(Luận văn) alternative methods to evaluate dhg stock price

ACKNOWLEDGE This report would never have been possible without the consistent support and assistance of the people whom I approached during the various stages of writing this essay Firstly, I would like to express my heartfelt gratitude to my academic supervisor Mrs Hang Phuong lecturer of Academy of Policy and Development, for her valuable advice, encouragement, direction, and assistance Writing this essay would have been impossible without her guidance Next, I thank the ISEF teachers for their help and teach me valuable lu an knowledge for years That really helps me to complete the essay and use the n va skills I have learned to analyze more clearly and in more detail p ie gh tn to d oa nl w nf va an lu z at nh oi lm ul z m co l gm @ an Lu n va ac th si lu an n va p ie gh tn to d oa nl w nf va an lu z at nh oi lm ul z m co l gm @ an Lu n va ac th si PREFACE Vietnam's economy has been recovering strongly in recent years, creating favorable conditions for the stock market to develop However, the size of the market is still relatively small and there is a lot of potential for future boom In order to create a healthy competitive market, specialized analytical studies are required, especially studies on market volatility, changes in business lines, price fluctuations of the stock, the risks of investors when entering the stock market Recognizing this, I decided to choose the subject: “ALTERNATIVE METHODS TO EVALUATE DHG STOCK PRICE ” DHG shares are one of the stocks that have received a lot of market attention, including individuals and lu an organizations However, there are still not many in-depth reports from financial n va institutions, besides the information about DHG still asymmetric information tn to phenomenon in the market So, I make this report with the aim of providing the gh most objective, unbiased information about the DHG stock code combined with p ie the investment advice of the clients of the internship-company and small w investors in the market In addition, the report also shows a part of the process of oa nl securities investment analysis and securities dealing at the company, thereby helping the company to perfect these processes d lu an The content of this report is mainly focus on analyzing performance of DHG nf va PHARMA over years, combine with the fluctuation of macroeconomic and lm ul industry, so that can release assumptions to build a pricing model for DHG stock and give results at last The report also consult information and calculation of z at nh oi other pricing report of securities companies to have a objectivity look about DHG stock z gm @ I have tried to be extremely meticulous in preparing this report despite the various limitations faced as very limited information about pharmaceutical l industry m co an Lu n va ac th si INTRODUCTION Research objective • Research Question: How we identify the fair value of DHG’s stock? • General Objective: Using Literature Review and Data analysis to find out the value of DHG’s stock • Specific Objective: Analyzing the global economic condition and the developments of global and domestic pharmaceutical industry lu Basing on the research of the economics changes and external/internal an pharmaceutical industry which use for showing the effect to DHG and analyzing va n the business performance of DHG for forecasting the potentials of DHG in four gh tn to consecutive years (2019-2022) Using suitable valuation methods to determine the intrinsic value of DHG’s stock ie p and comparing this value with the market price so as to whether DHG has been oa nl w overvalued or undervalued Relying on the valuation outcome and then recommending investors whether d nf va Research Object an lu they should invest in this stock or not • Time limited: 2015-2018 z • Venue limited: Viet Nam z at nh oi Research Scope lm ul • DHG Pharmaticeutical Joint Stock Company (DHG) stock price @ l gm Research Methods: co  Literature Review m  Ratio analysis an Lu  FCFF n va  FCFE ac th si  Valuation by comparable Research Structure My dissertation will be separated into chapters: • Chapter 1: Literature Review • Chapter 2: Global, Domestic context and Performance of DHG • Chapter 3: DHG stock valuation and Recommendation lu an n va p ie gh tn to d oa nl w nf va an lu z at nh oi lm ul z m co l gm @ an Lu n va ac th si CHAPTER 1: LITERATURE REVIEW 1.1 Definition 1.1.1 Stock market According to the Economic Times1, stock market is a place where shares of pubic listed companies are traded The primary market is where companies float shares to the general public in an initial public offering (IPO) to raise capital The Investopedia2 had written the detail definition for the stock market The stock market refers to the collection of markets and exchanges where regular