Hau Giang Pharma (DHG) [M-PF -7.0%] Partnership with Taisho offers additional growth potential

Transcription

1 Hau Giang Pharma (DHG) [M-PF -7.0%] Update Report Report Date: September 21, F 2017F Current Price: VND111,000 Rev Growth -7.8% 0.7% 12.5% Current Target 18 Price: March 2011 VND99,800 EPS Growth 10.7% 15.1% 10.4% Previous Target Price: VND73,500 GPM 39.2% 46.6% 46.3% NPM 16.4% 18.7% 18.3% Upside to TP: -10.1% EV/EBITDA 11.9x 10.9x 10.1x Dividend Yield: 3.2% P/Op CF 19.2x 15.6x 14.7x TSR: -7.0% P/E 18.6x 16.1x 14.6x 100% 60% DHG VNIndex 20% -20% Sep-15 Dec-15 Mar-16 Jun-16 Industry: Pharma DHG Peers* VNI DHG is the largest pharmaceutical company in Vietnam. Market Cap: $433.9 mn P/E (ttm) 16.9x 16.9x 15.8x Its main competitive advantage lies in its market-leading Foreign Room: $0.0 mn P/B (curr) 3.7x 3.7x 1.9x distribution network. DHG mainly produces generic drugs, ADTV30D: $0.6 mn Net D/E -26.1% -3.8% NA with antibiotics and painkillers as their major categories. State Ownership: 43.3% ROE 24.4% 15.8% 12.0% Outstanding Shares: 87.1 mn ROA 19.4% 10.6% 2.1% Fully Diluted Shares: 87.1 mn * includes foreign peers using adjusted market multiples. Dao Nguyen Senior Analyst dao.nguyen@vcsc.com.vn ext. 185 Partnership with Taisho offers additional growth potential We raise our target price by 37% and upgrade our rating on DHG to MARKET PERFORM. We believe that the company s long-term growth prospects have been upgraded thanks to cooperation with its new strategic investor Taisho, prompting us to raise our terminal growth rate from 0% to 3%. TP is further supported by a 1.3 ppt decrease in the cost of equity driven by a lower risk-free rate and our lower universal risk premium. H sales recovered from a low base to grow 15.2% vs H In-house products, including key categories, namely analgesics, antibiotics and vitamin supplements, underpinned 15% revenue growth vs H However, we note that H was a low base as Q revenue was affected by DHG offloading excessive inventory at the distributor level. Lower taxes offset higher selling expenses to improve profitability with H NPAT +17% Y-o-Y. The effective tax rate declined by 7.7 percentage points thanks to a widening contribution from the tax-incentivized new factory. This offset a 43.8% surge in selling expenses resulting from the ramp-up in advertising for vitamin supplement products (Naturenz, Nattoenzym) and analgesics products (Hapacol). Overall, H results came in broadly in line with our expectation. We maintain our forecast. We forecast FY17 NPAT growth of 10% on the back of 12.5% revenue growth. We expect FY16 s theme to continue to play out in FY17 with in-house product sales growing by 13% vs FY16F, while a lower effective tax rate will partially offset the surge in selling expenses for vitamin supplements. The partnership with Taisho brings new growth potential from manufacturing and distribution of Taisho s products. Partnering up with Taisho can lift DHG s long-term growth through 1) DHG s in-house production of Taisho s or co-developed products (through a JV for example) for sales in Vietnam and 2) DHG s distribution for some of Taisho s products through its distribution network. The former will result in more meaningful profit contributions thanks to higher margins. DHG may look to manufacture products of Taisho that are complementary to DHG s current portfolio, such as injectable antibiotics. However, with the absence of detailed guidance, we have not incorporated the potential outcomes from this partnership into our P&L projections. DHG, together with other local pharma stocks, have entered overvalued territory. Leading pharma stocks (DHG, TRA, DMC, IMP), which have posted an average stock return of 106% YTD, are trading at an average TTM PER of 21.9x, much higher than regional peers 16.9x (adjusted See important disclosure at the end of this document VCSC<GO> Viet Capital Securities 1

