MASAN GROUP QUARTERLY EARNINGS UPDATE 1Q12 TICKER: MSN (HOSE) Date: 12 June 2012

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1 Date: 12 June 2012 MASAN GROUP TICKER: MSN (HOSE) We have a HOLD investment view over MSN. We estimate the fair value of a MSN stock is around VND 95,373/share or 4.14% downside from market price of VND 99,500/share on 8 June In Masan Group has succeeded in raising funds recently. However, in our opinion, this also creates a pressure to speed up its projects and potential M&A deals. Nuiphaovica only can generate sales and income since Therefore, currently, sales are mainly from Masan Food and Vinacafe Bien Hoa. Profits are from these two companies and Techcombank. It is also the case for both 2012 and 2013 if the Group has no new M&A deals. These companies are already leading ones in terms of market shares in relevant markets. Therefore, in our opinion, momentum for strong growth of Masan Group in future is dependent much upon upcoming M&A deals. In 2012, we estimate that sales will increase by 19.9% to VND 8,683 billion mainly thanks to the increase of Masan Consumer when Nuiphaovica will not generate income until Gross margin is expected to decline slightly to 42.6% in 2012 from 43.3% in We estimate that net income will decline by 4.3% to VND 2,390 billion as we expect a significant reduction of financial income in 2012 in the context of lower cash balance and decreasing deposit interest rate. Although in 1Q12 financial income is much higher than that of 1Q11, we expect the cash balance will decline rapidly in the remaining time of 2012 when the Group speeds up construction of new factories for VCF and Masan Food as well as Nuiphaovica project. Furthermore, deposit rate has been declining quickly. Based on the dilution estimate from MSN s swap and convertible bonds issuances, we estimate 2012 basic EPS will be VND 2,756, down 5.3% YoY. This report updates 1Q12 financial performance of MSN with key points as follows: Target Price: Recommendation: Previous Rating: Key figures 52-week/12-week price: 95,373 VND HOLD SELL Shares Outstanding 515,272,269 Market Cap (VND bn) 51,270 Average 6-month volume 76,316 Foreign ownership 22.23% State ownership 0% Management ownership 67.97% Estimate Bn VND 2011A 2012E Revenue 7,057 8,683 Earnings 2,496 2,390 EPS (VND) 2,909 2,756 Total Equity 15,876 n.a Total Assets 33,573 n.a Dividend (VND) 0 0 PE 31.11x 36.10x PB 2.94x n.a ROE 18.8% n.a ROA 9.1% n.a If we take out the billion sales of VCF from MSN s 1Q12 sales, then the true comparable 1Q12 sales is ~1,146 billion VND, which is down % YoY. MSN s gross margin declined to 34.8% in 1Q12 from 44.6% in 4Q11 and 42.8% in 1Q11 because of the incorporation of VCF s products with lower gross margin (~24%) and the expansion of Masan Food to low gross margin products. Price & Volume 1Q12 s MSN net profit is VND 450 billion, up 15.7% YoY. If we exclude the net profit of VCF in 1Q12 net profit of Masan Food actually increased by 4.1% YoY only. Its net profit only accounts for 10.7% of 2012 minimum target net profit of VND 4,200 billion. It is hard for MSN to meet its aggressive 2012 target. Source: Reuters (bn VND) 1Q12 1Q11 YoY 4Q11 QoQ Accumulated % Plan completion Sales 1,538 1, % 2, % 12.8% Margin 1Q12 1Q11 4Q Gross profit % 1, % 12.1% 36.36% 42.77% 44.59% 43.35% EBIT % 1, % 43.35% 39.06% 48.22% 40.65% EBITDA % 1, % 43.35% 39.06% 48.22% 40.65% Pretax profit % 1, % 36.04% 32.72% 45.29% 40.65% Net income % 1, % 10.7% 29.27% 29.33% 40.34% 35.37% NI (to Parent's Shareholders) % % 22.76% 25.48% 31.83% 27.96% 1

