VN Strategy To Do Business

Vietnam Strategy 2018
Barry Weisblatt
Head of Research Well positioned to thrive on global appetites
18 March 2011
barry.weisblatt@vcsc.com.vn
+84 28 3914 3588 ext. 105 There is an old saying that opportunities come to those who are both lucky and
Phap Dang, CFA prepared. Such was the case for Vietnam in 2017. Vietnam was lucky to benefit from
Senior Manager strong growth in global GDP and consumption and a risk-on global capital market eager
phap.dang@vcsc.com.vn
+84 28 3914 3588 ext. 143 to look at emerging markets. At the same time, it was prepared with a growing
manufacturing base, emerging middle class and a stable macro environment that was
Lucy Huynh, CFA
Senior Manager
very hospitable to foreign investment. As a result, several companies took advantage
lucy.huynh@vcsc.com.vn of the opportunity to raise capital and the market flourished. Looking forward to 2018,
+84 28 3914 3588 ext. 130 while valuations have become more expensive, the fundamentals that drove them there
Duong Dinh have not changed. Nor do we see any imbalances that would derail the current trends.
Manager
duong.dinh@vcsc.com.vn Macro outlook: FDI continues to drive growth while the Government
+84 28 3914 3588 ext. 140
maintains stability.
Hong Luu
Manager GDP: Strong gains in industry & construction, rising consumption and a rebound in
hong.luu@vcsc.com.vn
+84 28 3914 3588 ext. 120
agriculture powered GDP growth past the Government’s target to 6.8%. We expect
6.7% GDP growth in 2018 as rising global consumption fuels demand for Vietnam’s
Cameron Joyce, CFA exports.
Manager
cameron.joyce @vcsc.com.vn
FDI: FDI remains the engine that drives Vietnam’s growth. Disbursed FDI rose 11% to
+84 28 3914 3588 ext. 163
USD17 billion, while registered FDI rose an impressive 44% to USD36 billion. While
manufacturing continues to receive significant FDI, power sector mega projects were
key beneficiaries this year as Vietnam looks to triple power generation capacity as part
2018 by the Numbers of its 15-year master plan.
VCSC Macro Forecast Manufacturing: Manufacturing sector IIP surged 14.5% YoY while the PMI stayed
GDP (nominal): USD237 bn above the 50-point threshold for 25 consecutive months. Continuing investment into
GDP growth (real): 6.7% manufacturing coupled with strong global demand should continue this trend.
Inflation forecast: 3.5%
Credit growth: 16.0% Trade: Fears of rising global protectionism proved unfounded as Vietnam’s exports
VND devaluation: 0.0% rose 21% in 2017 and it recorded a USD2.7 billion trade surplus. FDI companies
Trade Surplus: USD2.3 bn continue to dominate exports with a 71% share as exports shift from basic products to
Budget deficit / GDP*: 3.7%
higher value electronics.
* excluding principal repayment
Consumption: With the consumer confidence index at a record high of 117, real retail
VCSC Market Forecast
sales grew 9.5% in 2017. Low inflation and a 6.5% increase in minimum wages should
VNI at yearend 2017: 984
VNI at yearend 2018: 1,250
support similar gains in 2018.
VNI expected return: 27% Credit: Strong manufacturing and export growth alleviated the need for excessive
EPS growth (VCSC coverage): 19%
credit to meet GDP targets. 19% credit growth was high enough to support
manufacturing and the property market, but not so high as to be inflationary.
Inflation: Falling pig prices depressed Food, Foodstuffs and Catering Services while
the Government took advantage of a low-inflation environment to raise medical and
education fees and increase retail electricity prices, which combined for a benign
annual inflation of 2.6%. Rebounding pig prices and higher oil prices may create some
pressure for 2018, but we expect the Government to manage inflation below its 4.0%
average inflation target.
Foreign Exchange: The VND continued a multi-year run of stability against the USD
with the interbank exchange rate strengthening 0.2%. The SBV took advantage of a
weak dollar to increase its foreign reserves to USD52 billion (three months of imports)
rather than letting the VND strengthen further. Most economists predict continuing
weakness in the dollar in 2018, but Vietnam is now armed with higher reserves should
it need to defend the dong.
See important disclosure at the end of this document www.vcsc.com.vn | VCSC<GO> January 5, 2018 | 1
Stock market performance: Perfect storm of strong earnings, stable macro,
new listings and divestments. HOLD
The market outperformed all expectations: The VN-Index rose 48% in 2017 on 19.6% EPS
growth, making it one of the top market indices globally. Consumer staples contributed the most
points to the VN-Index, led by strong gains from blue-chip MSN (+86.1%) as well as VNM
(+71.9%) and SAB (+26.1%), which both benefited from successful Government divestments.
New listings supported gains: Stocks listed during 2017 contributed 15.6 percentage points to
the VN-Index’s gain, especially blue-chips VJC (+94.9%) and PLX (+60.9%).
Vietnam benefited from global trends: Developed economies in the US, Europe and Japan all
had strong growth, which fueled imports from manufacturing countries. As a result, many markets
worldwide had good returns. The MSCI EM Asia index, which is heavily weighted by China and
South Korea, increased 40%, highlighting the strength of Asian manufacturing economies.
Liquidity increased significantly: Vietnam’s average daily trading turnover jumped by 66.4%
from USD136 million in 2016 to USD227 million in 2017 due in part to divestments, while net
foreign inflows reached USD1.1 billion for 2017.
Valuations reached new post-crisis highs: The P/E ratio of the VN-Index rose from 11.4x at
YE2015 to 16.4x at YE2016 to 19.3x at YE2017. It has now surpassed the 17x of Thailand’s SET
index, but trades below the 23x of the Philippines’s PCOMP.
Stock market outlook: We expect the VN-Index to reach 1,250.

Earnings growth will be strong: We forecast 19% earnings growth across our coverage
universe supported by high consumption, a stable property market, a wind-down in bank
provisioning, strong exports and rising investment in energy and infrastructure projects.
We forecast the current VN-Index members to trade at an 18.3x P/E at YE2018 based on
the average of our top-down and bottom-up approaches. At 19.3x, Vietnam is no longer
cheap compared to neighboring, more developed markets. However, strong earnings support
these multiples, while low inflation and a stable VND will support investor sentiment. However,
our bottom up analysis of our coverage universe provides a more conservative result with the P/E
ratio falling to 17.3x.
Continuing pipeline of IPOs, listings and divestments adds upside. Following on 2017’s
successes, we see a strong pipeline of IPOs and listings across sectors and expect the
Government to continue its plan of divestments. Both serve to attract foreign flows into Vietnam’s
stock markets and boost market returns. These stocks will add further gains to the index and may
increase the market valuations, possibly even beyond what we now consider as fair value.
We expect it will take at least two more years to make the EM watch list. Although Vietnam
markets are now large and liquid enough to qualify for EM status, we think improvements are still
needed in foreign ownership, FX openness, disclosures in English and market infrastructure.
Inclusion on the watch list would therefore provide upside to our forecast.
Top picks from our coverage universe:

Property: VIC’s move into the mid-range segment with the Vincity projects should fortify earnings
growth on the back of strong pre-sales in existing developments. NLG is also well-positioned with
leading brands in the mid-range segment as it levers off partnerships with Japanese developers.
Aviation: We think 2018 will be another good year for aviation stocks as we expect the sector to
continue on its three-pronged growth path via Vietnam's tourism boom, a rising middle class and
robust manufacturing activity. VJC, SCS and SGN are well-positioned to benefit from one or a
combination of these trends.
Consumer / IT: MWG remains the best way to play Vietnam’s flourishing modern retail sector.
2018 will mark the first year of full-speed roll-out for its BachhoaXANH minimarts. FPT has
streamlined its businesses after selling down about half its stakes in its Retail and Trading
HOLD
segments. Going forward, growth will be centered on Software and Telecom, further supported
by a rapidly growing, highly profitable Education segment.
Insurance: Strong GDP growth should drive premia growth from the current low penetration rates
while development of the bancassurance channel will be a key improvement for distribution. BVH
will have strong earnings growth in the life insurance sector while BMI is a good pure play on non-
life.
Power: The Government approved equitization of PV Power and Genco 3 which marked a
milestone for the liberalization progress of the sector. REE is our top pick to benefit due to its
portfolio of power plant investments. NT2 will also see good earnings growth this year as
successful maintenance in 2017 increased its capacity and profitability.
Banks: Asset quality improvement is underway while credit growth moves forward at a strong but
sustainable pace. New products, such as bancassurance and digital banking, may boost ROA
with fee income, and consumer finance should see robust growth on strong consumer sentiment.
VPB, the market leader in consumer finance with very attractive returns, is our top pick. New
names coming to market may also provide good opportunities.
Note that we may see additional opportunities to come from new listings which will likely be added
to our coverage during the year, such as VRE, TCB, HDB, HVN, PV Power, BSR, FPT Retail,
PVOil, etc.
Contents
HOLD
Vietnam Macro ........................................................................................................... 5
Market Outlook ......................................................................................................... 28
Banking sector: All boats lifted by a rising tide .......................................................... 43
Insurance sector: Bancassurance key to boosting penetration rate through access to
banking customers.................................................................................................... 53
Aviation Sector: Three-pronged growth via tourism boom, a rising middle class and
robust manufacturing activity .................................................................................... 57
Consumer sector: vibrant spending lifts earnings ...................................................... 69
Real estate sector: Eyeing a further steady run ........................................................ 78
Steel sector: Strike when the iron is still hot .............................................................. 87
Power sector: Liberalization progress is speeding up ............................................... 93
Petroleum sector: Downstream players are equitized giving huge opportunities for
investors ................................................................................................................. 101
Oil & Gas sector: Looking forward to key projects breaking ground ........................ 109
VCSC Rating System & Valuation Methodology ..................................................... 121
Disclaimer ............................................................................................................... 122
Contacts ................................................................................................................. 123
Barry Weisblatt Vietnam Macro
Head of Research
barry.weisblatt@vcsc.com.vn
HOLD
Impact of major world economies on Vietnam
+84 28 3914 3588 ext. 105
Gradual shift toward normalized global monetary policies should have marginal impact on
Cameron Joyce, CFA
Manager Vietnam. During its December meeting, the Federal Open Market Committee (FOMC) approved
cameron.joyce@vcsc.com.vn the fifth hike of the US benchmark interest rate since the 2008 financial crisis to the target range
+84 28 3914 3588 ext. 163
of 1.25%-1.50% and eyed three more hikes in 2018. The Fed also plans to accelerate the monthly
Luong Hoang pace of shrinking its balance sheet to $20 billion beginning in January from $10 billion currently.
Analyst The scheduled amount of reductions will then increase by $10 billion per month each subsequent
luong.hoang@vcsc.com.vn
+84 24 6262 6999 ext. 364 quarter.
Nguyen Truong The Bank of Korea (BOK) also, for the first time since 2011, raised its policy interest rate by 25
Analyst basis points from a record low of 1.25% in its November meeting while the European Central
nguyen.truong@vcsc.com.vn
+84 28 3914 3588 ext. 132 Bank (ECB) dropped a hint at its meeting in October that it will unveil plans to start tapering its
asset purchase program. The ECB will reduce the monthly pace of asset purchases from EUR60
billion to EUR30 billion, starting from January 2018. Meanwhile, China also intends to strike a
balance between growth, debt and deleveraging.
The relative contraction in monetary policy among developed countries surely will put some
pressures on portfolio investment into Vietnam as well as the Government’s interest rate policy.
However, a comparatively closed capital account and a low participation of foreign investors in
Vietnam’s bond and equity markets insulates the country from these effects to some extent.
Furthermore, the impact should be minor thanks to a planned gradual implementation process. In
addition, Vietnam’s economy is strengthening fundamentally with sustainable economic growth,
well-controlled inflation, and stable exchange rates amid an improving business environment,
which should maintain Vietnam as one of the most attractive investment destinations in the region.
The weak dollar is a major factor limiting the impact of Fed hikes. The reason that Fed hikes
are considered to be bad for emerging economies like Vietnam is that interest rate hikes are
expected to increase demand for the dollar and thereby strengthen it, especially against emerging
market currencies. The possibility of a weak VND is what could make global capital flow out of
Vietnam. However, in 2017 we saw the US dollar index fall 9% despite the three hikes and most
economists expect it to remain weak in 2018. Furthermore, the SBV took advantage of massive
foreign currency inflows in 2017 to build up reserves, giving it some ammunition to fight dollar
strengthening if needed.
Global growth continues to buoy Vietnam exports. Large economies, especially the US,
Eurozone, China and Japan are still going through an expansion stage, which will fuel
consumption demand. Since the US, Eurozone, Japan and China are Vietnam’s top trade
partners, the rising consumer spending in those nation is expected to boost Vietnam’s exports.
- The US’s policy maker also raised its FY2018 forecast of economic growth to 2.5% from 2.1%
announced in its September meeting, which was driven by a strong labor market, with
sustained job creation and rising consumer spending. In addition, the US Congress passed
the Republican’s tax bill, the Tax Cuts and Job Acts in late December. The bill is set to make
sweeping changes to the tax code for both businesses and households, which are expected
to spur the US economy. At the same time, we do not expect rising US protectionism to hurt
Vietnam thanks to a tight trade relationship between these two countries with various FTAs
and BTAs in place. The reliance of the US on Vietnam as a key geopolitical ally with respect
to maritime disputes in the region also implies that the implementation of protectionist
measures may backfire against US national interests. This further indicates that trade
measures may only remain in the form of rhetoric from the Oval Office.
- The Eurozone, the second largest buyer of Vietnam’s products expanded its economy at the
fastest pace since 2011 at 2.5% YoY in Q3 2017. The Economic Sentiment Indicator (ESI)
hit a 17-year high of 114.6 in November while the unemployment rate further fell to 8.8% in
October 2017 from 8.9% in September 2017 and 9.8% in October 2016. In addition, despite
a slower pace of asset purchases, the ECB will extend its asset purchase program until at
least September 2018. Additionally, the EUR appreciated by 12% against VND in 2017,HOLD
making exports to the EU that much more profitable.
- Japan maintained a solid economic recovery of 2.1% YoY in Q3 2017, recording the strongest
growth in two years while the consumer sentiment rose to 44.5 in October from 43.9 in
September, marking the highest level since September 2013. The Japanese government
continues to ease monetary policy for 2018 by keeping the policy interest rates at -0.1% and
the 10Y government bond yield at around 0%. In addition, the Japanese Government is
considering cutting the corporate effective tax rate to around 20% while continuing to fight off
deflationary pressures by encouraging wage growth to increase to around 3% and to
encourage businesses to invest in innovative technology and human capital, which is
expected boost productivity growth. The effective tax rate in Japan is slated already to decline
to 29.74% in FY2018 from the current level of 29.97%.
- China’s GDP expanded 6.8% YoY in Q3 2017, slightly lower than the 6.9% increase in the
two previous quarters but still likely to reach this year 6.5% growth target. The slight
deceleration was due to the weakest pace of fixed-asset investment expansion in nearly two
decades while the production output and retail sales still further increased. China has
signalled increasing focus on the quality of economic expansion by setting stricter
environment regulations alongside cutting the country’s soaring debt and curbing property
speculation. Though this policy shift is likely to slow GDP growth in the near-term, it should
brighten long-term economic prospects. China’s on-going economic rebalancing away from
export driven manufacturing and towards domestic consumption will also continue, especially
given President Xi’s enhanced political capital following the 2017 plenary session. Within
emerging markets, Vietnam remains one of the key structural beneficiaries of this process as
China cuts back manufacturing capacity in key competitive industries, such as steel.
GDP: Strong growth momentum will carry forward

Figure 1: Quarterly GDP growth
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
2010 2011 2012 2013 2014 2015 2016 2017
Q1 Q2 Q3 Q4
Source: GSO
GDP growth exceeded the government target to reach the highest level in a decade.
Vietnam posted impressive GDP growth of 7.65% YoY in Q4 (Q1: +5.12% YoY, Q2: +6.28% YoY,
Q3: +7.46% YoY) fuelling a 6.81% expansion for full-year 2017, which was even higher than the
Government’s target of 6.7%, despite sluggish growth in the first half of the year. We saw strong
growths in all three main areas of the economy, including: agriculture, industry & construction and
services. The upbeat results reflected the rebound of the agriculture sector, robust foreign inflows,
and rising global and domestic demand, which boosted manufacturing and exports.
Figure 2: GDP growth by sector Figure 3: GDP structure
12%
HOLD
100%
12.5% 11.5% 10.0% 10.1% 10.1% 10.0% 10.0% 10.0%
10%
80%
8% 36.9% 36.7% 37.3% 38.7% 39.0% 39.7% 40.9% 41.3%

6.78% 6.81%
6.68% 6.21% 60%
5.89% 5.98%
6% 5.42%
5.03%
40%
4%
32.1% 32.2% 33.6% 33.2% 33.2% 33.3% 32.7% 33.3%
2% 20%
18.4% 19.6% 19.2% 18.0% 17.7% 17.0% 16.3% 15.3%

0%
2010 2011 2012 2013 2014 2015 2016 2017 0%
2010 2011 2012 2013 2014 2015 2016 2017
Agriculture, forestry, and fishery
Industry and construction Product tax less subsidies Services
Services Industry and construction Agriculture, forestry, and fishery
GDP
The agriculture, forestry and fishery sector rebounded, increasing at the highest level in
three years. After a poor performance last year (increase only 1.4% YoY) due to harsh weather
conditions, which had a detrimental impact on this sector in the first half of 2016, the sector
recovered strongly by expanding 2.9% YoY. The agriculture sub-sector rose 2.1% this year, which
is much higher than a marginal increase of only 0.7% last year, though a sharp drop in pig prices
and unfavorable weather (heavy rain) had some negative impact on the agriculture sector.
Figure 4: Agriculture, forestry and fishery GDP growth
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
2010 2011 2012 2013 2014 2015 2016 2017
Agriculture, forestry, and fishery Agriculture Forestry Fishery
Source: GSO
Remarkable manufacturing growth compensated for declines in mining. Industry &

construction increased 8.0% in 2017, higher than the increase of 7.6% in 2016, led by the
manufacturing and processing sector, which posted remarkable growth of 14.4% versus 11.9%
seen last year. Meanwhile, the mining sector recorded a decline of 7.1%, which subtracted 0.54
percentage points of growth, as crude oil production fell 1.6 million tons from last year.
Figure 5: Industry and construction GDP growth
20%
HOLD
15%
10%
5%
0%
-5%
-10%
2010 2011 2012 2013 2014 2015 2016 2017
Industry and construction Industry Construction Mining Manufacturing
Source: GSO
The service sector continued to expand at a stronger pace. Services recorded robust growth
of 7.4% YoY, the highest growth since 2011, contributing 38.8% to total GDP. The strong growth
of this sector should be credited mainly to wholesale and retail services (+8.36% YoY in 2017 vs
8.26% YoY in 2016), finance, banking and insurance (+8.14% vs +7.79%) and especially
accommodation and catering services (+8.98% vs +6.7%), which was thanks to a boom in
tourism. In 2017, Vietnam received nearly 13 million foreign visitors, a surge of 29.1% YoY, which
was largely attributed to the implementation of e-visa for a list 40 countries and visa exemption of
five European countries, It also served 73 million of domestic travellers.
Resilient consumer demand and strong growth of tourism (Vietnam aims to receive 15 to 17
million of international visitors in 2018) should continue to ensure the expansion of the service
sector.
Figure 6: Service sector GDP growth
12%
10%
8%
6%
4%
2%
0%
-2%
2010 2011 2012 2013 2014 2015 2016 2017
Services Wholesale and retail Finance Real estate Hospitality
Source: GSO
Outlook: Brighter global economic outlook, domestic fundamental strengths and
continuing reforms of the state-owned sector support Vietnam’s economic growth HOLD
outlook. We expect GDP to expand 6.7% in 2018.
The World Bank recently upgraded its estimate of 2017 global economic growth to 2.9% (in its
Global Economic Prospects 2018), from 2.7% in its June 2017’s edition, due especially to better
than expected improvements seen in major economies such as the US, European area and
Japan, which should boost consumer confidence and global consumption. Domestic consumption
is also expected to remain healthy, aided by stable inflation and strong consumer confidence,
which ranked fifth globally by Nielson. Buoyant global and domestic demand should support trade
and manufacturing sectors.
In addition, a long list of upcoming equizations and divestments, in conjunction with significant
improvement in the regulatory, business and investment environments, should continue to bolster
both foreign and domestic investment in Vietnam.
The base effect makes reaching the growth target for 2018 more challenging, but the
Government has shown strong determination to do so. The Government recognises 2018 as
an important year, as it may be key in determining whether or not the economic plan for 2016-
2020 will be accomplished. The Government’s Resolution 1/NQ-CP dated January 1, 2018, is
especially detailed compared to recent years in terms of the detailed list of tasks it assigns each
sector and related ministries. According to the Resolution, several key targets include, GDP to
grow 6.7% and average inflation to stay around 4%. In addition, the SBV is being requested to
help lower lending rates. The detailed list of tasks and solutions shows the Government’s strong
determination to fulfil the target and will push the related Ministries and departments to work
harder to complete their assigned jobs.
While Vietnam’s economic growth is influenced by external factors, there are several tools
available to the government to manage growth in the event that it trends lower than the target. As
we saw in 2017, the most notable of these is the credit growth targets that are assigned to the
banks.
Given the above, we believe that the current strong growth momentum will carry forward and the
growth rate of 6.7% for FY2018 is feasible.
Industrial Production
Manufacturing propelled the overall IIP, compensating for the continuing contraction of
mining production. In 2017, the overall IIP increased 9.4% YoY versus a 7.5% rise in 2016,
driven by the manufacturing sector which saw its IIP surge 14.5% YoY, compared to an 11.2%
rise in 2016, while the mining sector’s IIP posted a further decline of 7.1% versus a decline of
5.9% seen in 2016.
Figure 7: IIP growth by sector
2017 vs 2016 2016 vs 2015

Overall IIP 9.4% 7.5%
Mining -7.1% -5.9%
Manufacturing 14.5% 11.2%
Source: GSO
Figure 8: Industrial Production Index Figure 9: IIP of Manufacturing Sub-industries
30% Tobacco HOLD

Motor vehicles 2017 2016
Pharmaceuticals
20% Leather products (%)
Food processing
Garments
Non-metal products
10%
Furniture
Other means of transportation
Chemicals
0%
Inventory (beginning of month, YoY) Electrical equipments
Beverages
IIP Overall (YoY) Paper products
-10% Textiles
IIP Mfg (YoY) Fabricated metal products
Rubber and plastics
-20% Metals
Electronics & PCs
-10 0 10 20 30 40
Source: GSO Source: GSO
PMI remained in expansion territory for 25 consecutive months. Vietnam’s Manufacturing

Purchasing Manager Index (PMI) came in at 52.5 in December, the highest monthly level in the
last quarter of 2017. The reading shows solid expansion of the sector for 25 consecutive months
and all but two months since August 2013. Rising global and domestic demand helped to boost
both new orders and new export orders. Output resumed growth after moving flat in November,
contributing to a continuing expansion in employment (for 21 consecutive months) and job
creation (at the highest pace since September).
Figure 10: Purchasing Managers’ Index (PMI)
56
54
52
50
48
46
44
42
40
Source: Nikkei, Markit
Figure 11: Vietnam’s PMI outperformed almost all other ASEAN countries
Jan- Feb- Mar- Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec-
2017 2017 2017 2017 2017 2017 2017 2017 2017 2017 2017 2017
Vietnam 51.9 54.2 54.6 54.1 51.6 52.5 51.7 51.8 53.3 51.6 51.4 52.5
Philippines 52.7 53.6 53.8 53.3 54.3 53.9 52.8 50.6 50.8 53.7 54.8 54.2
Myanmar 51.7 51.9 53.1 52.9 52 49.4 49.1 49.3 49.4 51.1 51.6 51.1
Singapore 51.6 48.6 50.4 50.1 48.7 50.3 47.9 51.0 48.6 51.3 47.4 44.7
Thailand 50.6 50.6 50.2 49.8 49.7 50.4 49.6 49.5 50.3 49.8 50.0 50.4
Indonesia 50.4 49.3 50.5 51.2 50.6 49.5 48.6 50.7 50.4 50.1 50.4 49.3
Malaysia 48.6 49.4 49.5 50.7 48.7 46.9 48.3 50.4 49.9 48.6 52.0 49.9
ASEAN 50.0 49.3 50.4 50.3 50.4 50.8 49.9
Source: Nikkei, Markit
Outlook: According to the latest PMI survey, solid client demand has bolstered optimistic
HOLD
expectations that output will increase over the next 12 months. This provides a positive outlook
for the manufacturing sector and strong manufacturing IIPs in 2018.
Consumption: Vietnam’s consumers fifth most optimistic globally

The consumer confidence recorded five-year high. According to Nielson, Vietnam’s consumer
confidence index (CCI) reached 116 in Q3 2017, and ranked as the fifth most optimistic country
globally after India (132), Philippines (131), Indonesia (127) and the US (121). The strengthening
consumer confidence supported upbeat private consumption in 2017 where retail sales reached
VND3,934 trillion (USD174 billion), recording a four-year high growth of 10.9% in the nominal
term and a seven-year high growth of 9.5% in the real terms. Retail sales of goods, accounting
for more than three-fourths of total retail sales, expanded 10.9% while accommodation & catering
and tourism services saw rapid growths of 11.9% and 10.4% in 2017, respectively. The strong
consumption was a result of a variety positive factors, including:
• More job creation associated with a strong economic recovery. Since the 2011 financial
crisis Vietnam’s labor market has added more than 3 million new jobs while the
unemployment rate has slid to 2.24% in 2017 from 2.30% last year and from 3.6% in 2011.
• Rising wages as the Decree 153/2016/ND-CP required businesses to minimum wages by

7.3% in 2017, which is 4.7% in real terms. Vietnam’s minimum wages remain at only 0.5
times that of China.
• Lower interest rates and the participation of consumer credit companies improved access to
consumer loans. According to the National Financial Supervision Commission (NFSC),
consumer credit jumped around 60% in 2017 to an estimated USD42.5 billion, which was
equivalent to 19% of GDP in 2017.
• Healthy inflation, which was well controlled at 2.6% in 2017, helped reinforced consumer
confidence.
• In addition, Government policies, especially visa exemption applied to five European

countries and e-visa policy for foreign arrivals, have effectively boosted the tourism industry
last year. During 2017, international tourists hit 12.9 million, a surge of 29.1% from 2016.
Figure 12: Retail sales and consumer confidence
HOLD
32% Volume growth Value growth 120
28% 112 112

115
109
24% 108 107107 Consumer 110
106 105 Confidence Index

104 Q3 2017 - 116
20% 102 105
98 9998
16% 96 97 100
95 2017 Real 9.5%

12% 94 95
95
8% 88
87
90
4% 85
0% Mar-13 80
Mar-12
Jun-12
Jun-13
Mar-14
Jun-14
Mar-15
Jun-15
Mar-16
Jun-16
Mar-17
Jun-17
Dec-13
Dec-11
Dec-12
Dec-14
Dec-15
Dec-16
Dec-17
Sep-12
Sep-13
Sep-14
Sep-15
Sep-16
Sep-17
Source: GSO, Nielson Global Survey, VCSC
Outlook: We expect robust growth of consumer spending. An expanding economy along

with low inflation should continue to support strong consumption in the coming year.
• The Government set the GDP growth rate target in FY2018 at 6.5%-6.7% while targeting
average inflation below 4%, which indicates a favourable year for private consumption is
ahead.
• Bright economic outlook in Vietnam’s key export markets should encourage domestic
production, thus driving sustainable growth of manufacturing jobs.
• Minimum wages will increase 6.5% in 2018, according to Decree 141/2017/ND-CP.
• The Government will guide commercial banks to lower lending rates to boost credit growth.
In addition, more foreign capital into Vietnam’s consumer credit companies, HD Saison and
MCredit should extend more room for consumer loans.
• Young population structure along with strong consumer confidence amid a stable economic
outlook continues fuel private spending.
Figure 13: Minimum wages Figure 14: Employed population & Unemployment rate
‘000 VND HOLD

Million %
4,500 Employed population
Region I II III IV 54 4.0
3,980 Unemployment rate
4,000 3,750
3,500 3.5
3,500 53
3,200
3.0
3,000 2,800
52
2,350 2.5
2,500
2,000 51 2.0
2,000
1.5
1,500 50
1,000 1.0
49
500 0.5
- 48 0.0
2012 2013 2014 2015 2016 2017 2018 2011 2012 2013 2014 2015 2016 2017
Source: GSO, VCSC Source: GSO, VCSC
Government Expenditure: Efforts to control expenses appear to be working

Figure 15: Breakdown of State budget
December 15, % YoY % of FY 2018 % YoY

Unit: VND tn
2017 Growth plan Plan Growth
Budget revenue 1,104.0 17.1% 91.1% 1,319.2 6.4%
Domestic revenue 871.1 16.9% 88.0% 1,099.3 8.7%
Revenue from crude oil 43.5 15.4% 113.7% 35.9 -17.5%
Revenue from export-import 183.8 17.7% 102.1% 179.0 -0.6%
Others 5.6 33.3% 5.0 0.0%
Budget expenditures 1,219.5 7.4% 87.8% 1,523.2 9.5%
Current expenditures 862.6 9.7% 96.2% 940.7 5.0%
Investment and development 259.5 36.2% 72.3% 399.7 11.9%
Interest repayment 91.0 92.0% 112.5 13.8%
Principal payment 147.6 90.1% 159.7 -1.0%
Budget deficit/surplus -115.5 -40.0% 64.8% -204.0 76.6%
Budget deficit/GDP 2.31% 3.70%
Source: GSO, MOF
FY2017 fiscal deficit could fall below the government's target of 3.5% of GDP. As of
December 15, State revenue increased 17.1% YoY to VND1,104 trillion (USD48.8 billion), fulfilling
91.1% of the FY2017 target. Domestic revenue was the largest contributor at VND859.2 trillion
(USD38 billion, +14.6% YoY), reaching 86.8% of the annual plan. Notably, both revenue from
exports-imports and from crude have exceed the full -year target, which respectively reached
VN183.8 trillion (USD8.1 billion) and VND43.5 trillion (USD2 billion) thanks to robust trade and a
strong rebound in global oil prices.
Meanwhile, budget expenditures rose 7.4% YoY to VND1,136 trillion (USD50.3 billion), fulfilling
81.7% of the FY2017 target. Slow disbursement of investments has caused State expenditures
to slightly trail behind the annual plan YTD, after speeding up in recent months to reach VND259.5
trillion (+36.2% YoY), completing 72.3% of FY2017 plan.
The Government usually boosts expenditures in the last 15 days of the year, which will drive the
fiscal balance close to the FY target. Despite that, the fiscal space for FY2017 still remains flexible
as the State just posted a budget deficit of VND115.5 trillion (USD5.1 billion) as of December 15,
HOLD
equivalent to 65% of the FY plan and 2.31% of 2017 GDP, which was far below the Government’s
target of 3.5% of GDP in 2017. The Government has also booked around VND13 trillion (USD
674 million) from SOE divestment in 11M 2017, which did not include VND110 trillion (USD4.9
billon) from the Sabeco divestment. If these proceeds are taken into account, the fiscal space
should expand.
Outlook: The Government projects the FY2018 fiscal deficit at 3.7% of GDP.
In the FY2018 budget plan, state revenue and expenditure are targeted to reach VND1,319 trillion
(USD58.4billion) and VND1,523 trillion (USD67.4 billion), respectively, thus, resulting in a budget
deficit of VND204 trillion (USD9.0 billion). The fiscal deficit is projected to equal 3.7% of FY2018
GDP, slightly higher than 3.5% in 2017. This is because the Government has set a conservative
view on crude oil output, which is forecast to drop by 1.97 million tons in 2018. Revenues from
exports and imports are also likely to diminish as 90% of the tariff lines under the AFTA Agreement
will decline to 0% from 2018 while State disbursement of public investment is likely to accelerate
in the coming year.
However, we expect this will be offset by domestic revenue, which is estimated to contribute more
than 80% of total State revenue in 2018 thanks a solid economic expansion and a brightening
outlook of crude oil recently. Furthermore, a long list of SOE divestments and equitizations next
year should impact the Government’s budget, and thus curb pressure on public debt.
Public debt/GDP is likely to fall for 2017. According to the National Assembly, the public debt
to GDP ratio is estimated to fall to 62.6% in 2017, from 63.6% in 2016, while the Government
debt/GDP is projected to decline to 51.8% from 52.6% the prior year. This improvement is the
result of robust GDP growth and a more efficient fiscal policy. In addition, the Government has
restructured its public debt portfolio in recent years, focusing more on long-term debt to reduce
rollover risks (average tenor of G-bonds issued has increased to 8.7 years in 2016 and 14.7 years
in 2017, from only 1.84 years in 2011). Borrowing costs have also declined from 12.1% in 2011
to 6.3% in 2016 and 6.0%-6.1% in 2017 thanks to a strong economic upswing as well as a
significant drop in inflationary pressures. We expect an improving credit position will ensure
Vietnam a sustainable development in the long term.
Figure 16: Vietnam’s public debt Figure 17: Government and government guaranteed debt
USD mm (As of 2015)

140,000 70%
18.1%
120,000 60%
100,000 50%
80,000 40%
60,000 30%
40,000 20%
20,000 10%
0 0%
81.9%
Domestic debt (Gov & Gov guaranteed)

Foreign debt (Gov & Gov guaranteed)
Public debt/GDP (%) Government debt Government guaranteed debt
Trade Balance: Expanding surplus toward year-end
Vietnam recorded its highest trade growth rate in six years. Vietnam’s trade balance was in
HOLD
deficit at the beginning of 2017, however the balance turned to surplus thanks to accelerating
exports toward year-end. According to GSO’s estimate, as of the end of 2017, Vietnam recorded
a trade surplus of USD2.7 billion. Exports and imports reached USD213.8 billon and USD211.1
billion, robust growth of 21.1% YoY and 20.8%, respectively, which were both the highest growth
rates in six years.
Figure 18: Trade balance Figure 19: Trade balance among top markets
USD bn
USD bn
250 4 40
2016 2017
2 30
200
0
20
150 -2
10
-4
100 -6 0
-8 -10
50
-10
-20
0 -12
2011 2012 2013 2014 2015 2016 2017 -30
Export turnover Import turnover -40

US EU Japan ASEAN China Korea
Trade balance
FDI sector continued to dominate Vietnam’s trade. In line with rising foreign direct investment,
FIEs have increasingly strengthened their role in Vietnam’s economy. In 2017, FIEs’ exports
increased 23% to USD155.2 billion and expanded their contribution to Vietnam’s total exports to
73% from less than 50% in 2011. FIE imports also accounted for a large proportion of around
60% of total imports, reaching USD126.4 billion, up 23.4% YoY. As of the end of 2017, FIEs
recorded a USD28.8 billion-surplus while domestic companies saw a deficit of USD26.1 billion.
Despite that, growth of the domestic sector also recorded a multi-year high with the exports and
imports reaching USD58.5 billion (+16.2% YoY) and USD84.7 billion (+17% YoY), respectively
thanks to a recovery of agriculture, forestry, fishery and textile & garment industries.
Figure 20: Contribution by sector Figure 21: Export of FIEs vs Domestic sector
USD bn
HOLD
100%
90% 180 50%
80% 160 40%
70% 140
30%
60% 120
50% 100 20%
40% 80 10%
30% 60
0%
20% 40
20 -10%
10%
0% 0 -20%
2010 2011 2012 2013 2014 2015 2016 2017 2011 2012 2013 2014 2015 2016 2017
FIEs
Domestic sector
FIEs Domestic sector
FIE export growth (YoY)
Domestic export growth (YoY)
Manufacturing machines and electronic equipment were the key drivers. The expansion of
FDI played a vital role in boosting Vietnam’s exports, especially in some key items, such as mobile
phones and spare parts (USD45.1 billion +31.4% YoY), electronics, PCs and spare parts
(USD25.9 billion, +36.5% YoY) and textiles (USD25.9 billion, +8.8% YoY). In addition, import
demand for manufacturing equipment also grew strongly this year for electronics, PCs and spare
parts (USD37.5 billion, +34.4% YoY), machinery and equipment (USD33.6 billion, +17.9% YoY)
and mobile phones & spare parts (USD16.2 billion, +53.2% YoY).
Figure 22: Key export products Figure 23: Key import products
Mobile phone & spare PCs & electronic items

parts
Textile, garment 18% Machinery &
21% equipment
34% PCs & electronic items Mobile phone & spare
42% parts
Footwear Fabric
12% 16%
Machinery & equipment Steel
12% Seafood 8%
Plastic materials
4% 5%
6% 7%
4% 4%
Wood product 3% 3% Oil & Gas
Others Others
Trade with top partners was stronger in 2017. The US remained the largest buyer of Vietnam’s
HOLD
products with USD41.5 billion of exports in 2017 (+8% YoY), followed by the EU (USD38.3 billion
+12.8% YoY) and China (USD35.3 billion, + 60.6% YoY). China was also the largest supplier to
Vietnam with USD58.5 billion of imports in 2017 (+16.9% YoY), followed by South Korea
(USD46.8 billion, +45.5% YoY). Notably, Korea surpassed China to record the largest trade
surplus with Vietnam following the implementation of the Vietnam-South Korea FTA. Meanwhile,
the establishment of the AEC has helped boost exports and imports to/from ASEAN which surged
24.5% YoY to USD21.7 billion and 16.4% YoY to US28 billion, respectively, ranking fourth and
third among top export and import markets.
Figure 24: Major export markets Figure 25: Major import markets
21% 19%
US 19% China
EU 28% Korea
China ASEAN
4%
8% ASEAN Japan
18% 6%
Korea EU
7% Japan US
8%
Other 22% Other
10%
17% 13%
Outlook: Solid export momentum continues driving a positive balance of trade.

