Sector Report

We forecast a 10.5% YoY growth for the national electricity consumption in 2025, based on our assumption of energy elasticity of 1.5 and respective GDP growth estimate of 7% YoY.

Despite higher demand, we expect supply will continue to keep up, mainly driven by the hydropower turnaround, completion of 500 kV Circuit-3 power transmission line and continuing enough coal supply. However, we see that power shortage risk still exists.

The prevalence of La Niña or neutral weather will benefit hydropower plants. El Niño ended during May 2024 and has gradually transformed to neutral weather pattern, which we expect to persist or gradually shift towards La Niña during 2025.

Coal-fired electricity will continue to be an important power source, which is more stable than other sources.

The natural gas supply shortage will become more intense during 2025. We anticipate more LNG imports to ease this issue as well as support the launch of Nhon Trach 3 and 4, the first LNG-fired project in Vietnam.

On the other hand, we forecast a higher FMP YoY, which could partially support the performance of thermal power plants.

Turning to renewables, there have been some key policy developments, including DPPA (Direct Power Purchase Agreement) mechanism, Amended Electricity Law, Decree on self-production and self-consumption rooftop solar power.

The average cost to build and operate renewable plants (excluding hydropower) is declining, which is favorable to expand this power source.

We expect 2025 to be an OUTPERFORMING year for the construction sector. As mentioned in the 2025 Macro Outlook report, intensive infrastructure investment is expected to play a crucial role in driving growth in 2025. The national budget for 2025 allocates VND 87 trillion to the MoT, increase compared to the 2024 budget, with 12 infrastructure projects set to commence. Furthermore, 2025 marks the final year of the public investment cycle, during which key projects are expected to be accelerated to achieve the target of 3,000 km of expressway by the end of the year. Although detailed budgeting has yet to be disclosed by the MoT, we anticipate a high disbursement plan and significant project completions in 2025. Additionally, the recovery in demand and new supply in the residential market will further support this growth. Consequently, the construction sector is anticipated to be a secondary beneficiary of these trends. 

AI-related projects are boosting global IT spending, especially that related to generative AI. Data center could see higher spending during 2025. For IT services, after experiencing sluggishness in spending from global businesses between 2023 and early 2024, we expect a rebound during 2025.

The collaboration with NVIDIA will create a pathway for Vietnam to achieve AI breakthroughs in the future. The global AI chip leader has entered into a cooperation agreement with the Vietnamese government in December 2024 to establish the first R&D center in the country and Viettel Group’s (Viettel) AI data center, utilizing NVIDIA technologies. In the same month, NVIDIA also announced the acquisition of VinBrain, being one of its first steps to advance AI in Vietnam. On the other hand, NVIDIA is also partnering with Vietnamese leading technology/telecom companies.

Related to semiconductors, we see both opportunities and challenges to fulfill the strategy of the field. During September 2024, the Vietnamese government promulgated the strategy (Decision 1018/QD-TTg) to develop the semiconductor industry, outlining “C=SET+1” formula and a three-phase roadmap to 2050. Notably, it emphasizes some important targets to achieve by 2030. Along with supporting factors, we are concerned that the semiconductor talents training and the fabrication stage could be key challenges over the medium-term.

According to the most recent OPEC forecast, global oil demand is expected to rise 1.6 mn bbl/day during  2025, while supply is expected to grow at a higher rate of 1.9 mn bbl/day for 2025 to 104.8 mn bbl/day driven by an increase of 1.5 mn bbl/day from non-Opec+ countries, especially in the Americas, including the US, Canada, Brazil, and Argentina. As a result, we expect average oil prices to range between USD 70 -75/bbl for 2025. The catalyst for oil prices include a further delay of the OPEC+ reversal of its production cut, a better-than-expected Chinese recovery, and/or a faster-than-expected cut in interest rates.

