Sector Report

The thread through 2026 and into 2027 is funding. Earnings held up (coverage PBT +24% YoY in 1H26) yet banking market cap fell 4% YTD; beneath that disconnect, the cost of funding, not the appetite to lend, set the limits. We see 2027 as another demanding year, with coverage pretax profit growth slowing to 15.4% (from 19.5% in 2026) on NIM compression and heavier provisioning. Credit should still grow briskly, ~16-17% system-wide and 17.9% across our coverage, skewed toward construction and infrastructure.

Divergence widens: SOCBs, anchored by cheaper, stickier CASA, hold up better than JSCBs, which fund thin-margin infrastructure assets at high short-term cost and carry heavier property and SME risk (coverage NPL rising to 1.72%, JSCBs to 2.20% vs SOCBs 1.24%).

Beneath the cycle, the system is slowly being restructured for the longer run. Credit-to-GDP is already 140-150%, and the disclosed mega-project pipeline alone would absorb at least 30% of net new credit over 2026-30, so the durable fix is to move that duration off banks through bonds and a phased refinancing model. Regulation is laying the groundwork, with a roadmap for the capital and liquidity pillars of Basel III that would eventually let the SBV manage credit through price rather than volume, and deeper reforms, potentially including consolidation into fewer, stronger banks, remain on the agenda. That said, these are multi-year builds. Our base case is that none moves the needle in 2027, so the recent easing is a deferral, not a resolution, of the funding gap, and capital raising stays a recurring theme.

Investment view. The winners will not be the banks that absorb the most risk, but those that allocate it best. We favour strong deposit franchises, low funding costs and the ability to distribute risk over those that simply grow fastest.

Our constructive services outlook does not imply a broad upgrade to listed consumption. The preferred listed exposures are principally market-share and operating-efficiency stories, rather than direct proxies for accelerating household spending.

Higher interest rates could weigh on consumption from 2027: Interest rates started to rise from 4Q25, but the impact on consumer spending may be gradual, as some borrowers remain protected by two-year grace periods and/or low fixed-rate loans. As a result, we expect the impact of higher borrowing costs on consumption to remain relatively limited in 2026. However, as these grace periods expire, mortgage repayment pressure is likely to become more pronounced in 2027, potentially weighing further on consumer spending.

Challenging export environment for domestic firms is a risk to consumption: Labor-intensive sectors such as textile or agrobusiness could see low to no growth due to US tariffs remaining unsettled, tepid global demand and rising input costs. We expect export orders to slow, which would cool wage and hiring growth and, in turn, the mass-market spending that has driven the F&B recovery so far.

We set USD 75-85/bbl as our 2027 base-case average Brent oil price assumption (vs. USD 80 – 90/bbl in 2026). Particularly, we anticipate that the Middle East conflict would remain elevated through 1Q27 before gradually easing as the oil and gas flows through the Strait of Hormuz resume, along with declines in restocking activities. Given that, oil prices should stay high in 1H27 then gradually fall toward end-2027. Further, per EIA estimates, 2027 oil supply might increase by 8 mn bbl/day, while demand might recover slower at 2.6 mn bbl/day, keeping a supply surplus of 4.9 mn bbl/day (supply of 109.9 mn bbl/day vs demand of 105 mn bbl/day) compared to an estimated deficit of 1.27 mn bbl/day, pressing down on oil price. Having said that, we do not expect oil price to decline quickly toward pre-war level of USD 60-70/bbl until 2H2027 as several factors might remain higher in the short-term: risk premium, insurance cost, transportation cost. Thus, we expect 2027 to split into 2 halves: 1H2027 with high oil price (around USD 80-90/bbl Brent) and 2H2027 with gradually lower oil price toward USD 70/bbl Brent toward the year end.

