ACV: Update on Q1 2020 Business Results; Cutting 2020F Earnings by 61%

Q1 2020 earnings are expected to decline 25% YoY

Estimated total air passenger traffic reached 24.6 mn pax in 1Q 2020,  a sharp drop of 11% YoY, following the Government’s stricter control over travel ban as well as foreigners’ entry suspension to curb the coronavirus’s spread. In particular, int’l pax volume was down 29.0% YoY whilst domestic traffic declined by 0.5% YoY. In line with this, estimated Q1 2020 revenue and PBT are expected to plunge by 8.4% YoY and 24.9% to VND 4.1 Tn/VND 1.9 Tn.

DHA 2019 earning results and 2020 plan

We suppose that the company targets a reasonable revenue and profit target for 2020 as the demand for construction stone may decrease due to Covid-19 and truck loading supervision in Dong Nai province. Despite that, DHA is expected to benefit from the closure of Tan Dong Hiep and Nui Nho mines. The positive thing is that the planned output at the mines is higher than the current capacity of the company. Basically, we assess that the company's core business is quite stable and will maintain a positive operating cash flow. In addition, the company is not under pressure by interest payment as it currently has no short-term or long-term debt. The dividend yield (8.9% at the price of 7/4) may not be too attractive as the remaining dividend of 2019 is VND 500 and the dividend plan for 2020 is VND 2,000 / share. DHA is currently trading at PE 6.1, 10% lower than the 3-year average PE.

Steel Production and Consumption in 2M2020

In 2M2019, domestic steel consumption was decreased strongly by 13.5%. The main reason was that retailers reduced their inventory due to the fear that domestic prices will decrease if China’s steel producers export more. Steel prices in China have decreased significantly because of lower demand for steel during the COVID-19 outbreak. However, we suppose that Vietnam’s demand for steel still grew as the construction industry’s growth rate was 4.4% in 1Q2020.

Sonadezi Chau Duc (HSX: SZC) updates in 2020

In 2019, SZC exceeded the year’s profit target by 23%. The company posted revenue and profit of VND 329 billion (+13% YoY) and VND 109 billion (+38% YoY), respectively. Industrial park was still main contributor, with 75% and 80% to total revenue and gross profit, respectively.For 2020, SZC sets a revenue and profit target of VND 371 billion (+10% YoY) and VND 115 billion (-14% YoY) respectively.

Inflation is on the right track

According to GSO, the headline inflation averaged 5.6% yoy in Q1 2020, higher than Q1 2019’s 4.9%. Core inflation was also at 3.1% yoy, the highest level in the last five years. However, both of those numbers have been gradually decreasing since last December. We foresee a high chance of being far below the threshold of 4% in 2H 2020 because of the drop in crude oil prices, stricter controls on food prices, and administrative subsidies for electricity. Overall, inflation has been on the right track, which is critical under general macroeconomic challenges facing the nation.

PVT - Result Update Report

Higher crude oil imports from Binh Son and COVID-19 will hit the 2020 bottom line. Moreover, the slump of oil price has impacted the stock price. As a result, we lower our 2020 earnings forecast by 27%, compared to the number in our 2020 strategy report

Some possible impacts of Covid-19 on banks’ credit growth and NIM

With the base case assumption that the epidemic will be contained in the second quarter and the production and business activities will recover from the third quarter this year - which is also the beginning of the peak lending season for banks, we expect the SBV would extend 2-3 ppt to the credit limit for banks on 2H. Accordingly, credit growth at each bank may be 2-3 ppt lower than that in 2019, except for CTG, which we believe can maintain the 2019 credit growth in this base case (even a bit higher if the bank can be allowed to increase capital timely). CTG has set a credit growth target of 6-10% this year (versus actual growth of 8.8% in 2019), with the final growth expected to be dependent on the evolvement of the epidemic.

Regarding NIM, we forecast it to remain the same or slightly decrease for most banks. We expect that the impacts on NIM of state-owned banks such as BID and CTG would be stronger than their private counterparts for a less room to save funding cost due to current high LDR. We hope that some banks should still be able to increase NIM marginally such as HDB and MBB (owing to faster growth in consumer finance than their parent banks) and TCB (due to lower deposit costs and the full reflection of the late 2019 lending growth in 2020 interest income).

Update On The Aviation Sector

The negative impacts of COVID-19 on Vietnam's tourism and aviation industry are gradually emerging after recent figures were released.

DRC - Result Update Report

We have a target price of VND 22,500/share , 52% higher than the closing price on 30/03/2020. We recommend a BUY for this stock.

Headwind for US shale oil?

After the OPEC+ meeting in March 2020, no agreement was approved, leading to a breakup of talks between OPEC and its allies. Saudi Arabia cut the selling price and increased the production volume from 9.2 mbpd to 10 mbpd. As a result, oil prices have plummeted to the lowest level in the past five years. Once again, the US shale oil industry is under pressure as the current oil price is below the breakeven point of many companies.

Automobile industry - Update on the first two months of 2020

We expect that the results of automobile companies in 2020 will not be positive due to two reasons, including (1) the Covid-19 pandemic has negatively affected the economy so demand will decline, (2) high competition because of oversupply and the burden of liquidating inventories leading to lower selling prices. Consequently, revenues will be strongly affected in the first half of the year but are expected to recover in the second half. Furthermore, companies have to spend more money on selling activities and discounts, that will make gross profit margin (GPM) narrowed compared to the GPM of 2019.

2020 will be a tough year of the automobile industry.