BUSINESS DISCRIPTION
VIC (Vingroup) is one of the leading names in real estate industry in
Vietnam.
In difficult years for Vietnam economy in general and for the real estate sector in
particular; VIC’s unique, large-scale mix-used development projects are
spotlights in the market with high quality products. As of February 2012, VIC is
the largest listed real estate company in Vietnamese stock market with charter
capital of approximately VND 5,500 billion. After Vinpearl JSC was merged into
the company in January 2012, Vincom JSC was renamed as Vingroup JSC
(Vingroup) and became one of the largest private listed corporations with
international standard, repositioning itself as a competitive player of other
multinational companies in many large-scale projects.
Vinpearl: Leader of hospitality industry. From 2001, Vinpearl has become
Vietnam’s leading hospitality firm, specializes in resorts, tourism, recreational
businesses and other supporting services. Vinpearl has been successful in
identifying and developing hospitality projects acquiring a portfolio of prime land
sites in key tourist and business destinations in Vietnam. For Vinpearl Resort Nha
Trang, the property features 485 five star rooms, meeting facilities, one of the
world’s longest sea cross cable car system and one of the largest resort swimming
pool in Southeast Asia.
Besides the two main business sectors, VIC also joins into two new
businesses: Vinmec and Vincharm. The main strategy of Vinmec is to manage
and operate a portfolio of high-end hospitals and high-quality healthcare services.
Vincharm, in the other hand, focuses on managing and operating a series of
beauty salon, gymnasiums and spas.
New launch into international financial market. In the international capital
market, VIC is known as the very first enterprise succeed in stabling international
convertible bond in Singapore stock market. At the end of 2012, Vingroup
succeed in mobilizing capital of USD 300 million.
Huge development properties projects with good construction. Although real
estate market in recent years has been in “frozen” situation, Vingroup still

established new huge projects and it was able to complete the projects on time.
Royal City, Times City and Vincom Villas are spotlights in market’s dark
scenario. In 2012, the group operated Vincom Center A HCMC and Vincom
Center Long Bien while other developers stopped or cancelled most of their
projects
Sourse: Vingroup’s annual report 2012

INDUSTRY ANALYSIS
Figure 1 Net Revenue and Gross Profit by Sector
of Vingroup in 2012

House and Apartments: Grey scenario
The number of apartments in new projects available for sale in 2012 fell sharply
compared to the previous year when the number of completed


Figure 5: Total office supply for Ha Noi Market

Figure 2: The Number of Apartments Offered
Over year

Source: CBRE.com
Figure 3: The number of Completed Apartments

Over Years

apartments to rise. This implied the amount of inventory in the market increased,
the market became less attractive. The causes are still from the credit policies of
the bank, the country's economy has not recovered from the recession. Trading in
real estate market will slow down and reach dip in mid 2014 (Savills, Q1/2013),

as customers’ demand will decrease. Customers still remain “wait and see”
attitude, they will be interested in projects with lower prices compared to peers
and good construction. In current time, the government also have recommend for
policies allowing foreigners and oversea Vietnamese owning house, villas and
high-end apartments, first pilot in Ho Chi Minh City.
Office market: Potential Market
The market for office leasing is the relatively brighter than the market for buying
and selling real estate. According to CBRE, at the end of 2012, the rents of Grade
A and B office had a slight increase and the vacancy rate of the office leasing
market also increased. In Ho Chi Minh City, the supply continues to increase
slightly while the demand remains at low level, mainly from grade A buildings. In
2013, supply for new office will increase for nearly 190,000m 2, 64% locate in
District 1. In Hanoi, the CornerStone was finished in Q1/2013 providing nearly
260,000m2 squares for office market and expected to increase for 350,000m 2
more in 2013. Vacancy continues to decrease due to a fall in rent and strong
demand.
Commercial Centers: Bring the investors huge amount of money
In the Retail Market, the demand for space of supermarket and commercial center
segments accounts for the major proportion. At the end of 2012 and early 2013,
the supply for leasing in retail market increased compared with quarter 3/2012
along with the decrease in vacancy rate. Although the asking rent price decrease,
expecting a down trend in 2013, it is still in high price. However, this market is
potential for investors, especially for foreign investors in M&A activities.

