Vietnam daily market watch

Ngày đăng January 9, 2019
Market commentary – The VN index decreased with turnover still below recent averages. Market breadth narrowed while we also see that 12 stocks went to the ceiling and 18 stocks fell to the floor. Foreigners were more active net sellers to a noticeable degree. The put through market was less active with large deals in NVL & PHR and then a smaller deal in HPG seen going through.
Foreigners were active buyers of VNM; HPG and VCB. And net sellers of CTG and HPG.
•     Bank shares were mostly lower, led by STB an CTG.
•     Non-banks shares were mixed to lower, led by insurance stocks.
•     Consumer and retail names were mixed with gains for MCH and MSN while there were losses for QNS and MWG.
     Tech stocks were all higher.
•     Manufacturing names were mixed with gains for DRC and RAL while there were losses for STK and AAA.
Earnings preview – HSC’s final FY2018 guidance for BMP suggests an 8.9% decline in the bottom line. Forward outlook better. Reiterate Outperform. Binh Minh Plastic (BMP – Outperform) will release the full-term results for FY2018 soon and HSC’s final guidance suggest that the FY2018 net sales will come to VND 3,896 billion (+1.9% y/y) and that PBT then will come to VND 531.7 billion (-8.9% y/y). We expect the top line will be mainly supported by a modest increase of 0.5% growth in sales volume and 1.4% hike in ASP. Thanks to the greater contribution from large-sized plastic pipes. Meanwhile, the bottom line is expected to drop due to the combination of a;
(1)  GPM squeeze on higher input costs for both PVC and HDPE.
(2)  the booking of marketing expenses for the biennial wholesaler event.
So based on our estimates, we think the Company will undershoot their target for FY2018 and complete only 90.6% and 88.5% of the top land bottom line targets respectively.
Quick conclusion. Reiterate Outperform. We now have a fair value price of VND 58,080 for the stock valuing the company at a FY2019 P/E of 11 xs based on regional peer comparisons. For FY2019, HSC forecasts net sales of VND 4,072.7 billion (+4.5% y/y) and a pre-tax profit of VND 600.4 billion (+12.9% y/y). Margins will improve as we expect ASP to edge higher while material costs may decline slightly. And the costs from their regular biennial wholesaler event held in 2018 will drop out. BMP has been regaining some lost market share as competitors such as HSG have pushed up prices. Moderate growth prospects going forward given infrastructure investment requirements while the company remains tightly focused and well managed. 
FY2018 sales volume increased by only 0.5% y/y – In FY2018, we estimate that the company sold 94,533 tonnes of plastic pipes (+0.5% y/y). BMP has been winning back market share mostly as some key competitors such as HSG have been moved away from their previous low-price strategy.
ASP increased slightly by 1.4% y/y to VND 41.2 million/ton – The Company kept their commission rate for the wholesalers unchanged since March FY2017 while the registered selling price of each products have remained stable over the past few years. The hike in ASP was purely down to the change in the product mix. BMP signed some real estate project contracts hence the contribution of higher priced HDPE plastic pipe increased versus PVC plastic pipes. However, PVC is still expected to be the main contributor to net sales accounting for about 87-90% with the balance of 10-13% of net sales from HDPE. However, a higher proportion of HDPE sales, whilst supportive for ASP carries lower margins as BMP has to offer very competitive discount rates to win contracts.
Gross profit likely flat y/y at VND 922.7 billion – Thus leading to a likely gross profit margin reduction to 23.7% compared to 24.1% in FY2017. Given the hike in raw material prices. Accordingly,
•    The price of PVC resin, which accounts for about 90% of material cost, increased by 2.6% y/y in FY2018.
•    The price of HDPE resin, which normally accounts for 10% of material cost, jumped by 17% y/y over the same period.
•    Material costs normally accounts for 65-70% of COGS.
•    Based on these factors, the increase in raw material price boosted the production cost per unit increased by 6.3% y/y or so. While the higher ASP was just about 1.4% y/y. All in all, margins squeeze on a higher input material price.
SG&A expense will increase by 18.3% y/y – HSC estimates SG&A expense will come to VND 307.8 billion (+18.3% y/y). Of which, selling expense is estimated at VND 179.2 billion (+32.1% y/y) as the Company incurred some additional costs as it organized the biennial wholesaler event. In Q3 this year, the Company booked about VND 7 billion out of a total budget for this of VND 35 billion or so in FY2018, so it means that the balance of VND 28 billion will be booked in Q4 FY2018. While we think administration expenses will come to VND 128.6 billion (+3.3% y/y). All in all, we expect that FY2018 SG&A expense accounted for about 7.9% of net sales up from 6.8% in FY2017.
The increase in SG&A coupled with the depressed GPM will likely pull the bottom line down a little bit – HSC estimates the Company will post a FY2018 pre-tax profit of VND 531.7 billion (-8.8% y/y). NPAT then would come to VND 425.4 billion (-8.5% y/y) and generating a FY2018 EPS of VND 4,677. The Company now is trading at a FY2018 P/E of 10.5 times.
