The Future of Vietnam Cement Industry

Presented by Mr. Nguyen Quang Thuan

CEO, StoxPlus Corporation

Grand Hyatt Bangkok, Thailand, 22 June 2015

1
‹#›
 The Story of Supply & Demand
1

Industry Performance Highlights

2

Long-term Outlook
3

Macroeconomic Briefing
4
Currently excessive supply in the whole country basis but a review must
be done with care!

Vietnam Cement Consumption, 2010 - 2014

80
70
70 70
65 57
60
50
47 48
Million Tons

50 44 45
39
40 36 56
32 45 51
27 28
30 24 34
21 27
20 16 24
14 22
17 18 20
10 15
13
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Total Domestic Production Cement Consumption

Source: StoxPlus from VNCA

Domestic Consumption Export

2014 : 50.82mn tons (! 9.74% y-o-y) 2014 : Cement - 6.05mn tons (! 49% y-o-y)
5M2015: 21.34mn tons (! 5% y-o-y) 2014 : Clinker – 15.18mn tons (! 37% y-o-y)
5M2015: Cement – 1.90mn tons
5M2015: Clinker - 3.95mn tons
3
 Supply surplus – but depending on region! Why?

Vietnam Domestic Cement Consumption by Construction value & GDP per region
Region, 2014

25 Highland
22.09 Mountainous

20 Red River Delta

16.69
Million Tons

15
12.41
Central North and
Costal
10
Percentage of construction value (2014)

Percentage of GDP (2014)

5
Central
Highland
0
North Central South

South East
Source: StoxPlus from VNCA
Mekong River Delta

4
Supply surplus in the North and Central but shortage in the South (HCMC
area)

Clinker capacity and domestic demand by location, 2013

60 56.4

50 46.0

40 35.2

30
19.7
20 15.5 14.2 15.5
10.8 10.4
10 7.0
3.3
0
North Central South Whole country
-10
-8.5
-20 Capacity Demand Unbalance

Source: StoxPlus from VNCA

5
Export as the way to clean up the inventory

Vietnam Cement & Clinker Export, 2010-2015

16 15.18

14

12 11.06

10
Million Tons

8 7.3
6.05
6 5.5
4.04 3.95
4 3
1.70 1.90
2
0.50
0.00
0
2010 2011 2012 2013 2014 5M2015

Export Cement Export Clinker

Source: StoxPlus from VNCA

6
Infrastructure development triggers a great cement growth consumption!
But financing is a big challenge
Value of major infrastructure projects, by No Project Name City/Province
Value
Timeframe Status
(US$mn)
timeframe (US$mn) 1 Ring roads 3 and 4, Ho Chi Minh 8,000 2010-2015 Under
connecting HCMC with the construction
Ben Luc - Long Thanh and
Bien Hoa - Vung Tau
3,734 2 Six-lane road widening BOT Hanoi 6,000 2015-2020 Under
Water project, Hanoi - Can Tho construction
733 section, part of 2,300km
National Highway 1
36,947
Roads & Bridges 3 Ring Road No. 5 (Son Tay- Hanoi 4,100 2010-2015 Planning
9,645 Phu Ly, Phu Ly-Bac Giang;
Bac Giang-Thai Nguyen and
35,705 Thai Nguyen-Son Tay),
Railways Hanoi
553 4 Dau Giay - Lien Khuong Lam Dong 3,520 NA Unknown
Expressway
57,094
Power Plants and T&D 5 Six-lane Nha Trang City Khanh Hoa 3,500 2015-2020 Planning
22,140 (Khanh Hoa Province) -
Phan Thiet City (Binh Thuan
7,239 Province) PPP Expressway
Ports Project
1,464 6 Ha Long City - Mong Cai Quang Ninh 2,100 2010-2015 Planning
City expressway project,
8,000 part of Noi Bai – Ha Long -
Oil & Gas Popelines
800 Mong Cai expressway,
Quang Ninh province
16,489 7 Ring road No. 4, Hanoi Hanoi 1,970 2010-2015 Planning
Airports 8 Ninh Binh - Thanh Hoa road Thanh Hoa 1,867 2010-2015 Planning
1,157 project - 2 lane
9 Noi Bai - Ha Long Hanoi 1,762 NA Unknown
0 20,000 40,000 60,000 Expressway
10 Ben Luc-Long Thanh Dong nai 1,600 2015-2020 Under
Expressway - Part of North - construction
2015-2020 2010-2015 South Highway
Total 34,419
Source: StoxPlus

