PC1: Hydropower is recovering strongly but overall earnings growth requires more

2020 was supposed to be a strong year for PC1. So far it has been quite strong in terms of share price performance. However, we had thought its fundamentals would have recovered more remarkably in all  three business segments. Hydropower has been the only one that satisfied our expectations so far since La Nina’s cameback in 2Q2020. In contrast, power construction activities seem to have remained under impact from COVID-19. Similarly, the handover progress at PC1’s new apartment block is slower than expected. As a result, the overall business performance is going to gradually improve during the last quarter of the year, instead of rebounding in 3Q as we had thought. Our current target price is VND 26,600, which implies a lot of upside for the next twelve months as we think there are still opportunities for higher earnings growth.

US monetary policy

Jerome Powell, Chairman of the US Federal Reserve (FED) talked at the National Association for Business Economics' 62nd Annual Meeting on Tuesday October 6. He took office as Chairman of the Board of Governors of the Federal Reserve System on February 5, 2018, for a four-year term. Key messages from that speech:

• Economic activity in the US is not expected to return to pre-crisis levels until late 2021.
• The US economy still has a long way to go before it bounces up.

Automotive industry - Government policies help the automotive industry to recover

To conclude, we believe that car sale volume will continue to recover in 4Q2020 and 2021 due to the supportive policies from the government and the recovery of people's income. Meanwhile, the pressure to liquidate inventories from 2019 will force companies to reduce selling prices, leading to a slight decline in GPM. However, overall gross profit will still grow because of increased sale volume. In addition, the recovery of demand will help companies save selling costs, thereby increasing PBT.

Adjusting expectation on selling volume of CVT

We revise CVT's revenue and PBT 2020 forecast from VND 1,169 and VND 116 billion to VND 1,321 and VND 144 billion, equivalent to 102% and 103% of company’s revenue and EBT 2020 target because consumption is better than previous expectations. Therefore, we raise our target price for CVT from 19,985 VND to 23,040 VND / share. With a dividend of VND 1,500 / share over the next 12 months, the total return is 9.1% based on the closing price on October 5, 2020. We maintain the ACCUMULATION recommendation for CVT.

Seaport industry update: Cargo throughput has recovered; Seaport services tariffs are expected to increase from the beginning of 2021

Trading containerized cargoes via sea has regained more clearly in the first half of September. In which, we estimate that the export value of these freights surged by 28% YoY, while import turnover witnessed an increase of 12% YoY, significantly improved compared to the previous months (figure 1). We see that the vital driver for exports over the past few months has come from the abnormally robust growth of machinery, computers, and components with the main destination is the US, which benefited from the US-China trade war. Meanwhile, the import value in raw materials groups also started to accelerate from the beginning of September to prepare for the high demand in production as well as consumption in the last months of the year.

ACV: 8M-2020 Update & Proposal of Assigning Public Airfield Assets to ACV of Ministry of Transport

We estimate total air passenger volume in Q3-2020 to reach approximately 13.6 mn (-48.5% YoY) as international passenger volume in September continues to remain low. Domestic passenger traffic in September improved compared to the previous month (+33% MoM) thanks to the fact that airways connecting to Da Nang were able to resume operations as infections in the community were quickly controlled. Accordingly, Q3-2020 revenue is estimated at VND 1.339 bn (-49% YoY) and pre-tax profit at VND -32 bn (-101% YoY).

Recently, the Deputy Prime Minister Trinh Dinh Dung has asked the Ministry of Transport to study and implement plans of management and utilisation of the public aviation infrastructure assets in a way that these public assets do not become state capital in the enterprise which receives the assets, then propose to the Prime Minister for approval. We believe that if the proposal is officially approved, ACV will be entitled to be more proactive in using take-off and landing service revenues to invest, maintain and upgrade the airfield assets.

