MASAN GROUP (MSN) COMPANY UPDATE - StoxPlus.com

03/27/201204/25/201205/25/201206/22/201207/20/201208/17/201209/17/201210/15/201211/12/201212/10/201201/09/201302/06/201303/13/2013MASAN GROUP (MSN)CONSUMER GOODS SEGMENT KEEPS ON EXPANDING ORGANICALLY AND THROUGH M&AADDITIONAL SALES FROM NUI PHAO MINE THIS YEARCOMPANY UPDATEApril 2013MSN [HSX]HOLDTarget price*104,000VNDSTOCK INFORMATIONPrice (Mar26 th , 2013) VND 124,000Discount/Premium** % -16.1%Market cap BilVND 85,222Outstanding shares Mil shares 687.3Free - float Mil shares 76.8Enterprise value BilVND 85.229Performance (30 days) % 11.71Avg. vol. (30 days) shares 73,848IndustryConsumer goods** Difference between market price and target pricePRICE AND VOLUME140,0001,000,000120,000800,000100,000600,00080,000400,00060,000200,00040,000-INVESTMENT FOCUSAs per SOTP method on our own assumptions, the target price for MSN share is VND 104,000 ona fully diluted basis (778 mil shares), representing a 16.1% discount compared to the market priceon 26 Mar, and VND 116,000 based on current basic share count (687 mil shares). This targetprice is based on our conservative viewpoint and does not include the potential growth ofProconco and Vinh Hao Company which may be supported strongly by the MSN Group in thefuture if Masan acquires a controlling interest, especially in Vinh Hao. Besides, the Group is stillholding a huge cash reserve at the moment (VND 9,000 bil) and we expect further action to addmore value to the Group. In view of being a fast growing company with various potentialopportunities ahead, strong management team and good capability of raising funds, we maintainrecommendation HOLD for long term investment. However, we suppose that the current marketprice already reflects investors’ positive expectation towards good progress concerning Nui PhaoMine and Vinh Hao M&A activity this year and short term upside may be limited.Masan Group completed the year 2012 with impressive sales growth, successful M&Aintegration and overall strong performance from Masan Consumer, tempered by unfavorablefinancial results from associate Techcombank due to challenging macro environment.Nui Phao Mine, which will go into operation this April, will start generating sales for theGroup, which will push total sales forward to an estimated VND 14,766 bil. Net income mayfluctuate around VND 3,395 bil on accounting basis and VND 4,279 bil on proforma basis.In an ambition to diversify its product categories, after buying stakes in Vinacafe andProconco in 2012, Masan Consumer has purchased 24.9% in Vinh Hao this year and hasmade an offer to acquire 100% of the company.Kohlberg, Kravis & Roberts, one of the world’s largest private equity firms, invested anotherUS$200 million in Masan Consumer in Jan 2013, more than doubling its total investment toUS$359 million in less than 2 years. This is the largest private equity deal in Vietnam, andindicates the confidence that international players are placing on Masan Consumer.PERFORMANCESource: Bloomberg1M 3M 12MAbsolute 11.71% 22.77% 5.98%Vs VN- index 6.61% 0.32% -0.71%AnalystPhuong Le(84 8) 3 914 6888ledangphuong@baoviet.com.vnPlease see important disclosure and analyst certification at the end of this reportFY 2012 BUSINESS RESULTYear end 31 Dec 2010 2011 2012Revenue Bil VND 5,586 7,057 10,389EBIT Bil VND 2,577 3,216 2,822EBITDA Bil VND 3,084 3,358 3,170Net income Bil VND 2,283 1,973 1,302Pro-forma net income Bil VND 1,483 2,553 1,988EPS VND 4,431 3,829 2,156Pro-forma EPS VND 3,011 3,764 2,804EPS growth % - -14% -51%Pro-forma EPS growth % - 25% -26%P/E x 26.4 30.6 54.3Pro-forma P/E x 24.9 24.0 36.4P/S x 10.79 8.54 7.74Dividend yield x 0.000 0.000 0.000Enterprise value Bil VND 42,411 50,520 86,727EV/EBITDA x 13.8 15.0 27.4P/B x 3.5 3.9 5.2ROE % 30% 16% 14%Debt/Equity % 0.8 0.8 1.4Source: Company data

