Company Report

We initiate coverage of  NVL with a Market Perform rating and 1Y target price of VND 80,700 (1.6% downside potential). Over the 2022- 2023 period, NVL’s sales and handover will likely be driven by multiple ongoing projects, but mostly focused on Aqua City, NovaWorld Phan Thiet, and NovaWorld Ho Tram.

We expect NVL’s strong unbilled backlog of USD9.9bn (at the end of 1H 2022) to create a decent base for earnings growth in 2023-2025. We also expect NVL’s earnings quality to improve, with actual bookings from the handover of products to home buyers rather than financial income or goodwill recognition. However, we will continue to keep a close watch on the company’s presales in 2H 2022-2023 as the property market is cooling down at the moment. 

Our forecasts for FY22 are revenue of VND29.2tn (+95.9% YoY) and NPAT of VND 5.6tn (+73.4% YoY), driven by the delivery of remaining units at the NovaHills Mui Ne, Aqua City, NovaWorld Ho Tram and NovaWorld Phan Thiet projects. In addition, NVL expects to launch four new projects in late 2022 or early 2023, including: (1) Grand Sentosa, (2) NovaWorld Mui Ne, (3) a project in Nha Be District, HCMC, and (4) a new project in HCMC. However, we continue to expect ongoing presales at current projects (mainly Aqua City, NovaWorld Phan Thiet and NovaWorld Ho Tram) to have the most significant contributions to our presales forecast of USD3.3bn in 2023F (flat YoY growth vs 2022F).

Investment view: We reiterate our Outperform rating, but lower our 1-year target price to VND 128,000/share (from VND 135,000/share) or +13% upside. Our lower target price is based on higher WACC in our DCF valuation and lower target P/E (from 20x to 19x), taking into account of higher interest rates. Our estimates are based on a Brent oil price assumption of USD 95/bbl in 2022 and USD 85/bbl in 2023. For 2023, we estimate that GAS will undergo mild slippage with a 5.1% YoY decrease in earnings, due primarily to our lower 2023 oil price. Still, we believe that GAS will deliver improved gas volumes in our forecast (+10% YoY). Key downside risks to our call include weaker-than-expected dry-gas volume, and lower-than-expected fuel prices.

Short-term view: Quarterly earnings peaked in Q2 2022. Based on our current estimates, GAS likely will post 12% earnings growth in H2 2022, decelerating relative to H1 2022 (+96% YoY). As such, there could be limited price catalysts in store for the shares over the short-term.

In general, we believe that the shares closely track global oil price movements. Looking toward next year (despite the slight decrease in earnings due to our oil price assumption for 2023 now being lower than consensus), we believe that GAS’s earnings will remain buoyant. Moreover, GAS’s rich net cash balance of USD 1.2 bn at Q2 2022 is a significant advantage during the period of rising interest rates.

1H22 performance: Consolidated revenue and NPATMI surged to VND 6.2 tn (+60% YoY) and VND 175 bn (+112% YoY), respectively, achieving 43% and 49% of full year 2022 guidance. Net income increased across all segments: seeds (+24% YoY), pesticides (+45% YoY), shrimp (+42% YoY), pangasius & clam (+120% YoY), fish sauce (+17% YoY). Consolidation of VFG’s financials into PAN further enabled growth in addition to  one-off earnings from an asset disposal at BBC. Packaged foods (confectionery, dried nuts and fruit, seasonings) posted encouraging sales growth of 11% in H1 2022, and is expected to accelerate during H2 with the arrival of the high season.  Meanwhile, dried nuts & fruits earnings declined -29% YoY owing to FX losses. For 3Q22, the company targets to reach net sales of VND 3.6 tn (+43% YoY) and NPATMI of VND 53 bn (+38% YoY).

AST posted a positive turnaround PBT of VND 16.6 bn in 2Q22, the first time after eight consecutive quarters of losses, which marks an important turning point for AST. The earnings recovery path will be largely dependent on the international market, especially for the main markets of both inbound and outbound Vietnamese tourism such as East Asian countries, therefore we do not expect strong earnings recovery over the short term of 3-6 months. However, we believe that recovery is well ongoing now, supported by improving passenger volume, optimized business operations post-Covid, and the expanded points of sales (115 stores vs 92 stores in 2019).

