Company Report

Net profit during 1Q24 came in at a sterling VND 103 bn, turning the tables on the prev. loss of VND 680 bn at 1Q23. However, it declined -76% QoQ from the high base of the previous quarter due to a drop in export price and higher SG&A expenses. The company’s sales volume increased 16.3% QoQ and 33.7% YoY to 454k tons during 1Q24, the highest level since 2Q22, in which domestic sales volume increased 18.6% QoQ and 24.8% YoY to 250k tons, while export also increased 45.7% YoY and 13.1% QoQ to 202k tons. We maintain our FY2024 earnings forecast for HSG at VND 775 bn (+24.8x YoY). We expect the company’s sales volume to increase 14.6% YoY to 1.6 mn tons for FY 2024, whereby export and domestic volume are expected to increase 16% and 13% YoY to 891k tons and 711k tons, respectively. The FY2024 gross margin to improve to 11.3% from 9.7% during FY2023 due to: (1) the low base of 1Q23 with a loss of VND 680 bn, as mentioned earlier; (2) improvement in the capacity utilization rate from 58% to 67%; and (3) a slight increase in the contribution of the domestic channel from 55% during FY2023 to 56% for FY2024.

We maintain our 2024 net profit forecast at VND 11.2 tn, implying an increase of 64% YoY and driven by the recovery in both sales volume and steel prices. We assume that the company’s construction steel and HRC volume will reach 4.5 mn tons (+17.8% YoY) and 3 mn tons (+8.3% YoY), respectively, for 2024. Over the longer-term, we expect that the company’s earnings will achieve average growth of over 30%/year between 2025 to 2027. This should be driven by the commencement of Dung Quat 2 project, which would allow HRC sales volume to more than double from 2.8 mn tons during 2023 to 7.5 mn tons for 2027. The current domestic supply shortage between 4-5 mn tons/year, along with the more recent growth in exports should enable the company to boost its HRC segment after the project commences operation.

For 2024, we estimate revenue at VND 5.2 tn (+12% YoY, from VND 5.08 tn) and net income at VND 281 bn (+15% YoY, from VND 250 bn). While we expect the demand in export market to be warmer in 2024, the gross profit margin may not improve much as the depreciation expense from the new radial production line kicks in. Our new 2024 earnings estimates are 12% higher than the previous as we take into account the recent increase in sales order from the US market (from 22K units/month to 25K units/month, accounting for 33% of the total radial tire sales volume), while the sales order from the Brazil market is to be remained unchanged (35K units/month, accounting for 47% of the total radial tire sales volume). With an unchanged target P/E of 12x on 2024F revised financials, we derive a new target price for DRC at VND 28,400 per share (from VND 25,300). We maintain MARKET PERFORM rating on DRC.

Highly leveraged position has been the main concern for FRT, especially in the rising interest rate environment (4Q22 and 1Q23). The funding pressure of FRT has eased with borrowing costs in 3Q23 declined by 200 bps from the peak and improved profitability from the pharmacy chain. With lower borrowing costs, FRT can speed up new openings for Long Chau chain to gain market share in the context that competitor An Khang and Pharmacity are still struggling with their business model. Larger scale should eventually help to enlarge the profit margin for Long Chau over the long term. As such, the reduction in borrowing costs is meaningful for a highly levered company like FRT, we hence raise P/S target multiple for the pharmacy chain from 0.8x to 1x. We hence lift our 1-year target price to VND 117,000/share (from VND 105,000). As FRT share price has increased by 35% since our last BUY call, we now call for OUTPERFORM rating on FRT shares with 13.5% upside.

NKG’s Q3 net profit was VND 24 bn, improving from the record loss of VND 419 bn for 3Q22, but a decline of -81% QoQ due to the drop in sales volume and the average steel prices. Cumulative, total net profit in 9M23 declined -65.5% YoY to VND 100 bn, accomplishing 25% of annual guidance. NKG sales volume for 3Q23 was 208k tons, improving 18.9% YoY off of the three year bottom of 3Q22, but fell -12.1% QoQ due to the -19.2% QoQ drop in exports. 9M23 sales volume dropped by -7.9% to 638k tons, in which export and domestic volume dropped by -6.1% and -10.3% YoY respectively. The gross margin also contracted to 4.8% from 9% in 2Q23 due to the steel price correction especially in export markets.

