vietnam national university, HANOI hanoi school of business Ngo Viet Duc STOCK VALUATION IN VIETNAM THEORY, PRACTICE AND RECOMMENDATION THE CASE SACOM master of business administration thesis Hanoi - 2007 TIEU LUAN MOI download : skknchat@gmail.com vietnam national university, HANOI hanoi school of business Ngo Viet Duc Stock valuation in Vietnam THEORY, PRACTICE AND RECOMMENDATION the case sacom Major: Business Administration Code: 60 34 05 Master of business administration thesis Supervisor: 1. TRAN PHUONG LAN, MBA Hanoi – 2007 TIEU LUAN MOI download : skknchat@gmail.com TABLE OF CONTENTS ABSTRACT. iii LIST OF TABLES. v LIST OF FIGURES.3 CHAPTER 1: LITERATURE REVIEWS: STOCK AND STOCK VALUATION.
STOCK – DEFINITION, TYPES AND FEATURES. Time value of money. Internal Rate of Return (IRR). Dividend Discount Model (DDM), Discounted Cash Flow (DCF) .19 CHAPTER 2: APPLIED VALUATION METHODS IN EVALUATING CABLES AND TELECOMMUNICATION MATERIALS JOINT-STOCK COMPANY (SAM).
OVERVIEW OF VALUATION METHODS IN VIETNAM .22 New requirements for enterprise valuation. Pros and cons of valuation methods in Vietnam. CABLES AND TELECOMMUNICATION MATERIALS JSC – SACOM OVERVIEW. HISTORY OF SAM VALUATION AND PRICE .31 TIEU LUAN MOI download : skknchat@gmail.
Stock market and SAM at early stage. Price adjustment and decrease period. SAM Internal Value. VALUATION OF SAM AT PRESENT.
Applied Advantageous valuation method to value SAM quarterly stock prices in 2006. Applied P/E (Group D) to value SAM quarterly stock prices in 2006. Applied Dividend discount model – DDM (group C) to value SAM quarterly stock prices in 2006. Applied Discounted Cash Flow Model – DCF (group C) to value SAM quarterly stock prices in 2006 .40 CHAPTER 3: COMMENTS AND RECOMMENDATION OF THE VALUATION METHODS IN VIETNAM.
RECOMMENDATION TO APPLY VALUATION MODELS IN VIETNAM. Internal adjusting factors. External adjusting factors. Beta of SAM over 280 weeks (2000-2006).
SAM’s historical Balance Sheets. SAM’s historical Income Statements .62 2 TIEU LUAN MOI download : skknchat@gmail.SACOM LIST OF FIGURES Figure 1. Securities Market Line 17 Figure 2. SAM price movement (2000 – 2006) 30 LIST OF TABLES Table 1.
Number of joint stock companies 2000-2004 22 Table 2. Equitized enterprises before 1996 24 Table 2. SAM Fundamental Financial Indicies 2000-2005 28 Table 2. Comparison between market price and listed price as expected by enterprises 29 Table 2.
Value of five listed securities according to accounting figures 31 Table 2. SAM 3 years Fundamental Financial Indicies 35 Table 2. P/E of listed stock 36 Table 2. Historical FCFE for 05 years (2002-2006) 37 Table 2.
Cashflow projection until the end of high growth period (2008). Cashflow projection until the end of high growth period (2008). TIEU LUAN MOI download : skknchat@gmail. Necessity of the thesis The activity in stock market exchanges has increased much in Vietnam nowadays.
Consequently, the stock market is playing a growing important role to the society. Many institutions as well as individuals are heavily invested in the stock market. In order for the stock market to develop normally and stably, understanding valuation techniques of firms is very important. Without some sorts of model to estimate value, investors would not be able to arrive at conclusions on what price to buy or sell an asset.
When researching different valuation results of a specific firm, the value often differs – we can see the sample in SAM case discuss in next chapter. Different in valuation may come from different views of the future or assumption or technique and, hence, different recommended values. We can’t know which of these values is the most accurate and this is only one of the many difficulties involved in valuation. In Vietnam stock market, the situation is much more difficult since it’s an emerging market and to some aspect, there’s no rule for market like this in its early stage.
This study will focus on several valuation models that mostly use in firm valuation in Vietnam: Multiples (P/E), ABV, DDM and DCF in order to show the different of each method and their results, through understanding of those model and try to find the possible adjustment to make it accuracy. Purpose The overall purpose of this study is to establish some improvements of the available valuation method currently applied in Vietnam stock market. The aim is to expose some weaknesses of the method and the reasons behind. Further, the study will be 3 TIEU LUAN MOI download : skknchat@gmail.SACOM conducted to find solutions of these problems.
This will be accomplished by a literature study and a subsequent case study. Methodology The Thesis uses quantitative and qualitative approach and includes statements that will give the reader an insight in, how the research area was approached, why it was conducted in this way, how the work progressed, and, finally, the authors own critical opinions of the study. The intention is to introduce the reader to how the study was conducted as well as a give the opportunity to develop a personal perception concerning the trustworthiness of the study. Outline of the Study In the second part of this thesis the literature study will be conducted.
The study helps to understand the core concepts and the basic theories of valuation as well as the basic understanding of stock market and value of a thing. It also contains a brief introduction of the development of Vietnam stock market and valuation history in Vietnam. That information is necessary for the discussion to valuation in practice. The third part of the thesis is the case study of SAM company.
