Company Report

Investment view: We reiterate our Outperform rating, but lower our 1-year target price to VND 128,000/share (from VND 135,000/share) or +13% upside. Our lower target price is based on higher WACC in our DCF valuation and lower target P/E (from 20x to 19x), taking into account of higher interest rates. Our estimates are based on a Brent oil price assumption of USD 95/bbl in 2022 and USD 85/bbl in 2023. For 2023, we estimate that GAS will undergo mild slippage with a 5.1% YoY decrease in earnings, due primarily to our lower 2023 oil price. Still, we believe that GAS will deliver improved gas volumes in our forecast (+10% YoY). Key downside risks to our call include weaker-than-expected dry-gas volume, and lower-than-expected fuel prices.

Short-term view: Quarterly earnings peaked in Q2 2022. Based on our current estimates, GAS likely will post 12% earnings growth in H2 2022, decelerating relative to H1 2022 (+96% YoY). As such, there could be limited price catalysts in store for the shares over the short-term.

In general, we believe that the shares closely track global oil price movements. Looking toward next year (despite the slight decrease in earnings due to our oil price assumption for 2023 now being lower than consensus), we believe that GAS’s earnings will remain buoyant. Moreover, GAS’s rich net cash balance of USD 1.2 bn at Q2 2022 is a significant advantage during the period of rising interest rates.

1H22 performance: Consolidated revenue and NPATMI surged to VND 6.2 tn (+60% YoY) and VND 175 bn (+112% YoY), respectively, achieving 43% and 49% of full year 2022 guidance. Net income increased across all segments: seeds (+24% YoY), pesticides (+45% YoY), shrimp (+42% YoY), pangasius & clam (+120% YoY), fish sauce (+17% YoY). Consolidation of VFG’s financials into PAN further enabled growth in addition to  one-off earnings from an asset disposal at BBC. Packaged foods (confectionery, dried nuts and fruit, seasonings) posted encouraging sales growth of 11% in H1 2022, and is expected to accelerate during H2 with the arrival of the high season.  Meanwhile, dried nuts & fruits earnings declined -29% YoY owing to FX losses. For 3Q22, the company targets to reach net sales of VND 3.6 tn (+43% YoY) and NPATMI of VND 53 bn (+38% YoY).

During 1H22, KDC recorded net sales and profit before tax of VND 6.4 tn (+30% YoY) and VND 427 bn (+27% YoY), respectively. Edible oils revenue reached VND 5.3 tn (+30% YoY) in 1H22, with a GPM of 14.8% (up from 13.8% in 1H21). Frozen foods revenue reached VND 986 bn in 1H22 (+19.6% YoY), with a GPM of 64% (up from 53.7% in 1H21).

In 2022, we estimate that KDC’s net revenue and NPAT will reach VND 14.3 tn (+36% YoY) and VND 827 bn (+27% YoY), respectively. Revenues of edible oil and frozen food are estimated to grow 37% and 23%, respectively. For 2023, we expect a 6.5% YoY increase in edible oils revenue during a time that KDC will expand to high-end products in its FMCG portfolio. We also expect 6.7% growth in ice cream sales, as the ice cream market should return to normalcy. We estimate that the GPM for edible oils and frozen foods will be 18.4% (2022: 15%) and 58% (2022: 59%) in 2023, respectively, due to a likely sharp drop in palm oil prices from 2H22. In 2023, we expect KDC’s revenue and NPAT to be VND 15.3 tn (+7% YoY) and VND 1.0 tn (+26% YoY), respectively. Therefore, 2022 and 2023 EPS would be VND 2,926 (+25% YoY) and VND 3,757 (+28% YoY), respectively (based on the number of outstanding shares as of September 2022)

KDC trades at a 2022 and 2023F P/E of 22.2x and 17.3x, respectively, being normalised from the high levels in previous years (2018-2020), which we see as fair, considering KDC’s earnings are likely to increase sharply in 2022 and 2023.  We rate the shares of KDC as Market Perform and a12-month target price of VND 63,600/share (-1% from the current level). Using 2023E, we apply P/E and EV/EBITDA targets of 12x/9x for the edible oil segment and 19x/12x for the food product segment. We also use P/B metrics for relative valuation, with an industry median of 1x for edible oils and 6x for food products.

