VinaCapital Vietnam Opportunity Fund : VOF January 2018

Performance summary

NAV per share:

Change (Month-on-month)

Total NAV (million):

Share price:

Market cap (million):

Premium/(discount)

GBP/USD exchange rate as 31 December 2017: 1.35 GBP/USD exchange rate as 31 January 2018: 1.42 Source: Reuters

31 January 2018

USD GBP

6.03 4.24

9.24% 3.92%

1,195.4 840.6

5.18 3.64

1,026.0 722.5

-14.2% -14.2%

NAV per share (USD)

Share price (USD)

VN Index (USD terms)

MSCI Emerging market

MSCI Vietnam

3 mth 1 yr

3 yr

5 yr

• 25.5 42.3 85.0 121.2

• 29.3 51.8 106.5 152.5

• 32.7 58.4 80.6 111.6

• 12.1 37.5 30.5 17.4

• 39.3 73.9 58.8 48.5

CY 2018 2017 2016 2015 2014 2013

NAV per share (USD)

VN Index (USD terms)

9.2 32.1 25.5 1.2 8.4 15.3

12.8

48.4

13.4

0.9

6.6

20.5

Investee company

Hoa Phat Group (HPG)

Vinamilk (VNM)

Airports Corporaon of Vietnam (ACV)

Khang Dien House (KDH)

Phu Nhuan Jewelry (PNJ)

Vietjet Air (VJC)

Eximbank (EIB)

Ho Chi Minh Development Bank (HBD)

Petrovietnam Technical Services Corporaon (PVS)

Quang Ngai Sugar (QNS)

Total

*Capital market equies

% of NAVSector

• 16.3 Construcon materials

• 9.8 Food & beverage

• 7.8 Infrastructure

• 7.3 Real estate & construcon

• 6.1 Consumer discreonary

• 4.9 Industrials

• 3.5 Financial services

• 3.1 Financial services

• 2.7 Mining, oil & gas

• 2.6 Food & beverage

64.1

January: IPOs contribute to an exceponally strong start to the year

Vietnam's stock markets carried 2017's strong momentum into 2018, to start the year on an exceponally robust note in January, with the VN Index rising 12.8% (USD terms). Liquidity was strong, surging to an average of USD316 million per day, while foreigners were extraordinarily acve, net purchasing over USD300 million of Vietnamese equies - one of the highest monthly purchases in the history of the market.

Perhaps uncoincidentally, January was a very busy month for IPOs, as several large (market cap over USD1 billion each) state-owned enterprises went to the market. These included the owner of Vietnam's only operaonal oil refinery, a petrol staon operator, several power generaon companies, and a rubber group, with the oil-related companies aracng strong foreign interest.

VOF's net asset value (NAV) per share was USD6.03, an increase of 9.2% from the previous month. The discount between share price and NAV per share narrowed to 14.2%. The capital market poron of our porolio outperformed the VN Index.

The strong market and high valuaons gave us the opportunity to significantly trim a few of our holdings and re-deploy money into some of the government's equisaons. While we had ample cash to invest in all five of the IPOs scheduled for January, we were very selecve and only took part in two: Binh Son Refinery and PV Power. We believe the combinaon of a reasonable valuaon and significant medium-term growth potenal of these two companies offer a substanal upside to the starng IPO price. The following are some factors that made Binh Son compelling:

• • Binh Son Refinery (BSR) is the only operang oil refinery in Vietnam, controlling 33% of market share, with the remaining 67% of refined products imported. The refinery business tends to be less affected by oil price volality than other segments of the oil & gas sector.

• • BSR's esmated 2017 revenue and net profit are USD3.5 billion and USD350 million, respecvely.

• • The government sold 7.8% of the company in the equisaon, and strategic investors will subsequently be offered 49%. The strategic sale is expected to be within 12 months aſter the IPO.

• • The market cap of the company at the starng aucon price was USD2 billion, making it one of the largest companies in Vietnam. More importantly to our investment, the starng aucon price was very aracve, at an esmated 2017 P/E of 5.6x and 2017 EV/EBITDA of 3.8x compared to the current market P/E of 20x.

• • VOF's winning price was a discount of 4% compared to the average winning price of VND23,000 per share for the equisaon. VOF was able to secure around 10% of the available shares on offer with an investment of nearly USD25 million.

