Khúc này chưa dịch

Khúc này chưa dịch

Khúc này chưa dịch

Dear fellow shareholders, clients and colleagues, 2014 was a year of redefining moments. It was a period of critical events and perspective-changing occurrences around the world. There were unexpected transitions of geopolitical, economic and financial power; relations and alliances were deconstructed and redesigned; bitter enemies became acquaintances, and friends of convenience fell out of favour.
We witnessed a tumultuous period of international relations, during which there were many astounding events, ranging from regional socio-political and economic conflicts in the Middle East, Africa, and Europe, with repercussions felt as far as Australia; to internal social struggles in America and maritime territorial disputes in Asia. These were turning points in world history, creating rips and patches in the fabrics of our societies, amending our definitions of enemies and friends, and in many cases redefining our outlook and approach to life.
We were brought together by an aviation tragedy, with the world joining and lending hands in an international search. We were also appalled by a subsequent aviation tragedy, this time caused by geopolitical turmoil. As the national borders of a country in conflict were redefined, superpowers the world over took sides, and, in the process, realigned their geopolitical positions.
We feared and faltered at the verge of a global viral epidemic, with parts of the world shut off from outsiders. Entirely unexpectedly, the planet’s common nemesis was for a time redefined as a virus, with scant regard for borders, thus demanding unprecedented levels of international cooperation. This temporarily distracted from the War on Terror, the escalation of which emerged as one of the most significant themes in 2014, with grave consequences for the Middle East and Africa, and it is now knocking on the doors of Europe and South East Asia. The world’s most fearsome enemies are now not so much regimes but ideologies that extend beyond geographical borders and conventional parameters.
Falling oil prices, as well as economic distresses in Europe and South America, have sent tremors through global markets, and there were doomladen predictions by some about the next major market collapse occurring imminently. However, the ongoing progress of America’s economic recovery has enabled it to defy these fears, as positive economic growth and employment data has periodically emerged.
The information revolution continued to advance in the age of the internet. The world is now perhaps entirely accessible from a gadget, and data security has emerged as the biggest concern for businesses as well as for individuals, especially in the high tech environs. This is one of the global issues that is close to home for HSC, and has prompted us to proceed with one of our most important corporate governance projects, which I will elaborate on later.
Perhaps the most significant redefinition in the global financial services sector relates to corporate governance and ethics. We have learnt of Swiss bank account revelations; punitive fines in the billions of dollars levied on major global banks in relation to the rigging of foreign exchange markets; and hefty settlements over the mis-selling of mortgagebacked securities. This redefinition and heightened awareness should serve to make financial institutions the world over much more accountable and socially responsible in their commercial activities
OUR MARKETS 
Here in Vietnam, we witnessed the turbulence in the East Sea that threatened the country’s geopolitical stability. We were troubled by more stories of financial mismanagement in the corporate sector, as well as by rumours of additional arrests in the business community. We were hopeful, then fearful; hopeful again, but ultimately disappointed that the stock markets did not uphold predictions of a rally towards the end of the year. Nonetheless, the overall stock market doubled its trading volume, and in the process set new standards and redefined the norm as inherently volatile.
In the context of Vietnam’s economic integration and capital markets development, there were positive signs of the country’s economy establishing a firmer footing. Interest rates dropped further, continuing on a trajectory which began in 2013. The banking sector continued its consolidation process with mergers as well as the packaging of non-performing assets for transfer to the Government’s asset management company (VAMC). The authorities continued to place a strong emphasis on restructuring Vietnam’s economy, by attempting to redefine it in alignment with the private sector and the global economy.
Perhaps the most substantial redefining moments were in the drastic attempts taken by the authorities to widen and deepen Vietnam’s capital markets. From the very top level, the aim and pursuit of the state to turn State-Owned Enterprises (“SOEs”) over to the public was clear and aggressive.
