Construction Stocks’ 9M2019 Performance

Listed construction contractors experienced mixed results in 9M2019 due to the contrasting growth in different subsectors. 

HSG – FY18-19 Updates

This year has been difficult for HSG, as its revenue and NPAT are down VND 28,035 billion (-18.6% yoy) and VND 361.36 billion (-11.9% yoy) respectively. One of the main reasons is lower sales: 1,118,672 tons for coated steel (-12.6% yoy) and 673,613 tons for steel pipes (-11.7% yoy).

GMD – Key projects to boost long-term outlook rather than short-term business results

GMD decided to implement phase 2 of the Nam Dinh Vu port project (in Hai Phong) in November 2019, nine months after the construction resuming of Gemalink project (in Cai Mep, Vung Tau). As such, the two key projects in the long-term development strategy have been commenced in 2019. Owing to favorable locations, these projects when completed (expected by the end of 2020) will not only further enhance GMD’s presence across the country, but also the competitive position with advantages in terms of facilities and available capacity compared to other competitors in the corresponding area. These couple with (1) the strong growth momentum of demand in Cai Mep area and (2) the continuation of the downstream movement trend of international shipping lines in Hai Phong will be the supporting factors for GMD to consolidate more market share in these two regions in the long term.

DPR and PHR – Planning differently for the future

PHR's industrial parks are located in the most favorable locations of Binh Duong province so the rental price is expected to remain high, around 60–80 USD/m2 (Tan Binh IP) or at 90 USD/m2 (Nam Tan Uyen IP). In addition, the rental demand is expected to continue to increase as the FDI flows into Binh Duong province is still high. That will make the industrial parks segment become a main source of activity for PHR.

Meanwhile, the rental price of DPR’s industrial parks is still low (ranging from 40-45 USD/m2). The demand for leasing is still pretty anemic in Binh Phuoc province. As a result, the industrial parks segment will not easily replace rubber to become the main activity of DPR in the near future.

Vietnam’s 2020 CPI Outlook: Year of the Pig

2019 is a comfortable year in term of headline inflation whose annual growth is estimated at 2.7 YoY, lower than the last two years of 3.5% YoY. In general, the government succeeded in constraining the upside risk of inflation via significantly controlling state-controlled prices/fees, especially health care costs.

Covered warrants after five months

In short, even though the distribution rate of covered warrants has not improved since the launch, covered warrants remain attractive to some retail investors as they can generate high returns. Additionally, the good news is that issuers buy underlying assets for their covered warrants.However, trading value of covered warrants continues to be small relative to the stock market’s trading value.

TPB - Maintaining a Top High Earnings Growth

With a 49% YoY growth in PBT 9M2019 (which reached over VND 2.4Tn), TPB became the third fastest growing bank amongst our watch list. This earning growth was attributable to a high interest income, service income and other income growth, though partly undermined by credit costs that surged due to VAMC clearance. With a shift in lending focus from auto-loans to more secured loans, we expect the bank’s income growth to slow down, a tradeoff for asset quality improvement and an easing of provisions.

2020 Global Economic Outlook

The latest November Outlook Report from the OECD is a bit more ‘bearish’ on world growth for 2020 than what was projected a few months ago. The OECD has trimmed its forecast for 2020-21 global GDP from 3.5% to around 3.0% (see Table 1). If this is the case it would be the weakest level since the global financial crisis

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.