Valuation of Hau Giang Pharmaceuticals Joint Stock Company (Định giá CTCP Dược Hậu Giang)

2 Table of Contents INTRODUCTION 4 Chapter 1 BUSINESS ENVIRONMENT OVERVIEW AND ANALYSIS of HAU GIANG PHARMACEUTICAL JOINT STOCK COMPANY 6 1 1 About company 6 1 1 1 Formation History 6 1 1 2 Business f.

Table of Contents

INTRODUCTION 4

Chapter 1: BUSINESS ENVIRONMENT OVERVIEW AND ANALYSIS of HAU GIANG PHARMACEUTICAL JOINT STOCK COMPANY 6

1.1 About company: 6

1.1.1 Formation History 6

1.1.2 Business fields and achievements 7

1.1.3 Vision, mission, and core values 7

1.1.4 Goals and development strategy 8

1.2 Analysis of the competitive environment of DHG Pharma 8

1.2.1 Current Competitors 8

1.2.2 Potential competition risk 9

1.2.3 Supplier pressure 9

1.2.4 Customer pressure 9

1.2.5 Alternative products 10

1.2.3 Analysis of the internal environment of DHG Pharmaceutical Joint Stock Company 10

Chapter 2: FINANCIAL ANALYSIS AND VALUATION OF JOINT STOCK COMPANY DHG PHARMACO (DHG) 11

2.1 DHG's cost of capital 11

2.1.1 Capital structure of company 11

2.1.2 Interest expense 11

2.1.3 Corporate income tax rate 12

2.1.4 Weighted average cost of capital (WACC) 12

2.2 The free cash flow of DHG Pharma 14

2.2.1 Profits from business activities 14

2.2.2 Return on capital 14

2.2.3 Reinvestment rate 15

2.2.4 Two-stage growth model 15

Chapter 3: Prediction of the company's future growth rate 17

3.1 Basis for forecasting growth rate of DHG in the coming years 17

3.2 Equity value 18

3.3: DHG Pharma's stock price movement 18

3.4 Commenting on the growth rate of DHG in the future: 19

3.5 COMMENTS, ASSESSMENTS AND RECOMMENDATIONS FOR INVESTORS 20 CONCLUSION 21

REFERENCE 22

GROUP MEMBERS 23

INTRODUCTION

About the topic

Despite going through a difficult period, at present, Vietnam's economy has prospered and recovered However, the effects of the global recession and economic crisis have not completely ended Consumer's capacity can cause the decline in consumption that affects the demand for goods, but for the pharmaceutical industry, this challenge becomes an advantage of the industry, compared to other business fields

In difficult times, Vietnamese consumers still cannot cut down on the need to use drugs to prevent diseases The pharmaceutical industry is one of the sectors that the Government is particularly interested in and has enjoyed strong growth And Hau Giang Pharmaceutical Joint Stock Company is currently the leading company in the industry DHG stock is considered a good stock with a relatively sustainable growth rate and attracts the attention of many investors

in the market However, with the limitations of the current stock market such as not transparent information, intentionally falsified information, and the price does not accurately reflect the intrinsic value of the stock, which has led to concerns in investor decisions In the face of such difficulties, investors need expert analysis to help orient their investments and accurately assess the value of the stocks they are interested in

From the perspective of an investor today, plus the desire to learn more about the above field,

we choose the topic: "Analysis and valuation of Hau Pharmaceutical Joint Stock Company" to provide his analysis and judgment on the value of DHG Pharmaceutical Joint Stock Company

as well as the current market price movement of DHG's stock

Analysis process

1 Research objectives and requirements

- Systematize theories of financial asset valuation and analysis

- Learn the overview of the pharmaceutical industry in general, development trends in the world market, overview of Vietnam's pharmaceutical industry and competitive trends

- Learn about Hau Giang Pharmaceutical Joint Stock Company

- Collect financial indicators, business results reports and developments of DHG stock price for DHG stock analysis and valuation

- Compare DHG's indicators with industry norms and find out DHG's position in the pharmaceutical industry

- Based on the results of analysis, make recommendations, recommendations, and policies future development of DHG, forecast the growth rate of DHG stock in the future next time

2 Object and scope of the study

- Subjects: Hau Giang Joint Stock Company (DHG)

- Research scope: study financial indicators, stock price movements DHG on the stock market

3 Research Methods: Discounted cash flow method

4 Expected data

- Share price of DHG

- Financial statements: balance sheet, cash flow statement, statement business results of DHG

- Financial indicators of DHG

- Annual Report 2021

Chapter 1: BUSINESS ENVIRONMENT OVERVIEW AND ANALYSIS of HAU GIANG PHARMACEUTICAL JOINT STOCK COMPANY

1.1 About company:

Company name: DHG Pharmaceutical Joint-Stock

Company Abbreviation: DHG PHARMA

Headquarters: 288 Bis Nguyen Van Cu, An Hoa Ward, Ninh Kieu District, Cantho City Tel: (0292) 3891433 – 3890802 – 3890074

