For the week, the VNIndex managed to increase 2.7% to 924.86. Investors’ confidence returned thanks to a potential Trump-Xiao dialogue (China A-shares went up by 2.7% on Friday while the Hang Seng rose 4.2%) and the fact the CPTPP trade agreement has been submitted to the National Congress for signing. Liquidity on the HOSE remained relatively weak at around VND2,700bn (~USD117mn), well below October’s average value of VND3,680bn (~USD160mn).
October’s price performance was truly dreadful. For the whole month, the VNIndex lost 10%. This makes it the worst October since 2008, and puts the month among the top 20 biggest declines since the VNIndex’ inception. Yet despite the drop, and perhaps because of it, foreigners bought heavily into Vietnamese equities injecting VND9,272bn (~USD400mn) vs. only VND474bn (USD20mn) the month before.
In last week’s recap, I said that Vietnam is trading at a premium to historic valuations. In fact, the VNIndex is among a handful of markets globally trading above their 5-year and 10-year average. And for Vietnam particularly, average valuations may be skewed by some very large caps that are trading at 20x earnings and above.
What I find particularly interesting is that Mid Cap stocks, which have underperformed the broader market YTD, are now trading at about 20% below their historical average. I believe current depressed valuations should provide good entry points into Mid Cap stocks. You want to look at opportunities in the 36 companies we cover that are within the small and mid-cap space. (see our Coverage List attached)
54 out of 58 stocks under our coverage announced their business results for the first 9 months of 2018. 28 stocks (51%) were in-line with our forecasts, while 13 companies published better-than-expected results, and another 13 stocks had worse-than-expected results. Steel firms performed much worse than our analyst forecasted, especially in cases of NKG and VGS. Other stocks for which we had been mistakenly optimistic, and which came in below our forecasts, included CTI, BFC, HAX and DPM. Our analysts are reviewing and updating their forecasts on those stocks. Furthermore, our analysts reduced their target price for TCM, VGC and BFC. For the detailed rationale, please contact me and we’ll set up a call with the analysts.
Bernard Lapointe, our Head of Research prepared a short video commentary sharing his views on global markets in general and Vietnam in particular. Please follow this link to view the video: https://goo.gl/V98HWB
Top Picks
Pha Lai Thermal Power (HSX: PPC)
Price : VND17,900
52w High : VND24,700
52w Low : VND16,600
Avg 30day Volume : 388,708
P/E : 5.8x
P/B : 0.97x
Catalysts:
- Significant improvement in average selling price (ASP) due to favorable momentum in the competitive generation market (CMG) in the third quarter, boost 5% of selling average price growth for PPC.
- Lower risk for PPC in capex plans due to no requirement for gas treatment systems by government since it costs EVN about USD1bn and their benefit is unmeasurable. The company expects to replace these projects by Pha Lai 3, however, the project is uncertain and too early to factor in PPC’s earning forecast.
- VND125bn of reversal from FX differences in 2016 is expected to be recognized in 4Q2018.
- Maintaining stable cash dividend of VND2,500/share, corresponding to a 14.7% dividend yield at current market price.
Valuation:
- For 2018, we expect NPAT reaches VND1093bn, rise 28% YoY due to a large one-off income from the reversal of the expense from FX differences. Therefore, 2018 EPS of PPC is projected to be VND3,317/share
- From 2019-2023, EPS would be stable at about 2,700 VND/share.
- Our target price for PPC is VND 23,000/share, upside 28.5%, we recommend to BUY stock on PPC
Risk:
- Low liquidity, only about VND6.5 bn/day
Webinar Invitation
Our Research Department is about to publish their November Strategy Report. And, on the back of this report we are organizing our Monthly Strategy Webinar on Tue, Nov 6, 2018 4:00 PM – 5:00 PM WIB.
Mr. Bernard Lapointe, Head of Research at Rong Viet Securities, will present the Equity Research Team’s most up-to-date views on Vietnam’s stock market, present some of their favourite stocks and answer investors’ questions.
Join the event to receive our top investment ideas and to learn how our strategy will help your investment decisions.
REGISTER TODAY
Registration URL: https://goo.gl/1W7ztX
(if the link doesn’t work, copy & past it in your browser)
Rong Viet Securities Equity Research Summary
Company Report
Dry Cell And Storage Battery JSC (HoSE: PAC ) – (UPDATE, REDUCE, VND38,000, DOWNSIDE 7%)
· 9M18 net revenue and NPAT reached VND2.297Tn (+11% YoY) and VND107bn (+7%), respectively.