Domestic steel demand is expected to remain strong from public investment and real estate project development, albeit at a slower rate expected from macro environment. We expect Vietnam construction steel demand can maintain 10% YoY growth in 2027, slightly lower than 2026’s strong growth of 18% YoY. For public investment projects, 2026 is the year of preparation and land clearance, while 2027 is more on the execution side. So, we expect more construction activities of these projects to push for more construction steel demand, while demand on the residential real estate construction can slow down due to lower absorption rate and high interest rate. HRC domestic demand growth is also expected to remain solid thanks to higher demand from industrial construction, infrastructure projects and automobile manufacturing. Import of HRC from China is expected to decline from 2027 thanks to the additional AD duty on wide-width HRC starting in April 2026 (currently preliminary duty), thus benefitting domestic upstream manufacturers like Hoa Phat or Formosa.

Property stocks have corrected sharply by 30-50% since the beginning of the year, bringing valuations to attractive levels relative to historical averages. The correction appears to reflect concerns about persistently high interest rates and a shifting competitive landscape, which may challenge developers' historical competitive advantages.

NLG and KDH are currently trading at FY27F P/B multiples of 0.8x and 0.8x, representing discounts of 50-60% to their respective five-year averages of 1.6x and 2.2x. However, given the challenging industry outlook, we view these stocks as better suited for short-term trading opportunities at current valuations.

Longer term, demand outlook remains intact, underpinned by (1) Major infrastructure upgrades (North–South Expressway, Long Thanh–Dau Giay, Bien Hoa–Vung Tau, Ring Roads 3/4), (2) New FDI incentives (Resolution No. 10-NQ/TW, issued by the Politburo on June 8, 2026, amended Investment Law) supports FDI attraction through reduced administrative procedures, preferential funding for eco-industrial parks, and greater authority delegated to local governments, which should facilitate faster project approvals and industrial park development.

Investment view. We favor VGC and IDC given their attractive valuations and strong operating cash flows, which should support sustainable cash dividend payments. We also maintain a positive view on GVR, PHR, and DPR, as land compensation income from rubber plantation conversions is expected to remain a key earnings driver. In addition, PHR and DPR offer appealing cash dividend yields of 8-11%, providing both earnings visibility and attractive shareholder returns.

We are Neutral on the sector but see earnings growth as the key differentiator amid the de-rating discussed above, favoring names that can sustain it. Within our coverage, both FPT and CTR should deliver solid earnings growth in 2027F (FPT 15% and CTR 14% YoY), underpinned by high ROE (FPT 24%, CTR 30%). We see the current de-rating as an attractive entry point for both.

FPT is our top pick (OUTPERFORM, 28% upside) as the leading name in Vietnam's technology sector, trading at just 10x 2027F P/E despite approx. 15% NPATMI growth, with expanding AI-related operational exposure.

We also rate CTR OUTPERFORM (21% upside). Its diversified mix as Vietnam's leading TowerCo, solar energy solutions provider and telecom construction contractor, alongside its push into residential construction, positions it to benefit from the national telecom and power infrastructure build-out, supported by sector-leading ROE of ~30%. Its "Go Global" strategy offers a further long-term catalyst.

The net effect is best read by time horizon, because the long-term and short-term logic pull in different directions.

Over the longer run, the shift to Basel III is the right one. An LDR only compares balances and says nothing about the character of what sits on either side. Basel III replaces that quantity lens with a quality one, weighting each source of funding by how stable it is and each asset by how liquid, a more faithful gauge of liquidity risk.

In the near term, the loosening is opt-in but real. The 95% cap and new formula are not automatic until a bank moves onto LCR/NSFR (2028 at the latest), but a bank can register to adopt early, from the circular's effect in December 2026, at the low starting thresholds (LCR 50%, NSFR 90%). Switching matters because, for almost every bank we cover, the new formula under a 95% cap leaves more room to the ceiling than the old 85% did. The cap rises ten points while the restated ratio rises only a few, so moving onto the new regime opens up more lending headroom now rather than at 2028, especially for names like TCB, MBB, VPB, VCB, BID, MSB.

9M26 national power output rose by 10% YoY (vs. 4% YoY in 9M25 and 5% in 2025). Over the last two years, this figure diverged from annual GDP growth, as 2025 temperature was lower than multiple-year norms.

In contrast to 2025, El Niño weather pattern returned in 2Q26, followed by higher thermal power utilization amid hydropower constraints. This also explained FMP recovery in 2026, as thermal power usually has higher output prices than hydropower

Given the Vietnamese government’s ongoing ambitious GDP growth target, we forecast 8%-9% YoY power demand growth in 2027, from 10%-11% YoY in 2026 (per our estimates). Adverse weather conditions for hydropower could remain, implying higher reliance on thermal power, alongside high FMP prices.

