Textile & Garment sector’s export market demand outlook in 1H2023: Headwinds are still blowing

• We are turning more cautious on the order outlook for Vietnamese OEMs due to inflation-led consumption weakness in the export markets in 1H2023.
• Retail sales of clothing and footwear in Vietnam’s main importing market have shown signs of declining since Oct 2022. In the three months to Oct 2022, clothing was amongst the worst categories of non-food retail sales in the UK. In our view, it is tough for Vietnamese OEMs clients to increase sales growth in what looks like a slowing market.
• While the export market’s demand has slowed down, retail inventories have gone up, accumulating headwinds for Vietnam’s textile & garment order outlook.

NKG – Tough Time has not Ended but Valuation Turned Attractive

• Declining demand and high input price drove down profits in 9M2022. Revenue posted VND 18,771 billion (USD 782 mn, -3% YoY), whereas PAT tumbled by 84% YoY to VND 290 billion (USD 12.1 mn). 9M2022 gross margin decreased to 9% (9M2021: 16.6%), with a slump to -3.6% in Q3.
• For 4Q22, consumption will be worse than Q3. Sales will rely mainly on domestic market with domestic GPM less negative than export margin. High-priced inventory, selling price drop combined with provisions for inventory devaluation could make Q4 GPM fall to -27.4%. Revenue and loss of Q4 is forecast to come at VND 2,630 bn (-70% YoY) and –VND 865 bn. In sum, 2022 revenue could come at VND 21,398 bn (-24% YoY) while the bottom line could be a net loss of -VND 575 bn.
• Milder inflation from mid-2023 will encourage the global demand for coated steel, supporting export volume. A strong rebound of export is not expected because the trade policies in major markets have been increasingly challenging to Vietnamese producers. Domestic market is expected to be the main driver for growth in 2023. Gross profit margin will reach 5.5%, marginally higher than 4.5% of 2022. 2023 revenue and PAT-MI could reach VND 21,455 bn (+0.3%) and VND 147 bn.
• Applying three valuation methods including discounted FCFF, P/E and P/B, we arrive at a target price for NKG of VND 11,800/share, which is equivalent to a BUY recommendation with an upside of 30%, based on the closing price of November 18th, 2022. Considering the current P/B of 0.42, which is much lower than the 10-year average of 0.87, the current valuation seems to be attractive for long-term investment in NKG. The forward BVPS for 2022 and 2023 are VND 18,044/share and VND 18,588/share, or P/B at the end of 2022 and 2023 are 0.50 and 0.49, respectively.

MCM – A potential growth driver for Vinamilk

• Q3 2022, Moc Chau Milk recorded a growth of net sales at the rate of 4.7% YoY, equivalent to VND832 bn, explained by the diversifying product range. The SG&A expenses increased by 18.5% YoY but dropped 4.5% QoQ, proving MCM’s effort in optimizing operating costs. As a result, Q3 2022 net profit reached VND99 bn (+10% QoQ; +4.2% YoY).
• Despite of rising inflation, MCM saw 9M2022 net sales of VND2,346 bn (+6.3% YoY), driven by both higher ASP and higher selling volume. Backed by supports from Vinamilk, profits rose at stronger pace than revenue. 9M2022 net profit was VND274 bn (+18.4% YoY). Compared to 2022 revenue and profit targets, MCM completed 75.1% and 79.7%, respectively.   
• We expect MCM ‘s net sales and net profit to reach VND3,171 bn (+8.4% YoY) and VND346 bn (+8.5% YoY) in 2022, respectively. Because VNM ‘s dairy market share is over 55%, thus it is hard to boost strong growth in organic sales. However, combined with strong growth of subsidiaries, VNM is expected to show high single-digit sales growth.

Seaport – Less positive outlook at the end of 2022

• We estimate the total trading containerized cargo via sea growth +29% YoY, reached USD 95 billion in Q3-2022. In which, export and import turnovers are estimated at USD 54 billion (+36% YoY) and USD 41 billion (+22% YoY), respectively. The high growth rate is due to the low base during the Q3-2021 social distancing period.
• According to the Maritime Administration, cargo throughput at seaports in Q3-2022 reached 6.1 million TEU (+10% YoY) (-8% QoQ). Accumulated 9T2022, total cargo throughput reached about 12.7 million TEU (+5% YoY). Total throughput  decreased over the month, which is evident in some major ports in Ho Chi Minh City and Vung Tau.

