

Vietnam natural rubber sector

Global natural rubber market

Vietnam rubber sector

Stock recommendation





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Vietnam natural rubber sector

Table of Contents

Global natural rubber market page
Impressive recovery of natural rubber price 2
supported by limited supply of natural rubber 2
Higher demand from China thanks to inventory build-up and recovery
in global automobile sales 3
Higher crude oil prices support NR 5

Vietnam rubber sector page
Vietnam is one of the leading natural rubber producers in the world 6
… with 85-90% of the production is for export 8
Vietnam has little impact on global rubber price 9

Simple operation model and recurring earnings of domestic companies 10
Vietnam’s rubber companies have limited organic growth but can
benefit from high rubber price and depreciation of VND 11
TRC and DPR are our recommended stocks 12

Tay Ninh Rubber JSC 13

Dong Phu Rubber JSC 22

Phuoc Hoa Rubber JSC 31

Hoa Binh Rubber JSC 40










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Vietnam natural rubber sector


















































Vietnam is one of the biggest rubber suppliers around the world. Vietnam currently ranks fifth among
top world rubber producers and third among top world rubber exporters. High growth rate combined with
high production yield will be supportive factors to Vietnam’s natural rubber sector.
Average natural rubber price is around 3,000 USD/ton in 2010 and still have positive supports to
maintain this price level in 2011 thanks to (1) strong rubber demand from impressive recovery of world
automobile production industry - controlling 68% of total natural rubber demand (2) shortage of natural
rubber supply due to drought and decline in international rubber plantations (3) oil price may pick up as
world economic recovery strengthened. However, natural rubber supply may increase significantly since
2012 as newly planted areas during 2005-2008 start production.
The Vietnam Rubber Group – the state-owned enterprise – has significant influence over the
Vietnam rubber sector as (1) its subsidiaries controlling around 40% of the total rubber production in
Vietnam (2) exerting controls over most biggest rubber companies, maintaining more than 60% stake in
equitised rubber companies (3) fixing labor cost – the highest proportion in cost of goods sold – at around
40-42% of revenue, a mechanism to smooth earnings when rubber prices increase but also ensure margin
and operational profits when rubber prices fall.

Vietnam’s natural rubber sector has little organic growth in the next few years. Most listed rubber

companies are facing declining plantations as they can be too old or replanted areas are not ready for
yielding. The revenue growth can only come from increasing rubber prices, which Vietnam has no impact
or influence on.
Investment recommendation:
TRC and DPR are our two stock picks in natural rubber sector. We appreciate TRC and DPR’s
capability in maintaining outputs over the next two years thanks to their younger age profiles among
peers, considering limited supply is the catalyst of higher rubber prices and improved margin.
TRC DPR PHR HRC
Current price (VND) 56,500 60,000 36,800 62,500
Target price (VND) 68,000 69,000 40,600 51,500
Upside/Downside 20% 15% 10% -18%
Recommendation
ADD ADD HOLD REDUCE
Capitalization (VND bn) 1,702 2,688 2,951 1,079
2010 Consumption volume (ton) 12,800 16,470 31,006 6,518
2010 Average selling price (VNDmn/ton) 60.3 61.2 63.4 63.0
2010 Net revenue (VND bn) 758 1,028 1,995 412
2010 Net profit (VND bn) 267.4 395.1 490 95.4
2010 EPS (VND) 8,929 9,188 6,026 5,514
2010 EPS growth (%) 75 74 83 45
PE (x) 6.3 6.5 6.1 11.3

Extending the favourable condition of high rubber price
Hoang Thi Hoa, Manager

+84 8 3914 3588, ext. 146


Giang Hoang, Analyst


+84 8 3914 3588, ext. 142






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Vietnam natural rubber sector

Global natural rubber market
Impressive recovery of natural rubber price

As the global economy recovered after the financial crisis in late 2008 and early 2009, rubber sector
began to see signs of recovery since the second quarter of 2009. Natural rubber demand started to pick
up thanks to positive moves in the tyre production industry which captures 68% of total natural rubber
demand.

Moreover, it was in 2009 that the three largest natural rubber producers (Thailand, Indonesia and
Malaysia), accounting for 72% of total global rubber production cut down about 4.3% of their volume to
stabilize the global rubber price. Consequently, the supply and demand gap has pushed up rubber
price, especially from Q3/2009.

Supported by high rubber demand and due to seasonal effect as Q1 and Q2 was off-peak season of
rubber supply, rubber price in late April 2010 had exceeded the peak established in July 2008. Although
the price trend paused from June to August due to the supply improvement as rubber producers begin
harvesting season, rubber price continued to rise again and has seen the best performance in the
rubber history to-date. Rubber companies enjoyed a good year when average selling price for 2010 was
above USD3,000/ton, much higher than the pre-crisis level of 2008 of approximately USD2,600/ton. Of

note, world rubber bounced back strongly after the earthquake in Japan in March 2011 and currently
stands high at USD5,500/ton



Figure 1: Movement of Vietnam’s rubber export price
Figure 2: 6 Asian countries account for 94% of total world
production
0
1,000
2,000
3,000
4,000
5,000
6,000
01/05
04/05
07/05
10/05
01/06
04/06
07/06
10/06
01/07
04/07
07/07
10/07
01/08
04/08
07/08

10/08
01/09
04/09
07/09
10/09
01/10
04/10
07/10
10/10
01/11
Latex STR 20 STR 5
USD/ton


Source: Vietnam Rubber Association (VRA), Association of Natural Rubber Producing Countries (ANRPC)

supported by limited supply of natural rubber
According to preliminary forecasts of the Association of Natural Rubber Producing Countries (ANRPC),
the world rubber volume might get a maximum increase by 6.3% in 2010. However, by October 2010,
ANRPC adjusted downward the 2010 natural rubber growth to 5.3% due to bad weather and declining
output in major natural rubber producing countries, especially Thailand and Indonesia – the two largest
natural rubber producers. Latest report shows a 5.7% increase in global rubber volume in 2010, ANRPC
also forecasts a 5.3% increase in 2011.



Global economic
recovery and declining
supply of top 3 biggest
rubber-producing

countries are major
supportive factors to
surging rubber price.


World supply is
restricted by bad
weather and decline in
international plantations.






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Vietnam natural rubber sector

Figure 3: Rubber production forecast is 5.3% in 2011


Country 2009 2010 Growth 2011 Growth
Thailand 3,164 3,072 -2.9% 3,247 5.7%
Indonesia 2,440 2,843 16.5% 2,938 3.3%
Malaysia 857 970 13.2% 1,050 8.3%
India 820 845 3.0% 890 5.3%
Vietnam 724 750 3.6% 780 4.0%
China 643 647 0.6% 690 6.7%
Srilanca 137 148 8.0% 153 3.4%

Philippines 98 102 4.1% 107 4.9%
Cambodia 34 45 32.4% 63 40.0%
Total ANRPC 8,917 9,422 5.7% 9,918 5.3%
Source: ANRPC

Age structure of rubber trees in most of the producing countries indicates a possibility of large-scale
replanting in 2010 and 2011. The concern over natural rubber supply seems to persist until end of 2011
as the yielding area is unlikely to expand before 2012 when a large area planted in ANRPC countries,
especially Thailand, from 2005 onwards is expected to start yielding from 2012 and the replanted trees
attain higher yielding stage (in the life cycle of a rubber tree, gestation period is 7 years and productivity
is highest after 10 years of plantation). During the 2005 – 2010 period, a total area of 2,544 thousand
hectare have been planted in ANRPC countries, in which 927 thousand hectare were planted in
Thailand during that period in response to attractive prices and positive outlook of the rubber industry.
Especially, the annual new planted area increased significantly from 2005 – 2008 as prompted by the
high prices of natural rubber at that time.
Figure 4: Annual new and replanted areas in Thailand
from 2003 to 2010
Figure 5: Total new and replanted areas of natural rubber
in ANRPC members
Source: ANRPC

As a result, the net effect of replanting old-age with low yielding trees and new supply of higher yielding
ones could lead to changes in the supply after 2011F. In addition, as a result of the current high market
prices of natural rubber, there could be another surge in new plantings for natural rubber, which could
lead to higher than forecasted supply of natural rubber subsequently.

