Company Report

HT1 revenue in 2Q20 dropped by -14% YoY to VND 2.035 tn, due to poor market demand. However, PBT was flat compared to 2Q19 at VND 257 bn. Excluding net abnormal expenses of VND 14 bn for sponsorship activities, PBT would have actually improved by 4.5% YoY. The improved operating result  is attributed to the significant improvement in gross margin on the back of reduced energy costs, and a reduction in outsourced volume.  As 2Q20 PBT is in line with our estimate, we maintain our PBT forecast for 2020 of VND 950 bn (+2% YoY). In 2021, we expect HT1’s earnings to improve 11% to VND 1.052 tn, due to our anticipation of a recovery in market demand and a reduction in financial expenses. We upgrade the rating for the stock from OUTPERFORM to BUY, with a 1-year target price of VND 16,000/share based on a target PE and EV/EBITDA of 8x and 4.5x, respectively. The dividend yield of 9.3% payable in Dec is also  supportive to the shares.  

While our 2020/2021 forecasts are kept almost unchanged, we upgrade our recommendation for GAS from Market Perform to Outperform based on an attractive upside. Since the share price has fallen recently along with the sharp market correction due to the new coronavirus cases in Vietnam, the current entry point appears to be quite attractive. Further, as we roll over our valuation basis to 2021, we increase our 1-yr target price to VND 74,000/share (from VND 71,000/share) which is predicated on an unchanged target P/E of 16x combined with the DCF approach. Our new share price represents 13% upside and including dividend yield, total return for the shares is estimated at 18%. 

SCS cargo volume took a hit by -24% YoY in 2Q 2020 due to the pandemic. International cargo was down by -27% YoY and domestic cargo was down by -14% YoY. Cargo for export, interestingly, saw less of an impact than import cargo. Revenue declined -23.7% YoY reflective of weaker cargo volume YoY while the impact to PBT was lessened due to cost cuts. We revise down our estimates for 2020 and 2021 to reflect new base case assumptions for the pandemic in the 2020-2021 period, with 2020 PBT estimated at VND 461 bn, -14.2%. We downgrade our rating to MARKET PERFORM, with a 1Y target price of VND 120,200/share

HPG’s 2Q20 revenue and net profit were strong at VND20,422tn and VND2.756tn, up 35% and 34% YoY, respectively. Performance was led by steel volume growth, high pork prices, and a reversal of F/X losses. Results were also close to HPG’s estimate from its recent AGM, and in line with our forecast. Our going-in 2020E called for VND79.9tn (+26% YoY) in revenue and VND9.27tn (+22% YoY) in net income. We lift our revenue to VND80.1tn (+26% YoY) and net income to VND9.51tn (+26% YoY). We reaffirm our BUY call with a new 12-month TP of VND32,400/share (previously VND29,300), based on unchanged respective P/E and EV/EBITDA targets of 9x and 6.5x, and 2H20-1H21E earnings. Our EPS forecasts and TP do not take into account the 2019 dividend, including 5% cash (VND 500/share) and 20% stock dividend. The ex-dividend date is 29 July 2020. 

We hosted an online meeting with DGW management and discussed the distribution of Apple products in Vietnam. With 40% of iPhones in Vietnam being brought into the country outside of official import channels, there is an opportunity for authorized distributors like DGW to tap into this potential. We revise up 2020-2021 earnings by 8% and 6%, respectively after considering economic potential to be unlocked from the Apple contract. Although the contribution to earnings is relatively small, we believe that by distributing Apple products, DGW will gain brand awareness, hence enabling the company to obtain more contracts from reputable brands in the future. With an unchanged target P/E of 8.4x on our revised 2020-2021 financials, we derive a 1-year target price at VND 45,200 per share. We reiterate our OUTPERFORM rating. 

Capacity expansion to spur long-term growth for Moc Chau Milk (MCM): In recent years, MCM revenue was constrained due to a lack of capacity: namely full factory utilization and limited dairy farms. After Vinamilk (VNM: HOSE) took over the controlling right indirectly via GTNfoods (GTN: HOSE) in MCM, it put forth an ambitious capex plan of VND 1.6 tn to develop a 4,000 head dairy farm and a new dairy factory in order to address these constraints. Capex is expected to be funded by an increase in charter capital. Post-deal, Vinamilk is anticipated to hold over a 51% stake in MCM  - up from its current indirect stake of 28.3%. In 2020, we forecast MCM to post VND 2.76 tn in revenue (+8% YoY) and VND 201 bn in net profit (+20.2%), which should translate into 2020 EPS of VND 3,003 pre-capital raise. Growth is likely to come from restructuring of MCM’s distribution network, and changes in sales mix. Moc Chau Milk is a household name in Northern Vietnam given its higher quality milk products.  Over the long-term, we are of the opinion that MCM could post stronger-than-industry growth (i.e double-digit bottom line growth) in the coming years thanks to capacity expansion and margin improvement in premium products and synergies with Vinamilk, especially in terms of market development. MCM expects to list on HOSE within 9 months.

