CERAMIC TILES INDUSTRY REPORT 2020 - VCBs

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CERAMIC TILES INDUSTRY
    REPORT 2020
CERAMIC TILES INDUSTRY REPORT
                                                                                      2020

                                                   CERAMIC TILES INDUSTRY REPORT

  VIET NAM CERAMIC                                GROWTH FROM URBAN DEVELOPMENT AND HOUSING DEMAND
   TILES INDUSTRY
                                                  WORLD CERAMIC TILES INDUSTRY
            POSITIVE                          According to Ceramic World Review (CWR) data, based on the growth rate of output of the tiles
    TABLE OF CONTENTS                         industry in the past 40 years, along with the growth prospect of the world construction industry, we
                                              evaluate the world ceramic tiles industry is in the neutral phase.Despite that the level of growth in
 Ceramic Tiles Industry
                                              each region of the world varies significantly. Africa and Asia remained the main growth engines in
 Life cycle of world ceramic          2       global demand. The regions of North America and Australia seem to have gradually entered a period
 tiles industry                               of neutrality. Meanwhile, the European region has shown signs of entering a downturn in demand for
 World supply and demand of           3       ceramic tiles with a slowdown in 2008-2018 CAGR was -0.4%/year.
 ceramic tiles industry in recent
 years & Forecast 2020                        In the short and medium term, we forecast the growth of the world ceramic tiles industry is likely to
                                              maintain CAGR growth of 2020-2022 at less than 4% from slowdown of the world economic growth.
 Vietnam Ceramic Tiles
                                              Especially the number one manufacturer - China is still facing the risk of declining production when
 Industry
                                              running into difficulties: (1) forecasting of a slowdown in domestic growth, (2) tightening activities
 History of establishment and         7       on environmental issues from the Government and (3) tougher exports by trade war (Chinese tiles are
 development of stages of
                                              taxed at a rate 100-222% by US customs and increasing in anti-devaluation tariff by the Middle East
 Vietnam ceramic tiles industry
                                              countries (July 2016), the Philippines (July 2016) and Argentina (July 2016). According to CWR, in
 Life cycle of Vietnam ceramic        8
                                              2018, more than 137 Chinese ceramics manufacturer stopped operating.
 tiles industry

 Value chain of Vietnam               10      In this context, Africa and North America are expected to remain the main drivers of the world
 ceramic tiles industry                       ceramic tiles industry growth when developing countries in Africa will continue to develop
 Supply and demand of                 18
                                              commercial construction projects and grow housing demand. Besides, increasing demand from
 Vietnamese ceramic tiles &                   construction reinvestment in North America and Europe in the last three years.
 Forcast 2020
                                               VIETNAM CERAMIC TILES INDUSTRY
 Stock Recommendations
                                              The growth rate of Vietnam ceramic tiles industry is still at 8%/year CAGR 2015-2019 although it is
 CVT        BUY                       22      higher than the world ceramic tiles industry growth rate of 2%/ year, which was supposed to be gone
 VGC        POSITIVE                  24      into saturation phase. However, the growth rate in the past 5 years has been no longer growing fast
                                              compared to the previous periods CAGR 2000-2005: 17%/year and CAGR 2005-2010: 22%/year.
                                              We forecast the ceramic tile industry will reduce competitive pressure in 2020. Demand growth in
                                              2020: Based on CBRE estimate of the supply of 2H/2019 apartments in Hanoi and Ho Chi Minh City
                                              is expected to grow better. Besides, the construction industry's expectation in 2020 will maintain the
                                    Analyst   average growth rate of 6-8%/year, equal to the growth rate in 2019. While the supply of the whole
                          Trần Kỳ Anh
                                              industry is estimated to increase by 15.1 million m2 as of the increased capacity of factories starting
                   tkanh@vcbs.com.vn          operation between 2019 and in 2020 (Nam Dinh Granite Tiles: 1 production line, 3 million m2/year;
              +84-28 3820.8116 ext 642        Sao Do Ceramic Tiles: 1 production line, 4 million m2/year). Therefore, we expect that the demand
                                              for ceramic tiles in the whole industry in 2020 will improve better than in 2019. At the same time,
                  VCBS Report System          thanks to the improvement from the construction demand of H2/2019 will help the price of products
 www.vcbs.com.vn/vn/Services/Analysi          maintain the current selling price or only reduce slightly below 3%.
 sResearch
                                              It is forecasted that in the long-term, the ceramic tile industry will continue to grow thanks to
                                              urbanization and housing demand growth.

VCBS Research Department                                                                                                                      Page | 1
CERAMIC TILES INDUSTRY REPORT
                                                                          2020

 WORLD CERAMIC TILES INDUSTRY
                                I.       Life cycle of world ceramic tiles industry

                           FIGURE 1: World production of ceramic tiles in the period 1980-2018

                            Million m2

                            16.000            CAGR 1980-1995: 10.3%

                            14.000
                                                                           CAGR 1995-2000: 7.1%
                            12.000
                                                                                           CAGR 2000-2005: 6.9%

                            10.000
                                                                                                        CAGR 2005-2010: 6.4%

                             8.000
                                                                                                                   CAGR 2010-2015: 5.3%
                             6.000

                             4.000                                                                                    CAGR 2015-2018: 1.6%

                             2.000

                                 0
                                     1980
                                     1981
                                     1982
                                     1983
                                     1984
                                     1985
                                     1986
                                     1987
                                     1988
                                     1989
                                     1990
                                     1991
                                     1992
                                     1993
                                     1994
                                     1995
                                     1996
                                     1997
                                     1998
                                     1999
                                     2000
                                     2001
                                     2002
                                     2003
                                     2004
                                     2005
                                     2006
                                     2007
                                     2008
                                     2009
                                     2010
                                     2011
                                     2012
                                     2013
                                     2014
                                     2015
                                     2016
                                     2017
                                     2018
                           Source: Ceramic World Review, VCBS research

                                According to Ceramic World Review (CWR) data, based on the growth rate of output of the tiles
                                industry in the past 40 years, along with the growth prospect of the world construction industry, we
                                evaluate the world ceramic tiles industry is in the neutral phase.
                                In the period 1980-1995, thanks to the development of science and technology, the annual
                                compound growth rate (CAGR) of world ceramic tile production grew strongly, reached about
                                10.3%/year. Still, in the following periods, the average growth rate of annual ceramic tile production
                                tends to decrease over the years. According to Ceramic World Review, the CAGR growth rate in the
                                recent period 2015-2018, it was only 1.6%/year, a rapid decrease compared to the average growth
                                rate of the previous 5-year periods: CAGR 2000-2005: 6.9%/year; CAGR 2005-2010: 6.4%/year;
                                CAGR 2010-2015: 5.3%/year.
                                Despite that the level of growth in each region of the world varies significantly. In the period of
                                2008-2018, Africa and Asia remained the main growth engines in global demand for ceramic tiles
                                with remarkable growth rates of 6.1%/year and 4.7%/year, respectively, compared with the global
                                growth rate of only 2.1%/year. Nevertheless, after a long period of growth, in the past 5 years from
                                2013 to 2018, the growth rate of Asia has decreased rapidly to only 2%/year, approximately the rate
                                of growth of the world ceramic tiles industry at present.
                                In addition, the regions of North America and Australia seem to have gradually entered a period of
                                neutrality, with the CAGR compound growth rate of 2008-2018 only maintained at 2-4%/year.
                                Meanwhile, the European region has shown signs of entering a downturn in demand for ceramic tiles
                                with a slowdown in 2008-2018 CAGR was -0.4%/year.

VCBS Research Department                                                                                                                  Page | 2
CERAMIC TILES INDUSTRY REPORT
                                                                            2020

                           FIGURE 2: Consumption of ceramic tiles by region in the period of 2008-2018
                            Triệu m2

                             9.000                                                                                                                                      7%

                             8.000                                                                                                        6,1%                          6%

                             7.000                                                                                                                                      5%
                                                                                                                       4,7%
                                                                                                                                                                        4%
                             6.000
                                                                                                                                                              2,4%      3%
                             5.000                                        2,3%
                                                     2,0%                                                                                                               2%
                             4.000
                                                                                                                                                                        1%
                             3.000
                                                                                                                                                                        0%
                             2.000                                                                                                                                      -1%
                             1.000                                                               -1,7%
                                                                                                                                                                        -2%
                                   0                                                                                                                                    -3%
                                              Asia                 Euro              South America              NAFTA                Africa             Oceania

                                                                                 2008     2013      2018    CAGR 2013-2018

                           Source: Ceramic World Review, VCBS research

                           II.     World supply and demand of ceramic tiles industry in recent years & Forecast 2020
                            1.     World supply and demand of ceramic tiles industry in recent years
                           According to CRW statistics, in the period of 200-2018 the world of ceramic tiles industry was still
                           in oversupply situation. Even though the disparity between supply and demand had narrowed down
                           in a positive direction. At the time of 2000, the disproportion between supply and demand was 484
                           million m2, exceeding 10.6% of the demand. In 2010, the gap would have narrowed down to 3.3%.
                           In 2018, the production volume was 13,099 million m2 and the demand was 12,818 million m2, the
                           disparity was 281 million m2, only exceeding 2.2% of the demand. Because developed countries in
                           Europe and North America gradually tightened production control and environmental issues of
                           ceramic factories in the 21st century. As the world's number one producer of ceramic tiles in 2014,
                           China output has started to cut when competition in the industry is quite fierce, along with the
                           tightening of environmental policies from its government.