activities of buying, selling and issuance of shares of publicly-held companies lu an take place Such financial activities are conducted through institutionalized n va formal exchanges or over-the-counter (OTC) marketplaces which operate under a tn to defined set of regulations There can be multiple stock trading venues in a country or a region which allow transactions in stocks and other forms of gh p ie securities While both terms - stock market and stock exchange - are used interchangeably, the latter term is generally a subset of the former If one says nl w that she trades in the stock market, it means that she buys and sells d oa shares/equities on one (or more) of the stock exchange(s) that are part of the an lu overall stock market Leading stock exchanges in the U.S include the New York nf va Stock Exchange (NYSE), NASDAQ, BATS and Chicago Board Options Exchange (CBOE) These leading national exchanges, along with several other lm ul exchanges operating in the country, form the stock market of the U.S z at nh oi Though it is called a stock market or equity market and is primarily known for trading stocks/equities, other financial securities - like exchange traded funds z (ETF), corporate bonds and derivatives based on stocks, commodities, currencies co l gm @ and bonds - are also traded in the stock markets m The Economic Times is an English daily newspaper published in India, first in 1961 This is the second most widely read English business newspaper in the world, just behind The Wall Street Journal of America.(www.economictimes.indiatimes.com) Investopedia is a New York City-based US website that focuses on financial investment and education along with reviews, ratings and comparison of various financial products such as brokerage accounts.(www.investopedia.com) an Lu n va ac th si 1.1.2 Stock  A stock (also known as "shares" or "equity) is a type of security that signifies proportionate ownership in the issuing corporation This entitles the stockholder to that proportion of the corporation's assets and earnings.(Investopedia.com)  Stocks are of two types—common and preferred Common stocks, also known as equity securities or equities, represent ownership shares in a corporation Each share of common stock entitles its owner to one vote on any matters of corporate governance that are put to a vote at the corporation’s annual meeting and to a share in the financial benefits of lu an ownership.3 n va The corporation is controlled by a board of directors elected by the shareholders tn to The board, which meets only a few times each year, selects managers who actually run the corporation on a day-to-day basis Managers have the authority gh p ie to make most business decisions without the broad’s specific approval The broad’s mandate is to oversee the management to ensure that it acts in the best nl w interest of shareholders d oa The members of the broad are elected at the manual meeting Shareholders who an lu not attend the annual meeting can vote by proxy, empowering another party to nf va vote in their name Management usually solicits the proxies of shareholders and normally gets a vast majority of these proxy votes Thus, management usually lm ul has considerable discretion to run the firm as it sees fit – without daily oversight z at nh oi from the equity holders who actually own the firm Characteristics of Common stock, as an investment are its residual claim and z limited liability features Residual claim means that stockholder are the last in @ gm line of all those who have a claim on the assets income of the corporation In a l liquidation of the firm’s assets the shareholders have a claim to what is left after m co all other claimants such as the tax authorities, employees, suppliers, bondholders, an Lu and other creditors have been paid For a firm not in liquidation, shareholders n va A corporation sometimes issues two classes of common stock, one bearing the right to vote, the other not Because of its restricted rights, the nonvoting stock might sell for a lower price ac th si have claim to the part of the operating income left over after interest and taxes have been paid Management can either pay this residual as cash dividends to shareholders or reinvest it in their business to increase the value of the shares Limited liability mean that the most shareholder can lose in the event of failure of the corporation is their original investment Unlike owners of unincorporated businesses, whose creditors can lay claim to the personal assets of owner (house, car, furniture), corporate shareholders may at worst have worthless stock They are not personally liable for the firm’s obligations Preferred stock has features similar to both equity and debt Like a bond It promises to pay to its holder a fixed amount of income each year In this sense lu an