Market Recap – PM Signs Decree to Broaden Foreign Ownership

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Market Recap - Vietnam outperforms amid regional slump

June 2015

PM Signs Decree to Broaden Foreign Ownership


  • The VNI had one of its best performing months, rising 4.1% to close within striking distance of 600 points. Investors were energized by the signing of a new decree to allow for broader FOL. The VNI’s 8.9% gain YTD puts it on top of other ASEAN markets with the Philippines’ PSE at 2.8% the next best performer. The VNI is trading at trailing PE of 12.7x vs. PSE at 22.7x.
  • Selective groups of stocks outperformed, namely those in the VN30 and HN30, and brokers while some stocks at full FOL saw increased volume.
  • New Law of Investment (to simplify business regulations) and Law of Housing (to allow broader foreign ownership in property) go into effect July 1st. We explore the positive impact of the latter in a recent real estate update “The Stars Have Finally Aligned, 30 June 2015” . It’s a must read.

Great month on anticipation of increased turnover and liquidity. The VNI rose 4.1% to 593.1 and the HNI rose 1.7% to 84.9. The SSC circulated draft proposals to shorten settlement from T+3 to T+2 and introduce intraday trading, albeit in limited form. The VN30 and HN30 sub-indices outperformed, rising 5.2% and 2.9% respectively as intraday trading would initially be limited to stocks in these basket (list of these stocks on page 7). There was also some front running on FOL stocks following the raising of foreign ownership limits. Stocks at full foreign room such as VNM (+8.6% MTD) and FPT (+4.7%) saw increased volume of 167% and 15% vs. May, respectively while brokers like HCM (+17.1%) and SSI (+12.5%) were among the best performers this month. Foreigners net bought USD 71m in June vs USD 63m in May. YTD through June, foreign net inflow is USD 219m, down 33% yoy.

Higher FOL is finally here but with caveats. On June 26, the Prime Minister signed a new law, Decree 60, to repeal Decision 55, the law that explicitly caps foreign ownership at 49% for securities traded on the stock market. Decree 60 states that the FOL will be based the level of foreign participation permissible for the business lines in which the company operates as outlined in international treaties (of which Vietnam is a part i.e. WTO) and existing Vietnamese laws. Also companies operating in businesses where there are no restrictions to foreign participation in any form, are free to set FOL within its business charter. By interpretation of these provisions, there will be cases where FOL could theoretically go up to 100%.

On a preliminary review, we find that there are still technicalities that appear to be causing confusion on this issue. For example, WTO allows for FOL at 100% for securities companies while Vietnam Law has restrictions in place allowing for either 51% or 100%. Nevertheless, with FOL being opened at the highest level of government, we believe the implementation guidelines to be issued by the Ministry of Finance will adopt a liberal interpretation in order to make the greater objective of opening up foreign ownership a reality rather than let it be bogged down by technicalities. Aside from this, we see that for companies that will be allowed to increase FOL, it still remains to be seen whether, they will choose to do so in practice through divestment of shares held by “entrenched” domestic investors such as in the cases of full FOL companies like VNM, where the State (through SCIC) owns 45.2% of shares or in PNJ, where management and employees own more than 45%. In several other cases like MWG (also full foreign room), management wants to raise FOL but has said that they must still wait for further direction from the Ministry of Finance after Decree 60 goes into effect 1 September 2015.

Market Activity





















VN30 and HN30 Stocks


Corporate Updates

DHG: Hau Giang Pharmaceutical JSC

Analyst, Chung Nguyen,

Stock Performance MTD +1% / YTD -23%

DHG to buy back shares to support its share price

DHG will buy back 200k to 500k shares, equivalent to 0.2% to 0.6% of its total shares outstanding, via either direct matching or put through transaction. Maximum buy-back price will be VND80,000, 8.8% to the closing price on 30 June and the execution period is from 25 June to 24 July 2015. The buyback, which would cost VND 16-40b (at maximum price) mostly likely will be funded through existing cash reserves. DHG has approx. VND 300b of cash and cash equivalents currently on its balance sheet). Assuming all the shares are bought through direct matching, it might take anywhere between around 10 to 25 days to fully absorb the amount given the 30-day average trading volume of about 20k shares. We believe the buyback plan is a positive move by management to support the share price given that the stock has slid 23% year-to-date on weak 1Q earnings as the company faces increasing competition on the OTC market.

