StoxPlus_VietnamCementSectorUpdateReport-July2014-demo_20140812143543

‹#›
Vietnam Cement Sector Update Report 2014
Issue date: July 30th, 2014
Part of StoxPlus’s Market Research Reports for Vietnam
@ 2014 StoxPlus Corporation.
All rights reserved. All information contained in this publication is copyrighted in the name of StoxPlus, and as such no part of this
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2
Table of Contents
Part Content Page
6.2 Vietnam Construction Industry 49-54
7 Appendices 55-77
7.1 Appendix 1: Cement plants under construction 55-56
7.2 Appendix 2: Major infrastructure projects 57-63
7.3 Appendix 3: Full list of cement plants to be built under period
2014-2030
64-65
7.4 Appendix 4:Factsheet of listed cement companies 66-77
About StoxPlus 78-81
Part Content Page
1 Executive Summary 3-5
2 Analysis of Vietnam Cement Sector 6-19
2.1 Supply and Demand Analysis 6-12
2.2 Clinker and Cement Import-Export 13-15
2.3 Cement Distribution and Logistics 16-17
2.4 Sector Concentration 18-19
3 Price, Cost Structure and Financial Performance 20-29
3.1 Cement Price by Region and Trends 20-23
3.2 Cost Structure 24-25
3.3 Financial Performance 26-29
4 Latest Policy Developments 30-42
4.1 Pricing Mechanism and Regulations 30-33
4.2 Taxes and Tariffs 34-35
4.3 Government Guarantee and Subsidies 36-37
4.4 Import-Export Policies 38-39
4.5 WHRPG Requirement 40-42
5 M&A Opportunities 43-45
6 Vietnam Macro Economy and Construction Overview 46-54
6.1 Vietnam Macro Economy 46-48

3
Section 1: Executive Summary
Contents

4
Executive Summary
Vietnam cement market would deviate from the
supply surplus, and reach an equilibrium by 2026 in
our base case forecasting.
Vietnam has experienced a surplus of cement since
2009, and the situation has become more serious
since 2011. Yet, the Master Plan developed in 2011
was meant to increase the number of cement plants
from now until 2020. We have carefully reviewed the
status of such expansion / new development of
cement plants to analyze the supply of Vietnam
cement.
Under our base case, which is a prudent scenario
based on analysis of macroeconomics and cement
demand factors such as the status of infrastructure
development and residential sector, we forecast a 5%
annual demand growth for cement until 2030. The
result is that Vietnam in general will continue the
surplus until 2026.
It is importantly to note that the scenario may be
different if the source of funding issue is resolved by
the Government and a number of mega construction
projects would be taken.
However, clinker capacity is still having a
significant shortage in the South
7.0 7.0 7.0 7.0 7.0 7.0 7.0
16.8 17.7 18.6 19.5 20.5
21.5 22.6
0
5
10
15
20
25
2013 2014E 2015E 2016E 2017E 2018E 2019E
Tonmillion
Total Clinker Capacity Total consumption (5%)
Lack of cement in the South
The south does not have natural
resources necessary to produce
clinker. They will always have a
shortage of clinker
Overall, Vietnam will continue the supply surplus in
the coming years, but looking closer, the situation is
more complicated and varies by region.
In fact, the North and the Central will continue the
supply surplus. Demand in the North, at 3% annual
growth, will still be lower than the supply by 2030. In
the Central, even at the quickest demand growth of
7%, cement equilibrium would not be achieved until
2028.
Meanwhile, the South will continue to have a
shortage of clinker, which is supplied from the North
and Central. The clinker shortage in the South will
get worse and widen until 2020, as there are no
cement plant projects in the South until 2020.
Cement demand landscape can change
significantly based on the implementation of
infrastructure projects. However, the status of
those projects is very uncertain.
Vietnam is a developing country and still short of all
types of infrastructure, both the hard and the soft
infrastructure. There are 243 projects planned until
2030, which is value at a total of US$221bn.
However, the status of these infrastructure projects
is very uncertain, depending on the availability of
funding. Yet, State deficit continues to widen in
2013, to nearly 6% of GDP. Given the lack of funding,
the plan for infrastructure is more of a wish list with
low chance of being implemented as planned.
Sector Concentration: Vietnam cement is
characterized with three groups of players, i.e.
Vietnam Cement Industry Corporation (VICEM) with
32% in term of total sales volume from its 11
members companies; foreign players including
Holcim, Chinfon and LUKS Vietnam occupying 30% of
market share.
The remaining 48% is contributed by many local
private companies, of which notable players are The
Vissai (located in Ninh Binh province), Cong Thanh
Cement (located in Thanh Hoa province) and
Vietnam Cement Management Ltd (located in Quang
Binh province).
One of the new development in market share and
competition dynamics is the entrance of Viettel.
Viettel has acquired Cam Pha Cement, and recently
Ha Long Cement, making their total capacity of
clinker to be 3.6 MTPY, and cement to be 4.2 MTPY.
With the two acquisitions, Viettel has become the
largest State-owned player in terms of cement
capacity.
Price and Competition: Cement is no longer included
in the price basket for CPI index calculation but it is
subject to the so called “Price Declaration Program”
of the Government. Under this scheme, the price
notification must be sent to competent authorities by
manufacturing and business organizations and
individuals at least 5 days before the price
determination or adjustment.
Cement price is lowest in the North, and highest in
the South (due to freight and transportation cost of
clinker from the North to the South). Moreover,
domestic cement price has been on an upward trend
due to rising cost of raw materials and energy (coal
and electricity). The average price is US$57 in the
North, US$63 in the Central, and US$73 in the South.
Vietnam cement price is still lower than in
neighboring countries due to supply surplus and lack
of planning from the Government, leading to price
dumping.