2 PER). This sector-wide rally has been fuelled by 1) hopes toward FOL removal, especially after DMC successfully lifted its FOL to 100% and 2) M&A in these companies, i.e. between Taisho and DHG, and possibly between Abbott and DMC. For DHG alone, it is trading at a TTM PER of 16.9x, on par with regional peers. We therefore believe that the potential FOL removal and contributions from Taisho have been priced in. It would be difficult for DHG to follow DMC in removing restricted businesses to raise its FOL. In order to raise its FOL to 100%, DMC removed third-party product distribution from its business activities. However, trading revenues account for a substantial part of DHG s total revenue (18% in H1 2016). DHG does trading for large foreign pharma companies, such as Merck and Co., Mega Lifesciences and possibly Taisho in the near future. See important disclosure at the end of this document VCSC<GO> Viet Capital Securities 2

3 H1 2016: Sales recovered from H s low base Figure 1: DHG's H results summary VND billion H H % growth % of VCSC s previous forecast Net revenues 1,691 1, % 47.1% - In-house products 1,382 1, % 45.0% - Trading and others % 60.0% Gross profits % 45.1% - In-house products % 44.7% - Trading and others % 84.6% Operating profits % 43.9% PBT % 44.7% NPAT % 44.8% Source: DHG, VCSC H NPAT grew by 17.2% thanks to: * Sales from in-house products rebounded from H s low base. We note that H was a low base as Q revenue was affected by DHG offloading excessive inventory at the distributor level. Major categories, such as analgesics and antibiotics, bounced back robustly, while vitamin supplement sales more than doubled from a low base aided by aggressive advertising. * Year-over-year growth tapered down in Q however. Q net sales growth tapered down to 14.6% year-over-year from 23.4% in Q On the other hand, Q NPAT was flat vs Q due to a 66% surge in selling expenses, mostly driven by staff expenses (+418% vs Q2 2015) and advertising expenses (+52% vs Q2 2015). Following its sales force restructuring in 2015, DHG has started to push its marketing activities again, especially in vitamin supplement and analgesics categories, while also shoring up incentives for salesmen who achieve their targets. This is in line with our expectations and we expect selling expenses to continue on this trajectory for the rest of the year to account for 16.5% of revenue in FY16, up from 12.6% in FY15. * A greater contribution from the new factory cut the effective tax rate by 7.7 percentage points. Production volume at the new tax-free factory surged 81% in H vs H1 2015, and we estimate it contributed roughly half of DHG s H NPAT compared to about 22% in H See important disclosure at the end of this document VCSC<GO> Viet Capital Securities 3

4 FY16 outlook: we maintain 15% NPAT growth forecast Figure 2: VCSC's FY16 forecast summary VND Billion FY15A FY16F (old) FY16F (new) Change % (FY16F new vs FY15A) Revenues 3,609 3,589 3, % In-house products 2,673 3,074 3, % Trading and others % Gross profit 1,414 1,681 1, % Sales & marketing exp. (457) (592) (600) 31.3% General admin exp. (261) (330) (334) 28.2% Operating profit (EBIT) % Interest expense (9) (9) (13) 47.3% Non-operating profit % Profit Before Tax % NPAT before MI % NPAT less MI % EBITDA % Explanation Thanks to sales force restructuring and FY15's low base Change in accounting treatment for promotional gifts Gross profit margin % 39.2% 46.8% 46.6% Sales & marketing as % sales -12.7% -16.5% -16.5% General admin as % sales -7.2% -9.2% -9.2% Operating profit (EBIT) margin % 19.3% 21.1% 20.9% EBITDA margin % 22.0% 24.1% 23.8% NPAT margin % (adjusted) 16.4% 19.0% 18.7% Effective tax rate % 15.6% 9.5% 9.5% Source: VCSC Larger contribution from in-house products Higher GPM in in-house products as DHG reduces sales through wholesalers and improves product mix More A&P for vitamin supplements and analgesics products. Moreover, FY15 was a low base as DHG focused on sales force restructuring instead of pushing marketing activities Increased salary and bonus for salesmen for achieving targets Higher contribution from the new taxfree factory See important disclosure at the end of this document VCSC<GO> Viet Capital Securities 4

