FPT 5M-2021 Results: Key Businesses Are Picking Up, Extending Profit’s Double-Digit Growth

• 5M-2021 revenue and PBT respectively posted VND13.3tn (+18.6% YoY) and VND2.4tn (+21.8% YoY), slightly behind our expectations by completing 36%/40% of the corresponding forecasts due to lower-than-expected global IT services performance.
• While we maintain a strong positive stance on FPT’s outlook as we believed it is well-positioned (cost advantage and improving technology capabilities) to capture the digital cloud computing, and AI adoption megatrends over the long-term, the current valuation may not support short-term stock price appreciation (current trailing P/E of 20.8x is 3sd higher than its average since 2017). Our previous forecasts (2021F revenue/NPAT-MI are projected at VND36.9tn/VND4,265bn), which are currently under review, suggesting a 2021F/22F forward P/E of 17.9x/15.8x. The current TP of VND90,000 is under revision as well.

DGC – Higher selling price and gross margin improvement bring growth in 2021

• DGC is known as a leader in the chemical industry in Vietnam with its main product - yellow phosphorus (P4) - widely used in the production of semiconductors and DAP fertilizers.
• DGC has been producing higher added value products, derived from P4, to improve its profit margin.
• Khai Truong 25 mine has come into operation since the end of 1Q2021, ensuring 30% of apatite ore demand for phosphorus production. Self-supply will help gross margin improve from 3Q2021 onwards.
• Nghi Son project as well as real estate project will be the growth engine from 2023.
• Recent rising price of yellow phosphorus is likely to support the 2Q2021 earnings of DGC. Revenue and net profit in 2Q2021 are estimated at VND2,181bn and VND320bn to VND330bn respectively.

FED notes from the June meeting

• Economic growth estimate rises to 7% from 6.5%.
• Fed funds forecast sees possibility of one hike in 2022, two in 2023.
• Markets take the Fed revisions to heart, Treasury yields and dollar strengthen.

Fed’s policy makers have finally awakened to reality. Inflation is probably not temporary as data in the US, Europe, China, Japan and other regions show.

MPC: AGM update – Brighter business outlook in 2H-FY21 but container shortage to continue

• In 2021, MPC plans to reach VND 15,755 Bn (or USD 685 Mn, +10% YoY) in revenue and VND 1,092 Bn (or USD 47 Mn, +63% YoY). MPC estimates 1H-FY21 pre-tax profit at VND 300 Bn (+11% YoY), completing 27% target. MPC proposes FY21 cash dividend of 5,000-7,000 VND/share (dividend yield 14.1-19.8%), the payout ratio 92-129% based on 2021 guidance. However, we are still suspicious about the ability to fulfill earnings and cash dividend guidance amid soaring freight costs and upcoming large CAPEX.
• 2H-FY21 revenue could bounce back strongly thanks to both export volume and ASP recovery, driven by strong demand rebound and Indian shrimp supply shortage. We expect gross margin will improve in the subsequent quarters because ASP could rise faster than raw materials prices. However, high freight costs could be a bottleneck for MPC to achieve its profit guidance.
• MPC's share price has rallied by 15% since the beginning of June 2021. We believe this short-term positive reaction is supported by the information that MPC would set high business guidance and very attractive dividend guidance. At the closing price on June 21, 2021, MPC is trading at a trailing P/E of 12.6x, higher than the 5-year average P/E of 9.6x. We note that the stock price may increase in line with the tailwinds of the shrimp export and positive business results in 2H-FY21.

TDM – Fulfills 68% its 2021 target profit in 2Q2021

• In 2021, the company plans to reach VND 453 Bn (or USD 19.5 Mn) and VND 274 Bn (or USD 11.8 Mn) in revenue and NPAT, +17% YoY and +53% YoY, respectively. It gained VND 119 Bn (or USD 5.1 Mn) in net profit for the first quarter thanks to the BWE’s dividend. The company estimates NPAT in 2Q2021 to be VND 53 billion, +12% YoY. Thus, 1H2021’s NPAT is going to be at 68% of its 2021 target.
• To reach untapped potential areas. in Dong Nai province. Purchased 20% of Gia Tan, alongside BWE owns 48% of Gia Tan, this group is going to unlock this business’s value.
• TDM has sustainable growth based on potential from an industrial park in Binh Duong and the new joint venture in Dong Nai. For its core business, the selling price is going to increase by 5% as schedule and growth in Binh Duong will raise its volume.