For FY2019, HSC forecasts net sales of VND 4,072.7 billion (+4.5% y/y) and a pre-tax profit of VND 600.4 billion (+12.9% y/y) – We assume as below:
•    Sales volume will come at 97,369 tonnes of plastic pipe (+3.0% y/y) while ASP then is estimated to come to VND 41.8 million/ton (+1.5% y/y).
•    Gross profit then will come to VND 989.9 billion (+7.3% y/y) and generating a higher GPM of 24.3% from 23.7% in FY2018 given slightly higher ASP.
•    SG&A expense will decrease slightly to VND 299.3 billion (-2.7% y/y) as biennial marketing expenses will drop out next year. SG&A expense then will account for about 7.4% of net sales from 7.9% in FY2018.
•    Net financial losses then will expand to VND (90.6) billion from VND (85.7) billion in FY2018 on a 5.4% higher in financial expense.
•    Pre-tax profit and NPAT then would come to VND 600.4 billion (+12.9% y/y) and VND 480.3 billion (+12.9% y/y) respectively.
Assuming no change in AOS, FY2019 EPS would come to VND 5,280 and giving us a forward P/E of 9.4 times.
BMP is the leading domestic maker of plastic pipes – Including PVC, HDPE and PPR in Vietnam with a 27-30% market share in FY2018. The company has a nationwide distribution network and a strong brand-name thanks to good product quality. Given the tough competition from new players such as HSG in recent years, BMP’s market share has been squeezed in the past two years. However, in 2018 we have seen some recovery in market share. As HSG for example abandoned their low-price strategy. Previously, in order to protect their leading position, BMP has had to sacrifice margins to some extent. Growth has been moderate with a 3-year CAGR for sales volume (FY2016-FY2018e) of 7.3%. While capacity has been increased to 130,000 TPA currently from 110,000 as at the end of FY2016. The balance sheet looks strong with a little short-term debt, a high level of cash deposits, and no recent increase in investments in fixed assets.
Investment conclusion – Reiterate Outperform. We have a fair value price of VND 58,080 for the stock valuing the company at a FY2019 P/E of 11 xs. We have revised down our fair value price from the previous fair price of VND 71,270 mainly given the reduction in fair value P/E from 12.5 to 11 times. Based on our regional peer comparison. Despite seeing low double-digit growth in FY2019, we believe that BMP will remains the main beneficiary of the (1) long term requirement to increase infrastructure investment in Vietnam, (2) some economies of scale coupled with very solid management team and (3) industry consolidation. In addition, as plastic pipes are bulky product, the threat from imports is limited. While BMP remain the lowest cost producer.
•     Resource names were mixed with gains for GAS and PVD while there were losses for PXS and PLX.
•     Real estate and construction stocks were mixed with gains for DIG and CTI while there were losses for CII and DXG. NVL closed at the floor today.
•     Agriproducts and aquaculture stocks were mixed with gains for VFG and HAG while there were losses for VHC and DPM.
•     Pharmaceutical stocks mostly had sideways movement.
•     Utilities, transport and logistics stocks were mixed to lower, led by VNS and NT2.
Vietnamese stocks fall back today – The markets edged lower today although we closed well above the lows. GAS was once again the biggest gainer in terms of index points on higher oil prices along with PVD. VCB was a gainer in the banking sector. While consumer names such as MSN & BHN continued to move higher along with retailer FRT. YEG made a smart move higher after enduring a rather difficult period during December.
On the other hand, NVL dropped sharply as the market digested concerns over possible delays to approvals to some of its projects. Poor residential housing sales in Q4 in HCMC as reported by Savills didn’t help sentiment in the sector much. Reflecting continued difficulties for new projects to be launched on schedule given tighter regulations. Banks such as CTG; BID; VPB; MBB and HDB all slid after gaining ground yesterday.
The four futures contracts closed mixed today with minor gains or losses compared to a 5.8 index point loss for the VN30 index. With that they now trade at a narrower discount ranging from 4.4-5.4 index points to the VN30 cash index. This is a fairly neutral position and doesn’t say much about the likely near-term trend.
The continued low volumes make it harder to put together more than a few days of gains without running into profit takers. Which is exactly what happened today. Although losses were pared in late trading due to a mild increase in buying of selected blue chips.
Of course this followed a similar trend in the region where investors may feel that they have already priced in the more positive narrative surrounding the trade talks and U.S. interest rates. Below consensus ISM service sector numbers in the U.S which came out overnight is partly responsible for the more cautious tone today. As are the disappointing Samsung Electronics Q4 numbers given their strong presence in Vietnam. 
Even so, the market will continue to pay the most attention to trends in the US$ and oil plus the progress of the trade talks. While the earnings season is almost upon us and we are expecting a good results harvest for 2018. Although we are also more cautious on the forward 2019 outlook given the various headwinds. We remain fairly optimistic near term as markets continue to recover from the December debacle although we are aware that this is most likely an extended trading rally.   
