Vietnam Daily Market Watch with a note on DXG (Outperform) – HSC

Ngày đăng January 4, 2019

Market commentary – The VN Index fell sharply in morning trading and stayed below the waterline for most of the day, until a late afternoon rally saw it around a third of a percent over yesterday’s close at the bell. The HN Index followed suit. Turnover fell even further to extremely low levels, as market breadth also contracted sharply with only 7 stocks going to the ceiling and 24 stocks falling to the floor. Foreigners were less active in line with the market and turned net sellers overall. The put through market was slightly more active, but with a larger number of smaller block trades seen going through. NVL and HPX were the only large trades of note.


Foreigners were active buyers and sellers of HPG; VCB; VHM and MSN, being net sellers of HPG and MSN and net buyers of the other issues. Foreigners were also active buyers of VNM, while actively selling VJC.


  • Bank shares in the main rebounded today, led by HDB; VCB and yesterday’s villain CTG. BID; VPB and TCB, however, continued their decline.



  • Non-banks shares were again mixed, with insurers down led by BVH, while brokers saw a rebound at HCM and VND, while PVI and SSI marked time.



  • Consumer and retail names were honors even as the number of gainers led by KDF, was equally matched by losers led by MSN.



  • Tech stocks also had a better day at the office as FPT recovered, while YEG again failed to trouble the scorers.



  • Manufacturing names were again lower overall, as losers led by RAL; NKG and DRC outnumbered gainers led by STK and DQC. AAA today sat on the fence.



  • Resource names with the exception of GAS, which posted a small loss, advanced today, led by yesterday’s villain PVS and PVD.



  • Real estate and construction stocks today retraced much of yesterday’s losses, as losers HBC and VRE were outnumbered by gainers led by KBC; TDH and DIG by more than five to one. KDH again failed to trouble the scorers, joined today by CTD.


DXG provided Q4 guidance suggesting strong growth of 37.0% y/y for earnings with NPATMI of around VND 400 billion. For the whole year, the Company estimates total revenues of around VND 5,000 billion (+73.0% y/y) and NPATMI of VND 1,150 billion (+53.0% y/y), which is in line with our bottom line estimate of VND 1,202 billion (+60.0% y/y), although it’s far higher than our revenue forecast of VND 3,965 billion (+37.7% y/y). This result fulfilled 100% of the Company’s full-year top line target and was 7.7% above the bottom line target. 


Quick conclusion: Reiterate Outperform. We have a fair value price of VND 33,500 per share based on our RNAV calculation, valuing the Company at a forward PE of 10.8x. Strong growth in FY2018 was supported by increases in sales volumes in the brokerage segment and the handover of three completed development projects. Valuations look cheap at an FY2019 forward P/E of 6.3x. We forecast only modest growth in FY2019 of 2.3% y/y in the top line and 14.7% y/y in the bottom line, given fewer completed projects to be handed over and a tougher property market, however, despite its solid project pipeline with well-positioned product, as DXG, along with other developers in HCMC, is facing tougher regulatory and legal issues, leading to longer than expected times to complete legal procedures before launching. Also, these delays will affect Company cashflows. DXG has shown an ability to translate their brokerage know-how into building and selling products carefully tailored to market demand. Another medium-term catalyst is the fact that DXG plans to spin out and IPO its brokerage and wholesale business in FY2019.


By division, revenue from the brokerage and sub-investment segment contributed around VND 3,000 billion (+87.0% y/y), accounting for 60.0% of total revenues, while the development segment contributed 30.0% of total revenues, with over VND 1,500 billion (+40.0% y/y) of revenue recorded from 3 projects: Opal Riverside, Luxcity office-tel and Lux Garden. Meanwhile, the construction segment showed an improvement with revenue of VND 618 billion (3.7 times that recorded in FY2017). 


Slight decline in total sales volumes – In FY2018, DXG sold a total of around 18,000 units (-6.0% y/y) through their distribution network, including 9,600 units (+29.9% y/y) from the brokerage segment, 3,300 units (-60.1% y/y) from the sub-investment segment, 2,118 units (+61.2% y/y) from the development segment and 2,850 units (+41.3% y/y) from LDG.


Started to hand over the Opal Garden project from late December, 2018 although bookings will be recognized in FY2019 – The Company started the hand over of a total of 470 apartments in the Opal Garden project from late December, 2018. Revenues and earnings from this project in will be booked on Q1 FY2019. Meanwhile, DXG continued to recognize earnings from the Lux Garden project in Q4, after they started the hand over of apartments to the buyers in August. By the end of FY2018, the Company booked sales of around 98% of a total of 503 units in this project.


Plan to launch 5-6 affordable and mid-end projects into the market in FY2019 – The Company plans to launch some key projects in HCMC, including those listed below.


