The Future of Vietnam Cement Industry Presented by Mr. Nguyen Quang Thuan CEO, StoxPlus Corporation Grand Hyatt Bangkok, Thailand, 22 June 2015

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‹#›

1

2

3

4

The Story of Supply & Demand

Industry Performance Highlights

Long-term Outlook

Macroeconomic Briefing

Currently excessive supply in the whole country basis but a review must be done with care! Vietnam Cement Consumption, 2010 - 2014 80 70 65

Million Tons

60 50 40 30 20 10 0

13 2000

24

21

16

14

27 20

15

17

18

2001

2002

2003

2004

32

28 22

2005

44

39

36

45

2006

2007

Total Domestic Production

51

45

48

57

50

56

34

27

24

47

70

70

2008

2009

2010

2011

2012

2013

2014

Cement Consumption Source: StoxPlus from VNCA

Domestic Consumption 2014 : 50.82mn tons ( 9.74% y-o-y) 5M2015: 21.34mn tons ( 5% y-o-y)

Export 2014 : Cement - 6.05mn tons ( 49% y-o-y) 2014 : Clinker – 15.18mn tons ( 37% y-o-y) 5M2015: Cement – 1.90mn tons 5M2015: Clinker - 3.95mn tons 3

Supply surplus – but depending on region! Why? Vietnam Domestic Cement Consumption by Region, 2014 25

Construction value & GDP per region

Highland Mountainous

22.09

Red River Delta

20 Million Tons

16.69

15

12.41

Central North and Costal

10

Percentage of construction value (2014) Percentage of GDP (2014)

5 Central Highland

0

North

Central

South South East Source: StoxPlus from VNCA

Mekong River Delta

4

Supply surplus in the North and Central but shortage in the South (HCMC area) Clinker capacity and domestic demand by location, 2013 56.4

60 50 40

46.0 35.2

30 20

19.7

10

15.5

14.2

15.5

10.8

10.4

7.0

3.3

0 -10 -20

North

Central

South

Whole country -8.5

Capacity

Demand

Unbalance Source: StoxPlus from VNCA

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Export as the way to clean up the inventory Vietnam Cement & Clinker Export, 2010-2015 16

15.18

14

Million Tons

12

11.06

10 8

7.3

4.04

4

3.95

3 1.90

1.70

2 0

6.05

5.5

6

0.00 2010

0.50 2011

2012 Export Cement

2013

2014

5M2015

Export Clinker Source: StoxPlus from VNCA

6

Infrastructure development triggers a great cement growth consumption! But financing is a big challenge Value of major infrastructure projects, by timeframe (US$mn) 3,734 733

Water Roads & Bridges

36,947

4

Power Plants and T&D

57,094

22,140

Ports

7,239 1,464

Oil & Gas Popelines

8,000 800 1,157 0

2015-2020

3

35,705

553

Airports

1

2

9,645

Railways

No

6

7 8

16,489

20,000

5

Project Name

Ring roads 3 and 4, connecting HCMC with the Ben Luc - Long Thanh and Bien Hoa - Vung Tau Six-lane road widening BOT Hanoi project, Hanoi - Can Tho section, part of 2,300km National Highway 1 Ring Road No. 5 (Son TayHanoi Phu Ly, Phu Ly-Bac Giang; Bac Giang-Thai Nguyen and Thai Nguyen-Son Tay), Hanoi Dau Giay - Lien Khuong Lam Dong Expressway Six-lane Nha Trang City Khanh Hoa (Khanh Hoa Province) Phan Thiet City (Binh Thuan Province) PPP Expressway Project Ha Long City - Mong Cai Quang Ninh City expressway project, part of Noi Bai – Ha Long Mong Cai expressway, Quang Ninh province Ring road No. 4, Hanoi Hanoi Ninh Binh - Thanh Hoa road Thanh Hoa project - 2 lane

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40,000

60,000

2010-2015 Source: StoxPlus

Value Timeframe Status (US$mn) Ho Chi Minh 8,000 2010-2015 Under construction

City/Province

Noi Bai - Ha Long Expressway 10 Ben Luc-Long Thanh Expressway - Part of North - South Highway Total

6,000

4,100

2015-2020 Under construction

2010-2015 Planning

3,520

NA

Unknown

3,500

2015-2020 Planning

2,100

2010-2015 Planning

1,970 1,867

2010-2015 Planning 2010-2015 Planning

Hanoi

1,762

NA

Dong nai

1,600

2015-2020 Under construction

Unknown

34,419

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Residential buildings is the highest growing cement usage sector Construction Segmentation, 2008-2013 40 35

US$bn

30

3.7

25

3.4

20

2.6

15

2.0

10

7.2

5 0

4.3

4.1

2.1

8.0

8.5 5.8

7.0

2008

2009

6.1

6.3

4.2

2.6

5.4

9.4

10.4

10.5

10.0 2010

12.5

13.3

2011

2012

15.9

2013

Residential buildings

Non - residential building

Civil engineering works

Specialized construction services

Source: StoxPlus from GSO

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Supply side: Very fragmented market structure, consolidation is a must! Market Share of Key Players, 2014 Lafang Luks Viet e Nam 4% 8% Phuc Son…

He Duong 2% Nghi Son…

Thang Long Holci 10% m Chinfon 21% 19% Foreign-owned Producers 28%

VICEM 35% Hai Other Van s 4% 3% VICEM Hai… Ha Tien… Hoang Mai… Hoan Bim g But Son Thac Son 18% h 13% 16%