5 FY17 outlook: NPAT +10% on growth of key categories We are forecasting 10% NPAT growth for FY17 on the back of 12.5% revenue growth. The latter will be supported by 13% growth in in-house product revenue, primarily driven by key product categories, such as antibiotics, analgesics and vitamin supplements. The bottom line is forecast to grow more slowly because of a projected 30 bps increase in selling expenses/revenues as DHG continues to push its marketing for key vitamin supplement products, such as Naturenz and NattoEnzym. This will be partly offset by a 150 bps contraction in the effective tax rate in FY17 vs FY16 in parallel with a broadening contribution from the new factory. Figure 3: VCSC's FY17 forecast summary VND Billion FY15A FY16F (new) FY17F % YoY Revenues 3,609 3,635 4, % In-house products 2,673 3,074 3, % Trading and others % Gross profit 1,414 1,694 1, % Sales & marketing exp. (457) (600) (687) 14.6% General admin exp. (261) (334) (380) 13.8% Operating profit (EBIT) % Interest expense (9) (13) (16) 21.0% Non-operating profit % Profit Before Tax % NPAT before MI % NPAT less MI % EBITDA % Gross profit margin % 39.2% 46.6% 46.3% Sales & marketing as % sales -12.7% -16.5% -16.8% General admin as % sales -7.2% -9.2% -9.3% Operating profit (EBIT) margin % 19.3% 20.9% 20.2% EBITDA margin % 22.0% 23.8% 22.8% NPAT margin % 16.4% 18.7% 18.3% Effective tax rate % 15.6% 9.5% 8.0% Source: VCSC See important disclosure at the end of this document VCSC<GO> Viet Capital Securities 5

6 Partnership with Taisho boosts DHG s long-term growth prospects As we discussed in our previous update on April 5, 2016, based on its existing product portfolio, we are not bullish on DHG s mid and long-term outlooks given the level of competition in the OTC market. DHG s counter strategies, including pushing vitamin supplements and exports, do not excite us, as those markets are just as competitive, while DHG does not have clear competitive edges in terms of products. In July 2016, Taisho, one of the leading pharma companies in Japan, announced its acquisition of a 24.5% stake in DHG, thereby becoming its strategic partner. The company s partnership with Taisho is very much needed and has come just in time to rejuvenate DHG s long-term growth prospects. While detailed guidance has not been provided, we believe that this partnership will bear fruit for DHG and so, we are more optimistic about the company now than before. As such, this prompts us to increase our DCF s terminal growth from 0% to 3% in this report, although we have not incorporated the potential outcomes from this partnership in our projections. Taisho Pharmaceutical, based in Tokyo, is among the leading pharmaceutical firms in Japan, specializing in non-prescription products and possessing recognizable brands. In Southeast Asia, Lipovitan-D (vitamin-based energy drink) is Taisho's most well-known brand. In FY15, its holding company posted USD2.7 billion in revenue and USD210 million in NPAT. In-house production of Taisho s or co-developed products will be most promising to DHG because of their high margins. According to DHG, it is planning to establish a joint venture with Taisho for in-house manufacturing. At the moment, details regarding which products will be in the pipeline have not been provided. However, we believe that DHG will look for products that are complementary to its existing product portfolio. For example, looking through Taisho s key product line-up, injectable antibiotics (Zosyn brand) stood out to us as a good candidate. To our knowledge, DHG has been interested in producing injectable antibiotics for a long time, but has not been able to do so owing to its limited know-how of a product that requires a high level of expertise. Distribution of Taisho s products in Vietnam is another source of growth, although profit contributions are likely to be insignificant. DHG revealed that in the early stage of this partnership, DHG may be distributing Taisho s products through its distribution channel. Nonetheless, profit contributions should be small since DHG s trading segment typically yields 5%- 7% GPM only. We are conservative about DHG s exports through Taisho s overseas subsidiaries. DHG told us that the company is working with Taisho to export its products through Taisho s subsidiaries in Malaysia and Indonesia. Nevertheless, the struggles that local companies, including DHG, have experienced when going against Indian and Chinese products in the hospital channel in Vietnam do not give us confidence that DHG will succeed with exports. See important disclosure at the end of this document VCSC<GO> Viet Capital Securities 6

7 Figure 4: Taisho's FY15A revenue breakdown (%) 38% ZOSYN (25% of this group), other antibiotics, osteoporosis... 52% Lipovitan, cold remedies, hair growth, gastrointestinal... 10% OTC Overseas OTC Prescription Source: Company s data FOL removal: it will be challenging for DHG to follow DMC s footprint DMC, one of the largest pharma stocks in Vietnam, successfully lifted its FOL to 100% in early September, enabled by the removal of the third-party products trading business line from its business charter. DMC was willing to forfeit this business line because it is a minimal source of its revenue, partly due to its limited distribution reach compared to DHG or TRA. On the other hand, DHG, which possesses the most extensive distribution channel, has been a distribution partner of large foreign pharmaceutical companies, such as Merck and Co. and Mega Lifesciences. In fact, the trading segment occupied 18% of DHG s revenue in H This, coupled with DHG s potential distribution of Taisho s products in Vietnam in the future, means it will be a much bigger sacrifice for DHG if it wants to follow DMC s path. Having said that, management has expressed clear interest in removing the company s FOL, and thus, we will watch closely any new developments. See important disclosure at the end of this document VCSC<GO> Viet Capital Securities 7

