The recently successful Initial Public Offering (IPO) is just the first step of An Phat Holdings (Ticker symbol: APH) in the company’s plan to mobilise capital for AnBio compostable material manufacturing plant. The project will put APH on the list of one of the few enterprises in the world such as BASF, Novamont, NatureWorks, Total Corbion … that capable in producing compostable materials.
- APH – The noteworthy stock IPO during Covid-19 outbreak
In an interaction with media, Mr. Dinh Xuan Cuong, Vice Chairman and Chief Executive Officer (CEO) of APH proudly said that this will be the first compostable material manufacturing plant in Vietnam that would be able to supply “green” materials for both domestic and international production.
When AnBio project is completed in 2022, APH will fully take the initiative in production inputs, while reducing product’s cost to create more competitive advantage. In the context that the market of compostable products is expected to accelerate in the next few years to replace disposable plastic products, this is considered an important strategic move of the largest green materials manufacturer in Vietnam.
To have a more comprehensive view, the reporter had an interview with the Vice Chairman and CEO of APH.
As seen, the registration for your last IPO auction was nearly 5 times higher than your expectation , the bid price is 2 times higher than initial one. Maybe, both of you & BoD were really surprised with this result?
– We were not surprised with the auction results, but we impressed with the number of auction registrations that nearly 5 times higher than the selling volume. Prior to the IPO, many investors who participated in this auction had earlier discussed and worked with APH. Therefore, we foresaw the price they were willing to pay.
In the recent IPO, APH has been highly priced. It can also be seen that many investors are interested in APH’s stock and AnBio compostable material manufacturing plant. That is a good sign.
Calculation methods indicate that the book value of An Phat Holdings as of December 31, 2019 at only VND 15,300, while other calculating methods point out market value of An Phat Holdings at around VND 23,800 per share. So, in your opinion, what are the reasons for investors to pay more than VND 50,000 per share, much higher than the valuation of the other companies in the same industry?
-According to the statistics of the listing consultant, the average P/E ratio of the domestic and regional plastic industry is about 11.17x. With 2019 EPS is VND 3,433 per share, based on the company’s P/E ratio, the valuation of APH is VND 38,344 per share. However, I believe that investors buying a stock not only based on historical data but also its future prospect. Therefore, when investors paid more than VND 50,000 per share, it represents investors’ confidence in the growth prospects of APH as well as our subsidiaries.
Though securities market now has recovered slightly, but it is still very unpredictable. In the past, there were many successful IPO with high bid prices, but when listed, the stock price will plunge in the first few session. What is your opinion on this matter?
-Listing immediately after the IPO is an usual and common activity in developed stock markets to mitigate the risk after investors participating in the IPO, so that they can trading stocks as soon as possible.
APH aims to issue and prioritize majority of shares for institutional investors who aim to hold stock for a long-term. We strongly believe that their long-term commitment with businesses will help reduce price variation.
In addition, when AnBio comes into operation, it will contribute significantly to the company’s business results.
In stark contrast with other businesses, APH chose to IPO and listing at this sensitive period. In comparison with state-owned enterprise, it seems that equitization activities, IPOs will be delayed due to COVID-19. Sir, what is the reason behind this scenery?
-We have a clear goal of raising capital for AnBio plant. Capital from the IPO will be retained to increase the surplus and value for the company. This project is indispensable and crucial in APH’s development plan, thus it is suitable to implement at this time.
Moreover, COVID-19 has been well controlled in Vietnam. Vietnam has also become a bright spot in the world after successfully contained the pandemic. The fewer businesses listed at this time, the more prominent we become to lure more investors.
During the time combating COVID-19, we still ensure production and business activities. As a result, when the pandemic is under control, APH is ready to welcome investors, especially foreign investors, who are increasingly considering Vietnam as an attractive destination.
Sir, as it is known that APH will spend 15.75 million shares to sell to strategic investors. Could you please reveal more information about potential investors as well as their strengths to support the company in business operations and market expansion in the future?
We spend majority of this issuance for strategic investors while targeting long-term financial investors.
Reputable and experienced long-term financial investors in developed and developing countries will bring long-term, stable financial support to us.
On the other hand, strategic investors will offer recommendation about project implementation such as: implementing and working with contractor, reaching potential customers, expanding product consumption markets, technology and operation support.
Currently, APH is working with 7 investors, of which 5 are long-term financial institutions and two strategic investors. Investors are all from foreign countries like Korea, Japan, Germany and some multinational organizations.