7
Residential buildings is the highest growing cement usage sector

Construction Segmentation, 2008-2013

40
35 4.3
4.1
30 3.7
10.4
25 3.4 10.5
9.4
US$bn

20 2.6 6.1
8.5
2.0 5.8 6.3
15 8.0
7.2 4.2
10
2.6 15.9
2.1 12.5 13.3
5 10.0
5.4 7.0
0
2008 2009 2010 2011 2012 2013

Residential buildings Non - residential building

Civil engineering works Specialized construction services

Source: StoxPlus from GSO

8
Supply side: Very fragmented market structure, consolidation is a must!

Market Share of Key Players, 2014

He Lafang
Luks
Duong e
Viet
2% 4%
Nam
Phuc8% Nghi
Son Son
9% 27%
Thang
Long Holci
10% Chinfo m
n 21%
19%
Foreign-
owned
Producers,
28% Others,
24%
Song Gianh,
Other, 37%,
3%
Lam
VICEM, 35% Thach, FICO 2%
1%,
Tam Hai Other
Quang Son, 2% Ha Long,
Diep Van s
Hai 4% 2%
5% 3%VICE
Phong Cam Pha, 3%, Cong
M Ha
7% Thanh, 1%
Hoan Tien
g Mai Hoan 25%
9% But g Bim
Son Thac Son
13% h 18%
16%
Source: StoxPlus from VNCA

9
 Low utilisation rate in overall. Do you think they can survive with
this operating situation?

Forecasted Capacity Utilization Rate of Planned Additional Capacity from New

Vietnam Cement Factories (7% growth rate) Licenses

85% 8.80
81% 81% 8.79
8.79
80%
77%
8.78
75% 73% 75% 8.77

MTPY
72%
72%
70% 70% 70% 8.76
70% 68% 8.75
8.75
65% 8.74
8.73
60%
Completed in 2014 To Complete in 2015

Source: StoxPlus Source: StoxPlus

10
 The Story of Supply & Demand
1

Industry Performance Highlights

2

Long-term Outlook
3

Macroeconomic Briefing
4
Low EBITDA vs. Regional Giant Players

Vietnamese Cement EBITDA Margin Vs. Regional Players

40%
35% 35.0%
33.2% 33.0% 33.1%
31.7% 31.3% 31.0%
30%
24.9% 24.3%
25% 22.5% 24.9% 22.1% 23.6%
23.6% 24.3%
21.2% 22.1%
20% 19.8%
14.9% 15.5%
15% 15.1%
15.3% 13.3% 16.3%
10%
5%
0%
2008 2009 2010 2011 2012 2013

FT Semen Indonesia Siam Cement Group (Thai Land) Anhui Conch (China) Vietnam Cement Players

Source: StoxPlus, ICR

12
High fuel costs but limited alternative fuel

Sample Clinker Cost Analysis, 2013

30

Coal = 60% 0.24 0.15

25 of clinker Electricity
1.51
= 14%
cost 2.19

20 3.50
US$/ ton

15
25.64

10 15.42

2.63
0
Material Coal Electricity Maintenance Labor SG&A Other fixed Original
price

Source: StoxPlus’ survey data

13
Why Grinding located in HCMC area?

Quang Ninh
Hai Phong

Thanh Hoa
-  Clinker production concentrates
on the North and Central
Vietnam
Quang Binh

-  Lime stone in North and Central

Clinker
Vietnam
Grinding & Packaging
-  Shortage of clinker in the South Warehouse

-  Very weak logistic system

Hiep Phuoc –HCM

CanTho/Vinh Long

Source: StoxPlus

14
 The Story of Supply & Demand
1

Industry Performance Highlights

2

Long-term Outlook
3

Macroeconomic Briefing
4
Oversupplied but when is the equilibrium point?

