Company Report

Top-line trailed our forecast, but net profit slightly exceeds due to gross-margin expansion. For 3Q23, VNM reported net sales and net profit of VND15.6tn (-2.8% YoY) and VND2.5tn (+9.1% YoY), respectively. Accordingly, gross margin for the quarter was 41.9% (+240bps YoY; +140bps QoQ) on the back of a correction in raw material prices. For 9M23, net sales and net profit reached VND44.8tn (-0.3% YoY) and VND6.7tn (-0.6% YoY), respectively, completing a respective 71% and 77% of management’s full-year target. Management hints that for 2023, while sales would be on track (flat YoY), net income might grow 3% YoY on continued margin improvement in 4Q23. New packaging launch likely to continue across product portfolio through mid-2024. SG&A reached 24.4% of net sales in 3Q23 (+162 bps YoY, +50bps QoQ), as the larger gross profit was reinvested into marketing and promotional activities.

We believe that NIM will recover in 4Q23 and improve modestly in 2024 because deposit rate decline will be factored in coming quarters and the bank concentration in medium and long-term loans has stabilized lending rates. However, the cash flow needed to settle debts, particularly for mortgage, consumer, and developer loans, has been negatively impacted by the economic downturn, that will still pressure on the asset quality of the bank in our view. As a result, we maintain our MARKET PERFORM rating for the shares of HDB, with a 1Y TP of VND 20,100/share.

Despite the slowdown of the economy and a rattled consumer, VRE continues to take advantage of stable growth and operational efficiencies in its core business of mall leasing. Given the weak growth expectations for 2024 due to management’s postponement of new mall openings and the decline in property sales YoY, reflecting the overall strategy of VRE to focus on Vincom Megamall type development which do not have shophouses for sales component as Vincom Plaza/Vincom Plus projects have, we are lowering our 1Y target price to VND 31,300/share (from VND 38,700/share). Our reduced TP reflects the use of a more conservative capitalization rate of higher 0.25%-1.0% than the previous valuation. Nevertheless, despite the level of stress that the counter is experiencing, we feel much of the bad news is already priced in and are maintaining our BUY rating on the shares given the implied 30.7% upside.

For 4Q 2023 and 2024, HHV continues to be benefited from the upcycle of infrastructure investment that resulting in construction as the growth driven factor for sales and earnings during this period. Meanwhile, we assume BOT segment sales growth in 2024 to converge to a natural rate, at 3-5% variable amongst projects. Overall, net earnings for 4Q 2023 and 2024 are respectively forecasted at VND 117 bn (+55% YoY) and VND 477 bn (+12.2% YoY). The lower earnings growth in 2024 net income is due to the high-based performance in 2023. Based on the forecasts for 2024 (which has yet to consider the impact of share placements to 2024F EPS), the P/E forward ratio is around 11.x and the TTM P/E ratio stands at 14.x, which are relatively lower than the three-year average P/E ratio of 16.x. 

We upgrade the shares of HSG from Market Perform to Outperform, and increase our 1-year target price to VND 22,600/share (from VND 19,900/share). In addition to HSG’s significant profit beat for the quarter, the recovery in steel prices and increase in export demand from North America should be catalysts for the shares over the near-term.

Maintain MARKET PERFORM. We up our 1Y TP for PVT to VND 27,000/share (from VND 24,000) based on P/E target of 9x, equivalent to 11% upside.

Short-term catalyst: we think price catalyst can be higher tanker spot rates in winter season and solid 4Q 2023 earnings growth estimated at 15% YoY.

Long-term catalyst: we would be careful on the reversal of the tanker industry should a demand destruction event were to happen, but we believe PVT earnings trend would be more stable because of its high provision practice to serve as a buffer for hard times.

Investment view: We reiterate our Outperform rating for the shares of FMC. Our one-year price target is VND 55,500/share (+15% upside). We remain bullish on the shares, as the Japanese market has a higher ASP, limited competition, and a higher barrier to entry with the preference for the value-added productscoming from Vietnam.

MWG delivered disappointed results in 3Q23 with net sales and net income of VND30.3tn (-5% YoY, +2.8% QoQ) and VND38.8bn (-96% YoY, vs VND17.4bn in 2Q23). The gross profit margin inched up marginally, from 18.5% in 2Q23 to 18.7% in 3Q23, aiding the QoQ recovery in earnings. Excluding the financial income, we estimate the PBT margin of the ICT & CE segment improved from 0.8% in 2Q23 to 1.6% in 3Q23. Net sales and net income tracked for 9M23 totaled VND86.9tn (-16% YoY) and VND77.5bn (-98% YoY), respectively, having accomplished only 64% and a mere 2% of management’s 2023 guidance. As such, we believe earnings have bottomed out in 2Q23 and are on the recovery path, though the pace is lower than our expectations.

