HSC Daily Market Watch with a note on YEG (BUY)

Ngày đăng December 6, 2018

Market commentary – The VN index decreased with turnover still below recent averages. Market breadth narrowed while we also see that 25 stocks went to the ceiling and 23 stocks fell to the floor. Foreigners were less active net sellers to a noticeable degree. The put through market was less active with large deals in ROS & TIX and then a smaller deal in SBT seen going through.


Foreigners were active buyers of VNM; MSN and VRE. And net sellers of HDB and FPT.


  • Bank shares were mixed with gains for EIB and MBB while there were losses for VCB and HDB.



  • Non-banks shares were broadly lower, led by insurance stocks.



  • Consumer and retail names were mixed with gains for MCH and SAB while there were losses for KDF and BHN.



  • Tech stocks all lost ground, led by YEG.


Corporate news – YEG wins EGM approval for bonus stock issuance and new stock issuance. Reiterate BUY. Yeah1 (YEG BUY) as expected won EGM approval to carry out a 1:2 bonus share issuance next year. They also won the right to issue up to 1% of outstanding equity at a minimum price of VND 300,000.


Quick conclusion. Reiterate BUY. Our fair value price for the stock is currently VND 323,715, offering an upside potential of 21.2% at today closing. HSC forecasts NPATMI will grow by 226.8% y/y in FY2018 while for FY2019, we see NPATMI expanding by a further 64.5% y/y. Underlying organic growth remains strong as previous M&A deals have helped to transform the business tremendously. Yeah1 will continue to grow rapidly in FY2019 through a combination of organic growth and M&A. The approved bonus share issuance should be implemented in the 1H of next year and help to make the share more attractive and thus improve liquidity. We also expect some positive developments on M&A deals in coming months. Yeah1 is a unique mix of digital and traditional media assets in Vietnam and overseas and should grow further into a major regional player in coming years.


Bonus issue issuance will deliver two new shares for every one held – The bonus stock issuance has a ratio of 1:2 (two new shares for every one current share) and will take place after the release of 2018 financial statements next year. This will result in the issuance of 62.6 million shares which will increase the chartered capital to VND 938.4 billion. This looks like an attempt to make the share price more attractive for retail investors and improve liquidity. While the stock has performed very well in recent months it still looks rather illiquid in terms of daily trading value with the expensive share price being one possible explanation for this.


In addition to that, the investors also approved a plan allowing an issuance of up to 1% of outstanding shares at a minimum price of VND 300,000 per share within the next 2 years. This plan looks like a possible attempt gives the board more flexibility in executing M&A in the future. The board has said that their current M&A focus is mostly in digital media. And HSC’s own take on this move is that they might use a future share issuance as a possible golden handcuff to either lock-up executives in a target company insuring a smooth transition or possibly to incentivize them to achieve targeted KPI going forward after a deal.


M&A deals appear to be in the works – After the listing over the summer, some M&A activity had to be postponed given the delay in finalizing all the post listing corporate actions. However, since then we understand that the company has been chasing several targets and we expect some positive news on this front in coming months. 


In the EGM, they said they spent about 19% of the VND 1,700 billion raised in August. The total cash and cash equivalent as at the end of Q3 was VND 1,245 billion. Which gives them the option of using some of that cash to fund M&A.


This enables Yeah1 to continue to grow at a fast clip next year through a combination of both organic and M&A related growth. Bear in mind that the current FY2019 HSC forecasts obviously do not currently include any contribution from M&A deals and hence this offers perhaps significant upside potential to the numbers if deals are closed.


HSC forecasts NPATMI will grow by 226.8% y/y in FY2018 – We forecast net sales of VND 1,881 billion (+123.8% y/y) and NPATMI of VND 192.4 billion (+226.8% y/y). Our forecasts based on the following assumptions;


  • YEG still keep their holding in Netlink at 76% and in TNT at 51% in 2018.
  • Revenue from traditional media grows by 123.8% y/y to VND 656 billion.
  • Revenue from digital media increases by 156.4% y/y to VND 1,224 billion.
  • We expect gross profit to rise 134.4% y/y to VND 579 billion, implying a GPM of 30.8% in FY2018 versus 29.4% in FY2017.
  • SG&A/sales ratio to decline to 10.3% in FY2018 from 15.6% in FY2017.
  • Then we forecast NPATMI to increase to VND 192 billion, net profit to grow by 226.8%.


This gives us EPS of VND 7,317, translating to a forward P/E 2018 of 38.1 xs.


For FY2019, we see NPATMI expanding by a further 64.5% y/y – For FY 2019 HSC forecasts net sales of VND 2,630 billion (+39.8% y/y) and NPATMI of VND 316 billion (+64.5% y/y) based on the following assumptions;


  • YEG will increase their holding in TNT to 76% in early 2019 and keep their holding in Netlink at the current 76%.
  • Revenue from traditional media will grow by 13.5% y/y to VND 745 billion.
  • Revenue from digital media will increase by 53.9% to VND 1,885 billion.
  • We expect gross profit to rise 26.9% y/y to VND 734 billion, implying a GPM of 27.9%.
  • SG&A/sales ratio at 11.7%.


