Company Report

We maintain our Market Perform rating on MSN: At the current market price, MSN shares trade at a 2020E P/E of 71.1x and EV/EBITDA of 9.2x, respectively. We maintain our Market Perform view on MSN, with a 12-month target price of VND64,900/share before dilution, or VND59,000/share after dilution should we take the private placement plan into account, though we would also have to evaluate the impact of the above-mentioned M&A deal. Downside risk: lower-than-expected domestic demand for packaged foods and meat products; upside risk: higher-than-expected VCM revenue growth. 

The company set its FY20 targets for sales and NPAT at VND 7 tn (+20% YoY) and VND 469 bn (+25% YoY). In general, we think that it is quite aggressive given the negative impacts from Covid-19 upon the grid construction pipeline, compounded by unfavorable weather for the hydropower segment in the next 3-6 months. Management also shared that 1H20 prelim sales (+1.7% YoY) and NPAT (+6.4% YoY) fulfilled 44% and 54% of their respective targets. Although we are quite concerned about FY20 results given the unexpected nature of the Covid-19 pandemic, we believe that the company might still earn positive growth in FY21, and power through with strong double-digit growth in FY22: (1) In FY21, the grid construction sector might enjoy higher disbursement from the National Power Transmission Co. (EVNNPT) for transmission line projects on the back of Power Development Plan VIII being finalized in FY20. (2) In FY22, we estimate PC1 to achieve sales and NPAT growth at 11.2% YoY and 15.4% YoY, thanks to solid growth from the grid construction sector, coupled with full production coming online from the Lien Lap wind project.  Within our base case, we call for a  MARKET PERFORM recommendation, with a target price of VND 19,800. This offers a potential upside of 9% vs the 04-Jun-2020 closing price. As of the 04-Jun-2020 closing price at VND 18,200, PC1 P/E is traded for FY20/FY21/FY22 at 7.9x/7.6x/6.6x. Given the FY2020-2022 EPS CAGR of 9%, the current price may offer a 3Y PEG at 0.8x.

Amongst joint stock commercial banks, STB was the first to propose a planned contraction of its pretax profit target for 2020. Despite a +11.1% YoY credit growth, the bank targets VND 2.573 tn in pretax profit, down by -20% YoY. As explained by management, the decrease in the bottom line is primarily due to the support provided to corona-impacted clients. Up to May 2020, credit and deposit growth of STB in 2020 reached +4.8% YoY and +4.96% YoY. Total assets grew by +5.23% YoY. The bank has restructured VND 12 tn loans for 2,000 clients. Pretax profit reached VND 1.303 tn, which was already 51% of the annual plan. The overdue debt ratio and NPL ratio were 2.5% and 2% respectively. We maintain our view that the key to the STB investment thesis hinges upon the speed of its legacy debt resolution, which in turn depends on the legal status of its certain large assets (i.e., the wildcard). As no new progress was made, we believe it is still not the right time to purchase STB stock yet. STB is currently trading at TTM P/B and P/E metrics of 0.7x and 7.9x.

At the current price, BID is trading at a 2020E P/B ratio of 2.12x and 2021E P/B ratio of 1.92x. BID is the largest bank in Vietnam, and has many advantages in the form of an optimal customer base that comes with its size. In addition, having taken the necessary actions to effect a drastic settlement of all of its VAMC bad debt in 2020, the bank is poised to fulfill its potential and create the momentum for growth in 2021 and beyond. We set a new target PBR of 2.2x (from 2.0x) on the average BVPS of 2020 and 2021, and derive a 1-year target price of VND 45,300. With upside potential of just 9.3%, we downgrade our rating on BID to MARKET PERFORM.

2020 business targets were approved at the AGM, with a plan in place for revenue to increase 11.5% YoY (VND 145 trillion). Meanwhile, the net income target is geared down by -35.2% YoY (VND 5 trillion). Although its residential arm (VHM: HOSE) expects reasonably resilient growth in its 2020 business results, we believe such cautious guidance on net income reflects: (i) profit decline in the Group’s retail business arm (VRE: HOSE); (ii) higher losses from the hospitality segment which was severely hit by the Covid-19 outbreak globally; and (iii) significant losses from the manufacturing segment as VinFast depreciation costs will be fully reflected this year vs. 6 months 2019 (as VinFast completed its factory and commenced delivery of its first batch of cars since June 2019). Adding to the cost structure, the industrial business is still in the ramping-up stage, prioritizing the capture of market share. Overall, we believe that real estate development will continue to be a key pillar for Vingroup in the next coming periods, while other segments may take time to improve business results and to reach optimal levels, especially after impact of the Covid-19 outbreak. At its current price, VIC operating as a conglomerate is being traded at a TTM P/E of 46.2x, P/B of 4.0x, and EV/EBITDA of 26.9x. 

