Company Report

HPG’s 2Q24 net profit came in at VND 3.3 tn, achieving growth of 129% YoY and 16% QoQ, in line with our expectation of VND 3.1 tn. This impressive growth was driven by the steel sales volume with construction steel up 31% QoQ and 61% YoY given both market demand and the gain of market share. As 2Q24 earnings were in line with our expectation, we maintain our 2024 net profit forecast of VND12.8tn (+86.6% YoY). We assume that the company’s construction steel and HRC volume will reach 4.5 mn (+17.6% YoY) and 3.05 mn tonnes (+10% YoY), respectively, for 2024. Over the short-term, we expect 3Q24 net profit to decline QoQ from the 2Q level due to the correction of regional steel prices and lower volume amid the low season, before recovering in the final quarter. The YoY growth in 2H24 will likely slow down to 32% YoY from 233% in 1H24 due to a higher base in 2H23 and lower steel prices.

The company’s leverage is FRT’s main concern. However, the financial pressure of FRT has eased, reflected in the improvement in the interest coverage ratio (2.5x at 1Q24 vs 0.5x at 4Q23 and 1.0x at 1Q23) on the back of lower borrowing costs (-350 bps YoY and -100 bps QoQ in  1Q24) and improved earnings. With lower borrowing costs, Long Chau can speed up new openings of vaccine centers. FRT also plans to raise capital to scale the vaccine business. The company aims to raise a 10% stake via private placement during late 2024. We now apply higher multiples for the ICT business (from 9x to 11x) on narrower loss and a safer inventory level during 1Q24. As Long Chau now delivers sustainable profit, and the chain is the key growth driver for FRT in the long term, we now use DCF to value the chain. We derive a new target price for the shares of FRT at VND 211,000 (from VND 139,000), and reiterate our OUTPERFORM rating. Long Chau chain accounts for 98% of FRT valuation and 91% of 2025 earnings (vs only 10% in 2022). As such, we view FRT as a pharmacy retail company.

PC1 announced their strategical priority to the properties and construction segment, while mineral exploration and power generation serve as secondary focal points. For 2024 guidance, the company sets ambitious target, of 38.5% growth in sales and 77% increase in net earnings, to VND 10.8 tn and VND 525 bn. PC1 expected to distribute a stock dividend in 2023, of 15% on its chartered capital. We see effort of the company in maintaining growth, under the challenging circumstances of the industry. The turnaround of properties should have a stronger impact on earnings, thanks to the size and the low base of performance during the 2022-2024 period. However, the possibility of residential properties projects to generate sales from 2025 (expected by the company) might be hard to accomplish, and we incline towards residential projects could contribute to earnings growth from 2026 onwards. We expect FY24 sales and NPATMIO to reach approx. VND 9 tn (+ 15.4% YoY) and VND 220 bn (+124% YoY). Although our estimates are lower than the company’s guidance, they indicate our expectation in 2024 to witness strong growth in earnings performance following two years of contraction. For 2025F, sales and NPATMI are estimated at VND 8,759 bn (+19.7% YoY) and VND266 bn (+20% YoY).

We reduce our rating on the FPT shares to MARKET PERFORM (from OUTPERFORM), with a 12-month SOTP-based TP of VND 141,500/share (equivalent to 7% upside potential). The company’s 5M24 results exhibited double-digit growth in both revenue and earnings. On 23 Apr 2024, FPT formed an AI (artificial intelligence)-related partnership with NVIDIA, which we believe is the first step toward joining the global AI value chain, especially given FPT’s already well-placed background in AI. Further, we expect that the establishment of AseanConnect.One alliance will help improve FPT’s telecom services quality (especially data center) and enhance customer access.

GEX’s 1Q24 PBT arrived at VND 385 bn, soaring by 168% YoY. The gross profit from most segments, especially electrical equipment and construction materials dropped significantly due to weak demand from household channel and higher input cost. However, the gross profit from the industrial park segment increased 34.6% YoY to VND 615 bn during 1Q24, driven by an increase in lease pricing between 7-20% throughout 2023. In addition, GEX recognized a net stock trading profit of VND 111 bn versus a loss of -VND 144 bn for 1Q23 on the back of the positive performance of the stock market during 1Q. We expect GEX’s PBT to increase 67% YoY to VND 2.3 tn, driven by the divestment of renewable projects at an estimated profit of VND 1.1 tn. Management expects the the divestment of most projects can be completed during the second quarter. Excluding the impact of financial income, the PBT would decline by 4% YoY. 