preferred stock is similar to an infinite-maturity bond, that is, a perpetuity It also n va resembles a bond in that is does not convey voting power regarding the firm retains discretion to make the dividends Instead, preferred dividends are gh tn to management of the firm Preferred stock is an equity investment, however The p ie usually cumulative; that is, unpaid cumulate and must be paid in full before any dividends may be paid to holders of common stock In contrast, the firm does nl w have a contractual obligation to make the interest payments on the debt Failure nf va an 1.1.3 Valuation lu (Investments4) d oa to make these payments sets off corporate bankruptcy proceedings lm ul Valuation is the analytical process of determining the current (or projected) z at nh oi worth of an asset or a company There are many techniques used for doing a valuation An analyst placing a value on a company looks at the business's management, the composition of its capital structure, the prospect of future and the market value of z earnings, its assets, among other @ l gm metrics.(Investopedia.com) 1.1.4 Intrinsic value m co Intrinsic value is the perceived or calculated value of a company, including an Lu tangible and intangible factors, using fundamental analysis Also called the true Zvi Bodie, Alex Kane, Alan J.Marcus, Ravi Jain (2014) Investments, th Ed McGraw Hill P 44 n va ac th si value, the intrinsic value may or may not be the same as the current market value Additionally, intrinsic value is used in options pricing to indicate the amount that an option is "in the money."5(Investopedia.com) The goal of value investing is to seek out stocks that are trading for less than their intrinsic value There is no one method of evaluating a stock's intrinsic value, and two investors can form two completely different (and equally valid) opinions on the intrinsic value of the same stock However, the general idea is to buy a stock for less than its worth, and evaluating intrinsic value can help you just that (The Motley Fool, fool.com) 1.1.5 Valuation methods lu an An appropriate valuation method is one which has the ability to incorporate va n all relevant factors that have a material effect on the fair value of investment To tn to value a business, choosing the correct equity valuation method is extremely ie gh important And that is hard step for the investor to choose the suitable methods p which will calculate the closest figures nl w In the investing course of Investopedia shows that when deciding which d oa valuation method to use to value a stock for the first time, it's easy to become lu overwhelmed by the number of valuation techniques available to investors There nf va an are valuation methods that are fairly straightforward while others are more involved and complicated Unfortunately, there's no one method that's best suited lm ul for every situation Each stock is different, and each industry or sector has unique  z at nh oi characteristics that may require multiple valuation methods Valuation methods typically fall into two main categories z a, Absolute valuation models attempt to find the intrinsic or "true" value of an @ gm investment based only on fundamentals Looking at fundamentals simply means l you would only focus on such things as dividends, cash flow, and the growth rate m co for a single company – and not worry about any other companies Valuation an Lu n va In the money (ITM) is a term connected to an option contract ITM indicates that the option has value in a strike price favorable in comparison to the prevailing market price of the underlying asset ac th si models that fall into this category include the dividend discount model, discounted cash flow model, residual income model, and asset-based model  Discounted cash flow (DCF) Discounted cash flow (DCF) is a valuation method used to estimate the value of an investment based on its future cash flows DCF analysis finds the present value of expected future cash flows using a discount rate A present value estimate is then used to evaluate a potential investment If the value calculated through DCF is higher than the current cost of the investment, the opportunity should be considered lu  an - The advantages of DCF va DCF offers the closest estimate of a stock’s intrinsic value It’s considered n the most sound valuation method if the analyst is confident in his or her to gh tn assumptions Unlike other valuation methods, DCF relies on free cash flows, considered to p ie - DCF isn’t significantly influenced by short-term market conditions or non- oa nl - w be a reliable measure that eliminates subjective accounting policies d economic factors lu DCF is particularly useful when there’s a high degree of confidence nf va an - regarding future cash flows The disadvantages of DCF z at nh oi - lm ul  DCF valuation