SSI Vietnam - Market - Outlook - 2020 - The - Elusive - Cheese - Hunt - 20200124

SSI – RESEARCH RESEARCH & ADVISORY CENTER
08 February 2019
SUMM
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Table of Contents
Vietnam Market Outlook 2020: The Elusive Cheese Hunt ..................................................................................................... 4
2019 Stock Market Review ........................................................................................................................................... 6
2019 macro review: Flying majestic over the cloudy sky ................................................................................................. 8
2020 macro outlook .................................................................................................................................................. 15
SECTOR IN FOCUS .......................................................................................................................................................... 20
CONSUMER DISCRETIONARY .......................................................................................................................................... 21
Textile & Garment: Negative: Headwinds continue to undermine growth .......................................................................... 21
Retail: Neutral: Low double-digit, but stable industry growth .......................................................................................... 26
Automobile: Positive: Still grow but at lower rate ........................................................................................................... 33
CONSUMER STAPLES...................................................................................................................................................... 38
Fisheries: Negative: Flat to negative growth in export value expected ............................................................................... 38
Dairy: Negative: Single digit growth continues .............................................................................................................. 43
Beer: Neutral: Low double-digit growth but high valuation .............................................................................................. 48
OIL & GAS ....................................................................................................................................................................... 52
Neutral: Growth trending to small companies .................................................................................................................... 52
REAL ESTATE ................................................................................................................................................................... 60
Commercial Developers: Neutral: Uncertainty ahead of regulation overhaul ........................................................................... 60
Industrial Park Developers: Positive: Industrials steam on ................................................................................................. 71
FINANCIALS ..................................................................................................................................................................... 76
Banking: Positive: Double digit growth to continue ............................................................................................................. 76
Insurance: Neutral: Improved underwriting profit to offset weaker investment yield ................................................................... 88
Brokerage: Neutral: Fierce competition hampers earnings growth story ................................................................................. 94
HEALTHCARE - PHARMACEUTICALS ................................................................................................................................. 100
Neutral: Competitive advantages for local drug firms that adhere to high standards.................................................................. 100
INDUSTRIALS................................................................................................................................................................. 106
Seaport & shipping: Negative: Competition rife .............................................................................................................. 106
Airport services: Neutral: Traffic volume continues positive growth momentum despite capacity constraints in key airports ........... 111
Airlines: Negative: Rising competition casts a shadow on growth ....................................................................................... 115
Construction: Neutral: Still waiting for property sector turnaround ....................................................................................... 119
INFORMATION TECHNOLOGY - IT...................................................................................................................................... 122

Positive: Sustained growth momentum .......................................................................................................................... 122
MATERIALS ................................................................................................................................................................... 125
Steel: Negative: Demand tends to slowdown .................................................................................................................. 125
Cement: Neutral: Another year of single digit growth ........................................................................................................ 130
Fertilizer: Negative: Low growth from cyclical El-Nino pattern ............................................................................................ 133
UTILITIES....................................................................................................................................................................... 137
Electricity: Negative: Unstable fuel supply input............................................................................................................... 137
Water: Neutral: Stable Growth ..................................................................................................................................... 142

Vietnam Market Outlook 2020: The Elusive Cheese Hunt

The Vietnam market exhibited a modest performance in 2019, characteristic of contracted market P/E levels. Despite the fact that NPATMI
of stocks under our coverage increased by 14.5%, the VN Index only increased by 7.7%. The market as a whole lacked long-awaited
catalysts, such as improvement in market access for foreign investors, and there was also a delay in the privatization process - one of
the much anticipated events likely to spark a revival and shake the market out of its doldrums. Although the macroeconomic picture is
bright while even outperforming most countries in the world in terms of GDP and other key economic metrics, limited market access for
foreign investors results in inflows mainly through the ETFs.
ETFs were rather active in 2019, with total net inflows of roughly $220 mn USD. All 5 ETFs that established significant e xposure to the
Vietnamese stock market received positive inflows last year. Among these, VFMVN30 ETF and VanEck Vectors Vietnam ETF received
most of this capital, approximately $100 mn USD each. Launched in July 2019, the Premia Vietnam ETF is the latest fund to join the club,
but its contribution was modest for a start, at $2.4 mn USD. The SSIAM VNX50 ETF and DWS FTSE Vietnam Swap UCITS ETF variants
attracted net inflows of $2.5 mn USD and $14.9 mn USD respectively.
When looking at catalysts for the market, we see that 2020 is shaping up to be another promising year for ETFs, with various newcomers
stepping up to the plate. The SSIAM VNFIN Lead ETF has just recently completed its IPO as of early January 2020, and is awaiting listing
approval from the SSC. Many other ETFs are in the process to be launched soon, and are potential drivers for fund flow this year.
Chart: Accumulated ETF Fund Flows in 2019 (USD mn)
Source: Bloomberg Terminal, SSI Research
2020 should be a year that sees a number of new important laws and regulations get approved. Among the list, we are expecting the
Enterprise Law and Investment Law to provide new guidelines for foreign ownership limits (which might legalize the NVDR trading
mechanism). Another key piece of legislation is Decree 32 on SOE divestment, which will streamline the incentivization towards
divestment (at least in small-sized SOEs).
In terms of new supply for the market in 2020, SOE divestment might make new strides ahead. However, actual IPO activity might see
another quiet year, as it takes time for large SOEs to complete the land valuation process. Notably, for SOEs under the HCMC’s People
Committee, such as Satra and Saigontourist, 2020 is the deadline for their IPOs to formally kick off. Although we still might see some
delays regardless of the deadline, these should be on investors’ watch list nonetheless. Given the above information offering us a clue

on what areas the government considers a priority, we hold the view that the Vietnamese market is not expected to be upgraded to
emerging market status until 2022.
In short, we expect another bright year in terms of both macroeconomic performance and corporate earnings. For a typical year before
the election, though, the stock market might still not see many additional catalysts. In a bear case scenario, the market might be similar
to that of 2019. However, we note a variety of factors that can make the market in 2020 more positive than 2019: (1) We expect both
deposit and lending rates to be kept at a lower level than 2019, despite higher inflation expectations. (2) Continuous ETF inflows; (3)
Comparatively low market valuation, priced in largely from the conservative, risk-averse view of local retail investors.
Given our base case that market P/E ratios will not expand in 2020 due to a lack of catalysts, we forecast the VNIndex to step up 10-
15% in line with earnings growth, translating to a range of 1057-1105 by the end of the year. Looking over the long term, it is likely that
all new regulations designed to fulfill the needs of the market will be in ready in 2H 2021. Local market participants, knowing that the
right regulations are now in place, might shift their market sentiment and apply a longer term view and plan. This could also in turn help
boost sentiment of the Vietnamese stock market as a whole. Given the bottlenecks present in some key areas such as public investment
in infrastructure, the privatization process, or stock market structure, Vietnam needs to apply a sense of urgency to clear these roadblocks
in order to maximize growth momentum and efficiency within the period of the golden demographic window, a race to achieve a certain
and defined vision for the economy before the population starts to age quickly in 7-10 years from now.
In 2020, growth companies continue to be our top picks. Banks are expected to deliver higher growth among the sectors, as Vietnam is
still a country undergoing rapid creditization of the national economy. Accordingly, banks are experiencing a rise in trends of both retail
loan and bancassurance product distribution, while NPLs remain kept at a low level. Companies under our coverage are estimated to
post 14.8% of NPATMI growth in 2020. If excluding banks, forecasted growth is 11.2%.
SSI Research’s most preferred stocks

% Target Current Market Foreign PER Dividend yield (%) ROE (%) Net profit growth (%)
Upsi Price Price Cap (mn Ownership
2018 2019 2020 2018 2019 2020
Ticke de (VND) (VND) USD) (%)
Company Name
r 21- 21- 21- 21- 21- 21- 2018 2019 2020 2018 2019 2020
In 21-Jan-
In 1yr 21-Jan-20 21-Jan-20 Jan- Jan- Jan- Jan- Jan- Jan-
1yr 20
20 20 20 20 20 20
MSH Song Hong Garment JSC 37% 64,000 46,550 100 8% 4.6 5.4 5.1 9% 10% 9% 44% 42% 36% 85% 18% 7%
Mobile World Investment
MWG 62% 192,800 119,200 2,331 49% 17.8 14.0 10.9 1% 1% 1% 39% 36% 35% 31% 34% 32%
Corp
PetroVietnam Drilling & Well
PVD 22% 18,200 14,950 272 19% 41.5 59.8 29.7 0% 0% 0% 1% 0% 1% 381% -64% 197%
S
PetroVietnam Technical
PVS 17% 21,500 18,300 377 21% 9.0 15.7 12.1 7% 4% 4% 5% 6% 8% -47% 30% 35%
Service
VHM Vinhomes JSC 23% 110,200 89,400 12,691 15% 19.6 16.1 13.3 0% 0% 0% 51% 35% 30% 843% 45% 22%
VRE Vincom Retail JSC 34% 43,800 32,600 3,197 33% 31.6 27.3 22.8 0% 3% 0% 9% 10% 11% 19% 15% 20%
Khang Dien House Trading
KDH 22% 31,700 25,900 609 45% 12.8 14.1 10.4 2% 2% 2% 12% 14% 17% 45% 24% 36%
and I
Bank for Foreign Trade of
VCB 1% 94,700 93,400 14,949 24% 26.1 18.7 17.6 1% 1% 1% 25% 25% 22% 61% 27% 23%
Viet
Asia Commercial
ACB 29% 31,500 24,500 1,751 30% 7.7 6.8 5.8 0% 4% 0% 28% 25% 23% 143% 17% 17%
Bank/Vietnam
Military Commercial Joint
MBB 34% 30,000 22,400 2,248 20% 8.5 6.4 5.9 3% 2% 0% 20% 22% 21% 74% 32% 19%
Stoc
Imexpharm Pharmaceutical
IMP 13% 56,600 50,000 107 49% 19.8 18.3 14.6 4% 2% 2% 10% 10% 12% 18% 11% 25%
JSC
VTP Viettel Post JSC 32% 151,500 114,900 296 20% 26.1 19.3 15.2 1% 1% 1% 48% 48% 44% 64% 38% 27%
FPT FPT Corp 32% 74,500 56,500 1,654 49% 16.7 12.9 11.0 4% 4% 4% 23% 25% 25% -9% 26% 17%
HPG Hoa Phat Group JSC 17% 30,900 26,300 3,134 38% 6.5 9.7 7.8 0% 0% 0% 24% 18% 18% 7% -10% 25%
HT1 HA TIEN 1 Cement JSC 13% 16,900 14,900 245 6% 8.8 8.5 7.6 3% 8% 5% 12% 14% 15% 34% 14% 12%
Petrovietnam Fertilizer &
DPM 23% 15,500 12,600 213 19% 8.3 21.0 12.8 16% 8% 8% 9% 3% 6% -31% -61% 64%
Chem

2019 Stock Market Review
Chart: VN Index 2019 performance (+7.67% YoY)
120%
115%
110%
105%
100%
95%
90%
Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19
Source: Bloomberg
The VN Index ended 2019 at 960.99 points, gaining 68.45 points or 7.67% YoY. The market surged in the first 3 months of the y ear,
being supported by strong foreign inflows (especially via ETFs that dedicatedly track the Vietnam market). The VN Index then lost upward
momentum in the following months of the years (except for July and September) due to rising fears of US-China trade war escalation,
an inverted yield curve, and geopolitical tensions, all of which triggered foreign outflows. Sentiment of retail investors (who account for
86% of market trading value in Vietnam in 2019) was lackluster from both global uncertainties and lack of new near-term catalysts, such
as large IPOs or state divestment, FOL solutions, market upgrade news, etc. Therefore, retail investors had either actively withdrew from
the market, or switched to safer investment instruments such as corporate bonds and gold.
Key leaders responsible for the VN Index’s upside includes VCB, VIC, BID, VHM and GAS, while major laggards were SAB, MSN, BVH,
ROS and POW.
VNINDEX
Security End Price Change Index Pts Security End Price Change Index Pts
VCB 90,200 70.10% 41.457 SAB 228,000 -14.28% (7.331)
VIC 115,000 20.67% 19.247 MSN 56,500 -27.10% (7.094)
BID 46,150 38.72% 14.298 BVH 68,600 -21.86% (4.093)
VHM 84,800 16.92% 12.791 ROS 17,300 -55.30% (3.625)
GAS 93,700 12.89% 6.914 POW 11,450 -26.60% (2.880)
Average daily trading value via order matching (across 3 bourses) declined by -34% YoY in 2019 to $149 mn USD in 2019. Foreign
investors in total net bought $206 USD mn in 2019 via both matching orders and put-through transactions, much lower than 2018 net
inflows of $1.84 bn USD. Via ETFs, foreign investors net raised $220 mn USD during 2019, with a strong fall in disbursements in H1. In
2019, foreign investors were net buyers for VIC, E1VFVN30, PLX, VCB and MSN, while they net sold VJC, VHM, VNM, HDB, and DHG.

NET BUY NET SELL

Ticker Price % Value (USD mn) Ticker Price % Value (USD mn)
VIC 115,000 14.54% 227.07 VJC 146,200 24.96% 106.81
E1VFVN30 14,760 4.68% 104.68 VHM 84,800 15.37% 63.98
PLX 56,000 2.94% 90.48 VNM 116,500 -6.05% 53.10
VCB 90,200 68.28% 75.54 HDB 27,550 -2.30% 45.52
MSN 56,500 -28.12% 69.68 DHG 91,500 20.08% 28.47
VRE 34,000 18.06% 51.55 SBT 18,500 -9.54% 22.46
BID 46,150 37.76% 26.66 HPG 23,500 -23.70% 22.45
MWG 114,000 33.33% 24.51 NBB 20,000 -1.96% 20.15
KBC 15,450 18.85% 22.62 HBC 10,700 -36.31% 17.16
AST 85,000 22.83% 21.18 YEG 37,000 -84.45% 16.97

2019 macro review: Flying majestic over the cloudy sky

Summary
Vietnam GDP growth hits 7.02% YoY, one of the fastest-growing economies in the world
Confirmed beneficiary from trade war, with export growth of 8.4%, historically high trade surplus of $11.2 billion USD, and FDI inflows
to manufacturing sector increasing 24% YoY
Domestic reform slow on anti-corruption campaign, with no improvement in public investment disbursement or the property project
licensing process, plus no major SOE IPO/divestment
The Vietnamese economy was the belle of the ball vis a vis most of the global economy, outperforming most of its global peers in 2019
(GDP growth at +7.02% YoY). This was attained a time when the global economy was marked by a distinct sense of trepidation, fretting
about possible further deceleration of global growth amidst a palatable sense of uncertainty regarding further global trade tensions. The
Vietnamese economy, however, was characteristic of a distinct resilience which absorbed the external shock factor from abroad rather
well.
Some aspects of the year were originally as we had expected, namely i) relatively high growth with tamed inflation, and ii) Vietnam being
the key beneficiary from the trade tension between US and China (historical high trade surplus, high export growth to the US, solid FDI
inflows into the manufacturing sector). However, what we did not expect, included i) a more aggressive stance in monetary easing from
the central bank, partially from a sudden change in global monetary policy, ii) the side effect from the anti-corruption campaign being
larger than expected. Regarding the latter, we could see the effects of this campaign as an influential factor determining SOE
IPO/divestments, property market licensing approvals, and infrastructure investment (both via public investment or public private
partnerships).
POSITIVE, BUT ALREADY EXPECTED
Chart: Vietnam GDP growth by sector, 2015-2019
13%
8%
3%
2015 2016 2017 2018 2019

-3%
-8%
Service Agriculture Mining
Construction Manufacturing Real GDP growth
Source: GSO
For real GDP growth, the 2019 growth pattern diverged a bit from past years. Looking at the growth data in more detail, we see that
historically growth tends to really amass in the last two quarters of the year. However, we see an outlier in this pattern in the case of

2019, in which the 3rd quarter outshined as a quarter of exemplary performance. Reasons for the break in historical trends could be
traced to an abnormally high CPI in Q4, a variable of which can certainly soften real GDP growth data during the quarter, as well as the
fact that the Nghi Son refinery closed for maintenance for most of the time during Q4.
Chart: Vietnam GDP growth, 2015-2019 (quarterly and full year)
8%
7%
6%
5%
4%
2015 2016 2017 2018 2019
Q1 Q2 Q3 Q4 Full year
Source: GSO
For a breakdown of growth data by sector, manufacturing continued to lead (+11.29%), while financial (+8.62%), logistics (9.12%)
and the retail sector (+8.82%) were also major contributing factors. Final consumption increased by 7.23% YoY, supported by relatively
high retail sales growth at 9.2% YoY (2018: +8.4% YoY). Additionally, international tourist arrivals hit a record of 18 million visitor trips
(+16.2% YoY). We found Vietnam consumption to be quite resilient thanks to the steadily growing middle-income class. In terms of
tourism data, there was a strong rebound in the last quarter of the year thanks to the return of Chinese tourists.

Chart: Vietnamese foreign trade, 2016-2019
25.00% 12
10
20.00%
8
15.00%
10.00%
4
5.00%
2
0.00% 0
2016 2017 2018 2019
Trade surplus Export growth Import growth
Source: Source: Vietnam Customs, GSO estimate
Capital formation rose by 7.91% (echoed by total investment having increased 10.2% YoY in terms of nominal growth, which was led by
private investment by a factor of + 17.3% YoY). For net exports, Vietnam posted a lofty merchandise trade surplus of $9.9 bn USD, as
export growth surpassed import growth by a wide margin of 8.1% YoY vs 7% YoY. On the other hand, there was a sizeable trade deficit
in the form of trade in services tallying $2.5 billion USD. All in all, these flows offset each other, resulting in less significant fluctuations
vs. the previous period.
Chart: Foreign investment into Vietnam, 2017-2019
35 12.00%
30 10.00%
25
8.00%
20
6.00%
15
4.00%
10
5 2.00%
0 0.00%
2017 2018 2019
Registered FDI Registered FII Disbursed FDI Disbursed FDI growth
Source: MPI

Whichever way you slice and dice the data regarding foreign trade, it’s clear that Vietnam has been a prime beneficiary from the US-
China trade war. This was not only for the fact that FDI into the manufacturing sector had increased by 23.5% YoY by way of a
concentrated flow of manufacturing base relocation to Vietnam, but also from exports that were positively affected by the US-China trade
war. This is also a reason owing to why Vietnam export growth was so high this year, as American importers increasingly substituted
from Chinese-made goods to Vietnamese equivalents.
Chart: Vietnam total investment growth (%), 2016-2019, by

Chart: Top 3 categories, export growth (absolute terms, USD)
ownership
20
18
Trade war related export ** 16
14
12
10
8
Electronics * 6
4
2
0
Mobile phone 2016 2017 2018 2019
State investment Private investment
0 1 2 3 4 5 6 7 Foreign direct investment Total investment
Source: GSO, SSI Research
*: Electronics and camera
**: Textile and garments, footwear, wooden furniture
We also see that public investment is still slow, realizing only 57.5% of the 2019 plan. Having said that, we increasingly see that the
private sector is taking up the slack. We noted that i) FDI disbursement remained high ($20.38 bn USD, + 6.7% YoY), while registered
FDI into the manufacturing sector is also growing at a rapid clip (+23.5% YoY – total $17.5 bn USD – a key sign that manufacturing
base relocation from China is fully underway) and ii) credit growth was only slightly lower i.e 12.1% YTD (2018: 13.3% YTD as of Dec
20th). M2 (total liquidity growth) was also higher (12.1% YTD vs 11.3% YTD in 2018), so we have essentially ample liquidity within the
banking system. In short, private investment is still leading the growth charge in the last few years, due in part to the privatization drive
influencing the process of SOE reforms.

Chart: Credit growth, M2 growth and actual NPL (RHS, reported NPL + VAMC bond + restructured debt)
20% 12%
19%
10%
18%
17%
8%
16%
15% 6%
14%
4%
13%
12%
2%
11%
10% 0%
2015 2016 2017 2018 2019
Actual NPL Credit growth M2 growth
Source: SBV
NEGATIVE, AND PERHAPS UNEXPECTED

Well tamed for most of the year, inflation ran out of the gate in December, where CPI jumped by 1.4% MoM. A full two-thirds of that
came from the rising price of pork. However, on average for the year CPI only increased by 2.79% YoY (much lower than the annual
target set of 3.3-3.9%) Key drivers for that inflation metric came from foodstuff inflation (+ 5.08% YoY, driven again by the pork price:
+ 11.79% YoY on average), electricity (+ 8.38%), education service or tuition fees (+6.11%). Given this data, we can see that foodstuff
inflation (grocery/market purchases & eating outside items) caused half of the CPI increase in 2019. Core inflation, however, still remained
at a more subdued level, of just +2.01% YoY on average. Still, this still was a cause for concern as even this inflation metric passed the
target range threshold of 1.8%-1.9%.
Chart: Vietnam CPI 2018-2020 (Average, YoY)
6.00%
5.50%
5.00%
4.50%
4.00%
3.50%
3.00%
2.50%
2.00%
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2018 2019 2020
Source: SSI Research

SLOW SOE REFORM

There have been two key regulations for SOE reform in effect since 2018 (pertaining to IPO/divestment/recapitalization). These two are
Decree 126/2017 (on SOE equitization) and Decree 32/2018 (relating to SOE investment and divestment). These two Decrees have set
a more stringent procedure to follow in terms of SOE reforms (to avoid corruption, or to crackdown on selling state assets at grossly
undervalued prices), and is widely regarded as having lengthened the equitization process. Underscoring this point lies within the fact
that we have not seen any big SOE IPOs during 2019, as SOE divestments have been proceeding more cautiously, and have executed
at a much smaller scale. As we noted earlier, in Sept 2019 the government urged the pace of reform to be sped up, and requested the
Ministry of Finance (MoF) to draft a revision to government Decrees 126/2017 and 32/2018 (the key regulation for SOE reform) to enact
a shortened procedure. After nearly one quarter, the draft has been up for public comment, and here are the main aspects that look to be
soon receiving an overhaul:
Revision to Decree 126/2017 (on equitization, or SOE IPO)
The first on the chopping block involves regulations covering brand/trademark valuation, of which there will be no more consideration
towards attempts at rationalizing valuation by way of weaker, non-market based pretexts such as history and reputation. Instead, there
will be a more rigorous discipline towards value applied in the form of market-based valuation to decide the fair value of the brand or
trademark at hand.
Land-related issues will also receive an overhaul. The revision aims at resolving post-IPO land usage by separating the approval under
the Laws of Public Asset Management and the post-IPO land usage plan (as land is normally a public asset) for easier implementation.
In short, the approval under the Laws of Public Asset Management could be done later on, after IPO. While it’s becoming pretty clear in
terms of the approval process, it doesn’t necessarily mean faster implementation for cases of upcoming SOE IPOs, such as Agribank or
VNPT. Those SOEs have branches or offices spread across all 63 provinces nationwide, and not all land plots connected to these SOEs
have the correct paperwork documenting legitimate proof of ownership (as some plots of land were handed over 30 years ago or
more). We are also waiting for the Ministry of Natural Resource and Environment to draft a decision to allow SOEs to return land plots
with questionable titles derequisitioned back to the local authorities, which will in turn allow the transfer of such land to the SOE that
possesses a legitimate proof of ownership. Only when ironing out the inconsistencies of land plots and titles through such a new
regulation, together with this MoF draft, would we issue our mark of approval of this as a positive development.
Revision to the Decree 32/2018 (on SOE investment/divestment)
Similarly to the above Decree, the language regarding history or reputation in terms of trademark/brand will be struck out from the
legislation.
In terms of tweaking existing definitions in the Decree, terminology such as starting price, reference price and actual-paid price (for
investors) in SOE divestment will be revised. Overall, the balance will be tilted in favor of the investor with this adjustment to the definitions.
This means that the starting price in the draft’s current form is the higher amongst i) the price decided by legal valuer and ii) the 30-day
average price in listed market, and iii) the reference price in the listed market one day before the approval day of the starting price.
Previously, even in the event that the investor set their own price legally by way of public auction, competitive bidding, or direct
negotiation, and those negotiations resulted in an arrangement lower than the floor price (in listed market) on the day of execution, such
wily negotiations would be in vain as investors would be locked in to paying the higher floor price anyways. With this Decree revision,
investors could refuse to participate in the auction (if the starting price is lower than the floor price of the execution date), and get their
deposit money back to boot. Overall, we can see that the balance of favor is becoming tilted more towards the investor within these
Decree revisions, while SOEs with the correct paperwork will finally receive their rightful land plots in due time.
Yet, perhaps the most important part of this draft is wherein the government mentions the desire to invest “to maintain state-ownership
ratio” in state-owned commercial banks (SOCB), in which the government of course holds a majority stake. The Prime Minister wields

such authority to do so with the mandate under the Laws of State Capital management in operations of enterprises (Article 17.1), and
the government also expressed the desire to carry out the mandate in the official letter 3178/VPCP-KTTH (dated Oct 31st, 2019) to ensure
“monetary security”. So, while in the short term Vietcombank (VCB:HOSE) or BIDV (BID:HOSE) might not see an immediate impact,
Vietinbank (CTG:HOSE) might find what it needs for its recapitalization plan.

2020 MACRO OUTLOOK

Summary
2020 growth has reasonably secure prospects, with resilient investment expected from both foreign and private investment
Upcoming election in 2021 will be more in focus, specifically the next five year plan
Regulation overhaul (revised laws with respective guidelines) will be key to the next round of growth
Inflation risk, slow SOE reform, stodgy bureaucracy, and geopolitical issues are all key risks to growth/market sentiment
For global context, we hold a basecase forecast that growth might be similar to 2019 levels. However, there are upside prospects beyond
that in terms of higher growth for smaller firms and slightly higher than expected growth for larger corporations. Waving the magic
monetary policy easing wand to summon growth may not be as effective as it has been in the past, whether it be in the case of the SBV
or the FED rate alike. There hence may need to be a rethink of how to divine economic growth via more innovative solutions and tools to
optimize monetary policy, FDI attraction, and fiscal stimulus for the economy. As trade tension eases trending towards détente, global
trade might improve in turn. This would be a positive event for a countries with a large scale of trade openness like Vietnam.
Chart: Vietnam GDP growth scenario
7.40%
7.20%
7.00%
6.80%
6.60%
6.40%
Q1 Q2 Q3 Q4
2019 GDP growth 2020 GDP growth (low band)
Quarterly GDP growth (low band) Quarterly GDP growth (top band)
2020 GDP growth (top band)
Source: Vietnam government
With a bit of a bloated global economy forecast picture ahead, Vietnam is coming to the end of its 5 year plan for 2016-2020, as well as
preparing for the next election. The 5 year plan by and large has met the country’s expectations, featuring higher growth and significantly
more macroeconomic stability. We do not expect any sudden policy changes to occur after the election, as the new elected official(s)
will almost certainly still pursue higher growth (annualized GDP growth at around 7% per year) and stable CPI (< 4% YoY).

Chart: Vietnam GDP growth by sector (government scenario)
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
Q1 Q2 Q3 Q4
-2.00%
-4.00%
Mining (-1%) Manufacturing (+11%) Construction (+8.46%)
For 2020 at a glance, the Vietnam economy is still set to grow at the current pace of 6.8-7% YoY. Growth variables are many, but the
leading factor is still expected to be FDI-invested enterprises such as manufacturing. While there is a distinct slowdown trend in global
manufacturing in a sample of nations around the world, Vietnam has been bucking this trend. The Vietnamese manufacturing sector not
only is experiencing a massive manufacturing base relocation over the past decade from China to Vietnam, but is also experiencing a
boom in local demand needs in terms of infrastructure development, and from resilient domestic consumption overall. On the trade front,
export growth could bounce back as trade tensions ease. This could lead towards a better outlook for the mobile phone cycle banking
on the success of 5G deployment, or from the continuation of another bountiful harvest to be reaped from the increase in FDI into the
manufacturing sector, as was also the case last year.
2019 2020 Target

Real GDP growth 7.02% 6.80-7%
CPI (average) 2.79% 3.59-3.91%
Budget balance -3.4% GDP -3.44% GDP
Export growth 8.1% 8%
Retail sale growth (Nominal) 11.80% 12%
International tourist arrival (mil pax) 18 20.5
Credit growth 13.7% 14%
WHAT’S ON WATCH IN 2020:

On monetary policy, the tricky part to tweak and contain should be inflation. Inflationary effects from foodstuff (mostly from the pork
price) are likely to start taking effect in 2020. As Q1 2020 CPI should be high (i.e more than 5% YoY), this means that the government is
likely to impose a moratorium upon further price hikes for any utilities (healthcare or education) during both Q1 and Q4 in 2020. Along
this line of thinking, they will be almost certainly be aggressively intervening to stem the tide of a scenario involving a further rise in the
pork price. It certainly seems given these signals that we cannot expect an electricity price hike to take hold in Q1, and that April should
be the earliest timeline for this to occur.

After discussing a number of scenarios for inflation (<4% or >4%), the government chose a baseline target of 3.59-3.91% YoY. We
believe that this target is very ambitious. In actual practice, it means there needs to be a couple of months wherein CPI decreases month-
over-month. In order for this to materialize, the pork price would need to retreat significantly from the current level in order for this scenario
to manifest. Whichever the case, higher inflation (even the mere expectation of it) makes interest rate cut prospects more difficult to
commit to in the meantime.
Chart: Vietnam CPI 2020 scenario
6.00%
5.50%
5.00%
4.50%
4.00%
3.50%
3.00%
2.50%
2.00%
1.50%
1.00%
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Average Month-end
Vietnam CPI in 2020: baseline scenario. Source: SSI Research
Additionally, the central bank over a gradual process might switch from the practice of inflation control towards inflation targeting, as it
seems to be a better measure to keep inflation within its target. However, we could actually see the action on implementing some degree
of inflation targeting in 2021, rather than 2020. This is because it is crucial in 2020 to enact policies and execute fiscal discipline where
needed in order to drive CPI below 4% for the year. Things to watch might include whether there should be more interest rate cuts (at
least one or two instances), as well as actual implementation of required reserve cuts and credit growth falling between an a cceptable
range (12-14%). For our part, we believe that interest rates might still be trending lower, by about 30-50 bps during 2020. For exchange
rates, as inflows continue (with supporting factors like trade surplus, remittances, FDI disbursement), while proactive steps are afoot
towards a plan of action to show good faith efforts to the US side towards nullifying the latent risks of being designated as a curre ncy
manipulator on the US Treasury list. With such a year ahead, VND devaluation risk is nearly non-existent. Accordingly, VND could move
within a tight trading band range of +-1% for one more year.
Meanwhile, on fiscal policy and available tools, we note that 2020 is the last year of the 5-year cycle (2016-2020). As a regulation
framework overhaul has been in place already, public investment should rebound from a low base set in 2019 to set the stage for public
investment growth over in 2020. Additional fiscal policy assistance might be had from the improvements and implementations made by
way of the 5-year plan in regards to public investment (2021-2026). In our view, over the short term under-disbursed public investment
might not hurt growth, as public investment can be carried over to following years for subsequent disbursement then. That’s why in
2017-2020, total disbursements during one year have exhibited the pattern of including 70% of the current year plan plus 30% of the
previous plan. So, the disbursement rate might be higher in 2020, but because of this pattern, it still might not be very significantly
different from 2019 levels.
For SOE reform, more regulation framework overhaul should be needed in 2020. We saw a large absence of privatization in 2019 in
terms of SOE IPO/divestment. While the government is trying to revise both Decrees 127/2017 and 32/2018 to facilitate the valuation
process, it might take a while to see whether those revisions will actually work in practice. By now, even the revised list for SOE

divestments (revision to the Decision 1232/2017) has not been available, so we may need to wait at least till 2H20 to see any new
developments. There’s quite a bit to address, and the foundational principle/concept on SOE reform itself will need to be worked out (i.e
which sector will remain state-owned vs. privatized, or if delays surface regarding planning and/or implementation). We do expect that
some big names like Agribank and VNPT (IPO) will be ready to start this process in 2020. Still, it may not be worth holding one’s breath
for, as valuation and due diligence would need to be done first before an actual IPO. This process may drag on past 2020, so patience
might be a virtue here.
On legal frameworks, the Securities Laws revision was approved last year, and for 2020 the other two revisions, namely the Enterprises
Laws and Investment Laws, would be all approved by the National Assembly (possibly in May-June 2020). Follow-up guidelines (in the
form of government decree) should be paid attention to, as expectations are increasingly high regarding foreign equity limit liberalization,
and/or a simpler procedure for portfolio investment in non-restricted sectors. A revision upon the Land Laws would be also an area of
actionable improvement, as it needs to be updated as quick as possible to leverage the benefits of a lot of new developments and
innovations in the property market.
RISK TO THE BASELINE SCENARIO:

Locally, we name two risk factors that could adversely impact our baseline forecast. First, the property market; an asset class which has
been warming up since 2012. While there has been less unbridled speculation, more of an emphasis upon meeting actual demands (for
both the rising middle income class and foreign buyers) and value-added innovations in the property market, the risk of a bubble in the
making is always there. The central bank is not blind to this fact; it consistently names property lending as the top segment to watch. As
time goes on, though, the percentage of mortgage-based purchases are consistently on the rise, as increasingly credit-based property
acquisitions bring with it a rising property price in tow. Complicating the situation is the fact that there has been a reined in constraint for
new launches during the last two years, as developers switched to issue high-yield corporate bonds to cover their financing demand. In
our view, it might take one or two years before the licensing approval is back to normal. In the meantime, if property purchasers bet on
the wrong side, and/or the weaker sentiments in some segment (such as condotel) end up negatively impacting the overall marke t, the
risk to the growth story (at least on the domestic side) is high. At the end of the day, Vietnam shares characteristics of other high-growth
or developed Asian countries, wherein property is the key investment channel. Second, despite best intentions there is u nfortunately a
bureaucratic bloat side effect from the anti-corruption campaign, which makes the decision-making process in the lower-level of
government rather sluggish. It’s not something new, and the government is well aware of this issue. However, the problem amplifies itself
with the election just around the corner, so a quick solution to this problem might not be in the cards in terms of feasibility.

Vietnam macro forecast summary

SECTOR IN FOCUS

CONSUMER DISCRETIONARY – TEXTILE & GARMENT

Negative: Headwinds continue to undermine growth
Most preferred: MSH
2019 Highlights Textile & Garment industry performance in 2019
Sector performance
140%
Textile & garment performance declined by -2.8% in 2019, 130%
underperforming the VN Index. As 2018 was a high base year, 120%
we had rated the sector as Neutral at the beginning of 2019 due 110%
to rising labor costs and minimal immediate impact of the FTAs 100%
signed. 90%
80%
Key Reasons for underperformance of the sector: VNIndex Consumer Discretionary Textile & garment
70%
Many stocks performed well in 1H 2019 thanks to encouraging 60%
financial results, continuing the growth momentum set in 2018.
However, as the trade war intensified in 2H 2019, the RMB
devaluation, decline in the demand of yarn from China, as well
Source: Bloomberg, SSI Research
as the massive dumping of yarn prices have made it very
challenging for Vietnam’s local yarn and garment manufacturers
to compete in the international market. Meanwhile, there is
patchy consumer sentiment.
VGT (the largest stock in the sector) declined by -10.7% during
the year as its net profit declined by -18% YoY. MSH, STK, and
TNG outperformed, with gains of 18%, 18%, and 7% respectively
thanks to their stronger net profit growth up to 9M 2019 (+31%
YoY, +23% YoY, and +34% YoY respectively).
Key highlights on sector

What was expected?
• Vietnam continued to snap up regional producer

market share.
According to Vinatex, global demand for textile and
garments increased by 3.3% YoY in 2019 (2018: 7.4%
YoY), in which China exports declined by -2.3% YoY while
India, Bangladesh and Vietnam exports increased by 1.4%
YoY, 2.4% YoY and 7.3% YoY respectively.

According to the US Office of Textile and Apparel (OTEXA),

US apparel imports are estimated to increase by 3% YoY
in 2019. Up to 11M 2019, China’s apparel exports to the
US declined by -6.6% YoY, while Vietnam’s increased by Textile and garment export value
+10% YoY. In 2018-2019, Vietnam’s export share to the 45 30%
US has increased from 11.8% to 12.8%, while China’s 40
25%
35
share has declined from 36.4% to 33.4%. Other than
30 20%
Vietnam, Bangladeshi and Cambodian exports to the US 25
15%
have also experienced strong growth at 9.9% YoY and 20
19.5% YoY, however import share to the US is still lower 15 10%

10
than Vietnam, at 5.5% and 2.7% respectively. 5
5%
• Up to 11M 2019, the sector attracted $1.5 bn USD 0 0%

2012 2013 2014 2015 2016 2017 2018 2019
worth of registered FDI. There is a growing flow of
Export value (USD bn) % YoY
investments into local yarn and dyeing subsectors
from South Korea and Taiwan.
Source: VITAS, SSI Research
What was NOT expected?
• According to McKinsey Global Fashion Index, global

fashion industry growth reached 3.5-4.5% YoY in
2019, slightly below 2018 growth of 4-5% YoY. The
industry slightly decelerated after having posted
strong performance in 2018. While there were
pockets of optimism in North America and within the
luxury segments, there were major headwinds to
navigate in the form of trade disruptions and slowing
global economic growth. Key markets in Asia
performed lesss than expected, undermining growth
for the sector. North America and Europe (both in the
Mature and Emerging) accounted for ~50% of global
sales, gaining 2.5-3.5%, 1.5-2.5% and 4.5-5.5% YoY
in 2019.
• Vietnamese textile and garment exports are
estimated to reach $39 bn USD in 2019, up 7.3%
YoY, and falling short of the nation’s target of $40
bn. This was a lower growth rate than was achieved
in the last 2 years (2017: 10.8% YoY and 2018: 16%
YoY). In 2019, Vietnam exports to all markets
achieved only single-digit growth, of which the
highest growth market is the US, at 8.9% YoY.
According to Vinatex, global demand was affected by
trade war uncertainty. Local manufacturers saw
volume per order declining, customers no longer
ordered 3-6 months in advance like before, and prices
became more competitive. We expect this trend to
continue, at least until Q2 2020.

