TV2: Listing on HSX on June 6th, 2019

Power Engineering Consulting Company 2 JSC (HNX:TV2) is listing on the HSX on June 6th, 2019. TV2 is capable and experienced in planning, survey, construction, operation and EPC of electricity related-projects. TV2 is a subsidiary of Vietnam Electricity Corporation (EVN), thus can participate in large and important projects that pioneer the renewable energy trend in Vietnam.

TV2 operation is currently divided into three main departments: Consultancy, EPC & Electro-mechanical and Investment. The most important sub-divisions are Survey, Planning and EPC. TV2’s traditionally works for business associates with small-sized service contracts. However, since 2014, TV2 signed its first EPC contract. Though small in number, EPC accounted for a major portion of the company’s 2018 and 2019 backlog.

TV2 also holds participations in renewable electricity power plants. TV2 owns 100% of Vinh Tan Solar Power, has a controlling ownership in Tan Thuan Wind Power and has strategic ownerships in affiliates that operate Son My 3.1 Solar Power and Thac Ba 2 Hydropower Plant. TV2’s long-term investment objective is to reach 500 MW and participate in consulting, planning, and construction activities at these projects.

Iron ore price may remain high in 2019

The iron ore price soared to the 5-year high and the Spot Index surpassed USD 100 per ton last week, exceeding the 2017 peak. The rally started when an iron ore mine operated by Vale halted production. The iron ore price soared 12.5% one month after the incident. The surge took us by surprise as the mine only accounts for 2% of 2019 global iron ore output. The Iron Ore Spot Index is now 40% higher than the beginning of the year and 59% higher than the same period last year.

GMD - Withstanding Fierce Competition

After many years and lack of capital, the Gemalink deep-water port project has been restarted. As shipping lines tend to use large vessels to transport containers, this strategic project is crucial for GMD in order to secure fast container volume growth in Cai Mep, Vung Tau. GMD will compete directly with market leaders Saigon New Port and Vinalines.

TCB – 1Q 2019 Business Performance Update

1Q 2019 marked the 14^th consecutive quarter of normalized TOI growth. PBT reached VND 2,617 Bn (+1.9% YoY), achieving 22.3% of the full-year target thanks to strong net interest income growth (expansion of corporate bond portfolio) and lower provision expenses. Growth would be 56% YoY if we exclude the one-off earnings from the sale of Techcom Finance.

DPM –1Q 2019 Result Update

We maintain our ACCUMULATE for DPM with the target price of VND19,100 per share. The business is facing short-term difficulties including lower Urea consumption and no contribution from the NPK plant in 2019 but performance is expected to improve from 2020. Meanwhile, DPM pays a stable cash dividend of at least VND1,000 per share.

Correlation between VNindex index and Kospi and SHCOMP index declined sharply but remain positive

• We noticed a significant correlation between VNIndex Index and Kospi and SHCOMP

• At time, 60-days correlation between VNindex and Kospi Index reached 70%, but declined to 35% recently.
• VNIndex Index has recovered since Trump's tweet on raising tarriffs on chinese goods, but Kospi and SHCOMP Index still downed

Global Trade Is Enervating

Weak economic growth and US-China tensions are darkening global trade. Key regions’ export growth are in the downtrend for the last 12 months. According to IMF, there are three interrelated production hubs (Figure 2), including the US, Germany and China. China’s export revenue dropped 2.7% YoY in April while Germany and the US recorded modest growth of 3.1% YoY and 1.3% YoY respectively. In Asia, Vietnam is a bright spot with positive export growth while most other Asian countries suffered contractions in recent months.

Quick Update on IDC

The stock is currently trading at P/E and P/B of 5.3x (calculated based on shares outstanding) and 1.4x, respectively. We believe that the short-term outlook will be challenging when huge capital is in need for compensation and development of Huu Thanh and Cau Nghin zones; while rental rate is quite slow. Investment capital of Huu Thanh zone increased from VND 2,300 billion (in 2013) to VND 5,200 billion (in 2018), mainly due to the rise in compensation price (1.4x to 2.0x). On the other hand, revenue from other businesses has not shown positive signs. IDC should record no more real estate income as it did in 2017 and 2018. However, the divestment of 36% from the MoC expects to bring better prospects and plays a bit as a potential catalyst for the stock price.

Updates on cement industry

Consumption is on the rise during the first four months of 2019. Accumulated consumption of both domestic and export markets reached 35.45 million tons, up 8% YoY.

GDT - Long term Value in Household Goods Segment

History shows GDT can generate FCFE of VND 70 Bn to VND 80 Bn per year. The current market cap implies a valuation of 8x FCFE or 7x trailing P/E with potential EPS growth 10%-12%/year. Despite a lack of upside catalysts, we believe GDT is a good value opportunity, especially considering the current 13% dividend yield. GDT’s dividend payout ratio is around 90%. 

Due to rising labor costs, GDT may report a slowdown in earnings growth in 2019. However, we believe its long-term earnings power will remain and an off-year like this could give investors an opportunity to ACCUMULATE the stock at more attractive prices. Otherwise, the stock provides stable income in the late cycle. We estimate the valuation range for GDT at VND 39,500-52,300/share, using FCFE and P/E method (7x) but recommend investors to apply a personal discount rate as the stock is very illiquid.

VSC – Update 1Q2019 Result

VSC’s 1Q 2019 NPAT fell 37% YoY. Operational efficiency was negatively affected by overcapacity issues, resulting in berths jams and leading to increased usage of other nearby ports. At the same time, the recognition of non-recurring expenses was also a significant factor affecting the company's profit. However, the sharp fall in VSC’s share price may offer a short-term opportunity. We estimate fair value at VND 42,000 offering a total return of 14% including a VND1,500 per share cash dividend. Recommendation: ACCUMULATION.

BID – 1Q 2019 Business Results and 2019 AGM Updates

BID's prospects depend largely on the private issuance to KEB Hana Bank. If successful, capital pressure will be relieved and the competitiveness of BID in retail, SME and FDI segments is expected to improve. The deal has been approved by the SBV since Oct 2018 but is not yet completed due to price negotiations and procedures. This year, the SBV has proposed the Ministry of Finance to consider raising the charter capital among state-owned banks, including paying stock dividends and retaining earnings.

BID has set a credit growth target of 12% this year, slightly lower than the 14% last year. We believe BID will find it hard to maintain current NIM due to continuing pressure on both asset yields and funding costs. Therefore, net interest income growth is forecast to be modest while we see few non-interest income growth drivers. Meanwhile, operating expenses are expected to increase rapidly due to technology investment costs. The provision expense burden is likely to persist due to weakening asset quality as well as the plan to clear all remaining VAMC debts. We expect that BID will only be able to achieve modest growth in 2019.

BID is currently trading at VND 32,500, equivalent to a trailing PBR of 2.1x, unattractive compared to the industry average (1.5x). We think that the current market price already reflects BID's fair value and we keep our NEUTRAL rating on the stock.