Group 3 – Investment Analysist Expert
Manufactoring Sector, Textile Industry

Date : 30/10/2015
Ticker – HOSE : STK
Current Price : VND 35,200 (09/10)
Recommendation : SELL

37,000

590

36,000

585
580

34,000

575

33,000

570

32,000

565

31,000
30,000

560
30/9/15

2/10/15

4/10/15

STK

6/10/15

8/10/15

VN-Index

STK COMPANY PROFILE
Average IPO Price

VND 24,124

Share Outstanding

42,305,336

Market Cap.

VND 1,020b

Dividend Yield


4.26%

Foreign Holdings

9.45%

Revenue (2014)

VND 1,458b

P/E

13.87

EARNING PER SHARE
3,500

50%

3,000

40%

2,500

30%

2,000


20%

1,500

10%

1,000

0%

500

-10%

-

-20%

2012A

2013A

EPS

2014A

Net Income Growth

CENTURY SYNTHETIC FIBER CORPORATION
Target Price : VND 26,800

Downside : -23.9%
HIGHLIGHTS

STK PRICE MOVEMENT

35,000

Ho Chi Minh Stock Exchange

With a target price of VND 26,800, we give a SELL recommendation
for STK’s shares. They are overvalued at present, which is an
unavoidable situation after any IPO. However, STK is considered as
a remarkable enterprise in the textile industry with :
Merits
 Promising development outlook in a textile industry which is
benefiting by many advantages. The exporting value of the
industry is forecasted to grow steadily over years.
 Expanding production capacity in response to the increasing
and diversifying demand of the international market.
 Experienced Directors in development orientation and
management. Average years of experiences in the industry is
about 18 years per members.
When STK can take advantage of these opportunities and strengths,
our assumptions in valuation models will change in a positive
direction. And the negative changes will come from :
Concerns
 The volatility of input and selling price makes sales of a
company that does not have a diversified pool of products as
STK will be unstable over years.
 The potential competitors from outside with outstanding level

of capital and technology are available for investment in the
textile value chain.
 High financial leverage with many foreign transactions force
STK to pay attention to financial expenses in their operation.


BUSINESS DESCRIPTION

Revenue

 Century Synthetic JSC. (STK) was founded in 2000 as the first
domestic company producing polyeste filament, a kind of chemical
yarns.
 STK has experienced a rapid and sound growth over 15 years and is
expanding customer network not only domestically but also over
the world.
 STK officially becomes the first yarn producer to list on HOSE in
Q3/2015.

1,600
1,400
1,200
1,000
800
600
400
200
2010A

2011A


2012A

2013A

2014A

2015P

PRODUCTS

Source : STK

In textile industry, there are many types of yarns to be used for
weaving process. In terms of origin, we have natural yarns, synthetic
yarns and chemical yarns. In terms of structure, yarns include short
or long structure.

Net Income
150
125
100

Long yarns have firm structures than short yarns so they are strong
and good at color retention. Therefore, the current trend of textile
manufacturers are turning to the use of synthetic and chemical yarns
instead of cotton over years because of their valuable properties.

75
50

25
2010A

2011A

2012A

2013A

2014A

2015P

STK’s outputs are mainly Polyester Filament (long chemical yarns)
including DTY (Draw Textured Yarn : strong, tough, used in highquality products such as sports shoes, clothes,...) and FDY (Fully
Drawn Yarn: used in intermediate-quality products such as
curtains, canvas,...).

Source : STK
Revenue 2014 Breakdown by Products

12%

DTY
FDY

SUPPLY CHAIN

Source : STK


88%

Raw Materials

POY Spinning

PFY Spinning

Polyeste Chip

POY

PFY

(Imported from Taiwan,
South Korea and Germany)

(90% self-suppled,
10% imported)

(85% DTY, 15% FDY)

Crude Oil Price (USD/barrel)

160
140
120
100
80
60

40
20
0
2008

STK operates in “Yarn” process, particularly chemical yarns, in total
value chain of textile industry. Their products will be used in produce
fiber next in “Fiber” process which most of Vietnam textile company
operate in at present.

2009

2010

2011

2012

2013

Source : Bloomberg

2014

2015

Direct Customer

Domestic : Thanh Cong, Thai
Tuan, Formosa, Decotex,.

Foreign : YRC, Tongsiang,
Golden Empire, Huge Rock,
Universal, Pinewood.

Final Customer

Nike, Adidas,
Decathlon, Puma,
Reebok

 Input : Polyeste Chip (PET chip) currently accounts for 70-75% of
the cost of goods sold of STK. PET chips are the derivatives of oil
production industry so the fluctuation in the current oil prices
definitely affects PET chip prices.
The oil price is on the downward trend to below 50USD/barrel
which would benefits the STK to lower the cost of goods sold.
However, because the yarn prices must be adjusted to the PET
Chip price so, in general, the gross profit margin would not be
improved much.


