LHG - Gloomy 2023 outlook

• LHG reported a 61% year-on-year increase in revenue to VND 103 billion in the fourth quarter of 2022, while NPAT reported a 20% year-on-year increase in revenue to VND 30 billion. The strong growth in business results was led by revenue from the IP land leasing segment compared to the low base (no revenue) in the fourth quarter of 2021.For the whole 2022, LHG earned VND 629 billion in revenue, a 20% decrease year on year, and met 80% of its revenue targets. NPAT totaled VND 202 billion, a 32% decrease year on year. The primary cause is the decline of the IP land leasing segment.
• In our base scenario for 2023, revenue is estimated at VND 815 billion (+11%) and NPAT will come at VND 341 billion (71%).
• We revise down our target price to VND 33,000/share due to (1) temporarily eliminating the last 20 hectares that had yet been cleared in Long Hau 3 phase 1; (2) temporarily eliminating An Dinh and LH 3.2 until the investment policies get approvals; and (3) factoring liquidity risk by taking a discount by 20% of NAV as LHG being limited trading time until 06/17/2023. Adding an annual cash dividend of VND 1,700 per share, the total expected return will be +58% (compared to the closing price of 02/08/2023).

HSG: Challenges to both production and sales departments

• We predicted HSG’s subpar performance in 1Q/FY22-23 in our previous recommendations, when the steel industry started its downturn.
• HSG’s operation in both upstream and downstream markets could have doubled the impact from input price fluctuations compared to industry peers.
• Future improvements depend on HSG’s capacity to (1) be as flexible as possible in purchasing and stocking activities and (2) revamp sales policies during the unfavorable market condition, which is going to be prolonged at least until the end of 2023.

DBD – Revenue and profit cannot jump in 2023

• In Q4/2022, DBD recorded net revenue and NPAT of VND 465 billion (+15% YoY, +18% QoQ) and VND 79 billion (+62% YoY, +47% QoQ), respectively. In 2022, net revenue and NPAT reached VND 1,555 billion (+0% YoY) and VND 244 billion (+32% YoY), completing 103% and 115% of our forecast thanks to the main products on the ETC channel, which are cancer drugs, kidney solutions and antibiotics.
• Nhon Hoi anti-cancer drug factory was delayed in meeting EU – GMP standards because the company needed time to install the EU – GMP drug laboratory at the new factory. The expected time to achieve EU – GMP standards for injection and tablet lines is Q3/2024 and Q2/2025, respectively.
• We are evaluating more fully the forecast for 2023. Currently, because Nhon Hoi anti-cancer drug factory has not been able to meet EU-GMP standards in 2023, we adjusted the target P/E for 2023 from 20x to 16x, corresponding to a target price of 49,000 VND/share.

Signs of slowing down in passenger car (PCs) demand have been evident since December 2022

• According to VAMA, in Dec-2022, total sales of passenger cars (PCs) was 23,825 (-5.6 %MoM; -33.9 %YoY), driven by lower purchasing power due to rising interest rates and high base performance of Dec-2021. Notably, it is possible that the negative growth month-over-month is necessarily a signal of slowing down in PCs demand.
• The challenges of PCs consumption as mentioned above has not been fully reflected on the business performance of Vietnam PC distributors in Q4 2022. While Haxaco Jsc. (HSX: HAX) posted a negative growth in Q4 2022 sales, City Auto (HSX: CTF) maintained its strong sales growth.  
• Global total vehicle sales (included passenger car and light truck) also dropped in Dec 2022 with 3.0 mn units (-48.7% MoM; -53.0% YoY). Notably, some global car manufacturers announced a slowdown in 2H2022. Therefore, we expect that the PCs ‘sales of both global and domestic markets will stagnate in 2023.

PPC – 4Q22 results in line, expecting a recovery in 2023

• PPC announced its 4Q22 electricity sales volume of 829 mn kWh (+41% QoQ, +142% YoY). Higher in electricity sales volume coupled with the higher ASP, resulted in net revenue of VND 1,576 bn/USD 67 mn (+32% YoY). Net income came at VND 69 bn/USD 2.9 mn (+8% YoY), despite no dividend income from associate companies.
• 2022 total electricity volume of 2,876 mn kWh (+7% YoY), completing 97% of our forecasts. Net revenue and NPAT was VND 5,116 bn/ USD 218 mn (+32% YoY) and VND 373 bn/ USD 16 mn (+72% YoY), achieving 99% and 102% our 2022 forecasts.
• 2023 should see core earnings rebound, better cash dividends from associate companies. For 2023, we forecast PPC’s net revenue and NPAT-MI to be VND 7,823 bn/ USD 334 mn (+53% YoY) and VND 540 bn/ USD 23 mn (+45% YoY) in 2023, respectively.
• We maintain an ACCUMUALTE rating with the one-year target price of VND 14,300/share. With an expected cash dividend of VND 900/share in the next 12 months, it implies a total return of 7%, based on the closing price of Feb 2nd, 2023.

The challenge for steel producers in 2023

• Input price fluctuations will continue challenging steel producers, both upstream and downstream. Many upstream steel makers have been facing unprecedented obstacles because material prices swing more strongly than sales prices do.  
• Current market conditions might cause almost all steel producers to be more flexible in terms of inventory policies to ensure sustainable profitability. As a result, these firms’ short term business performance will become more difficult to forecast.

