Company Report

We hosted an online meeting with DGW management and discussed the distribution of Apple products in Vietnam. With 40% of iPhones in Vietnam being brought into the country outside of official import channels, there is an opportunity for authorized distributors like DGW to tap into this potential. We revise up 2020-2021 earnings by 8% and 6%, respectively after considering economic potential to be unlocked from the Apple contract. Although the contribution to earnings is relatively small, we believe that by distributing Apple products, DGW will gain brand awareness, hence enabling the company to obtain more contracts from reputable brands in the future. With an unchanged target P/E of 8.4x on our revised 2020-2021 financials, we derive a 1-year target price at VND 45,200 per share. We reiterate our OUTPERFORM rating. 

Capacity expansion to spur long-term growth for Moc Chau Milk (MCM): In recent years, MCM revenue was constrained due to a lack of capacity: namely full factory utilization and limited dairy farms. After Vinamilk (VNM: HOSE) took over the controlling right indirectly via GTNfoods (GTN: HOSE) in MCM, it put forth an ambitious capex plan of VND 1.6 tn to develop a 4,000 head dairy farm and a new dairy factory in order to address these constraints. Capex is expected to be funded by an increase in charter capital. Post-deal, Vinamilk is anticipated to hold over a 51% stake in MCM  - up from its current indirect stake of 28.3%. In 2020, we forecast MCM to post VND 2.76 tn in revenue (+8% YoY) and VND 201 bn in net profit (+20.2%), which should translate into 2020 EPS of VND 3,003 pre-capital raise. Growth is likely to come from restructuring of MCM’s distribution network, and changes in sales mix. Moc Chau Milk is a household name in Northern Vietnam given its higher quality milk products.  Over the long-term, we are of the opinion that MCM could post stronger-than-industry growth (i.e double-digit bottom line growth) in the coming years thanks to capacity expansion and margin improvement in premium products and synergies with Vinamilk, especially in terms of market development. MCM expects to list on HOSE within 9 months.

Net profit for HSG in 3Q20 grew at a remarkable breakneck pace of +91% YoY to VND 307 bn, fueled by the drop in HRC input price versus a resilient output price. Sales volume in the quarter also increased positively by +5% YoY on the back of pent up demand from Feb-Mar period due to the Covid-19 epidemic, as well as from gradual stabilization in export volume. As results in 3Q20 exceeded our expectations, we revise up our net profit forecast for FY2020 from VND 670 bn (+85% YoY) to VND 841 bn (+133% YoY). For 2021, although we expect sales volume might increase by +4% YoY to 1.52 mn tons, net profit is expected to correct by -5.6% to VND 794 bn due to normalization in the gross margin. HSG shares are currently trading at P/E and EV/EBITDA 2021 levels of 6.5x and 4.2x, respectively. We maintain our Outperform rating for the stock, with a 1-year target of VND 13,700/share based on an unchanged composite target PE and EV/EBITDA of 7x and 5x, respectively – implying upside of 22%. 

On the back of a -9% YOY decline in 1H ’20 VCGM price – where we do not envision a recovery until mid-2021 when the COVID-19 pandemic is contained; and a downward-revised PPA price for PPC’s associate - Hai Phong Thermal Plant (HND) in 2021 which will negatively impact overall earnings and the company’s dividend; we revise downward our earnings forecast for 2020 by 3% and remain weak outlook for 2021. As such, we are forced to cut our price target by 5% to VND 26,000 – which presents investors with a meager 5% upside. The questionable dividend yield of 8% in FY20 causes us to maintain our Market Perform recommendation. Furthermore, by looking forward to FY21, we expect a lower dividend yield of 6% due to saving up cash for Pha Lai 3 coal-fired plant’s capex purposes. Pha Lai 3 is being debated & approved to add into the Power Development Plant VIII (construction pipeline: kick off from 2022-2023 and finish in 2027-2028).

Our current estimates for SAB are VND 27.96 tn (-26% YoY) in net sales and VND 4.25 tn (-21% YoY) in NPAT in 2020, which is a more generous outlook than the Company itself - implying 26% higher net sales and 31% higher net income vs. SAB’s plan. For 2021, we forecast net revenue of VND 35.1 tn (+25.6% YoY) and net income of VND 5.01 tn (+17.9% YoY), which means the pre-Covid level.   However, our forecasts are under review.because the demand after the social distancing period has recovered better than our expectation.  Our rating on the stock is Market Perform.  

We recently attended PLX ‘s online 2020 AGM. The Company set the PBT target for 2020 at VND 1.57 tn, which drops by -72% YoY. We think that the guidance justifiable given the significant impact of the Covid-19 epidemic on fuel demand, and the severe plunge in the oil price in the first half of the year. However, it is noteworthy that the guidance implied improving PBT in the last 3 quarter of 2020 at VND 3.27 tn, which drops by a lower rate of 20% YoY. If Covid-19 does not come back to Vietnam and the oil price stabilizes in the coming time, we believe the Company’s earnings can recover positively in 2021. At the current price, PLX is trading at a P/E for 2020 and 2021 of 43x and 16x. We will update to full estimates and valuation after the company releases its official financial reports for 2Q20.

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.