8 Valuation We adopt a combination of DCF (80% weighting) and PER multiple (20% weighting) to derive a target price of VND 99,800 for DHG. Despite keeping our FY16F NPAT intact, our DCF-derived TP is revised up by 37.3% thanks to: 1/ Our upward revision in terminal growth rate from 0% to 3%. This is to capture the additional growth potential from DHG s partnership with Taisho while we have not incorporated it into our P&L projections amid a lack of detailed guidance from management, 2/ A downward revision in the risk-free rate from 6.5% to 5.5% in accordance with the prevailing bond yield, 3/ A 50 bps reduction in our equity risk premium, and 4/ The rollover of the DCF period. At the same time, our PER-derived TP is also revised up by 38.2% on the back of higher TTM EPS and target TTM PER of 16.9x (vs previous report of 14.3x) derived from a regional peer median. Overall, our blended TP is revised up by 37% to VND99,800/share. Figure 5: Valuation summary Method Fair value Weighting Contribution (VND/sh) DCF 96,932 80% 77,545 TTM 16.7x 111,202 20% 22,240 Target Price 99,800 P/E (ttm) at TP 15.2x FY16 P/E at TP 14.5x FY17 P/E at TP 13.1x Source: VCSC Figure 6: DCF valuation Cost of Capital Previous Report Revised FCFF (Five Year) Beta PV of Free Cash Flows 2,279 Market Risk Premium % PV of Terminal Val (3% g) 5,515 Risk Free Rate % PV of FCF and TV 7,793 Cost of Equity % Cash & ST investments 1,107 Cost of Debt % Debt -387 Debt % Minority Interest -87 Equity % Equity Value 8,427 Corporate Tax Rate % Shares (mn) 87.1 WACC % Price per share, VND 96,932 Source: VCSC Figure 7: Cash flows Discounted Cash Flows FY16 FY17 FY18 FY19 FY20 EBIT(1-tax) Depreciation Capex Working cap increase Free Cash Flow Present Value of FCF Total PV of FCF ,430 1,878 2,279 Source: VCSC See important disclosure at the end of this document VCSC<GO> Viet Capital Securities 8

9 Figure 8: Peer comparables (USD mn) Company Peer Multiples YTD, leading Vietnamese pharma stocks (DHG, TRA, IMP, DMC) have rallied by 61%-209%, reaching an average TTM PER of 21.9x, much higher than that of regional peers. In our opinion, this rally has not been supported by fundamental progress, but rather by upbeat investor sentiment on 1/ hopes toward FOL removal in these pharma companies, which has been proven possible by the successful lifting of FOL at DMC in early September 2016 and 2/ anticipation of potential M&A deals, such as that between Taisho and DHG or Abbott and DMC, in which shares are typically transacted at a high premium, as shown in the case of Taisho and DHG. Country Mkt cap TTM Net Sales Y-o-Y % TTM NPAT Y-o-Y % Debt/ Equity Hainan Haiyao China 2, Kunming Pharmaceutical China 1, Wockhardt Ltd India 1, (0.4) 49.8 (19.6) Shandong Luoxin Pharmacy-H China Jinhe Biotechnology China 1, Ipca Laboratories Ltd India 1, (8.2) 14.3 (63.3) Zhejiang Wolwo Bio- Pharmac-A China Tempo Scan Pacific Indonesia (10.1) Kimia Farma Persero Indonesia 1, (2.8) Consun Pharmaceutical Group China Fdc Ltd India Mega Lifesciences Pcl Thailand Granules India Ltd India NA Indoco Remedies Ltd India Novartis India Ltd India J.B. Chemicals & Pharma India Unichem Laboratories India Marksans Pharma India (28.2) Merck Tbk Pt Indonesia (5.6) Bliss Gvs Pharma India Merck Ltd India Average Median Hau Giang Pharma Vietnam Source: Bloomberg & VCSC ROE TTM P/E Adj. TTM P/E LQ P/B See important disclosure at the end of this document VCSC<GO> Viet Capital Securities 9

