Ho Chi Minh City Securities Corporation Vietnam Economy and Stock Market FY2018 outlook Fiachra Mac Cana Head of Research and Managing Director www.hsc.com.vn
Macro Outlook the cyclical recovery to continue HSC forecasts CPI will quicken to 4.3% y/y in 2018 on higher food and fuel prices. We also expect the VND will depreciate by some 2% as normal pressures return. And predict credit growth of 18% y/y as M2 expands by 16% y/y. With deposits also growing by some 16% y/y. We estimate average interest rates will increase by 30 bps as the era of low interest rates draws to a close. And that bond yields will rise by some 50 bps. HSC then forecasts GDP growth of 6.42% y/y. With most segments other than mining growing steadily. We believe the trade surplus will expand by 75% y/y as exports continue to thrive. ODA will decline as the World Bank reduces aid given Vietnam s confirmed status as a middle income country. However remittances should remain stable and at high levels. While we expect FDI will increase by 15%. We see the budget deficit expanding a little to 3.7% of GDP. After the FY2017 likely narrowed substantially to just 3.4%. New sources of revenue such as equitizations have brought in far more than expected thus easing the fiscal situation considerably.
Macro plus and minus for 2018 Key positive and negative factors for the Vietnamese stock market in 2018 Macroeconomic changes Importance level Likelihood in next 3 months Likelihood in next 6 months GDP grow th to remain fairly stable in 2017 Primary High High High As inflation accelerates tow ards 4% Primary Low High High Currency to depreciate at a faster rate Primary Low Medium High Manufacturing and consumer sectors to grow faster Secondary Medium Medium High Recovery in agriculture to continue as prices grow Secondary Medium Medium High Mining and resource sector output to fall hard Secondary High High High Likelihood in next 12 months Some movement on regional trade pacts Tertiary Low Low Medium Monetary policy changes Credit grow th and M2 to decelerate slightly in 2018 Primary High High High Interest rates to increase at a moderate pace Primary Low Medium High Liquidity gap to remain negative for now Primary High Medium Low Fiscal policy changes and BOP Budget deficit to narrow as new revenue sources kick in Primary Medium High High Trade surplus to double as export grow th accelerates Primary High High High Currency reserves to build on BOP surplus Primary High High High Decline in ODA w ill have a minor impact Primary High High High FDI to continue to increase Primary High High High Structural changes SOE equitisation to continue at a steady pace Primary Highj High High Addition of covered w arrants and possible exchange merger Secondary Low High High Other changes Continuing interest in M&A as foreigners look to snap up assets Primary High High High Cleanup of bank sector management to continue Secondary High High High Regional geopolitical tensions to rise Primary Medium Medium High Global stock markets likely to more volatile as bull market matures Primary Medium High High Taper tantrum risk at some of very high Primary Low Medium High
Manufacturing will accelerate
Manufacturing will accelerate
Manufacturing will accelerate
Manufacturing will accelerate
Retail sales are popping
Retail sales are popping
Retail sales are popping
Construction is doing well
Construction is doing well Residential unit launch plans for 2018
Mining will continue to decline
Mining will continue to decline Oil production output by oilfie ld '000 Bbl pe r day 2005 2010 2015 2017E Bach Ho 234.1 134.5 82.5 43.0 Ca Ngu Vang - 23.3 25.2 19.5 Tho Trang - - 19.8 28.9 46CN 39.9 18.4 25.6 18.2 Phuong Dong - 21.9 9.6 2.1 Chim Sao - - 46.9 54.6 The Giac Trang - - 36.4 35.2 Dai Hung 6.9 11.0 18.5 20.7 Rang Dong 75.9 33.4 50.3 38.4 Ruby 11.3 10.8 9.1 6.7 STD 10.5 39.7 12.9 3.6 Others 10.6 16.2 25.2 26.4 Total 389.2 309.1 361.9 297.3
M2 is growing slower than credit as SBV gradually drains liquidity
CPI was lower than expected
Core CPI still in decline.
