Bond Market overview

July, 2019

OUTLOOK REPORT 2H.2019

by

RESEARCH DEPARTMENT

PROSPECTIVEE INDUSTRIES &

FIRMS

STOCK MARKET

MỤC LỤC

MACROECONOMY

MACROECONOMY STOCK MARKET PROSPECTIVE INDUSTRIES & FIRMS FIXED INCOME

The global economy’s outlook weakened in

the context of global trade has declined since

the end of 2018 due to the effects of trade

war.

According to the WB, US GDP growth is

projected to slow to 2.50% in 2019 then

continued to grow moderately by 1.70% and

1.60% in 2020 and 2021 respectively.

At the same time, the growth of EU region

especially in the manufacturing sector

seemed to dwindle.

After the year of natural disasters, the

economy of Japan recovered. However, the

recovery speed is still slow in the context of

trading activities with important partners:

China declined.

WORLDWIDE PICTURES

3

Central banks of countries in the Asia-

Pacific region are lowering interest rates to

stimulate the economy when the US-China

trade war becomes worse, economic

instability rises.

The way of central banks especially FED

tends to change monetary policy from

tightening to easing which is forecasted to

create an impact:

(1) The movement of capital flows in

marginal and emerging markets.

(2) The prices of USA goods listed in the

context of USD forecast to discount.

The risk of capital withdrawal from

marginal and emerging markets is

significantly declined.

Expected impact on inflows to Vietnam

market: in the current political-economic

context when the general trend of foreign

investment flows (both indirect and direct)

is still trying to leave the areas of aging

population and political instability

escalating war, Vietnam continues to be one

of the attractive destinations with foreign

investment inflows.

That the yield curve of US Government bond

reversed, resulted in concerns about the

recession in the future.

It is noteworthy that according to statistics

within the past 60 years (since the end of the

Second World War), whenever the yield curve

reversed, it is always followed by an economic

recession of one or several major economic

players around the world a few years later. In

case reversed yield curve is confirmed with

certainty, the probability of a slow economic

slowdown / recession in the next 12 months

shall be be around. 25-30%.

Global economy’s growth is forecasted to slow down The trend of reversing monetary policy of

central banks

The unstable factors increase

Alter and shift to 5G technology.

Blockchain technology is more widely

accepted and has a transition.

Big data analysis.

Consumer trends based on technology.

Trend of using cloud computing.

Some new technology trends

0%

1%

2%

3%

4%

5%

6%

2015 2016 2017 2018 2019f 2020f 2021f

Forecast of trade and global GDP

growth (%)

Global trade GDP

Source: WB, VCBS collected


GDP growth in June 2019 was 6.76%, lower than the increase of the first 6 months of

2018 but higher than the increase of the first 6 months of in the period 2011-2017.

Processing-manufacturing industry continues to be the bright spot of the economy.

There is a certain shift in the structure of growth contribution (1) between FDI and other

enterprises; (2) among sectors within the same FDI sector. At the same time, disbursed

FDI continues to be an important resource of the economy.

Although consumer demand is still increasing, the growth rate tends to slow down.

Disbursement of public investment is still laggard compared to the plan.

Import-export turnovers grow more slowly than the same period because the global

trade activities tended to decrease.

FDI Implemented continues to grow ~7% - 8% compares to the same period.

ECONOMIC GROWTH - REMAINS IN THE BRIGHT SIDE

4

Source: CEIC, GSO, VCBS compiled

Agriculture Mining and Quarrying

Manufacturing

Electricity and Gas Construction

Wholesale, Retail Sales

& Motor Vehicles

Transportation &

Storage

Transportation &

Storage

Information &

Communication

Real Estate

Water Supply

Education & Training

Human Health & Social

Work Activities

Arts, Entertainment &

Recreation Other Service

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

0 0.02 0.04 0.06 0.08 0.1 0.12 0.14

Growth point

% growth of sector

Contribution to GDP growth

The circular size represents the ratio of industry to GDP

-8

-3

2

7

12

17

22

01

/16

03

/16

05

/16

07

/16

09

/16

11

/16

01

/17

03

/17

05

/17

07

/17

09

/17

11

/17

01

/18

03

/18

05

/18

07

/18

09

/18

11

/18

01

/19

03

/19

05

/19

US

D b

n

Import-Export

Exports Imports Trade Balance

6

7

8

9

10

11

12

13

0

50

100

150

200

250

300

350

400

12/16 04/17 08/17 12/17 04/18 08/18 12/18 04/19

Tn

. V

ND

Retail Sales

Trade Hotel & Restaurant Services & Tourism Growth rate (%)

9.10

0

3

6

9

12

Jan Feb Mar Apr May Jun

US

D b

n

FDI Implemented through years

2017 2018 2019 Linear (2019)


The consumer price index (CPI) in June 2019 decreased by 0.09% compared to the previous month due to the impact of 2

adjustments in gasoline prices. In general, in the first 6 months of the year, the consumer price index rose the lowest level

within the last 3 years, mainly (1) Efficient administrative efforts by the Government. (2) Crude oil prices and food prices

(mainly pork) decreased over the same period.

Upward pressure to increase inflation is greater in the next 3-6 months:

Higher basic salary from July. Consequently, price of some services calculated based on this shall also higher.

Further effect from increase in electricity.

New school year in Q3.2019 bring higher education services’ price.

Uncertainties overwhelm commodities market notably crude oil price. It can be clearly seen that crude oil price is

determined by political geography instead by pure supply &demand.

However, we still believe that 4% inflation target set by the Government is still within reach.

STABILITY OF THE ECONOMY- INFLATION

5

-2%

0%

2%

4%

6%

8%

-0.5%

0.0%

0.5%

1.0%

1.5%

01/1

6

04/1

6

07/1

6

10/1

6

01/1

7

04/1

7

07/1

7

10

/17

01/1

8

04/1

8

07/1

8

10/1

8

01/1

9

04/1

9

07/1

9

10/1

9

Projection for CPI in 2019

CPI (mom) CPI (yoy)


-6

-4

-2

0

2

4

6

8

10

12

07/2

017

08/2

017

09/2

017

10/2

017

11/2

017

12/2

017

01/2

018

02/2

018

03/2

018

04/2

018

05/2

018

06/2

018

07/2

018

08/2

018

09/2

018

10/2

018

11/2

018

12/2

018

01/2

019

02/2

019

03/2

019

04/2

019

05/2

019

06/2

019

CPI (yoy)

Transportation Food & Food stuffs CPI Core inflation


Till June 28th, the center exchange rate +1.06% ytd,

meanwhile exchange rates quoted at commercial banks

+0.45% ytd, and stayed far away from floor rate, which is

calculated based on center exchange rate.

The US added Vietnam to currency manipulation watchlist.

Hence, State Bank shall be more conservative when it

comes to build up foreign reserve.

VCBS believe that surrounding big events in worldwide

market, center exchange rates may under upward pressure.

However, the devaluation of VND this year, calculated

based on center exchange rate shall not exceed 2%.

STABILITY OF THE ECONOMY- EXCHANGE RATE

6

News, Events, which may have impact on exchange rate Events to follow specifically Expected impact

Reasonable measures of SBV, flexible coordination of operator's

tools

Actively regulated center

exchange rate by SBV

+

FED may consider lower rates inflation and global risks worsen. FOMC in July, September,

October, December

+

Concern derives from uncertainties in worldwide market notably

risk from inverted yield curve; trade war, global economic

growth

Tariff reactivated when

negotiations ended up with no

deal.

_ _

Investment flows continue to choose Vietnam thanks to

macroeconomic stability

Data on inflows of FII and

FDI.

+

Source: CEIC, SBV, VCBS compiled

20,700

21,100

21,500

21,900

22,300

22,700

23,100

23,500

23,900

24,300

08/15 01/16 06/16 11/16 04/17 09/17 02/18 07/18 12/18 05/19

USD/VND Exchange rate

Reference exchange rate Ceiling exchange rate

Floor exchange rate VCB spot bid exchange rate

VCB spot offer exchange rate


Highlight: Orientation of operating in state banks, aiming to meet the global standard Basel II through circulars, legislative documents

=> tighten safe rates, guarantees the system works clean and safe .

Consequences:

• Clear divergance in term of credit growth between banks that have/haven’t achieve Basel II standard.

• Higher cost of capital (reflect through interbank interest rates)

• We forecast that long term interest rates (>12months) may keeps increasing and may be observed noticeably in some individual banks.

On average, we estimate that deposits may increase by 80bps. Note that in 1H.2019, deposits rates have already increased a little bit.

• Stock markets will take time to get used to higher cost of fund (note that they are indirect influences and shall take time to be felt by

market participants).

• End of cheap funding period, investors are accepting higher risks exposure, diversify investment product to get better profit margin.

ECONOMIC STABILITY – INTEREST RATES

7

4.50

5.00

5.50

6.00

6.50

7.00

7.50Interest rates(%)

HĐ 1 tháng HĐ 3 tháng HĐ 6 tháng HĐ trên 12 tháng

0.0%

2.0%

4.0%

6.0%

Jan-1

6

Mar

-16

May

-16

Jul-

16

Sep

-16

Nov

-16

Jan-1

7

Mar

-17

May

-17

Jul-

17

Sep

-17

Nov

-17

Jan-1

8

Mar

-18

May

-18

Jul-

18

Sep

-18

Nov

-18

Jan-1

9

Mar

-19

May

-19

Jul-

19

ON 1W 2W 1M

Source: Bloomberg, GSO, VCBS compiled


Agreement Partner Status

EVFTA EU (28 members) Signed, not yet

valid

RECP ASEAN, China, Korea, Japan, India,

Australia, New Zealand

Negotiating

Vietnam EFTA

FTA

EVFTA (Switzerland, Norway,

Iceland, Liechtenstein)

Negotiating

Vietnam -Israel Israel Negotiating

OPPORTUNITIES AND CHALLENGES FROM FREE TRADE AGREEMENTS

8

Table: The status of negotiating and signing some Free Trade Agreements

Source: VCCI, Ministry of Industry and Trade, VCBS compiled

As of July 2019, Vietnam has participated in 12 FTAs.

According to data from the Ministry of Industry and Trade, the total export

turnover taking advantage of tariff preferences under FTA in 2018 reached

USD 46.2 billion, accounting for 39% of the total export turnover to the

markets signing FTAs, and increased by 5%. with 2017.

Regarding to commodity structure: Meanwhile, agricultural products make

good use of tariff preferences; Industrial goods: the rate is not high due to

more complicated rules of origin.

Top 3 countries that Vietnamese commodities take

advantage of tariff preferences (2018)

$12 bn $11 bn $8,5 bn

2018:

942.371 profile ilegible

to C/O certificate

+35% in value

+25% in quantity

Residue increased with the rate of using tariffs still from some typical

trade agreements: India, Chile, South Korea, etc. In the future, we expect

tariff preferences with the CPTPP, EVFTA or RECP Agreement.

Challenge:

Restrictions on the ability to meet special code of origin for industrial

products.

The preparation and adaptation of domestic enterprises.

The issue of production scale of the critical economy: Infrastructure,

labor, and supporting industries

Requirement to meet the standards of FTAs is highly innivative such as:

intellectual property, information transparency in public investment

activities

Prospects & opportunities:

Opportunities to diversify export markets.

Resources from foreign investment flows into Vietnam to enjoy tariff

preferences.

Expect a positive change in the long term from institutional reforms to

meet commitments in FTAs.

Thus, VCBS believes that the investment highlight in 2019 as well as in

the medium term is an opportunity from free agreements with

investment flows.

Expect a public effect to enjoy some free trade agreements Expect a public effect to enjoy some free trade agreements


-50%

-30%

-10%

10%

30% Export growth in value (yoy)

2018 6M.2019 Growth in 6T.2019 % Export value


Vietnam is at risk of being subject to US sanctions.

Regarding to trade, Vietnam is in top 10 countries with large trade

deficit to US and continuously increasing trend

Vietnam is at risk of becoming a country for China to take advantage

to get ây with US tariff measures.

2 BIGGEST RISKS TO MACROECONOMIC FACTORS

9

China conducts monetary tightening to cope with the crisis

Top countries with trade surplus with the US and the

share in total trade activity (May 2019)

US do not have enough motivation to put sanction on Vietnam:

Vietnamese products exported to the US (except for Telephones

from Samsung) are mainly consumer goods such as garments,

footwear, furniture, ... => technology content is not high

The proportion of Vietnam's trade in the overall US trade activity is

very small (May 2019 accounts for 1.8%)

Finally, also the most important factor, the US-initiated trade

problems have political motives instead of trade alone.

=> VCBS believe that US will not put sanctions against Vietnam

-40

-35

-30

-25

-20

-15

-10

-5

0

US

D b

n

Trade deficit of US to Vietnam

Country Surplus

(USD bn)

% total

trade

1. Mexico 257.70 15.00%

2.Canada 253.90 14.80%

3. China 223.00 13.00%

4. Japan 91.60 5.00%

…. … …

13. Vietnam 30.10 1.80%

Chance that US applies sanctions to Vietnam

Source: US Census Bureau, VCBS complies

In the past, when CNY fell sharply in 2015, VND also had a strong

and sudden price monitoring step.

At the present time, the market has become acquainted with the

possibility of trade tension that may not end soon.

At the same time towards China, measures to adapt to prolonged trade

stress are also more diverse.

Eliminate all restrictions on foreign ownership in the areas of

brokerage and life insurance by 2020; cut restrictions on

telecommunications and transportation.

The statement is more open, more transparent for foreign

investment and the business environment will be further

improved. => Retain FDI and FI capital flows

From the US ‘s viewpoint, the FED tends to reverse the monetary

policy, making the outlook for the greenback weaker. Thereby,

reducing the possibility of CNY depreciation.

For Vietnam, with developments at this time, VCBS expects Vietnam

can continue to benefit from capital flows shifting from the world's

second largest economy.

In the latest news, the world's second biggest economy only grew by

6.2% in Q2.2019, meaning China needs to continue implementing

economic stimulus measures to prevent hard landing.


GDP growth in 2019 is forecast to reach 6.75% - 6.86%. In particular, FDI inflows continue to be an important resource for the economy.

Public investment is expected to only improve slightly in the second half of 2019.

Expectations with the remaining areas:

Growth in aggregate demand for goods and services continues to be maintained.

Projects and constructions continue to operate and exploit: Nghi Son Petrochemical Refinery, Formosa 2 High Furnace, continue to contribute to growth over the same period.

Although FDI enterprises, although no longer growing suddenly, are still an important driving force for the economy.

Stable contribution of the agricultural sector.

In conclusion, in 2019, Vietnam's macroeconomic picture is quite bright in general. However, in a context of beyond controlled uncertainties, investors need to screen harder for more profit opportunities and diversify the portfolio in order to get the balance between potential profits and risk exposure.

2019 OUTLOOK FORECAST & MEDIATION

10

Medium term forecasting Summary of macroeconomic forecast 2019

-4.7 -4.3

-3.6

-2.7 -2.5 -2.5

-6

-4

-2

0

2014 2015 2016 2017 2018e 2019f

Budget deficit (%GDP)

58

61

63.8

61.4

58.4

58.3

55

57

59

61

63

65

2014 2015 2016 2017e 2018e 2019f

Trần nơ công (65% GDP)

Nợ công (%GDP)

In recent years, the Government has shown consistent views on

macroeconomic management policies with inflation targeting. With the

target of public debt / GDP ratio forecasted at a safe level and under

control, the Government will have plenty of room to implement long-

term goals in which it is important to continue restructuring. banking

system, gradually bringing the system to Basel II international

standards

However, with the context of various uncertainties, the government's

primary goal will still be to maintain stability and improve the

investing environment in order to attract capital into Vietnam with

undeniable advantages:

The political environment is stable;

The economy grows well, the population structure is relatively young and

the labor force is abundant with relatively competitive labor costs;

Policy of macroeconomic management towards stability with the

orientation to reduce barriers to market entry and call for foreign

investment (both direct and indirect);

Source: MOF, IMF, WB Source: MOF, VCBS compiled

6,75- 6,85%

6,85-

7,05%

0%

2%

4%

6%

8%

Q1 Q2 Q3 Q4

GDP growth (qoq)

2015 2016 2017 2018 2019Source: VCBS compiled

~4.00%

Deposit rates

+80 bps

GDP growth

6.60%-6.80%

Central

exchange rate

+ 2.00%

CPI

FIXED INCOME

11


Bond market continued to expand its size.

Recognized the investment shift, diversification of investment channels to other types such as corporate bonds when the

level of Government bond yields is lower than many countries in the region.

The ratio of issued corporate bonds/ issued government bonds tends to increase gradually over the years. As of the end of

Q2.2019, according to the estimated figures, the debt balance of the Corporate bonds/GDP continued to rise above 9%.

Outlook

Market participants continue to shift trend of investment channels in the upcoming period.

