It was another tough week for Vietnamese equities as losses accelerated and the VNIndex pulled back 6% WoW. October’s losses are now to 11%, which puts Vietnam as one of the worst performers in the region this month, just after Korea (-15.5%) and China (-11.1%).
This week the VNindex had been tracking the DJIA and Nasdaq composites for 4 of 5 days, and investors were hoping that Thursday’s big US bounce back would reflect itself in Friday’s trading in Vietnam. However, the VNindex closed at 900.82 on Friday.
Besides the market systematic risk, the O&G sector also received bad news from the global oil prices’ declines. The Brent price hit -4.76% on October 22nd, prolongs its downtrend since the beginning of this month. It’s the same for the WTI. So, on the Vietnamese O&G stock board, GAS declined 9.1%, PVD -13.4%, and PVS -8.2%.
Retail and Financial services were the hardest hit sectors this week, although performance was weak across the board.
Though they turned net buyers on Friday, foreign investors were net sellers for most of the week. They offloaded VND553 billion (USD24mn) worth of stocks on HOSE.
Fortunately, liquidity has been relatively stable. The average of the HOSE’s matching values is approximately VND3,400 billion (USD152mn), +18% compared to the average of the last week. Fears of margin calls were overblown as brokers have been managing quite attentively their risks since the summer rout.
Though Vietnam is trading at a premium to historic valuations, we believe it continues to offer a combination of growth backdrop and decent earnings expectations for corporations. 26 of 57 stocks under our coverage announced their business results for 9M 2018. Six companies announced better than expected earnings results, while three came in under our analysts’ forecasts. The rest were in-line with our forecasts.
Top Picks
HDB: Ho Chi Minh Development Bank
Market Cap: USD1.46bn
RoE: 14.9%
P/E (18F): 13.15x
P/BV: 2.4x
Dividend yield: 3.78%
Rationale and risks:
· Diverse customer ecosystem supports its retail-banking strategy. HDB has close partnerships with Vietjet Air and some major retail-oriented companies with large and nationwide customer bases such as Petrolimex, Vinamilk and Saigon Coop. The bank is exploiting this customer ecosystem to grab more share by cross-selling its products, which enables it to expand its credit and NIM efficiently. In the first half of 2018, the bank’s lending growth was +16%, the second highest in the industry, driven by retail lending (+40% YTD). NIM continued to improve from 3.7% in 2017 to 3.9% in H1 18. Total operating income grew significantly (+46% yoy), while operating expenses were well-managed (+12% yoy), leading to a significant improvement in the cost/ income ratio. We expect NIM to reach 4% by the end of the year.
· The merger with PGBank was approved by the Central Bank (SBV) in Q3 18. We think this is a wise move to support HDB’s retail banking strategy as it strengthens its customer base and transaction network. These advantages are crucial to the bank’s sustainable growth considering: (1) we are seeing increased competition in retail and SME banking; and (2) the SBV is closely monitoring credit expansion.
· Maintaining current high margins in consumer finance can be challenging due to increasingly intense competition in the industry. The government might start to tighten regulations due to recent negative feedback regarding lending rates.
DXG: Dat Xanh
Market Cap: USD382mn
RoE: 25.9%
P/E (18F): 9.5x
EV/Ebitda: 6.1x
P/BV: 1.91x
Dividend yield: 0%
Rationale and risks:
· Established as a brokerage firm, Dat Xanh Group leveraged its business into real estate development, based on its knowledge and customer database. Accumulated at low cost, its huge land bank could be gradually transformed bringing cash flow and value to the company.
· Active developer by acquiring land bank and developing projects, mainly targeting the mid-end segment. DXG secured land bank at a reasonably low cost. Most of the land bank is located in Ho Chi Minh City, in District 7, 2, 9 and Thu Duc.
· One-off income: DXG could get earnings from transferring a hospitality project in Phu Quoc, namely Grand World. It is estimated at VND 400-500 billion profit if successful, equivalent to an EPS of VND 1,000.
· The company is one of the leaders in brokerage services in both two key markets in Vietnam: Hanoi and Ho Chi Minh City. Furthermore, DXG also aggressively expanded its coverage into other potential markets across the country. The company employs over 1,000 people.
· DXG may sell a 40% stake to strategic investors.
