Trade in 1Q23: Bottomed up?!

• Trade turnover decreased by 14% yoy in 1Q2023
• Trade bottomed up?!
• Trade recovery will be the driving force for GDP growth, but that is uncertain.

US: the bond market fears something worse than inflation

• The yield curve ended Q1 at its most inverted level since June 1981.
• The macro impact of the failures of Silicon Valley Bank, Signature Bank and Credit Suisse plus the downgrades of several regional banks has resulted in a crisis of confidence in the banking system.

FMC – A Promising Long-Term Investment Option for 2023

• In Q1-FY23, the accumulated export revenue amounted to USD43.2 million, indicating a 26% decline year-over-year, which was primarily attributable to the decrease in shrimp exports. Despite the significant drop in sales, the estimated PBT for this quarter was impressive, amounting to VND50 billion, which represents an 11% increase year-over-year.
• The net sales guidance for FY2023 has been set at VND5,900 billion, indicating a year-over-year increase of 3.5%. Given by gross margin expansion, the PBT guidance for FY23 is VND400 billion, reflecting a year-over-year growth of 22%. Overall, we find this plan to be reasonably feasible, contingent upon the recovery of export prospects in the latter half of 2023, in conjunction with the implementation of the business's robust profit margin improvement strategy.
• We are upholding our target price of VND45,000/share, which suggests an anticipated return of 18%, including a 5% cash dividend yield, due to the stock's strong performance in recent times. With the most challenging phase for FMC's exports seemingly behind us, we deem this stock to be a viable option for investors seeking a long-term investment opportunity.  At the targeted price, the stock's PE ratio for 2023 is 7.3x, with a corresponding EPS of VND5,461 per share.

DRC – A negative surprise from an uncertain selling volume trajectory

• On Mar 21st 2023, the Brazilian government rose import tariffs of truck tires from 0% to 16% after receiving the demand from Brazilian tire producers in Oct-2022. Brazil accounts for 60% of global DRC exports, equivalent to 36% of total 2022 revenue. We see a downside risk to 2023 exported sales growth.
• 2023 business targets with net sales and net profit of VND5,060 bn (+3% YoY) and VND264 bn (-14% YoY), respectively. We see a signal of uncertain selling volume trajectory as well as a negative surprise from double-digit negative profit growth.
• We view the higher tariff from Brazil and DRC’s 2023 conservative business plan as a downside risk to the outlook for DRC. As a result, we adjust down our forecast for 2023 revenue and net profit to VND5,053 bn (+3.2% YoY) and VND265 bn (-14% YoY), respectively. 2023 EPS was calculated to be VND2,095 (-14% YoY).
• Our new target price for DRC is VND22,600, adding a VND1,300 cash dividend, the 12-months expected return is 8.6% compared to the closing price on Apr 11st 2023, equivalent to a NEUTRAL recommendation.

Steel material market movement in April 2023

• Iron ore and coking coal prices retrace as the global market lacks supportive news.
• Vietnamese domestic steel scrap remains high because of favorable macroeconomic factors.

VPB – Aggressive guideline for 2023 post the agreement of private placement

• In 2022, the PBT of the consolidated group and parent bank were VND 21.2 tn (or USD 899 mn, +45.5% YoY) and VND 24 tn (or USD 1bn, -36.8% YoY), respectively. Excluding one-off income from divesting FC in 2021 and Banca upfront-fee in 2022, PBT’s parent bank grew +32% YoY. Adversely, consumer finance was severely impacted by the slowdown of the economy, resulting in a loss of roughly VND 2.5 tn per our estimation.
• VPB announced an agreement with SMBC on a 15% private placement deal, equivalent to a deal size of VND 35.9 tn (or USD 1.5 bn). The deal is expected to be done within Q2 or Q3 2023 per the Bank. With the strategic participation of SMBC, VPB has climbed to the top 1 largest bank in terms of equity capital (VND 140 bn, based on the financial statement at the end of 2022). Post the deal, CAR is expected to surge more than 300 bps to reach 19%. Such thick Tier 1 capital will build a solid foundation for the Bank to sustain its long-term growth.
• VPB has planned its 2023 PBT to grow 13% YoY, implying a growth of 53% in core income sources (excluding upfront fees in 2022). Despite the joining of SMBC, we think VPB’s 2023 guidance is challenging given the current weak economic outlook. Pressure on the bank’s plan will come from low credit demand and high credit cost. Conservatively, we forecast its PBT for 2023-2024 at VND   20,944 (or USD 887mn, -1.3%) and VND 31,131 bn (or USD 1.3 bn, +49%), respectively. Correspondent book value will be VND 18,700 and 20,400, respectively. We will re-evaluate our forecast when seeing signs of economic recovery.
• Poor economic outlook and weak market sentiment have put pressure on the bank’s market price, making its stock come to an attractive valuation compared to peers’. Our current target price is VND 26,000/share, offering an upside of 24% from the closing price of April 7th, 2023. Therefore, we believe that VPB is among the banking stocks that long-term investors can consider picking for your portfolio in the deep correction session.