DCM’s net income dropped -75% YoY during 2023 to VND 1.09 tn, owing to a sharp correction in urea ASP (-37% YoY), while the reduction in gas input costs (-3% YoY) was not sufficient enough to shield earnings. Looking forward, we expect global demand for fertilizer to gradually recover after being impacted by El Nino during 2023, enabling fertilizer prices to increase from last year low base. While revenue is projected to grow by 11% YoY to VND 14 tn in 2024, the reduction in depreciation expense should help earnings of DCM to rebound significantly during 2024 (net income of VND 1.84 tn, +69% YoY, from VND 2 tn).

Base case: Meanwhile, 2025 revenue and net income could remain flat at VND 14.3 tn (+2% YoY) and VND 1.85 tn (+1% YoY) as current urea capacity is rather full, while the revenue stream from NPK fertilizer remains quite small. Given this earnings outlook, our 1 year target price for the shares of DCM is VND 38,700/share. We call for MARKET PERFORM rating, as  DCM’s share price rallied 22% since our last OUTPERFORM rating. DCM remains our favorite dividend yield name, offering a 5.3% yield.

Earnings of DPM plunged by 90% YoY in 2023 due to: (1) the sharp correction in urea prices (-39% YoY); (2) an increase in gas input costs (USD10.60/mmbtu, +22% YoY) as DPM had to source natural gas from more expensive sources; and (3) a deterioration in gross margin from trading and NPK fertilizer in the context of the sharp correction in fertilizer prices in 1H23. For 2024-25F, we expect global demand for fertilizer to recover gradually after being hit by severe El Nino in 2023, enabling improved fertilizer prices. This, together with the normalization in profit margin of trading activities and NPK fertilizer from the low base in 2023, should help earnings rebound to VND875bn (+61% YoY, from previous estimate of VND 1.1 tn) and VND1tn (+15% YoY) for 2024F and 2025F, respectively.

We reiterate our Outperform rating on the shares of ACB and roll forward our valuation to mid-2025 with a 1Y TP of VND 36,000 per share, representing upside of 21%. While we believe that unfavorable market conditions will negatively impact asset quality during 2024 and 2025, ACB’s asset quality remains top-notch due to a healthy customer base, and conservative lending practices. Further, ACB is equipped with competitive funding costs, enabling the bank to stabilize NIM in the longer term. Given that ROE remains above 20% for the medium-term along with healthy NIM and asset quality, we believe that ACB is one of the best choices in this turbulent market.

Although we anticipated a turnaround from Q2 to Q3 in our latest update, year-to-date import-export data indicates that the volume recovery of the operating segment may exceed our expectations. Meanwhile, global containership freight rates continue to be firm in both spot and chartering markets. It is notable that the WCI has entered the pandemic-level territory, while 1700-TEU time charter rate is up by 65% YTD. This higher-for-longer shipping rate situation should continue to lead to further YoY upward revision of charter contracts for the period of from 4Q24 onwards, as well as spot freight on domestic routes, which has yet to have strong pickup since early 2024. We think the QoQ turnaround in terms of earnings performance should appear from this Q2, given the favorable shipping freight environment and demand growth that recently reflected in import-export data in April and mid-May.

Between 2022-2023, the real estate revenue stream was solely supported by the handover of sold units of the Hado Charm Villas. At 1Q24, HDG sold and handed over 420 units (out of 528 units of the project). HDG also targeted to launch the third phase sales of this project to sell the remaining 108 units during H2 2024. We forecast this phase to start realizing revenue during 2025. Meanwhile, we are concerned that legal issues related to Hado Green Lane and Hado Minh Long could take longer to be resolved and expect that these projects will realize revenue from 2026. For the electricity segment, we may not have significant surprises during 2024, as hydropower plants in Vietnam continue to face unfavorable weather. Further, according to HDG, its 7A wind power plant is seeing poorer wind conditions compared to 2023, which has led to a 28% YoY volume decrease during 1Q24. However, we believe that the electricity segment should generate the most stable cash flows and earnings compared to other segments. We also expect lower interest costs due to HDG’s repayment of electricity segment-related debt. 2025 NPAT growth is estimated at 112% YoY, due primarily to the recognition of Hado Charm Villas Phase 3. We arrive at 1-year TP of VND 36,900/share, implying a 12% upside from current market price, and reiterate our OUTPERFORM rating on the shares of HDG.

