Frenzied mid-month dissipates at month-end

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Domestic Tourism Witnessed Tremendous Growth

November 20, 2015

Vietnam Indices MTD % Nov
VNI -5.6% 573.20
VN30 -6.0% 581.94
VN Mid -1.7% 724.74
VN Small -0.6% 678.61
HNI -2.0% 80.61
HN 30 -4.0% 145.91
     
Trading Activity Oct Nov
Daily Val 30day USD m 86.0 127.0
Foreign Net Inflows USD m 55.7 -19.5
     
ASEAN 5 Indices % Chg. MTD YTD
VNI -5.63 5.05
Thailand (SET) -2.09 -8.81
Philippines (PSE) -2.97 -6.28
Malaysia (FBMKLCI) 0.21 -5.22
Indonesia (JCI) 1.45 -13.53
     
P/E Valuations Oct Nov
Vietnam (VNI) 11.86 11.14
Thailand (SET) 15.98 17.77
Philippines (PSE) 19.31 19.08
Indonesia (JCI) 23.77 17.61
Malaysia (FBMKLCI) 17.28 25.66
     
     
     
 

 

Frenzied mid-month dissipates at month-end

  • VNM and MWG see hectic put-through trading
  • Bank 3Q15 results short on the stellar, stock supply digestion problems
  • Building materials and construction contractors bask in limelight

Price gains in VNM, MWG and FPT prompt hectic bout of on-exchange trades: 12 month highs for VNM and FPT in November together with MWG recovering back to the VND80k level prompted foreign funds to take profit. Activity was especially intense at VNM where total monthly put-through transaction reached nearly 17m shares, circa 6x 10M15 monthly average. The price appreciation of VNM brought foreign trading back on the exchange and suggest around 20x forward PE as the current psychological ceiling for this market champion. Activity was also intense at MWG with about 4.6m shares via put-through, 6.4x 10M15 monthly average, and to a lesser extent at FPT with 4.3m shares via put-through, 1.4x 10M15 monthly average.

BID, CTG, EIB, ACB & STB traverse slippery slope downwards: VCB avoids this classification only by briefly spiking on 9th Nov but otherwise it was a miserable month for banks. STB and BID were the 3rd and 6th worst performing stocks on the HOSE for the month as stern enforcement of individual ownership cap took its toll on the former while the latter gives up all September related “premature” excitement on ETF inclusion. Listing of an additional 607m BID shares on the 26th November simply reminded investors of the supply of banking stocks coming onto the market and accelerated the slide across the sector. 3Q15 earnings were a mixed bag with the common theme of robust credit growth diluted by NIMs compression at STB, BID, CTG and MBB.

Non-steel construction materials and building contractors did better than most: 3Q15 top line across the construction materials sector was robust and points to healthy construction activity across the nation although names like HPG had their limelight stolen by concerns over import competition. Star of the month was CTD, up 18% for the month and ranking as a top 5 HOSE performer. News from VIC that of the 8,325 Central Park (HCM City) apartments launched calculated to the end of the 3Q15, that 79% have been sold only adds to bullish tone (this number probably includes wholesale transactions as well). Of the same project, VIC cites that 50 to 60% are financed by mortgages and alleviates to some extent settlement risk.

Power generation looks like the next best sure thing after building materials: the dual positives of El Nino and vibrant economic activity are creating ideal conditions for non-hydro listed power generation companies. Unhedged debt at most power generation companies provides the periodic reality check to investors but successive utilisation outperformances has driven up NT2 for much of the year and now we believe will flow to more staid names like PPC.

Market Watch: Vietnam’s November underperformance relative to the region probably boils down to a lack of stellar 3Q15 follow-on performances following start of month starring role of VNM. The Ministry of Planning & Investment for as many times continues to dangle the foreign ownership carrot with refreshed 1st December guidance of end of month release of “a list of businesses and conditions for foreign investors”. We’re crossing our fingers as well.

Market Activity

ASEAN 5 Major Indices PER, 12mo trailing

Source: Bloomberg

 

ASEAN 5 Major Indices YTD Performance

Source: Bloomberg

 

Performance by Sector

Ho Chi Minh City Stock Exchange Hanoi Stock Exchange

Source: Ho Chi Minh City Stock Exchange, Hanoi Stock Exchange

 

 

 

Top Gainers in Month

Sector Mkt Cap USD m Index Weight Current Price 1-Month % ∆
HOSE
OGC Financials 53 0.10 4000 38%
PNJ Cons. Services 169 0.34 38900 22%
BHS Cons. Goods 57 0.11 20300 19%
TTF Cons. Goods 154 0.31 24600 19%
CTD Industrials 284 0.57 148000 18%
HANOI
OCH Financials 144 2.23 16,800 83%
SEB Financials 44 0.69 49,500 34%
VCS Industrials 134 2.61 71,100 15%
SHS Financials 34 0.54 7,700 8%
SCR Financials 82 1.10 8,500 6%

 