The divergence of earnings growth in 2023 continued during 2024 in line with expectation, as it continued to be a year of divergence for oil and gas stocks. Midstream names like GAS and BSR posted weaker  profits/losses due to a decline in: (1) sales volume associated with  the depletion of outstanding fields (for GAS), and the suspension of a plant for scheduled maintenance (for BSR); and (2) a lower sales price. . PVS also posted flat earnings growth due to the lower margin from international EPC contracts for both traditional oil&gas and offshore wind farms compared to domestic oil&gas contracts. On the other hand, PVD grew, due to the strong improvement in utilization and day rates from the renewal of drilling contracts under more favorable market conditions. Meanwhile,  PLX grewfrom the increase in volume through the retail channel.

The outlook for 2025 is more optimistic, with growth anticipated across key channels. The prescription drug channel is expected to maintain its upward trajectory, supported by favorable policies. The OTC channel, however, exhibits signs of recovery after potentially bottoming, aided by economic growth. Revenue growth for companies under coverage is forecast at 12%, surpassing the industry average of the past two years. Earnings growth projected at 22%, rebounding from a challenging 2024. We note the expected forex headwinds during 2025 may increase imported ingredient prices.

On the other hand, the impact of new investments aligned with policy trends could take between 1-2 years to meaningfully impact top and bottom lines. Over the short term, Circular 07 remains the most influential driver for top line growth (e.g. DBD, DHG, IMP), as it aims to keep imported drug companies at bay.

We expect private hospitals to continue to grow, especially private general hospitals with at least 50 beds in the more remote regions of Vietnam. These provide patients with the much-needed advanced services and better care without traveling to Hanoi or Ho Chi Minh City. The percentage of private beds currently stands at around 5.8% of both private and public beds, much lower than government’s goal of 10% before 2025.

Domestic demand can maintain solid growth in the coming time, while export can slow down: We further expect domestic steel demand to grow by 10% for 2025, fueled by the strong recovery of the property market during 2024, resultant of the doubling of condominium new launches YoY. In addition, the acceleration of public investment in the final year of 2021-2025 term would also help to boost the consumption of steel. However, steel exports can slowing after remarkable recovery this year due to increasing more pressure from protectionism globally.

Competition from China may mitigate: China export volume increased 22.6% YoY to 101.15 mn tons in 11M24 after a 36% increase for 2023. According to the World Steel Association, Chinese demand is expected to drop another -1% during 2025, after falling -3% during 2024. However, the production volume in China through 11M24 dropped -2.7% YoY to 929 mn tons and is expected to drop another -1.3% YoY for 2025. This could lead to a decline in Chinese export volume of -9% compared to 2024, according to Mysteel. In addition, the pressure from imports in the domestic market can be mitigated with possible imposal of anti-dumping tariffs to flat steel imports.

As many supporting policies have ended, we expect car volume sales growth to peak in Q4/24 and decelerate during 2025. We expect profit growth for passenger car segment to be around 4% only, as new brands, such as Vinfast and MG, challenge incumbents with products at lower price points and aggressive promotion. Total domestic production capacity is also expected to increase from 750,000 vehicles/year in 2022 to 1.1 mn by year-end 2025, which should benefit consumers but increase the pressure on manufacturer and dealer inventory levels. For motorcycle sales, we expect 2025 volume growth to be 1-2% given a high 2024 base.

We have a NEUTRAL view for companies within our coverage as 2025 NPATMI growth is only at 4%, much lower than overall market (14%). Our top pick for the sector is VEA given its attractive dividend. While HAX is expected to outperform (2025 NPATMI growth 45%) during 2025, the company is trading at a higher 12-month forward P/E level compared to its 5-year historical average. As a result, we have HAX on our trading idea list.

The supply of new industrial parks is projected to expand before the end of 2025. There were 27 approved investment projects for industrial parks across the nation, with a total area of 8,886 ha, increasing the total area in Vietnam's industrial parks to 18,800 hectares, a 9% YoY growth. New industrial parks are expected to commence operations by the end of 2025.

The procedures for licensing the establishment of new industrial park are anticipated to accelerate in 2025. In November 2024, the National Assembly enacted legislation amending and supplementing four distinct laws (planning, investment, PPP, bidding). Notably, this amendment to the Investment Law mandates the delegation of authority to grant investment policies for industrial parks to the Provincial People's Committee, rather than the Prime Minister. It is believed that this decentralization of industrial land management will expedite the establishment of new industrial parks, particularly benefiting companies with substantial converted land resources.

