The VNIndex down 1.76% to 898.19 points. Liquidity on HOSE remained relatively unchanged compared to the previous week, with an average VND2,501bn (USD108.7mn) of daily trading. Foreigners participated more in the trading activity, representing 14.4% of total trading. However, the turned net sellers divesting VND799.21bn (USD34.7mn).
Despite the investors’ risk-off stance most of the week, Friday’s rebound could help support a short-term uptrend. We expect to see higher liquidity next week and the VNIndex would reach 930-940.
As the trade disputes with the U.S. continues to impact China’s economic outlook, I wanted to take a look at how it may impact Vietnam’s exports to China. China’s growth report in October shows that Industrial Production held up pretty well, as it grew 5.9% YoY up from 5.8% in September. However, this is mostly due to front loading of exports before the US tariffs on USD200 billion goods rise from 10% to 25%.
China’s October consumption numbers came out earlier last week, and retail sales seem to be slowing. They reached their lowest point in 5 months.
Retail sales reflects consumers’ appetite for spending. Consumers may have started worrying that the trade war will impact on wage growth and job security. However, this might only be temporary as there seems to be progress in US-China negotiations. It might also be partly due to the delayed consumption demand fueled for the Singles’ Day sales festival on November 11, which a reached record numbers this year.
The slowdown in China’s retail sales doesn’t seem to have had an impact on consumers’ appetite for Vietnamese products. In the first 10 months of the year, the export to China increased 26.8% compare to last year, and represent 16.6% of total Vietnam’s export.
Smartphones export to China in the first 10 months soared 83.2% compared to the same period last year. China buys 17.4% of Vietnam’s total smartphones exports and only behind the EU’s USD11.3bn of smartphones import from Vietnam. However, China may very well overtake the EU as the largest importer of Vietnamese smartphones, as smartphone exports to the EU only grew 9.5% this year.
China imports 28.25% of Vietnam’s exports of electronics which includes hardware and components for manufacturing. Electronics export to China in the first 10 months increased 28.1% compared to the same period last year.
Top Stock Idea
Digiworld Corporation (HSX: DGW)
- Market cap: USD41.82mn
- Price : VND24,000
- 52w High : VND29,700
- 52w Low : VND18,450
- Avg 30day Volume : 563,016
- P/E : 9.6x
- P/B : 1.3x
Catalyst:
· The stock is down by 19% from its June 2018 high of VND29,700.
· Strong sales growth in handsets distribution, mostly from sales of Xiaomi phones, resulted in 3Q18 revenue for this segment increasing 200% YoY. Xiaomi targets to grow its market share in Vietnam from 5% to 10% in 2019. In our view, this is doable as Xiaomi offers low-price, mass-market products and the company gives a lot of promotions to grow market share.
· 3Q18 office equipment’s revenue reached VND313bn, up 63% YoY thanks to new contracts with LG and Eaton.
· DGW is focusing on market expansion services (MES) for FMCG and healthcare products which have around 40% GPM. We think this is a good strategy because these segments require a lot of market knowledge, money and time to attract customers, therefore, manufacturer will need companies like DGW to conduct research market, marketing, sales and after sale services. In our view, FMCG and healthcare segments will become increasingly significant for DGW.
Valuation:
· Due to the recent market correction, and considering the company’s growth prospects, we feel the stock is now within BUY territory.
· Consensus EPS for 2019 is about VND4,270, which means the stock is trading at a forward PE of 5.7x vs. its average historic PE of 9.5x.
Risks:
· The contract with Xiaomi is a one-year contract and has to renew every March. However, the probability of Xiaomi not renewing the contract is very low.
Rong Viet Securities Equity Research Summary
Company Report
Ha Do Group (HSX: HDG) – (Initiation, ACCUMULATE, VND38,500, UPSIDE 20%)
· 3Q18 revenue was mainly driven by the handover of two real estate projects: Centrosa Garden in District 10 (VND400bn) and Hado Riverside in District 12 (VND250bn).
· The hydropower segment’s results hit by seasonality.
· The revenue and gross profit were VND187bn and VND93bn, respectively.
· 4Q18 is expected to be peak season for both residential and hydropower businesses, while the office and hotel segments should be stable. In term of revenue booking, HDG will finish the handover of the two-block Orchid in the fourth quarter, bringing revenue and net profit of VND2tn and VND330bn. Further, in 2018, HDG aims to generate 15% more of electricity output compared to 2017.