Top Laggards in Month

Sector Mkt Cap USD m Index Weight Current Price 1-Month % ∆
HOSE
BIC Financials 64 0.13 18,400 -21%
TMT Industrials 66 0.13 49,500 -20%
STB Financials 913 1.44 11,000 -19%
HVG Cons. Goods 112 0.22 13,200 -16%
DQC Cons. Goods 72 0.15 55,000 -15%
HANOI
PTI Financials 85 1.33 23,700 -14%
PVB Basic Materials 32 0.50 33,000 -12%
PVC Oil & Gas 39 0.61 17,500 -11%
PGS Oil & Gas 40 0.63 18,100 -10%
NTP Industrials 162 2.53 58,500 -9%

Source: Ho Chi Minh City Stock Exchange, Hanoi Stock Exchange

 

FOREIGN ACTIVITY


Foreign Net Inflows by Month, USD million

Source: Ho Chi Minh City Stock Exchange, Hanoi Stock Exchange

Top Stocks Net Bought and Net Sold by Foreigners

Foreign Net Sold
Foreign Net Buy

Source: Ho Chi Minh City Stock Exchange, Hanoi Stock Exchange

VCSC COVERAGE UNIVERSE

Source: VCSC forecasts, Bloomberg data retrieved on 30 November 2015

Corporate Updates


ACB: Asia Commercial Joint Stock Bank 

Analyst, Yen Nguyen, yen.nguyen@vcsc.com.vn

Stock Performance MTD -6.7% / YTD +26.0%

ACB sails through 3Q15 with a reassuring set of results 

3Q15 witnessed near across the board improvement in asset quality. The big outstanding issue of course is the promised 4Q15 resolution of problem assets related to the six companies associated with the former insider. Also while credit growth was strong at 12.6% for 9M15 we see an industry wide issue evident in the problem of mobilizing deposits with 9M15 figure of 9.5% growth.

ACB reported 9M15 pre-provision profits of VND1,910b, composing 75% of our FY15F and up 10% vs same time last year. 9M15 provision expense of VND819b is running ahead of our FY15F of VND968b, which we look on benignly because ACB is not ignoring the task writing off needed problem assets sitting on balance sheet in addition to obligations emanating from its VAMC balance. 3Q15 saw a near pause in the sale of new bad debts to the VAMC which can only be viewed in a positive light.

Bad loan classification is following ACB’s traditional conservatism but still all metrics are moving in the right direction from official NPL number dropping from 1.7% to 1.5%, past due moving down relative to loans, and on the less conventional metric of loan maturity profile this is dropping slightly after a small jump in 2Q15.

NIMs are tracking well for 9M15 and almost certainly on track to improve on the relatively depressed FY14 number of 2.8% (noting that SME banks should be operating on higher NIMs than SOE banks). Annualising the sum of 3 quarters results in a NIM of 3.08% and annualising single quarters gets NIMs of 3.10%, 2.93% and 3.14% for the first three quarters in chronological order.
BID: Joint Stock Commercial Bank for Investment and Development of Vietnam

Analyst, Thuy Le, thuy.le@vcsc.com.vn

Stock Performance MTD -15.4% / YTD +60.6%

BID – consolidation of MHB depresses NIMs 

BIDV’s 3Q15 results perpetuates the view that its accounting is erratic, especially its provisioning expense from one quarter to another, and other unusual anomalies that are not present in the accounts of VCB and CTG. Also in our opinion evidence of heightened activity with VAMC sales (we do not have a clear breakout in 3Q15) comes at the cost to on balance sheet provisioning.

Proceeds of its rights issue has allowed BID to extend lending and it tops the class in terms of growth in customer loan book at 15.7% for 9M15. Another remarkable feat is that customer deposits has kept up at 15.6%.

Bad debt classification in 3Q15 is an unusual animal. On the plus side we see a continuation of BID’s traditional conservatism using qualitative treatment to loans. The curious element is that on a quantitative assessment past due more than three months is declining yet past due less than three months is increasingly very slightly and unique to BIDV is that it’s a multiple of the former, in this case 2.6x.

The same bogey afflicting CTG in terms of NIMs slippage is present with BID though on a more pronounced level as a result of consolidation of MHB. Annualised 9M15 NIMs is at 2.41% vs FY14 number of 2.76% for pre-merged BIDV.

BID reported 9M15 pre-provision profits of VND9,495b, composing only 62% of our FY15F for the post consolidated entity. 9M15 provision expense of VND3,960b is trailing our FY15F of VND7,968b for the post-M&A entity and this is a significant gap that highlights both the different philosophy to provisioning of banks like VCB and BIDV. This forecast will be revised in the up and coming sector report.


CTG: Vietnam Joint Stock Commercial Bank for Industry and Trade

Analyst, Thuy Le, thuy.le@vcsc.com.vn

Stock Performance MTD -11.5% / YTD +33.3%

CTG exhibits financial strength but NIMs slipping 

All three listed SOE banks exhibit the ease that comes with a fairly strong financial position but whereas VCB is enjoying rising NIMs we see CTG edging ahead of BID in the ease of which its numbers come together, though the latter two are penalised for seeing their NIMs fall.

