Company Report

Phu Nhuan Jewelry’s (PNJ) financial performance trailed behind our expectations, with net income in April declining by -24% YoY. However, we think the results more truly reflected the state of the general economy. We expect earnings of the company may still decline by double digits in 2Q23 and 3Q23, as the economic downturn may still weigh on jewelry consumption. Rate cut action by the Vietnamese central bank brought on a decline in policy rates by a range of 200-300 bps YTD, but it may take time for this to aid multisector economic recovery. We expect overall consumption demand to recover in 4Q23. As such, earnings may only swing back to positive territory from 4Q23. With worse-than-expected April performance, we revise down our 2023-2024 net income assumptions by -8% and -5% respectively to VND 1.74 tn (-4% YoY) and VND 1.96 tn (+13% YoY). We derive a new target price at VND 81,400 (from VND 86,000) per share based on 2024 financials (from average 2023-2024) and unchanged target P/E of 15x. With an upside of 11.1% from the current share price, we downgrade our rating to MARKET PERFORM (from OUTPERFORM). PNJ may only be suitable for investors with a long term investment horizon, wherein investors can get exposure to the jewelry retail industry which benefits over time through the expected rise in disposable income, and the transition from traditional trade to modern trade outlets.

We upgrade the share of STB to a BUY rating from Outperform, as we roll-forward our valuation to mid-2024 and arrive at a 1Y TP of VND 34,500 per share (up from VND 29,000). Our double upgrade reflects asset quality holding up well, as STB hasn’t any corporate bond investment exposure and only limited exposure to real estate developers. In addition, pretax profit growth looks appealing for 2023 and 2024, even without one-off income from the sale of legacy assets. Given the potential upside of 22.3%, we recommend to accumulate STB shares at price weakness.  For 2023, we reduce our pretax profit 9.2% forecast from our previous estimate to VND 9.5 tn (+50% YoY), due to weaker-than-expected NFI growth (-26.4% YoY) as sluggishness in credit demand weakened cross-selling activities, as well as a lack in other income (-71% YoY). However, it should be noted that if we exclude the one-off income item from bancassurance during 2022, NFI is expected to increase 3.5% YoY for 2023.  

VNM reported 1Q23 net sales and net profit of VND13.9tn (+0.3% YoY, -7.6% QoQ) and VND1.9tn (-16.5% YoY, +2% QoQ), respectively, trailing our expectations. Domestic sales continued to struggle, given weak consumer sentiment and aggressive competition in the market. For 2023, the company has set an annual sales and net profit target of VND63.4tn (+5.5% YoY) and VND8.6tn (+0.5% YoY), respectively, which we believe to be rather conservative. We also lower our 2023E earnings to reflect challenging overall market conditions. We expect 2023E net sales and net profit to reach VND63.8tn (+6.4% YoY) and VND9.2tn (+7.3% YoY), respectively. Our new earnings are 3% lower than our previous net profit estimates. For 2024E, we expect net sales and net profit to reach VND67.8tn (+6.3% YoY) and VND10.2tn (+11.3% YoY), respectively. We lower our DCF/PER-based 12-month target price for VNM to VND74,700/share (from VND82,900/share) as we now use a lower target PER of 16x (from 18x) to reflect the gradual loss of market share. Our new TP implies 13.5% upside potential. We maintain our Market Perform rating on the shares of VNM. 

We roll-forward our valuation to mid-2024 and adjust our 1Y TP to VND 24,300 (from VND 22,800). Given the high exposure to real estate developers (12%), mortgage loans (18%), and corporate bonds (10.7%), we are concerned that TPB’s asset quality weakness will last longer than expected - impeding the NIM recovery. As such, we believe that an additional provisions will be the best consideration for TPB. With such difficulties, earnings growth fragility and narrowed ROE are what we expected to happen for both 2023 and 2024. Therefore, we maintain our Market Perform rating on the shares of TPB. For 2023, we project that TPB’s pretax profit will achieve VND 8.2 tn (+4.8% YoY). We believe that NIM contraction (-30 bps YoY) and provisioning burden (+22% YoY) will impede 2023 core profit growth. Against a modest showing of PBT during 2023, we project that 2024 pretax profit will be VND 9 tn (+9.8% YoY), driven by NII and NFI growth of 11.9% and 24.4% YoY, respectively.

