Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
08 February 2019
SUMM
Table of Contents
Vietnam Market Outlook 2020: The Elusive Cheese Hunt ..................................................................................................... 4
2019 macro review: Flying majestic over the cloudy sky ................................................................................................. 8
CONSUMER STAPLES...................................................................................................................................................... 38
FINANCIALS ..................................................................................................................................................................... 76
Insurance: Neutral: Improved underwriting profit to offset weaker investment yield ................................................................... 88
Neutral: Competitive advantages for local drug firms that adhere to high standards.................................................................. 100
INDUSTRIALS................................................................................................................................................................. 106
Airport services: Neutral: Traffic volume continues positive growth momentum despite capacity constraints in key airports ........... 111
Construction: Neutral: Still waiting for property sector turnaround ....................................................................................... 119
Fertilizer: Negative: Low growth from cyclical El-Nino pattern ............................................................................................ 133
UTILITIES....................................................................................................................................................................... 137
ETFs were rather active in 2019, with total net inflows of roughly $220 mn USD. All 5 ETFs that established significant e xposure to the
Vietnamese stock market received positive inflows last year. Among these, VFMVN30 ETF and VanEck Vectors Vietnam ETF received
most of this capital, approximately $100 mn USD each. Launched in July 2019, the Premia Vietnam ETF is the latest fund to join the club,
but its contribution was modest for a start, at $2.4 mn USD. The SSIAM VNX50 ETF and DWS FTSE Vietnam Swap UCITS ETF variants
attracted net inflows of $2.5 mn USD and $14.9 mn USD respectively.
When looking at catalysts for the market, we see that 2020 is shaping up to be another promising year for ETFs, with various newcomers
stepping up to the plate. The SSIAM VNFIN Lead ETF has just recently completed its IPO as of early January 2020, and is awaiting listing
approval from the SSC. Many other ETFs are in the process to be launched soon, and are potential drivers for fund flow this year.
2020 should be a year that sees a number of new important laws and regulations get approved. Among the list, we are expecting the
Enterprise Law and Investment Law to provide new guidelines for foreign ownership limits (which might legalize the NVDR trading
mechanism). Another key piece of legislation is Decree 32 on SOE divestment, which will streamline the incentivization towards
divestment (at least in small-sized SOEs).
In terms of new supply for the market in 2020, SOE divestment might make new strides ahead. However, actual IPO activity might see
another quiet year, as it takes time for large SOEs to complete the land valuation process. Notably, for SOEs under the HCMC’s People
Committee, such as Satra and Saigontourist, 2020 is the deadline for their IPOs to formally kick off. Although we still might see some
delays regardless of the deadline, these should be on investors’ watch list nonetheless. Given the above information offering us a clue
on what areas the government considers a priority, we hold the view that the Vietnamese market is not expected to be upgraded to
emerging market status until 2022.
In short, we expect another bright year in terms of both macroeconomic performance and corporate earnings. For a typical year before
the election, though, the stock market might still not see many additional catalysts. In a bear case scenario, the market might be similar
to that of 2019. However, we note a variety of factors that can make the market in 2020 more positive than 2019: (1) We expect both
deposit and lending rates to be kept at a lower level than 2019, despite higher inflation expectations. (2) Continuous ETF inflows; (3)
Comparatively low market valuation, priced in largely from the conservative, risk-averse view of local retail investors.
Given our base case that market P/E ratios will not expand in 2020 due to a lack of catalysts, we forecast the VNIndex to step up 10-
15% in line with earnings growth, translating to a range of 1057-1105 by the end of the year. Looking over the long term, it is likely that
all new regulations designed to fulfill the needs of the market will be in ready in 2H 2021. Local market participants, knowing that the
right regulations are now in place, might shift their market sentiment and apply a longer term view and plan. This could also in turn help
boost sentiment of the Vietnamese stock market as a whole. Given the bottlenecks present in some key areas such as public investment
in infrastructure, the privatization process, or stock market structure, Vietnam needs to apply a sense of urgency to clear these roadblocks
in order to maximize growth momentum and efficiency within the period of the golden demographic window, a race to achieve a certain
and defined vision for the economy before the population starts to age quickly in 7-10 years from now.
In 2020, growth companies continue to be our top picks. Banks are expected to deliver higher growth among the sectors, as Vietnam is
still a country undergoing rapid creditization of the national economy. Accordingly, banks are experiencing a rise in trends of both retail
loan and bancassurance product distribution, while NPLs remain kept at a low level. Companies under our coverage are estimated to
post 14.8% of NPATMI growth in 2020. If excluding banks, forecasted growth is 11.2%.
120%
115%
110%
105%
100%
95%
90%
Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19
Source: Bloomberg
The VN Index ended 2019 at 960.99 points, gaining 68.45 points or 7.67% YoY. The market surged in the first 3 months of the y ear,
being supported by strong foreign inflows (especially via ETFs that dedicatedly track the Vietnam market). The VN Index then lost upward
momentum in the following months of the years (except for July and September) due to rising fears of US-China trade war escalation,
an inverted yield curve, and geopolitical tensions, all of which triggered foreign outflows. Sentiment of retail investors (who account for
86% of market trading value in Vietnam in 2019) was lackluster from both global uncertainties and lack of new near-term catalysts, such
as large IPOs or state divestment, FOL solutions, market upgrade news, etc. Therefore, retail investors had either actively withdrew from
the market, or switched to safer investment instruments such as corporate bonds and gold.
Key leaders responsible for the VN Index’s upside includes VCB, VIC, BID, VHM and GAS, while major laggards were SAB, MSN, BVH,
ROS and POW.
VNINDEX
Security End Price Change Index Pts Security End Price Change Index Pts
VCB 90,200 70.10% 41.457 SAB 228,000 -14.28% (7.331)
VIC 115,000 20.67% 19.247 MSN 56,500 -27.10% (7.094)
BID 46,150 38.72% 14.298 BVH 68,600 -21.86% (4.093)
VHM 84,800 16.92% 12.791 ROS 17,300 -55.30% (3.625)
GAS 93,700 12.89% 6.914 POW 11,450 -26.60% (2.880)
Average daily trading value via order matching (across 3 bourses) declined by -34% YoY in 2019 to $149 mn USD in 2019. Foreign
investors in total net bought $206 USD mn in 2019 via both matching orders and put-through transactions, much lower than 2018 net
inflows of $1.84 bn USD. Via ETFs, foreign investors net raised $220 mn USD during 2019, with a strong fall in disbursements in H1. In
2019, foreign investors were net buyers for VIC, E1VFVN30, PLX, VCB and MSN, while they net sold VJC, VHM, VNM, HDB, and DHG.
Vietnam GDP growth hits 7.02% YoY, one of the fastest-growing economies in the world
Confirmed beneficiary from trade war, with export growth of 8.4%, historically high trade surplus of $11.2 billion USD, and FDI inflows
to manufacturing sector increasing 24% YoY
Domestic reform slow on anti-corruption campaign, with no improvement in public investment disbursement or the property project
licensing process, plus no major SOE IPO/divestment
The Vietnamese economy was the belle of the ball vis a vis most of the global economy, outperforming most of its global peers in 2019
(GDP growth at +7.02% YoY). This was attained a time when the global economy was marked by a distinct sense of trepidation, fretting
about possible further deceleration of global growth amidst a palatable sense of uncertainty regarding further global trade tensions. The
Vietnamese economy, however, was characteristic of a distinct resilience which absorbed the external shock factor from abroad rather
well.
Some aspects of the year were originally as we had expected, namely i) relatively high growth with tamed inflation, and ii) Vietnam being
the key beneficiary from the trade tension between US and China (historical high trade surplus, high export growth to the US, solid FDI
inflows into the manufacturing sector). However, what we did not expect, included i) a more aggressive stance in monetary easing from
the central bank, partially from a sudden change in global monetary policy, ii) the side effect from the anti-corruption campaign being
larger than expected. Regarding the latter, we could see the effects of this campaign as an influential factor determining SOE
IPO/divestments, property market licensing approvals, and infrastructure investment (both via public investment or public private
partnerships).
13%
8%
3%
-8%
Source: GSO
For real GDP growth, the 2019 growth pattern diverged a bit from past years. Looking at the growth data in more detail, we see that
historically growth tends to really amass in the last two quarters of the year. However, we see an outlier in this pattern in the case of
2019, in which the 3rd quarter outshined as a quarter of exemplary performance. Reasons for the break in historical trends could be
traced to an abnormally high CPI in Q4, a variable of which can certainly soften real GDP growth data during the quarter, as well as the
fact that the Nghi Son refinery closed for maintenance for most of the time during Q4.
8%
7%
6%
5%
4%
2015 2016 2017 2018 2019
Q1 Q2 Q3 Q4 Full year
Source: GSO
For a breakdown of growth data by sector, manufacturing continued to lead (+11.29%), while financial (+8.62%), logistics (9.12%)
and the retail sector (+8.82%) were also major contributing factors. Final consumption increased by 7.23% YoY, supported by relatively
high retail sales growth at 9.2% YoY (2018: +8.4% YoY). Additionally, international tourist arrivals hit a record of 18 million visitor trips
(+16.2% YoY). We found Vietnam consumption to be quite resilient thanks to the steadily growing middle-income class. In terms of
tourism data, there was a strong rebound in the last quarter of the year thanks to the return of Chinese tourists.
25.00% 12
10
20.00%
8
15.00%
10.00%
4
5.00%
2
0.00% 0
2016 2017 2018 2019
Capital formation rose by 7.91% (echoed by total investment having increased 10.2% YoY in terms of nominal growth, which was led by
private investment by a factor of + 17.3% YoY). For net exports, Vietnam posted a lofty merchandise trade surplus of $9.9 bn USD, as
export growth surpassed import growth by a wide margin of 8.1% YoY vs 7% YoY. On the other hand, there was a sizeable trade deficit
in the form of trade in services tallying $2.5 billion USD. All in all, these flows offset each other, resulting in less significant fluctuations
vs. the previous period.
35 12.00%
30 10.00%
25
8.00%
20
6.00%
15
4.00%
10
5 2.00%
0 0.00%
2017 2018 2019
Source: MPI
Whichever way you slice and dice the data regarding foreign trade, it’s clear that Vietnam has been a prime beneficiary from the US-
China trade war. This was not only for the fact that FDI into the manufacturing sector had increased by 23.5% YoY by way of a
concentrated flow of manufacturing base relocation to Vietnam, but also from exports that were positively affected by the US-China trade
war. This is also a reason owing to why Vietnam export growth was so high this year, as American importers increasingly substituted
from Chinese-made goods to Vietnamese equivalents.
20
18
Trade war related export ** 16
14
12
10
8
Electronics * 6
4
2
0
Mobile phone 2016 2017 2018 2019
We also see that public investment is still slow, realizing only 57.5% of the 2019 plan. Having said that, we increasingly see that the
private sector is taking up the slack. We noted that i) FDI disbursement remained high ($20.38 bn USD, + 6.7% YoY), while registered
FDI into the manufacturing sector is also growing at a rapid clip (+23.5% YoY – total $17.5 bn USD – a key sign that manufacturing
base relocation from China is fully underway) and ii) credit growth was only slightly lower i.e 12.1% YTD (2018: 13.3% YTD as of Dec
20th). M2 (total liquidity growth) was also higher (12.1% YTD vs 11.3% YTD in 2018), so we have essentially ample liquidity within the
banking system. In short, private investment is still leading the growth charge in the last few years, due in part to the privatization drive
influencing the process of SOE reforms.
Chart: Credit growth, M2 growth and actual NPL (RHS, reported NPL + VAMC bond + restructured debt)
20% 12%
19%
10%
18%
17%
8%
16%
15% 6%
14%
4%
13%
12%
2%
11%
10% 0%
2015 2016 2017 2018 2019
Source: SBV
6.00%
5.50%
5.00%
4.50%
4.00%
3.50%
3.00%
2.50%
2.00%
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
The first on the chopping block involves regulations covering brand/trademark valuation, of which there will be no more consideration
towards attempts at rationalizing valuation by way of weaker, non-market based pretexts such as history and reputation. Instead, there
will be a more rigorous discipline towards value applied in the form of market-based valuation to decide the fair value of the brand or
trademark at hand.
Land-related issues will also receive an overhaul. The revision aims at resolving post-IPO land usage by separating the approval under
the Laws of Public Asset Management and the post-IPO land usage plan (as land is normally a public asset) for easier implementation.
In short, the approval under the Laws of Public Asset Management could be done later on, after IPO. While it’s becoming pretty clear in
terms of the approval process, it doesn’t necessarily mean faster implementation for cases of upcoming SOE IPOs, such as Agribank or
VNPT. Those SOEs have branches or offices spread across all 63 provinces nationwide, and not all land plots connected to these SOEs
have the correct paperwork documenting legitimate proof of ownership (as some plots of land were handed over 30 years ago or
more). We are also waiting for the Ministry of Natural Resource and Environment to draft a decision to allow SOEs to return land plots
with questionable titles derequisitioned back to the local authorities, which will in turn allow the transfer of such land to the SOE that
possesses a legitimate proof of ownership. Only when ironing out the inconsistencies of land plots and titles through such a new
regulation, together with this MoF draft, would we issue our mark of approval of this as a positive development.
Similarly to the above Decree, the language regarding history or reputation in terms of trademark/brand will be struck out from the
legislation.
In terms of tweaking existing definitions in the Decree, terminology such as starting price, reference price and actual-paid price (for
investors) in SOE divestment will be revised. Overall, the balance will be tilted in favor of the investor with this adjustment to the definitions.
This means that the starting price in the draft’s current form is the higher amongst i) the price decided by legal valuer and ii) the 30-day
average price in listed market, and iii) the reference price in the listed market one day before the approval day of the starting price.
Previously, even in the event that the investor set their own price legally by way of public auction, competitive bidding, or direct
negotiation, and those negotiations resulted in an arrangement lower than the floor price (in listed market) on the day of execution, such
wily negotiations would be in vain as investors would be locked in to paying the higher floor price anyways. With this Decree revision,
investors could refuse to participate in the auction (if the starting price is lower than the floor price of the execution date), and get their
deposit money back to boot. Overall, we can see that the balance of favor is becoming tilted more towards the investor within these
Decree revisions, while SOEs with the correct paperwork will finally receive their rightful land plots in due time.
Yet, perhaps the most important part of this draft is wherein the government mentions the desire to invest “to maintain state-ownership
ratio” in state-owned commercial banks (SOCB), in which the government of course holds a majority stake. The Prime Minister wields
such authority to do so with the mandate under the Laws of State Capital management in operations of enterprises (Article 17.1), and
the government also expressed the desire to carry out the mandate in the official letter 3178/VPCP-KTTH (dated Oct 31st, 2019) to ensure
“monetary security”. So, while in the short term Vietcombank (VCB:HOSE) or BIDV (BID:HOSE) might not see an immediate impact,
Vietinbank (CTG:HOSE) might find what it needs for its recapitalization plan.
2020 growth has reasonably secure prospects, with resilient investment expected from both foreign and private investment
Upcoming election in 2021 will be more in focus, specifically the next five year plan
Regulation overhaul (revised laws with respective guidelines) will be key to the next round of growth
Inflation risk, slow SOE reform, stodgy bureaucracy, and geopolitical issues are all key risks to growth/market sentiment
For global context, we hold a basecase forecast that growth might be similar to 2019 levels. However, there are upside prospects beyond
that in terms of higher growth for smaller firms and slightly higher than expected growth for larger corporations. Waving the magic
monetary policy easing wand to summon growth may not be as effective as it has been in the past, whether it be in the case of the SBV
or the FED rate alike. There hence may need to be a rethink of how to divine economic growth via more innovative solutions and tools to
optimize monetary policy, FDI attraction, and fiscal stimulus for the economy. As trade tension eases trending towards détente, global
trade might improve in turn. This would be a positive event for a countries with a large scale of trade openness like Vietnam.
