Vietnam Daily Market Recap Dec 07 – PVS & PNJ

Dear Valued Clients,

We would like to send you our Daily Market Recap for today

Market Commentary: The VN-INDEX rose 8.5pts to extend its gaining streak to the fifth session

The VN-INDEX continued its upward momentum with 0.8% gain as investors sought to buy Financials and Consumer Staples large caps. The VN-INDEX started in the green territory and managed to stay in the green throughout today’s session with almost large cap’s advances. Notably, VCB and BID were the largest supporters, rising 2.2% and 3.2% and contributing a combined 3.5pts to the index move. Market pillars from Consumer Staples and other sectors also joined the rally and pushed the VN-INDEX up to its intraday high of 1,030.4pts (+0.9%), including HPG (+3.4%), SAB (+2.5%), VNM (+0.9%), GAS (+0.9%), and GVR (+1.2%). On the contrary, top laggards today included VHM (-0.2%), VGC (-4.7%), VIB (-1.5%), BCM (-1.0%), and HNG (-1.7%). At the end of the session, the VN-INDEX jumped 0.8% to land at 1,030.0 pts, and the HNX-INDEX also gained 1.1% to close at 154.2pts.

Materials (+2.5%), Financials (+1.5%), and Consumer Staples (+1.0%) rose, while Industrials (-0.1%) lost ground today. Top index movers included VCB (+2.2%), BID (+3.2%), HPG (+3.4%), SAB (+2.5%), and VNM (+0.9%). Top index laggards consisted of VHM (-0.2%), VGC (-4.7%), VIB (-1.5%), BCM (-1.0%), and HNG (-1.7%). Top three major put-through transactions were HSG with 27.1m shares (VND464.4bn), VJC with 0.6m shares (VND67.5bn), and VPB with 2.5m shares (VND66.6bn).

Foreigners net bought on HOSE to the amount of VND206.7bn, and also net bought on HNX to the amount of VND8.6bn. They mainly bought HPG (VND105.0bn), VJC (VND71.6bn), and VNM (VND71.1bn); and mainly sold GMD (VND116.6bn), VCB (VND52.1bn), and HPG (VND43.3bn).

Market News

Oil edges lower after closing at nine-month high on OPEC+ deal

Oil edged lower after a fifth weekly gain that was driven by an OPEC+ production deal and hopes for a vaccine-induced lift in energy demand. Futures in New York traded near US$46/barrel after closing at a nine-month high Friday. OPEC and its allies agreed last week to add 500,000 barrels a day of output from January to a market that’s showing signs of recovery. That was followed by Saudi Arabia raising oil pricing for Asia, a sign the kingdom is confident demand is strong enough to absorb the small boost in supply. In another sign of the strength of the Asian growth rebound, Chinese exports rose the most since early 2018 last month to jump more than 20% in dollar terms. Hopes for more U.S. stimulus are also aiding sentiment after House Speaker Nancy Pelosi said momentum is building toward a compromise plan. (Bloomberg)

Vietnamese economy remains resilient despite COVID-19 challenges

The Vietnamese economy has remained extremely resilient throughout the year despite the adverse impact of the novel coronavirus (COVID-19) pandemic, with import-export activities witnessing a gradual bounce back, according to insiders. Figures released by the General Statistics Office (GSO) indicate that the country’s total import-export turnover during the opening 11 months of the year witnessed an increase of 3.5% to US$489.1bn in comparison to the same period from last year, of which exports saw a rise of 5.3% to US$254.6bn, whilst imports increased by 1.5% to US$234.5bn. Most notably, the nation’s trade surplus reached a record high of US$20.1bn, double the figure in comparison with the same period from last year, which can be considered a positive sign amid the COVID-19 pandemic negatively affecting the global economy. Nguyen Thi Huong, director general of GSO, said imports of raw materials for production and consumer goods have also seen yoy increase of 1.6% and 0.5% to US$218.8bn and US$15.7bn, respectively. Despite facing numerous difficulties, local firms have made great strides to boost domestic consumption and exports. Industrial production index (IIP) during the reviewed period posted an increase of 3.1% on-year, with November’s IIP being predicted to record an increase of 0.5% from the previous month and a 9.2% boost from the same period last year. Most notably, the processing and manufacturing industries witnessed robust growth of 11.9%, thereby representing a positive outlook for the national economy moving forward. Huong pointed out that Vietnamese success in containing COVID-19, along with the enforcement of the EU-Vietnam Free Trade Agreement (EVFTA), has given fresh impetus for the national economy to recover in the new normal context. Amid the global economic slowdown, Deputy Minister of Planning and Investment Tran Quoc Phuong expressed his delight at the macroeconomy’s positive signs, all of which serve to lay the foundations for the economy to achieve positive growth for the whole year. (Vietnamnet.vn)

Coverage Universe Update

PetroVietnam Technical Services (PVS) – Update – ADD (+18.7%)