DBD – A cautious business plan despite impressive growth in 2M2023

• In 2M2023, net revenue and PBT were VND 238 billion (+13% YoY) and VND 42 billion (+25% YoY) respectively, completing 13% and 12% of our forecast.
• The plan for 2023, revenue and PBT are VND 1,800 billion VND and VND 300 billion respectively, an increase of 11% and 0% compared to the results in 2022.
• After completing the Nhon Hoi anti-cancer drug factory, DBD continues to invest in two new factories, namely sterile drugs and OSD – Non – Betalactam with a total investment of VND 840 billion VND and VND 822 billion, respectively. Funding for the project comes from a separate issuance to strategic shareholders and loans.
• We adjusted the projection for 2023 to net revenue and NPAT of VND 1,725 billion (+12% YoY) and VND 292 billion (+20% YoY), of which ETC and OTC channel revenue are VND 947 billion (+11% YoY) and VND 649 billion (+12% YoY) respectively. EPS for 2023 is 3,894 VND (+20% YoY). We maintain a buy recommendation on DBD shares with a target price of 52,600 VND/share, which is equivalent to a forward P/E valuation of 13.5x.

Tax incentives do not really have a significant impact on attracting FDI

• Under an agreement (come into force from 2024), between 136 countries and territories (including Vietnam) and the Organization for Economic Cooperation and Development (OECD) on a minimum tax on income businesses in most countries of the world (1) Countries, where the products and services of large multinationals are used, may tax the profits earned, even if these companies have no headquarter/office in that country and (2) Apply a minimum global corporate income tax (CIT) rate of 15% on the foreign income of the companies.
• Compared to the OECD minimum tax rate, the preferential tax rate in the first 10 years of investment in Vietnam will be 7.7% or 4.8% lower, depending on the performance of the FDI enterprise in the year of operation. Firstly. This leads to opinions that Vietnam will lose its competitive advantage when attracting FDI.
• According to our research, (1) Growth and expansion of the market, thereby increasing the value of benefits for shareholders is the top priority of the company, (2) Stable economic and political environment, clear legal framework and simple administrative procedures are the top priority factors in choosing an investment destination, (3) tax incentives will be put on the list andnegotiating table to make the final decision when there is more than one potential location to maximize the project investment efficiency. Thus, tax incentives are not the most important factor affecting the choice of investment destination.
• Finally, tax incentives are a tool to create competition among developing countries to attract FDI as a growth engine. However, this competition in the ASEAN region does not make a difference in tax rates after applying relatively preferential policies and the distribution of FDI flows to countries in the region has not changed much over the years.

REE – AGM note: Flat earnings growth guidance reflects a mixed outlook for FY2023

We attend REE’s 2023 annual general meeting (AGM) in HCMC. Our key takeaways are as follows.

