RAL_Compelling valuation_Vietnam company visit_EN_ICB3722.docx

Valuation
We recommend BUY RAL with the target price of VND 174,500/share, upside 43% under P/E method. Currently, RAL is traded at VND 122,000/share, equivalent to P/E trailing of 7.86x, much lower than other peers and VNIndex.
Earnings forecast
BSC forecast that RAL’s revenue and EAT in 2018 will be VND 3,470 billion (+6.1% yoy) and VND 225 billion (+5.13% yoy) respectively. EPS will be VND 14,694, after deducting 25% welfare and bonus fund.  
Company Update
•    Net revenue reached VND 909 billion, gained 3% yoy and EAT is VND 49 billion, (+2% yoy) in the first quarter 2018.
•    In 2018, the company targets to get net sales of VND3,270 billion, EBT of VND206 billion (-24% yoy). From 2011 to 2017, RAL continuously exceeded its target, sales was 4-20% higher and EBT was 37-110% higher than its plan.
•    Profit margins have improved. Operating margin increased from 7.55% in 2016 to 8.17% in Q1/2018. RAL often records the lowest margin in the 1st quarter.
•    LED consumption remains to be growth driver of RAL. LED revenue is planed to grow by 82% to VND 2,330 billion. The compact production line will be shut down in July 2018.
•    Promoting sales, increasing coverage with support from Samsung.
•    The asset value of Ha Dinh, its headquater, (57,000sq.m) is not recorded in the balance sheet.
•    Dividend payment in 2017 was 50% in cash, of which 25% is going to be paid in September 2019 and 25% remainer in April 2019. 2018 dividend is expected to be 50% in cash.
Catalyst
•    Earnings continue to grow.
Risks
•    High competition, especially with Chinese enterprises, negatively affects the consumption of RAL products.
•    Cost of sales, promotion were substantial and continue to increase
•    High receivables account