5
Executive Summary
Major policy developments: Main regulation
document on this sector is the Cement Master Plan
issued under Decision 1488 by the Prime Minister in
Aug 2011. The Government imposed very strict
conditions for new cement license in terms of
capacity size, technical performance and financial
capability. To cope with soaring energy costs, the
policy also requires that by 2015 all plants must apply
the Waste Heat Recovery Power Generation
(“WHRPG”) to meet at least 20% of its electricity
consumption. By 2014 end, all cement projects with
a capacity of 2,500 tons of clinker per day must
have WHRPG system commissioned but only three
of them complied with the regulation until now.
Ministry of Finance is working with some donors such
as Asia Development Bank to provide soft financing to
help cement plants deal with this compliance and
environment matter.
The second policy development is the restructuring of
the Master Plan. By early 2014, the Government has
decided to delay 9 out of 16 cement factories
planned to be built by 2015 until after 2015. 24 other
projects planned for the period of 2016-2020 is also
under a very uncertain status.
The third regulatory development concerns the
Government loan guarantee scheme. The
Government recently decided not to provide
guarantee for cement loans. For example, Prime
Minister, in an official letter issued in early 2014,
rejected the request for foreign loan guarantee by
Tan Thang Cement Project.
Costing and Financial performance: We analyzed in
details cost of production of a cement player in the
Central. The cost structure is such that: coal 46%, raw
materials 15% electricity 8%, labor 6%, and other costs
24%. Given the cost of production, It is more cost-
efficient to transport clinker from the Central to grind
into cement in Ho Chi Minh, rather than transporting
cement from the Central to Ho Chi Minh.
Our data showed that historical EBITDA margin on
average for 20 public cement companies in Vietnam is
at 15.3% in 2013. In 2013, the EBITDA margin of most
cement companies reduced from their level in 2012.
The main reason is that due to weak demand, the
cement companies did not increased their sales price
while their input’s prices such as electricity, gas, oil
continue to rise.
Meanwhile, the average profit margin of listed cement
plants in 2013 is still negative, standing at -1.0%. This
is a slight decrease from the level of -0.4% in 2011,
indicating that many of the cement plants are still in
financial difficulty.
Sector Consolidation - Viettel is becoming a big
player: We are observing an active consolidation
tendency than ever in cement sector of Vietnam. In
this situation where many cement producers are
facing financial distressed, consolidation is just a
matter of timing to obtain the economy of scale for
this sector in both production and logistics.
Notable active acquirers are some local cement
companies with strong financial position, e.g. The
Vissai, Cong Thanh, Vietnam Cement Management Ltd
and foreign investors, e.g. Anhui (from China), Semen
Gresik (from Indonesia), to name a few.
Most recent active local buyer now is Viettel Group,
the largest military-run telecom provider. Viettel
Group just acquired Cam Phan Cement JSC from
Vinaconex JSC and most recently Ha Long Cement JSC
from Song Da Corporation. Viettel now holds 4.4MTPY
of cement from these two investees

6
Section 2: Analysis of Vietnam Cement Sector
2.1 Supply and Demand Analysis
2.2 Clinker and Cement Import-Export
2.3 Cement Distribution and Logistics
2.4 Sector concentration
Contents

7
Supply and Demand Analysis
According to our own analysis of supply and demand, the base case scenario of 5% demand growth,
Vietnam still has a supply surplus until 2026.
This page is intentionally left blank

8
Total cement consumption had a slight increase of 2% in 2013. However, cement consumption in the
North continued to decline, and the Central failed to keep up the same high growth as before.
Figure : Breakdown growth rate of consumption
Source: Cement Association and StoxPlus
-20%
-10%
0%
10%
20%
30%
40%
50%
2007 2008 2009 2010 2011 2012 2013
North Central South Whole country
Central’s cement
demand shot up in 2011
due to the construction
of Formosa

9
Utilization rate

10
The South continues to have a short supply of clinker. The South has to transport clinker from the
North and Central, but there are many logistics inefficiency in the process.

