Vietnam Daily Market Watch with notes on NLG (Outperform) and CTD (Hold)

Ngày đăng January 23, 2019

Market commentary – The VN index gave away most of its early gains to close little changed, while the HN Index fell after starting the morning in positive territory. Turnover fell back again today to below recent averages. Market breadth was little changed 25 stocks went to the ceiling and 21 stocks fell to the floor. Foreigners were slightly more active in percentage terms, and were net buyers to a reasonable degree. The put through market was more active with very large deals EIB again, as well as HPX dominating proceedings.


Foreigners were active buyers and sellers of VNM; MSN and HDB, being net buyers of the first two and net sellers of HDB. Foreigners were also active buyers of EIB and DPM, while actively selling VJC and PLX.


  • Bank shares were mixed to lower today, despite EIB rising to the ceiling, as TCB; MBB and VPB led those stocks in retreat.



  • Non-banks shares were mixed, as insurers fell, while brokers continued to recover.



  • Consumer and retail names were honors even, as gainers led by QNS and MCH, were matched by losers, led by KDC and PNJ. KDF and BHN marked time.



  • Tech stocks were weaker as FPT declined, while YEG traded sideways.



  • Manufacturing names lost ground, as losers led by STK; TMT and DQC outnumbered gainers led by EVE by more than two to one. PAC failed to trouble the scorers.



  • Resource names succumbed to gravity, with the exception of PVD, as PXS and PLX were the hardest hit.



  • Real estate and construction stocks also suffered today, despite gains led by TDH; CTI and NLG. CII and CTD led the pack down, while VIC was unmoved.

NLG (OUTPERFORM, FV: VND 36,600, 2019 P/E of 7.6x): Earnings flash – NLG released strong earnings for FY2018, showing net sales of VND 3,554 billion (+12.4% y/y) and NPATMI of VND 761 billion (+42.2% y/y), which is a bit higher than our forecast and the Company’s latest guidance. This result respectively fulfilled 92% and 104.5% of the Company’s full year targets.  In Q4 alone, net sales amounted to VND 813.5 billion (-46.6% y/y), while NPATMI dropped by 31.3% y/y to VND 125.8 billion, due to a decrease in the total number of units handed over. 


22.3% of FY2018 revenue came from project sales in Long An – In the FY2018, NLG recorded net sales of VND 791.5 billion from project sales in the 165ha Waterpoint Long An project, after NLG signed a contract with 3 other developers Nishi Nippon (Japan), TBS Group and Tan Hiep investment company for stakes of 35%, 10% and 5% respectively to co-develop the first phase of this project. Although, the Company only recorded revenue and earnings from selling 130ha (out of a total 165ha). Earnings from the remaining area of 35ha will be booked in FY2019.  

Revenue from project development accounted for 67.5% of total revenues – The Company also handed over and booked revenue of VND 2,399 billion (+7% y/y) from their key projects such as Flora Fuji, EhomeS Phu Huu, Flora Kikyo, Fuji Valora, Kikyo Valora and Dallia Garden. Revenue from apartment sales amounted to VND 1,211 billion (-5.0% y/y), while revenue from villas, townhouses and land lots increased by 23.5% y/y to VND 1,188 billion.


Project management services contributed 9.3% of total revenues – This amounted to VND 331.5 billion (+417% y/y) as the Company provided project management and construction management services for some projects that they cooperated with Japanese investors on, such as Mizuki Park.


Gross profit margin improved from 41.0% to 42.2% – This was mainly due to improvement in the development segment GPM from 36.9% to 39.8%, as they recorded a higher proportion of revenues from villas, townhouses and land plot products which generally carry a higher GPM than apartment products. Meanwhile, the GPM for other services (project management and construction management services) increased from 13.3% to 46.9%.  


