Equity Report

Ocean Group Joint Stock Company OGC

Students: Nguy n Th Ng c Huy n (CQ501145) Nguy n Thanh Tng (CQ502973)C CQ502973)

Table of Contents
1. a. i. ii. b. 2. a. b. i. ii. iii. iv. 3. a. b. 4. a. b. Overview about OGC ..................................................................................................... 4 OGCs main businesses are investment and real estate business activities: ........................ 4 Investment activities ................................................................................................ 4 Real estate business activities ................................................................................... 4 Financial status - Highlights: ....................................................................................... 5 Main Analysis ............................................................................................................... 6 Shareholders structure analysis .................................................................................... 6 Financial analysis ....................................................................................................... 7 Operating activities analysis ..................................................................................... 7 Cash flow and liquidity analysis ............................................................................. 10 Financial activities analysis .................................................................................... 11 Profitability analysis .............................................................................................. 12

Potential, opportunity of the industry and OGC ............................................................... 13 Compare with other same industry companies ............................................................. 13 Potential, opportunity of the industry and OGC ........................................................... 13 Recommendation ......................................................................................................... 15 Valuation ................................................................................................................. 15 Recommendation...................................................................................................... 16

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2011

Executive summary
Ocean Group Joint Stock Company OGC

About OGC: OGC is a public held company, listed in HOSE with charter capital of VND2.500
billion. OGCs main businesses are investment and real estate business activities. About financial investment activities, some famous companies that have received contributed equity, and become member companies of OGC are OceanBank, OceanMedia, and OceanHospitally. Real estate business is the strategic business field of OGC. OGC has invested in high capital projects, in favorable places of big cities such as: Trang Tien, Le Van Luong, Truong Chinh (Ha Noi), Tran Phu (Nha Trang), Hoi An (Da Nang), Nguyen Van Troi, Thu Thiem (Ho Chi Minh city), Ha Long (Quang Ninh).

Shareholders structure: 10 biggest shareholders own 83% shares, and all are institutions,
showing that shareholders structure of OGC is not dispersed.

Financial status:
Billion VNDs 2009 2010 294.5 2,258.0 Consolidated revenues (*) 47.9 785.4 Earning before tax 42.9 595.7 Earning after tax 43.8 581.5 EBITDA 4,821.8 7,498.8 Total assets 2,028.9 3,256.5 Equity 1,968.0 2,500.0 Charter capital 756 2,558 EPS (VND) 2.2% 23.8% ROE (%) 0.9% 7.9% ROA (%) (*) consists of revenue from financial activities and transfer of real estate projects

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2011

In 2010, almost all financial indicators increased dramatically, especially earning after tax in 2010 was increasing more than 13 times. The main reason is that in 2010, some important projects of OGC were finished and generated revenues for OGC. ROE and ROA were still low, compared to other real estate companies. Its because in 2010, OGC issued new shares to increase its charter capital to 2,500 billion VNDs. The comparison of financial index of real estate companies just shows the relativity, usually only reflects the operating effectiveness of those companies in the past, but it doesnt show the potential value and particular advantages of each company because of the peculiarity of real estate business activities.

Potential, opportunity of the industry and OGC: About financial investment activities,
OGC has advantages when invests contribution capital into OCS, OJB, OHC, OMC, those companies are operating effectively and gradually assert their position and image in market. Viet Nam is in the period of recovering after the worst worlds recession in 2008. Moreover, with the returning of the foreign capital flow, real estate market will become more attractive; guarantee a rapid benefit source for investor. In recent years, while the real estate market becomes bustle, OGC has taken its advantages and opportunities promptly.

Valuation: Using 2 methods: DCF method and P/E, P/B multiples method, we evaluate fair value
of OGCs stock is 18,204 VNDs/share. At the moment, market price of OGC is lower than its value.

Recommendation: We evaluate and analysis OGC based on collecting information, researching,

and analyzing the real situation of operating activities and financial activities of OGC. Based on real situation of on-going projects, and other up-coming projects in 2011, we suggest that dividend and profit plan of OGC from 2010 2012 is totally possible unless situation of catastrophic happen, and affect the operating activities of company. Especially in 2010, while the domestic and world economic is recovering, growth constantly, all companies business also guarantee high revenues and profits. Our recommendation is just to refer investors to give their own decision; we dont imply that the value of stock as well as the forecasted data is guaranteed.