Table 1: Business result Q412 FY 2012Value yoy growth Value yoy growthNet revenue bil VND 3,654 30% 10,389 47%Gross profit bil VND 1530 22% 4,212 38%Gross margin % 42% -3% 41% -2%Net income to MSN shareholders bil VND 330 -63% 1,302 -34%Net margin % 9% 13%Source: Company data, BVSCMasan Group completed the year 2012 with impressive sales growth, successful M&A integration andoverall strong performance from Masan Consumer, tempered by unfavorable financial results fromassociate Techcombank in a challenging macro environment.Impressive sales growth.Total sales from Masan Consumer (the only sales for Masan Group at the moment) increased sharply by 47% in2012, thanks to the consolidated sales from Vinacafe and strong growth in the instant noodle segment. Masanmaintained its leading position in sauce segment, with approximately VND 3600bil from fish sauce and VND 850bil from soya sauce. Masan is successful with two main brands- Chinsu for premium market and Nam Ngu formass market. Masan Consumer also managed to successfully move customers from mass market brand Nam Nguto mid-market brand Chin Su-Nam Ngu.As mentioned in our previous report, the company has successfully gained a stronger position in 2012 in a verycompetitive instant noodle market which has over 50 producers and hundreds of brands. Acecook is still the biggestplayer but its share has shrunk from 53% to 38% recently, while Masan’s share has increased to 22%. Kokomi, anew brand from Masan in end-2011, was aimed at mass market and has become popular among the users in justone year. Omachi noodle for premium market is also expanding fast at over 35% growth. Instant noodles broughtin approximately VND3,400bil for the company and recorded an impressive growth of over 65%. The stronggrowth in market share in the competitive instant noodles segment is evidence of Masan’s strong branding,distribution and execution capabilities.Sales from Vinacafe was up by 33.4%, reaching VND2,114bil in the whole year. It is noticeable that the lastquarter could get a growth of 56%, thanks to being able to access the distribution network of Masan, which has176,000 points of sales, and due to the launch of new brands Wake up Saigon and Wake up Weasel, which areaimed at different segments of consumers.Masan Group (MSN)2

12,000Figure 1: Sales structure through years (VND bil)10,0008,0006,0004,000From VinacafeChilli sauceInstant noodlesSoya sauceFish sauce2,00002,009 2,010 2,011 2,012Source: BVSC estimatesOperation Efficiency remains. While sales are growing strongly, Masan Consumer is successful in maintaininghigh gross margins for the whole company, which is consistent with our expectations. The highest margin belongsto the sauce products (estimated at 50%), Noodles rank second with 32~35% margin while coffee comes third(25%~30%). Meanwhile Masan has focused on expanding sales from noodles and instant coffee.The new plant of Vinacafe will be put into operation soon in 1H 2013, which will help reduce the import of instantblack coffee powder (main material for instant 3-in-1 coffee) from 50% to 20% and raise the export of finishedproduct from 7% to around 14% of total sales this year. Due to this, gross margins of Vinacafe can be improvedfrom 28% to over 30%.Financial income and expenseCash, bank deposit and other investment in the consolidated FS of Masan Group was VND 7,559 bil at the end of2012, still high but much lower than the high level cash status of 10,700 bil at the end of 2011. This, together withlower deposit rates (14% early the year and down now), pushing down financial income by 31.8% to VND 808 bil.Meanwhile, financial expense slightly went down by 11.2% although debt increased from VND 9,442 bil to VND14,730 bil (if we exclude promissory notes which are likely to convert to equity, the numbers are VND 6,586 biland