Five forces of high- end real estate industry

Figure 4: Vacancies and Average Leasing Price of

Offices in Ho Chi Minh City


Source: Jones Lang LaSalle 1Q, 2013

Weak Threat of New Entrance
New entrances from foreign investors, after Vietnam’s join in WTO, causes
threats to domestic real estate developers. A high-required capital, mainly
borrowed from banks, is also one of the barriers for new comers when
government’s intervention to the market affecting to the risk ratio of lending has
prevented banks from lending to the real estate enterprises. Besides, high existing
cost for maintaining operation, projects and good financial health is a requirement
for new players. In the difficult stage of Vietnam economy at this time, there are
not many companies can do those things. Moreover, the process of
administrative procedure during the period of conducting projects in
Vietnam is complex. This prevents foreign as well as new domestic companies
from “jumping” in this market. The last thing is the “frozen” situation of the
market makes everyone not want to enter .In conclusion, the threat of new
entrance for the high- end real estate industry is not high.


Source: cafef.vn
Figure 6: The Demand of Retail Market of Vietnam in
2012

Strong Power of Buyers
Due to the crisis in Vietnam economy in 2008, the real estate industry is also
affected, especially the high-end real estate industry is the most affected because
of the high prices. The customers are more sensitive to the high prices
of the high-end real estate industry, they prefer cheaper prices and want to buy
essential good rather than properties.
Strong substitute product
In the recession of Vietnam economy, customers want to buy cheaper product

from real estate industry. Therefore, the real estate companies that follow the low
price segment will attract more customers and get higher profit.
Weak existing rivalries:
The real estate industry is on the downturn trend, more and more enterprises get
trouble in raising capital and have to quit the industry. There are not many
enterprises, which can have enough fixed asset and capital to join in the high-end
real estate industry. Moreover, they cannot be able to take the existing cost.
Therefore, the existing rivalries are not a big problem in high-end real estate
industry.

COMPANY ANALYSIS
Figure 7: The Supply and Vacancy rate of Retail
market in Vietnam

Source: Bloomberg
Figure 8: Market cap of listed real estate companies
( Million VND)

Real Estate leader
Vingroup is the largest listed company in Vietnam by market capitalization
in Real Estate sector. Currently, Vingroup has an attractive performance in
this industry with 31 property developments situated in prime urban
locations and areas throughout Vietnam. Furthermore, the group’s
investment portfolio is experiencing a rapid growth. Compared with other
competitors in the same industry, the group is successful as the developer
of high quality, commercial, residential, hospitality, and mixed-used
property. In recent years, it has also operated high-end hospitals (Vinmec)
and serried of beauty salons, gymnasiums and spa (Vincharm).
Effective business model in Vietnam with differentiation strategy.
In recent years, Vingroup follows differentiation strategy. It pursues high

quality, large-scale and mixed-use developments in prime locations
throughout Vietnam with main target from mid to high-end customers.
Vingroup mainly focuses on real estate and hospitality. It also enhances in
developing and growing a substantial portfolio of prime commercial and
tourism investment properties for stable recurring income. Moreover,
Vingroup tries to utilize pre-sale from residential project for funding
developments of immediate projects, customer’s deposit is usually from
For future development, the group continues to acquire prime sites
management capabilities. To maintain good growth rate, the group expand
to do business in the upper mid-end segment through affordable units as


well as uniting the targeted high value
customers though unique Vingroup
membership platform.

Figure 9: Royal City’s GFA breakdown
(total GFA: 1,205,484sqm)

Light vision for Vingroup’s megaprojects
Most development projects are in prime location attracting investors and
customers’ interest. Especially Vincom Center A and B HCMC are two of
20 golden sites in Ho Chi Minh City. In 2010 and 2011, the group started
two mega projects including Royal City (finished in 2013) and Time City
(finished in 2014). The Royal City started to put in construction in January
2010 and its estimated effective interest is up to 98.366%. The Times City
was put into construction in February 2011, and its effective interest is
80.39%. In Q1/2013, the two projects was reported to pre-sold for about
2600 over 4500 apartments in Royal City and 3500 over 13000 apartments
in Times City. The average price for Vincom’s apartment is from 28

million to 39 million per square meter VND compared to 30 million per
square meter of market price for high quality apartment. However, with
good service and convenience those projects bring to customers, the
Vincom’s price is not too expensive.
Raising reputation by providing high quality projects and service
Differentiation strategy allows Vingroup to provide the best quality to its
customers and maintain the leading position in the market. Recently,
Vingroup has achieved the “Best developer” and “Best Villa
Development” for Vincom Village at “Asia Real Estate 2012” in
Singapore as the proof for the commitment of providing products and
services that meet international standards.

