Earnings will turnaround in 2024, but valuation looks fair

• We forecast a negative YoY growth in Q4 2023 earnings for NT2, influenced by (1) a major overhaul in October and (2) lower FMP prices compared to the Pc. We expect that NT2's Q4 earnings will primarily derive from Contract for Differences (CfD), while earnings from the spot market are expected to be minimal. Consequently, we project NT2's Q4 2023 revenue and NPAT to be approximately VND 1,133 bn (+39% QoQ and -41% YoY) and VND 8.3 bn (-95% YoY), respectively. Accordingly, the revenue and NPAT for the FY23 are expected to reach VND 6,315 bn (-28% YoY) and VND 263 bn (-70% YoY), with an EPS of 898 VND per share.
• We expect NT2 to record a reimbursement for realized FX loss of VND 155.3 bn in 2024, instead of 4Q23 as previously forecasted. For the FY24, we project an increase in electricity production, reaching 3.449 bn kWh (+15% YoY). This projection is based on the assumption of output at 80% of designed capacity, lower than the multi-year average, due to uncertainties in domestic gas supply for electricity production in the Southeast region during 2024-2025. With an assumed average gas price of 9.1 USD/mm BTU (+1% YoY) and these factors, we forecast NT2's 2024 revenue and net income to be VND 7,594 bn (+20% YoY) and VND 417 bn (+59% YoY), respectively, resulting in an EPS of 1,426 VND per share.
• We maintain a NEUTRAL recommendation for NT2 with a one-year target price of 23,900 VND/share, including an expected cash dividend of 1,500 VND/share over the next 12 months. This corresponds to a total expected return of 4% based on the closing price as of November 24, 2023.
  

An Overview of The Semiconductor Industry Ecosystem

In the semiconductor industry, various companies are closely connected to each other in the whole process of design, manufacturing, assembly, testing and sales. The entire process can be handled by one company or multiple companies can work together in the semiconductor ecosystem. Nowadays, each major step of chipmaking is often handled by a separate company.

DPR – The value from land conversion requires more time for validation.

• DPR's revenue reached VND 612 billion (-27% YoY) while NPAT-MI reached VND121 billion (-31% YoY). The main reason is that rubber prices have not yet recovered as expected and the progress of collecting compensation from Tien Hung 1 and Tien Hung 2 projects has not met expectations
• For the entire year of 2023, we estimate the revenue to be VND 1,030 billion (USD 42 million, -15% YoY) and the net income for the parent company's shareholders to be VND 174 billion (USD 7 million, -30% YoY), with an EPS of VND 1,999. Accordingly, the revenue and net income for Q4 are projected to be VND 419 billion (USD 17 million, +10% YoY) and VND 53 billion (USD 2 million, flat YoY). This forecast is based on the rubber segment's continued quarterly recovery, with an estimated increase in the average selling price from the current VND 33.5 million per ton to VND 34.5 million per ton and pending compensation payments from KDC Tien Hung 2
• In the next 2-3 years, the two industrial park projects Bac Dong Phu expansion, Nam Dong Phu expansion and 300 hectares that the province will reclaim to bid for residential development will be the first pieces of land to be converted land use purpose. It is expected to bring compensation cash flow to DPR. However, the timeline that the project can be implemented still depends on many different factors
• Based on the Sum-of-the-Parts (SOTP) method, the target price after the stock split is VND 29,100 per share. Combined with the anticipated cash dividend of VND 1,500 per share over the next 12 months, the total expected return is -0.3% (based on the closing price as of November 21, 2023). This equates to a HOLD recommendation for long-term investment purposes

KDH – Sales strategy to precede a recovery

• In 3Q23, KDH recorded revenue of VND 616bn (USD 25.5mn, +6%QoQ, -23%YoY), due to the handover of high-value townhouse at the Classia project (~20 units as estimated, the parent company's profit after tax (NPAT-MI) reached VND 208bn (USD 8.6mn,-41% YoY, the company did not record profit from buying additional shares in the subsidiary as in 3Q/2022). For 9 months in 2023, the NPATMI reached VND 655bn (USD 27mn, -33% YoY), equivalent to ~66% of the company's business plan.
• For the full-year 2023, we adjusted KDH's total revenue to VND 2,234bn (USD 91.9mn, -23%YoY), mainly from the handover of ~110 Classia units. NPAT-MI reached VND 920bn (USD 37.9 mn,-17%YoY, ~92% of the company's business plan). As a result, we expect that in 4Q2023, revenue and NPATMI will reach VND 610bn (USD25.1 mn,-51%YoY) and VND 265bn (USD 10.9mn, +123%YoY), respectively. 2023EPS could reach VND 1,150.
• According to the sales plan, the company will be prudent in 2024 operating each project in turn so that the market can absorb the sold units, with: 1/ Privia a condominium project in Binh Tan district is expected to open for sale ~700 units in November 2023, and completely selling the remaining units in 1H24; 2/ The Clarita project, with ~160 low-rise products, is expected to be able to sell in 2H24. 
• Using the SOTP (Sum-of-the-parts) method, we maintain the target price at VND 36,200 per share (Upside +13% from the closing price on November 21, 2023), which is equivalent to an ACCUMULATE recommendation for long-term investment purpose. 

