Vietnam Daily Market Recap Nov 02 – ACB & GMD & VHM & HDG

Dear Valued Clients,

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

Market Commentary: The VN-INDEX continued the upward momentum with 0.9% rise

The VN-INDEX gained 8.2pts thanks to large support from the Financials sector. After the opening bell, the market faced selling pressure against GAS (-1.0%), VNM (-0.4%), PLX (-1.3%), KDH (-2.4%), VHM (-0.1%), thus VN-INDEX quickly fell to its intraday low of 924.1pts (-0.2%). However, large caps from the Financials sector lent some support, returning the index to the green territory. VCB became the top mover of the session, rising 3.4% to VND85,800, followed by CTG (+4.8%) and BID (+1.0%), contributing a combined of 4.8pts to the index. Furthermore, some market pillars joined the rally and further strengthened the upward momentum, led by VJC (+3.7%), GVR (+3.2%), and MWG (+1.6%). Finally, the VN-INDEX edged up 0.9% to close at its intraday high of 933.7pts and the HNX-INDEX also rose 1.1% to land at 136.9pts. The VN-INDEX’s trading value fell 18.5% versus last session as investors showed cautious sentiments on the verge of the US. election on Nov 3rd.

Financials (+2.2%), Health Care (+1.3%), and Consumer Discretionary (+1.3%) rose, while Energy (-1.1%) and Utilities (-0.6%) lost ground today. Top index movers included VCB (+3.4%), CTG (+4.8%), VJC (+3.7%), GVR (+3.2%), and BID (+1.0%). Top index laggards consisted of GAS (-1.0%), PLX (-1.3%), VNM (-0.4%), KDH (-2.4%), and VHM (-0.1%).

Market News

Oil falls to five-month low as lockdowns and Libya spook market

Oil kicked off what promises to be a turbulent week of trading by plunging to a five-month low as a continued increase in Libyan crude production coincided with a wave of new virus-lockdown measures in Europe. The double whammy of falling demand and growing supply pushed futures in New York down as much as 6% in Asian trading. That could be just the curtain raiser for price action as Americans head to the polls on Tuesday in an election set to have far-reaching consequences for battered financial markets. The pace of Libya’s production recovery continues to surprise traders and create a headache for the OPEC+ alliance. Daily output has reached 800,000 barrels and the country is targeting 1.3 million by the beginning of 2021, said Mustafa Sanalla, the chairman of state-run National Oil Corp. That compares with just 100,000 barrels a day in early September. (Bloomberg)

Second economic stimulus package announced

The Ministry of Planning and Investment has announced the second economic stimulus package which will be used to spur the recovery of the aviation and tourism sectors. The ministry is gathering opinions about the package from other ministries and agencies. One of the highlights of the package is to have the government guarantee loans for aviation firms and a mechanism to let the State Capital Investment Corporation invest in aviation firms. Deputy Minister of Planning and Investment Tran Quoc Phuong said, “Covid-19 has deeply cut aviation revenues and cut credit. If there’s no action, the aviation sector’s structure will be badly affected and thousands of people may lose their jobs. It’ll be extremely costly to recover then.” He went on to say that the new policy will help improve liquidity. It is estimated that the government will guarantee VND11tr (US$472m) in loans for aviation firms. Many other countries have issued stimulus packages for the aviation sector such as the US$58bn package in the US. The ministry also proposed to reduce the environmental tax for jet fuel in 2021 by 70%. However, the state budget will lower by VND2.46tr (US$106m) and the impact on the environment is unclear. The ministry also proposed to lower the margin deposit for travel firms by 80% for two years to ensure that the firms still have operational funds. This will not affect the state budget’s revenue. There are about 2.667 tourism firms that are granted permits to operate both inbound and outbound tours. Over 500 firms were granted permits to operate inbound tours in 2019. The package will help travel agencies overcome difficulties and maintain a business without affecting the state budget’s revenue. According to the proposal, the employees will not have to pay labour union dues for a maximum of 12 months. (Vietnamnet.vn)

Coverage Universe Update

Asia Commercial JS Bank (ACB) – Update – ADD (+15.1%)

3Q20 earnings resilience on strong loan growth

Loan growth accelerated in 3Q20

3Q20 net interest income grew 20.2% yoy to VND3,635bn, driven by 16.1% yoy (3Q19: +15.9% yoy) growth in loans and 13bp yoy net interest margin expansion. Loan book growth expanded strongly to 10.7% ytd at end-3Q20, matching its 11.1% ytd stride in the previous year, on a jump in its loan book of 4.8% qoq in 3Q20 (3Q19: +2.1% qoq). The central bank has allowed the cap on FY20F credit growth to be lifted to 14.75% from 11.75% previously. 3Q20 cost-income ratio fell to 38.6% vs. 47.9% in 3Q19 as the bank provisioned VND162bn for diminution in long-term investment and bad debts in 3Q19 while it recorded a reversal of VND16bn in 3Q20. The drop in operating expense offset a 143.7% yoy hike in provision expense, resulting in a robust 33.9% yoy rise in net profit.

