Update on monetary market in Nov 2022

• 2022’s M2 growth is less than half of the average growth rate in the period 2013-21.
• Liquidity pressure eased somewhat in November 2022.
• The interest rate race is getting hotter toward the end of the year.

FMC – Short-term headwinds before entering a new growth phase

• Accumulated 10M-2022, FMC recorded a revenue of USD 201 Mn (+13% YoY). However, revenue in September and October started witnessing a deceleration compared to the previous months, driven by weak demand of importing countries amid inflationary pressure. However, we expect Q4/2022 NPAT-MI to only derease 13% YoY on the high base of Q4/2021, at VND 91 Bn (or USD 3.8 Mn), partly contributed by a large FX gain which is attributable to USD appreciation.
• 2022 revenue and NPAT-MI are projected to be VND 6,059 Bn (or USD 253 Mn, +17% YoY) and VND 323 Bn (or USD 13.5 Mn, +21% YoY), respectively. In FY2023, we project that revenue and NPAT-MI to reach VND 6,249 Bn (or USD 260 Mn, +3% YoY) and VND 356 Bn (or USD 15 Mn, +10% YoY) respectively.
• Using a combination of FCFF (40%) and P/E (60%), We arrive at a fair value of 45,000 VND/share, plus a cash dividend of 2,000 VND/share expected for 2022. This is equivalent to an expected return of 48%, based on the closing price on November 25th, 2022. We recommend to BUY this stock in long-term horizon.

PC1 – Lay down the foundation for growth in 2023

• In 3Q2022, PC1 posted revenue and NPATMI of VND 3.006 bn (or USD 123.3 mn) and VND 66 bn (or USD 2.7 mn), -4% YoY and -54% YoY, respectively. For 9M2022, PC1 earned VND 262 bn (or USD 10.7 mn) in terms of net profit, -10% YoY. Per our estimation, revenue /NPATMI in 2022 will be VND 8,162 bn/201 bn (or USD 333/ 8.2 mn), -17%/-71% YoY, implying a loss in 4Q2022.
• Heavy FX loss in 2022 will lay the foundation for growth in 2023. Notably, most of the financial expenses in 2022 are unrealized losses while the power revenue stream is based on USD, hence part of those expenses will be compensated in coming years. Earnings in 2023 are forecasted to more than double that in 2022.
• Currently, PC1 is trading at 0.9x and 10.8x in terms of P/B and P/E, respectively, which is lower than that of 5-year average. Despite the risk of the interest rate hike and VND depreciation in 2023, we foresee the magnitude is lower than that in 2022. We revise down our target price for PC1 to VND 26.000 to reflect (1) the interest rate hike and (2) lower earnings in FY22 and FY23. In comparison to the closing price as of Nov 24th, 2022, this stock offers an upside of 63%, hence, investors can BUY and hold for the long run.  

LHG – Expect to see earnings boost in 2025

• In 3Q2022, the total revenue reached VND 178 billion or USD 7.4 million (+242% YoY) and NPAT was VND 82 billion or USD 3.4 million (+310%YoY). The robust growth was due to low base effect of 3Q2021. In 9M2022, LHG’s revenue declined 27% YoY to VND 525bn (~USD21.8 million) and its NPAT plunged 37% YoY to VND172bn (~USD 7.1 million)
• From LHG’s EGM, we learned that the company (1) may not meet its 2022 revenue plan; (2) considers choosing AFC or A&C to audit its 2022 FS; and (3) LHG will see earnings boost in 2025 as new projects including Long Hau 3 phase 2, An Dinh and Long Hau 3 urban project can be commercialized.
• We continue to maintain a positive long-term outlook for LHG as (1) ready-to-lease area (~30 ha) at Long Hau 3 phase 1 is enough to secure LHG’s earnings performance until 2025, (2) short-term benefit from the deep depreciate of the Dong given its quoting price in USD, (3) ~10 hectares leasing facilities bring stable income source for LHG.
• We revise down our target price to VND 36,000/share due to (1) factoring liquidity risk by taking a discount by 20% of NAV as LHG being limited trading time; (2) eliminating the last 20 hectares that had yet been cleared in Long Hau 3 phase 1; and (3) temporarily eliminating An Dinh and LH 3.2 until the investment policies get approvals. Adding an annual cash dividend of VND 1,700 per share, the total expected return will be +98.4% (compared to the closing price of 11/22/2022).