However, the size of the Government bond market still remains as the demand from financial institutions always exists

BOND MARKET – Diversified to Corporate bonds

12

BOND OUTSTANDING IN 2018 WAS ~38.80% GDP (+1.20% YOY)

Source: HNX, Bloomberg, VCBS

28,707

34,412

48,047 42,769

97,413

115,416

146,039

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

2012 2013 2014 2015 2016 2017 2018

Bond Issuance

Gov Bond Gov-Backed Bond Muni Bond Corp Bond

1.95% 2.73%

2.50% 3.40%

5.27% 6.19% 7.86%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

2012 2013 2014 2015 2016 2017 2018

Bond oustanding/GDP

Gov Bond Gov-Backed Bond Muni Bond Corp Bond


Tenor 2019

Plan

1H. 2019

Plan

Issued in

1H. 2019

% complete

1H.2019

% complete

2019

5Y 40,000 17,000 4,256 25.0% 10.6%

7Y 30,000 10,500 3,550 33.8% 11.8%

10Y 70,000 56,000 43,332 77.4% 61.9%

15Y 78,000 56,000 41,605 74.3% 53.3%

20Y 20,000 8,000 7,085 88.6% 35.4%

30Y 22,000 6,000 5,285 88.1% 24.0%

Total 260,000 153,500 105,113 68.5% 40.4%

GOV BOND MARKET– Primary market

13

Issuing volume focused on 10Y and

15Y tenors.

Winning rates in 1H.2019 decreased

considerably in almost all tenors.

Successful amount of 20Y and 30Y

tenors suddenly increased rapidly at the

end of June.

ST’S ISSUANCE FOCUSED ON 10Y & 15Y

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

Jan

Feb

Mar

Ap

r

May Jun

Jul

Au

g

Sep

Oct

No

v

Dec

VND Billion Bonds Matured in 2019

ST VDB VBSP Other

Source: HNX, VCBS

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

5Y 7Y 10Y 15Y 20Y 30Y

VND bn

Offering volume Winning volume

Winning-to-offering ratio Issuing plan

Issuance and 2019

0

2000

4000

6000

8000

10000

12000

2.50%

3.50%

4.50%

5.50%

6.50%

7.50%

8.50%Vol (VND bn) Winning rates GB Auction results

Volume 5Y 7Y 10Y 15Y 20Y 30Y

5.05 5.75

8.7

13.03 12.41

13.35

3

5

7

9

11

13

15

2014 2015 2016 2017 2018 6T.2019

Average issuance tenor

-

60

120

180

240

300

Jan 1

7F

eb 1

7M

ar 1

7A

pr

17

May

17

Jun

17

Jul

17

Aug

17

Sep

17

Oct

17

Nov

17

Dec

17

Jan 1

8F

eb 1

8M

ar 1

8A

pr

18

May

18

Jun

18

Jul

18

Aug

18

Sep

18

Oct

18

Nov

18

Dec

18

Jan 1

9F

eb 1

9M

ar 1

9A

pr

19

May

19

Jun

19

VN

D T

ril

lio

n

Secondary market

Outright Repo


VND 1,021,313 bn (-22.00% yoy) was traded on the secondary

market. In detail, outright and repo value traded recorded at VND

459,119 bn (-26% yoy) and VND 562,194 bn (-18% yoy). Average

trading volume each session decreased slightly compared to 2018.

Yield curve moved downward in H1.2019 thanks to: (1) Domestic macro-

economic indicators in this period are stable: (i) GDP growth rate is still

remained; (ii) Inflation is well-controlled. Along with that, (2) Banking

system liquidity is abundant and (3) Political uncertainties stopped

escalating.

Foreign investors net bought VND 10,189.6 billion in almost all

tenors, especially short-term tenors (<3 years).

GOV BOND MARKET – Secondary market

14


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

> 10Y 7-10 5-7 3-5 <3

Outright

-339

4,050

2,530

215

1,254

-335

-1,274

1,429

789 270 422

-222

1,681

-275

-465

624

-655

1,209 963

2,121

1,445

2,933

48

720

2,870

06

/17

07

/17

08

/17

09

/17

10

/17

11

/17

12

/17

01

/18

02

/18

03

/18

04

/18

05

/18

06

/18

07

/18

08

/18

09

/18

10

/18

11

/18

12

/18

01

/19

02

/19

03

/19

04

/19

05

/19

06

/19

FI in the secondary market Net position (Unit: bn.VND)

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

01/1

6

04/1

6

07/1

6

10/1

6

01/1

7

04/1

7

07/1

7

10/1

7

01/1

8

04/1

8

07/1

8

10/1

8

01/1

9

04/1

9

Bond yields

2Y 3Y 5Y 7Y 10Y 15Y

1,668

3,642 3,655

6,354

8,962 8,756 8,582

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

0

300

600

900

1,200

1,500

1,800

2,100

2,400

VN

D b

n

x1

,00

0 V

ND

bn

Total volume (left side) Average daily volume (right side)

Average daily volume


Interbank rate for ON-3M tenors were recorded at 3.871%, 3.907%, 3.957%, 4.05% and 4.186%.

The average interbank interest rate level may continue to be higher than the same period last year. However, this only

shows a higher cost of capital in the context of the State Bank's consistent with the goals of ensuring safety ratios and

access to international standards. Nevertheless, we expect that no tensional liquidity recorded in the upcoming period:

(1) Speed of disbursement for infrastructure is still slow and behind the schedule. Therein, disbursement for infrastructure from

the beginning of the year to June 15 was VND 112.1 trillion, equaling to 26.1% of the whole year’s estimates (the same period

of 2018 reached 27.8%). However, we anticipate this issue could be significantly improved at the end of the year.

(2) Credit growth of the first half year reached 7.33%, equivalent to last year, ensuring risk control and supporting economic

growth, which focused on improving credit quality instead of increasing the loan balance.

(3) In H1.2019, the SBV bought a large amount of foreign currency, creating a reserve to deal with adverse impacts from

outside. In the context of stable liquidity but higher cost of capital makes market participants tend to accept shifting to higher

risk investment channels to find adequate yields.

GOV BOND MARKET – Secondary market

15

THE AVERAGE INTERBANK RATE LEVEL IS HIGHER

0.0%

2.0%

4.0%

6.0%

01/1

6

03/1

6

05/1

6

07/1

6

09/1

6

11/1

6

01/1

7

03/1

7

05/1

7

07/1

7

09/1

7

11/1

7

01/1

8

03/1

8

05/1

8

07/1

8

09/1

8

11/1

8

01/1

9

03/1

9

05/1

9

ON 1W 2W 1M

Interbank rates



GOV BOND MARKET –2H.2019 OUTLOOK

16

Primary market

Demand still grows especially from insurance sector

Average issuing tenor remained above 10.

Secondary market

The average interbank interest rate level may continue to be higher

than the same period last year; however, the liquidity is expected

to be stable, less likely to be shortfall

More pressure on Q3.2019 => more upward pressure on bond

yields market. Despite the increasing pressure in the next period,

bond yields at the end of 2019 are forecasted to be equivalent to

the previous year.

In the context of stable liquidity but higher cost of capital makes

market participants tend to accept a partial shift to higher-risk

investment channels to obtain adequate yields.

Yield curve tends to be flatter.

KEY FACTORS

Disbursement for infrastructure is

expected to improve in 2H.2019

SBV’s regulating policy

Liquidity on Interbank market

Sentiment over macro-economics

foundation

Source: HNX, VCBS Research

0

50

100

150

200

250

2017 2018 2019E 2020E

x 1

,00

0 V

ND

bn

Bond Matured Bond issued

COMMODITIES

PRICE

UPDATES

BRENT CRUDE OIL

18

40

45

50

55

60

65

70

75

80

US

D/b

arr

el

World’s oil price 6M.2019

Daily Weekly Monthly Quarterly Yearly YTD

-1.14% 1.43% 7.36% 0.18% -15.39% 22.29%

Price change (as at June 28th, 2019)

• World’s oil prices recorded a strong upward trend in

1H.2019, from nearly USD 51 per barrel at the

beginning of the year to over USD 60 per barrel at

the end of Q2.2019, mainly due to the geopolitical

factors (US sanctions imposed on Iran, an

agreement to cut output between Russia and OPEC,

etc) and the expectations of global economic growth

may be weakened by the US - China trade tension.

• As can be forecasted, oil prices will continue to

fluctuate in the range of USD 55 – USD 75 per

barrel. Specifically:

• Goldman Sachs forecasted that Brent crude oil

price will fluctuate around USD 60.55 per

barrel (the closing price on June 03rd, 2019).

• Meanwhile, Morgan Stanley has lowered its

forecast to USD 60 per barrel from the

previous forecast of USD 65 per barrel, and

said that the oil market will be more balanced

in 2019.

RUBBER

19


-1.74% 0.20% -2.84% -0.14% 10.93% 17.95%


• The world rubber price in the first 6 months

experienced a strong increase and reached the

highest level of USD 157 per kg on May 31st, 2019,

due to some reasons:

• The escalating US – China trade tension

• Seasonal factors affect rubber production from

some major producing countries (Malaysia,

Indonesia, etc)

• However, the upward momentum of rubber prices

will be weakened because:

• Excess supply although major producing

countries have cut down productivity.

• Rubber is the main raw material for the

production of tires (spare parts), while the

consumption in some major markets such as

China, the US and the UK tends to decrease.

110

115

120

125

130

135

140

145

150

155

160

US

D/k

g

World’s rubber price 6M.2019

STEEL

20


0.00% 1.49% 1.16% -0.33% -4.37% 4.61%


• Chinese spot steel prices rose sharply in

1H.2019, especially in April, thanks to the

peak consumption season, rising raw material

prices.

• Prices fluctuate due to impacts around US-

China trade tension.

• Iron ore prices rose after the Vale dam failure

on January 25th and the storm at the end of

March 2019.

• The Chinese steel market is expected to slow

down compared to the beginning of the year

due to some factors:

• Excess supply for steel.

• Low consumption in the context of the

escalating US - China trade tension.

• Challenge from the deceleration of the

Chinese economy.

540

560

580

600

620

640

660

CN

Y/t

on

Chinese spot steel prices 6M.2019

PROSPECTIVE INDUSTRIES & FIRMS

STOCK MARKET

MỤC LỤC

MACROECONOMY


1H.2019’S STOCK MARKET HIGHLIGHTS

22

90

98

106

114

122

130

138

146

825

875

925

975

1,025

2-Jan 16-Jan 30-Jan 20-Feb 6-Mar 20-Mar 3-Apr 18-Apr 7-May 21-May 4-Jun 18-Jun

VN Index HNX Index

VN Index +6,53% HNX Index +0,82%

Cash flow advances into

the market – psychology

effect after the Lunar

New Year

Credit growth achieving

6,22% 6M.2019

CPI decreasing by

0,09%, increasing

by 2,64% yoy in the

corresponding June

GDP growth

achieves

6,71%

6M.2019.

Profit-taking

pressure

taking place

The US govt. bond

yield curve inverting Large-cap

stocks

leading the

market

Viet Nam being placed higher

on the S&P Global Ratings

Oil prices overseeing

highest quarterly price

hike in a decade. Cautious

mindsets

leading the

market

Trading volume

increases significantly

Electricity prices increasing

by 8,68% from 20.03

Trade tensions between

US-China escalating

FED suggesting to

decrease interest

rates in July/20190

Source: Bloomberg, VCBS


HIGHLIGHTS OF Q1.2019

23

800

850

900

950

1,000

1,050

50

150

250

350

450

02/01/19 22/01/19 11/02/19 03/03/19 23/03/19

Mil

lion

s

VOLUME VN INDEX

-0.50%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

TOP 5 stocks contributing to the increase/decrease of VNINDEX

Q1.2019

In Q1, the market is somewhat sluggish due to a strong

downtrend occurring at the end of 2018, causing investor

psychology to become more wary of the initial sessions in

2019. Market liquidity maintains at a lower rate as the index

recovers slowly.

However, after the Lunar New Year holiday, huge cash

flows start to head back towards the market among with

great optimism, helping the VN Index approach closely to

the 1000 points benchmark at the end of February. During

this period, the market starts to experience short-term profit-

taking pressure. This along with the poor result of the US-

NK Summit in Hanoi have caused the public mindset to

switch to short selling, aggressively pushing down the

index.

Until March, the market returns to being stabilized and

successfully achieves the benchmark at 1000 points during

mid-March. But profit-taking pressure swiftly returns to

dominate the market amid quite depressive domestic as well

as worldwide macro-economic news (local electricity’s

prices increase by 8,68%, the US Gov. Bond yield curve

inverts, ...), blocking the index from amplifying its previous

growth.

VN Index achieves growth at 9,51% at the end of Q1. Stock

tickers that have the highest contribution to the uptrend are

large—cap ones such as VHM, VIC. VCB. Source: Fiinpro, Bloomberg, VCBS


HIGHLIGHTS OF Q2.2019

24

800

850

900

950

1,000

1,050

50

150

250

350

450

01/04/19 21/04/19 11/05/19 31/05/19 20/06/19

Mil

lio

ns

VOLUME VN INDEX

-1.50%

-1.00%

-0.50%

0.00%

0.50%

1.00%

TOP 5 stocks contributing to the increase/decrease of VNINDEX

Q2.2019

Depressive mindset from investors at the end of Q1 continues and

extends to the beginning span of Q2, in which is expressed through the

index continuously decreasing due to constant pressure to strong sell as

well as the market liquidity becoming more weakened as active cash

flow streams are standing outside of the market. Since profit-taking

pressure focuses mostly on large-cap stocks, the general indexes have

taken a great hit.

May is appeared to have gloomy signals on the world’s economic growth

when US President Donald Trump announces to apply tariffs totaling to

$200 billion worth of goods imported from China, causing the world’s

stock market to fumble. Afterward, China retaliates by hiking up import

tariffs on US goods, causing experts and big financial companies around

the world to forecast a downfall on the world’s economic growth rate. As

more information on the next economic recession starts to grow, the VN

Index dives back to the area around 950 points towards the end of May,

even though it has had a small recovery to the area around 990 points

earlier during the middle of the month.

In June, market conditions still reflect continuing shorting pressure as

investors actively try to stay out of the market to wait for the result of

G20, which would occur at the end of June. Additionally, VN Index has

received a decent amount of support at the end of June with positive

macro-economic news and the news of EVFTA being officially signed at

30/06.

At the end of Q2, VN Index decreases by 3,14% due to large-cap stocks

that have had steady growth in Q1 having to deal with high profit-taking

pressure in Q2 such as VHM, VNM, BID Source: Fiinpro, Bloomberg, VCBS


FOREIGN INVESTORS’ TRADING ACTIVITIES

25

-1,000

0

1,000

2,000

3,000

4,000

5,000

02/01/19 11/02/19 23/03/19 02/05/19 11/06/19

Foreign net buying/selling value (billion VNĐ)

-4,000

-2,000

0

2,000

4,000

6,000

VN

D b

n

Top 5 stocks in terms of net buying/selling value in the market

The first half of 2019 oversees positive conditions from foreign

investors with total net buying value at more than 10.000 billion

VND, equating to more than 150 million shares.

Stock with the highest foreign net buyers is VIC with a business

purchasing deal from SK corporation (S.Korea) of 5.617 billion

VND worth of value during mid-May/2019. The followers are

respectively MSN with total net buying value at around 2.700

billion VND, and E1VFVN30 at higher than 2.4000 billion VND.

Source: Fiinpro, Bloomberg, VCBS


HIGHLIGHTS OF THE DERIVATIVE MARKET

26

750

800

850

900

950

0

90000

180000

270000

360000

450000

02/01/19 11/02/19 23/03/19 02/05/19 11/06/19

VOLUME OPEN INTEREST VN30F1M VN30 INDEX

During the first half of 2019, the derivative market continuously demonstrates stable growth with average volume listing at more than 100

thousand matching contracts and open interest (OI) at 20 thousand contracts. The VN30F1M Index continues to be the most favored futures

contract thanks to its high market liquidity and market conditions mirroring that of the underlying asset, providing investors with many

chances. Along with the VN30 Futures Contract, the SSC (State Security Commission of Vietnam) has also shown great interest and priority

in expanding the derivative market through new products that would be introduced and officially rolled out into the market in the last half of

2019 such as Covered Warrant, of which would officially be able to transact at 28/06 and Bond Futures, rolling out on 04/07. Growth from

the derivative market will provide investors more chances in raising profits from joining the market as it also hopes to attract foreign

investments so the market could further its growth and improvement. Source: Fiinpro, Bloomberg, VCBS

STOCK MARKET

OUTLOOK 2H.2019


We see no particular reason to expect VN Index to surpass

1.000 points in Q3.2019. Despite the latest progress between

U.S. and China to reconcile their current trade war after the G20

Osaka (Japan) summit in June 2019, there is still a long way for

the two largest powerhouses to reach a final deal. Moreover,

deposit rates of Vietnam’s commercial banks are likely to keep

rising in the 2nd half of 2019 and in turn affect the discount rate

and valuation of assets in the stock market. Besides, although we

are still optimistic regarding Vietnam’s economic growth, we

view that the economy is still “adapting” to the shift of global

production chain and therefore is unlikely to reach an even

higher growth rate in the short run.

Similarly, HNX is likely to fluctuate between 100.00 – 110.00

points in Q3.2019.

However, we expect both indices will perform better in the last

quarter of the year after changes in capital cost is factored in

stock valuations. In addition, the last quarter of the year usually

witnesses listed companies book the biggest proportion of their

yearly revenue and profit, which often lifts investors’ sentiment

as well as the overall market up. We forecast VN Index will

end the year between 1.000 and 1.050 points, while HNX

index will reach 110.00 – 115.00 points.