Postal industry – The e-commerce market is a 'delicious cake,' but not easy to 'eat'

• Postal enterprises are undergoing a transformation from traditional delivery (letters, newspapers) to logistics services (packet delivery and warehousing). The rapid development of E-commerce is the driving force behind the recent growth in the postal industry.
• According to projections by Allied Market Research, the express postal market in Vietnam is expected to achieve a CAGR of 24% during the period 2022–2030, with an estimated value of VND 115 trillion VND by 2030. The growth momentum stems from the high demand for transporting E-commerce goods.
• Due to low entry barriers, domestic postal enterprises face challenges in the presence of foreign-invested transportation companies. The competition will remain diverse, with companies not only competing on price but also racing in terms of value chain and technology.

DGW – Laptops & Tablets performance are the highlight for Q3-2023 results

• Q3-2023 net revenue reached VND 5,413 bn (or USD 225 mn), dropped by -10.8% YoY but recovered by +17.8% QoQ, driven by higher Laptops & Tablets demand in the annual back-to-school season. 
• Net profit margin narrowed by -108 bps compared to the same period last year because of 1) lower selling prices to boost revenue growth, and (2) increase in selling and interest expenses. Nonetheless, we believe that the softening of “ICT price war” and “lower interest rate trend” will support the higher net margin of DGW in the next quarter.
• For 9M-2023, DGW completed respectively 70% & 66% of the 2023 revenue & NPAT-MI targets. We project that DGW will likely miss this year's profit guidance mainly due to the modest recovery of ICT demand.

DPM – 3Q23 earnings results worse-than-expected

• 3Q23 net revenue and NPAT-MI were VND 3,216 bn (USD 136 mn; -17% YoY) and VND 64 bn NPAT-MI (USD 2.7 mn; -94% YoY), respectively.
• We expect the bottom line to rebound in 4Q2023 after a trough in 3Q2023 thanks to 1) the improvement in both selling price and sales volume and 2) the cooling down of gas input price which will support the gross margin. 
• FY2023 we estimate that DPM can achieve VND 13,705 bn revenue (USD 578 bn; -26% YoY) and VND 690 bn NPAT-MI (USD 29.1 mn; -88% YoY). 2023F correspondent EPS will be VND 1,748.
• We maintain a NEUTRAL recommendation with 11% lower one-year target price of VND 32,200/share (from VND 36,200/share). The lower target price is primarily driven by downward earning revisions. However, an expected cash dividend of VND4,000/share in 2023 (be paid in 2024) ~ a dividend yield of 12% will be a plus.

Update on trade in October 2023

• Exports of the domestic sector rose by double digits in October 2023.
• Imports of textile garment and footwear materials ended a 12-month consecutive decline.
• The hard part is over for Vietnamese exporters

The debt issue

• Years of cheap money – meaning extremely low real interest rates - has made it easy for corporations and governments globally to borrow above what they are now able to repay. This is especially the case in emerging markets where interest payments have surged (Figure 1).

