Vietnam – Daily Market Recap Nov 17 – VNM & HPG & PVD & TCB
Daily Market Recap 17/11/2020 421
Dear Valued Clients,
We would like to send you our Daily Market Recap for today
Market Commentary: The VN-INDEX retook all the yesterday’s loss, gaining 18.1pts to end at 968.9pts
The VN-INDEX rose 1.9% to 968.9pts, highest daily gain in three months. The VN-INDEX kicked off the morning session with a positive sentiment and stayed in the green territory throughout the session. All sectors rose, especially large caps from the Real Estate and Financials sectors, led by VIC (+3.9%), VCB (+2.1%) and VHM (+2.2%), contributing 7.2pts to the index. Other large caps also joined the rally, including GAS (+4.1%), HPG (+3.4%), CTG (+1.9%), VPB (+3.5%), GVR (+6.9%). On the other hand, top index laggers include small to mid-cap stocks, led by VSH (-4.8%), LGC (-1.2%) and KDC (-1.8%). However, thanks to the support from all sectors, the VN-INDEX had an impressive performance, closing at its intraday high of 968.9pts (+1.9%). The HNX-INDEX also closed at its intraday high of 146.6pts (+2.25%).
All sectors rose today, led by Utilities (+2.8%), Materials (+2.7%), and Real Estate (+2.5%). Top index movers included VIC (+3.9%), VCB (+2.1%), GAS (+4.1%), VHM (+2.2%), and GVR (+6.9%). Top index laggards consisted of VSH (-4.8%), KDC (-1.8%), LGC (-1.2%), BCM (-0.3%), and APH (-0.9%). Top three major put-through transactions were CVT with 4m shares (VND113.2bn), SBT with 5.4m shares (VND91.9bn), and E1VFVN30 with 3.7m shares (VND57.8bn).
Foreigners net sold on HOSE to the amount of VND127.5bn, and also net sold on HNX to the amount of VND6.5bn. They mainly bought SBT (VND92.0bn), VHM (VND91.9bn), and VNM (VND79.5bn); and mainly sold HDB (VND149.8bn), VNM (VND92.5bn), and SBT (VND92.4bn).
Oil steady after rising on vaccine progress as OPEC+ meets
Oil was steady near US$41/barrel with investors weighing news of another Covid-19 vaccine breakthrough as OPEC+ moved closer to delaying a planned easing of output cuts. Futures were little changed following a 3% increase on Monday after Moderna Inc. said its vaccine was almost 95% effective in a preliminary analysis of a large, late-stage clinical trial. Optimism also grew after an OPEC+ panel said the group, which meets again on Tuesday, should consider holding off on boosting production by three to six months. (Bloomberg)
Wind power: Vietnam’s Ministry of Industry and Trade wants to extend FIT policy
Following a proposal by 10 provinces, the Ministry of Industry and Trade (MOIT) wants to extend the deadline for FIT (Feed in Tariff) application because many wind power projects cannot become operational prior to the given date. On September 10, 2018, the Prime Minister released Decision 39 on wind power prices (not including VAT). EVN buys electricity from in-land wind power projects at VND1,927 per kwh (8.5 cent), while the price of VND2,223 per kwh (9.8 cent) is applied to offshore wind power projects. As of September 2020, the total wind power capacity of the plants in the national electricity development plan had reached 11,600 MW. However, only 12 projects had generated electricity with a total capacity of 470 MW. MOIT has received reports from the people’s committees of 10 provinces where there are large wind power projects, requesting the ministry to propose to the Prime Minister to extend the application of the FIT mechanism shown in Decree 39 for projects to be put into commercial operation by 2022-2023. The wind power prices are expected to decrease gradually from November 1, 2021: 7.02 cents per kwh for onshore wind power projects to become operational in the period from November 2021 to December 2022 and 6.81 cents per kwh for the projects in 2023. As for offshore wind power, the prices would be 8.47 cents and 8.21 cents per kwh, respectively. MOIT is joining forces with relevant ministries to devise a bidding mechanism for wind power projects. (Vietnamnet.vn)
Coverage Universe Update
Vietnam Dairy Product JSC (VNM) – Update – HOLD (+14.1%)
Solid performance in 3Q20
9M20 in line with our expectation
VNM’s net revenue increased 8.9% yoy to VND15,563bn in 3Q20, of which revenue from domestic business rose 8.9% yoy, higher than the 4.2% yoy growth seen in 3Q19. In our view, the better domestic result was thanks to 1) the consolidation with GTN from end-FY19 (contributed 6% to domestic sale) and 2) 1.5% yoy organic growth of existing business driven by 1-2% sales volume rise, especially in Probi line of probiotic products. Overall, in 9M20, with GTN’s contribution, VNM’s net revenue enjoyed a 7.4% yoy growth (while net revenue excluding GTN only edged up 2.3% yoy) and its net profit rose 6.4% yoy, respectively fulfilling 72.9% and 76% of our full-year forecasts.
