Emotions and Rationality
In the autumn of August 2022, KiWiMi received a request to provide valuation training for Vingroup to standardize their financial investment and valuation models. This opportunity came from a university lecturer who immediately thought of Thầy Sang and KiWiMi, as she had attended a stock valuation course here. It was noted that Vingroup had already hired two training units: one from a Credit Suisse investment banking expert and another from a CFA instructor in Vietnam. However, due to online learning with the expert in the US, practical application was limited and did not meet the training objectives.
Vingroup focused on practical effectiveness, aiming for immediate applicability for their financial and investment divisions. Despite the impressive advertisements of the Vietnamese instructor's course, the actual training fell short of expectations. Ultimately, KiWiMi secured the contract by offering a price combining the two previous units, and Vingroup was extremely satisfied with the course's quality and value.
Initially, the training was intended to enhance modeling skills for Vingroup's real estate segment, with the goal of real-time project valuation from the group's perspective. However, when the deal was nearly finalized, a top executive questioned why they shouldn't also value VinFast in preparation for its IPO in the US in 2023. Despite the initial shock, KiWiMi embraced the challenge, as we thrive on difficult tasks. And so, we started again... To be continued!
At this time, Vietnamese media reported a valuation of around $60 billion for VinFast. KiWiMi built a model from scratch, analyzing various scenarios and comparing them to global auto companies, resulting in a valuation of $20.6 billion for VinFast. Debates ensued among the finance, external relations, investment, and investor relations departments. Through rigorous model building and discussions, participants expressed different perspectives and insights, leading to a comprehensive understanding of the necessary preparations for future scenarios. VinFast's US listing on August 15, 2023, valued the company at $23 billion.
Investment Analysis of VinFast
Since VinFast began producing cars, specifically gasoline vehicles, Thầy Sang, from an economics and public policy perspective, believed success was unlikely. According to the Heckscher-Ohlin theory, a country should produce goods that intensively use its abundant production factors. Relatively, the US has a capital advantage, while Vietnam has a labor advantage. Thus, the US excels in capital-intensive products like automobiles, whereas Vietnam excels in labor-intensive goods like garments. Additionally, factors such as localization rates and Vingroup's core competencies in the auto industry posed challenges. Vingroup would need to develop supporting industries to create a full industrial cluster ecosystem, reducing dependence on imported parts.
However, in 2022, Vingroup announced a complete shift to electric vehicles. This change brought hope for success in the automotive sector, which motivated Thầy Sang and KiWiMi to invest significant effort into valuing VinFast, hoping for their success abroad.
Electric vehicles represent thematic investing, a trend where investors focus on companies contributing to societal betterment. Tesla's mission to improve humanity through electric vehicles resonated with financially savvy investors in developed countries. Vingroup's strategic shift was timely, indicating that gasoline vehicles were a preparatory phase for electric vehicle development, albeit with a winding path. An IPO via SPAC in 2020 or 2021 would have greatly enhanced VinFast's success prospects. Nonetheless, overcoming challenges demonstrates true talent and heroism, not mere luck.
Working with VinFast, several suggestions were made for their success, leveraging their proven strengths:
VinFast must operate swiftly and capture market share. Effective, rapid execution and discipline are Vin's strengths. Currently, electric vehicle penetration is below 6% globally (2021). European giants are still focused on R&D and benefiting from gasoline vehicle sales, presenting an opportunity for VinFast's rapid strategy.
This ratio, revenue/(debt + equity), measures the efficiency of capital use in generating revenue. VinFast should maintain a ratio between 2.5 and 3 for higher success chances. Currently, VinFast's ratio is around 1.0, similar to Tesla's 8-9 years ago, due to high R&D investment. Vin should capitalize on its strengths.
A core investment factor, even for Tesla, is whether investors perceive electric energy as clean. This perception is crucial for success.
The US will inevitably face a recession.
If investors view VinFast as a consumer discretionary sector (luxury consumer goods, GICS standard), it will be disadvantageous. However, like Tesla, which successfully positioned itself in the technology sector with AI and high-tech narratives, emphasizing technology can make VinFast appealing despite a recession, as technology reduces costs.
Ultimately, with Vietnamese blood and heart, we hope VinFast succeeds on the international stage!
Thầy Nguyễn Hồng Sang CFA, CMA
Founder HSAcadmy and KiWiMi
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