Unfavorable conditions have priced in

As the unfavorable conditions have priced in 1H2019 results, we expect that the bottom line will experience a significant improvement in 2H2019 and especially in 2020 due to (1) increase in the Urea sales volume (2) retrospect in the tariff. As a result, we recommend to BUY with the target price of VND16,400 per share.

FPT – Result Update Report

FPT is trading at a trailing P/ E of 12.5x. We believe this is a low valuation considering the ability to maintain a CAGR of approximately 20% over the next five years. The main growth driver will come from software outsourcing. The contribution from the education sector will also drive earnings.

GMD – 1H2019 Recurring profit surged attributed by strong JV gains growth

GMD‘s1H2019 audited results posted a flat revenue growth while PATMI decreased by 81% due to last year’s financial income from logistics segment divestment. Excluding extraordinary factors, core EBT raised by 29% YoY, mainly driven by associates' profits (+ 124% YoY) and EBIT (+ 20% YoY). Accordingly, 1H2019 EBIT’s upswing was supported by (1) positive growth in cargo throughput in the South and Central ports of GMD and (2) selling expenses cut. Notably, EBIT margin expanded sharply by 393 bps YoY and reached 23.7%.

Life Insurance Sector – Prudent growth to adapt to the low G-bond yield environment

According to the Insurance Association of Vietnam (IAV), total gross life premiums in 6M2019 were VND 48,134 bn (+28% YoY), lower than the growth rate of 32% during 6M2018. New business premiums came at VND 14,759 bn, up 15% YoY, much lower than 32% for the same period last year.

US Small Businesses Are Still Optimistic

The National Federation of Independent Businesses (NFIB) August survey shows that small businesses in the US remain optimistic about the short-term outlook. The NFIB Small Business Optimism Index fell 1.6 points to 103.1 but remains high (see Figure 1). Optimism fell because fewer owners expect better conditions in the coming months.

TNG – Update on Business Results

Although we do not exclude the possibility that the trade war will bring further unintended negative effects, we believe that in the short term, it is still possible to consider investing in firms fulfilled orders, improving their peformances such as TNG. For 2019, Rong Viet Securities expects its revenue and NPAT to be VND 4,200 bn (+ 16% YoY) and VND 210 bn (+ 17% YoY) respectively, corresponding to an estimated EPS of VND 3,378 per share.

ACV – Draft proposal of Ministry of Transport on assignment of management, use and exploitation State-owned aviation infrastructure assets

The stock price of ACV (UpCom) plummeted in today's trading session (-9.6% DoD) and was the second consecutive decline, more than 12%, of this stock after the media mentioned Ministry of Transport’s proposal to the Prime Minister to approve the Project on assignment of management, use and exploitation of State-owned aviation infrastructure assets. In particular, the proposal to re-nationalize ACV stated in the proposal may cause investors to react negatively, due to changes in expectations about the State's divestment schedule at ACV as well as the will to implement the plan to list on HOSE of ACV, which have been the main catalysts for stock price. At present, this proposal is subject to PM’s approval, which will likely be announced in the remaining months of 2019. However, we think this proposal is difficult to implement due to lack of a clear mechanism, and especially when ACV's current share price is nearly 5 times higher than the average IPO price. We will update our recommendation and valuation after the formal decision of the PM.

Potential stocks in new indices

HOSE has announced the creation of three new indices including Vietnam Diamond Index, Vietnam Financial Select Index, and Vietnam Leading Financial Index. The Vietnam Diamond Index will include stocks that have limited foreign room and a reasonable PE ratio, and at least VND 2,000 bn ( USD 86 mn) in market capitalization.

Meanwhile, all consituents of both the Vietnam Financial Select Index and the Vietnam Leading Financial Index have to be in the VNFinancial Index. The Vietnam Financial Select Index will only includes financial stocks that have a VND 500 bn  (USD 21.55 mn) minimum in market capitalization and at least VND one bn (USD 0.04 mn) in daily trading value (*). The Vietnam Leading Financial Index requires financial stocks to have a minimum of VND 10 bn (USD 0.43 mn) in daily trading value (*) and at least 0.1% turnover.