Higher demand thanks to recovery in global automobile sales and
China’s inventory build-up
Currently, rubber demand for tyre production accounts for around 68% of the total demand. The
recovery of global automobiles sales will have positive impact on the rubber industry. In 2009, China

surpassed US to become the largest automobile producer with sales of 13.6 million cars, up 50% from
The surge in new plant
areas during 2005 –
2008 as response to
high market prices for
natural rubber will lead
to changes in natural
rubber supply after
2012.





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Vietnam natural rubber sector

2008. Automobile sales in China are expected to increase by 15 million cars in 2010 thanks to stronger
domestic consumption and export. The incentive programs of the US and EU’s government in 2009
such as “cash for clunkers” did encourage a large number of vehicle owners to buy new cars by trading-
in their old vehicles. In addition, the rise of higher income earners in Asian countries such as India,
China – who used to own vehicles of only two tyres (mainly motorbikes) - now have a demand to own
private cars which will double the demand for tyres. These are strong market fundamentals that support
the recent recovery in rubber price, rather than speculation as in 2008.
Figure 6: Monthly passenger car sales in China is
maintaining at high level for over a year (in units)
Figure 7: Monthly passenger car sales in India is also on
increasing trend thanks to higher domestic demand (in
units)

0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000

0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
200,000

Source: Bloomberg

Being the largest natural rubber producer, Asia is also the main consumer, accounting for two thirds of
the world natural rubber consumption. China is the largest consumer of natural rubber, accounting for
more than 32% of the global demand in 2009.

Figure 8: Tyres account for the largest demand for rubber
Figure 9: Asia accounts for two thirds of the world natural

rubber consumption and China is the largest natural
rubber consumer in the world

Source: ANRPC, International Rubber Study Group (IRSG)

In 2009, China, India and Malaysia captured 47% of total global rubber demand. Import demand from
China is anticipated to keep increasing when China is building up its natural rubber inventory as it
anticipates the limited supply in Q1-Q2 of 2011. Closing stock of natural rubber in ANRPC countries
also keeps increasing in recent years thanks to higher demand and better price trend during the first few
months of the year.
Current recovery in
rubber prices is based
on strong market
fundamentals, originated
from the recovery in
global automobile sales.

Rubber demand rising in
line with the recovery in
tyre production industry.





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Vietnam natural rubber sector

Figure 10: China is building up its natural rubber

inventory
Figure 11: Closing stocks at year end in ANRPC
countries
0
20
40
60
80
100
120
140
160
2007 2008 2008 2009 2009 2010 2010 2011
'000tonnes

Source: ANRPC, Bloomberg

Demand for natural rubber in China and India may keep increasing as automobile industry in China is
expected to grow at 8%/year in the period 2011 – 2015. Automobile sales in India are also on rising
trend as more middle and high-income earners have higher demand for private cars. Based on the
International Rubber Study Group (IRSG)’s estimate, global demand for natural rubber may reach 12.4
million tons by 2015 and 14.2 million tons by 2020, but the worldwide natural rubber production can only
reach 13.6 million tons/year in 2020, not taking into account new planting areas that may be stimulated
from the current high market prices of natural rubber as last seen in the 2005-2008 period.

Higher crude oil prices support NR
Rubber price is believed to have a close relationship with oil price. This is often explained by the
presumption of a replacement between natural rubber and synthetic rubber. Based on historical data of
crude oil price and natural rubber price (Thai RSS3) from 2002 to 2010, the correlation coefficient
between oil price and natural rubber price is quite significant at 83%. As a result, natural rubber prices

normally changes in the same direction with oil price and vice versa.
Figure 12: Natural rubber accounts for around 43% of
total rubber demand
Figure 13: Rubber price changes in the same direction
with oil price.
0
20
40
60
80
100
120
140
160
‐
1,000
2,000
3,000
4,000
5,000
6,000
2002 2003 2004 2005 2006 2007 2008 2009 2010
ThaiR SS3 WTIcrushing
U
S
D
/
t
o
n

U
S
D
/
b
a
r
r
e
l
Source: IRSG, Reuters
Synthetic rubber consumption accounts for around 55% of total global rubber demand. Synthetic rubber
is synthesized from oil and requires different technology, which explains a close correlation between
natural rubber price and crude oil price. Currently, there is a gap between natural rubber price and
crude oil price, which partly comes from a higher increase in natural rubber price in comparison with oil
price. Therefore, natural rubber price is under some pressures to adjust downward to close to gap.
However, as the world economy recovery strengthens, crude oil price is expected to pick up gradually,
closing the current gap between natural rubber price and crude oil price. Based on recent forecast of
Correlation coefficient
between oil price and
natural rubber price is
83%.

Demand for natural
rubber may reach 12.4
million tons by 2015 and
14.2 million tons by
2020.
Crude oil price is on
recovery trend, driven by

bullish sentiment about
the global economic
outlook.






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Vietnam natural rubber sector

Goldman Sachs, the medium term outlook for oil prices is quite positive, supported by global oil
stockpiles shrink and oil production tightens. On a long run, we believe that rubber prices and oil prices
will both benefit from price appreciation in key commodities, maintaining the close relationship between
them.
Vietnam rubber sector
Vietnam is one of the leading natural rubber producers in the world

In 2009, Vietnam’s natural rubber volume ranked fifth worldwide with total production volume of 724
thousand tons. Total export volume increased 10% to 731.4 thousand tons in 2009, 800 thousand tons
in 2010, and total export turnover of natural rubber reached USD2.35bn in 2010.

With impressive increase in export volume, Vietnam has surpassed Malaysia to become the third
biggest natural rubber exporter in the world. In 2010, Vietnam’s total rubber area is about 715 thousand
ha in which 445 ha are ready for harvesting.

Figure 14: Vietnam is the world fifth largest producer and
third largest exporter of natural rubber

Figure 15: Rubber area and productivity of main
producing countries in 2009
Source: ANRPC
Thanks to government’s incentive measures to develop rubber plantations, Vietnam has the fastest
growth rate among leading NR producing countries. During the period from 2003-2009, the annual
growth rate of total rubber area and total rubber harvesting area was 7.5% and 7.9% respectively.
Plantation productivity has improved remarkably during the past six years. Vietnam’s harvesting to
reach in 2009 1.72 ton/ha, similar to that of Thailand.
Figure 16: Vietnam export volume and value increase
dramatically over the past 10 years
Figure 17: and production yield of Vietnam natural rubber
improved largely within the past 5 years
0
500
1,000
1,500
2,000
2,500
0
100
200
300
400
500
600
700
800
900
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Export volume ('000 tonnes) Rubber export (USD mn)

'000ton
USDmn

Source: ANRPC

Vietnam records the
fastest growth rate in
leading countries in term
of productivity.






