Company Report

VHC posted 2Q23 results, wherein net profit reached VND 412 bn, declining -48% YoY but improving +88% QoQ due to gross margin expansion and lower selling expenses. While sales were in line with our expectation, 2Q23 NPAT was better than expected. For 2023, we expect net sales and net profit to reach VND 11 tn (-16.9% YoY) and VND 1.46 tn (-26% YoY). This is 11.4% higher than our previous net profit forecast. For 2024, we expect net sales and net profit to reach VND 12.4 tn (+12.6% YoY) and VND 1.7 tn (+17.8% YoY), respectively.  Our 1Y target price for VHC is VND 80,500/share (from 71,500/share), representing an upside of 3.9%. We maintain our MARKET PERFORM rating on the shares of VHC.

Our last rating on DRC was MARKET PERFORM, as we believe that 2023 earnings will likely decline due to weak demand, which forced DRC to reduce prices charged to its customers in order to protect sales volume, hence effectively squeezing the profit margin. Q2 earnings (-39% YoY) came out even worse than company guidance (pretax profit of VND 63 bn vs company guidance of VND 80 bn). Earnings may start to recover in 2H23 (+57% HoH, -28% YoY) thanks to (i) the second half of the year traditionally being the high season and (ii) a gradual recovery in demand in both the domestic and export market.

We reiterate our Outperform rating on the shares of QNS, citing our improved outlook on the company. We revise up estimated 2023 NPAT by 35% compared to our previous forecast, encouraged by higher domestic sugar prices and higher refined sugar (RS) production volume. Our target price for QNS is VND 65,000/share (from VND 58,000/share), representing a +22% upside (total ROI 27%).

During 2Q23, STK reported net sales and net profit of VND 407 bn (-23% YoY; +41% QoQ) and VND 38 bn (-47% YoY) respectively, beating our estimates. Going forward, the company is confident that orders will continue to improve in terms of volume during 3Q23 and 4Q23 on QoQ basis. The declining trend of average PET chip prices should continue to help widen the price gap, and lead to a higher GPM during 2H23. During 2023, we expect net sales and net profit to reach VND 1.8 tn (-14.7% YoY) and VND 167 bn (-31% YoY), respectively. During 2024, net sales and net profit are estimated to reach VND 2.2 tn (+19.7% YoY) and VND 225 bn (+34.4% YoY), respectively. We applied the  historical average P/E of 14x to 2024 EPS to reach our new target price for the shares of VND 33,400/share (up from VND 26,800/share), indicating upside of 5%. We reiterate our MARKET PERFORM rating. As STK operates in the upper stream of the sector value chain, we expect sales results to be the first sign of a sector recovery, followed by other garment manufacturers. 

ACB announced a prelim PBT of VND 4.83 tn (-1.7% YoY) for 2Q23 which turned into 1H23 PBT of VND 10 tn, exceeding our expectations and accomplishing 50% of the AGM’s profit plan. This earnings growth slowdown was caused by NIM shrinkage, the provision burden, and weak fee-based earnings. Whilst credit growth rebounded during 2Q23 at 4.6% YTD (vs. -0.6% YTD for 1Q23), total deposit growth was 4.2% YTD. The NPL ratio increased to 1.07% (vs. 0.96% for 1Q23). Given that the LDR (79%) and short-term funding for medium- and long-term loans (19%) were well below the cap, we believe that funding pressure will not be the primary impediment for ACB to stimulate credit growth during 2H23.    

Although we are not raising our earnings forecasts for 2023-2024, we are now more positive on VNM versus the overall market given the impact of lower input costs as well as a lower WACC in our DCF valuation. Therefore, we are upgrading the shares of VNM from Market Perform to Outperform, and increasing our target price to VND 82,000/share (from VND 74,700/share), which represents an upside of 14%. We are of the opinion that the share price has already priced in previous difficulties, and therefore might have bottomed out. Looking ahead, a likely return to profit growth in coming quarters and demand recovery in 2024 support our view on VNM.

Reiterate OUTPERFORM, with new 1Y TP of VND 52,900/share. Raise 2024F NPATMI estimates to VND 554 bn, flat YoY given the recent positive development and expectation of further reocvery of freight rates, leading to a possible re-rating for the industry. AGM set target for NPATMI 2023F of VND 490 bn, - 40% YoY, 10% lower than our estimates. Industry see some positive developments on charter rates (+15-20% from trough) so we expect inventory de-stocking to end around 3Q2023 and industry fundamental to improve from that point on.

Over the short term, we see improving market sentiment as a result of recent interest rate declines. However, we anticipate that market liquidity would improve gradually, possibly from 2H23 when multiple supporting measures and declining interest rates should exhibit a more visible impact on the market.  Meanwhile, medium- and long-term prospects for the sector remain positive, underpinned by population growth, on-going urbanization, and strong underlying housing demand. At current price of VND 56,500/share, VHM trades at a 2023 and 2024 PE of 8.4x and 7.8x, respectively, and 2023 and 2024 PB of 1.4x and 1.2x - lower than historical averages and relatively attractive compared to peers.