7.40%
7.20%
7.00%
6.80%
6.60%
6.40%
Q1 Q2 Q3 Q4
Quarterly GDP growth (low band) Quarterly GDP growth (top band)
With a bit of a bloated global economy forecast picture ahead, Vietnam is coming to the end of its 5 year plan for 2016-2020, as well as
preparing for the next election. The 5 year plan by and large has met the country’s expectations, featuring higher growth and significantly
more macroeconomic stability. We do not expect any sudden policy changes to occur after the election, as the new elected official(s)
will almost certainly still pursue higher growth (annualized GDP growth at around 7% per year) and stable CPI (< 4% YoY).
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
Q1 Q2 Q3 Q4
-2.00%
-4.00%
For 2020 at a glance, the Vietnam economy is still set to grow at the current pace of 6.8-7% YoY. Growth variables are many, but the
leading factor is still expected to be FDI-invested enterprises such as manufacturing. While there is a distinct slowdown trend in global
manufacturing in a sample of nations around the world, Vietnam has been bucking this trend. The Vietnamese manufacturing sector not
only is experiencing a massive manufacturing base relocation over the past decade from China to Vietnam, but is also experiencing a
boom in local demand needs in terms of infrastructure development, and from resilient domestic consumption overall. On the trade front,
export growth could bounce back as trade tensions ease. This could lead towards a better outlook for the mobile phone cycle banking
on the success of 5G deployment, or from the continuation of another bountiful harvest to be reaped from the increase in FDI into the
manufacturing sector, as was also the case last year.
After discussing a number of scenarios for inflation (<4% or >4%), the government chose a baseline target of 3.59-3.91% YoY. We
believe that this target is very ambitious. In actual practice, it means there needs to be a couple of months wherein CPI decreases month-
over-month. In order for this to materialize, the pork price would need to retreat significantly from the current level in order for this scenario
to manifest. Whichever the case, higher inflation (even the mere expectation of it) makes interest rate cut prospects more difficult to
commit to in the meantime.
6.00%
5.50%
5.00%
4.50%
4.00%
3.50%
3.00%
2.50%
2.00%
1.50%
1.00%
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Average Month-end
Additionally, the central bank over a gradual process might switch from the practice of inflation control towards inflation targeting, as it
seems to be a better measure to keep inflation within its target. However, we could actually see the action on implementing some degree
of inflation targeting in 2021, rather than 2020. This is because it is crucial in 2020 to enact policies and execute fiscal discipline where
needed in order to drive CPI below 4% for the year. Things to watch might include whether there should be more interest rate cuts (at
least one or two instances), as well as actual implementation of required reserve cuts and credit growth falling between an a cceptable
range (12-14%). For our part, we believe that interest rates might still be trending lower, by about 30-50 bps during 2020. For exchange
rates, as inflows continue (with supporting factors like trade surplus, remittances, FDI disbursement), while proactive steps are afoot
towards a plan of action to show good faith efforts to the US side towards nullifying the latent risks of being designated as a curre ncy
manipulator on the US Treasury list. With such a year ahead, VND devaluation risk is nearly non-existent. Accordingly, VND could move
within a tight trading band range of +-1% for one more year.
Meanwhile, on fiscal policy and available tools, we note that 2020 is the last year of the 5-year cycle (2016-2020). As a regulation
framework overhaul has been in place already, public investment should rebound from a low base set in 2019 to set the stage for public
investment growth over in 2020. Additional fiscal policy assistance might be had from the improvements and implementations made by
way of the 5-year plan in regards to public investment (2021-2026). In our view, over the short term under-disbursed public investment
might not hurt growth, as public investment can be carried over to following years for subsequent disbursement then. That’s why in
2017-2020, total disbursements during one year have exhibited the pattern of including 70% of the current year plan plus 30% of the
previous plan. So, the disbursement rate might be higher in 2020, but because of this pattern, it still might not be very significantly
different from 2019 levels.
For SOE reform, more regulation framework overhaul should be needed in 2020. We saw a large absence of privatization in 2019 in
terms of SOE IPO/divestment. While the government is trying to revise both Decrees 127/2017 and 32/2018 to facilitate the valuation
process, it might take a while to see whether those revisions will actually work in practice. By now, even the revised list for SOE
divestments (revision to the Decision 1232/2017) has not been available, so we may need to wait at least till 2H20 to see any new
developments. There’s quite a bit to address, and the foundational principle/concept on SOE reform itself will need to be worked out (i.e
which sector will remain state-owned vs. privatized, or if delays surface regarding planning and/or implementation). We do expect that
some big names like Agribank and VNPT (IPO) will be ready to start this process in 2020. Still, it may not be worth holding one’s breath
for, as valuation and due diligence would need to be done first before an actual IPO. This process may drag on past 2020, so patience
might be a virtue here.
On legal frameworks, the Securities Laws revision was approved last year, and for 2020 the other two revisions, namely the Enterprises
Laws and Investment Laws, would be all approved by the National Assembly (possibly in May-June 2020). Follow-up guidelines (in the
form of government decree) should be paid attention to, as expectations are increasingly high regarding foreign equity limit liberalization,
and/or a simpler procedure for portfolio investment in non-restricted sectors. A revision upon the Land Laws would be also an area of
actionable improvement, as it needs to be updated as quick as possible to leverage the benefits of a lot of new developments and
innovations in the property market.
SECTOR IN FOCUS
Sector performance
140%
Textile & garment performance declined by -2.8% in 2019, 130%
underperforming the VN Index. As 2018 was a high base year, 120%
we had rated the sector as Neutral at the beginning of 2019 due 110%
to rising labor costs and minimal immediate impact of the FTAs 100%
signed. 90%
80%
Key Reasons for underperformance of the sector: VNIndex Consumer Discretionary Textile & garment
70%
Many stocks performed well in 1H 2019 thanks to encouraging 60%
financial results, continuing the growth momentum set in 2018.
However, as the trade war intensified in 2H 2019, the RMB
devaluation, decline in the demand of yarn from China, as well
Source: Bloomberg, SSI Research
as the massive dumping of yarn prices have made it very
challenging for Vietnam’s local yarn and garment manufacturers
to compete in the international market. Meanwhile, there is
patchy consumer sentiment.
VGT (the largest stock in the sector) declined by -10.7% during
the year as its net profit declined by -18% YoY. MSH, STK, and
TNG outperformed, with gains of 18%, 18%, and 7% respectively
thanks to their stronger net profit growth up to 9M 2019 (+31%
YoY, +23% YoY, and +34% YoY respectively).
The FDI sector (which is responsible for about 60% of total 2019 USD bn % of total YoY
Total Vietnam textile and
exports from Vietnam) also experienced lackluster garment export value
39 100% 8%
performance, with revenue lower than expected due to the US 15.2 39% 8.9%
rapid fall in global cotton prices, and cautiously placed EU (28) 4.4 11% 2.2%
China 4.3 11% 7.1%
orders from customers on rising uncertainty from the trade Japan 4.2 11% 4.5%
war. However, most FDI-invested companies could still Korea 4.0 10% 4.4%
benefit from vertical integration (yarn and fabric are partly Source: VITAS
self-supplied), so the impact is less severe compared to
purely homegrown Vietnamese companies. Nonetheless, Vinatex affiliates, financial performance in 9M 2019
most companies expect a rebound in orders in 2H 2020. VND bn Net sales Net profit Sales YoY
Earnings
YoY
• Up to 9M 2019, VGT consolidated sales reached VND 10-May 2,448 52 -18.6% -21.8%
13.5 trillion (-6.3% YoY and 61% of target), and total Viet Tien 6,419 293 -13.5% -16.3%
Viet Thang 1,604 74 -12.2% -12.9%
PBT reached VND 564 bn (-22.8% YoY and 67% of Hoa Tho 3,224 80 -4.2% -1.2%
target). Phong Phu 2,534 185 -4.2% 0.5%
Some smaller local textile and garment companies recorded Source: Company, SSI Research
mixed results, but were mostly affected by the decline in the 9M 2019
STK TCM TNG MSH
average selling price (-15% YoY for yarn) and small volume per (VND bn)
order (-10% YoY for yarn) due to trade war uncertainty. TCM Net sales 1,653 2,789 3,569 3,388
was significantly affected by cotton yarn demand from China, YoY -7.2% -1.3% 30.1% 15.3%
Net profit 161 154 174 357
while STK could offset its profitability of recycled yarn for the
YoY 22.9% -28.0% 33.5% 30.7%
decline in virgin polyester yarn. MSH recorded a net profit
growth of 31% YoY, still one of the stronger garment Source: Company, SSI Research
manufacturers in the sector.
2020 View
Catalysts
Export growth can be accelerated as the shift of orders from
China to Vietnam continues, especially amongst the new
markets who benefit from CPTPP, such as Canada and
Australia.
Issues and risks
Minimum wage continues to increase by 5.1%-5.7% in 2020,
at a similar pace to the 2019 increase. According to VITAS,
Vietnam has increased its minimum wage 12 times since 2008.
As more FDI-invested factories move and set up in Vietnam,
wage competitiveness will become more intense between local
and FDI-invested companies, pushing wage inflation further and
affecting companies’ gross margins. In addition, rising
electricity and logistic costs will also weigh on competitiveness.
The industry is highly dependent on imports (60%) for its
machinery, raw materials and accessories. With tough rule of
origins from CPTPP (yarn-forward) and EVFTA (fabric-forward),
garment companies without a fully-integrated value chain in
Vietnam will not see an immediate impact, as those
companies heavily depend on raw material imports from
China.
• Investment thesis: MSH belongs to the Top 5 Vietnam 2020 PE/PB 4.9x/1.6x
textile and garment exporters, with export turnover of $201 2020 EPS growth (%) 7%
million up to 9M 2019. We find MSH to possess strong Dividend yield (%) 9%
fundamentals in this sector, demonstrated by encouraging 2020 ROE (%) 36.2%
growth and an increasingly attractive gross margin trend
Source: Bloomberg, SSI Research, Data on 31 Dec 2019
(17-20%). During the 2014-2019 period, MSH experienced
a revenue and net profit growth at CAGR of 16.5% and Most preferred in sector: MSH VN
25.2% respectively, with a stable average ROE of 32%
(higher than the industry peer average of 20%). The upside 140%
for sales and margins stem from: (i) continued transition 130%
from CMT to FOB type to increase gross margins; and (ii) a 120%
new factory to increase capacity by 15% in late 2020. We 110%
estimate net sales and net profit to grow by 13% YoY and 100%
7% YoY in 2020. 90%
VNIndex HT1 VN Equity
• Catalysts: 80%
70%
Walmart as a new customer is expected to boost sales growth 60%
starting Q2 2020.
MSH has been paying out a consistent cash dividend of 35-45%
on par, which translates to a relatively high dividend yield of 7- Source: Bloomberg, SSI Research
9%.
• Risk:
Slowdown in global demand
Stock has been recently traded at low liquidity.
140%
Sector performance
130%
The retail industry grew by 23% in terms of market capitalization 120%
in 2019, outperforming the VN Index, which increased by 8%. 110%
This was in line with our Overweight recommendation for 2019. 100%
Jewelry. 0.0%
-4.0%
FMCG
-8.0%
According to AC Nielsen, FMCG growth in 2019 (6.6% YoY in
urban area and 5.7% YoY in rural areas) continued to fall short
of the retail sales growth level in 2019 (12.7% YoY). However,
these results are still more impressive than that of previous
years’, when growth figures moved closely in line with CPI
during 2013-2018.
Source: AC Nielsen
What was expected – The wet market losing market share to Source: Kantar Worldpanel
both traditional and modern trade: Growth by channel figures
show that the wet market has lost its share of value in 2019 in
both rural and urban areas. In rural areas, while the existence of
FMCG retail sales by channel (% value share) in 4
modern trade is still insignificant, the wet market has lost market
share to traditional trade in the form of medium-sized street urban cities
shops (11% in 2018 and 12% in 2019E) and specialty stores 80 74 74
70 68
(2% in 2018 and 3% in 2019E). Traditional trade, nonetheless, 70
performed poorly in urban areas, stemming from the rise of 60
modern trade and e-commerce. 50
40
30 20
16 17 19
20 10 10 10 9
10 0 0 2 3
0
Traditional trade Wet market Modern trade Ecommerce
(excl. Wet market)
FMCG key players: Domestic retailers expanded aggressively, Online stores 50% 50%
with Bachhoaxanh emerging as the leader in percentage growth
of +148% YoY (from a low base) and Vinmart being the leader Convenience stores 70% 30%
in absolute increase (+1,320 new stores in 2019). 0% 20% 40% 60% 80% 100%
expanded impressively, reaching 51 stores as of 2019F. Store count by chain and format
FamilyMart and B’Smart seemed to take a more narrow focus in 2018 2019*
their business activities. The convenience store chains were Vinmart+ 1,375 2,888
dominated by foreign players, while supermarket and grocery Minimarts/Gr Bachhoaxanh 405 1,006
store chains were led domestic companies. ocery stores Co.op Food 233 400
Satra Foods 182 203
Co.op Mart 102 126
Vinmart 67 134
Big C 36 35
M&A to raise scale: Vingroup has accelerated its M&A activities AEON Citimart 26 24
Supermarkets
MM Mega Market 19 19
since 2018. In October 2018, Vingroup acquired Nhat Nam JSC,
Lottemart 14 14
which operated Fivimart grocery stores, and Vienthong A mobile Intimex 10 12
phone stores. Later on in April 2019, Vingroup bought the Shop Satra Mart 3 3
& Go convenience store chain at a reported price of, to the Circle K 304 376
surprise of many, just $1 dollar. In September 2019, Vingroup FamilyMart 151 147
Ministop 116 131
acquired Queenland Mart. Convenience
B's mart 134 107
stores
Vinmart, in turn, was announced by Vingroup to be included in GS25 5 51
a stock-for-stock merger, in which Vincommerce (holding 7-Eleven 28 33
Shop&Go** 95 0
Vinmart and Vinmart+) will merge with Masan Consumer
Holdings. After the merger, shares of Vincommerce will be Source: Companies, Internet, SSI Research
exchanged for shares of the newly established enterprise, with
*: as of December 26, 2019
Masan Group (HSX: MSN) being the controlling shareholder.
**: Shop & Go sold to Vinmart in 2019
Another notable M&A in 2019 was the acquisition of Auchan
supermarket chain made by Saigon Co.op, a well-known 30-
year old supermarket chain in Vietnam. Auchan supermarket
marked its presence in Vietnam back in 2015. According to the
press, the chain reached a revenue of $50 mn USD in 2018, yet
it is still incurring losses.
ICT
Technical consumer goods sales value up to 9M 2019
Marker share by vendors
amounted to VND 158.5 tn, down by -2.4% YoY compared with
a positive growth post of 4.4% in 2018. 9M17 9M18 9M19
Samsung 47.1% 41.4% 39.6%
Oppo 19.9% 22.7% 28.7%
Apple 9.3% 8.6% 7.0%
What was expected?
MI <1% 6.0% 5.9%
Slowdown in mobile phone sales value: the decline in total Other 22.7% 21.3% 18.8%
sales value of technical consumer goods was mainly driven by
Source: GFK, ictnews.vn
telecommunications products (-4.5% YoY), in which mobile
phones comprised the majority of sales. According to MWG, the Mobile phone store count by retailers
mobile phone sales volume of the industry remained flat up to
Jewelry
What was not expected – a decline in gold demand: According
to the World Gold Council, Vietnamese consumer demand for
gold declined by -2.2% YoY, reaching 45 tons up to 9M19. This
contrasted with the growth rate experienced up to 9M18 of 11%
YoY. Demand for gold jewelry reached 13.5 tons, flat YoY
(2018: 11.5% YoY), while demand for gold bars and coins
decreased by -2.7% YoY (2018: 10.9% YoY) to reach 31.5
tons. Both consumers and retailers remained cautious over the
rising local gold price of 16.4% YoY (which reached an eight-
year high).