The FDI sector (which is responsible for about 60% of total 2019 USD bn % of total YoY
Total Vietnam textile and
exports from Vietnam) also experienced lackluster garment export value
39 100% 8%
performance, with revenue lower than expected due to the US 15.2 39% 8.9%
rapid fall in global cotton prices, and cautiously placed EU (28) 4.4 11% 2.2%
China 4.3 11% 7.1%
orders from customers on rising uncertainty from the trade Japan 4.2 11% 4.5%
war. However, most FDI-invested companies could still Korea 4.0 10% 4.4%
benefit from vertical integration (yarn and fabric are partly Source: VITAS
self-supplied), so the impact is less severe compared to
purely homegrown Vietnamese companies. Nonetheless, Vinatex affiliates, financial performance in 9M 2019
most companies expect a rebound in orders in 2H 2020. VND bn Net sales Net profit Sales YoY
Earnings
YoY
• Up to 9M 2019, VGT consolidated sales reached VND 10-May 2,448 52 -18.6% -21.8%
13.5 trillion (-6.3% YoY and 61% of target), and total Viet Tien 6,419 293 -13.5% -16.3%
Viet Thang 1,604 74 -12.2% -12.9%
PBT reached VND 564 bn (-22.8% YoY and 67% of Hoa Tho 3,224 80 -4.2% -1.2%
target). Phong Phu 2,534 185 -4.2% 0.5%
Some smaller local textile and garment companies recorded Source: Company, SSI Research
mixed results, but were mostly affected by the decline in the 9M 2019
STK TCM TNG MSH
average selling price (-15% YoY for yarn) and small volume per (VND bn)
order (-10% YoY for yarn) due to trade war uncertainty. TCM Net sales 1,653 2,789 3,569 3,388
was significantly affected by cotton yarn demand from China, YoY -7.2% -1.3% 30.1% 15.3%
Net profit 161 154 174 357
while STK could offset its profitability of recycled yarn for the
YoY 22.9% -28.0% 33.5% 30.7%
decline in virgin polyester yarn. MSH recorded a net profit
growth of 31% YoY, still one of the stronger garment Source: Company, SSI Research
manufacturers in the sector.
2020 View
Expected Growth trend Sales growth 2019 2020 2019 2018

Total fashion
The McKinsey Global Fashion Index forecasts that global 3.5-4.5% 3-4% 3.5-4.5% 3.5-4.5%
industry
fashion industry sales will grow by 3-4% YoY in 2020, North America 2.5-3.5% 2-3% 2.5-3.5% 1-2%
compared to 3.5-4.5% YoY in 2019. The weaker forecast Europe Mature 1.5-2.5% 1-2% 1.5-2.5% 2-3%
reflects consumers being increasingly cautious amid broader Europe
4.5-5.5% 4.5-5.5% 4.5-5.5% 5.5-6.5%
macroeconomic uncertainty and the continued threat of trade Emerging
Middle East &
wars. In the US and EU, consumer sentiment is muted while Africa
3-4% 3-4% 3-4% 5-6%
emerging Asia- Pacific markets are relatively strong but APAC Mature 2-3% 2-3% 2-3% 2-3%
decelerating in growth. Economic gains will continue to flow to APAC
6.5-7.5% 6-7% 6.5-7.5% 6.5-7.5%
a select small group of top players, while the middle is Emerging
Latin America 2.5-3.5% 2.5-3.5% 2.5-3.5% 5-6%
increasingly squeezed.
Source: McKinsey
For Vietnam, we expect the sector to export $41.5 bn to $42
bn USD in 2020, up 6.4%-7.7% YoY. VGT and its affiliates VND/month 2019 2020 YoY
target to achieve VND 50.9 tn in total sales (+3.5% YoY) and Area I 4,180,000 4,420,000 5.7%
Area II 3,710,000 3,920,000 5.7%
VND 1.55 tn in PBT (+11.3% YoY). According to VITAS, most Area III 3,250,000 3,430,000 5.5%
companies are still struggling to negotiate for orders up to Q2 Area IV 2,920,000 3,070,000 5.1%
2020 (mostly due to price competitiveness), unlike previous
years. Source: Decree 90/2019/NĐ-CP

Catalysts
Export growth can be accelerated as the shift of orders from
China to Vietnam continues, especially amongst the new
markets who benefit from CPTPP, such as Canada and
Australia.
Issues and risks
Minimum wage continues to increase by 5.1%-5.7% in 2020,
at a similar pace to the 2019 increase. According to VITAS,
Vietnam has increased its minimum wage 12 times since 2008.
As more FDI-invested factories move and set up in Vietnam,
wage competitiveness will become more intense between local
and FDI-invested companies, pushing wage inflation further and
affecting companies’ gross margins. In addition, rising
electricity and logistic costs will also weigh on competitiveness.
The industry is highly dependent on imports (60%) for its
machinery, raw materials and accessories. With tough rule of
origins from CPTPP (yarn-forward) and EVFTA (fabric-forward),
garment companies without a fully-integrated value chain in
Vietnam will not see an immediate impact, as those
companies heavily depend on raw material imports from
China.
Most preferred Most preferred in sector: MSH VN

Market cap (USD mn) 95.6
Song Hong Garment Joint Stock Company: MSH VN
Average 3M value (USD mn) 0.11
Current price: VND 44,300; 1Y Target price: VND 64,000 Foreign ownership (%) 8%
• Investment thesis: MSH belongs to the Top 5 Vietnam 2020 PE/PB 4.9x/1.6x
textile and garment exporters, with export turnover of $201 2020 EPS growth (%) 7%
million up to 9M 2019. We find MSH to possess strong Dividend yield (%) 9%
fundamentals in this sector, demonstrated by encouraging 2020 ROE (%) 36.2%
growth and an increasingly attractive gross margin trend
Source: Bloomberg, SSI Research, Data on 31 Dec 2019
(17-20%). During the 2014-2019 period, MSH experienced
a revenue and net profit growth at CAGR of 16.5% and Most preferred in sector: MSH VN
25.2% respectively, with a stable average ROE of 32%
(higher than the industry peer average of 20%). The upside 140%
for sales and margins stem from: (i) continued transition 130%
from CMT to FOB type to increase gross margins; and (ii) a 120%
new factory to increase capacity by 15% in late 2020. We 110%
estimate net sales and net profit to grow by 13% YoY and 100%
7% YoY in 2020. 90%
VNIndex HT1 VN Equity
• Catalysts: 80%
70%
Walmart as a new customer is expected to boost sales growth 60%
starting Q2 2020.
MSH has been paying out a consistent cash dividend of 35-45%
on par, which translates to a relatively high dividend yield of 7- Source: Bloomberg, SSI Research

9%.
• Risk:
Slowdown in global demand
Stock has been recently traded at low liquidity.

CONSUMER DISCRETIONARY - RETAIL

Neutral: Low double-digit, but stable industry growth
Most preferred: MWG
2019 Highlights Retail industry performance in 2019
140%
Sector performance
130%
The retail industry grew by 23% in terms of market capitalization 120%
in 2019, outperforming the VN Index, which increased by 8%. 110%
This was in line with our Overweight recommendation for 2019. 100%
The MWG share price surged by 33% in 2019, thanks to 90%

impressive financial performance. Accordingly, net sales up to 80%
VNIndex Consumer Discretionary Retail
11M 2019 increased by 18% YoY to VND 93.086 tn, while net 70%
income jumped by 34% YoY to VND 3.542 tn, achieving 86% 60%
and 99% of the 2019 target respectively.
FMCG value growth by sector (YoY)

16.0%
According to the GSO, 2019 Vietnam retail sales amounted to Q1'19 Q2'19 Q3'19 Q4'19
12.0%
VND 3.751 quadrillion, increasing by 12.7% YoY. Modern trade
8.0%
continued to acquire market share from the traditional retail
sector. Sub-sectors following this trend include FMCG, ICT, and 4.0%
Jewelry. 0.0%
-4.0%
FMCG
-8.0%
According to AC Nielsen, FMCG growth in 2019 (6.6% YoY in
urban area and 5.7% YoY in rural areas) continued to fall short
of the retail sales growth level in 2019 (12.7% YoY). However,
these results are still more impressive than that of previous
years’, when growth figures moved closely in line with CPI
during 2013-2018.
Source: AC Nielsen

FMCG retail sales by channel (% value share) in rural area

90 82 82 82 84
80
70
60
50
40
30
16 16 16 13
20
10 2 2 2 3
0
Traditional trade (excl. Wet market Modern trade
Wet market)
2016 2017 2018 2019
What was expected – The wet market losing market share to Source: Kantar Worldpanel
both traditional and modern trade: Growth by channel figures
show that the wet market has lost its share of value in 2019 in
both rural and urban areas. In rural areas, while the existence of
FMCG retail sales by channel (% value share) in 4
modern trade is still insignificant, the wet market has lost market
share to traditional trade in the form of medium-sized street urban cities
shops (11% in 2018 and 12% in 2019E) and specialty stores 80 74 74
70 68
(2% in 2018 and 3% in 2019E). Traditional trade, nonetheless, 70
performed poorly in urban areas, stemming from the rise of 60
modern trade and e-commerce. 50
40
30 20
16 17 19
20 10 10 10 9
10 0 0 2 3
0
Traditional trade Wet market Modern trade Ecommerce
(excl. Wet market)
2016 2017 2018 2019
Source: Kantar Worldpanel
Market share by origin across different retail formats
Minimarts 15% 85%
Commercial centres and supermarkets 17% 83%
FMCG key players: Domestic retailers expanded aggressively, Online stores 50% 50%
with Bachhoaxanh emerging as the leader in percentage growth
of +148% YoY (from a low base) and Vinmart being the leader Convenience stores 70% 30%
in absolute increase (+1,320 new stores in 2019). 0% 20% 40% 60% 80% 100%
Meanwhile, foreign retailers were more prudent in new Foreign Domestic

openings. Among foreign key players, Circle K was the most
active, having opened 72 new stores and raising the store count
to 376 stores in 2019. The Ministop store count climbed to 131 Source: Deloitte, February 2019 report, based on figures from
stores, increasing by 15 stores. Since the opening of the first Ministry of Industry and Trade
store in January 2018, the GS25 convenience store chain

expanded impressively, reaching 51 stores as of 2019F. Store count by chain and format
FamilyMart and B’Smart seemed to take a more narrow focus in 2018 2019*
their business activities. The convenience store chains were Vinmart+ 1,375 2,888
dominated by foreign players, while supermarket and grocery Minimarts/Gr Bachhoaxanh 405 1,006
store chains were led domestic companies. ocery stores Co.op Food 233 400
Satra Foods 182 203
Co.op Mart 102 126
Vinmart 67 134
Big C 36 35
M&A to raise scale: Vingroup has accelerated its M&A activities AEON Citimart 26 24
Supermarkets
MM Mega Market 19 19
since 2018. In October 2018, Vingroup acquired Nhat Nam JSC,
Lottemart 14 14
which operated Fivimart grocery stores, and Vienthong A mobile Intimex 10 12
phone stores. Later on in April 2019, Vingroup bought the Shop Satra Mart 3 3
& Go convenience store chain at a reported price of, to the Circle K 304 376
surprise of many, just $1 dollar. In September 2019, Vingroup FamilyMart 151 147
Ministop 116 131
acquired Queenland Mart. Convenience
B's mart 134 107
stores
Vinmart, in turn, was announced by Vingroup to be included in GS25 5 51
a stock-for-stock merger, in which Vincommerce (holding 7-Eleven 28 33
Shop&Go** 95 0
Vinmart and Vinmart+) will merge with Masan Consumer
Holdings. After the merger, shares of Vincommerce will be Source: Companies, Internet, SSI Research
exchanged for shares of the newly established enterprise, with
*: as of December 26, 2019
Masan Group (HSX: MSN) being the controlling shareholder.
**: Shop & Go sold to Vinmart in 2019
Another notable M&A in 2019 was the acquisition of Auchan
supermarket chain made by Saigon Co.op, a well-known 30-
year old supermarket chain in Vietnam. Auchan supermarket
marked its presence in Vietnam back in 2015. According to the
press, the chain reached a revenue of $50 mn USD in 2018, yet
it is still incurring losses.
ICT
Technical consumer goods sales value up to 9M 2019
Marker share by vendors
amounted to VND 158.5 tn, down by -2.4% YoY compared with
a positive growth post of 4.4% in 2018. 9M17 9M18 9M19
Samsung 47.1% 41.4% 39.6%
Oppo 19.9% 22.7% 28.7%
Apple 9.3% 8.6% 7.0%
What was expected?
MI <1% 6.0% 5.9%
Slowdown in mobile phone sales value: the decline in total Other 22.7% 21.3% 18.8%
sales value of technical consumer goods was mainly driven by
Source: GFK, ictnews.vn
telecommunications products (-4.5% YoY), in which mobile
phones comprised the majority of sales. According to MWG, the Mobile phone store count by retailers
mobile phone sales volume of the industry remained flat up to

9M 2019. Nevertheless, we think that there has been a gradual 2500

shift from high end mobile phone brands (Apple and Samsung) 2015
2000 1782
to mid-low end mobile phones (Oppo, Realme, Vivo, Xiaomi),
explaining the decline in sales value of mobile phone, and hence 1500
1072
flowing down to results in the telecommunication products
1000
segment. 473533
609
500 332311300
216189
Key retailers: MWG (market share: 47% in mid 2019 vs 45% in 0
107100118
0
2018), FRT (market share: 16.2% in June 2019 vs 18% in
MWG FRT VienthongA Viettel Store Mobifone store
2018), CellphoneS.
2017 2018 2019F
Source: companies’ website, SSI compilation
9M19 vs 9M18 industry growth

Television -6%
Air conditioner 39%
What was not expected? Refrigerator 4%
Washing machine 1%
Decline in consumer electronics sales value: Up to 9M19, the
sales value of consumer electronics (20.6% of total technical Source: MWG, based on GFK statistics
consumer goods, incl. panel TVs, home audio systems, and Consumer electronics store count by retailers
camcorder, etc.) and domestic appliances (22.7% of total
technical consumer goods, incl. washing machine, cooling 1200
1021
machine, microwave ovens, hair dryers, vacuum cleaners, etc.) 1000
750
amounted to VND 32.7 tn (-6.4% YoY) and VND 36 tn (+4.4% 800 642
YoY) respectively. Growth rates were lower than we had 600
expected at the beginning of 2019 due to the underperformance 400
180
of television sales, which slightly declined in comparison to 200 50 65 70 74105 51 64 71 22 24 28 13 14 23
2018. The FIFA World Cup and ASEAN Football Championship 0
in 2018 were the catalysts raising sales value of consumer MWG Nguyen Kim Mediamart Cho Lon Pico Home
Electronics Center
electronics to a higher than usual base, resulting in a +24% rise
in 2018. 2017 2018 2019F
Key players: MWG (37-38% in mid-2019 vs 35% in 2018),

Nguyenkim, Cholon Electronics, Mediamart, Pico, Home Center. Source: companies’ website, SSI compilation
Jewelry
What was not expected – a decline in gold demand: According
to the World Gold Council, Vietnamese consumer demand for
gold declined by -2.2% YoY, reaching 45 tons up to 9M19. This
contrasted with the growth rate experienced up to 9M18 of 11%
YoY. Demand for gold jewelry reached 13.5 tons, flat YoY
(2018: 11.5% YoY), while demand for gold bars and coins
decreased by -2.7% YoY (2018: 10.9% YoY) to reach 31.5
tons. Both consumers and retailers remained cautious over the
rising local gold price of 16.4% YoY (which reached an eight-
year high).

Key retailers: PNJ (Market share: 28% in 2019), Doji, SJC, Number of jewelry stores
Precita
400
PNJ: The company recorded net sales of VND 17 tn (+17% 350
YoY) and net income of VND 1.19 tn (+24% YoY) in 2019. 350
Despite having disappointing results in Q2 due to the new ERP 300

system disruption and slower demand, the company managed 250
to stage a quick recovery with encouraging results thanks to 200
various promotional campaigns, as well as a new collaboration
150
with Disney. PNJ Gold same store sales growth (SSSG) for
100
existing stores reached 10% YoY according to our estimates 70
50
(2018: 20% YoY). Additionally, PNJ opened 43 new stores in 50
9
2019 (vs. 2018: 56 stores), bringing the total number of stores 0
to 346, achieving its targeted new store goal of 40 for the year. PNJ Doji SJC Precita
The gross profit margin reached 20.4% in 2019 (2018: 19.1%),

mainly driven by a higher proportion of PNJ Gold in the sales
mix and cost savings thanks to the new ERP system. Internet economy market size (GMV, USD bn)
120
Ecommerce continued to rake in capital 100
100
According to the Vietnam Ecommerce Association (VECOM),
the e-commerce market size reached $7.8 bn USD in 2018, 80
which was almost twice the market size of $4 bn USD in 2015.
This includes online retail, travel services, marketing 60
43
entertainment, and shopping for digitized services and products.
40 33
According to the 2018 e-Conomy SEA Report issued by Google 21 21 22
and Temasek, the e-commerce market size of Vietnam was $9 20
bn USD in 2018, and is projected to reach $33 bn USD in 2025,

0
equivalent to a CAGR of 20%. Vietnam is hence projected to rank Indonesia Malaysia Philippines Singapore Thailand Vietnam
third in Southeast Asia, after Indonesia ($100 bn USD in 2025F)
2015 2018 2025F
and Thailand ($43 bn USD in 2025F).
The robust growth of ecommerce has been supported by capital
injections by foreign investors. According to Vnexpress.net, in Source: 2018 e-Conomy SEA Report by Google and Temasek
2019 the Sendo ecommerce platform mobilized $61 mn USD
from both new investors (EV Growth and Kasikornbank) and
Key ecommerce players by business model
existing investors (SBI Group, BEENOS, SoftBank Ventures,
Daiwa PI Partners and Digital Garage). Other fund rounds of Monthly web
capital injection for Sendo was $51 mn USD in 2018, and also Business model visits (mn
$18 mn USD back in 2014. visits)
Shopee Marketplace 34.6
In June 2019, Tiki successfully raised capital from VNG, Sendo Marketplace 30.9
JD.com, and other investors, though the size of the investment Thegioididong.com Inventory 29.3
has not been published. Tiki Marketplace 27.1
Lazada Marketplace 24.4
Dienmayxanh.com Inventory 10.7
Fptshop.com.vn Inventory 8.3
Cholon Electronics Inventory 6.6
Adayroi Marketplace 6.4
CellphoneS Inventory 5.7
Source: iprice.vn, as of 3Q19

2020 View
Expected Growth trend

FMCG: We expect retail sales to be maintained at a low-double-
digit growth rate, while FMCG is to grow at a single-digit rate.
ICT: We expect mobile phone sales value to decline marginally,
while we conversely forecast consumer electronics to rise by
low-single-digit growth.
Catalysts
• FMCG: We expect modern trade will likely grow at the
expense of shrinking wet market and traditional trade
thanks to increasing urbanization, younger population, and
rising income. We note that in Vietnam fresh food is
predominantly unlabeled and sold in the wet market, hence
not counted in the FMCG category. As modern trade is
expected to acquire market share from traditional trade and
wet market, consumers will gradually change from buying
unlabeled to labeled fresh food, thus helping to improve
FMCG growth.
• ICT: Modern trade will likely continue to acquire market
share. In addition, Vietnam may launch 5G during 2020. At
the moment, there are three telecom providers (Viettel,
Mobifone and VNPT) which are conducting trial runs before
it can be commercialized by the end of 2020.
• Jewelry: PNJ, one of the largest companies in the sector,
will continue to expand its network online and offline.
However, given outstanding retail sales growth in recent
years, we posit that retail gold jewelry sales might grow at
15% YoY in 2020 (2019: 18% YoY).The ERP system will
help the company to generate higher efficiencies in the
future.
Issues and risks
• Rising interest rates may affect the demand for higher-
valued discretionary products, such as jewelry, mobile
phones and some consumer electronics products.
• Competition from e-commerce platforms, especially those
financed by foreign institutions.

Most preferred Most preferred in sector: MWG VN

Market cap (USD mn) 2,178.1
Mobile World Investment Corporation: MWG VN
Current price: VND 114,000; 1Y Target price: VND 192,800 Foreign ownership (%) 49%
• Investment thesis: MWG is a leading mobile phone and 2020 PE/PB 10.1x/2.9x
consumer electronics retailer in Vietnam, occupying 47% 2020 EPS growth (%) 28.5%
and 37-38% of market share in mid-2019 respectively. Dividend yield (%) 1.3%
Back in 2015, the company started to tap into the promising 2020 ROE (%) 35.2%
grocery retail business in order to deviate from the over-
reliance of mobile phones and consumer electronics upon
the economics cycle. With the long term target to grasp 5%
market share for grocery retailing (market size $80 bn
USD), a 50% market share for mobile phones (market size
$5 bn USD) and a 45% market share for consumer
electronics (market size $5 bn USD), the company aims for
a net profit growth of 20-30% in the next few years.
Although MWG is still incurring losses for the grocery Most preferred in sector: MWG VN
segment, a changing store layout and hence optimizing
store space along with the new store opening for consumer 140%
electronics will help MWG to secure bottom line growth in 130%
the next 2 years. According to the company, changing store 120%
layout for DMX stores to add more SKUs will help to raise 110%
revenue by 30%, while most operating expenses will likely 100%
remain unchanged. We estimate a 2020-2021 net income 90%
growth of 32% and 28% respectively. 80% VNIndex HT1 VN Equity
70%
• Catalysts: (1) adding high margin products into CE stores
60%
to utilize currently high traffic at those stores, (2) the
grocery segment is estimated to make positive pretax profit,
starting from 2021.
• Risk: (1) competition from other online retailers, especially
those with strong financial resources, (2) a slowdown in the
mobile phone industry and MWG’s currently high market
share implies slower future growth and (3) high distribution
center costs associated with rapid expansion of grocery
stores.

CONSUMER DISCRETIONARY – AUTOMOBILE

Positive: Still grow but at lower rate
Most preferred: N.a
2019 Highlights Automobile industry performance in 2019
Sector performance
180%
The automobile sector gained 23.7% in terms of market
160%
capitalization in 2019, outperforming the VN Index, which just
increased by 7.7%. This is thanks to VEA, the sector’s best 140%
performer, which increased by 26% YoY. VEA has enjoyed 120%
growth in its bottom line from its 3 JVs: Toyota Vietnam, Ford
Vietnam and Honda Vietnam. These increased in terms of net 100%
income by 35%YoY, 2% YoY and 0.4%YoY for Jan-Sept 2019 80%

VNIndex Consumer Discretionary Automobile
respectively. CTF and HAX also recorded an expansion in terms
60%
of market cap, given its increase of 15.3% YoY and 14%YoY
respectively. Such positive performance came thanks to strong
growth in the passenger car segment, which is shown in the
topline of passenger vehicle companies (HAX, SVC, CTF).
Meanwhile, commercial vehicle companies (HTL, TMT, HHS) Source: Bloomberg, SSI Research
had the opposite experience and swung the other way.
What was expected? Vehicle market, Vietnam
Passenger car sales still grow strong in 2019: The passenger 350 '000 Units
car segment continued to drive the whole market with a growth
300
of 20% YoY (reaching 229.7k units during Jan to Dec), although
250
slower than 31% YoY in 2018. Meanwhile total sales volumes of
200
VAMA members reached 306k units (+11% YoY). In 2019,
customers tended to favor SUV and MPV type vehicles, of which 150
sold volumes were boosted by 60% YoY and 95% YoY, while 100
sedans just increased by 3% YoY. 50
-
Another key player in the auto industry that is not a member of 2015 2016 2017 2018 2019
VAMA, Hyundai ThanhCong (HTC Motor) publicized that the
Hyundai brand also enjoyed strong growth in 2019, with 24.8% Passenger cars CV-Trucks CV-Buses Special-purpose vehicles
in the passenger car segment. In this segment, Toyota Vietnam
Source: VAMA, SSI Research

is the biggest player holding approx. 26% share, followed Market share in Passenger car segment in 2019
closely by Hyundai Thanh Cong and Thaco.
Overall, the auto market in 2019 has shifted towards a 73%
share with passenger cars, 25% for commercial vehicles, and a
Toyota
minor share of 2% for special purpose vehicles (vs. 13%
Hyundai
57%/38%/5% in 2017). 5% 26%
Thaco*
CBU-type vehicles accelerated the pace: The CBU/CKD 11% Honda
(completely built up/completely knocked down) ratio
Ford
experienced significant changes since the tariff tax was
eliminated for vehicles with more than a 40% 23%
Others
22%
localization/regionalization rate. In 2019, CBU-type vehicle
share increased to 41%, much higher than 25% in 2018 and
29% in 2017. In the long-term development strategy, the
government wants the CBU/CKD ratio at 30%/70% or 25%/75% Source: VAMA, Hyundai ThanhCong, SSI Research
by 2025. Thanks to the plentiful supply of CBU type cars having
existed in the market throughout a whole year, customers no Thaco*: Thaco Kia, Thaco Mazda, Thaco Peugeot
longer needed to wait several months to have their desired car
choices delivered to them. Customers also had much more
Total automobile market by CBU and CKD volume
bargaining power in the year, while car dealers had to provide
more promotion programs to enhance or maintain their market 350 '000 Units
share. 300
Knowing how to comply with Decree 116, the number of 250
imported cars skyrocketed: In 2019, according to Vietnam 200

Customs report, the number of imported cars reached 140.3k 150
units, +69% YoY, while total imported value also rocketed
100
correspondingly by 73% YoY. Similar to 2018, more than 85%
50
of CBU-type vehicles still originated from Thailand (accounting
for 54% of the total number of imported CBU vehicles) and -
2014 2015 2016 2017 2018 2019
Indonesia (33%).
CKD CBU
In addition, Vietnam continued to spend over $4.1 bn USD for
imported car parts and components in 2019, equivalent to an Source: VAMA, SSI Research
increase of 16.2% YoY. The largest importers comprised of
South Korea ($1.15 bn USD, +40% YoY), Japan ($720 mn
USD, -8% YoY), China ($707 mn USD, +19% YoY), Thailand Imported cars since 2014
($645 mn USD, +4% YoY) and Germany ($155 mn USD, -10%
YoY). 160 '000 Units
140
In terms of exporting, Thaco group started exporting Vietnamese
120
buses to the Philippines by the end of 2019. Thaco also shipped
100
120 Kia passenger cars to Myanmar at the end of December.
80
Thaco aims to export more than 1,000 cars to both Myanmar
60
and Thailand in the next year. Exported bus and cars also came
40
with Thaco to be waived of any import duties in those countries,
as the localization ratio of the models ensured to reach at least 20
40%. That meets the requirements of the ATIGA in exports to -

2014 2015 2016 2017 2018 2019
ASEAN members. Hyundai also has aimed towards the same
Thailand Indonesia China Korea India Japan Other
target, as Hyundai nominated Vietnam as a production hub to
assemble and export vehicles to regional ASEAN countries, with
Source: Vietnam Customs, SSI Research
a total capacity of 120,000 units per year.

The market swells, carmakers expand capacity: Ford Vietnam

is going to invest an additional VND 1.9 tn (~$82.5 mn USD) in
expanding its automobile assembly and production factory in
Hai Duong. Once FVL finishes upgrades, total capacity will
increase to 40,000 units per year by 2022, a drastic
improvement from the current capacity of just 14,000 units.
Likewise, Toyota Vietnam also has plans to expand its capacity
to 90,000 units per year from the existing capacity of nearly
50,000 units per year.

2018 2019 %YoY
The commercial vehicle segment has not yet recovered (-7% Total imported CBUs (Units) 82,865 140,301 69%
YoY), although pickup truck sales volume increased nearly by CBU with <9 Seats 55,258 102,434 85%
CBU with >9 seats 810 607 -25%
23% YoY in 2019. The impressive growth in pick up type
Truck 24,190 30,410 26%
vehicles did not cover the shrinkage in trucks (all weighting) as Imported value (mn USD) 1,828 3,161 73%
well as buses by volume. Trucks excluding pickup truck types Imported value for parts/ components (mn USD) 3,580 4,161 16%
decreased by -16% YoY, while bus sales plunged by -20%
Source: Vietnam Customs, SSI Research
YoY. Slow growth in the construction industry, as well as
stagnant public investment, might pull down sales of
commercial vehicles. However, it should be noted that there are
many other commercial vehicle brands that are not members of
VAMA, such as Changan, Dongfeng, and Daihatsu, among
others. If including HTC Motor’s sales, commercial vehicles
Vehicle registration fee for the first time
trended downward by just -4.2% YoY in terms of sold volume.
In this segment, Thaco with its Thaco bus and Thaco truck (Fuso Decree 140/2016 Decree 20/2019
Automobiles, except for: 2% 2%
and Foton brand) holds a 34% market share. Ford Vietnam, with
Passenger cars ≤ 9 seats 10%-15% 10%-15%
only pickup truck sales (ie. Ford Ranger), accounted for more Pick up/ VAN 2% 6%-9%
than 20% of market share. Motorcycle 2% 2%
Aggressive penetration of Vinfast in the industry: In Q2, Source: SSI Research

Vinfast respectively delivered the Fadil, Lux A2.0, and Lux SA2.0
models to customers. This is quicker than we originally
expected. In recent, Vinfast provided gifts for customers who
buy real estate in Vinhomes’ projects. Accordingly, Vinfast may
Market share in truck segment in 2019
gift Fadil or vouchers to buy Vinfast brand cars for customers in
the Vinhomes Ocean Park project. From the aspirations of 3%
Vinfast, we hope to see the more improvement in the supporting 8%
4% 4%
industry in Haiphong, and the satellite area where Vinfast’s Thaco*

complex is located. 12% Ford
Vinfast projected that they might not be profitable for as much Hyundai
34% Isuzu
as five years. In early years, Vinfast will focus on developing its
Suzuki
brand to conquer the domestic customer market, and to focus 15%
Toyota
on the export market as well.
Hino
20% Others
Source: VAMA, SSI Research

Thaco*: Thaco Mazda and Thaco truck

2020 View

Vietnam’s vehicle sales forecast by BMI
We expect that the Vietnamese automobile market will continue
to experience double–digit growth in 2020, but growth in the 700
'000 Units
industry might be slower than 2019. The key driver in the 600
industry over the next years still is the increasing desire for better
500
living standards of the middle class and higher disposable
400
income. Additionally, there is also the younger generation to
factor in, who are increasingly more willing to spend on items 300
that enhance their standard of living. Consumption habits along 200

with a favorable interest environment continues to drive the 100
industry in the mid-term. 0
2017 2018 2019F 2020F 2021F 2022F 2023F
We expect the market in the passenger car segment to expand
Passenger car (LHS) Commercial vehicle (LHS)
by around 15% in 2020, compared to 22% up to 11M 2019. The
higher requirements for emission-quality might be a slight
catalyst for the truck and bus segment in 2020. Overall, we Source: BMI, Updated in Q1/2020
expect the auto market to increase by around 11% in 2020.
Meanwhile, BMI estimates that total vehicle sales might amount
to 393k units (+24% YoY), which is comprised of 310k
passenger car units (+28% YoY) and 83k commercial vehicle
units (+9%) that are estimated to be sold in 2020.
Catalysts
• Supportive policy: The automobile industry is considered as
one of the key industries of the economy. Therefore, the
government will provide solutions to enhance local
production. The key bottleneck of the industry up to the
present time is the underdeveloped supporting industry factor
compared to other countries in the region. In March 2019, the Minimum production volume for duty-free eligibility
Ministry of Finance drafted a revision for Decree 125/2017, Minim 2019 2020 2021 2022
um
which provided a preferential import tax program for volum
automobile spare parts for the 2018-2022 period. According e
requir 1H 2H 1H 2H 1H 2H 1H 2H
to Decree 125, automobile makers or assemblers will qualify ement
(‘000
for duty-free imports when importing spare parts for unit)
automobile production if they meet both of the following Eco-
friendly 0.125 0.125 0.125 0.125 0.125 0.125
conditions: (i) automakers (or the assembler) needs to car*
commit to conform to Euro 4 emissions standards in 2018- Total

produc 8.5 8.5 100. 10.0 11.5 11.5 13.5 13.5
2021, and to Euro 5 starting in 2022, and (ii) automakers tion
One
should meet the requirement regarding the production of a commi
3.5 3.5 4.0 4.0 4.5 4.5 5.0 5.0
minimum volume for duty-free eligibility. In actuality, eligible tted
model
carmakers to participate in this special program included
Toyota Vietnam, Hyundai Thanh Cong, and Thaco. As of *Electric/hybrid/CNG or biofuel-powered
recently, the Ministry of Finance wants to place emphasis on Source: Ministry of Finance
environmentally friendly cars like electric cars, hybrid cars, or
cars that entirely run on biofuel or CNG. Hence, Vinfast may
be in the list of eligible carmakers enjoying a waiver on any
tariff taxes thanks to its EV manufacturing business. In

addition, the government can provide more incentives to the

supporting industry, as the proposed policy also slashes
import duties to zero for raw inputs to produce spare parts
for automobiles. That aims to help develop the automotive
supporting industries, and help locally assembled vehicles
compete with imported vehicles.
Issues and risks
Rising air pollution: Given air pollution concerns, private vehicle
restrictions are being mulled over as one of the potential Vietnam automobile vs. regional countries
solutions in big cities. However, we see it as a dilemma due to
insufficient public transportation for citizens, as well as tardy 2.5 2,500
2,094
Millions
metro projects in the context of higher mobility demand.
2.0 2,000
Low localization rate: The average localization rate for
1.5 1,500
produced vehicles is just around 10%, much lower than 80% for
Thailand, and 70% for both Indonesia and Malaysia. This stems 1.0 792 1,000
627
from Vietnam’s underdeveloped supporting industry sector.
337
Vietnam lacks economy of scale for automotive parts and 0.5 276 500
components production. Therefore, made-in-Vietnam parts or 0.2 2.1 1.2 0.6 0.1
0.0 -
components have a much higher price than the same products Vietnam Thailand Indonesia Malaysia Philippines
manufactured in Thailand and Indonesia. This causes the price
Sales volume Production volume Number of auto parts factories
of locally assembled vehicles to be higher than CBU-types by as
much as 20%-25% - presenting a major competitiveness
challenge for Vietnamese automobiles. Hence, Vietnam has a Source: Marklines, Media, SSI Research
challenge in front of it to reach the target of an increasing
localization rate to 40-45% by 2025 for passenger cars with
under 9 seats. The country also has some catching up to do,
after having not met the 35%-40% localization rate goal set in
2020 as according to Decision 1168/QĐ-TTg, the key document
outlining Vietnam’s automotive sector development to 2035.

CONSUMER STAPLES – FISHERIES

Negative: Flat to negative growth in export value expected
Most preferred: N.a
2019 Highlights Fisheries industry performance in 2019
Sector performance
120%
The fisheries sector declined -17.0% in terms of market 110%
capitalization in 2019, underperforming the VN Index, which 100%
gained 7.67%. The share price of VHC, ANV, and MPC all 90%
dropped by -14.7%, -15.1% and -40.4% YoY in respective order. 80%
Meanwhile, the share price of FMC gained 6.7% YoY as of year-
70%
end 2019.
60%
VNIndex Consumer Staples Fisheries
In general, fishery exports have reached $8.6 bn USD in 2019 (- 50%
2.3% YoY) according to the Directorate of Fisheries. This 40%
diverges from the original forecast of the Vietnam Association of
Seafood Exporters and Producers (VASEP) in early 2019, which
estimated that export value might reach $10.5 bn USD (+11.1%
YoY). According to VASEP, export values of shrimp and
pangasius both dropped by -5.4% and -11.4% YoY, while those
of tuna and other fish rose by 10.2% and 16.2% YoY
respectively.
Export values of shrimp and pangasius (USD bn)
We assigned a Neutral rate upon the sector, with VHC as the
best pick at the beginning of 2018. This rating was placed upon 4.00
the expectation of a soft decline in average selling price (ASP) 3.50
3.36
and stable demand. However, the situation was far worse than 3.00
we had originally expected, as the ASP of pangasius in the US 2.50
2.00
slid sharply as Jan-Nov demand from US market even dropped 2.00
to an 8-year low level. 1.50
1.00
0.50
What was expected?
0.00
Shrimp Pangasius
On November 1, the Food Safety and Inspection Service (FSIS)
made final determinations that the Siluriformes fish inspection 2013 2014 2015 2016 2017 2018 2019
systems of China, Thailand, and Vietnam are equivalent to the
system established by the United States under the Federal Meat Source: VASEP
Inspection Act (FMIA) and its implementing regulations. The

news arrived late, but was in line with market expectations from
the beginning of 2019. Nonetheless, it is still very challenging
for pangasius exporters other than VHC and Bien Dong to enter
the US market, as the ASP in the US has gone down significantly
to as low as $3.10 USD/kg in November. Thus, it may no longer
be profitable to export to the US at such a low-price level, as
anti-dumping duties remains high ($2.39 USD per kg for
Vietnam-wide exporters), and $1.37 USD per kg for some select
exporters.
Export markets of shrimps and prawns in 2019

What was not expected?
(2018: IC, 2019: EC, value in USD mn)
• Shrimp and pangasius exports both declined for different
reasons. Shrimp exports had declined by -5.4% YoY
to $3.36 bn USD, mainly due to competition from other
520, 16%
exporting nations. In contrast to the forecast of Marine 690, 21%
Products Export Development Authority of India (MPEDA), EU

561, 16%
which expected India’s shrimp production in 2019 to fall 838, 23%
US
sharply by 20-25% as Indian farmers had scaled down and 337, 10%
386, 11% Japan
disease had been somewhat out of control, Indian
China
production has actually inched up marginally. Therefore,
638, 18%
the raw shrimp price has defied expectations and has 492, 14% 654, 19% Korea
instead moved sideways vs. the previous year, reaching its 543, 16% 639, 18%
Others
bottom in June at VND 84,000 per kg during the main
harvest period in India. This was a significant impact upon
the market, as India is the biggest shrimp producer in the 619, 18%
world. However, prices did start to pick up gradually as it

got closer to the end of the year. As of December 26, the Source: VASEP
raw shrimp price stood at VND 95,000 – 97,000 per kg,
gaining roughly 13.9% from its trough and 4.3% YTD.
Increasing competition from Latin America (such as Export markets of pangasius in 2019
Ecuador and Chile) and other ASEAN countries (such as
Thailand and Malaysia) in processing shrimp also had (2018: IC, 2019: EC, value in USD mn)
dragged down Vietnamese export value of processed
shrimp by -9.3% YoY. This marked the end of 3 consecutive
years of growth during 2015-2018 (w/ a CAGR of 8.3%).
Shrimp materials also slid by -2.8% YoY in terms of export
623, 31%
663, 33%
value in 2019. Among the top 5 export markets which 529, 23% China
accounted for a total of 83.5% of Vietnamese shrimp export 737, 33%
US
value, export values fell in EU (-17.7% YoY), Japan (-3.3% EU
YoY), and South Korea (-12.5%), while rising in both the US
ASEAN
(+2.5%) and China (+10.3%). 549, 24%
203, 9% Others
Pangasius export value fell largely by 11.4% YoY to $2.0 bn 244, 11%
195, 10%
USD as a result of low demand in the US after importers
288, 14%
had fulfilled their inventory with expensive fish fillets.
235, 12%
Demand from the US has remained at a low level since
February. Low demand exerted downward pressure on the
ASP of pangasius fillet in the US market. After having Source: VASEP
reached its peak in November and December 2018 at $5.21
USD per kg, the ASP for the US market had slightly declined

throughout Q1 as expected, and continued to remain at high Raw shrimp price

levels ($4.90 – 5.00 USD per kg, compared with its normal
120,000
range of $3.30 – 3.70 and the 2018 ASP of $4.62). 2018 2019
However, to the surprise of many, it started to fall sharply, 110,000

reaching $3.10 USD per kg in November, losing -40.5%
VND per kg
100,000
YTD.
90,000
With the significant decreases in both demand and ASP,
80,000
exports to the US dropped by -47.6% YoY in 2019. Exports
to EU and ASEAN have slightly declined by -3.5% and -3.6% 70,000
YoY respectively. Meanwhile, exports to China has surged 60,000

by 25.3%, making China the biggest export market of Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Vietnam pangasius (with an export value of $662.5 million
USD), more than doubling its now second most important
Source: VASEP, SSI Research
market of the US (export value of $287.8 million USD).
• The raw pangasius price also dropped to historically low
levels, moving at around VND 18,000 – 20,000 per kg Vietnam pangasius ASP by export market
throughout the last 6 months of 2019, owing to weaker
6.00
demand from the US. Cumulatively, as of November, export 5.21 US
volume to the US reached 76,000 tons, down by -27.3% 5.00 China

YoY. It is widely believed that many farmers have suffered a
loss, as the raw pangasius price remained below VND 4.00
3.10
20,000 per kg.
USD per kg
2.87
3.00
• Policy changes in 2019 were mixed, with both positive 1.96
and negative news for Vietnamese fisheries exporters. 2.00
POR13 final results for Vietnamese exporters of frozen

1.00
shrimp to US, announced in August 27, 2019, had been in
line with preliminary results published on April 22, which 0.00
had removed the anti-dumping tax for 31 Vietnamese
shrimp exporters. This includes names such as CASES,
FMC, NhaTrang Seafoods F17, HAVICO, etc. These
companies used to be levied a rate of 4.58-4.78% before Source: ITC, SSI Research
the POR13 preliminary results. POR14 preliminary results
for Vietnam shrimp export were unchanged, as per the
results published on September 12th. Raw pangasius price
On the other hand, POR14 final results for Vietnamese 40,000 2018 2019
exporters of frozen fish fillets, announced on April 29, were 35,000
significantly different from the preliminary results, with 30,000
VND per kg
duties levied upon HVG increasing from $0.00 per kg to 25,000

$3.87 per kg, and for others from $0.41 per kg to $1.37 per 20,000
kg. After that, POR15 preliminary results were announced 15,000
on October 22, which added NhaTrang Seafood (NTSF) and 10,000
CanTho Import-Export Seafood Joint Stock Company 5,000
(Caseamex) into the list of exemption for anti-dumping -
duties. However, as these two companies account for a Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
marginal fish fillet export value, we expect insignificant

changes despite the POR15 final results, which are Source: VASEP, SSI Research
scheduled to be published in February.