DPM: PetroVietnam Fertilizer and Chemicals Corporation

Analyst, Tram Ngo,

Stock Performance MTD +1.7% / YTD +1.4%

1H prelim results and signing of EPC contract for Nh3-NPK plant

On 26 June, DPM released preliminary figures that show 1H15 revenue fell slightly by 0.7% but PBT rose by 7.2% vs. 1H14. The company reported VND 4,945b in revenue and VND 810b in PBT for the 1H15, the latter fulfilling 63% of management guidance and 53% of our FY15 forecast. The higher PBT growth was attributed to gas input price that was 36% lower vs. the same period last year. Meanwhile a recovery in selling price helped offset 6.7% drop in volume vs. 1H14.

Earlier in the month, DPM signed an EPC contract with the consortium of Petroleum Technical Services Corporation (HNX: PVS), Technip Group and ThyssenKrupp Industrial Solutions to build its USD 237m NH3-NPK plant. The project is scheduled to break ground in Oct 15 and completed in 2Q17. We regarded this as good news and estimated that the operation of the plant would lift DPM earnings by 11% and 18% in 2017 and 2018 respectively; without the plant we see flat earnings growth.

Nevertheless, DPM’s stock price is just slightly up year-to-date, which we think is in part to due investors concern over continued losses in PV Tex. This associate company (DPM owns 25.99%) revealed higher-than-expected losses in 1Q15 (details for 2Q15 has not been released) and is the main reason DPM’s earnings growth is lagging our projections.

DRC: Da Nang Rubber

Analyst, Phong Van,

Stock Performance MTD -0.3% / YTD +9.3%

Bias margins gap down, utilisation high

We issued an update on DRC on Jun 8th 2015 to downgrade TP of VND 57,000, with a total stock return of 12.2% including dividend yield of 3.6%, and downgrade stock rating to M-PF base on low performance of bias sector in 1Q15. Gross margin of bias sector drops to 25.9%, significantly lower than 28.1% in 1Q14 and 33.2% in 4Q14. ASP of DRC’s key products, especially truck types and tubes (accounting for 45% of DRC revenue) dropped more than 10% was the main reason for narrowed GPM. Management’s temptation to change radial tyre plant down to circa 10 years, would raise FY15 depreciation cost of 68.3% vs FY14 base on our house calculation, also was a big reason for us to downgrade rating for DRC.

DXG: Dat Xanh Group

Analyst, Hai Nguyen,

Stock Performance MTD +20.7% / YTD +37.0%

Strong financial performance supports stock price

After the dispute in Gia Phu project had been resolved, the stock price bounced back strongly, supported by positive recent news, including two new project acquisitions in District 7, as well as the positive 1Q15 results. Brokerage business continues to be benefited from the recovery of real estate residential market and the transition from traditional brokerage to secondary sales. In term of project development, DXG will handover first 300 units the Sunview Town 3 in 2Q15. We continue to expect a good 2Q15 NPAT of approx. VND 80b. Recently, DXG advanced 10% FY15 share dividend with the ex-right date of 25 June.

GAS: PetroVietnam Gas Corporation

Manager, Tuan Nguyen,

Stock Performance MTD -0.8% / YTD -12.1%

Soft outlook for next two years

We issued an update on GAS on Jun 5th 2015 to reiterate TP of VND 67,600 and rate the stock at O-PF. The stock has nearly approached our TP one week later but bounce back to the month’s beginning price leaving a minor negative performance MTD. We believe the stock will trade in this range until the full effect of market price mechanism comes online and further recovery in oil price takes place to support the bottom line. No further announcement from GAS about the financial investment in Block B upstream project after PVN announced to fully acquire Chevron’s stake to develop the project.

HDG: Ha Do Group

Analyst, Hai Nguyen,

Stock Performance MTD +12.6% / YTD -11.9%

Recent movement in Z756 project

Recently, management disclosed that they have disbursed VND 300b into the project and the new factory in Long Binh, which will be used to replace the old factory at the Z756 site, has just broken ground on the 2nd of June. This strengthens our belief that Z756 will break ground this year. Ministry of Defense (MoD) will divest its entire 10% stake in HDG (the methodology has not yet disclosed) around the end of 3Q15. This transaction may create some technical pressure on the share price but, in our opinion, will provide a good opportunity to accumulate the stock in anticipation of the Z756 ground-breaking which we expect to be a positive price catalyst

JVC: Japan & Vietnam Medical Instruments

Analyst, Dao Nguyen,

Performance MTD -63% / YTD -51%

JVC share price has lost more than 63%

JVC’s troubles started on rumours that the company was involved in a legal dispute, succeeded by the dismissal and replacement of its Chairman and culminating in the former Chairman cum CEO’s arrest. Nevertheless, the share price continued to be under immense selling pressure most likely due to margin calls and JVC’s lack of timely responses to these events.

