EXPLORING INSTITUTIONAL INVESTMENT OPPORTUNITIES IN VIETNAM Dr. - - PowerPoint PPT Presentation

EXPLORING INSTITUTIONAL INVESTMENT OPPORTUNITIES IN VIETNAM

• Dr. Tuan Le Anh

Deputy CIO, Head of Research, Portfolio Manager Dragon Capital

2

MACRO AND MARKET PERSPECTIVE

13 Jan 1 Apr -23 Apr FIRST WAVE: CONTAINED Social distancing starts Shut-down all unnecessary business Masks required in public places First case arrives in VN

• 13 Jan to 23 Apr
• Strict lockdown, extensive testing
• 415 cases, 395 recovered
• 106 local, 309 imported, 0 deaths
• 75,969 quarantines

SECOND WAVE: SAME AGAIN?

Local Imported

309 106

• 25 Jul to present (11 Aug)
• Instant resumption of tracking
• 432 cases, 04 recovered
• 389 local, 43 imported, 13 deaths
• 182,267 quarantines

352 495

New case in Danang at height of holiday season Tourist evacuations 25 Jul Aug

NO NEW LOCAL CASES IN 99 DAYS FULL RE-OPENING OF NORMAL SOCIAL & ECONOMIC LIFE

PEAK CASE PREDICTION

• Peak total case: Lower than one day

in other countries Some soft lockdowns may be imposed Spreading of local cases ex-Danang 15 Aug

841 1,500 2,500 3,500

Current Best Base Worst MOH predicts that Vietnam will reach its peak cases

VIETNAM’S SECRET

► EXPERIENCE FROM SARS ► COMMUNITY INFORMATION ► AGGRESSIVE TESTING / TRACING ► AGGRESSIVE QUARANTINING

Danang

272

Nearby

74

Others

29

Saigon

8

Hanoi

6

Source: Vietnam News Agency, Ministry of Health, DC

Vietnam: COVID-19 Containment

World Leader in COVID-19 Testing

NUMBER OF COVID-19 TESTS PER CONFIRMED CASE, 6 MAY 2020

Source: Our World in Data; European CDC

5 6 6 7 7 8 9 11 12 13 17 18 18 23 26 29 30 35 37 60 101 141 150 967 100 200 300 400 500 600 700 800 900 1000

United… France United States Sweden Singapore Indonesia Bangladesh Italy Japan Philippines Germany Austria Portugal Norway India Thailand Russia Malaysia South Africa South Korea Australia New Zealand Taiwan Vietnam

• 1. Economy Weakens Under COVID-19

BACK TO WORK – VINFAST BACK TO WORK – SAIGON METRO BEN THANH THU THIEM BRIGDE 2 – EXPECTED TO INAUGURATE IN DEC 20 BACK TO TRAFFIC JAMS

• 1. Economy Weakens Under COVID-19

UNEMPLOYMENT RATE AVERAGE INCOME FELL IN 2Q20

• 5.1
• 2.8
• 5.1
• 7.3

(9.0) (8.0) (7.0) (6.0) (5.0) (4.0) (3.0) (2.0) (1.0)

• Total

Agriculture Industries Services

%

1.7 1.9 2.1 2.3 2.5 2.7 2.9 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 Jun-18 Dec-18 Jun-19 Dec-19 Jun-20

%

VIETNAM 2Q20 GDP: LOWEST IN 20Y

(35) (30) (25) (20) (15) (10) (5)

• 5

US FRA ITA PHIL POR BEL SGN GER INDO KOR VN CN

BUT, AMONG POSITIVE COUNTRIES

VIETNAM PMI 2016-20

30 35 40 45 50 55 60 Jul-18 Nov-18 Mar-19 Jul-19 Nov-19 Mar-20 Jul-20

Urban: 3.6% Rural: 1.6%

% Source: GSO

• 2. But Macro Stability Prevails

(689) (325) (68) (117) (850) (650) (450) (250) (50) 2020 2016 2011 2008 0.00 0.25 0.50 0.75 1.00 1.25 1.50 1.75 2.00 2.25 Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20 Jul-20

