TIỂU LUẬN equity valuation on petrovietnam joint stock corporation (2017 2021) by FCFF and PE model make recommendations to investors

ĐẠI HỌC UEH TRƯỜNG KINH DOANH KHOA TÀI CHÍNH TIỂU LUẬN Mơn học: Đầu tư tài Đề tài: Equity valuation on PetroVietnam joint stock corporation (2017-2021) by FCFF and P/E model Make recommendations to investors Giảng viên: Trần Thị Hải Lý Mã lớp học phần: Sinh viên: Nguyễn Tuấn Kiệt – Nguyễn Đoàn Nhựt Băng – Nguyễn Lê Uyên Trang – 31201022373 Phạm Vũ Nhật Linh – Trần Lê Anh Thư Khóa – Lớp: K46 – FNC04 ● Estimate Cost of Equity (Ke) through CAPM: To calculate the cost of equity (Ke), we first need to determine the following formula: Cost of equity (Ke) = Rf + Beta * Market Risk Premium Where - Rf: Risk-free rate of return, we simply takes the 2,8% which is the nominal rate in Vietnam government bond auction, under the maturity of 10 years, published by State Treasury on 28/9/2022 Source: Vietnam’s ministry of finance - Beta: is the Levered Beta under the new portion Debt/Equity after unleverage the current beta through 2021 Debt/Equity ratio Current Beta is equal to the covariance between GAS stock and VN Index divided by the variance of VN Index For more explanation, Call Beta(L) the firm’s equity beta at the initial level of leverage Equity betas reflect both business risk and financial risk When a firm changes its capital structure (debt/equity mix), it changes financial risk, and therefore equity beta changes To recognize the change in financial risk, we first unleverage beta This leaves us with business risk We use the following formula to find unleveraged beta, Beta(U) (where D/E is the firm’s current debt-equity ratio): In which: D/E ratio is derived from the 2021 bank loans (in short- and long-term) divided by the 2021 total equity = 15,32% Tc: 2021 tax rate = 21,03% Then, we re-leverage beta in any particular year using the forecast capital structure for that year (2022F) (which reintroduces the financial risk associated with that year’s capital structure): Where: D/E ratio is the forecast D/E ratio in 2022F-2026F = 11,37% Tc = 20% (enacted in Circular No 78/2014/TT-BTC) Cov(RVNI, RGAS) VAR(VNI) Current Beta Beta(U) Beta(L) 0,000181 0,0001686 1,071693 0,956044 1,042987 Table Calculate Leverred Beta of GAS - Market Risk Premium = Market Rate of Return - Rf; To simplize the model, we use the two-year daily of VN Index to calculate the market rate of return by using the average estimation - R(VNI) daily = Average historical return on a daily basis in two year from 1/10/2021 to the valuation date (28/9/2022) = ~0,06% => R(VNI) yearly = 252 * R(VNI) daily (the factor 252 is based on the number of trading days of its stock.) = ~14,06% Using capital assets pricing model, we can calculate the cost of equity: => ke= 14,55% ● Evaluate the intrinsic value through free cash flow to firm (FCFF) model: To determine the free cash flow to firm in the next years, we first need to forecast these following criteria: Earnings before interest and taxes (EBIT), Depreciation of Fixed Assets, Capital Expenditures (CAPEX) and change in net working capital - Forecast EBIT In order to forecast the EBIT, we should follow the Income Statement (Profit or Loss) of the last year from 2017-2021 (Appendix) and forecast some ratio, such as: Revenue growth rate, Profit margin, Expenses divided by Sales ratio, … Notes: Expenses performed in the Financial Statement include Selling Expenses and Administrative Expenses Million VND 2017A Sales 64.522.441 %Sale growth rate 2018A 75.611.546 17,19% 2019A 75.005.297 -0,80% 2020A 64.134.965 -14,49% 2021A Average 78.992.156 23,17% 6,26% COGS 49.359.543 Gross profit 15.162.898 Gross margin 23,50% Expenses 3.535.410 Expenses/Sales 5,48% Financial