Well-equipped for new contract awards

9M20 net profit slipped due to higher expenses and provisions

PetroVietnam Technical Services (PVS) posted an 8.5% yoy increase in net revenue in 9M20, mainly due to revenue recognition of its construction projects (Sao Vang and Gallaf Qatar) and higher yoy charter rate of Lam Son FPSO. However, net profit posted an 11.5% yoy decline, on top of: 1) a 1.6%-pt contraction in gross margin as the company incurred higher overheads across all segments, and 2) an est. VND270bn in provisioning expenses recorded at PVS’s FSO/FPSO joint ventures, leading to a 69.7% yoy drop in income from affiliates. 9M20 net profit made up only 68.4% of our FY20F forecast as 9M20 affiliate income was below expectation, mainly due to the VND150bn provisioning expense made in 3Q20 at Lam Son FPSO on risk of contract termination in 2021F.

We cut FY20-22F EPS forecasts by 5.0-13.6%

According to industry sources, Block B – O Mon project is facing challenges in terms of negotiation of commercial terms relating to gas sales, electricity sales, etc, which could lead to delays of first gas from 4Q23F to Sep 24 at the earliest. In addition, we observe that the tendering period for the pipeline projects has been extended several times to end-2020/early-2021 and risks being extended further. In that context, we shift the revenue recognition period of Block B to 2022F onwards, leading to a 15.9% decrease in FY21F revenue forecast. Besides, we also adjust our income from affiliate assumptions, taking into account one-off provision expenses of est. VND300bn for FPSO Lam Son in FY20F. This leads to 5.0-13.6% downward revision in our FY20-22F EPS forecasts.

Reiterate Add at a higher TP of VND17,700

We raise our TP from VND15,900 to VND17,700, as the effect from our lower FY21-22F EPS forecasts is outweighed by: 1) lower risk free rate of 3% (vs. 4% previously), 2) DCF valuation rolled forward to 2021F, and 3) higher target FY21-23F P/E at 8.4x, as we lift the 0.5 s.d. discount off its 5-yr mean P/E given the ongoing recovery in oil price. We reiterate Add as we believe PVS could be re-rated from winning potential projects, such as White Lion 2, Block B pipeline, LNG terminals, GPP Dinh Co 2 etc., in 2020-23F, given its healthy financial position and proven track record in project execution. Downside risks: further delays in project progress and additional provision expenses.

Read the full report: HERE

PHU NHUAN JEWELRY JSC (PNJ) ─ Update – ADD (+29.0%)

October performance shines

10M20 results above our expectation

PNJ’s Oct revenue increased 6.5% yoy to VND1,827bn, mainly thanks to the strong growth of revenue from retail channel, which increased 17.5% yoy and offset the decline in wholesales channel and gold bar channel. PNJ’s Oct net profit reached VND175bn, up 35% yoy. For 10M20, PNJ’s revenue stayed flat yoy at VND13,495bn, while 10M20 net profit decreased 13% yoy to VND817bn, completing 83.5% our FY20F forecast, above our expectation.

Weakening gold price may benefit PNJ’s inventory restocking process

The gold price rally of more than 29.2% from Jan 20 to Aug 20 put a heavy pressure on PNJ’s COGS in the long term when they want to restock their inventory. However, the good news of vaccine for Covid-19, which led to the reduction of gold price by 7% from Aug 20 to Dec 20, could help ease the pressure on PNJ’s COGS when PNJ’s inventory is restocked at lower costs.

Changes to our forecasts

We increased our FY20/21/22F net profit forecasts by 11.2%/0.5%/2.6%, respectively, due to 1) higher sales in the retail segment in FY20F/21F/22F (+14.6%/+12.5%/+23.1% vs. old forecasts) and 2) a faster pace of store opening in 2021-22F thanks to the recovery from Covid-19 impacts (20/15 PNJ gold stores in 2021/22F vs. 10/10 in previous forecasts).

Reiterate ADD with a higher TP of VND99,500

We increased our DCF-based TP by 26.2% to VND99,500 following a rollover to FY21F, 0.5%/2.6% upward revision in FY21F/FY22F net profit forecasts and higher 10-year EBIT CAGR at 8.4% (vs. 7.8% in previous forecast). Our TP translates to a FY21F P/E of 17.7x, based on the assumptions of risk-free rate at 3% and WACC at 10.6%.

Re-rating catalysts and downside risks

Potential re-rating catalysts include 1) a faster-than-expected store opening pace, 2) a better-than-expected recovery after the pandemic, and 3) new projects which are expected to boost sales. Downside risk to our call is the next wave of COVID-19 outbreak in Vietnam leading to another social distancing, especially in Hanoi and Ho Chi Minh City.

Read the full report: HERE

Notable Corporate Events

Vietnam Joint Stock Commercial Bank for Industry and Trade (CTG VN, HOSE) – Dividend payment: CTG has set 18 Dec to be the record date for paying the 2019 cash dividend of VND500/share. The payment will be made on 21 Jan 2021. (Vietstock.vn)

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