GEMADEPT CORPORATION (GMD)

Transcription

1 GEMADEPT CORPORATION (GMD) INDEX Valuation...1 Company analysis...8 Appendix...16 Ha Noi, May 2010

2 Target price: 84,810 VND/share Address: Floor, Gemadept Tower, 6 Le Thanh Ton str, Ben Nghe ward, District 1 Ho Chi Minh city Tel (84 8) Fax (84 8) Website Share price fluctuations GEMADEPT CORPORATION Financial indicators 2008 yoy 2009 yoy 2010f yoy Total asset 4,140,928 26% 4,572,844 10% 5,848,528 28% Shareholders equity 2,234,934-2% 2,476,416 11% 3,761,845 52% Revenue (VND mil.) 1,912,925 63% 1,771,684-7% 1,922,226 8% Gross profit (VND mil.) 326,150 43% 289,184-11% 339,357 17% Net profit (VND mil) 116,996-46% 320, % 212,258-34% Net profit margin 6% 18% 11% ROE 5% 13% 6% ROA 3% 7% 4% EPS (VND) 2,463 6,751 2,123* BVPS (VND) 46,928 52,127 37,618 P/E ,56** P/B ,78** Source: Financial statements 2008, 2009 * Based on the number of outstanding shares in **Based on the number of outstanding shares in 2010 and market price on 14/05/10 Basic statistics Bourse Industry HOSE Marine transport Port operation Price (14/5/2010) 67,000 Maket cap. (VND mil) 3,182, week prices 42, ,000 Outstanding shares 475,000,000 Do Hong Diep Head of Research diepdh@hbbs.com.vn Nguyen Thi Hong Nhung Analyst nhungnh@hbbs.com.vn May 2010 Headquarter 2C Van Phuc, Ba Dinh, Hanoi Tel: + 84 (04) Fax: + 84 (04) Website: Financial ratios Operating efficiency Liquidity ratio Current ratio Receivables turnover Quick ratio Inventory turnover Capital structure Total asset turnover Debt/Equity 79.2% 77.9% Equity turnover Debt/Total asset 42.7% 42.2% Source: Financial statements 2008, 2009 Gemadept operates in different businesses, including marine transportation, port operation, logistics, real estates and financial investment. However, marine transportation, port operation and logistics are core businesses. GMD has a long history and is a popular brand name in Vietnam in transportation and logistics. The company owns a port system that spans along the national coastline. Real estate business recorded high revenue and profit when the core businesses encountered difficulties in the recent crisis. The company is in the investment period to implement key projects, including port construction projects, air cargo terminal construction project and real estate project. This creates high pressure of increasing capital and debt. We are conservative in our forecasts of 2010 business result and only focus on core income. The average price based on comparables PE and PB is VND 71,315. Compared with the market price of VND 67,000 on 14/05/10, GMD is not an fruitful target in short term given the risk of dilution in In the long run, based on FCFF method, the target price for GMD is VND 84,810. With the advantages of reputation, economy of scale, and financial capacity, we believe that GMD is a good stock for long-term investment 2

3 Port operation VALUATION Forecast for 2010 Port operators enjoyed a good business results in 2009 with higher revenue and profit than the previous year promises a good year for Vietnam port sector mainly due to the recovery of exports. In that context, we expect GMD to achieve better revenue and profit from the port operating activity in this year. Currently, ICD Phuoc Long and Dung Quat results are consolidated in GMD financial statements. In 2009, Dung Quat operated at the capacity of around 1 million tons only and is expected to raise to 80%-90% of the design capacity in 2010 (i.e around 2 million tons). ICD Phuoc Long is currently operating at full capacity. We forecast around VND 600 billion revenue from seaport operation for GMD, of which VND 120 billion comes from Dung Quat. Seaport operation may yield a gross margin of around 11.9%, marginally higher than 2009 figure of 11% for Dung Quat s higher contribution but still lower than the historical figures. Marine transportation Early 2010, world marine transportation industry went through quite impressive recovery. Baltic Dry Index reached 3,707 points as of 10/05/2010, up by 67.4% yoy from the level of 2,215 points. The pick up of the global economy, especially China the main producer of container products, will boost demand for container shipping and port throughput. However, on the supply side, the number of container vessels continues to increase. Although, new orders, if any, only insignificant quantity is expected for 2010, the number of newly built vessels scheduled for delivery in 2010 is very high. We expect revenue from marine transport to stay almost the same as 2009 s figure. Nevertheless, gross margin will increase to 9.5% from 2009 s figure of 8.1% and results in a higher gross profit for GMD of over VND 106 billion Agency and logistics We expect revenue of this segment to grow at around the industry growth pace (according to Transport Intelligence). Thus, revenue and profit from this activity are respectively VND 92.7 billion and VND 24.7 billion.. Real estate GMD Tower has been generating a quite stable revenue of over VND 100 billion/ year for GMD in 3 years to Therefore, we do not expect any notable changes for this activity invest- Financial ment In 2008 and 2009, provision and reversal of provision on financial investment were the largest components of financial income and expenses. In 2009, GMD reversed around VND 230 billion of provision on financial investments, therefore, the company will not significantly benefit from further reversals. Financial income include deposit interest, bond coupons, received dividend, profit from capital contributions and JVs and positive forex difference. Financial expenses mainly consist of interest expenses and forex difference loss. Without detailed information of the investment portfolio and consideration the activity as the core business, we do not put forward any projections for this activity except for the assumption that GMD will gradually reverse the remaining amount of provision. We expect net financial income of around VND 23 billion for GMD in