Despite a successful year for trade, the Government continues to set a conservative target of a
9-10% increase for exports and 9.5%-10.5% increase for imports in 2018, and targets to control
the trade deficit below 3% of total export turnover. However, we still expect both exports and
imports to maintain 2017’s momentum to reach USD242.8 billion (+16% YoY) and USD240.4
billion (+16.5% YoY), thus resulting in a trade surplus of USD2.3 billion.
We project Vietnam’s export turnover to maintain its solid growth trend at around 16% in 2018,
based on the following:
• The current diversified set of effective FTAs and the EVFTA, which is expected to
come into effect in 2018, will support trade revenue in the coming year.
• Solid FDI inflows into manufacturing will drive a continued growth of exports of
electronic products.
• A brightening outlook for global economies including the US, China, and Japan, our
largest export partners, will result in higher consumption demand from those
countries
• Stronger global currencies, such as CNY, EUR, JPY and KRW against USD, while
the VND remained stable will support Vietnam’s exports to those countries.
Imports are expected to grow at nearly 16.5%, supported by:
• FTAs, which remove import tariffs, led to lower import prices should stimulate
domestic import demand. In the process of ASEAN Trade in Goods Agreement
(ATIGA) implementation, Vietnam will remove 669 import tariff lines among ASEAN
countries, focusing on automobiles, motorbikes and spare parts, household electric
equipment, vegetables & vegetable oil and dairy products. HOLD
• The Government is encouraging both foreign and domestic enterprises to expand
production scale through removing red tape, which will in turn increase import
demand of manufacturing machinery and equipment.
• However, the appreciation of Vietnam’s top suppliers’ currency could accelerate
import expenses.
Balance of Payments: Ample foreign inflows drove BOP to surplus

BOP turned to positive toward year-end. According to the latest data released by SBV,
Vietnam’s balance of payments (BOP) posted a surplus of USD4.8 billion in the first three quarters
of 2017 vs a surplus USD9.7 billion in the same period of 2016. The narrowed BOP was due to a
trade deficit at the beginning of the year, which diminished the goods trade balance. However,
the financial account balance surged 74% YoY to USD9.5 billion thanks to strong foreign direct
investment during the year. We expect the BOP to expand its surplus in the fourth quarter of 2017
attributed to an expanding trade surplus, solid FDI inflow and rising oversee remittance toward
year-end. This trend is expected to stay strong keeping Vietnam’s BOP position ample in FY2018,
which will in turn support the value of VND.
Figure 26: Balance of Payments
Unit: USD million Q3 2016 FY2016 Q3 2017

Current account 8,843 8,998 3,401
Goods trade balance 11,934 13,990 6,566
Services trade balance (3,685) (5,226) (2,809)
Investment income (primary) (5,404) (7,752) (6,519)
Transfers (secondary) 5,998 7,986 6,163
Capital account - - -
Financial account 6,490 10,015 9,485
Direct investment 5,593 8,755 9,720
Portfolio investment 684 228 1,522
Other investment (2,244) (1,425) (1,757)
Net errors and omissions (5,680) (10,623) (8,075)
Overall balance 9,653 8,390 4,811
Source: SBV
Note: The goods Trade Balance in the balance of payment account is different from the figure
published by Custom Office as it is recorded on a FOB basis whereas Custom uses FOB prices
for exports and CIF price for imports
Total investment: non-state sectors continue to expand

Total investment increased at a faster rate than previous years at 12.1% YoY to reach
VND1,667.4 trillion (USD73.4 billion), resulting in a larger contribution to GDP at 33.3%, the
highest level in five years. The stronger growth of total investment was thanks to the improvement
in both the FDI sector and private sector.
Besides the important role of the FDI sector, the private sector will continue to be focused as an
important driver for a more self-reliant economy. According to the Resolution 10-NQ/TW, dated
June 3, 2017, the National Party is targeting for 1.0 million enterprises by 2020, 1.5 million by
2025 and 2.0 million by 2030, while aiming to lift contribution of the private sector to 50%, 55%
and 50-65%, respectively. Given the fast expansion of number of registered enterprises recently
(111,000 and 127,000 enterprises were newly registered in 2016 and 2017, respectively), which
brought the current number of active enterprises to more than 700,000), the former target should
be achievable. However, the second target should be very challenging, despite of a clearer shift
in investment structure with the state sector narrowed down to 35.7%, while the private and
foreign sectors expanded to 40.5% and 23.6% of total investment. HOLD
Figure 27: Investment growth rate by sector Figure 28: Contribution by sector
2013 2014 2015 2016 2017

22.0% 21.7% 23.3% 23.4% 23.6%
Total
8.4% 11.5% 11.9% 8.9% 12.1%
investment
37.6% 38.4% 38.7% 39.0%
State 40.5%
7.7% 10.2% 6.8% 7.3% 6.7%
sector
Private
7.1% 13.6% 12.8% 9.5% 16.8%
sector
40.4% 39.9% 38.0% 37.6% 35.7%
Foreign
9.9% 10.5% 19.9% 10.4% 12.8%
sector
Total
investment 30.4% 31.0% 32.6% 33.0% 33.3% 2013 2014 2015 2016 2017
/GDP
State Sector Private Sector FDI
Source: GSO Source: GSO, VCSC
FDI: Long-term investment nature is not affected by short-term external

risks
Figure 29: Disbursed new and additional registered FDI, growth
USD bn
40 50%
35.9
35 40%
30 30%
24.9
25 22.4 21.9 22.8 20%
20 18.6 17.5 10%

16.3 15.8
14.7 14.5
15 12.5 0%
11 11 10.46 11.5
10 -10%
5 -20%
0 -30%
2010 2011 2012 2013 2014 2015 2016 2017
Disbursed FDI Registered FDI

Disbursed FDI growth (YoY) Registered FDI growth (YoY)
Source: FIA
Vietnam received robust registered and disbursed FDI in 2017 despite several concerns
that US policies might cause a reversal of investment flows globally. FDI, which is naturally
a long-term commitment, pays more attention to Vietnam’s competitive landscapes including, a
stable political, social and economic environment, golden demographics, a long list of FTAs, and
improving business and investment conditions, instead of other potential short-term risks.
Pledged FDI inflows reached USD35.9 billion in 2017 (+44.4% YoY), the highest increase since
2008. Meanwhile, disbursed FDI hit its record high at 17.5 billion (+10.8% YoY). HOLD
Figure 30: FDI by sector in 2017 Figure 31: FDI by country in 2017
Manufacturing and Japan

processing
1.6%
Electricity, gas, water, South Korea
2.9% air-conditioning supply 2.0%
3.2% 5.9% Singapore
3.6% Real estate 2.9% 10.0%
2.4% China
Wholesale, retail, 25.4%
4.1%
vehicle maintenance British Virgin Islands
6.8% 44.2%
Mining 4.1% Hong Kong
8.5% 4.6%
Construction Taiwan
6.0%
23.7%
Science and technology US
23.3% 14.8%
Water supply and waste Netherlands
treatment
Thailand
Others
Others
Source: FIA Source: FIA
The National Power Development Plan VII boosts FDI in power sector. The National Power
Development Plan VII, which seeks to raise installation capacity to around 60,000 MW in 2020
and 130,000 MW in 2030, from around 39,000 MW in 2015, with capital investment requirements
of nearly USD150 billion for both power plants and the transmission network from 2016 to 2030,
has helped to boost foreign investment into this sector. The approval of three mega BOT thermal
power plants including Nghi Son 2 (USD2.79 billion), Van Phong 1 (USD2.58 billion) and Nam
Dinh 1 (USD2.07 billion) lifted total pledged FDI to the electricity/gas/water category to USD8.4
billion, accounting for 23.3% of total pledged capital. Despite the surge in the power sector, the
manufacturing and processing sector remained the most attractive sector with total pledged
capital of USD15.8 billion, but its contribution has dropped sharply to 44.2% of total pledged FDI,
from around 70% last year.
South Korea was overtaken by Japan in 2017, but remains Vietnam’s largest foreign
investor over time. Thanks to the above Nghi Son 2 and Van Phong 1 thermal power plants and
the Block B – O Mon gas pipeline, total FDI from Japan reached USD9.1 billion, ranking first.
Though South Korea ranked second with USD8.5 billion (of which Samsung Display Bac Ninh
contributed USD2.5 billion) this year, South Korea remained as the top historical investor in
Vietnam with cumulative investment of USD57.7 billion since 1988 (18% of the total), which is far
higher than that from Japan (USD49.5 billion; 15.5% of total). Given the Korea – Vietnam FTA,
the third investment wave from South Korea in Vietnam will strengthen further, especially in
manufacturing, power, and high-tech agriculture.
Outlook: Competitive fundamentals, significant improvement in regulations and business
environment and a deep trade integration should ensure strong FDI inflows.
• Vietnam’s macro landscape including political stability, the social and economic
environment, golden demographics and an advantageous geographical location help the
country to be more competitive than others in attracting FDI inflows.
• In addition, the country has continuously shown its strong commitment to reforms. We
have seen a significant improvement in infrastructure, regulations and the business
environment in recent years. Vietnam jumped 14 positions to rank 68th in the World Bank’s
Doing Business Index in 2018.
• A long list of existing FTAs (particularly the KVFTA) and upcoming FTAs (including
HOLD
EVFTA, which is expected to come into effect in 2018) will continue to encourage strong
FDI inflows.
• Vietnam should benefit from the recent shift of investment in the region, which was mainly
caused by rising labor costs in neighboring countries, such as China and Thailand.
FDI will focus more on environmentally friendly and high-tech projects. FDI has played a
vital role in Vietnam’s economy in the past 30 years, despite several problems, especially
environmental issues. However, Formosa’s environmental incident in 2016 raised concerns by
both the authorities and the community. The Government has repeated a message that Vietnam
will be more selective in choosing FDI, giving priority to high-tech and environmentally friendly
projects. Though being more selective in choosing FDI projects could taper the current growth
rate, higher quality FDI should ensure a more sustainable growth.
Figure 32: Top 10 largest projects approved in 2017
Investment
Project Category Investor Description
amount
Nghi Son 2 BOT

Japan - Marubeni
Thermal Power Power USD2.79 bn Coal Power Plant of 1,200 MW in Thanh Hoa
Corporation (and KEPCO)
Plant
Van Phong 1
Japan – Sumitomo
BOT Thermal Power USD2.58 bn Coal Power Plant of 1,329 MW in Khanh Hoa
Corporation
Power Plant
Expansion of Samsung Display project in Bac

Samsung Display
Manufacturing S. Korea - Samsung USD2.5 bn Ninh, bringing total investment of Samsung
Vietnam
Display to USD6.5 billion
Nam Dinh 1 BOT Singapore-based JVC

Thermal Power Power ACWA Power and USD2.07 bn Coal Power Plant of 1,109.4 MW in Nam DInh
Plant Taekwang Power Holdings
Japan – Mitsui Oil
Block B - O Mon
Mining Exploration Co & PVN, PV USD1.27 bn Gas pipeline project in Kien Giang
gas pipeline
Gas
Smart complex Smart complex project in HCM City’s Thu

Real estate S. Korea – Lotte Group USD885.85 mn
central Thiem New Urban Area
Polytex Far Taiwan – Far Eastern Expansion of Polytex Far Eastern factory to
Manufacturing USD485.5 mn
Eastern Group produce synthetic fibers in Binh Duong
Coca-cola expanded its investment in Hanoi

Coca-Cola Manufacturing Coca-cola Beverages USD319.8 mn
by more than double
Vietnam –
Singapore Real estate Singapore - Sembcorp USD284.75 mn A 1000-hectare Industrial park in Binh Duong
Industrial park III
Tole Panel Plant Manufacturing S. Korea USD 269.5 mn A tole panel factory in Binh Phuoc
Source: FIA – MPI, VCSC collected
Inflation: Government takes advantage of subdued inflation to raise prices
of price-controlled goods and services HOLD
2017 inflation stayed below the Government target. Though the Government completed
almost all of its price adjustments planed in 2017, which placed pressure on inflation, the
Government still successfully held average inflation at 3.53% YoY, well below its target cap of
4%. As of the end of 2017, annual inflation reached 2.6%. Average core inflation (excluding foods,
energy, and goods managed by the State including healthcare and education) also posted at only
1.41%, lower than the target of 1.6% - 1.8%, showing appropriate monetary policies from the
Central Bank.
Pig prices restrained inflation. CPI of the food and foodstuff category, which accounts for 36%
of the total CPI basket, fell 1.8% in 2017, eliminating 25% of this year’s inflation. The main reason
for the reduction was the strong drop in pig prices (averaging 13.5% in 2017 after rebounding in
H2/2017), caused by falling demand from China. This was the main difference between 2016 and
2017.
Amid subdued inflation, the Government increased prices of price-controlled goods and
services. Pharmaceutical and healthcare CPI posted the strongest increase at 22.8%,
contributing to more than half of the total CPI this year, due to rising healthcare services costs in
45 cities and provinces under Joint Circular No. 37/2015/TTLT-BYT-BTC dated October 29, 2015.
Education fees were also adjusted up under Decree No. 86/2015/ND-CP dated October 2, 2015,
driving CPI of this category up 7.3% YoY. Meanwhile, global energy prices increased strongly by
more than 20%, with the average Brent crude price of around USD54.5/barrel in 2017. This
resulted in an average increase of 15.5% YoY in domestic gasoline prices, contributing 0.64
percentage points to the total CPI increase.
Figure 33: Inflation Figure 34: CPI by category
2016 2017
Category Weigh
YTD CPI YTD CPI
CPI MoM (RHS)
6% 1% Total CPI 100% 4.74% 2.60%
CPI YoY (LHS) Food, foodstuffs, and
36.12% 2.87% -1.80%
catering services
4% Beverage and tobacco 3.59% 1.97% 1.37%
Garment, footwear, hats 6.37% 1.64% 1.14%
Housing and construction
2% 0% 15.73% 3.26% 4.67%
materials
Family appliances and
7.31% 1.02% 1.08%
tools
0% Medicines and healthcare 5.04% 55.72% 27.79%
Transportation 9.37% -1.12% 6.04%
Telecommunication 2.89% -0.72% -0.46%
-2% -1%
Education 5.99% 10.81% 7.29%
Jun-15
Jun-16
Jun-17
Dec-14
Dec-15
Dec-16
Dec-17
Culture, sport, and

4.29% 1.35% 0.76%
entertainment
Other consumer goods
3.30% 2.31% 2.33%
and services
Outlook: We expect FY 2018 annual inflation of approximately 3.5%.
We expect some inflationary pressure from the Government’s price-managed goods and HOLD
services, including:
- A 6.08% rise in average retail electricity prices from December 1, 2017 should place some
pressure on inflation (but we do not see a further hike in 2018).
- The Government will continue to raise healthcare prices and education fees in
accordance with the roadmap until 2020. However, the Government may delay the
process if strong inflation pressures arise during the year.
We also see potential risks from a strong rebound of pig prices, which could put a heavy burden
on CPI of the food and foodstuff sector, or an unexpected increase of crude oil prices (we expect
average crude oil prices to rise to around USD60/barrel in 2018), which could affect CPI of the
transport sector and input cost of manufacturing sector.
Foreign Exchange: rising foreign inflows support a stable exchange rate

Strong foreign inflows helped to stabilize the exchange rates. The USD/VND exchange rate
experienced its most stable year in 2017, despite the three Fed rate hikes. As of the end of 2017,
the dong interbank rate appreciated slightly by 0.25%, from a year ago. The stability of the dong
against the USD was attributed to the following factors:
• Abundant USD supply thanks to: (1) Robust exports that resulted to a trade surplus
of USD2.7 billion in 2017; (2) FDI disbursement reached USD17.5 billion in 2017, an
increase of 10.8% YoY; (3) Strong foreign inflows into the bond market (net inflows
of USD910 million) and stock market (net inflows of USD1.27 billion); (4) Higher than
expected state divestment, which amounted to nearly USD6.0 billion.
• A strong decline of the U.S Dollar Index (DXY) of 9.4% contributed to a slight
appreciation of the VND against the USD while the VND actually depreciated against
the trade weighted basket.
• Furthermore, a flexible foreign exchange policy from the SBV (the adoption of the
new exchange rate mechanism since the beginning of 2016, the implementation of
zero USD deposit rates ceiling since the end of 2015), have helped to reduce foreign
currency speculation and hoarding.
The SBV built up its foreign reserves to three months of imports. Thanks to the ample USD
inflows, the SBV had purchased around 13 billion US dollars from commercial banks in 2017,
bringing its foreign reserves to more than USD52 billion. As a result, a large amount of VND was
injected into the banking system, thus capping the appreciation of the dong against the USD
(otherwise the dong should have appreciated strongly against the US dollars, as most other
currencies did).
The current foreign reserves are equivalent to nearly three months of imports, up slightly from
2.69x at the end of last year.
Figure 35: USD/VND exchange rate Figure 36: Foreign Reserves
HOLD
Interbank Upper band USD bn
23,400 23,098
Lower band Reference Rate 60 25%
23,000 22,708
50
20%
22,600 22,425
40
22,200 15%
21,752 30
21,800
10%
20
21,400
5%
21,000 10
20,600 0 0%
Dec-14
Mar-15
Jun-15
Mar-16
Jun-16
Mar-17
Jun-17
Dec-15
Dec-16
Dec-17
Sep-15
Sep-16
Sep-17
2009 2010 2011 2012 2013 2014 2015 2016 2017
FX Reserves FX Reserves as % of GDP
Source: FIA Source: FIA
Figure 37: Performance of major trade partners’ currencies
15%
10%
5%
0%
-5%
-10%
-15%
Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17
USD/EUR USD/TWD USD/CNY USD/MYR USD/THB USD/VND

USD/JPY USD/SGD USD/IDR USD/KRW USD/PHP DXY
Source: Bloomberg, VCSC
Outlook: We expect a stable USD/VND exchange rate in the coming year, supported by:
• Ample USD supply from robust exports, FDI, equity market inflows (upcoming
equitizations, IPOs, State divestments are expect to attract more foreign inflows) and
remittance inflows.
• The declining trend of the USD dollar is likely to extend further to 2018, especially
given EUR and JPY are expected to strengthen thanks to the improvement of their
domestic economies.
Though several factors might cause the dong to depreciate slightly against the US dollar
including: HOLD
• The FOMC is eyeing three more hikes in 2018, and a US tax cut might give some
support to the value of the greenback. But, the impacts of those policies on the US
dollar in 2018 are expected to be comparatively limited. In addition, three Fed rate
hikes had a muted impact on the USD/VND exchange rate this year.
• Given the abundant USD inflows, the SBV should continue to further strengthen its
foreign reserves (which is now in line with the IMF’s suggested level of 3.0 months of
imports). This should, at the same time, place some pressure on the dong.
In a worst-case scenario, even if the greenback rebounds strongly in the coming year, we
still believe that the USD/VND exchange rate will not fluctuate much (maximum of 2.0%) as
the SBV is willing to sell its foreign reserves to stabilize the foreign exchange market if needed
(the SBV net sold around 6.0 billion US. dollars in 2015 to cool down the exchange rate). The
significant improvement in foreign reserves should give the SBV more ability to defend against
external shocks.
Credit Growth: slight moderation expected in 2018

In 2018 we expected a slightly moderated credit growth figure of 16%, which is more in line with
the deposit growth that we anticipate for the banking system. While we do not yet have the final
SBV figure for credit growth in 2017, the NFSC estimates that it came in at between 18.7% and
19.3%. Annual credit growth has been gradually increasing from a low of 8.9% growth in 2012
and the risk is that this uptrend may continue – something that is clearly unsustainable.
This year, a favourable external macroeconomic backdrop is expected. This should allow the
Government’s GDP growth target to be achieved without the need to further encourage
unsustainable levels of credit growth.
Bond yields: Lower borrowing costs ease public debt pressure

The Vietnam State Treasury (VST) reduced bond issuance due to slower government
spending. In 2017, the VST issued only VND162 trillion or USD7.1 billion of Government bonds,
a sharp decline of 42.3% from 2016’s issuance and completed only 88% of the FY issuance
target. Slow disbursement of capital (raised from G-bonds) caused the VST to deposit a large
amount of money at commercial banks, which was estimated at around VND160 trillion (USD7.0
billion) as at the end of August, a surge of around 68% from the beginning of 2017.
Figure 38: Government bond issuance vs target
Unit: VND
2017 Target 2017 Issuance Issuance/Target
billion
5-year 49,300 37,344 75.7%

7-year 31,000 34,664 111.8%
10-year 20,000 19,716 98.6%
15-year 27,000 21,459 79.5%
20-year 23,000 18,899 82.2%
30-year 33,000 27,838 84.4%
Total 183,300 159,921 87.2%
Source: HNX, VCSC
Ample liquidity pushed bond yields down to a record low. Thanks to strong foreign inflows,
HOLD
the SBV was able to purchase around USD13 billion to bolster Vietnam’s foreign reserves to 3.0
months of imports. At the same time an equivalent amount of VND helped the SBV to strengthen
foreign reserves and at the same time pump out a large amount of VND295 trillion to the banking
system. In addition, the large amount of money deposited by the VST at commercial banks also
further fueled the liquidity of system. Strong demand for bonds depressed bond yields to the
recorded low levels. 5Y bond yields dropped 124 bps over the year to 4.36% as of the end of
2017.
Lower borrowing costs and longer tenors ease public debt pressure. Declining bonds yields,
and rising demand from insurance companies helped the Government to restructure its public
debt portfolio in recently, focusing more on long-term debt to reduce rollover risks. Average G-
bond tenor has increased to 8.7 years in 2016 and 14.7 years in 2017, from only 1.84 years in
2011. Borrowing costs have also declined from 12.1% in 2011 to 6.28% in 2016 and to around
6% in 2017.
Figure 39: Bond yields
8%
6%
10Y 5.52%
5Y 4.36%
4%
1Y 3.64%
2%
Source: Bloomberg
Outlook: Bond yields are expected to remain at around the current low levels and will
rebound later this year, with 5Y yields moving at around 4.6% in 2018. The performance of
bond yields in 2018 could be divided into three periods: (1) Seasonal factor could put some
upward pressure on interbank rates towards the Lunar New Year, thus lifting up bond yields
slightly; (2) Bond yields should ease afterward. Liquidity in the banking system is expected to
remain high given a long list equitizations and divestment coming up, which should attract more
foreign capital inflows. We expect the SBV will continue to cement its foreign reserves,
consequently injecting an equivalent amount of VND in to the market with no attempt to directly
sterilise these inflows. In addition, according to the medium-term public debt management
program for the 2016-2018 period, the Government plans to borrow VND606.4 trillion (USD26.7
billion) during the period. As VND281 trillion (USD12.5 billion) of G-bonds and VND162 trillion of
G-bonds (USD7.1 billion) were issued in 2016 and 2017, respectively, there are not much room
for the VST’s issuance plan for 2018. Lower issuance of G-bonds should weigh down bond yields.
Furthermore, the SBV tends to keep interest rates at the current low level or even reduce lending
rates in some priority sectors in accordance to the Resolution 1/NQ-CP/2018; (3) Bond yields
could rebound slightly in the last quarter of the year due to faster credit growth. However, we
expect 5Y yields will stay at below 5% in 2018.
Macro Scorecard
MACRO INDICATORS 2010 2011 2012 2013 2014 2015 2016 2017 2018F UNITS
HOLD
SOURCE
GDP growth (real) 6.4 6.2 5.2 5.4 6 6.7 6.2 6.8 6.7 % YoY GSO
Nominal GDP 116 135.5 156 171 186 194 203 221 237 USD bn WB
GDP per capita 1,333 1,543 1,754 1,907 2,052 2,111 2,215 2,385 2531 USD WB
Unemployment rate 2.7 2.0 2.0 2.2 2.1 2.3 2.3 2.2 2.2 % YoY GSO
FDI disbursement 10 11 10.5 11.5 12.5 14.5 15.8 17.5 19.4 USD bn FIA
FDI disbursement (% of
9.6 9.2 6.7 6.8 6.8 7.8 8 7.9 8.2 % of GDP FIA
GDP)
Customs,
Exports (% of GDP) 81.7 81.2 73.5 77.7 81.6 86.9 89 96.7 112.2 % of GDP
GSO
Customs,
Export growth 26.5 34.2 18.2 15.4 13.8 8.1 9.0 21.1 16.0 % YoY
GSO
Customs,
Import growth 21.3 25.8 6.6 16 12 12.1 5.6 20.8 16.5 % YoY
GSO
Customs,
Goods trade balance -12.6 -9.8 0.7 -0.8 2 -3.2 2.6 2.7 2.3 USD bn
GSO
Foreign reserves 12.9 14 26.1 26.3 34.6 30.5 40 52 61 USD bn SBV
FX reserve (% of GDP) 12.4 11.7 16.7 15.5 18.8 16.4 20.7 23.1 25.7 % of GDP SBV
Inflation (year-end) 11.7 18.1 6.8 6 1.8 0.6 4.7 2.6 3.5 % YoY GSO
VND appreciation
-5.5 -7.9 0.9 -1.2 -1.4 -5.1 -1.2 0.2 0.0 % Bloomberg
(depreciation)
M2 growth 33.3 13.1 21 18.8 17.7 18.2 17.9 15.5* 13.3 % YoY SBV
Lending rates 20.5 20 14 9.0 8.8 8.5 8.5 8.5 8.5 % SBV
Credit growth 29.8 10.9 8.9 12.5 14.2 17.1 18.7 19.0** 16.0 % YoY SBV
5Y G-bond yield 11.5 12.6 9.8 8.5 6.2 6.6 5.6 4.36 4.6 % Bloomberg
Budget deficit (excl.
-2.7 -1.2 -3.4 -5 -4.7 -4.6 -4.2 -3.4 -3.7 % of GDP MOF
principal pmt)
Gov. debt 44.6 43.2 39.4 42.6 46.4 49.2 52.6 51.8 52.5 % of GDP MOF
Public debt 56.3 54.9 50.8 54.5 58 61 63.6 62.6 63.9 % of GDP MOF, WB
External debt 42.2 41.5 37.4 37.3 38.3 43.1 47.8 49.5 47.6 % of GDP MOF, IMF
*VCSC estimate
**Based on NFSC estimate
Barry Weisblatt Market Outlook
Head of Research
barry.weisblatt@vcsc.com.vn Figure 40: 2017 market returns
HOLD
+84 28 3914 3588 ext. 105
50%
Duc Vu
Manager 45%
duc.vu@vcsc.com.vn
+84 24 6262 6999 ext. 363 40%
Nam Hoang 35%

Analyst 30%
nam.hoang@vcsc.com.vn
+84 28 3914 3588 ext. 196 25%
20%
Ha Dao
Analyst 15%
ha.dao@vcsc.com.vn
+84 28 3914 3588 ext. 194 10%
5%
Tra Vuong
Analyst 0%
tra.vuong@vcsc.com.vn
+84 24 6262 6999 ext. 365
VNIndex HNX Index
Source: Bloomberg
2017 gains exceeded all expectations. The VN-Index had a great year in 2017, soaring 48% in
2017 and closing at 984, a level not seen since 2007. The 2017 rise was the biggest Y-o-Y rally
since 2006 and improved the compound annual return over the past five years to 19.4%. The rally
was led by blue-chips. The top five contributors added a combined 167 points to the VN-Index,
which was 52% of the total gain. However, the small-cap focused HNX performed nearly as well,
rising 46.9% for the year and was actually leading the VN-Index until successful VNM and SAB
divestments helped drive up the VN-Index in the fourth quarter.
Figure 41: Top five point contributing sectors to the VN-Index
100
80
60
40
20
-20
Consumer Staples Financials Real Estate Industrials Utilities
Source: Bloomberg
Consumer staples contributed the most points to the VN-Index, led by strong performances from
blue-chips VNM (+71.9%), SAB (+26.1%) and MSN (+86.1%). Financials came in a close
second. VCB (+56.5%%), as the largest bank by market cap, contributed the most points.
However, other banks, such as ACB (+109.7%), BID (+85.3%), CTG (+73.8%) MBB (+98.6%)
and STB (+36.0%), all had a good year. In third place, the real estate sector was led by VIC
(+84.0%), which recorded most of its gains in the fourth quarter following the listing of its
subsidiary VRE (+16% since listing on November 6).
Figure 42: % growth of TTM EPS (Adjusted)
FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016

