Gold price: Déjà Vu?

The spot gold price has gone nowhere since August 2020 (Figure 1), even though the world is in a pandemic, a mild recession and a geopolitical quagmire. If gold is a relative safety bet, why has the price been flat to slightly lower?

The answer: higher bond yields and stronger risk appetite. The 10-year Treasury has moved rather swiftly once it broke out of the range it has been in since late March 2020 (Figure 2), with the catalyst being the Democrats assuming control of the Senate. This raises the interesting issue whether the Federal Reserve is going to do anything about it in terms of adopting a Japanese-style yield curve control.  

Construction and Materials: Market consolidation is changing the industry

The construction industry growth has been on the decline and under the influence of COVID-19, it is even more difficult to find growth drivers. Civil construction is no longer moving at a pace as high as during 2013-2018, while disbursement of public investment and FDI still has yet not been sufficient to stimulate the industry’s growth. We note that most civil construction contractors are struggling to maintain revenue and that it is increasingly difficult to find new turnover for the longer term. The highlight for the construction industry belongs to the electricity construction segment because of a series of power source and power transmission projects under construction in order to solve the electricity shortage problem in the country.

As for the building materials industry, the biggest disadvantage is probably that the domestic construction market is becoming weak. However, there are leading companies in their respective sectors that pursue clear strategies and have sizeable opportunities for earning growth in order to secure  shareholder interests. We believe these few companies still deserve a positive recommendation for 2021. Investors can select names that can overcome the storm and even grow by gaining market share from less efficient competitors.

The change in FX intervention policy and its implications

At the end of 2020, the SBV announced new regulations on buying foreign currencies from commercial banks. To be specific, from 31 Dec 2020, the SBV stopped listing spot bid-rates on USD/VND and stopped buying USD in the spot market. From 04 Jan 2021, the SBV extended the USD forward contract term to 6-month instead of 3-month at the USD/VND rate of VND 23,125. Besides, commercial banks are only allowed to cancel one-time the entire transaction value of the forward contract.

Asian bond markets

Asian bonds are among the fastest-growing segments in the global bond market. Alongside the increase in size, Asian bonds have also evolved as a choice among investors who are seeking yield while being mindful of risk.

Banking sector – Credit growth expectation for 2021

The banking industry strongly polarized during the pandemic. Covid-19 had a strong impact on the economy by negatively affecting loan demand, financial capability of customers and the quality of assets. The State Bank of Vietnam has directed credit institutions to support the economy by measures such as lowering interest rates, restructuring debt, rescheduling payment period, exemptions and maintaining debt group. These timely actions at the beginning of the year - when the pandemic just broke out – helped maintain a positive economic growth. This promises a recovery in credit growth in 2021, followed by operating income of banks. This growth is expected to be further supported by capital enhancement at several banks and abundant liquidity in the system. However, it came at a cost. Regarding the medium-term target of SBV in order to create a safer banking system, it had to abandon some targets and postpone some restrictions. We believe that the pandemic could have strongly affected the economy, if the government had not prolonged the impact period to give banks time to handle bad debt. In 2021, we expect the government to issue additional regulations to ease the pressure on commercial banks, giving those room to achieve a 11.4-14.7% credit growth.

SMC update – Large investments in processing coil segment

SMC’s performance in 4Q2020 will be positive as hot-rolled coil (HRC) prices increased strongly by 18% QoQ in 4Q and its stable selling volume. We expect gross margin to reach 4.8%, and NPAT was roughly 75 billion in 4Q 2020. Due to the increasing demand for processed coils from machinery producers, SMC has a bright prospect in the next years. New factories in 2021 will help SMC increase its capacity in coil processing and allows the company to grow in the 2022-2023 period. However, SMC can grow at a low pace in 2021 as its factories are running at a high utilization rate. We think the good performance in 2020 has been priced in the stock price, which surged by roughly 100% in 2020. We are NEUTRAL on this stock as steel price can be corrected in the next year after surging in 2020, which will affect negatively SMC’s gross margin.

The Oil and Gas industry: Very few picks for 2021

As a relatively simple and fledgling value chain compared to other large petroleum corporations, Vietnam's oil and gas industry depends heavily on the fluctuations in world markets. Disadvantageous production costs of upstream projects reduce the motivation to invest in new oil and gas fields. Instead, decisions to spend on upstream projects are no longer based on economic benefits but depend entirely on political motivation. Therefore, the big picture looks rather cloudy, particularly considering the long-term impact of the pandemic. Many firms have made their business plans for 2021 assuming oil prices below $50/barrel, hence targeting conservative bottom lines. Based on companies’ expectation, we believe that 2021 will not be the year for oil and gas stocks. One of the rare positive points comes from the global liquefied natural gas (LNG) market. LNG prices dropping and staying low throughout 2020 have helped gas-fired power plants and numerous manufacturers benefit from lower input prices. We believe that the LNG industry outlook will be an important contributor in providing turnover for the domestic oil and gas value chain in the next ten years. Investors, contractors at gas fields and related infrastructure sites, importers and logistic service providers will be direct beneficiaries from the trend of using natural gas in electricity production and industrial activities.

Decree 148/2020/ND-CP: Positive impact on real estate market sentiment

Issued in December 2020, Decree 148/2020/ND-CP (effective from February 8, 2021) will be one of the main legal highlights to help real estate developers solve existing issue in project development, especially in land clearance when dealing with overlaps between public and private land. Therefore, the issuance of this Decree, along with the changes of several related laws such as the Investment Law and Construction Law, will open opportunities to solve legal bottlenecks in hundreds of projects and enhance supply in 2021. According to HoREA estimates, there are about 5,000 projects in the country that have been delayed due to the public land issues. 

US and the financial reaction to the pandemic

No time for politics. People need money and jobs.

The US Senate Majority Leader Mitch McConnell (Republican from Kentucky) on Tuesday blocked consideration of a House bill that would deliver a USD 2,000 stimulus payments to most Americans — spurning a request by President Trump as more Senate Republicans voiced support for the dramatically larger checks.

MWG – Update on 11M-2020 Results

During that period MWG achieved revenue of VND 99.3 Tn (+ 7% YoY). Net profit expanded reaching VND 3.6 Tn (+ 2% YoY). These results are rather in line with our forecast for 2020, completing 92% of our estimates in terms of both revenue (VND 108.4 Tn) and net profit (VND 3.9 Tn).

For 2021, we project that revenue will reach VND 146.3 Tn (+ 35% compared to 2020E) and net profit of VND 5.4 Tn (+ 37% vs. 2020E), corresponding to an EPS (adjusted for ESOP) of VND 11,506. Thus, the 2021F P/E as of December 30, 2020 is 10.2x. We reiterate our BUY recommendation on MWG, with a 12-month target price of 155,000 / share, implying a 2021F P/E of 13.5x and an expected return of 33%.

PC1: Wind power market enhances the performance in 2021

The company estimates that it will gain VND 2,000 billion and VND 70 billion in revenue and NPAT, respectively in the 4^th quarter. As a result, revenue in 2020 is estimated to increase by 6% compared to the previous year. However, NPAT is estimated to increase by roughly 23% compared to 2019. We still keep our target price at VND 29,000 as their growth potential in 2021 based on prosperous outcomes of the hydropower segment and a booming wind power market. Wind power will not only contribute to the power construction segment but also the three wind power projects are expected to COD which will contribute to the power manufacture one. However, the real estate segment in 2021 maybe experience an off-peak year incase PC1 does not attempt to hand over the 1^st phase of the Thang Long project.