· Due to relocation of machinery from Tan Tao factory to the Nhon Trach factory and fierce competition with FDI companies, sales volume in 9M 2018 decreased by 1% YoY
· Sales volume and gross revenue in 4Q18 is forecasted to decrease because GS, the direct competitor of the company, is launching attractive promotions
· We forecast that 4Q 2018 NPAT will grow by 40% to VND38bn YoY while gross revenues and NPAT will reach VND2.942tn (+13% YoY) and VND147bn (+14% YoY), respectively.
· The stock is trading at 44.x current EPS of VND3,037. Furthermore, at its current price, it is trading at ~3.x P/B. Cash dividend is expected at VND2,500.
Analyst Pinboard
Solar Energy in Ninh Thuan – At Rush Hour
· Solar energy increases its importance in Government’s official agenda
· The Government has given attractive incentives for renewable energy development, including solar power.
· Why Ninh Thuan?: Ninh Thuan province has favorable natural conditions for developing solar energy project.
· Project owners who have signed Power Purchase Agreement with EVN will be the most beneficiaries
· The buyer (EVN) is responsible to purchase all the electricity generated from the grid-connected solar power projects under the 20-year PPA with a price of 2,086 VND/kWh at the electricity delivery point. This price should be adjusted based on the exchange rate fluctuation of VND/USD.
Petroleum Equipment Assembly & Metal Structure (HoSE: PXS ) – Low earnings in 2018 is a chance to buy
· The bottom line continues to post a loss in 3Q18 with revenues down 5.7x to VND132 bn in 9M.
· Despite low earnings in 9M2018, we see some “positives” to support the company in 3Q18.
· Oil & Gas projects: After getting a USD 110 mn contract for Long Son Petrochemical Complex, PXS is bidding for another contract for Block B.
· DK project: PXS will build another DK in 2019 with a total value of VND 300 bn and it will take four months to complete.
· Windfarm: The windfarm in Taiwan will be delayed to 2020 while the windfarm in Ke Ga is asking for building permission.
· Vessel maintenance: PXS has just signed a contract to set up a JV with another two partners for vessel maintenance. PXS will contribute 35% to this JVs.
· Hyosung: PXS is bidding USD 20 mn for a tank farm. Hyosung has already delivered USD 2 mn in contracts to PXS.
CMC JSC (HoSE: CVT ) – Awaiting for new high-end tiles to perform
· 9M’s revenue and NPAT were recorded at VND987Bn (+15% YoY) and VND114bn (-12% YoY), respectively. 3Q NPAT came in at VND41bn (-21% YoY).
· There is a high possibility that sales cannot reach 1,000,000 sqm as planned.
· Regarding these two high-end products, we are concerned about how CVT will push its selling activities given the high price level of the new products.
· These high-end products are heading to alternate hind-end imported tiles from China, which costed around VND 0.7 – 2 million per sqm.
· In 2018, CVT’s production may reach about 16,000,000 sqm, including 7,500,000 sqm of ceramics (which is now 85% completed).
· High dividend yield will remain from VND3,000 to VND3,500/sh.
Nam Long Investment Corporation (HoSE: NLG ) – Profit in line with expectations
· NLG recorded total revenues and NPAT-MI in 9M18 of VND2.74tn (+67.4% YoY) and VND635bn (+80.4% YoY) in line with our recent estimations.
· Earning guidance in 2018 is guaranteed, remaining positive at VND861bn (+60.9% YoY), bringing PAT to VND300bn.
· Launch of Akari City has been delayed. We suppose that the delay of the project implementation will not affect NLG’s revenue and profit in 2018 and 2019, only the cash flow.
· NLG issued more shares and completed the conversion of Keppel Land’s convertible bond into equity shares.
· In our opinion, we think NLG still has a long-term advantage of a clean and available land bank.
Century Synthetic Fiber Corporation (HoSE: STK ) – 9M 2018 Business Results
· In 9M18, revenue reached VND1.780tn (+24.4% YoY) and NPAT was VND131.4bn (+96.5% YoY).
· In 3Q 2018, STK expanded its new customer base by more than 15 coming from Korea, the US, Pakistan, Hong Kong and the domestic market.
· In the remaining three months of 2018, STK estimates to reach its sales target and surpass its NPAT by 10-20%.
Outlook for 2019
· STK intends to increase the proportion of recycled yarn to revenue from 10% (AGM’s plan) to 14% in 2018 due to the increase in customer demand for recycled orders.
· STK plans to implement new product development plans
· STK expects Trang Bang 5 project to come into operation in 1Q19. Until then, the company may increase its capacity by 5% for DTY and recycled yarn.
· We forecast its revenue and NPAT at VND2.362tn (+18.7% YoY) and VND160bn (+60.6% YoY) in 2018.