2020 View

It is very likely that fisheries’ export in 2020 will fail the target as
specified in the Master Plan on Fisheries Development of
Vietnam to 2020 dated September 16, 2010, in which total
exports were expected to reach $11 USD bn – equivalent to an
YoY growth of 27.6%. The Directorate of Fisheries aims at 2020
total fishery exports of $10 bn USD, while the Ministry of
Industry and Trade forecast stands at $9 bn USD. Many fishery
companies also believe that export volume will recover based
on a lower ASP, boosting sales value in the process.
VHC has released Q4’2019 results, in which net sales and net
profit reached respectively VND 7.867 tn (-15.1% YoY) and VND
1.18 tn (-18.1% YoY). For 2020, we currently estimate net sales
and net profit to reach VND 8.391 tn (+6.6% YoY) and VND
1.033 bn (-12.5% YoY) in 2020. This projection is based on the
assumption that ASP in 2020 may decline by -10.2%, while
export volume may recover by 20% with a bounce-back from
US demand. Although ASP has fallen sharply recently, the high
levels of ASP at the beginning of 2019 led towards a high ASP
for 2019 as a whole. Hence, though we do expect ASP to
recover from the currently low levels, we still expect to see a
weaker ASP on an annual basis. We expect the gross margin to
reduce from a 2019 of 19.5% to a 2020E of 18.3%.
Our investment stance: Negative, due to lack of growth
catalysts amid fierce competition from other exporting nations.
Therefore, we expect flat to negative growth for the export value
of shrimp and pangasius – the two key export products of
Vietnam fisheries.
Catalysts
EVFTA will bring some immediate benefits for the Vietnam
fisheries industry. For Vietnamese raw shrimp, exporting tariffs
to the EU will be reduced from the current 4.2% (according to
the Generalized System of Preferences, or GSP) to 0% right after
the EVFTA becomes effective. Applied tariffs on processed
shrimp will remain at 7% for 2 years, but by no later than
December 31, 2023 will it jump to 12.5% and be removed in the
next five years. Applied tariffs on pangasius frozen fillets –
currently standing at 5.5% according to the GSP – will be
removed in three years. From our perspective, these catalysts
are more likely to support Vietnam exports in the long term rather
than the short term. The tariff reduction in the short term is
marginal, but over the long term it will support Vietnam exports
as the GSP will expire by the end of 2023, precisely when
Vietnamese competitors such as India, China, and Thailand have
yet to achieve any FTA with the EU.

Issues and risks

The continuing intense competition from other whiteleg shrimp
exporting nations such as India, Ecuador, China, and Thailand
may continue to dampen growth prospects for Vietnamese
shrimp exports, especially in the case of raw shrimp.
Unpredictable developments in the US-China trade war may
shake the global fisheries industry and affect Vietnamese
fisheries’ exports enormously, as it has done in the last 2 years.
Chinese tilapia is the main competitor with Vietnamese
pangasius, with a total export value of $275 USD mn (-18.1%
YoY) compared with the Vietnamese pangasius exporting of
$233 USD mn (-45.8% YoY) worth during the same period.
China was the biggest exporter of processed shrimp in the
world, accounting for 37% of total exports, followed by Vietnam
with a 13% share. China was also amongst the Top 5 of raw
whiteleg shrimp exporters with a 4.4% share, while Vietnam was
the third-largest exporter with a 7.4% share.

CONSUMER STAPLES – DAIRY

Negative: Single digit growth continues
Most Preferred: N.a
2019 Highlights Dairy industry performance in 2019
130%
Sector performance
120%
The dairy sector gained only 0.5% in terms of market 110%
capitalization in 2019, underperforming the VN Index which rose 100%
by 7.7%. The VNM share price increased in tandem by just
90%
0.72% on low 2019 earnings growth, while the QNS share price
80%
dropped by –20.5% due to continuous selling pressure of VNIndex Consumer Staples Dairy
internal shareholders. Its earnings went flat YoY. Meanwhile, the 70%
GTN share price surged 84.5% in 2019, which was sparked by 60%
the VNM acquisition.

Overall, sector performance is slightly behind our Neutral
recommendation, set at the beginning of 2019.
What was expected Quarterly milk based value growth
• Persistently weak consumption: 12%
10%
According to Nielsen, milk-based consumption started to
8%
stabilize in Q2 2019 after 6 consecutive declining quarters since 6%
Q4 2017. While positive, growth rates are low at 2.1-3.9% YoY, 4%
being roughly equivalent to CPI. Amongst FMCG categories, the 2%
milk-based category (which accounts for 13% of total FMCG 0%
consumption) was one of the top laggards.
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
4Q18
1Q19
2Q19
3Q19
4Q19
-2%
-4%
However, the data is at odds with itself when in the hands of -6%
various third- party independent market research firms. -8%
According to Euromonitor, the total Vietnam dairy market had by -10%
contrast reached VND 121 tn in 2019, up an acceptable 8.9%
YoY. By this data, drinking milk and yogurt consumption had Source: AC Nielsen
actually outperformed (+9.9% and +11.6% by volume), while
infant formula and condensed milk growth were similar to what
Nielsen found (+2.1% and 2.7% YoY). Standard infant milk
became less favored, as breastfeeding has been widely
promoted. Meanwhile, for toddlers there are lots of alternatives,

such as fresh milk, vegan milk, cereals, fresh porridge, and FMCG consumption by category (MAT TY as of 4Q19)
others.
Baby care
-1.8%
• Some structural trends that impact the dairy sector:
Milk bases 1.8%
- Increased consumption of plant-based milk: Soymilk Personal Care 3.6%
and malt-based milk are considered the best Home Care 3.7%
alternatives for dairy milk, thanks to their high protein Cigarette 5.8%
contents. According to Nielsen, total branded soymilk Foods 6.2%
consumption value grew by 13% YoY up to 10M 2019,
Beer 10.1%
and Vinasoy’s sales growth was 15% YoY up to 9M
Non-alcoholic beverages 8.3%
2019.
-4.0% -2.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0%
- Modern Trade rapidly takes off: Sales through
modern trade channels have been growing at double Source: AC Nielsen
digits for years now, yet its share to total FMCG sales
was only 11%. Sales through the modern trade FMCG Dynamics
channel is a prize to be won, as competition is rife and 10.0%
the entry barrier is low. 9.0%
8.0%
- Premiumization continues: Domestic companies 7.0%
have shifted to cater to the rising appetite for premium 6.0%
5.0%
products. Vinamilk for example had launched a
4.0%
number of premium SKUs, such as organic fresh milk, 3.0%
organic infant formula, A2 infant formula, and 2.0%
outsourcing its powdered milk in Japan (to then import 1.0%
back to Vietnam). Nutifoods partnered with Asahi to 0.0%
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
4Q18
1Q19
2Q19
3Q19
4Q19
introduce baby foods in Vietnam. Ikigai Vietnam also
launched Meiji products within Vietnam.
Source: AC Nielsen
- Raw milk price increased; so did ASP. According to
Global Dairy Trade, the skim milk powder price rose FMCG sales growth at MT
30% YoY, and the whole milk powder price increased
by 4% YoY. In order to protect their margins, we did 18.8%
17.3%
observe key players such as Vinamilk, TH Milk, and 16.2% 16.3% 16.0%15.8%
Dutch Lady had raised their sales prices by 1-5% in 13.1%13.1%
11.9%
2019. 11.7%
11.0% 10.8%
9.2%
- Exports to the Chinese market: After years of waiting,
Vietnamese dairy finally got the greenlight of being
permitted to export its products to China. A highly
competitive yet very lucrative market, just a small
piece of this $60 bn USD market could be very
meaningful for the future growth of Vietnamese dairy
companies. Source: AC Nielsen

Milk powder prices (USD/ton)

7,000
6,500
6,000
5,500
5,000
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
-
WMP SMP AMF
Source: Global Dairy Trade

Sector consolidation: Although there had been a rumor on the VNM’s quarterly market share and sales growth
market regarding the deal, VNM only announced its tender offer 62.0% 12.0%
in March 2019, and completed acquiring a 75% stake of GTN in 61.5% 10.0%
December 2019. As such, VNM will start to consolidate GTN as 61.0% 8.0%
60.5% 6.0%
a subsidiary in 2020. 60.0% 4.0%
59.5% 2.0%
Jan-Sept performance of dairy companies
59.0% 0.0%
Up to 9M19, VNM respectively posted VND 42.07 tn in net sales, 58.5% -2.0%
58.0% -4.0%
(+6.4% YoY) and VND 8.38tn in net profit (+5.8% YoY).
57.5% -6.0%
Domestic sales grew at 6.1%, which was in line with 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19
management estimates of 5-7% growth by volume. Still, these
Market share by Volume (%) Domestic sales growth
figures fell behind market expectations.
The QNS soymilk business outperformed, with sales growth of Source: Company
15% YoY and PBT growth of 24% YoY up to 9M 2019. QNS has
recently announced its 2019 preliminary results, with net sales
and PAT having reached VND 8 trillion (-0.4% YoY) and VND 1.2
trillion (-2.9% YoY). These results are in line with our forecast of
VND 8.3 trillion and VND 1.26 trillion respectively.
Moc Chau Milk’s sales slightly increased by 4.1% YoY up to 9M
2019
At the end of Q3 2019, VNM market share in terms of volume
totaled 61.3%, gaining 0.3% compared to 2018.
2020 View
Growth trend: single digit growth continues

Vietnamese consumers in general start to spend less on FMCG
essentials when their basic needs are all covered. When this is
attained, they generally channel their spending instead on
indulgences (out of home consumption) and discretionary items

for pleasure in a general aim to enhance quality of life. While 2019-2024 CAGR by volume
dairy demand in the urban market has already approached the
14.0%
11.9%
market saturation point, consumption in the rural market has 12.0%
been largely fluctuating due to increasing dependence on 10.0%
9.5% 9.3%
agricultural commodity prices, which in turn play a role on how 8.0% 7.0% 7.0%
much disposable income the rural market has and thus expends 6.0%
3.7%
on FMCG products. 4.0%
2.0%
In short, we expect the above-mentioned structural trends to 0.0%
continue, which will place further impacts on the dairy sector in -2.0% Drinking Standard Liquid Yogurt Other Cheese Soymilk
milk milk growing dairy
Vietnam. -4.0%
formula up milk products
-6.0% formula
The categories of increasing consumption include fresh milk, -8.0% -6.0%
yogurt (especially drinking yogurt), and high value-added
products like cheese, while demand for standard milk formula Source: Euromonitor
and condensed milk will stagnate.
VNM (Neutral, TP: VND 139,000): For 2020, our key
assumptions consist of the following:
(1) A domestic sales growth of 7% YoY. This is due to a 5-6%
volume growth and a 2-3% price increase from a change in
product mix, as well as additional revenue from new products
launched in 2019 and milk school programs;
(2) Overseas sales growth of 10-12% YoY;
(3) Raw-material prices to be 4% higher in VND terms;
(4) A SG&A-to-sales ratio of 25.5% (vs. 25.2% in 2019);
(5) A CIT rate of 18% (vs. 17.5% in 2019). Hence, we cut our
2020F net profit by 2.2%.
As such, we estimate VNM to post an 8.1% and 6.9% YoY
growth in revenue and net profit for 2020. The tax rate will
gradually rise to 20% by 2022, which is a factor that is likely to
weigh on net profit growth.
Pro-forma estimates: VNM is going to consolidate GTN as a
subsidiary in 2020. As we do not expect a significant synergy
being created soon, we nevertheless estimate the consolidation
will add 6%/1-2% to VNM revenue/net profit at maximum in
2020 (we do not take into account of any financial income from
GTN’s non-core divestment).
QNS (Outperform, TP: VND 37,000): We estimate growth
momentum will continue for Vinasoy, thanks to new launches in
2019-2020. As such, we estimate soymilk sales growth at 12%
YoY.
Catalysts
• State divestment from VNM from the current level of 36%
• Domestic dairy consumption to recover stronger than
expected.

• Export sales to thrive, especially the Chinese market

Issues and risks
• Prolonged weak domestic demand for dairy products,
lower than expected export sales.
• Rising competition from substitutes and imported products
• Milk powder price to increase: USDA forecasts the global
dairy price to go up by 4% YoY in 2020, while Rabobank
shares the same view of a price uptrend
• Concerns over food safety in the industry have been
heightened upon increasing consumer awareness. Thus,
any incidents related to product quality will tarnish the
companies’ reputation and its business.

CONSUMER STAPLES – BEER

Neutral: Low double-digit growth but high valuation
Most Preferred: N.a
2019 Highlights Beer industry performance in 2019
120%
Sector performance
110%
The beer industry underperformed the VN-Index by 12.6% in
2019. This is chiefly because the sector is overwhelmingly 100%
comprised of SAB, which declined by -14.3%. We had
recommended to go Underweight the sector at the beginning of 90%
2019, as we expected its valuation would be on the decline.

80%
Key Reasons for underperformance of the sector VNIndex Consumer Staples Beer
70%
SAB: Despite having recorded an encouraging net profit growth
of 23% YoY up to 9M 2019 thanks to ThaiBev’s effective 60%
restructuring program, the SAB share price nevertheless could

not move in line with its earnings growth. Investors continue to
believe that its valuation is still far too high. Such a belief may Source: Bloomberg, SSI Research
be warranted, considering that it has been trading at a PER of
30x vs. peers of 26x. Vietnam’s beer volume by MoIT
BHN: The company continued to post disappointing results 5000 12%
where its net profit declined by -7% YoY up to 9M 2019. 4500
However, its share price increased by 1.5% YoY anyways, likely 4000
10%
due to low trading liquidity. 3500

8%
3000
Key highlights on sector 2500 6%
2000
What was not expected? 4%
1500
Higher volume growth compared to recent years: Vietnamese 1000
2%
beer volume reached 4.6 billion liters, up 10% YoY in 2019. This 500
was higher than growth experienced in the last 2 years (5%-6%) 0 0%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
as younger Vietnamese have prioritized going out more to drink
Total volume (million litres) YoY (%)
in the pursuit of seeking new experiences and socializing.
According to Kantar survey samples, the number of households Source: MoIT
who agree that they eat and drink outside the home more
regularly than before increased by 40% between 2015-2019.
According to Nielsen, beer consumption by value increased by
12.2% YoY in Q3 2019, which outperformed other FMCG-types

by consumption within Vietnam (see below). Vietnam’s beer market (2018)

What was expected? 1%
0%
Sabeco
1%
Companies continued to aggressively compete for market 2% 9% Vietnam Brewery Ltd
share. Habeco
7%
• Sabeco restructuring results: Major changes to improve 43%
Carlsberg
sales and reduce costs were carried out during the year, Sapporo
which has since materialized into an effective outcome upon 14%
Thanh Hoa Beer JSC
SAB financial results. From rebranding and active marketing
campaigns to supporting distributors, SAB has gained ~ San Miguel
2% of market share vs. 2018. By cost-cutting initiatives in 23%

AB InBev NV
the supply chain and logistics, SAB has improved its
Others
profitability, illustrated by NPM having increased from 13%
back in Sept 2018 to 14.4% in Sept 2019. Source: Euro Monitor
• SAB total sales reached VND 37.9 tn (+5.4% YoY) and net
profit reached VND 5.4 tn (+22% YoY) in 2019, having
achieved 97.5% and 138% of its annual net sales and net
profit target for the year.
• BHN total sales reached VND 6.7 tn (-1.5% YoY). Net
income reached VND 474 bn (-7% YoY) up to 9M 2019.
• During the year, both SAB and BHN rebranded their
products and extensively carried out various marketing
campaigns to promote them. According to management of
both companies, SAB has gained market share, while BHN
continued to lose market share to SAB and Heineken.
Heineken: In Asia Pacific, beer volume reached 10.4% YoY in 1H
2019, driven by Tiger’s strong performance in Vietnam.
Source: Nielsen

2020 View

• According to Euromonitor, Vietnamese beer volume will
reach 4.9 billion liters in 2021, which is equivalent to a
Vietnam’s beer volume by EuroMonitor
CAGR of 5.5%. Standard and premium beer volume will
grow at a CAGR of 5.5% and 7% respectively, in which 4500 14%
imported premium products are expected to register their 4000

12%
highest volume growth, at 10.3%. 3500
10%
3000
• In our view, due to the effect of the law on prevention of
2500 8%
alcohol abuse, beer volume growth in 2020 will not be in
2000
double digits. We forecast the growth rate to settle into a 6%
1500
growth track of 6-7% YoY in 2020. 4%
1000
• As per Decision 1092/QĐ-TTg approving the national health 2%
500
program, we expect the special consumption taax might
0 0%
increase further from the current rate of 65%. However, 2010 2011 2012 2013 2014 2015 2016 2017 2018
there is no discussion brewing at the moment regarding any Total volume (million litres) YoY (%)
specific date in the near future when this might occur.
Source: Euro Monitor
• For SAB, we currently estimate 2020 sales and net profit to
reach VND 44.4 tn (+10% YoY) and VND 6.1 tn (+12%
YoY) respectively.
Our Investment stance: Neutral, due to high valuation.
Although we forecast that SAB net profit will increase by 12%
YoY, it is being traded at 2020 P/E levels of 27x and EV/EBITDA
of 16x. This is higher than the industry peer average of 24x in
P/E and 14x in EV/EBITDA.
Catalysts
• State divestment of BHN to take place in 2020. However we
do not expect a high valuation due to lackluster recent BHN
performance. Carlsberg is being considered as the likely
buyer.
• Domestic beer consumption stronger than expected.
Issues and risks
The National Assembly approved the law on prevention of
alcohol abuse, which will be effective on 1/1/2020. Measures to
reduce liquor and beer consumption include: (i) a prohibition of
advertisements in events and in media at a specific timeframe,
(ii) ban of sales at specific public places such as hospitals and
schools; ban of sales to under 18; and (iii) prohibition of driving
after drinking beer or spirits. Additionally, the government will
also increase its public campaigns to educate consumers on the
negative impact of overconsumption of alcoholic drinks on their
daily lives. While this will impact the entire industry on sales
volume, smaller brands will be more adversely hit, as opposed

to incumbent market leaders such as Sabeco and Heineken,

whose brands are already familiar with consumers.

OIL & GAS

Neutral: Growth trending to small companies
Most Preferred: PVD, PVS
2019 Highlights Oil & gas industry performance in 2019
Sector performance
The energy sector’s market capitalization increased by +1.9%
130%
in 2019, markedly underperforming the VNIndex (+7.7%). Such
120%
performance was a bit off target from our forecast (we placed a
neutral view on the sector at the beginning of 2019). 110%
Performances, however, diverged amongst stocks. GAS 100%
(+13%) and PVD (+13.4%) outperformed the VNIndex thanks
90%
to a strong Brent oil price upsurge of 43% YTD running up to VNIndex Energy
April 2019, while PVS only increased by 3%. The PLX share 80%
price was up 9.9%, outperforming the VNIndex. However, a 70%

sharp drop of -39.8% in the BSR share price and -45% in the
OIL share price (of which we had an Underperform view at the
beginning of 2019), spoiled the performance of the overall Source: Bloomberg, SSI Research
energy sector.

Brent crude oil (USD/bbl, RHS) and Fuel oil price (USD/ton)
• Oil price movement
A lower oil price in 2019 is what we expected at the beginning 550 90
85
of the year. The Brent crude oil price in fact averaged out to $64 500 80
75
USD/bbl (-10% YoY) in 2019. From the low level of $53.80 450
70
USD/bbl on 31 December 2018, Brent crude oil entered the 400 65
60
uptrend territory, soaring to $74.50 USD/bbl on 23 April 2019 350 55
50
as Trump’s administration announced the end of waivers 300 45
40
connected to US sanctions applied to Iran’s largest customers 250
35
such as India, China, Japan, and South Korea. After that, the oil 200 30
25
price continuously corrected from the rising concern of weak 150 20
Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 Jul-19 Oct-19
global oil demand impacted by the US-China trade war, while
US oil inventory and export volume continuously rose. The oil
price strongly rose by 14.3% on only 2 days (15 and 16 Source: Bloomberg
September 2019), when a drone attack on Saudi Aramco
refinery causing a possible supply shortage of 5% globally.
However oil price soon corrected, as production was fully
restored within several following weeks. There were positive

developments from US-China trade talks in last month of 2019 PVN’s key metrics (2016-2019)
coupled with OPEC’s deepened output cuts agreed to for Q1
2019 (Brent
2020. Saudi Aramco finally completed the biggest IPO ever in Key metrics of PetroVietnam 2016 2017 2018
@60USD/bbl)
the world in December 2019, by offering 1.5% of its stake for Brent crude oil price (USD/bbl) 43.7 55.2 71.8 64
$25.6bn USD, implying the valuation for the world’s largest oil Increase oil reserve (mn tons) 16.66 4 12 13.38
company at $1.7tn USD. As such, the oil price increased during Crude oil exploitation (mn tons) 17.23 15.52 13.97 13.11
Dry gas exploitation (bcm 10.61 9.89 10.01 10.22
the last months of 2019 and ended the year at $67USD/bbl
Investment (VND tn) 47.3 39.2 40.9 30.4
(+2% YTD). PVN revenue (VND tn) 249.4 267.2 321 396.9
PVN net profit (VND tn) 16.6 37.19 38.64 35.2
• E&P activities
According to BP statistics at the end of 2018, Vietnam ranks Source: PVN
third in terms of proven oil reserves in the Asia-Pacific region,
with 4.4 billion barrels (R/P ratio of 44 years) and proven natural
gas reverse of 600 bcm (R/P of 60 years). However, it is difficult Exploration activities in Vietnam (2011-2019)
to exploit these reserves as they are located in deep water and 60
in geopolitically disputed areas. 48.8 48.3
50
40.5
(*) R/P ratio: reserve to production ratio 40 35.3 34 35.7 33
30 30
26
✓ In 2019, Vietnam’s exploited volume reached 13.11 mn 30
16.7
tons of crude oil (-6.2% YoY) and 10.2 bcm of natual gas 20
11 11 11 12 12
13.38
9
(+2% YoY), which is in line with our expectations. The 10 3 2
5 3 4 2
1 1 1
country has been facing drop in crude and gas production 0
volume since 2015, as fields with rich reserves and close 2011 2012 2013 2014 2015 2016 2017 2018 2019
to the shore such as Bach Ho, Te Giac Trang, Hai Su Trang, Exploration (well) Newly discovered Reserve increase (mn tons)
Lac Da Vang, Rong Doi, Lan Tay, Lan Do, and 12W are
drying up, while misallocated investments were executed in
Source: PVN
order to increase proven reserves during this period. This
reflects the fact that increases in oil&gas reserves have
been much lower compared to exploitation volumes in
2016-2019 period.
✓ Market sentiment on oil&gas stocks were somehow
affected by geopolitical issues in 2019. Maritime tensions
continued to flare offshore Vietnam, as Chinese survey ship
assets work near Vietnamese waters around Vanguard
Bank, and China’s CNOOC rig was moved into Vietnamese
claimed waters near the Paracel Islands in September-
October 2019.
✓ Progress of mega projects Blue Whale and Block B
remained stunted in 2019. One of the key issues lie within
gas pricing schemes which have not been finalized. The
final investment decision for Blue Whale was not reached in
2019 as previously expected. As such, from a previous
expectation of welcoming the first extraction in 2023 for
Blue Whale and in 2025 for Block B, a further delay is now
likely the case.
Key projects that were kickstarted in 2019:
Nam Con Son 2 phase 2 includes an offshore pipeline system
with a capacity of 7.7 bcm to transmit gas from Thien Ung-Dai
Hung (2015), Sao Vang-Dai Nguyet (2020), Su Tu Trang

(2023), and onshore pipelines to GPP2 and electricity plants in Upcoming LNG complexes
Phu My, with a total investment of $640 mn USD. EPC contracts Year of
Develop
have been finalized. First gas extraction from Sao Vang is Name MW Status
ers
comme Gas source
nce
expected in Q4 2020 and the equivalent from Dai Nguyet is
Announ PVPowe LNG Thi
expected in 2021. Nhon Trach 3 750
ced r
2023
Vai
Announ PVPowe LNG Thi
Nhon Trach 4 750 2024
LNG Thi Vai includes the LNG terminal and regasification facility, ced r Vai
with first phase capacity of 1.4 bcm equivalent dry gas in 2022, Announ Maruben
O Mon 2 750 2023 BlocK B
ced i
and 4.2 bcm in the 2nd phase. Total investment is at $285 mn Announ
O Mon 3 750 EVN 2023 BlocK B
USD for the first phase. ced
Announ
O Mon 4 750 EVN 2025 BlocK B
Developing LNG power plants has become a key focus in ced
Announ 2024-
Vietnam: Two LNG electricity complexes, including Son My 2 Mien Trung 1,2 1,500
ced
PVN
2025
Blue Whale
and Bac Lieu, were approved to be added to the Revised Power Dung Quat 2 750
Announ Sembco
2026 Blue Whale
ced rp
Development Plan (PDP) VII by the government in 2019. This Announ
Dung Quat 1 750 EVN 2025 Blue Whale
showcases the nation’s prioritization to switch from coal-fired ced
Announ
to gas-fired plants, and to ensure electricity security in the Dung Quat 3 750
ced
EVN 2025 Blue Whale
coming years. Son My 2 2,250
Announ
AES
2026- LNG Son
ced 2028 My
As such, the LNG market will become heated, with many Son My 1 2,250
Announ GDF/Soji
2027
LNG Son
ced t/Pacific My
industry players coming to the playground in the coming years. Announ Delta LNG Bac
Bac Lieu 3,200 2024
ced Offshore Lieu
2019 corporate earnings diverged amongst oil&gas Announ After
Kien Giang 1,2 1,500 N.a N.a
companies: ced 2030
Pre-
• GAS: According to GAS, consolidated revenue could reach Ca Na 6,000 permite Gulf N.a LNG Ca Na
d
VND 77 tn (+2% YoY), and PBT could be at VND 14 tn (- Pre-
LNG Long
3.4% YoY). Profit is thus lower than expected (of VND 16 Long son 3,600 permite N.a N.a
Son
d
tn in PBT for 2019), mostly because the company could not
finalize its contracts with Phu My BOT 2.2 and 3 power Source: Revised PDP7, SSI compiles
plants in 2019 to retrospectively record an amount of
approx. VND 1.6 tn PBT in Q4 2019 as we previously
expected. According to management, those 2 power plants
are still waiting for the new purchasing power agreement
with EVN to ensure that they could transfer a higher input
gas price to electricity price first. When this is satisfied, they
will then sign the contract with GAS.
Therefore, should we exclude impact of the new price
PVD’s average rig utilization and day rate
applied for Phu My 2.2 and 3 as mentioned above, our 2019
PBT forecast arrives at VND 14.4 tn, which is in line with 180 120%
GAS core business performance. 160
100%
140
• PVD: It is estimated that PVD will record VND 4.5 tn revenue 120 80%
(-18% YoY) and VND 88 bn in net earnings to parent 100
60%
80
shareholders (-53% YoY). There was a drop in net earnings,
60 40%
mostly due to lower reversals from bad debt provisions for 40
20%
PVEP, which was at VND 32bn in 2019 (vs. VND 121bn in 20
0 0%
2018)
2013 2014 2015 2016 2017 2018 2019 2020F
The JU rig utilization rose from 85% in 2018 to 90% in
Average day rate ('000USD) JU rig utiliization rate (%)
2019, with the day rate having averaged at $57.5k USD, up
3% YoY.
Source: PVD, SSI estimates
• PLX: Running 9M 2019 results: Revenue and gross profit

in the first 9 months of 2019 virtually flatlined at VND

140.34 trillion (-1.8% YoY) and 10.7 trillion (+0.1% YoY).
However, PBT still attained an encouraging growth of
10.6% YoY, reaching VND 4.371 tn driven by the increase
in foreign exchange rate gains to the tune of a net VND 357
bn. Domestic petroleum sales volume of PLX up to 9M
2019 reached 7.74 mn metric tons, increasing by 6% YoY.
Sales volume via the COCO (company-owned, company
operated) channel increased by 4% to 4.114 mn m3,
constituting 57% of total domestic volume. Up to 9M 2019,
PLX opened 63 new COCO stations, which helps to
increase the total number of COCO stations by around 2.4%
YTD to nearly 2700.
According to interim result, PLX achieved VND 5.486tn PBT
(+9% YoY). Total sales volume reached 13.6mn tons, up
6% YoY.
• OIL: 2019 consolidated revenue is estimated to reach VND
70 tn, an increase by 14% YoY. However, PBT is estimated
to drop by -29% to just VND 420 bn, due to the drop in oil
prices that led to a contraction in the company’s gross
margin. Total petroleum sales volume in 2019 is estimated
to increase by 1.8% YoY to 3.15 mn m3/tons. Of this
amount, retail volume increased by 5.8% to 0.75 mn
m3/tons, accounting for 26.4% of total sales volume
compared to 25.4% in 2018.
• BSR: Production volume in 2019 is estimated to maintain
stable at 6.94 mn tons, exceeding the annual target by
7.4%. 2019 revenue and net profit are estimated to drop by
-8% YoY and -38% YoY respectively to VND 103 tn and
2.2 tn respectively. The significant decline in net profit is
attributed to the contraction in the crack spread, especially
in Jan, Feb, Jun, and Dec 2019.
2020 View
There are key factors in the oil & gas industry/market that will
Brent crude oil price forecasts in 2020
impact the outlook of the sector in 2019, and in upcoming years:
Source 2020F Day of published forecast
• Oil price: Bloomberg consensus 61.8 1/13/2020
Goldman Sachs 63 12/6/2019
Most updated market consensus forecasts for the Brent oil price Morgan Stanley 61 12/8/2019
average out to $62 USD/bbl (-3% YoY), and we take it as our JP Morgan 64.5 12/17/2019
base case assumption for 2020. However, recent escalated EIA 61 12/10/2019
Reuter Polls 63 12/31/2019
tension between the US and Iran after the US counter-terrorism
Average 62
air strike killed Iran’s top general could drag on, and become a PVN plan 60
causation factor for an oil price rally. SSI assumption 62
• Special focus projects must be accelerated due to the

urgency of the nation’s energy security issue.

According to PVN, Vietnamese crude output is expected to
decline at an average annual rate of -10% through to 2025. Gas
shortages will also persist through 2024 before Block B comes
on stream. As such, the development of oil&gas fields such as
Su Tu Trang phase 2, Block B, Blue Whale, besides investing in
LNG complexes, are critical pillars for the nation’s energy
security.
2019-2020 Earnings outlook: Overall, we expect the energy
sector to post single digit net profit growth in 2020, mostly
because earnings of large companies like GAS and PLX are
estimated to be modest in scale.
• Upstream: PVS, PVB, PVD
Upstream companies such as PVS and PVB will continue to
benefit from ongoing projects, such as Sao Vang-Dai Nguyet,
Nam Con Son 2 phase 2, and LNG Thi Vai in 2020, while the
backlog from Nam Du U Minh, Blue Whale, and Block B will likely
not be counted in 2020. PVB earning prospects are contingent
upon GAS investments in new pipelines, including a 126 km
length of Nam Con Son 2 phase 2 offshore pipeline, and a 26km
length of Sao Vang Dai Nguyet pipeline, with a total contract
value of $47 mn USD in Q4 2019-Q3 2020.
PVS: We estimate PVS to post a 30% net profit growth in 2020
thanks to recognition from Sao Vang-Dai Nguyet, Gallaf – Al
Shaheen, Salman Development and LNG Thi Vai. It should be
noted that there is an upside to earnings for PVS once the
contract with PVEP to lease FPSO Lam Son is officially signed.
PVD: 2020 will be a brighter year for PVD, thanks to (1) jack rig
utilization forecasted to increase (from 90% in 2019 to expected
95-97% in 2020) (2) an expected improvement in the day rate
from $57.5k USD in 2019 to $64.5k USD in 2020. In addition, Gas supply-demand
there will be 3 leased rigs in 2020, boosting drilling and services 18
revenue. As such, we estimate PVD to post VND 212 bn in
15
NPATMI growth in 2020, up 159% YoY.
12
• Midstream: GAS
9
We expect GAS earnings to post a 2.9% net profit growth in
6
2020 on assumed FO price of $330 USD/ton (-9% YoY).
3
✓ Dry gas volume in 2020-2021 is likely to go flat (at
0
around 10 bcm as is currently the case), as the new 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028
gas source Sao Vang-Dai Nguyet comes online -3
starting in Q4 2020. Still, this new gas source will only -6

be able to compensate for the shrinkage of volume Total gas supply in SE and SW of VN (including LNG Thi Vai and new fields)
from existing older fields in the Nam Con Son basin. Total gas demand in SE and SW of Vietnam
Supply-demand gap
✓ Significant gas volume growth could start in late
2022 when LNG Thi Vai commences, which will add Source: PVN, SSI compiles
around 1.4 bcm of equivalent dry gas volume in the

first phase to supply gas for the NT3 power plant

kicking off in 2023. This volume will increase to 4.2
bcm one year later. After that, the Son My LNG project
(which GAS partners with AES corporation) will help
total gas volume to double compared to current total
volume when it starts operation of its first phase (3.6
mn tons of LNG).
✓ FO benchmark: GAS plans to replace the tracking and
measurement of fuel oil by another benchmark when
the IMO2020 marine pollution regulation standards
come into force. However, the final decision of this
metric change lies with the MoIT, and the decision has
not been made yet. Alternative benchmark options
could include Brent or diesel.
✓ State divestment will likely not happen in 2020
• Downstream: Petroleum retail (PLX, OIL), BSR
PLX: We do not expect strong growth in core petroleum
distribution operation in 2020 given the current high levels of
volatility in the global crude oil price. Given the assumption of a
4% increase in total sales volume coupled with growing retail &
premium products, we expect that PLX will earn roughly VND
5.2 tn (+5% YoY) in 2019. In case the merger between PGBank
and Hdbank is completed in 2020, we estimate that PLX can
book a profit of VND 500 bn in case the company sells all HDB
shares after the deal.
OIL: Given the stable and moderate growth of 4-6%year of the
overall market and the expected slide in oil price in 2020, we
think it would be difficult for the company’s business result to
recover significantly in the coming year.
BSR: In 2020, sales volume of BSR is expected to drop by
around 15-20% due to the pause of the refinery plant for 51 days
for maintenance.
Catalysts:
• Any positive development regarding PVN mega projects will
be a catalyst for earnings outlooks of oil&gas companies
• Higher than expected oil price due to escalated geopolitical
tensions.
• State divestment will serve as a strong upside catalyst for
oil&gas companies, since it helps the company to enhance
its efficiency and transparency across the sector. We
expect PLX to continue sell its treasury shares, while state
divestment from BSR, OIL are also planned.
2020 view: Neutral
In this sector, we currently are positive on PVD and PVS thanks
to expected strong growth in 2020. Meanwhile, for the largest

tickers in terms of market capitalization like GAS and PLX, we

have a neutral view on forecasted modest earnings growth. We
also have a neutral view on BSR from expected fundamental
improvements, and hold an Underweight view for OIL.
Issues and risks
Global oil prices could decline on weaker than expected
demand, or miscellaneous geopolitical issues.
Possible delays in implementing above-mentioned offshore
projects.
Most preferred Most preferred in sector: PVD VN
Market cap (USD mn) 274
PVDrilling JSC (PVD: HOSE)
• 1Y Target price: VND 18,200 Foreign ownership (%) 20%
• Investment thesis: 2020 PE/PB 30x/0.45x
Core profit has been bottoming out in 2019 and will continue to 2020 EPS growth (%) 159%
post strong growth in 2020 thanks to (1) higher JU utilization Dividend yield (%) 0%
rate (from 90% in 2019 to 97% in 2020) and (2) and an increase 2020 ROE (%) 1%
of 12% in day rate
Possible reversals (maximum VND 250bn) for PVD and its JV
from booked provision from PVEP.
Most preferred in sector: PVD VN
The TAD will be back to operation in a 10-yr contract starting
from Q2 2020
150%
• Catalysts: Oil price upsurge on escalated geopolitical
tension in the Middle East 130%
• Risk: Geopolitical dispute in South China Sea/Low global oil 110%
demand impacted by Trade tension 90%
VNIndex PVS VN Equity

70%
50%
Most preferred
Most preferred in sector: PVS VN
Petro Vietnam Technical Services Corporation (PVS: HNX) Market cap (USD mn) 361
• 1Y Target price: VND 21,500 Average 3M value (USD mn) 1.311
• Investment thesis: Foreign ownership (%) 21.7%

2020 PE/PB 11.5x/0.7x
Earnings in 2020 will continue to be supported by on-going
2020 EPS growth (%) 28%
projects
Dividend yield (%) 5.5%
Cheap valuation and decent cash dividend
2020 ROE (%) 8%
Possible reversals from provision made for FPSO Lam Son,
PTSC-CGGV Source: Bloomberg, SSI Research, Data on 31 Dec 2019

• Catalysts: Oil price upsurge on escalated geopolitical Most preferred in sector: PVS VN
tension in the Middle East
160%
• Risk: Geopolitical dispute in South China Sea/Low global oil
demand impacted by Trade tension/Delay or no 140%
developments in progress of Vietnam’s oil&gas projects
such as Block B, Blue Whale, LNG complexes… 120%
100%
VNIndex PVS VN Equity

80%
60%

REAL ESTATE – COMMERCIAL DEVELOPERS

Neutral: Uncertainty ahead of regulation overhaul
Most Preferred: VHM and KDH
2019 Highlights Industry performance in 2019
Sector performance: OUTPERFORMED

140%
The commercial real estate developer sector increased by 16%,
outperforming the VN-Index which only increased 6.7% in 2019. 120%
This mainly originated from the outperformance of VIC
(+21.5%), whose market cap accounts for 40% of total industry
100%
market capitalization. In 2019, after having restructured and
transferred the consumer retail segment (Vincommerce) to
Masan, Vingroup had continued to focus on technology and 80%
VNIndex Real Estate Real Estate (Commercial Developer)
manufacturing with many products from VSmart and VinFast
widely introduced to the public. 60%
In additional, VIC’s strong residential arm – Vinhomes JSC - also

advanced by 15.8%, amassing 28.82% of total market
capitalization value thanks to strong sales performance at its Source: Bloomberg, SSI Research
mega projects, and expected strong earnings growth in 2019
On the other hand, DXG was the worst performing stock which
declined -24.5%, only comprising a 0.74% sliver of the total
action from the real estate commercial industry. Such poor
performance mainly came from uncertainties and legal issues
related to its ongoing projects and land bank, especially the
delay of large projects such as Gem Riverside and Opal City.
Key highlights of sector in 2019

What was expected?
• Hanoi market performed well, while HCMC continued to
lack new supply
According to CBRE statistics, the supply of launched
condominiums in Hanoi up to 9M 2019 was approximately
26,800 units, increasing by 37% YoY. The total amount
estimated for 2019 was at 33,000 units, which was
equivalent to the 2016-2018 period. However, the majority
of market supply came from the large township of Vinhomes

mega projects, including Vinhomes Ocean Park and Hanoi Condominium (Units)
Vinhomes Smart City. In addition, we also witness that the
market trend has gradually shifted from the high-end
segment to mid-end segment, with transactions increasingly
aiming towards functional purchases. Meanwhile,
speculative investments strongly declined compared to the
HCMC market.
Regarding HCMC, there were 21,500 new units launched up
to 9M 2019, slightly decreasing by -3% YoY. However,
approximately 47% of which were came from the first phase
of Vinhomes Grand Park launched in Q3 2019. Also, the
supply of the condominium market was limited, as there was
only 5 new projects launched in Q3 2019 and 10 projects
up to 9M 2019 (-80% and -50% YoY). Per our observation,
most property developers have been struggling to execute Source: CBRE Vietnam, SSI Research
new launches year-to-date due to longer-than-expected
Hanoi Condominium segment
legal procedures.
• Resilient absorption rate despite higher price 12000
10000
In Hanoi, sales prices of condos were more stable with a
slight increase of 3-4% YoY, mainly driven by the high-end 8000
and mid-end segment. The average absorption rate of the 6000

market forecasted to be 75-80% overall. 4000
According to CBRE Vietnam, prices witnessed a significant 2000
uptrend in most segments, with an average increase of 10- 0

12% YoY. In addition, the absorption rate was also quite 2017 2017 2017 2017 2018 2018 2018 2018 2019 2019 2019
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
impressive, at 90-95%. Specifically, transactions mostly
focused on the mid-end segment due to lack of new projects Luxury High-end Mid-end Affordable
in this category. There was also a major demand drive

towards luxury segments with projects located in the CBD,
and demand from foreign homebuyers, in which District 2,7,
and 9 recorded the strongest average increase. Hanoi Condominium price (USD/Sqm)
This was broadly in line with our observation given that
underlying demand remains strong in the market, while
options of new launches have been relatively limited.
Notably, the luxury and high-end segment witnessed a
pricing difference related to location, such as projects in the
center with an average price of $4,300 USD/sqm,
sometimes up to $8500-12,000 USD/sqm while projects in
District 7 and District 2 range from $3,000 to $3,200
USD/sqm.
• FDI inflows from both developers and buyers in the real
estate sector remained strong
According to the Ministry of Planning and Investment, total
registered FDI pledges to the country reached $26.16 billion Source: CBRE Vietnam, SSI Research
USD in the first 9 months of 2019, a slight increase of 3.1%
compared to the same period in 2018.