Equitization: On 02 September 1974, the Company was changed into a Joint-stock Company with the initial charter capital was 80 billion VND “DHG” being listed on HOSE: December 21st, 2006, 8,000,000 shares of DHG Pharma posted on Ho Chi Minh Stock Exchange (HOSE) under the securities code DHG

Milestones

- 1996: The first year that DHG Pharma’s products was elected as “Vietnam High Quality Goods” by customers (15 years consecutive)

The first year that the factories complied with the GMP standard

The first year that DHG Pharma being the leader of Vietnam pharmaceutical industry until now

- 2004: Equitization

- 2006: “DHG” being listed on HOSE

For more than 30 years of formation and development, DHG Pharma is now recognized as a leading company of Vietnam Pharmaceutical industry These are essential factors that help DHG Pharma have a steady position in the path of integration

1.1.2 Business fields and achievements

Business areas

Hau Giang Pharmaceutical Joint Stock Company mainly deals in 3 main product groups including Pharmaceuticals, Functional Foods and Cosmetics In which, revenue of the pharmaceutical group always accounted for the highest proportion and remained stable for many years Next is the group of functional pharmaceuticals and finally the group of cosmetic pharmaceuticals accounting for the proportion of lowest weight Specifically, in 2014, the revenue of pharmaceutical group accounted for 93.56%; The group of functional foods accounted for 6.28% and the last group of cosmetics and pharmaceuticals accounted for 0.16%

Honored titles

- 1988: Third-class Labor Medal

- 1993: Second-class Labor Medal

- 1996: Hero of Labor (Period 1991 – 1995)

- 1998: First-class Labor Medal

- 2004: Third-class Independence Medal

- 2010: Second-class Independence Medal

- Top 50 best listed companies in Vietnam 2014 (9 years in a row) (Forbes)

- Top 10 strong brands in Vietnam (6 years in a row) (awarded by Vietnam Economic Times) 1.1.3 Vision, mission, and core values

Vision:

“For a more beautiful and healthier life”

Mission:

“DHG Pharma always provides high quality products and services to satisfy the aspiration for

a more beautiful and healthier life.”

Core values: 7 core values

Quality, safety, and effectiveness targeted as our highest commitment

Knowledge and creativity served as our foundation for development

Responsibility, cooperation, and promotion prioritized in our motto action

DHG Pharma identity features taken as our pride

Mutual prosperity with partners established as our long-term goal

Outstanding differentiation employed as our strength in competitions

Benefits for the community centered upon at the start of all activities

1.1.4 Goals and development strategy

Enhance brand value through increasing domestic market share, opening expand exports, exploit the advantages of the distribution system

Maximize production capacity and efficiency, product quality

Maximize the capacity and efficiency of corporate governance, financial management, managing the supply chain

Expand investment cooperation towards diversification

Good implementation of social and environmental responsibilities

Good performance of responsibilities to employees

1.2 Analysis of the competitive environment of DHG Pharma

1.2.1 Current Competitors

The pharmaceutical industry is one of the industries with a highly competitive internal environment

Especially after our country joins the WTO, all products are subject to competition

fierce competition Pharmaceuticals are special products, so the competition in the market Pharmaceuticals have always been very drastic and have received the attention of the whole society

Currently, the three biggest competitors of DHG in terms of revenue and market capitalization are:

Traphaco Joint Stock Company (TRA) is a company specializing in the production of traditional medicines with two lines

Main products: Boganic (liver tonic) and Hoat Huyet Duong Brain (supplement brain) The competitive advantage of TRA is the supply of domestically produced raw materials (meeting 90% of the demand), while other traditional medicine manufacturing companies still must depend on the supply from China

Domesco Medical Import-Export Joint Stock Company (DMC) has a diversified pharmaceutical portfolio, including traditional medicines, vitamins, functional foods,

antibiotics, pain relievers and brand-name products The popular products of DMC in the market are generic drugs used to treat diabetes and cardiovascular diseases with prices 30% to 40% lower than imported drugs With modern technology, technology The company has successfully researched and is allowed to produce more than 406 items for domestic use and export Domesco's drug production materials are mainly imported from famous manufacturers

of pharmaceutical ingredients in the world in Europe and the US, the quality of the raw materials

is highly stable and certified DMF Particularly for raw materials derived from herbs, Domesco organizes purchasing at major domestic supply regions

Imexpharm JSC (IMP) is currently the pharmaceutical company with the best technical and technological infrastructure in Vietnam The main products of IMP are high quality antibiotics belonging to the Cephalosporin and Penicillin groups Thanks to modern technology infrastructure, IMP is often chosen by multinational pharmaceutical corporations as the main processing unit in Vietnam for their products

