Company Report

We are upgrading the shares of VCB from Underperform to MARKET PERFORM, as the share price has declined by approximately -8% over the past three months (-1.2% decline in HOSE over that period). Supportive of our call, VCB’s 2H2020 and 2021 TOI outlook has become even more compelling given its renewed focus on mortgage lending and bancassurance, and impressive credit growth – exceeding that of peer - given the impact of Covid-19. VCB is also planning on issuing 6.5% additional shares. Although this share issuance will be modestly EPS dilutive, we estimate it will be BVPS accretive by 10.9% (expected issuance price VND 70,000 per share while pre-money BVPS around VND 25,275 per share) which is important as the shares trade more on a BV basis than EPS. That said, we lower our 12-month target price to VND 89,200 (from VND 89,900) due to lower forecast for 2020F and 2021F earnings as a result of higher Covid-driven newly formed NPL and restructured loans. 

BVH posted a surprising VND 617 bn in pretax profit in 2Q 2020, up by +98.6% YoY. Such stellar results were driven by trading gains via its government bond portfolio when market yields were low, leading to a surge of +86.8% YoY in financial income to VND 2.6 tn. As the Company’s duration gap was already large, we did not expect the company to sell part of its bonds during the period. Meanwhile, underwriting profit swung the other way, facing significant pressure (-67% YoY) during this persistently low interest environment. While Q2 was positive for BVH, the market environment likely will remain to be challenging, particularly as Vietnamese government bond yields are likely to remain at a low level. As such, we believe BVH earnings results will remain heavily dependent on tactical trading opportunities. Factoring in this headwind, our revised NPAT-MI estimates for 2020 and 2021 are VND 1.177 tn (-0.9% YoY) and VND 1.317 tn (+11.8% YoY), respectively, down -2% and -12% vs. previous estimates. Given our revised estimates, our target price was adjusted downward accordingly to VND 60,000 (-4% decline from our previous report), representing an upside of 15.8%. Hence, we downgrade BVH to an Outperform rating. 

We are initiating coverage on the shares of BCM with a SELL rating with a target price of VND 40,600 per share, representing a 13.6% downside. BCM is one of the five largest industrial park developers in Vietnam with an ecosystem that includes industrial park services and residential areas. Its real estate inventory had a value of VND 22.895 tn (53% of total assets), with VND 2.85 tn (12.4% of total assets) located in Binh Duong New City - representing a substantial opportunity for BCM. Upon the completion of the metro (subway) between Binh Duong and HCMC, we anticipate that the demand for real estate in Binh Duong will intensify - and BCM is well positioned to benefit from this demand shift. We estimate that land transfer revenue in Binh Duong New City in the 2021-2023 period to be around VND 1.5 trillion each year, growing to approximately 16.2% of BCM’s current revenue. Further, new industrial parks should enable BCM to lease 120-150 ha/year with an average rate of $80-90 USD/sqm/term. This is equivalent to annual revenue of between VND 2.5 – 3.0 tn between 2021-2025. While excited about BCM’s long-term prospects, BCM is increasing its charter capital via a 5:1 rights issuance (4Q20) and and a private placement of up to 758 mn shares (37.9% of outstanding) (2021) which should cause EPS dilution of 36.5% - hampering upside for the shares.  Other risks to our call include low liquidity concerns of real estate projects in Binh Duong New City, temporarily weakened demand for industrial park rental from new clients as affected by Covid-19, slow legal procedures in new industrial park such as Cay Truong and Lai Hung and debt payment pressure. These factors are expected to negatively affect the company's earnings in 2H2020 and might prolong through 2021.

During 2Q20, net sales and pretax profit fell -28% YoY and -39% YoY, respectively, as both domestic and export sales volume underperformed. However, July exhibited early signs of recovery in exports, while the 50% reduction in registration fees for locally assembled vehicles appears to have increased domestic tire sales. Nevertheless, we still anticipate that 2020 performance will be weak YoY, as net sales and pretax profit are expected to decline -17% each. For 2021, we expect net sales to increase +4.5% YoY as transportation recovers slowly post COVID-19, and pretax profit to jump +49% YoY as depreciation expenses associated with the Radial I factory substantially declines. Given the strong EPS growth of 49% YoY in 2021, the shares of DRC now trade at 2021 PE and EV/EBITDA of 7.1x and 3.5x, respectively, which is well below the 2018-2019 averages of 16x and 6.2x. While we recently lowered our 2020/2021 EPS and EBITDA forecasts by -7%/-8% and -4%/-6%, respectively, which translates into a lower one year price target of VND 19,400 per share (down -7%), we call for an OUTPERFORM rating given the near 14% ROI – inclusive of the 8.8% dividend yield. 

