PNJ Q3-2020 Results Track Our Forecast

PNJ announced Q3-2020 with flat growth in revenue while NPAT slightly declined by -2.8% YoY. Although accumulated 9M-2020 revenue and NPAT have fulfilled 75% and 72% of our 2020 forecast respectively, these results were rather in line with our full-year estimate as Q4, besides Q1, is often a high season for the jewelry business. We are currently review 2020 forecast with revenue of VND15,470 (-9.0% YoY), net profit of VND896 (-24.7% YoY) together with 2021 forecast with revenue of VND18,547 (+19.9% YoY), net profit of VND1,115 (+24.4% YoY). Our current target price is VND73,000, equivalent to a 2020/21 P/E of 18.4x/14.8x, and is under review.

MPC – The US Finds That MSeafood Evaded Anti-Dumping Payments

After more than a year of receiving an allegation from a domestic shrimp manufacturer, CBP on October 13, 2020 officially concluded that MSeafood committed origin fraud in order to evade anti-dumping (AD) duty. Facing this unfavorable decision, Minh Phu announced that it would appeal. In terms of business performance, we have found that the firm's competitiveness in the US has shown signs of decline and we are also concerned about the progress of implementing new farming technology, which will determine the growth of the company in the future. In 2020, profit may grow strongly but it is possible that the company could not complete the year plan. We will continue to monitor this case and update on new developments. Recommendation: MONITOR.

MSCI: Expectations from capital flows into Frontier Markets

The recent information from MSCI about capital flows attracted the attention of investors. More specifically, Vietnam is assessed as the country that will benefit the most from the reclassification of the MSCI Frontier Markets Index in November. Kuwait has been upgraded to Emerging Market status. Vietnam could see a weight increase of 13% in the Frontier Markets Index to become the most important market in this Index. However, MSCI has just suggested a gradual weight reduction for Kuwait at the rate of once per quarter and lasting for a year, starting in November 2020. If so, instead of reducing Kuwait’s to 0% and rebalancing the weights of other countries in the MSCI Frontier Markets 100 Index in November, this could take longer than expected.

In our opinion, capital would flow into stocks in the VN30 Index, especially Vietnamese stocks accounting for a large proportion in MSCI. In particular, net money inflows is estimated at USD 63 million with stocks having the largest money flows: VNM (USD 9.5 million), VIC (USD 9.3 million), VHM (USD 8.7 million), HPG (USD 5.7 million), and VCB (USD 4.5 million). However, the value of capital inflows could be higher than our estimate because we have not counted active funds and other funds benchmarking this index.

HND – Outstanding 3Q among thermal power plants

While we have maintained our view since last year that La Nina’s comeback will cause thermal power plants to have a difficult time in 2020 and 2021, HND stands out as an exception, reporting high earnings quarters after quarters. 3Q2020, too, witnessed HND’s earnings surging 88% YoY despite low volume and unfavorable conditions on the Competitive Generation Market (CGM). Until the end of 2020, we are going to keep our target price at VND 20,800 (plus a VND 1,200 cash dividend expected in the next twelve months), implying a total upside of 22%. By the end of 2020, we will evaluate HND’s potential in terms of volume growth, earnings, debt payment and most importantly its PPA, in order to see if the company’s current advantages can be prolonged fromm 2021 onwards. The hydrological conditions are not going to favor thermal power companies for the next couple of years.

IMP: Cost cutting to overcome tough times

Although the core business was hit strongly by COVID-19, IMP took effective measures to cut SG&A expenses and maintained a high net income growth rate in 3Q. Due to higher orders and attempts to cut expenses, we expect that the company will record the highest quarterly net income ever in 4Q2020 and fulfill the annual pre-tax profit target of VND 260 billion. Owing to its large potential from EU-GMP factories and favorable policies, IMP has a bright prospect in 2021. We will update our 2021 forecast in the next Result Update Report. Currently, we recommend to ACCUMULATE IMP shares with a target price of VND 53,000, plus a cash dividend of VND1,500. The total return is 17% at the closing price on October 20^th, 2020.