…LOW RECEIPTS FROM TOURISM & REMITTANCE BIGGEST EQUITY OUTFLOW EVER AND… BUT: RECORD-HIGH FOREIGN RESERVES AND… … CURRENCY PERFORMANCE AMONG BEST YTD

$m $bn mn visitors

0.94 1.00 1.06 1.12 1.18 1.24 1.30 1.36 1.42 1.48 1.54 Dec-19

`

63.3 71.5 77.2 80.0 85.3 10 20 30 40 50 60 70 80 90 100 2016 2017 2018 2019 2020 Source: FiinPro, BBG, DC

• 2. But Macro Stability Prevails

MUTED INFLATION DESPITE RECORD PORK PRICE CREDIT GROWTH (YOY) STILL POSITIVE SBV CUTS POLICY RATE BY 100-125 BPS… … AND LOWERS LENDING INTEREST RATE

• 2

4 6 8 10 12 14 16 Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 Jul-17 Jul-18 Jul-19 Jul-20 Target 4% 8.0 8.5 9.0 9.5 10.0 10.5 11.0 Apr-15 Jan-16 Oct-16 Jul-17 Apr-18 Jan-19 Oct-19 Jul-20

Financing support to businesses

7 9 11 13 15 17 19 21 23 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Jun-18 Jun-19 Jun-20

• 1

2 3 4 5 6 7 Discount rate OMO rate < 1 Month deposit rate < 6 Month deposit rate Beginning of 2020 After 17 Mar 2020 After 13 May 2020 After 1st Jul 2020

• 2. But Macro Stability Prevails

PUBLIC DEBT/GDP: NO NEED TO WORRY

62.2 63.7 61.4 58.4 56.1 54.3 2.8 1.3 3.6 6.6 8.9 10.7 47 49 51 53 55 57 59 61 63 65 2015 2016 2017 2018 2019 2020F 1 2 3 4 5 6 2015 2016 2017 2018 2019 6M20 2020F

FISCAL DEFICIT - PLENTY OF ROOM ESPECIALLY WHEN BORROWING COST AT RECORD LOW

1 2 3 4 5 6 7 8 Mar-15 Dec-15 Sep-16 Jun-17 Mar-18 Dec-18 Sep-19 Jun-20

5y- Gov Bond Yield 10y- Gov Bond Yield 15y- Gov Bond Yield

3.5 4.0 4.5 5.0 5.5 6.0 6.5 7.0 2015 2016 2017 2018 2019 2020

PUBLIC INVESTMENT UP 20% 1H20 DESPITE COVID-19

% % % $bn

• 3. Benefiting From External Factors

SHIFT IN GLOBAL SUPPLY CHAIN: VIETNAM IS THE MAIN WINNER

• 3. Benefiting From External Factors

SHIFT / PLAN TO SHIFT TO VIETNAM DUE TO COVID FDI VIETNAM 7M20: NOT BAD SOME COUNTRIES SUBSIDIZED COMPANIES TO MOVE TO VN

Hard disk drive manufacturers Electronic devices providers Medical gear and personal protective equipment Original technologies and products provider Chemical corporation

8.6 9.0 9.8 10.6 10.1 12.9 21.9 22.9 20.2 18.8 5 10 15 20 25 30 35 2016 2017 2018 2019 2020 7M FDI Registered 7M FDI Disbursed

$bn

• 3. Benefiting From External Factors

Implied Winning Prob Trump 33% Biden 61%

• Biden emphasized the need (July debate) to join TPP to compete with China
• Huge benefit for Vietnam if it becomes reality
• Biden seeks to decrease bilateral and military tension against China
• Unlikely to significantly revert the supply shift from China to other countries