Average Selling Price and PET Chip Price
(USD/kg)

3

In addition, USD exchange rate is getting higher with the
depreciation of other currencies would make the input materials
(mostly from import) fluctuate beside effects from oil price.


2.5
2
1.5
1
0.5
0

2008

2009

2010

2011

Average Selling Price

2012

2013

2014

PET Chip Pricces

Source : VCBS
Revenue 2014 Breakdown by Customers

23%


Domestic
Asia

50%

Europe

Source : STK

27%

 Output : STK’s output includes DTY, FDY and POY (used for
spinning out DTY internally). STK targets to high- or
intermediate-quality products segment and thus, their revenue
primarily comes from DTY (over 90% of total revenue).
In addition to revenue, in term of customers, exporting sales,
mainly to Asia and Europe, account for 77% of their total revenue.
The remaining in total revenue was contributed by the domestic
market, which majority of the customers are exporting FDI
textile firms.
Compared to other domestic yarns firms, the production scale of
STK is still small (37,000 Tons / year) and meet only 0.09%
demand of long chemical yarn over the world while this demand
is rapidly increasing about 42% yoy. (Source: The fiber consulting
year 2015). Therefore, the growth “room” for STK is promisingly
large, which can uptake all STK’s high-quality output. It can be
said that expanding customer network is not a barrier to STK at
the moment.

CAPACITY


They have recently 3 plants including one in Northwest Cu Chi
Industrial Zone and two in Trang Bang Industrial Zone, Tay Ninh
with a total capacity of 44,500 tons yarns per year. STK is extending
two more plants also in Trang Bang:

Total capacity
(thousands tons)
60
50

• Plant 3rd with a designed capacity of 15,000 tons of DTY per year,
conducted in 2015 and 2016. In July of 2015, TB3 puts 9 machines
into operation which produced half of fully capacity. TB3 has total
capital of approximately VND 730 billions.

40
30
20
10
-

2010A

2011A

2012A

2013A


2014A

2015P

2016P

Source : STK & team estimation

2017P

• Plant 4nd will be started after TB3 operates at full capacity.
Designed capacity is 3,000 tons of DTY and 4,000 tons of FDY per
year.

COMPANY’S STRATEGY
Total produced & sold output
(thounsands tons)
35
30
25
20
15
10
5
2012A

2013A

Produced


Sold

Source : team estimation

2014A

• Expand investing in the production of DTY and FDY and customer
network, esspecially foreign clients to reduce the risk from
concentration of customers.
• Well-monitor the input price volatility to promptly make
appropriate adjustments to sale prices.
• Research and develop new products to produce distinctive
products from competitors.
• Expand over textile industry’s value chain to take more surplus in
production through the establish of Yarn – Fiber – Textile Unitex
Co. Ltd.


Shareholders Structure 2014

CORPORATE GOVERNANCE
SHAREHOLDERS STRUCTURE

Because STK is a newly listed company, the inside shareholders,
including the company's founders, still hold majority of shares (about
31.98%). Foreign entities only hold 9.56% shares.

18.96%
41.59%


BOARD OF DIRECTORS
31.33%
8.12%
Huong Viet Investment Consultant Corporation
Board of Directors
Vietnam Holding Limited
Others

Source : STK

Board of Directors’ Members
Members

The present chairman of the BoD is Mr. Dang Trieu Hoa, the CEO
founder, which helps him in strategic planning processes and
corporate governance by his experiences. In addition, two members
of the BoD, Ms. Dang My Linh and Dang Huong Cuong are also the
members of STK in the first days. With other experienced members,
they will make STK develop strongly and steadily.
However, the most notable member is Mr. Thai Tuan Chi, CEO
founder of Thai Tuan Textile, the STK’s longtime partner. With Mr.
Chi, STK will get the right directions in the investment and the
production to keep pace with the development of the textile
industry in Vietnam and over the world.

Independence

Position (from)

Experiences


Mr.Dang Trieu Hoa

No

Chairman (2005)

CEO Founder, 20 years experienced

Mrs.Dang My Linh

No

Member (2005)

Co-Founder, 20 years experienced

Mr.Dang Huong Cuong

No

Member (2005)

Co-Founder, Manager of Asia Pan Co. LTD

Mr.Thai Tuan Chi

No

Member (2007)


CEO Founder of Thai Tuan®

Mr.Lee Chien Kuan

Yes

Member (2008)

Taiwanese Textile Expert

Mrs.Cao Thi Que Anh

Yes

Member (2015)

Ex-Chairman & CFO of VISecurities JSC.

Source : Team analysis

R&D ACTIVITIES
The R&D activities of STK are not flagged by the lack of investment
capital and the technology transfers from foreign partners, especially
German partners to develop specialized products for the different
requirements from customers.

SWOT ANALYSIS

STRENGHTS

•Competitive skills with much experiences
•Having economics of scale
•Marketing effectiveness
•Brand awareness
•Good corporate governance

OPPORTUNITIES
•Demand for the product is on the rise.
•Potential markets following agreements like AEC, TPP,..
•Benefits from import and export tax policies.

