17 September 2015

Vietnams Logistics Sector Sector pre-initiation overview

Anirban Lahiri
Senior Manager
18 March 2011
Anirban.Lahiri@vcsc.com.vn
+848 3914 3588 ext. 130

Still adolescent but growing-up fast

Vietnams USD 50-60 billion logistics industry is growing fast but is still in the
early stages of development. The sector has been growing at ~20% per year and
is expected to sustain double-digit growth for at least the next 5-10 years. Most
Vietnamese logistics players are 2PL (secondary party logistics) providers unlike in
more developed markets where 3PL providers and integrated supply chain
management vendors dominate.
The sector provides broad exposure to the countrys emergence as a
manufacturing hub... After stagnating in 2011 and declining in 2012, total
disbursed FDI into Vietnam grew by over 9% CAGR since then to reach USD12b
in 2014, with around 70% of this coming into the manufacturing sector. Major
upcoming free trade agreements should accelerate this trend, thereby driving
sustained demand for a whole range of logistics services in the coming years.
...while simultaneously allowing one to ride fast emerging domestic
consumption themes like the growth in organized and internet retailing.
Vietnam has become one of the fastest growing retail markets in the world. Retailing
sales grew at 17.5% from 2009 to 2014 to reach VND 1,751t (USD 80b) in 2014 and
is expected to touch VND 2,202t by 2019. The modern trade channel penetration is
less than 15% in urban areas and just 0-1% in rural areas (4-5% nationwide) but this
is increasing fast with several global and domestic players entering the market. This
is spurring demand for logistics services while also creating demand for specialized
logistics capabilities like cold chain management (for grocery retailers). Internet
retailing is another rapidly emerging sector, having grown by 43% in 2014 to VND
11t in value. The complex last-mile delivery and payment collection requirements of
internet retailing in Vietnam is driving demand for specialist logistics services.
Inefficiency is still a major hindrance to the industry, depressing the valuation
of logistics companies... The lengthy customs and regulatory procedures in
Vietnam increase logistics costs while also leading to delays in cross-border cargo
movement. The underdeveloped transport infrastructure in the country further
exacerbates this problem. This inefficiency discount is reflected in the relatively low
median P/E of 7.4x for the universe of listed logistics companies in Vietnamese
versus 15.1x in the Philippines, 19.8x in India and 23.1x in Thailand.
...but the continued flow of FDI and rapid infrastructure development will
boost efficiency and close this valuation gap with regional peers. Vietnam is
continuing to see strong FDI flows into high-tech manufacturing segments like
electronics, which have complex supply chain requirements, involving several
imports of multiple precision components and exports of high-value, fragile finished
goods. This will pressure existing logistics players to upgrade their capabilities. The
huge spending underway in road, rail, port and airport infrastructure will, in turn allow
local players to improve their efficiency, and consequently, profitability.
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Table of Contents

HOLD

The Vietnam Logistics Industry is at an inflection point ............................................................... 3

Transportation is a vital part of the logistics value chain and will benefit from improving
infrastructure ............................................................................................................................ 4
Within the Warehousing segment, Cold Storage is a promising and highly underserved niche
................................................................................................................................................. 6
The Forwarding segment is seeing increasing participation from foreign players ................... 7
Demand for other value-added logistics services should grow fast ......................................... 8
Vietnams Logistics Industry is expected to grow in size and sophistication in the future........... 9
...despite the presence of some structural challenges.. ............................................................ 11
Lengthy customs processes are a major impediment to efficiency but the government seems
to have recognized this .......................................................................................................... 11
Inadequate infrastructure is another bottleneck but this is also being tackled quite
aggressively. .......................................................................................................................... 11
...because of a host of supporting macro trends... .................................................................... 12
Foreign investment is boosting demand for quality logistics services ................................... 12
Free Trade Agreements are providing that additional oomph ............................................... 13
...and supportive regulatory and policy measures ..................................................................... 13
The Vietnamese listed logistics universe is sizeable and trading at an attractive valuation ..... 14

Table of Figures
Figure 1: Logistics Industry Structure .......................................................................................... 3
Figure 2: Freight Volume by Transportation Medium .................................................................. 4
Figure 3: Quality of infrastructure global ranking out of 148 countries 2013-2014 ...................... 5
Figure 4: Grocery Retail Sales (VND t)........................................................................................ 6
Figure 5: Grocery Retail Outlets and Selling Space .................................................................... 7
Figure 6: Distribution of Vietnams seaport system ..................................................................... 8
Figure 7: Logistics Services Outsourcing Demand of Vietnamese Enterprises .......................... 9
Figure 8: Evolution of the Global Logistics Industry .................................................................... 9
Figure 9: Vietnam's Logistics Performance Scores ................................................................... 10
Figure 10: Logistics cost as a percentage of GDP in 2014 ....................................................... 10
Figure 11: Time Needed to Transport Goods across Borders................................................... 11
Figure 12: Foreign Direct Investment into Vietnam ................................................................... 12
Figure 13: Vietnams exports by category in value terms (2014) .............................................. 13
Figure 14: Mean and median P/E of Logistics companies ........................................................ 15