1.2.2 Potential competition risk

Currently, due to the specific characteristics of the pharmaceutical industry, the barriers are still high, a new enterprise that wants to participate in the production and distribution of drugs needs

to meet high standards set by the state and the World Health Organization (WHO) fabricate According to Decision No 27/2007/QD-BYT of the Ministry of Health and the requirements

of the World Health Organization, enterprises that want to produce drugs must meet standards such as: GMP as recommended by WHO (GMP - WHO) The warehouse system meets GSP standards, good laboratory practice on vaccines and biological products (GLP), good practice

in drug distribution (GDP), and good practice in pharmacy management (GPP)

To join the pharmaceutical industry, a new company must meet the above criteria

The risk of potential competitors of DHG appearing is not high

at present, the power of the suppliers of raw materials for drug processing to the industry is still high, so the pressure from these suppliers on the industry is high

Pharmaceutical industry is a specific industry that requires human resources with high professional qualifications and practical experience However, with the current situation, the source of high-quality labor is still not enough to meet the high requirements of the industry 1.2.4 Customer pressure

Pharmaceutical is one of the essential commodities, the end consumer is mainly the people, they are willing to spend money to buy the product without any bargaining on the price Therefore, customer pressure is unlikely to exist in the pharmaceutical industry

1.2.5 Alternative products

On the market today, there are many products to care for human health such as: herbal medicine, traditional medicine, natural products, These drugs are also competing fiercely to attract customers with their specific treatment and advertising in oriental medicine clinics is quite popular in our country Besides, nowadays, people tend to use less Western medicine because Western medicine often heats up the body Instead, consumers look to traditional remedies, natural products, closer to the environment Therefore, this is also a big challenge for the pharmaceutical industry to constantly improve products to meet the needs of consumers to avoid the risk of being replaced by other products

1.2.3 Analysis of the internal environment of DHG Pharmaceutical Joint Stock Company 1.2.3.1 Evaluation of the company's business performance

Features of the business environment in 2021:

In March 2021, the Prime Minister approved the Pharmaceutical Industry Development Program to 2030, with a vision to 2045 With these advantages, if there is a serious and methodical long-term investment and development strategy, enterprises not only maintain the domestic market but also create momentum for international integration more and more deeply

At DHG Pharma, the company is always aware of its mission of providing high quality and safe products to protect people's health Over the years, the company has focused on Non Betalactam products, and has provided products of outstanding quality in the production line according to the global standard system, with the main scope of the market domestic

Business results

The Covid-19 pandemic brought many challenges to the economy in general and the pharmaceutical industry, but DHG still recorded positive business results Specifically, at the end of the third quarter of 2021, DHG achieved net revenue of 944 billion dong, up 9.2% and accumulated in the first 9 months, the Company achieved 2,910 billion dong in net revenue and

675 billion dong in pre-tax profit, increased 14% and 15% respectively over the same period in

2020 - also the highest number in the industry

Chapter 2: FINANCIAL ANALYSIS AND VALUATION OF JOINT STOCK COMPANY DHG PHARMACO (DHG)

2.1 DHG's cost of capital

2.1.1 Capital structure of company

DHG's capital structure is determined based on the balance sheet of DHG Pharma

Company in 2021 According to Vietnamese Accounting Standards, the equity of the enterprise including owner's contributed capital, capital surplus, and undistributed profits and funds (except the reserve fund to supplement charter capital) Due to the structural analysis DHG's capital is based on the consolidated financial statements (from the parent company and other companies’subsidiaries), so in the equity, we also include the interests of minority shareholders DHG's equity (at the end of 2021) = E = owner's contributed capital ownership - treasury shares + undistributed net profit + minority interest = 4,617,666,192,702 VND

For corporate debt, items such as accounts payable and payable, although included in the liability of the balance sheet, are not included in debt Since DHG has no long-term loans, DHG's debt (D) is mainly with a short-term loan:

D = short-term loan = 207,371,176,993 VND

2.1.2 Interest expense

Interest expense of DHG Pharma in 2021 is VND 12,080,103,631 billion (Sheet “Cost of capital”) DHG's annual financial statements all reflect a large term deposit (remaining terms

of more than 3 months and less than 12 months) of around VND 2,000 billion

Simultaneously with deposits, at times, the company also has short-term outstanding loans at around VND 200 billion

The consolidated financial statements of 2021 show that DHG has a credit relationship with VCB Can Tho, with a limit of VND 660 billion These are secured by term deposits The loan term of the loans is up to 6 months

In 2020, loan interest rates ranged from 0.28% - 0.47%/month, equivalent to 3.36% - 5.64%/year

According to the financial statements of the third quarter of 2022, bank loans are bearing interest rates of 0.27% - 0.4%/month, equivalent to 3.24% to 4.8%/year This is a very good interest rate in the current market, although it has increased compared to last year's interest rate

of 0.18% - 0.33%/month, equivalent to 2.16% to 3.96 %

With such a preferential interest rate, DHG Pharma will have the opportunity to use capital flexibly (disburse when needed to import goods and repay debt when money is collected) while having a fixed deposit with a term long to enjoy the best interest rate