MARKET PROSPECTS IN 2H.2019

28

INDEX MOVEMENT FORECAST


As Vietnam is still “adapting” its economy to the shift of global

production chain, we view that investment opportunities in the later half of

2019 will mostly arise from:

1. Industries benefiting from manufacturing relocation due to the trade

war between U.S. and China. Several noteworthy ones may be pointed out,

e.g. industrial park real estate and seaport-logistics, as they serve the

relocating process of manufactories moving out from China, whose goods are

the target of U.S. import tariff, to other nations with more competitive labor

cost.

2. Affiliated companies of leading economic holdings in Vietnam. As a

result of “forming an enabling state” orientation by the Government, business

environment in Vietnam is continuously improved and companies are

encouraged to expand their business, especially those in the private sector.

Thus, affiliated companies of leading economic holdings with long-term

resources and visions are expected to become key players in the economy in

the future, e.g. Viettel group’s subsidiaries, Vingroup’s member companies,

etc.

3. Companies benefiting from free trade agreements (e.g. CPTPP,

EVFTA, etc.) between Vietnam and other partners, focusing on

aquaculture and textile ones meeting import standards and technological

barriers of partners.

4. Other companies with “inner investment catalysts” regarding M&A,

foreign strategic investors, share IPOs and listings, etc.

MARKET PROSPECT IN 2H.2019

29

INVESTMENT OPPORTUNITIES

PROSPECTIVE INDUSTRIES & FIRMS

STOCK MARKET

MỤC LỤC

MACROECONOMY

EQUITY OUTLOOK

31

• ACB MBB VIB Banking

• HDG NLG Real estate

• HVN ACV SCS Aviation

• VGC HPG Construction materials

• MWG PNJ Retail

• PVB PVS PVD Oil & Gas

BANKING

SECTOR

MACROECONOMY STOCK MARKET PROSPECTIVE INDUSTRIES & FIRMS FIXED INCOME Back

Credit growth of banks depends on asset quality and operational safety

requirement

Credit growth of total economy reached 7.33% at the end of June 2019 (1H.2018 was

6.10%). Forecasted credit growth was around 14%.

Lending interest rate may not be highly fluctuated in 2019. One of the operational

objectives of the State Bank is still to stabilize lending interest rates.

Some banks have been allowed to apply Basel II standard, their higher credit growth limit

may be approved by the SBV, thereby ensuring profit growth in 2019. The remaining banks

have a large demand to raise capital for ensuring safety ratios. In particular, certain banks

face difficulties in raising capital, which will affect their credit growth and interest income

in 2019.

BANKING SECTOR

33

7.33%

-5%

0%

5%

10%

15%

20%

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Credit growth ytd

2014 2015 2016

2017 2018 2019

9.61%

11.10%

8%

9%

10%

11%

12%

13%

Jan-1

6

Apr-

16

Jul-

16

Oct

-16

Jan-1

7

Apr-

17

Jul-

17

Oct

-17

Jan-1

8

Apr-

18

Jul-

18

Oct

-18

Jan-1

9

Apr-

19

Average CAR of banking sector

State-owned banks Other JSC banks

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

18.00%

CAR of banks

2017 2018

Source: SBV, commercial banks, VCBS summaries

Banks was approved to apply Basel II

according to Circular number 41/2016

Effective on Bank

End of 2018 VCB, VIB, OCB

1/5/2019 ACB, MBB, VPB, TPB

1/7/2019 TCB, MSB


Deposit growth and deposit interest rates follow

capital needs of banks

Deposit growth of total economy reached 6.09% at June 18th,

2019 (1H.2018 was 7.76%).

The average deposit interest rate remained at a high level

compared to the same period in 2018. Forecasted deposit rates

may increase towards the end of 2019 when banks need to

increase deposit in medium and long-term to meet safety

requirements of the SBV.

BANKING SECTOR

34


6.09%

-5%

0%

5%

10%

15%

20%

25%


Deposit growth ytd

2014 2015 2016 2017 2018 2019

32.63% 31.05%

35.62% 33.89% 33.31%

37.00%

33.45%

29.30%

37.41%

31.50% 33.00%

36.50%

33.60%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

ACB BID CTG EIB KLB LPB MBB SHB STB TCB TPB VIB VPB

Short-term funds used for medium and long term loans

2017 2018

4.50

5.00

5.50

6.00

6.50

7.00

7.50

Average deposit rates (Unit: %)

D.R (1 month) D.R (3 months) D.R (6 months) D.R (above 12 months)


A minority of banks can improve NIM

A majority of banks meet difficulty in improving their

NIM due to increasing cost of fund and stable lending

interest rate.

A minority of banks such as VCB, MBB, ACB, TCB, VIB

can improve NIM. These banks are able to expand their

credit portfolio to segments which have higher lending

rates (increasing the proportion of retail credit segment)

or having low cost of fund, reflected in high CASA.

BANKING SECTOR

35


Total operating income of banks is on an

upward trend

Interest income follows credit growth and ability to

increase NIM of banks.

Diversification of non-interest income allows banks to

reduce dependence on interest income and increase the

proportion of non-interest income on total operating

income.

Improving the cost income ratio (CIR) is an vital factor

that helps banks maintain growth. Operating expenses are

reduced thanks to improvements in technology,

automation and digital banking.

3,490

453

10,705 9,632

1,017

2,466

289 1,370

5,454

192 1,543

3,542 4,395

1,906

11,768

1,714

7,963

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

ACB BAB BID CTG EIB HDB KLB LPB MBB NVB SHB STB TCB TPB VCB VIB VPB

Total operating income of banks (VND billion)

Q1.2019 Growth yoy

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

9.00%

10.00%

ACB BID CTG EIB HDB KLB LPB MBB BAB NVB SHB STB TCB TPB VCB VIB VPB

NIM of banks

NIM 2018 NIM Q1.2019


Handling NPL process put a strong pressure on banks to

maintain growth

High number of VAMC bonds that need to make provision (VND 75

trillion, statistics on 17 listed banks at 31.12.2018).

The group of banks that completed their handling NPL process consist

of VCB, ACB, MBB, TCB and VIB. These banks have advantages to

maintain growth in long term, because they do not need to make large

provisions and they are able to record extraordinary income through

debt collection.

On the contrary, other banks which have large non-performing loans

such as STB, CTG, BID, NVB, and SHB are in restructuring process.

They need time to make credit risk provisions, thus profit is difficult to

grow suddenly in 2019.

BANKING SECTOR

36

197

6,462

11,197

3,351

492 60 538

6,569 5,830

37,663

438 2,371

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

BAB BID CTG EIB HDB KLB LPB NVB SHB STB TPB VPB

VAMC bonds need to make provision at 31.12.2018

(VND billion)

2017 2018

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

9.00%

10.00%


Accrued interest and fee receivable on Loans to customers

2018 Q1.2019


0.00%

30.00%

60.00%

90.00%

120.00%

150.00%

180.00%

0.00%

1.00%

2.00%

3.00%

4.00%

ACB BID CTG EIB HDB KLB LPB MBB SHB STB TCB TPB VCB VIB VPB

NPL ratio and LLR of banks

NPL Ratio Loan loss ratio


Diversified business results of banks in 2019

Banks that have been held to Basel II standards will have a larger room for growth. These banks have acquired higher credit growth and

completed handling the NPL process. With improved NIM, profit will grow strongly. Non-interest income is contributed by service

income, risk provision reversal, and income from debt collection.

Credit institutions, whose business’ focus is on consumer finance, are vulnerable. When macroeconomic changes, it is difficult to make

loans that impact negatively on interest income while asset quality is on a downward trend due to problematic supervising activities and

weak debt recovery.

Other banks will continue the restructuring process. Large non-performing loans will limit credit growth and significantly reduce the

profitability of some banks. Capital raising is an urgent issue for banks to meet the system’s operational safety standards. VCBS expects

that some banks in this group will make significant progress in 2019, and take steps to orient the core activities for the next process,

thereby having a basis for growth from 2020.

BANKING SECTOR

37

26.38%

10.10%

13.47%

8.01%

3.30%

17.53%

6.36%

8.79%

19.38%

1.21%

10.92%

9.18%

16.78%

18.87%

24.66% 23.28%

19.68%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%


ROE TTM of banks

2018 Q1.2019


5,878

2,521 3,153

2,617

1,783 2,424

1,707 1,102

350

1,061 853 810 511

29%

24%

33%

22%

19%

25% 23%

22%

32%

40%

27%

24%

27%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

VCB BID CTG TCB VPB MBB ACB HDB EIB STB TPB VIB LPB

Profit before tax Q1.2019

PBT 9M.2018 (VND bn) Completed year target


BANKING SECTOR

38

Sector statistic in Q1.2019

Indicators Unit VCB MBB VIB ACB TCB TPB CTG BID VPB HDB LPB SHB EIB STB

Total assets Q1.2019 VND bn 1,073,332 383,219 144,836 335,803 326,112 139,944 1,146,774 1,342,939 322,080 202,563 181,901 333,106 150,715 425,033

Loans to customers

Q1.2019 VND bn 673,022 229,168 101,904 237,358 163,835 84,724 861,590 1,024,435 231,458 128,937 123,758 226,014 101,016 271,020

Deposits from customers

Q1.2019 VND bn 838,277 242,252 88,668 275,070 207,978 77,913 824,613 1,014,935 188,117 126,694 125,843 232,940 122,019 377,223

Credit growth 2018 % 14.60% 16.56% 17.00% 16.00% 19.97% 18.20% 6.10% 7.20% 17.30% 17.80% 17.30% 15.00% 2.70% 14.00%

Credit growth target 2019 % 15% 15% 35% 13% 13% 20% 6-7% 12% 15% 24% 16% 13% 11% 16'%

Total equity Q1.2019 VND bn 72,992 36,131 11,253 22,383 53,875 11,342 70,125 56,652 36,180 17,713 11,618 17,066 15,236 25,477

Market cap VND bn 247,382 42,796 13,189 36,043 74,477 20,329 74,840 107,348 43,853 26,389 7,017 8,422 21,822 21,013

Net interest income

Q1.2019 VND bn 8,499 4,135 1,385 2,857 3,359 1,284 7,950 8,545 6,785 2,030 1,401 1,353 829 2,458

Non-interest income

Q1.2019 VND bn 3,269 1,319 329 634 1,035 622 1,683 2,160 1,177 436 -32 190 188 1,084

Profit before tax Q1.2019 VND bn 5,878 2,424 810 1,707 2,617 853 3,153 2,521 1,783 1,102 511 744 350 1,061

Target profit before tax

2019 VND bn 20,000 9,560 3,400 7,279 11,750 3,200 9,500 10,500 9,500 5,077 1,900 3,068 1,077 2,650

NIM (TTM) % 3.08% 4.60% 3.91% 3.53% 4.13% 3.88% 2.09% 2.72% 8.88% 4.12% 3.15% 2.02% 2.40% 2.41%

ROE (TTM) % 24.66% 19.38% 23.28% 26.38% 16.78% 18.87% 8.01% 13.47% 19.68% 17.53% 8.79% 10.92% 3.30% 9.18%

ROA (TTM) % 1.54% 1.84% 1.79% 1.66% 2.70% 1.49% 0.48% 0.57% 2.17% 1.43% 0.52% 0.56% 0.33% 0.55%

NPL Q1.2019 % 1.03% 1.41% 2.52% 0.68% 1.78% 1.39% 1.85% 1.74% 3.62% 1.45% 1.36% 2.40% 1.88% 2.14%

LLR Q1.2019 % 169.17% 96.49% 40.27% 158.10% 87.66% 88.83% 101.93% 70.17% 48.30% 73.94% 93.41% 55.34% 56.53% 65.30% Source: SBV, commercial banks, VCBS summaries


Interest income

Credit room of ACB was allowed to increase from 13% to 17% in 2019 by the

SBV. Therefore, ACB have 8% of credit to grow in 2H.2019.

Credit portfolio concentrates on individual segment that have high profitability.

SME segment is developed by adding credit packages, large corporate segment

has selective growth.

Lending to deposit ratio (LDR) maintains at 78%, under the permitted level of the

SBV.

Non-interest income

Fee and services income and income from debt collection.

ASIA COMMERCIAL BANK - ACB

39


134,032

163,401

198,513

230,527

178,156

213,789

248,301

278,289

0

50,000

100,000

150,000

200,000

250,000

300,000

2015 2016 2017 2018

Loans - Deposits

Net loans to customers Deposits from customers and valuable papers

VN

D b

n

8.25%

4.70%

3.55%

3.00%

5.00%

7.00%

9.00%

2014 2015 2016 2017 2018

NIM

Interest income on earning assets

Cost of fund

NIM

-

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2014 2015 2016 2017 2018

Operating expenses (VND billion)

Operating expense CIR


Asset quality is under control

Low NPL ratio and high loan loss reserve coverage compared to sector average allows ACB to control its asset quality.

ACB concentrates on the growth of credit segments that have low non-performing loans, abandoning the group of high-interest customers

with high credit risks.

Charter capital will increase to VND 16,627 billion in 2019

30% stock dividend, expected to be completed in 2019.

ACB expects to use 6.2 million treasury shares for ESOP. Source from welfare fund and ESOP price is not lower than VND 16,072 per

share, the bank currently holds about 42 million treasury shares. The remaining 35 million treasury shares will be private offering to

investors.


40


-

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

140.0%

160.0%

-

500

1,000

1,500

2,000

2,500

3,000

2014 2015 2016 2017 2018

Provision (VND billion)

Provision LLR

0.73%

0.89%

0.00%

1.00%

2.00%

3.00%

2015 2016 2017 2018

NPL ratio

NPL ratio Group 2-5 debts/Total loans



41

Unit: VND bn 2015 2016 2017 2018 2019F

Interest income 14,082 16,448 20,320 24,015 27,757

Interest expenses (8,198) (9,556) (11,862) (13,652) (15,497)

Net interest income 5,884 6,892 8,458 10,363 12,261

Non-interest income 337 671 2,981 3,670 4,334

Total operating income 6,220 7,563 11,439 14,033 16,595

Operating expenses (4,022) (4,678) (6,217) (6,712) (8,104)

Operating profit before

provision 2,199 2,885 5,222 7,321 8,492

Provision (1,186) (1,218) (2,565) (932) (1,150)

Profit before tax 1,013 1,667 2,656 6,389 7,341

Tax (286) (342) (538) (1,252) (1,468)

Profit after tax 727 1,325 2,118 5,137 5,873

Indicators 2017 2018 2019F

NIM 3.45% 3.55% 3.68%

ROE 14.08% 27.73% 25.58%

NPL ratio 0.70% 0.73% 0.80%

Loan loss reserve coverage 132.7% 151.8% 154.8%

VALUATION

Indicators 2019F

Book value per share (VND) 19,972

Fair P/B 1.84

Fair value (VND/Share) 36,748


Interest income

MBB have been allowed to apply Circular number 41/2016 from 1/5/2019. Therefore,

MBB may have a higher credit growth compared to banks have not completed Basel II

standard.

Credit portfolio concentrates on retail segment with high CASA (25% compared to sector

average around 15%) allows MBB to maintain low cost of fund and be able to improve

NIM.

Non-interest income

Fees and services income takes advantages from high CASA. Additionally, bancassurance has bright prospects. MBB Ageas Life aims to break even in 2019.

Debt collection brings back extraordinary income.

MBBank plans to seek strategic foreign shareholders for MBS while the bank still owns dominant shares of at least 51%.

MILITARY COMMERCIAL BANK - MBB

42

151

184

215

229

197

226

251 257

100

120

140

160

180

200

220

240

260

280

2016 2017 2018 Q1.2019

Th

ou

san

ds

Loans – Deposits (VND bn)

Net loans to customersDeposits from customers and valuable papers

7979

11219

14583

4135

9855

13867

19537

5454

3651 4616

7767

2424

0

5000

10000

15000

20000

25000

2016 2017 2018 Q1.2019

Total operating income and Profit (VND bn)

Non interest income Total operating income PBT

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

50.0%

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

2016 2017 2018 Q1.2019

Operating expenses (VND bn)

Operating expenses CIR


7.84%

3.26%

4.58%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

2016 2017 2018 Q1.2019

NIM

Interest income on earning assets

Cost of fund

NIM


Asset quality is under control

MBB has finished handling NPL process and VAMC bonds.

NPL ratio may maintain at a low level. High loan loss reserve coverage is around 90 – 100%, which shows good asset quality compared to

the sector average.

Charter capital will increase to VND 25,841 billion in 2019

Capital raising plans include: (1) 8% stock dividends; (2) ESOP about 43 million shares (equivalent to 2% of charter capital); and (3)

issuing around 211 million new shares and selling 47 million treasury shares to domestic and foreign investors, equivalent to 10% of

charter capital after dividend payment and ESOP.

In case of success, private issue plan 10% of MBB's charter capital will create a higher base for long-term growth. Increased charter

capital allows MBB to have larger room for credit growth and capacity investment, thereby improving profitability and asset quality.

