Sector Report

Sector Report
Vietnam Retail Sector 2024 Outlook: Emerging from the trough

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.


Vietnam Oil&Gas Sector 2024 Outlook: Divergence may continue through 2024

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+.


Vietnam Fisheries sector 2024 outlook: Expect recovery in 2H24

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.


Vietnam Steel Sector 2024 Outlook: Earnings to recover strongly in 2024, but valuation is tricky

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.


Vietnam Banking Sector 2024 Outlook: Extend and Pretend

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.


Vietnam Industrial Parks Sector 2024 Outlook: Surge in MOU Signings Brightens Outlook for Industrial Parks

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.


Quick note on Circular 39/2023/BGTVT on new framework for seaport handling and services tariff

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.


Vietnam Oil & Gas Sector Update: New developments of Block B Mega project

On 30th 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.


Textile & Garment and Fishery Sectors Update: Improving order visibility

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 recent US President trip to Vietnam: Key takeaways and implications

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.


Vietnam Seaport & Shipping Sector Update: Seaport floor tariff – How policy affect market?

Inventory de-stocking seems to be halfway completed. Current level of inventory is still about 7% higher than the multi-year trend line in the data, signalling that inventory destocking progress is only halfway completed. Also, if we look back to the 2007-2008 Global Financial Crisis, it took 13 months for inventory levels to come down from peak to trough level (from Nov 2008 to Dec 2009), which matches the current destocking pace in the US (50% after 7 months). On the good side, we started to see signs of improvement, with July global container volume inching up by 0.2% YoY, which is the first growth month after 17 consecutive monthly declines, according to CTS data.


Quick update on Banking sector & Key takeaways from GS x SSI Vietnam Corporate Day

Recently, the SBV launched Circular 10 on August 23, 2023 to delay most restrictive clauses of Circular 06 that are directly related to the real estate sector. This was aimed to buy more time for new guidance in the foreseeable future. We cannot rule out the possibility that there could be more regulation changes coming, as there have been several proposals from the Vietnam Banking Association and some associations of real estate developers recently. All of the above-mentioned proposals, however, were in the form of further delaying financial obligations coming due. That appears to be the tell, and we still view the cash crunch amongst developers to be complex in nature, unlikely to see resolution anytime soon. The total amount of corporate bonds due in 2H23 and 2024 is roughly estimated at VND 112.3 tn and VND 240 tn, still posing a risk to banks’ asset quality in particular after the restructuring period ends.


Vietnam Consumer Sector Update: Key takeaways from [GS x SSI] Vietnam Corporate Day

Overall, investors are mostly concerned about consumption recovery and key growth drivers for companies over the long-term. On consumption, we see a consistent view from corporates that the most difficult time has been behind, and demand is gradually coming back, however at slow pace. Earnings hence should post QoQ growth from 3Q23. To deal with external headwinds, corporates have applied different strategies such as speed up store expansion to take market share from smaller players in the retail market (MSN, FRT, PNJ); diversifying its product portfolio to better cater demand (DGW, FRT, PNJ); rebranding (VNM) or deleveraging. These moves are expected to not only help companies to go through short-term challenges but also foster future growth. 


Quick comments on Sugar and Fishery sector

The Indian government is considering a ban on sugar exports for the upcoming season, which begins in October 2023. The major motives are to ensure Indian domestic demand and to alleviate fears about low output (El Nino creates a lack of rain). World sugar prices reached a 10-year high in April 2024, owing in part to a reduction in Indian sugar production (-5% YoY) and a drop in sugar exports (-46% YoY). As a result, we expect a beneficial influence on global sugar prices in fiscal year 2023/24.

In addition, The Government Office (Vietnam) has sent an official dispatch to the MOIT and the MARD, assess the proposal to increase the sugar import quota to 600k tons (double compared to last year). QNS, SBT, and VNM are the companies allotted to the quota for 2021 and 2022. The vast bulk of imported sugar is raw sugar, which is used to make RE sugar.

Impact of China banning seafood from Japan (from 24th August 2023): In fact, we do not see pangasius as a direct substitute of seafood imported from Japan. Japanese seafood only accounts for less than 5% of total China seafood imports and scallops make up the largest import by volume. In 2022, fish fillet export value from Japan to China reached only US$11.8mn. Ecuador, India and Russia are the biggest suppliers to China. We noted that seafood imported from Russia to China has been increasing since early 2023 and reached record high in recent months.


Vietnam Textile & Garment Sector Update: Improving order outlook from 4Q23

Textile and garment shares trade at a 2023 and 2024 P/E of 11x and 9x, respectively. Most companies expect 3Q23 sales to be similar to 2Q23 yet expect an improvement QoQ by 4Q23. We expect companies in the sector to record positive net profit growth during 4Q23. We believe that the worst quarterly results have already been priced in, however, and that investors should expect a sector recovery during 2024. Our top picks for the sector include STK and MSH.