                           FIGURE 3: Supply and demand of the world ceramic tile industry 2000-2018

                            Triệu m2

                             16.000                                                                                                                                    12%

                             14.000               10,6%
                                                                                                                                                                       10%
                             12.000
                                                                                                                                                                       8%
                             10.000

                                 8.000                                                                                                                                 6%
                                                                   5,1%
                                 6.000
                                                                                                                                                                       4%
                                                                                                         2,4%      3,3%
                                 4.000                                               3,1%                                                                            2,2%
                                                                                                                              2,5%               2,1%       2,1%
                                                                                                                                                                        2%
                                 2.000                                                                                                 1,5%
                                                                                                 1,5%
                                       0                                                                                                                               0%
                                           2000             2005                  2010      2011     2012       2013     2014    2015         2016   2017     2018

                                                                                 Supply            Demand               % gap/demand

                           Source: Ceramic World Review, VCBS research

VCBS Research Department                                                                                                                                             Page | 3
CERAMIC TILES INDUSTRY REPORT
                                                                           2020

                           In 2018, China's output and demand decreased by 11.2% yoy and 12.0% yoy, respectively, due to
                           the country's real estate freezing starting in 2017, besides the slowdown of Chinese economic
                           growth rate has also affected the demand for reinvestment, thereby affecting the demand for
                           construction. In addition, tighter environmental control policies and fierce competition have caused
                           many difficulties to the Chinese ceramic tiles factories. According to CWR data, in 2018, more than
                           137 tiles manufacturers in China stopped operating.

                           FIGURE 4: Supply and demand by regions

                            100%      3%                       3%                           4%
                                      2%              6%       3%              6%                           5%           5%             7%       5%              7%
                                                      4%                       4%           3%              4%           3%                      3%
                             90%      10%                      10%                          8%                           8%             4%       8%              4%
                                                      11%                      11%                          9%                          9%                       9%
                             80%      14%                                                   14%
                                                               14%                                          12%         15%                      15%
                                                      12%                      12%                                                      12%                      12%
                             70%
                             60%
                             50%
                             40%
                                      70%             68%      70%             67%          71%             69%         70%             68%      69%             66%
                             30%
                             20%
                             10%
                              0%
                                     Supply          Demand   Supply          Demand       Supply          Demand      Supply          Demand   Supply          Demand
                                              2014                     2015                         2016                        2017                     2018

                                                               Asia      Euro        South Ameria     NAFTA         Africa    Oceania

                           Source: Ceramic World Review, VCBS research

                           In terms of supply and demand by region, Asia is the the largest supplier in the world, with a share
                           of about 65-70% of the total world output, due to the advantage of large resources and
                           environmental policies are not really well controlled. At the same time, Asia is also the second
                           largest oversupply compared to demand in absolute terms. In 2018, according to CRW data, the
                           disparity between supply and demand in the area was about 469 million m2.
                           Ranked at second place in terms of production output, Europe accounts for 15% of world production
                           share, recorded an oversupply of 560 million m2 in absolute terms, ranked at first place in net export
                           output.
                           In the opposite direction, North America, South America, Africa and Australia are shortage of
                           supply and have to import from Asia and Europe.

VCBS Research Department                                                                                                                                        Page | 4
CERAMIC TILES INDUSTRY REPORT
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   FIGURE 4: Supply and demand by regions (million m2)

   Source: Ceramic World Review, VCBS research

                                       In terms of supply and demand between countries: According to CRW data in 2018, tile production
                                       in the top 10 countries accounted for nearly 81% of the total world supply. In particular, China is
                                       currently the dominant country in production output with over 5,683 million m2, accounting for
                                       43.4% of world production. The following positions are India 8.7% and Brazil 6.1%. Vietnam is
                                       currently the fourth largest country in the world in production output, in 2018 Vietnam's output
                                       reached 602 million m2, accounting for 4.6% of world production.

     TABLE 1: World production and consumption by countries 2016-2018 (million m2)
                                                              % on                                                                     % on
                                                              2018       +/-                                                            2018       +/-
      Stt     Production     2016      2017        2018       world     2018/        Stt        Tiêu thụ   2016     2017     2018      world      2018/
                                                            productio   2017                                                          comsum      2017
                                                                n                                                                      ption
       1    China             6.495     6.400       5.683      43,4%    -11,2%       1     China            5475     5498     4840       36,9%    -12,0%
       2    India               955     1.080       1.145       8,7%     6,0%        2     India             785      760      750       5,7%      -1,3%
       3    Brazil              792       790        793        6,1%     0,4%        3     Brazil            706      708      702       5,4%      -0,8%
       4    Viet nam            485       560        602        4,6%     7,5%        4     Viet Nam          412      580      542       4,1%      -6,6%
       5    Spain               492       530        530        4,0%     0,0%        5     Indonesia         369      336      450       3,4%      33,9%
       6    Italia              416       422        416        3,2%     -1,4%       6     US                274      284      289       2,2%       1,8%
       7    Indonesia           360       307        383        2,9%     24,8%       7     Egypt             215      252      254       1,9%       0,8%
       8    Iran                340       373        383        2,9%     2,7%        8     Turkey            241      254      239       1,8%      -5,9%
       9    Turkey              330       355        335        2,6%     -5,6%       9     Mexico            235      242      236       1,8%      -2,5%
       10   Egypt               250       300        300        2,3%     0,0%        10    Iran              169      170      230       1,8%      35,3%
      TOTAL                            11.117      10.570      80,7%     6,9%        TOTAL                  8.881    9.084    8.532     65,1%      -6,1%
      TOTAL WORLD                      13.587      13.099     100,0%     5,7%        TOTAL WORLD           13.056   13.587   13.099    100,0%      -3,6%
     Source: Ceramic World Review, VCBS research

VCBS Research Department                                                                                                                         Page | 5
CERAMIC TILES INDUSTRY REPORT
                                                                                       2020

                                       Also according to figures from this journal, the list of the top 10 consuming countries accounts for
                                       more than 65% of world consumption, which includes: China (density: 36.9%), India (5.7%), Brazil
                                       (5.4%), Vietnam (4.1%) have led the way in producing and consuming. In addition to the four
                                       countries mentioned above, the other countries in the top list of consumption volume are Indonesia,
                                       Turkey, and Egypt, which also have good production capacity and are capable of meeting large
                                       domestic demand.

     TABLE 2: World export-import by countries 2016-2018 (miliion m2)
                                                                  % on                                                                                % on
                                                                                                                                                                +/-
                                                                  2018    +/- 2018/                                                                   2018
      No           Export    2016      2017         2018                                     No        Import        2016        2017       2018               2018/
                                                                 world      2017                                                                      world
                                                                                                                                                               2017
                                                                 export                                                                              import
       1    China             1.025       908          854        31,1%      -5,9%           1    US                      194      202        209       7,6%    3,5%
       2    Spain              395        407          414        15,1%       1,7%           2    Iraq                    112      129        124       4,5%    -3,9%
       3    Italia             332        338          328        11,9%      -3,0%           3    Saudi Arabia            167      131        113       4,1%   -13,7%
       4    India              186        228          274        10,0%      20,2%           4    France                  104      112        108       3,9%    -3,6%
       5    Iran               126        148          151         5,5%       2,0%           5    Germany                 115      109        106       3,9%    -2,8%
       6    Brazil              94           90        100         3,6%      11,1%           6    Philippines              75       82         91       3,3%   11,0%
       7    Turkey              81           93        100         3,6%       7,5%           7    Indonesia                57       64         77       2,8%   20,3%
       8    Mexico              56           53         46         1,7%     -13,2%           8    Korea                    75       78         77       2,8%    -1,3%
       9    Poland              46           45         43         1,6%      -4,4%           9    Israel                   57       58         61       2,2%    5,2%
      10    UAE                 48           46         42         1,5%      -8,7%           10   Thailand                 54       55         57       2,1%    3,6%
      TOTAL                   2.389     2.356        2.352        85,6%      -0,2%           TOTAL                       1.010    1.020      1.023     37,3%    0,3%
      TOTAL WORLD             2.788     2.752        2.749       100,0%      -0,1%           TOTAL WORLD                 2.788    2.752      2.745   100,0%    -0,3%
     Source: Ceramic World Review, VCBS research