There are assumptions foreign room is increased to a maximum of 30% and all 10% of charter capital will be issued separately to foreign

investors. After MBB successfully implemented all 3 capital raising plans, opened foreign room on the market will be about 50.9 million

shares. In case 10% of the charter capital is issued to both domestic and foreign investors, the opened foreign room will be higher.


43

1.32% 1.20%

1.33% 1.41%

2.58%

2.93% 3.04%

3.26%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

2016 2017 2018 Q1.2019

NPL ratio

NPL ratio Group 2-5 debts/Total loans

103.2% 95.9%

112.3%

96.5%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

-

500

1,000

1,500

2,000

2,500

3,000

3,500

2016 2017 2018 Q1.2019

Provision (VND bn)

Provision LLR

896 736 1,100 1,179

477 668

798

1,486 615

814

962

565

0

500

1,000

1,500

2,000

2,500

3,000

3,500

2016 2017 2018 Q1.2019

Group 3 – 5 debts

(VND bn)

Group 3 Group 4 Group 5




44

Unit: VND bn 2015 2016 2017 2018 2019F

Interest income 13,538 15,552 19,876 24,824 28,503



Non-interest income 1,453 1,876 2,648 4,953 6,315




provision 5,323 5,681 7,868 10,803 13,302

Provision (2,102) (2,030) (3,252) (3,035) (3,413)

Profit before tax 3,221 3,651 4,616 7,767 9,889

Tax (709) (767) (1,125) (1,577) (2,008)

Profit after tax 2,512 2,884 3,490 6,190 7,880


NIM 4.19% 4.58% 4.66%

ROE 13.2% 20.6% 22.4%

NPL ratio 1.20% 1.33% 1.40%

Loan loss reserve

coverage 95.85% 112.29% 112.29%

VALUATION

Indicators 2019F


Fair P/B 1.5



Interest income

VIB has been accepted to apply for Basel II standards at the end of 2018. Therefore,

VIB may be allowed to acquire higher credit growth from the SBV in 2019.

NIM may be improved due to expansion in individual credit segment which accounts

for 75% of total outstanding loans from VIB. However, low CASA makes higher

funding costs

Non-interest income

Service income has room for growth, especially in bancassurance.

VIETNAM INTERNATIONAL JSC BANK - VIB

45


54,103

67,466

86,623

101,160 106,389

66,077

94,580

111,239

124,455 129,874

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

2015 2016 2017 2018 Q1.2019

Loans – Deposits (VND bn)

Loans to customers Total deposits

2,344 2,626

3,456

4,825

1,385

2,929

3,401

4,092

6,086

1,714

655 702

1,405

2,743

810

0

1,000

2,000

3,000

4,000

5,000

6,000

2015 2016 2017 2018 Q1.2019

Total operating income and Profit (VND bn)

Interest income Total operating income Profit before tax

8.18%

4.28%

3.91%

0.00%

3.00%

6.00%

9.00%

2015 2016 2017 2018 Q1.2019

NIM

Interest income on earning assetsCost of fundNIM

1,765

2,093

2,325

2,690

748

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

0

500

1,000

1,500

2,000

2,500

3,000

2015 2016 2017 2018 Q1.2019

Operating expenses (VND bn)

Operating expenses CIR


Asset quality is improving

VIB has finished handling NPL process and VAMC bonds.

VIB recorded a large amount of collaterals, 3 times higher than the bank's outstanding loans to customers. High collateral value is one of

the reasons that helps VIB maintain their safety regulations while loan loss reserve coverage is only around 40%.

Charter capital will increase to VND 10,909 billion. VIB plans to list on HOSE in 2019

Capital raising plan is based on: (i) 18% share bonus to existing shareholders (maximum 141 million shares); (ii) Issuance of new shares

and/or convertible bonds to investors (up to 166.4 million shares, equivalent to 18% of charter capital after shares bonus), offering price is

not lower than book value per share at December 31, 2018. Time limit for implementing the above two options is December 31st, 2019.


46


509

606

361

653

156

76.1%

65.5%

47.6%

36.2% 40.3%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

0

100

200

300

400

500

600

700

2015 2016 2017 2018 Q1.2019

Provisions (VND bn)

Provision LLR

2.07%

2.58% 2.49% 2.52% 2.52%

3.15% 3.32%

3.07%

3.74% 3.97%

1.00%

2.00%

3.00%

4.00%

5.00%

2015 2016 2017 2018 Q1.2019

NPL ratio

NPL ratio Group 2 - 5 debts/Total loans

68,342 77,353

107,656

145,698 155,805

124,537

160,465

220,991

291,172 303,978

47,777 60,180

79,864 96,139 101,904

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

2015 2016 2017 2018 Q1.2019

Total collaterals (VND bn)

Real estate Total collateral value Credit to customers



47

Unit: VND bn 2015 2016 2017 2018 2019F

Interest income 4,794 5,292 7,208 10,086 11,965



Non-interest income 585 775 637 1,260 1,430




provision 1,164 1,308 1,767 3,396 4,135

Provision (509) (606) (361) (653) (1,025)

Profit before tax 655 702 1,405 2,743 3,110

Tax (134) (140) (281) (549) (622)

Profit after tax 521 562 1,125 2,194 2,488


NIM 3.12% 3.79% 3.87%

ROE 12.83% 22.55% 21.94%

NPL ratio 2.49% 2.52% 2.40%

Loan loss reserve coverage 47.56% 36.25% 38.25%

Indicators 2019F


Fair P/B 1.31


VALUATION

REAL ESTATE

SECTOR


New policies:

- Real estate credit:

- According to Circular 19/2017 /TT-NHNN, the

risk factor of credit for real estate has been raised

to 200% from 150%. This circular has caused

many difficulties in the process of capital

mobilization of real estate businesses.

- For personal real estate credit, the State also

tightened up the risk factor to 150% with loans of

over VND 3 billion.

- Issue new land price list for the period 2020-2025 for all

cities in early 2020.

- Draft law for condotel ownership.

49

REAL ESTATE INDUSTRY

Overview:

- In 2018, real estate industry is still growing steadily but the growth rate has declined compared to that of previous years. In addition,

there has been variations between real estate segments.

- The mid-end segment of the condominium market is still trading actively. Supply in Ho Chi Minh City has declined significantly due

to difficulties in new project licensing processes.

- The office market is in great demand while supply is limited, causing the occupancy rates of office buildings to be high. It is expected

that many office buildings will come into operations in the next few years.

- The landed property market continues to record growth trends, especially in the areas of completed infrastructure and the surrounding

areas of big cities.

- FDI into the real estate market is high

1.3

3.05

6.6

1.1

0

2

4

6

8

2016 2017 2018 Q1.2019

FDI to real estate sector (Billion USD)

435 471

1.236 1,377

0

500

1000

1500

2016 2017 2018 Q1.2019

Credit for real estate (thousands billion VND)

(Source: Ministry of Construction)

(Source: State Bank of Vietnam)

MACROECONOMY STOCK MARKET PROSPECTIVE INDUSTRIES & FIRMS FIXED INCOME Back 50

CONDOMINIUM MARKET: opposite directions between Hanoi

and Ho Chi Minh markets.

Supply: In Q1.2019, when supply in Hanoi was high with 11,822 new

apartments sold from 26 projects (+ 46% yoy), the supply in the Southern

market was quite limited, only reaching 4,423 new units for sale (-46%

yoy) due to difficulties in legal procedures for licensing new projects

(according to CBRE).

Trading volume: In Hanoi, about 9,390 units were sold in Q1.2019 (+

36% yoy). In HCM, about 5,924 units were sold (-28% yoy). More than

60% of units sold were in the mid-end segment, demonstrating real needs

for living spaces from buyers.

Selling price: The selling prices in both Hanoi and HCM increased with

averaged prices of USD 1,333/m2 and USD 1,764/m2 respectively

(according to CBRE).

Expectations for upcoming time:

In Hanoi: The supply located far from the CBD and in the mid-end

segment, it will continue to account for a large proportion of trading and

the selling price is expected to increase slightly by around 1%.

In HCM: The supply is expected to be more abundant in the second half

of the year, concentrating in the eastern area of the city with mid-end

apartments accounting for a large proportion. Selling price is expected to

increase from 3% -5%/year. In addition, the number of high-end and

luxury apartments supplied to the market is increasing, aiming to meet

the housing demands of foreigners.


(Source: CBRE)

0

5000

10000

15000

20000

25000

30000

35000

40000

2016 2017 2018 2019F 2020F

New apartments open for sale in Hochiminh

Affordable Mid-end High-end Luxury

0

10000

20000

30000

40000

50000

2016 2017 2018 2019F 2020F

New apartments open for sale in Hanoi

Affordable Mid-end High-end Luxury


LANDED PROPERTY:

continue to be vibrant in Hanoi, Ho Chi Minh City and

neighborhood areas

Supply: In Hanoi, new supply in Q1.2019 increased to 2,600 units

with about 86% of units in the east of the city. In contrast, in HCMC,

due to limited land availability and difficult legal procedures, supply

declined when only 296 units were opened for sale in Q1.2019.

Demand is very high when more than 80% of new units have been

sold.

- Local land booming have appeared in some cities and provinces due

to the deployment of infrastructure projects, airports and economic

potential of the region.

Selling price increased significantly. In Hanoi, averaged villa prices

increased by 3% and in HCMC, prices increased by 4% -5% after

each period, according to CBRE.

Expectations for upcoming time: The land plot will continue to be

an attractive investment destination, mainly located in suburban areas

where will be upgraded to be Districts in Hanoi and the eastern area

of Ho Chi Minh City.

- Infrastructure factors involving construction projects such as first

Metro line project, urban planning, deployment plans of large- scale

real estate projects are the main motivations for the developments of

this segment.


-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2016 2017 2018 Q1.2019

New property for sale and sold property in Hanoi

New property open for sale Sold property

0

1000

2000

3000

4000

2016 2017 2018 Q1.2019

New property for sale and sold property in

Hochiminh

New property open for sale Sold property

(Source: CBRE)


Office market: high occupancy rate

Supply: In Q1.2019, supply was limited.

Demand for rent is very positive with average occupancy

rate from about 90% to 95%.

Rental rates were relatively stable compared to previous

quarters, although there was a slight increase in Grade A

buildings.

Expectations for upcoming time: According to CBRE,

supply in 2019 will continue to expand in Hanoi especially

in the West.

- In Ho Chi Minh City, 11 projects are expected to be

launched with total area of about 206,000 m2.

- It is expected that Grade A rental rate will continue to

increase slightly while Grade B rental rate is stable.


22

24

26

28

30

1,400,000

1,500,000

1,600,000

1,700,000

1,800,000

1,900,000

2,000,000

2016 2017 2018 Q1.2019

Rental area and rental rate in Hochiminh

Rental area (NLA) Averaged rental rate

16.5

17

17.5

18

18.5

19

19.5

1,500,000

1,600,000

1,700,000

1,800,000

2016 2017 2018 Q1.2019

Rental area and rental rate in Hanoi

Rental area (NLA) Averaged rental rate

(Source: Savills)


Industrial Park: Surge in demand

Remarkable increase in the number of industrial parks:

Currently, Vietnam has roughly 320 industrial parks with more

than 95,000 hectares – in which 70 industrial parks are being

built/developed.

Positive outlook for demands for industrial parks: Chinese

corporations are moving their production out of the country due

to the trade war between America & China to avoid tariffs.

Vietnam is expected to be the potential country for Chinese

production thanks to stability in GDP growth, politics, and low

labor costs.

Positive outlook for surge in the rental price: In Q1.2019,

average rental price of industrial parks in Vietnam has

increased by 15% - 30%.


53

(Source: CBRE)

(Source: CBRE) (Source: GSO)

-

20

40

60

80

100

120

140

160

HCMC Binh

Duong

Dong Nai Long An Ha Noi Hai Phong Bac Ninh Vinh Phuc

Industrial park rental price (USD/m2)

Q4.2018 Q1.2019

-

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

-

50

100

150

200

250

300

350

400

450

500

2014 2015 2016 2017 2018 2019F 2020F

Number/Scale of industrial parks (hectares)

Number of industrial parks Scale (hectares)

-

500

1,000

1,500

2,000

2,500

3,000

3,500

-

5

10

15

20

25

30

35

40

2014 2015 2016 2017 2018 2019F

Vietnam FDI ($ billion)

Newly-registered fund Operating fund New projects



Prospects of the real estate industry

The market maintains stable growth.

The mid-end segment of the apartment market still has numerous transactions due to increasing income and demand to buy houses from almost all people.

Land in some suburban areas of Hanoi and Ho Chi Minh City is still active. Land prices may increase slightly when supply decreases.

Office market’s demands remain high with good absorption rate and stable price.

Projects with unique products possessing outstanding features such as green living space, smart apartments will be consumed well.

Industrial real estate is still a bright spot of the industry with supporting factors from the US-China Trade War and infrastructure development policies.

Prospects of listed real estate businesses

Businesses own clean land fund in areas having potential for infrastructure development. Enterprises that have

accumulated a large land fund with reasonable costs will be advantageous ones.

Enterprises tend to shift projects from the city center to the surrounding areas such as the east and west of Hanoi,

the east of Ho Chi Minh City or neighbor provinces.

Businesses with projects in completed steps and being eligible for handover can achieve positive business

performances.

Industrial real estate businesses with large-scale projects, clean land and infrastructure available for new tenants.


HA DO GROUP JOINT STOCK COMPANY- HDG

55

The main business activities of the company include:

1. Real estate & real estate leasing business

2. Construction

3. Energy

4. Hotels and services

The Board holds 44% of HDG shares.

Real estate is the main growth driver. In 2019, the company's real estate revenue is

expected to reach over 2,000 billion dong, coming mainly from the handover of the

remaining apartments of two Orchid buildings and handover new apartments of two

Jasmine buildings. Two smaller projects, Ha Do Dragon City and Ha Do Riverside are

also expected to contribute to 2019’s revenue.

Energy is a strategic business activity that brings stable cash flows in the future. In June of 2019,

Hong Phong solar power project started generating electricity commercially.

OVERVIEW

No Project name Scale Total expected revenue

(Billion VND)

1 Hado Centrosa 2,187 apartments.

VND

9,000 bil

9,000 m2 NLA for commercial 57 bil /year

2 Hado Dragon City 528 villas 1,900 bil

3 Hado Riverside 256 apartments 270 bil

PROSPECTS

2009 2013 2018 2020

Expected revenue: 140 bil/year

Za Hung Hydroelectricity (30 MW)

Expected revenue:

220 bil/year

Nhan Hac

Hydroelectricity

(59MW)


Nam Pong Hydroelectricity (30 MW)


Hong Phong 4 Solar power (48 MW)

Expected revenue: 470

bil/year

Đak Mi 2 Hydroelectricity (98,MW)


Song Tranh 4

Hydroelectricity(

48 MW)

Officially generating electricity Constructing

2019

Nguyen

Trong

Thong-

35.04%

Nguyen

Van To-

8.94%

Foreign

stockhold

ers

13.71%

Other

local

stockhold

ers-

42.31%


HA DO GROUP JOINT STOCK COMPANY- HDG

56

BUSINESS PERFORMANCE

RISKS

VALUATION AND RECOMMENDATIONS

Real estate segment:

-Difficulties in raising capital when Circular 19 dated

28.12.2007 become effectively in narrowing credit to

real estate industry from 60% to 40% in 2020.

-Land fund expansion via M&A, limited cheap land

fund from Department of Defense.

Energy segment:

-Pressures on raising capital for energy projects.

Segments P/E EPS forward

2019

Stock value

Real estate 36,821

Construction 5.6 117 660

Leasing real estate 8.8 232 2,039

Hydroelectricity power 8.9 1,176 10,524

Hotels and other services 8.8 362 3,185

Total 53,229

Conclusion: Target price is 41,760 VND per share

(equivalent to 53,200 VND/stock before cash dividend of 10% and stock dividend of 25%).

1,158

1,865

607

712

131

144

324

363

80

119

0 1000 2000 3000 4000

2017

2018

Real estate Construction Services Energy Hotels

- Revenue grew by averaged 17% from 2016 to

2018. Real estate and constructions are the main

contributors when accounting for 80% of total

revenue.

1,988 2,297

3,203

4,674

236 178 608 772

28.8%

34.0% 37.5%

36.09%

0%

5%

10%

15%

20%

25%

30%

35%

40%

0

1,000

2,000

3,000

4,000

5,000

2016 2017 2018 2019F

Revenue Profit after tax Gross profit margin

- We forecasted in 2019, the company reached revenue of VND 4,674

billion and net profit after tax of VND 772 billion.


Overview

- Total asset over VND 9,500 billion, land-bank over 600

hectares, NLG focuses on developing affordable-housing

for the middle class.

- Co-operation with Japanese partner in developing high

quality projects.

- 3 main products: Ehome (below VND 1 billion), Flora

(from VND 1.5 billion), and private house/villa Valora

(from VND 3 billion).

2018-2019 Performance

- NLG 2018 revenue was VND 3,553 billion (+12%

yoy), NPAT was VND 884 billion (+17% yoy, 122%

annual target) – EPS of VND 3,509/share.