Figure 10: Timesl City’s GFA breakdown
(total GFA: 2,179,163sqm)

Vingroup has also become the first company in Vietnam successfully
issued $300 million international convertible bonds (6/2012) despite the
difficult situation of the Vietnamese and regional economies financial
markets in 2012. This event helps Vingroup not only keep ability to raise
capital 100% as planed but also to be honored by 3 major international
financial media firms as “The Triple A country Award – Best Deal,
Vietnam” (The Asset); “Best Vietnam Deal” (Finance Asia) and Vietnam
Capital Markets Deal 2012 (International Financing Review ,Thompson
Reuters). Those awards give Vingroup a strong competitive position and
barrier-to-entry against other competitors and new players.


Figure 13:

Figure 11:


Figure 12:

FINANCIAL ANALYSIS
Huge gain in revenue in 2010 and 2012
In 2012, Vingroup recorded a huge gain in revenue in 2010 and 2012. In 2010,
the revenue mainly came from 2600 billion VND of sale of apartments at Vincom


Center B HCMC as well as from transferring
31,000 m2 of Vincom Financial Tower in
Q4/2012. In 2012, there was a significant
increase in sale of inventory. In 2012,
VinGroup gained a strong increase in the
group’s revenue, compared to 2011, mainly
from leasing, mostly resulted from operation
of new Vincom Center A HCMC and Vincom
Center Long Bien shopping centers as well as
from $64 million (1300 billion VND) by
selling office component at Vincom Center
Hanoi – Tower B to Techcombank. In this
year, sale of inventory properties increased up
to VND 3,914 billion.
Another factor
contribute to this rapid growth came from
operation of two new business lines:
Rendering of hospitality and beauty care
services; rendering of health care services.

decrease over the period, Vingroup still affirmed its leading position in the highend real estate market in Vietnam when showing a double Profit margin ratio

relative to rivals’ ratio in the same industry (26.39%). Liquidity of Vingroup was
quite low relative to competitors in Real Estate industry. The current ratio was
larger than 1 whereas quick ratio was smaller than 1, which indicated that
Vingroup had a large amount of inventories. However, liquidation did not reflect
correctly the financial health of Vingroup because the deposit and down payment
of customers made up the majority of total liabilities, around 35% of total liability
in 2012. Put in other way, if this account was subtracted out of total liabilities, the
liquidity ratio of Vingroup would be safety.
Both long-term debt to equity and equity to assets moved the same trend as
interest coverage ratio year over years and all ratios were higher than industry
ratio in 2012. However, reliance on debt of Vingroup did not pose a problem
because a high interest coverage ratio ensured that Vingroup’s earning could
completely meet its interest payment.

Huge amount of inventories in 2011 and
2012:
The huge inventory of Vingroup is one of the
advantages as well as competitive advantage
when competing with other real estate
corporations. In another hand, having huge
inventory is also a challenge when the real
estate market of Vietnam is in “frozen”
situation

Operating management: Differentiation
strategy creates high gross profit margin
The change in Gross Profit margin was due to
the steady increase in cost of sales, which lead
to the growth rate of gross profit lower than
revenue. However, because of differentiation

strategy, decreasing the gross profit margin
temporarily may be beneficial in the long run.
As the feature of this strategy, company must
provide higher quality product to customers,
and thus more expensive, materials to make
the goods. The benefit of this strategy is that
Vingroup could maintain its customer loyalty,
which also can raise profit margins in the
future. Furthermore, Vingroup always try to
expand its business year by year, which also
acquire a larger expense on labor, R&D and
other costs which support for constructing
large project. Although recording a dramatic

