Company Report

According to the most recent update, sales volume of HPG’s construction steel during October dropped significantly to 210k tonnes, the lowest level since March 2021, whereby export and domestic volumes for the month dropped by 73% and 44% YoY, respectively. The volume of billet, pipe, and galvanized steel also dropped by 92%, 21%, and 40% YoY, respectively, to a respective 15k, 57k, and 27k tonnes for October. On the other hand, HRC volume for October remains strong at 269k tonnes (+30% YoY) but it could decrease near-term given the weak consumption of finished flat-steel products. Accordingly, the utilization rate of HPG blast furnaces during October was likely closer to 70%, based on sales volume. Given the rapid deterioration in the overall market, we revise down our 2022F net profit by 16% to VND10.2tn, implying a net loss of VND270bn in 4Q22F. In 2023F, we lower our net profit by 14% to VND10.88tn, which calls for 6.6% YoY growth thanks to a lower forex loss and the drop in coking coal price. 

PVD recently held its 3Q 2022 earnings call, and provided an outlook for the industry in 2023. Global and Vietnamese macroeconomic conditions have greatly evolved, with a higher interest rates and significant economic risks. With our changes in forecasts and discount rates, we arrive at a lower 1Y target price of VND 18,200/share (from VND 23,800/share), reflecting a 2022 and 2023 earnings revision and higher discount rate. We do, however, maintain our MARKET PERFORM rating on the shares of PVD.

We attended the NVL analyst meeting on Oct 28-2022 and came away with the following key takeaway. While net revenue stayed flat in Q3, NPAT dropped significantly by -56% YoY as the bottom line was negatively impacted by high financial expenses. Due to high leverage of approx. 160% D/E  at the end of Q3 2022 compared to other developers, the company also has a comparatively high amount of USD-denominated debt obligations (24% of its debt being USD-denominated vs. total debt), the financial burden for NVL will be heavier until the end of this year, due to the tightening conditions in the funding market as well as generally unfavorable market conditions.

For 3Q22, VHC reported net sales and net profit of VND 3.3 tn (+46.2% YoY) and VND 460 bn (+80% YoY), respectively. Although having achieved strong growth from the prior year’s low base, VHC recorded its lowest quarterly net profit since 4Q21 in terms of both absolute value and growth in 3Q22. This is due to the US (VHC’s most important export market) exhibiting declining sales of -41% QoQ, reflecting high inventories and persistent inflation. Going forward, we expect that demand will continue to decelerate, while ASP has reached its peak. For 2023, we expect net sales and net income to reach VND 12.9 tn (-8% YoY) and VND 1.7 tn (-27% YoY), respectively. At VND 73,000/share, VHC trades at a 2022 and 2023 P/E of 5.8x and 7.9x, respectively. Our rating for the shares of VHC is MARKET PERFORM, and our 1Y target price is VND 76,400 (+5% upside).

HPG posted a 3Q22 loss of VND 1.79 tn – the first such loss since 4Q18 was driven by a steel business line loss of VND 2.56 tn, due to falling steel prices, higher-cost inventory, and the impact of forex loss. Although steel price volatility can be mitigated, weak demand in both global and domestic markets could remain a challenge for HPG, going forward. As such, we downgrade HPG to Market Perform from Outperform reflecting our significantly reduced 1-year target price of VND 18,000/share (from VND 27,600/share). We cut our 2022 net profit forecast to VND 12.2 tn, a drop of 65% YoY from the peak in 2021. 2023 net profit is expected to be flattish at VND 12.6 tn (+3.3% YoY). While the impact of high-cost inventory could fade over the near-term, we believe the decline in steel prices along with weak demand is likely to cause a negative earnings growth on an YoY basis until the first half of 2023.

In 3Q 2022, PVT revenue grew impressively by 38.7% YoY to VND 2.33 tn while PBT growth is even more impressive at 143% YoY to reach VND 481 bn, including an one-off gain from PVT Athena’s disposal of VND 211 bn. This result has been in line with our expectation so far, benefiting from the higher charter rate of its vessels in the international market, while domestic market is stable. From our discussion with the company, we expect this favorable condition for tanker owners to continue into upcoming quarters, since we do not see any improvement from the Russia-Ukraine conflict in the short-term and the tanker market is still in uptrend. There might be some impact on forex loss in 4Q 2022, but that should be offset by higher earnings from better charter market condition. Thus we maintain our previous forecast for PVT as in our previous report (here), while we revise down our 1Y target price to VND 24,000/share (from VND 26,200/share) based on a lower P/E target of 10x (from 11x) to reflect our overall market lower rating. We maintain our OUTPERFORM rating for the stock on the base of stock price upside and positive outlook into 2023.

In 3-6 months, we see core earnings of 4Q 2022 to improve further when more charter contracts are renewed at a more favorable price, which should be the main catalyst for the stock price in the coming time. Also, there should be further gain on asset disposals from 2 vessels (PVT Eagle, PVT Dragon) in the upcoming quarters, which should be another catalyst to watch.

SCS is trading at P/E 2022 and 2023 forward of 11.5x and 10.8x respectively, which is at the lowest level in its historical range. This de-rating reflects slower growth prospects in the coming time, coupled with a high dependence of the company on the currently weak external demand side, which is reasonable in our view. On the good side, SCS stands out as a beneficiary of USD appreciation as most of its revenue is denominated in USD terms, while its costs are all in VND. Our DCF model points to a 1-year target price of VND 71,900/share (~1.4% upside), meaning an UNDERPERFORM rating for the stock.  In the short term, 4Q 2022 earnings would be muted compared to high base last year, as this year high retailer’s inventory level coupled with lower demand leads to no high season for the year end.

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.