Company Report

On 26 Oct 2023, the BOD of Vingroup (VIC: HOSE) approved a $250 million USD-denominated exchangeable bond (the EB) with maturity scheduled for 2028, that can be exchanged for existing VHM shares that VIC owns. The EB features a 10% coupon rate, and exchangeable into VHM shares at an exchange price of VND 51,635 per share. According to the Company, VHM stock price was under temporary sale pressure on 26 October 2023 as certain EB investors hedged their investment by selling VHM shares. We expect the technical impact to be limited and short-lived, as all hedging activities have been completed according to the company.

For 3Q23 VFS posted vehicle sales of USD 319mn (+1% QoQ), total revenue of USD 343 mn (+4% QoQ), and gross losses of USD 102 mn (-9% QoQ). Its gross margin stands at -30% (QoQ increase of 420 bps) due to an increase in sales and a decrease in inventory write-downs.  However, these gains were offset by a financial cost of USD 145 mn (+25% QoQ). Overall, VFS increased its loss during the quarter to -USD 623 mn (see fig 4). Through the first three quarters of 2023, the net loss is -USD 1.7 bn, with an accumulated loss of -USD 7 bn.

During August 2023, HT1 slashed guidance for 2023 -11% for net sales and -77% for PBT. HT1’s net sales guidance is lowered from VND 9 tn (+1% YoY) to VND 8 tn (-10% YoY), with cement sales volume targets declined -10%. PBT target has been lowered from VND 345 bn (+6% YoY) to VND 80 bn (-75% YoY). This reflects management's perception of weak cement demand, as well as gross profit margin contraction. At 13,950 VND/share, HT1 trades at a 2024F P/E of 27x and a 2024F EV/EBITDA of 7x. Our updated 1-year price target for HT1 is VND 12,600/share (from VND 12,000/share) as we roll forward our price target to 2024F, and we maintain our Market Perform rating on the shares given that cement demand likely will continue to weaken during 1H24 (with a possible rebound during 2H24).

For 2Q2023, HHV achieved net sales of VND 612 bn (+26.5% YoY) and NPAT of VND 109 bn (+37% YoY). Their respective values for 1H2023 were VND 1.15 tn (+25.9% YoY) and VND 167 bn (+19.9% YoY), accomplishing 47.4% and 57% of its target for FY23. Significant sales growth is explained by the recovery of transportation after fully reopening from 2022, as well as the busy cycle of infrastructure construction. Overall gross profit margin during 1H23 contracted to 47.4%, from 55.2% of 1H22, with higher revenue coming from construction (which boasts thinner margin). 1H23 outflow referring to financial expenses and principal repayment was VND 580 bn in 1H23 (+57% vs. 1H22) and VND 519 bn (+39% vs. 1H22), mostly derived from debt of three BOT projects.

After attending DBD’s analyst meeting on Sep 22^nd, we decide to revise up our forecast for revenue and net income to 1.7 tn (+9% YoY) and 291 bn (+19% YoY) (see table 1), respectively, given ETC witnessed strong growth in 1H23 and we expect ETC growth to uphold during 2H23 enough to offset weaker OTC spending environment. We also introduce our 2024 forecast of revenue and net income of 1.9 tn (+10% YoY) and 321 bn (+10% YoY) respectively, with assumption of fiercer competition from imported drugs, higher financial and SG&A expenses.

DPM posted poor earnings in 2Q23 with net income of only VND 105 bn (-92% YoY, -60% QoQ), as fertilizer prices continued its downtrend during the quarter. Nevertheless, this was in line with our expectation that its earnings would hit a trough in 2Q23. Quite encouragingly, we see a recovery in urea prices that is set to flip the dynamic. In the international markets, urea export prices in Egypt and Middle East surged by 46% from the bottom in June & July, whereas Black Sea urea prices rose by 31%, and urea prices in China and Indonesia increased at a slower pace (27% and 18%, respectively). The average urea price in Vietnam has rallied by 20% from the bottom, tracking the pace of urea price recovery in nearby countries (again, China and Indonesia). 