KDH: Khang Dien House
Analyst, Hai Nguyen,

Stock Performance MTD -1.0% / YTD +6.4%

Townhouse sales on target

The Mega Village selling progress is currently in line with our selling progress (150/329 units have been sold since first launch in Apr). We continue to expect a good 2Q15 result with NPAT of VND 37b. We retain our full year NPAT forecast of VND 263b (+158% yoy).

MWG: Mobile World Investment Corporation

Analyst, Dao Nguyen, ,

Stock Performance MTD -6% / YTD -16%

MWG’s 5M15 results are in line with forecasts

Preliminary 5M15 net sales and PAT jumped 54% and 48% vs. 5M14. While same store sales growth has tapered down to 10% from last year’s high base, encouraging results were thanks to aggressive store expansion (78 new 78 new Mobile World and 4 Dien May stores) and contribution from new stores opened in 2H14. The prelim net sales and PAT figures have reached 40% and 41.5% of our forecasts and so we reiterate our BUY recommendation and target price of VND 98,000 (upside 31%). Its share price has been down YTD without the support from foreigners as the foreign room is full. Nevertheless we think that MWG will be one of the beneficiaries from the relaxation of FOL. Management have also voiced their support for this but the final FOL percentage will need to be discussed amongst the Board.

NT2: PetroVietnam Power Nhon Trach 2

Senior Analyst, Duong Dinh,

Stock Performance MTD -3% /YTD +10%

Best of breed power asset poised for listing

We issued an initiation for NT2 on 2 June with a BUY rating & DCF-TP of VND29,300. The stock listed on HoSE on 12 June with initial price of VND23,700 and closed the first date at VND25,800 (+8.9%). Currently the stock is trading at VND23,000 on rumours that Vinacomin Power is selling its 5% stake (12m shares) and general foreign selling.

However, we re-iterate BUY rating for NT2. According to NT2’s IR, 1H’s sales volume increased vs. the same period last year but they did not specify by how much. We estimate NT2’s core NPAT in Q2 might increase by 10% vs. Q1 to VND 300b. Nevertheless, reported NPAT might arrive at VND 200b (-60% vs. 1Q) due to VND 100b forex loss (EUR/VND appreciated from 23,029 in Q1 to 24,286 in Q2).

PVS: Petroleum Technical Services Corporation

Analyst, Que Ngo,

Stock Performance MTD +6.3% / YTD +0%

DPM contract, OSV purchase and oil prices support 10% gain in June

On June 7th, PVS officially signed the USD 237m EPC contract to construct DPM’s NH3-NPK plant and on June 17th purchased a 6-year old offshore service vessel, increasing its fleet to 23 vessels. With its current fleet only meeting one-third of domestic demand, the company has set an ambitious target to increase its fleet size to 100 vessels by 2025. Along with stable oil prices, PVS’ stock rose 6% in June despite divestment of 12m (~2.7% of outstanding shares of its stock) by PVcombank within the month.

STB: Sacombank

Senior Manager, Long Ngo,

Stock Performance MTD +0%/YTD +6.3%

STB profit outlook weighed down by PNB merger

STB re-inclusion in June’s FTSE Vietnam Index rebalancing plus significant buying from Van Eck in their June rebalancing saw June volume jump by 144% to reach 52m shares traded. Despite the significant foreign buying the stock finished the month flat.

STB‘s extra-ordinary general meeting to be held on 11 July 2015 to make final decisions on merger with Southern Bank. The merged bank would be in operation since 3Q15 and the deal is expected to be finished by year-end.

Details of merger scheme were disclosed prior to the EGM. Accordingly, the share swap ratio is 1: 0.75 (1 PNB share in exchange for 0.75 STB share). STB’s newly issued 300m shares will be swapped for Southern Bank’s shareholders (ratio 1: 0.75,) and the remaining 100m shares will be distributed to existing STB shareholders on a pro-rata basis. For every STB’s share held, STB’s shareholders will receive an additional 0.3875 STB share, including 0.0875 share from the share swap with Southern Bank, 0.2 share from FY13 and FY14’s retained earnings, and a 0.1 bonus share treasury stock and share premium.