VND 11,584 bil). Most of the debt is on long term basis. The Group has debt in US dollars with lower interestrate of 8~10% to serve for constructing the Nui Phao Mine. The interest of this loan is still capitalized, until themine goes into operation. In the year, MSN issued VND 2,200 bil bond at interest rate of 15% per year, with a calloption of MSN shares.Reported gross debt/equity ratio was up from 0.59 at year end 2011 to 1.06 at end of 2012, which is still a safefinancial leverage. Some of this was from convertible instruments in MSN with equity-like characteristics, so it hasbeen included in fully diluted equity for our sum-of-parts valuation. Also, MSN has USD 450 mil in cash and cashequivalents across the group, so net debt to equity is much lower. The financial leverage is therefore much less thanthe reported gross debt-to-equity number would indicate. Moreover, debt for Nui Phao Mine has already beentaken, and it will start generating revenues from 2013 onwards, which will further reduce leverage.Masan Group (MSN)3

Figure 2: Debt structure in 2012Figure 3: Debt/equity in 2011 and 2012(debt includes instruments likely to convert to equity)15%11%8%17%201214,73013,92820%29%Short term loan in VND Long term loan in VNDLong term loan in USD Promissory notesBonds and convertible bonds Guaranteed bonds20119,44215,8760 10,000 20,000 30,000Debt EquitySource: Company data, BVSC estimatesIncome from Associates and Joint Venture CompaniesLast year Masan Consumer acquired 40% of Proconco from Prudential Assurance Private Limited and PCAInternational Funds SPC. The deal costed around US$96mil. Proconco is one of the biggest animal feed producersin Vietnam, specializing in pig, poultry, fish and shrimp feed. The company holds 11% share of the animal feedmarket in Vietnam, ranking second after CP Group with 16% market share. In our view, this is the first step only.With strategic stake from Masan Consumer, in the future, Proconco could not only produce animal feed but couldtake part in other segments of the production value chain, from producing animal feed to distributing packaged pigmeat to the end users, with high-quality meat-based products conforming to international standards.Masan Group’s banking affiliate Techcombank generated VND 1,018 bil pre-tax profit in 2012, equal to only onefourthof its number in 2011. MSN holds an effective 30.44% economic interest in the bank, which is a noncontrollingfinancial investment. So the proportionate share of profits from this investment figures as “incomefrom associates” and translates to VND235bil. Besides, MSN recorded an income from its holding at Proconcothrough Masan Consumer of around VND 83bil for the last two months of the year. However, the total reportedincome from associates and joint ventures was negative (VND -288bil) due to the amortization amount of goodwilldeducted (VND 606 bil per year).2011 2012Income from Associates 969 318Techcombank 969 235Proconco 0 83Amortization of goodwill -576 -606Net income from Associates 393 -288Source: BVSCMasan Group (MSN)4

Net profit slumpNet reported accounting profit was down by 19% to VND 2018 bil (pre-minority interest) and by 34% to VND1,302 bil (post-minority interest) despite the sales growth of 47% and stable gross margin. On a pro-forma basis,net profits were down 10% to VND2,781bil (pre-minority interest) and 22% down to VND1,988 bil (post-minorityinterest). The main reason is the weak performance of Masan’s affiliate Techcombank in the year, due toconservative provision of bad debt, making the net income from associates a negative number of VND 288 bil (seethe above table).Masan Consumer is offering to buy 100% of Vinh Hao Mineral Water JSC.After buying 24.9% of Vinh Hao JSC from Gemadept JSC (GMD), Masan Consumer has made an offer to buy theremaining (75.1%) at the