BFC – 2022 is still good but not extend to 2023

• After posting positive results in 2021, BFC announced another good earnings in 1Q2022 with growth of 46.8% and 19.3% in net revenue and NPATMI respectively.
• However, the revenue growth came from a higher ASP while sales volume fell 15.1% in 1Q2022. The gross margin stayed at 12%, compared to 12.6% in 1Q2021.
• BFC maintained huge inventories as in 4Q2021 to prevent the fluctuation in raw material as well as to ensure enough input for production.
• Revenue and NPATMI are forecasted to post VND9,759 bn (+26.6% YoY) and VND281 bn (+28.1% YoY) respectively. However, there will be no significant earnings growth from 2023 onwards except for the good cash dividend policy, which is a result of a favorable business operation in 2021-2022.
• The fair price of BFC is VND31,300. Combined with the cash dividend of VND2,000, we recommend to HOLD. At the current market price, the investor could receive at least 4,000 cash dividend till 2023, equivalent to a dividend yield of 11.9%.

Industrial Park – Bright outlook for the long-term

• Vietnam's industrial park prospects are bright with two main segments to be focused including land leasing and ready-built factory.
• We expect land rental prices to keep increasing. Hence IP developers who own large clean land banks will benefit the most given their low COGS.
• Along with the development of e-commerce and the shift of large FDI enterprises into Vietnam, IP developers who tend to expand to the ready-built factory segment are worth to pay attention to.
• Following the correction of the stock market, stock prices of IP tickers have adjusted down from the peak set in the year, making them become more attractive for mid- and long-term investment. Our favorite stocks include PHR (TP: VND 74,400), LHG (TP: VND 62,300), and DPR (Not rated).

Banking sector – Rapidly rising exchange rate under constant pressure

• Contrary to the situation at the beginning of the year when VND liquidity was low and VND interbank rate and VNDUSD swap rate gap were elevated, the current liquidity position is ample on the VND front. Instead, the tension on USD liquidity is intensified due to the Fed’s decision, our monetary policy and headwinds on the USD flow side.
• As a result, the exchange rate has rallied persistently since the Ukraine war started. The demand for USD was high even when exchange rates rose. The swap rate gap turned negative last week. The circumstance is expected to last until the supportive external factors come.

The Indo-Pacific Economic Framework for Prosperity (IPEF)

• US President Biden announced the formation of the Indo-Pacific Economic Framework for Prosperity (IPEF) while travelling to Seoul and Tokyo the week of May 23-26.
• Two central banks in Asia have raised interest rates by 25 basis points lately: the Central Bank of the Philippines and the Bank of Korea. Both of them are extensively fighting domestic inflation that's occurring at the moment. In reality, both of them want to support their currencies.

Tightening control over capital into real estate

Talking to Tuoi Tre newspaper on 03 May, the SBV Deputy Governor Dao Minh Tu said, “Credit to real estate has been strictly controlled, and it may be even tighter in the upcoming time. However, the loan still prioritizes serving the needs of people buying houses and land to live in; restricting speculative purposes”.

We will look back at the SBV’s orientation through recent statistics. Over the past years, real estate credit growth has gradually decreased from 26.8% in 2018 to about 12.0% in the pandemic period (2020-21). Because credit growth of this sector is lower than the overall credit growth of the economy, the size of loans for the real estate sector has decreased from 28% (in the period 2010-11) to about 20% of the total outstanding loans by the end of 2021. In the first three months of 2022, real estate loans is estimated at VND2.2 trillion, equivalent to 20.2% of the total outstanding loans. Compared to the end of 2021, real estate credit growth is 7.9%, higher thsan the credit growth of the banking system at 5.0%. In terms of absolute numbers, with more than VND526 trillion of capital injected into the economy, more than 30% went to the real estate sector.