Target NPATMI to grow at a CAGR of 33% over the next 3 years – In the period FY2019-2021, NLG plans to develop 19,800 accommodation units, including 4,000 Ehome, 11,000 Flora and 4,800 Valora dwellings. The Company also targets sales and NPATMI respectively to grow at a CAGR of 15% and 33% over the next 3 years. For FY2019, the Company targets net sales of VND 4,038 billion (+13.6% y/y) and NPATMI of VND 855 billion (+12.4% y/y). They expect to pre-sell 3,000 units (+66.7% y/y), with total contracted value of around VND 6,000 billion (+100% y/y), from some key projects such as Akari City (4,624 Flora apartments) and Waterpoint 165ha (around 3,000 low-rise units). The Company recently acquired a land bank of 45ha in Dong Nai and is also in the process of acquiring a 22ha land plot in Hai Phong, although they have not disclosed any detail on these projects yet.


For FY2019, our latest forecast calls for NPATMI of VND 860 billion (+13.0% y/y), generating a forward EPS of VND 3,358. At the current share price, NLG is trading at FY2019 forward P/E of 7.6x, and is also at a 30% discount to our fair value of VND 36,600 per share, based our RNAV calculation. Reiterate Outperform. 


Coteccons (CTD; HOLD) has released FY2018 results with net sales of VND 28,561 billion (+5.2% y/y) and NPATMI of VND 1,510 billion (-8.6% y/y). This result fulfilled 102.0% and 100.7% of their full-year sales and NPATMI targets respectively. For Q4 only, net sales dropped by 12.6% y/y to VND 7,824 billion and NPATMI dropped 31.0% to VND 319 billion.


Quick conclusion: Downgrade from OUTPERFORM to HOLD. We revise down our fair value from VND 164,000 per share to VND 154,000, which represents a forward P/E of 7.7x. CTD FY2018 results suggest both a slowdown in y/y growth in the topline, and a significant drop in the gross profit margin, which partly reflects tighter conditions in the residential real estate market over recent periods. This, coupled with the fact that competition has been rising and the bargaining power of some large developers in Vietnam is getting larger, will continue to put more pressure on the GPM. Further, we do not see the situation to get better anytime soon. We also concerned about the deterioration in working capital management ratios which led to a negative cashflow in this period. Though new contracts still roll in, shrinking margins will curb growth in the bottom line. For FY2019, HSC forecasts that NPATMI will grow by 5.0% y/y. However, we note that M&A with related companies is likely to be discussed in the next AGM, and we maintain our view that, if done correctly, this would bring some benefits and be a game changer for the stock.


FY2018 net revenue grew modestly by 5.2% y/y – FY2018 net revenue came to VND 28,561 billion (+5.2% y/y). We do not have the breakdown for full-year FY2018 but note below the 9M 2018 segments contributions.


  • Revenue from residential projects contributed 47% of total revenue versus 73% in the same period of last year.
  • Revenue from the commercial segment increased in weighting slightly to 13% from 12% last year.
  • Revenue from the hotel & resort segment contributed 12% of total revenue versus 6% in 9M FY2017.
  • Revenue from the industrial segment contributed 28% of total revenues versus 9% in 9M 2017.


The significant increase in the weighting of the industrial segment was due to a large contribution from the Vinfast manufacturing complex, as well as the Hoa Phat Dung Quat project. The Company continued to win large industrial projects in 2018, such as the Timber Land manufacturing facility of the Manwah Group with value of VND 1,500 billion. In general, CTD expects to keep the weighting of this segment at about 20%, despite lower margins, due to the greater stability from this income stream compared to that of the very cyclical high-end residential segment.


Significant growth in the value of newly signed contracts – We estimate that the total value of contracts signed in 2018 amounted to VND 33,500 billion (+21.8% y/y), resulting in a total backlog of VND 27,775 billion (+21.8% y/y) at the end of 2018. Large new contracts signed in the last quarter include those from Vincity projects.


Significant drop in GPM from 7.4% last year to 6.4% – FY2018 gross profit came to VND 1,833 billion (-9.1% y/y), giving us a GPM of 6.4% versus 7.4% in FY2017. As mentioned in previous notes, the decline in GPM was due to a worsening of the product mix and higher material prices. Moreover, a significant proportion of CTD’s backlog belongs to a small number of large traditional customers, who have very strong bargaining power, making it hard for CTD to negotiate better terms. Barriers to entry, according to our view, are also not that high in the Vietnamese construction industry, and thus the number of small competitors has increased significantly in recent years, putting more pressure on GPMs across the sector as a whole. Moreover, we don’t expect this situation to improve anytime soon.


