Vietnam economic review 2015: Headwinds and Tailwinds

Vietnam economy has spent a smooth year in 2015. Looking back the whole year, the economic activities have been widened thanks to the improvement of consumption and industrial segment. However, trade balance, exchange rate and interest rate... have been the remaining issues. The main keys of Vietnam economy in 2015 will be discussed below.

The impacts from US’s lifting crude exports on global prices: Do not get too worried!

In 12/2015, US president passed the bill to eliminate the crude export barrier that had existed for nearly 40 years. It opens the unlimited opportunities for crude producers in US to find partners and export crude oil in the future. At this moment, crude price in WTI future contract (US light sweet oil) has surpassed Brent price for the first time since 2010. This pointed out the immediate effect from US decision on global price movements. However, we believe that this could not be an alarming issue for crude prospects in short-term.

CVT - New granite plant could be a big growth driven factor from 2016

The flourish of real estate market and positive construction activities have been positive support elements for business operations of many building material companies. In the first 9 months of 2015, there was about 58% of listed construction building enterprises having better revenue and earnings than the same period last year; this proportion rose to 75% for tile ones. Of which, we realize that CMC JSC (HNX - CVT) has positive earnings growth and relatively good outlook in the upcoming years.

Timber industry under exporting perspective

In 11M2015, Vietnam Customs Statistics recorded USD 6.1 bn (+9.2% y-o-y) by exporting wood and wooden products. Based on the historical data of wood and wooden products, we realized that growth rate of export wood products has been slowed down since 2010 and it shows no sign of heating up. Since there is only a month ahead, it is easy to predict 2015 growth rate of Vietnam wood and wooden products would be around 10%; and would not be back to the “golden period” in 2011-2012. One month left until 2016, the industry growth rate was forecasted to achieve about 10%, and it could be difficult to return to the "Golden Age" between 2010-2011 (~15%) This is contrast to the forecast from earlier this year when TPP had been expected to bring the optimistic prospect for the total exporting value of the industries, which directly benefit from new trade agreement including timber, fishery and textile.

No domestic steel price recovery in 2016

World steel market has been sinking in overcapacity status since 2014 while deteriorating demand has caused raw material and steel prices to fall sharply. Regarding the domestic market, due to limited productive capacity which cannot meet the quality demand and provide competitive price, China steel has the opportunity to be a big fish in a little pond even though demand has improved. At the moment, leading mining companies (Vale, BHP Billiton and Rio Tinto) are in the race to reduce costs. In addition, the effects of restructuring and reducing capacity in China are limited on the global steel price in 2016. Generally, the overcapacity crisis in China is likely to last long with an excess supply of up to 300 million tons per year.

VCB: Meaningful profit growth likely resume

End of Sept, VCB positively fulfilled its whole year target. Accordingly, pre-provision operating profit got VND9,366 bn, up by 21.8% y-o-y and completed more than 80% target. Despite of that, VCB continued to pay a large proportion of income on provision and bad debt solution, its pretax profit was merely VND4,649 bn, up by 11.2% y-o-y and fulfilled c. 79% yearly plan.

Hung Dao Container JSC (HDO-HNX) – “Urgent” need to lower bank borrowings

Last week, RongViet Research analyst made a visit to Hung Dao Container JSC (HDO-HNX) and had a discussion with the firm’s management regarding its business prospects going forward. Once proud to be the only Vietnamese container maker, the firm’s business performance has gone through rough patches over the past years as global economic recession caused slumping demand. Going into 2015, the recovery of Vietnam economy fostered by strong increase in industrial production activities has been giving HDO’s business result a positive boost and promises a brighter business outlook in years ahead.

After the Fed hiking interest rate, what is the forecast for Vietnam interest rate?

In the Federal Open Market Committee (FOMC), Fed has decided to raise interest rates for the first time in nearly 10 years. As that situation, many investors have questioned relating the impact of this change on the Vietnam interest rate outlook in upcoming years. In the Advisory Diary, we will discuss shortly our opinions about this question.

Based on historical factors, the recent FED hiking interest rate (06/2004 – 06/2006) were accelerating the process of tightening monetary in Asian countries, with a 150 to 300 percent points increase of policy interest rate (except the Philippines). However, at this time, there is a divergence in the Asian monetary policy. According the recent forecast of Goldman Sachs, FED raises rate would unlikely have impact to Asian monetary policy in upcoming years. For Vietnam’s interest rate, we believe it would accelerate the process of hiking interest rate. However, the impact on the economy might last at least 6 months to 1 year later.

HDC – A long way to realizing a land bank potential

Whereas the real estate markets of Hanoi and HCMC witnessed a strong takeoff in 11M2015, the warmth has been felt only recently in many other provinces. Our analyst just met with representatives of Ba Ria – Vung Tau House Development JSC – Hodeco (HSX – HDC) to discuss the potential of the property markets outside of the two major cities. Despite its being the most prominent real estate developer in Ba Ria -Vung Tau, Hodeco has been disfavored by the market for its small cap-size, low liquidity and tepid earnings growth. The stock only captured attention again after the Red River Holdings’ liquidate over 4 million shares of the Company in late November.

FED rate lift-off and the effects for Vietnam exchange rate policy

Today, US Federal Reserves decided to increase the interest rate after a long period of maintaining at approximately 0%. The 25-percentage point adjustment met the expectation from investors. However, such decision has been assessed to be a history turn for US and global economy. Other important aspects after FED’s meeting are the assessments of US economic prospects and the rate adjustment schedule in the future.

DAG – Positive prospect for new plan

Recently, Rongviet Research’s analyst had a meeting with Dong A Plastic JSC (HSX-DAG). Over the last 15 year of operation, DAG is becoming well-known brand for building materials and interior products such as profile bars, aluminum composite panels, plexiglass, uPVC… DAG’s market share achieved 21-25% for profile bars, 7-9% for plexiglass. Even though DAG is a small company compared to HSG, BMP or NTP, DAG still benefits from the positive increase in building material demand. Along with the additional production in profile bars and uPVC, DAG’s prospect in short-term is relatively optimistic. In term of revenue structure, profile bars accounts for the highest proportion, approximately 38% in 2014. At this moment, DAG has 14 production chain in this type with the design capacity at 12,000 tons per annum. With the excess demand in this product type, the Company has invested in new plant in Ha Nam with 27,000 tons of profile bars per annum. Until now, plant construction and central batching system have been completed. Simultaneously, DAG has installed 5/15 of production chains; the remaining 10 will be shipped during 12/2015 in order to meet the demand of 1/2016 production. When new plant operates stably, the design capacity in profile bars could double compared to the current level.

Automotive industry update - Sale volume of 11M exceeded annual plan target

Recently, VAMA just published its November Monthly Report on Automotive Industry. Total sale volume of automotive industry reached 215,597 cars, exceeded 2.77% annual plan target and 30% y-o-y. In particular, passenger cars reached 126,597 cars (+45,1% y-o-y), commercial vehicle achieved 77,880 cars while SUV/MPV/Cross Over reached 11,034 cars (+109% y-o-y).