PREFACE Over the past 20 years since the Decree No. 48 / CP of the Government was signed on July 11, 1998, Vietnam's stock market has undergone many changes, but is also growing stronger and stronger. many different stages. Vietnam stock market has expanded strongly in terms of the number of securities codes, capitalization, transaction value.
In which, the total market capitalization of 3 trading floors reached over 4 million billion dong, the number of listed and registered companies traded more than 1,550 codes. Many industries have been developed along with economic growth. The stock market has made an important contribution to Vietnam's economic development. Currently, the pharmaceutical industry is being interested in by many investors because it has a lot of potential for development.
The outstanding names in the pharmaceutical industry include Hau Giang Pharmaceutical JSC, Traphaco JSC,. Traphaco JSC has a quite different direction than other companies in the same industry, which is more focused on traditional medicine. Traphaco is almost monopoly, occupying a large market share in this segment. Realizing this, I chose my thesis topic "Traphaco JSC: Analysis and valuation" to clarify the potential of this stock code.
Research Objective Research Question: How do we identify the fair value of TRA’s stock? General Objective: Using Literature Review and applying it to find out the intrinsic value of TRA’s stock. Specific Objective: o Analyzing business performance of TRA and forecasting the potentials of TRA in five consecutive years (2019-2023). 1 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com o Using valuation methods to determine the intrinsic value of TRA’s stock and comparing this value with the market price so as to whether TRA has been overvalued or undervalued. o Relying on the valuation outcome and then recommending investors whether they should invest in this stock or not.
Research Object TRAPHACO joint stock company 3. Research Scope Time: 2014 – 2018 Limited research: Vietnam 4. Research Methods Literature reviewer Data analysis 5. Research Structure My thesis has been devided to 3 chapters: - Chapter 1: Literature Reviewer - Chapter 2: Analysis of TRA performance - Chapter 3: Valuation and Recommendations 2 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com CHAPTER 1: LITERATURE REVIEW 1.
Stock market The stock market is a place for individuals or businesses to buy, sell and issue shares regularly. These financial activities are carried out through official institutional exchanges or the free trading market (OTC) operating under defined regulations. There may be multiple stock exchanges in a certain country or region. Stock markets and stock exchanges can be used to replace the same place.
Stock Stock is a financial asset, which is a type of securities issued in the form of a certificate or book, confirming the ownership and legitimate interests of the owner of the property. Stocks are bought and sold mainly on stock exchanges, although there may be private sales, and are the foundation of almost every portfolio. These transactions must comply with Government regulations to protect investors from fraud. These investments can be purchased from most securities brokers.
Valuation A valuation is an estimate of how much a business, property, or any asset is worth. There are many different tools for implementing valuations. A financier wants to implement valuation, they will analyze the management structure, capital structure, market value and future prospects. In finance, things that are valued are financial assets (such as stocks, options, businesses, etc.) and debts such as bonds issued by a company.
Valuation models: are models created by investment analysis for the purpose of determining the value of financial assets. These models have inputs that are collected 3 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com from avaiable information sources about assets such as financial reports, information on similar products, market movement, and so on. Then, this information is processed through caculations and analysis combined with the subjective judment of the model user, and then he output is the intrinsic value of the financial asset. Intrinsic value Intrinsic value is the qualitative or quantitative value of an asset, an investment or a company.
This term is used in basic analysis to estimate a company's value and its cash flow. The intrinsic value used is the interest amount in the option contract. Intrinsic value is calculated using basic analytical techniques to assess an enterprise in all aspects such as business model, corporate governance, market factors affecting businesses, goals of the business. The value obtained is compared to the market value to determine whether the business is overvalued or too low by the market.
Typically, investors will use both qualitative measures and quantitative measures to get the most accurate results about the intrinsic value of a business. However, all is an estimate, not a sure thing. Net asset value (NAV) Net asset value (NAV) is the value of all financial assets and non-financial assets minus the value of unpaid debts, often related to financial funds, because of those funds is registered with the Securities Commission. The Securities Commission is acquired by their net asset value.
It is an important indicator of hedge funds and hedge funds when calculating the value of the underlying investments in these funds of investors. This may be like the book value or equity value of a business. Net asset value can represent the value of total equity or can be divided by the number of outstanding shares of investors. 4 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com The formula for a mutual fund's NAV calculation is straightforward: NAV = The correct qualifying items should be included for assets and liabilities of a fund.
