SSI RESEARCH

INSTITUTIONAL RESEARCH & INVESTMENT ADVISORY

An Phat Plastic and Green Environment JSC (AAA: HNX)

BUY 1Y Target Price: 15,100 VND
Current price: 10,900 VND
Kien Trung Nguyen, CFA

A turn-around story of the largest plastic bag

exporter in Vietnam

kiennt@ssi.com.vn
+84 4 3936 6321 ext. 510

Background
06 November 2015
INDUSTRIALS - VIETNAM

Key figures
Market cap (USD mn)

24

Market cap (VND bn)

540

Outstanding shares (mn)

AAA, the biggest PE plastic bag exporter in Vietnam, currently has 5 plastic bag
manufacturing factories in Hai Duong Province. Core business comprises of
manufacturing plastic bags, including food-covered bags, garbage bags, and
shopping bags. Total capacity reached 3,500/month as the fifth factory are running at
80% of its capacity and will increase to 3,700tons/month in 2016.
Capacity and products

49

52W high/low (VND 1,000)

14.7/8.8

Average 3M volume (share)

250,588

Average 3M value (USD mn)

0.12

Average 3M value (VND bn)

2.62

Foreign ownership (%)

18.42

State ownership (%)

Management ownership (%)

Factories
1
2 & 4 (2
expansion)

n.a

n.a

5
6

Main products

Capacity

Markets

Construction

Garbage bags
20% garbage bags,
80% shopping
bags, bags on roll
Bags on roll

7-800 tons/month

EU

2005

1,200-1,300
tons/month

EU

Feb 2008 and Sept

2009

7-800 tons/month

EU

Aug 2011

Bags on roll
Bags on roll, food
bag

800 tons/month

Japan

Jul 2014

2,000 tons/month

Japan

Under construction

10,000 tons/ year

50% sold to AAA as

an ingredient for bag
manufacturing.

Stock performance
7

CaCO3

Source: AAA

2014 and 9M5 review

Source: Bloomberg
Company Snapshot
AAA, the biggest PE plastic bag exporter in
Vietnam, currently has 5 plastic bag
manufacturing factories in Hai Duong
Province. Core business comprises of
manufacturing plastic bags, including foodcovered bags, garbage bags, and shopping
bags. Total capacity reached 3,500/month
as the fifth factory are running at 80% of its
capacity
and
will
increase
to
3,700tons/month in 2016.

In 9M14, sales and net profit remained quite stable at VND 380bn/quarter and VND
15bn/quarter. However, a sharp fall of oil price in the fourth quarter last year during a
very short stretch resulted in an inventory loss. In addition, by the end of 2014, AAA
th
still failed to access the Japanese market although it completed the 5 factory (the
one that specializes in the Japanese market) in mid-2014. Demand in the EU market
at the time was quite low and AAA had to share losses with its customers. Since
4Q14 to 1Q15, AAAs gross profit margin declined by 4% to only 8.7%. In 2Q15,
when resin price increased to a new level and AAAs products prices were stabilized,
gross profit margin recovered to 12.4% and increased to 12.7% in 3Q15. In 1H15, the
th
5 factory only operated at 50% of its capacity and increased to 70% of its capacity in
3Q15. Accordingly, gross profit margin will continue to improve in 4Q15 and 2016.
Learning from the lesson in 4Q14, AAA and its customers have agreed to a new term
called risk sharing in which AAA and its customers will share the loss/profit from
significant changes in input price (+-5%). The new scheme will help reduce losses
should a sharp decline in input prices abruptly occur.

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Access to the Japanese market