WEAKNESS
•Having a strong reliance on imported raw material
•The scale of production is relatively small
•Not having a distinctive product from the lack of
investment in R&D activities

THREATS
•Potential competitors.
•Exchange rate and input prices fluctuations.
•Unexpected Inflation


INDUSTRY OVERVIEW

International Textile Exports
(billions USD)

THE CHARACTERISTICS OF THE INTERNATIONAL
TEXTILE INDUSTRY


500

 Business cycle : On the trend of development after the bilateral
and multilateral trade agreements between the nations and areas
were signed.
 Industry concentration : low due to low barriers to entrance the
industry.
 Macroeconomics sensitivity : The textile industry has the high
proportion of export (about 70%) and that implies a vulnerable
state of the industry toward the fluctuations of macroeconomic
factors.
2013
 Value chain : The value chain of the textile industry bears the
influence of the consumers. There are many stages carried out in
different countries in the process of making the final product. In
that value chain, the manufacturers with well-known brands,
considerable wholesalers and retailers play a key role in
Exporting
establishing the production web and navigate the bulk
consumption through the strong brands and the dependence on
global processing strategies. The value chain of the textile industry
typically include five basic stages:

450
400
350
300
250
200

150
100
50
0
2009

2010

2011

Fiber

2012

Textile

Source : WTO
Textile Value Chain
Textile
Fiber
Yarn
Raw
material

R
a
w
m
at
eri

al

Vietnam textile export (billion USD)

23

35%
30%

18

25%
14

20%
15%

9

10%
5
5%
-

0%

2005 2006 2007 2008 2009

2010


Export

2011

2012

2013

2014

Growth rate

Source : Bloomberg

Textile Product

Synthetic Yarn

Cotton Fiber
1,000

2,000

2020

3,000

2015

Source : 36/2008/QD-TTg


4,000

VIETNAM TEXTILE INDUSTRY

As cellphones and electric components, textile industry is the exportdriven industry of Vietnam in recent years. In 2013, Vietnam textile
products reached 180 nations with the total exporting value of 17.9
billion USD, accounted for more than 13.6% total trade value of
Vietnam and 10.5% GDP. The growth rate of the industry in the
period 2008 – 2013 is 14.5%, which has brought Vietnam into the 1st
position in the worlds having fastest textile industry growth rate and
the 7th largest textile exporter.

THE DEMAND DRIVER OF TEXTILE INDUSTRY LEADS TO
A HUGE PROMOTION TO YARNS PRODUCERS

Proportion target in textile export

0

1. Provide the raw materials including natural cotton, oil, etc,..
2. Manufacture the inputs; the outputs of this process is yarn and
fiber, handled by weaving company.
3. Design the patterns for the products; produce the finished
goods; handled by textile companies
4. Export handled by commercial intermediaries.
5. Marketing and distribution channels.

5,000


The fact that textile industry is currently on the new trend of
development is not only true in the whole world but also in Vietnam.
The industry goes in line with the population growth as well as other
human factors. According to Statista.com, the fashion and clothing
business will have the average growth rate about 5% annually in the
period 2012-2015 and will reach the scale of 2,110 billions USD in 2025.
This will be the driving force that will push the textile industry in


general and the yarns producers in particular.
Vietnam export to
USA (2014)

13%

Textile & Garment

8.70%

Joinery
Seafood

11.30%

Others

67%

Vietnam textile export (billion USD)
CAGR : 11.75%

45
40
35
30
25
20
15
10
5
0
2014

2015

2016

2017

Export

2018

2019

2020

Growth Rate

Source : Vinatex


Yarns demand (million tons)

Firms in textile industry
4% 3%

THE MARKET OF YARN FIRMS

17%

70%

Yarn

Fiber

Textile

Dyeing

Supporting

1%
15%

84%

Private

Government


 A TPP Beneficary : The most notable agreement in 2015 is the
Trans - Pacific Partnerships with the participation of 12 countries
in the Asia - Pacific arae, including the two largest textile markets
in the world, USA and Japan. With the TPP, the current import
tariffs for textile products (about 17%) will be reduced to 0%, which
25%
is the biggest opportunity ever for Vietnam's textiles industry.
Besides, The suppliers can be determined through the value chain
20%
of the textile industry – yarn production firms. In recent years, the
15%
amount of yarn and fiber produced domestically is not enough to
meet the need of the weaving and knitting enterprises so they
10%
have to import a large amount of yarn and fiber from China and
5%
India who do not participate in the TPP. This causes the legal
0%
conflicts about the origin of the products according to the TPP.
That is, exporting clothing and fashion products into a TPP’s
country requires them to have a minimum domesticalization (from
other TPP’s countries) ratio. Thus, weaving and knitting firms in
Vietnam have to import the source of yarn and fiber from the
TPP’s countries. This will be the chance for the chemical fiber
industry of our country. However, the challenges are that the FDI
firms, especially which are investing into China, will change the
investment decision towards Vietnam, creating an intensive
competition for market share with STK in particular and with all
yarn production firms in general.
In addition, the trend of using chemical yarns replacing for cotton

and natural yarns is followed by the textile company worldwide due
to their valuable properties of the chemical structures. Therefore, the
price of chemical fibers is increasing with the used quantity
compared to cotton.