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Vietnam natural rubber sector

The government outlined a plan to develop Vietnam rubber plantations until 2020. With new plantation
area of 30,000-40,000 ha/year, Vietnam’s rubber area may reach 1 million ha and 1.2 million tons of
volume by the end of 2020.
Figure 18: Development plan of Vietnam rubber industry to 2020
Region 2010 2015 2020
Southeast ha 385,000 406,000 420,000
Central Highlands ha 231,000 300,000 420,000
Central Coast ha 70,000 96,000 110,000
Northwest ha 14,000 48,000 50,000
Total area ha 700,000 850,000 1,000,000
Total volume tons 750,000 880,000 1,200,000

Source: VRA

Vietnam Rubber Group (VRG) is the biggest state-owned enterprise whose subsidiaries control about
269.3 thousand hectares of total rubber plantations in 2009, corresponding to 40% of total nationwide
area and 85% of export production. VRA’s total production in 2009 was 298,800 tons, accounting for
41.2% of the nationwide volume. All currently listed natural rubber companies (PHR, TRC, DPR, HRC)
are members of VRA, except for TNC.
Figure 19: Production and sales volume of VRA members in 2009
Company/Region 2009 Production (tons) 2009 Sales volume (tons)
Southeast 242,290 266,697
1 Dau Tieng rubber company 45,898 53,186
2 Dong Nai rubber company 45,280 47,897
3 Phu Rieng rubber company 27,500 28,238
4 Binh Long rubber company 24,775 25,052
5 Phuoc Hoa rubber company (*) 24,092 32,393
6 Dong Phu rubber company (*) 16,802 19,593
7 Loc Ninh rubber company 15,048 14,037
8 Tay Ninh rubber company (*) 13,211 13,095
9 Tan Bien rubber company 12,421 13,798
10 Ba Ria rubber company 6,420 7,259
11 Hoa Binh rubber company (*) 5,118 6,300
12 Binh Thuan rubber company 4,480 4,618
13 Rubber Institution 1,245 1,231
Highlands 48,240 50,499
14 Kontum rubber company 10,350 10,600
15 Chu Se rubber company 9,015 10,122
16 ChuProng rubber company 7,600 7,840
17 Mang Yang rubber company 6,250 6,212
There is large potential
in the natural rubber

industry
VRA controls around
40% of the total rubber
production and 85% of
rubber export in
Vietnam.






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Vietnam natural rubber sector

18 ChuPah rubber company 6,150 6,557
19 Eah'Leo rubber company 5,230 5,000
20 Krongbuk rubber company 3,645 4,168
Central coast 8,335 10,365
21 Quang Tri rubber company 6,042 8,082
22 Ha Tinh rubber company 1,283 1,237
23 Quang Nam rubber company 830 830
24 Quang Ngai rubber company 180 216
Total 298,865 327,561
Source: VRA (*) Listed rubber companies
The natural conditions in the Southeast region are very suitable for rubber development. Total rubber
area in the Southeast region is estimated to account for 67% of total plantation in the whole country.
Thanks to high productivity in the region of about 1.9 ton/ha, annual harvesting volume is almost 79% of
total productivity in Vietnam.

Figure 20: Allocation of rubber area by zones Figure 21: Allocation of rubber volume by zones


Source: VRA

With 85-90% of the production is for export
Annually, 85-90% of Vietnam natural rubber is consumed in foreign markets. In 2009, Vietnam exported
natural rubber to 71 countries, in which China was the largest importer with the annual growth rate of
6.6%, reaching 494.6 thousand tons or USD 789 million. Total export turnover of natural rubber in 2009
was USD1.2 bn and the turnover in 2010 is USD2.35bn thanks to good rubber prices in the year.







Rubber plantation is
mainly focused in the
Southeast re
g
ion.
Tyre production industry
in the region is the key
source of demand for
NR products of Vietnam.






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Vietnam natural rubber sector

Figure 22: Export products structure of Vietnamese
rubber
Figure 23: China is the main consumer of Vietnam rubber
– 68% of Vietnam export

Source: VRA
Domestic consumption volume in 2009 was about 120 thousand tons of rubber, corresponding to 14.1%
of total consumption volume, up 20% from 2008. This growth was a great progress of natural rubber
sector, particularly when the tyre production factory of Kumho was established in Binh Duong province.
At present, tyre production factories use about 80-90 thousand tons of natural rubber per year to
produce an estimated number of 150 thousand small tyres and 1.65 million truck tyres of all kind.

Figure 24: Vietnam tyre market
Kind of tyre
Total tyre products
demand
Products made
in VN
%products/
demand
Radial 1,200,000 150,000 12.5%
Bias 2,100,000 1,650,000 78.6%
Light truck 1,100,000 950,000 86.4%
Heavy truck 1,000,000 700,000 70.0%
Motorbike 20,000,000 1,990,000 10.0%

Source: VRA

Vietnam has little impact on global rubber price

In spite of being the world fifth largest producer and third largest exporter of natural rubber, Vietnam
only contribute approximately 7% of rubber volume into total global natural rubber supply compared to
roughly 20% of the largest exporter – Thailand. In addition, as two third of Vietnam rubber is exporting
to a sole consumer - China, Vietnam is fully impacted by fluctuations in international rubber price as well
as changes in global rubber production and global rubber demand.
In addition, as the brand name of Vietnam rubber has not been set up, Vietnam’s rubber selling prices
are usually cheaper than those of Thailand or Indonesia. Moreover, due to having heavy dependence
on China market (accounting for 70% of Vietnam’s export volume), Vietnam has limited bargaining
power in the global markets.



Domestic consumption
market is quite small,
only accounting for 10-
15% of total quantity.

Vietnam’s rubber prices
are normally cheaper
and have no impact on
the world rubber price.






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Vietnam natural rubber sector

Simple operation models and recurring earnings of domestic companies
By applying simple technology, the initial investment costs for rubber plantations are mainly focused on
planting and taking care of the plantations, about VND70 million/ha in the Southeast region and
VND100 million/ha in the Central Highland. In addition, liquidation value of the plantations is sufficient
for investment in planting new trees in the same area. As a result, rubber companies use little leverage
in their capital structure.
As directed by VRA, labor cost, which captures around 40% of revenue, will be determined based on
rubber prices and the annual revenue of each company. This mechanism prevents rubber companies
from enjoying enormous earnings when rubber prices increase. However, being subsidiaries of VRA,
rubber companies are also protected from incurring losses especially when rubber prices fall
dramatically. For this reason, rubber companies are able to control cost of goods sold and keep their
gross profit margin of over 20% even when rubber prices fell remarkably as in 2008.
Vietnam’s government considers rubber trees as one of the strategic plants for export and poverty
reduction. Therefore, Vietnam rubber sector receive many supports from the government. In addition to
cheap land renting cost, rubber companies are also supported in terms of selling price. In the end of
2008 and beginning of 2009, when rubber price dropped deeply, the Government permitted Vietnam
Rubber Association to buy all domestic rubber in order to stabilize rubber price and ensure a minimum
profit for rubber companies.

