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Vietnam Outlook Update Q3 2016
Long Tran Head of research
Please feel free to contact me at
E Longtt@bsc.com.vn
P +84 4 39352722 (118)
M +84 906 959 034
S rongbeo
BSC
Content List
• Investment themes 03
• Economy backdrop 04
• Global factors 06
• Domestic factors 09
• Stock market outlook 14
• Performance and liquidity 16
• Fearless forecast 2016 -2018 21
Investment themes
3
Real Estate
revenues
start to rise
in 2016 –
2017
Free trade
agreements
will have long
term effects
Rerate on
the rise
Upcom, Hnx,
low P/E
Largecap
Privatization
& Foreign
Ownership
limitation will
dominate in
2016 – 2017
Local grow
oriented.
Low Beta
and high
dividend
yield
1 2 3 4 5
Economy backdrop Challenging 30 years since “Doi Moi”
4
Key take away points
• USA lead the growth, EU trouble with Brexit, Japan remain weak growth with Abenomics, China growth and policy are a source of region volatility,
• Vietnam look like a turnaround country. 30 years since “Doi moi”, Communist Party and Congress new 5 years term,
• New PM want to support growth and push privatization,
• Vietnam GDP will rise faster compare to peers and more depending on FDI & FTA, Interest rate stable with high credit grow,
• Biggest challenging are State own enterprise restructuring, Banking system and fiscal policy,
You don’t want to be any where else
Source: BSC, Blackrock
Emerging economies
• China Slowdown
• BRIC slow down
• Devaluation of EM currencies
• Commodities price recovery
Developed economies
• US lead the growth
• EU & Japan started to grow
• FED hike
• Election year in US
•Brexit & EU
Geopolitical risks
• Conflict and violence
(Russia, East Sea, IS)
• Cyber Security
Vietnam
• USD/VND
• Fiscal Policies
• FTA & investment
• Party and Congress election
BSC’s relevant reports: Brexit before & after, Lanina, Oil, commodity
Fed dovish hike FED indicated it would be less aggressive in tightening monetary policy after the end of this year. The second hike is pushed as far as Dec 2016.
Most of commodities sink to 2008 level and bounce back. Oil export count for 6% of VN state’s budget.
What it mean for Vietnam:
• USD/VND is likely to be more stable than 2015, we expect devaluation less than 3%
• VND deposit and lending rate stable and slightly fall.
Source: Bloomberg
BSC’s relevant reports: FED hike & How long how low
China rebalancing not that bad China Economy is slowing down but it not as bad as people expect. This year’s policy action signaled that authorities will prevent any sharp slowdown.
• EM and all EM exchange will be more stable
• Commodities price (capex vs opex) not fall too deep
• What it mean for Vietnam
• VND/USD will be more stable than expected
• Vietnam net import from China will not be too worried
Source: Bloomberg
BSC’s relevant reports: China stock market & China’s RMB,
6,6 6,65
6
6,2
6,4
6,6
6,8
7
7,2
7,4
7,6
7,8
Q2 15 Q3 15 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17
CNY projections
Actual Historical Median High Low
Vietnam and 17 FTAs
• Vietnam will have the most ambitious and comprehensive 17 FTAs cover:
• 62.2% of world population 4.5/ 7.3 billions people
• 79.6% of world GDP 61.3/ 77 thousand billions USD
• What it mean for Vietnam
• Winners : textile, automobile, seaport, logistic, industry zone…
• Losers: steel, sugar, fertilizer…
Lead us to investment theme number 2 FTA and long term effects
Source: Bloomberg
BSC’s relevant reports: TPP and sectors
USD/VND jump in 2016 and 2017
• 2015: USD/VND devaluated 5%, much less than peer (THB 11%, MYR 17%), Interest rate flat and credit growth climb.
• 2016 : We expect both USD/VND and Interest rate jump. This issue relate directly to CNY/USD, Net import from China, public debt.
• USD/VND: up to +3% (-0.8% ytd)
• Credit growth: 18% - 20% (5.48% ytd)
• Interest rate: flat
• Net import: less than USD 1 billions
Source: Bloomberg
22335 22641
20500 21000 21500 22000 22500 23000 23500 24000 24500
19500 20000 20500 21000 21500 22000 22500 23000 23500
MUFG
Maybank Singapore
Mizuho Bank
Westpac Banking
ANZ
Standard Chartered
Rabobank
Thai Military Bank
Cinkciarz.pl
HSBC Holdings
NAB/BNZ
Rand Merchant Bank
Median
Mean
6,78
6,3 6,5
6,68
3
4
5
6
7
8
9
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Actual Historical Median Forward High Low
GDP grow in 2016 & 2017
• 2015: GDP 6.68% ranked 4th in EM, thanks to strong FDI and private sector recovery. Bad new is VN’s GDP always slowdown after election years (2000, 2005, 2010)
• 2016 : With stable interest rate, Strong FDI, FTAs, We expect GDP keep recovery speed.
