PAC - Valuation not attractive

​PAC share has been rising steadily since the beginning of the year. Compared with the beginning of the year, this stock have increased dramatically (~71%) despite rising raw material prices, lower gross margin and declining earning’s outlook this year. We think factors that made stock prices rise rapidly in a short time are outside of the business prospects. There are a chain of supportive news happening simultaneously with the bull run of PAC share: (1) an increase of VND76 billion in 2016’s profit, (2) a change in the Board of Directors’ structure with tighter control from the company’s state-owned shareholder (Vinachem), (3) the continuously net bought from foreign investors. Based on 2017 outlook assuming demand for storage battery is positive and world lead prices is stable at USD2,100/ton, we use the DCF and PE methods to valuate PAC’s stock at VND40,600 per share. However, apart from fundamental factors, Vinachem’s divestment and the ambition to control this company of its strategic partner (Furukawa) will significantly impact on the stock’s movement. Given that this story will be prolonged, we recommend investors to HOLD this stock in the LONG-TERM. In the short term, the risk of a sharp fall in the share price will be low when considering the motivation to acquire PAC of its strategic partner.