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.

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.