Historical share price, NAV and buyback acvity

10.0

VOFsharespurchased

(millions)

8.0

6.0

4.0

2.0

0.0

2012

2013

Shares bought back

VOF porolio by asset class

Listed equity (70.3%)

Private equity (7.0%)

Cash and others (1.1%)

Real estate projects (2.1%)

Operating assets (1.0%)

2014

VOF share price

7.00

6.00

5.00

4.00

3.00

2.00

1.00 -2015

2016

2017

Monthly NAV

VOF porolio allocaon by sector

Construction materials

Food & beverage

Real estate equities

Infrastructure

Financial services

Industrials

Consumer discretionary

Mining, oil & gas

Agriculture

Real estate projects

Pharma & healthcare

Operating assets

Cash and others

SharepriceandNAV(USD)

• • PV Power is the second-largest power generator in Vietnam, with total capacity of 4.2 GW (providing 10% of naonal capacity), and a current market cap of USD1.5 billion. PV Power's esmated 2017 revenue is USD1.3 billion, and its net profit is USD85 million (80% increase from 2016). The company sold 20% of its shares in the public IPO in late January, and plans to sell another 29% to strategic investors in February.

• • This is also an aracve investment with an esmated P/E of 11.5x at the stang price of VND14,400. VOF's investment in PV Power was more than USD20 million.

As a result of these transacons, our cash posion has reduced substanally, to 5.7% of NAV. The government has an ambious schedule of inial and secondary offerings in 2018, and we will connue to evaluate such opportunies. At the same me, we are in advanced negoaons regarding several private equity opportunies, and will announce should should an investment materialise.

In conjuncon with Maybank Kim Eng, the fund will be holding a "Vietnam Day" in London on 7 March 2018 at the May Fair Hotel, featuring senior representaves from several leading Vietnamese companies such as PNJ, FPT Retail, and HDBank, among others, as well as a presentaon from Andy Ho. For more informaon, please contact us.

Macroeconomic Commentary

Vietnam enjoyed ideal economic condions in January 2018, albeit with some distorons from the upcoming Vietnamese Lunar New Year in February. These distorons in January include a 47% year-on-year (yoy) increase in imports, a 42% yoy increase in tourist arrivals in January 2018, and a 30% yoy growth in cement producon. Typically, economic acvity in Vietnam accelerates in the lead-up to the New Year; however, we note that year-on-year comparisons in January should be taken with cauon as the Vietnamese Lunar New Year in 2017 took place in January as opposed to February in 2018.

That being said, Vietnam's economy is sll very strong and stable, with inflaon cking up from a 2.6% yoy rate in December 2017 to an increase of 2.7% in January 2018, as a result of gasoline prices increasing 6% during the month. The core consumer price index (CPI), excluding food and fuel prices, actually fell from 1.3% in December 2017 to 1.2% yoy in January 2018. volume, which lopped off about one-half a point from GDP growth.

Growth connues to be driven by personal consumpon (64% of GDP), which grew about 8.4% yoy and by manufacturing (15%/GDP), which grew at a 24% pace in January. The growth of Vietnam's manufacturing output accelerated throughout 2017, reaching approximately 20% yoy in the last quarter and 24% yoy growth in December 2017. Consequently, Vietnam's Nikkei Purchasing Managers' Index (PMI) recorded the highest level in Southeast Asia in January, with the pace of manufacturing employment growth reaching the highest pace in over a year.

This acceleraon in manufacturing growth is partly driven by Samsung's increase in producon, following the launch of its S8 smartphone in the middle of 2017. Samsung's highly-publicised issues with its S7 phone at the beginning of 2017 reduced its Vietnam-based producon by 38% in 1Q17, which in turn dented Vietnam's export growth in early 2017. Given that Samsung accounts for about a quarter of Vietnam's overall exports, in addion to the success of the S8 and the ming of the Lunar New Year this year, Vietnam saw an incredible 63% yoy surge in high tech exports during the reported month. The firm manufactures the majority of its smartphones in Vietnam, and the local business press relayed some comments in January from Samsung execuves to the effect that Vietnamese factory workers are nearly as producve as their Korean counterparts while wages in Vietnam remaining only 20% of those in Korea. We ancipate that the producon and export of high-tech items will connue to drive Vietnam's economic growth story for the foreseeable future.

Surveys of Vietnam's consumer confidence also hit all-me highs in 2017, which helped fuel the above menoned increase of personal consumpon, which was the other major factor that boosted GDP growth last year, as consumpon accounts for nearly two-thirds of Vietnam's economy. Consumpon was also buoyed by an esmated 65% surge in consumer lending last year, which raised the proporon of the banking system's overall credit extended to individuals from 12% in 2016 to 18% in 2017.

