Sector Report

Weaker than Expected Profit Growth: 1Q25 pretax profit grew 9.3% YoY but declined 9.7% QoQ, falling short of our 15% YoY forecast. Notably, TCB, CTG, BID, and ACB delivered lackluster YoY growth, while MBB outperformed.

NIM Compression Persists: NIM declined 44bps YoY (or 29bps QoQ), driven by intensifying competition across the coverage. TPB and STB stood out with notable NIM improvement. We expect margin pressure to persist through 2Q25, with a gradual recovery likely in late 2025 as certain mortgage loans transition to the floating-rate period.

Asset Quality Under Strain: The NPL ratio rose to 2.02% (+29bps QoQ), partly due to seasonal impacts, despite a significant VND 26.6 tn (+34% YoY) in bad debt write-offs. Provision coverage decreased to 88.7% (vs. 105% during 4Q24). That said, supported by the low-interest rate environment and ongoing debt restructuring efforts, we anticipate a gradual improvement in asset quality near-term.

Vietnamese banks maintained a prudent stance at their AGMs last week, balancing caution with resilience in weathering an uncertain environment. Overall, we note that banks remain relatively more sanguine in setting their 2025 PBT growth targets (excluding the potential impact of US tariffs) compared to other sectors. Among the JSCBs under our coverage, pretax profit growth targets are +17% YoY. For the SoCBs, only VCB has received approval for a 2025 PBT growth target, set at a modest +3.5% YoY.

Amongst the issues discussed, the potential impact of the US reciprocal tariff emerged as most concerning. Several banks, notably TPB, highlighted that the typical profit margin of their Vietnamese export clients to the US is around 10%. Therefore, if new tariffs push costs beyond this threshold, many exporters could suffer operational disruptions. While the joint stock commercial banks (JSCBs) assessed that their direct loan exposure to sectors most affected by US exports is low—ranging between 0.6% - 1.9% of total credit—banks remain wary of broader indirect impacts. The greater worry centers on the risk of softer consumer demand and a slower-than-expected recovery in the real estate sector amidst weaker macroeconomic momentum if global trade tensions escalate. Nevertheless, this impact remains difficult to quantify at this stage.

The state-owned commercial banks (SoCBs), on the other hand, presented a more conservative outlook. This stems from their larger market share in the FDI-related lending segment. For instance, VCB shared that FDI companies account for about 20% of its wholesale loan book or roughly 10% of its total outstanding loans. VCB is also the largest player in trade finance with an estimated 20% market share. Given such strong ties with FDI-driven activities, SoCBs expect a more meaningful impact if global export volumes decline and are positioning themselves to manage potential risks accordingly.

Apart from the tariff issue, net interest margin (NIM) compression was a recurring theme amongst JSCBs. Competitive pressures have intensified, particularly after the SoCBs introduced attractive mortgage packages targeted at young homebuyers under the age of 35, offering fixed rates of between 5.5–6.0% for the first three years. Meanwhile, average lending rates stand at around 8% for Tier-1 JSCBs and between 9–10% for Tier-2 JSCBs. To retain good-quality retail customers, many JSCBs are facing the hard reality of sacrificing NIMs, which further pressures profitability over the medium-term.

Announcement of New Fees: On April 17, 2025, the United States administration introduced new tariffs targeting the Chinese maritime, logistics, and shipbuilding sectors. These measures are projected to impact approximately 34% of the TEU (Twenty-foot Equivalent Unit) capacity of the top 10 largest container liners, with a significant focus on COSCO.

Potential Global Shipping Fleet Reorganization: This policy may prompt a reorganization of global shipping fleet operations to circumvent these fees.

Opportunities for Vietnam's Fleet: Vietnam's fleet, which is exempt from these tariffs, stands to benefit by potentially entering the charter market as a result of this development.

Impact on listed names: HAH (Market perform; TP VND 56,600), PVT (Outperform; TP VND 30,000)

Total power capacity targets: The updated PDP VIII sets a projected total power capacity of 183–236 GW by 2030 and 775–839 GW by 2050, compared to approximately 160 GW by 2030 and around 573 GW by 2050 in the original version. As of end-2024, total installed capacity stood at 82.4 GW. The revised plan reaffirms the commitment to achieving net-zero carbon emissions by 2050, a core objective also highlighted in the original PDP VIII.