11
While consumption decreased, cement capacity kept increasing from 2011-2013.
Source: StoxPlus

12
Supply-demand forecasting by region
Source: StoxPlus’ estimates and analysis; Cement Association

13
Contents

14
Clinker and Cement Import-Export
Although export do not bring profit, some cement plants have to push up the export volume to cover
variable costs and absorb part of fixed costs

15
Clinker and Cement Import-Export
Trading and logistics companies are active in the export segment. Some players such as Thang Long,
Chinfon, and Cam Pha have an export advantage due to easy access to sea ports.

16
Contents

17
Cement Distribution and Logistics
Clinker and cement are transported from the North and Central to the South. Ocean shipping is the
preferred means of transportation due to large volume and low cost.
• Due to the over-supply of clinker in the North and Central and the shortage in
the South, cement transportation route is mostly from the North and Central
to the South via ocean shipping.
• Ocean shipping is the preferred means of transportation for clinker and
cement due to the large volume and low-cost (do not have to pay for tolls). To
organize efficient water transport, the necessary and sufficient condition is to
have the port as well as appropriate means of handling and transportation
infrastructure.
• Trucks are only effective within the operational radius of 150-250 km
(backhauling).
• Railway transport can only apply to plants near the cargo terminal (as transit
and handling costs are very expensive to load the materials on board).
Maximum volume transported by rail is also limited (max. 30 tons / carriage)
and above all, cargo transport is in the lowest priority order of rail transport.
Major logistics challenges
• Major issue with logistics is that ports of grinding stations cannot handle big
vessels (20,000 DWT and above). Grinding stations in the South are mostly
built along rivers, with sea ports access. Hence, most of the ports in the South
can only receive vessels 2,000-5,000 DWT.
• Even if major ports in the North can receive bigger ships and vessels, it is
more economically efficient for cement plants to transport directly to the
ports of grinding stations in the South, rather than having to transfer clinker
and cement twice.
Clinker
Grinding &
Packaging
Warehouse
Thanh Hoa
CanTho/Vinh
Long
Hiep Phuoc –
HCM
Quang Ninh
Hai Phong
Quang Binh
Figure : Clinker & cement transportation routes
Source: StoxPlus’ Analysis

18
Contents

19
Sales strategies of key players

20
Section 3: Price, Cost Structure and Financial Performance
3.1 Cement Price by Region and Trends
3.2 Cost Structure
3.3 Financial performance
Contents

21
Cement Price by Region and Trends
Domestic cement price has been on an upward trend due to rising cost of raw materials and energy
(coal and electricity)

22
Cement price is the highest in the South (around US$75-83), while is the lowest in the North (around
US$60-65)
• Cement price is the highest in the South, and the lowest in the North.
The reason is due to the concentration of limestone and other raw
materials, and cost of freight from the North to the South.
Availability of limestone and other materials
• Most of cement plants located in the North because of availability of
materials. Limestone and clay are highly available in the North,
especially Quang Ninh, Ninh Binh and Thanh Hoa provinces
• In the South, there is no limestone. Clays are only available at Kien
Giang province, which is about 150km far from Ho Chi Minh City.
Freight from the North to the South
• Domestic clinker has been transported from the North and the Central
to the South for many years with remarkably high transportation
freight.
• The South also used to import clinker (e.g. from Thailand) with higher
price than domestic clinker, which increased the Southern historical
cement price.
• More specifically, cement price is the highest in the Central Highlands,
followed by Southeast region (including Ho Chi Minh, Ba Ria – Vung Tau,
Binh Duong, Dong Nai). Cement price is the lowest in Ninh Binh and Ha
Nam, as they have the highest concentration of cement plants.
This part is intentionally left blank

23
Vietnam cement price is still much lower than neighbouring countries due to supply surplus and lack
of planning from the Government, leading to price dumping.

24
3.2 Cost Structure
3.3 Financial Performance
Contents

25
0
5
10
15
20
25
30
35
Material Coal Electricity Maintenance Labor SG&A Other fixed Original
price
New price Other fixed SG&A Labor Maintenance Electricity Coal Material
US$mn
Clinker Cost Analysis
Figure : Clinker cost of production of a leading cement player in the Central region
Source: StoxPlus’ Analysis
Original cost of production Our cost analysis
Cost Structure

26
3.2 Cost Structure
3.3 Financial Performance
Contents

27
The EBITDA margin of Vietnam cement companies has been much lower than their peers in region like
Thailand, Indonesia or China. The reasons lay on high fuel cost structure and low utilization rate
Source: StoxPlus, International Cement Review
Figure : Vietnamese Cement EBITDA vs. Regional Players
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
40.00%
2008 2009 2010 2011 2012 2013
PT Semen Indonesia Anhui Conch (China)
Siam Cement Group (Thailand) Vietnam listed cement plants
Financial Performance