Given power shortage concerns and hydropower constraints, despite high coal and gas/LNG prices, we anticipate that thermal power will continue to be an important generation source in 2027, implying a strong catalyst for NT2 and POW. We note that NT2/POW currently trades at 2027 EV/EBITDA of 1.8x/4.8x, which is lower than their five-year EV/EBITDA averages (4.8x/6.8x). Despite the growth challenges of earnings in 2026-2027, it is worth watching REE and HDG for signals of more favorable hydrology and their development progress of new renewable energy projects

The banking sector delivered another stronger-than-expected quarter, supported by resilient credit growth, a rebound in NIM and a meaningful recovery in fee income. Nevertheless, we remain cautious as signs of asset quality deterioration continue to build beneath the strong headline earnings. The sector’s NPL ratio reached its highest second-quarter level since 2020, deterioration has become increasingly broad-based, and provision coverage continued to decline. At the same time, the sustainability of recent NIM improvement remains an important question for 2H26 as funding costs continue to normalize. Although liquidity conditions improved during the quarter, demand for medium- and long-term funding is likely to remain elevated, driven by the next phase of national infrastructure investment and the persistent gap between credit expansion and deposit growth. Accordingly, we expect earnings growth to remain solid in 2H26, but with wider divergence across banks depending on funding strength, asset quality and provisioning capacity.

Vietnam’s economy and consumption face certain external headwinds. Despite resilient retail results in 1Q26, tightening financial conditions are set to dampen spending in coming quarters. Rising inflation and fuel costs, higher interest rates squeezing household income, weak export due to tariffs and freight costs, and slowing tourism due to pricier air travel all weigh on growth prospects.

With the share price correction over the past few months, we see retail companies currently have attractive valuation compared with their historical average, partly reflecting expected slow down in demand in the near term and the rise in interest rate affecting flows into equity market. Compared with the consumption downturn in 2022, retailers are now better positioned due to (1) lower leverage, (2) diminished cost advantage of ecommerce competitors, (3) grocery chains of MWG and MSN were loss making back in 2022, but profit driver in 2026,  and (4) favorable regulatory tailwinds, including revenue-based taxation that pressures traditional retailers and stricter enforcement against counterfeit food and drugs. We hence recommend to accumulate grocery, pharmacy and jewelry retail companies for long term investment horizon. Meanwhile, stock with heavy exposure to ICT & CE like DGW is suitable for short term trading purposes at the current price level.

Banks under our coverage posted strong 1Q26 results, with pre-tax profit (PBT) reaching VND79.5 trillion, up 20% YoY and well ahead of our ~10% growth expectation. The outperformance was mainly driven by CTG, TCB, and MBB, supported by lower provisioning and stronger non-interest income (NFI). Results at the other banks were largely in line.

Growth remained credit-led, with loans expanding ~20% YoY and driving net interest income (NII) growth of +18% YoY. Recovering fee income and controlled operating expense growth (+10% YoY) further supported profitability.

Investment View

While the overall growth backdrop remains supportive, funding constraints and margin compression are likely to persist in the near term. Asset quality risks are also expected to emerge gradually in a high-interest-rate environment. Additionally, upcoming regulatory changes, such as the Capital Adequacy Ratio (CDR), Liquidity Coverage Ratio (LCR), and Net Stable Funding Ratio (NSFR), could further tighten liquidity conditions and increase costs if implemented without an adequate transition period.

In this environment, we anticipate greater performance dispersion. Banks with stable funding profiles, strong capital buffers, and disciplined risk management are better positioned to navigate the challenges.

Our preferred names remain VCB, CTG, and MBB. Among them, MBB will need to demonstrate further progress in funding diversification and deposit franchise recovery to strengthen its investment thesis.