Net financial income declined slightly by 1.4% – CTD recorded net financial income of VND 321 billion (-1.4% y/y), although we note that the Company has zero interest expense as it has no debt.


G&A expense increased significantly due to higher staff costs, as well as an absence of provisioning reversals against impaired receivables during the period – G&A expenses increased by 28.0% y/y to VND 395 billion. The G&A/revenue ratio increased from 1.5% in FY 2017 to 1.8% for this period, mainly due to higher staff costs at VND 340 billion, and an absence of reversals of provisions against bad receivables recorded in this period, compared with the VND 53.7 billion booked last year.


Total assets at the end of 2018 were VND 16,823 billion (+6.0% y/y), of which current account receivables constituted 53.8%. Total cash and cash equivalents and short-term investments amounted to VND 4,460 billion (-23% y/y), with no debt.


We note that operating cash flow went negative for the first time since 2012 due to deterioration in working capital ratios, as the cash conversion cycle increased significantly from 41.5 days last year to about 50 days, while the ratio of advances from customers/revenue decreased from 5.2% to 2.4%.


For FY2019, we revise up our forecast for revenue from VND 30,950 billion (+8.4% y/y) to VND 32,196 billion (+12.7% y/y), given the large backlog of contracts at the end of 2018, but revise down our forecast for NPATMI from VND 1,685 billion (+11.6% y/y) to VND 1,586 (+5.0% y/y) due to a lower gross margin estimate. 


  • The estimated value of contracts carried forward to FY2019 is about VND 27,775 billion. We also estimate the value of new contracts signed in FY2019 to be around VND 31,825 billion (-5.0% y/y). The executed value in FY2019 is estimated to be VND 32,173 billion (+12.8% y/y).
  • We expect the gross margin to drop to 6.3% versus 6.4% in 2018, due to a larger contribution from mid-end residential projects with lower GPMs compared to previous high-end market projects. Gross profit, thus, will come to VND 2,028 billion (+10.6% y/y).
  • Net financial income is projected to drop by 9.7%, while we look for SG&A to equal VND 586 billion, or 1.8% of net sales.


Our FY2019 forecast for diluted EPS is VND 20,134 which, at the current price, translates to a FY2019 forward P/E of 7.4x. 


Work at Vincity will drive revenue next year – In the next few years, Vingroup plans to develop 3 Vincity projects namely Vincity Ocean Park (364 ha), Vincity Grand Park (251 ha) and Vincity Sportia (280 ha). As of the end of 2018, CTD had signed Vincity contracts valued at VND 7,000 billion, and we expect that they will continue to receive more contracts from these three projects in the future. However, given that this is a mid-end housing project, gross margins are relatively low, ranging from 5.0%-6.0%.


Plans for M&A with various related companies will likely be discussed in the next AGM, which is going to be held around April. The valuation process, which involves three independent third party valuation advisors, including the Big-4 accounting firms, is under way. The targets include five companies in which CTD plans to hold a controlling stake. Originally, an EGM was planned to be held, however, the Company changed its plans, and will propose a detailed plan at the next AGM to be held in April. The estimated cost of this M&A activity to buy out minority shareholders is about VND 2,500 billion. We maintain our view that, if done correctly, this M&A should be a game changer for the stock.


CTD is the leading general contractor in the Vietnamese construction market, with a strong execution track record and proven D&B capability. The Company dominates the luxury residential segment and has been a preferred contractor for large real estate developers such as Vingroup, Thao Dien Investment and Refico. Revenue from residential projects constituted around 70% of CTD’s total revenue in previous years. As the high-end residential market supply slows, the Company is expanding to infrastructure and industrial construction, as well as investing in some operating assets to sustain long-term growth.


