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Investing in Vietnamese stocks with JACK, Vietcapital Securities, 10 Nguyen Hue, District 1, HCMC, Ho Chi Minh City (2026)

20/09/2022

FPT's 8M 2022 results: 30% YoY surge in NPAT-MI backed by continued robust growth across segments – BUY (Source: VietCapital Securities)

* FPT announced 8M 2022 results with revenue of VND27.1tn (USD1.2bn; +24% YoY) and NPAT-MI of VND3.4tn (USD146.6mn; +30% YoY), completing 62% and 63% of our respective full year forecasts. These results are aligned with our forecast for robust earnings growth from FPT. We see no material changes to our current projections, pending a fuller review.

* Software Outsourcing (SO): Revenue +24% YoY and PBT +25% YoY. SO's PBT margin reached 14.6% in 8M 2022, which we attribute to a rising revenue contribution from digital transformation (DX) services. In 8M 2022, DX revenue jumped 41% YoY, and accounted for 30% of total SO revenue vs 26% in 8M 2021. In addition, new global SO contract value surged 30% YoY in 8M 2022 to VND15.5tn (USD664.4mn) and management commented that FPT is on track to achieve USD1bn value from newly signed contracts by year end 2022.

* Telecom: Revenue +17% YoY and PBT +22% YoY. FPT expects to grow revenue of advertising from its pay TV business in 2022. Further details on the Education segment were not provided in this month's earnings release.

* We currently have a BUY rating with a target price of VND115,300/share for FPT, implying a projected total stock return of 42.7%, including a 2.9% dividend yield, based on today's closing price.

20/09/2022

BAF: Transitioning to focus on Feed-Farm-Food (3F) – Company Visit Note (Source: VietCapital Securities)

* BAF Vietnam Agriculture JSC (HOSE: BAF) is a new player in pig farming in Vietnam and is among a few companies that adopt a ‘Feed-Farm-Food’ (3F) integrated business model.

* Trading of agricultural products was the largest revenue contributor in 2021 at 93%. However, BAF expects to focus more on developing its 3F model and exit the trading business by 2025F.

* H1 2022 NPAT-MI dropped 36% YoY, primarily due to (1) lower revenue from core trading activities and (2) startup costs of its new animal feed factory (see page 10). BAF’s GPM, on the other hand, improved by 1.3 ppts YoY due to a larger share of 3F in the business mix.

* In 2022, we anticipate a larger revenue contribution from 3F business to bolster BAF’s earnings, underpinned by (1) higher production capacity at its Tay Ninh animal feed factory, and (2) pig farming expansion and strong cash inflows from upcoming bond deals. The 3F business will also benefit from a recovery in demand for hogs and pork prices in 2022F, in our view.

* BAF is currently trading at a TTM PER of 16.8x — a 16% discount vs our selected peer median of 20.1x (see page 16).

* Risks: (1) Higher input prices of animal feed (e.g., corn) may harm husbandry companies’ profit margins; (2) increased financial leverage from bond issuance.

19/09/2022

HAG: Buoyant agri-food market supports earnings recovery – Company Visit Note (Source: VietCapital Securities)

* Hoang Anh Gia Lai JSC (HOSE: HAG) is a conglomerate with a heavy focus on agriculture. Fruit farming is HAG’s largest segment, accounting for 48% of 2021 revenue, followed by pig farming (27%), and others (26%).

* HAG guides for 2022G NPAT of VND1.1tn (+778 YoY), which we believe is achievable given HAG’s impressive H1 2022 earnings results and our positive agri-food market outlook in 2022.

* In 2022F, we expect HAG’s fruit business to continue to benefit from growing demand from China.

* We also anticipate HAG’s plan to expand its pig farming capacity to one million hogs in 2022-23F will benefit from the current pork demand-supply gap and rising pork prices in Vietnam.

* HAG’s newly introduced ‘BAPI’ (or ‘Banana Pig’) meat is also well positioned to capture rising consumer demand for branded and traceable meat products, especially post-COVID-19.

* HAG is currently trading at a TTM PER of 17.6x — a 15% discount vs our selected peer group median of 20.7x.

* Risks: (1) Agricultural diseases, (2) Market concentration, (3) High financial leverage.