Key retailers: PNJ (Market share: 28% in 2019), Doji, SJC, Number of jewelry stores
Precita
400
PNJ: The company recorded net sales of VND 17 tn (+17% 350
YoY) and net income of VND 1.19 tn (+24% YoY) in 2019. 350
120
Ecommerce continued to rake in capital 100
100
According to the Vietnam Ecommerce Association (VECOM),
the e-commerce market size reached $7.8 bn USD in 2018, 80
which was almost twice the market size of $4 bn USD in 2015.
This includes online retail, travel services, marketing 60
43
entertainment, and shopping for digitized services and products.
40 33
According to the 2018 e-Conomy SEA Report issued by Google 21 21 22
and Temasek, the e-commerce market size of Vietnam was $9 20
2020 View
70%
• Catalysts: (1) adding high margin products into CE stores
60%
to utilize currently high traffic at those stores, (2) the
grocery segment is estimated to make positive pretax profit,
starting from 2021.
Source: Bloomberg, SSI Research
• Risk: (1) competition from other online retailers, especially
those with strong financial resources, (2) a slowdown in the
mobile phone industry and MWG’s currently high market
share implies slower future growth and (3) high distribution
center costs associated with rapid expansion of grocery
stores.
Sector performance
180%
The automobile sector gained 23.7% in terms of market
160%
capitalization in 2019, outperforming the VN Index, which just
increased by 7.7%. This is thanks to VEA, the sector’s best 140%
performer, which increased by 26% YoY. VEA has enjoyed 120%
growth in its bottom line from its 3 JVs: Toyota Vietnam, Ford
Vietnam and Honda Vietnam. These increased in terms of net 100%
sold volumes were boosted by 60% YoY and 95% YoY, while 100
-
Another key player in the auto industry that is not a member of 2015 2016 2017 2018 2019
VAMA, Hyundai ThanhCong (HTC Motor) publicized that the
Hyundai brand also enjoyed strong growth in 2019, with 24.8% Passenger cars CV-Trucks CV-Buses Special-purpose vehicles
in the passenger car segment. In this segment, Toyota Vietnam
Source: VAMA, SSI Research
is the biggest player holding approx. 26% share, followed Market share in Passenger car segment in 2019
closely by Hyundai Thanh Cong and Thaco.
Overall, the auto market in 2019 has shifted towards a 73%
share with passenger cars, 25% for commercial vehicles, and a
Toyota
minor share of 2% for special purpose vehicles (vs. 13%
Hyundai
57%/38%/5% in 2017). 5% 26%
Thaco*
CBU-type vehicles accelerated the pace: The CBU/CKD 11% Honda
(completely built up/completely knocked down) ratio
Ford
experienced significant changes since the tariff tax was
eliminated for vehicles with more than a 40% 23%
Others
22%
localization/regionalization rate. In 2019, CBU-type vehicle
share increased to 41%, much higher than 25% in 2018 and
29% in 2017. In the long-term development strategy, the
government wants the CBU/CKD ratio at 30%/70% or 25%/75% Source: VAMA, Hyundai ThanhCong, SSI Research
by 2025. Thanks to the plentiful supply of CBU type cars having
existed in the market throughout a whole year, customers no Thaco*: Thaco Kia, Thaco Mazda, Thaco Peugeot
longer needed to wait several months to have their desired car
choices delivered to them. Customers also had much more
Total automobile market by CBU and CKD volume
bargaining power in the year, while car dealers had to provide
more promotion programs to enhance or maintain their market 350 '000 Units
share. 300
Vinfast projected that they might not be profitable for as much Hyundai
34% Isuzu
as five years. In early years, Vinfast will focus on developing its
Suzuki
brand to conquer the domestic customer market, and to focus 15%
Toyota
on the export market as well.
Hino
20% Others
2020 View
Millions
metro projects in the context of higher mobility demand.
2.0 2,000
Low localization rate: The average localization rate for
1.5 1,500
produced vehicles is just around 10%, much lower than 80% for
Thailand, and 70% for both Indonesia and Malaysia. This stems 1.0 792 1,000
627
from Vietnam’s underdeveloped supporting industry sector.
337
Vietnam lacks economy of scale for automotive parts and 0.5 276 500
components production. Therefore, made-in-Vietnam parts or 0.2 2.1 1.2 0.6 0.1
0.0 -
components have a much higher price than the same products Vietnam Thailand Indonesia Malaysia Philippines
manufactured in Thailand and Indonesia. This causes the price
Sales volume Production volume Number of auto parts factories
of locally assembled vehicles to be higher than CBU-types by as
much as 20%-25% - presenting a major competitiveness
challenge for Vietnamese automobiles. Hence, Vietnam has a Source: Marklines, Media, SSI Research
challenge in front of it to reach the target of an increasing
localization rate to 40-45% by 2025 for passenger cars with
under 9 seats. The country also has some catching up to do,
after having not met the 35%-40% localization rate goal set in
2020 as according to Decision 1168/QĐ-TTg, the key document
outlining Vietnam’s automotive sector development to 2035.
Sector performance
120%
The fisheries sector declined -17.0% in terms of market 110%
capitalization in 2019, underperforming the VN Index, which 100%
gained 7.67%. The share price of VHC, ANV, and MPC all 90%
dropped by -14.7%, -15.1% and -40.4% YoY in respective order. 80%
Meanwhile, the share price of FMC gained 6.7% YoY as of year-
70%
end 2019.
60%
VNIndex Consumer Staples Fisheries
In general, fishery exports have reached $8.6 bn USD in 2019 (- 50%
2.3% YoY) according to the Directorate of Fisheries. This 40%
diverges from the original forecast of the Vietnam Association of
Seafood Exporters and Producers (VASEP) in early 2019, which
estimated that export value might reach $10.5 bn USD (+11.1%
Source: Bloomberg, SSI Research
YoY). According to VASEP, export values of shrimp and
pangasius both dropped by -5.4% and -11.4% YoY, while those
of tuna and other fish rose by 10.2% and 16.2% YoY
respectively.
Export values of shrimp and pangasius (USD bn)
We assigned a Neutral rate upon the sector, with VHC as the
best pick at the beginning of 2018. This rating was placed upon 4.00
the expectation of a soft decline in average selling price (ASP) 3.50
3.36
and stable demand. However, the situation was far worse than 3.00
we had originally expected, as the ASP of pangasius in the US 2.50
2.00
slid sharply as Jan-Nov demand from US market even dropped 2.00
to an 8-year low level. 1.50
1.00
0.50
What was expected?
0.00
Shrimp Pangasius
On November 1, the Food Safety and Inspection Service (FSIS)
made final determinations that the Siluriformes fish inspection 2013 2014 2015 2016 2017 2018 2019
systems of China, Thailand, and Vietnam are equivalent to the
system established by the United States under the Federal Meat Source: VASEP
Inspection Act (FMIA) and its implementing regulations. The
news arrived late, but was in line with market expectations from
the beginning of 2019. Nonetheless, it is still very challenging
for pangasius exporters other than VHC and Bien Dong to enter
the US market, as the ASP in the US has gone down significantly
to as low as $3.10 USD/kg in November. Thus, it may no longer
be profitable to export to the US at such a low-price level, as
anti-dumping duties remains high ($2.39 USD per kg for
Vietnam-wide exporters), and $1.37 USD per kg for some select
exporters.
instead moved sideways vs. the previous year, reaching its 543, 16% 639, 18%
Others
bottom in June at VND 84,000 per kg during the main
harvest period in India. This was a significant impact upon
the market, as India is the biggest shrimp producer in the 619, 18%
VND per kg
100,000
YTD.
90,000
With the significant decreases in both demand and ASP,
80,000
exports to the US dropped by -47.6% YoY in 2019. Exports
to EU and ASEAN have slightly declined by -3.5% and -3.6% 70,000
2.87
3.00
• Policy changes in 2019 were mixed, with both positive 1.96
and negative news for Vietnamese fisheries exporters. 2.00
On the other hand, POR14 final results for Vietnamese 40,000 2018 2019
exporters of frozen fish fillets, announced on April 29, were 35,000
significantly different from the preliminary results, with 30,000
VND per kg
2020 View
130%
Sector performance
120%
The dairy sector gained only 0.5% in terms of market 110%
capitalization in 2019, underperforming the VN Index which rose 100%
by 7.7%. The VNM share price increased in tandem by just
90%
0.72% on low 2019 earnings growth, while the QNS share price
80%
dropped by –20.5% due to continuous selling pressure of VNIndex Consumer Staples Dairy
internal shareholders. Its earnings went flat YoY. Meanwhile, the 70%
GTN share price surged 84.5% in 2019, which was sparked by 60%
-2%
-4%
However, the data is at odds with itself when in the hands of -6%
various third- party independent market research firms. -8%
According to Euromonitor, the total Vietnam dairy market had by -10%
contrast reached VND 121 tn in 2019, up an acceptable 8.9%
YoY. By this data, drinking milk and yogurt consumption had Source: AC Nielsen
actually outperformed (+9.9% and +11.6% by volume), while
infant formula and condensed milk growth were similar to what
Nielsen found (+2.1% and 2.7% YoY). Standard infant milk
became less favored, as breastfeeding has been widely
promoted. Meanwhile, for toddlers there are lots of alternatives,
such as fresh milk, vegan milk, cereals, fresh porridge, and FMCG consumption by category (MAT TY as of 4Q19)
others.
Baby care
-1.8%
• Some structural trends that impact the dairy sector:
Milk bases 1.8%
- Increased consumption of plant-based milk: Soymilk Personal Care 3.6%
and malt-based milk are considered the best Home Care 3.7%
alternatives for dairy milk, thanks to their high protein Cigarette 5.8%
contents. According to Nielsen, total branded soymilk Foods 6.2%
consumption value grew by 13% YoY up to 10M 2019,
Beer 10.1%
and Vinasoy’s sales growth was 15% YoY up to 9M
Non-alcoholic beverages 8.3%
2019.
-4.0% -2.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0%
- Modern Trade rapidly takes off: Sales through
modern trade channels have been growing at double Source: AC Nielsen
digits for years now, yet its share to total FMCG sales
was only 11%. Sales through the modern trade FMCG Dynamics
channel is a prize to be won, as competition is rife and 10.0%
the entry barrier is low. 9.0%
8.0%
- Premiumization continues: Domestic companies 7.0%
have shifted to cater to the rising appetite for premium 6.0%
5.0%
products. Vinamilk for example had launched a
4.0%
number of premium SKUs, such as organic fresh milk, 3.0%
organic infant formula, A2 infant formula, and 2.0%
outsourcing its powdered milk in Japan (to then import 1.0%
back to Vietnam). Nutifoods partnered with Asahi to 0.0%
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
4Q18
1Q19
2Q19
3Q19
4Q19
introduce baby foods in Vietnam. Ikigai Vietnam also
launched Meiji products within Vietnam.
Source: AC Nielsen
- Raw milk price increased; so did ASP. According to
Global Dairy Trade, the skim milk powder price rose FMCG sales growth at MT
30% YoY, and the whole milk powder price increased
by 4% YoY. In order to protect their margins, we did 18.8%
17.3%
observe key players such as Vinamilk, TH Milk, and 16.2% 16.3% 16.0%15.8%
Dutch Lady had raised their sales prices by 1-5% in 13.1%13.1%
11.9%
2019. 11.7%
11.0% 10.8%
9.2%
- Exports to the Chinese market: After years of waiting,
Vietnamese dairy finally got the greenlight of being
permitted to export its products to China. A highly
competitive yet very lucrative market, just a small
piece of this $60 bn USD market could be very
meaningful for the future growth of Vietnamese dairy
companies. Source: AC Nielsen
2020 View
for pleasure in a general aim to enhance quality of life. While 2019-2024 CAGR by volume
dairy demand in the urban market has already approached the
14.0%
11.9%
market saturation point, consumption in the rural market has 12.0%
been largely fluctuating due to increasing dependence on 10.0%
9.5% 9.3%
agricultural commodity prices, which in turn play a role on how 8.0% 7.0% 7.0%
much disposable income the rural market has and thus expends 6.0%
3.7%
on FMCG products. 4.0%
2.0%
In short, we expect the above-mentioned structural trends to 0.0%
continue, which will place further impacts on the dairy sector in -2.0% Drinking Standard Liquid Yogurt Other Cheese Soymilk
milk milk growing dairy
Vietnam. -4.0%
formula up milk products
-6.0% formula
The categories of increasing consumption include fresh milk, -8.0% -6.0%
yogurt (especially drinking yogurt), and high value-added
products like cheese, while demand for standard milk formula Source: Euromonitor
and condensed milk will stagnate.
VNM (Neutral, TP: VND 139,000): For 2020, our key
assumptions consist of the following:
(1) A domestic sales growth of 7% YoY. This is due to a 5-6%
volume growth and a 2-3% price increase from a change in
product mix, as well as additional revenue from new products
launched in 2019 and milk school programs;
(2) Overseas sales growth of 10-12% YoY;
(3) Raw-material prices to be 4% higher in VND terms;
(4) A SG&A-to-sales ratio of 25.5% (vs. 25.2% in 2019);
(5) A CIT rate of 18% (vs. 17.5% in 2019). Hence, we cut our
2020F net profit by 2.2%.
As such, we estimate VNM to post an 8.1% and 6.9% YoY
growth in revenue and net profit for 2020. The tax rate will
gradually rise to 20% by 2022, which is a factor that is likely to
weigh on net profit growth.
Pro-forma estimates: VNM is going to consolidate GTN as a
subsidiary in 2020. As we do not expect a significant synergy
being created soon, we nevertheless estimate the consolidation
will add 6%/1-2% to VNM revenue/net profit at maximum in
2020 (we do not take into account of any financial income from
GTN’s non-core divestment).
QNS (Outperform, TP: VND 37,000): We estimate growth
momentum will continue for Vinasoy, thanks to new launches in
2019-2020. As such, we estimate soymilk sales growth at 12%
YoY.
Catalysts
• State divestment from VNM from the current level of 36%
• Domestic dairy consumption to recover stronger than
expected.
120%
Sector performance
110%
The beer industry underperformed the VN-Index by 12.6% in
2019. This is chiefly because the sector is overwhelmingly 100%
comprised of SAB, which declined by -14.3%. We had
recommended to go Underweight the sector at the beginning of 90%
Source: Nielsen
2020 View
Sector performance
The energy sector’s market capitalization increased by +1.9%
130%
in 2019, markedly underperforming the VNIndex (+7.7%). Such
120%
performance was a bit off target from our forecast (we placed a
neutral view on the sector at the beginning of 2019). 110%
Performances, however, diverged amongst stocks. GAS 100%
(+13%) and PVD (+13.4%) outperformed the VNIndex thanks
90%
to a strong Brent oil price upsurge of 43% YTD running up to VNIndex Energy
April 2019, while PVS only increased by 3%. The PLX share 80%
developments from US-China trade talks in last month of 2019 PVN’s key metrics (2016-2019)
coupled with OPEC’s deepened output cuts agreed to for Q1
2019 (Brent
2020. Saudi Aramco finally completed the biggest IPO ever in Key metrics of PetroVietnam 2016 2017 2018
@60USD/bbl)
the world in December 2019, by offering 1.5% of its stake for Brent crude oil price (USD/bbl) 43.7 55.2 71.8 64
$25.6bn USD, implying the valuation for the world’s largest oil Increase oil reserve (mn tons) 16.66 4 12 13.38
company at $1.7tn USD. As such, the oil price increased during Crude oil exploitation (mn tons) 17.23 15.52 13.97 13.11
Dry gas exploitation (bcm 10.61 9.89 10.01 10.22
the last months of 2019 and ended the year at $67USD/bbl
Investment (VND tn) 47.3 39.2 40.9 30.4
(+2% YTD). PVN revenue (VND tn) 249.4 267.2 321 396.9
PVN net profit (VND tn) 16.6 37.19 38.64 35.2
• E&P activities
According to BP statistics at the end of 2018, Vietnam ranks Source: PVN
third in terms of proven oil reserves in the Asia-Pacific region,
with 4.4 billion barrels (R/P ratio of 44 years) and proven natural
gas reverse of 600 bcm (R/P of 60 years). However, it is difficult Exploration activities in Vietnam (2011-2019)
to exploit these reserves as they are located in deep water and 60
in geopolitically disputed areas. 48.8 48.3
50
40.5
(*) R/P ratio: reserve to production ratio 40 35.3 34 35.7 33
30 30
26
✓ In 2019, Vietnam’s exploited volume reached 13.11 mn 30
16.7
tons of crude oil (-6.2% YoY) and 10.2 bcm of natual gas 20
11 11 11 12 12
13.38
9
(+2% YoY), which is in line with our expectations. The 10 3 2
5 3 4 2
1 1 1
country has been facing drop in crude and gas production 0
volume since 2015, as fields with rich reserves and close 2011 2012 2013 2014 2015 2016 2017 2018 2019
to the shore such as Bach Ho, Te Giac Trang, Hai Su Trang, Exploration (well) Newly discovered Reserve increase (mn tons)
Lac Da Vang, Rong Doi, Lan Tay, Lan Do, and 12W are
drying up, while misallocated investments were executed in
Source: PVN
order to increase proven reserves during this period. This
reflects the fact that increases in oil&gas reserves have
been much lower compared to exploitation volumes in
2016-2019 period.