· In term of performance, we suppose that there is a very low possibility for maintaining the growth rate of nearly 40-50% from the past two years. We assume that the growth rate of revenues will be 20% per year for the next three years. 2018’s guidance is feasible thanks to hand-over of residential projects and brokerage segment. We estimate total revenue and NPAT will be VND 4,000 (+38%) and VND 1,029 billion (+37%) in 2018. Valuation:
· Using the RNAV method, the fair value of DXG is around VND 36,000, 25.4% higher than current price.
ACV: Airport Corporation of Vietnam
Market Cap: USD7.4bn
RoE: 16%
P/E (18F): 29x
EV/Ebitda (18F): 22x
Dividend yield: 1%
Price target: VND 120,000 (+50% from current market price)
Rationale and risks:
· Manages, operates and exploits all 22 airports in the country. True monopoly.
· Passenger growth during the 2005-16 period was 19% per year, the highest in Asia Pacific. We foresee that at least for the next two years, traffic growth will stay robust.
· The Government has allowed ACV to raise fees it charges airlines by between 10 and 40%, depending on the airport.
· Non-aeronautical revenues per passenger in Vietnam airports is very low at one dollar per person. In Thailand and Malaysia, it is around four to five dollars. There is room for this to expand as Vietnam’s airports start focusing on non-aeronautical businesses.
· Small free float and low liquidity since the Government owns 95% of the company.
QNS: Quang Ngai Sugar
Market Cap: USD 521 mn
RoE: 24.4%
P/E (18F): 9.3x
EV/ Ebitda: 5.7x
P/BV: 2.3x
Dividend yield: 3.7%
Rationale and risks:
· Huge potential in the soymilk market. Even with an 84% market share, Vinasoy, a QNS brand, has not reached more than 50% of households in rural area and 65% of households in urban area, equivalent to 52 mn people in Vietnam. Soymilk consumption is 280 mn liters in 2018 so far, an average of 6.8 liters per year per capita. However, Vinasoy only sells about 2.9 litres per year per capita. There is more upside.
· New products will enhance the competitiveness of QNS in the soymilk market. Currently, QNS is a leader in the northern part of market but the company is facing fierce competition in the South. We expect that a new product – Fami Go- introduced in the second quarter will diversify the portfolio of products as well as increase competitiveness. QNS expects that there will be six mn liters added to the total soymilk consumption this year and another 40 mn liters in 2019
· QNS is on the way to improve its sugar segment. Along with expanding the An Khe Sugar to a capacity of 18,000 tons sugarcane per day, QNS has been increasing the sugarcane area as well as productivity. We believe that QNS can compete with Thai Sugar.
· Biomass is a stable segment. The capacity of the biomass plant is not that big but it is generating a stable cash-flow.
Should you like to speak with our analysts about any of these stocks, please let me know.
Rong Viet Securities Equity Research Summary
Company Report
Pha Lai Thermal Power JSC (HSX:PPC) – (Initiation, BUY, VND23,000, UPSIDE 44%)
· 3Q18 performance: lower contract volume hit core earnings but NPAT still grew due to less provision expenses, VND 163 billion, corresponding to a growth of 8% YoY.
· The reversal of financial expenses from FX differences in 2016 is expected to be recognized in 4Q 2018, making it a potential catalyst for PPC’s business results. With the reversal amount of up to VND125bn, we estimate that 4Q18 earnings could increase by 136% YoY to VND214bn.
· Regarding 2018 business results, we estimate that NPAT could rise by 28% YoY to VND 1,093 billion due to the large one-off income from the reversal of the expense from FX differences
· The stock is trading at 17.x current EPS of VND2,680. Furthermore, at its current price, it is trading at ~0.9x P/B. Cash dividend is expected at VND2,500.
Analyst Pinboard
Pymepharco Joint Stock Company (HoSE: PME): Update on EGM
· The EGM of PME today has approved the following:
o Lifting the FOL from 49% to 100%
o Allow its largest shareholders, STADA Service Holding B.V or/and related parties to increase its ownership from 49% to a maximum of 72% without a public offering.
o Four new members from STADA were added to the BOD.
· We see this as a preparation for STADA to retain its influence in the Vietnam market, since it will withdraw from the STADA Vietnam J.V after 2019.
· According to Bloomberg, M&A deals in the pharmaceutical industry have an average EBITDA multiple of 13.3x and P/B multiple of 3.2x
· The price the acquirers would pay for PME would range from VND80,000 to VND110,000/share.
· PME can complete to lift FOL within this year.
· Our current target price for PME is VND 96,000/share.
Digiworld (HoSE: DGW) – 9M Results Update
· In the first nine months, DGW posted an impressive growth in both revenue (VND4.383tn, 62.6% YoY) and profit (VND78.3bn, 37.8% YoY). FMCG is still at the very early stage of development.
