Vietnam – Daily Market Recap Nov 18 – MWG & LPB

Dear Valued Clients,

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

Market Commentary: The VN-INDEX ended positively at 973.5pts

The VN-INDEX rose 0.5% to 973.5pts, supported by Industrials and Consumer Staples large caps. After the opening bell, the VN-INDEX fell to its intraday low of 966.3 (-0.1%) due to Real Estate laggards, including VIC (-1.0%) and VHM (-1.3%), followed by MSN (-2.5%), BID (-0.6%) and MWG (-1.3%). However, the VN-INDEX quickly returned to the green territory thanks to the support from GVR (+6.1%), HPG (+3.7%). The Consumer Staples sector followed the lead, rallied by VNM (+1.7%), and SAB (+0.8%). Notably, GAS rose 6.0% to end at VND80,000/share, alone contributing 2.4pts to the VN-INDEX. In the afternoon session, the index reached its intraday high of 974.3pts (+0.5%) and managed to close in the green territory at 973.5pts (+0.5%). The HNX-INDEX also increased 0.2% to 146.8pts

Utilities (+3.7%), Materials (+2.5%), and Industrials (+0.7%) rose, while Real Estate (-0.7%), Consumer Discretionary (-0.5%), and IT (-0.2%) lost ground today. Top index movers included GAS (+6.0%), GVR (+6.2%), HPG (+3.8%), VNM (+1.7%), and CTG (+0.8%). Top index laggards consisted of VIC (-1.0%), VHM (-1.3%), MSN (-2.5%), BID (-0.6%), and MWG (-1.3%).

Foreigners net bought on HOSE to the amount of VND479.9bn, while net sold on HNX to the amount of VND15.9bn. They mainly bought VIC (VND333.8bn), VNM (VND118.9bn), and HPG (VND101.3bn); and mainly sold HDB (VND93.3bn), HPG (VND72.5bn), and VPB (VND57.8bn).

Market News

Oil steady as investors weigh stockpile gain against Asia demand

Oil was steady near US$41 a barrel as investors weighed an industry report pointing to a bigger-than-expected increase in U.S. crude stockpiles against signs of a robust demand recovery in Asia. Futures were little changed after slipping as much as 0.8% earlier. The American Petroleum Institute reported crude inventories swelled by 4.17m barrels last week, according to people familiar. If confirmed by official data Wednesday, it would be more than double the expected gain seen in a Bloomberg survey. Rising stockpiles come as more restrictions are being rolled out across the U.S. as well as Europe to curb the virus spread, delaying a global oil recovery and offsetting the return of Asian demand. (Bloomberg)

Multi-billion US dollar deals kick off new investment wave in Vietnam

While many sectors are facing difficulties because of travel restrictions due to Covid-19, the industrial real estate sector remains busy with many new investment deals. Logos Property from Australia entered the Vietnamese market when it decided to invest US$350m in a real estate joint venture. Meanwhile, GLP, the warehouse giant, has joined forces with SEA Logistic Partners Vietnam to set up SLP, a joint venture capitalized at US$1.5bn. Mirae Asset Daewoo and Naver Corporation from South Korea have invested US$37m in a warehouse in LogisValley, a logistics center in Bac Ninh province. In the manufacturing sector, Taiwanese Pegatron, a vendor of Apple, has invested US$19m in Hai Phong City, a part of its plan to expand its operation in Vietnam. Ha Nam was the biggest recipient of FDI in the manufacturing sector in Q3 2020 with US$447m worth of capital registered, followed by Hai Phong City with US$438m. The biggest manufacturing project in Ha Nam has an investment capital of US$273m from Wistron Group from Taiwan. (Vietnamnet.vn)

Coverage Universe Update

Mobile World Investment Corp (MWG) – Update – ADD (+38.1%)

A V-shaped recovery

A V-shaped recovery on the wings of Bach Hoa Xanh

Mobile World Investment Corp’s (MWG) 3Q20 revenue grew 2.1% yoy to VND26,022bn, thanks to rapid expansion of Bach Hoa Xanh (BHX), where total stores increased 105% yoy and revenue surged 86% yoy to VND5,672bn. BHX contributed 21.8% to total revenue in 3Q20 to offset the decline in revenue from The Gioi Di Dong (TGDD) and Dien May Xanh (DMX) chains, (-9.5% yoy and -8.4% yoy, respectively). 3Q20 net profit rose 11.2% to VND950bn, marking a significant recovery after a 17.1% yoy decline in 2Q20. In 9M20, MWG’s revenue increased 5.8% yoy to VND82,288bn and net profit growth was flat, reaching VND2,976bn, completing 85.8% of our forecast, above our expectation.

