Company Report

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. 

We are maintaining our OUTPERFORM rating on the shares of VCB with a 2024 target price of VND 105,900/share (from VND 92,633/share after adjusting for the stock dividend) - representing an upside of 18.7%, as we roll forward our valuation basis, assuming that the company’s private placements will be successful, and increase our target PB to 2.7x (from 2.4x) due to the lower interest rate environment. VCB posted VND 9.3 tn pretax profit (+25% YoY) vs. our estimate of VND 10 tn (+35% YoY), as the bank booked more provisions than we had anticipated. Nevertheless, we continue to view the 2Q23 results as strong and the 1H23 provisions as pre-emptive and will likely enable future provisions to be reduced from 2H23. During the period, VCB also bucked the trend in both NIM (+2 bps QoQ) and asset quality (flat NPL ratio of 0.8%, and further fortified its provision coverage at 386%). The only drawback for the quarter, in our view, was that CASA nudged -43 bps lower to 30%, as the peer average CASA improved 45 bps. We however do not consider this as significant, as VCB continues to possess the lowest funding cost in the sector due in large part to its stable depositor base. CASA should further improve over the near term as deposit rates remain at a low level.

For 2023, we expect that the company will post net sales and net profit of VND 63.4 tn (+5.7% YoY) and VND 9.1 tn (+5.9% YoY), respectively. This is -1.3% lower than our previous net profit forecast. Such an outlook translates into 2H23 net sales and net income growth of +10% and +18% YoY, respectively. For 2024, we expect net sales and net profit to reach VND 67.4 tn (+6.3% YoY) and VND 10.7 tn (+17.2% YoY), respectively. Our 2024 net profit forecast is 4.4% higher than our previous estimate. We raise our GPM assumption for 2024 from 42.1% to 43% to reflect the declining trend of imported milk powder. Our updated 1Y target price for the shares of VNM is raised to VND 86,600/share (from VND 82,000/share), based on our 2024E EPS and DCF methodology. With upside of 19%, we reiterate our OUTPERFORM rating on the shares of VNM.  

IDC is one of the largest industrial park developers in Vietnam, with 727 ha of available lettable land in Long An, Ba Ria Vung Tau, and Thai Binh provinces. Low compensation and clearance costs should enable IDC to maintain its gross profit margin of IP segment at above 50% between 2023 to 2026.  IDC trades at a 2023 P/E of 10.2x and P/B of 2.5x, and 2024 P/E and PB of 8.9x and 2.4x - lower than industry average of 14.8x and 3x, respectively. We have OUTPERFORM rating for the shares of IDC, wherein our 1-year target price is adjusted to VND 53,200/share (from VND 51,400/share), representing an upside of 8.8% from current market price. With 101.76 ha new signings and a payment schedule to be accelerated from one year to six months, as we observed amongst large clients, IDC’s cash flow should continue to improve.  We believe that IDC can maintain its cash dividend at 40% of par value during 2023 and 2024, with the dividend yield of 8.3%.

Reflecting positive performance on YoY basis and stable growth outlook of VRE’s core business of mall leasing, we reiterate our BUY rating on the shares of VRE with 1Y target price of VND 38,700/share (28.8% upside), a slight decline of 4% compared with our previous TP due to the rescheduling of new mall openings. Valuation (2023E EV/EBITDA of 8.8x, both below historical and regional peer average of 15x) is also attractive, in our view. Key downside risks to the shares of VRE include: (i) delay in development of Vinhomes mega projects which could impact the company’s expansion; and (ii) weaker-than-expected consumption which may lead to a slowdown of tenant expansion plans.

We maintain our Market Perform rating on the shares of TCB, with a 1Y TP of VND 38,700/share as we roll our valuation basis to 2024. We undoubtedly believe in the long-term prospects of the property and the corporate bond markets in Vietnam, and that a key market player, like TCB would eventually reap the rewards. Over the short-term, however, we continue to foresee challenges which is not likely to be resolved in its entirety over the short-term, but instead could take at least 2-3 years to resolve. During this time, the absorption rate in the property market may not be desirable and may adversely affect the cash flow of developers/landowners. Accordingly, TCB’s earnings growth may not match the impressive years (2014-2021) near-term. We project that the bank’s pretax profit for 2023 and 2024 will reach VND 23.3 tn (-8.5% YoY) and VND 27.2 tn (+16.1% YoY), respectively. Hence, ROE is projected to remain around 15% vs. the industry average of 16.2%.

KBC Q2 reported revenue and NPAT was VND 2 tn (+421% YoY) and VND 747 bn (vs. losses of -VND 323 bn in 2Q22), respectively. The strong growth during Q2 was primarily attributed to revenue from industrial land lease increasing 625% YoY, accounting for 95% of total revenue. Cumulatively, during the first six months of 2023, total revenue reached VND 4.27 tn (+294% YoY) and net income achieved VND 1.8 tn (+800.3% YoY), fulfilling 47% and 45% of full year revenue and net profit target, respectively.  By end of Q2, KBC had 185 ha committed to lease to several clients, of which KBC handed over 128 ha during the first six months. During 2H 2023, KBC management expects to deliver up to 100 ha in Quang Chau, Tan Phu Trung and NSHL IP. Meanwhile, the company also expects to hand over residential land in Phuc Ninh UA once the LUF payment to the State is complete. Should this be the case, KBC may achieve its challenging target of VND 9 tn (+840% YoY) in revenue and VND 4 tn (+151% YoY) in NPAT this year.