Source : The Fiber Year 2014

6%

Many bilateral and multilateral trade agreements nowadays are
promoting enterprises to reduce the reliance on the domestic human
and other factors and to seek for many other potential markets
outside the borders.

FDI

Source : Ministry of Foreign affairs

As analyzed above, with the yarn market, we can consider this market
as a monopoly competitive market for all the firms in the industry.
The yarn products of companies have some differences in quality and
they are only the world-price receiver meanwhile the demand is
steadily getting higher. The firm with a larger scale of production will
get the higher economic profit.
Demand of the yarn industry comes from the next stage in the value
chain of the textile industry- the weaving the textile stage. As
analyzed above, the demand of the textile industry is increasing
sharply and steadily which also represents the growth in the output
of yarn production subsectors.



COMPARATIVE ADVANTAGES OF STK
Compared with other domestic yarn firms, the scale of production of
STK is still relatively small (37.000 tons of yarns annually) and can only
meet 0.09% the need for chemical yarn over the world. Meanwhile,
the need for chemical yarn is rising intensively and this year has
witnessed a surge of 42% in demand compared to 2014 (Source:
fiber year consulting 2015). Thus, the potential development of STK
is still promising and straightforward, and output products with high
quality could nearly be absorbed by the domestic as well as
international markets. For that reason, the competition between
yarns producers is not an uncertainty at this point.

Yarn production firms

Formosa

Selling Price

PVTEX
STK

DTH

In the fiber industry of Vietnam, there are five main competitors but
the one with the same market segment as well as production scale
with STK is Hung Nghiep Formosa Ltd. Petrochemical, Textile and
Fiber JSC. (PVTEC) is the affiliate of Petrolimex Corp. They
constructioned Dinh Vu Polyeste Yarn factory to produce PET Chip
from oil for themselves. The designed capacity of this factory is about

150.000 tons of yarns annually but it has yet put into use for 3 years
after fully constructed.

Hualon
Quality

Source : Team calculation
Porter Five’s Force Analysis
(0 -> 5 : No to High Threat to STK)
Barriers to
entrance

Intensity of
Competitive
Rivalry

STK also has to consider the potential competitors in the future from
FDI area. These competitors can invest into fiber production and also
weaving and knitting to take all of value added in every stages of the
supply chain.

Bargaining
Power of
Customers

Threat of
Substitutes

Bargaining
Power of

Suppliers

Source : Team analysis
2012A
Growth Rates (%)
Revenue
EBIT
EAT
Profitability
Net Profit Margin
EBIT Margin
Return on Asset (ROA)
Return on Equity (ROE)
Solvency
D/E Ratio
Financial Leverage
Liquidity
Current Ratio
Quick Ratio
Coverage
EBIT/Interest Expense
CFO/Interest-bearing Debt
Activity
Receivable Turnover
Days Receivable Outstanding
Inventory Turnover
Days Inventory Outstanding
Payable Turnover
Days Payable Outstanding
Cash Conversion Cycle

