Sector Report

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.

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.

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.

Despite the macroeconomic challenges, we expect that 2025 will provide greater economic opportunities than 2024 especially in terms of public investment activities and the recovery of the real estate market. Further, timely regulatory assistance should allow the banks to support the borrowers and have more flexible provisioning. However, we believe that rivalry amongst banks, particularly JSCBs, will remain severe during 2025. Given the gradual rise in deposit rates after a historic low, we project that NIMs will be under pressure at JSCBs yet rebounding marginally at SOCBs. However, asset quality improvement should be the main theme for the banking sector during 2025. In general, we hold a positive view on the banking sector with an expected PBT growth of 17.5% YoY during 2025 for our bank coverage.

Banks under our coverage are trading at a 2025 P/B of 1.1x vs. average P/B of 1.59x since 2017, largely reflecting the potential credit risk related to the market turbulence. Although we believe that the risk from project mortgage loans is not fully priced in, we expect that the government support will gradually mitigate the negative impact.   

For 2025, we expect pangasius sales volume growth to be resilient despite the challenges of tariffs due to it fitting within consumer preference and pricing. Between Jan-Oct ‘24, pangasius import volume into the US surpassed its closest substitute - Chinese tilapia - for the first time, according the NOAA. We expect this trend to continue through 2025 given the potentially higher tariffs that tilapia is expected to face. Under our base case, Vietnam should face lower tariffs than China. For shrimp, additional tariffs would have a negative impact on sales volume, as Vietnamese shrimp ASP is already between 15-20% higher than India and Ecuador.

For the same reason, we expect ASP to remain stable and competitively priced, just in case additional tariffs are imposed.

Ongoing uncertainty surrounding external conditions makes us believe that consumers will remain price-conscious and prioritize products with good value. A few recent surveys pointed to improving consumer confidence, but only less than half of households anticipate a better financial situation within the next 12 months.

As consumers tighten their budgets, demand for staples should recover slowly. Meanwhile, we observe that e-commerce continues to see robust increases as consumers become familiar with discounts and last-mile delivery. The flush of cheap imports from e-commerce also adds to the competitive pressure.

We prefer companies with strong brands that should benefit from structural value share gains due to ongoing product innovation capturing consumer needs (MCH) and the shift from sub-premium to mainstream products (SAB). Both companies managed to defend (MCH) and gain (SAB) market share in 2023-2024.

In the milk sector, both local and international players compete aggressively for share.

On 30 Nov 2024, the National Assembly approved the Electricity Law (amended Law), which will take effect on 1 Feb 2025 and supersede the 2004 version. Such approval is an important milestone as it should help ensure national energy security, promote further mechanisms for each power source development and support the gradual energy transition from fossil fuels to renewables.

Nevertheless, to enforce the law, we believe that further specific policies/mechanisms are needed. Following this, we believe that the Law should benefit all electricity stocks under our coverage.

In order to protect the domestic fertilizer market and maintain food security and reducing dependency on imported fertilizers, a change in VAT rules (from VAT tax-exempt to 5% VAT taxable) for fertilizer companies has been proposed to the National Assembly in June 2024, followed by a discussion on November meeting. In the course of the discussions in the 8^th National Assembly meeting in November 2024, we see that most legislators expressed their willingness to protect domestic fertilizer market amid intense competition from imported substitutes, i.e. in favor for changing VAT rule (from VAT tax-exempt to 5% VAT taxable) for fertilizer companies. We hence expect that the government will likely change the VAT rule (effective from July 2025), whereby DPM and DCM stands to benefit from such change.

In 2024, earnings of both DPM and DCM rebounded from 2023 low base thanks to the recovery of urea price and profit margin of the trading activities, as well as the reduction in depreciation expenses (for DCM only). In 2025, we expect the recovery in urea price and profit margin of trading activities may still continue, though at a softer pace. Without the change in VAT rule, 2025 earnings growth for DPM and DCM at 21% YoY and 16% YoY. Nevertheless, the change in VAT rule would help DPM and DCM to claim back VND 259 bn and VND 200 bn, hence pushing 2025 earnings growth to 50% YoY and 29% YoY. We hence call for OUTPERFORM rating on DPM and DCM. 

Over the past decade, Vietnam has experienced resilient growth in FDI inflows, driven by the trend of manufacturing relocation. Countries like Singapore, Taiwan, and China have contributed to this growth, attracted by Vietnam’s competitive advantages, including favorable investment policies, low labor costs, strong intellectual property rights, and a stable economic environment.