We initiate coverage on the shares of STB with an OUTPERFORM rating with 1Y target price of VND 13,830/share, which represents upside of 22%. Unlike most names in our coverage universe, STB is considered to be a troubled financial institution. The bank faces headwinds due to legacy problem assests and its acquisition of Phuong Nam Bank in late 2015. Valuing STB from a P/BV and/or P/E basis would seem a rather moot point – as neither would be entirely accurate. Nevertheless, STB has relatively well-earned reputation for its retail banking business with largest branch network and highest client deposits balance amongst JoCBs. As a result, we believe that valuing STB from a deposit premium perspective is likely the most realistic for an organization in STB’s position. By our calculation, the average listed private bank deposit premium in Vietnam is 3.6%. As we find ACB to have the closest deposit mix to STB, we apply the ACB deposit premium (4.5%) to STB. 

AAA’s 2Q20 revenue and net profit significantly declined -25.5% YoY and -47.2% YoY, respectively, to VND 1.811 trillion and VND 74 billion due primarily to the fall in oil prices and the absence of new industrial park leases. As earnings from AAA’s core business was is in line with our expectation, we maintain our 2020 after-tax profit call of VND 450 bn (-10.4% YoY). We expect the company’s earnings to recover in 2H20 and 2021 due to the improvement in industrial park bookings during the second half of this year, and also from the consolidation of An Vinh Industrial Packaging. We maintain our OUTPERFORM rating for the stock, with a 1-year target of VND 14,850/share.

We reiterate Outperform rating for PLC, with an ROI of 20.5% (7.4% dividend yield) as we revise our target price to VND 23,700 per share (previously VND 18,600 per share). Our new target price is derived from improved 2020/2021 earnings growth outlook post-Q2 bottom-line performance. In Q2 we witnessed +46.7% YoY NPAT improvement or the achievement of 74% of PLC’s annual profit target which were boosted by the resilience of both the lubricant segment and Vietnam Dong forcing us to upgrade our EPS forecast by 23% and 5% for 2020 and 2021, respectively. Coupled with PLC’s positive 2021 (and beyond) outlook driven by a new cycle of public investment, the shares have advanced 36% since our April 29, 2020 upgrade. Considering the current operating environment of aggressive public investment, not to mention about weaker USD, we believe that PLC’s outperformance will continue.  

MWG continues to be adversely affected by the decline in discretionary consumer spend. That said, MWG is likely to be the primary beneficiary of other retailers exiting the market as it continues to absorb market share. MWG is well-poised to quickly resume strong growth when the pandemic no longer poses public health risks, which SSI believes will occur by mid-2021. We also find that a more deliberate grocery store openings pace by BHX (ie, slow down opening speed and only open stores in provinces where it has an existing footprint) will aid in its ability to break even on a pre-general and administrative expense basis by year-end 2020. A substantially more efficient grocery operation should enable MWG to be a beneficiary of the long-term shift in consumer shopping habits from wet markets to the more modern trade grocery stores. In addition, our constructive view on the shares is supported by our new price target of VND 113,700 (from VND 129,560) which implies upside of 30%. Our TP is predicated on combination of a target P/E of 9x per average 2020-2021 ICT financials estimates, as well as on a target P/S of 0.3x on average 2020-2021 estimates for grocery financials (unchanged multiples on our new estimates detailed on page 6; previously on 2020E).  

We maintain a BUY rating for KDH due to its solid backlog of deliveries valued at VND 3.8 tn (+40% compared to 2019) from the recurring projects of Lovera Vista and Safira, which will guarantee next year’s earnings growth. KDH possesses a clean landbank (650 ha) in HCMC, one of the largest compared to other listed developers in Southern Vietnam. With such strong potential, we revise up our 1-year target price by 7% since our last call to VND 29,800 (+21.4% upside) based on RNAV method, as we fully factor the potential value of 2 new projects of KDH (Amerna and Clarita). KDH also recently was included into the VN30 basket recently, and it will be a major factor to improve the stock’s trading volume and its performance in the future. 

Vietinbank (CTG) posted an outstanding set of 2Q 2020 earnings results. PBT achieved a 106% increase YoY, the strongest amongst the listed banks, despite huge foregone interest income originated from interest rate cuts. Major drivers included non-interest income (+27.1% YoY), well-managed operational costs (-9.3% YoY), and less provisioning (-46.7% YoY). However, combined NPL ratio picked up +21 bps to 2.1% while the amount of restructured loans was at a very low level (0.9% of loan book) compared to peers. We revise up our forecast for the bank’s 2020F PBT to VND 9.75 tn (-17.2% YoY) from VND 9.22 tn but revise down 2021F PBT forecast to VND 10.86 tn (+11.3% YoY), primarily to reflect interest income reversal and higher provisioning cost post-Covid. We maintain our Outperform rating on the stock with unchanged 1Y target price of VND 27,200 per share and upside potential of +12%. Potential short-term catalyst is the exclusive bancassurance deal currently being re-negotiated. 