We believe that gradual recovery in credit demand and NIM improvement during 2024 will paint a brighter picture for TPB, as the economy starts regaining its composure and high yield customer deposits expire . However, we are still concerned about credit risk derived from corporate bonds, real estate, and the construction sector (22.4% of total credit) which will still weigh heavy on credit costs during 2024 (1.65% vs. 1.86% in 2023). We maintain our Market Perform rating on the shares of TPB, along with our 1-year target price of VND 18,000/share.

3Q23 NPAT lower than expected due to weak consumption. VEA recorded VND 884 bn (-28% YoY) and VND 136 bn (-14% YoY) in net sales and gross profit respectively, as demand for its trucks and farm tractors remained weak. Income from JVs was VND 1.2 tn (-25% YoY, -18% QoQ) compared to the high base last year. VEA recorded 3Q23 and Q1-Q3 NPAT of VND 1.5 tn (-20% YoY) and 4.7 tn (-8% YoY) respectively, which is lower than our estimates due to weaker consumption from Honda and Toyota. Outlook should improve for cars and trucks. The 50% registration fee cut will end on Dec 31^st, giving more support for sales to achieve better QoQ results (4Q22 was a high base, so we are likely to witness a YoY decrease). We estimate total volume for cars during 2023 to decline 26% YoY and total volume for Honda motorbikes to decline 13% YoY.

As large construction deals signed during 2022 begin realizing revenue, we believe that the construction segment will be the main driver of 2023 YoY growth (45% YoY revenue growth with 31% revenue contribution per our estimate).  We expect lower YoY NPATMI growth for 2024 (+13.4% YoY vs +17.2% YoY of 2023) as the YoY growth driver likely will come from operation, integrated solutions, and infrastructure leasing segments. Construction segment growth should normalize. Aiming an auction for between 2,500-2,600 MHz waveband usage rights during December 2023, the Ministry of Information and Communications (MIC) targets a 5G rollout during 2024. We believe that enhancing 3G/4G coverage followed by the continuing 2G shutdown and 5G implementation will require more BTS sites, which should benefit CTR’s infrastructure leasing segment during 2024. We call for an OUTPERFORM rating on CTR’s shares with a 12-month DCF target price of VND 102,400 (equivalent to 14% upside potential).

PNJ posted a decline of -6% YoY in net sales but managed to deliver flat net income YoY in 3Q23 thanks to improved gross profit margin. In October 2023, net sales growth came back to positive territory (+2% YoY) in which retail sales rose by +4% YoY. Of note, October 2022 retail sales was high base (increasing by 47% vs the average in 2020-2021). As such, we view the 4% YoY increase in October 2023 retail sales as encouraging. Meanwhile net income surged by 32% YoY thanks to improved gross profit margin and normalized corporate tax expense from last year high base. While the overall jewelry consumption may still take time to regain growth, retail sales of PNJ has picked up before the market recovery thanks to market share gain supported by various long term strategies, such as targeting younger customer group and pioneering proposal trend in Vietnam. We now forecast 2023-2024 net income at VND 1.85 tn (+2.6% YoY, from VND 1.84 tn) and VND 2.17 tn (+17.2% YoY, from VND 2.04 tn). With unchanged target P/E of 16x on revised 2024 earnings, we increase our 1-year target price to VND 96,200 (from VND 90,200) and maintain OUTPERFORM rating (21% upside). 

We expect that the company's performance in 2024 will show a significant improvement compared to the previous year's low earnings (NPATMI growth in 2023/2024 are estimated at -57.9%/+79.1% respectively). This growth is projected to primarily come from increased investments in national grid projects, particularly benefiting the grid construction sector of PC1. Meanwhile, the minerals segment (started to contribute revenue from 3Q23) is conservatively forecasted at growth rate of 18% in revenue in 2024 due to concern of global economy slowdown impacting nickel demand. Power generation and property are expected to deliver moderate growth in 2024 due to less intense El-Nino weather condition and nearly full utilization of the industrial zone.

