FED's Mindgame

One of the most intriguing questions that is posed today is why the FED rate hike led to the depreciation of USD, while commodity and gold prices rose strongly.. This scenario is rather counter-intuitive because whenever a country raises interest rates, there will be capital flow from one country to another to benefit from interest rate differentials. This leads to a higher USD demand, which boosts the currency. A central bank raising interest rates is an indicator of a growing economy that is approaching the inflation target. If the rate hike is gradua; while inflation hasn’t reached the target rat,e economic growth is still possible. As a result, capital will flow from safe assets to riskier assets. The market has seen money flow from safe assets like longer-term maturity bonds and gold to riskier financial assets like stocks and commodities.

VTO – Cheap Valuation and High Dividend Yield

Vitaco JSC (VTO-HSX) achieved encouraging result in 2016 with vessel related revenue and PAT growing by 3.7% and 50%. Given that the fixed costs of depreciation account for the largest proportion of COGS, the firm saw GPM expand by 3 percentage points; this resulted from the average chartered rate increasing by 5% compared to late 2015. In addition, the firm saved nearly VND30 billion in forex loss expenses from the stable USD/VND rate. Had it not been retrospectively requested to pay the accumulated corporate taxes in preceding years, VTO could have recorded a higher profit; State auditors determined that vessel businesses are not under preferential corporate tax regimes. 

Banking Sector: What Awaits

The banking sector’s future prospects will depend on the SBV’s monetary policies, as this sector is largely controlled since it is considered the “backbone” of the economy.

SRF- Making Use of Market Demand Growth

Revenue VND1,316 billion, +26% YoY.

NPAT VND95.6 billion +46% YoY.

EPS VND3,578

It is noticeable that there is a large extraordinary revenue from the sales of property on land, which added over VND41 billion to pre-tax profits. Since the transaction was non-recurring and it made up a large proportion of 2016 NPAT, it is likely that 2017 NPAT will be lower. NPAT target is lower than 2016 actual figure because it excludes the extraordinary profit. 2016 PBT excluding the profit from sales of property was VND72.6 billion, while 2017 PBT target is VND90 billion, which means SRF aims at 24% growth for operating income.

Vietnam's Stock market: Liquidity Measures

Vietnam's stock market is witnessing abundant capital inflows at this moment. The average daily trading value on both bourses has been around around VND3,700 – VND3,900 billion recently. 

Pharmaceutical Sector 2017: Bargain Hunting Is Difficult

Pharmaceutical companies experienced a strong recovery in 2016, following the poor performance of 2015. The pharmaceutical sector caught investors off guard, as this defensive sector becoming one of the strongest performing industries in Vietnam due to improved business performance, FOL removal, and participation of strategic partners.

Although these supporting factors will still be present during 2017, the high valuation will be a big challenge for investors that want to outperform the market by investing in this sector.  In general, Investors must accept companies at higher valuation, as accessing this sector at lower valuation has become very difficult.

CDN - Future Hope of the Port Sector in Central Vietnam

Da Nang Port JSC's (CDN – HNX) revenue and NPAT increased by 10.8% and 5.4, respectively in 2016. Thanks to its location in Da Nang Bay with little wind exposure and modern infrastructure, CDN’s annual throughput growth has been consistently high in the past few years, and its average container throughput was nearly 20% during the same period. CDN expects its 2017 throughput to be around 8b tons, including 380b TEUs, about 10% and 20% higher than that of 2016.

PVT – IMPROVEMENTS RETURN

At the end of FY2016, PVT recorded revenue and PAT growth of 17.7% and 12.2%, respectively. However, the company’s 2016 earnings results were driven by the VND90 billion savings from forex losses based on the revaluation of its foreign year-end debt.  The company’s cash flow report showed a clearer picture of the company’s performance, with its core operating cash flow actually recorded slight growth compared to last year. This was driven by the higher demand for crude tankers, which resulted in increased activity at Dung Quat refinery and FSO Dai Hung; the activity ran for the full year, as compared to around only 7 months during 2015.

Oil & Gas – Rekindled Faith for 2017

In the first 2 months of 2017, global crude oil price maintains the side-way movement with the average of USD 55/barrel. Even though the recovery has not been as strong as expectation, it demonstrated the positive signal when the global oil industry reached the stable and balance point after OPEC’s agreement. “Rekindled faith” is the main theme for Vietnam oil & gas industry in 2017 when the recovery of oil price could be the sentimental push for the markets and stock prices. RongViet Research asserted that 2016 would be the trough of the industry. However, there will be gap between the recovery of oil prices and positive prospects for Vietnamese oil & gas companies. Therefore, 2017 could be the turning point in business efficiency for companies, which can begin to witness an improvement in financial results.

VJC – Company Report on 03/06/2017

Operating its first commercial flight on December 2011, VJC has grown rapidly into the second largest airline in Vietnam in a very short time. Successful application of LCC model, efficient use of capital to expand its fleet, and unique marketing strategy have helped the company to achieve what the previous airlines failed to do: stimulating and exploiting the full potential of the domestic market. VJC’s success, thus, has become a fairy tale of the aviation industry.

CTD- Strong and Wise

As a market leader in the domestic construction sector that bears no bank loans, Coteccons has significant opportunities to expand its backlog and revenue, as well as to stabilize its operating efficiency. However, CTD has also been making efforts to diversify its business lines to ease the risks from the peaking real estate market. The recent private placement shows that CTD is observant enough to make full use of the growth in demand, as well as to find feasible alternatives to achieve long-term development.

Where will the USD head to?

Donald Trump had a speech before the Congress for the first time yesterday. In contrast to many previous appearances before the public, Trump scored big time in this speech. The new president assured the Congress that significant progress has been made since November 2016, as the US stock market has increased nearly $3 trillion, GDP grew at 2% in the last quarter and employment data was better than expected.  He also talked about domestic problems in America, and about how globalization has done more harm than good to the business environment.  He also mentioned employment and the huge trade deficit of $800 billion, and suggested his plan to use $1,000 billion in infrastructure to rebuild the country. His government will proceed to build the wall across the southern border, yet his attitude towards immigration has changed, suggesting a proposal to help immigrants. Without a doubt, the USD and the stock market has received a huge boost, while gold and other safe haven assets, the JPY and bonds declined. Gold fell from its 4 months high of $1263 to $1235 and the USD/JPY saw an impressive swing in just a couple of hours, increasing from 112 to 114 (+1.7%).  It is still uncertain whether Trump’s proposals will pass through the Congress, and whether this global economic trend will continue. According to Deutsche Bank, there will be 5 stages of economic sentimental development under the new governance.