28
In 2013, most of listed cement companies had lower EBITDA than that of 2012 due to high increase in
input price like coal and electricity. Most of high EBITDA margin companies belong to Vicem and
foreign-owned group.
Financial Performance

29
The average D/E ratio of listed cement companies has improved, standing at 2.4 times. Big
borrowings put a burden to cement companies and some of them go to bankrupt.
Section 3: Price, Cost Structure and Finance
Finance

30
Nearly half of the listed cement companies got loss or broke even, only some companies had profit in
2013.
Finance

31
Reasons for high manufacturing costs and low profit of Vietnam cement plants
Low productivity rate
Due to the big surplus in cement supply, except some cement plants
in the South, most of Vietnam cement plants can not operate at full
capacity. The productivity rate for total cement plants in 2012 was
just around 77% in which cement plants in the North had productivity
rate of only around 63%. This caused high manufacturing costs and low
EBITDA margin for most Vietnam cement plants
Late development
Vietnam cement sector developed later than Thailand by 10 years
and later than China by 20 years, so while cement plants of China
and Thailand nearly finished depreciation and paid back borrowings,
Vietnam cement plant has still been in the first stage with high
depreciation and loan interest costs.

32
Section 4: Latest Policy Developments
4.1 Pricing Mechanism and Regulations
4.2 Taxes and Tariffs
4.3 Government Guarantee and Subsidies
4.4 Import-export Policies
4.5 WHRPG Requirement
Contents

33
Pricing mechanism and regulations
The Government has eased its control of cement price in an attempt to develop a market-driven
pricing mechanism
Cement listed as goods subject to price declaration
• According to Law No. 11/2012/QH13, price declaration means
that the organizations and individuals shall send the price
notice of goods and services to competent governmental
agencies when determining and adjusting prices for goods and
services as required.
• Since 1 January 2014, cement is changed from products subject
to price stabilization to price declaration under Decree No.
177/2013/ND-CP. The price is allowed to follow the market
mechanism under the management of Government (the Price
Declaration mechanism).
How did the Price Stability Program work?
• VICEM had to propose an annual price adjustment timeline and
submit to the Government (Ministry of Finance) for approval.
• The Proposal needed to detail the price of each member of
VICEM. It consists of production cost and analysis on related
material inputs, existing cement price, planned cement price as
per the timeline, estimated revenue, contribution to State
budget, and Profit & Loss results.
• During the year, all price adjustments proposed by VICEM must
be agreed by the Price Management Department of Ministry of
Finance.
• In practice, the Price Management Department of Ministry of
Finance would work with the Government Office, the
Construction Material Department of Ministry of Construction
and the Vietnam National Cement Association (VNCA) to make
decision on any price adjustment proposed by cement
companies.
Cement price: regulatory roundup
• Under the Law on Price (Law No. 11/2012/QH13 dated 20 June 2012), the
Government shall manage the price under the market mechanism, respect
right of self-determination of price, the price competition of organizations
and individuals as prescribed by law.
• Decree No. 177/2013/ND-CP issued on 14 November 2013, cement is removed
from the list of goods and services subject to price stabilization, and moved
to list of goods and services subject to price declaration which include the
following:
− Cement and construction steel;
− Coal;
− Animal feed for cattle, poultry and fishery…;
− Printing paper and writing paper (roll), newsprint paper produced
domestically;
− Textbooks;
− Functional food for under-6-year-old children, etc.
How does the Price Declaration work?
• Starting in 2014, the Government has eased its control of cement price,
by replacing the Price Stability with Price Declaration program.
• Following the Decree No. 177/2013/ND-CP, the price notification must be
sent to competent authorities by manufacturing and business organizations
and individuals at least 5 days before the price determination or adjustment.
• Ministry of Finance (MOF), in collaboration with other related governmental
agencies and Prime Minister will consider to amend the list of goods and
services subject to price declaration, regarding the actual situation.

34
4.1 Pricing mechanism and regulations
Contents

35
Taxes and Tariffs
The cement producers are obligated to pay different types of taxes and tariffs
Higher charge for the grant of mineral mining rights
• For the areas not subject to auction of mineral mining rights, containing coal,
limestone, and minerals being cement additives determined as the sources of
materials for cement plants project, cement producers shall have to pay the
fee for mineral mining licenses in accordance with Decree No. 203/2013/ND-
CP. Please refer to Appendix 3 for the calculation of charge.
Environmental Protection Tax (EPT)
• EPT is imposed on goods whose use is considered to have negative impact on
the environment. Please refer to Appendix 3 for the calculation of EPT.
• EPT rates of different types of coal are currently set at lower limit of the
standard reference range, implying that they are more likely to rise in the
future in line with growing interest in environmental issues.
Natural resources tax (NRT)
• NRT is imposed on the exploitation and use of natural resources including
metallic or non-metallic minerals, etc.
• NRT is calculated based on natural resource output used for royalty
calculation, royalty-liable price and royalty rate.
Increased transportation cost due to recent loading control policy
Figure : Environmental Protection Tax applied from Jan 2012
Figure : Natural resources tax rates applied since 1 Feb 2014

