Japanese Equities: down we go

The Topix Index, at 1906 (July 18), has been unable to break the 2000 level, the March 2021 top,  which is indicative of weak momentum (Figure 1). In fact it looks like it is rolling over and 1780-90 is in sight. We doubt that asset allocators are adding to their Japan positions at this time.

Trade outlook is expected to moderate in 2H2021

• Trade deficit narrowed in Jun 2021
• Trade outlook is expected to moderate in 2H2021
• The base effect is likely to fade in 2H2021
• Import growth is expected to decline due to weak domestic demand

Steel industry update – Positive signs from export activities

• Steel consumption at a higher pace than the construction industry in 1H mainly due to export activities.
• In the coated steel segment, exports could remain strong in 2H2021 as several producers, such as HSG, NKG, received sufficient orders for production until November.
• Domestic demand was hit by the pandemic as consumption decreased in June in the construction and steel pipe segments. Due to measures to control COIVD-19, construction steel demand can be weak in July and August.

NLG: Pre-sale performance picked up

• Revaluation gains from Dong Nai Waterfont (Izumi) has primarily driven 6M 2021 results amid the scarcity of product handover.
• Pre-sale performance was strong with a total value of VND 4,491 Bn (+341% YoY): 1,070 units sold (+209% YoY), which was mainly attributed by the successful sale of the Mizuki project – 646 sold units with value of VND 2,003 Bn in Q2 2021.
• We believe 2021F – 2022F will be a strong profit period. Catalysts include (1) Strong pre-sale performance and handover of key projects including Akari City, Izumi, Southgate and Can Tho, (2) NLG’s large land banks in tier-two cities having the potential for infrastructure development. However, we are still concerned about the impact of Covid-19 on sale performance in the next few months Therefore, we suggest to ACCUMULATE the stock with target price of VND 45,300, implying a 13% upside versus the closing price of July 22.

VNM – Covid-19’s resurgence to hinder growth prospects

• We are cautious about VNM’s results. The company will witness low single-digit decrease of both revenue and NPAT in FY2021, mainly due to (1) the weakening demand of dairy products amid Covid-19’s spread in Vietnam and (2) negative impact of material price surge on profit margin.
• FY2021 estimated revenue and NPAT to be VND 58,653 Bn (or USD 2.5 Bn, -1.6% YoY) and VND 10,668 Bn (or USD 462 Mn, -3.7% YoY) respectively, completing 94% of revenue and 95% NPAT target. FY2021 EPS will be VND 4,594, and FY2021 forward PE will be 19x.
• We are prudent about the upside prospect in FY2021 as the company will face a difficult year under the impact of Covid-19 while new investment projects still need many years to create significant synergies on results and stock valuation. Therefore, we recommend to ACCUMULATE with a TP of VND 94,000 and total stock return of 15%.

HND – Better performance thanks to high volume in the dry season

• Volume in 2Q2021 reached 1,9 billion kWh, nearly equal to that in 2Q2020, completing 95% of the company’s plan thanks to the dry season and several heat waves in the North.
• Revenue in 2Q2021 was VND 2,624 billion (or USD 113 million) +32% QoQ and -16% YoY and NPAT was VND 188 billion (or USD 8 million), -66% YoY because of a decline in the selling price. Accordingly, 1H2021 NPAT reached VND 177 billion (or USD 7,7 million), -76% YoY, completing 89% of the 2021 PBT’s target.
•   The company will have machine maintenance for 62 days in 3Q2021. Profit is going to be impacted. Afterward, the outlook is expected to be better with high Qc in 4Q2021 and efficient operation after the maintenance. We maintain our target price for HND at VND 17,900, an upside of 7% compared to the closing price on July20^th, thus we recommend to accumulate this stock.  

Growth trajectory faces risks due to the latest outbreak

• Strict movement restrictions have been imposed to break transmission.
• The economic damage from the latest outbreak.
• Growth trajectory faces risks.

European Central Bank (ECB) strategy review

• On July 8, the ECB presented an action plan to include climate change considerations in its monetary policy.
• It also removed the 2% ceiling from its inflation target, allowing price rises to temporarily overshoot.

SCS – Q2 2021 Business Results Preview: Cargo throughput volume in line with expectations

• Estimated Q2-2021 revenue/NPAT amounted to VND212Bn (+47% YoY)/VND150bn (+51% YoY) on the back of resilient international air freight volume throughput and the low base effect. Cumulative 1H-2021 revenue and NPAT have both completed 54% of our full-year forecast.
• We remain positive on SCS based on (1) its proven track record of resilient int’l volume amid recent lockdown in HCMC and int’l passenger flight cuts, (2) bright long-term prospects for EX-IM cargo volume, mostly driven by outbound cargo, owing to recovered demand from key trading economies given upcoming massive vaccine roll-out. We maintain our projection for 2021F/22F NPAT of VND529bn (+14% YoY)/VND590bn (+12% YoY).
• We raise our TP for SCS from VND141,400 per share to VND145,500 per share as we roll forward our valuation to the mid-2022 forecast, maintaining an ACCUMULATE recommendation.

BFC - Fierce competition to put pressure on gross margin in 2Q2021

• Higher input material price but low selling price to put pressure on gross margin in 2Q2021. Revenue and NPATMI are estimated at VND 1,858 bn (+9.4%YoY) and VND 31bn (-41% YoY), respectively.
• Working capital improvement to cut financial expenses. Selling expenses are expected to be stable in 2021.
• In 2021, revenue and NPATMI are projected at VND 6,809 bn (+25.7%YoY) and VND 168bn (+26.3% YoY), respectively. At this price, P/E forward is around 9.5x – high compared to its 3-year average. So we recommend REDUCE with a target price of VND 23,300.

GVR – Converting rubber land to industrial parks to create growth

• Rubber, wood processing, rubber products and industrial parks are the main businesses of Vietnam Rubber Group.
• The results of the rubber segment have not been positive for the last couple of years, while the demand for renting industrial land has been constantly increasing. Therefore, GVR plans to convert rubber land to industrial parks. The Group owns a huge land bank located in the provinces and cities that are the production centers of Thus, it is expected that the leasing price and rental rate will be higher than other industrial parks, helping to improve results.