  • The Gem Riverside project in District 2 with 3,175 units
  • 754 units in the Lux Riverview project in District 7
  • 717 units in the Lux Star project in District 7
  • 1,244 units in the Opal Boulevard project in Binh Duong
  • 189 units in the Opal Skyview project in Thu Duc District.


Development of shophouse and land plot projects in other provinces to boost earnings – In FY2019, DXG plans to develop some landed properties in other provinces such as Quang Ninh, Can Tho, Phan Thiet, and Vung Tau. These landed properties are expected to contribute earnings within a shorter time, as they take only around 6-12 months to develop, although project details have not been published yet, as they are still in the negotiation process to acquire the land bank.


Focus on mid-scale development projects in HCMC and other provinces – To date, DXG have built up a total land bank of 528 ha, including 40ha in HCMC covering a total of 16 projects in the pipeline. These are mostly located in Thu Duc, District 7 and District 2, with a further 488ha in other provinces such as Quang Nam and Nha Trang. The Company will continue to expand their land bank through acquiring projects in prime locations with cleared land, and completed legal procedures to prepare for their medium- to long-term growth strategy. Currently, the Company focuses more on acquiring mid-size projects of around 5-20ha in HCMC, instead of the smaller projects they tended to develop previously. They are also looking to acquire large land bank units of 50-100ha in provinces such as Nha Trang, Da Nang, Quang Ninh and Can Tho to develop and sell land lots and landed properties.


For FY2019, HSC forecasts growth of 14.7% y/y in the bottom line – We forecast FY2019 net sales of VND 5,116 billion (+2.3% y/y) and NPATMI of VND 1,319 billion (+14.7% y/y), based on the following assumptions. 


  • The brokerage and sub-investment segment will contribute revenues of VND 3,058 billion (+1.9% y/y), given a sales volume growth assumption of 2.0% y/y for the brokerage segment and 10.0% revenue growth for the sub-investment segment.
  • Revenues from development segment will decline by 11.9% y/y to VND 1,344 billion as the Company only records revenue from the Opal Garden project, as well as some landed property projects in other provinces.
  • The construction segment will generate revenues of VND 704 billion (+20.0% y/y) on the current outstanding backlog.
  • The GPM will increase from 50.8% to 55.6% given a higher revenue contribution from the brokerage and sub-investment segments, which generate higher margins than the development segment, leading to gross profit of VND 2,843 billion (+11.0% y/y).
  • Net financial income will increase by 153.8% y/y to VND 208 billion as we assume the Company will record gains on project sales. Meanwhile, SG&A expenses will increase by 3.5% y/y to VND 981 billion on higher sales.
  • We estimate profit from affiliate companies will contribute VND 260 billion (-29.0% y/y), mostly from LDG.


Then, we forecast FY2019 EPS of VND 3,545, valuing the Company at a forward PE of 6.3x.


Investment thesis – Reiterate Outperform. We have a fair value price of VND 33,500 per share based on our RNAV calculation, valuing the Company at a forward PE of 10.8x. This stock is currently trading at a 33% discount to our RNAV valuation. Valuations look cheap, although we estimate only modest FY2019 prospects, with bottom line growth of 14.7% y/y, given fewer completed projects to be handed over and a tougher property market.


  • Agriproducts and aquaculture stocks remained in the naughty corner, as lone gainers DPM and SBT were outnumbered by BFC; GTN and other stocks in retreat by three to one. VHC marked time.



  • Pharmaceutical stocks saw IMP slump, while other issues traded sideways.



  • Utilities, transport and logistics stocks also saw a measure of relief as NT2; HVN and VSC led the rebound, while only ACV and VJC remained in retreat. VNS again sat still, joined by VSH.



Vietnamese stocks close higher after a rocky start – Both bourses again fell in morning trading, but bargain hunting in late afternoon trading saw them retrace the day’s losses and finish the day slightly above yesterday’s close. However, today’s very modest rebound is in our opinion simply a reaction to the market being technically oversold at the bell yesterday, and we still see the near- to mid-term trend as down, with turnover declining further, and foreigners again turning net sellers.


On the Southern bourse, VHM; VNM and VCB were doing the heavy lifting, although contributions were only either side of half a percent. MSN provided some headwind, albeit limited. In Hanoi, PVS was a solid contributor, while VCG was the only issue of note on the other side of the ledger. Rebounds in large cap bank, resource and real estate and construction stocks pushed the needle today, although, as noted above, individual contributions were somewhat limited. Again, rather than broad based, however, it was more of a question of catch-up, or in other words a technical retracement.


The four futures contracts today roughly halved their discounts to the cash equities market to the mid-single-digit level, as they outperformed the VN30 cash equity index. However, given concerns regarding the speed at which economic indicators are increasingly pointing to global weakness, not just in Europe, Japan and China, but now also in the US, as evidenced by last night’s sharp pullback in US markets, suggest that Vietnam cannot remain immune to overseas sentiment.


