Sector Report

Sector Report
Capital raising – The new theme for 2021

2021 AGM season has nearly ended, with the theme of equity capital raises just beginning. In particular, the two most heavily weighted sectors (banking and property) which combined represent over 50% of the VNIndex are expected to be most active. While the bank recapitalization story is returning after a two-year hiatus, property developers are finding the current positive market sentiment an opportune time to evolve from bond financing to equity. Provided that earnings dilution isn’t significant, we believe these capital raises could act as catalysts for both sectors’ shares into year end. We remain Overweight on the shares of the residential developers, and somewhat more muted in our outlook for the banks as valuations have already begun to price in the positive outlook. There are, however, some specific names where we are much more sanguine: CTG, TCB and VCB. We also have VPB, TPB and STB in our watch list as they may have upside surprise relating to capital raising plan (VPB, TPB) and turnaround story after settlement of legacy assets (STB).  In property sector, our current top picks are NLG, DIG and DXG for being beneficiaries from improving infrastructure in HCMC and neighboring areas as well as strong earnings growth outlook in 2021.

16/05/2021

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Power sector update: More of a balance between power supply and demand in 2022

Looking to 2022, we expect more of a balance between power supply and demand given the normalized power consumption growth. If solar capacity remains unchanged and wind capacity expanded in line with the tentative PDP 8,  nationwide power demand/supply should reach equilibrium. The utilization rate of renewable sources is also expected to come in at the designed rate, rather than the unusually low rate of 2021 due to oversupply. Furthermore, utilization rate of wind power plants is expected to be less volatile vs. Solar/Hydropower plants linked to El Nino & La Nina patterns. With the FIT of $8.5 cents/kwh, onshore wind projects will be also more competitive vs. solar power plant with higher FIT of $9.35 cents/kwh. 

 

11/05/2021

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Power sector update: Nationwide power system will feature higher cost from renewable resources

Lower contracted volume for thermal power plants is mostly due to abundant volume from renewable sources, and favorable volume from hydropower plants.

In light of low contract volume coupled with a higher coal and gas input price, thermal power earnings should be adversely impacted. 

With higher cost from renewable sources and higher gas price as well, EVN will try to control costs. Thus, the other power generators, who are dealing with a revised PPA with EVN, are expected to struggle. 

Additionally, EVN has more incentives to raise the electricity retail price, as higher costs arise from renewable power sources, along with a high-cost new gas field (Sao Vang Dai Nguyet). 

10/03/2021

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Vietnam Electricity sector 2021 outlook: Eyes on wind project & Enjoy the hydropower momentum

Needs of power transmission projects. Higher weighting from non-dispatchable sources (solar and wind) will require a higher degree of efficiency within the transmission grid in order to transfer this increased power capacity through the existing grid. According to the nationwide capex for power transmission between 2021-2030, total guidance is VND 766 tn, which is 26% higher than the revised PDP VII. 2021 earnings from electricity companies under coverage will differ individually due to many issues surrounding the revised PPA price, including bad debt provisioning; the maintenance pipeline; and changes in input cost. We are concerned about the revised PPA price. Over the long term, EVN likely will see higher input costs from: (i) a higher gas price (as the current low-price gas fields have gradually dried up); and (ii) a significant increase in renewable capacity, with a high FIT in 20 years (from solar and wind power plants). The power generators likely will find it difficult to negotiate the PPA price with EVN over the medium term.  

  

04/02/2021

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Vietnam Property sector 2021 Outlook: Expecting a brighter outlook

In term of pre-sales activities, 2021 is expected to be a more active year for residential developers, with a number of new launches set into motion. Specifically, VHM has a plan to launch the low-rise component of Vinhomes Wonder Park (Dan Phuong, Hanoi), along with opening the next phase of its three mega projects (Vinhomes Ocean Park, Smart City in Hanoi, and Grand Park in HCMC) for both bulk and retail sales. Other than these, VHM is preparing for potential launches of projects in second-tier cities as well. As for NLG, we expect that Waterpoint, VSIP Hai Phong, and Mizuki Park are among the projects to be launched in 2021, with estimated presales value to grow by 19% YoY. For DXG, the Company will continue with sales of its low-rise project – Gem Skyworld (Dong Nai) and aims to launch two new medium-sized condominium projects in Binh Duong. Meanwhile, prospects are positive regarding the re-launch of the Gem Riverside project in Dist.2, HCMC, which has been held off in the recent two years due to prolonged procedural issues. On the opposite side, we see that KDH would likely witness a significant decline (-53% YoY) in pre-sales value in 2021 due to an absence of sizable high-rise projects for new launches, with only one low-rise project-Armena to be launched.

