MWG Q1-2021 AM Note

• Procurement issue at BHX hampered SSSG (-10% in Q1-2021), translating into larger estimated quarterly losses of VND639Bn (vs VND-609Bn in Q4-2020 and VND-416Bn in Q1-2020), despite improved GPM.
• TGDD & DMX’s estimated that Q1-2021 EBIT swelled by 16% YoY mainly on the back of higher GPM, though SSSG posted weak performance of -9%.
• The TP of VND184,000 is under review given the current situation of CE products demand and issues related to BHX’s procurement process.

KDH – Lovera Vista to lead 2021 results

• Earnings in Q1 2021 grew 33% backed by the delivery of Safira and Verosa Park projects.
• 2021 results will be driven by the recognition of Lovera Vista.
• Current valuation (P/B of 2.4x) looks relative attractive compared to peers’ mean (P/B of 2.9x). We will update our target price in upcoming times by reflecting the new condo project (1000 units) in Binh Tan.

Rising China forces Europe and India to forge a closer relationship.

Saturday (May 8), leaders of Europe and India will meet via videoconference to discuss a potential realignment of their turbulent relationship. The EU geopolitical ambitions could start to bear fruit? Maybe because of the ascension of China on the world scene, European leaders will have to find a way to deal with the world’s largest democracy in order to promote their interests in Asia.

Automotive Industry - Semiconductors scarcity may slow down the industry’s growth

The lack of semiconductor chips will cause car sales to flatten in 2Q and 3Q of this year before growing back in 4Q as the supply becomes more plentiful. The supply is limited while the demand is increasing, making it difficult for selling price to decrease and possibly increase with the cost of raw materials in the future. For the whole year 2021, the results of automobile companies will grow thanks to increased output (mainly in 1Q and 4Q) and better profit margin.

Drug bidding results YTD – Positive signs from leading domestic companies in Tier 2

• Domestic companies have been gaining a higher market share in Tier 2 mainly due to favorable policies and competitive production costs.
• IMP has won the highest value into the ETC channel among Vietnamese listed companies and posted strong growth in terms of bidding value compared to the similar period last year.
• IMP showed its strong competitiveness in the Cephalosporin segment and the IMP3 factory is its main growth driver in 2021.

TCB – Maintaining competitive advantages

• CASA ratio slightly decreased in 1Q2021 due to seasonality of corporate customers. The drop in deposit funding costs in 2020 and 1Q2021 was attributed more to lower interest rate than the higher CASA ratio.
• NPL ratio is expected to be higher towards the year end. However, TCB is projected not to suffer significant increase in credit costs.
• We maintain a target price of VND 50,900/share and a BUY This translates to an upside of 17% from the closing price of May 4 2021.

Update on credit growth in 1Q21

• Credit growth grew at a faster pace than a year ago.
• Credit to priority sectors expanded at slower pace than overall credit growth.
• Further supports for bank’s customers impacted by the pandemic.
• Credit to risky fields will be strictly controlled

We remain bearish on the US dollar.

• The inability of the USD to move higher in a period where US stocks are at record high is symptomatic of inherent dollar weakness.
• Maybe crypto currencies are shaving something from the USD dominance as a safe haven currency!
• ASEAN currencies are behaving well.

SMC – Focusing on the coil processing segment

We expect SMC to exceed its NPAT target as its result in 2Q is likely to grow QoQ. HRC prices are still in an uptrend, and the demand for SMC’s products is strong. The company has accumulated a large inventory of VND 2,850 billion in 1Q (+55% QoQ) at a low price, hence, we expect its gross margin will still be as good as in 1Q. Currently, SMC is trading at a TTM P/E ratio of roughly 3.75x, which we think is low compared to other downstream steel producers. Hence, it is one of our favorite stocks in the steel industry as it is relatively undervalued, and the company still has strong growth potential in the next few years. We come up with a fair value of VND 38,900 per share. Together with a cash dividend in the next 12 months of VND 1,000/share, the total return is 32%, based on the closing price as of April 26th, 2021. Hence, we recommend BUY this stock.

PPC – Financial income saves 1Q2021 earnings

We maintain our target price for PPC at VND 24,400. The remaining dividend of VND 4,394  will be paid soon as mentioned in the AGM’s proposal, offering a total return of 6%. Hence, we recommend to accumulate this stock in 2021.

Robust steel demand in domestic and key export markets

The steel consumption grows strongly YoY in 1Q2021 due to the support from high demand overseas and recovering domestic construction activities. Finished steel production and consumption (including construction steel, steel pipe, and coated steel) reached 4.6 million tons (+18.2% YoY) and 4.4 million tons (+21.7% YoY) respectively. The export volume grew strongly in coated steel segment, and the domestic market boosted sales in HRC, construction steel, and steel pipe segments. For 2Q2021, we expect export activities will still strong as several coated steel producers received sufficient orders until mid-August 2021. Meanwhile, construction steel consumption is likely to increased QoQ as construction activities are often more dynamic in 2Q compared to 1Q due to the seasonality and infrastructure projects.

PNJ Q1-2021 Results: Riding on the recovering jewelry consumption demand

• Q1 2021 net sales reached 2Tn (+44% YoY) while NPAT jumped to VND513Bn (+26% YoY).
• Retail sales and NPAT in March 2021, in particular, posted robust growth of 91% YoY and 99% YoY, respectively, mainly due to the low base in the same period last year when PNJ’s operations were hit by the pandemic.
• Q1-2021 GPM and net profit margin contracted by -2.5pps YoY and -1.0 pps YoY, respectively, to 18.4% and 7.1% as product mix changed with higher gold bar sales’ contribution and higher marketing and promotion expenses.
• PNJ’s sales and NPAT has respectively completed 34% and 42% of 2021 guidance, tracking ahead of our expectation. We are reviewing current forecasts and the current TP of VND 100,000 for upside potential.