9M20: flat NIM, heavy provisioning

Asset yield was subdued in 9M20 due to loan restructuring schemes adopted for enterprises hit hard by the pandemic. However, annualised NIM was 3.5%, nearly flat yoy but up 6bp qoq, thanks to the improvement in CASA ratio to 18.4% at end-3Q20 from 17.5% at end-2Q20 and lower deposit rates. 9M20 provision expense skyrocketed 328.6% yoy, bringing 9M20 credit cost up to 0.33% (vs. 0.09% in 9M19). 9M20 net profit grew 15.4% yoy to VND5,133bn, making up 78.6% of our previous full-year forecast.

Asset quality deteriorated marginally but still under control

The non-performing loan ratio inched up to 0.83% at end-3Q20 from 0.68% at end-2Q20 but was still the second lowest among peers. The 3Q20 write-off ratio accelerated to 0.02% from 0.01% in 2Q20, bringing the loan loss reserve down to 117.5% at end-3Q20 from 144.1% at end-2Q20.

We raise FY21/22F EPS by 7.5%/3.9%

We raise our FY21-22F loan growth forecasts to c.15% vs. 14% to reflect the expansion in credit demand in the past 2 months. We lower our FY21-22F CIR to c.48% vs. 49% previously, thanks to the bank’s efforts to cut operating expenses. We also push back the booking of c.VND800bn of bad debt collection to FY21F.

Reiterate Add with higher TP of VND28,200

We lift our TP by 5.2% for the FY21-22F earnings upgrade and a rollover to FY21F with a higher P/BV (1.5x from 1.3x) to reflect its possible migration to the Ho Chi Minh Stock Exchange. The bank has officially filed for listing and targets to complete this by Dec 2020. An exclusive bancassurance deal, promising a sizeable agency fee, is a re-rating catalyst. A downside risk is lower-than-expected loan growth for FY21-22F.

Read the full report: HERE

Gemadept Corporation (GMD) – Earnings Flash – HOLD (+14.5%)

Challenges have been foreseen

3Q20 results hindered by rising rivalry at Hai Phong port cluster

• In 3Q20, GMD’s revenue dipped slightly by 0.8% yoy to VND692bn, of which port service revenue fell 5.5% yoy mostly due to keen competition at Hai Phong port cluster. This led to the estimated 7% yoy decrease in average handling fee. Meanwhile, logistics service revenue rose 26.1% yoy thanks to growing cold storage demand.
• Blended GPM contracted 3.2% pts yoy due to 1) port service’s GPM narrowing by 2.7% pts yoy to 41.7% on lower average handling fee, and 2) higher revenue contribution from logistics service which only has 19.0% GPM. Combined with 1) a 14.4% yoy increase in SG&A expense mostly due to double allocation of goodwill from reevaluation of investments in subsidiaries, 2) a 36.9% yoy drop in associates’ profit as the pandemic hampered their logistics business, and 3) a 19.9% yoy hike in financial expense as GMD recorded VND14bn loss in financial investment. Net profit fell 40.3% yoy to VND97bn in 3Q20.

9M20 in line with our expectations

• 9M20 revenue/net profit dropped 4.8%/30.3% yoy to VND1,901bn/VND314bn, which were largely in-line at 75.7%/76.8% of our full-year forecast.
• In 4Q20F, we expect the competition at Hai Phong port cluster to become tougher with the launch of Vinalines – Dinh Vu port. We estimate this could lower GMD’s port service revenue by 11.5% yoy in FY20F. However, with modern equipment and experienced experts in heavy lift cargo transportation, GMD will carry out the project of transporting 51 train cars from Saigon Port to Long Binh Depot for Metro Line 1 project in 4Q20F. This should contribute to a 45% yoy hike in FY20F logistics revenue. We believe GMD’s associates business will recover in 4Q20F, which would help narrow FY20F net profit’s slump to 20.9% yoy.

Reiterate Hold with a TP of VND25,400

• Our DCF-based TP remains at VND25,400 (WACC:12.2%).
• Upside risk to our forecast: 1) higher-than-expected container volume and handling fee of Gemalink which will come onstream in Jan 2021, and 2) successful divestment of GMD’s non-core businesses, specifically the rubber plantation project as latex price is in a recovery stage and GMD’s rubber trees are ready to be exploited.
• Downside risks are 1) uncertainty arising from the Covid-19 pandemic or geopolitics hindering the growth of global trade including Vietnam’s, and 2) lower-than-expected GMD’s handling fee due to fierce competition.