Asset Turnover

FINANCIAL ANALYSIS
2013A

2014A

2015F

2016F

2017F

2018F

2019F

32.19%
-2.34%
-11.64%

0.31%
34.21%
42.62%

1.66%
31.93%
23.18%

19.64%

19.64%
25.27%

14.87%
14.87%
16.95%

3.89%
3.89%
5.43%

4.00%
4.00%
6.79%

7.66%
10.17%
8.28%
17.94%

5.12%
7.52%
7.26%
14.79%

7.28%
10.06%
8.52%
15.72%


8.82%
13.05%
7.39%
17.44%

9.24%
13.05%
8.06%
19.43%

9.40%
13.05%
9.34%
19.87%

9.54%
13.05%
9.92%
18.44%

9.80%
13.05%
10.65%
17.72%

67.48%
2.17

57.07%
2.04


34.53%
1.84

91.52%
2.36

93.68%
2.41

64.98%
2.13

42.28%
1.86

25.56%
1.66

1.33
0.48

1.42
0.65

2.62
1.53

3.71
2.43


3.29
2.01

3.39
2.11

3.64
2.36

3.85
2.57

6.22
0.16

7.88
0.43

19.33
0.74

8.25
0.36

10.44
0.40

12.59
0.56


16.49
0.77

23.22
1.18

12.98
28.11
4.75
76.87
5.78
63.19
41.79
1.08

14.16
25.78
6.07
60.17
6.38
57.24
28.70
1.42

13.05
27.98
6.78
53.81
6.19

59.01
22.78
1.17

13.04
28.00
6.80
53.68
6.66
54.84
26.84
0.84

13.04
28.00
6.80
53.68
7.59
48.11
33.57
0.87

13.04
28.00
6.80
53.68
7.41
49.26
32.41
0.99


13.04
28.00
6.80
53.68
6.97
52.38
29.29
1.04

13.04
28.00
6.80
53.68
6.97
52.35
29.33
1.09


REVENUE & PROFIT
180%
160%
140%
120%
100%
80%
60%
40%
20%

0%
-20%
2010

800
700
600
500
400
300
200
100

 From 2010 to 2013,
o Revenue : STK had a very good growth with 30% CAGR thanks
to continuously expanding production (Plant 1st, 2nd). In
particular, the lack of natural cotton in 2010 and 2011 caused
Revenue
Net Income
EBIT Margin
huge demand for alternative materials such as synthetic and
chemical yarns, which makes STK’s sales and reputation
improved significantly.
o Net Income : However, net income was not promisingly with 3%. CAGR. The main reason of opposite growth direction
between revenue and net income was the difference between
2011
2012
2013
2014
2015

2016
2017
2018
2019
the volatility of input and output prices. The upside magnitude
Source : Team calculation and projection
of raw material prices was higher than the downside one of the
output selling prices, which caused gross profit margin
Input and Output Prices
decrease from 23% in 2010 to 12% in 2013.
 From 2013 to 2014,
o Revenue : grew slowly because the capacity of existing plants
has been reached to the maximum.
o Net Income : with an impressive growth of 43% yoy. More stable
output quality, suitable procurements and sales plans made
gross profit margin improve to 15% in 2014 and thus, net profit
margin increased from 5% to 7% in 2014.
Source : Prospectus 2015
 Target and actual performance in 2015,
o Target : STK set up the target revenue of VND 1695 billions
Revenue and Net Income of Q2 (billions)
(+16% yoy) and net income 148.8 billions (+9% yoy) due to 6%
downside of selling prices and the operation of Plant 3rd with
50% of capacity.
o Actual : However, the predictions of BoD seem to be relatively
underestimated because in the first half of 2015, PET chip price
fell nearly 20% (Prospectus 2015) and average selling price
decreased 11%. Revenue until Q2/2015, thus, seriously declines
(-12.75% yoy) but net income increases slightly due to the lower
of cost of goods sold.

STK’s Performance

0
Q2/2011

Q2/2012

Q2/2013

Revenue

Q2/2014

Q2/2015

Net Income

Source : STK
STK and peers group
(TCM, GMC, GIL, TNG, EVE)
Asset Turnover

: STK

Financial Leverage

Current Ratio

0


2

4

Source : STK and peers

6

LIQUIDITY & SOLVENCY
 Liquidity : current ratios and quick ratios have improved over years
and are better than others in the textile industry (2.23 to 1.91). The
reason comes not only from well management of funds and
receivables but also from overdrafts from Eximbank to meet
working capital needs, which can be used as a very useful source
of funds in order to avoid interest expense
 Solvency : capital structure has been improved by reducing
interest-bearing debts. This improvements are necessary to meet
the requirements of Eximbank before STK continues to borrow
more to finance the construction of Plant 3rd and 4th in the future.
With these loans, we suggest that the financial leverage in 20152017 period will increase.


ACTIVITY

Capital Structure
(billions)

2,500

 Total asset turnover : In the period 2012-2014, STK gradually used

more effectively firm’s total assets reflecting the economics of
scale in an ongoing rapid development. However, the turnover
from firm’s asset is still lower than the average of peers. In the
future, because the total investments of the Plant 3 rd and 4th are
very high, the total assets will grow faster than the revenue. This
can make the asset turnover fall below 1 unless they have no more
effective customer expansion and price control policy.
 Other turnovers :
o Receivables turnover : significantly higher than peers’ average
(13.9 to 9.1). It indicates that STK has a tighter policy about
receivables from customers, which can damage sales contracts
2019
from the partners who use a high operating leverage.
o Inventory turnover : significantly higher than peers’ average (6.3
to 4.2). It indicates that STK does not have enough stock in hand
for sale, especially for large orders, which can damage their
revenue and reputation.

2,000

1,500

1,000

500

2012

2013


2014

2015

2016

Total Equity

2017

2018

Total Liabilities

Source : team calculation and projection

ROE DECOMPOSITION
2012A

2013A

2014A

2015P

2016P

2017P

2018P


2019P

EBIT Margin
Interest Burden
Tax Burden
Asset Turnover
Financial Leverage

10.1%
86.5%
87.0%
1.08
2.17

7.5%
87.2%
78.1%
1.42
2.04

10.0%
92.8%
77.9%
1.17
1.84

13.0%
86.7%
77.9%

0.84
2.36

13.0%
91.2%
79.0%
0.99
2.13

13.0%
93.7%
78.0%
1.04
1.86

13.0%
96.2%
78.0%
1.09
1.66

Return on Equity (ROE)