21/01/2021

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Vietnam Beer sector 2021 Outlook: To recovery!

The beer sector is sensitive to the pandemic. In 2019, the on-premise channel accounted for approx. 70% of total beer consumption in Vietnam, according to Euromonitor. In 2020, this channel was hurt severely by social distancing. Recovery momentum will continue, but demand is forecasted to return to pre-Covid levels not in 2021 but 2022. Vietnam has handled the Covid-19 outbreaks very well. Catering and entertainment have improved, but food traffic is still a long way off from pre-Covid levels. Trends at restaurants, cafes, shopping centers, theme parks, museums, etc are still weak, down 10% compared to the base line, according to a Dec 2020 Google report. The lack of international visitors has also contributed to less beer consumption. According to GSO, spending of foreign tourists accounted for 5.5% of total retail sales in 2019.  

12/01/2021

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Vietnam Steel sector 2021 Outlook: Potential recovery in domestic demand; but steel price can peak out

Domestic demand growth is expected to recover to a normalized level of 8% off of a low base in 2020. The drivers for steel demand include infrastructure investment and FDI inflows, which also helps to boost construction activities, alongside infrastructure and FDI projects. Demand from export the market should remain positive, but stronger competition is expected: According to the World Steel Organization, global demand in 2021 is expected to grow 4.1% after having fallen by 2.4% in 2020 -  fueled by the recovery in developed markets. Emerging market (excluding China) demand is also expected to grow 9.4% in 2021. On the other hand, after growing by an estimated 8% in 2020 - fueled by infrastructure investment - demand in China is expected to be flat in 2021. As a result, we expect that Vietnamese steel exports can achieve single digit growth in the coming year. However, stabilization of global supply can also lead to higher competitive pressures for the export market.

11/01/2021

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Vietnam Seaport & Logistics sector 2021 Outlook: Hopes for recovery of global demand

Positive outlook driven by global recovery. As COVID-19 remains severe, we do not expect it to be fully contained in 2021. However, as social distancing measures are reduced and vaccines become commonplace, we would expect normalization to be gradual and inventory restocking to begin in 2H 2021. We believe that Vietnam exports might benefit from the recovery in global consumption, however, the growth rate may not be strong because other export countries will also resume production. We expect Vietnam trade value and total seaport international volume throughput to grow 10% YoY in 2021, supported by: (i) global recovery; (ii) newly effective FTAs; and (iii) an increase in FDI projects as the production chain diversifies away from China. High demand for containers could return in 2H 2021. It should be noted that container throughput volume of Vietnam seaports was negatively impacted by global container scarcity and this could continue through 1Q 2021.

08/01/2021

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Vietnam Oil & Gas sector 2021 Outlook: A reflationary investment approach

Oil&gas share prices have bounced back to pre-Covid levels, while as of end-2020, the oil prices remain -22% YoY. Earnings projections for the sector in 2021 are still about -17% lower when compared to 2019. A rising tide carries all boats, which is what occurred to the oil&gas sector with the abundance of market liquidity.  Although, the sector’s rising share price recovery can also be modestly attributed to oil price improvement to a degree. We still expect upside for the sector should oil prices advance further from their current levels. If this is the case, an upward re-rating for the sector should occur.

07/01/2021

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Vietnam Dairy sector 2021 Outlook: Accelerated industry consolidation

The dairy sector is less sensitive to Covid-19. Although dairy is considered to be a staple, consumption might follow a “K-shape” pattern. Hence, demand from low-income consumers could still be impacted given the fact that COVID-19 has hurt the low-income group and price sensitive consumers. Companies such as Vinamilk and Vinasoys have witnessed the downtrading phenomena between Jan-Sept 2020. In contrast, the premiumization will continue as middle and high-income groups are less impacted, and will be more open to consuming higher quality dairy products.

