Sector Report

Share of healthcare companies increased 25% YTD in 2021, slightly underperforming the VN Index YTD by 9%. For an overview in detail, pharma company stocks increased 19% YTD, while hospital operators stocks rose by 51% YTD. Best performer: TNH, a newly listed hospital, saw its share price increase by 89% YTD. The company’s net profit is estimated to increase by 40% YoY in 2021, following the recent launch of two new hospital facilities.

Oil has always reacted swiftly to headlines of new Covid-19 variants. As such, there is still lingering pandemic risk. One catalyst to support oil prices is rising demand, especially from the aviation sector (which also means re-openings and/or recovery of various countries). Of course, any matters related to geopolitical tension could be the canary in the coal mine, and drive-up oil prices over the short-term. According to OPEC, total active rigs in 2021 have surpassed the number of rigs in 2020 but remain behind 2019. Due to the switch of capex to green energy, investment in fossil fuels has been lower in recent years. Therefore, excess supply is unlikely near-term which will in turn will be supportive to oil prices.

Construction sector valuations increased 58% during  2021. Best performers: ROS (+390%); HUT (+352%); HBC (+86%); DPG (+220%); and FCN (+122%). Laggards included: CTD (+26%) and LGC (-24%). Excluding outliers (ROS and HUT), the construction sector’s 2021 YoY performance was markedly lower at 28%. Sector outperformance in 2021 partially priced in the expectation of earnings rebound during 2022.

Insurance sector valuations increased 10.5% in 2021, underperforming the VN Index 23%. Underperformance was solely due to BVH, whose   price declined -14% YTD. Meanwhile, remainder of listed insurers had a successful year due to the state divestment catalyst.

Best performers include: PTI (+168% YTD); VNR (+94% YTD); and BMI (+85% YTD).

The F&B sector underperformed the VNIndex in 2021. Total market capitalization of the F&B sector increased just 12%, while the VN Index returned +34% in 2021 (data as of 24th December 2021). MSN was the best performer in the sector, soaring 94%, while VNM and SAB were the worst performers - dropping  -18% and -24%, respectively. MSN and MCH and MML posted impressive returns of 94%, 27% and 64%, on the back of both strong revenue and earnings growth. Their products are deemed essential, and had strong demand during the pandemic. As MSN owns the largest modern trade chain, its consumer business was a key beneficiary. The VNM family (also including subsidiaries GTN and MCM) performed poorly, as sales and profits were hit by the double whammy of weak dairy consumption and a strong rise in raw milk costs. The KDC family (also including VOC and TAC) performed well, increasing by 64%, 65% an 62% YoY respectively.  Demand for cooking oil held up well although the margin was impacted by a palm oil price hike. Sugar names performed well: SLS (+119%); LSS (109%); and QNS (+30%). Performance was due to upcycle of global sugar prices since the beginning of 2021, as well as local protective measures (anti-dumping and anti-subsidy tariffs on Thai sugar). Beer companies were hit the hardest by the pandemic, as strict lockdowns meant no on-premise sales (which previously accounted for 50% of beer sales pre-Covid).

Automobile company stocks increased by only 7.4% in 2021, underperforming the VN Index YTD by -26%. Top performers: HAX, with its share price increase 105% YTD. Although the company’s net profit in 2021 is estimated to decline by -24% YoY due to the impact of the strict lockdown period in 2Q and 3Q21, the company still posted strong recovery in 4Q21 and expect positive annual sales growth. Another top performer is SVC, with its stock price having increased 93% YTD. SVC has also suffered from the impact of 3Q21 lockdown but managed to cut off significant operating costs. Thus, it could maintain net profit growth of 13% YoY in 2021.Despite HAX and SVC strong share price performance, the biggest listed automobile company VEA posted only 2% YTD growth in its share price, as VEA suffered from both a decline in automobile and motorcycle sales, while facing unresolved corporate governance issues during 2021.

Valuation of the seaport & logistics sector increased by 94% YTD in 2021, outperforming the VN Index by 60%. Best performers include shipping names: HAH (+295%); VOS (+722%); VNA (+673%); and MVN (+205%). Most other key names delivered strong performance as well - GMD (+44%); VSC (+45%); SGP (+183%); PHP (+72%); and TMS (+142%). VTP was the only underperformer. Sector performance was strong over the first seven months, and slowed in 2H21 when Vietnam was hit hard by the fourth Covid-19 wave.

