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Wednesday, July 10, 2013

The Vietnam Stock Market Report 07-10-2013

Vietnam Stock Market daily: Currency market stabilizes as SBV promises action to combat speculators
The markets edged higher today but in lower turnover. Market breadth did improve somewhat with 27 stocks going to the ceiling while 18 stocks fell to the floor. Foreign participation was negligible although they were net buyers by a small margin. The put through market was quieter with a fairly large transaction in KDC and then a smaller one in TTP all we have to report. Amongst the actives we saw gains in PPC; REE; VNM; VIC while HSG (announced first 9 month results) fell back.
The markets rebounded modestly today following several days of profit taking as various blue chips hit technical support levels triggering some bargain hunting by investors. However with volumes low the buying lacks conviction. Perhaps the opening of the doors over at the VAMC prompted some cheer while overseas markets appear to have stabilised recently. Then the SBV expressed its determination to get the currency under control whilst ruling out another devaluation for the next few months. In any even the broader outlook is for continued consolidation for the time being.
Currency market stabilizes as SBV promises action to combat speculators
In the currency market today, the VND strengthened slightly. The interbank VND/US$ rate closed at VND21,345 (representing a gain of 0.14% from VND21,375 yesterday); marking a 0.47% pre¬mium over the adjusted trading band ceiling. Meanwhile, the black market rate was trading at VND21,600 representing a 1.67% over the ceiling band.
In today’s gold auction, the SBV sold 40,000 taels out of 40,000 taels (cumulative sales now come to 1,116,700 taels or about 43 tons) offering gold bullion in the price range of VND37.48-37.70 mil¬lion per tael. The domestic gold price has dropped approximately 19% YTD. While the domestic gold price is currently trading at 16.4% premium over the international price.
After yesterday meeting, the SBV concluded that short term market speculation is the main cause of the current currency market fluctuation. Therefore, in order to stabilize the currency, the SBV will likely take administrative actions to more strictly control both interbank and unofficial market. In addition we understand they will (1) add more US$ liquidity to the market (2) narrowing the gap between domestic gold price and international price. The SBV also indicated that they will not adjust the reference rate over the next 1-2 months at least.
We also feel that much of this volatility stems from the fact that every asset class (currencies and commodities) are losing ground against the US$ at the moment. Due to the QE tapering theme. Hence what is happening to the VND should come as no great surprise in our opinion. Obviously there are other local factors at play which the SBV appears determined to address. Looking be¬yond that over the next few weeks their efforts may be supported by additional supply of US$ from FDI.
In Q3 FY2013, HSC estimates that the forex market should receive approximately US$2.3-2.6 billion thanks to drawdown from some ongoing large foreign invested projects (FDI). We estimate as follows
• Nghi Son refinery and petrochemical project – US$1.8 billion
• Samsung project in Thai Nguyen – US$500-800 million
HAG (Underperform) to sell Hydropower division and also some real estate assets
Hoang Anh Gia Lai (HAG) has just announced passage of a BOD resolution to sell off their hydro¬power division and some real estate assets. According to this resolution, HAG will restructure their product portfolio by selling off less profitable projects and reinvest the cash proceeds into more profitable projects in Myanmar and Laos.
After some conversations with the company, we learnt that HAG sold the 6 hydropower projects based in Vietnam including Daksrong 2, Daksrong 2A, Daksrong 3A, Daksrong 3B, Ba Thuoc 1, Ba Thuoc 2 while still holding onto 2 projects in Laos including Nam Kong 2, Nam Kong 3. We note that the ASP of electricity in Vietnam is just around VND800/KwH on average in comparison with VND1,278/KwH for the Laos based plants. At the moment, 4 out of 6 plants are operational while the remaining 2 projects (Ba Thuoc 1 and Daksrong 3A) are in the construction phase and hope to start operations next year. The total capex for 6 sold projects are estimated at VND4,237 billion with a total capacity of 211.7 MW. However, the company did not release detailed informa¬tion related to selling price or the profit on the deal. HSC however assumes that the profit margin is likely fairly small at around 5% of the net carried amount.
According to HAG, they signed a contract with the buyer before June-end hence the profit from this deal will be booked in the Q2 financial statement. The buyer, ( a local group most likely) also committed to pay 90% of the total cash proceeds for HAG over the next 3 months and the remain¬ing of 10% after that. HAG plans to use the proceeds towards their projects in Myanmar and to help repay some bank loans.