Despite the macroeconomic challenges, we expect that 2025 will provide greater economic opportunities than 2024 especially in terms of public investment activities and the recovery of the real estate market. Further, timely regulatory assistance should allow the banks to support the borrowers and have more flexible provisioning. However, we believe that rivalry amongst banks, particularly JSCBs, will remain severe during 2025. Given the gradual rise in deposit rates after a historic low, we project that NIMs will be under pressure at JSCBs yet rebounding marginally at SOCBs. However, asset quality improvement should be the main theme for the banking sector during 2025. In general, we hold a positive view on the banking sector with an expected PBT growth of 17.5% YoY during 2025 for our bank coverage.

Banks under our coverage are trading at a 2025 P/B of 1.1x vs. average P/B of 1.59x since 2017, largely reflecting the potential credit risk related to the market turbulence. Although we believe that the risk from project mortgage loans is not fully priced in, we expect that the government support will gradually mitigate the negative impact.   

For 2025, we expect pangasius sales volume growth to be resilient despite the challenges of tariffs due to it fitting within consumer preference and pricing. Between Jan-Oct ‘24, pangasius import volume into the US surpassed its closest substitute - Chinese tilapia - for the first time, according the NOAA. We expect this trend to continue through 2025 given the potentially higher tariffs that tilapia is expected to face. Under our base case, Vietnam should face lower tariffs than China. For shrimp, additional tariffs would have a negative impact on sales volume, as Vietnamese shrimp ASP is already between 15-20% higher than India and Ecuador.

For the same reason, we expect ASP to remain stable and competitively priced, just in case additional tariffs are imposed.

Ongoing uncertainty surrounding external conditions makes us believe that consumers will remain price-conscious and prioritize products with good value. A few recent surveys pointed to improving consumer confidence, but only less than half of households anticipate a better financial situation within the next 12 months.

As consumers tighten their budgets, demand for staples should recover slowly. Meanwhile, we observe that e-commerce continues to see robust increases as consumers become familiar with discounts and last-mile delivery. The flush of cheap imports from e-commerce also adds to the competitive pressure.

We prefer companies with strong brands that should benefit from structural value share gains due to ongoing product innovation capturing consumer needs (MCH) and the shift from sub-premium to mainstream products (SAB). Both companies managed to defend (MCH) and gain (SAB) market share in 2023-2024.

In the milk sector, both local and international players compete aggressively for share.

On 30 Nov 2024, the National Assembly approved the Electricity Law (amended Law), which will take effect on 1 Feb 2025 and supersede the 2004 version. Such approval is an important milestone as it should help ensure national energy security, promote further mechanisms for each power source development and support the gradual energy transition from fossil fuels to renewables.

Nevertheless, to enforce the law, we believe that further specific policies/mechanisms are needed. Following this, we believe that the Law should benefit all electricity stocks under our coverage.

In order to protect the domestic fertilizer market and maintain food security and reducing dependency on imported fertilizers, a change in VAT rules (from VAT tax-exempt to 5% VAT taxable) for fertilizer companies has been proposed to the National Assembly in June 2024, followed by a discussion on November meeting. In the course of the discussions in the 8^th National Assembly meeting in November 2024, we see that most legislators expressed their willingness to protect domestic fertilizer market amid intense competition from imported substitutes, i.e. in favor for changing VAT rule (from VAT tax-exempt to 5% VAT taxable) for fertilizer companies. We hence expect that the government will likely change the VAT rule (effective from July 2025), whereby DPM and DCM stands to benefit from such change.

In 2024, earnings of both DPM and DCM rebounded from 2023 low base thanks to the recovery of urea price and profit margin of the trading activities, as well as the reduction in depreciation expenses (for DCM only). In 2025, we expect the recovery in urea price and profit margin of trading activities may still continue, though at a softer pace. Without the change in VAT rule, 2025 earnings growth for DPM and DCM at 21% YoY and 16% YoY. Nevertheless, the change in VAT rule would help DPM and DCM to claim back VND 259 bn and VND 200 bn, hence pushing 2025 earnings growth to 50% YoY and 29% YoY. We hence call for OUTPERFORM rating on DPM and DCM.