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The Vietnam Logistics Industry is at an inflection point

HOLD

Vietnams logistics market, by some estimates, is ~US$60 billion in total value. In total, there
are around 1,000 logistics firms, 25 of which are foreign firms. Foreign firms of note are
Maersk Logistics, APL Logistics, NYK Logistics and MOL Logistics. Most foreign firms can
offer third or fourth party logistics (3PL or 4PL) services while Vietnam domestic firms can only
handle 2PL services. Foreign firms in Vietnam currently dominate the market, with a collective
market share of approximately 80%.
The sustained growth in the countrys economy and trade with the rest of the world over the
past two decades has led to rapidly increasing levels of transportation demand, which have put
a strain on limited resources. To date, Vietnams transport and logistics system has been able
to accommodate fast growth despite limited connectivity. However, the shift in the industrial
base towards more sophisticated manufacturing (electronics, chemicals and automotive
assembly) and the development of modern retail formats are increasing the complexity of
supply chain requirements with heightened needs for timeliness and efficiency. This creates an
unprecedented opportunity for domestic logistics players to upgrade their capabilities and
evolve from 2PL vendors focused just on forwarding and transportation into 3PL providers that
provide the entire spectrum of supply chain services and offer tailored solutions to clients. The
industry is divided into four main categories: transportation, forwarding, warehouse, and other
value-added services.
Figure 1: Logistics Industry Structure
Road
Domestic

Transportation

Water
International

Custom
Clearance

Rail
Air

Forwarding
ICD & CFS
Services

Logistics
Bonded
Warehouse
Warehousing

Cold Storage
Cold Chain
Cold
Transportation

Seaports
Port Operations
Airports

Container
(Un)Loading
Others
Packaging,
Inspection, etc

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Transportation is a vital part of the logistics value chain and will benefit
HOLD
from improving infrastructure
Transportation services account for the biggest chunk of the Vietnam logistics market.
Providing basic transportation services is usually the first step in the evolution of the logistics
industry in most market with other services developing around this core. Vietnam is no different
and, given the relative immaturity of the logistics industry in the country, transportation services
are still the dominant category in value terms. The vast majority of local logistics companies
are just trucking fleet operators that simply move products from point A to B. The low entry
barriers in the road transportation category have resulted in a fragmented supply-side with
limited quality assurance. The sea-shipping and air freight category, on the other hand, is
dominated by joint ventures between foreign players and local firms.
Road is by far the more popular medium for moving freight within the country and
should continue to grow fast due to regional economic integration. Road is not only an
important medium for domestic transportation but increasingly plays a role in cross-border
goods flows, being the main form of transport linking Vietnam's factories to the country's port
and also plays a key role in linking Vietnam with its second-largest export partner China.
Vietnams road network is extensive at around 222,000 kilometres but only around 19-20% is
paved and expressways are still relatively uncommon; most of the widest roads have fewer
than 4 lanes and separate interchanges. Given its traditional dominance and popularity as a
transportation medium, Vietnams road network is now congested with maximum traffic speed
barely exceeding 60 km/h. Roads connecting industrial zones to major ports in both the North
and South are particularly congested due to increased freight volumes in line with growing
export-oriented manufacturing activity.
According to the General Statistics Office, the average transportation distance is relatively
short at about 61 kilometres, reflecting the skew in favour of local-to-local transportation. Given
the underdeveloped road infrastructure and the limited fleet size of long-haul trucks in the
country, road transportation has not been a favoured means for long-distance transportation.
Vietnam is now heavily investing in upgrading its road network with a particular emphasis on
expanding its highway / expressway network from the current 600km to 2,000km by 2020. The
improving national highway network, growing trade links with China, the formation of the
upcoming ASEAN Economic Community (AEC) and a growing fleet of long-haul trucks in the
country should all give a fillip to long-haul road transportation.
Figure 2: Freight Volume by Transportation Medium
Million tonnes