36
Contents

37
Government Guarantee and Subsidies
The Government no longer provides loan guarantee and material price subsidies to cement players
Foreign currency loan guarantee scheme
• Cement sector, as the core ingredient in construction sector, receives
many favors from the Government in borrowing capital especially from
foreign funds under guarantee of Government.
• From 1 Jan 2010 onwards, the Government guarantees for foreign loans
will be governed and construed in accordance with the Law No.
29/2009/QH12 and Decree No. 15/2011/ND-CP.
Government loan guarantee scheme for cement ceased already
• An alarming high level of public debts at 54.1% of GDP in 2013 (as
reported by MOF) in Vietnam has been debated at both National
Assembly’s sessions as well as local media. Among the public debt, loans
for cement sector guaranteed by the Government accounted for 8.96%.
• The Government recently decided not to provide guarantee for cement
loans. For example, Prime Minister, in an official letter issued in early
2014, rejected the request for foreign loan guarantee by Tan Thang
Cement Project.
Electricity Subsidies are no longer available and even a premium charge
is being proposed
• Previously in 2010, the cement and steel companies only had to pay
US$0.04/KWh, which equals to 57%-63% of export price, but costs
US$0.06/kWh, according to Ministry of Industry and Trade (“MoIT”),
meaning that Vietnam Electricity Group (EVN) inevitably incurred losses.
In fact, cement and steel industry, the two power-intensive sectors, were
said to enjoy total subsidy of US$120mn in 2010 only according to a
statement by the Minister of Finance, Mr. Vuong Dinh Hue.
• From 2012, it was proposed to reduce the level of subsidy and then
gradually cut off. Electricity selling price should be allowed to change in
accordance with market mechanism as stipulated in Decision No.
24/2011/QD-TTg & Circular No. 31/2011/TT-BCT.
• Since June 2013, MoIT has drafted a new retail electricity price schedule
in which cement and steel industries are discriminated from other
manufacturing sectors to be charged at higher price. Steel and cement
firms shall pay 2-16% higher than the current average retail price. Please
refer to Appendix 3 for the details.
Similarly, Coal Price Subsidies were stopped recently
• Players in four industries including thermal electricity, cement, paper,
and fertilizer used to enjoy a preferential coal price as its input material.
Specifically, it was equal to 70-80% of domestic market price and 50% of
export price in 2008.
• From early 2013, the coal price that cement companies were charged was
still lower than its production cost and that loss was covered by export
turnover. Therefore, the Government continued to discuss the roadmap
for further price hikes so that the coal price would be market-driven as
stipulated in Decree No. 177/2013/ND-CP.
Government loan guarantees for cement sector
• As of 31 Oct 2013, Vietnamese government guaranteed foreign loans
worth US$1.378bn for 17 cement projects, accounting for 8.96% of total
government-backed debts, according to Agency for Debt Management and
External Finance, MOF.
• There were four SOE projects including Dong Banh, Thai Nguyen, Tam
Diep and Hoang Mai which were in huge loss-making situations and on the
edge of bankruptcy. Their total debt was US$229mn and the MOF has
actually repaid the loans, assuming guarantor’s role.
• In a press release in 2012, MOF has announced that US$30-40 mn each
year will be spent on settling foreign debts for local cement producers
until 2018.

38
Contents

39
Import-export Policies
Cement industry looks to limit imports of clinker and cement to protect domestic producers
Legal basis
• The export tariff and preferential import tariff schedule changes annually. For the
year 2014, the MOF promulgated Circular No. 164/2013/TT-BTC on 15 Nov 2013.
Raw materials
• Main raw materials for cement production consist of Coal, Limestone, Clay, Iron
ore, and Gymsum. The export and import tariffs of these items have little changes
in some recent years.
Clinker and Cement
Table 42: Export-Import tax rate, 2014