Thermal power (coal and gas/LNG): Capacity targets for coal-fired and gas/LNG-fired power plants remain largely unchanged, together comprising approximately 36% of total capacity by 2030. Among conventional sources (coal, hydropower, and gas), coal-fired power is the only category whose current trajectory aligns with the original PDP VIII. Despite notable delays in gas/LNG-fired projects, their role remains essential in maintaining grid stability amid the accelerating expansion of renewables—likely the reason these targets were preserved. By 2050, these thermal plants are expected to transition to cleaner fuel sources, in line with prior strategic direction.

Hydropower: Hydropower capacity has been revised upward by 13%–18%, with the sector projected to contribute 15%–18% of total capacity by 2030. A gradual decline in its share is anticipated through 2050.

Renewables: Significant increases are planned in renewable energy capacity, particularly in solar (more than doubling, with added capacity mainly in Northern Vietnam) and wind (rising by 15%–50%). Notably, concentrated solar power—previously absent from the original PDP VIII—has now been recognized alongside rooftop solar as a key development priority. Renewables and new energy sources are now projected to account for roughly 50% of total capacity by 2030 (up from ~30%) and over 70% by 2050 (from nearly 65%).

Energy storage: To address the intermittent nature of renewable sources, pumped storage hydropower and battery energy storage systems (BESS) have been significantly scaled up in the revised targets. These technologies are expected to make up 7%–15% of total capacity between 2030 and 2050, though their development timelines may extend beyond initial projections.

Nuclear power: The National Assembly has approved the resumption of nuclear power development, which had been suspended since 2016. This move is intended to enhance energy diversification and serve as a backup for delayed projects.

Imported power: Similar to the original PDP VIII, imported electricity is projected to play a minimal role in the overall power capacity structure.

Decent AGM 2025 guidance. JSCBs target ~17% PBT growth, which is broadly in line with expectations, while SoCBs await SBV approvals. Credit growth remains robust, though cautious NIM assumptions reflect heightened competition. Stock dividends dominate capital return plans, with certain banks pursuing private placements.

Tariff risks could be manageable over the near-term, but uncertainty persist. While US tariffs pose medium-term risks to export-exposed sectors and banks, the 90-day suspension provides relief. Front-loaded export activity and domestic stimulus measures should partially offset these pressures, benefiting SoCBs over the short-term. That said, longer-term uncertainty remains, and the broader impact may only begin to surface from late 2025.

Attractive valuations represent buying opportunities. Sector P/B has declined to ~1.2x, near an historical trough. We favor banks with strong funding, alignment with Vietnam’s economic improvement, and real estate recovery (VCB, CTG, ACB, TCB, MBB, and HDB). VPB and TPB offer compelling short-term upside after their recent correction, in our view.

Yesterday, US President Trump signed proclamations to raise tariffs for Steel and Aluminum imports to a flat 25% and remove all exemptions for all countries. This is an extension of the Section 232 tariff enacted in 2018 by Trump, which initially set a flat rate of 25% for Steel imports but included exemptions for several countries such as Canada, Mexico, Brazil, South Korea, and the UK. The new tariff maintains the Section 232 tariff and removes all exemptions. The new law will be effective from March 4th, 2025.

For Vietnam, steel imports to the US have been taxed at 25% since 2018 under Section 232, so Vietnam's steel is not impacted by this tariff increase. Consequently, there is minimal impact on Vietnam's steel industry concerning exports to the US. The new tariff action may even be somewhat positive for Vietnam's steel industry as it places Vietnam on equal footing with other countries. Vietnam’s export of steel to affected countries like Mexico and Canada is also relatively small (as of December 2024, they are not in the top 10 exporting steel markets of Vietnam, which account for 85% of total steel exports, according to VSA data).

Pretax profit at banks under coverage surged 26.7% YoY (or +20.8% QoQ) during 4Q24. In general, the pretax profit surpassed or in line with our projections for most banks, except VCB. Key takeaways:

For individual banks, CTG, STB, VPB, TPB, MSB, and OCB surprised with strong 4Q24 PBT growth, while VCB’s pretax profit was below our projection.

Credit growth reached 17.7% YTD (or +5.9% QoQ), accelerating during late November 2024. We have observed that credit demand recovered across sectors, including wholesale and trading, manufacturing, real estate developers, construction, and mortgage.

Pure LDR cooled during 4Q24, in line with expectations, as banks had to increase deposits to fortify liquidity and prepare for high credit growth. Particularly, total deposits increased 6.3% QoQ (or 15.4% YTD) as of 4Q24, mostly seen at SOCBs, MBB, HDB, TCB, ACB, and VIB.

