Company Report

We lower our rating on the shares of BID to Market Perform, albeit raising our 12-month TP to VND 50,130/share (from VND 47,600/share). Our adjustment is catalyzed by the following factors: (i) rolling our valuation basis to mid-2024, (ii) factoring in the private placement (9% pre-money charter capital during late 2024); and (iii) lowering our target P/B to reflect a lower post-money ROE. Despite the NPL formation rate and the special mention loan grouping accelerating in 1Q23, we believe it could be maintained below 2% for both 2023 and 2024, made possible by the current provision buffers. For 2023 and 2024, we project that BID can achieve VND 27.4 tn (+19% YoY) and VND 31.3 tn (+14.4% YoY) in pretax profit, respectively. While the driver for robust growth during 2023 is reduced provisions (+1.6% YoY), the equivalent for 2024 would be NIM widening to 2.84% (+6 bps YoY) and solid fee income growth (+20% YoY).

SZC held its annual general meeting to set its target for 2023, and fielded questions regarding its operations. Using NPV method, our new 1-year target price for SZC is VND 31,900/share (previously VND 51,900/share) due to: (i) the CDIP investment capital has been marked with market price and increased from VND 4.9 tn to VND 8.0 tn; and (2) higher capex for CDUA (from VND 1.2 tn to VND 9.8 tn). We reiterate our MARKET PERFORM rating on the shares of SZC.

GMD announced the full divestment of the Nam Hai Dinh Vu port, which we view as positive for the shares of GMD, given the significant one-off profit for 2023 and the potential more rapid ramp-up of the Nam Dinh Vu Phase 2 project. Despite a weak outlook for the seaport sector in 2023, GMD could find a way to maintain volume growth, restructure its business in the highly competitive Haiphong port cluster area by giving more focus to Nam Dinh Vu port, and use the sale proceeds for new project investment to reduce its financial burden in the midst of a high interest rate environment. We estimate that 2023 PBT will increase 85% YoY to VND 2.4 tn under our base case. We rate the shares of GMD a BUY, and increase our 1Y-TP of VND 57,400/share (from VND 45,200/share), implying 26% upside.

Given all of the recent volatility in the property and corporate bond markets, we believe that investors should focus on those banks which have limited exposure to these markets. Those banks tend to have strong deposits and conservative credit buffers. VCB satisfies these conditions, given its prudent lending practices and strong risk management. VCB should also be the beneficiary of being a ‘flight to quality’ by retail depositors, which should mitigate near-term NIM compression. We are, however, concerned with the bank’s current capital position, as CAR (Basel II) is 9.35% - intimating a capital raise is needed. Under our model, we assume that a 6.5% new share issuance will be completed by the end of 2023, which would be additive to CAR by between 200-250bps.

During its recent analyst meeting, MWG’s management laid out that 4Q22 financial performance will be hit by poor discretionary spending, interest rate hikes and FX losses. For October 2022, total revenue may reach VND 10.9 tn (-11% YoY), of which ICT & CE revenue declined by -18% YoY to VND 8.3 tn, while the grocery revenue rose by 22% YoY to VND 2.37 tn. The management expects 2022 net income to decline by -10% YoY, equivalent to 4Q22 net income growth of -40% YoY. For 2023, the company expects earnings of the ICT & CE business to improve only from 2H. Meanwhile, the profitability of the grocery business is improving, and the segment posted positive EBITDA at the company level in October. Capital raising for BHX is still on track, and expected to be completed in 1Q23. We cut 2022-2023 net income of MWG by 15% and 19% to VND 4.37 tn (-11% YoY) and VND 4.74 tn (+8.4% YoY) respectively. Even though earnings of the ICT & CE segment may decline in 2023, the improvement in profitability of the grocery segment and the absence of one-off restructuring expenses should help MWG to post positive net income growth in 2023. 

GMD maintained strong business results through 3Q22, with an 80% YoY growth in PBT. However, downside risks have been building since 4Q22 as shipping demand is deteriorating rapidly due to weak consumption demand and high inventories. Over the next 3-6 months, we are concerned that there would be little upside catalysts for the stock as earnings growth could reduce significantly in 4Q22 and 2023, and new project volume ramp-ups during 2023 will be impacted while depreciation cost burden rises. We estimate 2022 and 2023 PBT to reach VND 1.3 tn (+61% YoY) and VND 1.33 tn (+3% YoY), respectively. Earnings growth is expected to recover from 2024 when demand improves. We combine our DCF valuation model and PE valuation (target PE of 12x) to reflect recent market valuation, we lower our 1Y-TP to VND 45,200/share (from VND 55,600/share). We downgrade the share from OUTPERFORM to MARKET PERFORM.

According to the most recent update, sales volume of HPG’s construction steel during October dropped significantly to 210k tonnes, the lowest level since March 2021, whereby export and domestic volumes for the month dropped by 73% and 44% YoY, respectively. The volume of billet, pipe, and galvanized steel also dropped by 92%, 21%, and 40% YoY, respectively, to a respective 15k, 57k, and 27k tonnes for October. On the other hand, HRC volume for October remains strong at 269k tonnes (+30% YoY) but it could decrease near-term given the weak consumption of finished flat-steel products. Accordingly, the utilization rate of HPG blast furnaces during October was likely closer to 70%, based on sales volume. Given the rapid deterioration in the overall market, we revise down our 2022F net profit by 16% to VND10.2tn, implying a net loss of VND270bn in 4Q22F. In 2023F, we lower our net profit by 14% to VND10.88tn, which calls for 6.6% YoY growth thanks to a lower forex loss and the drop in coking coal price. 