                                       Even though China is on top in terms of export volume, with export volume reaching 854 million m2
                                       in 2018, accounting for 31.1% of the world export. Italy is the leader with over 4.9 billion euros and
                                       ranked third in the world export output, in terms of export value. The same group of high-value
                                       products, Spain is ranked second in terms of export volume with 414 million m2 and the third in
                                       export value with 2.7 billion euros. According to statistics from CWR, the total export output of the
                                       top 10 countries accounts for nearly 86% of the world export.
                                       In the top list of importing countries, the US ranked first in terms of import volume with 209 million
                                       m2 in 2018, accounting for 7.6% of world import volume. In the following positions, Iraq (4.5%),
                                       Arabs (4.1%), France (3.9%) are the countries that play an important role in import activities.
                                        2.        Forcast 2020

                                                  FIGURE 5: Forecast of world ceramic tile production growth
                                                    Million m2

                                                     16.000
                                                     14.000
                                                     12.000
                                                     10.000
                                                      8.000
                                                      6.000
                                                      4.000
                                                      2.000
                                                           0
                                                                                      2018                                           2023

                                                                                                  Supply        Demand

                                                  Source: VCBS research

VCBS Research Department                                                                                                                                       Page | 6
CERAMIC TILES INDUSTRY REPORT
                                                                  2020

                           In the short and medium term, we forecast the growth of the world ceramic tile industry is likely to
                           maintain CAGR growth of 2020-2022 at less than 4% from slowdown of the world economic
                           growth. Especially the number one manufacturer - China is still facing the risk of declining
                           production when running into difficulties: (1) forecasting of a slowdown in domestic growth, (2)
                           tightening activities on environmental issues from the Government and (3) tougher exports by trade
                           war (Chinese tiles are taxed at a rate 100-222% by US customs and increasing in anti-devaluation
                           tariff by the Middle East countries (July 2016), the Philippines (July 2016) and Argentina (July
                           2016). According to CWR, in 2018, more than 137 Chinese ceramics manufacturer stopped
                           operating.
                           In this context, Africa and North America are expected to remain the main drivers of the world
                           ceramic tiles industry growth when developing countries in Africa will continue to develop
                           commercial construction projects and grow housing demand. Besides, increasing demand from
                           construction reinvestment in North America and Europe in the last three years.

  VIETNAM CERAMIC TILES INDUSTRY

                           I.    History of establishment and development stages of Vietnam ceramic tiles industry
                           The period 1961- 1986: formation
                           Vietnam ceramic tile industry has established and developed for 60 years, the milestone of the
                           Vietnamese ceramic tile industry marked by the establishment of Thanh Tri factory in 1961- the
                           precursor of Viglacera Thanh Trì Joint Stock Company. In 1962, Vietnam's first glazed tiles
                           decorated at Ba Dinh Hall recorded a new advance in Vietnam's construction materials industry.
                           In the following years, the establishment of Long Hau Tile and Tile Factory (precursor of Long Hau
                           Ceramic Joint Stock Company) in Thai Binh (1968), Thanh Thanh Ceramic Factory in Dong Nai
                           (1969), improved national productivity is about 200,000 m2/year. At that time, while, the production
                           equipment was just taking advantage of the equipment after the war. Therefore, before 1994, all
                           production facilities in our country could not produce floor tiles, they only produced wall tiles with
                           small size of 100x100. At the same time, the production cost of ceramic tiles was very high, but the
                           quality was quite low.
                           The period 1986-2000: development
                           In 1986, Vietnam began renovation process, changing from a centrally planned economy to a market
                           economy. Through the Law on Foreign Investment (1987) and the Law on Enterprises (1990), the
                           Government has facilitated attracting FDI to invest in the domestic ceramic tile industry. In 1994,
                           Taicera was the first foreign enterprise to invest in a ceramic factory in Vietnam, along with a series
                           of private ceramic company were established during this period. According to data from the
                           Vietnam Ceramics Association (VIBCA), by 2000, there were 26 enterprises in the country, with a
                           total design capacity of 68.5 million m2/year. We estimate production volume to increase about
                           92%/year in the period of 1986-2000.
                           Along with the growth of output, the technology has also developed significantly. Thanks to the
                           expanded import-export market, domestic enterprises have accessed to advanced production lines
                           from Italy and Spain. In 1994, Huu Hung Company is the first company applying the modern
                           production line, Welko Italia. Then, the world leading brands in the field of ceramic equipment are
                           Siti Nasatti and Sacmi exported to Vietnam. At that time, the quality of domestic ceramic tiles has
                           reached the global standard. In particular, a number of prominent companies in terms of quality such
                           as Taicera, Hoang Gia and Dong Tam have focused on exporting to international markets.

VCBS Research Department                                                                                                   Page | 7
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                           The period 2000-2010: competition with China
                           In this period, the average capacity of factories in Vietnam is about 1-5 million m2/ year, increasing
                           by about 1.5-2 times compared to the previous period. Nevertheless, compared with the factories in
                           China or India, the capacity of domestic factories is quite low. At the same time, domestic
                           enterprises have not focused on R&D activities, hence goods are less diverse in form and design.
                           They were always endured from wildly blows from imported products from Europe (Italy, Germany,
                           and Egypt) and especially from cheap Chinese products.
                           With the advantage of huge scale production, Chinese products was 30% lower price than domestic
                           products, with a variety of designs that can meet all segments, Chinese tiles have dominated the
                           Vietnamese market. According to data from the General Department of Customs, in 2010 the
                           imported value of Vietnam's ceramic tiles was 95.5 million USD, of which up to 76 million USD
                           was imported from China, estimated to account for more than 50% of market share in Vietnam.
                           According to CRW data, the total production output of the whole country in 2010 reached 370
                           million m2, the CAGR compound growth rate of production output in the 2000-2010 period is about
                           21%/year.
                           The period 2010- present: affirmation
                           In 2010, encountering the massive movement of Chinese imports, the Ministry of Industry and
                           Trade imposed a tariff of 20-40% on Chinese tile products. Nevertheless, through the unofficial
                           routes and incorrect declaration of values and quantities, by 2012, Chinese tiles still dominate the
                           Vietnamese market.
                           In this period, domestic manufacturers have to take strong steps through the construction and
                           expansion of the factory much larger than the existing capacity. Along with the expansion of the
                           factory, modern and advanced technology lines are always updated by manufacturers in order to
                           increase competitive abilities such as: Prime 80 million m2, Vitto 36 million m2, Nice Ceramic 30
                           million m2, Viglacera with 25 million m2 ... This not only helps Vietnamese businesses improve
                           their competitiveness and retake the domestic market from Chinese manufacturers, furthermore,
                           Vietnam has become the top 5 of the world' ceramics manufacturing countries in 2012 and moved to
                           the top 4 position in 2017.
                           Since 2014, Vietnam has always maintained its position on the world map of ceramic tiles. In 2018,
                           the total production of Vietnam ceramic tiles reached 602 million m2, accounting for 4.6% of the
                           world output, CAGR 2010-2018 is estimated at 6.1%/year.
                           II.       Life cycle of Vietnam ceramic tiles industry
                           We identify that Vietnam ceramic tiles industry went through a period of rapid growth and
                           has came to a period of steady growth with the following characteristics:
                                      The growth rate of Vietnam ceramic tiles industry is still at 8%/year CAGR 2015-
                                       2019 although it is higher than the world ceramic tiles industry growth rate of 2%/ year,
                                       which was supposed to be gone into saturation phase. However, the growth rate in the past
                                       5 years has been no longer growing fast compared to the previous periods CAGR 2000-
                                       2005: 17%/year and CAGR 2005-2010: 22%/year.