17.94%

14.79%

15.72%

17.44%


13.0%
89.5%
79.0%
0.87
2.41
19.43%

19.87%

18.44%

17.72%

ROE & ROA
of STK compared to peers
30%

25%

20%

15%

10%

5%

0%


STK

TCM

GIL
ROE

GMC

TNG

ROA

Source : Team calculation

EVE

 EBIT Margin : improved in 2014 due to the larger gap between
input and selling prices. It will be stable at 13% in the future with
our assumptions (in Valuation)
 Interest Burden : improved in 2013 and 2014 when interest
pressure was reduced and will decrease when STK use long-term
debt to finance the Plant 3rd and 4th.
 Tax Burden : from 2016 to 2019, STK will have a tax advantage from
the operation of the Plant 3rd and 4th.
 Asset Turnover : as analized above, because the total capital
expenditures are very high, the total assets will grow faster than
the revenue so this ratio will decrease below 1 until revenue reachs
higher.
 Financial Leverage : STK finances their capital expenditures mainly

by long-term debt. Thus, the financial leverage from 2015 to 2017
will increase significantly.
All of ratio above will compose to ROE of STK business. In conlusion,
ROE will be better off from 2015 to 2017 when STK has tax
advantages, higher financial leverage and stable EBIT Margin. Beyond
the period, ROE will decrease because most of long-term debt will
have paid down in order to lower financial leverage.


VALUATION
Target Price : VND 26,800

We derive the target price mainly from 5-year Discounted Cash Flow
Model. We also give a Price Multiples and a Monte Carlo stimulation
to support for our recommendation.

Discounted Cash Flow Model
(in millions except per share)

DISCOUNTED CASH FLOW MODEL (DCF MODEL)

FCFF
Enterprise value
Cash & marketable securities
Investment in affiliates
Total Debt
Equity value
No. of shares outstanding
Rounded Equity value per share
Market premium / (discount) to fair value


1,821,527
61,160
7,688
(754,790)
1,135,585
42.305
26,800
(21.1%)

Capital Expenditures Projections
(in billions)
Capex as % of
revenue
Capex for the Plant
3rd and 4th
Total Capex

2015P

2016P

2017P

2018P

2019P

2.0%


2.0%

2.0%

3.0%

3.0%

525

336

27

0

0

554

371

67

63

66

Long-term Debt Schedule
(in billions)

2015P

2016P

2017P

2018P

2019P

207
513
(34)
686

683
138
(34)
786

786
(161)
624

624
(161)
463

463
(150)

312

Beginning
Additional borrowing
(Pay down)
Ending

Cash Flow
(in billion)
600
400
200
(200)
(400)
(600)
(800)

2015P

2016P

2017P

Net Change in Cash

CFO

Recommendation : SELL

2018P


2019P

CFI

CFF

WACC Calculation
Peers' average unlevered beta

0.9

Relevered Beta

1.29

Risk-Free Rate (Rf) (VN)

6.5%

Equity Risk Premium

11.8%

Cost of equity

21.7%

Cost of debt after tax


7.8%

WACC

16.8%

A DCF Model was used to estimate the intrinsic value of STK’s share
price due to the predictability of cash flows in the relationship of
growth and profitability. The primary model is projected for 5 years
because of STK’s strategies, which is heavily dependent on expanding
production to meet the huge demand from inside and outside
market. This model is driven by Net Operating Profit After Tax
(NOPAT) as a proxy to estimate Free Cash Flow to Firm (FCFF). We
do not use Free Cash Flow to Equity (FCFE) to discount because STK’s
capital structure has a high level of debt.
We will describe some adjustments to estimate FCFF such as Capital
Expenditures, Long-tern Debt Schedule and our assumptions.
 Capital Expenditures : We project STL’s capital expenditures from
2015 to 2019 included :
o Fixed amounts as 2% from 2015 to 2017 and 3% from 2018 to
2019 for expanding production in high growth phase.
o Total investment for the Plant 3rd and 4th
 Long-term Debt Schedule : We amortized existing debts and new
debt for future expansion.
 Our assumptions :
o Crude oil maintain around at the level of 50USD/barrel for 5
years and thus average selling prices will be affected only by
the demand driver.
o PET Chip depreciates 25% in 2015 and STK will maintain a
proper selling margin for 8% and higher.

o SG&A expenses decrease due to the application of SAP ERP.
o Unitex Co. LTD. will not create any dividends until 2019.
o STK will not purchase more software licenses.
o Because the capital structure for the Plant 4th is uncertain, we
assume that it will be as same as the Plant 3 rd (30% of Equity
and 70% of debt)
The DCF Model is the most sensitive to the following factors :
 Weighted Average Cost of Capital (WACC) : 16.8% is a appropriate
discount rate for future cash flow.
o Beta : Because STK is newly listed, we derive beta from PurePlay Method with a peers group.
o Risk-free rate : rate of 10-year Vietnam government Bond.
o Equity Risk Premium : rate from credit rating B1 of Vietnam
(according to Damodaran).