Forward outlook calls for moderate growth given the maturity in the building the cycle. However, there are two very powerful potential catalysts. For the next three years, earnings will continue to come from the core construction business. The Company did extremely well from FY2014-17 in terms of both its order book and earnings, and it is clear that the cycle is now maturing. We assume that NPATMI will lag somewhat as the trends noted above become more apparent. That is, we expect: (1) a slowing of high end projects, (2) higher input costs and (3) greater competition as midsized players move up the value and technology chain. HSC forecasts that for the FY2019F-2022F period:


  • Revenue will grow at a CAGR of 3.8%, while
  • NPATMI will grow at a CAGR of 5.9%.


This does not, however, take into account either: (1) possible gains from mergers with related companies, or (2) any contribution from the shift towards the investment and development segments. Either of these would be transformational for the business.


Downgrade to HOLD. We have a fair value price of VND 154,000 per share, implying a forward P/E of 7.7x. We now forecast NPATMI will increase by 5.0% y/y, implying a current forward P/E of 7.4x. The share price has fallen heavily over the last six months and therefore we believe that our more measured outlook has been somewhat priced in. We do, however, see two positive catalysts. Prospects for mergers with related companies, and the shift towards development of commercial and infrastructure projects. CTD has a very good business model, with a leading position in the construction industry, strong D&B capability and no financial risk, given the Company has no debt or long-term payables. CTD is now expanding their scope of activities and enhancing their execution capabilities in other segments, including infrastructure and industrial  projects, hotels & resorts and entertainment complexes. It is also investing in some operating assets for the longer term. These steps will not only help them to reduce their exposure to the negative cyclical effects of the high-end residential segment, but also sustain long-term growth.


  • Agriproducts and aquaculture stocks bucked the trend to be firmer today, led by limited up HNG,  as gainers outnumbered losers BFC and VFG by three to one. PAN marked time.



  • Pharmaceutical stocks were also up nicely, led by limit up DMC.



  • Utilities, transport and logistics stocks were mixed to lower as gains by VNS; VSC; HVN and VSH were largely offset by losses at NCT; NT2 and others. GMD marked time.



Vietnamese stocks trade narrowly today – The VN Index remained in positive territory all day, however, after solid gains in the morning session, the afternoon saw those gains pared to less than a tenth of a percent at the close. Although not technically overbought, we see resistance at 915pt as becoming firmer, and that momentum in this short-term rally as faltering. If the market fails to test 915pt in coming days, near-term support appears to be just under 900pt, with 860pt still the next stop after that. The HN Index fell after early morning rises to be around a quarter of a percent lower than yesterday’s close, but seems happy to fluctuate between 100-15pt.


In terms of sectors, apart from agri-related issues, pharma stocks and brokers, most sectors saw names in retreat outnumbering those in advance. In Ho Chi Minh EIB made a very modest positive contribution, but was more than offset by negative contributions by VHM; VCB and TCB. In Hanoi VCG was the only contributor of note, while banks ACB and SHB again provided more headwind. The minor gain on the VN Index may have come as retail investors returned to small- and mid-cap issues.


The four futures contracts performed marginally worse than the VN30 cash index today, with discounts widening to between 4.9 and 6.2 index points. HOSE’s review of VN30 member stocks for the start of 2019 saw of EIB; TCB; HDB and VHM added, while BMP; PLX; HSG and KDC were all excluded. The effective date for the changes is February 11. After some speculative trading yesterday ahead of the HOSE announcement, and in the absence of higher turnover, we see a breakout as increasingly unlikely.


Asian shares & major currencies – Asian shares retreated today, despite gains of more than one percent on Wall Street, where advancers outnumbered decliners by nearly three to one, and across US bourses overnight. As for currencies, the US$ (96.44) was firmer today when measured against its trade weighted ICE index. The Euro (1.1353) gave up some ground against the greenback, although the Pound Sterling (1.2876) was buying slightly more US currency. The dollar was buying fewer Japanese Yen (109.4), but more Chinese Yuan (6.8011).