4 Others GMD holds 30% of stake in Nam Hai Port JSC and contributes 23% of capital in Tan Son Nhat airport project. Therefore, principally, GMD s benefits in these two sources will be recorded as Profit/loss from affiliates and joint ventures. For 2010, we forecast revenue from Nam Hai port of around VND 118 billion but we did not expect a promising profit from the port in Tan Son Nhat airport is expected to operate at 100,000 tons/year. At the rate of USD 100/ton and expenses of VND 350, ,000/ton, we estimate the port s 2010 revenue and net profit of around VND 96 billion and VND 35 billion, respectively. GMD planned to issue 51,787,500 additional shares in 2010 to raise chartered capital to VND 1,000 billion, of which, 32,141,667 shares will be issued to existing shareholders at the ratio of 3:2 for VND 20,000/share; 2,410,625 shares offered to BOM, BOD, BOC and managers at the same price, and 17,235,208 shares offered to strategic partners at the price not lower than 50% of the market price. According to the company, VND 950 billion in total proceeds from the issuance will be used to finance Gemadept Terminal Link company to execute Cai Mep port project. We do not expect the amount to be contributed to the joint venture in 2010 but gradual allocations over 3 years will be made and raise the item Investment in affiliates and joint ventures by VND billion per year. We temporarily maintain the effective tax rate at 9.6%, the same as In 2009, the effective tax rate was very low, mainly due to the fact that GMD s subsidiaries (mostly SMEs) were eligible to tax incentives of the Government (i.e CIT reduction by 30%). However, the incentives will be no longer effective in Without a solid basis for estimate of the CIT rate that GMD is liable to in 2010, we temporarily apply the rate of 2009 in our forecast for With above assumptions, we forecast GMD to generate net revenue of VND 1,922 billion in 2010, up by 8.5% over 2009 and gross profit of VND billion, 17.3% higher. Much lower net financial income pulled net income down by 33% to VND billion. Income Statement forecast Unit: VND million yoy Net revenue 1,771, , % Cost of goods sold 1,482, , % Gross profit 289, , % Net financial income 195,354 23, % Interest expense 68,700 92, % Extraordinary income 4, % Profit from affiliates Profit before tax 363, % Income tax 35, % Profit after tax 328, % Minority interest 11, % Net income 316, % 4

5 PE multiple Comparables methods As GMD has is a diversified business, we use PE multiple for weighted EPS of each business, including marine transportation, port operation, real estate and agency. Then, we multiply the results with average PE of corresponding Vietnam industries and derived the share price of VND 54,261. Industry Gross profit 2010 (VND mil) Industry PE Price (VND) Marine transportation 106, ,768 Port operation 71, ,958 Real estate 93, ,962 Agency 68, ,573 Price 54,261 PB multiple We estimated BVPS based on the figures at the end of Then, we multiplied with the PBs of two main activities, namely marine transportation and port operation, and arrived at an average price of VND 88,369. Unit: VND Industry BVPS Industry PB Price Marine transportation 52, ,639 Port operation 52, ,099 Price 88,369 Peer comparison Unit: VND bil. Company Market cap Trailing Revenue Trailing Net income Net profit margin Trailing EPS (VND) ROE ROA PE PB DDM % 0, % 0.1% SFI % 1, % 9.6% TMS % 4, % 7.4% VFR % 2, % 3.6% VIP 1, , % 0, % 1.9% VNA % 1, % 2.6% VSC 1, % 13, % 25.9% VST , % 4, % 5.9% VTO 1, , % 0, % 1.5% GMD 3, , % 7, % 7.4% Marine transport sector DXP % 55.7% 55,7% VGP % 15.2% 15,2% VFC % N/A N/A 17,87 N/A Port operation sector ,92 5

