[BSC Vietnam] Do You Think You’re A Rational Investor? (VNM, GAS) 12.07.2017

Summary

Stocks scored 0.63% gain following a slight up yesterday. All 10/10 industry sectors settled in the green, led by consumer staple (+1.26%)

VNM (VND 155.400/ share +1.6%/ Market Cap: USD 10 billion  – Target price: VND 190,000/share / Upside 20.5% / Div yield: 4% – P/E 2017 FW: 19.8x / P/B 2017

GAS (62,500 VND/Share / +4%, Market cap USD 5.1 bil/ Target price 72,000 VND/cp / upside 23.4% / P/E Forward 13.8x / P/B forward 0.7x / FOL 49%).

Do you think you’re a rational investor? Most people do. But the truth is that we are all Emotional Investors.

State Bank of Vietnam also reduced the maximum short-term lending interest rate in VND by 0.5% pa. My opinion is that stocks are fine as long as the rate is not raised.

Dear Value clients and partners,

·         Stocks scored 0.63% gain following a slight up yesterday. All 10/10 industry sectors settled in the green, led by consumer staple (+1.26%) and followed by the industrial (+0.98%), consumer discretionary (+1.05%) and healthcare (+1.11%). There is no sector on the downside, the bottom of the list is finance (+0.20%).

Today’s Markets:

·         Indexes, VN-Index +0.63%, Hnx-Index +0.14%, Upcom -0.01%

·         Active, HOSE: HQC, HAG, VVHG, ITA, DXG.   HNX: PVX, SHB, DST KLF, CEO.

·         Foreigner, Buy: VCI, VNM, DPM, HCM, HAG. Sell: CII, SSI, VCB, HSG, PPC.

·         Notice stocks:  NVL, HBC, CII, GAS, SBT, DST, PVX, VC3

·         Trading volume: ~232.1 million shares

·         Trading value: VND 4135.6 ~ 184.2 USD mil

·         Foreigner transaction Net: 3.92 mil USD  Sell 17.19 USD million and Buy 21.11 USD million

 

Corporate update:

 

·         VNM (VND 155.400/ share +1.6%/ Market Cap: USD 10 billion  – Target price: VND 190,000/share / Upside 20.5% / Div yield: 4% – P/E 2017 FW: 19.8x / P/B 2017 FW: 9x / FO available: 44.9% ~ 651 mil shares). Highly Efficient operation: the gross margin remained high around 48% despite higher (25%-30%) milk powder input price. This could be attributed to: (1) higher ASP thanks to premium products; (2) well control input material cost (rose by only 10% YoY in 1Q2017).

o   The gross margin could be expanded as the average milk powder input price signed for the 2H2017 is significantly lower (20-25%) than for the 1H2017.

o   Selling expense has just been tightened up in 1Q2017 (19% of revenue compared to 22.7% last year), and we expect VNM would keep saving this expense as Ms Lien asserted in 2017 AGM.

o   VNM is expected to keep the pace of revenue growth (around 15%) by expanding in ASEAN markets: Cambodia, Myanmar, and Thailand. For long term, VNM has signed the very first memorandum of exporting dairy products into China, a $30bn dairy market.

o   Catalyst: SCIC could divest more from VNM.

·         GAS (62,500 VND/Share / +4%, Market cap USD 5.1 bil/ Target price 72,000 VND/cp / upside 23.4% / P/E Forward 13.8x / P/B forward 0.7x / FOL 49%).  Our analyst had a visit to GAS last week, and here is what her noted on the stock:

o   Higher FO price: FO price is averaged at $303/mtu, up 35.7% compared to 2016 average. The FO price is currently at $292 and quite stable for the last 2 month. We expect the average FO price for 2017 to be at $280, up 25% yoy

o   Most of input price is fixed, which means most of rising in FO price will translate to profit of GAS. However, we note that the low-cost resources is running out and GAS has to rely more on higher-cost resources, which increases input cost of GAS over time.

o   Output is expected to stable until 2019, when major projects contribute including Sư Tử Trắng (~ 850 mtu/year ~ 8.5% current output), and Ca Rong Do & Sao Vang Dai Nguyet

o   Catalyst: (1) GAS is expected to receive payment for tariff adjustment in Cuu Long pipeline in 2014-2016, estimated at ~ VND 1,000 Bil in the end of 2017. (2) Possibility of state divestment to 60 – 70% ownership.

Comments:                                                         

·         Do you think you’re a rational investor? Most people do. But the truth is that we are all Emotional Investors. In the last 2 days, stocks recovered from a sharp but brief drop to finish mostly higher. Hence, Investors emotion changes from bearish to bullish so quickly. Let me remind you that the market still be supported by the rate drop. The amount of rate cut this time is not significant but the trend should not be under estimated. My opinion is that stocks are fine as long as the rate is not raised.

·         Macro flash: Policy rates reduced, boosting economic growth. From July 10, 2017, the State Bank of Vietnam will reduce policy rates. Accordingly, refinancing interest rates, rediscount rates, overnight lending rates in interbank electronic payment and loans to cover shortfall of capital in clearing payment by the SBV to banks decreased by 0.25% pa. This move will considerably reduce costs for credit institutions, thereby reducing interest rates on loans and supporting businesses.

In addition, the State Bank of Vietnam also reduced the maximum short-term lending interest rate in VND by 0.5% pa for credit institutions in some economic sectors. This decision will reduce lending costs for related business groups.

Cheers

Long Tran

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Link: https://seekingalpha.com/instablog/13489352-long-tran-thang/5011204-bsc-vietnam-think-rational-investor-vnm-gas-12_07-2017

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