WACC - Đạm Phú Mỹ - Đỗ Ngọc Điều

Discussion in 'Tiểu luận - Đồ án' started by dungtvsb01223, Jan 3, 2015.

  1. dungtvsb01223

    dungtvsb01223 New Member

    Executive summary

    The objectives of this report are applying methods that had learnt through lecture and using financial data of DPM Company and our research on the VN financial market to (1) evaluating investment of DPM Company, (2) practising finacial tecnicques, (3) will get high mark for report and this subject also.
    We completed this report by using guidance of teacher and caculated data from collected information from a lot of sources.
    There are five people in the group and we decided to divive the tasks among each member. All members need to make a research for their part. Task are divided among members in certain way. Most of time, the group exchange information through email, facebook and face-to-face.
    About preliminary results of report, we caculated WACC of DPM Company. Depend on the advantages and disadvantages of fertilizer industry in Vietnam and position of DPM Company on market share, we computed about return of projects and investment of DPM Comapany. Then, we saw that result is very good compare with expectation, group members feel satisfaction.

    Overview of the Company

    1. Business characteristics
    • The quality of goods is an important item in the national economy. In original life, chemicals appear everywhere and this is indispensable in the manufacturing industry.
    • In previous years, commodity chemicals market in our country are mainly imported from China, and other countries. Today, a number of local chemical companies conduct more trim items which can compete with imported products, making the market more diversity in types and prices be greatly reduced. Industry contained full of tough competition for the businesses involved in the chemical sector.
    • Saturation Fertilizer market, supply exceeds demand: from 2013, not only fertilizer market in Vietnam but also in the world , fertilizer supply has been being over demand, particularly Urea. Expected at the end of 2014, when the expansion project of Đạm Hà Bắc complete, the capacity will increase up to 2.66 tons of urea per year.
    • Price of fertilizer industry plummeted: as supply increased along with the development of science and production technology and structural changes cause fertilizer prices fell sharply
    • Input price increases : the gas prices forecast to rise in 2014, the price of coal sold in VN also increased. Chemical industry depends heavily on the price of raw materials such as coal and gas.
    • Competitive market with imported fertilizer from China : The deeply decline of price of China imported fertilizer has an impact to the consumption of domestic fertilizer. Acouted to December

    2. Firm characteristics
    • About DPM company: Packing Joint Stock Company Phu My Fertilizer was established May 19, 2008, including three founding shareholders are: Fertilizer Corporation of Chemical and Petroleum - Company share (50.98%), the Company Huong Phong Ltd (49.00%) and other shareholders (0.02%), the Company's charter capital of 42 billion VND. PVFCCo has exported on basis urea to Cambodia, Myanmar, Thailand, Philippines, Malaysia and South Korea, etc.
    • Scope of business:
    o Manufacturing and trading of fertilizers, chemical products serving the petroleum industry, agriculture ...
    o The technical services in the manufacture and trading of fertilizers and other chemical products concerned (except chemicals have high toxicity);
    o Production and trading of electricity;
    o Other business sectors in accordance with the provisions of law.
    o In addition, there PVFCCo warehouse system stretching from North to South, make sure to meet the demand for fertilizer at the right time. (Phu My urea strengthens services to customers 2012)
    • Competitors on Industry:
    o Công ty Cổ phần Vật tư tổng hợp và Phân bón Hóa sinh (HSI)
    o Công ty cổ phần Supe Phốt phát và Hóa chất Lâm Thao (LAS)
    o Công ty Cổ Phần Phân lân Ninh Bình (NFC)
    o Công ty Cổ phần Vật tư kỹ thuật Nông nghiệp Cần Thơ (TSC)
    • DPM is the largest firms in the fertilizer industry in terms of market capitalization, asset size. In terms of operations, DPM and Dam Ca Mau are two largest UREA fertilizer enterprise with the capacity of 800 thousand tons per year. DPM owns extensive network accounted for 40% of the fertilizer market in the country.
    • In 2013: revenue and profit after tax fell sharply compared to the same period. Besides, because of the pressure of higher input costs, the operating activities results of the company in 2014 declined compared with 2013 (Báo cáo phân tích cổ phiếu Đạm Phú Mỹ 2014)

    Cost of capital estimation

    1. Cost of Equity:
    Since KE = Rf + β(RM + Rf) and calculated by excel with collected data from website. We chose historical risk premium and historical beta. Because the method is easy to calculate and easy to collect data in the past. Assumed that return on the future will similar with in the past. We choose analys range nearly 2 year because we think that enough to represent total data. 2 years also ensure to public report year, so it response market reaction. We think this method approximate for DPM company. Because DPM company have history operate stable.
    • Risk free rate:
    Credit rating Viet Nam: B1 (Moody's upgrades Vietnam to B1; outlook stable 2014)
    Default Spread : B1 = 4.5 % (Country Default Spreads and Risk Premiums 2014)
    Yields Bond 3 year (Viet Nam) = 5.7% (Thị Trường Trái Phiếu 2014)
    Rf = 5.7% - 4.5% = 1.2%
    • Market return: RM= 17% (Annualized Rm of DPM from Data.xlsx)
    • Beta: β=1.0864 (Data.xlsx)
    KE = 1.2% + 1.0864( 17% - 1.2%) = 18.37%

