Company Report

HT1 revenue in 2Q20 dropped by -14% YoY to VND 2.035 tn, due to poor market demand. However, PBT was flat compared to 2Q19 at VND 257 bn. Excluding net abnormal expenses of VND 14 bn for sponsorship activities, PBT would have actually improved by 4.5% YoY. The improved operating result  is attributed to the significant improvement in gross margin on the back of reduced energy costs, and a reduction in outsourced volume.  As 2Q20 PBT is in line with our estimate, we maintain our PBT forecast for 2020 of VND 950 bn (+2% YoY). In 2021, we expect HT1’s earnings to improve 11% to VND 1.052 tn, due to our anticipation of a recovery in market demand and a reduction in financial expenses. We upgrade the rating for the stock from OUTPERFORM to BUY, with a 1-year target price of VND 16,000/share based on a target PE and EV/EBITDA of 8x and 4.5x, respectively. The dividend yield of 9.3% payable in Dec is also  supportive to the shares.  

While our 2020/2021 forecasts are kept almost unchanged, we upgrade our recommendation for GAS from Market Perform to Outperform based on an attractive upside. Since the share price has fallen recently along with the sharp market correction due to the new coronavirus cases in Vietnam, the current entry point appears to be quite attractive. Further, as we roll over our valuation basis to 2021, we increase our 1-yr target price to VND 74,000/share (from VND 71,000/share) which is predicated on an unchanged target P/E of 16x combined with the DCF approach. Our new share price represents 13% upside and including dividend yield, total return for the shares is estimated at 18%. 

HPG’s 2Q20 revenue and net profit were strong at VND20,422tn and VND2.756tn, up 35% and 34% YoY, respectively. Performance was led by steel volume growth, high pork prices, and a reversal of F/X losses. Results were also close to HPG’s estimate from its recent AGM, and in line with our forecast. Our going-in 2020E called for VND79.9tn (+26% YoY) in revenue and VND9.27tn (+22% YoY) in net income. We lift our revenue to VND80.1tn (+26% YoY) and net income to VND9.51tn (+26% YoY). We reaffirm our BUY call with a new 12-month TP of VND32,400/share (previously VND29,300), based on unchanged respective P/E and EV/EBITDA targets of 9x and 6.5x, and 2H20-1H21E earnings. Our EPS forecasts and TP do not take into account the 2019 dividend, including 5% cash (VND 500/share) and 20% stock dividend. The ex-dividend date is 29 July 2020. 

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. 

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).

We are revising down our 2020 forecast for VEA by 2%, which corresponds to a slower recovery in the motorcycle market than we had previously thought for Q2. In Q2 alone, Honda Vietnam published a 30% decline in retail sales volume. there is no pent-up demand as expected. Our revised 2020 EPS forecast includes weaker YoY JVs’ NPAT (-13.4% YoY) due to a -10% YoY contraction in Honda motorcycle volume – much of which will be reflected in Q2. Reflective of our anticipated decline in earnings, we are also cutting our price target by 6.0% to VND 45,500 per share. Lending support to the shares is VEA’s attractive dividend of VND 5,252 per share (~12% dividend yield along with being listed on the HNX or HOSE in the coming time. Maintaining a Market Perform rating; lowering TP 6.0% to VND 45,500.

2020 consolidated revenue is planned at VND 6.2 trillion, -23% YoY, and pretax profit is conservatively planned to decline by -45.8% YoY. 1H2020 PBT is estimated at VND 350 bn, -33% YoY, due to lower demand for petroleum products and lower volume from BSR.  The company’s CAPEX plan for 2020 is rather aggressive, at about $300 million USD, with a debt/ equity ratio of 2.3x. This consists of about 4 new vessels at the parent company, and 8 new vessels at subsidiaries. Besides investing in used vessels, PVT is also considering investing in some brand new vessels through BCC collaboration contracts with international partners, as new vessels will have more suitable specifications for newer market situation (like low-sulfur-fuel compatible…). PVT is also in the midst of an investment cycle (2018-2020) which suggests a much longer plank to become profitable. Case in point, PVT’s capex plan for 2020 is and aggressive $300 million USD, as the company aims to rejuvenate and expand its fleet in order to more effectively compete internationally. Coupled with weaker global oil demand, both factors have weighed substantially on PVT’s share price performance of late. 