We maintain an OUTPERFORM rating for AST with a 1Y-TP of VND 69,000/share (based on 2023F P/E of 20x), implying 22.5% upside and reflecting our positive view on the Company’s strong turnaround in 2023 along with the general recovery of the aviation industry. We note that the primary risk is that international recovery might be slower than expectations in the scenario if China were to prolong its zero-COVID policy, and if global travel demand were to deteriorate more rapidly due to economic recession.

Investment summary: We reiterate our Market Perform rating on the shares of OCB, with a 1Y TP of VND 19,700 per share (previous target VND 23,200) due to: (1) the constraint of profit in FX and securities trading; (2) the relatively high level of exposure to real estate developers; and (3) a reduced target P/B to 1.05x due to lower earnings and ROE.

During 1H22, OCB pretax profit disappointed with a drop of -34.6% YoY to VND 1.7 tn. Despite the cumulative interest income increase of 20.4% YoY through credit growth of 9.8%, the loss from trading securities weighed heavily on core profit during 1H22. The NPL ratio declined -21 bps QoQ to 1.96%, though much higher than the 4Q21 figure of 1.32%. Asset deterioration resulted in additional credit provisioning, which increased 42.8% YoY to VND 562 bn in 1H22. Restructured loans improved 29.5% YTD, declining to VND 2.2 tn.

We are reiterating our OUTPERFORM rating on the shares of DRC, along with our VND 34,400 per share, (ROI of 16%, based on 2023F financials and target PE of 12x). Despite the DRC 2Q22 net income decline of -21% YoY resultant of the high raw material costs and freight costs (impacting both the gross profit margin and sales volume), growth prospects going forward are better. Raw material prices and freight costs should soften through 2H22 and 2023, which should positively impact the profit margin and sales volume. 2H22 earnings growth is forecast at 49% YoY, as 3Q22 net income growth should be at the high point of the year. We forecast 2022 and 2023 net income of VND 329 bn (+13% YoY) and VND 378 bn (+15% YoY), respectively. From 2024, DRC’s radial production capacity to rise to 1 mn units/year (from the current design capacity of 600K units/year), supporting long-term growth.

Short-term view: Net income growth will be the highest in 3Q22 on the back of the low base set last year, when lockdown conditions materially affected production and export activities of DRC. Jul-Aug 2022 revenue reached VND 950 bn, surpassing the entire 3Q21 revenue of VND 929 bn. This should aid stock performance.   

We are upgrading the rating on the shares of VRE from Outperform to Buy, as well as our 1Y TP of VND 35,200/share (previously VND 33,900/share), representing 28% upside after we roll forward our estimates to 2023E. We believe that earnings have bottomed out and are on a recovery path given the minimal rent waivers. Valuations (2022E & 2023E EV/EBITDA of 12.5x and 10.2x, both below historical average) also remain attractive in our view.

Key downside risks to the shares of VRE may include: (i) delays in development of Vinhomes mega projects which could impact the Company’s expansion; and (ii) inflationary concerns which may cause weaker-than-expected consumption recovery.  

Despite the marginal YoY revenue improvement of 5.6%, HT1’s PBT fell -45.4% to 164 bn VN in 2Q22 due to a surge in coal prices. We expect that the increase in coal prices should exert additional pressure on the company’s 2H22 margin, as it will be difficult for cement companies to increase cement price further, challenged by weaker domestic demand and stagnant export markets. Accordingly, we forecast HT1’s 2022 revenue to increase 20.6% YoY to VND 8.5 tn on the back of an 8% rebound in cement sales volume. However, we do forecast PBT to decline -28% YoY to VND 379 bn. We believe that HT1 earnings will bottom in 2022 and rebound to VND 527 bn (+40% YoY) in 2023 due to sales volume growth of 5%, and the assumption that coal will correct 5% from the 2022 peak.   

We maintain our Market Perform rating on the shares of HT1, along with our 1-year target price of VND 16,000/share. We think the share price in the short-term can be supported by the strong YoY earnings growth of around 70% in 2H22 off the low base in 2H21. There would be more supportive catalysts in 2023, including softening coal prices, or an acceleration in public investment.

Investment summary

We ae upgrading the shares of VTP to BUY from MARKET PERFORM, as we increase our 1-year target price to VND 85,500/share (up 14%) – representing 35% upside. VTP is trading at a heavy 33% P/E discount to regional peer.

Reasons for upgrade:

Delivery tariffs increase by 10-15% signals market competition easing

Gross margin slightly improved from trough, signaling better cost control from a new team of management

Quality improvement effort should resolve market share loss problem

Strong earnings growth expected in 2022-2023F

Downside risk: Competition remains intense as expected, or service improvements are not enough to capture market share.