In recent years, Vietnam has been successful at attracting HCMC Condominiums (Units)
high-quality FDI, with this investment primarily going into
16,000
manufacturing and real estate projects. Real estate
14,000
continued to be among the sectors which attracted the most
12,000
FDI in Vietnam, with $2.77 billion USD, accounting for 10.6%
10,000
and ranking 2nd in 2019. Specifically, big Singaporean
developers, such as Keppel Land, CapitaLand, Sembcorp, 8,000
and Mapletree have been significant players for a long time. 6,000
In addition, the next wave of significant investment came 4,000
from Korea and developers such as GS E&C and Lotte, 2,000
which continued to expand their presence with many -

2017 2017 2017 2017 2018 2018 2018 2018 2019 2019 2019
projects. There also have been several successful Malaysian Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
developers, including Gamuda and SP Setia, which have
Sold New launch
already engaged and made the market more vibrant. We
expect these foreign investors will continue to pour capital
into new projects in Hanoi < HCMC, and to actively partner Source: CBRE Vietnam, SSI Research
with local players, either under joint ventures or via M&A
acquisitions of its land bank.
Recently, we have also seen growing interest from Japan,
with Japanese investors now involved in many deals from
relatively small-medium interest ($10-50 million USD size) HCMC Condominiums (Units)
in projects of local developers such as Nam Long, An Gia to
large scale projects such as Sumitomo’s smart city joint
venture with BRG.
From the demand side, many projects filled the allocated
30% foreign quota during launch events since Vietnam’s
property prices are relatively low compared with Thailand,
Singapore, or Hong Kong. Interest in HCMC properties has
been growing among foreign buyers, especially high-end
and luxury condominium segments, even though mortgage
is not made available for them. The relaxed regulations
towards foreigners, along with comparatively low property
prices, have made Vietnam a preferred location.
• Tighter bank credit follows SBV roadmap, more Source: CBRE Vietnam, SSI Research
challenges for developers but not home buyers
Real estate developers will face certain difficulties due to the
more restrictive bank credit stemming from compliance
needs of applying Basel II operational standards. These new
Circular 22 banks are limited to use up to 40% of their short-
term capital funding for medium to long term loans,
compared to the previous limit of 45%. Following the
roadmap, the SBV will continue this trend and lower the ratio
step by step to 37% by 1 Oct 2020, 34% by 1 Oct 2021, and
30% by 1 Oct 2022. Also, it increased the risk factor for
mortgage loans, elevated from the current 50% up to 100%
for qualifying loans with a value within VND 1.5-4 billion, and
to 150% for qualifying loans with a value of more than VND
3 bn. The risk ratio of 50% will be applied to loans with a
value lower than VND 1.5 billion. This implementation is in

order to reduce systematic risks for the banking sector and

restructure the credit portfolio of Vietnamese banks.
For home buyers, this will not significantly impact their
transactions. With the risk ratio of 50%-100%, the property
value could be up to VND 5.7 bn (assuming a loan to value
at 70%), which could cover most of the mid-end segment
for apartments (and even low-rises in second-tier cities).
This also shows the purpose to restrict high-value real estate
speculation transactions of the SBV to make the market
more transparent.
On the other hand, real estate developers will have to face
more challenges in term of preparing for alternative funding
sources to lessen their dependence on bank credit. Various
sources may include an IPO on the stock exchange, issuing
shares, or corporate bonds to raise capital. However, in last
year, we witnessed a huge crowd of developers, including
Vingroup, Vinhomes, Nam Long, Novaland, TTC Land, Phat
Dat, and others that had successfully issued bonds to raise
more capital. However, these developers had to take accept
higher average interest rate compare to other businesses.
This may pose higher risks for their financial situation for
investors in the case that market conditions become sub-
optimal. Besides that, one more healthy way to improve
funding is to cooperate with foreign investors or seek
partners for projects that have been rolled out recently. We
anticipate that these methods could end up as the main
streams of funding in the upcoming time.
• Legal environment still under revision process, various
unclear guidance
The real estate industry is always regulated and closely Average corporate bond interest 2019 (%)
monitored by the Vietnamese government through legal
mechanism and legal policy. Still, the market has its share 12.00%
10.23% 9.96%
of complexities and areas in which clarification can be 10.00%
9.79%
improved in general. 8.28%

8.00% 6.87%
In general, the real estate developer usually has many
problems with administrative procedures due to a 6.00%
complicated investment process, which results in slow 4.00%

implementation and higher costs incurred. The planning
2.00%
stage consumes the most time. For example, the approval
of a 1/500 plan is troublesome as it requires agreement 0.00%
between various parties such as Department of Planning and Bank Real estate Infrastructure FI Other
Architecture, Department of Natural Resources and

Environment, the People’s Committee, and others (with a Source: SSI Research
long list of criteria). The next complicated stage is land
valuation and transfer, which directly impacts the project’s
development cost. The difficulty of obtaining the
construction permit also slows down and complicates
project implementation.

In summary, it takes developers 3-6 years to start

construction of a project, but a longer approval time will
result in yet higher investment costs. If administration
procedures decline by 30-50%, it would be equivalent to a
2-3 year cut back. Hence, the costs for residential project
can be saved by up to 20%.
However, a change in fundamental framework can’t be
solved in a short time. As we have seen in 2019, delayed
approvals by the authorities to permit the construction of the
project, or to suspend the ongoing project for review and
inspection was the reason leading to the decrease in the
supply of the market. Up to 9M 2019, HCMC only had 1
project approved in principal (-83% YoY), while 12 projects
were granted an investment license (-72% YoY). Currently,
the new Land Law is being discussed by the government.
We expect the situation to show more significant changes
after it is approved.
The unexpected: liquidity fell in some segments, as condotel
problem emerged
Per our observations, the price level of real estate products,
especially condominium, has rallied since 2017. This mainly
came from an imbalance between supply and demand as stated Approval process in HCMC 9 months 2019
above. In 2019, the pricing of all segments in HCMC has
90 83
reached new heights, even at projects which are located far from
80
the city center, such as Binh Chanh, Nha Be, and others. The 70
69
59
average price for mid-end condominiums is now ~VND 40 60 53
million/sqm. Despite real demand for housing still being high, 50 44
this will create financial burden upon home buyers. For example, 40
24
a normal household will need more than 2.5- 3 billion VND to 30
19
20 12
purchase an apartment with an average size of approximately 8
10 3 1 0
60-70 sqm, much higher than that of several years ago. In the 0
high-end and luxury segment, the number of transactions fell Approval in Agree on investor Investment license Approval for
mostly due to imbalance between supply and demand, with a principal granted construction
high amount of inventory accumulated from developers over the 2017 2018 9M 2019
years. However, actual demand for this segment is limited
compared to the mid-end segment due to the smaller number of Source: HoREA, SSI Research
buyers and its high-value nature.
In overall, liquidity of the market was negatively impacted, as
home buyers were left with fewer choice. Speculators were
faced with more risk, having the potential situation of needing to
cut losses if they can’t sell it to the end user to realize profit.
With other real estate products such as officetel, condotel, and
shophouse, which have been introduced to the market for a
while, the lack of legal framework backed up for these products
has posed risks for buyers. This was mainly due to the mix of
framework of two laws: The Law on Tourism and the Law on
Housing, both of which regulates the ownership and operation
of condotels. This is because this product type is a mix of real

estate and tourism. The second problem is the high level of

commitment interest that developers pay out, from 10-12% p.a,
much higher compared to deposit rates at banks which only
stands at around 6-7% per annum. This creates financial
burdens upon cash flow of some developers, which led to
delayed payments and finally violated the commitment interest
promise, causing frustration for buyers. Third, the concept of
condotels is not consistent among many provinces. This
problem has existed for many years. While the government is
still working on law amendments, we expect these factors would
render a negative impact on investor sentiment when they
decide to purchase this type of real estate in the near future.
2020 View
HN unit price estimated 2019-2020 (USD/m2)
2020 Growth Outlook (Neutral): Waiting for fundamental 5000
change and policy improvement 4500
4000
• Supply slightly improved compare to 2019, while
3500
residential price will continue to rise
3000
In the context of the Vietnamese government's policy related 2500
to the land approval process, we see that construction 2000
permits tightened with new regulations and prolonged legal 1500
procedures will continue to challenge new launches in 1000
HCMC, at least until the end of 2020. We have not yet seen 500
a strong recovery signal on this issue, evidenced by the fact 0

2016 2017 2018 2019 2020F 2021F
that supply in 2020 will fluctuate, ranging from 60,000 to
70,000 condominium units in total for Hanoi and HCMC. Affordable Mid-end High-end Affordable
In overall we forecast an uptrend of 3-4% in terms of price

of the Hanoi market and 5-10% in HCMC compared to 2019, Source: CBRE Vietnam, SSI Research
and demand and price increases will largely follow a positive
trend in the mid-end segment. Meanwhile, the high-end
project will experience a continued decline in demand, HCM unit price estimated 2019-2020 (USD/m2)
especially in terms of investment and speculative 8,000
transactions. The main reason is that rental performance and 7,000
the prospect of resale profit margin of speculators seems 6,000
less attractive when prices reach a new high level. 5,000
4,000
The real estate market supply in 2020 is expected to be not
3,000
much brighter than 2019. In order to complete all necessary
2,000
procedures for a residential project , it may take a few years.
1,000
However, government agencies are still in the process of
discussion, and waiting for changes from the amendment of 2,017 2,018 2019F 2020F 2021F
the new land laws in 2020. Therefore, the market may not
show any signs of strong development over the next year Affordable Mid-end High-end Luxury
but may instead move sideways. Focus may be upon the

number of large developers in the market, as ongoing Source: CBRE Vietnam, SSI Research
projects have been deployed for years.

In the future, the real estate businesses will likely continue Urbanization rate in Vietnam (%)
to face more difficulties considering a limited land bank left.
70%
Additionally, there may be more procedures to follow in
58.2%
terms of project development. Not to mention, real estate 60%
50.8%
54.5%
prices will continue to rise sharply when land use fees (LUF) 50% 43.3%
47.0%
39.7%
are continuously adjusted and increased year by year. 40% 36.1%
32.8%
Normally, with a condominium project, the LUF usually 28.2%
30% 23.7% 25.0%
accounts for 20-25% of total investment cost. Developers 20.1%
20%
will have to increase the price to maintain margin, therefore
passing this burden onto home buyers. These difficulties will 10%
persist in upcoming years, affecting the market in general. 0%
• Macro conditions upheld, with new infrastructure

investment on the way
Source: GSO
In 2020, we expect that positive economic indicators, high
foreign investment inflows, rising middle- class and strong
remittances may continue to be strong contributing factors Average household size in Vietnam (person)
helping to sustain the real estate market in the long run.
3.8
In addition, the urbanization rate in Vietnam was only 23.7%
3.7
in 2009 and expected to reach 40% in 2019. This trend of
3.6
urbanization will continue to expand. It is estimated that by
2040 there will be about 50% of the Vietnamese population 3.5
living in urban areas. An increasing population will also put 3.4

the housing burden towards the urban areas. Moreover, mid- 3.3
end housing is expected to continue driving the market, 3.2
supported by reducing household size and available
3.1
mortgages at relatively stable interest rates. 2014 2015 2016 2017 2018 2019E 2020E 2021E 2022E
As such, residential demand will likely continue throughout

the year, particularly in the mid end segment of the market Source: GSO
in line with homebuyer demand. According to our estimates
combined with the data from GSO, the demand for additional
Estimate for apartment demand
condominium every year is twice as much compared to
existing supply in the market. Populat
Demand
Equival
Average for
ion ent to
One more factor that can affect the real estate market is Population sqm/per additional
growth 70m2/
infrastructure investment, which has been slowed down in (%)
son living sqm
unit
2019 due to the difficulty in clearance for construction, each year
HN 8,053,663 2.20% 26.1 4,713,284 67,333
allocation, and adjustment of capital plans to comply with TP.HC
public investment law. 8,993,082 2.30% 19.4 4,015,405 57,363
M
2020 is the last year in the medium-term public investment Source : SSI research, GSO
plan set by the National Assembly. From 1/2020, the
amended public investment law will officially come into
effect, and is expected to clarify some bottlenecks in the
investment process.
At the end of 2019, the government had also started to push
the disbursement process with many administrative
directives which focus on major projects such as North-
South Expressway, Long Thanh international Airport, and
others Within key areas such as Hanoi and HCMC, some

ongoing projects are also deployed. These initiatives are in

order to deal with a growing population and connect these
centers with satellite urban areas, such as Cat Lai Bridge,
Long Thanh Dau Giay Highway, or the new Metro.
With that momentum, we expect the scale of public
investment planned in 2020 to be up to VND 500 trillion, up
16% YoY compared to the 2019 estimate. As a result, this
momentum can create positive effect on the real estate
market, as news on transportation-related infrastructure can
improve liquidity in satellite cities such as Dong Nai, Long
An, and Vung Tau in which many developers have launched
projects. In the long run, home purchasers will have more
choice, and infrastructure can reduce population pressure in
the 2 large cities of Hanoi and HCMC.
• Developers continue to diversify products and strengthen Estimation plan for infrastructure disbarment plan (VND bn)
backlog from suburban areas:
500000
Across our stock coverage, many big developers have 450000
400000
initiated plans to launch new projects in suburban areas as
350000
a strategic move to boost sales activities in other provinces
300000
beyond just HCMC in order to maintain the company’s 250000
current level of revenue. Meanwhile, many projects in the 200000
city remain under government inspection, or are mired in the 150000
recently more stringent process of obtaining the relevant 100000
50000
development certificates. This has resulted in causing
0
delays in the launch plans of most developers in general. For 2016 2017 2018 2019E 2020F
example, NVL started to launch 3 new villa products such as
NovaHills, Novabeach, and Novaworld in locations such as Source: SSI research
Mui Ne and Vung Tau together with the launching of Aqua
City residential project in Dong Nai. Also, NLG is aiming to
launch low-rise units at its long-held land bank, Waterpoint, Detail of projects in satellite cities
in Long An Province, while DXG will continue to expand
Site Average
shophouse sales in Can Tho, Quang Ninh, and Binh Duong Company Project
(ha)
Location
price
in 2020. 5.7
NVL Aqua City 112.6 Dong Nai
bil/unit
However, there’s still a lot of challenges with this segment, Waterpoin 2.3 - 5.1
as the take up rate of satellite urban projects is only 30% at 190 Long An
t bil/unit
the moment. This is much lower compared to residential Southgate 165 Long An
2.3 - 5.1
projects in HCMC where the take up rate usually approaches bil/unit
NLG
Waterfron
~90% after just 3 months after launch. With a price level of t
192 Dong Nai N/A
35-40 million VND/sqm, potential home buyers will have to Paragon
45 Dong Nai N/A
think more carefully considering new home locations. Dai Phuoc
Lovera Binh 26 - 28
• Earnings growth focus on big developer with ongoing KDH 1.8
Vista Chanh mil/m2
projects with solid project legal status Opal
1.47
Binh 2-3
DXG Boulevard Duong bil/unit
In 2020, most listed developers, including Vinhomes JSC, Gold Hill 27.11 Đong Nai
Novaland Group, Dat Xanh Group, Khang Dien House
Source: SSI research
Trading and Investment JSC, and Nam Long Investment
Corporation are expected to continue recognize positive
earnings growth upon delivery of their sold products.

Earning forecasts for those developers are expected to be

positive compared to the overall market.
Compared to other peers, VHM’s market leading position is
still well in the lead. Earning sources come from 3 large
megacity projects: Vinhomes Smart City, Vinhomes Ocean
Park, Vinhomes Grand Park, and other upcoming launches
from various new pipelines such as Vinhomes Dan Phuong
and Symphony. Together with a flexible sale strategy of a
combination of both retail and bulk sale transactions,
Vinhomes 2020 earnings growth is forecasted to increase
by 22% YoY according to our estimates.
For other developers, NLG provided guidance on a 15% YoY
profit growth in 2020 compared with just 12.7% YoY in
2019. With DXG, we expect a 10.7% YoY growth in 2020
NPATMI based on the growth of its brokerage service and
sale of the Long Thanh 92 ha project, as well as the delivery
of shophouses in other provinces. On NVL, the Company
gave guidance of only single digit growth compared to 2019.
This is likely to carry over into 2020 due to the delay of unit
handovers in many projects, while many projects remain still
under legal review procedures by regulators. With KDH, the
Company expects ~40% YoY growth in terms of 2020
profit, with around VND 1.3 tn in NPATMI with positive
demand from company mid-end projects, and with the
delivery of large projects such as Safira and Verosa.
Issues and risks
The prolonged administrative procedures which caused delay in
the implementation of new projects in HCMC in 2019 may not
be solved quickly in 2020. In the case it takes longer time than
expected, it may further affect the development progress and
prospective earnings of real estate developers, especially those
that possess a large land bank and focus in HCMC.
Most preferred Most preferred in sector: VHM VN

Market cap (USD mn) 12,039
Vinhomes JSC: VHM VN;
• Current price: VND 83,600; 1Y Target price: VND 110,200 Foreign ownership (%) 14.95%
• Investment thesis: 2020 PE/PB 12.4/3.8
✓ Vinhomes is the real estate market leader in Vietnam, 2020 EPS growth (%) 20%
with an unrivalled land bank up to 165 million sqm, by Dividend yield (%) 0%
far the largest compared to other peers 2020 ROE (%) 32%
✓ Vinhomes possesses a strong synergic relationship Source: Bloomberg, SSI Research, Data on 31 Dec 2019
with the Vingroup ecosystem, which cannot be easily
replicated by other players.
✓ Along with high-end properties under the Vinhomes
brand, VHM is aggressively developing mid-end Vincity

projects to broadly capture huge demand from middle Most preferred in sector: VHM VN
income buyers.
✓ Strong capabilities to deploy and sell multiple projects 120%
at the same time. The combination of retail and bulk 110%

sale strategy may ensure for company earnings growth,
100%
despite the current state of market conditions.
90%
✓ In 2020, VHM revenue streams will continue to be
generated from 3 large mega cities: Vinhomes Ocean 80%
Park, Smart City, and Grand Park, together with the new 70% VNIndex KDH VN Equity
launch of Vinhomes Symphony and Vinhomes Dan

60%
Phuong, with an increase of 21.6% YoY estimated.
• Risks:
✓ Slower than expected launches at new projects, and Source: Bloomberg, SSI Research
cash inflow from bulk sales
✓ Surge in the mortgage rate and property price has
affected home buyer demand.
✓ In the event of unmitigated delay during the hand over
process, the Company’s earnings growth may be
negatively impacted.
• Valuation: 1-year target price of VND 110,200, derived
from the RNAV valuation method.
Most preferred Most preferred in sector: KDH VN

Khang Dien House Corporation: KDH VN;
• Investment thesis: 2020 PE/PB 7/1.2
✓ Currently, the company owns a large land bank of about 2020 EPS growth (%) 16.9%
567 ha, which can guarantee for a 10 year development Dividend yield (%) 1.9%
timeline. Based on project launch and delivery status, 2020 ROE (%) 22.6%
the estimate for 2020 NPAT is around VND 1.3-1.4
trillion, +35% YoY compared to this year target’s, Source: Bloomberg, SSI Research, Data on 31 Dec 2019
which mainly comes from the Safira project.
✓ Profits for the next years from 2021 to 2022 are
expected to maintain high growth, as profits from
Verosa and Lovera Park are still large. In addition, the
company will deploy new projects on its existing land
bank, such as the Binh Trung and Corona 1 projects
✓ The Le Minh Xuan industrial zone is gradually
completing compensation. If the legal status is
completed in 2020-2021 with the first implementation
steps, this will be a positive catalyst for KDH
considering its huge potential and high demand for
industrial zone in Southern Vietnam.
✓ Mid-end and city house villa products of KDH are

expected to be quickly consumed as they meet real Most preferred in sector: KDH VN
demand of the market, and the shortage of supply in
2020 will sustain. 120%
• Valuation: Our fair value estimated by RNAV methodology

110%
is VND 31,700/share, with 2019 and 2020 P/E forwards are
12.7 and 9.4 respectively. 100%
• Risks: (1) Competition from other large developers, such 90%

as VHM, NVL, and DXG.
80%
VNIndex KDH VN Equity
(2) Delay in the legal procedures of projects located in
70%
HCMC may reduce earnings of KDH as well as their peers
starting in 2020. 60%
• Catalyst: Legal procedures of projects located in HCMC is

solved sooner than expected

REAL ESTATE – INDUSTRIAL PARK DEVELOPERS

Positive: Industrials steam on
Most Preferred: BCM
2019 Highlights Industry performance in 2019
Sector performance
180%
The industrial park (IP) developers sector increased by 33.1% in
160%
terms of market capitalization in 2019, outperforming the VN
Index. 140%
Mid and small cap stocks increased sharply, such as SZC 120%
(+38% YoY), SIP (+467% YoY), VRG (+75% YoY), D2D
(+130% YoY); NTC (+129% YoY), SNZ (+67% YoY), and TIP 100%
(+ 56% YoY). Large-cap stocks gained less than the IP Index

80%
such as BCM (+22% YoY) and KBC (+21% YoY). On the other VNIndex Real Estate Real Estate (IP Developer)
hand, stocks with lower earnings results due to lack of new 60%
leased land area underperformed, such as HPI (-10% YoY) and
LHG (-11% YoY).
Three reasons for outperformance of the IP sector consist of the Source: Bloomberg, SSI Research
following: (1) the US-China trade war helped Vietnam become
an attractive destination for manufacturing companies; (2) The
average rental rate at Southern Vietnam in 2019 increased by New registered FDI, additional FDI by provinces (million
18.7% YoY, while the Northern part of Vietnam increased by USD)
6.7% YoY according to JLL research; (3) The occupancy rate of
industrial parks in Southern Vietnam increased from 72% in 8,000
2018 to 81% in 2019, while Northern Vietnam IPs reached 69% 7,000
in 2019. 6,000
5,000
4,000
3,000
2,000
FDI into IPs and EZs continues to rise sharply in 2019, partly 1,000
thanks to production relocation from China. According to the 0
MPI, both industrial parks (IPs) and economic zones (EZs)

attracted 893 FDI projects (+ 59.4% YoY), with a total registered
capital of 18.1 billion VND up to 11M 2019. In which, major
projects include Sharp Manufacturing ($135 million USD, Binh 2017 2018 11M2019
Duong), Nitto Denko ($186 million USD, Bình Dương), LCD-

Qisda ($263 million USD, Ha Nam), Goertek ($260 million USD, Source: MPI
Bac Ninh). Ho Chi Minh, Hanoi, Binh Duong, Dong Nai, and Bac

Ninh still led provinces for attracting the largest amount of FDI Leased area (ha) and occupancy rate (%) in the Southern
into IPs and EZs nationwide. Vietnam
According to JLL, the machinery manufacturing and textile & 12,000 100%
garment industry accounts for 26% of total FDI investment in 10,000 80%
industrial zones in Southern Vietnam. Dong Nai and Binh Duong 8,000
60%
accounts for 60% of the total leased land area in the South of 6,000
40%
the country. The occupancy rate of industrial parks in Southern 4,000
2,000 20%
Vietnam increased by more than 9% YoY to 81% in 2019.
- 0%
Southern industrial land prices increased by 18.7% YoY, TP Dong Binh Ba Ria Tay Binh Long
while rising 6.7% yoy in the North. According to JLL, the HCM Nai Duong Vung Ninh Phuoc An
average industrial land price in the southern part of the country Tau
has increased significantly, from $80 USD/m2/ lease terms to 2017 2018 Q2/2019 occupancy rate
$95 USD/m2/ lease terms. The average industrial land price in
the Northern IPs has increased by 6.7% YoY, reaching $95 Source: JLL
USD/m2/ lease terms.
Slow clearance compensation affected the operation
progress of new IPs. Clearance compensation costs usually Industrial land price in the Southern IPs (USD/m2/ lease
account for 28%-31% of total costs. In 2019, progress of terms)
clearance compensation for IP land clearance was hampered 200
due to the increase in property prices and complicated clearance
procedures. 150
Long Hau3 Hiep Phuoc 2 100

Before After Before
Before
adjustm adjustm adjustm 50
% adjustme %
ent ent ent
nt (2018)
(2016) (2019) (2017)
0
Clearance
30 Ho Chi Dong Nai Binh Ba Ria Tay Ninh Binh Long An
compensa 480 622 1032 1939 88%
% Minh Duong Vung Tau Phuoc
tion costs
Constructi 2017 2018 Q2/2019
493 516 5% 2605 3808 46%
on costs
Others
129 137 6% 1354 1074 -21%
costs Source: JLL
Operational efficiency of listed IP companies increased Structure of IP investment costs
positively due to a higher leased area and occupancy rate.
Total net revenue and NPATMI of listed companies up to 9M
2019 reached VND 26.206 trillion (+1.8% YoY) and VND 4.557
trillion (+28.1% YoY) respectively, in line with the trend of the Others cost Clearance
overall IP real estate industry. Accumulated up to 9M 2019, KBC 20% compensation cost
30%
leased 105.8 ha of land (+36% YoY), mainly from Quang Chau
IP (65.3 ha) and Tan Phu Trung IP (26.3 ha), and the average
rental rate increased by 8% YoY. In addition, the NPATMI of BCM
in 2019 was estimated at VND 1.702 trillion (+92.9% YoY)
Construction
thanks to the growth of the real estate market in Binh Duong, cost
and the 90% of occupancy rate in the Bau Bang IP. 50%
According to SSI Research from interviews with IP companies,

IDC and SIP apply revenue recognition for a 50 year period, so

revenue from IP land leasing up to 9M 2019 only increased

slightly by 1% and 8% respectively.
In addition, companies who have mid & small-scale IPs such as
NTC, TIP, MH3 have their IPs fully occupied, mainly thanks to:
(1) financial income from large deposits; (2) dividends from
investments in other companies in the industry.
P/B vs ROE (%) TTM by end of Q3 2019, Industrial Parks
100.0% ROE (%)
NTC
80.0%
60.0% D2D
MH3
BAX
40.0%
IDV
SIP
TIP
LHG SZL
HPI BCM
20.0% KBC
ITA IDC
SZC TID P/B

0.0%
SNZ
-1.00 - 1.00 2.00 3.00 4.00 5.00 6.00 7.00
VGR
-20.0%
Source: Fiinpro
2020 View
Expected Growth trend Total area (ha) and occupancy rate (%) in the Northern
Vietnam
We estimated that the revenue of industrial park companies in
6,000 120%
Southern Vietnam will grow by 15.2% YoY in 2020, of which (1)
5,000 100%
the total land lease area of industrial parks in the Southern part
4,000 80%
of the country will reach 25,060 ha - 2.5 times higher than the
3,000 60%
area in Northern Vietnam. We expected the average land lease
2,000 40%
area to increase by 8.2% YoY in 2020, including a shift to
1,000 20%
suburban areas and neighboring provinces such as Northern
- 0%
Binh Duong, Long Thanh - Dong Nai and Ba Ria - Vung Tau and
Ha Noi Hai Bac Quang Hai Hung Vinh
Binh Phuoc; (2) the occupancy rate increased from 81% to 84%; Phong Ninh Ninh Duong Yen Phuc
(3) the land lease price was expected to increase by 7% YoY on
2017 2018 Q2/2019 occupancy rate
average.
Having experienced high demand in northern provinces, Source: JLL
especially Haiphong and Bac Ninh, such a surge was from high

tech manufacturers who wanted to expand their production line Manufacturing wage in Southeast Asia compared to China
from China to Vietnam. While considering the convenience of
some of the IP locations, we expect the average rental rate
would continue to uptrend in 2020. Specifically, we expect an
ASP increase of 7-8% YoY for industrial park companies in
Northern Vietnam.
Catalysts
• Demand for land leasing industrial parks are expected to
continue to grow thanks to: (1) strong FDI to Vietnam,
expected to continue in 2020, and the shift of production
from China as mentioned above; (2) new free trade
agreements (FTAs), such as the EVFTA or RCEP, will help Source: JLL
improve the business environment for both domestic and
foreign enterprises.
Tax incentives for investors when leasing IPs in Vietnam
We believed that in labor-intensive sectors such as
manufacturing, textile & garment, wood, plastic and rubber, 10% CIT exemption in 50% PIT exemption for
competitive labor costs will be an advantage for Vietnam to 15 years workers in the IPs
leverage.
• Incentives to invest in industrial parks. According to
Decree No.82/2018/ND-CP, effective from July 10, 2018,
enterprises investing in industrial parks will be encouraged
with CIT incentives, value-added tax, and cases of import
tax exemption.
0% VAT exemption in 0% Import & Export Tax
• Issues and risks the non-tariff zone exemption in the non-
tariff zones
• Land clearance & compensation. The risk of land
clearance compensation can increase the cost and duration Source: Decree No. 82/2018/ND-CP
of the project.
• Customer risks. Depending on FDI inflows, some large
investors (Samsung) may apply for the privilege of renting
land outside IPs.
Policy risks: Government policies relating to investment
licensing process, land use fees, taxes etc.
Most preferred Most preferred in sector: BCM VN

Market cap (USD mn) 1,344
Becamex IDC Corp: BCM VN;
Current price: VND 29,000; 1Y Target price: N.a Foreign ownership (%) 2.03%
• Investment thesis: BCM is the largest IP developer in 2020 PE/PB 10.3x/1.6x
Southern Vietnam. BCM gained stable income from its joint 2020 EPS growth (%) 10%
venture of VSIP, along with strong earnings growth from 2.7%
Dividend yield (%)
residential projects. However, Binh Duong New City (its
2020 ROE (%) 19.9%
largest project) might face risks involving low liquidity of the
property market, and could affect the performance of the Source: Bloomberg, SSI Research, Data on 31 Dec 2019
Company.
Most preferred in sector: BCM VN
• Catalysts: (1) Becamex owns 7 industrial parks, with a total

area of nearly 4,000 ha mostly in Binh Duong. We prefer

the industrial park operating segment of BCM due to its 170%
standardized business model of industrial park-residential
150%
area format. In 2019-2020, the expanded Bau Bang IP and
Cay Truong IP will contribute towards booked revenue from 130%
the industrial park leasing segment of BCM. We forecast IP 110%

revenue to reach $2.357 mil VND (Bau Bang rent 90 ha,
90%
land leased price at $95 USD/m2/ lease terms); (2) Stable
VNIndex BCM VN Equity
income from VSIP joint venture. BCM holds 49% in a joint 70%
venture with Sembcorp to develop VSIP industrial parks 50%

with a total area of ~30,450 ha, mostly in Bac Ninh,
Haiphong, Nghe An, Quang Ngai, Binh Dinh, Binh Phuoc,
and Binh Duong provinces. Annual profit from VSIP is VND Source: Bloomberg, SSI Research
1.2 tn. In our opinion, VSIP has the best advantage of
developing industrial zones in Vietnam, so the Company’s
revenue is expected to be stable in the long-term. According
to BCM, despite continuous expansion VSIP did not raise
capital. Instead, it mainly used its cash flow from current
customers renting IPs to develop new industrial zones. (3)
Increasing revenue from residential areas. BCM owned
1,701 ha of residential and urban areas, so the company
mainly applies a bulk sale for residential projects; (4) Debt
reduction. BCM expected to reduce VND 2 tn of its debt
payments. In particular, the issuance of 15,000 5-year
duration convertible bonds worth VND 1.5 tn, the first-year
was a coupon rate of 10.5%, and switched to floating rates
thereafter. Simultaneously, BCM issued shares to existing
shareholders at the rate of 5:1 at the price of VND 15,000.
The Company also issued 22.4 million shares of ESOP
shares (equivalent to 2.2% of total outstanding share) at the
price of VND 10,000/ share, with a lock-up for 1 year.
• Risks: We believe that the biggest risk of the real estate
business segment came from its largest project, the Binh
Duong Industry - Service - Urban Complex, with a total
investment of VND 32.421 trillion. This project has mostly
completed its infrastructure development, and has been
invested into since 2008. The property market liquidity was
low due to the location not being within close proximity to
Ho Chi Minh City. There is also the possible tail risk of rising
interest expenses.

FINANCIALS – BANKING
Positive: Double digit growth to continue
Most Preferred: ACB, MBB, VCB
2019 Highlights Banking industry performance in 2019
140%
Sector performance
130%
The banking sector soared 26.16% in terms of market 120%
capitalization in 2019. This vastly surpassed the VN Index, 110%
which increased by 7.67%. After having underperformed the VN 100%
Index in May and June, banking stocks have been ramping up 90%
since July when the BID Board of Directors officially issued a 80%
VNIndex Financials Banking
resolution approving a deal with Keb Hana Bank. As a result, the 70%
BID share price rose +50.5% from its trough point set on 30 60%
Jun. Other state-owned bank stocks also yielded positive
returns, in which the VCB share price scaled a whopping +70%,
and CTG rose by +8.3%. For joint stock commercial banks, the
story was bifurcated. On one end of the spectrum, winning
stocks involved VIB (+23.6%), MBB (+18.6%), EIB (+26.7%),
and TPB (+5.5%). Meanwhile, banks that were listed in 2018
were waning, such as TCB (-9%), HDB (-9%), and VPB
(+0.3%).
We had recommended a Neutral rating on the sector at the
beginning of 2019, expecting a decelerated pace of credit
growth, and a slightly edged up interest rate environment.
Key highlights on the sector
What was expected?
Credit growth inched down vs. 2018
At the beginning of the year, most listed banks were granted a
credit growth quota for the whole year at 12-13% YoY, lower
than the bar initially set for 2018 at 14-15% YoY. There were
outlier credit limits in the case of CTG (just 7% YoY due to
capitalization constraints), and on the other spectrum VIB
(roughly more than 30% YoY, as it was one the first two banks
to applying Basel II standards). Later, some banks were eligible
for a credit growth limit extension to 16-17% upon the
application of Basel II standards in Q3 2019, and then nudged
up this limit later to approx. 18-20% in Q4. A +1% adjustment

in credit growth for joint stock commercial banks comprising Listed banks YTD credit growth
20% of market share led to a measly +0.19% of credit growth
30%
systemwide. Meanwhile, for state-owned banks which
accounted for 48% of total market share, only VCB opted to 25%
make an application for credit extension (from 13% to 15%). 20%
Credit growth in 2019 was estimated at around 13.5-13.7% YoY 15%

(marginally lower than the 2018 level of 13.89%), but M2 (total 10%
liquidity) picked up a bit to roughly 13% YoY.
5%
Stringent supervision to mitigate inherent risk in the system 0%
ACB BID CTG HDB LPB MBB TCB TPB STB VCB VIB VPB Total
Precisely as we stated earlier in 2019, the SBV did end up taking
further steps in strengthening systemic supervision, with two 3Q19 3Q18
Circulars rolled out to streamline operational safety ratios and
govern lending activities of consumer loans (Please read our
Source: SSI, Banks’ financial statements
note on these regulations here). Circular 22 was issued with the
intent to reduce short-term funds used for medium and long-
term lending on a graduated basis, from 37% by 1 Oct 2020, to
34% by 1 Oct 2021, and to 30% by 1 Oct 2022. Meanwhile,
Circular 18 aimed towards better controlling a certain subset of
high-risk high-value cash loans (above VND 20 mn) to a
maximum of 70% of all loans in 2021, 60% in 2022, 50% in
2023, and just 30% in 2024. These regulations reinforced the
SBV’s stance in promoting overall systemic strength, stricter
supervision, and an inclination towards safety through
reasonable and timely regulation amendments.
Banks poised to Basel II compliance. As of 2019, 19 banks
had officially announced their compliance with standard Basel II
benchmarks, including CAR as per Circular 41. Amongst those
banks, there were 11 listed banks (VCB, BID, MBB, TCB, ACB,
VIB, HDB, TPB, VPB, LPB and STB), 2 foreign banks (Shinhan
Bank, Standard Chartered Vietnam), and 6 small joint stock
commercial banks (OCB, VietBank, VietCapBank, SeABank,
Nam A Bank and MSB). VIB was the first bank to announce that
they have complied with all 3 pillars of the standard Basel II
approach.
Capitalization challenges persisted. In 2019, there were 5
listed banks succeeded in raising charter capital. The two most
notable deals involved VCB raising capital from GIC (Singapore)
and Mizuho (Japan) to raise its Tier 1 capital by 3.1%,
approximating a value of $265 mn USD, and BID handing over
a 15% stake to Keb Hana Bank, with a value of $876 mn USD.
There would also be an upcoming issuance of a 7.5% stake of
MBB to foreign investors. Additionally, VIB, ACB, and MBB was
able to increase chartered capital by 18%, 30%, and 10%
through either stock dividends, stock bonuses, or ESOP.
Regarding Tier 2, only CTG issued VND 5.55 tn in subordinate
debt during the year. However, as the CAR of most banks
(except for TCB) were around 9.5 – 9.7%, the need for further
issuance persists in the foreseeable future.

