FRT – Q2 saw recovery but outlook doesn’t seem promising yet

FRT’s business result in Q2/2019 recovered significantly from the bottom in Q1/2019. Revenue and PBT in Q2 increased by 11% yoy and 17% yoy respectively. Looking at the monthly result, we can see that most of the recovery derived in April when Apple started to support the company through promotional programs, whereas the growths in May and June were not considerable. By the end of June, the company grew 7.5% in revenue and 10% in PBT, achieving 45% and 39% of 2019 target for revenue and PBT respectively, which signals the second half of the year will be full of challenges for the company to complete their target. 

Steel Production and Consumption in 6M2019

In 6M2019, construction value growth slowed down to 7.85% (lower than 9.16% in 2018). This has affected the demand for steel. The domestic steel industry in the first half of the year produced a total of 12.6 million tons of steel, sold 11.6 million tons, of which 2.5 million tons were exported, increasing by 7.7%, 9.8% and 6.3% respectively compared to 1H2018 according to the Vietnam Steel Association.

Updates on Vietnam’s Trade in 1H2019

In June, Vietnam’s trade surplus was at USD 1.9 billion, the highest in recent years. That was due to a plunge of import. Total import value was only at USD 19.5 billion, up 2.4% YoY, while total export value reached USD 21.4 billion, up 8% YoY. In 1H2019, Vietnam’s trade surplus was nearly at USD 1.7 billion, lower than 1H2018’s USD 3.9 billion but higher than previous years as well as 5M2019’s deficit of USD 0.2 billion.

PPC – Weak 2Q 2019 earnings was no surprise

As we have mentioned in our recent Analyst Pinboard on PPC, an expected decline in sales volume in 2019 from the high base of the same period last year would be the key factor dragging down the company’s core earnings from electricity production. While large one-off income and dividend income has hidden such issue in the first quarter of 2019, lower one-off income has even magnified it in the second quarter, resulting in a sharp fall in 2Q 2019 reported NPAT. However, we still hold no positive view on PPC as its 2Q 2019 business results only turned back to normal level from the high base of 2Q 2018.

ILB – Company overview

ICD Tan Cang - Long Binh (ILB), a subsidiary of military-based Saigon Newport Corporation (SNP), was founded in 2007 and recently listed on HOSE last May. The ownership structure is quite concentrated with nearly 80% belongs to insiders.

BWE – Aggressive Capacity Expansion Plan to Meet Rising Demand

In summary, in the middle and long term, BWE has an aggressive capacity expansion plan for both water supply and waste treatment segments to meet the rising demand. This strategy results in large capex in the coming years. With the current retained earnings of BWE, we believe that the company will arrange adequate equity, which we estimate to be VND 600 billion in the next two years, to fund its capex without issuing stocks. In addition, the increase in water selling price by 500-800 VND/cbm annually will boost earnings of the company in the coming years, strengthening our belief that the company will have enough equity to launch its expansion capacity plan.

Regarding our investment view, as the business of BWE is naturally capital intensive in the coming years and the company has monopoly on supplying water in Binh Duong province, the stock would be suitable for value investors who prefer low-risk investments and has long time horizon. In addition, we also believe that BWE could be attractive for investors with Environmental, Social and corporate Governance (ESG) constraints as the business creates net positive environmental impacts.

PVS - Update on 2Q2019 Preliminary Result

Despite the low earnings in 2Q2019, compared to the same period last year, we keep the positive view for PVS and still believe that the company will be the most beneficiary from the major Oil&Gas projects in the next few years. We reiterate ACCUMULATE for PVS at the target price of VND28,000. Plus the cash dividend of VND700 per share, the total return is 19%, compared to the closing price on July 11^th 2019.

BVH 2019 AGM – Development Plan to be Revised down

Fierce competition, low G-bond interest rate environment and  the lack of capital will be hindrances to BVH growth in the near future, causing the development plan to 2020 to be revised down. As a result, sales could not growth as strongly as in 2016-2018 period. However, Circular 01/2019 and changes in life insurance product mix are the positives that support the profit recovery of the insurance business.

BMP- Result update report

Rong Viet Securities Corporation hereby presents the Result Update on Binh Minh Plastic JSC (HSX: BMP) with the overall opinion as follows:

BMP has been among our favorite stocks because of its position as an industry leader as well as its healthy financials. We maintain our view that Binh Minh is the top plastic pipe brand perceived by consumers in Southern Vietnam. This allows the company to enjoy sustainable profitability and strong operating cash flows. Accordingly, we expect BMP to maintain its debt-free status and to hoard a substantial amount of cash, most of which would be paid out as cash dividends. Considering the recent market price movement, we suppose that the 8.6x forward P/E may be suitable for investors with a long-term target. Our valuation determines BMP’s fair price at VND 51,100 per share, implying a 10% total return as of the closing price on July 10th, 2019 as we recommend to ACCUMULATE the stock.

Waterpoint – Sales kick-off event

On July 9^th, 2019, we joined a sales kick-off event of Waterpoint project held by Nam Long developer. It is considered to be the most important project of Nam Long since its establishment.

LTG 2019 AGM update - Out with the old, in with the new

After the application of KPI-based performance management system in 2018, the 2019 Annual General Meeting (AGM) still focus on personnel and management policies. Many senior positions appointed in a short time. The remuneration and bonus of key leaders have also been changed, directly tied to the company's profitability. This demonstrates the determination in transforming the corporate governance and management strategy of Loc Troi.

We believe that the unfavorable prospects of the crop protection chemicals (CPC) and rice segment have somehow speeded up the process of changing. Although there are still many potential risks, this move shows the openness from a previously state-owned company, which is usually considered to be inflexible. However, it still needs time to prove effectiveness.

We forecast that 2019  net revenue will reach VND 8,975 bn, decrease slightly by 0.6% compared to 2018. PBT is estimated at VND 340 bn in 2019 (-17% YoY). Note that we do not include an estimate of the extraordinary pre-tax profit from asset liquidation and restructuring the rice segment according to LTG's 2019 plan of VND 162 bn. If this extraordinary profit is included, estimated AT is about VND 470 bn (+ 14% YoY).

Using a combination of PE and FCFF valuation methods, we estimate the fair value of LTG stock at VND 24,200/share and anticipate a cash dividend of VND 1,600 per share in the following 12 months, which results in an 11% total return from the closing price on July 3rd, 2019. We recommend to ACCUMULATE  the stock.

Trade Tension Hastens Northern Leases

In sum, we think trade tension will remain for a while; or even any reconciliation is achieved, manufacturing shift will be still intact given China’s current low fertility rate (1.62 versus ASEAN’s average of 2.17), higher labor costs (1.61x of ASEAN’s average) and overly concentrated risks of production. We learnt that most enterprises that plan to move out of China have been keeping low profile amid the tension due to issues related to layoffs, compensation for workers, the relationship with suppliers or even the stock price. Recent reports said that Apple has been encouraging its major suppliers, including Foxconn, Pegatron, Wistron, to look for other options. Uncertainties of Trump’s action should hasten the exodus. Firms see the move is a must regardless of whatever tariffs imposed. The relocation however takes time, of at least 18 months for such some huge enterprises.