Vietnam Investments : Monthly Report

VIETNAM MONTHLY REPORT

31 July 2023

ECONOMY REVIEW AND OUTLOOK

Vietnam Tees Up For a Solid Back Nine

A Diplomatic Dance for Korea & Vietnam

Seoul Kitchen:

A Recipe for Success

Strategic Overture to Global Manufacturers

A Solo Movement:

Vietnam's Drive

Towards Growth

July saw a 7.1% YoY rise in retail sales, driven by the ongoing recovery of the tourism sector. Public investment demonstrated a remarkable acceleration, surging over 40% YoY, while July CPI increased 0.5%, primarily driven by food and energy prices. FDI registration reached a three-monthhigh, culminating at $16.2bn in 7M23, reflecting the continued attractiveness of Vietnam as an investment destination. Despite a contraction in imports/exports, the trade surplus remained resilient at $15.2bn, positioning the economy well for the anticipated uplift in exports from the upcoming release of Samsung's new phone in August.

In a significant milestone, the newly elected South Korean President chose Vietnam for his inaugural overseas trip, echoing the upgrade to a comprehensive strategic partnership last year. Accompanying the President on this symbolic journey were over 200 leading Korean corporations, resulting in more than 110 Memorandums of Understanding being signed across multiple sectors, fortifying Vietnam and South Korea's economic bond. It is clear the commercial relationship between the two sovereign nations has now become stronger than ever before.

South Korea continues to lead as the paramount investment partner in Vietnam, with cumulative FDI amassing $83bn across 9,700 projects. Notably, Samsung constitutes nearly 25% of this figure, equalling $20bn. In 2022, the company's export turnover reached $65bn, constituting 17.4% of Vietnam's total exports, creating 96,000 jobs and contributing over $480m to the State budget. Capital inflow from South Korea further swelled by $2.3bn in 7M23, adding to the total registered figure of $16.2bn, an increase of 4.5% YTD and resilient against global fluctuations.

Vietnam's stability, geography, and market potential stand as three pivotal reasons motivating global manufacturers to seek exposure within its borders. Over the last 12 years, Vietnam has maintained a consistent policy of integration into global value chains, engaging in over 16 FTAs with 55 territories. The strategic positioning in the heart of the Asia-Pacific hub, with a coastline of 3,260 km, facilitates the maritime transportation of goods to regional markets.

Vietnam possesses key advantages for growth, characterised by its golden demographics and natural resources, most notably an abundance of rare earth minerals which are vital to the microchip industry, ranking second globally per USGS. The Government is incentivising human capital in this sector, intending to nurture 50,000 engineers in the semiconductor industry. We see this as an opportunity for Vietnam to fortify its national standing and foster sustained, long- term growth within the global supply chain.

Fig. 1	ECONOMIC FORECASTS
31	-July-	23	Unit	2021	2022E	2023E	2024F
Real GDP Growth	%	2.6	8.0	5.5	6.5
Nominal GDP	$bn	366.1	408.8	448.5	494.4
CPI (average)	%	1.8	3.2	4.0	4.0
Export Growth (cif)	%	19.0	10.6	-6.2	12.0
Import Growth (cif)	%	26.7	8.4	-7.7	11.6
Trade Bal (cif)	$bn	3.3	12.4	17.1	18.7
FX Reserves	$bn	106.5	85.0	95.0	110.0
FDI Disbursed	$bn	19.8	22.4	20.9	22.0
VND:$	1	22,800	23,550	23,450	23,300

Fig. 3			VIETNAM - SOUTH KOREA BILATERAL TRADE
60
$bn				VN Exports to SK
50
				VN Imports from SK
40
30
20
10
0
		2000			2005			2010		2015		2020		2023F

Fig. 2 SOUTH KOREAN INVESTMENT IN VIETNAM 2013-2022

9

$bn

8

7

6

5

4

3

2

1

0

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Fig. 4			FOREIGN VISITORS
1,200
'thousand								Korea		Other territories
visitors
1,000
800
600
400
200
0
	Jan-23	Feb-23Mar-23Apr-23May-23	Jun-23Jul-23

1

VIETNAM MONTHLY REPORT

31 July 2023

MARKET REVIEW AND OUTLOOK

VNI Continues its Upward Trajectory

Public Investment Sparks Conviction

Sector Rotation: From Bricks to Clicks

Valuations Rise, But Opportunity Knocks

Pressure Builds For Corporate Delivery

The VNI increased by 8.8% MoM (TR$) in July, more than doubling June's gains, with average daily turnover reaching its highest level in over a year as domestic investors return.