Given the weak H1 results, MSN management provided lower guidance for 2023, aiming for revenue of between VND 83.5-90 tn (from VND 90-100 tn) and NPAT of between VND 3-4 tn (from 4-5 tn NPAT). Such recalibration implies a growth rate of 9.8% YoY to 18.4% YoY for revenue, and a reduction of -36.8% to -15.8% YoY in net profit. We believe that the reason for the guidance reduction is due to external factors (difficult economic conditions which pose a prolonged impact on consumer demand) as well as internal factors (high gearing, weaker-than-expected performance in the mining business, and a drop in affiliate TCB’s earnings).

While TRA posted 2Q23 revenue and NPAT of 517 bn (-12% YoY) and 79 bn (-8% YoY), respectively, which was in-line with our forecasts, the company did well to preserve profitability, as it increased its net profit margin from 14% to 15% via cost cutting measures – which we anticipate to continue. Prescription drug sales were encouraging during 1H23, although OTC struggled. Going forward, we anticipate 2H23 numbers to exceed 1H23, but nevertheless reduce our 2023 revenue and NPAT forecast to VND 2.5 tn (+3% YoY) and 309 bn (+5% YoY) respectively, due to concerns over weak OTC sales (see details below). We also introduce our 2024 revenue and net profit estimates of VND 2.6 tn (+3% YoY) and VND 327 bn (+6% YoY) respectively, with assumption of moderate 9% growth in non-herbal products.

Solid business acumen has facilitated ACB to run steadily in recent years, and the bank features the most impressive ROE amongst our coverage universe. Further, establishing a high-quality client base as well as a relatively low funding cost should be a key competitive advantage for ACB to sustain its earnings growth trajectory over the medium-term. As such, we reiterate our BUY rating on the shares of ACB, with a 2024 target price of VND 30,100 - representing upside of 32.9%

We are upgrading the shares of PLX from Market Perform to Outperform, with 1-year target price of VND 45,000/share. We expect a one-off profit from PGB, along with core earnings growth, to be supportive catalysts in the short term. Over the longer-term, the development of value-added services and the divestment from non-core businesses are potential catalysts for the shares. 

We lower our rating on the shares of BVH to Market Perform as we decrease our 1Y TP to VND 53,900/share (from VND 62,500/share). As rates have declined faster and at a greater magnitude than we had anticipated, BVH likely will be a key beneficiary of the higher-interest policy of 2023; and could again face the challenges of a low-rate environment during 2024.

Given expectations that the provisioning of VAMC bonds will be completed during 2023, we believe that earnings growth during 2024 and 2025 will be promising, and the bank will have a better chance of accomplishing its restructuring plan of the required timeline. Although STB maintains a reasonable level of exposure to the real estate sector and has no interest in corporate bonds, we are concerned about the quality of its loan portfolio, including the Bamboo Airways exposure. Accordingly, we finetune our rating to Outperform from Buy, with a 2024 target price of VND 37,500/share.  Our target price represents an upside of 14.7%.

PTB operates at a higher growth rate than the wood industry due to its large customers (Masterband, and Melissa & Doug). In addition, the company’s stable earnings reflect optimized labor productivity – allowing the wood gross profit margin to range between 3% - 4% higher than industry average.  By our estimate, a 1% increase in interest rates leads to a 2% decrease in PTB’s pre-tax profit. We see PTB's profit bottoming out in 2Q23, however the recovery is not strong in 2024. PTB trades at a 2023 and 2024 forward P/E of 10.2x and 9.05x, respectively, which are lower than peer (11x). Using a blended average P/E for the wood industry of 11x and the stone industry of 10x, we derive a 1Y target price for the shares of PTB of VND 61,600/share (upside 6.6%). We maintain our MARKET PERFORM rating.

We maintain our 2023F revenue estimates of VND 17.5 tn (+6.5% YoY) and finetune our PBT estimates to VND 1.176 tn (+23% YoY, up 13% from our previous forecast to reflect higher financial income). We also increase our backlog assumption between 2024F-2027F by USD 300 mn (total USD 2.2 bn backlog value in this period) to reflect the potential opportunity for PVS to be awarded an offshore conventional oil&gas project near-term. Reiterate OUTPERFORM rating, with new TP VND 39,900/share. Over the short-term, news regarding results of project bidding and the development of Block B projects are main catalysts for the shares.