Trade data remained supportive in May

• Stronger external demand for most Vietnamese products.
• All export markets recorded strong rebound.
• Imports were buoyant due to rising domestic demand and high commodity prices.
• Vietnam recorded the largest trade deficit since 2009.

CTG – Short-term tailwinds and potential earnings surprise

• In 1Q2021, CTG achieved superior growth as the bank recorded a sharp fall in CIR, credit and interest costs. PBT growth was +171% YoY mainly due to provision expenses dropped -69% YoY.
• Despite the moderate expected credit growth, CTG is projected to achieve VND 6,265 bn PBT (USD 272 mn, +40% YoY) in the second quarter. This is attributed to a continuously widened NIM on a low comparison base and the movement of bad debt to upper loan groups lowering pressure on credit costs.
• We raise the projected 2021 PBT to VND 24,802 bn (USD 1.1 bn, +45% YoY). As the average multiple valuation rose dramatically and the bank is likely to barely reach the previously expected range of provision expenses in 2021, we raise our target price to VND 51,700/share and our recommendation to NEUTRAL. This translates to an upside of +2% from the closing price of June 16 2021.

PVT – Cautious guidance as usual for 2021 despite 1Q2021 impressive earnings

• 2021 AGM will be held on 15 June. The 2021 guidance is set at VND6,000bn for revenue and VND404bn for NPAT. PVT will also spend VND7,621bn for CAPEX and no cash dividend payment in 2021.
• PVT recorded a positive result in the first three months with revenue of VND1,717bn (+8,8% YoY) and NPATMI of VND136bn (+102,1% YoY).
• In 1Q2021, PVT has fulfilled 28,6% and 33,6% of its revenue and profit target, respectively.
• We believe that the company can easily reach the target with the expected revenue and NPATMI of VND7,563 (+2.4% YoY) and VND845bn (+26.2% YoY), respectively. We recommend ACCUMULATE with a target price of VND 23,300.

HPG – Hot-rolled coil segment to perform well in 3Q

The hot-rolled coil (HRC) segment is playing a central role in HPG’s business as the company is benefiting from increasing HRC prices and the robust demand from coated steel exporters. For 3Q2021, we expect this segment’s gross margin can remain stable at a high level as in 2Q. HRC price’s outlook is better than our expectations as prices for HRC delivered in July are more than USD 1,000 /ton. Meanwhile, the construction steel segment’s gross margin can decrease in 3Q compared to 2Q due to the weak demand. Hence, we forecast the company’s NPAT will be roughly VND 10,200 billion in 2Q, and VND 8,900 billion in 3Q. We revise up our 2021 NPAT forecast by 17% from VND 29,000 billion to VND 34,000 billion. Based on EPS forward in 2021 of VND 7,140, HPG is trading at a PE ratio of 7.2x. As Quang Ngai province has approved the investment policy of Dung Quat 2 Steel Complex, we are reviewing the valuation to assess this project’s impact in the long term. We will update the new target price in our Result Update Report, which is planned to publish this month.

Banking sector – Update on the banking system’s liquidity and credit growth

• The recent rally of interbank interest rates does reflect a less abundant liquidity. We expect the tension to be relieved in the third quarter when the USD forward contracts expire and the growth momentum of deposit is normalized.
• The private commercial banks are experiencing robust growth in credit, reaching their initial limits in the second quarter. Meanwhile, credit growth of several state-owned banks has lagged. LDR constraint might be a cause.
• Based on the expectations of the pandemic’s impact and timing of the quota lift approval, we forecast that large private banks will achieve robust credit growth in 2Q2021, led by TCB.