2012A

2013A

2014F

2015F

2016F

CAGR

Road Freight

722.2

765.1

811.4

860.1

915.9

6.1%

Air Freight

178.7

183.7

195.6

203.3

212.4

4.4%

Inland Waterway Freight

168.49

180.8

192.9

205.1

218.1

6.7%

Maritime Freight

98.0

98.4

98.5

98.6

98.8

0.13%

Rail Freight

7.00

6.52

6.73

6.96

7.2

0.7%

Source: BMI Report

Inland waterways are also a vital but underexploited domestic transportation medium.
Vietnam has a large and intricate network of inland waterways that stretch for over 42,000
kilometres, which connects it extensively with neighbouring countries including China, Laos,
Cambodia and Thailand as well as to Vietnams South China sea cost. However, the potential
of these vast waterways is still relatively underexploited due to the low clearance of bridges
over waterways and poor river port facilities. Most bridges on the two main rivers in Vietnam
the Mekong in the south and the Red River in the north do not allow passage of barges
above 96 TEU in capacity (to put this in perspective, barges up to 208 TEU use the Rhine
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River which connects most of Western Europe. Inland ports are generally small and in poor
condition, with loading and unloading mainly carried out on the river bank because few ports
have proper handling facilities. Yet river barges play a vital role in feeding cargo to most of the
mainline vessels at Cai Mep-Thi Vai port in the South. With adequate investments, the dense
river network connecting Vietnam with the rest of Indochina could position the country as a
transit hub for Southeast Asia (particularly for land-locked regions like Laos and Northern
Cambodia), much like the Netherlands is for Europe.

HOLD

Rail has lagged heavily as a transportation medium due to underdeveloped

infrastructure but this could change. The rail system in Vietnam is rather underdeveloped
and, being a legacy of the French colonial era, is heavily in need of upgrades and expansion.
Rail is a vital medium in countries like China and India as it is capable of handling large freight
volumes economically and reliably. Improving the rail network would make a significant impact
in improving the logistics competitiveness of the country. Recent discussions around the
Japanese providing funding assistance and expertise in upgrading and building-out the local
rail network are positive steps in this direction. Once this happens and once the Vietnamese
rail network gets integrated into regional rail networks following the creation of the AEC it is
expected that the average rail freight transportation distance will increase considerably from
the current 567 kilometres. This should further lower overall logistics costs in the country.
Figure 3: Quality of infrastructure global ranking out of 148 countries 2013-2014
Vietnam

Philipp.

China

India

Thailand

Indonesia

Pakistan

Quality of roads

102

87

54

84

42

78

72

Quality of railroads
Quality of port
infrastructure
Quality of air
transport
infrastructure
Quality of
electricity supply

58

89

20

19

72

44

75

98

116

59

70

56

89

55

92

113

65

61

34

68

88

95

93

67

111

58

89

135

Source: The Global Competitiveness Report 2013 - 2014

Maritime transportation is important in supporting Vietnams growing participation in

global trade but port quality is a constraint. Accounting for more than half of the total
accrued FDI, investment in manufacturing, in particular, has been driving the countrys demand
for international transport and logistics services. Situated in the southeast of the Indochinese
peninsula and with a 3,200 km coastline situated along one of the busiest cargo lanes in the
world, Vietnam depends heavily on sea freight transportation for its external trade. Since 2007,
Vietnams container port throughput has been expanding at a CAGR of 12.5%, reaching 8.1
million TEUs in 2013, double the volume seen in 2007. Driven by exports from foreign-invested
manufacturers and by the import of intermediate and capital goods, Vietnams external trade
grew strongly last year, with exports and imports growing by 14% and 12%, respectively.
Vietnam has seen a proliferation in the number of ports in recent years. With companies from
Intel Corp. to Samsung Electronics Co. building multi-billion-dollar factories in Vietnam over the
past couple of years provincial authorities have established competing ports capable of
handling overseas traffic, causing plunging rates and losses for operators estimated at $1.5
billion or more, according to Seaport Consultants Asia. The highly decentralized decisionmaking process means that there is no coordinated strategy or master plan for port
development. Additionally, ports development plans and ground transportation infrastructure
development plans are not in sync, resulting in several ports being constrained by poor
connectivity with factories and logistics hubs. The government wants to build even more ports,
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emphasizing quantity over quality, a World Bank report in January said. The overcapacity
may undermine Vietnams ability to attract more higher-value manufacturing that demands
efficient transportation systems, the report said.

HOLD

On the brighter side, deep-water port capacity previously a major constraint to efficient
shipping is now being addressed by the government. About $2 billion has been invested by
foreign investors and state-owned and private Vietnamese companies in state-of-the-art
terminals at Cai Mep port, Vietnams only deep-sea facility located at the mouth of the Cai Mep
River and South China Sea. Opened in 2009, the port is part of the countrys goal to boost
shipping volume more than 130 percent from 2012 to the end of the decade. As deep-water
port capacity increases, there will be less need for transhipment to and from regional hubs like
Singapore and Hong Kong, thereby slashing maritime shipping costs to and from Vietnam.

