TCB 1Q2020 updates - NII to maintain strong momentum

TCB achieved a good 1Q business performance as the impact of Covid-19 has yet to be reflected fully. Results in the next quarters are expected to be hit harder. Set aside the concentration risk of lending to real estate-related sectors, we appreciate the bank’s solid balance sheet, with a focus on lower risk segments, such as high-income group, working capital and collateralization. A significant portion of 1Q earnings was also spent to accumulate more room for NPL and LLR, in precaution for probable bad debt formation upon the outbreak. Considering the current stable condition of the real estate market, we think TCB would show a strong resilience to this crisis and would be able to recover strongly whence the pandemic impact is over.

We forecast TCB’s earnings growth to reach 14.4% YoY in 2020E, before recovering to c.25% YoY in 2021E. We keep our target price at VND 24,000, equivalent to a potential upside of 14% versus the current market price. We thereby recommend to ACCUMULATE the stock.

VHC – Update on 2020 AGM

The performance of the main segment, pangasius, appeared to be better than our expectations for 2Q2020. Although the collagen-gelatin (C-G) expansion plan will be completed later than previously planned, the management believes that the company’s adjustments in operation and the positive market demand for collagen could guarantee the revenue and PAT target of this segment. The new project of fish oil for human consumption will also contribute in improving profit margin. However, although the selling price of pangasius has continuously been adjusted downward from the historical peak in 4Q2018 until now, it may decline further to approach the demand-supply equilibrium, per the management. Considering all these factors, we revise up our 1-year target price by 25% for VHC to VND 38,100/share. With an expected cash dividend of VND 1,500/share, the total return is 16%, compared to the closing price as of May 21^st, 2020. We recommend to ACCUMULATE  this stock.

REE’s AGM update – 2020 to be a difficult year

REE is currently in our conviction list with a pre-COVID-19 target price of VND 38,300. Its recent AGM has approved a conservative guidance for 2020 because the majority of its business segments have been and will continue to be impacted by the pandemic. REE targets a 23% revenue growth and a flat (-1.2%) income growth. Accordingly, the cash dividend for 2020 will remain at VND 1,600 per share (dividend yield 5.1%). Around a 30% payout ratio while retained earnings will fund REE’s renewable energy projects and the e.town 6 office tower.

Pork prices higher helped Dabaco improved its profitability

Pork prices in 2Q are expected to remain high due to the shortage of domestic supply. Therefore, we think that DBC can still gain a lot of profit from the animal husbandry segment as in 1Q. Besides, re-herd activities are being strongly supported by the Government, so the demand for animal feed may increase in the near future. This will help the selling price and GPM of the animal feed segment to increase slightly compared to 1Q. Therefore, we expect both 2Q revenue and profit to be higher than 1Q results.

VPB – Update on 1Q2020 Business Performance

In 1Q2020, VPB maintained the highest PBT growth amongst banks on our watch list. For the next few quarters, we expect the pandemic impacts to lend more weight on the bank’s performance upon more obvious income slowdown and the escalation of provision booking. However, the timely and appropriate response to the virus situation, coupled with low leverage (asset leverage of 8.9x) and strong capital (CAR Basel II at 11.14%) should allow the bank to withstand the epidemic situation. Longer term, we expect that the overall growth outlook should remain positive when the pandemic impact is over, and VPB would still be able to achieve a higher growth than sector average.

The bank has sought shareholders’ approval for treasury shares purchase (up to 5%) and calling of USD300mn international bonds issued previously, which imply abundant liquidity. The plan of locking foreign room at 15%, if possible, would create room for a strategic placement. These are subjected to state agencies’ approval and actual market evolvement.

GMD - Full impact of COVID-19 to be felt in Q2 FY20

GMD announced a 4.9% decline in Q1 FY20 NPAT-MI to VND 141 Bn, ahead of our forecast mainly on the back of a surge in gain from JVs, financial income and significantly lower minority interests. Though Q1 earnings have achieved 29% of our full-year forecast, we expect the negative impact of COVID-19 to be fully felt in Q2 FY20 and linger throughout the year, compromising total container volume throughput. Hence, we cut our earnings forecast for FY20 by 24%. Recommend ACCUMULATE, TP lowered to VND 22,000 (from VND 26,000) based on the SOTP valuation method.