Revenue 1.272.001 Financial Expense 429.584 Interest pmt (exp) 280.096 Interest pmt/ Financial exp 65,20% Others 119.007 EBT 12.588.912 Tax 2.650.245 Tax rate 21,05% Net income 9.938.667 EPS (VND/share) 5.192,75 58.120.228 17.491.319 23,13% 3.766.611 4,98% 1.476.548 616.615 440.018 58.086.689 16.918.609 22,56% 3.269.641 4,36% 1.664.551 240.940 197.610 52.728.950 11.406.016 17,78% 2.712.210 4,23% 1.451.118 169.135 101.218 65.006.501 13.985.655 17,71% 3.611.655 4,57% 1.186.807 402.749 304.139 71,36% -41.146 14.543.495 2.831.356 19,47% 11.712.139 6.119,35 82,02% -3.811 15.068.767 2.982.612 19,79% 12.086.156 6.314,77 59,84% 13.626 9.989.416 2.006.273 20,08% 7.983.143 4.171,03 75,52% 31.887 11.189.945 2.353.186 21,03% 8.836.759 4.617,03 20,94% 4,72% 70,79% 20,29% Table Calculate historical average ratios from Income Statement Besides, we also forecast the future interest payment (interest expense) by the leverage ratio (Total Debt divided by Total Assets) However, we have adjusted the value of debt by the sum of short-term and long-term loans (borrowing) and as a result affect to the Total Asset (=Total Equity + short-term and long-term loans) Million VND 2017A Total Assets 52.321.144 % TA Growth rate Debt (Bank Loans) 9.049.635 Debt/TA 17,30% Interest Pmt (Exp) 280.096 Interest rate (Rd) 3,10% 2018A 2019A 2020A 2021A 51.752.735 52.411.029 52.481.018 60.187.591 -1,09% 1,27% 0,13% 14,68% 4.885.610 2.796.498 2.981.337 7.994.860 9,44% 5,34% 5,68% 13,28% 440.019 197.610 101.218 304.139 9,01% 7,07% 3,40% 3,80% Average 3,75% 10,21% 5,27% Table Calculate historical average interest rate according to TA and TE - Adjust some ratios: After calculating average ratios, we adjusted them in order to be more suitable for the model, beginning with the sales growth rate (%) According to the 2022 General Meeting of ShareHolder, the Thi Vai LNG dock warehouse will come into operation in Q4/22 and GAS is expected to start importing LNG from the end of 2022 or the beginning of 2023, depending on the global market situation Besides, as we have studied before, the revenue of a business varies in the same direction with the selling price of that business’s products It means that when there is an increase in products’ price will also increase the revenue of that business Since 2021, the petroleum market has seen constant volatility, which has led to a two- or even three-fold increase in the price of gasoline These are signs that GAS sales will continue to grow in the future To easily and simply estimate, we project that revenue will increase at a rate equal to the average growth rate of the previous five years times the average monthly increase in the price of gasoline in 2022 relative to the same period in 2021 Time 1/2022 2/2022 3/2022 4/2022 5/2022 6/2022 7/2022 %Growth rate in price compare to the same period in 2021 43,56% 47,07% 56,08% 48,92% 54,48% 61,62% 37,84% Average 45,93% 8/2022 17,83% Table Average price index growth rate compared to 2021 Sources: General Statistics Office of Vietnam Figure Oil price index’s growth rate compared to 2021 Therefore, the adjusted sale growth rate is equal to (1 + Average Growth rate in price compare to the same period in 2022) * Average historical sales growth rate from 2017-2022 = 9,14% Criteria Average Adjusted Sale Growth Rate 6,26% 9,14% Gross Margin 20,94% Expenses/ Sales 4,72% Interest Pmt/ Financial Exp 70,79% Tax rate 20,29% TA Growth rate 3,75% Debt/TA 10,21% Rd 5,27% 20% enacted in Circular No 78/2014/TT-BTC Table Estimating adjusted ratios With these ratios, our group has created the forecast EBIT and furthermore the Net Income and EPS of GAS, under the assumption that the company will not raise any additional equity capital with common stock Million VND 2022F Total