price of VND85,000 per share (while the OTC price is around VND 60,000~65,000 pershare). At such that price, we suppose Masan Consumer can surely raise its holding to over 50% within the year toacquire a controlling stake,and effectively implement strategy to boost revenues and create value.VinhHảo’s revenue and net profit are estimated at around VND 380 bil and VND 20 bil in 2012. With 2012 EPSof VND2,500, the offering price is on PE basis of 34x, which may seem expensive, but can be understood bylooking at the revenue multiple and considering the strategic nature of this investment. If Masan can acquire thecontrolling interest, we believe Vinh Hao can soon gain a bigger market share of the bottled water segment thanksto the reputation of Vinh Hao brand name supported by the strong and wide distribution network and impressiveadvertising strategy of Masan Group.Vinh Hao was the first local mineral water trademark in Vietnam, with French investment. Since 1930, Vinh Haomineral water products have been consumed and exported to the countries of Indochina and to France. Thistrademark currently accounts for less than 10% of the bottled water market share in Vietnam. Its major rivals arenow Aquafina (Pepsi), La Vie (a joint venture between Perrier Vittel – France ,65 percent stake), under NestleGroup and Long An Vietnam general Trading Co and Dasani (Coca-Cola).Figure 4: Revenue structure in 2012 (estimated)Figure 5: Gross and net margin of Masan Consumer through years21%1%33%Fish sauceInstant noodlesFrom Vinacafe39%6%Soya sauceChilli sauce50%45%40%35%30%25%20%15%10%5%0%43%43%41%35%31%32%27%22%22%17%2008 2009 2010 2011 2012Gross margin Net margin(Source: BVSC estimates)Masan Group (MSN)5

FY2013 FORECASTTable 2: BVSC forecastBVSC forecast2013Revenue from Masan Consumer Bil VND 12,382Revenue from Masan Resources Bil VND 2,384Total revenue Bil VND 14,766Net income from Masan Consumer Bil VND 3,316Net income from Masan Resources Bil VND 511Net income from Techcombank Bil VND 0Net financial income Bil VND 500Minority interest Bil VND 932Net income to MSN's shareholders Bil VND 3,395Net income (pro forma) Bil VND 4,279(Source:BVSC forecast)Nui Phao Mine, which will go into operation this April, will start generating sales for the Group, whichwill push total sales forward to an estimated VND 14,766 bil. Net income may fluctuate around VND3,395 bil on accounting basis and VND 4,279 bil on proforma basis.Revenue and net income from Masan Consumer are forecasted to beVND 12,400 bil (+19.4% yoy) andVND 3,194bil (on accounting basis) and VND 3,313bil on proforma basis (after adding back amortizationfrom VCF), up by 62% compared to the previous year. We assume types of sauces segment remain stablewhile instant noodle records a growth of 16% instead of over 65% in 2012. With the penetration into themass noodle market, Masan could gain an impressive growth in 2012. For this year, we suppose Masanwill continue its strategy to strengthen market share in the mass market and grow further in the premiummarket, with new flavors added into the product, aiming at benefiting the users’ health. Vinacafe isexpected to grow 33% this year. Besides, we suppose that the company can consolidate sales fromVinhHao company, expected to be VND 420 bil this year.Gross margin and operating margin on a wholeGroup basis may remain the same.Nui Phao Mine will go into operation this April and may generate sales of VND 2,384 bil this year. Thisfigure is based on an operation of 30% capacity (our estimates) and commodity prices in March2013.Masan already has offtake contracts with buyers of fluorspar and bismuth. For tungsten, they are stillnegotiating with potential partners. In 2014 and 2015, sales generated is expected at VND 7000 bil peryear, with EBITDA margin of 55%. We highly appreciate the effort of