After many years of economic renovation, and after being spurred on by both internal and international pressures, the privatisation process was still dragging its feet, frustrating the economy and the markets. At the beginning of 2014, there were more than 500 companies that required privatising by the end of 2015, many of which are the crown jewels of Government-controlled industries. This would have averaged one equitisation per day, yet it was insisted upon at the highest level of Government; there was now an obligation to list on a stock exchange, not just to equitise. There were also attempts by the authorities to open up the foreign ownership limits (“FOL”) in the hope of attracting more institutional funds, given the fact that many blue chip stocks had reached their limits. While this manoeuvre has been hampered by technical clashes between various laws, the authorities are still working on the concept and we expect to see some progress in the third or fourth quarter of this year. In addition, the stock market authorities have established a project to study Non-Voting Depository Receipts (“NVDRs”), which have been used in some regional markets to circumvent FOL. This product has been lobbied for in Vietnam by many foreign institutional investors.
Other new concepts and conventions were rolled out for the first time in 2014. The launch of the first domestic Exchange-Traded Fund (“ETF”) carried with it significant hope for Vietnam, as it was seen as an opportunity for foreign institutional investors to increase their appetite for the Vietnamese market by mirroring the VN Index, while also improving access to the blue chip stocks where FOL are full. With the establishment of the ETF, the rules on securities borrowing and lending were also ratified by the authorities, albeit only for the benefit of ETF participants. As an Authorised Participant (“AP”) to the VFM ETF VN30, we are proud to be the first liquidity provider to the first domestic ETF in Vietnam.
In late 2014, the authorities initiated discussions with market participants on a draft legal framework for derivative products, aiming to circulate this draft later in 2015. The first derivative offerings that are being studied are fairly basic products, such as index futures and covered warrants. We have actively participated in this process, helping the authorities to establish a fundamental framework to govern the issue of all derivative products. We are hopeful that this preparation will incite the market and improve liquidity in the near future, and we expect to gain first mover’s advantages.
Nevertheless, Vietnam’s stock market did not rally in the fourth quarter as anticipated earlier in the year. Despite having built up a strong momentum in the first quarter, based on expectations of expanding FOL, the turmoil in the East Sea spooked investors, resulting in a loss of 11% in just one week. While some investors believed a war loomed over the horizon, others seized the opportunity to enter the market after standing on the sidelines in the first quarter. However, despite the indices recovering much of their losses in subsequent weeks, market confidence was still hampered by the uncertainty of new policies and directions. The free fall in global oil prices in late 2014 and the announcement of Circular 36 removed any hope remaining for the market to return to its earlier heights.
Circular 36, which actually aims to reduce the crossholding relationships that have been established between banking groups and their related entities through internal financing arrangements, is a significant step towards the restructuring of the tangled web that is Vietnam’s banking system, replete with special interest groups. This has had a negative impact on the country’s stock market, but it must surely be more psychologically than practically disturbing to the retail investors that dominate the market. From what we can see, major independent margin lenders like ourselves are well capitalised, and less reliant on bank borrowing than smaller players and the securities arms of banking groups. Nonetheless, the intention of the decree, while good for corporate governance, will inevitably reduce liquidity in the short term.
OUR CORPORATE GOVERNANCE MATURITY 
Here at HSC, while we still face intense competition commercially, we continue to proceed with our corporate governance roadmap. Two and a half years after launching our Enterprise Risk Management (“ERM”) project, we have now reached a new stage in our corporate governance framework. The subsequent steps in the application of ERM in 2014 have redefined our corporate maturity and further reshaped our development roadmap. The concept of corporate governance had been much touted in the broader corporate environment, as well as at HSC, without clear definitions of standards and benchmarks. Where practical situations revealed our weaknesses and areas for improvement, we have had to re-evaluate corporate governance with more precise and scientific measures. We have come to realise that corporate governance is an ongoing and ever-evolving concept, and one that will steer us clear from dangerous activities as long as we have established a clear governance framework, which we continually update and adhere to. 
Our Business Process Improvement (“BPI”) project, which was rolled out in 2013 with guidance from PwC, was completed in 2014 and resulted in an overhaul of our policies, processes and procedures. BPI showed that we had hundreds of processes in our operations, many of which were redundant or overlapping in some areas while lacking or insufficient in others. The updating of our processes is an ongoing requirement, as we evolve our governance environment in response to the introduction of new products and regulations.
BPI has now led us to the next step, the Business Process Management (“BPM”) project, which seeks to automate and systemise as many of our policies, processes and procedures as possible. Defined as “the process of optimising processes”, BPM will require us to set parameters for our Limits of Authority, approval processes and work flow, as well as to digitally monitor processes in line with the eventual target of a paper-free operation. At the time of writing, we are poised to initiate BPM in its first phase.