Assuming FRT will be able to accomplish its 2020 financial targets, FRT is being traded at a 2020 P/E of 12.7x, which is expensive in our view given the expected 2020 earnings drop of -21% YoY caused by negative impact of COVID-19 compounded by losses associated from a rapid pace of Long Chau store openings. Meanwhile, close peer MWG is currently trading at a P/E of around only 10x. We will provide a detailed valuation in our coming report. 

We raise 1-yr target price for MSN to VND 64,900 (from VND 59,000) based on the SOTP approach applied to 2020-2021 earnings projections, plus the application of a 15% conglomerate discount. Our recommendation is Market perform.  We forecast group NPATMI growth of -83.2% / +89.1% in 2020F/2021F.   The consolidation of VCM and lack of extraordinary income look to undermine 2020 earnings, while a decent rebound in NPATMI from the 2020 low base is likely for 2021 although the 2020/2021 P/Es look pricey at 76.9x/40.6x. Downside risks: Lower-than-expected domestic demand for packaged foods and meat products, as well as higher than-expected commodity prices (raw fish sauce, wheat, maize, soymeal, etc.) and metal prices (tungsten, copper, etc.). In addition, there are risks for the meat deli business in the form of a lower-than-expected conversion ratio from wet-market pork to chilled pork, as well as possible diseases at hog farms that impact pork consumption and the hog price. Upside surprises: Stronger-than-expected demand for MSN products, higher-than-expected VCM revenue growth, or any unpredictable one-off income. The consolidation of the mid-stream tungsten platform in 2020, which we have not taken into account yet, could also be an upside to our forecasts.

We revise down our forecast for CTG earnings to VND 9.22 tn, at -21.7% YoY to reflect more comprehensively the impact of Covid-19. For 2021, we expect CTG to achieve VND 13.42 tn of PBT, at +45.5% YoY. 2020E and 2021E ROAE is projected at 9.4% and 12.8% respectively.  At the current price of VND 23,050 per share, the stock is trading at a 2020E and 2021E P/B ratios of 1.06x and 0.98x respectively. Our 1Y target price of CTG is VND 27,200 per share. As the potential upside is +18.0%, we maintain our OUTPERFORM rating on this stock. 

In 2020, we expect company revenue to reduce by -7.1% YoY, reaching VND 695 bn, and NPAT to reach VND 438 bn, - 12.8% YoY. In 2021, we expect SCS revenue to increase by 14% YoY to VND 792 bn, and NPAT to grow by 20.6% YoY to VND 528 bn. At the current market price, SCS is trading at 2020F and 2021F P/E ratio of 13.7x and 11.3x respectively, which is in the lower range of its historical band (10-18x). In the short-term, 2Q2020 might be the lowest quarter as explained above. In the long-term, we think SCS is a safe investment case, complete with a net cash position, operation in a growing duopoly market, and paying a dividend yield of 7% at the current market price. We initate an OUTPERFORM rating for SCS, with a 1Y target price of VND 129,500/share (upside of 15%) based on a DCF model with a WACC of 14.89%, and a terminal growth rate of 3% (including 2% of long-term inflation and 1% of real growth rate).

At the current market price of VND 73,500/share, VHM is trading at 2020 P/E metrics of 9.4x which is lower than industry peers. The key downside risks to VHM mainly includes slower-than-expected cash flow from project sales and weaker-than-expected residential demand impacting home buyers’ affordability, both of which could occur in the case of a potential GDP slowdown caused by the prolonged Covid-19 outbreak. 