Asian shares & major currencies – Asian shares were mostly higher today after further gains by Wall Street’s on Monday. As for currencies, the US$ (95.891) edged higher today after recent losses when measured against its trade weighted ICE index. Then the Euro (1.1448) slipped; Pound Sterling (1.2764) traded narrowly; the Japanese Yen (108.97) continued to lose ground after its recent spike while the Chinese Yuan slid to (6.8550).
Oil prices edge higher – Crude oil traded a little higher today with the active month WTI futures crude oil contract trading at US$ 48.65 in late Asian trade. Prices trend higher on expectations of more Saudi output cuts.
The WSJ overnight carried a story suggesting that the Saudis Arabians were thinking of reducing oil exports to 7.1 million barrels per day by the end of the month. In order to push oil prices higher and help improve their fiscal situation. Which is rather troubled at the current oil price. Arguably in Q4 last year, OPEC plus oversupplied the market for fear that Iranian sanctions would lead to a price spike. And now it seems they are willing to risk some U.S. wrath by reversing that further.
Of course, Saudi intentions are only one piece in the puzzle while the Russians have been a lot more reluctant to make significant cuts themselves. Even so, for the time being the narrative in oil points towards higher prices.
In global macro and general news – The equity markets are watching ongoing trade talks between the U.S and China for any hints of progress. The mood music preceding the talks have been fairly positive with pressure on both sides to reach some form of agreement. Given the increasingly obvious signs of a slowdown in both economies. Which is having a spillover effect on the global and regional economy also. Commerce Secretary Wilbur Ross said overnight that there was a very good chance of a deal.
However amongst the seven topics that have been identified as key to the talks, some, such as 5G; Made in China 2025 and intellectual property laws are expected to be particularly thorny. While others such as agricultural imports; auto tariffs and market access for banks are seen as a lot easier to reach agreement on.
Samsung Electronics reported Q4 FY2018 sales of 59 trillion won versus consensus forecasts calling for sales of 63.5 trillion won while operating profit also fell short at 10.8 trillion won versus analyst consensus of 13.8 trillion won. On slowing demand from key markets such as China and the U.S for core products such as memory chips. Samsung Electronics operates extensive manufacturing facilities in Vietnam as well as in China. With competitor Apple also warning of sagging demand in key markets which suggests a broader global slowdown. 
The Institute for Supply Management (ISM) reported that its non-manufacturing index came to 57.6 in December versus a reading of 60.7 in November and consensus forecasts of 59. This follows a weak showing for the ISM manufacturing index which was posted last week. Arguably, a poor showing from the service index is a lot more serious for forward GDP given that the U.S. economy is now service led. This will reinforce fears that demand is slowing faster than expected. And give the Fed even more food for thought. 
The German Federal Statistics office today reported that industrial output there shrank 1.9% m/m in November and also dropped by 4.7% y/y. Well below consensus estimates calling for a 0.3% m/m increase. On Monday we had news that German factory orders were down 4.3% y/y in November. This is clearly not good news for Q4 GDP after it already dropped in Q3. And will further reinforce the emerging picture of a rapidly slowing global economy.
HCMC – The VN index fell today as turnover narrowed to VND 2434.06 billion or US$ 104.6 million. The index lost 0.25% and closed at 891.87. 118 stocks up while 162 stocks down. And 4 stocks went to the ceiling while 3 stocks dropped to the floor. Foreigners accounted for 15.41% of the buying value and 20.5% of the selling value.
Foreign buying rose in actual terms and also in percentage terms. While foreign selling also rose further in actual terms and also in percentage terms. Foreigners turned net sellers to the tune of VND 123.795 billion worth of shares in HCMC. And we saw thirty seven transactions in the put through market today.
Foreigners were active buyers of VNM; HPG; VCB; MSN and VRE. They also actively sold CTG; HPG; VNM; HDB and VIC. The put through market was more active today with one enormous; five super jumbo; one jumbo; three large and some medium sized & smaller deals accounting for 17.12% of total turnover.
We saw 1,402,870 shares of NVL; 1,152,000 shares of PHR; 1,089,000 shares of HPG; 203,790 shares of VNM and 1,281,150 shares of TPB going through. Foreigners were more active in the put through session in the HPG & VNM deals and then ten other smaller deals today in the market.
E1VFVN30 was up 0.86% today closing at VND 14,100.
Hanoi – The Hanoi market went down today while turnover came to VND 287.74 billion or US$ 12.37 million. The HN index was down 0.65% to close at 101.27. 63 stocks up while 68 stocks down. And 8 stocks went to the ceiling while 16 stocks dropped to the floor. Foreigners accounted for 3.73% of the buying value and 1.69% of the selling value.
Foreigners were net buyers to the tune of VND 5.885 billion worth of shares. And we saw twelve medium and small sized deals today during more active put through session in Hanoi accounting for 5.87% of total turnover.
We saw 1,759,000 shares of PV2; 250,000 shares of VGC and 325,000 shares of MBS along with some smaller transactions in the put through market today.

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