Strategy Report

For 2021, we expect that there will be 3 main themes applicable for Vietnam: (1) recovery & reflation; (2) Beneficiaries from low interest rate environment and (3) Infrastructure upgrading.  We put forward our forecast that Vietnam 2021 real GDP growth will revitalize back to around 6.5% YoY, (higher than the government’s target of 6%).  Growth will start to accelerate from 2Q21, and continue in 2022 (back to the 7%++ range). In overall, earnings growth for companies under SSI Research coverage is projected at +26.4% on average after declining -15% in 2020. As of Dec, 31st 2020, Vietnam’s market 2021P/E is 15.5x.Looking at historical P/E for Vietnam market, we choose to refer to the P/E range in the last 3 years as this is the period of time when Vietnam stock market has grown strongly in terms of scale and become much more investible for foreign investors in the context of a strong economic growth cycle. Market P/E median during 2018-2020 is 16.4x and the highest level of market P/E recorded at 21.6x on 22 March 2018. Given the market P/E of 15.5x, our observation is that currently most sectors’ valuations have come back to pre-Covid levels, even after taking into account a strong earnings rebound in 2021. However, we must also acknowledge the fact that 2020-2021 could be like no other years to date, especially given the abundant liquidity situation and an increasing role of first-time retail investors entering the fray. Furthermore, Vietnam market’s valuation is still not demanding in comparison with other regional peers.  In our base case, we use target P/E of 18x for VNIndex in 2021 (equivalent to an upside of 16.1% or 1282 pts).

The key risk to our growth scenario is inflation risk as it could hamper the low interest rate environment.  We expect to see a 1-2% appreciation for VND in 2021. Our Top 5 Call for 2021 include MWG, FPT, HPG, TCB and SZC. Our mid & small cap ideas for 2021 include STK, QNS, PLC, NLG, SZC, IMP, HT1 and IDC.

Much fanfare is being placed upon the most important events unfolding for Vietnam in 2021, namely the National Congress in late January, which is followed by the general election in May. It also marks the first year of the new 5-year cycle of the 2021-2025 period. In the next 5 year plan, the Vietnamese government aims for average growth of 6.5-7%. It’s worth noting again that the GDP calculation method this time around is different (one should remember that the new GDP adjustment resulted in a +27% higher nominal GDP in 2020, as the non-observed economy was added to total GDP), so growth manifested above that high base this should be considered a very positive growth projection indeed. 

We also revise down our base case forecast  for Vietnam GDP growth to 4.75% under certain assumptions (pandemic ends in June; public investment disbursement at 75% of plan; growth  accelerates from 4Q; FDI picks up in 3Q; Tourism picks up in 4Q). In our base case, 2Q 2020 should mark the bottom in terms of earnings for most sectors, except for banks.  Banks might see more NPLs surfacing 1 or 2 quarters later as a side effect of loan-restructuring activities.  As we cannot fully exclude the worst case scenario at the moment, it might still be a risky endeavor to be exposed to sectors that are the most sensitive to a coronavirus resurgence, including airlines, retail, and hospitality. Furthermore, consumption behavior for these sectors also have changed since the pandemic, and we might not see demand to recover to pre-pandemic levels. On the other hand, if the base case scenario happens, then these sectors will be the ones that can recover at the strongest pace. For the other sectors, we pick the companies that can well ride out the crisis, and can rebound quickly when the pandemic comes to an end.  Our Top 5 calls include BVH (benefit from strong appetite for life insurance during and after the pandemic; low downside risk), VEA (motorbike sales expected to be resilient after the pandemic; high dividend yield), VTP (benefit from the rise in e-commerce activities), ACB (best pick in banking sector), and HPG (public investment theme).  

The Vietnam market exhibited a modest performance in 2019, characteristic of contracted market P/E levels.  Despite the fact that NPATMI of stocks under our coverage increased by 14.5%, the VN Index only increased by 7.7%. The market as a whole lacked long-awaited catalysts, such as improvement in market access for foreign investors, and there was also a delay in the privatization process - one of the much anticipated events likely to spark a revival and shake the market out of its doldrums. Although the macroeconomic picture is bright while even outperforming most countries in the world in terms of GDP and other key economic metrics, limited market access for foreign investors results in inflows mainly through the ETFs.

Vietnam’s high growth trajectory might well extend into 2019, thanks to new production capacity and stable FDI. In November, the National Assembly approved the plan for 2019 goals, with GDP growth at 6.6-6.8% YoY, CPI at about 4% on average, and budget deficit at 3.6% GDP. The government target will be at the higher end of the National Assembly plan, as it wants to push ahead growth and reform to mark the completion of the 5 year plan (2016-2020).