38,000
36,000

 Long-term growth rate : we applied CAGR of 5% for STK’s longrun development due to Vietnam GDP’s average historical growth
rate and industry outlook of Statista.com (as mentioned above)

HOLD

34,000

We also offer “HOLD” recommendation due to changes in our
assumptions that in the best case, STK will reach the target revenue
in 2015 and/or selling prices will increase much more.

32,000

30,000
28,000

SELL

26,000

PRICE MULTIPLES

24,000
22,000
20,000
30/9/15

2/10/15

4/10/15

6/10/15

8/10/15

Price Multiples
LTM EV/EBITDA
Price
LTM P/B
Price
LTM P/E
Price
Average Share Price


6.9x
22,252
1.7x
26,440
11.1x
28,162
25,600

(Discount)

(27.3%)

Monte Carlo Statistics
Mean
Median
Standard Deviation
Skewness
Kurtosis
Coeff. of Variation
Minimum
Maximum
Range Width
25th percentile
75th percentile

12%

10%


8%

6%

4%

2%

0%

25,293
25,538
3,874
-0.3880
3.19
0.1532
6,624
36,724
30,100
22,853
28,018

We construct a proper peers group in order to estimate the intrinsic
value of STK share. The group contains two Indian firms, one
American firm and one Vietnamese firm that have the same or almost
same business with STK.
The average of three multiples approaches including EV/EBITDA, P/B
and P/E leads us to a target price of VND 25,600 with 27.3% discount
to current trading price. It supports for our recommendation.


MONTE CARLO STIMULATION

A Monte Carlo Stimulation was utilized in analyzing the potential
outcomes of STK’s growth prospects. This method stimulates a range
of random outcomes for the multiple variables affecting the intrinsic
value of STK’s share price.
We defined some key factors that are vital to the DCF Model given
its sensitivity to each input by determining their probability
distribution, mean and standard deviation. 20,000 stimulations were
run which accounted for each possibility of a feasible change in
mentioned factors. This stimulation leads to a mean target price of
VND , and of overall outcomes fall between our range of derived
target prices, which affirms our SELL recommendation.


INVESTMENT RISK
MACROECONOMICS RISK (MR)
Risk Matrix

MEDIUM

OR

MR

FINANCIAL RISK (FR)

CR

LOW


Probability

HIGH

FR SR

LOW

MEDIUM

Impact

Vietnam is currently on the trend of globalization so the economic
factors affecting STK’s business are not only from domestic but also
from outside where the consumers and suppliers of STK are. A rise
in the import tariffs of raw material as well as technical barriers from
exporting market will affect directly to STK’s inputs and outputs.

HIGH

Source : Team analysis

STK is using a high financial leverage (as other textile firms) with the
loans in both VND and USD, which leads to financial risks not only
from the fluctuation of interest rate but also from exchange rate.
State Bank of Vietnam has just lowered the interest rate on USD
deposits, which, however, is not enough to mitigate the risk from
Greenback. This risk will cause the financial expense (especially the
interest expense) to increase sharply and make net income worse.


SUPPLY CHAIN RISK (SR)
Risk
MR
FR
SR

CR
OR

Mitigation factors
Update and forecast
economics changes
Hedging interest and
foreign exchange
Negotiate short purchase
contracts and long sale
contracts
Customer and reputation
expansion, diversifying
output
Management labour
security

Nation and value of new textile
projects in Vietnam (in millions USD)
1200

As analized before, PET Chip, a derivative from oil, accounts for more
than 70% of COGS. The recent fluctuations in crude oil will affect the

input prices of STK impactfully if they are not be able to actively
manage this risk. Besides, the output prices, i.e. the yarns prices, have
to be adjusted to PET Chip and prices of other yarns and fibers but
they should keep a proper profit margin for steady development.

COMPETITIVE RISK (CR)

The competition status among yarns firms is not so intensive because
the demand of the whole market is still large and each company has
different market segments. Unfortunately, some potential
competitors of STK are the FDI enterprises in the situation that they
are intending to invest for their own yarns and fibers supply to
enhance the supply chain for themselves. It will reduce the domestic
market’s dependence on the products of STK, which indicates the
decrease of yarns demand.

OPERATING RISK (OR)

1000

This risk which is seemed to be a feature risk of manufacturing firms
comes from natural disasters (storm, flood, earthquake), the
vandalism and accidents that can cause significant damages in the
asset and labour. It can also damage the reputation of STK. In
addition, the fact that some staffs and workers do not comply to the
production regulation can reduce the quality of the products and
services.