Within the Warehousing segment, Cold Storage is a promising and highly

underserved niche
Cold warehousing is a high potential and underserved niche, comprising cold storage
and cold transportation. According to Frost & Sullivan, climate controlled logistics is one of
the highest potential and yet, most underserved segments of the logistics market in Vietnam.
According to StoxPlus, the countrys total cold chain capacity is just 473 thousand tons which
includes total system-wide capacity at a given point in time (goods in cold storage + goods in
cold transit). The continued entry of major modern format grocery retailers and the increasing
export of farming and seafood products are expected to create multiple opportunities for Cold
Chain specialists. Additionally, due to Vietnams traditional eating fresh society, the frozen
food retail sector is currently fragmented and the Cold Chain industry is under-invested.
However, the demand for frozen products is increasing with changing lifestyles in urban areas,
putting the limited existing Cold Chain infrastructure under pressure. Each year Vietnam incurs
a loss of at least USD 2.5b in distribution of farming products and seafood. This is equivalent
to a loss rate of approximately 25%, extremely high compared to other countries, even those at
similar stages of development.
In order to remedy this situation, the government has introduced various financial incentives in
order to attract foreign investment into this segment. Japanese firms currently make up the
largest percentage of foreign specialists operating in the country.
Figure 4: Grocery Retail Sales (VND t)
1200

45.4

1000

37.4

800

30.9
24.0

600

1092.8

20.1
400
200

15.3

880.2
708.1

384.7

450.5

2008

2009

549.6

0
2010

Traditional Grocery Retailers

2011

2012

2013

Modern Grocery Retailers

Source: Euromonitor, 2014

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Figure 5: Grocery Retail Outlets and Selling Space

HOLD

640

22.5

21.5

620

Outlets

21
610
20.5
600
20
590

19.5

580

Retail selling space

22

630

19

570

18.5
2008

2009

2010

Outlets '000

2011

2012

2013

Selling Space mn sq m

Source: Euromonitor, 2014

The Forwarding segment is seeing increasing participation from foreign

players
Local companies are very active in this segment but should expect growing competition
from foreign players. Some of the leading domestic players in this segment are Vinafreight
and Vinalines. Local companies have, thus far, dominated the domestic freight forwarding
segment as it requires strong relationships with the carriers or transportation service providers
which, as pointed out above, largely comprise local companies. That being said foreign players
have an advantage when it comes to overseas freight forwarding and, in recognition of this,
they are increasingly moving into this segment of the logistics market.

The Port-Handling segment is growing, spurred by increasing trade and

supported by an improvement in port capacity and connectivity
Soai Rap channel project: On June 21, 2014, the project for dredging the Soai Rap channel
(phase 2) to accommodate vessels with a load of more than 50,000 tons was inaugurated.
Before the completion of this project, vessels from the Eastern Sea entering Ho Chi Minh city
had to go around the Vung Tau cape, Ranh Rai bay and rivers including Nga Bay, Long Tau,
Nha Be, Sai Gon with a total distance of 85 km. Furthermore, Long Tau channel is too narrow
to accommodate large cargo ships. Soai Rap channel can now allow large vessels to pick up
goods at Hiep Phuoc port. According to government, the total annual cargo through Soai Rap
could reach 120-150 million tonnes by 2025.
The development of transportation infrastructure will support increasing cargo volumes
through Cai Mep port zone in coming years: The expansion of highway 51 was finished in
2015. Road 965 the arterial road linking Cai Mep port zone with highway 51 has also been
completed making freight traffic more convenient between Cai Mep and major industrial areas
around HCMC. Currently, work is also underway to complete the inter-port route connecting
SP-PSA port and SITV port within Cai Mep port zone and should be completed within 2015.

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Ha Noi- Hai Phong highway: As of June 2015, the construction of this highway was around
90% complete, which is improving connectivity between Ha Noi and Hai Phong. This is an
important route as it connects the fast-emerging northern key economic zones with the second
largest group of seaports in the country.

HOLD

Figure 6: Distribution of Vietnams seaport system

Source: World bank

Demand for other value-added logistics services should grow fast

Demand for other value-added logistic services is increasing as companies seek
integrated supply chain solutions from vendors. Nonetheless, a large portion of these
services is still operated in-house by companies operating in Vietnam. Based on the historical
trend of a sharp increase in outsourcing of value-added services and the still relatively low %
of these services that are being outsourced currently (relative to traditional logistics services
like transportation and warehousing), the demand for such services will continue to rise over
the medium-term irrespective of growth in the end-user industries. Companies will increasingly
seek one-stop-shop solutions from 3PL vendors which will include value-added services in
addition to traditional services like transportation and freight forwarding.

