Activity in EMs recovering slower than in advanced economies

The IHS survey underlined a divergence between emerging market economies (EMs) and advanced economies (AEs) in terms of recovery in the manufacturing sector in the second quarter of 2020. The recovery of the former seemed to lag behind the later due to a high dependence on external demand as well as constrained policy measures in order to address the pandemic. The Bloomberg’s daily activity indicator, a composite of high-frequency data, also showed weak momentum of EMs’ recovery on average. According to the BIS, EMs have been weathering a perfect storm, particularly disruptions to global value chains, collapse in export receipts, plummeting commodity prices and retrenchment in capital inflows.

Industrial parks review: land prices keep rising thanks to strong demand

The US-China trade war, additional public investments and new free trade agreements have driven companies to diversify and relocate into Vietnam’s industrial parks. The country possesses a low-cost labor force, stable government and one of the fastest global growth rates – all appealing features leading to a fertile investment environment. In 2020, this trend is still very strong, creating impressive business results for operators. Rental prices, accordingly, also increased by 10% compared to the end of 2019, helping to cover projects’ development costs. Looking ahead, we believe that the demand for leasing will continue to be high and, as such, it should be a prosperous year for industrial park enterprises. We remain positive on developers that own large and available land banks.

HDB – 1H2020 update – NII predominantly led growth, asset quality stayed manageable

For 2020, we expect net interest income growth to remain strong with positive momentum in both credit and NIM, but service income will remain stable at least until the exclusive bancassurance agreement is finalized. We also expect that the bank will be able to handle the virus impact on asset quality in the subsequent quarters.

Our target price on the latest Result Update report is VND 31,000, equivalent to a potential upside of 17% versus current market price. This translates to an ACCUMULATE recommendation.

NKG – 1H2020: COVID-19 harmed sales, but profitability improved

We believe NKG’s business has become more sustainable as its gross margin of 4.6% in 2Q2020 was acceptable as HRC prices dropped strongly during the COVID-19 outbreak. However, the interest expenses were still significant compared to its net income. We expect the company to balance its net margin and sales properly. Regarding 2H2020, the strong HRC prices can support NKG’s net income in 3Q2020, but there are several threats. A fresh COVID-19 outbreak could have affect Chu Lai steel pipe factory’s progress negatively, and lead to weak demand for coated steel and steel pipes in the domestic market. Meanwhile, HRC prices could decrease in late-2020 due to the weak recovery in the manufacturing segment worldwide. In the long-term, we are waiting for opportunities from the shift of factories to Vietnam

DRC – 2Q2020 Business results update

DRC's business results in 2Q were not good due to Covid-19's impact on radial tire demand, while the bias segment continued to decline due to the trend of replacing those by radial tires. We believe that the epidemic in the US and Brazil will continue to negatively affect DRC's export in the second half of the year. Therefore, the revenue and profit in 2H2020 will decrease compared to the same period last year. We believe that profit will recover in 2021. Therefore, investors can consider accumulating DRC shares for next year.

VFMVSF Fund

Vietnam’s DC25 and HIHL have legal entity as foreign funds. VFMVSF has attracted a large amount of money from foreigners and shows that even in the context of the pandemic, there is some interest for Vietnam's stock market. This is a positive point given the situation that a second outbreaks was announced in Da Nang compared to the continuous net selling activities of foreign investors during the first outbreak.

Shrimp Sector – 1H2020 Review and 2H2020 Prospects

The sector posted positive growth in spite of the pandemic

Export value in 1H2020 reached USD 1.52 bn, 6% higher than 1H2019. Exports to the US surged 29% YoY but to the EU plunged 24% YoY. Exports to Japan increased slightly by 2% YoY and to China-Hongkong came down a little, -3% YoY. According to the Ministry of Industrial and Trade (MoIT), ASP was flat while volume increased 6% YoY in 6M2020.

VSC – Q2-FY20 Business Update: Earnings Trailed Our Forecasts Due To Weaker-Than-Expected Profit Margins Expansion

VSC has reported Q2-FY20 financial results with total revenue of VND393bn, which was down by 17.1% from the last year’s figures while PBT declined by 13.2% YoY to VND74bn. With these results, VSC has completed 51.7% and 58.3% of full-year guidance for revenue and PBT, while corresponding fulfillment rates of our FY20 forecasts stood at 48.9% and 44.1%. Generally speaking, softer-than-expected quarterly profit margins, though did show some improvements on an annual basis as expected, was the main reason why VSC’s recent results missed our forecasts. This level of profit margins was attributable to a significant surge in selling expenses, which presumably indicates a stiffening competition and a fundamental change in the company costs’ structure. Therefore, we cut our FY20/FY21 earnings forecasts by 2.8%/2.6% to VND243bn/VND266bn.

DXG update: Launching of the Gem Sky World project

In 2020, prospects will be brighter, thanks to deploying a newly acquired project, namely the Gem Sky World. The project is considered to be the main profit driver of DXG in 2020-2021. However the brokerage segment’s performance could be suffering during this period due to the effect of Covid-19, causing a slowdown overall for the real estate market. In 2020, as per management, DXG will still maintain its profit target at around VND 1,000 billion, resulting in a forward P/E  of 4.6 times. Our current one-year valuation for DXG is VND 13,500/share, equivalent to a 51% return. We will update the valuation based on the latest update in the next quarter.

ACB – Update on 1H2020 performance

It seems that ACB only achieved a modest earnings growth in 1H2020 because of (1) lower NII growth due to a small NIM compression, and (2) provision booking escalation which off-set service income expansion. We believe that the 2H outlook would be supported mainly by (1) credit growth recovery, (2) collection of Cir. 01 which include debt restructuring, and especially (3) the dramatic expansion momentum of bancassurance fees, with downside risk being the impact of the second wave of Covid-19 which constraints recovery and the easing of credit costs. Earnings growth should also be supported by income from the exclusive bancassurance agreement and ACBS divestment, as well as the collection of G6 legacy debts. Although we think these anticipated income sources could actually slip in 2021. The transfer to HOSE expected by late 2020-early 2021 is also a short-term catalyst for the stock.

ACB is currently trading at VND22,600, equivalent to an attractive PB 2020E of 1.1x. This translates to a potential upside of 11%, and an ACCUMULATE recommendation.

Vietnam’s International Trade in The First Half of July

In general, Vietnam’s international trade keeps recovering month by month since May and closely reached the average level of 2019. There has been a wide-spread rebound across sectors and partners, which signals a better performance this July following an incredible trade surplus last month.