- Strategic move to conquer North American market
Sir, as far as I know, APH Board of Directors has had many working trips in the US to prepare for the plan to develop market for compostable products. Could you reveal what has been achieved and the company’s goal in the coming time?
We consider the US as a huge potential market for the development of compostable products. APH has had many working trips with organizations in the US, including strategic advisory firm The Asia Group.
At present, we have established a company in the US and we are forming plan to penetrate this market. In my opinion, social instability is temporary and the impact of the COVID-19 will not halt the medium to long term growth trend of eco-friendly products here.
Sir, might you give an overview of the attractiveness of compostable products market in Europe and the US, where you have been selling your products?
-Our overseas market has expanded significantly, from 5 countries (in 2019) to more than 20 countries at present, including the US, Canada and other European countries. This is a very potential market when these countries tend to switch gradually to environmentally friendly products. Since then, compostable products are perfect replacement.
According to research, in the next 3-5 years, environmentally friendly products will account for 20-30% of total plastic products worldwide.
We have solved the puzzle for compostable product price in best way. Therefore, in order to catch up with this global trend, we decided to invest in AnBio compostable plant, taking the initiative in materials, reducing production cost and creating more competitiveness for APH. Many familiar customers in these markets now have shifted to our compostable products.
The potential of the North American market as mentioned is enormous. But this is also certainly a very competitive market. Sir, what do you think about the opportunities & challenges for APH compared to competitors in this market?
-The North American market is larger than both Europe and Japan. Moreover, we can see the quick trend shifting to environmentally friendly products here.
At this moment, this market is competing for the supply of environmentally friendly products in the direction that benefit APH when we are one of the few enterprises in the world holding the patent for manufacturing compostable materials.
Sir, you have just mentioned “the patent for manufacturing compostable materials”, so what are the outstanding features of this project?
-We will have raw materials self-supply for production from the first to the last stage instead of importing raw materials from aboard to manufacture finished products.
So, what role will AnBio play in APH production system?
– This will be the first compostable material manufacturing plant in Vietnam that can supply and meet the demand for both domestic and foreign markets. The factory will completely change APH’s position, to be both a producer and a trader of green materials.
There have been a number of large partners in Vietnam coming to APH and questioning the trade of AnBio compostable material. Our goal of becoming Southeast Asia’s largest bioplastic group is in the near future.
Sir, according to the calculation of the investment project, what is the internal rate of return (IRR) of this project? In comparison with other plastic and packaging projects that APH has invested, are the profit margins superior?
-The rate of return of the project is 36% according to our estimates. Overall, this project is extremely important because it will help increase the efficiency of subsidiaries by helping reduce input costs and increase profit margins. The rate of return on a (consolidated) perspective of the Group is much higher than previous projects.
We are currently importing materials from Europe, manufacture products and then exporting them back to Europe. The raw materials self-supply will help APH save production costs about 30% for subsidiaries while the parent company still enjoys a gross profit margin of 25-30% of this project.
- Difficulties provide a window of opportunity
Until now, we all know how COVID-19 has negatively impacted on the world economy while America is one of the most impacted countries and now concerns about the second wave of COVID. Thus, APH may encounter many difficulties in the coming time. Sir, will epidemics affect the progress and investment plan of the company?
– It can be said that COVID-19 influences our outreach activities and seeking new customers in this market. But the North American development plan is a long-term one, and we believe that Covid-19 will soon be contained here. Furthermore, the use of environmentally friendly products is an inevitable trend, so in the long-term, there is nothing to be worried about.
Sir, can you disclose about the business situation of the two prominent subsidiaries (AAA and NHH) in the first 6 months. Is the influence of COVID-19 significant, especially on AAA’s international trade, or with NHH’s industrial supporting equipment production?-As we mentioned in the media earlier, the production of AAA has not decreased in quantity, especially the compostable products segment is still growing because these are essential consumer products.
Supporting industry is also affected by Covid-19 due to some customers suspending production but we forecast to grow strongly in the last 6 months.
What did APH Board of Management do to help subsidiaries overcome difficult times, especially to help them rebound when the market recovers?
-I hold the belief that “fire proves gold, adversity proves men “, we have nearly 20 years of experience in the market, facing many challenges but we overcame those obstacles to grow. I think that, under any circumstances, difficulties provide a window of opportunity. The recent successful IPO of APH is a testament to this. During tough times, we have been doing very well. So, there is no reason when the market recovers, we could not do better.
Thank you very much.