Industry Forecast - Vietnam - Q2 2018

0 6 Mar 20 18 Vie tnam Co ns ume r Ele ctro nics

BMI View: Total consumer electronics device spending in Vietnam is forecast increase at a CAGR of 3.7% over 2018-2022. We have a bright outlook for device spending
growth based on the combination of low device penetration rates, disposable income growth and supportive demographics. This will drive broad based expansion of
device spending, but product trends will continue to be important, with smartphone and flat-panel TV set upgrades expected to be areas of outperformance.

Latest Updates
The forecast period was extended to 2022 in the Q118 update but our core scenario remains in place for device spending growth to be fueled
by a strong purchasing power growth trend against a backdrop of low device penetration rates.
We anticipate handset segment outperformance as the smartphone upgrade trend continues; with upside for higher value sales as incomes
rise, but we caution that price erosion and oversupply poses downside risk.
Meanwhile, for computer hardware the smartphone boom is a threat to mass market PC spending, where demand for tablets and low end
notebooks is being cannibalised.

Structural Trends
2018 Outlook

We forecas t total cons umer electronics device s pending - including PCs and peripherals , TV s ets , dig ital cameras and camcorders , audio devices and mobile
hands ets - will increas e by 6.4% in 2018 to a total of USD7.8bn. This corres ponds to local currency g rowth of 7.7%, with both local currency and USD g rowth
forecas t to decelerate y-o-y. This view reflects the cooling of the device s pending boom over 2015-2017 that was trig g ered by trade and retail liberalis ation -
but the economic environment will remain s upportive and product trends cons is tent y-o-y in 2018.

Our Country Ris k team identifies Vietnam as having one of the mos t promis ing cons umer markets in the As ia-Pacific reg ion along with Indones ia, India and
the Philippines . Real GDP, private final cons umption and g overnment s pending g rowth are forecas t at 6.7%, 7% and 6.2% res pectively. This underpins a
pos itive outlook for device s pending where cons umer s entiment and credit acces s will als o contribute to g rowth. There will be a modes t drag from dong
depreciation, but GDP per capita is s till forecas t to increas e by almos t 9% in USD terms in 2018.

In terms of patterns of device s pending , we expect another year of computer hardware underperformance as s martphone owners hip proliferation continues
to cannibalis e us e cas es for tablets and low-end notebooks . This will, however be, partially offs et by demand g rowth from exis ting owners and firs t-time
buyers for whom the functionality offered by s martphones is ins ufficient. Meanwhile, the AV and hands et s eg ments have brig hter outlooks bas ed on flat-
panel TV s et and s martphone upg rades res pectively, but we expect s pending g rowth to s low s lig htly y-o-y in both s eg ments as the upg rade booms beg in to
los e momentum due to hig her penetration and the reduced impact of liberalis ation.

Consumer Electronics Demand

(2016-2022)

e/f = BMI es timate/forecas t. Source: BMI

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Market Drivers

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 There will two eng ines for cons umer electronics s pending g rowth over the medium term with ris ing purchas ing power and pos itive demog raphic trends that
pos itions vendors to benefit from firs t-time buyer and hig her value replacement s ales g rowth. BMI's Country Ris k team for Vietnam forecas ts that real GDP
g rowth will averag e 6.5% annually over 2018-2022, with s lig htly fas ter real g rowth in private final cons umption at 6.8%. There will be a mild drag on
purchas ing power g rowth due to dong depreciation, but GDP per capita in US dollar terms is s till forecas t to record robus t g rowth at a CAGR of 9.4% over
2018-2022.

Althoug h incomes will s till be low in Vietnam even by 2022, at USD3,585, the combination of ris ing purchas ing power and s upportive demog raphics - with the
population ag ed 15-64 in Vietnam forecas t to increas e at a CAGR of 0.6% over 2018-2022 - is a s olid foundation for device market g rowth. This is reflected in
our hous ehold income forecas t that s hows the expected larg e-s cale mig ration of hous eholds to hig her income bands over the medium term. Vietnam has
one of the hig hes t percentag es of low-income hous eholds (with incomes below USD5,000 annually) in the reg ion, but with broad-bas ed economic g rowth
momentum there will be an expanding middle clas s over the medium term.

There is als o an important reg ional dimens ion to the income g rowth outlook becaus e the Vietnames e market is divided between a rural market, with low
penetration of devices and limited s ales due to lack of purchas ing power, and a more developed urban market in Hanoi and Ho Chi Minh City that s till
accounts for mos t s ales in the country. This divide is es pecially deep in terms of big -ticket items s uch as flat-s creen TVs and computers that are s till out of
reach for the majority of rural cons umers , even as acces s to credit has improved.