CPI will accelerate this year
Interest rates are at the bottom
Short term rates have moved higher recently
Risks are all external Risks for the global market & economy in 2018 Risks Impact on Vietnam's economy & stock market Risk w eighting Federal Reserve Bank balance sheet w inddow n shock Medium to high Bond yields w ill spike gobally Spillover in currency and equity markets Risk-off mentality w ill lead to FII outflow s Sabre rattling on trade High Canada w arns US may signal intent to leave NAFTA next month Tough talk from US on China continues Core inflation m ay surge later this year Low to medium Headline inflation w ill follow after a quarter or tw o Global interest rates w ill spike Spillover into equity markets and real economy Geopolitical risk might spill over Medium Sudden w ithdraw al of capital from frontier and emerging markets Risks to currency; FDI and underlying economy
QE unwinding may be most significant risk over the medium to longer term
QE unwinding may be most significant risk over the medium to longer term Total Assets of all U.S. Federal Reserve Banks Billions 4,800 4,400 4,000 3,600 3,200 2,800 2,400 2,000 1,600 1,200 800 400 2002 2003 2003 2003 2004 2004 2004 2005 2005 2005 2006 2006 2006 2007 2007 2007 2008 2008 2008 2009 2009 2009 2010 2010 2010 2011 2011 2011 2012 2012 2012 2013 2013 2013 2014 2014 2014 2015 2015 2015 2016 2016 2016 2017 2017
QE unwinding may be most significant risk over the medium to longer term
Core inflation is slowly picking up speed as output gap closes Core CPI in leading global economies (y/y) 3.5% 3.0% US Core CPI (y/y) China Core CPI (y/y) Japan Core CPI (y/y) 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% -0.5% -1.0% -1.5% -2.0% Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17
Stock Market Outlook
Stock market is being driven by margin lending and foreign net buying
Margin lending is not excessive
Foreigner were aggressive net buyers in 2017. Foreign net buying of equities (FY2007-2017 YTD) HoSE HaSTC Total Total in US$ million FY2007 22,875 2,865 25,740 1,225.7 FY2008 5,827 554 6,381 303.9 FY2009 3,177 370 3,546 168.9 FY2010 15,367 823 16,191 771.0 FY2011 1,263 642 1,905 90.7 FY2012 3,321 1,083 4,404 209.7 FY2013 5,502 1,304 6,806 324.1 FY2014 2,155 877 3,031 144.4 FY2015 2,095 788 2,883 137.3 FY2016 (8,997) 959 (8,038) (354.1) FY2017 26,431 (308) 26,123 1,150.8
Foreign buying was a lot bigger when you include it all HSC estimation of total foreign net buying of Vietnamese equities in 2017 Foreign buying categories VND billion US$ Net foreign buying through normal market operations HoSE 26,431.00 HaSTC (308.00) Total in FY2017 26,123.00 1.15 Estimated net foreign buying of major private placements VJC 1,894.0 NVL 1,367.4 NKG 810.0 VGC 1,800.0 VPB 6,423.9 HDB 3,139.2 Total in FY2017 15,434.5 0.68 Estimated net foreign buying of major auctions and IPOs Post and Telecommunication Tourism Joint Stock Company 365.07 Vietnam Urban and Industrial Zone Development Investment Corporation (IDICO) 990.02 Vietnam Dairy Products Joint Stock Company 8,990.01 Investment and Industrial Development Corporation 330.02 Saigon Beer - Alcohol - Beverage Corporation 109,972.03 Investment and Industrial Development Corporation 155.00 Total in FY2017 120,802.2 5.32 Estimated grand total 162,359.64 7.15 This is a rough estimate using selected corporate actions given a lack of published information
Daily turnover spiked in November on aggressive foreign buying.
Deja vu market themes just like last year Earnings market continues into a second year 27 out of TOP70 stocks expected to see NPAT growth plus 18% y/y Financial services stocks will see accelerated earnings this year Real estate stocks will see strong earnings this year Consumer stocks should see moderate growth Resource stocks earnings will rebound this year Equitisation and listing progress to continue at same pace Reduction of government stakes in VNM; BHN; VGC; DPM; BMP & FPT. Possibly BMI & GAS Private placement and listing of Yeah1; OCB; Techcombank; Ben Thanh Group. Coming IPOs of PVPower; PV Oil; VRG; VICEM & possibly MobiFone. HoSE upgrade for ACV & VIB. Economy will continue to grow GDP growth close to 6.5% Agriculture to do a bit better. As will services. Manufacturing improving and construction decelerate a little. Mining will be a major drag. Credit growth little slower. Exports growing faster. While FDI looks solid.
