STK – AGM note: 2023 guidance maintained, 1Q23 took a hit but story unchanged

We attended STK’s 2023 annual general meeting (AGM) in HCMC on Mar 30th. Our key takeaways are as follows.

• STK has pre-released its 1Q23 results with revenue of VND 270 bn/ USD 11.5 mn (-37% QoQ, -58% YoY) and NPAT of VND around 3 bn/ USD 0.13 mn (~ -93% QoQ, ~ -96% YoY). The preliminary 1Q23 results were weaker-than-expected but not surprised us when brand’s orders declined on destocking cycle.
• For FY2023, management keeps a conservative single-digit revenue (+1.6% YoY) and NPAT (+4.5% YoY) growth target as 1H23 sales momentum might stay mute due to brand’s inventory adjustment admits a poor demand outlook. Nevertheless, the outlook for orders might turn more positive in 2H23 (knitted orders for the fall/winter collection need a larger yarn volume than woven orders for spring/summer collection).
• Shareholders approved STK's proposal to not pay cash dividends for the FY 2022, instead a 15% stock dividend as the Unitex project is still in its investment phase. The time of issuance will be when approved by the State Securities Commission.
• Mid & long-term growth is driven by Unitex project. The Unitex project aims to increase STK’s total capacity to 60,000 tons/annum (phase 1: 36,000 tons; phase 2: 24,000 tons). Phase I of the project (with a capacity of 36,000 tons per year) is expected to begin official production starting in 1Q24.

We maintain our forecasts and a BUY rating with the one-year target price of VND 32,500/share. It implies a return of 22%, based on the closing price of Mar 31th, 2023.

MBB – Growth momentum is going to slow down amidst economic uncertainties

• 4Q22 results witnessed a top-line growth of 16% YoY as the core income source sustained its momentum to reach VND 9.6 tn (or USD 0.4 bn), up by 34% YoY and accounted for 79% of total operating income. NFI declined 9% YoY to VND 1.2 tn (or USD 50mn). Despite the decline of 28% YoY in non-interest income growth, MBB recorded total operating income of VND 11.8 tn (or USD 490mn, 16% YoY) in 4Q22, favorably contributing to the bottom-line growth. On top of that, credit cost was the most notable factor dragging down PBT as provision expenses surged by 78% YoY. Altogether, PBT was down by 2% YoY in 4Q22, landing at VND 4.5 tn (or USD 189mn).
• The forecast of NPAT for 2023-2024 are VND 19,904(or USD 829mn, +14%) and VND 24,967 bn (or USD 1 bn, +25%), respectively.  The book value will be 20,600 and 25,000, respectively. We see valuation pressure coming from the weak market sentiment and probability of non-performing loan formation yet the stock has come to attractive valuation.
• In the long run, as the bank’s core advantages on the interest income front regarding high yields and low costs of funds remain, coupled with potential from fee income sources including bancassurance and consumer finance segment, we expect MBB to return to its growth trajectory by riding on affordable funding costs when market conditions become more favorable in 2024. Our current target price is VND 22,000/share, offering an upside of 20% from the closing price of March 30th, 2023, hence we recommend to BUY this stock.

MSN – Valuation becomes attractive

• In Q4 2022, Masan Group (HSX: MSN) posted net sales and NPAT-MI of VND20,643 bn (+5.7% QoQ; -13.4% YoY) and VND447 bn (-17.7% QoQ; -93.1% YoY), respectively. Amid a challenging macro envinronment, the positive quartely growth, which was driven by MCH, MML and MHT, is an outstanding performance compared to other consumer giants.
• To sum up, 2022 net sales and NPAT-MI of MSN were VND76,189 bn (-14% YoY) and VND3,567 bn (-58.3% YoY), respectively. Notably, we found some warning signals from the downward trend of MHT ‘s gross margin between Q4 2021 and Q4 2022. We believe that the advantage of rising Vonfram prices is disappearing because China re-opened, resulting in lower MHT’s expected gross margin.
• We expect that 2023 revenue will maintain a modest positive growth, supported by the growth of consumer-based businesses. However, the bottom-line is predicted to drop by double-digit rate due to heavy interest expenses. Consequently, 2023 sales and NPAT-MI is predicted to be VND81,902 bn (+7.4% YoY) and 2,451 bn (-31.3% YoY), respectively. 2023 EPS is calculated at VND2,088 (-16.8% YoY). 
• Because our forecast does not change, based on SoTP valuation, we maintain a target price of VND101,400 per share, compared to our previous target price in Jan-2023. We recommend to BUY MSN shares for long-term investment with the 12-months total expected return of +28.7% compared to the closing price of VND78,800 on Mar 29th 2023.