HOLD
Last 12M
Consumer Staples P/E 12.8x 9.9x 11.6x 17.4x 23.3x 20.6x 16.3x 23.0x 29.4x
% EPS growth 72.52% 3.33% -7.44% -10.44% 7.44% 34.06% -8.09% 5.92%
Financials P/E 13.4x 12.8x 8.8x 11.4x 12.4x 13.4x 17.1x 17.7x 16.7x
% EPS growth 3.11% -3.75% -4.27% -12.27% -4.32% -2.77% -11.85% 68.45%
Utilities P/E 8.1x 16.4x 7.7x 7.4x 9.7x 9.3x 8.5x 15.0x 17.0x
% EPS growth -69.37% 24.93% 310.99% 28.94% 15.44% -32.93% -17.73% 29.31%
Real Estate P/E 12.6x 10.4x 34.0x 36.4x 10.7x 17.9x 19.7x 18.8x 26.0x
% EPS growth 27.48% -80.02% -3.74% 280.95% -38.96% -5.89% 33.58% 19.16%
Industrials P/E 9.4x 7.7x 6.3x 7.8x 11.8x 8.9x 10.0x 14.5x 18.1x
% EPS growth -4.93% -36.26% -4.20% -4.73% 58.83% 0.09% -1.62% 24.78%
Materials P/E 9.5x 8.2x 3.6x 6.2x 8.5x 9.5x 9.5x 6.9x 8.5x
% EPS growth 14.75% 14.87% -19.45% -2.80% -1.08% -8.20% 81.23% 11.28%
Consumer Discretionary P/E 9.0x 8.1x 4.9x 6.4x 8.6x 13.0x 12.7x 17.9x 15.8x
% EPS growth -15.16% 1.13% -5.47% -3.07% -0.69% 8.51% -13.27% 54.71%
Information Technology P/E 11.1x 9.7x 7.5x 8.6x 8.4x 10.3x 10.9x 11.1x 13.1x
% EPS growth 16.94% -4.93% -24.97% 27.57% 10.98% 2.30% 2.35% 22.43%
Health Care P/E 8.8x 8.7x 7.5x 8.0x 14.7x 13.9x 11.3x 15.8x 20.7x
% EPS growth -4.44% -0.52% 19.53% -20.45% 32.43% -13.84% -0.49% 17.48%
Energy P/E 17.6x 12.5x 5.9x 5.9x 8.5x 8.9x 6.9x 16.5x 20.6x
% EPS growth 2.97% 20.73% 13.87% 36.82% 10.56% -27.66% -59.68% 156.15%
VN-Index 12.1x 10.4x 8.8x 11.7x 12.4x 12.9x 12.5x 15.6x 19.3x
% EPS growth 13.9% -13.6% -12.1% 15.5% 4.0% 9.1% -7.5% 19.6%
Source: Bloomberg
Overall, the VN-Index posted very strong 19.6% EPS growth. Sectors with the highest beginning
P/E ratios did not necessarily record the strongest growth though. Consumer staples began the
year with a 23x TTM P/E ratio, but recorded just 5.9% EPS growth, whereas financials and
consumer discretionary began the year with more modest P/Es of 17.7x and 17.9x, respectively,
but had very strong EPS growth of 68.5% and 54.7%. Currently, consumer staple and real estate
stocks are the most expensive on a P/E basis at 29.4x and 26.0x, respectively. Price appreciation
has not quite caught up with earnings growth in financials and consumer discretionary stocks,
so their P/E ratios declined a bit from last year to 16.7x and 15.8x, respectively. The materials
sector remained the cheapest at a 8.5x P/E, which is in line with levels seen in the past few
years.
Figure 43: VN-Index sector weightings
FY FY FY FY FY FY FY FY FY HOLDFY
FY
2007S 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Materials 18.4% 17.0% 10.6% 11.1% 7.6% 6.7% 6.8% 6.8% 6.4% 6.8% 5.6%
Industrials 16.7% 10.2% 10.9% 10.4% 7.6% 6.0% 6.7% 7.4% 8.5% 11.3% 11.2%
Consumer Staples 16.1% 13.7% 16.1% 18.1% 29.5% 23.9% 25.3% 21.7% 23.8% 27.9% 26.7%
Financials 13.5% 15.3% 26.2% 25.3% 26.0% 29.3% 23.7% 26.5% 33.5% 23.5% 22.6%
Real Estate 8.0% 7.8% 13.0% 16.4% 15.2% 11.9% 10.8% 10.9% 11.2% 12.9% 15.4%
Utilities 7.7% 6.3% 4.0% 2.4% 2.1% 13.9% 18.1% 16.6% 8.6% 10.2% 8.4%
Energy 6.5% 8.4% 3.5% 3.0% 2.3% 1.7% 2.8% 2.8% 1.3% 1.0% 4.0%
Information
5.7% 5.2% 3.3% 3.2% 3.3% 1.9% 1.8% 1.9% 2.0% 1.6% 1.4%
Technology
Consumer
3.0% 2.2% 4.3% 3.3% 2.8% 2.2% 2.2% 3.6% 3.6% 3.5% 3.3%
Discretionary
Health Care 2.5% 2.8% 1.7% 1.4% 1.8% 1.4% 1.7% 1.6% 1.1% 1.3% 1.4%
Unclassified 1.9% 11.1% 6.3% 5.5% 1.8% 1.1% 0.0% 0.0% 0.0% 0.0% 0.0%
Source: Bloomberg
The consumer staples and financials remained the largest sectors of the VN-Index, making up
nearly half of total market capitalization. The real estate and energy sectors increased their
weightings the most due to the additions of VRE and PLX and a 84% price increase by VIC
shares, which remained the largest market-cap company in the real estate sector. Things have
changed a lot from ten years ago, when materials and industrials were the largest sectors.
Figure 44: Long-term trend of the VN-Index
1,400
1,200
Bubble Bubble or Re-
rating?
1,000
800
600
400
200
0
2007
2000
2001
2002
2003
2004
2005
2006
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Source: Bloomberg
Vietnam’s outstanding market performance raises the question as to whether the market has
entered bubble territory or whether the gains, with the VN-Index P/E ratio rising from 16.5x to
19.3x, were the result of a well-deserved re-rating of Vietnam equities. Anyone who has worked
in finance long enough knows that every time anywhere in the world market participants say, “this
HOLD
time is different”, they are wrong. It’s not different, and markets correct. However, there are sound
fundamental factors that bolster the case for improved valuations in Vietnam. To reach a
conclusion on this issue, we examine the global and domestic forces that pushed the VN-Index
to its current heights and analyze the current valuation to decide whether stocks are currently
over-valued.
Global forces are contributing to Vietnam’s strong performance. Vietnam was not alone in
recording a strong market performance in 2017. The MSCI Frontier Markets Asia Index, which is
dominated by Vietnamese stocks, rose 41.7% in 2017, but the MSCI Emerging Asia Index, which
has heavy allocations to China and South Korea, did nearly as well by rising 40.1%. Strong
currencies vs the USD and surging exports made these markets attractive for global investors.
Much like Vietnam, these export driven economies thrived in a year when the US, European and
Japanese economies all recorded solid growth. And for all his protectionist campaign rhetoric, US
President Trump proved remarkably ineffective at slowing imports to the US. Despite a globally
weak US dollar, the US trade deficit has expanded 8% YoY. Although 71% of Vietnam’s exports
were made by FDI companies, 21% export growth helped Vietnam to add 1.6 million jobs in 2017
and was an important factor supporting Vietnam’s consumer confidence index to 117.
Most global economists are forecasting continued expansion in the world’s largest developed
economies, which should drive continued export growth for Vietnam. Furthermore, most
economists predict continuing weakness in the USD despite Fed moves, allaying any fears that
USD returns would be impacted by VND depreciation.
Earnings growth continues to be solid. The story is not just about global forces though.
Domestically, performance has been strong as well. In 2017, the VN-Index recorded 19.5% EPS
growth. For 2018, we forecast very similar 18.6% earnings growth across our coverage universe
of 44 companies comprising USD83 billion of market cap. Banks and property companies look
especially well-positioned for earnings growth in the coming year (see our sector write-ups below).
Figure 45: Total market capitalization (USD Figure 46: Number of listed companies
bn) and number of listed stocks and those with USD1 billion+ market cap
180 1,600
1,422 1422
160 1,400
1,230
140 1,149 1149
1,356 1,200 24
120 980 1,209 980
881 840 866 1,000
875 881 866
100 840
800
80 16
600
60
400
40 10
200 8
20 7 7
6
- 0
2011 2012 2013 2014 2015 2016 2017
UPCOM HNX USD1 bn+ companies

HSX No of listed shares Number of listed companies (RHS)
Source: Stoxplus, Bloomberg, VCSC
Blue chip listings made a significant contribution to market gains and development. The
HOLD
wave of new listings from 2016 extended into last year and grew even stronger. The number of
listed stocks across the three exchanges rose from 1,149 tickers at the end of 2016 to 1,422 as
of end-2017. Total market cap of the three indices also rocketed 79% from USD85.6 billion in
2016 to over USD153 billion as of December 29, 2017, pushing market cap/GDP from 43% at the
end of 2016 to over 71% as of end-2017.
Figure 47: Notable newly listed stocks in 2017
Market cap as
Listing YTD price
Ticker Company name Exchange of Dec 29
date change
(USD mn)
1 VRE Vincom Retail JSC HOSE Nov-06 3,945 16.3%
Vietnam National Petroleum
2 PLX HOSE Apr-21 3,794 60.9%
Group
3 VJC Vietjet Aviation JSC HOSE Feb-28 2,896 94.9%
4 VPB Vietnam Prosperity JSCB HOSE Aug-17 2,683 5.1%
5 HVN Vietnam Airlines JSC UPCoM Jan-03 2,353 12.9%
6 MCH Masan Consumer Corporation UPCoM Jan-05 1,613 -18.3%
Vietnam International
7 VIB UPCoM Jan-09 544 27.2%
Commercial Joint Stock Bank
8 FOX FPT Telecom JSC UPCoM Jan-13 499 14.3%
9 LPB LienViet Post JSCB UPCoM Oct-05 407 -2.3%
10 VCI Viet Capital Securities JSC HOSE Jul-07 393 35.4%
Saigon Cargo Service
11 SCS UPCoM Jul-12 302 67.6%
Corporation
12 SNZ Sonadezi Corporation UPCoM Nov-20 255 1.3%
Vietnam National Textile And
13 VGT UPCoM Jan-03 252 -37.0%
Garment Group
14 LTG Loc Troi Group JSC UPCoM Jul-24 133 -17.4%
Source: Stoxplus, VCSC
Notable blue chips joined various sectors across the market last year, such as PLX in oil & gas;
HVN and VJC in aviation; VPB, VIB, LPB in banking; VCI from securities and VRE in retail. The
USD1 billion market cap club also welcomed new members, pushing total membership of the
group from just 10 in 2015 to 16 in 2016 to 24 in last year.
Figure 48: VN-Index vs VN-Index excluding 27 stocks listed in 2017
1000 HOLD
950
900
850
800
750
700
650
600
VNIndex VNIndex Excl 27 new-listing stocks
Source: Bloomberg
Gains from newly listed stocks added 15.4 percentage points to the VN-Index, although without
them it would still have climbed a respectable 32.6% to close the year at 882.
Figure 49: Top 10 stocks by YE2017 Market Cap
Rank Ticker Company name 2017 2016 2015

1 VNM Vinamilk 11.5% 13.7% 15.8%
2 VIC VinGroup 7.9% 10.2% 10.0%
3 VCB Vietcombank 7.5% 8.4% 8.7%
4 GAS PetroVietnam Gas 7.3% 7.8% 10.7%
5 SAB SABECO 6.2% 9.4% N/A
6 CTG VietinBank 3.5% 4.0% 5.5%
7 VRE Vincom Retail 3.4% N/A N/A
8 PLX Petrolimex 3.3% N/A N/A
9 BID BIDV 3.3% 4.1% 5.7%
10 ROS FLC FAROS Construction 3.1% 3.9% N/A
Source: Bloomberg
New listings have also made the index less concentrated as new names joined the ten largest
tickers over the past two years. PLX and VRE replaced MSN and MBB in 2017 to rank tenth and
sixth, respectively. VNM has declined from 15.8% of the index in 2015 to 11.5% at year-end 2017
despite increasing its market cap by 97.1% during that time.
Figure 50: Key public offerings 2017
Market IPO HOLD

Listing/ Exchan
Company Ticker Type Cap Proceeds % YTD
IPO Date ge
(USD mn) (USD mn)
Vincom
VRE Book building 3,954.8 Nov-06 740.0 16.3% HSX
Retail
VP Bank VPB Book building 2,708.7 Aug-17 300.0 5.1% HSX
Vietjet VJC Book building 2,923.3 Feb-28 167.0 133.8% HSX
Viglacera** VGC Auction 497.4 May-29 84.4 75.8% HNX
KDF KDF Book building 142.1 Sep-28 25.7 -4.2% HSX
IDICO IDC Auction 67.8 Nov-24 58.4 16.3% UPCoM

Thalexim TLP Auction 181.6 Nov-06 7.7 17.6% UPCoM
Becamex N/A Auction 3,954.8 Dec-01 25.9 N/A
HDBank HDB Book building 1,395.3 Dec-22* 300.0 N/A HSX
FPT Retail** FRT Book building 149.8 Dec* N/A N/A HSX
Source: Bloomberg, HSX, HNX, VCSC

* IPO Date, Market capitalization is based on initial/average auction prices.
** Secondary Public Offering
Figure 51: State Divestments in 2017
State ownership Value sold

Ticker Shareholder Stake Sold Date
before divestment (USD mn)
TIS SCIC 35.0% 35.20% 44.4 Apr-17
HDC SCIC 12.0% 12.00% 3.6 Aug-17
VNM SCIC 39.3% 3.30% 399.6 Nov-17
DIG MoC 49.7% 49.70% 111.1 Nov-17
SAB MoiT 89.6% 53.60% 4,849.9 Dec-17
VCG SCIC 58.0% 21.80% 109.5 Dec-17
LDP SCIC 32.0% 31.90% 4.4 Dec-17
Public offerings and divestments raised more than USD7.6 billion in 2017.
Figure 52: Avg daily trading turnover (USD mn) and total number of trading accounts
HOLD
1.9
1.7
1.6 10.7
1.4 28.5
1.3
1.3
5.3
22.9
1.5
0.1 0.9 24.1 187.5
25.1 25.1
0.1
19.4 108.0
87.0
71.4 71.4
39.0
2012 2013 2014 2015 2016 2017

HSX HNX UPCOM No. of trading account (RHS - mn)
Source: HNX, HSX, VCSC
New listings, public offerings and divestments brought in a significant number of new investors,
both foreign and domestic. In fact, average daily trading turnover jumped by 66.4% from
USD136.2 million in 2016 to USD226.7 million in 2017. Turnover for the VN-Index alone increased
by 73.6% to reach USD187.5 million in 2017.
2018 will continue to be a busy year of listing IPOs and divestments. Through several
documents issued in 2017 (991/TTg-ĐMDN, 1232/QĐ-TTg and 1001/QĐ-TTg), Vietnam’s SOE
reform has become clearer, with detailed schedules for privatizations and divestments through
2020. The lists are not only focused on SCIC’s portfolio as in the past, but also extend to all state
holding agencies. By resolving conflicted interests, the National Assembly Resolution
No.54/2017/QH14 is also expected to boost the privatization progress of mega SOEs owned by
the HCMC Government.
On actual implementation, we also see improvements with Decree 126/NĐ-CP, which allows the
book building method for SOE IPOs and divestments and further tightens listing regulation after
IPOs. In addition, the Government also issued Resolution 121/2017/NQ-CP to resolve problems
related with enterprise value and land value determination. This series of new regulations helped
us believe the Government is very firm and aggressive in its SOE reform and will likely take more
steps to speed up progress in 2018. This theme also pushes large SOEs to divest and restructure
their subsidiaries, which results in more companies being added to the market. We also expect
more listed companies to lift FOL in 2018 to facilitate the divestment of SCIC and other
Government agencies, thus expanding market investability.
Figure 53: IPO and divestments plan
Number of companies 2017 2018 2019 2020
Privatization by the Government 44 64 18 1
Divestment by the Government 135 181 62 28
Divestment by SCIC 100 35
Source: Document No. 991/TTg-ĐMDN, 1232/QĐ-TTg, 1001/QĐ-TTg , VCSC
Figure 54: Expected divestments of listed companies in 2018
TTM TTM
HOLD
Govt Selling Market Cap TTM TTM TTM Foreign
Ticker Rev EPS P/B
Stakes ** (USD mn) P/E ROA ROE Room
growth Growth
ACV 20.0% by SCIC 10,402.2 21.1% 198.2% 9.7x 49.1x 11.1% 21.8% 45.5%
GAS 31.7% by PVN 8,206.4 3.8% 80.1% 4.7x 21.1x 15.1% 22.4% 45.7%
PLX 25.0% by MOIT 3,827.2 20.8% 2.9% 4.5x 20.2x 7.7% 22.8% 10.7%
MBB 10.0% by SCIC 2,030.6 35.7% 44.1% 1.7x 11.9x 1.4% 14.8% 0.0%
BVH 3.0% by SCIC 1,956.7 19.9% 3.9% 3.2x 34.1x 1.9% 10.7% 24.4%
FPT 6.0% by SCIC 1,334.9 13.1% 11.2% 2.9x 13.9x 7.7% 22.0% 0.0%
BHN 81.8% by MoiT 1,302.5 3.7% -11.2% 5.2x 39.4x 8.0% 13.8% 31.5%
DHG 43.0% by SCIC 662.1 3.4% 16.2% 5.3x 23.9x 19.4% 23.2% 0.2%
VGC 21.0% by MOC 496.4 4.1% 56.4% 1.9x 12.9x 4.8% 14.1% 13.1%
DPM 10.3% by PVN 370.5 -5.5% -42.8% 1.0x 12.5x 7.2% 8.8% 28.4%
DCM 24.6% by PVN 317.0 21.8% 25.5% 1.2x 9.1x 6.6% 13.3% 46.0%
PVI 36.9% by PVN 313.5 -0.1% 20.7% 1.0x 10.9x 3.7% 9.3% 0.0%
BMP 30.0% by SCIC 308.6 5.8% -33.0% 2.9x 16.1x 15.5% 18.3% 56.8%
NTP 37.1% by SCIC 275.1 11.3% 22.2% 3.0x 13.1x 13.0% 24.3% 25.7%
TVN 93.9% by MOIT 238.8 4.4% 469.8% 0.8x 7.2x 5.3% 11.4% 48.9%
VGT 53.0% by MOIT 226.8 1.8% -16.7% 0.9x 15.8x 1.7% 5.5% 38.0%
DVN 30.0% by MOH 216.0 NA NA NA NA 3.6% 9.1% 49.0%
TRA 36.0% by SCIC 213.6 -11.3% 4.3% 4.7x 21.9x 16.5% 22.4% 0.1%
DMC 35.0% by SCIC 176.8 5.6% 17.1% 4.2x 20.2x 18.8% 22.1% 36.9%
VNR 40.0% by SCIC 131.6 -1.8% 24.1% 1.1x 11.1x 3.9% 9.7% 19.5%
VOC 36.0% by SCIC 106.7 10.6% 12.9% 1.4x 8.4x 10.7% 19.8% 49.0%
CC1 41.0% by MoC 94.5 17.7% -48.6% 1.4x NA 0.8% 6.2% 49.0%
SEA 63.4% by MARD 83.1 6.5% 381.1% 1.1x 6.3x 14.0% 18.5% 49.0%
HAN 98.8% by MoC 63.3 1.0% -1.4% 0.9x 14.0x 1.2% 6.2% 49.0%
** SCIC plans to divest in 2018-2020. Detailed plan for 2018 has not been published
Source: Decision No. 1232/QĐ-TTg, Decision No. 1001/QĐ-TTg, SCIC, PVN, Bloomberg, VCSC
Figure 55: Expected key divestments of unlisted companies in 2018
Charter HOLD
Selling Capital
Company Shareholder Industry Business Description
stake (USD
mn)
VEAM, together with its subsidiaries, manufactures engines
VEAM MOIT 53% 585.7 Industrials and agricultural machines in Vietnam. It also holds stakes
at local plants of Honda, Toyota and Ford.
Develops industrial parks and other real estate properties.

Real Estate,
Tin Nghia Dong Nai 35% 166.0 Currently, the company owns 11 industrial parks in southern
Construction
Vietnam with total area of 4,810 ha.
Produces and trades construction materials and minerals,

Construction, Real
FICO MoC 40% 56.0 especially cement, with FICO brand. The company also
Estate
engages in real estate investment and building structures.
Manufactures and trades sugar and sugar-related products
Sugar 2 MarD 93% 30.2 Consumer
in Vietnam.
National Corporation in pharma industry. It produces and

distributes wide range of pharma products, ingredients and
Vinamed MoH, 7% 104.5 Pharma
medicines. The company also holds stakes in other pharma
companies.
With more than 20 years of experience, SCTV provides

Communications - Telecommunications services including:
SCTV Vietnam TV 12.5% N/A Telecommunication
Cable TV, Digital TV, Docsic 3.0 Broadband Internet, VoIP,
VoD / OTT. It is the largest cable TV network in Vietnam
Manufactures mechanical products, assembly lines and
MEI MoIT 64% 62.6 Industrials other equipment. The company also exploits ores, sand and
clay.
Source: Decision No. 1232/QĐ-TTg, VCSC
Figure 56: Expected Key IPOs in 2018
Charter HOLD
2016 2016
Capital 2016 2016
Company Rev NPAT Business Description
(USD ROE ROA
Growth growth
mn)
Binh Son JSC operates Dung Quat refinery, which is
BinhSon Refinery
1,543 -27.2% -22.6% 227.4% 120.0% currently the sole refinery in Vietnam, providing roughly
(PVN)
30% of the refined product needs of the country.
The national corporation in charge of rubber plantations
and production of natural rubber derivative products.
Currently, the company controls a total of 475,000 ha of
VRG (MARD) 1,162 3.2% 38.7% 6.2% 4.0%
rubber tree forests. In addition to its main business, VRG
also operates in wood processing and industrial parks
through its subsidiaries.
Genco 3 is the largest in terms of capacity among the three
Gencos that belong to EVN. Genco 3 presently manages
Genco3 (EVN) 1,093 27.6% 38.2% 3.2% 0.3%
a combined capacity of 5,450 MW, representing 14% of
the country’s total generation capacity.
PV Power is the second biggest power generator in
Vietnam, just behind Vietnam Electricity (EVN). PV Power
PV Power (PVN) 969 21.4% -40.7% 5.7% 2.2% currently manages ten power plants with a combined
capacity of 4,208 MW, representing 11% of the country’s
total generation capacity.
Second largest wireless telecom network in Vietnam with
Mobifone (MIC) 659 11.8% -22.4% 25.4% 16.9%
market share of 30%
Genco 1 presently manages a combined capacity of 5,144
Genco1 (EVN) 652 NA NA NA NA MW, representing 13% of the country’s total generation
capacity.
State holding company for the cement industry. It controls
VICEM (MOC) 532 8.4% 24.8% 15.1% 6.6% a 34% market share and 20 million tonnes of capacity
through its subsidiaries, such as HT1 and BCC.
Genco 2 presently manages a combined capacity of 4,337
Genco2 (EVN) 496 1.1% 9.7% 3.0% 0.8% MW, representing 11% of the country’s total generation
capacity.
PV Oil is number two in petroleum retail distribution in
Vietnam with a 22% market share and a nationwide
PV OIL (PVN) 478 -22.9% -16.2% 5.4% 2.7%
distribution network (500 petrol stations and 3,000
agents).
Founded in 1993, Techcombank is one of the
first private banks in Vietnam. Currently,
Techcombank the bank has a total asset of USD10.4 billion.
425 24.8% 105.9% 15.5% 1.3%
(MSN) Techcombank is also well known for its current and former
major shareholders, MSN and HSBC, respectively.
Excels in food logistics, distribution and retailing in
southern region. Notable retail chains of the company are
Satra (HCMC) 325 -1.3% 11.7% 41.6% 28.6% SATRAFoods, SATRA Marts and Centre Mall. Satra also
owns 40% of Heineken Vietnam Brewery and Heineken
Trading.
Leading cigarette manufacturer and distributor in Vietnam
with market share of 56% and annual production of 100 -
Vinataba (MOIT) 314 10.3% 3.1% 15.0% 5.0%
110 billion sticks per year. The company also holds
monopoly power in tobacco export and import.
HCMC’s leading company in the tourism industry. The
Saigon Tourist
214 7.5% -0.1% 12.0% 10.5% corporation manages eight travel companies, 54 hotels, 13
(HCMC)
resorts and complexes and 28 restaurants
Charter
2016 2016
Company
Capital
(USD
Rev NPAT
2016
ROE
2016
ROA
Business Description HOLD
Growth growth
mn)
The company concentrates on hotels, travel, office leasing
Hanoitourist
127 N/A N/A N/A N/A and entertainment. Hanoi Tourist owns a series of 4 and
(Hanoi)
5-stars hotels in Hanoi.
Specializes in producing, processing and distributing food
Vinafood II
125 N/A N/A N/A N/A and agricultural products, especially rice. The company
(MARD)
has 88 stores including 47 stores in Ho Chi Minh City.
CNS manufactures and trades mechanical products,
CNS (HCMC) 116 -11.8% -1.0% 8.2% 6.5% chemicals and tobacco. The company also has an
electronic chip factory in HCMC.
A state conglomerate of Khanh Hoa Province, it holds
Khatoco (Khanh stakes in various companies in real estate, hospitality and
96 -1.8% -0.5% 18.5% 8.6%
Hoa) manufacturing. The company is also a big player in the
tobacco industry.
UDIC is the owner of many apartment buildings and new
UDIC (Hanoi) 96 25.6% 40.9% 9.6% 4.7% urban areas in Hanoi. UDIC also operates in the field of
construction and design consultancy.
RESCO trades and works as brokerage in real estate,
warehouses and technical infrastructure. The company
RESCO (HCMC) 94 -12.7% 270.1% 31.3% 19.8%
also diversifies in architectural design of civil and industrial
projects and construction consultancy.
Vietnam Multimedia Corp operates as a television
87 broadcasting station. The company provides media
VTC (MIC) 43.9% 50.4% 13.1% 5.5%
access and content solutions including television, telecom
and other value-added services.
A conglomerate of HCMC, it operates in trading, tourism,
Benthanh real estate and industrials. Benthanh has controlling
86 72.6% 145.0% 16.9% 11.9%
(HCMC) stakes in Savico, Benthanh Tourist, Benthanh Trading,
Ben Thanh Jewelry and various 5-star hotels in HCMC.
The company operates in various agriculture-related
Sagri (HCMC) 75 -16.2% 84.0% 12.5% 6.4% businesses including crop production, husbandry and
aquaculture.
Main business is developing and operating water supply
system for HCMC. The company also holds stakes in
Sawaco (HCMC) 74 0.1% -1.1% 4.2% 2.2%
many water processing factories and water distribution in
HCMC, effectively controlling the whole water value chain.
SJC manufactures and trades precious jewelry. The
company deals in gold, silver, handicrafts and semi-
SJC (HCMC) 72 19.7% -4.1% 4.5% 4.1%
precious stones. SJC is also the sole gold bar
manufacturer for SBV.
SAMCO is one of four key corporations in Vietnam's
automobile industry. The company specializes in trading
SAMCO (HCMC) 71 15.6% 4.8% 19.9% 11.0% and manufacturing buses, cars and spare parts. The
company also holds controlling stake in the HCMC
Eastern Coach Station Company.
Handico is the main unit of Hanoi in implementing social
Handico (Hanoi) 67 -10.8% -21.2% 2.7% 1.1% housing funds such as student housing, residence in
industrial zones, low-income people, etc.
Transerco operates in transportation, construction and
Transerco (Hanoi) 53 N/A N/A N/A N/A public infrastructure services. The company owns a
Toyota Hoan Kiem factory and Ford Hanoi agency.
Reorganizes production and manages raw material
Vinapaco (MOIT) 53 -8.4% 161.2% 1.5% 0.3%
trading of companies in the paper industry.
Source: Official dispatch No. 991/TTg-ĐMDN, Company websites, VCSC
Figure 57: VN-Index P/E vs 5-yr bond yield HOLD
14.0
19.0x
17.0x 12.0
15.0x 10.0
13.0x 8.0
11.0x
6.0
9.0x
7.0x 4.0
5.0x 2.0
Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17
P/E VN-Index % 5yrs-Bond Yield
Source: Bloomberg
Market development and favorable macro justify Vietnam’s increased P/E multiples. The VN-
Index closed 2017 with a trailing P/E ratio of 19.3x, a significant increase from 16.4x at the end
of 2016 (which already seemed high vs 11.4x at the end of 2015). However, the correlation
between rising P/E ratios and falling bond yields indicates that the expansion is justified. The 5-
year government bond closed 2017 at a record-low yield of just 4.35%. The factors we describe
above explain why this relationship holds up:
• Vietnam’s strong macro environment - with strong growth, a stable currency and low
inflation - has improved the Government’s risk profile at the same time that it boosted
stock valuations by providing an attractive business environment.
• IPOs and divestments have brought increased foreign investment. This foreign currency
has boosted the Government’s foreign reserves and increased bank liquidity, which in
turn has increased demand for bonds and pushed down yields.
Since we expect the stable macro environment and the pipeline of IPOs and divestments to
continue through 2018, we do not foresee any decline in market multiples. Furthermore, we note
that if we exclude SAB and ROS – two large caps with high P/E ratios – then the VN-Index P/E
would have been 17.6x.
Figure 58: Viet Capital coverage universe HOLD
Ticker Company Sector Mkt Cap 30D ADTV Foreign EPS growth PE Dividend Div Yield Upside to Target Rating
USDm USDm Room per share (%) at TP (%) Price
USDm VND current VND
price
Updated 29-Dec-2017 Current Current Current FY17 FY18 FY17 FY18 FY17 FY17
ACB Asia Commercial Bank Banks 1,602 4.46 0.0 46% 71% 17.9 10.4 - 0.0% -24.1% 28,000 M-PF
BID BIDV Banks 3,839 1.72 1,015.4 11% 18% 12.1 10.7 700 2.9% 7.9% 26,100 O-PF
CTG Vietinbank Banks 3,968 3.30 0.1 14% 14% 12.2 10.2 700 2.8% -12.6% 22,200 O-PF
MBB Military Bank Banks 2,031 6.13 0.0 49% 14% 10.0 8.8 500 2.0% 11.8% 28,400 BUY
STB Sacombank Banks 1,021 2.95 152.8 986% 53% 24.2 15.8 - 0.0% -59.2% 5,237 SELL
VCB Vietcombank Banks 8,603 4.66 770.0 23% 23% 23.4 19.1 800 1.5% -44.4% 30,200 SELL
VPB VP Bank Banks 2,703 2.84 0.0 -1% 32% 9.3 7.0 - 0.0% 41.5% 58,000 BUY
BMI Bao Minh Insurance Insurance 143 0.10 5.3 22% 14% 11.0 12.8 1,000 2.8% 31.0% 46,500 BUY
BVH Bao Viet Holding Insurance 1,957 1.98 487.2 52% -1% 25.9 21.8 1,000 1.5% -2.3% 74,000 BUY
FPT FPT Group Consumer 1,335 5.96 0.0 54% -18% 9.9 12.0 2,000 3.5% 21.5% 69,400 BUY
MWG Mobile World Consumer 1,827 3.97 0.0 34% 44% 18.2 12.7 750 0.6% 39.5% 182,800 BUY
VNM Vinamilk Consumer 13,331 7.45 5,268.4 16% 17% 30.8 26.4 5,800 2.8% -12.0% 183,500 M-PF
MSN Masan Group Consumer 3,538 3.18 807.5 -1% 35% 31.1 23.0 - 0.0% 5.1% 80,600 O-PF
DQC Dien Quang Lamp Consumer 57 0.11 18.1 -52% -26% 14.8 19.9 1,300 3.2% -18.3% 33,100 U-PF
PNJ Phu Nhuan Jewellery Consumer 652 1.83 0.0 63% 25% 21.1 16.9 1,800 1.3% 2.2% 140,000 BUY
GTN GTN Foods Consumer 178 0.54 87.0 77% 75% 92.6 52.8 - 0.0% 1.9% 16,500 M-PF
QNS Quang Ngai Sugar Consumer/Agri 584 0.44 248.0 -28% 1% 11.0 10.9 1,500 2.8% 17.6% 64,000 O-PF
DHG Hau Giang Pharma Healthcare 662 1.27 2.4 10% 4% 21.9 21.1 2,300 2.0% -14.2% 98,700 M-PF
KBC Kinh Bac City Industrials 277 1.62 65.9 38% 63% 8.2 5.0 - 0.0% 23.1% 16,500 BUY
TLG Thien Long Group Industrials 225 0.01 163.9 16% 14% 20.6 18.0 2,000 2.0% 6.1% 107,200 O-PF
DRC Danang Rubber Tires & Rubber 127 0.72 30.4 -62% 29% 20.6 16.0 500 2.1% -5.4% 22,900 M-PF
TCM Thanh Cong Textile Textile 65 0.90 0.0 74% 11% 8.3 7.4 500 1.8% 17.3% 33,500 O-PF
NT2 Nhon Trach 2 Power 425 0.36 111.4 -7% 14% 10.1 8.9 2,500 7.5% 12.5% 37,700 O-PF
PC1 Power Construction 1 Power 196 0.41 21.9 -15% 40% 13.8 9.8 - 0.0% -0.3% 38,500 O-PF
REE Refrigeration Electrical Engineering Utility 567 3.85 0.0 35% 13% 8.7 7.7 2,000 4.8% 14.9% 47,700 BUY
DPM PV Phu My Fertilizer Oil&gas 371 0.70 101.3 -36% -7% 13.5 14.5 2,000 9.3% -4.7% 20,500 M-PF
GAS PV Gas Oil&gas 8,206 2.72 3,807.5 43% 0% 18.7 18.6 4,500 4.6% 1.1% 98,500 O-PF
PVD PV Drilling Oil&gas 394 3.22 113.9 -58% -64% 188.3 518.9 - 0.0% -22.9% 18,000 M-PF
PVS PV Tech Services Oil&gas 464 7.05 148.1 -30% -14% 17.5 20.4 700 3.0% -29.7% 16,600 M-PF
PVT PV Transportation Oil&gas 234 0.40 44.6 -14% 17% 16.5 14.1 1,000 5.3% -5.1% 17,880 O-PF
PLX Petrolimex Petroleum 3,827 2.69 401.5 -25% 21% 23.5 19.5 3,000 4.0% -19.9% 60,050 O-PF
HPG Hoa Phat Steel Materials 3,129 9.29 245.0 7% 5% 9.8 9.3 - 0.0% 0.3% 47,000 BUY
HSG Hoa Sen Group Materials 378 3.41 89.0 -12% 16% 6.7 5.8 1,000 4.1% 3.7% 25,400 M-PF
HT1 Ha Tien 1 Cement Materials 261 0.48 113.9 -23% 5% 11.7 11.2 - 0.0% 22.2% 19,000 BUY
NKG Nam Kim Steel Materials 222 1.24 134.1 17% -14% 5.5 6.4 1,000 2.6% 13.4% 44,000 O-PF
CTD Coteccons Construction Construction 763 1.11 0.0 9% 12% 10.9 9.7 5,000 2.2% 8.2% 245,000 O-PF
CII HCMC Infrastructure Infrastructure 381 1.99 53.0 73% -30% 6.2 7.8 1,075 3.1% 12.5% 39,500 O-PF
DXG Dat Xanh Group Real estate 287 3.72 49.6 -24% 25% 9.8 7.8 - 0.0% 6.7% 23,000 BUY
KDH Khang Dien House Real estate 405 0.37 3.7 14% 4% 15.9 15.3 715 2.6% 0.0% 27,400 M-PF
NLG Nam Long Group Real estate 208 1.04 0.0 46% 19% 9.5 7.3 450 1.5% 17.3% 35,300 BUY
NVL Novaland Group Real estate 1,785 2.57 737.5 2% 18% 18.8 15.9 - 0.0% 1.5% 66,100 M-PF
VIC VinGroup Real estate 8,979 5.88 1,750.4 30% 46% 60.0 41.0 - 0.0% 35.8% 105,000 BUY
SCS Saigon Cargo Services Aviation services 307 0.19 151.5 30% 24% 18.5 15.0 5,500 4.5% 1.6% 124,000 O-PF
VJC Vietjet Air Transportation 2,918 6.66 105.6 78% 18% 13.7 11.6 2,000 1.4% 10.4% 162,000 BUY
Source: Bloomberg & VCSC
The VN-Index will continue to rise on earnings growth and new listings. To forecast the VN-
Index’s 2018 performance, we begin by looking at our own coverage universe, which is comprised
of 44 stocks having a combined USD83 billion market capitalization. On December 29, 2017, this
group had a combined trailing P/E ratio of 18.0x, which is quite similar to the VN-Index, excluding
SAB and ROS. Although we do have several BUY recommendations, the aggregate upside to
target price of this coverage universe was -0.3% at year-end. We forecast 18.6% aggregate 2018
earnings growth, but the P/E ratio of our target prices to our forecast 2018 earnings is just 15x,
17% below the current P/E.
Global and domestic macro conditions discussed above do not indicate any contraction of market
multiples. A continuing weak dollar coupled with rising US trade deficits are positives for
continuing global flows into emerging Asia while strong macro conditions make Vietnam
particularly attractive. Furthermore, the pipeline of divestments will continue to give investors
ample supply of investment opportunities. Therefore, as indicated by sovereign bond yields falling
to record lows in December, a contraction in P/E ratios seems unlikely from a top down approach.
At the same time, expansion beyond the current record high P/E level – which is already in line
with regional peers – seems unlikely. Taking a compromise between the two approaches, we
forecast 5% P/E contraction, which would bring our forecast for the VN-Index to 1,100.
However, the story does not end there. In 2017, newly listed companies added 15 percentage
points to the VN-Index. The pipeline of listings looks equally strong for 2018 across a variety of
sectors. It’s very difficult to forecast price appreciation of new listings since we do not know what
the listing reference prices will be. We therefore use 2017 as a benchmark and expect a similar,
15% gain in 2018. Adding the gains from new listings brings our forecast for the VN-Index to HOLD
1,250.
EM watch list is still at least two years away. With a larger and more open market, Vietnam is
on its way to being reclassified by the MSCI as an emerging market. (Other indices, such as S&P
Dow Jones and FTSE Russell may also classify Vietnam as emerging market.) The market has
passed several quantitative requirements and continues to make progress driven by the ongoing
SOE reform agenda. For example, at the end of 2017, Vietnam met the market size and liquidity
EM criteria of MSCI with six companies satisfying their criteria, and this number could be
expanded significantly in 2018.
However, we think more improvements are needed, especially in market accessibility, than just
increasing market capitalization and trading liquidity. The main obstacles for Vietnam are limited
room for foreign ownership, FX openness, incomplete market infrastructure and limited
information disclosed in English. MSCI usually will only put a market on their watch list after a
material regulation has been passed and requires at least a year to get feedback on actual market
improvement from investors.
As a result, the earliest time possible to be included on the watch list would be mid-2019, but this
would require a major change in market regulation. Otherwise, we think mid-2020 is the base
case at the current pace. Inclusion on the watch list would already be a catalyst for foreign
investment even before Vietnam actually migrates to EM status two years later.
Therefore, while the developments leading to eventual inclusion on the watch list are certainly
positives, we do not see migration as a catalyst for 2018.
Figure 59: Summary of required criteria for emerging market classification
MSCI S&P DJ FTSE Russell
Economic Development Economic Development Economic Development