Growth in customer loan book is showing rude health to track at 13.6% for 9M15 whereas growth in customer deposits is trailing at 10.5% for the same period. This fits with industry trends.

There is no breakout for the face value of VAMC bonds for 3Q15 however we’re seeing both healthy VAMC provisioning for the quarter plus specific provision account being topped up on par with 9M14 with a number of VND2,394b vs VND2,626b. In addition, the company took an axe to on balance sheet problem loans, writing off VND2,628b for 9M15 (equivalent to 0.5% of gross customer loan book) vs VND887b for same period last year. Asset quality metrics are improving with three months past due falling from 1.5% of customer loan book in 2Q15 to 1.0% in 3Q15.

The main culprit for causing CTG to track under our forecast is that NIMs are coming off relative to FY14 and annualising 9M15 gets us 2.90% vs 3.00% for FY14.The consolidation of PG Bank in 4Q15 will most likely further drag down FY15 NIMs.

CTG reported 9M15 pre-provision profits of VND9,546b, composing only 67% of our FY15F for pre-consolidated CTG entity and up 20% vs same time last year. 9M15 provision expense of VND3,820b is with the same magnitude tracking behind our FY15F of VND5,753b for the pre-consolidated CTG entity.

CTG remains our second pick in the listed SOE bank space for active balance sheet management but improving asset quality metrics.

 

DHG: Hau Giang Pharmaceutical JS

Analyst, Chung Nguyen, chung.nguyen@vcsc.com.vn

Stock Performance MTD -7.1% / YTD -28.6%

DHG – Working through inventory 

Disappointing 9M15 results as pressure to achieve challenging FY14 target hurt FY15 performance. Revenue declined 5.5% vs. TSPLY attributed to weak sales from DHG’s large customers who have been working off unsold inventory accumulated in 4Q14 to achieve challenging FY14 targets (At YTD 9M14 sales were 66% of FY14 target). NPAT-MI grew modestly 2.5% vs. 9M14 thanks to tax subsidy for products from the new non-Betalactam factory.

Sales force restructuring coupled with shortening the gap in promotion and discount policy have started to bear some fruits i.e., (1) enhance efficiency of DHG’s sale force thanks to deeper training and tighter supervision on sales representatives, and (2) better relationship with small clients, which encourages more trading from small clients while its large distributors continue to work off inventories, leading to better control of retail prices. We have observed more stable growth quarter-on-quarter in FY15 vs. revenue hike at the quarter and year end of previous year. We expect it will take 1-2 years for DHG to successfully restructure their sales force and carry a stable growth momentum in the coming years.

For FY15, we are confident to keep our forecast in top line and bottom line unchanged at VND 3,622b and VND 554b respectively.  A reboot of the sales program, focusing on smaller clients is beginning to yield results but a return to double digit earnings growth is a couple years out.

Lowe Target price from VND 82,000 to VND 68,900. DHG is trading at FY15 PER of 12.3x and FY16 PER of 11.9x. TSR stands at 4.2% warranting a Market-Perform rating.

Please see more details in our DHG’s 9M15 report

 

DPM: PetroVietnam Fertilizer and Chemicals Corporation

Analyst, Tram Ngo, tram.ngo@vcsc.com.vn

Stock Performance MTD -4.5% / YTD +7.9%

Input gas cost keeps heading lower

We issued an update on DPM, in which we revised up our target price by 7% to VND 40,000.

FY15 forecast is revised up by 8.6% mainly on the prospect of input gas remaining lower than our original forecast. The winter-spring crop is expected to boost sales volume in 4Q (to 211 tons, 19% higher than 3Q volume). Nonetheless, we believe upside is limited for selling price as other local urea producers have resumed production following maintenance/repair periods last quarter.

For FY16 outlook, we expect DPM to achieve a NPAT growth of 10.5% based on (1) DPM’s plants operate at max capacity thus deliver selling volume of 850k tons (+2.7% vs. FY15) (2) urea selling price stay flat at FY15 level and (3) input gas cost stands at 4.2 USD/MMBTU (-3.2% vs. FY15), equivalent to our assumption that Brent oil will stay flat in the next two years at USD 50/bbl due to supply glut.

Notably, DPM booked a final loss amounted VND 31b from its associate PVTex. DPM’s P&L will no longer be affected by losses at PVTex going forward under the equity accounting method. However, PVTex’s debt is guaranteed by DPM and it is likely DPM will be forced to make good on this commitment.

Please see more details in our DPM’s 9M15 update report

 

DRC: Da Nang rubber company

Analyst, Nga Nguyen, nga.nguyenthanh@vcsc.com.vn

Stock performance -2.0% / YTD -19.8%

DRC’s 9M15: GPM expansion masked slow progress of radial factory

Top line improved by 5% vs. 9M14, which was mostly supported by radial tires sales (+56%) in its ramp-up phase. Radial sales volume, however, did not come up to our expectations due to intense competition from imported Chinese tires, reaching 125,102 units and translated only 56% of total capacity. Bias automotive tires remained the major driver to boost the bottom line growth (+15.6% vs. 9M14), with its GPM enhanced by 300bps vs. 9M14.