Oil prices trades narrowly – Crude oil was largely unchanged from this time yesterday, with active month WTI futures crude oil contracts trading at US$ 53.56, while Brent crude was at US$ 62.07 per barrel. While WTI has risen 18% since the beginning of the year to sit still some way off the mid-point from its recent 52-week highs and lows, it is likely to trade in a fairly narrow band as position taking by financial investors look set, and the balance between slower global growth, trade cuts and US production remains unclear.


Despite optimism over US/China trade talks, slower cuts to Russian production, heavy buying of Iranian oil prior to sanctions coming in effect, booming North American production and slower declines in output in Venezuela, amongst other things have meant that the impact of the OPEC+ cuts have not been apparent. Added to that, more signs of a deeper slowdown in the Chinese economy and signs that US shale can ramp up production any time are all keeping a lid on gains.


In global macro and general news – The IMF has cut its growth forecasts for 2019 from 3.7% to 3.5% and then for 2020 from 3.6% to 3.5%. Whilst retaining its estimate of 3.7% growth for 2018. The previous estimates were made as recently as October 2018. The announcement was made by the IMF chief economist Gita Gopinath speaking at the World Economic Forum in Davos. Slowing growth in China, Japan and the Eurozone are clear concerns and even in the U.S there have been signs of decelerating growth also. Hence the downward revision comes as little surprise although the scale of the revision is fairly slight. 


In the UK, on the other hand, despite Brexit issues, unemployment for the three months ending in November last year dipped slightly to 4.0% versus the previous reading and market expectations calling for a figure of 4.1%. Unemployment remains at its lowest levels since the 1970s. Average worker remuneration, excluding bonuses, in the UK rose 3.3% y/y in November, the same as a month earlier and also in line with market estimates calling for a y/y gain of 3.2-3.3%. The figure including bonuses was 0.1% higher on a y/y basis and slightly ahead of market expectations.


The ZEW Economic Sentiment Indicator for Germany beat market estimates calling for a reading of -18.0 to -21.0 for a reading of -15.0 in January. This figure was also ahead of December’s result of -17.5. The reading for current conditions, however, of 27.6 was far below the previous reading of 45.3, and also far below market estimates calling for a figure of between 43-45.







HCMC – The VN index fell today as turnover narrowed to VND 2,562.81 billion or US$ 110.68 million. The index lost 0.49% and closed at 906.50. 122 stocks up while 172 stocks down. And 7 stocks went to the ceiling while 9 stocks dropped to the floor. Foreigners accounted for 14.11% of the buying value and 11.67% of the selling value.


Foreign buying rose in actual terms and also in percentage terms. While foreign selling also fell further in actual terms but rose in percentage terms. Foreigners turned net buyers to the tune of VND 62.59 billion worth of shares in HCMC. And we saw twenty nine transactions in the put through market today.


Foreigners were active buyers of EIB; MSN; VNM; DPM and HDB. They also actively sold HDB; MSN; VNM; VJC and PLX. The put through market was less active today with two enormous; four jumbo; three large and some medium sized & smaller deals accounting for 19.00% of total turnover.


We saw 5,703,635 shares of HPX; 7,831,390 shares of EIB; 1,045,000 shares of HDB; 376,750 shares of MSN and 4,075,515 shares of SAM going through. Foreigners were more active in the put through session in the EIB & MSN deals and then eight other smaller deals today in the market.


E1VFVN30 was down 1.32% today closing at VND 14,200.


Hanoi –  The Hanoi market went down today while turnover came to VND 309.79 billion or US$ 13.38 million. The HN index was down 0.80% to close at 102.54. 60 stocks up while 75 stocks down. And 18 stocks went to the ceiling while 12 stocks dropped to the floor. Foreigners accounted for 6.25% of the buying value and 2.58% of the selling value.


Foreigners were net buyers to the tune of VND 11.36 billion worth of shares. And we saw nine medium and small sized deals today during less active put through session in Hanoi accounting for 5.28% of total turnover.


We saw 784,400 shares of VGC; 24,600 shares of PVI and 13,100 shares of ACB along with some smaller transactions in the put through market today.





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