Invest in Vietnam: Looking For Low Valuation Stocks Part 2

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Vietnam's Stock Exchange

July 08, 2016

Disclaimer: the opinions expressed herein are that of RongViet Securities and not of VietnamAdvisors. This is NOT a solicitation to buy or sell securities.

June Stock Market: Positive market sentiment supported by strong cash flow

In first half of 2016, Vietnam stock market moves in the same direction with oil prices. However, this does not necessarily mean Oil & gas stocks are the only market leaders as the market capitalization of these stocks are no longer as high as in previous years. Banking stocks (such as VCB, BID, CTG) also joined the club at some point, especially in April and May this year. During this period, the market also experienced several emotional sessions, noticeably 24/6, when the results of the referendum of England about whether to stay or leave the EU (Brexit) was out. The session was a proof that the market is still very optimistic at the moment.

Also Read: Vietnam Mid-Year Investment Strategy Report: Looking for Low Valuation Stocks

Positive market sentiment. The optimism expressed in the strong resistance of the market when facing negative information. For example, June 17th, under the sell pressure of ETFs and the disappointment about the delay of circular 203, the market lost 0.99%. But in next session, the market rebounded strongly (1.16%). June 24th, also known as “Brexit session”, VN-Index had been below 600 points at some point, but bottom-fishing helped the market recover strongly over 20 points during the trading session. And the market needed only 3 more days to get back what was lost that day. The rapid recovery, in our opinion, came from the excitement of investors, which was likely backed by abundant cash flow, particularly margin loans. Data from the macro analysis division of RongViet Research shows that the difference between M2 and credit are fairly large, around 1.8% (the figure for the same period was -0.2%). In addition, when tested on the HSX cash flow, we realized turnover was up 1.2%, corresponding to an increase in volume of 13.5% over the same period.


The market shown appreciation for stocks with good business prospects, especially mid-cap and small-cap stocks. In June, VN-Index fluctuated around the 620-640 threshold and rose only 2%, but investors would still be able to make good return if they chose to buy small-cap and mid-cap stocks such as KSB, NNC, PAC, DNP or STG, etc. These stocks have good core business and are expected to grow significantly in revenue and profits this year. Investors, accordingly, quickly bought into these stocks, expecting the price would soon reflect quarter 2’s business result. As a consequence, the VN-MID and VN-SML Index surged by 9.3% and 9.5% respectively, compared with a modestly increase 0.7% of the VN-30. According to our industry experts, many enterprises had good business results in the first quarter will likely continue the form in quarter 2.


Many trendy stocks surged due to not only great earnings results but also some specific catalysts, typically pharmaceutical stocks. This sector saw an increase of over 27% this month, focusing on some stocks such as DMC and DHG. Many investors decided to buy DMC because they bet on a catalyst that Abbott would lift their ownership rate at this company. Besides, they also bought DHG since they expected to see a foreign pharmaceutical holding buy into DHG to get access to the distribution network of the company. (In early of July, DHG officially announced that 24.5% of its shares be transferred to Taisho Pharmaceutical (a Japan company) from 34 foreign financial investors). After two upward phases this year, this sector had trailing PE increase to over 15x. Therefore, investors should take more cautious approach to value as well as open new positions at these companies.

Foreign capital: stable

Foreign investors’ net buying value was more than VND 298 billion in Vietnam stock market in the past six months, in which the figures on the HSX and HNX were respectively VND123 billion and VND175 billion. Banking is the most strongly bought sector with a total net buying value of nearly VND428 billion on both 2 exchanges and the two most-being-bought stocks were VCB (+ VND151 billion) and MBB (+ VND235 billion). On the other hand, basic resource group leaded in net sales value for over 500 billion. This value came from the divestment of the Private Equity New Markets II K.S at HPG which was sold by VND 353 billion in June. In another event, the real estate sector continued to have the 6th consecutive month this year were sold. In comparison with the previous month, this value declined significantly. The net sale in this month had come from the effect of VIC as it was sold by more than 3 million shares (equivalent to VND154 billion) due to the restructuring of two ETFs on 17th June. Also related to the 2 ETFs, the recent-out-of-ETFs stock HHS was sold for more than VND90 billion, while GTN with the 100% room relaxation information on the near closing date was added to nearly 6 million shares equivalent to a net purchase value of approximate VND136 billion.


Total invested capital of foreign players was equal to ¼ of that in May due to ETFs’ reconstitution activities. Excluding VND400 billion of net sell from ETFs, total values only dropped 19.5% m-o-m. The participation rate was around 7.5%. We come to the conclusion that foreign capital was very stable in June.

Players are looking forward to 2Q/2016 earnings reports. Besides, there is a high probability that FED won’t lift up the rates in July and FOL stories will be restated. Therefore, we expect offshore capital to continue to flow to Vietnam stock market.

July Stock Market Outlook

Brexit finally came in June; but despite fears that the event would send stocks to a new low, there was no “big retreat” in Vietnam stock market. There was panic at first but the market was soon flooded with enthusiasm as bottom fishers sprang into action. What was good news to those able to hold on to their stocks through the first day of Brexit brought disappointment to those expecting to see another sell-off. In spite of a hike in liquidity, trading was mostly between local investors. Last month, the combined trading volume in the two stock exchanges jumped 17.2% but net foreigner’s purchases dropped by two thirds from May. We estimate that foreign investors accounted for only 7% of the daily trading value in June. This points to a sentimental divergence between the local and foreign investors. While equity market across the global fell into turmoil, VNIndex gained 2.2% and HNIndex 3.4% last month.