✓ Market sentiment on oil&gas stocks were somehow
affected by geopolitical issues in 2019. Maritime tensions
continued to flare offshore Vietnam, as Chinese survey ship
assets work near Vietnamese waters around Vanguard
Bank, and China’s CNOOC rig was moved into Vietnamese
claimed waters near the Paracel Islands in September-
October 2019.
✓ Progress of mega projects Blue Whale and Block B
remained stunted in 2019. One of the key issues lie within
gas pricing schemes which have not been finalized. The
final investment decision for Blue Whale was not reached in
2019 as previously expected. As such, from a previous
expectation of welcoming the first extraction in 2023 for
Blue Whale and in 2025 for Block B, a further delay is now
likely the case.
Key projects that were kickstarted in 2019:
Nam Con Son 2 phase 2 includes an offshore pipeline system
with a capacity of 7.7 bcm to transmit gas from Thien Ung-Dai
Hung (2015), Sao Vang-Dai Nguyet (2020), Su Tu Trang
(2023), and onshore pipelines to GPP2 and electricity plants in Upcoming LNG complexes
Phu My, with a total investment of $640 mn USD. EPC contracts Year of
Develop
have been finalized. First gas extraction from Sao Vang is Name MW Status
ers
comme Gas source
nce
expected in Q4 2020 and the equivalent from Dai Nguyet is
Announ PVPowe LNG Thi
expected in 2021. Nhon Trach 3 750
ced r
2023
Vai
Announ PVPowe LNG Thi
Nhon Trach 4 750 2024
LNG Thi Vai includes the LNG terminal and regasification facility, ced r Vai
with first phase capacity of 1.4 bcm equivalent dry gas in 2022, Announ Maruben
O Mon 2 750 2023 BlocK B
ced i
and 4.2 bcm in the 2nd phase. Total investment is at $285 mn Announ
O Mon 3 750 EVN 2023 BlocK B
USD for the first phase. ced
Announ
O Mon 4 750 EVN 2025 BlocK B
Developing LNG power plants has become a key focus in ced
Announ 2024-
Vietnam: Two LNG electricity complexes, including Son My 2 Mien Trung 1,2 1,500
ced
PVN
2025
Blue Whale
and Bac Lieu, were approved to be added to the Revised Power Dung Quat 2 750
Announ Sembco
2026 Blue Whale
ced rp
Development Plan (PDP) VII by the government in 2019. This Announ
Dung Quat 1 750 EVN 2025 Blue Whale
showcases the nation’s prioritization to switch from coal-fired ced
Announ
to gas-fired plants, and to ensure electricity security in the Dung Quat 3 750
ced
EVN 2025 Blue Whale
coming years. Son My 2 2,250
Announ
AES
2026- LNG Son
ced 2028 My
As such, the LNG market will become heated, with many Son My 1 2,250
Announ GDF/Soji
2027
LNG Son
ced t/Pacific My
industry players coming to the playground in the coming years. Announ Delta LNG Bac
Bac Lieu 3,200 2024
ced Offshore Lieu
2019 corporate earnings diverged amongst oil&gas Announ After
Kien Giang 1,2 1,500 N.a N.a
companies: ced 2030
Pre-
• GAS: According to GAS, consolidated revenue could reach Ca Na 6,000 permite Gulf N.a LNG Ca Na
d
VND 77 tn (+2% YoY), and PBT could be at VND 14 tn (- Pre-
LNG Long
3.4% YoY). Profit is thus lower than expected (of VND 16 Long son 3,600 permite N.a N.a
Son
d
tn in PBT for 2019), mostly because the company could not
finalize its contracts with Phu My BOT 2.2 and 3 power Source: Revised PDP7, SSI compiles
plants in 2019 to retrospectively record an amount of
approx. VND 1.6 tn PBT in Q4 2019 as we previously
expected. According to management, those 2 power plants
are still waiting for the new purchasing power agreement
with EVN to ensure that they could transfer a higher input
gas price to electricity price first. When this is satisfied, they
will then sign the contract with GAS.
Therefore, should we exclude impact of the new price
PVD’s average rig utilization and day rate
applied for Phu My 2.2 and 3 as mentioned above, our 2019
PBT forecast arrives at VND 14.4 tn, which is in line with 180 120%
GAS core business performance. 160
100%
140
• PVD: It is estimated that PVD will record VND 4.5 tn revenue 120 80%
(-18% YoY) and VND 88 bn in net earnings to parent 100
60%
80
shareholders (-53% YoY). There was a drop in net earnings,
60 40%
mostly due to lower reversals from bad debt provisions for 40
20%
PVEP, which was at VND 32bn in 2019 (vs. VND 121bn in 20
0 0%
2018)
2013 2014 2015 2016 2017 2018 2019 2020F
The JU rig utilization rose from 85% in 2018 to 90% in
Average day rate ('000USD) JU rig utiliization rate (%)
2019, with the day rate having averaged at $57.5k USD, up
3% YoY.
Source: PVD, SSI estimates
• PLX: Running 9M 2019 results: Revenue and gross profit
2020 View
There are key factors in the oil & gas industry/market that will
Brent crude oil price forecasts in 2020
impact the outlook of the sector in 2019, and in upcoming years:
Source 2020F Day of published forecast
• Oil price: Bloomberg consensus 61.8 1/13/2020
Goldman Sachs 63 12/6/2019
Most updated market consensus forecasts for the Brent oil price Morgan Stanley 61 12/8/2019
average out to $62 USD/bbl (-3% YoY), and we take it as our JP Morgan 64.5 12/17/2019
base case assumption for 2020. However, recent escalated EIA 61 12/10/2019
Reuter Polls 63 12/31/2019
tension between the US and Iran after the US counter-terrorism
Average 62
air strike killed Iran’s top general could drag on, and become a PVN plan 60
causation factor for an oil price rally. SSI assumption 62
Core profit has been bottoming out in 2019 and will continue to 2020 EPS growth (%) 159%
post strong growth in 2020 thanks to (1) higher JU utilization Dividend yield (%) 0%
rate (from 90% in 2019 to 97% in 2020) and (2) and an increase 2020 ROE (%) 1%
of 12% in day rate
Source: Bloomberg, SSI Research, Data on 31 Dec 2019
Possible reversals (maximum VND 250bn) for PVD and its JV
from booked provision from PVEP.
Most preferred in sector: PVD VN
The TAD will be back to operation in a 10-yr contract starting
from Q2 2020
150%
• Catalysts: Oil price upsurge on escalated geopolitical
tension in the Middle East 130%
50%
Most preferred
Most preferred in sector: PVS VN
Petro Vietnam Technical Services Corporation (PVS: HNX) Market cap (USD mn) 361
• 1Y Target price: VND 21,500 Average 3M value (USD mn) 1.311
• Catalysts: Oil price upsurge on escalated geopolitical Most preferred in sector: PVS VN
tension in the Middle East
160%
• Risk: Geopolitical dispute in South China Sea/Low global oil
demand impacted by Trade tension/Delay or no 140%
developments in progress of Vietnam’s oil&gas projects
such as Block B, Blue Whale, LNG complexes… 120%
100%
60%
mega projects, including Vinhomes Ocean Park and Hanoi Condominium (Units)
Vinhomes Smart City. In addition, we also witness that the
market trend has gradually shifted from the high-end
segment to mid-end segment, with transactions increasingly
aiming towards functional purchases. Meanwhile,
speculative investments strongly declined compared to the
HCMC market.
Regarding HCMC, there were 21,500 new units launched up
to 9M 2019, slightly decreasing by -3% YoY. However,
approximately 47% of which were came from the first phase
of Vinhomes Grand Park launched in Q3 2019. Also, the
supply of the condominium market was limited, as there was
only 5 new projects launched in Q3 2019 and 10 projects
up to 9M 2019 (-80% and -50% YoY). Per our observation,
most property developers have been struggling to execute Source: CBRE Vietnam, SSI Research
new launches year-to-date due to longer-than-expected
Hanoi Condominium segment
legal procedures.
• Resilient absorption rate despite higher price 12000
10000
In Hanoi, sales prices of condos were more stable with a
slight increase of 3-4% YoY, mainly driven by the high-end 8000
In recent years, Vietnam has been successful at attracting HCMC Condominiums (Units)
high-quality FDI, with this investment primarily going into
16,000
manufacturing and real estate projects. Real estate
14,000
continued to be among the sectors which attracted the most
12,000
FDI in Vietnam, with $2.77 billion USD, accounting for 10.6%
10,000
and ranking 2nd in 2019. Specifically, big Singaporean
developers, such as Keppel Land, CapitaLand, Sembcorp, 8,000
and Mapletree have been significant players for a long time. 6,000
this will create financial burden upon home buyers. For example, 40
24
a normal household will need more than 2.5- 3 billion VND to 30
19
20 12
purchase an apartment with an average size of approximately 8
10 3 1 0
60-70 sqm, much higher than that of several years ago. In the 0
high-end and luxury segment, the number of transactions fell Approval in Agree on investor Investment license Approval for
mostly due to imbalance between supply and demand, with a principal granted construction
high amount of inventory accumulated from developers over the 2017 2018 9M 2019
years. However, actual demand for this segment is limited
compared to the mid-end segment due to the smaller number of Source: HoREA, SSI Research
buyers and its high-value nature.
In overall, liquidity of the market was negatively impacted, as
home buyers were left with fewer choice. Speculators were
faced with more risk, having the potential situation of needing to
cut losses if they can’t sell it to the end user to realize profit.
With other real estate products such as officetel, condotel, and
shophouse, which have been introduced to the market for a
while, the lack of legal framework backed up for these products
has posed risks for buyers. This was mainly due to the mix of
framework of two laws: The Law on Tourism and the Law on
Housing, both of which regulates the ownership and operation
of condotels. This is because this product type is a mix of real
2020 View
HN unit price estimated 2019-2020 (USD/m2)
2020 Growth Outlook (Neutral): Waiting for fundamental 5000
change and policy improvement 4500
4000
• Supply slightly improved compare to 2019, while
3500
residential price will continue to rise
3000
In the context of the Vietnamese government's policy related 2500
to the land approval process, we see that construction 2000
permits tightened with new regulations and prolonged legal 1500
procedures will continue to challenge new launches in 1000
HCMC, at least until the end of 2020. We have not yet seen 500
In the future, the real estate businesses will likely continue Urbanization rate in Vietnam (%)
to face more difficulties considering a limited land bank left.
70%
Additionally, there may be more procedures to follow in
58.2%
terms of project development. Not to mention, real estate 60%
50.8%
54.5%
prices will continue to rise sharply when land use fees (LUF) 50% 43.3%
47.0%
39.7%
are continuously adjusted and increased year by year. 40% 36.1%
32.8%
Normally, with a condominium project, the LUF usually 28.2%
30% 23.7% 25.0%
accounts for 20-25% of total investment cost. Developers 20.1%
20%
will have to increase the price to maintain margin, therefore
passing this burden onto home buyers. These difficulties will 10%
2020 is the last year in the medium-term public investment Source : SSI research, GSO
plan set by the National Assembly. From 1/2020, the
amended public investment law will officially come into
effect, and is expected to clarify some bottlenecks in the
investment process.
At the end of 2019, the government had also started to push
the disbursement process with many administrative
directives which focus on major projects such as North-
South Expressway, Long Thanh international Airport, and
others Within key areas such as Hanoi and HCMC, some
✓ Vinhomes is the real estate market leader in Vietnam, 2020 EPS growth (%) 20%
with an unrivalled land bank up to 165 million sqm, by Dividend yield (%) 0%
far the largest compared to other peers 2020 ROE (%) 32%
✓ Vinhomes possesses a strong synergic relationship Source: Bloomberg, SSI Research, Data on 31 Dec 2019
with the Vingroup ecosystem, which cannot be easily
replicated by other players.
✓ Along with high-end properties under the Vinhomes
brand, VHM is aggressively developing mid-end Vincity
projects to broadly capture huge demand from middle Most preferred in sector: VHM VN
income buyers.
✓ Strong capabilities to deploy and sell multiple projects 120%
Park, Smart City, and Grand Park, together with the new 70% VNIndex KDH VN Equity
✓ Currently, the company owns a large land bank of about 2020 EPS growth (%) 16.9%
567 ha, which can guarantee for a 10 year development Dividend yield (%) 1.9%
timeline. Based on project launch and delivery status, 2020 ROE (%) 22.6%
the estimate for 2020 NPAT is around VND 1.3-1.4
trillion, +35% YoY compared to this year target’s, Source: Bloomberg, SSI Research, Data on 31 Dec 2019
which mainly comes from the Safira project.
✓ Profits for the next years from 2021 to 2022 are
expected to maintain high growth, as profits from
Verosa and Lovera Park are still large. In addition, the
company will deploy new projects on its existing land
bank, such as the Binh Trung and Corona 1 projects
✓ The Le Minh Xuan industrial zone is gradually
completing compensation. If the legal status is
completed in 2020-2021 with the first implementation
steps, this will be a positive catalyst for KDH
considering its huge potential and high demand for
industrial zone in Southern Vietnam.
✓ Mid-end and city house villa products of KDH are
expected to be quickly consumed as they meet real Most preferred in sector: KDH VN
demand of the market, and the shortage of supply in
2020 will sustain. 120%
Sector performance
180%
The industrial park (IP) developers sector increased by 33.1% in
160%
terms of market capitalization in 2019, outperforming the VN
Index. 140%
Mid and small cap stocks increased sharply, such as SZC 120%
(+38% YoY), SIP (+467% YoY), VRG (+75% YoY), D2D
(+130% YoY); NTC (+129% YoY), SNZ (+67% YoY), and TIP 100%
hand, stocks with lower earnings results due to lack of new 60%
leased land area underperformed, such as HPI (-10% YoY) and
LHG (-11% YoY).
