BSC - Company Report CMG ICB 6535 BSC 10 04 2015

We initiated a STRONG BUY recommendation in medium and long term for CMG. Our valuation approaches (FCFF and PE) give us a target one year price of VND 15,668 per share which shows a 30.57% increase to the closing price as at 10/04/2015.

Information Technology and Telecommunications sector gradually recover when corporate customers increased disbursement for technology projects. Moreover, Decision 80/2014/QD-TTg of the Prime Minister take effect from 15/02/2015. We expect CMG continue to recover and achieve high growth rates. 2015 EPS is forecasted at VND 1,800, CMG shares are trading with PE forward 2015 of 6.67x, which is much lower than the PE of VN-Index currently of 12.41x. Our positive view of CMG based on the following highlights:

(1) Erase accumulated losses in fiscal year 2014: CMG targeted EBT 2014 of VND 118 billion, but the result may exceed the target of VND 17 billion, thus CMG will completely erase accumulated losses. In addition, provision for doubtful accounts of CMG will no longer surge as in recent years, and will only set regular amounts characterized by household telecommunications business (1% of new revenue). We evaluate these regular provisions have insignificant impact on the profitability of the firm.

(2) With telecommunications being the key operations, CMG will develop long-term investment strategies including investment in infrastructure: CMG is investing in infrastructure to improve Telecom segment (CMG will invest in North-South backbone in 2015 and the APG undersea cable - CMG owns 12.5% will be in operation at the end of 2015). Telecom infrastructure will help reducing the cost of leasing line, and boosting the pretax profit margin of this segment to 15% in 2018 when accumulated enough (current margin of about 6%).

2015 performance forecast: Net sales of CMG is forecasted to be VND 3,644 billion (+15.47%yoy). With the pushing up Telecommunications and Outsourcing strategies in 2015, we estimate pre – tax income 2015 of CMG will reach VND 183,64 billion, income after tax of parent company of VND 119 billion, equivalent to EPS = VND 1,800.