IDICO INFRASTRUCTURE DEVELOPMENT INVESTMENT JSC (HTI: HOSE) BUY 1Y TP VND 20,500 Minh Dinh minhdd@ssi.com.vn +84 8 3824 2897 ext. 2148 Current price (VND) 16,000 Target price (12M) 20,500 Recommendation (12M) Short-term rating (<3M) Sector rating BUY BUY n/a Date of report 26 Feb 15 Key figures Market cap (USD mil) 18.7 Market cap (VND bn) 399.2 Outstanding shares (mil) 24.9 52-week high/low (VND 1,000) 17.0/8.0 Average 3M volume (share) 161,175 Average 3M value (USD mil) 0.1 Average 3M value (VND bn) 2.05 Foreign ownership (%) 6.6% State ownership (%) 37.5% Management ownership (%) 0.6% Stock performance Company Snapshot Source: Bloomberg HTI invests and manages 14 km of National Road 1A from An Suong to An Lac in Ho Chi Minh City under the BOT contract with the Ministry of Transportation. Total investment of the project reached VND 1,943 bn. The company is entitled to collect the toll until 2033. HTI is permitted to increase toll fee by roughly 55% from 1 Jan 2015. High earnings growth in 2015: We expect 2015 revenue to increase by 59.7% YoY, reaching VND 286.5 bn, and net income to advance by 48.7% YoY, reaching VND 54.4 bn. A combination of P/E and FCFF valuation yields a target price of VND 20,500/share. Attractive dividend of 11.3%. Background IDICO Infrastructure Development Investment JSC (HTI: HOSE) invests and manages 14 km of National Road 1A from An Suong to An Lac (ASAL project) in Ho Chi Minh City under the BOT contract with the Ministry of Transportation. Vietnam Urban and Industrial Zone Development Investment Corporation (IDICO), a 100% state-owned corporation, holds 37.5% stake in HTI. In addition, two others joint stock companies within the IDICO group, which are IDICO Petroleum Construction Investment JSC and IDICO Housing and Urban Development Investment JSC, each holds 10% stake in HTI. Total investment of the ASAL project reached VND 1,943 bn, and is divided into three phase: Phase 1: Investment reached VND 831 bn, and was completed in 2005, of which VND 555 bn was funded by debt. The company finished repaying all the debt in 2014. Costs of the project (depreciation and interest expense) will be recorded until Jan 2017. Phase 2: HTI built two overpasses at the intersection with Provincial Road No. 10 and No. 10B. Construction was completed in late 2013. Investment reached VND 705 bn, of which VND 631 bn was funded by debt. Costs will be recorded from Feb 2017 to 2033. (VND bn) 2012 2013 2014 2015F 2016F Net revenue 155 182 179 287 296 Gross profit 93 81 69 127 134 Operating profit 66 51 41 91 97 EBITDA 121 126 134 220 228 Pretax income 42 40 38 57 66 Net income 40 38 37 54 63 EPS (VND) 1,597 1,508 1,467 2,181 2,517 ROA 6.7% 4.5% 3.3% 4.5% 5.4% ROE 13.0% 12.0% 10.9% 15.2% 17.1% DPS (VND) 1,000 0 1,700 1,800 1,800 Dividend yield 13.0% 0.0% 14.7% 11.3% 11.3% Debt/Equity 1.11 1.86 2.32 2.20 1.77 BVPS (VND) 12,288 12,748 14,169 14,442 15,033 P/E 4.82 6.23 7.91 7.33 6.36 P/B 0.63 0.74 0.82 1.11 1.06 EV/EBITDA 4.39 6.45 8.09 5.42 5.24 www.ssi.com.vn Visit SSI Research on Bloomberg at SSIV<GO> 1