Global economic growth

Prospects for economic growth 2021 will depend on various factors, including the likelihood of government assistance/fiscal stimulus and most importantly consumer and investors’ confidence. Confidence is a behavioral issue. When one gets “burned”, it takes time to return to some kind of normality as pessimism is a long process to correct. Just look at Japanese banks… still trading at price to book values of less than one for decades and their stock prices going nowhere (Figure 1).

Vietnam at risk of being labelled as a currency manipulator

On 02 Oct 2020, the US Trade Representative (USTR) initiated an investigation regarding Vietnam’s currency manipulation. This investigation came after the US Department of Treasury concluded that Vietnam’s currency was undervalued in a specific trade case involving tires in Aug 2020. As Vietnam is already on the US Treasury’s watch list of currency manipulators, we suggest that investors should closely follow the investigation’s progress in order to have suitable actions in the future.

Steel production and consumption in 9M2020 – Strong recovery in 3Q

Several steel sub-segments have recorded an increase in selling volume during 9M2020 compared to the same period last year, including coated steel pipe, while other segments witnessed a decrease. As can be seen in figure 1, construction steel consumption fell by 2.5% YoY caused by the slower construction industry’s growth. Due to weaker construction activities during the pandemic, the construction industry’s growth rate dropped from 8.3% YoY in 9M2019 to 5.0% YoY in 9M2020. Coated steel selling volume increased by 4.6% YoY in 9M2020 due to the strong growth of 11.2% in exports from a low base in 2019. Steel pipe consumption grew slightly by 2.4% in 9M2020 due to the good demand from the domestic market.

AST: Negative outlook until international tourists return

AST’s business result was hit severely by two waves of Covid-19. The first wave made 1H-2020 revenue plunged 55.5% YoY due to closing all of retailing stores in April and stores at international terminals until June while the second covid outbreak in Da Nang caused the airport there which accounted for the largest proportion of total revenue (about 40% in the pre-Covid period) to suffer drastically. AST has around 40 stores at the existing airports’ international terminals, but most of them are temporarily closed at the moment.

Overall, AST’s current situation and short-term outlook are quite negative due to the lack of international tourists, of which the contribution is the main driver for AST’s profitability while domestic flyers’ purchasing power is rather low especialy in the time of the pandemic. We believe the international commercial flights as well as consumer confidence, which plays an important role in the retailing purchasing power at airports, are unlikely to recover soon, at least in FY2020.

ANV 9M2020 – Solar energy to be the new growth driver from 2021 on

The company’s core business of pangasius processing and exporting is recovering more slowly than our expectations. However, the solar business is going to be an important profit generator from 2021 onward. Together with the recovery of pangasius exports, we expect a strong performance in 2021. Therefore, we revise up the company’s target price from VND 12,500/share to VND 22,000/share. As the company has no plan for a cash dividend in 2020, the total return is 9% based on the closing price of Oct 12nd, 2020. Although the solar energy project has just started the construction and its contribution to 2020 results may be moderate, the market seems to have already reflected the project in the stock price with a trailing PER of 5.8x, the highest level since 2018 when the company finished restructuring and pangasius selling prices reached a historical ten-year high. Considering all these factors, we recommend to ACCUMULATE this stock.

Residential real estate market: Q3 2020 witnessed some recovery.

In Q3 2020, the residential real estate market recovered strongly with total sold units at 9,813, +44% QoQ while new launches  also showed good progress at 22,602 units, +23% QoQ versus Q2 2020. However, new launches in the condo segment in Ha Noi and HCMC still recorded a drop of 52% and 33% YoY, respectively  as the market has not fully recovered. From our view, the decent performance in Q3 is a good basis for a stronger recovery in Q4 2020 and 2021. Moreover, the acceleration of public investment this year, especially in infrastructure projects (e.g. Metro No.1, Ho Chi Minh City–Long Thanh–Dau Giay Expressway) and the continuous recovery of the economy in upcoming years also supports the real estate market. However, we are still concerned about some inherent risks such as (1) Continuous supply shortage in two prime locations - HCMC and Ha Noi caused by the lengthy licensing procedures, (2) Weak demand in cities  hurt by Covid-19’s second wave such as Da Nang and Quang Nam.