GDP per capita: No requirement GDP per capita: No requirement GDP per capita & Credit Worthiness:
No Requirement
Size and Liquidity Requirement (√) Size and Liquidity Requirement (√) Size and Liquidity Requirement (√)
Three companies having • Full domestic market capitalization • Market Capitalization
over USD15 bn • Liquidity
• Full market cap: USD1.5 bn • Domestic annual turnover value
• Float market cap: USD763 mn over USD1 bn
• Liquidity: 15% ATVR • Exchange development ratio over
5%
Market Accessibility At least three additional criteria Quality of market
• Openness to foreign ownership: • Market and Regulatory
• No significant foreign ownership
Significant Environment: Active formal
restrictions
• Ease of capital flow: Significant market regulatory, Capital flow
• Freely traded foreign currency
• Efficiency of operational • Custody and Settlement

• Settlement period of T+3 or better
framework: Good and tested • Dealing Landscape
(√)
• Sovereign Debt rating of BB+ or

• Competitive Landscape: High above
• Stability of the institutional • Non-occurrence of hyperinflation
framework: Modest (√)
Watchlist Watchlist: Watchlist:
September of each year
June of each year Second quarter of each year
Decision:
Decision: Decision: September of the following year
June of the following year September and/or December of the
following year
Source: MSCI, S&P DJ, FTSE Russel.
Cameron Joyce, CFA Banking sector: All boats lifted by a rising tide
cameron.joyce@vcsc.com.vn
+84 28 3914 3588 ext. 163
Figure 60: VCSC Bank Coverage Index vs VN-Index
HOLD
Nghia Dien
nghia.dien@vcsc.com.vn 80%
+84 28 3914 3588 ext. 138
Son Tong 60% +60%

son.tong@vcsc.com.vn
+84 28 3914 3588 ext. 116
+48%
40%
20%
0%
Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18
VNI Banking Index
Source: Bloomberg
Figure 61: Bank tickers vs VN-Index
130%
110%
90%
70%
50%
30%
10%
-10%
Dec-16 Mar-17 Jun-17 Sep-17 Dec-17
VNI ACB BID CTG MBB VCB STB

Source: Bloomberg, *VPB is not included as it was not listed until August 2017
Market Foreign Target Current FY16 FY17F FY18F MR

TTM
Cap Avail price price Upside Div EPS EPS EPS QTR
Company Ticker Rating P/E
USD in USD VND / VND / % yield growth growth growth P/B
(x)
mn mn share share % % % (x)
BANKS 19.4% 46.1% 27.3% 14.4 1.8
VP Bank VPB BUY 2.67 0 58,000 40,450 43.4% 0.0% 64.2% 68.3% 32.1% 10.4 2.2
Military Bank MBB BUY 1.99 0 28,400 24,950 13.8% 2.0% 15.2% 48.8% 14.0% 11.8 1.7
VietinBank CTG BUY 3.62 0 22,200 22,100 0.5% 3.2% 19.4% 14.1% 14.0% 11.0 1.3
BIDV BID BUY 3.64 945.1 26,100 24,200 7.9% 2.9% -2.2% 11.5% 18.3% 14.4 1.8
Asia Commercial
ACB M-PF 1.51 0 28,000 34,700 -19.3% 0.0% 28.9% 46.1% 71.0% 18.4 2.2
Bank
Vietcombank VCB SELL 7.68 333.9 30,200 48,500 -37.7% 1.6% 28.5% 22.2% 27.3% 21.5 3.2
Sacombank STB SELL 0.98 270.3 5,237 12,300 -57.4% 0.0% -67.5% 157.2% 52.8% 32.4 1.0
2017 recap: Macroeconomic backdrop supported ongoing recovery while
consumer lending yielded profitability HOLD
What banks did in 2017
1) Improving yields drove NIM expansion. There is sector-wide pressure on NIMs with some
banks chasing retail deposits and consequently faced with rising funding costs. However, the NIM
median increased by 20 bps to 3.3% Q-o-Q in Q3 2017 as asset yields increased. VPB had the
highest NIM among listed banks at 9.1% in Q3 2017 with core bank NIM at 4.9%, supported by
retail/SME/household lending focus.
Figure 62: Average NIMs across sector Figure 63: NIM comparison (9M 2017)
10% 8%
8% 6%
6% 4%
4% 2%
2% 0%
Turkey
Indonesia
Vietnam
South Africa
India
Pakistan
Thailand
Malaysia
Philippines
Bangladesh
0%
1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17
Asset yields Funding costs NIM
Source: VCSC Source: Bloomberg, VCSC
2) Cost management has been rationalized. Banks are focusing on expanding network and
retail sales to strengthen customer bases as well as fee and commission income. As a result, the
overall CIR ratio among banks under coverage dropped from 54.3% in 2016 to 43.7% in Q3 2017
due to cost rationalization efforts.
3) Asset quality improvement is underway. Sustainable earnings are dependent on credit costs
in our view. In general, the credit costs of top listed banks increased from 136 bps in 2016 to 162
bps as of 9M 2017 on average. The system’s reported NPL ratio has decreased to 2.34% (from
2.46% in 2016) and average provision coverage has increased to 96%. In our coverage universe,
average NPLs inched up from 1.6% in 2016 to 1.7% in Q3 2017 as banks targeted the retail
segment, which may potentially lead to an increase in group 5 loans. The average net VAMC
balance to gross loans as of 9M 2017 among our coverage was 0.9% (-50 bps YTD). Except for
VCB and TCB, which have already fully provisioned out the VAMC, and STB, which is in
restructuring mode, banks need one to two years to resolve legacy VAMC issues.
Figure 64: NPL ratio vs provision coverage Figure 65: NPL comparison (9M 2017)
HOLD
5% 125% 12%
4% 100% 10%
8%
3% 75%
6%
2% 50%
4%
1% 25% 2%
0% 0% 0%
Russia
Turkey
South Africa
Indonesia
Vietnam
India
Pakistan
Thailand
Philippines
2012 2013 2014 2015 2016 9M
2017
NPL (System) NPL (Average coverage)
Provision coverage (RHS)
Source: SBV, VCSC Source: Bloomberg, SBV, VCSC
Figure 66: Group 2 loans to total loans Figure 67: Normalized credit costs (9M 2017)
7% 2.5%
6% 2.0%
5%
4% 1.5%
3% 1.0%
2%
1% 0.5%
0% 0.0%
MBB
CTG
ACB
BID
VCB
VPB
Average
Russia
Indonesia
Vietnam
Turkey
India
Thailand
South Africa
Philippines
Bangladesh
2016 9M 2017
Source: Company data, VCSC Source: VCSC
4) ROEs were boosted by leverage, but ROAs have seen improvement. Overall, net profits
of banks improved in 2017 and most banks were focused on individuals and the SME segment
to improve interest income. The average ROA of our coverage universe improved from 1.0% in
2016 to 1.2% on an annualized 9M 2017 basis driven by a reduction in cost and NIM expansion.
However, the current financial leverage of Vietnamese banks at 15.9x is among the highest
compared to FM and EM peers at 8.9x and 9.4x, respectively.
Figure 68: ROA (FY 2016 vs annualized 9M 2017) Figure 69: Financial leverage (9M 2017)
HOLD
3.0% 30
2.5% 25
2.0% 20
1.5% 15
1.0% 10
0.5%
5
0.0%
-
MBB
VPB
Average
BID
ACB
CTG
VCB
MBB
CTG
BID
ACB
VCB
VPB
Sector
FM peers
EM peers
2016 9M 2017
Source: VCSC Source: VCSC
Moody’s and Fitch changed outlook to positive (from stable). Vietnam’s sovereign credit
rating has been on the mend over the last five years. In terms of market pricing, Vietnam’s
sovereign gets priced inside pretty much all similar rated sovereign credits on an average of 130
bps. A positive outlook from the rating agencies could bring borrowing costs down by 100 bps;
and compared with US T-bills with the same tenure, the spread is narrowing. Foreign participation
in VND domestic debt auctions is fairly limited (below 6% of total issuance) and hence, a credit
re-rating will not have as intense a reaction from the domestic bond market as would be normally
expected.
Figure 70: Moody’s and Fitch – Vietnam’s sovereign credit ratings
Agency Rating Outlook Date Agency Rating Outlook Date

Moody's B1 Positive 4/28/2017 Fitch BB- Positive 5/18/2017
Moody's B1 Stable 7/29/2014 Fitch BB- Stable 11/3//2014
Moody's B2 Stable 9/28/2012 Fitch B+ Positive 1/23/2014
Moody's B1 Negative 12/15/2010 Fitch B+ Stable 7/28/2010
Source: Moody’s and Fitch Ratings
Most Vietnamese banks also have positive outlooks from Moody’s and stable or positive outlooks
from S&P and Fitch.
Figure 71: Vietnamese banks’ current long-term issuer credit ratings
Agency Bank Rating Outlook Agency Bank Rating Outlook

Moody's ACB B2 Positive Fitch ACB B Stable
Moody's BID B1 Positive Fitch CTG B+ Positive
Moody's CTG B1 Positive Fitch MBB B Stable
Moody's MBB B2 Positive Fitch VCB B+ Positive
Moody's VCB B1 Positive S&P BID B+ Stable
Moody's VPB B2 Stable S&P CTG BB- Negative
Moody's STB Caa1 Negative S&P VCB B- Stable
Source: Moody’s, Fitch and S&P Ratings
What about rates?

1) The VN-US 5Y spread has been narrowing consistently since October 2011, thanks in part to
a slowing inflation in Vietnam and a reduction in Vietnam’s 5-year CDS spread by c 370 bps over
the period. The spread as of Q4 2017 was 222 bps, down 136 bps Y-o-Y. The key driver was
Vietnam’s robust macroeconomic backdrop bringing down the 5Y VN Government bond from
5.3% in 2016 to 4.6% in Q4 2017.
2) Interbank rates are also in a long-term downtrend and the SBV rate cut in July is unlikely to
have much of an impact on them in the medium term. Given the outlook for continued US interest HOLD
rates hikes in 2018, it may be prudent for the SBV to consider raising rates in tandem. However,
the Government has expressed a desire to see lower interest rates in 2018 which, if true, may
lead to some pressure on the VND. 1M, 6M and 1Y VNIBOR in Q4 2017 inched up by 41 bps, 12
bps and 2 bps, respectively, Q-o-Q.
Figure 72: 5Y US – 5Y VN Government yield spread Figure 73: 5Y and 1Y VN Government bond
14% 14%
12% 12%
10% 10%
8% 8%
6% 6%
4% 4%
2% 2%
0% 0%
Jul-14
Jan-12
Mar-16
Jan-17
Nov-12
Sep-13
Nov-17
May-15
1Q12
3Q12
1Q13
3Q13
1Q14
3Q14
1Q15
3Q15
1Q16
3Q16
1Q17
3Q17
5yr VN Govt Bond 1yr VN Govt Bond
US 5yr VN 5yr VN-US 5 yr spread
Source: Bloomberg, VCSC Source: Bloomberg, VCSC
A framework for genuine NPL resolution emerges. The power of the VAMC has been
enhanced due to its ability to dispose of collateral assets at market prices. Resolution
(42/2017/QH14) was passed on 6/21/2017 and will be implemented over a five-year period from
8/15/2017. It facilitates the sale of bad debts and collateral assets at market prices, which can
now be higher or lower than historical prices. VAMC is also able to work with credit institutions to
choose third party and independent valuation assessors.
Institutions that are NPA (non-performing assets) dealers are allowed to sell bad debts to other
institutions and individuals that do not have bad-debt dealing functions. Thus, while the collateral
recovery cycle is accelerated somewhat, there is still a fundamental problem of back-end
securitization or a distressed debt market which can handle real estate (especially in light of
complex land ownership regulations).
For domestic banks that have a substantial stock of bad debt but not substantial enough to need
restructuring, the NPL resolution is highly beneficial. As they work through their collateral stock,
they can accelerate loan growth and use profits to boost reserves.
Bankruptcy resolution allows banks to declare bankruptcy and will come into force from
1/15/2018 provided they have approval from SBV to go through the bankruptcy process.
The central bank will first consider the likely impact on the overall banking system, ensuring that
“too big to fail” will continue to be a feature of systemically important banks.
This is a positive development in the ongoing recovery of the Vietnamese banking industry as
until now, bankruptcies have been avoided by interventions from SBV. While the intervention
prevents potential short-term stress in the system, it introduces a form of moral hazard given that
equity holders of the failing bank do not usually suffer a meaningful loss on investments.
2018 outlook: New names coming; Fee-generating income could offer
upside to ROA given an underpenetrated market HOLD
For a longer-term horizon, fee income will help banks to increase ROA without boosting financial
leverage. Fee income relative to PPOP was low at 13% in 2016. The structural reason for this
was related to a 31% level of financial inclusion, much lower than peers. Vietnamese banks still
have lots of room to leverage the shared infrastructure of core banking to generate non-interest
income and drive returns.
Figure 74: Fee income to PPOP (FY 2016) Figure 75: Financial inclusion (FY 2016)
40% 120%
30% 90%
20% 60%
10% 30%
0% 0%
Russia
Indonesia
Turkey
Turkey
Indonesia
Vietnam
Vietnam
South Africa
India
Pakistan
South Africa
India
Thailand
Thailand
Philippines
Singapore
Malaysia
Philippines
Source: Bloomberg, VCSC Source: World Bank
Bancassurance: Insurers with consumer/retail focused banking partners are poised to

take off. Insurers in Vietnam tend to use multichannel distribution strategies, including agents,
bancassurance and telemarketing. Bancassurance has developed rapidly in Vietnam since 2007,
and more insurance companies are using bancassurance to expand their market share.
Currently, life insurance premiums are less than 1% of GDP, bancassurance life’s market share
is only 2%, bancassurance accounts for 10% of total market FYP and 6% of total market premia,
while based on regional comparables, this should be at 30%. We estimate bancassurance to be
the fastest growing segment and most important distribution of insurers in the near term.
Figure 76: Life premia to GDP (FY 2016) Figure 77: Bancassurance’s market share for life insurance
(FY 2016)
6% 50%
5% 40%
4%
30%
3%
20%
2%
1% 10%
0% 0%
Indonesia
Vietnam
Indonesia
Vietnam
Thailand
Thailand
Singapore
Malaysia
Malaysia
Singapore
Philippines
Philippines
Source: VCSC Source: VCSC
Auspicious time to combine digital banking channels with physical network franchise.
Consumer banks are aiming to improve financial inclusion via a combination of a wide physical HOLD
network franchise and digital banking through e-wallet, card products and internet banking to
improve customer experience and operational efficiency. Digital banking is supported by (1) low
financial inclusion of only 31%, vs 78% in Thailand, amid Vietnam’s middle class more than
doubling from 2013 to 2020 to reach to 33 million, and (2) an estimated 27.6% CARG during
2015-2020 in e-commerce market size.
Figure 78: Credit card penetration (2016) Figure 79: Card payments to consumer payment (2016)
40% 80%
30% 60%
20% 40%
10% 20%
0% 0%
Indonesia
Vietnam
Vietnam
Thailand
China
Thailand
Singapore
Malaysia
Philippines
Singapore
Malaysia
Philippines
Source: Frost and Sullivan Source: Frost and Sullivan
Figure 80: Household debt to GDP (2016) Figure 81: Middle class (mn) and 2016-2020 CAGR
100% 120 14%

80% 100 12%
80 10%
60%
8%
40% 60
6%
20% 40 4%
0% 20 2%
Vietnam
Indonesia
Malaysia
Thailand
Singapore
Philippines
0 0%
Vietnam Philippines Thailand Indonesia
Middle Class (Million) 2016-2020 CAGR
Source: World Bank Source: BMI
Consumer and retail focus underpins yields. We expect that banks will continue to enjoy
increasing asset yields in 2018 due to their retail focus. CTG will continue its path to expand its
portion of retail lending to 50% from its current level of c 25%, per management; and MBB has
announced a foray into consumer finance with a tie-up with Shinsei. Due to current high CASA
ratios of 26% for MBB and 27% for VCB (compared to a sector average of c 20%), we forecast
that these banks will continue to enjoy low funding costs of 3.8% and 3.2% (sector average at
4.7%) in 2018F, respectively, offering opportunities to improve NIMs. However, some banks could
see competitive pressures on the yields of its interest earning asset portfolio.
Figure 82: CASA ratios (9M 2017) Figure 83: NIM (FY 2018F)
HOLD
30% 10%
8%
20%
6%
4%
10%
2%
0% 0%
VCB MBB BID CTG ACB VPB VPB MBB ACB BID CTG VCB
Source: Company data, VCSC Source: Company data, VCSC
Consumer finance is the profitable niche. The target segment of the consumer population is
the working age population, which is expected to reach 56.2 million by 2020F. The consumer
finance sector is expected to perform strongly with personal income growing at a 13.2% CAGR
over 2016-2019F (as per BMI). Retail banks and consumer finance operate in very different
market segments, even while overlap is unavoidable in product-based channels (mobile credit,
vehicle credit).
In 2016, the total revenue pool for the sector was USD26.6 billion. Consumer credit penetration
in Vietnam stood at 9.8% of GDP in 2016 (expected to be at 12% in 2017F) while regional peers
are 320 bps higher. In terms of loan product type, the proportion of cash loan is likely to fall from
89% in 2016 to 81% of total loan share by 2019F with credit cards grabbing market share.
Every universal bank can establish a leasing company or a consumer finance subsidiary.
However, high yield consumer finance is a structurally different business model with high yields
and significantly higher risks. Therefore, the real barrier to entry is related to execution and
knowledge of consumer behaviors, not business licences.
Figure 84: Vietnam’s outstanding consumer finance (USD bn)
70 20%
18%
60
16%
50 14%
40 12%
10%
30 8%
20 6%
4%
10
2%
0 0%
2011 2012 2013 2014 2015 2016 2017F 2018F 2019F
Consumer Finance Loans Balance Consumer Finance Loans/GDP (RHS) Consumer Finance/Loan Book (RHS)
Source: Stoxplus, VCSC
What the banking system needs; 1) Recapitalization via Tier I Capital as we estimate a USD5
HOLD
billion to USD20 billion system-wide capital shortfall given decent NPL scenarios, 2) issuance of
forex denominated and government guaranteed Tier II bonds, 3) FOL limits to be raised
substantially, 4) regulatory overhaul of the distressed debt market and collateral recovery
mechanisms, 5) credit rationing and removal of growth targets, 6) sector consolidation with no
more than ten banks left standing.
New listings. A strong macroeconomic backdrop has helped heal the better managed parts of
the banking system. Several new banks are expected to be listed in 2018, giving investors more
investment opportunities in the banking sector.
Figure 85: Banks expected list in 2018*
Charter Capital FY16 PPOP FY16 NPAT
Bank ROAE 2016 ROAA 2016
(VND bn) Growth Growth
Techcombank 8,878 35% 99% 17.5% 1.5%
HD Bank 8,100 24% 44% 7.9% 0.6%
TP Bank 5,482 29% 1% 10.8% 0.6%
OCB 4,000 29% 85% 7.8% 0.7%
* Data is based on FY16 and FY15 financial statements
Source: VCSC
Stock recommendations
BUY – VP Bank (HSX: VPB)
HOLD
Improving NIMs, balance sheet growth and rationalization of credit costs can potentially drive
bottom line growth in 2018F. FE Credit, with c 50% market share, is the market leader in Vietnam’s
consumer finance sector. VPB’s standalone NIM as of 9M 2017 was at 4.9%, outclassing its
domestic peers at 3.3%. While loan loss coverage is staying at c 50% rather than increasing to
100%, additional NPLs are being provisioned for via a write-off. On the other hand, contribution
of bancassurance is expected to drive up net fee and commission income. The market share of
VPB’s bancassurance in 2016 was 5.4%. With a recently signed 15-year exclusive partnership
with AIA, VPB’s bancassurance could provide 4%-5% additional uplift to 2018F EPS estimates
(currently not in our forecasts).
BUY – Military Bank (HSX: MBB)
We have an optimistic view on MBB’s asset yields (at 7.9% in 2018F), which are backed by a
retail lending focus. Funding costs are estimated to fluctuate around 3.7%-3.8% in 2018F
(compared to our coverage universe at 4.4%) due to a high CASA ratio of c 27%. Therefore, we
forecast MBB’s NIM for 2018F at 4.2%. MBB’s current equity multiple of 10.7x is among the lowest
across Vietnam’s banking sector (15.9x). MBB has also reported a foray into consumer finance
with a tie-up with Shinsei. Assuming 2.5%-10% 2019F market share for MCredit, we see 50%-
201% EPS uplift for MBB. EVA per share translating to TP uplift would be VND3,466-VND13,862
per share (15%-60% uplift to current TP).
OUTPERFORM – Vietinbank (HSX: CTG)
NIM could surprise on the upside as the bank is shifting its loan book toward retail customers.
The bank is maintaining its provision buffers at c 100%. We expect its NPL ratio to be at 1.3%
(+10 bps Y-o-Y) in 2018, coupled with a 10-bps increase in write offs to gross loans (to 0.3% in
2018F). CTG can increase equity by issuing more stock and international bonds to increase CAR
under Basel II, per management. CTG’s 2018F P/B ratio of 1.2x is compelling compared to sector
peers at 1.8x.
OUTPERFORM – BIDV (HSX: BID)
BID has a high VAMC balance among the large banks, but is technically solvent. With strong core
business performance and decent provisioning to resolve legacy issues, we still believe in a
turnaround story for BID operations. A strategic partner could help the bank to boost capital ratios,
which could be a catalyst for the stock in the medium term and provide further upside.
Cameron Joyce, CFA Insurance sector: Bancassurance key to boosting penetration
cameron.joyce@vcsc.com.vn
+84 28 3914 3588 ext. 163 rate through access to banking customers HOLD
Nghia Dien
nghia.dien@vcsc.com.vn Figure 86: VCSC insurance coverage index vs VN-Index
+84 28 3914 3588 ext. 138
60%
Son Tong
son.tong@vcsc.com.vn 50% 48%
+84 28 3914 3588 ext. 116
40%
30%
20%
10% 8%
0%
-10%
-20%
Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17
VNIndex Insurance Sector
Source: Bloomberg
Figure 87: Insurer tickers vs VN-Index
60%
50%
40%
30%
20%
10%
0%
-10%
-20%
VNIndex BVH BMI
Source: Bloomberg
Target Div yield FY17 FY18

Market Current MR
Company Price Upside @ EPS EPS FY18
Tickers Rating Cap Price QTR
name VND / % current growth growth P/B (x)
USD mn VND/sh P/B (x)
share price % %
Bao Viet
BVH BUY 1,978.5 74,000 66,000 12.1% 1.5% 42% 27% 2.8x 3.2x
Holdings
Bao Minh
BMI BUY 144.1 46,500 35,800 29.9% 2.8% 23% 14% 1.2x 1.5x
Corporation
2017 recap: Boom in exclusive bancassurance deals
Revision to the math reserve calculation will alter the expected returns of life-insurer
HOLD
portfolios going forward. Circular 50/2017/TT-BTC was issued in May 2017 which adjusts the
math reserve calculation and causes material changes to life insurance companies.
Insurance companies are required to hold reserves equal to the future expected value of pay-
outs, discounted to the present day. The discount rate has been reduced to 70% of the prevailing
10-year bond yield from 80%, under the guidelines of Circular 50. As a result, insurance
companies will need to hold a larger portion of their investment portfolio in reserve. This should
lead to a higher portion of sovereign debt (20-30Y Government bonds) in portfolios compared to
equity and other asset classes. This, in turn, will alter the expected return of the investment
portfolio, as well as earnings, over the coming years.
BVH is the only life insurer under our coverage, and we expect the allocation to Government
bonds to increase to 60% over time. This will make the portfolio more conservative, but will also
stimulate growth in its expected returns.
Bancassurance. Bancassurance has developed rapidly in Vietnam since 2007 and more
insurance companies are using bancassurance to expand their market shares. As of H1 2017,
bancassurance accounted for 10% of total market FYP and 6.4% of total market premia,
compared to 30%-40% for regional peers. We estimate bancassurance to be the fastest growing
and most important distribution channel in the medium term. Hence, insurers with consumer/retail
focused banking partners, such as VP Bank and Techcombank, are better placed than peers.
There were a lot of exclusive deals between banks and life insurers during 2017, which made
bancassurance emerge as a new trend in the life insurance segment. For the non-life insurance
segment, bancassurance was developed earlier among commercial banks and non-life insurers
(non-exclusive deals) and became one of the key distribution channels, with average contribution
to GWP from 10%-17%.
SFMI acquiring PGI at a 30% premium was the only M&A deal in 2017. In May 2017, Samsung
Fire & Marine Insurance (SFMI) acquired a 20% stake in PGI (PJICO) at 2.3x P/B (30.4% premium
compared to market price), equivalent to a USD24 million deal. Historically, strategic partners
have acquired more than a 20% stake in local non-life insurers at a 2.0x P/B and 68% premium
compared to market price, reflecting strong interest from foreign partners in Vietnam’s non-life
insurance prospects.
Premium, claim and market share. Vietnam’s life and non-life premia recorded growth of 31.1%
and 12.3%, respectively, in 9M 2017. New business of life insurance continued to lead the industry
with 31.7% Y-o-Y growth, reaching VND15.3 trillion (USD675.8 million). The top five life insurers
accounted for 80% of total new business market share, including BVH (20.8%), Prudential
(18.5%), Dai-ichi (15.1%), Manulife (13.9%) and AIA (11.4%). The penetration rate in life
insurance reached approximately 1.5%, up 50 bps compared to 2016 thanks to more effective
distribution channels. Although developing fast, Vietnam’s life insurance still remains well below
regional peers, indicating lots of room for growth. The non-life insurance segment remained at
slower growth compared to life insurance and the top five market leaders together built up a 58%
market share, including BVH (19.3%), PVI (16.8%), BMI (8.1%), PTI (7.6%) and PGI (6.0%). Non-
life insurance penetration went from 0.8% in 2016 to roughly 1% in 9M 2017, which is still relatively
underdeveloped compared to EM and FM regional peers.
2018 outlook: Poised for big year
Robust GDP growth to support growth in the sector. We believe that Vietnam’s 2018 GDP
HOLD
growth, targeted at 6.5%-6.7%, will be the primary growth driver for the insurance sector.
Vietnam’s insurance premia have historically grown at 1.3x nominal GDP growth in life and 1.2x
in the non-life segment. Meanwhile, insurance penetration (premiums over GDP) still remained
relatively low at 2.5% as of 9M 2017, implying ample room for growth. However, the low
penetration rate means nothing if expected GDP growth remains subdued. Fortunately, Vietnam’s
expected GDP growth will likely perform well and the high urbanization growth rate will also be a
main driver for sector growth. In addition, Vietnam has the potential to benefit from regulatory
changes with immense upside from even a basic evolution of the regulatory framework.
2018 growth outlook for GWP and where growth momentum will come from. Life insurance,
automobile insurance and health & personal insurance are the main growth engines. For life
insurance, we expect new business revenue growth to remain high at around 30% Y-o-Y due to
favorable macroeconomics conditions as well as the improving perception among the Vietnamese
population regarding the protection and investment benefits of insurance products.
Combined ratio to remain stable in non-life and lower in life insurance. Our 2018 outlook is
that non-life insurance segment’s combined ratio will remain stable at 90%-92%. Competition
among local insurers is likely to become more intense as most top-performing insurers now have
their own foreign strategic partners who are pushing for higher expense spending in a more
aggressive pursuit of market share. As a result, each company may need to spend more on
commissions and selling expenses while also seeking further growth from new low-cost channels,
such as bancassurance. On the other hand, we expect life insurance’s combined ratio to reduce
gradually and start making underwriting profit from 2018. This is due to higher growth in the
number of new case counts partly boosted by new bancassurance channels, leading to higher
growth in the life segment.
Underwriting profit to contribute to bottom line growth, but investment income remains
key growth driver. While we factored in a slight reduction in the combined ratio as our view on
underwriting profit is that standalone life insurance operations (excluding investment income) are
at an inflection point for mature players and that they should turn stable from 2018 and provide
accretive ROE from investment income. In addition, we expect the compression in longer dated
yields (-165.6 bps for 10 years over 2015-current) to have bottomed. Hence, upside in the net
profit of insurance companies is expected to increase, underpinned by the two factors mentioned
above.
M&A, SCIC divestment and FOL removal potential. None of the local life insurers have
successfully removed their foreign ownership constraints. PVI come the closest, having gained
shareholder approval to do so, but they still await Government approval. We do not yet know the
Government’s stance on whether it considers insurance to be a conditional sector and, therefore,
ineligible for FOL removal.
If PVI is successful, we expect more FOL removal to follow in the non-life insurance segment in
order to upgrade credit ratings and help domestic players expand their market share in light of
foreign competition. In fact, SCIC's divestment plan will bring big opportunities for BMI, as
foreigner strategic investors have demonstrated an interest in increasing their investment and
influence on the insurance market. Hence, we expect more M&A deals to happen in the coming
year and estimated deal valuations should be around 2x P/B, in line with historical transactions.
Bancassurance to become a dynamic growth driver. Looking forward, we expect
bancassurance to be one of the main and irreplaceable distribution channels for most insurance
companies. This is due to the various benefits, such as the ability to boost GWP by tapping into
the huge customer base of commercial banks and lessening the reliance on high-cost traditional
agents by exploiting these bank channels. We expect bancassurance to develop aggressively
from a 10% origination share in 2016 to an expected 30% in the medium term due to the synergies
between banks and insurers. HOLD
Stock recommendations
BUY – Bao Viet Holdings (HSX: BVH)
We upgraded to a BUY rating on BVH as we believe standalone life insurance operations
(excluding investment income) are at an inflection point and will turn stable from 2018F to provide
accretive ROE from investment income. In addition, BVH’s rapid bancassurance channel growth
(from 6.5% origination share as of 2016 to an expected 30% in the medium term) should increase
penetration and reduce distribution costs in the medium term. Due to a robust inflow of life
premium, BVH’s life investment portfolio in its total investment portfolio has increased significantly
from 65% in 2008 to 81% in 2016. This allows for enhanced yields due to the leeway in taking
duration premia in life insurance products. The estimated investment yield has shrink from a peak
of 9.6% in 2011 to 7.2% in 2016, mainly due to a contraction in the 10-year sovereign bond yield.
We believe the yield compression cycle is over and that yields will start climbing upward in 2018F.
However, regulation regarding math reserves is a work in progress in our view, and this is likely
to introduce significant volatility in earnings alongside potential unexpected earning shocks over
the coming years. At a 2017 P/EV of 1.7x, BVH is among the most attractive life insurance plays
in global frontier markets and in the region.
BUY – Bao Minh Corporation (HSX: BMI)
We initiate on BMI with a BUY rating and a target price of VND46,500 as overall, we expect gross
written premia to grow 14.0% in 2018 to VND4.1 trillion (USD180.6 million), driven by personal
insurance and motor vehicle insurance. In addition to sales via BMI’s strong and experienced
professional agents channel, we believe recently signed distribution deals with leading consumer
finance companies will act as an ongoing catalyst for further premium growth, especially in the
personal insurance segment. Potential uplift in FOL and SCIC divestment can be considered as
other catalysts for re-rating. Historically, we have noted several instances where foreign insurers
have paid 2x P/B on average for strategic stakes in Vietnamese non-life players. With a current
P/B of 1.3x, which is at an attractive discount to region peers who trade at 1.6x, especially given
the growth outlook, we value Bao Minh Insurance equity at VND4.3 trillion (USD187.9 million).
Lucy Huynh, CFA Aviation Sector: Three-pronged growth via tourism boom, a
rising middle class and robust manufacturing activity HOLD
Senior Manager
Lucy.Huynh@vcsc.com.vn
+84 28 3914 3588 ext. 130
Figure 88: Aviation Index vs VN-INDEX (YTD price performance)
Trang Tran
Analyst
Trang.ThuTran@vcsc.com.vn 100%
+84 28 3914 3588 ext. 149 84%
Phu Pham 80%

