Booming FDI to ensure near-term growth

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Monthly Data Oct Nov
CPI (% YoY) 0.00 0.34
Real retail sales (% YoY) 8.4 8.3
IIP (% YoY) 8.8 8.9
Export val (USD b) 14.4 14.3
Import val (USD b) 13.8 14.5
Disbursed FDI (USD b) 2.2 1.4
Yearly Forecasts 2014A 2015F
Nominal GDP USD b 185.7 200.0
Real GDP (% YoY) 6.0 6.8
CPI (end, %YoY) 1.8 1.0
Exports val (% YoY) 13.6 10.0
Imports val (%YoY) 12.1 14.0
Trade bal /GDP (%) 1.1 (2.0)
M2 / GDP (%) 129.6 136.5
Total credit / GDP (%) 98.3 102.6
Disbursed FDI (USD b) 12.4 13.5



GDP Growth, % Contribution by Sector



Vietnam Headline Inflation



  • Price appreciation was again subdued in November from another round of pump price cuts. As global oil price remains stuck in a rut and the mandatory healthcare price hikes was delayed to 2016, there is no doubt that 2015 inflation will hit the 14-year low of less than 1%.
  • Domestic activities continued delivering decent performance. Real retail sales growth pace remain at 5-year high level despite seeing a marginal on-month contraction. Meanwhile, industrial production growth nudged up amid challenging external conditions that are imposing headwinds on local manufacturers. FDI disbursement in 11M15 surpassed USD 13b, setting a new record high while registered capital, especially into the manufacturing sector, are also pointing to hefty growth. As mentioned in our previous reports, the trend will persist given Vietnam’s active pursuit of trade liberalization policies.  This would help to create a firm foundation for Vietnam to overcome difficulties posed by stalled global demand in the near term and in fact, the contribution of foreign-invested enterprises (FIEs) to economic growth has become increasingly dominant in the recent years. (see page 5)

2015 CPI to hit the lowest since 2001

  • November CPI upped 0.07% vs. October, as pump price cuts succeeded in offsetting price appreciation of consumer-related categories.
  • All other readings continued showing lingering price increase: price level in November 2015 only ticked up 0.34% vs. November 2014 while on an average basis through Jan-Nov, prices only inched up 0.64%.

Trade deficit estimated to come at USD 3.8b at the end of November

  • Export growth in 11M15 vs. 11M14 are on par with the pace of 8.3% in 10M15 vs. 10M14. Total export turnover through Jan-Nov reached USD 149b.
  • As such, this year’s export is likely to fall short of target USD 165b set earlier by the government. However, in the context of sluggish international trade, Vietnam’s growth rate is commendable, far outperforming other export-oriented economies including China (down 2% in 9M15 vs. 9M14) and ASEAN-5 (down 5% in 9M15 vs. 9M14 on average).
  • Import growth in 11M15 vs. 11M14 remained at 13.7%. Of note, Vietnam’s trade deficit with China rose to USD 29.5b as of end-Nov. One-fifth of Vietnam’s total exports are destined to the US (USD 30.6b, + 17.6% vs. 10M14).

FDI disbursement in 2015 to reach a new record high

  • Disbursement in 11M15 totaled at USD 13.2b (up 17.9% vs. 11M14), surpassing our full-year target of USD 12.5-13b. Given the current robust rate, we believe that the disbursement amount could reach USD 14-15b this year. This should serve as a necessary source of USD supply in Vietnam amid a trade deficit that is tracking around USD 4b.
  • Registered FDI grew 16.7% in 11M15 vs. 11M14 to exceed USD 20.2b.

The Macro Picture

Consumer Price Index

Inflation in 2015 to hit the lowest since 2001

Figure 1: Inflation in October – A Summary

On-month CPI

(Nov-15 vs. Oct-15)

On-year CPI

(Nov-15 vs. Nov-14)

Year-to-date CPI

(Nov-15 vs. Dec-14)

Average CPI

(11M15 vs. 11M14)

Headline inflation 0.07% 0.34% 0.58% 0.64%
Core inflation 0.05% 1.72% N/A 2.08%

Source: GSO

  • Housing and construction materials category incurred the sharpest monthly increase at 0.32% due to the 3% hike in LPG retail price (for household usage) on Nov 1st.
  • Prices of consumer-related categories including F&B, garments and household goods witnessed modest increase as expected, ranging from 0.14% to 0.19%.
  • Transportation category carried the downtrend in price into the third consecutive months as pump price was cut a total of 5% in the tracking period.

December inflation outlook – Little chance of price spike in December, year-end inflation to stay less than 1%

  • As pump price was cut 1% on Nov 18th and another 1.5% on Dec 3rd, we believe that transportation basket will witness another month of price depreciation.
  • That said, food and foodstuff category will only incur soft price increase despite increasing demand ahead of Christmas Holiday. Furthermore, we continue foreseeing prices of consumer-related categories to nudge up moderately in December.
  • Meanwhile, the Ministry of Health postponed implementing the new pricing schedule for 1,800 types healthcare service to 2016 (previously planned to commence as of end-Nov 2015). As such, price of healthcare category is all but remains steady in the final month of the year.
  • On the flip side, housing and construction materials could be the category delivering the strongest price appreciation (up 0.3%) as LPG retail price was raised circa 6% on Dec 1st.