The recovery trend of Chinese tourists to Vietnam is inevitable in 2023

• China’s Ministry of Culture and Tourism released a second list of 40 new countries, including Vietnam, for group and package travel on March 10th, bringing the total destinations where Chinese travel agencies can sell group tours to 60.
• For those countries that are eligible for China’s group tour from Feb 6th, namely Thailand, Singapore and Philippines, inbound arrivals from Chinese tourists witnessed a markedly accelerated pace in February compared to previous month.
• We believe that the recovery trend of Chinese tourists to Vietnam is inevitable in 2023. Our baseline scenario estimates Chinese tourist arrivals could reach 20% of 2019 levels in 2023, slightly lower than recovery pace of South Korea tourist arrivals in 2022 since the difference in visa waiver policy, resulting in 1 million Chinese travelers.

Update on monetary market in March 2023

• Liquidity is still abundant, the SBV stops withdrawing money for 91-day term.
• Lower interest rates will help improve credit growth.
• Impact of Fed rate hike in March meeting

Pharmaceutical industry - Ministry of Health issues policies to guide the ETC channel development

• The Ministry of Health issues legal documents to help alleviate drug shortages and facilitate long-term growth in the ETC channel.
• The market share of OTC channels may shrink as the ETC channel has been recovering from the end of 2022. In the first two months of the year, retail pharmacy chains such as Pharmacy or An Khang closed some stores which were operated ineffectively.
• Pharmaceutical companies with long-term orientation on ETC channels such as DBD with cancer treatment and IMP with antibiotic segments will benefit from the supportive policies of the Ministry of Health.

Positive earnings growth expected for select consumer sector companies in Q1/2023

• In the current economic climate in which many businesses are experiencing negative growth, it has come to our attention that a few companies within the consumer sector on our coverage list, including QNS, FMC, and PNJ, are expected to record positive growth in profits in Q1/2023, defying the prevailing trend. Moreover, we anticipate that these businesses will maintain this growth trajectory throughout the entirety of 2023.
• We expect the commendable financial performance of these companies to serve as a ray of hope amidst the current challenging stock market, thereby mitigating the potential negative impact on their stock values. Consequently, we advise investors to maintain their holdings if they already possess these stocks, or alternatively, consider exploring short-term investment opportunities at discounted price levels. Additionally, these particular stocks boast solid long-term fundamentals, making them enticing investments for investors with a long-term outlook, especially when factoring in their discounted prices.
• This report contains the latest Q1/2023 business forecasts for the aforementioned companies.

PVT – To expect a significant earnings growth in 1Q2023 but will be a challenge for FY2023

• PVT recorded positive 4Q2022 results with revenue of VND 2,439 bn (up 17.2%) and NPATMI of VND 207 bn (up 5.1%). For FY2022, PVT also posted good performance thanks to a 30.7% in revenue growth from the core business (transportation segment) and VND 292 bn from liquidating Athena vessel (VND 205 bn), Song Hau Eagle. NPAT increased by 30.4% to VND 861 bn in 2022.
• The company keeps expanding its fleet in 2023 and benefits from the increasing freight rates of crude oil tankers as well as oil product tankers from mid-2022 till now. In 2023, PVT plans to invest in 18 vessels with a total value of USD250 mn. However, we believe that PVT is likely to purchase 5-7 vessels for 2023. In addition, the economic crisis may change the current freight rate trend, affecting negatively to the 2023 performance.
• Despite the fleet expansion and freight rate hike, we believe that 2023 profit will be difficult to grow due to the high base in 2022. However, core business is expected to grow and the P/E 2023 is still quite cheap ~ 8.8x, according to our forecast. In 1Q2023, we believe that a growth 30%-40% in earnings, compared to the same period last year, is possible. Therefore, we reiterate a BUY for PVT with a target price of 23,700 VND/share. For FY2023, revenue and NPATMI are forecasted VND 9,215 bn and VND 792 bn, respectively as we assume that BSR will implement the turn around in 2023. Then EPS 2023 is 2,300 VND.