6 FCFF valuation We forecast business results and cash flows for GMD from 2010 to 2015 to roughly calculate the components of Le Loi Plaza and Cai Mep port in GMD s profit. However, in these two projects, as GMD only contributes less than 50% of chartered capital, their profit is not recorded in the consolidated financial statements. Therefore, the balance sheets will not be significantly affected. Port operation ICD Phuoc Long port is performing at full capacity and is expected to generate stable revenue in the coming years. We projected revenue from the port based on forecasts of exchange rate and inflation. Gross margin of ICD will be around 12.8%. We estimated gross margin of Dung Quat port in 2009 at 8.6% due to a large depreciation. In fact, port operation in the Central Vietnam has not been promising; therefore, we assumed that Dung Quat port would reach the average gross margin of the segment (12.8%) in 3 years (year 2012). We anticipated full capacity operation for the port (i.e. at 2.5 million tons/year) in Nam Hai port is expected to record profit from 2011 and GMD would be able to book its profit in Profit from affiliates and joint ventures since. Cai Mep port, GMD s largest project is planned for completion in However, as this is a very large project with total investment of USD 500 million, we doubt the possibility of an on-schedule completion. In addition, with a series of port projects in progress in the region, competitiveness is expected to increase remarkably in several coming years. We expected the port to come on line in 2104 at 50% of the design capacity for phase 1 (of 1.2 million TEUs). However, profit contribution of the port (to be recorded in Profit from affiliates and joint ventures ) to the overall result will be marginal due to large depreciation expenses and being in the early stage of operation. Transportation and logistics agency According to Transport Intelligence, marine transportation industry will grow at 15% per year on average and logistics segment will enjoy the growth pace of 17.3%/year to Therefore, we also forecast GMD s two corresponding activities to grow at the same rates. Profit margins of these two businesses respectively reached 11% and 73.4% from 2011 onwards (equivalent to the average figures in the period of ). Real estate Le Loi Plaza is planned for groundbreaking in early 2010 and start operation in late early However, we anticipated delays on the project (as real estate projects usually have certain delays) and saw earliest operation in 4Q12. The vacancy rate is expected at 10% in 2013 and the estate will be filled since However, GMD s effective stake in the building is only 31.5% as the company contributes 45% to Golden Globe Company which holds 70% of stake in GMD Sai Gon JSC, the investor of Le Loi Plaza. Thus, the profit from Le Loi Plaza will be booked in Profit from affiliates and joint ventures in the consolidated financial reports. Financial activities Financial activities will not have significant fluctuations during the next years. We believe that the company will have to concentrate its financial resources on key projects and hence cannot pay attention to financial activities like several years ago. We use the 2-stage discount free cash flow to the firm method (FCFF) to estimate GMD share price. Accordingly, from 2010 to 2014 is the unstable growth period and the stable period is from 2015 onwards (when GMD s projects start to operate stably) with stable growth rate of 3.51%. This growth rate is calculated 6

7 based on the ROC and the reinvestment rate of The discount rate (WACC) in the stable period is 13.21%. Therefore, GMD share price is estimated at VND 84,810 (price before the new issuance) 2010F 2011F 2012F 2013F 2014F 2015F Revenue 1,922,226 2,182,973 2,500,298 2,834,969 3,207,821 3,598,336 Port operation 599, , , , , ,593 Marine transport 1,111,983 1,278,780 1,470,598 1,691,187 1,944,865 2,236,595 Agency 92, , , , , ,997 Real estate 118, , , , , ,151 Gross profit 339, , , , , ,958 Gross profit from port operation 71,602 84,904 93, , , ,412 Gross profit from marine transport 106, , , , , ,314 Gross profit from agency 68,047 79,819 93, , , ,112 Gross profit from real estate 93,605 93, , , , ,120 Depreciation 768, ,672 1,160,433 1,378,169 1,616,808 1,879,493 Net capital expenditure 147,655 25,603 36,070 58,699 77,734 99,830 Change in non-cash working capital 99,658 88,988 4,502 8,005 8,736 7,803 FCFF 56, , , , , ,797 WACC 14.72% 16.97% 17.20% 16.96% 15.00% 14.29% g 3.51% Price (VND/share) 84,810 Recommendations We were quite conservative in our forecasts of 2010 business result to exclude extraordinary incomes such as financial income, income from vessels liquidation as well as income from land revaluation. The average price based on comparables methods (PE and PB) is VND 71,315. Compared with the market price of VND 67,000 on 14/05/10, GMD is not an attractive target in short term due to a high risk of dilution. However, in the long run, FCFF model derives to a much higher intrinsic value of GMD share at VND 84,810. With the advantages of reputation, economy of scale, financial capacity, etc, we believe that GMD is a valuable choice for a long-term investment. 7