Vinhomes reported 2Q20 NPATMI results of VND 3.76 tn, a decline by -48.6% YoY as the Company was operating off a high NPATMI base with recognition of a bulk sale in 2Q19, as well as from an extraordinary payment of VND 930 bn on termination of certain investment agreement for two residential projects of which development timelines were delayed. However, 1H20 NPATMI still increased by +7.6% YoY to VND 10.6 tn, fulfilling 34% of the full year target. Presales volume also rose +15.3% YoY, with a +21% YoY increase in value in 1H20. Volume performance was mainly driven by three megaprojects – Ocean Park, Smart City and Grand Park – with bulk sales driving momentum. A full 9,000 unit deliveries occurred in 1H2020, while another 21,000 are expected in 2H 2020, giving us increased confidence that VHM will achieve its 2020 guidance. VHM remains the leading developer in Vietnam, possessing the largest land bank in the country - approx. 20x the size of its nearest competitor. As many of its competitors have development projects which are bogged down procedurally, new project launches have been delayed. With several projects available for sale, VHM is the primary beneficiary of the current tight supply. As we believe the market is not effectively discounting the value of the Company’s massive 164 million sqm GFA development portfolio, we maintain a BUY rating for the shares with a VND 113,000/share price target, which implies a 42% upside. VHM is currently trading at a discounted P/E of 11.8x relative to local peers, and a respective regional peer average of 13.8x and 12.1x. 

Double hit by COVID-19 pandemic and the growing trend of deep seaports, VSC reported a 10.7% YoY drop in 1H 2020 revenue (reaching VND 801 bn) due to 20% decrease in port throughput volume. Net income, however, increased by +33.8% YoY to VND 141 bn in 1H 2020 due to better cost control and the absence of one-off expenses. While we like VSC for its stable dividend of 20% cash on par per year, equivalent to a 7% dividend yield, we suggest to watch 2 notable performance indicators in the coming quarters:  Firstly, we are concerned about VSC’s drop in handling volume at much higher scale than its competitors in Haiphong area in 1H2020 and we want to see if this situation could be improved in the coming quarters or not.   Secondly, we are positive on VSC’s ability to better control cost and improve corporate governance issue.  If we apply the 2019 gross margin for 1H2020, then according to our calculation the saving cost would approximate VND 14bn in 1H alone.  We expect that gross margin improvement could be maintained, especially when the handling volume resumes along with demand improvement after the Covid-19 is contained. VSC is trading at a 8.2x multiple of 2021 EPS. Applying a 2021 target P/E and P/B at the sector average of 9x and 1.1x, we arrive at 1-year target price of VND 36,700/share, which implies an upside of 13.6%. Our rating for the stock is MARKET PERFORM.

In 2Q2020, TCB continued to report resilient results, with TOI and PBT achieving VND 5.75 tn (+27.7% YoY) and VND 3.62 tn (+18.8% YoY). This was an impressive achievement given a modest credit growth of +3.5% YTD.  2Q earnings results were driven by both strong NIM (4.32%) and robust activities in corporate bonds and government bond. Net fee income in 2Q 2020 rose +23.4% YoY, driven primarily by bond services (+52.4% YoY). In the meantime, TCB posted VND 328 trillion from securities trading and investment gains in 2Q2020, more than double YoY. CASA balance rose to an absolute amount of VND 6.28 tn (+7.9% YTD), entirely thanks to retail customers. We maintain our 2020F and 2021F PBT forecast of VND 13.41 tn (at +4.5% YoY) and VND 14.26 tn (at +6.3% YoY) respectively. We also maintain our Outperform rating but revise down our 1Y target price to VND 22,200 per share, presenting investors with an upside of 12.1%. 

Despite 1H 2020 results having been hit by the COVID-19 pandemic, performance was still in line with our FY 2020 estimates, with core business performing under our expectation and a surge in non-core trading activities making up for that.  The 1H semi-annual result (usually the low season) achieved 43% of our FY2020 NPAT estimates due to higher revenue from trading activities. Given multiple factors such as the new Viettel Telecom outlets which serve as new point of sales locations that now offer VTP products and services, and the likely longer than expected COVID-19 pandemic, we revise our estimates accordingly with a 2020 NPAT growth of 23% YoY and 2021 NPAT growth of 45% YoY. Upgrade to BUY. New 1Y target price of VND 157,000/share, upside 23%, based on P/E target of 18x (from our previous OUTPERFORM rating and previous TP of 160,000/shares). Our BUY call mainly lies on the prospects that current VTP stock price is reflecting a low base of core earnings this year, and next year’s strong core recovery prospect will be a strong catalyst for the stock price.