Company Report

We maintain our Market Perform rating for VPB shares with our 1Y target price of VND 25,000/share even though VPB posted a 51.6% YoY increase in 1H 2020’s bottom-line. While management contends that VPB could exceed the initial 2020 plan by 10-15%, we are not nearly as optimistic on VPB’s overall outlook. We are not big fans of reserve bleed and cutting loss provisions in order to remain on the earnings growth treadmill as fundamentals deteriorate. Our revised estimates for 2020 and 2021 PBT are VND 10.9 tn (+5.7% YoY) and VND 11.6 tn (+6.6% YoY), respectively.

BID posted 2Q 2020 PBT of VND 2.64tn (up by 20.6% YoY). Results exceeded our expectations given the outperformance of trading and investment securities (VND 1.038 tn, + 500% YoY), and the reduction in provision expenses (-26.2% YoY). BID’s improvement was offset by a sharp decline in net interest income (-23.6%). We raise our 2020 PBT forecast by VND 1.15 tn to VND 8.693 trillion (still lower -19% YoY), mainly to reflect the positive results of 2Q 2020. We anticipate 2021 PBT to essentially meet previous expectations VND 12.89 trillion (+48.3% YoY). We are still worried about the potential impact of the second wave of the pandemic on loan quality, and assume COVID-19 affected loans will aggregate 5% of total BID loans – more than we had initially anticipated. As a consequence, we are revising down our target P/B to 2x (from 2.2x) and roll over our valuation basis to 2021. As a result, we lower our 1-year target price by 3.6% to VND 43,650/share (from VND 45,300/share) which represents +13% upside potential. We maintain our MARKET PERFORM recommendation on the shares of BID.

VNM’s Q2 results were virtually less affected by Covid-19, as it posted a consolidated net sales and net profit of   VND 14.50 tn (+6.1% YoY) and VND 3.08 tn (+6.2% YoY), respectively, in line with its guidance. The recent acquisition of GTN (Moc Chau Milk), in our view, has achieved initial results with the recently implemented material cost re-negotiation and synergy in distribution network. From a valuation perspective, VNM shares appear relatively cheap to us on a regional basis - trading at a 30% real-time P/E discount while the company can still achieve (single digit) earnings growth. We reiterate our price target of VND 135,000 for the shares of VNM, which when coupled with a divided yield of 4%, implies a total return of 22% - and good enough for us to reiterate our Outperform rating.  

We maintain our BUY recommendation on the shares of NLG, and our 1Y target price of VND 33,400/per share (upside +26%) which us predicated on our RNAV valuation methodology. With the total booking of more than VND 7.5 tn related to various project (Akari/Mizuki/Waterpoint) plus other income from project divestment, we expect NLG’s business results between 2021-2022 are expected to be quite positive. NLG ‘s total clean land bank of 681 ha provide it a development advantage relative to other developers in the South. With competitive pricing and a well-thought out product development strategy for the mid end segment, the Company is among few capable developers that can launch the highly sought-after township model (>100 ha/project) in second tier market locations. 

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%. 

SCS cargo volume took a hit by -24% YoY in 2Q 2020 due to the pandemic. International cargo was down by -27% YoY and domestic cargo was down by -14% YoY. Cargo for export, interestingly, saw less of an impact than import cargo. Revenue declined -23.7% YoY reflective of weaker cargo volume YoY while the impact to PBT was lessened due to cost cuts. We revise down our estimates for 2020 and 2021 to reflect new base case assumptions for the pandemic in the 2020-2021 period, with 2020 PBT estimated at VND 461 bn, -14.2%. We downgrade our rating to MARKET PERFORM, with a 1Y target price of VND 120,200/share

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. 

Capacity expansion to spur long-term growth for Moc Chau Milk (MCM): In recent years, MCM revenue was constrained due to a lack of capacity: namely full factory utilization and limited dairy farms. After Vinamilk (VNM: HOSE) took over the controlling right indirectly via GTNfoods (GTN: HOSE) in MCM, it put forth an ambitious capex plan of VND 1.6 tn to develop a 4,000 head dairy farm and a new dairy factory in order to address these constraints. Capex is expected to be funded by an increase in charter capital. Post-deal, Vinamilk is anticipated to hold over a 51% stake in MCM  - up from its current indirect stake of 28.3%. In 2020, we forecast MCM to post VND 2.76 tn in revenue (+8% YoY) and VND 201 bn in net profit (+20.2%), which should translate into 2020 EPS of VND 3,003 pre-capital raise. Growth is likely to come from restructuring of MCM’s distribution network, and changes in sales mix. Moc Chau Milk is a household name in Northern Vietnam given its higher quality milk products.  Over the long-term, we are of the opinion that MCM could post stronger-than-industry growth (i.e double-digit bottom line growth) in the coming years thanks to capacity expansion and margin improvement in premium products and synergies with Vinamilk, especially in terms of market development. MCM expects to list on HOSE within 9 months.

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%. 

Despite a potentially higher dividend yield, and a reduced interest cost and FX risks associated with the planned foreign debt payoff, we still find that operating profits will continue to be under significant pressure due in large part to the significant slump in the price of VCGM which we do not anticipate to recover for quite some time. As such, we maintain our target price of VND 23,600 and rating at Market Perform. As of the 17-Jul-2020 close, NT2 is trades at FY20/FY21 EV/EBITDA multiple of 5.4x/5.7x - which is below the regional level of 8.8x/8.1x (7x/6.4x, excluding Thailand), but offering much more generous FY20/FY21 dividend yield of 10% (vs. regional of 5.8%). Lending support to the shares is the fact that NT2 is a defensive name amid these uncertain times globally along with its generous dividend yield in FY20 & FY21 of 10%.