One of the most significant landmarks in our corporate governance roadmap has been the establishment of HSC’s Internal Audit Function. We have engaged KPMG as advisors on this project, with a view to working with them over a three-year period. In 2014, KPMG assisted in setting up the internal audit process and carrying out internal audit work in high priority areas. This year, HSC’s Internal Audit team is more adequately staffed, and it will co-source and collaborate with our advisor on the audit of several of the Company’s divisions and functions. In 2016, the Internal Audit team is expected to be self-sufficient in performing its work, with the advisor providing external review and consultancy services only. In conjunction with the establishment of the Internal Audit Function, we have also set up the Internal Audit Sub-committee at the Board level. Internal audit processes continue to expose risks that can be mitigated and processes that can be revised and improved, and so our corporate governance picture is beginning to look more complete.
On the Information Technology (IT) side, we have carried out the Information Technology Infrastructure Library (“ITIL”) project in 2014 following the completion of our Information Security Management System (“ISMS”) project. The ITIL project enables our IT Function to match its capabilities with the needs of our core business functionalities, as well as to support our operational processes. We completed phase 1 in late 2014 and will begin phase 2 in the second quarter of 2015, with an aim to finish the last of five phases in the middle of 2016. Some of the most important concepts that will be addressed in this project include “incident management”, “change management” and “service validation and testing”.
As mentioned above, with data security becoming increasingly important in light of a number of system-hacking incidents in developed countries, we felt it was necessary for us to review our own security situation. We have received engagement proposals from potential partners to map out our security structure as part of the Enterprise IT Security (“EITS”) project, which we aim to launch during the second quarter of 2015.
In late 2014, we also contracted with a consultant to help us design a Disaster Recovery Plan (“DRP”). While we have established backup capabilities among our various transaction offices in the country, and we have also formed and employed certain Business Contingency Planning (“BCP”) methodologies, both in terms of hardware and software, ultimately we will need to build a disaster recovery site to complete the BCP project. We have tentatively budgeted for our DRP to be assembled by the end of 2015.
OUR BUSINESS IN 2014 
I have purposefully talked about our progress on corporate governance before discussing our business achievement in this message, in order to highlight the importance of doing “sound business” over doing “good business”. But the truth is that we could only afford to engage ourselves in non-commercial projects, both mentally and financially, because our commercial activities were profitable. 
We recorded a commendable financial performance for 2014, producing VND 376 billion net profit after tax, which exceeded the target and overshot the previous year by 33%. This bottom line delivers an EPS of VND 2,956 for 2014. The main contributors to our profitability were brokerage fee income, interest income in margin lending to the retail segment, and gains in our positions in both equity and bond trading. 
In essence, the main driver to our profitability was the liquidity of the market, which generated enough fee income to make us profitable over total operating costs, and triggered the average margin loan portfolio to grow by 80% in 2014.
Brokerage continued to be our core business, accounting for 36% of total revenue, and it was profitable in its own right, thanks to an active year in trading. 2014 saw a significant increase in market liquidity over the previous year. Average daily trading value reached VND 3 trillion, more than doubled 2013’s levels. At our Annual General Meeting (“AGM”) in April 2014, we presented a business plan (“the Plan”) with a projection that the market would reach VND 2.5 trillion on average, as it was trading at VND 3.2 trillion per day during the first quarter of 2014.
“I have purposefully talked about our progress on corporate governance before discussing our business achievement in this message, in order to highlight the importance of doing “sound business” over doing “good business”
The high liquidity was most likely caused by the anticipated influx of foreign money in the event that FOL were expanded. In addition, a lack of lending opportunities in the banking sector resulted in the banks channelling part of their excess liquidity into securities firms for more lucrative margin lending. If it wasn’t for the announcement of Circular 36 in Q4/2014, liquidity could have reached an even higher level for the year.
