VCB – Impact of a potential capital issuance

Vietcombank was approved to make a private placement in 2020-2021 of up to 6.5% of chartered capital to raise funds for future growth and to meet capital requirement (CAR Basel II). Prior to this, Vietcombank reported a CAR of 10.1% in 6M2020, which is higher than the average level of SOBs but still lower than that of private banks. VCB’s CAR at 6M2020 was slightly higher than that at the end of 2019, partially due to a reduction of risk-weighted assets for credit risk. If it had not been the pandemic, potentially causing low loans and credit expansion, VCB would have been only able to sustain a CAR above minimum requirement until the end of 2020 based on the planned credit and asset growth. We think that although raising capital is not urgent as the current CAR is expected to be enough for another 1.5 year of credit expansion, a private placement is necessary for the bank to have a stronger capital buffer. However, the increase in shareholders capital, or deleveraging, could put pressure on ROE, which is one of the benchmarks for multiple valuation. We expect that earnings growth generated from raising capital (which leads to higher credit expansion limit) could reduce the impact of lowered efficiency. We also consider a raise in ROA due to a shift in the type of assets or change in risk appetite to be options VCB could use to support its ROE.

HSG updates

Although the outlook for HSG’s business result in FY20-21 is bright in terms of selling volume, increasing competition and downsides risks in HRC price can harm the segment’s profitability. For 1Q/FY20-21, HSG’s gross margin is better than average, although lower than 4Q/FY19-20, as HRC prices still increased in last two month. Besides, its selling volume in 1Q is still good as export volume remains strong, meanwhile, domestic consumption can increase due to the demand to repair houses and factories. We come up with a fair value of VND 16,800 per share, which is based on P/E, with a target multiple of 7.0x, and FCFF methods (exit EV/EBITDA of 6.3x, WACC of 11.9%). We recommend NEUTRAL for this stock in the Intermediate-term.

Textile and Garment Industry 9M2020 – Demand Came Back in 3Q

After the first half of the year experiencing two consecutive supply and demand shocks due to the severe impact of the pandemic, Vietnam's textile and garment industry witnessed a positive recovery in 3Q. According to the Vietnam Textile and Apparel Association (VITAS) data, 3Q textile and garment exports reached USD 10.2 bn, up 45.7% QoQ but 7.6% lower compared to the same time last year. 3Q exports reached USD 28.7 bn in 9M2020, down 10.8% YoY, compared with a decline of 14.1% YoY in 1H2020.

Ranking returns by asset classes

Which asset classes have done better this year?

HDG – 3Q2020 Analyst Meeting

9M 2020 at a glance – Real estate remained the largest profit contributor as the new segment, namely solar power, has just started operating in September.

In 9M 2020, HDG posted positive results: net revenue of VND 3,831 Bn (+23% YoY) and NPAT of VND 962 Bn (+21% YoY) (Figure 1), staying on track to achieve its FY2020 plan by completing 71% and 82% on revenue and NPAT, respectively.

Real estate contributed the most to overall revenue (Figure 2), as 762 units  of total apartments in Hado Centrosa project were handed-over in 9M 2020 while other businesses such as construction, leasing & hotel segment have yet to recover from Covid-19. These activities had a minor impact on HDG’s business results given its small contribution. The real estate and energy segments were also key profit contributors, accounting for 71% and 23% of gross profit in 9M 2020, respectively. 

Automotive Industry - Positive future

In conclusion, we believe that car sales will grow in 4Q2020 and 2021 due to the positive economic outlook and Government policies. It is likely that gross profit margin will not improve due to high competition, but the reduced selling expenses (no longer having to offer promotional policies to stimulate demand like 1H2020 or to liquidate inventories in 2019) will help car companies' PAT grow.

NT2 – Prepare for rainy days

NT2 made a net loss in the last quarter due to both unfavorable electricity market conditions and itself stopping production for maintenance. We think NT2 is ahead in terms of preparing for rainy days as the company is lowering its minimum operating capacity in order to improve its revenue during off-peak hours. Considering that 2021 will be a low period for thermal power companies, NT2 will regardless achieve net profit growth. Ultimately, NT2 will paying off all debts by the end of 2021 and is capable to offer substantial dividend yields for its long-term shareholders. Therefore, even though trading at a 11.5x 2020 P/E and 10.5x for 2021, we would still recommend to accumulate this stock.

Exports resilience maintained in Oct 2020 but challenges ahead

Exports resilience maintained in Oct 2020

Vietnam’s exports in Oct 2020 rose by 12.2% yoy, slightly lower than the 16.6% increase in Sep 2020 while imports climbed 9.2% yoy, lower than the increase of 12.6% in the preceding month. The trade surplus was at US$2.94bn compared to US$2.95bn in Sep 2020 and the reading in 10M20 was US$19.6bn, greatly better than US$8.9bn in the same period last year. By products, tech and machinery were still the major driver of the strong export gains. There were also signs of seasonal demand from stronger shipments of toys and furniture. Imports were led by demand for intermediate inputs, especially for tech products.

Q3-2020 AM Note: Upbeat profit from DMX and TGDD to cover for BHX losses

Accumulated 9M-2020 NPAT annual growth rate has turned positive, slightly ticking up by 0.1% YoY and reaching VND 3 Tn, following double-digit growth of 11% in Q3-2020 net profit. The group’s profit growth in Q3 was mainly driven by two chains namely TGDD and DMX (estimated PBT grew by 26% YoY) while the grocery chain BHX has extended its loss to in the quarter. Nevertheless, MWG has accomplished 86% of the 2020 net profit plan which was targeted to decline 10% YoY in the 2020 AGM, while completing 77% of our full-year forecast.

NVL – 3Q2020 Analyst Meeting

9M 2020 performance update. Bottom-line surged on the back of asset revaluation. Delivery process witnessed a sluggish performance but pre-sales are picking up.

9M-2020 NPAT tripled to VND 3,298 Bn, primarily due to solid financial income from gains over divestment of subsidiaries including Phong Dien, Phu Dinh, Phu Tri with value of VND 2,560 Bn and a non-cash gain of VND 2,230 Bn and after revaluating Project C – Thanh My Loi in District 2, HCMC.

Meanwhile, slow delivery process due to Covid-19 has hurt sales which dropped by 60% YoY to VND 3,803 Bn. Accordingly, the company only handed over just 355 units YTD (vs 3,269 units in 9M 2019) from inner-city projects: Rivergate, Sun Avenue, Sunrise Riverside, Victoria Village, Lakeview City, and Newton Residence. In addition, the lengthened licensing procedures from HCMC authorities hindered the hand over progress.

HPG – 3Q2020: Results were better than expectations

HPG’s performance in 3Q2020 was better than our expectations as its construction steel selling volume rose strongly while the domestic market just recovered slightly. For 4Q2020, the company is likely to meet several difficulties, such as rising iron ore prices, and decreasing hog prices. Although domestic demand for construction steel in October was weak, we expect that HPG’s steel selling will recover in late-4Q. For the long-term, HPG is our top pick in the steel industry owing to its strong competitiveness and the growth potential from HRC production lines. Currently, HPG is trading at VND 31,300, which is higher than our target price of VND 29,400. We will update the valuation in our next report.