We reiterate our Outperform rating on the shares of TPB and roll forward our valuation to mid-2025 with 1Y TP of VND 22,700/share, presenting an upside of 23.7%. We expect that bad debt will not increase strongly in the near-term due to the bank's debt restructuring policy and proactive bad debt resolution. This should allow TPB to reduce its provisioning for both 2024 and 2025. Although the NIM will be under pressure during 2024, we believe that the turnaround story will be clearer during 2025 with a higher NIM and lower NPL ratio. For the medium period, we believe that the business environment will be more supportive and enable TPB to improve ROE to around 16%.

We are lowering our rating on TCB shares to Market Perform from Outperform, as the shares have risen 10% over the past month alone. We are, however, maintaining our 1Y TP at VND 54,700/share. The 1Q24 result was strong with improvement in the NIM (+19 bps QoQ) and controlled asset quality (NPL 1.13%, LLCR 106%). Despite the increase in accruals during 1Q24, we believe the risk to asset quality is mitigated given the 1-2 year tenure of bullet payment loans. Therefore, with a better-than-expected NIM in 1Q24, we revise our NIM assumption for TCB by 40 bps and 35 bps for 2024 and 2025 respectively. We also adjust non-NII upward to reflect the one-off Govt bond trading gain in 1Q24. On the other hand, we increase the credit cost assumption given the higher-than-expected risk from NPL from CIC across the system. Accordingly, PBT for 2024-25 is finetuned by 5-8% to VND 28.6 tn (+25% YoY) and VND 33.7 tn (+18% YoY) respectively.

We maintain our cautious view for 2024, with consumption continuing to be impacted by the zero-tolerance legislation for drunk driving, a slower rate of change for consumer habits, and consumers tightening their belts. However, we increased our 2024E net sales and NPAT forecasts to VND 32.2 tn (+5.8% YoY) and VND 4.6 tn (+9% YoY), respectively, given the better-than-expected Q1 sales results and small increase in ASP in the first few months. These forecasts are 8.5% and 4% higher than our previous revenue and profit forecasts respectively. We also introduce our 2025F forecast for net revenue at VND 33 tn (+3% YoY) and net profit at VND 4.97 tn (+7% YoY). We assume that the 2025 GPM will increase, while A&P spend will continue to be tightly controlled given the uncertainty surrounding the beer sector’s growth.

2024 business plan: For 2024, PLX set conservative PBT guidance at VND 2.9tn, implying a decline of 29% YoY. However, it should be noted that PLX’s actual results have usually exceeded the guidances for the past nine years with the exception of 2020 amid the response to Covid-19.  

1Q24 achieved impressive results driven by the petroleum segment: PBT soared 72% YoY and 70% QoQ to VND 1.44 tn, already accomplishing 50% of the 2024 guidance. Most notably, gross profit increased a considerable 31.2% YoY to a record-high of VND 4.67 tn, fueled by the petroleum segment.  Domestic petroleum sales volume arrived at 2.6 mn tons, increasing slighly by 2% compared to the relatively high base of 1Q23, while still increasing 2.4% QoQ. However, earnings for the segment soared 260% YoY to VND 1.06 tn driven by a 9% increase in petroleum prices during the quarter which benefited the company through low-cost inventory, and the shortening of price adjustment cycle from 10 days to 7 days from the end of 2023.

April 2024 sales were better than expected. VNM reported 4% y/y growth in sales for 4M24 (including +16% y/y for exports), and growth of 10% y/y in sales specifically for April. For reference, 1Q24 revenue and NPAT rose by 1.4% (VND14.1tn) and 15.8% y/y (VND2.2tn), respectively (slightly better than our estimate of a 15% y/y NPAT increase). The Vietnam dairy sector recorded a pullback of 2.8% y/y in terms of value during 1Q24, with the infant-formula-milk category decreasing c.20% y/y, according to AC Nielsen. Through 1Q24, VNM has completed 22% and 24% of its annual respective net sales and net income targets. We maintain our forecast for 2024F net sales and net profit of VND63.7tn (+6% YoY) and VND10.1tn (+12% YoY), respectively. We are still optimistic about VNM’s ability to grow despite headwinds, and are assuming lower ingredient prices and restructuring efforts to improve the bottom line. The selling expense/sales ratio is expected to remain at around 21.5% to allow for business development activities (ie, rebranding, e-commerce), while financial income is likely to decrease given the lower interest rate environment. We introduce our 2025F forecast for net sales and net profit to increase at 6% (VND67.5tn) and 7.5% y/y (VND11tn), respectively, with the assumption that consumption should recover more firmly and operating margins will be better optimized via digital transformation process.