Analyst
Phu.Pham@vcsc.com.vn
+84 28 3914 3588 ext. 142 60% 48%
40%
20%
0%
-20%
Dec-16 Feb-17 Apr-17 Jun-17 Aug-17 Oct-17
Aviation Index VN Index
Source: VCSC, Bloomberg

Note: Aviation index includes ACV, CIA, HVN, MAS, NAS, NCS, NCT, SAS
, SCS, VJC.
Note: Starting point as of December 30, 2016 and closing point as of December 29, 2017.
Figure 89: Aviation Stocks vs VN-INDEX (YTD price performance)
140%
120%
100%
80%
60%
40%
20%
0%
-20%
-40%
-60%
Dec-16 Feb-17 Apr-17 Jun-17 Aug-17 Oct-17
VN Index ACV HVN SCS SAS SGN VJC NCT

Note: Starting point as of December 30, 2016 and closing point as of December 29, 2017.
Figure 90: Stock recommendations (USD mn)

TTM TTM EPS 2018F Div
VCSC Listing Foreign Mkt TTM TTM ROE
Ticker net P/B YoY EPS YoY yield
Rating board room cap NPAT P/E (%)
sales (%) (%) (%)
VJC O-PF HOSE 106 2,918 1,231 103 19.7 8.0 N/A* 18.1 2.3 39.5
SCS M-PF UPCoM 154 307 22 11 20.0 7.2 78.6 22.0 4.7 40.4
Source: VCSC, share prices as of December 29, 2017.
Note: O-PF: OUTPERFORM rating.
Note: M-PF: MARKETPERFORM rating.
*Q4 2015 financial statements are not available.
Figure 91: HOSE and HNX listed aviation sector companies (USD mn)
TTM
Foreign Mkt TTM net TTM TTM EPS
Div
ROE Key business HOLD
Major
Ticker Exch. P/B yield
room cap sales NPAT P/E YoY (%) line shareholders
(%)
(%)
Huong Duong
Investment
(28.6%), Nguyen
Air
VJC HOSE 98.6 2,917.7 1,231.0 102.5 19.7 8.0 N/A 1.1 39.5 Thi Phuong Thao
Transportation
(9.4%), GIC
(5.1%), HD Bank
(3.5%)
Warehousing
HVN (55.1%),
services,
NCT HOSE 42.0 131.1 30.5 11.9 11.4 8.0 -13.9 11.7 61.8 NAS (7.0%), FTIF
Cargo
(5.0%)
handling
Duty-free
ASG (21.5%),
products,
FPT Fund (4.7%),
Business
CIA HNX 6.0 21.5 12.2 1.1 7.7 3.8 N/A 4.7 40.4 SAS (6.9%),
lounge,
Truong Minh
restaurants,
Hoang (2.8%)
airport bus
Catering, taxi, HVN (36.1%),
construction Krohne Fund
MAS HNX 3.1 16.9 14.0 2.1 7.0 5.9 20.0 4.5 71.9
and repairing, (6.1%), Le Thi
advertising Thuy Linh (5.8%)
Figure 92: UPCoM listed aviation sector companies (USD mn)

TTM
TTM Div Expected
Foreign TTM TTM EPS ROE Major
Ticker Mkt cap net P/B yield Key business line date moving
room NPAT P/E YoY (%) shareholders
sales (%) to HOSE
(%)
Airport security
screening, Ministry of
ACV 4,728.8 10,402.2 713.1 228.3 49.1 9.7 N/A 0.7 21.8 passenger service, Transportation N/A
and leasing retail (95.4%)
space
Ministry of
Transportation
HVN 489.7 2,335.2 3,133.7 91.9 25.6 3.4 273.0 1.7 14.4 Air Transportation Q2 2018
(86.2%), ANA
(8.8%)
Warehousing
GMD (37.3%),
SCS 153.6 307.2 22.2 11.0 20.0 7.2 78.6 4.7 40.4 services, Cargo Q1 2018
ACV (15.2%)
handling
Duty-free products, ACV (49.1%),

SAS 83.5 174.0 93.4 10.5 18.7 2.7 1,679.8 4.1 15.0 Business lounge, IPP Group N/A
restaurants (24.9%)
Passenger ACV (48.1%),
Q1 2018
services, baggage SSI (15.0%),
Resubmitted
handling, aircraft IMP (13.0%),
SGN 37.3 170.2 39.2 7.8 22.2 11.0 109.0 1.3 61.4 application to
cleaning, load Andbanc
HOSE on
control, cargo (4.7%), SSI
11/23/2017.
services AM (2.5%)
HVN (60.0%),
NCS 18.8 39.5 23.8 3.0 12.5 5.1 15.7 4.1 41.4 Air catering SAS (10.0%), N/A
VACS (1.7%)
Duty-free products,
airport taxi,
NAS 5.5 11.5 23.2 1.3 9.6 1.7 11.8 9.7 18.1 luggage wrapping, HVN (51.0%) N/A
souvenir,
restaurants.
What happened in 2017
HOLD
2017 was a solid year for the sector, with almost all lagging and leading indicators trending
positively. Tourism numbers were up significantly, including international tourist arrivals (2017:
+29.1% YoY) and passenger numbers reported by Vietnam’s two carriers, Vietnam Airlines (9M
2017: +5% YoY) and VJC (9M 2017: +22% YoY). On the manufacturing front, growth in registered
and disbursed FDI inflows remained strong, with the manufacturing sector continuing to dominate
registered FDI. Vietnam’s PMI also remained in expansionary territory and the manufacturing IIP
exhibited good growth, leading to higher international volumes for listed air cargo terminal
operators SCS (9M 2017: +16.3% YoY) and NCT (9M 2017: +2.9%).
Figure 93: International tourist arrivals (mn)
14
12
10
0
2012 2013 2014 2015 2016 2017
Total Traveled by air
Source: GSO, VCSC
Figure 94: Domestic airport arrivals (mn)

60
50
40
30
20
10
0
2012 2013 2014 2015 2016
Source: ACV
Figure 95: Chinese and South Korean tourists keep coming
100%
HOLD
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2015 2016 11M 2017
China Korea, Rep. Japan Taiwan US

Russia Malaysia Australia Thailand Other countries
Source: GSO
Figure 96: Manufacturing sector dominates registered FDI (USD bn)
35
30
25
20
15
10
0
2012 2013 2014 2015 2016 11M2017
Manufacturing and processing Gas, Electric & Water

Real estate Wholesale, Retail & cars/motobikes repair
Construction Others
Source: MPI, VCSC
How the market perceived 2017 developments
HOLD
The listing of monopoly airport operator ACV on UPCoM in late 2016 was followed by fellow
heavy-weight aviation stocks HVN and VJC in 2017, putting Vietnamese aviation firmly on the
radar and resulting in a combined market capitalization of VND375.3 trillion (USD16.5 billion) for
the sector by December 2017. In lieu of major pure play listed tourism operators or hotel chain
operators with sufficiently large market cap and liquidity, investors piled into aviation and other
transportation stocks in search of exposure to Vietnam’s tourism boom. The sector was dragged
down mid-year as HVN initially underwhelmed post-listing, but was given a boost around August-
September 2017 when ACV announced it was raising passenger and aircraft take-off and landing
fees and charges, VJC issued bonus shares and the stock became eligible for margin lending. As
we end 2017, we see the sector index up 82.3% over the year and outperforming the VN-Index
by 48.0%, and as a gauge of appetite for Vietnam aviation, we see ACV trading at a staggering
TTM P/E of 48x and TTM EV/EBITDA of 30x (as of December 29, 2017) despite limited market
disclosures and corporate access.
Outlook for 2018

Inbound tourism: a second Thailand in the making
The perennial question for international travellers booking a tropical Southeast Asian getaway is:
Thailand or Vietnam? Both destinations offer diverse travel experiences with bustling cities,
adventurous mountain landscapes, relaxing beach towns, history, culture and world-renowned
cuisine. And what Vietnam currently lacks in tourism infrastructure, it makes up for in price. These
reasons, as well as being within a five-hour flight radius from nearly half of the world’s population,
have helped Vietnam become a major tourist destination.
Assuming the country’s tourism infrastructure continues to improve, we believe Vietnam has the
potential to reach Thailand-status among holidaymakers. We consider Thailand to be a good
proxy to forecast Vietnam’s inbound tourism sector growth potential, keeping in mind anecdotal
concerns that Vietnam has not been as successful as Thailand in attracting return tourists. This
is likely attributable to the gap in tourism infrastructure and the short-term mindset of some
operators when dealing with tourists. Regardless, we believe Vietnam’s inbound tourist arrivals
still have significant upside: Vietnam attracted less than one-third the number of international
tourists as Thailand in 2016, but at expected growth rates, Vietnam should be able to catch up to
Thailand’s current numbers by 2029.
Tourism infrastructure includes ease of obtaining foreign tourist visas, connectivity to tourist
destinations and attractions and growth in accommodation availability and options. Extension of
the 15-day tourist visa exemption policy for foreigners from five Western European countries to
June 30, 2018 and the recent introduction of e-visas should support inbound tourism as well as
growth in hotel beds across all classes. Vietnam is no longer just a pit stop for backpackers, but
the ongoing development of award-winning luxury resorts (5-star hotels grew at a CAGR of 17%
over 2012-2016) has seen Vietnam also emerge as a honeymoon and luxury resort destination.
Figure 97: Vietnam’s international tourist arrivals are set to Figure 98: Vietnam’s international tourist arrival growth is
reach Thailand’s current numbers by 2029 (mn) expected to exceed Southeast Asian peers (2015-2020
CAGR) HOLD
35.6 35.6 7.9%

7.5%
6.8% 7.0%
6.5% 6.6%
CAGR 7.9%
12.9
Vietnam Vietnam Thailand

2017 2029 2017
Source: Statista, VCSC Source: VCSC, Euromonitor
Figure 99: Vietnam visa exemption policies for foreigners are loosening
Region Countries Visa exemptions
Asia Singapore less than 30 days
Asia Thailand less than 30 days
Asia Cambodia less than 30 days
Asia Malaysia less than 30 days
Asia Philippines less than 21 days
Asia Laos less than 30 days
Asia Indonesia less than 30 days
Asia Japan less than 15 days
Asia South Korea less than 15 days
Asia Myanmar less than 14 days
Asia Brunei less than 14 days
Europe Russia less than 15 days
Europe Sweden less than 15 days
Europe Finland less than 15 days
Europe Denmark less than 15 days
Europe Norway less than 15 days
Europe Germany less than 15 days
Europe France less than 15 days
Europe Spain less than 15 days
Europe Italy less than 15 days
Europe Belarus less than 15 days
Europe United Kingdom less than 15 days
Source: Ministry of Foreign Affairs
Figure 100: Tourism infrastructure is growing
HOLD
25,000 450,000
400,000
20,000
350,000
300,000
15,000
250,000
200,000
10,000
150,000
100,000
5,000
50,000
0 0
2012 2013 2014 2015 2016
Number of hotels Number of tourist operators Number of beds (RHS)
Source: GSO
Figure 101: Vietnam tops affordability (daily USD spend) ranking for holidaymakers among
Southeast Asian peers
40
35
30
25
20
15
10
Source: Price of Travel
Outbound international and domestic tourism: a play on the increasing wealth of the mass
market HOLD
The combination of a young rising middle class with more discretionary income and the growth of
LCCs has mobilized the Vietnamese mass market, resulting in an upsurge in outbound
international and domestic air travel. We expect the momentum to continue as VJC plans to add
another 15 planes to its fleet and 25 international routes in 2018 and macroeconomic conditions
remain positive for the Vietnamese consumer. Vietnam’s GDP per capita has almost doubled over
the last 10 years to USD2,215 as of the end of 2016, while at the same time, air fares have
declined. For example, to travel the 1,619 kilometers from Ho Chi Minh City to Hanoi by air is now
commensurate or cheaper than travelling by road and rail in terms of cost. The time saved,
however, is significant, given Vietnam’s long coastline, mountainous topography and
underdeveloped transportation infrastructure. Other catalysts which are spurring domestic
tourism include improving connectivity to tourist destinations and attractions and relaxed casino
regulations for locals.
Figure 102: Vietnam’s GDP per capita has almost doubled over the last 10 years (USD)
3,000
2,000
1,000
0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017F
Source: VCSC, World Bank
Figure 103: Air travel is the most cost and time efficient mode of transport in Vietnam
HCMC - Hanoi one-way Time (hours) Cost (VND) Cost (USD)
Air 2.05 700,000-1,200,000 31-53
Road 32.00 688,075 31
Rail 34.00 1,238,739 55
Source: VCSC estimate (as of December 2017)
Air cargo transportation: benefitting from Vietnam’s role in the global manufacturing value
chain
Growth in air cargo volumes in Vietnam are currently being driven by two factors: global trade
flows and Vietnam’s steady transformation into an export manufacturing hub as China moves up
the value chain. This structural shift is being cemented by robust FDI inflows, which are mostly
being directed into manufacturing and benefiting industries such as industrial park developers
and transportation and logistics operators. Given Vietnam’s downstream role in the global
manufacturing value chain as a late-stage assembler, there is a steady flow of imported input
components and materials and exported finished products, resulting in many foreign-owned
export-based manufacturing facilities having both inbound and outbound transportation and
logistics requirements. If we take growth in industrial parks as a leading indicator of transportation
and logistics needs, the future looks bright: as of the end of 7M 2017, 105 industrial parks were
still in the early stages of clearing land for infrastructure development. If all of these industrial
parks come online, this would represent a 50% increase in the current number of industrial parks
already in operation.
HOLD
We think companies with exposure to air cargo transportation are currently the most attractive
segment in transportation and logistics as they benefit from this macro trend. We consider these
companies to be better positioned than those dependent on the flow of sea cargo, given
overcapacity at Vietnam’s sea ports and distressed global shipping line customers, which are
translating to pressure on port tariffs. Meanwhile, although air cargo volumes are significantly
lower than sea cargo volumes, capacity is expected to remain tight, and the disproportionately
higher value of air cargo creates a favorable environment for air cargo tariffs in Vietnam. Air cargo
is, however, not just a domain for high-value goods, but also for time, temperature or environment-
sensitive goods. Smart phones and other electronic goods, the fastest growing segment of
Vietnam’s exports, need to be transported by air to avoid exposure to salty air. Imported input
components and materials that are supply chain critical are time-sensitive. Additionally, insatiable
demand from Vietnam’s rising middle class for foreign consumer and healthcare products is
driving up imports. In particular, we expect the transportation of temperature-sensitive
pharmaceutical goods to continue to rise.
Figure 104: Vietnam’s air cargo terminal operators are running at tighter capacity…
Planned 2016 air
Air cargo
air cargo cargo
City Airport Code capacity Utilization rate
capacity* volume
(tonnes)
(tonnes) (tonnes)
Ho Chi Minh Tan Son
SGN 550,000 700,000 537,258 98%
City Nhat
Hanoi Noi Bai HAN 700,000 700,000 600,000 86%
Source: VCSC, ACV, SCS
*Change in planned air cargo capacity at Tan Son Nhat airport reflects SCS's phase 2
expansion. Expansion plans for other terminals are unknown.
Figure 105: …than Hai Phong’s port operators (mn TEUs)
0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017F 2018F
Throughput Capacity
Source: Vietnam Seaports Association (VPA), company data, VCSC estimates
Figure 106: Net imports of pharmaceutical products into Vietnam (VND bn)
HOLD
2.94 2.87
2.66
2.37
2.19
2.05
2012 2013 2014 2015 2016 11M2017
Source: VCSC, Customs
Key risk: airport infrastructure overcapacity and execution of expansion plans
Our aviation investment thesis is contingent on timely airport infrastructure expansion to meet
increasing passenger and air cargo traffic. We estimate current airport infrastructure funding
needs to be around VND30.8 trillion (USD1.4 billion) for the expansion of existing airport capacity
(via new passenger terminals, runways, aprons) and around VND382.9 trillion (USD17.0 billion)
for the construction of the new Long Thanh international airport - which is still in the feasibility
study phase – to service Ho Chi Minh City, most of which will need to be managed by ACV.
Funding hurdles are therefore high, and infrastructure projects in Vietnam have a track record of
being delayed (see: Ho Chi Minh City and Hanoi metro rail projects).
Figure 107: Vietnam’s major airports are beyond or close to full capacity
2016
Capacity 2016 volume
City Airport Code Type utilization
(mn pax) (mn pax)
rate
Ho Chi Minh Tan Son Nhat SGN International 28.0 32.4 116%
Hanoi Noi Bai HAN International 25.0 20.6 92%
Da Nang Da Nang DAD International 6.0 8.8 147%
Nha Trang Cam Ranh CXR International 2.5 4.9 196%

Phu Quoc Phu Quoc PQC International 2.7 2.1 78%
Source: VCSC, ACV
Figure 108: Estimated cost and timeline of Vietnam’s major airport expansion plans and the new
Long Thanh airport
HOLD
Cur. Planned Estimated Estimated Planned
City Airport Code Capacity Capacity Cost Cost Comple-
(mn pax) (mn pax) (VND bn) (USD bn) tion
Ho Chi Long Phase 1
LTIA N.M. 25 382,883 17.0
Minh City Thanh by 2025
Ho Chi Tan Son
SGN 28.0 45 8,200 0.4 2019
Minh City Nhat
Hanoi Noi Bai HAN 25.0 50 12,200 0.5 2020
Da Nang Da Nang DAD 6.0 12 3,700 0.2 N/A
Nha Trang Cam Ranh CXR 2.5 5 2,300 0.1 2018
Phu Quoc Phu Quoc PQC 2.7 5 4,400 0.2 2018
Source: VCSC, ACV
Note: Planned capacity of Long Thanh airport: 25 million by 2025; 50 million by 2035; 100 million by 2050
Note: Planned completion of Long Thanh airport: Phase 1, 2 and 3 are expected to be completed by 2025,
2035 and 2050, respectively.
Stock Recommendations for 2018
OUTPERFORM – Vietjet Air (HSX: VJC)
HOLD
VJC is currently our top aviation sector stock pick. We think the LCC is best positioned to ride the
outbound tourism trend with its leading position in the domestic market and a strong management
team who have demonstrated a track record for impeccable timing when executing their strategy
in a traditionally challenging industry. The company is continuing its aggressive international route
expansion (an additional 25 international routes or 120% growth in international ASK in 2018) to
fully capture the underpenetrated Vietnamese mass market as well as strong inbound demand
from Northeast Asia, while focusing on maintaining solid operating metrics. Management is
guiding to a 47% YoY increase in passengers to 25 million in 2018, and with 15 more planes
scheduled for delivery in 2018, load factors pushing 85%-90% and a competitive cost structure
(the forecast for CASK-ex fuel is USD2.10 cents-USD2.29 cents compared to the regional peer
median of around USD3.20 cents), we believe this target is within reach. Excluding the impact of
SALB transactions, we currently forecast 2018F core revenue and core NPAT to grow by 53.0%
and 66.7%, respectively, resulting in a 2018F P/E of 15.7x and ROE of 32.4% compared to its
peer group’s median TTM P/E of 16.8x and ROE of 21.0%. We think short-term catalysts for VJC
include the issuance of further bonus shares (which have no economic impact but perceived value
in the local market) and possible inclusion in the VN-30 Index. As we continue to test our
investment thesis on VJC, we are watching any leading indicators around outbound tourism
appetite and the company’s ability to take its strong domestic brand and operations internationally.
MARKETPERFORM – Saigon Cargo Services (UPCoM: SCS)
Tan Son Nhat-based air cargo terminal operator, SCS, is currently enjoying a perfect storm of:
high industry growth (CAGR of 15% over 2018-2022), a favorable duopoly market (with its only
direct competitor at close to full capacity), high operating leverage (NPAT margins expected to
trend toward 70% by 2022), strong cash flow generation (cash conversion ratio of around 80%-
90%), low capex requirements (around VND177 billion/USD8 million over the next seven years)
and a strong balance sheet (net cash position). We currently forecast 2018F revenue and NPAT
to grow by 17.0% and 31.0%, respectively, resulting in a 2018F P/E of 14.9x and ROE of 48.2%
compared to its peer group’s median TTM P/E of 17.8x and ROE of 17.3%. While we expect the
competitive landscape for SCS to change with the development of the Long Thanh international
airport (phase 1 planned air cargo capacity: 1.2 million tonnes), we consider this to be a long-term
threat to our investment thesis that will take at least a decade to materialize.
NOT RATED – Saigon Ground Services (UPCoM: SGN)
Another less obvious beneficiary of the positive macro trends for the sector is SGN, which we
expect to move to the HOSE board in early 2018. We believe SGN is a solid pick in the aviation
supply chain due to its competitive sweet spot in a duopoly market and exposure to both Vietnam’s
tourism and manufacturing story. The company has historically generated NPAT margins of
around 20%-24% and ROE of 50%-60%. SGN provides various ground services to international
and domestic airlines at Tan Son Nhat (55% market share), Da Nang and Cam Ranh airports,
and is looking to expand to other airports in southern Vietnam. The company’s services include
passenger, ramp, baggage, aircraft appearance, load control and flight, cargo, charter and VIP
handling, training, aviation IT support, line maintenance and other support services, as well as
workshop services for ground support equipment. ACV is its largest shareholder with a 48.05%
stake.
Phap Dang, CFA Consumer sector: vibrant spending lifts earnings
Senior Manager HOLD
Phap.Dang@vcsc.com.vn Consumption of staples displays steady, solid growth
+84 28 3914 3588 ext. 143
Dao Nguyen FMCG consumption was robust in 2017, led by beverage, dairy, food and home care, although
Senior Analyst growth softened in Q2/Q3 2017 from a stellar Q1 2017. As soft commodity prices were largely
Dao.Nguyen@vcsc.com.vn
+84 28 3914 3588 ext. 185
muted and Vietnam’s inflation remained moderate, growth came mostly from volume.
Nghia Le Figure 109: YoY growth of FMCG super categories

Analyst Beverage Food
Nghia.Le@vcsc.com.vn
+84 28 3914 3588 ext. 181 8.6% 8.9% 8.5% 9.4%
7.9%
5.8% 5.5% 6.0% 5.9%
4.6%
2.6% 2.8%
1.0%
0.3%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2016 2016 2016 2016 2017 2017 2017 2016 2016 2016 2016 2017 2017 2017
Volume change Volume change

Unit value change Unit value change
Nominal Value growth Nominal Value growth
Dairy Home care
10.8%
8.4% 8.9%
7.4% 8.5%
6.5%
5.6% 5.0% 6.7% 6.0%
4.2%
1.9% 2.4%
-1.0%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2016 2016 2016 2016 2017 2017 2017 2016 2016 2016 2016 2017 2017 2017

Personal care Cigarettes

9.7% 10.1% 5.9%
5.1% 5.5% 4.7%
4.8%
4.0%
5.7% 6.2% 3.3%
4.2%
1.8% 0.7%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2016 2016 2016 2016 2017 2017 2017 2016 2016 2016 2016 2017 2017 2017

Source: Nielsen
After suffering from adverse weather in 2016, rural areas have bounced back and growth
there is outpacing that of urban areas. Recall that in early 2016, a historic drought derailed HOLD
agricultural activity in central and southern Vietnam, while an exceptional cold season undermined
agricultural output in the North. This, in turn, hurt rural consumer income and consumption,
especially in Q3 2016. In 2017, rural consumption regained strength in conjunction with a recovery
in agricultural production. On the other hand, we believe that the outperformance of rural areas
vs urban areas in terms of FMCG growth will be prolonged on the back of lower penetration. Rural
areas account for two-thirds of Vietnam’s population, but only 54% of its FMCG consumption.
Figure 110: FMCG growth (YoY) in urban and rural areas

Urban Rural
10.9%
6.0% 6.0%
5.2% 5.0% 5.1%
4.7% 8.3%
7.8% 7.6%
4.2% 4.2%
3.9% 3.7% 6.1% 6.0% 6.5%
5.7% 6.0%
2.8% 4.4%
1.2%
MAT YA
YTD TY
Q3 2016
MAT TY
Q1 2016
Q2 2016
Q4 2016
Q1 2017
Q2 2017
Q3 2017
YTD YA
MAT YA
YTD TY
MAT TY
Q1 2016
Q2 2016
Q3 2016
Q4 2016
Q1 2017
Q2 2017
Q3 2017
YTD YA
Source: Nielsen (MAT TY/TA = Moving annual total this year/year ago)
Vibrant discretionary consumption bolstered by rising income and

consumer confidence
According to a survey done by Nielsen in Q2 2017, a growing number of Vietnamese consumers
plan to spend their disposable income on travelling, clothing, tech devices, home decoration and
entertainment instead of putting it into savings. This is underpinned by upbeat consumer
sentiment on their future financial situation.
Figure 111: What Vietnamese consumers plan to spend on after covering necessities
76%
63%
35% 38% 33% 36% 30% 31% 27% 30% 26% 29%
Saving Travel Clothing Tech devices Home decoration Entertainment
Q4 2016 Q2 2017
Source: Nielsen (percentages represent the % of survey respondents selecting a choice)
An aggressive push by consumer finance players, such as FE Credit of VP Bank and Home Credit
and HD Saison of HD Bank, has also been fuelling discretionary purchases. They provide loans HOLD
for consumers to buy mobile phones, home appliances, motorbikes and other personal items.
Besides their own branches, these companies send staff to set up booths within third-party retail
outlets (e.g., mobile phone stores) to recruit customers. In exchange, they pay retailers a fee
when a loan is successfully disbursed. For leading mobile phone and white goods retailers, such
as MWG and FPT, financed purchases currently account for 30%-40% of their total revenue
compared to 0% back in 2012. At the same time, we are even starting to see consumer finance
expanding into jewelry. In partnership with banks, PNJ recently launched an installment payment
program in which customers can pay over three to 12 months if they have credit cards issued by
Sacombank, Shinhan Bank, SeA Bank, Standard Chartered and Saigon Commercial Bank.
Strong discretionary consumption is evident in the solid growth of the mobile phone and consumer
electronics markets as well as clothing and fashion gold jewelry sales (reflected in PNJ’s elevated
retail sales growth).
Figure 112: Total sales of select technical goods in Vietnam (USD bn)
3.2
2.9
2.5
2.2
9M 2016
9M 2017
Telecommunications Consumer electronics and

(mostly mobile phones) domestic appliances
Source: GFK
Figure 113: Total clothing revenue and average ticket size in Vietnam
800 40.4 45
700 36.2 40
33.4 609
600 31.3 35
28.8 540
26.1 465 30
500 23.5
388 25
400
313 20
300 245
15
187
200 10
100 5
0 0
2016 2017 2018 2019 2020 2021 2022
Total revenue (USD mn, LHS) Average ticket size (USD, RHS)
Source: Statista (clothing examples: suits, shirts, coats; excluding shoes, leather goods, sport apparels etc.)
Retail landscape: modern trade outperforms, especially mini-stores
Vietnam is only at the beginning of the shift toward modern retail. Other than the mobile
HOLD
phone and consumer electronics markets, where modern chains have dominated, Vietnamese
are still shopping primarily at traditional mom-and-pop shops. For example, modern formats still
account for only 8% of Vietnam’s FMCG sales currently. Having said that, a shift from general to
modern trade has been gradually taking place in recent years, driven by strengthening consumer
preferences for convenience as well as quality of services and shopping experience. We believe
this transition will accelerate going forward thanks to more aggressive penetration by retailers into
spaces such as grocery, pharmacy, jewelry, mom-and-kid, healthcare/wellness and shopping
malls. For example, MWG and FPT Retail already announced plans to enter into pharmacy via
M&A, while the former is also set to expand its minimart footprint at full speed starting in 2018.
Figure 114: FMCG sales by retail channel in Vietnam
1%
5% Medium-sized street shops
4% 7% 21% Small street shops
Wet markets
13% Specialty stores

Hypermarkets, supermarkets
Convenience stores, minimarts
48%
Others
Source: Kantar Worldpanel, Nielsen, VCSC
Convenience stores and minimarts (“mini-stores”) remain star performers. In four of

Vietnam’s biggest urban centers (HCMC, Hanoi, Da Nang and Can Tho), during the three months
ending October 8, 2017, FMCG sales in mini-stores jumped 26% YoY and advanced 10% YoY in
hypermarkets and supermarkets. Meanwhile, major traditional channels, such as street shops
and wet markets, only grew 5% or less.
Figure 115: FMCG sales growth by retail channel in four of Vietnam’s largest cities
Convenience stores, minimarts 26%

Supermarkets, hypermarkets 10%
Specialty stores 13%
Wet markets 1%
Small street shops -3%
Medium-sized street shops 5%
Source: Kantar Worldpanel (three months ending October 8, 2017)
The outperformance of mini-stores is being fuelled by an aggressive footprint expansion of

industry players in contrast to the stagnation seen in hypermarkets and supermarkets. We believe
that, as to Indonesia, mini-stores, particularly minimarts, may eventually become the most
dominant modern grocery format in Vietnam because (1) traffic congestion in cities makes going
to hypermarkets/supermarkets an inconvenient and time-consuming journey while minimarts can
get very close to consumers, (2) it is much easier for minimarts to find locations for expansion
and (3) minimarts, owing to their concentrated product assortment that only includes high-turnover
SKUs, can achieve better efficiency in terms of sales/sqm than hypermarkets/supermarkets.
Figure 116: Store count of major convenience store chains in Vietnam
700
HOLD
600
500 7-eleven
400 Ministop
300 Family Mart
200 B's Mart
100 Circle K
0
2015 2016 2017
Source: Nielsen (as of end-September of each year)
Figure 117: Store count of leading minimart chains
600
500
400
Satra Foods
300
Coop Food
200 Bach Hoa Xanh
100
0
2016 Nov-17
Source: VCSC compilations
Figure 118: Store count of supermarket chains in Vietnam
250
200
150
100
50
0
Coop Mart VinMart Big C AEON AEON Mega Lotte Mart Others
Fivimart Citimart Market
Sep-16 Sep-17
Source: Nielsen
Vietnamese consumer companies attract mega investors
The attractiveness of Vietnam’s consumer-driven businesses was underscored by multiple mega
HOLD
investments by foreigners at high valuations during 2017:
- Thai Beverage, through its affiliate Vietnam Beverage, spent USD4.8 billion to acquire 53.6% of
Sabeco, Vietnam’s beer giant, from the Ministry of Industry and Trade. The acquisition price puts
Sabeco at a TTM PER of nearly 50x.
- Jardine secured a 10% stake in VNM worth USD1.3 billion based on current market value. Part
of Jardine’ stake was acquired from the SCIC during the latter’s auction at a price of
VND186,000/share, which implies a 2017F PER of 27.5x for VNM.
- KKR invested USD250 million in MSN and MSN’s animal protein subsidiary, Masan Nutri-
Science. The investment in Masan Nutri-Science was via a purchase of primary shares amounting
to USD150 million for a 7.5% stake. That implies a USD2 billion post-money entry valuation for
Masan Nutri-Science against its 2016 NPAT-MI of USD68 million.
- Taisho Pharmaceuticals, one of the largest Japanese pharmaceutical companies, became a
strategic investor of DHG after acquiring a 24.4% stake from a group of other foreign
shareholders.
2017 stock performance recap

Figure 119: VCSC Consumer Coverage vs VN-Index (YTD price performance)
70%
60% 61%
50%
48%
40%
30%
20%
10%
0%
Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17
Consumer Index VN-Index
Source: Bloomberg (latest share prices as of December 29, 2017)
Figure 120: Stocks covered by VCSC vs VN-Index (YTD price performance)
120%
80%
40%
0%
-40%
-80%
VN-Index PNJ MSN DHG VNM
MWG FPT GTN QNS DQC
Source: Bloomberg (latest share prices as of December 29, 2017)
Our consumer coverage delivered strong returns in 2017, outperforming the VN-Index:
HOLD
PNJ – stellar earnings in 2017 buoyed by a significant acceleration in same-store-sales-growth
(SSSG) and fast-track store openings. PNJ also successfully carried out a 10% private placement
at a high valuation, which ensures sufficient capital to speed up store expansion going forward.
MSN – although operating results fell short of market expectation amid de-stocking activities at
F&B distributors and depressed swine prices undermining pig feed demand, MSN’s share price
rallied significantly on the back of the company’s 9% buyback, a rebound in metal prices as well
as market anticipation of capital raising and listing by Techcombank in 2018. To further our last
point, Techcombank’s share price in the OTC market has rocketed from less than
VND20,000/share at the beginning of 2017 to around VND60,000/share currently, which has
boosted investor sentiment on MSN’s valuation.
DHG – despite muted sales and earnings, DHG benefited from the overall re-rating of the
pharmaceutical sector on the back of participation by strategic investors and positive investor
sentiment after pharma peer DMC successfully removed its FOL and DHG announced its own
plan to raise FOL in Q1 2018, which may pave the way for strategic investor Taisho to consolidate
ownership.
MWG – elevated earnings growth on rapid store openings, positive progress in the roll-out of
BachhoaXANH (minimart) and an announcement on potential M&A in consumer electronics and
pharmacy.
VNM – robust stock performance was driven by firm earnings growth, upgraded 2018 earnings
prospects backed by softening input milk powder prices and strong trading momentum in late
2017 as Jardine became a significant shareholder in November 2017.
FPT – share price was bolstered by robust core business performance coupled with the
company’s completion of its sell-downs in the Retail and Distribution segments, which will not only
streamline its businesses but also produce one-off gains.
GTN – the company continues to seek a breakthrough in the restructuring of its tea business after
the failed launch of branded tea products toward the end of 2016. At the same time, hammered
pig prices dampened its loss-making pig segment while intensified A&P curbed dairy earnings
growth.
QNS – share price suffered from a sharp fall in sugar prices in Q3 2017, which caused a loss in
the sugar segment, and the delayed commencement of the biomass power plant. Meanwhile,
management maintained its closed-door corporate access policy, which further hampered interest
in the stock, especially from institutional investors.
DQC – lost market share during 2017 as it faced fierce price competition from both rival RAL and
low-quality players, especially on the LED front. Traditional light bulbs have entered a structural
decline while DQC’s LED sales did not step up enough to offset that decrease. The investigation
of the Chairman’s sister (former Chairwoman cum CEO of DQC) caused distractions for
management in early 2017, exacerbating the business deterioration of the firm.
Stock recommendations for 2018
Figure 121: Summary of VCSC’s consumer coverage
HOLD
Market
Target Current
cap Div. 2017 2018 2019 TTM
price price Upside Net D/E
(USD yield PER PER PER ROE
(VND) (VND)
mn)
MWG 1,824 182,800 131,000 39.5% 0.6% 18.2 12.7 10.1 43.8% 19.6%
FPT* 1,332 69,400 57,100 21.5% 3.5% 13.3 12.0 10.3 29.5% 6.7%
QNS 491 64,000 54,400 17.6% 2.8% 11.0 10.9 10.2 31.5% 16.4%
GTN 168 16,500 15,300 7.8% 0.0% 87.2 51.9 29.9 1.0% -11.4%
MSN* 3,531 80,600 76,700 5.1% 0.0% 43.6 23.0 16.9 12.4% 114.0%
PNJ 651 140,000 137,000 2.2% 1.3% 21.1 16.9 13.8 36.0% 17.5%
VNM 13,307 183,500 208,600 -12.0% 2.8% 30.8 26.4 23.3 45.0% -41.4%
DHG 661 98,700 115,000 -14.2% 2.0% 21.9 21.1 20.8 24.1% -33.9%
DQC 57 33,100 40,500 -18.3% 3.2% 14.8 19.9 19.0 11.0% -48.9%
Market-cap
-1.8% 2.1% 24.9 20.1 17.1
weighted
Source: VCSC, share prices as of December 29, 2017
*We use recurring EPS for FPT and MSN, whose 2017F earnings include one-off divestment gains
We believe Consumer will continue to be one of the most attractive sectors to investors, backed
not only by Vietnam’s vibrant domestic consumption but also the quality of management and
corporate access at leading companies. For our coverage, we are forecasting 24% and 18% total
NPAT-MI growth in 2018 and 2019, respectively, implying a 2018 PER of 20.1x and 2019 PER of
17.1x, which are reasonable levels in our view and so underscore the importance of stock
selection. Our top picks (see below) naturally tilt toward low P/E-to-growth stocks, boasting an
average three-year PEG of 0.8. On the other hand, while its valuation looks appealing, QNS is
not in our top recommendation list owing to its lack of investibility, especially for institutional
investors, caused by the company’s closed IR policy.
BUY – Mobile World (HSX: MWG)

