By Vy Nguyen, VDSC, Email: vy.ntk@vdsc.com.vn
In 9M 2018, HAX experienced a growth of 9% YoY in NPAT as gross profit margin (GPM) in the automobile business segment which improved significantly. We believe that GPM of this activity will remain good in 4Q 2018, resulting in an expectation of strong performance in the last quarter of this year.
4Q 2018 GPM of the automobile business may remain as high as that of the two recent quarters.
GPM of HAX’s core business has benefited from difficulties in the automobile market since 2Q 2018. Although CBU cars could not enter the Vietnamese market from January 2018 due to Decree 116, the lack of automobile supply has just started to become evident since 2Q 2018. In 1Q 2018, HAX had a large number of inventories, which were cars from 2017. Hence, HAX offered a discount to clear its old inventories. However, since 2Q 2018, as other automobile brands, supply of Mercedes – Benz brand could not meet pent-up demand. In 2Q and 3Q 2018, the firm therefore did not have to give customers a discount to boost sales as they did in 1Q 2018, leading to an uptick in GPM. Given this, GPM of this segment increased from 2.2% and 4.7% in 2Q and 3Q 2017 to 6.0% and 5.6% in 2Q and 3Q 2018, respectively.
In the last quarter of 2018, the shortage of automobiles may remain supportive of GPM, HAX’s core business. Currently, Mercedes – Benz Vietnam has not had enough CBU and CKD vehicles to meet the high domestic demand. In terms of CBU cars, long inspection time has forced the firm to delay deliveries to customers. According to Decree 116, once vehicles arrive in Vietnam, a sample is selected from every batch of imports to run tests for emission, quality and technical safety. The inspection is repeated shipment after shipment even if it is the same car model. Therefore, after arrival at the port, it takes around two to three months for delivering vehicles to customers. Regarding CKD automobiles, change in VIN convention of GLC car line, which is the key car line of Mercedes – Benz Vietnam (MBV), has made MBV postpone registry for those cars in recent months. Hence, delivery of these cars has been delayed. To sum up, as Mercedes – Benz cars demand exceeds supply, we expect that selling price will remain favorable for HAX in 4Q 2018. We forecast that GPM of the automobile business in 4Q 2018 will remain high, at around 5.6%. As a result, the figure in 2018 is expected to reach the peak of 4.9% seen over the last few years.
Figure 1: Gross profit margin of the automobile business per quarter
Source: HAX, RongViet Securities
Incentives could be significant in 4Q 2018.
Due to the lack of automobile supply, MBV decided to decrease sales KPIs for its dealers. We estimate that MBV would cut down by 20% the sales targets of its dealers. Therefore, adding forecasted sales volume of 625 cars in 4Q 2018 to sales volume of 1,645 cars in the first three quarters of 2018, we believe that HAX can achieve MBV’s 2018 sales KPIs. However, in 2018, MBV has faced challenges in importing CBU cars and change in VIN convention of the key car line (GLC). We expect that the amount of incentives may decrease by 20% YoY to VND 87 billion. However, excluding incentives in the first three quarters of this year, the figure in 4Q 2018 may still increase by 10% YoY to 28 billion.
We believe that the 4Q 2018 performance will remain strong.
Although in 4Q 2018, supply of Mercedes – Benz cannot meet the high demand, we still believe a growth of 9% YoY in sales volume in the quarter is possible. Therefore, revenue in 4Q 2018 may reach VND 1,250 billion (+16% YoY). We expect that NPAT could witness a significant growth of 73% YoY to VND 45 billion in the fourth quarter thanks to improved profit margin of the core business and the high amount of incentives. Therefore, although earnings of HAX in the first three quarters were not so impressive, we still expect 2018 NPAT to reach VND 108 billion (+29% YoY), corresponding to an EPS of 3,085 VND/share.
At current market price, HAX is trading at a P/E ratio of 5.2x, which we consider quite attractive given the bright outlook in 4Q 2018 and 2019. In the short – term, we believe that the estimated strong performance in 4Q2018 could be a catalyst to support the stock price. Furthermore, we also expect a slight improvement in 2019 results thanks to anticipated growth in the automobile market next year. We have an accumulate recommendation on the stock.