10 Recommendation History Figure 10: Historical VCSC target price vs share price (adjusted for splits and stock dividends). 130,000 BUY 118, , , ,000 O-PF 97,000 M-PF 99,800 90,000 80,000 70,000 60,000 50,000 O-PF 82,000 M-PF 68,900 O-PF 71,500 M-PF 73,500 40,000 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Actual Price Target Price Source: Bloomberg & VCSC See important disclosure at the end of this document VCSC<GO> Viet Capital Securities 10

11 Financial Statements INCOME STATEMENT (VND bn) 2015A 2016F 2017F BALANCE SHEET (VND bn) 2015A 2016F 2017F Revenue 3,609 3,635 4,091 Cash & cash equivalents COGS -2,195-1,942-2,196 Short term investment Gross Profit 1,414 1,694 1,896 Accounts receivables Sales & Marketing exp, Inventories General & Admin exp, Other current assets Operating Profit (EBIT) Total Current assets 2,218 2,432 2,794 Financial income Fix assets, gross 1,533 1,716 1,898 Financial expenses Depreciation In which, interest expense Fix assets, net 1,080 1,156 1,232 Share profit/loss from associates LT investment Net other income/(loss) LT assets other Profit before Tax Total LT assets 1,142 1,218 1,295 Income Tax Total Assets 3,360 3,650 4,089 NPAT before MI Minority Interest Accounts payable NPAT less MI, reported Short-term debt NPAT less MI, adjusted Other ST liabilities EBITDA Total current liabilities EPS basic reported, VND 5,976 6,880 7,595 Long term debt EPS basic adjusted, VND 5,976 6,880 7,595 Other LT liabilities EPS fully diluted, VND 5,976 6,880 7,595 Total Liabilities RATIOS 2015A 2016F 2017F Preferred Equity Growth Paid in capital/issued capital Revenue growth -7.8% 0.7% 12.5% Add l share capital/share premium Operating profit (EBIT) growth % -3.1% 9.0% 9.0% Retained earnings ,240 PBT growth % -2.5% 7.4% 8.6% Other equity 1,040 1,040 1,040 EPS growth %, adjusted 10.7% 15.1% 10.4% Minority interest Total equity 2,523 2,812 3,163 Profitability Liabilities & equity 3,360 3,650 4,089 Gross Profit Margin % 39.2% 46.6% 46.3% Operating Profit, (EBIT) Margin % 19.3% 20.9% 20.2% CASH FLOW (VND bn) EBITDA Margin % 22.0% 23.8% 22.8% Beginning Cash Balance NPAT less MI Margin, adj, % 16.4% 18.7% 18.3% Net Income ROE % 24.7% 25.6% 25.3% Dep, & amortization ROA % 17.4% 19.5% 19.5% Change in Working Capital Other adjustments Efficiency Cash from Operations Days Inventory On Hand Days Accts, Receivable Capital Expenditures, net Days Accts, Payable Investments, net Cash Conversion Days Cash from Investments Liquidity Dividends Paid Current Ratio x in Share Capital Quick Ratio x in LT debt Cash Ratio x in ST debt Debt / Assets % 8.1% 7.4% 7.2% Other financing cash flows Debt / Capital % 9.7% 8.8% 8.5% Cash from Financing Net Debt / Equity % 10.7% 9.6% 9.3% Interest Coverage Net Change in Cash Ending Cash Balance See important disclosure at the end of this document VCSC<GO> Viet Capital Securities 11