· The stock is trading at 33.x current EPS of VND2,349. Furthermore, at its current price, it is trading at ~1.3x P/B. Cash dividend is expected at VND500.
VIGLACERA CORPORATION – JSC (HNX: VGC) – (Update, BUY, VND21,000, UPSIDE 36%)
· 9M18 – Real estate stayed positive while building materials could be revamping
· Revenue and NPAT-MI came at VND6.374tn (-6% YoY) and VND461bn (-14% YoY), respectively. The combined gross profit thus decreased 9% YoY
· Residential property contributed 11% of profits. Industrial park recorded about 40 ha leased in 9M as a result of a high FDI level in the northern region.
· The MoC plans to withdraw the entire 54% stake in 2019.
· FY2019 outlook – Industrial park is a key driver, while VGC is expecting building materials to improve in view of restructuring.
· The stock is trading at 15.x current EPS of VND1,585. Furthermore, at its current price, it is trading at ~1.x P/B.
Analyst Pinboard
Review on 3Q18 Business Results of Listed Banks
The diversification of credit growth
· By the end of September, credit growth of the 14 listed banks was 11% YTD, implying that total credit growth of those banks in 3Q18 was approximately two percentage points.
· Due to the fact that its lending mostly depends on leading companies in the manufacturing, consumer, and aviation sectors, TCB’s credit growth sharply increased in 3Q18.
· Listed banks for which we collected data account for more than 50% of the lending market.
High growth in profit-before-tax
· PBT of these banks grew more than 28% YoY in 9M 2018. Excluding VPB, most banks fulfilled more than 75% of their PBT target for the year.
Regarding MBB and VPB, we believe that their provision expenses sharply increased due to their strategy to expand unsecured loans: MCredit to MBB and CommCredit to VPB, in 2018.
· Considering the average PBR, we find that the relative valuation of Vietnamese banks is not cheap compared to other banks in the region.
· The positive point is that when considering the movement of the ratio of market cap to deposit, we found that this rate dropped to a very low level compared to the average of the past 3 years.
FPT Corporation (HoSE: FPT): 9M Result Update – Growth on the back of the technology segment
· In 9M18, FPT posted a revenue of VND16.261tn (+21% YoY) and PBT of VND2.738tn (+33% Yoy). FPT has fulfilled 74% of revenue and 95% of PBT targets.
Technology
· Software exports: IT outsourcing remained the main revenue contributor and will still contribute the most for FPT’s technology revenues.
· On the other hand, the digital transformation segment is stepping up with a growth of 40% in revenue and more high-value customers.
Telecom
· This segment grew its revenues by 19% yoy and PBT by 35% yoy. For the upcoming years, the broadband industry will to grow at high a pace, so will this segment of FPT.
· Regarding the television service, IPTV is not yet near to the breakeven point.
Education
· This business generates VND941bn in revenue and VND296bn in PBT. Generally, FPT’s student increased by 50% to 36,300 at the moment.
Update on the construction and materials industry
· Construction and material is the sixth biggest industry in terms of market cap, worth VND146.21Tn.
3Q2018 Results Update: Lowest 3Q’s NPAT of the 2016-2018 period
· In 9M18, total revenue experienced a slight increase of 6.7% to VND154.272Tn, while net profit after tax (NPAT) was VND8.108tn, a sharp decrease of 24.1% compared to 9M17.
· In 3Q18, the construction and materials sector achieved a NPAT of VND2.869tn, dwindling by 8% QoQ and 17.5% YoY. NPAT went down to a low of VND 2,869bn in 3Q18.
· Among 19 industries, construction and materials is the one that saw NPAT decreased significantly in 9M18 (fell by 24.1% YoY).
Profitability ratios: ROE and ROA all through a tough period
· EPS fell by 8.6% YoY to VND1,535. Meanwhile, ROE finished 3Q2018 at 6.4%. Similarly, ROA dropped by nearly 1% to finish 3Q18 at 2.3%.
· The ROE of the construction and materials sectors recorded the second most substantial decrease of 2.6% following the fall of 5% in ROE of Telecommunications.
Update on Novaland
This year, NVL will only deliver 6,000 units to customers, compared with its plan of 6,700 units.
