Sector Report

Sector Report
Update on Trump 2.0 tariff announcement for Steel and Aluminum and potential impact

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).

11/02/2025

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Vietnam Banking sector Update: All’s Well That Ends Well

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.

07/02/2025

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The US government’s proposal for a new framework on the export of advanced AI chips

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).

22/01/2025

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Vietnam Fertilizer Sector 2025 Outlook: VAT rule change to sustain earnings growth

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.

07/01/2025

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Vietnam Retail Sector 2025 Outlook: Maintaining robust growth

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.

06/01/2025

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Vietnam Seaport & Shipping Sector 2025 Outlook: Thriving under uncertainty

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. 

06/01/2025

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Vietnam Power Sector 2025 Outlook: Hydropower recovery will help reduce the power shortage risk

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.

06/01/2025

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Vietnam Construction Sector 2025 Outlook: The backbone of GDP growth in 2025

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. 

03/01/2025

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Vietnam Technology & Telecom Sector 2025 Outlook: Entering a new growth cycle

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.

03/01/2025

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Vietnam Oil & Gas Sector 2025 Outlook: Earnings growth divergence to persist despite anticipated lower oil price in 2025

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.

31/12/2024

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Vietnam Healthcare Sector 2025 Outlook: Policy changes paving the way for exciting times ahead

The outlook for 2025 is more optimistic, with growth anticipated across key channels. The prescription drug channel is expected to maintain its upward trajectory, supported by favorable policies. The OTC channel, however, exhibits signs of recovery after potentially bottoming, aided by economic growth. Revenue growth for companies under coverage is forecast at 12%, surpassing the industry average of the past two years. Earnings growth projected at 22%, rebounding from a challenging 2024. We note the expected forex headwinds during 2025 may increase imported ingredient prices.

On the other hand, the impact of new investments aligned with policy trends could take between 1-2 years to meaningfully impact top and bottom lines. Over the short term, Circular 07 remains the most influential driver for top line growth (e.g. DBD, DHG, IMP), as it aims to keep imported drug companies at bay.

We expect private hospitals to continue to grow, especially private general hospitals with at least 50 beds in the more remote regions of Vietnam. These provide patients with the much-needed advanced services and better care without traveling to Hanoi or Ho Chi Minh City. The percentage of private beds currently stands at around 5.8% of both private and public beds, much lower than government’s goal of 10% before 2025.

31/12/2024

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Vietnam Residential Real estate sector 2025 Outlook: Strong pre-sale growth driven by demand recovery and new supply

With a low and stable mortgage rate environment, effective new land-related laws, government support to increase supply (such as land price calculations or issuing pilot resolutions to convert non-residential land to commercial projects), and continued economic growth, the real estate market is expected to strongly recover with increased supply during 2025.

In Hanoi, the market is expected to perform well with an increase in new supply. Primary prices may stabilize with a lower absorption rate over the next two years, similar to the healthy period from 2016-2020. In Ho Chi Minh City, the market may see much better new supply but still at low levels, thus, absorption rates and pricing are expected to be higher relative to 2024.

Furthermore, the real estate market in second-tier cities is also expected to see increased supply, offering additional options for real estate investment in Vietnam.

As such, presales activities are expected to remain strong across the country throughout 2025 from both new and ongoing projects. The pre-sales value of listed developers is expected to grow in double digits, although earnings have not yet followed suit.

30/12/2024

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Vietnam Steel sector 2025 Outlook: Domestic channel to be the key driver for earnings growth

Domestic demand can maintain solid growth in the coming time, while export can slow down: We further expect domestic steel demand to grow by 10% for 2025, fueled by the strong recovery of the property market during 2024, resultant of the doubling of condominium new launches YoY. In addition, the acceleration of public investment in the final year of 2021-2025 term would also help to boost the consumption of steel. However, steel exports can slowing after remarkable recovery this year due to increasing more pressure from protectionism globally.

Competition from China may mitigate: China export volume increased 22.6% YoY to 101.15 mn tons in 11M24 after a 36% increase for 2023. According to the World Steel Association, Chinese demand is expected to drop another -1% during 2025, after falling -3% during 2024. However, the production volume in China through 11M24 dropped -2.7% YoY to 929 mn tons and is expected to drop another -1.3% YoY for 2025. This could lead to a decline in Chinese export volume of -9% compared to 2024, according to Mysteel. In addition, the pressure from imports in the domestic market can be mitigated with possible imposal of anti-dumping tariffs to flat steel imports.

30/12/2024

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Vietnam Automobile Sector 2025 Outlook: Peak performance achieved, now at cruising speed

As many supporting policies have ended, we expect car volume sales growth to peak in Q4/24 and decelerate during 2025. We expect profit growth for passenger car segment to be around 4% only, as new brands, such as Vinfast and MG, challenge incumbents with products at lower price points and aggressive promotion. Total domestic production capacity is also expected to increase from 750,000 vehicles/year in 2022 to 1.1 mn by year-end 2025, which should benefit consumers but increase the pressure on manufacturer and dealer inventory levels. For motorcycle sales, we expect 2025 volume growth to be 1-2% given a high 2024 base.

We have a NEUTRAL view for companies within our coverage as 2025 NPATMI growth is only at 4%, much lower than overall market (14%). Our top pick for the sector is VEA given its attractive dividend. While HAX is expected to outperform (2025 NPATMI growth 45%) during 2025, the company is trading at a higher 12-month forward P/E level compared to its 5-year historical average. As a result, we have HAX on our trading idea list.

27/12/2024

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Vietnam Industrial Parks Sector 2025 Outlook: Supply improvement amidst demand slowdown in 2025

The supply of new industrial parks is projected to expand before the end of 2025. There were 27 approved investment projects for industrial parks across the nation, with a total area of 8,886 ha, increasing the total area in Vietnam's industrial parks to 18,800 hectares, a 9% YoY growth. New industrial parks are expected to commence operations by the end of 2025.

The procedures for licensing the establishment of new industrial park are anticipated to accelerate in 2025. In November 2024, the National Assembly enacted legislation amending and supplementing four distinct laws (planning, investment, PPP, bidding). Notably, this amendment to the Investment Law mandates the delegation of authority to grant investment policies for industrial parks to the Provincial People's Committee, rather than the Prime Minister. It is believed that this decentralization of industrial land management will expedite the establishment of new industrial parks, particularly benefiting companies with substantial converted land resources.

27/12/2024

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