TCB – 1Q22 review: Well-controlled credit costs as a counterpressure

• TCB delivered good growth in 1Q22 amid rising concern about the pressure on the NIM front, which extended both on a year-over-year and quarter-over-quarter basis. Total operating income grew 13% YoY despite solid net interest income and net fee income growth (32% YoY and 35% YoY respectively). TCB wrote down the value of its bond holding, which impacted the other non-interest income and solely made PBT down by 14% YoY. It should be reversed in the next quarter given the new decree. CIR was stagnant while credit cost margin kept falling as expected. Lower provisions helped counter the impact of other non-interest income.
• Our 2022 PBT forecast is VND 29.1 tn. The 1Q22 results fulfilled 23% of our full-year estimation. The forward 2022 book value per share is VND 32,721, translating to a forward P/B of 1.1x. The bank’s historical P/B average is 1.7x. Compared to the time of listing, TCB’s forward ROE improved structurally from circa 17% to 22% this year. Given weak sentiment towards the bank and the recent re-rating on a sector-wide basis, we decline the market valuation component and thereby, revising down our target price by 5% to VND 67,700/share. This is equivalent to a BUY recommendation with an upside of 85% from the closing price of May 25, 2022.

A rise in defaults is on the horizon

• Rising sovereign yields and the breakdown in US break-evens suggest that we are set for a slowdown in growth and a glacial decline in pricing power—a stagflationary environment.
• The dollar’s strength is consistent with the end-of-cycle risk aversion. Buy Sing $.
• Credit markets have been slow to re-price a rise in defaults. Earnings momentum is fading just as fast as confidence in target prices diminishes. It is still not time to revisit companies with deteriorating working capital and / or a reliance on asset sales.

Steel industry – Steel prices are weighted on short-term cooling down and could rerise in 2H2022

• Steel prices in Europe have declined gradually after reaching a peak in April.
• China's economic reopening could be a catalyst for steel price resurgence.
• The goal of increasing the presence of Russian steel in Southeast Asia will more or less increase pressure on the regional market.
• Galvanized sheet manufacturers can expand profit margin in 2Q22 by closing export contracts to Europe at high prices; difficulties of prolonged high production costs erode the margin of upstream producers.

REE – Better than expected earnings in 1Q2022

• In 1Q2022, revenue reached VND 2,045 bn (or USD 89 mn), +73% YoY and +8% QoQ. NPATMI experienced a bounce of 67% YoY to VND 693 bn (or USD 30 mn), +67% YoY and -12% QoQ thanks to a doubling of the power segment in earnings term.
• Earnings from hydropower doubled compared to 2021. Outperformance from this group was due to favorable hydrological conditions and high selling prices in CGM. Wind power group grew by 62% YoY to VND 34 bn.
• REE entered a growth phase since 2021, hence its P/E has been gradually rerated. We expect REE to sustainably grow in the medium term. In 2022, we forecast revenue and NPATMI to be VND 8,790 bn (or USD 382 mn, +51% YoY) and VND 2,310 (or USD 100 bn, +25% YoY), mostly driven by power segment. In 2023, Etown6 and those renewable energy projects accumulating in 2022 will play as growth momentum.
• Our latest target price is VND 73,500. We recommend to ACCUMULATE this stock due to the bright medium-term outlook. We will update our new target price in our next report.

Global Asset Fund Flows

• Flows so far year-to-date demonstrated a return to risk aversion.
• Within equities, Emerging Markets, Europe and Financials have seen noticeable liquidation.
• We expect a bit of a reversal in the next few months as shorts will be covering positions.

Trade performance remained positive in Apr 2022

• Trade performance remained positive in Apr
• Exports of key products continued to be steady.
• China's zero-Covid policy exposed more risks to Vietnam in terms of imports.

Trade performance remained positive in Apr 2022

Despite heightening external risks, Vietnam's export activities still maintained growth momentum in Apr 2022. Total export turnover reached US$33.3 bn, down 4.0% mom but increased by 25.2% yoy. The FDI and domestic sectors recorded an increase of 24.5% and 27.0% respectively over the same period. In Jan-Apr 2022 period, Vietnam's exports reached US$122.5 bn, up 16.5% yoy. Meanwhile, the total import turnover reached US$32.5 bn, down 0.6% mom but up 16.1% yoy. Imports of the FDI and domestic sectors grew by 18.3% and 12.3% yoy, respectively. In 4M22, Vietnam's imports reached approximately US$120.0 bn, up 15.3% yoy. Trade performance in Vietnam remained robust, the trade surplus is estimated at US$849 mn in Apr 2022. As a result, the trade surplus reached US$2.3 bn in Jan-Apr 2022 period, 65.0% higher than the same period of last year.