Finally, new regulaons compelled insurance companies to hold more long-dated bonds and led to a dramac 80bp decline in the yields of 10-Year Vietnam Government Bonds in January 2018 to approximately 4.5%. To put that figure in context, 10-Year government bond yields in both Indonesia and the Philippines are around 6%, despite the fact that both of those countries enjoy an investment grade credit rang, whereas Vietnam does not. Furthermore, inflaon in both Indonesia and the Philippines is nearly the same as in Vietnam.

Macroeconomic indicators

GDP growth1

Inflaon (%)

FDI commitments (USDbn)

FDI disbursements (USDbn)

Imports (USDbn)

Exports (USDbn)

Trade surplus/(deficit) (USDbn)

Exchange rate (USD/VND)

2017

Jan-18

6.8% 2.6% 35.9 17.5

0.5% 2.7%

1.3 1.1

211.1 213.8

20.0 20.2

2.7 22,655

0.2 22,675

Sources: GSO, Vietnam Customs, (data as of 20 Jan 2018), VCB |1. Annualised rate, updated quarterly

2018YTDY-O-Y

1.3 10.5%

1.1 -24.1%

20.0 51.9%

20.2 41.0%

7.0

6.0

5.0

4.0

3.0

2.0

1.0

0.0

2013

2014

2015

2016

Purchasing Managers' Index

2017

60

55

50

45

40

Jan-12

Apr-12

Jul-12

Oct-12

Jan-13

Apr-13

Jul-13

Oct-13

Jan-14

Apr-14

Jul-14

Oct-14

Jan-15

Apr-15

Jul-15

Oct-15

Jan-16

Apr-16

Jul-16

Oct-16

Jan-17

Apr-17

Jul-17

Oct-17

Registered and disbursed FDI, cumulave YTD (USDbn)

40.0

35.0

30.0

25.0

20.0

15.0

10.0

5.0

0.0

Disbursed (YTD)Registered (YTD)

(1,000)

(1,500)

(2,000)

(2,500)

1,500

1,000

(500)

500

-

Feb-15

Mar-15

Apr-15

May-15

Jun-15

Jul-15

Aug-15

Sep-15

Oct-15

Nov-15

Dec-15

Jan-16

Feb-16

Mar-16

Apr-16

May-16

Jun-16

Jul-16

Aug-16

Sep-16

Oct-16

Nov-16

Dec-16

Jan-17

Feb-17

Mar-17

Apr-17

May-17

Jun-17

Jul-17

Aug-17

Sep-17

Oct-17

Nov-17

Dec-17

Year-on-year and month-on-month inflaon (%)

YoY CPI

8 7 6 5 4 3 2 1 -

0.2 -0.1%

MoM CPI

MoM CPI

Source: GSO, Vietnam Customs, Bloomberg

1.2

1.0

0.8

0.6

0.4

0.2

0.0

(0.2)

(0.4)

(0.6)

(0.8)

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Important Informaon

This document, and the material contained therein, is not intended as an offer or solicitaon for the subscripon, purchase or sale of securies in VinaCapital Vietnam Opportunity Fund Limited (the "Company"). Any investment in any of the Companies must be based solely on the Admission Document of that Company or other offering document issued from me to me by that Company, in accordance with applicable laws.

The material in this document is not intended to provide, and should not be relied on for accounng, legal or tax advice or investment recommendaons. Potenal investors are advised to independently review and/or obtain independent professional advice and draw their own conclusions regarding the economic benefit and risks of investment in either of the Companies and legal, regulatory, credit, tax and accounng aspects in relaon to their parcular circumstances.

The securies of the Companies have not been and will not be registered under any securies laws of the United States of America nor any of its territories or possessions or areas subject to its jurisdicon and, absent an exempon, may not be offered for sale or sold to naonals or residents thereof.

No undertaking, representaon, warranty or other assurance, express or implied, is given by or on behalf of either of the Companies or VinaCapital Investment Management Ltd or any of their respecve directors, officers, partners, employees, agents or advisers or any other person as to the accuracy or completeness of the informaon or opinions contained in this document and no responsibility or liability is accepted by any of them for any such informaon or opinions or for any errors, omissions, misstatements, negligence or otherwise.

No warranty is given, in whole or in part, regarding the performance of either of the Companies. There is no guarantee that investment objecves of any of the three Companies will be achieved. Potenal investors should be aware that past performance may not necessarily be repeated in the future. The price of shares and the income from them may fluctuate upwards or downwards and cannot be guaranteed.

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Broker

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