· Xiaomi seems to be penetrating well into the middle-priced segment as it offers “Low Price – Great Specifications”, smartphones with premium hardware and quality.
· In September, DGW and Nokia HMD signed a contract in which Digiworld will become the official distributor of Nokia products in Vietnam (please refer to our note in 9/28/2018).
· To sum up, we believe this company will have a good year in 2019, mainly driven by the mobile phone and office equipment segments.
· In the long term, DGW targets to make the FMCG segment the main profit contributor. However, the FMCG segment is still very small and the company has to prove it can adapt to a very different business.
Everpia (HoSE: EVE) – Update on Business Results
· It focuses on the middle class and high-end customers, its gross margin is quite impressive (bedding: 28%, padding: 49%).
· During the first 8 months, net revenue achieved VND716.9bn (+31% YoY), its NPAT recorded VND55.2bn (+26% YoY).
· Bedding sector is the core business activity with its gross margin of around 30-35%, EVE targets to keep stable its revenue growth rate of 20% per annum.
· Padding sector has the excess of gross profit margin (~49%), mainly exports to Korea market (over 50%).
· For 2018, BoD expects to increase its revenue to VND106.259bn (+24% YoY), increase the proportion of domestic market from 10% to 15%.
· EVE is cooperating with Byuck Chang Ho and KingKoil
· EVE is planning to issue the convertible bond to foreign markets
· Dividend policy for years is expected at VND1,000/sh in the coming years.
· We recommend to add this stock in the watchlist.
Hang Xanh Motors Service JSC (HoSE: HAX) – Optimistic 2018 Outlook
· The first Mercedes cars restarted to be imported from Germany in late August. We therefore believe that 4Q18 is a promising quarter for HAX’s performance.
· Improvement market share during 9M 2018 is in line with expectations of HAX’s management team.
· In 3Q18, revenue was up +26% YoY to VND1.142tn, but profits went down -23% YoY
· In the first nine months, revenue and NPAT reached VND3.280tn (+18% YoY) and VND64bn (+9% YoY), respectively.
· 2018 outlook is still optimistic, suggesting a positive 4Q performance with 2018 earnings reaching VND124bn (+47% YoY).
· Our target price for HAX is under revision. We will update it in an upcoming report.
FPT Digital Retail JSC (HoSE: FRT) – 9M Result Update
· FRT posted a 9M revenue of VND11.033bn (+20%) and profit of VND227.4bn (+30%) yoy.
· Regarding F.Studio – the Apple Authorized stores, 9M revenue was VND 301 bn (+25% yoy).
· On the other hand, the Long Chau pharmacy chain is doing as expected. The 17 stores earned VND 254 bn of sales in nine months.
· According to the new decision from the Ministry of Health, all drugstores must have a management software up and online by Jan 2020, favorable for modern drugstores such as Long Chau.
· To sum up, with the current saturating ICT market, all major retailers are expanding into new businesses to maintain their growth. We believe that Long Chau is a suitable model and FRT’s experience in running small shops will make the difference in a very fragmented market.
· We maintain a target price of VND 84,000 for FRT in one-year term.
Military Commercial Joint Stock Bank (HoSE: MBB) – Updates on 3Q2018 Business Performance
· PBT reached VND6.015tn, +50.3% YoY, fulfilling 88.6% of the entire year’s guidance.
· Lending growth rate slowed down under tighten credit control by SBV.
· Net interest income still grew positively in spite of slowing momentum, reaching ~VND10.43tn (+31% y-o-y).
· Non-interest income in 9M2018 accounted for 24.5% of TOI. This proportion increased from 20.4% in 9M17 and 19.1% for the entire year of 2017.
· Operating costs were well-controlled, accounting for 39.9% of TOI and provision expenses are lower than our expectations, accounting for 13.5% of TOI.
· It is noteworthy that the NPL ratio increased from 1.3% in 2Q2017 and 1.2% in 2017 to 1.6%, much higher than our expectations.
· Though the growth momentum is slowing down due to the stagnation in outstanding loans since 2H2018, MBB is still amongst a few banks that expect to improve NIM further.
· Provision expense in 4Q18 is expected to reach VND887bn. Total 2018 PBT is forecasted to reach VND7.023tn.
· MBB is currently trading at VND 21,050, about 42.5% lower than our target price of VND 30,500. We thereby reiterate a Buy rating on the stock.