2 1. COMMENTS ON EARNINGS RESULTS Net Sales In 1Q12, MSN s net sales increased by only 16.0% YoY to VND 1,538 billion. 1Q12 accounts for only 12.8% of the minimum 2012 target sales of VND 12,000 billion. More importantly, VCF s 1Q12 net sales were VND billion. Therefore, to make the comparison effective, if we take out the billion from MSN s 1Q12 sales, then the true comparable 1Q12 sales is ~1,146 billion VND, which is down -13.6% YoY. Net sales - 1Q12 (VND bn) Net sales - 1Q11 (VND bn) YoY growth rate (%) Masan Food VCF Masan Food VCF Masan Food VCF Masan Consumer 1, , Masan Consumer (Masan Masan Consumer (Masan Food only): 1,538 Food + Vinacafe): 1, % -7.1% 16.0% Source: MSN and VCF Quarterly Financial Statements Masan Food: The 13.6% decline in sales is believed to be due to low demand of the whole economy and the more competition from other rivals. We see that some large consumer staple companies like Micoem (with the product named Mr. Western) and Miwon (with the product named Miwon Hai Ngu) have recently entered industrial fish sources market. They use the same way as Masan Consumer including plastic bottle and industrial production. They are very active in marketing and distribution. We also see that their products are penetrating markets in both large cities and countryside areas. So far, we only see that soya sauce and chili sauce businesses of Masan Food are still highly potential and dominate the Vietnamese market. Instant noodle business also faces tough competition as well. Vinacafe Bien Hoa: Low demand also affects negatively VCF s sales. VCF s net sales decreased by 7.1% YoY to VND 392 billion due to sales volume declining by 6.8% YoY.1Q12 s sales only accounts for 13.1% of target sales of VND 3,000 billion. In 1Q12, VCF and Masan Consumer were restructuring distribution network which may have an effect on VCF s sales in 1Q12. We see that in 1Q12, VCF employed a new market campaign including advertisements on Televisions. But in my opinion, this advertisement is not quite interesting. Investors should keep watching VCF s sales in the next quarters to see how beneficial the marketing and distribution support from Masan Consumer is. In our view, VCF and Masan may not face favorable conditions when they try to push sales in the context of low demand. Gross margin MSN s gross margin declined to 34.8% in 1Q12 from 44.6% in 4Q11 and 42.8% in 1Q11 because of two key reasons as follow: Vinacafe Bien Hoa: The incorporation of VCF s gross margins (24.1% in 1Q12). Actually, VCF s gross margin remained unchanged QoQ. We see that in 1Q12 the Company accumulated much more raw materials and the balance of raw materials as at 31 March 2012 was VND 253 billion (Average balance in 2011: VND 183 billion). We highly appreciate that move when local coffee beans price has been in an uptrend recently. It is expected to stabilize VCF s gross margin in the next quarters regardless of increasing local coffee bean price. Masan Food: While VCF s sales are about 25.5% of MSN s sales in 1Q12, a rough calculation gives us the result that gross margin fell to 40.6% for Masan Food in 1Q12. We do not have detailed information on gross margins of different kinds of products of Masan Food in 1Q12. In our opinion, Masan Food is currently expanding to new products with lower margins for low income earners such as Kokomi instant noodle and Nam Ngu Supereconomic fish sauce. Masan Consumer usually started a product with high gross margin type but recently, they expand to lower gross margin product. For example, for instant noodle product, Masan Consumer starts with Omachi, a high-end product with high gross margin. After that they introduce Tien Vua for middle income earners and then Kokomi for low income earners. In early 2012, we see that Masan Consumer introduced a new kind of fish sauce with very cheap price. 2