VCBS Research Department                                                                                                  Page | 8
CERAMIC TILES INDUSTRY REPORT
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                           FIGURE 5: Vietnam consumption of ceramic tiles 1995-2019
                             Million m2

                            600      CAGR 1995-2000: 92%

                            500
                                                                                         CAGR 2005-2010: 22%
                                                            CAGR 2000-2005: 17%
                            400

                            300

                            200                                                                                                           CAGR 2015-2019: 8%

                            100
                                                                                                                     CAGR 2010-2015: 4%
                              0

                           Source: Ceramic World Review, VCBS research

                                             Although the double-digit growth rate does not maintain any more, it is forecasted
                                              that in the medium-term 3-5 years, the demand for ceramic tiles can still sustain the
                                              CAGR compound growth rate of 2020-2025 at 6 %/year. As the expectation that the
                                              growth rate of construction industry in the whole country will continue to play an important
                                              role, in parallel with the GDP growth rate of the whole country is forecasted at a feasible
                                              level of 7-7.5%/year (National Community Investment Fund _NCIF).

                                                 FIGURE 6: Tốc độ tăng trưởng xây dựng Việt Nam

                                                           10,8%

                                                                          10,0%            9,2%
                                                                                  8,7%
                                                                                                      8,3%                           2020-2025F: 7-8%

                                                      2015         2016       2017       2018     9T/2019E   2020F   2021F   2022F     2023F    2024F   2025F

                                                 Source: Bộ Xây Dựng, VCBS research

                                             Number of new participants entering the industry gradually to zero: From 2013-2019,
                                              only 03 new enterprises were established: Tasa (Phu Tho-2013), TTC Joint Stock Company
                                              (Hung Yen-2014), A My Joint Stock Company (Vinh Phuc-2015). It is noteworthy that in
                                              the past four years, there are no new enterprise's entry into the industry, while the industry
                                              growth shrink to a one-figure level and the average rate of return on average investment is
                                              not attractive anymore, at 10-15%/year.

VCBS Research Department                                                                                                                                  Page | 9
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                           III.   Value chain of Vietnam ceramic tiles industry

                            1.    Input
                            According to COGS of listed ceramic tiles companies in 2018 (VGC, TTC, VIT, CVT, VIH, TTL),
                            energy cost is the highest input cost in manufacturing activities of Vietnamese ceramic tiles
                            enterprises account for 35-40% of cost, 5-10% higher than the average in some European countries,
                            the reason is attributed to the shortage of thermal coal and domestic CNG and LPG gases which
                            forces manufacturers to use imported sources. The remaining costs are: raw materials account for
                            about 25-30% of cost structure, labor costs about 20-25%, other production costs account for 10-
                            15% of cost structure.

                                          FIGURE 7:COGS structure of ceramic tile manufacturing in Vietnam

                                                                                Other
                                                                              production
                                                                                 costs
                                                                               10-15%               Raw material
                                                                                                      25-30%

                                                                     Labour
                                                                     20-25%

                                                                                           Energy
                                                                                           35-40%

                                          Source: Số liệu các công ty niêm yết, VCBS research

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                           1.1. Materials
                           At present, it is considered that the input sources of clay, kaolin and quartz are the biggest strength
                           of Vietnam's ceramic tiles industry in value chain when it can almost meet the entire long-term
                           production demand of domestic.
                           Clay
                           Clay and kaolin are components that account for a major proportion of volume in ceramic tiles,
                           classified as flexible materials, shaping tile products. In the production of porcelain and granite tiles,
                           kaolin are mostly used than clay in ceramic tile production. The using of large amounts of kaolin
                           makes the tile body white after firing. It is higher aesthetic than the red colour of clay, thus
                           increasing the value of tiles.

                                          TABLE 3: Ceramic & granite tile fomulation

                                           Tỷ trọng NVL xương gạch                     Ceramic          Granite

                                           Kaolin & clay                               60-70%           30-50%
                                           Feldspar                                    35-45%           50-60%
                                           Quarzt                                      < 10%             < 10%
                                           The others                                   < 2%             < 2%
                                          Source:VCBS research

                           According to VIBCA data, our country's red clay reserves are enormous with 184 mines, total
                           reserves of up to 1.1 billion tons are distributed evenly throughout the country. In the contrast to red
                           clay, the total number of white clay mines in the country is quite limited, only about 27 mines, with
                           reserves of 38.2 million tons. Therefore, the source of red clay is being taken advantage by
                           manufacturers to produce ceramic products with low prices and types of tiles, which do not require
                           high strength.
                           Kaolin
                           Vietnam is a country with abundant reserves of kaolin resources, ranked 4th in the world among the
                           top kaolin mining countries in the world. According to Decision 45/2012/QĐ-TT on “Approving the
                           planning of exploration, mining, processing and use of minerals in construction until 2025”,
                           Vietnam currently has a total of 378 kaolin mines, with a total reserve of up to 850 million tons, are
                           mostly located in the Northeast and Red River Delta. With a production capacity of about 2 million
                           tons of kaolin per year (Ministry of Construction, 2017), it is expeted that the domestic kaolin source
                           can meet the long-term production needs in Vietnam.
                           Although our kaolin resources are quite large and widely distributed, only a few provinces are
                           suitable for developing production and processing zones of focused and high-volume Kaolin, which
                           meet up ceramic tile factories in terms of reserves, quality, and geographical location, including: Phu
                           Tho, Quang Ninh, Quang Nam, Lam Dong, Binh Duong, Lao Cai, Yen Bai, Thai Nguyen, Hai
                           Duong, Quang Binh and Thua Thien Hue. In particular, according to the development orientation of
                           the Ministry of Construction for 5 provinces of Phu Tho, Quang Ninh, Quang Nam, Lam Dong and
                           Binh Duong is prioritized to develop into key kaolin processing areas with a capacity of between
                           100,000 and 500,000 tons/year.
                           Feldspar
                           Feldspare plays a particularly important role in increasing the water resistance and solidity of
                           porcelain and granite tiles. These are also the remarkable features of porcelain and granite tiles

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                           compared to ceramic tiles, bringing higher value to these two product lines.
                           According to Decision 45/2012/QĐ-TT, the total reserve of the mines in Vietnam has explored
                           about 84 million tons, of which: Northern Midland and Mountain region reserves about 46.3 million
                           tons, accounting for the largest proportion in the country (about 55.1% of the total national
                           resources). Thanks to good quality, it is being exploited, processed and provided for many facilities
                           in the surrounding regions and Red River Delta region.

                           FIGURE 8: Distribution of material soucres of ceramics production

                           Source: Decision 45/2012/QĐ-TT, VCBS research

                           Frit
                           Frit is the raw material for engobe coating and enamel coating for ceramic tiles. Before 2000, frit
                           raw materials for ceramic tile production in Vietnam had to be imported from abroad. By 2000
                           Vietnam had the first frit manufacturing company in operation, Hue Frit Joint Stock Company, but
                           the original design capacity was only 3,000 tons/year, which only met about 15% of the market
                           demand (estimated from the Ministry of Construction) and mainly produce basic frit types.

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                           After nearly 20 years of development, according to our statistics, Vietnam currently has 06
                           companies specializing in frit production with a total capacity of about 392,000 tons/year with a
                           variety of quality and types. There are no official statistics of the use in nation as well as imports of
                           domestic ceramic enterprises. Nevertheless, according to the discussion with a small group of
                           enterprises in the industry, the rate of imported frit is still relatively high at nearly 40%, mainly from
                           China, Spain, Thailand and Germany for the production of special tiles body and quality granite
                           products.

                                           TABLE 4: List of frit manufacturing enterprises in Vietnam
                                                                                                              Capacity
                                              No                   Enterprise                   location
                                                                                                             tonne/year
                                               1      Frit Huế JSC                         Thừa Thiên Huế       130.000
                                               2      Fritta Việt Nam LLC                  Bà Rịa Vũng Tàu      100.000
                                               3      Vinafrit JSC                         Thái Bình             40.000
                                               4      Frit Phú Xuân JSC                    Thừa Thiên Huế        22.000
                                               5      Prime Phong Điền JSC                 Thừa Thiên Huế        40.000
                                               6      Vitto LLC                            Thừa Thiên Huế        60.000
                                           Source: VCBS research

                           1.2. Energy
                           Energy cost plays an important role in the production of ceramic tiles in Vietnamese when it is
                           estimated to account for 35-40% of the production cost. Currently, the main fuel sources providing
                           heat for ceramic tiles production include anthracite coal or CNG, LPG depending on the region of
                           production. In Vietnam, most of the old production lines use coal to provide heat and are tending to
                           switch to using gas to improve product quality and reduce costs and maintenance time. In addition,
                           Northern enterprises using gas often use LPG, compared to some Southern enterprises that can use
                           CNG directly supplied by pipelines to the factory.