Decent earnings growth of listed banks from Jan-Sept

NIM on an ascending trend since 3Q2018
The aggregate pre-tax profit of 12 listed banks reached VND 75
NIM 3Q18 4Q18 1Q19 2Q19 3Q19
tn, equivalent to a +25.9% YoY growth. Such impressive growth ACB 3.50% 3.89% 3.65% 3.58% 3.60%
was backed by a generally continuous pace of NIM expansion, BID 2.66% 2.99% 2.66% 2.74% 2.55%
and tamed NPL ratios, as seen below: CTG 2.71% 0.21% 2.88% 2.93% 2.89%
HDB 3.84% 4.40% 4.10% 4.77% 4.95%
• A Widening NIM, from 4% in the first 9 months of 2018 to LPB 2.83% 3.22% 3.55% 3.21% 3.86%
4.25% during the equivalent in 2019, allowed NII to grow MBB 4.57% 4.98% 4.69% 4.75% 4.86%
by +18.9% YoY despite a +11.5% YoY credit growth. TCB 4.44% 4.09% 4.43% 3.90% 4.23%
TPB 3.92% 4.33% 4.27% 4.36% 4.29%
• Non-NII stabilized to +14.8% YoY. Though one-off
STB 2.83% 2.83% 3.15% 2.45% 3.38%
earnings from write-backs, bancassurance upfront fees, VCB 3.12% 3.20% 3.29% 3.26% 3.19%
and sales of government bonds decreased, net fee and VIB 4.14% 4.03% 4.12% 4.19% 4.01%
commission income filled such a void, with a stellar growth VPB 8.71% 8.98% 9.30% 9.43% 9.58%
of +38% YoY. Sterling results were mostly thanks to both Average 4.04% 4.03% 4.27% 4.28% 4.36%
insurance commission income, and income from card
services.
• Operational and provisional expenses were reasonably
tapered: The average credit cost stood at 1.6%, and NPLs Total operating income 9M2019
were just 1.7% at the end of Q3 2019. Though aggregate
40,000 70%
credit costs fluctuated around 1.5-1.6%, a clear upward 60%
35,000
trend was witnessed in BID, CTG, MBB, HDB, and TPB. 30,000 50%
40%
25,000
With decent earnings up to 9M 2019, ROE of listed banks 20,000
30%
20%
increased to 18.8% from 16.3% vs. 2018. 15,000
10%
10,000 0%
The non-performing loans and VAMC of banks 5,000 -10%
- -20%
ACB BID CTG HDB LPB MBB TCB TPB STB VCB VIB VPB
3.50%
3.30% NPL and VAMC NPL TOI 3Q19 YoY growth 3Q18 YoY growth
3.10%
2.90%
2.70%
2.50%
2.30%
Net fee and commission income in 9M2019
2.10%
1.90%
4,000 139%
145% 160%
1.70% NFI %YoY
1.50% 3,500 140%
116%
1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 3,000 120%
2,500 100%
Source: SSI, Banks’ financial statements 2,000
72%
80%
53%
1,500 60%
What was NOT expected? 31% 28%
36%
30%
1,000 21% 40%
19%
An expected new round of NPLs have yet to materialize. As 500 1% 20%
credit growth rode a crescendo from 2014 – 2017, a new round - 0%
of NPLs have been expected to surface over a 5-year credit
LPB
MBB
CTG
TPB
VIB
HDB
TCB
STB
ACB
VPB
BID
VCB
cycle. However, it appeared that this supposed new wave of

expected NPLs has yet to materialize. In actuality, the reported
system-wide on-balance-sheet NPL ratio was 1.98% at the end Source: SSI, Banks’ financial statements
of August. Actual NPLs (including reported bad debt,

restructured bad debt, and debt sold to VAMC) has continually Pre-tax profit growth in 9M2019
been on the decrease from more than 10.08% in 2016, 7.7% in
2017, and 6.3% in 2018 – further decreasing to just 4.84% at 20,000 200%
PBT 3Q19 YoY growth 3Q18 YoY growth
the end of August 2019. Such a rate of receding NPLs has 18,000
outpaced even the Vietnamese government’s plan of reducing 16,000 150%
actual NPLs to 5% for 2019. 14,000

12,000 100%
Ample liquidity in the system kept interest rates at relatively 10,000
low levels 8,000 50%
2019 was another year characteristic of ample liquidity in the 6,000
system, enabling interest rates to be kept at a relatively low level. 4,000 0%
The O/N interbank rate was on a downward trend during the first 2,000
10 months of the year to a trough point of below 2%. There was - -50%
only a temporary rise of this rate that occurred in November, as
the State Treasury of Vietnam halted its demand deposits at Source: SSI, Banks’ financial statements
commercial banks (from Nov 1st, 2019), according to Decree
58/2019. Low interbank rates also influenced rates on Vietnam
government bonds, observed through the 10Y tenure gradually NPL ratio were controlled well amongst listed banks
descending to approx. 3.65% in late December.
NPL ratio 3Q18 4Q18 1Q19 2Q19 3Q19
The relatively low level of interest rate might derive from the ACB 0.84% 0.73% 0.68% 0.66% 0.67%
following factors: BID 1.76% 1.90% 1.74% 1.98% 2.09%
CTG 1.36% 1.58% 1.85% 1.47% 1.56%
• FX reserves increased to $79 bn USD from $60 bn USD at HDB 1.50% 1.53% 1.45% 1.44% 1.50%
the end of 2018. This implies a net purchase of nearly $19 LPB 1.32% 1.41% 1.36% 1.48% 1.48%
bn USD was made in 2019 and pumped into the market, MBB 1.57% 1.32% 1.41% 1.26% 1.54%
enhancing liquidity of the banking sector as a result. TCB 2.05% 1.75% 1.78% 1.78% 1.80%
TPB 1.24% 1.12% 1.39% 1.50% 1.51%
• The government also expressed its pro-growth stance STB 3.18% 2.20% 2.14% 2.04% 2.00%
through 2 policy rate cuts in September and December. VCB 1.18% 0.98% 1.03% 1.03% 1.08%
During this time, refinancing rates were cut by -25 bps to VIB 2.50% 2.67% 2.25% 2.36% 2.28%
6%, and the OMO rate was cut by -75 bps to 4%. VPB 4.70% 3.50% 3.62% 3.43% 3.50%
Average 1.76% 1.67% 1.69% 1.65% 1.72%
• Slow disbursement of public investment allowed an
abundance of excess unused funds to be deposited at Source: SSI, Banks’ financial statements
banks during the first 10 months of 2019.
Divergence in interest rates in the general customer market Interbank interest rates
and the interbank market. In the general market, deposit rates
were kept relatively stable in 1H 2019. Later on in the second 6.00
half of the year, rates faced upward pressure, especially
5.00
amongst smaller banks in the system. This is because of the
sense of urgency due to the need to attract more long-term 4.00
funding to meet the ratio of short-term funding used for medium
3.00
& long-term lending, as explained via the Circular details
aforementioned. For listed banks, we also noticed an escalation 2.00
in both average funding costs and yields on interest earning ON 1W
1.00
assets for Jan-Sept by roughly 22 bps and 39 bps respectively.
As the government has prioritized the lowering of interest rates,
there were 3 interest rate cuts in January, September, and
November. In the latest cut, the cap for demand deposits and Source: SSI
less than 1-month term rates were reduced from 1% to 0.8% per
annum. For 1 month to less than 6-month terms, these were cut

from 5.5% to 5% per annum. Short term lending rate caps for
preferred sectors (agriculture, export, supporting industries,
Government bond yield on secondary market
SMEs, high-tech) was also lowered from 6.5% to 6% per
annum. However, as the adjustment was made in November, 6.0% 20
18
effects on 2019 earnings results of banks would be marginal. 5.0%
VND tn
16
14
4.0%
12
3.0% 10
8
2.0%
6
4
1.0%
2
0.0% -
Volume 1Y 2Y 5Y 10Y 15Y
Source: SSI
Average deposit rates

9.00 SOBs
Large banks (exclude 4 SOBs)
8.50 Others
8.00
7.50
7.00
6.50
6.00
Sep-18
Sep-19
Feb-18
Apr-18
May-18
Nov-18
Feb-19
Apr-19
May-19
Nov-19
Aug-18
Aug-19
Jun-18
Jul-18
Oct-18
Jun-19
Jul-19
Oct-19
Jan-18
Mar-18
Jan-19
Mar-19
Dec-18
Dec-19
Source: SSI
2020 View Capital adequacy ratio of listed banks

CAR ratio
Bank
2017 2018 Sep-19
Stringent supervision will provide a bevy of advantages to
ACB 11.50% 12.80% 9.70%
Basel II compliant banks BID 10.90% 9.00% 10.70%
CTG 9.40% 9.30% n/a
Circular 22/2019, which will become effective on Jan 1st, 2020,
HDB 13.60% 12.10% 11.00%
was mostly centered upon the tightening of various operational LPB 10.30% 10.90% n/a
safety ratios. However, there were as much as 20 out of 39 MBB 12.00% 10.90% 9.50%
domestic banks that could not follow Circular 41/2016 before TCB 12.70% 14.30% 16.50%
the 1st January 2020 deadline. Consequently, the central bank TPB 9.00% 10.20% 10.40%
STB 11.30% 10.70% n/a
had to extend the deadline of Circular 41 compliance to 1st Jan
VCB 11.60% 8.90% 9.50%
2023. Circular 22 took the role of regulating CAR calculations VIB 13.10% 10.20% 9.60%
for banks that fail to meet standard CAR requirements as per VPB 14.60% 11.90% 11.40%
Circular 41/2016 (pertaining to Basel II). Accordingly, allowable Average
risk factors for consumer loans related to real estate were raised Source: Banks’ data, SSI Research
from the current 50% of loan value, to a higher range of 100%

and 150%. Please note that this CAR calculation will not be Note: The bold numbers are Basel II CARs. The bold tickers are
applied for Basel II compliant banks. the banks officially applying Basel II
Stricter regulations place difficulties for banks that failed to Credit cost and provision coverage ratio
comply with Basel II. Based on data up to 9M 2019, the
slowdown in credit growth of the sector derived mostly from 100% 1.70%
LLCR Credit cost
modest credit expansion of small Tier 3 banks as well as the 95% 1.65%
biggest 3 SOCBs, including Agribank, CTG, and BID, which
together accounted for approximately 38% of total credit market 90% 1.60%
share. In the meantime, Basel II compliant banks grew their 85% 1.55%
credit on average by +13.8% YTD, much higher than the
+9.54% YTD growth of the whole sector as of Q3 2019. 80% 1.50%
We expect this status quo to continue in 2020, as Basel II 75% 1.45%

standard banks will continue to be granted a higher credit quota
70% 1.40%
and gain more market share over domestic peers thanks to a 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19
more robust capital buffer and stronger overall financial health.
In this regard, we expect BID credit growth to accelerate to over Source: Banks’ FS, SSI Research
+13.5% YoY in 2020 from the modest +11.3% YoY growth
attained in 2019.
Retail lending out of total credit
Slightly decelerated credit growth ahead
Bank 2016 2017 2018 9M 2019
We expect credit growth in 2020 to be a bit lower than what was ACB 51.6% 56.0% 57.7% 58.8%
achieved in 2019, at around 13-13.5% YoY. This growth level is BID 24.6% 30.0% 31.5% 33.1%
reasonable given the adjusted environment of more tightened CTG 21.6% 23.5% 27.8% 28.7%
regulations on banking operations, as well as the development HDB 42.0% 43.2% 47.2% 45.4%
LPB 32.1% 36.9% 40.6% n/a
of the corporate bond market, where distributions to the public MBB 28.8% 33.4% 37.7% 37.8%
has been increasing sharply. TCB 39.6% 36.0% 33.1% 40.3%
TPB 38.3% 36.8% 46.7% 49.1%
Many large corporations chose to issue their own bonds instead
STB 52.1% 58.0% 60.7% 61.1%
of borrowing from banks, and there are now more and more VCB 24.5% 31.9% 36.9% 41.6%
individual investors that have purchased these bonds instead of VIB 42.0% 58.5% 70.3% 75.8%
depositing their money at banks. At Techcombank Securities VPB 56.7% 59.7% 55.7% 54.9%
alone, around VND 37 tn of corporate bonds were distributed to Total 28.2% 32.2% 35.5%
individual investors in 2018, rising to VND 39.5 tn in just the first Source: Banks’ FS, SSI Research
9 months of 2019. Besides, many other securities companies,
including foreign firms (from South Korea and Taiwan) are Note: Bold numbers are 1H 2019 data
expanding this business segment. We expect this trend to
continue in 2020.
Capital raising plans heading to 2020
We estimate that within the 12 biggest listed banks, the ratio of
% of Post-money Estimated Value (USD
retail lending out of total credit has rose rapidly from 32.2% in Bank
Capital mn)
2017 to 35.5% in 2018, and to approximately 40% in 3Q 2019. VCB 6.30% 861
We expect individual loans to continue to be the key driver in BID 14.10% 1,000
credit growth in 2020, especially at SOCBs like BID, CTG, and MBB 7.50% 250
TPB 6.80% 78
VCB who have a current structure of comparatively lower retail
VIB 15.30% 100
loans compared to private peers. VPB 9.32% 225
Total 2,514
NIM outlook differs across banks
Source: Banks’ data, SSI Research
• We expect short-term deposit interest rates to reduce on
average in 2020. This is from the recent cut in November,
when the cap for demand deposits and terms of less than
1-month was reduced from 1% to 0.8% p.a., and for 1-6

month terms from 5.5% to 5% per annum.

• We expect long-term deposit interest rates at big Tier 2
banks to edge down by around 50 – 100 bps. The pressure
Ratios of short-term funds used for medium- and long-term
to raise deposits will be quite relaxed given the outlook of
lending – 3Q 2019
less credit growth in 2020, and the recent addition of long-
term deposits which led to a hike in deposit rates in 40.0%
35.8%35.0% 36.1% 34.0%
November 2019. Moreover, liquidity in the market will be 35.0% 32.0%
33.4% 33.7%
32.0%
abundant as the inflow of FDI, FII and remittances will 28.6% 28.0%29.0%27.8%
30.0%
remain resilient against the backdrop of continuous
25.0% 22.5%
expansionary monetary policy across various countries.
However, there will be a small number of outlier banks who 20.0%
will raise rates to compete for deposits. 15.0%
10.0%
• Circular 22 set a timeline to reduce short-term funds used
5.0%
for medium- and long-term lending on a graduated basis,
from 37% by 1 Oct 2020, to 34% by 1 Oct 2021 and to 30% 0.0%
by 1 Oct 2022. Although this ratio as of Q3 2019 was
27.3% on average across the sector, well below the current
Source: Banks’ data, SSI Research
cap of 40%, there are some listed banks such as TCB, HDB,
LPB, and many small unlisted banks that have these ratios
at high levels. They will be under pressure to raise more
Loan–loss- coverage ratio (including net VAMC bonds)
long-term funds to reduce these ratios below the threshold
of 37% by 1st Oct 2020, which will surely entail rising 2016 2017 2018 9M 2019
ACB 126.5% 132.7% 150.0% 157.6%
funding costs.
BID 69.8% 80.7% 49.1% 66.4%
• We also expect the medium- and long-term lending CTG 101.8% 92.1% 52.3% 75.4%
HDB 76.8% 73.3% 56.4% 63.8%
interest rate to be reduced by approximately -30 bps in
LPB 109.3% 114.5% 66.9% 70.4%
2020 on average, whereas short-term lending rates for MBB 103.2% 97.3% 113.2% 102.7%
preferential areas will stay at the current level of 6% per TCB 66.6% 72.9% 85.1% 77.1%
annum. TPB 123.6% 97.9% 70.9% 80.1%
VCB 116.8% 130.7% 165.3% 185.2%
Circular 30/2019 allowed some banks to take advantage of the VIB 56.2% 47.6% 36.3% 49.9%
50% cut pertaining to reserve requirements if they officially VPB 49.7% 50.8% 35.2% 46.9%
support banks that are in special supervision status regarding Total 29.7% 37.6% 43.4% 59.5%
its management and operations. These regulations will be Source: Banks’ FS, SSI Research
effective starting March 2020 and will benefit SOCBs like VCB
(supporting VNCB), CTG (supporting Ocean Bank and GPBank),
and HDB (awaiting to merge with PGBank), in terms of lowering NII forecast (VND bn)
funding costs for these institutions.
Ticker 2018 2019E % YoY 2020F % YoY
NIM will also improve among banks that have a consumer ACB 10,363 12,112 16.9% 15,214 25.6%
finance business, such as VPB, HDB, MBB and TPB, as demand BID 34,956 35,995 3.0% 40,170 11.6%
HDB 7,646 9,224 20.6% 10,887 18.0%
which has recovered from 2019 will remain resilient in 2020. LPB 5,016 6,061 20.8% 7,833 29.2%
Overall, we estimate NII from the top 9 listed banks to increase MBB 14,583 18,120 24.2% 21,063 16.2%
TCB 11,127 14,258 28.1% 17,326 21.5%
by 17.9% YoY in 2019 and we forecast the growth would be
TPB 4,378 5,633 28.7% 6,671 18.4%
16.4% YoY in 2020. VCB 28,409 34,577 21.7% 39,766 15.0%
VPB 24,702 30,492 23.4% 34,834 14.2%
Fee income driven by bancassurance and payment services Total 141,178 166,473 17.9% 193,765 16.4%
We expect retail services including bancassurance and payment
Source: Banks’ FS, SSI Research
services will continue to thrive in 2020.

Income from bancassurance continued to surge up to 9M 2019

across the sector. This has been driven by direct premiums of
life insurance, soaring up by +24.5% YoY for Jan-Sept 2019,
the fifth year in a row of strong growth within the range of 25- Non-NII forecast (VND bn)
30% YoY. At the same time, the bancassurance channel wrote Ticker 2018 2019F % YoY 2020F % YoY
up 15.8% of total insurance premiums in Vietnam market, up ACB 3,670 3,985 8.6% 3,494 -12.3%
significantly from around 12% in 2018. Market share of the BID 9,535 12,171 27.6% 12,575 3.3%
bancassurance channel is forecast to increase in 16.5% in Q4 HDB 1,795 2,056 14.5% 2,350 14.3%
LPB (136) 449 -429.5% 46 -89.7%
2019.
MBB 4,955 6,844 38.1% 7,273 6.3%
Asset quality to improve TCB 7,223 6,810 -5.7% 6,673 -2.0%
TPB 1,249 2,955 136.6% 3,378 14.3%
The combined NPL ratio cleaned up from 3.2% by 2018 to 2.7% VCB 10,870 11,156 2.6% 14,946 34.0%
as of Q3 2019. At the same time, LLCR improved from 43.4% VPB 6,384 5,863 -8.2% 6,005 2.4%
Total 45,545 52,288 14.8% 56,740 8.5%
to 59.5%. Going into 2020, we expect this trend to only continue
further. There are only CTG, HDB, and LPB (among listed banks) Source: Banks’ FS, SSI Research
that have a large balance of VAMC bonds to be resolved, while
we expect new NPL formations to be relatively muted.
PBT forecast (VND bn)
2014 -2015 were the peak years marking VAMC purchases of
bad debt from banks. The majority of VAMC bonds have 5Y Ticker 2018 2019F % YoY 2020F % YoY
terms which expired in 2019-2020. In 2019, Agribank and VPB ACB 6,389 7,516 17.6% 8,741 16.3%
BID 9,473 10,876 14.8% 14,043 29.1%
announced to complete clearing up their VAMC bonds. BID also
HDB 4,005 4,974 24.2% 6,059 21.8%
planned to resolve the remaining VAMC bonds in 2019. LPB 1,213 2,039 68.1% 2,581 26.6%
MBB 7,767 10,225 31.6% 12,138 18.7%
On the other hand, relatively new VAMC bonds amounting to
TCB 10,661 12,838 20.4% 14,700 14.5%
VND 13.4 tn emerged at CTG unexpectedly in Q4 2018 after the TPB 2,258 3,868 71.3% 5,096 31.7%
bank’s restructuring plan for 2016-2020 was approved. In 2019, VCB 18,269 23,123 26.6% 28,276 22.3%
CTG already booked provisions for 54% of total VAMC bonds. VPB 9,199 10,334 12.3% 13,002 25.8%
For HDB, the pace of provisioning was much slower than we Total 69,233 85,794 23.9% 104,635 22.0%
expected, while the merging with PGBank, which was scheduled Source: Banks’ FS, SSI Research
in Q1 2019, was delayed until now.
Raising capital for SOCBs from the government funds: Game
changer?
The government is proposing a drafted revision on Decree
32/2018 regarding SOE investment/divestment. Perhaps the
most important part of this draft is wherein the government
mentions the intention “to maintain state-ownership ratio” in
state-owned commercial banks (SOCB), in which the
government holds a majority stake. This implies that in the event
of a rights issuance, the state is willing to contribute capital to
maintain its state-ownership, and a stock dividend is allowed as
an alternative to cash dividends.
While in the short term Vietcombank (VCB: HOSE) or BIDV (BID:
HOSE) might not see an immediate impact, Vietinbank (CTG:
HOSE) and Agribank might find what it needs for its
recapitalization plan. According to the Deputy Prime Minister,
the government targets to complete raising capital for CTG and
Agribank right in 2020 for these banks to meet Basel II
requirements.

Forecast
Earnings growth in 2020 will recover from the turnaround of
some banks, including BID and VPB, as well as the improvement
in core business at others thanks to improvement in NIM through
bancassurance and payment fee income.
For 2019 and 2020, we forecast the total PBT of banking stocks
to grow by 23.9% YoY and 22% YoY respectively. The banks
with the best PBT growth include VCB, BID, VPB, MBB and TCB.
We therefore maintain our positive view on the banking sector’s
earnings outlook over the next year.
We expect valuation in 2020 to improve thanks to the catalyst of
new ETFs based on new HOSE indices involving banking stocks,
including VN Fin Select, VN Fin Lead, and VN Diamond. We
therefore hold an Overweight rating on the banking sector.
Issues and risks
The tightening of regulation towards the application of Basel II in
their respective sector would increase compliance costs for
banks.
Additionally, a new round of NPLs are coming back to the fray,
with causation from newly issued consumer loans, or from
legacy restructured loans being re-rated.
Most preferred Most preferred in sector: ACB VN

Asia Commercial Joint Stock Bank: ACB VN
• Current price: VND 22,800; 1Y Target price: VND 31,500 Foreign ownership (%) 30%
2020 PE/PB 6.0x/1.4x
• Investment thesis: ACB is a retail-focused bank, with 91%
of its loans book derived from individual clients (59%) and 2020 EPS growth (%) -5.7%
SME clients (32%). The bank is holding a 3.3% and 3.6% Dividend yield (%) n/a
market share in lending and deposits respectively. In 2019, 2020 ROE (%) 22.9%
the number of individual clients of ACB has risen steadily
from more than 2 mn at the beginning of the year to 2.8 mn
at the end of the year. We believe that the bank has been
step by step making a decent comeback, winning more
customers after having fully resolved its legacy bad debt in
2017. Meanwhile, good asset quality is one of the bank’s
core competencies, with NPL ratios being maintained below
1% and LLCR of 159% at the end of Q3 2019, which are the
second-best ratios in the system after VCB. Having track
record of resilience through both peak and trough, ACB is a
good investment choice for a banking stock in the late credit
cycle.
• Catalysts:
✓ Undervalued stock. With ROE and core pretax profit
growth in 2020 at 23% and 16% YoY, the current stock

price looks cheap at P/E and P/B forward ratios of

5.98x and 1.37x. Most preferred in sector: ACB VN
✓ One-off earning in 2020. An exclusive bancassurance
deal and the divestment of ACBS are potential share- 120%
price catalysts for ACB in the year.
110%
• Risk: Higher than expected NPL formation rate could raise
credit cost and erode profitability. 100%
90%
80%
VNIndex ACB VN Equity
70%
60%
Most preferred in sector: MBB VN

Most preferred
Military Commercial Joint Stock Bank: MBB VN Average 3M value (USD mn) 4.04
2020 PE/PB 5.6x/1.0x
• Investment thesis: MBB is the only joint-stock commercial
2020 EPS growth (%) 9.8%
bank which possesses unique advantages in terms of a
low-cost funding source from its large corporate client
2020 ROE (%) 20.6%
base. Given this advantage, it has been expanding loans to
individual clients, and taking advantage of the burgeoning Source: Bloomberg, SSI Research, Data on 31 Dec 2019
consumer finance sector. The lending structure between
individual/enterprise of the Bank has moved from 21%/79%
in 2015 to 41%/59% in Q3 2019. With these catalysts, MBB Most preferred in sector: MBB VN
was able to significantly expand its interest spread and
improve profitability in recent years. 140%
130%
• Catalysts:
120%
✓ NIM to further expand. We believe MBB has room to
widen its NIM as (1) its funding cost is amongst the 110%
lowest in the system (4.01% in Q3 2019) and lending 100%

yield is currently much more competitive than other 90%
JSBs (ACB, STB, HDB, TPB, VIB), (2) LDR ratio is VNIndex MBB VN Equity
80%
roughly 74% vs the regulated cap of 85%, and (3)
70%
consumer lending as a percentage of the total loans
book might scale up. 60%
✓ High provision coverage allows the bank to absorb

sudden surge in NPLs. It was witnessed that the NPL Source: Bloomberg, SSI Research
ratio of MBB increased recently from 1.32% at end-
2018 to 1.54% at the end of Q3 2019. However, the

provision coverage ratio was still kept prudently at

103%.
• Risk:
✓ The decrease of CASA, as corporate clients can easily
switch from demand deposits to term deposits
✓ MCredit’s rising NPL formation rate in the event that
disbursement encounters a slowdown.
Most preferred in sector: VCB VN

Most preferred
JS Bank for Foreign Trade of Vietnam: VCB VN Average 3M value (USD mn) 2.48
2020 PE/PB 22.1x/3.96x
• Investment thesis:
2020 EPS growth (%) 13.7%
✓ VCB is the best bank of Vietnam in terms of asset Dividend yield (%) 0.88%
quality and efficiency. It is originally a corporate bank 2020 ROE (%) 20.7%
but has been shifting strongly towards more retail
lending to raise NIM and reduce credit concentration Source: Bloomberg, SSI Research, Data on 31 Dec 2019
risk. As of Sept 2019, 51% of its loans comprised of
individual clients (42%) and SME clients (9%). It has Most preferred in sector: VCB VN
been holding 9.1% of lending market share and 11% of
deposit market share.
200%
✓ Asset quality is maintained in good shape together with 180%
prudent lending practices. NPLs have continued to 160%
hover around 1%, while LLC was high at 185%. 140%
✓ VCB has the most active FX trading business, which 120%

supported its trade finance and international payment 100%
services, where it also had the largest market share. 80%
VCB has recently signed an exclusive bancassurance 60% VNIndex VCB VN Equity
deal with FWD and planned to expand this business 40%
starting in 2020. Together, fee-based services were 20%
strong, at 26-28% to total TOI, among the highest in
0%
the sector.
• Catalysts:
✓ Robust earnings growth from core business in 2020:
(1) Spacious room for NIM improvement and fee
income from retail segment (payment fees and
bancassurance income) when VCB leverages more of
its retail client base; (2) Credit cost to be well managed
given a healthy assets quality. We expect ROE to
remain resilient at around 20-21% in 2019-2021.
✓ Additional capital raise in 2020. VCB plan to issue
around 6% stake in 2020 to further enhance its capital
base. With strong earnings growth outlook from core
business, it’s feasible that the issuance is successful
at the current market price, which would bring about a

huge capital premium for the bank.

• Risk: Higher than expected NPL formations from mortgage
lending could raise credit costs and impede earnings.

FINANCIALS - INSURANCE
Neutral: Improved underwriting profit to offset weaker investment
yield
Most Preferred: N.a
2019 Highlights Insurance industry performance in 2019
Sector performance
140%
The insurance sector declined by -16.43% in terms of market
120%
capitalization in 2019, underperforming the VN Index, which
increased by 7.67%. This was mainly due to the fall of -21.9% 100%
in BVH, the stock accounting for the mass majority of total
80%
market share in the insurance sector, a 74.3% chunk. PGI also
experienced a drop during the year by -15.4%. BMI was the only 60%
outperformer, a rollercoaster of a performance with having stock 40%

price regained +25.7% for 2019 after a deep plummet of -41% VNIndex Financials Insurance
20%
in 2018. Performance of other stocks were relatively flat: PVI (-
0.1%), BIC (-1%), VNR (+2%), and PTI (5.2%). 0%
It is worth reiterating that the performance of insurance stocks

continued to diverge from actual business results. Specifically,
listed insurers posted sterling results with aggregate net income
up by +22.2% YoY within Jan-Sept 2019. Such stellar growth
was exhibited through ABI (+68.2% YoY), MIG (+46.4% YoY), Growth of life premium decelerated in 9M2019
PVI (+32.8% YoY), BIC (+27.6% YoY) and BVH (+24.8%
100,000 39.5%
YoY). Meanwhile, for the only stock which outperformed in term 90,000
of stock price (BMI: 25.7%), it experienced a contraction of - 80,000 32.4% 31.2% 30.6%
15.9% YoY in net income. Truly a divergent connection between 70,000
60,000 23.5%
stock prices and actual performance within this sector, a sign of
50,000 17.44%
numerous irregularities present within the market at this time. 40,000
30,000
We had recommended Neutral upon the sector at the beginning 20,000
of 2019, as we had expected ROE of insurers to remain low 10,000
compared to regional peers despite solid top line growth. -
2014 2015 2016 2017 2018 9M2019
Gross written premium %YoY

What was expected? Source: AVI, SSI research
The banca channel led the ride. Up to 9M 2019 for the year,
new business premiums from bancassurance policies surged

+85.2% YoY, while those from traditional channels dropped - New business premium by distribution channel
15.1% YoY. With impressive growth in recent years enabled
30,000
through exclusive contracts between banks and insurance
25,000
companies, of the contribution of bancassurance to total
premiums climbed to 16% during Jan-Sept 2019, a distinct rise 20,000
15,000
from 5.8% back in 2016.
10,000
Non-life insurance maintained momentum, with direct written 5,000
premiums attaining VND 38.8 tn, up by +14.4% YoY. Growth -
drivers came from health & personal accident insurance 2016 2017 2018 9M2019
(+21.2% YoY), motor insurance (+13.2% YoY) and fire
Banca channel Traditional channels
insurance (+34.5% YoY). Amongst listed insurers, PTI, ABI and
MIG enjoyed faster top-line growth than the industry average; at
Source: AVI, SSI research
+39.5% YoY, +22.5% YoY and +20.5% YoY respectively.
Hence, there was a tweak in market share in which PTI was able Contribution of banca to total premium
to grab a bigger slice of the pie (10.8%), and wrangled the third
place position from BMI (6.9%). Baoviet and PVI still remained 14,000
15.8%
12,000
as the leaders in the market, with 20.1% and 14.9% market
10,000 12.0%
share.
8,000
7.6%
6,000 5.8%
4,000
2,000
Growth in life insurance premiums decelerated, with the YoY -
growth rate during the first 9 months at +23.5%, reaching VND 2016 2017 2018 9M2019
74 tn. Albeit at first appearances to be a decent performance, Banca premium % in total premium
this is lower compare to the CAGR 2014-2018 of +33.4% and
9M 2018 growth of +33.2% YoY. New business premiums for
the period rose by merely +15.5% YoY (vs. 36.2% in 9M 2018). Source: AVI, SSI research
There was no change in the ranking where Baoviet Life still Non-life premium growth
possessed the No.1 position with a 24.5% market share,
followed by Prudential (20.3%) and Manulife (14.5%). 50,000 16.9%
15.1%
The slackening in the growth rate might be explained by two 40,000 14.4%
12.8%
factors: 30,000
12.5%
11.8%
• The number of newly recruited agents up to 9M 2019 slid 20,000

by -14.8% YoY. As exclusive bancassurance contracts
10,000
were gaining popularity, insurers were able to get access to
a huge amount of bank employees who might be effective -
2013 2014 2015 2016 2017 2018 9M2019
prospective agents in the next 2-3 years, especially when
criteria for agents to be qualified for selling investment- Nonlife premium %YoY growth
linked products have been significantly relaxed under
Decree 151. Therefore, the need to recruit agents
Source: AVI, SSI research
aggressively was no longer an exigent circumstance.
• Corporate bonds were offered to individuals at a yield
ranging from 7% to 12% (10.2% in average), which was
competitive compared to the guaranteed rate offered by life
insurance products. In the market where most individuals
in actuality look for insurance as another channel of
investment rather than a protection against risk, corporate
bonds might be considered a substitute product against this

background. The total value of corporate bonds purchased Listed insurers net income in 9M2019
by individuals reached approx. VND 21 tn in 2019. Net income ROE
9M201
In general, total insurance direct written premiums up to 9M 9M2018 9M2019 %YoY 9M2018
9
2019 reached VND 112.8 tn, up by +20.3% YoY, which is ABI 124 208 68.2% 24.3% 34.5%
slower compared to the 2018 growth rate of 23.7% YoY. BIC 145 185 27.6% 9.1% 11.4%
BMI 165 139 -15.9% 10.0% 8.2%
Profitability improved amongst listed insurers. Listed BVH 839 1,047 24.8% 7.5% 8.8%
insurers, except for BMI, PTI and VNR, enjoyed good growth in MIG 79 115 46.4% 11.4% 12.6%
the first 9 months of the year, with aggregate net income PGI 106 115 8.3% 9.7% 10.3%
PTI 56 53 -5.1% 4.0% 3.9%
attaining VND 2.7 tn (+22.2%) as underwriting profit witnessed
PVI 478 635 32.8% 9.3% 12.0%
significant improvement. ROE, therefore, improved from 8.7% to VNR 216 202 -6.7% 10.3% 9.0%
10.1%. Total 2,208 2,699 22.2% 8.7% 10.1%
Total (excl. life
Underwriting activity recorded better efficiency in 2019. The insurance)
1,384 1,636 18.2%
claim ratio and compensation ratio of most listed insurers were

Source: Companies, SSI research
improved up to 9M 2019 compared to the same period last year,
thanks to:
• The introduction of deductible amount for car insurance. Underwriting result of listed insurers
From 1 Jan 2019, non-life insurers applied a minimum UW profit (bVND) Claim ratio Combined ratio
deductible amount of VND 500,000/claim, which is the 9M2018 9M2019 9M2018 9M2019 9M2018 9M2019
portion of any claim amount that the insured must ABI 94 184 28% 24% 88% 79%
compulsorily bear oneself. Therefore, actual claim BIC (8) 29 42% 38% 101% 98%
BMI 64 75 40% 40% 97% 97%
expenses inched up merely +4% YoY vs the premium
BVH (non-
growth of 13.2% YoY, allowing the direct claim ratio of auto life)
(357) (367) 51% 56% 107% 107%
insurance to decrease from 57% in 9M 2018 to 52% up to MIG (5) 34 40% 33% 100% 97%
PGI 9 4 54% 49% 99% 100%
9M 2019.
PTI (33) (55) 54% 48% 102% 102%
• Fire & explosion insurance premiums rose +34.5% YoY up PVI 112 153 42% 37% 96% 94%
to 9M 2019 due to an increase in insurance premium rates. VNR 30 2 36% 35% 93% 100%
Total (275) (250) 47% 47% 102% 101%
Though Decree 23/2018 on compulsory fire & explosion Total (excl.
insurance had been effective from April 2018 with regulated 262 426 43% 42% 98% 97%
BVH)
minimum premium insurance rates for each type of assets,
Source: Companies, SSI research
it was not thoroughly complied by all insurers. Indeed,
some insurers found a loophole by switching their policy For PGI and PTI, the UW profit is the adjusted number as
from compulsory insurance to voluntary insurance. With investment income from policyholder fund was recorded in
the latter, the premium rates were based on negotiation, and ‘Other income from insurance activity’
discounts could be offered to lure more clients. In 2019,
Net investment yield of listed insurers
compliance was supervised more closely, and insurance
premium rates hence went back to normal. Up to 9M 2019, 9%
compulsory and voluntary fire insurance increased by 8%
7%
+54% and -2% YoY (vs. +33% and +16% in 2018). 6%
5%
For BVH, underwriting profit was better thanks to Circular 4%
01/2019 on technical rates used for calculating reserves. 3%
2%
Investment yield edged up to 7.8%. In aggregate, net 1%
investment income attained VND 37.3 tn (+17% YoY) thanks to 0%
expansion of AUM by +12.3% YoY, as well as upward trends in

both deposit rates and corporate bond yields in 2019.
Investment yields amongst listed insurers edged up roughly 21 3Q2018 3Q2019
bps to 7.8%. The ROI of BVH and BIC descended, as they had
net gains from earlier sales of equities and bonds in 2018. Source: Companies, SSI research

Delayed state divestment. It had been expected from the

beginning of the year that state divestment of BMI and PVI (as
well as the BVH private placement) would take place. However,
both state divestment deals showed no certain progress to now.
Only BVH succeeded in issuing 5.91% of its pre-money charter
capital to Sumitomo Life – its current strategic investor. The
value of the deal was VND 4 tn.
2020 View

Table: 2020 pre-tax profit guidance of listed insurers
We expected the life insurance premium to be up by +25-27%,
while the growth of non-life insurance premiums will be in the 9M201 2019 % 2019 2020
%YoY
9 Plan Completion E Plan
range of 10%-12%. In general, total direct written premiums are
ABI 260 177 147.2% 352 373 5-7%
expected to retain its trajectory growth at 20-22%. In term of BIC 214 223 96.1% 280 300 7.2%
pretax profit, most listed insurers set a target growth of 7-9% BMI 166 210 79.2% 224 240 7-9%
YoY for 2020, as their 2019 profits were set at a high base to BVH* 1,313 1,563 84.0% 1,675 1,998 19.3%
rise from. MIG 145 146 99.0%
PGI 140 184 76.0% 190 196 3.2%
Catalysts PTI 63 150 42.1% 130 155 19.2%
-
PVI 795 772 103.0% 990 781
• Rate increases and improved underwriting discipline 21.7%
would be solid drivers for growth of the non-life VNR 242 331 73.0% 328 354 7.9%
Total 3,338 3,755 88.9% 4,167 4,395 5.5%
insurance market in 2020. Apart from the common
justification that GDP growth, income growth, and gradual *BVH has yet released 2020 guidance. The 2020 number is our
improvement in people’s awareness are the 3 key factors forecast
facilitating top line growth, rising insurance prices in 2020
would allow non-life insurance premiums to continue
attaining double digit growth. In the last few years, Vietnam GDP growth and non-life premium
insurance was in a ‘soft’ market, where insurers slashed
GDP (VND tn) Non-life premium (VND tn)
their rates or expanded terms/conditions to seize more
10,000 70
market share at the cost of eroding their bottom line. Claims Vietnam nomimal GDP (LHS)
9,000 Vietnam nonlife premium (RHS)
and the combined ratio since Q1 ‘17 had been fluctuating 60
around 42-53% and 98%-106% respectively. In 2019, there 8,000
was a signal that the market started to get hardening as 7,000 50
some insurers increased their rates and improved their 6,000 40

underwriting discipline. We expect that we would see more
5,000
insurers to follow suit in 2020, and thus enhance 30
4,000
profitability of the whole sector. Besides, the low interest
rate environment is expected to persist, which means that 3,000 20
2013 2014 2015 2016 2017 2018 2019F 2020F 2021F 2022F 2023F
any improvement in the sector’s profitability will be
dependent on underwriting performance, creating a real
pressure for insurers to turn towards an efficiency-driven Source: Business Monitor International
approach. According to our estimate, a 1% reduction in the
combined ratio would lift pre-tax profit by 4-5%.
• New products are to be launched. The P&C (property & Quarterly ROE of listed insurers
casualty) insurance premium market has stalled in recent
years, with a 2015-18 CAGR of merely +1.8% YoY.