Three reasons for outperformance of the IP sector consist of the Source: Bloomberg, SSI Research
following: (1) the US-China trade war helped Vietnam become
an attractive destination for manufacturing companies; (2) The
average rental rate at Southern Vietnam in 2019 increased by New registered FDI, additional FDI by provinces (million
18.7% YoY, while the Northern part of Vietnam increased by USD)
6.7% YoY according to JLL research; (3) The occupancy rate of
industrial parks in Southern Vietnam increased from 72% in 8,000
2018 to 81% in 2019, while Northern Vietnam IPs reached 69% 7,000
in 2019. 6,000
5,000
4,000
3,000
Key highlights on sector
2,000
FDI into IPs and EZs continues to rise sharply in 2019, partly 1,000
Ninh still led provinces for attracting the largest amount of FDI Leased area (ha) and occupancy rate (%) in the Southern
into IPs and EZs nationwide. Vietnam
According to JLL, the machinery manufacturing and textile & 12,000 100%
garment industry accounts for 26% of total FDI investment in 10,000 80%
industrial zones in Southern Vietnam. Dong Nai and Binh Duong 8,000
60%
accounts for 60% of the total leased land area in the South of 6,000
40%
the country. The occupancy rate of industrial parks in Southern 4,000
2,000 20%
Vietnam increased by more than 9% YoY to 81% in 2019.
- 0%
Southern industrial land prices increased by 18.7% YoY, TP Dong Binh Ba Ria Tay Binh Long
while rising 6.7% yoy in the North. According to JLL, the HCM Nai Duong Vung Ninh Phuoc An
average industrial land price in the southern part of the country Tau
has increased significantly, from $80 USD/m2/ lease terms to 2017 2018 Q2/2019 occupancy rate
$95 USD/m2/ lease terms. The average industrial land price in
the Northern IPs has increased by 6.7% YoY, reaching $95 Source: JLL
USD/m2/ lease terms.
Slow clearance compensation affected the operation
progress of new IPs. Clearance compensation costs usually Industrial land price in the Southern IPs (USD/m2/ lease
account for 28%-31% of total costs. In 2019, progress of terms)
clearance compensation for IP land clearance was hampered 200
due to the increase in property prices and complicated clearance
procedures. 150
NTC
80.0%
60.0% D2D
MH3
BAX
40.0%
IDV
SIP
TIP
LHG SZL
HPI BCM
20.0% KBC
ITA IDC
VGR
-20.0%
Source: Fiinpro
2020 View
Expected Growth trend Total area (ha) and occupancy rate (%) in the Northern
Vietnam
We estimated that the revenue of industrial park companies in
6,000 120%
Southern Vietnam will grow by 15.2% YoY in 2020, of which (1)
5,000 100%
the total land lease area of industrial parks in the Southern part
4,000 80%
of the country will reach 25,060 ha - 2.5 times higher than the
3,000 60%
area in Northern Vietnam. We expected the average land lease
2,000 40%
area to increase by 8.2% YoY in 2020, including a shift to
1,000 20%
suburban areas and neighboring provinces such as Northern
- 0%
Binh Duong, Long Thanh - Dong Nai and Ba Ria - Vung Tau and
Ha Noi Hai Bac Quang Hai Hung Vinh
Binh Phuoc; (2) the occupancy rate increased from 81% to 84%; Phong Ninh Ninh Duong Yen Phuc
(3) the land lease price was expected to increase by 7% YoY on
2017 2018 Q2/2019 occupancy rate
average.
Having experienced high demand in northern provinces, Source: JLL
especially Haiphong and Bac Ninh, such a surge was from high
tech manufacturers who wanted to expand their production line Manufacturing wage in Southeast Asia compared to China
from China to Vietnam. While considering the convenience of
some of the IP locations, we expect the average rental rate
would continue to uptrend in 2020. Specifically, we expect an
ASP increase of 7-8% YoY for industrial park companies in
Northern Vietnam.
Catalysts
• Demand for land leasing industrial parks are expected to
continue to grow thanks to: (1) strong FDI to Vietnam,
expected to continue in 2020, and the shift of production
from China as mentioned above; (2) new free trade
agreements (FTAs), such as the EVFTA or RCEP, will help Source: JLL
improve the business environment for both domestic and
foreign enterprises.
Tax incentives for investors when leasing IPs in Vietnam
We believed that in labor-intensive sectors such as
manufacturing, textile & garment, wood, plastic and rubber, 10% CIT exemption in 50% PIT exemption for
competitive labor costs will be an advantage for Vietnam to 15 years workers in the IPs
leverage.
• Incentives to invest in industrial parks. According to
Decree No.82/2018/ND-CP, effective from July 10, 2018,
enterprises investing in industrial parks will be encouraged
with CIT incentives, value-added tax, and cases of import
tax exemption.
0% VAT exemption in 0% Import & Export Tax
• Issues and risks the non-tariff zone exemption in the non-
tariff zones
• Land clearance & compensation. The risk of land
clearance compensation can increase the cost and duration Source: Decree No. 82/2018/ND-CP
of the project.
• Customer risks. Depending on FDI inflows, some large
investors (Samsung) may apply for the privilege of renting
land outside IPs.
Policy risks: Government policies relating to investment
licensing process, land use fees, taxes etc.
FINANCIALS – BANKING
Positive: Double digit growth to continue
Most Preferred: ACB, MBB, VCB
140%
Sector performance
130%
The banking sector soared 26.16% in terms of market 120%
capitalization in 2019. This vastly surpassed the VN Index, 110%
which increased by 7.67%. After having underperformed the VN 100%
Index in May and June, banking stocks have been ramping up 90%
since July when the BID Board of Directors officially issued a 80%
VNIndex Financials Banking
resolution approving a deal with Keb Hana Bank. As a result, the 70%
BID share price rose +50.5% from its trough point set on 30 60%
Jun. Other state-owned bank stocks also yielded positive
returns, in which the VCB share price scaled a whopping +70%,
and CTG rose by +8.3%. For joint stock commercial banks, the
Source: Bloomberg, SSI Research
story was bifurcated. On one end of the spectrum, winning
stocks involved VIB (+23.6%), MBB (+18.6%), EIB (+26.7%),
and TPB (+5.5%). Meanwhile, banks that were listed in 2018
were waning, such as TCB (-9%), HDB (-9%), and VPB
(+0.3%).
We had recommended a Neutral rating on the sector at the
beginning of 2019, expecting a decelerated pace of credit
growth, and a slightly edged up interest rate environment.
Key highlights on the sector
What was expected?
Credit growth inched down vs. 2018
At the beginning of the year, most listed banks were granted a
credit growth quota for the whole year at 12-13% YoY, lower
than the bar initially set for 2018 at 14-15% YoY. There were
outlier credit limits in the case of CTG (just 7% YoY due to
capitalization constraints), and on the other spectrum VIB
(roughly more than 30% YoY, as it was one the first two banks
to applying Basel II standards). Later, some banks were eligible
for a credit growth limit extension to 16-17% upon the
application of Basel II standards in Q3 2019, and then nudged
up this limit later to approx. 18-20% in Q4. A +1% adjustment
in credit growth for joint stock commercial banks comprising Listed banks YTD credit growth
20% of market share led to a measly +0.19% of credit growth
30%
systemwide. Meanwhile, for state-owned banks which
accounted for 48% of total market share, only VCB opted to 25%
make an application for credit extension (from 13% to 15%). 20%
TPB
VIB
HDB
TCB
STB
ACB
VPB
BID
VCB
restructured bad debt, and debt sold to VAMC) has continually Pre-tax profit growth in 9M2019
been on the decrease from more than 10.08% in 2016, 7.7% in
2017, and 6.3% in 2018 – further decreasing to just 4.84% at 20,000 200%
PBT 3Q19 YoY growth 3Q18 YoY growth
the end of August 2019. Such a rate of receding NPLs has 18,000
The O/N interbank rate was on a downward trend during the first 2,000
10 months of the year to a trough point of below 2%. There was - -50%
ACB BID CTG HDB LPB MBB TCB TPB STB VCB VIB VPB
only a temporary rise of this rate that occurred in November, as
the State Treasury of Vietnam halted its demand deposits at Source: SSI, Banks’ financial statements
commercial banks (from Nov 1st, 2019), according to Decree
58/2019. Low interbank rates also influenced rates on Vietnam
government bonds, observed through the 10Y tenure gradually NPL ratio were controlled well amongst listed banks
descending to approx. 3.65% in late December.
NPL ratio 3Q18 4Q18 1Q19 2Q19 3Q19
The relatively low level of interest rate might derive from the ACB 0.84% 0.73% 0.68% 0.66% 0.67%
following factors: BID 1.76% 1.90% 1.74% 1.98% 2.09%
CTG 1.36% 1.58% 1.85% 1.47% 1.56%
• FX reserves increased to $79 bn USD from $60 bn USD at HDB 1.50% 1.53% 1.45% 1.44% 1.50%
the end of 2018. This implies a net purchase of nearly $19 LPB 1.32% 1.41% 1.36% 1.48% 1.48%
bn USD was made in 2019 and pumped into the market, MBB 1.57% 1.32% 1.41% 1.26% 1.54%
enhancing liquidity of the banking sector as a result. TCB 2.05% 1.75% 1.78% 1.78% 1.80%
TPB 1.24% 1.12% 1.39% 1.50% 1.51%
• The government also expressed its pro-growth stance STB 3.18% 2.20% 2.14% 2.04% 2.00%
through 2 policy rate cuts in September and December. VCB 1.18% 0.98% 1.03% 1.03% 1.08%
During this time, refinancing rates were cut by -25 bps to VIB 2.50% 2.67% 2.25% 2.36% 2.28%
6%, and the OMO rate was cut by -75 bps to 4%. VPB 4.70% 3.50% 3.62% 3.43% 3.50%
Average 1.76% 1.67% 1.69% 1.65% 1.72%
• Slow disbursement of public investment allowed an
abundance of excess unused funds to be deposited at Source: SSI, Banks’ financial statements
banks during the first 10 months of 2019.
Divergence in interest rates in the general customer market Interbank interest rates
and the interbank market. In the general market, deposit rates
were kept relatively stable in 1H 2019. Later on in the second 6.00
half of the year, rates faced upward pressure, especially
5.00
amongst smaller banks in the system. This is because of the
sense of urgency due to the need to attract more long-term 4.00
funding to meet the ratio of short-term funding used for medium
3.00
& long-term lending, as explained via the Circular details
aforementioned. For listed banks, we also noticed an escalation 2.00
in both average funding costs and yields on interest earning ON 1W
1.00
assets for Jan-Sept by roughly 22 bps and 39 bps respectively.
As the government has prioritized the lowering of interest rates,
there were 3 interest rate cuts in January, September, and
November. In the latest cut, the cap for demand deposits and Source: SSI
less than 1-month term rates were reduced from 1% to 0.8% per
annum. For 1 month to less than 6-month terms, these were cut
from 5.5% to 5% per annum. Short term lending rate caps for
preferred sectors (agriculture, export, supporting industries,
Government bond yield on secondary market
SMEs, high-tech) was also lowered from 6.5% to 6% per
annum. However, as the adjustment was made in November, 6.0% 20
18
effects on 2019 earnings results of banks would be marginal. 5.0%
VND tn
16
14
4.0%
12
3.0% 10
8
2.0%
6
4
1.0%
2
0.0% -
Source: SSI
8.00
7.50
7.00
6.50
6.00
Sep-18
Sep-19
Feb-18
Apr-18
May-18
Nov-18
Feb-19
Apr-19
May-19
Nov-19
Aug-18
Aug-19
Jun-18
Jul-18
Oct-18
Jun-19
Jul-19
Oct-19
Jan-18
Mar-18
Jan-19
Mar-19
Dec-18
Dec-19
Source: SSI
and 150%. Please note that this CAR calculation will not be Note: The bold numbers are Basel II CARs. The bold tickers are
applied for Basel II compliant banks. the banks officially applying Basel II
Stricter regulations place difficulties for banks that failed to Credit cost and provision coverage ratio
comply with Basel II. Based on data up to 9M 2019, the
slowdown in credit growth of the sector derived mostly from 100% 1.70%
LLCR Credit cost
modest credit expansion of small Tier 3 banks as well as the 95% 1.65%
biggest 3 SOCBs, including Agribank, CTG, and BID, which
together accounted for approximately 38% of total credit market 90% 1.60%
share. In the meantime, Basel II compliant banks grew their 85% 1.55%
credit on average by +13.8% YTD, much higher than the
+9.54% YTD growth of the whole sector as of Q3 2019. 80% 1.50%
individual investors in 2018, rising to VND 39.5 tn in just the first Source: Banks’ FS, SSI Research
9 months of 2019. Besides, many other securities companies,
including foreign firms (from South Korea and Taiwan) are Note: Bold numbers are 1H 2019 data
expanding this business segment. We expect this trend to
continue in 2020.
Capital raising plans heading to 2020
We estimate that within the 12 biggest listed banks, the ratio of
% of Post-money Estimated Value (USD
retail lending out of total credit has rose rapidly from 32.2% in Bank
Capital mn)
2017 to 35.5% in 2018, and to approximately 40% in 3Q 2019. VCB 6.30% 861
We expect individual loans to continue to be the key driver in BID 14.10% 1,000
credit growth in 2020, especially at SOCBs like BID, CTG, and MBB 7.50% 250
TPB 6.80% 78
VCB who have a current structure of comparatively lower retail
VIB 15.30% 100
loans compared to private peers. VPB 9.32% 225
Total 2,514
NIM outlook differs across banks
Source: Banks’ data, SSI Research
• We expect short-term deposit interest rates to reduce on
average in 2020. This is from the recent cut in November,
when the cap for demand deposits and terms of less than
1-month was reduced from 1% to 0.8% p.a., and for 1-6
10.0%
• Circular 22 set a timeline to reduce short-term funds used
5.0%
for medium- and long-term lending on a graduated basis,
from 37% by 1 Oct 2020, to 34% by 1 Oct 2021 and to 30% 0.0%
ACB BID CTG HDB LPB MBB TCB TPB STB VCB VIB VPB
by 1 Oct 2022. Although this ratio as of Q3 2019 was
27.3% on average across the sector, well below the current
Source: Banks’ data, SSI Research
cap of 40%, there are some listed banks such as TCB, HDB,
LPB, and many small unlisted banks that have these ratios
at high levels. They will be under pressure to raise more
Loan–loss- coverage ratio (including net VAMC bonds)
long-term funds to reduce these ratios below the threshold
of 37% by 1st Oct 2020, which will surely entail rising 2016 2017 2018 9M 2019
ACB 126.5% 132.7% 150.0% 157.6%
funding costs.
BID 69.8% 80.7% 49.1% 66.4%
• We also expect the medium- and long-term lending CTG 101.8% 92.1% 52.3% 75.4%
HDB 76.8% 73.3% 56.4% 63.8%
interest rate to be reduced by approximately -30 bps in
LPB 109.3% 114.5% 66.9% 70.4%
2020 on average, whereas short-term lending rates for MBB 103.2% 97.3% 113.2% 102.7%
preferential areas will stay at the current level of 6% per TCB 66.6% 72.9% 85.1% 77.1%
annum. TPB 123.6% 97.9% 70.9% 80.1%
VCB 116.8% 130.7% 165.3% 185.2%
Circular 30/2019 allowed some banks to take advantage of the VIB 56.2% 47.6% 36.3% 49.9%
50% cut pertaining to reserve requirements if they officially VPB 49.7% 50.8% 35.2% 46.9%
support banks that are in special supervision status regarding Total 29.7% 37.6% 43.4% 59.5%
its management and operations. These regulations will be Source: Banks’ FS, SSI Research
effective starting March 2020 and will benefit SOCBs like VCB
(supporting VNCB), CTG (supporting Ocean Bank and GPBank),
and HDB (awaiting to merge with PGBank), in terms of lowering NII forecast (VND bn)
funding costs for these institutions.
