1H2020 earning results and 2020 plan of contruction rock companies

Obviously, the slowdown in construction has had a significant impact on most of the construction rock enterprises. However, the increase in the average selling price of products compared to the same period last year, coupled with the decrease in COGS, has supported the earnings in 1H2020. With the expectation that public construction activities will be more active in 2H2020, earnings results are expected to improve.

For DHA, its quarries are located in favorable location in the South Vietnam and are ready to benefit from public investment construction and gaining market share from two Nui Nho and Tan Dong Hiep quarries. We think DHA could complete its 2020 profit plan in the third quarter. Meanwhile, the leasing industrial park segment continues to be a lifesaver for KSB in the context that the reserve output of Tan Dong Hiep mine is running out. We also think it will not be difficult for KSB to fulfill its 2020 business targets as the leasing industrial park segment is still performing well.

NNC could fulfill its 2020 plan as the second half of the year on the last five year average contributed over 53% of the year's NPAT. Meanwhile, VLB set a low target of NPAT, down 24% YoY. Therefore, it will not be too difficult to achieve the target as it already completed 70% after 1H2020.

Insurance sector – Non-life insurance sector to outpace life insurance post-pandemic

The Insurance Association of Vietnam (IAV) has just released data showing that the pandemic has influenced life and non-life sectors in a complicated way.

KDC - M&A plans are underway; subsidiaries saw strong growth

We recently had a meeting with KDC. From the meeting, we learned that the group will likely have several M&A activities in the coming future to increase its stakes in existing subsidiaries namely TAC and VOC, besides the AGM-approved acquisition of KDF to make this firm become the wholly-owned subsidiary of KDC. While this is expected to decrease the minority interest and boost the bottom line, the group will keep working on improving its overall operation efficiency through premiumization strategy. Notably, KDC will come back to the confectionary business this year by firstly launching mooncake products under the brand ‘Kingdom’. While we are pending a recommendation on KDC in our next report, below are an overview of the group’s structure, key takeaways from the meeting, and a brief update on Q2-FY20 results.

US economy update

The real 10-year interest rate (inflation adjusted) is currently at around negative 1%. This rate has been negative before during the 1940s in the post WW2 era and in the 1970s (Figure 1).

Decline in real rates sometimes can be a deliberate policy to reduce the debt burden  because the real value of debt falls with rising negative real rates. The policy of negative real rates is always preferred over the bitter pill of allowing companies to go bust.

BMP – Making full use of its core advantages

Now that earnings growth is rare due to the impact of COVID-19, we seek and recommend stocks that are stable in core businesses, financially healthy enough to ensure a goodreturn to shareholders. BMP is one of our top picks. We have recommended to accumulate BMP in May and continue to raise the target price  to VND 52,800 / share in the 2H2020. But the upside is no longer actionable because BMP’s share price has increased 25% since the recommendation date (May 21^st, 2020). However, because of the company's stable core operations and the abundant cash dividend potential, we believe that investors can still consider accumulating BMP when the market price returns to a more attractive level.

IMP: Positive bidding results are foundations for growth in 2H2020

For 2020, we believe that IMP will meet its net income target due to its ETC sales’ strong growth and its attempt to cut SG&A expenses. In 2021, we expect that it will maintain high growth in revenue as its new EU-GMP factory runs commercially. We recommend to ACCUMULATE the shares with a target price of VND 52,500, plus a cash dividend of VND 1,500, a total return of 12%, compared to the closing price on August 28, 2020.

PAC – 1H2020 Update

PAC's business results in 1H2020 are not positive due to the impact of Covid-19 on demand for storage batteries and dry cells. Therefore, the company had to offer discount and promotion to stimulate demand. We believe that the better economic outlook in 2H2020 will help the company improve efficiency, thereby reaching the 2020 plan. In the 2020-2022 period, there will be no sudden growth in results. From 2023 onwards, the new factory in An Phuoc Industrial Park will be the main growth driver.

PVT – 2Q2020 result update

We believe that PVT's profit bottomed out in 1Q2020 and will gradually improve in the coming quarters. Although the profit for the whole year 2020 will be difficult to maintain growth, it will create a low “base” for the company to return to its growth momentum from 2021. In addition, PVT share is being traded at P/E forward 7x, quite cheap compared to its prospect. Therefore, we recommend to BUY the PVT share with the target price of VND13,400, Plus cash dividend of VND400, the total return is 23%, comparing to the closing price on August 26, 2020.

Real estate review: Busy times ahead

The first half of 2020 has passed with the spread out of the Covid-19 epidemic, affecting the overall economy and also changing consumption habits. Real estate businesses were also impacted. The limit on public gatherings has reduced the number of newly launched projects. Many companies also switched to online channels to improve their performance during the quarantine time. The most notable point during this period was that selling prices did not decreased and even increased in some cases. This could be explained by not only the limited supply but also high demand.

Vietnam: Balance short-term stimulus and long-term financial stability

The Covid-19 pandemic has negatively and widely affecting residents. According to GSO, over 30 million of workers are suffering from being fired, furloughed or experience lower incomes. That is equivalent to nearly two-third of Vietnam’s working class or a third of total population. Needless to say, there is an ultimate need of bridge financing to tackle the health emergency, easing residents’ income shortfalls and restoring business confidence. However, before applying any exceptional regulatory relief measures, the key question is how and when to conduct the exit strategy. In terms of  monetary policy, we believe that the State Bank of Vietnam (SBV) will shift toward a more balanced stance for long-run stability.

Construction stocks: Opportunity is rare due to the lack of growth engines

According to the General Statistics Office (GSO), the construction market went up by less than 5% in 1H2020, the lowest in the last five years. Apart from the impacts by COVID-19, the market has been lacking growth engines for a long time. Residential real estate used to be the major growth driver but is currently sluggish because of very few new projects. New launches in HCMC went down by 60% YoY in 2Q2020, while Hanoi and HCMC, the two largest urban areas in the country, collectively launched only 18 new projects in the last quarter, which is a record low number. Now that COVID-19 dampens future demand, international travel bans have put immediate pressure on tourism and  the resort market. Many new commercial and industrial projects have been postponed because of the difficulties in mobilizing workers and devices. During the difficult time like this, fiscal spending on infrastructure is expected to save the market, yet we have yet to see the immediate effect since many large projects are still in the bidding process and cannot carry out construction.

1H2020 earning results of CVT

We are a bit more conservative than CVT's management. We estimate revenue and PBT 2020 will be VND 1,169 and VND 116 bn, equivalent to 90% and 83% of CVT's plan because we are concerned that the epidemic will continue to affect CVT's sales. However, we believe that CVT can complete its production plan of 13 million m2 for 2020 as all the production lines have been operating stably from the end of Q2 2020. Despite the low  possibility of achieving the 2020 revenue and EBT targets, we believe that CVT can still afford to pay a VND1,500 dividend, equivalent to a dividend yield of 8.3%. The company has paid off  most of its long-term debt. Our target price is 19,985 VND / share, 11% higher than the price on 19/08. We maintain an ACCUMULATE recommendation for CVT.