After an extended drafting process, the State Bank of Vietnam (SBV) has released a draft circular for public consultation to replace Circular 22 on prudential ratios. The overall direction is positive, as Vietnam moves toward Basel III-aligned standards, including the Liquidity Coverage Ratio (LCR), Net Stable Funding Ratio (NSFR), and leverage ratio. These changes should enhance the banking system’s resilience over the long term.

Compliance with the new liquidity standards is unlikely to create a system-wide shock. Several private banks — including TPB, ACB, VIB, MBB, VPB, TCB, SeABank, Nam A Bank, STB, and LPB — have already developed LCR/NSFR measurement capabilities and liquidity risk frameworks in recent years. That said, compliance will still entail higher costs as banks increase holdings of low-yielding High-Quality Liquid Assets (HQLA), extend funding tenors, and invest in asset-liability management (ALM) and data infrastructure.

Our primary concern is not Basel III itself, but the proposed Credit-to-Deposit Ratio (CDR) cap during the transition period. With the pure loan-to-deposit ratio (LDR) — credit over Market 1 funding — already exceeding 100% at several banks, maintaining a hard CDR/LDR limit alongside LCR and NSFR could create overlapping and potentially conflicting constraints. A simpler balance-sheet ratio may undermine the benefits of more risk-sensitive liquidity metrics. Regional experience supports a more flexible approach: China, for instance, removed its statutory LDR cap as it phased in Basel-style liquidity rules. We therefore expect the treatment of CDR to be refined in subsequent drafts, ideally with a clearer transition path or supervisory flexibility to avoid exacerbating the current tight liquidity conditions.

Market Overview

Vietnam’s fisheries and textile/garment (T&G) sectors generated USD50.5bn in export revenue during 2025 (~10.6% of total exports), with T&G at USD39.6bn (+5.7% CAGR 2015-2025) and fisheries at USD11.3bn (+5.3% CAGR 2015-2025). Both sectors remain highly labor-intensive and FDI-driven, with deep global supply chain integration. Structurally, export concentration to the U.S. is easing, while China and intra-Asia gain share (particularly in fisheries). However, rising labor costs (6.1% CAGR over 2013–2023) are eroding Vietnam’s low-cost advantage, necessitating a shift toward higher value-added segments (FOB/ODM, processed seafood) to continue growth. Margin resilience has improved for leading players, though input cost dependence (cotton, feed, FX) remains a key vulnerability.

2026 Outlook

We expect single-digit export growth for 2026, with fisheries outperforming on stronger 1Q25 momentum and improving U.S. market. T&G faces persistent tariff overhang risks, particularly if U.S. reciprocal tariffs revert to 20%. China and ASEAN remain key diversification markets. Cost pressures (freight, labor, inputs) will likely persist, partially offset by easing intra-Asia logistics.

2025 recap: Weather-led Year with Policy Breakthrough

Electricity demand growth in 2025 reached only ~4% YoY, lagging GDP expansion. This underperformance was largely attributable to cooler than average weather compared with both 2024 and multiple-year norms, which dampened consumption. More favorable hydrological conditions also resulted in strong hydropower generation, allowing hydropower output to outperform thermal power during the year.

Total installed capacity rose to approximately 90 GW, representing an annual increase of 6–7 GW, primarily driven by baseload power expansion.

On the policy front, 2025 marked a turning point following the regulatory stagnation of 2022–2024. Several long standing legal bottlenecks were resolved, most notably the revision of Power Development Plan (PDP) VIII and the introduction of new, technology specific power pricing frameworks, improving sector visibility and investment conditions.

2026 outlook and long-term trajectory toward 2030: Weather transition and geopolitical tensions

We expect the current La Niña phase to be short lived, followed by a return to El Niño conditions, which would reduce hydropower output and increase reliance on thermal generation to meet rising demand. Under our base case scenario, electricity demand is projected to grow by ~8.5% YoY in 2026, while our high case scenario assumes 10–15% YoY growth. Against this backdrop, we forecast a ~29% YoY recovery in the full market price (FMP).

Geopolitical risk has emerged as an additional uncertainty. The Iran conflict, which began on 28 February 2026, has triggered upward shocks in global fuel markets, including crude oil, fuel oil, and natural gas/LNG prices across Europe and Asia. This raises concerns for gas/LNG fired power generation in Vietnam.