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Figure 7: Logistics Services Outsourcing Demand of Vietnamese Enterprises

Logistic Services

% outsourcing
2008
2012

1
2
3
4
5
6
7
8
9
10
11

Outbound transportation
Outbound warehousing
Inbound transportation
Inbound warehousing
Reserves management
Storage management
Purchase order management
Suppliers management
Customs information & supporting
Withdrawal logistics
Climate control logistics

85
71
69
33
28
19
14
11
9
7
5

91
85
88
56
48
67
43
23
13
19
21

Source: Frost & Sullivan

Vietnams Logistics Industry is expected to grow in

size and sophistication in the future...
Figure 8: Evolution of the Global Logistics Industry
Tactical

Strategic

Horizontal
Collaboration Joint
Ventures

Integrated Supply chain

Solution provider

Forecasting, Planning,
Supply chain
optimization
Order processing,
Information management
quality

Consultants
Non asset intensive non transportation

Only 15% of local companies

are now playing here

Export licensing,
Warehousing, Routing,
Transportation
Logistics services,
Transportation, Distribution

VN Logistics
Sector

1PL
<1970s

2PL

3PL

Future

4PL

Contractors
Asset intensive non-transportation

Asset Operators
Asset Intensive Transportation

Manufacturers and
Distributors

1980

1990

2000

Focusing on core competencies

One Stop Solution

Consolidation

Value-added
services
outsourcing
penetration
increasing fast
but still low

HOLD

No.

>2010

Source: Frost & Sullivan

Vietnams logistics sector is growing fast but still at the early stages of development. It
is growing quickly at a rate of 20 percent per year, and is expected to maintain a high growth
rate in the coming two decades driven by a growing economy, growing size and sophistication
of the manufacturing and export base, fast growing penetration of organized retailing, and, a
thriving e-commerce sector.
The room for expansion in size and scope is huge. Most Vietnamese logistic companies
are just 2PL (secondary party logistics) providers that use their own assets to provide basic
logistics services such as transportation and warehousing. As customer needs become more
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complex, logistics vendors need to combine management skills and system technology along
with their existing physical assets and labour resources to provide a broad spectrum of
professional services. Only around 15% of Vietnamese logistics providers today are capable
providing such 3PL services and, those that do, have a substantial competitive advantage.

HOLD

As the sector matures, efficiency should improve substantially. Vietnams logistics

industry is still rather inefficient with most vendors providing basic services like transportation
and warehousing and no providers of system-level integrated services and solutions. As a
result, supply chains are put together in piece meal fashion, involving multiple vendors at each
stage and the result is suboptimal at a system level. This, together with inadequate
infrastructure and lengthy customs procedures has resulted in a nationwide logistics cost-toGDP ratio of nearly 25% which is much higher than that of regional peers. As vendors
graduate to 3PL status, logistics efficiency should improve over time.
Figure 9: Vietnam's Logistics Performance Scores
4
3.5
3
2.5
2
2007
Customs

2010
Infrastructure

2012

2014

Logistics Services

Timeliness

Sources: Logistics Performance Index, The World Bank

Figure 10: Logistics cost as a percentage of GDP in 2014

USDb
1,800
23.0%
1,600

1,645.6

20%

1,400
1,200

19.0%

17.8%

1,000
800

13.0%
8.0%

400

15%
10%

600
200

25%

5%

42.9

23.8

40.7

73.6

Vietnam

Singapore

Malaysia

Thailand

0%
Total Logistic Cost

China

Proportion of GDP

Sources: StoxPlus

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...despite the presence of some structural challenges..

HOLD

Lengthy customs processes are a major impediment to efficiency but the

government seems to have recognized this
Vietnams customs requirements are more stringent and cumbersome than those in
many other Asian countries. According to a number of local and foreign logistics companies
interviewed during a recent HKTDC Research trip to Vietnam, the countrys customs and
regulatory practices act to increase the operational costs of many logistics companies
servicing the region. Its customs practices are also seen as unpredictable and bureaucratic. It
takes, for example, 21 days to export a cargo shipment from Vietnam, compared to 14 days for
Thailand and 11 days for Malaysia.
The good news is that the Vietnams customs procedures are currently being
modernized. A new electronic customs clearance system (e Customs) was launched in April
2014 to address these issues. Delays are still common. These have largely been attributed to
a number of inefficient, manual customs processes, including cargo inspections that have
attracted criticism for lacking in both transparency and consistency.

Figure 11: Time Needed to Transport Goods across Borders

Cambodia
Vietnam
Philippines
Indonesia
Thailand

Import Time
Export Time

Malaysia
0

10

15

20

25

30

Sources: Doing Business report 2015, World Bank

Inadequate infrastructure is another bottleneck but this is also being

tackled quite aggressively.
Both local and foreign logistics companies often cite its relatively underdeveloped
transport infrastructure as a major challenge for business development in Vietnam. In
particular, logistics facilities, such as warehouses and container freight stations, are not
convenient to use, as they are often standalone and located far from either ports or
manufacturing plants. The road length and surface area growth has not kept pace with traffic
growth, leading to congestion and causing delivery delays that increase transportation costs.
The fast growth in the number of industrial parks has outpaced infrastructural
development. As of June 2014, there were about 290 industrial parks in Vietnam, 33 of which
had been operating for just over three years. In particular, many of the highways linking the
ports with industrial parks or city centres, as well as the port terminals, are highly congested.
The problem is most severe in the northern provinces, where the infrastructure is less
developed when compared with the south. Traffic and port congestion often leads to delays in
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transporting cargo from the factories to ocean carriers and can impede the delivery of imported
parts and components, resulting in higher inventory carrying costs for manufacturers.