NPAT in 3Q23 was lower than expectations. PTB in Q3 2023 recorded total net revenue and net income of VND 1.18 tn (-23% YoY) and VND 78 bn (-36% YoY, -24% QoQ) respectively, a miss vs. the company’s Q3 target. Wood production (of which 65%-70% of revenue is from the US market) declined by -19.8% YoY, given the fact that consumer demand for indoor and outdoor wood products in the US market declined due to inflationary pressure. Stone production (mainly granite, quartz accounting for 35% total revenue) in 3Q23 posted revenue of VND 418 bn (-8.3% YoY), due to demand for home construction and the domestic real estate market having dropped sharply.

In 3Q 2023, PVD posted net sales growth of 11% YoY (-2.1% QoQ), while NPAT reversed its loss of -VND 52 bn to a gain of VND 133 bn this year, achieving 74% and 343% of the company’s 2023 target, respectively. This level of earnings is lower than the flat QoQ expectation due to a large forex loss.  PVD’s nine month 2023 NPATMI reached VND 381 bn, or 73% of our 2023 estimate.

HPG’s net profit during 3Q23 was VND 2 tn, an increase of 38% QoQ and showing significant recovery from the loss of -VND 1.8 tn during 3Q22. Recovery in net profit was driven by the improvement in sales volume, lower input materials cost, and better inventory management. For 2023, we lower our 2023 net profit estimate for HPG from VND 7.03 tn to VND 5.95 tn (-29.9% YoY) due to the recent surge in the metallurgical coal prices. However, we expect that 2024 earnings can post a strong rebound of 81% off the 2023 low base - reaching VND 10.78 tn. This is driven by: (1) the recovery in demand, which could be more significant in the second half of next year; and (2) the stabilization of steel prices on the back of better regional supply-demand considering the recent decline of Chinese steel output and the low profit margin of steel mills in both China and Vietnam.

On 26 Oct 2023, the BOD of Vingroup (VIC: HOSE) approved a $250 million USD-denominated exchangeable bond (the EB) with maturity scheduled for 2028, that can be exchanged for existing VHM shares that VIC owns. The EB features a 10% coupon rate, and exchangeable into VHM shares at an exchange price of VND 51,635 per share. According to the Company, VHM stock price was under temporary sale pressure on 26 October 2023 as certain EB investors hedged their investment by selling VHM shares. We expect the technical impact to be limited and short-lived, as all hedging activities have been completed according to the company.

For 3Q23 VFS posted vehicle sales of USD 319mn (+1% QoQ), total revenue of USD 343 mn (+4% QoQ), and gross losses of USD 102 mn (-9% QoQ). Its gross margin stands at -30% (QoQ increase of 420 bps) due to an increase in sales and a decrease in inventory write-downs.  However, these gains were offset by a financial cost of USD 145 mn (+25% QoQ). Overall, VFS increased its loss during the quarter to -USD 623 mn (see fig 4). Through the first three quarters of 2023, the net loss is -USD 1.7 bn, with an accumulated loss of -USD 7 bn.

During August 2023, HT1 slashed guidance for 2023 -11% for net sales and -77% for PBT. HT1’s net sales guidance is lowered from VND 9 tn (+1% YoY) to VND 8 tn (-10% YoY), with cement sales volume targets declined -10%. PBT target has been lowered from VND 345 bn (+6% YoY) to VND 80 bn (-75% YoY). This reflects management's perception of weak cement demand, as well as gross profit margin contraction. At 13,950 VND/share, HT1 trades at a 2024F P/E of 27x and a 2024F EV/EBITDA of 7x. Our updated 1-year price target for HT1 is VND 12,600/share (from VND 12,000/share) as we roll forward our price target to 2024F, and we maintain our Market Perform rating on the shares given that cement demand likely will continue to weaken during 1H24 (with a possible rebound during 2H24).

For 2Q2023, HHV achieved net sales of VND 612 bn (+26.5% YoY) and NPAT of VND 109 bn (+37% YoY). Their respective values for 1H2023 were VND 1.15 tn (+25.9% YoY) and VND 167 bn (+19.9% YoY), accomplishing 47.4% and 57% of its target for FY23. Significant sales growth is explained by the recovery of transportation after fully reopening from 2022, as well as the busy cycle of infrastructure construction. Overall gross profit margin during 1H23 contracted to 47.4%, from 55.2% of 1H22, with higher revenue coming from construction (which boasts thinner margin). 1H23 outflow referring to financial expenses and principal repayment was VND 580 bn in 1H23 (+57% vs. 1H22) and VND 519 bn (+39% vs. 1H22), mostly derived from debt of three BOT projects.