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Prospects for the Vietnam cement industry: Thuan Nguyen, StoxPlus Corp (Vietnam)

Filmed at Cemtech Asia 2015, 21-24 June, Grand Hyatt, Bangkok, Thailand

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Thank you. So, well about Vietnam. We are a very small country, but interestingly cement sector is double of [XX] Thailand and the same size as Indonesia. But we're less than about 15 years below Thailand. But that's an opportunity as well. So, I'm not selling Vietnam for today, I'm not selling cement, but I'm sharing with you some local[XX] or inside out view for use.

For anyone of you who are interested in Vietnam cement for either trading, investment or any connection even for [xx]. We are tested technology and so on. We have the great network there. I'm not the cement manufacturing guys but I have a big team and some industry people as well based in Hanoi [XX] city.

So after the presentation, anything we can talk about Vietnam, so please contact me on my colleagues accompanying me, okay. So, would you like to hear about the bad things first or good things first about our country's, cement? Okay, so I have 15 minites, 20 actually extactly. I'm going to tell you about four things, I think mostly three things.

First is the headlight about supply and demand. We have a similar story like Thailand, but we are more in serious situation, because of a number of reasons about the supply and demand, but we are very volatile. It's unlike Thailand where it 's stable 2, 4% ,12, no this year we are 5, next year my be 10 or next year might be negative,so that's 'the way of Vietnam very volatile, so looking at the Vietnam be careful, okay?

That's the emerging, and that's the livestock market Vietnam is up and down, up and down every year. So, in just a second, I'm going to provide you some sort of sector performance, very important. You go see how the consolidation is having going on and why. Like Thailand you have few players but Vietnam we have nearly 100, so the consolidation M and A, opportunity for you guys from Japan, from Thailand, Siam, actually Siam is one of our customer and some other for taking the opportunity to acquire the local company there and I will share you one of the most important findings about our focus, very independent focus. When should be the balance?

Between the supply and demand? And what reason, in what area [xx] city, Hanoi or Central? This should be very closer look to Vietnam, it's a small country but a local base view serves me better for any business, for anyone who would like to look into Vietnam, to shake hands with the local business there. And lastly about most recent update about the micro economic, we are having some signal of recovery and I think that's a good signal for cement industry in the median and in the long run even the residential and real estate are recovering there, so, that's the supply and demand over the past 14 years and we're having some surplus from 2009 and now we're in the big surplus and I wish how we led a Wensobe[sp?] what does consequences after surplus for the cement and in the previous presentation, something about the export, but that's very bad news for our country actually.

You know why do we have to export? Because, the cement should be up running all the times, so when we have [xx] should be so off below the cost to Bangladesh, to Philippines to [xx] and so. So that would not be good news [xx]. This is similar situation to Thailand but I will show you later about what's more serious for Vietnam actually. Next We are in surplus situation but actually this will be read with care. In [xx] City areas we are in serious shortage because we don't have limestone there and only one area in [xx] we have [xx] so every [XX] most of the [xx] shifted from the north area and so on and from the central area. But the consumption of cement in Hanoi area in the North is much bigger because a lot of infrastructures are starting to build there, and in the source a little bit lower, but we have over 7 million capacity there so a lot of [xx] and a lot of cement seep from the central and from the north to the [xx] city and that's more detailed view about one year as an example for you so look at [XX] city the area there. So about 8.5 million is a sip from Hanoi and from Central to [XX] city to cure up the sottes[sp?] the whole country there and most of the capacity come from Hannoy from the limestone and clay is very available [xx] city [xx] where the mountainers and good limestone there and very cheap, very cheap. And this situation about export, I dislike the situation.

We're the top export of the world about cement, but are we so for the later, the average [xx] 34, $35 per tone. And you know what's the production cost there? the same. So that''s the problem because domestic consumption cannot make up the production volume so we have to export. That are bad news, not a good news, no value added at all, okay. And back more accurately for Vietnam, the export is mainly [xx] cement is a very few we export to Chile from, in South African soil but for South Asia, Philippines especially the biggest destination is [XX] is a [XX].

And in the first in the first five months, this year, this is slowing down, because of the recovering local consumption, I will show you later. Well, look at the future of Vietnam. People must look at the the construction and infrastructure development plan by our government, for the next ten years, our government have a big plan,a master plan to invest about $243 billion, and mostly in road and bridge where it's consumed a lot of cement, but you know there are some others like power plants, oil gas, it's not massive as cement, so the [xx] could look at this, they're all ambitious, and you know in [xx] city area they may go down that river.

The people talking about building the road by cement not [xx] anymore, because of the condition, and because some incentive to encourage the construction materials, of course cement is a headline. And in total we don't have the number here but it's 234 000, and of course it's similar to Thailand.

This morning, the guys from Siam talk about the infrastructure, the big issue is the financing. Sorry. The big issues for infrastructure is the financing, and we are talking a lot about PP pay, and we're talking a lot about the other way of channels to mobilize the funds, and when we look at the demand for cement, the people should look at the big projects and the progress of each products in the region that they have the manufacturing plants.

This is the overall feature, and residential building is the biggest [xx]and growing, so that's something very positive about the future demands. Okay. But how about the supply side, unlike Thailand we have few players, four or five but in Vietnam we have more exactly about 90 plants and from about 50 players and it's quite equally allocated between the foreign players, the state on enterprises the only one the same and the private players and very fragmented. That's the term up from the story of Vietnam [xx] they have one plant for sugar, one plant for cement one plan for very localized and now it's they're cleaning up.

