DPM – Weak domestic urea demand and falling selling prices to put pressure on profits in 2H2022

• DPM estimates a consumption volume of 400 thousand tons of urea in 1H2022, of which 160 thousand tons were exported. We see that domestic production has fallen sharply, which could be attributed to high urea prices. Meanwhile, the NPK segment recorded a consumption volume of 85 thousand tons, up slightly compared to the same period last year.
• The positive point of DPM is its ability to pay high cash dividends of VND5,000/share for 2021 and VND5,000/share for 2022. Currently, the company has paid VND1,000/share in advance.
• For 2022, we forecast DPM's revenue and profit after tax to reach VND16,670 bn (+30.4%) and VND4,366bn (+40,1%). With unfavorable changes in demand and selling price, we lower DPM's target price to VND 44,700/share. At this price, the dividend yield is very attractive.

NLG – Profit is expected to be recognized in 2H/2022

• The timing of revenue and profit recognition is anticipated to be in H2 2022, but this is highly dependent on the Paragon Dai Phuoc and Can Tho projects' legal completion.
• Accumulated in the first 5 months of the year, the total pre-sale value of NLG reached VND 7,800 billion, 14% higher than the figure of VND 6,880 billion in 2021. We think that the successful legal completion of The Can Tho, Nam Long Dai Phuoc, and Hai Phong PG projects this year will have a significant impact on whether or not the planned pre-sale of VND 23,400 billion will be realized.

Recession fear clouded export prospects in the second half of 2022

• Export growth has slowed down in May 2022.
• Recession fear clouded export prospects in the second half of 2022.
• Imports remained robust in May 2022.
• Biden administration intends to remove tariffs on Chinese good

Banking sector – The continuous pressure motivates an accommodative intervention

• The liquidity position continued the previous abundant status for VND. On the other hand, the tension on USD liquidity intensified due to the Fed’s decision, the SBV’s target to support the economy and the persistent trend of USD outflow.
• The highly negative USDVND rate gap put pressure on the exchange rate which had moved sideways before rising steadily recently. The SBV has started doing outright bill sales with short-dated term, substantial amount and auctioned interest rate. It is probable that this intervention is to withdraw VND and propel VND interbank rates for the short terms, thereby, narrowing the swap rate gap, monitoring the pace of exchange rate and relieving the pressure on FX reserves.

Stagflation?

• The reality of stagflation has certainly been confirmed by the latest US data both as regards to inflation and wage growth.
• US real wages are down, meaning that consumer purchasing power is eroding.
• The US Fed is tightening into a slowing economy.

US headline CPI inflation rose from 8.3% YoY in April to 8.6% YoY in May (Figure 1), the highest inflation print since December 1981. Core CPI inflation was 6.0% YoY in May, though down from the recent high of 6.5% in March.

NKG – Domestic market to lead sales in 2H2022

• Stable recovery of the domestic market compensated for export slowdown in Q1. Revenues jumped 47% YoY to VND 7,151 billion and NPAT-MI grew better at 59% YoY to VND 507 billion, thanks to the reversal of inventory devaluation provisons.
• Q2 exports will benefit from high demand from overseas. The HRC price gap between Vietnam and Western markets expanded in March implying a better export gross profit margin. The situation will reverse in 2H with domestic market leading sales while export outlook turns dim due to high inflation and high inventories in Western markets.
• For 2022, we project total selling volume to fall 31% to 743.6 thousand tons. Average HRC price will rise 12%, while ASP increase 4%. Thus, the gross profit margin could reach 10.2%, lower than 15.2% of 2021. Revenue and PAT are expected to come at VND 20,030 billion (-29% YoY) and VND 1,185 billion (-47% YoY).
• The plan to expand capacity from current 1.1 million tons to 2.3 million tons from 2027 will support growth quality in mid- and long-term. However, as the capacity increase won't come any earlier than 2024, therefore, is unlikely to support the stock price in the short term.
• NKG is now trading at a TTM PER of 1.8x, lower than 2.3x of 2021. However, as this year profit will be lower compared to the peak of last year, the PER forward for 2022 is 3.7x. Thus, the stock seems unattractive at the current valuation. We recommend to OBSERVE this stock as we think profits will rebound next year, when inflation eases globally.

Overview of Intelligent Transport System in “Smart City”

• Intelligent Transport in urban areas is a sustainable development trend of countries around the world, aiming to reduce traffic congestion, reducing the number of traffic accidents, saving transportation time.
• The application of Intelligent Transport System (ITS) has been popular in Vietnam. Up to 41/63 provinces/cities directly under the central government have installed operation centers and traffic monitoring camera systems.
• ITS construction trend in the period 2021 - 2030, prioritizing completing existing services and adding services for public transport.

PGV – Await to finish the equitization settlement

• AGM approved the 2022 financial guidance, which targeted revenue and NPAT to be VND 45,417 bn (or USD 1,974 mn, +22% YoY) and VND 1,827 bn (or USD 79 mn, -40% YoY), respectively. A growth of 10% in volume would drive the company’s revenue. Hence, the company’s core earnings are forecasted to increase yet financial expenses are going to eat part of it, resulting in a fall in NPAT.
• Holding a well-diversified electricity portfolio including coal thermal, gas turbine, hydropower plants and solar power, the company’s core earnings are quite stable. However, its NPAT is sensitive to the FX rate due to high leverage. We have to closely monitor the FX rate to forecast its NPAT-MI. Fortunately, the company is able to book FX revert revenue in the future, which becomes the potential earnings in the following years.
• Currently, free float is relatively low, and forward P/E ratios are relatively fair (equivalent to 12.x). Investors can accumulate this stock to enjoy dividends as the dividend yield is roughly at 4%.

Downtrend of palm oil price in 2H2022 supporting margins of edible oil producers

• According to CGS CIMB the crude palm oil (CPO) price is expected to be in a downtrend in 2H2022 due to improved global palm oil supplies. The CPO price has decreased in the beginning of June 2022 after Indonesia resumed palm oil exports in the end of May. On 17th June 2022, the CPO price was MYR 5,454 per ton (-10.8% MoM; +59.3% YoY).
• We believe that Vietnam edible oil producers will have the opportunity to purchase raw palm oil at a lower price compared to the 1H2022 level. Accordingly, the profit margins of Vietnam edible oil producers will start to recover in 2H2022.
• According to Kantar Worldpanel, one of the most prominent consumption trends across edible the oil industry during 2021 in Vietnam is the increasing consumer interest in premium edible oil after the Covid-19 pandemic. The higher contribution from premium segment will help to boost sales of edible oil producers.
• In Vietnam, Kido Group is the parent of the three Vietnam leading cooking oil producers. As a result, we believe that KDC will capture the growing edible oil sales value.

Time to buy gold?

• Price on the Comex exchange hit a bottom at $1800 per ounce.
• As we expect the USD to weaken, it should be supportive for gold price.

Overview of intelligent transportation

• Wide application of technology in the field of intelligent transportation in the world and Vietnam.
• Accelerating the application of intelligent transportation systems in Vietnam.
• Synchronously building an intelligent transportation system at the key project of the North-South Expressway in the East.

Rising pressures on the dong’s stability

• The dong has depreciated about 1.7% ytd but is the least volatile compared to other currencies.
• A more hawkish Fed will keep USD at its record high for a while.
• The yuan’s depreciation is expected to ease in 2H22.
• Vietnam’s balance of payments faces turbulences in 2022.
• The dong to depreciate about 2.0-2.5% in 2022.