We analyse two scenarios when rubber price is at the 2010 lowest level of USD2,100 per ton and at
USD3,300/ton – a conservative 10% increase from 2010 average price.
Scenario 1:
Rubber price is at USD2,100 per ton or VND44.1 million/ton. With the productivity of 1.7
ton/ha (the average productivity of the sector), revenue per hecta is about VND 75.0 million. Cost of
goods sold is about VND 50 million in which labor cost is a variable cost accounting for 42% of revenue
and fixed costs of VND18.5 million/ha . Thus, gross profit might is VND 25 million/ha, corresponding to

a 33% gross profit margin.
Scenario 2:
Rubber price reaches USD3,300 per ton or VND69.3 million/ton (10% increase from the
average rubber price in 2010). The gross profit per hecta is VND 49.8 million and gross profit margin is
42%.
Figure 25: Profit model of rubber companies at
USD2,100 per ton
Figure 26: Profit model of rubber companies at
USD 3,300 per ton
Initial
investment
:VND70
mil/ha
+ Sellingprice:
VND44mn/ton(~2,100
USD/ton)
+ Productivity:1.7ton/ha
Reve nue
/ha:VND
75mn
+ Laborcost:VND31 .5mn/h a
+ Rawmaterialcost:VND9
mn/ha
+ Deprecia tion:VND4.5mn/ha
+ Other:VND5mn/ha
Annual
cost/ha:
VND50
mn
Gross

profit/ha:
VND25
mn/ha

Initial
investment
:VND70
mil/ha
+Sellingprice:
VND69.3mn/ton(~ 3,300
USD/ton)
+Productivity:1.7ton/ha
Revenue
/ha:VND
117.8mn
+Laborcost:VND49.5mn/ha
+Rawmaterialcost:VND9
mn/ha
+Depreciation:VND4.5mn/ha
+Other:VND5mn/ha
Annual
cost/ha:
VND68
mn
Gross
profit/ha:
VND
49.8mn/ha

Source: VCSC


Liquidation value is
sufficient for replanting.
Controlling labor costs at
40% of revenue and
price support from VRA
ensure a minimum profit
margin of over 20% for
rubber companies.
Natural rubber sector is
supported by the
Government.






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Vietnam natural rubber sector

Vietnam’s rubber companies have limited organic growth but benefit
from high rubber price and depreciation of VND

As global rubber prices are still in upward trend, Vietnam’s rubber export prices also move in line with
the global prices. Average rubber price for 2010 is USD3,000 per ton, or VND58.5 million/ton, the
highest level in the rubber history. Moving into 2011, the discrepancy between global demand and
supply is still a supporting factor to rubber prices. As of February 2011, rubber’s off-peak season, world
rubber price reaches over USD5,000 per ton while domestic price also reaches around VND100mn.


Vietnam’s rubber companies also benefit from devaluation of VND against USD as the majority of their
revenue is in US dollars. VND has devalued nearly 10% year to date. Thus, in addition to benefit from
high rubber prices, rubber companies also earn better financial income thanks to currency conversion.

As the majority of rubber plantation is either too old or not mature enough to start yielding, rubber
companies have limited organic growth over the next few years, at least until 2013, when a large area of
new rubber plantations planted in 2005 starting production.

Figure 27: Annual new rubber plantation over years

Source: VRA

In addition, according to the development plan of the rubber industry set out by VRA, the expansion of
new plantation areas may grow at an annual rate of around 4% from 2010 to 2020. Rubber production
is expected to increase at around 3% from 2010 – 2015 and 6% from 2015 – 2020.
In normal conditions, harvested volume of rubber companies was the lowest in Q1 when rubber trees
began falling leaves and increased gradually until peak season in Q4. The allocated volume ratio
through quarters is 10%:20%:30%:40% in Q1, Q2, Q3 and Q4 respectively. As such, revenue and profit
of rubber companies normally have cyclical growth at year-end. In addition, rubber trees can only start
yielding after 7 years and provide the highest yield from year 10
th
to year 26
th
. Therefore, productivity of
each company will be varied based on the structure of the plantations.











Rubber price continues
to stay high thanks to
supply shortage.

Exchange rate is
another element
supporting domestic
rubber companies.
Growth cycle of rubber
trees is reflected by
rubber companies’
operation.
Rubber production is
expected to increase at
around 3% from 2010 –
2015.





www.vcsc.com.vn | VCSC<GO> VIET CAPITAL SECURITIES | 12
28March2011
Vietnam natural rubber sector


TRC and DPR are our top picks in the sector
Among listed natural rubber companies, we like TRC and DPR. In addition to benefit from global rubber
price, we appreciate TRC and DPR’s capability in maintaining output as their rubber plantations will be
in age of high productivity and volume in coming years. Their 2010 profit is estimated to be 60-80%
higher than it was in 2009 while their 2010 PE are 7.4x and 6.9x– a quite attractive level for medium or
long-term investment.

Figure 28: Comparison between listed rubber companies
TRC DPR PHR HRC
Current price (VND) 56,500 60,000 36,800 62,500
Target price (VND) 68,000 69,000 40,600 51,500
Upside/Downside 20% 15% 10% -18%
Recommendation
ADD ADD HOLD REDUCE
Capitalization (VND bn) 1,702 2,688 2,951 1,079
2010 Consumption volume (ton) 12,800 16,470 31,006 6,518
2010 Average selling price (VNDmn/ton) 60.3 61.2 63.4 63.0
2010 Net revenue (VND bn) 758 1,028 1,995 412
2010 Net profit (VND bn) 267.4 395.1 490 95.4
2010 EPS (VND) 8,929 9,188 6,026 5,514
2010 EPS growth (%) 75 74 83 45
PE (x) 6.3 6.5 6.1 11.3
Source: VCSC




www.vcsc.com.vn | VCSC<GO> VIET CAPITAL SECURITIES | 13
28 March 2011

Tay Ninh Rubber JSC (HSX: TRC)
Initiation

















































Giang Hoang, Analyst

+84 8 3914 3588, ext. 142

ADD
Target price VND68,000
Upside 20%

Natural Rubber
Key Indicators

Price (24 Mar. 2011) 56,500
52-week low 51,440
52-week high 68,140
10-day avg trading day vol shares 2,141
Outstanding shares 30,000,000
Market cap (VND bn) 1,702
Market cap (USD mn) 85


Valuation 2009 2010 2011F
EPS (VND)
5,110 8,929 9,015
EPS growth
-22.7% 74.7% 1.0%
P/E
11.0 6.3 6.2
P/B
2.7 2.2 1.9
ROE
24.4% 34.9% 30.0%
ROA
19.4% 25.4% 25.0%
ROIC
22.7% 33.4% 29.3%
Debt/Equity
7.4% 4.5% 2.2%
Dividend yiel
d
2.9% 5.4% 5.4%
Source: Company


Price performance
1M 3M 12M
Absolute (%) (11) (14)

(14)
Relative (%) (2) (9) (2)
Source: Bloomberg



Ownership structure
Vietnam Rubber Group 60.0%
Foreign investors 32.9%
Individual investors 7.1%



See important disclosure at the end
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
TRC VNIndex
Power of the youth
TRC is one of the few pure plays in the natural rubber in the market. Other listed

plantation companies in the region (such as IOI Corp., Kuala Lumpur Kepong and
Genting Plantations) are hybrids between rubber and other crops. TRC is also the
largest manufacturer of latex in Vietnam. As we believe that high NR price is likely
to hold, investors might want exposure on the stock.