HOLD

Current logistics facilities are not up to international standard on all measures, including
a stable supply of utilities, efficient warehouse management systems and security. Although
several modern facilities have been built recently, largely by foreign-invested logistics
companies, the majority of the older ones are sub-standard. Significantly, many of the logistics
parks in Vietnam have been planned and developed by private companies, rather than by the
government, thereby depriving Vietnams logistics sector of the benefits of comprehensive
planning and the subsequent emergence of an efficient logistics network.
But Vietnams aggressive recent investment in infrastructure is encouraging. According
to KPMG, Vietnam is going to invest USD 170B in infrastructure between 2013 and 2020 to
bridge this infrastructure deficit and a large portion of this will be funded through overseas
money. A large number of landmark projects are already underway across the urban rail, road
and airport segments.

...because of a host of supporting macro trends...

Foreign investment is boosting demand for quality logistics services
Vietnam is becoming a popular FDI destination due to a growing domestic market and a
cost-competitive export base. Following Vietnams 2007 World Trade Organization (WTO)
accession, the FDI into the country has been rising steadily. For the period 2008-2013, FDI
inflow averaged US$10.8 billion annually - more than double the US$4.0 billion per annum
average seen during the six-years prior to 2007.
Figure 12: Foreign Direct Investment into Vietnam
14,000

1,800
1,600

12,000

1,400
10,000

1,200

8,000

1,000

6,000

800
600

4,000

400
2,000

200

0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Realised capital (US $m)

Number of Projects

Sources: General Statistics Office

Investment in manufacturing, in particular, has been driving the countrys demand for
international transport and logistics services, accounting for more than half of the total
accrued FDI and around 70 percent of new FDI in the past year. Since 2007, Vietnams
container port throughput has been expanding at a compound annual growth rate (CAGR) of
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12.5%, reaching 8.1 million TEUs in 2013 (double the volume seen in 2007). Driven by exports
from foreign-invested manufacturers and by the import of intermediate and capital goods,
Vietnams external trade flourished in 2014, with exports and imports growing by 14% and
12%, respectively.

HOLD

The country has evolved into an increasingly diversified manufacturing base for
multinationals, with the import of production inputs and the output of finished products
inevitably generating more business for logistics companies. Historically, ready-to-wear
garments and shoes have dominated Vietnams labour-intensive, consumer goods exports.
Intermediate and capital goods - such as machinery, raw materials, fabrics, electronic parts
and components for manufacturing - now account for the lions share of Vietnams total imports
and are mostly sourced from China, Japan and Korea. These products involve multiple
components and complex supply chain dependencies which require higher-end logistics
service capabilities.
Figure 13: Vietnams exports by category in value terms (2014)
Telephone
and parts
16%
Electronics,
computers
and
components
8%

Others
45%

Textiles and
garments
14%

Machinery,
and
equipments
5%

Aquatic
products
5%

Shoes and
sandals
7%

Sources: General Statistics Office

Free Trade Agreements are providing that additional oomph

Vietnams international trade is expected to increase with the finalization of many free
trade agreements such as the Trans-Pacific Partnership (TPP) and several bilateral trade
agreements. Additionally, the conclusion of the ASEAN Economic Community adhered to
above will also provide a huge boost to intraregional trade flows. The resulting increase in
trade will further boost demand for logistics services.

...and supportive regulatory and policy measures

The government has developed a master plan to boost port capacity in the country.
Decision 1037/QD-TTg outlines future developments for the maritime business until 2030. The
countrys port sector will be divided into six main areas. There will be a focus on developing
ports that can handle ships with a capacity of 100,000 tonnes or more.
Government to incentivize cold storage investment to reduce post-harvest losses.
Decision 63/2010/QD-TTg provides supporting policies to reduce losses of fresh produce and
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Viet Capital Securities | 13

grains after harvesting. Enterprise that invest in cold storage can borrow up to 100 percent of
machinery value to fund their capital expenditures. The State Budget will also subsidize 100
percent of interest expense in the first two years and 50 percent interest expense in the third
year.

HOLD

Foreign investment restrictions in the logistics sector are being relaxed gradually,
stimulating growth in logistics capacity and quality. In January 2014, in accordance with
World Trade Organization (WTO) service sector commitments, Vietnam began allowing wholly
foreign-invested enterprises to enter the logistics market in almost every sector. However, the
container-handling services and road transport services sectors still require a joint venture to
be formed with Vietnamese partners, with foreign ownership capped at 51%.

