Expected downtrend of raw milk powder prices will enhance profit margins of Vietnam dairy companies

• Global prices of raw milk powder went down since Mar-2022 because of 1) easing of global grain prices (e.g., corn) and 2) lower demand from China due to the lockdown policy. According to JACOBY, the 2022 situtation that saw global raw milk production deficit and record-breaking Chinese dairy demand will no longer replay in 2023.
• For 2023, we expect that global raw milk powder prices will continue moving on a downward trend for three main reasons: 1) higher supply and lower demand from China; 2) fertile global raw milk production; and 3) expected downward trend of global grain costs.  
• Expected decline in input costs in 2023 will help the gross margin of Vietnam dairy producers to recover. Notably, we did a regression test and find out that when WMP fluctuates between the range of USD/tonne 2,500-3,000, VNM will have a gross margin between 45% and 47%, which is strongly higher than their Q3 2022 margin of 39%.

Shipping container industry – Low domestic sea container freight rates will drag back the profits of companies

• Sea container freight rates in 2023 will return to a low level as (1) domestic freight demand weakens due to production will be less active (2) total domestic carrying supply has increased since the end of 2022.
• GPM of companies in the industry such as HAH, VOS, VFC will narrow due to the low domestic sea container freight rates, and the growth rate of revenue/NPAT is forecasted to be negative in 2023.
• For HAH stock, it is trading at a P/B valuation of 1.0x, although this valuation is still 40% higher than the average P/B for the period 2028 - 2019 (the period of sea freight and charter rates remained low), however, HAH currently has more than three ships for time charter and the charter rate is more than 2 times higher than in the previous period. This valuation has also been deeply  discounted compared to the average P/B of 2Y 2021 - 2022 (the period of sea freight and charter rates increased rapidly), so we see not much downside risk price for HAH.

An Overview of VNZ

• VNZ is one of the Vietnam tech giants, specializing in the fields of Online Games, Platforms, FinTech (Digital Payments) and Cloud Services.
• While the online games segment is the main source of profit for VNZ, the FinTech business (developing and managing ZaloPay – a mobile payment application) is still heavily weighing on VNZ’s profitability, leading to 9M-2022 accumulated NPAT-MI of VND -419 bn. Additionally, VNG’s investments in startups are also incurring a total loss of VND -83 bn in 9M-2022.
• Once a "Unicorn", VNZ now has an estimated market capitalization, at the current ceiling price of the trading day, of about USD410 million.

Global bond yields

Once inflation expectations become entrenched, it's very hard for central banks to control them.

• In a month – December- dominated by central bank meetings, the end result was a more hawkish impression despite inflation data for November generally surprising to the downside.
• Bond yields globally have fallen recently but will move back up in 1Q2023.

DPM – Lower earnings in 2023 but attractive cash dividend

• DPM announced its preliminary result with VND 19,400 bn (+51.8% YoY) in revenue and VND 6,400 bn (+69.1% YoY) in PBT due to high global Urea price. The average selling price of Urea (ASP) is estimated at VND15,200 per kg, up 44%. DPM also recorded an additional tariff of USD 18 mn (VND 430 bn) in 2022.
• We anticipate a cool down in Urea price for 2023 as production cost is likely to ease and the supply will increase. According to Argus, Urea price is around 400 USD/ton –500 USD/ton in 2023, compared to the highest level of 1,000 USD/ton in 2022. Revenue and NPATMI are forecasted to post VND14,373bn (-25.9% YoY) and VND3,028bn (-40.6% YoY) respectively in 2023. Before that, DPM has released 2023 guideline with VND17,400 bn in revenue  and VND2,700bn in net profit.
• Despite the lower earnings in 2023, DPM is able to pay high cash dividend based on the positive profit in previous years. EGM 2022 has approved 2022 cash dividend of VND7,000. We belive that the fair value of DPM should be VND40,700.

VHC – From boom to gloom

• In 11M-2022, VHC recorded an accumulated revenue of VND 13 Tn (or USD 541 Mn, +57% YoY), resulted mainly from exporting to the US market. However, the stellar growth is mostly contributed by 1H-2022 results while 2H-2022 performance is showing a downswing.
• Weak demand on frozen fillet products can remain until at least 1H-2022, especially in the US market. Moreover, the reopening of China also provides little ability to pivot the 2023 profit slump, because of the Chinese market’s small contribution into the total revenue.
• Using FCFF and SOTP methods, we arrive at the target price of VND71,000/share, implying an expected return of 3% on Jan 06th, 2023 and a NEUTRAL recommendation. Our target price reflects a 2023 P/E at 8.3x, which equates to the 5-year average. We recommend that investors can wait for a more attractive price and can gradually accumulate when the pangasius industry shows signs of returning to a new uptrend.