Undervalued.
Our NR price forecast is USD3,100/ton for 2011 (spot price
USD3,500/ton for latex concentration) and USD2,900/ton-USD3,200/ton for
2012F-2015F. Our DCF-derived price target of VND68,000 suggests an upside of
20% against the current price. On a price multiple basis, TRC is trading at
attractive 6.3x 2010 earnings and 6.2x 2011F earnings, lower than the industry
average at P/E2010F 7.2x and P/E2011F 7.1x. We initiate on TRC with an
ADD

recommendation.
81% EPS growth for 2010,
driven by: (1) higher NR price at VND60mn/ton in
2010 from VND32.2mn/ton in 2009 and (2) gross margin improved to 42.8% in
2010 from 34.2% in 2009. We note that TRC expensed a total of VND26.6bn in
goodwill in 2010.
Flat earnings growth in 2011F.
Looking forward to 2011F, we project a flat
earnings growth given the following factors: (1) 9% decline in selling volume; (2)
international NR latex price will remain at the same level with this year; (3) gross
margin slightly down to 40%; and (4) removed the affect of expensing goodwill,
administrative expenses going down to normal level.
Healthy estates bringing material growth in subsequent years.
We like TRC in
light of its healthy estates with young trees, good yield and its strength in high
margin NR latex concentrates. Even though TRC’s expansion project pipeline is

weaker than its listed peers, it should maintain its competitive advantage at least
until 2016 as the company has the lowest attrition rate of its productive plantation.
Low liquidity remains an issue.
As VRG holds 60.0% and foreign investor 32.9%
(the highest percentage of foreign ownership among the four listed peers), TRC’s
floating shares for individual investors are roughly 7.1%. The stock has
consistently been trading with substantially lower liquidity than its peers.












www.vcsc.com.vn | VCSC<GO> VIET CAPITAL SECURITIES | 14
28 March 2011
Tay Ninh Rubber JSC (HSX: TRC)
ADD
Company overview
TRC is the third largest listed rubber company by market cap and plantation acreage. The company
manages 7,205ha of planted land-bank, of which 5,552ha in productive stage which yielded
approximately 12,000 tons in 2010.
Revenue from rubber exploitation consisted of 95% of TRC’s revenue in 2009. The company’s main
products are centrifuged latex concentration accounting for 72% of the company revenue, block rubber
SVR 3L 10%, SVR 10-20 12%, and skim 6%. Long-term export contracts accounts for 48% of TRC’s

total revenue and contracts with domestic traditional partners making up 52%.
Mature plantation, High yield, and Flat output
Among the listed rubber companies, TRC has the most evenly distributed plantation across maturity.
Immature trees (younger than 6 years) covers 23% total plantation area of TRC, young trees (7-16
year old) 30%, prime trees (17-23 year old) 30% and post-prime trees (over 24 years old) 17%,
making the average lifetime age of TRC’s plantation 14.6, in line with its peer. However, with 60% of
the plantation are at young and prime age, the average productive age of TRC is the lowest among
the 4 peers at 12.1.

Figure 1: TRC’s 2010 tree age profile and corresponding yield


Source: Company, VCSC
Despite the fact that the plantation is in a relatively less fertile area, given the plantation’s young age
profile, the topology and inland location, TRC had the second highest yield of 2.24 tons/ha (after DPR
2.25 tons/ha) within the Vietnam Rubber Group, above the industry average of 1.78 tons/ha in 2010.
We expect TRC’s yields to continue to stay above 2.00tons/ha until 2015.









1.4
1.8
1.9
2.0

2.4
2.2
2.3
2.5
2.3
2.1
2.2
2.0
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0
0.5
1
1.5
2
2.5
3
-
100
200
300
400
500
600
02468101214161820222426
Yield


Immature (1-6 yrs)
7-16 yrs
17-23 yrs

>24 yrs
www.vcsc.com.vn | VCSC<GO>
28 March 20
1





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www.vcsc.com.vn | VCSC<GO> VIET CAPITAL SECURITIES | 16
28 March 2011
Tay Ninh Rubber JSC (HSX: TRC)
ADD
2010 results
TRC reported VND758bn in revenue (+72% YoY), and VND267bn in PAT (+74% YoY) in 2010
.
The company’s average selling price reached VND60mn per ton, up 78.3% from an average
VND32.2mn per ton in 2009.
Production output came at 12,400 tons (-6% YoY). Due to the seasonal nature of rubber crops, the
vast majority of outputs falls into the second half of any given year with production volume allocation
ratio of 10:20:30:40 each quarter, the results are close to VCSC’s last projection (61% of our whole-

year production forecast of 12,000 tons (-10% YoY)). Unlike PHR and HRC, TRC’s purchasing
volume remained insignificant at 80 tons, making total selling volume came in at 12,800 tons in 2010.
The company already expensed VND26.6bn in goodwill in 2010
due to changes in Vietnamese
accounting rules that came into effect in 2010.

Prior to 2010, goodwill was required to be amortized on
a straight line method over a period not exceeding 10 years. The new rules require that goodwill from
revaluations post-equalisation be completely expensed within 3 years. Since 2010 is a good year for
the company, TRC allocated the whole goodwill balance of VND26.6bn this year.
Surging financial income helped improve bottom line.
Financial income doubled the same period,
to VND33bn in 2010 from VND14bn in 2009 thanks to higher interest income (VND20bn, +400% YoY)
and exchange rate gain (VND11.6bn). Among the 4 peers, TRC appears to be the one most benefited
from the depreciation of the VND.
EPS 2010 is at VND9,154/share, up 79% YoY.

The company intends to increase 2010 dividend to VND3,000/share
from VND2,000/share,
providing a dividend yield of 5.5% at the current price of VND56,500 (Mar 24 2011). The company will
request shareholders’ approval at the 2011 annual meeting.
Earnings Outlook
We foresee VND765bn in revenue (+1%) and VND265bn in PAT (+1%) for 2011. The following factors
will adversely impact revenue and earnings growth.

(1) Average selling price stays at USD3,000/ton or VND65.1mn/ton (assuming exchange rate of
USD:VND21,000)
(2) As tapping area is expected to shrink 5% to 5,304 hectares in 2011 from 5,552 hectares in 2010,
we estimate that tapping volume will decline by 724 tons (-6% YoY, which is the second lowest
declining rate in tapping volume among the 4 peers) to 11,276 tons in 2011 from 12,000 tons in 2010.

