Company reports

VNM[+11% - NEUTRAL] - Geopolitical Issue Hindered Demand in Key Export Market - 1H2017 Equity Update - 14 September 2017

14-09-2017 11:03:47

We downgrade Vinamilk (VNM) to NEUTRAL from BUY with a revised 12M DCF-based target price of VND 160,000 (previously VND 167,000) after lowering our export sales forecast. Key investment highlights for VNM in 2017-18F are: Geopolitical issue hindered demand in key export market; trade deal with China is yet settled. VNM reported total sales of VND 25.4trn in 1H17 (+11.5% YoY), with domestic sales up 17.1% YoY while export sales down -11.9% YoY. VNM comments that the robust domestic sales growth was attributable to 1) growth in drinking milk (mkt. share +3.9% vs. end-2016, now 58.4%) and drinking yogurt (mkt. share +4.1% vs. end-2016, now 38%), and 2) aggressive spending on marketing expenses (+17% YoY in 2Q17; +8% YoY in 1H17). On the other hand, the underperforming export activity is due to 1) sluggish demand caused by geopolitical instability in Iraq – VNM’s No.1 importer, 2) no sales has been made to China despite the MOU signed with Chinese partners last May, and 3) VNM is struggling to define a more sustainable and diverse export strategy (see risk section as below for more detail). Margins remain stable; tax incentives spur bottom-line growth. Though milk powder price – a primary input material – increased 40% this year on average (GDT), VNM’s material costs still grew in line with revenue in 1H17 (+10.3% YoY) as the company was enjoying low-cost materials pre-ordered in 2016. GPM, therefore, sustains at 48.7% (+10 bps YoY). The applicable CIT rate in 1H17 was 15.4% (1H16: 16.7%), which is 200 bps lower than the company-estimated CIT rate of 17.5% thanks to tax incentives at VNM’s new factories. Accordingly, 1H17 net earnings were VND 5,851bn (+17.3% YoY) while NPM hit the record-high of 23% (1H16: 21.9%). Long-term projection adjusted for lower export sales forecast. Given the addressed challenges that VNM is facing regarding overseas business, we lower our CAGR forecast for export sales over 2017-21F from 16.4% to 6.4%. For 2017, we estimate export sales to be VND 8,128bn (-6.5% YoY). We believe margin compression is likely in 2H17 when high-cost milk materials are weighted in production costs. Accordingly, we estimate 2017F GPM to be 47.2% (-50 bps YoY). See Figure 1 for estimate revisions of revenue and earnings in 2017-18F.

MWG[+22.9% - BUY] - Certain Rollout of BachHoaXanh Lifts Shareholder\'s Value - Equity Update - 18 August 2017

18-08-2017 15:51:02

We upgrade MWG from HOLD to BUY with a revised 12M TP of VND 131,000 – a 22% upside before dividend yield. This upgrade is mostly attributable to BachHoaXanh’s optimistic contribution into the group’s cash flows over 2017-21F, a factor that we ruled out in previous updates due to the uncertainty of BHX’s official rollout. Below are key investment highlights: BachHoaXanh (BHX): MWG’s spearhead into the Vietnam’s $64bn grocery retailo Competition landscape in grocery retail is fragmented, leaving BHX the opportunity to consolidate this market. GT channel generating 96.1% of grocery retail sales last year while the top 3 MT players made up only 3.3%. This means the opportunity for BHX to consolidate this market is enormous. Accordingly, we expect this chain to gain 1-2% market share in the next 5 years.o BHX is not far from discovering its winning profile. BHX sets long-term targets to achieve VND 1.3bn in average store sales (currently VND 800m) and 5% in EBITDA margin (6M17 -15%). These targets are feasible, in our opinion, considering the optimistic business performance at BHX’s newest store where we visited recently.o Ample room to increase selling price. Selling prices of fresh foods at BHX are c.10-30% lower than supermarkets and c.10% lower than wet markets, implying there is decent room to increase price without compromising volume. We expect the price rise would improve GPM by 10-20% from the current 12.4% over 2017-18F. TGDD: SSSG returns to positive. 1H17 revenue was VND 17.5bn (+24.1% YoY), with 62 new stores and SSSG returns to positive 1% last quarter after falling to -1% in 1Q17. We expect TGDD to continue improving SSSG in 2H17 when several top smartphones are scheduled to release, ending 2017 with SSSG of 5% (prior estimate: 8%) and sales of VND 34.7trn (+13.3% YoY); DMX: On the right track. Though maintaining our 2017 SSSG estimates for DMX at 17%, we raise our sales forecast to VND 24.7trn (+79.8% YoY) from VND 23.9trn based on the strong 1H17 performance (1H17 sales were VND 13.4bn, +139.5% YoY, with 148 new stores).

