LV Thạc sỹ_IPO valuation activities in the vietnamese stock market

1 NATIONAL ECONOMICS UNIVERSITY ADVANCED EDUCATION PROGRAM ******************* THESIS IPO VALUATION ACTIVITIES IN THE VIETNAMESE STOCK MARKET – REAL SITUATION AND SOLUTIONS TABLE OF CONTENTS TABLE OF CONTENTS LIST OF FIGURES LIST OF CHARTS ABBREVIATION .5 ACKNOWLEDGEMENTS .6 ABSTRACT .7 INTRODUCTION CHAPTER I: OVERVIEW OF IPOs AND IPO VALUATION ACTIVITIES .10 1.1 Literature review on IPOs 10 1.1.1 IPO definition 10 1.1.2 Characteristics of IPOs 10 1.1.3 Benefits of IPOs 11 1.1.3.1 For issuers 11 1.1.3.2 For investors 11 1.1.3.3 For underwriters and other companies that consult, audit, and support the IPO process .12 1.1.3.4 For the stock market 12 1.1.4 Requirements for new applicants 12 1.1.5 IPO auction process in Vietnam 13 1.2 Literature review on IPO valuation 14 1.2.1 IPO valuation definition 14 1.1.2 The importance of valuation to Initial Public Offerings .15 1.2.3 Factors affecting IPO valuation process 15 1.2.3.1 Market factors 15 1.2.3.2 Issuer- related factors 16 1.2.4 Popular IPO valuation models 17 1.2.4.1 Discount model 17 1.2.4.2 Relative valuation 29 CHAPTER II REAL SITUATION OF IPO VALUATION ACTIVITIES IN VIETNAM 36 2.1 Overview of IPO activities in Vietnam 36 2.1.1 Factors determining the success of an IPO in the Vietnamese stock market .36 2.1.1.1 Issuers’ potential 36 2.1.1.2 Market condition 36 2.1.1.3 Issuance volume 37 2.1.1.4 Registration scale 37 2.1.1.5 Starting price 37 2.1.2 Real situation of IPO activities in the Vietnamese stock market 37 2.1.2.1 Brief of IPO activities in 2010 37 2.1.2.2 Brief of IPO activities in 2011 39 2.2 Real situations of IPO valuation activities in Vietnam 41 2.2.1 IPO valuation activities of IPO issuers 41 2.2.1.1 VCB valuation by Dividend Discount Model (DDM) 41 2.1.1.2 BVH valuation by net asset-based valuation method 49 2.2.1.3 MSN valuation using P/E comparison model 54 2.2.2 IPO valuation activities of investors 60 2.3 Evaluation .61 2.3.1 Evaluation on current IPO activities 61 2.3.1.1 Pros 61 2.3.1.2 Cons .63 2.3.2 Evaluation on current IPO valuation activities 66 2.3.2.1 Pros .66 2.3.2.2 Cons 68 CHAPTER III SOLUTIONS FOR IPO VALUATION IN THE VIETNAMESE STOCK MARKET 74 3.1 Tendency to issue IPOs in Vietnam for the period from 2011 to 2016 74 3.1.1 Investor’s opinion on IPO activities current situations 74 3.1.2 Tendencies of IPO activities years from now 76 3.2 Solutions to improve IPO valuation activities in the Vietnamese stock market 77 3.2.1 Solutions to the Government 77 3.2.1.1 Improve the legal framework on valuation and related legal documents .77 3.2.1.2 Improve the transparency of the Vietnamese’s stock market 78 3.2.1.3 Encourage the establishment of institutions to disclose information 79 3.2.1.4 Actively establish private valuation organizations .79 3.2.2 Issuers- related solutions 80 3.2.2.1 Solutions for companies which use discounted cash flow methods 80 3.2.2.2 Solutions for issuers which use the P/E comparison method 81 3.2.2.3 Solution for companies which use the net asset valuation model 81 CONCLUSION .82 REFERENCES .83 LIST OF FIGURES LIST OF TABLES Table Top 10 companies conducting IPOs with highest funds raised in the Vietnamese stock market in 2010 .38 Table 2 Shareholder structure of Vietcombank after IPO 42 Table Information of Vietcombank's IPO in 2007 43 Table Profit and dividend plan of Vietcombank from 2008-2010 44 Table Calculated Vietcombank's dividend growth 45 Table Vietcombank IPO valuation by Vietcombank Securities Ltd 46 Table BVH shareholders' equity structure based on book value .51 Table Industry average P/E of food processing industry 56 Table Predictions on Masan Group's key financial ratios by VietCaptial Securities Company 58 LIST OF CHARTS Chart VCB stock price movements from the first day listed on the HOSE to date (19/4/2012) 48 Chart 2 Vietcombank's business performance from 2007 to 2011 .49 Chart Shareholders' structure of Bao Viet Finance - Insurance Group (BVH) 50 Chart BVH stock price movements from the first day listed on the HOSE to date (19/4/2012) 53 Chart Shareholders' equity structure of Masan Group 55 Chart MSN stock price movements from the first day listed on the HOSE to date (19/4/2012) 59 Chart Factors negatively affecting the success of an IPO selected by Vietnamese investors 74 Chart Foreign investors' opinion on the effectiveness of the information disclosure via mass media in comparison with other stock markets in the same region 75 Chart 3 Most commonly used valuation methods by investors in the Vietnamese stock market 76 ABBREVIATION IPO Initial Public Offering VCB Joint Stock Bank for Foreign Trade of Vietnam BVH Bao Viet Finance-Insurance Group MSN Masan Group JSC Joint stock company Ltd Co Limited Company CAPM Capital Asset Pricing Model DDM Dividend Discount Model FCFE Free Cash Flow to Equity FCFF Free Cash Flow of Firm SOE State –Owned Enterprises ACKNOWLEDGEMENTS I would like to thank Asso Prof Dr Nguyen Thanh Ha for spending time guiding me through this study with constructive comments and advice Without his contribution, this thesis would not have been realized In addition, I would like to thank Mr Hoang Minh, my counselor at Deloitte