Company Report

Operationally for 3Q2022, the service price increase since August enabled 5% revenue growth YoY.  On the other hand, net margin was significantly reduced to 33% compared to 48% of 3Q2021 (an unusually high net margin level), but is in line with past net margin in the range of 30-38%.  Lower margin is also due to higher material and staff cost, which kicked in since late August, according to the management.  We expect that gross margin will pick up in 4Q to reflect higher service prices.  

FRT net income surged by 81% YoY in 3Q22 from last year’s low base, a time when the company had to temporarily close down stores due to lockdown orders. Nevertheless, given headwind variables of (i) sluggish demand on macroeconomic weakness, (ii) delay in the delivery of iPhone 14, (iii) high base nature of 4Q21 when the company benefited from a surge in laptop sales and pent up demand, and (iv) deteriorating net financial income due to interest rate hikes and high leveraged position, we estimate 4Q22 net income of FRT to be slashed by -72% YoY. As such, 2022-2023 net income is projected at VND 396 bn (-11% YoY) and VND 429 bn (+8% YoY). Despite dismal demand for ICT products in the coming year, 2023 net income may still increase by 8% YoY thanks to (1) higher profit from the Long Chau pharmacy chain (net income of VND 62-96 bn in 2022-2023) and (2) the delay of recognition of income from iPhone 14 from 2022 to 2023. With lower 2023 financials and target multiples, we derive a new target price for FRT at VND 60,000. We downgrade our rating to UNDERPERFORM (a -10% downside from the current share price).

Given all of the recent volatility in the property and corporate bond markets, we believe that investors should focus on those banks which have limited exposure to these markets. Those banks tend to have strong deposits and conservative credit buffers. VCB satisfies these conditions, given its prudent lending practices and strong risk management. VCB should also be the beneficiary of being a ‘flight to quality’ by retail depositors, which should mitigate near-term NIM compression. We are, however, concerned with the bank’s current capital position, as CAR (Basel II) is 9.35% - intimating a capital raise is needed. Under our model, we assume that a 6.5% new share issuance will be completed by the end of 2023, which would be additive to CAR by between 200-250bps.

We maintain our positive outlook on KBC’s industrial park business given potential FDI inflows following the relocation trend of production from China to Vietnam, as noted by the recent expansion of Goertek or Foxconn (key Apple’s vendors) to KBC’s industrial parks. In addition, KBC has obtained approval from the Prime Minister for two new projects in Long An with a total land area of 1,120 ha. We expect that the new land bank will help KBC maintain growth after key operational IPs (Quang Chau, Tan Phu Trung & NSHL) are fully let.  According to management, KBC has signed principal contracts/MoUs with several clients to let 126 ha in the Nam Son Hap Linh IP and Quang Chau IP. Total contracted value could be as much as VND 4.3 tn, of which KBC received an approx. ~5% deposit with the remainder to be collected on a routine basis following the progress of land delivery. It is in the interest of KBC to facilitate this process to support the firm’s near-term liquidity given the fact that over half of its debt is short-term in nature and that VND 2.9 tn bonds (74% of outstanding bonds) will mature in 1H23 – intimating significant balance sheet liquidity pressure.

During its recent analyst meeting, MWG’s management laid out that 4Q22 financial performance will be hit by poor discretionary spending, interest rate hikes and FX losses. For October 2022, total revenue may reach VND 10.9 tn (-11% YoY), of which ICT & CE revenue declined by -18% YoY to VND 8.3 tn, while the grocery revenue rose by 22% YoY to VND 2.37 tn. The management expects 2022 net income to decline by -10% YoY, equivalent to 4Q22 net income growth of -40% YoY. For 2023, the company expects earnings of the ICT & CE business to improve only from 2H. Meanwhile, the profitability of the grocery business is improving, and the segment posted positive EBITDA at the company level in October. Capital raising for BHX is still on track, and expected to be completed in 1Q23. We cut 2022-2023 net income of MWG by 15% and 19% to VND 4.37 tn (-11% YoY) and VND 4.74 tn (+8.4% YoY) respectively. Even though earnings of the ICT & CE segment may decline in 2023, the improvement in profitability of the grocery segment and the absence of one-off restructuring expenses should help MWG to post positive net income growth in 2023. 