VNM reported 1Q23 net sales and net profit of VND13.9tn (+0.3% YoY, -7.6% QoQ) and VND1.9tn (-16.5% YoY, +2% QoQ), respectively, trailing our expectations. Domestic sales continued to struggle, given weak consumer sentiment and aggressive competition in the market. For 2023, the company has set an annual sales and net profit target of VND63.4tn (+5.5% YoY) and VND8.6tn (+0.5% YoY), respectively, which we believe to be rather conservative. We also lower our 2023E earnings to reflect challenging overall market conditions. We expect 2023E net sales and net profit to reach VND63.8tn (+6.4% YoY) and VND9.2tn (+7.3% YoY), respectively. Our new earnings are 3% lower than our previous net profit estimates. For 2024E, we expect net sales and net profit to reach VND67.8tn (+6.3% YoY) and VND10.2tn (+11.3% YoY), respectively. We lower our DCF/PER-based 12-month target price for VNM to VND74,700/share (from VND82,900/share) as we now use a lower target PER of 16x (from 18x) to reflect the gradual loss of market share. Our new TP implies 13.5% upside potential. We maintain our Market Perform rating on the shares of VNM. 

We roll-forward our valuation to mid-2024 and adjust our 1Y TP to VND 24,300 (from VND 22,800). Given the high exposure to real estate developers (12%), mortgage loans (18%), and corporate bonds (10.7%), we are concerned that TPB’s asset quality weakness will last longer than expected - impeding the NIM recovery. As such, we believe that an additional provisions will be the best consideration for TPB. With such difficulties, earnings growth fragility and narrowed ROE are what we expected to happen for both 2023 and 2024. Therefore, we maintain our Market Perform rating on the shares of TPB. For 2023, we project that TPB’s pretax profit will achieve VND 8.2 tn (+4.8% YoY). We believe that NIM contraction (-30 bps YoY) and provisioning burden (+22% YoY) will impede 2023 core profit growth. Against a modest showing of PBT during 2023, we project that 2024 pretax profit will be VND 9 tn (+9.8% YoY), driven by NII and NFI growth of 11.9% and 24.4% YoY, respectively.

From our last report, Vietnamese trade in general has not improved by a great degree, with Jan-May tracked 2023 total trade value declining by -14.7% YoY, but slightly up by +5% MoM for May. Especially, imports by value is still declining by -18% YoY in May, and this is a bad signal for export in 2H because a large part of Vietnamese import value is materials for manufacturing. Thus, we have grown more concerned and are watching closely export recovery prospects for 2H 2023. The recent 5% MoM growth in May exports is a positive sign. So we maintain our estimates for GMD as-is for now, but might revise down our estimates if exports do not improve further in the coming months of 2023. Specifically, we maintain our total port volume assumption for GMD of 2.7 mn TEU, -10% YoY in 2023F and 3.4 mn TEU, +22% YoY in 2024F. Tariffs are expected to maintain stable in this period. Thus, we maintain our forecast for 2023F-2024F.

Contracting loan balances and NIM pressures during 1Q23 did not prevent ACB from achieving record core profit growth of 25.3% YoY to VND 5.2 tn (26% of the annual plan). The main driver was interest income (+14.2% YoY), strong earnings from both forex trading (+44.4% YoY), improved bad debt collection (+53.6% YoY), and OPEX control. Asset quality was affected by an increase in both bad debt and the troubled Group 2 loans. As a result, the NPL ratio increased 23 bps QoQ to 0.97% at 1Q23. For 2023, we expect that ACB will achieve a PBT of VND 20 tn, which is lowered -1.7% due primarily to lower-than-expected credit growth of 12% YTD (from 14%). We extend our valuation to mid-2024, and arrive at a 1Y TP of VND 32,200 (up from VND 30,900). We like bank’s conservative approach to risk management with lending, and that there appeared to be no corporate bond investments with minor exposure to real estate projects. We reiterate our BUY rating on the shares of ACB.

We find VCB’s 1Q23 results solid, with decent profitability and well-controlled credit quality. Its NPL formation and ‘Group 2’ tier of other orbiting loans were amongst the lowest in the industry in 1Q 2023. During April, the base NPL ratio increased just 4 bps to 0.89%, while the satellite Group 2 loan ratio remained flat MoM, without any further write-offs. This proved the bank’s capability in risk management. Despite the bank considering another rate cut package with an impact on NII of between VND 600-700 bn, the impact on the 2023 PBT should be offset by the curtailment of credit cost. Therefore, our PBT estimate for 2023 remains broadly unchanged at VND 44.5 tn (+19% YoY) and we introduce our 2024 forecasts. However, we are rolling forward our valuation basis to mid-2024 which results in a new 1Y TP of VND 109,400/share (from VND 103,750/share). This is equivalent to a 2024F P/B ratio of 2.4x (from 2023F P/B ratio of 2.6x). We reiterate our Outperform rating.

We maintain our Outperform rating on QNS, citing our improved outlook on the company. We revise up 2023 NPAT by 8% compared to our previous forecast due to (i) higher sugar prices and (ii) higher refined extra type (RE) production volume. Our target price for QNS is VND 48,500/share (from VND 46,000/share), representing a +14% upside (total ROI 21%). At the April 1^st 2023 QNS AGM, net revenue and net profit guidance for 2023 was set at VND 8.4 tn (+1% YoY) and VND 1 tn (-16% YoY), respectively. We note that the company has a tradition of setting a conservative financial plan.