Sector Report

On 18 January 2024, the National Assembly completed the ratification of the revised Land Law. The ratification ushers in a more market-based & transparent legal environment and maintaining a good balance between being conducive to business while protecting landowners.

A turnaround is approaching for cement sales volume: During 1Q24, we anticipate that domestic cement consumption will be at the lowest level since 3Q21 (COVID lockdown period), due to seasonal factors (the Tet holiday) and weak demand. However, from 2Q24, we expect that cement sales volume will improve YoY with a minor recovery due to a recovery in construction activity. In addition, major public investments could offset weak demand during 2024. We believe that cement sales volume will bottom out during 1Q24 and will gradually recover throughout 2024.

Global IT spending is expected to post higher growth during 2024. According to US technological research and consulting firm Gartner, the sluggishness in IT spending for 2023 implies that IT spending will rebound during 2024. Gartner claims that the spending for cloud and AI were two key drivers for 2023 global IT spending growth, and will continue into 2024, which should support growth for FPT, as these two segments account for over 40% (in total) of the company’s DX revenue. We also believe that the need of automation in automotive industry will continue to be solid during 2024. Over the next ten years, Precedence Research forecasts double-digit CAGRs for automotive software, global cloud services, and AI.

Global economic growth is expected to remain gloomy for 2024, which should hamper consumer spending and make savings replenishment difficult. "Uncertainty" is the most common theme amongst brands and suppliers for 2024. Fashion retailers are confronting different challenges, including high inventory levels, low consumer demand, and intense competition. As a result, fashion brands likely will boost contingency planning, and suppliers may experience even greater repercussions from this diminished demand as it ripples through the supply chain. Additionally, inventory management and cost-control will continue to be the primary focus. This results in shortened lead times and reduced ASP for textiles & garment manufacturers. 

The overall market should recover, albeit at a slow pace. We saw a smaller drop in volume in 4Q23 compared to the beginning of the year as companies throughout the sector engaged in price cutting promotions to reduce inventory. We are conservative in our view for 1H24 due to subdued consumer demand and people may hold out for new products, but overall 2024 should see a rebound in terms of both volume and value (thanks to economic recovery towards the end of year, new car models rolling out, the semiconductor shortage resolved, and car financing rates are more attractive). Our forecast for 2024 new car and motorbike volume YoY growth are 9% and 4%, respectively.  

Discretionary spend for 2023 was pressured by: (1) weak macroeconomic conditions (high borrowing costs, high inflation, sluggish exports) and (2) tiny amounts of credit offered by consumer finance companies. The macroeconomic environment may still be challenged during 2024, but some difficulties should ease relative to 2023 (lower borrowing rates, export recovery, higher credit by consumer finance companies), hence aiding consumption recovery.

Average oil prices may be flat or decline slightly from their 2023 average. Demand growth can slow during 2024 coupled with a production ramp: According to the latest update by EIA in Dec, global oil demand is expected to rise 2.3 mn bbl/d to 101.7 mn bbl/d during 2023, compared to a supply of 101.9 mn bbl/day with a slower increase of 1.8 mn bbl/day. During 2024, global demand growth is expected to slow to 1.1 mn bbl/day. On the other hand, despite the extension of OPEC+ output of 2.2 mn bbl cut through 1Q24, the supply side is expected to increase 1.2 mn bbl/day from the production from Non-OPEC+ countries, especially the United States, Brazil, and Iran. The supply from the US is estimated to increase 1.4 mn bbl/day for 2023, accounting for 2/3 of non-OPEC+ supply expansion, compared to a decline of 400k bbl/day by OPEC+.

We expect a moderate pace of recovery during 2024, with most of the recovery occurring during 2H24, given the continued downward trend of Vietnam fisheries’ exports during 2023. During 11M23, Vietnamese fishery exports reached USD 8.2 bn (-20% YoY), whereby shrimp and pangasius exports reached USD 3.1 bn (-23% YoY) and USD 1.7 bn (-27% YoY), respectively. We note that the rate of decline in fisheries exports has gradually subdued since 2Q23, although neither notable growth nor higher ASP YoY has been recorded. For pangasius, from the previous cycle, it takes between 1.5-2 years for ASP to bottom and about fou years for a full cycle. Therefore, we expect that pangasius ASP may rebound during 2H24 (two years from peak to trough). We expect that sales volume to the EU and China will partially offset the decline in US sales volume for 1H24, and that demand from the US will recover from 2H24 (high season). During December 2023, ASP to the US and China reached USD 2.5 /kg (-16% YoY) and USD 2.1/kg (-8% YoY), respectively, continuing the downtrend seen since Aug 2022.

