Global FDI

• Global Foreign Direct Investment (FDI) collapsed by 42% in 2020 to USD 859bn, from USD 1.5 trillion the prior year (Table 1 & 2). This is 30% below the through after the Global Financial Crisis (GFC) in 2009.
• Developing countries accounted for 72% of total FDI, the highest share ever.

PNJ Q4-2020 AM Note: Thriving Retail Sales

We attended the PNJ Q4-2020 AM on Jan 25^th,2021. Below are key takeaways:

• 2020 unaudited net profit was 5% higher than our full-year estimates, totaling VND1.1Tn (EPS: VND 4,700), mostly due to better-than-expected Q4-2020 profit.
• Upbeat jewelry retail channel sales in Q4-2020 (+22.8% YoY) was the main culprit behind the slight surprise in earnings.
• Though Q4-2020 GPM jumped nearly 1pps YoY and 1.4 pps QoQ to 20.2% as the channel sales mix changed, the quarterly net margin remained nearly unchanged at 7.3% due to large employee incentives expenses.
• Despite recent positive results in retail sales, managers still worry about uncertainty in jewelry demand in the short-term, pending clear guidance for 2021.

New growth motivation: Replicating Shop-in-Shop model that sells affordable jewelry under the brand “Style by PNJ”; Cooperating with financial companies to offer instalment purchase and pawn services.

HSG AGM update - An ambitious plan to become one of the leading construction material retailers in Vietnam and ASEAN

HSG’s net income in 1Q FY 2020-2021 was positive, and the result could still be good in 2Q as the company has inventory accumulated at a low price. We think HSG’s high profit was supported by the HRC price and it will return to the normal phase with a lower gross margin in 2H FY2020-2021. The HRC price could decrease in 3Q FY2020-2021 after surging in the last six months due to the temporary supply shortage of steel and materials. Regarding HSG’s new strategy, the company will enter a new phase as it will focus on developing a retail system and not invest more in factories. We think this is a suitable orientation for the company to create some growth momentum in the next years. This is because the competition in the steel pipe and coated steel segments is going to be harsh as several manufacturers now are able to produce hot-rolled coils. Besides, construction material retail markets are fragmented and larger compared to the only downstream flat steel market. However, HSG needs time to test and develop the right model for sustainable growth. Hence, we recommend monitoring this stock.

ACB – Some focal points from 2020’s preliminary results

ACB just announced its consolidated earnings, which are slightly higher than our expectations. The preliminary results are quite impressive in general, given the context of low GDP growth and weakened economic activity. Based on the released information, we expect to maintain our long-term view and investment rationales on ACB. However, we think there could be an adjustment in the valuation due to booking the bancassurance upfront fee. In short, this could be considered as an under-expected information to us. On the other hand, we appreciate the performance of the bancassurance segment and effort in cost reduction. We expect the improvement in profit before tax margin to help neutralize the effect of lower contribution of abnormal income on the intrinsic value. The guidance on restructured loans also raise hope for moderate credit costs, but we believe there are still uncertainties regarding the assumption of the degradation ratio of those loans and economic recovery.

VN Index (closed Jan 22 @1167): Technical Viewpoint

The VN Index is now at a critical juncture. Having stalled at around the 1200 mark during the 2^nd   week of January this year, the Index has made a double top at that level (Figure 1). On a weekly basis, 1200 corresponds to the same level at which the Index peaked in April 2018. It took the VN Index 33 months to get back to the April 2018 all-time high.

Residential real estate market in HCMC: The recovery is on track driven by high-end products

The HCMC residential market in the last quarter of 2020 maintained its recovery momentum from Q3 2020. There was a sharp increase in launched and sold units (8,058 units, +103% QoQ and 6,178 units, +74% QoQ, respectively) according to CBRE. However, on a full year basis, new supply fell to a five-year low as the number of newly launched units and sold units decreased 35% and 49% YoY, respectively. In 2020, the high end and luxury segments were key supply contributors (c. 83% of newly launched units) while affordable and mid-end segments stayed muted. Due to the lack of affordable and mid-end supply, investors are currently looking for suburban/tier-two markets as Binh Duong and Dong Nai given the ramp-up in infrastructure development. In our view, in 2021, the legal issues would be less severe thanks to the effectiveness of several laws including Law on Amendments to Construction Law 2020, Investment Law 2020 and Decree 148/2020/ND-CP. Consequently, new supply should improve. 

