Sector Report

1H 2025 recap: Global Weakness, Domestic Resilience

Global steel production declined by 1.3% year-over-year (YoY) to 784 million tons in the first five months of 2025 (5M2025), reflecting subdued economic conditions and weak demand from global construction and industrial sectors

Despite global softness, Vietnam’s domestic steel demand remained robust, growing 11% YoY in 5M2025, supported by a recovering real estate sector and strong public investment.

Input material price trends down while steel price remains stable to provide margin expansion for steel producers

Higher protectionism is the theme observed in both international and domestic markets, leading to a higher importance of the domestic steel market compared to export

2H 2025 outlook

Domestic channel can maintain positive growth thanks to property market and public investment

Steel price may take time to recover due to the slow recovery of China

On July 4th, 2025, official anti-dumping (AD) measures for hot-rolled coil (HRC) were announced, with minimal changes from the preliminary findings. In our view, these developments create a favorable environment for domestic steel producers, enhancing both market share and profitability. The sector’s earnings outlook remains positive, largely driven by the strong performance of Hoa Phat Group (HPG), while we maintain a more cautious outlook for galvanized steel producers such as Hoa Sen Group (HSG) and Nam Kim Steel (NKG) given the higher exposure of galvanized steel segment on export markets.

Recommendation

Top pick: HPG

Urea Fertilizer Producers (DPM, DCM)

Urea prices have been on an upward trend since early 2025, supported by elevated natural gas prices in Europe. Combined with favorable input costs—driven by a sharp decline in oil prices in Q2—this environment is expected to support moderate earnings growth for urea producers such as DPM and DCM in 1H25.

Looking ahead, a major regulatory shift will take effect in July 2025, when fertilizer products will be reclassified from “non-taxable” to “5% VAT taxable.” This change enables producers to claim input VAT refunds, including 10% VAT on natural gas and 5% on phosphate rock, effectively lowering net production costs. Estimated annual VAT savings are approximately VND 500 billion for DPM and VND 350 billion for DCM, equivalent to 75% and 24% of their 2024 pretax profits, respectively.

These developments are expected to significantly enhance profitability from 2H25 onward. Forecasts indicate that DPM could achieve a pretax profit of VND 602 billion (+562% YoY), while DCM may reach VND 862 billion (+91% YoY) in 2H25. This earnings momentum is likely to extend into 2026, supported by the full-year impact of VAT rebates, although growth may normalize as the low base effect fades.

Phosphate-Based Fertilizer and Chemicals (DGC)

For DGC, the VAT rebate will have a limited impact on earnings. Nevertheless, the company is expected to deliver steady growth, with net income projected at VND 1.79 trillion (+17% YoY) in 2H25 and VND 4.4 trillion (+25% YoY) in 2026. Key growth drivers include:

Sustained strength in selling prices

Increased utilization of in-house raw materials

Gradual recovery in sales volumes as raw material shortages ease from Q4 2025 onward

Vietnam’s banking sector demonstrated solid resilience in 1H25, delivering robust credit growth of 8.3% year-to-date (~19% YoY as of June 26), despite facing ongoing margin compression and asset quality challenges. Credit expansion was driven primarily by the real estate and mortgage segments, with state-owned commercial banks (SoCBs) regaining momentum. However, net interest margins (NIMs) declined to their lowest levels since 2016–2017, reflecting heightened competition and rising funding costs. Liquidity remained stable, supported by strong State Treasury deposits, though the widening deposit–credit gap merits close attention.

Earnings growth moderated to 9.5% YoY in 1Q25 but is expected to accelerate to 11–13% YoY in 2Q25 for banks under our coverage.

Looking ahead to 2H25 and into 2026, key domestic growth drivers—including a recovering real estate market, infrastructure lending with the acceleration of public investment—are expected to remain central to sector momentum. Structural capital market reforms, such as the rollout of International Financial Centers (IFCs) and regulatory sandboxes for digital assets, are likely to reshape longer-term business models. Simultaneously, the codification of Resolution 42 marks a significant legal breakthrough in non-performing loan (NPL) resolution, unlocking asset recovery potential and improving capital efficiency.

Importantly, the planned removal of the credit quota mechanism from 2026 is expected to alter competitive dynamics and favor banks with stronger capital buffers, particularly as Vietnam continues aligning with Basel III regulatory standards.

We project pre-tax profit (PBT) growth of 14% YoY in 2025 and 16% YoY in 2026, supported by approximately 17% credit growth, gradual NIM stabilization (at around 3.28%), and easing credit costs (declining from 1.04% to 0.95%).

Our investment preference continues to favor banks with structurally low funding costs, which are better positioned to defend margins and gain market share in a competitive environment. Additionally, as legal bottlenecks ease and the primary real estate market stabilizes, banks with significant exposure to the sector are likely to benefit from renewed credit expansion—driven by new project launches—and greater fee income diversification via related subsidiaries.

Finally, we highlight turnaround candidates with credible restructuring efforts, where earnings surprises could be supported by reduced provisioning needs and improved debt recovery.

Accordingly, our top picks for 2H25 and 2026 are CTG, MBB, TCB, STB, and VPB.

1H2025 recap: Condominium market in Hanoi and HCMC Slows Down – Neighboring Areas Heat Up

According to CBRE, the condominium supply in Hanoi recorded 3,920 units (-67%QoO, + 68%YoY); the total unit sold reached 3,950 units (-63%QoQ, +72%YoY). The strong upward trend in condominium prices since late 2023 seems to slow down with the average primary selling price of USD2,920/sqm (+2%QoQ, +28%YoY). In HCMC, the condominium supply remains limited, with only 350 units launched for sale (-90%QoQ, 30%YoY), maintaining the lowest quarterly launch volume since 2008. The demand surpassed supply with 502 units sold (-85%QoQ, -17%YoY). The average primary selling prices were about USD3,000/sqm (+1%QoQ and 24%YoY).