While market volumes doubled, we saw our total market share drop from 12.2% in 2013 to 10.6% in 2014, broadly in line with expectations. We did not achieve the same level of market share as the year before primarily due to the fact that foreign institutional investors’ trading comprised a smaller percentage of total market trading in 2014. In addition, there were several one-off transactions in 2013 arising out of takeover initiatives that resulted in a high number of large block transactions in our favour, which did not recur in 2014 on the institutional front. Indeed, foreign trading made up only 10% of the total market in 2014. We continued to hold nearly 30% of the foreign trading market, but, given the smaller part played by foreign trading in the overall market, this translated into only 3% of overall market share. The retail segment held its ground with a 7.4% market share of the total market.
Margin lending continued to be the main driver of our retail business and contributed 30% to our top line. HSC’s margin portfolio exposure rapidly expanded in 2014. At one point we reached our internal limit of VND 2 trillion in outstanding exposure and so briefly had to tap into credit limits from banks. The larger loan portfolio helped to offset a shrinking interest rate and allowed us to increase our lending interest income by 60%. While margin lending is still a relatively safe product in terms of credit risk, and is profitable to us, it has been under tremendous pressure from the central bank’s looser monetary policy in 2014, as well as from significant competition from the banking sector. The banking system had excess liquidity, while overall credit growth in the country did not meet the Government’s target due to a relatively slow economy. The securities firms that affiliate with banking groups enjoyed this ample and low cost liquidity, and as a result were able to undercut the market in order to gain brokerage market share. By the end of 2014, our margin loan portfolio fell by around 36% from its peak, while margin interest rates continued to face downward pressure.
Our proprietary investment activities, including in both equity and bonds, contributed 23% of total revenue in 2014, an increase of 27% over 2013. The two main components that made up this result were the remaining gains in the fund certificates portfolio and the new portfolio of T-bonds. The fund certificates portfolio was the outcome of our opportunism in response to exceptional circumstances in 2013, when several closed-end funds approaching expiration were trading at deep discounts to NAV. These funds were converted into open-ended funds and we redeemed at NAV. Furthermore, the markets appreciated during the period which helped to raise the value of our redemptions. We cashed out the remainder of this portfolio in 2014 as the indices began to fall. The resulting profits translated into a very high return rate in 2014.
Our investments in T-bonds were also highly profitable in 2014. As interest rates continued to decline after a significant drop in 2013, we re-entered the bond market in early 2014 and exited when interest rates stabilised. We did not subsequently re-enter the bond market as we deemed the risk of rates increasing again to be too high.
In terms of proprietary trading, we have established a portfolio to provide liquidity to the VFM ETF VN30 in our role as an AP to the fund. Although hedging tools in relation to this activity are not yet available, we have limited our risk by avoiding a full LP commitment, and by keeping the size of our portfolio small. The profit from spreads in managing this portfolio translated into a very reasonable return rate for us in 2014.
The corporate finance advisory business struggled in 2014 with only a few transactions completed, which were all relatively small. Although this is also a core business function for HSC, it continued to face many challenges, in what can fairly be described as an unconventional environment for corporate finance activities. In terms of M&A, there were few notable transactions presented in the market in 2014. In terms of IPO, the traditional practice is the equitisation process, which applies to SOEs when they privatise. Although a large number of SOEs were equitised in 2014, the size of the equitised stakes was in most cases small. In addition, the listing step was not tied in with the equitisation step, and so many SOEs remained unlisted for some time after their privatisation. Through this business division, we assist in the IPO of companies in the private sector, but opportunities in this segment are limited given that most privately-owned companies are small. With the equitisation of the remaining SOEs being rushed through the door in 2015, we envisage that after the administrative processes are finished, there will be a distinct need for practical capital raising exercises, and we aim to penetrate this sector going forward.
We are now facing a highly challenging year in 2015. The economy is projected to grow slightly faster than last year, and the fundamental macroeconomic issues appear to have been more or less addressed. However, economic recovery will most probably be achieved only at a gradual pace, as Vietnam has become further integrated into the still-troubled global economy. As Q1/2015 is about to close at the time of writing and the market as well as our own targets are slightly trailing expectations, I am concerned that the end results this year will not be as positive as 2014 for all market participants.
Nevertheless, our industry will continue to consolidate and evolve as the capital market environment in Vietnam develops further. We have determined that we are here to stay, and I have once before referenced the “survival of the fittest” theory. As we redefine our competitive position, I want to restate this reference by saying that we are here to stay, and to lead.