Company Report

Per management, sluggish consumer spending continued to weigh on April sales. With worse-than-expected macroeconomic conditions during 1Q23, (inflation above the annual target, dismal exports, and rising unemployment) April sales were sluggish. We lower our 2023 and 2024 net income forecasts -7% and -10%, respectively, to VND 1.89 tn (+4.4% YoY) and VND 2.08 tn (+10% YoY). Despite lowering our earnings forecast, we apply 2024F financial data (from 2023F) and an unchanged target P/E of 15x to derive a new target price of VND 86,100 (from VND 85,800). With an upside of 13% from the current share price, we reiterate our OUTPERFORM rating on the shares of PNJ.

We maintain our 2023 revenue and net income estimates at VND 19.6 tn (-11% YoY) and VND 456 bn (-33% YoY), respectively. In the context of weak discretionary spending, DGW likely will offer additional promotions (affecting both gross profit margin and SG&A to sales ratio) to clear inventory and protect market share. We expect revenue growth to recover from 4Q23, led by: (i) more favorable macroeconomic conditions (lower interest rates, lower unemployment); (ii) higher credit offered by consumer finance companies; and (iii) continuously adding brands. This should help to expand the net profit margin. As such, 2024 net sales and net income are estimated at VND 22.3 tn (+14% YoY) and VND 585 bn (+28% YoY), respectively. Our new 1Y target price on the shares of DGW is VND 32,300 per share (from VND 28,700), and we maintain our MARKET PERFORM rating.

At the recent AGM, net revenue and PBT guidance for 2023 was set at VND 9.0 tn (+1% YoY) and VND 345 bn (+6% YoY), respectively. Guidance reflects a cement sales volume target of 6.7 mn tons (+1% YoY) and clinker sales volume target of 530k tons (+8% YoY). HT1 expects to pay a cash dividend of 4% on par for 2022 earnings distribution, translating into a 2.9% dividend yield. We maintain our Market Perform rating on the shares of HT1, and lower our one-year target price to VND 12,000/share (from VND 13,400/share) as we lower our net profit forecast 29% due to: (i) lower cement sales volume; and (ii) higher sales-related expenses.

In 1Q 2023, revenue of the company went down by -33% YoY reaching VND 162 bn, correlating with the -34% YoY volume decline during the quarter. 1Q 2023 PBT declined by -35% YoY and reached VND 129 bn, turning in a pretax margin of 79%, which is superb but lower than 82% level last year. 1Q 2023 NPAT posted at VND 113 bn (-40% YoY). Even though the company faces short-term challenges due to external weak demand, the company remains sound in terms of financial and management quality, and thus serves as a good investment choice for the long-term, at the right price. The recent delay of Long Thanh International Airport construction is certainly good news, as it would extend the time Tan Son Nhat Airport serves as the sole gateway for air cargo in Southern Vietnam, which is definitely a positive for SCS.

HPG’s earnings reversed during 1Q23 and were positive at VND383bn. Much of the earnings recovery during the quarter likely took place during March, led by the 3-10% MoM increase in steel prices, and a sales volume increase of 5% MoM. On the other hand, furnace utilization rates at HPG continued to decline to a record low of 65% from 70% during 4Q22 and 100% during 1Q22. Construction steel volume during 1Q23 was 868k tons, falling 35% YoY given the high base effect of 1Q22 (historical quarter of high volume), but recovering 6% QoQ. The volume of other steel segments, including HRC, steel pipe, galvanized steel and billet also dropped between 27-59% YoY.

We attended the PLC AGM on 20^th April and there are some key takeaways: Annual targets of VND 8.9 tn for revenue (+3.5%) and VND 200 bn for PBT (+8.5% YoY) were approved. Management discussed that the asphalt segment should be a key growth driver over the next several years, as it benefits from the current public investment acceleration driving GDP growth. To illustrate, management stated that PLC has supplied and will further supply asphalt to  popular projects, such as 12 sub-projects of the mega project North-South expressway (to be completed no later than 2025), amongst others.

At NKG’s recent AGM, a revenue target of VND 20 tn was set – declining -13.3% YoY. However, the company is expected to turn a profit of VND 400 bn compared to a loss of -VND 107 bn during 2022. Guidance is based on a sales volume target of 940k tons (+7.4% YoY), and an HRC steel price of between USD 600-700/ton. According to management, NKG continued to book a -VND 50 bn loss for 1Q23. Sales volume during 1Q 2023 was 194k tons and fell -25% YoY, but recovering 6.2% QoQ due to a 14.1% rebound in export volume.