8 COMPANY ANALYSIS Product and services Gemadept concentrates in 4 segments, including marine transportation, port operation, agency and logistics and real estate business. Marine transportation and port operation account for the largest part of revenue and profit. Figure 1: Revenue breakdown in 2009 Figure 2: Gross profit breakdown in % 6.7% 26.1% 32.4% 17.6% 62.8% 19.0% 31.0% Ports & Logistics Transport Agency Real Estate Ports & Logistics Transport Agency Real Estate Marine transport Overview Marine transportation makes the largest contribution to GMD s revenue and gross profit. Profit margin of this business usually fluctuates around 10-11%. GMD specializes in container transport to regional destinations such as Taiwan, Hong Kong, Singapore, Malaysia, Indonesia, Cambodia and Thailand with a container fleet of 5 feeders (with total capacity of over 50,000 DWT, equivalent to 4000 TEUs) and 13 S1, S2 ships. GMD s fleet are mainly small vessel with capacity around TEUs, this explains GMD s focus in short routes. However, GMD has the advantage of owning a relatively young fleet with the average age of 15 years Table 1: GMD fleet No. Vessel Building year Type Capacity Building place Gross tonnage Net tonnage DWT Pacific Pearl 1999 Container 699 Teu 3,158 9,125 Malaysia Pacific Gloria 1997 Container 699 Teu 3,158 8,957 Malaysia Stella Pacific 1984 Container 576 Teu 3,610 9,125 Japan Pacific Grace 1997 Container 836 Teu 5,467 12,638 Panama Pacific Express 1997 Container 749 Teu 3,973 11,117 Japan Source: Vinalines 8

9 Table 2: GMD container fleet in comparison with Vietnam s container fleet Carrier Number of vessel TEU (average) DWT (average) Average speed (nautical mile per hour) Average age Vinalines Container , Marina HN , Gemadept , Vinashin Lines , Vosco , Viship , Biển Đông , Dong Do Marine , Hashipco , Visco , Nasisco , Viconship , Vinafco , Source: Vinalines. Market share and rivals GMD s marine transportation can be categorized into domestic and international liner services. For the latter, Gemadept is usually ranked the first or the second in comparison with local peers like Vinashin, Vinalines, The West Sea, Vinafco. However, the company is not outstanding in the international liner service as it only operates in short routes. Gemadept is ranked the 2 nd in Vietnam regarding project cargo and OOG cargo transport (the 1 st place belongs to Transimex Sai Gon). Vietnam Electricity Group (EVN) is one of GMD s biggest customers with many important and regular orders. Development strategy Sea transport will continue to be one of GMD s main businesses in several years to come and still account for a large part in the total revenue and profit. In 2009, the company bought a new S1, S2 ship with value of over VND 180 million, increasing the number of S1, S2 ships to 13 ships. The company expected to receive 2 more ships in 2010, increasing the number of S1, S2 ships to 15 ones. Comments Under the impact of the global economic downturn, shipping rates of large vessels operating in long routes tumbled more sharply than those of small vessels operating in short routes. Therefore, owning a flotilla and operating in short routes, GMD was less affected by the economic downturn. On the other side, GMD also faces difficulties in competing with big carriers, especially foreign-owned carriers who are doing business in Vietnam such as Maersk, CMA-CGM, APL, etc. Port operation Overview Port operation is regarded as one of GMD s strengths as the company is the only one to own a port system that spans along the national coastline. 9

10 Table 3: Gemadept s ports Port Location Operation period Capacity The North: Nam Hai Port (in Hai Phong province) started to operate in Feb 09 after over one year of construction (from Dec 07). GMD contributed to 30% of chartered capital. At the moment, Nam Hai Port is operating with full capacity of 150,000 TEUs per year and throughput capacity of 1.4 million tons per year. It can handle vessels up to 10,000 DWT. Depth at berth reaches 9 meters and total berth length reaches 144 meters. Phuoc Long ICD Ho Chi Minh City Since 1995 Dung Quat International Container Port Dung Quat Economic Zone Quang Ngai Province Since Dec 08 Design capacity: 2,5 million tons per year Effective capacity: 1 million tons per year Nam Hai Port Hai Phong province Since Mar ,000 TEUs/year 1.4 million tons/year The Centre: Gemadept contributed 55% of the capital of Dung Quat port which is located in Quang Ngai province and is the largest port in the Central Vietnam. Dung Quat port belongs to the Dung Quat deep water port system and is directly connected with important traffic routes such as 1A National Road, North - South Railway, Trans-Asia route linking with Laos, Cambodia and Thailand. The port is supposed to be an important terminal for goods in the region and the surroundings to be transported to and from elsewhere locally and globally. With design capacity of 2.5 million DWT per year and throughput capacity of million tons per year (phase 1), the port can handle vessels up to 30,000 DWT. The port has been operating since late 2008 but has not reached full capacity yet. Dung Quat port is constructed on an area of nearly 12ha with total investment of VND 575 billion. The port has warehouse system and berths. The South: Phuoc Long is the largest port in GMD s network. This is also the 2 nd biggest port in Ho Chi Minh City and the 3 rd biggest port in Vietnam (below New Port and Hai Phong port). Phuoc Long ICD has been operating since 1995 and is the first port in Vietnam to apply midstream operation technology to handle vessels. It is estimated that Phuoc Long ICD contributed around 70% of GMD s total revenue from ports. Phuoc Long ICD s throughput showed a stable average growth of around 14-15% per year. Figure 3: Ports in operation and port projects of Gemadept Source: Gemadept 10