STB’s forecasted 2015 NPAT of VND 782m is clipped by 74% versus its AGM plan of VND 3,000bil , dampened by high provision for bad debts (VND 1,801bil, which will triple by 2017) and low profit margin (net interest income fell by 21% compared with 2014’s combined results, reaching VND5.128 trillion. For 2015-2017 period, despite 29.6% CAGR of operating income, NPAT’s CAGR stands at 15.3%, weighed down by provision’s CAGR of 70.1.

Prior to this merger scheme, we applied a pure forward multiples approach using a value of 1.1x book value, lower our TP on 17th June to VND 16,600 to adopt an underperform rating. We will refresh our valuation after the EGM (though STB’s guidance is significantly below our bearish forecast).

TLG: Thien Long Group

Analyst, Vy Nguyen,

Stock Performance MTD +6.1% / YTD +32.1%

TLG sets ex-dividend date of 03 Jul for FY14 dividends

The date of 03 July will be the ex-dividend date for TLG’s VND 1,500 cash dividend per share and 10:1 stock dividend payout. The VND 1,500 cash dividend is the remaining amount of the total FY14 cash dividend of VND 2,000 per shares which is 4 times higher than amount of VND 500 paid in 2013. At current price of VND 70,000, the cash dividend yield is 2.1%. Also, TLG’s stock dividend payout will raise total outstanding shares from 26.7m to 29.5m. On the ex-right date, our target price will be adjusted in accordance with the new number of shares outstanding to VND 65,000 from the current VND71,500.

VIC: Vingroup

Senior Analyst, Phap Dang,

Stock Performance MTD +15.1% / YTD +14.8%

Strong residential sales progress reported in June and Warburg Pincus fuels retail mall expansion.

VIC reported impressive residential sales in 4M15 with total contract value reaching approximately VND 15.7t, vs VND 16.4t in FY14 and our FY15 forecast of VND 37.3t. This reaffirms our view that VIC will thrive in the ongoing property market recovery thanks to its top of class brand name, land bank, execution capabilities and unique product offerings. The market has reacted to the good news, as share price rose 15.1% during the month.

Meanwhile, on 29 June, VIC announced that Warburg Pincus has invested another USD 100m into its subsidiary Vincom Retail (retail property development and management), following the first USD 200m done in 2013. This will propel VIC’s aggressive expansion in its retail property portfolio, with pipeline projects reaching second and third-tiered areas in Vietnam. This also demonstrates Warburg Pincus’ confidence in VIC’s ability to execute Vincom Retail’s vision and strategy.

Research Reports Issued this Month

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VCSC Information

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Valuation Methodology: To derive the target price, the analyst may use different valuation methods, including, but not limited to, discounted free cash-flow and comparative analysis. The selection of methods depends on the industry, the company, the nature of the stock and other circumstances. Company valuations are based on a single or a combination of one of the following valuation methods: 1) Multiple-based models (P/E, P/cash flow, EV/sales, EV/EBIT, EV/EBITA, EV/EBITDA), peer-group comparisons, and historical valuation approaches; 2) Discount models (DCF, DVMA, DDM); 3)Break-up value approaches or asset-based evaluation methods; and 4) Economic profit approaches (Residual Income, EVA). Valuation models are dependent on macroeconomic factors, such as GDP growth, interest rates, exchange rates, raw materials, on other assumptions about the economy, as well as risks inherent to the company under review. Furthermore, market sentiment may affect the valuation of companies. Valuations are also based on expectations that might change rapidly and without notice, depending on developments specific to individual industries.


Analyst Certification of Independence
I, Thanh Duong, hereby certify that the views expressed in this report accurately reflect my/our 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.Copyright 2013 Viet Capital Securities Company “VCSC”. All rights reserved. This report has been prepared on the basis of information believed to be reliable at the time of publication. VCSC makes no representation or warranty regarding the completeness and accuracy of such information. Opinions, estimates and projection expressed in this report represent the current views of the author at the date of publication only. They do not necessarily reflect the opinions of VCSC and are subject to change without notice. This report is provided, for information purposes only, to institutional investors and retail clients of VCSC in Vietnam and overseas in accordance to relevant laws and regulations explicit to the country where this report is distributed, and does not constitute an offer or solicitation to buy or sell any securities discussed herein in any jurisdiction. Investors must make their investment decisions based upon independent advice subject to their particular financial situation and investment objectives. This report may not be copied, reproduced, published or redistributed by any person for any purpose without the written permission of an authorized representative of VCSC. Please cite sources when quoting.
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