ACB posted a pretax profit of VND 4.5 tn (+71.1% YoY) in 3Q22, fueled by solid credit growth (+11.1%), strong interest income growth (+33.4% YoY), robust fee income (+36.4% YoY), and the reduction in loss provisions (-89% YoY). Notably, the NIM kept heading upward without interruption. Despite modestly weaker asset quality having in 3Q22, ACB has maintained a very robust credit buffer which eased pressure for credit provision expenses and facilitated stellar earnings growth momentum. Restructured loans declined -13.9% QoQ (approx. VND 11.2 tn), and a total lack of corporate bond balance enabled ACB to be less impacted by current market condition. Despite major headwinds being included our assumption and a reduction in our 1Y TP to VND 26,300 per share (from VND 34,400), we reiterate our BUY rating on the shares of ACB given the upside of 29.2%.

For 3Q22, QNS posted net sales and NPAT of VND 2.3 tn (+9% YoY, +4% QoQ) and VND 318 bn (-8.7% YoY, -13% QoQ), respectively. For 9M22, the company reported net sales of VND 6.3 tn (+9.3% YoY) and NPAT of VND 859 bn (-1.2% YoY), respectively.  Soymilk volume reached 207 mn liters (-1.3% YoY), and sugar output came in at 94k tons (+12% YoY) in 9M22. Weaker-than-expected earnings occurred during 9M22 due to: (1) soymilk selling volume decreased -1.3% YoY through 9M22 (-12% YoY in 3Q22); and (2) sugar segment GPM dropped from 20.9% in 9M21 to 16.5% in 9M22.

TRA continues to perform well in 3Q2022, with revenue growth of 5.3% YoY. It is worth noting that, unlike its peer, 3Q21 was not a low base despite the Covid pandemic. After three quarters, TRA is now at 77.5% and 87.8% of its annual revenue and net income targets. The management estimates TRA will achieve VND 2.5 tn (+13% YoY) in revenue and VND 330 bn (+25% YoY) in net profit for 2022. For 2023, we expect that TRA will continue to focus on R&D for new products to capture more market share in the non-traditional-herbal medicine product category. TRA has completed registration for some synthetic drug products transferred from Daewoong Pharmaceuticals and will continue with a new batch of product transfers focusing on promising areas such as blood pressure, diabetes, and cholesterol medications.

Both HSG and NKG incurred considerable declines in revenue of -35% and -50% YoY, respectively. Both companies also posted historical losses due to the decline in export volume and weaker average steel prices. In the near-term, demand likely will continue to be weak in both the export and domestic channels. Steel price may stabilize given Chinese pricing, but a further significant recovery is not anticipated yet given fragile global demand.

GMD maintained strong business results through 3Q22, with an 80% YoY growth in PBT. However, downside risks have been building since 4Q22 as shipping demand is deteriorating rapidly due to weak consumption demand and high inventories. Over the next 3-6 months, we are concerned that there would be little upside catalysts for the stock as earnings growth could reduce significantly in 4Q22 and 2023, and new project volume ramp-ups during 2023 will be impacted while depreciation cost burden rises. We estimate 2022 and 2023 PBT to reach VND 1.3 tn (+61% YoY) and VND 1.33 tn (+3% YoY), respectively. Earnings growth is expected to recover from 2024 when demand improves. We combine our DCF valuation model and PE valuation (target PE of 12x) to reflect recent market valuation, we lower our 1Y-TP to VND 45,200/share (from VND 55,600/share). We downgrade the share from OUTPERFORM to MARKET PERFORM.

For 3Q22, KDC reported revenue of VND 3.2 tn (+26% YoY, -7% QoQ) and PBT of VND 60 bn (-58% YoY, -78% QoQ). Edible oil and frozen foods sales were VND 2.5 tn (+19% YoY, -7% QoQ) and VND 580 tn (+41% YoY, -13% QoQ), respectively, driving overall net revenue growth. In addition, other revenue reached VND 112 bn (+550% YoY, +47% QoQ) in 3Q22, as KDC returned to the confectionery segment and expanded its coffee shop chain. KDC’s cumulative 9M net sales and NPAT were VND 9.6 tn (+29% YoY) and VND 370 bn (-24% YoY), respectively, fulfilling 68% and 54% of its sales and NPAT guidance.