Vietnam for recommending and introducing me this thesis topic Finally, I would like to thank my friends for sharing many suggestions with me and giving many feedbacks to this thesis ABSTRACT An Initial Public Offering (IPO) is the selling of securities to the public in the primary market It is when an unlisted company makes a fresh issue of securities to the public This paves way for listing and trading of an issuer’s securities The sale of securities can be through book building or normal public issue In this thesis, the author will attempt to study the advantages and disadvantages of IPOs and IPO valuations in the Vietnam’s stock market To better illustrate the IPO pricing methods in Vietnam, the author has used the examples of IPO valuations of three prestige Vietnamese firms, which are Joint Stock Bank for Foreign Trade of Vietnam (Vietcombank), Bao Viet FinanceInsurance Group, and Masan Group At the end of the study, the author has proposed several solutions to improve the effectiveness of IPO valuation activities in Vietnam The thesis collects most of the information from different secondary resources apart from primary information by discussing with several experts The thesis was carried out for a period of 60 days and due to limited time and resources, an in-depth study was not possible INTRODUCTION Background and motivation The Vietnamese stock market is one of the emerging markets in Asia The potential of the Vietnamese stock market is great, which can offer investors both opportunities and challenges Initial Public Offerings (IPOs) are the sale of shares directly to the public IPO is currently a very popular mean of privatization and listing of large and profitable SOEs in Vietnam IPOs have the virtue of stimulating interest among the general public in financial markets and increasing share ownership in society In order to stably develop the Vietnamese stock market, IPOs should be fully developed all their roles and functions In fact, IPOs in general tend to underperform because: insiders benefit from information asymmetry which allows them to time the IPO to their advantage and off-load their stock; investors are overly-optimistic in their expectations of earnings growth; directors engage in earnings management prior to the IPO in order to maximize the offer price; overly-optimistic managers fail to see the benefit of raising further capital for investment; and because post-IPO firms are more likely to engage in value-destructive acquisitions Because of that issue, I decide to select the research topic “IPO valuation activities in the Vietnamese stock market –Real situation and solutions” Research purposes and research questions The research will focus on three main following aspects: First, the research aims to give an overview of IPOs including: IPO definition, benefits of IPOs, IPO requirements, and popular IPO valuation methods Second, based on theoretical basis, the research will continue to reflect the IPO activities situations in the world and in Vietnam Also, I will choose several large IPOs, which use IPO valuation methods mentioned in Chapter 1, in the Vietnamese stock market From that, the research will evaluate the quality of IPO valuation activities of securities firms Finally, after analyzing, the research will propose some solutions for the government and enterprises to improve the IPO activities in general, and the IPO valuation activities, in particular Research questions: The thesis research aims to thoroughly answer those following questions: 10  Why is the perspective of sellers and buyers on the real value of the company different?  What are some solutions to improve IPO valuation activities in the Vietnamese stock market? Research objects and research scope The objects of this research are the valuations of some large IPOs, which have some influential effects in the Vietnamese stock market 2-3 years until now, using different pricing models (Discount model, Relative valuation model and the Net asset valuation model) Methodology The research is conducted by those following methods: First, I will examine and analyze data of financial statements from securities firms, market statistics from financial websites Second, besides analyzing method, I will also use the survey method through contacting and interviewing several experts, and people who are directly involved in the IPO pricing activities mentioned in the research to ensure the reliability and objectivity Research structure Following this introduction chapter, Chapter reviews the relevant literature review on IPOs and IPO valuations Chapter presents the real situation of IPO valuation activities in Vietnam Chapter reports the solutions for IPO valuations in the Vietnamese stock market Last but not least, a brief conclusion at the end of the research will summarize all important ideas that I have mentioned on the above chapters CHAPTER I: OVERVIEW OF IPOs AND IPO VALUATION ACTIVITIES 1.1 Literature review on IPOs 1.1.1 IPO definition According to “ Essentials of Investments” 8th edition ( by ZviBodie, Alex Kane and Alan J Marcus), Initial Public Offerings, or IPOs, are stocks issued by a formerly 71 on that, valuations by dividend discount method result