Store expansion slowed down while gross margin widened

BHX’s opening process slowed down, opening only 137 new stores in 3Q20 (vs. 328 in 2Q20) in order to focus on efficiency at existing stores. With the increase in bargaining power during and after the social distancing period in Apr 20, MWG’s food and FMCG margin reached a high of 25% (vs. 21% in 1Q20), propelling 2Q20 GM to 22% (+4.1% pts yoy) and 3Q20 GM to 22.1% (+2.7% pts yoy). We believe MWG can keep its gross margin higher over the next few years as its bargaining power grows with the expansion of BHX and market share dominance of the DMX and TGDD chains.

Conservative mode with positive net cash for first time ever

At the end of 3Q20, MWG’s inventories decreased 32% YTD to VND17,514bn and held-to-maturity investment increased by 111% YTD to VND13,189bn, lifting the quick ratio 30% pts YTD to 63%. For the first time in its history, the company recorded positive net cash per share amounting to VND405 at end-3Q20. We expect the negative impact of the pandemic on the demand for non-essential products to persist in 2021F/22F, prompting MWG to keep these products’ inventory levels low to reduce inventory risks.

Changes to our forecasts

We lift our FY20F/FY21F/FY22F EPS by 11.3%/4.4%/7.5% on the back of 1) GM expansion of 1.3% pts/0.6% pts/1.2% pts, and 2) changes in net financial income to positive at VND122bn/VND248bn/VND390bn to reflect higher short-term investment.

Reiterate our Add call with a higher TP of VND151,200 per share

We lift our SOP-based TP by 9.2% to VND151,200 to reflect increased EPS in FY20-22F and lower WACC for BHX (14% vs. 15% in previous report). Key downside risks are: 1) lower-than-expected GPM, and 2) another nationwide social distancing.

Read the full report: HERE

Lienviet Post Bank (LPB) – Update – HOLD (+9.6%)

Positive factors priced in

Double surge in 9M20 non-interest income

Non-II was VND483bn (+99% yoy) in 9M20 on surging net fee income (+79% yoy), driven by active promotion of card products, and the change in accounting policy. Of which, expenses from other activities were reclassified into operating expenses since late 2Q19. Due to the accounting change, both 9M20 net income from other activities and operating expenses increased, 3.4x and 12% yoy respectively. However, fee income was the main contributor to 9M20 non-II, accounting for 74% of non-II.

Deteriorating asset quality raised our concern

In 9M20, non-performing loans (NPL) grew fast with NPL ratio rose from 1.44% at end-FY19 to 1.64% at end-3Q20. We believe the increase in bad debts was due to LPB’s restructuring lending strategy towards individual lending. Furthermore, loan-loss reserve (LLR) ratio dropped sharply to 73% at end-3Q20 from 85% at end-FY19 while annualized write-off ratio maintained at a low level (0.02%).

We raise FY20/21F earnings forecasts by 12-15%

Higher net profit forecast is based on: 1) higher new credit growth; 2) higher fee income estimation, driven by new launching digital banking services and strong insurance income growth. We maintain our provision expenses forecasts with a higher credit cost (0.42%) than the current level (0.29%) as we are of the view that asset quality risks might emerge in the near term. As a result, we project 7.6%-20.2% yoy net profit growth for FY20-21F, respectively.

Downgrade to Hold rating with higher TP of VND13,100

Our new target price is based on equal weight of residual income valuation (COE: 14.5%; LTG: 3.0%) and 0.8x FY21F P/BV. The share price rallied 38% since the bank submitted its registration documents to the main bourse (Hochiminh Stock Exchange). Thus, we downgrade LPB to HOLD as the share price is close to fair value. A possible upside to our TP is the success of the private placement for foreign investors. Downside risk is lower-than-expected NIM.

Read the full report: HERE

Should you have any question, please feel free to contact us.