                           FIGURE 9: Fluctuation of thermal coal and LPG prices in the period of 2018-2019

                              USD/tonne                                                                                    USD/tonne

                                140                                                                                              90

                                120                                                                                              80
                                                                                                                                 70
                                100
                                                                                                                                 60
                                 80                                                                                              50
                                 60                                                                                              40
                                                                                                                                 30
                                 40
                                                                                                                                 20
                                 20                                                                                              10
                                  0                                                                                              0

                                                                                Coal (L)    LPG (R)

                           Source: Bloomberg, VCBS research

                           Currently, domestic coal and CNG-LPG production can only meet a part of domestic demand
                           (according to TKV's data, in 2018 Vietnam only met 91% of domestic coal demand. According to
                           data of the Ministry of Industry and Trade 2017, domestic gas production can only meet 40% of
                           domestic demand). Hence, the production of Vietnamese ceramic tiles is partly affected by
                           fluctuations in world coal and gas prices.

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                           According to Bloomberg data, the average price of thermal coal 6,500 cal/kg and LPG in 2019 is
                           respectively 79 USD/ton and 56 USD/ton, decreased 26% and 17% compared to 2018.
                           2. Manufacturing process
                           2.1. Manufacturing process
                           Due to the relatively simple nature of the manufacturing process of ceramic tiles, the machines are
                           relatively similar is used among companies. Therefore, companies in the tiles industry have little
                           difference in technology so that they create a competitive advantage compared to competitors.
                           Step 1: Raw material processing
                           Material preparation is a process of synergized mixtures of materials in both chemical and physic, in
                           order to increase solidity and reduce the possibility of cracking and error in the next steps.
                           Initially, clay and minerals will be dried mixed according to a certain formula, depending on the
                           production of ceramic and porcelain tiles, the proportion of particles will be different and this is also
                           the most different factor in the process of manufacturing ceramic and porcelain tiles.
                           The mixture will then be processed with water and
                           electrolytes in a ball mill to form a liquid slurry, then
                           incubated and stirred for 24 hours in tanks to increase the
                           homogeneous process. The slurry from the tanks will be
                           transferred to the spray-drying system to form a fine
                           powder mixture through the spray-drying system at 110-
                           13000 C. The mixture continues to be screened through a
                           sieve system before being transferred to silos for the
                           forming stage.
                           Step 2: Forming
                           The fine powder mixture with moisture content of 5-15% will then be transferred from silos to
                           plastic molds to shape the tiles through the hydraulic
                           system. Tiles formed at this stage are called “biscuit”.
                           Currently, the sizes of these are quite diverse, the most
                           popular ones are sizes of 40x40, 50x50, 60x60, 80x80,
                           25x40, and 30x60. Also, in the past 05 years, with the
                           support of technology and increasing of taste, Vietnamese
                           enterprises have started to produce large sizes of 80x80
                           and 60x120 (60x120: Vitto Company).
                           Step 3: Drying
                           Drying aims to avoid the sudden loss of moisture content of the products during the firing process
                           that resulting in shrinkage in size, warping or cracking of the tiles.
                           The average drying time is about 45-75 minutes with the maximum temperature of 2500 C, tiles
                           temperatures after drying range from 90 to 1100 C will be reduced and surface cleaning through the
                           misting system before glazing and decorating
                           Step 4: Glazing & decorating
                           Biscuits after misting will continue to go through rotary disc (or bell) to glaze. Glazes, which
                           resemble glass in structure and texture, provide a smooth, shiny surface that seals the ceramic body
                           that increases the mechanical and chemical durability of the product and protect the product from
                           being penetrated by liquid and gas. The glazing makes the surface of tiles smooth and beautiful,
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                           improving the quality of the product. Then the glazed tiles will go through the decorative printer to
                           enhance the aesthetics of the glaze surface.
                           However, not all ceramic tiles are glazed, some of which are designed to look like natural stone are
                           often unglazed to retain the rough surface.
                           Step 5: Firing
                           The firing of the product under the melting temperature aims to release gases and transform the
                           crystal structure. Tiles are fired at high temperatures of 1050 - 1200 ºC in the kiln.
                           The kilns can be classified by periodic or continuous process. With current production technology,
                           manufacturers of the world and Vietnam only adopt continuous process instead of periodic process,
                           with the advantage of improving the quality of products.
                           Currently, Continuous kiln technologies are often used
                           such as: roller kilns, shuttle furnaces, tunnel kilns. Yet,
                           with a dedicated design for tiles manufacturing, roller
                           kilns are currently the most widely used kiln in tiles
                           factories.
                           2.2. Manufacturing operations in Vietnam
                           According to VIBCA statistics in 2019, our country has
                           54 enterprises operating in the field of tiles manufacturing with a total capacity of 703.5 million m2.
                           In which, the Red River Delta are the leading in the number of factories and the capacity because of
                           the advantage of being close to the raw material area as well as the highest construction value in
                           Northern. In 2019, the total designed capacity will reach 362.5 million m2 / year. This includes
                           292.5 million m2 of ceramic tiles and 70 million m2 of porcelain and granite tiles. Accounting for
                           52% of the whole industry's capacity.
                           The Southeast is the region with the second largest design capacity in Vietnam, with the capacity up
                           to 167.5 million m2/year, including 113.5 million m2 of ceramic tiles; 54 million m2 of porcelain and
                           granite tiles, accounting for 24% of the whole industry's capacity. Although the Southeast is not
                           close to source of raw materials, this area always leads the country in annual construction value.
                           Northern Midland and Mountain Region have design capacity of up to 65 million m2/year, including
                           53 million m2 of ceramic tiles and 12 million m2 of porcelain and granite tiles. Northern Midland
                           and Mountain Region are the third largest tile production areas in the country with great advantages
                           of reserves and the qualities of kaolin, clay and feldspar mines.
                           The remaining areas including North Central, South Central and Mekong River Delta currently have
                           a total design capacity of less than 50 million m2/year. Especially, the Mekong Delta has only 2
                           enterprises with a total design capacity of 10 million m2/year.

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                                           FIGURE 10: Detailed design capacity of region-region ceramic tiles in 2019

                                           Source: VIBCA, VCBS research

 FIGURE 11: Capicity by region in 2019                                       FIGURE 12: Capacity by type in 2019

                      South Central Mekong River
                         Coast         Delta
          North Central    7%           1%                                                       Granite
               7%                                                                                 21%

          Northern
         midland and
         mountainous
             9%                                               Red River
                                                                Delta
                                                                                                             2019
                                                                52%

                                                                                                                        Ceramic,
                                                                                                                        Pocelain
                  Southeast                                                                                               79%
                    24%

 Source: VIBCA, VCBS research                                                Source: VIBCA, VCBS research

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                           Some characteristics of the Vietnamese ceramic tiles industry
                                       Operating to maximize capacity, because energy cost is the largest proportion of cost of
                                        ceramic tiles production, so most factories have to operate at 100% or more to optimize
                                        cost, athough the ceramic tiles industry is in the period of oversupply.

                                       The technology used is outdated, currently the number of ceramic tiles production lines is
                                        estimated to account for over 50% of the whole industry capacity, most of which have been
                                        operating for 10-20 years, with design capacity of less than 2 million m2/year, can only
                                        produce tiles with small size and cannot optimize energy cost.
                                       Tile products mainly serve the domestic market, although the production capacity of
                                        ceramic tiles in Vietnam is among the top in the world. They are mostly consumed in the
                                        domestic market due to the fact that the price of our products is unable to compete at World
                                        market, compared to other countries such as China and India in the segment of middle-class
                                        tiles. Currently, only a small number of domestic ceramic tile enterprises (mostly FDI
                                        enterprises) have been developed their export markets quite well over the past years: Prime,
                                        Pancera, Taicera, Hoang Gia, and Bach. Saint, Tasa, Mikado, Viglacera.
                           3.         Output
                           3.1.       Domestic market share of ceramic tiles
                           According to VIBCA research, before 2012, Chinese tiles held over 50% domestic share. However,
                           in recent years, the number is only less than 20% of annual consumption (estimated by VIBCA,
                           2018) thanks to the expansion of scale and technology of Vietnamese enterprises. In addition to
                           safeguard tax policies and strict control of border trade caused Chinese tile products have been
                           constrained.
                           Domestic enterprises are increasingly taking up a large market share, with prominent names such as
                           Prime estimated to account for about 8% of Vietnam's tile market share with high-class tiles segment
                           (VCBS estimates), Vitto accounts for approximately 6%, Mikado about 6%, Royal 6%, Viglacera
                           5% ...