Rough period could last until 2023

• Since 1986, after Vietnam had moved toward a market economy model, Vietnam's real estate market has experienced three strong growth periods, in both market size and selling price (1993-1996, 2007-2010) and experienced declines in the following years. These fluctuations was attributable to changes in land policies and monetary policy.
• We believe that the real estate market has entered the third booming period (2018 – 2021) thanks to the recovery of banking system after restructuring, expanding monetary policy and COVID-19 pandemic. However, the contraction period could have started from 2022, when (1) capital raising through bond market has been congested and (2) credit policy gradually shifted to strict regulation, especially real estate sector. According to data from the Ministry of Construction, in 3Q2022, most residential real estate activities showed signs of significantly slowing down compared to the same period last year. The number of licensed and eligible projects for sale decreased by 8% and 23% over the same period.
• In short term, we believe that macro-economics difficulties should not be resolved. In addition, if compared with previous cycles, it is expected that it will take two to three years for the real estate market to start a new recovery.

External demand weakened sharply in Oct 2022

• Export growth weakened significantly while imports improved slightly from the previous month.
• 2022’s export turnover is estimated at $375-380 billion, up 12-13% over the same period.
• 2022’s import turnover is estimated at $363-366 billion, up 9-10% over the same period.

FPT - Resilient 9m-2022 Business Results Amid Headwinds From Global Macro Economy

In Q3-2022, FPT achieved net revenue and NPAT-MI of VND 11,149 billion (+28% YoY) and VND 1,454 billion (+29% YoY), respectively. Accumulative 9M-2022, FPT recorded net revenue and NPAT-MI of VND 30,975 billion (+24% YoY) and VND 3,943 billion (+30% YoY), respectively. These results are slightly lower than our expectations.

Global IT services maintained revenue and EBT growth at double-digit rates of 30% YoY and 28% YoY respectively.

• Notably, revenue growth from the Japanese market in Q3-2022 started to accelerate to 19% YoY despite the JPY depreciating about 18.5% YoY, implying a jump of 40% YoY of products delivery in Q3-2022 compared to a growth of over 20% YoY in the first half of the year. In addition, revenue growth from other markets remained high: US +33% YoY, EU +22% YoY and APAC +58% YoY. Excluding exchange rate factor, 9M-2022 accumulated revenue of Japan market up 27% YoY, EU up 10% YoY.
• However, revenue from digital transformation (DX) services decreased by 1% YoY in Q3-2022. This is due to (1) the decline in demand from NFT game customers, leading to negative growth in services revenue using Blockchain technology and (2) the high comparative base of the same period last year. On the other hand, Cloud services recorded rapid cumulative growth of 54% YoY. FPT maintains DX services’ full- year growth target of 35-40% (9M-2022 +34% YoY).
• Newly signed revenue has started to decelerate slightly, growing by 15% YoY in Q3-2022, compared to 40% YoY in 1H-2022. In particular, customers in the US have recently shown signs of delaying the progress of IT spending due to the macro headwinds. In contrast, signed revenue in Japanese market has picked up with an increase of 50% YoY over the last two months.

REE – Favorable conditions boosted earnings in 3Q2022

• The company posted revenue and NPATMI of VND 2,234 bn (or USD 91 mn) and VND 680 bn (or USD 28 mn).The gross profit margin expanded to 41% in 3Q2022 from 32% in 3Q2021, driven mainly by the power sector. Power plant earnings have tripled compared to that in 2021, contributing 55% of  total NPAT. Office leasing/ M&E services and the trading sector have  doubled/tenfold compared to last year, contributing 26% and 6% to total NPAT. The water segment sustainably rose by 10%, accounting for 13% NPAT.
• In 2022, we forecast revenue and NPATMI to be VND 8,486 bn (or USD 346 mn) and VND 2,678 bn (or USD 109 mn), +46% YoY and +44% YoY, respectively. REE has outperformed during 2022 thanks to (1) Favorable conditions boosting hydropower results; (2) New contribution of the three wind power plants; (3) The recovery of remaining segment compared to 2021. We forecast revenue and NPAT in 2023 to be VND 8,237 bn (or USD 336 mn) and VND 2,581 (or USD 105 mn), -4% YoY and -3% YoY, respectively.
• We revise down our target price to VND 79,000 to reflect (1) higher WACC  and (2) higher interest rates in the context of a risk-free rate surge. Comprising of VND 1,000 dividends in the next 12 months, offering an upside of 16% compared to the closing price as of Aug 11th, 2022. Hence, we recommend to ACCUMULATE this stock.

DPR – Tree liquidation lift up 3Q2022 earnings, land use conversion will be the main focus in the long term

