Company Report

Given the weaker-than-expected 9M23 results, we slash our NPATMI estimate to VND608bn (-83% YoY; from VND2.05tn) for 2023, due primarily to the underperformance of the retail, meat, and mining business lines. For 2024, we expect a broad-based recovery across all segments.  We believe that revenue growth from WCM (consumer retail chain) could come from a rapid pace of new store openings during 2022-23 that should start yielding fruit, along with the recovery in consumer spending. For the mining business, we admit that uncertainty in ore grade poses too much of a challenge to estimate MSR’s margin - prompting us to take a more conservative view. Associate TCB is estimated to post 15% PBT growth for 2024, with encouraging credit growth and a higher NIM. Meanwhile, interest expenses have already established a high base for 2023 and will likely not increase during 2024 (as we expect MSN will partly reduce its outstanding debt). Our 2024F net sales and NPATMI estimates are set at VND90.1tn (+9.3% YoY) and VND1.58tn (+160% YoY), respectively.

We reiterate our MARKET PERFORM rating for the shares of BMP. Our new target price for the shares of BMP is VND 103,400/share (from VND 99,200/share), as we apply a target P/E 2024F of 10x (unchanged) - representing 2.6% downside. BMP posted net sales and NPAT of VND 926 bn (-38% YoY, -31% QoQ) and VND 209 bn (+19% YoY, -29% QoQ), respectively, off from its 2Q23 historical high due to a significant decline in sales volume. We estimate that 3Q23 sales volume decreased -38% YoY while ASP remained flat YoY due to a slowdown in construction activities and rising competition. Gross profit margin increased to 43% during 3Q23, compared to 42.8% for 2Q23 and 28.3% for 3Q22, owing to a drop in PVC input prices. During 3Q23, the expense-to-sales ratio remained stable at 12.8% compared to 13% for 2Q23, but staged an increase from the 8.8% at 3Q22.

Highly leveraged position has been the main concern for FRT, especially in the rising interest rate environment (4Q22 and 1Q23). The funding pressure of FRT has eased with borrowing costs in 3Q23 declined by 200 bps from the peak and improved profitability from the pharmacy chain. With lower borrowing costs, FRT can speed up new openings for Long Chau chain to gain market share in the context that competitor An Khang and Pharmacity are still struggling with their business model. Larger scale should eventually help to enlarge the profit margin for Long Chau over the long term. As such, the reduction in borrowing costs is meaningful for a highly levered company like FRT, we hence raise P/S target multiple for the pharmacy chain from 0.8x to 1x. We hence lift our 1-year target price to VND 117,000/share (from VND 105,000). As FRT share price has increased by 35% since our last BUY call, we now call for OUTPERFORM rating on FRT shares with 13.5% upside.

In 9M2023, we witnessed a YoY decline in power volume from all of POW-owned&operated power plants, except for the Vung Ang and Ca Mau plants. We attribute this to unfavorable weather conditions weighing on hydropower plant utilization rates. Furthermore, the gas shortage in Southeast Vietnam led to Nhon Trach 1 and Nhon Trach 2 (NT2: HOSE) failing to meet power demand and running the plants on expensive diesel oil. For 2024, after a 2023 major maintenance schedule for Ca Mau 2, Vung Ang’s Generator 1, Nhon Trach 2 and Dakdrinh’s Generator H2, we anticipate a recovery in terms of both volume (14% YoY in 2024 vs 3% of 2023) and NPAT (+19% YoY vs -52% YoY of 2023) per our estimates. Aside from the long-term gas shortage issue due to depleting gas fields, we see the delay risk of Nhon Trach 3&4 LNG-fired project’s commercial operation date and expect two plants will come online in the foreseeable future: Nhon Trach 3 in H2 2025 and Nhon Trach 4 in H2 2026. We call for a MARKET PERFORM rating for POW, with a 12-month target price of VND 12,980/share (equivalent to 16.4% upside potential; based on DCF and EV/EBITDA multiple valuation methods).

We maintain our Market Perform rating on the shares for HT1, projecting that cement demand is expected to continue to weaken during 1H24 with the possibility of a rebound during 2H24. Our target price for the shares of HT1 is VND 11,300/share (from VND 12,600/share), as we apply a target P/E of 15x and EV/EBITDA of 7x for 2024.

HT1 recorded a net loss of VND 10 bn during 3Q23 (compared to a net profit of VND 37 bn during 3Q22) due to poor sales volume. Net sales reached VND 1.6 tn (-30% YoY, -21% QoQ), with sales volume of 1.2 mn tons (-27% YoY, -19% QoQ), amid weak demand resulting from weakened construction combined with the rainy season. GPM increased from 8.4% for 3Q22 to 9.0% for 3Q23 due to lower coal input prices. For 9M23, HT1 net sales reached VND 5.3 tn (-20% YoY) and net losses reached VND 37 bn (-119% YoY), lower than our expectation.

During 3Q 2023, Viettel Post continued to record positive results. Consolidated revenue was VND 4.8 bn ( -7% YoY) and NPATMI of VND 103 bn (+82% YoY and +5% QoQ). Core delivery revenue grew 25% YoY to VND 2.6 tn for 3Q 2023, as it capitalized on both e-commerce industry growth and an increase in market share. ASP still under pressure. We expect VTP’s 2023F and 2024F profit before tax to reach VND 471 bn (+46% YoY) and VND 560 bn (+18.8% YoY), respectively. Our estimate for 2023F is on par with the company’s PBT target of VND 470 bn. This translates to 4Q 2023F PBT estimate of VND 135 bn (compared with breakeven PBT in 4Q 2022).