• GDP: 6.3% - 6.4% (6 months 5.52%)
• FDI: USD 13.5 to 17 billion ( USD 7.3 billion ytd)
• CPI: 1.8 to 3.5 %
• Budget deficit: 6%
• Import and export grow 9 to 10% (net export USD 1,5 billion ytd)
Source: Bloomberg
Stock market Outlook Alpha seeking rather than Beta
14
Key take away points
• 2016 is not so exciting for global stock market, but Vietnam will be benefit from FTA and strong restructuring. Plus the countries is look a lot like a turnaround stock with new leaders, restructuring plan and receiving huge foreign investment.
• Valuation multiples is higher than 5 years average but still attractive compare to Asian peers.
• Market depend on earning growth which is expect to pick up around 8%, Valuation multiple is likely to flat toward year end.
• Stock market liquidity rise thank to (1) stable USD/VND and interest rate; (2) Privatization and divestment process is pushed, (3) listed market cap will rise (Upcom)
• What if Vnindex can grow at the same speed as Asean stock indexes 2009 - 2012
VN-Index,
8.3%
MXEF, 1.4%
MXFM, -3.7%
MXWO, -3.8%
(15,0)
(10,0)
(5,0)
-
5,0
10,0
15,0
12/31/15 1/31/16 2/29/16 3/31/16 4/30/16 5/31/16
MXWO Index MXFM Index MXEF Index VNINDEX
FM & EM suffer a hard year opening
• 2015: Vnindex in the greenzone while FM and EM close in dark red.
• First half 2016 : Vnindex (+8.3%) outperform the EM, FM and world index despite 2 major incidents:
• China slowdown
• Brexit
• Second half 2016: Vietnam stock market look like China 2014 when the stock market about to rocket. Few tests left: PCA 2016, USA election 2016
• Lead us to conclude “you don’t want to be any where else”.
Source: Bloomberg
0,00
200,00
400,00
600,00
800,00
1000,00
1200,00
0
1000
2000
3000
4000
5000
6000
7000
05/10/2007 05/10/2008 05/10/2009 05/10/2010 05/10/2011 05/10/2012 05/10/2013 05/10/2014 05/10/2015
China Việt Nam
Vietnam stock market look like China 2014
• Second half 2016: Vietnam stock market look like China 2014 when the stock market about to rocket. Few tests left: PCA 2016, USA election 2016
Source: Bloomberg
You survived so what ?
10,62
13,07
0
5
10
15
20
25
30
Source: Bloomberg, BSC Research
As of 31 May 2016
56,20
7,28
4,96
Index market cap (billion USD)
VN-Index (306members)
HNX-Index (383members)
UPCOM-Index(306 members)
P/E ratio of Asian stock Index
Lead us to investment theme number 3 Re-rate: buy bluechip in HNX, Upcom and wait for a retate when HNX joint HSX.
• HSX: 1/3 stocks have current P/E less than 10, P/B less than 1.0
• HNX: 2/3 stocks have current P/E less than 10, P/B less than 1.0
3.072
2.613
-
500
1.000
1.500
2.000
2.500
3.000
3.500
06/15 08/15 10/15 12/15 02/16 04/16 06/16
Average Turnover 3 per.Mov.Avg
Bil.VND
Daily Liquidity improved
• First half 2016 : Liquidity is slightly higher than in 2015 but number of stocks have more than USD 1 million daily turnover fall from 32 to 22.
• Stable interest rate and exchange rate,
• FOL rise in number of stocks,
• Stronger Pnote inflow net off ETF outflow
• T+2 applied
• Second half 2016: Liquidity climb
• VN start to allow day trading (buy and sell stock at the same time), T+0, index future (2017).
• High beta stocks have drier liquidity (FLC, KLF, TSC…)
• New investors mean new money
Source: Bloomberg
BSC’s relevant reports: Upcom Premium & Upcom Top 30
Privatization & divestment to be pushed
• Privatization process will be pushed due to fiscal budget.
• First half 2016 compare to first half 2015: IPO 46 companies (VND 5,629 billion) ~71%; state divestment (VND 2,710 billion) ~ 11.4%
• Number of state own companies to be IPO and divest is around 160-180 in 2016 and 1100 (2016 to 2020)
• Lead us to Investment themes number 4 “Privatization & FOL”. Big divestments and hidden gems are expected (Blue chips & mid cap), so be prepared. M&A and FOL will release huge amount of hard money to the market.