Asian shares & major currencies – Asian shares were mixed today, despite a route of two and half to three percent on Wall Street and across US bourses overnight, as stocks in retreat outnumbered gainers four to one. As for currencies, the US$ (96.22) continued its decline against its trade weighted ICE index. The Euro (1.1402) gain further ground against the greenback, as did the Pound Sterling (1.2646). The US currency was buying more Japanese Yen (108.04), but slipped slightly against the Chinese Yuan (6.8650).


Oil prices increase – Crude oil prices recovered some ground over the last twenty four hours, with active month WTI futures crude oil contracts trading at US$ 47.63 and Brent crude at US$56.48 per barrel at the time of writing. Comments from the region to the effect that OPEC was likely to cut more than its promised 800,000 bpd production in January and also that the cartel was keen to correct imbalances in Q1 2019 provided some support, after a torrid start to the new year’s trading.


The above comes as it has become increasingly clear that the production cuts proposed in December provided significantly less support than expected to oil prices despite API figures for the week ended December 30 showing a net draw on US crude oil inventories of 4.50 million barrels, compared to a 6.92 million barrel build a week earlier. Moody’s and others remain concerned, as North American and Russian production has surged that OPEC+ discipline in adhering to agreed cuts will hold the key to reducing volatility in oil prices in 2019.


In global macro and general news – Data released in the US overnight showed that initial jobless claims for the week ended December 20 showed an increase of 10,000 from a week earlier to 231,000, which was also above market expectations calling for around 220,000 filings. Continuing jobless claims for the week ended December 23 also rose to 1,740,000 from 1,708,000 a week earlier. As noted above, API figures for the week ended December 30 showed a net draw on crude oil inventories of 4.50 million barrels, providing some relief for oil prices. Lastly, total vehicle sales in the US rose slightly in December to 17.55 million from 17.49 million a month earlier and beating consensus calls for 17.2-17.3 million vehicle sales.


In China, the IHS Caixin China General Composite PMI rose to 52.2pt in December from 51.9pt in November. The result was mixed, however, despite showing the strongest private sector expansion since July, as the services sector hit a six-month high in growth to 53.9pt, compared to 53.8pt in November, while factory activity contracted for the first time since May 2017 to 49.7pt from 50.2pt a month earlier). In Japan, final estimates for the Nikkei Japan Manufacturing PMI showed a rise to 52.6pt, compared with a 15-month low of 52.2pt in November and preliminary estimates of 52.4pt.


In the UK, housing prices across the nation rose 0.5% y/y in December compared to 1.9% y/y growth a month earlier and market estimates calling for 1.5% y/y growth. Meanwhile, in the Eurozone, preliminary estimates for inflation in December indicate an easing to a 1.6% y/y rise, compared to a 1.9% y/y rise a month earlier and market estimates calling for an increase of 1.7-1.8% y/y. Lastly, also in Europe, the Producer Price Index (PPI) in November rose by only 4.0% y/y, compared with a 4.9% y/y rise a month earlier and consensus calls for a 4.1-4.2% y/y rise.









HCMC – The VN index rose today as turnover narrowed to VND 2,533.09 billion or US$ 108.86 million. The index gained 0.31% and closed at 880.90. 140 stocks up while 136 stocks down. And 4 stocks went to the ceiling while 11 stocks dropped to the floor. Foreigners accounted for 13.13% of the buying value and 16.14% of the selling value.


Foreign buying fell 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 76.22 billion worth of shares in HCMC. And we saw thirty seven transactions in the put through market today.


Foreigners were active buyers of HPG; VNM; VCB; VHM and MSN. They also actively sold HPG; VJC; VCB; MSN and VHM. The put through market was more active today with one super jumbo; seven jumbo; five large and some medium sized & smaller deals accounting for 16.04% of total turnover.


We saw 910,000 shares of NVL; 2,000,000 shares of HPX; 2,600,000 shares of EIB; 497,000 shares of CAV and 532,743 shares of SVI going through. Foreigners were less active in the put through session in the VHM & MSN deals and then six other smaller deals today in the market.


E1VFVN30 was down 0.07% today closing at VND 13,920.


Hanoi – The Hanoi market went up today while turnover came to VND 379.74 billion or US$ 16.32 million. The HN index was up 0.32% to close at 100.85. 73 stocks up while 67 stocks down. And 3 stocks went to the ceiling while 13 stocks dropped to the floor. Foreigners accounted for 3.61% of the buying value and 1.80% of the selling value.


Foreigners were net buyers to the tune of VND 6.88 billion worth of shares. And we saw ten medium and small sized deals today during more active put through session in Hanoi accounting for 11.03% of total turnover.


We saw 3,991,500 shares of NVB; 301,875 shares of S99 and 51,500 shares of NET along with some smaller transactions in the put through market today.




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