Strategy Note /
Vietnam

Vietnam investment strategy – August 2019

    Lam Nguyen
    Lam Nguyen

    Banking, Market Strat

    Contributors
    Hoang Nguyen
    Tu Vu
    Son Tran
    Rong Viet
    5 August 2019
    Published by

    We think the Q2 earnings results will not impact the market much in August as it is already priced in. Most stocks in the VN30 saw positive earnings in Q2. However, VNMid and VNSmall saw poor Q2 results with negative growth rates in revenue and net profit after tax.

    Recently, state-owned commercial banks (VCB, CTG, BID and Agribank) announced that they will reduce the ceiling on short-term lending rates for five priority sectors to 5.5%. These sectors are agriculture-rural development, export production, supporting industry, small-and-medium enterprises and hi-tech production. While small and medium enterprises stand to benefit the most from this, we still don’t think many listed companies can satisfy the banks’ credit assessment.

    Given the renewed escalation of trade tension between the US and China, certain sectors of the Vietnamese market such as textile, fishery, industrial parks, logistic and seaport are expected to continue to benefit from the uncertainty. As discussed in our July strategy, however, we think that the fishery sector may not be a winner. We also believe that until Vietnamese textile companies can solve the problem of “origin of goods from yarn onward”, the benefit for this sector will be insignificant.

    Nevertheless, the trend of moving manufacturing out of China to other Asian countries, including Vietnam, remains. US President Donald Trump’s recent actions will ensure that this continues. Hence, the outlook for industrial parks, logistic and port companies is quite bright at the moment.

    In the industrial park sector, KBC and VGC, whose parks are in the North, may be the first to benefit. In the South, land banks of industrial parks have temporarily dried out due to a standstill in procedural and/or compensation issues. Among those, SZC draws our attention with 689 ha leasable land remaining, which is almost cleared and has a relatively low cost. The latest update reported an accumulated lease of 400 ha in Sonadezi Chau Duc zone (ASP is US$50/sqm till 2058), implying 20 ha leased out YTD. We think the potential lease can be higher thanks to escalating demand.

    In the logistic and seaport sectors, we expand our analysis this month to the shipping industry. To support its development, the Vietnam Maritime Administration has proposed to form solution groups as well as gathering commentaries from enterprises in the industry. Among solutions, we highlight CIT incentives to 10% over 15 years, which we believe will directly impact the profit-making liners. In contrast, those players who still have high accumulated losses will not benefit immediately from the CIT incentives. We prefer HAH for this theme due to (1) its positive results in H1 19 (after two years of decline in port exploitation) thanks to a shift in business operations from port to container ships. Gross profit in H1 from ship operations increased by 63% yoy, accounting for 52% of the gross profit of HAH; (2) its expansion to depot operations in Nam Dinh Vu (Hai Phong) in 2018, which created a closed-loop logistics services chain, improving the company’s competitive advantage; (3) potential government support for the shipping industry in the near future; and (4) its trading, at a trailing PER of 5.0x and offering a cash dividend yield of 7.3%. As there are catalysts to propel the stock price up, we believe that HAH shares will likely be re-rated in a year to a PE multiple of 7.0x.

    Some of our top picks are POW, HPG, MBB, MWG, QNS and ACB.