Valuations of the Vietnam fisheries sector increased  54.3% YTD on average in 2021, outperforming the VN Index by 20.5% YTD. Best performers include IDI (+98% YTD); FMC (+58% YTD); VHC (+56% YTD); MPC (+53% YTD); ANV (+41% YTD); and CMX (+22% YTD). Both shrimp and pangasius exporters alike have been posting encouraging results since Q2’21, and exhibiting  strong turnaround signals (in terms of price recovery into 2022) in Q3’21 when most shares were re-rated.

The shares of the banking sector have increased 36.6% on average in 2021, outperforming the VN Index by 2.8%. Top performers include SSB, TPB, LPB, MSB, and VPB, with price increases of above 90% YTD. Those which increased between 50%-90% include MBB, TCB, STB, OCB, VIB, and SHB. State-owned commercial banks underperformed in 2021.

The shares of the textile and garment sector increased +111% YTD in 2021, outperforming the VN Index by 77% YTD.  Best performers include VGT (+173% YTD); MSH (+120% YTD); STK (+186% YTD); TNG (+139% YTD); NDT (+456% YTD); and ADS (+385% YTD). All companies re-rated and outperformed the VN Index during the year due to a strong turnaround in earnings results from both the garment and yarn sub-sector, off a low base in 2020.

Nationwide power consumption growth in 2022 is expected to grow +9% YoY on back of 6.5% GDP growth driven by higher vaccination rates and a gradual economic reopening. Although hydrological conditions are predicted to be less favorable during 2022 & higher demand for thermal power plant is assumed, there could be uneven recovery of earnings between coal-fired and gas-fired plants due to varying average sales prices. Higher gas prices have made gas-fired power plants less competitive. With respect to power demand recovery, EVN/A0 should raise higher utilization rates for coal-fired plants given the lower cost relative to gas-fired plants.

The 4th wave of the pandemic in Vietnam has negatively affected pharma companies, as lockdowns have been prolonged nationwide: Cumulative up to 8M 2021, we estimate that total pharmaceutical sales in Vietnam have declined by -11% YoY, with sales from retail drug stores declined -3% YoY and sales in hospitals declined -16% YoY based on estimate from listed pharma companies and drug bidding data from Vietnam Drug Administration. Strict lockdown measures, especially Southern provinces, has caused disruption in supply and distribution activities. Pharma companies in the South like IMP, DHG, and OPC had to cut production by 20 – 30% during July & August to comply with the Vietnamese government’s “three on the spot” work-and-live-on-site social distancing requirement. Also, many hospitals in the South have been transformed into Covid-19 treatment centers, which has resulted in significant drop of pharma sales, as the hospital channel accounts for over 60% of industry demand. 

Recently, the Ministry of Finance submitted to the Government a draft revision to the Insurance Law, which is expected to take effect from 2023. In general, this revision will allow insurers greater autonomy in their business activities, with regulators not interceding in their operations as much as before. Instead, the draft prioritizes monitoring, promoting transparency, and the healthy development of the insurance sector. Accordingly, this draft revision adds additional articles which will serve as a guideline to insurers, while revising previous regulations in order to avoid confusion upon actual practice. The second most notable point is the introduction of a capital adequacy ratio, with stricter requirements on disclosure. The draft of the Insurance Law did not clearly state which solvency framework would be applied, however, we expect it to be a risk-based capital (RBC) framework which would be regulated under subsequent sub-law documents. Lastly, we note that this draft prohibits insurers from engaging in real estate business, with the only exception of engaging in real estate business related to the insurer’s headquarters  - along with a few other narrow exceptions. We view this draft revision as a positive for the long-term development of the insurance sector. Given  changes to the solvency framework, there might be pressure to raise capital at certain insurers. The regulations do, however, have a 5-year transitional period which provides a buffer between legal framework and real world application (2023 – 2027). Hence, we do not believe that this will cause abrupt changes to the sector’s short and medium-term outlooks.