PNJ [+19.7% - BUY] - Good as Gold - 1H2017 Equity Update - 28 July 2017

28-07-2017 16:26:45

We attended PNJ’s 2Q17 analyst meeting and remain optimistic about the Company’s growth potential in 2017-18F. Thus, we reiterate BUY rating to PNJ with a revised 12M TP of VND 118,000 (previously VND 99,000) – a 16.3% upside before dividend yield – after raising our earnings estimates for 2017-18F by 14-16%. Below are key highlights from the meeting: 1H17 review: SSSG on the rise, earnings of core-businesses nearly doubledJewelry retail continued leading revenue growth. PNJ posted revenue of VND 5,507bn (+39% YoY) in 1H17, completing 54% of company guidance. Gold jewelry retail was key growth driver whose sales was up 46.6% YoY on the back of 1) expansive store network that reached 237 locations by end of 2Q17 and 2) skyrocketing SSSG of 28%.Earnings from core-businesses nearly doubled versus 1H16. NPAT was VND 378bn (+54% YoY) in 1H17, completing 63% of company guidance. By eliminating the VND 40bn non-operating income from the 1H16 P&L, net profit of PNJ’s core-businesses soared 85% YoY as no further provision for DongA Bank is booked this year. GPM was 17.3%, down 70 bps YoY, due to higher portion of gold bar that carries low margin (1-3%) in revenue structure. 2017-18F Outlook: Future prospect is good as goldStore expansion will peak in 2017-18F to boost top-line growth. PNJ plan to have 50-60 new stores in 2017 and 300 stores in total before the 30 years ceremony in April-2018, which we think possible. We estimate 2017-18 gross revenue to be VND 10,730 (+24.5%) and VND 12,313 (+14.8%) respectively, assuming SSSG of 21.5% in 2017 and 15% in 2018.Sustainable plans to improve operating efficiency. PNJ is working on IT solutions to minimize obsolete inventories and just implements new KPI policies to push sales productivity. Combining with no major provision is forecasted, we estimate GPM to hit 17.7% in 2017 (+120 bps YoY) and 18.4% in 2018 (+70 bps YoY). Following that, we estimate 2017-18 NPAT to be VND 757bn (+68% YoY) and VND 910bn (+20% YoY) respectively.Low capex investment means more free cash flow. The current factory is running at c.65% of the designed capacity of 4 million items per annum. Thus, capex investment for additional production line is not required. We estimate FCF to achieve 30.3% CAGR over 2017-22F.

NTC [+27.2% - BUY] - Earning Catalysts Support Long View - Equity Research - 28 July 2017

28-07-2017 15:34:22

1H17 result beats full-year plan. In 1H17, NTC recorded VND 73bn (+16% YoY) in revenue and VND 75bn (+130% YoY) net income. By the first half of FY17, NTC achieved 138% of this year earnings guidance. EPS arrives at VND 4,668. It is attributed to: (i) fast sale of NTU-2 and (ii) gaining better return yield for both loan and associate’s investment.Our 2017 – 2018 investment thesis are the following:(i) Focusing on the core business with favorable tax policy. We highly value NTC in terms of its internal strengths such as focusing on core business with big leasing areas, stable revenue streams as well as healthy financial structure.(ii) High entry barrier initiated by government’s IP master plan. Apart from VSIP-III, only five IPs were allowed to expand further 724ha areas of which NTC accounted for 48% (346ha) of possible new expansion. This may create an oligopolistic advantage to NTC when demand surges whereas other IPs’ supply is limited.(iii) Lower investment unit-cost. Acquiring land from rubber farms allows NTU-3 to possess relatively large area without residential compensation. This quickens the process and lowers unit costs. We expect NTU-3 to pay a relatively lower compensation price (less than VND 1bn / ha) than its competitor - VSIP III (c.VND 1.5bn / ha)Valuation: We value NTC using a blend of DCF and P/E multiple. Our 12-month price target deriving from both methods is VND 75,873 before cash dividend. With planned 2017 dividend of VND 3,000; our cum-dividend 12-month price target increases slightly to VND 78,873, implying 27.21% upside.