NVL – Financial gains to boost high earnings growth in Q1 2022

• The company reported net revenue of VND 1.96 Tn (or USD 85 Mn, -57% YoY) and NPAT of VND 1.05 Tn (or USD 45 Mn, +49% YoY), fulfilling 5.4% and 16.2% of its 2022 revenue and profit guidance, respectively.
• In the worst case, the company expects that sales in 2022 will be at VND 35 Tn, in which 57% from presales units, securing cash flow for its due debt in 2022.
• NVL’s market price has decreased by 14.8% (VNIndex down by 23% at the same time) since early April 2022 due to the stock market in general, making its current PBR down to 4.0x.
• In the short-term, on the one hand, the SBV has showed its intention to loosen monetary policy for the manufacturing sectors while strictly control speculative money to real estate and the stock market. On the other hand, the sales and earnings season of real estate companies is often in Q3 and Q4. Therefore, we believe opportunities to accumulate real estate stocks are still ahead.

We joined the NVL analyst meeting last weekend to get an update on the company’s Q1 2022 business results.

VNM – Wait to see a further improvement in operations since 3Q2022

• 1Q2022 NPAT Post-MI dropped to VND2,266 bn (-12.1% YoY), driven by the stronger-than-revenue growth in total costs, especially input costs. By the end-2021, the whole milk powder (WMP) price reached USD 3,867/MT (+20.5% YoY) before moving to roughly USD 4,757/MT (+9% YoY) in the beginning of Mar-2022. Therefore, 1Q22 profit margins sharply declined.
• 2022 revenue and NPAT Post-MI of VNM are forecasted at VND64,564 (+6.0% YoY) and VND10,731 bn (+1.9% YoY), respectively, driven by the growth of both parent and subsidiaries. We expect the gross margin to improve from 3Q22 thanks to the operation of Lao-Jargo farms which will add 8,000 new cows in 2Q22. The higher self-produced rate of raw milk will partly compensate for the increase in total raw milk costs.
• We suggest that Vinamilk is not clearly a good investment opportunity in 1H22 due to the deterioration in profitability. However, based on the rosy outlook in the next five years, and the target price of VND91,100, we recommend Waiting To See positive signals of the operation improvements which we expect to happen in 3Q22 such as the profit margins recovery, or the organic sales grows at a high single-digit rate.

We live in the most chaotic, hard-to-predict macroeconomic times in decades

• Inflation today compared to the 1980s is a completely different animal and the situation is so beyond what the various central banks can do.
• In the US, social and political disharmony is at the highest level since the onset of the Civil War.  With the world suffering various economic and geopolitical challenges, it does not paint a great picture for the near future.
• Generally, global stocks have had a phenomenal run since 2008-09 but are overdone now.

ACB – 1Q22 review: Strong buffer paid off

• ACB managed to deliver strong earnings growth (33% YoY) in 1Q22, a rebound from the weak performance in 2H2021. Total operating income expanded steadily (21% YoY). CIR contributed negatively due to the high base effect. Notably, ACB posted net provision reversals thanks to the over-expected repayment of restructured loans. It became a major growth component.
• We factored in a recovery of restructured customers on a sector-wide basis in all our models, which will be reflected via weak demand for further Covid restructuring along with a modest rebound in NPL formation, and robust repayment of restructured debt. The forward 2022 book value per share is VND 21,181, translating to a forward P/B of 1.4x. The bank’s three-year and five-year P/B average are 1.8x and 1.9x, respectively. We see valuation pressure coming from the weak market sentiment as well as the re-rating due to the concern of earlier-than-expected policy rate hike. We maintain our target price at VND 42,000/share. This is equivalent to a BUY recommendation with an upside of 42% from the closing price of May 12, 2022.

PVT - Revenue of transportation keeps rising in 1Q2022

• Revenue and NPATMI in 1Q2022 grew 17.8% YoY and 11.8% YoY, respectively.
• Transportation revenue increased by 22.9% but gross profit margin decreased slightly due to the crude oil tanker.
• In 2022, we estimate that revenue and NPATMI will reach VND 8,577 bn (up 15.0%) and VND 880 bn (up 33.3%), respectively. In which, profit will mainly be in 3Q2022 when PVT liquidates the Athena vessel.
• The stock price has witnessed a deep dive recently and is staying at an attractive valuation. The current PE 2022 is at 7.4x, lower compared to the average of 10x from the beginning of the year. We reiterate our BUY recommendation for PVT stock with the target price of VND30,500, equivalent to PE forward of 11.9x.