Project: NVL will only launch one project in late-2018.
NVL’s strategic plans is to expand its scale in the hospitality segment.
Debt increased by 25% during the year, of which short-term debt accounts for 44% of total debt.
In 9M18, revenues and net profits were VND6.7tn (+17% YoY)) and VND1.4tn (+4% YoY).
Residential – launching only one project in late-2018
· In 9M18, there was only one project launched, namely Victoria Village, resulting in total cumulative sales units of more than 25,000.
· Besides completed projects, there are 13 projects in total, which are expected to be launched soon.
Hospitality – New strategic segment
· Novaland continued to share its plans for this segment during the meeting.
· There are more than 3,000 condotel and villa units to be launched in early-2019.
Analyst’s view:
· The surge in debt over the last few years has put pressure on the company’s cash flow, as residential projects are delayed. The recent delay of two residential projects is not a positive signal. Novaland needs more aggressive ‘moves’ to prove its capabilities.
LTG – Results Update 3Q2018
· Revenue increased 12% YoY but profit declined 47% YoY in 3Q2018 due to G&A and interest expenses.
· General and administrative expenses increased significantly 50% YoY to VND75bn.
· Interest expense increased noticeably 60% YoY to VND45.8bn due to seasonal reason and a rising tide of short-term borrowing.
· We maintain our view that LTG depends on short-term debt to finance working capital, mainly for receivables and inventories.
· We remain concerned about the possibility of LTG completing its 2018 target: net revenue of VND9.876tn and PAT of VND589bn.
· We expect 4Q18, which usually has the best business results, helping LTG reach our net revenue forecast of VND9,147bn. We maintain an ACCUMULATE recommendation for LTG.
Minh Phu Seafood Corporation (UPCoM: MPC) – Extraordinary Shareholder Meeting: Getting Ready for a 25% World Market Share
· The extraordinary shareholder meeting of MPC on 10 Nov 2018 approved the following statements:
o Removing some inactive or non-core business lines
o Private placement of 75.72 million shares to increase charter capital from VND1.4tn to VND2.157tn.
o Project on a breaded shrimp factory with capacity of 40,000 tons/year in Hau Giang
o Cold storage project in the US
o Electing a member of the Board of Directors
o Establishing a R&D department for shrimp farming
o Annual ESOP program with maximum of 500,000 shares/year
o Allowing some shareholders who are the Chairman’s family to buy shares from other current shareholders without public bidding
· Ownership of strategic investors after the issuance would be 35.1%.
· We estimate the debt-to-equity ratio will fall from the current level of 67% to 51%.
· From shrimp farming, shrimp processing to exporting, the biggest problem of the company lies in the distribution.
· For the breaded shrimp factory project, the company will bring automation technology to reduce the cost of production compared to the traditional breaded shrimp products.
· MPC said that after deploying sensor technology successfully in its own farms, the technology will transfer to its associated farmers.
Analyst’s view
· Minh Phu’s farming and processing problems have been solved with the application of advanced technologies. Management expects the strategic partnership can help the company solve the final distribution problems. Business is increasingly focused on its shrimp farming and processing. Improving the financial structure will help the company grow both revenues and profits.
Mobile World Investment Corporation (HoSE: MWG ) – Optimizing Bach Hoa Xanh and seeking to compete with low-price electronics products
· In 9M18, MWG posted a revenue of VND 65,478 bn (+37% yoy) and net profit of VND 2.187 bn (+34% yoy).
· The company witnessed a slowdown in 3Q18 considering its revenue and net profit were only upped by 27% and 15% respectively YoY.
· Bach Hoa Xanh: In 3Q and especially September, MWG pushed up the upgrading process closed down a number of inefficient stores. We expect Bach Hoa Xanh to break even in 4Q18. However, the target of 500 stores in 2018 will not likely to be fulfilled.
· Dien May Xanh: The electronic device market (excluding phones) is still organically growing at a 20% pace YoY.
o Store expansion: MWG plans to have more than 900 Dien May Xanh stores from the current total of 737.
o Adjusting business model: MWG is planning to put online a ‘dual-price model’. There will be two different prices for the same product: one comes with full options while the other comes with cheaper price but no services.
· To sum up, we still have a positive view on MWG We keep a BUY recommendation with a target price of VND160,000 per share.