The rejuvenated investor sentiment can be traced back to an enhanced emphasis on public investments. In July, public disbursement reached an impressive 6.9%, totalling 37.9% of the annual plan in 7M23, far surpassing 2022's figure of 27.4% within the same period, with infrastructure and construction stocks taking centre stage. Trading volume breached $1bn, with the average MoM turnover swelling by 8% to $776m/day, underscoring bullish investor expectations. Our analysis also indicates a surge in account deposits and a steady rise in retail investors' margin balances, a firm showing of renewed faith in the market.

July witnessed an intriguing sector pivot, as interest shifted from brokerages and real estate to retail. Companies once playing catch-up are now enjoying improved inflows, aligning with market momentum. The retail segment, having experienced a lull, rebounded convincingly in July, leaping 20.4%. This resurgence can be attributed to the likes of DGW and MWG, underpinned by the prevailing view that the nadir of consumer confidence is behind us. VIC, a top five VNI stock by market cap, also rallied, buoyed by positive US listings news and the commencement of their US factory. Conversely, the banking sector underperformed the index, with investors exhibiting caution in the wake of Circular 06 and its lending limitations.

The buoyant earnings news has been factored into the market, resulting in our top 80 universe TTM PE valuation climbing to 12.8x, just along the 5Y mean. Dive deeper into these stocks, and Q2 results (adjusted for float) paint a picture of mild economic resurgence. We are observing the second successive quarter boasting QoQ profit growth. Even though net profit slid 5% YoY, it surged by 9% QoQ, encapsulating 46% of our annual projection. Banks continue to act as a pillar for the VNI, accounting for 59% of total earnings YTD, remaining flat YoY. Sectors like real estate, insurance, securities, and IT have been standouts, constituting a fifth of market earnings, while the energy, materials, chemicals, and retail sectors trailed this quarter. Forecasts for Q3 should usher in positive momentum, with the expectation that H2 will sustain this recovery.

The increase in PE valuations mirrors robust market expectations of an economic rebound, bolstered by year-to-date macroeconomic support. The spotlight, however, now shifts firmly onto the corporations themselves. With the foundations set, it is incumbent upon these entities to navigate this momentum, ensuring that they match, if not exceed, investors' expectations.

Fig. 1	DC TOP-80 FORECASTS			Fig. 2		MARKET PERFORMANCE
										2,000										1600
31-Jul-23	Unit		2021	2022	2023E	2024F				$m		VNI
		1,800					1500
PER	x	14.5	9.1	11.1	9.0							Volume (LHS)
	1,600								1400
															Index (RHS)
EPS Growth	%		37.1	-1.4	3.8	24.4		1,400								1300
PEG	x	0.4	Neg	2.9	0.4		1,200									1200
Sales Growth	%		22.0	12.3	4.0	14.1		1,000									1100
EBIT Growth	%	50.8	2.5	12.3	21.8		800									1000
PBT Growth	%		38.0	1.5	2.9	24.5		600									900
NPAT Growth	%	41.9	0.0	4.0	24.4		400									800
									200									700
Net DER	x		0.2	0.3	0.3	0.2
Yield	%	1.0	1.9	1.2	1.2		-										600
	Jan-20May-20Oct-20Mar-21Aug-21Dec-21May-22Oct-22Mar-23	Jul-23
Fig. 3		VNI TRAILING 5Y PE			Fig. 4		VNI MONTHLY VOLUME
28										18.00
26												$bn
									16.00
24
									14.00
22										12.00
20										10.00
18										8.00
16										6.00
14										4.00
12										2.00
10										-
													Jan-23Feb-23Mar-23Apr-23May-23Jun-23		Jul-23
Jan-17Sep-17	Jun-18	Mar-19Dec-19	Aug-20	May-21Feb-22	Nov-22Jul-23

