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2.3. HISTORY OF SAM VALUATION AND PRICE

2.4.3. Applied Dividend discount model – DDM (group C) to value SAM quarterly stock

SAM beta calculation (APPENDIX 1)

 Number of period of data: 280 weeks

 SAM earnings weekly are calculated in compare with market earnings – the results as shown on Appendix 1 truly reflect the relationship between SAM and VNIndex for more than 5 years.

 SAM Beta = 0.9616

General assumption

- SAM dividend for year 0 (2006) at 1.600 VND/share - SAM development period can be divided in 02 STAGES:

STAGE 1: Supernormal dividend growth rate:

Being listed on Vietnam stock market since 2000, SAM was largely known among the top 02 stocks (REE – SAM) that has significantly affected to Vietnam stock market in general. After the 01st stage of stock market (2000-2001) with much of fluctuation and turbulence, the stock market has been on its upward movement and benefits to all of its listed stocks including SAM. The well-known brand name and its sound management board bring development opportunities to SAM operation since 2002. Being granted investment preferential by Ministry of Planning and Investment (No.6813BKH/DN), SAM enjoyed tax free for 4 years: 1999 – 2002 and 50% tax-off for 2003 and 2004. After almost 6 years under favorable condition 1999 – 2004, SAM gained enough reputation and power to trigger a new high growth period starting by 2005 with 41% increased in net income. Statistics below show the average of period 2005-2006 of SAM:

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EPS growth rate (average of 2005-2006): 16%/annual Revenue growth rate (average of 2005-2006): 85%/annual Earnings growth rate (average of 2005-2006): 69%/annual (Source: State Securities Commission)

Industry growth rate (2005-2006): 13%/annual

(http://www.vnpt.com.vn/default.aspx?tabid=391&idmid=3&ItemID=4920)

From our assumption, this supernormal growth period can be continue until 2008, the year Vietnam will start to cut off import tax rate with telecom cables following WTO agreement. From 2008 and further, the market competition of Telecommunication cables will slow down industry growth rate in total. While each company generally can not grow faster than the market in which they operate, we can assume that the earnings at SAM (which have higher growth rate over the industry for 07 years) will be reducing to get closed to the industry (beta of 1). The estimate of growth in earnings after 2008 of SAM we can set roughly around 10%

(with bottom-up estimates) and 7.5% (with top-down estimates)

STAGE 2: Normal dividend sustainable growth rate after 2008:

EPS growth rate (after 2008) = Industry growth rate (after 2008):7.5%-10%/annual (Source: www.mof.gov.vn)

Market Input:

Trailing EPS 2006: 5.443 VND Dividend per share: 1,600 VND

Risk free rate (10 years’ Government bond): 8.5%/annual Risk premium: 7.5% (www.mof.gov.vn)

Beta: 0.9616

Beta value is calculated using regression models for earnings of SAM stock weekly basis in comparison with VNIndex for period of 2000 -2006

Required rate of Return:

K = 8.5% + 0.9616 x 7.5% = 15.71%

High growth period assumption:

Beta: 0.96

Expected return (K): 15.71%

Expected growth rate (g1): 16%

Dividend payout ratio (1-b1): 29.4%

Period time (n): 2 years

Stable growth period assumption:

Beta: 1.0

Expected growth rate (g2): 7.5% - 10%

Model 1: g2=7.5%

Present Value of dividends in high growth phase = 3.210 VND

Present Value of Terminal Price = 48.850 VND

Value of the stock = 52.060 VND

Model 2: g2=10%

Present Value of dividends in high growth phase = 3.210 VND

Present Value of Terminal Price = 70.820 VND

Value of the stock = 74.030 VND

Applied Dividend discount model – DDM (group C) to value SAM quarterly stock

Dividend Discount Model (DDM), Discounted Cash Flow (DCF)

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