This week the market traded on a more subdued level as it slowly creeps higher each week. One of the main events the market focused on was the US and China returning to the table on Wednesday for the first time in two months as trade negotiators from Trump’s administration readied a new round of tariffs on USD16bn worth of Chinese imports.
The main purpose of the two day meetings between delegations from the US Treasury Department and Chinese Ministry of Finance is to try and find a way to end the escalating trade standoff between the two nations.
Up to the two day event, although both sides have stated that it’s just preliminary working level talks, the stock market globally had responded well to it. Analysts have warned that the preliminary meetings are to just set up the stage for more discussions before cumulating to a meeting between US President Trump and Chinese President Xi Jinping later this year. They are expected to meet in November at a multilateral summit. However, Mr. Trump has stated that for the potential November meeting that he does not expect anything concrete to come out from the negotiations. He has stressed that he does not expect much progress to happen during the talks and that resolving the trade dispute will “take time.”
The main conclusion is that these talks will be made and be useful to identify areas of discussion and where further discussions could likely occur.
This week the VN Index closed out at 987.05, -0.03% for the day and +0.06% WoW. The VN Index had another quiet start and traded the week relatively flat for the week. The short term 50dma 950.28 vs 954.71 WoW and mid-term 100dma 1005.13 vs. 1015.11 WoW continue to gently slide down while the long-term 200dma 1015.95 vs. 1008.83 WoW gradually continues its ascension. The spreads between both the 50dma and 100dma, 60.4 points, as well as the 100dma and 200dma, 10.82 points, have widened indicating that the short-term recovery has weakened and full market recover could take longer than expected. Bears are digging in their claws into the Bulls…
This week’s liquidity has been slightly lower VND3.4bn -7.5% WoW (USD148mn), with total liquidity reaching VND17.3tn (USD742.5mn), 86.8% of total trading value. Put-through value was VND2.6tn (USD115.9mn), 13.1% of total trading value. Total trading value including put-through hit VND19.9tn (USD854mn).
In the derivatives market this week 418,996 (-8.4% WoW) vs. 457,549 contracts last week changed hands at a total value of VND39.99tn (USD1.71bn). MTD 1,559,008 contracts traded worth VND147.5tn (USD6.3bn).
Foreigners showed mixed results in trading this week net buying for two days and net selling for three days. However the week ended with Foreigners being net sellers again. Buying VND2.6tn (USD112.9mn) about 12.7% of the entire market value VND20.7 (USD482.5mn) including put throughs, while selling is VND2.7tn (USD115mn) about 12.95% of the total market value leading to a net selling of VND-51.6bn (USD2.2mn).
Rong Viet Securities Equity Research Summary
PetroVietnam Power Nhon Trach 2 JSC (HoSE: NT2) – The problem lies not in gas supply but in gas prices
- The contract volume (Qc) of thermal power plants, including NT2, was reduced from 2018, business results would become even more sensitive to the adverse effect from rising gas prices.
- There will be adequate gas supply for NT2 in the coming years.
- As oil prices were on uptrend over the last 12 months and expected to stay at current level in the long-term, the gas price for NT2 is now a significant problem.
- We expect that the average gas price for power plants in the Southeast region, including NT2, would increase as a result.
- Lower Qc makes earnings more sensitive to gas prices.
- Lower earnings base raised questions on the dividend policy of NT2 in the coming years.
- Although NT2 has enough retained earnings to maintain the cash dividend of VND2,500/sh in the long-term, the aggressive debt repayment schedule until 2021 would leave it with inadequate cash to maintain this dividend level.
- In general, the above analysis leads us to believe that, unless NT2 uses short-term debt to maintain the current dividend level of about VND2,500/sh, its annual cash dividend in 2019 – 2021 may have to be reduced to VND1,000 – 1,500/sh.
Minh Phu Seafood Corporation (UPCoM: MPC ) – Efforts to Come Back to the Race
- After two years of being delisted, Minh Phu comes back trying to resolve long existing issues to get ready to re-list on HOSE in 2018.
Business results for the first 6 months of 2018
- Sales remained concentrated in the United States, Japan, the EU and South Korea, with the proportion of these markets increased from 69% in 1Q18 to 77% at the end of 2Q18.
- Gross margin has improved from 12% in 2017 to 13.5% at the end of 2Q18.
Business model
- MPC has developed a value chain of shrimp production.
- The self-farming area provides 10% of the demand for raw shrimp.
- Two processing plants have operated at full capacity of 75,000 tons /year.
Improvements in farming and processing and expansion projects
- Super-intensive shrimp technology.
- Artificial Intelligence Technology (AI).
- High-tech complex in Tri Ton (Kien Giang).
- In 2019, once the company successfully implement the technology of super-intensive farming and AI on all 900 hectares of self-farming areas, the self-supply rate of raw material will reach 30%.
Investment points
- Advantages of anti-dumping tax in the US market.
- Indian shrimp is strictly controlled in the EU.
- The yen has strengthened sharply by 5% compared to the beginning of the year.
- China reduced import duty on shrimps. from 8% to 7%.
Risks
- High debt leverage.
- Foreign room has been raised to 100%.
- Export prices depend on world prices.
Analyst view: Minh Phu has created a solid foundation for growth and reinforced its leading position in the shrimp industry in Vietnam. The new farming technology, although still in the experiment stage, contributes to the stabilization of raw material costs in 2017 and 2018.
PetroVietnam Technical Services Corporation (HNX: PVS ) – Prospect From 2019 on
Low earnings in 1H2018 will translate into a difficult year
- Revenue in 1H was equivalent YoY at VND7.629tn but the net profit significantly dropped 67% to VND212bn due to falling gross margin from 9% to 5%.
Dissolve the JV is positive for PVS: ROV – JV between PVS and CGGV. PVS has already asked for the permission from PVN to dissolve the JV due to inefficient operations.
Expecting an improvement in FSO/FPSO thanks to a new leasing rate and a new FPSO: Business results in 1H were partly affected by the new leasing rate of FPSO Lam Son which is only at break-even point.
PVS will benefit from major oil & gas projects from 2019 on
- In the last three years, there were not so many offshore projects for PVS.
- We still keep the target price of VND22,500 per share for PVS and change the recommendation from “BUY” to “ACCUMULATE” on this stock with the total upside 11.9%, based on the closing price of August 23, 2018.
Marc Djandji, CFA
Head of Institutional Sales
Rong Viet Securities Corporation (VDSC)