In this we try to use different approach of valuation to find solutions for value of SAM. By understanding different methods, we can understand difficulties with each valuation we applied and can work out to find ways to increase the accuracy of valuation. The final part of the thesis is concerned with recommendations and conclusions of how the valuation process can be improved and what should be adjusted to increase the usefulness and accuracy of the valuation process involved in Vietnam stock market. 4 TIEU LUAN MOI download : skknchat@gmail.SACOM CHAPTER 1: LITERATURE REVIEWS: STOCK AND STOCK VALUATION “Valuation: the determination, through prior analysis, of a price for a business that might be paid by an investor “ (Hervé, 1993:95) In this chapter relevant theories connected to our problem discussion will be discussed.
The chapter begins with definitions and some possible discussions about some concepts that will be important when the analysis is conducted. Thereafter, basic theories of models are introduced. This is to give the reader insight how valuation models work. Lately, history of Vietnam stock market is presented for setting up a scenario for valuation in early stage.
STOCK – DEFINITION, TYPES AND FEATURES Stock, also referred to as a share, is commonly a share of ownership in a joint stock company (Copeland et al, 2000). The owners and financial backers of a company may desire additional capital to invest in new projects within the company. If they were to sell the company it would represent a loss of control over the company. It may be represented by a certificate and can be common or preferred, voting or non- voting, redeemable, convertible, etc… There are kinds of stocks: 1.
Common stock Common stock, also referred to as common shares, is the most usual and commonly held form of stock in a corporation (DeAngelo, 1990). The other type of shares that 5 TIEU LUAN MOI download : skknchat@gmail.SACOM the public can hold in a corporation is known as preferred stock. Common stock that has been re-purchased by the corporation is known as treasury stock and is available for a variety of corporate uses. Common Stockholders are not guaranteed dividends, buy they expect to receive higher dividends during the company’s prosperous periods.
If a company fails or liquidates, common stockholders are paid, after bondholders and preferred stockholders. Common stockholders assume the greater risk, but generally exercise the greater control and may gain the greater award in the form of dividends and capital appreciation. The terms common stock and capital stock are often used interchangeably when the company has no preferred stock. Holders of common stock have voting powers in the corporation and participate in the profits of the corporation by way of dividends, but only after preferred stockholders have been paid their dividends (DeAngelo, 1990).
Preferred stock Preferred stock is a security that shows ownership in a corporation and gives the holder a claim, prior to the claim of common stockholders, on earnings and also generally on assets in the event of liquidation (Copeland et al, 2000). Most preferred stock pays a fixed dividend that is paid prior to the common stock dividend. This stock does not usually carry voting rights. Preferred stock has characteristics of both common stock and debt.
A preferred stock shareholder forfeits his voting rights, but receives dividends (which are set at a specified rate) before the common stock shareholder. In the event 6 TIEU LUAN MOI download : skknchat@gmail.SACOM of liquidation, bankruptcy preferred stock shareholders are paid before common stock shareholders. It can be considered that a preferred stock is a hybrid between a share and a bond which, as opposed to ordinary shares, has a fixed yield, providing the issuer achieves a minimum profit (DeAngelo, 1990). The fixed income stream of preferred stock makes it similar in many ways to bonds.
Rights Options granted to shareholders to purchase additional shares directly from the company concerned. Rights are issued to shareholders in proportion to the securities they may hold in a company (Fama and French, 1992). Rights allow existing shareholders of a corporation to subscribe to shares of a new issue of common stock before that stock is offered to the public on the stock market. A right usually has a life of 2 to 4 weeks, is transferable, and entitles the holder to buy the new common stock below the Public Offering Price.
Rights are often granted to protect existing shareholders from the effects of dilution. Warrants A warrant gives investors the right, but not the obligation, to buy a share at a certain price (the exercise price) by a certain date in the future (Fama and French, 1992). Warrants often accompany a share issue and they can be traded in the stock market in their own right. The value of warrants is likely to be more volatile than the underlying shares, and this can be a high-risk area of investment.
Because of this it is a regulatory requirement to sign a warrants risk warning prior to trading. 7 TIEU LUAN MOI download : skknchat@gmail. Valuation Much of the literature has been written on corporate stock valuation approaches. Damodaran (2002) provides extensive description of different stock valuation models.
He reviews the four models: Capital Asset Pricing Model (CAPM), Arbitrage Pricing Model (APM), Multi-Factor Model (MFM), and Regression Model (RM). It is mentioned that all models have two common assumptions: they define risk in terms of variance of returns and argue that investment should be viewed from the standpoint of the marginal investor. Valuation is the process of "estimating" the value of an asset or liability. The value is the price of the asset or liability times the quantity held.
Valuation puts a value on a security in relation to other securities. It is used to estimate the value of a piece of property usually by considering its replacement cost or its actual cash value. Factored into the estimate is any depreciation or wear and tear. Valuation is the estimated or determined market value of a stock.
Value Valuation of firms can be done for many reasons, such as to find a fair price to offer an acquisition target, appraise an acquisition offer, or to find out the value of owning a firm. There are several different ways to look at value and, furthermore, there are several opinions on what creates value in a firm.