Result Update on PetroVietnam Technical Services Corp (HNX: PVS)

We rate ACCUMULATE for PVS with a target price of VND28,000 per share, based on the FCFF and P/E method. Including the VND500 cash dividend, we arrive at a total return of 16%, based to the closing price on May 23^rd, 2019.

Philippines’ rice tariffication law and Opportunities for Vietnam

On April 05th 2019, Philippines (PHL) policymakers have approved the Implementing Rules and Regulations (IRR) of Republic Act 11203. This Act has been signed by PHL president Rodrigo Duterte on February 14th 2019. The Act came into effect on Mar 05th 2019 and lifts the quantitative import restrictions on rice. Instead of limiting how much rice will enter the country, rice imports will be slapped with a tariff.

Overall, we think this legislation will have a positive effect on Vietnamese rice exporters. The import tax rate applied for Vietnamese rice is relatively low, fixed at 35% regardless of volume while production costs in the Philippines are much higher than in Vietnam and Thailand.

PHL has not been able to produce enough rice to feed its own people and has been importing rice for the past 20 years. Last year, before the new regulations, more that half of Philippine rice imports came from Vietnam.

CTI - 2019 AGM Update

The stock is currently trading at P/E of 11.5x and has experienced a downward trend in the last few months. We think it was the delays in launching new BOTs and public pressure over BOT activities, in general, being reflected. The BoD did share some of the current setbacks, especially in 1H 2019. We however expect the situation to better improve in the 2H when the BOTs manage to come into operation. Stone segment is promising in our view, but in a bit long term. At this time, we recommend a follow up for this stock.

The Euro turned 20 - lessons for ASEAN

Fundamental issues in Europe remain. The EUR for one is still a drag on many member states. In fact, a study from the Centre of European Policy (CEP) in Freiburg, Germany said only The Netherlands and Germany gained from the introduction of the euro some 20 years ago.

PXS –1Q2019 Result and 2019 Forecast

Although the 2019 outlook for PXS are not as bright as the other upstream companies such as PVS, PVB, Long Son will start to contribute from next year, ensuring a profit for its core business for at least 2 years. Besides, we still believe that the company will eventually benefit from the big projects like Block B and other projects. The current price equivalent to a P / B of around 0.5x looks attractive.

Construction Industry- Different Approaches to Growth

While 2019 might not be a prosperous year for the construction industry, leading companies have different approaches towards growth which are interesting to highlight. Indeed, Q1 business results show that many civil construction contractors will need higher growth in the remaining quarters to achieve their 2019 targets. Looking at CTD, Ricons, HBC and HTN’s performance, we noticed interesting differences in views and strategies regarding the construction business in 2019.

China’s capital outflow is likely to continue

• We notice a negative relationship between the USD/CNY onshore and China’s capital outflows
• China’s capital outflows recorded the highest number ever in 2015, USD 896 bn
• China introduced a series of regulations to control flows. This helped to reduce capital outflows by 46% YoY in 2017. Still, more than 2.8 trillion dollars left the country since 2014
• As the conflict continues; further currency pressures are expected possibly leading to further outflows. Capital outflows from China reached USD 4 bn YTD through ETF channel.
• Capital controls negatively impacted China’s outward FDI. Prior to these measures, outward FDI had an average annual growth rate of 20% from 2009 to 2016 until it dropped 29% YoY in 2017.
• Vietnam is favored by Chinese investors due to its low labor costs, geography, and culture. China outward FDI to Vietnam has risen for five consecutive years since 2014 despite the capital controls and noticeable slump in 2014-2015 over naval tensions in the East Sea.

HDB – 1Q2019 Business Results and 2019 AGM Updates

We maintain our view that HDB has some advantages in retail lending including a diversified customer ecosystem and close relationship with strategic partners. However, the bank will need to exploit this ecosystem more effectively if it wants to keep up high growth and expand NIMs.

HDB set an ambitious PBT growth target of 27% YoY based on aggressive credit expansion (+24% YoY) for which it has no SBV approval. While the merger with PGBank is still pending, service income and CASA must seek other growth drivers in the near term. Given the bank’s plan to open 23 more branches/TOs, maintain the largest consumer finance network, launch new digital banking products, and clear all VAMC bonds, we expect pressure on operating costs and provision expenses to persist. In short, we believe the 27% PBT growth target will be challenging.

HDB is currently trading at VND27,000 (closing price on May 17^th), equivalent to a trailing P/B of 1.7x, a bit higher than industry average (1.5x, excluding VCB). We consider reducing our current target price (VND 34,000). Detailed 2019 forecasts and target price will be included in our upcoming report.

REE – Well poised for large M&A disbursements

In summary, although the recent updates revealed a grey 2019 outlook, strong M&A disbursement implies that REE could regain its growth momentum from 2020 onward. Moreover, current weak supply in Ho Chi Minh City office market plays to their advantage. We expect REE’s 2019 earnings to remain flat but maintain our BUY recommendation with a target price of 48,400 VND/share.

Asian Central Banks’ Shift to More Dovish Policy Stance

Last week, three central banks, including Malaysia, Philippines and New Zealand decided to cut their policy interest rates by 25bps. We see more EM central banks turn dovish as their respective economies slow. Broadly speaking, we identify three groups, including 1) Countries that cut rates due to slower economic growth and inflation including China, New Zealand, Malaysia, and Philippines, 2) Countries that relax monetary conditions after hiking rates last year over inflation and currency pressures such as Indonesia and India, and 3) Countries that leave interest rates unchanged and seem to have had inflation under control such as Vietnam and Thailand.

Vincom Retail – Pivotal year for the development of Vincom Megamalls

Vincom Retail targets to open 13 new malls in 2019, adding 153,000 sqm of GFA, of which Vincom Center Tran Duy Hung launching in late-April is the key project. In addition, three new Vincom Megamalls as components of Vinhomes’ mega residential complexes are under construction, and expected to be put into operation in 2020-2021.

We estimate revenue and net profit in 2Q 2019 will be VND 2,136 billion and VND 685 billion respectively. Vincom Center Tran Duy Hung will contribute to total leasing revenue. FY2019 revenue and net profit are estimated at VND 9,276 billion (+1.7% YoY) and 2,927 billion (+21.7% YoY) respectively

BMI –AGM Update and 1Q2019 Results

We remain cautious to BMI's ability to complete its 2019 plan as the insurance business will take time to prove its effectiveness and the high proportion of stock investment in its current portfolio poses risks. At the April AGM, the 2019 plan was approved and the foreign ownership limit was raised to 100%, paving the way for divestment of two major shareholders namely SCIC and AXA. The foreign ownership removal could prove to be a catalyst for BMI stock price this year. However, the process of finding investors for the transfer of SCIC and AXA stakes will take time and is unlikely to be completed this year.