Company Report

Top-line trailed our forecast, but net profit slightly exceeds due to gross-margin expansion. For 3Q23, VNM reported net sales and net profit of VND15.6tn (-2.8% YoY) and VND2.5tn (+9.1% YoY), respectively. Accordingly, gross margin for the quarter was 41.9% (+240bps YoY; +140bps QoQ) on the back of a correction in raw material prices. For 9M23, net sales and net profit reached VND44.8tn (-0.3% YoY) and VND6.7tn (-0.6% YoY), respectively, completing a respective 71% and 77% of management’s full-year target. Management hints that for 2023, while sales would be on track (flat YoY), net income might grow 3% YoY on continued margin improvement in 4Q23. New packaging launch likely to continue across product portfolio through mid-2024. SG&A reached 24.4% of net sales in 3Q23 (+162 bps YoY, +50bps QoQ), as the larger gross profit was reinvested into marketing and promotional activities.

We believe that NIM will recover in 4Q23 and improve modestly in 2024 because deposit rate decline will be factored in coming quarters and the bank concentration in medium and long-term loans has stabilized lending rates. However, the cash flow needed to settle debts, particularly for mortgage, consumer, and developer loans, has been negatively impacted by the economic downturn, that will still pressure on the asset quality of the bank in our view. As a result, we maintain our MARKET PERFORM rating for the shares of HDB, with a 1Y TP of VND 20,100/share.

Despite the slowdown of the economy and a rattled consumer, VRE continues to take advantage of stable growth and operational efficiencies in its core business of mall leasing. Given the weak growth expectations for 2024 due to management’s postponement of new mall openings and the decline in property sales YoY, reflecting the overall strategy of VRE to focus on Vincom Megamall type development which do not have shophouses for sales component as Vincom Plaza/Vincom Plus projects have, we are lowering our 1Y target price to VND 31,300/share (from VND 38,700/share). Our reduced TP reflects the use of a more conservative capitalization rate of higher 0.25%-1.0% than the previous valuation. Nevertheless, despite the level of stress that the counter is experiencing, we feel much of the bad news is already priced in and are maintaining our BUY rating on the shares given the implied 30.7% upside.

For 4Q 2023 and 2024, HHV continues to be benefited from the upcycle of infrastructure investment that resulting in construction as the growth driven factor for sales and earnings during this period. Meanwhile, we assume BOT segment sales growth in 2024 to converge to a natural rate, at 3-5% variable amongst projects. Overall, net earnings for 4Q 2023 and 2024 are respectively forecasted at VND 117 bn (+55% YoY) and VND 477 bn (+12.2% YoY). The lower earnings growth in 2024 net income is due to the high-based performance in 2023. Based on the forecasts for 2024 (which has yet to consider the impact of share placements to 2024F EPS), the P/E forward ratio is around 11.x and the TTM P/E ratio stands at 14.x, which are relatively lower than the three-year average P/E ratio of 16.x. 

We upgrade the shares of HSG from Market Perform to Outperform, and increase our 1-year target price to VND 22,600/share (from VND 19,900/share). In addition to HSG’s significant profit beat for the quarter, the recovery in steel prices and increase in export demand from North America should be catalysts for the shares over the near-term.

MWG delivered disappointed results in 3Q23 with net sales and net income of VND30.3tn (-5% YoY, +2.8% QoQ) and VND38.8bn (-96% YoY, vs VND17.4bn in 2Q23). The gross profit margin inched up marginally, from 18.5% in 2Q23 to 18.7% in 3Q23, aiding the QoQ recovery in earnings. Excluding the financial income, we estimate the PBT margin of the ICT & CE segment improved from 0.8% in 2Q23 to 1.6% in 3Q23. Net sales and net income tracked for 9M23 totaled VND86.9tn (-16% YoY) and VND77.5bn (-98% YoY), respectively, having accomplished only 64% and a mere 2% of management’s 2023 guidance. As such, we believe earnings have bottomed out in 2Q23 and are on the recovery path, though the pace is lower than our expectations.

NPAT in 3Q23 was lower than expectations. PTB in Q3 2023 recorded total net revenue and net income of VND 1.18 tn (-23% YoY) and VND 78 bn (-36% YoY, -24% QoQ) respectively, a miss vs. the company’s Q3 target. Wood production (of which 65%-70% of revenue is from the US market) declined by -19.8% YoY, given the fact that consumer demand for indoor and outdoor wood products in the US market declined due to inflationary pressure. Stone production (mainly granite, quartz accounting for 35% total revenue) in 3Q23 posted revenue of VND 418 bn (-8.3% YoY), due to demand for home construction and the domestic real estate market having dropped sharply.