11 In general, port operation generated stable revenue and profit for GMD although sea transportation dipped in late 2008 beginning It is expected that port operation will become a main business of GMD in 2012 when the company completes its port projects, especially the Cai Mep Container Port which will be detailed in the Projects section). Market share and rivals In port operation, Phuoc Long ICD throughput was ranked the second in HCM City and the third in Vietnam, with total throughput of 402,000 TEUs in GMD accounted for around 20% of the market share. Major rivals include Sai Gon New Port with Sai Gon New Port and Vietnam International Container Terminals (VICT) and some other port operators in HCM City. Development strategy Port operation has involved most of GMD s investment at the moment. The company expects to complete all its port projects in 2013, most importantly the Cai Mep deep water port project. By then, port operation would become the major business and income source of the company. Comments GMD ports spread country-wide and are located in important economic zones, even in the national master plan of port system. Therefore, the company expects to benefit from favorable conditions in the construction and operation of these ports. GMD is also able to combine port operation with container agency and logistics services, which will create a foundation for the company to supply package logistics services in the future. This model has been applied successfully by companies in the world, such as Maersk, APL, CMA-CGM, etc Therefore, customers can use GMD s full package instead of using services offered by different companies, which is costly and time wasting. Agency and logistics Overview Being a carrier as well as a port operator, GMD is advantageous in liner agency, shipping agency and forwarding agency businesses as it is capable of supplying wholepackage services. This partly explains why the business only accounts for around 4.5% of the total revenue but makes up about 19% of the gross profit, and has a high gross profit margin (around 70%). GMD is the first company in Vietnam to supply liner agency service for tankers, with regular customers like BP and Exxon Mobil. Another strength of GMD is its ability to set up joint ventures with various eminent carriers and shipping agencies in the world, including: Joint venture with Schenker the world s 2 nd biggest logistics provider to set up Schenker Gemadept Logistics Company, which started to operate in Mar 09 and became the first company in Vietnam to supply the supply chain management service under TAPA standard. GMD holds 40% of stake in this company. Joint venture with MBN to found MBN GMD Vietnam Company to supply logistics service for coffee and other agricultural products. Becoming agent for well-known carriers such as Huyndai, Sinokor, OOCL, MISC Becoming liner agent for world container lessors such as Triton, Geseaco, Textainer Becoming forwarding agents for over 40 international freight forwarders. 11

12 Market share and rivals Regarding liner and shipping agency businesses, GMD s rivals include Vietfrach, Vinatrans and Transimex. Regarding forwarding agency business, GMD has to compete with Safi, Vinatrans, Sotrans, Vietfratch and Inlaco. Development strategy Gemadetp s agency and logistics businesses can be very beneficial from port operation. GMD aims at building modern logistics centers, providing supply chain management service for giant customers, and encouraging cooperation to acquire know-how and experience. GMD now owns 3 logistics subsidiaries, including Schenker Gemadept, MBN Gemadept Joint Venture and Gemadept Logistics One Member Co., Ltd in Binh Duong province. Real estates GMD s long-term strategy is to expand its investment to real estate, finance and industrial parks in major economic zones. Gemadept enjoys a stable revenue from leasing the 22-floor Gemadept Tower at No.6, Le Thanh Ton street, Ho Chi Minh City, with total area of 16,000m2. Gemadept signed 3-year-contracts to lease 100% of the floor area at 50 USD/m2/month, which will generate stable income for GMD in Thanks to low cost, GMD s real estate business enjoys the highest profit margin (nearly 80%). Therefore, albeit accounting for only 6.7% of the total revenue, it made up 32.4% of total gross profit in The company planned to generate maximum 10% of total future revenue from real estate business. Financial activities GMD s financial investment portfolio concentrates on listed companies operating in related sectors, such as Vung Tau port, Potraco, Vinh Hao Mineral Water Company, Maritime Bank, Nam Viet Bank, Viet A Bank and some other listed enterprises shares. On 31/12/09, total value of financial investment (including both short-term and longterm) amounted to VND billion, accounting for 12.4% of the company s total assets. GMD had to record a large provision for financial investments when the stock market plummeted in In 2009, thanks to the market s recovery, GMD reversed a provision on financial items of nearly VND 230 billion. In spite of the company s strategy to expand business activities to financial investment, we believe that it would not be feasible in the near future, as the company will have to focus resources on their key projects. Projects in progress Aiming to become a diversified corporation, GMD has several important projects in progress, among which, there are 3 most potential ongoing projects as follows: Table 4: Projects Project 1. Tan Son Nhat Air Cargo Terminal Capital investment VND 600 billion 2. Cai Mep Container Port USD 520 million 3. Le Loi Plaza USD 100 million Stake Partner Implementation period 23% Ministry of Defense 1Q09 1Q10 (24%), Southern Airport Auth (25) 50% CMA-CGM % Sai GOn Tourist