STB released its earnings results for 1Q 2020, with a +9.6% YoY growth in total operating income and a -6.9% YoY growth in pretax profit. Although much lower than 1Q 2019 at 5.6% YTD, credit growth in 1Q 2020 of STB was still decent (+3.5% YTD), and higher than the equivalent of the whole banking system (+1.3% YTD). However, slow growth in non-interest income and a VND 303 bn provisioning for receivables relating to legacy loans washed out all the growth in the bottom line. We reiterate our view that it is still not the right time to purchase STB stock. For legacy debt with a remaining balance of VND 55.7 tn, we believe that STB still needs at least 2 years to clear them, assuming favorable market conditions for this time horizon. For STB, the risk of increasing NPLs is apparent via the impact from Covid-19. Negative impacts on the operation of STB could also slow down the process of clearing legacy debt, as less resources to do so is currently available. The Bank set a pretax profit growth of +20% YoY for 2020, but might revise this down after 1H 2020 to reflect the impact of the pandemic. STB is trading at TTM P/B and P/E metrics of 0.57x and 6.87x.

As a result of this agreement, we revise our respective 2020E net sales and pretax profit to VND7,922bn (+3.1% YoY; from VND9,643bn) and VND870bn (+86% YoY, from VND578bn). Since September 2019, DPM’s share price has rallied by 11% despite weak market sentiment. At the current price of VND14,850/share, DPM trades at a 2020E PER of 10x, compared with its 2018-19 PER range of 15.1-16.2x. Despite unfavorable weather conditions this year, DPM will likely post a strong bottom line growth thanks to (1) a higher utilization rate of all plants compared to the low base last year, (2) less intense competition and (3) shallow gas input costs. In addition, DPM’s high cash position (net cash per share of VND7,081 as of 4Q19) and a decent dividend yield (10% on par value; effectively a 7% dividend yield) may attract investors during the weak market sentiment caused by COVID-19. Nevertheless, due to the adverse impact from the drought in the Mekong Delta, we lower our target PER, PBR, and EV/EBITDA multiples to 8x, 0.7x and 3.5x (from 9x, 0.8x, and 4.5x), respectively. With an equal weighting assigned to each valuation method and using our revised earnings for 2020E (from average 2019-20E), we derive our new 12-month TP of VND16,900/share (from VND15,500), which implies 14% upside potential. We thus maintain our OUTPERFORM rating. 

The 2020 AGM has approved the target of sales and pretax earnings of VND 8.3 tn (-2.6% YoY) and VND 765 bn (-50% YoY). 1Q20 reported sales amounted to VND 2.2 tn (30.7% YoY). And the reported NPAT recorded VND 135 bn (-44.3% YoY). If excluding the claim of FX loss in 1Q19, NPAT only descended by -11.8% YoY. With the closing price as of 17-Apr-2020, PPC is trading at a FY20 EV/EBITDA of 5.3x. Given the current price, PPC offers a FY20 dividend yield of 8.4% (based on a FY20 dividend of 20% par) vs. the regional average of 5.9%. At the end of FY20, net cash per share is estimated at VND 3,700/share, still quite affordable for the FY20 dividend payment thanks to being debt-free and possessing a stable cashflow. In the long term, the dividend payment might be lower because of saving up cash for capex in Pha Lai 3. We call for a MARKET PERFORM recommendation for PPC, with a 1Y target price of VND27,600/share, implying an upside of 16% vs. the closing price as of 17-Apr-2020.   

The company held its online AGM on 08-Apr-2020 via Cisco’s Webex platform. The 2020 approved guidance for sales and PBT were VND 32.45 tn (+17.1% YoY) & VND 5.51 tn (+18.1% YoY) respectively. However, the FY20 guidance targets had been set before the black swan outbreak of Covid-19 and it is necessary to have them re-adjusted by the BOD. Within our base case, we estimate VND 29.9 tn for total net sales (+8% YoY) and VND 5.1 tn (+8.7% YoY) for pretax earnings, implying a FY20 EPS growth of 8.2% YoY. Growth from outsourcing, for sales and PBT, is forecasted to ease back to a 14.3% YoY expansion rate in comparison with the previous projection of 25%-28% YoY. The escalated tension due to the pandemic in FPT’s overseas markets casts a shadow upon our expectation over the global IT spending budget in the short term - especially in Japan. In the long term though, we still believe that corporations overall would still spend on IT services and digitalization to improve their operating efficiency. For our base case, FY20 EPS growth is estimated to be 8.2%. According to the closing price as of April 8th, FPT traded at a FY20 P/E of 9.4x in comparison to a regional average of 20x. We reiterate our BUY recommendation, with a new target price of VND 64,000, offering a 37% upside potential. Our new target price was revised downwards by 10% vs. the previous target of VND 71,300 to factor in the impact of Covid-19.