VHC – From boom to gloom

• In 11M-2022, VHC recorded an accumulated revenue of VND 13 Tn (or USD 541 Mn, +57% YoY), resulted mainly from exporting to the US market. However, the stellar growth is mostly contributed by 1H-2022 results while 2H-2022 performance is showing a downswing.
• Weak demand on frozen fillet products can remain until at least 1H-2022, especially in the US market. Moreover, the reopening of China also provides little ability to pivot the 2023 profit slump, because of the Chinese market’s small contribution into the total revenue.
• Using FCFF and SOTP methods, we arrive at the target price of VND71,000/share, implying an expected return of 3% on Jan 06th, 2023 and a NEUTRAL recommendation. Our target price reflects a 2023 P/E at 8.3x, which equates to the 5-year average. We recommend that investors can wait for a more attractive price and can gradually accumulate when the pangasius industry shows signs of returning to a new uptrend.

REE – Hydrological conditions may halt growth momentum in 2023

• The hydropower group has outperformed in 9M2022 thanks to favorable conditions. The group’s earnings accelerated in 2022 and were dominant among other groups in the power sector, accounting for 67%/64%/82% of the power’s NPATMI in 2020/2021/9M2022.
• The growth momentum will likely slowdown in the next El Nino phase starting from 2023 according to hydrological forecast and await the next growth phase from 2024 owing to Etown6.
• Our latest target price is VND 77,000. Comprising of VND 1,000 dividends in the next 12 months, offering an upside of 7% compared to the closing price as of Jan 05th, 2023. Hence, we recommend to ACCUMULATE this stock when the market has  corrects and hold for the next growth phase from 2024.

IDC – Positive prospects for the industrial real estate & energy segments in mid and long-term

• In 9M2022, IDC’s business results recorded growth with revenue of VND 7,034 billion (+119% YoY), EAT of VND 2,365 billion (+338% YoY) from the excitement of the industrial zone segment, besides other business segments also recorded a recovery after the Covid-19 epidemic. In 2022, we estimate that revenue and NPAT will be VND 8,428 billion (+96% YoY) and VND 2,517 billion (+335% YoY), respectively.
• In 2023, revenue and NPAT is estimated at VND8,538 billion (+1%yoy) and VND2,224 billion (-12% YoY), respectively. In which:
  IP segment: revenue is anticipated to be VND 4,250 billion, -8% YoY.  Based on the number of MOUs and contracts signed in 2022, is about 160ha, the area that can be handed over in 2023 may be up to 143ha (+50% YoY). And additional revenue from the change in accounting policy for Que Vo and Phu My II will only be VND 500 billion.
  Energy segment: we forecast the revenue will reach VND 3,354 billion, +17% YoY. The growth is thanks to (1) the reopening of Dak Mi 3 hydropower plant (revenue of ~VND 200 billion/year), (2) deploying further rooftop solar panels system (increase capacity to 10MW) in 2023, (3) new substation (63MW) in Huu Thanh IP, which will start to operate from Sep 2023. 

PVT – Core business to enjoy the charter rate hike and fleets expansion

• Positive result thanks to abnormal profit of VND 212 bn from liquidating PVT Athena. NPATMI recorded VND271bn, up 187.1% YoY. Of noted, transportation segment maintained its growth momentum with 44.8% in 3Q revenue growth.
• PVT has announced its 2022 results with VND9,150bn in revenue (+15.9%) and VND1,094 bn in net profit (+31.1%), equivalent to VND2,542bn in revenue (+22.2%) and VND262bn in net profit (+11.8%) for 4Q2022.
• In 2023, PVT will keep expanding its fleets as well as enjoy the increase in charter rate in crude oil tanker, oil product tanker (thanks to the sanctions against Russia). We project revenue to increase by 1.3% to VND 9,273 bn and NPATMI to slightly drop 3.3% to VND 825 bn in 2023 as there is no one-off from vessel liquidation.
• With this forecast, PVT is being traded at 2023 P/E forward 9x, quite attractive when looking at the 12.9% growth in 2023 core earnings profit (excluding other profit). We come to the target price at VND23,800 per share or ACCUMULATE recommendation.

STK – 2023 awaits a bounce back

• As an upstream producer, STK was hurt earlier than textile/apparel producers. Cumulative 9M22 sales came to VND 1,685 bn (+9%YoY) and NPAT-MI to VND 196 bn (-4% YoY), fulfilling 65% of the company’s sales and NPAT-MI targets. GPM shrank 109 bps YoY as the overall price gap (ASP less average chip cost) dropped about 5.5% YoY, mainly due to a 28% decline of virgin yarn price gap.
• We expect 2023 earnings to rebound although STK might experience negative earnings growth in 1H23 due to subbed demand. We estimate FY23 EPS growth of 13%, driven by (1) improved order volume, (2) average chip costs for both virgin and recycled yarn returns to around 4Q21 levels after peaking in 2Q22, and (3) FX losses ease based on our estimate 2% VND/USD depreciation in 2023. 
• We maintain a BUY rating while lowering the one-year target price to VND 32.500/share (from VND 38.200/share). The lower TP is primarily driven by due to a reduction in the Unitex plant's expected capacity. With an expected cash dividend of VND 500/share in the next 12 months, it implies a total return of 23%, based on the closing price of Dec 29th  2022.