Assets 62.445.175 Debt (Bank Loans) 6.373.948 Interest Pmt (Exp) 336.125 2023F 64.787.439 6.613.029 348.733 2024F 67.217.559 6.861.078 361.813 2025F 69.738.830 7.118.431 375.385 Table Forecast interest payment of GAS (2022-2026) 2026F 72.354.672 7.385.437 389.465 Million VND Sales COGS Gross profits Expenses Financial Income Financial Expense Interest pmt (exp) Others EBT Tax Net income EPS (VND/share) 2022F 86.213.027 68.163.573 18.049.454 4.072.905 1.410.205 474.835 336.125 23.913 14.935.831 2.987.166 11.948.665 6.242,93 2023F 94.093.976 74.394.576 19.699.400 4.445.220 1.437.846 492.646 348.733 4.894 16.204.274 3.240.855 12.963.419 6.773,12 2024F 102.695.341 81.195.170 21.500.171 4.851.568 1.430.105 511.125 361.813 14.102 17.581.686 3.516.337 14.065.349 7.348,86 2025F 112.082.980 88.617.424 23.465.556 5.295.062 1.383.216 530.296 375.385 17.684 19.041.098 3.808.220 15.232.878 7.958,87 2026F 122.328.766 96.718.164 25.610.601 5.779.097 1.369.636 550.187 389.465 18.496 20.669.448 4.133.890 16.535.559 8.639,49 Table Forecast components on Income Statement (2022-2026) => Forecast Earnings before Interest and Taxes (EBIT) equal to Earnings before Taxes (EBT) plus Financial Expenses - Forecast Capex and Depreciation: We also takes advantage of average ratio to interpret the future Capital Expenditures and Depreciation: Million VND Net Fixed Assets Historical Cost Capex Capex/Sales Depreciation Annual Depreciation rate 2017A 15.395.529 44.664.816 2.196.923 3,4049% 2.713.287 6,07% 2018A 2019A 2020A 2021A 18.609.211 15.849.873 19.773.601 18.098.269 50.629.583 49.053.324 55.324.453 56.657.692 711.724 2.691.786 4.200.483 4.927.841 0,9413% 3,5888% 6,5494% 6,2384% 2.828.502 2.691.352 2.554.098 3.073.272 5,59% 5,49% 4,62% 5,42% Average 4,1446% 5,44% Table Calculate Average Capex/Sales and Annual Dep rate Million VND Historical Cost Capex Depreciation 2022F 60.230.845 3.573.154 3.275.218 2023F 64.130.630 3.899.784 3.487.280 2024F 68.386.903 4.256.273 3.718.726 2025F 73.032.253 4.645.350 3.971.330 2026F 78.102.246 5.069.993 4.247.025 Table Forecast Capital Expenditures and Depreciation (2022-2026) - Forecast change in Net working capital: As we have learned before in corporate finance, Net working capital equals current assets less current liabilities Particularly, working capital, when used to determine the value of cash flow for shareholders, will exclude cash, because it is the most liquid asset Owners (including creditors and shareholders) can immediately use this cash to offset related obligations The cash will be excluded when discounting cash flows, however, the discounted cash flow value will be included in the cash part to calculate the final business value Also, we use turnover ratio to get the valuation such as: Receivable Turnover Ratio = Sales / Average Receivables Inventory Turnover Ratio = COGS / Average Inventories Payable Turnover Ratio = COGS / Average Payables Million VND 2017A 2018A 2019A 2020A 2021A Average Account Receivable 9.174.883 10.213.711 10.358.798 10.239.200 16.920.192 Average Receivable 9.694.297 10.286.254 10.298.999 13.579.696 Receivable Turnover Inventory Average Inventory Inventory Turnover Account Payable Average Payable Payable Turnover NWC (=Rec + Inv - Pay) CHANGE IN NWC 1.645.376 2.324.293 8.495.966 7,80 1.948.260 1.796.818 32,35 2.663.844 2.494.068 23,30 7,29 1.574.703 1.761.481 32,98 1.913.893 2.288.869 25,38 9.498.126 10.019.608 1.002.160 521.481 6,23 1.662.573 1.618.638 32,58 2.676.586 2.295.239 22,97 5,82 3.241.216 2.451.894 26,51 6.630.916 4.653.751 13,97 6,78 31,10 21,41 9.225.187 13.530.492 -794.421 4.305.305 Table 10 Calculate Average turnover ratios For matching the valuation model, there is a need to adjust the rotation’s ratio Criteria Average Adjusted