Despite posting a massive loss of VND 320 bn during the first quarter, animal feed and livestock producer DBC still stands behind its NPAT guidance of VND 565 bn (+10,854% YoY vs. 2022, and +86% YoY vs. 2019), as management anticipates a strong recovery in hog prices and gains from pending real estates. Our net revenue and NPAT estimate is at VND 11.1 tn (-4% YoY) and VND 320 bn (+6062% YoY), respectively, predicated on the assumption that animal feed and husbandry unit should only see a mild recovery and real estate earnings will be booked. We also introduce our 2024F revenue and NPAT forecast of VND 12 tn (+9% YoY) and 494 bn (+54% YoY), respectively.  At current market price, DBC is traded at 2024 P/E and EV/EBITDA of 10.8x and 7.2x, which look quite fair compared to historical ranges (8-12x for P/E and 4-9x for EV/EBITDA).

From our last report, Vietnamese trade in general has not improved by a great degree, with Jan-May tracked 2023 total trade value declining by -14.7% YoY, but slightly up by +5% MoM for May. Especially, imports by value is still declining by -18% YoY in May, and this is a bad signal for export in 2H because a large part of Vietnamese import value is materials for manufacturing. Thus, we have grown more concerned and are watching closely export recovery prospects for 2H 2023. The recent 5% MoM growth in May exports is a positive sign. So we maintain our estimates for GMD as-is for now, but might revise down our estimates if exports do not improve further in the coming months of 2023. Specifically, we maintain our total port volume assumption for GMD of 2.7 mn TEU, -10% YoY in 2023F and 3.4 mn TEU, +22% YoY in 2024F. Tariffs are expected to maintain stable in this period. Thus, we maintain our forecast for 2023F-2024F.

For 2023, KBC maintains its target (approved at the EGM held in December 2022) of VND 9 tn in revenue (+840% YoY) and VND 4 tn in net profit (+151% YoY). Such an optimistic plan is based on the expectation of delivery of: (i) 250 ha of industrial land (Quang Chau & Nam Son Hap Linh IP account for the majority); and (ii) 10 ha of residential land (mainly in Phuc Ninh Urban Area) during the year. While the company is quite confident in securing land leases, there does remain the risk of delay in land delivery due to slower-than-expected land clearance and the procedural processes which could lead to lower-than-expected earnings. We reiterate our positive outlook on KBC’s IP business as most of its ongoing and upcoming projects are located in key industrial hubs in Northern Vietnam (Bac Ninh, Bac Giang, Hai Phong, Hung Yen) where it directly benefits from the relocation trend of production from China to Vietnam. However, we do not exclude risks of weakening global demand, global minimum tax, higher labor cost, difficulties in land clearance, and insufficient infrastructure that could pose challenges to KBC, as well as the sector in general.

Conservative plan: GAS 2023 net profit was conservatively targeted at VND 6.5 tn (a significant decline of 56.6% YoY), based on an average oil price of USD 70/bbl (-30% YoY). According to management, If 2023 oil prices average USD 80/bbl like in the first quarter, GAS’ revenue and net profit could exceed guidance by 10% and 30%, respectively. Cash dividends for 2022 were approved at 36% on par. The AGM approved the issuance of 382.8 mn bonus shares, equivalent to 20% of current outstanding shares. This issuance is expected to take place between 3Q and  early 4Q23. Our current rating for the shares of GAS is MARKET PERFORM. Our 12-month target price of VND 103,000/share is based on a 2023 net profit forecast of VND 12.3 tn (-18.5% YoY). We assume that that volume of dry gas and LPG will drop by 2% and 5.5% YoY respectively, while the ASP is forecast to drop by an average of 14% YoY in 2023.

We lower our rating on the shares of BID to Market Perform, albeit raising our 12-month TP to VND 50,130/share (from VND 47,600/share). Our adjustment is catalyzed by the following factors: (i) rolling our valuation basis to mid-2024, (ii) factoring in the private placement (9% pre-money charter capital during late 2024); and (iii) lowering our target P/B to reflect a lower post-money ROE. Despite the NPL formation rate and the special mention loan grouping accelerating in 1Q23, we believe it could be maintained below 2% for both 2023 and 2024, made possible by the current provision buffers. For 2023 and 2024, we project that BID can achieve VND 27.4 tn (+19% YoY) and VND 31.3 tn (+14.4% YoY) in pretax profit, respectively. While the driver for robust growth during 2023 is reduced provisions (+1.6% YoY), the equivalent for 2024 would be NIM widening to 2.84% (+6 bps YoY) and solid fee income growth (+20% YoY).