Asset quality exhibited improvement with NPLs decreasing 8% QoQ. Given the aggressive purge of VND 28 tn in bad debt (+64% QoQ) during 4Q24 and strong credit growth, the NPL ratio improved to 1.73% (vs. 2% at 3Q24 and 1.71% at 4Q23). The loss coverage ratio also increased to 105% after bottoming at 96% at 2Q24.

In January 2025, the US government is proposing a Framework for Artificial Intelligence Diffusion, updating controls on advanced computing integrated circuits (ICs) and introduce new regulations on AI model weights for specific advanced closed-weight AI models.

What is new?

•           The framework points out 19 countries for a license exception to obtain most advanced Ics.

•           The Validated End-User (VEU) Authorization for data center will divide into Universal (UVEU) and National (NVEU) VEU Authorizations.

•           The framework introduces new control on model weights.

Our view

The controls related to Vietnam have been in place for some time. Hence, we believe that the framework might not have significant impacts on FPT. Related to NVIDIA H100 Tensor Core GPU, FPT has earned the export license on this advanced chip set for FPT AI Factory.

We currently recommend a BUY rating for FPT, with 12-month target price of VND 186,300/share (representing a 24% upside).

In 2025, we expect urea price to increase by low single digit, while the recovery in profit margin through the trading business may still continue, though at a softer pace than in 2024. However, the change in VAT rule from “non-taxable” to “5% taxable” should help urea producers DPM and DCM to sustain 50% YoY and 29% YoY earnings growth respectively. We do note that earnings growth of DPM and DCM would mainly falls into 2H25, as the change in VAT rule becomes effective from that time frame. Regarding DGC, we estimate revenue to increase by 18% assuming yellow phosphorus increases by 4%, and that the company still has capacity to increase sales volume across all product categories. We also expect a margin expansion in 2025 for DGC on the back of higher utilization of in-house raw materials, hence explaining an expected net income growth of 32% YoY.

The main headwind to our forecast is the gas depletion from cheaper oil basin, which might induce DPM and DCM to source natural gas from more expensive sources. Meanwhile, the La Nina cycle might induce power generators to tap hydropower rather than gas-fired power, hence relieving the natural gas shortage issue and serving as a tailwind to fertilizer companies in the short term. Another tailwind could be geopolitical tensions, which might lead to supply suspension in Egypt and EU, hence creating export opportunities for Vietnamese fertilizer companies. As for DGC, the fluctuation of utilization of in-house raw materials could make earnings of DGC volatile.

We expect the consumption recovery to stretch into 2025, aided by more favorable macroeconomics conditions and the recovery of the property market. We estimate earnings of companies to increase by 34% YoY in 2025, outperforming the net income growth of the market. Among retailers, we estimate MWG and FRT to post strongest earnings growth, bouncing back since the heavy destocking pressure observed in 2023, and those also stand to benefit the most in the transition from traditional trade to modern trade (modern trade currently accounts for <15% of the total market). PNJ also benefits from the transition from traditional trade to modern trade (almost 50% of the total market), but not as much as grocery and pharmacy. DGW earnings growth looks strong in 2025, though it may take more time to regain its peak in 2022 due to heavy reliance on mobile phones and laptops (collectively account for 74% of revenue).   

The main headwinds to our forecasts could be the uncertainty on future income of household, which could be projected lower than expected in the event of an unfavorable outcome to the protectionist trade policy of Trump presidency. For FRT, high leverage remains the main concern, especially if considering the possibility of a rising interest rate environment. However, a successful capital raise at subsidiary Long Chau of FRT could serve as tailwinds for the stock.

Seaport: Capacity expansion and uncertainty from Trump 2.0 tariff threat are the two themes during 2025F. On the supply side, we see plenty of new capacity coming, especially in northern VN, while we also expect Gemalink Phase 2 to start construction during 1H2025, with Can Gio and Cai Mep Ha deepwater seaport in southern VN are also under discussion. On the demand side, 2025F should be a very uncertain year for volume growth due to the incoming Trump administration’s threat of tariffs. Our base case assumption is that Vietnam’s volume growth next year is in line with pre-COVID growth rate, but can be concentrated during 1H2025 when tariffs are likely announced. 

Container shipping: 2024 proved to be a remarkably strong year for container shipping. Looking forward to 2025, we anticipate that some positive factors will persist. While upcoming events make the industry's outlook difficult to predict, key Factors for 2025 include Tariff Concerns from the New US Administration, Disruption at Choke Points, Potential port strike and congestion and the Overcapacity situation.

Tanker shipping is another segment that was supercharged by the disruptions, especially the Russia-Ukraine conflict. From our vantage point, recent events lead us to believe that tankers have likely reached their cycle peak. 