in the lower price than actual Nowadays, many companies implement policies on paying dividends by stocks ii) The forecast of companies’ after tax profits Future companies’ after-tax profits are important basis for companies to determine their dividends According to Decree 109/2007/ND-CP, the State requires companies to calculate future after-tax profits based on companies’ financial data in years However in Vietnam nowadays, consulting firms and issuing companies usually base on companies’ financial statements in or years Hence, this parameter does not really meet the requirements set forth Moreover, some companies only set development plans for the purpose of putting up the prospectus for investors to see companies’ growth potentials After companies are official listed, companies not follow the plans that they disclosed before iii) Determining the discount rate Discount rate is usually calculated as follows: K= + Where, = Risk-free rate, usually calculated by the 5-year Treasury bond’s interest rate = Risk premium for stocks in the Vietnamese stock market, which is determined by the international stock risk-premiums In essence, it is the Capital Asset Pricing Model (CAPM) CAPM model formula is as follows: = + Where, = is the risk-free rate of interest such as interest arising from government bonds = the expected return of market 72 = risk premium, sometimes known as the market premium (the difference between the expected market rate of return and risk-free rate of return) = the sensitivity of the expected excess asset returns to the expected excess market returns In this case, = However, the application of CAPM model in emerging markets is not really reasonable Often the future risk premium is the average risk premiums in the past, but the future is not really happening as what happened in the past In Vietnam, companies apply the risk premium as in the world This could not avoid the suspicion whether the rate is suitable for the Vietnamese market or not Each country has different socio-economic characteristics, so their level of risks is very different On the other hand, calculating the risk premiums is extremely difficult for investors Discount models are suitable to use in many countries, but in the emerging markets with many imperfect factors, the application of these models is really difficult and inadequate The assessment of stock value may be inaccurate, and these methods often lower the value of the high-growth companies, non-dividend paying companies, and so on b) P/E comparison model Through analysis of pricing activities using P/E comparison model in the Vietnamese stock market, we can notice some limitations as follows: i) Lack of information Companies conducting valuations by the P/E comparison method usually can not select the P/E in accordance to their companies One reason is because in Vietnam, there are not many companies operating in the same industry; especially in some industry there is a large and dominating company In Vietnam, the P/E ratio can not express the industry average, and not represent the entire operation of the market In our domestic market, there are not any institutions to 73 collect statistics, basic industry data such as: Revenues and average industry rate of return, industry average P/E, or companies’ rankings in the same industry Therefore, companies must actively calculate their own P/E when valuing their IPO shares Calculating P/E is not easy and usually subjective Some companies can take advantage of that to give out the most favorable number for them ii) Limitations in calculating EPS The calculation of EPS can be changed by the change in the companies’ depreciation method EPS heavily depends on the accounting policy of companies A choice of a different depreciation method will affect the reported profit, thus affecting the EPS Moreover, according to international practices, EPS is calculated as follows: EPS= The after-tax expenses include: Reward Funds, financial provisions, the rights to purchase preferred stocks of employees In Vietnam, EPS is calculated as follows: EPS= Therefore, EPS calculated in Vietnam is higher than EPS calculated in the world c) /Net asset valuation model In fact, the net asset valuation model is widely used in the Vietnamese stock market This method is based on the following opinion: the value of a company is the total value of assets that a company is holding Two main basic factors using in this method is the tangible assets and intangible assets, yet the valuation of these two types of assets is not simple i) Problem in valuing tangible assets According to Decree 109/2007/ND-CP, the residual quality of an asset is determined by the percentage compared to the quality of the same brand new asset In 74 case there are not regulations of the State, the quality of assets are evaluated not less than 20% Regards to operational management and occupational safety, no business managers would dare to continue using fixed assets which have evaluated quality of 30%, 40% or even 20% compared to new fixed assets However, this phenomenon is actually quite common because the majority of state-owned enterprise not want to have a high IPO price Therefore, there is a big difference between