Ticker 2018 2019E % YoY 2020F % YoY
NIM will also improve among banks that have a consumer ACB 10,363 12,112 16.9% 15,214 25.6%
finance business, such as VPB, HDB, MBB and TPB, as demand BID 34,956 35,995 3.0% 40,170 11.6%
HDB 7,646 9,224 20.6% 10,887 18.0%
which has recovered from 2019 will remain resilient in 2020. LPB 5,016 6,061 20.8% 7,833 29.2%
Overall, we estimate NII from the top 9 listed banks to increase MBB 14,583 18,120 24.2% 21,063 16.2%
TCB 11,127 14,258 28.1% 17,326 21.5%
by 17.9% YoY in 2019 and we forecast the growth would be
TPB 4,378 5,633 28.7% 6,671 18.4%
16.4% YoY in 2020. VCB 28,409 34,577 21.7% 39,766 15.0%
VPB 24,702 30,492 23.4% 34,834 14.2%
Fee income driven by bancassurance and payment services Total 141,178 166,473 17.9% 193,765 16.4%
We expect retail services including bancassurance and payment
Source: Banks’ FS, SSI Research
services will continue to thrive in 2020.
expected, while the merging with PGBank, which was scheduled Source: Banks’ FS, SSI Research
in Q1 2019, was delayed until now.
Raising capital for SOCBs from the government funds: Game
changer?
The government is proposing a drafted revision on Decree
32/2018 regarding SOE investment/divestment. Perhaps the
most important part of this draft is wherein the government
mentions the intention “to maintain state-ownership ratio” in
state-owned commercial banks (SOCB), in which the
government holds a majority stake. This implies that in the event
of a rights issuance, the state is willing to contribute capital to
maintain its state-ownership, and a stock dividend is allowed as
an alternative to cash dividends.
While in the short term Vietcombank (VCB: HOSE) or BIDV (BID:
HOSE) might not see an immediate impact, Vietinbank (CTG:
HOSE) and Agribank might find what it needs for its
recapitalization plan. According to the Deputy Prime Minister,
the government targets to complete raising capital for CTG and
Agribank right in 2020 for these banks to meet Basel II
requirements.
Forecast
Earnings growth in 2020 will recover from the turnaround of
some banks, including BID and VPB, as well as the improvement
in core business at others thanks to improvement in NIM through
bancassurance and payment fee income.
For 2019 and 2020, we forecast the total PBT of banking stocks
to grow by 23.9% YoY and 22% YoY respectively. The banks
with the best PBT growth include VCB, BID, VPB, MBB and TCB.
We therefore maintain our positive view on the banking sector’s
earnings outlook over the next year.
We expect valuation in 2020 to improve thanks to the catalyst of
new ETFs based on new HOSE indices involving banking stocks,
including VN Fin Select, VN Fin Lead, and VN Diamond. We
therefore hold an Overweight rating on the banking sector.
Issues and risks
The tightening of regulation towards the application of Basel II in
their respective sector would increase compliance costs for
banks.
Additionally, a new round of NPLs are coming back to the fray,
with causation from newly issued consumer loans, or from
legacy restructured loans being re-rated.
90%
80%
VNIndex ACB VN Equity
70%
60%
130%
• Catalysts:
120%
✓ NIM to further expand. We believe MBB has room to
widen its NIM as (1) its funding cost is amongst the 110%
FINANCIALS - INSURANCE
Neutral: Improved underwriting profit to offset weaker investment
yield
Most Preferred: N.a
Sector performance
140%
The insurance sector declined by -16.43% in terms of market
120%
capitalization in 2019, underperforming the VN Index, which
increased by 7.67%. This was mainly due to the fall of -21.9% 100%
in BVH, the stock accounting for the mass majority of total
80%
market share in the insurance sector, a 74.3% chunk. PGI also
experienced a drop during the year by -15.4%. BMI was the only 60%
The banca channel led the ride. Up to 9M 2019 for the year,
new business premiums from bancassurance policies surged
+85.2% YoY, while those from traditional channels dropped - New business premium by distribution channel
15.1% YoY. With impressive growth in recent years enabled
30,000
through exclusive contracts between banks and insurance
25,000
companies, of the contribution of bancassurance to total
premiums climbed to 16% during Jan-Sept 2019, a distinct rise 20,000
15,000
from 5.8% back in 2016.
10,000
Non-life insurance maintained momentum, with direct written 5,000
premiums attaining VND 38.8 tn, up by +14.4% YoY. Growth -
drivers came from health & personal accident insurance 2016 2017 2018 9M2019
(+21.2% YoY), motor insurance (+13.2% YoY) and fire
Banca channel Traditional channels
insurance (+34.5% YoY). Amongst listed insurers, PTI, ABI and
MIG enjoyed faster top-line growth than the industry average; at
Source: AVI, SSI research
+39.5% YoY, +22.5% YoY and +20.5% YoY respectively.
Hence, there was a tweak in market share in which PTI was able Contribution of banca to total premium
to grab a bigger slice of the pie (10.8%), and wrangled the third
place position from BMI (6.9%). Baoviet and PVI still remained 14,000
15.8%
12,000
as the leaders in the market, with 20.1% and 14.9% market
10,000 12.0%
share.
8,000
7.6%
6,000 5.8%
4,000
What was NOT expected?
2,000
Growth in life insurance premiums decelerated, with the YoY -
growth rate during the first 9 months at +23.5%, reaching VND 2016 2017 2018 9M2019
74 tn. Albeit at first appearances to be a decent performance, Banca premium % in total premium
this is lower compare to the CAGR 2014-2018 of +33.4% and
9M 2018 growth of +33.2% YoY. New business premiums for
the period rose by merely +15.5% YoY (vs. 36.2% in 9M 2018). Source: AVI, SSI research
There was no change in the ranking where Baoviet Life still Non-life premium growth
possessed the No.1 position with a 24.5% market share,
followed by Prudential (20.3%) and Manulife (14.5%). 50,000 16.9%
15.1%
The slackening in the growth rate might be explained by two 40,000 14.4%
12.8%
factors: 30,000
12.5%
11.8%
background. The total value of corporate bonds purchased Listed insurers net income in 9M2019
by individuals reached approx. VND 21 tn in 2019. Net income ROE
9M201
In general, total insurance direct written premiums up to 9M 9M2018 9M2019 %YoY 9M2018
9
2019 reached VND 112.8 tn, up by +20.3% YoY, which is ABI 124 208 68.2% 24.3% 34.5%
slower compared to the 2018 growth rate of 23.7% YoY. BIC 145 185 27.6% 9.1% 11.4%
BMI 165 139 -15.9% 10.0% 8.2%
Profitability improved amongst listed insurers. Listed BVH 839 1,047 24.8% 7.5% 8.8%
insurers, except for BMI, PTI and VNR, enjoyed good growth in MIG 79 115 46.4% 11.4% 12.6%
the first 9 months of the year, with aggregate net income PGI 106 115 8.3% 9.7% 10.3%
PTI 56 53 -5.1% 4.0% 3.9%
attaining VND 2.7 tn (+22.2%) as underwriting profit witnessed
PVI 478 635 32.8% 9.3% 12.0%
significant improvement. ROE, therefore, improved from 8.7% to VNR 216 202 -6.7% 10.3% 9.0%
10.1%. Total 2,208 2,699 22.2% 8.7% 10.1%
Total (excl. life
Underwriting activity recorded better efficiency in 2019. The insurance)
1,384 1,636 18.2%
insurance to decrease from 57% in 9M 2018 to 52% up to MIG (5) 34 40% 33% 100% 97%
PGI 9 4 54% 49% 99% 100%
9M 2019.
PTI (33) (55) 54% 48% 102% 102%
• Fire & explosion insurance premiums rose +34.5% YoY up PVI 112 153 42% 37% 96% 94%
to 9M 2019 due to an increase in insurance premium rates. VNR 30 2 36% 35% 93% 100%
Total (275) (250) 47% 47% 102% 101%
Though Decree 23/2018 on compulsory fire & explosion Total (excl.
insurance had been effective from April 2018 with regulated 262 426 43% 42% 98% 97%
BVH)
minimum premium insurance rates for each type of assets,
Source: Companies, SSI research
it was not thoroughly complied by all insurers. Indeed,
some insurers found a loophole by switching their policy For PGI and PTI, the UW profit is the adjusted number as
from compulsory insurance to voluntary insurance. With investment income from policyholder fund was recorded in
the latter, the premium rates were based on negotiation, and ‘Other income from insurance activity’
discounts could be offered to lure more clients. In 2019,
Net investment yield of listed insurers
compliance was supervised more closely, and insurance
premium rates hence went back to normal. Up to 9M 2019, 9%
compulsory and voluntary fire insurance increased by 8%
7%
+54% and -2% YoY (vs. +33% and +16% in 2018). 6%
5%
For BVH, underwriting profit was better thanks to Circular 4%
01/2019 on technical rates used for calculating reserves. 3%
2%
Investment yield edged up to 7.8%. In aggregate, net 1%
investment income attained VND 37.3 tn (+17% YoY) thanks to 0%
bps to 7.8%. The ROI of BVH and BIC descended, as they had
net gains from earlier sales of equities and bonds in 2018. Source: Companies, SSI research
2020 View
Q2/2015
Q4/2017
Q3/2015
Q4/2015
Q1/2016
Q2/2016
Q3/2016
Q4/2016
Q1/2017
Q2/2017
Q3/2017
Q1/2018
Q2/2018
Q3/2018
Q4/2018
Q1/2019
Q2/2019
Q3/2019
companies faced severe competition as well as hefty
commissions. These 3 segments made up 76% of total
premiums. Hence, we expect new products to be launched
in 2020 targeting retail customers as well as focusing on Source: Companies, SSI research
the niche market. Recently, new products were launched,
Table: Bank and insurance cooperation in recent years
such as flight delays insurance, insurance for small
Total
electronic goods (camera, phones…), and e-cargo
Dur Up-front premium
insurance. We also expect more products to be deployed Year atio Insurer fee (VND in
through its partnership with banks, as it allows insurers to n bn) 9M2019
(VND bn)
access a database of roughly 43 mn individual clients. The Listed banks
capped quota for credit growth might also make room for Exclusive
guarantee insurance to emerge in the foreseeable future. VIB*
2015/201
Prudential 1,217
9
• Reshaping of the life-insurance market. In late 2019, HDB 2015 10 DaiichiLife 37
EIB 2016 Generali 186
Vietcombank and FWD Group tied up an exclusive 15-year
LPB 2016 5 DaiichiLife 221
bancassurance partnership, under which FWD shall have VPB 2017 15 AIA 1,600 550
access to a sizable database of roughly 15 mn or more TCB 2017 15 Manulife 1,446 1,633
clients. As the agent channel was facing difficulty due to SHB 2017 15 DaiichiLife 1,000 183
stringent regulation, bancassurance shall continue to be an STB 2017 20 DaiichiLife 800 784
CTG 2017 Aviva 752
important pillar of growth. Hence, though premium growth
TPB 2018 15 SunLife 1,840 268
is projected to be +25-27% due to current low penetration NCB 2018 15 Prevoir 39
and rising demand, the growth rate would be significantly VCB 2019 FWD 385
different between insurers, leading to continuous alteration Non-exclusive
2015/201
in market share. ACB AIA,Manulife 681
9
KLB 2019 AIA 23
• State divestment to continue in 2020. As we have two
Affiliates/subsidiaries
state divestment cases in the pipeline, regarding the SCIC BID** BIDVMetlife 709
divestment of 50.7% ownership in BMI and PVN divestment MBB** MBAgeas 1,174
of 35.5% ownership in PVI, there might be some upside Non-listed banks
catalyst for these stocks if further progress is made. Exclusive
SCB 2015 10 Manulife 647
• Support from regulation. In 2019, Decision 242/QD-TTg AnBinh Bank 2016 FWD
was issued, stating the plan of the Vietnamese government NamA Bank 2017 15 FWD 61
VietA Bank 2018 10 ChubbLife 11
to maintain a premium growth rate of 20% in 2020, slightly
2015/201
tiered down to 15% in 2021-2025. The percentage of the PVCombank
9
Prudential
population participating in life insurance is targeted to reach OCB 2019 15 Generali 206
11% in 2020, and to 15% in 2025. Hence, the penetration SeaBank 2020 20 Prudential
Non-exclusive
rate should reach 3% in 2020 and 3.5% in 2025 from the 2011/201 Prudential/D
MSB 358
end-2018 rate of 2.43%. Given the determination of the 7 aiichi
government to jointly participate with the market in the
Source: SSI, Companies
development of the nascent and growing insurance market,
we believe the growth of the sector shall receive support Valuation & ROE of Vietnam’s listed insurers
Source: Bloomberg
FINANCIALS - BROKERAGE
Neutral: Fierce competition hampers earnings growth story
Most Preferred: N.a
Sector performance
130%
Listed brokerage companies had a difficult year in 2019, with 120%
the total trading value of the market shrinking by -29% YoY. 110%
Moreover, fierce competition from new entry rivals, mostly from
100%
South Korea, snatched away market share from domestic
90%
players. The race in cutting transaction fees as well as raising
80%
commission payments to sales brokers also eroded the
profitability of listed brokerage companies. 70%
Apr-19
Sep-19
Nov-19
May-19
Aug-19
Jun-19
Jul-19
Oct-19
Jan-19
Mar-19
Dec-18
Dec-19
market, falling by -18.6% YoY.
Only Thien Viet Securities (TVS: HOSE) bounced up significantly
by +29.6%, while other brokerage firms plunged or stayed flat.
Source: Bloomberg, SSI Research
Some of the biggest listed companies tumbled strongly,
including SSI (-29.2%), VCI (-34%), FTS (-26.3%), and BVS (-
19.1%) in line with their earnings outlook. Amongst the 3 leading
brokers, Ho Chi Minh City Securities Corporation (HCM: HOSE)
mostly held its ground, inching down only by -1.4% YoY.
Key highlights on sector
• Divergent earnings results: The Top 25 biggest brokers Top 10 brokers took 70.5% market share in HOSE by 2018
reported 2019 Q1-Q3 PBT at VND 5.84 tn, a -14.8% YoY
20.0% 18.7%
drop. Of which, 14 listed brokerage companies
18.0%
underperformed the sector, delivering a -32% YoY drop 16.0%
in PBT from Jan-Sept. While brokerage fee income fell 14.0%
11.2% 11.0%
strongly by -45% YoY, interest income from Held-To- 12.0%
Maturity (HTM) assets rose by +42% YoY, while lending 10.0%
7.3%
8.0%
interest went flat at +0.8% YoY, prop trade earnings 5.6%
6.0% 4.0% 3.5%
declined by -7.6% YoY, and net fee income from IB services 4.0%
3.3% 3.0% 2.8%
lending interest (+126% YoY) and interest income from Top 10 brokers took 62.6% market share in HOSE by 2019
HTM assets (+71% YoY).
16.0%
14.0%
• Deteriorating depth: Following a 26% YoY increase in 14.0%
2018, average daily turnover (ADT) dropped by -29% YoY
12.0% 10.5%
in 2019 from a lack of new listing of big companies and
10.0%
weak market sentiment. Market capitalization arrived at 8.2%
VND 4.43 quadrillion ($191 bn USD), equivalent to 73% of 8.0% 6.8%
fees to compete for what was then dwindling market 10,000 25%
shares. Many brokerage firms immediately slashed fees
(some even to zero) to attract investors. Negative 8,000 20%
transaction fees so far have not been witnessed in the 6,000 15%
market. Lower market turnover and lower transaction fees
impeded brokerage fee income of brokers. Thus, due to this 4,000 10%
race to the bottom in transaction fees to defend market
2,000 5%
share, average brokerage net margins fell from 46.3% back
in 9M 2018 to 29.1% up to 9M 2019. - 0%
Sep-18
Nov-18
Sep-19
Nov-19
May-18
May-19
Jul-18
Jul-19
Jan-18
Mar-18
Jan-19
Mar-19
• Since 2H 2018, the market saw foreign brokers
aggressively expanding the margin lending business.