• Management guides for 2023 revenue of VND 10,962 bn/ USD 470mn (+17% YoY) and NPAT-MI of VND 2,700 bn/ USD 115 mn (+0.3% YoY). The 2023 profit plan is flat mainly due to the less positive growth prospect of the energy segment, while the residential real estate segment is expected to grow strongly (+539% YoY).
• REE expects the energy segment to contribute 50% to 2023 NPAT-MI, reaching VND 1,351 bn/ USD 58 mn (-19% YoY compared to a 2022 high base), mainly due to the hydropower sector's less optimistic outlook. In 2023, REE Energy also targets to develop an additional 100 MW capacity through M&A activities.
• Office leasing segment is projected to contribute 19% to 2023 NPT-MI, totaling VND 525 bn/ USD 22 mn (+2% YoY). The upcoming Etown 6 office building is also a driver in 2024, which will be launched in 4Q23.
• Real estate segment is expected to contribute 15% to 2023 NPAT-MI, amounting to VND 405 bn/ USD 17 mn (+539% YoY). REE Land targets to sell 100% low-rise housing products of Bo Xuyen project during the year.
• Water & Environmental services segment is forecasted to contribute 12% to 2023 NPAT- MI, recording VND 335 bn/ USD 14 mn (-1% YoY), demonstrating a stable performance.
• REE expects M&E services segment to contribute 6% to 2023 NPAT-MI, recording VND 160 bn (+20% YoY)/ USD 7 mn with flat gross margin. Public spending, FDI production expansion, and the recovery of the hospitality sector are the key drivers for this segment.
• Shareholders approved REE’s FY2022 dividend proposal for a 15% stock dividend and 10% cash dividend (equivalent to a 1.5% dividend yield).

BFC – Expecting a high dividend yield at this current market price

• BFC achieved net revenue of VND1,894 bn in 4Q2022, flat compared to the same period last year. Sales volume was down 27.7% despite the peak season. Selling price increased sharply by 42.1%. 4Q2022 gross margin reached 8.8% - relatively low compared to average and NPATMI in 4Q2022 decreased by 79.7% to VND 16 bn. For the 2022, the company's net revenue reached VND 8,581 bn and NPATMI was VND 141 bn.
• Fertilizer prices maintained a high price level in 2022, affecting the sales volume. Given the current cooling down in fertilizer prices, we believe that the company's consumption volume will improve in 2023 and gross margin may increase slightly when input material prices are not volatile.
• After benefiting from the uptrend of fertilizer prices, the business of BFC will turn to normal and is considered as a cash dividend player. We think the company can maintain a cash dividend of VND1,500/share this year and next year. At the current stock price, the dividend yield is at 9%. Recently, BFC has submitted a dividend payment plan of VND 2,000/share for 2022, of which BFC paid 600 VND/share in advance. We believe that investors can ACCUMULATE BFC shares at this price to enjoy an attractive cash dividend. Regarding the business results of 2023, we forecast that BFC can achieve VND 6,952 bn in revenue and VND 155 bn in NPATMI. EPS 2023 is estimated at 2,441 VND/share.

STK – AGM note: 2023 guidance maintained, 1Q23 took a hit but story unchanged

We attended STK’s 2023 annual general meeting (AGM) in HCMC on Mar 30th. Our key takeaways are as follows.

• STK has pre-released its 1Q23 results with revenue of VND 270 bn/ USD 11.5 mn (-37% QoQ, -58% YoY) and NPAT of VND around 3 bn/ USD 0.13 mn (~ -93% QoQ, ~ -96% YoY). The preliminary 1Q23 results were weaker-than-expected but not surprised us when brand’s orders declined on destocking cycle.
• For FY2023, management keeps a conservative single-digit revenue (+1.6% YoY) and NPAT (+4.5% YoY) growth target as 1H23 sales momentum might stay mute due to brand’s inventory adjustment admits a poor demand outlook. Nevertheless, the outlook for orders might turn more positive in 2H23 (knitted orders for the fall/winter collection need a larger yarn volume than woven orders for spring/summer collection).
• Shareholders approved STK's proposal to not pay cash dividends for the FY 2022, instead a 15% stock dividend as the Unitex project is still in its investment phase. The time of issuance will be when approved by the State Securities Commission.
• Mid & long-term growth is driven by Unitex project. The Unitex project aims to increase STK’s total capacity to 60,000 tons/annum (phase 1: 36,000 tons; phase 2: 24,000 tons). Phase I of the project (with a capacity of 36,000 tons per year) is expected to begin official production starting in 1Q24.

We maintain our forecasts and a BUY rating with the one-year target price of VND 32,500/share. It implies a return of 22%, based on the closing price of Mar 31th, 2023.