The Japanese market is very difficult to penetrate. Since mid-2015, hundreds of Japanese
customers have visited AAAs factories. Demand from Japan is symmetrical to that of the EU
market as one fourth of plastic product volume is exported to Japan. In the past, Japanese
imported its bags from China but currently Japanese customers are increasingly seeking
replacements in Vietnam as they prefer to diversify their suppliers. Labor cost and power
expenses are higher in China and the Chinese government is lifting incentives for plastics
companies. The unique advantage of Chinese companies is slightly lower input costs thanks to
their large scale.
AAA recorded the highest export volume ever in Oct 2015 at 3,750 tons/month. Seeing
increasing opportunities and offers from Japanese customers after winning their trust, AAA is
th
constructing a new factory next to its existing factories (called 6 factory). Capex for the new
plant is approximately VND 500bn, including VND 200bn raised in 2014 for a factory in Laos
and VND 300bn to be raised in early 2016. AAA is going to raise VND 300bn bonds with
warrants at VND 11,000-11,500/share, locked up for 1 year since issuance. As the bond will be
funded for the new plant, its interest will be capitalized in 2016 and expensed since 2017.
In 2014, AAA issued stock right at 1:1 ratio for a factory in Laos, targeting the US market as the
US now imposes anti-dumping tax on most of plastic bags imported from Vietnam. Recently, the
US has lifted taxes for Chinese and Thailand products and will do the same for Vietnamese
products. AAA has discovered that the factory in Laos is no longer suitable and will refocus its
expertise to factories in Vietnam.

Outlook
Short term: 4Q15 and 2015
4Q is the busy season for AAA thanks to the holiday season in the EU. In addition, the number
of Japanese customers is increasing. We expect sales will peak in 4Q15 and gross profit margin
will remain at 13%. We expect that AAA will record approximately VND 500bn in sales and VND
20bn in net profit, resulting in total sales and net profit in 2015 of VND 1,655bn (+6.1% YoY) and
VND 39.7bn (-17% YoY). Net profit margin declined mostly due to that in 2014, the inventory
loss only happened since December 2014 to the end of 1Q15. Therefore, AAA still makes some
th
st
profit in 4Q14 but recorded loss in 1Q15. The depreciation expense of 5 factory (while 1
factory has not yet fully depreciated) is the other reason for lower margin in 2015.
Long term: 2016-2018
th

We expect that by the end of 2015, AAA will complete its construction for the 6 factory. In
th
th
1Q16, the company will import machines and transfer the 5 factorys machines to the 6
th
factory for centralized operation and the 5 factory will be the factory specialized in food bag
th
th
production (the current 5 factory is 0.5km far away from the last 4 ones and the new 6
th
factory). In 2Q and 3Q16, AAA will commence operation on the 6 factory and start to generate
products in 4Q16. Early 2017, we expect that the factory will run at 50% and fully operate by the
end of 2017. AAA is assessing food bag production to export to Japan. Food bags margin is
double that of current bags but require specify techniques and are hard to produce on a large
scale. However, there is no supplier in Vietnam that has been able to achieve this and many
Japanese customers are willing to help AAA to produce this specific type of bag.
We expect that the EU market will grow at a steady rate of 7-10% in the next 3 years but Japan
market might double in the next 3 years. According to the plastic association, Japan is the
largest importer of plastic products from Vietnam. According to our research, the plastic bag size
of Japan market is 1bn USD/year, while Vietnamese suppliers only account for 4% of the market
size. In Vietnam, Hung Yen Plastic JSC is the largest exporter to Japan but its main task is to
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provide outsourcing service for a Japanese customer. Most of the plastic bags in Japan are now
imported from China. AAA targets to gain 5% of the market size in Japan market.
In 2018, when all of the factories are running at full capacity, AAA can export 5.3k tons/month ,
which is 60% higher than the current level and sales might reach VND 3,000bn (at the current
level of resin price).
In 2016-2018, we expect that sales CAGR will be 22%/year and GPM will improve slightly from
st
nd
13% in 2016 to 14% in 2018 as the 1 factory will be fully appreciated in 2015 and the 2 one
will be fully appreciated in 2017. In addition, as the volume of AAA increases, its bargaining
power will increase, thus helping to boost ASP and reduce input costs. We are quite
conservative in estimating GPM as before 2013, gross profit margin of AAA was 20% on
average. We also have not yet taken into account the potential of food bag products.
In terms of profit, we expect that PBT will elevate by 43%/year to 2018, reaching VND 159bn in
2018, resulting in 2018 EPS of VND 2,563. Since 2019, not taking into account the impact from
the new product (food bag), we expect that sales and net profit will grow by 5% and 10%
respectively.
If AAA issued its bond with warrant at VND 11,000/share, we expect that since 2017, it will be
exposed to dilution risk. However, if the warrant holders converted its warrants, AAA will not
incur interest expense and the net income will be much higher. We expect that warrant holders
will not convert its warrant before 2018 when the new factory fully contribute its revenue and
profit to AAA.
VND bn
Net revenue
Gross profit
Operating profit
EBITDA
EBIT
Pretax income
Net income
EPS (VND)
ROA
ROE