13 Cai Mep Container Port: this is the biggest one among GMD s potential projects. The total investment amounts to USD 520 million or about VND 9,600 billion. GMD contributed 50% of chartered capital in the form of land use right and cash. It took GMD 3 years to finally decide the suitable partner, namely CMA CGM, the world s leading company in container transport and port operation. Therefore, GMD can get support in terms of know-how and experience to operate the port under international standards, which few port operators in Vietnam can follow. The first phase of the port is expected to complete in 2012 and generate annual revenue of USD 20 million/year. Design capacity reached TEU 1.7 million/year, particularly TEU 1.2 million/year after the first phase, in capable of accepting ships of DWT. 30% of the project was funded from owners equity and the remaining from debt. GMD and CMA-CGM is negotiating to lend from well-founded credit institutions such as European Development Bank, HSBC, BNP Paribas, etc. The company expected to complete all of its port projects in 2013 The 72-ha land contributed to Gemalink joint venture was revaluated at USD 39.5 million, which brought GMD an extraordinary income of VND 283 billion in The rest (around over VND 200 billion) will gradually be recorded in the joint venture s operation period. Le Loi Plaza: With total cost of VND billion, GMD held 45% of the chartered capital of Golden Globe Limited Company, who contributed 70% of capital to build the 35-floor skyscraper complex including 5-star hotels, shopping malls and offices for lease, with total capital investment of USD 100 million and floor area of 5,600m2 at No , Le Loi street, Ho Chi Minh city. Golden Globe Company owns a land area of 3,600m2. The price of the land as stipulated by Ho Chi Minh City People s Committee is 81 million VND/m2 (over 4000 USD/ m2), while the market price has reached 20,000 25,000 USD/m2, which is 28- fold the book value (800 USD/m2). Therefore, it is likely that the land will be revaluated and GMD will benefit 31.5% from this asset revaluation. Tan Son Nhat Air Cargo Terminal: This is one of a business activities that GMD wants to expand. At the moment, Vietnam has not been able to build a specialized air cargo terminal. Most of the current terminals are of low quality but high price (doubling that of Singapore s terminals). Hence, this project is also considered to be potential. The design capacity is 350,000 tons per year while it is expected to handle 200,000 tons per year and generate revenue of 100 USD/ ton after completion late

14 Our view on GMD Quality Established brandname: Gemadept has 17-year experience in sea transportation service. Moreover, it was once a subsidiary of Vietnam National Shipping Lines (Vinalines). Hence, Gemadept owns a good brandname with loyal customers network after years of cooperation. Young fleet: Gemadept s fleet has average age of 15 years, thus, vessel maintenance cost is low. On the other hand, thanks to small capacity vessels, their rates do not fluctuate as much as those of high capacity ones. Port system spanning along the national coastline: Gemadept is operating 3 ports which are located in 3 key cities and provinces of the country. Those ports are also among ports in the Government s master plan of national ports. Whole-package service supply: In combination of port operator and sea transporter, Gemadept has the potential of supplying door-to-door service to save cost for customers. Joint ventures with well-founded partners: The ability to set up joint ventures with well-founded partners is one of Gemadept s advantages, helping it to absorb experience and new technology of these companies, as well as taking advantage of their enormous customer network. Diversified business: In 2009, when the core business faced difficulties due to the global crisis, Gemadept was able to record high dramatic revenue and profit from real estate business. Healthy financial condition, good liquidity and strong cash flow from operation Diversified asset portfolio: Especially, asset in the form of land use right that is recorded at much lower value than the market price High potential of sea transport sector: Vietnam is on the way of international economic integration. Export is expected to hike. Therefore, sea transport sector is very potential. Potential projects, especially port projects: Port projects can generate significant revenue and profit, helping Gemadept to further advance in its traditional business segment Risks Small-capacity fleet: Due to small-capacity fleet, GMD only operates in near routes. Small fleet also affects GMD s competitiveness, especially compared to big foreigninvested carriers. Debt and capital raising pressures: Gemadept is now in the period of investment in sizable projects. To fund for these projects, the company will have to raise debt or chartered capital. Actually, the company planned to increase chartered capital to VND 1,000 billion in 2010 which may cause a risk of dilution. Declining profitability from core business: Under the impact of the global crisis and the bad condition of the world s sea transport market, profitability will continue to stay low in several years to come given the plan to raise chartered capital to implement key projects. Financial activity is the reason for its significant loss in Harsh competition: Gemadept has to face with tough competition from domestic companies as well as foreign-invested ones, especially those who operate in logistics and agency services. Phuoc Long ICD is also encountering fierce competition as many ICDs is operating to serve Cai Mep Thi Vai Ports. 14