Receivable Turnover Ratio 6,78 Inventory Turnover Ratio 31,10 31 Payable Turnover Ratio 21,41 20 Table 11 Estimating adjusted turnover ratios Million VND 2021A 2022F 2023F 2024F 2025F 2026F Account Receivable 16.920.192 11.817.483 19.547.175 14.684.605 22.676.388 18.099.867 Average Receivable 13.579.696 14.368.838 15.682.329 17.115.890 18.680.497 20.388.128 Inventory 3.241.216 1.156.434 3.643.216 1.595.182 4.122.071 2.117.810 Average Inventory 2.451.894 2.198.825 2.399.825 2.619.199 2.858.627 3.119.941 Account Payable 6.630.916 185.441 7.254.017 865.500 7.996.242 1.675.574 Average Payable 4.653.751 3.408.179 3.719.729 4.059.759 4.430.871 4.835.908 NWC (=Rec + Inv - Pay) 13.530.492 12.788.476 15.936.375 15.414.286 18.802.218 18.542.103 CHANGE IN NWC -742.017 3.147.899 -522.089 3.387.931 -260.115 Table 12 Forecast change in net working capital (2022-2026) - Calculate Free Cash Flow to Firm: After forecasting components in the formula, we added them in the table to calculate FCFF: TERMINAL Year 2022 2023 2024 2025 2026 VALUE EBIT 15.271.956 16.553.007 17.943.499 19.416.482 21.058.913 EBIT * (1-Tax Rate) 12.217.565 13.242.405 14.354.799 15.533.186 16.847.131 (+) Dep 3.275.218 3.487.280 3.718.726 3.971.330 4.247.025 (-) Capex 3.573.154 3.899.784 4.256.273 4.645.350 5.069.993 (-) Chg NWC -742.017 3.147.899 -522.089 3.387.931 -260.115 FCFF 12.661.646 9.682.001 14.339.341 11.471.235 16.284.277 250.312.000 Table 13 Interpreting Free Cash flow to firm and terminal value (2022-2026) Notes: Tax rate = 20% - Estimate Intrinsic Value per share: Where: WACC: Weighted Average Cost of Capital = We*Ke + Wd*Rd*(1-T) g: is the assumed value for the steady (terminal) growth rate We assume in the spreadsheet that g = 6,56%, roughly in line with the long-run growth rate of the broad economy, Vietnam GDP Growth rate Figure Annual GDP growth rate (1981-2021) Weighted Average Cost of Capital Cost of Equity (Ke) Cost of Debt (Kd) Interest rate (Rd) Tax rate (T) Wd We 13,49% 14,55% 4,22% 5,27% 20% 10,21% 89,79% Table 14 WACC calculation => Firm Value = 176.982.712.509.038 VND Equity value, commonly referred to as the market value of equity or market capitalization, can be defined as the total value of the company that is attributable to equity investors It is calculated by multiplying a company’s share price by its number of shares outstanding Alternatively, it can be derived by starting with the company’s enterprise value In detail, to calculate equity value from enterprise value, subtract debt and debt equivalents (total bank loans in short- and long-term), noncontrolling interest and preferred stock, and add cash and cash equivalents Equity value is concerned with what is available to equity shareholders Debt and debt equivalents, non-controlling interest, and preferred stock are subtracted as these items represent the share of other shareholders Cash and cash equivalents are added as any cash left after paying off other shareholders are available to equity shareholders Enterprise Value (-) Preferred Stock (-) Non-controlling Interest (+) Cash & Cash Equivalent (-) Debt (Bank Loans) Equity value Equity value/Share ● 176.982.712.509.038 1.098.473.302.817 5.300.330.735.432 7.994.860.451.721 173.189.709.489.932 90.488,11 Table 15 Equity value per share’s calculation Evaluate the intrinsic value through P/E model: Computing the intrinsic value of GAS stock by P/E method is to forecast 2022’s EPS and the 2022’s Price-to-earnings ratio Intrinsic Value = EPS 2022 * P/E 2022 We have already had the forecasting EPS in 2022 through FCFF Valuation part (shown in the below part) All that remains is to find a way to forecast the P/E of GAS stocks in 2022 Also, as having studied in chapter 18: where: - b = d: Dividend Payout