- By the end of Q1.2019, NLG’s revenue was VND 332

billion (-38% yoy), NPAT was VND 151 billion (+140%

yoy). Remarkable decrease in revenue was attributable

to new projects (Novia, Waterpoint, Paragon Đại

Phước...) as they are under constructions.

NAM LONG JSC - NLG

57

(Source: Nam Long Corp)

(Source: Nam Long Corp)

14%

11%

6%

69%

Shareholders

Nguyen Xuan Quang

Ibeworth Pte

PYN Elite Fund

Others

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2012 - 2019 (VND billion)

Revenue Gross profit NPAT Gross margin Net margin


2019 -2020 revenue will mainly come from the following projects:

NAM LONG JSC - NLG

58

Recommendation:

Nam Long has potential outlook for growth and financial stability in the future.

Target price: VND 30,574 per share.

Methods Price (VND per

share) Weight

P/E 34,182 60%

P/B 25,162 40%

Price 30,574 ( +5,6%)

N.o Proejct Scale (hectares) Detail

1 Flora Novia 1.1 581 Flora apartments

2 Mizuki Park 37.4 279 Valora villas, 3,959 Flora apartments, 1,678 EhomeS apartments

3 Akari City 8.8 4,617 Flora apartments

4 South Gate 165 3,000 Valora villas, land

Performance 2017 2018 2019F

Revenue (VND billion) 3,164 3,479 3,650

NPAT (VND billion) 756 887 880

AVIATION

SECTOR


SLOWER GROWTH

60

• After the booming period from 2014, the growth rate in the domestic market has

dropped to one figure in 2018. The international market has become the main driver

with the rapid increase of international tourist arrivals (80% come to Vietnam by air).

• The two largest markets of Vietnam tourism are China and South Korea, contributing

over 50% of the international tourist arrivals. Therefore, fluctuations from these two

markets significantly impact the overall growth of the tourism and aviation industry.

• In the first half of 2019, the number of Chinese visitors to Vietnam has decreased by

3.3% over the same period, making the total number of international visitors increased

by only 7.5%.

Sources: CAAV, VNAT, VCBS

7.9 10.0

12.9

15.5 17.6

0%

5%

10%

15%

20%

25%

30%

35%

0

5

10

15

20

2015 2016 2017 2018 2019F

mil

. v

isit

ors

Number of international visitors to

Vietnam

By sea and road By air Growth

63.0

80.8 94.1

106.7 118.2

0%

5%

10%

15%

20%

25%

30%

0

20

40

60

80

100

120

140

2015 2016 2017 2018 2019F

mil

. p

ax

Passenger volume through

Vietnam's airports

International Domestic Growth

32.0%

22.5%

5.3%

4.6%

4.4%

31.1%

Structure of international

visitors to Vietnam 1H.2019

China Korea Japan Taiwan US Others

965 1,103

1,366

1,562 1,745

0%

5%

10%

15%

20%

25%

30%

0

500

1,000

1,500

2,000

2015 2016 2017 2018 2019F

tho

usa

nd

to

ns

Cargo volume through Vietnam's

airports



GREATER COMPETITION

61

57% 49% 43% 42% 38%

31% 31%

37% 40% 45%

11% 19% 20% 16% 17%

2014 2015 2016 2017 2018

Domestic market share

Vietnam Airlines Vietjet Air

Jetstar Pacific Others

128 119

36

14

0

20

40

60

80

100

120

140

Vietnam

Airlines

Vietjet

Air

Jetstar

Pacific

VASCO

ng

hìn

ch

uy

ến

Number of flights

2017 2018

120

100

20

40

0

20

40

60

80

100

120

140

Vietnam

Airlines

Vietjet Air Jetstar

Pacific

Bamboo

Airways

air

cra

fts

Fleets

04.2019 12.2019 12.2020

• Due to the slower increase in demand and the difficulties in opening new domestic routes,

airlines are focusing on expanding the international market.

• In early 2019, Bamboo Airways entered the domestic market. Its current fleet has about 10

aircraft.

• Positive market outlook and more relaxed legal conditions could promote the entry of new

airlines in the near future.

• In addition, the plan to expand and upgrade the fleet of the companies is quite ambitious, in

which there is increased competitive pressure to gain market share and maximize

exploitation efficiency.

Sources: CAAV, VCBS


AVIATION INFRASTRUCTURE

62

3.6

8.6

14.5

29.6

42.8

3.1

7.6

13.3

27.1

39.4

2.7

6.4

10.8

24.7

36.0

Phu Quoc

Cam Ranh

Da Nang

Noi Bai

Tan Son

Nhat

mil. pax

Passenger volume through airports compared to nominal capacity

2017 2018 2019F

40%

40%

10%

10%

AHT’ ownership structure

Taseco AOV Hancorp ACV

55%

15%

10%

10%

10%

CRTC’s ownership structure

IPP Group Nasco Logistics ACV

Vietjet Air Viet Xuan Moi

• The rapidly growing aviation market puts pressure on infrastructure development

and human resources.

• All of Vietnam's five largest airports including Tan Son Nhat, Noi Bai, Da Nang,

Cam Ranh and Phu Quoc are serving the number of passengers exceeding the

nominal capacity, especially Tan Son Nhat (about 40%).

• Recently, there were some new investors in aviation infrastructure such as AHT

(Da Nang), CRTC (Cam Ranh) or Sun Group (Van Don).

• Infrastructure investors lead a new group of businesses to participate in the

auxiliary services such as ground services, catering.

Sources: CAAV, VCB


STATISTICS

63

Airport Airlines Cargo Services Other Aviation Services

ACV HVN VJC SCS NCT SGN NCS SAS MAS NAS CIA AST

Exchange UPCoM UPCoM HSX HSX HSX HSX UPCoM UPCoM HNX HNX HNX HSX

Market cap (bn VND) 184,179 59,994 70,139 9,045 1,837 2,969 569 3,417 198 250 200 2,880

State ownership 95.4% 86.2% 0% 13.1% 65.1% 48.0% 60.2% 49.1% 36.1% 51.0% 18.6% 0%

Foreign ownership 3.6% 9.9% 20.1% 19.9% 13.6% 8.4% 1.7% 0.8% 13.6% 0.9% 2.3% 33.6%

2018 sales growth 16.3% 16.7% 26.7% 14.8% -4.2% 15.4% 3.2% 12.2% -19.7% 9.0% -32.9% 31.2%

2017 sales growth 20.6% 18.4% 53.8% 18.6% 4.5% 26.2% 15.4% 13.4% -0.9% 1.1% 61.0% 107.9%

2018 GPM 48.3% 12.7% 14.0% 78.2% 5.0% 36.1% 15.0% 45.6% 18.6% 45.2% 28.4% 53.9%

2017 GPM 40.8% 12.9% 15.5% 77.0% 54.6% 34.7% 21.9% 44.6% 24.4% 43.1% 23.7% 52.8%

2018 ROE 21.1% 12.9% 43.3% 48.0% 55.2% 44.3% 19.8% 22.1% 62.1% 13.2% 12.0% 31.4%

2017 ROE 15.9% 14.1% 66.2% 40.9% 62.3% 49.2% 41.2% 19.4% 62.1% 12.0% 26.0% 43.9%

EPS (ttm) 3,319 1,833 9,812 7,538 8,977 7,942 2,457 2,653 3,564 3,226 1,555 3,740

P/E 24.6x 23.4x 13.1x 21.1x 8.0x 11.6x 12.9x 9.6x 12.9x 9.0x 11.6x 16.9x

BVPS 15,020 13,615 28,629 16,154 18,782 20,841 13,559 12,156 14,137 17,852 26,203 13,295

P/B 5.4x 3.1x 4.5x 9.8x 3.8x 4.4x 2.3x 2.1x 3.3x 1.6x 0.7x 4.8x

EV/EBITDA 17.8x 9.5x 10.3x 16.9x 6.4x 6.3x 8.6x 9.9x 5.8x 7.0x 4.9x 11.7x


VIETNAM AIRLINES - HVN

64

86.2%

8.8%

Shareholder structure

MOT ANA Holdings Inc. Others

550

393

298

194 188 142

0

100

200

300

400

500

600

TCS SKYPEC NCT VACS VIAGS VAECO

bn

VN

D

EBT of some subsidiaries of HVN

2016 2017

0

10

20

30

40

50

60

70

80

90

100

Jan

-16

Mar

-16

May

-16

Jul-

16

Sep

-16

No

v-1

6

Jan

-17

Mar

-17

May

-17

Jul-

17

Sep

-17

No

v-1

7

Jan

-18

Mar

-18

May

-18

Jul-

18

Sep

-18

No

v-1

8

Jan

-19

Mar

-19

May

-19

US

D/b

arr

el

Fuel prices

Brent Oil Jet A1

• Vietnam Airlines owns the largest flight fleet in Vietnam with 93 aircraft (110 aircraft if

including Jetstar Pacific) at the end of 2018. Domestic market share is 39.7% and

international market share is 25.5% in 2018.

• Operates on 100 routes, including 44 domestic routes and 56 international routes,

connecting 51 destinations.

• HVN owns many subsidiaries in many segments of the aviation value chain, including

segments with high profit margins. Jetstar Pacific has profit in 2018 after many years of

restructuring.

• Q1.2019 business results: revenue +4,6% yoy and NPAT +13,7% yoy.

Sources: Bloomberg, Vietnam Airlines. VCBS


VIETNAM AIRLINES - HVN

65

Unit: bn VND 2015 2016 2017 2018 2019F

Net revenue 69,030 65,942 70,089 82,951 98,537

+/- yoy (%) -4.5% 6.3% 18.4% 18.8%

Gross profit 7,472 9,023 10,843 10,673 12,681

EBT 724 1,049 2,601 3,155 3,678

NPAT 164 506 2,055 2,371 2,763

+/- yoy (%) 207.7% 306.1% 15.4% 16.6%

EPS (VND) 163 404 1,507 1,727 2,088

ROE 3.8% 6.6% 13.0% 15.3% 16.0%

Target price (VND) 44,800

EV/EBITDAR method 44,000

FCFF method 45,600

FORECAST INVESTMENT HIGHLIGHTS

• Increasing the capacity when the fleet (including Jetstar

Pacific) expands by 10 units to 120 units due to delayed

delivery of 20 A321 NEO aircraft since 2018.

• Jet A1 fuel price decreased in the first half, averaging 79

USD/barrel (-5.9% yoy). In 2018, fuel costs account for

37% of the HVN’s total operation cost.

• Business results of subsidiaries continue to grow steadily

(~ 15%/year), following the general trend of the industry.

This can partly offset the fluctuation from the airline

segment of the parent company. These companies

contributes about 25% of HVN's consolidated profit.

• HVN has been listed on the HSX since May 5th and

joined the list of top 20 stocks with the largest market

capitalization. Along with the state divestment plan until

2020, HVN has the opportunity to find more new

investors and strategic partners, supporting to improve

business efficiency.

VALUATION


AIRPORTS CORPORATION OF VIETNAM - ACV

66

• ACV is exploiting 21/22 airports in Vietnam (except Van Don airport).

• Revenue from passenger service and screening security contributed 80% of service

revenue.

• The state divestment plan until 2020 opens up opportunities to find new investors

and strategic partners, supporting to improve the business performance.

• Long-term prospect of ACV depends on the ability to implement important aviation

infrastructure projects such as Terminal 3 Tan Son Nhat and Long Thanh

international airport.

• Q1.2019 business results: revenue +13% yoy and NPAT +105,1% yoy.

95.4%


MOT Others

2017 2018 2019F

Passenger volume (mil. pax)

International

Domestic

94.10

30.30

63.80

103.50

36.70

66.90

118.20

Cargo volume (thousand tons)

International

Domestic

1,366

905

461

1,517

971

546

1,710

Landing and take-off (thousand turns)

International

Domestic

605

206

399

652

235

417

693

Source: ACV, VCBS compiled


Unit: bn VND 2015 2016 2017 2018 2019F

Net revenue 13,173 15,949 13,830 16,090 17,224

+/- yoy (%) 21.1% -13.3% 16.3% 7.1%

Gross profit 3,517 5,879 5,648 7,772 8,506

EBT 2,277 6,669 5,343 7,575 8,409

NPAT 1,712 5,105 4,101 6,135 6,810

+/- % 198.2% -19.7% 49.6% 11.0%

EPS (VND) 2,208 1,883 2,630 3,128

ROE 8.5% 21.1% 15.1% 20.0% 21.2%

Target price (VND) 96,900

P/E method 90,700

EV/EBITDA method 103,100

• The passengers volume through airports is expected to

increase by 10% in 2019, reaching 112 million.

• The cargo volume through airports is expected to

increase by 11.7% in 2019, reaching 1.7 million tons.

• Service prices increased from July 1, 2018 according to

Decision No. 2345/QD-BGTVT, positively impacting

business results in the first half of 2019. The increase in

service prices contributed about 3% to ACV revenue

growth. in 2019.

• The higher proportion of international passengers

improves the average service price.

• Revenues from franchising for 02 international terminals

in Cam Ranh and Da Nang increased by 12% from 2019,

estimated at about VND 500 billion.

• ACV has the potential to become the investor of the

Terminal 3 Tan Son Nhat after being approved and

submitted to the Prime Minister by the Ministry of

Transport and the State Capital Management Committee.


VALUATION

AIRPORTS CORPORATION OF VIETNAM - ACV


SAIGON CARGO SERVICE - SCS

68

• SCS is one of two enterprises providing cargo services at Tan Son Nhat airport

(with TCS - a subsidiary of HVN).

• SCS currently serves 32 domestic and foreign airlines.

• Cargo volume in 2018 reached 205 thousand tons (+10.1% yoy, 102.5% of terminal

capacity). Market share reached 37% in 2018, up 2% compared to 2017.

• In addition, the company also has 02 stable revenues from yard rental for aircraft

and office leasing, reaching about VND 50 billion/year.

• The cost of SCS is mostly fixed.

• Q1.2019 business results: revenue +17,4% yoy and NPAT +16,8%.

Sources: CAAV, SCS, VCBS

32.3%

13.1%

12.6%

42.0%


Gemadept ACV A41 Aircraft Repairing Company Others

431 479

527 560

600

0%

2%

4%

6%

8%

10%

12%

14%

0

100

200

300

400

500

600

700

2015 2016 2017 2018 2019F

tho

usa

nd

to

ns

Cargo volume through Tan Son

Nhat airport


117

161 186

205 228

0%

5%

10%

15%

20%

25%

30%

35%

40%

0

50

100

150

200

250

2015 2016 2017 2018 2019F

ng

hìn

tấ

n

SCS cargo volume


2.3 2.6

2.8 2.9

3.1

71.8% 71.7%

78.2% 77.3% 76.2%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2014 2015 2016 2017 2018

mil

. V

ND

/to

n

Average service price of SCS

Service price International propotion


Unit: bn VND 2015 2016 2017 2018 2019F

Net revenue 341 496 588 675 778

+/- yoy (%) 45.4% 18.6% 14.8% 15.2%

Gross profit 238 359 453 528 619

EBT 155 275 384 467 554

NPAT 135 245 344 416 494

+/- yoy (%) 81.3% 40.5% 20.7% 18.8%

EPS (VND) 2,824 5,143 6,515 7,716 9,880

ROE 25.4% 34.8% 45.4% 34.7% 35.4%

Target price 176,800

P/E method 175,300

FCFE method 178,300

• The volume of goods through Tan Son Nhat airport

continues to grow steadily at about 10%/year.

• SCS is expected to upgrade the cargo terminal to

300,000 tons/year by 2020, while its competitor TCS is

almost operating at full capacity.

• Service prices tend to increase over the years and higher

contribution of international goods with high service

prices.

• After the leasing area of SCSC building has been filled,

SCS plans to start SCSC-2 office building in 2019 and

finish in 2020, with an investment of 9 million USD.

• Apron area rental fee with ACV will be renegotiated

when the 10-year contract ends in February 2020.

• In the long term, SCS intends to participate in catering

segment at Tan Son Nhat with a project of 3 million

portions per year.


VALUATION

SAIGON CARGO SERVICE - SCS

CONSTRUCTION

MATERIALS SECTOR


Industry update

• Level of competition sharply increased as capacity soared. Market structure tended to be

more fragmented. Industry leaders had to trade off profit margin for market share

maintenance

• Input cost rocketed. especially iron ore, coal, energy. Oil price moderately adjusted

downward. strongly fluctuating due to politic instability

• Output price rose as a result of environment protection policy in China which limited the

supply of construction materials such as iron, facing tile, cement, etc.

• Profit margin narrowed as the increase in input price is as higher as output. On the other

hand, any decrease in oil price can only create room for more price discount of plastic

products due to strict competition in this market.

INDUSTRY HIGHLIGHTS: DIFFERENTIATE AMONG PRODUCTS

71


Industry capacity soared. especially granite tile product (new ceramic

production is limited by MOC). The ratio of sale/production decrease.

resulting from dramatic increase in capacity and slower growth rate of

residential construction activity

Industry capacity (million sqm per annum)

Gross margin has been improved in Q1.2019. Tile producer improved

production technology. developing new product with new higher quality to

maintain the output price. Therefore. the downtrend in tile price somehow has

stopped in Q1.2019.