15 Dependence on the world s shipping rates: The world s shipping rates, which also have large impact on Vietnam s shipping rates, usually fluctuate in line with the growth as well as the depression of the international economy Dependence on big carriers performance: Performance of GMD s partners will impact GMD s activities. Moreover, big carriers are usually influenced the most when the world s sea transport market went down. For example, Maersk reported the first year of loss in its history in 2009, and OOCL also reported loss of USD 197 million in 1H09 compared to the profit of USD 216 million in 1H08. Dependence on the economy s performance in general and import-export value in particular: Sea transport is the first industry to witness development when the economy recovers, as well as the first industry to be impinged as the economy encounters recession. Movements of the economy, together with changes in economic policies, will directly affect import-export volume and GMD s business activities as well. Foreign exchange risk: Because of loans in foreign currency, the company has to record big loss from foreign exchange differences as VND tends to depreciate. However, revenue in foreign currency can help to offset much of this loss. 15

16 APPENDIX BACKGROUND INFORMATION Ownership Founded in 1990, GMD was originally a subsidiary of Vietnam Maritime Union. Gemadept was equitized in 1993 with chartered capital of VND 6.2 billion. After 2 share issuances, the company now has chartered capital of VND 475 billion with ownership structure as follows: GMD ownership (14/05/2010) Since 4Q09, foreign investors have increased their ownership in GMD after selling significantly their stake in GMD in early 2009 due to the company s reported loss in Fluctuations of foreign investors ownership in GMD Organizational structure Source: Gemadept 16

17 Development strategy Gemadept s development strategy focuses on 2 main goals: Core business development, including: Sea ports & Logistics: developing these networks along the national coastline. Shipping: becoming a significant shipping line in Asean. Other key transports: focusing on Air Cargo Terminal & OOG cargo transport Business diversification: Develop modern complex buildings in CBD. Develop industrial parks in main economic zones. Financial activities. Although GMD can generate high revenue and profit from real estate business, it can be seen that the company is following a risky and ambitious business strategy. Diversification will create difficulties in concentrating resources for core business, especially port development. Gemadept will have to face debt and capital raising pressures in order to achieve the goal of business diversification, as well as to become the leading port operator in Vietnam by Subsidiaries and joint ventures At the moment, Gemadept has 15 subsidiaries and 12 joint ventures. List of subsidiaries No Subsidiaries Ownership Business activities 1 Phuoc Long ICD Co., ltd 100% Port investment and operation; Multi-modal transport ; Sea and air agency and brokerage ; Marine equipment leasing and purchasing; Building and repairing means of waterway transportation 2 Truong Tho JSC 26% 3 Hoa Sen Gemadept Logistics and 51% Not yet operation International Port Corporation 4 GMD Dung Quat International Port 66.2% Port construction, management and operation JSC 5 Nhon Hoi International Port JSC 55% Not yet operation 6 Gemadept Logistics One Member 100% Trading, processing agricultural products; Providing services of warehousing, packaging; Logistics; Transportation and Agency services Co., ltd 7 V.N.M General Transportation Service Co., ltd Stevedoring; Agency; Chartering/purchasing of ship, container, marine 100% Container yard and depot operation; Shipping brokerage; Forwarding; equipment; Construction of port, container yard, civil and industrial works 8 ISS Gemadept Co., ltd 51% Shipping agency and forwarding agency services 9 Gemadept Malaysia Ltd 100% Shipping agencies, proceeding marketing for services of Gemadept in Malaysia; Mobilizing capital for the projects of maritime infrastructure; Introducing and inviting foreign investment in the projects of shipping, industrial zones, infrastructure of transportation in Vietnam 10 Gemadept Singapore Ltd. 100% Shipping agencies, proceeding marketing for services of Gemadept in Singapore; Mobilizing capital for the projects of maritime infrastructure; Introducing and inviting foreign investment in the projects of shipping, industrial zones, infrastructure of transportation in Vietnam 11 Gemadept Hai Phong One Member 100 % Co., ltd 12 Vung Tau Gemadept JSC 70% 13 Gemadept Infrastructure Investment and Development JSC 100% 14 Lien Uoc Transportation Co.,Ltd 51% 15 Su Tu Chua JSC 55% 17

