Banks’ Credit Growth Limit in 2019

Given limited room to grow NIMs as well as less extraordinary income than before, banks will have to rely more on credit expansion. 

The SBV’s credit growth ceiling is an effective tool to control inflation and credit. However, it also limits the growth ability of even the smaller healthy banks and consumer finance companies that should be able to expand credit more aggressively while maintaining compliance to safety limits and ratios. We believe the very high credit targets set by some banks may be wishful thinking as quotas are unlikely to exceed 20%, as in 2018. For this year, many banks were or will be approved for Circular 41 early adoption, with much stricter capital requirements than current regulations. As such, we think it is more reasonable to let these banks manage their own credit limits, providing all safety limits and ratios are met. 

GMD – Update 1Q2019 Result and 2019 Forecast

We maintain our positive view on GMD. Stable earnings growth of the port operation segment and affiliates (CJ-GMD Logistics and SCSC) will be the main driver for GMD this year. Gemalink Terminal will be operational by 2021 and significantly enhance the capacity of GMD’s port system in the South. However, we don’t expect this project to be profitable in the early years due to large interest expenses. Another risk may come from extraordinary expenses regarding rubber plantation write-offs in Cambodia. We estimate the fair value of the stock at VND 30,000 (P/E forward of 16.4x and P/B of 1.5x). Incorporating a cash dividend of VND 1,500 per share, the total return is 21%. Recommendation: BUY.

MSCI stories of Argentina and Kuwait

• Little to no impact from Argentina's reclassification due to a 40% cap for the two biggest markets in MSCI Frontier Market 100 Index
• Positive impact if MSCI Kuwait Index reclassifies to EM in June 2019
• Kuwait has met most of EM criteria by now

Pangasius in 1Q2019: Exports to EU Surged but Dropped slightly in the US and China

1Q2019 Pangasius export value reached USD 472 million (+ 8% YoY). The 4 main export markets remain unchanged: China - Hong Kong, Europe, US and ASEAN.

SFG – 1Q2019 Business Results and 2019 AGM update

We maintain our negative outlook for the fertilizer sector in 2019. As expected, business results in 1Q2019 fell sharply compared to the same period last year. In our opinion, the ability to complete the plan in 2019 is vague because the two most important factors, weather and input materials prices are hard to predict. On the other hand, Vietnam National Chemicals Group (Vinachem) will decrease its ownership in SFG from 65% to 36% this year or the next, which could support SFG’s stock price in the future. However, currently, we lack specific information about this divestment. SFG is trading at VND 15,000/share, equivalent to 12.2x forward P/E (based on 2019 plan), quite high compared to the overall sector and the company’s growth prospects. The stock seems fully valued.

Research on Rubber Wood Price

Rubber wood is the main material for many wood processors and manufacturers. Its price has surged 40% in the 2017-2018 period. However, at the moment, we do not see any similar factors that could push the price further. 

NTP – Double-digit Growth in 2019 is Feasible

NTP is probably one of the few leading construction material companies to be targeting double-digit growth in 2019. The company recorded 19,000 tons of sales volume, VND 1,001 billion of revenue and VND 72 billion of profit after tax in Q1/2019, completing 19%, 20% and 19% of its 2019 guidance respectively. It should be noted that NTP's Q1 results started to show improvement in gross profit margin, supported by lower input material prices. NTP set its net margin target for 2019 at 8.5%, higher than the 7.3% in 2018.

MBB – 1Q2019 Business Results and 2019 AGM Updates

MBB maintains high growth in net interest income thanks to its consumer finance and insurance subsidiaries. These businesses also drive operating and provision expenses. We expect this trend to continue.

After years of keeping its foreign ownership limit at 20% (maximum 30% by law), we believe MBB may unlock the remaining 10% foreign room for the private placement as planned. Management believes overseas investors will pay a higher price than locals (triple or quadruple face value).

MBB is currently trading at VND 21,900, equivalent to an attractive PBR 2019f of 1.2x. We have a BUY rating on the stock with a target price of VND 30,500, about 39% higher than the current market price.

DGW – Update on Q1 Business results

In an effort to diversify away from the saturated ICT industry, DGW set its focus on office equipment and consumer goods. Though the digital transformation and consumer goods market have great potential, DGW will also face fierce competition and the distribution models are quite different from ICT business. Risks: In the phone segment, DGW is heavily dependent on two major suppliers (Xiaomi and Nokia) and the company has a high debt capital structure.

Trade War with the US?

Vietnam and the United States are allies. Since former president Bill Clinton lifted the trade embargo in 1994, relations between the former foes have grown ever warmer, despite or perhaps because of China’s rise as a major regional power.

Alliances however have not deterred the US administration from aggressively pushing the renegotiation of bilateral deals while multilateral deals seem a no-go for Trump. He quickly withdrew from the Trans Pacific Partnership (TPP) upon entering office.

Targeted are those countries with whom the US runs a large trade deficit. Convinced running a trade deficit equals “losing”, the administration has made trade deals one of its priorities. Just recently, President Trump sent a clear message to the international community that his trade wars aren’t finished yet and a weakening global economy will just have to deal with it.

PVB - The profit to be booked with revenue of VND350 bn?

For 2019, PVB targets to achieve VND350 bn in revenue, including (1) VND 315 bn from Nam Con Son 2, Phase 2 Project (2) VND10 bn from Vietsovpetro Project, and (3) VND15 bn from other projects. PVB only plans to record VND12.7 bn in profit, lower than last year’s number, which is quite conservative in our opinion. When posting VND 350 in revenue, we think that profits could be higher.

The US Dollar fluctuates around the peak

The EURUSD rate has been in a downtrend for the past 12 months. Euro weakness is explained by disappointing growth and Brexit distractions. The Dollar Index rose by 0.5% last Thursday and conquered the peak of 97 points again. Due to the euro’s large weight in the US Dollar Index’s basket of currencies, the Euro’s drop sent the US Dollar Index higher. Since March, the index has been fluctuating in a tight range of 96-97 points.