We believe the VHM will stand firm during this period of tighter credit and rising funding costs given its available land bank, solid balance sheet with low net debt/equity ratio, proven track record in projects sales and development, and capital raising capability. However, we maintain a cautious view on market demand whilst interest rates continue to increase, affecting the firm’s sales and future earnings.

At current price of VND 52,500/share, VHM trades at a 2022 and 2023 P/E of 8.0x and 6.5x, respectively, which is lower than historical average and relatively attractive when compares with peers. However, given the fact that there are multiple headwinds within the overall real estate sector that may last until next year the soonest, we do not expect a strong upside catalyst for the stock in the near term.

Our 1-year target price for the stock is VND 69,000 per share based on the SOTP method, equivalent to an OUTPERFORM rating. The Company boasting a high net cash position (~24% of current market capitalization) and certain exposure to the promising industrial park business could be a safe choice amid the current rising interest rate environment.

Short term view: we expect 3Q22 earnings to decline single digit owing to the lack of one-off land compensation income. This together with heavy market sell-off will weigh down on PHR share price. Nevertheless, we think PHR share price may bounce back in 4Q22 along with the recognition of one-off land compensation income, enabling the company to post 73% YoY net income growth in 4Q22, in our estimate.

AST posted a positive turnaround PBT of VND 16.6 bn in 2Q22, the first time after eight consecutive quarters of losses, which marks an important turning point for AST. The earnings recovery path will be largely dependent on the international market, especially for the main markets of both inbound and outbound Vietnamese tourism such as East Asian countries, therefore we do not expect strong earnings recovery over the short term of 3-6 months. However, we believe that recovery is well ongoing now, supported by improving passenger volume, optimized business operations post-Covid, and the expanded points of sales (115 stores vs 92 stores in 2019).

We maintain an OUTPERFORM rating for AST with a 1Y-TP of VND 69,000/share (based on 2023F P/E of 20x), implying 22.5% upside and reflecting our positive view on the Company’s strong turnaround in 2023 along with the general recovery of the aviation industry. We note that the primary risk is that international recovery might be slower than expectations in the scenario if China were to prolong its zero-COVID policy, and if global travel demand were to deteriorate more rapidly due to economic recession.

Investment summary

We recently attended HCM’s 2022 AGM, and the 2022 capital raise was front and center. Such a focus was the result of the reluctance and restriction preventing one large shareholder, the state-owned HCMC financial investment company or HFIC. Indeed, HCM has lagged on the capital buffer front since last year, and its previous position has been somewhat whittled down. HCM went from a Top 5 brokerage company in total equity at 2019 to ranking ninth at June 2022.

The shares have rebounded over 64% since bottoming in late June. As of Aug 22, 2022, HCM is trading at VND 27,700 per share, with a 2022 forward P/E of 10.5x and P/B of 1.5x, which is in line with its historical valuation. All catalysts, in our view, are now priced mostly into the shares. In the long-term, the complicated relationship between HFIC and HCM’s BOD might restrict HCM in expanding its business activities. 

We reiterate our Outperform rating on the shares of HDB, with a 1Y TP of VND 32,300/share (vs. VND 31,100/share) - representing potential upside of 28% as we increase our 2022 PBT estimate 4%. HDB posted better-than-expected PBT results in 2Q22 of VND 2.8 tn, up +32.6% YoY. 1H22 pretax profit was VND 5.3 tn, achieving 54% of our current estimate. Growth was driven by vigorous performance in both NII (+31% YoY) and income from fee-based services (+54% YoY). Meanwhile, there was harmonization between balance sheet growth (+14.8% YTD credit growth) and quality. Group 2, NPLs, and restructured loans all declined (to 3.61%, 1.33% and 0.05% respectively), while NPL provision  aggregated 93%.

Recently, HDB has sought shareholder approval to support a weak bank. While details have not yet been made public, we are fairly positive on this plan despite the initial capital contribution of VND 9 tn. Observing recent proposals related to these weak banks, it appears that large enough incentives are needed in each case. With respect to HDB, we are of the view that the net rewards will be backloaded unlike was the case with VCB and MBB.

BID delivered a solid set of results in 2Q 2022, with PBT exceeding our expectations and achieving VND 6.6 tn (+41% YoY). Strong credit expansion, a robust NIM recovery, and a lower provisioning more than offset the decline in fee income and writebacks, allowing BID to enjoy robust growth for the period.

We are bullish on BID’s short- and medium-term outlook, as we expect the bank to post over 80% YoY PBT growth in 2H 2022, and a solid +24% PBT growth for 2023. However, we are concerned that long-term growth could be constrained by BID’s limited capitalization.

We maintain our Market Perform rating for the shares of BID, although we increase our 1Y TP to VND 44,180/share (from VND 41,200/share). The target price change reflects the increase in our 2022 and 2023 earnings by 2.8% and 8.5%, respectively, and valuation rollover impact to mid-2023.

BID performed well during 1Q22, as operational efficiency and profitability indicators exhibited improvement, with well-managed credit. For full-year 2022, we expect that the bank would garner +52% YoY growth in pre-tax profit, fueled primarily by a lighter provisioning burden (-19% YoY). ROE would rise to 16% (from 9-13% over the past three years). However, long-term growth potential for BID is still limited by capital (CAR of around 9% only), while fee-based services lack a critical growth driver. Although the bank is reviewing its strategy/ownership structure regarding its life insurance arm BIDV MetLife, we do not expect it to be finalized soon (at least not within 2022). With an adjusted 12-month TP of VND41,200 (from VND42,300), we maintain our MARKET PERFORM rating on the shares of BID.