Vietnam’s 2020 CPI Outlook: Year of the Pig

2019 is a comfortable year in term of headline inflation whose annual growth is estimated at 2.7 YoY, lower than the last two years of 3.5% YoY. In general, the government succeeded in constraining the upside risk of inflation via significantly controlling state-controlled prices/fees, especially health care costs.

Covered warrants after five months

In short, even though the distribution rate of covered warrants has not improved since the launch, covered warrants remain attractive to some retail investors as they can generate high returns. Additionally, the good news is that issuers buy underlying assets for their covered warrants.However, trading value of covered warrants continues to be small relative to the stock market’s trading value.

TPB - Maintaining a Top High Earnings Growth

With a 49% YoY growth in PBT 9M2019 (which reached over VND 2.4Tn), TPB became the third fastest growing bank amongst our watch list. This earning growth was attributable to a high interest income, service income and other income growth, though partly undermined by credit costs that surged due to VAMC clearance. With a shift in lending focus from auto-loans to more secured loans, we expect the bank’s income growth to slow down, a tradeoff for asset quality improvement and an easing of provisions.

2020 Global Economic Outlook

The latest November Outlook Report from the OECD is a bit more ‘bearish’ on world growth for 2020 than what was projected a few months ago. The OECD has trimmed its forecast for 2020-21 global GDP from 3.5% to around 3.0% (see Table 1). If this is the case it would be the weakest level since the global financial crisis

3Q2019 PVS’s result update and 2020 outlook

PVS announced VND4,648 bn in 3Q2019 revenue, up 25.5% YoY. However, the gross margin fell from 6.6% to 4.8% and profit from JVs dropped, leading to a 42.6% decrease in the 3Q2019 profit before tax to VND139 bn. Net profit was VND84bn, down 55.6% YoY. For the first nine months of the year, net profit reached VND 637 bn, up 12.3% YoY thanks to good results in 1Q2019. NPATMI dropped by only 8.5% to VND649 bn helped by 9M2019 profit of subsidiaries improving over the same period last year.

Circular 15/2019/TT-BYT in drug bidding – Opportunities for domestic high-standard manufacturers

Circular 15 (effective from October 2019) reclassifies drug tiers for ETC generic drugs bidding, replacing Circular 11 (issued in 2016). This is considered beneficial for domestic pharmaceutical companies, especially those with high standard manufacturing facilities. Some changes in the new circular: (1) Tightening technical standards for each drug tier, and (2) Preference for domestically produced drugs.

KBC update – Strong Leasing Activities

KBC posted revenue and NPAT-MI in 9M 2019 of VND 2,486 billion (+50% YoY) and VND 500 billion (+2% YoY), fulfilling 62% of profit guidance for 2019.

• Leasing area rose from 2018’s high-base, suggesting current ample rental demand. .
• The increase in price outpaced our expectations. Management observed a 25% increase of the average rental price in Quang Chau and Tan Phu Trung. 
• Phuc Ninh has not yet being handed over, and possibly postponed. 

NT2 - Weather and Electricity Demand in Favor of Intermediate-term Potential

RongViet Securities is currently recommending buying NT2 with a target price of VND 27,100 per share, equivalent to a 19% upside from the closing price on November 25^th, 2019. As one of the most important thermal power plants in the Southeast region's power generation system, NT2 benefits from the steady growth in electricity demand. In addition, unfavorable weather conditions for hydropower plants have kept NT2's utilization stable at a high level. In the first 9 months of 2019, NT2 achieved revenue and net profit growth of 2% and 4%, completing 77% and 74% of the annual guidance respectively. Output reached nearly 4.2 billion kWh in 10M2019, up 8% over the same period, completing 90% of the year plan. Our NT2 2019 forecast includes revenue and NPAT growth rates of +2% and -4% respectively.

Vietnam Steel Production and Consumption in 10M2019

After several years of growing at a significantly higher pace compared to the construction industry growth, steel consumption growth is slowing down gradually and reverting to the growth rate of the construction industry. Over the first 10 months of 2019, total domestic sales of Vietnam Steel Association’s members grew 7.88%, which could be affected by a lower growth rate of construction activities (8.3% in 9M2019 vs. 9.2% in 2018). In Q4/2019, the domestic selling volume is forecasted to be enhanced due to the more dynamic building activities in favorable weather.

DRC – Growth prospects in 2020

Radial tire will be the main growth of DRC in the future because demand will increase. Currently, the gross profit margin of radial tires is still relatively low compared to expectations so the probability of improving the production efficiency in the near future is high as the company has got experience after producing radial tires for several years. The approval from Vinachem for expanding the existing radial factory is also a motivation to enhance the company's value. The current risk of DRC is that they depend too much on exports which is the main source of radial tires revenue. The fact that if there are new regulations on imports and exports in the US or Brazil, it will significantly impact DRC's business.

ACV – Profit margins kept expanding thanks to a higher proportion of international flights

ACV’s 9M 2019 business results saw an healthy increase of 13% YoY in revenue and 25% YoY in NPAT (table 1). These results completed 71% and 89% of the 2019 guidance on revenue and PBT, respectively. Net sales growth was quite in-line with our 2019F of 13% YoY while NPAT’s growth was faster than our expectation of 16% YoY as margin strongly expanded. As a result, ACV’s 9M 2019 sales and NPAT completed 74% and 87% our 2019F, respectively. Thus, our latest target price of VND78,000 for ACV is currently under review.

Yield Curves Have Steepened, So Has Sentiment

A year ago, an inverted yield curve in the US created fears of a potential upcoming global recession as this particular movement has in the past signaled just that. Trade tensions accentuated the worries of investors. Sentiment was affected as can be seen in the fact that the S&P 500 index dropped from 2810 in the middle of January 2018 to below 2500 by Christmas of that year.