We raised TP up by +5.8% and call BUY for the stock as we expect a revenue growth of 7.7% and NPAT growth of 17.4% in FY16Fvs. FY15F. DRC is likely to perform well next year when it will continue to benefit from escalating auto sales and recent supportive announcement of the government in accordance with Circular 163 on import tax to encourage domestic auto and auto supporting industries.

Please see more details in our DRC’s 9M15 update report

 

EIB: Vietnam Export Import Commercial Joint Stock Bank

Analyst, Yen Nguyen, yen.nguyen@vcsc.com.vn

Stock Performance MTD -11.0% / YTD -18.0%

EIB takes a preferable way of getting its house in order 

In an industry that counts discipline as a core competency, we like the direction of 3Q15 results to come out of EIB. The mindset is still of deleveraging, tackling on balance sheet issues and EIB has succeeding in arresting disturbingly low NIMs of 2014. Of course legacy issues remain in the form of its customer loan maturity profile (at 59% for medium and long -term loans) but there are now shoots of optimism.

EIB reported 9M15 pre-provision profits of VND1,176b, composing 73% of our FY15F and down 4% vs same time last year. 9M15 provision expense of VND498b is also inline with our FY15F of VND665b. The 3Q15 was the proverbial lighting rod to fairly lackluster NIMs YTD and as the result annualising 9M15 NIMs results in a NIMs of 2.43%, running ahead of our FY15F of 2.22%. In our opinion NIMs at these levels implies that write-backs of interest income is still a continuing drag on EIB but compared with FY14 NIMs of 1.6% we believe the drag is dropping off.

Another area where EIB gets bonus points is that it is engaging in elevated write-offs to its specific provision account with 9M15 write-offs of VND518b vs VND141b for same time last year. In addition, we see the face value of VAMC bonds increase by VND769b in 3Q15 (equivalent to 0.9% of gross customer loan balance) and one must acknowledge EIB is a bank still focused on cleaning up shop.

Official NPL numbers attracts the same caveat attached with the STB numbers (ie discounting them for the disturbingly high customer loan maturity prof ile) but overall the trend is moving in the right direction. Group 2 loans are tracking at 0.9%, 0.6% and 0.8% while Group 3 -5 is tracking at 2.5%, 2.1% and 1.6%, all for the three successive quarters this year.

 

FPT: FPT Corporation

Senior Analyst, Phap Dang, phap.dang@vcsc.com.vn

Stock Performance MTD -2.2% / YTD +20.2%

FPT – Software/Telecom dynamic duo to accelerate EPS growth

We updated on FPT on 23 Nov 2015 with TP raised by 17% to VND 64,000 (+37% total stock return) as we look for an acceleration in FPT’s EPS growth to 20% in FY16 (vs 8% in FY15E). We believe FPT’s cost competitiveness and aggressive staff recruitments will help Software Outsourcing maintain a high growth of 35-40% across overseas markets. On the other hand, a tailing off of FY15’s fiber optics investment means revenue growth will be fully translated into profit growth in FY16. Meanwhile, we foresee a mixed FY16 for ICT Trading and Retail, as we anticipate another robust year for Retail on the back of industry’s organic growth and store expansion, while we forecast Trading to stagnate due to lost sales to MWG now that MWG can purchase directly from Apple.

 

HDG: Ha Do Group

Analyst, Tho Hoang, tho.hoang@vcsc.com.vn

Stock Performance MTD -1.6% / YTD -25%

HDG’s 9M15 – Positive financial performance in 9M 2015 but gloomy outlook caused by slow progress in Z756 project

HDG reported 9-month revenue of VND996bn (+16% y-o-y) and NPATMI of VND95bn (+57% y-o-y), fulfilling 83% and 93% of our full-year forecasts, respectively.

The robust revenue growth was driven by continued delivery of Ha Do Park View project (~VND400bn). The remaining amount was contributed by construction business. Gross margin in 9M 2015 increased significantly to 17.3% from 12.4% in the same period last year due to the contribution of high-margin revenue from Ha Do Park View project.

In Q3, the Company has not sold any new units from Ha Do Villa project and it is likely that this situation will continue to remain in Q4 2015.

While there does not appear to be any concrete progress on finalizing the LUR fee for the Z756 project, management  claims  that  the  company  has  already started making  initial  payments towards this fee. The progress on this project has been consistently slow and may adversely affect the 3-year prospect.