Gross margin slightly edged down due to GTN’s consolidation
In 9M20, GTN’s gross margin reached 28.3%, up 13% pts from 15.3% in 9M19 thanks to the initial results from VNM’s restructuring efforts. However, GTN’s current GM is still lower than other segments’ GM of VNM by 18-32% pts, thus pushing VNM’s GM in 9M20 down 0.8% pts yoy to 46.5%. We expect GTN’s consolidation to reduce VNM’s gross margin slightly in FY20F to 47.1% before improving in FY21F to 47.4% by higher GTN’s GM of 35% (+5% pts yoy).
GTN showed significant improvement in net profit after consolidating with VNM
After joining the VNM family, GTN’s net profit expanded rapidly in 9M20 by 923% yoy to VND72.7bn (10 times higher than the same period) mostly thanks to better SG&A cost control. In 2021, management aims to invest in a dairy farm with 4,000 milk cows in Moc Chau and a new factory (detailed information has not been disclosed yet). Notably, VNM intends to list Moc Chau Milk on Unlisted Public Company Market (Upcom) in 1Q21.
FY20-21F results look solid on the back of stable dairy demand
We maintain FY20/21F revenue growth forecast of 10.2% yoy/6.9% yoy respectively to VND62,042bn and VND66,330bn to reflect our expectation of steady dairy demand in both the domestic and export markets. As a result, VNM’s net profit is estimated to rise by 10.6% yoy/8.9% yoy in FY20/21F.
Downgrade from Add to Hold with higher TP of VND119,000
Our higher TP is derived from an equal weighting of the DCF model rolled forward to FY21F (with WACC 11.8%, COE 12.5% and LTG 5.0%) and target P/E of 21.6x applied on FY21 EPS. We downgrade our rating from Add to Hold as expected earnings growth in FY20/21F appears to have been priced in. Re-rating catalysts include 1) stronger-than-expected growth of domestic dairy consumption and 2) higher-than-expected demand in the Middle East and China. Downside risks include 1) longer-than-expected Covid-19 pandemic and 2) higher–than-expected material milk prices.
Read the full report: HERE
Hoa Phat Group (HPG) – Update – ADD (+22.9%)
Encouraging growth momentum
What is behind HPG’s impressive uptrend in recent 3 months
HPG’s share price increased by 33.8% in the past three months, nearly double the increase of VNIndex (+20.2%). In 3Q20, domestic steel rebar average selling price (ASP) fell 10.4% yoy to VND10.7m/tonne and iron ore price rose 14.3% yoy to a 6-year peak of US$100.2/tonne. HPG’s net profit surged 115.0% yoy to VND3,773bn in 3Q20, 30% above market consensus. We think that production volume of Dung Quat Steel Complex (DQSC) jumped tenfold yoy, contributing 56.9% of HPG’s total sales volume in 3Q20 (compared with 11.4% in 3Q19), which helped DQSC achieve earlier-than-expected economies of scale. 9M20 net profit soared 57.4% yoy to VND8,801bn, fulfilling 89.9% of our previous full-year forecast.