PLX’s PBT during 3Q23 was VND 1.18 tn, an increase of 277% YoY and 14.6% QoQ. Cumulatively, the company’s PBT during 9M23 was VND 3.08 tn (+402% YoY), accomplishing 95% of annual guidance. PLX’s petroleum sales volume was well maintained at 2.6 mn m3, an increase of 3.2% YoY, of which the retail channel contributed 1.7 mn m3 (+4.9% YoY). Earnings within the petroleum segment remained flat QoQ at VND 483 bn, but showed significant improvement compared to a loss of -VND 199 bn during 3Q22. However, we note that the parent company has booked an inventory provision of VND 777 bn during the quarter due to the correction in oil price, which can be reversed in the coming quarters if the oil price stabilizes.

MWG recently held an online analyst meeting. During the meeting, the management expressed its belief that earnings of the ICT and CE segments already bottomed out in 2Q23, but re-emphasized that recovery will be slow, as the company may still maintain a competitive pricing policy in the context of high inventories of competitors and weak demand. Over the long-term, while the ICT business seems to face saturated demand, the growth driver for MWG would rely on grocery retail. Regarding the grocery segment, monthly revenue per BHX outlet reached VND1.7bn in October, while the PBT margin in 3Q23 improved significantly to -1.8% (vs -4.2% in 2Q23), excluding one-off expenses of VND90bn which related to restructuring activities back in 2022. Since the beginning of 2023, MWG has standardized operating procedures across stores which helped to eliminate unnecessary tasks, hence saving time and relevant labor costs (the number of employees has dropped by 7% YTD). Besides, increasing gross profit while maintaining logistics costs in absolute terms stable also helps to raise efficiency and hence profit margin. In terms of percentage, logistics costs to sales ratio declined from 6% in 4Q22 to 5% in 3Q23.

Being foreign debt free could allow NT2 to avoid the impact of FX risks. However, as EVN is facing financial issues, NT2’s cash conversion cycle has surpassed 100 days in 2023 due to Vietnam Electricity Group’s (EVN) deferral in power sale payment. To ensure the adequate working capital for operations, NT2 has raised its short-term debt to VND 926 bn (as of end-September 2023, vs VND 630 bn of 3Q22). Therefore, NT2 might unlikely declare the attractive dividends for 2023 and 2024 as 2022 (VND 2,500/share or 8.7% of dividend yield). We also forecast 2023 NPAT to decline by -52% YoY. However, we anticipate the earnings recovery in 2024 (+37% YoY per our estimate) as NT2’s utilization rate should improve on the back of no major maintenance and less extreme gas shortage as in 2023. NT2’s 4Q23 performance could be a catalyst in the short-term as NT2 has finished the maintenance at the end-October, implying a QoQ profit growth. We estimate a 6.3% YoY growth of 4Q23 NPAT. Usually, the annual power demand is usually solid in November and December. With a 12-month DCF target price of VND 27,620 (equivalent to 12.7% upside potential), we call an Outperform rating for the stock.

We are downgrading our rating on the shares of KBC to MARKET PERFORM (from OUTPERFORM), as we lower target price to VND 33,200/share. Our downgrade reflects both the delay of industrial park (IP) land transferred to tenants and our belief that KBC’s major project development could be further delayed. Both factors have already negatively impacted QoQ revenues and NPAT.  For 3Q23, KBC posted revenue of VND 247.1 bn (+21.6% YoY & -89.4% QoQ) and NPAT of VND 19 bn (-99% YoY & -98.2% QoQ) due to the delay of industrial park (IP) land transferred to tenants and the absence of one-off revaluation gain as of 3Q22 with value of VND 2.18 tn. Between Q1-Q3, net revenue reached VND 4.79 tn (+272% YoY), and total net income reached VND 2.09 tn (-2.3% YoY), fulfilling 53% and 52% of the company’s full year revenue and net profit target, respectively.  The company has achieved 63% and 72% of our previous forecast for FY2023 revenue and net profit, respectively.

In 3Q 2023, GMD posted net sales of VND 998 bn, +1% YoY and +9.4% QoQ, and PBT of VND 397 bn +18% YoY, beating our estimate of VND 360 bn by a comfortable margin, thanks to strong improvement in gross margin of both the Port segment and Logistics segment. Excluding Gemalink, all GMD feeder ports throughput during the quarter reached 281K TEU, +3% YoY and +1% QoQ. Gemalink improved in the quarter, with estimated volume of 260K TEU (excluding barging), +2% QoQ showing quarter-on-quarter improvement of the external demand from US/EU markets, according to VPA data.