Read the full report: HERE

Vinhomes JSC (VHM) – Earnings Flash – ADD (+38.7%)

Solid 3Q20 results

3Q20: solid earnings growth driven by strong handovers

• Vinhomes JSC (VHM) reported a 3Q20 topline of VND26,483bn, up 142.8% yoy. The strong growth was driven by a 154.8% yoy surge in project delivery revenue to VND25,458bn, mainly due to the delivery of c.10,800 units from three mega projects including Vinhomes Ocean Park, Grand Park and Smart City.
• 3Q20 gross margin narrowed 27.6% pts yoy to 34.4% due to lower portion of bulk sales transactions from Ocean Park.
• 3Q20 financial income fell 52.2% yoy to VND1,990bn due to the decreasing property handover of business cooperation contract (BCC) projects (-91.3% yoy).
• Overall, 3Q20 net profit increased 10.7% yoy to VND6,058bn.

9M20 net profit in line at 65.6% our full-year expectation

• 9M20 revenue increased 31.2% yoy to VND49,378bn, making up 61.9% of our full-year forecast, thanks to apartments handed over from Ocean Park (VND13.4tr), Grand Park (VND11.6tr), Marina (VND5.7tr), and Smart City (VND 4.7tr).
• 9M20 gross margin normalised to 37.4% (-8.6% pts yoy) due to lower contribution of bulk sales transactions and lower margins from office complex sales at Vinhomes Metropolis recognised in 9M20 (GPM of about 30%).
• Consequently, 9M20 net profit rose 6.6% yoy to VND16,337bn, forming 65.6% our fullyear projection. We deem the 9M20 results in line as we expect a large revenue boost from more than 11,000 units to be delivered in 4Q20F.

Strong presales momentum likely to continue in 4Q20F and 2021F

• As of 14 Oct 2020, more than 4,500 units of The Origami have been sold with an absorption rate of 92% and ASP of c.US$2,000/sq m. We believe presales growth will remain strong in 4Q20F and 2021F, driven by the launch of Vinhomes Wonder Park. VHM’s total number of pre-sold units reached 25,000 units, which were valued at VND46.6tr at the end of 3Q20.

Reiterate Add with a TP of VND104,300

• We reiterate our Add rating with an RNAV-based target price of VND104,300. We believe it is worth accumulating VHM stocks, given its strong presales and unbilled bookings of VND83tr as of 30 Sep 2020 which translate into a promising outlook for FY21-22F.
• Potential re-rating catalysts include faster bulk sales and the launch of new projects. A downside risk is a surge in mortgage rates that may dampen VHM’s condo presales.

Read the full report: HERE

Ha Do JSC (HDG) – Initiation – ADD (+34.2%)

Investing for the future

Shifting from a property developer to an energy player

From a real estate developer, HDG’s has been gradually shifting to power business. The company started with small hydropower plants since 2009 to ensure stable cash flow. In recent years, HDG has expanded its portfolio to wind power and solar power projects in order to take opportunity from the government’s preferential policies for this sector.

Higher contribution from power sector going forward

We expect that HDG’s power capacity could post a CAGR of 29.3% in FY20- 22F thanks to (1) two new hydropower plants (Song Tranh 4 – 48MW; Dak Mi 2 -147MW) that will come on stream in 4Q20F and 1Q21F, respectively, and (2) the operation of Infra 1 solar power plant (50MWp) and 7A wind power plant (50MW), slated to start in 3Q20 and 2Q21F, respectively. We estimate that the power segment revenue will grow at a FY20-22F CAGR of 44.5%, widening its contribution to 45.9% of HDG’s top line in FY22F, from 14.0% in FY19.

HaDo Centrosa residential project to fuel FY20-21F results

The last four high-rise blocks of the HaDo Centrosa mega project will be handed over to buyers in FY20-21F. Currently nearly all of the 1,010 units have been sold out and the final works are being completed. HaDo Centrosa is expected to generate VND3,983bn in revenue and VND1,124bn in NP, making up 41.9%/48.1% of HDG’s top line and bottom line, respectively, in FY20-21F.

Initiate coverage with ADD and TP of VND29,600

We initiate coverage on HDG with an ADD rating. Our TP of VND29,600 is based on SOTP valuation method. We believe that HDG’s strategy of focusing on power investment now is reasonable, as it ensures stable cash flow while taking advantage of the government’s incentives. Key downside risks to our call include (1) the high volatility of Vietnam’s rainy and dry seasons, affecting hydropower and solar power output; and (2) the risk of a policy change related to subsidised tariffs, tax rates or land rights that may affect project profitability.

Read the full report: HERE

Notable Corporate Events

REE Corp (REE VN, HOSE) – Business results: REE’s 9M20 net revenue jumped 11.5% yoy to VND3,974bn, while its net profit plunged 17.9% yoy to VND977bn, a company report showed. According to the management board, the profit decline was due to lower financial incomes and weaker profits from joint ventures and associates. (Ndh.vn)

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