Phase 3: HTI built another overpass at the intersection with Huong Lo 2 Street. Construction has been mostly completed. Investment reached VND 407 bn, of which VND 320 bn was funded by debt. Cost will be recorded from 2015 to 2033. HTI is entitled to collect toll until 2033. In 2014, toll accounted for 96% of the company s revenue. The remaining 4% was contributed by construction business. HTI s revenue is recorded based on actual toll collected. From now until 2017, HTI will record costs of Phase 1 and Phase 3. From Feb 2017 until 2033, after Phase 1 has been fully depreciated, the company will record costs of Phase 2 and Phase 3. High earnings growth in 2015 thanks to toll increase Since HTI invested in Phase 2 and Phase 3, it was permitted to increase toll collections. On 23 Dec 2014, the People s Committee of Ho Chi Minh City approved the toll increase for HTI. The average increase rate is roughly 55%, effective from 1 Jan 2015, which will prompt revenue from toll to increase at a similar rate, not to mention the growth in traffic flow. Thanks to toll increase, we also expect HTI s net profit to advance by 48.7% YoY in 2015, which we will elaborate later in this report. In the future, HTI will be permitted to increase toll every five years. Consequently, the next toll increase will occur in 2020; however, the increase rate may be lower than the 2015 increase. Earnings model We expect 2015 revenue to increase by 59.7% YoY, reaching VND 286.5 bn, and net income to advance by 48.7% YoY, reaching VND 54.4 bn, based on the following factors: Toll will increase by 55% YoY and traffic flow will increase by 2% YoY. Interest expense will increase from VND 3 bn to VND 34.3 bn as interest expense from Phase 3 (debt: VND 320 bn) is recorded. In 2016, we expect a 3% YoY increase in traffic flow and a slight decrease in interest expense as the company has repaid approximately 8% of its debt for Phase 3. In 2017, gross profit margin may advance to 64.8% from 45.4% in 2016 because Phase 1 has been fully depreciated. At that time, HTI will start recording depreciation expense from Phase 2, but the amount will be significantly smaller than that of Phase 1. However, interest expense will surge to VND 96.9 bn because interest expense from www.ssi.com.vn Visit SSI Research on Bloomberg at SSIV<GO> 2
Phase 2 (debt: VND 631 bn) is recorded. As a result, net profit may slightly decline by 3.6% YoY, reaching VND 60.5 bn. After 2017, assuming there will be no significant increase in interest rate, HTI can attain stable profit growth because interest expense will gradually decline as the company will reduce its debt annually. Forecast of income statement (VND bn) 2013 2014 2015F 2016F 2017F Net sales 182.1 179.5 286.5 296.1 306.1 Net sales growth 17.4% -1.4% 59.7% 3.3% 3.4% Gross profit 80.8 69.0 126.9 134.4 198.4 Gross profit margin 44.4% 38.4% 44.3% 45.4% 64.8% Financial income 2.5 2.1 0.4 0.4 0.4 Financial expense -12.2-3.0-34.3-31.7-96.9 SG&A -31.8-30.2-36.1-37.3-38.6 Net other income 0.1 0.5 0.4 0.4 0.4 Profit before tax 39.5 38.5 57.3 66.1 63.7 Net income 37.6 36.6 54.4 62.8 60.5 Net income growth -5.7% -2.7% 48.7% 15.4% -3.6% Net income margin 20.7% 20.4% 19.0% 21.2% 19.8% EPS (VND) 1,508 1,467 2,181 2,517 2,426 Source: HTI, SSI Research Valuation and investment opinion Price multiple valuation Our estimates revealed that 1Y forward EPS of HTI will reach VND 2,232. If we apply conservative target P/E of 8x, 1Y target price will reach VND 17,856/share. P/E 6.5 7.0 7.5 8.0 8.5 9.0 9.5 Target price (VND) 14,508 15,624 16,740 17,856 18,972 20,088 21,204 FCFF valuation Our FCFF valuation yields a significantly higher price target, which is VND 24,489/share. The assumptions for FCFF valuation are also conservative: Risk-free rate = 7.5% (current 5Y bond yield is only 5.5%); equity risk premium = 9.5%; cost of debt = 12.5%; perpetual growth rate = 0%; beta = 0.7 (source: Bloomberg). www.ssi.com.vn Visit SSI Research on Bloomberg at SSIV<GO> 3