What make us confident in HPG for the next two years
We are now more optimistic about DQSC, thanks to 1) DQSC Phase 1’s higher-than-expected utilisation rate of 98.6%, based on our estimate; 2) blast furnace No.3 and Hot Rolled Coil (HRC) factory of DQSC Phase 2 produced 340,000 tonnes of HRC from Aug 20 till end-Oct 2020 (equivalent to 160% monthly production volume of our previous forecast), and 3) better-than-expected EBITDA margin which helped DQSC surpass pretax breakeven level in 9M20, after just two years in operation. We estimate DQSC’s EBITDA margin was 22.5% in 9M20, approaching other factories’ EBITDA margin of 25.1%. Thus, we raise our FY20/21/22F EPS by 25.7/37.1/41.0% to reflect: 1) higher sales volume due to a combination of better demand (quickening public investment spending) and more contributions from DQSC; and 2) lower coking coal price assumptions due to weak demand in major importing countries (India, Japan) in 1H20.
Has HPG’s growth potential been fully priced in?
HPG now trades at 8.9x/7.4x FY20/21F P/E vs. regional peer’s 7.9x FY20F median P/E. However, we believe that HPG deserves to be rerated thanks to its robust earnings outlook and superior profitability vs regional peers.
Reiterate Add with a higher target price of VND40,500
We raise our TP to VND40,500 to reflect the increases in our FY20-22F EPS. Our valuation is based on an equal weighting of: (1) a forward P/E of 9.0x on FY21F EPS; and (2) a DCF valuation over a 10-year projection period. Downside risk: slower-than-expected steel demand growth. Re-rating catalyst: lower-than-expected iron ore price.
Read the full report: HERE
Techcombank (TCB) – Update – ADD (+25.5%)
Best performer in the industry
9M20 retail drove NIM, boosting NII…
9M20 annualised net interest margin (NIM) recorded its highest-ever level of 4.9%, expanding 67bp yoy, lifted by retail NIM rising to 2.4% from 2% in 9M19. Retail lending grew 3% yoy, accounting for 36% of the credit book at end-3Q20 (40% of credit book at end-3Q19), while retail net interest income (NII) rose 40.1% yoy and contributed 50% of TCB’s NII in 9M20 vs. 47% in 9M19/FY19. Interest income from retail lending drove the 29bp yoy asset yield hike. Cost of fund (COF) fell 47bp yoy as (i) CASA grew to 38.6% at end-3Q20 from 28.7% at end-3Q19 due to retail CASA growth of 64.9% yoy (32.6% YTD), which contributed 63% of total CASA at end-3Q20 (end-3Q19: 57.3%), and (ii) deposit interest rates fell. With a 15.6% yoy credit jump on 31.7% yoy corporate bond (CB) and 12.4% yoy loan book increase, TCB’s NII rose 31.6% yoy to VND13,296bn in 9M20.
…while bond related activities lifted NFI
9M20 net fee income (NFI) rose 45.9% yoy, reaching VND3,120bn and contributing 16.2% of total operating income (TOI), driven by a 132.1% yoy increase in bond underwriting fee income and its related activities, which accounted for 45.3% of NFI. Together with a 67.1% yoy rise in net gains from trading investment securities and a 33% jump in net other income, non-II grew 38.1% yoy to VND5,985bn.
Bad debts at lowest-ever level at end-3Q20
NPL ratio fell to 0.6% at end-3Q20, the lowest level among peers; loan loss reserve (LLR) rose to 148% at end-3Q20, the second highest level in the industry, due to TCB’s aggressive provisions which rose 3.7x yoy in 9M20. Although cost-income ratio improved to 32.8% in 9M20, net profit grew only 18.8% yoy to VND8,372bn, forming 78.1% our previous full-year forecast.
