Analysis and valuation of stocks of growth companies listed on the Vietnamese stock market

FOREIGN TRADE UNIVERSITY FACULTY OF FINANCE AND BANKING MAJOR IN INTERNATIONAL FINANCE

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Topic:

GRADUATION THESIS

STOCK ANALYSIS AND VALUATION

OF GROWTH COMPANIES LISTED ON THE VIETNAM STOCK MARKET

Student: Tran Thi Thanh Huyen Class: English 4

Course 45

Instructor: Associate Professor, Dr. Nguyen Dinh Tho

Hanoi, May 2010

INDEX

LIST OF TABLES LIST OF ABBREVIATIONS

INTRODUCTION 7

CHAPTER I: GENERAL OVERVIEW OF GROWTH STOCKS ANALYSIS AND VALUATION 10

I. OVERVIEW OF GROWTH COMPANY 10

1. Classify companies on the stock market according to growth rate..10 1.1. Slow-growing businesses 10

1.2. Strong businesses 11

1.3. Fast growing businesses 11

1.4. Businesses that develop in cycles of 12

1.5. Businesses on the way down 13

1.6. Enterprises with hidden assets 13

2. The concept of growth company 14

3. Characteristics of growth companies 14

3.1. Business lines 14

3.2. About the Board of Directors 16

3.3. About the scale of operations 17

3.4. On competitiveness 18

3.5. About business strategy 19

3.6. About financial indicators 21

II. METHODS OF ANALYZING AND VALUING GROWTH STOCKS 23

1. Main factors affecting stock price fluctuations of companies on the stock market 23

1.1. Macro factors 23

1.1.1. Political situation 23

1.1.2. Legal environment 24

1.1.3. Gross Domestic Product (GDP) 24

1.1.4. Exchange rate 25

1.1.5. Inflation and interest rates 25

1.1.6. Budget deficit 26

1.1.7. Money supply and consumer spending 26

1.1.8. Attitude, psychology 27

1.2. Factors related to the economic sector 27

1.2.1. Industry growth rate 27

1.2.2. Industry business cycle 28

1.2.3. Degree of industry monopoly 28

1.2.4. Industry risk level 29

1.3. Internal factors of the enterprise 30

1.3.1. Qualitative factors 30

1.3.2. Financial ratios 32

2. Some stock valuation models 37

2.1. Dividend discount model 37

2.1.1. Zero Growth Model 40

2.1.2. Gordon model (constant growth dividend) 41

2.1.3. Two-stage growth dividend discount model 41

2.1.4. The H-model for growth valuation 41

2.2. Model using price/earnings ratio P/E 43

2.3. Free cash flow discounted model 44

2.3.1. General model of FCFF 45

2.3.2. Stable growth model 45

2.3.3. Development model through two stages 45

CHAPTER II: ANALYSIS AND VALUATIONGROWTH STOCKS LISTED ON VIETNAM STOCK MARKET 48

I. INTRODUCTION OF GROWING COMPANIES IN VIETNAM'S STOCK MARKET 48

1. Vietnam stock market 48

2. Growth companies on the Vietnamese stock market 50

II. STOCK ANALYSIS AND VALUATION 51

1. Analysis of factors affecting stocks 51

1.1. Macro factors 51

1.1.1. Gross Domestic Product (GDP) 51

1.1.2. Exchange rate 53

1.1.3. Inflation and Interest Rates 54

1.1.4. Budget deficit 56

1.1.5. Consumer spending and inflation 56

1.2. Economic sector factors 57

2. Stock prices on Vietnam Stock Market on April 2, 2010 59

3. Stock valuation as of April 2, 2010 60

3.1. General introduction about Company 60

3.1.1. FPT Technology Investment Development Joint Stock Company 60

3.1.2. Hoa Phat Group Joint Stock Company (HPG) 62

3.1.3. Phu Nhuan Jewelry Joint Stock Company (PNJ) 62

3.1.4. Petroleum Drilling and Services Joint Stock Company (PVD) 63

3.1.5. Vietnam Italy Steel Joint Stock Company (VIS) 63

3.2. Stock valuation using the P/E 64 model

3.3. Stock valuation using the dividend discount model (DDM) 64

3.4. Stock valuation using discounted cash flow model 68

III. SOME DIFFICULTIES AND ADVANTAGES IN VALUING GROWTH STOCKS IN VIETNAM 69

1. Difficulty in choosing a valuation method 69

2. Difficulty in selecting parameters and assumptions for valuation 69

3. Difficulties arising from the Government and state management agencies

................................................................ ................................................................ .......................... 71