the Group to put the more-than-tenyear old project into operation as scheduled. The group has successfully reduced risks on the project byeffectively raising capital, deploying a world-class management team and achieving progress oncompensation and resettlement. The actual commencement of production will be a certain evidence of thepotential efficiency of the project.Gross margin of Masan Consumer is expected to be around 38% and net margin around 27.6%. Netincome from Proconco may bring about VND 320 bil to MSC.Techcombank is forecasted to experience another unfavorable year and we assume the bank may generateVND 1,920 bil of net profit this year. However, net income from this affiliate bank estimated for theGroup is 0 due to the amortization expense (instead of a negative VND 341bil in 2012).Masan Group (MSN)6

Key strengths – strong management and execution capabilitiesMasan group is one of the premier private listed companies in Vietnam. The group’s management team headed byCEO Madhur Maini is able to effectively manage risk, raise capital, execute transformational M&A, hire worldclassmanagement talent, and has been able to collaborate with reputed international partners.Kohlberg, Kravis & Roberts, one of the world’s largest private equity firms, invested another US$200 million inMasan Consumer in Jan 2013, more than doubling its total investment to US$359 million in less than 2 years. Thisis the largest private equity deal in Vietnam, and indicates the confidence that international players are placing onMasan group.Also, the group has delivered on successful integration of Vinacafe, which it acquired in end-2011. Vinacafe’ssales have jumped sharply due to accessing Masan’s distribution network, while margins and profits have alsogrown. Vinacafe has also launched new brands to cater to various segments.INVESTMENT RECOMMENDATIONValuationEquity valueMasan's equityMethodHolding ratio(VNDbil)value (VND bil)Masan Consumer P/E 70,680 77.30% 54,635Masan Resources NPV 19,557 80% 15,645Techcombank P/B 18,089 31% 5,607Total 75,889Cash 4,000Payment for Nuiphao (1,600)Total equity value 79,890Number of shares (mil) 687Share price (VND) 116,289Number of shares (mil) 778Share price (VND) 103,486As per our own assumption on SOTP method, the target price for MSN share is VND 104,000 on a fully dilutedbasis (778 mil shares), representing a 16.1% discount compared to the market price on 26/3. This target price isbased on our conservative viewpoint and does not include the potential growth of Proconco and Vinh HaoCompany which may be supported strongly by the MSN Group in the future if Masan acquires a controllinginterest. Besides, The Group is still holding a huge cash reserve at the moment (VND 9,000 bil) and we expectfurther action to add more value to the Group. In view of a fast growing company with various potentialopportunities ahead, strong management team and good capability of raising funds, we maintain recommendationHOLD for long term investment. However, we suppose current market price already reflected investors’ positiveexpectation towards good progress concerning Nui Phao Mine,Vinh Hao M&A this year and short term upside maybe limitedMasan Group (MSN)7

MSN FINANCIALINFORMATIONBVSC recommadationSell Hold BuyShareholder’s structure21.60% 78.40%1 2 3ForeignOthersUpdate date Target price RecommendationCompany update 31/3/2013 VND104,000 HOLDCompany update 31/7/2012 VND96,065 HOLDCompany update 20/3/2012 VND80,000 SELLCompany update 20/12/2011 VND 82,300 HOLDShareholder’s Stakes Proportion UpdateMasan Group Corp. 250,421,247 36.4% 1/4/2013Hoa Huong Duong Co. 99,817,804 14.5% 1/4/2013BI Private Equity 50,011,218 6.3% 1/4/2013Profit and loss statementCash flow statementVND in millions 2010A 2011A 2012A VND in millions 2010A 2011A 2012ARevenues 5,586,287 7,056,849 