Tam Diep…

Song Gianh 7% Other Private & Associate Producers 37%

Lam Thach 2%

Others 65%

FICO 7% Ha Long Quang Son 5% 5% Cam Pha 7% Cong Thanh 2%

Source: StoxPlus from VNCA

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Low utilisation rate in overall. Do you think they can survive with this operating situation? Forecasted Capacity Utilization Rate of Vietnam Cement Factories (7% growth rate)

Planned Additional Capacity from New Licenses 8.80

85% 81%

81%

80%

70%

77% 73%

8.78 75%

72%

72% 70%

70%

70% 68%

MTPY

75%

8.79

8.79

8.77 8.76 8.75

65%

8.75

8.74 8.73

60%

Source: StoxPlus

Completed in 2014

To Complete in 2015

Source: StoxPlus

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1

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The Story of Supply & Demand

Industry Performance Highlights

Long-term Outlook

Macroeconomic Briefing

Low EBITDA vs. Regional Giant Players

Vietnamese Cement EBITDA Margin Vs. Regional Players 40% 35% 31.7%

30% 25% 20% 15% 10%

33.2%

31.3%

24.9%

22.5%

24.9% 21.2%

22.1% 22.1%

14.9% 15.3%

35.0%

33.0% 23.6% 23.6%

33.1% 31.0%

24.3% 24.3%

19.8%

15.5% 16.3%

13.3%

15.1%

5% 0%

2008

FT Semen Indonesia

2009

2010

Siam Cement Group (Thai Land)

2011

2012

Anhui Conch (China)

2013 Vietnam Cement Players Source: StoxPlus, ICR

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High fuel costs but limited alternative fuel Sample Clinker Cost Analysis, 2013 30 Coal = 60% of clinker cost

25

US$/ ton

20

Electricity = 14%

0.24

0.15

1.51 2.19

3.50

15 25.64 15.42

10 5 0

2.63 Material

Coal

Electricity Maintenance

Labor

SG&A

Other fixed

Original price

Source: StoxPlus’ survey data

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Why Grinding located in HCMC area?

Hai Phong

-

-

Clinker production concentrates on the North and Central Vietnam Lime stone in North and Central Vietnam Shortage of clinker in the South

Quang Ninh

Thanh Hoa

Quang Binh Clinker Grinding & Packaging Warehouse

Very weak logistic system

Hiep Phuoc –HCM

CanTho/Vinh Long Source: StoxPlus

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1

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The Story of Supply & Demand

Industry Performance Highlights

Long-term Outlook

Macroeconomic Briefing

Oversupplied but when is the equilibrium point? Forecast Vietnam Cement Supply - Demand 250 Under the base case, cement equilibrium achieved by 2023

Million Tons

200 Under the Master Plan, there will be 25 cement factories to be built and operated by 2020, which would increase cement supply by 41.08 MTYP. But the status of those projects is very uncertain.

150

100

41.08 (*)

We are here

50

0

34 24 27 13 15 17 18 20 22

Total Domestic Production

70 70 77 56 65 51 45

Total Consumption (5%)

102 104 107 107 107 107 107 107 107 107 107 107 107 90 95

Total Consumption (7%)

Total Consumption (9%) Source: StoxPlus

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Opportunities remain in the South (HCMC area)!

Lack of cement in HCMC area 25

Ton million

20

16.8

15

17.7

18.6

19.5

20.5

21.5

22.6

The south does not have natural resources necessary to produce clinker. They will always have a shortage of clinker

10 5 0

7.0

7.0

7.0

7.0

7.0

7.0

7.0

2013

2014E

2015E

2016E

2017E

2018E

2019E

Total Clinker Capacity

Total consumption (5%) Source: StoxPlus

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Consolidation is a must!

1

-

-

Fragmented market with 26 companies and 94 factories

Acquiror

3 Acquiror

VIETTEL GROUP

VIETTEL GROUP

Taget Name

Taget Name

HALONG CEMENT JSC

CAM PHA CEMENT JSC

Low efficiency Necessary to consolidate

2 Acquiror

4 Acquiror

PT SEMEN GRESIK

SIAM CEMENT GROUP

Taget Name

Taget Name

THANG LONG CEMENT JSC

BUU LONG CEMENT JSC

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1

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3

4

The Story of Supply & Demand

Industry Performance Highlights

Long-term Outlook

Macroeconomic Briefing

Vietnam economy recently saw some clear signs of recovery US$ million

GDP Growth & CPI

8%

20%

14,000

FDI Disbursed

12,500 11,500 11,00011,000 10,460 10,000

11,500

12,000 6%

15%

4%

10%

10,000 6,000

2%

5%

4,000

0%

0%

0

GDP Growth US$ million

9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0

4,358

4,840

6,021

3,300

4,100

2,000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

CPI

Construction Value

5,428 5,407

8,034

8,000

US$ million

6,627 6,586 6,800

7,199

7,702

7%

12,000

Public Investment 9,919

10,000

8,722

8,000

6%

6,000 4,000

5,341

9,288

9,600

9,286 8,052

5,689

3,771

2,000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Construction Value

5%

0

% GDP 20

Concluding Remarks 1. Supply surplus currently but our base case forecast has indicated the equilibrium will reach in 8 years from now in 2023 2. Additional supply would be from new licenses but HCMC area always in shortage. A better logistics and related infrastructure improvements will trigger the growth 3. Domestic players operating at very low EBITDA vs. regional peers and consolidation is a must. Also opportunities for any entrants who can centralize the operations and increase efficiency 4. Energy costs remain a burden given the soaring electricity price and coal. Alternative fuels and Waste Heat Recovery Power Generation are critical success factors 5. Consolidation is a must for the industry growth. VICEM IPO is being on radar now. The only 4 domestic major players also discussed to merge as matter of survival.

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