3 Quarterly Profit and Loss of MSN Unit: VND million 1Q11 2Q11 3Q11 4Q11 1Q12 Sales 1,338,940 1,539,315 1,454,632 2,906,116 1,605,084 YoY growth (%) 49.3% 25.6% 2.7% 35.1% 19.9% QoQ growth (%) -37.7% 15.0% -5.5% 99.8% -44.8% Deductions (13,018) (26,611) (47,269) (95,257) (67,531) Net sales 1,325,922 1,512,704 1,407,363 2,810,859 1,537,553 YoY growth (%) 53.8% 24.3% 0.2% 33.8% 16.0% QoQ growth (%) -36.9% 14.1% -7.0% 99.7% -45.3% Cost of goods sold (758,816) (899,594) (784,106) (1,557,412) (978,495) Gross profit 567, , ,257 1,253, ,058 Gross margin (%) 42.8% 40.5% 44.3% 44.6% 36.4% Financial income 186, , , , ,606 Financial expense (139,299) (55,465) (118,498) (34,996) (117,290) in which: Interest expense (83,947) (75,741) (79,131) (82,430) (112,428) Net financial income 47, , , , ,316 Selling expense (176,128) (208,762) (232,243) (391,464) (224,387) YoY growth (%) -5.9% 11.6% 3.4% 10.9% 27.4% QoQ growth (%) -50.1% 18.5% 11.2% 68.6% -42.7% % of net sales 13.3% 13.8% 16.5% 13.9% 14.6% Administrative expense (43,056) (98,443) (81,109) (165,935) (112,791) YoY growth (%) 81.8% 186.6% 109.7% 31.2% 162.0% QoQ growth (%) -66.0% 128.6% -17.6% 104.6% -32.0% % of net sales 3.2% 6.5% 5.8% 5.9% 7.3% Operating profit 395, , , , ,196 Operating margin (%) 29.8% 35.3% 42.0% 34.6% 30.3% Other income 7,187 (22) 7,935 7,003 4,769 Other expense (6,586) (1,536) (12,345) (5,798) (8,774) Net other income 601 (1,558) (4,410) 1,205 (4,005) Income from associates/jvs 37,782 5,451 46, ,064 91,951 Profit before tax 433, , ,586 1,273, ,142 YoY growth (%) 208.6% 58.6% 69.7% -44.2% 27.7% QoQ growth (%) -81.0% 23.8% 17.9% 100.9% -56.5% PBT margin (%) 32.7% 35.5% 45.0% 45.3% 36.0% Current CIT (45,039) (99,831) (107,191) (25,038) (75,267) Deferred CIT - (2,445) 21,195 (114,201) (28,859) Corporate Income Tax (45,039) (102,276) (85,996) (139,239) (104,126) % Effective CIT rate 10.4% 19.0% 13.6% 10.9% 18.8% Net income 388, , ,590 1,133, ,016 YoY growth (%) 212.6% 35.6% 69.3% -49.1% 15.7% QoQ growth (%) -82.5% 11.9% 25.9% 107.1% -60.3% Net margin (%) 29.3% 28.8% 38.9% 40.3% 29.3% Net income/(loss) attributable to NCI 51, , , , ,071 Net income attributable to Parent's Shareholders 337, , , , ,945 Basic EPS (VND) , Net profit Source: MSN s Quarterly Financial Statements Techcombank: According to 2012 plan, the Bank targets its PBT will increase by 25.6% YoY to VND 5,300 billion. Its credit growth is set at 17% in As of 30 April 2012, Techcombank s PBT is VND 938 billion, accounting for only 17.7% of its target PBT. In the first four months, TCB s loans to customers increased by 1.05% to VND 63,222 billion and its deposits from customers increased by 13.27% to VND 100,413 billion. Although TCB seems not to meet its aggressive profit target for year 2012, its credit and deposit growth rates are quite good in the context of Vietnam s banking system in early Credit growth of the whole system to April 2012 is negative 0.66% and deposit growth is only 3.39%. 3

4 Techcombank (Unit: VND bn) 2009A 2010A 2011A 2012 Plan Total assets 92, , , ,421 YoY growth (%) 62.3% 20.1% 23.8% Total equity 7,324 9,389 12,516 YoY growth (%) 28.2% 33.3% Total deposits 72, , ,781 YoY growth (%) 49.0% 26.3% Total loans 42,093 52,928 63,461 YoY growth (%) 25.7% 19.9% 17.0% Operating income 3,918 4,719 6,662 YoY growth (%) 20.4% 41.2% PBT 2,253 2,744 4,221 5,300 YoY growth (%) 21.8% 53.8% 25.6% ROA 2.24% 1.86% 1.83% 1.92% ROE 26.86% 24.80% 28.87% 27.33% CIR 30.21% 33.65% 31.52% CAR 9.60% 13.11% 11.43% 11.35% Number of full-time employees 5,029 7,481 8,335 Number of individual customers 1,211,200 1,767,642 2,328,549 Number of corporate customers 28,000 45,252 66,125 Number of branches* Number of ATMs 565 1,001 1,205 NPL 2.49% 2.29% 2.82% 2.66% Source: Techcombank MSN: 1Q12 s MSN net profit is VND 450 billion, up 15.7% YoY. If