• In Q3/2022, revenue was VND 340 billion or USD 14.2 million (+13% YoY), and NPAT-MI was VND 85 billion or USD 3.5 million (+25% YoY). Accumulated 9 months, revenue reached VND 841 billion or USD 35 million (+15.68%), and NPAT-MI reached VND 139 billion USD 5.8 million (+34.53% YoY).
• We believe that DPR can complete the revenue plan in 2022 as the main business segment does not have much fluctuation, however, the year's profit target is difficult to achieve as the land handover plan was not as expected. Accordingly, revenue and NPAT-MI in 2022 are estimated at VND 1,347 billion or USD 56.1 million (+11%YoY) and VND 472 billion or USD 19.7 million (+10%YoY), respectively.
• PDR plans to convert 4,000 hectares of rubber land to industrial or residential use. This plan is consistent with Binh Phuoc province's master plan for the period 2021-2025 and is feasible because (1) the DPR rubber land area is in a prime location adjacent to Binh Duong province's industrial capital, and (2) there is a convenient regional linkage. This is consistent with the provincial planning philosophy. (2) Clearing land for project implementation will be much easier than negotiating with numerous individual households.
• We continue to maintain a positive long-term outlook for DPR. When compared to the previous valuation, the target price has been reduced by 8.7% to 66,300 VND/share compared to the last valuation in the 2H2022 strategy report  due to (1) the upward adjustment of the discount rate is more in line with the recent rapidly increasing interest rate trend, (2) delaying the handover of land to Binh Phuoc province, and (3) delaying the progress of Bac Dong Phu Expansion Industrial Park project to 2025. When combined with the expected cash dividend of 3,000 VND/share in the next 12 months, the total expected return is +35.5% (based on the closing price on 11/10/2022).

ACB – Stand Still in the Coming Storm

• ACB posted an earnings growth of 71% YoY in Q3/22 driven by high growth in net interest income, service income, slower growth in operating expenses and provision expenses fell sharply.
  
• Asset quality was slightly deteriorated due to the expiration of Cirular 14 but restructured customers continued to recover and provision buffer remained high. Profit performance was not impacted as the bank has fully provisioned the entired structured loans last year. Besides, ACB is one of the a few banks in our coverage that are least affected by the ongoing adjustments in the real estate sector and harsh macroeconomic conditions, owing to low exposure to the sector.
  
• Q4/22 performance will continue to be healthy as in Q3 and will make a high growth on the low comparison base of Q4/21. For 2023, we see more constraints to the growth momentum of the bank including low credit growth, quickly rising interest rate, high mobilizing pressure and higher credit costs (compared to the low base of 2022).
• The forecast of PBT for 2022-2023 are VND 18,113 billion (+51%) and VND 19,958 billion (+12%), respectively. Corresponding book value per share are estimated at VND 18,586 and VND 21,316. As we reduce the ROE of 2022-2023 and raise valuation factors of discount rate and lower P/B target to factor in the high capital cost environment and the market worsened sentiment to the banking system, the target price is revised to VND 29,200/share, down 32% from the previous valuation. This translates to an upside of 7% from the closing price of November 9, 2022, and an ACCUMULATE recommendation

TNG – 3Q22 sales ahead of expectation, but financial expenses continue to hurt earnings

• 3Q22 sales ahead of expectation. Net sales reached VND 2,021 bn/ USD 81.3 mn (+2% QoQ, +29% YoY), showing a strong resilience to sector headwinds. NPAT-MI was VND 106 bn/ USD 4.3 mn (+22% QoQ, 25% YoY), while financial expenses surged 48 % YoY to VND 68 bn.
• The company has received full orders in Q4 despite sector woes. We forecast net revenue and NPAT-MI of VND 1,493 bn/ USD 60 mn (+2%QoQ, 133% YoY) and VND 70 bn/ USD 2.8 mn (+14% QoQ, 154% YoY), respectively, because of positive order momentum. For FY22, we expect TNG’s net revenue and NPAT-MI to be VND 6,756 bn/ USD 272 mn (+24% YoY) and VND 301bn/USD 12.1 mn (+29% YoY), respectively. The correspondent EPS is VND 3,042.
• We maintain BUY while lowering one-year target price to VND 20,700/share (from VND 27,600/share). The lower TP is primarily driven by downward FY23 earning revisions due to rising inflation risks affecting spending on discretionary in exporting countries. We also lower our target P/E to 6.7x, below TNG’s 10-year range owing to potantial risks from the rising discount rate. With an expected cash dividend of VND 800/share in the next 12 months, implying a total return of 46%, based on the closing price of Nov 8th, 2022.

QNS – Gross margin to gradually improve

• Accumulated 9M-2022, revenue and NPAT-MI were VND 6,311 Bn (or USD 263 Mn) and VND 858 Bn (or USD 36 Mn), rising by 9.3% YoY and declining by 1.4% YoY, respectively. Overall, the results are in line with our expectation.
  
• We currently forecast that revenue and NPAT-MI will reach VND 8,064 Bn (or USD 336 Mn, +10% YoY) and VND 1,267 Bn (or USD 53 Mn, +1% YoY), respectively in FY2022. FY2023 revenue and net profit are expected to reach VND 8,730 Bn (or USD 363 Mn, +10% YoY) and VND 1,443 Bn (or USD 60 Mn, +14% YoY), respectively.
• We revise our target price down by 5% to VND47,700 per share mainly due to increasing discount rate. We have a BUY recommendation on QNS with expected return of 23%, including a 7% cash dividend yield.