VSC – Update 1Q2019 Result

VSC’s 1Q 2019 NPAT fell 37% YoY. Operational efficiency was negatively affected by overcapacity issues, resulting in berths jams and leading to increased usage of other nearby ports. At the same time, the recognition of non-recurring expenses was also a significant factor affecting the company's profit. However, the sharp fall in VSC’s share price may offer a short-term opportunity. We estimate fair value at VND 42,000 offering a total return of 14% including a VND1,500 per share cash dividend. Recommendation: ACCUMULATION.

BID – 1Q 2019 Business Results and 2019 AGM Updates

BID's prospects depend largely on the private issuance to KEB Hana Bank. If successful, capital pressure will be relieved and the competitiveness of BID in retail, SME and FDI segments is expected to improve. The deal has been approved by the SBV since Oct 2018 but is not yet completed due to price negotiations and procedures. This year, the SBV has proposed the Ministry of Finance to consider raising the charter capital among state-owned banks, including paying stock dividends and retaining earnings.

BID has set a credit growth target of 12% this year, slightly lower than the 14% last year. We believe BID will find it hard to maintain current NIM due to continuing pressure on both asset yields and funding costs. Therefore, net interest income growth is forecast to be modest while we see few non-interest income growth drivers. Meanwhile, operating expenses are expected to increase rapidly due to technology investment costs. The provision expense burden is likely to persist due to weakening asset quality as well as the plan to clear all remaining VAMC debts. We expect that BID will only be able to achieve modest growth in 2019.

BID is currently trading at VND 32,500, equivalent to a trailing PBR of 2.1x, unattractive compared to the industry average (1.5x). We think that the current market price already reflects BID's fair value and we keep our NEUTRAL rating on the stock.

Money to flow to China?

China is the second biggest economy in the world, accounting for nearly a fifth of global GDP. But despite China’s importance in the world economy, the mainland Chinese capital markets are unfamiliar terrain to many investors.

Result Update on PetroVietnam Technical Services Corp (HNX: PVS)

We rate ACCUMULATE for PVS with a target price of VND28,000 per share, based on the FCFF and P/E method. Including the VND500 cash dividend, we arrive at a total return of 16%, based to the closing price on May 23^rd, 2019.

Philippines’ rice tariffication law and Opportunities for Vietnam

On April 05th 2019, Philippines (PHL) policymakers have approved the Implementing Rules and Regulations (IRR) of Republic Act 11203. This Act has been signed by PHL president Rodrigo Duterte on February 14th 2019. The Act came into effect on Mar 05th 2019 and lifts the quantitative import restrictions on rice. Instead of limiting how much rice will enter the country, rice imports will be slapped with a tariff.

Overall, we think this legislation will have a positive effect on Vietnamese rice exporters. The import tax rate applied for Vietnamese rice is relatively low, fixed at 35% regardless of volume while production costs in the Philippines are much higher than in Vietnam and Thailand.

PHL has not been able to produce enough rice to feed its own people and has been importing rice for the past 20 years. Last year, before the new regulations, more that half of Philippine rice imports came from Vietnam.

CTI - 2019 AGM Update

The stock is currently trading at P/E of 11.5x and has experienced a downward trend in the last few months. We think it was the delays in launching new BOTs and public pressure over BOT activities, in general, being reflected. The BoD did share some of the current setbacks, especially in 1H 2019. We however expect the situation to better improve in the 2H when the BOTs manage to come into operation. Stone segment is promising in our view, but in a bit long term. At this time, we recommend a follow up for this stock.

The Euro turned 20 - lessons for ASEAN

Fundamental issues in Europe remain. The EUR for one is still a drag on many member states. In fact, a study from the Centre of European Policy (CEP) in Freiburg, Germany said only The Netherlands and Germany gained from the introduction of the euro some 20 years ago.

PXS –1Q2019 Result and 2019 Forecast

Although the 2019 outlook for PXS are not as bright as the other upstream companies such as PVS, PVB, Long Son will start to contribute from next year, ensuring a profit for its core business for at least 2 years. Besides, we still believe that the company will eventually benefit from the big projects like Block B and other projects. The current price equivalent to a P / B of around 0.5x looks attractive.

Construction Industry- Different Approaches to Growth

While 2019 might not be a prosperous year for the construction industry, leading companies have different approaches towards growth which are interesting to highlight. Indeed, Q1 business results show that many civil construction contractors will need higher growth in the remaining quarters to achieve their 2019 targets. Looking at CTD, Ricons, HBC and HTN’s performance, we noticed interesting differences in views and strategies regarding the construction business in 2019.

China’s capital outflow is likely to continue

• We notice a negative relationship between the USD/CNY onshore and China’s capital outflows
• China’s capital outflows recorded the highest number ever in 2015, USD 896 bn
• China introduced a series of regulations to control flows. This helped to reduce capital outflows by 46% YoY in 2017. Still, more than 2.8 trillion dollars left the country since 2014
• As the conflict continues; further currency pressures are expected possibly leading to further outflows. Capital outflows from China reached USD 4 bn YTD through ETF channel.
• Capital controls negatively impacted China’s outward FDI. Prior to these measures, outward FDI had an average annual growth rate of 20% from 2009 to 2016 until it dropped 29% YoY in 2017.
• Vietnam is favored by Chinese investors due to its low labor costs, geography, and culture. China outward FDI to Vietnam has risen for five consecutive years since 2014 despite the capital controls and noticeable slump in 2014-2015 over naval tensions in the East Sea.

HDB – 1Q2019 Business Results and 2019 AGM Updates

We maintain our view that HDB has some advantages in retail lending including a diversified customer ecosystem and close relationship with strategic partners. However, the bank will need to exploit this ecosystem more effectively if it wants to keep up high growth and expand NIMs.

HDB set an ambitious PBT growth target of 27% YoY based on aggressive credit expansion (+24% YoY) for which it has no SBV approval. While the merger with PGBank is still pending, service income and CASA must seek other growth drivers in the near term. Given the bank’s plan to open 23 more branches/TOs, maintain the largest consumer finance network, launch new digital banking products, and clear all VAMC bonds, we expect pressure on operating costs and provision expenses to persist. In short, we believe the 27% PBT growth target will be challenging.

HDB is currently trading at VND27,000 (closing price on May 17^th), equivalent to a trailing P/B of 1.7x, a bit higher than industry average (1.5x, excluding VCB). We consider reducing our current target price (VND 34,000). Detailed 2019 forecasts and target price will be included in our upcoming report.

REE – Well poised for large M&A disbursements

In summary, although the recent updates revealed a grey 2019 outlook, strong M&A disbursement implies that REE could regain its growth momentum from 2020 onward. Moreover, current weak supply in Ho Chi Minh City office market plays to their advantage. We expect REE’s 2019 earnings to remain flat but maintain our BUY recommendation with a target price of 48,400 VND/share.