VDSC’s Weekly Market Recap: Netland, DRC, IT outsourcing trends, CHP, HAH

Though we were expecting a good week for Vietnamese equities, after last Friday’s bounce back, things turned ugly on the back of negative news from US stock markets and headwinds in Asia. The VNIndex closed the week at 958.36 pts, down 1.2% WoW. Similarly, the HNXIndex dropped 1.5% to 108.1 pts.

Both indices are under pressure from the short-term downtrend of US equities since earlier this month. October’s been tough on markets…the Dow and S&P have pulled back more than 4%, while the Nasdaq is down nearly 7% this month. In Vietnam, the VNIndex has lost 5.4% while the HNXIndex has shed 6.4% this month.

The market has dropped below our target range of 960-1040, increasing the risk the VNIndex retests its 900 level given the situation in global markets.

An interesting thing happening this week is the VNIndex went down while the market welcomed 3rd Quarter & 9-month financial disclosures. Positive financial news from some bellwether stocks did little to cheer up investors.

The O&G sector, has been particularly hit hard because of global oil prices losing 10% since 3rd October. GAS, the biggest loser in the sector, suffered 6.6% decline this week. Other large caps in the sector had relatively slighter loses; POW (-4%) and OIL (-1.8%), PVT (-1.1%), PVS (-0.5%), while PVD bucked the trend and gained 2.5% this week.

The downtrend of the VNIndex is happening while liquidity seems to be drying up. The average trading value of the HOSE is just around VND3,670 billion (USD159.6mn), down ~31% WoW. However, foreigners turned net buyers for the week, injecting VND313bn (USD13.6mn) of the Vietnamese equities trading emerged as a good point for local investors, with their estimated net buying value of for 5 days this week.

Finally, according to recent news, the European Commission agreed to submit the EVFTA to the European Council to seek its approval for the signing of the deal slated for late 2018. I think this is a very positive news for the stock market and it should help support Vietnamese equities in the near future.

Rong Viet Securities Equity Research Summary

Analyst Pinboard

The revolution of Netland

· The structure of Netland’s shareholder is very concentrated, with high percentage of members from BOD. In coming time, there are more participation of Japanese investors in the company.
Residential segment
· After succeed in launching Queen Pearl project, Netland is active in acquiring other land bank.
· According to management’ plan, major profit in residential segment in 2019 will come from under-developed projects.
Brokerage services
· Danh Khoi (DKR) is one of top broker companies in the South. In term of brokerage market share, DKR accounts for approximately 4.5% in 2017.
· In general, DKR mostly distributes Netland’s real estate projects.
Analyst’s view
· The strategy to co-operate with the Japanese partners can be considered as a “certificate” as well as financial resources to help Netland quickly leverage its scale rapidly in this period.
· However, it will take time for the company to prove its ability to transform that into real ‘money’.

Danang Rubber JSC (HoSE: DRC) – Update on 3Q18

· Revenue in 3Q18 continued to improve slightly , meanwhile, sales volume of bias tires slumped. We anticipate that earnings in 3Q18 would witness a noticeable fall compared to 2Q18.
· Revenue is estimated to grow slightly due to improvement in radial tire sales volume, estimated revenue at VND935bn (+6.5% YoY).
· PBT is estimated to improve from a low base in 3Q17, rising by about 26.3% YoY to VND40bn from a low base in 3Q17 last year. However, compared to 2Q18, PBT in 3Q18 is down 41.4% QoQ.
2018 outlook
· DRC is now working with an advisor to value this land lot, and will hold an auction to transfer the LUR. We then expect that the company will be able to book some one-off gain within this year.
· Revenue and NPAT are estimated to reach VND3.647tn (-0.6% YoY) and VND165.6bn (2.4% YoY), respectively. We forecast that 2018 revenue of radial and bias tire products will come in at VND1.38tn (+9% YoY) and VND1.426tn (-9%), respectively. DRC targets price at VND 24,300/share.

Is Vietnam going to benefit from the global IT outsourcing trend?

· According to Gartner (April 2018), worldwide IT spending is projected to be USD3.7tn in 2018, an increase of 6.2% from 2017.
· The demand for IT outsourcing is expected at USD 90 bn annually and to grow at a CAGR of 4.4% during the period 2018-2022, mostly from developed countries with high labor cost.
· FPT is currently the largest IT outsourcing company in Vietnam. It employs over 10% of the domestic software engineers and is considered to benefit the most from this global trend.
· The main IT outsourcing challenge for the country’s IT firms is adapting to develop a skilled team that can work abroad. It is a challenge in training and communication.
· Success requires establishing smart communication protocols so that despite time and distance, teams are working fluidly and smartly together.
· Despite that the overall IT outsourcing market is very promising, Vietnamese firms still have to work more to enter Western markets.

Central Hydropower JSC (HoSE: CHP) – Unusual Hydrological Conditions Led to Poor Performance in 3Q 2018

· Even though we expect a certain recovery in performance in 4Q18, the outlook for hydrological conditions in early 2019 will remain tough.
· Unfavorable hydrological conditions make sales volume decline amid rising selling prices
· Business performance is expected to improve in 4Q 2018. The revenue and NPAT in 4Q18 would be VND 350 billion (+27% YoY) and VND 214 billion (+47% YoY), respectively.
· Update on progress of the Cu Jut solar power project: CHP is having trouble in financing the Cu Jut project despite its strong financial health. Currently, the company is in negotiation with a Singaporean bank.
· We remain bullish on the prospect of the company in the long-term. We still keep our target price at VND29,000/share.

Hai An Transport & Stevedoring JSC (HoSE: HAH) – Business Update

Port segment
· HAH’s port operations are having a tough time because the firm is losing market share to the downstream ports in Haiphong.
· Given the increasing domestic container volume in the throughput structure of Hai An Port, the profit margin will be even lower if the draft circular approved.
Seaborne container transportation
· Aiming to increase its market share, HAH has just bought a 1,100 TEU vessel which will be received in November.
· This fleet is running 2 services: Domestic service & International service
· Customers of the domestic transportation business are (1) manufacturing companies, (2) freight forwarders and (3) seasonal agri-products traders.
· However, this business is always exposed to fuel prices, which has eroded GPM lately.
Logistics center
· With intension to complete the logistics value chain, in 3Q17, HAH signed a contract to cooperate with Korean logistics firm, Pantos Holdings. The construction plan for the second phase is expected to start in 2Q19.
· Besides, HAH also plans to open another 31ha logistics centre in Cai Mep, Vung Tau.