The best way to play Vietnam’s flourishing modern retail sector. We project a 25% NPAT CAGR
during 2017-2022 for MWG based only on its existing businesses. 2018 will mark the first year of
full-speed roll-out for BachhoaXANH (minimart), MWG’s main profit driver from 2019 onward. We
project total store count of BachhoaXANH to increase from nearly 300 stores by YE2017 to 1,000
stores by YE2018, which we believe carries meaningful upside. Thanks to a broader scale, we
forecast BachhoaXANH to make a net profit of USD1.8 million in 2018 vs USD5.2 million in net
loss in 2017, with profitability set to gradually strengthen in the following years. Having said that,
the major bottom line driver in 2018 for MWG remains DienmayXANH (consumer electronics),
whose revenue we forecast will surge 62% YoY in 2018 on the back of 100 new stores, without
incorporating the upcoming acquisition of Tran Anh (add another 4%-5% to total revenue). MWG’s
entry into pharmacy, with an acquisition likely to be closed in 2018, will provide another leg of
long-term growth to its sprawling retail franchise.
BUY – FPT Corporation (HSX: FPT)
FPT has streamlined its businesses after selling down about half its stakes in its Retail and
Trading segments. Going forward, FPT’s growth will be centered on its legacy businesses, namely
Software and Telecom, further supported by a rapidly growing, highly profitable Education
segment. 2018 earnings growth will be dragged lower by the deconsolidation of Retail and
Trading, but it should regain its strong pace afterward as we pencil a 16% NPAT-MI CAGR
between 2018-2022 for FPT. Meanwhile, boasting an estimated net cash/equity of 27% as of
YE2017, we estimate that FPT will generate an average free cash flow yield of 6.3% during 2018-
2020, which will help sustain its healthy dividend yield as well as facilitate potential overseas M&A
activity in the Software segment.
MARKET PERFORM – Phu Nhuan Jewelry (HSX: PNJ) HOLD
The queen of Vietnam’s fashion gold jewelry. PNJ is in a sweet spot to capitalize on Vietnam’s
booming middle-income class. Our recent industry study cemented our bullish conviction on PNJ
as the company outperformed its competitors in almost every facet, including store coverage,
collection launching, customer services, marketing quality and social media interaction. We are
projecting a 21% EPS CAGR between 2017 and 2022 for PNJ, which will be driven by strong
retail sales growth (22% CAGR) on the back of around 50 new stores per year and double-digit
SSSG. Our latest target price puts PNJ at 2018 PER of 17x, which we believe is conservative
given the ongoing re-rating of Vietnamese equities, especially consumer stocks. We foresee
material upside to our target price in our next update report.
Possible new listings/IPOs to watch out in 2018

FPT Retail (FRT): FPT has reduced its ownership in FRT from 85% to 47% by selling 30% to two
institutional investors and 8% to individual investors. FRT plans to list on HOSE in March or April
2018. At the price that FPT sold to individual investors of VND85,000/share, FRT’s market cap
amounts to roughly USD150 million. FRT is the second largest player in the mobile phone retailing
market behind MWG, boasting a total store count of 464 as of end-November 2017. Similar to
MWG, FRT plans to enter into the pharmacy sector via acquiring an existing chain.
SATRA: SATRA is an SOE under the People’s Committee of HCMC. It specializes in trading and
retailing of consumer and agricultural products. SATRA’s most prized asset is its 40% stake in
Heineken Vietnam, the second biggest but most profitable brewer in Vietnam. In addition, the
company currently operates 150 minimart outlets and owns 68% of leading meat player VISSAN
apart from other assets, such as retail malls, a wholesale market and a distribution center. In
2016, SATRA reported consolidated revenue of VND10.2 trillion (USD450 million) and NPAT-MI
of VND3.0 trillion (USD133 million).
Hong Luu Real estate sector: Eyeing a further steady run
Manager
hong.luu@vcsc.com.vn Figure 122: VCSC’s real estate and construction sector coverage vs VN-Index
HOLD
+8428 3914 3588 ext.120
Anh Nguyen 60%

Analyst
anh.nguyen@vcsc.com.vn 50% 50%
+8428 3914 3588 ext.174 48%
40%
30%
26%
20%
10%
0%
-10%
Jan-17 Feb-17 Apr-17 May-17 Jul-17 Aug-17 Sep-17 Nov-17 Dec-17
VN-Index
VCSC Real estate Coverage Index
VCSC Construction/ Infrastructure Coverage Index
Source: Bloomberg, VCSC. Note: VCSC coverage index is equally weighted

Figure 123: Real estate and construction tickers vs VN-Index
140%
VN-Index VIC NVL DXG
120% NLG KDH CII CTD
100%
80%
60%
40%
20%
0%
-20%
Jan-17 Feb-17 Apr-17 May-17 Jul-17 Aug-17 Sep-17 Nov-17 Dec-17
Figure 124: VCSC rating on real estate and construction stocks
Mkt FY16 FY17F FY18F

Foreign 30D Upside Div FY17 FY18 Curr FY18
Cap EPS EPS EPS
Company Ticker Rating Room ADTV to last yield P/E P/E P/B P/B
USD growth growth growth
USD mn $mn TP % % (x) (x) (x) (x)
mn % % %
Nam Long Group NLG BUY 224 0 1.0 17.3% 1.3% 66% 46% 19%* 9.5 8.0* 1.5 1.2*
Dat Xanh Group DXG BUY 287 50 3.7 8.1% 0.0% 27% -24% 25% 9.8 7.8 1.8 1.4
Vingroup VIC BUY 8,329 1,741 5.9 35.8% 0.0% 78% 30% 46% 60.0 41.0 6.9 5.5
Khang Dien House KDH M-PF 404 4 0.4 0.0% 2.6% 48% 30% 4% 15.9 15.3 1.8 1.6
Novaland Group NVL M-PF 1,778 771 2.6 1.5% 0.0% 147% 2% 18% 18.8 15.9 3.4 3.1
Coteccons CTD O-PF 760 0 1.3 8.2% 2.2% 78% 9% 12% 10.9 9.7 2.3 1.9
HCMC Infra. Invest. CII O-PF 379 53 2.0 13.4% 3.1% 19% 73% -30%* 6.2 8.9* 1.8 1.4*
Source: VCSC. Note: (*) assumed rights issue in Q1 2018 and multiples are based on adjusted market price
What happened in 2017: Fundamental progress
Vietnam’s residential market has displayed durable growth amid liquidity divergence.
HOLD
According to CBRE, total 9M 2017 primary condo transactions in Hanoi and Ho Chi Minh City
(HCMC) advanced 7% Y-o-Y to reach ~40,000 units after a slight correction of -2% Y-o-Y in 2016
following sharp recovery in 2014 (+137% Y-o-Y) and 2015 (+96% Y-o-Y). However, market
liquidity continues to diverge across segments, including sustained growth in the number of
transactions in mid-range condos (+27% Y-o-Y in 9M 2017) and landed property (+11%), but a
drop in the high-end segment (-24%).
Figure 125: Primary high-end condo Figure 126: Primary mid-range condo Figure 127: HCMC primary landed
transactions (‘000 units) transactions (‘000 units) property transactions (‘000 units)
2016: -6% YoY 2016: +12% YoY 2016: +94% YoY

9M 2017: -24% YoY 9M 2017: +27% YoY 9M 2017: +11% YoY
4 55%
9 9 51%
8 8
7 7 3
38%
6 6 35% 34%
31% 32%
5 5 2 25%
32% 22%
4 4 19%
3 3
2 1
2
1 1
0 0 0
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 2014 2015 2016 2017
Transaction Volume
Hanoi HCMC Hanoi HCMC Absorption Rate
Source: CBRE, VCSC compilation Source: CBRE, VCSC compilation Source: CBRE, VCSC compilation
Resilient absorption rates signal supply glut unlikely. Despite gradually dipping from a peak
in 2015, we see the current level of absorption rates encouraging considering 2015 was the
market’s inflection point after a downturn with plenty of pent-up demand released. 2017F’s
absorption rate will be 53% and 24%, respectively, in HCMC and Hanoi primary condo markets,
well above the median of the last six years.
Figure 128: HCMC primary condo absorption Figure 129: Hanoi primary condo absorption
60% 57% 54% 53% 30% 26%

48% 24% 24%
50% 25%
21%
44%
40% 20% 18%
14%
30% 24% 15% 12%
17%
20% 10%
10% 5%
0% 0%
2012 2013 2014 2015 2016 2017F 2012 2013 2014 2015 2016 2017F
HCMC Median HCMC Hanoi Median HN
Source: CBRE, VCSC compilation Source: CBRE, VCSC compilation
Prices advance moderately amid stable supply. Unlike the previous cycle, current supply is
healthy with more product diversities and flexible payment packages along with robust HOLD
infrastructure development. Consequently, prices have been steady in both the primary and
secondary markets, allaying fears of the market overheating (i.e., a price bubble). HCMC’s mid-
range segment (accounting for 42% of the city’s total demand since 2014) has enjoyed an 11%
3-year CAGR for primary average selling price (ASP) while most other segments have been below
5%, per CBRE.
Figure 130: HCMC primary condo prices Figure 131: Hanoi primary condo prices
5,000
+4%*
4,000
-4%*
3,000
+6%*
+4%*
2,000
+11%* +2%*
1,000
+2%*
+3%*
0
Luxury High-end Luxury High-end

Mid-end Affordable Mid-end Affordable
Source: CBRE, VCSC compilation. Note: Price is in USD/sqm and excludes VAT and maintenance fee,
based on NSA and fully-fitted hand-over condition. (*) Price CAGR in Q3 2014 – Q3 2017
Figure 132: HCMC secondary condo prices Figure 133: Hanoi secondary condo prices
5,000
4,000 -5%* -5%*
3,000
+5%*
0%*
2,000
+9%* -2%*
1,000
+4%* +4%*
0
Luxury High-end
Luxury High-end
Mid-end Affordable
Mid-end Affordable
Source: CBRE, VCSC compilation. Note: Price is in USD/sqm and excludes VAT and maintenance fee,
based on NSA and fully-fitted hand-over condition. (*) Price CAGR in Q2 2015 – Q2 2017
2018 outlook: Poised for multi-year growth ahead
Favorable macro conditions continue to drive residential market forward. Vietnam’s rising
HOLD
income growth, with 2010-2016 CAGR of 8.8%, has outpaced most regional peers, even low base
countries (i.e., Cambodia and India). As one of Asia’s top spenders on infrastructure, Vietnam’s
road network has significantly improved, reducing commuting times and fuelling more housing
demand. The introduction of the first MRTs in a few years should significantly boost the residential
market. In addition, positive macroeconomic conditions, such as relatively stable CPI and low
interest rates during 9M 2017, have strengthened homebuyer confidence.
Figure 134: Nominal GDP per capita growth Figure 135: One-year lending rate and CPI in
during 2010 – 2016 (% CAGR) Vietnam (%)
2016 GDP per capita: Very few homebuyers At least 50% of

8.8% ▪ HCMC: USD5,428 using housing loan homebuyers using
8.4% ▪ Hanoi: USD3,850 (10%-15%) housing loan
▪ Vietnam: USD2,215
19% 18%
15%
5.5% 14%
10% 11%
4.1% 10%
8% 8% 8%
2.4% 2.2% 23%
19%
0.8% 7% 9% 9% 7%
4% 5% 4%
1%
Average CPI One-year lending rate
Source: World Bank, VCSC compilation Source: GSO, SBV, VCSC forecast for 2017. Note:
Average one-year lending rate by commercial banks
for manufacturing and commercial customer groups
Figure 136: Asia’s top infrastructure Figure 137: New infrastructure projects (MRTs) to
spenders (% of 2016 GDP) fuel housing demand
6.8%
5.7%
5.4%
2.7% 2.5%
2.3% 2.2%
1.8%1.6%
Source: ADB, VCSC compilation. Note: Data Source: CBRE, VCSC compilation. Note: Hanoi’s
includes public and private sector investment Metro line #1 plans to start operations in 2018
Plenty room ahead in the long run. Living in a condo was a relatively novel experience for
Vietnamese over a decade ago. In the last few years, the residential market has seemingly gone HOLD
through a consolidation trend after the market downturn of 2008-2013. Going forward, we believe
that Vietnam is poised for an ongoing residential upswing cycle that has been similarly
experienced in regional peers. In particular, a low-base urbanization rate will probably catch up
with other countries in the region, suggesting that there will be enormous housing demand in
Vietnamese cities with improving mortgage penetration and affordable housing supply.
Figure 138: 2016 total mortgage loans Figure 139: Housing price to income ratio in SEA
outstanding as % of GDP cities (times)
7.0
52.0%
5.7 5.9
5.6
44.0% 5.3
4.1
16.0%
3.3% 4.7%
Source: Central banks, VCSC estimate Source: IMA, JLL, VCSC compilation
Figure 140: Number of owned apartments Figure 141: Huge room for urbanization growth
per 1,000 persons
38 39 100%
Hundreds
37
80%
60%
19
17
40%
10
20%
34%
0%
China Indonesia India

Malaysia Philippines Singapore
Thailand Vietnam
Source: JLL, VCSC compilation Source: World Bank, VCSC compilation
Healthy demand continues to drive mid-range and landed-property segments. With the
expectation of 1.7 million new households entering the middle-income class in the next three HOLD
years, we believe these real homebuyers will maintain the momentum of the mid-range segment,
whose prices are affordable (4x price to household income ratio). At the same time, investment
capital inflow will continue to support the landed-property segment, especially demand for
townhouses, due to their higher return vs high-end condos (11% vs 8% per annum during 2013-
2016).
Figure 142: Middle and affluent households (‘000 Figure 143: Income growth outpaced mid-range
households) housing price
2,500
4,830
2,000
3,160 1,500
1,000
500
530
250
0
Affluent Middle 2009 2010 2011 2012 2013 2014 2015
GDP per capita (US$)
(USD)
2016 2020 Mid-range housing price (US$/m2)
(USD/sqm)
Source: GSO, Savills, VCSC compilation. Note: Affluent = Annual Income > USD20,000, Middle =
USD9,000 - USD20,000
Figure 144: HCMC primary price of landed Figure 145: Annual investment return 2013-2016
property vs high-end condos (times)
6.6
3%
3.2 3.3
6% 2%
1.7 8%
4%
2%
Townhouse/high-end Villa/high-end condo High-end Villa Townhouse

condo apartment
Historical supply Current Price appreciation Rental yield
Source: Savills, VCSC compilation Source: Savills, VCSC compilation
Supply is inclined to the mid-range segment amid changing competitive landscape. Since
HOLD
the high-end segment seems already topped out in this cycle, it may be a wise move for major
developers, who normally focus selling up-scale products, to switch to lower segments. For
example, Vingroup (VIC) aims to launch its first Vincity mid-range projects (expected ASP starting
from USD35,000/unit) Q1 2018 with several thousand units. Meanwhile, Novaland (NVL) eyes
3,000 affordable townhouses launching in 2018 with the Harbor City project (expected ASP of
USD200,000/unit, District 8, HCMC).
Figure 146: Sales brochure for Vincity projects
➢ Brand name: Vincity
➢ Developer: Vingroup
➢ Project type: Urban township (condos and

townhouses)
➢ Target segment: Mid-range
➢ Site area/project: 50 ha-300 ha/project
➢ Expected first launch: Q1 2018
➢ Supply: 200,000-300,000 units in five years
➢ Typical size: 35-50 sqm/unit
➢ Starting price: From USD35,000/unit or

ASP of USD1,000/sqm
Source: VIC media report
BUY - Nam Long Group (HSX: NLG)
HOLD
NLG is our strong buy recommendation, supported by an appealing valuation with a 2018F P/E
of 8.0x and a P/B of 1.2x given its unimpeachable market position in the mind of homebuyers. We
forecast that its earnings growth outlook looks optimistic with a 38.5% NPAT-MI CAGR during
2016-2018F driven by locked-up pre-sales, while the prospect of monetizing the Waterpoint
project (65% of total land bank and 19% of total assets) may provide potential additional upside.
NLG is seen as having the most transparent corporate governance among listed Vietnamese
property developers, resulting in the company’s prominent shareholders and profound
partnerships with Japanese developers. We believe that income growth outpacing housing prices
and comprehensive infrastructure development will continue to fuel robust demand in the
affordable/mid-range housing market and directly benefit NLG. We project 2018F NPAT-MI to
jump 32% vs 2017F mainly thanks to a stake transfer of the Hoang Nam project and solid
deliveries at Ehomes Phu Huu, Kikyo Residence and Fuji Residence in District 9, plus 16% newly
signed contract sales value growth.
BUY - Dat Xanh Group (HSX: DXG)
Our recommendation is underpinned by DXG’s undervalued land bank at favorable locations in
HCMC. The stock is trading at a 17% discount based on our RNAV valuation and seems genuinely
compelling with a 2018F P/E and P/B of 7.8x and 1.4x, respectively.
DXG has proven itself to be a reliable property developer in HCMC’s mid-range condo segment
by leveraging the market knowledge of its leading real estate broker with a dynamic in-house
sales platform. At the same time, the company is enjoying the sustained run of the property cycle,
which is fuelling growth of its brokerage service arm. The company delivered 2015-2016 ROE of
over 20% and will likely maintain that level in coming years (2017F ROE at 20%). We pencil in
28% NPAT-MI CAGR during 2016-18F driven by property deliveries and higher brokerage service
commissions.
BUY - Vingroup (HSX: VIC)
VIC is our other BUY recommendation as it is currently trading at a 36% discount based on RNAV
valuation in which we have only factored in 70% of its 91 million sqm land bank.
VIC is the leader in various sectors, including Vinhomes and Vincity (Real estate sales), Vincom
VinRetail (leasing retail) and VinCommerce (consumer retail), which will likely benefit from
Vietnam’s robust consumption growth and under-penetrated market, while Vinpearl (hospitality)
has undertaken rapid expansion to catch the ongoing tourism boom.
We forecast a 38% 2016-2018F CAGR in NPAT-MI thanks to continuing property deliveries of
locked-up pre-sales in the last three years. The promising prospect of shifting into the mid-range
property segment under the Vincity brand may help grow a more durable residential business.
Earnings growth would have skyrocketed if the ongoing underperforming consumer retail and
hospitality segments, following aggressive expansion, were excluded.
OUTPERFORM - HCMC Infrastructure Investment (HSX: CII)
Our recommendation is centered on an attractive sum-of-parts valuation, which is mainly driven
by contributions from the stable cash flows of CII’s current BOT projects and our expectation of
high returns from its land lots in Thu Thiem due to low input costs and prime location.
CII is the largest and most reputable private infrastructure development company in Vietnam with
an intriguing pipeline of projects. We believe that its solid real estate investment strategy will lift
its earnings outlook for the next three years. CII will develop the land lots it received from
investment in the Thu Thiem BT project via Lakeview (low-rise, total of 4.9 ha, developed by CII)
and Riverpark (luxury high-rise, total of 3.5 ha or 965 units, joint venture with Hongkong Land).
We forecast 2018 EPS to decline 30% vs 2017F due to large non-recurring non-cash financial
gains in 2017 and the upcoming new share issuance plan. However, 2018F P/E and P/B are
attractive at 8.9x and 1.4x, respectively. HOLD
OUTPERFORM - Coteccons (HSX: CTD)
We recommend CTD as this contractor is well-positioned to sustain a healthy backlog on the back
of its highly-proven brand name and growing construction demand. We also expect Vingroup’s
expansion to mid-range housing (Vincity brand) to be a catalyst for a brighter long-term outlook
for CTD’s core business.
CTD is the leading private construction company in Vietnam with a highly-recognized brand name,
first-class execution and the ability to provide a wide range of services. Safe and effective
operations with strict cost management have resulted in the company’s consistently steady
margins while management is very cautious about future investments in new fields. We expect
CTD to be the main (Design and Build) contractor for Vincity as it has won several construction
contracts for Vingroup’s property products.. We do not yet include Vincity into our projection due
to a lack of details, but expect it to be a catalyst for a brighter long-term outlook. A 2018F P/E of
9.7x looks appealing in light of CTD’s leading position in the construction sector.
Hong Luu Steel sector: Strike when the iron is still hot
Manager
Hong.Luu@vcsc.com.vn
Figure 147: VCSC’s steel sector coverage vs VN-Index
HOLD
+84 28 3914 3588 ext.120
Vy Nguyen 60%
Analyst VN-Index VCSC Steel Coverage Index
Vy.Nguyen@vcsc.com.vn
50%
+84 28 3914 3588 ext.147 48%
40% 41%
30%
20%
10%
0%
-10%
Jan-17 Feb-17 Apr-17 May-17 Jul-17 Aug-17 Oct-17 Nov-17
Source: Bloomberg, VCSC. Note: VCSC’s coverage index is equally weighted
Figure 148: Steel tickers vs VN-Index
80%
VN-Index HPG HSG NKG
60%
40%
20%
0%
-20%
-40%
Jan-17 Feb-17 Apr-17 May-17 Jul-17 Aug-17 Oct-17 Nov-17
Figure 149: VCSC ratings on steel stocks
Mkt Foreign 30D FY16 FY17F FY18F

Upside Div FY17 FY18 Curr FY18
Cap Room ADTV EPS EPS EPS
Company Ticker Rating to last yield P/E P/E P/B P/B
USD USD USD growth growth growth
TP % % (x) (x) (x) (x)
mn mn mn % % %
Hoa Phat Group HPG BUY 3,131 237.2 9.4 0.3 0.0 82.3 6.7 5.1 9.8 9.3 2.2 2.1
Hoa Sen Group HSG M-PF 377.7 89.7 3.6 3.7 4.1 130.4 -12.4 15.5 6.7 5.8 1.7 1.4
Nam Kim Steel NKG O-PF 222.2 133.9 1.0 13.4 2.6 292.2 16.6 -14.0 5.5 6.4 1.9 1.4
Source: VCSC
What happened in 2017: The steel was shiny on all fronts
High reservoir of construction work… Per CBRE, total 9M 2017 primary condo transaction
HOLD
volume in Hanoi and Ho Chi Minh City (HCMC) rose by 7% Y-o-Y to reach circa 40,000 units.
This healthy growth rate, despite a slight correction of -2% Y-o-Y in 2016 following a quick
recovery in 2014 (+137% Y-o-Y) and 2015 (+96% Y-o-Y), has demonstrated the durable and
sustainable growth of Vietnam’s residential market. This, together with continuing rapid
urbanization and industrialization, has propelled strong demand for steel products, both
construction/long steel and flat steels in 2017.
Figure 150: Total condo transaction volume in Figure 151: Housing area per person and urban
the primary markets of HCMC and Hanoi population
70 25 42
Thousands
24
60 40
23
50 22 38
21
40 36
20
30 34
19
20 18 32
17
10 30
16
0 15 28
Total transaction (thousand units)

Q4 2017F Housing area per person (sqm/capita - LHS)
9M 2017 Urban population rate (% - RHS)
Source: CBRE, VCSC compilation Source: Ministry of Construction, GSO
…and the Government’s aggressiveness in exploiting trade protection measures to shield

the domestic steel industry… Starting from 2015, the Vietnamese Government conducted
several investigations and issued trade protection tariffs on both construction steel and galvanized
steel sheet to shield domestic producers from the excessive amount of steel products being
imported into Vietnam, mostly from China. Besides the official anti-dumping tariffs on construction
steel in 2016 that will last for another two years, the Government issued another two official anti-
dumping and import quotas for galvanized steel products in 2017. We believe these tariffs have
contributed to considerably reduce the volume pressure from imported products, helping domestic
producers, especially market leaders such as HPG (construction steel), HSG and NKG
(galvanized steel sheet), to push volume growth and take back market share from imports.
Figure 152: Vietnam’s active trade protections on steel products
Construction steel Galvanized steel sheet

HOLD
Pre-painted galvanized
steel sheet
No. 2968/QD-BCT No.1105/QD-BC No. 1931/QD-BCT
MOIT’s
issued on issued on issued on
decision
July 18, 2016 March 30, 2017 May 31, 2017
Type of
Quotas and
trade Anti-dumping Anti-dumping
out-of-quota tariff
protection
Status Four-year final FIve-year final Three-year final
Galvanized steel sheet Pre-painted galvanized steel sheet
Products Steel billet and long steel
(35 codes) (7 codes)
Import China (including Hong
All countries All countries
origin Kong) and South Korea
Steel billet Long steel
March 22, 2016
to 14.2% Total Out-of-
March 22, 2016
August 1, 2016 imported quota
to 23.3%
August 2, 2016 quota rate
March 21, 2017
to 15.4%
March 21, 2017
March 22, 2017 March 22, 2017 Jun 15, 2017
to 21.3% to 13.9% to 380,679 19%
3.17% - 38.34%
March 21, 2018 March 21, 2018 Jun 14, 2018
Rate depending on specific
March 22, 2018 March 22, 2018 producer
Jun 15, 2018
to 19.3% to 12.4% 418,747 19%
to
March 21, 2019 March 21, 2019
Jun 14, 2019
March 22, 2019 March 22, 2019

Jun 15, 2019
to 17.3% to 10.9% 460,622 19%
to
March 21, 2020 March 21, 2020
Jun 14, 2020
March 22, 2020 March 22, 2020 Jun 15, 2020
0.0% 0.0% 0 0
onward onward onward
August 2, 2016 April 14, 2017 Jun 15, 2017
Valid period to to to
March 22, 2020 April 13, 2022 Jun 15, 2020
Source: Ministry of Industry and Trade (MOIT), VCSC compilation
…underpinned another robust year for steel demand. Total sales volume of construction steel
recorded 13% growth in 10M 2017 vs the same period last year, marking the fifth year of positive
growth since 2013. Although this growth number is no longer above 20% as it was in 2015 and
2016, we view this as a normalization after an upsurge in demand for steel following the strong
recovery of the real estate market in 2014 and 2015. The galvanized steel sector also enjoyed
impressive 28.7% growth in 10M 2017 sales volume, coming off the highest growth rate since
2009 in the previous year.
Figure 153: Construction steel sales volume Figure 154: Galvanized steel sales volume
CAGR 2010 – 2016

HOLD
+28.7%
CAGR 2010 – 2016 +13.0%
+8.8% Y-o-Y +25.7% Y-o-Y
9.0 30% 3.5 35%

8.0 25% 3.0 30%
7.0 20% 2.5 25%
6.0
15%
5.0 2.0 20%
10%
4.0 1.5 15%
5%
3.0
1.0 10%
2.0 0%
0.5 5%
1.0 -5%
0.0 -10% 0.0 0%
Sales volume (million tons - LHS) Sales volume (million tons - LHS)
Growth (% YoY - RHS) Growth (% YoY - RHS)
Source: Vietnam Steel Association, VCSC Source: Vietnam Steel Association, VCSC
compilation compilation
Iron ore’s wild ride in 2017 created the possibility for margin expansion by accumulating
low-cost input materials.
Iron ore prices continued 2016’s strong rally into early 2017 before taking a deep plunge from a
peak of USD95 per ton (63% Fe iron ore) in February 2017 to USD55 in June 2017, equivalent
to a 40% fall. The consensus view attributed this fall to growing worries about China’s overall
economic landscape and weakening Chinese demand as its government takes actions to cool off
an overheated property sector.
However, iron ore prices rebounded strongly in Q3 2017, reaching USD80 in August, on the
Chinese demand outlook getting more positive and a possible limitation in steel supply in early
September as Chinese authorities aggressively close coal heating steel mills. Iron ore prices have
softened to a current USD70 per ton.
These up-and-down swings of iron ores prices created an “accumulation point” for steel
companies to buy up input materials, i.e., iron ore or Hot rolled coil (HRC), when prices were
deemed low. Following these “accumulation points” were periods in which input prices recovered,
leading to the recovery of selling prices of finished products, which effectively helped those
companies who had already stocked up on low-cost input inventory to recognize margin
expansion.
Figure 155: HPG’s average construction steel Figure 156: Hot rolled coil (HRC) price trend
selling price vs iron ore price
HOLD
Accumulation Accumulation
point point
15 100 700
14 Accumulation 650 Accumulation

90
point 600 point
13
80
550
12
70
500
11
60 450
10
50 400
9
350
40
8
300
7 30
250
6 20 200
Jul-16
Jul-17
Jan-16
Mar-16
Jan-17
Mar-17
Sep-16
Nov-16
Sep-17
Nov-17
May-16
May-17
Jan-16
Jul-16
Mar-16
Jan-17
Jul-17
Mar-17
Sep-16
Nov-16
May-17
Sep-17
Nov-17
May-16
Iron ore (USD/ton - RHS) HRC (USD/ton - LHS)
HPG's construction steel ASP (VND/ton - LHS)
China domestic steel rebar ASP (VND/ton - LHS)
Source: Bloomberg, VCSC Source: Bloomberg, VCSC
2018 outlook: Sustained healthy demand growth offsets profit margin

normalization
Robust construction workload and trade protection advantage remain in place to buttress
steel sales volume growth. The strong pre-sales of condos, the increasing disbursement of FDI,
further urbanization of the cities and infrastructure development remain strong drivers of demand
for construction materials, including construction steel and galvanized steel products. We expect
demand for construction materials to extend a high growth rate through 2018. On top of that, all
three of the active trade protection measures will continue to provide shelter for domestic steel
products over the following years.
Profit margin normalization from 2017’s high base should be expected, though not critical.
In general, 2017 margins of local steel companies have been coming off from their abnormally
high level in 2016, especially for HPG, whose 2016 gross margin skyrocketed thanks to forward
buying low-cost iron ore. Nevertheless, as we have mentioned above, 2017 continued to be
another good year for margins thanks to the favourable trend in iron ore prices. Given that, we
take a conservative approach on forecasting margins for steel companies in 2018 as we expect
the volatility of iron ore prices will pose more downside than upside for the margin performance
of local steel companies. As normalization takes place across the industry, we would like to favour
names that have proven cost control and selling ability along with possessing other catalysts that
can support margins aside from the impact of raw materials. These names include the “king of
steel” HPG and “rising star” NKG.
BUY – Hoa Phat Group (HSX: HPG)
HOLD
HPG has always been and remains our favourite pick for the steel sector as its valuation is
attractive given the company’s solid fundamentals in the construction steel business. The full
Phase 1 of the Dung Quat Steel Complex project, with two million tons of construction steel per
annum, will come on line in 2019, solving HPG’s long-standing capacity constraint issue.
Nevertheless, 2018 will also welcome new growth engines, including a galvanized steel sheet
plant, the profit scheme from the Mandarin Garden 2 condominium project and the Dung Quat
Steel Complex’s first rolling line coming into operation near year-end (earlier than previously
expected).
We have been very keen on calling for a re-rating for HPG, and its valuation has been catching
up with the company’s fundamental progress. Notwithstanding that, HPG’s 2018 PER and PBR
at 9.3x and 2.1x, respectively, still look compelling, especially when compared to the peer group’s
median of a 15.7x ttm PER and a 1.5x PBR given HPG’s 31.4% ROE vs 9.5% for peers and its
long-term earnings outlook.
OUTPERFORM – Nam Kim Steel (HSX: NKG)

Ramping up capacity expansion and a balanced focus on both domestic and export markets are
the main strategies that underpin the turn-around story of NKG, the second-largest galvanized
steel maker, after HSG, by both market share and production capability.
Nam Kim 3 factory, a new growth engine, was put into operation in late-2017. Nam Kim 3 is the -
--NKG’s largest expansion since the company’s inception, which not only helps to double NKG’s
existing capacity in all products starting from Q2 2017, but also completes NKG’s vertical
production chain by adding 600,000 tons/year of semi-product CRC. As high domestic demand
for galvanized steel and the two active anti-dumping tariffs on imported galvanized steel sheet
remain in place, NKG is well poised for another good year in the domestic market. On top of that,
NKG’s active strategy in pushing into both traditional ASEAN markets and new markets, such as
Australia, the US, Europe and Africa, will also propel export growth.
NKG conducted three private placements in late 2016 and 2017, which causes dilution in 2017
and 2018 EPS but these were necessary to ease off leverage pressure and working capital
constraints. Valuation-wise, NKG looks compelling at a 2018 PER of 6.4x given the company’s
elevated position in the industry, clear growth outlook and improving financial health compared to
its rivals.
Duong Dinh
Manager
Power sector: Liberalization progress is speeding up
Duong.Dinh@vcsc.com.vn
Figure 157: Power Index vs VN-Index
HOLD
+84 28 3914 3588 ext.140
Thanh Nguyen 50%