Real estate market update

Q1 2020: The real estate market faced headwinds in the early part of 2020. In term of total condominium units sold, 1Q 2020 was the worst quarter in both Hanoi and HCMC since the last five years. Both cities saw a decrease of 72% and 38% YoY, respectively. Demand  weakened while supply was still limited due to the effects of Covid-19 and prolonged legal statuses.

Update on Vietnam’s international trade in April, the month of social distancing

Harsh conditions in April where Vietnamese coped with the order of social distancing. General economic activities slowed and employees stayed at home on furlough. It was not surprising that key macro indicators got weaker. However, looking at the data, there are signs of a promising recovery as the country can benefit from the current supply chain disruption.

PVT - Seem the worst is behind

In 2Q2020, we believe that the revenue will be lower than 1Q2020 due to the low demand but profitability will improve as the gross margin will no longer be low and PVT is expected not to incur an FX loss.  We forecast that sales and NPATMI will be VND1,488bn and VND76bn respectively in 2Q2020.

STK – 1Q2020 Business Result Update

While the entire textile industry’s value chain is badly affected by the pandemic in 2020, STK is not an exception and the worst time, in our opinion, will be 2Q when many large markets enter the drastic phase of fighting the pandemic. Consumers' uncertainty about the economic prospects after the pandemic could lead to lower spending on some types of goods, including apparels. Low demand for apparels would indirectly affect yarn demand. However, we believe that STK can somewhat limit the impact of this trend thanks to (1) their production shift toward highly profitable recycled yarn (2) the relocation of textile production from China to Vietnam and other Asian countries and (3) the increasing trend of using domestically made yarn by Vietnamese garment companies to take advantage of EVFTA tariffs incentives.

We estimate STK’s fair value at VND 21,400 /share. Combined with a cash dividend of VND 1,500/share in the next 12 months, the expected return is 30% compared to the closing price on May 12th, 2020. We maintain our BUY recommendation. The target price has been slightly adjusted by 7% compared to what it was in the 2020 Strategic Report to reflect the impact of the COVID-19 pandemic.

HSG – Net income grew impressively despite COVID-19

1H/FY19-20 results

In 1H/FY19-20, HSG’s profit growth was strong despite lower selling volume. HSG’s net income increased by 228% and reached VND 382 billion, equivalent to 96% of its annual net income plan. The surge in its net income was supported by HRC prices, which increased by 23% from USD 420/ton in October/2020 to USD 518/ton in late-January/2020. Regarding selling volume, HSG sold roughly 700 thousand tons of products, of which 27 thousand tons were plastic pipes (+14% YoY). Social-distancing for COVID-19 had a limited negative impact on HSG’s selling volume, as coated steel and steel pipes sales volume decreased by 5% and 13% respectively. In April, its selling volume was still stable and similar compared to March/2020.

HSG expects to earn VND 200 billion in the remaining of FY19-20, of which VND 100-120 billion will be gained in 3Q/FY19-20.

VCB - Results Update Report 1Q2020

Despite the anticipated slowdown due to the negative impact of Covid-19, we expect the bank’s growth to recover quickly upon an economic recovery. We believe that its sector-leading position, solid balance sheet, and conservative approach (both in the past and during the virus situation), would allow the bank to withstand the current storm.

With a lower 2020 earnings growth forecast and less favorable conditions in the stock market, we revise VCB’s target price to VND85,000, which is 10% lower than the latest in our 2020 Strategy report (VND95,000). Coupled with the plan of a cash dividend at VND800/share (which has been shared by the bank that will be kept until further official instruction by SBV), this target price translates to an upside of 14% from the closing price on 12 May 2020. We thereby have an ACCUMULATE recommendation on the stock.