However, in 2024, FDI inflows into Vietnam have decelerated. Total registered FDI reached $27.26 billion, representing a year-over-year increase of only 1.9% from January through October 2024. In the short term, FDI companies might adopt a wait-and-see approach until there is more clarity on Trump’s tariff policies, including those affecting imports from Vietnam.

The government is addressing bottlenecks to attract more FDI through several initiatives. These include researching and establishing mechanisms to support large enterprises affected by the Global Minimum Tax, proposing a new law with lucrative investment incentives for semiconductor investment, amending certain articles in the current investment law to allow provincial People’s Committees to approve new industrial park investments, and enhancing infrastructure to connect industrial hubs, such as the North-South expressway and the railway linking China and Vietnam. Consequently, we believe that FDI inflow will continue to grow, even with potential new tariffs from the US.

For investing in stocks, we continue to favor select industrial park stocks, each with unique growth drivers, such as BCM, SZC, KBC, and DPR.

For 3Q24, we observe that local garment manufacturers achieved record high quarterly results for both top and bottom lines, beating our in-house expectations on demand recovery. Apart from STK reporting a miss, TNG, MSH and TCM all recorded impressive results. Notably, TNG and MSH both achieved gross margin expansion. We attribute the strong sales to the high season, as expressed by solid volume order recovery in both the US and EU markets. Within our sector coverage, we have an OUTPERFORMrating on the shares of TNG (TP: 31,300/share, +23% upside), largely due to: (i) outstanding revenue CAGR of 14.5% for the 2018-2023 period; (ii) NPAT growth of +47% YoY during 2024 and +16% YoY for 2025; and (iii) an attractive valuation, with 2025 P/E of 8.1x for 2025 compared to the sector historical range of 10-12x. We have an OUTPERFORM rating on the shares of MSH (TP: 56,500/share, +11% upside) as we expect it to post NPAT growth of +17% YoY during 2025, while capacity expansion will continue to fuel growth over the medium-term. We have a MARKET PERFORM rating on the shares of TCM (TP: 51,400/share, +9.8% upside) and STK (TP: 27,500/share, +8.7% upside) due to unattractive valuations and STK still have uncertain sales outlooks.

Pretax profit at banks under coverage increased 13.6% YoY at 3Q24, reflecting the low base effect. Pretax profit for the first three quarters of 2024 has roughly met our expectations, tracking 73.9% of our annual projection. However, NIM missed, prompting us to lower our earnings forecasts for 2024:

The new Land Law, effective from August 1, 2024, introduces significant changes compared to the previous legislation. One of the key updates is the removal of the old land price framework. Instead, the land price table is now updated annually to reflect market values, considering factors such as land use purpose, duration, input information, and other influences. This table is crucial for calculating land use fees (LUFs), rent, land use tax, income from land use rights transfers, management fees, fines, compensation for land-related violations, and starting prices for auctions.

Following the implementation of the new Land Law, several provinces, including Ho Chi Minh City, Hai Duong, Lam Dong, Ha Nam and Ba Ria Vung Tau provinces, have drafted or issued new land price tables. These updates have led to significant increases in land prices, ranging from 20% to 50 times, depending on the location and will take effect from the date of approval as stipulated by the new Land Law.

Although all banks in attendance agreed that deposit rates would rise slightly during 2H24 due to a recovery in credit demand, there has remained a divergence of opinion with respect to the NIM outlook. For state-owned commercial banks, the NIM is expected to remain flat or be slightly higher than 1H24. Meanwhile, the reverse tendency is likely to be observed at the joint stock commercial banks due to the intensely competitive lending rates. On the other hand, we also see a positive outlook for asset quality, as NPL formation rate appears to have decreased. The NPL ratio may peak between 3Q24 and 4Q24. In general, all participating banks appear to be confident in their previous profit guidance set during the AGM season.

Based on Research and Markets, Vietnam’s 2023 data center market is valued at USD 685 mn, and is projected to surpass the average growth of APAC between 2024-2029. We primarily attribute this to the underdeveloped background of the data infrastructure in the country compared to many other APAC nations. For a competitive environment overview, domestic players are dominant in the data center market, whereas the cloud segment is primarily driven by foreign players. FPT, CMC Corp, FPT Telecom (subsidiary of FPT) and VNG are notable domestic companies that have data center exposure in Vietnam. We expect such industry landscape to remain in place - at least in the short and medium term.

For FPT, we recommend an OUTPERFORM rating for the stock, with a 12-month target price of VND 153,100/share – representing a 14% upside. The company currently operates three data centers (3,940 designed racks) in Vietnam, and targets to launch a new one (over 3,000 designed racks) during 2025. Nearly a double increase in capacity implies a promising medium-term double-digit growth potential for the field.