                           FIGURE 13: Vietnam's market share of ceramic tiles in 2018

                                                                                         Imported from China
                                                                                                20%
                                         The others
                                           35%

                                                                                                                  Prime Group
                                                                                                                      8%

                                                                                                                        Vitto
                                                                                                                        7%

                                                                                                               Mikado
                                        Nice Ceramic                                                            7%
                                             4%
                                                       Toko
                                                        4%      Tasa       Viglacera        Royal
                                                                4%            5%             6%

                           Source: VIBCA, VCBS ước tính

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                                        3.2. Import-export of Vietnam ceramic tiles
                                        According to data of the General Department of Customs, in 2018, Vietnam's export value of
                                        ceramic tiles reached 205.1 million USD, a slight increase of + 1% yoy. In particular, the two main
                                        export markets of Vietnam are Thailand and Taiwan, recorded a slight decrease in export value in
                                        2018, accounting for 13% and 11% of the export value in 2018, respectively. While the next three
                                        countries of Vietnam's most important export values are South Korea (accounted for 7%),
                                        Philippines (7%) and Indonesia (7%), recorded a positive growth compared to 2017.

 FIGURE 13: The proportion of Vietnam's export of paving tiles by
                                                                            FIGURE 14: The proportion of Vietnam ceramic tiles import by value
 value
                                                                                                            Indonesia The others
                                                Thailand
                                                                                                      Italia 2%          3%
                                                 13%
                                                                                                       6%

                                             16%                                              Spain                 2%5%
                                                                                                               5%
                                                                                               9%
                                                             Taiwan
                                                                                                         10%
                                                              11%

                  The others                         14%
                                   Trong 2017                                               India      6%            Trong 2017
                    50% 53%        Ngoài 2018                  Korea                        13%                      Ngoài 2018          China
                                                                7%                                                                 62%   53%
                                                   5%                                                   10%
                                                4%         Philippines
                                              3%
                                            5%                 7%
                                                                                                    Malaysia
                                               Indonesia                                             14%
                                      Malaysia    7%
                                        5%
 Source: Tổng Cục Hải Quan, VCBS research                                   Source: Tổng Cục Hải Quan, VCBS research

                                        On the import side, according to data of the General Department of Customs, the total import value
                                        of tiles in 2018 recorded 99.5 million USD, a slight decrease of 1% compared to 2017. Of which, an
                                        import value from China up to USD 53 million (excluding figures of border trade), accounting for
                                        more than 50% of the value of imports in 2018. However, in 2017, the import value from this
                                        country decreased by 15% yoy and the proportion of the whole import value also decreased
                                        significantly by 9% compared to 2017. This partially shows the improvement of comparative
                                        advantages of Vietnamese enterprises. In addition, in 2018, the activity of importing high-value tile
                                        products from Italy (accounting for 6% of 2018 import value), Spain (9%), India (13%) and
                                        Malaysia (14%) generally recorded a value growth compared to 2017.
                                      IV.       Supply and demand of Vietnamese ceramic tiles & Forcast 2020
                                       1.       Supply and demand of Vietnamese ceramic tiles
                                        According to CWR data, over the past 10 years, the supply of tiles has always exceeded domestic
                                        demand. Compared to 2011, production and consumption were not significantly different, however,
                                        the real estate sector had been frozen over the period 2011-2013 and production has been expanding
                                        domestically from 2014 to the present, which has widened the gap between production and
                                        consumption. This has made the competition among domestic enterprises fiercer. Although
                                        Vietnamese enterprises in recent years have sought opportunities in international markets, merely
                                        10% of the tiles total production from prominence enterprises meets the international export
                                        requiments due to the different taste of size and quality. Also, the fact of export prices are
                                        significantly lower than domestic prices that makes domestic enterprises no longer interested in
                                        export activities.

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                           FIGURE 15: Viet nam supply and demand of ceramics tile in the period 2015-2019
                           Million m2                                                                                                           Million m2

                             800                                                                                                                       100
                                                                                                                        672            690             90
                             700                                                                                                          634
                                                                                                                          602                          80
                             600                                                                                                 542       540-560
                                                                                                                                                       70
                             500                                                                                                                       60
                             400                                                                                                                       50

                             300                                                                                                                       40
                                                                                                                                                       30
                             200
                                                                                                                                                       20
                             100                                                                                                                       10
                                  0                                                                                                                    0
                                        2011        2012    2013          2014      2015       2016         2017          2018           2019

                                               Capacity      Production          Consumption           Gap between production & consumption

                           Source: Ceramic World Review, VCBS research

                           In 2019, according to our statistics, although the overall design capacity of the industry only
                           increased slightly by 2.6% compared to 2018, reaching 690 million m2/year due to the addition of
                           only four new production lines: An Giang Ceramic: 1 production line 3 million m2/year; Vicenza: 2
                           production lines 11.5 million m2/year; Thanh Ha Ceramics: 1 production line, 3 million m2/year).
                           However, it is estimated that the production capacity of the whole industry in 2019 has increased to
                           32 million m2, +4.7% because the projects, officially operating from mid-2018, were fully
                           operational in 2019. According to our estimates, the demand for ceramic tiles in 2019 is lower than
                           the growth rate of the construction industry by 8.3% (9M/2019, GSO). When the growth of
                           individual housing construction accounts for a large proportion without much growth expectation,
                           besides the real estate construction activity from 2018 to the present is stable, the gap between
                           supply and demand has widened. Therefore, the gap between supply and demand will widen in
                           2019.
                           According to our estimates, the difference between supply and demand in 2019 reached 84 million
                           m2, an increase of nearly 40% compared to 2018 at 60 million m2. Since then, there has been
                           pressure to lower prices of common products (ceramic and porcelain). According to data published
                           by businesses and business meetings of the industry (VGC, CVT, TTC ...), the selling price of
                           common tile products at the end of 2019 has decreased by 7-10% compared to the beginning of the
                           year.

                           TABLE 5: List of businesses raising capacity 2018-2020
                                                                                    Adding
                                                                                                                                          Commercial
                                                                                    capacity     Number
                             Stt      Emterprise name              Location                                   Type of product              Operation
                                                                                    (million     of lines
                                                                                                                                             Date
                                                                                    m2/year)
                              1       CMC                           Phú Thọ            3              1       Granite                      T08/2018
                              2       Mikado                       Thái Bình           3              1       Granite                           2018
                              3       Nice                         Hải Dương           30             NA      Porcelain, Granite           T06/2018
                              4       BNG                          Bắc Giang           3              1       NA                                2018
                              5       Vitto                    Thừa Thiên Huế          8              1       Granite                           2018
                              6       An Giang Ceramic             An Giang            3              1       Granite                           2019

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                                7       Vicenza Ceramic           Thanh Hóa                 11,5           2            Ceramic, Granite               2019
                                8       Thanh Hà                   Phú Thọ                   3             1            NA                             2019
                                9       Nam Định Granite           Nam Định                  3             1                                           2020
                                10      Sao Đỏ Ceramic            Hải Dương                  4             1                                           2020
                           Source: VIBCA, VCBS research

                           2.        Forecast 2020
                           We forecast the ceramic tile industry will reduce competitive pressure in 2020
                           Demand growth in 2020: Based on CBRE estimate of the supply of 2H/2019 apartments in Hanoi
                           and Ho Chi Minh City is expected to grow better. Besides, the construction industry's expectation in
                           2020 will maintain the average growth rate of 6-8%/year, equal to the growth rate in 2019. While the
                           supply of the whole industry is estimated to increase by 15.1 million m2 as of the increased capacity
                           of factories starting operation between 2019 and in 2020 (Nam Dinh Granite Tiles: 1 production
                           line, 3 million m2/year; Sao Do Ceramic Tiles: 1 production line, 4 million m2/year). Therefore, we
                           expect that the demand for ceramic tiles in the whole industry in 2020 will improve better than in
                           2019. At the same time, thanks to the improvement from the construction demand of H2/2019 will
                           help the price of products maintain the current selling price or only reduce slightly below 3%.

                           FIGURE 16: Number of newly launched apartment units in Hanoi and HCM 2014-2019
                            Apartment unit

                             45.000
                             40.000
                             35.000                                               31.547                                                      33.000
                                                                         30.435                                                      30.000
                             30.000
                             25.000
                             20.000
                             15.000
                             10.000
                                                            HCM                                                           Ha Noi

                                                                  2014     2015      2016    2017   2018       2019 E

                           Source: CBRE, VCBS research

                           It is forecasted that in the long-term, the ceramic tile industry will continue to grow thanks to
                           urbanization and housing demand growth.
                           According to the GSO in 2018, Vietnam has more than 96 million people. With an average
                           population growth rate of about 1.2%/year, it is forecast that by 2030, Vietnam's population will
                           reach 104 million. Vietnam have a large population with a relatively fast population growth rate, and
                           the current rate of urbanization in Vietnam is still quite low compared to regional countries as well
                           as developed countries in the world. This will create an incentive to increase the demand for ceramic
                           tiles in residential-commercial buildings and public infrastructure in the future.