2012
1,010
186
93
143
96
67
56
4,850
6.5%
12.8%

2013
1,158
179
81
137
88
71
55
2,775
5.4%
10.4%

2014
1,561
183
67
139
74
57
48
1,895
3.7%
7.2%

2015F
1,655
185
42
132
68
48
40
801
2.7%
5.1%

2016F
1,949
253
94
199
117
96
79
1,592
4.7%
9.9%

2017F
2,424
327
129
248
160
110
90
1,822
4.7%
10.8%

2018F
2,998
420
175
300
206
155
127
2,566
6.2%
14.2%

Investment view and valuation

At the current price, AAA is trading at 2016 P/E and P/B of 6.8 and 0.65x, which are quite low as
compared to overall market. Although AAA historically trade at a low P/E (7x) and P/B (0.7x), we
believe the outlook of this company is improving:

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In our opinion, low valuations in the past reflected two factors: (1) limited growth potential
due to a sluggish EU market growth and (2) risk from Laos factory.

AAA now possesses 5 large factories with total capacity of 3.7 K tons/month and will
continue to expand capacity twice in the next 2 years.

AAA is expanding its customer base from the EU to Japan and is targeting the US market.

AAA holds 32% of Vinh Plastic Bags JSC (VBC: HOSE- market price of VND 46,500/share)
at a cost of VND 40,000/share. VBC offers 80% cash dividend on par, and trading at PER of
5x. Therefore, we believe that the book value of VBC on AAAs balance sheet is
st
nd
undervalued. In addition, the 1 and 2 factories are fully depreciated but still operating
and churning out quality products. Therefore, the book value of AAA is currently
undervalued.

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Based on our valuation model, we expect 1Y target price of AAA might reach VND 15,100/share
(38.5% upside), equivalent to our 1Y target P/E of 9.5x and P/B of 0.95x. AAA might offer 7%
cash dividend in 2015 (yield of 6.4%) and 10% cash dividend on par in 2016, which is equivalent
to a dividend of 9.2%. We recommend BUY for this stock.
We provide below our DCF model for reference.
Consolidated (VND million)
EBIT
Abnormal adjustments
Adjusted EBIT
Effective CIT rate (%)
EBIT(1-T)
Add: Depreciation
Less: CAPEX
Less: Change in WC

2015F
67,845
0
67,845
18.0%
55,633
63,989
200,000
11,396

2016F
117,120
0
117,120
18.0%
96,039
81,951
300,000
29,386

2017F
160,213
0
160,213
18.0%
131,375
87,939
100,000
46,752

2018F
206,020
0
206,020
18.0%
168,937
93,927
100,000
56,513

2019F
217,551
0
217,551
18.0%
178,391
99,914
100,000
14,691

Terminal
228,591
0
228,591
18.0%
187,445
105,902
100,000
15,426

Free cash flow to firm

Terminal growth
Discount period
Discount factor
Present value

(91,775)

(151,396)

72,562

1.16
0.86
(130,637)

2.16
0.76
55,148

163,614
1,502,644
4.16
0.59
96,465
885,936

177,921

0.16
0.98
(89,942)

106,351
Terminal value
3.16
0.67
71,191
Terminal PV

Free cash flow to firm

Terminal growth
Discount period
Discount factor
Present value
PV of FCFF - Operating
Cash & cash equivalents
ST Investments
Total Firm Value
Debt
Equity Value
No. of shares
Value of a share (VND)

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2%

888,160
336,808
30,000
1,254,967
456,673
798,294
49,500,000
16,127

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APPENDIX: ANNUAL FINANCIAL STATEMENTS