10,389,415 Change in working capital 200,657 (134,627) 711,722Gross profit 2,391,670 3,059,015 4,212,046 Cash flow from operations 1,337,002 1,440,446 2,577,737EBITDA 3,084,349 3,358,417 3,169,922 Capex 131,933 2,406 2,023Depreciation and Amortisation 104,599 142,120 347,873 Free cash flow 1,205,069 1,438,040 2,575,714EBIT 2,979,750 3,216,297 2,822,049 Equity raised/ (repaid) 1,057,621 5,329,180 3,118,640Earnings before tax 2,746,121 2,868,572 2,543,116 Debt raised/ (repaid) 3,322,805 5,215,862 8,776,254Income tax expense 116,904 372,564 525,549 Dividends paid 0 0 0Minorities 346,178 522,859 715,238 Net cash flow 2,286,646 6,139,789 (3,854,876)Net income 2,283,039 1,973,149 1,302,329 Beginning cash 1,123,616 3,394,575 9,573,593EPS 4,431 3,829 1,895 Ending cash 3,394,575 9,573,593 5,718,717Balance sheetRatio analysisVND in millions 2010A 2011A 2012A % 2010A 2011A 2012ACash and cash equivalents 1,123,616 3,394,575 9,573,593 EBITDA margin 55.2% 47.6% 30.5%Accounts receivable 282,936 314,209 903,317 Operating margin 46.1% 35.1% 25.7%Inventories 199,466 290,200 612,845 Net profit margin 40.9% 28.0% 12.5%Short-term investment 776,000 490,000 1,222,500 ROAA 16.2% 7.2% 3.6%Current assets 2,441,831 4,626,838 12,541,434 ROAE 29.7% 14.9% 8.7%Net fixed assets 605,360 8,261,999 11,287,505 Sales growth 41.1% 26.3% 47.2%Long-term investments 3,919,827 8,099,909 9,321,085 Net profit growth 274.7% 4.5% -11.3%Others 50,076 140,792 145,490 Sales per share growth 33.0% 26.3% 10.4%Total assets 7,017,094 21,129,538 33,572,619 EPS growth 416.3% -13.6% -50.5%Liabilities 1,947,555 8,981,050 12,017,587 Total asset growth 201.1% 58.9% 15.4%Short-term loans 687,260 1,124,674 2,032,397 Interest coverage (x) 10.75 7.25 8.12Payables 267,168 443,583 422,772 Net debt to total asset 0.43 0.36 0.49Others 256,509 1,656,660 1,170,614 Net debt to equity 0.85 0.76 1.36Total current liabilities 1,209,759 3,224,917 3,625,783 Sales/assets 0.26 0.21 0.27Long-term debt 734,723 5,000,560 7,409,781 Capex/sales 0.02 0.02 0.03Other liabilities 1,895 755,573 982,023 Basic EPS (VND) 4,431 3,829 1,895Total liabilities 1,947,555 8,981,050 12,017,587 EBITDA per share (VND) 5,079 5,168 3,801Shareholders' equity 4,762,088 10,623,685 15,875,652 DPS (VND) - - -Minorities' interests 307,451 1,524,803 5,679,380 BVPS (VND) 20,618 30,810 20,265Masan Group (MSN)8

ANALYST CERTIFICATIONI, Le Dang Phuong, hereby certify that all of the views expressed in this report accurately reflect my personal views about the subject company or companiesand its or their securities. I also certify that no part of my compensation was, is or will be, directly or indirectly, relat ed to the specific recommendations orviews expressed in this report.GENERAL DISCLAIMERThe report is not done by requirement of any institution or individual. Investors should use information, analysis, comment i n the report as a reference sourcebefore making own investment decision. The report is for the purpose of providing information and does not intend to advice readers to buy, sell anysecurities. Investors should refer to other sources of consultancy before making investment decision.The information contained in this report is verified carefully, BVSC takes no responsibility with regard to the accuracy or completeness of any informationcontained here. Viewpoint and analysis in the report can be changed without notification.The report is a property of BVSC and under copyright protection. Infringement of copy, change and reprint of the report without permission of BVSC isillegal. BVSC owns the copyright on the report.BAO VIET SECURITIES COMPANY – RESEARCH DEPARTMENTHead office8 Le Thai To, HoanKiemDist, HanoiTel: (844) 3 928 8080Fax: (844) 3 928 9888Ho Chi Minh Branch233 Dong Khoi, Dist.1,Ho Chi Minh CityTel: (848) 3 914 6888Fax: (848) 3 914 7999Masan Group (MSN)9