we exclude the net profit of VCF in 1Q12 net profit of Masan Food actually increased only by 4.1% YoY. Its net profit only accounts for 10.7% of 2012 minimum target net profit of VND 4,200 billion. It is hard for MSN to meet its aggressive 2012 target. Although gross profit declined YoY, net profit still increased in 1Q12 mainly thanks to financial net income (VND 244 billion), 5 times that of 1Q11. However, continuously large financial income is not expected in upcoming time when the deposit interest rate is in a downtrend at the present. Furthermore, based on MSN s CAPEX plan, the Group will spend around VND 6,350 billion in 2012 in order to finance new factories of VCF (VND 570 billion) and of Masan Consumer (VND 950 billion) and to finance Nuiphaovica project (VND 4,830 billion). The total CAPEX for 2012 accounts for ~59% of cash and cash equivalents as of 31 Dec As at 31 March 2012, the Group has cash and cash equivalents balance of VND 15,023 billion. If we take out funds for CAPEX in 2012 and funds to repay short-term debts, the remaining cash and cash equivalents for M&A deals is VND 7,057 billion (in case all convertible bonds are converted to equity). 2. COMMENTS ON CHANGES ON BALANCE SHEET & CASHFLOW As at 31 March 2012, the total assets of MSN were VND 39,337 billion, increasing by 19% YTD, in which: Cash and short-term investments account for 34% (VND 13,467 bn) Long term investments account for 4% As at 31 March 2012, MSN had debts of VND 14,680 billion, accounting for 37.3%. 89% is long-term debt. Equity is VND 16,227 bn. Debt/Equity ratio is quite high, at 90%. In 1Q12, the Group raised USD 235 million (~VND 4,700 billion) in debts from some investors including Kairos (a subsidiary of The Richard Chandler) and Standard Chartered Bank. 3. KEY RECENT CORPORATE EVENTS/DEVELOPMENTS & THEIR IMPACTS Issuance plan of maximum 310 million shares: In late May 2012, the Group decided to issue 310 million shares at the maximum in 2012 or the first four months of million shares will be issued in order to settle its current debts and 100 million shares will be issued for cash in order to finance working capital and potential M&A deals. Currently, the number of MSN shares is about 515 million shares. If 310 million shares are issued, it will create a significant dilution for this stock. Based on swap and convertible bonds issuance in the past, if these rights are exercised in the first year, we estimate that from 2012 to 2016 the Group has to 4

5 issue more around 300 million shares. In 2012, we estimate around new 115 million shares may be issued, of which ~ 31 million shares issued to TPG the first MSN s CBs holders that has CBs to be converted. In principle, these CBs are allowed to be issued since 1 April 2011; however, they have not yet been issued. Please note that the deadline for conversion is 10 November Raise USD 235 million of debt/cb in 1Q12: In 1Q12, the Group raised USD 235 million (~VND 4,700 billion) in debts from some investors including Kairos and Standard Chartered Bank. USD 155 million is convertible bonds in 4 years with conversion price of VND 85,000/share. USD 80 million is a loan from Standard Chartered Bank to finance Nuiphaovica project. Accordingly, the cash balance of the Group increased significantly from VND 10,796 billion as at 31 Dec 2011 to VND 15,023 billion as at 31 March However, we do not expect this balance to last long because the Group will spend a lot to finance its subsidiaries capex. Long-term debt also increased by VND 5,653 billion to March Long-term debt is forecast to decline when the Group tends to issue shares to settle debts. 