 

HT1: Ha Tien 1 Cement

Analyst, Thanh Duong, thanh.duong@vcsc.com.vn

Stock Performance MTD -0.4% / YTD +48.9%

HT1’s 3Q15 – Stellar 3Q buoys expectation

On November 9th, we issued 3Q15 update on HT1, in which we raised our target price by 22% to VND31,700. We were prompted to come up with more upbeat expectation on HT1 as the company posted far stronger-than-projected 3Q earnings in term of both cement sales volume and EBITDA margin expansion. (Please read our HT1’s 3Q15 update report for more details)

HT1 delivered quite a volatile price performance in November. Following the October rally on stellar 3Q result announcement, HT1’s stock price has appreciated 17% to touch its new 52-week high of VND 30,300 on Nov 19th. However, profit-taking pressure has dampened the stock since then, and HT1 ended the month down slightly 0.4%.

At the closing price of VND 25,900, HT1 is trading at FY15 PER (adjusted for allocation to bonus and welfare fund per Circular 200) and EV/EBITDA of 12.6 and 7.0 respectively (regional peers’ 22.4 and 12.6). However, FY16 PER and EV/EBITDA will fall to 10.1 and 5.7 based on EPS growth projection of 26% for FY16.  Our 2015-18 EPS CAGR comes in at 21%. We also note that upside to our forecast is feasible as the recent conclusion of Vietnam-EU FTA and the TPP draft should incentivize more FDI into Vietnam’s manufacturing, boosting up industrial construction activities and resulting in higher cement demand than our current expectation in the coming years.

 

KDH: Khang Dien House

Analyst, Tho Hoang, tho.hoang@vcsc.com.vn

Stock Performance MTD +3.5% / YTD +4.5%

KDH’s 9M15 – Impressive financial performance driven by Mega series

KDH reported 9-month revenue of VND735bn (+278% y-o-y) and NPATMI of VND172bn (+142% y-o-y). YTD revenue and NPAT have fulfilled 60% and 80% of our full-year forecasts, respectively. The continued strong performance into the third quarter was driven by the continued delivery of Mega series townhouses.

In November, KDH also signed the strategic agreement with Vietinbank, which, we believe, is an essential move to secure a strong financing source for the Company and provide KDH’s customers with flexible payment package for their purchases.

The Company also submitted its proposal to increase ownership in BCI to 25%, following the share issuance plan of BCI at the end of 2015. This is a predictable move of KDH to indirectly increase its land bank because BCI currently owns a large land area in Ho Chi Minh City but lacks execution capabilities to effectively monetize these assets while KDH has already established its brand name in the market. We believe that KDH will continue to increase its ownership in BCI to better realize the synergy between two companies.


MBB: Military Commercial Joint Stock Bank 

Analyst, Thuy Le, thuy.le@vcsc.com.vn

Stock Performance MTD -2.1% / YTD +7.6%

MBB 3Q15 numbers bode ill for ability to deploy new cash 

In our opinion 3Q15 takes the gloss of MBB’s well regard reputation of running a tight shop. Most asset quality metrics are deteriorating and in addition MBB is also seeing declining NIMs. We’ve maintained the view that MBB should be modelled on the assumption of higher than average credit cost and 3Q15 results simply reinforces this view.

Growth in customer loan book came in at 13.1% for 9M15, in line with its peers while customer deposit growth trailed its peers at 4.1%.

On our calculations holdings of government debt slipped circa 19% in 3Q15 vs 2Q15 in absolute terms. This may partly help to explain the slippage in NIMs with 9M15 annualised NIMs coming in at 3.5% vs FY14 number of 3.7%.

On the issue of deteriorating asset quality metrics: While we like active balance sheet management of bad debts it’s also fair to say that write-offs significantly ahead of its peers is a negative and for the 9M15 MBB wrote off VND2,173b (representing 1.9% of gross customer loans) vs VND1,171b for the same period last year. This from a bank that has a steady history of write-offs as opposed to the new willingness of other SME focused banks. This raises the thorny question of whether MBB can improve upon its historical ability to originate new customer loans after having the infusion of new cash from the Oct 2015 equity issuance.

MBB reported 9M15 pre-provision profits of VND4,253b, composing 77% of our FY15F and up 9% for same period last year. 9M15 provision expense of VND1,700b is trailing slightly our FY15F of VND2,368b.

 

NT2: PetroVietnam Power Nhon Trach 2

Senior Analyst, Duong Dinh, duong.dinh@vcsc.com.vn

Stock Performance MTD +2% / YTD +38%

2016 is shaping for another fruitful year 

We re-iterate BUY rating for NT2 after raising target price by 4% on expected record sales volume for 2015 and 2016 due to drought and higher economic growth. We also see that weak oil price (USD50/bbl) will help NT2’s input gas price declining another 20% in 2016 and stay at the same level as gas price that Phu My’s under take or pay secured 10 years ago. This further ensures NT2’s record utilization rate of 85%. Of note, 90% is the maximum level of utilization rate, as such, NT2 has potential ~5% upside to our forecasts.

Share price has not moved significantly these days despite 3Q robust earnings growth and the fact that DB FTSE is predicted to buy in 4.7m shares in its next review. Investors seem to be afraid of further fluctuation of EUR and USD, as well as concern on 38% increase in share price YTD.

However, we expect NT2’s 4Q strong earnings will make investor re-considerate NT2’s cheapness of 50% compared to its peers, especially when NT2 is predicted to declare dividend rise in its AGM early next year.