Textile & Garment sector’s export market demand outlook in 1H2023: Headwinds are still blowing

• We are turning more cautious on the order outlook for Vietnamese OEMs due to inflation-led consumption weakness in the export markets in 1H2023.
• Retail sales of clothing and footwear in Vietnam’s main importing market have shown signs of declining since Oct 2022. In the three months to Oct 2022, clothing was amongst the worst categories of non-food retail sales in the UK. In our view, it is tough for Vietnamese OEMs clients to increase sales growth in what looks like a slowing market.
• While the export market’s demand has slowed down, retail inventories have gone up, accumulating headwinds for Vietnam’s textile & garment order outlook.

NKG – Tough Time has not Ended but Valuation Turned Attractive

• Declining demand and high input price drove down profits in 9M2022. Revenue posted VND 18,771 billion (USD 782 mn, -3% YoY), whereas PAT tumbled by 84% YoY to VND 290 billion (USD 12.1 mn). 9M2022 gross margin decreased to 9% (9M2021: 16.6%), with a slump to -3.6% in Q3.
• For 4Q22, consumption will be worse than Q3. Sales will rely mainly on domestic market with domestic GPM less negative than export margin. High-priced inventory, selling price drop combined with provisions for inventory devaluation could make Q4 GPM fall to -27.4%. Revenue and loss of Q4 is forecast to come at VND 2,630 bn (-70% YoY) and –VND 865 bn. In sum, 2022 revenue could come at VND 21,398 bn (-24% YoY) while the bottom line could be a net loss of -VND 575 bn.
• Milder inflation from mid-2023 will encourage the global demand for coated steel, supporting export volume. A strong rebound of export is not expected because the trade policies in major markets have been increasingly challenging to Vietnamese producers. Domestic market is expected to be the main driver for growth in 2023. Gross profit margin will reach 5.5%, marginally higher than 4.5% of 2022. 2023 revenue and PAT-MI could reach VND 21,455 bn (+0.3%) and VND 147 bn.
• Applying three valuation methods including discounted FCFF, P/E and P/B, we arrive at a target price for NKG of VND 11,800/share, which is equivalent to a BUY recommendation with an upside of 30%, based on the closing price of November 18th, 2022. Considering the current P/B of 0.42, which is much lower than the 10-year average of 0.87, the current valuation seems to be attractive for long-term investment in NKG. The forward BVPS for 2022 and 2023 are VND 18,044/share and VND 18,588/share, or P/B at the end of 2022 and 2023 are 0.50 and 0.49, respectively.

MCM – A potential growth driver for Vinamilk

• Q3 2022, Moc Chau Milk recorded a growth of net sales at the rate of 4.7% YoY, equivalent to VND832 bn, explained by the diversifying product range. The SG&A expenses increased by 18.5% YoY but dropped 4.5% QoQ, proving MCM’s effort in optimizing operating costs. As a result, Q3 2022 net profit reached VND99 bn (+10% QoQ; +4.2% YoY).
• Despite of rising inflation, MCM saw 9M2022 net sales of VND2,346 bn (+6.3% YoY), driven by both higher ASP and higher selling volume. Backed by supports from Vinamilk, profits rose at stronger pace than revenue. 9M2022 net profit was VND274 bn (+18.4% YoY). Compared to 2022 revenue and profit targets, MCM completed 75.1% and 79.7%, respectively.   
• We expect MCM ‘s net sales and net profit to reach VND3,171 bn (+8.4% YoY) and VND346 bn (+8.5% YoY) in 2022, respectively. Because VNM ‘s dairy market share is over 55%, thus it is hard to boost strong growth in organic sales. However, combined with strong growth of subsidiaries, VNM is expected to show high single-digit sales growth.

Seaport – Less positive outlook at the end of 2022

• We estimate the total trading containerized cargo via sea growth +29% YoY, reached USD 95 billion in Q3-2022. In which, export and import turnovers are estimated at USD 54 billion (+36% YoY) and USD 41 billion (+22% YoY), respectively. The high growth rate is due to the low base during the Q3-2021 social distancing period.
• According to the Maritime Administration, cargo throughput at seaports in Q3-2022 reached 6.1 million TEU (+10% YoY) (-8% QoQ). Accumulated 9T2022, total cargo throughput reached about 12.7 million TEU (+5% YoY). Total throughput  decreased over the month, which is evident in some major ports in Ho Chi Minh City and Vung Tau.