Source: Chinh Phu
109
180
0
100
200
300
400
500
600
700
800
900
DNNN CPH
Foreign Investors will turn net buy
• First half 2016: foreign investor net sell (mostly VIC). Inflow mostly from Pnote instead of ETF.
• Top buy: MBB, GAS, SSI, VCB, PVD
• Top Sell: VIC, HPG, VSH, CTD, HSG
• 2016 : we expect Foreigner turn net buyer in second half of 2016 thanks to:
• FOL lift up: SSI, EVE, TNG, ASP, BIC, CII, VHC, EVE, MBB, FID, GTN, KMR and VNM
• Listed market cap will rise (Decision No 51) upcom should not be overlooked.
Source: Bloomberg
Nations
Net trading value in June
(USD mil.)
Net trading value in
2rd Quater (USD mil.)
2016
India 531 1,501 2,715
Indonesia 532 537 853
Japan (3,739) 10,443 (51,649)
Phillipine 244 497 573
Korea 492 2,403 3,161
Sri Lanka (4) (29) (42)
Taiwan 2,299 945 5,926
Thailand 327 299 842
China (62,400) (105,410) (343,020)
Pakistan 71 56 (45)
Vietnam 3 (34) (82)
BSC’s relevant reports: Pnote 1 & Pnote 2
752,03 621,88
699,31
880,58
400
500
600
700
800
900
1000
1100
1200
01/15 07/15 01/16 07/16 01/17 07/17 01/18 07/18
Bear Bull Average
Fearless forecast 2016 -2018
• Vnindex is the biggest loser compare to Asean stock markets. June 2016, Vnindex broke 2009 top of 624 points.
• Since 2009, Asean stock market passed 2007’s top by a huge percentage.
• Indonesian index has increased the most, while Singapore performed the least.
• China the most underperform in Asia has extreme 1 year rocket from June 2014.
• What if Vnindex can recover at the same speed as Asean indexes 2009 - 2012
• Let your imagination go wild:
• Vnindex 699 at the end of 2016
• Vnindex 752 to 880 at the end of 2017
Source: BSC
Fearless forecast 2016 -2018: Valuation
• PE index broke the downtrend since 2014 and moving in the range of 5 year median 12.02 to +1 SD 13.72.
• Short term correction or accumulation are likely to happen when P/E index have strong resistance at + 1 SD.
• Longterm view, Vietnam market is still deeply discount compare to peers in Asean.
• Second half 2016 : The multiple is likely to be flat at 13.72 if USD/VND and VND interest rate stable.
• Bull case: P/E 13.72 (+1 Sdtv)
• Bear case: P/E 12.0 (5 years average)
Source: BSC
10,76
9,21
14,82
12,02
13,72
5
10
15
20
1/4/10 1/4/11 1/4/12 1/4/13 1/4/14 1/4/15 1/4/16
Vnindex P/E Avg -1.65Sdtv Avg +1.65Sdtv
Avg Avg -1Sdtv Avg +1Sdtv
Fearless forecast 2016 -2018: growth
• 2015: Market trailing EPS has been improving steadily in the last 4 years. Market is driven by earning more than multiples. EPS grow 9,7% in 2015
• 2016 : We expect EPS continue to climb 8% (less than previously prediction of 10%) due to:
• Lower GDP growth : 6.3% to 6.4%
• Lower Credit growth
• Commodities price recover sooner
• World economy is weaker than expected
• Vnindex can vary from :
• Bull case: 758
• Bear case: 614
Source: BSC
56,331
58,8915
51,21
53,7705
30
35
40
45
50
55
60
65
2010 2011 2012 2013 2014 2015 2016
Vnindex EPS
Trailing 12M Earnings per Share Best Worst
What make the market feeling hope and fear • ETF Foreigner inflow season (yes or no)
• Earning season and shareholder meeting and promising (3th Quarter)
• Foreign Ownership limitation list (more stocks to applied)
• State divest good companies
• More FTAs (we have more than enough)
• Market upgrade is long journey (Quatar need 7 years)
• New policies: buy and sell at the same time, T+0, Future (2017)
• Commodities fall again
• China tension in East sea
• ETF, P-note outflow season, Foreigner net sell
• FED, PBOC and exchange rate
• Rising interest rate
• State divest too fast and too many
Thanks for your supports and confidence in us
Long Tran Head of research
Please feel free to contact me at
E Longtt@bsc.com.vn
P +84 4 39352722 (118)
M +84 906 959 034
S rongbeo
BSC
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