Okay. And we observe a lot of active consolidation emanate the sector, form foreign new entrance and from the local itself and from the financial investor from the banks who the plants are in financial lists here and they have to send some expertise people are [xx] to take up the company on behave of the banks, that we see some situation there, that's the most situation. I don't know the rest now for for Radi[sp?] to get in some cement but that's the case for Vietnam
okay, I'll talk about the new capacity, we have a lot of licence but we have observed very slow implementation and it seems that the owner the investor especially the local they didn't want to go ahead given this situation. So most of the new licence suspended, in of course the're few put into operation in the last year.

But there are about 40 million tonnes new license as a we don't say that's coming soon. And on advice the utilization currently is about 70% something, but if we focus [xx] a base case scenario consumption about 77%wealth every year, so this should be the projected utilization and I don't think that will be sustainable if there are no consolidation or someone who can censor anything about maintenance, about spare parts, about everything so otherwise very small plan individual plans by local owners they could be going to die soon.

That's the story of the supply and demand and now we show you how would be the situation in 10 years or 20 years based on how focus, very comprehensive look at the demand and supply side in the section three in the longterm outlook but let's look at some very key perfomance [XX] for Vietnam Cement Plants domestic okay. We do not cover the foreign players in like sosim, Sim, Eshuji or or [xx] from there. This is a problem Ebida, we are well below the regional peers and that's not the biggest problem because very fragmented organization and by the local players, so we don't see any profit from thi I thins Ebida.I think some of you are the industry players you know better than me. But from our experience, from our reach out, we cannot see [xx] by 10%to be sustainable making some profit for the shareholders and by just real situation of course there are some simple superstar and there are some very bad performers, I know some private players they, even get [xx] 30% but some SOE's some SOEs [xx] cement plants, they have very low, very low. I talk about the production part for [xx] but this is fora typical not including the transportation price and you know just mark up about $10 per tonne so that's the same price which we export based on what price, the food price.

Okay. and a more significant cost component is the fewer, the coal. And there are some big problem there because we are excited about the coals and the price is soaring. And we did some benchmarks with China, anyone here from China? This is even much bigger than China. The same situation we have natural resources nearby [xx] and the China similar situation, but we have the energy costs bigger components comparing to some Chinese peers. Because in Vietnam we don't have limestone here, just only one province, Tien Giang, and don't we really don't have much clay there, so most of the [xx] we are shipping from [xx] and the central to [xx] city area and they have the grinding station there.

Most of the big players they have the, like for example [xx] they have 2.3 million tonnes per year but half of them are grinding here in Ho Chi Minh City, [xx] but production at the [xx], only 1.2 million in [xx] areas. Well, the outlook does the most important are for our sector based on the historically, over the eight years in the historical, we have the 8% growth compounding and what's to be the future?

We have three scenarios, the low is 5% okay, assuming that we don't have a big project for infrastructure, and real estate [XX] moderate and the base case about 7% and the upper case at 9%. I'm more opportunistic, and if it is a case for the base case, we will have the balance in 8 years from now and I think it's a good view good fighting for you guys to have a new investment for the long view but for the existing player it's a bit long journey to the equilibrium for the sector. But as I mentioned earlier for Vietnam, it's different, maybe next year our government start to build a big city, Island city you know in some city and big project so the cement consumption will be getting the balance sooner. So it's very volatile if you look at historical already. And we do review some new license and for this case, we assume there's only new license from here from 41 million tonnes per year coming soon and we don't think they will continue their projects because we look at the local investor. Most of them add up in financially interest duration.

It's only available for the new ancients industry player who come in and take over the license for the local I don't believe they can continue. And in the past, most of the local owners or investor they leverage about ten times or even more. This is more closer look to Hon Chi Minh city market, always in the [XX], always and new licence, no not in Hon Minh city only the grinding, okay?

So that should be an opportunity for one who can develop a logistic system from the Central and from the North to our Hon Chi Minh city area and now you know the very fragmented transportation system. Most of the shipping is at below 20 DWT and we talked to some people, they are building big ports, sample [XX] and big shipping like 50 [XX] that's for better transportation. And you know transportation one tonne of cement from Hanoi to Ho Chi Minh city, it costs about 40% mark up, even 50%. So anyone who can hear about logistic system who can have as much in logistic system, that should be the solution, okay. Well consider consolidation, we have been observing a lot of MNA locally and from the foreigners into Vietnam and those other that top too [XX] over the last 2 years. And [xx] is a military base SOE, they have taken over some beaches interest for cement plants and should be the case they put market better and shout it again, but again like the other case the [XX] the[XX] are not industry player but they have some mission to take over to rescue the the banking and [XX] so on. But we see some other very market base transactions like [xx] from Indonesia and coming some others under the discussion.

Okay so that's the last lie about the [XX] economy. You see [xx] so some signal of more recovery so I have five conclusion there firstly the supply and demand, that needs to be balanced in about eight to ten years from now, I don't know if that's good or bad. Secondly, it should be in the local base Ho Chi Minh city, always in the [xx], and thirdly, consolidation as I mentioned earlier to improve the industries performance, and of course energy the big problem.

We now, we don't have the WHR, the Waste Heat Recovery System, and by law they've done, finished by the end of last year, no one did that, it's only a few, four of them. Okay so, we're the Stoxplus, we're the biggest information business in Vietnam, and we've the big team cover a lot of sector. Of course construction materials and cement, and we advice some M and A transactions in the past, by local and we support some foreign transactions, inbound transactions from Japan, from Philippines, the sum of our customer, of course Siam is one of our customer, and a lot from Japan and from Korea so, thank you.

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