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2011

1. Overview about OGC

Ocean Group Joint Stock Company was established according to Certificate of Business Registration No. 0103017634 issued by Ha Noi Administration of Planning and Investing at 31, May 2005. OGC is a public held company, listed in HOSE with charter capital of VND2.500 billion. The market capitalization value of OGC up to March 2011 is about VND5.000 billion.

a. OGCs main businesses are investment and real estate business activities:
i. Investment activities Invests in Ocean Bank (OJB) with 20% charter capital of OJB, equivalent of VND400 billion; Invests in Ocean Securities (OCS) with 75% charter capital of OCS, equivalent of VND225 billion; Invests in Ocean Hospitality (OCH) with 79% charter capital of OCH, equivalent of VND420 billion; Invests in Ocean Media (OMC) with 50% charter capital of OMC, equivalent of VND10 billion; Invests in VNT Investment and Infrastructure Development Joint Stock Company with 50% charter capital of VNT, equivalent of VND40 billion; ii. Invests in Ocean Real Estate Management Joint Stock Company with 90% charter capital; Invests in Ocean Thang Long Joint Stock Company with 75% charter capital. Real estate business activities This is the strategic business field of OGC in next few years, with a strong capability and the capital support from Banks, OGC has invested in high capital projects, in favorable places of big cities such as: Trang Tien, Le Van Luong, Truong Chinh (Ha Noi), Tran Phu (Nha Trang), Hoi An (Da Nang), Nguyen Van Troi, Thu Thiem (Ho Chi Minh city), Ha Long (Quang Ninh)

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b. Financial status - Highlights:
Billion VNDs 2009 2010 294.5 2,258.0 Consolidated revenues (*) 47.9 785.4 Earning before tax 42.9 595.7 Earning after tax 43.8 581.5 EBITDA 4,821.8 7,498.8 Total assets 2,028.9 3,256.5 Equity 1,968.0 2,500.0 Charter capital 756 2,558 EPS (VND) 2.2% 23.8% ROE (%) 0.9% 7.9% ROA (%) (*) consists of revenue from financial activities and transfer of real estate projects

2011

Billion VNDs
2009 2010 7,498.80

4,821.80

2,258.00

294.5 Consolidated revenues

595.7 42.9 Earning after tax Total assets

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2. Main Analysis
a. Shareholders structure analysis
By number of shares Number of shareholders 1,614 1,027 244 17 2,902 % 55.62% 35.39% 8.41% 0.59% 100% Stock value (10,000 VND) 798,048 3,727,790 13,611,540 231,862,622 250,000,000 % 0.32% 1.49% 5.44% 92.75% 100%

2011

1 1000 1001 10,000 10,001- 1,000,000 >1,000,000 Total

About 17 shareholders own 92.75% of OGCs stocks and all of them are institutions, showing that shareholders structure of OGC is not dispersed. Its easier for board of director identifies the goal of company, and makes the decision quickly. By geographic # shareholders 2,861 2,837 24 41 23 18 2,902 % 98.59% 97.76% 0.83% 1.41% 0.79% 0.62% 100% Stock value (10,000 VND) 226,582,380 22,508,183 204,074,197 23,417,620 83,050 23,334,570 250,000,000 % 90.63% 9.00% 81.63% 9.37% 0.03% 9.33% 100%

Viet Nam Individual Institution Foreign Individual Institution Total

Stock value % (10,000 VND) 3.76% Lien Viet Investing & Financial Consulting 9,393,361 JSC 9,663,000 3.87% Deutsche Bank AG London 9,973,970 3.99% Bao Minh Investment & Construction JSC 10,000,000 4.00% PetroVietNam Finance Corporation 10,206,260 4.08% Market vectors ETF Trust 11,111,111 4.44% FPT Capital 12,082,760 4.83% VNECO Ha Noi Investing & Trading JSC 20,000,000 8.00% Thanh Dong Trading JSC 27,725,000 11.09% VNT Limited Liability Company 87,080,500 34.83% Ha Bao Private Company 207,235,962 82.89% Total 10 biggest shareholders

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b. Financial analysis
i. Operating activities analysis

2011

As stated above, main activities of OGC are financial investment, and real estate business. OGC is the large shareholder of its member companies such as OJC, OCH, VNT Real estate business is the strategic business field of OGC in next few years, with a strong capability and the capital support from Banks, OGC has invested in high capital projects, in favorable places of big cities. To assess the performance of operating activities, were analyzing data from Income Statement of OGC (% of sales):

Sales Return and discount Net Sales Cost of goods sold Earning from sales and services Revenue from financial activities Financial expenses Interest expenses Sales expenses Management expenses Operating income Other revenues Other expenses Profit from associated companies Earnings before taxes Taxes Net Income