ACV – Q4-2022 Business Results Update: Lower Financial Income And Surging Provision Expenses Slowed The Earnings Growth Momentum

• Q4-2022 Revenue remains resilient compared to the last quarter despite lower passenger volume (25mn vs 30mn) owing to higher international passenger volume (5.3mn vs 4.1mn), staying at VND 4.1 trillion (or USD 174mn, +328% YoY).
• Q4-2022 NPAT was down 46% QoQ, coming at VND 1.3 trillion (or USD 54mn, +289% YoY), due to lesser financial income (JPY appreciated) and abrupt surge of provision expenses for doubtful receivables from airlines.
• 2022 Net sales and NPAT respectively posted VND 13,834 bn (or USD 586 mn, +191% YoY) and VND 7,122 bn (or USD 302 mn, +803% YoY). While revenue is 7% ahead of our forecast, NPAT was in line with expectations, completing 99% of our forecast.
• We remain our positive view on ACV as we believe in the brighter outlook in 2023, driven by (1) stronger international air passenger inbound following Chinese relaxation on air travel, (2) partial reversals of receivables provision, while the downside risk is lower-than-expected financial income due to stronger JPY and decreasing term deposit (due to large CAPEX for key projects namely Long Thanh International Airport and Tan Son Nhat T3 Terminal).
• We’re pending a fuller review of 2023 forecasts for ACV, of which the current TP is VND 96,600 (an upside of 13%).

Update on monetary market in Jan 2023

• The deposit-loan gap is at a record low in 2022.
• System liquidity was stable in January 2023.
• We expect 2023’s credit growth to be lower than the target of 14-15%.

US mortgage market

• 2023 will test the ability of US households and companies to absorb a prolonged period of high interest rates.
• Rising rates have already had a chilling impact on home prices and rents.

We expect the Fed funds rate to reach 5% by the end of the first quarter (Figure 1), and the policy rate to remain unchanged until the end of 2023. This is largely consistent with the median forecast of the members of the Federal Reserve’s Open Market Committee. It is widely expected that supply and demand conditions are aligned for inflation to decline in 2023, but not to the extent to make the monetary authorities comfortable enough to begin cutting rates. That would have to wait until the first quarter of 2024.

FMC – Solid fundamentals allow the company to weather the storm

• In Q4/2022, FMC delivered net revenue of VND 1,211 Bn (or USD 51 Mn, -16% YoY) and NPAT of VND 78 Bn (or USD 3.3 Mn, -26% YoY).  For the whole year of 2022, net revenue and NPAT achieved VND 5,702 Bn (or USD 237 Mn, +10% YoY) and VND 308 Bn (or USD 13 Mn, +15% YoY).
• We expect that the weak demand can prolong until Q1/2023 then gradually recover along with the inflation cooldown.  In general, we believe that business results in 2023, although decelerating compared to the previous optimistic plan, are still able to maintain a single-digit increase thanks to well-managed operation and steady customer base.
  
• We are reviewing our 2023 earnings forecast after 2022 earnings were slightly below our previous forecast. While it takes time to scrutinize, we see not much change in FMC's 2023 onwards outlook and valuation compared to previous reports. Our previous target price of 45,000 VND/share, plus a cash dividend of 2,000 VND/share expected for 2022. This is equivalent to an expected return of 27%, based on the closing price on January 19th, 2023. At the target price, P/E 2023 is at 8.3x, corresponding to 2023 EPS of VND5,450.

Industrial Park Real Estate – FDI inflows are expected to slow down in 2023

• Global GDP growth (2.1% YoY) and Vietnam (5.6% YoY) are expected to slow in 2022.
• The impact of economic recession cycles on newly registered FDI inflows into Vietnam is merely moderate.
• The most recent trade agreements, such as the CPTPP, UKVFTA, EVFTA, and RCEP, are expected to drive a new wave of FDI into Vietnam as the global economy turns back on its growth trajectory.

PC1 – New projects will support growth in the coming years

• For 9M2022, PC1 earned VND 262 bn (or USD 10.7 mn) in net profit, -10% YoY. In terms of gross profit, the power generation group grew by 145% thanks to new contribution from wind power farms while other sectors dropped. Utilizing USD-denominated loans at low-interest rates to finance power projects used to be one of the company’s edges yet it becomes the headwind during growing uncertainties. As of Dec 31st, 2022, VND appreciated compared to that of Sep 30th 2022. We forecast the company to gain financial income in 4Q2022.
• FX has hampered earnings during 2022, especially in 2Q22 and 3Q22. However, EBITDA has been on an upward trend since 2019, with +39% and 23% in 2022 and 2023, respectively. Meanwhile, the bottom line will likely reach a trough in 2022 and is expected to recover from 2023 to VND 664bn (or USD 28 mn, +172% YoY).
• Our latest target price for PC1 is VND 26 000, offering an upside of 6% compared to the closing price as of Jan 16th, 2023. We recommend investors to BUY this stock when the market has a deep correction due to its high beta nature. We will update our target price in our next report.