Contracting loan balances and NIM pressures during 1Q23 did not prevent ACB from achieving record core profit growth of 25.3% YoY to VND 5.2 tn (26% of the annual plan). The main driver was interest income (+14.2% YoY), strong earnings from both forex trading (+44.4% YoY), improved bad debt collection (+53.6% YoY), and OPEX control. Asset quality was affected by an increase in both bad debt and the troubled Group 2 loans. As a result, the NPL ratio increased 23 bps QoQ to 0.97% at 1Q23. For 2023, we expect that ACB will achieve a PBT of VND 20 tn, which is lowered -1.7% due primarily to lower-than-expected credit growth of 12% YTD (from 14%). We extend our valuation to mid-2024, and arrive at a 1Y TP of VND 32,200 (up from VND 30,900). We like bank’s conservative approach to risk management with lending, and that there appeared to be no corporate bond investments with minor exposure to real estate projects. We reiterate our BUY rating on the shares of ACB.

For now, we maintain our current estimates and assumptions for PVS in 2023-2024 period as presented in our last report. We would continue to track the PVS pipeline to account for any new contract signings in the coming time. We roll our valuation to end-2024 and arrive at a new 1Y target price of VND 33,000/share (from VND 30,000/share) and reiterate our OUTPERFORM rating for the stock.

We attended the analyst meeting hosted by SAB. The overall message from the CEO is that despite some short-term headwinds due to unfavorable macro conditions, the company is well prepared for growth once demand recovers (which is expected during H2 or early 2024). While the 2023 sales target appears to be a bit of a stretch against the prospect of uncontrollable outside factors, management sees a path forward to meet its annual NPAT target by controlling costs. Given weak Q1 2023 results as well as expectation of weak consumer sentiment to remain in the coming quarter, we cut our 2023 sales estimate by 6% to VND 37 tn (+4.7% YoY), while estimated NPAT remains almost unchanged at VND 5.8 tn (+5.2% YoY). We cut our target price for SAB to VND 182,000/share (from VND 198,500/share) based on a PER of 23x (from 24x) applied on our 2023F EPS due to the soft outlook for 2023, combined with our DCF model. With 13% forecasted upside in the shares of SAB, we maintain our Market Perform rating.

At the AGM, net revenue and PBT guidance for 2023 was set at VND 11.5 tn (-13% YoY) and VND 1 tn (-50% YoY), respectively. Earnings guidance reflects management's conservative stance, including weak market demand and gross profit margin contraction. For 2023, we expect that net sales and net profit of VND 11 tn (-17% YoY) and VND 1.3 tn (-34% YoY), respectively. At VND 59,000/share, VHC trades at a 2023 P/E of 8.2x. We maintain our Market Perform rating for the shares of VHC, with a 1Y target price of VND 61,000/share (from VND 63,000/share previously) as we lower our net profit forecast by 9%. During 1Q23, VHC reported net sales and net profit of VND 2.2 tn (-32% YoY) and VND 226 bn (-59% YoY), respectively.  VHC suffered a larger revenue decline than rivals ANV (-5% YoY) and IDI (-6% YoY), as the US market saw the largest drop in pangasius exports from Vietnam. However, in terms of net profit, VHC outperforms other exporters due to the US market's higher gross profit margin. VHC’s earnings peak occurred during 2022, especially during 2Q22 with a net profit of VND 802 bn (+207% YoY).

GAS’s revenue for 1Q23 declined by 20.5% YoY primarily due to an average decline in oil prices of 18% YoY. However, net income attributable to parent shareholders during 1Q23 decreased 2.3% YoY to VND3.4tn due to resilient volume for electricity and fertilizer clients. In addition, the tripling of net financial income has also been supportive to earnings. For 2023, according to the company’s annual report, net profit is conservatively targeted at VND6.5tn (a significant decline of 56.6% YoY), which is largely attributed to the drop in oil prices. Guidance is likely based on a Brent oil price assumption of USD70/bbl (-30% YoY). Shares in GAS are trading at a 2023E P/E of 15x. We maintain our Market Perform rating and 12-month target price of VND103,000/share, based on a 2023F P/E of 16.5x (from 18.5x), the past-10-year average. 

1Q 2023 results: revenue up 124% YoY and 15% QoQ, while PBT was up 86% YoY and 29% QoQ, as its pretax margin expanded to 43% from 38% in the previous quarter. We note that the company is on track to meet our PBT estimate of VND 10.6 trillion for 2023. The company served 36.5 million passengers in the first 4 months of 2023 (+6% compared to pre-Covid), and international passengers have recovered to 77% of pre-Covid levels (4M 2019 international volume was 12 mn passengers). We maintain our current 1Y TP of VND 98,000/share based on 2024F EV/EBITDA-ex landing charge with a target of 16x, and maintain our OUTPERFORM rating for the stock. The catalyst for the stock price in the short term would be the approval for extension of the visa-exemption period for tourism, which would significantly boost Vietnam’s attractiveness and accessibility compared to regional peers like Thailand or Indonesia.