HPG’s net profit during 3Q23 was VND 2 tn, an increase of 38% QoQ and showing significant recovery from the loss of -VND 1.8 tn during 3Q22. Recovery in net profit was driven by the improvement in sales volume, lower input materials cost, and better inventory management. For 2023, we lower our 2023 net profit estimate for HPG from VND 7.03 tn to VND 5.95 tn (-29.9% YoY) due to the recent surge in the metallurgical coal prices. However, we expect that 2024 earnings can post a strong rebound of 81% off the 2023 low base - reaching VND 10.78 tn. This is driven by: (1) the recovery in demand, which could be more significant in the second half of next year; and (2) the stabilization of steel prices on the back of better regional supply-demand considering the recent decline of Chinese steel output and the low profit margin of steel mills in both China and Vietnam.

On 26 Oct 2023, the BOD of Vingroup (VIC: HOSE) approved a $250 million USD-denominated exchangeable bond (the EB) with maturity scheduled for 2028, that can be exchanged for existing VHM shares that VIC owns. The EB features a 10% coupon rate, and exchangeable into VHM shares at an exchange price of VND 51,635 per share. According to the Company, VHM stock price was under temporary sale pressure on 26 October 2023 as certain EB investors hedged their investment by selling VHM shares. We expect the technical impact to be limited and short-lived, as all hedging activities have been completed according to the company.

After attending DBD’s analyst meeting on Sep 22^nd, we decide to revise up our forecast for revenue and net income to 1.7 tn (+9% YoY) and 291 bn (+19% YoY) (see table 1), respectively, given ETC witnessed strong growth in 1H23 and we expect ETC growth to uphold during 2H23 enough to offset weaker OTC spending environment. We also introduce our 2024 forecast of revenue and net income of 1.9 tn (+10% YoY) and 321 bn (+10% YoY) respectively, with assumption of fiercer competition from imported drugs, higher financial and SG&A expenses.

Given the weak H1 results, MSN management provided lower guidance for 2023, aiming for revenue of between VND 83.5-90 tn (from VND 90-100 tn) and NPAT of between VND 3-4 tn (from 4-5 tn NPAT). Such recalibration implies a growth rate of 9.8% YoY to 18.4% YoY for revenue, and a reduction of -36.8% to -15.8% YoY in net profit. We believe that the reason for the guidance reduction is due to external factors (difficult economic conditions which pose a prolonged impact on consumer demand) as well as internal factors (high gearing, weaker-than-expected performance in the mining business, and a drop in affiliate TCB’s earnings).

Solid business acumen has facilitated ACB to run steadily in recent years, and the bank features the most impressive ROE amongst our coverage universe. Further, establishing a high-quality client base as well as a relatively low funding cost should be a key competitive advantage for ACB to sustain its earnings growth trajectory over the medium-term. As such, we reiterate our BUY rating on the shares of ACB, with a 2024 target price of VND 30,100 - representing upside of 32.9%

PTB operates at a higher growth rate than the wood industry due to its large customers (Masterband, and Melissa & Doug). In addition, the company’s stable earnings reflect optimized labor productivity – allowing the wood gross profit margin to range between 3% - 4% higher than industry average.  By our estimate, a 1% increase in interest rates leads to a 2% decrease in PTB’s pre-tax profit. We see PTB's profit bottoming out in 2Q23, however the recovery is not strong in 2024. PTB trades at a 2023 and 2024 forward P/E of 10.2x and 9.05x, respectively, which are lower than peer (11x). Using a blended average P/E for the wood industry of 11x and the stone industry of 10x, we derive a 1Y target price for the shares of PTB of VND 61,600/share (upside 6.6%). We maintain our MARKET PERFORM rating.

We maintain our 2023F revenue estimates of VND 17.5 tn (+6.5% YoY) and finetune our PBT estimates to VND 1.176 tn (+23% YoY, up 13% from our previous forecast to reflect higher financial income). We also increase our backlog assumption between 2024F-2027F by USD 300 mn (total USD 2.2 bn backlog value in this period) to reflect the potential opportunity for PVS to be awarded an offshore conventional oil&gas project near-term. Reiterate OUTPERFORM rating, with new TP VND 39,900/share. Over the short-term, news regarding results of project bidding and the development of Block B projects are main catalysts for the shares.

We reiterate our Outperform rating on the shares FMC. Our updated one-year price target for FMC is VND 56,200/share (from VND 50,600/share), as we roll forward our price target to 2024F EPS - representing +21% upside. FMC exports reached USD 87 mn (-26% YoY) and outperformed the Vietnamese shrimp export market (-32% YoY) during 1H23 due to FMC’s key market in Japan which remain stable YoY.  During 2Q23, FMC reported net sales and NPATMI of VND 1 tn (-27% YoY, +2% QoQ) and VND 71 bn (-59% YoY, +53% QoQ), respectively as 2Q22 was the earnings peak of FMC.