Compulsory motor insurance, which has a low claim ratio, 16.0%

could only increase by roughly VND 200 bn/year, or by
14.0%
+5% pa in the last 2 years. Meanwhile, voluntary motor
insurance, which has a lofty claim ratio due to insurance 12.0%
fraud, comprises approx. 75% of total motor insurance.
10.0%
This insurance type rose at a faster pace of +10-11% pa,
or by VND 1 tn/year. The dichotomy between compulsory 8.0%
and voluntary motor insurance left insurers little choice if 6.0%

they wanted to attain decent premium growth. Personal
4.0%
accident insurance sold through partnerships with financial
Q2/2015
Q4/2017
Q3/2015
Q4/2015
Q1/2016
Q2/2016
Q3/2016
Q4/2016
Q1/2017
Q2/2017
Q3/2017
Q1/2018
Q2/2018
Q3/2018
Q4/2018
Q1/2019
Q2/2019
Q3/2019
companies faced severe competition as well as hefty
commissions. These 3 segments made up 76% of total
premiums. Hence, we expect new products to be launched
in 2020 targeting retail customers as well as focusing on Source: Companies, SSI research
the niche market. Recently, new products were launched,
Table: Bank and insurance cooperation in recent years
such as flight delays insurance, insurance for small
Total
electronic goods (camera, phones…), and e-cargo
Dur Up-front premium
insurance. We also expect more products to be deployed Year atio Insurer fee (VND in
through its partnership with banks, as it allows insurers to n bn) 9M2019
(VND bn)
access a database of roughly 43 mn individual clients. The Listed banks
capped quota for credit growth might also make room for Exclusive
guarantee insurance to emerge in the foreseeable future. VIB*
2015/201
Prudential 1,217
9
• Reshaping of the life-insurance market. In late 2019, HDB 2015 10 DaiichiLife 37
EIB 2016 Generali 186
Vietcombank and FWD Group tied up an exclusive 15-year
LPB 2016 5 DaiichiLife 221
bancassurance partnership, under which FWD shall have VPB 2017 15 AIA 1,600 550
access to a sizable database of roughly 15 mn or more TCB 2017 15 Manulife 1,446 1,633
clients. As the agent channel was facing difficulty due to SHB 2017 15 DaiichiLife 1,000 183
stringent regulation, bancassurance shall continue to be an STB 2017 20 DaiichiLife 800 784
CTG 2017 Aviva 752
important pillar of growth. Hence, though premium growth
TPB 2018 15 SunLife 1,840 268
is projected to be +25-27% due to current low penetration NCB 2018 15 Prevoir 39
and rising demand, the growth rate would be significantly VCB 2019 FWD 385
different between insurers, leading to continuous alteration Non-exclusive
2015/201
in market share. ACB AIA,Manulife 681
9
KLB 2019 AIA 23
• State divestment to continue in 2020. As we have two
Affiliates/subsidiaries
state divestment cases in the pipeline, regarding the SCIC BID** BIDVMetlife 709
divestment of 50.7% ownership in BMI and PVN divestment MBB** MBAgeas 1,174
of 35.5% ownership in PVI, there might be some upside Non-listed banks
catalyst for these stocks if further progress is made. Exclusive
SCB 2015 10 Manulife 647
• Support from regulation. In 2019, Decision 242/QD-TTg AnBinh Bank 2016 FWD
was issued, stating the plan of the Vietnamese government NamA Bank 2017 15 FWD 61
VietA Bank 2018 10 ChubbLife 11
to maintain a premium growth rate of 20% in 2020, slightly
2015/201
tiered down to 15% in 2021-2025. The percentage of the PVCombank
9
Prudential
population participating in life insurance is targeted to reach OCB 2019 15 Generali 206
11% in 2020, and to 15% in 2025. Hence, the penetration SeaBank 2020 20 Prudential
Non-exclusive
rate should reach 3% in 2020 and 3.5% in 2025 from the 2011/201 Prudential/D
MSB 358
end-2018 rate of 2.43%. Given the determination of the 7 aiichi
government to jointly participate with the market in the
Source: SSI, Companies
development of the nascent and growing insurance market,
we believe the growth of the sector shall receive support Valuation & ROE of Vietnam’s listed insurers

from the regulators. Specifically, we noticed the followings Ticker

ROAE
ROAE 2019E Trailing PE Current PB
2018A
were/have been done: ABI 24.4% 32.9% 4.49 1.33
BIC 6.7% 10.1% 18.55 1.32
(1) A master plan on linking social health insurance with
BMI 7.4% 8.0% 18.33 1.03
commercial health insurance was being built, hence, the BVH 7.2% 8.2% 40.28 3.14
insurer companies could further expand their coverage in MIG 11.5% 10.6% 9.07 0.99
the foreseeable future; PGI 9.6% 10.1% 10.41 1.12
PTI 0.9% 5.8% 84.86 0.82
(2) The legal framework for insurance business, including PVI 8.9% 11.2% 11.02 1.02
regulation for commission, auxiliary insurance service, VNR 10.4% 8.7% 9.59 0.87
corporate governance and capital adequacy, shall be Average 9.67% 11.68% 23.02 1.29
Average
gradually completed. Indeed, regulation on auxiliary (excl BVH)
12.12% 20.86 1.06
services was issued in 2019 (Decree 80/2019 and Circular
65/2019). We therefore expect more to come in the next 2- Source: Companies, SSI research
3 years. Valuation & ROE of regional non-life insurers
• Issues and risks Name Country ROE LF P/B P/E
PEOPLE'S INSURANCE
China 11.59 0.76 7.05
• Lowering interest rate environments. Low interest rate CO GROU-H
environment means investment returns will remain weak, PICC PROPERTY &
China 13.61 1.20 9.41
CASUALTY-H
which will continue to undermine profitability of insurers. ASURANSI BINTANG PT Indonesia 5.25 0.38 7.49
Besides, should the government bond yield decline any ASURANSI DAYIN MITRA
Indonesia 12.38 0.63 5.27
TBK PT
further, a huge burden might be placed on life insurance ASURANSI JASA TANIA
Indonesia 10.43 0.18 3.46
technical reserves, and negatively affect accounting profit. TBK PT
ASURANSI MULTI ARTHA
Indonesia 1.48 0.78 54.55
• Rising rates from reinsurers. In recent years, high losses GUNA PT
ASURANSI RAMAYANA
from Vietnamese insurers, especially in property insurance, Indonesia 17.11 1.09 6.82
TBK PT
have made international reinsurers revise their pricing. ASURANSI TUGU
Indonesia 3.72 0.87 18.08
Accordingly, the rates are forecasted to rise around 2-5%, PRATAMA INDONE
LIPPO GENERAL
and A++ reinsurers might be more selective in assuming INSURANCE PT
Indonesia 8.37 0.65 7.28
reinsurance. The crucial consequence of this is insurers VICTORIA INSURANCE

Indonesia 3.66 0.97 26.53
TBK PT
might not be able to maintain good treaty contracts, forced LPI CAPITAL BERHAD Malaysia 15.99 3.12 18.66
to switch to facultative contracts, which would then be an MPHB CAPITAL BHD Malaysia 2.44 0.53 22.05
undermining factor regarding the capacity of non-life TUNE PROTECT GROUP
Malaysia 9.56 0.76 8.21
BHD
insurance companies. ALLIANZ AYUDHYA
Thailand 4.80 0.82 18.93
CAPITAL PCL
• Fierce competition and insurance fraud BANGKOK INSURANCE
Thailand 6.82 1.05 14.10
PCL
DHIPAYA INSURANCE
Thailand 21.30 1.77 8.51
PUB CO LTD
MUANG THAI INSURANCE
Thailand 6.33 0.85 13.65
PCL
NAM SENG INSURANCE
Thailand 6.80 0.63 9.31
PUB CO
SYN MUN KONG
Thailand 9.35 0.95 10.51
INSURANCE PCL
THAIVIVAT INSURANCE
Thailand 4.25 1.01 23.16
PUB CO
Average 8.76 0.95 14.65
Source: Bloomberg

FINANCIALS - BROKERAGE
Neutral: Fierce competition hampers earnings growth story
Most Preferred: N.a
2019 Highlights Brokerage industry performance in 2019
Sector performance
130%
Listed brokerage companies had a difficult year in 2019, with 120%
the total trading value of the market shrinking by -29% YoY. 110%
Moreover, fierce competition from new entry rivals, mostly from
100%
South Korea, snatched away market share from domestic
90%
players. The race in cutting transaction fees as well as raising
80%
commission payments to sales brokers also eroded the
profitability of listed brokerage companies. 70%
60% VNIndex Financials Brokerage

As a result, although VNIndex performance was not bad at
50%
+7.7% YoY, the brokerage sector widely underperformed the
Feb-19
Apr-19
Sep-19
Nov-19
May-19
Aug-19
Jun-19
Jul-19
Oct-19
Jan-19
Mar-19
Dec-18
Dec-19
market, falling by -18.6% YoY.
Only Thien Viet Securities (TVS: HOSE) bounced up significantly
by +29.6%, while other brokerage firms plunged or stayed flat.
Some of the biggest listed companies tumbled strongly,
including SSI (-29.2%), VCI (-34%), FTS (-26.3%), and BVS (-
19.1%) in line with their earnings outlook. Amongst the 3 leading
brokers, Ho Chi Minh City Securities Corporation (HCM: HOSE)
mostly held its ground, inching down only by -1.4% YoY.
• Divergent earnings results: The Top 25 biggest brokers Top 10 brokers took 70.5% market share in HOSE by 2018
reported 2019 Q1-Q3 PBT at VND 5.84 tn, a -14.8% YoY
20.0% 18.7%
drop. Of which, 14 listed brokerage companies
18.0%
underperformed the sector, delivering a -32% YoY drop 16.0%
in PBT from Jan-Sept. While brokerage fee income fell 14.0%
11.2% 11.0%
strongly by -45% YoY, interest income from Held-To- 12.0%
Maturity (HTM) assets rose by +42% YoY, while lending 10.0%
7.3%
8.0%
interest went flat at +0.8% YoY, prop trade earnings 5.6%
6.0% 4.0% 3.5%
declined by -7.6% YoY, and net fee income from IB services 4.0%
3.3% 3.0% 2.8%
improved by +12.9% YoY. On the contrary, the top 5 2.0%

foreign brokers within the Top 25, including Mirae Assets 0.0%
SSI HSC VCSC VNDS MBS SHS ACBS FPTS BVSC BSC
Securities Company (MAS), KB Securities, KIS Vietnam,
Maybank Kim Eng, and Yuanta Securities reported a surge
Source: HOSE
of +86.7% YoY in PBT up to 9M 2019, mostly propelled by

lending interest (+126% YoY) and interest income from Top 10 brokers took 62.6% market share in HOSE by 2019
HTM assets (+71% YoY).
16.0%
14.0%
• Deteriorating depth: Following a 26% YoY increase in 14.0%
2018, average daily turnover (ADT) dropped by -29% YoY
12.0% 10.5%
in 2019 from a lack of new listing of big companies and
10.0%
weak market sentiment. Market capitalization arrived at 8.2%
VND 4.43 quadrillion ($191 bn USD), equivalent to 73% of 8.0% 6.8%
GDP. 6.0% 4.8% 4.5%

3.9% 3.8%
4.0% 3.1% 3.1%
• In the listed market, foreign investors net purchased VND
2.0%
10.7 tn of equity stocks, a sharp fall by -67.2% YoY. Their
trading activities were less active, accounted for just 14.1% 0.0%
SSI HSC VCSC VNDS MBS MAS VPS BVS BOS KIS
of the total market, a decline from 15.7% in 2018.
• The race to the bottom: Regarding transaction fees, Source: HOSE
Circular 128/2018 of the Ministry of Finance was a
gamechanger. Having come into force on February 15,
2019, it removed the floor cap on transaction fees, Average daily turnover and foreign trading
previously at a 0.15% minimum. This triggered a new cash-
12,000 30%
burn battle, a race to the bottom via slashing transaction ADT (VND bn) % of foreign trading
fees to compete for what was then dwindling market 10,000 25%
shares. Many brokerage firms immediately slashed fees
(some even to zero) to attract investors. Negative 8,000 20%
transaction fees so far have not been witnessed in the 6,000 15%
market. Lower market turnover and lower transaction fees
impeded brokerage fee income of brokers. Thus, due to this 4,000 10%
race to the bottom in transaction fees to defend market
2,000 5%
share, average brokerage net margins fell from 46.3% back
in 9M 2018 to 29.1% up to 9M 2019. - 0%
Sep-18
Nov-18
Sep-19
Nov-19
May-18
May-19
Jul-18
Jul-19
Jan-18
Mar-18
Jan-19
Mar-19
• Since 2H 2018, the market saw foreign brokers
aggressively expanding the margin lending business.
With the strength in low cost of funding (1-3% pa), these Source: HSX, HNX, SSI Research
foreign brokers could offer more attractive prices and have
been gaining more market share in the process. MAS joined
the Top 5 companies in terms of margin lending in Q4 Average daily turnover and foreign trading
2018, and took the leading position in Q3 2019 with 11.9% 1400 600,000
of market share. Margin lending market share of 11 foreign Transaction value (VND bn) (RHS) VN-Index (LHS)
1200
brokers increased rapidly from 15% in 2017 to 24.2% in 500,000
2018, and further to 28.5% by Sept 2019. 1000

400,000
• Brokerage market share actually moved in line with the 800

300,000
margin lending market, highlighting the importance of this 600
market variable. The Top 10 players in the HSX equity 200,000
400
market in 2019 made a new name for themselves among
100,000
the biggest margin lenders, including MAS (5.3% of trading 200
market share, 11.9% of lending market share), VPS (4.3%; 0 -

4.8%) and KIS (3%;4.8%). Market share of the Top 5
biggest domestic companies contracted from 53.8% in
2018 to 41.7% in Q4 2019.
• The corporate bond business prospered: The corporate Source: HSX, HNX, SSI Research
bond market surged upwards in 2019, with total value of

new issuance in the first 11 months delivering VND 237 tn Margin lending market shares of foreign brokers
at +6% YoY, representing 10.3% of GDP. The booming of
14.0%
this alternative investment to equity had a negative impact 11.9%
12.0%
on not only equity market liquidity, but also the value of 9.3% 9.2%
10.0%
equity issuance. Up to 9M 2019, the value of capital raised 8.0%
8.0%
via share issuance fell by -41% YoY, but net fee income
4.6% 5.0% 4.8%
from IB services improved by +12.9% YoY at 14 listed 6.0%
3.3%
3.0%
brokers thanks to the expansion of advisory services to 4.0%
corporations issuing corporate bonds. Brokers highlighted 2.0% 0.0%

in this area include MBS, SHS, VND, and the non-listed 0.0%
TCBS and VPS. It’s worth mentioning that the participation

of individual investors has been rising. This contrasts
against the strict regulations limiting the investment scope Mirae Asset Securities KIS
of banks, who were previously the biggest buyers. KBS MBKE
Yuanta Securities Phu Hung Securities
Source: Company’s data, SSI Research
Total net foreign transactions (VND bn)
25,000
20,000
15,000
10,000
5,000
-5,000
Sep-18
Nov-18
Sep-19
Nov-19
May-18
May-19
Jul-18
Jul-19
Jan-18
Mar-18
Jan-19
Mar-19
Source: HSX, HNX, SSI Research
2020 View
Deal
2020 Expected Sector Growth: 10-20% Issuer Ticker Buyer
% of value
stake (USD
• Stable macro and political conditions: For 2020, we mn)
expect an environment of high GDP growth to persist, Vietcombank
VCB - GIC and
3.10% 265.0
which is likely to boost consumption and corporate HOSE Mizuho Bank
BID - KEB Hana
expansion. Along with inflation continuing to be curbed at a BIDV
HOSE Bank
15% 882.0
low level, the market interest rate is forecasted to diminish, VIC -
Vingroup SK Group 6.15% 1,000.0
while the real estate market growth outlook is not strong. HOSE
All of these will make Vietnam’s stock market an attractive Masan MSN -
GIC 1.20% 51.5
Group HOSE
investment destination for domestic investors, and for Bao Viet BVH -
foreign capital as well. Sumitomo Life 5.58% 173.0
Holdings HOSE
• Privatization to speed up; new listings to improve market Source: Company’s data, SSI Research
size: The privatization process has experienced a notable
slowdown in 2019, due to the introduction of new

complicated procedures during the year. Although 2019

was not much of a year for privatization, 2020 might not
see much activity in this area either. Some big names like
Agribank, VNPT (IPO), or Vicem might kick off in 2020. In
terms of private companies though, some big names that
plan for an IPO in 2020 include FLC Homes and Bamboo
Airways, among others. It’s also worth marking on our 9M 2019 PBT of top 25 brokers
calendars the dates for upcoming bank IPOs. Decision
242/2019 by the Vietnamese Prime Minister set the target
for all banks to be listed in the stock market during 2020. TCBS
Others 14.8%
At present, there have been only 17 out of total 31 domestic 23.5%
joint stock commercial banks that have been listed. The SSI
MBS
newly promulgated Securities Laws also requested 3.7%
14.4%
companies to list shares and bonds right after the offerings
FTS
complete. 4.4%
VCI
10.4%
• The launch of new indices to improve investibility of the SHS
HCM
VPS
4.6% 7.0%
market: In November 2019, HOSE initiated three new stock VND 6.5%
indices namely Vietnam Diamond Index (VN DIAMOND), 4.9% MAS
5.8%
Vietnam Leading Financial Index (VNFIN LEAD) and
Vietnam Financial Select Sector Index (VNFIN SELECT).
These indices will serve as the basis for fund management Source: Company’s data, SSI Research
companies to run ETFs. The indices include mostly blue-
chip, large-cap, and financial stocks, many of which have
already run out of their limit in terms of allowing foreign Breakdown of 9M 2019 net operating income – Top 25
equity to participate. The ETFs, thus, are valuable access brokers
channels to be able to access and gain exposure to these
stocks as a foreign investor. The relevant ETFs are expected 1.1%
to open wide opportunities for foreign investors to invest in
previously unattainable full-limit stocks. 7.7% Loans and receivables
8.8%
• Pension funds to emerge as new players: The Vietnam Prop trade
Securities Depository has also been coordinating with fund 40.6%

HTM assets
management companies to build the operational platform 16.9%
for voluntary pension funds, which are expected to be IB
approved and officially operate in 2020. Brokerage
Corporate bond business to restructure: A draft 25.0% Others

amendment to Decree 163/2018 has been introduced for
the purpose of improving transparency, creditworthiness of
issuers, and protecting retail investors in the corporate
bond market. We expect the new regulations (which Source: Company’s data, SSI Research
propose many restrictions) to apply a threshold of
corporate bond issuance by way of private placement (not
exceeding 3x equity value). Once stipulated, this would
eliminate bond issuers with spectacularly high financial
leverage to be more regulated in this regard.
Brokerage firms have played an important role in the
issuance and distribution of bonds to retail investors. Such
issuance has been for the purpose of providing diversified
products to their retail clients, and improving income from
bond issuance advisory services and distribution

commissions. With incoming tightening regulations,

brokerage firms would instead re-direct their IB services to
corporations with a good business and well-managed
cashflow. 9M 2019 Net brokerage fee income of top 25 brokers
• We forecast the sector’s earnings growth of 10-15% YoY
in 2020, driven by VNIndex development of 10-15% YoY,
ADT growth of 15-20% YoY, and margin lending expansion
Others VCI
of around 35% YoY. Market competition will continue to 20.5% 22.1%
FTS
intensify, and advantages belong to those with the right 4.1%
business model targeting the right client segment. In each
model, cheap funding cost, product diversification, and SSI
VND
5.5%
service quality are competitive edges. TCBS 20.0%
10.4%
Valuation HCM
17.4%
The brokerage sector is being traded at a 10.6x trailing P/E and
0.9x trailing P/B compared to a 13.5x/1.7x equivalent in 2017,
and a 6.8x/ 1.1x ratio in 2018. This was because ROE dipped
Source: Company’s data, SSI Research
significantly to 11.0% from 18.3% on average.
Regional peers are being traded at a 30.2x trailing P/E and 0.8x
trailing P/B, while average ROE is 14.8%. 9M 2019 interest income from lending of top 25 brokers
A discounted P/B was derived from a pessimistic outlook on
ROE, particularly against the backdrop of significant
deterioration in earnings during the year. However, as
SSI
performance of the sector is highly correlated to market 14.2%
Others
sentiment and trading turnover, we believe the sector will VND
33.4%
improve gradually in 2020 from the low base of 2019. Therefore, 8.1%
we hold a Neutral view on the sector. MBS

7.8%
Issues and risks
The slowdown in the global economy as forecasted by TCBS VCI HCM
3.5% 6.6% 7.1%
renowned organizations may overshadow on global stock MAS
FTS SHS VPS
markets, including Vietnam. However, we think the risk of 3.7% 3.9%
7.1%
4.5%
external shocks from US-China trade tensions, although visible,
have faded significantly from the signing of Trump and Xi’s Source: Company’s data, SSI Research
Phase 1 trade pact.
The key risk of the sector will be a squeezed margin in core Tkr & Exch
Mkt Cap
P/E P/B ROE LF
(USD)
businesses, including lending as well as brokerage activities,
SSI VN 404.49 10.4 0.97 9.39
amidst increasingly fierce competition. However, great potential HCM VN 282.79 16.7 1.51 10.20
from a very low penetration rate and strong economic growth VCI VN 205.67 5.7 1.30 24.69
outlook are likely to offset these downside risks. VND VN 128.70 10.8 0.96 8.92
MBS VN 75.88 10.3 1.09 11.17
SHS VN 68.87 4.1 0.60 13.82
FTS VN 59.93 2.5 0.65 28.87
TVS VN 48.06 10.6 1.19 11.26
BSI VN 41.30 9.0 0.66 7.08
CTS VN 33.75 11.3 0.62 5.41
AGR VN 32.44 10.4 0.38 3.80
VDS VN 31.96 27.3 0.69 2.47
BVS VN 31.16 6.1 0.40 6.76
TVB VN 28.82 18.3 1.99 11.51
VIX VN 28.06 5.6 0.46 9.09

Median 48.1 10.4 0.69 9.4

Average 100.1 10.6 0.90 11.0

HEALTHCARE - PHARMACEUTICALS
Neutral: Competitive advantages for local drug firms that adhere to
high standards
Most Preferred: IMP
2019 Highlights Pharmaceuticals industry performance in 2019
120%
Sector performance
115%
The pharmaceutical sector edged up by 4.0% in terms of market 110%
capitalization in 2019. The sector performed slightly below 105%
overall VN Index performance, which grew by 7.7%. The result 100%
stemmed from the mix in price movement of local listed
95%
companies. DHG (+18%), DBD (+40%), and DHT (+34%)
90%
outperformed the index, while DVN (-34%), PME (-10%), TRA (- VNIndex Healthcare Pharmaceuticals
85%
10%), and IMP (-18%) underperformed the VN Index.
80%
What was expected?
According to market research by IQVIA, the Vietnamese Source: Bloomberg, SSI Research
pharmaceutical industry reached VND 92.4 tn (+8% YoY) in
value as of 2018. Imported drugs still dominate the
pharmaceutical market, with a 64% market share as of 2018. Total Vietnam’s successful tender value in 2019 as of 22
In particular, imported medicines accounted for more than Nov 2019
71.5% distributed via hospitals, while local medicines have
20,000 VND bn
taken just a 28.5% share. These are the figures from 2018, and Domestic drugs
18,000
we think there is no significant change in 2019. The Ministry of
16,000 Imported drugs
Health (MOH) aims to raise the proportion of domestic medicine
14,000
consumed to 22% in central hospitals, and to 50% and 75% in
12,000
provincial and regional health facilities by 2020. Original brand-
10,000
name medicine accounted to around 50% of total tender value
8,000
in 2019. This tells us that domestic pharma firms need to roll
6,000
out a wider array of products that could compete with foreign
4,000
equivalents in both Category 2 and Category 1 to achieve the
2,000
industry’s target in general.
-
Branded Gen - Gen - Gen - Gen - Gen - Trad- Trad-
drugs Cat. 1 Cat. 2 Cat. 3 Cat. 4 Cat. 5 Cat. 1 Cat. 2
Regulation on public tender for drugs provide a set of
advantages for drugs manufacturers in Vietnam; incentives
Source: DAV, SSI Research
that reward high global standards of production. Circular

15/2019/TT-BYT, an amendment of Circular 11/2016/TT-BYT Market overview in 2018

detailing bidding processes to supply drugs to public health
80% 18%
facilities, was issue during Q3 and took effect on Oct 1 st, 2019. 16% 16%
70%
Accordingly, generic drugs still are divided into 5 14%
60%
categories/groups (more details in the below table) in the 12%
50%
bidding process in order to win the rights to supply drugs to 10%
40% 9% 9% 9%
public health facilities: 8%
30%
6% 6% 6% 6%
• The Circular clearly regulates that in Category 5 and 20%
4% 4%
Category 2, imported drugs may not be allowed to bid if 10% 2%
there are domestically manufactured drugs which satisfy 30% 70% 64% 36% 30% 70% 31% 69%
0% 0%
WHO-GMP and EU-GMP standards respectively in terms of
the same active pharmaceutical ingredient (API), and given
the firm’s production capacity can adequately satisfy
demand. % market share (LHS) % YoY
• Vietnamese public hospitals and clinics will not offer

imported drugs through funds of the state budget or through Vietnam's drug imports
the health insurance fund. The restriction on imported drugs
in this case applies if at least 3 local pharma companies 3.5
3.07
can sufficiently supply these medicines, while also being 3.0
USD bn CAGR of 9.5% in 2011-2019
capable to meet standards of quality as well as quantity.
2.5
2.0
1.5
1.0
0.5
0.0
2011 2012 2013 2014 2015 2016 2017 2018 2019
Source: IQVIA, SSI Research
Generics drugs divided into 5 categories/groups in bidding process supply drug to public health facilities
Technical criteria Which category can join?
Drugs manufactured entirely by a production line satisfying EU-GMP requirements or equivalent
requirements in a country in SRA OR
Drugs manufactured entirely in Vietnam and satisfy all following requirements (i) Drugs manufactured by a
Category 1 line satisfying EU-GMP requirements or equivalent requirements and certified by drug authority of Vietnam Cate 1, Cate 2 and Cate 5
to satisfy EU-GMP requirements or equivalent requirements; AND (ii) Drugs granted certificates of free sale
in a country that is in SRA
Drugs manufactured entirely by a production line satisfying EU-GMP requirements or equivalent

requirements and granted certificates by the drug authority of Vietnam OR
Category 2 Drugs manufactured entirely by a production line in a country that is a member state of PIC/s and ICH, Cate 2 and Cate 5
satisfying PIC/s-GMP requirements and granted certificates by the national drug authority of such country
and the drug authority of Vietnam.
Drugs manufactured by a manufacturing line satisfying GMP requirements and granted certificates by the
Category 3 drug authority of Vietnam and having evidence of bioequivalence announced by the drug authority of Cate 3 and Cate 5
Vietnam.
Drugs manufactured entirely by a manufacturing line in Vietnam satisfying WHO-GMP requirements and
Category 4 Cate 4 and Cate 5
granted certificates by the drug authority of Vietnam
Category 5 Drugs do not satisfy criteria of Category 1, Category 2, Category 3 and Category 4 Cate 5
Source: Circular 15/TT-BYT, SSI Research

Besides promoting local pharmaceutical companies, this policy

also is intended to encourage outsourcing from foreign
countries, as well as technology transfer arrangements of
foreign drugs, for the purpose of manufacturing in Vietnam.
The number of production lines or factories that had achieved
EU-GMP/Japan-GMP or PICS production standards had reached
19 among 203 pharma factories, belonging to more than 170
local and multinational pharmaceutical manufacturing
companies as of Nov 30th 2019. As regulated in Circular 15, the
drugs manufactured by these high standard production lines can
join Group 2 bidding for supply of drugs by public health Vietnam's drug import in 2019
facilities, where pharma firms face less competition. Among
listed firms, IMP and PME are the leading companies, with both
companies having obtained EU-GMP certification for 2 France
production lines each, while DHG possesses certification for $ 411 mn

Germany
both PICS and Japan-GMP standards. A few local medicines India
can be added to Group 1 thanks to its permit to distribute to the $ 1,049 mn

Korea
$ 325 mn
EU market, such as PME products (Cefdopoxim Stada 200mg Italia
film-coated tablets, and Ceftriaxone 1g injection powder in US
$ 255 mn
Germany) and IMP’s product (Imetoxim 1g in Portugal). Switzerland
Vietnam spent $3.07 bn USD for imported medicines/ drugs Belgium

$ 178
(+10.2%YoY) in 2019. Nearly 55% originated from the EU mn
UK
(+12% YoY). $ 175 mn

Thailand
$ 163 mn Others
What was NOT expected? Source: Vietnam Customs, SSI Research

Up to 9M 2019, locally listed companies have had mixed results.
Some companies such as DBD, PME, DVN, MKP have
experienced a shrinking bottom line. Particularly, DBD
experienced a contraction in its top line (~15% YoY), which
seems to be a result of strong competition in the hospital
channel, especially in Category 3 in generic drug tenders for
public health facilities. DBD products mainly joined bidding in
Category 3, in which most of local pharma firms participated.
Pharmaceutical company results up to 9M 2019
VND bn VMD DVN DHG DHT PME TRA DMC IMP MKP DBD OPC
Net sales 13,274 4,161 2,617 1,493 1,328 1,171 1,049 886 885 861 757
%YoY growth 15% -3% -2% 17% 8% -8% 8% 9% 3% -15% 1%
NPAT 26 156 430 69 224 97 167 111 58 105 82
%YoY growth 2% -3% -5% 14% -2% 7% 2% 11% -7% -17% 11%
Gross margin 8% 8% 44% 12% 49% 54% 33% 38% 24% 35% 43%
Net margin 0% 4% 17% 5% 19% 7% 17% 12% 7% 13% 10%
TTM P/E 14 14 19 12 13 16 10 17 13 20 11
Source: Fiinpro, SSI Research

2020 View

Pharmaceutical consumption by BMI forecast (Unit: USD bn)
We expect the Vietnamese pharmaceutical market by value
to grow at 9% - 10% YoY in 2020. We believe that the 12.0 14%
pharmaceutical sector will continue to enjoy inelastic growth, 12%
10.0
resilient performance underpinned by an aging population,
10%
growing healthcare expenditures, rising health insurance, and 8.0
8%
increased life expectancy. 6.0
6%
• According to the nation’s GSO forecast, the number of 4.0
4%
Vietnamese aged 65 and older is projected to be 7.4 mn by 2.0 2%
2020, and the 65-and-older age group will rise to nearly
0.0 0%
7.9% of the total population by 2020 and 18.1% by 2049; a
2015 2016 2017 2018 2019F 2020F 2021F 2022F 2023F
leap from just 7.1% in 2014.
Pharma sales (USD bn) Pharma sales (YoY)
• Vietnam is going to reach the target of nearly full health
insurance coverage as planned for 2016-2020 (90.7% by
Source: BMI, SSI Research
2020). Health insurance coverage of the total population
was up from 60% in 2010 and 90% in 2019, as according
to the Vietnam social security report. Maximum Current
State
Foreign Foreign Note
In addition, other driver for the pharmaceutical sector involves a ownership
ownership ownership
fast urbanization process, which is the main factor behind the Taisho
growing middle class as well as overall income per capita. The DHG
SCIC
100% 54%
increases its
urban population of Vietnam is set to reach 36.2 mn people in (43.31%) stake from
34.3% to 51%
2020, and this might rise from 33.6% in 2015 to 36.8% in 2020. Abbott
SCIC
DMC 100% 63% Laboratories
The Drug Administration of Vietnam (DAV) expects total value of (34.71%)
(51.7%)
the sector to reach $ 7.7 bn USD by 2021. Binhdinh
Investment
Catalysts DBD
fund
0% 0%
Circular 15 and related regulations might boost the (13.34%)

IMP 0.00% 49% 49%
proportion of domestic drugs in the hospital channel: We OPC 0.00% 49% 5%
expect leading firms to finished its upgrades or its expansion to Stada Service
PME 0.00% 100% 62%
obtain a high standard soon. The firms can take advantage of its Holding (62%)
domestic first mover opportunity to grab market share from Magbi Fund
Limited (25%)
imported drugs. SCIC
TRA 49% 45% & Super Delta
(35.67%)
M&A activities in the sector are in line with global trends: In Pte. Ltd
(15.2%)
Q2 2019, Taisho proceeded with its acquisition of DHG Pharma VMD 0.00% 49% 2%
in 2019. In so doing, it became the biggest shareholder in DHG. DHT 0.00% 49% 3%
After that, DHG officially became a subsidiary of Taisho DVN MOH (65%) 0% 0%
Pharmaceuticals Co. Ltd now that Taisho’s stake of DHG had MKP DVN (18.2%) 49% 15.1%
Nipro Pharma
(18.58%)
reached 51%. Additional deals in 2020 are expected. In May
2019, Kimia Pharma, a state-owned Indonesian pharmaceutical Source: SSI Research
company, disclosed that it was considering an acquisition of the
leading pharmacy retail pharmacy chain in Vietnam. Given such
a potential that the Vietnamese market has, foreign
pharmaceutical companies tend to conduct M&A to take
advantage of the available resources to reduce costs and
shorten the entry time in Vietnam. We expect there are some

acquisition deals in the next few years when the government Imported materials majorly from China
plans to reduce ownership at local leading pharma firms.
450 CAGR of 13% in 2011-2018
Recently, DBD proposed to extend its FOL to 100%. DBD also
USD mn
400
seeks approval of shareholders regarding a proposal towards
350
allowing foreign investors to own more than a 25% stake without
300
a tender offer via document. From this recent action, we expect
250
another deal might take place at DBD, the same as in the case
200
of DMC, DHG, and PME in past years.
150
Issues and risks 100
High reliance on imported API: Up to 11M 2019, Vietnam had 50

imported $351 mn USD of pharmaceutical ingredients, a 0
decrease of 5.4% YoY, mainly from China ($ 220 mn USD, down 2011 2012 2013 2014 2015 2016 2017 2018 11M 11M
2018 2019
7.6% YoY), India ($60.5 mn USD, down 1.2% YoY), Spain
($10.4 mn USD, down 30.3%) and Germany ($10.1 mn USD, China India Germany Spain Others
down 13.8% YoY). As is the case with many countries, Vietnam
highly depends on raw material sourcing from China. However, Source: Vietnam Customs, SSI Research
imported input supply accounts for a majority share of total
demand, of about 80%-90%. Hence, this always is an issue for
Vietnam in the long run because producing pharmaceutical
ingredients require large investments and technological
capabilities (of which Vietnam has no competitive advantage
over other countries, such as China and India). The companies
in the pharmaceuticals sector might face an intense degree of
high volatility against a rising API, as well as large exposure in
terms of foreign exchange rate risk.
Greater monitoring from Ministry of Health for pharmacies:
As the risk of antibiotics resistance increases, the MOH has
ordered that all drug stores be connected to the national
medicine database. The portal will connect pharmacies'
management software with the Ministry of Health and various
cities’ Public Health Department. The measure aims to decrease
the use of drugs without a prescription, and manage the quality
as well as the origin of drugs. We believe proper administration
of schedule-controlled drugs to be addressed via this regulation
is very necessary for the sector’s reputation in the long run. In
the immediate term, however, pharmacies may experience less
sales as both customers and pharmacies alike adapt to this
overhauled set of regulations. Recently, the MOH also approved
the Project on “Implementation of IT application to control and
manage e-prescription”. According to government authorities,
after a recently launched pilot in both Ha Tinh and Hung Yen
provinces, the software will be applied across the country at all
public and private healthcare facilities.
Most preferred in sector: IMP VN
Most preferred
Imexpharm Pharmaceutical: IMP VN Average 3M value (USD mn) 0.03
• 1Y Target price: VND 56,600 Foreign ownership (%) 49%

• Investment thesis: 2020 PE/PB 14x/1.4x
✓ IMP possesses a competitive advantage vs. other local 2020 EPS growth (%) 25%
firms, particularly as IMP is going to own 3 factories Dividend yield (%) 2.1%
capable of producing drugs to top quality global 2020 ROE (%) 11.7%
standards. IMP is one of few domestic companies
possessing a high standard of production of its Source: Bloomberg, SSI Research, Data on 31 Dec 2019
medicine, which in turn can take advantage of its
domestic first mover opportunity to grab more market Most preferred in sector: IMP VN
share.
✓ At the current, IMP is trading at a 2020 P/E of 14x, 120%
which is the lowest in the last 4 years 110%
• Catalysts: Circular 15/2019/TT-BYT provides a set of 100%

advantages for drug manufacturers in Vietnam, that
90%
rewards and incentivizes producers that adhere to high
global standards of production. 80%
70%
VNIndex IMP VN Equity
60%

INDUSTRIALS – SEAPORT & SHIPPING

Negative: Competition rife
Most preferred: VTP
2019 Highlights Seaport & logistics industry performance in 2019
120%
Sector performance 115%
This sector declined -3.54% in terms of market capitalization in 110%

105%
2019. This markedly underperformed the VN Index, which
100%
increased by 7.7%. The VSC share price decreased by -20.5%
95%
and the GMD share price dropped -5.64%, while PVT and VTP 90%
outperformed the index with a 13.16% and 26.89% share price 85%
increase respectively. 80% VNIndex Industrials Sea Ports & Shipping
75%
We had placed a Neutral rating onto the sector at the end of
70%
2018. We had expected in general the US-China trade war to be
a positive factor for Vietnam trade activity, increasing demand
for the seaport and transportation sector.
Key Reasons for underperformance of the sector involve the Source: Bloomberg, SSI Research
decline of both the VSC and GMD stock price.
Key highlights on sector IT Services Spending Worldwide ($bn)
What was expected? 1400 12%
1147 10%
Vietnam international seaport throughput up to Sept 2019 1200 1088
993 1031 8%
continues its growth trend by increasing by 6% YoY over the 1000 906 922 897 866 894 931
6%
same period, reaching 14.2 million TEU. This growth rate is 785 824
800 4%
slower than the 2018 growth rate of 8% YoY and 2017 growth
2%
rate of 9% YoY. We expect full year 2019 volume to reach 19 600
0%
million TEU, at +6.7% YoY. This growth rate is thanks to: 400
-2%
• FDI inflows: Total registered FDI in 2019 is estimated to 200
-4%
have reached $20.4 billion, +6.7% YoY. This is slightly 0 -6%
slower than 2018 growth of 9.1% YoY, and also partly
explains for slower trade growth.
Spending ($bn) YoY (%)
• Higher car imports: even though the ATIGA trade pact went
into full effect from 2018, and lowered the CBU-type import Source: Statista, Gartner
tax to 0% for ASEAN-manufactured cars, carmakers in
Vietnam nevertheless needed about a year to comply with
Vietnam legislation requirement for the legal importation of
cars. That’s why full effect of this legislation is clearer to

measure in 2019. That year, total CBU-type imports No. of fixed line broadband subscriber in Vietnam (mn)
reached 133k units up to 11M 2019, +95% YoY.
16 30%
Tariffs for the international container handling at seaports 28%
14
had increased by 10% YoY, but the actual effect is not as 24%
25%
12
positive. As we pointed out in our Strategy report last year,
20%
competition is still fierce among most ports (excluding those 10 19%
very large ports such as Cat Lai port), so the tariff hike might not 8 15%
14%
15%
be effective. This is because ports need to retain their customer 6

10%
base, and the last thing they want to do is increase prices in the 4
face of such rife competition. Most ports we talked with said that 2
5%
they need to offer other means of discount to retain their

- 0%
customer base. 2014 2015 2016 2017 2018 2019F
Deep seaports continued to attain high growth. In 2019, No. of subscriber (mn) YoY (%)
according to our discussion with ports in Cai Mep, total volume

might grow by 26% YoY in the Cai Mep-Thi Vai region, reaching Source: Ministry of Information & Communication
3.5 million TEU in 2019. Such growth is supported from lateral
M&A activities involving major global oceanliners, as they need
to shave off costs by way of larger ships and joint routes. The
Lach Huyen deep seaport Terminal 1 +2 (in Haiphong) also
reached 60% of capacity in its 2nd year of operations.
Domestic shipping continued to see pricing competition,
while international shipping saw a slight recovery in tariffs.
In the domestic market, sea shipping demand is still very weak,
and thus pricing is the same with last year’s price (about VND
2-2.5 million/TEU transported from Haiphong – Ho Chi Minh
City, which is the main route). For the international shipping
market, tariffs slightly recovered by 7% YoY on average for the
dirty tanker market (crude oil tanker). Meanwhile for the dry bulk
market, pricing is flat on average YoY.
E-commerce delivery continued to lead the sector with strong
performance thanks to strong growth in the e-commerce
industry. In 2019, the Vietnamese e-commerce market is
expected to reach $10 bn USD, +20% YoY according to IDEA.
In a separate Google-Temasek report on ASEAN e-commerce,
the Vietnamese e-commerce market is expected to grow from
$4.6 bn USD in 2019 to an explosive $23 bn USD in 2025. Such
strong growth of e-commerce activity benefits other supporting
sectors like delivery or e-payment, promising the same growth
path. However, competition in the delivery sector has been high
when some new competitors joined the market in 2018-2019
(Grab Express, etc.).
What is not expected?
2019 total trade value (total of import and export value)
reached $516 bn USD, at +8.1% YoY. This growth rate is
lower than the 2018 growth of 13% YoY, which can be attributed
to the US-China trade war and slower global economy, which
reduces global trade. Vietnam is expected to benefit from the
production shift to the country in the long-term. However, in the

short-term Vietnam as any other country needs to deal with

overall slowing global trade flows. Indeed, the WTO has revised
down their forecast for 2019 global trade growth to an anemic
1.2% YoY, a wide departure from their last projection of 2.6%
YoY, attributed mainly to the trade war and slowing global
economy.
Total cargo throughput up to 9M 2019 across all Vietnamese
seaports (including both bulk, liquid, and container cargo)
reached 485.2 mn tons, +12% YoY, according to
Vinamarine. This growth rate in cargo volume is also slower
than the 2018 growth of 19% YoY. Among the reasons for this
year’s growth, we see the new Nghi Son Refinery Plant starting
commercial operations in 2019, which increases the volume for
liquid cargo import and export by a factor of 15 million tons.
US-China trade war dealt a more negative blow than we had
initially expected. We originally surmised that a prolonged
financial skirmish of attrition between the US and China might
lead to Vietnam becoming the de-facto intermediary for trade
activities. However, in 2019, Vietnam has placed a limit as to
how far this intermediary role will go. During the year, Vietnam
announced that it was in support of eliminating illegal
transshipments of Chinese goods to US shores, as these
products were illicitly evading tariffs, using Vietnam as a
springboard to illegally evade US tariff laws by way of counterfeit
labeling of country of origin.
2020 View

Total seaport international container throughput is expected
to continue to grow by 6-7% YoY in 2020, with the road to
growth paved by way of FDI firms. As registered FDI for 2019
growth is 6.7% YoY in 2019 and 9.1% in 2018, we expect this
to materialize into volume growth of around the same in 2020.
Weak growth expected for seaport companies. We expect
seaport revenue growth to be only 3-5% YoY, and for earnings
growth to go flat YoY for 2020, as competition is still strong
within the sector. For example, in Haiphong port city, there are
2 new ports commencing operations (MIPEC and Vinalines Dinh
Vu) These 2 new ports feature a brand new capacity of around
900k TEU, equivalent to about 15% of the current capacity of
Haiphong. Meanwhile, demand might only grow at about 6-7%
YoY. This means even though the demand for the whole industry
is growing, volume by individual company might remain the
same.

