Construction steel industry – Opportunities are coming, but manufacturers’ gross margins can diverge

• Domestic consumption can grow in 2022 owing to public investments and the re-opening of the economy.
• Exports are playing a more important role as a resilient supply and competitive production costs allowed exporters to seize short-term chances in 2021.
• Construction steel companies’ gross margins can diverge as material prices are moving in opposing trends, favoring basic oxygen furnaces. The weak demand-supply in China led to lower iron ore consumption, leading to lower ore prices. Meanwhile, the reducing pollution trend has been boosting the global demand for scrap steel, supporting this material price at a high level.

US first rate hike in March?

• According to the hawkish language of the Fed minutes released last week, market participants seem to believe that the first-rate hike will be in March, not May as previously expected.
• The minutes have also caused the markets to start to focus on the timing of the commencement of Fed balance sheet contraction, otherwise known as Quanto tightening.
• This caused a sell-off in bond markets around the world.

LHG – Industrial land sales drive earnings growth in 2022

• 9M 2021, revenue reached VND 718bn (+56% yoy) and NPAT-MI reached VND 270bn (+101% yoy) thanks to positive land sale progress of Long Hau 3-phase1 Industrial Park (LHG-p1 IP). We expect LHG to record NPAT-MI of VND 18bn (-72% yoy) and VND 288bn (+45% yoy) in Q4 and whole year 2021, respectively.
• In 2022, the industrial park (IP) segment continues to be the main growth driver thanks to the growth of rental area and average selling price (ASP). As a result, revenue and NPAT-MI are expected to grow strongly in 2022, estimated at VND 907bn (+17%) and VND 369bn (+28%) respectively. EPS is estimated to be VND 6,928 per share accordingly.
• Long Hau 3 Industrial Park – Phase 2 (LH3-p2 IP) and An Dinh IP are completing legal procedures. We expect the above industrial zones to be ready for lease by 2024.
• Based on the total valuation method (SOTP), we recommend accumulate LHG with an estimated target price of VND62,300 per share, which translate to expected return of 12.9% (compared to the closing price of January 10, 2021). LHG has 2022 forward PE valuation of 7.5, and forward PB valuation at 1.7.

Real estate – Clear recovery in supply in Q4 2021

• The HCMC residential market in the last quarter of 2021 surged after the severe lockdowns in Q3 2021. There was a sharp increase in launched and sold units (7,951 units, +126% QoQ and 5,679 units, +93% QoQ, respectively) in condo segment according to DKRA. However, on a full year basis, new supply fell to a five-year low as the number of newly launched units and sold units decreased 22% and 29% YoY, respectively.
• In 2022, we believe that the residential real estate industry will be relatively positive driven by the (1) Step-by-step recovery in supply and (2) Booming infrastructure development in upcoming years.
• Step-by-step recovery in supply. The slow-moving licensing procedures issue would be less severe given the government’s effort in issuing many important decrees/laws in 2021 (c. shortening construction permits granting time). In addition, the high vaccination rate also helps investors to be more confident in organizing offline sale events and contributing to the supply growth of overall market.
• Booming infrastructure development in upcoming years. The total estimated budget for the medium-term public investment plan for the 2021-2025 period is VND 2,870 Trillion (or USD 120 Bn), an increase of 43% compared to the period 2016-2020 (VND 2,000 Trillion, or USD 87 Bn). Developers who have clean land banks in areas having several nearby infrastructures as HCMC, Ha Noi and satellite cities will benefit from the price spike, leading to better ASP.

Power industry - Thermal plants come back

• The draught is expected to come back as the El Nino probability is gradually higher for 2022, indicating that thermal plants are going to enter a brighter phase.
• Coal thermal plants in the Northern part of the country are expected to benefit sooner than that in the Southern part based on the weather forecast and economic recovery.
• High contract volume in 2022 will ensure thermal companies’ profit. Furthermore, it will capture high price in CGM to earn profit. Hence, earnings from the thermal group are expected to grow in 2022.