2009 2010 100.00 100.00 0.70 0.24 99.30 99.76 87.68 73.56 11.62 26.20 18.39 24.36 16.73 7.06 16.05 7.05 2.35 1.09 10.32 5.41 0.61 37.00 0.74 19.54 0.36 11.47 18.34 4.91 19.32 49.97 2.02 12.07 17.30 37.90

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Income Statement of OGC (% of 2009): 2009 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 2010 633.99 218.91 636.90 531.89 1429.17 839.48 267.40 278.53 294.71 332.04 38691.48 16787.35 20141.48 169.63 1639.59 3788.20 1388.77

2011

Sales Return and discount Net Sales Cost of goods sold Earning from sales and services Revenue from financial activities Financial expenses Interest expenses Sales expenses Management expenses Operating income Other revenues Other expenses Profit from associated companies Earnings before taxes Taxes Net Income

Analyzing sales, cost of goods sold, and earning from sales and services:
2009 2010 1429.17

633.99

531.89

100.00 Sales

100.00 Cost of goods sold

100.00 Earning from sales and services

In 2010, sales revenue of OGC is increasing dramatically to 1,572 billion VNDs, more than 633% of 2009. The number is really fantastic, but we should note that OGC just entered the business from 2007. OGC had so many potential projects, but they are just really taken into account and recorded as revenue when it finishes constructing in 2010. Revenue of OGC in 2010 was very high compare to other real estate companies, and it also had a highest growth rate.

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2011

While sales revenue increases 633%, cost of goods sold increase 532%, at the lower rate, that makes earnings from sale and service increase more than 14 times 1429%. Analyzing the proportion of cost of goods sold, in 2010, cost of products is more than 40%, cost of services is 2.8%; in addition, therere some new activities that generate new costs such as real estate transferring: 257 billion VNDs. Analyzing expenses:

Proportion of Sale Revenue

2009 87.68 73.56 2010

10.32

5.41

2.35

1.09

Cost of goods sold

Management expenses

Sales expenses

In general, cost of goods sold is quite high because of the particular properties of real estate business. Management expenses and sales expenses are only accounted for small portions of sales revenue. Proportion of sales expense to sales revenue decreases from 2.35% to 1.09% in 2010. It shows that even the sales level increases, the sales expense doesnt increase correspondently, that means high expenses that company spent in the past to promote the image of company, execute the marketing plan and restructure the distribution system are now working. This is a very important factor that increases profit of company in 2010 as well as coming years. In addition, proportion of management expense to sales revenue also decreases from 10.32% to 5.41% in 2010. This trend could be explained that those expenses are fixed and insensitive to the sales volume.

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Analyzing profits:
2009 2010 1388.77

2011

839.48 633.99 100.00169.63 Profit from associated companies

100.00 Sales

100.00 Revenue from financial activities

100.00 Net Income

When we talk about the dramatically increasing in sales, its easy to conclude that net income also increases sharply. In fact, it even increases 13 times to 2009. Remember that OGCs businesses are not only real estate activities but also financial investing activities. The large increasing in profit of member and associated companies in association with low expenses make net income of OGC in 2010 spike. ii. Cash flow and liquidity analysis Analyzing cash flows: OGC always keeps its cash balance high enough to meet the need of working capital. Only financial activities generate positive cash flow for OGC. In 2010, company issued new stocks to raise its charter capital to 250,000 billion VNDs. In coming years, when many important projects of OGC are finished, investment and operating activities will start bringing cash to the company. 2009 2010 (117,377,831,302) (688,283,027,280) (1,829,422,274,721) (460,976,400,549) 1,992,348,106,275 1,365,808,449,338 45,548,000,252 216,549,021,509 66,512,704,181 112,060,704,433 112,060,704,433 328,609,725,942

Cash flow from operating activities Cash flow from investment activities Cash flow from financial activities Cash inflow/outflow Cash balance at the beginning of the year Cash balance at the end of the year

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Analyzing liquidity:

2011

Current assets of OGC stay at the rate of 45%-48% of total assets while current liabilities just account for 36%-40% of the total capital, hence, the liquidity of OGC is acceptable. However, liquidity ratios of OGC are quite low compare to other real estate companies, and under the target of industry. 2009 1.117 1.115 2010 1.259 1.256

Current ratio Quick ratio

iii.