4. Difficulties arising from securities trading organizations 74

5. Difficulties arising from the investors themselves 74

CHAPTER III: PROPOSAL OF SOME SOLUTIONS TO IMPROVE THE ABILITY TO ANALYZE AND VALUATE GROWTH STOCKS 76

I. DEVELOPMENT PROSPECTS OF GROWING COMPANIES IN VIETNAM'S STOCK MARKET IN THE COMING TIME 76

II. SOLUTIONS TO INCREASE THE EFFICIENCY OF GROWTH STOCKS VALUATION IN THE VIETNAMESE STOCK MARKET 79

1. Choosing a valuation method 79

2. Select parameters and assumptions for valuation 81

III. CONDITIONS FOR IMPLEMENTING SOLUTION 84

1. For the Government and state management agencies 84

1.1. Increase the accuracy, completeness and timeliness of information disclosure by businesses 84

1.2. Completing the industry and market information database system 85

1.3. Development of credit rating organizations' activities 86

1.4. Increase market size 88

1.5. Widely disseminate knowledge about securities and securities investment 89

2. For securities trading organizations 89

2.1. Training high quality human resources 89

2.2. Providing transparent information 90

3. For investors 90

CONCLUSION 92

LIST OF REFERENCES

APPENDIX 1: Calculating β for growth firms

APPENDIX 2: Valuing growth stocks using FCFF

APPENDIX 3: Summary of Financial Statements of Growth Companies

LIST OF TABLES

Table 1: Growth companies on Vietnam stock market

51
Table 2: Industry classification and indicators of size and growth	58
Table 3: Stock prices on April 2, 2010	60
Table 4: Industry P/E of companies to be valued	64
Table 5: Stock price calculated by P/E model	64
Table 6: Stock prices calculated using the dividend discount model	67
Table 7: Stock prices calculated using the discounted cash flow model	68

Maybe you are interested!

Chart 1: VN-index development from April 2007 to present

50
Chart 2: Vietnam's GDP growth rate over the years	52
Chart 3: GDP by Quarter 2008-2009	52
Chart 4: USD/VND exchange rate developments 2009	53
Chart 5: Inflation index 2000-2009	55
Chart 6: Interest rate fluctuations 2009	56
Chart 7: Consumer Price Index 2009	57

LIST OF ABBREVIATIONS

Abbreviations

Write in full
Securities Company	Securities company
JSC	Joint Stock Company
DN	Business
FPT	FPT Technology Investment Development Joint Stock Company
HPG	Hoa Phat Group Joint Stock Company
MCK	Stock code
Commercial Bank	Commercial Bank
NNNH	State Bank
PNJ	Phu Nhuan Jewelry Joint Stock Company
PVD	Petroleum Drilling and Services Joint Stock Company
Stock market	Stock market
VIS	Viet Y Steel Joint Stock Company
VN	Vietnam
WTO	World Trade Organization

1. Reason for choosing the topic

INTRODUCTION

Stock analysis and valuation play a very important role in the Vietnamese stock market in particular and the Vietnamese financial market in general. Stock analysis and valuation are of great significance to most participants in the Vietnamese stock market and the Vietnamese financial market. They are businesses, investors and banks. Businesses use stock analysis and valuation to make decisions on capital mobilization and use; investors use stock analysis and valuation for investment purposes; and banks use stock analysis and valuation in lending decisions. Stock analysis and valuation play such an important role, but currently in the Vietnamese stock market, stock analysis and valuation are not widely used due to many difficulties and obstacles in the analysis and valuation process. These are difficulties in choosing a valuation model, in estimating parameters for valuation or other difficulties arising from the Government, state management agencies, securities companies and investors.

Among the businesses that need to be valued, the valuation of growth businesses is of the utmost importance. The management of these businesses themselves often have to re-evaluate the stocks of the business to make decisions on capital mobilization and effective use of capital to maintain the set growth rate. Banks are also often more willing to lend to growth businesses and investors also prefer to invest in growth businesses, so the analysis and valuation of stocks of growth businesses takes place more frequently.

Analysis and valuation of stocks of growth companies listed on the Vietnamese stock market - 1

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