VND Billion
Balance Sheet
+ Cash
+ Short-term investments
+ Account receivables
+ Inventories
+ Other current assets
Total Current Assets
+ LT Receivables
+ Net Fixed Assets
+ Investment properties
+ LT Investments
+ Goodwill
+ Other LT Assets
Total Long-Term Assets
Total Assets
+ Current Liabilities
In which: ST debt
+ Non-current Liabilities
In which: LT debt
Total Liabilities
+ Contributed capital
+ Share premium
+ Retained earnings
+ Other capital/fund
Owners' Equity
NCI
Total Liabilities & Equity
Cash Flow
CFO
CFI
CFF
Net increase in cash
Beginning cash
Ending cash
Liquidity Ratios
Current ratio
Acid-test ratio
Cash ratio
Net debt / EBITDA
Interest coverage
Days of receivables
Days of payables
Days of inventory
Capital Structure
Equity/Total asset
Liabilities/Total Assets
Liabilities/Equity
Debt/Equity
ST Debt/Equity

2013

2014

2015F

2016F

130
0
147
200
18
495
0
605
0
39
0
11
656
1,151
515
334
83
83
598
198
131
178
37
544
9
1,151

337
30
154
138
36
694
0
680
0
39
0
8
727
1,422
507
329
128
128
634
396
148
188
46
778
9
1,422

224
30
166
147
38
605
0
816
0
39
0
9
864
1,469
541
351
136
136
677
495
148
94
46
783
9
1,469

359
30
195
169
45
798
0
1,034
0
39
0
10
1,083
1,881
624
405
436
436
1,060
495
148
123
46
812
9
1,881

84
-209
152
27
103
130

99
-128
234
206
130
337

92
-200
-4
-112
337
224

130
-300
304
134
224
359

0.96
0.54
0.25
1.57
5.16
20.91
48.63
73.75

1.37
1.03
0.72
1.47
4.33
23.29
41.94
44.71

1.12
0.78
0.47
1.45
3.48
28.10
41.23
35.29

1.28
0.94
0.62
1.87
5.57
27.00
39.74
34.01

0.47
0.52
1.10
0.77
0.61

0.55
0.45
0.82
0.59
0.42

0.53
0.46
0.86
0.62
0.45

0.43
0.56
1.30
1.04
0.50

2013

2014

2015F

2016F

1,158
-979
179
7
-22
-63
-36
64
2
5
71
55
1
55

1,561
-1,378
183
8
-26
-79
-36
50
1
6
57
48
1
47

1,655
-1,470
185
17
-34
-88
-41
39
0
9
48
40
0
40

1,949
-1,695
253
11
-38
-97
-45
84
0
12
96
79
0
79

Basic EPS (VND)

BVPS (VND)
Dividend (VND/share)
EBIT
EBITDA

2,775
27,447
0
88
137

1,895
19,620
0
74
139

801
15,814
700
68
132

1,592
16,406
1,000
117
199

Growth
Sales
EBITDA
EBIT
NI
Equity
Chartered Capital
Total assets

14.6%
-4.0%
-8.1%
-1.3%
4.1%
0.0%
27.8%

34.8%
1.2%
-15.7%
-13.9%
43.1%
100.0%
23.6%

6.1%
-4.9%
-8.8%
-17.0%
0.6%
25.0%
3.3%

17.7%
51.0%
72.6%
98.7%
3.7%
0.0%
28.1%

6.4
0.6
0.3
0.0%
4.7
0.6

7.3
0.7
0.3
0.0%
4.6
0.4

13.6
0.7
0.3
6.4%
6.2
0.5

6.8
0.7
0.3
9.2%
4.1
0.4

15.4%
7.0%
4.8%
5.5%
3.1%
10.4%
5.4%
8.0%

11.7%
4.3%
3.1%
5.1%
2.3%
7.2%
3.7%
5.7%

11.2%
2.5%
2.4%
5.3%
2.5%
5.1%
2.7%
4.4%

13.0%
4.8%
4.0%
5.0%
2.3%
9.9%
4.7%
6.6%

VND Billion
Income Statement
Net Sales
COGS
Gross Profit
Financial Income
Financial Expense
Selling Expense
Admin Expense
Income from business operation
Net Other Income
Income from associates
Profit Before Tax
Net Income
Minority interest
NI attributable to shareholders

Valuation
PER
PBR
P/Sales
Dividend yield
EV/EBITDA
EV/Sales
Profitability Ratios
Gross Margin
Operating Margin
Net Margin
Selling exp./Net sales
Admin exp./Net sales
ROE
ROA
ROIC

Source: AAA, SSI Research

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1. Analyst Certification
The research analyst(s) on this report certifies that (1) the views expressed in this research report accurately reflect
his/her/our own personal views about the securities and/or the issuers and (2) no part of the research analyst(s)
compensation was, is, or will be directly or indirectly related to the specific recommendation or views contained in this
research report.

