Company Report

STB’s intention of becoming a shareholder in Bamboo Airways (OTC: BAV), which is undergoing restructuring, is a concern from both a credit risk, and corporate governance perspective for STB. On the other hand, we continue to believe that STB can complete the restructuring plan prior to the original timeline of 2025. This should enable the bank to resolve 590 mn STB shares locked-up at VAMC. While we reiterate our Outperform rating on the shares of STB, we do reduce our 1Y TP to VND 34,000/share (presenting an upside of 16%). Our 9.3% price target cut reflects both the corporate governance risk and our reduction to our 2024 earnings forecast.

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.

For 3Q23, SAB posted lower-than-expected net sales and net profit of VND 7.4 tn (-14% YoY) and VND 1 tn (-23% YoY), respectively. The expected strong recovery did not play out as management had hoped for, while anti-drunk driving Decree 100 continued to discourage beer consumption. For 9M23, SAB posted a total net profit of VND 2.2 tn (-25.6% YoY). SAB remains a long way from its annual guidance, having achieved only 54% and 57% of the company’s 2023 sales and net profit targets, respectively. Company benefited from consumer downtrading from premium to mainstream market. The company’s Saigon beer brand remains the top brand in the mainstream segment, where competitors such as Heineken or Carlsberg only have a small market share. On the other hand, management expects sales volume to not rebound until the domestic economy recovers, which could be as late as 2H24. 3Q23 GPM contracted -110 bps YoY despite a price increase during April due to higher ingredient costs. A&P/sales reached a high level of 9.3% versus 8.9% for 2Q23. As competitors increase spending to win market share of undecided consumers without brand loyalty, SAB followed suit to defend market share.

We downgrade our rating to Market Perform (from Outperform) on the shares of QNS, with a target price of VND 53,500/share (from VND 65,000/share), as we lower 2024 earnings 5% and lower P/E target for the sugar segment. We consider that sugar prices may be approaching the top of the cycle and that valuations may be challenged to sustain through FY 2024/25. Our new price target represents a potential upside of 14% (total ROI 22%). We remain positive growth on business results, encouraged by elevated domestic sugar prices and sustainable refined sugar (RS) volume growth. The company also paid a stable cash dividend, with a 2024 dividend yield of 7.5%.

We are downgrading our rating on the shares of KBC to MARKET PERFORM (from OUTPERFORM), as we lower target price to VND 33,200/share. Our downgrade reflects both the delay of industrial park (IP) land transferred to tenants and our belief that KBC’s major project development could be further delayed. Both factors have already negatively impacted QoQ revenues and NPAT.  For 3Q23, KBC posted revenue of VND 247.1 bn (+21.6% YoY & -89.4% QoQ) and NPAT of VND 19 bn (-99% YoY & -98.2% QoQ) due to the delay of industrial park (IP) land transferred to tenants and the absence of one-off revaluation gain as of 3Q22 with value of VND 2.18 tn. Between Q1-Q3, net revenue reached VND 4.79 tn (+272% YoY), and total net income reached VND 2.09 tn (-2.3% YoY), fulfilling 53% and 52% of the company’s full year revenue and net profit target, respectively.  The company has achieved 63% and 72% of our previous forecast for FY2023 revenue and net profit, respectively.

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.

IDC is one of the largest industrial park developers in Vietnam, with 631 ha of leasable land which are available for sales in Long An, Ba Ria Vung Tau, and Thai Binh province. Low compensation and clearance costs should enable IDC to maintain industrial park segment gross profit margin of the at above 42% through 2026.  We reiterate our OUTPERFORM rating on the shares of IDC with 1-year target price of VND 53,200/share, which represents 9% upside. At the end of third quarter 2023, IDC has signed for leasing of 122 ha in form of MOUs or leasing contracts. With payment schedules to be accelerated from a year to 6 months, IDC’s cash inflow will continue to increase.  As such, we believe that IDC will maintain its cash dividend at 40% on par value through 2024, which represents a dividend yield of 8.9%.

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.

In 3Q 2023, GMD posted net sales of VND 998 bn, +1% YoY and +9.4% QoQ, and PBT of VND 397 bn +18% YoY, beating our estimate of VND 360 bn by a comfortable margin, thanks to strong improvement in gross margin of both the Port segment and Logistics segment. Excluding Gemalink, all GMD feeder ports throughput during the quarter reached 281K TEU, +3% YoY and +1% QoQ. Gemalink improved in the quarter, with estimated volume of 260K TEU (excluding barging), +2% QoQ showing quarter-on-quarter improvement of the external demand from US/EU markets, according to VPA data.

Top-line trailed our forecast, but net profit slightly exceeds due to gross-margin expansion. For 3Q23, VNM reported net sales and net profit of VND15.6tn (-2.8% YoY) and VND2.5tn (+9.1% YoY), respectively. Accordingly, gross margin for the quarter was 41.9% (+240bps YoY; +140bps QoQ) on the back of a correction in raw material prices. For 9M23, net sales and net profit reached VND44.8tn (-0.3% YoY) and VND6.7tn (-0.6% YoY), respectively, completing a respective 71% and 77% of management’s full-year target. Management hints that for 2023, while sales would be on track (flat YoY), net income might grow 3% YoY on continued margin improvement in 4Q23. New packaging launch likely to continue across product portfolio through mid-2024. SG&A reached 24.4% of net sales in 3Q23 (+162 bps YoY, +50bps QoQ), as the larger gross profit was reinvested into marketing and promotional activities.

We believe that NIM will recover in 4Q23 and improve modestly in 2024 because deposit rate decline will be factored in coming quarters and the bank concentration in medium and long-term loans has stabilized lending rates. However, the cash flow needed to settle debts, particularly for mortgage, consumer, and developer loans, has been negatively impacted by the economic downturn, that will still pressure on the asset quality of the bank in our view. As a result, we maintain our MARKET PERFORM rating for the shares of HDB, with a 1Y TP of VND 20,100/share.

Despite the slowdown of the economy and a rattled consumer, VRE continues to take advantage of stable growth and operational efficiencies in its core business of mall leasing. Given the weak growth expectations for 2024 due to management’s postponement of new mall openings and the decline in property sales YoY, reflecting the overall strategy of VRE to focus on Vincom Megamall type development which do not have shophouses for sales component as Vincom Plaza/Vincom Plus projects have, we are lowering our 1Y target price to VND 31,300/share (from VND 38,700/share). Our reduced TP reflects the use of a more conservative capitalization rate of higher 0.25%-1.0% than the previous valuation. Nevertheless, despite the level of stress that the counter is experiencing, we feel much of the bad news is already priced in and are maintaining our BUY rating on the shares given the implied 30.7% upside.