Company Report

GAS’s 3Q23 net income came in at VND 2.4 tn, a decline of -22.2% YoY and -24.8% YoY, primarily due to the decline in dry gas sales volume amid weaker demand and the depletion of old low-cost fields. 9M23 net income dropped -23.1% to VND 9 tn, equivalent to 73.4% of our 2023 forecast, but exceeded the 2023 conservative guidance by 38%. Dry gas volume declined over -10% YoY and -25% QoQ to around 1.6 bn m3 during the quarter due to the lower utilization rate of gas-fired power plants. Based on input from EVN, the electricity generation volume of gas-fired power plants is estimated to decline 18% YoY and 35% QoQ due to the maintenance of NT2 from early Sep to Oct, with better hydrological conditions leading to a surge in volume at the hydropower plant to 28.2 bn KwH (-10% YoY but +95% QoQ - accounting for 38% of domestic power volume during 3Q23), and the recovering of coal-fired power plant output by 30% YoY off the low base in 3Q22 amid high coal prices.

In 9M 2023 BCM’s PAT decreased sharply. BCM posted revenue and PAT of VND 3.012 tn (-46.5% YoY) and VND 264 bn (-84.1% YoY), respectively, completing 31.8% and 14% of the company's respective targets. BCM’s earnings decreased sharply, due to: (1) the demand for leased land decreased; (2) Cay Truong IP's operating start date was delayed from 3Q23 to 2024; and (3) profit from joint venture companies decreased 97% YoY. Profit after tax is forecast to increase sharply in 4Q23. We estimate that 4Q23 revenue and profit after tax at VND 7.601 tn (+7.5x YoY) and VND 2.386 tn (+344x YoY) respectively, mainly from recognizing land sales of 18.9 ha at Binh Duong New City project for Capitaland, with revenue reaching VND 5.05 tn and gross profit reaching VND 2.102 tn.

We also increase our 2024 earnings forecast from VND 10.78 tn to VND 11.2 tn (+82% YoY), due primarily to the adjustment in our volume forecast. We assume that the company’s construction steel and HRC volume will reach 3.68 mn tons (-14.2% YoY) and 2.77 mn tons (+5.6% YoY) during 2023, respectively, and 4.24 mn tons (+15.3% YoY) and 2.9 mn tons (+4.7% YoY) for 2024. We expect the steel segment to turn around in 2024 on the very low base of 2023, and HPG’s NPAT to grow at 82.3% YoY. Accordingly, we reiterate our Outperform rating on the shares of HPG, and raise our 1-year target price to VND 30,000/share based on target PE and EV/EBITDA multiples of 15.5x and 8x, respectively (from 14.5x and 8x previously). 

For 3Q23, DBD posted net sales and net profit of VND 411 bn (+4% YoY) and VND 67 bn (+24% YoY), respectively, which is in line with expectations. Both prescription (Rx) and OTC drugs witnessed decelerated growth relative to last year and last quarter. The gross profit margin decreased 260 bp YoY due to lower Rx prices within the hospital channel, higher ingredient costs, and foreign exchange losses. For 9M23, NPAT reached VND 210 bn (+28% YoY), with the NPAT margin increasing YoY from 15% to 17%. The company has reached 67% and 84% of their 2023 net sales and net profit annual targets, respectively. Medium-term risk due to temporary registration ban. A fault in production led to a recall of oncology drug Methotrexat 50mg/2ml during Dec ’21 and eventual suspension during Nov’ 23. Drug Administration of Vietnam (DAV) decided that DBD will not be able to apply and/or renew any of their drug registration until Nov ‘24. Any application currently under review will also be terminated. DBD noted that about 300 of its registrations either are extended until Dec 31^st, 2024 under Resolution 80/2023/QH15 or just renewed (until between 2027-2028). As a result, they remain eligible to produce most of their drugs in 2024. However, we note that some renewals still run the risk of not being approved on time when the effect of the resolution ends, thus may affect approximately 5% of registration portfolio during 2025 (according to our estimates). Renewal usually takes around 3 months.