We note that the company has not drafted concrete earnings guidance for 2011. However, VRG has
guided a selling price of VND50mn/ton for 2011 for companies under its umbrella.
Financial Investments
Limited expansion plan. Among the four listed rubber companies, TRC is the one that has least
invested in both related and unrelated projects with financial investment of VND143bn by the end of
2010.
TRC currently has only two new plantation projects and both are limited to capital contribution. Thus,
TRC has a proportionate economic interest in 2,500ha (or 35% of TRC’s current land-bank) in these
new plantations.
•
Viet Lao Rubber JSC: TRC participated in the project with a nominal 10% stakes (HRC also has
15% stakes in this JV). The JV cultivates 10,000ha with total capital of VND600bn. TRC has
completed its capital commitment of VND60bn in the JV. The first 2,000ha planted in 2005 is
tapped in Q42010. The block rubber processing factory with capacity of 15,000 tons/year will go
into operation in Q2 2011 instead of late 2010. The company expects 3000 tons SVR 3L in 2012
the first year of operation. Thus, TRC expects dividend from the JV starting 2012.





www.vcsc.com.vn | VCSC<GO> VIET CAPITAL SECURITIES | 17
28 March 2011
Tay Ninh Rubber JSC (HSX: TRC)
ADD
• Dau Tieng-Lao Cai Rubber JSC: In October 2010, TRC has committed VND60bn in the JV Dau
Tieng-Lao Cai JSC to cultivate 10,000ha in Vietnam’s mountainous northern province Lao Cai.
Dau Tieng Rubber JSC holds 60% stakes in the JV, TRC 15% and DPR 10%. First 2,000ha will
be planted in 2011.
As for non-core investments, TRC’s portfolio is fragmented just like other rubber companies in the

Group. The company already started to earn dividend from the some of these projects.
We expect nonmaterial dividend income to be VND2.7bn for 2010 and increase to around VND10bn in
2016.
Figure 4: TRC’s Financial investments
Projects
Committed capital
Disbursed
amount as of
12/30/2010
Amount
(VND bn)
%
1 Dau Tieng-Lao Cai Rubber JSC 60.0 15% 60.0
2 Viet Lao Rubber JSC 60.0 10% 60.0
3 Nghe An Rubber Development JSC 12.5 8% 7.4
4 Wood Processing & Export-Import Tay Ninh JSC 10.5 - 10.5
5 Trade and Tourism Rubber JSC 10.0 4% 10.0
6 Ninh Dien Mineral Water JSC 1.5 15% 1.5
7 Infrastructure Investment Ltd VRG 26.8 10% 26.8
8 VN Rubber Urban and IZ Development JSC 20.0 - 20.0
Total 200.8 196.2

Valuation
Key assumptions apply to our DCF model
Cash Flows assumptions
•
Revenue:
TRC revenue comes from its rubber production activities.
o
Volume: We calculate exploitation volume based on TRC’s current plantation and

planned liquidation and replacement for the period 2010-2015F. Purchasing volume for
2011F-2015F is forecasted to remain nominal at 80tons/year.
o
Price: We adopt a cautious stance in terms of price and forecast 2011 average selling
price at USD3,100, then a drop of 10% to USD2,945/ton in 2012 and a stable growth of
2% per annual from 2012F-2015F. We also assume a 2% devaluation of the VND
against the USD each year for the same period.
•
Cost Structure:

o
Labour cost: As rubber exploitation is a labour intensive process, labour costs make up
the majority of COGS. For TRC, labour costs are paid at 40-42% of revenue according to
VRA’s guidance, representing 67-68% COGS across our forecast period.
o
Depreciation: Depreciation makes up 4-6% COGS.
o
Other components of COGS: Other costs such as fertilizer, gas, exploiting materials,
labour miscellaneous, export insurance account for 25-28% of the cost base.
o
Land tax: Like other rubber companies, TRC benefits from 50% discount of land use
right tax, which accounts to 1mn/ha/year and totals to VND7bn/year for the company.
•
Taxes:
TRC enjoys preferential tax treatment for operating and creating employment in the poor
condition area of Go Dau, Tay Ninh. The company is exempted from CIT during the first 3 years
after requisition (2007-2009) and 50% tax rebate on a 15% tax rate for the following 7 years.






www.vcsc.com.vn | VCSC<GO> VIET CAPITAL SECURITIES | 18
28 March 2011
Tay Ninh Rubber JSC (HSX: TRC)
ADD
Consequently, TRC is subject to preferential tax rate of 7.5% for 2010-2016 and 15% tax rate for
rubber exploitation from 2017-2018 and 25% tax rate from 2019 onwards. Tax rate of 25% applies
to financial and other income.

Figure 5: WACC assumptions
2-stage DCF assumptions Growth Terminal
Cost of equity 22.4% 22.4%
Cost of debt 16.0% 12.0%
Effective tax 10.0% 15.0%
D/E 7.3% 2.0%
WACC 21.9% 22.2%
Terminal Growth of FCFF 4%

Figure 6: DCF valuation

Valuation Results
Terminal Value 1,595,770
PV of explicit FCFF 1,059,735
PV of Terminal Value 593,417
Enterprise Value 1,653,152
add est. cash & equivalents 2010 430,206
less est. net debt 2010 34,757
Fair Equity Value 2,059,601
Shares, Outstanding 30,000,000

Terminal Value/Firm Value 28%
Fair Value per Share (VND) 68,049















www.vcsc.com.vn | VCSC<GO> VIET CAPITAL SECURITIES | 19
28 March 2011
Tay Ninh Rubber JSC (HSX: TRC)
ADD

















Sensitivity Analysis
Figure 7: DCF sensitivity analysis
WACC
Terminal Growth
19% 20% 21% 22% 23% 24% 25%
5.5% 71,380 70,592 69,839 69,120 68,431 67,773 67,142
5.0% 70,965 70,194 69,457 68,753 68,079 67,435 66,818
4.5% 70,573 69,818 69,097 68,407 67,747 67,116 66,511
4.0% 70,203 69,463 68,756 68,049 67,433 66,814 66,222
3.5% 69,852 69,127 68,433 67,770 67,136 66,529 65,948
3.0% 69,520 68,808 68,128 67,477 66,855 66,259 65,688
2.5% 69,205 68,506 67,838 67,199 66,587 66,002 65,441












Figure 6: DCF valuation

2010 2011F 2012F 2013F 2014F 2015F
Productive area (ha)
5,752 5,304 5,153 5,082 5,096 5,091
% YoY
-3% -8% -3% -1% 0% 0%
Productivity (ton/ha)
2.16 2.13 2.11 2.10 2.12 2.08
Tapping volume
12,402 11,276 10,887 10,697 10,783 10,569
Purchasing volume
80 80 80 80 80 80
Total selling volume
12,832 11,706 11,317 11,127 11,213 10,999
% YoY
-1% -9% -3% -2% 1% -2%
Selling price (in USD)
3,050 3,100 2,945 3,004 3,064 3,125
Selling price (VND mn)
59.48 65.10 63.08 65.63 68.28 71.04
Revenue
757,982 762,031 713,916 730,280 765,644 781,381
% YoY
72% 1% -6% 2% 5% 2%
GM for Exploitation
39.5% 39.8% 39.4% 39.6% 39.6% 39.6%
GM for Purchasing
11.0% 7.0% 7.0% 7.0% 7.0% 7.0%
Gross Margin

39.3% 39.6% 39.2% 39.4% 39.3% 39.4%
EBIT
307,668 303,403 282,411 288,581 307,297 315,308
Tax
10% 10% 10% 10% 10% 10%
EBIT*(1-Tax)
277,016 272,934 253,867 259,723 275,772 282,749
D&A, impairment
29,023 28,913 20,609 18,922 19,064 17,530
Increase in NWC
-83,369 115,097 1,432 -414 -1,391 -563
CAPEX
-211 15,735 21,372 42,673 18,077 21,897
FCFF
389,619 171,015 251,672 236,386 278,150 278,944






www.vcsc.com.vn | VCSC<GO> VIET CAPITAL SECURITIES | 20
28 March 2011
Tay Ninh Rubber JSC (HSX: TRC)
ADD
Figure 8: Sensitivity Analysis to Changes in Rubber prices
Rubber price
assumption
(USD/ton)
EPS (VND) P/E(x) @ VND56,500