Shipping industry might encounter difficulties as IMO 2020

comes effective. Starting in 2020, all vessels on international
routes will need to switch to using lower-sulfur oil instead of
high-sulfur as has previously been the case. Sudden demand for
low-sulfur amid low supply pushed up the low-sulfur price to
ramp 30-50% higher than high-sulfur during last year. This put
a spontaneous short-term negative effect on shipping
companies with an international presence. For the domestic
market, IMO 2020 is not applied. However, we expect supply for
the domestic market to suddenly surge, as many international
vessels might go back to the domestic market if they cannot
meet IMO requirements profitably, which will place downward
pressure on the domestic market price.
Delivery continues its strong growth path, with growth
variables present in both retail and e-commerce channels.
We expect delivery companies to record a 30-40% YoY revenue
growth from a market size growth of 20%, and from the
consolidation of market share by large players. Profit growth
might depend on the stage of development of these companies,
with early stage developments still making losses. For mature
companies, we expect that profit growth might be around 25-
30% YoY in 2020, as we expect some pressure on pricing and
increasing costs to improve service quality.
Catalysts
• VN-EU FTA is expected to be effective starting in 2H 2020
• FDI inflows are expected to continue, creating demand for
B2B transportation/seaport services.
• E-commerce growth will lead to more demand for B2C and
C2C transportation.
Issues and risks
• US-China trade tension worsening can lead to lower
demand for trade activities across the world. Even though
Vietnam is expected to be the long-term beneficiary for as
long as clashes in trade between the two superpowers
persist, in the short-term Vietnam can also be negatively
affected given its connectedness to the global economy.
• For the delivery sector, increasing levels of competition
might lead to a price war among competitors at some
points of time. The current strong growth of the market size
eases this risk a bit, as new players can still find a market
for them.
Most preferred Most preferred in sector: VTP VN

Viettel Post JSC: VTP VN
• Current price: VND 116,000; 1Y Target price: VND

151,500 Foreign ownership (%) 19.5%
• Investment thesis: We like VTP, as it offers proxy exposure 2020 PE/PB 19.5/7.2
to the e-commerce market, which is one of the fastest- 2020 EPS growth (%) 35%
growing industries in Vietnam at the moment. The company Dividend yield (%) 1.2%
has a strong balance sheet (running 9M 2019 net D/E ratio 2020 ROE (%) 47.7%
is actually in negative territory), and is poised for strong and
sustainable growth over the next 2-3 years, along with the Source: Bloomberg, SSI Research, Data on 31 Dec 2019
growth of the overall e-commerce market itself. The
company is now holds the 2nd position in terms of market
Most preferred in sector: VTP VN
share, and has a plan to dominate as the leader in market
share in just a few years.
190%
• Catalysts:
170%
✓ Strong e-commerce market growth of 20-30% YoY in 150%
the next 2-3 years, along with a market share capture 130%
of 2% per annum, might lead to 20-30% YoY growth in
110%
revenue from 2020 onwards.
90% VNIndex VTP VN Equity
✓ Profit is expected to grow by 27.5% YoY in 2020F. 70%
• Risk: Competition might lead to lower pricing at best and a 50%

price war at worst. Both scenarios could lead to lower profit
in 2020.

INDUSTRIALS – AIRPORT SERVICES

Neutral: Traffic volume continues positive growth momentum
despite capacity constraints in key airports
Most preferred: N.a
2019 Highlights Airport service industry performance in 2019
120%
Sector performance
110%
While at first glance overall results appeared disappointing,
there was some outperformance in the sector, with distinct wins 100%
that were able to go to toe-to-toe across other sectors in the
Vietnamese equity market. Overall, airport service industry 90%
market capitalization fell by -14.27% in 2019. However, the

80%
sector had also grossly underperformed the VN Index, which
VNIndex Industrials Air Ports
increased by 7.7%. The top performer to emerge from the 70%
industry was AST (+61%). Meanwhile, the worst performer was
60%
ACV (-15.7%), which is not so bad considering that overall
market capitalization fell by roughly that amount. This tells us
that ACV was mostly the only underwater equity in the mix, while
others were able to springboard into action, posting much more
positive growth figures.
We had recommended a Positive rating upon the sector at the
end of 2018, as we had expected positive factors such as strong
GDP growth, capacity expansion of domestic airlines, and new
airport openings to benefit airport service firms.
As aforementioned, the sector went underwater and out of the
money in 2019 largely from the additional scrutiny placed upon
ACV stock during the period. Worries abounded that the
government might want to re-nationalize ACV and buyback
shares from investors in one fell swoop, which startled the
market regardless of the guidance given on an execution timeline
far into the horizon. It’s worthwhile to note that barring this ‘black
swan’ event, that the sector would have performed well against
the VN Index were it not for such a temporary upset upon the
airport service sector’s cornerstone stock.

International Passenger Arrival, by millions

Key highlights on sector 20 35%
18
What was expected? 16
30%
14 25%
Passenger through ACV airports (both international and
12 20%
domestic) reached 116 million passengers in 2019 according 10
to the company, +12% YoY. Of that, domestic passengers 8 15%
came to 74 million, at +11% YoY, while international 6 10%

4
passengers tabulated 41.7 million, +13.6% YoY. The number of 5%
2
flights reached 748k flights in 2019, +14% YoY. 0 0%
2015 2016 2017 2018 2019
Total domestic airline fleet sizes have increased throughout
the year. HVN fleet size reached 100 aircraft in 2019. A total of International Arrival %YoY
22 new aircraft were added to the fleet through both new
purchases and the sales and leaseback scheme (including Source: VNAT
B787-10, A350-900, A321neo). VietJet also increased their
fleet to 71 by adding 9 aircraft in 2019 (including A321 and
A321neo). Bamboo also joined the market from start of 2019, Airlines number of flights 2018-2019
with 25 aircraft (including A321, A321neo, and B787-9). Such
an increase in airline capacity created higher demand for more 160,000.00 20%
17%
airport services. 140,000.00
15%
120,000.00
Opening and expansion of airports: The new Van Don 100,000.00
10%
international airport (invested and owned by Sun Group, 80,000.00 5%
capacity of 2.5 million passengers/year) commenced 60,000.00
0%
operations in the beginning of 2019. The Phu Quoc international 40,000.00 -3%
airport expansion (additional 1.3 mn pax/year capacity) was 20,000.00
-5%
-7%
also completed from the start of 2019. This expansion lifted ACV -
-8%
-10%
passenger capacity to 97.35 million passengers/year, HVN VJC JPA VASCO Bamboo
compared to 96 million in 2018.
2018 2019 %YoY
Nationalization vs. privatization prospects for ACV and Source: CAAV
resultant debate has created scrutiny and investor concern.
Recently, the MoT has proposed to nationalize ACV by fully
buying back investor shares. Rationale provided by the
government explained that runways and taxiways of airports
(which belong to the government, not ACV) have been too
degraded in nature, and require significant
maintenance/upgrades. However, as ACV is a joint stock
company, it cannot pay for the bill even though it is the main
user of the runways/taxiway. At the moment, there are many
debates on whether ACV should be nationalized, or whether the
drive for privatization should continue (current state ownership
is 95%). This creates a policy risk on the fate of investors who
have plowed money into ACV, and is a key flashpoint towards
the future of privatization prospects for Vietnamese state-owned
companies in general.

Boeing B737 Max incidents and grounding is one of the main

events that affected countless airlines across the global
aviation industry in 2019. The technically troubled B737 Max
was launched in 2016, and attributes for 80% of the current
Boeing backlog at the moment (4,543 units out of a total 5,705
units)- a potentially cataclysmic event for the company. After the
airline model was grounded around the world since March 2019
due to 2 related accidents, the global airline industry has faced
a squeeze in capacity. Up to 9M 2019, Boeing delivered only
302 aircraft- roughly half their usual deliveries. Vietnamese
airlines do not have the B737 MAX in their fleet at the moment,
but regional grounding of this aircraft might have led to lower
international arrivals to Vietnamese airports than would have
been the case without the grounding scandal. This might be
solved in Q2 2020 when FAA might furtively rule to lift the ban,
but this remains an uncertainty to say at best.
Cargo growth is slower than expected. Total air cargo volume
through ACV airports reached VND 1.5 million tons, which was
flat YoY compared to the 2018 growth of 8.9% YoY. In our view,
this partly stems from weaker Samsung smartphone volume, as
it faces strong competition from other manufacturers like Xiaomi
and Oppo.
2020 View

ACV historical passenger volume, 2015-2020P, mn pax
ACV forecasts 2020 traffic volume to continue its positive 140 30%
momentum. Specifically, it is expected that total passengers
120 25%
may reach 127 million pax, at +10% YoY. In terms of
100
international passengers, Vietnam may handle 46 million 20%
80
passengers, while domestically this figure is 81 million. The 15%
60
growth rate is sharply slower than previous years (2018-2019:
10%
11-12% YoY, 2015-2017: more than 20% YoY). This can be 40
5%
attributed to a persistent bottleneck limit in capacity in key 20
airports like Tan Son Nhat or Noi Bai, (which can be observed 0 0%
2015 2016 2017 2018 2019 2020P
visually through the lack of sufficient passenger boarding
bridges for incoming planes), as well as obstacles hindering Vietnam Total Growth
investments to upgrade aeronautical areas of key domestic
airports. Source: SSI Research
Drivers for growth in 2020 include:

• 2020 GDP growth forecast of 6.8%-7% YoY will be the main
drivers for travel demand.
• Capacity expansion of domestic airlines: According to
CAAV numbers, Vietnam Airlines will increase their fleet
size to 107 aircraft in 2020 and 135 aircraft in 2025
(compared to 100 in 2019). VietJet also has a plan to

increase their fleet to 96 aircraft in 2020 and 200 aircraft in

2025 (compared to 71 in 2019). In the case of new players
(Vinpearl, Kite, and Viettravel Air) being approved to start in
2020, they will roll out 15 aircraft in 2020, expanding to 68
aircraft by 2025.
• Even though good passenger growth is expected, we
expect a stalemate in terms of progress regarding taking
the direction of privatization or nationalization for ACV in
2020. This uncertainty is likely to exert additional pressure
upon the ACV stock price. As ACV’s market cap accounts
for 92% of the industry’s total market cap, we hold a
NEUTRAL view for the industry in 2020.
Catalysts
• Passenger growth is still expected to be around 10% YoY
• Expansion capacity for various airlines will increase
demand for passenger and cargo services.
Issues and risks
• Nationalization of ACV could occur if the Ministry of
Transportation proposal receives requisite government
approval.
• A slowdown in cargo transportation demand will limit
growth for cargo handling companies.

INDUSTRIALS – AIRLINES
Negative: Rising competition casts a shadow on growth
Most Preferred: N.a
2019 Highlights Airlines industry performance in 2019
Sector performance
130%
The airlines sector industry market capitalization increased by
120%
14% in 2019, outperforming the VN Index which increased by
6.69%. The best performer of the industry is VJC (+20%), while 110%
the worst performer has been HVN (+6%). 100%
We had recommended a Neutral rating to the sector at the end 90%

of 2018, as we expected the heat from competition to ramp up
80%
starting in 2019 from newcomers in the market (Bamboo and VNIndex Industrials Airlines
Air Asia – Thien Minh JV). We also had expected a fleet increase 70%
from existing players. Even though Air Asia – Thien Minh JV has 60%
failed to materialize, Bamboo and potential new players like
Viettravel and Kite Air still put a shadow on the industry
throughout 2019.
Key Reason for Outperformance of the sector is the Source: Bloomberg, SSI Research
outperformance of the VJC stock price.
International Passenger Arrival, by millions

20 35%
What was expected? 30%
15 25%
Domestic passenger growth is driven by growing
20%
demand for domestic tourism coupled with higher 10
15%
number of domestic flights across the country.
5 10%
According to the Vietnam National Administration of
5%
Tourism (VNAT), domestic tourists reached 85 million 0 0%
passengers, at +6.5% YoY. The number of flights by all 2015 2016 2017 2018 2019
domestic airlines increased by 10% YoY, reaching 325k International Arrival %YoY
flights in 2019, catering towards a higher demand for
travel. Source: VNAT
Total fleet size of existing players is increased
throughout the year. The HVN fleet size reached 100
aircraft in 2019 by adding 22 new aircraft through both

new purchases and SLB (including B787-10, A350-900, Airlines number of flights 2018-2019
and A321neo). VietJet also increased their fleet to 71 160,000.00 20%
aircraft by adding 9 aircraft in 2019 (including A321 and
140,000.00 17%
A321neo). Bamboo also joined the market from the start 15%
120,000.00
of 2019, with 25 aircraft (including A321, A321neo, and 10%
100,000.00
B787-9).
80,000.00 5%
60,000.00
0%
What was not expected? 40,000.00 -3%
-5%
Aviation passenger throughput in Vietnam (both 20,000.00
-7% -8%
international and domestic) reached 116 million - -10%
HVN VJC JPA VASCO Bamboo
passengers in 2019 according to ACV, +12% YoY. This
2018 2019 %YoY
is higher than the CAAV forecast of 8.2% YoY, as they
expected that capacity constraint in key airports would
slow growth. Source: CAAV
Domestic passengers were 74 million, +11% YoY,

while international passengers were 41.7 million,
+13.6% YoY. Both are higher than what were expected.
Domestic growth in 2019 nearly doubled that in 2018 of
6% YoY, and on par with 2017 levels. We deem this better
growth to be explained by way of strong economic growth
and new players (e.g. Bamboo Airways) adding new
capacity and choice for customers. International
passenger growth is also higher than our forecast of 10-
12% YoY for 2019, as we saw that capacity constraint in
key airports might limit airlines’ capacity to expand their
passenger volume.
Fuel cost slightly declined by 7% YoY in 2019, despite a
strong increase over the last 2 previous years. 2019 average
A1 jet fuel price is $79.10 USD/barrel, declining by 7% YoY from
the 2018 average of $84.90 USD/barrel. This is mostly thanks
to a lower crude oil price, which also declined by the same
percentage in 2019.
B737 Max incidents and grounding is one of main events in
the global aviation industry. After 2 accidents in the beginning
of 2019, the B737 Max is found to have a malfunctional MCAS
(Maneuvering Characteristic Augmentation System). This led to
the United States’ FAA order to ground all B737 Max planes
around the world, and Boeing ceased all delivery of this plane
model until FAA gives the go signal. At the time of writing,
Boeing only expects B737 Max to resume operation in June-July
2020. This has been a rolling deadline, so there is uncertainty
whether there are futher delays. This led to a temporary capacity
constraint for the global aviation industry, as B737 Max
accounts for 80% of the Boeing backlog in 2019. In Vietnam,

only VietJet Air has a large order of B737 Max of 200 aircraft, to
be delivered within 2020-2025.
Forex loss is not an issue in 2019 as it had been previously,
as VND slightly appreciated against the USD by 0.06% at the
end of the year. This is lower than the consensus that VND
might lose about 2% of its value against the USD as thought
before, and thus airlines were able to avoid a large forex loss tail
risk. This gave them a boost in earnings compared to 2018,
when VND lost -2.24% in 2018.
3 new airlines has decided to join the attractive Vietnam
airline market in 2019, even after the failure of AirAsia –
Thien Minh JV. Those include Bamboo, Kite Air, and Viettravel.
Bamboo has already started in 2019, and the rest should be
expected to start in 2020. The previous duopoly (HVN-VJC) in
the domestic market has been quickly turning into a very
competitive market, and weighing down players in terms of their
market share, yield, and RASK. Up to 9M 2019 according to
CAAV, Bamboo Airways has taken domestic market share from
both HVN and VJC. HVN group (HVN-JPA-VASCO) lost 1.2% of
its market share to 54.8% (from 56% at the end of 2018), while
VJC lost 2.8% of its market share (from 44% at the end of 2018
to 41.2% up to 9M 2019). This led to earnings deterioration. For
example, up to 9M 2019, VJC core parent gross profit (excluding
aircraft purchase rights sales) declined by roughly -10% YoY,
compared to last year growth of 22.5% YoY. HVN gross profit
up to 9M 2019 also declined by 1.5% YoY.
2020 View

We expect total Vietnamese domestic fleet size to reach 196
aircraft at the end of 2019 (+14% YoY). In 2020, we expect
competition to keep increasing due to 1) newcomers in the
market and 2) growth in fleet size of existing players.
Newcomers in the market: Kite Air and Viettravel Airlines all have
plans to start their first commercial flight from the middle to end
of 2020, even though the final decision for the AOC (air operator
certificate) approval is still pending for all two. In the case the
AOC is approved, the total number of airlines players in Vietnam
will increase from 5 to 7 airlines. At the beginning, these 2 new
players all target to start by flying on short routes to smaller
cities, rather than focusing on main routes (Hanoi-HCMC) due
to slot unavailability at those destinations. Viettravel will initially
focus on serving their current tourist customers (about 1
miilion/year and growing at 15% p.a.) to fly to tourism

destinations in Vietnam and elsewhere in Asia (normally

Viettravel booked chartered flights for international customer
groups).
Growth in fleet size of existing players: According to CAAV
numbers, Vietnam Airlines will increase their fleet size to 107
aircraft in 2020 and 135 aircraft in 2025 (compared to 100 in
2019). VietJet also has a plan to increase their fleet to 96 aircraft
in 2020 and 200 aircraft by 2025 (compared to 71 in 2019). In
the case of the abovementioned players approved to start in
2020, they will bring into service 8 aircraft in 2020 and 38
aircraft until 2025.
Thus, we expect competition to increase further into 2020,
which will lead to reduction of passenger yields and a lower load
factor for each aircraft. On the other hand, we expect average
the 2020 fuel price to decline by 3% YoY based on our forecast
for Brent crude of $62 USD/barrel, reducing the pressure on the
cost side for these players.
Overall, we hold a NEGATIVE view on the airline sector in 2020.
Catalysts
• Passenger growth is still expected to be around 13% YoY
according to ACV
• Lower fuel cost and low VND depreciation might support
companies’ bottom line
Issues and risks
• As airlines are very sensitive to fuel cost, its bottom
line can fluctuate volatilely in the case of a big fuel
cost swing, such as from external events originating
in the Middle East, or other geopolitical tensions that may
arise in 2020.
• Capacity constraint at key airports like Noi Bai or Tan
Son Nhat will limit growth potential for all players until
new expansion projects are completed (the nearest is
T3 Tan Son Nhat, by around 2022-2023).

INDUSTRIALS – CONSTRUCTION
Neutral: Still waiting for property sector turnaround
Most Preferred: N.a
2019 Highlights Construction industry performance in 2019
Sector performance
The construction sector (excluding ROS) declined -13.1% in 120%
terms of market capitalization in 2019, underperforming the VN 110%
Index which rose by 7.7%. With a 21% index weighting, ROS slid 100%
90%
by -55.3% in 2019, which drove the unadjusted sector index
80%
downwards by -27.5%. 70%
VCG took over CTD and HBC to be the sector leader with a 25% 60%
50%
sector weighting. In 2019, VCG – the best performer in the
construction sector - increased by 24.8%, backed by 54% YoY
growth in terms of net earnings for Jan-Sept 2019.
VNIndex Industrials Construction
The second largest in terms of market cap was LCG, with a
11.9% upside and 16% sector weighting, along with 24.4% YoY
growth up to 9M 2019 operating profits (while net earnings up Source: Bloomberg, SSI Research
to 9M 2019 doubled thanks to deferred tax).
The third largest was CTD, cratering by -66.9% in terms of Industry performance (ex.ROS)
market capitalization. HBC also sustained a -34.1% decline. Net
earnings up to 9M 2019 of CTD and HBC lost -59.9% YoY & - 120%
51.4% YoY respectively. 110%
100%
We had recommended an Underweight rating to the sector at the
90%
beginning of 2019, as concerns over limited banking credit and
governmental restrictive policies arose that casted a shadow on 80%
new launches. 70%
60%
50%
The construction sector grew 9.1%, of which was similar to
2018 growth of 9.2%.
VNIndex Industrial Construction
Main transportation ongoing construction projects in 2019
included the North-South Highway (Cam Lo – La Son), Danang
– Quang Ngai – QL1 highway, QL1A expansion (Tien Giang), Source: Bloomberg, SSI Research
QL30 Cao Lanh – Hong Ngu, My Thuan 2 Bridge. And the
Electricity projects are Quang Tri I coal-fired plant (BOT, $ 2.37
bn USD, 1320 MW), Van Phong 1 coal-fired plant (BOT, $2.58
bn USD, 1320MW), Thi Vai LNG Storage plant (gas supply for

Nhon Trach 3 & 4), Sao Vang Dai Nguyet & Nam Con Son gas
pipeline phase II.
Main residential projects in 2019, mostly carried forward from
2018 are Vinhomes Ocean Park (HN), Vinhomes Smart City
(HN), Vinhomes Grand Park (HCMC), Sunshine Wonder Villas
(HN), Sunshine City (HCMC), Novabeach Cam Ranh, Celadon
Diamond Alnata (HCMC - Gamuda Land), Phu My Hung CR8
2B&3 (HCMC – Phu My Hung Co. ltd. ), Asian Capella (HCMC –
An Gia Land), Eco Green Saigon (HCMC - Xuan Mai Co.), The
Peak Midtown, among others.
What was expected?
Government spending for Infrastructure
Restrictive governmental measures in the housing market
VND tril.
leading to delay in new launches. Up to Sept for the year, new 500 120%
condominium launches in HCMC were 21,500 units (-3% YoY), 450 97%
100%
and new units mostly came from Vinhomes Grandpark in 400 83%
75% 73%
Q3/2019 (10,000 units). 350
65%
80%
300 58%
Tighter banking credit challenging property developers. SBV 60%
250
has released the Circular 22/2019 (15 Nov 2019) to limit the
200 40%
ratio of short-term funds used for medium/long-term lending at
150
40% by 30 Sep 2020 and 30% by 01 Oct 2022. In fact, banks 20%
have tightened this ratio since 2017, e.g., 30.4% by 2017, 100
28.7% by 2018 and 27.34% as of Sept 2019. 50 0%

2014 2015 2016 2017 2018 2019 2020F
Our top construction company CTD witnessed a drop of -21.6%
Disbursement Guidance %complete (RHS)
YoY for sales during Jan-Sept 2019. However, CTD
management risks and the failed merger with Ricons were
Source: Ministry of Finance, GSO
surprise events, unexpected in the beginning of 2019. And HBC,
after aggressive bidding in Q1 & Q2/2019 to fuel sales growth
with 10.8% YoY and 12.4% YoY, reported a decrease of 1.6% in Infrastructure spending/Goverment expenditures
Q3/2019. But it should be noted that HBC TTM earnings quality
(CFO/Net income) was -2.1x, amid a worsening cash 30%
26% 27%
26%
conversion cycle. 25%
20%
19%
20%
What was NOT expected? 15%
Lower-than-expected infrastructure spending in 2019. 10%

Infrastructure spending dropped -5.2% YoY, only having fulfilled
5%
58% of their plan in 2019. As a result, the ratio of infrastructure
spending per government expenditures reported only 19% 0%
2014 2015 2016 2017 2018 2019 2020F
versus government guidance of 26%. Some delayed projects
include: Long Phu I Coal-fired plant (phase 2, 600MW, PVN), Disbursement Guidance
Song Hau I coal-fired plant (1200MW, PVN).
Source: Ministry of Finance, GSO

2020 View
Expected sector growth: 8.46% Construction sector growth
Construction sector growth is expected to grow at 8.46% YoY in 12.00%

10.82%
2020 versus 9.1% YoY growth in 2019 (according to Resolution 10.00%
10.00%
01/NQ-CP on 01 Jan 2020). In 2020, the residential property 8.70%
9.16% 9.10%
8.46%
sector might see most of the new launches from Vinhomes
8.00%
6.93%
megaprojects, while we do not expect infrastructure investment
5.84%
to see substantial improvement. Basing on survey of MPI, the 6.00%
percentage of respondents who held a negative outlook for the
3.66%
construction sector in Q1/2020 increased to 36% from 33% in 4.00%
Q4/2019.
2.00%
Residential property sector: Most new launches from
Vinhomes mega projects Total new launches of condominiums 0.00%
2012 2013 2014 2015 2016 2017 2018 2019 2020F
in 2020 is expected to be slightly added up, ranging from 60,000
to 70,000 units for HN & HCMC (versus 2019 estimated of
Source: Ministry of Construction, GSO
61,000 units); which are mostly attributed to Vinhomes mega
projects (Grand Park, Ocean Park, Smart City), while the
remainder has still struggled with legal issues and limited
Construction outlook survey (%)
access to banking loans. Up to 9M 2019, HCMC only had 1
project approved for its investment plan (-83% YoY) and 12 100%
projects approved for investment (-72% YoY). That point
resulted in lower newly-signed contracts in 2019, and thus a 80% 39 40 35
42 36 34 33 36
43
lower backlog for construction companies in 2020.
We do not expect infrastructure investment to see substantial 60%
improvements. The Vietnamese government’s 2020 36 40 40

37 37 40 41
infrastructure spending guidance is VND 471 bn (+9.8% vs. 40% 37 36
2019 guidance). The infrastructure spending per government

expenditure is expected at 27%, higher than 26% of 2019. 20%
29 26 27
21 24 23 22 24 24
Most preferred stock: N/A. While CTD is still facing management
0%
risks, HBC will take time to resolve its receivables to improve 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20
operating cashflow and deal with interest-related burdens.
Positive Unchanged Negative
But among listed industrial companies, PC1 could be an
interesting investment opportunity, in view of higher Source: Ministry of Plan & Investment (MPI)
disbursement from EVN for grid construction. In particular,
annual disbursement for grid/transmission line during 2021-
2030 is VND 61 tn vs. VND 43 tn during 2016-2020, according
to the revised Power Development Plan VII (noted that PDP VIII
being finalized in 1H2020 would be favorable factor).

INFORMATION TECHNOLOGY - IT
Positive: Sustained growth momentum
Most preferred: FPT
2019 Highlights IT industry performance in 2019
170%
Sector performance
150%
The Information Technology sector increased by 54.1% in 2019,
strongly outperforming the VN Index which only increased by 130%
7.7%. The performance was in line with our expectation that
110%
investors would stand to benefit by going overweight on the IT
industry in 2019. 90%
VNIndex information Technology IT

The key stock of the industry (FPT), which accounts for ~88% 70%
of the industry’s total market capitalization – increased by 58.1%
50%
in 2019. FPT has consistently posted strong results during the
year. As of Nov 2019, the company has achieved 100% of its
PBT target for the year. FPT has also communicated clearly
about its mid-term targets up to 2022, boosting investors’ Source: Bloomberg, SSI Research
confidence.
IT Services Spending Worldwide ($bn)
IT services market: According to Statista, global spending on
1400 12%
IT services is expected to amount to over $1 trillion US dollars
1147 10%
(+4% YoY) in 2019. The growth rate is estimated to be lower 1200 1088
993 1031 8%
than 6.7% YoY in 2018. Digital business continued to drive 1000 906 922 897 866 894 931
6%
growth in the IT services market. 785 824
800 4%
According to the Ministry of Information & Communication 600 2%
(MIC), total ICT revenue reached $112.4 bn USD in 2019 0%
400
(+10% YoY), in which Vietnamese software revenue reached -2%
$5 bn USD in 2019 (+11.1% YoY). 200
-4%
In 2019, FPT software outsourcing revenue totaled VND 10.8 tn 0 -6%
(~$469 mn, +28.5% YoY), outperforming other global

competitors (India companies: 8.5%-10% YoY). Spending ($bn) YoY (%)
Telecom: According to the MIC, Vietnam’s telecom revenue

Source: Statista, Gartner
reached VND 472 trillion (+18.1% YoY) in 2019, in which
telecom services reached VND 390 trillion (+8.1% YoY). While
the mobile market is increasingly saturated, the internet
broadband penetration rate is now 60%. The number of fixed
line broadband subscribers was 14.8 million (+13.9% YoY),

and the number of mobile phone subscribers was 129.5 million No. of fixed line broadband subscriber in Vietnam (mn)
(-0.7% YoY).
16 30%
In 2019, FPT telecom services revenue increased by 18% YoY. 28%
14
The number of subscribers grew by 14% YoY to an estimated 24%
25%
12
figure of approx. 2.5 million.
20%
10 19%
8 15% 15%
14%
6
10%
4
5%
2
- 0%
2014 2015 2016 2017 2018 2019F
No. of subscriber (mn) YoY (%)
Source: Ministry of Information & Communication
2020 View

According to Statista, global spending on IT services may reach
$1.088 tn USD (+5.5% YoY) in 2020. For FPT, it expects
software outsourcing revenue to increase by 35%-40% YoY in
the next 3 years.
Catalysts
• The global demand for digital transformation services is
estimated to grow at 16% YoY in the next 5 years.
Emergence of new digital tools and solutions should
increase the relevance of IT outsourcing firms. In the event
of a macro slowdown, spending on new digital projects
remains critical to maintain companies’ competitiveness,
or to help cut costs. According to JP Morgan, US elections
could potentially drive higher anti-outsourcing sentiment,
but historically, IT spending hasn’t been impacted by
political rhetoric.
• The Vietnamese government also focuses on the 4th
Industrial Revolution by supporting a policy framework
which will create high demand for IT services in the
domestic market. In the next 5 years, the number of internet
users in Vietnam is expected to grow by 3-5% per annum
according to Fitch Solutions estimates.
• The government’s announcement of plans to privatize up to
50% of VNPT and Mobifone will be well-received by foreign
investors, although the controlling stake will likely continue
to be held by the government. While Mobifone’s valuation
date has not been determined, VNPT equitization now looks
more likely by the end of 2020.

•
• Issues and risks
The wage gap of IT engineers between Vietnam and India and
China is 15% and 30% respectively, according to FPT. The
shortage of IT human resources which lead to higher wage
inflation in Vietnam may reduce the competitiveness and profit
margin of Vietnam’s software outsourcing companies.
However, FPT believes that competition between Vietnam and
China outsourcing companies in the Japan market is declining.
According to FPT, Chinese companies are going back to serve
its domestic market, where demand is booming.
Most preferred Most preferred in sector: FPT VN
FPT Corp: FPT VN
• Investment thesis: FPT is the leading IT company in 2020 PE/PB 11.3x/2.4x
Vietnam, with 2 key strong/stable growth businesses (IT 2020 EPS growth (%) 18%
services and Telecom, accounting for ~80% of PBT) over
the next 3 years.
2020 ROE (%) 25.4%
✓ With increasing demand for digital transformation
services across the globe, FPT targets annual earnings Source: Bloomberg, SSI Research, Data on 31 Dec 2019
growth from this line of service of 30% YoY over 2020-
22. By investing in human resources with the aim of
Most preferred in sector: FPT VN
improving productivity, together with Vietnam’s lower
IT labour costs than India and China, we see a good
180%
chance that the company will achieve this goal.
160%
✓ The current penetration rate for broadband Internet in
Vietnam is 60%, implying room for FPT to move 140%
forward with telecom volume expansion among its 120%

household subscribers. Upon completion of its 3 new
100%
data centers in 2021E, the company’s telecom service VNIndex FPT VN Equity
revenue from corporations stands to rise strongly by 80%
20-30% YoY for the next 3 years thereafter. 60%
✓ Valuation is attractive, with 2020 P/E levels of 11.3x

and a dividend yield of 3.4%. 2019 ROE is estimated
to be 25.5%, and FPT has a strong balance sheet Source: Bloomberg, SSI Research
(estimated D/E ratio of 0.5x at the end of 2019).
• Catalysts: Strong net profit growth of 16.6% YoY in 2020.
FPT may acquire 1-2 more IT service companies in the US
and Japan.
• Risk: Salary for IT engineers are increasing. FPT associates
(FPT Synnex and FPT Retail – FRT: Upcom) may experience
lower growth due to the slowdown of ICT product sales.

MATERIALS - STEEL
Negative: Demand tends to slowdown
Most preferred: HPG
2019 Highlights Steel industry performance in 2019
120%
Sector performance
110%
The steel sector declined -4% in terms of market capitalization
in 2019, underperforming the VN Index, which increased by 100%
7.7% in the period. The HPG share price decreased slightly by
90%
1% due to the annual earnings decline up to Sept ‘19 resulting
from the unexpected surge in the iron ore price. On the other 80%
hand, the HSG share price increased by 32% from its bottom at
VNIndex Materials Steel
the end of 2018, thanks to the stabilization in its gross margin. 70%
Key highlights on sector 60%
What was expected?

Demand exhibited a significant slowdown from the middle of
2019: After an upbeat year with finished products volume Source: Bloomberg, SSI Research
growth posting 10% YoY in 2018, steel sales volume maintained
a solid performance in the first 4 months of 2019 with a total
volume growth of 11% YoY. Domestic consumption increased Steel sale volume and growth
by 15% YoY. This can be attributed to the momentum of ktons
12,000 35%
construction activities from projects of previous years, and the
30%
recovery in the steel price that encouraged middlemen to 10,000
25%
accumulate inventory. 8,000
20%
However, from May to Nov, demand slowed down significantly 6,000 15%
with total sales volume going flat compared to the same period 4,000
10%
last year, of which domestic sales volume grew moderately by 5%

2,000
3.5% YoY. 0%
- -5%
Overall, sales volume of finished products up to 11M 2019 2014 2015 2016 2017 2018 11M2019
increased by 3.5% YoY to 15.4 mn tons, of which growth for Construction
Constrution steel
steel Galvanized steel & pipe
construction steel increased by 6.5% to 9.7 mn tons. Constrution steel
Construction growth
steel growth Galvanized steel & pipe growth
Meanwhile, the volume of galvanized steel and pipe went flat at
5.6 mn tons. Source: Vietnam Steel Association, SSI Research
Exports impacted by spread of protectionism: 2019 is another

difficult year for steel export. Although the construction steel
export volume attained a mild growth of 1.6% from Jan-Sept ‘19,
the export volume of galvanized steel and pipe dropped

significantly by -19% YoY in the same period respectively due to

the spreading of the protectionism trend across countries to
impose restrictive measures on steel imports. The US and EU
market, which is the second and third largest export markets for
Vietnam, experienced a sharp decline of 44% in volume,
generating just 10% of total sale volume in the first 9 months of
the year compared to 19% during the equivalent in 2018.
Steel price slide due to weakening demand and global price
trend, leading to loss in several construction steel producers:
After recovering by 6-7% in the first 4 months, the construction
steel price corrected by 10% in the next 7 months due to
weakening demand and the drop in the raw materials price. The
drop in the steel price placed downward pressure on the profit
margin of incumbent producers, many of which have come
down to razor thin margins or taking losses, and had to cut
production volume, thus losing market share. Consequently, the
larger companies with advantage in term of production costs
such as HPG took advantage of this situation to grasp more
market share.
Gross margin PBT margin EBITDA margin Sale volume Growth
3Q19 3Q18 9M19 9M18 3Q19 3Q18 9M19 9M18 3Q19 3Q18 9M19 9M18 9M19 9M18
HPG 17.1% 23.0% 18.3% 21.5% 13.7% 20.1% 14.9% 18.9% 22.2% 29.1% 20.0% 23.8% 1,967,160 1,694,087 16.1%
TVN 2.9% 4.3% 4.5% 5.3% 0.9% 2.5% 2.8% 4.8% 1.8% 2.4% 3.5% 4.0% 1,238,087 1,302,693 -5.0%
POM 0.3% 3.3% 1.2% 6.7% -4.0% 0.8% -2.7% 4.2% 0.7% 3.8% 1.8% 7.3% 657,335 741,794 -11.4%
TIS 5.2% 5.6% 5.2% 5.2% 0.2% 0.2% 0.7% 0.7% 4.3% 5.5% 4.3% 3.4% 568,057 583,947 -2.7%
VIS -3.8% -2.0% -0.9% -0.2% -6.9% -5.5% -4.1% -3.4% -3.4% -2.4% -0.5% -0.5% 239,747 252,900 -5.2%
TDS 2.5% 3.4% 4.0% 4.1% 0.0% 1.1% 1.8% 2.2% 1.0% 1.7% 2.5% 2.8% 124,435 128,612 -3.2%
TNB 4.1% 3.9% 5.2% 2.7% -0.4% 4.1% 1.4% 1.0% 1.7% 3.8% 3.1% 1.2% 100,019 111,437 -10.2%
Flat steel profit margin and HRC Market share of top construction steel manufaturers
15.0% 650 30.0%
25.0%
600
10.0% 20.0%
550
15.0%
500
5.0% 10.0%
450
5.0%
0.0% 400
0.0%
1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19
2013 2014 2015 2016 2017 2018 11T2019
Average HRC price HSG NKG SMC VGS HPG TVN POM Vinakyoei Formosa VIS
Source: Vietnam Steel Association, SSI Research Source: Vietnam Steel Association, SSI Research
On the other hand, the profit margin of flat steel producers
recovered from the second quarter of 2019, thanks to the
correction in the HRC price.
What is NOT expected?
Iron ore price surge due to the disaster in Brazil: The price of
iron ore soared up considerably by over 70% from the level at

the end of 2018 to its peak of over $120 USD/ton in Jul due to Vietnam Steel price versus raw material price
the dam collapse in the Vale mines in Brazil. This led to the drop
700
in HPG gross margin, as weak demand made it difficult for the
600
company to pass through the increase in iron ore to the end
user, especially when the price of steel scrap declined in the 500
second and third quarter of the year. However, as Vale expects 400
to resume 70% of lost capacity in 2019-2020, the iron ore price 300
is expected to correct back to around $70-80 USD/ton in 2020. 200
100
0
1/18 3/18 5/18 7/18 9/18 11/18 1/19 3/19 5/19 7/19 9/19 11/19
Steel price Iron ore Coking coal Scrap
Source: Vietnam Steel Association, SSI Research
2020 View

Sales volume may not recover strongly. We expect industry
sales volume to continue to be slow, with a growth ranging from
5-7% in 2020 due to the stagnation in the property market, and
sluggish public investment. However, the increase in FDI
disbursement can be a supportive catalyst for steel demand.
Additional capacity can enhance competition pressure: In
2020, total domestic capacity of construction steel is expected
to increase by 15%, coming from HPG’s Dung Quat Integrated
Steel Complex and the VAS Nghi Son plant, with capacity of 2
mn tons and 500,000 tons respectively. However, part of the
capacity addition is offset by the closure of some production
lines, such as that from Posco SS in the South, with capacity of
500,000 tons/year.
Consolidation trend may accelerate, but downward pressure
on steel price is limited: In the context of growing competitive
pressure, the trend of consolidation in construction steel can
accelerate in favor of large companies with a substantial
advantage in production cost, logistics, and distribution system
like HPG. However, since the EBITDA margin of many
manufacturers has approached zero, we think that the downside
of the steel price is limited, and smaller and ineffective
companies may choose to cut production volume when revenue
cannot cover variable costs.
Compared to construction steel, the market for galvanized steel
is expected to be more stable in 2020, as the largest players do
not have a large capacity expansion plan in the coming year.
Spread of protectionism likely to stay: In the context of
protectionism across the world, it is likely that Vietnam can
extend its own protectionist safeguard duties for long steel in the
coming year. The tariff now is 17.3% for long billet and 10.9%

for construction steel. It is also worth noting that even in the

case the tariffs are not extended, pressure from China should
not experience a significant increase, given the current steel
price in China is nearly equivalent to that in Vietnam.
Issues and risks
The Chinese economy slowdown can negatively affect steel
demand in the world-largest manufacturer, and has indirect
impact on the domestic price in Vietnam. According to the World
Steel Association, steel demand in China in 2020 is expected to
grow by 1%, much lower than the estimated growth of 7.8% in
2019. Accordingly, total global steel demand growth is expected
at 1.7% in 2020, reducing from 3.9% in 2019.
The significant increase in capacity amid weak demand growth,
especially in construction steel, can increase competitive
pressure in the domestic market, and lead to further volatility in
the domestic steel price.
Most preferred Most preferred in sector: HPG VN

Hoa Phat Group: HPG VN
• Current price: 23,500; 1Y Target price: VND 30,900 Foreign ownership (%) 38%
2020 PE/PB 7.0/1.1x
• Investment thesis:
2020 EPS growth (%) 25%
✓ HPG is the industry leader in construction steel, with Dividend yield (%) 4.2%
significant advantages in production cost, its 2020 ROE (%) 18.4%
distribution network, and market positioning.
✓ The market share for construction steel has increased
gradually from 14% in 2012 to 26% up to 11M 2019,
and expected to continue to improve in the coming Most preferred in sector: HPG VN
years.
✓ Safeguard duties are expected to be extended beyond 180%
2020 and help to shield domestic manufacturers from 160%
Chinese long steel products in the long term.
140%
• Catalysts:
120%
✓ The commencement of Dung Quat Integrated Steel is
100%
expected to boost company growth over the next 3 VNIndex VTP VN Equity
years. In 2020, we expect the company’s revenue and 80%
net profit to increase by 15% YoY and 24.7% YoY to 60%

VND 72 tn and VND 9.7 tn respectively. Construction
steel volume is expected to increase by 33% YoY, to
3.7 mn tons.
✓ The correction in the iron ore price is thanks to the
gradual resumption of Vale’s mines, which can help
the HPG gross margin to recover.
• Risk: Slowdown in steel demand in 2020; volatility in price

of steel and raw material; further delay in the Dung Quat

Integrated Steel complex; lower-than-expected profitability
in its first years of operation.