4. VALUATION SUMMARY We used Sum of the Parts method to evaluate the fair value of Masan Group. We made separate valuations of MSN s interest in Masan Consumer (including Masan Food and Vinacafe Bien Hoa), in Masan Resources and in Techcombank, using conservative approach and based on as-is businesses. When any M&A deals are officially announced, we will revise our estimate of earnings as well as fair value. No. Company Fair value (VND bn) Fair price (VND/share) MSN's ownership MSN's stake (VND bn) Source: SSI Research Masan Consumer: We used the combination of DCF method and Relative Valuation method (PE and PB) to evaluate of Masan Consumer, using free cash flows from VCF and Masan Food businesses. Masan Resources: We used NPV method to calculate the fair value of Nuiphaovica project. On the basis of proven reserve of Nui Phao project including tungsten, fluorspar, bismuth, copper and gold that are announced in MSN s 2011 annual report and forecast prices of these products, we calculate the NPV of around USD 815 million or VND 17,079 billion. Techcombank: We used the combination of Relative method (PB, PE) and Excess Return Model to evaluate the Bank. 1 Masan Consumer 43, , % 33,220 2 Masan Resources 17,079 N.a 65.0% 11,101 3 Techcombank 15,752 17, % 4,822 In summary, we estimate the fair value of a MSN stock is around VND 95,373/share at the present. In 2012, we estimate that sales will increase by 19.9% to VND 8,683 billion mainly thanks to the increase of Masan Consumer when Nuiphaovica will not generate income until Gross margin is expected to decline a little to 42.6% in 2012 from 43.3% in We estimate that net income will decline by 4.3% to VND 2,390 billion because we expect a significant reduction of financial income in 2012 in the context of lower cash balance and decreasing deposit interest rate. Although in 1Q12 financial income is much higher than that of 1Q11, we expect the cash balance will decline rapidly in the remaining time of 2012 when the Group speeds up construction of new factories for VCF and Masan Food as well as Nuiphaovica project. Furthermore, deposit rate has been declining quickly. Based on the dilution effect of MSN s swap and convertible bonds issuances, we estimate 2012 basic EPS will be VND 2,756, down 5.3% YoY. This EPS is estimated on the assumption that all CBs will be converted in the first year and CBs of TPG will be converted in ,

6 5. INVESTMENT VIEW At the market price of VND 99,500/share on 8 June 2012, we have a HOLD investment view over MSN. There are some investment rationales as follows: Masan Group has a controlling interest in leading private companies in Vietnam in consumer staple, banking and mining sectors. o Masan Food s market share (Source: Euromonitor) Sauces: 38.9% Fish sauce: 41.7% Soya sauce: 60.2% Chili sauce: 34.1% Instant noodle: ~10% - 12% in 2011 o VCF s market share in instant coffee market: 32.7% in 2010 (Nescafe: 30.3%; Trung Nguyen: 18.2%) (Source: Euromonitor) o Techcombank: one of top 10 commercial banks in Vietnam. The Group has an appropriate and aggressive development strategy, especially marketing and distribution strategies. It has a strong management. It has a wide distribution network with 163,594 retail outlets as at 31 Dec 2011 (2010: 141,470 outlets). It has well-recognized brand-names in the Vietnamese food and beverage market, including Chinsu, Omachi, Tien Vua, Tam Thai Tu, Vinacafe and Nam Ngu. However, we think that its valuation is quite high in comparison with other leading consumer staple companies. In terms of relative valuation, MSN s multiples are now quite high. At the price of VND 99,500/share on 8 June 2012, its 2011 PE is 34.2 times. It is BVPS as at 31 March 2012 is VND 31,493. Its current PB is 3.16x. At estimated 2012 EPS of VND 2,756, MSN is being traded at 2012 PE of 36.1x. This valuation is very high