(*) Daily trading value is the sum of put-through and order-matching value.

We expect HOSE to release contituents of indices in late October, helping local investment management companies to create ETFs. The SSI investment management company just said they are going to release an ETF to tracks either financial indices.

Based on HOSE methodology, we have estimated contituents and weights of potential stocks.

Corporate Bonds Investment in some Listed Banks

Banks are key players in the corporate bonds market with their large financial resources. In such context, strong investment in corporate bonds, especially high-interest bonds, is a method used by some banks to boost credit and achieve high yields on debt securities to improve NIM. However, expanding too quickly through buying bonds of businesses, especially in the real estate sector, is potentially risky, although the direct impacts on bad debt ratio or provision is not obvious yet. On the other hand, when bonds are redistributed to retail customers, the majority of individual investors are not able to assess the risks of this product as thoroughly as banks. It should be noted that the real estate sector is risky in nature, capital-intensive and is slowing down. As such, at the beginning of August, the SBV sent a warning letter to commercial banks regarding risk management in corporate bond investment activities. Accordingly, banks need to maintain a reasonable investment in corporate bonds in order to balance yields and risks, as well as protect benefits of the secondary investors of these bonds.

POW – Long-term Outlook Remains Attractive

PetroVietnam Power Corporation (HSX: POW) is the second largest power producer in Vietnam with a portfolio of 4.2 GW, representing 9% of total capacity of the national power system.  Gas-fired thermal power makes up the largest proportion of its activity with 64% of total capacity. Coal-fired thermal power accounts for 30% and hydropower for 6%. Having the majority of its capacity located in the South, a major consumption region, and mordern technology, the company has comparative advantages. This is especially true if the liberalization process in the power industry allows for more competition and offer opportunities for well run businesses to improve profitability.

In the short term, despite risks of policy changes and input material prices, the decline in depreciation and debt oustanding will help POW improve its earnings and cash flow. Furthermore, the Nhon Trach 3&4 project is expected to become the long-term growth driver, given that the shortage of electricity in the South is inevitable when many big projects are behind progress. We combine discounted cash flow and comparable methods to value POW. Based on that, we come to a target price at VND 17,900 per share, anticipating a cash dividend of VND 300 per share in the next 12 months. This translates to a 41% total return from the closing price on September 3rd, 2019. Therefore, we have a BUY on this stock.

TV2 – Core Business Remained Within Expectations

As the leading consulting subsidiary of Vietnam Electricity Corporation (EVN), TV2 has benefited from the parent company’s disbursement of major energy projects. 1H2019 saw strong growth in revenue (+212% yoy), as expected. Effectively, TV2 has just surpassed its whole year guidance of VND 1900 billion in revenue. However, TV2 did not manage to stabilize its gross margin, resulting in a modest earnings growth in 1H2019 compared to the same period last year (+15%).

Updates on LDG

Huge financial gain from full divestment from Suoi Mo, while residential revenue dropped in the 1H 2019. LDG posted net revenue of VND 355 billion (+117% YoY) and NPAT of VND 198 billion (+1,058% YoY); respectively completing 11% and 33% of the year targets. Residential sales shrunk 29% due to modest handovers in the 1H, mainly from Viva City and Viva Square. Meanwhile, financial income of VND 150 billion resulting from the full divestment in Suoi Mo – its non-core subsidiary, made up a major part of earnings. More projects are expected to be handed over in the 2H 2019, including the remaining parts of Viva City, Viva Square, Viva Park, Marina Tower and Loc Phat. Procedures for High Intela and West Intela are supposed to be done by October in order to fulfill the land-use-rights obligation. LDG can thereby sign the official contracts in these two projects.