Company Report

GMD maintained strong business results through 3Q22, with an 80% YoY growth in PBT. However, downside risks have been building since 4Q22 as shipping demand is deteriorating rapidly due to weak consumption demand and high inventories. Over the next 3-6 months, we are concerned that there would be little upside catalysts for the stock as earnings growth could reduce significantly in 4Q22 and 2023, and new project volume ramp-ups during 2023 will be impacted while depreciation cost burden rises. We estimate 2022 and 2023 PBT to reach VND 1.3 tn (+61% YoY) and VND 1.33 tn (+3% YoY), respectively. Earnings growth is expected to recover from 2024 when demand improves. We combine our DCF valuation model and PE valuation (target PE of 12x) to reflect recent market valuation, we lower our 1Y-TP to VND 45,200/share (from VND 55,600/share). We downgrade the share from OUTPERFORM to MARKET PERFORM.

We attended the STK analyst meeting on November 16th, and here are our key takeaways. In 3Q22, STK reported a net income decline of -29% YoY, which is much lower than our expectations given that 3Q21 was set at a low base. This is attributable to continued weak demand and a high degree of stockpiling amongst major brands. Management expects inventory to clear significantly during the upcoming holiday season sales, and orders will start coming back in late 2Q23 to prepare for the new Fall/Winter season in 2023. In 2023, we expect net sales and net income to respectively reach VND 2.4 tn (+10.3% YoY) and VND 273 bn (+9% YoY). We lowered our target P/E from 12x to 9x to reflect worse-than-expected earnings growth due to slowdown in demand until 1H23, which yields an updated 1Y target price of VND 29,700/share (+6.6% upside). Our rating for the stock is MARKET PERFORM.

MWG reported revenue of VND32tn (+32% YoY, -7% QoQ) and net income of VND907bn (+15% YoY, -20% QoQ) for 3Q22. Given the 3Q21 low base when the company suffered from lockdown activities in provinces within Southern Vietnam, 3Q22 net income growth of 15% YoY was below our expectations. This could be attributed to the increase in financial and one-off expenses related to the closing of non-performing BHX stores. We expect financial expenses to rise in 4Q22 due to the: (1) trend of higher interest rates, (2) debt restructuring to longer maturity, and (3) VND depreciation. We forecast 4Q22F net income at VND1.67tn (+7% YoY). As such, we reduce our 2022F net income by 6% to VND5.16tn (+5% YoY, from VND5.48tn) and that for 2023F by 18% to VND5.86 (+14% YoY, from VND7.19tn). While earnings of the ICT & CE segments will likely be hurt next year, improvement in the grocery segment (due to the increase in sales and absence of one-off expenses) and smaller FX losses should secure decent earnings growth for 2023F. Despite rolling over our basis to 2023F (from average 2022-23F), we lower our SOTP-based 12-month TP to VND61,000 (from VND87,800) to reflect the cuts to our earnings and target multiples. With 44% upside potential to our new TP, we recommend investors to accumulate the stock despite possible periods of price weakness.  

FPT trades at an attractive FY22E and FY23E P/E of 15x and 12.7x, respectively, on the back of 22%  and 18%  EPS growth under our base case. Meanwhile, peers with an average of 6%  and 15%  EPS growth in 2022 and 2023, respectively, are trading at an average FY22E and FY23E P/E of 17x and 15x. While the IT spending weakness need to be monitored, in light of FPT’s low cost advantage, having the lowest exposure to the EU market compared to peers, a healthy interest coverage ratio, and an abundant net cash position, we remain positive on the stock. We call for Outperform rating on FPT with 12-month SOTP-based TP of VND95,400 representing 31% upside potential. Key risks: extreme recession could negatively impact the domestic & global IT services sector, as well as digital advertising segments.

The container shipping market has reverted to a down cycle after an unprecedented boom, and earnings levels of shipping companies are set to normalize. HAH may not escape this negative trend, as we expect NPATMI to slide through 2024. However, we estimate that the normalized earnings could be 5x higher than pre-Covid levels given the significant capacity expansion. The recent price correction has sent the shares of HAH to below its book value, which we believe to be an interesting entry point for a long-term investment. However, near-term upside would appear to be capped with few catalysts for the shares over the short term. As such, we lower our rating on the shares of HAH to MARKET PERFORM, with a 1Y-TP of VND 38,500/share (target P/E of 4x), implying only 16.8% upside.

HT1 recorded 3Q22 revenue of VND 2.3 tn (-5% QoQ, +118% YoY from the low base set in 3Q21). NPAT came to VND 37 bn (-73% QoQ, whereas Q3 2021 saw a loss of 20 bn VND). GPM fell from 13.4% in 2Q22 to 8.4% in 3Q22, due to an 11% QoQ increase in coal prices. We believe that the high level of coal prices will place additional pressure on the company's 4Q22 gross profit margin, as cement companies will find it difficult to raise cement prices further in the face of weaker domestic demand. As a result, we expect that HT1 net sales and NPAT in 2022 will be VND 8.7 tn (+24% YoY) and VND 261 bn (-37% YoY) respectively.

We estimate that HT1 net profit will rebound to VND 400 bn (+54% YoY) in 2023, based on the assumption that coal will fall -10% from its peak in 2022. We maintain our Market Perform rating on HT1, with a one-year target price of VND 10,190/share (+1% upside). We think the stock in the short-term can be supported by the positive news of lower coal prices that could result in positive earnings growth in 4Q22 (+19% YoY), and a public investment boom expected in 2023.

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).

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 believe the VHM will stand firm during this period of tighter credit and rising funding costs given its available land bank, solid balance sheet with low net debt/equity ratio, proven track record in projects sales and development, and capital raising capability. However, we maintain a cautious view on market demand whilst interest rates continue to increase, affecting the firm’s sales and future earnings.

At current price of VND 52,500/share, VHM trades at a 2022 and 2023 P/E of 8.0x and 6.5x, respectively, which is lower than historical average and relatively attractive when compares with peers. However, given the fact that there are multiple headwinds within the overall real estate sector that may last until next year the soonest, we do not expect a strong upside catalyst for the stock in the near term.

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.

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.

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.  

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.