AST posted a positive turnaround PBT of VND 16.6 bn in 2Q22, the first time after eight consecutive quarters of losses, which marks an important turning point for AST. The earnings recovery path will be largely dependent on the international market, especially for the main markets of both inbound and outbound Vietnamese tourism such as East Asian countries, therefore we do not expect strong earnings recovery over the short term of 3-6 months. However, we believe that recovery is well ongoing now, supported by improving passenger volume, optimized business operations post-Covid, and the expanded points of sales (115 stores vs 92 stores in 2019).

We maintain an OUTPERFORM rating for AST with a 1Y-TP of VND 69,000/share (based on 2023F P/E of 20x), implying 22.5% upside and reflecting our positive view on the Company’s strong turnaround in 2023 along with the general recovery of the aviation industry. We note that the primary risk is that international recovery might be slower than expectations in the scenario if China were to prolong its zero-COVID policy, and if global travel demand were to deteriorate more rapidly due to economic recession.

Investment summary: We reiterate our Market Perform rating on the shares of OCB, with a 1Y TP of VND 19,700 per share (previous target VND 23,200) due to: (1) the constraint of profit in FX and securities trading; (2) the relatively high level of exposure to real estate developers; and (3) a reduced target P/B to 1.05x due to lower earnings and ROE.

During 1H22, OCB pretax profit disappointed with a drop of -34.6% YoY to VND 1.7 tn. Despite the cumulative interest income increase of 20.4% YoY through credit growth of 9.8%, the loss from trading securities weighed heavily on core profit during 1H22. The NPL ratio declined -21 bps QoQ to 1.96%, though much higher than the 4Q21 figure of 1.32%. Asset deterioration resulted in additional credit provisioning, which increased 42.8% YoY to VND 562 bn in 1H22. Restructured loans improved 29.5% YTD, declining to VND 2.2 tn.

We are reiterating our OUTPERFORM rating on the shares of DRC, along with our VND 34,400 per share, (ROI of 16%, based on 2023F financials and target PE of 12x). Despite the DRC 2Q22 net income decline of -21% YoY resultant of the high raw material costs and freight costs (impacting both the gross profit margin and sales volume), growth prospects going forward are better. Raw material prices and freight costs should soften through 2H22 and 2023, which should positively impact the profit margin and sales volume. 2H22 earnings growth is forecast at 49% YoY, as 3Q22 net income growth should be at the high point of the year. We forecast 2022 and 2023 net income of VND 329 bn (+13% YoY) and VND 378 bn (+15% YoY), respectively. From 2024, DRC’s radial production capacity to rise to 1 mn units/year (from the current design capacity of 600K units/year), supporting long-term growth.

Short-term view: Net income growth will be the highest in 3Q22 on the back of the low base set last year, when lockdown conditions materially affected production and export activities of DRC. Jul-Aug 2022 revenue reached VND 950 bn, surpassing the entire 3Q21 revenue of VND 929 bn. This should aid stock performance.   

We are upgrading the rating on the shares of VRE from Outperform to Buy, as well as our 1Y TP of VND 35,200/share (previously VND 33,900/share), representing 28% upside after we roll forward our estimates to 2023E. We believe that earnings have bottomed out and are on a recovery path given the minimal rent waivers. Valuations (2022E & 2023E EV/EBITDA of 12.5x and 10.2x, both below historical average) also remain attractive in our view.

Key downside risks to the shares of VRE may include: (i) delays in development of Vinhomes mega projects which could impact the Company’s expansion; and (ii) inflationary concerns which may cause weaker-than-expected consumption recovery.  

Despite the marginal YoY revenue improvement of 5.6%, HT1’s PBT fell -45.4% to 164 bn VN in 2Q22 due to a surge in coal prices. We expect that the increase in coal prices should exert additional pressure on the company’s 2H22 margin, as it will be difficult for cement companies to increase cement price further, challenged by weaker domestic demand and stagnant export markets. Accordingly, we forecast HT1’s 2022 revenue to increase 20.6% YoY to VND 8.5 tn on the back of an 8% rebound in cement sales volume. However, we do forecast PBT to decline -28% YoY to VND 379 bn. We believe that HT1 earnings will bottom in 2022 and rebound to VND 527 bn (+40% YoY) in 2023 due to sales volume growth of 5%, and the assumption that coal will correct 5% from the 2022 peak.   

We maintain our Market Perform rating on the shares of HT1, along with our 1-year target price of VND 16,000/share. We think the share price in the short-term can be supported by the strong YoY earnings growth of around 70% in 2H22 off the low base in 2H21. There would be more supportive catalysts in 2023, including softening coal prices, or an acceleration in public investment.