is very sensitive to the assumptions/forecasts made by the analyst Even small adjustments can cause DCF valuation to vary widely – z which means the fair value may not be accurate @ DCF tends to be more time-intensive compared with other valuation gm - co DCF involves forecasting future performance, which can be very difficult, m - l techniques an Lu especially if the company isn’t operating with 100% transparency n va ac th si I believe in near future the shares of DHG will raise sharply In 2018, DHG shares after a series of strong price increases in early 2018 were just adjusted, falling to approximately 114,500 dong / share at the beginning of January 2019 However, immediately after that DHG rebounded and is currently trading around VND 126,106.5 / share Temporarily calculated according to this price, Taisho Pharma will spend about VND 86 billion to buy the number of registered shares Business results in 2018, Hau Giang Pharmaceutical reached 3,888 billion VND revenue, up 4% compared to 2017 and only completed 97% of the year plan Profit after tax reached 651.6 billion, a slight increase over the same period EPS reached VND 4,730 / share So, in 2019, the revenue will higher than 2018 lu revenue, and, all ratio and number which i use to estimate show the strong an va increase is feasible So, I recommend BUY stocks of DHG Pharma with the n current price 119,350 and you will have the profit of each stock is 1.03% gh tn to 3.2.2 For Government Building reference database system for enterprise valuation - p ie Some recommendations to the state complete the current valuation of enterprises nl w First, the government needs to establish or focal point to store enterprise data on d oa a national scale an lu Second, the government needs to allow and promote support to establish credit rating and rating companies for businesses or allow this type of foreign company nf va to operate in the territory of Vietnam lm ul Third, it is necessary to urgently build a database of state statistics for the z at nh oi industry average financial indicators by relying on financial reports such as: balance sheet, report income and audit reports Fourth, accelerating the development of the stock market, z Healthy financial and handling backlog before valuing businesses: In order gm @ - to carry out business valuation to achieve high results, before valuing enterprises, l co enterprises need to deal with outstanding financial problems, especially debts that m cannot be collected and stagnant supplies, assets and goods lose the quality of an Lu enterprises n va 78 ac th si - Complete the selection of business valuation organizations: In order to enhance the professionalism of enterprise valuation, the state has abolished the mechanism of enterprise valuation under the council mechanism This is absolutely true because in a market economy valuation is a profession Professionalism requires valuation organizations to have professional competence, ethics, practice must be based on uniform principles, standards and methods At the same time, the organization of valuation of enterprises must have a team of people with certain qualifications lu an n va p ie gh tn to d oa nl w nf va an lu z at nh oi lm ul z m co l gm @ an Lu n va 79 ac th si CONCLUSION Business valuation is an indispensable part for investors when buying stocks And the evaluation and analysis from the market to the detailed understanding of the meaning of the numbers to see an overview of a company's stock valuation is difficult for all investors In addition, each investor will have a way of analyzing and making different results but the market trend of the company is only one, so it is easy to give a trend but to catch the opportunity to buy and selling it is another matter depending on agility and market experience This topic includes industry analysis, details of DHG and valuation of the lu an company's stock in appropriate ways Giving ideas about DHG in the period va 2015-2018 and predicting the sudden development of the pharmaceutical n industry as well as DHG in the coming time Finally, use valuation methods to gh tn to show the future trends and values of DHG In addition, make recommendations p ie for investors to buy and recommend to the state to have a better way to value d oa nl w investors nf va an lu z at nh oi lm ul z m co l gm @ an Lu n va 80 ac th si APPENDIX Appendix 1: Income Statement 2014-2018 (Thousand VND) 2014 2015 2016 2017 2018 3,958,709,910 4,151,727,487 4,153,858,991 4,569,014,010 4,427,208,856 46,191,766 543,967,664 370,814,214 506,260,546 539,431,685 Net Sales 3,912,518,144 3,607,759,823 3,783,044,776 4,062,753,464 3,887,777,171 Cost of goods sold 1,781,997,126 2,194,892,134 2,070,058,537 2,279,637,916 2,167,601,733 Gross profit 2,130,521,018 1,412,867,689 1,712,986,239 1,783,115,548 1,720,175,438 