM % 12.0% 11.2% 9.6% 9.4% 11.0% EBITDA / Revenue 14.3% 13.5% 12.5% 11.9% 13.7% ROE 15.9% 14.3% 15.7% 17.8% 18.9% ROA 11.2% 10.0% 10.7% 11.5% 12.7% Liquidity ratio Current ratio Quick ratio Financial Leverage Total Debt / Total Assets 17.9% 15.5% 9.1% 10.7% 9.8% Total debt / equity 25.1% 22.5% 13.6% 17.2% 13.5% Source: Bloomberg 2013 DMC s gross margin declined slightly at 29% mainly due to higher growth in COGS than revenue (17% compared to 13.4%). Shrinking gross margin has slightly dragged down operating profit margin and EBITDA margin. Specifically, DMC in 2013 heavily invested in these categories: 1. Workforce: labor cost increased from VND 68 billion to VND 140 billion, +106% y/y 2. Soaring of materials cost: increased from VND 545 billion to VND 636 billion, +17% y/y. 3. Machinery and equipments investment in factory/production line for herb extracting, dietary supplements... with total VND 166 billion. 4. Besides, the operating efficiency of investments in subsidiary/joint venture was not high We believe that the above investments would lay a strong foundation for DMC s operating efficiency in the future, thus resulting in higher profit margin on the following basis: 1. Increasing labour productivity by 10.65% in 2013 compared to x increase in manufacturing batch size due to investment in equipment and automation in Nonbetalactam factory, thus enhancing efficiency and saving cost. 3. Cost reduction strategy began to take effect: admin expense was only VND 111 billion in 2013 compared to VND 130 billion in 2012, -20% y/y. Meanwhile DMC accelerated sales activity to boost revenue, the proportion of selling expenses/net revenue only slightly increased by 11.2% to 11.7% in 2013, still low compared with DHG (19.8%), TRA (20.3%) and IMP (27.1%). Positive growth in profitability ratios ROA and ROE in the last 3 years while gross margin decreased slightly was mainly due to the dramatic effect of the differentiation and cost reduction policy: 1. DMC has actively increased the proportion of manufactured goods which have high profit margin in the revenue structure from 51% in 2011 to 71% in DMC is manufacturing in 9 product categories: cardiology, diabetes, endocrinology, neurology, musculoskeletal system, respiratory system, digestion-liver, viruses and cancer. In particular, the diabetes, endocrinology and cardiology groups (accounted for 52% of revenue & ~70% profit margin) have a considerable advantage with 30-40% lower in price than imported drugs. 13

14 2. Significantly reduce commission and other expenses when boosting exports of manufactured goods compared to domestic sales. 3. Increase cost management efficiency: selling expenses, SGA and R&D fund. Strong balance sheet and healthy liquidity. The current and quick ratios of DMC are at a safe level (both ratios are over 1x) along with total debt/total assets ratio at low level of 10.7% at the end of Even if DMC needs capital to finance its VND500 billion Non-betalactam factory project, it will not become under high cash flow pressure. 9. VALUATION Undervaluation: DMC s 2014 P/E 8.0x lower than average forward PE of comparable firm 10.8x, its current EV/EBITDA 6.3x compared to industry 7.8x and attractive 2014 PE/EPS growth of 0.47x. With the expected EPS growth rate of +17% (from a diluted 2013 EPS VND/share to about 4,700 VND/share in 2014), PEG ratio is approximately at 0.47x. This is the lowest level compared to those of its peers: TRA (1.39x), IMP (0.49x), showing that DMC is being undervalued and may become appealing to investors. (Notably, DHG s expected PEG is x due to a decrease of 7.1% in 2014 EPS) We rely on the outlook of the industry and the business operation of leading pharmaceutical companies, which bear many similarities with the operation of DMC, to carry out the following valuation on comparable basis: 1. Based on the expected value on EPS and EBITDA of DMC in 2014 EPS 2014 EBITDA 2014 Scenario Probability (VND/share) (billion VND) Worst case 15% Base case 60% Best case 25% Expected value Developing target P/E and EV/EBITDA EV/EBITDA P/E ROE ROE PE/EPS DMC (25/6/2014) Growth DMC 6.28x 8.0x 17.8% 19.2% 0.47x DHG 11.6x 11.7x 32.0% 25.5% -1.65x TRA 7.93x 11.7x 27.1% 28.7% 1.39x IMP 5.26x 11.9x 8.4% 10.1% 0.49x Average 7.77x 10.8x 3. Valuation of DMC based on target P/E and EV/EBITDA Target Price Target P/E 10.8x 50,917 Target EV/EBITDA 7.8x 58,206 Outstanding share (million shares) 27 Average target price 54,562 Market price 25/6/14 38,600 Upside potential 41% 14

15 ANALYST CERTIFICATION We, Research Department of Thien Viet Securities Company (TVS), hereby certify that the views expressed in this research report accurately reflect our personal views about the subject securities or issuers. We will not compensate, directly or indirectly, for any specific recommendations or views expressed in this report. by Thien Viet Securities Company. All rights reserved. This publication may not be redistributed, retransmitted or disclosed as a whole or partially in any form or manner without the prior written consent of Thien Viet Securities Company (TVS). The information herein is obtained from various sources and TVS does not guarantee its accuracy. Neither the information nor any opinions expressed in this publication constitutes a buy or sell recommendation on any securities or investment. TVS therefore does not take any responsibilities for any investor s decisions. THIEN VIET SECURITIES COMPANY HO CHI MINH 63A Vo Van Tan St, District 3 Floor 9, Bitexco Nam Long Building Tel: +84 (8) Fax: +84 (8) HA NOI 22 Lang Ha, Dong Da TDL Building Tel: +84 (4) Fax: +84 (4) RESEARCH DEPARTMENT research.hcm@tvs.vn INVESTMENT BANKING ib.hcm@tvs.vn BROKERAGE DEPARTMENT Ho Chi Minh brokerage.hcm@tvs.vn Ha Noi brokerage.hn@tvs.vn 15