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Market Strategy May 2021 – Uncertainties emerge

Strategy Note 05/05/2021    243

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  • The VN-INDEX surpassed its historical peak to close at 1,215.77 pts (+2.0% mom and +10.1% vs. end of 2020, respectively) on 26/04/2021.
  •  Average trading value on 3 exchanges in April hit record highs, reaching approximately US$1bn/session thanks to strong cash inflow from domestic investors and improving trading congestion on HOSE.
  • Market valuation is currently fair, in our view. As of April 26, 2021, VN-INDEX’s P/E was 18.4x, 11.5% higher than 5-year average of 16.5x. We estimate that VN-INDEX was traded at 16.3x P/E forward, basing of 23% yoy FY21 earnings growth of listed corporates.
  • We see some positive catalysts for market in May, including: (1) Fed committed to maintain a loosening monetary policy and (2) Stronger recovery of Vietnam and the global economic in 2Q21.
  • We think the adage “Sell in May and go away” concerns due to a lack of supporting information on the market. In addition, the market is raising concerns about (1) the return of the COVID-19 outbreak, (2) increasing inflation risks in the 2Q21, and (3) the current higher level of the market margin.
  • Investors should prioritize portfolio risk management over high return expectations in May. We expect the VN-Index to fluctuate within the 1,160-1,260pts range in this month.
  • We recommend several preferred stocks for May 2021, including MWG, HPG, CTG, SCS, PHP

Recommendations

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).

PHP : During the FY21-27F period, we expect PHP’s NP to grow at 9.5% CAGR in which (1) in FY21-22F, we expect PHP’s NP to grow 7.6%/10.2% yoy thanks to rising demand in Hai Phong port cluster and the estimated 5% yoy fee increase in FY22F based on the Seaport Services Fee Proposal expected to be approved in 2021, (2) in FY23-27F, we forecast PHP’s net profit to grow at 9.8% CAGR thanks to the launching of PHP’s deep-water port. PHP is trading at a 12-month trailing P/E of 12.1x, 30.4% discount vs the industry average (based on the closing price of the April 26 session).We initiate coverage on PHP with ADD rating with a target price of VND24,200, implying an upside potential of 46.7% and a dividend yield of 3.3%.

MWG : MWG recorded 1Q21 net profit of VND1,337bn (+18% yoy), fulfilling 24.8% of our full year forecast. We estimate MWG’s revenue and net profit to increase by 24.5%/37.6% yoy, respectively thanks to (1) BHX’s 2021 revenue is forecasted to sharply increase by 56.5% yoy and (2) the number of DMS stores, a small-scale consumer electronics chain (CE) model, could reach 902 by the end of 2021 (nearly triple the number at the end of 2020). We reiterate ADD for MWG with TP of VND 173,000, implying an upside potential of 21.4% and a dividend yield of 1.1% (based on the closing price of the session on April 23.).

HPG : HPG records its NPAT for Q1/21 at VND7,005bn (+203.9% yoy), fulfilling 30.7% of our full-year forecast.. We revised up FY21-23F EPS by 32.8-46.3% on the back of 1) 13.3-18.8% increase in FY21-23F steel selling price assumption, and 2) 16.4-20.0% upward revision in FY21-23F sale volume following robust HRC sale volume in the past few months. HPG is trading at a forward P/E of 8.9x in 2021, 21.2% lower than the average of regional steel stocks. Therefore, we think valuations are still attractive given that HPG has outstanding profitability performance compared to other competitors. We reiterate ADD and raise our TP to VND65,400, implying an 18.7% upside potential and a 0.8% dividend yield (based on session closing prices on April 26).

CTG : We project FY21-23F net profit CAGR at 24% over the 2021-2023 period, fueled by 1) an 8% loan CAGR; 2) a 10bps NIM gain thanks to the bank’s reorientation towards retail lending; and 3) a 23% CAGR for non-interest income over the period. We project the provision expense CAGR to decrease 7% pts in FY21-23F from 13.3% growth in FY17-20 after CTG had cleared all VAMC bonds in FY20. CTG is trading at 1.5x P/B 2021 (based on the April 26 closing price), slightly lower than the industry average. We believe that the opportunity/risk ratio is attractive enough for a large bank with an average ROE of 2021-22 at 19%. We initiate with Add rating, with 1-year TP of VND53,700, equivalent to potential upside price of 35.3% and a dividend yield of 1.3%.

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