FPT Corporation

How has FPT Corp done since we invested in it?

Since we invested in it on 5 April 2019, the share price of FPT Corp has risen close to 350% in GBP terms (total returns), compared to the MSCI AC Asia Pacific ex Japan Small Cap Index’s gain of about 44%.

What is their web address?

FPT.com

What does the company do?

FPT is the biggest technology and IT services group in Vietnam with three core businesses in IT services, telecommunications, as well as education and investment.

Why do we like the company?

FPT exemplifies the type of company that we like. Despite operating in what is still deemed to be a frontier market, FPT has been entrepreneurial in capitalising on growth opportunities while at the same time demonstrating prudence in building diversified revenue streams without compromising its balance sheet. A number of the company’s original founders remain core shareholders and are highly involved in the business and we believe they deserve credit for their vision, execution and transparency with investors. We also like the governance structure that has been put in place where key management personnel rotate across the different divisions and develop a deep understanding of each business before joining the board.

FPT’s technology arm is the key driver of its revenue and profits. Their IT services division has become a global business and saw its revenue top US$1 billion for the first time in 2023 on the back of rising demand for digital transformation. FPT originally found its niche in serving Japanese multinationals but has been successful in growing its client base elsewhere in the Asia-Pacific, US and European Union. The company aims to be in the top 50 global leading digital transformation (DX) solutions and services providers by 2030, with a revenue target of US$5 billion, and it has been instrumental in putting Vietnam on the map for technology outsourcing services.

The industry is attractive with structural growth tailwinds and a huge addressable market. FPT believes demand growth will ride on new technologies, such as cloud, AI, big data analytics and robotic process automation. Most recently, it acquired an 80% stake in AOSIS, a

French IT consulting firm, that will increase its customer base and improve its capabilities in offering solutions to the aerospace, aviation and logistics sectors. It also launched its automotive technology subsidiary FPT Automotive in Texas in the US, in view of rising global demand for software-defined vehicles (SDVs).

Across its other businesses, the education segment is the most profitable and management expects this division to continue to deliver consistently strong revenue growth. Most of the software engineers in Vietnam hail from FPT’s university, which also offers synergies with its broader IT business. Elsewhere, its telecom business is stable and defensive, supported by growth in broadband services.

This should provide a good buffer and healthy cash-flows in times of weak macroeconomic conditions.

The group is generally well aligned with the growth story of Vietnam. Investments are flowing into higher-tech sectors, while the population is becoming more educated and productive. The country is also gaining in importance as an alternative production base amid the diversification of global supply chains on the back of geopolitics. It is emerging as a manufacturing powerhouse, especially in textiles, electronics, and footwear, with competitive labour costs among its key competitive advantages. As one of the country’s leading conglomerates and most forward-thinking enterprises, FPT is well-placed to benefit from these trends and capitalise on emerging business opportunities, such as the development of local datacentre capabilities or semiconductor manufacturing.

When did we last engage FPT on ESG?

We last met FPT in March 2024.

What were the key areas of engagement?

We view cybersecurity, talent management and the company’s broader environmental impact as some of the material risks for the company. As such, we continue to engage with management around better disclosure on data privacy, employee welfare – given the stiff competition for tech talent – as well as the setting of targets to track its progress around its carbon footprint and renewable energy mix.

What is the result of our engagement?

Although FPT has yet to set up an ESG board committee, the company has implemented ESG initiatives for its business sustainability. It has also started to embed its ESG reporting within its annual reports from 2021. The board approves ESG policies, with specific goals established and then cascaded down to the subsidiary level. It also oversees the implementation of sustainable goals.

FPT’s environmental record is clean. FPT has fully complied with waste and emissions management regulations, with no related violations recorded in the 30 years since its establishment. However, FPT has not set any trackable carbon emissions reduction or renewable energy targets. That said, it is working to increase the use of renewable energy, such as solar, as well as ground water and rain water in its buildings. FPT Complex Danang, for instance, has been awarded the EDGE by the World Bank for reducing energy, water and material usage by 20%. We are also urging the company to track its carbon footprint better.

Meanwhile, cybersecurity and talent management are key areas of focus. Given that cybersecurity is a major operating risk, FPT has developed cybersecurity products such as CyRadar and FPT. EagleEye to supplement outsourced systems. However, disclosures about data privacy and cybersecurity are limited, and we continue to engage with the company on better transparency.

In talent management, we think the company has done a good job in managing employee welfare so far. FPT also maintains good diversity in its workforce. Female employees accounted for 38.1% in 2022 vs 36.1% in 2017. At the executive level, women made up 34.6%.

FPT has one of the most developed board structures in Vietnam. Its seven-member board has three independent directors and one female. Inside shareholders and major shareholders hold only 17.8% and 12.8% stake respectively. In response to shareholders’ feedback, FPT changed auditor to PwC from Deloitte in 2021.

While MSCI has yet to rate FPT Corp for its ESG standards, overall we regard the company as a good ESG stewardship example in Vietnam.

When do we next meet the company and what will be on the ESG agenda?

We plan to meet FPT in the first half of 2024 to discuss its business and progress on the material ESG issues highlighted above.