Rising Incomes Will Expand The Middle Class

Vietnam Hous ehold Income Breakdown (2018-2022)

f = BMI forecas t. Source: BMI, national s ources

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The economic outlook is pos itive, but the propos ed tax reform packag e, which includes a VAT hike, would likely be dis ruptive in the s hort-term for big -ticket
cons umer products markets s uch as PCs and TV s ets . Meanwhile, there are s ome reg ional and g lobal ris ks that pres ent downs ide ris k. Thes e include a
renewed maritime dis pute with China, the Trump adminis tration introducing fres h tariffs on Vietnames e imports in the US, or economic policy s lippag es that
could undermine inves tor confidence and res ult in a s lowdown in FDI inflows and manufacturing g rowth.

The technolog ical ris k outlook is broadly pos itive but there is s ome downs ide, for ins tance the potential for cybers ecurity incidents to undermine confidence
in networked devices and s olutions s uch as mobile financial s ervices . Of g reater concern is the potential for intens e price competition for price s ens itive
local cons umers ag ains t a backdrop of overs upply from production in Vietnam and the wider reg ion to limit the returns to vendors .

Segments

Mobile hands et s ales boomed as s martphone volumes increas ed and rais ed the averag e s elling price of the hands et market as a whole, a trend that s aw it
come to dominate overall device s pending , as well as neg atively impacting other products s uch as PCs and dig ital cameras . There is s till s hort-term
potential for s pending g rowth to be driven by s martphone firs t-time buyers , but this will beg in to diminis h as s aturation approaches and res ult in s lower
g rowth rates . By the end of the forecas t period increas es in total hands et s pending will rely on vendors ups elling hig her s pecification and branded
s martphones to an expanding and more affluent middle clas s - but their ability to do s o is uncertain in a price s ens itive market and there is downs ide due to
potential for uns us tainable price eros ion as vendors compete ag g res s ively for market s hare.

As a frontier market there is s till potential for AV s eg ment g rowth to be s upported by firs t-time upg rades to flat-panel TV s ets as purchas ing power
increas es , whereas developed and even mos t emerg ing markets are by 2018 s aturated. There will als o be a pos itive impact from the dig itis ation of TV
broadcas ting and trans mis s ion in Vietnam, which will trig g er TV s et and/or s et-top-box upg rades by hous eholds . The Vietnames e g overnment plans to
dig itis e televis ion broadcas ting and trans mis s ion by 2020. Els ewhere, dig ital camera and camcorder demand will be flat and bas ed on power us ers , with the
cas ual us er market tapped by s martphones . There are s ome other g rowth pockets , es pecially in devices complimentary to s martphones , for ins tance
wireles s s peakers and headphones .

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 Consumer Electronics Demand
(2016-2022)

e/f = BMI es timate/forecas t. Source: BMI

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The computer hardware s eg ment underperformed over 2014-2017 when PC demand was neg atively affected by the cannibalis ation of tablet and notebook
demand as s martphone owners hip proliferated. In a market where there is a relatively low leg acy of PC owners hip among hous eholds we expect an
increas ing number of cons umers to become accus tomed to s martphones being the only devices throug h which they acces s the internet - putting the PC
market on a lower volume potential trajectory when compared to earlier maturing markets . There is nonetheles s s till g rowth potential due to the very low PC
penetration, with demand from affluent cons umers and power us ers s et to g row - and PCs that are functionally differentiated from s martphones including
g aming and hybrid notebooks , works tations and all-in-ones s et to record g rowth.

CO NSUMER ELECT RO NICS O VERVIEW (VIET NAM 2 0 16 - 2 0 2 2 )

Indicat o r 2016 2017e 2018f 2019f 2020f 2021f 2022f

Co ns ume r e le ctro nics de vice s , USDmn 6 ,56 0 .8 0 7,29 0 .27 7,754.14 7,78 6 .47 8 ,19 7.6 5 8 ,553.53 8 ,9 75.11
Co mpute r hardware , USDmn 1,30 2.47 1,30 9 .6 6 1,36 2.0 6 1,40 8 .11 1,46 3.9 8 1,514.55 1,559 .23
Audio vis ual, USDmn 1,536 .14 1,6 8 3.72 1,755.74 1,8 53.29 1,9 6 8 .77 2,0 39 .6 5 2,174.0 8
Hands e ts , USDmn 3,722.19 4,29 6 .8 9 4,6 36 .35 4,525.0 7 4,76 4.9 0 4,9 9 9 .34 5,241.8 0

e / f = B MI e sti m a te / fo r e c a st. S o u r c e : B MI

This mate rial is pro te cte d by inte rnatio nal co pyrig ht laws , and us e o f this is s ubje ct to o ur Te rms & Co nditio ns .
© 20 18 Bus ine s s Mo nito r Inte rnatio nal Ltd