VIETNAM NATIONAL UNIVERSITY, HANOI SCHOOL OF BUSINESS Nguyen Thi Dieu Thuy THE VALUATION FOR GOLDSUN PACKAGING JOINT STOCK COMPANY MASTER OF BUSINESS ADMINISTRATION THESIS Hanoi – 2010 VIETNAM NATIONAL UNIVERSITY, HANOI SCHOOL OF BUSINESS Nguyen Thi Dieu Thuy THE VALUATION FOR GOLDSUN PACKAGING JOINT STOCK COMPANY Major: Business Administration Code: 60 34 05 MASTER OF BUSINESS ADMINISTRATION THESIS Supervisor: Dr Nguyen Thi Thu Hang Hanoi – 2010 TABLE OF CONTENTS ACKNOWLEDGEMENTS i ABSTRACT ii TÓM TẮT iv TABLE OF CONTENTS vi LIST OF FIGURES viii LIST OF ABBREVIATIONS ix INTRODUCTION CHAPTER 1: COMPANY VALUATION – A LITERATURE REVIEW Basics of company valuation 1.1 Valuation concepts 1.2 Valuation steps A review of valuation models 2.1 Discounted Cash Flow Model (DCF) 2.2 Residual Income Model 13 2.3 Market – based valuation: price multiples 15 Valuation in emerging market 24 3.1 Risk associated with emerging market 24 3.2 Country risk premium and cost of equity 26 CHAPTER 2: THE BUSINESS OF GOLDSUN 27 Vietnam economic development overview 27 1.1 Recent economic conditions and implications 27 1.2 Economic performance 28 1.3 Economic prospect 34 Characteristics of packing industry 36 vi Goldsun Packaging Joint Stock Company business and financial performance 38 3.1 Goldsun business and financial performance 38 3.1.1 History 38 3.1.2 Product Offerings 38 3.2 Financial performance of Goldsun 54 CHAPTER 3: VALUATION OF GOLDSUN PACKAGING JOINT STOCK COMPANY 64 Valuation for Goldsun packaging JSC 64 1.1 Choosing the model 64 1.2 The valuation of Goldsun 65 Recommendations 85 2.1 Recommendation on valuation for potential investors 85 2.2 Recommendations for Goldsun 86 REFERENCES 87 vii LIST OF FIGURES Figure 1: Vietnam real GDP growth .29 Figure 2: Vietnamese GDP growth position among Asian Countries in 2008 and 2009 .29 Figure 3: Vietnamese average inflation 31 Figure 4: GDP structure by sector in 2009 32 Figure 5: Export and Import growth .33 Figure 6: Revenue composition by product category 40 Figure 7: Shipper Carton Manufacturing Process .42 Figure 8: Offset Manufacturing Process .42 Figure 9: Design capacity 44 Figure 10: Average capacity 44 Figure 11: Quality control process 45 Figure 12: Main suppliers 47 Figure 13: Top 10 biggest customers 2009 49 Figure 14: Organization structure 52 Figure 15: Workforce by Function 53 Figure 16: Workforce by educational level 53 viii LIST OF ABBREVIATIONS GDP Gross Domestic Products IPO Initial public offering P/B Price to book P/E Price to earning P/S Price to sales P/C Price to cash flow EV Enterprise value EBITDA Earning before interest, tax, depreciation and amortization DDM Dividend discount model DCF Discounted cash flow FCF Free Cash Flow EPS Earning per share WACC Weighted average cost of capital HOSE Hochiminh Stock Exchange HASTC Hanoi Stock Trading Center AIMR Association for Investment Management Research IFRS International Financial Reporting Standard ix and INTRODUCTION Objectives and Structure of the Thesis The goal of the thesis is to apply a model to estimate the intrinsic value of Goldsun Packaging Joint Stock Company, providing a reference for both the company and strategic investors in price decision Different popular valuation models will be discussed to select the most appropriate model, according to the author’s view Its is also necessary to understand the company’s economic and industry context as well as the management’s strategic responses to come to the valuation of the business For that purpose, the thesis is structured in three parts as following Chapter 1: Company Valuation – A Literature Review The first chapter gives a general view about the current valuation models with focus on the most common used ones main valuation models including discounted cash flow valuation (DDM, FCF, residual Income) and market-based multiples (P/E, P/B, P/S, P/CF, EV/EBITDA), which are popular in most of the industries are discussed Chapter 2: The Business of Goldsun JSC This chapter focuses on Goldsun’s business, its performance and the environment, including the economic and industry context that it is operating in An analysis of the economy and the packaging industry is presented to give an insight about the opportunities and threats to company’s profitability and future prospects Then, an analysis