Currencies: Pressure on the Euro

We retain our target of 1.24 for the EURUSD but in the next few months it could be challenging for the Euro. After failing to break the 1.20 level (Figure 2), the pair is now down below 1.18. Meanwhile Norway’s Government Pension Fund (GPFG) is getting prompted from its minority government to shift more assets into the United States and Canada, while slashing its holdings in Europe. That means in the next few months it should be supportive for the USD and CAD. We believe this move is motivated by the fact that GPFG sees better growth potential in North America than Europe. We agree.

HOSE indices review

The Ho Chi Minh City Stock Exchange will review the VN30, VNDiamond and VNFinlead indices in October. Results will be announced on October 19^th  and all changes will be implemented on November 2nd.

VNDiamond index will review its components in October. Based on data as of September 30, 2020, we predict that DXG sill be deleted because it could not meet FOL requirement. We also estimate that the FUEVFVND ETF would need to buy more TCB (+2.6 mn shares), KDH (+0.8), GMD (+0.6), etc. Meanwhile, it would sell all the DXG share (-6.7 mn shares), followed by MBB (-1.5), CTG (-0.8), etc.

The VN30 and VNFin Lead Index will not change constituents in the October review. We also estimate that VN30 ETF would likely to buy more EIB (+4,1 mn share), ROS (+3.0), VIC (+0.3), VHM (+0.26), VRE (+0.2). Meanwhile, it could sell VNM (-0.4), HPG (-0.25), etc. Regarding the FUESSVFL ETF, it could sell CTG (-2.0 mn shares), MBB (-1.16), STB (-0.82) and buy EIB (+2.7), HDB (+0.56), SSI (+0.47).

TCM 9M2020 – Recovering more quickly than the sector

The company’s business is recovering more quickly than our expectations. Sales of fabric have showed signs of benefiting from the EVFTA. That together with the investments in dying and knitting/weaving will be the key to maintain the growth momentum post-pandemic. Therefore, we revise up TCM’s target price from VND 24,000/share to VND 26,100/share. With a cash dividend of VND 500/share in the next 12 months, the total return is 14% based on the closing price of Sep 30, 2020. We recommend to ACCUMULATE this stock.

US: Upcoming November elections

Tuesday night was the first Presidential debate going into the November elections.

Key points:

How does the Presidential election works?

Complicated to start with. Every US Presidential election revolves around this simple question: are you better off now than you were four years ago? For Wall Street and the hedge fund community the current answer is yes. The S&P 500 is just shy of its all-time high. For people that rely on weekly pay checks and have no investments in the stock market, the answer is  probably no.

Real estate update in “Thu Duc City”

Overview

“Thu Duc City” is a hot keyword lately given the merger information of Districts 2, 9 and Thu Duc. According to the information from the Party Committee of Ho Chi Minh City, the Government announced the determination of the Standing Deputy Prime Minister - Mr. Truong Hoa Binh on the project to sustain Ho Chi Minh City’s development. At that time, he gave the green light to the idea of merging the three Districts to form Thu Duc City. This was pursuant to the scheme of arranging administrative units at district and commune levels during 2019-2021. The formation of Thu Duc City in consonance with the orientation of establishing a creative and highly interactive urban area is aligned with the general policy of digital economic development. As these districts already have convenient and modern infrastructure, including the metro line No 1 from Ben Thanh in District 1 to Suoi Tien in District 9, the expressway from HCM City to Dong Nai Province and Cat Lai Port, Thu Duc City is predicted to be new imperative area of HCMC and the country with 30 percent contribution to the city’s economic growth, and 4-5 percent of the country.

GEG: Hydropower bounces back while solar-power contributes to stable revenue

Hydropower experienced an extremely low quantity in 1H2020 but is going to bound back in 3Q and 4Q  because of La Nina

Hydropower’s contribution to GEG in 1Q and 2Q was relatively lower compared to previous years: 25 million kWh and 27 million kWh, respectively. This is only 21% total of the target quantity or 10% total of target revenue for 2020. Consequently, the gross profit margin from this segment experienced a downward trend from 2018 to 1H 2020 because of El Nino.