Ratio g = ROE * b: Dividend growth rate in long-term k: Cost of Equity Therefore, to forecast P/E in 2022, we need to estimate future indexes: k, g and d respectively - Forecast cost of equity by using CAPM in the previous part k = 14,55% Forecast dividend growth rate (g): First, we have to compute the historical P/E from 2017-2021, simply by dividing the market closing price of GAS stock (historical price) to EPS of that year VND Market Price Earning Per Share (EPS) P/E 2017 97.400 2018 86.600 2019 93.700 2020 81.720 2021 93.646 5.192,75 6.119,35 6.314,77 4.171,03 18,757 14,152 14,838 19,592 Table 16 Historical price-to-earning ratio Caculation 4.617,03 20,283 From the equation P/E ratio = d/(k-g), our group derived the historical growth rate in the period from 2017-2021, after that inferred the future constant growth rate by adjusting the average value of g Growth rate - 2017 2018 2019 2020 2021 Average 10,44% 8,43% 9,74% 10,88% 11,34% 10,17% Table 17 Adjusted Dividend growth rate Estimation Forecast dividend payout ratio (d): Using following equation to interpret the 2022 payout ratio: (1) d = - b Adjust 12,5% (2) g = b * ROE VND Net Income Total Equity ROE g (remain unchanged since 2022) Plowback ratio (b) Payout ratio (d) 2022F 11.948.665.143.257 56.071.227.009.110 21,31% 12,5% 41% 59% Table 18 Forecasting payout ratio => P/E ratio = d/(k-g) = 41%/(14,55%-12,5%) = 20,201 => Intrinsic Value = 2022’s P/E ratio * 2022’s EPS = 20,201 * 6.242,93 = 126.111,2 VND APPENDIX BALANCE SHEET ITEMS 2017 2018 Unit: Million VND 2020 2021 2019 TOTAL ASSETS 61.889.343 62.614.420 62.178.787 63.208.401 78.768.075 CURRENT ASSETS 38.256.958 40.932.013 41.815.397 39.472.227 51.394.724 Cash and cash equivalents 13.502.017 6.705.645 4.475.889 5.237.247 5.300.331 1.729.822 1.330.220 1.151.996 1.323.144 1.395.850 Cash equivalents 11.772.195 5.375.425 3.323.893 3.914.103 3.904.481 Net worth of short-term investment 13.577.350 21.602.454 24.915.000 21.613.236 24.799.826 Short-term investment 0 0 Provision for short-term investment 0 0 13.577.350 21.602.454 24.915.000 21.613.236 24.799.826 Accounts receivable 9.174.883 10.213.711 10.358.798 10.239.200 16.920.192 Accounts receivable from customers 4.939.925 4.638.182 4.683.940 5.579.799 10.598.393 155.520 91.011 844.110 435.276 413.405 Internal receivables 0 0 Construction receivables 0 0 Short-term loan receivables 0 0 4.344.162 5.773.843 5.142.871 4.620.069 6.600.033 -265.538 -290.003 -312.833 -395.944 -691.639 815 677 710 0 Net inventory 1.645.376 1.948.260 1.574.703 1.662.573 3.241.216 Inventories 1.737.552 2.018.155 1.645.289 1.729.147 3.324.678 Provision for obsolete inventories -92.177 -69.895 -70.587 -66.574 -83.461 Other current assets 357.332 461.943 491.007 719.972 1.133.159 Short-term prepaid 83.899 103.519 89.084 57.559 70.496 222.926 299.938 367.883 609.334 1.011.376 50.507 58.486 34.040 53.079 51.287 Government bonds trading 0 0 Other current assets 0 0 23.632.385 21.682.408 20.363.391 23.736.174 27.373.351 Cash Held-to-maturity investment securities Advances to suppliers Other receivables Provision for doubtful debts Shortage of assets waiting for resolution VAT Other taxes NON-CURRENT ASSETS Non-current receivables 188.769 216.829 127.884 162.062 187.719 0 0 Long-term advance to suppliers 62.323 67.562 79.220 73.910 70.338 Paid-in capital in wholly-owned subsidiaries 0 0 Long-term internal receivables 0 0 Non-current lending principal receivables 0 0 126.446 149.267 48.664 88.152 117.380 0 0 Fixed assets 15.395.529 18.609.211 15.849.873 19.773.601 18.098.269 Net tangible fixed assets 14.924.790 18.149.000 15.437.766 19.335.106 17.688.043 Cost of tangible fixed assets 44.056.506 50.029.678 48.513.599 54.739.218 56.069.460 -29.131.716 -31.880.678 -33.075.833 -35.404.113 -38.381.417 Net leased fixed assets 36.764 20.024 0 Leased fixed asset costs 86.944 49.179 0 Accumulated depreciation -50.180 -29.155 0 Net intangible fixed assets 433.976 440.186 412.107 438.495 410.226 Intangible fixed asset costs 521.366 550.726 539.725 585.235 588.232 Accumulated amortisation -87.390 -110.540 -127.618 -146.739 -178.006 Investment properties 24.843 24.015 23.187 22.358 21.935 Cost of investment properties 26.428 26.428 26.428 26.428 26.428 Accumulated depreciation -1.585 -2.413 -3.241 -4.070 -4.493 Long term assets in progress 6.571.784 1.235.198 3.020.872 2.302.959 4.871.054 Long term work-in-progress 0 0 Long term construction in progress 0 0 92.633 63.020 404.694 379.190 400.162 0 0 56.593 53.020 394.694 369.190 390.162 Other long-term investments 111.040 85.000 35.000 35.000 35.000 Provision for obsolete long-term investment -75.000 -75.000 -25.000 -25.000 -25.000 0 0 Other long-term assets 1.358.828 1.534.135 936.881 1.096.004 3.794.212 Long-term prepaid 1.077.254 1.324.486 823.187 1.022.823 3.744.293 46.142 43.975 30.490 50.809 49.281 Long-term tools, supplies and spart parts 0 0 Other long-term assets 0 0 Goodwill 0 0 LIABILITIES 18.617.835 15.747.295 12.564.256 13.708.720 26.575.344 Current liabilities 10.911.814 11.846.614 9.964.436 9.748.781 16.561.262 2.324.293 2.663.844 1.913.893 2.676.586 6.630.916 Non-current trade-receivables Other long-term receivables Provision for doubtful long-term receivables Accumulated depreciation Long-term investments Investments in subsidiaries Investments in associates Held-to-maturity investments Deferred tax receivables Trade payables Advances from customers 204.413 237.513 202.837 228.059 104.817 1.120.506 759.701 876.865 553.509 555.129 174.977 188.077 118.098 199.352 296.411 Accrued expenses 4.428.629 5.488.546 4.047.845 3.767.918 3.858.407 Internal payables 0 0 Construction contract payables 0 0 9.401 1.481 937 77.365 2.586.889 676.948 658.390 1.029.192 749.208 1.470.760 1.737.699 1.489.867 1.340.568 1.017.470 484.740 0 9.050 0 Bonus and welfare fund 234.948 359.194 425.151 479.314 573.193 Price stabilisation fund 0 0 Trading of government bonds 0 0 7.706.021 3.900.681 2.599.820 3.959.939 10.014.082 Long-term suppliers payables 0 0 Long-term advances from customers 0 0 Long-term accrued expenses 0 0 Long-term internal payables of capital 0 0 Long-term internal payables 0 0 24.193 23.329 22.465 21.601 21.601 208.266 247.138 86.942 93.021 114.047 7.311.936 3.395.743 1.455.930 1.963.867 7.510.120 Convertible bonds 0 0 Preference shares 0 0 117.753 168.504 182.000 171.628 219.008 0 0 Provision for long-term liabilities 23.526 45.337 836.652 1.700.127 2.145.620 Scientific and technological development fund 20.347 20.631 15.831 9.695 3.687 EQUITY 43.271.509 46.867.125 49.614.531 49.499.681 52.192.731 Equity and funds 43.271.509 46.867.125 49.614.531 49.499.681 52.192.731 Share capital 19.139.500 19.139.500 19.139.500 19.139.500 19.139.500 Common stock 19.139.500 19.139.500 19.139.500 19.139.500 19.139.500 0 0 189.747 210.680 0 0 210.680 210.680 210.680 Other capital 255.319 255.319 196.659 196.659 196.659 Treasury shares -40.111 0 0 Asset revaluation reserve 0 0 Foreign exchange differences reserve 0 0 14.849.894 14.862.130 18.844.380 18.853.827 21.053.840 0 0 Statutory obligations Payables to employees Short-term unearned revenues Other payables Short-term loan Short-term provision Non-current liabilities Unearned revenues Other long-term liabilities Long-term loans Deferred tax liabilities Severance allowance reserve Preference shares Share premium Convertible bond options Investment and development fund Enterprise re-organisation support fund Fund financial reserve 0 0 6.287 6.287 6.287 6.287 6.287 Undistributed