Financial activities analysis Net working capital: In recent years, OGC keeps net working capital positive. The graph shows the net working

capital status of OGC in 2010. Current assets equal 45.4% of total assets and much greater than current liabilities 36%. In the structure of long-term capital, 50.2% are stockholders equity; only a small amount 13.8% is long-term liabilities.
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Assets Current liabilities Current assets Long-term liabilities Long-term and other assets Capitals Stockholders' equity 45.4 36 13.8 54.6 50.2

Capital structure and leverage: 2009 0.099 0.527 1.114 2010 0.138 0.498 0.992

Long-term debt ratio Debt ratio Debt/Equity ratio

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In average, half of OGCs assets are generated by debts. Most of current liabilities are loan from banks; half of them are from OceanBank one of its member companies. However, OGC has a high charter capital proportion; this may somehow lower the risk of bankruptcy for the company. Capital structure report:
2009 Liabilities Current liabilities Short term debts Account Payable Unearned Revenue Accrued expenses and other current liabilities Long-term liabilities Long-term debt Other long-term liabilities Stockholders' equity Charter capital Surplus Other equity Undivided profit Minority interest Total liabilities and stockholders' equity 52.71% 42.80% 11.99% 0.54% 0.40% 29.87% 9.92% 3.55% 6.37% 42.08% 40.81% 0.00% 0.00% 1.26% 5.21% 100.00% 2010 49.90% 36.06% 5.37% 2.77% 0.15% 27.77% 13.84% 10.61% 3.23% 43.43% 33.34% 5.68% 0.07% 4.35% 6.67% 100.00%

iv.

Profitability analysis

ROE ROA

2009 2.11% 0.89%

2010 23.8% 7.94%

ROA and ROE of OGC in 2010 are much better than 2009, however theyre still low compare to other companies in same industry. The reason might be in 2010, OGC raised new capital and real estate activities just started to be implemented.

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3. Potential, opportunity of the industry and OGC
a. Compare with other same industry companies

2011

OGC has the total assets and total equity relatively quite high compare to other real estate companies that was listed in stock exchange. However, revenues and profits are at the modest level compare to those of other companies. The reason is that the real estate projects of OGC are in constructing process and can be only accounted for revenues and profits from 2010 and later years. The comparison of financial index of real estate companies just shows the relativity, usually only reflects the operating effectiveness of those companies in the past, but it doesnt show the potential value and particular advantages of each company because of the peculiarity of real estate business activities.

b. Potential, opportunity of the industry and OGC

About financial investment activities, OGC has advantages when invests contribution capital into OCS, OJB, OHC, OMC, those companies are operating effectively and gradually assert their position and image in market, OJB with a strategic shareholder - PetroVietNam (20% charter capital) has been one of the young, flexible, developing and various service commercial banks, and aimed to become one of the top commercial banks in Viet Nam. Viet Nam is in the period of recovering after the worst worlds recession in 2008. Moreover, with the returning of the foreign capital flow, real estate market will become more attractive; guarantee a rapid benefit source for investor. In addition, OGC focuses investing in medium-size condominium projects; hence, its product will meet the need of majority of middle-class people. Real estate activities can bring high profit, land is becoming scarce while the population is growing with a high rate, especially in the big cities like Ha Noi, Sai Gon, income of residents also has the trend of increasing. In 2010 and years after, owning a high-class apartment with full services and facilities is totally able for people with medium income in big cities. After researching, exploring, assessing the real estate market, OGC had concentrated investing in real estate projects with high capital, favorable location, and good grounds; segmented to high-class apartments, condominium for people with medium to high income in Ha Noi area with convenience and full services. In recent years, while the real estate market becomes bustle, OGC has taken its advantages and opportunities promptly. Therefore, real estate activities have contributed significantly to revenues and profit of the company. In 2009, proportion of revenue from real estate activities was 32%; in

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proportion in total revenues and profits of OGC.

2011

2010 and years after, revenues and profits from real estate activities will increase and get a major In the big cities and trading centers (especially Ha Noi), while the lands at center and good locations are scarce, demands have the trend of increasing. Be aware with that, right from the very start, OGC with its dynamic has possessed many projects with good scale, area, location and in constructing guarantee high profits for OGC. Real estate investing activities require huge amount of capitals. Lacking of capital while in constructing process will affect directly to the progress of implementing projects. OGC continuously increases charter capital, a small amount comes to financial investing activities (member companies and associated companies), and the major part is used to supply working capital to serve for real estate activities. Besides that, abundant capital source from OJB will assist OGC much in operating activities. Right now, OGC are implementing major real estate projects in Ha Noi and other big provinces and cities, specifically: Table of projects that are being implemented by OGC:
Project Estimated Revenue (billion VNDs) constructions, 651,408 VNT Tower Nguyen 19 Nguyen Trai, Public Thanh Xuan, Ha Noi office and house Trai Starcity Center Le Le Van Luong, Ha Condominium, office and 2,063,415 Noi house Van Luong Tran Duy Hung, Ha High class apartment, 16,627,800 Starcity Center Noi office and trading center Constructing and running 615,125 Minh Duc Industrial My Hao, Hung Yen infrastructure Park 19,957,747 Total Location Function