In reaction to the liberalization of the sector and the perceived growth potential of Vietnams
logistics market, foreign firms are now investing heavily throughout the country. For example,
in 2013, DHL Supply Chain invested US$13 million in an expansion project. It is expected to
build 141,000m2 in storage capacity and have roughly 100 shipping vehicles and 2,200
workers by the end of 2015. According to Oscar De Bok, General Manager of DHL Supply
Chain in Southeast Asia, the company is preparing for the fast growth of the retail industry,
consumer goods, tech products and automotive industry in Vietnam. Since its entry in 2001,
DHL Supply Chain Vietnam has had an annual growth of 45 percent, compared to its annual
global growth of 25 percent.
Maersk Line, ocean-shipping subsidiary of A.P. Moller-Maersk, has also constructed four new
storage facilities and it is planning on an expansion project in 2015. From 2005 to 2010,
Maersk Lines operations in Vietnam grew by 200 percent.

The Vietnamese listed logistics universe is sizeable

and trading at an attractive valuation
The majority of logistics companies in Vietnam are not listed on the stock market.
Currently, there are only 25 listed logistic companies out of a total of approximately 1,000
operating logistic companies in the country.
The total market capitalization of the listed companies is sizeable, at over USD 1 billion.
Port operators account for the lions share of the overall sector market capitalization.

Comp.

Market
Cap(VND bn)

Revenue
(VND bn)

GPM

NPAT
margin

ROE

ROA

TTM
P/E

P/B

Port Companies
GMD

3,809

3,013

20.7%

17.6%

11.3%

6.7%

15.6

0.8

DVP

2,100

542

43.6%

42.0%

30.0%

24.0%

8.2

2.4

VSC

2,236

891

35.0%

27.8%

25.6%

18.9%

8.2

2.0

HAH

892

431

37.0%

30.6%

34.9%

22.8%

6.3

2.1

CLL

813

235

46.7%

32.3%

20.0%

14.7%

8.2

1.6

TCL

565

845

21.1%

12.8%

22.1%

12.8%

5.9

1.1

PDN

466

270

37.0%

17.8%

16.1%

11.0%

9.6

1.5

DXP

354

160

32.6%

25.0%

16.9%

15.2%

8.3

1.6

VGP

142

260

13.1%

5.0%

8.3%

5.2%

3.5

0.7

Average

8.2

1.5

Median

8.2

1.6

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Viet Capital Securities | 14

Transportation

HOLD
0.8

PVT

2,687

5,268

10.4%

6.5%

11.5%

3.6%

7.7

VIP

621

693

21.7%

31.7%

21.7%

12.2%

3.1

0.6

VTO

520

1,526

10.9%

3.4%

5.0%

2.4%

8.8

0.5

VOS

420

2,037

6.5%

3.5%

5.6%

1.4%

Nm

0.4

VFC

284

1,139

6.3%

7.8%

19.3%

12.2%

28.4

0.6

VST

106

1,104

-5.5%

-13%

-53.4%

-5.4%

Nm

0.5

TJC

75

222

8.8%

10.4%

24.5%

12.1%

2.6

0.6

VNA

56

761

7.8%

0.2%

0.7%

0.1%

Nm

0.3

Average

10.1

0.5

Median

7.7

0.6

Logistics services
TMS

1,474

442

21.1%

31.2%

20.0%

14.9%

9.2

1.8

VNF

380

1,702

3.3%

2.4%

22.9%

9.4%

7.5

1.9

SFI

300

604

32.6%

7.9%

19.1%

9.0%

4.9

1.0

VNL

252

668

4.4%

7.5%

30.5%

19.0%

4.5

1.3

STG

293

873

13.1%

3.2%

19.3%

12.5%

9.3

2.0

HMH

209

112

23.5%

36.6%

18.7%

17.3%

6.0

0.9

TCO

192

181

23.6%

12.2%

12.8%

9.5%

6.3

0.8

PRC
NCT

15
3,088

180
678

6.0%
56.5%

1.1%
40.4%

6.5%
74.0%

3.1%
62.0%

Average

6.6
6.5
6.7

0.5
6.8
1.9

Median

6.4

1.3

Source: Bloomberg based on 2014 full-year results and closing prices as of 09/09/2015
Note: TTM P/E was calculated based on TTM results; P/B was calculated using the balance sheet as at
end of Q2 2015

Vietnamese logistics companies are trading at a discount relative to regional peers. The
mean and median P/E ratios for Vietnamese companies are 8.0x and 7.4x, among the lowest
in the region. This probably reflects the current low capability of the Vietnamese logistics
industry. As the industry matures and efficiency and profitability improve, Vietnamese logistics
companies should close the valuation gap with regional peers, creating upside for early
investors.

57.3

Figure 14: Mean and median P/E of Logistics companies

Mean

France

Denmark Singapore

China

India

Thailand

29.2

8.0
7.4

15.1

21.5
12.2

30.4
23.1

18.6
11.5

26
19.8

36.7
German

16.6
23

16.7
21.8

28.1

38.8

Median

Indonesia Phillipine

Vietnam

Sources: Bloomberg as at mid-August, 2015.