earnings 7.089.032 10.598.838 10.109.461 10.028.673 10.487.292 Undistributed earnings/Accumulated losses up to prior year-end 1.353.669 3.110.218 59.909 2.319.480 1.959.967 Net profit/loss after tax this period 5.735.363 7.488.621 10.049.553 7.709.193 8.527.326 Non-controlling interests 1.781.841 1.794.371 1.107.565 1.064.055 1.098.473 State budget and other funds 0 0 Welfare and reward fund (before 2010) 0 0 State budget 0 0 Funds that form of fixed assets 0 0 Minority Interest 0 0 61.889.343 62.614.420 62.178.787 63.208.401 78.768.075 Other funds TOTAL LIABILITIES AND EQUITY P&L STATEMENT ITEMS Revenue Unit: Million VND 2017 2018 2019 2020 2021 64.830.158 75.976.346 75.310.107 64.134.965 78.992.156 -307.717 -364.799 -304.809 0 64.522.441 75.611.546 75.005.297 64.134.965 78.992.156 -49.359.543 -58.120.228 -58.086.689 -52.728.950 -65.006.501 15.162.898 17.491.319 16.918.609 11.406.016 13.985.655 1.272.001 1.476.548 1.664.551 1.451.118 1.186.807 Finance expenses -429.584 -616.615 -240.940 -169.135 -402.749 - In which: Interest expense -280.096 -440.018 -197.610 -101.218 -304.139 -874 -3.573 -505 -11.351 15.053 Selling expenses -2.426.235 -2.638.679 -2.394.375 -1.943.005 -2.132.583 General and administrative expenses -1.109.175 -1.127.932 -875.266 -769.205 -1.479.072 Operating profit/(loss) 12.469.031 14.581.068 15.072.074 9.964.438 11.173.111 Other income 163.296 39.089 16.104 50.448 83.103 Other expenses -44.289 -80.235 -19.915 -36.822 -51.216 Other net income 119.007 -41.146 -3.811 13.626 31.887 Profit/(loss) from joint venture company (from 2015) 0 0 Net profit/(loss) before taxes 12.588.038 14.539.922 15.068.263 9.978.064 11.204.998 Income taxes-current -2.618.775 -2.778.439 -2.967.382 -2.037.319 -2.304.278 -31.470 -52.917 -15.230 31.046 -48.908 Deductions Net revenue COGS Gross profit Finance income Profit/(loss) from joint venture company Income taxes – deferred Income tax expenses -2.650.245 -2.831.356 -2.982.612 -2.006.273 -2.353.186 Net profit/(loss) after taxes 9.937.793 11.708.565 12.085.651 7.971.791 8.851.812 252.929 254.597 183.403 116.835 178.847 9.684.864 11.453.969 11.902.248 7.854.956 8.672.965 Minority Interest Shareholders’ profit of parent company CASHFLOW STATEMENT ITEMS 2017 2018 2019 2020 Unit: Million VND 2021 Net cash from operating activities 14.385.550 12.421.888 12.680.918 7.330.399 7.594.821 Profit/(loss) before changes in working capital 14.432.298 16.540.817 17.191.578 12.269.263 14.083.883 Profit before taxes 12.588.038 14.539.922 15.068.263 9.978.064 11.204.998 2.713.287 2.828.502 2.691.352 2.554.098 3.073.272 0 0 Provisions expense 98.854 23.995 836.352 933.524 738.512 Profit/(loss) on unearning exchange rate differences -23.436 106.171 -17.215 18.570 -128.144 0 0 -1.224.540 -1.400.877 -1.584.783 -1.316.212 -1.108.893 280.096 440.018 197.610 101.218 304.139 Earning interest and dividends 0 0 Other adjustments 3.086 0 (Increase)/decrease in accounts receivable 2.711.910 -1.147.990 -702.159 -960.720 -7.153.186 (Increase)/decrease in inventories -357.953 -280.603 277.061 -83.857 -1.612.418 Increase/(decrease) in accounts payable 951.119 1.525.692 -401.099 -192.157 7.800.920 Increase/(decrease) in prepaid expenses -146.973 -266.852 -142.272 -168.110 -2.740.310 (Increase)/decrease in trading securities 0 0 -301.821 -447.432 -275.509 -95.440 -262.442 -2.399.908 -3.112.740 -2.853.006 -2.090.390 -2.274.967 Depreciation of fixed assets Allocation of goodwill Profit/(loss) proceeds from disposal of fixed assets Profit/(loss) on investing activities Interest expenses Paid interests Paid enterprise income tax Other proceeds from operating activities 13.084 1.102 0 -516.206 -390.107 -413.676 -1.348.190 -246.658 Net cash flows from operating activities -8.691.210 -7.314.509 -4.722.133 99.125 -6.755.056 Expenditures on purchase fixed assets and long-term assets -2.179.626 -692.464 -2.690.311 -4.173.690 -4.747.173 17.297 19.260 1.475 26.793 180.668 Expenditures on loans and purchase of debt instruments -15.003.900 -18.707.004 -37.350.400 -29.153.946 -41.510.884 Proceeds from lending or repurchase of debt instruments 7.325.000 10.681.900 34.030.200 31.865.500 38.324.295 Expenditures on equity investments in other entities 0 0 Proceeds from equity investment in other entities 24.753 25.422 1.470.288 0 Proceeds from interests, dividends and distributed profits 1.125.266 1.358.376 -183.385 1.534.467 998.038 Cash flows from financial activities -5.728.942 -11.905.051 -10.188.116 -6.668.268 -774.267 Proceeds from issuance of shares and receipt of contributed capital 60.952 0 Repayment of contributed capital and repurchase of stock 0 0 Proceeds from borrowings 10.466.012 2.524.748 2.344.153 2.201.825 6.246.928 Repayment of principal -8.910.736 -6.822.152 -4.294.385 -2.020.031 -1.156.322 -19.652 -12.799 -7.900 0 -7.264.566 -7.655.800 -8.229.985 -6.850.062 -5.864.873 0 0 -34.602 -6.797.672 -2.229.332 761.256 65.498 Other expenditures on operating activities proceeds from disposal of fixed assets Repayment of financial principal Dividends paid to owners Interest received Net cash flows during period Cash and cash equivalents at the beginning of period Effect of exchange rate cash and cash equivalents at the end of period 13.537.561 13.502.017 6.705.645 4.475.889 5.237.247 -942 1.300 -425 101 -2.414 13.502.017 6.705.645 4.475.889 5.237.247 5.300.331 Compare the price you estimate and market price in order to make a decision on buying/selling/holding the stock Based on the results of the assessments, in the short term, we recommend HOLD for GAS stock The current price on September 28, 2022 for the stock ticker GAS is VND 104,000, while our calculated actual valuation (108,300 VND) is undervalued Our valuation relies on two critical valuation methodologies -FCFF and P/E, with a respective weight of 50% and 50% in our terminal price Meanwhile, for the long-term view, we recommend BUY for GAS stock, with a 1-year target of VND 128,000/share, corresponding to a potential upside of 23% This assessment is based on the assessment of securities companies (Vndirect, Ban Viet, Phu Hung, SSI, Mirae Asset, Maybank Kim Eng, HCMC) about the target price of GAS stock in the next 12 months in the past months Specifically, SSI uses both discounted Cash Flow to Company (FCFF) and Cash Flow to Equity (FCFE) methods with a weight of 1:1, representing a balanced view of the benefits to shareholders and internal to the company Their estimate is based on the assumption that Brent oil prices will be 95 USD/barrel in 2022 and 85 USD/barrel in 2023 In 2023, they estimate GAS will record a slight decrease in business results, specifically forecast profit forecast to decrease 5.1% y/y, mainly due to lower oil prices in 2023 However, they believe GAS will see an increase in gas output (up 10% y/y) Other factors impacting their recommendation are lower-than-estimated dry gas production and fuel prices  ... detail, to calculate equity value from enterprise value, subtract debt and debt equivalents (total bank loans in short- and long-term), noncontrolling interest and preferred stock, and add cash and. .. value of debt by the sum of short-term and long-term loans (borrowing) and as a result affect to the Total Asset (=Total Equity + short-term and long-term loans) Million VND 2017A Total Assets... of average ratio to interpret the future Capital Expenditures and Depreciation: Million VND Net Fixed Assets Historical Cost Capex Capex/Sales Depreciation Annual Depreciation rate 2017A 15.395.529