Vietnam Daily Market Recap Dec 08 – PVD

Dear Valued Clients,

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

Market Commentary: The VN-INDEX declined 0.1% as profit taking activities emerged after five consecutive gaining session

The VN-INDEX lost 0.7 pts today as selling pressure against Real Estate and Consumer Staple large caps. Following the U.S stock market sell-off with the Dow Jones Industrial Average fell 0.5% the previous night, the VN-INDEX opened in a pessimistic manner. However, the index quickly recovered and reached its intraday high of 1,032.6 (+0.3%) before fluctuating toward the end of the session. At the closing bell, bearish sentiment dominated and VNINDEX closed with 0.1% decrease. The index was dragged down mainly by Real Estate stocks, including VIC (-0.8%) and VHM (-0.4%), together wiping 1.0pts off the VN-INDEX. The momentum was fueled further by VNM (-0.7%), SAB (-0.5%), MSN (-0.6%), BID (-0.7%), BCM (-2.2%), and CTG (-0.6%). On the positive side, top movers today included MBB (+2.2%), BVH (+2.9%), SSI (+6.6%), HPG (+0.5%), and VPB (+0.9%). At the end of the session, the VN-INDEX slightly closed at 1,029.3pts, while the HNX-INDEX rose 1.6% to land at 156.6pts.

IT (+0.9%), Materials (+0.5%), and Financials (+0.4%) rose, while Energy (-1.0%), Real Estate (-0.5%), and Consumer Staples (-0.5%) lost ground today. Top index movers included MBB (+2.2%), BVH (+2.9%), SSI (+6.6%), HPG (+0.5%), and VPB (+0.9%). Top index laggards consisted of VIC (-0.8%), VNM (-0.7%), BID (-0.7%), VHM (-0.4%), and BCM (-2.2%). Top three major put-through transactions were, FUEVFVND with 5m shares (VND78bn), VNM with 0.6m shares (VND67.7bn), and MBB with 2.7m shares (VND53.6bn).

Foreigners net sold on HOSE to the amount of VND137.7bn, and also net sold on HNX to the amount of VND4.3bn. They mainly bought FUEVFVND (VND87.5bn), HPG (VND60.5bn), and GMD (VND49.8bn); and mainly sold GMD (VND83.3bn), HPG (VND83.2bn), and VNM (VND69.3bn).

Market News

Oil drops toward US$45 with virus surge tempering vaccine optimism

Oil fell for a second day as near-term demand risks due to a resurgent pandemic tempered optimism over the prospect of vaccine rollouts. Futures dropped toward US$45/barrel in New York after closing down 1.1% on Monday. The U.S. is now seeing virus hospitalizations rise by almost 2,000 a day and is averaging around as many deaths as during Covid-19’s first surge in April. France is poised to miss a goal to end its lockdown next week. Dollar strength also reduced the appeal of oil, which is priced in the currency. Investors had been hoping for progress on a US$908bn pandemic relief plan in the U.S., but lawmakers are set to postpone a Friday night deadline for passing a bill. Japan, meanwhile, announced a stimulus package of more than US$700bn, while China is opting to contain its record debt burden. (Bloomberg)

Companies in Vietnam’s supporting industry to be provided with interest rate subsidy next year

Companies in the supporting industry will get an interest rate subsidy from next year in an effort to promote the development of the part-supply industry. Pham Tuan Anh, Deputy Director of Industry Agency under the Ministry of Industry and Trade, said that the ministry was cooperating with relevant ministries and agencies to complete the policy for companies in the supporting industry in 2021. Due to the impacts of the COVID-19 pandemic, most companies in the supporting industry encountered difficulties. The Vietnamese Government recently issued Resolution No 115 on solutions to promote the development of the supporting industry. One of the solutions was providing interest rate subsidies for enterprises in this sector. The subsidy was supported by the Government through refinancing to commercial banks, which would be sourced from medium-term public investment. The support would be equal to the difference between the commercial loan interest rate and the State’s preferential investment credit loan interest rate but not exceeding 5%. The Ministry of Industry and Trade was cooperating with the State Bank of Viet Nam and the Ministry of Finance to detail the interest rate subsidy policy. The draft was expected to be submitted to the Government for consideration and issuance in January next year. Tuan Anh also urged companies in the supporting industry to be proactive in enhancing their production and management capacity to meet requirements of global manufacturers, which would be important, together with the Government’s support policies, to enable Vietnamese firms to participate deeply in the global value chains. On October 30, the Ministry of Industry and Trade issued an action plan to implement the Government’s Resolution No 115/NQ-CP dated in August about solutions to promote the supporting industry. (Vietnamnet.vn)

Coverage Universe Update

PetroVietnam Drilling & Well Services JSC (PVD) – Update – HOLD (0.0%)

FY21F net profit recovery largely priced in

11M20 revenue fulfills full-year guidance

According to PVDrilling (PVD), the majority of its subsidiaries and affiliates had by endNov already achieved their full-year guidance, generating an estimated consolidated revenue of VND5,400bn (~US$231.8m, +23.6% yoy), equivalent to 115.4% of PVD’s 2020F guidance and 104.3% of our revenue forecast. The growth in the topline could be credited to additional revenue from three leased rigs and higher jack-up charter rate of 7- 9% yoy, which more than offset a lower average utilisation rate (73% vs. 2019’s 90%). However, we estimate PVD to post a 13% decline in FY20F net profit, mainly due to a 2.8% pts contraction in gross margin as a result of additional expenses incurred in response to the Covid-19 restrictions

FY21F net profit expected to recover on the resumption of TAD rig

We expect the company’s average jack-up utilisation rate to improve to 80.0% in 2021F in the best-case scenario, with various job opportunities in the domestic market, such as Te Giac Trang field development, Ken Bau appraisal, drilling programmes of Hoang Long JOC, Cuu Long JOC, JVPC, etc. We forecast net revenue to fall 9.0% yoy on a slightly lower average day rate (US$60,000), but positive net profit growth of 19% yoy would be primarily driven by the resumption of the tender assist drilling (TAD) rig from Jul 2021F, which would generate lower losses than the cold-stacked 2017-19 period.

Reiterate Hold with a higher TP of VND13,400

We see no significant changes in PVD’s core business from our last update in Nov and therefore make no changes to our FY20-22F EPS forecasts. However, we use a new WACC of 13.5% for our DCF valuation (from 15.6% previously), on the back of (1) lower risk free rate at 3% (from 4% earlier), and (2) lower beta of 1.5x (from 1.6x earlier), using Bloomberg’s 2-yr beta. We also roll our DCF valuation to 2021 and apply the unchanged target P/BV of 0.4x on FY21-23F EPS. These adjustments result in a higher TP of VND13,400. We maintain a Hold rating, as we believe the recent stock price rally has largely priced in an FY21F net profit rebound and support from the oil price recovery.

Upside and downside risks

Upside risks are faster-than-expected recovery in drilling sector and quick debt collection. Downside risks include higher operating costs and low oil prices.

Read the full report: Here

Notable Corporate Events

Vietnam Rubber Group JSC (GVR VN, HOSE) – Divestment plan: GVR announced that the company will register to sell more than 9.3m shares of Saigon VRG Investment Corporation (SIP VN, UPCOM), equivalent to 11.77% outstanding shares, the company said. The trading time is from 09 Dec to 21 Dec. (Ndh.vn)

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