group assignment

Reasons for choosing research topics Objectives of the research problem is to clarify the financial situation of vinamilk, from which evaluating the value of this company bring some cha

GROUP ASSIGNMENT

THE CHANCE TO INVEST IN VINAMILK

GROUP 3

GROUP MEMBER KIEU TIEN DAT

LUU VIET ANH TRINH VIET DUNG DUONG DUC NAM DOAN DANH DAI

CLASS SB 703

LECTURE LÊ THỊ THU TRANG

Contents

I ABSTRACT 4

1 Reasons for choosing research topics 4

2 Question and Objective 4

II INTRODUCTION 5

1 Research Issues 5

2 Background 5

III LITERATURE REVIEW 6

1 Concept 6

 Investment opportunity 6

 Enterprise value 6

 The needs of business valuation 6

 Market measurement ratio 7

2 Methods 7

 The methods of business valuation 7

 Market measurement ratio 8

 Price to Earnings (P/E) 8

Formula: Price to Earnings = Market Value per Share / Annual Earnings per Share 8

 PEG Ratio 8

PEG Ratio = Price to Earnings / Annual EPS Growth Annual EPS Growth is stated as % x 100 9

 Dividend Yield 9

Dividend Yield (%) = (Market Price per Share / Dividends per Share) x 100 9

 Price to Book value 9

Price to Book = Market Price per Share / Book Value per Share 9

IV METHODOLOGY 9

1 Method 9

2 Nature of Research Design 10

3 Data source: Secondary 11

4 Procedure 11

V FINDING 12

1 Free Cash Flow estimation and Firm valuation 12

 State underlying assumptions and the basis for those assumptions 12

 Pro Forma Income Statement 16

 Pro forma balance sheet: 17

5 We chose the stable growth to estimate value of Vinamilk by some reasons: 18

 Calculate the Firm Value 18

VI CONCLUSION AND RECOMMENDATION 20

1 Evaluate assumption 20

2 Evaluate the appropriateness of the estimation 20

3 Investment suggestion 20

1 Reasons for choosing research topics

Objectives of the research problem is to clarify the financial situation of vinamilk, from

which evaluating the value of this company bring some chances to invest in this.From which

we make some suggestions to help businesses clearly see fluctuations in the future financial

and have consistent solutions On the other hands, improving the views of investor about

this company And so Vinamilk can increase competitive ability with another company Base

on this, trademark of Vinamilk can compete in world market

2 Question and Objective

 Questions

 What is the method using to evaluate firm value?

 What is the position of this company?

 What is the recommendation to investor to invest in Vinamilk?

 Objectives

 Analyzing data from financial report of Vinamilk(Calculating WACC, r(E),r(D), FCFF)

to evaluate the company’s value

 Clarify the company’s position

 Improving recommendation for investor

 Finding

 Explore: We use Vinamilk’s financial statement from 2009 to 2012 to forecast financial

statement of Vinamilk in 2013

 Explain: We use common size income statement in 2012 to caculate some value in income

statement and then we can complete Vinamilk’s Pro Forma Income Statement in 2012

And we use historical data to calculate Beta of Vinamilk

 Evaluate: Evaluate firm value

II INTRODUCTION

1 Research Issues

Research History: There are about 9 researchers about this issue They use historical data to

evaluate this company and so it doesn’t suit for this period Furthermore, They use historical

data to calculate Beta for this company, It has error result

The gaps: we revaluating the value of this company base on some theses and analyze report:

equity research of Sacombank and use some ratio such as ROA, ROE, ROI

2 Background

Organizehistory: Vinamilk is the

biggest dairy company in Vietnam Based on

the UNDP 2007 Top 200 largest firms in

Vietnam report, it is also the 15th largest

company in Vietnam In 2010, it is the first

company in Vietnam to be included in the

Forbes Asia's 200 Best Under A Billion list

that highlights 200 top-performing small- and

mid-sized companies with annual revenue

under US$1 billion

The company was established in 1976 as the

state-owned Southern Coffee-Dairy Company,

to nationalize and take over the operations of

three previously private dairy factories

in South Vietnam: Thống Nhất (belonging to a

Chinese company), Trường Thọ (formerly

owned by Friesland Foods, best known for its

production of condensed milk that was widely

distributed across the South), and Dielac (Nestlé) Vinamilk was then renamed to United

Enterprises of Milk Coffee Cookies and Candies I in 1978 and finally Vietnam Dairy

Vietnam Dairy Products Joint Stock Company (Vinamilk)