Net profit for HSG in 3Q20 grew at a remarkable breakneck pace of +91% YoY to VND 307 bn, fueled by the drop in HRC input price versus a resilient output price. Sales volume in the quarter also increased positively by +5% YoY on the back of pent up demand from Feb-Mar period due to the Covid-19 epidemic, as well as from gradual stabilization in export volume. As results in 3Q20 exceeded our expectations, we revise up our net profit forecast for FY2020 from VND 670 bn (+85% YoY) to VND 841 bn (+133% YoY). For 2021, although we expect sales volume might increase by +4% YoY to 1.52 mn tons, net profit is expected to correct by -5.6% to VND 794 bn due to normalization in the gross margin. HSG shares are currently trading at P/E and EV/EBITDA 2021 levels of 6.5x and 4.2x, respectively. We maintain our Outperform rating for the stock, with a 1-year target of VND 13,700/share based on an unchanged composite target PE and EV/EBITDA of 7x and 5x, respectively – implying upside of 22%. 

Despite a potentially higher dividend yield, and a reduced interest cost and FX risks associated with the planned foreign debt payoff, we still find that operating profits will continue to be under significant pressure due in large part to the significant slump in the price of VCGM which we do not anticipate to recover for quite some time. As such, we maintain our target price of VND 23,600 and rating at Market Perform. As of the 17-Jul-2020 close, NT2 is trades at FY20/FY21 EV/EBITDA multiple of 5.4x/5.7x - which is below the regional level of 8.8x/8.1x (7x/6.4x, excluding Thailand), but offering much more generous FY20/FY21 dividend yield of 10% (vs. regional of 5.8%). Lending support to the shares is the fact that NT2 is a defensive name amid these uncertain times globally along with its generous dividend yield in FY20 & FY21 of 10%. 

On the back of a -9% YOY decline in 1H ’20 VCGM price – where we do not envision a recovery until mid-2021 when the COVID-19 pandemic is contained; and a downward-revised PPA price for PPC’s associate - Hai Phong Thermal Plant (HND) in 2021 which will negatively impact overall earnings and the company’s dividend; we revise downward our earnings forecast for 2020 by 3% and remain weak outlook for 2021. As such, we are forced to cut our price target by 5% to VND 26,000 – which presents investors with a meager 5% upside. The questionable dividend yield of 8% in FY20 causes us to maintain our Market Perform recommendation. Furthermore, by looking forward to FY21, we expect a lower dividend yield of 6% due to saving up cash for Pha Lai 3 coal-fired plant’s capex purposes. Pha Lai 3 is being debated & approved to add into the Power Development Plant VIII (construction pipeline: kick off from 2022-2023 and finish in 2027-2028).

We are revising down our 2020 forecast for VEA by 2%, which corresponds to a slower recovery in the motorcycle market than we had previously thought for Q2. In Q2 alone, Honda Vietnam published a 30% decline in retail sales volume. there is no pent-up demand as expected. Our revised 2020 EPS forecast includes weaker YoY JVs’ NPAT (-13.4% YoY) due to a -10% YoY contraction in Honda motorcycle volume – much of which will be reflected in Q2. Reflective of our anticipated decline in earnings, we are also cutting our price target by 6.0% to VND 45,500 per share. Lending support to the shares is VEA’s attractive dividend of VND 5,252 per share (~12% dividend yield along with being listed on the HNX or HOSE in the coming time. Maintaining a Market Perform rating; lowering TP 6.0% to VND 45,500.

Our current estimates for SAB are VND 27.96 tn (-26% YoY) in net sales and VND 4.25 tn (-21% YoY) in NPAT in 2020, which is a more generous outlook than the Company itself - implying 26% higher net sales and 31% higher net income vs. SAB’s plan. For 2021, we forecast net revenue of VND 35.1 tn (+25.6% YoY) and net income of VND 5.01 tn (+17.9% YoY), which means the pre-Covid level.   However, our forecasts are under review.because the demand after the social distancing period has recovered better than our expectation.  Our rating on the stock is Market Perform.  

We recently attended PLX ‘s online 2020 AGM. The Company set the PBT target for 2020 at VND 1.57 tn, which drops by -72% YoY. We think that the guidance justifiable given the significant impact of the Covid-19 epidemic on fuel demand, and the severe plunge in the oil price in the first half of the year. However, it is noteworthy that the guidance implied improving PBT in the last 3 quarter of 2020 at VND 3.27 tn, which drops by a lower rate of 20% YoY. If Covid-19 does not come back to Vietnam and the oil price stabilizes in the coming time, we believe the Company’s earnings can recover positively in 2021. At the current price, PLX is trading at a P/E for 2020 and 2021 of 43x and 16x. We will update to full estimates and valuation after the company releases its official financial reports for 2Q20.