VSC – Q2-FY20 Business Update: Earnings Trailed Our Forecasts Due To Weaker-Than-Expected Profit Margins Expansion

VSC has reported Q2-FY20 financial results with total revenue of VND393bn, which was down by 17.1% from the last year’s figures while PBT declined by 13.2% YoY to VND74bn. With these results, VSC has completed 51.7% and 58.3% of full-year guidance for revenue and PBT, while corresponding fulfillment rates of our FY20 forecasts stood at 48.9% and 44.1%. Generally speaking, softer-than-expected quarterly profit margins, though did show some improvements on an annual basis as expected, was the main reason why VSC’s recent results missed our forecasts. This level of profit margins was attributable to a significant surge in selling expenses, which presumably indicates a stiffening competition and a fundamental change in the company costs’ structure. Therefore, we cut our FY20/FY21 earnings forecasts by 2.8%/2.6% to VND243bn/VND266bn.

DXG update: Launching of the Gem Sky World project

In 2020, prospects will be brighter, thanks to deploying a newly acquired project, namely the Gem Sky World. The project is considered to be the main profit driver of DXG in 2020-2021. However the brokerage segment’s performance could be suffering during this period due to the effect of Covid-19, causing a slowdown overall for the real estate market. In 2020, as per management, DXG will still maintain its profit target at around VND 1,000 billion, resulting in a forward P/E  of 4.6 times. Our current one-year valuation for DXG is VND 13,500/share, equivalent to a 51% return. We will update the valuation based on the latest update in the next quarter.

ACB – Update on 1H2020 performance

It seems that ACB only achieved a modest earnings growth in 1H2020 because of (1) lower NII growth due to a small NIM compression, and (2) provision booking escalation which off-set service income expansion. We believe that the 2H outlook would be supported mainly by (1) credit growth recovery, (2) collection of Cir. 01 which include debt restructuring, and especially (3) the dramatic expansion momentum of bancassurance fees, with downside risk being the impact of the second wave of Covid-19 which constraints recovery and the easing of credit costs. Earnings growth should also be supported by income from the exclusive bancassurance agreement and ACBS divestment, as well as the collection of G6 legacy debts. Although we think these anticipated income sources could actually slip in 2021. The transfer to HOSE expected by late 2020-early 2021 is also a short-term catalyst for the stock.

ACB is currently trading at VND22,600, equivalent to an attractive PB 2020E of 1.1x. This translates to a potential upside of 11%, and an ACCUMULATE recommendation.

Vietnam’s International Trade in The First Half of July

In general, Vietnam’s international trade keeps recovering month by month since May and closely reached the average level of 2019. There has been a wide-spread rebound across sectors and partners, which signals a better performance this July following an incredible trade surplus last month.

PVD - Changing drilling schedule will result in a huge drop in 3Q2020 earnings

As the core business is likely to turn weaker in the second half and the prospects are not clear for 2021, we see no catalysts for PVD in the coming time. However, the stock price has been falling and is being traded at a low historical P/B ratio, we think that the stock will perform well in short term. So we recommend ACCUMULATE this stock with the target price of VND11,000.

PNJ – Q2/2020 Analyst meeting note – Gaining market share

Despite weakening consumer spending post-Covid19, we believe PNJ will outperform others and gain more market share thanks to appropriate initiatives which includes focusing on marketing and launching new product mix. We praise PNJ’s effort in strengthening its retailing and production capabilities by relentlessly investing in digital transformation. Therefore, PNJ should retain its leading position in the Vietnam jewelry industry in the future, which has substantial potential to grow going forward owing to Vietnam’s fast-rising middle class.

For FY2020, we project revenue and NPAT-MI to reach VND 15,470 (-9% YoY) and VND 896 bn (-25% YoY), respectively. For FY2021, we project revenue and NPAT-MI to reach VND 18,547 (+20% YoY) and VND 1,115 bn (+24% YoY), respectively.

PNJ is currently trading at VND 59,000. We reiterate our Buy recommendation with a target price of VND 73,000 (total upside of 23%), implying a 2020 PER of 19x and a 2021 PER of 15x.

Steel Production and Consumption in 6M2020

In 6M2020, despite the negative impact of COVID-19, there were positive signs in the growth rate of the construction industry and the coated steel segment. The construction industry grew at a pace of 4.5% in 6M2020, which was higher than the GDP growth rate of 1.8%. Domestic consumption of coated steel increased by 6.5%, while that of construction steel and steel pipe decreased by 8.1% and 6.8% respectively.

Rice exports grew in 1H2020

India and Thailand's rice exports encountered many difficulties in 1H2020, which helped Vietnam boost its exports with an increase in quantity and price. In 2H2020, the level of competition will be much higher as those countries will benefit from favorable weather conditions to boost production. We expect Vietnam’s export prices to decline in 2H2020 compared to 1H2020 but will still be higher than the same period in 2019 thanks to the improved quality and higher demand. In terms of quantity, it is likely that there will be a year-on-year growth due to the opportunity of exporting to new markets.

Textile Industry - Bottlenecks from Weaving and Dyeing Need Improvements to Benefit from EVFTA

The Vietnam - Europe Free Trade Agreement (EVFTA) will take effect from August 1, 2020. Preferential tariffs for Vietnamese goods exported to EU are expected to support the growth of textile exports. However, because textile & garment exported to the EU is mainly in the group of ‘long tariff’ reduction schedule, the impact of preferential tariffs on the whole industry is likely to be insignificant in the beginning. But above all, the bottlenecks from weaving and dyeing are the main obstacles that hinder Vietnam's textile and garment products to benefit from EVFTA.

Asian equity markets: disparity of returns

Looking at the performance of various Asian equity markets so far this year, one thing is obvious: North Asia has done much better for investors than South East Asia (Table 1). In ASEAN, no market is in positive territory so far in 2020, although Malaysia can be seen as an outlier in the region. Pan-Asia, only the Shanghai A-share market stands out, outperforming the MSCI World by 11% so far in 2020. That could be seen as a surprise considering the current global situation.

Domestic ETFs’ rebalance in July – August review

The Ho Chi Minh City Stock Exchange has announced the removal of BVH and CTD from the VN30 index basket and BVH from the VNFINLEAD index basket, while the VNDIAMOND index’s component will remain unchanged until the October review. By contrast, KDH and TCH will be added to the VN30 basket while there is no new component in the VNFINLEAD basket.