the percentages of remained technical quality and the actual value of assets ii) Problem in valuing intangible assets The valuation method using book value ignored many non-material factors which have real value, and sometimes account for a large proportion of companies’ values such as: management level, personnel skills, and companies’ reputation Some companies not have significant assets, but have great growth potential; if the valuation of intangible assets of those companies is misleading, the estimated value of companies will be significantly affected One reason is because our country does not have detailed regulations on calculating intangible assets value as guidance for companies Other reason is that companies are not aware of the importance of their intangible assets For those companies with the advantage of land use rights, the asset value will be calculated in two following directions: First, the land use rights are calculated according to the market value, making the value of companies increase a great deal, which leads to the difficulty in selling shares to public For example, Sai Gon Garment Company’s total share value was first estimated as VND 28 billion However, no one bought this company’s shares due to their high price Later on, when the value of the company decreased to VND 24.3 billion, 80% of the company’s shares were bought by its employees, 20% remained as the State’s property Second, the intangible assets are undervalued; so some individuals will take advantages of that to hold valuable assets or prestige brands For example, Bach Dang Trading – Service Company (Badaco) built its brand in 12 years, so its intangible value is not trivial However, when transferring into a joint stock company, Bach Dang’s value was only estimated as VND 5.7 billion 75 In fact, companies mainly estimate their value according to the book value Therefore, potential value such as brand, reputation, goodwill, the ability to develop in the future, etc are not appropriately estimated Therefore, in some auctions the successful bid prices are much higher than starting prices For example, Binh Minh Plastic Joint Stock Company IPO’s starting price was VND 135,000/share, and the average successful bid price was VND 181,433/share, so the difference is VND 46,433 The mechanism of share management has not been strict Companies can underestimate themselves to have a rise in stock price after listed In the period from 2006 to 2007, many companies had the IPO price at VND 10,000; then stock price rose 10 times or even 60 times However, in the context of the stock market nowadays, that phenomenon does not exist, yet the mispriced valuation still happens Another issue is the valuation of brands In Vietnam even though there is not an international well-known brand, some foreign firms have purchased Vietnamese brands for business purposes For example, Unilever acquired the P/S brand of one Vietnamese enterprise at the price of USD million Colgate acquired Da Lan brand at the price of USD million However, when conducting valuations, many domestic firms often underestimate brand value 76 CHAPTER III SOLUTIONS FOR IPO VALUATION IN THE VIETNAMESE STOCK MARKET 3.1 Tendency to issue IPOs in Vietnam for the period from 2011 to 2016 3.1.1 Investor’s opinion on IPO activities current situations According to the report about IPO activities in Vietnam in 2011, the Asian Development Bank (ADB) has made a number of surveys for institutional and individual investors and took the statistical data of factors in making an investment decisions and the short-comings of information disclosure activities of Vietnamese enterprises compared to other countries Chart Factors negatively affecting the success of an IPO selected by Vietnamese investors Source: ADB report Looking at the chart, we can see the auction organizing activates have the least impact on the success of an IPO According to the investors’ selection, shareholders- 77 related issues, strategy implementation and financial plan implementation are the main reasons that disappoint them the most On the investors’ point of view, they usually have difficulty in contacting the company’s board of management; most of officially published information is late, which slows down their investment decisions Besides, when enterprises set up business strategies, then continuously change their strategies, investors will gradually lose their confidence and trust in those companies Chart Foreign investors' opinion on the effectiveness of the information disclosure via mass media in comparison with other stock markets in the same region Source: ADB report on the Vietnamese IPO activities in 2011 Looking at the chart, we can clearly see the dissatisfaction of foreign investors towards Vietnamese companies’ disclosure of information The indicators of the transparency of the prospectus, the professionalism of companies’ websites, the effectiveness of presentations in front of shareholders and the relation between shareholders and companies’ Board of Management are rated very low Foreign investors are quite dissatisfied with the Vietnamese stock market in comparison with other stock market in the same region such as Thailand, Singapore or