FACING TILE: TEMPORARILY LOWER PRESSURE

72

70.0%

75.0%

80.0%

85.0%

90.0%

95.0%

0

200

400

600

800

2011 2012 2013 2014 2015 2016 2017 2018

Mil

lion

sq

m

Chart 1: Industry sale volume

Production Sale Sale/production

Source: Construction material institute. Vietnam Report

Product 2015 2016 2017 2018

Ceramic 350 440 542 575

Granite 67.5 96.5 112.5 162.5

Source: Vietnam Ceramic Association. Viglacera Corp

0

5

10

15

20

25

30

35

40

VIT CVT TTC GMX NHC

Chart 2: Facing tile producer gross margin

2015 2016 2017 20118 Q1.2019

Source: Company FS, VCBS compiled


After an aggressive growth period. plastic industry has come into slowdown

phase. In 2018. industry grew by 2.8% in value and 7% in volume. HSG and

Tan A Dai Thanh joined the market. raising the competition level

Lower oil price in 2019Q1 (as compared to 2018) resulted in lower input price

(plastic bead). Therefore. GPM in 2019Q1 of plastic producers such as BMP

and NTP slightly improved. However. GPM of these companies cannot reach

to the same level as in 2017 when the plastic bead price is close to that in

2019. This fact indicates that decrease in oil price allows more discount in

output price to maintain the market share.

Source: VPAS, Vietnam Customs

(*) In 2018. NTP changed its depreciation rate on machine. improving its profit

margin. Adjusting to former rate. GPM in 2019 Q1 of NTP slightly decreased

PLASTIC INDUSTRY: GROSS MARGIN DEPENDS ON OIL PRICE

73

0

20

40

60

80

01/1

7

03/1

7

05/1

7

07/1

7

09/1

7

11/1

7

01/1

8

03/1

8

05/1

8

07/1

8

09/1

8

11/1

8

01/1

9

03/1

9

05/1

9

US

D p

er b

bl

Chart 4: WTI Oil price

Time Average plastic

bead (USD per ton)

% change in

bead price

BMP gross

margin (%)

NTP gross

margin (%)

2016 1.380 -11.2 32.05 36.06

2017 1.491 8.0 24.13 33.24

2018 1.624 9.0 22.25 29.45

Q1.2019 1.457 -10.3 22.58 31.04

Source: CEIC. VCBS compiled

0

1

2

3

4

5

6

7

2013 2014 2015 2016 2017 2018

Mil

lion

ton

Chart 3: Domestic sale volume

Source: VPAS, GSO, VCBS compiled


Industry sale volume in 5M2019 reached 9.78 million ton (+11.1% yoy). most of

which are attributable to the HRC production from Formosa (accounting for 4%

growth in 11% total). Export volume was about 2 million ton (+6% yoy). Noticeably.

construction steel contributed the most to export growth while other regular export

products such as galvanized sheet and steel pipe recorded a decrease rate of 10% -

15% yoy in recent months.

Profit per ton of steel plunged as unfavorable movement of input and output price.

Dam disruption occurring in Brazil prevented Vale (among the leaders of global iron

ore miners) from getting mining license. As a result. their export volume is expected

to decrease by 6% - 10%. making the iron ore price soar up to USD 120 per ton in Jun

2019

Meanwhile. Vietnamese steel price slightly decreased after Hoa Phat Group (HSX:

HPG) and Formosa raised their capacity. Average steel bar price is fluctuating around

VND 12.5 million per ton (matching our forecast from the beginning of 2019).

Production cost by BOF technology has sharply increased. which is mostly

attributable from the increase in iron ore price. Detailed calculation is illustrated in

table below

STEEL INDUSTRY: PROFIT MARGIN NARROWED

74

-20%

0%

20%

40%

60%

01/1

8

02/1

8

03/1

8

04/1

8

05/1

8

06/1

8

07/1

8

08/1

8

09/1

8

10/1

8

11/1

8

12/1

8

01/1

9

02/1

9

03/1

9

04/1

9

05/1

9

06/1

9

Chart 6: Movement of steel bar and

iron ore price

Steel bar Iron ore

Input Change in price

per unit

Contribution to the change in

output price

Iron ore 58.3% 18.7%

Hard coking coal 11.1% 2.7%

Other 10% 5.5%

Production cost 26.9% 26.9% Source: VSA, Bloomberg

0

500

1000

1500

2000

2500

Jan Feb Mar Apr May

Th

ou

san

d t

on

Chart 5: Industry sale volume

2018 2019

Source: VSA


The gap between production cost of BOF and EAF technology slightly narrows

as iron ore has sharply been increasing while scrap price remains stable.

Moreover, government is making their effort to improve process of scrap

inspection at the port. In detail, specialists from Ministry of Resource and

Environment are no longer checking imported good directly. As a result, scrap

importing expense should decrease.

A number of protectionism policies has been released in Vietnam and other

countries

• Decision 1230/BCT – imposing 10.9% tax rate on wire rod.

• Decision 1711/BCT – imposing temporary anti-dumping tax on color coated

steel from China (3.45% - 34.27%) and Korea (4.48% - 19.25%)

• Decision 4086/BCT – excluding Malaysia and Kazakhstan from exemption list

of safeguard tariff due to imported billet from these countries accounting more

than 3% total imported volume to Vietnam

• The US imposed a tax rate of 456% on steel sheets which are processed from

Taiwan and Korean hot rolled coil (or cold rolled coil also).

• Thailand initiated a review of the anti-dumping tax imposing on cold rolled

carbon steel products which are originated from Vietnam, China and Taiwan

• Malaysia came to conclusion of imposing 2% - 13.68% anti-dumping tax on

Vietnam original cold rolled coil.

=> Obiviously, these protection barriers are risen against CRC and galvanized sheet

products rather than construction steel.

STEEL INDUSTRY: FILL THE GAP BETWEEN BOF & EAF

75

11,500

12,000

12,500

13,000

13,500

14,000

VN

D/k

g

Chart 8: Steel bar price movement

7.7

9.3

11.5 12

2018 2019

VN

D m

illi

on

per

ton

Chart 7: Production cost estimation

BOF EAF

Source: VSA


Industry sale volume reached 33.45 million ton in 4M.2019 (+8.00% yoy).

21.65 million ton of which are domestically consumed (+0.20% yoy), while

the reset 13.80 million ton are exported (+23.00% yoy).

China become the biggest importing partner of Vietnam. Emission cut in China

resulted in shut down of many small and medium factories which do not meet

environmental requirement. Therefore, China shifted from the biggest cement

exporter to clinker importer. Clinker and cement export price soared.

Those southern leading manufacturers who can produce from clinker enjoy

benefit from the shortage of of this product (As northern producers export to

China). Vicem Ha Tien, INSEE, FICO are the 3 typical companies. The cement

price in southern are also increasing, offsetting the negative effect from the

soar in coal and energy price.

CEMENT INDUSTRY: RISING OUTPUT PRICE

76

0%

10%

20%

30%

40%

50%

60%

0

500

1,000

1,500

2,000

Chart 7: Cement export to China

Sản lượng (ngàn tấn - LHS) Tỷ trọng trong xuất khẩu

Source: Vietnam Custom

25

30

35

40

45

-

1,000

2,000

3,000

4,000

Pri

ce p

er u

nit

– U

SD

per

ton

Exp

ort

volu

me,

th

ou

san

d t

on

Chart 8: Cement export – total sale volume

and price

Sản lượng (ngàn tấn - LHS) Đơn giá (USD/tấn - RHS)

Individual

crusher

20% FICO

11%

VICEM

18% INSEE

23%

Other

28%

Crusher with

clinker furnace

80%

Chart 9: Individual crushing station provide 20% of

cement in southern area

Source: VCBS compiles Source: Vietnam Custom

Volume (x1000 ton-LHS) % of export volume

Volume (x1000 ton-LHS) Unit price (USD-RHS)


OUTLOOK: FOCUS ON INDUSTRY LEADERS WITH INTERESTING STORIES

77

Both US – China trade tension and successful engagement in big FTA

including CPTPP and EVFTA made Vietnam an attractive destination for

investment. The growth in 1H2019 FDI value supported our argument

(+8.00% yoy).

Demand from infrastructure improvement will drive the growth of basic

material such as steel, cement.

High expansion rate of urbanization results in demand for end-phase

construction material comprising of facing tile and plastic. According to

our forecast, urbanization rate of Vietnam should reach 57.7% in 2035.

However, civil construction showed some slowdown signals while there are

excess supply in domestic markets of these products

0

2000

4000

6000

8000

10000

Jan-1

8

Feb

-18

Mar

-18

Apr-

18

May

-18

Jun-1

8

Jul-

18

Aug-1

8

Sep

-18

Oct

-18

Nov-1

8

Dec

-18

Jan-1

9

Feb

-19

Mar

-19

Apr-

19

May

-19

Jun-1

9

Mil

lion

US

D

Chart 10: Implemented FDI grew by 8% in

6M2019

Implemented Registered

y = 17.017ln(x) - 92.977

R² = 0.9282

0

20

40

60

80

100

120

0 10 20 30 40 50 60

Urb

an

izati

on

rate

(%

)

Income per capita (x1000 USD/person/year)

Chart 11: Correlation between average income

per capita and urbanization rate in ASEAN

Malaysia

Singapore

Chấm xanh đậm là Việt Nam

Engaged

Negotiating

Picture: FTA between Vietnam and other countries and regions

Source: WTO centre, VCBS complies

Source: Ministry of Planning and Investment

Source: World Bank. VCBS compiles


OUTLOOK: FOCUS ON INDUSTRY LEADERS WITH INTERESTING STORIES

78

Steel production cut in China

Those construction products whose capacity being cut in China such as steel,

cement, facing tile remain in our favourite list as level of competition in these

markets is temporarily lower

We highly appreciate those manufacturers meeting export requirement because (1)

higher quality indicates higher competitive advantage and profit margin, (2) the

companies do not depend solely on domestic market, accordingly upon completion

of new plant, they can operate at maximum capacity.

Potential products for export

Facing tile: New technology is being applied, enhancing

quality up to export requirement. Vietnam is acquiring

market share from China in global market.

Glass: Ultra-white glass which is a crucial component of

solar panel enjoy benefit from EVFTA

Sanitary ware: Vietnam is developing a series of

monolithic kiln products which have higher quality than

partial assembly one.

Construction steel: Vietnam is replacing China,

exporting steel in ASEAN.

RECOMMENDATION

Viglacera Corp, jsc (HSX: VGC)

BUY – Target price VND 26,258 per share

Hoa Phat Group, jsc (HSX: HPG)

BUY – Target price VND 29,706 per share


VGC – GROWTH DRIVEN BY INDUSTRIAL PARK SECTOR

79

IP Business outlook

• We expect IP business to be the key driver of VGC growth

in the next 2 years. Such formerly unattractive IPs as

Dong Mai, Phong Dien, Tien Hai are now popular due to

cheap price and favorable location. These IP contributed a

majority of VGC’s profit in 1H2019

• In 2H2019, VGC expects to record another 440 PBT in

parent company from these IPs expansion. In addition,

VGC is launching 2 new potential IPs including Yen

Phong 2C (221 ha), Yen My (280 ha). These IPs locate

close to Hanoi capital, which promises a higher rental fee

and occupancy rate.

Real estate business: There is less room for growth as

most of high value projects have been recorded in 2017

Phu Ha IP

Yen Phong 2C IP

220 ha. Launched in 2019 - 2020

Tien Hai IP

Compensated for 100ha site

clearance to lease in 2H2019

Dong Mai IP

Plan to lease another 80 ha in

2H2019. Expected to fully occupied

in 2020

Phong Dien IP

248 ha. Become more popular, more

customers are approaching

Yen My IP

280 ha. Launched in

2019-2020

Surely, VGC is setting up 80ha of

Dong Mai IP and 100 ha of Tien

Hai IP, and 200 ha from other IPs

for leasing.

$69/m2

$33/m2

$69/m2

$33/m2

$33/m2

$58/m2

Industrial park in 2019 - 2020

Project Detail

Dang Xa 2 102 low-rise apartments

Thang Long #1 –

phase 2

Land use fee has been paid. Plan to build 2

building block with 25 – 30 levels each

Houses for workers

in IP

Yen Phong, Tien Son, Dong Van, Phu Ha

IPs

Kim Chung Social

Houses

Being constructed


VGC – ENHANCE CAPACITY OF CONSTRUCTION MATERIAL

80

Improve capacity of facing tile and sanitary ware, restructure business

model of glass

• Until 2020, VGC will raise the capacity of facing tile by 11.50 million

spm per year, of sanitary ware by 1.35 million unit per year. The

products from the new factory should meet requirement of export. In

detail, the facing tile product will be colourful body whose colour glaze

penetrates into the core, as a result, the appearance can resist external

factor. The sanitary ware will be monolithic kiln. And glass factory will

focus on Ultra-while, Low-E products whose prices are higher, and

competition level is lower

• Restructure business model of glass. In 2019 – 2020, we expect a strong

recover in gross margin of glass product thanks to:

(1) Average oil price is as 20% lower as 2H2019

(2) VGC establishes a glass trading company (as they did with facing tile and

sanitary ware trading company) in order to reduce internal competition, and

control price better.

(3) In 2020Q1, Phu My Glass factory will come into operation, producing

ultra-white product (a component of solar panel). As Vietnam has engaged in

EVFTA, glass product of VGC can penetrate into European market

Project Product Capacity

per year

Time to

operation

Phu Ha Ceramic tile 6 mn sqm 2020

Thai Binh Phase 3 Granite tile 3.5 mn sqm 2020

My Duc Phase 2 Granite tile 2 mn sqm n/a

My Xuan Sanitary

ware

750,000 unit Operating,

2020 get profit

Viet Tri Sanitary

ware

600,000 unit 2020

Vung Tau (*) Ultra-white

glass

36 mn

standard sqm

2020Q1

(*) This factory is joint venture of VGC, IDICO and Chinese company.

24.7

3.1 1.67

25.7

10

3.3

29.4 27.3

3.6

Facing tile Building glass Sanitary ware

Production volume in our forecast

2018 2019 2020

Tile: million sqm pa

Sanitary ware: million unit pa

Glass: million standard sqm pa


VGC – FORECAST AND VALUATION

81

Assumptions on construction material sector

• Facing tile and brick plants have reached their maximum

capacity. Moreover, product price has slightly decreased.

Therefore, we expect no growth of this sector until 2020.

• Sanitary ware is expected to slightly grow as My Xuan factory

operate by the end of this year, breaking through in 2020 when

this plant operates properly.

• Building glass recorded a slight recover in revenue but an

expansion in gross margin as VGC has restructured its business

model.

Assumptions on Real estate

• Real estate in 2019 recorded revenue from former projects

including 671 Hoang Hoa Tham, Dang Xa phase 2. Until 2020,

VGC will launching projects of worker house in their IPs,

creating new growth in revenue. However, profitability from

these projects is less than existing projects.

• IPs revenue is generated from Yen Phong expansion, Phu Ha,

Tien Hai and Dong Van 4. In addition, more revenue is coming

from Dong Mai and Phong Dien. We expect revenue from this

business to rise by 30% yoy this year

As profit growth is mainly generated from parental company

(especially from IPs and building glass), we believe growth in

EPS should be higher than that of revenue and EBT.

Year 2018 2019F 2020F

Revenue 8,812 9,175 10,274

EBITDA 1,831 2,025 2,374

EBT 847 1,065 1,207

EPS 1,261 1,722 1,952

FORECASTING PERFORMANCE

10,000

15,000

20,000

25,000

30,000

Jul-

18

Au

g-1

8

Sep

-18

Oct

-18

No

v-1

8

Dec

-18

Jan

-19

Feb

-19

Mar

-19

Ap

r-19

May

-19

Jun-1

9

Jul-

19

VGC share price

VND 26,258 per share

P/E fw = 15x

EV/EBITDA = 8.8x

FCFF @ 1%g. 11% WACC

Unit: VND billion


HPG – IMPROVE CAPACITY, EXPANSE MARKET SHARE

82

Additional sale volume in 6M.2019 is attributed to trading activities, which do

not bring any profit. As blast furnace phase 1 from Dung Quat comes into

operation this Q3, HPG may generate profit from this additional sale volume,

despite the rise in iron ore price

(*) Estimate under iron ore price of USD 100 per ton

We believe HPG may remain selling price about VND 12.5 mil per ton in

2H.2019 as (1) Input price is staying at high level, making most of the industry

suffers from loss, HPG is under less pressure to decrease price, (2) Safeguard

tariff is a barrier against Chinese steel, (3) HPG is finding market outside of

Vietnam, exporting more in 6M.2019.