    2. Cost of Debt:
    • Call each banks to ask about interest rate of bank loans, the following data are
    o Ngân hàng Việt Nam Thịnh Vượng (chi nhánh vũng tàu): 12-13 % (VP Bank (Ms: Nga) 1900545415)
    o Ngân hàng quân đội (chi nhánh vũng tàu): 7,5 – 10 % (MB Bank 0646250505)
    o Ngân hàng ngoại thương (chi nhánh vũng tàu): 8 % (Vietcombank 0643510944)
    o Ngân hàng đầu tư và phát triển việt nam (chi nhánh bình định): 7,5 – 9 % (BIDV 0563520002)
    o Ngân hàng TMCP Đại chúng Việt Nam (11,1 – 12,5 %): (PV Bank 0439426800 (Mr: Đạt))
    • The cost of debt pre-tax:

    Banks Debt Weight Interest rate Wt x i
    Ngân hàng Việt Nam Thịnh Vượng 1,557,998,440 2.38% 12.50% 0.30%
    Ngân hàng ngoại thương 16,587,977,180 25.36% 8.00% 2.03%
    Ngân hàng quân đội 24,451,644,935 37.38% 8.75% 3.27%
    Ngân hàng đầu tư và phát triển Việt Nam 21,000,000,000 32.11% 8.25% 2.65%
    Ngân hàng TMCP Đại chúng Việt Nam 1,807,915,817 2.76% 11.80% 0.33%
    Total: 65,405,536,372.00
    => Kd pre-tax =8.57%
    • Tax rate: Corporate tax rate is 15%, and it reduced to 50% since 2004. Therefore, tax is only 7.5% (Financial Statement 2013, Page 17 Notes to the financial statements)
    • Cost of debt after-tax:
    Kd after-tax = 8.57% x (1 - 7.5%)= 7.93%

    3. WACC:
    • Total Equity
    Date 26/9/2014, ending price of DPM : 30.8.
    Outstanding shares: 379,934,260
    Market value of Equity = 30.8 x 379,934,260 = 11,701,975,208 VND
    • Total Debt: 65,405,536,372.00 VND
    • WACC:
    weight cost WxK
    Debt 65,405,536,372.00 0.84823819 7.93 6.7265
    Equity 11,701,975,208 0.15176181 18.37 2.7879
    Total: 77,107,511,580.00
    => WACC= 9.51%

    Conclusion
    • Evaluate the underlying assumptions: we asumed that market risk premium unchanged. In fact, there are many factors make market risk premium change but the result still can be accepted because of insignificant error.

    • Evaluate the appropriateness of the estimation: Comparing to WACC=15% (Nguyễn Thị Huyền Dương 2014). The difference of DPM Company’s WACC between our result and Duong’s result is method. NTH Duong used DCF method, she forecasted CFs and it is not easy to forecast CFs in fact. Beside, we used different method that is historical risk premium. It is easy to calculate and gather data, but it not sure one hundred percent what happened in past exist in the future. So, error cannot avoid.

    Reference
    • Phu My urea strengthens services to customers. Issue 17,December,2012. See 26/9/2014 <http://www.dpm.vn/en/news/press-and-pvfcco/phu-my-urea-strengthens-services-to-customers>
    • Báo cáo phân tích cổ phiếu Đạm Phú Mỹ. Issue 21, April, 2014. See 30/9/2014
    <http://s.cafef.vn/report/bao-cao-phan-tich-co-phieu-dam-phu-my-2690.chn>
    • Moody's upgrades Vietnam to B1; outlook stable 2014. Publish 29 Jul 2014. See 29/9/2014
    <https://www.moodys.com/research/Moodys-upgrades-Vietnam-to-B1-outlook-stable--PR_304864>
    • Country Default Spreads and Risk Premiums 2014. Publish January 2014. See 29/9/2014
    < http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/ctryprem.html>
    • Thị Trường Trái Phiếu 2014. Publish 29 September,2014. See 29/9/2014
    < http://hnx.vn/web/thi-truong-trai-phieu/tong-quan/>
    • VP Bank: 12-13 % (VP Bank (Ms: Nga) 1900545415 call:3:00 p.m 29/9/2014)
    • MB Bank: 7,5 – 10 % (MB Bank 0646250505 Call:3:15 pm 29/9/2014)
    • Vietcombank: 8 % (Vietcombank 0643510944 Call:3:20 pm 29/9/2014)
    • BIDV: 7,5 – 9 % (BIDV 0563520002 call 4:05 pm 29/9/2014)
    • PV Bank: 11,1 – 12,5 % (PV Bank 0439426800 (Mr: Đạt) Call: 3:30 pm 29/9/2014)
    • Nguyễn Thị Huyền Dương, Báo cáo phân tích TCT phân bón và hóa chất dầu khí, 7/4/2014. See 30/9/2014 <http://files.acbs.com.vn/TTPT/Bao_cao_phan_tich_cty/Viet/DPM/DPM_ACBS_07042014.pdf>

    [align=right]Đỗ Ngọc Điều[/align]
     
  2. LeSEO6776

    LeSEO6776 Member

  3. thuanvda28

    thuanvda28 New Member

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