 

PNJ: Phu Nhuan Jewellery

Analyst, Vy Nguyen, vy.nguyen@vcsc.com.vn

Stock Performance MTD +21.6% / YTD +27.5%

PNJ’s 9M15 – It’s time to cast the DongA Bank issue and re-focus on the company’s growing core

We re-rate PNJ with a BUY rating and target price of VND 48,500 based on strong growth of the core jewellery retailing business and the DongA Bank debacle appearing not to threaten PNJ’s medium-to-long term prospects.

Jewellery business led top-line with impressive growth rate of 48% in 9M15 underpinned by 29% same-store-sales growth (vs. 27% in 1H15) and 35 new stores openings year-to-date. Revenue was also supported by domestic rising demand for jewellery and a whole new marketing campaign for the PNJ Silver brand. Silver jewellery could become a new growth engine in the future. PNJ is aggressively pushing its silver jewellery line to tap into a new and high-potential customer demographic. By learning from smaller rivals that have been successful in this segment, PNJ has displayed its commitment to quickly adapt to market trends.

PNJ is in need of cash to prepare for the peak season and, to meet this, the company has completed raising VND 300b out of a total amount planned VND 500b. This eases the pressure created when banks stopped lending to PNJ in the wake of the DongA Bank crisis.

Please see more details in our PNJ’s 9M15 update report.

 

PPC: Pha Lai Thermal Power 

Senior Analyst, Duong Dinh, duong.dinh@vcsc.com.vn

Stock Performance MTD -2% / YTD -31%

Another beneficiary of drought 

We raise up TP for PPC by 4% and upgrade PPC to BUY on surprising output jump due to drought despite temporarily-oversupplied situation in the North. 3Q15A output soared by 28% and pushed 9M15A output growing 4% despite 1H15A’s decline of 4%.

We revise up utilization rate assumptions for PPC and HPPP from 62%-65% to 70%-73% for both years (2015 & 2016). As such, PPC’s core NPAT was revised up by 42%. Fully-depreciated asset will lift EPS by 40.3% in 2016.

PPC’s liquidity has weakened significantly over the last four months due to concerns on FX loss as well as weak output during 1H. This also dampened share price.

We expect that PPC will be able to pay VND2,000 cash dividend per share for 2016 (11% yield) if JPY/VND does not appreciate more than 5% and USD/VND does not appreciate more than 5%. PPC is trading at PER of 5.0x on 2016’s forecasted EPS, 50% discount compared to its peers.


PLC: Petrolimex Petrochemical Corporation

Analyst, Tram Ngo, tram.ngo@vcsc.com.vn

Stock Performance MTD -1.8% / YTD +49.2%

Cheap oil price propels earnings growth

We issued an update on PLC, in which we revised up our target price by 8% to VND 42,000.

3Q15 lubricant revenue slow down due to heightened competition while asphalt was flat. The results show slightly better-than-expected gross profit margin thanks to low input cost of base oil. Also, PLC realized a forex loss of VND 39b (~34% of 3Q15 PBT) in 3Q15. If we exclude this FX loss, NPAT would have increased by 38% in 3Q15 vs. 3Q14. Actual NPAT growth in the 3Q was only 3% vs. 3Q14.

YTD 9M15 revenue rose by 5% but NPAT surged 44% thanks to GPM expansion. Therefore, 9M15 NPAT has achieved 80% of our forecast but already has surpassed management’s full year 2015 guidance.

We raise our FY15 & FY16 NPAT forecast by 5% and 11% respectively, mainly based on higher gross profit margin assumptions for both lubricant and asphalt.

PLC has just announced to advance cash dividend at VND3,000/share, or yield at 7.8%. The ex-right date for FY15 interim cash dividend is on 15th Dec while the payment date is set at 31st Dec. The announcement confirms our view that PLC will at least maintain cash dividend same as last year’s level of VND3,000/share.

Please see more details in our PLC’s 9M15 update report


PVD: PetroVietnam Drilling and Well Services

Analyst, Tram Ngo, tram.ngo@vcsc.com.vn

Stock Performance MTD -15.0% / YTD -42.6%

Lower day rate & fewer order prospects

We issued an update on PVD, in which we cut our target price by 32% to VND 30,300.

PVD’s 9M15 results came as no surprise given the weak oil environment. NPAT fell 20% to USD 74m, accomplishing 84% of our FY15 projection. In 3Q15, PVD booked USD 8.9m in shared profit from its JV with Baker Hughes. There will be no such profit in the last quarter. Day rate for 4 owned JU rigs have been cut to USD 120k/day since 3Q15 and there are no hired rig operating in Viet Nam currently. Our FY15 NPAT forecast is unchanged.

Our view is that oil will average USD 50/bbl over the next 2 years, capping any potential for upside. FY16 outlook is also pessimistic with NPAT-MI to sink 31% to USD 60m based on assumptions that (1) JU and TAD day rate are at minimum level of USD 120k/day and USD 190k/day respectively (2) Average numbers of leased rigs cut from 3.5 to 2 and (3) Well-related service to decrease 35%.

