Vietnam Daily Market Recap Oct 26 – VCB

Dear Valued Clients,

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

Market Commentary: The VN-INDEX lost 10.5pts in the last minutes

The VN-INDEX dropped 1.1% due to the selling pressure from many market pillars, despite the early trading rise. Following a 2% rally last week, the VN-INDEX kicked off the morning session in the green and gradually rose to its intraday peak of 970.1pts (+0.9%). The advance was mainly fueled by the Consumer Staples sector with MSN and VNM increasing 2.2% and 0.5%, respectively and their gain added a combined of 0.91pts to the index’s move. Other large caps also join the rally including VIC (+1.1%), PLX (+1.0%), and PNJ (+1.5%). Suddenly, profit taking emerged in late trading and targeted market pillars from the Financials sector, led by BID (-4.2%), VCB (-1.7%), CTG (-4.1%), and VPB (-5.5%). Other bearish large caps included VHM (-1.3%) and GAS (-2.0%), thus erasing all the morning gain. At the end of the session, the VN-INDEX fell 1.1% to close at its intraday low of 950.8pts and the HNX-INDEX also lost 1.9% to 139.0pts.

Energy (+0.5%), Consumer Staples (+0.3%), and Consumer Discretionary (+0.1%) rose, while Financials (-2.9%), IT (-1.9%), and Utilities (-1.7%) lost ground today. Top index movers included VIC (+1.1%), MSN (+2.2%), VNM (+0.5%), PLX (+1.0%), and PNJ (+1.5%). Top index laggards consisted of BID (-4.2%), VCB (-1.7%), CTG (-4.1%), VPB (-5.5%), and VHM (-1.3%). Top three major put-through transactions were TPB with 4m shares (VND98.6bn), VNG with 5.2m shares (VND84bn), and GMD with 3.5m shares (VND79.8bn).

Foreigners net sold on HOSE to the amount of VND432.6bn, while net bought on HNX to the amount of VND1.4bn. They mainly bought VHM (VND60.0bn), VNM (VND43.3bn), and VRE (VND28.1bn); and mainly sold MSN (VND158.0bn), HPG (VND125.9bn), and VIC (VND77.8bn).

Market News

Oil plunges below US$39 on surging virus and stimulus stalemate

Oil extended its slide to a second day on a toxic cocktail of surging coronavirus cases in the U.S. and Europe, dwindling prospects for pre-election stimulus in Washington and a steady resumption of supply from Libya. Futures in New York fell almost 3% to drop below US$39/barrel. The U.S. reported record infections for a second straight day, while Italy approved a partial lockdown and Spain announced a national curfew. Democrats and Republicans accused each other of “moving the goalposts” in interviews on CNN as hopes for a deal before next week’s election appeared to be in tatters. The worsening demand outlook is coinciding with Libya’s push to almost double crude output, which is gaining momentum as rival sides prepare for a new round of talks aimed at ending a nearly decade-long conflict. A force majeure has been lifted on the Ras Lanuf and Es Sider ports, and the country’s state oil company said output would surpass 1m barrels a day in four weeks. (Bloomberg)

Vietnam’s corporate bond market cools in September after policy changes

Private corporate bonds raised in September dived from the previous month after a decree took effect to tighten the issuance on the corporate bond market. Data from the Hanoi Stock Exchange (HNX) showed the total value of corporate bonds sold in September was VND16.25tr (nearly USD700m), news site ndh.vn reported. September’s value nosedived 80% from August’s record of VND83.8tr and was still modest compared to the March-July period. Between March and July, local companies issued an average of VND30.3tr worth of bonds, ndh.vn reported. In September, banks’ issuance accounted for 80% of the total sold value, which was VND13.17tr. The Vietnam International Joint Stock Commercial Bank (VIB) topped the market as it sold VND3.5tr worth of bonds in September. Orient Joint Stock Commercial Bank (OCB), the Vietnam Bank for Agriculture and Rural Development (Agribank), and Sai Gon-Hanoi Joint Stock Commercial Bank (SHB) issued VND2tr each. Among non-banking companies, SAM Holdings was the biggest bond issuer, raising a total VND300bn worth of bonds. The bonds were due in 24 months at an 11% annual interest rate. Bonds were backed by 24m shares of Binh Duong Production and Trading Goods Corporation (UPCoM: PRT) and 20m shares of Phu Tho Tourist Service JSC (UPCoM: DSP). On September 1, Decree 81/2020/NĐ-CP took effect to restrict risky purchases of corporate bonds to make the bond market stronger and more sustainable. (Vietnamnet.vn)

Coverage Universe Update

Vietcombank (VCB) – Update – HOLD (+4.6%)

3Q20 weaker than expected but solid nonetheless

3Q20 earnings slipped on heavy provisioning

VCB’s 3Q20 total operating income (TOI) declined 3.4% yoy to VND11,586bn, driven by 1.5% yoy drop in net interest income (NII) and 8.7% yoy drop in non-interest income (nonII). Loan book rose a modest 10.7% yoy in 3Q20 amid weak credit demand, below 3Q19’s 12.8%. In addition, a 35% yoy surge in provision expenses dragged net profit down 21% yoy to VND3,991bn. Given the weak results, we cut FY20F EPS by 11.6%.

Contraction in asset yield muted NII growth

In 9M20, VCB’s credit expanded 6.5%, slightly higher than the system credit growth of 6.1%. However, NIM softened 25bp yoy in 9M20 as asset yield slipped 26bp yoy to 5.9% from 6.16% in 9M19 due to the stimulus packages to support clients hit by Covid-19. As a result, 9M20 NII remained flat on a yoy basis at VND25,835bn. We expect VCB’s NIM to bounce back in 4Q20F as its last credit support package to aid customers affected by the Covid-19 pandemic had expired at end-3Q20.

9M20 non-II growth missed our expectation

Non-II was VND8,771bn (-4% yoy) in 9M20, mainly driven by a 34% yoy decline in net other income to VND1,865bn in 9M20, from VND2,817bn in 9M19, as bad debt collecting activities contracted amid the prevailing economic headwinds. Furthermore, net fee income was only VND3,540bn in 9M20, making up just 45% of our full-year forecast, due to lacklustre bancassurance activities.

Solid asset quality

VCB’s non-performing loan (NPL) ratio was at 1.0% at end-3Q20, slightly lower than the 1.1% level seen at end-3Q19. Group-3 bad debts soared 1.4x yoy to VND2,923bn at end3Q20. However, its loan loss reserves (LLR) climbed to 215% at end-9M20 from 185% at end-9M19, remaining the highest in the banking industry even though its write-off rate inched up from 0.12% at end-3Q19 to 0.18% at end-3Q20.

Reiterate Hold with a higher TP of VND89,200

Our higher TP is derived from an equal weight of residual income valuation (COE: 13.0%; LTG: 4.0%) and the rolling forward of our P/BV valuation to FY21F (2.8x). Downside risk: lower-than-expected credit growth. A shorter period of booking the upfront fee, thereby lifting FY20-22F earnings, is an upside risk.

Read the full report: HERE

Notable Corporate Events

LDG Investment JSC (LDG VN, HOSE) – Business results: LDG’s 9M20 net revenue rose 75% yoy to VND1,191bn, while its after-tax profit fell 96% yoy to VND12.6bn, a company report showed. The profit plunge was in place due to a higher cost of goods sold and dramatic selling cost rise of approximately 7.8 times yoy. (Ndh.vn)

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