Valuation by discounted cash flow model (DCF) The DCF model is a way to evaluate the value of a stock or an investment project for an investor. Analysts use this method to determine the future cash flow of a specific stock or project discounting the present value, thereby assessing the feasibility of the investment project. If the future cash flow after the discount is too large compared to the current investment cost of the project, it can be assessed that this is a good investment project. DCF model is built on the foundation of the concept of time value of money and the relationship between profit and risk.
Models can be represented as mathematical expressions as follows: PV = + + + …. + Where: CFt is the expected cash flow to be obtained in the future, k is the discount rate used to discount the cash flow to the present value, n is the number of periods. The DCF model is widely used in corporate financial decisions, especially investment decisions, specifically: - Valuation of assets, including tangible fixed assets and financial assets to make a decision to buy or sell it. - Analyzing, evaluating and deciding investment in the project is highly feasible.
- Analyzing, evaluating and deciding whether to buy or rent fixed assets. 5 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com Advantages of DCF This method takes into account the entire economic life of an investment and income. It brings a profit earned by a new project. It creates weight over time of financial factors.
Because discounted cash flow methods are clear and often consider the time value of money, this is the best method to use for long-term decisions. It allows direct comparison of the expected return of investments with borrowing costs that other methods cannot. It creates a grant for the difference in the time that investments generate their income. This approach by recognizing the time factor provides enough for uncertainty and risk.
It provides a good measure of the relative profitability of capital expenditure by reducing income on current values. Disadvantages of DCF Assumptions regarding permanent growth and discount rates make the DCF calculated value more sensitive. Valuation of DCF will fluctuate and will not calculate the value needed if there are any smallest changes. It is best used only when there is a high degree of confidence in cash flow in the future.
Analyzing a company with a stable past cash flow, such as a food or health care company unaffected by changes in the economy, can make comparisons of trends stable. planning in the future easier. Profitable companies with abundant cash flow are more likely to continue to increase cash flow in the future, or hold on if the recession occurs. Problems with using this model can happen to businesses with erratic cash flows, making it difficult to predict the future.
New companies that tend to be unproven or immature are also hard to judge using the DCF method. 6 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com DCF model is suitable for longer term investment because it creates long-term value, not suitable for short-term. Free cash flow (FCF) Free cash flow is a method of assessing business activities which is calculated by the difference between operating cash flow and capital expenditure. On the other hand, free cash flow is the cash value that businesses can obtain after expanding assets for production and business activities.
If you want to maximize value for shareholders, it is imperative that businesses understand what free cash flow is, thereby building investment opportunities. Businesses will find it difficult to conduct business activities such as advertising, product development and paying dividends without cash. Free cash flow is calculated as follows: FCF = Net income+Depreciation–Change in Working capital–Capital expenditure The FCF is the unit of measurement of the company's cash available by working capital and fixed capital investments, or capital expenditure (CAPEX), over a certain period of time. Companies want to enhance the value of shareholders, the FCF is a good way to express it.
As the free cash flow increases, the strength of the balance sheet increases. However, when negative free cash flow is not only a bad sign, it may be a sign that the company is investing in many different projects. This valuation method can increase the value in the long term if the investments bring returns to investors. There are two types of free cash flow: Free Cash Flow for the Firm (FCFF) and Free Cash Flow to Equity (FCFE).
In the content of this thesis, I use the Free Cash Flow to Firm (FCFF) model. Free cash flow to firm (FCFF) Free cash flow to firm (FCFF) is the remaining cash flow for the entire company (those who own assets) and so it is also called free cash flow. Free cash flow to firm 7 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com (FCFF) represents the amount of cash flow from operations available for distribution after depreciation, tax, working capital and investment costs are accounted and paid. FCFF is basically a measure of the company's profit after all costs and reinvestment.
This is one of many benchmarks used to compare and analyze the financial health of a company. FCFF represents cash available to investors after a company has paid all business costs, invested in current assets (such as inventory) and invests in long-term assets ( as device). FCFF includes both bondholders and shareholders when considering the remaining amount for investors. FCFF method is a good method for company operation.
It is taken into account all types of cash flows from cash, cash expenditures and reinvestments needed to maintain business operations. The remaining amount after performing all these activities represents the company's FCFF. Free cash flow for businesses - FCFF is said to be the most important financial index of the stock value of the business. Using FCFF is the cash flow left after dismissing all responsibilities and projections for the future will bring high accuracy.