We attended the STK analyst meeting on November 16th, and here are our key takeaways. In 3Q22, STK reported a net income decline of -29% YoY, which is much lower than our expectations given that 3Q21 was set at a low base. This is attributable to continued weak demand and a high degree of stockpiling amongst major brands. Management expects inventory to clear significantly during the upcoming holiday season sales, and orders will start coming back in late 2Q23 to prepare for the new Fall/Winter season in 2023. In 2023, we expect net sales and net income to respectively reach VND 2.4 tn (+10.3% YoY) and VND 273 bn (+9% YoY). We lowered our target P/E from 12x to 9x to reflect worse-than-expected earnings growth due to slowdown in demand until 1H23, which yields an updated 1Y target price of VND 29,700/share (+6.6% upside). Our rating for the stock is MARKET PERFORM.

In 3Q22, VNM posted revenue and net profit of VND16.0tn (-0.7% YoY, +7.7% QoQ) and VND2.3tn (-21.5% YoY, +10.5% QoQ), respectively. For 9M22, the company delivered revenue of VND44.9tn (flat YoY) and NPAT of VND6.7tn (-20.2% YoY). Given the performance over 9M22, we cut our NPAT for 2022F by 4.2% to VND9.0tn (-15.3% YoY) and leave that for 2023F largely unchanged. For 2023F, we expect 6.4% and 15.7% YoY growth for the top and bottom-lines, respectively; with the higher growth on the bottom line due primarily to lower input costs. As a dairy company with management’s prudent style, VNM has limited to no direct risk to the existing headwinds in the property and corporate bond markets. Further, with a net cash position of VND13tn (c.USD52mn) as at end-3Q22, the company should benefit from rising interest rates to a degree. With an improving earnings outlook from 4Q22 onward, VNM should post better performance, as it could exit the period of earnings decline in 2021-2022.

Net profit in 3Q22 recorded a three-year high. BMP posted net sales and NPAT of VND 1.5 tn (+184% YoY, -4% QoQ) and VND 176 bn (+21% QoQ) respectively. Due to the COVID-19 lockdown, 3Q21 set a low base effect (a net loss of VND 26 bn). GPM increased to 28% in 3Q22, up from a low base of 4.5% in 3Q21 due to a drop in PVC input prices. ASP for BMP remained flat QoQ in 3Q22, while PVC resin prices fell -31% since 2Q22 to $900-1,000 USD/tonne, which is -35% lower than the average price in 2021. With lower PVC resin prices and a flat ASP, we believe BMP’s 4Q22 GPM will remain high. We forecast BMP net sales and NPAT in 2022 to be VND 5.7 tn (+26% YoY) and VND 655 tn (+206% YoY) respectively.

MWG reported revenue of VND32tn (+32% YoY, -7% QoQ) and net income of VND907bn (+15% YoY, -20% QoQ) for 3Q22. Given the 3Q21 low base when the company suffered from lockdown activities in provinces within Southern Vietnam, 3Q22 net income growth of 15% YoY was below our expectations. This could be attributed to the increase in financial and one-off expenses related to the closing of non-performing BHX stores. We expect financial expenses to rise in 4Q22 due to the: (1) trend of higher interest rates, (2) debt restructuring to longer maturity, and (3) VND depreciation. We forecast 4Q22F net income at VND1.67tn (+7% YoY). As such, we reduce our 2022F net income by 6% to VND5.16tn (+5% YoY, from VND5.48tn) and that for 2023F by 18% to VND5.86 (+14% YoY, from VND7.19tn). While earnings of the ICT & CE segments will likely be hurt next year, improvement in the grocery segment (due to the increase in sales and absence of one-off expenses) and smaller FX losses should secure decent earnings growth for 2023F. Despite rolling over our basis to 2023F (from average 2022-23F), we lower our SOTP-based 12-month TP to VND61,000 (from VND87,800) to reflect the cuts to our earnings and target multiples. With 44% upside potential to our new TP, we recommend investors to accumulate the stock despite possible periods of price weakness.