We forecast December CPI to rise 0.1%, implying year-end inflation to come in at 0.68%.

Figure 2: Vietnam Inflation
Source: General Statistics Office

Domestic Activity


Real retail sales growth pace saw slight deceleration but remained elevated at the highest level since 2010

Figure 3: Real retail sales and consumer confidence
Source: GSO, AC Nielsen


Auto sales continued spiking in Oct, full-year figure could exceed target (200,000 vehicles sold) by 25%

Figure 4a: VAMA sales Figure 4b: Imported CBUs
Source: VAMA Source: Customs Office, GSO


Industrial Production


Industrial production growth in modest improvement


Figure 5: IIP growth in October 2015 – A comparison

  Nov-15 vs.
Oct-15 vs. Oct-14 Nov-14 vs.
11M15 vs. 11M14 11M14 vs. 11M13
Overall IIP 8.9% 8.8% 11.1% 9.7% 7.5%
Mining 0.6% 6.7% 11.0% 8.1% 2.7%
Manufacturing 11.3% 9.1% 11.0% 10.1% 8.6%

Source: GSO


Figure 6: IIP of Manufacturing Sub-industries
Source: GSO


Charts of the Month


FDI – Foreign-invested enterprises are setting the growth landscape


Figure 7: FDI commitment has strongly recovered from the drought in 2011-2012 and the good thing is its priority into manufacture sector
Source: Foreign Investment Agency


Figure 8: FDI disbursement has made remarkable return after 2012 and the disbursement amount in 2015 could reach USD 14-15b
Source: General Statistics Office
Figure 9: As such, FIEs has been increasing their contribution to Vietnam GDP since 2012 (when the wave of FDI into electronics manufacturing started)
Source: General Statistics Office


Figure 10: Despite higher contribution to GDP, oversea capital as percentage of Vietnam’s total investment is actually decreasing, implying FIEs’ efficiency in using capitals
Source: General Statistics Office


Figure 11: Vietnam also has the highest net FDI over GDP ratio vs. other emerging markets
Source: Worldbank


Figure 12: FIEs’ production is mainly to serve external market and FIEs are now accounting for more than 70% of Vietnam export
Source: Vietnam Customs Office, General Statistics Office




Figure 13: FIEs are, actually, the star of Vietnam export in 2015
… as opposed to the contraction in shipments from local firms
Source: Vietnam Customs Office



Figure 14: …and make up all the trade surplus
Source: Vietnam Customs Office


Figure 15: FIEs still import most inputs for their production.
However, FDI’s role in long-term growth remained in question as technological diffusion from FIEs, especially in hi-tech fields, to local firms are progressing slowly…
Source: Vietnam Customs Office


Macro Indicators

Figure 1: USD/VND Exchange Rate Figure 2: Vietnam G-Bond Yields
Figure 3: Trade Balance Figure 4: Foreign Direct Investment
Figure 5: Retail Sales Growth Figure 6: Index of Industrial Production
Figure 7: Credit Growth Figure 8: Key Policy Rates
Source: General Statistics Office of Vietnam, State Bank of Vietnam

VCSC Rating and Valuation Methodology

Absolute, long term (fundamental) rating: The recommendation is based on implied total return for the stock defined as (target price – current price)/current price + dividend yield, and is not related to market performance. This structure applies from 27 May 2015.

Equity rating key Definition
BUY Total stock return including dividends over next 12 months expected to exceed 20%
OUTPERFORM (O-PF) Total stock return including dividends over next 12 months expected to be positive 10%-20%
MARKET PERFORM (M-PF) Total stock return including dividends over next 12 months expected to be between negative 10% and positive 10%
UNDERPERFORM (U-PF) Total stock return including dividends over next 12 months expected to be negative 10%-20%
SELL Total stock return including dividends over next 12 months expected to be below negative 20%
NOT RATED The company is or may be covered by the Research Department but no rating or target price is assigned either voluntarily or to comply with applicable regulation and/or firm policies in certain circumstances, including when VCSC is acting in an advisory capacity in a merger or strategic transaction involving the company.
RATING SUSPENDED A rating that happens when fundamental information is insufficient to determine an investment rating or target. The previous investment rating and target price, if any, are no longer in effect for this stock.

Unless otherwise specified, these performance parameters only reflect capital appreciation and are set with a 12-month horizon. Future price volatility may cause temporary mismatch between upside/downside for a stock based on market price and the formal recommendation, thus these performance parameters should be interpreted flexibly.

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Analyst Certification of Independence

I, Thanh Duong, hereby certify that the views expressed in this report accurately reflect my personal views about the subject securities or issuers. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. The equity research analysts responsible for the preparation of this report receive compensation based upon various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues, which include revenues from, among other business units, Institutional Equities and Investment Banking.

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