FX - Euro

It seems that markets are ready to re-price the Euro to a higher level against the USD.

This could have an impact on Vietnam’s export and imports to/ from the EU. Companies involved in selling or buying goods and services to Europe should be keen to look at what potential impact this may have for them, if it materializes. The European Union is Vietnam’s third largest trading partner after China. A stronger Euro could also affect the import/ export relationship with the US, the largest trading partner.

Why do we think that the Euro could get stronger?

A Look at Ancillary Revenues of Low Cost Carriers (LCCs)

A small improvement in ancillary revenue/pax could give a huge boost to VJC’s earnings, as what happened in 2017. VJC’s number of international flights will likely increase further. We do not expect a huge jump but a stable and steady improvement over the years.

QNS - On the way to achieve the target of USD1 bn in revenue

QNS is the leading soymilk player in Vietnam with a 84% market share. However, the selling volume has been slowing down for two years, which has forced the company to change its strategy to adapt to the fierce competition from other peers if it wants to remain the leader

BID: Awaiting the removal of bottleneck

BID is in urgent need to raise capital buffers to meet the Basel II criteria. This will depend on the bank's ability to execute a public offering or private placement to strategic/financial investors. It is most likely that BID has selected a Korean bank as its strategic investor. In the meantime, BID is also organizing roadshows to seek potential financial investors. However, the process is long due to the requirement that the issuing price cannot be lower than the market price.

On Sep 14, BID has announced a Resolution for seeking shareholders’ written opinion in Oct 2018. We might expect that the resolution is related to the public offering or private placement to strategic/financial investors. The capital raising, if successful, will remove BID’s current bottleneck as well as improve its credit and profit growth potential. 

At the closing price on Sep 24 at VND34,900, BID’s forward PBR is estimated at 2.4, unattractive compared to the current average of the listed banks (excluding VCB), especially given BID’s moderate growth, high NPL and VAMC bond. We estimate the reasonable price for BID is at 35,000 VND, with an expected VND700 cash dividend for 2018, reflecting a 2.3% total return.

Vietnam’s Internal Risks

A few days ago, the trade tension escalated once again as the US set 10% tariffs on USD 200 billion of goods imported from China. Fundamental changes in the global value chains as well as financial markets’ volatility are stress-tests for emerging and developing countries’ macroeconomic stability. With regard to Vietnam, there exist key internal risks although the resistance to external risks seems to be relatively because of a positive current account and low debt service in term of export of goods and services.

Rice Exports – More Opportunities for Small and Medium Enterprises

Decree No. 107/2018/ND-CP, which regulates the rice export business will take effect from October 2018, replacing Decree 109/2010/ND-CP. The most noticeable change is that export requirements will be loosened.

Views on Raising the Environmental Protection Tax (EPT) on Gasoline Retail Prices

On September 20th, the National Assembly Standing Committee passed a resolution which raises the environmental protection tax on fuels and takes effect from January 01 2019. Accordingly, each liter of gasoline will be subject to an environment protection tax of VND4,000, up from the current VND3,000, and kerosene to VND1,000, up from the current VND300. The tax on heavy fuel oil and lubricants moves to VND2,000 per liter, up from the current VND900. The resolution surprised us a little bit as it was delayed in July due to inflation concerns. From our point of view, inflation and overall budgetary deficit are two important dimensions explaining the government’s decision.

HAH 1H2018 Result Update

1H2018 results were not positive. Net sales increased by 71% yoy but gross profit only by 13% yoy because of lower gross margin. Fierce competiton and surging fuel costs decreased the gross margin from 29% to 19%. Besides, financials gains were lower by 81% and operating costs up by 52%, resulting the in net margin going down to 16% compared to 24% in 1H2017. PAT increased 10%, reaching VND 78bn. After deducting minority interest, PATMI even decreased 2%. These 1H2018 results indicate that the company has completed 44% and 59% of its guidance for revenue and PAT, respectively, for the current year.

Improving margins – a crucial task for Bach Hoa Xanh (MWG)

Bach Hoa Xanh – the grocery chain - is growing steadily. Changes in its store-opening strategy has improved the average revenue per store from VND 600 mn in February to over VND 1 bn in July. Additionally, cost optimization and product restructuring have increased the gross margin significantly from 12% in 2017 to 14% in 1Q and 16% in 2Q 2018. However, there is still a long way to go for Bach Hoa Xanh in order to firstly reach the break- even and furthermore contribute to the revenue/profit of MWG.

GEMADEPT JSC’s Initial Report Release (HSX: GMD)

With the 1^st phase of the Nam Dinh Vu port’s operation, GMD is now the second-biggest port operator in Haiphong with around 1.3 mn TEU per annum in handling capacity. As a near-ocean port, Nam Dinh Vu can improve GMD’s competitive position thanks to saving costs and time for shipping lines. We believe this project will also be a long-term growth driver for GMD with total capacity reaching 1.6 mn TEU p.a when the final phase is completed. Meanwhile, Gemalink will not be included in this valuation exercise due to the fact that we aren’t able to determine the restarting time of this project.

The Impact of Decree 116 on Car Imports in The First Eight Months of 2018

Decree 116 supported local manufacturers, partly resulting in a reduction in car imports.

KSB - Business update

KSB specializes in the mining and processing of building stone. The firm has three quarries:  Tan Dong Hiep, Phuoc Vinh and Tan My. Recently, KSB has been approved to extend the exploitation period at Tan Dong Hiep for one more years and invested in new quarry projects. In addition, the company also operates in the industrial park sector, with a total of 500ha land area in Binh Duong province. According to management, KSB estimates total net profit for 2018 of VND 320 billion (+15% YoY), due to an improvement in results in 2H 2018 as Tan Dong Hiep is back in operation.