After the first six months of 2016, the economy Vietnam is still large stable with three out four key variables, i.e. manufacturing, consumption, investment and trade showing improvements. However, there are risks from the outside now threatening that very stability. Brexit may not bring a direct, sudden shock to Vietnam, is effect is anything but negligible. First, weakened global demand can soon have an impact on exports, which would then spread to the manufacturing sector in the second half of the year. Second and more importantly, the UK-EU divorce can initiate a new round of global monetary easing that would challenge the SBV’s capacity to maintain the stability of the local currency. We maintain our forecast of a 3-percent depreciation of the VND in 2016 but note that there can be an increase in volatility in the currency market as importers demand for the greenback grew strong and fears for the FED rate hike are renewed. As a side effect of Brexit, the Japanese yen is strengthening quickly, implying significant foreign exchange losses for many power companies who borrow in the JPY.

In the stock market, the abundance of liquidity has lifted VNIndex above 640 for the first time in the more than 2 years. We believe the slowdown in new mortgages and manufacturing lending has turn money flows to the stock market. As compared to the same period last year, current cash flows are much less distracted by other investment opportunities, for example, IPOs, real estate and state holding sales, etc.

We believe the market can remain enthusiastic throughout July. However, when liquidity deplete, the market will find it more difficult to move on higher in August. In the first half of 2015, credit growth was reported only 1/3 the SBV’s full-year target (18-20%) and lending tends to be much more robust in the later months of the year. As banks withdraw cash for corporate lending there would less for stock investors. Secondly, the risk of rising inflation will call for more caution from the central bank in managing money supply. Lastly, the need to stabilize the USDVND exchange rates in Q4 would make it hard for SBV to keep pumping money into the system. The P/E ratio of VNIndex is already at a two-year high. On top of the diminishing taste for risky assets following the UK’s latest referendum, this can make Vietnamese stock less attractive to foreign investors.

After the last rally, it is hard to foresee where the stock market will go in July. It may be too soon now to predict a correction since VNIndex used to reach a much higher P/E ratio in the past. Right now, we see no sign that stocks are cooling as Q2 earnings are being revealed. With most of the stocks and sectors under our monitor having strong earnings forecasts in Q2, the market is set to reach higher in July.

VNIndex is expected to move between 633 and 679 and HNIndex 83 and 89 this month.

Since leading stocks are rotating, it is not easy to pick stocks for a trend-following strategy. Smart money will go for stocks that have not gained substantially and those with attractive valuations, as long as there is nothing wrong about their fundamentals. We believe investors can focus in July on stocks of companies with (1) steady revenue and earnings growth, (2) low P/E and P/B and (3) strong earnings forecasts for Q2 and FY2016. Regarding sectors, we are positive about Building materials (steel, plastic, cement, etc.), Construction, Retailing, Automobile & parts, Industrial real estate and Travel & tourism.




July Investment Strategy: Look for Low-Valuation Issues

Right after the breakout of VNIndex above the historical high of 640, the market seems to have fallen into a state of over excitement. Thus, we find it hard for short-term selling pressure to put a dent in the market’s growing trend. However, as there is an increasing number of investors looking to take profits, we see unlikely that VNIndex will go straight to 700 without slowing down to find some balance the new price level. Ample liquidity on top of a now higher P/E level, lead us to believe that cash will flow into stocks that has not rallied. Investors may consider tilting their portfolios to stocks with sound fundamentals, stable or growing revenue and earnings which may still trading at a low P/E or P/B ratio.

For Q2 outlook, we are quite optimistic about companies in Financial services (securities brokerage), Building materials, Construction, Travel & recreation, Automobile parts, Specialty retailing (auto dealership and electronics), Real estate and Consumer goods.

The peak season of civil construction and tourism starts started in Q2. As a result, we expect to see strong top-line and bottom-line growth from passenger transporters such as SKG and materials manufacturers like HSG, HPG and BMP.

For real estate, we like TDH, LHG, KDH and BCI for their land bank advantages and the long-term potential. Strong 2016 earnings are projected for TDH and BCI as the firms liquidate assets and restructure their project portfolio. Meanwhile, robust demand for landed properties and industrial land will be the main growth driver for KDH and LHG.

Though the adaptation of intraday trading has been delayed until 2017, top stock brokers such as HCM and SSI, who are generally more aggressive on margin lending, should still benefit from strong improvements in market liquidity. Being the second largest brokerage house, HCM is also supported by rumors that the firm will lift remove FOL.

  • Transportation: PVT, VTO, TCL
  • Seaports: HAH, VSC
  • Construction: CTD
  • Technology: FPT
  • Electricity: NT2, PPC, REE
  • Real estate: BCI, KDH, LHG
  • Retailers: SVC, PTB, MWG, PNJ
  • Building materials: NNC, DHA, BMP, KSB, HPG, HSG
  • O&G: PGS, PVS, PLC
  • Food & Beverages: VNM
  • Banks: VCB
  • Other: SKG, DHC, DRC, PTI, DPM, IMP





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