Fair value Upside
2011F 2012F 2011F 2012F (VND/share)
4,300 8,929 14,014 4.0 4.3 92,814 66%
4,200 8,929 13,597 4.1 4.4 90,751 62%
4,100 8,929 13,180 4.2 4.6 88,688 58%
4,000 8,929 12,764 4.4 4.7 86,624 55%
3,900 8,929 12,347 4.5 4.9 84,561 51%
3,800 8,929 11,931 4.7 5.0 82,497 47%
3,700 8,929 11,514 4.9 5.2 80,434 44%
3,600 8,929 11,098 5.0 5.4 78,370 40%
3,500 8,929 10,681 5.2 5.6 76,306 36%
3,400 8,929 10,265 5.5 5.9 74,242 33%
3,300 8,929 9,848 5.7 6.1 72,178 29%
3,200 8,929 9,432 5.9 6.4 70,113 25%
3,100 8,929 9,015 6.2 6.7 68,049 20%
3,000 8,929 8,599 6.5 7.0 65,985 18%
2,900 8,929 8,182 6.8 7.4 63,920 14%
2,800 8,929 7,765 7.2 7.8 61,855 10%
2,700 8,929 7,349 7.6 8.2 59,790 7%
2,600 8,929 6,932 8.1 8.7 57,724 3%
2,500 8,929 6,516 8.6 9.3 55,659 -1%
2,400 8,929 6,099 9.2 9.9 53,593 -4%
2,300 8,929 5,683 9.9 10.6 51,527 -8%
2,200 8,929 5,266 10.6 11.5 49,461 -12%
2,100 8,929 4,850 11.5 12.5 47,394 -15%
2,000 8,929 4,433 12.6 13.7 45,327 -19%

Risks
• Key downside risk to price target is (1) rubber price falling more than 10% in 2012 and increasing
less than 4% from 2012 onwards, (2) adverse weather conditions as heavy rain or drought both

affect rubber outputs.
• The upside is (1) higher than expected rubber prices versus our forecast (2) more than expected
devaluation in the VND.







www.vcsc.com.vn | VCSC<GO> VIET CAPITAL SECURITIES | 21
28 March 2011
Tay Ninh Rubber JSC (HSX: TRC)
ADD
Summary of Financials
Income (bn VND) 2008 2009 2010 2011F 2012F Growth 2008 2009 2010 2011F 2012F
Net Revenue
549.1 440.4 758.0 762.0 713.9
Revenue growth 11.6% -19.8% 72.1% 0.5% -6.3%
Cost of Goods Sold
342.6 289.8 433.5 460.5 434.1
EBITDA growth -19.7% 98.3% -11.6% -5.8%
Gross Profit
206.5 150.6 324.5 301.5 279.8
EBIT growth 10.7% -18.6% 86.6% -1.4% -6.9%
Selling Expenses
6.4 4.2 7.5 7.5 7.0
Net income growth 11.7% -22.7% 74.7% 1.0% -6.9%
Admin. Expenses
25.9 21.1 56.1 34.3 32.1

EPS growth 11.7% -22.7% 74.7% 1.0% -6.9%
Operating Profit
174.2 125.2 260.9 259.7 240.7
Gross margin 37.6% 34.2% 42.8% 39.6% 39.2%
Financial Revenue
23.8 14.4 33.0 33.3 33.3
EBITDA/Revenue 39.6% 39.6% 45.6% 40.1% 40.3%
Financial Expenses
1.0 0.1 0.4 0.4 0.4
EBIT/Revenue 36.9% 37.4% 40.6% 39.8% 39.6%
Other Income
5.6 25.3 14.1 10.7 8.8
EBITDA
217.2 174.4 403.7 305.8 288.0
EPS (VND) 6,607 5,110 8,929 9,015 8,391
Depr. & Amort.
14.7 9.5 96.0 2.4 5.5
DPS (VND) 2,000 1,600 3,000 3,000 3,000
EBIT
202.5 164.9 307.7 303.4 282.4
Interest Expenses
4.3 2.4 2.7 2.8 2.4
Profit before Tax
198.2 162.5 296.4 300.6 280.0
Indicators 2008 2009 2010 2011F 2012F
Tax
- 9.2 30.4 30.2 28.3
Liquidity Ratios
Net Income
198.2 153.3 267.9 270.5 251.7

Current Ratio 1.65 2.53 2.07 3.95 4.89
Minority Interest
- - - - -
Quick Ratio 1.44 2.20 1.77 3.36 4.30
Net Income to Common
198.2 153.3 267.9 270.5 251.7
Profitability Ratios
ROE 39% 24% 35% 30% 24%
Balance (bn VND) 2008 2009 2010 2011F 2012F ROA 30% 19% 25% 25% 21%
Cash & Equivalents
150.1 245.2 441.2 362.0 339.2
ROIC 36% 23% 33% 29% 24%
ST Financial Investments
8.7 9.3 10.4 12 12
Accounts Receivable
22.9 10.0 34.7 34.9 32.7
Efficiency Ratios
Inventories
27.2 38.9 85.6 90.9 85.7
Days Receivables 0 3 11 11 11
Other Current Assets
0.9 1.4 6.2 6.6 6.3
Days Inventory 29 49 72 72 72
Current Assets
209.6 304.8 578.2 609.1 710.2
Days Payables 1 2 2 2 2
Fixed Assets (At Cost)
421.5 434.4 443.9 434.3 444.4
Leverage Ratios
Accumulated Depreciation

(165.1) (174.6) (186.2) (188.5) (194.1)
Debt/Equity 8% 7% 5% 2% 2%
CIP
60.5 63.8 77.7 79.4 90.7
Debt/Capital Employed 7% 7% 4% 2% 2%
LT Investments
102.0 129.4 143.3 143.3 143.3
Interest Coverage 46.82 69.34 115.06

109.94

119.38
Other LT assets
32.1 33.0 3.1 3.1 3.1
Long-term assets
451.0 486.0 481.8 471.5 487.4
BVPS (1,000 VND) 16,816 20,940 25,580

30,087

34,283
Total assets
660.7 790.8 1,059.9 1,080.6 1,197.6
ST Debts
12.4 11.6 15.0 - -
Accounts Payables
114.7 109.0 263.8 154.2 145.4
Valuation 2008 2009 2010 2011F 2012F
Current Liabilities
127.1 120.6 278.8 154.2 145.4

At market price of 56,500 56,500 56,500

56,500

56,500
LT Debts
26.9 34.8 19.7 17.8 16.3
P/E 8.5 11.0 6.3 6.2 6.7
LT Payables
- 3.8 - - -
P/B 3.3 2.7 2.2 1.9 1.6
Other LT Liabilities
2.2 3.4 4.0 4.0 4.0
EV/EBITDA 7.2 8.4 3.7 4.0 3.9
Total liabilities
156.2 162.6 302.6 178.0 169.1
Dividend yield 0.0 0.0 0.1 0.1 0.1
Charter Capital
300.0 300.0 300.0 300.0 300.0
Capital Surplus
- - - - -
Treasury Stocks
- - (23.9) (23.9) (23.9)
At target price of 68,049 68,049 68,049