18 List of affiliates and joint ventures No Joint ventures Ownership Business activities 1 Gemalink JSC 50% Port construction, management and operation 2 Sai Gon Cargo Service Corporation 23% Petroleum trading agency; port construction, industrial and inland trucking, forwarding, stevedoring 3 Vung Tau Commercial Port JSC 26.78% General business, warehousing, bonded warehouse, customs brokerage, leveling and building, rock and sand mining, beverage producing, aquaculture, real estate brokerage 4 OOCL Vietnam Co., Ltd 49% Shipping agency, sea, air and inland forwarding, shipping brokerage, warehousing, logistics, cargo consolidation, inland transport 5 Huyndai Merchant Marine Vietnam Co.,ltd 6 Electricity Transportation and Service JSC 7 Schenker Gemadept Logistics Vietnam Co.,ltd 49% Providing service of shipping transport including domestics one transported by Vietnam flag vessel and multi-modal services 38% OOC transport and loading/unloading; warehousing service; water and road transport; civil and industrial construction; electricity infrastructure construction (voltage up to 10kV) 49% Warehousing and cargo storing, customs clearance, direct assitance service for riverway transport 8 MBN-GMD VIETNAM CO., ltd 34% Warehousing service for traders of coffee and agri-product in the form of del-cradere warehouse 9 Nam Hai Port JSC 30% Port Construction, management and operation 10 Vinh Hao Mineral Water JSC 32.98% Producing and trading mineral water 11 Golden Globe Trading JSC 45% Trading houses, offices. Organising seminars, conference, trading office equipment, computers, spare parts, stationeries, personal belongings and household appliances. Cargo and passenger transport by cars, ships 12 Minh Dam Tourism JSC 38% 18

19 Income statements Unit: VND mil Net revenue 1,103,477 1,211,978 1,171,917 1,912,925 1,771,684 Cost of goods sold 858, , ,716 1,586,775 1,482,500 Gross profit 244, , , , ,184 Selling expenses, management expenses 60,293 89,759 99, , ,207 Financial income 7,353 57,720 89,517 (377,584) 195,354 Interest expense 5,653 13,858 32,281 59,937 68,700 Extraordinary income 1,535 4,276 46, ,713 4,407 Profit from affiliates ,657 - Net profit before tax 193, , , , ,738 Income tax 45,683 50,572 47,864 20,063 35,073 Net profit after tax 147, , , , ,665 Minority interest ,824 11,972 Net income 147, , , , ,693 * The 2009 figures are unaudited figures 19

20 Balance sheet Unit: VND mil Current asset 433, ,370 1,258,782 1,004, Cash 177, , , , ,291 Financial investment - 20, ,306 91, ,279 Receivables 153, , , , ,590 Inventories 2,843 5,612 9,380 28,616 57,294 Other current asset 98, , , , ,411 Long-term asset 232, ,666 1,012,932 1,748,534 1,848,345 Long-term receivables Fixed asset 107, , , , ,798 Tangible asset 176, , ,646 1,311,737 1,409,652 Financial leasehold asset - 26,059 19,178 15,197 11,232 Intangible fixed asset 9,798 9,809 10,117 11,384 18,260 Unfinished construction works 22,599 34, , , ,288 Investment real estate , ,942 Long-term financial investment 109, , ,951 1,224, ,926 Other long-term asset 15,200 23,272 56,133 24,253 12,679 TOTAL ASSET 666, ,035 2,271,714 2,752,900 2,975,210 Debt 196, , ,811 1,769,192 1,930,328 Short-term debt 191, , , , ,288 Short-term loans 19,962 95,175 64, , ,353 Other short-term debts 171, , , , ,935 Long-term debt 4, , ,265 1,080,374 1,082,040 Long-term borrowings - 298, , , ,576 Other long-term debts 4,897 1,401 39, , ,464 Shareholders equity 571, ,657 2,283,740 2,234,934 2,476,416 Shareholders equity* 559, ,730 2,270,888 2,229,087 2,476,038 Chartered capital 310, , , , ,000 Share premium - 40,980 1,366,907 1,366,907 1,366,907 Undistributed earnings 248, , , , ,750 Investment development fund 328 6,970 86, , ,381 Reserves 12,002 11,927 12,852 5, Minority interest - 18,799 29, , ,100 TOTAL LIABILITIES 767,653 1,392,878 3,286,535 4,140,928 4,572,844 * The 2009 figures are unaudited 20

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