Vietnam: Balance short-term stimulus and long-term financial stability

The Covid-19 pandemic has negatively and widely affecting residents. According to GSO, over 30 million of workers are suffering from being fired, furloughed or experience lower incomes. That is equivalent to nearly two-third of Vietnam’s working class or a third of total population. Needless to say, there is an ultimate need of bridge financing to tackle the health emergency, easing residents’ income shortfalls and restoring business confidence. However, before applying any exceptional regulatory relief measures, the key question is how and when to conduct the exit strategy. In terms of  monetary policy, we believe that the State Bank of Vietnam (SBV) will shift toward a more balanced stance for long-run stability.

Construction stocks: Opportunity is rare due to the lack of growth engines

According to the General Statistics Office (GSO), the construction market went up by less than 5% in 1H2020, the lowest in the last five years. Apart from the impacts by COVID-19, the market has been lacking growth engines for a long time. Residential real estate used to be the major growth driver but is currently sluggish because of very few new projects. New launches in HCMC went down by 60% YoY in 2Q2020, while Hanoi and HCMC, the two largest urban areas in the country, collectively launched only 18 new projects in the last quarter, which is a record low number. Now that COVID-19 dampens future demand, international travel bans have put immediate pressure on tourism and  the resort market. Many new commercial and industrial projects have been postponed because of the difficulties in mobilizing workers and devices. During the difficult time like this, fiscal spending on infrastructure is expected to save the market, yet we have yet to see the immediate effect since many large projects are still in the bidding process and cannot carry out construction.

1H2020 earning results of CVT

We are a bit more conservative than CVT's management. We estimate revenue and PBT 2020 will be VND 1,169 and VND 116 bn, equivalent to 90% and 83% of CVT's plan because we are concerned that the epidemic will continue to affect CVT's sales. However, we believe that CVT can complete its production plan of 13 million m2 for 2020 as all the production lines have been operating stably from the end of Q2 2020. Despite the low  possibility of achieving the 2020 revenue and EBT targets, we believe that CVT can still afford to pay a VND1,500 dividend, equivalent to a dividend yield of 8.3%. The company has paid off  most of its long-term debt. Our target price is 19,985 VND / share, 11% higher than the price on 19/08. We maintain an ACCUMULATE recommendation for CVT.

STK – 1H2020 Update: Weak Yarn Demand But Recycled Yarn Was Less Affected Than Virgin Yarn

The pandemic has hurt STK more seriously than our expectations. However, the strategy of focusing on recycled yarn continue to prove its efficiency amid the headwinds. Based on the prospect of the slow recovery of the overall yarn demand in 2H2020, we revise down our target price for STK from VND 20,000/share to VND 15,600/share. With a cash dividend of VND 1,500/share in the next 12 months, the total return is 17%. We recommend to ACCUMULATE the stock.

GMD – Q2-FY20 Business Update: Net Profit In Line With Our Estimates; Maintain Accumulate with TP of VND23,000.

GMD has reported unaudited Q2-FY20 financial results with total revenue of VND607bn, down by 9.2% from the last year’s figures while PBT declined by 41.0% YoY to VND141bn. Meanwhile, the net profit went generally in line with our previous estimates (see table 1). With these results, GMD has completed 56% of full-year guidance for both revenue and PBT in its base case scenario, while corresponding fulfillment rates of our FY20 forecasts stood at 53% and 55%. The bright spot in the Q2 results lied in the ability to slash costs and expand gross margin amid the dire situation of diminishing volume at its ports as a result of covid’s impact and more challenging competitive environment in Hai Phong.

BFC - 2Q2020 result update

BFC's profit in 2Q2020 recorded a strong improvement year-on-year as well as from the previous quarter thanks to (1) a sharp drop in raw material prices (2) lower selling and interest expenses. However, overall sales volume is still low compared to the average level. With the peak consumption season in the second quarter, we believe that the company's output from 3Q2020 will decrease and go sideways compared to the same period in the context of weak NPK demand in the domestic market. Therefore, the bottom line for BFC is no longer as attractive as in 2Q2020.

The drop in raw materials is the only short-term support and BFC is likely to face difficulties in selling activities as the NPK market is very competitive, which could impact the profit of the company. Therefore, we maintain a SELL recommendation on BFC. Buy at a price of VND 10,000 with the expectation of an annual cash dividend of VND 1,000 per share, equivalent to a dividend yield of 10%

QNS – 1H2020 review and 2H2020 outlook

In 1H2020, results were muted due to weak soymilk demand and shortages of sugarcane input. However, we expect all segments to recover in 2H2020 as Covid19 subside. Therefore, given expected healthy operating cash flow while there is no significant CAPEX demand, we believe QNS will maintain a cash dividend rate of 25%-30%, or a 70% payout ratio in the coming years. Accordingly, the target price in 12 months is VND 33,000/share and cash dividend of VND 2,500-3,000/share. Expected upside from August 14^th’s closed price is 17%. We have an ACCUMMULATE recommendation

Activity in EMs recovering slower than in advanced economies

The IHS survey underlined a divergence between emerging market economies (EMs) and advanced economies (AEs) in terms of recovery in the manufacturing sector in the second quarter of 2020. The recovery of the former seemed to lag behind the later due to a high dependence on external demand as well as constrained policy measures in order to address the pandemic. The Bloomberg’s daily activity indicator, a composite of high-frequency data, also showed weak momentum of EMs’ recovery on average. According to the BIS, EMs have been weathering a perfect storm, particularly disruptions to global value chains, collapse in export receipts, plummeting commodity prices and retrenchment in capital inflows.

Industrial parks review: land prices keep rising thanks to strong demand

The US-China trade war, additional public investments and new free trade agreements have driven companies to diversify and relocate into Vietnam’s industrial parks. The country possesses a low-cost labor force, stable government and one of the fastest global growth rates – all appealing features leading to a fertile investment environment. In 2020, this trend is still very strong, creating impressive business results for operators. Rental prices, accordingly, also increased by 10% compared to the end of 2019, helping to cover projects’ development costs. Looking ahead, we believe that the demand for leasing will continue to be high and, as such, it should be a prosperous year for industrial park enterprises. We remain positive on developers that own large and available land banks.

HDB – 1H2020 update – NII predominantly led growth, asset quality stayed manageable

For 2020, we expect net interest income growth to remain strong with positive momentum in both credit and NIM, but service income will remain stable at least until the exclusive bancassurance agreement is finalized. We also expect that the bank will be able to handle the virus impact on asset quality in the subsequent quarters.

Our target price on the latest Result Update report is VND 31,000, equivalent to a potential upside of 17% versus current market price. This translates to an ACCUMULATE recommendation.

NKG – 1H2020: COVID-19 harmed sales, but profitability improved

We believe NKG’s business has become more sustainable as its gross margin of 4.6% in 2Q2020 was acceptable as HRC prices dropped strongly during the COVID-19 outbreak. However, the interest expenses were still significant compared to its net income. We expect the company to balance its net margin and sales properly. Regarding 2H2020, the strong HRC prices can support NKG’s net income in 3Q2020, but there are several threats. A fresh COVID-19 outbreak could have affect Chu Lai steel pipe factory’s progress negatively, and lead to weak demand for coated steel and steel pipes in the domestic market. Meanwhile, HRC prices could decrease in late-2020 due to the weak recovery in the manufacturing segment worldwide. In the long-term, we are waiting for opportunities from the shift of factories to Vietnam