US 2020 ELECTION: POTENTIAL POSITIVE SURPRISE

13

LONG TERM SUPPORTS AND PROBLEMS

Supported by Long Term Drivers

59.8 45.7 40.0 33.2 31.0

22.6 38.1 38.4 43.3 46.0

17.6 16.2 21.6 23.5 23.0

5 10 15 20 25 30 35 40 45 50 55 60 65 70 2001 2005 2014 2018 2019 SOE Sector Private Sector

12m 33m

2012 2020 NUMBER 1: MIDDLE CLASS IS RAMPING UP…HUGE CONSUMPTION

• Air Travel: 14m flights in 2011  52m in 2018
• Smartphone : 30% in 2012  86% in 2018
• Salary: 1000+ listed companies $950/mo average for

1.5mil employees

• SOEs : commander of the economy until 2011
• Private Sector: double its contribution whilst SOEs

reduces by half

• Improving Productivity: as private sector takes

control NUMBER 2: PRIVATE SECTOR OVERTOOK SOES – BETTER EFFICIENCY

Supported by Long Term Drivers

NUMBER 3: GLOBAL SUPPLIER- THE BENEFIT OF GETTING LARGER SCALE

• Global Supplier: 200% trade / GDP indicates

Vietnam’s transformation into a global manufacturing powerhouse

• Scale Matters: unit production cost declines thanks to

economy of scale, much overweighting the increase wages

• Bank Centric Economy: VN used to rely 100% on

bank credit to fuel the economy

• Evolving Capital Market: the combined equity and

corporate bond markets almost as important as the bank credit NUMBER 4: EVOLVING CAPITAL MARKET REDUCES RELIANCE ON BANKS

184 186 198 220 238 261 150 162 177 214 243 264 148 166 174 211 237 253

50 100 150 200 250 300 350 400 450 500 550 2014 2015 2016 2017 2018 2019 GDP

IMP

• 50

100 150 200 250 300 12 13 14 15 16 17 18 19 Market Cap Total Credit

Infrastructure Problems

6.8 3.0 3.2 4.4 5.3 5.9 13.7 14.1 13.1

• 1

2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 2011 2012 2013 2014 2015 2016 2017 2018 1H 2019

Funds Pile up as Spending Stalls

STATE BUDGET MONEY AT SOCBs

1H19

Summary

Covid19 Situation: Serious but Controllable

• Second wave is likely to peak in Aug. Selective social distancing is applied.

Impact on the Economy: Weakening

• 2020 GDP growth is 1-2%, revising down from 3.5% pre-second wave
• Highest unemployment and underemployment in 11 yrs.

Impact on Stability: Improving

• Muted on inflation, record high currency reserve
• Good liquidity in the system and good stance on fiscal and debt

Impact from External Factors: Benefiting

• Major supply shift to Vietnam
• US election may benefit Vietnam

Long Term Supporting Factors and Problems: More tailwinds and headwinds

• Middle class, private sectors, and manufacturing powerhouse drive the economy
• Infrastructure is lagging behind

18

MARKET PERSPECTIVE

Market During COVID-19

650 700 750 800 850 900 950 1,000

• 100
• 80
• 60
• 40
• 20

20 40 60 80 100 3-Jan 2-Feb 3-Mar 2-Apr 2-May 1-Jun 1-Jul 31-Jul

Net Foreign Flow (LH) VN Index (RH)

PRE-COVID POST-COVID

NET FOREIGN FLOWS, 2020

$m Source: Bloomberg, DC

VNI

DOWN 33% UP 28% FROM BOTTOM STILL DOWN 13% YTD

106 832 (123) (834)

• 1,000
• 800
• 600
• 400
• 200

200 400 600 800 1,000 Retail Investors Management & Treasury Local Institutions Foreign Investors

Source: FiinPro, DC $m

2.22 1.69 0.0 0.5 1.0 1.5 2.0 2.5 Dec 2019 Aug 2020

DOWN 23%

RETAIL MARGIN LENDING INVESTORS NET FLOW DURING COVID-19 (FEB-AUG)