of its internal operation, infrastructure, strategy and capability as well as financial statements is conducted to assess its past performance and future growth of the business, which reflects the true value of the company Chapter 3: The Valuation of Goldsun JSC This chapter presents the rationale of choosing one valuation model among the discussed models in chapter to estimate Goldsun’s value The chosen model is Free Cash Flow Model which is most suitable, in author’s view, to evaluate the intrinsic value of a business like Goldsun The chapter includes all the works on the Free Cash Flow Model including calculating the Free Cash Flow, Terminal Value, Weighted Average Cost to come to recommended valuation for Goldsun Recommendation is also made to both the company and the potential investors on the reference price Methodology The gathering of information/data will primarily be focused on sources, which are available such as the Audited Report of Goldsun 2005 – 2009, different external articles, statistics and management interview, theoretical articles and additional information concerning the industry, in which Goldsun operates The theory and models applied in this thesis will briefly be described in the following A more profound evaluation of the model/theory will be presented in the sections, in which they are applied Scope of works The target group of this research is set to being a potential investor of Goldsun Packaging Joint Stock Company The gathering of information/data will therefore primarily consist of material available and allowed to be provided The dissertation is based on the application of certain models/theories This means that chosen/given parameters and subjective evaluations are used to determine the end results Other possible models/theories are therefore neglected, which might have lead to a different conclusion of the report This has been considered beforehand and the different models/theories have been thoroughly evaluated in order to find the most relevant and optimal method/solution The period before 2007 will not be looked into as the business was in much smaller different scale, which doesn’t represent the current situation and future possibility The focus will be on the period of 2007 – 2009 and on future forecasts/prospects of Goldsun CHAPTER 1: COMPANY VALUATION – A LITERATURE REVIEW Basics of company valuation 1.1 Valuation concepts Every asset, financial as well as real has a value The key to successfully investing in and managing those assets lies in understanding not only what the value is, but the sources of the value Any asset can be valued, but some assets are easier to value than others, and the details of valuation will vary from case to case There is uncertainty associated with valuation Often that uncertainty comes from the asset being valued, though the valuation model may add to that uncertainty Every day thousands of participants in the investment profession – investors, portfolio managers, regulators, researchers – face a common and often perplexing question: what is the value of a particular asset? The answers to this question usually determine success or failure in achieving investment objectives To determine value received for money paid, to determine the relative value – the prospective differences in risk-adjusted return offered by different stocks at current market prices – the analyst must engage in valuation Valuation is the estimation of an asset’s value based on variables perceived to be related to future investment returns or on comparisons with similar assets 1.2 Valuation steps The valuation for a particular company is a task that requires an analyst to undertake the following steps: Step 1: Understanding the business ... performance of Goldsun 54 CHAPTER 3: VALUATION OF GOLDSUN PACKAGING JOINT STOCK COMPANY 64 Valuation for Goldsun packaging JSC 64 1.1 Choosing the model 64 1.2 The valuation. .. and Structure of the Thesis The goal of the thesis is to apply a model to estimate the intrinsic value of Goldsun Packaging Joint Stock Company, providing a reference for both the company and strategic... which they are applied Scope of works The target group of this research is set to being a potential investor of Goldsun Packaging Joint Stock Company The gathering of information/data will therefore