Table 1: Vingroup’s Financial Ratios


Center Long Bien, Vincom A had completed, therefore there are a rapid
increase in inventories. Moreover, the M&A between Vingroup and
Vinpearl helps Vingroup indirectly own 100% Vinpearl’s project, the
inventories, as a result, increased. Vingroup is the leader in the high end
real estate market, the projects constructed by Vingroup always have the
big size, Vingroup has to divided them into many phrases to construct in
order to raise the capital and finance its operation, therefore, the
inventories fluctuate a lot and the forecasting inventories will be based on
the average of the 5 years inventories turnover.
Figure 14 Vingroup’s Capital Structure

Calculation of WACC:
In 2012, Vingroup had successfully issued $300,000,000 convertible bonds

to the foreign market which is Singapore, therefore the market value of
debt is calculated by converting the $300,000,000 into Vietnam dong. In
order to raise the capital, Vingroup issued stocks in Vietnam securities
market, the market value of equity is calculated by taking 508,089,837
(number of stock outstanding in 2012) multiply with 80,000 VND (stock
price in 2012).
Sales forecasting:

Although Vingroup relied much on debt, its
liquidity and solvency were quite fine to
compare to average ratio. However, in the
future, Vingroup will construct many large
projects, which requires of raising more
capital; therefore, if Vingroup unable to
improve its liquidity and solvency ratio, the
investors should take more caution before
making investment.

From 2012, Vingroup had two new business lines : rendering of hospitality
and beauty care services and rendering of health care services which
increase the total amount of business lines up to four with four strategic
brand names: Vincom (Real Estate), Vinpear (Tourist and recreation),
Vincham (Fitness and Beauty care), Vinmec (High quality health care
services). Therefore, forecasting each business line is necessary for sales
forcasting.

Source: CBRE.com

Figure 15 Office Asking Rent and Office Vacancy in HCMC


VALUATION
Change in Working Capital:
The Working Capital fluctuated a lot from
2008 to 2012 mainly due to the change in
current assets which change in inventories
account about 50% of the total. From
2009 to 2010, the inventories decreased
because the development of the real estate
market and in that time, Vingroup still had
many projects under construction, the
number of completed projects was not
much. From 2011 to 2012, two big
projects of Vingroup which are Vincom

Source: CBRE.com

Figure 16 Prime rent in some Asian countries’ cities


City (operate in 2014). From 2015 to 2017, the market is expected to
recover, which is a positive sign to the group’s property sales. Therefore,
Vingroup will speed up apartment sale in the two projects. The average
growth rate is about 11%.

Figure 17 Vingroup’s Financial Structure

First of all, the rental income of Vingroup
most stably comes from leasing office and
retail shopping mall. This account
recorded an upward trend during last fiveyear period regardless the downturn

economy in 2011 and 2012. From 2015 to
2017, as its strategy which claims that
Vingroup will expand its business by
focusing on developing Vinpearl and
Vincharm and Vinmec..
Secondly, In 5 years later, Vingroup’s
revenue still based on sale of inventory,
including apartments for sale and project
transfers. However, in this report, we just
forecast for revenue from selling
apartments because the group has just
planed to transfer Vincom Center A
HCMC, it have not public official any
information about the potential transferees
and the price as well as other plans of
transferring
building,
real
estate
properties. In following years, supply of
development property will increase in
apartment sale, office leasing and retail
when many projects will be finished in
2013 and 2014. In the two years, the
group’s revenue mainly comes from large
number of sale and purchase contracts
Royal City (operate in July, 2013), Times

Thirdly, the demand for medical and health care in Vietnam is increasing.
Vietnam is one of countries that have a huge amount of people suffering

the cancer in the world. Rich people and people having incurable disease
often go abroad to check their health because they do not believe in the
condition of the domestic hospitals. High-quality-hospitality service is a
potential industry. It can bring a huge profit to the investors and peace of
mind of customers. Moreover, the GDP is expected to increase from 2013
to 2020 and CPI will maintain from 2013 to 2015 and it is possible to
continue in 2017, this means the income from people will increase. That
makes the demand for a better condition life increase in general and in
health care in particular. Therefore, the rate for investing in health care will
increase steadily 5% each year from 2013 to 2017.
Finally, based on the condition of tourism industry and other factors, this
area can increase in profit for Vingroup. There is an increase in the number
of foreign tourist visit Vietnam from 2009 to 2012 ( Appendix 3.1 ), which
means that Vietnam tourism has good impress in other countries day by
day. Besides that, the domestic tourists also contribute for a large amount
in tourism industry with 32.5 millions domestic tourists. Therefore, the
tourism industry can continue to develope more in the near future.
Moreover, the government has enacted some policies to support for
Vietnam Tourism starting with the new slogan: “Vietnam the endless