MCM – Cost optimization drives NPAT grow higher than revenue growth

• 1Q/2022 net revenue of MCM arrived at VND675 bn (+8.6% YoY), supported by the increase of both selling volume and average selling price (ASP). 1Q/2022 NPAT of MCM was VND86 bn (+73.1% YoY), driven by cost optimization and low-base performance of 2021. We expect that NPAT growth in the next three quarters will be lower than the result of 1Q2022 due to 9M2021 high-base performance, though stay positive.
• We conservatively forecast that MCM will show a one-digit growth in selling volume for the whole year of 2022 due to the fierce-and-fierce competition in Vietnam dairy industry. Equipped by the expected lower SG&A/Sales ratio compared to 2021, 2022 NPAT growth of MCM is expected to be higher than the growth of revenue.
• MCM shares price has strongly decreased since 4Q2021 because investors concern on the delay of capacity upgrade project. Currently, its trailing P/E ratio is trading at around 17-months average P/E ratio (Figure 6). Therefore, in the background of long-term potential growth when MCM completely upgraded production capacity, we recommend investors ACCUMULATE this stock.

TCB – 1Q22 review: Well-controlled credit costs as a counterpressure

• TCB delivered good growth in 1Q22 amid rising concern about the pressure on the NIM front, which extended both on a year-over-year and quarter-over-quarter basis. Total operating income grew 13% YoY despite solid net interest income and net fee income growth (32% YoY and 35% YoY respectively). TCB wrote down the value of its bond holding, which impacted the other non-interest income and solely made PBT down by 14% YoY. It should be reversed in the next quarter given the new decree. CIR was stagnant while credit cost margin kept falling as expected. Lower provisions helped counter the impact of other non-interest income.
• Our 2022 PBT forecast is VND 29.1 tn. The 1Q22 results fulfilled 23% of our full-year estimation. The forward 2022 book value per share is VND 32,721, translating to a forward P/B of 1.1x. The bank’s historical P/B average is 1.7x. Compared to the time of listing, TCB’s forward ROE improved structurally from circa 17% to 22% this year. Given weak sentiment towards the bank and the recent re-rating on a sector-wide basis, we decline the market valuation component and thereby, revising down our target price by 5% to VND 67,700/share. This is equivalent to a BUY recommendation with an upside of 85% from the closing price of May 25, 2022.

A rise in defaults is on the horizon

• Rising sovereign yields and the breakdown in US break-evens suggest that we are set for a slowdown in growth and a glacial decline in pricing power—a stagflationary environment.
• The dollar’s strength is consistent with the end-of-cycle risk aversion. Buy Sing $.
• Credit markets have been slow to re-price a rise in defaults. Earnings momentum is fading just as fast as confidence in target prices diminishes. It is still not time to revisit companies with deteriorating working capital and / or a reliance on asset sales.

Steel industry – Steel prices are weighted on short-term cooling down and could rerise in 2H2022

• Steel prices in Europe have declined gradually after reaching a peak in April.
• China's economic reopening could be a catalyst for steel price resurgence.
• The goal of increasing the presence of Russian steel in Southeast Asia will more or less increase pressure on the regional market.
• Galvanized sheet manufacturers can expand profit margin in 2Q22 by closing export contracts to Europe at high prices; difficulties of prolonged high production costs erode the margin of upstream producers.

REE – Better than expected earnings in 1Q2022

• In 1Q2022, revenue reached VND 2,045 bn (or USD 89 mn), +73% YoY and +8% QoQ. NPATMI experienced a bounce of 67% YoY to VND 693 bn (or USD 30 mn), +67% YoY and -12% QoQ thanks to a doubling of the power segment in earnings term.
• Earnings from hydropower doubled compared to 2021. Outperformance from this group was due to favorable hydrological conditions and high selling prices in CGM. Wind power group grew by 62% YoY to VND 34 bn.
• REE entered a growth phase since 2021, hence its P/E has been gradually rerated. We expect REE to sustainably grow in the medium term. In 2022, we forecast revenue and NPATMI to be VND 8,790 bn (or USD 382 mn, +51% YoY) and VND 2,310 (or USD 100 bn, +25% YoY), mostly driven by power segment. In 2023, Etown6 and those renewable energy projects accumulating in 2022 will play as growth momentum.
• Our latest target price is VND 73,500. We recommend to ACCUMULATE this stock due to the bright medium-term outlook. We will update our new target price in our next report.