MATERIALS - CEMENT
Neutral: Another year of single digit growth
Most Preferred: HT1
2019 Highlights Cement industry performance in 2019
Sector performance
140%
The cement sector increased 13.2% in terms of market 130%
capitalization in 2019, outperforming the VN Index, which rose 120%
7.7%. The share price of HT1 increased by 18% during the year
110%
thanks to positive earnings growth on the back of gross margin
100%
improvement.
90%
Key highlights on sector 80%
VNIndex Materials Cement
Domestic growth slowdown faster than expected: According 70%
to the Cement Association, total sales volume of cement and 60%

clinker in the first 10 months of 2019 posted 81.4 mn tons,
attaining a slight growth of 1.5% YoY. Domestic volume reached
53.4 mn tons (+1.6% YoY) and continued to account for 66.7%
of total sales volume, as it did last year. Source: Bloomberg, SSI Research
Compared to the 2018 growth of 6% for domestic volume, and

52% for export volume, growth in 2019 showed significant Vietnam cement and clinker export volume (tons)
deceleration due to several factors.
10M19 10M18 Growth
First, in terms of domestic volume, growth in 2018 can be China 11,861,867 7,620,817 56%
attributed to a low base set in 2017 due to heavy rainfall coupled Philippines 4,500,360 5,531,863 -19%
Bangladesh 3,193,225 5,991,155 -47%
with the surge in sand prices that led to the delay in
Taiwan 1,174,117 1,374,583 -15%
infrastructure projects. As a result, growth in 2019 was lower Peru 604,226 906,915 -33%
than in 2018. In addition, domestic construction activities also Others 5,563,666 4,789,860 16%
slowed down, with a growth rate of 8.3% YoY up to 9M19 Total 26,897,461 26,215,193 3%
compared to 9.16% YoY in 2018. This was due to stagnant Source: GSO
conditions in the property market and in public investment.
What is expected?
Export sales volume also nearly went flat: According to the
GSO, the total export volume of cement and clinker up to 10M19
reached 26.9 mn tons, an increase by 3% YoY.
Import demand from China continued to grow considerably by
56% up to 10M19 on the back of the capacity cut (plan of 70
mn tons in 2019) amid growing demand in China. Thanks to the
proximity to China along with a competitive production price,

Vietnam maintained itself as the largest cement exporter to

China, constituting around 70% of China total cement imports.
However, the growth from this market was offset by the decline Vietnam export volume by markets (Unit: ktons)
in export volume to the Bangladesh and Philippines markets,
2 500
which can be attributed to the capacity ramp-up in these
markets and the imposition of an import tax of $4.80 USD/ton
2 000
by Philippines upon Vietnamese cement.
Domestic cement prices increased as expected: The retail 1 500
price of cement increased by 5% in 2019 after the increase by

1 000
3% in 2018, particularly following the increase in the clinker
input price by 20-30% in 2018.
500
Most listed companies attained significant earnings growth
driven by the increase in ASP. Although the revenue of cement
companies in 2019 attained a moderate growth of below 10%
due to overall lackluster market demand conditions, PBT
attained a much higher growth of 20-190% YoY thanks to the China Phillipines Bangladesh
improvement in the gross margin by 2-4 ppts on the back of the
rise in the cement price.
Source: GSO
Gross margin
18.0%
16.0%
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
HT1 BCC BTS
9M19 9M18
Source: Companies, SSI Research

Revenue % growth Gross profit % growth EBITDA % growth PBT % growth
HT1 6,553,703 8.2% 1,123,409 13.3% 1,391,733 6.4% 664,398 20.0%
BCC 2,833,696 4.3% 413,853 32.2% 407,801 24.0% 123,989 146.9%
BTS 2,378,751 10.6% 312,358 10.2% 317,779 -2.1% 60,032 166.8%
2020 View
Expected growth trend

According to the Ministry of Construction, cement sales volume
is estimated to attain mild growth of around 4%YoY, reaching
101 mn tons in 2020. Domestic sales volume is estimated to
reach 69-70 mn tons, an increase by 3% YoY, whereas export
volume may increase by around 4% to 32 mn tons.

The capacity utilization is expected to maintain at decent

rate: In 2020, total cement capacity is expected to add 3 mn
tons, equivalent to around 3% of current capacity. As the growth
rate in capacity is matched by the growth rate in demand, the Cement sale volume (mn tons) and utilization rate
market in 2020 can continue to be quite balanced with a
utilization rate of 97% in the coming year. We think that after 120 105%
having increased in 2019, the cement price can be quite stable
100%
in 2020 given the stable clinker price in recent months. 100 99%
97%
However, profit of listed companies can increase thanks to 95% 95%
80
deleveraging as well as from the improvement in the gross
90%
margin, as the higher selling price is effective for full year 2020. 60
89%
85%
• Issues and risks 84%
83%
40
80%
Vulnerability to export to China: As domestic capacity is still
20
35% higher than domestic demand, business performance of 75%
cement companies still depend to a certain extent on export 0 70%

demand, especially when it comes to exports to China. 2015 2016 2017 2018 2019F 2020F
Domestic sale Export Capacity Utilization rate
Rising input cost: As it can be difficult for the cement price to
further rise in 2020, the profit margin of cement companies can
Source: Ministry of Construction, SSI Research
be negatively affected if the cost of electricity and coal, which
accounts for 45-50% of clinker production costs, rises in 2020.
Most preferred Most preferred in sector: HT1 VN

Ha Tien 1 Cement JSC - HT1 VN
Current price: VND 14,950; 1Y Target price: VND 16,900 Foreign ownership (%) 6.4%
• Investment thesis: HT1 is the leader in supplying market 2020 PE/PB 7.6x/1.0x
demand across Southern Vietnam, and its advantage allows 2020 EPS growth (%) 12.3%
it to command a higher sales price by a margin of 20-30% Dividend yield (%) 4.8%
in this region compared to the price in the Northern and 2020 ROE (%) 14.7%
Central Vietnam regions.
• Catalysts: The improvement in gross margin on the back of
the market cement price and cost-cutting measures,
Most preferred in sector: HT1 VN
coupled with decreasing financial expenses on the back of
140%
deleveraging, may help the bottom line to attain
130%
encouraging growth of 12% YoY in 2020.
120%
• Risk: An increase in energy cost, including electricity and 110%
coal, may negatively impact the company’s profit margin. 100%
90%
80% VNIndex HT1 VN Equity
70%
60%

MATERRIALS - FERTILIZER
Negative: Low growth from cyclical El-Nino pattern
Most Preferred: DPM
2019 Highlights Fertilizer industry performance in 2019
Sector performance
140.0%
The fertilizer industry plunged by -37% in terms of market
capitalization in 2019. This isolated laggard sector widely 120.0%
underperformed the VN Index, which rose by +8%. All fertilizer

100.0%
tickers declined for the year (BFC by -53%, DPM by -39%, LAS
by -38%, and DCM by -29%). 80.0%
60.0%
Key highlights on sector 40.0%
What was expected? 20.0%

VNIndex Materials Fertilizers
We originally had a Neutral view on the sector at the beginning
0.0%
of 2019, assuming that (1) the 2019 oil price would soften vs.
2018 (around $65 USD/bbl in 2019, down by -10% YoY) and
(2) flat fertilizer consumption in 2019 given limited growth
potential for agricultural land, as well as an already high current Source: Bloomberg, SSI Research
fertilizer consumption rate in Vietnam.
We also noted two possible upside catalysts for the fertilizer 90 400
sector, which were (1) ratification of VAT change and (2) state 80 350
divestment in DPM, DCM, LAS and BFC. However, both of these 70 300
events did not occur. While the National Assembly is aware that 60
250
VAT status should be changed from “VAT non-taxable” to “0- 50
200
5% VAT taxable” in order to support domestic fertilizer 40
150
producers’ financial position amid fierce competition from 30
imported substitutes, this proposal has remained pending from 20 100
2017. Regarding government divestment in DPM and DCM, 10 Brent oil price (USD/bbl) Prill urea (USD/ton) 50
weak stock market sentiment and unconcluded gas policy - 0

resulted in cold feet for the deal, although a few strategic
1/6/2017
3/6/2017
5/6/2017
7/6/2017
9/6/2017
1/6/2018
3/6/2018
5/6/2018
7/6/2018
9/6/2018
1/6/2019
3/6/2019
5/6/2019
7/6/2019
9/6/2019
11/6/2017
11/6/2018
11/6/2019
investors signaled interest to fill the gap. As for divestment in

BFC, Vinachem also did not proceed to the divestment as
planned.

What was not expected?

2019 fertilizer consumption (-10% YoY) was severely affected
by (1) adverse weather conditions in Vietnam, and (2) a
downtrend in agri-product prices.
Fertilizer import volume
Throughout January to June 2019, Vietnam had been severely
impacted by drought. This had a detrimental effect on crop 9M19 9M18 YoY
production, and reduced demand for fertilizer. In some cases, Urea 304,123 364,385 -17%
farmers could not reinvest for the next crop cycle, owing to NPK 295,587 423,875 -30%
DAP 367,710 450,562 -18%
financial difficulties. Thus, negative impacts from the drought in
SA 717,105 718,989 0%
1H 2019 continued to weigh down on fertilizer consumption in
Kali 634,620 770,285 -18%
2H 2019.
Source: General Department of Vietnam Customs, SSI
During 2019, the price of key agri-products in Vietnam dropped Research
significantly, thus squeezing farmers’ profit margin. Taking
export volume and value as proxies, the price of rice, coffee,
pepper and cashew declined by -12% YoY, -9% YoY, -23% YoY
DPM: Sept 2019 gas input cost
and -20% YoY. As a result, farmers had to cut costs by reducing
spending on agricultural inputs in general, and fertilizer in Total gas input
particular. costs excluding 46% MFO Tariffs
VAT
On the supply side, DPM had to stop its urea, NPK, and 6.01 4.61 1.40
ammoniac plants for technical repair for 70 days, thus further 5% -3% 43%
reducing fertilizer supply. Concurrently, fertilizer producers
under Vinachem ownership actively reduced their production by
around -16% YoY in anticipation of reduced fertilizer demand. In
addition, fertilizer import volume also decreased. This in turn
helped to lessen the negative impact of adverse weather
conditions and low agri-product prices on fertilizer ASP. As per
our statistics compilation, the domestic urea price declined less
than the international urea price (-3% YoY vs -7% YoY), while
the kali price (all imported) was flat YoY and NPK price (NPK
ASP of BFC) rose by +4% YoY.
Although the 2019 Brent oil price followed our initial assumption
of $65 USD/bbl (-10% YoY), cost saving benefits that came
about from a lower oil price was offset by higher transportation
costs. DPM has been sourcing natural gas from Cuu Long basin,
of which transportation tariffs are quite low. Nevertheless, due
to natural gas depletion in the Cuu Long basin, DPM had to use
natural gas from Nam Con Son basin in 2019, for which
transportation tariffs are much higher. Transportation tariffs for
2019 have accordingly been temporarily raised to $1.40
USD/mmbtu (vs the originally set figure of $1.00 USD/mmbtu
for 2019 and $0.98 USD/mmbtu in 2018). This, together with
the closure of the urea, NPK, and NH3 plants dragged down
DPM 2019 earnings, along with the fertilizer sector.

2020 View

• According to the US National Oceanic & Atmosphere
Administration (NOAA), there will be about a 30% prob. for
El Nino, and a 50-65% prob. for Neutral in the next 3-6
months. Although we expect weather conditions in 2020
will improve compared with 2019, this may likely occur in
the 2H of 2020 rather than the 1H.
• Due to the currently high fertilizer consumption and limited
growth potential for agricultural land in Vietnam, fertilizer State divestment target
consumption is expect to grow marginally at 2-3% per
Current state Post divestment
annum. As 2019 fertilizer consumption was at a low base,
we expect 2020 growth to be higher than the normal annual ownership ownership
growth of 2-3%. We expect 2020 growth to be 5%. DPM 60% <51%
DCM 75% 51%
• The oil price is expected to average around $60 USD/bbl (- LAS 70% 50-65%
7% YoY), hence reducing production costs. Nevertheless, BFC 65% < 50%
ASP may likely decline along with the oil price trend.
Source: Companies
Catalysts
• State divestment to continue in 2020
• Possible ratification of VAT change from “VAT non-taxable”
to “0-5% VAT taxable”, helping domestic fertilizer to claim
back VAT on production costs
China export tax for fertilizer products. Since 2019, China has
cut export taxes in RMB for NPK and Kali from ¥100/ton and
¥600/ton respectively, down to 0. As such, NPK imported from
China to Vietnam will be effectively cheaper. This will intensify
the competition for Vietnamese NPK producers. Meanwhile,
cheaper imported Kali will reduce production costs for NPK
producers (who import 100% Kali from overseas), thus making
them more competitive.
Most preferred Most preferred in sector: DPM VN

Petreovietnam Fertilizer and Chemicals Corporation: DPM
VN;
Foreign ownership (%) 18.95%
• Current price: 12,950; 1Y Target price: VND 15,500 2020 PE/PB 13.9x/0.7x
• Investment thesis: DPM is a leading urea producer in 2020 EPS growth (%) 64%
Vietnam, with a market share 36% (~ sales volume of 810k Dividend yield (%) 7.7%
ton per annum). The company also trades other fertilizers 2020 ROE (%) 5.7%
and chemical types such as SA, DPA, NPK, NH3, etc. As
urea production capacity in Vietnam became plentiful back
in 2015 when the Ha Bac Nitrogenous Fertilizer plant Most preferred in sector: DPM VN

expanded its production capacity, DPM started to invest in

its NPK-NH3 plant, which commenced commercial 140%
operations in 2018. With a design capacity of 250k tons per 120%
year, DPM targets to acquire a 6% market share for NPK.
100%
Long term growth for DPM will be driven by (1) high profit
80%
margin from selling in-house produced NPK rather than
60%
trading NPK and (2) increase in NPK sales volume.
40%
• Catalysts: (1) increase of 23% YoY in urea and 84% YoY in VNIndex DPM VN Equity
20%
NPK sales volume in 2020 on the back of 70 idle days in 2019
0%
and (2) slight decline in oil price ($60 USD/bbl in 2020F vs
$65 USD/bbl in 2019), while tariffs in 2020 may increase
negligibly ($1.43 USD/mmbtu in 2020 vs $1.40 USD/mmbtu
in 2019). (3) DPM may be able to receive insurance Source: Bloomberg, SSI Research
reimbursement for the production disruption that happened in
1H 2019, although this has not been finalized yet. Despite
expected weak fertilizer demand in 1H20 due to El-Nino, we
expect a slight improvement in GPM thanks to higher
utilization rate of urea, NPK, and NH3 plants.
• Risk: (1) competition from imported urea and NPK, (2) low
agri-products prices and (3) unfavorable weather
conditions.

UTILITIES - ELECTRICITY
Negative: Unstable fuel supply input
Most Preferred: N.a
2019 Highlights Electricity industry performance in 2019
Sector performance
120%
The electricity sector reported a slight +1.5% change in market 115%
capitalization, underperforming the VN-Index which posted
110%
+7.7%. The key reason for this underperformance was mostly
attributed to big players that posted a decline such as POW (- 105%
26.6%) and PGV (-10.3%), with 39% weighting in the sector. 100%
The best performers were PPC (+63.7%) and HND (+49.7%). 95%
Being free from foreign debt (JPY) and a high dividend yield 90%
allowed the PPC stock price to soar, while HND saw a significant
increase in net earnings thanks to the 2015 work-in-progress FX
losses that were fully allocated in 2018. VNIndex Utilities Electricity
Another key stock is NT2 (-12.0%), as concerns over a revised

PPA resulted in lower earnings and a fuel supply decline. In Source: Bloomberg, SSI Research
2019, gas supply for NT2 dropped to 2.6 mn sm3/day, versus
demand of 3.1 mn sm3/day.
System Capacity (54.880 MW)
We had recommended to be Overweight the sector at the
beginning of 2019 on the expectation of positive demand growth 1%
1%
& a higher price from the El Nino weather cycle, thus resulting
9% Coal-fired
in higher sales & earnings. Key reasons for underperformance
3%
of our POW stock pitch in 2019 involved: (1) a coal shortage for Gas-fired
36%
Vung Ang, while new mixed coal was not compatible with the Hydro
plant’s techniques causing a higher heat rate, in turn thus DO
creating a higher input cost and (2) a higher gas price for Ca Renewable
Mau (given an ongoing revised PPA) that might make them less
37% Import
competitive if joining the VCGM.
Others
13%

Total electricity output in 2019 recorded 231.1 bn kWh, an Source: EVN
+8.85% YoY performance that was lower than 2018 growth of
10.36% YoY (according to EVN). System capacity reached

54,880 MW, increasing by 6,320 MW vs. 2018 (in which nearly Retail electricity price
5000MW originated from solar power).
9.00% 8.36%
Retail electricity prices was raised by an average rate of 8.36% 8.00%
from VND 1,720/kWh to VND 1,864/kWh (or $0.0804 USD), 7.00% 6.08%
according to Decision 648/QĐ-BCT on 20 Mar 2019. This rate 6.00%
of 8.36% was higher than the 2018 increase of 6.08%. 5.00%

4.00%
What was expected? 3.00% 2.01%
2.00% 1.48%
A lower supply from Hydro Power Plants due to El Nino.
1.00%
Hydropower generating volume was 58.2 bn kWh, at - 0.00%
19.08% YoY. Others hydropower companies’ running volume up Retail electricity price Inflation
to 9M 2019 were also weak: -34.2% YoY in SBH, -42% YoY in
2018 2019
VSH, and -27.6% YoY in TMP.
Coal shortages abound. The Vung Ang coal-fired plant still Source: GSO, EVN, MOIT
struggled with coal shortages up to 8M 2019 despite a long-
term contract with Vinacomin (provided a 70-80% committed
volume). According to Vinacomin, total estimated domestic coal The gap between domestic coal supply vs. demand
supply of Vietnam in 2019 (47 mn tonnes) dropped by 9 mn
tonnes vs 2018. Meanwhile, 2019 imported coal reached nearly
42 mn tons, which was twofold more than 2018. In 2019, 170.0
Vinacomin uplifted the coal sales price to thermal power plants 150.0
by 9% to VND 1.8 mn/ton. 130.0
(million tonnes)
Decline in domestic gas supply. Southeastern gas fields (Nam 110.0
Con Son and Su Tu Trang) have witnessed a decline in volume. 90.0
In 2019, gas supply from Southeastern Vietnam fields slid from 70.0
20 mn sm3/day to 16.5 mn sm3/day. Gas-fired plants have to 50.0
run on diesel in the peak season, i.e 108.11 mn kWh in Nhon 30.0
Trach 1 & 5.87 mn kWh in Nhon Trach 2. Ca Mau Plants are 10.0
2020 2025 2030
also dealing with a gas shortage with its PM3-CAA 7 Cai Nuoc
field, and a higher gas price (46% to 90% MFO) that started back Target Supply by Decision 403 Revised Supply by Vinacomin
in Oct 2019.
Demand from coal-fired power plants Total demand
A bottleneck in solar power. According to EVN, Vietnamese
transmission lines were significantly overloaded in June 2019 Source: Decision 403/QĐ-TTg on 14 Mar 2016
when there was suddenly a capacity boom from solar power
sources from Ninh Thuan and Binh Thuan Provinces (an & Revision of Vinacomin in Jan 2019
increase of ~5000 MW, while more than 2,000 MW additionally *Decision 403/QDD-TTg released on 14 Mar 2016 is the
came from Binh Thuan & Ninh Thuan). As a result, we saw (1) Vietnam Coal Development Plan to 2020 and 2030.
260%-360% load factor for 110kV lines from Thap Cham – Hau
*As Vinacomin’s revision in Jan 2019, actual domestic coal
Sanh – Tuy Phong – Phan Ri; (2) a 140% load factor of 110 kV
supply fell below guidance of Decision 403 on 14 Mar 2016
line from Phan Ri – Song Binh – Dai Ninh (According to Circular
25/2016/TT_BCT on 30 Nov 2016, the normal level of load *Total demand includes coal-fired power, fertilizer, chemical,
factor is below 90% and warning level is over 90%). Due to the cement, others.
long distance between solar power plants (Ninh Thuan/Binh
Thuan) and high demand locations, 220kV & 500kV
transmission line are required. On average, a solar project just
takes ~6 months while 220kV and 500kV transmission lines
take about 3-5 years to complete.


Thermal power plant operators could not effectively benefit
from the El Nino weather cycle due to a shortage of fuel. We
had expected that a decline of rainfall volume in 2019 would limit
production capacity of hydropower and benefit thermal power.
Unfortunately, unstable supply & a lack of coal and gas limited
electricity generation negatively weighed upon earnings (as
plants incurred a higher cost to restart/reheat the plants, as well
as being faced with the need to use diesel fuel in the peak
season).
Mixed coal is incompatible, resulting in a higher heat rate and
input cost. Mixed coal (mixture between domestic coal &
imported coal) has quite a higher volatile matter (over 12%) vs.
domestic coal (~6%). Domestic techniques are not
incompatible for that high volatile-matter coal, leading to a
higher heat rate (despite in theory possessing a higher volatile
matter & the higher calorific value, the lower heat rate - kg/kwh).
Additionally, incompatible mixed coal results in technical
problems, resulting in the plant temporarily halting production
for repairs that incur higher costs to reheat/restart the plants.
This is a common challenge faced, as per our discussion with
many plant operators such as POW, PPC, and QTP.
2020 View
Will more coal be imported to ensure sufficient supply? FOB Richards Bay 5,500 NAR (South Africa)
If we use the South Africa coal price (5500 kcal/kg) at $53 100.00
USD/ton; then we must factor in (1) the transportation fee of $15 90.00
USD/ton from Richards Bay (South Africa) to India and (2) the 80.00
additional hop necessitates another estimated transportation fee 70.00
(USD/ton)
of $7.50 USD/ton from India to Vietnam. In total, imported coal 60.00

50.00
costs roughly $75.50 USD/ton (~1.75 mn VND/ton compared
40.00
to Vietnam’s 5A coal of 1.85 mn VND/ton). The difference is 30.00
about 5.7% (taking into account the fact that coal-fired plants 20.00
mostly use the mixed coal from TKV instead of importing 10.00
themselves). Currently, coal-fired power plants have been
allowed to import coal themselves, and they would enjoy a lower
price trend if there was a compatible coal type that did not spur
other side-effect issues, such as the risk of production Source: Bloomberg, PVPower
disruption. However, there are other issues. For instance, what
if the importing price is higher than the domestic coal provided
by Vinacomin & Dong Bac? In this case, there are no clear
policies for the power plant operators to pass through their
throughput via the PPA (purchasing power agreement) price.
Secondly, what if importing procedures take a long time,
especially when these power plants take it upon themselves to

import for the first time, potentially causing complications and

affecting supply overall.
Coal-fired power: Higher volume does not translate to higher
earnings. Instability and lack of coal supply, along with
incompatibility issues with mixed coal, account for domestic
techniques as mentioned above.
Hydro power: Lower generating volume, at least in 1H 2020
According to the US National Oceanic & Atmosphere
Administration (NOAA), there will be about a 30% probability for
El Nino, and a 50-65% probability for neutral weather conditions
in the next 3-6 months. Low rainfall volume due to El Nino in
2019 will limit production capacity for hydropower plants for at
least until 1H 2020.
Solar power industry awaiting a new price mechanism. The
Ministry of Industry and Trade (MOIT) has published Decision
9608/MOIT on 16 Dec 2019 that delays permission for new Source: International Renewable Energy Agency (IRENA)
solar projects. Furthermore, overcapacity in Ninh Thuan/Binh
Thuan, as well as an overloaded power grid, would constrain
production capacity of launched units. Given the latest proposal
from the MOIT, the FIT (feed-in-tariff) for solar power is
proposed at $0.0709 USD/kWh for onshore and $0.0769
USD/kWh for offshore. These are quite lower than the initial FIT
of $0.0935 USD (Decision 11/QĐ-TTg issued on 11 Apr 2017).
Wind power receives support from new regulation: The new
sales price for the wind power project according to Decision
39/2018/QĐ-TTg released on 10 Sep 2018 may in turn attract
more investors. Selling rates are now $0.085 USD/kWh for
onshore projects, and $0.095 USD/kWh for offshore projects,
while the old price mechanism paid out only $0.078 USD/kWh.
According to our research, the old price was not attractive
enough given a total LCOE of $0.07 USD/kWh (LCOE – levelized
cost of energy – covering total costs incurred during operation).
Furthermore, wind turbine costs has been on the decline, leading Source: International Renewable Energy Agency (IRENA)
to lower levels of required investment capital which is also an (Unit: VND/kWh) 2019 2020
attractive point. SMP 1319 1342
CAN 104-189 40-80
Lower sales prices on VCGM as lower CAN component.
Source: Decision 109/QĐ-ĐTĐL on 28 Dec 2019 and Decision 122/QĐ-
Estimated full market price (FMP) slightly drop by 2% as the ĐTĐL on 27 Dec 2019
significant drop in CAN surpassing the increase of SMP (see the
full definition of FMP, SMP and CAN on the table). *FMP – Full market price is the sum of SMP and CAN
*SMP – System marginal price is the highest auction price needed to be

employled in order to balance system load/demand. SMP is higher as high
Catalyst demand for thermal power due to Elnino
*CAN – Capacity add on price is the extra price paid for the best new
• New gas supply in Q4/2020 from Sao Vang – Dai Nguyet
entrant power plant to break-even (The 2020 best new plant is Vinh Tan 4
basin will provide more stable volume for Southeastern Thermal Plant expanded)
regions.
Issues and risks

• Weak growth from Industry & Construction sector might

drive down electricity demand growth.
• Lower supply from low-price gas basins. Increasing
supply from the new gas basin that offers a higher gas price
in coming years is a risk that might lower the profit margin
of power plants.
Most preferred: N.a
Good to watch: NT2. NT2 will be free of foreign debt from 2021
onward, implying stronger cashflow and higher dividend
possibilities. Additionally, gas supply for NT2 is expected to be
stable when the Sao Vang - Dai Nguyet basin is launched in
Q4/2020.

UTILITIES - WATER
Neutral: Stable Growth
Most Preferred: TDM
2019 Highlights Water industry performance in 2019
Sector performance
160%
Mid and small-cap stocks increased sharply, such as NBW 150%
(+117.7% YoY), GDW (+112% YoY), BTW (+138% YoY), 140%
BWS (+123% YoY) and NQN (+196% YoY). In contrast, large- 130%
cap stocks in the top 5 leading water companies had slight 120%
growth such as BWE (+1.03% YoY) and HPW (+7.6% YoY). 110%
Two reasons for outperformance of the water sector are: (1) 100%
increasing private ownership in water supply companies – 90%

VNIndex Utilities Water
previously a monopoly industry - from AMERICA LLC (buying 80%
GDW and BTW) and the REE (which owns NBW and GDW) 70%
Board of Directors buying BWS; (2) Cross trading stocks 60%
between TDM and BWE to DNW.

Demand for household water use grew steadily by 5-7%.
Household water consumption, accounting for 71% of total Water Consumption per capita (litter/person/day)
clean water demand, grew by 8-9% YoY in rural areas and 3-4%
YoY in urban areas. 120
Demand for industrial water use grew by 10% YoY. According

110
to JLL, along with the shift of production from China, industrial
parks increased their leasing area by 12% YoY. As a result, 100
industrial water consumption, accounting for 18% of total water
demand, also saw 10% YoY growth. 90
The average selling price (ASP) of water increased by 3% 80

YoY. The water market price is decided by each provincial
People's Committee. In particular, the ASP of water in Ho Chi 70
Minh City and Binh Duong increased by 5% YoY. In contrast,
60
Hanoi and Haiphong did not increase prices in 2019.
2007 2008 2009 2010 2011 2012 2013 2014 2015 2020
Pollution treatment has a slight impact on water enterprises'

operating efficiency. The cost of raw materials account for 30- Source: Decision No. 2055 / QD-TTg 2017
35% of the total operating costs of water enterprises. Chemicals

account for 21% of raw material costs. Moreover, the natural Wastewater rate (%) in 2019 of listed company
resources tax according to Circular 44/2017/TT-BTC has not
45%
increased since 2017, at just 40 VND/m3. Despite the increase
40%
in water pollution in 2019, the cost of pollution treatment had
35%
only a slight impact on the operating efficiency of enterprises
30%
due to the partial pass-through cost into end-user prices. This
25%
lifted the gross margin of listed water companies in 2019,
20%
reaching 13.9% - an increase of 2.3% compared to last year’s
15%
level.
10%
5%
0%
% loss water % averager loss water
2020 View
Expected Growth trend Selling price of water by province (VND/m3)
We divide water companies into two groups: (1) Companies that 20,000
18,000
own water processing plants (DNP, TDM, VCW); (2) Companies
16,000
that own a water distribution network (BWE, DNW, Sawaco, 14,000
Hawaco, CTW, HPW, DNA, BWS, HDW, NBW, GDW, LKW, 12,000
10,000
DBW, NAW, NQB, PJS, TAW, VPW, etc.) 8,000
6,000
Companies that own water distribution network 4,000
2,000
The companies that have water distribution systems are under -
administration of the Provincial People's Committees, implying
a natural monopoly. Operational efficiency of water supply
companies depends on (1) water loss rate; (2) population
density of distribution area. For the companies have distribution
Average water price Min Max
network, we estimate that revenue grew by 9% YoY in 2020. In
particular, average water consumption increased by 6% YoY,
and the average retail APS increased by 3% YoY. Source: SSI Research collect
• Water demand steady growth of 7%. According to
Vietnam Water Supply and Sewerage Association (VWSA),
Value chain in water
the total capacity of water treatment plants in Vietnam
reached 9 million m3 per day. On the other hand, the SOURCE TREATMENT DISTRIBUTION
demand for residential water use was estimated to reach
9.4-9.6 million m3 per day in 2020. According to the
Groundwater
master plan of the water industry to 2030, water Household
consumption per capita will increase from 105-110

liters/person/day to 120 liters/person/day by 2030. The River, lake Sediment filter Industrial
percentage of the rural population supplied with water system
through the water supply system was estimated to increase

from 43.5% at the current to 47% by 2030.
• Operational efficiency of water distribution companies

continue to improve. We expect this trend to continue in Investment Unit Cost in water supply and treatment plants
the coming years. The average rate of water loss decreased (VND/m3)
from 21.5% to 19.5% in 2020, thanks to (1) an improved
50,000
Water Leakage Detection System; (2) improved water
pipeline networks for end users. 45,000
40,000
• Retail ASP of clean water increased 3-5% YoY. We
35,000
forecast that the ASP of clean water will increase by 3-5%
30,000
depending on each city/province. In particular, Binh Duong
and Ho Chi Minh City will increase the retail ASP by 5% YoY 25,000
in 2020. In Hanoi, after the Song Duong Surface Water 20,000

Plant started to commerce operation, it is likely to increase 15,000
the price after a long time stable since 2015. Also, water 10,000
prices for industrial clients will continue to rise, due to the 5,000
increasing demand for industrial parks in 2020.
-
Thu Tan Thien Saigon Suoi BOO Dong Song Song Thu DNP
Companies that own water plants Duc III Hiep II Tan Can Dau Phu Xoai Duong Da Dau Bac
Stage2 Tho Ninh Mot Giang
Factors affecting the efficiency of water treatment plants include:
(1) Investment of water plants; (2) Distance from the factory to
the material source (surface water or groundwater); (3) Output
volume and selling price for distribution companies. Net margin
of existing water plants reached 35% -40%.
• High demand for more water processing plants.
According to our observation, in 2020, at least 4 more
clean water plants will start to commerce operations, with
a total capacity of 600,000 m3/day.
• The investment unit cost for clean water treatment plants
has increased over time. According to our interviews with
listed water companies, the investment unit cost for clean
water treatment plants of some listed water companies in
the period of 2018-2020 reached 2,300 VND/m3 to 4,700
VND/m3 - higher than the average of 1,100 VND to 3,700
VND/m3 in the 2016-2017 period.
• Rising water pollution: The intricacies involved with
climate change prospects and the resultant urbanization
process could increase water pollution, which in turn can
affect clean water output and quality. In 2019, the water
source of Song Da water was polluted by waste oil.
• Distribution risk: Due to the unique charateristic in
exclusive distribution, there is a monopoly buyer which is
subsidiary of the Provincial People's Committee Therefore,
there is a risk that water plants might not operate at optimal
efficient capacity.
• Retail ASP control As a public utility sector, water
distribution companies will control the price for end users.
Therefore, prices to distribution companies may not be
easy to increase.

Most preferred Most preferred in sector: TDM VN

Thu Dau Mot Corp: TDM VN;
Current price: VND 25,900; 1Y Target price: VND 34,700 Foreign ownership (%) 15.4%
• Investment thesis: We have a positive investment view for 2020 PE/PB 9.4x/1.5x
TDM when the TDM Di An water plant will come into 2020 EPS growth (%) 35.9%
operation, featuring double capacity starting in January Dividend yield (%) 3.5%
2020, helping to increase sales volume by 35% YoY. GPM 2020 ROE (%) 15.5%
might reach 49.8% (vs 55.2% in 2019), mainly due to a low
water loss rate of 0.1% - the lowest among listed
companies.
• Catalysts: Doubled capacity of Di An water plant: Sales Most preferred in sector: TDM VN
volume was expected to reach 190,000 m3/day in Jan
2020 (+ 35.7% YoY), as the population in Di An, Thu Dau 190%
Mot, and Thuan An areas was estimated to grow by 5.6%/ 170%
year. Additionally, the proportion of the urban population
150%
supplied with clean water through the centralized water
130%
supply system was estimated to increase from 85% to
90%. According to the master plan of the water industry to 110%
2030, water supply increased from 105-110 90%
liters/person/day to 120 liters/person/day by 2030. Also, 70% VNIndex TDM VN Equity
water for industrial use might increase by 15%/year for 50%

2019-2020.
The sales price of water at the Di An water plant for BWE in
2020 will increase by 5%/year to 6,321 VND/m3: Source: Bloomberg, SSI Research
According to Decision No. 05/2019/QD-UBND, the retail
price for clean water will increase by 5%/year in 2020.
We expect sales volume in the Bau Bang plant to increase
by 20% YoY, due to demand of both Bau Bang and VSIP
industrial park. According to BIWASE, the population
growth rate in the Bau Bang area was estimated at 9% YoY.
• Risks: (1) Internal transfer ownership may affect executive
management at TDM. Mr Tri Nguyen - chairman at TDM,
also owns BWE. Therefore, we are concerned that internal
trading may affect the stock. (2) Cross ownership structure
of TDM, DNW, and BWE.

1. ANALYST CERTIFICATION
The research analyst(s) on this report certifies that (1) the views expressed in this research report accurately reflect his/her/our own
personal views about the securities and/or the issuers and (2) no part of the research analyst(s)’ compensation was, is, or will be directly
or indirectly related to the specific recommendation or views contained in this research report.
2. RATING
Buy: Expected to provide price gains of at least 10 percentage points greater than the market over next 12 months
Outperform: Expected to provide price gains of up to 10 percentage points greater than the market over next 12 months.
Market P: Expected to provide price gains similar to the market over next 12 months.
Underperform: Expected to provide price gains of up to 10 percentage points less than the market over next 12 months.
Sell: Expected to provide price gains of at least 10 percentage points less than the market over next 12 months
3. DISCLAIMER
The information, statements, forecasts and projections contained herein, including any expression of opinion, are based upon sources
believed to be reliable but their accuracy completeness or correctness are not guaranteed. Expressions of opinion herein were arrived at
after due and careful consideration and they were based upon the best information then known to us, and in our opinion are fair and
reasonable in the circumstances prevailing at the time, and no unpublished price sensitive information would be included in the report.
Expressions of opinion contained herein are subject to change without notice. This document is not, and should not be construed as, an
offer or the solicitation of an offer to buy or sell any securities. This report also does not recommend to U.S. recipients the use of SSI to
effect trades in any security and is not supplied with any understanding that U.S. recipients will direct commission business to SSI. SSI
and other companies in the SSI and/or their officers, directors and employees may have positions and may affect transactions in securities
of companies mentioned herein and may also perform or seek to perform investment banking services for these companies.
This document is for private circulation only and is not for publication in the press or elsewhere. SSI accepts no liability whatsoever for
any direct or consequential loss arising from any use of this document or its content. The use of any information, statements forecasts
and projections contained herein shall be at the sole discretion and risk of the user.
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SSI – RESEARCH RESEARCH & ADVISORY CENTER

SSI.COM.VN Visit SSI Research on Bloomberg at SSIV<GO> Page 1

2019 Stock Market Review ........................................................................................................................................... 6

2020 macro outlook .................................................................................................................................................. 15

SECTOR IN FOCUS .......................................................................................................................................................... 20

CONSUMER DISCRETIONARY .......................................................................................................................................... 21

Textile & Garment: Negative: Headwinds continue to undermine growth .......................................................................... 21

Retail: Neutral: Low double-digit, but stable industry growth .......................................................................................... 26

Automobile: Positive: Still grow but at lower rate ........................................................................................................... 33

Fisheries: Negative: Flat to negative growth in export value expected ............................................................................... 38

Dairy: Negative: Single digit growth continues .............................................................................................................. 43

Beer: Neutral: Low double-digit growth but high valuation .............................................................................................. 48

OIL & GAS ....................................................................................................................................................................... 52

Neutral: Growth trending to small companies .................................................................................................................... 52

REAL ESTATE ................................................................................................................................................................... 60

Commercial Developers: Neutral: Uncertainty ahead of regulation overhaul ........................................................................... 60

Industrial Park Developers: Positive: Industrials steam on ................................................................................................. 71

Banking: Positive: Double digit growth to continue ............................................................................................................. 76

Brokerage: Neutral: Fierce competition hampers earnings growth story ................................................................................. 94

HEALTHCARE - PHARMACEUTICALS ................................................................................................................................. 100

Seaport & shipping: Negative: Competition rife .............................................................................................................. 106

Airlines: Negative: Rising competition casts a shadow on growth ....................................................................................... 115

INFORMATION TECHNOLOGY - IT...................................................................................................................................... 122

SSI.COM.VN Visit SSI Research on Bloomberg at SSIV<GO> Page 2

Positive: Sustained growth momentum .......................................................................................................................... 122

MATERIALS ................................................................................................................................................................... 125

Steel: Negative: Demand tends to slowdown .................................................................................................................. 125

Cement: Neutral: Another year of single digit growth ........................................................................................................ 130

Electricity: Negative: Unstable fuel supply input............................................................................................................... 137

Water: Neutral: Stable Growth ..................................................................................................................................... 142

SSI.COM.VN Visit SSI Research on Bloomberg at SSIV<GO> Page 3

Vietnam Market Outlook 2020: The Elusive Cheese Hunt

Chart: Accumulated ETF Fund Flows in 2019 (USD mn)

Source: Bloomberg Terminal, SSI Research

SSI.COM.VN Visit SSI Research on Bloomberg at SSIV<GO> Page 4

SSI Research’s most preferred stocks

SSI.COM.VN Visit SSI Research on Bloomberg at SSIV<GO> Page 5

2019 Stock Market Review

Chart: VN Index 2019 performance (+7.67% YoY)

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NET BUY NET SELL

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2019 macro review: Flying majestic over the cloudy sky

POSITIVE, BUT ALREADY EXPECTED

Chart: Vietnam GDP growth by sector, 2015-2019

2015 2016 2017 2018 2019

Service Agriculture Mining

Construction Manufacturing Real GDP growth

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Chart: Vietnam GDP growth, 2015-2019 (quarterly and full year)

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Chart: Vietnamese foreign trade, 2016-2019

Trade surplus Export growth Import growth

Source: Source: Vietnam Customs, GSO estimate

Chart: Foreign investment into Vietnam, 2017-2019

Registered FDI Registered FII Disbursed FDI Disbursed FDI growth

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Chart: Vietnam total investment growth (%), 2016-2019, by

State investment Private investment

0 1 2 3 4 5 6 7 Foreign direct investment Total investment

Source: GSO, SSI Research

*: Electronics and camera