Sources: DC, Bloomberg, Credit Suisse / Refinitiv - all adjusted for free float

2

VIETNAM MONTHLY REPORT

31 July 2023

VIETNAM ENTERPRISE INVESTMENTS LIMITED - VEIL

As the market rally continued into July, VEIL rose 9.7% MoM, outperforming the VNI's 8.8% return by 1.1%, with half of the Fund's top ten holdings achieving double digit returns, as earnings season provides much to consider.

FPT was one of the first major corporates to post their Q2 earnings in July, bringing H1 earnings growth to 19.7% YoY. The company also issued a stock dividend, a popular move with retail investors. The combination of FPT's sound fundamentals, consistent delivery of earnings growth, and a rotation into large cap stocks were the driving forces behind this sizeable gain.

VPB and MWG performed well, despite modest 2Q23 results. VPB's quarterly expansion was the most significant QoQ earnings growth within VEIL's banking names, and its 15% strategic placement to SMBC slated for Q3 is projected to bolster capital reserves, explaining the strong uptick and fostering long-term growth. Despite MWG contending with constrained demand, it is preparing its own private placement for grocery subsidiary BHX, heralding promising near-term expansion.

July signalled the beginning of the revival for the residential property sector as strides are taken to address legal challenges, with VEIL's key holdings VHM and KDH posting solid double-digit returns. VHM's MoM results were nearly twice that of the VNI's return, as the company's major sales launch in July exhibited strong absorption rates. KDH's considerable increase of 21.2% benefitted from market expectations of a new major project launch, and has one of the largest land banks in Ho Chi Minh City with legal paperwork already approved. DXG also rose 27.4% due to a modest profit in Q2, meaning H1 earnings were positive, a small but important factor; if negative, they would no longer be eligible for margin lending. This signalled to the market the worst for the company has likely passed, with new projects now the focus and increased optimism the result.

The overarching sentiment echoed previously remains unaltered: confidence in both the market and the broader economic trajectory for H2 is positive. While there may be moments when market exuberance runs ahead of fundamentals, the broader economic recovery and earnings outlook inspire confidence as we head into the latter half of the year. We believe the stage is now primed for stock selection and tactical allocation to truly prevail as we look beyond H2 and into 2024.

PRICE AND NAV DATA

		Net							Cash				Price				NAV change (%)				Price Change (%)						Sharpe
					NAV/Share			Std. Dev.
	Assets				(%	of AUM)			EOD			Monthly			YTD			Monthly			YTD						Ratio
$1,944.6m	$9.50		1.03			-			9.7%		21.0%	12.9%		20.0%	24.58		0.69
£1,511.3m	£7.38				£6.54	8.4%		13.0%	11.6%		12.2%	-		-

80.0

70.0

60.0

50.0

40.0

30.0

20.0

10.0

0.0

-10.0

			NAV PERFORMANCE (in $ terms)
	% TR$ - 31/07/2023	67.6 68.5
		VEIL (NAV)
56.6
		VNI (benchmark)
		VN30 (comp)	44.6
			36.336.5
16.916.0 16.9	21.022.1 23.6

9.7 8.8 9.2

1.3

1M

3M

YTD

-0.91Y -0.1

3Y

5Y

	TOP TEN HOLDINGS (66.7% of NAV)		DISCOUNT TO NAV
	COMPANY	SECTOR	VNI %	NAV %	CH %	20
	%
1	ACB	Banks	1.9	12.1	3.6	10
2	VP Bank	Banks	3.1	11.7	11.1	0
3	Hoa Phat	Mat's/Res	3.4	8.5	7.4
4	Vietcombank	Banks	9.1	7.4	7.7	(10)
5	Mobile World	Retail	1.7	6.0	24.6	(20)
6	FPT Corporation	Software/Svc's	2.0	5.0	15.3
(30)
7	Vinhomes	Real Estate	5.8	5.0	14.0
8	Becamex IDC	Real Estate	1.8	3.9	1.8	(40)
9	PV Gas	Energy	4.1	3.6	8.8	(50)
10	Khang Dien House Real Estate	0.6	3.5	21.2
Jan-05May-07Sep-09Dec-11Apr-14Aug-16Nov-18Mar-21Jul-23