PNJ posted a decline of -6% YoY in net sales but managed to deliver flat net income YoY in 3Q23 thanks to improved gross profit margin. In October 2023, net sales growth came back to positive territory (+2% YoY) in which retail sales rose by +4% YoY. Of note, October 2022 retail sales was high base (increasing by 47% vs the average in 2020-2021). As such, we view the 4% YoY increase in October 2023 retail sales as encouraging. Meanwhile net income surged by 32% YoY thanks to improved gross profit margin and normalized corporate tax expense from last year high base. While the overall jewelry consumption may still take time to regain growth, retail sales of PNJ has picked up before the market recovery thanks to market share gain supported by various long term strategies, such as targeting younger customer group and pioneering proposal trend in Vietnam. We now forecast 2023-2024 net income at VND 1.85 tn (+2.6% YoY, from VND 1.84 tn) and VND 2.17 tn (+17.2% YoY, from VND 2.04 tn). With unchanged target P/E of 16x on revised 2024 earnings, we increase our 1-year target price to VND 96,200 (from VND 90,200) and maintain OUTPERFORM rating (21% upside). 

We expect that the company's performance in 2024 will show a significant improvement compared to the previous year's low earnings (NPATMI growth in 2023/2024 are estimated at -57.9%/+79.1% respectively). This growth is projected to primarily come from increased investments in national grid projects, particularly benefiting the grid construction sector of PC1. Meanwhile, the minerals segment (started to contribute revenue from 3Q23) is conservatively forecasted at growth rate of 18% in revenue in 2024 due to concern of global economy slowdown impacting nickel demand. Power generation and property are expected to deliver moderate growth in 2024 due to less intense El-Nino weather condition and nearly full utilization of the industrial zone.

We lower our 1Y TP to VND 104,000/share (from VND 105,900/share) on the shares of VCB, reflecting our tweak of 2023 and 2024 profit before tax of -8% and -5%, respectively, to VND 40.7 tn (+9% YoY) and VND 46.5 tn (+14% YoY). Our adjustment reflects the sluggish credit demand during the Q1-Q3 period (+3.8% YTD). Nonetheless, we remain bullish on the shares, and reiterate our Outperform rating. We have always liked VCB for its prudent lending practices and more conservative approach. However, this seemed to cause more pain than gain during 3Q23, as excess liquidity (deposit growth outpaced credit growth at +7.5% vs. +3.8% YTD) led to lower profitability. The NIM missed the mark, reaching a mere 2.96% (-24 bps QoQ). Accordingly, NII declined -10% QoQ or -8% YoY, and PBT was VND 9 tn (-2.4% QoQ and +20% YoY). Over the long run, we believe that this approach will ultimately pay off with a clean balance sheet with high quality assets.

PLX’s PBT during 3Q23 was VND 1.18 tn, an increase of 277% YoY and 14.6% QoQ. Cumulatively, the company’s PBT during 9M23 was VND 3.08 tn (+402% YoY), accomplishing 95% of annual guidance. PLX’s petroleum sales volume was well maintained at 2.6 mn m3, an increase of 3.2% YoY, of which the retail channel contributed 1.7 mn m3 (+4.9% YoY). Earnings within the petroleum segment remained flat QoQ at VND 483 bn, but showed significant improvement compared to a loss of -VND 199 bn during 3Q22. However, we note that the parent company has booked an inventory provision of VND 777 bn during the quarter due to the correction in oil price, which can be reversed in the coming quarters if the oil price stabilizes.

MWG recently held an online analyst meeting. During the meeting, the management expressed its belief that earnings of the ICT and CE segments already bottomed out in 2Q23, but re-emphasized that recovery will be slow, as the company may still maintain a competitive pricing policy in the context of high inventories of competitors and weak demand. Over the long-term, while the ICT business seems to face saturated demand, the growth driver for MWG would rely on grocery retail. Regarding the grocery segment, monthly revenue per BHX outlet reached VND1.7bn in October, while the PBT margin in 3Q23 improved significantly to -1.8% (vs -4.2% in 2Q23), excluding one-off expenses of VND90bn which related to restructuring activities back in 2022. Since the beginning of 2023, MWG has standardized operating procedures across stores which helped to eliminate unnecessary tasks, hence saving time and relevant labor costs (the number of employees has dropped by 7% YTD). Besides, increasing gross profit while maintaining logistics costs in absolute terms stable also helps to raise efficiency and hence profit margin. In terms of percentage, logistics costs to sales ratio declined from 6% in 4Q22 to 5% in 3Q23.

For 3Q 2023, SCS posted revenue of VND 171.6 bn (-14.5% YoY and -0.5% QoQ) and profit before tax of VND 145.7 bn (-9.4% YoY and -1.1% QoQ), continuing a YoY decline trend set in motion during 4Q 2022. For the first three quarters of the year, SCS posted total net sales and pretax earnings of VND 506 bn (-22.8% YoY) and VND 422.5 tn (-19.8% YoY), respectively. These attributes have reached above 70% of our latest estimates for 2023. We maintain our base case of an economic soft landing but lower our international cargo growth forecast to 10% YoY (from 20% YoY) for 2024 forecast given our concern over the weak demand from trading partners of Vietnam. For domestic volume, we maintain our growth forecast of 5% YoY. We have also revised down GPM to around 78% (from above 80% in our latest forecast), in response to the decreasing international cargo growth and a higher rate of concession fee to sales. We have also revised up financial income for the entire 2023 as cash and ST investment balance remains high at the end of 3Q 2023.