12 VCSC Rating and Valuation Methodology Absolute, long term (fundamental) rating: The recommendation is based on implied total return for the stock defined as (target price current price)/current price + dividend yield, and is not related to market performance, RATING DEFINITION BUY Total stock return including dividends over next 12 months expected to exceed 20% OUTPERFORM (O-PF) MARKET PERFORM (M-PF) UNDERPERFORM (U-PF) SELL NOT RATED RATING SUSPENDED Total stock return including dividends over next 12 months expected to be positive 10%-20% Total stock return including dividends over next 12 months expected to be between negative 10% and positive 10% Total stock return including dividends over next 12 months expected to be negative 10%-20% Total stock return including dividends over next 12 months expected to be below negative 20% The company is or may be covered by the Research Department but no rating or target price is assigned either voluntarily or to comply with applicable regulation and/or firm policies in certain circumstances, including when VCSC is acting in an advisory capacity in a merger or strategic transaction involving the company, A rating that happens when fundamental information is insufficient to determine an investment rating or target, The previous investment rating and target price, if any, are no longer in effect for this stock, Unless otherwise specified, these performance parameters only reflect capital appreciation and are set with a 12-month horizon, Future price volatility may cause temporary mismatch between upside/downside for a stock based on market price and the formal recommendation, thus these performance parameters should be interpreted flexibly, Risks: Past performance is not necessarily indicative of future results, Foreign currency rates of exchange may adversely affect the value, price or income of any security or related instrument mentioned in this report, For investment advice, trade execution or other enquiries, clients should contact their local sales representative. See important disclosure at the end of this document VCSC<GO> Viet Capital Securities 12

13 Disclaimer Analyst Certification of Independence I, Dao Nguyen, hereby certify that the views expressed in this report accurately reflect my personal views about the subject securities or issuers, I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report, The equity research analysts responsible for the preparation of this report receive compensation based upon various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues, which include revenues from, among other business units, Institutional Equities and Investment Banking, VCSC and its officers, directors and employees may have positions in any securities mentioned in this document (or in any related investment) and may from time to time add to or dispose of any such securities (or investment),vcsc may have, within the last three years, served as manager or co-manager of a public offering of securities for, or currently may make a primary market in issues of, any or all of the entities mentioned in this report or may be providing, or have provided within the previous 12 months, significant advice or investment services in relation to the investment concerned or a related investment, Copyright 2013 Viet Capital Securities Company VCSC, All rights reserved, This report has been prepared on the basis of information believed to be reliable at the time of publication, VCSC makes no representation or warranty regarding the completeness and accuracy of such information, Opinions, estimates and projection expressed in this report represent the current views of the author at the date of publication only, They do not necessarily reflect the opinions of VCSC and are subject to change without notice, This report is provided, for information purposes only, to institutional investors and retail clients of VCSC in Vietnam and overseas in accordance to relevant laws and regulations explicit to the country where this report is distributed, and does not constitute an offer or solicitation to buy or sell any securities discussed herein in any jurisdiction, Investors must make their investment decisions based upon independent advice subject to their particular financial situation and investment objectives, This report may not be copied, reproduced, published or redistributed by any person for any purpose without the written permission of an authorized representative of VCSC, Please cite sources when quoting, U,K, and European Economic Area (EEA): Unless specified to the contrary, issued and approved for distribution in the U,K, and the EEA by VCSC issued by VCSC has been prepared in accordance with VCSC s policies for managing conflicts of interest arising as a result of publication and distribution of investment research, Many European regulators require a firm to establish, implement and maintain such a policy, This report has been issued in the U,K, only to persons of a kind described in Article 19 (5), 38, 47 and 49 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (all such persons being referred to as "relevant persons"), This document must not be acted on or relied on by persons who are not relevant persons, Any investment or investment activity to which this document relates is only available to relevant persons and will be engaged in only with relevant persons, In other EEA countries, the report has been issued to persons regarded as professional investors (or equivalent) in their home jurisdiction, Australia: This material is issued and distributed by VCSC in Australia to "wholesale clients" only, VCSC does not issue or distribute this material to "retail clients", The recipient of this material must not distribute it to any third party or outside Australia without the prior written consent of VCSC, For the purposes of this paragraph the terms "wholesale client" and "retail client" have the meanings given to them in section 761G of the Corporations Act 2001, Hong Kong: The 1% ownership disclosure as of the previous month end satisfies the requirements under Paragraph 16,5(a) of the Hong Kong Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission, (For research published within the first ten days of the month, the disclosure may be based on the month end data from two months prior,) Japan: There is a risk that a loss may occur due to a change in the price of the shares in the case of share trading, and that a loss may occur due to the exchange rate in the case of foreign share trading, In the case of share trading, VCSC will be receiving a brokerage fee and consumption tax (shouhizei) calculated by multiplying the executed price by the commission rate which was individually agreed between VCSC and the customer in advance, Korea: This report may have been edited or contributed to from time to time by affiliates of VCSC, Singapore: VCSC and/or its affiliates may have a holding in any of the securities discussed in this report; for securities where the holding is 1% or greater, the specific holding is disclosed in the Important Disclosures section above, India: For private circulation only, not for sale, Pakistan: For private circulation only, not for sale, New Zealand: This material is issued and distributed by VCSC in New Zealand only to persons whose principal business is the investment of money or who, in the course of and for the purposes of their business, habitually invest money, VCSC does not issue or distribute this material to members of "the public" as determined in accordance with section 3 of the Securities Act 1978, The recipient of this material must not distribute it to any third party or outside New Zealand without the prior written consent of VCSC, Canada: The information contained herein is not, and under no circumstances is to be construed as, a prospectus, an advertisement, a public offering, an offer to sell securities described herein, or solicitation of an offer to buy securities described herein, in Canada or any province or territory thereof, Any offer or sale of the securities described herein in Canada will be made only under an exemption from the requirements to file a prospectus with the relevant Canadian securities regulators and only by a dealer properly registered under applicable securities laws or, alternatively, pursuant to an exemption from the dealer registration requirement in the relevant province or territory of Canada in which such offer or sale is made, The information contained herein is under no circumstances to be construed as investment advice in any province or territory of Canada and is not tailored to the needs of the recipient, To the extent that the information contained herein references securities of an issuer incorporated, formed or created under the laws of Canada or a province or territory of Canada, any trades in such securities must be conducted through a dealer registered in Canada, No securities commission or similar regulatory authority in Canada has reviewed or in any way passed judgment upon these materials, the information contained herein or the merits of the securities described herein, and any representation to the contrary is an offence, Dubai: This report has been issued to persons regarded as professional clients as defined under the DFSA rules, United States: This research report prepared by VCSC is distributed in the United States to Major US Institutional Investors (as defined in Rule 15a-6 under the Securities Exchange Act of 1934, as amended) only by Decker&Co, LLC, a broker-dealer registered in the US (registered under Section 15 of Securities Exchange Act of 1934, as amended), All responsibility for the distribution of this report by Decker&Co, LLC in the US shall be borne by Decker&Co, LLC, All resulting transactions by a US person or entity should be effected through a registered broker-dealer in the US, This report is not directed at you if VCSC Broker or Decker&Co, LLC is prohibited or restricted by any legislation or regulation in any jurisdiction from making it available to you, You should satisfy yourself before reading it that Decker&Co, LLC and VCSC is permitted to provide research material concerning investment to you under relevant legislation and regulations, See important disclosure at the end of this document VCSC<GO> Viet Capital Securities 13