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                           FIGURE 17: Rate of Vietnam urbanization and some countries in 2018

                            120%

                                                                                                                                               100%
                            100%                                                                                                  92%
                                                                                                                      86%
                                                                                                            82%
                                                                                                  76%
                             80%

                                                                                   60%
                             60%                                         54%
                                                                50%

                                                  36%
                             40%
                                       23%
                             20%

                              0%
                                     Campodia   Viet Nam    Thailand   Indonesia   China        Malaysia     US     Australia     Japan      Singapore

                           Source: CIA World Factbook, VCBS research

                           According to GSO, in 2018, the average floor area per capita in Vietnam was 24 m2/person.
                           Especially in developed cities such as Hanoi, Ho Chi Minh, and Da Nang, although having the
                           highest annual construction value in Vietnam, this figure in 2018 was only less than 30 m2 per
                           capita. In general, the average floor area of our country is very low compared to neighboring China
                           (40 m2/capita) or compared to developed countries like the US and Australia (60 m2/capita). This
                           shows that the demand for housing construction in our country in general and the Southern region in
                           particular is still very large. This will create motivation for Vietnam's ceramic tiles industry to grow
                           positively in the coming years.

                           FIGURE 18: Average floor area of Vietnam and some countries in 2018
                               m2 per capita

                                70
                                           60              60
                                60

                                50
                                                                           40
                                40
                                                                                                            28              27
                                30                                                         24                                                 22
                                20

                                10

                                 0
                                           US           Australia         China        Viet Nam            Ha Noi       Da Nang           Ho Chi Minh

                           Source: GSO, VCBS research

VCBS Research Department                                                                                                                        Page | 21
CERAMIC TILES INDUSTRY REPORT
                                                                                                                                                                     2020

  STOCK RECOMMENDATIONS

                                CVT – BUY                                                                                    CVT detailed report: here
                                                                                                                             2019 business activities
                                                                                                                             In 2019, the tiles industry will still face the oversupply difficulties. In 2019, CVT’s revenue reach
         TRADING STATISTICS                                                                                                  VND 1,464 billion, + 1.1% yoy, fulfilled 86.1% of the 2019 plan. In general, CVT has achieved a
 Stock Exchange                                                                                             HSX              fairly positive revenue growth compared to other businesses in the same industry. .
                                                                                                                    For 9M/2019, the accumulated sales volume reach about 11.7 million m2 (11 million m2 tiles, 0.7
 Market price (VND)                                                                                         20.600
                                                                                                                    million m2 tiles) equivalent to the same period. Although the selling price of common products
 Target price (VND)                                                                                         30.200 (ceramic and porcelain ) has dropped 7% from the beginning of the year to the present due to
 Daily volume                                                                                               117.006 oversupply pressure across the industry, CVT maintain the revenue growth momentum thanks to the
                                                                                                                    product restructure, the company aims to increase the proportion of high-end segment: launched
 Market cap (VND)                                                                                           756b    saince Q4/2018.
 Shares (mil)                                                                                               36,9             Gross profit: Though the price of common products has decreased by 7% compared to the beginning
                                                                                                                             of the year, besides the 2019 depreciation expense recorded at VND 122.7 billion increased by
                                                                                                                             10.7% compared to the same period, the cause of 3th line of the CMC2 factory started to partially
                                                                                                                             depreciate from Q2/2018. However, thanks to the new granite product, which have a good profit
                                                                                                                             margin compared to ordinary tile lines, it has reduced the decline of gross profit margin. In 2019
              Correlation betweet                                                                                            gross profit margin reached 19.3%, decreased 0.8% over the same period.
  VN-Index and CVT ’s price
                                                                                                                             Net profit: in 2019, CVT ’s NPAT achieved VND 167 billion, -0.9% yoy. Net profit margin reached
  CVT                                                                                                   VN-
                                                                                                                             11.4%, decreased slightly 0.2% over the same period, mainly influenced by the adjustment of gross
40.000
                                                                                                       Index
                                                                                                                     1.300
                                                                                                                             profit margin.
35.000                                                                                                               1.200
                                                                                                                     1.100   Forecast 2020
30.000
                                                                                                                     1.000
25.000
                                                                                                                     900     Based on the expectation of Vietnam's construction growth in 2020 will maintain an average growth
20.000                                                                                                               800
15.000
                                                                                                                             rate of 6-8% / year equivalent to the growth rate in 2019. Besides, based on CBRE estimates the
                                                                                                                     700
10.000                                                                                                               600     supply of apartments of Hanoi and Ho Chi Minh City in H2/2019 that is expected to grow better and
         Jan-18

                                             Sep-18

                                                               Jan-19

                                                                                                   Sep-19
                  Mar-18
                           May-18
                                    Jul-18

                                                      Nov-18

                                                                        Mar-19
                                                                                 May-19
                                                                                          Jul-19

                                                                                                            Nov-19

                                                                                                                             forecast the total growth of the whole year of 2019 in these two areas will be around 10%.
                                                                                                                             Therefore, we expect the demand of ceramics tile to improve better in 2020 than that 2019. At the
                                             CVT                                          VN_INDEX
                                                                                                                             same time, the recovery from construction demand in H2/2019 will help the selling price of tile
                                                                                                                             products maintain the current selling price or only reduce slightly below 3%. From the analysis are
                                                                                                                             mentioned, we forecast that CVT's revenue growth in 2020 will be 6-10% yoy, reaching about VND
                                                                                                                             1,608 billion.
                                                                                                                             We estimate that CVT ’s EBT will reach about VND 219 billion, + 11% yoy, based on the revenue
                                                                                                                             growth potential and CVT's gross profit margin is expected to remain at 18-18.5% in 2020 when
                                                                                                                             CVT's price of common products are expected to be less volatile, in addition to the proportion of
                                                                                                                             consumption of high-end product lines continues to improve. Furthermore, up to now, we have not
                                                                                                                             realized the risks of strong fluctuations from input material costs.
                                                                                                                             Investment opinion
                                                                                                                                  New granite products have operated effectively since the first quarter of 2019, CVT have
                                                                                                                                   launched sugar matt granite tiles (Q1/2019), bar tiles (Q2/2019) and porcelain tiles ( Q4/2019)
                                                                                                                                   with a unique design, according to our preliminary survey, these products are being received
                                                                                                                                   quite positively by the market. This was partly shown through the Q3/2019 Financial
                                                                                                                                   Statements when the revenue, gross profit margin and ROIC grow better over the same
                                                                                                                                   period.
VCBS Research Department                                                                                                                                                                                                  Page | 22
CERAMIC TILES INDUSTRY REPORT
                                                                                                 2020

                                                           Attractive dividend yield: According to the resolution of 2019 AGM, CVT is expected to
                                                            pay a cash dividend of 25-30% in 2020 equivalent to 12.4-14.9% dividend yield something if
    Shareholder Structure                                   we compare to the current market price. In the past, CVT also showed that the dividend
                                                            payment was quite stable, on average from 2015 to 2019, the annual cash dividend payment
                                                            rate was 18.75% of the face value. In the long term, according to our estimates, after the CVT
                              10,9%
                                                            reinvestment needs, the average dividend can be maintained at least 25% (refer to the forecast
                                                            in the detailed update report).
                                       10,3%
                                                           Value stock: Based on the comparison with other companies in the same industry, we belive
   57,7%                                   6,7%             that CVT is being priced lower by the market than its peers, when the company's P / E trailing
                                                            is 5, 1x (at the closing price on November 19, 2019) is lower than the industry average of
                                         4,3%
                                                            5.5x.
                                       6,3% 3,7%                    o       CVT's revenue growth, profit after tax and profitability over the last 3 years are
                                                                            quite highly compared to competitors in the same industry.