Besides these 4 projects that already announced, OGC also investing in other projects, however, they are projects that are not officially implemented or in process of negotiation. Some projects that are not officially announced: Projects of condominium, office and house VNT Le Van Luong, VNT Ha Dinh, and 317 Truong Chinh. OGC already signed an agreement with Song Da Corporation about 67ha project at Tay Mo about jointly implementing project. The project was accepted to invest and OGC is finishing remained procedures. This project has a favorable location, at Tran Duy Hung roads; guarantee the formation of a super urban zone similar to Phu My Hung of Ho Chi Minh City. OGC is the owner of INFO real estate and building material exchange. This exchange is the distribution channel for the projects of OGC. In addition, this exchange also distributes projects

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2011

that are not implemented by OGC. OGC is known as the top real estate distributor through INFO real estate and building material exchange and through TV programs about real estate that OGC are in associating with InfoTV. OGC confidently asserts that OceanBank will exceed the profit target in 2011. So, member companies will contribute to OGC more than targets. Member companies of OGC such as OJB and OCH was also listed in stock exchange. This helps OGC performing better because it gives OGC another mobilizing capital source and opportunity to expanding activities. At 7, October 2010, OceanBank was accepted to perform initial public offering to raise the charter capital from VND2,000 billion to VND5,000 billion. With this plan, OGC still owns 20% shares of OceanBank. For the long run, OceanBank will aim to become one in the top ten commercial bank of Viet Nam.

4. Recommendation
a. Valuation
We use 2 methods to evaluate the value of OGC stocks: DCF method and P/E, P/B multiples method. The discounted cash flow method DCF evaluate stock based on the expected future cash flow that shareholders of OGC will received (FCFE). Those cash flows are calculated based on the operating plan of the company. In order to calculate the value of OGC stock using DCF, we assume that the growing progress of OGC is divided into 2 periods. First period: From 2010 to 2012, and second period after 2012: constant growth period. Year EBIT Tax Net Income Depreciation (Net Investment) Increase/Decrease Working Capital New Loans Issued (Old Loans Pay Off) FCFE K PV(FCFE) 2010 2011 2012 924,056,248 1,338,832,486 1,642,949,917 69,702,186 48,694,565 50,466,998 872,354,063 1,290,137,921 1,592,482,919 31,421,435 31,421,435 31,421,435 (1,298,920,653) (749,136,493) (776,565,640) (50,000,000) (50,000,000) (50,000,000) (30,000,000) (30,000,000) (70,000,000) (475,145,155) 492,422,863 727,338,714 20% 20% 20% (475,145,155.00) 410,352,386 505,096,329

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Growth Rate (g) Discount Rate (k) FCFE(2012) PV(Terminal Value) Firm's Value Number of shares issued Value of 1 stock 10% 20% 727,338,714 4,630,049,684 4,996,969,317 250,000,000 19.988

2011

Based on DCF method, the value of 1 stock of OGC is 19,988 VNDs. We also use price multiple method to evaluate OGC: Based on the information from various sources, we suggest P/E and P/B ratio of OGC are 6.44x and 1.27x respectively. EPS for 2011 is estimated about 2266.77 VND and present BV is 12,960 VND/share. Values of OGC based on this method respectively are 14,598 VND/share and 16,459 VND/share. Summarize of valuation methods: Method DCF P/E P/B Average: Value 19,988 14,598 16,459 18,204 Weight 60% 20% 20%

We estimate the value of OGC is about 18,204 VNDs/share. At the moment, market price of OGC is lower than its value.

b. Recommendation
We evaluate and analysis OGC based on collecting information, researching, and analyzing the real situation of operating activities and financial activities of OGC. Based on real situation of ongoing projects, and other up-coming projects in 2011, we suggest that dividend and profit plan of OGC from 2010 2012 is totally possible unless situation of catastrophic happen, and affect the operating activities of company. Especially in 2010, while the domestic and world economic is recovering, growth constantly, all companies business also guarantee high revenues and profits. Our recommendation is just to refer investors to give their own decision; we dont imply that the value of stock as well as the forecasted data is guaranteed.

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