We maintain our MARKET PERFORM rating for KDH, while nudging up our target price to VND 30,950/share (+2% upside), which is slightly higher than our previous target price of VND 30,500/share. This reflects our change of assumptions regarding sales launch performance for The Clarita, The Emeria, and The Solina, which are expected to launch later than previously assumed and we roll forward our valuation to FY2024.

NKG’s Q3 net profit was VND 24 bn, improving from the record loss of VND 419 bn for 3Q22, but a decline of -81% QoQ due to the drop in sales volume and the average steel prices. Cumulative, total net profit in 9M23 declined -65.5% YoY to VND 100 bn, accomplishing 25% of annual guidance. NKG sales volume for 3Q23 was 208k tons, improving 18.9% YoY off of the three year bottom of 3Q22, but fell -12.1% QoQ due to the -19.2% QoQ drop in exports. 9M23 sales volume dropped by -7.9% to 638k tons, in which export and domestic volume dropped by -6.1% and -10.3% YoY respectively. The gross margin also contracted to 4.8% from 9% in 2Q23 due to the steel price correction especially in export markets.

2023 prelim earnings in line with expectations: According to preliminary results, GAS net profit is estimated at over VND 11.6 tn in 2023, which is quite in line with our forecast of VND 12 tn. The estimated result would fall by around -23% YoY but still exceed the company’s conservative guidance by 77%. Revenue is estimated to drop by around -7.5% to over VND  93.2 tn. Dry gas sales volume is estimated at around 7.3 bn m3, a decline by roughly -5% YoY, while LPG sales volume is estimate to increase by around 20% to a historical high of nearly 2.5 mn tons, in which domestic and export volume are 1.6 mn tons and 900k tons respectively.

Earnings increased by double digits mainly driven by the industrial park leasing segment. In 3Q23, revenue and net income reached VND 3.4 tn (+ 8% YoY) and VND 434 bn (+64% YoY) respectively. Significant growth in net profit was mainly driven by the industrial park leasing segment. In 9M2023, net revenue totaled VND 10.17 tn (-11% YoY) and NPAT reached VND 1.2 tn (-30% YoY) - having completed 131% of the company plan. Given such better than expected earnings results posted in 9M23 (mainly from the industrial park leasing).

We believe that gradual recovery in credit demand and NIM improvement during 2024 will paint a brighter picture for TPB, as the economy starts regaining its composure and high yield customer deposits expire . However, we are still concerned about credit risk derived from corporate bonds, real estate, and the construction sector (22.4% of total credit) which will still weigh heavy on credit costs during 2024 (1.65% vs. 1.86% in 2023). We maintain our Market Perform rating on the shares of TPB, along with our 1-year target price of VND 18,000/share.

DCM posted lower-than-expected 3Q23 results, as avg. urea ASP continues a slow recovery as well as higher-than-expected input gas price. The company continued to recognize gas input costs higher than actual costs, reflecting in the rise in provision for the increase in gas input costs. As of 3Q23, the said provision totaled VND 1.3 tn (vs VND 680 bn as of 2022YE and vs VND 1.29 tn as of 2Q23). We had initially expected that DCM to make a partial reversal of said provision in 2H23 as per the announcement of DCM at 2023 AGM, hence helping to reduce gas input costs in 2H23. However, Petrovietnam Group (the largest shareholder of DCM) has not finalized this matter yet. As the timeline for this issue is uncertain at the moment, and that the 3Q23 fuel oil price increased at a faster rate than our assumption, we increase our 2023-2024 gas input cost assumption.

3Q23 NPAT lower than expected due to weak consumption. VEA recorded VND 884 bn (-28% YoY) and VND 136 bn (-14% YoY) in net sales and gross profit respectively, as demand for its trucks and farm tractors remained weak. Income from JVs was VND 1.2 tn (-25% YoY, -18% QoQ) compared to the high base last year. VEA recorded 3Q23 and Q1-Q3 NPAT of VND 1.5 tn (-20% YoY) and 4.7 tn (-8% YoY) respectively, which is lower than our estimates due to weaker consumption from Honda and Toyota. Outlook should improve for cars and trucks. The 50% registration fee cut will end on Dec 31^st, giving more support for sales to achieve better QoQ results (4Q22 was a high base, so we are likely to witness a YoY decrease). We estimate total volume for cars during 2023 to decline 26% YoY and total volume for Honda motorbikes to decline 13% YoY.

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.

Our FY2023 forecasts for net revenue and NPATMI are VND 2.94 tn (-32.3% YoY) and VND 437.8 bn (-21.3% YoY), respectively. During 4Q23, revenue and NPATMI might witness a significant decrease compared to 4Q22 with VND 1.39 tn (-15% YoY) and VND 243.9 bn (-44% YoY), respectively, due to a higher units delivery in Southgate and Akari City projects in 4Q22 and the first 25% transfer of the Paragon Dai Phuoc project which had VND 244 bn in financial income.