GROUP ASSIGNMENT THE CHANCE TO INVEST IN VINAMILK Group 3 2/21/14 RMB 301 Page 1 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 Page 2 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 Page 3  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 Page 4 I. ABSTRACT 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. Page 5 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 Page 6 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. Page 7 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: V E =V A -V D V E : Market value of equity V A : Market value of total assets Page 8 V D : 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   * * 1 * = 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 C E D C ED WACC r r T E D E D where r r T       *1 Long-term FCF growth rate Common choice: g = real growth + inflation N FCF g Terminal value WACC g where g           11 Discount only Terminal value limited number of is PV of FCFs, projected FCFs years N+1, N+2, . . . 1 1 1 N tt t t N tt FCF FCF Terminal Value Enterprise value WACC WACC WACC           1 4 4 2 4 4 3 1 4 4 2 4 4 3 Page 9 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. [...]... 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,... exposition of difficult material without sacrificing up-to-date, technically correct treatments 4 Procedure data available Page advantages In detail, it is inexpensive if our group plan and manage well; vast quantities of 11 Our group has consistent that we will use secondary data searching online because of its The official website of Vinamilk (http://www.vinamilk.com.vn/) providesmost important data... financial report of this firm Exploratory research often relies on secondary research such as reviewing available  Evaluative: Evaluating the chance to invest in Vinamilk Page through in-depth focus group, research method 10 literature and data, or qualitative approaches such as evaluate database (financial report) Base on describing data from financial report, there for explaining that, along with... 353,072,120,000 294,347,876,431 5,198,757,611,121 4,177,446,360,100 1,909,021,531,417 892,345,028,217 Undistributed earnings MINORITY INTEREST TOTAL RESOURCES 19,697,868,420,379 15,582,671,550,751 FEBRUARY 21, 2014 GROUP 3 10,773,032,295,86 0 35,365,347,535 8,482,035,850,502 4 Financial reserve fund Page Unearned revenue . GROUP ASSIGNMENT THE CHANCE TO INVEST IN VINAMILK Group 3 2/21/14 RMB 301 Page 1 GROUP 3 GROUP MEMBER KIEU TIEN. 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. 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