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Viet Capital Securities | 15

VCSC Rating and Valuation Methodology

HOLD

Absolute, long term (fundamental) rating: The recommendation is based on implied total return for the stock
defined as (target price current price)/current price + dividend yield, and is not related to market performance. This
structure applies from 27 May 2015.
RATING
BUY
OUTPERFORM (O-PF)
MARKET PERFORM (M-PF)
UNDERPERFORM (U-PF)
SELL

DEFINITION
Total stock return including dividends over next 12 months expected to exceed
20%
Total stock return including dividends over next 12 months expected to be positive
10%-20%
Total stock return including dividends over next 12 months expected to be
between negative 10% and positive 10%
Total stock return including dividends over next 12 months expected to be
negative 10%-20%
Total stock return including dividends over next 12 months expected to be below
negative 20%

NOT RATED

The company is or may be covered by the Research Department but no rating or

target price is assigned either voluntarily or to comply with applicable regulation
and/or firm policies in certain circumstances, including when VCSC is acting in an
advisory capacity in a merger or strategic transaction involving the company.

RATING SUSPENDED

A rating that happens when fundamental information is insufficient to determine

an investment rating or target. The previous investment rating and target price, if
any, are no longer in effect for this stock.

Unless otherwise specified, these performance parameters only reflect capital appreciation and are set with a 12month horizon. Future price volatility may cause temporary mismatch between upside/downside for a stock based on
market price and the formal recommendation, thus these performance parameters should be interpreted flexibly.
Small Cap Research: VCSC Research covers companies with a market capitalisation of up to US$50mn, inclusively.
Clients should note that coverage may not be consistent and that VCSC may drop coverage of small caps at any time
without notice.
Target price: In most cases, the target price will equal the analyst's assessment of the current fair value of the stock.
The target price is the level the stock should currently trade at if the market were to accept the analyst's view of the
stock, provided the necessary catalysts were in place to effect this change in perception within the performance
horizon. However, if the analyst doesn't think the market will reassess the stock over the specified time horizon due to
a lack of events or catalysts, then the target price may differ from fair value. In most cases, therefore, our
recommendation is an assessment of the mismatch between current market price and our assessment of current fair
value.
Valuation Methodology: To derive the target price, the analyst may use different valuation methods, including, but
not limited to, discounted free cash-flow and comparative analysis. The selection of methods depends on the industry,
the company, the nature of the stock and other circumstances. Company valuations are based on a single or a
combination of one of the following valuation methods: 1) Multiple-based models (P/E, P/cash flow, EV/sales,
EV/EBIT, EV/EBITA, EV/EBITDA), peer-group comparisons, and historical valuation approaches; 2) Discount models
(DCF, DVMA, DDM); 3) Break-up value approaches or asset-based evaluation methods; and 4) Economic profit
approaches (Residual Income, EVA). Valuation models are dependent on macroeconomic factors, such as GDP
growth, interest rates, exchange rates, raw materials, on other assumptions about the economy, as well as risks
inherent to the company under review. Furthermore, market sentiment may affect the valuation of companies.
Valuations are also based on expectations that might change rapidly and without notice, depending on developments
specific to individual industries.

Risks: Past performance is not necessarily indicative of future results. Foreign currency rates of exchange may
adversely affect the value, price or income of any security or related instrument mentioned in this report. For
investment advice, trade execution or other enquiries, clients should contact their local sales representative.

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Viet Capital Securities | 16

Disclaimer

HOLD

Analyst Certification of Independence

I, Anirban Lahiri, hereby certify that the views expressed in this report accurately reflect my personal views about the subject securities
or issuers. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific
recommendations or views expressed in this report. The equity research analysts responsible for the preparation of this report receive
compensation based upon various factors, including the quality and accuracy of research, client feedback, competitive factors, and
overall firm revenues, which include revenues from, among other business units, Institutional Equities and Investment Banking.
VCSC and its officers, directors and employees may have positions in any securities mentioned in this document (or in any
related investment) and may from time to time add to or dispose of any such securities (or investment).VCSC may have, within the last
three years, served as manager or co-manager of a public offering of securities for, or currently may make a primary market in issues
of, any or all of the entities mentioned in this report or may be providing, or have provided within the previous 12 months, significant
advice or investment services in relation to the investment concerned or a related investment.
Copyright 2013 Viet Capital Securities Company VCSC. All rights reserved. This report has been prepared on the basis of information
believed to be reliable at the time of publication. VCSC makes no representation or warranty regarding the completeness and accuracy
of such information. Opinions, estimates and projection expressed in this report represent the current views of the author at the date of
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Viet Capital Securities | 17

Contacts

HOLD

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www.vcsc.com.vn
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Viet Capital Securities | 18