With the strength in low cost of funding (1-3% pa), these Source: HSX, HNX, SSI Research
foreign brokers could offer more attractive prices and have
been gaining more market share in the process. MAS joined
the Top 5 companies in terms of margin lending in Q4 Average daily turnover and foreign trading
2018, and took the leading position in Q3 2019 with 11.9% 1400 600,000
of market share. Margin lending market share of 11 foreign Transaction value (VND bn) (RHS) VN-Index (LHS)
1200
brokers increased rapidly from 15% in 2017 to 24.2% in 500,000
new issuance in the first 11 months delivering VND 237 tn Margin lending market shares of foreign brokers
at +6% YoY, representing 10.3% of GDP. The booming of
14.0%
this alternative investment to equity had a negative impact 11.9%
12.0%
on not only equity market liquidity, but also the value of 9.3% 9.2%
10.0%
equity issuance. Up to 9M 2019, the value of capital raised 8.0%
8.0%
via share issuance fell by -41% YoY, but net fee income
4.6% 5.0% 4.8%
from IB services improved by +12.9% YoY at 14 listed 6.0%
3.3%
3.0%
brokers thanks to the expansion of advisory services to 4.0%
25,000
20,000
15,000
10,000
5,000
-5,000
Sep-18
Nov-18
Sep-19
Nov-19
May-18
May-19
Jul-18
Jul-19
Jan-18
Mar-18
Jan-19
Mar-19
2020 View
Deal
2020 Expected Sector Growth: 10-20% Issuer Ticker Buyer
% of value
stake (USD
• Stable macro and political conditions: For 2020, we mn)
expect an environment of high GDP growth to persist, Vietcombank
VCB - GIC and
3.10% 265.0
which is likely to boost consumption and corporate HOSE Mizuho Bank
BID - KEB Hana
expansion. Along with inflation continuing to be curbed at a BIDV
HOSE Bank
15% 882.0
low level, the market interest rate is forecasted to diminish, VIC -
Vingroup SK Group 6.15% 1,000.0
while the real estate market growth outlook is not strong. HOSE
All of these will make Vietnam’s stock market an attractive Masan MSN -
GIC 1.20% 51.5
Group HOSE
investment destination for domestic investors, and for Bao Viet BVH -
foreign capital as well. Sumitomo Life 5.58% 173.0
Holdings HOSE
• Privatization to speed up; new listings to improve market Source: Company’s data, SSI Research
size: The privatization process has experienced a notable
slowdown in 2019, due to the introduction of new
8.8%
• Pension funds to emerge as new players: The Vietnam Prop trade
HEALTHCARE - PHARMACEUTICALS
Neutral: Competitive advantages for local drug firms that adhere to
high standards
Most Preferred: IMP
120%
Sector performance
115%
The pharmaceutical sector edged up by 4.0% in terms of market 110%
capitalization in 2019. The sector performed slightly below 105%
overall VN Index performance, which grew by 7.7%. The result 100%
stemmed from the mix in price movement of local listed
95%
companies. DHG (+18%), DBD (+40%), and DHT (+34%)
90%
outperformed the index, while DVN (-34%), PME (-10%), TRA (- VNIndex Healthcare Pharmaceuticals
85%
10%), and IMP (-18%) underperformed the VN Index.
80%
Key highlights on sector
What was expected?
According to market research by IQVIA, the Vietnamese Source: Bloomberg, SSI Research
pharmaceutical industry reached VND 92.4 tn (+8% YoY) in
value as of 2018. Imported drugs still dominate the
pharmaceutical market, with a 64% market share as of 2018. Total Vietnam’s successful tender value in 2019 as of 22
In particular, imported medicines accounted for more than Nov 2019
71.5% distributed via hospitals, while local medicines have
20,000 VND bn
taken just a 28.5% share. These are the figures from 2018, and Domestic drugs
18,000
we think there is no significant change in 2019. The Ministry of
16,000 Imported drugs
Health (MOH) aims to raise the proportion of domestic medicine
14,000
consumed to 22% in central hospitals, and to 50% and 75% in
12,000
provincial and regional health facilities by 2020. Original brand-
10,000
name medicine accounted to around 50% of total tender value
8,000
in 2019. This tells us that domestic pharma firms need to roll
6,000
out a wider array of products that could compete with foreign
4,000
equivalents in both Category 2 and Category 1 to achieve the
2,000
industry’s target in general.
-
Branded Gen - Gen - Gen - Gen - Gen - Trad- Trad-
drugs Cat. 1 Cat. 2 Cat. 3 Cat. 4 Cat. 5 Cat. 1 Cat. 2
Regulation on public tender for drugs provide a set of
advantages for drugs manufacturers in Vietnam; incentives
Source: DAV, SSI Research
that reward high global standards of production. Circular
2.0
1.5
1.0
0.5
0.0
2011 2012 2013 2014 2015 2016 2017 2018 2019
Generics drugs divided into 5 categories/groups in bidding process supply drug to public health facilities
Technical criteria Which category can join?
Drugs manufactured entirely by a production line satisfying EU-GMP requirements or equivalent
requirements in a country in SRA OR
Drugs manufactured entirely in Vietnam and satisfy all following requirements (i) Drugs manufactured by a
Category 1 line satisfying EU-GMP requirements or equivalent requirements and certified by drug authority of Vietnam Cate 1, Cate 2 and Cate 5
to satisfy EU-GMP requirements or equivalent requirements; AND (ii) Drugs granted certificates of free sale
in a country that is in SRA
$ 163 mn Others
VND bn VMD DVN DHG DHT PME TRA DMC IMP MKP DBD OPC
Net sales 13,274 4,161 2,617 1,493 1,328 1,171 1,049 886 885 861 757
%YoY growth 15% -3% -2% 17% 8% -8% 8% 9% 3% -15% 1%
NPAT 26 156 430 69 224 97 167 111 58 105 82
%YoY growth 2% -3% -5% 14% -2% 7% 2% 11% -7% -17% 11%
Gross margin 8% 8% 44% 12% 49% 54% 33% 38% 24% 35% 43%
Net margin 0% 4% 17% 5% 19% 7% 17% 12% 7% 13% 10%
TTM P/E 14 14 19 12 13 16 10 17 13 20 11
2020 View
acquisition deals in the next few years when the government Imported materials majorly from China
plans to reduce ownership at local leading pharma firms.
450 CAGR of 13% in 2011-2018
Recently, DBD proposed to extend its FOL to 100%. DBD also
USD mn
400
seeks approval of shareholders regarding a proposal towards
350
allowing foreign investors to own more than a 25% stake without
300
a tender offer via document. From this recent action, we expect
250
another deal might take place at DBD, the same as in the case
200
of DMC, DHG, and PME in past years.
150
Issues and risks 100
✓ IMP possesses a competitive advantage vs. other local 2020 EPS growth (%) 25%
firms, particularly as IMP is going to own 3 factories Dividend yield (%) 2.1%
capable of producing drugs to top quality global 2020 ROE (%) 11.7%
standards. IMP is one of few domestic companies
possessing a high standard of production of its Source: Bloomberg, SSI Research, Data on 31 Dec 2019
medicine, which in turn can take advantage of its
domestic first mover opportunity to grab more market Most preferred in sector: IMP VN
share.
✓ At the current, IMP is trading at a 2020 P/E of 14x, 120%
which is the lowest in the last 4 years 110%
70%
VNIndex IMP VN Equity
60%
120%
Sector performance 115%
measure in 2019. That year, total CBU-type imports No. of fixed line broadband subscriber in Vietnam (mn)
reached 133k units up to 11M 2019, +95% YoY.
16 30%
Tariffs for the international container handling at seaports 28%
14
had increased by 10% YoY, but the actual effect is not as 24%
25%
12
positive. As we pointed out in our Strategy report last year,
20%
competition is still fierce among most ports (excluding those 10 19%
very large ports such as Cat Lai port), so the tariff hike might not 8 15%
14%
15%
Deep seaports continued to attain high growth. In 2019, No. of subscriber (mn) YoY (%)
2020 View
• Investment thesis: We like VTP, as it offers proxy exposure 2020 PE/PB 19.5/7.2
to the e-commerce market, which is one of the fastest- 2020 EPS growth (%) 35%
growing industries in Vietnam at the moment. The company Dividend yield (%) 1.2%
has a strong balance sheet (running 9M 2019 net D/E ratio 2020 ROE (%) 47.7%
is actually in negative territory), and is poised for strong and
sustainable growth over the next 2-3 years, along with the Source: Bloomberg, SSI Research, Data on 31 Dec 2019
growth of the overall e-commerce market itself. The
company is now holds the 2nd position in terms of market
Most preferred in sector: VTP VN
share, and has a plan to dominate as the leader in market
share in just a few years.
190%
• Catalysts:
170%
✓ Strong e-commerce market growth of 20-30% YoY in 150%
the next 2-3 years, along with a market share capture 130%
of 2% per annum, might lead to 20-30% YoY growth in
110%
revenue from 2020 onwards.
90% VNIndex VTP VN Equity
✓ Profit is expected to grow by 27.5% YoY in 2020F. 70%
120%
Sector performance
110%
While at first glance overall results appeared disappointing,
there was some outperformance in the sector, with distinct wins 100%
that were able to go to toe-to-toe across other sectors in the
Vietnamese equity market. Overall, airport service industry 90%
14 25%
Passenger through ACV airports (both international and
12 20%
domestic) reached 116 million passengers in 2019 according 10
to the company, +12% YoY. Of that, domestic passengers 8 15%
2020 View
airports like Tan Son Nhat or Noi Bai, (which can be observed 0 0%
2015 2016 2017 2018 2019 2020P
visually through the lack of sufficient passenger boarding
bridges for incoming planes), as well as obstacles hindering Vietnam Total Growth
investments to upgrade aeronautical areas of key domestic
airports. Source: SSI Research
INDUSTRIALS – AIRLINES
Negative: Rising competition casts a shadow on growth
Most Preferred: N.a
Sector performance
130%
The airlines sector industry market capitalization increased by
120%
14% in 2019, outperforming the VN Index which increased by
6.69%. The best performer of the industry is VJC (+20%), while 110%
new purchases and SLB (including B787-10, A350-900, Airlines number of flights 2018-2019
and A321neo). VietJet also increased their fleet to 71 160,000.00 20%
aircraft by adding 9 aircraft in 2019 (including A321 and
140,000.00 17%
A321neo). Bamboo also joined the market from the start 15%
120,000.00
of 2019, with 25 aircraft (including A321, A321neo, and 10%
100,000.00
B787-9).
80,000.00 5%
60,000.00
0%
What was not expected? 40,000.00 -3%
-5%
Aviation passenger throughput in Vietnam (both 20,000.00
-7% -8%
international and domestic) reached 116 million - -10%
HVN VJC JPA VASCO Bamboo
passengers in 2019 according to ACV, +12% YoY. This
2018 2019 %YoY
is higher than the CAAV forecast of 8.2% YoY, as they
expected that capacity constraint in key airports would
slow growth. Source: CAAV
only VietJet Air has a large order of B737 Max of 200 aircraft, to
be delivered within 2020-2025.
Forex loss is not an issue in 2019 as it had been previously,
as VND slightly appreciated against the USD by 0.06% at the
end of the year. This is lower than the consensus that VND
might lose about 2% of its value against the USD as thought
before, and thus airlines were able to avoid a large forex loss tail
risk. This gave them a boost in earnings compared to 2018,
when VND lost -2.24% in 2018.
3 new airlines has decided to join the attractive Vietnam
airline market in 2019, even after the failure of AirAsia –
Thien Minh JV. Those include Bamboo, Kite Air, and Viettravel.
Bamboo has already started in 2019, and the rest should be
expected to start in 2020. The previous duopoly (HVN-VJC) in
the domestic market has been quickly turning into a very
competitive market, and weighing down players in terms of their
market share, yield, and RASK. Up to 9M 2019 according to
CAAV, Bamboo Airways has taken domestic market share from
both HVN and VJC. HVN group (HVN-JPA-VASCO) lost 1.2% of
its market share to 54.8% (from 56% at the end of 2018), while
VJC lost 2.8% of its market share (from 44% at the end of 2018
to 41.2% up to 9M 2019). This led to earnings deterioration. For
example, up to 9M 2019, VJC core parent gross profit (excluding
aircraft purchase rights sales) declined by roughly -10% YoY,
compared to last year growth of 22.5% YoY. HVN gross profit
up to 9M 2019 also declined by 1.5% YoY.
2020 View
INDUSTRIALS – CONSTRUCTION
Neutral: Still waiting for property sector turnaround
Most Preferred: N.a
Sector performance
The construction sector (excluding ROS) declined -13.1% in 120%
terms of market capitalization in 2019, underperforming the VN 110%
Index which rose by 7.7%. With a 21% index weighting, ROS slid 100%
90%
by -55.3% in 2019, which drove the unadjusted sector index
80%
downwards by -27.5%. 70%
VCG took over CTD and HBC to be the sector leader with a 25% 60%
50%
sector weighting. In 2019, VCG – the best performer in the
construction sector - increased by 24.8%, backed by 54% YoY
growth in terms of net earnings for Jan-Sept 2019.
VNIndex Industrials Construction
The second largest in terms of market cap was LCG, with a
11.9% upside and 16% sector weighting, along with 24.4% YoY
growth up to 9M 2019 operating profits (while net earnings up Source: Bloomberg, SSI Research
to 9M 2019 doubled thanks to deferred tax).
The third largest was CTD, cratering by -66.9% in terms of Industry performance (ex.ROS)
market capitalization. HBC also sustained a -34.1% decline. Net
earnings up to 9M 2019 of CTD and HBC lost -59.9% YoY & - 120%
100%
We had recommended an Underweight rating to the sector at the
90%
beginning of 2019, as concerns over limited banking credit and
governmental restrictive policies arose that casted a shadow on 80%
60%
Key highlights on sector
50%
The construction sector grew 9.1%, of which was similar to
2018 growth of 9.2%.
VNIndex Industrial Construction
Main transportation ongoing construction projects in 2019
included the North-South Highway (Cam Lo – La Son), Danang
– Quang Ngai – QL1 highway, QL1A expansion (Tien Giang), Source: Bloomberg, SSI Research
QL30 Cao Lanh – Hong Ngu, My Thuan 2 Bridge. And the
Electricity projects are Quang Tri I coal-fired plant (BOT, $ 2.37
bn USD, 1320 MW), Van Phong 1 coal-fired plant (BOT, $2.58
bn USD, 1320MW), Thi Vai LNG Storage plant (gas supply for
Nhon Trach 3 & 4), Sao Vang Dai Nguyet & Nam Con Son gas
pipeline phase II.
Main residential projects in 2019, mostly carried forward from
2018 are Vinhomes Ocean Park (HN), Vinhomes Smart City
(HN), Vinhomes Grand Park (HCMC), Sunshine Wonder Villas
(HN), Sunshine City (HCMC), Novabeach Cam Ranh, Celadon
Diamond Alnata (HCMC - Gamuda Land), Phu My Hung CR8
2B&3 (HCMC – Phu My Hung Co. ltd. ), Asian Capella (HCMC –
An Gia Land), Eco Green Saigon (HCMC - Xuan Mai Co.), The
Peak Midtown, among others.
What was expected?
Government spending for Infrastructure
Restrictive governmental measures in the housing market
VND tril.
leading to delay in new launches. Up to Sept for the year, new 500 120%
condominium launches in HCMC were 21,500 units (-3% YoY), 450 97%
100%
and new units mostly came from Vinhomes Grandpark in 400 83%
75% 73%
Q3/2019 (10,000 units). 350
65%
80%
300 58%
Tighter banking credit challenging property developers. SBV 60%
250
has released the Circular 22/2019 (15 Nov 2019) to limit the
200 40%
ratio of short-term funds used for medium/long-term lending at
150
40% by 30 Sep 2020 and 30% by 01 Oct 2022. In fact, banks 20%
have tightened this ratio since 2017, e.g., 30.4% by 2017, 100
2020 View
Q4/2019.