company has been successfully issued $300 million international
convertible bonds on Singapore Stock Exchange, this structure was
reversed. By looking at the pros of convertible bonds as well as the
attractive interest rate on short-term and long-term loans policy, it is
expected that Vingroup will remain the structure of high debt ratio.
Moreover, from the recent announcement to its shareholders (29th March,
2013), Vingroup would like to issue around 150 million stocks on SGX
and non-convertible bonds to financing its operating activities. As
company plans to construct new projects for each next five years, both of

these accounts are forecasted to increase rapidly in the future.
CAPEX: Projected to fluctuate due to unstable revenue growth and
PPE
Vingroup is famous for its strong commitment to customers by finishing
all its projects as planed and as a prestige and leader in the real estate
industry, company always set up many projects continuouslyto expand its
business lines as well as build its strong position in Asian region. Base on
that belief, it is forecasted that in 2013, it will open the largest real estate
project in Vietnam: Royal and Times City in Hanoi.
Then, from 2014 to 2017, it will develop constructing Vinpearl projects to
expand to travelling industry; therefore, the number stemming this account
will increase along with. Only in 2015, this account is expected to decrease
slightly because in that year only the Royal City phase two will be
completed. From what mentioned above, property and equipment of
Vingroup is forecasted to increase with the last year ratio at 2.04. As
revenue and PPE is expected to fluctuate, CAPEX will change as well.
RISKS
beauty”. From 2013 to 2017, Vingroup
focus on developing Vinpearl which is
hospitality and beauty care service, many
completed projects. With the good
opportunity created by the government,
the rendering of hospitality and beauty
care services increases from 6% in 2013,
8% in 2014, 8% in 2015 and 10%, 12% in
2016 and 2017.
Financial structure: Expected to
remain the higher debt ratio for
financing activities
Before 2012, the financial structure of

Vingroup was clearly higher equity ratio
than debt ratio; however, since 2012,

Macro Economic Risk
Because all of the Group’s operations are strictly subjected to Vietnam’s political,
legal and economic environment, any negative change occurred in the national
economy creating a decrease in customer’s interest to the real estate products may
become harmful factors to the Group’s revenue.


To reduce the risk, the group should have plan to adjust rental price based on CPI
index or revenue having foreign exchange factors.
Liquidity risk
To big corporation as Vingroups, buying or selling a stock with an enormous
amount often takes at least one week after the group summit the request to the
SSC. That may lead to the mismatch between the due day of financial asset and
maturity of financial liability, causing liquidity risk for the group.
Material and commodity price risk
Recently, the construction material market has fluctuated significantly due to the
economic downturn and real estate recession. Therefore, the domestic material
price has been changed dramatically in downtrend.The changes in the floating
interest rate may lead to market risk relating to Vingroup’s long-term debt. To
control the risk, the group has to monitor related situation occurring in the whole
market, especially in financial market to estimate and adjust to a suitable financial
leverage and strategy.
Foreign exchange risk
To reduce the risk, the group should have plan to adjust rental price based on CPI
index or revenue having foreign exchange factors.
Liquidity risk
To big corporation as Vingroups, buying or selling a stock with an enormous

amount often takes at least one week after the group summit the request to the
SSC. That may lead to the mismatch between the due day of financial asset and
maturity of financial liability, causing liquidity risk for the group.
Material and commodity price risk
Recently, the construction material market has fluctuated significantly due to the
economic downturn and real estate recession. Therefore, the domestic material
price has been changed dramatically in downtrend. All the group’s projects are
affected by the variability of certain material used for construction, both bought in
domestic market and import from other countries. The price for the material are
related to the market changes, tariffs, etc. Any change in the price may lead to a
renegotiations in the construction contracts utilize fixed prices.
Market risk
The changes in the floating interest rate may
lead to market risk relating to Vingroup’s
long-term debt. To control the risk, the group
has to monitor related situation occurring in
the whole market, especially in financial
market to estimate and adjust to a suitable
financial leverage and strategy.
Foreign exchange risk