PAC – Short Term Outlook Remains Stable

2018 performance is expected to witness a slight improvement due to a decline in input material prices. However, in our opinion, there are still problems that PAC needs to tackle. 

CTG: High Provision Charges Likely to Undermine Earnings

In the first half of 2018, CTG’s total operating income (TOI) grew 6.2% YoY to VND 17.3 Tn. While net interest income (NII) grew 7% YoY and associated income declined 62%, services income became the bank’s driver with 32% YoY growth. It should be reminded that CTG divested from Aviva Assurance and reported one-off profit in 1H 2017. Excluding this amount, associated income grew 32.4% YoY, mostly contributed by Indovina’s earnings. CTG’s 1H 2018 PBT and NPAT were VND 5.3 Tn (+9.4% YoY) and VND 4.2 Tn (+8.5% YoY) respectively.

Digiworld is back distributing Nokia’s phones – the overall picture

On September 26, Digiworld and Nokia HMD signed a contract in which Digiworld will become the official distributor of Nokia products in Vietnam.

Vinamilk – Seeking Opportunities in New Export Markets

With the local demand for dairy products slowing down, large firms such as Vinamilk, are faced with one-digit organic growth over the next few years.  Hence they are seeking opportunities to add products as well as expand in international markets.  This is ceratinly a step which VNM must take to avoid facing the general decline in the domestic market. In VNM Result Update that Rong Viet Securities published recently, we mentioned that VNM is looking for opportunities to expand sales in markets such as Myanmar and Indonesia through the establishment of Joint venture with local companies. Why did VNM choose these two markets? Is this the right strategy? Traditional products such as condensed milk, powder milk and yoghurt are the main products that VNM is promoting internationally.

Shrimp Sector: the SIMP Program May Affect Exports from Vietnam in Early 2019

Shrimp exports are expected to recover strongly in the rest of 2018 and in 2019 after the announcement of the new tax rate. However, there is still a complicated barrier in the US market for Vietnamese exporters to overcome - the Seafood Import Monitoring Program (SIMP) program, which will come into effect on at the end of December.

FX - Euro

It seems that markets are ready to re-price the Euro to a higher level against the USD.

This could have an impact on Vietnam’s export and imports to/ from the EU. Companies involved in selling or buying goods and services to Europe should be keen to look at what potential impact this may have for them, if it materializes. The European Union is Vietnam’s third largest trading partner after China. A stronger Euro could also affect the import/ export relationship with the US, the largest trading partner.

Why do we think that the Euro could get stronger?

A Look at Ancillary Revenues of Low Cost Carriers (LCCs)

A small improvement in ancillary revenue/pax could give a huge boost to VJC’s earnings, as what happened in 2017. VJC’s number of international flights will likely increase further. We do not expect a huge jump but a stable and steady improvement over the years.

QNS - On the way to achieve the target of USD1 bn in revenue

QNS is the leading soymilk player in Vietnam with a 84% market share. However, the selling volume has been slowing down for two years, which has forced the company to change its strategy to adapt to the fierce competition from other peers if it wants to remain the leader

BID: Awaiting the removal of bottleneck

BID is in urgent need to raise capital buffers to meet the Basel II criteria. This will depend on the bank's ability to execute a public offering or private placement to strategic/financial investors. It is most likely that BID has selected a Korean bank as its strategic investor. In the meantime, BID is also organizing roadshows to seek potential financial investors. However, the process is long due to the requirement that the issuing price cannot be lower than the market price.

On Sep 14, BID has announced a Resolution for seeking shareholders’ written opinion in Oct 2018. We might expect that the resolution is related to the public offering or private placement to strategic/financial investors. The capital raising, if successful, will remove BID’s current bottleneck as well as improve its credit and profit growth potential. 

At the closing price on Sep 24 at VND34,900, BID’s forward PBR is estimated at 2.4, unattractive compared to the current average of the listed banks (excluding VCB), especially given BID’s moderate growth, high NPL and VAMC bond. We estimate the reasonable price for BID is at 35,000 VND, with an expected VND700 cash dividend for 2018, reflecting a 2.3% total return.

Vietnam’s Internal Risks

A few days ago, the trade tension escalated once again as the US set 10% tariffs on USD 200 billion of goods imported from China. Fundamental changes in the global value chains as well as financial markets’ volatility are stress-tests for emerging and developing countries’ macroeconomic stability. With regard to Vietnam, there exist key internal risks although the resistance to external risks seems to be relatively because of a positive current account and low debt service in term of export of goods and services.

Rice Exports – More Opportunities for Small and Medium Enterprises

Decree No. 107/2018/ND-CP, which regulates the rice export business will take effect from October 2018, replacing Decree 109/2010/ND-CP. The most noticeable change is that export requirements will be loosened.

Views on Raising the Environmental Protection Tax (EPT) on Gasoline Retail Prices

On September 20th, the National Assembly Standing Committee passed a resolution which raises the environmental protection tax on fuels and takes effect from January 01 2019. Accordingly, each liter of gasoline will be subject to an environment protection tax of VND4,000, up from the current VND3,000, and kerosene to VND1,000, up from the current VND300. The tax on heavy fuel oil and lubricants moves to VND2,000 per liter, up from the current VND900. The resolution surprised us a little bit as it was delayed in July due to inflation concerns. From our point of view, inflation and overall budgetary deficit are two important dimensions explaining the government’s decision.