Malaysia 78 Chart 3 Most commonly used valuation methods by investors in the Vietnamese stock market Source: ADB report on the Vietnamese IPO activities in 2011 Most investors choose the relative valuation method to be the most effective valuation method when valuing a company that first sells shares to public The dividend discount model is also highly appreciated However, the net asset value method (book value) is not popular since the valuation of companies’ net assets is not complicated Also, this method usually gives out lower value of share since goodwill and land use rights valuing in accordance with the State guidance not correctly reflect their market value 3.1.2 Tendencies of IPO activities years from now Thus, according the ADB report, from my point of view, IPO activities years from now will have some remarkable attributes as follows: First, enterprises will modify the IPO process Currently, many foreign investors are not interested in Vietnamese companies’ IPOs due to the difference between Vietnamese process and international regulations Specifically, the IPO process in the 79 future will be conducted in a more professional way such as loosening strict regulations about deposits and auction to foreign investors Second, the disclosure of information will be more efficiently conducted Enterprises offering shares will actively improve the details of information on websites, promote the communication between investors and board of management, hold presentation to introduce companies on the regular basis, hire financial firms to set up proper business plans, and strictly follow those plans Third, in the next years, valuation activities will be conducted using more various models Finally, in the future, it is likely that the Government will issue decisions on restricting the choices of consulting firms Currently, a few large corporations hire the consulting firm that is one of their subsidiaries to value the IPO That reduces the objectivity of valuation activities when the Parent Company can fully impact the consulting firm to maximize its own benefits Therefore, when enterprises issue shares in a large scale, choosing foreign investment bank will probably be a future trend 3.2 Solutions to improve IPO valuation activities in the Vietnamese stock market 3.2.1 Solutions to the Government 3.2.1.1 Improve the legal framework on valuation and related legal documents The incompetence of the current legal framework has caused many difficulties for IPO issuers Decree No 109/2007/ND-CP was issued in 2007 but still does not have any circulars for guidance When issuing this Decree, the Government aimed to replace Decree No 187/2004/ND-CP, however both of these Decrees mainly mentions two valuation methods, which are the net asset method and the discounted cash flow method Therefore, the State should issue more other documents as the standards to guide unlisted enterprises, create favorable conditions for companies and investors to participate in IPO valuations 80 Currently, state-owned enterprises when privatization usually use the net asset valuation method However, the valuation of the value of intangible assets is quite controversial The Government should build a more efficient valuation method for valuing intangible assets to maximize issuers’ benefits 3.2.1.2 Improve the transparency of the Vietnamese’s stock market Information of companies is very important for valuation activities Therefore, companies are responsible for disclosing sufficient, detailed, clear and understandable financial information and business plans As a result, as the role of establishing and managing the market, the Government should have more methods to enhance the transparency of the Vietnamese stock market: First, the management of market information needs to be strengthened Particularly, the State should strengthen administrative methods such as: inspection and supervision of the disclosure of information Moreover, the State should develop standards in disclosing information for enterprises to follow when they first issue shares For example, in the prospectus, some companies announced business plans, dividend payout plans or the starting price of an IPO without providing detailed explanation That makes many investors very confused Prior to the IPO, a company should promote disclosure of information via holding seminars with strategic investors to help them understand each other Second, the State should actively expand the stock market When the market is expanded, there will be more investors and listed companies Competitive pressure requires enterprises to meet different information needs Particularly, the Government should encourage enterprises listed on the OTC participants to accelerate the equitization (especially SOEs) The IPO valuations are quite difficult since it is hard to collect information of other listed companies in the same sector due to the lack of sufficient and concise information Hence, when the number of listed companies is large, consulting firms can provide more precise figures to reflect the actual market’s expectations, and the intrinsic value of an enterprise compared to other firms 81 3.2.1.3 Encourage the establishment of institutions