Steel exports update – Opportunities to come during the pandemic

2020 was a successful year for Vietnam's steel exports as despite the pandemic’s negative effects, and being under anti-dumping investigations in several markets, export volume still grew positively. According to the Vietnam Steel Association, the export volume of construction steel and coated steel increased by 7% and 14% YoY respectively in 2020. For 2021, we expect that Vietnam’s flat steel export will still grow positively as the pandemic’s negative effect on exports will decrease and the demand from the EU will still be high. Temporary export difficulties in key markets, especially Indonesia, is decreasing as COVID-19 is controlled better. Meanwhile, several large coated steel exporters in Vietnam have received orders for production until early 2Q, mainly from EU.

US: Inauguration of Joseph R. Biden as the 46th President

Wednesday January 20^th

Key points:

• The inauguration was peaceful. There were expectations of potential violence around Washington and in other parts of the country by pro-Trump sympathizers.
• There were very few spectators in the streets or in front of the Capitol, a first. These were news crews, members of Congress and local officials, police and military personnel.
• Biden, in his inaugural speech, offered a message of peace, unity, hope, the end of uncivil politics, respect and dignity.
• Kamala Harris made history as the first female, first Black and first South Asian VP.
• Many Republican lawmakers praised President Biden’s speech.

Retails Sector Outlook

Having quickly recovered in a V-shaped manner since the social distancing ended, total retail sales of goods remained fairly resilient despite the second Covid-19 outbreak in August 2020 (figure 1), ending the year with an annual growth of 7%. Likewise, the consumer confidence index has been relatively optimistic. This solid recovery bodes well for aggregate household consumption demand which seems to remain intact. Moreover, we believe that the consumption demand should extend its improvement in 2021 as household disposable income will likely recover on the back of the decline to pre-pandemic levels of the unemployment rate. Going forward, the solid growth of the post-covid economy, coupled with a high rate of household consumption to GDP supported by a rapidly growing middle class, will remain the growth engine for consumer spending and thereby the retail industry.

Banking sector – Bad debt in 2021

In the context that the economy reached the lowest growth rate in a decade and the number of closed businesses skyrocketed, the banking sector still recorded good earnings. On the bright side, some banks still managed well with robust net interest income, driven by less impacted segments, others’ income was supported by upfront fees from exclusive bancassurance deals, opportunities from the volatile gold market, widened exchange rate spread, and low interest rates. This is quite better than expected compared to the concern of surging provision expenses and weak lending demand affecting profits. This was also due to the restructuring, maintenance of debt group which helped lower the pressure from provision of restructured loans. In 2021, these worries will be back as Circular 01 expires. High provision expenses and lag in bad debt formation are widely anticipated to hamper profit growth.

Despite also agreeing on the high base of provision expenses, we have reasons to believe that the bad debt concern might be not as terrible as predicted. The slowdown in restructured debt formation following the recovery and the period of normal economic activities is a sigh of that. The draft of the amended Circular 01 is potentially creating concern of a high credit cost cycle. However, it is expected to be one of the best scenarios, and we think that the banking system is preparing for it, at least at several large banks on our watchlist. They will also have time to handle restructured debt before making fully provision, according to the draft.

Gem Sky World – Key benificiary from Long Thanh Airport

Benefiting from the strong growth trend of the real estate market in the suburbs of Ho Chi Minh City which comes from infrastructure, notably the Long Thanh Airport (launched in January 2021), we believe that Gem Sky World will be the key catalyst of Dat Xanh Group in the following years, thanks to the advantages of scale, solid legal status and good location in the area. Recently, the company organized a sale event for land at Topaz and shophouse in Garnet and Pearl areas following the success of previous launches with an absorption rate of 95% over 1,357 land products. We expect that the next launch of Gem Sky World will continue to attract homebuyers thanks to its current good sale progress. In 2021, Gem Sky World is expected to generate VND 500 to VND 700 Bn NPAT for DXG based on management estimation (40-50% of DXG total NPAT target).

Gold price: Déjà Vu?

The spot gold price has gone nowhere since August 2020 (Figure 1), even though the world is in a pandemic, a mild recession and a geopolitical quagmire. If gold is a relative safety bet, why has the price been flat to slightly lower?

The answer: higher bond yields and stronger risk appetite. The 10-year Treasury has moved rather swiftly once it broke out of the range it has been in since late March 2020 (Figure 2), with the catalyst being the Democrats assuming control of the Senate. This raises the interesting issue whether the Federal Reserve is going to do anything about it in terms of adopting a Japanese-style yield curve control.