Being foreign debt free could allow NT2 to avoid the impact of FX risks. However, as EVN is facing financial issues, NT2’s cash conversion cycle has surpassed 100 days in 2023 due to Vietnam Electricity Group’s (EVN) deferral in power sale payment. To ensure the adequate working capital for operations, NT2 has raised its short-term debt to VND 926 bn (as of end-September 2023, vs VND 630 bn of 3Q22). Therefore, NT2 might unlikely declare the attractive dividends for 2023 and 2024 as 2022 (VND 2,500/share or 8.7% of dividend yield). We also forecast 2023 NPAT to decline by -52% YoY. However, we anticipate the earnings recovery in 2024 (+37% YoY per our estimate) as NT2’s utilization rate should improve on the back of no major maintenance and less extreme gas shortage as in 2023. NT2’s 4Q23 performance could be a catalyst in the short-term as NT2 has finished the maintenance at the end-October, implying a QoQ profit growth. We estimate a 6.3% YoY growth of 4Q23 NPAT. Usually, the annual power demand is usually solid in November and December. With a 12-month DCF target price of VND 27,620 (equivalent to 12.7% upside potential), we call an Outperform rating for the stock.

We maintain our Market Perform rating on the shares of TCB, although we opt to reduce our 1Y TP to VND 34,500/share (from VND 38,700) as we apply a 10% discount for the concentration risk of the bank, and increasing our NPL assumption 40 bps. The increase of the corporate bond balance +21% QoQ (or VND 8.5 tn) and loans to the real estate sector +6.7% QoQ (or VND 14 tn) during 3Q23 was not really a welcome move. We would have preferred to see a more reduced balance in corporate bonds held. Although apparently poised to diversify its loan book, TCB has dove further and doubled down on the property sector. Loans to ReCom (real estate, construction, and construction materials) amounted to 43% of the bank’s total credit on issue at 3Q23 (vs. 32% at 2020).

GEX total revenue and profit-before-tax (PBT) during 9M23 dropped -11.5% and -21.4% YoY respectively to VND 21.9 tn and 1.39 tn, due to the decline in electrical equipment and construction material segments following the stagnancy of the residential property market. However, the revenue and gross profit from the property segment, which is mainly contributed by industrial park segment under VGC, increased 20% and 64.6% YoY respectively to VND 3.7 tn and 1.7 tn (in spite of the relatively high base of 9M22), and was catalyzed by the rise in lease prices of between 15%-20% YoY in some industrial parks and the strong growth by 26.6% in leasing area, which reached 157 ha during 9M23.

We reiterate our OUTPERFORM rating on the shares of FPT, with a higher 12-month SOTP-based TP of VND 100,100 (equivalent to 8% upside potential). FPT trades at an attractive 2024E P/E of 14.1x relative to peers’ average of 14.9x. While the slowing growth of signed revenue, narrowing PBT margins of domestic IT and online advertising need to be monitored, FPT is expected to win more contracts due to its low-cost advantage and long-term benefits from its increased presence in international markets. Further, FPT Education too is expected to remain on a solid growth trajectory for 2024, driven by the gap between education supply and demand in Vietnam and the expectation that FPT University will receive its first batch of students in semiconductors and microelectronics. We also believe there to be limited FX risks associated with FPT’s foreign debt given its robust hedging strategy; FPT also maintains healthy interest coverage and net cash.

For 4Q 2023 and 2024, HHV continues to be benefited from the upcycle of infrastructure investment that resulting in construction as the growth driven factor for sales and earnings during this period. Meanwhile, we assume BOT segment sales growth in 2024 to converge to a natural rate, at 3-5% variable amongst projects. Overall, net earnings for 4Q 2023 and 2024 are respectively forecasted at VND 117 bn (+55% YoY) and VND 477 bn (+12.2% YoY). The lower earnings growth in 2024 net income is due to the high-based performance in 2023. Based on the forecasts for 2024 (which has yet to consider the impact of share placements to 2024F EPS), the P/E forward ratio is around 11.x and the TTM P/E ratio stands at 14.x, which are relatively lower than the three-year average P/E ratio of 16.x.