40
Contents

41
Decision 1488/QD-TT approved The Master Plan in cement sector period 2011-2020
More stringent conditions for a new license:
• Decision 1488/QD-TT puts more strictly controls on new entrance by
setting various technical requirements:
- Capacity: minimum 2,500 tons of clinker per day
- Thermal energy consumption: Less than or equal to 730 Kcal/kg
clinker
- Electricity consumption: Less than or equal to 90kWh/ cement ton
- Emission dust concentration: Less than or equal to 30mg/Nm3
- Applying Waste Heat Gas Generator to meet at least 20% electricity
consumption.
• Investors are also required to have strong financial positions, with
minimum chartered capital of at least 20% of the project’s total
investment.
However, the Master Plan has not been strictly implemented
• The Master Plan also approved 27 new projects until 2015 with total
additional capacity of 31.68mn tons and will make total country capacity
increased to 94.24mn tons by 2015.
• However, most of those 27 projects were suspended or delayed due to
the economic downturn and financial shortage by the owner. We expect
those projects will be stopped or implemented after 2015. In 9month
2013, total country capacity was 75.9mn tons and we expect the total
country capacity in 2014 and 2015 to be 80.6mn tons instead of 94mn
tons as the Master Plan. (In 2014, Xuan Thanh 2 with capacity of 2.3mn
tons and Vissai Ha Nam with capacity of 2.4mn tons will finish its
construction and go in to operation)
Government indirectly control cement price through Vicem
• The Government still indirectly exercise the control over cement
price via VICEM. In general, all price increases proposed by VICEM
and other cement companies must be agreed by the Price
Management Department of Ministry of Finance.
• VICEM has raised its price by 6% in September 2013. However, the
sales price increase still not enough to cover the increase of coal
and electricity price.
Decision 1488/QD-TT

42
WHRPG Requirement
By 2014 end, all cement projects with a capacity of 2,500 tonnes of clinker per day must have
WHRPG system commissioned but only three of them complied with the regulation until now
About Waste Heat Recovery Power Generation (“WHRPG”) system
Regulation on WHRPG (under Decision No. 1488/QD-TTg)
• Projects already in operation or under construction with a capacity of
2,500 tons of clinker per day will be forced to complete the investment
in WHRPG systems by 31 Dec 2014 at the latest; and
• All new cement projects with a capacity of 2,500 tons of clinker per
day and above must be equipped with WHRPG, except for cement
production lines using industrial waste and other waste as fuel.
WHRPG

43
Section 5: M&A Opportunities
Contents

44
Cement sector has been experiencing an active consolidation than ever in Vietnam by both among
domestic players and inbound transactions from giant regional players
Rationales for Consolidation
• The sector is very fragmented with many small scale plants for many
players along the country. Many of them run a cement plant for the
first time.
• Many State-owned enterprises such as the construction players
including Song Da Corporation and Vinaconex JSC under pressure by the
Government to divest their cement businesses as “non-core”. The
Government now allows a “loss-making sale” of a State-owned cement
plant i.e. below the par value.
• The Government has already allowed foreign investors to own cement
factories along with material mines (clay, limestone) in Vietnam such
as Gresik.
Detailed M&A Activity Review
• In 2012 only, we recorded 4 M&A transactions in the cement industry. A
highlight is that first inbound M&A deal (Indonesia's PT Semen Gresik
acquired Thang Long Cement Co. from Geleximco in a deal worth
US$230mn). Gresik is the largest State-owned cement group in
Indonesia. The main purpose of this acquisition is to gain access to
material mines in Vietnam and to export clinker back to Indonesia
(where demand for cement is in greater demand).
• Most active local buyer now is Viettel Group, the largest military-run
telecom provider. Viettel Group just acquired Cam Phan Cement JSC
from Vinaconex JSC and most recently Ha Long Cement JSC from Song
Da Corporation.
• The Vissai, a construction business, also appears as an active buyer.
They recently got approval of the Government to purchase entire stake
in Dong Banh Cement JS C, from the Construction Machinery
Corporation (COMA).
Key drivers
Key drivers for cement sector consolidation are:
• A number of foreign regional players are either eying or penetrating
into Cement sector including Siam Cement Group and WACEM (Africa).
• Not only cement but related businesses such as building materials and
infrastructure players are also getting exposure to Vietnam. Most
noticeable transactions are SCG Building Materials and Prime Group,
and Japan Pile Corp and Phan Vu Pile Corp.
• The Government policies with regard to foreign ownership have been
now eased not only in ownership in a cement business but also related
licensing matters for clays and limestone.

45
Opportunities for M&A in cement sector are obvious, however, successful M&A deal between
domestic cement plant and foreign investor requires not only efforts from both sides but also
supports from government.

46
Section 6: Vietnam Macro Economy and Construction Overview
6.1 Vietnam Macro Economy
6.2 Vietnam Construction Industry
Contents