Financial income 37,139,878 34,338,648 57,818,264 88,779,692 107,785,027 Financial Expenses 67,340,674 89,481,890 84,755,579 97,684,684 96,053,992 4,838,877 8,730,565 12,492,352 24,541,141 28,523,707 -910,388 -187,904 -1,206,433 -86,928 1,098,587,378 457,613,535 631,639,530 732,085,284 726,356,614 312,775,808 262,310,173 297,318,503 318,385,524 287,126,165 688,957,036 636,890,351 756,902,987 722,533,315 718,336,766 36,844,503 84,857,448 15,121,096 6,756,814 18,209,846 GROSS SALE REVENUES Deduction revenues Of which: Interest Expenses lu an Profit or loss from join venture companies va n Selling Expenses gh tn to General and admin expenses p ie Net Profit from Operating activities Other incomes w Other Expenses 3,864,381 20,438,694 15,367,068 10,041,010 4,272,518 32,980,122 64,418,755 -245,972 -3,284,196 13,937,329 0 0 721,937,158 701,309,105 756,657,015 719,249,119 732,274,095 108,623,890 68,015,713 76,859,808 80,680,544 oa nl Other profits d Profit or lost from join venture companies (before 2015) 77,572,214 55,319,797 -5,760,984 -66,577 -20,986,730 -712,406 25,360,746 533,772,079 592,685,215 642,389,312 651,593,551 499,298 3,984,212 2,996,068 -18,665 -1,940,415 533,272,781 588,701,003 685,645,234 642,407,977 653,533,967 an Lu 688,641,302 Earnings per share m co l EBIT of Heading Company 89,002,443 gm Benefits of Minitory shareholders 108,690,467 @ Earnings before interest and taxes (EBIT) 193,926,063 z Deferred Income Taxes Expenses 188,165,079 z at nh oi Current Corporate Income Tax Expenses lm ul Corporate Income Tax Expenses nf va an lu Total profit before tax n va 81 ac th si Appendix 2: Income Statement Forecast 2019F - 2022F ( thousand VND) 2019 2020 2021 2022 4,737,113,476 5,068,711,419 5,423,521,219 5,803,167,704 440,551,553.26 4,296,561,923 1,894,845,390.37 2,401,716,532 94,742,270 108,953,610 471,390,162 4,597,321,257 2,027,484,568 2,569,836,690 101,374,228 116,580,363 504,387,473 4,919,133,745 2,169,408,487 2,749,725,258 108,470,424 124,740,988 539,694,596 5,263,473,107 2,321,267,082 2,942,206,026 116,063,354 133,472,857 32,686,083 34,974,109 37,422,296 40,041,857 47,371,135 781,623,723.53 50,687,114 836,337,384 54,235,212 894,881,001 58,031,677 957,522,671 293,701,036 314,260,108 336,258,316 359,796,398 1,170,067,029 47,371,135 4,737,113 28,422,681 1,251,971,721 50,687,114 5,068,711 30,412,269 1,339,609,741 54,235,212 5,423,521 32,541,127 1,433,382,423 58,031,677 5,803,168 34,819,006 1,241,123,731 1,328,002,392 1,420,962,559 1,520,429,938 lm ul 265,600,478.37 284,192,511.85 304,085,987.68 1,458,384,855.68 1,560,471,795.57 GROSS SALE REVENUES Deduction revenues Net Sales Cost of goods sold Gross profit Financial income lu an n va p ie gh tn to Financial Expenses Of which: Interest Expenses Profit or loss from join venture companies Selling Expenses General and admin expenses Net Profit from Operating activities Other incomes w Other Expenses d oa nl Other profits Profit or lost from join venture companies (before 2015) Total profit before tax Corporate Income Tax Expenses Current Corporate Income Tax Expenses Deferred Income Taxes Expenses Earnings before interest and taxes (EBIT) Benefits of Minitory shareholders EBIT of Heading Company nf va an lu 248,224,746.14 z at nh oi z 50,687,114 1,226,438,678.92 1,312,289,386.44 54,235,212 58,031,677 an Lu 47,371,135 m 1,362,976,500.63 co l gm @ 1,273,809,813.67 1,404,149,643.49 1,502,440,118.53 n va 82 ac th si Appendix 3: Balance sheet 2014-2018 ( thousand VND) lu an n va p ie gh tn to d oa nl w nf va an lu z at nh oi lm ul z m co l gm @ an Lu n va 83 ac th si Appendix :Balance sheet Forecast 2019F-2022F ( thousand VND) lu an n va p ie gh tn to d oa nl w nf va an lu z at nh oi lm ul z m co l gm @ an Lu n va 84 ac th si Appendix : Cash Flow Statement of DHG ( thousand VND) lu an n va p ie gh tn to d oa nl w nf va an lu z at nh oi lm ul z m co l gm @ an Lu n va 85 ac th si lu an n va p ie gh tn to d oa nl w nf va an lu z at nh oi lm ul z m co l gm @ an Lu n va 86 ac th si lu an n va p ie gh tn to d oa nl w nf va an lu z at nh oi lm ul z m co l gm @ an Lu n va 87 ac th si Appendix 6: Calculating Rm lu an n va p ie gh tn to d oa nl w nf va an lu z at nh oi lm ul z m co l gm @ an Lu n va 88 ac th si Appendix 7: Financial Ratio lu an n va p ie gh tn to d oa nl w nf va an lu z at nh oi lm ul z m co l gm @ an Lu n va 89 ac th si Appendix 8: Change in Balance Sheet and adjustment lu an n va p ie gh tn to d oa nl w Appendix 9: Change in Income statement and adjustment nf va an lu z at nh oi lm ul z m co l gm @ an Lu n va 90 ac th si Appendix 10: Calculate WACC lu an n va p ie gh tn to d oa nl w nf va an lu z at nh oi lm ul Appendix 11: PV (FCFF) z m co l gm @ an Lu n va 91 ac th si Appendix 12: PV (FCFE) lu an n va p ie gh tn to d oa nl w nf va an lu z at nh oi lm ul z m co l gm @ an Lu n va 92 ac th si