Analyst
48%
Thanh.NguyenDac@vcsc.com.vn
40%
+84 28 3914 3588 ext.173 34%
30%
20%
10%
0%
-10%
30-Dec-16 28-Feb-17 30-Apr-17 30-Jun-17 31-Aug-17 31-Oct-17 31-Dec-17
VN-Index Power Index
Source: Bloomberg
Figure 158: Power tickers vs VN-Index
90%
40%
-10%
30-Dec-16 28-Feb-17 30-Apr-17 30-Jun-17 31-Aug-17 31-Oct-17
VN Index REE NT2 PPC Other hydro
Source: Bloomberg
Figure 159: Power coverage
FY16 FY17 FY18

Mkt Foreign 30D FY16 FY17 FY18 Cur FY18
Upside Div EPS EPS EPS
Company Ticker Rating Cap Room ADTV P/E P/E P/E P/B P/B
% yield growth growth growth
$ mn $ mn $ mn (x) (x) (x) (x) (x)
% % %
Nhon Trach 2
NT2 BUY 420 111 0.5 20.0% 7.5% -15.0% -7.0% -13.5% 9.4 10.2 8.9 1.9 1.9
(*)
Power
PC1 M-PF 196 22 0.5 -0.3% 0.0% -2.4% -14.6% 40.4% 13.3 13.8 9.8 1.7 1.6
Construction 1
Refrigeration
Electrical REE BUY 566 566 3.3 19.5% 4.8% 27.9% 34.9% 13.3% 11.6 8.6 7.6 1.7 1.4
Engineering (**)
Source: VCSC. Note: (*) Ratios are based on recurring earnings, (*) Rating is based on last report as we will
revise our target price in the next update report
Slightly weaker electricity consumption growth was in line with power
HOLD
capacity growth
Over the first 11 months of 2017, electricity consumption grew by 9.2% YoY to 158.9 billion kWh,
equivalent to 90.0% of EVN’s full-year guidance. The consumption growth rate slowed down last
year compared to previous years of 10.0% p.a. as cool weather this year leads to lower demand
from residential sector.
Meanwhile, Vietnam’s power capacity increased by 9.5% to 43.3 GW mainly thanks to the new
operation of power plants (Figure 160). We note that Thang Long (620 MW) and Thai Binh II
(1,200 MW) thermal power plants were postponed from late 2017 to Q1 2018 and Q4 2018,
respectively. However, most of the new power plants are located in the North while the South still
accounts for largest proportion of total consumption at 46.4%.
Figure 160: Key power plants came into operation in 2017
Investment
Capacity
Plant Type Location COD Capital Investor
(MW)
(VND bn)
Trung Son Hydropower Thanh Hoa 260 Q4 2016 - Q2 2017 7,775 EVN GENCO3
Hoang Anh - Thanh
Ba Thuoc Hydropower Thanh Hoa 140 Dec-17 2,400
Hoa Hydropower JSC
Thac Mo -
Hydropower Binh Phuoc 75 Jul-17 1,588 EVN
expansion
Thai Binh 1 Coal power Thai Binh 600 Q4 2017 26,500 EVN GENCO3
Vinh Tan IV Coal power Binh Thuan 1,200 Dec-17 36,000 EVN GENCO3
Source: VCSC
Due to La Nina, reserve margin was flat compared to last year

Due to La Nina (which led to unusually high rainfall), hydropower plants increased contribution to
total national power supply from an average of 18% in 2016 to 39% in 2017. Thanks to the higher
output of hydropower plants, the reserve margin was flat at 16%.
Figure 161: Average rainfall level (mm) Figure 162: Supply structure
1,700 1,677 100%
1,575
50%
1,500
1,430
1,398
0%
1,300
2014 2015 2016 2017 Hydro Coal Gas Others
Source: MOIT, ERAV, GSO, VCSC
Figure 163: Reserve margin
HOLD
40,000 28% 30%
26%
22%
21%
19% 18%
17% 18% 18%
21%
14% 14% 15% 14%
12% 12% 12% 14% 12% 15%
11% 10% 14%
10% 9% 8%
6% 6% 6%
20,000 9% 6% 4%
1% 0% 2%
0%
-1% -1%
-3%
0 -11% -15%
Reserve margin(%) Peak demand Usable capacity
Source: MOIT
The retail electricity price was raised for the first time in nearly
three years
The retail electricity price was raised by 6.08% to VND1,721/kWh in December 1, 2017. We do
not see any significant inflationary impact from this move, but do see it as another positive step
in the liberalization of the sector. The move should help to ensure the operation of the wholesale
competitive generation market (WCM) from 2019 onward. The new retail electricity price in
Vietnam is still approximately 40% lower than the average price in other Asia-Pacific countries.
Therefore, retail electricity prices could increase more in the coming years as higher electricity
prices support the Government's efforts to attract FDI for new power plants, thereby addressing
the risk of future electricity shortages.
Figure 164: Retail electricity price comparison (USD cents per kWh)
35 60,000
30
25
40,000
20
15
20,000
10
5
0 0
GDP per capita Electricity price (USD cent)
Source: VCSC
In addition, the Government also gave EVN more authority to adjust prices. Decision 24/2017/QĐ-
HOLD
TTg (effective from August 15, 2017) outlines a new mechanism for adjusting the retail electricity
price and replaces Decision 69/2013/QĐ-TTg. Per the new Decision, EVN is required to
recalculate and adjust the retail electricity price quarterly instead of annually as before. In the
review period, if the movement of input components require a price adjustment, the retail
electricity price will be adjusted in accordance with the following guidelines outlined in below
figure.
Figure 165: New decision on retail electricity price
Decision 24/2017/QĐ-TTg Decision 69/2013/QĐ-TTg
EVN can increase the retail electricity price 3%-5%

None
(below the price cap) then report to MoIT later.
EVN needs MOIT’s approval to increase the retail price EVN needs MoIT’s approval to increase
5%-10%. electricity retail price 7%-10%.
If the electricity retail price must be increased more If the electricity retail price must be increased
than 10% or more than the range, EVN will make a more than 10% or more than the range, EVN will
proposal to MoIT. MoIT and MoF review and report to make a proposal to MoIT. MoIT and MoF review
the Prime Minister to make final decision. and report to the Prime Minister to make final
decision.
If necessary, MoIT and MoF can adjust the retail price
before reporting to the Prime Minister.
Source: MOIT, VCSC
Most listed hydropower companies had fruitful earnings in 2017

The sales volume of listed hydropower plants likely increased by 10%-50% in 2017 thanks to the
abnormally high rainfall. Therefore, we estimate 2017 earnings of these plants to grow by 40%-
200%. Generally, La Nina hurts the output of thermal power plants, but earnings of some plants,
such as PPC and NT2, are secured by high contracted volume.
Figure 166: Results of thermal and hydro power plants:
NPAT
Mkt cap ADTV Forward Dividend
Power plant 2017 Growth %
(USD mn) 30 days P/E 2017 yield (%)
(VND bn)
THERMAL POWER
PPC - Thermal power 320 0.3 1,149 109.0% 8.3x 13.2%
NT2 – Thermal power 420 0.5 956 -7.3% 10.2x 7.5%
NBP - Thermal power 8 0.0 25 16.5% 7.6x n/a
HYDRO POWER
VSH - Hydro power 156 0.1 335 29.9% 11.7x 5.8%
TBC - Hydro power 67 0.0 155 40.4% 9.9x 8.3%
TMP - Hydro power 103 0.0 310 182.2% 7.6x 6.0%
CHP - Hydro power 147 0.1 361 40.1% 9.2x 7.6%
SHP - Hydro power 93 0.0 186 89.2% 11.4x 7.6%
ISH - Hydro power 27 0.0 60 201.7% 10.1x 3.7%
REE - Mix 566 3.3 1,479 35.3% 8.6x 4.8%
Source: VCSC forecast
Outlook for 2018
Electricity shortage could become more serious over the next three years
HOLD
We estimate 2018 installed capacity growth will increase only 6.4% in 2018, which is much lower
than expected consumption growth of 10.0%. Therefore, we expect Vietnam’s electricity shortage
to worsen in 2018, which suggests that EVN will have to increase utilization of current power
plants. In addition, the northern demand grew at double-digit rate of 12%-15% in 2011-2017,
which implies a lower available capacity to supply the South.
Figure 167: Power capacity outlook (MW)
80,000 20%
16.3%
14.1% 14.7%
60,000 15%
9.5% 10.0%
40,000 8.4% 8.3% 7.8% 10%
6.4%
4.7%
20,000 5%
0 0%
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Hydropower Coal power Gas power

Oil power Other Growth rate (%)
Source: VCSC forecast
The shortage could ease in 2019 as expected with ~1GW of solar power coming on line with the
encouragement of Decision 11/2017/QĐ-TTg dated April 11, 2017 (USD9.35 cents for solar
power). In the following years, we estimate that capacity growth will also be modest and electricity
shortages remain a concern. Going forward, most of new power supply will be coal power as
Vietnam has already built hydropower plants in favorable rivers, which implies a lack of available
locations left for new hydropower plants. Meanwhile, there will be no new gas power plants until
2021 when new gas supplies come into operation.
Figure 168: Key power plants expected to come online in 2018
Investment
Capacity
Plant Type Location COD Capital Investor
(MW)
(VND bn)
Hoi Xuan Hydropower Thanh Hoa 102 Q1 2018 ~4,000 VNECO

Da Nhim - expansion Hydropower Ninh Thuan 100 Q4 2018 ~2,000 EVN GENCO 1
Thai Binh II – generator no.1 Coal power Thai Binh 600 Q4 2018 ~20,000 PVC
Long Phu I – generator no.1 Coal power Soc Trang 600 Q1 2018 ~14,000 PVN
Vinh Tan I – generator no.1 Coal power Binh Thuan 600 Jun-18 ~20,000 BOT
Source: VCSC
Heavy rainfall could extend to early 2018
HOLD
Recent weather forecasts suggest that heavy rain will continue in the first quarter of 2018, which
would favor hydro power plants. However, the weather is expected to turn neutral for the rest of
2018, implying a rebound year for most of the thermal power plants.
Figure 169: Weather phenomenon (Oct 2017 to Aug 2018)
Source: International Research Institute for Climate and Society
Vietnam’s electricity market continues to be liberalized

Wholesale Competitive Market (WCM) will go into operation from 2019. EVN is testing the
second phase of the Wholesale Competitive Market (WCM) with selected power plants and
targets to operate WCM in 2019. WCM is expected to benefit most power plants as they will enjoy
various PPA contracts with various wholesale buyers vs a single PPA contract with a sole buyer
(EVN) under the current market mechanism.
Figure 170: CGM and WCM comparison
CGM WCM
Trial period: 2009 – 2012 Trial period: 2017 – 2019
Went into operation in 2012 Goes into operation in 2019 (expected)
Electricity sell-side: Power generators
Wholesale buyer: EVN (sole buyer) Wholesale buyer: EVN, EVN’s distributors,
retailers, wholesale customers
Trading electricity through a single PPA contract and Trading electricity through various PPA contracts
the spot market with EVN as the sole buyer and offering capacity to various customers in the
spot market
Bidding price: based on variable cost Bidding price: based on supply and demand
Bidding/trading cycle: 60 minutes Bidding/trading cycle: 30 minutes
Price on spot market applies for the whole system Spot prices are calculated at each 500/220/110
kV station
Electricity contracts are traded on electricity
exchange
Source: NT2, VCSC
Coming IPOs of power generators will mark a new milestone for liberalization process. The
Prime Minister approved the equitization plan for PV Power in December 8, 2017. Based on the
equitization plan, PV Power's share capital is VND23 trillion (USD1.0 billion). This second biggest
electricity producer in Vietnam expects to IPO in January 2018 and plans to list on the UPCoM
stock exchange shortly after its IPO. Genco 3’s equitization plan was also approved.
The Government has approved a third national transmission line
HOLD
The Government recently approved the third national transmission line project, which will help to
transfer electricity from the North and the Central to the South to ease electricity shortage in this
region. The project includes two consecutive lines: Quang Trach - Quang Binh to Doc Soi – Quang
Ngai (with estimated capital expenditure of VND6.7 trillion (USD295.0 million) and Doc Soi –
Quang Ngai to Pleiku (with estimate capital expenditure of VND3.6 trillion (USD158.6 million).
The Government also allowed this project to enjoy several special conditions (land use rights, for
example) to ensure completion by 2019. We estimate that this project, with total investment capital
of USD450.0 million, will benefit most transmission line installation & erection contractors,
especially the leading player in the sector, PC1, in the next two years.

BUY - Refrigeration Electrical Engineering Corporation (HSX: REE)
REE is our top pick in the power sector as the stock is trading at an attractive 2018 P/E of 7.6x
and a P/B of 1.4x while offering 18.4% ROE based on 0.1x net gearing. Recently, REE spent
VND700 billion (USD30.8 million) to acquire a 34.7% stake of Vinaconex Water Supply
JSC/Viwasupco (VCW), which suggests 2018 NPAT growth of 60% for the water segment.
Therefore, we expect to raise our forecast for REE’s consolidated EPS growth for 2018 from
13.2% to ~17% in our next update report.
We expect a sizable power portfolio of 678 MW to yield a much higher dividend this year given
the stellar result of most hydro power plants and PPC. Assuming neutral 2018 weather, we project
2018 power earnings growth of 11.6% as contributions from CHP and CGM are expected to
recover in 2018. In addition, the Wholesale Competitive Generation Market (WCM) starts from
2019 and gives power plants more price upside by selling to different buyers instead of only to
Vietnam Electricity Group.
Given a strong backlog of USD231 million at the end of September 2017 and rising demand from
the infrastructure sector (airports, metro, offices, shopping centers), we expect profit growth of
10%-20% for this segment in coming years.
REE is confident that E-town Central (35,000 sqm) will run at 100% capacity in the first year of
operation 2018. In addition, REE is seeking a license to increase E-town East West's net leasing
area by 50% to 15,000 sqm.
Real estate has more projects to contribute in the next two years as subsidiary VIID has recently
acquired 70% of a new land plot project in Duc Giang-Ha Noi (expected to book in 2018, 2019)
and targets to develop another project in Quang Ngai.
BUY- PetroVietnam Power Nhon Trach 2 (HSX: NT2)
We have a BUY recommendation for NT2 given strong 2018 reported and recurring earnings
growth of 41.6% YoY and 13.6% YoY, respectively.
Impressive savings from its first major maintenance. Maintenance expense of VND173 billion
(USD7.6 million) was just 54% of the initial budget while capacity increased by 24 MW and NT2’s
efficiency and reliability ratios are currently equal to those of a newly-built gas power plant.
Expected neutral weather and worsening electricity shortages next year suggest 2018 sales
volume to recover by 14.3% to 5.1 billion kWh. We also expect a higher 2018 dividend of
3,000/share (8.9% yield) vs 2017’s 7.5% yield and a lower net debt/equity ratio of 0.3x.
NON-RATED – PetroVietnam Power Corporation (PV Power)
HOLD
PV Power is the second biggest electricity producer in Vietnam, behind only Vietnam Electricity
Group (EVN), with total capacity of 4.2 GW, equivalent to 10% of national capacity. We project
2018 recurring earnings growth of 20.2% as Vung Ang coal-fired plant’s congestion problem has
been solved and Nhon Trach 1 and NT2 recover. In 2019-2022, earnings growth is estimated to
range from 10%-25% p.a. given the full depreciation of Ca Mau and Nhon Trach 1 gas-fired plants,
Vung Ang’s smooth operation and Nhon Trach 3 and 4 coming online in 2021 and 2022,
respectively. Operation of WCM in 2019 will provide further upside for PV Power as most of its
power plants are located in the region with the most acute electricity shortage.
Based on the equitization plan, PV Power's share capital is VND23 trillion (USD1.0 billion).
Equitization structure: 20% of equity shares will be offered to the public via auction while 28.9%
will be offered to a strategic partner, with the Government keeping at least 51%. The IPO will be
conducted via auction method with the starting price at VND14,400/share, implying a market cap
of USD1.5 billion and P/E of 13.5x based on 2017’s forecast EPS. PV Power targets to IPO in
January 2018 and plans to list on the UPCoM stock exchange shortly after its IPO.
NON-RATED - Generation Power Corporation 3 (Genco 3)
Genco 3 is the biggest electricity producer in Vietnam with total capacity of 6.2 GW, equivalent to
14.8% of total national power capacity. Genco 3’s power portfolio includes 2.9 GW of gas power,
2.4 GW of coal power and 0.8 GW of hydro power. In addition, Genco 3 also has 30% stakes in
three hydro power plants, Thac Ba – TBC (120 MW), Vinh Son – Song Hinh – VSH (136 MW)
and Se San 3A (108 MW).
Based on the equitization plan, Genco 3 has share capital of VND20.8 trillion (USD916 million)
and will issue shares to reduce the Government's stake. Equitization structure: 12.8% of equity
shares will be offered to the public via auction while 36% will be offered to a strategic partner with
the Government keeping at least 51% until 2019. The IPO will operate through an auction method
with the starting price at VND24,600/share, implying a market cap of USD2.3 billion. Genco 3 is
targeting to complete the IPO in February 2018 and plans to list on HOSE or UPCOM within one
year after the IPO.
Duong Dinh Petroleum sector: Downstream players are equitized giving huge
Manager
duong.dinh@vcsc.com.vn opportunities for investors HOLD
+848 3914 3588 ext. 140
Figure 171: PLX and VN-Index
Tram Ngo
Analyst
tram.ngo@vcsc.com.vn 60%
+848 3914 3588 ext. 135 56%
50%
40%
37%
30%
20%
10%
0%
-10%
-20%
Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17
VN-Index PLX
Source: Bloomberg
Note: Graph begins on April 21, which was PLX’s listing date.
Figure 172: Petroleum coverage
Div FY16 FY17 FY18 MR

Market Foreign 30D FY16 FY17 FY18
Upside yield @ EPS EPS EPS QTR
Company Ticker Rating Cap Room $ ADTV P/E P/E P/E
% current growth growth growth P/B
$ mn mn $ mn (x) (x) (x)
price % % % (x)
Petrolimex
PLX O-PF 4,255.9 407.7 3.0 -19.9% 4.0% 47.8% -25.0% 20.7% 17.6 23.5 19.5 4.5
(*)
PVOil (**) PVO NR 610.5 299.1 NA NA 2.2% -19.4% -0.7% 23.4% 29.3 29.4 23.9 1.5
Binh Son
Refinery BSR NR 2,000 980 NA NA 4.8% 27.2% 77.8% NA 10.1 5.7 NA 1.2
(**)
Source: VCSC. Note: (*) Rating is based on last report as we will revise our target price in the next update
report (**) Market cap, foreign room and P/E are based on IPO starting price
Petroleum consumption witnessed strong growth in H2 2017
HOLD
According to BMI, Vietnam petroleum consumption is forecast to grow at a CAGR of 4.7% over
the next five years, much higher than the expected global petroleum consumption growth rate of
1.3%.
In 11M 2017, total Vietnam petroleum consumption increased at 7.9% YoY to 15.7 million tons.
The growth mainly took place in H2 2017, thanks to 1) Strong GDP growth rate of 7.46% in Q3
and 7.65% in Q4 (vs 6.4% and 6.68% in the same period last year and 2) Government measures
to eliminate smuggled products, such as applying an electronic stamp, started to have a positive
impact.
Figure 173: Annual petroleum consumption
17 mn tons 10%
7.9%
8% Petroleum
16
consumption -
4.7%
4.4% 6% LHS
15
4.4% 4%
Growth % -
14 RHS
2%
14.6 15.3 16.0 15.7
13 0%
2014 2015 2016 11M 2017 (*)
Source: Wood Mackenzie. Note: (*) VCSC’s estimates, based on data from Binh Son refinery, Vietnam
General Customs.
Over the first 11M 2017, petroleum imports grew 12.8% YoY in order to make up for a 4% drop
in domestic production as Dung Quat refinery was in maintenance period for 52 days in Q2 and
Q3.
Figure 174: Petroleum consumption
6,000 '000 ton 30%

5,000
21.2% 20%
4,000 11.3%
3,000 9.4% 10%

5.7%
2,000
0.8% 0%
1,000 -1.8%
-5.7%
- -10%
1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17
Net imports - LHS Dung Quat refinery - LHS

Total consumption - YoY growth % - RHS
Source: Vietnam Customs, Binh Son refinery & VCSC estimates
Petroleum prices have been higher and more stable in 2017 than 2016
Petroleum selling prices last year were higher than in 2016, in line with global oil price trends. In
term of price adjustments, the selling price was more stable in 2017 than in the previous year. In
H1 2017, prices were quite stable even though they were in a downward trend, and H2 2017 price
movements were very similar to those in H2 2016.
Figure 175: Gasoline price
20,000 20,000
HOLD
2016 2017
18,000 18,000
16,000 16,000
14,000 14,000
12,000 12,000
Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17
RON 92 RON 92
Source: PLX
The import tax implicit in regulated petrol prices is heading lower

Retail petrol prices are set by the Government and include a component based on the weighted
average import tax of Vietnam’s petroleum industry. This includes import tax from all sources,
including both actual imports and petrol from the Dung Quat refinery. Because the import tax for
Dung Quat has been lowered from 20% to 0%, the weighted average import tax has fallen below
the lowest level of tax on actual imports, which is 10% for Korean products. Import taxes implicit
in the petrol price calculation were therefore 9.31% and 8.56% in Q3 and Q4 2017, respectively.
This is negative for those distributors who purchase a majority of their inputs from imported
petroleum. (For example, PLX purchased 65% from imports and 35% from Dung Quat refinery.)
They pay higher import taxes for inputs but sell their products at retail prices based on the lower
weighted average import tax. However, we believe this only negatively affected distributors in Q3
2017, when Dung Quat conducted maintenance. Dung Quat resumed normal operation in Q4
2017 and operated at more than a 100% utilization rate which should supply more petroleum
products for distributors going forward.
Figure 176: Weighted average import tax rate has been lowered significantly
25%
20.00%
20% 18.10%
15.70% 16.20%
15%
10.56% 10.21% 9.31% 8.56%
10%
5%
0%
Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017
Weighted average import tax for gasoline %
Source: MOIT
PLX station openings slow from 2016 high base while PVOil keeps up the pace
In 9M 2017, PLX opened 47 new stations, only ~50% of its guidance of 100 new stations per
annum. Meanwhile, PVOil opened around 27 new stations in 9M 2017. When expanding their
network through building new stations, petroleum distributors typically face difficulties in land
clearance and the process in getting approval. This could be the explanation for the slowdown in
HOLD
PLX station openings in 2017 to some extent. Meanwhile, PVOil still kept up its pace thanks to
aggressive merge and acquisition (M&A) activity.
Figure 177: Number of newly owned stations (2015-9M 2017)
150
120
28
90 PVOil
60 30 27 PLX
95
30 47
46
0
2015 2016 9M 2017
Source: PLX, PVOil, VCSC estimates
Vietnam is thirsty for liquefied petroleum gas (LPG), polypropylene (PP)

Apart from petroleum products, liquefied petroleum gas (LPG) and polypropylene (PP) are other
products of Binh Son refinery (BSR). Although these products presently account for a small
proportion in Binh Son’s total sales volume, they are future growth drivers thanks to their
numerous applications and strong demand.
Polypropylene (PP). PP is a thermoplastic polymer resin. It can take the form of either structural
or fiber-typed plastic, making it useful in numerous applications including household appliances
and industrial products. Polypropylene’s common uses are flexible packaging and automotive and
consumer products. Asia Pacific is a leader in PP consumption due to strong growth in
construction and automotive segments, especially in China and Indonesia. Vietnam’s fast-
growing food & beverage and construction segments will be the key drivers for PP demand in the
future.
Binh Son is the only refinery that manufactures PP presently, with annual capacity of 150,000
tons. Binh Son’s annual PP sales volume meets 14%-16% of country’s total demand of 1.2 million
tons per year, with the remaining demand satisfied by imports. Vietnam was ranked ninth among
the world’s top PP importers in 2016 with USD1.1 billion of import value while PP import volume
achieved a CARG of 8.9% over 2010-2016. Nghi Son petrochemical refinery has capacity of
376,000 tons of PP/year and the plant expects to generate 100,000 tons of PP in 2018 and
300,000 tons from 2019. Hence, total PP production volume at Binh Son and Nghi Son are
expected to meet 30%-40% of total PP demand by 2019-2020.
Figure 178: Polypropylene supply and demand in Vietnam
1,400 '000 ton 1,272

1,181
1,200 1,056
945
1,000
779
800 719
600
400
150 157 136 169 166 166
200
0
2012 2013 2014 2015 2016 2017F
Demand Domestic Supply
Source: Vietnam Plastics Association (VPAS), Binh Son refinery.
Liquefied petroleum gas (LPG). LPG is a flammable hydrocarbon gas that is made during
HOLD
natural gas processing or oil refining. LPG is widely used for industrial applications as well as
household cooking and heating. In addition, LPG is considered to be more economical and
environmentally friendly than petrol and diesel.
Presently, Binh Son refinery supplies ~400,000-420,000 tons of LPG per annum. Meanwhile,
PVGas supplies 285,000 tons of LPG through its Dinh Co gas processing plant. PVGas’s other
plant, Ca Mau gas processing plant (Ca Mau GPP, with annual capacity of 200,000 tons of LPG
per year), has just completed trial runs and came into commercial operation in October 2017.
Therefore, PVGas, coupled with LPG from Binh Son refinery, currently meets ~45%-50% of total
domestic LPG demand while the remaining amount is imported.
With future projects such as Nghi Son refinery, Ca Mau GPP (200,000 TPA) and Nam Con Son
2 GPP (300,000 TPA), Vietnam’s domestic supply is expected to meet 80%-90% of total domestic
demand by 2020-2022.
Figure 179: LPG domestic supply and imports
1600 '000 ton1,330 1,346 1,363 1,377 1,390
1200
800 52
409 357 448 490 420
400
284 301 282 285 285
0
2013 2014 2015 2016 2017F
Dinh Co GPP Binh Son refinery Ca Mau GPP
Imports Total demand
Source: Wood Mackenzie, PVGas.
Asphalt is the main raw material for road, bridge and runway construction. The asphalt business
has a cyclical nature where demand is highly correlated to the Government’s investment agenda
and public investment tends to see increased disbursements in the last two years of each five-
year political term.
Total asphalt demand peaked in 2015 at 933,000 tons (+23% vs 2014) and then slowed in 2016
and 2017. Given the cyclical nature of the asphalt market mentioned above, 2018-2019 should
be another peak for asphalt demand in the 2016- 2020 cycle.
Presently, bitumen, the major input material for asphalt, is entirely imported.
Figure 180: Vietnam’s asphalt demand over the past years
1,200 '000 tons

933
900 759 720
600
600
300
-
2014 2015 2016 2017G
Asphalt demand
Source: Petrolimex Petrochemicals (PLC).
2018 outlook HOLD
Overall picture of foreigner participation in the petroleum sector
According to Binh Son refinery’s equitization plan, PVN’s stake will be reduced to 43% after the
IPO and offering to strategic investors. In the second refinery of Vietnam, Nghi Son, PVN holds a
25% stake and foreign investors a 75% stake. Therefore, we see there will be more participation
and involvement of foreign players in the petroleum production sector from 2018 onward.
Meanwhile, there will be a balanced structure between Government and foreigner holdings in the
petroleum distribution segment, given that the Government plans to divest 24.9% of PLX in 2018
and its holding at PVOil will be 35.1% after the equitization.
Figure 181: Foreigner participation in the petroleum sector
Highly interested:
PetroVietnam Repsol, World
(PVN) - 43% Petro,
MacronPetro.
Binh Son refinery
Potental investors
- 49% Other foreign
players
High
Refineries motivation PVN - 25.1% Others domestic
to acquire
players: Petrolimex
stake
Idemitsu - 35.1%
Nghi Son
Kuwait Petroleum -
35.1%
Mitsui Chemicals -
4.7%
High
motivation
to acquire
stake
Plan to reduce to
PVN - 75.9%
51% in 2018
Petrolimex (PLX)
JX Nippon Oil - 8%
Distributors
Highly interested:
PVN - 35.1% Idemitsu, Kuwait
Petroleum
PVOil
Potential investors
- 49% Other foreign
players
Other domestic
players
Source: Dung Quat, Nghi Son refineries, PLX, PVOil.
Policy changes will positively impact the petroleum industry
Biofuel E5 and RON95 will replace RON92 gasoline nationwide from January 1, 2018. E5 isHOLD
comprised of 5% ethanol and 95% RON 92 gasoline. The Government targets to replace all
gasoline RON92 with RON95 and E5 from January 1, 2018, a move that is meant to protect the
environment. PLX and PVOil announced that they already replaced RON92 gasoline with biofuel
E5 and RON95 gasoline at all their petrol stations during December 2017, which is ahead of the
Government's target of January 1, 2018.
Both production and mixing capacity is enough for rising demand of E5. In terms of ethanol
production capacity, there is enough ethanol capacity (400,000 m3 of ethanol) to replace A92
with E5 if all three ethanol production companies are in operation. The Binh Phuoc and Dung
Quat ethanol plants are planning to resume operation in January 2018 and March 2018,
respectively.
Seven out of 29 distributors have E5 mixing plants, with total combined capacity of up to 6 million-
7 million m3 of E5. Presently, PLX has five mixing plants with total capacity of 1.1 million m3/year
while they are building two more mixing plants to lift their total mixing capacity to 1.8 million
m3/year by end of H1 2018. Meanwhile, PVOil has 12 mixing plants with total capacity of 1.1
million m3/year.
The switch from RON 92 gasoline to E5 and RON95 could benefit distributors such as PLX and
PVOil as: 1) RON 95 gasoline has a higher margin than RON 92; and 2) E5 gasoline has a 19%
higher regulated cost than RON 92 (the regulated cost is the distribution cost that distributors can
receive to cover their infrastructure, selling expense, etc). In addition, this policy would have a
positive impact on PVOil as rising demand for ethanol will ensure output for the three biofuel
plants of PVOil that are going to be reactivated.
However, these benefits may not last long as 1) the Government may set a base price for RON
95, which could lower the margin for RON 95 and 2) the Government’s support for E5 gasoline
may end and it could lower the regulated cost in the future.
Government efforts to reduce smuggled products bode well for legal players. The
Government has deployed many methods, including electronic stamps, electronic invoices
(effective from mid-2018), etc., to eliminate smuggled petroleum products and prevent tax fraud
by matching input and sales volume at each station. We believe this is positive for the whole
petroleum industry, especially for legal players such as PLX and PVOil, as those polices not only
improve sales volume but also favorable for M&A activity as the smaller distributors/agents will
find it hard to survive without the smuggled products.
The operation of Nghi Son refinery will help to reduce reliance on imports
Nghi Son is surmounting technical problems and rushing to satisfy all requirements before starting
operations. By end-October 2017, Nghi Son completed 97.78% of its EPC contract while
preparations for the pilot operation were 37% finished. Therefore, it plans to begin commercial
products from Q2 2018 and targets to deliver 5.3 million tons of oil products in 2018 (64%
utilization rate). Full operation of Nghi Son will meet 60% of total domestic petroleum demand and
reduce reliance on imported products going forward.
Meanwhile, according to the agreement between the Government and Nghi Son refinery, the
refinery is guaranteed to receive 7% of the petroleum selling price while the Government will make
up for the loss if Nghi Son’s products are not competitive with imported products. This agreement
is currently obsolete because the import tax has been lowered significantly due to the ASEAN
FTA and the Vietnam-Korea FTA coming into effect.
The Ministry of Finance announced that from Q3 2017 it has calculated an import tax of 0% for
petroleum products from Dung Quat in the base price calculation, which sent the weighted
average import tax even lower (output price reference).
Discussions about revising the tariff for Nghi Son refinery are ongoing and have not been finalized
HOLD
yet. If the preferential tax mechanism is kept unchanged at 7% or reduced to 0%, this could
negatively impact distributors such as Petrolimex and PVOil to some extent as they may have to
purchase inputs at a high tax and sell products whose prices are calculated based on a lower tax.