47
Section 6: Vietnam Macroeconomic and Construction Overview
Vietnam Economy
Vietnam economy has some initial recovery signals recently but how has the distressed economic
situation developed?
• From the late of 1990s till 2007, except a short period during the Asian
financial crisis, Vietnam economy posted a good performance. In the
same time, asset bubbles started building up especially in real estate
and stock markets from the early 2000s. The bubble burst in 2007 when
the Vietnam Government tried to cool off the overheating economy and
then Vietnam suffered adverse spill-over impacts. Since then
Vietnamese policy makers faced constantly a difficult dilemma of trade-
off between growth and macro economic stability.
• In an effort to protect the economic growth, a major stimulus program
totalling about VND160 trillion (approximately US$8bn) or about of 10%
of the nominal GDP, was introduced under the form of interest-
subsidised short term loans to qualified companies in various sectors in
late 2009. The stimulus package helped economic growth rebound to
6.5% in 2010.
• Nevertheless, the price of growth appeared to be much higher than what
Vietnam’s government had expected. As soon as the stimulus package
was implemented, Vietnam faced serious macroeconomic instability
issues. Inflation returned to double-digit area and reached 11.8% in 2010
and then 18.1% in 2011(see Figure 2). Vietnam currency (VND) came
under devaluation pressure. After intervention efforts to preserve the
parity between VND and USD, Vietnam’s foreign currency reserve was
reportedly fall to below the safety threshold of 12 import weeks.
• Economic policy was completely reversed in 2010 to stabilise the
economy. The Government cut its spending, limited credit expansion,
and hiked interest rate. At some points of times, deposit rate was raised
to above 20% to ensure positive real interest rate. Subsequently, private
and State-owned enterprises across sectors fell into serious trouble.
Why? because Vietnamese corporate sector was too fragile. Most
companies are highly leveraged and heavily rely on banking credits. They
had limited choices as the corporate bond market was almost non
existent and the stock market was sluggish and lacked depth.
Figure : Vietnam GDP per capita and GDP growth
Figure : Vietnam CPI
402 441
558
731
1,070
1,224
1,596
1,960
2,057
6.8%
7.1%
7.8%
8.2% 8.5%
5.3%
6.8%
5.9%
5.0%
5.4%
5.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
0
500
1,000
1,500
2,000
2,500
US$
GDP per capita GDP Growth
-0.6%
0.8%
4.0%
3.0%
9.7%
8.7%
6.6%
12.8%
19.9%
6.5%
11.8%
18.1%
9.2%
6.0%
0.8%
-5%
0%
5%
10%
15%
20%
25%
Source: GSO
Source: GSO

48
Vietnam Economy
State Deficit has been increasing steadily since 2010. Meanwhile, State capital investment
expenditure decreases sharply, with a slight bounce back in 2013.
• The State Deficit remains at high level around 5% GDP from 2007 till
now. As international practices, deficit should not be higher than 3%
GDP for a sustainable development. In November 2013, the National
Assembly passed Resolution 54/2013/QH13 on the adjustment of the
State budget for 2013-2014, in which the State budget deficit ceiling
for these years was raised to 5.3% of GDP from 4.8% previously.
While State expenditure has been increasing, the allocation for capital
investment (most of which are expenditure for construction and
infrastructure) in total expenditure decreased from a peak of 32% in
2009 to only 20% in 2013. Most of the expenditure increase is used for
healthcare and pension.
The implication of this issue is that the Government is now willing to
sell its stakes in State-owned enterprises including cement
enterprises including:
− Members of VICEM have been approved to sell off more than 50%
including Hoang Thach Cement JSC (4.00 MTPY in 2013); Hai Phong
Cement JSC (1.40 MTPY in 2013 ) and Tam Diep Cement JSC (1.40
MTPY in 2013);
− Do Luong Cement JSC, 0.91 MTPY to be built after 2015 (owned by
Construction No. 1 Corporation under Ministry of Construction);
− Ha Tien1 Cement JSC, 5.2 MTPY in 2013 (owned VINAFOOD 2 under
Ministry of Agriculture & Rural Development);
• VND depreciation pressure: The exchange rate has not fluctuated
much, depreciated by 1.6% in the last 12 months. The State Bank has
kept the currency exchange rate stable for the year 2012 and 2013 and
intends to maintain currency fluctuation not over 3% per year.
However, according to many specialists, the VND has been overvalued,
negatively affected the competitiveness of Vietnamese goods and it
should be depreciated gradually.
6.89%
1.42%
6.15%
2.91%
3.73%
5.24%
5.98%
-2%
0%
2%
4%
6%
-20
-10
0
10
20
30
40
50
2007 2008 2009 2010 2011 2012 2013
US$mn
State budget revenue State budget expenditure
Budget deficits Deficits per GDP
Figure : Vietnam State Deficits
28%
26%
32%
28%
24%
19%
20%
0%
5%
10%
15%
20%
25%
30%
35%
0
2
4
6
8
10
12
2007 2008 2009 2010 2011 2012 2013
US$bn
State capital investment expenditure % state budget expenditure
Figure : State capital investment expenditure
Source: GSO
Source: GSO

49
Section 6: Vietnam Macro Economy and Construction Overview
6.1 Vietnam Macro Economy
6.2 Vietnam Construction Industry
Contents

50
Vietnam Construction Industry
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
2009 2010 2011 2012 2013
Total construction output Specialized construction services
Civil engineering works Non-residential buildings
Residential buildings
Figure : Growth rate of construction gross output by types of work
Source: GSO
Market sizing and growth potentials

