DPM – 2021: Rising oil prices to be the largest headwind

The outstanding 2020 performance was a result of the tumble in natural gas prices, causing a sharp decline in input costs. Such results were in line with our forecast. Looking into 2021, rise in fertilizer prices may not be large enough to offset the strong increase in natural gas costs, which are driven by a surge in oil prices. Some sales have been delayed from 4Q2020 into 1Q2021 to take advantage of high fertilizer selling prices. We remain cautious on DPM’s 2021 outlook as mentioned in our latest report. In the long-term, we maintain our view that DPM has not much growth potential. Instead, it is merely a dividend payer with cash dividend stable at VND 700-1,000/share, equivalent to a dividend yield of 4%-5.8% at the current stock price. Thus, we keep our target price for DPM at VND 17,100/share. We expect a cash dividend of VND 1,000/share in the next 12 months. The total return is 5%, based on the closing price of February 24^th, 2021. We have a NEUTRAL view on this stock.

Are Equities Over-Valued?

• Yes, according to the ‘Buffett Indicator’.
• Maybe not if we consider low bond yields globally, even though they have been rising.
• Mainly depends on tolerance for volatility.

HND – Outperformed because of one-off profit

Because of La Nina's potential impact on thermal power plants in 2021 in general, our most recent target price for this stock was VND 17,900 with the combination of PE, FCFF and EV/EBITDA method with weight ratios of 40%, 40% and 20%, respectively. This low target price compared to the market price due to the PE multiple (7x) we use is relatively low compared to the current Index valuation. Moreover, we use a high weight in the PE valuation, reflecting HND’s negative outlook in 2021 because of La Nina. However, we will update our new TP in a later report to determine investment opportunities for a longer-term horizon.

Banking sector – Update on credit market share

• The credit market has seen changes in the last five years. Some of those are expected to be sustained in the future.
• Most of the state-owned banks underperformed sector in the last five years regarding credit expansion. Private banks sustained high credit growth, and diversified into corporate bonds when loan demand weakened. However, this does not reflect a change in risk appetite yet.
• The gap between private banks and state-owned banks will keep narrow, but the pace will slow down due to improved capital. The ranking of private banks regarding credit share is expected to change.
• Based on GDP growth, we project a double-digit credit growth in the upcoming years. For 2021, the forward growth is 13.1% on average. Therefore, we look forward to large private banks outperforming due to strong buffers. Given the uncertainty of the economic recovery, as well as the pandemic development, we maintain our positive view on TCB, VCB, and ACB.

GE2 – Is it an actionable valuation?

On February 9^th, 2021, Power Generation Corporation 2 JSC (ticker GE2) held the IPO of the parent company, selling 581,455,740 shares, equivalent to a 49% ownership. GE2 successfully sold 262,500 shares, equivalent to 0.045% of the total number of shares offered. The starting price was 24,520 VND per share and the average successful auction price was 24,578 VND per share. Although we do not have a finalized target price and recommendation, we believe that GE2's valuation is not too attractive compared to listed power generation companies. This observation holds true for direct comparisons with power plants that are subsidiaries of GE2, with other listed power plants, with renewable energy companies and with investment companies that have portfolios in this industry.

US equities: Valuation

According to the latest Shiller Cyclically Adjusted Price Earnings Ratio (CAPE), the US equity market is getting into ‘overheated’ territory. The CAPE now stands at 34.4, its highest level since late 1999 (Figure 1).  This is more than double the mean level of 16.8 calculated from data looking back to 1880 (Table 1).

Be mindful about the return of inflation

• Surging global commodity prices could lead to reflation.
• Vietnam’s inflation remained subdued but it might not stay muted in 2021.
• Vietnamese policymakers are still wary about allowing inflation to rise.

Growth opportunities for "professional" rice companies

The export volume is not expected to grow much and the selling price will decrease due to competition. As a result, export turnover will decline in 2021. However, there are opportunities in the niche market – high-quality rice exports to the EU, the UK and South Korea, creating a growth motivation for “professional” rice producers such as LTG, TAR and NSC.

STK – 2020: Recycled Yarn Boosted Performance

The 2020 performance was much better than our forecast because of the strong growth in sales of recycled yarn in 4Q, which led to its share in total sales rising to 45%, versus 40% in our assumptions. This, once again, confirm the efficiency of the strategy of focusing on recycled yarn. Thus, we revise up our target price for STK from VND 22,700/share to VND 28,200/share, as we think the high growth potential of recycled yarn will continue in the coming years. With an expected cash dividend of VND 1,500/share in the next 12 months, the total return is 13%, based on the closing price of February 3^rd, 2021. We recommend to ACCUMULATE this stock.

PVS – 2021 outlook less optimistic

We have a neutral recommendation on PVS with a target price of 16,800 VND / share (2021 Strategy Report issued on 28/12/2020). PVS is trading at a trailing P/E of 13.1x and a P/B of 0.7x. Oil and gas stocks in the last sessions have risen strongly following the general trend of the market while there are not many supporting fundamentals, so we recommend investors to be cautious when choosing stocks to invest in 2021, especially when the stock market is in a volatile phase.

Main points:

1. The most anticipated segment, M&C (Mechanical & Construction), faces difficulties in 2021 as there are few new jobs.
2. The remaining segments are relatively stable due to industry characteristics.
3. The motivation for investors to search and explore new mines is not high due to macro factors.

DXG – Analyst meeting

We have positive view on DXG prospects in 2021 and will update the target price in our next report. The main catalysts include (1) Secured profits from Gem Sky World project, estimated at above 700 Bn and Opal Boulevard (from VND 700 – 800 Bn), (2) The bounce back of the brokerage segment after Covid-19 thanks to the reactivation of sale activities. Otherwise, the re-launch of Gem Riverside could be a supporting factor as prices of surrounding projects increased by 20-30% compared to the opening price of the project in 2018. If the legal issue is taken care of, the project would generate a good cash flow for DXG and could be a booster for the stock price. In addition, advance sales to customers of VND 2,923 Bn at end of 2020  from Gem Sky World, Opal Boulevard and St. Moritz (+222% YoY) will be good source for DXG to book revenue when they hand-over products. However, we are still concerned about the financial health of the company as the debt/equity ratio increased strongly from 0.65x versus 0.48x at the end of 2019. 

PPC – 2020 performance exceeded the plan

We keep our target price at VND24,400, +2% compared to the current price, thus we recommend to accumulate this stock.  

Revenue in 4Q2020 fell by 18% YoY due to 2019 was an El Nino year. Thus, total revenue in 2020 reached VND7.9 trillion, -3.1% YoY (Table 1). In terms of volume, PPC provided roughly 1 billion kWh in 4Q2020, -9% QoQ and -35% YoY, relatively lower than Qc. During the year 2020, volume mobilized by EVN experienced a downward trend in 2H2020 since La Nina came back (Figure 1). Besides, PPC booked more than VND 270 billion in FX revenue in 4Q2020.