MWG [+13% - NEUTRAL] - Upside Potentials Were Priced-In - 1Q2017 Update - 13 June 2017

13-06-2017 11:25:25

We change MWG rating from BUY to NEUTRAL with a revised TP of VND 108,000 as we believe the current price has reflected most of potential upsides in the next 12 months. Below are key investment themes for MWG in 2017-18F: § DienMayXanh (DMX) as growth driver. MWG reported net revenue of VND 15,586bn (+61.9%) in 1Q17, accomplishing 24.7% of annual target. DMX was driving growth last quarter, as we expected, with sales hit VND 6,395bn (+152.4% YoY) versus VND 9,050bn of TheGioiDiDong (TGDD) (+27.8% YoY). DMX also recorded a healthy SSSG of 16-17% while TGDD witnessed negative SSSG of -1% for the first time due to (1) few smartphones categories were released in 1Q17 such as LG G6 and Sony Xperia XZ (release schedule in rest of 2017: Samsung Galaxy S8/Xiaomi Mi 6/Asus Zenphone 4 in 2Q17; Samsung Galaxy Note 8/iPhone 8 in 3Q17; LG V30/Xiaomi Note 3/Huawei Mate 10 in 4Q17), and (2) MWG is shifting its expansion focus from TGDD to DMX. Indeed, MWG opened only 49 new TGDD stores last quarter (1Q16: 82 stores), accomplishing 1/3 of 2017 target, while tripled its new stores for DMX (58 in 1Q17 vs. 22 in 1Q16), accomplishing 1/4 of 2017 target. The piloting BachHoaXanh (BHX) contributed VND 141bn into 1Q17 revenue with 27 new stores. Our research indicates BHX is yet profitable when it does not reach critical mass. Thus, we still rule out its further expansion in our forecast from 2018F onwards. By end April-17, MWG has 1,001 TGDD stores, 358 DMX stores and 85 BHX stores.   § Bottom-line growth was hindered by SG&A expenses expansion; Margin on the rise. NPAT was VND 558bn last quarter (+33.5% YoY), representing a slower growth than the top-line due to the 80.6% YoY growth of SG&A expenses. GPM hit the all-time-high of 17% in 1Q17 (+50 bps YoY), reflecting MWG’s larger purchasing power that earns the Company higher discount from suppliers. 1Q17 GPM of TGDD and DXM saw 17.5% (+30 bps YoY) and 16.5% (+70 bps YoY) respectively, beating our estimate that suggested GPM would slightly decline this year (see our note The Bet for Green Grocery for details of this thesis). Our analysis indicates margins would retreat in rest of year and drag down 2017F GPM to 16.5%, still a 30 bps increment versus 2016 figure and 40 bps increment versus our old estimate. We forecast SG&A expenses/Revenue ratio would climb to 12% this year (2016: 11.7%) to fuel top-line growth.

PNJ [+16% - BUY] - A New Beginning - 1Q2017 Equity Update - 03 May 2017

05-05-2017 14:57:41

We reiterate BUY rating to PNJ with a revised 12M TP of VND 99,000 (previously VND 91,000) – a 12.6% upside – after lifting our earnings estimates for 2017-18F by 2-3%. Key highlights for PNJ in 2017-18F are: § 1Q17 Review: PNJ starts the year on a solid footing. PNJ posted revenue of VND 3,149bn (+34.4% YoY) in 1Q17, with 5 new stores opened and 3 stores closed. SSSG was 25%, implying a significant improvement from the average 8% in 2016. NPAT reached VND 249bn, up 101% YoY or 19.3% YoY excluding the impact of provision for DongA Bank made in 1Q16. Jewelry retail and gold bar businesses, together accounting for 75% of total revenue, were key growth drivers as both recorded high double-digit growth of 43.7% YoY and 52.2% YoY respectively. Jewelry wholesale also achieved the healthy sales growth of 9% YoY, while sales of jewelry export, watches and accessories remained stable.   § 2017-18 Outlook: Key catalysts indicate upside potentials. The upbeat 1Q17 results have confirmed our good thinking about PNJ in 2017-18F. Key investment catalysts are: -          The plan to have 300 stores by 2020 to stimulate top-line growth would be achieved 2 years in advance with ~40 new stores in 2017 and 2018 each. -          PNJ has laid out solid strategic plans to expand its margins and acquire new customers from unbranded jewelry retailers who are controlling 60% of the market. -          The provision for DongA Bank is now PNJ’s unlocked assets, in case either the State Bank of Vietnam acquires DongA Bank for VND 0 or PNJ can dispose this investment.   For 2017F, we estimate net revenue of VND 10,050bn (+17.3%) and NPAT of VND 661bn (+46% YoY). Our model also indicates that sales will seasonally moderate in Q2 before picking up in Q3 and Q4. Following that, we estimate 2Q17 net revenue and NPAT to be VND 1,780bn (+11% YoY) and VND 112bn (+46.1% YoY) respectively.