Forecast Vietnam Cement Supply - Demand

250
Under the base case,
cement equilibrium
200 achieved by 2023

Under the Master Plan, there will be 25 cement

Million Tons

150 factories to be built and operated by 2020, which

41.08
would increase cement supply by 41.08 MTYP. But the (*)
status of those projects is very uncertain.
100
We are here

50 102 104 107 107 107 107 107 107 107 107 107 107 107
90 95
70 70 77
51 56 65
45
34
24 27
13 15 17 18 20 22
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
2024E
2025E
2026E
2027E
2028E
2029E
2030E
Total Consumption (5%) Total Consumption (7%) Total Consumption (9%)
Source: StoxPlus

16
 Opportunities remain in the South (HCMC area)!

Lack of cement in HCMC area

25 22.6
21.5
20.5    
19.5
20 18.6
17.7
16.8    
   
   
Ton million

15 The south does not have natural resources necessary    

           
to produce clinker. They will always have a shortage    
of clinker    
           
10        
           
       
       
5    
7.0 7.0 7.0 7.0 7.0 7.0 7.0        

   
0    
2013 2014E 2015E 2016E 2017E 2018E 2019E

Total Clinker Capacity Total consumption (5%)

Source: StoxPlus

17
 Consolidation is a must!

1 Acquiror   3 Acquiror  

VIETTEL GROUP VIETTEL GROUP

-  Fragmented
market with 26 Taget Name   Taget Name  
companies and HALONG CEMENT JSC CAM PHA CEMENT JSC
94 factories

-  Low efficiency
2 Acquiror   4 Acquiror  
-  Necessary to
consolidate PT SEMEN GRESIK SIAM CEMENT GROUP

Taget Name   Taget Name  

THANG LONG CEMENT JSC BUU LONG CEMENT JSC

18
 The Story of Supply & Demand
1

Industry Performance Highlights

2

Long-term Outlook
3

Macroeconomic Briefing
4
 Vietnam economy recently saw some clear signs of recovery

US$ million
GDP Growth & CPI 14,000 FDI Disbursed
8% 20% 12,500
11,500 11,500
12,000 11,00011,000
10,460
10,000
6% 15% 10,000
8,034
8,000
4% 10%
6,000
4,100
4,000 3,300
2% 5%
2,000
0% 0% 0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

GDP Growth CPI

US$ million Construction Value US$ million Public Investment

10,000 7% 12,000
9,919 9,600
7,702 10,000 8,636 8,722
9,288 9,286
8,000 7,199 8,052
6,627 6,586 6,800
6,021 8,000
6,000 5,428 5,407
4,840 5,689
4,358 6% 6,000 5,341
4,000 4,000
3,771

2,000 2,000
0 5% 0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Construction Value % GDP
20
Concluding Remarks

1.  Supply surplus currently but our base case forecast has
indicated the equilibrium will reach in 8 years from now in 2023
2.  Additional supply would be from new licenses but HCMC area
always in shortage. A better logistics and related infrastructure
improvements will trigger the growth
3.  Domestic players operating at very low EBITDA vs. regional peers
and consolidation is a must. Also opportunities for any entrants
who can centralize the operations and increase efficiency
4.  Energy costs remain a burden given the soaring electricity price
and coal. Alternative fuels and Waste Heat Recovery Power
Generation are critical success factors
5.  Consolidation is a must for the industry growth. VICEM IPO is
being on radar now. The only 4 domestic major players also
discussed to merge as matter of survival.

21
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A selection of our customers

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FINANCIAL INSTITUTIONS INDUSTRIALS OTHERS

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Thank You