$bn

Who Drives the Market Down / Up

2020 Earnings

%

UNADJUSTED TOP-60 NPAT, 2020-21F

• 24.9
• 17.0
• 12.5
• 5.0
• 14.0

27.5

• 30
• 25
• 20
• 15
• 10
• 5

5 10 15 20 25 30 1Q20 2Q20 3Q20 4Q20 2020 2021

Full Year

%

Market Value / Growth Story Intact

DC TOP-60 EARNINGS ADJUTED FOR FREE FLOAT 31-Jul-20 unit 2019 2020F 2021F PER x 12.1 11.2 9.6 EPS Growth % 11.7

• 1.9

17.9 Sales Growth % 10.0 7.8 20.0 NPAT Growth % 12.9

• 1.7

17.9 Net DER x 0.3 0.2 0.2 PBV x 2.1 1.7 1.5 ROE % 19.2 16.2 17.1 Yield % 1.7 1.5 1.9

Source: Bloomberg, DC

Comparative Valuations 2020F

VIETNAM VS PEERS – PER / EPS GROWTH – 31 JUL 2020

VIETNAM PHILIPPINES INDONESIA INDIA THAILAND MALAYSIA CHINA

8 10 12 14 16 18 20 22 24 26 28

• 32
• 30
• 28
• 26
• 24
• 22
• 20
• 18
• 16
• 14
• 12
• 10
• 8
• 6
• 4
• 2

2 4

PER (x) EPS GROWTH (% LCY) Sources: DC, Bloomberg, Credit Suisse / Refinitiv; all markets adjusted for free floats

Healthy Developmental Track

0 1 1 1 2 2 2 5 6 6 6 7 10 12 15 21 32 39 41 44 50 64 87 90 219 232 235

50 100 150 200 250

GHAN LEBN TUNI MAUR TANZ BHRN JAMA JORD SRIL OMAN KENY PERU NGRA ARGN MORO CZEC EGYP COLM HUNG PAKI UAER QATR KUWT PHIL MALY VIET PLND MEXI INDO RUSS SAFR SAUD THAI TURK INDI BRAZ CHIN

2 4 5 5 8 9 12 15 17 18 18 22 23 29 38 42 46 53 69 81 84 136 150 164 207 211

50 100 150 200 250

GHAN TANZ MAUR LEBN TUNI JAMA SRIL OMAN JORD KENY BHRN CZEC HUNG NGRA ARGN EGYP PAKI MRCO PERU COLM KUWT PLND QATR VIET TURK PHIL UAER MEXI SAFR MALY INDO THAI RUSS BRAZ INDI SAUD CHIN

Source: Bloomberg, DC $m

MSCI-EM Country

EM / FM AVERAGE DAILY TURNOVER – 12 MO’S

VIETNAM

$bn

VIETNAM

EM / FM MARKET CAP – 31 JULY 2020

MSCI-EM Country

Market: Problem – FOL’S

LEADING FOL STOCKS

*Foreign prices and liquidity are based on transactions monitored by Dragon in conjunction with brokers

Company 31-May-20 2020 PER (x) 2020 PBR (x) Local Price (VND) Foreign Price* (VND) Premium (%) Total 1mo Volume ($m) Local Foreign* Techcombank 6.7 1.0 21,300 22,800 7.0 69.6 3.0 VP Bank 7.0 1.2 24,550 26,200 7.0 175.9 6.0 Military Bank 5.2 0.9 17,850 19,100 7.0 122.2 4.3 Asia Commercial Bank 6.3 1.3 25,100 27,600 10.0 93.8 3.5 MobiWorld Group 9.2 2.5 86,000 125,000 45.0 109.7 5.0 FPT Corporation 12.1 2.6 48,300 58,000 20.0 114.8 5.0 Phu Nhuan Jewelry 12.2 2.5 63,900 68,400 7.0 72.4 2.0 Nam Long Group 7.0 1.0 23,550 25,200 7.0 26.6 1.0