to disclose information Characteristics of organizations that provide information are collecting and processing data, providing transparent data, and eliminate asymmetry information in the market These institutions will provide necessary information for pricing model and then sell information to concerned investors with a certain fee Currently, in Vietnam, there is StoxPlus Financial Media Corporation that provides StoxPro, a powerful investing tool to provide financial information for investors This software is widely used in several banks and securities firms to evaluate stocks, manage financial portfolios and update market news However, besides StoxPlus Financial Media Corporation, there are no firms operating to provide information in a professional way for investors in Vietnam Therefore, the Government should encourage the establishment of many organizations which provide information in a professional way to avoid the effects of asymmetric information in the market and support IPO activities 3.2.1.4 Actively establish private valuation organizations To improve the accuracy of the valuation in the near future, the Government should establish regulations in choosing valuation organizations, managing and supervising valuation organizations Currently, there are more than 70 licensed valuation organizations in Vietnam However, those organizations have not met the requirements of the State Therefore, the Government should follow the following solutions: First, the Government should set up independent agencies specializing in valuation with professional experts to ensure the accuracy and timeliness of valuation activities Those agencies can be developed as the development of the independent audit firms in Vietnam Initially, those agencies are under the State control, and after a while, they may develop to independent companies specializing in business valuation When they are developing, and their operating model is successful, the State will allow private companies operating in business valuation field Thus, investors will have various choices in selecting valuation consulting firms When those companies have built their own reputation, they can cooperate with international firms to enhance their professionalism 82 Second, the Government should also conduct a review of the current related legal documents in order to promptly solve problems Third, the Government should enhance audit activities Audit activities are necessary and indispensable in the valuation of a business They are also essential requirements for companies to participate in the stock market Finally, to improve the accuracy of valuation activities in Vietnam, the State should build a market information system One of the weaknesses in valuation activities in Vietnam is lack of information The need to install an information system and database to update information on pricing, sales transactions and auction is necessary The database system needs to be updated regularly and coordinated with State agencies through local network and the Internet 3.2.2 Issuers- related solutions 3.2.2.1 Solutions for companies which use discounted cash flow methods First, an important factor to determine valuation activities is to forecast future cash flows Hence, issuers which use this method need to provide detailed future growth plans in the annual prospectuses From that, investors will review those plans and assess the feasibility of those plans to decide whether the offering price is appropriate or not Second, another important factor is to determine the discount rate in the Vietnamese stock market A small change in the discount rate may lead to major changes in defined price In Vietnam, it is not sensible to take the risk premium of the world market to apply for domestic companies However, it should not be allowable for companies to set the risk premium for themselves As the result, these companies need to hire a market research organization to decide the most reasonable risk premiums Third, data used for forecasting future income stream is from previous years’ financial statements, so companies, especially those wish to go public, need a storage system of their information Since the preparation period prior to the IPO is quite long, the data need to be fully recorded and released to the public to avoid asymmetric information Sufficient and accurate information will also help the market recognize the potential of stocks and assess the value of companies more accurately 83 3.2.2.2 Solutions for issuers which use the P/E comparison method First, to value the IPO by the P/E method accurately, companies need to hire statistical firms which are responsible for collecting and organizing statistical data of the market in each period to provide honest, accurate and objective data Second, firms in each industry should proactively disclose financial data audited by prestige audit firms to help the collect of statistical indicators of one industry easier Third, companies need to actively apply the international accounting standards, as well as hire prestige audit firms to determine the level of EPS in a reasonable way and remove the profit not in accordance with the international accounting standards when