3Q2019 PVS’s result update and 2020 outlook

PVS announced VND4,648 bn in 3Q2019 revenue, up 25.5% YoY. However, the gross margin fell from 6.6% to 4.8% and profit from JVs dropped, leading to a 42.6% decrease in the 3Q2019 profit before tax to VND139 bn. Net profit was VND84bn, down 55.6% YoY. For the first nine months of the year, net profit reached VND 637 bn, up 12.3% YoY thanks to good results in 1Q2019. NPATMI dropped by only 8.5% to VND649 bn helped by 9M2019 profit of subsidiaries improving over the same period last year.

Circular 15/2019/TT-BYT in drug bidding – Opportunities for domestic high-standard manufacturers

Circular 15 (effective from October 2019) reclassifies drug tiers for ETC generic drugs bidding, replacing Circular 11 (issued in 2016). This is considered beneficial for domestic pharmaceutical companies, especially those with high standard manufacturing facilities. Some changes in the new circular: (1) Tightening technical standards for each drug tier, and (2) Preference for domestically produced drugs.

KBC update – Strong Leasing Activities

KBC posted revenue and NPAT-MI in 9M 2019 of VND 2,486 billion (+50% YoY) and VND 500 billion (+2% YoY), fulfilling 62% of profit guidance for 2019.

• Leasing area rose from 2018’s high-base, suggesting current ample rental demand. .
• The increase in price outpaced our expectations. Management observed a 25% increase of the average rental price in Quang Chau and Tan Phu Trung. 
• Phuc Ninh has not yet being handed over, and possibly postponed. 

NT2 - Weather and Electricity Demand in Favor of Intermediate-term Potential

RongViet Securities is currently recommending buying NT2 with a target price of VND 27,100 per share, equivalent to a 19% upside from the closing price on November 25^th, 2019. As one of the most important thermal power plants in the Southeast region's power generation system, NT2 benefits from the steady growth in electricity demand. In addition, unfavorable weather conditions for hydropower plants have kept NT2's utilization stable at a high level. In the first 9 months of 2019, NT2 achieved revenue and net profit growth of 2% and 4%, completing 77% and 74% of the annual guidance respectively. Output reached nearly 4.2 billion kWh in 10M2019, up 8% over the same period, completing 90% of the year plan. Our NT2 2019 forecast includes revenue and NPAT growth rates of +2% and -4% respectively.

Vietnam Steel Production and Consumption in 10M2019

After several years of growing at a significantly higher pace compared to the construction industry growth, steel consumption growth is slowing down gradually and reverting to the growth rate of the construction industry. Over the first 10 months of 2019, total domestic sales of Vietnam Steel Association’s members grew 7.88%, which could be affected by a lower growth rate of construction activities (8.3% in 9M2019 vs. 9.2% in 2018). In Q4/2019, the domestic selling volume is forecasted to be enhanced due to the more dynamic building activities in favorable weather.

DRC – Growth prospects in 2020

Radial tire will be the main growth of DRC in the future because demand will increase. Currently, the gross profit margin of radial tires is still relatively low compared to expectations so the probability of improving the production efficiency in the near future is high as the company has got experience after producing radial tires for several years. The approval from Vinachem for expanding the existing radial factory is also a motivation to enhance the company's value. The current risk of DRC is that they depend too much on exports which is the main source of radial tires revenue. The fact that if there are new regulations on imports and exports in the US or Brazil, it will significantly impact DRC's business.

ACV – Profit margins kept expanding thanks to a higher proportion of international flights

ACV’s 9M 2019 business results saw an healthy increase of 13% YoY in revenue and 25% YoY in NPAT (table 1). These results completed 71% and 89% of the 2019 guidance on revenue and PBT, respectively. Net sales growth was quite in-line with our 2019F of 13% YoY while NPAT’s growth was faster than our expectation of 16% YoY as margin strongly expanded. As a result, ACV’s 9M 2019 sales and NPAT completed 74% and 87% our 2019F, respectively. Thus, our latest target price of VND78,000 for ACV is currently under review.

Yield Curves Have Steepened, So Has Sentiment

A year ago, an inverted yield curve in the US created fears of a potential upcoming global recession as this particular movement has in the past signaled just that. Trade tensions accentuated the worries of investors. Sentiment was affected as can be seen in the fact that the S&P 500 index dropped from 2810 in the middle of January 2018 to below 2500 by Christmas of that year.

BVH – Responding to low G-bond interest rate situation by adjustments in sales and investment

As mentioned in our previous notes, fierce competition, declining G-bond interest rates and the lack of capital are hindrances for BVH’s top and bottom line growth. Adjustments have been made to adapt to the situation. The 2020 plan (announced in 2019 AGM) was prepared using the same technical interest rate as of 2019. Therefore, a sharp decline of G-bond interest rates, if any, would affect negatively BVH’s 2020 performance.

The Ministry of Finance, which owns 72% of current outstanding shares has not so far had any plan of divestment by 2020. This is an obstacle for BVH’s growth because it limits BVH’s ability to raise capital to finance its operations.

MWG - Update from the Q3/2019 analyst meeting

In 9M/2019, MWG posted a growth of 17% in revenue and 36% in NPAT YoY, fulfilling 71% and 83% of the year plan respectively. In Q3 only, revenue increased by 20% and NPAT increased by 32% YoY, profit margin decreased due to an increase in promotion expenses for the company's 15th birthday sales event. Both consumer electronics and groceries exceeded the target for number of stores set at the beginning of the year. Bach Hoa Xanh’s faster-than-expected expansion also increases cost and extended the break-even period of this chain.

Update on Crude Oil

The triple bottom for West Texas Intermediate (WTI) has been confirmed at around USD 52/bbl, a level that has been a formidable support since June 2019.

Update on Vietnam’s Exports/ Imports

According to Customs, Vietnam was a net importer of USD 0.4 bn in the first 15 days of October. Although export growth decelerated in October, Vietnam still turned out to be a net exporter for that month by USD 1.9 bn. Import growth was only 2.8% YoY in the month. Vietnam’s exports and imports increased by 8.3% and 7.7% YoY for the first ten months of the year, respectively. The trade surplus reached USD 9 bn.

Vietnam’s import growth decreased sharply in October due in part because imports of FDI fell 5.6% YoY. Exports and imports of FDI accounted for 69% and 58% of Vietnam’s total exports and imports so far in 2019.