800
600

400
200
0
China

Hong Kong

Source : GSO

Others


APPENDIX

INCOME STATEMENTS
Fiscal year

in millions VND

2012A

2013A

2014A

2015P

2016P

2017P


2018P

2019P

Fiscal year end date

31/12/2012

31/12/2013

31/12/2014

31/12/2015

31/12/2016

31/12/2017

31/12/2018

31/12/2019

Revenue

1,099,210

1,453,047

1,457,517


1,481,671

1,772,686

2,036,295

2,115,418

2,200,035

COGS

(924,734)

(1,275,820)

(1,244,748)

(1,207,562)

(1,444,739)

(1,659,581)

(1,724,066)

(1,793,029)

Gross Profit


174,476

177,228

212,769

274,109

327,947

376,715

391,352

407,006

SG&A Expenses

(62,203)

(67,827)

(66,935)

(81,492)

(97,498)

(111,996)


(116,348)

(121,002)

Other expenses

(446)

(185)

747

760

909

1,044

1,085

1,128

Operating profit (EBIT)

111,827

109,216

146,581


193,377

231,358

265,763

276,089

287,133

Interest income

3,632

7,091

2,126

2,741

3,022

2,700

4,433

6,578

Interest expense

Other non-operating
expense
Pretax profit

(17,965)

(13,859)

(7,584)

(23,430)

(22,162)

(21,115)

(16,740)

(12,364)

(733)

(7,207)

(4,959)

(4,959)

(4,959)


(4,959)

(4,959)

(4,959)

96,761

95,241

136,164

167,730

207,259

242,389

258,824

276,388

Income Taxes

(12,559)

(20,840)

(30,057)


(37,025)

(43,524)

(50,902)

(56,941)

(60,805)

Net income

84,202

74,400

106,107

130,705

163,734

191,487

201,883

215,583

No. of shares


27.0

31.1

41.8

45

47

47

47

47

Basic EPS

3,118

2,396

2,538

2,926

3,482

4,072


4,293

4,584

REVENUE BY PRODUCTS

in millions VND

Fiscal year

2012A

2013A

2014A

2015P

2016P

2017P

2018P

2019P

Fiscal year end date

31/12/2012


31/12/2013

31/12/2014

31/12/2015

31/12/2016

31/12/2017

31/12/2018

31/12/2019

1,096,635

1,348,812

1,324,000

1,356,100

1,645,859

1,803,441

1,875,579

1,950,602


23.0%

(1.8%)

2.4%

21.4%

9.6%

4.0%

4.0%

103,235

133,517

125,571

126,827

232,854

239,840

249,433

3909.1%


29.3%

(6.0%)

1.0%

83.6%

3.0%

4.0%

1,452,047

1,457,517

1,481,671

1,772,686

2,036,295

2,115,418

2,200,035

32.1%

0.4%


1.7%

19.6%

14.9%

3.9%

4.0%

DTY
% growth

FDY

2,575

% growth

Total
% growth

1,099,210


APPENDIX

BALANCE SHEET
in millions VND
Fiscal year


2012A

2013A

2014A

2015P

2016P

2017P

2018P

2019P

31/12/2012

31/12/2013

31/12/2014

31/12/2015

31/12/2016

31/12/2017

31/12/2018


31/12/2019

Cash & equivalents ST &
LT market. securities

24,099

75,562

148,164

224,542

198,500

247,668

306,397

362,440

Accounts receivable

84,653

102,610

111,723


113,662

135,987

156,209

162,279

168,770

Inventory

194,752

210,312

183,507

177,583

212,462

244,056

253,539

263,681

Other current assets


8,930

15,810

20,024

20,356

24,354

27,975

29,062

30,225

Deferred tax assets

867

1,058

1,899

1,930

2,310

2,653


2,756

2,866

Property, plant & equipment

651,191

568,677

737,645

1,185,013

1,414,566

1,327,888

1,238,443

1,153,112

Intangible assets

8,439

8,965

6,466


3,726

985

0

0

0

0

0

0

7,469

7,469

7,469

7,469

7,469

43,647

42,477


35,523

35,523

35,523

35,523

35,523

35,523

Total assets

1,016,578

1,025,471

1,244,951

1,769,804

2,032,155

2,049,441

2,035,469

2,024,085


Accounts payable

192,009

202,036

143,401

138,952

166,244

190,965

198,386

206,321

Other payables & deferred
revenue

30,877

30,605

191,779

195,581

233,995


268,791

279,235

290,405

Fiscal year end date

Investment in affiliates
Other non current assets

Short-term debt

36,751

71,091

25,927

0

0

0

0

0


Long term debt

279,916

216,007

207,106

685,870

789,322

626,143

462,964

310,947

7,778

2,669

1,921

0

0

0


0

0

Total liabilities

547,331

522,408

570,135

1,020,403

1,189,560

1,085,899

940,585

807,673

Common stock and APIC

315,060

315,426

463,080


458,593

458,593

458,593

458,593

458,593

Treasury stock

(11,754)

(11,827)

(11,827)

0

0

0

0

0

Retained earnings


164,722

198,245

222,345

289,591

382,785

503,732

635,074

756,602

Bonus and Welfare fund

Financial Reserve Fund
Total equity
Balance check

1,219

1,219

1,219

1,219


1,219

1,219

1,219

1,219

469,248

503,063

674,817

749,403

842,597

963,544

1,094,886

1,216,414

0

(0)

(0)


(0)

(0)

(0)

(0)

(0)