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Market Strategy Jun 2021 – Cautiously optimistic

Strategy Note 01/06/2021    198

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  • VN-INDEX still maintained an uptrend in May despite the fourth COVID-19 infections outbreak since late-Apr. At the end of the 25/05/2021 session, the index reached 1,308.58pts, rising 5.6% mom (+18.6% ytd).
  • However, listed stocks witnessed strong divergence. 47% of stocks listed on three main bourses fell in May despite market’s rally. The uptrend in this month was mainly driven by large-cap stocks, especially in Banking sector.
  • Based on our estimates, 1Q21 aggregate earnings of listed companies on three bourses (HOSE, HNX, UPCOM) surge 89.9% yoy from the low base 1Q20 (-25.9% yoy). Market’s 1Q21 net profit is even 57.0% higher than pre-pandemic level (1Q19). We raise forecast for 2021F EPS growth of listed companies on HOSE to 30%, from a previous forecast of 23%.
  • As of May 25, 2021, the P/E of VN-INDEX was at 17.8x, which is lower than its level of 18.4x in late-Apr thanks to improvement of the 1Q21 business results of listed companies. Market valuation is currently fair, in our view. We estimate that VN-INDEX is trading at 16.5x P/E forward, equivalent to 5-year average P/E.
  • We witness some positive catalysts for market in Jun, including: (1) some major economies are poised to fully reopen thanks to higher vaccination rates, (2) brighter Vietnam’s export prospects, and (3) robust listed companies’ earnings growth outlook in 2021F.
  • However, uncertainties remain, including (1) negative impacts of new COVID-19 outbreak on 2Q21 Vietnam’s GDP growth prospect, (2) increasing inflation risks in the 2Q21, and (3) the current higher level of the market margin.
  • We expect the VN-Index to fluctuate within the 1,280-1,380pts range in this month.
  • We recommend several preferred stocks for Jun 2021, including VHM, PVT, SCS, STK and VHC.

Recommendations

VHM: We forecast VHM’s FY21F revenue and net profit to increase 17.4% and 4.6% yoy, respectively, underpinned by retail delivery at Ocean Park, Grand Park, Smart City and the launch of 3 new projects namely Dream City, Co Loa, and Wonder Park. In the long term, we expect an EPS CAGR of 44.7% in FY20-23F, driven by deliveries of mega projects.

STK: STK is one of the company’s fastest recovery in the industry in 1Q21, thanks to the significant increase in recycling yarns. We expect the Unitex project is the key driver earning growth of STK in FY23-25F. We forecast the revenue and net profit of STK reach CARG in FY21-25F 20% and 15%, respectively.

VHC: We picked Vinh Hoan Corporation thanks to the strong volume increase along with the steady value restoration at niche markets (USA, Europe, and China), which are showing positive consumption signs. Our assumptions for the recovery are (1) widely distributed COVID-19 vaccines at VHC’s target markets and (2) severe impact from waves of COVID-19 outbreaks for whitefish export competitors, including India and Indonesia, is an opportunity for Vietnam to expand its market share within major markets. We forecast the revenue and net profit of VHC to grow by a CARG in FY21-22F of 19% and 32%, respectively.

SCS: SCS reported 1Q20 net profit of VND137bn (+13.0% yoy), in line at 24.2% of our full-year forecast. With the expectation of re-opening of international routes by the end of Q3/21, we project total freight volume to increase by 10.3% yoy , of which domestic cargo volume rises by 6.9 % yoy and international cargo volume grows 11.5% yoy. We estimate SCS’s FY21F revenue/NP would grow 17.2% yoy/22.0% yoy and reiterate ADD with TP of VND161,400, equivalent to potential 28.1% price increase and a 6.7% dividend yield (based on closing price on 26/04/2021 session).

PVT: We expect PVT’s FY21F revenue and net profit to increase 16.6% and 10.4% yoy, respectively, on the back of the stronger oil price which could boost the transportation demand and trigger FSO/FPSO day rate upward revision. In long-term, we forecast PVT’s net profit CAGR of 8.3% during FY21-23F, driven by the expected steady oil price and the company fleet expansion plan.

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