Please see more details in our PVD’s 9M15 update report


STB: Saigon Thuong Tin Commercial Joint Stock Bank

Analyst, Yen Nguyen, yen.nguyen@vcsc.com.vn

Stock Performance MTD -19.1% / YTD -38.9%

STB delivers poor quarter despite help from favourable economic tailwinds 

Despite being a quarter before the consolidation of Phuong Nam Bank we still see concerning deterioration in almost all asset quality metrics, despite the favourable economic backdrop. The most pressing problems is that STB’s former claim to fame being above average industry NIMs has been deflating  over  the  three  successive  quarters  YTD  and  VAMC  provisioning  is  so burdensome that there is little left over to top up its specific provision balance.

STB reported 9M15 pre-provision profits of VND3,205b, already exceeding our FY15F by 10% as we assumed fairly flat credit growth from STB during FY15 and a drag from Phuong Nam Bank upon consolidation. Therefore a related metric is customer loan growth for 9M15 and this is running at 13.9% and therefore at the top of its peer group. STB has clearly not followed the template of ACB and EIB when they encountered financial difficulties to reign in credit growth while they got their house in order. Our FY15F will be updated in the coming banking sector report. 9M15 provision expense of VND1,004b is tracking satisfactorily set against a FY15F of VND1,864b given we are still dealing with pre-consolidation of Phuong Nam accounts.

A discussion on bad debt trends is a somber affair. In our opinion official NPL stats should be contrasted against a discussion on the maturity profile of its customer loans which is running at 59% for medium and long-term loans (equaling the next highest being EIB) while ACB stands at close to 50%. Official NPL numbers sees Group 2 running at 0.8% for 3Q15 and it has not been this high since 2Q13. Group 3 to 5 has been tracking at 1.5%, 1.2% and 1.6% for the successive three quarters this year. Although official VAMC balance has not been released for 3Q15 there is evidence from the specific provision balance that there were VAMC sales though at much more muted levels than 2014. Meanwhile the specific provision account has only been topped up by VND194b for 9M15 vs VND399b for same time last year and in our judgement is being ignored at the expense of VAMC provisioning.

NIMs are not faring much better with single quarterly annualised NIMs tracking at 4.4%, 4.0% and 3.9% for three successive quarters this year. STB’s numbers lends weight to the view that previously divergent NIMs across the sector may beginning to show signs of convergence.

 

TLG: Thien Long Group

Analyst, Vy Nguyen, vy.nguyen@vcsc.com.vn

Stock Performance MTD +7.5% / YTD +84.4%

TLG’s 9M15 – No longer a minnow: past $100m in market

3Q revenue and NPAT grew 16% and 35% respectively to reach VND 573b and VND 78b as TLG had a successful “back-to-school” season. While we do not have exact figures, management claims that export contribution to revenues did not change much; since export growth in recent years has way outpaced domestic sales growth we hypothesize that export revenue contribution held constant due to the twin impact of slower export revenue growth in the face of global macro headwinds as well the seasonal high in domestic demand.

The strong growth in bottom-line was largely spurred by a dramatic expansion in GPM which touched 40.4% vs. 37.1% in 3Q14. This is a four-year high and is mostly attributed to low plastic prices, which have tracked falling oil prices this year. It is worth noting that the previous high in GPM in 2011 was also mainly caused by falling plastics prices. We had anticipated a significant GPM expansion in our initiation report but this took a little longer to kick-in owing to TLG’s raw material inventory holding policy.

Please see more details in our TLG’s 9M15 update report.
VSH: Vinh Son Song Hinh Hydropower

Senior Analyst, Duong Dinh, duong.dinh@vcsc.com.vn

Stock Performance MTD +0.0% / YTD +24%

Ongoing drought expected for 2016 

We reduce TP for VSH by 4% and downgrade VSH to U-PF as severe drought is expected to result in ~12% lower output for VSH in 2016 vs. 2015. Consequently, EPS is estimated to decrease by 8% to VND1,307 in 2016. VSH is trading at PER of 13.1x on FY16’s projected EPS, 9% premium compared to its peers.

VSH’s share price jump of 18% in October is purely retail investors’ speculation of VSH’s 3Q15A earnings which was up 223% vs. 3Q14A thanks to 43% surge in output as well as new PPA (the latter is nothing new for the market). However, as 3Q is lowest season for VSH, despite significant growth, in absolute terms, it contributed only 15% in full year’s earnings.