3

VIETNAM MONTHLY REPORT

31 July 2023

APPENDIX 1: MACRO

Key Indicators

			Unit	2017	2018	2019	2020	2021	2022E	2023E	2024F
Item
	GDP	$bn	281.4	310.1	334.4	346.6	366.1	408.8	448.5	494.4
	Real GDP Growth	%	6.9	7.5	7.4	2.9	2.6	8.0	5.5	6.5
	Services Growth	%	7.4	7.0	7.3	2.5	1.2	10.0	7.5	8.2
	Agriculture Growth	%	2.9	3.8	2.0	2.8	2.9	3.4	2.6	3.0
	Ind'l and Const'n Growth	%	8.0	8.9	8.9	3.3	4.1	7.8	4.1	6.1
	Retail Sales Growth	%	10.9	11.7	11.8	2.6	-3.8	10.2	8.9	9.0
						Prices
	CPI (Average YoY)	%	3.5	3.5	2.8	3.2	1.8	3.2	4.0	4.0
					Money, FX & Interest Rates
	Money Supply M2	%	15.0	12.4	14.8	14.5	8.9	6.2	7.8	10.5
	Average Lending Rate	%	9.3	9.5	9.7	8.6	8.5	13.7	10.5	9.2
	5-yr VGB	%	4.3	4.5	1.9	1.1	0.9	4.7	2.2	2.5
	VND : $	$1	22,750	23,235	23,150	23,085	22,800	23,550	23,450	23,300
						External Sector
	Trade Balance	$bn	2.1	6.8	10.8	19.9	3.3	12.4	17.1	18.7
Current Account	$bn	-1.6	5.8	12.2	15.1	-7.8	-1.5	7.5	6.8
Current Account / GDP	%	-0.6	1.9	3.6	4.3	-2.1	-0.4	1.7	1.4
FDI Registered	$bn	35.9	35.5	36.0	28.5	38.5	27.7	25.2	28.0
FDI Disbursement	$bn	17.5	19.1	20.4	20.0	19.8	22.4	20.9	22.0
	FX Reserves	$bn	52.0	61.0	80.0	98.0	106.5	85.0	95.0	110.0
					Public Debt & Fiscal Balance
	External Debt	$bn	109.2	112.1	122.8	130.1	138.8	141.2	147.0	151.3
	Government	$bn	46.3	47.0	47.7	49.0	47.9	48.8	52.4	56.7
	Enterprises (incl. FDI)	$bn	62.9	65.1	75.0	81.1	90.9	92.4	94.6	94.6
	External Debt (% GDP)	%	38.8	36.2	36.7	37.5	37.9	34.5	32.6	30.6
	Fiscal Balance (% GDP)	%	-2.6	-2.9	-2.6	-3.4	-4.0	-4.3	-6.0	-4.5

4

VIETNAM MONTHLY REPORT

31 July 2023

APPENDIX 2: MARKET

Key Stock Market Data

	HSX		HNX		UPCoM		Total
	31-Jul-22	31-Jul-23	31-Jul-22	31-Jul-23	31-Jul-22	31-Jul-23	31-Jul-22	31-Jul-23
Market Cap ($m)	205,292		205,777	14,552		12,806	53,223		46,539	273,067		265,122
Number of Stocks	402		393	341		332	857		863	1,600		1,588
Number of Large Cap Stocks (> $400m)	64		68	10		9	21		19	95		96
Stocks with No Room for Foreigners	50		60	58		91	162		217	270		368
Market Cap of Stocks with No Room ($m)	37,101		26,564	2,903		1,988	12,517		12,088	52,520		40,640
Share of Market Cap with No Room (%)	18.1		12.9	19.9		15.5	23.5		26.0	19.2		15.3