15/09/2022

CTR: PBT surged 21% YoY in 8M 2022 led by telecom-related segments and construction – BUY

* CTR announced preliminary 8M 2022 results, in which revenue and PBT soared 21.4% YoY and 26.9% YoY to VND5.9tn (USD256mn) and VND343bn (USD15mn), respectively. This robust revenue growth was led by strong growth from the towerco (+62% YoY), construction (+57% YoY), and operations (+19% YoY) segments, which outweighed weakness in the systems integration segment. CTR’s 8M results achieved 66% of our 2022F forecast for revenue and 64% of our PBT forecast.

* We currently have a BUY rating with a target price of VND89,800/share for CTR, implying a projected total stock return of 25.2%, including a 1.1% dividend yield, based on the last closing price.

07/09/2022

DRC: Sales growth and profitability to improve in H2 2022 - Update (Source: VietCapital Securities)

* We raise our target price (TP) for DRC by 1.5% to VND33,400/share and maintain our OUTPERFORM rating as the company has shown strong sales growth as a result of its effective capacity expansion.

* Our higher TP is mainly driven by raising our aggregate 2022-2024F NPAT-MI forecast by 11.4%, which is partially offset by a higher WACC (12.6% vs previously 12.2%) resulting from our 50-bp higher risk-free rate assumption.

* We raise our 2022F NPAT-MI by 8.4% to VND374bn (USD16mn; +28.6% YoY), which is primarily due to (1) increasing our radial tire sales volume growth assumption for 2022F to 22% YoY vs previously 10% YoY and (2) a higher ASP increase for domestic radial tires in 2022F (10% vs previously 8.7%).

* We raise our aggregate 2023-2028F NPAT-MI forecast by 13.4% mainly due to our higher radial revenue projection and a 10-bp decrease in the average selling expense/revenue ratio for 2023F-2028F.

* Downside risks to our positive view: Higher-than-expected increase in natural rubber prices; intensified competition in the tire market.

06/09/2022

DIG: Capital raising required to progress project development – Update (Source: VietCapital Securities)

* We decrease our target price for DIG by 2.6% to VND33,500/share but upgrade our rating from SELL to UNDERPERFORM as DIG’s share price has declined 24% over the past three months.

* Our lower target price vs previously VND34,400/share (adjusted for 17% stock dividend and 5% bonus share issuance in July 2022) is mainly due to our 0.5-ppt higher risk-free rate assumption, which is partly offset by a lower net debt balance as of end-Q2 2022.

* We decrease our 2022F NPAT-MI forecast by 3% to VND998bn (USD43.4mn; flat vs 2021) mainly due to a higher projection for interest expenses. We continue to expect handovers at the Nam Vinh Yen and Vi Thanh projects to support our 2022F NPAT-MI forecast while we expect a YoY lower divestment gain in the year.

* As one of the largest master urban plan developers in Vietnam, DIG’s business model focuses on intensive land bank acquisition and land clearance process before commercializing a project. As such, capital raising is needed over the medium term. However, the challenges for capital raising as a result of the Government’s recent stricter supervision of real estate loans and bond issuances could create uncertainty surrounding DIG stock.

* Upside catalysts: Faster-than-expected development progress of key projects, including Long Tan and Nam Vinh Yen; development details of newly acquired projects supporting higher valuations.

06/09/2022

BVH: Lower valuation on decreased financial income forecast – Update (Source: VietCapital Securities)

* We lower our target price (TP) by 4.9% to VND62,600/share and downgrade our rating for BVH from BUY to OUTPERFORM as the company’s share price has increased ~13.1% over the last three months.

* Our lower TP is due to (1) 10.5%/9.8% decreases in our projections for 2022/2023F NPAT and (2) assuming a higher cash dividend for FY2021 of VND3,026/share vs VND1,000/share as previously.

* We decrease our 2022F net income forecast by 10.5% due to (1) 5.3% lower net financial income that outweighs (2) a 2.4% decrease in losses from operating activities.

* We model for a cash dividend of VND3,026/share for FY2021 following BVH’s AGM plan. We model for a cash dividend of VND800/share for the 2022 and 2023 financial years.

* Upside risk: (1) Lower-than-expected combined ratio; (2) higher premium growth.