KBC – Expect the industrial park segment to see a breakthrough thanks to large deal-size contracts

• Excluding the revenue deduction (448 billion VND), total revenue of KBC's core businesses in 4Q2022 reached VND 115 billion, down 90% YoY. NPAT attributable to shareholders lost VND 482 billion compared to VND 211 billion of 4Q2021. In 2022, KBC recorded total revenue of VND 958 billion (-77% YoY), and NPAT-MI of VND 1,552 billion (+98%). Profit was mainly driven by additional profit (VND 2.2 trillion) from the re-evaluation of the investment in Saigon-Da Nang Investment JSC after raising its ownership to 48%.
• Based on the total leased area (official contractsl + MOUs) YTD, we see that KBC's business results in 2023 will be a breakthrough compared to 2022 (after excluding benefits from revaluation of assets. produce). In this positive scenario, revenue and EAT-CTM are estimated at VND 6,383 billion and VND 2,570 billion, respectively (EPS is VND 3,348/share, respectively). In addition, cash flow from operating activities is also a solid fulcrum for the financial plan when KBC faces pressure to pay bonds due in 2023.
• The time for approving the general planning of Hai Phong City is expected to be in September 2023. The approved planning will be the key to unlocking the bottleneck of KBC's real estate projects in Hai Phong including Trang Due IP, Trang Due Urban project, and Trang Cat Urban project. Besides, although the available GFA is limited, however, the projects including Tan Tap IP, Loc Giang IP, Phuoc Vinh Dong industrial clusters in Long An, and industrial clusters in Hung Yen are being accelerated the site clearance and constructed with aim to put into operation in the period 2024 - 2025, this will ensure KBC land bank to conduct business in the long term.
• Based on the sum of the parts methodology (SOTP), we keep our target price unchanged at VND 25,000/share compared to the previous valuation. Combined with the expected dividend payment of VND2,000/share as it was approved by the General Meeting of Shareholders at the EGM in 2022, the total expected return in the next twelve months will be +19, 8% (based on closing price of 20/03/2023).

2M2023 steel production and consumption: Slow recovery

• Consumption of crude steel exceeded production, inventory decreased.
• Downstream steel demand has not improved significantly as manufacturers rely on support from macroeconomic policies.

ANV – Harness the opportunities arising from China's reopening

• Amidst the bleak prospects of the export industry, ANV, a representative stock for the investment theme of China's reopening, is exhibiting better performance than the industry average due to the resurgence of orders in the Chinese market - which was once the main market of the company, but suffered a sharp decline during the three years of the COVID pandemic. In the first 2 months of 2023, ANV's export volume remained stable at the same level as the same period last year, while the selling price decreased by 10% YoY and 30% from the peak of Q2-FY22.
• Notwithstanding the benefits of falling transportation costs and stable export volume, which offset rising financial costs and plummeting selling prices. This circumstance poses a challenge to surpass the company's record-level 2022 profit.
• While a more thorough assessment is necessary to update ANV's forecast and valuation, we hold the view that ANV is better suited for short-term trading at a discounted stock price, rather than long-term holding given the uncertainties surrounding the outlook of the export industry and ANV's business results. ANV is currently trading at a P/E of 5.8x, compared to 6.2x in the period of 2018-2019 – a period of the pangasius industry's bull cycle similar to the current situation.

VNM – High input costs remain an obstacle for profit margin improvement

• In Q4 2022, VNM had net revenue of VND15,069 bn (or USD647 mn; -6.3% YoY; -4.7% QoQ), of which, both of domestic and overseas channel went down. Due to strongly rising input costs, the net profit margin dropped to the lowest level (12.4%) since the last decade, equivalent to VND1,869 bn (or USD79 mn; -18.7% QoQ; -15.5% YoY). 
• 2022 net sales of VNM was VND59,957 bn (or USD2,540 mn; -1.6% YoY) and NPAT of VND8,516 bn (or USD360 mn; -19.2% YoY), completing 94% and 88% revenue and profit targets respectively under rising inflation environment. 2022 results were below our expectations, thus we lowered 2023 expected sales and net profit to VND62,532 Bn (or USD2,661 mn, +4.3% YoY) and VND9,263 Bn (or USD394 mn, +8.8% YoY), respectively. The equivalent EPS comes at VND3,989 (+9.8% YoY). 
• Our new target price for VNM is VND83,400, which is lower by 11% compared to the latest target price (VND93,800) on Jan-2023. Adding a cash dividend of VND3,850, the 12-months expected return is 13% compared to the closing price on Mar 15th 2023. We recommend to ACCUMULATE Vinamilk as a defensive investment with a stable cash dividend yield (~5%) and positive growth outlook.