FMC – 2021 preliminary results: Earnings beat the guidance

• We maintain our target price of VND 61,000 and have an ACCUMULATE rating for FMC, implying an expected return of 19% on one-year investment horizon, based on the closing price on Jan 06^th 2022. We think FMC will be suitable for investors looking to invest in a seafood company with profits that are less volatile compared to the industry and grow steadily year over year.
• FMC announced its preliminary results for FY2021 with export revenue of USD 213 Mn (~VND 4,900 Bn, +12% YoY) and EBT of VND 280 Bn (+18% YoY).
• Key drivers of FY2022-2023 earnings growth are: (1) favorable shrimp sector prospects driven by high demand and the US antidumping duty on Indian shrimp, (2) selling prices to grow faster than raw shrimp prices, (3) two new factories to start operating in 2022. We project revenue and NPAT to reach VND 5,698 Bn (or USD 248 Mn, +16% YoY) and VND 338 Bn (or USD 15 Mn, +28% YoY) in 2022. 

MSN – Consumer ecosystem to lead core profit growth in 2022

• We recommend to Accumulate on MSN with the total expected return of 8.7%, including nearly 0% cash dividend.
• We estimate Masan Group’s FY2022 core NPAT to be VND 6,795 Bn (USD 294 Mn, +40% YoY), driven by MCH (+17% YoY), TCB (+28% YoY) while VCM will make positive operating profit. We estimate this retailing chain to record VND 113 Bn in EBIT in FY2022 (versus VND -172 Bn in FY2021) with EBIT margin of +0.3% (+83 bps YoY) in FY2022.
• We view that the capital divestment from the animal feed segment is a decision with a long-term growth perspective, driven by (1) supporting business to decrease exposure to the commodity-based segment given the fact that Vietnam’s animal feed industry is in a saturation phase, and (2) the restructuring of capital investment to the branded meat industry, possessing growth potential to provide higher business upside in the long term for both MML and MSN.
• To concentrate on the consumer-focused business, we expect that MSN will soon accelerate the capital divestment from MSR to no longer be exposed to the non-consumer business. In addition, the cash proceeds from the animal feed segment’s spin-off and capital raising for The CrownX will be an important source for acquiring other leading domestic consumer brands to diversify the F&B product portfolio.

PVS – Waiting for new domestic M&C backlog

• 3Q/2021 revenue of VND3,984bn (USD177.1mn) and NPATMI of VND221bn (USD9.8mn), down 33.2% YoY and 12.2% YoY, respectively.
• JVs profit posted VND198bn (USD8.8mn), compared to the loss of VND36bn (USD1.6mn) in the same period last year.
• VND54bn (USD2.4mn) from reverting the warranty of construction work in 3Q2021.
• PVS has been awarded 3 new contracts with value of USD610mn, from international projects, not domestic ones.
• For 2021, revenue and NPATMI are projected at VND13,265bn (USD589.5mn) (34.3% YoY) and VND730bn (USD32.4mn) (16.9% YoY), respectively.
• PVS is the leading player in EPCIC segment. However, the shortage backlog for M&C, especially from domestic oil gas projects, is likely to impact the company’s prospect. Currently, we see some positive movements, which can solve the bottleneck but it’s soon to expect a good 2022 earnings for PVS in 2022. So we recommend REDUCE for PVS stock with the target price of VND 22,700.

2022 looks to be another good year for trade activities

• Trade is an economic bright spot in 2021.
• Export growth varied across countries due to an uneven global recovery.
• 2021’s winners are steel, machinery, and wooden products’ exporters.
• 2022 looks to be another good year.

Insurance Industry: Reformation is coming

Earnings of insurance companies have thrived in 2021, as a result of technical factors and claim payment deferral, which we consider temporary. In our view, this will not hold into 2022 and hardship will come in the shape of higher expenses, although we see opportunities for premium sales to continue its high grow momentum. Looking further, there will be structural changes triggered by the coming new insurance business law that is expected to come into effect from July 1st 2023.