2.00%
Residential property sector: Most new launches from
Vinhomes mega projects Total new launches of condominiums 0.00%
2012 2013 2014 2015 2016 2017 2018 2019 2020F
in 2020 is expected to be slightly added up, ranging from 60,000
to 70,000 units for HN & HCMC (versus 2019 estimated of
Source: Ministry of Construction, GSO
61,000 units); which are mostly attributed to Vinhomes mega
projects (Grand Park, Ocean Park, Smart City), while the
remainder has still struggled with legal issues and limited
Construction outlook survey (%)
access to banking loans. Up to 9M 2019, HCMC only had 1
project approved for its investment plan (-83% YoY) and 12 100%
projects approved for investment (-72% YoY). That point
resulted in lower newly-signed contracts in 2019, and thus a 80% 39 40 35
42 36 34 33 36
43
lower backlog for construction companies in 2020.
We do not expect infrastructure investment to see substantial 60%
INFORMATION TECHNOLOGY - IT
Positive: Sustained growth momentum
Most preferred: FPT
170%
Sector performance
150%
The Information Technology sector increased by 54.1% in 2019,
strongly outperforming the VN Index which only increased by 130%
7.7%. The performance was in line with our expectation that
110%
investors would stand to benefit by going overweight on the IT
industry in 2019. 90%
and the number of mobile phone subscribers was 129.5 million No. of fixed line broadband subscriber in Vietnam (mn)
(-0.7% YoY).
16 30%
In 2019, FPT telecom services revenue increased by 18% YoY. 28%
14
The number of subscribers grew by 14% YoY to an estimated 24%
25%
12
figure of approx. 2.5 million.
20%
10 19%
8 15% 15%
14%
6
10%
4
5%
2
- 0%
2014 2015 2016 2017 2018 2019F
No. of subscriber (mn) YoY (%)
2020 View
•
• Issues and risks
The wage gap of IT engineers between Vietnam and India and
China is 15% and 30% respectively, according to FPT. The
shortage of IT human resources which lead to higher wage
inflation in Vietnam may reduce the competitiveness and profit
margin of Vietnam’s software outsourcing companies.
However, FPT believes that competition between Vietnam and
China outsourcing companies in the Japan market is declining.
According to FPT, Chinese companies are going back to serve
its domestic market, where demand is booming.
Most preferred Most preferred in sector: FPT VN
Market cap (USD mn) 1,706.7
FPT Corp: FPT VN
Average 3M value (USD mn) 3.89
• Current price: VND 58,300; 1Y Target price: VND 74,500 Foreign ownership (%) 49%
• Investment thesis: FPT is the leading IT company in 2020 PE/PB 11.3x/2.4x
Vietnam, with 2 key strong/stable growth businesses (IT 2020 EPS growth (%) 18%
services and Telecom, accounting for ~80% of PBT) over
Dividend yield (%) 3.4%
the next 3 years.
2020 ROE (%) 25.4%
✓ With increasing demand for digital transformation
services across the globe, FPT targets annual earnings Source: Bloomberg, SSI Research, Data on 31 Dec 2019
growth from this line of service of 30% YoY over 2020-
22. By investing in human resources with the aim of
Most preferred in sector: FPT VN
improving productivity, together with Vietnam’s lower
IT labour costs than India and China, we see a good
180%
chance that the company will achieve this goal.
160%
✓ The current penetration rate for broadband Internet in
Vietnam is 60%, implying room for FPT to move 140%
MATERIALS - STEEL
Negative: Demand tends to slowdown
Most preferred: HPG
120%
Sector performance
110%
The steel sector declined -4% in terms of market capitalization
in 2019, underperforming the VN Index, which increased by 100%
7.7% in the period. The HPG share price decreased slightly by
90%
1% due to the annual earnings decline up to Sept ‘19 resulting
from the unexpected surge in the iron ore price. On the other 80%
hand, the HSG share price increased by 32% from its bottom at
VNIndex Materials Steel
the end of 2018, thanks to the stabilization in its gross margin. 70%
Flat steel profit margin and HRC Market share of top construction steel manufaturers
25.0%
600
10.0% 20.0%
550
15.0%
500
5.0% 10.0%
450
5.0%
0.0% 400
0.0%
1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19
2013 2014 2015 2016 2017 2018 11T2019
Average HRC price HSG NKG SMC VGS HPG TVN POM Vinakyoei Formosa VIS
Source: Vietnam Steel Association, SSI Research Source: Vietnam Steel Association, SSI Research
On the other hand, the profit margin of flat steel producers
recovered from the second quarter of 2019, thanks to the
correction in the HRC price.
What is NOT expected?
Iron ore price surge due to the disaster in Brazil: The price of
iron ore soared up considerably by over 70% from the level at
the end of 2018 to its peak of over $120 USD/ton in Jul due to Vietnam Steel price versus raw material price
the dam collapse in the Vale mines in Brazil. This led to the drop
700
in HPG gross margin, as weak demand made it difficult for the
600
company to pass through the increase in iron ore to the end
user, especially when the price of steel scrap declined in the 500
second and third quarter of the year. However, as Vale expects 400
to resume 70% of lost capacity in 2019-2020, the iron ore price 300
100
0
1/18 3/18 5/18 7/18 9/18 11/18 1/19 3/19 5/19 7/19 9/19 11/19
2020 View
MATERIALS - CEMENT
Neutral: Another year of single digit growth
Most Preferred: HT1
Sector performance
140%
The cement sector increased 13.2% in terms of market 130%
capitalization in 2019, outperforming the VN Index, which rose 120%
7.7%. The share price of HT1 increased by 18% during the year
110%
thanks to positive earnings growth on the back of gross margin
100%
improvement.
90%
Key highlights on sector 80%
VNIndex Materials Cement
Domestic growth slowdown faster than expected: According 70%
18.0%
16.0%
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
HT1 BCC BTS
9M19 9M18
2020 View
• Investment thesis: HT1 is the leader in supplying market 2020 PE/PB 7.6x/1.0x
demand across Southern Vietnam, and its advantage allows 2020 EPS growth (%) 12.3%
it to command a higher sales price by a margin of 20-30% Dividend yield (%) 4.8%
in this region compared to the price in the Northern and 2020 ROE (%) 14.7%
Central Vietnam regions.
Source: Bloomberg, SSI Research, Data on 31 Dec 2019
• Catalysts: The improvement in gross margin on the back of
the market cement price and cost-cutting measures,
Most preferred in sector: HT1 VN
coupled with decreasing financial expenses on the back of
140%
deleveraging, may help the bottom line to attain
130%
encouraging growth of 12% YoY in 2020.
120%
• Risk: An increase in energy cost, including electricity and 110%
coal, may negatively impact the company’s profit margin. 100%
90%
80% VNIndex HT1 VN Equity
70%
60%
MATERRIALS - FERTILIZER
Negative: Low growth from cyclical El-Nino pattern
Most Preferred: DPM
Sector performance
140.0%
The fertilizer industry plunged by -37% in terms of market
capitalization in 2019. This isolated laggard sector widely 120.0%
60.0%
2017. Regarding government divestment in DPM and DCM, 10 Brent oil price (USD/bbl) Prill urea (USD/ton) 50
1/6/2018
3/6/2018
5/6/2018
7/6/2018
9/6/2018
1/6/2019
3/6/2019
5/6/2019
7/6/2019
9/6/2019
11/6/2017
11/6/2018
11/6/2019
2020 View
• Risk: (1) competition from imported urea and NPK, (2) low
agri-products prices and (3) unfavorable weather
conditions.
UTILITIES - ELECTRICITY
Negative: Unstable fuel supply input
Most Preferred: N.a
Sector performance
120%
The electricity sector reported a slight +1.5% change in market 115%
capitalization, underperforming the VN-Index which posted
110%
+7.7%. The key reason for this underperformance was mostly
attributed to big players that posted a decline such as POW (- 105%
26.6%) and PGV (-10.3%), with 39% weighting in the sector. 100%
The best performers were PPC (+63.7%) and HND (+49.7%). 95%
Being free from foreign debt (JPY) and a high dividend yield 90%
allowed the PPC stock price to soar, while HND saw a significant
increase in net earnings thanks to the 2015 work-in-progress FX
losses that were fully allocated in 2018. VNIndex Utilities Electricity
54,880 MW, increasing by 6,320 MW vs. 2018 (in which nearly Retail electricity price
5000MW originated from solar power).
9.00% 8.36%
Retail electricity prices was raised by an average rate of 8.36% 8.00%
from VND 1,720/kWh to VND 1,864/kWh (or $0.0804 USD), 7.00% 6.08%
according to Decision 648/QĐ-BCT on 20 Mar 2019. This rate 6.00%
In 2019, gas supply from Southeastern Vietnam fields slid from 70.0
run on diesel in the peak season, i.e 108.11 mn kWh in Nhon 30.0
Trach 1 & 5.87 mn kWh in Nhon Trach 2. Ca Mau Plants are 10.0
2020 2025 2030
also dealing with a gas shortage with its PM3-CAA 7 Cai Nuoc
field, and a higher gas price (46% to 90% MFO) that started back Target Supply by Decision 403 Revised Supply by Vinacomin
in Oct 2019.
Demand from coal-fired power plants Total demand
A bottleneck in solar power. According to EVN, Vietnamese
transmission lines were significantly overloaded in June 2019 Source: Decision 403/QĐ-TTg on 14 Mar 2016
when there was suddenly a capacity boom from solar power
sources from Ninh Thuan and Binh Thuan Provinces (an & Revision of Vinacomin in Jan 2019
increase of ~5000 MW, while more than 2,000 MW additionally *Decision 403/QDD-TTg released on 14 Mar 2016 is the
came from Binh Thuan & Ninh Thuan). As a result, we saw (1) Vietnam Coal Development Plan to 2020 and 2030.
260%-360% load factor for 110kV lines from Thap Cham – Hau
*As Vinacomin’s revision in Jan 2019, actual domestic coal
Sanh – Tuy Phong – Phan Ri; (2) a 140% load factor of 110 kV
supply fell below guidance of Decision 403 on 14 Mar 2016
line from Phan Ri – Song Binh – Dai Ninh (According to Circular
25/2016/TT_BCT on 30 Nov 2016, the normal level of load *Total demand includes coal-fired power, fertilizer, chemical,
factor is below 90% and warning level is over 90%). Due to the cement, others.
long distance between solar power plants (Ninh Thuan/Binh
Thuan) and high demand locations, 220kV & 500kV
transmission line are required. On average, a solar project just
takes ~6 months while 220kV and 500kV transmission lines
take about 3-5 years to complete.
2020 View
Will more coal be imported to ensure sufficient supply? FOB Richards Bay 5,500 NAR (South Africa)
If we use the South Africa coal price (5500 kcal/kg) at $53 100.00
USD/ton; then we must factor in (1) the transportation fee of $15 90.00
USD/ton from Richards Bay (South Africa) to India and (2) the 80.00
additional hop necessitates another estimated transportation fee 70.00
(USD/ton)
*CAN – Capacity add on price is the extra price paid for the best new
• New gas supply in Q4/2020 from Sao Vang – Dai Nguyet
entrant power plant to break-even (The 2020 best new plant is Vinh Tan 4
basin will provide more stable volume for Southeastern Thermal Plant expanded)
regions.
Issues and risks
UTILITIES - WATER
Neutral: Stable Growth
Most Preferred: TDM
Sector performance
160%
Mid and small-cap stocks increased sharply, such as NBW 150%
(+117.7% YoY), GDW (+112% YoY), BTW (+138% YoY), 140%
BWS (+123% YoY) and NQN (+196% YoY). In contrast, large- 130%
cap stocks in the top 5 leading water companies had slight 120%
growth such as BWE (+1.03% YoY) and HPW (+7.6% YoY). 110%
Two reasons for outperformance of the water sector are: (1) 100%
GDW and BTW) and the REE (which owns NBW and GDW) 70%
account for 21% of raw material costs. Moreover, the natural Wastewater rate (%) in 2019 of listed company
resources tax according to Circular 44/2017/TT-BTC has not
45%
increased since 2017, at just 40 VND/m3. Despite the increase
40%
in water pollution in 2019, the cost of pollution treatment had
35%
only a slight impact on the operating efficiency of enterprises
30%
due to the partial pass-through cost into end-user prices. This
25%
lifted the gross margin of listed water companies in 2019,
20%
reaching 13.9% - an increase of 2.3% compared to last year’s
15%
level.
10%
5%
0%
2020 View
We divide water companies into two groups: (1) Companies that 20,000
18,000
own water processing plants (DNP, TDM, VCW); (2) Companies
16,000
that own a water distribution network (BWE, DNW, Sawaco, 14,000
Hawaco, CTW, HPW, DNA, BWS, HDW, NBW, GDW, LKW, 12,000
10,000
DBW, NAW, NQB, PJS, TAW, VPW, etc.) 8,000
6,000
Companies that own water distribution network 4,000
2,000
The companies that have water distribution systems are under -
administration of the Provincial People's Committees, implying
a natural monopoly. Operational efficiency of water supply
companies depends on (1) water loss rate; (2) population
density of distribution area. For the companies have distribution
Average water price Min Max
network, we estimate that revenue grew by 9% YoY in 2020. In
particular, average water consumption increased by 6% YoY,
and the average retail APS increased by 3% YoY. Source: SSI Research collect
• Water demand steady growth of 7%. According to
Vietnam Water Supply and Sewerage Association (VWSA),
Value chain in water
the total capacity of water treatment plants in Vietnam
reached 9 million m3 per day. On the other hand, the SOURCE TREATMENT DISTRIBUTION
demand for residential water use was estimated to reach
9.4-9.6 million m3 per day in 2020. According to the
Groundwater
master plan of the water industry to 2030, water Household
continue to improve. We expect this trend to continue in Investment Unit Cost in water supply and treatment plants
the coming years. The average rate of water loss decreased (VND/m3)
from 21.5% to 19.5% in 2020, thanks to (1) an improved
50,000
Water Leakage Detection System; (2) improved water
pipeline networks for end users. 45,000
40,000
• Retail ASP of clean water increased 3-5% YoY. We
35,000
forecast that the ASP of clean water will increase by 3-5%
30,000
depending on each city/province. In particular, Binh Duong
and Ho Chi Minh City will increase the retail ASP by 5% YoY 25,000
1. ANALYST CERTIFICATION
The research analyst(s) on this report certifies that (1) the views expressed in this research report accurately reflect his/her/our own
personal views about the securities and/or the issuers and (2) no part of the research analyst(s)’ compensation was, is, or will be directly
or indirectly related to the specific recommendation or views contained in this research report.
2. RATING
Buy: Expected to provide price gains of at least 10 percentage points greater than the market over next 12 months
Outperform: Expected to provide price gains of up to 10 percentage points greater than the market over next 12 months.
Market P: Expected to provide price gains similar to the market over next 12 months.
Underperform: Expected to provide price gains of up to 10 percentage points less than the market over next 12 months.
Sell: Expected to provide price gains of at least 10 percentage points less than the market over next 12 months
3. DISCLAIMER
The information, statements, forecasts and projections contained herein, including any expression of opinion, are based upon sources
believed to be reliable but their accuracy completeness or correctness are not guaranteed. Expressions of opinion herein were arrived at
after due and careful consideration and they were based upon the best information then known to us, and in our opinion are fair and
reasonable in the circumstances prevailing at the time, and no unpublished price sensitive information would be included in the report.
Expressions of opinion contained herein are subject to change without notice. This document is not, and should not be construed as, an
offer or the solicitation of an offer to buy or sell any securities. This report also does not recommend to U.S. recipients the use of SSI to
effect trades in any security and is not supplied with any understanding that U.S. recipients will direct commission business to SSI. SSI
and other companies in the SSI and/or their officers, directors and employees may have positions and may affect transactions in securities
of companies mentioned herein and may also perform or seek to perform investment banking services for these companies.
This document is for private circulation only and is not for publication in the press or elsewhere. SSI accepts no liability whatsoever for
any direct or consequential loss arising from any use of this document or its content. The use of any information, statements forecasts
and projections contained herein shall be at the sole discretion and risk of the user.
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