In the 1-H, HAG also sold one real estate project and the profit from this will also appear in the Q2 financial statement. In the 2-H, they plan to continue to sell some other real estate projects in Vietnam to build up some cash. These deals are still under negotiation however.
Based on these assumptions, HSC estimates 1-H FY2013 pre-tax profit (including a small profit from selling the hydropower projects) will to come at VND415 billion, (+97% y/y). Of which, we estimate pre-tax profit from core business will be flat at around VND215 billion or so. As the result, the company will have completed only 30% of the full year pre-tax profit plan. We also note that the hydropower income stream from those 6 projects will drop out of the 2-H FY2013 financial statement.
For FY2013, HSC has just revised our forecast for HAG. Accordingly, we forecast the company will deliver net sales of VND3,891 billion, (-11.7% y/y) while revised pre-tax profit are forecasted at VND764 billion, (+11% y/y). We also forecast the FY2013 net profit (attributable to HAG parent shareholders) would be around at VND510.8 billion, down 13% y/y from the VND404 billion in our previous note in May. Based on this forecast, FY2013 EPS would come to VND711 giving a FY2013 P/E of 28.68xs. We reiterate our Underperform rating on HAG.
SII will sell non-core assets to CII (Hold) in order to focus on water infrastructure segment
SII announced yesterday that they will restructure their investment portfolio to focus more on developing water infrastructure segment. To this end they will sell down unrelated assets. Accord¬ingly, they plan to sell their 26% stake in Ninh Thuan construction investment & development JSC at a price of VND57.2 billion and a 48.19% stake in Binh Trieu bridge & road construction and investment at a price of VND47.4 billion to CII (Hold), its parent company (hold 51% stake).
After the transaction, CII will hold a 99% stake in these two companies. We note that the total cost of these investments amounted to VND56.6 billion and VND65.6 billion respectively. Therefore, SII’s consolidated statement may show a loss of VND17.6 billion from the deal (entirely on the Binh Trieu sale) however this loss will be excluded in CII’s consolidated FS as it’s an internal transac¬tion. These assets originally belonged to CII; however they were sold to SII previously to enable the former to record some profits. And now they return.
In Q1, SII already sold a 40% stake in the Diamond Riverside project to CII at cost and they cur¬rently still hold a 40% stake. This asset also originally belonged to CII. This is located on an area of 4.15ha in Vo Van Kiet street (district 8), with a plan to build around 1,500 apartment units however this project has been delayed due to the current status of real estate market. SII still holds a 49% value of the right to collect toll fee in the Hanoi highway and Kinh Duong Vuong street at a book value of VND86 billion by the end of Q1 FY2013.
Recently, SII did say they have been in negotiation with a foreign strategic partner to sell their stake however they won’t disclose any further details on that until their AGM which will be held in August, FY2013. In line with their strategy which is focused on water infrastructure segment, SII bought a 90% stake in BOO Dai An Water Supply JSC and 23.28% stake of Long An Water Supply Ltd.
The company has not set a FY2013 target however in Q1, they disclosed a net profit of VND28 billion (33% y/y) thanks to a gain on the sale 3.75 million of CII shares (they sold off their entire holding) and then dividend received from their investments. At the current price, this stock is trad¬ing at a trailing PE of 5.6 times and historical PB of 1.3 times. SII has yet to prove its independence from CII; hopefully this is the beginning of a clearer investment focus for the company. The stock has gained on the news.
Masan Group to get US$175 million loan from JP Morgan. Substantial interest savings.
Masan Group (MSN – Outperform) have announced Masan Industrial – a subsidiary of Masan Con¬sumer (MSF) has received a loan of US$175 million for 3 years arranged by JP Morgan. Masan Industrial is a fully owned subsidiary containing a significant proportion of Masan Consumer’s operating assets.
This is draw down loan as before and represents a (1) refinancing of an existing US$108 million loan from JP Morgan which was taken out 2 years ago and still had a year to run (2) an additional US$67 million on top of the previous principal. The new interest rate is not disclosed but apparently allows for significant savings in terms of interest expense. And is part of ongoing efforts to reduce Masan’s cost of capital. Incidentally US$150 million of the total loan has been secured by MIGA; a World Bank affiliate.

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