Then we forecast net profit to grow by 64% and EPS of VND 10,116. Giving us a forward P/E 2019 of 27.6 xs.


Going forward, the company’s growth story remains intact. Traditional Media will experience continued modest growth in revenue with much faster growth in profit. On the other hand, Digital Media should continue growing both revenue and profit at a very fast clip. Historically, Q4, which is a high season of adverting in preparation for shopping holidays, accounts for around 40-42% of full-year revenue and 25-40% of full-year NPAT. Each business has shown strong performance in the first three quarters and we expect this momentum will carry forward into Q4 and then of course next year also. The specific catalyst for each business is as follows;


  • For TV business, barter deals will help the channels improve its inventory utilization. Improvement in channel ratings also gives support to revenue.
  • Gaining a foot in the door requires the company to expense higher costs and quote more competitive prices. After establishing a foothold in the big league, TNT can cut down it costs and improve margin. In addition, fulfilling stated KPIs will reward the agency with back-ended performance-based commissions.
  • Yeah1 CMG has 3-4 movie releases in the pipeline that are ready to be released in Q4.
  • Stating the year with around 1,000 channels under management, Yeah1 Network has grown this number to 1,200 and expanded their coverage internationally. Signing regional and global content deals with global players, such as TVB, UMG and EBS, grows the network’s premium content library. With such plentiful resources, Yeah1 Network has numerous opportunities for monetization without any worries about copyright infringement. Direct sales offering channel exclusive and in-content advertising has higher margin and shows strong growth, specially recording an increase of 147% to USD 3.5 million so far this year. Direct sales are a packaged service that Yeah1 offers to outside customer not related to YouTube.
  • Yeah1 Publishing showed a promising development, increasing the number of publishing partners from around 640 in Q2 to more than 900 in Q3.


Investment thesis – Reiterate Buy – We see fair value for the stock at VND 323,715 for a forward PE of 32xs based on the average of regional peers. Yeah1 Group (YEG) is the leading player in Vietnam’s digital media & advertising market and is one of the fastest growing new media companies in Asia operating the most comprehensive advertising platform in Vietnam ranging from traditional to digital. It also controls a large universe of content providers aimed mostly at the youth market. YEG’s growth in the next coming years will be driven by 2 key factors: (1) rapid organic growth of overall adex as well as the increasing share of digital advertising, and (2) their M&A activity. Underlying prospects remain unchanged and are very exciting in our opinion.


  • Manufacturing names were broadly lower, led by TCM and EVE. TMT closed at the floor today.



  • Resource names were mixed with gains for PVD and PVS while there were losses for GAS and PLX.



  • Real estate and construction stocks were mixed to higher, led by HBC and NVL.



  • Agriproducts and aquaculture stocks were mixed with gains for PAN and DPM while there were losses for VHC and GTN.



  • Pharmaceutical stocks were mixed with a gain for IMP while DHG lost ground.



  • Utilities, transport and logistics stocks were mixed to higher, led by airline stocks.



Vietnamese stocks fall back today – The markets today ended slightly lower. VCB was the biggest decliner in terms of index points with other banks such as HDB; CTG; BID; VPB and STB all ending the day lower. Then consumer name VNM fell back as did MSN. MWG slipped despite the fact that the foreign room will open soon while YEG also declined despite announcing that a bonus share issuance has been approved. GAS and PLX lost out despite slight gains in oil prices.


On the other hand, VHM made the biggest gains in terms of index points while fellow developer NVL also rose on news of an insider buying shares. Consumer name SAB gained ground as did leading retailer PNJ. EIB surged in heavy volumes on speculation that VCB might be selling the balance of the shares it plans to divest. 


The four future contracts fell by between 5.8 and 6.5 index points today which was more than the VN30 cash index which closed only slightly lower. The contracts ended the session at a discount of between 13 and 14.9 index points below the cash index. The discount has now grown to a fairly large size and reflects continued caution in the futures market as to near term cash market direction


The market lost some ground today as regional exchanges reacted to the arrest of Huawei’s CFO in Canada. However, having sold off fairly aggressively in the afternoon the VN index recovered most of the ground lost in late trading just before the close. As buying support emerged comfortably above the 50-day MA line.


Indeed, the Vietnamese market has shown some resilience in the past two trading days compared to other markets. We see this as at least partly due to (1) strong GDP growth this year which is also expected to continue into next year; (2) exceptionally strong PMI numbers the other day which adds weight to the FDI investment theme of factories being relocated from China to Vietnam. And then inflation concerns have also dimmed in recent months with today’s 7.5% cut in Ron-95 gasoline prices on the back of the recent collapse in oil prices likely to dampen CPI even further in December.