51
Thank to the golden age population with the urbanization rate up to 3% per year and high demand
for infrastructure development, the construction and infrastructure development sector has been
potential in long term.
Figure : Rural and Urban population growth rate
0.3% 0.3%
0.0% 0.0% 0.0% -0.5%
0.5% 0.3%
0.0%
3.2%
3.0%
3.9%
3.7% 3.7%
4.5%
2.1%
2.5%
3.1%
1.1% 1.1% 1.1% 1.1% 1.1% 1.0% 1.0% 1.0% 1.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
2006 2007 2008 2009 2010 2011 2012 2013e 2014f
Rural growth rate Urban growth rate Population growth rate
Source: GSO and StoxPlus

52
Infrastructure development: Vietnam would need to invest US$220bn until 2030

53
There are 130 infrastructure projects in 2015-2020, compared with 71 remaining projects for 2010-
2015. Central region will have an increase in infrastructure in 2015-2020.
0 5 10 15 20 25 30 35 40 45
Airports
Oil & Gas Popelines
Ports
Power Plants and T&D
Railways
Roads & Bridges
Water
2015-2020 2010-2015
Figure : No. of major infrastructure projects, by timeframe (US$mn)
Source: StoxPlus
Figure : Distribution of infrastructure project during 2010-2015
Figure : Distribution of infrastructure project during 2015-2020
Source: StoxPlus
Source: StoxPlus
Central
25%
North
33%
South
42%
Central
31%
North
20%
South
49%

54
The majority of projects within 2010-2015 are already under construction. Meanwhile, the status of
projects within 2015-2020 are still under planning stage and source of funding is a critical

55
Section 7: Appendices
7.1 Appendix 1: Cement plants under construction
7.2 Appendix 2: Major infrastructure projects
2014-2030
7.4 Appendix 4: Factsheet of listed cement companies
Contents

56
Appendix 1: Cement plants under construction
Figure 27: Cement Plants under construction
Cement Plants Location Capacity (million
ton/year)
Situation
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
For full list of all cement plants to be built in the period 2013-2020, please see the Appendix 4

57
2014-2030
Contents

58
Appendix 2: Major infrastructure projects

59

60

61

62

63

64
2014-2030
Contents

65
Appendix 3: Full list of cement plants to be built under period 2014-2030

66
Contents
2014-2030
This section has been generated and automatically by StoxPlus using our database of more than 2000+ public companies in Vietnam. However, the
data has been reviewed thoughtfully by our data clerks and analysts.

67
Appendix 4: Fact sheet of listed cement companies

68

69

70

71

72

73

74

75

76

77

Introduction about StoxPlus Corporation
and Research Capability

79
Overview about StoxPlus
Research Services
 Our Research division has been established as an
independent research house in Vietnam to provide local
insights to our clients at quality standards of the
World’s prestige advisory firms.
 Our research team with a team of 5 experienced
analysts and researchers with CFA Charterholders,
ACCA Chartered Accountants and MBAs with extensive
experience in investment, banking, corporate finance
and technology with well respected firms in the United
Kingdom, Australia and Vietnam.
 Our research services consists of
 Standard research reports (ready for sales via our
website www.stoxresearch.com ); and
 Customisable services based on specific
requirements
 Our team covers all key sectors of Vietnam including
Financials, Logistics, Healthcare, Homebuilding, etc
 Our research clients are mostly foreign institutional
investors and industry players who are penetrating into
Vietnam.
Selection of our Regular Research Clients:

80
Market Research Service
• Market understandings
• Market sizing & segmentation
• Market dynamics
• Industry analysis
• Customer segmentation
• Value chain analysis
• Regulatory and policy framework
• Key player profiles
Business Intelligence
• Key account profiling
• Competition analysis
• Commercial partner seeking
• Management background check
• Financial and operational due diligence
Market Entry Advisory
• Market assessment
• Market entry strategy defining
• Site location analysis
• Product and pricing strategy
• PPP/Joint ventures/M&A/licensing
• Vendors, outsourcers and distributors
search
Industries we regularly cover:
Financial Sector
• Vietnamese banking
• Retail banking and home
credit
• Insurance
• Brokerage
• Asset management
Healthcare Sector
• Hospital operation
• Drugs
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• Diagnostic imaging
Construction & others
• Home builders
• Cement and concrete
• Construction materials
• Infrastructure i.e. ports
• Real estates
• Natural rubbers
Consumerism
• Beers
• Soft drinks
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• Education
About StoxPlus
We provide sector research reports for all key industries as well as comprehensive
analysis and local insights customized for your Vietnam market entry solutions. Our
research services include:

‹#›
If you have any question with regard to this Report, please
contact us:
Thuan Nguyen
CEO
+84 (0) 35626962 (ext. 111)
+84 (0) 98398 0000
thuan.nguyen@stoxplus.com
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Hanoi, Vietnam
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