Galvanized sheet and steel pipe suffered from global protectionism and stricter

competition in domestic market. Therefore, we lower the outlook of these

products despite some anti-dumping taxes against colour-coated and galvanized

sheet being released by MOIT

Real estate contributes less because revenue from Mandarin Garden 2 project is

not much left. Nguyen Duc Canh project is expected to generate PBT of VND

100 bn

198

164 180 178

228

147

199 179

221 250

220 213

250

200

247 236 226


Th

ou

san

d t

on

Construction steel sale volume monthly

2018 2019

Origin From trading From blast furnace (*)

Billet cost (VND per kg) 12,292 9,273

Gross profit from each kg of

steel bar 463 2,420

26%

24%

22% 21%

22%

19%

24%

22%

27% 28%

26% 25%

27%

25% 25% 26%

25%

15%

20%

25%

30%


HPG is acquiring more market share recently

2018 2019

Source: VSA, VCBS compiles

Source: VSA, VCBS compiles


HPG – FORECAST AND VALUATION

83

We build our forecast based on below assumptions:

• Average iron ore price input reaches USD 100 per ton

• Furnace phase 1 from Dung Quat complex starts operating from the

beginning of this July. The second one should operate since this

October. In our expectation, initial utilization rate of these 2 furnaces

will be 75% this year, and be 100% in 2020

• Sale volume grows by 30% yoy in 2H2019. Total sale volume this year

is expected to reach 3.3 million ton, 400k ton of which comes from

trading activities.

Year 2018 2019F 2020F

DTT 55,836 68,931 91,344

EBITDA 12,836 11,958 15,406

LNST 8,573 7,313 10,292

EPS 4,037 2,516 3,541

Business performance forecast

699

1001

1381

1804

2203

2377

3320

4600

0 1000 2000 3000 4000 5000

2013

2014

2015

2016

2017

2018

2019F

2020F

Thousand ton

Construction steel sale volume

Valuation

15,000

20,000

25,000

30,000

35,000

Jun-1

8

Jul-

18

Au

g-1

8

Sep

-18

Oct

-18

No

v-1

8

Dec

-18

Jan

-19

Feb

-19

Mar

-19

Ap

r-19

May

-19

Jun-1

9

HPG share price

VND 29,706

per share

P/E fw = 12x

EV/EBITDA = 8.7x

FCFF @ 1%g. 12% WACC

Unit: VND billion

RETAIL

SECTOR


INDUSTRY ACTIVITY IN 1H2019

The modern Vietnamese retail industry is considered to

have good growth potential. According to ATK earny's

assessments in 2019, Vietnam is ranked 6th on the GRDI

index (the index describing the level of attractiveness for

investment activity in retail industry), with a stable

developing economy and positive changes towards

liberalization in investment law.

However in the industry, there is a strong competition

between international players and Vietnamese market-savvy

enterprises, which are evident through two events H1/2019

Shop & Go event transferred 87 stores to Vin

Commerce in early April 2019. This chain of foreign

supermarkets with capital from Singapore started operating

in Vietnam in 2006, by the time of 2016, this scale of the

supermarket chain has reached nearly 130 stores. However,

under strong competitive pressure from the number of

convenience stores increased rapidly over the years (chart

2), the Shop & Go chain has gradually narrowed its

activities in the period of 2017-2019, by the time of April

2019, there were only 87 stores operating in Hanoi and Ho

Chi Minh City.

The fact that Auchan supermarket chain has withdrawn

from Vietnam after nearly 4 years of operation and signed

a contract to transfer 18 supermarkets to Saigon Co.op in

the last days of June 2019. After successful reception,

Saigon Co.op has raised the number of supermarkets

nationwide to 129 supermarkets (as of June 30, 2019). This

event also shows that compared to foreign investors,

Vietnamese retailers still have great advantages when they

understand how to operate the retail chain in Vietnam,

somewhat different from the world and Vietnamese

consumer culture.

Figure 1: Top 10 countries with the highest GRDI index


ACTIVITY IN DEVELOPING STORE CHAINS

The number of supermarkets nationwide recorded a

slight increase in the number of new stores. In the first

half of 2019, there was 9 supermarkets opened nationwide.

In particular, mainly belongs to the two largest scale

supermarket chains are Co.op Mart and Vinmart.

The number of supermarkets nationwide

increased slightly

19

35

94

13

63

24 21

35

109

13

108

24 18

35

111

14

114

Aeon

Citimart

Auchan Big C Co.op MartLottle Mart Vinmart

2017 2018 06/2019

Co.opmart: increased its market share after opening 2

supermarkets in Ho Chi Minh and Da Nang, bringing

the total size of Co.opmart brand across the country to

111 supermarkets (not including 18 Auchan

supermarket is transferred). According to Saigon Co.op

company, after being transferred 18 supermarkets from

Auchan, Saigon Co.op will quickly launch these new

stores in the form of supermarkets Co.opmart,

Co.opXtra, Finelife . So far, Saigon Co.op is currently

the largest supermarket chain management company in

Vietnam.

Vinmart opened 6 supermarkets in the first half of

2019, bringing the total to a number of enterprises with

the second largest supermarket chain in the country.

Lotte Mart in quarter 01/2019 opened Lotte Mart Cau

Giay supermarket. This is the 3rd supermarket of Lotte

chain in Hanoi and the 14th supermarket in the

country.

Figure 2: Number of supermarkets 2017-06 / 2019


ACTIVITY IN DEVELOPING STORE CHAINS

166 262

1,121

139 157

283 181

157 104

307

1,700

168

405 313

66 219 147

344

87 168

3

607

370

72

226 115

6 41 25

Family

Mart

Circle K VinMart + Shop&Go B's mart Hapro BHX Co.op

Food

Co.op

Smille

Satra MiniStop An Nam

Gourmet

Qmart + Lan Chi

2017 2018 06/2019

Mini supermarkets and convenience stores recorded strong

growth in the number of local businesses, while foreign

businesses showed slowdown.

Vinmart + after a grand opening of 117 stores at the

end of 2018, Vinmart + chain opened more than 100

convenience stores in the first half of 2019, reaching

more than 1800 stores nationwide

Mini supermarkets and convenience stores still maintained good growth

Bach Hoa Xanh (BHX), as of 30/06/2019, number of

BHX stores reached 607 stores, increased 202 stores

compared to the beginning of the year. In the first 5

months of the year, the chain of BHX chain expansion

activities was implemented in the provinces of Dong

Nai, Binh Duong and the Mekong Delta provinces

when Long Binh (Dong Nai) and My Tho (Tien

Giang) distribution centers were put into operation.

Figure 3: Number of mini supermarkets & convenience stores 2017-06/2019


PROSPECT: INCOME GROWTH AND CHANGE OF PAYMENT METHOD

Potential for modern retail chains

According to USDA data, in 2017 total grocery retail value

(grocery sales) from modern retail stores in Vietnam

reached about USD 3,612 million, accounting for only

about 5% of the total retail value of the country. Compared

to developed countries such as the US, South Korea and

Japan, consumption of goods through traditional models

(mom & pop) has a negligible proportion and is rarely

mentioned in newspapers, or compared to Thai Lan, the

proportion of retail value of goods through modern

channels in 2016 accounted for over 70% (according to

USDA). Therefore, in combination with the factors of

changing shopping habits (food safety, time saving, e-

banking payment, change and experience), the Vietnamese

young generation is gradually shopping at the convenience

stores, supermarkets, and expectations of income growth

are driving the development of modern retail models in

Vietnam.

Per capita income is expected to be higher, about 40% of

the population will become a middle class before 2021.

Total household expenditure is expected to grow at an

average rate of 11.4% during the period 2017-2021,

according to Euromonitor.

Per capita income increased

Consumer credit growth and changes in

E-banking payment

In 2018, consumer credit accounted for 19.7% of total

outstanding loans, higher than 12.3% and 18% and for the

two years 2016-2017. At the same time, the Government is

encouraging banks and organizations to develop E-banking

payment platform to save costs, limit inflation, corruption

and transparent payment. These trends are actively

supporting the development of modern retail chains in the

long term.


MWG – ĐMX IS GROWING, BHX IS IMPROVING

Revenue

According to MWG, accumulated in the first 5 months of 2019,

MWG recorded a good growth of VND 42,800 billion , +15.4%

of revenue and VND 1,792 billion, up +39% of EAT over the

same period. The main growth driver comes from increasing

market share of business chains.

Dien May Xanh chain recorded an impressive

growth rate of more than VND 25,200 billion,

+22.6% yoy, accounting for 59% of the results

from the chain store expansion and converting a

number of TGDĐ stores into creative and effective

in innovating the way of displaying products at

mini DMX stores.

TGDĐ chain, by the end of May 2019, the number

of mobile phone stores decreased by 15 stores

compared to the number at the end of 2018,

included 2 newly opened stores and 17 converted to

mini DMX. Average revenue of a store also

recorded a slight decrease in the first 5 months of

2019 (VND 2.8 bil/month/store year 5 months/

2019, VND 2.9 bil/month /store for 5 months /year

2018) because some stores have big sales were

converted to mini ĐMX.

Bach Hoa Xanh chain represented a very rapid

revenue growth in the early stages of development,

+160% yoy, increasing the proportion of

contribution to 7.3% in revenue structure compared

to the same period in 2018 this figure is only about

3.2% of activities to promote chain expansion..

Chart 4: MWG revenue Revenue

25.9

14.7 10.9

0.3

37.1

15.3 20.6

1.2

42.8

14.4

25.2

3.1

0

5

10

15

20

25

30

35

40

45

Tổng doanh thu TGDĐ ĐMX BHX

Ngàn tỷ

T5/2017 T5/2018 T5/2019


MWG- Accumulated 5 months/2019

Gross profit

Gross margin in Q1/2019 has improved slightly over the

same period (up 20 bps). In particular, the main contribution

comes from the process of gradually transforming some

stores of TGDĐ into high-performance ĐMX. BHX's gross

margin in the first quarter remained at 18%, equivalent to that

of Q4/2018, and has improved in April and May.

17.5%

17.7% 17.7%

17.8%

17.7%

17%

17%

17%

18%

18%

18%

18%

18%

3,200

3,400

3,600

3,800

4,000

4,200

4,400

4,600

Q1/2018 Q2/2018 Q3/2018 Q4/2018 Q1/2019

Tỷ đồng

Lợi nhuận gộp BLN gộp

As of May 2019, EAT is VND 1,792 billion, +39% yoy.

Net margin in the first 5 months of 2019 increased to

4.2% compared to 3.5% at the same period because the

proportion of SG&A on revenue decreased due to changes

to ĐMX’s outlets and converting some TGDĐ stores into

mini ĐMX with increasing revenue while operating costs

remain unchanged or increase slightly.

3.8% 3.7% 3.5% 3.5% 3.5%

4.4% 4.2% 4.2% 4.2% 4.2%

0%

1%

2%

3%

4%

5%

-

500

1,000

1,500

2,000

Tỷ đồng

LNST Biên LNSTEAT Net margin

Net profit

Figure 5: MWG gross profit Figure 6: MWG net profit

Gross Profit Gross Profit Gross margin


MWG-Catalyst 2019

ĐMX chain BHX chain

Compared to Q1/2019, there was only 24 stores, but

only in Q2/2019, the number of stores increased by 76

stores, 3 times higher than Q1/2019, reached 67% of

the plan for 2019.

The average revenue of a store in 2019 expected to

increase to VND 78.00 bil/store/year compared to

2018 of VND 65.60 bil/store/year thanks to

improvements in store display. goods at mini stores, as

well as the opening of new big stores.

The number of stores BHX also recorded strong

growth in Q2.2019 with 138 stores increasing, more

than double the figure in Q1.2019. Total number of

BHX stores increased in 1H.2019 reached 68% of the

plan for 2019.

The average revenue of a store BHX also recorded

positive growth to VND 1.40 bil/month/store,

+17.00% compared to the end of 2018.

In Q1.2019, BHX's profit margin remained around

18%. However, BHX's Q2.2019 gross margin has

recorded many positive changes.

2019 prospect surpasses profit target by boosting the expansion of the BX and BHX

chain from Q2.2019 and improvements in business operations


MWG-Forecast 2019 & Valuation

VND billion 2017 2018 2019F

Rev 66.340 86.516 105.974

+/- yoy (%) 49% 30% 22%

Gross profit 7.214 11.142 18.842

+/- yoy (%) 54% 37% 23%

NPAT 2.880 2.880 3.906

+/- yoy (%) 40% 30% 36%

Gross margin 16.80% 17.70% 17.80%

Net margin 3.30% 3.30% 3.70%

Forcast

DCF 114.000

VND/CP

Targer price

+19,5% UPSIDE

Valuation


GROW IN BOTH QUALITY AND QUANTITY

93

14,571

960

-

5,000

10,000

15,000

20,000

Doanh thu LNST

VND Bil

2014 2015 2016 2017 2018

CAGR 2014-2018: 12%

CAGR 2014-2018: 39%

9% 5%

14% 18%

18% 20%

11%

31% 33%

29%

2014 2015 2016 2017 2018

ROA ROE

32%

17%

8%

21% 20%

12%

-1%

12% 14%

0% 2014 2015 2016 2017 2018

SSSG cửa hàng vàng SSSG cửa hàng bạc

169 194

219 269

324

2014 2015 2016 2017 2018

The number of stores increased rapidly in 5 years

Revenue EAT

SSSG gold

jewellery store

SSSG silver

jewellery store


Growth comes from fragmented market

94

The jewelry industry is highly fragmented in

Vietnam with about 70% market share focusing on

small gold shops, while big brands such as PNJ, SJC,

DOJI ... currently accounting for only about 30%.

The fact that large enterprises such as PNJ with stores

across the country and their prestige is easier to access

market.

Small stores;

70%

Big brand

name; 30%

According to data of WGC, CAGR 2016-2018

consumption of gold jewelry in Vietnam reached

+9.00%/year, which is still in a positive growth group

compared to other countries in the world and in the

region.

Figure 1: CAGR 2016-2018 gold jewellery

Figure 2: Jewelry retail market share

-7%

3%

-2%

3%

11%

-5%

-1%

4%

-5% -2%

-5%

1%

9%

Mid

dle

Eas

t

Am

eric

as

Euro

pe

ex C

IS

Chin

a

HongK

ong

Tai

wan

Japan

Indones

ia

Mal

aysi

a

Sin

gap

ore

Kore

a, R

epubli

c of

Thai

land

Vie

tnam


LEADING IN COMPETITIVE STRATEGIES

Leading the retail jewelry system

nationwide

The largest factory in the country with a capacity of 4

million products/year, which is 8 times higher than

the adjacent rival SJC.

PNJ currently has about 800 jewelers, including more

than 160 artisans, accounting for about 70% of

artisans in Vietnam.

Outstanding production capability

Digital Transformation strategy with

Big Data platform

Pioneering in the retail jewelry industry in Vietnam,

collecting customer data to catch up with trends and

continuously innovate products to increase customer

service quality. At the same time, the ERP system also

combines with production management activities to

optimize quantity, cost, and production time suitable to

business operations.

260

42 67

13 4

102

PNJ SJC Doji BTJ Bảo Tín

Minh Châu

Thế Giới

Kim

Cương

Currently, PNJ is leading the jewelry retail industry in

the number of jewelry stores, with 344 stores in 51

provinces and cities nationwide, 2.6 times more than

the second jewelry retail chain is The gioi Kim cuong

with 102 store.

Due to certain unique characteristics of the gold

industry, PNJ owns a chain of stores across the country

to increase value for customers and helps PNJ expand

its market.

Figure 3: Number of stores of companies


Risk

96

Supply of shopping centers, which is forecasted to decrease, would

affect the chain opening plan in the period 2020-2021. Set by the 2019

plan to open 40 more stores, by the time of June 30, 2019 PNJ has

opened 20 stores, reaching 50% of the plan and we expect the target

would be reached in 2019. However, the number of shopping centers

decreasing sharply in the period of 2018-2019 is expected to affect the

opening rate of PNJ when most new open stores are concentrated in

supermarkets and shopping centers.

The demand for buying gold jewelry in the world is reducing and

these luxuries are replaced with technology products. Although in the

demand for gold and jewelry in Vietnam is relatively good, PNJ will face

this risk in the long term.

The early phase of ERP implementation may face some initial

difficulties, in which the impact may last until the end of the third quarter

of this year.

Concerns about the economic recession: because the main business of

PNJ consists of luxury products. Therefore, the psychological impact of

the world’s general recession will cause people to hold gold bars (with a

low GPM of 2%) and jewelry shopping activities tend to slow down

(high LNG margin 30 %).


PNJ-Forecast 2019 & Valuation

VND billion 2017 2018 2019F

Rev 10.977 14.573 16.800

+/- yoy (%) 49% 33% 15%

Gross profit 7.214 2.779 3.600

+/- yoy (%) 35% 45% 30%

NPAT 725 960 1.200

+/- yoy (%) 61% 32% 25%

Gross margin 16.60% 17.50% 17.80%

Net margin 6.60% 6.60% 7.10%

Forecast

DCF 74.600

VND/CP

Target price

Outperform Recommendation

Valuation

OIL & GAS

SECTOR


BRENT OIL

99

-15

-10

-5

0

5

10

15

54

56

58

60

62

64

66

68

70

72

74

US Inventories Brent Oil

-2

-1

0

1

2

20

12

20

13

20

14

20

15

20

16

20

17

20

18

Giàn khoan Mb/ngày

Volumes Rigs (RHS)

80

85

90

95

100

105

-4

-2

0

2

4

20

11Q

1

20

12Q

1

20

13Q

1

20

14Q

1

20

15Q

1

20

16Q

1

20

17Q

1

20

18Q

1

1Q

2019

Triệu

thùng/ngày

Mb/ngày

OECD OPEC Khác Tổng Cung

82

84

86

88

90

92

94

96

98

100

102

104

-1

0

1

2

3

20

12Q

1

20

13Q

1

20

14Q

1

20

15Q

1

20

16Q

1

20

17Q

1

20

18Q

1

20

19Q

1

Triệu

thùng/ngày

Mb/ngày

China IndiaOther non-OECD OECD

As our forecast in earlier report, in

early 6M.2019, Brent oil price

climbed three times in a row from

early 2019 mainly based on tightening

supply.