Even so, the market here is not immune to volatility in overseas markets and we are still struggling a bit below the 100-day MA where we have been for the last few days. Much depends on the overnight action in the U.S and Europe of course where there are concerns that reaction to the Huawei situation is not yet fully priced in. So, we are a little cautious again on the market’s prospects near term as the various unexpected events this week mostly due to White House actions have caught us off-guard.


Asian shares & major currencies – Asian shares declined sharply today following Wall Street’s pullback on Wednesday. As for currencies, the US$ (97.125) fell back today when measured against its trade weighted ICE index. Then the Euro (1.1325) traded a little lower; Pound Sterling (1.2702) slipped; the Japanese Yen (113.08) gain a little ground while the Chinese Yuan lost ground to (6.8821).


Oil prices edge higher – Crude oil traded a little higher today with the active month WTI futures crude oil contract trading at US$ 53.08 in late Asian trade. Crude oil fairly steady as OPEC plus meeting begins.


OPEC plus meets in Vienna for two days from today with output cuts firmly on the agenda. Despite some skepticism from the Iranians as usual there seems to be a clear consensus that production needs to be cut in order to stabilise markets. So far, no number has been agreed although most observers expect a cut of between 1 million barrels a day and 1.3 million barrels a day.


Reuters reported that Saudi Arabia apparently wants the OPEC plus to cut output by at least 1.3 million barrels per day, or 1.3% of global production and has invited Russia to contribute a cut of 250,000-300,000 barrels a day. The Russians were apparently haggling for a lower number. The expected cuts would take September or October 2018 production as a baseline figure and last from January to June.


In global macro and general news – Equity markets reacted badly to the overnight arrest of Wanzhou Meng, chief financial officer of Huawei Technologies Co., in Canada on  a U.S warrant and related to allegations of Iranian sanctions busting. She is also the daughter of the founder of the company. This  has totally upended the fragile truce between the U.S. and China on trade matters. And has some echoes of the ZTE corporation case earlier in the year except that the target this time is far larger. Huawei is seen as a technology leader in China with sales likely to exceed US$ 100 billion this year.


The move thus marks a major escalation of U.S. actions against major Chinese technology companies. The Chinese have reacted immediately to the news by strongly protesting against it. This will greatly complicate the expected trade talks between the two countries and greatly adds to the underlying economic tension between the two countries. Markets will be on edge to wait to see how this story develops. In ZTE’s case, sanctions were imposed against it that at one point threatened to collapse the company. The markets will thus fear that the U.S. will take further action against the company in coming days or weeks. 


After a brief rally earlier in the week, global equity markets appear to have sunk back into something resembling despondency. With U.S – China relations suddenly back in the fridge again while the yield curve inversion and the slow train wreck that is the UK Brexit vote are also worrying investors.



HCMC – The VN index fell today as turnover narrowed to VND 3,731.56 billion or US$ 160.36 million. The index lost 0.24% and closed at 954.82. 118 stocks up while 166 stocks down. And 10 stocks went to the ceiling while 8 stocks dropped to the floor. Foreigners accounted for 10.47% of the buying value and 12.21% of the selling value.


Foreign buying fell in actual terms and also in percentage terms. While foreign selling also fell further in actual terms and also in percentage terms. Foreigners turned net sellers to the tune of VND 64.96 billion worth of shares in HCMC. And we saw twenty eight transactions in the put through market today.


Foreigners were active buyers of VNM; MSN; VRE; VCB and SSI. They also actively sold VNM; TIX; HPG; HDB and FPT. The put through market was less active today with three super jumbo; seven jumbo; three large and some medium sized & smaller deals accounting for 14.94% of total turnover.


We saw 2,300,000 shares of ROS; 2,575,120 shares of TIX; 2,500,000 shares of SBT; 7,094,172 shares of SAM and 1,700,000 shares of TCB going through. Foreigners were more active in the put through session in the VNM & FPT deals and then eight other smaller deals today in the market.


E1VFVN30 was down 0.85% today closing at VND 15,140.


Hanoi –  The Hanoi market went down today while turnover came to VND 501.35 billion or US$ 21.54 million. The HN index was down 0.60% to close at 107.10. 63 stocks up while 90 stocks down. And 15 stocks went to the ceiling while 15 stocks dropped to the floor. Foreigners accounted for 1.75% of the buying value and 1.40% of the selling value.


Foreigners were net buyers to the tune of VND 1.71 billion worth of shares. And we saw thirteen medium and small sized deals today during less active put through session in Hanoi accounting for 2.77% of total turnover.


We saw 875,700 shares of SHN; 400,000 shares of MPT and 62,335 shares of ACB along with some smaller transactions in the put through market today.





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