2023 was a low base year for steel demand: Due to the cyclical nature of steel sector, the consumption of finished steel products in Vietnam declined during 2023 as expected, due to the slowdown in macro and property market conditions. The sales volume of construction steel, galvanized steel, and pipe declined 13.5%, 6%, and 0.9% 11M 2023 YoY,  respectively, to 9.73 mn, 3.81 mn, and 2.22 mn tons. The situation in 2023 is quite like that of 2012, a time when construction steel demand also declined around -7% YoY due to both GDP growth deceleration and the freezing of the property market.

We believe that 2024 will be another challenging year for the banking sector in terms of asset quality. However, we do anticipate an improvement over 2023, largely due to a better position in funding costs and PPOP. Under our base case, GDP growth could recover to between 6.0% – 6.5%, interest rates stay around the current decade-low level for most of the year, and an accommodative approach to bad debt settlement by regulators. 2024PBT growth for banks under coverage is projected at 15.4% YoY, a huge leap over the 4.6% posted for 2023.

Demand for industrial parks is expected to recover during 2024. As observation in lots of the listed industrial park developers having signed Memorandum of Understanding (“MOU”) for industrial land lease with new tenants in 2H2023, we believe these MOUs will be converted and recorded as land lease contracts during 2024. For the industrial parks in the North Vietnam, industrial park land leases is expected to be in high demand in 2024, powered by the production base supertrend from China to Vietnam, mainly in electronics and semiconductor industries. In Southern Vietnam, Industrial parks could witness a technical recovery from a low base during 2023, with the main types of enterprises leasing industrial land being non-tech industries (textiles, wood, leather and shoes), logistics, and food & beverage production.

On 25th Dec 2023, the Vietnam Ministry of Transportation approved and signed Cirlular 39/2023/TT-BGTVT to set a new tariff for seaport container handling and other services for all Vietnamese seaports. The approval is a long-awaited move by all industry players and investors, which most importantly increases the floor tariff for container handling services by roughly 10% for both feeder ports and deepwater ports compared to the previous version (Circular 54/2018/TT-BGTVT), effective from 15/02/2024.

On 30^th October 2023, PetroVietnam Group (PVN) held a signing and implementation ceremony in Hanoi to kick off the Block B – O Mon gas-electricity mega project. While still facing various obstacles, the recent news of the ceremony is welcomed. In the ceremony, PTSC-McDermott joint construction consortium is awarded the EPCI #1 package on limited terms. The total value of EPCI #1 package (including the central processing platform, living quarters, and a few wellhead platforms) is estimated to have a total package value of USD 1.1 bn. With the package awarded in limited terms, the initial value would be relatively small until the final investment decision (FID) by the project’s investors is reached.

We noted improving order visibility MoM since 3Q23; however, the recovery pace is rather slow.

Companies will start posting earnings growth YoY from 4Q23 thanks to the low base effect in 2022.

With destocking expected to materialize significantly and improving consumer sentiment from 2024, we expect a rebound in both top line and bottom line for companies next year.

Our top picks include VHC and MSH.

The presidential-level US diplomatic visit to Vietnam on Sept 10-11, 2023 marked another step forward, as Vietnam and the US upgraded its relationship from that of a comprehensive partnership to a comprehensive strategic partnership. This includes the U.S. into Vietnam’s top-level ties list of countries: Russia, India, China, and South Korea. 

While a number of business cooperation have been announced and discussed such as the Boeing-Vietnam Airlines aircraft purchase deal and the October unveiling of the $1.6 billion semiconductor plant in Bac Ninh province by Arizona-based Amkor Technology, we see a deepening of the friendshoring strategy, especially regarding semiconductor segment and rare earth.  Besides, closer steps towards U.S. recognition of Vietnam as Market Economy are being made, with the biggest benefit being Vietnamese producers can use their own cost data in a case of anti-dumping investigation by the U.S, instead of having to use data from a third country (such as Indonesia, Bangladesh) as a proxy for the firm’s cost structure. 

Sectors and companies to watch include Garment & Textile and Fisheries sector, FPT as well as Industrial Park sector.