06/01/2021

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Vietnam Insurance sector 2021 Outlook: Low interest rate environment – a real challenge

We expect higher top line growth in 2021 for both life and non-life insurers of +22% and +10-12% YoY, respectively.

Valuation has not returned to pre-Covid levels. Currently, BVH is trading at a trailing P/B ratio of 2.46x, lower than its 5 year and 10 year average of 3.06x and 2.76x, respectively. It is also lower than its pre-Covid level of 2.62x. We think this low valuation could be explained by low interest rates. We maintain our Neutral rating on the sector as the crucial growth-engine being interest rate could be low level through 2021.

06/01/2021

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Vietnam Banking sector 2021 Outlook: Economic revival - Key to credit quality

2021 outlook. We expect economic recovery to boost balance sheet expansion and stabilize asset quality in 2021. Accordingly, credit growth for 2021 is projected to be in the range of 13% to 14%. This is higher than the estimated credit growth of 2020 of roughly 11%-12%, and relatively close to the average 2018 and 2019 credit growth rate of over 13%. Under our base case, reported NPLs would be flat as compared to 2020, but the ratio of VAMC bonds to total loans would shrink 39 bps to 0.17% of total loans, as BID, CTG, HDB, LPB and MSB have cleared their VAMC bond exposure during 2020. Combined, the total of NPL and VAMC bonds should contract to 1.98% in 2021 (from the peak of 4.69% in 2015) amongst banks under our coverage. We note that some of the credit problems could still be masked and delayed by government support (Circular 01). 

04/01/2021

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Vietnam Banking Sector: A brighter- than- expected 3Q

We estimate that 2020 credit growth will amount to between 9%-10% YTD and think that the SBV may have one more arrow in its quiver in the form of a credit limit extension in 4Q2020. High-interest rate deposits are gradually expiring, while we see that deposit rates were cut between 20-40 bps in October. NIMs for the sector in the coming quarters should have several supportive variables. Provision expenses, however, may accelerate during 4Q. As the overall outlook for the banking sector is better than previously anticipated due to limited impact from Covid-19 2nd wave, we revised up PBT forecast for our coverage universe by +9.2% and +10.5% for 2020 and 2021, respectively, to VND 110.7 tn (+2.7% YoY) and VND 129.3 tn (+16.8% YoY). We forecast that the SOCBs should see PBT drop -6.2% YoY in 2020, and then rebound +21.8% YoY in 2021. In contrast, we believe that the JSCBs will grow +9.3% YoY (in 2020) and another +13.7% YoY (in 2021). Therefore, we recommend Overweight for the banking sector in 2021. Positive catalysts related to stock dividend would also support the price performance of banking stocks in 4Q 2020.

18/11/2020

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Electricity sector update: Nationwide power consumption was back to normal as of September, possible recovery trend forming

Nationwide power consumption growth appears to be on a solid upward trend that could be part of a recovery trend, having expanded +8.2% YoY in Sept20, having caught up with the Sept19 growth pace of +8.4% YoY.  The price on the competitive market (CGM price) has also advanced by 26% on a QoQ basis, due to the miraculous recovery in electricity demand. The generation volume from hydropower remained high due to the rainy season. According to the Vietnam Meteorological & Hydrological Administration (VMHA), precipitation might still shape up nicely before declining in 1Q ’21. Regional thermal coal prices have already bottomed out, and are also on a recovery path due to partly to normalized economic activities that also exist outside of Vietnam. For 2021, we estimate that the domestic thermal coal price for coal-fired power plants will increase between approx. 2-3% YoY.

21/10/2020

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Vietnam Banking Sector: Quick Update on HSX new listings

Prompted by speculation surrounding the change of listing from both the UPCOM and HNX to the HSX, three banks have outperformed the market YTD. LPB, SHB, and VIB have respectively increased in value by 80%, 197%, and 95% YTD. While we still see a 16.7% further upside potential for LPB given our perceived upside in the shares, we do not feel the same way about VIB given its full FOL and valuation which has prompted us to initiate coverage on the shares with an Underweight rating. In terms of SHB, we issue a Market Perform rating.  

20/10/2020

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