In contrast, neighboring area markets including Bac Giang, Hai Duong, Hai Phong, Ha Nam, Binh Duong, Ba Ria–Vung Tau (pre provincial merger) sees increased activity following news of a proposed merger. The landed property prices have recorded increases ranging from 5% to 30%.

2H2025 outlook: Improving Supply and Demand Support Housing Market Recovery

We expect the supply to improve further thanks to the legal reform, driven by the resolution of previously stalled and the newly approved projects, including for social housing. Recent policies that may ease the housing shortage include Resolution 171, which addresses land use conversion issues for developers and Resolution 201, which introduces pilot mechanisms to accelerate social housing development.

Additionally, the supply in other tier-1 and tier-2 markets such as Hai Phong, Hung Yen, Dong Nai, Long An, and merged areas with HCMC including Binh Duong, Ba Ria–Vung Tau is expected to continue rising from numerous upcoming project launches by major developers, supported by simplified legal procedures and accelerated infrastructure investment following provincial mergers.

The housing demand is expected to improve, supported by (1) relatively low interest rates of around 5.5-7.9% for the first 1-3 years and (2) infrastructure development, which enhances connectivity between Hanoi, HCMC and nearby provinces. Price increase may slow down in the near-term due to higher supply in 2025-2027F.​ 

In the long term, we believe the real estate market still has growth potential as housing demand remains high, supported by (i) favorable demographics, (ii) a low current urbanization rate with expectations to reach 50% by 2030 with 1,000–1,200 urban areas, and (iii) a growing middle class. With higher supply expected in the coming years, we anticipate the absorption rate will return to around 85%, similar to levels seen in 2018–2019, rather than demand continuing to exceed supply as in 2024.

Investment Summary

Global oil prices remain under pressure due to decelerating demand growth and rising supply. We maintain our Brent crude oil price assumption at USD 65/bbl for 2025, representing a 7% decline from the 2024 average. This forecast aligns with projections from major energy institutions such as the EIA and OPEC. While this environment presents headwinds for downstream players, it simultaneously supports increased activity in the upstream segment.

Geopolitical tensions, such as the Iran-Israel conflict, may introduce short-term volatility but are unlikely to materially influence oil prices over the medium to long term.

Upstream (E&P) Outlook

Exploration and production (E&P) activity remained robust in 1H25 and is expected to continue its momentum into 2H25, driven by natural reserve depletion and the strategic imperative of national energy security. PetroVietnam (PVN) reported capital expenditure of VND 14.66 trillion in the first five months of 2025, marking a 44% YoY increase.

Key ongoing projects include: (1) Block B – Ô Môn, (2) Su Tu Trang 2B, (3) Nam Du – U Minh

These developments are generating substantial workloads for upstream service providers such as PVS and PVD. Additionally, the expansion of BSR’s refining capacity is a notable development to monitor.

According to industrial park developers, the pace of Memorandum of Understanding (MOUs) may slow down in 2H25 and is expected to remain subdued through 2026, as prospective tenants grow more cautious amid global macroeconomic uncertainties. Our discussions with several listed industrial park developers throughout 2025, MOUs and newly signed lease agreements area at several developers declined by 27% YoY. This contraction is likely to weigh on revenue and profit recognition in 2026.

Industrial Land Lease Prices: Flat Outlook Through 2026. According to CBRE, average rental rates in industrial parks in northern Vietnam are projected to reach USD 145/m²/remaining lease term in 2025, with occupancy expected at 82%. In southern Vietnam, rental rates are forecast at USD 178/m²/remaining term, with occupancy levels reaching 89%.

Industrial park supply is expected to remain ample through 2025–2026. In the first half of 2025, 26 new industrial parks commenced operations, adding 7,867 hectares of new supply—an increase of 38% year-over-year and representing a 6.8% rise in the total area of operating industrial parks, according to the Ministry of Finance.

Positive Momentum in Rubber Land Conversion to Industrial Parks. The conversion of rubber plantation land into Industrial park developments continue to deliver favorable outcomes. Between 2024 and the first half of 2025, five new industrial parks have received investment approval for development on former rubber plantation sites.

1H25 Recap: Stable Supply Amid Modest Demand Growth

In the first half of 2025, Vietnam’s electricity demand grew by only 3% YoY, according to the Ministry of Industry and Trade (MoIT), reinforcing stable supply conditions. Favorable hydrological conditions allowed hydropower to outperform thermal sources. During the first five months, the average full market price (FMP) declined 18% YoY to VND 1,276/kWh.

The revised Power Development Plan VIII (PDP VIII) was officially approved, with an increased focus on renewable and new energy capacity. In May 2025, EVN raised the average retail electricity price by 4.8% to VND 2,204/kWh. We expect further upward adjustments in there future will support the financial viability of PDP VIII implementation.

2H25 Outlook: Demand Rebound and LNG-Fired Power in Focus

Electricity output is projected to grow by 10–11% YoY in the second half of 2025, as current cooler weather patterns are expected to be temporary. Neutral or La Niña conditions may persist, supporting hydropower generation. However, thermal and oil-fired power may still be required if renewable supply falls short.

We forecast the FMP to decline by 20–30% YoY in 2H25, reaching VND 1,000–1,100/kWh, implying a full-year average of approximately VND 1,150/kWh (15–20% YoY decrease).

A key highlight for 2H25 is the anticipated commissioning of the Nhon Trach 3 & 4 LNG-fired power plants, marking Vietnam’s first foray into LNG-based electricity generation. Nhon Trach 3 has been under test run since February, and Nhon Trach 4 successfully completed its first firing in June.

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.