VNM - Domestic sales continue growing quarter-over-quarter

• Q3 2023 sales reached VND15,637 bn (+2.9% QoQ; -2.8% YoY). The lower than last year sales is due to the high base effect while the domestic channel becomes the growth driver of both quarter-over-quarter and year-over-year basis. Q3 2023 net profit continued growing to VND2,493 bn (+13.4% QoQ; +8.5% YoY) due to (1) improved gross margin given the easing of input costs; and (2) SG&A optimization.
• Based on 9M2023 positive results, we calculate that the 2023 sales will show a positive growth, to VND62,868 bn (+5% YoY), after experiencing a negative growth in 2022. Similar to the top-line, we believe that 2023 NPAT-MI will draw a better performance, at a growth of +7% YoY to VND9,081 bn. The equivalent EPS is VND3,910 (+8% YoY).
• We believe that VNM ‘s growth indicators in 2H2023 will continue to enhance the 2024 performance. Therefore, we predict that the 2024 sales and NPAT-MI to be VND65,641 bn (+4% YoY) and VND10,068 bn (+11% YoY), respectively. The equivalent EPS will be VND4,336 (+11% YoY).
• We combined FCFF valuation model (50%) and multiples comparison (50%) with an applied 2024 P/E of 19.0x, producing the target price of VND87,600. For the 2024 period, we lower the targeted P/E to 19.0x from 21.0x in the 2023 period to reflect the weak sentiment of Vietnam stock market. Adding an expected cash dividend of VND3,850, the 12-months expected return is 33% compared to the closing price on Nov 13rd 2023, equivalent to BUY recommendation.

OCB - Q3/2023 High PBT Growth Thanks to Stable Revenues and Cost Control

• In Q3/2023, OCB recorded a total operating income of 2.4 trillion VND (+19.2% YoY and 4.5% QoQ),driven by strong growth in non-interest income sources. Additionally, the bank improved its operational efficiency, as reflected in the Cost-to-Income Ratio (TTM) decreasing by 1.3 percentage points to 31.2%, and provision expenses decreasing by 13%, resulting in a YoY PBT increase of 49% to 1.3 trillion VND. Cumulatively for the first nine months of 2023, the PBT reached 3.9 trillion VND (+48% YoY), completing 65% of the 2023 profit plan.
• In the first nine months of 2023, credit growth achieved 10.4% YTD. Within this, the outstanding balance of customer loans (CVKH) increased by 9.8% YTD, and the corporate bond portfolio increased by 35.68% YTD, amounting to about 1 trillion VND, representing 3% of the total credit. Regarding CVKH, the retail and corporate credit proportions were 36% and 64%, respectively (compared to 40% and 60% at the end of 2022).
• The Net Interest Margin (NIM) experienced a slight decline of 4 basis pointscompared to Q2, reaching 3.72%. The faster decline in asset yields, according to our analysis, was due to (1) the bank lowering interest rates to support customers and (2) the corporate bond portfolio growing more rapidly.
• For Q4/2023, it is expected that total operating income will increase slightly (+3% YoY) compared to the same period last year, thanks to high credit growth (+14.6% YTD) and a stable NIM (TTM) at 3.8%.Conversely, with LLR reduced to a low level and the economic backdrop showing limited improvement, it is forecasted that provisions will remain at a level equivalent to Q3/2023. Therefore, the expected PBT for Q4/2023 is projected to reach 1.6 trillion VND (-7% YoY). For the full year 2023, the PBT is expected to reach 5.5 trillion VND (+25.8% YoY). The estimated Net Profit After Tax (NPAT) and Earnings Per Share (EPS) are 4.4 trillion VND and 2,076 VND, respectively.
• Our target price is 15,500 VND per share, corresponding to a PBR of 1.08 and a 13% return compared to the closing price on November 13, 2023. Thus, we recommend to Accumulate OCB.

REE – Fundamentals look sound with catalysts in place

• In 9M/2023, REE's net revenue and PAT reached VND 6,505 bn (+3.2% YoY) and VND 1,684 bn (-14.6% YoY), respectively, owing mostly to the hydroelectricity's reduced contribution. Power output and FMP prices both fell in Q3/2023, causing the energy segment's contribution to NPAT-MI to fall considerably (-48.3% YoY). However, we expect that the results of the energy segment will improve in Q4/2023. We forecast REE's net revenue and NPAT-MI would be VND 8,827 bn (-5.8% YoY) and VND 2,437 bn (-9.5% YoY) in 2023, equivalent to EPS of 5,967 VND/share.
• For FY2024, we estimate that REE's net sales and NPAT-MI will be VND 9,324 bn (+5.6% YoY) and VND 2,810 bn (+15.3% YoY), respectively, equating to EPS of 6,878 VND/share. The main growth drivers in 2024 business results are (1) the E.town 6 project, which is expected to contribute an additional 26% to the existing rental floor area when completed in mid-January 2024, and (2) the Light Square commercial project with a low-rise segment (phase 1), which is expected to complete construction at the end of 2023 and hand over in 2024.
• We maintain a BUY rating with a target price of VND 74,000/share based on a sum of the parts (SoTP) valuation. With an expected cash dividend of VND 1,000/share in the next 12 months, total return is determined at 30% based on the closing price on Nov 10th, 2023.