2. RATING
Within 12-month horizon, SSIResearch rates stocks as either BUY, HOLD or SELL determined by the stocks expected
return relative to the market required rate of return, which is 18% (*). A BUY rating is given when the security is expected to
deliver absolute returns of 18% or greater. A SELL rating is given when the security is expected to deliver returns below or
equal to -9%, while a HOLD rating implies returns between -9% and 18%.
Besides, SSIResearch also provides Short-term rating where stock price is expected to rise/reduce within three months
because of a stock catalyst or event. Short-term rating may be different from 12-month rating.
Industry Rating: We provide the analyst industry rating as follows:

Overweight: The analyst expects the performance of the industry over the next 6-12 months to be attractive vs. the
relevant broad market

Neutral: The analyst expects the performance of the industry over the next 6-12 months to be in line with the relevant
broad market

Underweight: The analyst expects the performance of the industry over the next 6-12 months with caution vs. the
relevant broad market.

*The market required rate of return is calculated based on 5-year Vietnam government bond yield and market risk premium derived from using
Relative Equity Market Standard Deviations method. Our rating bands are subject to changes at the time of any significant changes in the above
two constituents.

3. DISCLAIMER
The information, statements, forecasts and projections contained herein, including any expression of opinion, are based
upon sources believed to be reliable but their accuracy completeness or correctness are not guaranteed. Expressions of
opinion herein were arrived at after due and careful consideration and they were based upon the best information then
known to us, and in our opinion are fair and reasonable in the circumstances prevailing at the time. Expressions of opinion
contained herein are subject to change without notice. This document is not, and should not be construed as, an offer or the
solicitation of an offer to buy or sell any securities. SSI and other companies in the SSI and/or their officers, directors and
employees may have positions and may affect transactions in securities of companies mentioned herein and may also
perform or seek to perform investment banking services for these companies.
This document is for private circulation only and is not for publication in the press or elsewhere. SSI accepts no liability
whatsoever for any direct or consequential loss arising from any use of this document or its content. The use of any
information, statements forecasts and projections contained herein shall be at the sole discretion and risk of the user.
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SAIGON SECURITIES INC.

Member of the Ho Chi Minh
Stock Exchange, Regulated
by the State Securities
Commission

HO CHI MINH CITY

72 Nguyen Hue Street,

District 1
Ho Chi Minh City
Tel: (848) 3824 2897
Fax: (848) 3824 2997
Email: info@ssi.com.vn

HANOI

1C Ngo Quyen Street, Ha Noi City

Tel: (844) 3936 6321
Fax: (844) 3936 6311
Email: info@ssi.com.vn

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INSTITUTIONAL RESEARCH & INVESTMENT ADVISORY

4. CONTACT INFORMATION
Institutional Research & Investment Advisory
Kien Trung Nguyen, CFA
Research Manager
Tel: (844) 3936 6321 ext. 510
kiennt@ssi.com.vn

Phuong Hoang

Hung Pham

Deputy Managing Director,

Associate Director

Head of Institutional Research & Investment Advisory

hungpl@ssi.com.vn

Giang Nguyen
Associate Director
giangntt@ssi.com.vn

phuonghv@ssi.com.vn

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SAIGON SECURITIES INC.

Member of the Ho Chi Minh
Stock Exchange, Regulated
by the State Securities
Commission

HO CHI MINH CITY

72 Nguyen Hue Street,

District 1
Ho Chi Minh City
Tel: (848) 3824 2897
Fax: (848) 3824 2997
Email: info@ssi.com.vn

HANOI

1C Ngo Quyen Street, Ha Noi City

Tel: (844) 3936 6321
Fax: (844) 3936 6311
Email: info@ssi.com.vn

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