calculating EPS in Vietnam 3.2.2.3 Solution for companies which use the net asset valuation model a) Solutions for evaluating the value of tangible assets The issuers should seriously evaluate the actual depreciation of fixed assets to reasonably evaluate the value of each tangible asset by updating related legal documents In the listing prospectus, a company should also state its type of asset valuation method b) Solutions for evaluating the value of intangible assets For tangible assets, companies should proactively contact professional valuation firms for guidance on the calculation of particular types of intangible assets such as trademarks, patents, etc and present them on the revaluation section of the balance sheet The calculation must be objectively conducted to avoid making investors confused Especially, if the value of land use right is calculated according to the price set by the State, companies will be disadvantaged However, if the land use right value is calculated according to the market price, the valuation may not be reasonable since the market price is too overrated and regularly fluctuating As a result, the solution is to reconcile the State price and the market price in evaluating land use right value To determine a reasonable price, companies need to seek for advice from professional firms specializing in valuing real estates 84 CONCLUSION IPO is always an important first step for every listed company, so the success of an IPO will support the long-term sustainable development of a company For companies, this is a major funding source and a good opportunity to search for strategic partners At the same time, it is a challenge to determine the competitiveness of companies in the market For an IPO to be successful, building a reasonable IPO price is vitally important IPO price needs to accurately reflect the company’s value and compromise the company’s and shareholders’ interest However, in fact, in Vietnam, IPO has not really fulfilled its inherent roles It results from some facts such as companies are not really serious about IPO pricings; investors have limited knowledge; and the instructions in decrees and circulars promulgated by the State are still generic and not satisfying information users Therefore, solutions should be proposed to solve those problems In particular, the Government should encourage the establishments of professional valuation firms, encourage disclosure of information, and encourage Vietnamese companies to apply international accounting standards Besides, companies should proactively hire consulting firms and positively improve the disclosure of companies’ information Through the application of analytical methods, data processing and expert methods, the thesis has given an overview of IPOs and IPO valuation activities, reflected the real situations of IPOs and IPO valuations in Vietnam, and recommended several solutions for the Government and IPO issuers In general, IPOs are not a new issue in the Vietnamese stock market, but they have some limitations such as the limited access to information The selection of the three typical IPOs on the HOSE really cannot give a complete picture of IPO activities in the market nowadays As the result, the thesis certainly cannot avoid some limitations, so professors’ suggestions will be helpful for further research 85 REFERENCES Decrees, Decisions and Legal Documents Decree 109/2007/ND-CP dated 26/6/2007 regarding to the equitization of Stateowned enterprises Decree 187/2004/ND-CP dated 16/11/2004 regarding to the transformation of State-owned enterprises to Joint stock companies Circular 146/2007/TT-BCT dated 26/6/2007 of Ministry of Finance guiding the implementation of financial issues when transferring state-owned enterprises to joint-stock companies Circular 126/2004/TT-BTC of Ministry of Finance dated 24/12/2004 guiding the implementation of Decree 187/2004/ND-CP Books Aswarth Damodaran ,2002, Investment Valuation: Second Edition Zvi Bodie, Alex Kane, Alan J.Marcus, 2008, Essentials of Investments : Eighth Edition Financial Statements Joint Stock Bank for Foreign Trade of Vietnam (2008), Listed Prospectus Joint Stock Bank for Foreign Trade of Vietnam (2007-2010), Audited Financial Statements Bao Viet Finance-Insure Group (2010), First Prospectus Bao Viet Finance – Insure Group (2007-2011) Audited Financial Statements Masan Group (2009), IPO Prospectus Asian Development Bank (2011), A report on Vietnam’s IPO market VnDirect (2011), Report on Vietnamese stock market in 2010 and potential development in 2011 Websites www.tbck.vn www.ezsearch.ftps.com.vn www.cafef.vn ... earnings per share P/E= Price/Earnings of the industry in which the company is operating In theory, we can use the average P/E of the industry in which the company is operating or the P/E of another... reduces the winning bid price, both the winning bid and the average bid That supports the principle of supply and demand That also proves that the demand and supply of an IPO stock rather than... emphasizing the similarities in financial indicators, some analysts focus on the uniqueness of each industry by comparing companies in the same industry Therefore, they choose the average industry index