In 2018, listed companies in textile and garment sectors experienced a positive business results due to advantages in Free Trade Agreements (VJEPA, CPTPP and EVFTA) and moving orders from China to Vietnam which boosted export turnover growth. The consensus view shows that the industry would continue to benefit in 2019 with 3 main reasons:
Global demand of textile and garment is expected to grow 3.5% in 2019-2020. About 90% of Vietnam’s total products are exported. Therefore, it is important that global demand continue to improve, especially in U.S and EU 28 contributing 47% and 14% of total Vietnam’s textile and garment export in 2017 respectively.
Proportion of Vietnam’s textile & garment exports in 2017 by market (%)
Potential ability to improve market shares globally. Due to China’s policy of shifting economic structure to focus high value-added industries such as consumption and technology production, its huge market share piece in textile and garment industry attracts many other countries. Vietnam get advantages in the race, reasons: (1) lower wage gap of textile worker between Vietnam and other low labour cost countries; (2) FTA helps Vietnam improve its tax gap against some other competitors such as Cambodia, Bangladesh; (3) advantage location which makes owners easier to move their factories from China to Vietnam. According to BSC, if Vietnam able to take 1% of China garment market share which exports to the U.S, Vietnam’s export turnover will increase by 70%.
Minimum wage level for garment workers in 2017 (USD per month)
Advantages from Free Trade Agreements: CPTPP and EVFTA.
· CPTPP: Vietnam would not benefit from in short term, however, in the long term, joining CPTPP would improve Vietnam’s potential to expand the market shares such as Canada, Mexico, New Zealand and Australia.
· EVFTA: Vietnam – Europe Free Trade Agreement (EVFTA) is expected to have a positive impact in the medium – long term. EVFTA has completed its legal review and will undergo the internal approval process of its members, which can be approved as soon as possible in the National Assembly session June 7, 2019 and take effect after 1 month. The EU is the second largest export market of Vietnam textile and apparel industry, with 42.5% of tariff lines applied to textile products will be reduced to 0% as soon as the Agreement comes into effect which help Vietnamese goods become more competitive than Cambodia or Bangladesh.
Overall, we expect good business results from textile and garments companies in 2019. Our analyst’s top picks for this sector are: Song Hong Garment JSC (HoSE: MSH) and Century Synthetic Fiber JSC (HoSE: STK). On January 18, MSH was trading at VND44,800/share and STK was trading at VND17,550/share, 34% upside including VND4,000 cash dividend and 38% upside respectively. Please feel free to contact our textile and garment’s analyst to get further information.
WORLD BANK: EVN, PVN, ALTHOUGH STILL PLAYING AN IMPORTANT ROLE, BUT MOST OF THE NEW INVESTMENT IN THE ELECTRICITY AND GAS INDUSTRY WILL HAVE TO COME FROM THE PRIVATE SECTOR.
The World Bank noted that private capital will be the main factor for Vietnam to develop the energy market. Accordingly, the Government needs to deal with bottlenecks that hinder domestic and foreign capital inflows into this sector.
According to the World Bank’s calculations, from now to 2030, on average, Vietnam’s electricity industry needs new investment of about US $ 10 billion each year, focusing at the beginning of the period, higher than the average of US $ 8 billion / year in the 2011- period. 2015. Meanwhile, the development of the gas industry is expected to require a cumulative investment of about US $ 20 billion in the period from 2015 to 2035.
Although Vietnam Electricity (EVN) and Vietnam Oil and Gas Group (PVN) are assessed to continue to play an important role in the new infrastructure development, the report said that the majority of investment New to the electricity industry and the gas industry will have to come from the private sector. This direction is in line with the strategy and financial goals for future energy development of the Government.
In order to remove the bottlenecks and mobilize maximum funding for investment in the electricity and gas industry in Vietnam, the World Bank proposes a well-coordinated policy around three pillars.
· The first is to develop a PPP / IPP program to develop new power sources, which is a part of the National Power Development Plan 8 to build investor confidence.
· The second is to improve the financial position and credit rating of EVN and PVN so that these two businesses can access commercial finance in the absence of government support.
· The third is to improve the availability of domestic financing – an important source of financing for both project financing and corporate financing.