TCB - Outlook remains strong

We expect TCB to realize solid earnings growth in 2020/2021 as the expansion momentum in both interest and fee income should be able to cover the surge in credit costs. In 1H the bank has accumulated more room for NPL and LLR, in precaution for probable bad debt formation. We think TCB will show a strong resilience to this crisis and be able to recover strongly upon the end of the pandemic.

TCB is currently trading at VND21,300, equivalent to a P/B 2020F of 1.0x. We consider this an attractive P/B versus the bank’s both short-term stable outlook and the strong position to accommodate long-term growth. Upside risk include the ETFs strong buy-in while downside risk is the property sector.

VHC – Pangasius export to the US is recovering quickly

Pangaisus export to the US, the company’s largest market, has recovered in both ASP and volume in  July. We expect the US to be the major growth driver for VHC for the rest of 2020 and 2021. The “new normal state” and the public concerns on unpredicted health problems such as COVID-19 continue to boost growth of value-added pangasius as well as collagen.  We are also more optimistic about the company's ability to stabilize pangasius ASP in 2021 in the face of global economic difficulties. Considering all these factors, we revise up the target price for VHC by 26% from VND 39,700/share to VND 50,000/share. Together with a cash dividend in the next 12 months of VND 1,500/share, the total return is 24%, based on the closing price VND 41,450/share as of Sep 16, 2020. Thus, we have a BUY for this stock.

MWG – DMX Supermini to Further Fuel the Growth of the Consumer Electronics Segment

In June 2020, MWG rolled out the new format for its electronics chain DMX, namely DMX Supermini (DMS) stores, in Tien Giang. This brand-new format is the smallest in terms of store size, and generally located in untapped areas of the province. Initial results from 17 DMS stores in Tien Giang during two months were rather encouraging. Average monthly revenue hit the targeted plan of around VND1.1bn while yielding wider profit margins than existing formats. Following these positive results, MWG is now ramping up the opening of DMS stores nationwide in an effort to quickly consolidate its market share from mom-and-pop consumer electronics retailers in remote areas who are suffering amid the Covid-19. Last week, we joined the opening ceremonies of five DMS stores in Tay Ninh Province organized by the Group. Below is our quick take from store visits, and our view on the stock.

Vietnam’s exports in 8M20: What are the sources of growth?

Widening trade surplus supports the balance of payments

Vietnam’s trade surplus expanded to US$5.0 bn in Aug 2020, a record high vs. a surplus of US$3.5 bn in the same period last year. In Aug 2020, exports continued to grow at 7.1% yoy (vs. 8.2% in July) while imports rose at 1.6% yoy (vs. -3.7% yoy in July). In 8M20, exports rose 2.2% yoy while imports dipped -2.9% yoy, leading to a record trade surplus of US$13.7 bn in 8M20. We believe the record high trade surplus could offset the impact of weaker remittance and FDI inflows on the balance of payments (BOP). According to Fitch Solutions forecast, Vietnam’s current account surplus is set to narrow to 3.7% of GDP in 2020, down from 4.9% in 2019.

PPC - Several factors affecting future profits

PPC is currently a NEUTRAL with a target price of VND 23,100. This represents our neutral and somewhat doubtful view of the business potential for the next 12 months. After two years of brilliant earning growth in 2018 and 2019, PPC is entering a difficult period. The company saw reduced output due to hydrological conditions favoring hydropower plants, and fluctuating input costs due to changes in coal type and changing fuel price method, affecting PPC's medium-term profit outlook.

As mentioned in a recent Analyst Pinboard and update report, we believe that 2020-2021 will be a relatively difficult period for PPC due to many factors:

LTG – Transforming for the long-term

In the first half of the year, the company's results were negatively affected by the COVID-19. We believe that Loc Troi's results will  improve in the second half of the year thanks to favorable weather and continued improvement in working capital management. In addition, better management of account receivables, the commissioning of agricultural services and the renewal of rice production and export will help to improve operational efficiency and create growth drivers in the future. Therefore, we increase our target price from VND 23,400/share to VND 26,400/share. With the expected cash dividend of VND 1,000/share in the next 12 months, the total return is 18.6%. We recommend to ACCUMULATE this stock.

SMC – Foreseeable good performance in 2H2020

We expect SMC’s performance in 3Q2020 will be positive as hot-rolled coil (HRC) prices have surged in the quarter and its high selling volume in the June-August period. In 3Q2020, SMC’s net income is likely to reach VND 45 billion, leading to a net income of VND 90-100 billion in 9M2020. Besides, owing to the high growth rate in the steel pipe segment and the new contract with Samsung, we believe that SMC will maintain a good performance in 4Q2020. Hence, the company will fulfill its net income target of VND 120 billion. We recommend to BUY this stock with a target price of VND 11,300, plus a cash dividend of VND 1,000. The total return is roughly 23%, compared to the closing price on September 9, 2020.

Banking industry: Service income growth has been temporarily hampered, yet the long-term potential remains intact

Payment fees and card fees are expected to maintain growth momentum upon the promotion of non-cash payment as well as banks’ focus on the retail segment and digital transformation. Bancassurance fees should continue to see solid growth upon stronger penetration of insurance and the contribution of banca channel on total insurance premiums (especially life-insurance). Fee income structure can also be diversified with other activities such as bank guarantee, bond services and brokerage.

Overall, we expect that service fee growth amongst our coverage universe would be able to rebound to 25% YoY in 2021 after leveling off at around 12% YoY in 2020.

1H2020 earning results and 2020 plan of contruction rock companies

Obviously, the slowdown in construction has had a significant impact on most of the construction rock enterprises. However, the increase in the average selling price of products compared to the same period last year, coupled with the decrease in COGS, has supported the earnings in 1H2020. With the expectation that public construction activities will be more active in 2H2020, earnings results are expected to improve.

For DHA, its quarries are located in favorable location in the South Vietnam and are ready to benefit from public investment construction and gaining market share from two Nui Nho and Tan Dong Hiep quarries. We think DHA could complete its 2020 profit plan in the third quarter. Meanwhile, the leasing industrial park segment continues to be a lifesaver for KSB in the context that the reserve output of Tan Dong Hiep mine is running out. We also think it will not be difficult for KSB to fulfill its 2020 business targets as the leasing industrial park segment is still performing well.

NNC could fulfill its 2020 plan as the second half of the year on the last five year average contributed over 53% of the year's NPAT. Meanwhile, VLB set a low target of NPAT, down 24% YoY. Therefore, it will not be too difficult to achieve the target as it already completed 70% after 1H2020.

Insurance sector – Non-life insurance sector to outpace life insurance post-pandemic

The Insurance Association of Vietnam (IAV) has just released data showing that the pandemic has influenced life and non-life sectors in a complicated way.

KDC - M&A plans are underway; subsidiaries saw strong growth

We recently had a meeting with KDC. From the meeting, we learned that the group will likely have several M&A activities in the coming future to increase its stakes in existing subsidiaries namely TAC and VOC, besides the AGM-approved acquisition of KDF to make this firm become the wholly-owned subsidiary of KDC. While this is expected to decrease the minority interest and boost the bottom line, the group will keep working on improving its overall operation efficiency through premiumization strategy. Notably, KDC will come back to the confectionary business this year by firstly launching mooncake products under the brand ‘Kingdom’. While we are pending a recommendation on KDC in our next report, below are an overview of the group’s structure, key takeaways from the meeting, and a brief update on Q2-FY20 results.