           VietinBank Securities
                                                                    o       Financial risk, although CVT is borrowing more than the industry average.
           Vicem
                                                                            However, according to our assessment, CVT still has room to use leverage to
           Nguyễn Quang Huy_Chairman
                                                                            optimize shareholder benefits - ROE, when profit margin ratios remain high, in
           Lê Quốc Hưng                                                     addition to the CFO remains positive.
           Sông Hồng JSC

           Dương Quốc Chính_Vice Chaiman

           The others

                TABLE 6: Compare CVT and companies in the ceramic tiles industry
                                                                                2016-     2016-
                                                                                                                                                             Trailing
                                                                                 2018     2018                                           2016-
                                         Market      9M/2019      9T/2019                          9M/2019      9M/2019                                         P/E
                                                                               Average   Average                             2018 ROE    2018     9T/2019
                   Company name           cap        Revenue       NPAT                              Gross        Gross                                       traling
                                                                               revenue    NPAT                                  (%)     Average   D/E (%)
                                       \(VND b)      (VND b)     (VND b)                           profit (%)   profit (%)                                  (19/11/20
                                                                                growth   growth                                         ROE (%)
                                                                                                                                                                19)
                                                                                  (%)      (%)

                   CVT                         756   1.039.621    108.563        10,0%      2,0%      18,0%        10,4%       27,6%      36,7%      58%          5,1

                   VIT                         292   1.010.241     55.074         6,0%      1,0%      12,5%          5,5%       17,6%     20,2%      205%         3,6

                   VIH                          62                                6,0%    -18,0%                                 0,3%     48,3%                   6,2

                   TLT                          97                                5,0%    -10,0%                                23,4%     65,4%                   6,2

                   TTC                          75    268.229      12.930        17,0%    -33,0%      13,6%          4,8%       13,0%     17,1%        6%         4,6

                   VHL                         700   1.486.826     93.382         4,0%     11,0%      18,3%          6,3%       23,3%     24,3%       36%         5,0

                   GMX                         133    198.886      17.584        10,0%     -8,0%      29,3%          8,8%       26,0%     26,3%       13%         6,0

                   Average                     227    741.046      44.743         8,0%     -9,5%      18,4%          6,4%       17,3%     33,6%     65,1%         5,3

                   Median                      115    639.235      36.329         6,0%     -9,0%      16,0%         5,9%       20,4%      25,3%     24,8%         5,5
                Source: Fiinpro, VCBS research

VCBS Research Department                                                                                                                                      Page | 23
CERAMIC TILES INDUSTRY REPORT
                                                                                        2020

                                                Valuation
                                                We use FCFE and FCFF method with the assumptions below and forecast detailed in CVT report.
                                                They estimate the intrinsic value of CVT share at VND 30,200 per share, UPSIDE +36%.

          VGC – POSITIVE                        VGC detailed report : here
                                                2019 business activities
                                                In 2019, Ceramic tiles business reached the revenue of VND 2,764 billion, increased 4.5% yoy,
     TRADING STATISTICS                         accounting for 27.3% of total VGC's revenue, decreased 3% compared to the same period.

 Stock Exchange                  HSX                o   In 2019 sales volume grew about +5.5% yoy, in addition to the price of common products
                                                        (ceramic and porcelain), which decreased by 7% from the beginning of 2019 due to
 Market price (VND)              18.000                 oversupply pressure across the industry. Nevertheless, thanks to an effort to restructure the
 Target price (VND)              20.400                 ceramic tlies bussiness, which has been implemented by VGC since 2018, a part of the
                                                        strategy focuses on the design, R&D of high-end segment products: Euro tile (My Duc
 Daily volume                    121.511                factory, Thai Binh factory), Color body (Tien Son factory) and Viglacera premium.
 Market cap (VND)                448,3b                 According to our research, these high-end products of VGC are being well received by the
                                                        market as the quality is compared with imported products from Spain and Italy, along with
 Shares (mil)                    21,5
                                                        significant discounted prices due to benefit from tax and logistics costs.
                                                    o   The VGC factories are operating exceeds of 5-10% design capacity to optimize production
                                                        costs. However, inventories of member companies and subsidiaries producing ceramic tiles
                                                        tend to increase over the same period. According to the information from the BOD,
                                                        Viglacera Thang Long subsidiary (TLT) currently has inventory of about 60 days of
          Correlation betweet                           production, Viglacera Hanoi subsidiary (VIH) about 40 days and Viglacera Tien Son
 VN-Index and VGC ’s price                              subsidiary (VIT) about 60 days (The current optimal level of inventory for tile companies
                                                        are about 30 days). Though, Viglacera Tien Son's inventory days, in our assessment, are not
                                        VN-             too concerned when Euro Tile premium tiles are well received by the market and the
                                       Index
                                                        product types are diverse.
 35.000                                 1.300
                                        1.200
 30.000                                         In 2019, contructions glass and Sanitary wares, showers business reached the revenue of VND
                                        1.100
 25.000                                 1.000
                                        900
                                                2,091 billion, +0,2% yoy, accounting for 20.7% of total VGC's revenue, decreased 3% over the same
 20.000
 15.000
                                        800     period. The reason of sharp decreasing in selling price due to competitive pressure of domestic and
                                        700
 10.000                                 600     Malaysian import products.
           Jan-18

                    Sep-18

                     Jan-19

                              Sep-19
          Mar-18
          May-18
           Jul-18

                    Nov-18

                    Mar-19
                    May-19
                     Jul-19

                              Nov-19

                                                The industrial zone real estate business, revenue of 2019 reached VND 2,532 billion, a sudden
                                                growth of +123% yoy due to increasing the rental area, over 170 ha, increased 70% compared to the
              VGC        VN_INDEX
                                                same period of 2018. Besides the rental rate, there was a good growth in the rental price at the
                                                expanding of Yen Phong I IP ang Dong Van 4 IP.

VCBS Research Department                                                                                                                     Page | 24
CERAMIC TILES INDUSTRY REPORT
                                                                                    2020

                                              Accumulated to November 2011, the total planned land of VGC reaches nearly 2,800 ha (excluding
    Shareholder Structure
                                              Thuan Thanh IP, Bac Ninh). In which: the clearing land is 1,705 ha, available for sales reaches 1,312
                                              ha and leased area recorded 868 ha.
                                              Gross profit in 2019 reached VND 2,422 billion, increased + 18.5% yoy. Gross profit margin of
                                              VGC reached 23.9%, increasing by 0.7% compared to the same period of 2018. Because of
                                              increasing in the proportion of rental industrial zone revenue returned high profit margins, compared
                                   38,6%
                                              to gross profit margin of the other businesses.

     61,4%                                    In particular, the gross profit margin in 2019 of the ceramic tiles business recorded a slight
                                              improvement of 24.3%, increasing by 2.3% over the same period in 2018 thanks to high-end tile
                                              product lines: Eurotile, Color Body, Viglacera Premium have a good gross profit margin compared
                                              to common tiles, contributing to the improvement of the gross profit margin, under the pressure of
                                              reducing the selling price of common tile products (as of the end of the year). The third quarter of
                                              2019 has decreased by 7% compared to beginning of the year).
      Ministry of Construction   The others   Net profit in 2019 reached VND 758 billion, increased +13,6% yoy, reaching 102% of the 2019
                                              plan. NPAT margin remained at 7.5% over the same period, mainly due to the weak operation of
                                              joint venture construction glass companies.
                                              Forecast 2020
                                              Based on the revenue growth potential of VGC's businesses, we forecast that VGC's revenue in 2020
                                              will be about VND 10,692 billion, equivalent to a growth rate of about 6-7% yoy.
                                              At the same time, we estimate that EBT will reach about VND 612 billion, + 16% yoy, based on the
                                              revenue growth potential and gross profit margin basis (detailed in the VGC report).
                                              Investment opinion
                                                   Stocks are no longer at attractive price with high safety margins.
                                                   In short-term, the prospect of industrial zone business. Although construction material
                                                    businesses are running into difficult phase due to the less positive construction situation and
                                                    competitive pressure from each segment, VGC is expected of continuous growth, thank to the
                                                    prospect of industrial zone business. Based on surveys of some Northern Industrial Zones, we
                                                    appreciate the potential of VGC's revenue growth in the period of 2020-2021, as expanding of
                                                    crucial industrial zones, such as Yen Phong I (expected leasing time 2018- 2021), Dong Van 4
                                                    (2018-2021), Yen My (2020-2024) are very attractive and Yen Phong IIC Industrial Zone will
                                                    bring additional revenue-profits from 2021.

                                                   Long-term growth prospect of domestic construction development: Demand for housing
                                                    and infrastructure in the future will grow positively while the urbanization rate and the
                                                    average floor area per person in Vietnam are still fairly low, comparing to some countries in
                                                    the region and developed countries in the world. Activities of attracting FDI and the policies
                                                    of supporting industrialization and modernization of the Government will create dynamics to
                                                    develop the construction sector. Therefore, we expect the demand for construction materials
                                                    nationwide and VGC in particular still has room for long-term growth.
                                              Valuation
                                              We use FCFE and FCFF method and assume asset liquidation at the end of 2050. We estimate the
                                              intrinsic value of VGC share at VND 20,400 per share. Refer to the valuation assumptions below
                                              and the forecast detailed in the VGC report.

VCBS Research Department                                                                                                                   Page | 25
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