(VND mil) 2015F 2016F 2017F 2018F 2019F Terminal EBIT 91,574 97,813 160,643 160,571 164,947 167,130 Effective CIT rate (%) 5.0% 5.0% 5.0% 5.0% 5.0% 20.0% Add: Depreciation 128,441 129,911 73,063 65,337 67,484 69,844 Less: CAPEX 201,094 72,559 14,520 15,972 17,569 19,326 Less: Change in WC -1,551 679 17,901-260 346 8 Free cash flow to firm 15,892 149,595 193,253 202,168 206,268 Terminal value 1,598,354 Present value 14,349 119,714 137,120 127,186 115,055 Terminal present value. 891,552 Total Firm Value 1,431,693 Equity Value 610,982 Target price (VND) 24,489 BUY recommendation, 1Y target price VND 20,500/share We use weighted average price of P/E and FCFF valuation to calculate target price for HTI. We apply 40% weight to FCFF method as the method is subject to certain level of uncertainties in the long term. Our target price of HTI is VND 20,500/share, a 28.8% gain from current price of VND 16,000. We recommend BUY HTI. Price (VND) Weight FCFF valuation 24,489 40.00% P/E valuation 17,856 60.00% Final target price (1Y) 20,509 High dividend yield: In 2013, HTI did not pay cash dividend because it invested in Phase 3 of the project. At present, construction has been mostly completed. As a result, for 2014, HTI plans to pay cash dividend of VND 1,700/share, subject to shareholders approval in the next annual general meeting. We believe that with declining debt and no significant CAPEX, HTI can maintain similar (or even higher) dividend rate in the coming years. Current dividend yield is 11.3% p.a., which is an attractive investment. Risks of investment The most significant risk for HTI is interest rate. Total debts reached VND 821 bn by the end of 2014, D/E = 2.3x. All debts are subject to floating rate. Therefore, an increase in interest rate can affect business results of HTI. We estimate that HTI can reduce debts by an average of VND 70 bn annually in the next five years using cash collected from toll. www.ssi.com.vn Visit SSI Research on Bloomberg at SSIV<GO> 4
APPENDIX: FINANCIAL STATEMENTS VND Billion 2013 2014 2015F 2016F VND Billion 2013 2014 2015F 2016F Balance Sheet Income Statement + Cash 8 9 7 8 Net Sales 182 179 287 296 + Short-term investments 8 18 18 18 COGS -101-110 -160-162 + Account receivables 17 17 23 24 Gross Profit 81 69 127 134 + Inventories 2 1 1 1 Financial Income 3 2 0 0 + Other current assets 7 13 16 17 Financial Expense -12-3 -34-32 Total Current Assets 42 58 65 68 Selling Expense -22-21 -24-25 + LT Receivables 18 18 20 21 Admin Expense -10-9 -12-12 + Net Fixed Assets 900 1,118 1,124 1,008 Income from business operation 39 38 57 66 + Investment properties 0 0 0 0 Net Other Income 0 1 0 0 + LT Investments 23 23 0 0 Income from associates 0 0 0 0 + Goodwill 0 0 0 0 Profit Before Tax 40 38 57 66 + Other LT Assets 10 3 5 5 Net Income 38 37 54 63 Total Long-Term Assets 951 1,163 1,149 1,033 Minority interest 0 0 0 0 Total Assets 993 1,221 1,215 1,101 NI attributable to shareholders 38 37 54 63 + Current Liabilities 83 45 58 59 In which: ST debt 6 6 8 8 Basic EPS (VND) 1,508 1,467 2,181 2,517 + Non-current Liabilities 592 822 796 667 BVPS (VND) 12,748 14,169 14,442 15,033 In which: LT debt 585 814 786 657 Dividend (VND/share) 0 1,700 1,800 1,800 Total Liabilities 675 867 854 726 EBIT 52 41 92 98 + Contributed capital 249 249 249 249 EBITDA 126 134 220 228 + Share premium 0 0 0 0 + Retained earnings 47 79 79 87 Growth + Other capital/fund 22 25 31 39 Sales 17.4% -1.4% 59.7% 3.3% Owners' Equity 318 354 360 375 EBITDA 3.9% 6.6% 64.4% 3.5% NCI 0 0 0 0 EBIT -21.9% -19.8% 121.0% 6.8% Total Liabilities & Equity 993 