We forecast a 10.5% YoY growth for the national electricity consumption in 2025, based on our assumption of energy elasticity of 1.5 and respective GDP growth estimate of 7% YoY.

Despite higher demand, we expect supply will continue to keep up, mainly driven by the hydropower turnaround, completion of 500 kV Circuit-3 power transmission line and continuing enough coal supply. However, we see that power shortage risk still exists.

The prevalence of La Niña or neutral weather will benefit hydropower plants. El Niño ended during May 2024 and has gradually transformed to neutral weather pattern, which we expect to persist or gradually shift towards La Niña during 2025.

Coal-fired electricity will continue to be an important power source, which is more stable than other sources.

The natural gas supply shortage will become more intense during 2025. We anticipate more LNG imports to ease this issue as well as support the launch of Nhon Trach 3 and 4, the first LNG-fired project in Vietnam.

On the other hand, we forecast a higher FMP YoY, which could partially support the performance of thermal power plants.

Turning to renewables, there have been some key policy developments, including DPPA (Direct Power Purchase Agreement) mechanism, Amended Electricity Law, Decree on self-production and self-consumption rooftop solar power.

The average cost to build and operate renewable plants (excluding hydropower) is declining, which is favorable to expand this power source.

We expect 2025 to be an OUTPERFORMING year for the construction sector. As mentioned in the 2025 Macro Outlook report, intensive infrastructure investment is expected to play a crucial role in driving growth in 2025. The national budget for 2025 allocates VND 87 trillion to the MoT, increase compared to the 2024 budget, with 12 infrastructure projects set to commence. Furthermore, 2025 marks the final year of the public investment cycle, during which key projects are expected to be accelerated to achieve the target of 3,000 km of expressway by the end of the year. Although detailed budgeting has yet to be disclosed by the MoT, we anticipate a high disbursement plan and significant project completions in 2025. Additionally, the recovery in demand and new supply in the residential market will further support this growth. Consequently, the construction sector is anticipated to be a secondary beneficiary of these trends. 

AI-related projects are boosting global IT spending, especially that related to generative AI. Data center could see higher spending during 2025. For IT services, after experiencing sluggishness in spending from global businesses between 2023 and early 2024, we expect a rebound during 2025.

The collaboration with NVIDIA will create a pathway for Vietnam to achieve AI breakthroughs in the future. The global AI chip leader has entered into a cooperation agreement with the Vietnamese government in December 2024 to establish the first R&D center in the country and Viettel Group’s (Viettel) AI data center, utilizing NVIDIA technologies. In the same month, NVIDIA also announced the acquisition of VinBrain, being one of its first steps to advance AI in Vietnam. On the other hand, NVIDIA is also partnering with Vietnamese leading technology/telecom companies.

Related to semiconductors, we see both opportunities and challenges to fulfill the strategy of the field. During September 2024, the Vietnamese government promulgated the strategy (Decision 1018/QD-TTg) to develop the semiconductor industry, outlining “C=SET+1” formula and a three-phase roadmap to 2050. Notably, it emphasizes some important targets to achieve by 2030. Along with supporting factors, we are concerned that the semiconductor talents training and the fabrication stage could be key challenges over the medium-term.

According to the most recent OPEC forecast, global oil demand is expected to rise 1.6 mn bbl/day during  2025, while supply is expected to grow at a higher rate of 1.9 mn bbl/day for 2025 to 104.8 mn bbl/day driven by an increase of 1.5 mn bbl/day from non-Opec+ countries, especially in the Americas, including the US, Canada, Brazil, and Argentina. As a result, we expect average oil prices to range between USD 70 -75/bbl for 2025. The catalyst for oil prices include a further delay of the OPEC+ reversal of its production cut, a better-than-expected Chinese recovery, and/or a faster-than-expected cut in interest rates.

The divergence of earnings growth in 2023 continued during 2024 in line with expectation, as it continued to be a year of divergence for oil and gas stocks. Midstream names like GAS and BSR posted weaker  profits/losses due to a decline in: (1) sales volume associated with  the depletion of outstanding fields (for GAS), and the suspension of a plant for scheduled maintenance (for BSR); and (2) a lower sales price. . PVS also posted flat earnings growth due to the lower margin from international EPC contracts for both traditional oil&gas and offshore wind farms compared to domestic oil&gas contracts. On the other hand, PVD grew, due to the strong improvement in utilization and day rates from the renewal of drilling contracts under more favorable market conditions. Meanwhile,  PLX grewfrom the increase in volume through the retail channel.