Type Joint-stock company

Industry Dairy products, juice

Founded 1976

Headquarters Ho Chi Minh City, Vietnam

Area served Vietnam, Middle

East,Cambodia, Australia and thePhilippines

Key people Mai Kieu Lien Chairwoman/CEO

Services General clinic, investing, real estate

Website www.vinamilk.com.vn

Company was formally established in 1993 In 2003, follows its IPO to the Ho Chi Minh

Stock Exchange, the company legally change its name to Vietnam Dairy Products Joint

Stock Company (Vinamilk) The principal activities of the Vinamilk are produce and

distribute condensed milk, powdered milk, fresh milk, soya milk, yogurts, ice-cream, cheese,

fruit juice, coffee and other products derived from milk

Products:Vinamilk products such as powdered milk and condensed milk are also exported

to the Middle East, Cambodia, the Philippines and Australia Exports accounted for $180m

in 2012 Vinamilk's main competitors are Dutch LadyVietnam, a division of Friesland

Foods, Nestlé Vietnam, Abbott, Mead Johnson, Friso and Nutifood

III LITERATURE REVIEW

1 Concept

 Investment opportunity

An investment opportunity is any situation where you have the option of purchasing

something that has a chance to gain value in the future Investment opportunities are different

from investment prospects, which refer to possible future investment opportunities The key

to making money through investing is knowing which opportunities to take advantage of and

how to manage them

 Enterprise value

 Enterprise value: Enterprise value is the existing benefits and the potential profits a

business can be able to create value in the form that we can calculate, determined by the

method, model appropriate price

 Business valuation is the process of determining the actual value of a business at a certain

point on the basis of the market in order to create a basis for the parties to business

transactions

 The needs of business valuation

 Determining value to the current status of the company before making a final decision

They want to know the businesses to assist the process of restructuring of the equity

First, shareholders or investors want to capture in detail opportunities and potential for

future development of the business

 Business valuation help businesses prepare for the issuance of bonds for the first time to

the public (IPO) Stock Market imposes certain requirements and certain rules about the

types of information that companies must publicly in the IPO documents "Business

valuation" determines and indicates the core activities of the company and the

opportunities as well as risk factors IPO's success depends heavily on the preparation

process Lack of thorough preparation, the parties relating to the IPO may have to cope

with the difficulties and the company can be reduced significantly value upon listing,

thereby adversely affecting benefits of the owners

 Business valuation help improve the company's overall operations before actually less

efficient operating condition The process of determining the value of the business will

objectively assess the strengths and weaknesses of the company By identifying and

pointing out problems or areas is most evident weaknesses of the company, the process

of "Business Valuation" is a tool to help companies assess objectively or "unlock"

opportunities / potential and increase shareholder value for the present and future

 Market measurement ratio

 A ratio used to find the value of a company by comparing the book value of a firm to its

market value Book value is calculated by looking at the firm's historical cost, or

accounting value Market value is determined in the stock market through its market

capitalization

2 Methods

 The methods of business valuation

 The method base on asset: the method for calculating enterprise value based on the

market value of the total assets of the enterprise

Formula: VE=VA-VD

VE: Market value of equity

VA: Market value of total assets

VD: Market value of Debt

 Discounted cash flow method: the method for calculating enterprise value bases on the

profitability of the business in future

Weighted average cost of capital (WACC)

 Market measurement ratio

 Price to Earnings (P/E)

Formula: Price to Earnings = Market Value per Share / Annual Earnings per Share

 PEG Ratio

= Firm's cost of equity (Chapter 2)

E = Market value of firm's equity

= Firm's cost of debt (Chapter 2)

= Firm's tax rate

D = Market value of firm's debt

E D E D where

Long-term FCF growth rate

Common choice: g = real growth + inflation

N

FCF g Terminal value

WACC g where

WACC WACC WACC

PEG Ratio = Price to Earnings / Annual EPS Growth

Annual EPS Growth is stated as % x 100

 Dividend Yield

Dividend Yield (%) = (Market Price per Share / Dividends per Share) x 100

 Price to Book value

Price to Book = Market Price per Share / Book Value per Share

IV METHODOLOGY

1 Method

Approach:We use abuductive method In our thesis, we apply both deductive and Inductive

 Deductive: Base on information of vinamilk’ financial reports that we collect from

Vinamilk’ homepage and some reputation financial website (cafef.vn,

finance.vietstock.vn/), we analyse and make clear Vinamilk’ financial indexes

 Inductive: Base on analysis Vinamilk’ financial indexes, We give some conclusions

about Vinamilk’ financial strength, and give some advices for investors that how should

invest to Vinamilk

The method what we choose will affect your results and how we conclude the findings Most

scientists are interested in getting reliable observations that can help the understanding of a

phenomenon.There are two main approaches to a research problem: Quantitative research

and qualitative research.In this research we use both of methods:

 Quantitative research: Quantitative research design is the standard experimental

method of most scientific disciplines It is the opposite of qualitative research

Quantitative experiments all use a standard format, with a few minor inter-disciplinary

differences, of generating a hypothesis to be proved or disproved This hypothesis must

be provable by mathematical and statistical means, and is the basis around which the

whole experiment is designed Randomization of any study groups is essential, and a

control group should be included, wherever possible Ideally, the research should be

constructed in a manner that allows others to repeat the experiment and obtain similar

results.In this report, we use data from financial report to calculate firm value

 Qualitative research: Qualitative research is often regarded as a precursor to

quantitative research, in that it is often used to generate possible leads and ideas which

can be used to formulate a realistic and testable hypothesis This hypothesis can then be

comprehensively tested and mathematically analyzed, with standard quantitative

research methods These qualitative methods are often closely allied with interviews,

survey design techniques and individual case studies, as a way to reinforce and evaluate

findings over a broader scale.This data in the report will give us the views of investor for

this firm, the position of this company in the industry

2 Nature of Research Design

 Descriptive: Describe the position of this company

The results from a descriptive research can in no way be used as a definitive answer or to

disprove a hypothesis but, if the limitations are understood, they can still be a useful tool in

many areas of research Descriptive research design is a valid method for researching

specific subjects and as a precursor to more quantitative studies

In this thesis we will describe data (finance reports of vinamilk) then use theory to make

clearly the project

 Explanatory: Explaining the meaningful of numbers from financial report of this firm

Exploratory research often relies on secondary research such as reviewing available

literature and data, or qualitative approaches such as evaluate database (financial report)

through in-depth focus group, research method

 Evaluative: Evaluating the chance to invest in Vinamilk

Base on describing data from financial report, there for explaining that, along with the some

advices from investors, we evaluate and give some conclusions about Vinamilk’ financial

strength

Deductive: Base on information of vinamilk’ financial reports that we collect from

Vinamilk’ homepage and some reputation financial website (cafef.vn,

finance.vietstock.vn/), we analyse and make clear Vinamilk’ financial indexes

Inductive: Base on analysis Vinamilk’ financial indexes, We give some conclusions about

Vinamilk’ financial strength, and give some advices for investors that how should invest to

Vinamilk

3 Data source: Secondary

a Financial report from websites

- http://www.vinamilk.com.vn/ Vinamilk uses its website www.vinamilk.com.vn as an

official information webpage for its customers Regularly, Vinamilk will supplement,

improve and update the information and function

- http://cafef.vn/and http://finance.vietstock.vn/ Top two financial website in Viet Nam

- Theory: Source-book Fundamentals of Corporate Finance, by Brealey, Myers and Marcus,

provides students with a solid framework of theory and application to use well after they

complete the course This author team is known for their outstanding research, teaching

efforts, and world-renowned finance textbooks, so it's no surprise that they provide clear

exposition of difficult material without sacrificing up-to-date, technically correct treatments

4 Procedure

Our group has consistent that we will use secondary data searching online because of its

advantages In detail, it is inexpensive if our group plan and manage well; vast quantities of

data available

The official website of Vinamilk (http://www.vinamilk.com.vn/) providesmost important

data whichare using Besides, we gain additional information from top financial website such

as http://cafef.vn/and http://finance.vietstock.vn/

All data are copies of official documents and it is collected at 15th February.All data that we

areobtained have consistency from all three website

Twopeople who are responsible for collecting the data and entering it in the database are

Dung Trinh Viet and Nam Duong Duc And three people left (Luu Viet Anh, KieuTienDat,

DoanDanh Dai) are responsible for transforming the raw data in to the form we are working

on

V FINDING

1 Free Cash Flow estimation and Firm valuation

We use Vinamilk’s financial statement from 2009 to 2012 to forecast financial statement of Vinamilk

in 2013 As you can see from the graph in the period from 2009 to 2012 Vinamilk shows the increased

stability about revenue, assets … and we believe that in 2013 Vinamilk will continue keep the stable

growth.And we forecast some index base on historical data:

 State underlying assumptions and the basis for those assumptions

 Sales growth: From the income statement of Vinamilk, we caculate the sales growth from 2009

The sales growth of milk industry in Viet Nam is about 20% And so you can see that Vinamilk

always have a high sales growth in comparison with industry However the sales growth of Vinamilk