in the Vietnamese stock exchange. It has a significant dilution risk in the next few years. Currently, MSN s number of shares is ~ 515 million. It has a plan to issue ~310 million shares at the maximum. Masan Group has poor corporate governance in terms of information transparency. High cash and debt balances which make MSN have to speed up its M&A deals. In our opinion, Masan Group has succeeded in raising funds recently. However, it also creates a pressure to speed up its projects and potential M&A deals. Nuiphaovica only can generate sales and income since Therefore, currently, sales are mainly from Masan Food and Vinacafe Bien Hoa. Profits are from these two companies and Techcombank. It is also the case for both 2012 and 2013 if the Group has no new M&A deals. These companies are already leading companies with high market shares in relevant markets. Therefore, in our opinion, momentum for strong growth of Masan Group in future is dependent much upon M&A deals. Currently, rumors said that Masan Group is approaching some consumer companies. And in the past, the Group was quite aggressive in acquiring other companies. However, we keep our estimate and maintain HOLD investment view until there is an official announcement about M&A deals. 6

7 RATING Within 12-month horizon, SSIResearch rates stocks as either BUY, HOLD or SELL determined by the stock s expected return relative to the market required rate of return, which is 18% (*). A BUY rating is given when the security is expected to deliver absolute returns of 18% or greater. A SELL rating is given when the security is expected to deliver returns below or equal to negative 10%, while a HOLD rating implies returns between negative 10% and 18%. *The market required rate of return is calculated based on 1-year Vietnam government bond yield and market risk premium derived from using Relative Equity Market Standard Deviations method. Our rating bands are subject to changes at the time of any significant changes in the above two constituents. DISCLAIMER The information, statements, forecasts and projections contained herein, including any expression of opinion, are based upon sources believed to be reliable but their accuracy completeness or correctness are not guaranteed. Expressions of opinion herein were arrived at after due and careful consideration and they were based upon the best information then known to us, and in our opinion are fair and reasonable in the circumstances prevailing at the time. Expressions of opinion contained herein are subject to change without notice. This document is not, and should not be construed as, an offer or the solicitation of an offer to buy or sell any securities. SSI and other companies in the SSI and/or their officers, directors and employees may have positions and may affect transactions in securities of companies mentioned herein and may also perform or seek to perform investment banking services for these companies. This document is for private circulation only and is not for publication in the press or elsewhere. SSI accepts no liability whatsoever for any direct or consequential loss arising from any use of this document or its content. The use of any information, statements forecasts and projections contained herein shall be at the sole discretion and risk of the user. CONTACT INFORMATION Phuong Hoang Director, Institutional Research & Investment Advisory phuonghv@ssi.com.vn Giang Nguyen Project Manager giangntt@ssi.com.vn SAIGON SECURITIES HO CHI MINH CITY HA NOI INC. 72 Nguyen Hue Street, 1c Ngo Quyen Street Member of the Ho Chi District 1 Ha Noi City Minh Stock Exchange, Ho Chi Minh City Tel: (848) Regulated Tel: (848) Fax: (848) by the State Securities Fax: (848) Commission info@ssi.com.vn 7