Raise FY21F/22F EPS forecasts by 1.8%/3%
We now expect net profit to grow 17.1%/16.7% in FY21/22F, vs. 16%/15.3% previously, driven by a higher NIM increase of 7-13bp on lower funding costs. As a result, NII CAGR is at 15.5% in FY20-22F on c.15% credit CAGR and 5bp expansion in NIM forecasts.
Reiterate Add with higher TP of VND29,300
We raise our TP to VND29,300 following our earnings upgrade and as we roll over to FY21F P/BV. Our TP is based on residual income valuation (COE: 13.7%, LTG: 4%) and 1.2x FY21F P/BV, weighted equally. A potential re-rating catalyst is higher-than-expected credit growth. Downside risk is lower-than-expected NIM expansion.
Read the full report: HERE
PetroVietnam Drilling & Well Services JSC (PVD) – Update – HOLD (-4.9%)
Earnings recovery expected in FY21F
3Q20 net profit growth driven by well service activities
In 3Q20, the company posted a 18.9% yoy increase in net revenue to US$54.8m, mainly on a 46.3% yoy higher revenue from the drilling segment, with the contribution of an average 1.7 leased rigs and 4.2% yoy improvement in average day rate. However, blended gross margin contracted by 3.3% pts yoy as the 9.0% pts reduction in drilling margin outweighed the 12.7% pts expansion in well services gross margin. At the bottom line, net profit still posted a 43.4% yoy growth to US$1.7m, fueled by the US$2.0m income from affiliates (mainly from Baker Hughes JV), vs. US$0.2m loss from affiliates in 3Q19. The company credited the strong improvement in the well services segment to lower competition in the domestic market, as it was hard for foreign contractors to enter Vietnam this year due to the Covid-19-related travel restrictions.
9M20 results ahead of expectations
9M20 net profit was up 155.7% yoy thanks to (1) the strong performance of the well services segment (9M gross profit +28.5% yoy, income from affiliates +183.6% yoy), and (2) the ramp-up in debt collection which allowed a net provision reversal of US$3.2m, vs. provision expenses of US$1.7m in 9M19. 9M20 net profit was better-than-expected at 102.5% of our full-year forecast, as the marked improvements in the well services segment for both PVD’s subsidiaries and affiliates were positive surprises. For the FY20 forecast, we lower gross margin by 1.3% pts to reflect weaker-than-expected drilling segment, but increase income from affiliates assumption to reflect the 9M20 results.
Drilling activities expected to warm up in FY21F
We maintain our FY21F revenue forecast with average utilisation rate recovering to 80% from 73% in FY20F, while average day rate stays around US$60,000. According to PVD, the customer Repsol Malaysia (which terminated the contract with PVD III rig earlier) has started to open bids for the continuation of the same contract from FY21F, which is ahead of the company’s expectation. Therefore, PVD plans for the PVD III rig to return to Malaysia, while the PVD II and PVD VI rigs could stay in Vietnam in FY21F to contract for potential domestic projects from customers such as Vietsovpetro and ENI.
Reiterate Hold and TP of VND11,700
Our TP stays unchanged at VND11,700 based on a 50:50 combination of DCF and target FY20-22F P/BV of 0.4x. Upside risks are faster-than-expected recovery in drilling sector and quick debt collection. Downside risks include higher opex and low oil prices.
Read the full report: HERE
Notable Corporate Events
FPT Corporation (FPT VN, HOSE) – Business results: FPT’s 10M20 revenue rose 7.4% yoy to VND23,635bn, with its after-tax profit edged up 7.7% yoy to VND2,927bn, a company’s report showed. The company also recorded the robust growth of new purchase orders in October, signed revenue of Global IT Services accumulated to VND10,944bn, up 25.4% yoy. (Fpt.com.vn)
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