Rough period could last until 2023

• Since 1986, after Vietnam had moved toward a market economy model, Vietnam's real estate market has experienced three strong growth periods, in both market size and selling price (1993-1996, 2007-2010) and experienced declines in the following years. These fluctuations was attributable to changes in land policies and monetary policy.
• We believe that the real estate market has entered the third booming period (2018 – 2021) thanks to the recovery of banking system after restructuring, expanding monetary policy and COVID-19 pandemic. However, the contraction period could have started from 2022, when (1) capital raising through bond market has been congested and (2) credit policy gradually shifted to strict regulation, especially real estate sector. According to data from the Ministry of Construction, in 3Q2022, most residential real estate activities showed signs of significantly slowing down compared to the same period last year. The number of licensed and eligible projects for sale decreased by 8% and 23% over the same period.
• In short term, we believe that macro-economics difficulties should not be resolved. In addition, if compared with previous cycles, it is expected that it will take two to three years for the real estate market to start a new recovery.

External demand weakened sharply in Oct 2022

• Export growth weakened significantly while imports improved slightly from the previous month.
• 2022’s export turnover is estimated at $375-380 billion, up 12-13% over the same period.
• 2022’s import turnover is estimated at $363-366 billion, up 9-10% over the same period.

FPT - Resilient 9m-2022 Business Results Amid Headwinds From Global Macro Economy

In Q3-2022, FPT achieved net revenue and NPAT-MI of VND 11,149 billion (+28% YoY) and VND 1,454 billion (+29% YoY), respectively. Accumulative 9M-2022, FPT recorded net revenue and NPAT-MI of VND 30,975 billion (+24% YoY) and VND 3,943 billion (+30% YoY), respectively. These results are slightly lower than our expectations.

Global IT services maintained revenue and EBT growth at double-digit rates of 30% YoY and 28% YoY respectively.

• Notably, revenue growth from the Japanese market in Q3-2022 started to accelerate to 19% YoY despite the JPY depreciating about 18.5% YoY, implying a jump of 40% YoY of products delivery in Q3-2022 compared to a growth of over 20% YoY in the first half of the year. In addition, revenue growth from other markets remained high: US +33% YoY, EU +22% YoY and APAC +58% YoY. Excluding exchange rate factor, 9M-2022 accumulated revenue of Japan market up 27% YoY, EU up 10% YoY.
• However, revenue from digital transformation (DX) services decreased by 1% YoY in Q3-2022. This is due to (1) the decline in demand from NFT game customers, leading to negative growth in services revenue using Blockchain technology and (2) the high comparative base of the same period last year. On the other hand, Cloud services recorded rapid cumulative growth of 54% YoY. FPT maintains DX services’ full- year growth target of 35-40% (9M-2022 +34% YoY).
• Newly signed revenue has started to decelerate slightly, growing by 15% YoY in Q3-2022, compared to 40% YoY in 1H-2022. In particular, customers in the US have recently shown signs of delaying the progress of IT spending due to the macro headwinds. In contrast, signed revenue in Japanese market has picked up with an increase of 50% YoY over the last two months.

REE – Favorable conditions boosted earnings in 3Q2022

• The company posted revenue and NPATMI of VND 2,234 bn (or USD 91 mn) and VND 680 bn (or USD 28 mn).The gross profit margin expanded to 41% in 3Q2022 from 32% in 3Q2021, driven mainly by the power sector. Power plant earnings have tripled compared to that in 2021, contributing 55% of  total NPAT. Office leasing/ M&E services and the trading sector have  doubled/tenfold compared to last year, contributing 26% and 6% to total NPAT. The water segment sustainably rose by 10%, accounting for 13% NPAT.
• In 2022, we forecast revenue and NPATMI to be VND 8,486 bn (or USD 346 mn) and VND 2,678 bn (or USD 109 mn), +46% YoY and +44% YoY, respectively. REE has outperformed during 2022 thanks to (1) Favorable conditions boosting hydropower results; (2) New contribution of the three wind power plants; (3) The recovery of remaining segment compared to 2021. We forecast revenue and NPAT in 2023 to be VND 8,237 bn (or USD 336 mn) and VND 2,581 (or USD 105 mn), -4% YoY and -3% YoY, respectively.
• We revise down our target price to VND 79,000 to reflect (1) higher WACC  and (2) higher interest rates in the context of a risk-free rate surge. Comprising of VND 1,000 dividends in the next 12 months, offering an upside of 16% compared to the closing price as of Aug 11th, 2022. Hence, we recommend to ACCUMULATE this stock.