SZC held its annual general meeting to set its target for 2023, and fielded questions regarding its operations. Using NPV method, our new 1-year target price for SZC is VND 31,900/share (previously VND 51,900/share) due to: (i) the CDIP investment capital has been marked with market price and increased from VND 4.9 tn to VND 8.0 tn; and (2) higher capex for CDUA (from VND 1.2 tn to VND 9.8 tn). We reiterate our MARKET PERFORM rating on the shares of SZC.

We maintain our Outperform rating on QNS, citing our improved outlook on the company. We revise up 2023 NPAT by 8% compared to our previous forecast due to (i) higher sugar prices and (ii) higher refined extra type (RE) production volume. Our target price for QNS is VND 48,500/share (from VND 46,000/share), representing a +14% upside (total ROI 21%). At the April 1^st 2023 QNS AGM, net revenue and net profit guidance for 2023 was set at VND 8.4 tn (+1% YoY) and VND 1 tn (-16% YoY), respectively. We note that the company has a tradition of setting a conservative financial plan.

On April 7, 2023, FMC held its annual general meeting.  2023 net revenue and profit before tax was set at VND 5.9 tn (+3% YoY) and VND 400 bn (+22% YoY), respectively. The Company has track records of exceeding its business plan. For 2022 earnings distribution, FMC expects to pay a cash dividend of 20% on par, translating into a 4.8% dividend yield. For 2023, a minimum cash dividend of 20% on par was approved. The bonus for management is expected at 2% of NPATMI complete business plans and 4% of the exceeded NPATMI business plan.

We derive a new target price at VND 77,400 (from VND 60,000) as we roll over to average 2023-2024 financials and use higher target P/S for Long Chau. With an upside of 19% from the current share price, we upgrade our rating to OUTPERFORM (from UNDERPERFORM) as we believe that the recent share price weaknesses reflected the poor 1H23 performance to some extent. Besides, Long Chau deserves rerating given the recent slow down in new openings of competitors Pharmacity and An Khang. Pharmacity faces internal restructuring issues, while MWG preserves cash for other business lines other than An Khang. As a result, FRT is well positioned to benefit from the transition from traditional trade to modern trade, with less intense competition from other modern trade pharma retailers. Long Chau can tailor its product mix suited to customers’ needs in each region, enabling the chain to generate higher revenue and hence profit margin than peers. Amongst the 3 largest pharmacy retailer chains, Long Chau is the only chain which is currently profitable.

Due to the worse-than-expected macroeconomic indicators in 1Q23 and the sluggish sales of ICT & CE in Jan-Feb 2023, we revise down our 2023 net income forecast by -11% to VND 4 tn (-3% YoY), with earnings expected to come bouncing back in 4Q23. We introduce our 2024 net income estimate of VND 5 trillion (+26% YoY). We now use our average 2023F-2024F financials (from 2023F) for valuation and unchanged price multiples, and derive a new target price at VND 44,400 (from VND 44,600). With 9% upside from the current share price, we maintain our MARKET PERFORM rating. MWG currently trades at 2023-2024F P/Es of 15x and 12x respectively, which is lower than 3-year historical P/E of 16.3x. However, the stock price may not have yet priced in the uncertainty on the earnings trough in 1H23F and the economic recovery pace.

DHC’s NPATMI declined YoY in 2022, the first time since 2018. Net sales reached VND 3.9 tn (-5.3% YoY) due to a decrease in paper consumption demand. Such a decrease in demand was witnessed by export company customers and packaging companies. DHC has also doubled raw material inventory during 4Q22, compared to the same period last year, as the company accumulated raw materials when the OCC paper price dropped -40% YoY. We estimate that the current inventory should help to improve the gross profit margin during 1Q23.

Earnings continued to normalize from the brief upcycle with NPATMI declining -21% QoQ and -16% YoY, leading to our lowering of 2023 earnings forecast by 24%. Lingering high inflation and overstocked inventories issue needs some time to correct and shipping volumes are expected to remain weak within 1H 2023, before improvement can be expected from 2H 2023.We change our rating for the stock to OUTPERFORM (from BUY) with a revised 1Y P/E target of 6x and a revised 1Y TP of VND 40,500/share (~16.9% upside). We believe even though earnings outlook might be negative in short-term, the industry dynamics have passed its worst time, as evidence in the recent recovery of charter rate. We expect 2H 2023 industry dynamics to improve, which can lay a good foundation for market re-rating for the sector.