VAF confidently looks to 2011

What is your assessment of the investment opportunities for VAF, which will focus on blue chip companies in 2011?

Chris Freund

Except for the largest listed companies which have very high valuations, valuations for most companies in Vietnam are very low. P/E ratios for most listed companies range from 5-10x, whereas the long-term average in Asia is 14x.

I believe this is a very attractive environment to make new investments. By the time most of the concerns about currency devaluation and inflation disappear, the stock market will be trading much higher with higher P/E ratios.

What are VAF’s investment and exit plans for 2011?

Currently VAF is still holding around $16 million in cash from the sale of its shares of Masan Food. We plan to deploy that over the next few months.

I can’t comment on exit plans. Some investments we plan to hold for three to five years, while others we will sell when their share price reaches a target that we’ve set.

VAF was the best performing Vietnam fund tracked in a report by LCF Rothschild issued recently. What has made the difference in VAF’s performance compared other tracked funds?

All of VAF’s investee companies had strong net profit growth in 2009 and 2010. The growth in net profit of the companies drove the NAV to increase. The reason for the strong net profit growth is a system we’ve implemented called Vision Driven Investing.

Basically our team has become very effective at partnering with our investee companies to ensure that they set big net profit growth targets and achieve those targets. After implementing Vision Driven Investing, the performance of most of our investee companies improved dramatically. 

The fund’s NAV increased by 36.8 per cent in 2009 and 9.7 per cent in 2010. The growth in the fund’s NAV was driven by the net profit growth of the companies. In 2009 companies such as Masan Food, An Giang Plant Protection, Phu Nhuan Jewelry and Intresco had very attractive profit growth.

In 2010 companies such as Masan Food, Intresco and Traphaco had attractive net profit growth.One of VAF’s best investments is An Giang Plant Protection. It had net profit growth of more than 100 per cent in 2009 and although the growth slowed down in 2010, we expect the company’s long-term growth rate to be attractive.

The CEO has a big vision for the future of the company, and we believe that as it executes this vision, it will lead to sustainable and attractive net profit growth over the next five to 10 years. I believe this company could transform the future of agriculture in Vietnam, improving the competitiveness of Vietnam’s agriculture sector, while creating value for shareholders.

What are VAF’s expansion investment plans for this year?

Originally Traphaco was a small investment for VAF. We were holding around 6.5 per cent of Traphaco’s shares for a few years. But after getting to know the senior management better, we started increasing our shares in Traphaco in mid-2010 and recently we’ve reached 20 per cent ownership. We’re excited about their long-term vision and the steps it is taking to achieve that vision.

For example, in 2010 Traphaco added five company-owned distribution branches. In early 2011, we expect it to become more vertically integrated by acquiring 100 per cent ownership of a manufacturing affiliate, while it continues to develop its network of company-owned distribution branches. Meanwhile, it continues to invest in the development of its brand. In our view, it is taking all of the right actions to achieve sustainable net-profit growth over the next five years.

Our short-term intention was to acquire 20 per cent ownership of Traphaco, and we’ve just achieved that. We might opportunistically buy more if the price is low enough, but we’re also comfortable holding 20 per cent. According to our estimates, the 2011 P/E of Traphaco is very low so for us it is an attractive valuation.

Another of VAF’s investments is Nam Long, a developer of low and middle-cost housing and townships. Nam Long will be listed in 2011. We’re also very excited about this company. It has a strong management team and is great at forming partnerships with foreign strategic partners and learning best practices from its partners.