68,049

68,049
Retained Earnings
69.5 115.4 204.0 285.1 360.7

P/E 10.3 13.3 7.6 7.5 8.1
Other Equity
135.0 212.8 287.3 341.4 391.8
P/B 4.0 3.2 2.7 2.3 2.0
Minority Interest
- - - - -
EV/EBITDA 7.2 8.4 3.7 4.0 3.9
Total Equity
504.5 628.2 767.4 902.6 1,028.5
Total Liabilities & Equity
660.7 790.8 1,059.9 1,080.6 1,197.6


www.vcsc.com.vn | VCSC<GO> VIET CAPITAL SECURITIES | 22
28 March 2011
Dong Phu Rubber JSC (HSX: DPR)
Initiation


















































Giang Hoang, Analyst

+84 8 3914 3588, ext. 142

ADD
Target price
V
ND69,000
Upside 15%

Natural Rubber
Key Indicators
Price (23 Mar 2011) 60,000
52-week low 44,990
52-week high 67,730
10-day avg trading day vol shares 48,316
Outstanding shares 43,000,000
Market cap (VND bn) 2,688
Market cap (USD mn) 138


Valuation 2008 2009 2010F
EPS (VND)
5,269 9,188 9,794
EPS growth

(9.9%) 74.4% 6.6%
P/E
11.4 6.5 6.1
P/B
2.8 2.1 1.7
ROE
24.3% 32.2% 27.7%
ROA
16.9% 23.6% 21.1%
ROIC
19.9% 31.2% 27.7%
Debt/Equity
21.9% 3.1% 0.0%
Dividend yield
2.7% 5.0% 5.0%
Source: Company

Price performance
1M 3M 12M
Absolute (%) (3) (1) 3
Relative (%) 6 4 15
Source: Bloomberg



Ownership structure
Vietnam Rubber Group 60.0%
Foreign investors 32.2%
Individual investors 7.8%




See important disclosure at the end
‐25%
‐20%
‐15%
‐10%
‐5%
0%
5%
10%
15%
DPR VNIndex
Most productive plantation + Upside from
strong pipeline

One of our top two pick in the sector.
As one of the leading natural rubber
companies with major competitive advantages in productivity, profitability, and
size, DPR deserves value investors’ interest.
Undervalued.
Our NR price forecast is USD3,100/ton for 2011F and
USD2,790/ton-USD3,000/ton for 2012F-2015F. Our DCF-derived price target of
VND69,000 implies an upside of 15% against the current price. On a price multiple
basis, DPR is trading at an attractive 6.5x FY10 earnings and 6.1x FY11F
earnings, lower than the industry average at FY10 7.2x PE and FY11F 7.1x PE.
We initiate on DPR with an
ADD
recommendation.
74% EPS growth for 2010,

driven by: (1) higher natural rubber prices at
VND61.8mn/ton in 2010 from VND30.4mn/ton in 2009 (2) improved gross margins
to 45% in 2010 from 36% in 2009. We note that DPR expensed a total of
VND33.7bn in goodwill in 2010.
Growth extended to 2011.
We forecast growth of 12% in revenue and 6% in PAT
in 2011F, given: (1) 6% decline in selling volume; (2) NR rubber price to remain at
USD3,100/ton; (3) gross margin slightly down to 43%; and (4) administrative
expenses going down to normal level after removing the affect of expensing
goodwill.
Nominal growth onwards. However, DPR has the same limiting factors as other
companies in the industry. The company has already fully exploited its plantation
area and improving productivity requires considerable time. As there will be little
volume expansion until new plantations mature in 2015-16, DPR will have to rely
solely on price hike to ensure growth.






www.vcsc.com.vn | VCSC<GO>
28 March 20
1





1

1
D
C
o
DP
R
man
app
r
Rev
e
pro
d
SV
R
total
Hig
h
Imm
yea
r
mak
with
Figu
Sour
c
Des
p
loca
t

of 1
.
has
to 2
0
Figu
Sour
c
D
ong
P
o
mpany
R
is the secon
d
ages 10,083
r
oximately 15,
e
nue from ru
b
d
uct is block r
u
R
10-20 15%,
revenue and
h
est yield in

t
ature trees (
y
r
old) 20%, p
ing the aver
a
its peer.

re 1: DPR’s a
c
e: Company, VC
S
p
ite a sloppi
e
t
ion, DPR ha
s
.
78 tons/ha i
n
already reac
h
0
15.
re 2: DPR’s p
c
e: Company, VC
S

-
100
200
300
400
500
600
700
800
900
1,000
02
0%
20%
40%
60%
80%
100%
200
9
P
hu R
u
overvie
d
largest liste
d
ha of plant
e
822 tons in 2

0
b
ber exploitat
i
u
bber SVR 3
L
CV 50-60 5
%
contracts wit
h
t
he VRG with
y
ounger than
rime trees (1
a
ge lifetime a
g
ge profile an
d
S
C
e
r terrain, giv
e
s
the highest
p
n

2010. Howe
v
h
ed its peak
a
lantation mat
u
S
C
0.55
0.9
0
1.
468
9
2010F
7-16 yrs
u
bber
J
w
d
rubber com
p
e
d land-bank
,
0
10.
i

on consisted
L
accounting
f
%
and skim 5
%
h
domestic tra
a mature pl
a
6 years) cov
e
7-23 year ol
d
g
e of DPR’s
p
d
correspondi
n
e
n a young
p
p
roduction yie
l
v
er, going fo
r

a
ge. We expe
c
u
rity profile
0

00
1.30
10 12 14
2011F 201
17-23 yrs

J
SC (
H

p
any by mark
e
,
of which
7
of 96% of D
P
f
or 50% of th
e
%
. Long-term

e
ditional partn
e
a
ntation
e
rs 29% total
d
) 34% and
p
p
lantation 14.
n
g yield
p
lantation’s a
g
l
d of 2.25 ton
s
r
ward, DPR’s
c
t yields will
s
2.50
2.60
2.70
16 18 20 2
2

2F 2013F
>24 yrs
H
SX:
D
e
t cap and pl
a
7
,135ha in
p
P
R’s revenue
e
company re
v
e
xport contra
c
e
rs making u
p
plantation ar
e
p
ost-prime tr
e
9, and avera
g
g

e profile, su
s
/ha in the V
R
yield will gra
d
s
tay above 1.
8
0
0.
5
1
1.
5
2
2.
5
3
2
24 26
2014F 2
0
Yield (ton/
h
VIET
C
D
PR)
a

ntation acrea
g
p
roductive st
a
in 2010. The
v
enue, latex
c
c
ts accounts
f
p
52%.
e
a of DPR,
y
e
es (over 24
g
e productive
u
perior soil q
u
R
G, above the
d
ually decline
8
tons/ha for t

h
5
5
5
Y
i
e
-
0.50
1.00
1.50
2.00
2.50
0
15F
h
a)





C
APITAL SECURITIES |

A
g
e. The comp
a
ge which

y
company’s
m
c
oncentrate 2
5
f
or 48% of D
P
y
oung trees (
7
years old) 1
7
age 14.0 in
u
ality, and inl
a
industry aver
a
as its planta
h
e period of 2

e
ld
Immature (1-6
7-16 yrs
17-23 yrs
>24 yrs

23

A
DD
any
y
ield
m
ain
5
%,
P
R’s
7
-16
7
%,
line

a
nd
a
ge
tion
011
yrs)