OUTPERFORM – Petrolimex (HSX: PLX)
PLX is the long-standing market leader in Vietnam’s petroleum (gasoline, diesel, jet fuel)
distribution business with 48%-50% market share. PLX’s EPS drop sharply by 25% in 2017 due
to import tax reversal hurting the petroleum segment and the lackluster performance of
petrochemicals and transportation. However, 2018 is expected to be a good year for PLX thanks
to higher margins stemming from rising RON95 and E5 sales volume when the policy to replace
RON92 takes effect. Medium and long-term stable growth of 11% per annum will be supported
by stable petroleum industry growth of 4.7% and the Government’s effort to reduce smuggled
products. PLX has strong financial capacity with net gearing near to zero, ROE at ~20% and 135
million treasury shares on hand to finance expansion into the non-oil retail business that will take
the company to new heights. However, the stock is already trading at justified 2017 P/E of 23.5x
and EV/EBITDA of 13.5x, which is in line with its regional peers.
NOT RATED – Binh Son Refining and Petrochemical Company Limited (BSR)
BSR, a pioneer in Vietnam's refinery industry, was founded in 2008 to operate and manage the
Dung Quat refinery. Currently, BSR meets one-third of the country’s petroleum demand and is
working on plans to upgrade capacity from 6.5 million tons to 8.5 million tons by 2021/2022. Based
on its equitization plan, BSR has share capital of VND31 trillion (USD1.4 billion). BSR will offer a
7.8% stake to the public, a 49.0% stake to a strategic partner and a 0.2% stake to employees
while PetroVietnam Group will keep 43%. The IPO will be carried out via auction method with the
starting price at VND14,400/share, implying a market cap of USD2 billion and a P/E of 10x based
on 2016’s EPS. BSR released 9M results with revenue of VND55 trillion (USD2.4 billion) and
NPAT of VND4.7 trillion (USD207.0 million). BSR expects to complete its IPO on January 17,
2018. The company also plans to list on UPCoM in March 2018 to list on HOSE or HNX in 2018.
NOT RATED – PetroVietnam Oil Corporation (PVOil)
PVOil, the second largest petroleum distributor in Vietnam, was founded in 2008. PVOil holds a
22% market share in the petroleum distribution industry, thanks to its nationwide distribution
network of ~ 540 operated stations (COCO) and 3,000 agents located in strategic locations of 63
provinces and cities. PVOil has an aggressive expansion plan to open 200 new stations per year,
mainly through M&A activity, to achieve 35% market share by 2022. Based on the equitization
plan, PVOil has share capital of VND10.3 trillion (USD455 million). PVOil will offer a 20% stake
to the public, a 44.7% stake to a strategic partner and a 0.2% stake to employees while
PetroVietnam Group will keep 35.1%. At a recent analysts’ meeting, PVOil announced 2017
preliminary results, in which revenue increased 41.4% to VND56 trillion (USD2.4 billion) while
profit before tax dropped 16.9% to VND520 billion (USD22.9 million) vs 2016. The company plans
to IPO at the end of January 2018 and list on UPCoM within 90 days after IPO. The IPO starting
price is VND13,400/share, implying a market cap of USD610 million and a P/E of 29.4x based on
2017 EPS.
Duong Dinh Oil & Gas sector: Looking forward to key projects breaking
Manager
duong.dinh@vcsc.com.vn ground HOLD
+848 3914 3588 ext. 140
Figure 182: Oil & Gas Index and VN-Index
Tram Ngo
Analyst
tram.ngo@vcsc.com.vn 80%
+848 3914 3588 ext. 135
60%
54%
48%
40%
20%
0%
-20%
VN-Index Oil & Gas Index
Source: Bloomberg
Figure 183: Oil & Gas tickers and VN-Index
100%
80%
60%
40%
20%
0%
-20%
-40%
-60%
VN Index GAS PVD PVS PVT DPM
Source: Bloomberg
Figure 184: Oil & Gas coverage
Company Ticker Rating Market Foreign 30D Upside Div FY16 FY17 FY18 FY16 FY17 FY18 MR
Cap $ Room ADTV $ % yield @ EPS EPS EPS P/E P/E P/E QTR
mn in $ mn mn current growth growth growth (x) (x) (x) P/B
price % % % (x)
PV Gas (*) GAS O-PF 6,900 167.0 2.8 1.1% 4.6% -17.5% 42.9% 0.5% 26.8 17.8 17.7 4.2
PV Tech Services (*) PVS M-PF 464.4 146.6 7.5 -29.7% 3.0% -31.6% -29.6% -13.9% 10.3 14.7 17.1 1.0
PV Transportation (*) PVT O-PF 233.7 43.1 0.4 -5.1% 5.3% 11.1% -14.1% 17.2% 14.2 16.5 14.1 1.5
PV Drilling (*) PVD M-PF 394.3 110.1 3.6 -22.9% 0.0% -92.2% -58.1% -64.0% 78.9 188.3 523.4 0.7
Phu My Fertilizer DPM M-PF 370.9 105.0 1.0 -4.7% 9.3% -25.6% -36.1% -7.1% 8.6 13.5 14.5 1.0
Source: VCSC. Note (*) Rating is based on last report as we will revise our target price in the next update
report. PVS’s EPS growth is based on adjusted EPS for 25% rights issuance in Q1 2018.
Oil price has had a better recovery than expected
HOLD
The price of oil increased by 20% in 2017 from 2016. The price had a good start in early 2017
with OPEC and Russia’s first output agreement in eight years. However, in Q2 and Q3, the oil
price faced many challenges due to US shale oil production. The price was resilient in Q4 amid
expectations of Russia and OPEC extending their agreement to the end of 2018.
Figure 185: Oil price in 2017 (USD/bbl)
70
Number of drilling rigs jumped to 617 vs 386 rigs
a year ago and US inventories hit recod high
65
EIA estimated the US would produce 9.2
million barrels per day in 2017 (vs
previous 8.7 mn bbl/day).
60
US crude oil exports in Q1 2017 also
doubled YoY to 1 million barrels per day
(bpd), more than half of the 1.8 million
55 bpd OPEC committed to cut in December
2016.
50
OPEC & Russia agreed to

45 extend output cut to the end of
2018
40
Source: Bloomberg
Prices of fuel oil and LPG recovered much more than crude oil price
In 2017, the price of fuel oil had a surprising jump. The underlying reasons could be low
inventories as well as low production of this type of refined product while relatively high demand
boosted the price. GAS is the biggest beneficiary of a strong fuel oil price while DPM was badly
hurt. PVS and PVD have not felt the impact as the recovery of the oil price has not been strong
enough to lead a recovery in day rates and service prices.
Figure 186: Fuel oil price in 2017 Figure 187: LPG price in 2017
390 600
Fuel oil price rose by 41.3% in LPG price was 42.9%
370 11M 550 higher YoY
350 500
330 450
310 400
290 350
270
300
Jan-17
Jun-17
Jul-17
Mar-17
Feb-17
Nov-17
Dec-17
Aug-17
Sep-17
Apr-17
May-17
Oct-17
250
Source: Woodmac & Saudi Aramco
Figure 188: Jack-up day rate in Southeast Asia
(USD/day)
Figure 189: Jack-up utilization rate in Southeast
Asia (%)
HOLD
100,000 80
80,000
60
60,000
40
40,000
20
20,000
- 0
Jul-16
Jul-17
Jan-16
Mar-16
Jan-17
Mar-17
Sep-16
Nov-16
Sep-17
May-16
May-17
Jan-16
Jul-16
Jul-17
Mar-16
Jan-17
Mar-17
Sep-16
Nov-16
Sep-17
May-16
May-17
Source: IHS Petrodata
Production of Vietnamese crude oil and natural gas declines

Crude oil production output declined 9.9% YoY partly due the oil price falling to a level that some
of marginal oil fields are not profitable. Moreover, as the plateau period of many oil fields ends,
their production declines naturally. Meanwhile, natural gas production also fell significantly as
heavy rain lowered demand from thermal power plants.
Figure 190: Crude oil and natural gas production declines
25
In 11M 2017, crude oil production and natural gas production declined by 9.9% and
6.4%, respectively, vs 11M 2016
20
15
10
0
2010 2011 2012 2013 2014 2015 2016 11M 2016 11M 2017
Crude oil (m tons) Natural gas (bcm)
Source: PetroVietnam
Exploration & Production activities stalled

Proven reserves are estimated to rise by only 10-15 million tons in 2017 due to limited appraisal
& exploration activity. Investment capital for this sector also declined significantly. In 2017, the
only significant project that broke ground was Red Emperor gas field, but the East Sea tension
rose again and slowed progress.
Year 2014 2015 2016 2017
Increase in proven reserves
48.1 40.5 15.7 10-15
(mn tons of oil equivalent)
Investment capital of PVEP
2,287 23,633 5,484 7,185
(VND bn)
Source: PetroVietnam Group
2018 outlook
HOLD
Global oil market is expected to be balanced. Supply growth is estimated to rise 1.6 million
b/d as US output is estimated to increase by 1 million b/d. Meanwhile, IEA projects demand will
slow to 1.3 million b/d from 1.5 million b/d in 2017.
Figure 191: Global oil outlook (mn b/d)
2017 2018
Excess supply year before (1) 0.9 -0.3
Demand growth (2) 1.5 1.3
Supply growth (3) 0.4 1.6
Americas supply growth 0.5 1.2
OPEC supply growth -0.4 0.0
Other supply growth 0.3 0.3
Excess supply for the year (1-2+3) -0.3 0.0
Source: IEA, QNB Economics
Oil price downside is limited with extension of output cut. We raise our oil price assumption
for 2018 from USD55/bbl to USD60/bbl but assume a flat oil price going forward given an
uncertain outlook after the OPEC/Russia production cut agreement expires in late 2018.
Figure 192: Oil price consensus (USD/bbl)
Source 2018F 2019F 2020F 2021F

Bloomberg consensus 57 61 63 62
BMI 57 63 70 72
Reuters' poll 59
Goldman Sachs 62
Qatar National Bank 60
Average of expert forecasts 59 62 67 67
VCSC's old oil price base case 55 60 60 60

VCSC's new oil price base case 60 60 60 65
Sources: Institutions mentioned above, VCSC.
We do expect key upstream projects will break ground in 2018 after many years of delay.
This could lead to a huge workload for service providers, however service prices will likely recover
slowly. The biggest project – Block B O Mon – had a milestone on September 1, 2017 when it
signed a well head gas price and transportation tariff among PetroVietnam, PV Gas, MOECO
(Japan) and PTTEP (Thailand).
Other smaller projects are progressing. A pre-feasibility study was approved for White Lion (1.5
bn cm) gas pipelines. LNG Thi Vai (1 bn cm) already finished FEED (Front-End-Engineering-
Design) and PetroVietnam and Sumitomo could cooperate to develop this LNG project.
Finally, Exxon Mobil and PetroVietnam are pushing the progress of the Blue Whale gas field so
that they can reach a final investment decision in 2019. This gas field is located at Block 118
offshore from Vietnam’s central city of Da Nang and has estimated reserves of 150 billion cubic
meters, which is three times more than the current biggest gas field (Lan Tay-Lan Do). Blue Whale
must secure a Gas Sales & Purchase Agreement, then must receive approval on an ODP (Overall
Development Plan), then approval for FEED (Front End Engineering Design) before awarding
contracts for service providers. Given it is guiding for first gas in 2023, we expect contracts to be
awarded in 2019 - 2020.
Figure 193: Estimated Block B O Mon investment capital (*)
Unit value
Total
HOLD
(USD mn)/
Categories Unit (USD Note
Dayrate
mn)
(USD ‘000)
Wells to drill 1,000 PVN’s disclosure. Main assumption
Central Processing Daily processing capacity of 18 mn cm of gas

1 500 500
Platform and 21,000 bpd of condensate.
Light production One light platform (over 1,000 tons) can
46 40 1,840
platform connect to 20 - 25 wells.
To drill and complete a well in Block B will take
Tender barge 1 48 173 7-10 days, assuming the tender barge to
operate 10 years in Block B from 2020
Assuming jack-up rig operating in Block B in 9
Jack-up rig 1 60 194
years from 2020
FSO 1 150 150 FSO will stay during the whole production cycle.
Well services of Assuming service value at USD20mn/rig/year

10 20 200
tender and 10 years
Assuming service value at USD20mn/rig/year
Well services of JU 9 20 180
and nine years
Length of gas
431 3 1,270 PVN’s disclosure.
pipeline (km)
Mud & chemicals
1,000 0.5 458 Estimate for 1,000 wells to be drilled from 2018
and Others
Total 4,965
Source: VCSC estimates; Central Processing Platform and FSO values are based on Hai Thach – Moc
Tinh project; Light production Platform is based on White Rabbit project; (*) This breakdown excludes
capex of USD4 billion for power complex development as this will not benefit the O&G service providers.
Figure 194: Investment timeline for Block B
Value
Scope of work (USD 2017 2018 2019 2020 2021 2022
mn)
Upstream services projected based on Nam Con Son and White Lion project.
M&C - 36 light production platforms
891
+ 1 central processing platform
PVS O&M - 36 light production platforms
178
+ 1 central processing platform
M&C - FSO construction 150
VSP Top site and jacket construction 1,125
Subcontractors for 10 light
PXS 146
production platforms
Exploratory drilling 367
PVD
Well related services 380
Pipeline coating for 431 km gas
PVB 152
pipeline
Pipeline designing, purchasing and
GAS 1,118
construction
PVC & 458
Mud & Chemical
Others
Total 4,965
Source: VCSC estimates
HOLD
OUTPERFORM – PetroVietnam Gas (HSX: GAS)
We recently raised our target price for GAS by 70% mainly due to: 1) contribution of Wild Orchid
gas field, which helps the gas supply outlook as well as margins, 2) a 15.3% higher fuel oil price
assumption, 3) a surge in peer P/E from 15.8x to 22.0x and 4) an 80-bps decline in WACC due
to a lower risk-free rate and market risk premium. The company has a good short-term outlook
given expected strong Q4 with fuel oil price +14.3% higher than 9M, LPG price +27.8% higher
than 9M as well as USD44 million in retroactive profit. Long-term outlook is supported by Wild
Orchid gas field, which has reserves of ~3 billion cubic meters, implying a 10% contribution in
total gas supply and a ~30% contribution in volume for the power plant’s above take-or-pay
segment (the highest margin segment). In addition, its key upcoming projects (Block B, While
Lion) are progressing.
Figure 195: GAS's sensitivity to oil price
Base
Assumptions for 2018 (*) Low case High case
case
Brent oil price 2018 avg. (USD/bbl) 40 50 60 70 80

Fuel oil price assumption (USD/ton) 215 272 326 385 442
Selling price for AToP (USD/MMBTU) 2.80 3.08 3.70 4.37 5.01
Selling price for IP (USD/MMBTU) 5.30 6.70 8.04 9.49 10.89
LPG price (USD/ton) 380 445 509 573 638
Financial ratios
FY18's NPAT (VND bn) 7,144 8,522 10,199 11,988 13,721
EPS (VND/share) 3,659 4,365 5,224 6,140 7,028
EPS growth (%) -29.6% -16.1% 0.5% 18.1% 35.1%
ROE (%) 17.3% 20.3% 23.8% 27.4% 30.7%
Valuation
1 YR PER (x) 26.6 22.3 17.7 15.9 13.9
Target price 74,749 85,862 98,500 112,340 125,604
Upside (%) -23.3% -11.8% 1.1% 15.3% 29.0%
Dividend yield (%) 4.6% 4.6% 4.6% 4.6% 4.6%
TSR (%) -18.6% -7.2% 5.6% 20.0% 33.6%
Source: VCSC (*) We assume an oil price of USD60/bbl over 2018-2020, USD65/bbl over 2021-2022 and
USD70/bbl for the remaining years for base case.
Table of figures
HOLD
Figure 1: Quarterly GDP growth .................................................................................................... 6
Figure 2: GDP growth by sector .................................................................................................... 7
Figure 3: GDP structure – real term ............................................................................................... 7
Figure 4: Agriculture, forestry and fishery GDP growth ................................................................. 7
Figure 5: Industry and construction GDP growth ........................................................................... 8
Figure 6: Service sector GDP growth ............................................................................................ 8
Figure 7: IIP growth by sector ........................................................................................................ 9
Figure 8: Industrial Production Index ........................................................................................... 10
Figure 9: IIP of Manufacturing Sub-industries ............................................................................. 10
Figure 10: Purchasing Managers’ Index (PMI) ............................................................................ 10
Figure 11: Vietnam’s PMI outperformed almost all other ASEAN countries ............................... 10
Figure 12: Retail sales and consumer confidence ....................................................................... 12
Figure 13: Minimum wages .......................................................................................................... 13
Figure 14: Employed population & Unemployment rate .............................................................. 13
Figure 15: Breakdown of State budget ........................................................................................ 13
Figure 16: Vietnam’s public debt (USD mn) ................................................................................ 14
Figure 17: Government and government guaranteed debt ......................................................... 14
Figure 18: Trade balance ............................................................................................................. 15
Figure 19: Trade balance among top markets ............................................................................. 15
Figure 20: Contribution by sector ................................................................................................. 16
Figure 21: Export of FIEs vs Domestic sector ............................................................................. 16
Figure 22: Key export products .................................................................................................... 16
Figure 23 Key import products ..................................................................................................... 16
Figure 24: Major export markets .................................................................................................. 17
Figure 25: Major import markets .................................................................................................. 17
Figure 26: Balance of Payments .................................................................................................. 18
Figure 27: Investment growth rate by sector ............................................................................... 19
Figure 28: Contribution by sector ................................................................................................. 19
Figure 29: Disbursed new and additional registered FDI, growth ............................................... 19
Figure 30: FDI by sector in 2017 ................................................................................................. 20
Figure 31: FDI by country in 2017 ............................................................................................... 20
Figure 32:Top 10 largest projects approved in 2017 ................................................................... 21
Figure 33: Inflation ....................................................................................................................... 22
Figure 34: CPI by category .......................................................................................................... 22
Figure 35: USD/VND exchange rate ............................................................................................ 24
Figure 36: Foreign Reserves ....................................................................................................... 24
Figure 37: Performance of major trade partners’ currencies ....................................................... 24
HOLD
Figure 38: Government bond issuance vs target ......................................................................... 25
Figure 39: Bond yields ................................................................................................................. 26
Figure 40: 2017 market returns ................................................................................................... 28
Figure 41: Top five point contributing sectors to the VN-Index ................................................... 28
Figure 42: % growth of TTM EPS (Adjusted)............................................................................... 29
Figure 43: VN-Index sector weightings ........................................................................................ 30
Figure 44: Long-term trend of the VN-Index ................................................................................ 30
Figure 45: Total market capitalization (USD bn) and number of listed stocks............................. 31
Figure 46: Number of listed companies and those with USD1 billion+ market cap ..................... 31
Figure 47: Notable newly listed stocks in 2017 ........................................................................... 32
Figure 48: VN-Index vs VN-Index excluding 27 stocks listed in 2017 ......................................... 33
Figure 49: Top 10 stocks by YE2017 Market Cap ....................................................................... 33
Figure 50: Key public offerings 2017 ........................................................................................... 34
Figure 51: State Divestments in 2017 .......................................................................................... 34
Figure 52: Avg daily trading turnover (USD mn) and total number of trading accounts .............. 35
Figure 53: IPO and divestments plan .......................................................................................... 35
Figure 54: Expected divestments of listed companies in 2018 ................................................... 36
Figure 55: Expected key divestments of unlisted companies in 2018 ......................................... 37
Figure 56: Expected Key IPOs in 2018........................................................................................ 38
Figure 57: VN-Index P/E vs 5-yr bond yield ................................................................................ 40
Figure 58: Viet Capital coverage universe ................................................................................... 41
Figure 59: Summary of required criteria for emerging market classification ............................... 42
Figure 60: VCSC Bank Coverage Index vs VN-Index ................................................................. 43
Figure 61: Bank tickers vs VN-Index ........................................................................................... 43
Figure 62: Average NIMs across sector ...................................................................................... 44
Figure 63: NIM comparison (9M 2017) ........................................................................................ 44
Figure 64: NPL ratio vs provision coverage ................................................................................. 45
Figure 65: NPL comparison (9M 2017) ........................................................................................ 45
Figure 66: Group 2 loans to total loans........................................................................................ 45
Figure 67: Normalized credit costs (9M 2017) ............................................................................. 45
Figure 68: ROA (FY 2016 vs annualized 9M 2017) ..................................................................... 46
Figure 69: Financial leverage (9M 2017) ..................................................................................... 46
Figure 70: Moody’s and Fitch – Vietnam’s sovereign credit ratings ............................................ 46
Figure 71: Vietnamese banks’ current long-term issuer credit ratings ........................................ 46
Figure 72: 5Y US – 5Y VN Government yield spread ................................................................. 47
Figure 73: 5Y and 1Y VN Government bond ............................................................................... 47
Figure 74: Fee income to PPOP (FY 2016) ................................................................................. 48
HOLD
Figure 75: Financial inclusion (FY 2016) ..................................................................................... 48
Figure 76: Life premia to GDP (FY 2016) .................................................................................... 48
Figure 77: Bancassurance’s market share for life insurance (FY 2016) ..................................... 48
Figure 78: Credit card penetration (2016) ................................................................................... 49
Figure 79: Card payments to consumer payment (2016) ............................................................ 49
Figure 80: Household debt to GDP (2016) .................................................................................. 49
Figure 81: Middle class (mn) and 2016-2020 CAGR ................................................................... 49
Figure 82: CASA ratios (9M 2017) ............................................................................................... 50
Figure 83: NIM (FY 2018F) .......................................................................................................... 50
Figure 84: Vietnam’s outstanding consumer finance (USD bn)................................................... 50
Figure 85: Banks expected list in 2018* ...................................................................................... 51
Figure 86: VCSC insurance coverage index vs VN-Index ........................................................... 53
Figure 87: Insurer tickers vs VN-Index ........................................................................................ 53
Figure 88: Aviation Index vs VN-INDEX ...................................................................................... 57
Figure 89: Aviation Stocks vs VN-INDEX .................................................................................... 57
Figure 90: Stock recommendations (USD mn) ............................................................................ 57
Figure 91: HOSE and HNX listed aviation sector companies (USD mn) .................................... 58
Figure 92: UPCoM listed aviation sector companies (USD mn) .................................................. 58
Figure 93: International tourist arrivals (mn) ................................................................................ 59
Figure 94: Domestic airport arrivals (mn) .................................................................................... 59
Figure 95: Chinese and South Korean tourists keep coming ...................................................... 60
Figure 96: Manufacturing sector dominates registered FDI (USD bn) ........................................ 60
Figure 97: Vietnam’s international tourist arrivals are set to reach Thailand’s current numbers by
2029 (mn) ..................................................................................................................................... 62
Figure 98: Vietnam’s international tourist arrival growth is expected to exceed Southeast Asian
peers (2015-2020 CAGR) ............................................................................................................ 62
Figure 99: Vietnam visa exemption policies for foreigners are loosening ................................... 62
Figure 100: Tourism infrastructure is growing ............................................................................. 63
Figure 101: Vietnam tops affordability (daily USD spend) ranking for holidaymakers among
Southeast Asian peers ................................................................................................................. 63
Figure 102: Vietnam’s GDP per capita has almost doubled over the last 10 years (USD) ......... 64
Figure 103: Air travel is the most cost and time efficient mode of transport in Vietnam ............. 64
Figure 104: Vietnam’s air cargo terminal operators are running at tighter capacity… ................ 65
Figure 105: …than Hai Phong’s port operators (mn TEUs)......................................................... 65
Figure 106: Net imports of pharmaceutical products into Vietnam (VND bn).............................. 66
Figure 107: Vietnam’s major airports are beyond or close to full capacity .................................. 66
Figure 108: Estimated cost and timeline of Vietnam’s major airport expansion plans and the new
Long Thanh airport ....................................................................................................................... 67
Figure 109: YoY growth of FMCG super categories .................................................................... 69
HOLD
Figure 110: FMCG growth (YoY) in urban and rural areas .......................................................... 70
Figure 111: What Vietnamese consumers plan to spend on after covering necessities ............. 70
Figure 112: Total sales of select technical goods in Vietnam (USD bn) ..................................... 71
Figure 113: Total clothing revenue and average ticket size in Vietnam ...................................... 71
Figure 114: FMCG sales by retail channel in Vietnam ................................................................ 72
Figure 115: FMCG sales growth by retail channel in four of Vietnam’s largest cities ................. 72
Figure 116: Store count of major convenience store chains in Vietnam ..................................... 73
Figure 117: Store count of leading minimart chains .................................................................... 73
Figure 118: Store count of supermarket chains in Vietnam......................................................... 73
Figure 119: VCSC Consumer Coverage vs VN-Index (YTD price performance) ........................ 74
Figure 120: Stocks covered by VCSC vs VN-Index (YTD price performance)............................ 74
Figure 121: Summary of VCSC’s consumer coverage ................................................................ 76
Figure 122: VCSC’s real estate and construction sector coverage vs VN-Index ........................ 78
Figure 123: Real estate and construction tickers vs VN-Index .................................................... 78
Figure 124: VCSC rating on real estate and construction stocks ................................................ 78
Figure 125: Primary high-end condo transactions (‘000 units) .................................................... 79
Figure 126: Primary mid-range condo transactions (‘000 units) .................................................. 79
Figure 127: HCMC primary landed property transactions (‘000 units) ....................................... 79
Figure 128: HCMC primary condo absorption ............................................................................. 79
Figure 129: Hanoi primary condo absorption .............................................................................. 79
Figure 130: HCMC primary condo prices .................................................................................... 80
Figure 131: Hanoi primary condo prices ...................................................................................... 80
Figure 132: HCMC secondary condo prices ................................................................................ 80
Figure 133: Hanoi secondary condo prices ................................................................................. 80
Figure 134: Nominal GDP per capita growth during 2010 – 2016 (% CAGR)............................. 81
Figure 135: One-year lending rate and CPI in Vietnam (%) ........................................................ 81
Figure 136: Asia’s top infrastructure spenders (% of 2016 GDP) ............................................... 81
Figure 137: New infrastructure projects (MRTs) to fuel housing demand ................................... 81
Figure 138: 2016 total mortgage loans outstanding as % of GDP .............................................. 82
Figure 139: Housing price to income ratio in SEA cities (times) ................................................. 82
Figure 140: Number of owned apartments per 1,000 persons .................................................... 82
Figure 141: Huge room for urbanization growth .......................................................................... 82
Figure 142: Middle and affluent households (‘000 households) .................................................. 83
Figure 143: Income growth outpaced mid-range housing price .................................................. 83
Figure 144: HCMC primary price of landed property vs high-end condos (times) ...................... 83
Figure 145: Annual investment return 2013-2016 ....................................................................... 83
Figure 146: Sales brochure for Vincity projects ........................................................................... 84
Figure 147: VCSC’s steel sector coverage vs VN-Index ............................................................. 87 HOLD
Figure 148: Steel tickers vs VN-Index ......................................................................................... 87
Figure 149: VCSC ratings on steel stocks ................................................................................... 87
Figure 150: Total condo transaction volume in the primary markets of HCMC and Hanoi ......... 88
Figure 151: Housing area per person and urban population ....................................................... 88
Figure 152: Vietnam’s active trade protections on steel products ............................................... 89
Figure 153: Construction steel sales volume ............................................................................... 90
Figure 154: Galvanized steel sales volume ................................................................................. 90
Figure 155: HPG’s average construction steel selling price vs iron ore price ............................. 91
Figure 156: Hot rolled coil (HRC) price trend .............................................................................. 91
Figure 157: Power Index vs VN-Index ......................................................................................... 93
Figure 158: Power tickers vs VN-Index ....................................................................................... 93
Figure 159: Power coverage ........................................................................................................ 93
Figure 160: Key power plants came into operation in 2017 ........................................................ 94
Figure 161: Average rainfall level (mm) ....................................................................................... 94
Figure 162: Supply structure ........................................................................................................ 94
Figure 163: Reserve margin ........................................................................................................ 95
Figure 164: Retail electricity price comparison (USD cents per kWh) ......................................... 95
Figure 165: New decision on retail electricity price ..................................................................... 96
Figure 166: Results of thermal and hydro power plants: ............................................................. 96
Figure 167: Power capacity outlook (MW) ................................................................................... 97
Figure 168: Key power plants expected to come online in 2018 ................................................. 97
Figure 169: Weather phenomenon (Oct 2017 to Aug 2018) ....................................................... 98
Figure 170: CGM and WCM comparison..................................................................................... 98
Figure 171: PLX and VN-Index .................................................................................................. 101
Figure 172: Petroleum coverage ............................................................................................... 101
Figure 173: Annual petroleum consumption .............................................................................. 102
Figure 174: Petroleum consumption .......................................................................................... 102
Figure 175: Gasoline price ......................................................................................................... 103
Figure 176: Weighted average import tax rate has been lowered significantly ......................... 103
Figure 177: Number of newly owned stations (2015-9M 2017) ................................................. 104
Figure 178: Polypropylene supply and demand in Vietnam ...................................................... 104
Figure 179: LPG domestic supply and imports .......................................................................... 105
Figure 180: Vietnam’s asphalt demand over the past years ..................................................... 105
Figure 181: Foreigner participation in the petroleum sector ...................................................... 106
Figure 182: Oil & Gas Index and VN-Index ............................................................................... 109
Figure 183: Oil & Gas tickers and VN-Index .............................................................................. 109
HOLD
Figure 184: Oil & Gas coverage ................................................................................................ 109
Figure 185: Oil price in 2017 (USD/bbl) ..................................................................................... 110
Figure 186: Fuel oil price in 2017 .............................................................................................. 110
Figure 187: LPG price in 2017 ................................................................................................... 110
Figure 188: Jack-up day rate in Southeast Asia (USD/day) ...................................................... 111
Figure 189: Jack-up utilization rate in Southeast Asia (%) ........................................................ 111
Figure 190: Crude oil and natural gas production declines ....................................................... 111
Figure 191: Global oil outlook (mn b/d)...................................................................................... 112
Figure 192: Oil price consensus (USD/bbl) ............................................................................... 112
Figure 193: Estimated Block B O Mon investment capital (*) .................................................... 113
Figure 194: Investment timeline for Block B .............................................................................. 113
Figure 195: GAS's sensitivity to oil price ................................................................................... 114
VCSC Rating System & Valuation Methodology HOLD
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. This structure
applies from 24March 2014.
Equity rating key Definition

BUY If the target price is 20% higher than the market price
OUTPERFORM If the target price is 10-20% higher than the market price
MARKET PERFORM If the target price is 10% below or 10% above the market price
UNDERPERFORM If the target price is 10-20% lower than the market price
SELL If the target price is 20% lower than the market price
NOT RATED 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.
RATING SUSPENDED 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.
Target price: In most cases, the target price will equal the analyst's assessment of the current fair value of the stock. The
target price is the level the stock should currently trade at if the market were to accept the analyst's view of the stock,
provided the necessary catalysts were in place to effect this change in perception within the performance horizon.
However, if the analyst doesn't think the market will reassess the stock over the specified time horizon due to a lack of
events or catalysts, then the target price may differ from fair value. In most cases, therefore, our recommendation is an
assessment of the mismatch between current market price and our assessment of current fair value.
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.
Disclaimer
Analyst Certification of Independence HOLD
We, the authors, 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.
Contacts
HOLD
Corporate
www.vcsc.com.vn
Head Office Hanoi Branch
Bitexco Financial Tower, 2 Hai Trieu Street 109 Tran Hung Dao
District 1, HCMC Hoan Kiem District, Hanoi
+84 24 6262 6999
+84 28 3914 3588
Transaction Office Transaction Office

10 Nguyen Hue Street 236-238 Nguyen Cong Tru Street
District 1, HCMC District 1, HCMC
+84 28 3914 3588 +84 28 3914 3588
Research
Research Team Barry Weisblatt, Head of Research, ext 105
+84 28 3914 3588 barry.weisblatt@vcsc.com.vn
research@vcsc.com.vn
Cameron Joyce, Manager, ext 163 Real Estate, Construction and Materials
Banks, Securities, Insurance Hong Luu, Manager, ext 120
- Nghia Dien, Analyst, ext 138 - Anh Nguyen, Analyst, ext 174
- Son Tong, Analyst, ext 116 - Vy Nguyen, Analyst, ext 147
Macro
- Luong Hoang, Analyst, ext 364 Oil & Gas, Power and Fertilizer
- Nguyen Truong, Analyst, ext 132 Duong Dinh, Manager, ext 140
- Tram Ngo, Analyst, ext 135
Consumer and Pharma - Thanh Nguyen, Analyst, ext 173
Phap Dang, Senior Manager, ext 143
- Dao Nguyen, Senior Analyst, ext 185 Retail Client Research
- Nghia Le, Analyst, ext 181 Duc Vu, Manager, ext 363
- Nam Hoang, Analyst, ext 196
Industrials and Transportation - Ha Dao, Analyst, ext 194
Lucy Huynh, Senior Manager, ext 130 - Tra Vuong, Analyst, ext 365
- Phu Pham, Analyst, ext 124
- Trang Tran, Analyst, ext 149
Institutional Sales and Brokerage

& Foreign Individuals
Head of Institutional Sales Vietnamese Sales
Michel Tosto, M. Sc. Dung Nguyen
+84 28 3914 3588 ext 102 +84 28 3914 3588 ext 136
michel.tosto@vcsc.com.vn dung.nguyen@vcsc.com.vn
Retail & Corporate Brokerage

Ho Chi Minh City Hanoi
Quynh Chau Quang Nguyen
+84 28 3914 3588 ext 222 +84 24 6262 6999 ext 312
quynh.chau@vcsc.com.vn quang.nguyen@vcsc.com.vn

VN Strategy To Do Business

Загружено:

Сведения о документе

Оригинальное название

Авторское право

Доступные форматы

Поделиться этим документом

Поделиться или встроить документ

Параметры публикации

Этот документ был вам полезен?

Это неприемлемый материал?

Авторское право:

Доступные форматы

VN Strategy To Do Business

Загружено:

Авторское право:

Доступные форматы

Vietnam Strategy 2018

Stock market outlook: We expect the VN-Index to reach 1,250.

Top picks from our coverage universe:

GDP: Strong growth momentum will carry forward

8% 36.9% 36.7% 37.3% 38.7% 39.0% 39.7% 40.9% 41.3%

18.4% 19.6% 19.2% 18.0% 17.7% 17.0% 16.3% 15.3%

Agriculture, forestry, and fishery Agriculture Forestry Fishery

Remarkable manufacturing growth compensated for declines in mining. Industry &

Services Wholesale and retail Finance Real estate Hospitality

2017 vs 2016 2016 vs 2015

30% Tobacco HOLD

Source: GSO Source: GSO

PMI remained in expansion territory for 25 consecutive months. Vietnam’s Manufacturing

Source: Nikkei, Markit

Source: Nikkei, Markit

Consumption: Vietnam’s consumers fifth most optimistic globally

• Rising wages as the Decree 153/2016/ND-CP required businesses to minimum wages by

• In addition, Government policies, especially visa exemption applied to five European

28% 112 112

106 105 Confidence Index

95 2017 Real 9.5%

Outlook: We expect robust growth of consumer spending. An expanding economy along

‘000 VND HOLD

Source: GSO, VCSC Source: GSO, VCSC

Government Expenditure: Efforts to control expenses appear to be working

December 15, % YoY % of FY 2018 % YoY

Source: GSO, MOF

USD mm (As of 2015)

Domestic debt (Gov & Gov guaranteed)

Source: GSO, VCSC Source: GSO, VCSC

Export turnover Import turnover -40

Source: GSO, VCSC Source: GSO, VCSC

Source: GSO, VCSC Source: GSO, VCSC

Mobile phone & spare PCs & electronic items

Machinery & equipment Steel

Source: GSO, VCSC Source: GSO, VCSC

Source: GSO, VCSC Source: GSO, VCSC

Outlook: Solid export momentum continues driving a positive balance of trade.

Balance of Payments: Ample foreign inflows drove BOP to surplus

Unit: USD million Q3 2016 FY2016 Q3 2017

Total investment: non-state sectors continue to expand

2013 2014 2015 2016 2017

Source: GSO Source: GSO, VCSC

FDI: Long-term investment nature is not affected by short-term external

20 18.6 17.5 10%

Disbursed FDI Registered FDI

Manufacturing and Japan

Source: FIA Source: FIA

Nghi Son 2 BOT

Expansion of Samsung Display project in Bac

Nam Dinh 1 BOT Singapore-based JVC

Smart complex Smart complex project in HCM City’s Thu

Coca-cola expanded its investment in Hanoi

Source: FIA – MPI, VCSC collected

Culture, sport, and

Foreign Exchange: rising foreign inflows support a stable exchange rate

2009 2010 2011 2012 2013 2014 2015 2016 2017

FX Reserves FX Reserves as % of GDP

Source: FIA Source: FIA

Figure 37: Performance of major trade partners’ currencies

USD/EUR USD/TWD USD/CNY USD/MYR USD/THB USD/VND

Source: Bloomberg, VCSC

Credit Growth: slight moderation expected in 2018