Global equities look expensive especially if interest rates rise
TOP70 forward PE based on HSC numbers looks a bit expensive Top 70 - Forward PE 21.0 19.0 [VALUE] 17.0 15.0 13.0 11.0 9.0 9-Jan-14 9-Apr-14 9-Jul-14 9-Oct-14 9-Jan-15 9-Apr-15 9-Jul-15 9-Oct-15 9-Jan-16 9-Apr-16 9-Jul-16 9-Oct-16 9-Jan-17 9-Apr-17 9-Jul-17 9-Oct-17 Times
Earnings are still there Summary forecast sheet for Top 70 companies Aggregate FY2013 FY2014 y/y FY2015 y/y FY2016 y/y FY2017e y/y FY2018F y/y Net aggregate sales 894,963,344 992,801,505 10.9% 1,012,252,800 2.0% 1,133,279,786 12.0% 1,371,998,561 21.1% 1,607,411,595 17.2% COGS 694,798,069 767,099,681 749,450,531 820,214,019 993,790,544 1,154,218,409 Gross profit 200,165,276 225,701,824 12.8% 262,802,269 16.4% 313,065,767 19.1% 378,208,017 20.8% 453,193,186 19.8% Gross profit margin 22.4% 22.7% 26.0% 27.6% 27.6% 28.2% Operating profit 117,180,818 125,944,463 7.5% 139,031,301 10.4% 164,387,581 18.2% 202,191,264 23.0% 235,696,610 16.6% Pretax profit 106,329,745 107,280,350 0.9% 114,981,709 7.2% 137,147,656 19.3% 163,132,277 18.9% 194,770,981 19.4% Net profit 77,270,281 80,816,748 4.6% 87,483,622 8.2% 105,755,874 20.9% 125,151,933 18.3% 147,963,867 18.2% Net profit margin 8.6% 8.1% 8.6% 9.3% 9.1% 9.2% Average OS. 32,680,202,988 35,289,841,672 39,315,911,765 43,657,589,808 46,741,705,639 48,780,799,627 EPS 1,584 1,657 4.6% 1,793 8.2% 2,168 20.9% 2,566 18.3% 3,033 18.2% BVPS 14,995 15,373 15,935 15,608 16,371 18,149 ROA 9.05% 8.03% 7.32% 10.45% 10.67% 10.87% ROE 15.77% 15.65% 14.97% 16.17% 17.30% 17.93% PE 19.64 19.07 19.07 17.86 21.58 18.44 PB 3.14 2.82 2.65 2.70 3.43 3.01
Banks & manufacturing should see acceleration in net profit growth TOP70 earnings by sector Unit: VNDmillion Net Profit y/y% Sector earning FY2014 FY2015 FY2016 FY2017e FY2018F FY2015 FY2016 FY2017e FY2018F Financial service 33,666,647 32,106,789 35,378,307 44,955,716 65,851,098-5% 10% 27% 46% Consumer 13,278,666 20,473,397 19,379,856 23,582,966 26,656,094 54% -5% 22% 13% Manufacturing 4,662,837 5,644,465 9,797,567 10,124,328 12,775,104 21% 74% 3% 26% Real Estate 6,465,407 6,227,505 10,562,351 15,108,238 18,552,054-4% 70% 43% 23% Energy 20,412,209 17,358,825 15,244,070 14,330,400 16,077,437-15% -12% -6% 12% Technology 1,701,928 2,060,156 2,113,805 2,476,794 2,762,790 21% 3% 17% 12% Transportation 2,990,771 3,388,437 9,713,437 11,036,089 13,481,645 13% 187% 14% 22% Pharmaceuticals 619,052 681,611 811,280 879,490 942,019 10% 19% 8% 7% Logistics 779,043 681,618 632,875 2,694,926 753,386-13% -7% 326% -72% Utilities 1,403,977 812,272 801,022 1,182,906 1,049,160-42% -1% 48% -11% Retails 2,405,113 4,092,673 6,004,572 5,766,116 6,795,038 70% 47% -4% 18%
To sum up the equity market environment Promise of a significant increase in earnings continues to drive the VN index higher Foreign net buying is driving prices with margin playing a supporting role. Valuations at multi year highs VN index should approach 1200 this year. We sill recommend - BUY earnings
Contact Fiachra Mac Cana Head of Research and managing director Tel.: +84 Fax: +84 E-mail: Visit our website: www.hsc.com.vn