GE2 – Is it an actionable valuation?

On February 9^th, 2021, Power Generation Corporation 2 JSC (ticker GE2) held the IPO of the parent company, selling 581,455,740 shares, equivalent to a 49% ownership. GE2 successfully sold 262,500 shares, equivalent to 0.045% of the total number of shares offered. The starting price was 24,520 VND per share and the average successful auction price was 24,578 VND per share. Although we do not have a finalized target price and recommendation, we believe that GE2's valuation is not too attractive compared to listed power generation companies. This observation holds true for direct comparisons with power plants that are subsidiaries of GE2, with other listed power plants, with renewable energy companies and with investment companies that have portfolios in this industry.

US equities: Valuation

According to the latest Shiller Cyclically Adjusted Price Earnings Ratio (CAPE), the US equity market is getting into ‘overheated’ territory. The CAPE now stands at 34.4, its highest level since late 1999 (Figure 1).  This is more than double the mean level of 16.8 calculated from data looking back to 1880 (Table 1).

Be mindful about the return of inflation

• Surging global commodity prices could lead to reflation.
• Vietnam’s inflation remained subdued but it might not stay muted in 2021.
• Vietnamese policymakers are still wary about allowing inflation to rise.

Growth opportunities for "professional" rice companies

The export volume is not expected to grow much and the selling price will decrease due to competition. As a result, export turnover will decline in 2021. However, there are opportunities in the niche market – high-quality rice exports to the EU, the UK and South Korea, creating a growth motivation for “professional” rice producers such as LTG, TAR and NSC.

STK – 2020: Recycled Yarn Boosted Performance

The 2020 performance was much better than our forecast because of the strong growth in sales of recycled yarn in 4Q, which led to its share in total sales rising to 45%, versus 40% in our assumptions. This, once again, confirm the efficiency of the strategy of focusing on recycled yarn. Thus, we revise up our target price for STK from VND 22,700/share to VND 28,200/share, as we think the high growth potential of recycled yarn will continue in the coming years. With an expected cash dividend of VND 1,500/share in the next 12 months, the total return is 13%, based on the closing price of February 3^rd, 2021. We recommend to ACCUMULATE this stock.

PVS – 2021 outlook less optimistic

We have a neutral recommendation on PVS with a target price of 16,800 VND / share (2021 Strategy Report issued on 28/12/2020). PVS is trading at a trailing P/E of 13.1x and a P/B of 0.7x. Oil and gas stocks in the last sessions have risen strongly following the general trend of the market while there are not many supporting fundamentals, so we recommend investors to be cautious when choosing stocks to invest in 2021, especially when the stock market is in a volatile phase.

Main points:

1. The most anticipated segment, M&C (Mechanical & Construction), faces difficulties in 2021 as there are few new jobs.
2. The remaining segments are relatively stable due to industry characteristics.
3. The motivation for investors to search and explore new mines is not high due to macro factors.

DXG – Analyst meeting

We have positive view on DXG prospects in 2021 and will update the target price in our next report. The main catalysts include (1) Secured profits from Gem Sky World project, estimated at above 700 Bn and Opal Boulevard (from VND 700 – 800 Bn), (2) The bounce back of the brokerage segment after Covid-19 thanks to the reactivation of sale activities. Otherwise, the re-launch of Gem Riverside could be a supporting factor as prices of surrounding projects increased by 20-30% compared to the opening price of the project in 2018. If the legal issue is taken care of, the project would generate a good cash flow for DXG and could be a booster for the stock price. In addition, advance sales to customers of VND 2,923 Bn at end of 2020  from Gem Sky World, Opal Boulevard and St. Moritz (+222% YoY) will be good source for DXG to book revenue when they hand-over products. However, we are still concerned about the financial health of the company as the debt/equity ratio increased strongly from 0.65x versus 0.48x at the end of 2019. 

PPC – 2020 performance exceeded the plan

We keep our target price at VND24,400, +2% compared to the current price, thus we recommend to accumulate this stock.  

Revenue in 4Q2020 fell by 18% YoY due to 2019 was an El Nino year. Thus, total revenue in 2020 reached VND7.9 trillion, -3.1% YoY (Table 1). In terms of volume, PPC provided roughly 1 billion kWh in 4Q2020, -9% QoQ and -35% YoY, relatively lower than Qc. During the year 2020, volume mobilized by EVN experienced a downward trend in 2H2020 since La Nina came back (Figure 1). Besides, PPC booked more than VND 270 billion in FX revenue in 4Q2020.

Global FDI

• Global Foreign Direct Investment (FDI) collapsed by 42% in 2020 to USD 859bn, from USD 1.5 trillion the prior year (Table 1 & 2). This is 30% below the through after the Global Financial Crisis (GFC) in 2009.
• Developing countries accounted for 72% of total FDI, the highest share ever.

PNJ Q4-2020 AM Note: Thriving Retail Sales

We attended the PNJ Q4-2020 AM on Jan 25^th,2021. Below are key takeaways:

• 2020 unaudited net profit was 5% higher than our full-year estimates, totaling VND1.1Tn (EPS: VND 4,700), mostly due to better-than-expected Q4-2020 profit.
• Upbeat jewelry retail channel sales in Q4-2020 (+22.8% YoY) was the main culprit behind the slight surprise in earnings.
• Though Q4-2020 GPM jumped nearly 1pps YoY and 1.4 pps QoQ to 20.2% as the channel sales mix changed, the quarterly net margin remained nearly unchanged at 7.3% due to large employee incentives expenses.
• Despite recent positive results in retail sales, managers still worry about uncertainty in jewelry demand in the short-term, pending clear guidance for 2021.

New growth motivation: Replicating Shop-in-Shop model that sells affordable jewelry under the brand “Style by PNJ”; Cooperating with financial companies to offer instalment purchase and pawn services.

HSG AGM update - An ambitious plan to become one of the leading construction material retailers in Vietnam and ASEAN

HSG’s net income in 1Q FY 2020-2021 was positive, and the result could still be good in 2Q as the company has inventory accumulated at a low price. We think HSG’s high profit was supported by the HRC price and it will return to the normal phase with a lower gross margin in 2H FY2020-2021. The HRC price could decrease in 3Q FY2020-2021 after surging in the last six months due to the temporary supply shortage of steel and materials. Regarding HSG’s new strategy, the company will enter a new phase as it will focus on developing a retail system and not invest more in factories. We think this is a suitable orientation for the company to create some growth momentum in the next years. This is because the competition in the steel pipe and coated steel segments is going to be harsh as several manufacturers now are able to produce hot-rolled coils. Besides, construction material retail markets are fragmented and larger compared to the only downstream flat steel market. However, HSG needs time to test and develop the right model for sustainable growth. Hence, we recommend monitoring this stock.

ACB – Some focal points from 2020’s preliminary results

ACB just announced its consolidated earnings, which are slightly higher than our expectations. The preliminary results are quite impressive in general, given the context of low GDP growth and weakened economic activity. Based on the released information, we expect to maintain our long-term view and investment rationales on ACB. However, we think there could be an adjustment in the valuation due to booking the bancassurance upfront fee. In short, this could be considered as an under-expected information to us. On the other hand, we appreciate the performance of the bancassurance segment and effort in cost reduction. We expect the improvement in profit before tax margin to help neutralize the effect of lower contribution of abnormal income on the intrinsic value. The guidance on restructured loans also raise hope for moderate credit costs, but we believe there are still uncertainties regarding the assumption of the degradation ratio of those loans and economic recovery.