* Downside risks: Stiff competition in life and/or non-life that could negatively affect BVH’s growth.

06/09/2022

BMI: Improving combined ratio; cutting financial income – Update (Source: VietCapital Securities)

* We cut our target price (TP) for BMI by 6.9% to VND36,400/share but maintain a BUY rating.

* Our lower TP reflects (1) our 7.2 % aggregate decrease in 2022-2023F NPAT and (2) a decrease in target P/B from 1.7x to 1.6x.

* Our 7.2% cut in aggregate 2022-2023F net income is mainly due to (1) a 24.9% aggregate decrease in net financial income that outweighs a (2) 30.3% increase in operating profit driven by 1.6 ppt and 0.8 ppt decreases in the 2022F and 2023F combined ratios, respectively.

* We model for BMI to pay a cash dividend of VND1,200/share (equivalent to a 3.9% dividend yield) for FY2022 and FY2023.

* Divestment by the State Capital Investment Corporation (SCIC) and AXA is still awaiting regulatory approval. Additionally, BMI is waiting for the State Securities Commission (SSC) to approve the new FOL at 100%.

* Upside risks: Divestment by the SCIC and AXA of a total 67.3% stake; higher-than-expected deposit rates.

* Downside risks: (1) Natural hazards hitting major population centers, which could push claims higher; (2) higher-than expected operating cost.

05/09/2022

GEG: New strategic partner to help capacity expansion – Update (Source: VietCapital Securities)

* We raise our target price (TP) for GEG by 11% to VND23,300/share but maintain a MARKET PERFORM rating. GEG is a pioneer in Vietnam’s green energy sector and has a current portfolio of 446 MW. It targets to have a 2,000 MW capacity in the long term, which we believe will be achievable with its new strategic partner JERA — the largest power generator in Japan.

* We raise our DCF-based TP due to our removal of a 15% valuation discount, which outweighs a 20% cut in our 2022F NPAT-MI and 50-bp increase in our house risk-free rate assumption.

* GEG is the company under our coverage that will benefit the earliest when Power Development Plan VIII is approved and the renewable power sector gets a new pricing mechanism, and we think its 2023F P/E of 16.1x is fair vs the four-year median regional peer P/E of 16.3x.

* We forecast 2022 NPAT-MI to rise 36% YoY due to full-year contributions from three wind farms (130 MW — or 30% of GEG’s total capacity) that came online in October 2021.

* We forecast a 23% EPS CAGR in 2021-2026F, which is driven by doubling wind power capacity from two additional farms (130 MW) coming into operation after 2022, the stable operation of five solar farms and 14 hydropower plants, and declining interest expenses.

* Upside risks: Divestment gain (see page 10); sooner-than-expected operation of two new wind farms; lower-than-expected interest expense due to refinancing.

* Downside risks: Dilution risk from capital raising; lower-than-expected renewable power price.

05/09/2022

MSN: Consumer retail business poised to rise after 2022 – Update (Source: VietCapital Securities)

* We lower our target price (TP) for MSN by 11% but reiterate our BUY rating.

* Our lower TP is primarily driven by (1) a lower valuation for Masan Consumer Holdings (MCH) that is derived from our 8% lower projected aggregated EBIT for MCH in 2022-2024F, (2) higher net debt due to a lower cash balance, and (3) increasing our risk-free rate and cost of equity assumptions by 50 bps. These are partly offset by a higher contribution from P**c Long Heritage (PL) to total equity value as a result of MSN raising its equity ownership in PL to 85% from 51%.

* We remain bullish on the outlook for MSN’s leading and wide-ranging consumer businesses to benefit from Vietnam’s long-term consumption growth. However, we believe the prolonged impact from COVID-19 and the recent inflation in prices of FMCG goods on consumer spending power will undermine sales volumes and hurt margins of MSN’s consumer businesses in 2022.

* Potential upside catalysts: Successful scale-up of technology application backed by Trusting Social(i); further ownership reductions in Masan Hi-Tech Materials (MHT); value-creating M&A.

* Key risks to our positive view: Ineffective store expansion at WinCommerce (WCM) and PL; ineffective product innovation and marketing that would lead to a significant slowdown in MCH’s growth.

Investing in Vietnamese stocks with JACK

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