Update on the construction industry 6M2021 - Near-term headwinds

• The increase in material prices along with fierce competition shrank the profit margin of construction companies. However, some players found a way to escape.
• The market suffered from several waves of Covid-19 by freezing construction activities and project launches of developers.
• Market outlook for 2H 2021: Accelerated public disbursement in infrastructure is pivotal to uplift the industry. Besides, investment opportunities are concentrated within some businesses’ own growth stories.

US Dollar as a risk signal. Is it still working?

• US inflation (CPI) data released last week were in line with expectations.
• The US Dollar (USD) reacted negatively but stocks went up.
• Decorrelation between risk aversion and a strong USD?

The outbreak takes a toll on export growth

• Vietnam’s export slowdown in Jul 2021.
• Exports of most key products saw a significant deterioration.
• Imports remained strong as Covid-19 restrictions put pressure on domestic supply.
• Vietnam’s exporters are grappling with higher operating costs and logistics bottlenecks

DBD – Strong performance in 1H

• Revenue and NPAT in 6M were VND 600 billion (-5.1% YoY) and VND 94 billion (+16% YoY), completing 42% and 64% of annual plans, respectively. The annual revenue target is hard to achieve due to the pandemic, however, DBD expects the NPAT target can be fulfilled.
• New anti-cancer medicine factory’s construction process has been completed and DBD expect it can obtain EU-GMP for an injection production line in 1Q2022.
• Anti-cancer medicine revenue increased strongly by 51% YoY in 1H, contributing 15% to total revenue.
• DBD aims to rise its market share in the dialysis fluid segment from 11% in 2020 to 30% in 2025.

Power industry: Temporary demand–supply imbalance

• Demand growth has not kept pace with supply yet, total national volume shared smaller part for electricity plants, both thermal and renewable energy plants are not fully utilized.
• Hydropower and renewable energy plants captured the thermal plant portion in 1H2021. Thermal plants were affected by hydropower and renewable energy as the utilization declined, offering room for hydropower and renewable energy.
• Hydropower and wind power will perform well in 2H2021 thanks to hydrological support and commercial operation from wind farms.

MBB – 1H2021 Performance: Reinforced asset quality

• Better-than-expected income growth led by NIM expansion but much higher-than-expected provision eroded PBT. The preferential lending rate program in 2H will pressure NIM slightly.
• Bad debt formation reduced and bad debt written-off surged in Q2 made stable asset quality. We forecast that NPL ratio can rise from the current record low but will be controlled lower than last year, relieving credit costs in 2H.
• CIR was slightly better than expected. However, the figure will not improve notably soon due to large investment in IT and the southern market expansion.
• We maintain our target price of VND 36,100/share and a BUY This translates to an upside of 22% from the closing price of August 10, 2021.

F&B Industry – FMCGs spending is reaching the two year peak

• The 4^th Covid-19 wave is impacting seriously on F&B spending in 2H-FY21, with the mass closure of restaurant chains and F&B delivering services, while many traditional markets are closed due to increasing Covid-19 infection cases. Due to more persistent impact of Covid-19’s outbreak, the change in consumer behavior will be stronger than that of the 1^st Covid-19 wave. In which, we expect demand of essential foods, focusing on basic FMCGs and packaged foods to surge in 2H-FY21 amid the strict social distancing under Directive 16.

Banking sector – Expecting temporary slowdown in credit growth

• Credit expansion was resilient in June as well as the first half despite the outbreak of the COVID-19.
• We project a 9.5-10.5% year-to-date credit growth for the third quarter, driven by lower lending interest rates, the uneven impact of the pandemic on demand and easing lockdowns.
• The latest lending rate reduction is likely to lead to pressure on NIM for a quarter, since the headroom for cutting operating expenses is not abundant and the SBV is looking forward to stabilizing deposit rates.

US: the inflation denial

It is obvious that inflation is here. Those who claim that this cannot be true because Treasury bonds aren’t showing it fail to mention that Treasury bonds are the most manipulated asset class on the planet. It is difficult to argue that Treasury bonds can discount or measure much of anything when the Fed is spending over $1 trillion buying them every year. Technically, all what yields are reflecting is what $1 trillion worth of Fed asset purchases can get you in terms of manipulation.

HAH - Robust container transportation performance led the significant profit growth

• Q2-2021 revenue was VND 449 billion (+72% YoY) while NPAT reached VND 98 billion (+150% YoY) largely driven by the container shipping business on the back of higher transported volume as well as income leasing vessels. For 1H2021, the accumulated revenue was VND 808 billion (49% YoY) and NPAT amounted to VND 183 billion (+161% YoY). While the former has accomplished 49% of full-year guidance, the latter has exceeded the plan by 16%.
• Hai An Port operation: Q2-2021 throughput volume reached 104,189 TEUs (+42% YoY). Consequently, accumulated throughput was 196,897 TEUs (+28% YoY). Domestic volume, which comes from HAH’s fleet, was 140,473 TEUs, accounting for 71% of total volume.
• Sea freight operation: Transported volume reached 125,404 TEUs in Q2-2021 (+83% YoY). For 1H2021, accumulated transport volume was 238,186 TEUs (+66% YoY). Notably, the proportion of international transported volume reached 35% in 1H-2021, while it was 13% for 1H-2020 domestic transported volume was 154,209 TEUs. More importantly, freight rates for both international routes and domestic routes extended their rally, which largely helped expanding profit margins.

STK: Social distancing to disrupt recovery path

• In 1H2021, STK recorded revenue of VND 1,077 Bn (or USD 47 Mn, +24% YoY) and NPAT of VND 141 Bn (or USD 6 Mn, +157% YoY). This strong growth is attributable to: 1) the recovery of orders in major markets, 2) a product mix shift towards high-margin recycled yarn.
• Social distancing in Vietnam has been delaying STK's orders due to supply chain disruptions and reducing the number of workers at the factory.
• Long-term growth potential remains bright, mainly driven by: 1) strong demand for recycled yarn, and 2) doubling capacity by adding Unitex factory to boost recycled yarn revenue.
• STK’s market price rallied 40% since early June 2021, reflecting the expectation of profit recovery in 2021 and the rosy long-term outlook of recycled yarn. Risks that need to be monitored further include prolonged social distancing and the progress of the Unitex factory. We are revising the target price.

Oil & Gas Sector: Looking back at 1H2021

• Oil price to surge thanks to OPEC+ cuts and the recovery world oil demand.
• Shale oil production remained low.
• Not all oil & gas companies to benefit from the increasing oil price in 1H2021