Unfortunately, the oil price pattern

repeated its slump movement in late

2018. VCBS think that Brent oil is

manipulated by speculators since a

scheduled OPEC meeting is going to

negotiate each member’s output that

mainly result to strong fluctuations of

Brent Oil in the short term.

In particular, it is no doubt that Brent

Oil’s price movement this time was

obviously different from its pattern in

the past. It fluctuates dramatically

with a wide range of amplitude in the

short term.

Recommendation: VCBS will

maintain their forecast of aggregate

Brent Oil price at USD73/barrel.

However, given the unpredictable

fluctuations of Brent Crude’ price,

VCBS revise our recommendation

from “Outperform” to

“Conservative” for Viet Nam Oil &

Gas industry prospect in 2H.2019.

Brent Crude’s Movement in 1H.2019 US’s Shale Oil Production

Global Supply – Demand Of Brent Crude

Source: VCBS


VIETNAM OIL&GAS PROJECTS

100

PVS PVD PXS PVB

OFFSHORE

Sao Vang – Dai Nguyet

(2018-2020) Topside package major contractor Bidding TAD drilling rig Sub Contractor of Jacket package -

Nam Con Son 2 – phase 2

(2019-2022) Bidding EPC 118km & 46 km pipeline -

Sub Contractor of Onshore

package

Coating 118 km pipeline + 46 km

pipeline

Block B

(2019 -2021)

Bidding 4 x WHPs, 4 Jacket, interconnecting

pipeline 1 Tender Barge, 1 Jack - up

Sub Contractor of Jacket &

Interconnecting pipeline package Coating450 km pipeline

Red Emperor(2019-2021) 1 x FPSO (PVS 51% - Yinson 49%) Bidding TAD drilling rig - Coating 30km pipeline

Kinh Ngu Trang

(2019-2021) Sub Contractor -

Major contactor 1 x WHP, 1 x

Jacket & 30 km pipeline -

Nam Du - U Minh

(2020-2022) 1 x WHPs, 1 FPSO - - -

Blue Whale (2020-2023) Sub Contractor of Jacket & Topside package - - Bidding 90km offshore pipeline +

15 km onshore pipeline

ONSHORE

Thi Vai LNG Storage (2019 –

2021) Major contractor - - -

Figure: Key Of Oil & Gas Projects

Source: VCBS

VCBS issue OUTPERFORM recommendation for Upstream in 1H.2019. However, VCBS has revised our recommendation from

“OUTPERFORM” to “CONSERVATIVE” for Upstream segment in 2H.2019 basically based on.(1) Our Oil & Gas portfolio, which performed

well in 1H.2019, has recorded a high price almost reaching our target; (2) VCBS down Oil & Gas prospect in 2H.2019 as well as the

fluctuations of Brent Crude Oil.


Jobs 2019 2020 2021 2022 2023

Nam Con Son 2 – Phase 2 160 km pipeline with total investment of

USD40 mn

White Lion 70 km pipeline with total investment of USD15

mn

Block B – O Mon 430 km pipeline with total investment of USD150 mn

Blue Whale 88 km 36inch pipeline with total

investment of USD20 mn

PETRO VIETNAM COATING

101

4Q2018

FEED

1Q2019

FID

2Q2019

EPCI

3Q2019

M&C

3Q2020

First Gas

Note

: Idle

: Implement

: Pending

Figure: PVB’s Job Schedule

INVESTMENT POINT

Nam con son 2 – Phase 2: As mentioned from the previous part. Nam Con Son 2 – phase 2 are implementing on schedule in order to be just in

time with Sao Vang – Dai Nguyet project. PVB is responsible for coating 160km pipe line in 2019-2020 with total value of USD40 mil. PVB is

expected to put this project into operation and record its sale & profit from 3Q.2019.

The potential project: PVB is tracking some potential project such as: White Lion, Block B – O Mon, Blue Whale… In which, Block B –

Omon is a major project in which PVB will be set as its priority due to the big size of it. VCBS expect

RISK

Risk in profit distribution between PV GAS & PVB: PVB is one of the subsidiaries of PV GAS, which is why PVB is supposed to have the

approval of the government to be a contractor of Nam Con Son 2 – Phase 2 invested by PV Gas. VCBS is skeptical of PVB‘s performance in

case of the earning manipulations made by PV GAS.

Internal risk of project: PVB faces some problem with its current business structure. PVB’s performance mainly depends on Oil & Gas

projects, especially in offshore project relevant to pipeline

Figure: Nam Con Son 2’s Timeline

Source: VCBS


PETRO VIETNAM COATING

102

VALUATION

DCF Methods 2019

Risk Free rate (Rf) 4.65%

Equity Risk Premium for VN: (Rm - Rf)+CP 10.27%

Beta 1.30

WACC = Re * E/(E+D) + Rd*(1-Tc)*D/(E+D) 18.00%

Matrix of Valuation

ASSUMPTION Worst case Base case Good case

Brent Oil 57 72 87

GPM

- NCS 2 – phase 2 15% 20% 25%

- White Lion – phase 2 13% 18% 22%

- Block B – O Mon 15% 20% 25%

- Blue Whale 10% 15% 20%

BUSSINESS RESULT

NPAT 27,206 35,201 43,196

EPS 1,260 1,630 2,000

VALUATION

DCF 21,083 27,585 33,988

Discount* 10% 15% 20%

Target price 18,974 23,447 27,190

Upside (%) +11.61% +37.92% +59.94%

27,555

33,865

10,385

18,376

19,011

29,437

36,428

10,482

22,575

19,469

0 10,00020,00030,00040,00050,00060,00070,00080,000

FCFF

FCFE

P/E

P/B

EV/EBITDA

Current Price

SCENARIO ANALYSIS

ASSESSION:

VCBS think that 2H.2019 will be its turning point mainly based on

“Recording sales and profit of Nam Con Son 2 – Phase 2”. VCBS forecast

PVB’s sales and NPAT are at VND 279.90 bn (+38.20% yoy) and VND 35.20

bn (+52.40% yoy), respectively.

RECOMMENDATION:

VCBS evaluate the value of PVB’s share at VND 23,447 per share.

We keep to recommend BUY to PVB in 2H.2019.


PETROVIETNAM TECHNICAL SERVICE CORPORATION

103 103

M&C (mn

USD)

Job

description

Total

value

Implement

Schedule

201

8

Back

log

2019

Backl

og

2020

Sao Vang

– Dai

Nguyet

Major EPCI

Contractor of

1 x CPP, 1 x

WHPs &

pipeline

USD700

mn

Q1.2018 –

Q4.20120 250 325 225

AI

Shaheen

Major EPCI

Contractor of

3 x WHPs &

pipeline

USD320

mn

Q4.2018 –

Q4.2020 - 120 200

1Q.2019

•Nam Con Son 2- Phase 2 (GPP2 package): FEED

•Blue Whale: FEED

2Q.2019

•Thi Vai LNG Storage: Bidding EPCI

•White Lion - Phase 2: Bidding FEED

3Q.2019

•Kinh Ngu Trang: 1 x WHPs, 30km of pipeline

•Nam Con Son 2 - Phase 2 : Bidding EPCI of 118 km of offshore pipeline

4Q.2019

•Nam Du – U Minh: Bidding EPCI of 1 x WHPs and pipeline.

INVESTMENT POINT

PVS’s bottom up receives a robust from backlog’s job volumes : In 2019, PTSC M&C continue to contribute a huge amount in sale and profit

to PVS.

Dissolution of PTSC - CGGV: PVS completely restructured its PTSC – CGGV, which would support its EPS in 2019 thanks to the reduction of

loss burden from PTSC – CGGV relatively of VND200 – 300bn each year.

The potential project: In 2H.2019, PVS continue to track bidding schedules of some onshore & offshore projects such as: Nam Con Son 2 –

Phase 2, Nam Du – U Minh… and some overseas project. Additionally, PVS increasingly earn revenue from PVS & MSCI venture thanks to

depreciation cost deductions of Ruby FPSO.

RISK

VCBS think that PVS suffers two main risk factor (1) The fierce competition of M&C segment market; (2) Risk from progress of Oil & Gas

Project.

Source: VCBS

Figure: Job’s Back log Timeline of Oil & Gas Projects Process


PETROVIETNAM TECHNICAL SERVICE CORPORATION

104 104

VALUATION

DCF 2019



Beta 1.35


Matrix of Valuation

ASSUMPTION Worst case Base case Good case

Brent Oil 57 72 87

GPM

- Sao Vang – Dai Nguyet 4% 8% 12%

- AI Shaheen 0% 3% 5%

BUSSINESS RESULT

NPAT 934 1,080 1,226

EPS 1,936 2,238 2,539

VALUATION

DCF 23,199 25,239 27,283

P/E 23,232 26,856 30,468

Target Price 23,215 26,048 28,875

Upside (%) -1.2% +10.8% +22.8%

SCENARIO ANALYSIS

ASSESSION:

VCBS think that 2H.2019 will be a good year for PVS, mainly thanks to a

good performance of PTSC & FPSO/FSO segment. VCBS forecast PVS’s

sales and NPAT are at VND 16,747 bn (+14.10% yoy) and VND 1,080 bn

(+196.00% yoy), respectively.

RECOMMENDATION:

VCBS evaluate the value of PVS’s share at VND 26,048 per share.

We recommend : OUTPERFORM to PVS in 2H.2019.

18,042

15,480

11,654

16,635

14,859

18,845

18,501

19,702

11,946

21,829

15,204

20,871

0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000

FCFF

FCFE

P/E

P/B

EV/EBITDA

EV/Sales

Current Price


PETROVIETNAM DRILLING&WELL SERVICES CORP

105 105

Driling 01/18 02/18 03/18 04/18 05/18 06/18 07/18 08/18 09/18 10/18 11/18 12/18

PVD I Vietsovpetro

PVD II Vietsovpetro Sabura - Malaysia Client Malaysia

PVD III Repsol Malaysia

PVD VI Vietsovpetro Eni Others

PVD V

Notes

: Already secured

: Bidding

: Rig move

: Idle

0%

10%

20%

30%

40%

50%

60%

70%

0

10

20

30

40

50

60

70

80

90

Utilization Rate Jack - up Day Rate Brent Oil

VCBS expect that average utilization jack-up rate will increase from 85,1% in 2018 to 94% in 2019 due to the increase in the number of

upstream’s projects.

In 1H.2019, PVD has successfully bid some long-term contracts (six month – one year term) for PVD I, which signals a bounce in utilization rate.

PVD’s performance should be better because the Rig move and maintenance cost incurred from long term contracts is as lower as from short term ones.

Rig rents - Operating rigs: The day rate of Jack rig - up in

the Asia - Pacific region is on the rise again in 1H.2019

thanks to the volume of projects. Drilling and exploitation

projects in the region are showing signs of recovery.

VCBS's assessment: PVD's operating activities are heavily

dependent on foreign markets such as Malaysia, Indonesia ...

In these markets, when the oil price is above the breakeven

level within> 1 year, the projects will be restarted

simultaneously. The main reason is that PVD has many

drilling contracts in Malaysia and regional countries. Too

much dependence on the external market is also a risk factor

in business activities.

Source: VCBS

Source: VCBS

28

23

7

16 1

Figure 4: Rigs in South East Asia

Drilling Warm stacked

Cold stacked Under construction

Fixing

62.5

56.43

70

75

45.91

27.26

34

51

0

10

20

30

40

50

60

70

80

2016 2017 2018 2019F

Figure 5: Supply - Demand of drilling services in

South East Asia

Rigs Supply Rigs Demand


PETROVIETNAM DRILLING&WELL SERVICES CORP

106 106

SCENARIO ANALYSIS VALUATION

DCF 2019



Beta 1.30


Matrix of Valuation

ASSUMPTIONS Worst case Base case Best case

Brent Oil (USD/bbl) 57 72 87

Jack – up .avg day rate (USD/day) 50,000 60,000 70,000

Jack – up .avg utilization (%) 85% 95% 95%

BUSINESS RESULT

EAT (mn USD) 8.2 13.4 388.7

EPS (VND/share) 494 809 1,020

VALUATION

DCF 15,836 18,883 21,714

Target price 15,836 18,883 21,714

19,352

15,480

11,654

21,114

14,859

18,845

20,698

19,702

11,946

26,345

15,204

20,871

0 10,000 20,000 30,000 40,000 50,000 60,000

FCFF

FCFE

P/E

P/B

EV/EBITDA

EV/Sales

Current Price

ASSESSION:

VCBS think that PVD's performance in 2H.2019 will be positive thanks to

significant workload improvement, along with depreciation policies that will

help PVD have a competitive advantage in bidding. VCBS forecast PVD's

sales and NPAT in 2019 are at VND 6,268.00 bn (+13.80% yoy) and VND

309.90 bn (+88.70% yoy).

RECOMMENDATION:

VCBS evaluate the value of PVD’s share at VND 18,883 per share.

We keep to recommend HOLD to PVD in 2H.2019.


RECOMMENDATION MATRIX

107 107

BRENT CRUDE 55-65 USD 65-75 USD 75-85 USD INVESTMENT POINT

UP

ST

RE

AM

PVS Completing corporate restructuring with the backlog volumes from 2018 will helps PVS

to grow in 2019.

PVB Nam Con Son 2 – Phase 2 will be the key growth of PVB in 2019, the project is

implemented in time without being affected by oil prices.

PVD

Utilization and day rate increased slightly in 2019 to help PVD improve cash flow.

However, PVD is still operating below breakeven. With a large supply of drilling rigs,

VCBS rated PVD's activities still negatively affected if oil prices fell.

PXS VCBS expect that 2020 will be a good year for PXS thanks to Long Son project and

Wind Farm.

MID

ST

RE

AM

GAS

GAS's business activities are directly affected by world crude oil prices that lead to risky

of GAS’s performance.

BSR

In theory, world crude oil price does not affect BSR's business results. However, sudden

changes in oil prices will negatively affect the cost of goods sold and inventory reduction

costs of BSR.

DO

WN

ST

RE

AM

PGS

CNG

PGD

PLX The effect of oil prices on PLX and PV Oil's business results is due to the difference

between 30-day stock and adjusting the 15-day average selling price according to

government regulations. OIL

Note

: BUY (>15%)

: OUTPERFORM(5% - 15%)

: HOLD (-5% - 5%)

: UNDERPERFORM (< -5%)

Source: VCBS

This report is designed to provide updated information on macroeconomics, fixed-income, including

bonds, interest rates, industries, equity outlook and some other related. The VCBS analysts exert

their best efforts to obtain the most accurate and timely information available from various sources,

including information pertaining to market prices, yields and rates. All information stated in the

report has been collected and assessed as carefully as possible.

It must be stressed that all opinions, judgments, estimations and projections in this report represent

independent views of the analyst at the date of publication. Therefore, this report should be best

considered a reference and indicative only. It is not an offer or advice to buy or sell or any actions

related to any assets. VCBS and/or Departments of VCBS as well as any affiliate of VCBS or

affiliate that VCBS belongs to or is related to (thereafter, VCBS), provide no warranty or

undertaking of any kind in respect to the information and materials found on, or linked to the report

and no obligation to update the information after the report was released. VCBS does not bear any

responsibility for the accuracy of the material posted or the information contained therein, or for any

consequences arising from its use, and does not invite or accept reliance being placed on any

materials or information so provided.

This report may not be copied, reproduced, published or redistributed for any purpose without the

written permission of an authorized representative of VCBS. Please cite sources when quoting.

Copyright 2012 Vietcombank Securities Company. All rights reserved.

DISCLAIMER

108

CONTACT INFORMATION

109

Tran Minh Hoang

Head of Research

[email protected]

Tran Minh Hoang

Head of Research

[email protected]

Ly Hoang Anh Thi

Deputy Head of Research

[email protected]

Mac Dinh Tuan

Head of Equity Research

[email protected]

Le Duc Quang

Head of Equity Research

Construction materials

[email protected]

Le Thu Ha

Head of Macroeconomic Research

[email protected]

Nguyen Huy Hoang

Aviation, Logistic

[email protected]

Nguyen Thi Thu Hang

Aquaculture, Agriculture

[email protected]

Nguyen Hoang Minh

Market Strategist

[email protected]

Ngo Phuong Anh

Banking

[email protected]

Ngo Duy Tai

Oil & Gas

[email protected]

Tran Hai Nam

Derivatives

[email protected]

Pham Lan Huong

Real estate, Technology

[email protected]

Trinh Van Ha

Textile

[email protected]

Dang Khanh Linh

Fixed Income

[email protected]

Truong Anh Quoc

Real estate

[email protected]

Tran Ky Anh

Retail

[email protected]

Hoang Tung Vu

Commodities

[email protected]

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