Investment summary

We ae upgrading the shares of VTP to BUY from MARKET PERFORM, as we increase our 1-year target price to VND 85,500/share (up 14%) – representing 35% upside. VTP is trading at a heavy 33% P/E discount to regional peer.

Reasons for upgrade:

Delivery tariffs increase by 10-15% signals market competition easing

Gross margin slightly improved from trough, signaling better cost control from a new team of management

Quality improvement effort should resolve market share loss problem

Strong earnings growth expected in 2022-2023F

Downside risk: Competition remains intense as expected, or service improvements are not enough to capture market share.

At VND 34,650/share, KBC trades at a 2022 P/E and P/B of 11.8x and 1.6x, respectively, and a 2023 P/E and P/B of 8.9x and 1.4x – prior to accounting for the potential private placement of 150 mn shares. Our target price is VND 43,000/share, representing 24% upside. We reiterate our BUY rating on the shares of KBC. The key downside risk, in our view, is slower than expected land deliveries given the prolonged procedural process for key projects and the global economic uncertainties which may impact FDI.

The container shipping market has begun normalizing after a strong two-year upcycle, as both spot freight and charter rates are now declining. This is sooner than expected, as the fall in rates is driven by unexpectedly weak demand, and not by the easing of congestion. As such, we target P/E from 8x to 6x and lower our 1Y-TP to VND 84,500/share (from VND 110,000/share), which still translated into an OUTPERFORM rating for the shares of HAH. Over the past two years, HAH has gone deeper into the international market, becoming more vulnerable to market volatilities. However, as we gauge the risks associated with the current freight rate downcycle, we believe that HAH can still maintain a high level of earnings through 2024 due to its increased capacity. Over the short term, we expect earnings growth to remain elevated in 3Q22 (over +100% YoY) and start to decelerate since 4Q22 (over +20% YoY).

Net profit over the first six months reached an all-time high due to a surge in the crack spread: BSR sales volume during 1H22 just increased slightly 1.3% YoY to 3.5 mn tons, but net profit for 1H22 experienced a much higher growth of 246% YoY, reaching an historical record of VND 12.3 tn driven by the remarkable expansion of the crack spread. However, with the correction in regional crack spread, the earnings in the coming time may normalize from the peak in the second quarter. According to prelim result, sales volume in 7M22 period is estimated at 3.9 mn tons, delivering revenue of VND 98.5 tn and PBT of VND 13.3 tn.

BSR is trading at a trailing P/E of 5.4x, which is quite close to that of regional peer. We do not recommend to buy the share at the current price, since BSR’s earnings is likely to have already peaked during the second quarter. As BSR’s sales volume is quite stable, its share price over the short term can be quite volatile following the movement of the crack spread.  We estimate that an increase/decrease by 10 USD/bbl in crack spread can result in an increase/decrease by around VND 3.5 tn in BSR’s net profit per quarter.

1H 2022 net income did not deliver as expected. Instead the company reported a loss of -149 bn VND, due to a lower than expected day rate and utilization rate of JU rigs. However, we still expect a positive improvement from the 2021 situation, and this improving trend should continue into 2H 2022.

The regional drilling market is warming up quickly since our last update. Large demand from Saudi Aramco has brought about a higher regional day rate and utilization rate, especially when we look into contracts set to start in 2023F.

Revised 1Y TP of VND 23,800/share (from VND 29,500/share) based on combination of DCF and P/B methods, with a lower 2022F forecast and Block B timeline pushed to 2024F. We reiterate our Market Perform rating for the stock. The stock is trading at P/B 2023F of 0.9x and 2023F P/E forward of 21x.

Investment summary: We reiterate our Market Perform rating for the shares of VIB, along with a 1Y TP of VND 30,900 (+18% upside). Higher funding costs should weigh on VIB’s NIM, while a low credit buffer will remain a challenge given the credit quality deterioration. Over the short-term, we are positive about VIB for an extension of credit limit from SBV, effective 2H22. 

In 2Q22, VIB posted a consolidated pretax profit of VND 2.7 tn (+27.8 YoY) and VND 5 tn (+27% YoY) for 1H22. This growth was driven by strong interest income (+25% YoY), as credit growth was 9.7% YTD. Cost control remained on solid ground. The loss from FX trading and investment securities weighed on core profit. Despite strong earnings growth and contracting restructured loans (-21% QoQ), the NPL ratio still rose 6 bps to 2.45% QoQ in 2Q22. However, loan loss coverage was 54% - the lowest by far in our coverage universe.