No organic growth officially guided by VNM for 2020; we disagree: At the 2020 AGM, VNM set a revenue and earnings target of VND 59.6 tn (+5.7% YoY) and VND 10.69 tn (+1% YoY), respectively. The plan included GTN Foods (GTN: HOSE), which is starting to become consolidated to VNM from the beginning of 2020; excluding GTN, organic growth for VNM sales and net profit will be flat YoY. This is quite a conservative plan, in our view, especially when taking H1 results into account. As such, we maintain our current estimate of VND 61.5 tn in revenue (+9.1% YoY) and VND 11.35 tn in net profit (+7.6% YoY) for 2020. Positive Q2 results: Management disclosed that its interim H1 2020 results had sales advancing by 7% YoY, totaling VND 29.73 tn. Meanwhile, net profit slightly rose 3% YoY, reaching VND 5.87 tn. For Q2 2020 alone, net sales and net profit grew 6.7% YoY and 6.6% YoY. We reiterate our Outperform rating for VNM with a new 1-year target price at VND 135,000/share (from VND 116,000) based on our forward H2 2020 - H1 2021 EPS estimates and a target P/E of 23x (27% discount compared to peers), combined with the DCF method. 

Taking (i) the supporting package and flat rent reversion which will reflect in lower net operating income in 2020, and (ii) increased GFA secured in the pipeline we trim our 1Y target price by -11% to VND 39,000/share. Hence, we call for an OUTPERFORM rating for the stock at present. At the current share price of VND 27,900/share, VRE is trading at an EV/EBITDA of 13.1x, which is relatively lower than the regional peer average of 17.9x. While becoming less of a risk every day as Vietnam has passed 54 consecutive days without identified cases in the community thanks to strict control measures, we still feel the need to mention the tail-risk of another wave of Covid-19 in Vietnam causing another lockdown, which we emphasize is a slim tail-risk scenario. We would also consider the mall expansion plan falling behind schedule to be a possible associated tail- risk, though we have been more cautious than the company in terms of the timing of mall openings.

Given the current market price, VTP is trading at 2020F and 2021F P/E ratios of 17.7x and 13.1x respectively, which shows that 2020 growth prospects have been reflected quite fully into the current stock price. As the stock price has advanced recently, we change our recommendation to an OUTPERFORM rating, with a new 1Y target price of VND 160,000/share (17% upside) based on a new target PE of 18x (a switch from the old target of 20x due to higher short-term-risk from the pandemic). We still prize this stock when looking at its potential for long-term growth. We believe the pandemic has sped up the consumer transition in behavior toward e-commerce, and this benefits VTP. A downside tail risk from our call comes from the risk that COVID might come back in a 2nd wave, or that a new competitor might increase pricing pressure for VTP. Currently, barrier of entry is high for international companies in this sector, as foreign ownership limit for domestic transportation firm is 49%. Also, it takes very large capital and time in order to establish a nationwide network like that of VTP. 

We revise our 2020 net sales and net income to VND 116.823 tn (+14% YoY) and VND 3.365 tn (-12% YoY). For 2021, we expect net sales and net income to rebound to VND 149.172 tn (+28% YoY) and VND 4.437 tn (+32% YoY. We maintain our view that discretionary consumption in 2H20 will be weaker YoY. Nevertheless, thanks to MWG’s well-managed liquidity position as compared with other retailers, the company will likely be able to acquire more market share in 2020, and be poised to resume strong growth in 2021 (NPAT growth at 32% YoY).