Top 25 Companies

						31-Jul			Price			Mkt			Wt								PER												PBV												Yield
	No		Company			Price			YTD			Cap		in VNI			2022		2023E			2024F			2022		2023E			2024F			2022			2023E			2024F
						(VND)			(%)			($m)			(%)					(x)				(x)				(x)				(x)				(x)				(x)			(%)			(%)				(%)
1	Vietcombank	91,600	35.2		21,615	9.12		14.4		16.4		14.1		2.8	3.0		2.5		0.9		-		-
2	Vinhomes	63,000	31.3		11,582	5.77		7.2		9.0		8.5		1.4	1.6		1.3		4.5		-		-
3	BIDV	47,200	22.3		10,080	5.02		14.1		14.4		11.8		2.0	2.1		1.8		0.2		-		-
4	Vingroup	55,100	2.4		8,872	4.42		23.4		26.6		28.5		1.9	1.8		1.7		1.7		-		-
5	PV Gas	101,600	0.1		8,210	4.09		13.4		17.3		17.7		3.2	3.0		2.8		3.0		3.5		3.5
6	Airports Corporation VN	80,400	-5.0		7,390	-		29.0		28.3		22.0		4.2	3.5		2.9		-		-		-
7	Hoa Phat Group	28,200	56.7		6,923	3.45		12.6		22.4		14.2		1.1	1.6		1.5		2.2		1.0		1.0
8	Vinamilk	78,000	2.5		6,882	3.43		21.0		21.0		19.6		5.3	5.0		5.0		5.1		3.1		4.9
9	Vietinbank	22,150	23.7		6,278	3.14		6.6		11.2		7.8		1.2	1.0		0.9		-		-		-
10	VP Bank	30,000	10.1		6,087	3.03		9.2		8.9		7.4		1.2	1.2		1.0		2.9		-		-
11	Techcombank	87,300	-6.1		5,274	2.61		37.1		119.4		53.5		5.1	4.5		4.0		1.0		1.0		1.0
12	Masan Group	34,300	32.7		5,093	2.54		4.7		7.2		5.8		0.8	0.9		0.8		0.1		-		-
13	Sabeco	85,600	29.5		4,590	1.99		17.2		18.6		14.9		4.0	4.2		3.6		2.6		3.1		3.6
14	FPT	156,800	-4.7		4,245	2.11		20.6		21.1		19.4		4.6	3.9		3.6		2.3		2.4		2.4
15	Military Bank	18,850	30.0		4,150	1.80		4.5		5.0		4.2		1.0	1.0		0.8		-		-		-
16	ACB	22,950	25.5		3,763	1.87		5.3		5.7		4.7		1.2	1.2		1.0		-		-		-
17	Becamex IDC	81,000	0.5		3,539	1.76		49.5		21.1		19.4		4.9	4.2		3.5		0.9		1.0		1.0
18	Mobile World	53,700	26.4		3,316	1.65		15.2		36.3		12.4		2.6	3.0		2.5		1.2		-		0.9
19	Vincom Retail	29,650	12.7		2,845	1.45		21.5		14.7		14.2		1.8	1.8		1.6		-		-		-
20	Sacombank	19,600	47.4		2,566	-		2.8		10.5		21.4		0.8	1.1		1.1		3.3		5.1		5.1
21	Binh Son Refining	102,000	-6.8		2,332	1.16			neg	39.7		33.5		4.0	3.4		2.9		-		-		-
22	Vietjet Air	28,950	28.7		2,304	1.15		8.4		6.3		4.0		1.1	1.2		0.9		-		-		-
23	VEAM Corp	20,800	40.5		2,228	1.11		4.5		5.5		4.5		1.1	1.3		1.0		-		-		-
24	VIB	41,500	30.9		2,226	1.13		27.8		15.7		15.9		1.6	1.9		2.0		4.3		2.9		7.4
25	Petrolimex	17,350	31.9		2,119	0.92		4.9		5.5		4.5		1.0	1.1		0.9		-		-		-

5