1,221 1,215 1,101 NI -5.7% -2.7% 48.7% 15.4% Equity 3.7% 11.1% 1.9% 4.1% Cash Flow Chartered Capital 0.0% 0.0% 0.0% 0.0% CFO 151 159 181 188 Total assets 44.8% 22.9% -0.5% -9.3% CFI -381-314 -112-13 CFF 236 156-71 -174 Valuation Net increase in cash 6 1-2 1 PER 6.2 7.9 7.3 6.4 Beginning cash 2 8 9 7 PBR 0.7 0.8 1.1 1.1 Ending cash 8 9 7 8 P/Sales 1.3 1.6 1.4 1.3 Dividend yield 0.0% 14.7% 11.3% 11.3% Liquidity Ratios EV/EBITDA 6.4 8.1 5.4 5.2 Current ratio 0.50 1.27 1.12 1.15 EV/Sales 4.4 6.0 4.2 4.0 Acid-test ratio 0.39 0.97 0.82 0.84 Cash ratio 0.19 0.59 0.43 0.44 Profitability Ratios Net debt / EBITDA 3.67 5.21 3.63 3.17 Gross Margin 44.4% 38.4% 44.3% 45.4% Interest coverage 4.25 13.94 2.67 3.08 Operating Margin 28.2% 22.6% 31.7% 32.8% Days of receivables 12.89 14.80 9.39 10.77 Net Margin 20.7% 20.4% 19.0% 21.2% Days of payables 77.44 93.06 65.24 72.53 Selling exp./net sales 12.2% 11.7% 8.4% 8.4% Days of inventory 6.11 4.76 1.90 2.18 Admin exp./net sales 5.3% 5.1% 4.2% 4.2% ROE 12.0% 10.9% 15.2% 17.1% Capital Structure ROA 4.5% 3.3% 4.5% 5.4% Equity/Total asset 0.32 0.29 0.30 0.34 ROIC 6.3% 3.8% 7.5% 8.5% Liabilities/Total Assets 0.68 0.71 0.70 0.66 Liabilities/Equity 2.12 2.45 2.37 1.94 Debt/Equity 1.86 2.32 2.20 1.77 ST Debt/Equity 0.02 0.02 0.02 0.02 Source: HTI, SSI Research www.ssi.com.vn Visit SSI Research on Bloomberg at SSIV<GO> 5
1. 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 16% (*). A BUY rating is given when the security is expected to deliver absolute returns of 16% or greater. A SELL rating is given when the security is expected to deliver returns below or equal to negative 8%, while a HOLD rating implies returns between negative 8% and 16%. Besides, SSIResearch also provides Short-term rating where stock price is expected to rise/reduce within three months because of a stock catalyst or event. Short-term rating may be different from 12-month rating. Industry Rating: We provide the analyst industry rating as follows: Overweight: The analyst expects the performance of the industry over the next 6-12 months to be attractive vs. the relevant broad market Neutral: The analyst expects the performance of the industry over the next 6-12 months to be in line with the relevant broad market Underweight: The analyst expects the performance of the industry over the next 6-12 months with caution vs. the relevant broad market. *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. 2. 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. WWW.SSI.COM.VN SAIGON SECURITIES INC. Member of the Ho Chi Minh Stock Exchange, Regulated by the State Securities Commission HO CHI MINH CITY 72 Nguyen Hue Street, District 1 Ho Chi Minh City Tel: (848) 3824 2897 Fax: (848) 3824 2997 Email: info@ssi.com.vn HA NOI 1C Ngo Quyen Street Ha Noi City Tel: (844) 3936 6321 Fax: (844) 3936 6311
3. CONTACT INFORMATION Institutional Research & Investment Advisory Minh Dinh Research Manager Tel: (848) 3824 2897 ext. 2148 minhdd@ssi.com.vn Phuong Hoang Hung Pham Giang Nguyen Senior Director Associate Director Associate Director Tel: (844) 3936 6321 ext. 409 Tel: (844) 3936 6321 ext. 637 Tel: (844) 3936 6321 ext. 430 phuonghv@ssi.com.vn hungpl@ssi.com.vn giangntt@ssi.com.vn WWW.SSI.COM.VN SAIGON SECURITIES INC. Member of the Ho Chi Minh Stock Exchange, Regulated by the State Securities Commission HO CHI MINH CITY 72 Nguyen Hue Street, District 1 Ho Chi Minh City Tel: (848) 3824 2897 Fax: (848) 3824 2997 Email: info@ssi.com.vn HA NOI 1C Ngo Quyen Street Ha Noi City Tel: (844) 3936 6321 Fax: (844) 3936 6311