At VND 34,650/share, KBC trades at a 2022 P/E and P/B of 11.8x and 1.6x, respectively, and a 2023 P/E and P/B of 8.9x and 1.4x – prior to accounting for the potential private placement of 150 mn shares. Our target price is VND 43,000/share, representing 24% upside. We reiterate our BUY rating on the shares of KBC. The key downside risk, in our view, is slower than expected land deliveries given the prolonged procedural process for key projects and the global economic uncertainties which may impact FDI.

1H 2022 net income did not deliver as expected. Instead the company reported a loss of -149 bn VND, due to a lower than expected day rate and utilization rate of JU rigs. However, we still expect a positive improvement from the 2021 situation, and this improving trend should continue into 2H 2022.

The regional drilling market is warming up quickly since our last update. Large demand from Saudi Aramco has brought about a higher regional day rate and utilization rate, especially when we look into contracts set to start in 2023F.

Revised 1Y TP of VND 23,800/share (from VND 29,500/share) based on combination of DCF and P/B methods, with a lower 2022F forecast and Block B timeline pushed to 2024F. We reiterate our Market Perform rating for the stock. The stock is trading at P/B 2023F of 0.9x and 2023F P/E forward of 21x.

MWG posted weaker-than-expected 2Q22 results, with net income declining by 6.8% YoY due to slower-than-expected growth in the ICT & CE segment, coupled with one-off expenses arising from the closure of non-performing grocery stores. We hence reduce our 2022 earnings estimates by 14% to VND 5.48 tn (+12% YoY, lower than company guidance of VND 6.35 tn). With such a forecast, 2H22 earnings growth may still be higher than that of 1H22 (+24% YoY in 2H22 vs flat growth in 1H22), owing to the low base nature of 2H21. After store layout changes, we expect BHX monthly revenue per store to be maintained at VND 1.3 bn in 2H22 (vs. VND 900 mn in 1Q22 and VND 1.1 bn in 2Q22), hence improving the profit margin. We believe that profitability of BHX will be crucial bottom line growth driver for MWG from 2023, while the earnings growth of the ICT & CE segment will likely slow down due to high inflation and current high market share (>50% for mobile phones and >45% for consumer electronics). We project 2023 net income at VND 7.19 tn (+31% YoY).

We derive a new SOTP-based target price for MWG of VND 87,800 (from VND 99,000) after factoring in the stock dividends. With an upside potential of 32% from the current share price, we maintain our BUY recommendation.

We reiterate our Outperform rating on the shares of CTG, despite lowering our target price to VND 35,300 per share (from VND 39,700), as we cut our target P/B to 1.6x (vs. 1.8x) resultant of the rising interest rate environment. Despite limited space to issue additional credit in 2Q22, CTG was able to maximize its paltry SBV credit allocation to achieve stellar results. Earnings grew +107% YoY on the back of moderate TOI expansion, improved CIR, and lower provisioning. PBT during 1H22 was VND 11.6 tn (+7% YoY), equivalent to 51% of SSI Research's earnings forecast. However, balance sheet quality underperformed, as both Group 2 loans and other NPLs rose to 1.25% and 1.35% (vs. 1.1% and 1.25% at the end of 1Q22), respectively, intimating that loss provisions could weigh on CTG’s earnings going forward.

Investment summary: We maintain our Outperform rating on the shares MSB. However, we are lowering our 1Y TP to VND 23,000 (from VND 28,400). Our reduced TP reflects: (1) excluding the FCCOM divestment in our forecast; and (2) the reduction of our target P/B to 1.3x (from 1.5x), reflecting the bank’s relatively high exposure to real estate developers. In short-term, we hold a positive view for MSB with strong PBT growth in 2H22 from low base level (+48% YoY), 30% stock dividend in 2H22, and a potential credit extension. During 1H22, MSB posted a pretax profit of VND 3.3 tn (+6.9% YoY), despite declining -6.6% YoY in 2Q22 to VND 1.8 tn. Excluding the one-off bancassurance fees in 2Q21, core profit grew 395% YoY during 2Q22. NII growth jumped +39.5% YoY as credit growth was robust at +8.5% YTD, whilst earnings from FX and securities trading activities were strong. Asset quality improvement exceeded our expectation (NPLs dropped 29 bps to 1.5%), causing a credit provision reversal of VND 115 bn in 2Q22. However, unfavorable results of foreclosed assets liquidation somewhat offset MSB’s earnings during 1H22.