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FLC Faros 'abnormal' share move is normal

Released at: 12:20, 10/12/2016

FLC Faros 'abnormal' share move is normal

Photo: Duc Anh/Illustration

70% owner of FLC Faros, Mr Trinh Van Quyet, states the high price reflects the quality of the shares.

by Duy Anh

The share move of FLC Faros Construction Corp. is nothing but normal, the company's top leader strongly affirmed on December 8.

"The price of ROS shares which have been increasing over the past year is normal," FLC Chairman Mr. Trinh Van Quyet replied to VET on the sidelines of the Bloomberg ASEAN Business Summit in Hanoi on December 8 when being asked whether there were any abnormal moves to ROS share price. "Good products have a higher price, and their increase depends on the market's demand."

The market value of FLC Faros, nearly 70 per cent-owned by Mr. Quyet - now Vietnam’s richest man in the nation's stock market in terms of US dollar value - has shot from $170 million at the time of its September IPO to $2.2 billion now, becoming the country’s seventh-biggest listed company.

FLC Faros lists few projects on its website that weren’t commissioned by FLC, and its brand name was largely unrecognized before its IPO. No other construction company in Vietnam has a market valuation anywhere near that of FLC Faros. Nor have any enjoyed similar recent price gains. Coteccons Construction JSC, the second largest after FLC Faros, is valued at $510 million.

‘One step to heaven’ is what the entire market believes FLC Faros’ share move has experienced. An article published last month by the Wall Street Journal (WSJ) has highlighted the surge in FLC Faros’ stock, claiming this as a reminder of the odd situations investors can find in frontier markets, those a notch less developed than emerging markets.

FLC Faros’ net profit was up 170 per cent in the first nine months of this year to VND232.1 billion ($10.4 million). The company bought a large stock of land at low prices throughout Vietnam during a property-market downturn. Still, analysts say its performance doesn’t justify the company’s stock now being valued at more than 120 times FLC Faros’ forecast earnings for this year.

Local institutional fund managers are believed to be anxious that a small group of investors could be pushing up the value of FLC Faros. The aim could be to ensure that large exchange-traded funds, which investors use to passively invest in Vietnamese stocks, automatically buy shares in the company, further supporting its market price.

Mr. Kevin Snowball, Chief Executive of PXP Vietnam Asset Management in Ho Chi Minh City, was reported by WSJ as saying that if FLC Faros’ stock price falls as fast as it has risen, the losses could hurt Vietnam’s reputation. “We would sincerely hope that the relevant authorities take firm action to protect the reputation and integrity of the market,” Mr. Snowball said.

In a response, “I have received the reconciliation request from the Ho Chi Minh Stock Exchange (HoSE) in regard to the share move of FLC Faros”, said Mr. Quyet. For the ‘abnormal’ share move of Faros, he affirmed that “the higher the share price, the better the quality”.

The company’s main business is building projects run by property developer FLC Group JSC, controlled by the same individual, Mr. Quyet. The sharp rise in FLC Faros’ share price means it is now valued at about $2 billion more than FLC Group itself and has raised concerns that any fall could trigger a widespread selloff in Vietnamese shares.

“There is no way there will be a selloff in FLC Faros,” said Mr. Quyet. “Rather than selling out, I am planning to buy in more shares.” With nearly 70 per cent ownership rate in FLC Faros, Mr. Quyet is currently the company's biggest shareholder. Because of that, “I will have to make an announcement if I want to sell off,” he said.

In regard to the growth of FLC Faros’ stock price in the future, Mr. Quyet said "the share price will depend on the supply and demand of the market".

On the other hand, Mr. Le Thanh Vinh, FLC Faros’ Chairman said in a letter to shareholders last month that he expected FLC Faros’ stock price to rise another 50 per cent from the closing price of VND108,700 ($4.81), adding that the company is seeking shareholder approval to expand into other business areas, including retailing, transport, power and telecommunications, and to issue more shares.

Source: HSX, 2016

FLC Faros’ stock price closed at VND111,200 ($4.92) after the trading session on December 9.

Economists predict Vietnam will be among the world’s fastest-growing economies in 2016, expanding about 6 per cent, as it benefits from a manufacturing industry that has grown in importance over the years. That and increased foreign-direct investment helped push the VN-Index to an eight-year high of 688.89 on October 19. FLC Faros increased more than 780 per cent since its September 1 debut, and is leading gains on the gauge.

The index, up 13 per cent this year, has topped a 2.7 per cent decline in the MSCI Frontier Markets Index and 4.2 per cent advance in MSCI South East Asia Index. That has made Vietnamese shares expensive relative to their peers, with a 12-month price-to-earnings ratio of 13.2, more than 10.6 for the frontier measure.

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