VSH’s outlook for 4Q as well as 2016 are uninspiring as their two reservoirs have just stored enough water from 20-40% of their design capacity.
VCB: Joint Stock Commercial Bank for Foreign Trade of Vietnam

Analyst, Thuy Le, thuy.le@vcsc.com.vn

Stock Performance MTD -10.1% / YTD +34.5%

VCB delivers the good and bad in its 3Q15 numbers

VCB reported 9M15 pre-provision profits of VND9,365b, composing 74% of our FY15F and up 22% vs same time last year. 9M15 provision expense of VND4,717b is also inline with our FY15F of VND5,459b. 3Q15 results contains two major themes 1) all important metric of Net Interest Margins (NIMs) continues to track upwards each quarter year-to-date with 3Q15 coming in at 2.66% vs 2.43% and 2.62% for 1Q15 and 2Q15 (all numbers annualised from single quarter), respectively 2) 3Q15 asset quality displays an uncharacteristic step backwards

Credit growth of 9M15 reaches 10.2% while deposit shows an encouraging growth of 15.5%.

On the issue of asset quality:

1) Asset quality trends are not across the board bad. The more sensitive Group 2 and past due less than 3 months is showing the best health since our data tracking began in 1Q12 at only 2.7% of loans. However, VCB is showing unusual aggressive in its qualitative approach to Group 3 to 5 with official NPL number coming in at only 2.0% (versus 2.5% for 2Q15), a number that would be higher if VCB applied its conservatism of previous quarters.

2) Relatively big write-off of VND1.5tn to its specific provision account coupled with a relative big sale of VND1.4tn to the VAMC in the 3Q15 are other negative aspects that may be either an indicator of taking a kitchen sink approach to pave the way for a cleaner 4Q15 or VCB being stung by credit issues of a big account.
VIC: Vingroup

Senior Analyst, Phap Dang, phap.dang@vcsc.com.vn

Stock Performance MTD -6.4% / YTD +12.4%

VIC’s 9M15 – P&L does not reflect true performance due to volatility of booking residential sales

The accounting practice of recognizing residential sales at time of handover results in a divergence between the sales progress and what is reflected in the P&L. In 9M15, in addition to loss from the consumer retail segment, lower recognition of residential sales caused earnings to fall deeply vs 9M14 and have achieved only 42% of our full-year forecast. In a recent meeting with VIC, the management stated that some recognition of villa sales will be moved to 2016 as the acquisition of land use certificates for these villas (required for handover) has taken longer than originally expected. Given this, we are likely to revise down our profit forecast for FY15.

Progress of residential sales and associated cash collection are better underlying indicators of VIC’s performance and by looking at these we maintain our optimism towards VIC. Total balance of customer prepayments and customer deposits increased remarkably by VND 27t YTD to VND 38t as at end of Sep 2015, contributing to an operating cash flows of VND 19t in 9M15 vs VND 3t in 9M14. This is in sync with VIC’s residential sales progress in which we estimate new contract value in 9M15 to more than triple what was achieved throughout 2014. This implies significant growth for VIC going forward triggered by a new cycle of booking residential sales, which we expect to begin in 2H16. Recurring income tracks well with our expectation as we see healthy growths in retail space leasing and hospitality segments as VIC brought new projects into operation. Consumer retail already occupied 13% of total revenue in 9M15, as VIC continued to roll out its expansion across retail platforms. However, consumer retail remained a drag on earnings with an operating loss of VND 1t in 9M15.

Research Reports Issued this Month

Date Report Name
3-Nov-15 STK [M-PF +1.2%] – Short-term turbulence hits results – Update
4-Nov-15 VNM [BUY +22%] – Hoisting Vietnam’s champion for a re-rating – Update
4-Nov-15 Monthly Recap October 2015 – TPP gives market a confidence boost
9-Nov-15 Macro Update – TPP raises long-run expectations
9-Nov-15 HPG [O-PF +14.8%] – Fear on Chinese steel overshadow HPG’s results – Update
9-Nov-15 HT1 [O-PF 18%] – Stellar 3Q buoys expectation – Update
10-Nov-15 DRC [BUY +26.2%] – GPM expansion masked slow progress in radial factory
13-Nov-15 TLG [M-PF +6.0%] – No longer a minnow: past $100m in market cap – Update
16-Nov-15 DPM [BUY +30%] – Input gas cost keeps heading lower – Update
17-Nov-15 Fixed Income November 2015 – Fruitful month for bond issuers
17-Nov-15 PLC [BUY +20%] – Cheap oil price propels earnings growth – Update
20-Nov-15 ACV Pre-Roadshow Report
23-Nov-15 DHG [M-PF +4.2%] – Working through inventory – Update
23-Nov-15 FPT [BUY +33%] – Software/Telecom dynamic duo to accelerate EPS growth
24-Nov-15 NT2 [BUY +35%] – 2016 is shaping up for another fruitful year – Update
26-Nov-15 PVD [M-PF -3.3%] – Lower day rate & fewer order prospects – Update
26-Nov-15 PNJ [BUY +24.4%] – It’s time to cast the DongA Bank issue aside – Update
30-Nov-15 VSH [U-PF -17.5%] – Ongoing drought expected for 2016 – Update

 

Should you request a copy or should you have questions regarding these reports please contact our Head of Research, Tu Vu at tu.vu@vcsc.com.vn or + (84 8) 3914 3588 ext: 105.


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.

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I, Long Ngo, 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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