14 Contacts Corporate Head Office Bitexco Financial Tower, 2 Hai Trieu Street District 1, HCMC Hanoi Branch 109 Tran Hung Dao Hoan Kiem District, Hanoi Transaction Office Transaction Office 10 Nguyen Hue Street Nguyen Cong Tru Street District 1, HCMC District 1, HCMC Research Research Team Barry Weisblatt, Head of Research ext barry.weisblatt@vcsc.com.vn research@vcsc.com.vn Long Ngo, Senior Manager ext 145 Anirban Lahiri, Senior Manager ext 130 Banks, Securities, Insurance Logistics, Agriculture and Industrial - Hoa Trinh, Senior Analyst ext Hai Hoang, Analyst ext Thuy Le, Analyst ext Nga Nguyen, Analyst ext 199 Construction Materials Duong Dinh, Manager ext Dung Ly, Analyst ext 149 Oil & Gas, Power and Fertilizer Macro - Tram Ngo, Analyst ext Hien Nguyen, Analyst ext 132 Hong Luu, Manager ext 120 Phap Dang, Manager ext 143 Real Estate and Construction Consumer Goods, Autos and Tires Anh Nguyen, Analyst ext Dao Nguyen, Senior Analyst ext Nghia Le, Analyst ext 181 Duc Vu, Manager ext 363 Retail Client Research - Vy Nguyen, Analyst ext Thanh Nguyen, Analyst ext Ninh Chu, Analyst ext 196 Institutional Sales and Brokerage & Foreign Individuals Head of Institutional Sales Vietnamese Sales Michel Tosto, M. Sc. Dung Nguyen ext ext 136 michel.tosto@vcsc.com.vn dung.nguyen@vcsc.com.vn Retail & Corporate Brokerage Ho Chi Minh City Hanoi Quynh Chau Quang Nguyen ext ext 312 quynh.chau@vcsc.com.vn quang.nguyen@vcsc.com.vn See important disclosure at the end of this document VCSC<GO> Viet Capital Securities 14